LONG V ANZ NATIONAL BANK LIMITED COA CA708/2011

LONG V ANZ NATIONAL BANK LIMITED COA CA708/2011 [3 April 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA708/2011[2012] NZCA 132BETWEEN REGINALD ROBERT LONGAppellantAND ANZ NATIONAL BANK LIMITEDRespondentHearing: 19 March 2012Court: Harrison, White and Asher JJCounsel: P A Craighead for AppellantO J Meech and D D Watterson for RespondentJudgment: 3 April 2012 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is ordered to pay reasonable indemnity costs to the respondent, together with usual disbursements.REASONS OF THE COURT(Given by White J)Table of ContentsPara NoIntroduction [1]Factual background [3]High Court judgment [13]Submissions for Mr Long [15]The relevant legal principles [17]Application of s 176 of the Property Law Act 2007 [22]Result [29]Introduction[1] Mr Long appeals against a summary judgment entered against him for $454,944.63.1 Mr Long personally guaranteed the financial obligations owed by Bob Long Contracting Ltd (the Company) to the ANZ National Bank Ltd (the Bank). The amount of the judgment entered against him represents the money still owing to the Bank following a mortgagee sale of a property over which the Bank had a security, plus interest and indemnity costs.[2] The appeal is brought on the ground that the High Court Judge, Brewer J, erred in accepting that the Bank had complied with its duty under s 176 of the Property Law Act 2007 to take reasonable care to obtain the best price reasonably obtainable as at the time of the mortgagee sale. Mr Craighead, counsel for Mr Long, was particularly critical of the failure of the Bank to adduce any evidence from the real estate agent responsible for the sale.Factual background[3] The essential background facts are not in dispute.[4] Under a deed of guarantee executed in 2004 Mr Long guaranteed the obligations of the Company to the Bank. On 18 October 2007 the Company obtained a loan and overdraft facility from the Bank. Pursuant to a registered mortgage, which was executed on 24 October 2007, a farm property in Pokenoprovided security for the Company's obligations to the Bank under the 2007 loanagreement and overdraft facility. The property was an asset of the Bob Long Family Trust (the Trust). The registered proprietors of the property were the trustees of the Trust.[5] In October 2009, following default by the Company, Mr Long failed to comply with a demand by the Bank under the terms of the guarantee for $690,316.1 ANZ National Bank Ltd v Long HC Auckland CIV-2011-404-2741, 4 October 2011.Subsequently the Bank took steps to sell the property at Pokeno by way of mortgagee sale.[6] The Bank appointed Barfoot & Thompson, a reputable real estate agent, to market the property. The Bank also obtained valuations of the property, which initially estimated the likely forced sale price as between $450,000 and $525,000. The Bank received further advice from Barfoot & Thompson during the process as to price expectations.[7] The property was marketed over a reasonable period of time. Barfoot & Thompson was appointed two months prior to the auction and the marketing campaign was active for six and a half weeks. Advertising took place over a four week period prior to a public auction.[8] Barfoot & Thompson's marketing reports showed that it advertised theproperty for four weeks in three newspapers, erected a signboard at the property, printed brochures, and made contact with its existing client base and with neighbours to the property. Barfoot & Thompson also advertised that the property would be open to view on four occasions. The property was listed with its 62 branches and exhibited on four real estate websites. The marketing campaign generated interest in the property.[9] The property then went to auction on 1 December 2010 with a reserve of $500,000 set by the Bank, a figure higher than that recommended by Barfoot & Thompson. The auction was unsuccessful with the highest bid being $340,000.[10] Negotiations with the highest bidder were unsuccessful, as were attempts to gain offers from others who had expressed interest in the property prior to the auction. The Bank therefore agreed with Barfoot & Thompson that a further marketing campaign would take place in the new year. Unexpectedly, however, another purchaser put in an unconditional offer for $400,000 which included a prompt settlement prior to Christmas 2010. Barfoot & Thompson negotiated with the purchaser and obtained an increase to $415,000 including GST. The purchaser refused to increase that price further, rejecting a counter offer by the Bank of$425,000 including GST. The Bank then accepted the price of $415,000 including GST.