Heartland Building Society v Tippins HC Tauranga CIV-2011-470-464
[2011] NZHC 2040
•13 December 2011
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2011-470-464
BETWEEN HEARTLAND BUILDING SOCIETY Plaintiff
ANDCLIVE JOHN RICHARD TIPPINS Defendant
Hearing: 14 November 2011
Appearances: Mr D Broadmore for plaintiff
Mr A J Bush for defendant
Judgment: 13 December 2011 at 10:00 AM
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
13.12.11 at 10 a.m, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Buddle Findlay, P O Box 1433, Auckland – [email protected]
Bush Forbes, P O Box 526, Tauranga - by email: [email protected]
HEARTLAND BUILDING SOCIETY V TIPPINS HC TAU CIV-2011-470-464 13 December 2011
Background
[1] The defendant was involved in ownership of a hotel property at Tauranga, Kingsview Resort Ltd (―Kingsview‖). The defendant guaranteed borrowings that Kingsview had lent from Southern Cross Building Society. The Building Society’s rights under the loans and guarantees in this case were transferred to the plaintiff on
5 January 2011. There was a history of advances being made from 22 December
2005, when an original loan of a little over $6,000,000 was provided by the Building
Society. Following a default with that loan, the parties entered into a further loan on
16 December 2009 for a term until 12 June 2010. The loan was secured by a first mortgage over the property, a security agreement over the chattels at the property, and a guarantee from the defendant. The loan matured on 12 June 2010 and the total amount became due but was not paid. On 30 June 2010, the Building Society served notices under s 119 and 122 of the Property Law Act 2007 on Kingsview and the defendant respectively. The notices expired unremedied on 30 July 2010. Following a request from Kingsview and the defendant, the Building Society agreed to allow time to attempt to sell the property. As at 1 June 2011, Kingsview and the defendant owed $4,532,568.14 under the loan.
[2] The plaintiff issued summary judgment proceedings against the defendant.
[3] The defendant has filed a notice of opposition which comprises eight grounds of opposition.
Summary judgment principles
[4] The Court of Appeal summarised the legal principles relating to summary judgment in Krukziener v Hanover Finance Ltd:[1]
[1] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
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, as for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent,
or is inherently improbable. 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. (Citations omitted.)
First defence: no demand made
[5] Mr Bush for the defendant submitted that payment was only due on demand being made. It was his submission that once it is established that a demand is necessary then the expression ―on demand‖ requires that the debtor be given a reasonable time to comply. He said that the letter of demand that was served in this case did not comply. The demand was contained in the letter of 14 June 2010, which says (amongst other things):
This is to advise that the term of your loan expired on 12 June 2010, and the
Society now requires full repayment within 7 days.
[6] The letter went on to set out the balance that was owing, $3,970,422.77 plus interest. Mr Bush submitted that such a letter should not be treated as a demand against Mr Tippins. He submitted:
On behalf of the defendant it is submitted that this document should not be treated as a demand against him as its terms are equivocal and in the context of an application for a loan extension by Kingsview Resort Limited and interpreted as applying to that company.
[7] I do not accept there is anything equivocal about the letter. It is clearly a letter of demand directed to Mr Tippins personally to recover from him. Mr Tippins was deemed to be a principal debtor under the loan agreement. It is true that the letter of demand followed a period during which Kingsview was attempting to obtain an extension of the term of the loan. But that circumstance does not in any way mean that the letter of 14 June 2010 did not mean, and was not intended to mean, exactly what it said. That being so, it is not necessary to go on and consider the other submissions made by the defendant to the effect that a notice under s 122 of the Property Law Act 2007 does not give rise to a demand. I understand that that was a further ground of defence.
[8] This ground does not constitute a reasonably arguable ground of defence. The defendant guaranteed the repayment of the loan in terms of the loan agreement. He had the status of a principal debtor. It is not disputed that the loan became repayable in June 2010.
Second defence: no completed mortgagee sale
[9] A further argument was made that the proceedings were based on a notice to the defendants under s 122 dated 28 June 2010. The defendant argued that because no mortgagee sale had taken place, there was no right to claim against Mr Tippins as one of the debtors, as there is no ascertainable “deficiency” on the sale.
