SOUTHLAND BUILDING SOCIETY V PARKER & ANOR HC AK CIV 2010-404-000202

SOUTHLAND BUILDING SOCIETY V PARKER & ANOR HC AK CIV 2010-404-000202 4 August 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2010-404-000202BETWEEN SOUTHLAND BUILDING SOCIETY Plaintiff AND ALBERT DAVID JOHN PARKER AND ELAINE RUTH PARKER AS TRUSTEES OF THE CUMBRIA PARK TRUST Defendants Hearing: 4 August 2010 Counsel: SM Dwight for plaintiff Appearance: CP Parker, given leave to appear for his parents (the defendants) Judgment: 4 August 2010 at 10:50am(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]Solicitors: Cavell Leith Pringle & Boyle, PO Box 799, Christchurch for plaintiff And To: A & E Parker, 2 Walton Street, RemueraThe application[1] The plaintiff seeks summary judgment against the defendants. [2] The plaintiff seeks judgment for $281,483.67 plus Judicature Act 1908 interest plus costs in accordance with the High Court Rules. [3] Judgment is sought against the defendants based on two agreements. The first is a rural season loan facility agreement dated 1 May 2008 under which the plaintiff made an advance to the defendants of $650,000. The second relates to a transactional facility agreement dated 22 September 2008 under which the plaintiff provided to the defendants a flexible credit facility up to a limit of $120,000. The amount claimed is the unpaid balance due under the two loans and after sale of a property which was offered as security had taken place and after giving credit for the receipt of the net proceeds from the sale of stockyards for the sum of $53,125.50.The opposition[4] There are, in essence, three specific matters raised by the defendants in opposition to the application for summary judgment. They are: a) The plaintiff's claim is fictional and the plaintiff lacks bona fides; b) The plaintiff has suffered no loss as it is insured against a loss under "mortgage lender insurance policies"; and c) The plaintiff has failed to discharge its duty of care pursuant to the Property Law Act 2007, s 176 in relation to the sale of the security property. [5] The matters raised in relation to the proceeds of the sale of stockyards can be disregarded because they were dealt with by an order made by Associate Judge Bell on 12 May 2010. The proceeds of sale of the stockyards have been credited against the amount claimed by the plaintiff.The court's approach to a summary judgment application[6] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the court that a defendant has no defence. In Krukziener v Hanover Finance Ltd1 guidance was given as to how that position should be approached by the court when determining a summary judgment application. The court said:The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried:Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).Background[7] The plaintiff entered into two loan agreements with the defendants. On 1 May 2008 a rural seasonal loan facility agreement was entered into. Pursuant to that agreement the plaintiff advanced to the defendants $650,000. [8] The plaintiff and defendants entered into a transactional facility agreement on 22 September 2008. Under that agreement the plaintiff provided the defendants with a flexible credit facility with a limit of $120,000. [9] The defendants gave security for both loans by way of a first registered mortgage over their property at 250 State Highway 1, Alma, Oamaru. [10] Under the transitional facility agreement the plaintiff had the right at its sole discretion to terminate the facility at any time and to demand the debit balance owing1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at 26.under that facility. The mortgage provided that moneys secured by the mortgage could be paid upon demand being made on the defendants. [11] Under the rural seasonal loan facility agreement the defendants were required to make monthly instalments. That was subject to the right of the plaintiff to require payment under the mortgage. The loan agreement further stated that the whole balance outstanding would become immediately due and payable in the event that any security given in respect of any loan guarantee or indebtedness of the borrower became enforceable. [12] On 26 May 2009 the plaintiff served demand on the defendants for the payment of the balance owing under the mortgage and the loan agreements. When the defendants failed to comply, the plaintiff served notice under the mortgage and under the Property Law Act 2007, s 119 on 7 June 2009. [13] The defendants failed to comply with the Property Law Act notice. The plaintiff exercised its power of sale over the defendants' property on 30 October 2009. [14] The net proceeds of that sale were applied towards payment of the sums which were due to the plaintiff under the loan agreements. That left a balance owing of $334,609.17. [15] On 11 May 2010 Associate Judge Bell directed that moneys which were being held in the plaintiff's solicitor's trust account, being the proceeds of sale of the stockyards in the sum of $53,125.50 be credited to the debt due to the plaintiff. The effect is to reduce the outstanding debt to $281,483.67. That sum remains unpaid and is the amount which the plaintiff now claims.The grounds in opposition analysed[16] Before I deal with the grounds that I have earlier identified in this judgment, there are a number of matters that require comment.