ASB Bank Ltd v Robertson
[2013] NZHC 2125
•16 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1858 [2013] NZHC 2125
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of CANDACE ANN ROBERTSON
BETWEEN
ASB BANK LIMITED Judgment Creditor
AND
CANDACE ANN ROBERTSON Judgment Debtor
CIV-2013-404-1859 UNDER
the Insolvency Act 2007
IN THE MATTER OF
the bankruptcy of ROSS ARTHUR ROBERTSON
BETWEEN
ASB BANK LIMITED Judgment Creditor
AND
ROSS ARTHUR ROBERTSON Judgment Debtor
Hearing: 16 August 2013 Appearances:
N F D Moffatt and H K Macdonald for Judgment Creditor
R A and C A Robertson in personJudgment:
16 August 2013
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Bell Gully (N F D Moffatt) Auckland, for Judgment Creditor
Copy for:
Mr and Mrs R A Robertson, Auckland.
ASB BANK LIMITED v ROBERTSON [2013] NZHC 2125 [16 August 2013]
[1] These two applications to set aside bankruptcy notices have been heard together. At the start of the hearing I discussed with the parties whether this hearing should be in court or in chambers. Both sides accepted that the case should be heard in court, and I ruled that the case was a court hearing. The Robertsons understood the consequences of the case being heard in court. That is, if there is any appeal from the decision, the appeal will go to the Court of Appeal, with the time for lodging an appeal to be 20 working days after the decision.
[2] The matter for decision is whether the bankruptcy notices that the ASB Bank has served on Mr and Mrs Robertson should be set aside. The Insolvency Act 2006 sets out grounds on which a bankruptcy notice can be set aside. The case law has also developed an additional ground based on preventing abuse of process. The Robertsons have applied to set aside the bankruptcy notices on the grounds that they have a counterclaim against the bank which they could not set up in the original proceeding in which judgment was given against them and which exceeds the judgment that was given against them. That is the matter I have to decide. I do not have to decide anything beyond that. I say that because, in his submissions, Mr Robertson raised other arguments that addressed questions as to whether it was right that he and his wife should be made bankrupt. This case does not require a decision whether Mr and Mrs Robertson should be adjudicated bankrupt. Any question of bankruptcy might be the subject of a later application for adjudication. The question how the court should exercise its discretion is only decided upon the hearing of a bankruptcy application. It is not decided on an application to set aside a bankruptcy notice.
[3] The bankruptcy notices against Mr and Mrs Robertson each require payment of $811,259.37. That is the balance owing on judgments that the bank obtained against Mr and Mrs Robertson on 5 July 2012. The amount for which judgment was entered was $1,962,819.31. The bank had sued the Robertsons under term loans and an overdraft facility. The bank had security over the Robertsons’ property at
710 Hibiscus Coast Highway, Hatfields Beach, Auckland. Since the judgment, the
bank has sold the Robertsons’ property using the power of sale in the mortgage.
On the sale the bank received a net sum of $1,150,559.94. The amount in the bankruptcy notice is the balance due under that judgment, after the proceeds of sale have been taken into account.
[4] The Robertsons’ cross-claim, for which they rely on s 17(7) of the Insolvency Act, is that the bank breached its duty under s 176 of the Property Law Act 2007 to take reasonable care to obtain the best price reasonably obtainable as at the time of the sale.
[5] To succeed in their applications, the Robertsons need to show that the amount of their claim for breach of s 176 is equal to or greater than the balance owing under the judgment, that is, $811,259.37. They also have to show that they could not have used that claim as a defence in the proceeding in which the bank obtained judgment against them. In a setting-aside application, they do not have to prove that they have a watertight case. It is sufficient for them to show that they have a genuine triable
claim. In Sharma v ANZ Banking Group (NZ) Ltd,1 Cooke P referred to this as a
claim of true substance which the debtor genuinely proposes to pursue. In the same decision Cooke P also made the point that on an application to set aside a bankruptcy notice on the grounds of a cross-claim, once the court is satisfied that the debtor has made out the cross-claim, there will be no relevant act of bankruptcy. The court does not have any residual discretion to allow the bankruptcy notice to stand.
[6] The bank opposes the applications. Its case is that it did comply with its duty under s 176 and it says that there is no merit in the Robertsons’ claim. The bank also says that even if the Robertsons could prove a breach of s 176, any damages that the Robertsons could recover would not equal or exceed the amounts in the bankruptcy notices.
