HE v BANK OF NEW ZEALAND [2023] NZCA 381

HE v BANK OF NEW ZEALAND [2023] NZCA 381 [23 August 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA498/2022[2023] NZCA 381BETWEEN WENYUE HEAppellantAND BANK OF NEW ZEALANDRespondentHearing: 24 July 2023Court: Collins, Lang and Woolford JJCounsel: G J Thwaite and F F Teh for AppellantS A Armstrong and N J Robertson for RespondentJudgment: 23 August 2023 at 9.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs on a Band A basis for astandard appeal together with the usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Woolford J)[1] On 30 August 2022, Associate Judge Johnston entered summary judgment infavour of the Bank of New Zealand (BNZ) against Mr Wenyue He in the sum of$493,729.73 plus interest and costs.1 Mr He now appeals against the Associate Judge's1 Bank of New Zealand v He [2022] NZHC 2128 [High Court judgment].decision on the basis that he had counterclaims against the bank that should have goneto trial.Background[2] BNZ made a series of loans to Mr He totalling $3.21 million. The loans weresecured over a property owned by Mr He at 8 Ngapipi Road, Orakei, Auckland (theproperty). On 13 December 2016, after all the loans had been advanced to Mr He, theproperty was transferred from Mr He personally to Mr He and a company,Bella Trustee 130701 Limited (Bella), as trustees of the Queen's Trust. The transferoccurred with BNZ's knowledge and consent. Just over a year later, on 23 January2018, Bella was removed from the Companies Register.[3] Two loans had been repaid in full or part on 15 September 2015. Mr Hedefaulted on borrowings from February 2018. Enforcement action was commenced,but the loan account was current again by September 2018. The enforcement file wasclosed. However, in November 2018, after further default, BNZ recommencedenforcement action. BNZ's solicitor issued a default notice dated 22 March 2019under s 119 of the Property Law Act 2007 (the Act). The sale by BNZ as mortgageerelied on that notice.[4] The tendering process for the property closed on 23 July 2019. The highesttender was $1.915 million, whereas the value of forced sale had been assessed at$2.1 million. Eventually, the property was sold by private treaty for $2.01 million(GST inclusive) on 7 August 2019. BNZ allocated the proceeds of sale to outstandingindebtedness. BNZ calculated the sum owing as at 12 September 2019 to be$493,729.73. The Associate Judge gave judgment against Mr He for that sum plusinterest and costs.22 At [57]–[58].Grounds of appeal[5] The grounds of appeal are two-fold:(a) BNZ failed to serve the s 119 notice on each proprietor of a fee simpleestate in the mortgaged property at 8 Ngapipi Road, being Mr He andBella.(b) BNZ failed to use the required efforts to sell the property. In particular,it did not obtain access to the property, nor did it obtain vacantpossession for the purposes of sale. As a consequence, the property wassold at an undervalue.Service of s 119 notice[6] On 10 March 2014, Mr He entered into a loan agreement with BNZ to borrow$1.28 million to buy the property as an investment. Because Mr He lived in China, aclause allowing service on an agent in New Zealand was inserted into the loandocumentation as follows:9.2.4 Notwithstanding any other provision of the Facility Documents eachnotice, demand, document or other communication to be given, delivered ormade to in connection with the Facility Documents may be served on you bydelivering it during normal working hours to your address for service in NewZealand specified below for this purpose and for the attention of the personspecified below for this purpose:LAWRENCE YUAN, 20 EDWARDS AVE, HENDERSON, AUCKLAND.[7] On 31 July 2014, Mr He took out a further loan of $130,000. The sameprovision enabling service on Mr Yuan was included in the loan documentation.[8] On 22 January 2015, Mr He borrowed $900,000 to buy an investment propertyin Massey. The same provision enabling service on Mr Yuan was included in the loandocumentation.[9] Mr He sold the Massey property for a profit and repaid $783,186 to BNZ on15 September 2015. This was utilised to repay the first loan of $1.28 million in partand the second loan of $130,000 in full.[10] On 7 October 2016, Mr He borrowed another $900,000 to buy an investmentproperty in Pōkeno. At that time, Mr He advised BNZ that he had moved into theproperty as an owner/occupier, and accordingly he was not designated as an overseasperson for this loan transaction. The provision enabling service on Mr Yuan wastherefore not included in the loan documentation.[11] Notwithstanding that Mr Yuan was not specifically designated as Mr He'sagent in the October 2016 loan documentation, s 355(2) of the Act specificallyprovides that in cases where a person is out of New Zealand, a s 119 notice "may begiven to, or served on, an agent in New Zealand of the person." Agent is defined ins 358 as "a person who has actual or ostensible authority to receive, on behalf of thatperson a notice, cross-notice or other document required or authorised to be givenor served by a provision of this Act".[12] Mr He defaulted on his loan repayments in November 2018. In February 2019,BNZ instructed Verofi Limited (Verofi) to manage the default and recovery process.