Bank of New Zealand v Sampson
[2015] NZHC 2768
•9 November 2015
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV 2015-463-000043 [2015] NZHC 2768
BETWEEN BANK OF NEW ZEALAND
Plaintiff
AND
DAVID JOHN SAMPSON Defendant
Hearing: 4 November 2015 Appearances:
D T Broadmore for the Plaintiff
F Wood and Ms Brown for the DefendantJudgment:
9 November 2015
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
9.11.15 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BANK OF NEW ZEALAND v D J SAMPSON [2015] NZHC 2768 [9 November 2015]
Application for summary judgment
[1] The plaintiff, Bank of New Zealand (the Bank) seeks summary judgment against the defendant, David John Sampson (Mr Sampson) in respect of two guarantees he provided to the Bank.
[2] Mr Sampson opposes summary judgment and says he has an arguable defence because the Bank knew he suffered from a serious health problem when he was forced to agree to the security properties being sold, and he says the Bank agreed not to pursue him under his personal guarantees in consideration of his agreeing to assist with the sale of company assets and to sign a general security agreement (GSA) in favour of the Bank.
[3] It is Mr Sampson’s case that there are genuine factual disputes pertaining to liability and that the conflicting evidence makes the proceeding inappropriate for summary judgment.
[4] Mr Sampson says even if he is liable under his guarantees he opposes the quantum of the Bank’s claims because both the Bank and the receivers of his three companies did not obtain the best price obtainable when selling the companies’ properties and because the receivers were in a position of conflict having previously acted for Mr Sampson.
[5] This judgment will address the affidavit evidence under the headings of ‘Mr Sampson’s Account’, ‘the Bank’s Response’, the ‘Bank’s Reply Evidence, and Mr Sampson’s Reply Evidence’, respectively.
Background
Mr Sampson’s companies
[6] At all material times Mr Sampson was the director of:
(a) Waterways Café, Bar & Grill Limited (Waterways Café);
(b) Putaruru Arms Motel Limited(PAM);
(c) Affordable Accommodation NZ Limited (Affordable);
together, the companies.
The companies’ loan agreements
[7] The companies entered into the following loan agreements with the Bank:
(a) On or about 26 September 2012, the Bank and Affordable entered into a housing term loan agreement (first housing loan agreement) under which the Bank advanced $625,500 to Affordable;
(b)On or about 22 March 2013, the Bank and Affordable entered into a second housing term loan agreement (second housing loan agreement) under which the Bank advanced $890,000 to Affordable;
(c) On or about 22 March 2013, the Bank and Waterways Café entered into a business first term loan agreement (business loan agreement) under which the Bank advanced $196,500 to Waterways Café; and
(d)Affordable and Waterways Café each also operated a current account with the Bank.
Mortgage security properties
[8] The lending to Affordable was secured by registered mortgages over:
(a) The leasehold properties at 42 and 44 Caulton Street, St Johns, Auckland (Caulton Street properties);
(b)A property on the corner of Tawa Street and William Avenue, Ohura which was previously the Ohura Prison (Ohura property);
(c) A property situated at 39 Colville Road, Dargaville and on the corner of Logan Street and Colville Road, Dargaville (Colville properties);
together, the Affordable properties.
[9] The lending to Waterways Café was secured by a registered mortgage over the property at 15 Nelson Street, Auckland (Nelson Street property).
Mr Sampson’s guarantees
[10] Mr Sampson provided written guarantees to the Bank, including:
(a) On or about 6 March 2007 Mr Sampson provided the Bank with a guarantee and indemnity in respect of all Waterways Café’s obligations (Waterways Café guarantee);
(b)On or about 26 September 2012 Mr Sampson provide the Bank with a guarantee and indemnity in respect of all Affordable’s obligations (Affordable guarantee).
The decline of the companies
[11] In the second half of 2013 the business operations of the companies were in decline and default occurred under the loan agreements. Mr Sampson said this was due to his ill health which was related in part to a yachting accident – factors he said were known to the Bank.
[12] Mr Sampson said he entered into discussions with the Bank to come up with a strategy to minimise the companies’ indebtedness and to trade out of their difficulties.
The 20 August 2014 meeting
[13] Mr Sampson met with representatives of the Bank including Mr Young and
Ms Bartosiak on 20 August 2014 when Affordable was in default under its lease of
the Caulton Street properties and due to arrears of rates. Mr Sampson said he proposed to close the Waterways Café and to sell the Colville properties and to move back to Putaruru in order to run the motel operation himself. He also proposed that his partner Ms van der Merwe move to the Ohura property to run the new accommodation unit there.
[14] At the conclusion of that meeting Mr Sampson was given letters of demand for him and the companies in respect of Affordable’s overdrawn current account.
[15] Following the meeting Mr Sampson received a telephone call from Ms Bartosiak. The Bank says during that conversation Mr Sampson agreed to engage BDO Tauranga Limited (BDO) as investigating accountants to assess the financial status of the companies as requested by the Bank. He said he did so because Ms Bartosiak said the Bank would agree to fund the lease arrears.
The 12 September 2014 meeting
[16] On 12 September 2014 Mr Sampson and Ms van der Merwe met with Mr Young from the Bank and Mr Rodewald and Mr Clark of BDO. At that meeting Mr Sampson says he agreed with the Bank that:
(a) The Bank would advance $15,750 to Affordable to meet the outstanding lease payment due for the Caulton Street properties;
(b)Affordable would grant the Bank a general security agreement in respect of all of Affordable’s present and after acquired property (Affordable GSA);
(c) Mr Sampson would close the business of Waterways Café and take back the management of PAM.