[17] A number of matters are raised in an affidavit filed on the defendants' behalf by their son, Phillip Christopher Parker. [18] Mr Parker does not deny the existence of the loan agreements. He refers to his parents as the guarantors of the loans. That position is simply not supported by the loan agreements. [19] The loans were advanced to his parents as trustees of the Cumbria Park Trust. No limitation of personal liability is contained in the loan agreements. [20] Mr Parker complains about a lack of support for his parents by the plaintiff when they faced financial difficulty. No basis for any liability being imposed on the plaintiff to give such support is contained in the material that has been placed before me. [21] There is next a complaint that arises from a dispute which the defendants had with PGG Wrightson. There is no suggestion, however, that the plaintiff was ever aware of the dispute. No objection was made to the appointment at the time of PGG Wrightson to sell the security property. On the material placed before me I cannot see any evidence of any bad faith on the part of the plaintiff in its appointment of a selling agent in respect of the security property. I will consider the question of the sale of the security property in greater detail when I analyse the application of the Property Law Act 2007, s 176 to the facts of this case. [22] I consider the three specific matters raised in opposition. [23] The first is a claim that the plaintiff's claim is fictional and lacks bona fides. This allegation is plainly not supported on the evidence placed before me. The agreements are acknowledged. The funds have been advanced. The demand has been made. No payment has been made pursuant to those demands. There is simply no substance to this ground of opposition. [24] The next ground raised is an allegation that the plaintiff has suffered no loss as it is insured against any loss. The plaintiff's Invercargill debt manager hasconfirmed that it holds no such insurance. There is nothing in the material that would explain how such a policy might provide an excuse or basis for not making the payments which the defendants are obliged to make under the two loan agreements. I conclude there is no substance to this ground of opposition. [25] I consider the third ground in opposition. The allegation here is that the plaintiff has failed to discharge its duty of care pursuant to the Property Law Act 2007, s 176 in relation to the sale of the security property. [26] The Property Law Act 2007, s 176 provides:176 Duty of mortgagee exercising power of sale(1) A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale: (a) the current mortgagor: (b) any former mortgagor: (c) any covenantor: (d) any mortgagee under a subsequent mortgage: (e) any holder of any other subsequent encumbrance. (2) A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.[27] A number of general propositions from the authorities were summarised inCrown Money Corporation Ltd v Pink-Martin & Anor2 as follows: a) The Property Law Act 2007, s 176 and its predecessor of the Property Law Act 1952, s 103A codify the duty which, under the general law, a mortgagee exercising a power of sale would be taken to owe to the persons mentioned in the Property Law Act 2007, s 176: Apple Fields2 Crown Money Corporation Ltd v Pink-Martin & Anor HC Auckland CIV 2008-404-297, 5 September 2008 per Associate Judge Faire.v Damesh Holdings Ltd.3 I have already mentioned that this now has been extended to cover guarantors. b) The duty of care is concerned with obtaining the best price reasonably obtainable as at the time of sale: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd.4 It is a duty to take reasonable care. It does not necessarily follow that the best price reasonably obtainable will be achieved. c) The duty has to be measured at the time of the sale: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd.5 The duty arises at the time the decision to sell is made: Tse Kwong Lam v Wong Chit Sen and Others. 