[10] In Mulholland v Bank of New Zealand,[2] the Court of Appeal held that a mortgagee, having given notice of an intention to exercise a power of sale, was not obliged to sell the property before it could proceed against the guarantor. Justice McKay stated that:[3]
[Section 92 of the Property Law Act 1952] merely imposes a condition on the right to recover from a person who is not the owner of the land the deficiency resulting from an exercise of the power of sale. It does not in any way restrict the right of the mortgagee to sue and to obtain a judgment for the full amount, even if the mortgagee thereafter chooses to exercise the power of sale, nor does it restrict the right to exercise the power of sale. The mortgagee is not faced with any ―election‖ at the time when he gives a notice complying with the section.
[2] Mulholland v Bank of New Zealand (1991) 3 NZBLC 102,251 (CA).
[3] Ibid, at 102,257.
[11] I observe that the claim in this case is not based on the notice served pursuant to s 122 of the Property Law Act 2007, but on the letter of demand dated 14 June
2010. There is nothing in the circumstances in which a s 122 notice was served that has any effect on the defendant’s liability in the present case. Nor is the fact that the plaintiff has not taken steps to institute a mortgagee sale after serving a s 122 notice relevant to the question of whether Mr Tippins is liable. I agree with Mr Broadmore’s submission to the following effect:
The purpose of section 122 of the PLA is simply to give a former mortgagor or covenantor the opportunity to protect their own position by acquiring the mortgaged property or finding a third party purchaser. A failure to serve such a notice does not prevent the mortgagee from exercising the power of sale or
from recovering any deficiency from the covenantor.[4]
Third defence: equitable estoppel
[4] Property Law Act 2007, s 122(4).
[12] This ground of defence was stated in the following terms in the notice of opposition:
(c) That the delay on the part of the Plaintiff in enforcing the Notice dated the
28th day of June 2010 and the actions of the Plaintiff and its silence regarding its intention to enforce the Notice, create an estoppel.
[13] The elements of equitable estoppel are in summary:[5]
[5] Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington,
2009) at [19.2].
(a) a belief or expectation encouraged through some action, representation or omission to act;
(b)the belief or expectation being reasonably relied on by the party alleging the estoppel;
(c) detriment being suffered if the belief or expectation is departed from; and
(d)it being unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[14] The submission for the defendant was that the plaintiff has sat on its rights for a year before issuing these proceedings. Counsel for the plaintiff accepted that Mr Tippins was told that he would have time to sell property in an orderly fashion in an e-mail sent on 14 December 2009, an extract of which I set out at [17] below.
[15] Mr Broadmore submitted that the agreement to allow Mr Tippins time to sell the property was not a representation that the guarantee would never be enforced. In addition, there is no evidence that Mr Tippins has suffered a detriment as a result of the delay in enforcing the guarantee (indeed, the delay was at his request). I accept that submission.
[16] The central question that must be asked is wheter it would be unconscionable for the plaintiff, having made the representation that Mr Tippins would have time, to now revert to its strict legal rights and insist upon payment of the debt. The only basis upon which it could be unconscionable is if the representation could be fairly construed as one that was to the effect that the bank had abandoned its remedies completely and that it no longer intended to enforce the agreement, and in reliance on that representation, Mr Tippins had changed his
position and would be caused injustice by the bank reverting to its legal position
under the contract. But the terms of the representation in the overall circumstances of the case must have conveyed to the defendant that there would be a period of time granted, but not an indefinite one, for him to take steps to dispose of the property.
[17] The loan arrangement between the parties was restructured on an application by Kingsview at the end of 2009. The background against which this occurred was explained in an e-mail that the plaintiff sent to the defendant on 14 December 2009, which stated:
[Mr Tippins], the Society has endeavored to assist you to re organise the loan and put a structure in place that the Society can currently sustain. This allows you to continue to sell down the apartments while you operate the hotel business. As per [foregoing paragraphs in the e-mail] you need to make the decision as to which option you want, by 4.00pm tomorrow, Tuesday the 15th December, so we can proceed. If we do not have a direction by then I must commence action under the terms of our mortgage to recover the debt.
[18] The re-arranged loan was to be for a period of six months expiring on June
2010.
