SOUTHLAND BUILDING SOCIETY V FAWCETT HC HAM CIV 2009-419-000720

SOUTHLAND BUILDING SOCIETY V FAWCETT HC HAM CIV 2009-419-000720 17 March 2010IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV 2009-419-000720BETWEEN SOUTHLAND BUILDING SOCIETY Plaintiff AND CHRISTOPHER LOUIS FAWCETT Defendant Hearing: 16 March 2010 Counsel: SM Dwight for plaintiff GL Wilkin for defendant Judgment: 17 March 2010 at 4:00pmRESERVED JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]Solicitors: Cavell Leitch Pringle & Boyle, PO Box 799, Christchurch for plaintiff Clyde Law, PO Box 7086, Hamilton for defendantThe application[1] The plaintiff seeks summary judgment against the defendant for $1,248,461.91 plus interest in accordance with the Judicature Act 1908 from 4 May 2009 to judgment and solicitor/client costs. It was agreed by counsel that, if I resolved to enter judgment for the principal claimed, questions of interest and costs should be reserved for consideration in memoranda to be filed.Background[2] The plaintiff's claim arises from an alleged shortfall owing to the plaintiff under a loan agreement between the plaintiff and trustees of the CL Fawcett Family Trust made on 9 November 2007. The loan agreement was allegedly guaranteed by the defendant. The shortfall follows the sale of property at Tairua which had been provided as partial security for the loan. [3] For completeness sake, I record that there were two additional loans that were satisfied as a result of the sale of the security property.The opposition[4] The notice of opposition pleads two grounds, namely: a) A failure by the plaintiff to mitigate its loss arising from the defendant's breach of his obligation to repay the loan; and b) A breach of the obligation imposed on the plaintiff by the Property Law Act 2007, s 176. [5] Mr Wilkin, in his submissions, confirmed that the opposition advanced was now limited to an allegation that there had been a breach by the plaintiff of the obligation imposed on the plaintiff by the Property Law Act 2007, s 176.The court's approach to a plaintiff's summary judgment application[6] Both counsel adopted the summary of principle contained in the Court of Appeal judgment in Krukziener v Hanover Finance Ltd.1The 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).[7] On the issue of affirmative defences, it is appropriate to note the following observations: a) In Pemberton v Chappell2 the Court of Appeal said:If a defence is not evident on the plaintiff's pleading I am of opinion that if the defendant wishes to resist summary judgment he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff's right to have his case proceed to judgment without tendentious delay and a defendant's right to put forward a real defence.b) That position was further reinforced in Australian Guarantee Corporation (New Zealand) Ltd v McBeth3 where the Court said:Although the onus is upon the plaintiff there is upon the defendant a need to provide some evidential foundation for the defences which are raised. If not, the plaintiff's verification stands unchallenged and ought to be accepted unless it is patently wrong1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at 26.2 Pemberton v Chappell [1987] 1 NZLR 1 at 3.3 Australian Guarantee Corporation (New Zealand) Ltd v McBeth [1992] 3 NZLR 54 at 59.The mortgagee's obligation under the Property Law Act 2007, s 176[8] 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.[9] It is not contended that the sale of the security property was in breach of s 176(2). Accordingly, that needs no further comment. [10] What is required in this case is an assessment of the duty owed by the plaintiff to the defendant as the guarantor of the loan pursuant to the Property Law Act 2007, s 176 to see if there is a proper foundation for a defence that that duty has been breached.The mortgagee's duty of care – the law[11] In Crown Money Corporation Ltd v Pink-Martin4 I extracted a series of general propositions from authorities in relation to the mortgagee's duty of care which I now set out:4 Crown Money Corporation Ltd v Pink-Martin HC Auckland CIV-2008-404-000297, 5 September 2008 at [32].a) The Property Law Act 2007, s 176 and its predecessor, 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 Fields Ltd v Damesh Holdings Ltd.5 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.6 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. 