[7] In written submissions for this hearing, the bank contended that the Robertsons do not genuinely intend to take a claim against it for breach of s 176. The written submissions pointed out that even though the property was sold in August last year and settlement was completed in November 2012, the Robertsons have not issued any proceedings yet. During the hearing however Mr Moffatt for the
bank withdrew that submission. I agree that that was a proper concession for him to make.
[8] The Robertsons have been handicapped in that they do not have the means to pay for a lawyer. They have applied for legal aid but have been unsuccessful in their application for legal aid so far. I accept that as a matter of practicality they have had to husband their resources. In my judgment it was proper course for them to apply to set aside the bankruptcy notices and await the outcome of these applications before beginning proceedings under s 176 of the Property Law Act. In that regard their position is not very different from the case where a person lodges a caveat against the title to a property and then awaits the outcome of a caveat application before beginning substantive proceedings to enforce the interest they claim in the caveated property. In other words, it was not unreasonable for the Robertsons to await this application before launching a proceeding under s 176. The fact that they have not started proceedings yet does not count against them. I accept that they have throughout genuinely contended that the bank has not performed its duties under s 176.
[9] The Robertsons have also established that they could not have raised their claim against the bank for breach of s 176 of the Property Law Act in the proceeding in which the bank obtained judgment against them. That is because in the opposed summary judgment hearing on 5 July 2012 they did try to raise arguments as to breach of s 176. Toogood J held that as the bank had not yet sold the Robertsons’
property it was too early to consider any arguments about breach of s 176. He said:2
[9] I accept the submission for the plaintiff that, although the duty of care under s 176(1) arises at the time the decision is taken to sell, compliance with the duty cannot be measured until the property is actually sold. This is because a breach of the duty is not actionable without proof of damage. The damages awardable are the loss resulting from the property being sold at a price lower than the best price reasonably obtainable; such damage cannot be determined until the property is sold.
[10] If, following the inevitable sale, the defendants consider that the price obtained is inadequate, they have a right to bring a claim for damages against the bank. It is that time, not now, that their allegations of breach of the bank’s duties to them will be assessed.
2 ASB Bank Ltd v Robertson [2012] NZHC 1587, 5 July 2012.
[10] As any claim by the Robertsons for breach of s 176 of the Property Law Act did not arise until after the bank had sold their property, their cross-claim arose after judgment was given against them and could not have been considered in the summary judgment application.
The duty under s 176 of the Property Law Act
[11] It is necessary to say something about the duty falling on a mortgagee when selling a property in the exercise of a power of sale under a mortgage. In Southland Building Society v Austin,3 I set out certain propositions that I had extracted from reading other cases. Some of those propositions are also applicable here. They include the following:
(a) Section 176 of the Property Law Act 2007 codifies the duty which, under the general law, a mortgagee exercising a power of sale will be taken to owe to the persons named in the section, which includes the current mortgagors.
(b)The duty of care is concerned with obtaining the best price reasonably obtainable as at the time of sale. 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 sale. The duty arises at the time that the decision to sell is made and there is a need to analyse the steps taken, once the decision to sell is made, up to the time of sale.
(d) While the duty goes to care taken in exercising the power, the duty
does not go to the mortgagee’s decision to decide if and when to sell.
(e) When deciding whether reasonable steps have been taken by the mortgagee to obtain the best price, the steps taken by the mortgagee
and those acting for it must be looked at in the round. The issue is a commercial one, to be viewed in practical, commercial terms.
(f) Appointing a competent agent to sell does not discharge the mortgagee’s duties, but since its duty is ultimately 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.
(g)In the normal course, the proposed sale will need to be advertised, with adequate description of the property’s attributes and within reason, while wanting to attract all possible buyers.
(h)There is no obligation to postpone the sale in the hope of obtaining a better price later.
(i)Nor is there an obligation to break up the assets to sell them in a piecemeal manner. This can only be carried out over a substantial period or at a loss.
(j)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.
(k) For a breach of duty to be actionable there must be proof of damage.
(l)A mortgagee’s sale for the 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.
(m)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, leaves a lower price than could otherwise be obtained.
[12] I also refer to the decision of Asher J in Public Trust v Ottow:4
[31] The following steps indicate that a mortgagee has made reasonable efforts to obtain the best reasonably obtainable price:
(a) The appointment of a reputable real estate agent to market the property.