[19] A letter from Kingsview to the plaintiff was put in evidence, dated 25 May
2010. That letter is principally concerned with protests by Mr Tippins about the rate of interest being charged on the loan. There is reference to preparing other parts of the hotel business for sale. There can never have been any doubt in Mr Tippins’ mind that if the loans were not repaid within a reasonable time the bank would take steps to enforce the loan. In summary, since the end of December 2009, Kingsview had been on notice that providing continuing loans to Kingsview was not an option and that it needed to take steps to realise assets to pay off the loan. The factual position does not seem to have changed in any material way six months later when the loan was called up by the letter of 14 June 2010, or by serving the notice under s
122.
[20] I agree with the plaintiff that there was no representation that, by giving the notice under s 122, the defendant was encouraged to form a belief that no steps would be taken to enforce the guarantor’s covenant unless and until realisation of the security had taken place.
[21] It is not possible for the defendant to now argue that it was represented to him that there would be more time than he actually received.
[22] The defendant’s complaint is that he relied on the alleged representations by:
(a) continuing to trade the security as a going concern hotel while looking for a buyer to his detriment;
(b)incurring wasted effort in carrying on promotional work for the business to keep it running so that the hotel units which comprised the plaintiff’s security could be sold; and
(c) foregoing opportunities by ordering his business affairs in the belief that the notice (if valid or appropriate) would not be acted on until the property was sold.
[23] I deal with the first two points (a) and (b) jointly.
[24] The effect of the alleged representation was that Kingsview would have time to sell down parts of the property and pay off the debt while continuing to operate the business. It could only take advantage of this opportunity if the hotel/apartment business was continued as a going concern. It must be assumed that if the defendant did take advantage of this opportunity, he would have to carry on normal business operations, including promotional work. The fact that it now turns out that he was not able to accomplish the desired objective in the time that was made available to them does not mean that his exertions were ―wasted effort‖ for which the plaintiff is answerable.
[25] I deal next with point (c). There is no evidence that any explicit representation was made that the Property Law Act notices would not be acted upon. There is no doubt that by rolling over the loan for six months, the plaintiff agreed to give Kingsview and Mr Tippins time to sell off all or part of the hotel/apartment complex. There was no assurance that further time would be given after the end of June 2010. Once that point had been reached and there was no significant progress
made in reduction of the debt, the plaintiff understandably elected to take steps to call up the loan. The steps that it took by issuing a demand on Mr Tippins and the Property Law Act notice marked the end of the period of extended time. Mr Tippins may have decided after that point to continue his efforts to sell off property in an attempt to avoid the unpalatable alternative. There is, however, no foundation of evidence for a defence that after June 2010 Mr Tippins construed the lack of action in taking proceedings or proceeding with the mortgagee sale as being a representation that he would still have further time. Nor is there any evidence as to the particular way in which Mr Tippins or Kingsview forewent business opportunities in reliance on the belief that no steps would be taken to enforce his personal covenant for the debt until after the security had been realised.
[26] Overall, quite apart from whether the representations were made or not, there is no evidence that any relevant detriment was caused.
[27] It cannot be lost sight of that a moratorium for a certain period of time to allow an non-forced sale was in the defendant’s interests and, probably, also the plaintiff’s. Mr Tippins had a personal interest in ensuring that any ultimate liability that he might face under the contract was mitigated to the greatest extent possible. It is for that reason that he sought a period during which he would have the right to try and market the property. The plaintiff has done what it said it would. The defendant’s efforts were not met with success. But the steps he took to market the property in the interim cannot be regarded in the factual context as amounting to the incurring of a detriment on his part. Nor has the defendant demonstrated an arguable defence that he re-ordered his business affairs to his detriment.
[28] It is certainly true that the defendant is now in a difficult position given that the bank has elected to proceed to enforce its remedies. He will have to meet a very large liability if he cannot come up with the necessary amount to repay the loan. But that is not a detriment that is attributable to the representation that was made. The estoppel point does not have any merit in my view.
Fourth defence: delay or laches
[29] The next ground of defence is that because there was a delay in enforcing the s 122 notice, the silence on the part of the plaintiff regarding its intention to enforce the notice has created an estoppel.