(d)Mr Sampson would find purchasers for the Caulton Street properties and the Ohura property.
[17] He said if he worked with the Bank to do those things he was told it would not pursue him under his personal guarantees or bankrupt him.
The Affordable GSA
[18] On 18 September 2014 Mr Young sent Mr Rodewald the proposed Affordable
GSA and noted it was to be signed by Mr Sampson at his solicitor’s office.
[19] On 19 September 2014 the lessor of the Caulton Street properties issued a Property Law Act notice (PLA) in respect of the sum of $31,058.91 for the lease and rates then owing by Affordable.
[20] Also and on 19 September 2014 Mr Rodewald sent the Affordable GSA to Mr Branch of Harkness Henry solicitors and asked him to arrange for Mr Sampson to execute it. Mr Rodewald’s email to Mr Branch referred to the Bank’s preference to appoint receivers to take possession of the Affordable properties.
[21] Later and after PAM settled its liability to the Bank, the Bank released Mr
Sampson from any further liability under his guarantee to PAM.
[22] On 28 September 2014 the term of the first housing loan agreement expired and as at 1 October 2014 the amount of $883,317.82 was outstanding and owing by Affordable under the first housing loan agreement and its current account.
[23] On 29 September 2014 Affordable signed the Affordable GSA that had been sent to Harkness Henry, together with those resolutions resolving that the Bank be requested to appoint receivers over all of Affordable’s present and after acquired properties, and also those resolutions resolving that the Affordable GSA be entered into and that it was in the best interests of Affordable to do so.
[24] On 29 December 2014 and in return, it says, for Affordable providing the Affordable GSA the Bank paid the $31,584.69 that was outstanding under Affordable’s lease of the Caulton Street properties.
[25] On 6 October 2014 when none of the secured properties had been sold Mr
Rodewald and Mr Brown were appointed as receivers of Affordable.
Mr Sampson’s account
[26] Mr Sampson’s account of these events was that the Bank had promised they would not pursue him under his personal guarantee or bankrupt him if he cooperated with the grant to the Bank of the Affordable GSA.
[27] Mr Sampson acknowledges executing the Affordable GSA on 29 September
2014 but says he did not have the opportunity to obtain independent legal advice in that regard. He says he signed because of:
[29] … A significant amount of pressure from both BNZ and BDO to move quickly. I further consider that the BNZ took advantage of my situation whilst I was under distress in order to obtain a security interest that they would have otherwise not been entitled to. At that time I was trying to do anything and everything I could to appease the BNZ and to find a workable way out of the situation.
[28] The Affordable GSA provided a security interest in the Affordable properties in consideration of the Bank agreeing to continue to provide credit in banking facilities and by the Bank not requiring immediate payment of any amounts due and owing.
[29] Mr Sampson said that despite the terms of the GSA (by which the Bank agreed not to require immediate repayment of debt), the Bank made demand on
1 October 2014 requiring payment of the amounts outstanding under the first housing loan agreement and the Affordable current account; and the next day the Bank served Property Law Act notices in respect of the Waterways Café and Affordable guarantees. Further and just four days later Mr Sampson said that the Bank appointed Mr Rodewald and Mr Brown as Affordable’s receivers.
[30] Mr Sampson said he attempted to sell the Affordable properties himself as it was agreed he would. He negotiated with potential purchasers of the Ohura property and also attempted to find purchasers of the Caulton Street properties. When the receivers eventually sold the Caulton Street properties Mr Sampson considered the
price (of $350,000) was grossly under value. He based this view on the fact that he had obtained offers for the purchase which were far in excess of what the properties were sold for. He said that on 9 October 2014 he received three signed sale and purchase agreements for $550,000 and $560,000 for those properties. He understands the Bank did not want to accept these because they were conditional on the purchase of carrying out due diligence albeit within 10 working days.
[31] Mr Sampson said he also obtained valuations of those properties in March
2007 whereby the 42 Caulton Street property was valued at $500,000 and the 44
Caulton Street property was valued at $690,000. He believes only minimum marketing of the Affordable properties was undertaken.
[32] Regarding the 1 October 2014 demand for $883,317.82 owing under the first housing loan agreement and the Affordable current account Mr Sampson says this was significantly less than the value of the properties over which the Bank had security even after taking into account the amount outstanding under the second housing loan agreement of $870,808.57.
The Bank’s response
[33] In a response affidavit Mr Young said of his meeting with Mr Sampson and others on 12 September 2014 that he did not explain to Mr Sampson that the Bank would not pursue him under the personal guarantees or bankrupt him. He recalls explaining that the Bank takes a number of factors into consideration before deciding whether to take steps to adjudicate someone bankrupt, including the residual debt amount, and the assistance provided by the customer and the willingness to minimise any loss for the Bank.
[34] Four days later Mr Young received a letter from BDO detailing an action plan that Mr Rodewald said had been agreed with Mr Sampson. At that time PAM and Affordable needed further funding to pay amounts outstanding under their leases and to avoid those leases being cancelled. Mr Young said the Bank’s position was that it would not be willing to provide any further funding without receiving further security from Affordable.
[35] Mr Young says that at or shortly after the 12 September 2014 meeting Mr Sampson agreed to provide the affordable GSA in return for the Bank paying the amount outstanding under Affordable’s leases of the Caulton Street properties to avoid cancellation of those. The Bank already had an existing GSA over all present and after acquired property at PAM and was also considering paying the amount outstanding under PAM’s Putaruru lease.
