Bank of New Zealand Limited v Fernando

[2021] NZHC 2595

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-000015

[2021] NZHC 2595

BETWEEN

BANK OF NEW ZEALAND LIMITED

Plaintiff

AND

JOHN WINSTON LAKSHAN FERNANDO

Defendant

Hearing:	15 September 2021
Appearances:	N J Robertson for Plaintiff G P Davis for Defendant
Judgment:	30 September 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

[with Redactions to [8](a)-(g)]

This judgment was delivered by me on 30 September 2021 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

BANK OF NEW ZEALAND LTD v FERNANDO [2021] NZHC 2595 [30 September 2021]

[1]The plaintiff, Bank of New Zealand Ltd (the Bank), seeks:

(a)summary   judgment   against   the   defendant,   John    Fernando   (Mr Fernando) for $370,057.23 plus default interest and costs pursuant to Mr Fernando’s personal guarantee of Housing Term Loan agreements between the Bank and Mr Fernando’s company, JohnF-

LTC Ltd; and

(b)summary judgment against Mr Fernando for $74,463.45 plus default interest and costs pursuant to Mr Fernando’s personal guarantee of advances made pursuant to an overdraft facility provided by the Bank to another of Mr Fernando’s companies, Worcester Developments Ltd.

[2]        The amounts claimed represent shortfalls following the mortgagee’s sale of properties provided as security to the Bank.

[3]        There is no dispute the Bank made the advances or as to the terms upon which they were made. There is no dispute that Mr Fernando guaranteed the Bank’s advances or as to the terms of the guarantees. There is no dispute either as to the defaults that occurred that triggered the steps taken by the Bank to sell the properties provided as security for the Bank’s advances, nor that the sale proceeds were properly applied to reduce the amounts owing to the Bank. Further, Mr Fernando does not dispute that there is an amount owing by him to the Bank under the guarantees.

[4]        However, Mr Fernando opposes the Bank’s application for summary judgment. He asserts the Bank’s claims are unsuitable for summary judgment because he has two arguable defences as follows:

(a)that the Bank, as mortgagee, breached the duty of reasonable care owed under s 176 of the Property Law Act 2007 to obtain the best prices reasonably obtainable as at the time of sale when it sold three properties held as security for the advances, known as units 313, 314 and 323, 116 Stanmore Road (units 313, 314 and 323 respectively); and

(b)the Bank acted oppressively in respect to payment negotiations, the mortgagee sale process of units 313, 314 and 323 and the sale of them in breach of s 120(b) of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) such that the Court should reopen the term loans and facility agreement between the Bank and Mr Fernando’s companies.

[5]        Mr Fernando also argues there are material conflicts of evidence which make the Bank’s claims unsuitable for summary judgment.

[6]        The Bank rejects Mr Fernando’s defences and says there is no proper foundation for them. It says it has satisfied its onus to establish Mr Fernando has no arguable defence to the claims.

Background

[7]        Mr Fernando was the sole director and shareholder of JohnF-LTC Ltd and Worcester Developments Ltd.

[8]        The Bank made a series of advances to Mr Fernando, JohnF-LTC Ltd and Worcester Developments Ltd. Not all of the advances are the subject of these claims, but some mention of them provides the relevant context. They are summarised as follows:

(a)a Special Rate Housing Term Loan (account 000) dated 19 July 2018 for $1,180,000 to Mr Fernando in respect of which security was provided by way of a first registered mortgage over a property at     63 Quaifes Road, Halswell, Christchurch (the Quaifes Road property);

(b)Mr Fernando’s You Money Account (account 000);

(c)a Housing Term Loan (account 000) dated 17 August 2018 for $283,500 to JohnF-LTC Ltd in respect of which security was provided by way of a first registered mortgage over units 313, 314 and 323;

(d)a Housing Home Loan (account 000) dated 17 August 2018 for

$283,500 to JohnF-LTC Ltd in respect of which security was provided by way of a first registered mortgage over units 313, 314 and 323;

(e)a Housing Term Loan (account 000) dated 17 August 2018 for $373,500 to JohnF-LTC Ltd in respect of which security was provided by way of a first registered mortgage over units 313, 314 and 323;

(f)a Small Business facility (account 000) for JohnF-LTC Ltd; and

(g)a Small Business account and overdraft facility (account 000) for Worcester Developments Ltd.

[9]        Mr Fernando provided the Bank with an unlimited Deed of Guarantee and Indemnity in respect of the borrowing of JohnF-LTC Ltd on 17 August 2018. He provided a guarantee limited to $200,000 in respect of Worcester Developments Ltd’s Small Business facility by a facility document dated 14 November 2018.

[10]      The performance of Mr Fernando and his companies in respect to their payment obligations to the Bank was unsatisfactory. As a consequence, between December 2018 and early May 2019 the accounts were subject to oversight by the Bank’s Loan Management Team. By 1 March 2019, the arrears (across all accounts) totalled $41,312. Mr Fernando made promises to clear arrears which were not honoured.

[11]On 3 April 2019, the Bank wrote to Mr Fernando that the arrears totalled

$50,144.38 and provided advice as to the options available to remedy the situation if the arrears could not be cleared.

[12]      The  arrears  were  not  cleared.  On  24  April   2019,  the  Bank  advised   Mr Fernando that due to the high level of defaults a formal recovery process would commence from 3 May 2019.