7 The duty arises at the time the decision to sell is made: Tse Kwong Lam v Wong Chit Sen.8 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 9 ; Downsview Nominees Ltd v First City Corporation Ltd.10e) 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.115 Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 at 728 (PC).6 Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC 193,480 at [70].7 Ibid, at75.8 Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 at 77.9 Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd, above n 6, at [70].10 Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513.11 Apple Fields v Damesh Holdings Ltd, above n 5, at [729].f) Assistance in determining the issue mentioned in (e) above can be found by considering the steps endorsed in Harts Contributory Mortgages Nominee Co Ltd v Bryers12 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 Ltd.13[12] The defendant's concern and the basis for complaint from him lies in the substantial loss his trust has suffered as a result of the Trust's breach of its obligation to repay the loan and the subsequent mortgagee sale undertaken by the plaintiff as a result of that breach.12 Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP403im00, 19 December 2001 at [43], per Fisher J.13 Apple Fields Ltd v Damesh Holdings Ltd, above n 5, at [729].[13] The defendant's trust had purchased the subject property in September 2004 for $1,500,000. He says that he had spent $1,200,000 developing it to a point where subdivision of Stage One was between 85 per cent and 90 per cent complete. He had been able to effect conditional sales of sections in the subdivision totalling $1,124,000 at the time of the mortgagee sale. He had obtained a valuation some months prior to the mortgagee sale, apparently for refinancing purposes, which indicated a willing buyer/willing seller value of $1,955,000 in the condition in which the property was and $2,675,000 if the Stage One section of the subdivision was completed. [14] The mortgagee sale achieved $1,100,000. That led to the substantial shortfall owing and which is claimed in this summary judgment application of $1,248,461.91. [15] Although the circumstances outlined reveal a substantial loss on behalf of the defendant and his Trust that does not answer the specific issue which is raised in this case. The specific issue is whether there is a proper foundation for a defence that in undertaking the mortgagee sale the plaintiff breached the duty of care imposed by the Property Law Act 2007, s 176. [16] Mr Wilkin advanced the following matters which he submitted collectively provided a basis for a defence based on a breach of the duty of care imposed on the plaintiff by the Property Law Act 2007, s 176, namely: a) The result achieved as a result of the mortgagee sale was very low having regard to the purchase funds expended, the stage reached in the development of the subdivision and the existence of conditional sales of sections; b) The valuation which was obtained by the defendant and his Trust three months before the decision to exercise the plaintiff's right to sell gave a market value in the properties in existing condition of $1,955,000 and after completion of the development of $2,675,000. That valuation indicated a value substantially more than was actually achieved at the mortgagee sale;c) The valuation obtained by the plaintiff for the purpose of the mortgagee sale of $832,000 on a current market value basis and $660,000 on a for sale basis was unsatisfactory; d) Advertising the mortgagee sale had an adverse effect on the defendant's attempt to effect a sale to third parties; and e) By not erecting a sign on the property advertising the property, the opportunity of attracting some potential purchasers was potentially lost. [17] A number of additional matters were initially raised. Mr Wilkin abandoned them and, for that reason, I analyse them no further. The only additional comment that I make is that, in my view, Mr Wilkin was entirely justified in abandoning the additional matters because they clearly could not be supported on the authorities referred to earlier in this judgment, nor, when the evidence was carefully considered were they supported by the evidence adduced for the purpose of this application. [18] I deal firstly with the complaint that advertising the sale as a mortgagee sale had an adverse effect on the defendant's attempt to sell to third parties. Mr Fawcett, in evidence, said he had two interested parties. One was not identified. The one who was identified was a Mr Colin Hayward. Mr Hayward was at the auction that was conducted by the real estate agent appointed by the plaintiff. He was not, however, the successful bidder at the auction. What is apparent is that he obviously elected not to match the highest bid that was offered at that auction. There is simply no credible foundation for the proposition that the people that Mr Fawcett was discussing a possible disposal of the property to did not have an opportunity of bidding at the auction. Further, the defendant's evidence is that they were in fact present at the auction. Accordingly, there is nothing in the material before me on this matter that provides any foundation at all to suggest there was a breach of the duty imposed by the Property Law Act 2007, s 176. [19] The evidence further discloses that the property was the subject of a sign erected outside Richardson Real Estate Agents Tairua office, advertising the sale.That firm was jointly instructed with Lodge Real Estate, the auctioning real estate agents. The evidence discloses that an extensive