[36] On 17 September 2014 there was email correspondence between Mr Young and Mr Rodewald in relation to obtaining GSA’s. Mr Young indicated the Bank was willing to cover the PAM lease payments but added that receivers should be appointed if satisfactory sales were not obtained by the following week. Mr Rodewald responded by proposing the Bank’s GSA requirements should be limited to Affordable and the payment of Affordable’s lease. Mr Sampson had already made arrangements regarding payment of PAM’s lease obligations. Mr Young forwarded the Affordable GSA to Mr Rodewald on 18 September 2014 which he understood would be signed by Mr Sampson at his solicitor’s office. The following day the Bank received a copy of the Property Law Act notice delivered to Affordable demanding payment of the $31,058.91 outstanding for lease and rates payments. The Bank paid this amount after Mr Sampson executed the Affordable GSA on 29
September 2014.
[37] The Bank appointed Mr Rodewald and Mr Brown as receivers of Affordable when by 6 October 2014 Mr Sampson had not sold any of the assets of Affordable or of Waterways Café.
[38] Mr Young says the Bank was not involved in the receiver’s management of the sale of Affordable properties. By emails dated 9 and 10 October the receivers informed Mr Young of various offers they had received for the Caulton Street properties. The best offer was $600,000 from the Sampson Family Trust, a trust of the wider Sampson family. Mr Young was in the process of obtaining the Bank’s approval to accept that offer when on 14 October 2014 the receivers informed Mr Young that the Sampson Family Trust had withdrawn its offer.
[39] Mr Young confirms that the only property sold by the Bank was the Waterways Café Nelson Street property. It is conceded on behalf of Mr Sampson that there is no challenge to the process or the result of the Waterways Café sale.
The Bank’s reply evidence
[40] This evidence addresses Mr Sampson’s claims about when he said the Bank
agreed to fund lease arrears, and about the sale of the Affordable security properties.
[41] In her reply affidavit Ms Bartosiak responds to Mr Sampson’s recollection of the meeting on 20 August 2014. The Bank’s file contained correspondence between Mr Sampson and the Bank’s Mr Taylor in late 2013 and records the steps Mr Sampson was then taking to sell the assets of the companies to pay debt.
[42] Ms Bartosiak became involved when by early 2014 no assets had been sold. A meeting occurred on 20 August when there had been no asset sales. At that meeting Ms Bartosiak served Mr Sampson with the demands payment. At that meeting it was discussed whether an investigating accountant should be engaged so that the Bank could form a view on whether to fund a lease payment that was required and to be made under the Caulton Street properties lease.
[43] In her telephone conversation with Mr Sampson after that meeting she requested he engage BDO Tauranga Limited as the investigating accountant to review the companies’ financial position and to recommend an action plan. She said she did not agree the Bank would pay $15,750 to Affordable in order that it could make payment of the ground lease for the Caulton Street properties. Rather she said she advised Mr Sampson that the Bank would consider paying the outstanding ground lease once it reviewed the report from the investigating accountant.
[44] In his affidavit provided by way of a reply Mr Rodewald confirms that on 6
October 2014 the Bank appointed him and Mr Brown as receivers and managers of
Affordable.
[45] After being asked to accept their appointment an engagement letter was provided setting out the services that BDO would provide was sent to Mr Sampson which he accepted on 26 August 2014.
Receivership sale of assets
[46] At the 12 September 2014 meeting Mr Rodewald reiterated his recommendation of the need for an orderly sell down of the companies’ assets. At that meeting the PAM and Affordable leases were discussed. He said Mr Sampson advised Mr Young of the need for further funding to pay outstanding lease instalments to avoid those leases being cancelled. Mr Rodewald said Mr Young advised Mr Sampson the Bank was not willing to provide any further funding without receiving further security from Affordable. Then or shortly after Mr Rodewald recalls Mr Sampson agreed to provide a GSA on behalf of Affordable in return for the Bank paying the amount outstanding under Affordable’s lease of the Caulton Street properties.
[47] Later and after the GSA arrived from the Bank Mr Rodewald was asked to arrange for Mr Sampson to have it signed at his solicitors office. He said it was standard BDO practice to recommend a client obtain independent legal advice before entering into security documentation, including general security agreements. Mr Rodewald said he advised Mr Sampson to obtain independent legal advice and because Mr Sampson did not have a local lawyer acting for him at that the time Mr Rodewald suggested he obtain legal advice from Harkness Henry in Hamilton. Then on 19 September 2014 he sent a copy of the Affordable GSA to Mr Branch at Harkness Henry and asked him to arrange for Mr Sampson to sign the GSA.
[48] Harkness Henry sent a resolution of the board of directors of Affordable to enter into the Affordable GSA and a copy of the special resolution of Mr Sampson the shareholder of Affordable to enter into that GSA which Mr Sampson’s partner Ms van der Merwe also signed. Both documents were dated 29 September 2014.
[49] When he and Mr Brown were appointed receivers and managers under the
Affordable GSA, Mr Rodewald says that due to the nature of their appointment as
investigating accountants of Affordable, he did not consider that BDO (or he) were conflicted for accepting the appointment as receivers.