[13]      The Bank instructed Verofi Ltd (Verofi) to act on its behalf to manage the recovery process. Mr Fernando was advised of this on 8 May 2019.

[14]      On 22 May 2019, Verofi sent demand notices to JohnF-LTC Ltd, Worcester Developments Ltd and to Mr Fernando demanding repayment of the amounts in arrears by 5 June 2019. The defaults were not remedied.

[15]      On 13 June 2019, the Bank issued the requisite notices under the Property Law Act to JohnF-LTC Ltd and Mr Fernando which specified that all the amounts secured by its mortgages over Quaife’s Road and units 313, 314 and 323 would become due and payable if the defaults were not remedied by 29 July 2019. Mr Fernando was personally served on 22 June 2019.

[16]        Mr Fernando instructed a local lawyer, Mr Shaun Cottrell. On 24 June 2019, Mr Cottrell put a proposal to Verofi to reduce the arrears at the rate of $7,000 per month provided Worcester Developments Ltd’s facility of $150,000 remained in place.

[17]      On 25 June 2019, Verofi declined the proposal noting the defaults must be remedied by 29 July 2019.

[18]      The defaults were not remedied by 29 July 2019. On 30 July 2019, Mr Cottrell made a further proposal to “clear all of the arrears (except the cancelled overdraft limit)” by a payment of $55,375 on the basis that the overdraft facility was put back in place or additional time was allowed to refinance the overdraft.

[19]      On 2 August 2019, Mr Cottrell advised Verofi that he was holding $55,000 in his trust account to make payment on the proposed terms.

[20]      Also, on 2 August 2019, Verofi advised Mr Cottrell that the Bank was not prepared to reinstate the overdraft facility but would allow four weeks until 30 August 2019 for JohnF-LTC Ltd, Worcester Developments Ltd and Mr Fernando to refinance and repay their loans.

[21]      On 5 August 2019, Verofi issued a letter to Mr Fernando and JohnF-LTC Ltd that the Property Law Act notices had expired unremedied and included demand notices to Mr Fernando and JohnF-LTC Ltd requiring full repayment of the loans and

guaranteed amounts within 28 days, failing which the Bank would exercise its rights to sell the Quaifes Road property and units 313, 314 and 323.

[22]      On 30 August 2019, Verofi requested an update from Mr Cottrell who advised that Mr Fernando had an offer on the Quaifes Road property. Ultimately, the Bank consented to the sale of the Quaifes Road property. Settlement occurred on 25 October 2019. The Bank received $1,315,000 upon settlement which cleared Mr Fernando’s personal loan and $92,718.82 was applied to the debt owed by Worcester Developments Ltd (guaranteed by Mr Fernando).

[23]      At around this time, Verofi did searches to see whether units 313, 314 or 323 had been listed for sale and could find no evidence of that. There was also no details provided by Mr Fernando of any marketing of the properties for sale.

[24]      On 17 October 2019, JohnF-LTC Ltd was struck from the Register of Companies.

[25]      Verofi obtained market and forced sale appraisals of units 313, 314 and 323 from a licenced real estate agent, Total Realty Ltd. It also obtained market and forced sale appraisals and marketing proposals for the units from another licenced real estate agent, Grenadier Real Estate Ltd (Harcourts Grenadier).   These were received on   24 October 2019 and 29 October 2019 respectively.

[26]      On 8 November 2019, the Bank obtained registered market and forced sale valuations of units 313, 314 and 323 from Metro Valuations Ltd.

[27]      On 11 November 2019, Mr Fernando was advised the Bank had obtained appraisals for units 313, 314 and 323 and that Harcourts Grenadier had been instructed to auction the units on 11 December 2019. He was also advised the agents would make contact with the tenants to arrange access to the properties emphasising “[i]t is important that prospective purchasers are able to fully view the property so your co- operation in this process would be appreciated.”

[28]      Harcourts Grenadier was appointed by the Bank to complete mortgagee’s sales of units 313, 314 and 323. It commenced marketing the properties from 11 November 2019. The units were put up for sale by auction on 11 December 2019.  Units 313 and 314 sold at auction. Unit 323 did not sell at auction but subsequently following negotiation.

[29]On 12 December 2019, Verofi emailed Mr Fernando advising of the sales.

[30]      Settlement of the sale of unit 313 occurred on 23 December 2019. Settlement of the sales of units 314 and 323 occurred on 17 January 2020. After application of the proceeds of sale there remained a residual balance of $370,057.23 owing on the loans made to JohnF-LTC Ltd and $74,463.45 owing by Worcester Developments Ltd in respect of its overdraft facility. In total $444,520.68 remained owing to the Bank in respect of which Mr Fernando had given his personal guarantees.

[31]      On 20 January 2020, Verofi advised Mr Fernando in writing how the proceeds of sale of units 313, 314 and 323 were applied and of the residual debts that remained owing.

[32]      That same day, a  notice  of demand for payment of the  debts was sent  to  Mr Fernando requiring payment by 3 February 2020. This demand expired unremedied and nothing has been paid.

