ANZ National Bank Limited v Huo HC Auckland CIV 2010-404-1435

[2010] NZHC 1529

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001435

BETWEEN  ANZ NATIONAL BANK LIMITED Plaintiff

ANDXIANG LI HUO Defendant

Hearing:         16 August 2010

Appearances: E M Tobeck for the Plaintiff

DLC Liu for the Defendant

Judgment:      17 August 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

17.08.10 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

E Tobeck, Morgan Coakle, Auckland – [email protected]

DLC Liu, Yu Lawyers, Auckland – [email protected]

ANZ NATIONAL BANK LIMITED V XIANG LI HUO HC AK CIV 2010-404-001435  17 August 2010

Background

[1]      The  plaintiff,  ANZ  National  Bank  Limited  (ANZ)  applies  for  summary judgment against Ms Huo whose property ANZ sold by mortgagee sale in July 2009 for $101,000.  Ms Huo purchased the property in May 2006 for $343,000.  At that time she borrowed $257,000 from ANZ.

[2]      Loan instalments were not paid in December 2008 – March 2009 and defaults totalling $7,383.64 occurred.    Earlier in December 2008 there was email correspondence between ANZ and Ms Huo’s bother Xiangming Huo regarding the grant to her of a three month loan holiday.   In April 2009 Ms Huo’s brother was contacted by ANZ and agreed to accept service of a Property Law Act notice on behalf of his sister who was overseas.   It appears at the time she had left New Zealand and was residing in Australia.  Mr Huo heard nothing more until his sister telephoned him in April 2010 distraught about the low price ANZ had sold the property for.

[3]      Mr Huo advises that his sister had purchased the property in order to build upon it for resale at a profit.   However, she encountered development difficulties caused by storm water drainage issues.   He said the Auckland City Council had changed its policy and would not allow storm water pumping to the street.   This meant  that  storm  water  had  to  be  piped  across  neighbouring  properties  and neighbours consent was required.

[4]      In light of those difficulties Ms Huo endeavoured to sell the property and appointed Barfoot and Thompson as her agent for that purpose.  Some weeks later in May 2007 a sales person, a Mr Cai presented a conditional offer of $348,000 by a Mr Wei.  That offer was accepted but the conditional agreement fell through because Mr Wei was not happy with the storm water issue and the agreement was voided.

[5]      On his sister’s behalf Mr Huo then investigated possible solutions for the storm water drainage.   He learnt that one solution was to take the matter to the Environment Court and was advised that an approximate cost of $40,000 was involved and there would be litigation risks.

[6]      The other solution was to obtain the consent of neighbours namely, Housing New Zealand Limited which owned all but one of the affected properties and a Mr Brendan  Stubbs  who  owned  the  other  affected  property.    He  contacted  both. Housing New Zealand Limited replied advising it would consent.   Sometime later Mr Stubbs responded offering to provide consent in exchange for the payment to him of $80,000.

[7]      The sole issue upon this summary judgment application is whether ANZ has discharged its statutory duty of reasonable care to obtain the best price reasonably obtainable at the time of sale.

[8]      ANZ says it relied on advice from professional valuers and real estate agents at the time.

[9]      ANZ carries the responsibility on a summary judgment application to satisfy the Court that Ms Huo does not have an arguable defence.

[10]     In this case ANZ employed the services of a reputable and competent agent. But,  a  mortgagee’s  duty  of  reasonable  care  is  not  fulfilled  by  that  alone. Conceivably, even in hindsight, the method of sale and the conduct of the marketing campaign might be found to be wanting.  Even if so, this should not necessarily give cause to second guess the test required to satisfy s 176.

[11]     Counsel have directed  my attention to the decision of Fisher J  in Harts Contributory Mortgages Nominee Company Limited v Bryers [1], which provides a useful summary of the principles applicable to a mortgagee’s duty of care:

[1] HC Auckland, CP403-IM00, 19 December 2001 at [43]

a)The overriding requirement is to take reasonable care to obtain the best price reasonably obtainable: Cuckmere Brick Co Ltd and Another v Mutual Finance Ltd [2].