Sale of the Ohura property
[50] Mr Rodewald deposes that on or around 29 September 2014 Mr Sampson (on behalf of Affordable) and Mr Roberts on behalf of Bayleys Real Estate Taranaki entered into a sales agency contract for the marketing and sale of the Ohura property. Following Mr Rodewald’s appointment he maintained liaison with Mr Roberts in respect of the property marketing. Mr Roberts advised the Ohura property was marketed over a four week period ending 27 November 2014. A brochure advertising the sale of the property was distributed through Bayleys real estate offices throughout New Zealand. The property was advertised through the Dominion Post and Manawatu Standard newspapers and on websites including Trade me, Bayleys national website, Stuff.co.nz, and the National Business Review.
[51] By the end of the marketing period the highest offer was $80,000 received from Hope International (NZ) Limited (Hope). Later and following negotiations Bayleys reported that Hope had agreed to offer $100,000. After that the Bank was asked whether it would agree to discharge its mortgage over that property if it was sold for $100,000. That Bank agreed it would. Then a contract for $100,000 was concluded.
Sale of Colville properties
[52] Meanwhile Bayleys Dargaville office had been asked for an appraisal of the Colville properties. The marketing appraisal received recorded the view that those properties had a market value in an arm’s length free trade transaction of $495,000 and in a receivership a sale price of $410,000 could be expected. The appraisal noted that property had been on the market since March 2014 for $595,000. The report suggested the property be marketed by various means including through local newspapers and property websites.
[53] On 8 October 2014 BDO engaged Telfer Young Valuers and Property Advisers (Telfer Young) to provide a market valuation of the Colville properties. The valuations received recorded that the likely mortgagee (or receiver) sale price of
39 Colville Road was $375,000 to $425,000, and $45,000 to $60,000 for the nearby vacant section.
[54] Thereafter Bayleys were engaged to market the Colville properties for sale.
[55] Between 29 October and 25 November 2014 Bayleys Dargaville provided BDO with several marketing reports. Those reported a low level of interest in the vacant section.
[56] The Colville properties were offered for sale by auction on 28 November
2014. The highest offer for 39 Colville Road was $305,000 and for the vacant section $40,000. The highest offer for both properties together was $355,000.
[57] The following day Bayleys reported that the top bidder had withdrawn its bid but that in any event a better offer of $370,000 was received from a bidder who had not bid originally.
[58] On 8 December 2014 BDO accepted the offer of $370,000 for the Colville properties.
Sale of Caulton Street properties
[59] Regarding the Caulton Street properties and prior to Barfoot and Thompson having been engaged to market those on Thursday 9 October 2014 three separate offers were received for the purchase of those properties for between $550,000 and
$560,000. A day later on 10 October 2014 the Sampson Family Trust offered to purchase those properties for $600,000. Then four days later the Sampson Family Trust offer was withdrawn.
[60] When the three initial purchasers were contacted again none was prepared to proceed with their offer. Those offers were subject to due diligence clauses.
[61] Barfoot and Thompson were engaged around 21 October 2014 to commence the marketing of the Caulton Street properties for sale. Barfoot and Thompson ran a four week marketing campaign. Their marketing reports recorded difficulty in achieving a sale because the properties were leasehold. A report from Barfoot and Thompson indicated a revised estimate of $400,000 for the properties.
[62] Later, the highest tender received was $305,000 for the properties. Following negotiation with the top bidder an offer of $350,000 was received. The Bank was asked whether it would discharge its mortgage if the sale was achieved at that price and the Bank agreed it would. A contract for $350,000 was concluded.
[63] Mr Rodewald believes the best price reasonably obtainable for the Ohura and the Colville properties has been obtained.
Mr Sampson’s reply evidence
[64] Mr Sampson and separately his partner Ms van der Merwe have sworn affidavits in reply to those of Mr Young, Mr Rodewald, and Ms Bartosiak.
[65] Mr van der Merwe attended the meeting which took place on 12 September
2014 at the Bank’s offices. She states she expressly recalled Mr Young telling Mr Sampson that if he cooperated with the Bank and followed the steps that had been agreed that the Bank would not pursue Mr Sampson under the personal guarantees that he had given and that the Bank would not bankrupt him.
[66] Mr Sampson says he recalls the Bank’s assurance that if he complied with the Bank’s requirements [including Mr Sampson seeking to find purchasers of the Caulton Street and Ohura properties, and that Affordable would grant the Bank a GSA] the Bank would not then pursue him under his personal guarantee or bankrupt him.
[67] He said it is Mr Young’s position that Mr Sampson agreed to provide the
Affordable GSA in return for the Bank paying the amounts outstanding under
Affordable’s lease of the Caulton Street properties to avoid cancellation of that lease.
Mr Sampson disputes this.
[68] Mr Sampson confirms the Bank advanced $31,584.69 to Affordable after he signed the GSA. He says he signed the resolution on behalf of Affordable to invite the Bank to appoint receivers because the Bank requested him to do so. This he says provides further evidence that he took whatever steps he was asked to by the Bank and/or BDO.
[69] Mr Sampson says in hindsight it is clear the Bank used payment of the outstanding ground lease and rights on the Caulton Street properties “to effectively force” his hand. Regarding the offer of $600,000 made by the Sampson Family Trust Mr Sampson says he is not a trustee or beneficiary of that Trust.
[70] Regarding Mr Rodewald’s affidavit he said he had no dealings with Mr Roberts of Bayleys other than via telephone when Mr Roberts wanted to show someone through the property. At that time he travelled to Ohura from Putaruru because he had agreed with the Bank he would assist with the orderly sale of the companies’ assets – in return for which he says the Bank agreed not to enforce his personal guarantee or move to bankrupt him.