Summary judgment principles

[33]      The Bank’s application is brought pursuant to r 12.2(1) of the High Court Rules 2016. It provides:

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[34]      The Court may give judgment in relation to a part of a claim even if the plaintiff cannot prove the whole of it.1 Further, the Court may give judgment on liability and

1      See Andrew Beck and others (eds) McGechan on Procedure (online ed, Thompson Reuters) at [HR12.2.10].

order a trial on the issue of amount if the party applying for summary judgment satisfies the Court that the only issue to be tried is one of the amount claimed.2

[35]      An often-cited summation of the correct approach to summary judgment applications is contained in Krukziener v Hanover Finance Ltd as follows:3

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[36]I emphasise the following: 4

(a)the Bank must satisfy the Court that Mr Fernando has no arguable defence to its claims. The issue is whether there is a real question to be tried;

(b)the onus remains on the Bank throughout, but where its unchallenged evidence is sufficient to convince the Court Mr Fernando has no arguable defence, Mr Fernando will have to respond with evidence of an arguable defence in order to defeat the application;

(c)it is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise;

2      High Court Rules 2016, r 12.3.

3      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 and confirmed in

Mitchell v Trustees Executors Ltd [2011] NZCA 519, (2011) 12 NZCPR 659 at [35].

4      See Pemberton v Chappell [1987] 1 NZLR 1 (CA); Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA); Krukziener v Hanover Finance Ltd, above n 3, at [26]; Bilbie Dymock Corp Ltd v Patel (1987) 1 NZPC 84 (CA) and Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205 (CA) at 209.

(d)issues of law, even though they may be complex can, however, be determined in an application for summary judgment;

(e)the Court is not required to accept possible defences which are not bona fide, credible or are lacking in detail. The Court should adopt a robust and realistic approach to the assessment of evidence, but nevertheless summary judgment may be inappropriate where the ultimate determination turns on a judgement that can only properly be reached after a full hearing of all the evidence; and

(f)the Court’s power to enter summary judgment is discretionary, but the discretion is of a residual kind. There is also little scope for exercising the discretion not to grant summary judgment where there is no suggestion of injustice.

First defence – s 176 of the Property Law Act

The law

[37]Section 176 of the Property Law Act provides:

176     Duty of mortgagee exercising power of sale

(1)A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:

(a)the current mortgagor:

(b)any former mortgagor:

(c)any covenantor:

…

[38]      A covenantor is defined in s 4 to include a person, other than the mortgagor, who has agreed to pay money or perform obligations secured by the mortgage. It includes a guarantor, so the duty in s 176 is owed by the Bank to Mr Fernando.

[39]In Public Trust v Ottow, Asher J stated the following principles: 5

[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 Ottow concerning the sale, it must be observed that a mortgagee is “not a trustee of the power of sale of the mortgagor”:6 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.7

b)The mortgagee’s duty of care is to take reasonable care to obtain the

best price reasonably obtainable at the time of sale.8

c)It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained.9

d)A mortgagee is under no obligation to improve the property or increase its value.10

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.11

f)A mortgagee does not have any general duty to maintain properties prior to sale.12

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.13

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.14

5      Public Trust v Ottow (2009) 10 NZCPR 879 (HC).

6      Nash v Eads (1880) 25 SJ 95.

7      Raja (Administratrix of the Estate of Raja (Dcd)) v Austin Gray (A Firm) [2002] EWCA Civ 1965 at [55]; Silven Properties v Royal Bank of Scotland Plc [2004] 1 WLR 997 (CA) at [14].

8      Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC 193,480 (HC).

9      Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 at 61; Silven Properties v Royal Bank of Scotland Plc, above n 7 at [14].

10     Silven Properties v Royal Bank of Scotland Plc, above n 7, at [16].

11     Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262,448 at [61].

12     Silven Properties v Royal Bank of Scotland Plc, above n 7, at [16].

13     G Merel & Co Ltd v Barclays Bank (1963) 1 SJ 542 (Ch).

14     Palk v Mortgage Services Funding Plc [1993] 2 All ER 481 at 486.

i)Proper care must be taken to expose the property to the market and to obtain the best price reasonably obtainable.15

[40]      Asher J considered factors which are likely to indicate whether a mortgagee has taken reasonable care to obtain the best reasonably obtainable price were:

[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.

[41]      These principles were referred to by Wylie J in Westpac New Zealand Ltd v Lamb and he further elaborated:16

[34]      I hesitate to supplement this careful analysis, but would suggest as follows:

(a)The statutory obligation is not to obtain the best price reasonably obtainable, but to take reasonable care to obtain the best price reasonably obtainable;17

(b)A property is only worth what somebody is prepared to pay for it at the time of sale;

(c)Valuations lose much of their significance if reasonable care is taken, there has been a properly advertised and conducted auction, and the property has been sold at auction or by negotiation after the auction;18

15     Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP403-IM00, 19 December 2001 at [43](d) and (f).

16     Westpac New Zealand Ltd v Lamb [2012] NZHC 319.

17     Land Law (online, loose-leaf ed, Brookers) at [8.9.06(4)] and cases there cited.

18     Harts Contributory Mortgages Nominee Co Ltd v Bryers, above n 15, at [49]; ASB Bank Ltd v Urquhart HC Auckland CIV-2010-404-6913, 20 May 2011 at [85].

(d)If reasonable care is taken, it does not necessarily follow that the best price reasonably obtainable will, in fact, be achieved;19

(e)What constitutes reasonable care will always turn on the facts of the case. The steps taken by the mortgagee in fulfilling the statutory duty have to be looked at in the round.20

(f)In considering the reasonableness of the care taken, the courts should be slow to second-guess the actions of a mortgagee acting on apparently sound professional advice.21

Mr Fernando’s submissions

[42]      Mr Fernando’s arguments in relation to s 176 were marshalled under three headings namely:

(a)the mortgagee sale and marketing process;

(b)disputed valuations – a conflict of evidence; and

(c)conduct of the auction/the reserve prices.

