Coronation Gardens Limited v Small (2005) Limited
[2017] NZHC 1662
•18 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-1490 [2017] NZHC 1662
IN THE MATTER of section 176 of the Property Law Act
2007
BETWEEN
CORONATION GARDENS LIMITED Applicant
AND
SMALL (2005) LIMITED Respondent
Hearing: 18 July 2017 Appearances:
A Glenie and H Bao for the Applicant
D Chisholm QC and M Lenihan for the RespondentJudgment:
18 July 2017
ORAL JUDGMENT OF GORDON J
Solicitors: Anderson Creagh Lai Limited, Auckland
Brown Partners, Auckland
Counsel: D Chisholm QC, Auckland
CORONATION GARDENS LTD v SMALL (2005) LTD [2017] NZHC 1662 [18 July 2017]
Introduction
[1] The applicant, Coronation Gardens Ltd, is the registered proprietor of a property located at 117 Coronation Road, Mangere (the property). The respondent, Small (2005) Ltd is the registered mortgagee in respect of the property. Small is presently taking steps to enforce its security over the property and intends to market the property as a “mortgagee sale”. Coronation is concerned that the use of this phrase in promotional materials will undermine its attempts to secure refinancing in respect of the property as well as its attempts to sell the property and will otherwise disproportionately prejudice its interests.
[2] Coronation seeks orders restraining Small from disseminating or permitting to be disseminated any sales, promotional, other material or information in relation to the property which include the words “mortgagee sale” or “forced sale” or any similar term or inference, and from displaying or permitting to be displayed any sign which includes the words “mortgagee sale” or “forced sale” or any similar term or inference at the property, during the period ending 10 August 2017. It does not
otherwise oppose Small conducting “a measured and responsible sale process”.1
[3] Small opposes the application on the basis that it is conducting the mortgagee sale in a lawful and responsible manner and that in any case, the balance of convenience weighs against granting interim relief.
[4] The hearing has been conducted under some urgency as advertising is due to commence shortly.
[5] The issues for this Court to determine are whether Coronation can demonstrate there is a serious question to be tried regarding Small’s use of the phrase “mortgagee sale” in its promotional materials, and whether the balance of
convenience favours granting interim relief.
1 Memorandum of Counsel seeking urgent hearing dated 13 July 2017 at [3].
Factual background
[6] Coronation purchased the property in 2014 from a company owned by Mr Timothy Edney, the sole director and shareholder of Small. To finance the purchase, Coronation entered into a facility agreement with the Bank of New Zealand secured by a mortgage over the property. Coronation also arranged separate lending from Small in the form of an $11.6 million loan facility to fund the proposed development and a second facility of $3 million, secured by a second-ranking mortgage over the property.
[7] Mr Edney has sworn an affidavit in opposition to the application for interim relief. He deposes that a default notice was issued in respect of the $11.6 million facility on 17 March 2016 because Coronation failed to pay the sum of $3 million when it fell due. The default was not remedied and on 21 June 2017, Small demanded repayment of both loans, totalling in excess of $14 million.
[8] It appears that Coronation was also in default under its facility agreement with the BNZ. On 22 May 2017, the solicitors for the BNZ wrote to Coronation enclosing notices issued under ss 119 and 122 of the Property Law Act 2007. The terms of the notices indicate that Coronation was at that time in default under the mortgage in that it owed an outstanding balance of more than $1.6 million and had failed to satisfy the default specified in a demand notice dated 17 May 2017. The notices required Coronation to remedy its default by repaying the secured amounts (plus costs and disbursements) and provided that, in the event the default remained unremedied by 30 June 2017, the mortgagee would be entitled to exercise its power to sell the mortgaged land.
[9] Shortly thereafter, on 9 June 2017, Small took an assignment of the BNZ’s securities over the property. Small is now the sole registered mortgagee in respect of the property. Mr Edney deposes that the notices issued by the BNZ on 22 May 2017 expired unremedied. Small accordingly took steps to initiate a mortgagee sale.