(b) Obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property.
(c) Marketing over a reasonably long period of time.
(d) An extensive advertising and promotional campaign. (e) A properly conducted auction.
(f) A sale price that, given all the circumstances, can be reconciled with expert opinion as to value.
...
[33] A failure to achieve an assessed valuation price at a mortgagee sale is not in itself any indication of a breach of the mortgagee’s duty of care to obtain the best price reasonably obtainable: Moritzson Properties Ltd v McLachlan at [61]. A failure to achieve a price that a mortgagor believes the property should achieve, does not give rise to an inference that a mortgagee has breached its duty to take reasonable care: Wallace v Bank of New Zealand HC AK CIV-2009-
404-3534 1 July 2009 Wylie J, at [54]. Of course, a sale at a price which is much less than the assessed value, when there is no
explanation for the discrepancy, can indicate a failure to take
reasonable care.
[13] While evidence proving those steps goes towards showing compliance with duty it is necessary to bear in mind that while mortgagees such as banks, building societies, finance companies and similar lenders may follow those steps as a matter of routine, it is still necessary to check that those steps are appropriate in the particular circumstances of the case, and also to check whether there are other factors that might call for attention in the particular circumstances of the case.
[14] I also take into account the fact that on a sale by mortgagee there will normally be a discounting from what would be achieved in a sale between willing vendor and willing purchaser on an open market basis. It is generally recognised
that even when all reasonable steps are taken a forced sale will lead to a lower price than a market sale where an owner is under no financial pressure to sell.5
Factual background
[15] The Robertsons’ property at 710 Hibiscus Coast Highway, Hatfields Beach, is approximately 1.8 hectares in area. It is a lifestyle block. It has a Lockwood house built near the top of a cliff. It obviously had attractions in that it enjoyed fine views out over the Hauraki Gulf towards Kawau Island and Great Barrier Island. It is easy to understand the Robertsons’ attachment to the property.
[16] The bank had advanced the Robertsons funds under a term loan in March
2006. The Robertsons also had a revolving credit facility, apparently arranged in May 2009. By November 2010 the revolving credit facility was overdrawn by approximately $115,000. The bank made demand for that outstanding amount. The Robertsons apparently did not comply with that demand. The bank then served a notice under s 119 of the Property Law Act. The Robertsons did not remedy the default in the notice under s 119. By reason of the non-compliance with the demand under s 119, the bank had the right to sell the property under the mortgage.
[17] The bank arranged for the property to be valued. I am about to refer to certain valuations that the bank obtained. The Robertsons have also referred to earlier valuations of the property. So far as this case is concerned, I do not regard the valuations obtained before the beginning of 2011 as relevant in terms of assessing the way the bank went about complying with s 176 of the Property Law Act. Valuations obtained some years before a property is sold cannot be helpful in terms of deciding whether the bank has complied with its duty under s 176 at the time of sale.
[18] I now turn to the valuations that the bank obtained.
[19] There was a valuation given by QV Valuations in March 2011. That gave the property a current market value of $2m including chattels, but said that on a forced
5 Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC
193,480 (HC) and Westpac Banking Corporation v Chisholm (2007) 8 NZCPR 301 (HC).
sale the property might sell for between $1.6m and $1.8m. The bank obtained a second report, this time from registered valuers, Albion Banks Valuation Ltd. That was in April 2011. That gave the property a market value of approximately $2.2m and a forced sale value of $1,850,000.
[20] During this period Mr and Mrs Robertson were in occupation of the property. They remained in occupation up until the bank obtained summary judgment against them in July 2012. The bank obtained an order for possession and it was following that order that Mr and Mrs Robertson left the property.
[21] In 2011 the ASB Bank instructed the local Bayleys franchisee to make a report as to the marketing and sale of the property. Bayleys recommended a four- week marketing campaign leading to an auction, and the bank accepted that advice. In their report Bayleys – and I mention that Bayleys are not registered valuers - suggested that on the present state of the market the property might sell for between
$1.6m and $1.8m but on a forced sale basis it might sell for $1.4m.
[22] The bank appointed Bayleys to conduct a four-week marketing campaign and to sell the property by auction. The auction was held on 28 September 2011. The property sold. The successful bidder was a Mr Hubert Hays. It transpires that Mr Hays was probably not a purchaser in good faith. He did not pay the deposit and the bank cancelled the agreement. Mr Hays does not seem to have had any genuine intention to follow through with the purchase. The only effect of his actions was that it ruined the work that had been done during August and September 2011 to try and sell the property.