[43]      Before dealing with the arguments advanced, something must be said about Mr Fernando’s approach to the evidence. Mr Fernando makes several assertions upon which his defences are based for which there is no or insufficient supporting evidence. One such assertion is that units 313, 314 and 323 were sold at an undervalue. He has provided no evidence of the market value of the units at the time of sale. Mr Davis submits this is a trial issue and that Mr Fernando has not had time to obtain valuation evidence. I do not agree. Mr Fernando has had adequate time since he was served with this proceeding on 2 March 2021 to obtain valuation evidence and put it before the Court. The evidence before me as to the value of the units at the time of sale is limited to what has been provided by the Bank in the real estate appraisals and registered valuations it obtained and, of course, the sale prices actually achieved at auction following the marketing campaign.

19     Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd, above n 8.

20     Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA) at [50]; affirmed on appeal in

Newport Farm Ltd v Damesh Holdings Ltd [2003] UKPC 54, [2004] 1 NZLR 721.

21     Taylor v Westpac Banking Corp (1996) 7 TCLR 177 (CA) at 182–183.

[44]      But there are other such assertions also. Mr Fernando says he asked the Bank’s listing agent for the appraisals obtained by the Bank but does not say when or how such a request was made and his counsel accepts there is no other evidence of such a request. Similarly, Mr Fernando says he could have sold the units himself and he had buyers interested in buying them but he never produced any agreement for the sale of the units to the Bank or in his affidavits. He also says he could have refinanced but has produced no evidence of any offers of finance.

[45]      While it is not usually appropriate to determine disputed questions of fact on a summary judgment application, a realistic approach to the evidence is required. Here, the central contentions made by Mr Fernando lack a sufficient evidential foundation or credibility and can be safely dismissed.

[46]I will deal with each of the matters raised by Mr Fernando seriatim.

The mortgagee sale and marketing process

[47]      Mr Fernando argues it is not clear whether “any considerable thought” was given to whether Harcourts Grenadier’s proposal to sell the units by auction was the appropriate method of sale. Related to this, he contends the marketing period was too short given a recommendation in Metro Valuation Ltd’s report of a marketing period of one to three months.

[48]      A mortgagee in the position of the Bank must decide whether a sale should be by auction or private treaty. I accept, as a general proposition, the fact a property is sold by auction does not necessarily mean the best price reasonably obtainable was in fact obtained.22 However, I do not accept Mr Fernando’s assertion that the Bank did not care what it got for the units and was simply trying to get sales completed so that it “could then come after me for the shortfall”. Such an approach would clearly not be in the Bank’s interest. Further, given the long history of defaults the Bank could have no expectation that any shortfall would be readily recoverable from Mr Fernando.

22     Tse Kwong Lam v Wong Chit Sen, above n 9.

[49]      Just as he has put no evidence before the Court as to the value of the units as at the time of sale, Mr Fernando has put no evidence before the Court to suggest there were characteristics of the units, market conditions or some other factors that meant sale by auction was inappropriate or would fail to obtain the best price reasonably obtainable.

[50]      For the Bank, the management of the loans and sales process were under the stewardship of Marc Gilmour, a default recovery manager at Verofi with experience overseeing mortgagee’s sales on behalf of banks and other financial institutions.

[51]      The decision to proceed by way of auction was made after market appraisals were received from both Harcourts Grenadier and Total Realty. In the case of Harcourts Grenadier, it also provided a proposed marketing programme, marketing calendar and draft advertisements. It was Harcourts Grenadier that advised that the best method of sale was through a four week marketing programme and an auction process.

[52]      Harcourts Grenadier is a well-established licensed real estate agency trading under the nationwide Harcourts banner. The marketing appraisals were signed-off by Cedric King, the City Office Manager and an Associate Member of the Real Estate Institute of New Zealand, and Tristan Harcourt, a Licensed Property Consultant. Harcourts Grenadier’s marketing proposal included advertising on several prominent websites, the placing of advertisements in newspapers and in the Harcourts Bluebook. It also included biweekly open days.

[53]      During the marketing period, Harcourts Grenadier reported to the Bank each week recording the marketing activity and providing buyer feedback. Harcourt Grenadier’s marketing of the units also included use of databases to identify and contact persons who might be interested in purchasing the units. Harcourt Grenadier’s marketing reports recorded phone and internet enquiries generated by its efforts as well as buyer inspections. Buyer feedback obtained during the marketing period was considered in Harcourt Grenadier’s recommendation of the reserve prices for auction.

[54]      Relevant  to  the  question  whether   sale   by   auction   was   appropriate,  Mr Fernando’s evidence is that he was attempting to sell the units privately. This failed to produce any buyers. On 18 November 2019, Mr Fernando advised that he had a buyer for unit 323 who would settle before 11 December 2019. He also advised he was looking at refinancing units 313 and 314. However, when he was requested to provide a copy of the agreement for sale and purchase of unit 323 for the Bank’s consent to the sale, he did not do so. His evidence that he could have sold or refinanced and obtained $361,000 more than the Bank obtained at mortgagee’s sale is contradicted by the fact he never produced any agreement for sale, nor any offers to refinance.

[55]      As far as the marketing period is concerned, the one month period adopted (from 11 November 2019 to 11 December 2019) was in accordance with Metro Valuation Ltd’s recommendation (albeit at the low end) but, more importantly, was as recommended by Harcourts Grenadier which specialises in the marketing of real estate.

