Hall

[2023] NZHC 3566

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2429

[2023] NZHC 3566

UNDER

Section 200 of the Property Law Act 2007

IN THE MATTER

of the property at Lot 5, Nukuroa Road, Oruawharo 0975 (Lot 5 DP 46960

CT 632536)

BARRY RAYMOND HALL

Applicant

Hearing:	On the papers
Appearances:	B J Dominikovich for Applicant
Judgment:	7 December 2023

JUDGMENT OF LA HOOD J

Solicitors:

Burton Partners, Auckland

Re Barry Raymond Hall [2023] NZHC 3566 [7 December 2023]

[1]    Barry Raymond Hall applies for an order under s 200(3)(d) of the Property Law 2007 (“the Act”) permitting him to purchase a property over which he is the registered mortgagee, namely Lot 5 Nukuroa Road, Oruawharo (Lot 5 DP 469602 CT 632536) (“the Property”).

[2]    Mr Hall has filed an affidavit setting out the factual background to this matter and an affidavit from Hilary McNaughten, a registered valuer addressing the current value of the property and the proposed purchase price.

Relevant legal principles

[3]    I gratefully adopt the following summary of the relevant principles from Lang J’s decision in Condon v Southland Rebuilding Society:1

[7]        Section 200 is a new section that had  no  equivalent  in  the  Property Law Act 1952. It provides a range of means by which the Court may assist a mortgagee to exercise its power of sale under a mortgage. The section provides as follows:

200     Sale by mortgagee through court

(1)A mortgagee who is entitled to sell mortgaged property may apply to a court for assistance—

(a)in exercising the power of sale; or

(b)in completing the transfer of the property to the purchaser (if the property has already been sold by the mortgagee).

(2)The court may make all or any of the orders specified in subsection (3) if it is satisfied that—

(a)there has been a default that has not been remedied or, in the case of personal property, the property is at risk; and

(b)the mortgagee has become entitled under the mortgage and subpart 5 to exercise a power of sale in respect of the mortgaged property.

(3)The orders are as follows:

(a)an order directing the sale of the whole or any part of the mortgaged property:

1      Condon v Southland Rebuilding Society (2010) 12 NZCPR 92 (HC).

(b)an order that the sale be conducted by the mortgagee or by the Registrar:

(c)an order making conditions concerning all or any of the following matters:

(i)the advertising of the sale:

(ii)other marketing of the mortgaged property proposed to be sold:

(iii)the conditions of sale:

(iv)the manner in which the sale is to be conducted:

(d)an order permitting the mortgagee to become the purchaser at the sale otherwise than undersection 196:

(e)an order permitting the current mortgagor or any other person entitled to redeem the mortgaged property to redeem it otherwise than under subpart 4 or section 195:

(f)an order vesting the property, for any estate or interest that the court thinks fit, in the purchaser (including the mortgagee if the mortgagee is the purchaser) or discharging any mortgage or other encumbrance:

(g)an order directing the Registrar, or, if it is more convenient, appointing a person other than the Registrar, to execute or register a transfer or assignment of the property to the purchaser (including the mortgagee if the mortgagee is the purchaser) or a discharge of any mortgage or other encumbrance:

(h)an order determining the priority of mortgages or other encumbrances over the property.

(4)An order under subsection (3)(f), or a transfer, assignment, or discharge executed or registered under subsection (3)(g), has the same effect as a transfer or assignment instrument for the mortgaged property executed or registered by a mortgagee under section 183, or a mortgage discharge instrument for a mortgage duly executed or registered in accordance with section 83, as the case may be(Emphasis added).

[8]        Section 200(3)(d) reflects an important change to the law as it previously stood. Under the Property Law Act 1952 a mortgagee could only acquire the mortgaged property itself if it did so at an auction conducted by the Registrar of the High Court. Section 200(3)(d) now permits the mortgagee to acquire the property if it obtains the approval of the Court before it does so.

[9]        The Court has granted its approval under s 200(3)(d) on an uncontested basis in Re Canterbury Building Society (2009) 10 NZCPR 370

(HC) and in Re Property Finance Securities Ltd (2009) 10 NZCPR 914 (HC). In both cases the Court approved the purchase by a mortgagee of property that the mortgagee had been unable to sell for an appropriate price.

[10]In Re Canterbury Building Society French J said:

[20] The power conferred on the Court by s 200(3)(d) of the Property Law Act is new. The legislation does not set out any criteria to which the Court is to have regard. However it would seem axiomatic that the application must be considered in the context of the mortgagee's obligations when conducting a mortgagee sale: namely, the duty to exercise the power of sale in good faith, and to obtain the best price reasonably obtainable.

[11]      In Re Property Finance Securities Ltd Fogarty J accepted that the Court had the power under s 200(3)(d) to permit a mortgagee to acquire the property even after an auction has been held. He said:

[8]     On the face of it s 200 can be used for a mortgagee to apply   to the Court for assistance prior to the first round of marketing and auction. I am satisfied, however, that s 200 can be used in situations like this after an auction has failed and after the market has been tested. But I would not want to suggest that use of s 200 in this way will become a perfunctory exercise by the High Court. Each case will depend on its facts. On these particular facts though I am satisfied that it is appropriate that this Court make an order under s 200(3)(d) permitting the mortgagee to become the purchaser at the sale on the terms which I have set out above and which are the basis for this application.