[23] For this hearing the Robertsons made it clear that they were not associates of Mr Hays. I accept their submission that they are not responsible for the actions taken by Mr Hayes. I also mention that the early marketing reports by Bayleys made to the ASB indicate that the Robertsons were co-operative in terms of allowing purchasers through the property.
[24] In the last quarter of 2011 the bank went back to the valuers and asked for fresh reports as to the likely value of the property. In their report of 12 October 2011
Albion Banks Valuation Ltd summarised the matter this way:
We understand that independent of our assessment two separate real estate appraisals place the property in the $1.3 to $1.8 million range. It is thought that the lower end of the range is very good buying and that offers around
$1.5 million be prudently considered due to the reduced saleability of the subject in relation to possible vendor reaction. This is considered below what we could normally associate with a cliff top coastal property but at a level which we think would attract purchasers.
[25] QV Valuation’s letter of 19 October 2011 says, in summary:
Based on the sales above and comments noted in this report, we hereby assess the market value of the subject property to be $1.5m with forced sale value range in the $1.2m to $1.35m range.
[26] It is also necessary to note one particular comment that is also set out in that report:
Lastly, we are provided with the marketing report by Bayleys and we note that the owner has been telling some potential buyers that he/she plans to strip chattels from the subject property prior to giving up possession. This without a doubt has deterred some buyers from the property and has impacted on property value. The impact on value is more significant due to the smaller market of potential buyers in this locality for this type of property.
[27] That comment plus the reference in the Albion Banks report about “possible vendor reaction” have been taken to attribute some adverse motives to Mr and Mrs Robertson. Mr and Mrs Robertson have been at pains to emphasise that they take strong exception to those comments. They have adduced evidence from others to show that they were co-operative throughout with the sales process, that they maintained the property and kept it in good condition, and that they were just as motivated to obtain a sale at top price as the bank was. For the setting-aside application I cannot reject that evidence.
[28] In 2012 the ASB Bank instructed Bayleys to conduct another four-week marketing campaign with an auction to be held on 4 April 2012. The bank says that between the auctions of September 2011 and the campaign in 2012, it did receive
offers for the property in the $1m to $1.1m range but it rejected those as being insufficient.
[29] The auction on 4 April 2012 was unsuccessful. The reserve price set by the bank was not met. It was during this period that the Robertsons contacted the bank to say that they had found an interested buyer, Lifetime Holdings Ltd, a company associated with a Mr Eric Anderton. It will be necessary to refer to the offers by Lifetime Holdings Ltd further in this decision.
[30] The background to this is that even before the bank called up the loans, the Robertsons had been trying to sell the property themselves and they had marketed the property extensively. Their efforts to try and find a buyer continued, even after the bank served the notice under s 119 of the Property Law Act.
[31] The summary judgment application had its first call on 16 April 2012 and was heard on 5 July 2012 with Toogood J entering judgment not only for the judgment sum but also giving the bank possession of the property. The Robertsons complied with the order to vacate the property and there has been no criticism from the bank as to the state in which the property was left.
[32] At the end of July 2012 the bank instructed Bayleys to conduct a further marketing campaign, this time inviting tenders for the property. It was trying something different from putting the property up for auction. Tenders closed on
23 August 2012. There were seven tenders. The bank negotiated with the highest bidders and accepted a bid of $1.2m. The Robertsons made the point that the highest bidder was not required to pay a deposit and settlement did not take place until November 2012. The conditions of sale were those typically used by a mortgagee selling in the exercise of a power of sale under a mortgage. The conditions of sale are consistent with a mortgagee endeavouring to minimise all risk.
[33] The bank has included extensive documentary as to the extensive marketing efforts carried out by Bayleys in all three 4-week campaigns. The evidence shows that serious efforts were made to market the property successfully and to promote it to a wide range of potential purchasers. There appears to have been interest not only
occasional enquiry from overseas. The reports by Bayleys show that they sought feedback from interested purchasers. Most of the feedback shows an interest in the property in the level of $1m to about $1.2m. In particular, Mr Moffatt referred me in detail to the reports from Bayleys for the marketing in August 2012 where feedback from purchasers showed an interest in the range of $1m to $1.1m.
