WESTPAC NZ Ltd v TUSCANY PROPERTIES LTD [2016] NZHC 1488

WESTPAC NZ Ltd v TUSCANY PROPERTIES LTD [2016] NZHC 1488 [1 July 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-000660[2016] NZHC 1488BETWEEN WESTPAC NEW ZEALAND LIMITEDPlaintiffAND TUSCANY PROPERTIES LIMITEDDefendantHearing: 7,8,9 June 2016Appearances: G M Sandelin and N Frith for PlaintiffJ Foster for DefendantJudgment: 1 July 2016JUDGMENT OF VENNING JThis judgment was delivered by me on 1 July 2016 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Minter Ellison Rudd Watts, AucklandPrice Baker Berridge, AucklandCopy to: J L Foster, AucklandIntroduction[1] Tuscany Properties Limited (Tuscany) owned five titles at 37 Rifle Range Road, Taupo. Westpac Banking Corporation (now Westpac New Zealand Limited) (Westpac) had provided finance to Tuscany secured against the Rifle Range Roadproperties. Tuscany was unable to repay Westpac's loan when it fell due inSeptember 2013. Westpac subsequently exercised its rights as mortgagee and sold the units by tender. It sues to recover the shortfall of $584,992.32. Tuscany accepts that prima facie the amount is due but says that by its actions Westpac has lost the right to recover the shortfall.Background[2] In 1997 Home on the Range Limited, a company controlled by Barry Brill, acquired a number of properties at 37 Rifle Range Road, Taupo. There were four motel units and a future development unit. Westpac advanced funding for the purchase. Home on the Range Limited changed its name to Cypress Villas Ltd (Cypress) in 2003. In March 2005 the properties were transferred to Tuscany. MrBrill is Tuscany's sole director. A fresh mortgage was registered in favour ofWestpac.[3] Tuscany had also purchased neighbouring properties at Rifle Range Road and Kaka Street. The B E Brill Trust advanced money for the purchase of those properties, and Cypress, which was still controlled by Mr Brill, leased the Tuscany properties for the purposes of operating a motel/rental business. Cypress collected the rent from Tuscany's properties in a bank account in Cypress' name known as the "motel's account". Cypress also had another account, which during the periodrelevant to this application was in overdraft (the Cypress account). Mr Brill regularly transferred money from the motel's account to pay the monthly interestaccruing due on the Tuscany loan.[4] The funding arrangements between Westpac and Tuscany were renewed from time to time. On 5 September 2012 Westpac granted Tuscany a further term loan for $1,015,000. The loan was for one year with an annual interest rate of 6.74 per cent and a default interest rate of an additional five per cent. On 15 July 2013 Westpacadvised Mr Brill that the Cypress account had been out of order for 60 days and that a further instalment of loan interest was due to be charged that night. The email also advised Mr Brill that the Tuscany loan was due to mature on 12 September 2013 and if it was to be extended Westpac would need additional security as the lending values of the properties were no longer sufficient to secure the total lending limit.[5] That email was followed by a letter of 23 July 2013 in which Westpac advised that in order to support any continuation of facilities they would require: updated valuations on the secured properties evidencing sufficient security to cover the debt and/or additional security; evidence of sufficient income to continue to meet the interest costs; confirmation that leaks to the secured property had been rectified; confirmation all forms of tax obligations were up to date; and a personal guarantee from Mr Brill in favour of Tuscany.Westpac also requested up to date financial statements.[6] Tuscany and Mr Brill did not respond to the communications. Responsibility for the Tuscany files was transferred within Westpac to a Ms Malcolm-Smith in the loans management team. Further correspondence from Westpac to Mr Brill during August and September 2013 went unanswered. The term loan expired on 12 September 2013. Westpac issued a formal demand for the amounts owing under theterm loan in issue (the term loan for $1,015,000); an associated loan in Tuscany'sname which had also expired (the 92 account loan); and the overdrawn Cypress account. The demand noted that if payment was not received by 20 September 2013 Westpac would take whatever steps it considered necessary to recover what was owed.[7] Westpac also obtained an updated current market valuation of the Rifle Range properties from Truss and Keys Valuers Limited. The valuation valued theproperties (in September 2013) at $800,000 inclusive of chattels and GST (if any) in a sale on the open market, or $680,000 inclusive of chattels and GST (if any) on a forced sale basis.[8] On 15 October 2013 Tuscany sold another property it owned at 29A Rifle Range Road. On 5 November the sale proceeds of $208,087.43 were paid to Westpac. Westpac cleared the 92 account loan and applied the balance remaining of $72,290.33 to the term loan. That reduced the amount outstanding under the Tuscany term loan to $956,086.89 as at 5 November. The Cypress account remained overdrawn.[9] In the meantime, on 23 October 2013 Westpac, through its solicitors Minter Ellison Rudd Watts (MERW), had served notices under the Property Law Act 2007 on Tuscany. The total amount demanded over all three accounts was $1,214,982.63. Despite the repayment of the 92 account loan and the reduction in the term loan balance, the Property Law Act notices otherwise expired unremedied on 2 December.[10] In early December MERW received marketing appraisal reports for the properties from LJ Hooker and Harcourts.[11] On 20 December 2013 Mr Brill emailed a letter to Westpac noting: A 2010 Truss and Keys valuation valued the properties at $1.2 million. The development aspect of the properties was confined to the lot containingthe manager's house. The resource consent to build four additional two- bedroom apartments had expired. He was prepared to consider buying the future development unit at its current valuation subject to raising finance. The best prospects of recovery were likely to be found with first home buyers and vendor finance might be required for around 10 per cent of the purchase price. Although independent titles had been issued under the Unit Titles Act 1972 some 14 years ago the property had not operated under a body corporate system and body corporate rules would need to be drafted and adopted and it was important that appropriate provision be included for the development of the further development unit. The parties had a common interest to maximise the sale proceeds of the Tuscany properties.[12] On 9 January 2014 Ms Malcolm-Smith replied to Mr Brill, attaching a copy of the more recent September 2013 Truss and Keys valuation of the property and proposing a meeting with Mr Yao and herself. The letter concluded:In the meantime the above advices are without prejudice to the Banks rights under the Property Law Act Notices.