[13] On 22 March 2019, Verofi instructed BNZ's solicitors to issue a default noticeunder the mortgage and pursuant to s 119 of the Act on behalf of BNZ, which specifiedthat all amounts secured by the mortgage would become due and payable if thedefaults were not remedied by 7 May 2019. When BNZ came to serve its s 119 noticeon 26 March 2019, Mr He was not resident in New Zealand. BNZ's solicitorstherefore instructed a process server to locate and serve Mr Yuan who had beenappointed by Mr He as his agent for service and who had previously accepted serviceof an earlier s 119 notice on Mr He's behalf.[14] A copy of the s 119 notice was also sent by BNZ's solicitors to the registeredoffice of Bella by tracked courier post. There was no evidence that the s 119 noticewas received at the registered office. BNZ later ascertained that Bella had beenremoved from the Companies Register 14 months earlier, on 23 January 2018.[15] On 2 April 2019, Verofi advised Mr He by letter and email that a s 119 noticehad been served on Mr Yuan as his agent. On 19 April 2019, Mr He emailed Verofistating that he had funds coming in and would be able to pay $300,000 towards thearrears if he could have a five-day extension. Verofi replied on behalf of BNZextending the time for satisfaction of the s 119 notice for a week, to 14 May 2019.Mr He responded saying he would "make it happen".[16] On 13 May 2019, Mr He emailed Verofi requesting more time for payment andadvising that he had sold a gold mining project to a Chinese investor, and he would bepaid 50 per cent of the price in June. Mr He also said in relation to market values"[you] may not get what [y]ou want, because [of] current house market".[17] On 21 May 2019, Verofi advised Mr He that BNZ had declined to furtherextend the time for satisfaction of the s 119 notice. On 22 May 2019, Mr He calledMr Gilmore of Verofi who advised him that BNZ was proceeding with its enforcementaction and gave him a general outline of the next steps in the mortgagee sale process.Mr Gilmore told Mr He that Verofi would now arrange for an agent's appraisal and lethim know that he could repay all amounts outstanding anytime before a mortgageesale occurred.Associate Judge's decision[18] After reviewing the statutory requirements under ss 353, 355(2), 358 and 359of the Act, the Associate Judge could see no flaw in the process followed by BNZ andconsidered that the s 119 notice was effectively served on Mr Yuan as Mr He'snominated agent. The evidence established that Mr Yuan had ostensible and probablyhad actual authority to receive the s 119 notice.3[19] The Associate Judge also rejected the submission that the s 119 notice shouldhave been served on both Mr He and Bella.4 By the time BNZ came to serve its s 119notice, Mr He was the sole trustee of the Queens Trust and BNZ's obligation was onlyto serve Mr He in his capacity as trustee.3 At [42].4 At [38]–[39].Appellant's position[20] Mr He submits that Mr Yuan was not his agent for service, ostensible orotherwise. The clause relied upon by BNZ in the loan documentation for the first threeloans does not use the term "agent" for Mr Yuan, but merely identifies an address forserving documents required by the lending contract or credit legislation. BNZconsciously decided not to include the clause for the loan entered into on 7 October2016, which is said to be the subject of the action.[21] By letter dated 11 May 2018 in relation to an earlier default, BNZ's solicitorsrequested Mr He elect one of three ways he could be served with a s 119 notice. Atthat time, it does not appear that BNZ were relying on the clause in the loandocumentation. No documentation provided by BNZ is said to contain a clauseappointing an agent.[22] Mr He further submits that Bella should have been served with the s 119 noticeas one of the registered proprietors of the property. A process server should have beensent to the registered office to ensure service on the company, even though it had beenremoved from the Companies Register. Removal was a form of limbo, and thecompany could be restored to the Register by the Registrar of Companies or by orderof the Court. Service was also required on the Secretary to the Treasury in terms ofs 355(7), which provides:355 Person to or on whom document to be given or served in specialcases(7) If the person is a company that has been removed from the NewZealand register or an overseas company that has been removed fromthe overseas register, or is a body corporate that has otherwise ceasedto exist, the document must be given to, or served on, the person whois or is acting as, or a person who is an agent of, the Secretary to theTreasury.Respondent's position[23] BNZ submits that the s 119 notice was properly served on Mr He as the soletrustee of the Queens Trust and as the borrower of the debt secured by the mortgagein favour of BNZ.