Bank of New Zealand v Taylor
[2013] NZHC 2848
•16 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-644 [2013] NZHC 2848
UNDER the Insolvency Act 2006
IN THE MATTER OF the bankruptcy of WARREN WILLIAM DENIS TAYLOR
BETWEEN BANK OF NEW ZEALAND Creditor
ANDWARREN WILLIAM DENIS TAYLOR Debtor
Hearing: 16 October 2013
Appearances: D T Broadmore for Creditor
W W D Taylor, Debtor in person
Judgment: 16 October 2013
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Buddle Findlay, Auckland, for Judgment Creditor
BANK OF NEW ZEALAND v TAYLOR [2013] NZHC 2848 [16 October 2013]
[1] This is an opposed application for a bankruptcy adjudication.
A procedural point
[2] There is a procedural point to record at the outset. At all material times Mr Taylor has been based in the Bay of Plenty, in particular at Waihi. The bank’s lending to Mr Taylor and his family trust was in Waihi. Ordinarily, a bankruptcy application is brought in the registry of the court nearest to where the debtor has lived for the last six months. In this case that would be Tauranga. This proceeding has been brought in this Court. To do so, the bank has relied on r 24.13(c) of the High Court Rules. That is because the bank has not been able to serve Mr Taylor personally and has not been able to find where he is actually living. Instead, the bank has for some time now applied for directions as to service under s 357 of the Property Law Act 2007 and applied for substituted service under r 6.8 of the High Court Rules. Not knowing where Mr Taylor can be contacted, it has instead filed this proceeding in this Court, as the court nearest to its registered office. Mr Taylor has explained that he now lives in a motor home and he does move about from place to place although he does remain based in Waihi. He can be contacted through the office of an accountant in Waihi.
The bank’s case
[3] The bank’s case is that it is a creditor of Mr Taylor in the sum of $702,337.55 plus interest. That sum is made up of an order for costs made in this Court on
16 November last year plus interest on that sum, $5471.71 as money owing on two overdrawn current accounts, and a sum of $684,109 under a guarantee signed by Mr Taylor in November 2009. Mr Taylor had guaranteed loans the bank had made to the trustee of the Moresby Trust. The Moresby Trust is a trust associated with Mr Taylor, although he was not the trustee at the time of the loans. The loans given by the trust were also secured over four properties owned by the trustee. Those properties are all in Waihi: 72A Moresby Avenue, 24A Walker Street, 24B Walker Street and 15 Wrigley Street. The trustee defaulted in repaying the loans. By the
time of the relevant defaults, the original trustee had resigned and Mr Taylor had become the trustee. The bank served notice under s 119 of the Property Law Act and then exercised its powers under its mortgages to sell the properties by auction.
$684,109 is the shortfall on all the loans following the sales of the properties.
[4] The bank says that Mr Taylor committed an act of bankruptcy because he did not comply with a bankruptcy notice that was served on him on 11 April 2013. The judgment which formed the basis for the bankruptcy notice is the order for costs of
$12,466 made on 16 November 2012. The bank’s application also says that it has no security from Mr Taylor personally for his indebtedness under the order for costs, the current accounts or the guarantee.
Mr Taylor’s case
[5] Mr Taylor’s notice of opposition says that his grounds are given in his affidavit and that he relies on the Property Law Act and what I understand to be a reference to the Fair Trading Act 1986.
[6] The conclusion of Mr Taylor’s affidavit sets out what he alleges to be various losses. These are said to amount to $1,154,129. I refer to these amounts, as they give a lead to the matters that Mr Taylor has raised in opposition to the application:
1The sum of $686,129. For this Mr Taylor says that the bank breached its duty under s 176 of the Property Law Act and sold the four properties at under-values. This part of his case is a claim for the shortfall on what he alleges the bank should have sold the properties for.
2The sum of $65,000. This is said to be the amount of a deposit payable under an agreement by which the trust sold 24A Walker Street to a couple by the name of Jamieson. The purchase price was
$295,000 with $230,000 to be financed. Under this transaction Mr Taylor says that he would have received $65,000, which he could have applied for his own purposes, leaving the $230,000 available to
be applied against debts payable by the trust to the bank. He says that the purchasers applied to the BNZ for finance, but the bank did not approve the loan. He says that that loss of $65,000 is a loss that he has suffered as a result of the bank’s refusal of finance to the purchasers.
3 There then follow figures of $120,000, $130,000 and $150,000. The
$120,000 is said to be for a loss on a property owned by the trustees at 22 Walker Street, Waihi. This was a property owned by the trust, but it was not mortgaged to the bank. Instead, it was mortgaged to mortgagees known as the Ingleside Trust for $230,000. The property was alleged to have a value of $350,000. Mr Taylor’s case is that there has been a loss of $120,000 and he attributes that to the Bank of New Zealand. The way he attributes that to the Bank of New Zealand is that the Moresby Trust applied to the bank for finance in 2008 or
2009. He alleges that the bank had approved two loans, one conditionally, but refused to allow them to be drawn down. I need to refer to those allegations in more detail further on. That refusal of finance, he says, triggered not only the loss of 22A Walker Street but led to the further loss of $130,000. It also led to him not being able to complete the subdivision of 15 Wrigley Street. 15 Wrigley Street was a bare section for which he had a subdivision plan to develop three sections and he believes that he would have obtained a profit of
$50,000 for each section sold, giving him a loss of $150,000.