[13] On 22 January a meeting took place at Westpac's offices between MsMalcolm-Smith and Mr Yao from Westpac and Mr Brill and Tuscany's accountantMs Gomes. Tuscany's defence to the claim is primarily based on what took place atthat meeting and Westpac's subsequent actions. I return to the detail of the meetinglater.[14] By the conclusion of the meeting the parties had decided that Mr Brill would forward a written proposal to Westpac for its consideration. Mr Brill prepared adetailed proposal in the form of a "heads of agreement" which he forwarded Westpacon 28 January as an email attachment. The heads of agreement (which also proposed to include Brill Trustees Limited, as the trustee of the B E Brill Trust, as a party) proposed the existing loan (which, as at 14 January 2014 stood at $990,251.27) be restructured as follows: $200,000 be re-advanced for a fixed term of 12 months with interest at six per cent per annum payable monthly. The balance owing to Westpac at 28 February 2014 be re-advanced for a fixed term of 24 months at six per cent per annum. Of this sum, interest (atsix per cent) on $600,000 to be payable monthly while interest on the balance would be capitalised and added to the principal sum payable on 28 February 2016. Tuscany would be entitled to repay the principal sum in multiples of a thousand dollars without penalty and Westpac would provide partial releases of its mortgages over any unit upon receipt of the net proceeds of sale thereof. Westpac would provide a further overdraft facility of $30,000 to fund maintenance and works to the units, namely fixing a leak in one of the units, clearing the gutters, repairing the driveway, repainting all exteriors and redecorating the interiors. In the event of breach by the borrower at any time Westpac's power of sale would be exercisable upon one month's written notice without the necessityof a further Property Law Act notice. Brill Trustees Limited's existing loan would be restructured by the balancebeing repayable after 24 months (with interest capitalised in the meantime). Following completion of the works on the properties Tuscany was to take all necessary steps to effect sales of the units including listing with Harcourts Taupo, undertaking a modest marketing programme, completing body corporate rules and providing vendor finance as necessary or expedient. Westpac was to give favourable consideration to a low deposit loan and an exemption from loan to value ratio limits if required (for any suitable first home buyers).[15] The heads of agreement also annexed schedules setting out the rental incomeexpected from the units secured by Westpac's mortgage and also the income from the other properties owned by Tuscany secured by mortgages in favour of the B E Brill Trust. It was intended that net rental from all the properties (including those overwhich the B E Brill Trust had a mortgage) would be applied to meet the interest due on the restructured Westpac debt. The net rental from all units was stated to be $997 per week or $51,844 per annum.[16] As she was about to go on leave Ms Malcolm-Smith sent an email on 13 February 2014 to another manager, Duncan Dale, to brief him about the meeting and the proposal contained in the heads of agreement. Ms Malcolm-Smith then went on extended annual leave from Westpac on 26 February 2014. She had no further involvement with management of the file after that time. Shortly thereafter, on 21 March 2014, Mr Yao also ceased employment with Westpac. By late March 2014 neither of the two people who had met with Mr Brill and Ms Gomas were still atWestpac. Westpac did not respond to Tuscany's proposal.[17] On 26 March 2014 Ms Banuelos took over management of Tuscany's file.She reviewed the file and emailed Mr Brill on 27 March 2014. By that stage, with accrued penalty interest, the Tuscany account was overdrawn to the extent of $1,008,810.78 and the Cypress account was overdrawn to $20,046.64. It appears from the email that Ms Banuelos was aware that Mr Brill may have forwarded a proposal but it does not seem that she had considered it. She noted that if Westpacwas to defer recovery action it would require "clearance of the defaults". MsBanuelos' email concluded with a request that Mr Brill send: your refinance proposal by no later than 4/4/2014 as [Westpac was]about to appoint an agent for the sale of the Bank's remaining securities.[18] Mr Brill did not respond and on 17 April 2014 MERW, on Westpac's behalf,instructed Harcourts to commence marketing the properties for mortgagee sale. The same day, MERW advised Tuscany by letter that Westpac had commenced marketing the properties for mortgagee sale. MERW also confirmed that Westpac intended to apply the credit balance available in one of the Cypress accounts of $20,074.40 tothe overdrawn Cypress account of $20,524.49 pursuant to Westpac's right of set-off.[19] Twelve days later (and over a month after Ms Banuelos' email), on 29 April,Mr Brill responded to Ms Banuelos' email of 27 March. He took issue with the fact that he had received no response to his proposal and asked if Westpac could be "a bitmore expansive". Later that day, Ms Banuelos responded by email to Mr Brillnoting, amongst other things, there was no proposal held on file and that Tuscany and Mr Brill had failed to keep the loan accounts in order, (i.e. no defaults) and toforward a satisfactory proposal subject to Westpac's consideration and approval. Sheconfirmed Westpac intended to exercise its rights and remedies under the expired Property Law Act notices.[20] Later that same day Mr Brill sent a further email in reply. He recorded his distress at learning his email of 28 January and the attached heads of agreement had been mislaid. He attached a further copy of the email and his proposal. He alsonoted that Tuscany's property manager had contacted him during March to advise he was being denied access to Cypress and Tuscany's internet banking and was unableto pay creditors. Mr Brill said that he had misread Ms Banuelos' email of 27 March,which he took to be no more than notice of change of personnel. Mr Brill suggestedthat the clock be "set back" so that they could start again with the current bankofficers giving full consideration to the proposal in the heads of agreement.[21] On 5 May, Ms Banuelos reviewed and considered Tuscany's proposal as setout in the heads of agreement. She concluded it had a number of critical deficiencies. It did not address the default position. Also the time period over which the properties were to be sold was too long. Nor did it appear that Tuscany would be able to service its existing debt obligations. She referred the proposal to her manager, Mr Spittal. He agreed with her assessment that it was not acceptable.[22] On the same day MERW advised Mr Brill by email and letter that the terms proposed in the heads of agreement were not acceptable, and that Westpac was proceeding with the mortgagee sale action. It would be running a tender process which was due to close on Thursday, 5 June 2014, and Harcourts Real Estate had been appointed to commence marketing. Mr Brill did not respond to that communication.