[12]      Section 200 was applied in a contested context in Lake Terrace Investments Ltd v Lakeland Enterprises Ltd (in rec) (2009) 10 NZCPR 721 (HC). In that case the Judge said:

[23]      In my view,  the Court's jurisdiction to make an order under  s 200(3)(d) must be exercised having regard to the principles set out in the Act which outline the obligations of a mortgagee who seeks to sell mortgaged property to pay a debt:

a)A mortgagee who exercises a power to sell mortgaged property owes a duty of reasonable care to the mortgagor and any covenantor (defined to include a guarantor) “to obtain the best price reasonably obtainable as at the time of sale”: s 176(1).

b)That duty exists even though the power to sell is exercised by the Registrar under s 187 or through a Court order under s 200: s 176(1).

c)A mortgagee who exercises a power to sell mortgaged property can only become a purchaser if the sale is effected through either ss 196 or s 200: s 176(2).

In addition, the scope of the discretion implicit in s 200(3)(d) will be informed by the nature of other orders that may be made under        s 200(3).

[13]      In the context of the present case the primary principle to be taken from these authorities is that the Court will only permit a mortgagee to acquire the mortgaged property when it is satisfied that the price that the mortgagee is prepared to pay reflects the best price that is reasonably attainable in respect of the property as at the time of acquisition.

The circumstances that have led to the application

[4]    In April 2018 Shuqing Wang entered into a  loan  agreement  with  a  Veronica Wong. Ms Wong loaned Ms Wang a $150,000 secured by a mortgage over the property. In July 2019 Ms Wong assigned the loan and mortgage to Mr Hall, and Ms Wang and Mr  Hall  entered  into  an  agreement  confirming  the  assignment. Ms Wang has been in default of the loan since her first payment of interest to Mr Hall was due on 1 August 2019. Mr Hall decided against enforcing the loan during the Covid-19 pandemic, but Ms Wang has failed to comply with demands for payment before and after that time. As of 19 September 2023, Ms Wang’s total debt to Mr Hall was $350,058.09, with default interest and costs continuing to accrue.

[5]    In May 2023 Mr Hall issued a notice under s 119 of the Act requiring payment of the outstanding amount under the loan. The notice was served on Ms Wang’s daughter, Jing Xia, as Ms Wang is living in China and has executed an enduring power of attorney dated 16 August 2018 in favour of Ms Xia. The Act provides that a s 119 notice may be served on an agent of a person if the person is outside New Zealand.2

[6]    As Ms Wang failed to make payment on the expiry of the notice period specified in the s 119 notice of 7 June 2023, Mr Hall exercised his power to enter into possession of the vacant property on 8 June 2023.

[7]    Mr Hall has made efforts to sell the property at a reasonable price. Mike Pero Real Estate recommended a six-week marketing campaign and sale at auction. The property was marketed on six different websites, in the Mike Pero Wellsford branch window and by distribution to Mike Pero’s email database. The listing was viewed 2,188 times online and 17 people inquired about it by email.

2      Property Law Act 2007, ss 352(c), 353(1)(a), 355(2), 358, 359 and 360.

[8]The property went to auction on 6 August 2023 with a reserve price of

$352,000. There was a sole bid of $150,000 with the property passing in after Mr Hall made a vendor’s bid of $300,000. Mr Hall rejected the sole bid as he did not consider it to be the best price reasonably attainable. Mr Hall was subsequently advised that he needed the Court’s permission to purchase the property, hence the current application.

[9]    Mr Hall sought a valuation from a registered valuer. In September 2023 he received a valuation from Hilary McNaughten of Hollis & Scholefield Limited.     Ms McNaughten’s affidavit filed in support of the application states that she considers the property to ordinarily have a market value of $450,000. However, due to the forced sale situation and the property market in this location “experiencing a downturn due to current economic and global  events”,  Ms  McNaughten  recommends  a  25  to 35 per cent discount.  This results in a forced sale price in the range of $292,500 to

$337,500.

[10]   Mr Hall is proposing to purchase the property for $350,058.09. He says this is the best price that is reasonably attainable in respect of the property at the time of purchase because it is a significant improvement on the highest non-vendor bid at auction, above the forced sale valuation range, and will discharge Ms Wang’s indebtedness as the proposed sale  price  is  the  amount  she  was  indebted  as  of  19 September 2023.

The order is appropriate

[11]I am satisfied it is appropriate for me to make the orders sought.

[12]   I accept that Ms Wang has been appropriately served. I made an order for substituted service on 27 November 2023. I was satisfied that the combination of service by email on Ms Wang and Ms Xia on 5 November 2023, and personal service on Ms Xia on 17 November, have brought the proceedings to Ms Wang’s attention. Correspondence attached to Mr Hall’s affidavit indicates that Ms Xia has been in email contact with Mr Hall’s lawyer about this matter and has made some attempts on her mother’s behalf to resolve the situation, including notifying Mr Hall’s solicitor of a potential sale that did not eventuate.

[13]   On 27 November 2023 I also directed that if Ms Wang does not file a notice of opposition by 4 December 2023, I will issue a judgment on the papers after that date. No notice of opposition has been filed.

[14]   I consider that the sale efforts have been reasonable in the circumstances and that the price that Mr Hall is prepared to pay reflects the best price reasonably attainable in respect of the property.

[15]   I also grant leave to commence the proceedings by originating application under pt 19 of the High Court Rules 2016.3

Order

[16]   I therefore make an order under s 200(3)(d) of the Property Law Act approving the purchase by Mr Hall of the property for the sum of $350,058.09.

La Hood J

3      I accept counsel’s submission that it is in the interests of justice to grant leave because there is no opposing party, there is only one issue to be determined, and there is no need for formal pleadings, discovery, or interlocutory steps.