[7] Mr Taylor’s affidavit ends by saying that in addition to these losses suffered by the trust, there are personal losses - a motor home, car, an MG sports car and various furnishings.
Background
[8] Mr Taylor now describes himself as retired. He is 73 years of age. At the relevant time, five years ago, he was 68 years of age. He lived in Waihi. He was operating as a builder and developer. He established a trust called the Moresby trust.
The trustee of that trust was an Auckland solicitor, Mr Bogiatto, but Mr Bogiatto resigned in 2009 and Mr Taylor has been trustee ever since. It was while Mr Bogiatto was trustee, that the bank made a number of term loans to the trust with the properties to which I have already referred as security:
6 July 2006 (1 year) $230,000
20 November 2007 (1 year) $25,000
22 June 2007 (25 years) $35,000
17 July 2007 (3 years) $220,000
17 July 2007 (3 years) $195,000
5 February 2008 (3 years) $50,000
25 June 2008 (3 years) $101,500
25 November 2009 (6months) $89,000
[9] All but one of the loans were for no more than three years. They had all matured and the principal was repayable by the time the bank came to exercise its powers of sale. The exception is the loan for $35,000 for a term of 25 years.
[10] Along with these term loans to the trust, Mr Taylor gave the bank a number of guarantees with increasing limits. The final guarantee was given on 25 November
2009. The limit is $900,000. All the sums claimed by the bank are within the guarantee limit. The guarantee is in the Bank of New Zealand’s standard form for a guarantee and indemnity.
[11] By March 2010, the trust was in default. But before addressing what the bank did as a result of the defaults, it is necessary to refer to other matters.
[12] Mr Taylor had applied for loans from the bank. The first was a loan of
$259,000 to be secured over 22 Walker Street, Waihi, and also a loan for $189,000 for the trust to buy back 72A Moresby Road, Waihi. The trust had sold the property to a Ms Atkinson. She was unable to keep up payments and Mr Taylor, on behalf of
the trust, wanted to buy the property back. Eventually the bank did provide the finance to buy back 72A Moresby Road, but there was a delay in that the bank did not approve the finance for Walker Street straightaway.
[13] Mr Taylor brought proceedings against the Bank of New Zealand, alleging that it was in breach of contract for refusing to allow loans approved by bank officers to be drawn down. The bank opposed, saying that the loans had never been approved. Mr Taylor issued one proceeding against the bank. In that proceeding, CIV-2011-404-1842, Mr Taylor was ordered to provide security for costs. Mr Taylor missed the deadline for paying security in time. He tendered a cheque to the court office. As he was required to pay in cash the cheque was not accepted and his claim was struck out. He then brought a second proceeding, repeating the allegations in the first proceeding. In the second proceeding the bank applied for summary judgment against Mr Taylor. Venning J gave summary judgment in favour of the
bank and against Mr Taylor.1 He also ordered Mr Taylor to pay the bank costs on the
proceeding. Those costs were fixed at $12,466. The bankruptcy notice in this case is based on that order for costs. It forms part of the debt on which the bank relies in its adjudication application.
[14] I now move back to 2010. By that time the Moresby trust was in default under the term loans. Mr Taylor attributes that inability to meet payments under the term loans, many of which had matured, to the bank’s refusal of finance earlier which he said stalled his developments and killed off cash-flow. It meant that default was inevitable.
[15] In 2011 the bank instructed a registered valuer to provide valuation reports on the four properties. I read from one of the reports, the one on Wrigley Street, a passage bearing on market factors:
Market conditions in the Waihi residential district remain less than buoyant with these conditions generally being evidenced by a low number of sales achieved on a monthly basis although overall market value levels remain reasonably stable. Clearly over the past three or so years there has been significant activity as regards “forced sales” particularly by way of “distressed” vendors, possibly for a small town a higher than average mortgagee sales.
1 Taylor v Bank of New Zealand [2012] NZHC 3064.
The report also adds in relation to sales of residential sites that:
... Sales of residential sites have been minimal in the Waihi residential district and of the sales recorded since 2009 a significant proportion of those sites are sold under mortgagee sale conditions.
The report notes that:
In the bulk of those sites they are sold at a discount of around 30% of a reasonable market value.
[16] In a report on 24A Walker Street, the comments are broadly along the same lines in relation to residential properties, but this is to be noted:
If there is a highlight of residential property at this time in Waihi it would be the number of sales of newer homes that had been occurring.
The report records that residential sections have not sold well, but goes on to say:
In itself there are very few examples of residential investment property in Waihi and clearly over the past one to two years or so there have been simply no sales of such properties whatsoever.
I have recorded that to show that the property market in Waihi in 2011 was depressed.
[17] In 2012 the bank started to take steps to enforce its rights under the mortgages. It obtained an order under s 357 of the Property Law Act for service of notices on Mr Taylor. The bank’s evidence shows that there were three notices under s 119 of the Property Law Act. That is because different properties are secured for different loans. Each of those notices is addressed to Mr Taylor in his capacity as current trustee of the Moresby Family Trust and also to him personally because he is a covenantor. There is no evidence of any separate notices to Mr Taylor under s 122 of the Property Law Act. The defaults under the housing term loans were not remedied, and the bank then arranged for the sale of the properties.