[23] Three tenders were received for the properties by 5 June 2014. Westpac accepted the highest tender, $500,000 plus GST. On 4 July the proceeds from thesale of the properties were applied to Tuscany's indebtedness under the term loan.That left an outstanding amount of $584,992.32. Westpac pursued liquidation proceedings against Tuscany because of the remaining debt. The proceedings were dismissed by an Associate Judge given the issues raised by Tuscany in response. These proceedings followed.Tuscany's defences/counterclaims[24] Tuscany raises four causes of action to support its counterclaim:(a) Breach of contract (alleging a process contract arose at the 22 January meeting). Tuscany claims the difference between the amount raised at the sale, $500,000, and the amount it says would have been raised if the agreement and its proposed repayment plan had been followed, $1.2 million.(b) Estoppel (in the alternative, and arising from the same meeting).Tuscany says that Westpac's officers made a number of representations which Tuscany relied on so that Westpac must be estopped from relying on the Property Law Act notices, and seeks a declaration that Tuscany is no longer indebted to Westpac.(c) Breach of the mortgagee's duty to obtain the best price reasonablyobtainable (which it says was at least $1 million, rather than the $500,000 actually obtained, and seeks the difference between the two sums).(d) Breach of the Credit Contracts and Consumer Finance Act 2003 in the form of oppressive action by Westpac, such that the credit contract should be reopened and the outstanding debt extinguished.[25] Counsel identified a number of issues for determination by the Court. Theprincipal issues concern the nature and effect of the parties' discussions at the 22January meeting: was there a contract, or were representations made which Tuscany could reasonably have relied upon? Following the meeting, what obligation didWestpac have to consider the heads of agreement rather than enforcing its rights under the Property Law Act, and if it had any such obligation, did it do so?[26] Two more factual issues were also identified. They are peripheral and legally insignificant, and can be cleared away shortly:(a) Was Tuscany's internet access to its account in the name of Cypressblocked and if so for what periods of time?(b) Did Westpac enter into possession of the properties in late April orMay 2014?Internet access to the bank account[27] Mr Brill alleged he was unable to gain internet access to the Cypress account or the loan account. The point is apparently raised to explain why moneys were not applied from the Cypress "motel's account" to the Tuscany loan account. He gave evidence that he raised the issue with Westpac by email on 6 May 2013 and 10 July 2013, and brought it up with Ms Malcolm-Smith at the January meeting. MsMalcolm-Smith's evidence was that she checked and confirmed there was no blockon the account. She could not see any suspension of any internet logons for any ofthe accounts.[28] In cross-examination Mr Brill eventually accepted he thought that in the two months leading up to November 2013, i.e. September and October 2013, the internet banking was working. Mr Brill could have used the Internet banking facility to put money into the Tuscany account to remedy the arrears during that time if he had chosen to do so. But the short point is that Tuscany had no ability to repay theprincipal amount of the loan when it matured on 12 September 2013, and Tuscany'sinability to repay the term loan was not the result of any inability to access internet banking; there were insufficient funds available in the Cypress accounts in any case. When Tuscany failed to repay the principal Westpac was entitled to take action.[29] Finally, even if the unavailability of internet banking had been an issue, there was nothing to prevent Mr Brill or his agents attending a Westpac branch and transferring moneys to the Tuscany loan account if that is what he wished to do.Possession[30] Tuscany also pleads that Westpac took possession of the properties in late April or early May 2014. It is not clear what legal consequence Tuscany sees as flowing from that. A mortgagee in possession has a duty to take any necessary and proper measures for the protection, insurance, maintenance, preservation and repair of the land but only to the extent the cost can be met from income received as mortgagee in possession. To the extent the income is insufficient to meet the cost, the mortgagee is at liberty (but has no duty) to advance its money to meet the cost.1As noted, Tuscany remained in control of the rental income. Ms Foster accepted that the issue was not determinative of the substantive legal issues but suggested it wasrelevant in the context of the state of the buildings and Mr Brill's inability toundertake repair work, but there was no evidence that either Mr Brill or Mr Edge (the property manager) was unable to access the property to carry out any necessary repairs. Westpac itself was not obliged to carry out any work on the property (though it had the right to).[31] In any case, it is evident that Westpac did not take possession of the properties at that stage. Tuscany says Mr Bland of Harcourts (acting on Westpac'sinstructions) uplifted the keys and instructed Mr Edge to give notice to all the tenants.2 Mr Brill relied on a report from his property manager, Mr Edge, in anemail that "Westpac had taken over the five units and planned to call tenders" asevidence that Westpac took possession of the property. Mr Edge, however, was not called to give evidence.[32] The only direct evidence as to Mr Bland's actions was from Mr Blandhimself. He said Westpac never instructed him to arrange for the properties to be vacated nor ever do so. He obtained a copy of the keys from Mr Edge for the purposes of marketing the units but he understood Mr Edge retained the originals.1 Property Law Act 2007, s 150.2 At para 21 of the amended statement of defence and counterclaim dated 19 January 2016.Mr Bland did arrange for repairs to be effected by replacing a window that had been broken. He confirmed however that he had never changed any locks to the building.[33] Section 137(1) of the Property Law Act 2007 sets out the various means by which a mortgagee may exercise the power of entry into possession:(a) entering into or taking physical possession of the land or goods peaceably and without committing forcible entry under section 91 of the Crimes Act 1961; or(b) asserting management or control over the land or goods by requiring a lessee or occupier of the land, or a lessee or bailee of the goods, as the case may be, to pay to the mortgagee any rent or profits that would otherwise be payable to the current mortgagor; or(c) applying to a court for an order for possession of the land or goods.