[24] Mr He was properly served by service on his agent Mr Yuan, whoacknowledged receipt and accepted service on behalf of Mr He. Mr He was told inwriting that this had occurred. The first time he took issue with Mr Yuan as his agentwas in response to this proceeding. Quite apart from the clause in the loandocumentation, pt 7 of the Act permits service of a s 119 notice on an agent in thespecial case of a person being outside New Zealand.5[25] Service on Bella was not required as it had been removed from the CompaniesRegister and was no longer in existence. It had previously held the property as a jointtenant with Mr He, but its interest had passed to Mr He in terms of s 72(2)(a) of theAct.72 Body corporate may hold property as joint tenant(2) If a body corporate is a joint tenant of property, its interest as jointtenant devolves on the surviving joint tenant in the following cases:(a) in the case of a company, if it is removed from the NewZealand register:[26] BNZ's obligation under s 119 was to serve the "current mortgagor". The"current mortgagor" was Mr He as the sole trustee of the Queens Trust.Discussion[27] We are of the opinion that Mr He was properly served with the s 119 noticeand that service on Bella or the Secretary to the Treasury was not required. Like theAssociate Judge, we can see no flaw in the process followed by BNZ.5 Property Law Act 2007, s 355(2).[28] We make five points.[29] First, the service clause inserted in the loan documentation should not beinterpreted as excluding service of documents relating to the mortgage or othersecurity documents. A purposive interpretation of the words "facility documents"contained in the clause includes any relevant security documents.[30] Second, s 355 of the Act allows for personal service on an agent if the personis out of New Zealand. An agent is defined in s 358 as a person who has actual orostensible authority to receive on behalf of that person a document required to beserved by a provision of the Act. Clearly Mr Yuan had at least ostensible authorityfrom Mr He. Mr He had nominated Mr Yuan, a real estate agent with whom he hadworked closely on various property transactions, as a person on whom documentationmay be served in respect of all loans except the last loan advanced on 7 October 2016.That omission to include a service clause in the last loan was on the basis that he toldBNZ he was now resident in New Zealand. Section 358 was, however, still applicableand allowed service on an agent if the person to be served was out of New Zealand,even if there was no service clause in the loan documentation.[31] Third, Mr He (and Vosper Law on his behalf) remained in contact with thedefault management team at Verofi throughout the process and did not raise an issueor concern about Mr Yuan not being his agent for service of the s 119 notice. Evennow, there is no direct evidence from Mr He disputing Mr Yuan's authority.His affidavit in opposition is silent on the matter. It was also not pleaded as part of hisdefence and counterclaim and was not relied on as a specific ground of opposition inhis notice of opposition.[32] Fourth, there was no obligation to serve the s 119 notice on Bella. It had beenremoved from the Companies Register and while application could be made for itsrestoration, it was not a registered company at the time of issue of the s 119 notice.It was therefore not a current mortgagor on whom a s 119 notice had to be served.[33] In terms of s 72(2)(a) of the Act, its interest as joint tenant in the propertydevolved on to Mr He as surviving joint tenant the moment it was removed from theCompanies Register. There is no reason to depart from the ordinary meaning ofdevolve, which is the transfer of property from one owner to another.[34] Fifth, service was not required on the Secretary for Treasury either.Section 355(7) of the Act which refers to service of documents on the Secretary to theTreasury does not apply because service of the s 119 notice on Bella was not required.It had no interest in the property.Sale of the property[35] Under s 176 of the Act, BNZ had "a duty of reasonable care to obtain thebest price reasonably obtainable as at the time of sale".[36] BNZ engaged experts to assist it with the sale process—Verofi to manage theprocess, Barfoot and Thompson to market the property and Opteon New ZealandLimited (Opteon) to value the property.[37] Barfoot and Thompson recommended a four-week marketing and tender saleprocess. Opteon assessed the value of the property on a forced sale basis as$2.1 million.[38] The property was tenanted.[39] On 21 May 2019, Verofi wrote to the tenants advising them of the sale processand requesting them to allow reasonable access to a valuer and a real estate agent.On 5 June 2019, Barfoot and Thompson provided a marketing proposal. It noted thatthe tenants were unwilling to allow access without the consent of the propertymanager. Barfoot and Thompson recorded that they had attempted to contact theproperty manager numerous times to organise a viewing but had been unsuccessful.On 20 June 2019, Verofi advised Mr He that the property would be marketed for saleby tender. It sought his and the tenant's co-operation to enable potential purchasers tofully view the property. On the same day it wrote to the tenants seeking their co-operation to obtain access for open homes and viewings.