advertising programme was undertaken in the New Zealand Herald, the Waikato Times, the Bay of Plenty Times, and another local paper. A full page colour flyer was prepared and was available to all purchasers and inquirers. The auction was held in auction rooms in Hamilton. That was the best place, in the view of the auctioning real estate agent, Mr Vernon, to hold an auction for this type of property. No evidence to the contrary has been advanced. There is no evidence to suggest that the parties with whom Mr Fawcett was dealing did not know about the auction. There is no evidence to suggest that any potential buyer did not know about the auction and thereby lost the opportunity to buy. [20] I have, in the previous paragraphs, dealt with, in part, the effect of advertising. Some comment, however, must be made on the defendant's complaint no sign was placed on the property itself advertising for auction. Equally, however, there is no evidence to suggest that such a sign would attract a purchaser interested in acquiring a development such as that undertaken on the subject property. This was a development. It was not a residential section. The marketing undertaken has not been directly challenged. Accordingly, I conclude that this aspect does not form the basis, even taken into account with any other matters, for concluding that there could be a proper foundation for a breach of the duty imposed by the Property Law Act 2007, s 176. [21] I deal next with the result achieved and the prior valuations. Again, it is necessary to record that the duty is concerned with obtaining the best price reasonably obtainable at the time of the sale. It is a duty to take reasonable care. It does not necessarily follow that the best reasonably obtainable will always be achieved. There is simply no evidence here to suggest that any potential purchaser who might have paid more than was achieved at the auction exists or, for that matter, would have been attracted to the auction in circumstances which might have led to the obtaining of a greater price. The plaintiff sought professional advice and followed a marketing plan. There was extensive advertising. Unfortunately for the defendant, no buyer could be found who was prepared to pay a purchase price approximating to that which the defendant and his Trust had spent on the property.The fact that no person could be found does not indicate that there was a breach of the duty imposed by the Property Law Act 2007, s 176, in particular when the evidence suggests that all practical steps to obtain the best price reasonably obtainable had been undertaken. [22] There is criticism of the valuation obtained by the plaintiff. In my view, it has no particular impact on the assessment of whether the breach of the duty of care imposed by the Property Law Act 2007, s 176 occurred in this case. That is because a reserve in excess of the valuation was set and, as I have found, all proper steps to market the property were undertaken by the plaintiff. [23] To summarise the position, there is no evidence before me to suggest that there existed some more appropriate method of marketing the property than was undertaken. There is no evidence to suggest that the auction programme that was undertaken was deficient in some way or that potential buyers did not have a proper opportunity to investigate the property with a view to attending and bidding at the auction. Although the defendant has advanced an affidavit from a valuer, there was no opinion expressed by the valuer as to what, in the market which existed at the time of the auction, was the best price reasonably obtainable for this property. When all of these matters are taken into account, it is difficult to see how there is any foundation that might be advanced by the defendant that might have any prospect of success in support of his claim that the plaintiff was in breach of the duty of care imposed by the Property Law Act 2007, s 176. [24] Accordingly, I am satisfied that the plaintiff is entitled to summary judgment in respect of the principal sum claimed. [25] In view of the fact that counsel agreed that questions of interest and costs should be reserved for memoranda to be filed in the event that agreement on those matters could not be reached, I provide specifically in the judgment that is entered for that.Judgment[26] Judgment is entered against the defendant for $1,248,461.91. I reserve for agreement in the first instance or, if no agreement, the submission of memoranda, on the appropriate sum to be entered in respect of interest on the sum for which judgment has been entered and also the quantum of costs to be paid to the plaintiff. If agreement on those matters cannot be reached, memoranda in support, opposition and reply shall be filed and served at seven-day intervals. The Registrar shall refer the file to me on receipt of the reply memoranda for consideration of the entry of judgment for the sums in respect of interest and costs. _____________________ JA Faire Associate Judge