[34] The admissible evidence does not support Tuscany's submission thatWestpac, through Mr Bland, took possession of the property in any of the aboveways. Mr Bland's action of repairing a broken window did not amount to assertingmanagement or control of the property. On Mr Bland's evidence Mr Edge, Tuscany's agent, retained the original keys at all times. The access that Mr Blandhad was for the purposes of marketing the property. Rents were still accumulated in the Cypress accounts operated by Mr Brill and his manager Mr Edge. Mr Bland did not assert management or control over the premises.Breach of contractEvents at the 22 January meeting[35] All four parties who attended the January meeting gave evidence: Ms Malcolm-Smith and Mr Yao for Westpac and Mr Brill and Ms Gomas for Tuscany.Mr Brill's evidence in his brief was that there was a process agreement as follows:80. The meeting then reviewed all the points we had discussed andagreed. Mr Yao and Ms Malcolm-Smith withdrew to enable Mr Yaoto brief his colleague on what we had been discussing. On theirreturn, they said they thought the general plan "would fly" and wereprepared to recommend it to the bank's credit committee for finalsign-off. The process would need to be as follows:(a) I should write-up a record of the plan we had discussed(b) This document would need to be in the hands of the Managers as soon as possible but not later than the end of the month(c) If the Managers had any concerns about the wording of the document they would contact me by phone or email right away(d) They would then apply the bank's internal analyses anddocumentation in time for the plan to be submitted to the credit committee meeting to be held on 8 February.(e) If the credit committee approved the deal they would send me confirmation(f) The committee might disagree with one or two of the terms or want to add additional terms. If so, we could set up a further meeting to discuss those changes.(g) The Managers reminded that the bank would be entitled toresurrect its 2013 PLA Notices if we didn't reach any finalagreement or if Tuscany breached any of the agreed terms. I then raised the question of notice, which had been glossed over at the start of the meeting, suggesting that the Trustwould need at least a month to make any alternativearrangements. Ms Malcolm-Smith said that would be okay.Ms Malcolm-Smith may have referred to four weeks ratherthan one month but it certainly wasn't stated that this was fora marketing programme.81. In final discussion, the managers said they expected the committee to accept the plan. Members might take a bit of convincing to allow a full two years for sales and the overdraft request would be difficult but they would probably look at the plan as an overall package rather than pick off pieces of it.[36] Ms Gomas, Tuscany's accountant, also gave evidence. Her evidence was thatthere was nothing in the heads of agreement that Mr Brill subsequently prepared thatwas "contrary" to what had been discussed and that it reflected the general proposaldiscussed. Ms Gomas' evidence did not go as far as suggesting that there was anagreement reached as to the process, although she did say that in her experience,after a proposal was submitted she would expect that if Westpac was not willing toaccept the proposal it would go back to the customer. She would not expect it to gostraight to a mortgagee sale. Ms Gomas' evidence as to her experience and generalexpectation is quite different to the proposition advanced by Tuscany that MsMalcolm-Smith and Mr Yao had committed Westpac to follow a particular process.[37] Ms Malcolm-Smith said she emphasised the meeting was without prejudiceto Westpac's rights and although the parties discussed the proposals Mr Brill put forward, she made it clear neither she nor Mr Yao had authority to bind Westpac. Mr Brill had to put his proposal in writing for it to be considered further, at which point she could discuss it with her superiors. Ms Malcolm-Smith's evidence wasconsistent with a contemporaneous file note that she made very shortly after themeeting. In that file note, which Mr Brill accepted was broadly accurate, (althoughhe says incomplete), Ms Malcolm-Smith recorded:JMS noted that power of sale held with discussions on a without prejudice basis and also requested that any proposal be put in writing to allow these to be formally reviewed to the Bank Credit Authorities. Said that if a proposal covers off ongoing debt servicing and also improves the Bank position from the current (i.e. expired loans not being serviced and with a significant shortfall on basis of FSV) then likely would support.Barry then advised that his preference would be for the Brill F/T to form a new vehicle with [Westpac] to refinance (part of) the Tuscany debt into this, with new mortgages to be taken over all of the property that Tuscany owns –this would leave a shortfall to the Brill F/T and [Westpac] against Tuscany.CY then pointed out that servicing should be addressed in the first instance, as proposal appears to be shuffling debt / taking loss at [Westpac], and if restructured debt was still not able to be serviced, it would be in a default position again and PLAN process likely to recommence.JMS said that if ongoing debt servicing can be committed to, thenforebearance without prejudice to the PLAN's possible to allow the informalextension of the expired facilities on interest only terms.Barry indicated that his preference is to maximise the return, noting still likely to be a loss. He noted that the FDU that were permitted for one of the titles have expired, but retention and extension of the RC to allow further development of the property could be achieved via a new set of BC rules to enshrine redevelopment on all titles.JMS asked that a written timebound proposal to be put to Bank ASAP as power of sale held and we are now due to review the Bank position. Barry confirmed that he will work on this over the weekend and anticipates having this into us early next week.[38] Mr Yao's recollection of the meeting was limited, but he was clear that themeeting was without prejudice and that neither he nor Ms Malcolm-Smith hadauthority to bind Westpac to any proposal at the meeting.[39] The most direct evidence about what took place at the meeting was the evidence of Ms Malcolm-Smith and Mr Brill. Where there is a conflict between Ms Malcolm-Smith's evidence and that of Mr Brill, I prefer Ms Malcolm-Smith's evidence. Mr Brill's evidence on certain important issues was at times forced andunconvincing. At times it was inconsistent with earlier documents he had authored. On the other hand Ms Malcolm-Smith's evidence was generally consistent with herfile note. When she was found to be wrong about an issue she accepted it and conceded the point.