WESTPAC NEW ZEALAND LIMITED V SAGECORP LIMITED AND ANOR HC AK CIV 2010-404-001171

WESTPAC NEW ZEALAND LIMITED V SAGECORP LIMITED AND ANOR HC AK CIV 2010-404- 001171 3 August 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2010-404-001171BETWEEN WESTPAC NEW ZEALAND LIMITED Plaintiff AND SAGECORP LIMITED First Defendant AND MALCOLM DUNCAN MAYER Second Defendant Hearing: 3 August 2010 Counsel: I Rosic for plantiff No appearance for second defendant Judgment: 3 August 2010 at 10:44am(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]Solicitors: MinterEllisonRuddWatts, PO Box 3798, Auckland for plaintiffAppearances[1] Counsel for the second defendant sought, by memorandum, leave to be excused from appearances and on behalf of the solicitor on the record for the second defendant leave to withdraw as solicitor for the second defendant. I sought from counsel, and obtained his advice, that the second defendant had been notified as to the special fixture for this proceeding. Counsel confirmed that position. The second defendant was called. No appearance was entered.The application[2] The plaintiff seeks summary judgment against the second defendant. The court has been advised that the first defendant has been placed into liquidation. No consent has been given or order has been made pursuant to the Companies Act 1993, s 248(1)(c) which justify the continuation of the proceeding against the first defendant. [3] The plaintiff seeks judgment for $410,645.18 plus interest at the default contract rate of 11.29 per cent plus costs on a solicitor/client basis. There was no proof presented to me today of the interest due at the default rate of 11.29 per cent from 27 January 2010 to today's date. Nor was I provided with evidence as to the solicitor/client costs sought. Provision is made at the conclusion of this judgment for a memorandum and an appropriate affidavit to be filed covering both matters. My intention is that judgment will be entered separately for those matters on satisfactory proof being provided. [4] Judgment is sought against the second defendant based on the second defendant's guarantee of three loans made by the plaintiff to the first defendant. The amount claimed is the unpaid balance due under the three loans and after sales of property which were offered as security had taken place.The opposition[5] The grounds advanced by the second defendant and pleaded in his notice of opposition, in summary, are: a) The plaintiff has failed to make demand on the second defendant as guarantor for the sums allegedly owed by the first defendant to the plaintiff; b) The plaintiff has failed to serve the second defendant with the required notices under the Property Law Act 2007, ss 119, 121 and 122; c) The plaintiff has failed to discharge its duty of care pursuant to Property Law Act 2007, s 176 in relation to the sales of the security properties; d) The plaintiff has failed to serve any demand on the second defendant for repayment of the remaining sum allegedly due by the first defendant to the plaintiff following the sales of the securities; and e) The plaintiff exercised its mortgagee power of sale without first exercising its power against the second defendant as guarantor.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 left1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at 26.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] On 27 November 2007 the plaintiff entered into a written choices home loan agreement under which the plaintiff made available to the first defendant a loan facility to a maximum of $608,000.00. [8] On 17 December 2007 the plaintiff entered into a written choices home loan agreement under which the plaintiff made available to the first defendant a loan facility to a maximum sum of $900,000.00. [9] On 18 December 2007 the plaintiff entered into a written choices home loan agreement under which the plaintiff made available to the first defendant a loan facility to a maximum sum of $300,000.00. [10] The first defendant's obligations under the three loan agreements were secured by first mortgages registered over a property located at Unit 10A, 2 St Martin's Lane, Grafton, Auckland and a property at Unit 12A, 2 St Martin's Lane, Grafton, Auckland. [11] The second defendant entered into a written guarantee under which he guaranteed the first defendant's performance of its obligations under the three loan agreements and mortgages. The guarantee was entered into on 28 November 2007. [12] On 7 April 2009 the first defendant was in default under the loan agreements and the mortgages.[13] The plaintiff alleges that it issued notices under the Property Law Act. When the defaults remained unremedied it took steps to sell the properties that were offered by way of security. Those properties were sold. The net effect of the sale was that the loan under the first loan agreement was satisfied in full and the loan under the third agreement was satisfied in full. The plaintiff claims that there remained a shortfall due in respect of the second loan agreement of $409,094.21. With interest as at 27 January 2010 that sum had increased to $410,645.18. The plaintiff now seeks judgment for that sum together with interest in accordance with the default interest provisions of the second loan agreement.The grounds in opposition analysed[14] The first and second grounds in opposition referred to in [5]a) and [5]b) of this judgment can be analysed together. They are simply not supported by the facts. [15] On 9 October 2009 the second defendant's solicitor, Mr Pearson of Davenports City Law, wrote to the plaintiff's solicitors as follows:We have been asked to act on behalf of Sagecorp Limited ("the company") and Malcolm Duncan Mayer ("Mr Mayer") (the company and Mr Mayer together "our client") in relation to the above matters. 