[18] By this stage all of the term loans had matured, apart from the $35,000 for
25 years. Once the time for complying with the notices under s 119 of the Property Law Act had expired, the bank would have been able to accelerate the loans, but there is no evidence that it did accelerate any loan that had not matured.
[19] The bank then moved forward with conducting the sales of the properties. It will be necessary to consider later in the judgment the steps the bank actually took. For the present it is only necessary to record the properties it sold by auction on 25
May 2012. The prices they were sold for were:
72A Moresby Avenue $117,500
24A Walker Street $132,000
24B Walker Street $122,000
15 Wrigley Street $79,500
Total: $451,000
[20] Once the costs of sale had been deducted the proceeds of sale were applied to
the trust’s indebtedness for the term loans. The shortfall is an amount of $684,109.
Section 13 of the Insolvency Act 2006
[21] Section 13 says:
13. When creditor may apply for debtor's adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a) the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and
(b) the debtor has committed an act of bankruptcy within the period of
3 months before the filing of the application; and
(c) the debt is a certain amount; and
(d) the debt is payable either immediately or at a date in the future that is certain.
[22] It is clear that Mr Taylor has committed an act of bankruptcy under s 13(b) of the Insolvency Act and that he committed it within a period of three months before the present application was filed. That act of bankruptcy was the failure to comply with the bankruptcy notice served on him in April 2013. The order for costs made by Venning J was a final order under s 17. There has been no halt to the enforcement of execution, and the bank has proved service. There is no evidence that Mr Taylor took any steps that amounted to compliance within 10 working days of having been served.
[23] The order for costs can constitute a debt under s 13 of the Insolvency Act. It is for a sum more than $1,000. It is for a certain amount, and it is payable immediately.2
[24] It is necessary to consider the other debts that the bank relies on. These are the debts under the guarantee and the indebtedness under Mr Taylor’s personal accounts. Against those, Mr Taylor has asserted that the bank is liable for the losses that he alleges it has caused. Neither the debts claimed by the bank against Mr Taylor nor Mr Taylor’s claims against the bank are supported by court judgments or court orders. It is necessary at this stage to clarify the way in which the Court needs to consider these matters.
[25] If a debt is to be considered under s 13 it must meet the requirements under the section. It must be a debt that is provable in the debtor’s bankruptcy. The provisions as to provable debts are ss 231 and 232 of sub-part 9 of Part 3 of the Insolvency Act. Quite simply, if a debt cannot be proved in a bankruptcy, then there would be no point in allowing the creditor for that debt to apply for adjudication.
[26] The debtor’s liability for the debt must be certain – that is, it cannot be subject to any arguable dispute. That appears from s 13. Section 13(a) says: “the debtor owes the creditor ....” In using the word “owes” Parliament did not mean “arguably owes” or “maybe owes” or “could owe”. It means “does owe”. Section
13(c) requires the debt to be for a certain amount. If Parliament has required that there be a liability for a certain amount, it must follow that the liability itself must also be certain. It would be illogical to require that there be liability for a certain amount while leaving the liability itself to be uncertain. That requirement is supported by the consideration that insolvency proceedings are inappropriate for deciding disputes as to liability for alleged debts. Section 13(d) says that the debt is payable, either immediately or on a date in the future that is certain. The words “is payable” again indicate that there must be certainty of liability.
[27] In considering the debts asserted by a creditor, it can be relevant to take into account any matters that the debtor might be able to raise against that liability so as
2 Insolvency Act 2006, ss 13(a), (b) and (c).
to reduce the debtor’s liability. The way that set-off is to be applied in this situation is to apply “insolvency set-off” – that is, mutual credit and set-off under s 254 of the Insolvency Act. If the application of insolvency set-off means that on balance the debtor does not owe the creditor anything, then that stands in the way of the creditor maintaining that he is a creditor entitled to an adjudication. It needs to be noted that when insolvency set-off applies, rules which purport to oust other set-off rules (such as “pay-now-argue-later” provisions) do not apply under s 254 because it is not
possible to contract out of s 254 of the Insolvency Act.3
[28] In considering the debts alleged by the creditor in an opposed application, it is not enough for the creditor simply to rely on the verifying affidavit. Instead, the creditor must adduce evidence to prove the debt itself. In Re Somerville, Cooper J said:4
The necessity for verification of the petition is merely to establish a prima facie case justifying the issue of a summons. It is a condition precedent to the issue of the summons ... but the affidavit verifying the petition is not proof of the matters alleged. If the debtor does not appear in answer to the summons, Rule 106 enables the Court to make an order of adjudication on such proof of the statements in the petition as the court shall think sufficient. Where the debtor appears and disputes the act of bankruptcy or the other matters stated in the petition, Rule 107 requires these matters to be proved; and, although under Rule 109 the personal attendance of the petitioning creditor and of the witnesses at the hearing to prove the debt and the act of bankruptcy may, if the court shall think fit, be dispensed with, and the Court, by inference, may act upon evidence by affidavit...
The approach set out there is equally applicable today, with the possible caveat that in bankruptcy proceedings today it is standard for evidence to be given by way of affidavit.