[71] Mr Sampson considers it was imprudent to accept $100,000 for the Ohura property when the government valuation was $465,000.
[72] Mr Sampson cannot understand why the offer of $560,000 plus GST for the
Caulton Street properties was not accepted. As he notes it was far in excess of the
$350,000 eventually paid.
[73] Regarding Ms Bartosiak’s affidavit Mr Sampson says she did not, as she claimed, at the 20 August 2014 meeting suggest engaging an investigating accountant. That suggestion, he says, was made in their subsequent telephone conversation. In that conversation he said she told him that if he engaged BDO to do an assessment of the financial position of the companies then the Bank would advance funds to Affordable to meeting the ground lease payments due. He said it
was not until he met Mr Rodewald subsequently that he was told that the lease
payments would be subject to the Bank’s reviewing BDO’s report.
Legal principles - summary judgment
[74] These were summarised by the Court of Appeal in Krukziener v Hanover
Finance Limited1:
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… 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… 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,… 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…
[75] The term “no defence” was defined by the Court of Appeal in Pemberton v
Chappell2:
… [T]he words “no defence” have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence…
Satisfaction here indicates that the Court is confident, sure, convinced, as persuaded to the point of belief, is left without any real doubt or uncertainty.
[76] Referring to the authority of Local Courier Service Limited v Kesha3 Mr Wood submits the Court does not have to be convinced of the truth of the statements made by the defendant. So long as there are unequivocal statements which amount to an arguable defence that would generally be sufficient to justify a refusal of the
summary judgment application.
1 (2008) 19 PRNZ 162, at [26].
2 [1987] 1 NZLR 1 (CA) at [3] – [4].
3 (1995) 8 PRNZ 690.
Considerations
[77] Mr Wood submits the Bank was aware that Mr Sampson was suffering a disability and despite that forced him to sign the Affordable GSA. Mr Rodewald’s report dated September 2014 noted Mr Sampson had been caught up in a tropical storm which created problems with post traumatic stress; that it took nine months for his medical advisors to identify suitable treatment and not until June 2014 had Mr Sampson considered himself to be in a position to actively assist to deal with his companies’ affairs.
[78] Mr Wood submits that the Bank asserted illegitimate pressure on Mr Sampson and the imposition of that pressure coerced Mr Sampson into executing the Affordable GSA.
[79] It is Mr Sampson’s position the Bank initially represented it would advance the outstanding ground lease rent and rates on the Caulton Street properties on the condition Mr Sampson engage BDO to complete a financial assessment of the companies. Mr Wood submits the Bank’s position was that an investigating accountant would be engaged so that the Bank could form a view whether to fund the lease payment due; that the Bank would contact Mr Sampson once it had formed a view on who that investigating accountant should be. Mr Wood submits the Bank reneged on its agreement [to advance funds if Mr Sampson engaged BDO to complete a financial assessment] and represented an advance of funds would only be considered on completion of BDO’s report.
[80] In short Mr Sampson said he engaged BDO because the Bank indicated it would pay the lease rental due if BDO endorsed that recommendation. The Bank’s position is that it would only consider paying that outstanding ground lease once it reviewed the report of an investigating accountant. The Bank’s position (as detailed by Ms Bartosiak) is that there had been a request to engage BDO and that there was no agreement to pay the lease arrears.
[81] Mr Wood submits that does not make sense for why should Mr Sampson agree to incur an additional $20,700 in debt (for fees) in obtaining the BDO report in
order to get finance and to pay a debt of only $15,750 – although that sum does not include a similar amount also owing for rates arrears. Mr Sampson would not, Mr Wood submits, agree to do that unless he had received some assurance from the Bank that they would pay the money; that the Bank then changed the conditions upon which it would advance funds and required the Affordable GSA to be executed.
[82] Mr Sampson says he did everything the Bank and/or BDO asked of him in order to be cooperative and assist with the orderly sale of the companies’ properties; that the Bank used Mr Sampson’s cooperation to its advantage and placed undue pressure on him to execute the Affordable GSA or face default under the leases of the Caulton Street properties. The plain fact, Mr Wood submits, is that because the Bank had security over the Caulton Street properties it would not have allowed the lease on those to be cancelled as it would have lost its security. Therefore the Bank’s purported advance of the ground lease rent and rates was merely a tactic by the Bank in order to illegitimately obtain additional security to which it would otherwise not have been entitled.
Whether the Bank agreed not to pursue Mr Sampson under his personal guarantees
[83] In the alternative and if the Court does not accept the Bank forced Mr Sampson to sign the GSA under duress it is submitted on his behalf that the Bank agreed not to pursue Mr Sampson under his personal guarantees in consideration of Mr Sampson executing a GSA for Affordable and cooperating with the Bank in an orderly sell down of assets.
[84] It is Mr Sampson’s account that at the meeting on 12 September 2014 it was agreed he would close Waterways Café and take back the management of PAM; that the Bank would advance the amount of $15,750 to meet the outcome lease payment on the Caulton Street properties; that Mr Sampson would seek to find purchasers for the Caulton Street and the Ohura properties; and that Affordable would grant the Bank a GSA in respect of all the company’s present and after acquired properties.
[85] It is Mr Sampson’s evidence that if he complied with the terms of that agreement Mr Young on behalf of the Bank said that the Bank would not pursue Mr Sampson under his personal guarantees and bankrupt him.