[34] The thrust of the bank’s evidence is that it took the steps regarded as appropriate under the judgment of Asher J in Public Trustee v Ottow – that is, a reputable real estate agent was appointed to market the property, reports from registered valuers were obtained, the real estate agents were asked for advice as to how to go about marketing the property, and adequate time was given. The bank adds to its case by pointing out that it tried to sell the property successively on three different occasions with three separate marketing campaigns, all of which were conducted appropriately. It also points to the fact that it was trying for the best price possible by turning down offers in the $1m to $1.1m range. It also says that the eventual sale price of $1.2m can be reconciled with the Quotable Valuation report of October 2011 that a forced sale price would be in the range of $1.2m to $1.35m. I accept on the evidence that there is no suggestion that the bank rushed the sales process or gave inadequate time for marketing and sale.
The Robertsons’ grounds for complaint
[35] Against that, the Robertsons have raised three matters which they say go to
the bank’s non-compliance with its duty under s 176 of the Property Law Act.
(a) They say that in the marketing campaign leading up to the auction in September 2011, Bayleys salespeople were openly advocating that the property would be sold for around the $1 million mark. In particular, they have put in evidence an affidavit by a Clare Thomas and also by Hubert Hays, the purchaser at the auction.
(b)They say that the real estate agents have wrongly disparaged them by accusing them of wanting to strip the property. They say that those
valuers in the estimates they gave for the sale of the property on a forced sale basis.
(c) The third point raised by the Robertsons goes to the offer to buy the property by Lifetime Holdings Ltd in March and April 2012.
[36] These matters need to be considered separately. They are discrete. It is not the case that they can be taken cumulatively to add up to a breach. Instead, they are to be considered as to whether any of them on their own can give rise to a breach of the duty under s 176.
Representations by Bayleys salespeople
[37] I begin with the statements attributed to the land agents advocating that the property be sold for “around the $1 million mark”. This is said to have happened in September 2011. Clare Thomas says that she enquired about the property and was told by a Bayleys agent that they expected the property to sell for “around the
$1 million mark”. Mr Hays says that he attended an open home and a Bayleys’ agent (who is not the person identified in Clare Thomas’ affidavit) told buyers that the property would sell for “around the $1 million mark”. As already noted, Mr Hays is the man who was the successful bidder at the auction on 28 September 2011, and he signed to buy the property for $2m.
[38] The case for the Robertsons is that these were not just isolated statements but they can be taken as indicative of the approach that these land agents were taking – that is, these statements were made not only to Clare Thomas and to Hubert Hays, but to purchasers generally. The case for the Robertsons is that Bayleys were deliberately under-selling the property. Mrs Robertson put the matter this way: “If you set the target low then you will hit it”. In other words, the agents were only concerned with selling the property quickly and earning their commission without concern for maximising the price either for the bank or for the Robertsons.
[39] For fullness, I also add that two of the Bayleys agents have sworn affidavits refuting any suggestion that they represented to potential purchasers during the marketing campaign that the property could be “bought for about $1 million”. I note that the two agents who have sworn affidavits are not the only ones who were involved in the marketing of the property.
[40] As a preliminary assessment, I regard the suggestion that the land agents would indicate that the property could be sold for “around $1 million” is improbable. I say that because I would expect the agents to be motivated to maximise the price, given that their remuneration is going to turn on the sale price – that is, commission is fixed by what a property has sold for. While I regard it as improbable, I bear in mind that I cannot resolve the conflict between the affidavits of the land agents and the affidavits given on behalf of the Robertsons. I cannot regard the evidence given for the Robertsons as impossible. It may turn out that if this matter is to be decided at a hearing, the evidence given by the Robertsons might be preferred over the evidence of the land agents. On that basis I approach this matter in a way similar to the way I would if I was to decide the same issue in a summary judgment application.
[41] It is necessary however to put this evidence into context. The evidence relates only to the marketing campaign during September 2011. That marketing effort was largely nullified by the bid made by Mr Hayes of $2m for the property. His bid shows that he placed no store on any representation by the land agents that the property would sell for about $1m. Even if other purchasers interested in buying the property believed the property would sell for about $1m, that did not count for anything because Mr Hays’ bid was much more than whatever the agents represented. The matter can also be tested by the bank’s own conduct when it was later presented with offers to buy the property for around $1m to $1.1m mark towards the end of 2011. The bank rejected those offers as it clearly thought the property should sell for a higher sum.