[29] As to the adequacy of the bank’s proof, I accept that the bank has generally proved its debts although in many respects the evidence could have been fuller. It has put in evidence all the term loan agreements and the guarantee of 27 November
2009. It has not put in evidence any of the mortgages. However, it has put in evidence copies of entries from the computer freehold register of each of the
properties showing a mortgage in favour of the bank and registered against the
3 Rendell v Doors and Doors Ltd (in liq) [1975] 2 NZLR 191 (SC).
4 Re Somerville (1909) 28 NZLR 1055 (SC) at 1060.
property. I can take judicial notice that mortgages in favour of trading banks give a power of sale as a remedy for default. The bank has proved service of notices under s 119 of the Property Law Act. The notice was addressed to Mr Taylor in two capacities - not only as a trustee of the Moresby Trust, but also as guarantor, as required by s 121(1)(b) of the Property Law Act.
[30] There is, however, no evidence that the bank gave a separate notice under s
122 of the Property Law Act. That section applies if a mortgagee proposes to sell mortgaged land and to recover any deficiency from a former mortgagor or a covenantor. The section requires the mortgagee to serve notice of that intention on the covenantor at least 20 working days before the exercise of the power of sale.
[31] Mr Broadmore accepted that the notices were not in evidence although he did assert that it would have been the bank’s normal practice to serve such notices. However I have to go by the evidence, not by what counsel say is normal practice. Mr Broadmore went on to also submit that there was no prejudice to Mr Taylor if the notices under s 122 had not been served. Section 122(4) provides that failure to serve a notice under s 122 on a guarantor does not prevent the mortgagee from exercising a power of sale or recovering a deficiency from the guarantor. But subsection (5) goes on to provide that a guarantor who is prejudiced by the failure to serve is released from the liability to the extent of the deficiency.
[32] Mr Taylor has not raised this as an issue but it is certainly clear that he was well aware not only that the bank was exercising its rights under a power of sale – he knew that from the s 119 notice served on him – but he seems to have been on clear notice during the period of marketing that the bank had the properties up for sale. He told me that for his part he kept clear of the properties while they were being marketed. That indicates some knowledge on his part that the properties were to be sold. It is necessary later to refer to other matters that happened during the sales process. The onus is on Mr Taylor to show that if there has been any prejudice. He has not put that in issue, so any failure by the bank to serve the notice under s 122 is not fatal in this case.
[33] I will consider the s 176 issues later. At this stage, with the exception of the absence of acceleration of the $35,000 loan, I accept the bank’s evidence that it validly sold the properties after giving due notice under s 119. The only doubt is whether the principal element in the $35,000 term loan has been properly accelerated. That problem is probably not fatal to the bank because, even if it did not accelerate, the debt is still one that is payable at a date in the future that is certain and it therefore qualifies under s 13(d). Accordingly, I accept the bank’s evidence as to the sums owing by Mr Taylor under his guarantee.
[34] The bank has given only slight evidence as to the indebtedness on the current accounts. But, while slight, it is enough and has not been challenged.
Matters raised by Mr Taylor
[35] Subject to the matters raised by Mr Taylor, the bank has proved the debt in its application. Before I consider the individual challenges made by Mr Taylor, it is perhaps helpful to bear in mind how his challenges impact on the debts asserted by the bank.
[36] His claims generally are as to losses suffered by the trust. Insofar as he is asserting that the trust has suffered losses for which liability can be attributed to the bank, he is putting up matters which would go in reduction of the bank’s claim against the trust. As he has guaranteed the liability of the trust, they are matters which he, as a guarantor, can raise to reduce his liability also because his liability as a guarantor is secondary to that of the trust.
[37] In the case of his claim under s 176 of the Property Law Act, the duty which the bank owes is not only to the trust as current mortgagor but also to Mr Taylor as covenantor. He has not, however, raised anything that goes beyond a claim to reduce whatever liability the trust might be under to the bank. He has not asserted any independent loss in his own right as a guarantor/covenantor. What that means is that, even if Mr Taylor succeeds on the matters that I am about to consider, that would only at best extinguish his liability under the guarantee. It does not extinguish his
liability under the other heads of indebtedness. In particular, it does not extinguish his liability under the order for costs made by Venning J.
Section 176 of the Property Law Act 2007
[38] Section 176 says:
176 Duty of mortgagee exercising power of sale
(1) A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section
187, or through a court under section 200, owes a duty of reasonable
care to the following persons to obtain the best price reasonably obtainable as at the time of sale:
(a) the current mortgagor: (b) any former mortgagor: (c) any covenantor:
(d) any mortgagee under a subsequent mortgage:
(e) any holder of any other subsequent encumbrance.
(2) A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.
[39] Under this section the Bank of New Zealand owed both the trustee of the Moresby Trust (as mortgagor) and Mr Taylor (as guarantor) a duty of care to obtain the best price reasonably obtainable for the properties sold under the exercise of its power of sale.