8. Our client wishes to assure Westpac that it is taking urgent steps to remedy the default situation: a) in that vein, our client has asked us to convey that for the purposes of any further notices or correspondence to either the company or to Mr Mayer in respect of the above mortgages and the loans secured by them, either of those entities may be served by notice at our offices or through correspondence to our fax or post box.[16] On 20 October 2009 a letter with Property Law Act notices addressed to the first and second defendants were sent by facsimile to the second defendant c/o Mr Pearson to the facsimile number of Davenport City Law. [17] Paragraph 4 of the Property Law Act notice addressed to Mr Mayer contained the following:You as guarantor of the obligations of the mortgagor are liable to pay all principal, interest and other money owing under the mortgage and the mortgagee makes demand on you to pay all money due and owing under the mortgage as specified in the notice attached.[18] The attached notice addressed to Sagecorp Ltd contained a notice specifying the defaults under the mortgage and showing a total then outstanding requiring payment by Mr Mayer of $26,720.37. [19] The above facts are the reasons why I conclude that there is no substance to the first and second grounds of opposition advanced in the second defendant's notice of opposition. [20] I consider the third ground in opposition – the allegation that the plaintiff has failed to discharge its duty of care pursuant to the Property Law Act 2007, s 176 in relation to the sales of security properties. [21] 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.[22] 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 Fields 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.82 Crown Money Corporation Ltd v Pink-Martin & Anor HC Auckland CIV 2008-404-297, 5 September 2008 per Associate Judge Faire.3Apple 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.e) 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 Contributory 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.9 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.10 Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP 403/00, 19 December 2001, at 43 per Fisher J.g) For the breach of duty to be actionable there must be proof of damage:Apple Fields Ltd v Damesh Holdings Limited.11[23] The allegation made by Mr Mayer in his affidavit is that the mortgagee sale that was conducted produced a low price. The second defendant refers to registered valuations that had been obtained approximately two years before the sales of the properties concerned. In respect of the property at 10A, 2 St Martin's Lane, Grafton. Mr Mayer said the valuation was $770,000 as at 19 November 2007. In respect of the property at 12A, 2 St Martin's Lane, Grafton he said the valuation as at 10 December 2007 was $2,100,000. [24] The plaintiff obtained valuations of the properties from valuers in April 2009. On 27 April 2009 Seagar & Partners, registered valuers, gave a mortgagee sale appraisal for 10A, 2 St Martin's Lane, Grafton of $580,000 to $630,000. [25] On 27 April 2009 Seagar & Partners, registered valuers, gave the plaintiff a mortgagee appraisal in respect of 12A, 2 St Martin's Lane, Grafton of $1,100,000 to $1,200,000. [26] In August 2009 two real estate agents from different real estate companies submitted market appraisals to the plaintiff. Ms Gillgour at Harveys Real Estate gave a forced sale appraisal in respect of 10A, 2 St Martin's Lane, Grafton of $530,000 to $550,000 and a forced sale appraisal for 12A, 2 St Martin's Lane, Grafton of $1,100,000 to $1,180,000. [27] Mr Cashmore of Ray White Real Estate gave a forced sale valuation for 10A, 2 St Martin's Lane, Grafton of $450,000 to $500,000 and a forced sale valuation in respect of 12A, 2 St Martin's Lane, Grafton of $800,000 to $900,000. [28] The plaintiff instructed Harveys Real Estate to undertake a marketing campaign for the sale of the properties. The second defendant also engaged separate real estate agents to attempt to sell the properties.11 Apple Fields v Damesh Holdings Ltd, above n 3, at 729.[29] On 9 October Mr Pearson, the solicitor for the second defendant, requested the plaintiff to defer the tender closing date for the properties. The plaintiff agreed to move the tender closing date from 22 October to 24 November. The effect of that was to increase, by a further four weeks, the marketing of the properties and, in particular, the advertising of them in the New Zealand Herald. [30] On or about 30 November the plaintiff accepted an offer of $570,000 for the apartment at 10A, 2 St Martin's Lane, Grafton. That was the highest offer received. [31] On 17 December 2009 the plaintiff received a market appraisal for 12A, 2 St Martin's Lane from Seagar & Partners, registered valuers. It confirmed its earlier April report. On 21 December 2009 the plaintiff accepted an offer in respect of 12A, 2 St Martin's Lane for $1,015,000 which was the highest price received as a result of the marketing campaign. [32] I mention that the second defendant had instructed real estate agents. No offers were presented