[2] [1971] 1 Ch 949 (CA)

b)     The mortgagee has the power to decide, purely in its interests, if and when to sell: Downsview Nominee Ltd v First City corporation Ltd [3].

[3] [1993] 1 NZLR 513

Consequently it is only the best price reasonably obtainable at the time of sale that matters.

c)Where 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 [4].  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

[4] [1983] 3 All ER 54

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 specialised publications.

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 piecemeal manner if this can only be carried out over a substantial period or at a risk of loss: Kwong (supra).

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: Fairer Fishing Co Ltd v Broadlands Finance Ltd [5].

g)      In  the  end  the  mortgagee’s  performance  can  only  be  assessed  by reference to each particular case.

[5] (unreported, Timaru Registry, A35/77, 17 August 1984)

[12]     The principle issues in this case concern:

1.Whether ANZ has proved Ms Huo does not have a reasonably arguable defence based upon her claim of a breach of ANZ’s

duty of reasonable  care to obtain the best price reasonably obtainable at the time of sale.

2.Whether in the particular circumstances of this case ANZ’s duty of care was satisfied alone by the appointment of a reputable sales agent or whether that agent should have taken further steps in response to the agent’s recommendations about the method and marketing proposal recommended.

3.Whether  in  review  of  the  marketing  and  sale  processes undertaken there was reasonable cause for considering it was insufficient to achieve the mortgagee’s obligations to obtain the best price reasonably obtainable.

The mortgagee sale process

[13]     Following service of the Property Law Act notice on 9 April 2009 ANZ instructed Sheldons registered valuers, for a valuation report.  It noted the property had a rating value of $330,000 as at 1 July 2008.  Its valuer, Mr Clark, considered the property at a market value of $260,000 if there were no difficulties relating to its development.  Alternatively he considered it worth $100,000 - $150,000 because of identified storm water drainage issues.  He considered the property had a forced sale value of between $50,000 and $100,000.

[14]     His valuation noted that Auckland City Council records indicated that for over ten years successive owners of the property have endeavoured to resolve the issue of storm water disposal.  He noted:

a)      All options to-date had come to nothing.

b)The main hindrance is the reluctance of adjoining owners in allowing development of a storm water line through their properties.

c)It appears from council’s records that Ms Huo purchased the property initially on the assumption from her agents that disposal of storm water to the street was possible, when this was in fact incorrect.

d)A search of sale records indicates Ms Huo purchased the property by private treaty or in a non-market transaction.

[15]     Barfoot and Thompson were instructed to prepare a marketing proposal for the sale of the property.  In its report, prepared by their Mr Davis it was noted:

a)      There were storm water problems, confirmed by a neighbour.

b)The site was small, long and narrow and development would be complicated and expensive.

c)      A neighbour had expressed an interest in expanding their property.

[16]     Mr Davis recommended a tender marketing process be undertaken as was often used he said when someone had a special interest in the property particularly where the market was depressed and where there might be development difficulties. Such a process would, Mr Davis stated, encourage a potential purchaser to put in a good offer, if as was likely, few offers would be forthcoming.

[17]     Upon  being  appointed  Barfoot  and  Thompson  undertook  a  marketing campaign in the New Zealand Herald and in the Property Press.   As well internet listings were posted on five well known websites.  Marketing was conducted over a period of four weekends.  Only one tender, for $100,000 was received.  Mr Davis’ final report advised that three parties had researched the property and advised they were of the view that it was not a viable development option even if it was possible purchase the property at $50,000.

[18]     After tenders closed Mr Davis spoke with a sole tenderer.  In that outcome the tenderer increased his offer by $1,000 to $101,000.

[19]     The tenderer was the son of a Barfoot and Thompson real estate agent.  Mr Davis states that agent did not work with him and was not privy to any information other than was publicly available or available on the listing.