[42] Even if the land agents had made the statements attributed to them by the Robertsons’ evidence, they count for nothing because they were overtaken by the actions of Mr Hays in bidding for the property for $2m. There is no evidence of any
similar representations alleged against the Bayleys agents after the auction in
September 2011.
[43] The property was ultimately sold by tender – and that was a year later. Sale by tender is a competitive process in which each bidder does not know what any other bidder may offer for the property. In a tender process, each bidder needs to make his or her own assessment as to an appropriate purchase price for the property. The purchaser needs to pitch his offer at a figure which he thinks he can afford, and should not be more than the market value but is still likely to be more than an offer made by any other bidder. So in fixing the amount of a bid, a purchaser is going to rely on his own judgment. It seems to me implausible that statements attributable to Bayleys salespeople in September 2011 could have any significant effect on a sale by tender in August 2012 following two further marketing campaigns. What this means is that whatever statements the Bayleys people made in September 2011 would not have accounted for anything in the tender process in August 2012.
Allegation of intention to strip property
[44] The Robertsons have explained that this shows a serious misunderstanding on the part of the Bayleys salespeople. They say that certain comments they made have been taken right out of context and have been misinterpreted to mean that they had the intention of stripping the property. They say that there was a discussion about some mortgagors stripping property in anticipation of a mortgagee’s sale, but they say they were not talking about themselves and they were not indicating what their intentions were.
[45] On that they can point to the fact that while they stayed in the property they kept it in good condition. They have put in evidence affidavits from people who visited the property and have affirmed that it was kept in good condition. They left the property when ordered to do so by the court. There is no complaint from the ASB as to the state of the property after the Robertsons had left it. The tender process took place after the Robertsons had vacated the property. There was clearly no stripping of the property. The property was apparently sold in good condition.
[46] This idea of Bayleys that the Robertsons were going to strip the property has arguably influenced the reports by the valuers who made their assessments in October 2011 when asked to assess the forced sale value of the property. In particular, the QV Valuation report states that expressly, and it might be inferred from the Albion Banks valuation as well. The Robertsons can argue that that factor has, in turn, led the valuers to set a forced sale value of the property too low, given that the valuers were acting on incorrect information.
[47] I accept that argument as far as it goes. But I have to take into account that those were reports made in October 2011. The bank accepted offers in December
2011 of around the $1m mark which it did not accept. Later it went through the auction process in April 2012, trying to obtain a higher price but unsuccessfully. It eventually went through the tender process in August and September 2012. It is interesting that during that tender process the bank obtained feedback from potential purchasers who again indicated an intention to buy around the $1m price.
[48] Looking at the matter broadly, while I accept that the Robertsons have been unfairly maligned by Bayleys in wrongly attributing an intention to strip the property, in the end it does not seem to have influenced the bank in the conduct of the sale. The tender process that was used was in fact an effective way to conduct a sale without allowing that factor to get in the way of the sales process. Ultimately I do not regard that issue as relevant.
Offer by Lifetime Holdings Ltd
[49] In March 2012 Mr and Mrs Robertson received an offer to buy the property from Lifetime Holdings Ltd. I understand that Mr Eric Anderton may have been in touch with the Robertsons even earlier, expressing an interest in buying the property although those discussions had not led to anything concrete. The March 2012 date needs to be put into context. Bayleys had set a date for the auction of 4 April 2012. At the same time the bank had issued its summary judgment proceedings and they would have their first call on 16 April 2012.
[50] Lifetime Holdings Ltd made a written offer to buy the property, using the Auckland District Law Society form for the agreement for sale and purchase. The purchase price was $2.2m. The settlement date was to be 29 June 2012. The agreement did not provide for the payment of any deposit. There were two conditions which need to be mentioned:
(a) The purchaser was to arrange a valuation report by a registered valuer on or before 15 June 2012, with the report to be acceptable in all respects to the purchaser.
(b)The purchaser was to arrange a builder’s report from a certified builder or building inspector, with the report to be acceptable in all respects to the purchaser. That again was to be satisfied on or before
15 June 2012.
[51] The sum payable on settlement would be $1.5m. As vendors, the Robertsons would leave in the sum of $700,000 payable under a term loan agreement. Security for the agreement would be a guarantee given by Mr Eric Anderton, the director of the company, and a caveat against the title. The Robertsons would be allowed to live in the property rent-free for a year, with the $700,000 to be paid at the end of that year.