[40] Mr Broadmore’s submissions set out a series of propositions as to the principles that the courts apply when considering whether there has been compliance with s 176 of the Property Law Act. In ASB Bank Ltd v Robertson,5 I considered compliance with s 176 and I set out a number of principles. While what I am about to outline does not differ from what Mr Broadmore submitted, I find it more
convenient to rely on those stated in my earlier decision. I said this:6
5 ANZ Bank Ltd v Robertson [2013] NZHC 2125 at [11]-[14].
6 At [11].
1Section 176 of the Property Law Act 2007 codifies the duty which, under the general law, a mortgagee exercising a power of sale will be taken to owe to the persons named in the section, which includes both current mortgagors and guarantors.
2The duty of care is concerned with obtaining the best price reasonably obtainable as at the time of sale. It is a duty to take reasonable care. It does not necessarily follow that the best price reasonably obtainable will be achieved.
3The duty has to be measured at the time of sale. The duty arises at the time that the decision to sell is made and there is a need to analyse the steps taken, once the decision to sell is made, up to the time of sale.
4 While the duty goes to care taken in exercising the power, the duty
does not go to the mortgagee’s decision to decide if and when to sell.
5When deciding whether reasonable steps have been taken by the mortgagee to obtain the best price, the steps taken by the mortgagee and those acting for it must be looked at in the round. The issue is a commercial one, to be viewed in practical, commercial terms.
6Appointing a competent agent to sell does not discharge the mortgagee’s duties, but since its duty is ultimately one of reasonable care, putting the matter in the hands of a competent agent will usually go a long way towards discharging the mortgagee’s duties.
7In the normal course, the proposed sale will need to be advertised, with adequate description of the property’s attributes, within reason, while wanting to attract all possible buyers.
8There is no obligation to postpone the sale in the hope of obtaining a better price later.
9Nor is there an obligation to break up assets to sell them in a piecemeal manner. This can only be carried out over a substantial period or at a loss.
10When assets are sold by tender or auction a reasonable period must usually be allowed for purchasers to inspect the property and arrange finance before submitting bids. There is no obligation on a mortgagee to make improvements to the property. There is no requirement for a mortgagee to take an order for possession of the property. A mortgagee is required to sell the property as is, where is.
11 For a breach of duty to be actionable there must be proof of damage.
12When there is a sale for a price less than the current market value, assessed by valuers, it does not of itself establish a breach of duty although a large discrepancy may indicate a failure to take reasonable care.
13The mortgagee is not entitled to sell in a hasty way or at a knock- down price sufficient to pay the debt which, because of the speed of sale, leaves a lower price than could otherwise be obtained.
[41] I also refer to the decision of Asher J in Public Trust v Ottow as to standard steps taken by a mortgagee to sell:7
[31] The following steps indicate that a mortgagee has made reasonable efforts to obtain the best reasonably obtainable price:
(a) The appointment of a reputable real estate agent to market the property.
(b) Obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property.
(c) Marketing over a reasonably long period of time.
(d) An extensive advertising and promotional campaign. (e) A properly conducted auction.
(f) A sale price that, given all the circumstances, can be reconciled with expert opinion as to value.
...
[33] A failure to achieve an assessed valuation price at a mortgagee sale is not in itself any indication of a breach of the mortgagee’s duty of care to obtain the best price reasonably obtainable: Moritzson Properties Ltd v McLachlan at [61]. A failure to achieve a price that a mortgagor believes the property should achieve, does not give rise to an inference that a mortgagee has breached its duty to take reasonable care: Wallace v Bank of New Zealand (HC AK CIV-2009-
404-3534 1 July 2009 Wylie J, at [54]). Of course, a sale at a price which is much less than the assessed value, when there is no
explanation for the discrepancy, can indicate a failure to take reasonable care.
[42] While evidence proving those steps goes towards showing compliance with the duty, it is necessary to bear in mind that while mortgagees such as banks, building societies, finance companies and similar lenders may follow those steps as a matter of routine, it is still necessary to check that those steps are appropriate in the particular circumstances of the case, and also to check whether there are other factors
that might call for attention in the particular circumstances.
7 Public Trust v Ottow (2010) 10 NZCPR 879 (HC) at [31] and [33].
[43] It is also necessary to take into account the fact that on a sale by a mortgagee there will normally be some discounting from what could be achieved on a sale between willing vendor and willing purchaser on an open market basis. It is generally recognised that even when all reasonable steps have been taken, a forced sale will lead to a lower price than a market sale where an owner is under no
financial pressure to sell.8
[44] I come now to the properties. Three of them were properties with dwelling- houses on them, all at Waihi. As is apparent from the valuer’s report (referred to above) the property market in Waihi was far from buoyant. In particular, there was minimal demand for residential sections. That is relevant to the property in Wrigley Street.
[45] The bank took conventional steps. I am satisfied that those steps were appropriate for the kind of properties under consideration in this case. The bank obtained a report from a registered valuer. There was a lapse of time between when the bank obtained that valuation in July 2011 and when it actually got under way in early 2012. But overall there is nothing to suggest that it was inappropriate for the bank to rely on the report obtained in 2011.
[46] The 2011 report valued the Moresby Avenue property exclusive of chattels at
$235,000 and on a forced sale basis at $180,000. It valued the 15 Wrigley Street section at $130,000. For that valuation the valuer assessed the costs of a notional subdivision of the property and said that on a forced sale basis 15 Wrigley Street would get $98,000. For 24A Walker Street the valuer gave a current market value excluding chattels of $315,000 and a forced sale value of $195,000. For the property at 24B Walker Street the valuer gave a market value of $260,000 excluding chattels, and a forced sale market value of $200,000. On a forced sale basis the values given totalled $673,000.