[56]      There is nothing before me to suggest the Bank’s decision to sell the units by auction or the marketing period were inappropriate. The Bank acted on specialist advice. In the absence of something to suggest it was incorrect, it is not for the Court to gainsay the advice.

[57]      Second, Mr Fernando submits that neither the real estate agents’ appraisals nor valuations obtained for the properties were provided to him despite him requesting them from the listing agent.

[58]      Verofi kept Mr Fernando up-to-date with the sale process. He was advised that appraisals had been obtained in a letter of 11 November 2019 but there is no record he requested them. He provides no detail of when or how he requested the information.

[59]      In any event, there was no obligation upon the Bank to supply this information even if a request had been made.23 Further, I cannot imagine that a mortgagee would, except in exceptional circumstances, provide such information to a mortgagor (or the

23      Public Trust v Ottow, above n 5, at [17(g)], citing G Merel & Co Ltd v Barclays Bank, above n 13.

guarantor of the mortgagor’s obligations) when the disclosure of such information could prejudice the mortgagee’s efforts to obtain the best price for the property.

[60]      Third, it is submitted the Bank has not provided evidence of the advertisements that were run marketing the properties which, it is suggested, is a significant gap in the evidence from which inferences should be drawn against the Bank. Mr Davis developed this argument by submitting that if advertisements were in fact run and took the form of the draft advertisements prepared by Harcourts Grenadier, then they were very spartan and took no care to actively promote the units for sale.

[61]      There is nothing in this point. Draft advertisements were attached to Harcourts Grenadier’s marketing proposal. Harcourts Grenadier’s marketing reports record the dates that the advertisements appeared in The Press and the Harcourts Bluebook. The advertisements were prepared by Harcourts Grenadier. It is unclear what Mr Davis means when he says they did not actively promote the units for sale. They clearly produced interest in the market. There is no evidence before me that the advertisements were unsatisfactory.

[62]      Fourth, it is submitted that Harcourts Grenadier did not market the units in good faith because they disclosed to the Bank the content of a confidential conversation between Mr Fernando and the salesperson.

[63]      In its market appraisals of 29 October 2019 Harcourts Grenadier recorded a conversation with Mr Fernando which he asked to be confidential. Counsel accept the conversation is irrelevant to the question of whether the Bank obtained the best price reasonably obtainable at the time of sale.

[64]      Fifth, it is submitted that Harcourts Grenadier’s marketing reports indicate that it had not provided accurate information to prospective buyers about Body Corporate fees.

[65]      The marketing reports record that prospective buyers made negative comments about the units for several reasons which included a lack of sun, poor workmanship, a

lack of parking and that Body Corporate fees were payable when there were other properties competing in the market where no such fees applied. Mr Fernando says these comments do not “ring true”. Mr Davis went further and submits the situation with Body Corporate fees does not appear to have been properly or accurately explained to prospective buyers. Once again, there is no evidence to support this submission. Harcourts Grenadier has simply recorded feedback received about the units. There is nothing to suggest the position in relation to Body Corporate fees was misrepresented to prospective buyers.

Disputed valuations

[66]      The kernel of Mr Fernando’s defence is that the units were sold at an undervalue and for less than he would have obtained for them if he had been able to sell them or refinance. He does not accept the appraisals/valuations obtained by the Bank prior to auction were accurate.

[67]      As noted, the Bank obtained market appraisals from Harcourts Grenadier and Total Realty and registered valuations from Metro Valuations Ltd. These provided both market and forced sale values for each unit. In the cases of units 313 and 314 the sale prices obtained were at the high-end of the forced sale values. In the case of unit 323, it was passed in at auction at $265,000 and only as a result of post-auction negotiations did the Bank receive and accept an offer of $280,000. This was mid- range of the forced sale value provided by Metro Valuations Ltd. The position is as set out in the table below.

Property	Metro Valuations	Total Realty	Harcourts	Sale Price
Unit 313 – 116 Stanmore Road, Linwood	Market: $250,000 Forced Sale: $176,000 – 208,000	Market: $210,000 – 220,000 Forced Sale: $180,000	Market: $210,000 – 240,000 Forced Sale: $180,000 – 210,000	$201,000
Unit 314 – 116 Stanmore Road, Linwood	Market: $250,000 Forced Sale: $176,000 – 208,000	Market: $210,000 – 220,000 Forced Sale: $180,000	Market: $210,000 – 240,000 Forced Sale: $180,000 – 210,000	$203,000
Unit 323 – 116 Stanmore Road, Linwood	Market: $360,000 Forced Sale: $264,000 – 296,000	Market: $330,000 – 350,000 Forced Sale: $300,000	Market: $340,000 – 370,000 Forced Sale: $290,000 – 320,000	$280,000

[68]      The advice obtained by the Bank recognised the likelihood that a forced sale would result in a lower sale price than might otherwise be achieved. The reasons for this are well-known and are set out in the evidence of Mr Gilmore. They include the potential for a lack of vendor cooperation, limited or no access to a property for marketing purposes, an absence of the usual vendor warranties and increased risk assumed by a purchaser who may not be guaranteed vacant possession upon settlement.