[20]     Mr Davis states he advised ANZ’s solicitors of the fact of the relationship. Mr Davis said he did telephone the agent once to tell him to get his son to tender for the property as he knew of his son’s special interest as the neighbour spoken to by Mr Davis when he visited the site.

[21]     Opposition to the summary judgment application focuses upon the fact that:

a)ANZ should have engaged specialised advice as to the method of sale bearing in mind there was likely to be a significant mortgage repayment deficit involved.

b)It appears Barfoot and Thompson had recommended an auction process involving a three month marketing period, despite which they chose a tender process involving a marketing period of less than four weeks.

c)ANZ having been put on enquiry of the potential for significant loss by the mortgagor should have undertaken further steps to protect her interests and in particular to consult with her brother, her New Zealand attorney, regarding available steps to increase or maximise any sale return.

Considerations

[22]     Mr Huo deposes that ANZ, being aware of the extent of his sister’s mortgage borrowings and being aware of the rating value of property should have been alerted by Sheldons’ property valuation of the potential for a significant shortfall.  This, he reasons should have alerted ANZ to the need for other valuation advice, and to second guess Barfoot and Thompson’s marketing proposal.    Although the appointment of a reputable agent may go a long way to satisfy the discharge of a mortgagee’s  duties,  caution  and  common  sense  ought  to  have  suggested  that

Sheldons’ fire sale value of $50,000 - $100,000 should be investigated – that another valuation ought to have been obtained.   As well the conduct of the sale by tender process appears to have been conducted contrary to Barfoot and Thompson’s own recommendation.   Also, there were steps ANZ could have taken to communicate with Mr Huo to explore other options to maximise sale return.

[23]     Overarching these considerations is Ms Huo’s degree of suspicion regarding the sale of the property to the son of a Barfoot and Thompson agent.

[24]     In my assessment none of the issues raised on behalf of Ms Huo gives the

Court reason to consider that ANZ did not fulfil its mortgagee duties.

[25]     Sheldons are a long established and reputable firm of valuers.  Their report identified storm water disposal issues and their enquiries revealed that those issues remained unresolved after ten years.  Enquiries revealed Ms Huo had purchased the property on her understanding those issues could be resolved.  But, they were not as it appears she quickly realised for within a year she had listed the property for resale even though when she originally purchased it she intended to develop the property for on-sale and profit.

[26]     When Barfoot and Thompson had been tasked with preparing a marketing proposal  they identified  a  potential  neighbour  purchaser.    Mr  Davis’  marketing report referred to his speaking to that neighbour.  He did not mention then that the person he spoke to was the son of a Barfoot and Thompson agent albeit from a different office.   Nor would he likely have done for that was not relevant to the purpose of the marketing proposal except for the fact that it identified an interested purchaser.

[27]     Ultimately the marketing proposal focussed upon the fact that there was an interested purchaser for whom drainage considerations might not be a complicating factor for the land in question was adjacent to the interested purchaser’s property. The desirability of a tender process was explained as a means by which an interested purchaser would likely offer more for if that person was the sole bidder at an auction, the sale price was likely to be less.  In offering that view of matters Mr Davis spoke

from many years of experience in the real estate industry.  He said he did not know the interested purchaser but towards the end of the tender process contacted his father to make sure a tender had been lodged.  The Court has no reason to consider that the tender price offered, and subsequently struck, was other than reasonable by consideration of the levels of value Sheldons had estimated.

[28]     In opposition Ms Huo has provided two valuations by registered valuers who provided  indications  of  value  significantly  above  those  from  Mr  Clark  from Sheldons.    That  from  Davies  Batley  estimated  a  forced  sale  value  of  between

$180,000 and $200,000.   That from Roberts McKeown provided a valuation in a similar range but noted the likelihood of a protracted and expensive outcome to achieve proper value from the property.