[10] On 5 July 2017, the solicitors acting for Small wrote to Ms Saren Loo, the director of Coronation, informing her that CBRE Ltd had been selected to conduct the mortgagee sale process. In the following days, the parties exchanged a number
of letters and emails. In the course of the correspondence, Coronation sought to obtain an undertaking that Small would not proceed with the mortgagee sale until
10 August 2017, by which time it hoped to have arranged refinancing with a third party. Solicitors acting for Coronation also expressed concern that Small was conducting “a fire sale of the property” and requested an undertaking that Small would refrain from using the words “mortgagee sale” or any equivalent language in relation to the property. Small however declined to give any such undertaking and proceeded with marketing the property for sale.
[11] On 13 July 2017, Coronation filed the present application seeking urgent interim relief against Small.
Application for interim relief – legal principles
[12] When considering an application for interim relief, the Court must consider three issues:2
(a) Whether the applicant can establish that there is a serious question to be tried;
(b)Whether the balance of convenience weighs for or against the grant of relief; and
(c) The overall justice of the position.
[13] However, the answer to an interlocutory injunction application does not depend on the rigid application of a formula.
Is there a serious question to be tried?
[14] In determining whether there is a serious question to be tried, the court must consider the merits of the applicant’s claim, in fact and in law. The applicant must adduce evidence which is sufficient to satisfy the court that there would be a real
prospect of succeeding in the claim at trial. The court is not required to resolve
2 NZ Tax Refunds v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12].
conflicts of evidence given by affidavit, nor to decide difficult questions of law that would call for more detailed argument than can generally be made in the course of an application for interim relief.
[15] There are three causes of action in the statement of claim dated 14 July 2017: an alleged breach of the duty of care under s 176 of the Property Law Act 2007; breach of a mortgagee’s equitable duty of good faith; and oppressive conduct under s
120 of the Credit Contracts and Consumer Finance Act 2003.
[16] Coronation submits that Small’s plan to market the property as a “mortgagee sale” is in breach of Small’s obligation as a mortgagee under s 176 of the Property Law Act. It argues that the use of that phrase would immediately and permanently taint the property, preventing any party from obtaining the best price reasonably obtainable for it; and that Coronation’s own negotiations with potential purchasers would be prejudiced by Small’s marketing of the property as a “mortgagee sale”.
[17] Coronation further alleges that Small plans to market the property as a “mortgagee sale” for a collateral purpose. Ms Loo deposes that Mr Edney and another of his companies are presently engaged in litigation with her partner, Mr Neville Mahon. She expresses concern that Mr Edney is causing Small to market the property in this way in order to exert pressure on Mr Mahon in relation to those other matters.
[18] Small submits that it is entitled to proceed to sell the property under the mortgage and that it has undertaken the sale in a responsible and lawful way. Mr Edney described the sale process in his affidavit as follows:
12.Small (2005) Ltd sought expressions of interest from real estate agents to market the properties for sale. Proposals were provided by Barfoot & Thompson, Bayleys, CBRE Ltd, Colliers International, Harcourts, JLL, LJ Hooker and Whillans Realty Group.
13.I sought multiple proposals to ensure that the best result was achieved for the sale of the property.
14.I decided to engage CBRE Ltd. I understand that Mr John Bedford of CBRE Ltd will give evidence about what has happened since CBRE Ltd were engaged.
15. I have been following the advice provided to me by Mr Bedford and
CBRE Ltd as to the marketing and sale process.
[19] Mr John Bedford has also sworn an affidavit in these proceedings in which he details the various steps he has undertaken with a view to selling the property. Mr Bedford is engaged by CBRE Ltd as an independent contractor in the role of Senior Director in the Capital Markets and Metropolitan Investments Team in CBRE’s Auckland office and is a licensed real estate salesperson.
[20] Mr Glenie, who appears on behalf of Coronation, objects to the admissibility of Mr Bedford’s evidence on the basis that Mr Bedford has not stated in his affidavit that he agrees to comply with the Code for Expert Witnesses. I dispose of that point in relatively short order. Mr Bedford does not give evidence as an expert, rather, as a professional advisor to Small. Accordingly, I do not uphold Mr Glenie’s objection.