[47] In March 2012, after time for complying with the Property Law Act notices had expired unremedied, the bank appointed a Mr Eagar, from Ray White Real
8 Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC
193,480 (HC) and Westpac Banking Corporation v Chisholm (2007) 8 NZCPR 301 (HC).
Estate in Hamilton, to assist it in the sales of the properties. Mr Taylor has criticised the fact that the real estate franchise chosen was Ray White which apparently does not have a presence in Waihi, and that Mr Eagar is based in Hamilton rather than locally. Although he does not give evidence to this effect, Mr Taylor points out that apparently real estate agencies based in Waihi do conduct mortgagee sales. He says that he had the properties listed with The Professionals in Waihi for sale.
[48] Against those factors, the bank points to Mr Eagar’s experience in dealing with mortgagees’ sales. Mr Eagar is an experienced auctioneer and he has many many years of experience in conducting mortgagee sales. It is necessary to bear in mind the modern ways of marketing properties for sale. Much work is done on the internet and it was used in this case. There were advertisements in local papers, The New Zealand Herald and the Waikato Times. Opportunities were given to inspect the properties although, as I will refer to later, there were constraints on inspection. On balance, I can see Mr Taylor’s point that it would also have been helpful to use a local real estate agent to deal with the casual person who drops in. The marketing was appropriate. I do not consider the fact that the auctioneer was based in Hamilton as being a matter that counts against the bank as amounting to a failure to take proper and reasonable steps.
[49] Mr Eagar provided a report. He has not been qualified as a registered valuer. As a real estate agent and auctioneer, all he could give was an appraisal or assessment of what the respective properties would be worth. His appraisals were:
1He considered that 72A Moresby Avenue would sell at a market value of between $120,000-$130,000 on a mortgagee sale basis and he suggested the bank give serious consideration to any offer over
$85,000.
2 As to 24A Walker Street he assessed a market value of between
$150,000-$170,000 with a recommendation to the bank to give serious consideration to any offer over $120,000.
3 For 24B Walker Street his appraised value was between
$90,000-$100,000 with a recommendation to give serious consideration to any offer over $70,000.
4 For 15 Wrigley Street he appraised that value as between
$80,000-$90,000, recommending that the bank consider any offer over $50,000.
[50] As with the registered valuer, Mr Eagar said that the state of the market at the time was average to poor. He said that of 15 sales reported for the three months before he made his report, only one of them was above the property’s capital value. He recommended sale of the properties by public auction, on the basis that interest could be generated and buyers would be placed in a transparent and competitive process. He provided the bank with a marketing plan.
[51] Mr Eagar’s evidence describes the marketing of the properties. I am satisfied there was appropriate advertising, both on the internet and in newspapers locally.
[52] There were, however, two issues with the sales process.
[53] Mr Taylor contacted not Mr Eagar but another person with the same real estate agency in April 2012, advising that the land agents did not have access to the properties. The land agent who took that call, Ms Abercrombie, says that Mr Taylor stated that he did not care what price the properties sold for.
[54] Today, in his written submissions, Mr Taylor has said that there were no barriers to the bank having access to the properties - they could have obtained keys from The Professionals. Mr Taylor also said that the bank had obtained an order for possession of the properties. He said that the court order had been made in the registry of this Court. At the hearing I had a check made of the CMS which logs all the proceedings filed in this court. That search was unable to find any decision in which the bank was a plaintiff or applicant and Mr Taylor was the defendant or respondent. It did identify the proceedings in which Mr Taylor was the plaintiff and the bank was the defendant, but clearly in an application to obtain possession the
bank would have been the applicant or plaintiff. In the circumstances I find that the bank had not obtained an order for possession. It was still entitled to sell the property in its existing condition. Mr Taylor, as trustee, was entitled to the occupation of the property and he had the say as to who could come onto the trust properties. As he had forbidden access to the properties, he was the one who made it difficult for purchasers to establish whether it would be worthwhile bidding for the property.
[55] There is also some evidence that Mr Taylor had removed certain fixtures and fittings from the properties. Mr Taylor confirmed that there was no intention to sell the properties with chattels. He said that he was entitled to remove property which was not the subject of the bank’s mortgages so he accordingly was entitled to strip the properties of items such as carpets, bathroom and kitchen fittings.
[56] Mr Taylor may well have been within his rights in doing that, but he has to bear in mind that actions such as that are a deterrent effect for potential purchasers. When people making purchases see that defaulting mortgagors have stripped assets from a property they can have real a concern as to what they will get out of the sale. They will be less keen to bid for a property than if they know that there has been a co-operative mortgagor. That means that Mr Taylor was making it difficult for the bank to optimise what it could get on the sales of the properties. While Mr Taylor complains about the low prices achieved by the bank, he has to accept that he carries some responsibility for that himself.
[57] Mr Eagar inspected the properties. He noted that at one of the properties,
24B Walker Street, the curtains were tightly drawn. That prevented anyone looking through and establishing the state of the property inside. At the other two properties with houses it would be possible for purchasers to look through windows but they would note that in many cases the properties had been stripped. Mr Eagar made recommendations for reserves for each property. The bank adopted those recommendations, except for 15 Wrigley Street where it set a reserve price higher than Mr Eagar had recommended.