[40] There was a conflict between Mr Brill and Ms Malcolm-Smith's evidence asto what was said about the Property Law Act notices. Mr Brill said that Ms Malcolm-Smith had agreed Westpac would only be entitled to resurrect the Property Law Act notices if the negotiations did not make sufficient progress or if agreements were not kept. Ms Malcolm-Smith said that the meeting and discussions werewithout prejudice to Westpac's rights. The most important rights at that time wereWestpac's rights to act on the expired Property Law Act notices. I accept MsMalcolm-Smith's evidence that when Mr Brill raised the issue of Westpac giving amonth's notice before it acted on the expired Property Law Act notices she did notagree to bind Westpac to such an arrangement but said words to the effect of "wellthe Bank would have to engage in a marketing process which would last at least fourweeks in any event". That is exactly what occurred and is consistent with herposition that the meeting was without prejudice to Westpac's rights under the expirednotices.Whether the meeting resulted in a contract[41] At the outset, I have to observe that there is a logical inconsistency inTuscany's pleading about the effect of the meeting. It pleads that there wasagreement to all material terms of a repayment plan. But it also pleads there was a need for the furtherance and completion of their negotiations, i.e. the process agreement. Logically, there could have been no agreement binding Westpac to follow a certain process leading to a substantive agreement it had already made.[42] Additionally, in the course of closing submissions Ms Foster accepted that Tuscany could not establish that Ms Malcolm-Smith and Mr Yao had authority tobind Westpac to a repayment plan at the meeting. That was a realistic concession.Mr Brill had conceded in his evidence that an agreement by Ms Malcolm-Smith andMr Yao to support Tuscany's proposals to their superiors was the most that Tuscanycould achieve at the meeting. Mr Brill had to accept it was always open to Westpacto reject any written proposal Tuscany might put forward. The suggestion that therewas actually a substantive agreement to a repayment plan at the 22 January meetingcan be put to one side. Ms Foster nevertheless maintained Tuscany's argument forthe process agreement.[43] Tuscany relies on its argument that Westpac (through Ms Malcolm-Smith and Mr Yao) had agreed not to rely on the expired Property Law Act notices while negotiations continued to support its argument for a process agreement.[44] As noted above, I prefer Ms Malcolm-Smith's evidence on this issue. In thecorrespondence prior to the meeting, and at the meeting itself, Ms Malcolm-Smithmade it very clear that the meeting was without prejudice to Westpac's rights underthe expired Property Law Act notices. Additionally, there would be no particularbenefit in Westpac agreeing to give a month or four weeks' notice before relying onthe Property Law Act notices. That was the statutory position. It could issue fresh Property Law Act notices and act on them within 20 working days after service of such notices in any event.[45] Further, under cross-examination Mr Brill conceded that when he raised the issue of notice:I can't remember whether she said yes or nodded or just smiled, ah, but myimpression was that she agreed. She certainly didn't un – disagree.[46] At no stage of the email communications during 2014 did Mr Brill say that the parties had agreed or committed themselves to such a process when Westpac acted in reliance on the Property Law Act notices without giving any notice. WhenMr Brill received the solicitor's email of 5 May 2014 advising that Westpac wouldbe running a tender process due to close on 5 June, Mr Brill did not respond bysaying that was contrary to the agreement reached. His explanation that the reasonwas because he was on holiday in Florida with his family is not convincing.[47] All things considered, the most that could be suggested is that there was an informal agreement, not amounting to a contract, to the effect that if Mr Brill putforward a written proposal Westpac would consider it. Indeed Mr Brill's email attaching the process agreement spoke of a "possible way forward", not a concluded agreement. It is evident from Westpac's repeated statements that negotiations were without prejudice to its rights that it did not intend to be bound, and did not offer to be. Nor can there be any possible suggestion that if Westpac did not consider the proposal acceptable it was under any obligation to continue negotiations. Such asuggestion is inconsistent with Mr Brill's concession during his evidence that the managers could reject the proposal, as well as all of Westpac's officers' ownevidence.[48] I find there was no process agreement as argued for by Tuscany.Events after the meeting[49] Though I have concluded that there was no process agreement, I go on toconsider whether Westpac's conduct was in good faith. This discussion will be relevant to Tuscany's claim of oppression under the Credit Contracts and Consumer Finance Act, discussed below, and perhaps also to estoppel.[50] The issue of Westpac's conduct following the meeting has been complicatedby the fact both Ms Malcolm-Smith and Mr Yao left Westpac shortly after themeeting and it appears a hard copy of the proposal was not on Westpac's file. Therewas confusion within Westpac's office as to whether Tuscany had made a proposal.Ms Banuelos' email to Mr Brill suggested she had not considered the proposal as at27 March 2014 but the important point is that in response to the correspondence inlate April Mr Brill resubmitted the proposal. The proposal was then properlyconsidered by Ms Banuelos on 5 May and rejected by her and her senior manager,Mr Spittal.[51] There were a number of issues with the proposal that made it unacceptable to Westpac, some of which had been discussed at the meeting. Mr Yao had pointed out that the suggestion the Brill Family Trust form a new vehicle to take over the loans at $800,000 would not be acceptable. It would amount to Westpac writing off approximately $180,000 to $190,000 at that time and taking a chance that the position would improve over the next few years. The only possible practical advantage to Westpac in that was that the debtor would be the Brill Family Trust as opposed to Tuscany.[52] The loan agreement was at 6.74 per cent with an additional penalty of five per cent. The market rate as recorded in the Westpac statement as at 8 July 2014 was at 7.74 per cent. Ms Malcolm-Smith had been clear that any proposal would need to include payment of interest due together with ongoing interest. Mr Brill suggested that the proposal was only to deal with ongoing interest at six per cent. He suggested that was the market rate. That was not put to Ms Malcolm-Smith or Mr Yao in cross-examination. Ms Foster's only cross-examination on the issue was:Q. Mr Brill says it was clear at the meeting that the servicing was to be at an ordinary home rate –A. No.Q. – so the six or 6.75% that was the standard rate under this agreement?A. No.[53] The suggestion Ms Malcolm-Smith or Mr Yao had agreed to or that Westpac was bound to agree to a below market rate of six per cent when the account was in default is not credible. Further, the correspondence leading up to meeting was on thebasis that Tuscany would have to meet its loan obligations. The demand and theProperty Law Act notices both referred to the interest due. Westpac's position didnot alter. Tuscany did not meet any of its interest obligations from the maturity ofthe loan in September 2013.