[21] Mr Bedford deposes that he has undertaken a number of steps towards selling the property, including the submission of a marketing proposal to Small on 26 June
2017, in which Mr Bedford noted that CBRE is currently marketing a residential development property at 75 Coronation Road and therefore has very good knowledge of the appetite for development properties in the area. Overall, Mr Bedford and his colleagues estimated that the property could sell for between
$18.033 million and $20.708 million.
[22] Mr Bedford deposes that on 12 July 2017 the solicitors acting for Small wrote to him and asked that he provide sales advice in writing, which he did. In his letter, Mr Bedford noted that the supply of greenfield and brownfield development land had increased significantly over the past nine months at the same time as banks were tightening lending to residential property developers. He also noted that escalating construction costs were preventing many construction companies from entering into fixed price contracts.
[23] In light of those factors, Mr Bedford and his colleague, Jonathan Ogg, were of the opinion that a sale advertised as a mortgagee sale was the best option. Developers would have an interest in purchasing the property as it would stand out as a genuine opportunity to be sold at the close date. This would motivate potential
buyers to spend time on the property and undergo the thorough due diligence that would be required.
[24] Mr Bedford acknowledges in his affidavit that advertising a property as a mortgagee sale can result in bargain hunters and lower prices, but expresses his view that the nature of the property means advertising the sale as a mortgagee sale is appropriate. Overall, he says, the price range for the property means that only serious investors with significant means behind them will be motivated to put in a tender. They will only do so after having completed a thorough due diligence. Even if the property were not advertised as a mortgagee sale, any buyer doing due diligence would find out about the circumstances of the sale when making enquiries. The fact of the mortgagee sale would also be stated in the tender documentation that interested buyers would receive. In short, Mr Bedford says, there is no way to keep the fact of it being a mortgagee sale secret prior to the sale of the property.
[25] One of the difficulties which Coronation faces in the present case is that there is clear authority that marketing a property as a “mortgagee sale” is not oppressive conduct. In Taylor v Westpac Banking Corporation, the Court of Appeal was asked to reconsider whether to grant an interim injunction restraining Westpac from
exercising its power of sale under a mortgage.3 As in the present case, the appellants
claimed that Westpac’s intended exercise of the power would be oppressive in terms of the then operative legislation, the Credit Contracts Act 1981.
[26] One of the grounds for the appellants’ claim was that the property had been advertised as a mortgagee sale. The Court of Appeal dismissed the appellants’ submissions on this point, for two reasons. The first reason was that the mortgagee was acting on sound professional advice. Under those circumstances, the Court held:4
We do not see, therefore, why the Court should seek to determine what the impact of the sale, advertised as a mortgagee’s sale, will be (even if that could be definitely predicted). It is sufficient to take the bank’s decision to proceed with the sale and advertise it as a mortgagee’s sale out of the category of oppressive conduct that the bank is acting upon apparently reasonable professional advice. …
3 Taylor v Westpac Banking Corporation Ltd (1996) 7 TCLR 177 (CA).
4 At 182.
[27] The second reason for dismissing the appellants’ submission on this point, described by the Court of Appeal as “decisive” was that the sale of a property by mortgagee sale could not be considered oppressive. The Court held:5
Mr Dugdale relied upon the latter part of the dictum in McKay J in Coffey’s
case … That dictum reads as follows:
The mere exercise by the respondent of the rights or powers specifically conferred by the contract cannot of itself be sufficient to satisfy the test of ‘oppressive’ under s 9 unless the contract itself is oppressive, or unless there are circumstances which make it so.
(Emphasis added.)
Thus, Mr Dugdale sought to identify circumstances beyond the contract itself to indicate the alleged oppressiveness. But the sale of a mortgagor’s property pursuant to a mortgagee’s sale is not an extrinsic circumstance. It is part and parcel of the exercise of the bank’s power of sale. A sale by way of a mortgagee’s sale cannot be sensibly divorced from the exercise of that right or power. If this were not so it would always be oppressive to sell a property pursuant to a power of sale by way of a mortgagee’s sale.