[69]      Here, it is notable that access to unit 314 was only obtained during the marketing period and no buyers were able to be shown into unit 323. Harcourts Grenadier asked Mr Fernando for the contact details of the tenants of the units so

access could be obtained, but he advised he had no idea who was renting them as they were being managed by a rental agency. Harcourts Grenadier contacted the rental agency to be advised that it would not provide the tenants’ details due to privacy issues. It is inconceivable that Mr Fernando could not have obtained and provided the tenants’ contact details to Harcourts Grenadier. In any event, it appears that Harcourts Grenadier did what it could to obtain access to the units for marketing purposes. In the absence of Mr Fernando facilitating access the Bank was not required to do more or to go into possession.

[70]      Mr Fernando relies upon valuations  he obtained for units 314 and 323 on     6 June 2018 from Jones Lang LaSalle. In Jones Lang LaSalle’s opinion the market value of unit 314 was in the range of $295,000 to $325,000 and it adopted a value at the higher end of this range of $315,000. In respect of unit 323, Jones Lang LaSalle’s opinion was its market value was in the range of $395,000 to $425,000 and, again, it adopted a value at the higher end of this range of $415,000.

[71]      I do not consider Jones Lang LaSalle’s valuations are of assistance for several reasons. First, the valuations were 18 months old at the time of sale of the units by the Bank. Second, at the date of Jones Lang LaSalle’s valuations the units were new and in excellent condition. That was not the case at the time of sale by the Bank. Third, Jones Lang LaSalle did not provide forced sale valuations. Relevantly, the Metro Valuations Ltd report notes both a decrease in the average house price in the Canterbury Region as well as in total houses sold and that the value of a property under mortgagee’s sale can vary and a reduction of 20 to 40 per cent could be evident.

[72]      Mr Fernando also says that unit 323 recently sold for $418,000. This is taken from a website Again, this is of little assistance. The sale is recorded as having occurred on 8 March 2021 which is approximately 15 months after the sale of unit 323 by the Bank. There is no evidence before me as to the circumstances of the sale, the terms upon which it was made (other than the price), the state of the unit at the time of sale or the market conditions compared to those that prevailed in 2019.

[73]In Public Trust v Ottow Asher J said:24

[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 …25 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 …26 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.

[34]   In a poor and receding market as there was in October 2008, it is entirely understandable that prices will be somewhat lower than those anticipated in valuations. There is not such a sufficient disparity between the valuer’s figures and the actual sales prices to warrant any inference of a breach of the mortgagee’s duty.

[74]To similar effect in Westpac New Zealand Ltd v Lamb, Wylie J said:27

[61] There is no significant discrepancy between the valuations and the sale price. Such limited discrepancy as exists is readily explained given the concerns which purchasers reported to Barfoot and Thompson, and which were in turn, relayed back to Westpac. … ultimately a property is only worth what somebody is prepared to pay for it, and valuations lose much of their force when the mortgagee has taken reasonable care and there has been a properly conducted auction.

[75]      Applied to this case, there is no discrepancy between Metro Valuation Ltd’s forced sale valuations and the prices obtained by the Bank at mortgagee’s sale. When one considers these were forced sales, the concerns expressed by prospective buyers in relation to several aspects of the units and the fact Harcourts Grenadier had restricted access to two units, the sale prices achieved are entirely understandable.

Conduct of the auction/the reserve prices

[76]      Mr Davis submits there is no evidence as to how the auctions were actually conducted and, again, that the Court should draw an adverse inference against the Bank. I reject the submission as there is evidence the auctions were conducted by a reputable real estate agency after a proper marketing campaign at the auction rooms

24     Public Trust v Ottow, above n 5 (footnotes added).

25     Moritzson Properties Ltd v McLachlan, above n 11.

26     Wallace v Bank of New Zealand HC Auckland CIV-2009-404-3514, 1 July 2009.

27     Westpac New Zealand Ltd v Lamb, above n 16.

of Harcourts Grenadier at which two of the units were sold under the hammer and one was passed in before negotiations successfully concluded a sale.

[77]      The final matter upon which Mr Fernando relies is that he had not been advised of the reserve prices placed on the units by the Bank which, he argues, prevented him from obtaining finance to repurchase the properties. The Bank was, Mr Davis submits, aware Mr Fernando was actively trying to sell the properties himself or to refinance them and he should have been given at least an indication of the reserve price. This, Mr Davis submits, is because Mr Fernando would then have realised the Bank was prepared to sell the units at an under-value and he would have refinanced or purchased them himself.

[78]      These submissions are premised on assumptions that the Bank was prepared to and did sell the units at an undervalue and that Mr Fernando had the means to either purchase or refinance them. I do not accept these assumptions.

[79]      The Bank was not obliged to advise Mr Fernando of the reserve prices of the units. The evidence of Mr Gilmore, which I accept, is that reserve prices for mortgagee’s sales are set on the day of the auction or the day prior to it and that such information is confidential so as not to interfere with a competitive auction process. Consistent with this, a relevant factor that a mortgagee will consider in setting the reserve price is feedback from prospective buyers and it is notable that Harcourts Grenadier provided reserve recommendations to the Bank only with its final marketing report on 9 December 2019.

[80]      I have no hesitation in finding that the Bank acted responsibly in the manner in which it marketed the units to obtain the best possible sale prices for them. While the sale prices achieved were no doubt disappointing to Mr Fernando there is no significant discrepancy between them and the forced sale valuations/appraisals. The overwhelming impression of the evidence is that there was significant negative feedback in relation to several aspects of the units. There is no evidential foundation for complaints made by Mr Fernando as to the manner of sale of the units or the assertion the Bank did not take reasonable care to obtain the best price reasonably obtainable at the time of sale. Accordingly, the first defence is not arguable.