[86] Mr Sampson says it was because of the Bank’s assurance that he executed the Affordable GSA and signed a resolution on behalf of Affordable to invite the Bank to appoint receivers. Further that he signed the agents sales agency contract for the Okura property because he was requested to do so and he travelled to Ohura in his own time and at his own expense on occasions that potential purchasers wanted to view the Ohura property; and he attempted to find buyers for the Caulton Street properties which included instigating three offers that were received by the receivers in October 2014.
[87] Mr Sampson says he performed his part of the agreement but the Bank reneged on its agreement not to pursue him in relation to his personal guarantees. He says he did not need to execute the GSA in favour of the Bank but only did so on the basis of the Bank’s insistence and requirement and in reliance on their assurances they would not pursue him personally.
[88] As Mr Wood submits this Court should be weary of spurious defences and plainly contrived factual conflicts; that it does not appear Mr Sampson’s evidence is plainly contrived for his subsequent actions following the agreement make it clear he was proceeding on the basis that if he cooperated with the Bank he would not be pursued under his guarantees. Also Mr Young’s evidence confirms that there had been a discussion on 12 September 2014 in relation to Mr Sampson’s personally liability and bankruptcy. As Mr Wood notes the conflict in what was said and what was agreed to again makes this proceeding inappropriate for summary judgment.
[89] At the core of matters in dispute is the basis upon which the Bank was provided with additional security in the form of the Affordable GSA. Mr Sampson says Ms Bartosiak agreed to advance funds to pay the outstanding ground lease rent on the condition Mr Sampson engage BDO to complete a financial assessment of the companies; but that Mr Sampson was later advised by Mr Rodewald that the advance was contingent on receiving a copy of BDO’s report.
[90] Why, Mr Wood asks, would Mr Sampson have taken on the further debt of BDO’s fees if the Bank had not already agreed to advance the funds needed to pay the ground lease rent debt.
[91] The GSA provided the Bank with a security interest over Affordable’s properties in consideration of the Bank agreeing to continue to give credit and banking facilities and agreeing not to ask for immediate payment of any amounts that were due.
[92] The Bank’s position is that the GSA was required as security for the additional funds advanced.
[93] There is a conflict of positions. Mr Wood submits credibility issues should more properly be left for trial consideration. Mr Wood submits the Bank’s actions in issuing PLA notices within three days of the GSA being signed and appointing BDO as receivers within nine days clearly shows it was the Bank’s undisclosed intention all along to appoint receivers and it required Mr Sampson to sign the GSA in order to effect that.
Quantum
[94] It is Mr Sampson’s position that if he is liable on the guarantees that the Bank cannot in any event succeed with its claim of quantum due.
[95] Questions are raised regarding the actions of BDO in managing the sale of security properties. Their letter of engagement by Mr Sampson contained obligations of confidentiality and prohibition against acting other than in his best interests. By contrast, Mr Wood submits that upon their appointment as receivers BDO’s primary obligation was to act in the best interests of the Bank. BDO were appointed as receivers under the GSA because of their intimate knowledge of Mr Sampson’s companies’ financial position.
[96] Mr Wood submits that even if the Court does not accept there was a conflict position the receivers did not obtain the best prices obtainable (in accordance with ss
18 and 19 of the Receiverships Act 1993) for the Caulton Street properties and
Ohura properties.
[97] The receivers accepted $100,000 for the Ohura property when its government valuation was $465,000. Further because that property was of unique heritage it ought to have been marketed for longer than the four week period allowed.
[98] Likewise in relation to the Caulton Street properties those were sold for
$350,000 when three offers in the range of $550,000 to $560,000 plus GST had been made and were not subsequently pursued or at least there is little evidence about what was done in that regard.
[99] In 2007 valuations for the two Caulton Street properties totalled $1,190,000.
[100] These factors, submits Mr Wood, raise serious issues about the process
promoted by the receivers and their agents, the decisions made and the Bank’s role.
Conclusions
Duress
[101] Mr Sampson says whilst suffering from a disability he was forced to sign the Affordable GSA and thereby agreed to a course of action to dispose of the companies’ properties.
[102] The Court does not consider any illegitimate pressure was exerted on Mr
Sampson to execute the Affordable GSA.
[103] Long before BDO alluded to Mr Sampson’s health issues in its September
2014 initial report, Mr Sampson was aware and endeavouring to address the companies’ financial issues. For more than six months he had been endeavouring to sell the companies’ assets.
[104] The evidence indicates the companies’ assets were losing about $7,000 per
month. At the time of the 20 August 2014 meeting the Caulton Street property lease
payments were in arrears. Mr Sampson said he proposed to close the Waterways
Café and to sell the Colville properties.
[105] The 12 September 2014 meeting included Mr Rodewald and Mr Clark of
BDO that Mr Sampson had engaged at the suggestion of the Bank.
[106] Before then BDO had provided its initial report. In that it was said that information suggested reasonable sale values existed for the companies’ properties and that the Bank should fund outstanding lease payments to protect the tenancy; that if no agreement could be reached with Mr Sampson the Bank should move to take possession of all properties.
[107] The report noted that BDO had been engaged to prepare an independent report on the financial viability of Mr Sampson’s group of companies due to concerns over cash flow and profitability.
[108] The evidence of Mr Sampson and Ms van der Merwe is that it was agreed at the 12 September meeting that the Bank would loan the funds to pay the outstanding lease payments and would not pursue Mr Sampson for recovery of those companies debts he had guaranteed and that is why he agreed at that time to sign the Affordable GSA.
[109] However the acceptable evidence is that it was not until 19 September 2014 i.e. five days after the 12 September that the option of the Bank obtaining a GSA was first raised by BDO as the email to the Bank on that day indicates:
The BNZ will likely need pay the leases due on St Johns and PAM.