[28] This approach has been applied in a number of recent High Court decisions including Southland Building Society v Price and Hart v ANZ National Bank Ltd.6
[29] Mr Glenie submits that the Court of Appeal decision in Taylor can be distinguished from the present case, for a number of reasons. First, he disputes that Small has acted on sound professional advice in relation to the sale. He alleges that Small contacted eight separate real estate agencies in order to “conflict” all of the major commercial real estate agencies, such that Coronation could not obtain any contradictory advice and, having obtained advice from those agencies, is now hiding any advice which might suggest the use of the term “mortgagee sale” is ill-advised.
[30] Mr Glenie also notes that the original marketing proposal produced by CBRE recommended a closing date for tenders of 17 August 2017, but that Small has moved that date forward to 10 August 2017. He argues that Mr Bedford’s letter
setting out his sale advice to Small was prepared after a meeting with Mr Edney and
5 At 182 – 183.
6 Southland Building Society v Price [2015] NZHC 1164; Hart v ANZ National Bank Ltd [2012] NZHC 2839.
is “transparently self-serving”. Finally, he notes that Small has not yet advanced any
evidence that it has obtained a proper valuation report from an experienced valuer.
[31] Mr Glenie’s submissions on this point are problematic, for a number of reasons. The first is that they are to a large degree speculative, particularly insofar as Mr Glenie seeks to criticise Small for consulting with a number of different real estate agencies and for refusing to provide the advice which it has sought to Coronation. Those actions are explicable by normal commercial motivations and do not of themselves provide any basis for an allegation of wrongdoing. Mr Glenie’s allegation that the evidence of Mr Bedford regarding the use of the term “mortgagee sale” in advertising is “transparently self-serving” and arises as a result of his meeting with Mr Ebney on 10 July 2017, is answered by an email of Mr Bedford dated 5 July 2017 which attaches a draft of the signage, including in large print the words “MORTGAGEE SALE”. The accompanying text notes that “the objective is to get punters to pick up the phone and request more info.” The email clearly predates the 10 July meeting by several days and supports Mr Bedford’s evidence that the use of the phrase “mortgagee sale” is intended to attract interest in the property.
[32] To the extent that Mr Glenie otherwise criticises the sale process undertaken by Small as being unreasonable or inadequate, his submissions are unsupported by evidence. As I have noted, an applicant for interim relief must adduce sufficiently precise factual evidence to give the Court some degree of confidence regarding the merits of the substantive application. Coronation has not done so. That being the case, there is no basis for distinguishing Taylor in relation to the claim of oppressive conduct.
[33] Mr Glenie then says that Taylor can be distinguished from the present case on the basis that the decision in Taylor was limited to the question of oppressiveness. It did not directly consider whether marketing land for “mortgagee sale” could amount to a breach of the duty of care set out in s 176 of the Property Law Act, or a breach of the equitable duty of good faith. That may be so. Again, however, Mr Glenie faces the difficulty that Coronation has not filed any evidence in support of its submissions on this point. In the absence of evidence to support Mr Glenie’s
allegation that use of the term “mortgagee sale” will prevent Small from obtaining the best price reasonably obtainable, I do not consider that the use of the phrase “mortgagee sale” provides a basis for a finding that Small’s conduct breaches the duty of care set out in s 176 of the Property Law Act or the mortgagee’s equitable duty of good faith.