to the plaintiff above the prices that were actually achieved for the two properties. [33] In the material just summarised I can find no evidence of a breach of the duty of care imposed by the Property Law Act 2007, s 176 on the plaintiff's part. There was a full marketing programme. The real estate agent who had given the highest appraisal was the agent appointed to effect the sale. The opportunity was given to the second defendant's real estate agent to present offers. None were presented at figures higher than the figures accepted for the two security properties. Nothing has been placed before me to suggest that any section of the potential market had not been properly explored for the purposes of ensuring that the best price reasonably obtainable could be obtained. Indeed, the evidence placed before me shows that there had been, at the time, a proper testing of the market. No suggestion has been made that the method of sale adopted was not appropriate for the properties concerned. The fact that there has been a significant deterioration in the market has more to do with the economic conditions which were in existence at the time of the sale rather than any failure on the part of the plaintiff. I therefore conclude that there has been no breach by the plaintiff of the duty of care owed to the second defendantpursuant to the Property Law Act 2007, s 176. Nor can I see any proper basis that could be raised indicating that such a defence has any foundation for it. [34] Accordingly, I reject the third ground in opposition. [35] Although not specifically raised in the notice of opposition, Mr Mayer, in his affidavit, alleges that the plaintiff did not advise him of the sale of the properties. Once again there is no proper foundation for that allegation. On 2 December 2009 the plaintiff's solicitors wrote to Mr Pearson, Mr Mayer's solicitor, advising him of the sale of 10A, 2 St Martin's Lane, Grafton. On 21 December 2009 the plaintiff's solicitor wrote to Mr Pearson advising him of the sale of 12A, 2 St Martin's Lane, Grafton. That advice in each case was given as a result of the direct request from the second defendant's solicitors to provide full advice, service of notice, etc to the solicitor concerned. There is simply no foundation therefore for Mr Mayer's complaint that he was not advised of the sales. [36] The fourth ground in the notice of opposition referred to in [5]d) of this judgment alleges a failure to serve any demand on the second defendant following the sales of the security properties. Once again, there is simply no substance to this. The plaintiff wrote to Mr Pearson, the second defendant's solicitor, on 27 January 2010. The letter confirmed settlement of the sale of the two security properties. It advised that the shortfall was approximately $415,000. It enclosed a statement showing the precise balance due as at 29 December 2009 of $409,094.21. The letter was sent to the second defendant's solicitors. There is no foundation for the fourth ground of opposition. [37] The final ground of opposition alleges that the plaintiff exercised its powers as mortgagee without first exercising the power against the second defendant as guarantor. I was not given the benefit of any submission in relation to this ground in opposition. There was nothing in the papers before me to suggest that there was any foundation for it. Indeed, the guarantee signed by the second defendant confirms, by its terms, that there is simply no foundation for this ground of opposition. [38] Clause 16 of the guarantee provides:16. What happens if the Secured Parties have other security?Any security is independent of this document. Nothing affecting the security will affect your liability under this document.For example, you will still be liable, despite:- Any change in terms of the security- Any release, abandonment or discharge of the security; or- Westpac failing to enforce or exercise the security.You cannot at any time ask the Secured Parties to enforce the security interlocutory application way which benefits you or maximises your rights. The Secured Parties can enforce this document and the security in any order it wishes. Until the Guaranteed Money is paid in full, you cannot claim the benefit of the security and you have no right to it.[39] Accordingly, I conclude that there is no foundation for a defence based on this ground of opposition.Conclusions[40] I conclude the second defendant does not have an arguable defence to the plaintiff's claim against him. Accordingly, it is appropriate that summary judgment be entered. [41] I mentioned earlier in this judgment that I did not have the benefit of a memorandum detailing the interest figure from 27 January 2010 to today's date. In addition I do not have evidence as to the solicitor and client costs that are sought in this judgment. I will reserve leave in the formal judgment that I now enter for those two matters to be covered by an appropriate memorandum and affidavit.Judgment[42] I enter judgment for the sum of $410,645.18. I reserve the question of interest from 27 January 2010 to today's date to be calculated and supplied to me based on the default interest rate of 11.29 per cent. I reserve costs. Both thequestion of interest and costs shall be the subject of further memoranda and affidavit to be filed. The Registrar shall refer same to me on receipt for consideration of the entry of judgment in respect of these matters. _____________________ JA Faire Associate Judge