[52] What has not been explained is what was to happen to the ASB Bank mortgage registered against the title. I tried to explore this with the parties. Neither pointed to any direct evidence. I infer that the ASB’s mortgage would have to be removed from the title on settlement. The ASB did not have any right to mortgage the property after the transfer to Lifetime Holdings Ltd. Given that Lifetime Holdings Ltd had not paid a deposit and was to obtain finance for the purchase, the property would be subject to a first mortgage in favour of its financier. The most that the bank could hope for is that it would be able to caveat whatever interest the Robertsons had through their own caveatable interest.
[53] The bank did not regard that offer from Lifetime Holdings Ltd as acceptable. A bank officer says that the agreement was more in the nature of an option.
It provided the bank with no assurance that settlement would eventuate and it would stand in the way of the bank accepting any satisfactory unconditional offers in the interim. In the meantime, the auction was set for 4 April 2012. The risk for the bank was that if it had called off the auction and tried to pursue matters with Lifetime Holdings Ltd, it risked wasting the effort that had gone into marketing the property. Instead there would be the uncertainty whether any agreement with Lifetime Holdings Ltd would mature into a concluded purchase of the property.
[54] I accept that the bank had good reason to be concerned with that agreement. It is important not to judge the bank’s decision with hindsight. The bank’s reaction can be seen to be based on commercial reasons. There was the absence of a deposit; there is the longer settlement date, and the fact that conditions as to valuation and building reports allowed the purchaser to exercise a subjective judgment. These were all worrying features. There would also be the concern that the Robertsons as vendors would leave in $700,000 with unsatisfactory security. What that meant is that, all going well, the bank might count on receiving $1.5m if the purchaser settled, but there would be complete uncertainty as to the remaining $700,000.
[55] In hindsight, it might be said that $1.5m would still have been a good result for the bank. But the bank was not to know that ahead of the auction. On 4 April
2012 it was not to know that the reserve price would not be reached.
[56] The next aspect to Lifetime Holdings Ltd is that even though the auction went ahead, after the auction the bank showed interest in seeing whether a deal could be made with Lifetime Holdings Ltd. At about the same time Lifetime Holdings Ltd made a revised offer. The revised offer was for $2.1m. Settlement date was 11 May
2012. The finance date was 24 April 2012. There was not to be an immediate deposit but, on settlement, the purchaser would pay $1.2m. The remaining $900,000 would be left in, with three payments of $300,000 each on 15 May 2013, 15 May
2014 and 15 May 2015. The Robertsons would remain in possession for those years, rent-free. The Robertsons say that that would have given them the opportunity to rent the property out. By renting the property out they would have been able to service the outstanding balance payable to the ASB.
[57] The bank was consulted about this agreement. The bank’s position was that there should be only one condition – being a finance condition to be satisfied no later than 13 April 2012. The settlement date should be brought forward to 27 April 2012, and a substantial deposit would be paid directly to the bank in reduction of the debt. As to security for the money that would be left in, that was also to be a term loan guaranteed by Mr Anderton. The Robertsons and Lifetime Holdings Ltd did enter
into a signed agreement.6
[58] In the end, the matter foundered. The purchaser had the property valued. Its financier advised that the property did not have a value of $2.1m and it would not be possible to finance the purchase at that price. The matter therefore fell over.
[59] The bank raises a preliminary point about this evidence. It takes the legal point that the offer by Lifetime Holdings Ltd is not relevant to s 176 of the Property Law Act because s 176 relates only to sales by a mortgagee, whereas this involved a sale by the mortgagor.
[60] I am not confident that the matter is as clear-cut as that. Under s 179 of the Property Law Act, a mortgagee may adopt an agreement for sale and purchase entered into by a mortgagor. If a mortgagee were to adopt an agreement under s 179, something that can only be done if the power of sale has accrued, any sale by the mortgagee after adopting an agreement would be a sale by a mortgagee in the exercise of its power of sale conferred under a mortgage and could be subject to a duty under s 176.