[34] Mr Glenie argues that Coronation has pursued an alternative repayment strategy for some time that will be undermined if Small is permitted to market the property as a “mortgagee sale”. He says Coronation has also been negotiating directly with two potential purchasers and that if Small insists on becoming the sole point of negotiation with potential purchasers, the benefit of those discussions will be lost. Mr Glenie refers me to a High Court decision, FM Custodians Ltd v Brown, as authority for the point that a change of sale tactics from sale by an owner to sale
by the mortgagee can constitute a breach of the mortgagee’s duty of care.7
[35] To the extent that this submission criticises Small for determining to proceed with a mortgagee sale, rather than offering Coronation an opportunity to arrange a sale on its own terms, Mr Glenie’s submission is inconsistent with existing authority that a mortgagee’s duty of care does not qualify its right to decide if and when to sell
the property.8
[36] Further, the decision in FM Custodians concerned a different factual scenario to the present case. The mortgagee in FM Custodians had consulted with real estate agencies and determined to proceed with an owner-driven sale. The mortgagee followed this strategy until two days before the auction at which point, contrary to professional advice, the mortgagee changed his sale process and advertised the property as a mortgagee sale. It was the late change in method, rather than the method itself, that constituted a breach of duty. That criticism does not apply to Small. And again, Mr Glenie’s submission as to the effect of Small’s conduct on the
price obtainable for the property is unsupported by evidence.
7 See FM Custodians Ltd v Brown HC Dunedin CIV-2009-012-691, CIV-2009-412-881, 21
December 2010 at [78].
8 FM Custodians Ltd v Brown, above n 7, at [55].
[37] Lastly, Mr Glenie submits that Small is using the words “mortgagee sale” and adopting an aggressive marketing approach in order to achieve objectives unrelated to the property. He submits that Small is unlawfully using its powers as mortgagee for a collateral purpose. Mr Glenie’s written submissions on this point included a number of factual allegations that had not been included in either of the affidavits filed in support and for that reason cannot be taken into account for the purpose of determining the application. In any case, however, I am satisfied that in the absence of any evidence that advertisement of the property as a “mortgagee sale” will have a disproportionately detrimental effect on the price that can be achieved at sale, this point cannot succeed.
[38] Taking into account Mr Bedford’s evidence regarding the sale process in respect of the property, the Court of Appeal decision in Taylor and the absence of any evidence regarding the sale process in support of the applicant’s case, I am satisfied that there is no serious question to be tried.
Where does the balance of convenience lie?
[39] The applicant’s case fails at the first hurdle. In any case, however, the balance of convenience lies with the respondent, for two main reasons. The first is that, despite being placed on notice by Small’s opposition, Coronation has provided no evidence that it will be able to pay damages if interim relief is granted and subsequently found to be unjustified. The second reason is that the nature of the present dispute is such that damages, being the difference between the price reasonably obtainable for the property and the price which is actually obtained at sale, would be an adequate remedy if indeed Small is subsequently found to have acted in breach of its duties as mortgagee.
Result
[40] The application for interim relief is dismissed.
Costs
[41] Small seeks indemnity costs in accordance with cl 22.2 of the BNZ facility agreement, which provides:
22.2Enforcement expenses: The Borrower shall from time to time on demand reimburse the Lender for all costs and expenses (including legal fees) and fees charged by other advisers to the Lender and any taxes thereon incurred in or in connection with the preservation and/or enforcement of any of the Lender’s rights under the Transaction Documents.
[42] The Lender is defined in the document as the Bank of New Zealand. I am however satisfied that the BNZ has assigned its rights under the facility agreement to Small in accordance with the requirements of the Property Law Act and that Small is entitled to enforce the rights of the Lender according to the terms of the agreement. The wording of the clause is sufficiently broad to cover costs in proceedings of this nature.
[43] Small is entitled to solicitor/client costs and disbursements. It should file a memorandum setting out those costs and disbursements within seven days. Coronation may file any reply within a further seven days. Memoranda should not exceed five pages.
Order to preserve appeal rights
[44] Mr Glenie seeks an order to give Coronation the opportunity to consider whether or not to appeal my decision. Mr Chisholm neither consents to nor opposes this application. I accordingly, order that:
(a) No steps be taken in reliance on this judgment to advertise the property for a period of 24 hours.
(b)If Coronation wishes to appeal my decision it is to file and serve its notice of appeal within 24 hours.
Gordon J
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