[54] Tuscany and Mr Brill emphasised that the advantage for Westpac was that the Brill Trust would agree to capitalise its interest so that the net rental from the other properties owned by Tuscany would be available to meet the interest due to Westpac.But the net rental from all the properties owned by Tuscany was not sufficient even to meet the interest on the capped figure of $800,000 at 6.74 per cent, which was $53,920 per annum. Interest on the amount outstanding of $960,000 was $64,704. The net annual income from the rental was $51,844 per annum.[55] The proposal also sought a further unsecured advance of $30,000 for working capital. Ms Malcolm-Smith was clear that proposal had not been acceptable. EvenMr Brill's evidence did not support any suggestion that that was agreed at themeeting. His evidence was:Q. both bank officers, Ms Malcolm-Smith and Mr Yao have said in evidence that this [the $30,000] was never discussed or agreed to by them at the meeting?A. Well I disagree. They suggested that the Brill Trust should provide it and I suggested that the Westpac should provide it and, ah, – theyagreed that I could put it in my proposal and they'd, they'd try it.Q. Yes. So there was no agreement then. They were suggesting you pay it, you were suggesting they pay it?A. And then they, they suggested that if I put it in the agreement they would try it on the credit committee.[56] I find that Westpac's rejection of the proposal was justified. The proposal:(a) suggested capitalising interest over a period of two years on part of the loan (which Westpac had not agreed to);(b) suggested an interest rate of six per cent, less than the market rate and less than the ordinary rate charged under the agreement and less than the market rate later in July 2014;(c) suggested Westpac advance a further $30,000 by way of working capital without providing any further security for the same;(d) did not provide a guarantee by Mr Brill which Westpac had sought prior to the meeting;(e) offered no further security, again a matter which Westpac had requested prior to the meeting and which it had stated to be a pre-condition of any further rollover.Conclusion as to breach of contract[57] No contract (either substantive or governing a process of negotiation and agreement) arose at the 22 January meeting. Westpac was clear at all stages that the meeting was being conducted without prejudice to its rights to recover under the Property Law Act notices, and whether or not it decided to accept any proposal was discretionary.[58] Even if such a contract had arisen, in the circumstances (with Mr Brill having been advised that the officers could not bind Westpac to accept a particular proposal) it could have done no more than oblige Westpac to consider the proposal in good faith which, on Ms Banuelos' evidence, Westpac did. Westpac had good reasons forrejecting the proposal, at least some of which Mr Brill had been alerted to at the 22 January meeting. Further, as I discuss below, even if Westpac had breached an agreement by failing to consider the proposal promptly, it is far from clear that any prejudice or loss arose to Tuscany as a result.Promissory estoppel[59] In the alternative Ms Foster submitted that if no binding agreement was reached as to process then Ms Malcolm-Smith and Mr Yao made representations that gave rise to an estoppel which prevented Westpac from exercising its rights pursuant to the expired Property Law Act notice or from claiming any shortfall.[60] To make out an estoppel in these circumstances Tuscany must establish:3(a) Westpac created or encouraged a belief or expectation in Tuscany through a representation at the January meeting;3 Waltons Stores (Interstate) Ltd v Maher (1988) 76 ALR 513 (HCA).(b) Tuscany reasonably relied upon that belief or expectation that Westpac created;(c) Tuscany suffered detriment because Westpac departed from the belief or expectation it had created; and(d) it would be unconscionable to allow Westpac to depart fromTuscany's belief or expectation in the circumstances.[61] Tuscany pleads the following issues/representations.(a) Westpac would reopen access to the Cypress Villas' accountFor the reasons given above this matter is irrelevant.(b) Westpac wanted Tuscany to refurbish and sell the properties individually over a reasonably short period of timeEven if this was discussed it could not be a representation which in any way bound Westpac or that Tuscany was entitled to rely on. What was at issue at the meeting was whether Tuscany could put forward a proposal to Westpac toprevent Westpac exercising its rights under its securities and the expiredProperty Law Act notices. The proposal put forward was not acceptable.(c) If a repayment plan was submitted by 31 January 2014 it would berecommended to Westpac's credit committeeAlthough possible terms were discussed generally at the meeting the detail of the proposal could not be considered until it was reduced to writing in the formal written proposal by Mr Brill. As noted, the written proposal contained detail not discussed at the meeting. Mr Brill could not have believed, based on the meeting, that a proposal would necessarily be recommended; the discussion indicated that support would be conditional on the terms of the proposal. In any event, in her internal memo, Ms Malcolm- Smith suggested aspects of the proposal could be supported.(d) If Tuscany's proposal was not to Westpac's credit committee'ssatisfaction it would request changes to it and negotiate in good faithThe evidence does not suggest that Westpac encouraged Tuscany to rely on this representation, if indeed it made the representation at all. It is contrary to Ms Malcolm-Smith's approach to the meeting. It is also contrary to the logicof the case which is that the officers could not commit Westpac to a proposalwhich had not been set out in writing. Finally it is contrary to Mr Brill'sconcession that Westpac could reject the proposal.(e) Westpac would suspend the Property Law Act notices while reserving the right to reactivate it if Tuscany breached any further undertakings.It would give one month's written noticeFor the reasons given above the evidence does not support this proposition.It is inconsistent with the logic of the case and Westpac's position.Reliance[62] Even if qualifying representations were made, I do not consider that Tuscany relied on those representations, or that, if it had, its reliance would have been reasonable. Nor do I consider that Westpac could have suffered any detriment as a result.[63] Tuscany pleads that it relied on the above representations by submitting the proposal, forgoing alternative repayment options and deferring its plans for repairs, maintenance and marketing of the properties. But there was no evidence of reliance. The reason repairs were not carried out was because Tuscany had no financial ability to repair or maintain the properties. As part of the proposal, it sought further money from Westpac to enable it to do so.