One option is for the BNZ to agree to pay the sums (Plus say rates on St Johns and colville) subject to getting a GSA over the companies it does not hold GSAs over.
On Thursday next week it could then appoint a receiver to the whole group. Payments from asset sales would be made under the mortgages not the GSA where possible.
…
[110] Mr Sampson is firm in his claim it was agreed on 12 September that the Bank would not pursue him because of his willingness to cooperate and assist with the sell down of companies’ assets. His agreement to sign a GSA was not, he says, to provide security for the funding needed to pay lease payments and as well rates arrears, together totalling $31,058.91.
[111] The evidence is the Affordable GSA and the resolution enabling the appointment of a receiver was sent to solicitors for Mr Sampson to consult for the purpose of signing those documents.
[112] Both documents were signed on 29 September, apparently willingly by Mr
Sampson for there is no report at that time of protest.
[113] Mr Sampson says no legal advice was sought when those documents were signed at, it appears, the solicitor’s offices. That may be so but clearly it was available to him had he sought it.
[114] After those documents were signed they were returned by the solicitors. The purpose of the GSA and the company resolution was clear i.e. to enable the Bank to assume management control of the companies’ assets including by appointing receivers and without the need to pursue a sell down through the mortgagee security process.
[115] The clear and acceptable evidence available from written records shows there was no agreement to release Mr Sampson from his guarantee obligations but that the GSA was executed in consideration of further funding being provided to Affordable to meet debts requiring urgent payment.
[116] There was no record of any protest by Mr Sampson throughout or until well after the property sale process had been completed – and that was largely confined to the extent of recovery from sales.
[117] The Court is invited to take an adverse view regarding the fact that within days of the execution of the GSA the Bank delivered Property Law Act notices in
connection with Affordable’s first housing loan agreement having just then become
due for repayment. Then, and just a few days later, receivers were appointed.
[118] The Court is invited to consider these actions by the Bank had been planned and hence that there was pressure on Mr Sampson to sign those documents to enable the Bank to act as promptly as it did.
[119] The Court does not accept that account for it is clear the relevant documents anticipated the engagement of a structured process to manage a sell down of assets.
[120] Also it is clear from the terms of the GSA and the resolution Mr Sampson signed that they were executed in consideration of a loan facility agreement to finance working capital requirements.
[121] There is no written evidence supporting Mr Sampson’s claims that those documents were signed in connection with his release from personal obligations and covenants.
[122] Mr Sampson has given evidence about his providing assistance with the assets sell down process. Clearly he did this and was even instrumental in obtaining three written offers for the Caulton Street properties on 9 October 2014. Also he had long since been endeavouring to sell the Ohura property.
[123] By these actions he explains he was fulfilling his agreement to assist with the sale process in consideration of the Bank’s promise to release him from any personal responsibility for the companies’ debt.
[124] In the Court’s view Mr Sampson was probably doing no more, or less than in the circumstances, he ought to have done. He could, as he claims, have simply walked away from any responsibility. On the other hand there was the prospect that with his assistance property sales may have affected the extent of his personal responsibility in the outcome.
[125] In the conclusion and whilst there is conflicting evidence regarding what was
said at the parties’ meeting on 12 September 2014 there is no evidence of illegitimate
duress having been exerted. It seems Mr Sampson’s actions were motivated also in part because he hoped in the outcome he might retrieve ownership and control of the PAM Motel.
[126] It follows, there is no acceptable evidence either that there was an agreement by the Bank not to pursue Mr Sampson under his personal guarantees.
Whether there has been a breach of Section 176 of the Property Law Act 2007
[127] Section 176 of the Property Law Act 2007 (PLA) provides that a mortgagee who exercises as power to sell mortgaged property owes a duty of reasonable care to obtain the best price reasonable obtainable as at the time of sale.
[128] The Bank was only engaged with the sale of the Waterways Café property in Nelson Street Auckland. It was they who instructed Barfoot and Thompson to market that property for sale. That property was not an Affordable property and therefore not one of those properties managed for sale by the BDO receivers.
[129] Mr Wood has confirmed to the Court that no challenge is made by Mr Sampson regarding the process used or price realised from the sale of the Waterways Café property.
[130] Regarding the sale of the Affordable properties the Bank’s position is it is not liable for the conduct of the receivers; it did not give the receivers any directions or interfere with their conduct such as to create any liability for that Bank.
[131] That position notwithstanding the Bank say the receivers obtained the best prices obtainable as at the time of sale.
[132] Mr Sampson’s objections for the sale process have been noted already in this
judgment.
[133] The Ohura property had a government valuation of $465,000. Bayleys
Taranaki provided a valuation indicating a minimum value of around $230,000. The
highest offer received was $80,000 with a final price of $100,000 negotiated with the purchaser.
[134] The Caulton Street properties were sold for $350,000. On 9 October 2014
Mr Sampson facilitated the presentation of three written offers between $550,000 and $560,000. Those were subject to due diligence clauses enabling the offeror a 10 day window to decide whether or not to proceed.
[135] Then an offer of $600,000 was submitted on behalf of the Sampson Family Trust. That offer was later withdrawn. Mr Sampson complains there is little evidence that any effort was made to encourage the three initial offerees to pursue their interest in the property. BDO reported that none of those initial offerees appeared interested in doing so.
[136] No real objection has been offered in connection with the method of sale of those for which purposes the services of Bayleys Real Estate was engaged.