6 There is thus a need to analyse the steps taken once the decision to sell is made, up to the time of sale. d) The duty of care does not qualify the mortgagee's right to decide if and when to sell: Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd;7 Downsview Nominees Ltd v First City Corporation Ltd.8e) When deciding for the purposes of s 176 whether reasonable steps have been taken by a mortgagee to obtain the best price, the steps taken by the mortgagee and those acting with it must be looked at in the round. The issue is a commercial one to be viewed in practical commercial terms: Apple Fields v Damesh Holdings Ltd.9f) Assistance in determining the issue mentioned in (e) above can be found by considering the steps endorsed in Harts Contributory3Apple Fields v Damesh Holdings Ltd [2004] 1 NZLR 721 (PC) at 728.4 Agio Trustees Co Ltd & Anor v Harts Contributory Mortgages Nominee Co Ltd & Anor (2001) 4 NZ ConvC 193,480 at [70].5 Ibid at [75].6 Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 (PC).7 Agio Trustees Co Ltd & Anor v Harts Contributory Mortgages Nominee Co Ltd & Anor, above n 4, at [70].8 Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513.9 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.Mortgages Nominee Co Ltd v Bryers10 where the following matters were mentioned:[c] Where the security is substantial, or specialised property is involved, it will usually be necessary for the mortgagee to obtain and act upon specialised advice as to the method of sale: Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 (PC). Appointing a competent agent to sell does not discharge the mortgagee's duties, but since its duty is ultimately only one of reasonable care, putting the matter in the hands of a competent agent will usually go a long way towards discharging the mortgagee's duties. [d] In the normal course the proposed sale will need to be advertised with an adequate description of the property's attributes and, within reason, widely enough to attract all possible purchasers. In some cases this will need to extend to both general and specialist publications: See Kwong supra at p 61; Ansell v NZI Finance Ltd (unreported, Wellington Registry, A434/83, Quilliam J, 14 May 1984). [e] There is no obligation to postpone the sale in the hope of a better price later, or to break up the assets and sell in a piecemeal manner if this can only be carried out over a substantial period or at a risk of loss: Kwong supra at p 59. [f] When assets are sold by tender or auction, a reasonable period must usually be allowed for purchasers to inspect the property and arrange finance before submitting bids: seeFairer Fishing Co Ltd v Broadlands Finance Ltd(unreported, Timaru Registry, A35/77, 17 August 1984); discussed by Ross, supra, along with Ansell v NZI Finance Ltd.g) For the breach of duty to be actionable there must be proof of damage:Apple Fields Ltd v Damesh Holdings Limited.11[28] The property which was sold is variously described in the papers. It contains 30.2896 hectares. It is described in one of the valuation reports as a small rural lifestyle property located on the outskirts of Oamaru, fully irrigable, utilised for livestock grazing and for winter feed production. 29.3 hectares were described as good pasture and 1 hectare was described as fair pasture.10 Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP 403/00, 19 December 2001, at 43 per Fisher J.11 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.[29] The property was sold by the plaintiff as mortgagee for $540,000 plus GST to Montrea Trust, whose trustees apparently were JA & MJ Mulligan. The agreement is dated 22 October 2009. The contract provided for settlement on 20 November 2009. [30] The sale occurred as a result of a public auction. A reserve price had been fixed for the auction at $516,000 plus GST. [31] Prior to the auction the plaintiff obtained a valuation from Mr Hugh Perkins, a registered valuer. His report is dated 26 August 2009. It gave a current market value of $516,000 exclusive of GST. [32] The plaintiff appointed a reputable real estate agent, Mr Farmer of PGG Wrightson to market the property. PGG Wrightson prepared a marketing proposal for the property. That was viewed by the plaintiff and approved by it and the marketing took place over a period of approximately four weeks. The sale was extensively advertised on the PGG Wrightson website, in the New Zealand Farmer's Weekly, in the Waitaki Herald and in the Otago Daily Times. Nothing has been placed before me that suggests that the steps taken by the plaintiff did not measure up to the required duty of care. My assessment, necessarily, is based on the material placed before me. I find, therefore, no foundation for a potential defence that there has been a breach by the plaintiff of the obligations imposed on it by the Property Law Act 2007, s 176.The position advanced by Mr Parker on behalf of his parents today[33] Mr Parker advised me that his parents now did not oppose the entry of judgment. He further advised me that he had entered into an agreement with the plaintiff which provided for the periodic payments of the sum, for which I shall shortly enter judgment, to the plaintiffs. Ms Dwight confirmed to me that the plaintiff and Mr Parker wished me to record this position at the conclusion of the judgment. I do so as it may have some impact or consequence in the event that there is a breach of the agreement referred to by Mr Parker and a subsequent attempt to enforce this judgment.The judgment[34] I enter judgment for $311,728.44 which is calculated based on the claim of $281,483.67 plus interest pursuant to the Judicature Act and costs as calculated in counsel's memorandum of 4 August 2010. _____________________ JA Faire Associate Judge