Second Defence – s 120 CCCF Act – oppressive conduct

[81]Section 120 of the CCCF Act relevantly provides:

120Reopening of credit contracts, consumer leases, and buy-back transactions

The Court may reopen a credit contract, a consumer lease, or a buy- back transaction if, in any proceedings (whether or not brought under this Act), it considers that---

(a)the contract, lease, or transaction is oppressive; or

(b)a party has exercised, or intends to exercise, a right or power conferred by the contract, lease or transaction in an oppressive manner ….

[82]Under s 118 “oppressive” is defined in the following manner:

In this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.

[83]     The case law establishes that for a credit contract to be “oppressive” there must be something more than mere unfairness or a consequence that is generally associated with the exercise of a remedy by a creditor.28 In Greenbank New Zealand Ltd v Haas

, Tipping J said:29

To determine whether a contract or term is oppressive … it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with such reasonable standards could hardly be held to be oppressive. Conversely something which is not in accordance (ie in contravention of) such standards is, by definition, oppressive.

[84]      In deciding whether s 120 applies, and whether to reopen a credit contract the Court must have regard to the matters set out in s 124 of the Act to the extent that those matters are applicable in the particular circumstances. Whilst drawing my attention to this section Mr Davis placed no particular emphasis on any of those matters in his submissions.

28 Shotter v Westpac Banking Corp [1988] 2 NZLR 316 (HC) at 322; AXA New Zealand  Nominees Ltd v 10 Gilmer Ltd (in rec) HC Wellington CIV-2011-485-1572, 6 December 2011 at [24] and Italia Holdings (Properties) Ltd v Lonsdale Holdings (Auckland ) Ltd [1984] 2 NZLR 1 (HC).

29 Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA) at [24].

[85]      Although, under s 125 the time has passed within which Mr Fernando can bring a reopening claim, it is accepted the Court retains the power to reopen a credit contract under s 120 which may be exercised in any proceeding where the Court considers that oppression arises in a credit contract, including debt recovery proceedings brought by a creditor. 30

[86]      The Court has very broad powers upon reopening a credit contract. The remedies under s 127 include “any orders that it thinks necessary” to remedy the matters that lead to the reopening.

[87]      There is  some overlap  with this defence and Mr Fernando’s defence under   s 176 of the Property Law Act. For instance, Mr Fernando argues the sale of the units was at an undervalue and the failure to provide him with information about the appraisals, the marketing process and the reserve prices was oppressive. I reject these arguments for the reasons I have already given.

[88]      The additional matters raised by Mr Fernando are advanced under the headings:

(a)negotiations with Mr Gilmore; and

(b)BNZ’s approach to Mr Fernando’s attempts to sell.

Negotiations with Mr Gilmore

[89]      Mr Fernando’s evidence is that he had difficulties with the approach taken by Mr Gilmore from an early stage after Verofi was engaged by the BNZ. He argues that it was oppressive for Verofi to issue demand notices for full repayment of the loans on 22 May 2019 giving just two weeks for payment of all the loans when he was unable to pay.  He also argues that the refusal to accept proposals made on his behalf by   Mr Cottrell and the Bank’s “all or nothing” approach was harsh and unjustly burdensome. He contends, because the Bank was only interested in payment of all loans immediately, he could not secure buyers for the properties himself and had the

30     Real Finance Ltd v Setefano [2016] NZHC 2293 at [61].

Bank accepted his proposals it would have gone “a long way in mitigating each sides’ losses”.

[90]      There was nothing oppressive in the Bank’s conduct or in the approach taken by Mr Gilmore in his dealings with Mr Fernando. The Bank handed over management of the defaults to Verofi in early May 2019 at which time Verofi wrote to Mr Fernando and his companies that Verofi had been instructed as recovery agents for the Bank and invited contact from Mr Fernando. The demands issued for the Bank on 22 May 2019 were not for full repayment of the loans. The demands related to the arrears, save in respect of the overdraft facility of Worcester Developments Ltd which was cancelled.

[91]      This action taken by Verofi followed a long history of defaults by Mr Fernando and his companies in respect of which the accounts had been under loan default management by the Bank since December 2018. When there was no satisfactory response to the 22 May 2019 demands the Bank issued the Property Law Act notices and, when they expired unremedied, Verofi issued letters demanding full payment of the balance of  all  of  the  loans.  Given  the  history  of  defaults  and  failures  by Mr Fernando to honour promises to remedy them it is hard to see what more the Bank could be expected to do to assist him prior to taking steps to recover the advances.

[92]      Similarly, there was nothing oppressive in the manner in which Verofi or the Bank responded to Mr Fernando’s proposals. Mr Fernando made two relevant proposals in respect to the payment of arrears. These were the proposals of 24 June 2019 and 30 July 2019 made on Mr Fernando’s behalf by his lawyer Mr Cottrell to which I have earlier referred. It is not at all surprising that these proposals were rejected. The reasons for doing so are set out in Mr Gilmore’s second affidavit.

[93]      In respect to the first proposal to pay arrears at the rate of $7,000 per month whilst meeting current commitments, that was rejected because of the default history and the continuing poor account conduct that did not demonstrate the ability to meet the ongoing commitments as they fell due. It is notable that contrary to Mr Fernando’s plea of oppression, in response to this proposal the Bank gave him four extra weeks until 30 August 2019 to obtain alternative finance.