[137] In the Court’s view too much emphasis is made regarding the sale prices of the Ohura and the Caulton Street properties. The evidence is the Okura property was an old property which had previously been operated as a prison. It was remotely located. It was marketed by an agent Mr Sampson had initially engaged albeit that it was sold for nearly half the amount that agent had initially estimated at the lowest end of sale expectations.
[138] There is no evidence other than the final sale price to indicate proper effort and care was not undertaken with its sale.
[139] The evidence is that Barfoot and Thompson were engaged to market the Caulton Street properties two weeks after those offers that were initiated with Mr Sampson’s assistance. It is understandable in those circumstances that the receivers may have been unwilling to accept those initial offers. It was appropriate for BDO to engage the services of a reputable real estate agency to value and propose a process for sale. The properties were leasehold and they were due for substantial
revaluation and increases in land value and ground rentals in February 2016. There can be little doubt those factors influenced final sale values.
[140] The evidence is Barfoot and Thompsons were reputable real estate agents who marketed the properties over a reasonably long period of time with an extensive advertising and promotional campaign. The Court accepts the receivers properly tested the market and obtained the best price reasonably obtainable at the time of sale.
[141] The Court does not accept there is any evidence supporting claims that a breach of s 176 of the Property Law Act 2007 occurred.
Whether BDO were conflicted when accepting appointment as receivers
[142] Mr Wood submits the receivers were conflicted in their appointment by the Bank by virtue of the fact BDO had been engaged by Mr Sampson to complete an investigation into the companies’ affairs. Mr Wood notes that as can be seen from the BDO letter of engagement to Mr Sampson, BDO had obligations of confidentiality, a prohibition against acting other than in his best interests, and completing the retainer in a professional manner. Mr Woods submits that in contrast and upon appointment as receivers BDO’s primary obligation was to act in the best interests of the Bank. Also he says that Mr Sampson had no choice about the appointment of BDO at the outset.
[143] Decisions were made in the course of Affordable’s receivership which counsel submits impacted on Mr Sampson and the companies including, but not limited to, the sale prices achieved for the Affordable properties. Mr Wood submits that on that basis and by accepting the appointment as receivers Messrs Brown and Rodewald were in direct conflict with the retainer with Mr Sampson and his interests and because of that conflict the appointment of the receivers by the Bank was invalid and the Bank with knowledge of the conflict is liable for the acts or omissions of the receivers.
[144] The Court does not accept those submissions. The submissions do not indicate any element of adversity for Mr Sampson except in connection with the management of the assets sale process and in particular regarding the sale prices achieved.
[145] As already noted in this judgment the Court does not accept there has been any breach of obligations in connection with the management of the sale process or regarding sale prices obtained.
[146] As Mr Broadmore submits the test for any liability of the Bank in respect of the conduct of receivers is as follows:
The debenture holders, the Bank, is not responsible for what the receiver does except insofar as it gives him directions or interferes with his conduct of the realisation. If it does so, then it too is under a duty to use reasonable care towards the company and the guarantor.4
[147] The Court agrees with Mr Broadmore’s submission that receivers are usually obliged to consult with the security holder to obtain approval of a sale and that conduct does not constitute interference or the giving of directions; but that the secured parties’ intervention will need to be serious before the secured party is found to be liable for the receivers’ actions. The Court agrees the giving of advice to, or holding discussions with, the receiver, or simply making known its preferences, will not render the secured party liable.
[148] The receivers did not act in a position of conflict. The Bank is not liable for any of the conduct of the receivers. It did not give them any directions or interfere with their conduct such as to create any liability for the Bank.
Result
[149] The Court does not accept Mr Sampson has an arguable defence to the
Bank’s claim. It does not accept there is sufficient evidence supporting claims that due to a serious health problem of which the Bank was aware of illegitimate duress
4 Standard Chartered Bank Ltd v Walker [1982] 3 All ER 938 at 942.
was imposed upon him to agree to a course of action he would not otherwise have agreed to.
[150] The Court does not agree that on or about 12 September 2014 and in consideration of Mr Sampson agreeing to assist with the sale of his companies’ properties that the Bank agreed not to pursue him under his personal guarantees.
[151] The Court does not accept the receivers of Affordable were in a conflict position they having previously acted for Mr Sampson following which they were then appointed by the Bank as receivers for Affordable and nor does the Court accept the receivers did not obtain the best price reasonably obtainable by their management of the sales processes.
Judgment
[152] Judgment is entered against the defendant in respect of his personal guarantee of the Affordable Accommodation NZ Limited (In Receivership) indebtedness to the Bank in the sum of $1,074,353.81 together with interest from 20 February 2015 on the sum of $1,056,810.35 at the rate of 6.74 per cent per annum, and on the sum of
$17,543.46 at the rate of 18.20 per cent per annum.
[153] Judgment in the sum of $141,831.47 being the amount of Mr Sampson’s indebtedness pursuant to his guarantee of the Waterways Café, Bar and Grill Limited indebtedness to the Bank together with interest from 20 February 2015 to date of judgment on the sum of $133,173.24 at the rate of 7.71 per cent per annum and
$8,658.23 at the rate of 18.20 per cent per annum.
[154] Costs upon this application are payable by Mr Sampson on a solicitor client basis in accordance with terms agreed by his guarantees. These costs shall be subject to the Court’s review and after Mr Sampson’s counsel has been provided
with a sufficient opportunity to consider and comment upon amounts claimed.
Associate Judge Christiansen
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