[11] The agreement for sale and purchase showed that the parties turned their minds to GST and explicitly made the purchase price inclusive of GST if any.[12] On 6 January and 16 February 2011 the Bank wrote to Mr Long requesting payment of the amount still owing under his guarantee of the Company's obligations after the sale of the property. Mr Long did not make payment and on 5 May the Bank issued the summary judgment proceedings against Mr Long that are the subject of this appeal.High Court judgment[13] Brewer J rejected the submission for Mr Long that he had discharged his evidential burden on the possible ground of defence that the Bank had not exercised due care as mortgagee in the following respects:(a) The Bank did not follow the advice given by Barfoot & Thompson as to the full extent of the marketing campaign.(b) The Bank ought to have held off marketing the property until after the new year.(c) The Bank did not properly consider the GST position and should have known that the Trust was registered for GST. Making the purchase price GST inclusive would reduce the credit to Mr Long for the sale price.(d) There was no information as to how the purchaser was located (which could be relevant to what was appropriate to negotiations in the circumstances).[14] Brewer J entered summary judgment against Mr Long on the ground that:[17] I am satisfied that there is no merit in these submissions. The plaintiff [the Bank] has shown a careful and proper approach to the mortgagee sale. (I note that on several occasions the plaintiff contacted the defendant to enquire about the GST position of the company [sic] but received no response.) The matters raised by the defendant cannot realistically establish an evidential basis that would serve to overturn what are careful and considered actions by the plaintiff.Submissions for Mr Long[15] On appeal Mr Craighead repeated the submissions made in the High Court for Mr Long and emphasised that in failing to adduce evidence from the real estate agent involved the Bank had not proved that Mr Long had no arguable defence. A trial was necessary to avoid any injustice to Mr Long.[16] In the course of argument before us, however, Mr Craighead accepted that:(a) With a total debt of $690,316, the Bank would have been seeking on the mortgagee sale an amount as close to that figure as possible.(b) If the property had sold at the auction for $415,000 including GST, Mr Long would have had no complaint.(c) There was no evidence of any better offer once the auction had been unsuccessful and the price of $415,000 including GST had been obtained.(d) There was no evidence to question the bona fides of the purchaser.(e) The Bank's manager, Mr Morton, attempted to clarify the GSTposition of the Trust with Mr Long and his co-trustee Mr Williamson, but Mr Long did not respond and Mr Williamson indicated that he did not think that the Trust was registered for GST. As Mr Craigheadacknowledged, Mr Williamson's response was not helpful.The relevant legal principles[17] The principles to be applied in considering applications for summary judgment are well established and were not in issue on this appeal: Tilialo v Contractors Bonding Ltd;2 Krukziener v Hanover Finance Ltd;3 Mitchell v Trustees Executors Ltd4 and Herron v Westpac New Zealand Ltd.5[18] Equally, the relevant principles relating to the interpretation and application of s 176 of the Property Law Act 2002 are well established and were not in dispute. The leading case is Apple Fields Ltd v Damesh Holdings Ltd.6 In that case this Court emphasised that:7(a) The purpose of [the predecessor to s 176 was] to protect those to whom the duty was owed in the absence of any other incentive for a mortgagee selling the property to obtain the full economic value over and above the sum which will clear the mortgage.(b) The duty of care owed by the mortgagee is concerned with obtaining the best price reasonably obtainable as at the time of sale. As such,it does not qualify the mortgagee's right to decide in its own interest if and when to sell.(c) What constitutes reasonable care will, of course, always turn on the facts of the case.[19] In upholding the decision of this Court, the Privy Council in its advicedelivered by Lord Scott of Foscote said that the issue was a "commercial one, to beviewed in practical commercial terms". 