[61] Mr Moffatt responded that that was taking an unrealistic view of the matter. He points out that mortgagees do not typically enter into standard agreements for sale and purchase such as the Auckland District Law Society form. Instead, they prepare agreements under which mortgagees minimise all risks and ensure they give no representations, no warranties, so that there can be no come-back against them by purchasers. I take his point. Nevertheless for present purposes I am not going to rule out the argument for the Robertsons solely on the basis that this involved a sale
by a mortgagor rather than a sale by a mortgagee. It remains open for argument –
6 Exhibit M1 of the Robertsons’ reply affidavit.
perhaps at some later case – whether a mortgagee might breach its duty under s 176 by failing to adopt an agreement under s 179. I anticipate that any case may turn on its own particular facts.
[62] The second offer by Lifetime Holdings Ltd needs to be looked at on its facts. I accept Mr Moffatt’s submission that ultimately the parties did not get across the line. In making that submission he said that the parties did not reach a formal agreement. For the agreement to work, it needed the co-operation of the bank. The bank cannot wilfully spike proper efforts made by a mortgagor to try and sell a property. Nevertheless, the matter really foundered when Mr Anderton tried to put his finances in order and found that his financier would not support a sale at $2.1m. It is that factor that leads me to believe that notwithstanding the sincere efforts by Mr and Mrs Robertson to try and sell the property by their own efforts in addition to what the bank was trying to do and even if the deal with Lifetime Holdings Ltd had got co-operation from the bank, it was still unlikely to lead to a concluded settlement. I do not find any breach by the bank that could give rise to a claim under s 176 in the way that it dealt with the proposals for the property to be sold to Lifetime Holdings Ltd.
Does the Robertsons’ claim exceed the amount of the judgment?
[63] Even if the Robertsons could establish that they had a claim for breach of duty under s 176, they also need to establish that the claim would be for more than the amount claimed in the bankruptcy notice – more than $811,259.37. What that means is that they would have to show that on a properly conducted sale by the ASB Bank, the property would have sold for more than $1,961,000 - that is, the net sale proceeds received by the bank plus the amount of the judgment. None of the relevant valuation evidence supports such a sale price. I take as the relevant evidence the valuation evidence from early 2011 onwards. Albion Banks Valuation Ltd’s report of April 2011 puts a highest forced sale valuation at $1.85m. With hindsight, that can be seen to be too high. By October 2011 both the registered valuers had revised their forced sale assessments downwards. To a certain extent, they made downwards assessments, taking into account misleading information provided by Bayleys. But, even so, the facts of this case strongly suggest that any
forced sale price over $1.5m would be extremely optimistic. For their part, the Robertsons hang their argument on the offer by Lifetime Holdings Ltd to buy the property at $2.1m. However, the facts are that that price was not sustainable because the financier for Lifetime Holdings Ltd was not prepared to support a purchase at that price. In the context of all the other evidence in this case, I regard the claim that the property could sell for that price as unsustainable.
Outcome
[64] I have considered all the arguments that the Robertsons have put forward as to why the bank did breach its duty under s 176. I have not found that they have a triable case for breach of that duty or a claim for a sum that is greater than the judgment against them.
[65] I add this. The Robertsons have made the point that they do not have legal advice, and that they consider themselves at a disadvantage. I have to say that I regard them as having done a good job today in presenting their case. I accept they are not masters of legal detail and legal doctrine. However, what they have done for the hearing is put in a lot of effort to prepare their arguments, obtained a lot of evidence and put it before the court in proper form. They are certainly alive to all the factual issues that I have had to consider. I appreciate that this is going to be a disappointing decision for the Robertsons but I would like to say that they have done a proper job in presenting their case clearly for me to consider. It is unfortunate, but this is one of those cases which does bear hard on them in that, in the way of mortgagee sales, mortgagors often find that what properties sell for is often much less than what they believe the property should have sold for. Unfortunately, this is not the first case in which this has happened, and I am afraid it will not be the last one either.
[66] I make these orders:
(a) I dismiss the applications to set aside the bankruptcy notices. The effect of my dismissing the applications is that time now starts running for the bank to file any applications for adjudication. If the
bank does file any such application that will be the time for deciding any questions of bankruptcy. I have not decided that question in this decision now.
(b)I award the bank costs on a 2B basis. I direct the bank to write to the Robertsons setting out its calculation of costs, and then to submit a memorandum to the court. The Robertsons will have one week from receiving the bank’s calculations to file any reply memorandum with the court. I will decide costs on the papers.
(c) There will be one award of costs which will be payable by Mr and
Mrs Robertson jointly and severally.
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R M Bell
Associate Judge
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