[64] Prior to the meeting Westpac had made its position in relation to its rightsunder the expired Property Law Act notices clear:(a) in the demand letter of 12 September 2013 Westpac stated that it would take whatever steps it considered necessary to recover what was owed to it;(b) in the email of 28 November 2013 Ms Malcolm-Smith noted Westpac"continues to reserve its rights in respect of the facility agreement and securities held"; and(c) in the email prior to the meeting on 9 January 2014 Ms Malcolm-Smith noted that her advices were "without prejudice to the Bank'srights under the Property Law Act notices".[65] Nothing in these communications amounts to an assurance that Westpac would abstain from exercising its rights in order to consider (and, if necessary,renegotiate) Mr Brill's proposal. Its agreement to do so was in the nature of anindulgence. I accept Mr Sandelin's submission that it was unreasonable for Tuscanyto do nothing after it had submitted the proposed heads of agreement on 28 January 2014. Tuscany was in default, without any reliable assurance that matters were being resolved. Interest continued to accrue on a monthly basis.[66] Mr Brill's response to the accruing arrears is that is that rent money was sitting in the Cypress account and could have been paid across at any time. But one of the Cypress accounts was overdrawn by approximately the same amount as themotel's account. Westpac was entitled to and did set-off those two accounts. In the meantime the interest continued to be debited to the Tuscany loan account. The credit amount in the Cypress accounts had only increased to approximately $20,000 when it was set off in April. The Tuscany account had increased by the end of April to in excess of $1,020,000 from the $990,000 it stood at in mid January before themeeting.[67] Mr Brill also sought to make something of the fact the email requested a refinance proposal while the document he had put forward was a heads of agreement, but in effect the heads of agreement was Tuscany's refinance proposal. It relied on areduction in the interest rate payable to Westpac and Westpac capitalising part, at least, of its interest. Westpac had not agreed to that, and as the eventual communications between Ms Banuelos and Mr Spittal made clear, would not agree to it.[68] Finally, and in any event, as noted Westpac gave Mr Brill and Tuscany notice on 5 May that it intended to pursue its rights under the expired Property Law Act notices. Mr Brill had an opportunity at that time to address the issue, Westpac noting it would take four weeks for the tender process to be completed. Mr Brill did nothing. His evidence was to the effect he washed his hands of the matter after the exchange of 29 April because the Brill Trust could not justify intervening at that point.[69] Even if there had been reasonable reliance on a qualifying representation, the evidence does not support the proposition that Tuscany has suffered any particulardetriment from Westpac's actions. While Westpac should, as a matter of good practice, have responded earlier to the proposal, there is no evidence as to what Tuscany would have done had Westpac dealt with the matter earlier and rejected the proposal more promptly. As noted Mr Brill concedes that Westpac could reject theproposal. There is no suggestion that Tuscany's financial position deteriorated significantly between the end of January and the end of March. Indeed Mr Brill'sposition was that Tuscany was effectively insolvent by the time the loan matured in September 2013. This tends to suggest that the timing of the proposal rejection –which I have found was justified – could not be blamed for the eventual mortgagee sale. In any case, by 27 March 2014, Mr Brill and Tuscany were on notice that Westpac had either not received the proposal or that it was not acceptable.Breach of duty as mortgagee[70] Tuscany next alleges that Westpac breached its duty of care as mortgagee in the sale of the properties by a number of ways:(a) failing to take steps to:(i) prepare or present the properties for sale or allow Tuscany time to do so;(ii) dispel or manage the leaky home stigma that depressed the perceived value of the properties or allow Tuscany time to do so;(iii) adopt operational rules and otherwise render the properties fit for individual sale;(b) directing marketing and promotion of the properties to developers and wholesale buyers primarily resident in Taupo;(c) failing to market or promote the properties for sale individually or to markets likely to be interested in purchasing individual dwellinghouses;(d) failing to market or promote the properties for sale in potential markets such as Auckland, Wellington or internationally; and(e) failing to pursue sale negotiations with known interested parties, including the Brill Trust in relation to the future development unit at the properties.[71] The obligations of a mortgagee in these circumstances are set out in s 176 of the Property Law Act 2007:176 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 undersection 200.[72] In Public Trust v Ottow Asher J set out the following relevant guidance in determining compliance with the section:4[17] When a mortgagee does exercise the power of sale, that power of sale must be exercised in accordance with s 176. Although s 176 imposes a specific duty on the New Zealand mortgagee, there is a similar duty at common law on English mortgagees. The English authorities on the duties of mortgagees offer useful guidance despite the different land transfer and conveyancing practices. Given the wide ranging complaints of Mr Ottowconcerning the sale, it must be observed that a mortgagee is "not a trustee of the power of sale of the mortgagor": Nash v Eads (1880) 25 SJ 95, Jessel MR. It can be noted that:a) A mortgagee has no duty at any time to exercise the powers of sale or possession. In default of any provision to the contrary in the mortgage, the power of sale is for the benefit of the mortgagee, who can sell at any time in accordance with the mortgagee's convenience:Raja (Administratrix of the Estate of Raja (Dcd)) v Austin Gray (A Firm) [2002] EWCA Civ 1965 at [55], per Peter Gibson LJ; Silven Properties v Royal Bank of Scotland [2004] 1 WLR 997 at [14].b) The mortgagee's duty of care is to take reasonable care to obtain the best price reasonably obtainable at the time of sale: Agio Trustees Co. Ltd v Harts Contributory Mortgages Nominee Co. Ltd (2001) 4 NZ ConvC 193,480 (HC).c) It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1355B; Silven Properties v Royal Bank of Scotland at [14].d) A mortgagee is under no obligation to improve the property or increase its value: Silven Properties v Royal Bank of Scotland at [16].e) A mortgagee sale for a price less than the current market value assessed by valuers does not, of itself, establish a breach of duty, although a large discrepancy may indicate a failure to take reasonable care: Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262,448 at [61].f) A mortgagee does not have any general duty to maintain properties prior to sale: Silven Properties v Royal Bank of Scotland at [16].g) Following the service of a Property Law Act Notice there is no duty on a mortgagee to keep a guarantor informed of sales activities: G Merel & Co. Ltd v Barclays Bank (1963) 1 SJ 542.h) The mortgagee is not entitled to sell in a hasty way at a knock-down price sufficient to pay the debt, which because of the speed of sale leads to a lower price than could otherwise be obtained: see Palk v Mortgage Services Funding Plc [1993] 1 Ch 330 at 337-8.4 Public Trust v Ottow (2009) 10 NZCPR 879,888 (HC).i) Proper care must be taken to expose the property to the market and to obtain the best price reasonably obtainable: Harts Contributory Mortgages Nominee Co. Ltd v Bryers HC AK CP403-IM00 19 December 2001 at [43](d) and (f).