8[20] A number of High Court decisions applying s 176 and its predecessor have also identified a range of relevant factors: see Harts Contributory Mortgages Nominee Co Ltd v Bryers;9 Crown Money Corporation Ltd v Pink-Martin;10 Public2 Tilialo v Contractors Bonding Ltd CA50/93, 15 April 1994 at [3].3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162at [26].4 Mitchell v Trustees Executors Ltd [2011] NZCA 519 at [35].5 Herron v Westpac New Zealand Ltd [2011] NZCA 544 at [28]–[32].6 Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA); aff'd [2004] 1 NZLR 721(PC).7 At [1], [49] and [50].8 At [24].9 Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP403-IMOO, 19December 2001 at [43].Trust v Ottow;11 Ibanez Ltd v Westpac New Zealand Ltd12 and Westpac New Zealand Ltd v Lamb.13[21] For present purposes we note the following specific points:(a) The statutory obligation is not to obtain the best price reasonably obtainable, but to take reasonable care to obtain the best price reasonably obtainable. That price might not necessarily be obtained.(b) When the property is sold in a forced sale, such as at a mortgagee sale, it is likely to sell at a substantial discount from the market value that the property would achieve in a sale undertaken by an owner not under financial pressure to sell.(c) Valuations lose much of their significance if reasonable care is taken, there has been a properly advertised and conducted auction, and the property has been sold at auction or by negotiation after the auction.14(d) What constitutes reasonable care will always turn on the facts of the case. The steps taken by the mortgagee in fulfilling the statutory duty have to be looked at in the round.(e) In considering the reasonableness of the care taken, the courts should be slow to second guess the actions of a mortgagee acting on apparently sound professional advice.1510 Crown Money Corporation Ltd v Pink-Martin HC Auckland CIV-2008-404-297, 5 September2008 at [32].11 Public Trust v Ottow (2010) 10 NZCPR 879 (HC) at [17].12 Ibanez Ltd v Westpac New Zealand Ltd HC Auckland CIV-2011-404-5263, 1 December 2011 at[83].13 Westpac New Zealand Ltd v Lamb [2012] NZHC 319 at [34].14 Mitchell v Trustees Executors Ltd at [68](c).15 Taylor v Westpac Banking Corporation (1996) 7 TCLR 177 (CA) at 182–183Application of s 176 of the Property Law Act 2007[22] Applying these principles in the present case we are satisfied for the following reasons that Brewer J was correct to decide that the undisputed evidence established that the Bank had complied with its duty under s 176 and that therefore Mr Long had no defence to the Bank's application for summary judgment.[23] First, with a total debt of $690,316, the Bank had a real incentive to sell the property for its full value. This was not a case where the economic value of the property exceeded the sum required to clear the mortgage.[24] Second, in retaining Barfoot & Thompson to sell the property, the Bank had taken appropriate steps to comply with its statutory duty. The evidence established that Barfoot & Thompson took all reasonable steps to advertise the property for sale prior to the auction.[25] Third, the auction on 1 December 2010 established that the best price then reasonably obtainable for the property was $340,000. Neither the valuations nor the reserve could establish a better market price.[26] Fourth, the subsequent sale for $415,000 including GST was a better price than the best offer made at the auction. The circumstances of this transaction established that there was then only one party genuinely interested in buying the property and that $415,000 including GST was the maximum price which that party was prepared to pay. The Bank was not obliged to defer the sale on the off-chance of a better offer from another party in the new year. Indeed in our view there was a real risk that in the new year a lower price would have been achieved[27] Fifth, there was in these circumstances no need for the Bank to adduce any further evidence from the real estate agent retained to conduct the sale. The undisputed facts speak for themselves.[28] Sixth, the evidence established that the Bank had taken every appropriate step to inquire about the GST position of the Trust and the Company and had received noadequate response other than the response from Mr Williamson which, as Mr Craighead acknowledged, was unhelpful. We also consider that a sale price exclusive of GST would have been unlikely to have been acceptable to the party who purchased the property.Result[29] The appeal is therefore dismissed and the summary judgment entered by Brewer J is upheld.[30] As Mr Craighead rightly accepted, in terms of the guarantee, the Bank is entitled to its reasonable indemnity costs and usual disbursements. There will be an order to that effect.Solicitors:Webb Morice, Auckland for AppellantMinter Ellison Rudd Watts, Wellington for Respondent