[40] Between 25 June and 2 July 2019, Barfoot and Thompson attempted to contactthe tenants without success. Between 3 and 10 July 2019, the property manager didnot respond to Barfoot and Thompson's messages requesting access. Between 11 and17 July 2019, Barfoot and Thompson was in contact with the tenants, who agreed toconsider allowing them through the property later in the week (which did not happen).In the end, no access was available to potential purchasers over the four-weekmarketing period.[41] On 23 July 2019, tenders for the property closed with Barfoot and Thompsonreceiving six offers. Verofi instructed Barfoot and Thompson to go back to the highestfour tenderers to see if they would increase their offer, but this was unsuccessful.[42] Barfoot and Thompson were then instructed to relist the property and continuemarketing. On 7 August 2019, Barfoot and Thompson received an unconditional offerfor the property. Following negotiations, the property was sold for $2.01 million.Associate Judge's decision[43] The Associate Judge considered that Mr He's contention that BNZ breachedits statutory duty of taking reasonable care to obtain the best price reasonablyobtainable at the time of the sale had no prospect of succeeding. While he acceptedthat BNZ did not obtain the fair market value of the property, that is not what s 176 ofthe Act required.6[44] The Judge considered it reasonable for BNZ to follow the advice of anexperienced real estate agent with respect to the length of time needed to market theproperty.7 Further, after a properly concluded tender process and in light of the agent'ssubsequent advice that a sale of $2 million may need to be considered, the Judgeconsidered that the final sale price could be reconciled with Opteon's initial valuation.86 High Court judgment, above n 1, at [50].7 At [52].8 At [52].Appellant's position[45] Mr He submits that access to the property was essential to achieve the bestprice reasonably obtainable. Barfoot and Thompson knew that to be the case.It expressed concern in weekly marketing reports over the lack of access to theproperty and the effect this could have on offers.[46] Mr He further submits that BNZ was able to solve the problem of access. It hadwide powers to inspect or take possession of the property pursuant to its standardmortgage terms. Yet it did not exercise any of these powers. Mr He submits that themarket value of the property was considerably more than the sum of $2.01 millionactually achieved.Respondent's position[47] On the other hand, BNZ submits that with a total debt of more than $2.3 millionit had every incentive to sell the property at full value. It engaged experts to assist itwith the sale process. Barfoot and Thompson did everything within its power to obtainaccess to the property. Later in the process, Barfoot and Thompson updated its adviceto estimate a sale range closer to $2 million was likely. BNZ submits that the tenderprocess was sufficient to test the market and established the highest unconditionaltender obtainable was $1.915 million. The subsequent sale for $2.01 million wasbetter than the highest unconditional tender.Discussion[48] We do not accept that lack of access to the property in and of itself would be abreach of the duty of reasonable care in s 176 of the Act to obtain the best pricereasonably obtainable. In the present case, we share the view of the Associate Judgethat, at trial, Mr He would be unable to establish a breach of s 176.[49] We make four points.[50] First, while access to the property would have assisted Barfoot and Thompsonto market the property, there were plans and photographs of the exterior and interiorof the property available from the previous sale for $1.6 million in 2014 available ondifferent property websites. It can reasonably be assumed that all potential purchaserswould have viewed the property on different property websites.[51] Second, there was no obligation on BNZ to utilise its powers under themortgage to gain possession of the property prior to any marketing and tender saleprocess. Counsel for Mr He was critical of the reasons advanced by BNZ for notexercising its powers to gain possession of the property, but we accept that there wouldhave been some further delay and costs. Nor should BNZ be required to offer afinancial inducement to the tenants which counsel for Mr He suggested could havebeen one way to secure access.[52] Third, the primary finding of the Associate Judge that Mr He chose not toengage with the requests for Verofi on behalf of BNZ for access is not challenged. Weagree with counsel for BNZ that Mr He cannot complain about the sufficiency ofBNZ's steps in relation to access when he failed to engage with Verofi's requests foraccess.[53] Fourth, the final sale price was not unreasonable. It can be reconciled with theinitial valuation BNZ received from Opteon of the minimum recommended sellingprice at $2.1 million on a forced sale basis. Mr Davis, the Barfoot and Thompsonagent engaged by BNZ, advised BNZ during the course of the marketing process thata sale closer to $2 million was likely.Result[54] The appeal is dismissed.[55] The appellant must pay the respondent costs on a Band A basis for a standardappeal together with the usual disbursements.Solicitors:Millennium Law, Auckland for AppellantSanderson Weir, Auckland for Respondent