[94]      In respect to the second proposal to pay approximately $55,375, that would not only have failed to clear the arrears but was contingent on the Bank agreeing to reinstate Worcester Developments Ltd’s overdraft facility. Mr Gilmore deposes that the relevant factors taken into account in rejecting the proposal included the expiry of the default notices, the default history of the accounts, the level of the arrears and the continuing poor account conduct that demonstrated Mr Fernando and his companies did not have the ability to meet ongoing commitments as they fell due. Importantly, as at 5 August 2019, the total arrears had increased to $75,140.63 and Worcester Developments Ltd’s overdraft stood at $155,226.94.

BNZ’s approach to Mr Fernando’s attempts to sell

[95]      It is submitted that the “BNZ’s inflexibility” prevented several serious offers by potential buyers sourced by Mr Fernando from going ahead. Mr Davis submits BNZ was not interested in advancing Mr Fernando’s position unless all loans were paid off immediately. Three examples were given.

[96]      On  30  August  2019,  Mr  Cottrell  emailed  Mr  Gilmore  advising  that   Mr Fernando had an offer for $1.32 million for the Quaifes Road property and asked for confirmation the Bank was happy with a sale at that price. Mr Gilmore responded that the Bank would not confirm its consent without seeing a completed agreement for sale and purchase. He stated that any agreement entered into should be made conditional upon the Bank’s consent. There was nothing unreasonable in this. The Bank was in a position to exercise its power of sale and could not have been expected to give its agreement to a sale by Mr Fernando based on nothing other than the sale price. In any event, the Bank’s attitude was clearly not problematic because the sale subsequently proceeded with its consent.

[97]      Then, it is said Mr Fernando had, in October 2019, located a person interested in buying all three units but the buyer wanted to delay until he had completed building his own home. If there was such a buyer his decision not to proceed had nothing to do with the attitude of the Bank.

[98]      Finally, it is said that on 18 November 2019, Mr Fernando emailed the Bank advising he had another buyer for unit 323 and that he was intending to refinance the other two units. He says that would have left the balance of around $70,000 owing and he asked if that could be paid over 12 months. Mr Fernando has produced no other evidence that he had secured a buyer or that he had offers of finance.

[99]      It is said Mr Gilmore dismissed the proposal out of hand. In fact, Mr Gilmore’s response to the proposal was an email to Mr Fernando of 18 November 2019 stating:

Hi John

Can you please send me a copy of the Agreement for sale and purchase for Unit 323 as I will need to seek the bank’s consent to the sale. We also note that the company Johnf-LTC Ltd is no longer registered. It will have to be reinstated before the sale can proceed.

If the Bank consents to the sale, they will need confirmation that it is unconditional and that the refinance is unconditional before they will withdraw the property from sale.

With regards to the residual debt, the Bank don’t usually enter into long term arrangements. We recommend you look to also include this in your refinance.

Can you also get back to me regarding the GST status of the company. Yours faithfully,

Marc Gilmore

[100]    As this email shows, Mr Gilmore did not reject the proposal but asked for a copy of the agreement for sale and purchase of unit 323 so that he could seek the Bank’s consent to it. Furthermore, JohnF-LTC Ltd had been struck off the Register of Companies and was in no position to sell anything to anyone. Mr Gilmore’s advice that the Bank does not usually enter into long term arrangements for payment of residual debt was by way of advice to Mr Fernando and not a rejection of the proposal.

[101]    There is therefore nothing in the matters advanced by Mr Fernando that suggests that in the exercise of any right or power the Bank acted oppressively towards him as a consequence of which he has suffered any loss. The reality of the situation is that Mr Fernando and his companies borrowed money they could not service and from around December 2018 fell consistently into arrears. For its part the Bank exercised considerable patience and restraint before enforcing its rights and then only

after Mr Fernando made promises to clear arrears which he did not honour. Having obtained the right to sell the properties the Bank even agreed to give Mr Fernando additional time to refinance. While Mr Fernando says that he was in a position to obtain sales of the units and/or refinance on beneficial terms, he has never produced any agreement for the sale of any units, nor evidence that alternative finance was available to him. Ultimately the Bank sold the units as mortgagee for prices that were reasonable in all of the circumstances. It is entitled now to recover the shortfall. For those reasons I reject as unarguable this ground of defence also.

Result

[102]   I am satisfied that Mr Fernando does not have an arguable defence to the Bank’s claims and that the Bank is entitled to summary judgment. There being no challenge to the Bank’s calculation of the amounts owed there will be summary judgment for the Bank and against Mr Fernando for the following amounts:

(a)$370,057.23 plus interest at a daily rate of $74.01 from 20 January 2020 to the date of judgment; and

(b)$74,463.45 plus interest at a daily rate of $49.37 from 20 January 2020 to the date of judgment.

[103]   The Bank is entitled to costs and reasonable disbursements. I would encourage counsel to confer and reach agreement on the amount payable. In this regard, I note that in neither the statement of claim nor in submissions was any claim made for indemnity costs and so in those circumstances it would appear that 2B costs are appropriate. However, I formally reserve costs so that if agreement is not reached counsel may submit memoranda within 14 days. Memoranda shall be no more than five pages.

O G Paulsen Associate Judge

Solicitors:

Sanderson Weir Limited, Auckland Shaun Cottrell Law, Christchurch