[29]     In my assessment differences in property valuations, in as much as they could or  should  influence  a  Court  and  its  consideration  of  a  mortgagee’s  duties,  are unlikely ever to be persuasive when there is no evidence to compare the reputation of one any better than another.  If the marketing strategy was an appropriate one and if in that course it was shown the best price reasonably obtainable had been achieved then that should be sufficient to satisfy a mortgagee’s statutory obligations in the circumstances of this case.

[30]     Ms Huo has provided no evidence to challenge the appropriateness of the tender process undertaken, nor of the period of time over which it was conducted. Rather reliance, too much I think, has been read into the decision of Fairer Fishing Co Ltd (supra) which suggested a reasonable period be allowed for purchasers to inspect a property sold by tender or auction.  Also, I think there has been confusion on Mrs Huo’s behalf about the terms of Barfoot and Thompson’s engagement. Contrary to  what  is  asserted  for  Mrs  Huo,  the  contract  of  engagement  did  not recommend sale by auction or a three month marketing period.   Rather it is quite clear in prescribing and justifying the tender process involving marketing over four weekends.

[31]     In my questioning of Mr Liu about what it was he submitted ANZ should have done to alert Ms Huo about the prospect of a significant loan shortfall following

sale, he submitted ANZ should have contacted Ms Huo’s brother who was her New Zealand attorney.  When I asked why, Mr Liu responded that Mr Huo would have appraised ANZ of remedial options namely to spend about $40,000 on a litigation outcome or to pay $80,000 to buy the favour of a neighbor.

[32]     I explained to counsel that I do not accept that explanation.  Case authority is clear  that  a  mortgagee  has  no  obligation  to  effect  improvements  or  to  provide funding to improve a property for mortgagee sale.  Also, in this case there was no certainty about the outcome if that money was spent.   Further it does not explain why Mr Huo did not volunteer those cost options to ANZ when he was well aware of them.   He had pursued them through enquiries with the neighbours.   He, and not ANZ was aware why the sale to Mr Wei fell through in 2007.  He, the Court has to assume, had from December 2008 at latest to try and affect a private sale of the property before ANZ took the matter into their own hands in April 2009.

[33]     What has been overlooked in the protestations of Mr Huo on behalf of his sister, is that his sister purchased the property for $343,000 from a company in which Mr Huo had a significant capital interest.  Further his company had purchased the property one month earlier for $240,000.   The sale was contracted by private treaty.  The Court has no information of the circumstances in which financing was arranged for Ms Huo.

[34]     Finally, there is the matter of the sale to the Barfoot and Thompson agent’s son.  There is cause initially for some suspicion about this connection.  It could be inferred that Mr Davis was aware of that connection when he conducted his visit to the property.  His marketing proposal referred to the interest of a possible purchaser and for that reason recommended the tender sale process.  Mr Davis seems to have taken on board information provided by the potential purchaser relating to the property’s saleability.

[35]     On the other hand there is evidence that Barfoot and Thompson informed ANZ through their solicitors about the connection.  ANZ waived the right to require a further independent valuation to be obtained at the cost of the purchaser.

[36]     Suspicions aside, the purchaser’s bid was the only tender received and it was right at the very top level of Sheldons forced sale value.  There is nothing in all of that I think which requires further investigation.

Result

[37]     I am satisfied ANZ has proved Ms Huo does not have an arguable defence based upon her claim that ANZ’s mortgagee sale responsibilities were not fulfilled. The Court is satisfied ANZ acted appropriately to achieve the best sale value reasonably obtainable at the time.

[38]     Accordingly ANZ is entitled to its judgment.

[39]     Judgment is entered against Ms Huo in the sum of $213,282.26 together with interest at 8.4 per cent being $49.09 per day for 199 days, amounting to $9,768.91. In  addition Ms Huo shall pay the plaintiff’s costs on a 2B basis amounting to

$8,336.00 together with disbursements of $1,533.75.  In all judgment is entered in the sum of $232,920.92 inclusive of interest to 16 August 2010.

Associate Judge Christiansen