[73] In the present case Westpac: obtained an updated valuation of the properties; obtained marketing appraisals from two national real estate agencies, LJ Hooker and Harcourts; selected Harcourts to conduct the mortgagee sale on the basis of MrBland's experience in selling properties in the Taupo area (indeed Mr Bland had sold one of Tuscany's properties the year before); instructed Harcourts to adopt its most comprehensive marketing campaign, which comprised a four week national and international advertising programme culminating in the competitive tender process; selected the highest tender received for the properties of $500,000.[74] Although the marketing appraisal initially suggested an auction, Mr Bland'sopinion was that a tender process was appropriate. He said that an auction could have precluded some buyers from the process as the sale of the properties individually could have precluded a buyer purchasing all of them. He agreed that the marketing would be the same whether for a tender or auction. Mr Bland is an experienced real estate agent and well qualified to give that advice. The marketing of the properties was in accordance with his recommendations and was directed both nationally and internationally. There was no contrary evidence.[75] Tuscany complains that Westpac failed to prepare or present the properties or take steps to manage the leaky homes stigma or to adopt operational rules to render the properties fit for individual sales. But a mortgagee is under no obligation to improve the property or increase its value, particularly if to do so would imposesignificant expenses on the mortgagee;5 and Mr Bland's evidence answers the proposition that Westpac should have taken steps to sell the properties individually.[76] As for the suggestion that Westpac failed to maximise the value of the future development unit or continue to deal with the Brill Trust in relation to its purchase of that unit, at the least updated Body Corporate rules were required to deal with the position of the future development unit, and Westpac was not required to prepare those rules. At no time did the Brill Trust make a formal offer to purchase the development unit (or any of the properties). It was always open to the Brill Trust to participate in the tender process or indeed to approach Mr Bland during the marketing process period. It did not do so. While Mr Brill had raised the possibility earlier it was on the basis of a need to obtain satisfactory finance. There is no evidence such finance was available.[77] The Truss and Keys valuation suggested a value for the properties of $680,000 including GST at forced sale. While the price achieved was $500,000 plus GST, if any, when GST is accounted for on the sale the difference is approximately $105,000. As the Court of Appeal observed:6Valuations lose much of their significance if reasonable care is taken, there has been a property advertised and conducted auction. and the property has been sold at auction or by negotiation after the auction.[78] That is what occurred here. Tuscany has failed to establish Westpac breachedits duty as mortgagee.Oppression under the Credit Contracts and Consumer Finance Act 2003[79] Finally Tuscany alleges Westpac has acted oppressively in the way it has exercised its power of sale. Oppressive in these circumstances is defined as follows:In this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.[80] In Taylor v Westpac Banking Corporation the Court of Appeal commented:75 Property Law Act, s 150.6 Long v ANZ National Bank Ltd [2012] NZCA 132 at [21].7 Taylor v Westpac Banking Corporation (1996) 7 TCLR 177 (HC) at 184.The full phrase is "the term 'oppressive' means... in contravention of reasonable standards of commercial practice", (emphasis added) and must take its colour from the objective set out in the Long Title and the preceding words of the section itself. Thus, the conduct complained of must be oppressive in that it contravenes reasonable standards of commercial practice. Unfairness is not in itself sufficient. Many mortgagors would assert that the manner in which a mortgagee is exercising a power of sale is unfair, particularly the timing of the sale, and may be able to demonstrate an element of unfairness to the satisfaction of the Court, but the conduct of the mortgagee still need not contravene reasonable standards of commercial practice for the purpose of the Credit Contracts Act.[81] While those comments were in a case concerning the Credit Contracts Act, there is no reason for the Court to take a different approach for the purposes of the Credit Contracts and Consumer Finance Act.8[82] There is no evidence to support Tuscany's general assertion that Westpac's actions were oppressive. Westpac's actions in relying on the expired Property Law Act notices and proceeding to sale were not unusual. There was nothing oppressiveabout them. There has been no evidence put forward that Westpac's actions in thiscase were in breach of reasonable standards of commercial practice. Westpac exercised rights which had accrued because of Tuscany's default. It considered Tuscany's proposal, albeit belatedly, in good faith. There is no evidence of anyprejudice to Tuscany in the delay in considering the proposal. As Mr Sandelin submitted it allowed Tuscany more time to effect repairs, seek alternative financial accommodation or prepare body corporate rules to support the suggestion that the property should have been marketed individually. Tuscany did not take those steps. Further, Westpac did not act immediately on the expiry of the Property Law Act notice on 2 December 2013. Tuscany was advised on several occasions that Westpac was going to exercise its rights and had an opportunity to respond. Tuscany had atleast four weeks' notice of the mortgagee sale auction by MERW's letter of 5 May2014.Result/summary[83] The counterclaims that Tuscany seeks to raise are not made out on the evidence. They are dismissed.8 Westpac New Zealand Limited v Colley [2012] NZHC 1854 at [35].[84] Westpac is entitled to recover the shortfall it seeks against Tuscany. Westpac is to have judgment in the sum of $584,992.32, together with interest on that sum at 11.74% from 5 July 2014 until judgment.Costs[85] Westpac is to have costs on a 2B basis together with disbursements as fixed by the Registrar and allowance for second counsel.__________________________ Venning J