[30] Mr Bush’s submission in full reads as follows:
13.The plaintiff has sat on its rights for a year before issuing these proceedings. During that time there have been the meetings and communications described in the paragraphs commencing at 18 in Mr Tippins’ affidavit. The parties have liaised in their endeavours to try to get the security sold and it appears have agreed that this would be left in the hands of the principal debtor and the plaintiff due to its specialised nature. The defendant was encouraged by the silence of the plaintiff to assume that no action would be taken without further communication although he had a contingent liability for any deficiency in the amount realised to repay the plaintiff’s mortgage.
14.There is no period set by the Property Law Act 2007 to which enforcement of the notices should take place. Nevertheless the procedure as one of recovery involves an element of urgency. The Companies Act 1993 sets down a specific period in which non- compliance with a statutory demand can be enforced. The Court is invited to treat this situation as being analogous even though there is no legislative basis.
[31] I do not consider that the analogy with a statutory demand is helpful. A mortgagor can issue a Property Law Act notice at any time once there has been a breach of the secured obligations. But the cases make it plain that the issue of when the mortgagee proceeds to exercise its security rights is a matter for it alone to determine: Apple Fields Ltd v Damesh Holdings Ltd.[6] A conclusion that the legislation should be read as containing an implication that once the notice is given, the mortgagee has an obligation to move swiftly to sale is not a conclusion apparent from the language used in the Act. It is not an obligation that has been recognised
previously in any decided cases of which I am aware.
[6] Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA) at [53].
[32] As well, there are policy reasons why such an obligation should not be imposed. The first is that the mortgagee may be forced to sell at an inopportune time which reduces the amount recovered from the sale, to the detriment of both the
mortgagee and the mortgagor. For example, if a mortgagee were made to exercise
its security rights promptly, a commercial building may have to be brought to sale during a summer vacation period at a point when market activity is low. Secondly, it is not clear whose interests would be served by imposing an obligation of the type described. For example, there may be circumstances where a mortgagor is trying to make his or her own arrangements for an advantageous sale of the property — not an uncommon occurrence. The implication of the type of obligation for which Mr Bush contended would reduce the period of opportunity available for sale.
[33] I therefore reject that submission.
[34] Mr Bush also sought to invoke the equitable doctrine of laches. Even if such a doctrine applied to a claim of this kind, which is doubtful, it would be unlikely that a court of equity would conclude that equity required the imposition of a time limit for commencement of claims which was more stringent than that contained in the Limitation Act 1950. It is clear that there is no defence based on the Limitation Act open to the defendant that would defeat the plaintiff’s claim.
[35] If the argument in the alternative is to the effect that the delay in suing on its own was a representation that gave rise to a belief on the part of the defendant that no action would be taken to enforce the debt, then such a belief cannot be said to be reasonably held and is simply unwarranted.
Remaining matters
[36] There were some additional points made by Mr Bush but I do not think that all of them need to be dealt with individually. The submission was made for the defendant that the plaintiff acted oppressively in electing to issue proceedings for the recovery of the shortfall.
[37] It might be thought that such a submission was linked to a further proposition that the contract could be reopened because of oppressive behaviour. However the defendant does not make any reference to the Credit Contracts and Consumer Finance Act 2003 in his notice of opposition or submissions. In any case a defence of that kind would not succeed once it is appreciated that the right to enforce the contract by court proceedings is not deferred until the security has been
exhausted, a matter I considered in paragraph [10] above. Given that the plaintiff was exercising a contractual right, there can be no basis for pleading that its conduct was oppressive.
Conclusion
[38] The result is that I conclude that the defendants have no arguable defence to the plaintiff’s summary judgment application and judgment will be granted in the following terms:
a) Judgment in the sum of $4,532,568.14;
b)Interest pursuant to cl 4.2 of the Agreement from 13 June 2010 to the date of judgment, accruing at the rate of 13.75 per cent per annum on the outstanding balance of $4,532,568.14;
c) Interest pursuant to cl 4 of the 2009 agreement down to the date of judgment at the rate of 13.75 per cent on the outstanding balance of
$4,532,568.14; and
d) Costs on a solicitor–client basis pursuant to cl 14.1(b) of the
Agreement.
[39] The plaintiff sought judgment on terms that the obligation to pay contractual interest would continue after the date of entry of judgement. I do not consider it is
open to the court to include such an order in this proceeding.
J.P. Doogue
Associate Judge
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