[58] As I have already stated, the properties were sold by auction on 25 May 2012 as follows:
1 72A Moresby Avenue - reserve price set $90,000, sold for $117,500.
2 24A Walker Street – reserve price $120,000, sold for $132,000.
3 24B Walker Street – reserve price $90,000, sold for $122,000.
4 15 Wrigley Street – reserve price $60,000, sold for $79,500.
In each case the price achieved was higher than the reserve recommended by
Mr Eagar.
[59] I find that the bank was entitled to sell the properties as they were. It was not under any obligation to carry out improvements. For example it was not under any duty to complete the subdivision of 15 Wrigley Street. Where one of the houses had not been fully completed there was no code compliance certificate and there was no duty on the bank to obtain a code compliance certificate for that property. Likewise, it was not under any obligation to obtain orders giving it possession of the property.
That was a point made by Asher J in Public Trust v Ottow.9
[60] When I view the matter overall, I am satisfied that the bank did take reasonable steps under s 176, and cannot be faulted as having breached its duty under that section.
Deposit of $60,000 on sale of 24A Walker Street to A & D Jamieson
[61] Mr Taylor made submissions which went beyond what has been disclosed in the evidence. His complaint is that the bank was approached for a loan to the Jamiesons. The bank refused to approve a loan for the Jamiesons. While there is no evidence to that effect, even if Mr Taylor could make those allegations out, it is not clear to me how the fact that the bank may have declined finance to a potential purchaser breaches any duty to the trustee of the Moresby Trust or gives Mr Taylor
or the trustees of the Moresby Trust any claim against the bank. I do not see that
9 Public Trust v Ottow, above n 7, at [31] and [33].
there is a basis for the bank to be liable simply because it said to the Jamiesons that it was not prepared to finance their purchase of that property. That is a commercial decision. It is not for the court to second-guess commercial decisions made by a financier whether to advance funds for a loan.
Complaint as to bank not allowing drawdown of approved loans
[62] The final three matters – the $120,000 for 22 Walker Street, the $150,000 for Wrigley Street for the loss on the subdivision and the other claim for $130,000 – are all derived from Mr Taylor’s complaint that the bank wrongly refused to drawdown loans that it had approved. Those are the matters that were in issue in the earlier
proceedings.10 The second proceeding resulted in a summary judgment against
Mr Taylor. That summary judgment means that there has been a final adjudication on the merits of that claim. The fact that the Court has already decided against that claim means that Mr Taylor cannot advance that as a claim in this proceeding. This is an application of what lawyers call res judicata. As the matter has already been determined in court once, it is not open to Mr Taylor to require the matter to be re-
litigated. I cannot go past the decision of Venning J.11
[63] I sum up on all the matters that Mr Taylor has raised. I am satisfied that he has not shown any arguable basis for any of his claims. None of those matters can go in reduction of the amounts owing by him under his guarantee. Accordingly, I am satisfied that even for those debts obtained by the bank which are not the subject of any judgment order of this Court, they are debts that can be claimed under s 13. That means that I am satisfied that the bank has met the requirements of s 13 of the Insolvency Act 2006.
Exercise of the discretion
[64] That leaves the Court to consider the exercise of the discretion. The discretion is provided in ss 36 and 37 of the Insolvency Act. In effect, ss 36 and 37
are two sides of the same coin.
10 CIV-2011-404-1842 and CIV-2011-404-8089.
11 Taylor v Bank of New Zealand, above n 1.
[65] In his submissions Mr Broadmore set out propositions taken from Baker v
Westpac Banking Corporation12 and Re Richards ex parte Auckland Finance Ltd:13
1A creditor who establishes the jurisdictional facts under s 13 is prima facie, but not automatically, entitled to an order.
2The onus is on the opposing debtor to show why an order should not be made.
3The court will consider the interests of those directly concerned (the petitioner, other creditors and the debtor) and also the wider public interest.
4The court will give proper weight to the commercial judgment of the petitioner, but the oppressive use of the bankruptcy process may be a ground for refusing an order.
5The undoubted absence of assets may be a ground for declining to grant an order, but will not necessarily preclude an order given the range of interests involved, including the public interest and the continuing oversight of the bankrupt’s affairs and the disqualifications that go with bankruptcy.
6In the end, the court must balance the various considerations relative to the case, and determine whether the debtor has succeeded in showing that an order ought not to be made.
[66] In other decisions14 I have proposed that where the court is invited to exercise its discretion, rather than an interest-based approach, it can be appropriate to consider the purposes of bankruptcy. I identify those purposes as these:
1The administration of the bankrupt’s estate by an independent trustee in the interests of the creditors with the Official Assignee exercising the powers given to him under the Insolvency Act;
2 Promoting the accountability of debtors for their liabilities;
12 Baker v Westpac Banking Corporation CA212/92, 13 July 1993.
13 Re Richards ex parte Auckland Finance Ltd HC Auckland CIV-2008-404-2324, 9 July 2009.
14 Evia Rural Finance v Cribb [2012] NZHC 579, Henderson Reeves Connell Rishworth Lawyers
Ltd v Busch [2013] NZHC 2521.
3Protecting the community from the debtor incurring liabilities while insolvent;
4 Punishment for misconduct; and
5Freeing debtors, on discharge, from their liabilities so that they can begin afresh.
[67] In opposition, Mr Taylor has not asked the Court expressly to exercise its discretion in his favour under s 37 of the Insolvency Act 2006. He has not adduced any information as to his personal circumstances. He has not addressed his ability to deal with his insolvency. He has not suggested any alternative to insolvency.15
However, in his oral submissions he tended to blame the bank for his misfortune. He said that it is the bank that has caused the losses – not him. That seems to go back to the matters that he had raised in his proceedings CIV-2011-404-1842 and CIV-2011-
404-8089. There has been a determination against him on the merits as to whether he has a valid cause of action.
[68] It may be appropriate to also consider whether, even though he has no claim in law against the bank, that issue might be a relevant consideration in the exercise of the Court’s discretion on a bankruptcy application. That is, whether the bank’s refusal to advance funds to him might be a factor in considering how the discretion ought to be exercised. The Court has made findings that the bank never approved the loans at all. That is accepted. Mr Taylor’s complaint that the bank ought to have lent him money seems to be at the heart of his grievance.
[69] In my judgment that is not a factor that can enter into a consideration of the discretion in this case. A court will refrain from making an order for adjudication in cases of oppression or similar high-handed conduct. But I do not view the bank’s conduct in this case in that light. The bank appears to have made a commercial decision not to advance funds to Mr Taylor. Mr Taylor’s complaint is that if the bank was not going to lend him money at his age he would never be able to look to anyone else for finance. In the end it is a commercial decision of the bank whether
to advance funds or not. It is not for the Court to pass judgment on what seems to be
15 See s 8 of the Insolvency Act 2006.
an exercise of a commercial judgment. Accordingly, that matter does not weigh with me as a matter counting against adjudication.
[70] There are instead counter-indications. Firstly, there is no alternative proposal to bankruptcy. Mr Taylor is heavily indebted. There seems to be no other way of him addressing his insolvency. It is appropriate that his affairs be put under the control of the Official Assignee. That can allow proper investigation of Mr Taylor’s affairs in the interests of his creditors. That seems to be desirable given what seems to have been deliberate steps taken by Mr Taylor to make life difficult for the bank – such as stripping the properties and preventing the bank from having an easy ride with the sale of the properties.
[71] Next, there is the need for accountability. I refer to extracts from two decisions of Master Kennedy-Grant. In Re Coll ex parte Consumer Finance Ltd16
Master Kennedy-Grant referred to the need for accountability in the interests of commercial morality when guarantees had been given. He said:
He has incurred those liabilities by giving guarantees. He has not honoured his guarantees. He is not in a position to honour his guarantees. The guaranteeing of financial advances to companies by directors of those companies is standard practice in New Zealand. It is an almost invariable requirement of lenders. Without the additional security provided by such guarantees, lenders would very often not make advances. The directors of companies obtain the benefit for their companies of advances made in reliance on their guarantees. It would not, in my view, be conducive to commercial morality - the proper consideration by directors of whether they can give guarantees and the proper construction by directions of whether, once having given guarantees, they should honour them - if I were to dismiss the petition. I am satisfied that the proper order in this case is an order of adjudication.
[72] In Re D’Esposito ex parte Westpac Banking Corporation Master Kennedy- Grant said:17
I have had occasion to comment before on the fact that the giving of personal guarantees is an integral part of the financing of business. Failure to honour personal guarantees can have serious consequences for the creditors to whom they have been given. The general expectation among the business community and on the part of those who finance business must be that guarantees, if given, will be able to be honoured, that the guarantors
16 Re Coll ex parte Consumer Finance Ltd HC Rotorua B69/97, 18 September 1997, at 7.
17 Re D’Esposito ex parte Westpac Banking Corporation HC Napier B16/98, 30 June 1998 at [19].
have assets against which the persons to whom the guarantees are given may proceed if the guarantees are not honoured.
[73] The point being made in those passages is that when debtors assume responsibilities and are not able to meet them, there are consequences. Adjudication in bankruptcy can be an appropriate response to ensure accountability. That is applicable here given that Mr Taylor gave a guarantee.
[74] There is a final aspect – and that is that bankruptcy is not forever. Discharge happens normally after three years. The effect of discharge is that the debtor is freed from the debts. Mr Taylor seems to be in an impossible position if he were to be left liable for a debt amounting to some $700,000 with no realistic prospect of being able to pay it off. It would mean that he would carry that debt around with him for the rest of his life with no hope of being able to meet it. This way, there is an end to that indebtedness for him once he goes through the bankruptcy process. I regard that as an important factor in the exercise of the discretion.
[75] To sum up, the bank has made out its case under s 13. In the exercise of the discretion I do not regard the matters raised by Mr Taylor as counting against adjudication. I am satisfied that it is appropriate that Mr Taylor should be made bankrupt. Accordingly, I make an order adjudicating Mr Taylor bankrupt. The time of the order is 1:27pm. The bank will also have costs on the application.
[76] Mr Broadmore is to submit a memorandum for category 2 costs in the normal way.
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Associate Judge R M Bell
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