Nee Harland v Asset Finance Limited HC Napier CIV-2011-441-000207

[2011] NZHC 412

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2011-441-000207

BETWEEN  JENNY LUCY NEE HARLAND Applicant

AND  ASSET FINANCE LIMITED Respondent

Hearing:         7 April 2011

Appearances: P Nee Harland for Applicant (following discussion) L Blomfield for Respondent

Judgment:      7 April 2011

ORAL JUDGMENT OF CHISHOLM J

[1]      The  applicant  seeks an  interim  injunction  to  prevent  the  respondent,  the mortgagee of her property at 139 Tauroa Road, Havelock North, from registering a transfer of that property to a third party following a mortgagee’s sale.  Initially an order was sought on an ex parte basis.   However, in a minute issued on 5 April 2011

I directed that the respondent be served so that the matter could proceed today on a

“Pickwick” basis.

[2]      That minute also directed the applicant to file an undertaking as to damages, an affidavit as to her financial position, and a statement of claim identifying the causes of action upon which she was relying.   The respondent was requested to provide information that would enable me to consider whether there were any issues arising from s 176 of the Property Law Act 2007 (which relates to a mortgagee’s duty to obtain the best price reasonably available).    All those requirements have

been met.

NEE HARLAND V ASSET FINANCE LIMITED HC NAP CIV-2011-441-000207 7 April 2011

Background

[3]      Jenny  Nee  Harland  lives  at  139  Tauroa  Road  with  her  husband  Peter Nee Harland who is a barrister and solicitor.  She is the registered proprietor.  The property is subject to registered first and second mortgages.  The first mortgage was held by PSIS and the second mortgage by Asset Finance Limited, the respondent. Mr Nee Harland is shown as a borrower in the second mortgage security documents.

[4]      Last year there was default under the second mortgage  and notices were issued  pursuant  to  s  119  of  the  Property  Law Act.    The  notices  specified  the mortgage, the remedy that was required, (payment of approximately $161,000), and the date by which the default was to be remedied (on or before 12 November 2010). The default was not remedied.

[5]      Around this time the first mortgage was assigned from PSIS to Asset Finance Limited pursuant to s 102 of the Property Law Act.  Although the documentation between the assignor and assignee contemplated that notice would be given to the borrowers, for some reason this did not happen.  It is this failure to give notice that seems to lie at the heart of the application now under consideration.  However, after the assignment had taken place Mr and Mrs Nee Harland became aware that there had been an assignment because they were told by PSIS to make future payments under the first mortgage to Asset Finance Limited, and did so.

[6]      When the default under the second mortgage was not remedied Asset Finance Limited took steps for the property to be sold by auction on 16 December 2010.  On the eve of the auction the parties agreed upon a refinancing arrangement which involved  both  first  and  second  mortgages  and  additional  security  through  a guarantor.  The interest rate was high.  It seems that there was some sort of escape clause allowing the borrowers to cancel the refinancing arrangement.  The auction was cancelled.

[7]      Within a few days the borrowers elected not to proceed with the refinancing and it came to nothing.   According to the affidavit of Mr George, the managing director of Asset  Finance  Limited, he formed the view that  the borrowers were

“unreliable and manipulative” so he decided that the property should be sold by a

private treaty to avoid any prospect of the sale process being disrupted.

[8]      It should be noted at this point that Asset Finance Limited had a valuation from a registered valuer dated 22 March 2010 which assessed the market value of the property at $410,000.  It also had an appraisal from Ray White Real Estate dated

23  November  2010  indicating  a  market  value  within  the  range  of  $375,000  to

$400,000.   This appraisal indicated that in a forced sale situation anything about

$300,000 should be seriously considered.

[9]      Several offers were received by Asset Finance Limited, and rejected.   The highest of these offers contained a purchase price of $320,000.   Ultimately, on

26 January 2011 Asset Finance Limited accepted an offer of $356,000.  This offer includes an escape clause which would enable the transaction to be cancelled if there were impediments to the mortgagee being able to settle.   In other respects, it is unconditional.  Settlement was scheduled for the following day.

[10]     In the meantime Mrs Nee Harland had entered into an agreement for the sale of the property to her husband for $455,000.   This agreement is dated 15 January

2011.  It was unconditional.  On the strength of this contract Mr Nee Harland lodged a caveat which prevented settlement of the contract dated 26 January 2011.

[11]     On  24  March  2011  Associate  Judge  Gendall  heard  an  application  by Mr Nee Harland  for  an  order  that  the  caveat  not  lapse.    The  following  day he delivered his decision: see Nee Harland v Asset Finance Limited .[1]   The Judge found that the caveat had lapsed and that there was no jurisdiction to make the orders sought.

[1] Nee Harland v Asset Finance Limited CIV-2011-441-143, HC Napier, 25 March 2011

[12]     Associate Judge Gendall also declined Mr Nee Harland’s oral application for permission  to  lodge  a  second  caveat.     Several  reasons  were  given.     First, Mr Nee Harland’s case was weak.  Amongst other things this reflected the Judge’s

view that the contract of 15 January 2011 entered into by the registered proprietor

could not trump the contract of 26 January 2011 entered into by the mortgagee exercising  its  power  of  sale  following  default  under  the  mortgage.    Secondly, Mr Nee Harland, as a barrister and solicitor of this court, should have taken timely steps to protect the caveat.  Thirdly, the Judge was doubtful about Mr Nee Harland’s financial ability to complete the purchase under the contract of 15 January 2011. Finally,  there  would  be  prejudice  to  the  purchaser  under  the  contract  dated

26 January 2011.

[13]     Last Friday, 31 March 2011, the applicant (in person) lodged the application now under consideration. The history since that time has already been traversed.

Issues

[14]     Given that this is an application for interim injunction three matters require consideration.  First, whether there is a serious issue to be tried, secondly, where the balance of convenience lies, and thirdly, overall justice.

Whether there is a serious issue to be tried

[15]     The case for the applicant  has been argued with passion by Mr Nee Harland. Two causes of action are relied on by the applicant:  unconscionable conduct by the mortgagee, and breach of s 176 of the Property Law Act.

[16]     The first cause of action is based on the failure of Asset Finance Limited to give  notice  of  the  assignment  to  the  borrowers.    This  is  not  disputed.    While Mr Nee Harland accepts that the applicant became aware of the assignment (from PSIS), the complaint is that the applicant was not made aware of the terms of the assignment.

[17]     Mr Nee Harland said that he and his wife were under the impression that they were going to have to repay both the first and second mortgages.  Had they known that they were only being required to repay the second mortgage they would have been  able  to  remedy the  default.    It  is claimed  that  this misunderstanding was compounded when there were refinancing arrangements with Asset Finance Limited

on the eve of the auction which involved both the first and second mortgages.  This reinforced their belief that both mortgages, not just the second mortgage, were being called up.

[18]     I am afraid there are several problems with this cause of action.

[19]     First, the Property Law Act notices are clear as to the mortgage involved, the amount to be paid, and the date by which it was to be paid.  Despite that the default continued (and still continues).

[20]     Secondly,  I  have  difficulty in  understanding  how  Mr  Nee  Harland,  as  a barrister and solicitor, could have been confused about what was required to remedy the default. This matter that also weighed with Associate Judge Gendall. There is no suggestion that any Property Law Act  notice  was issued in relation to the first mortgage.   Moreover, the applicant continued to pay instalments under the first mortgage  after  she  (and  Mr  Nee  Harland)  had  become  aware  that  it  had  been assigned to Asset Finance Limited.   Mr Nee Harland (and through him, his wife) seems to have been under the impression that Asset Finance Limited, as assignee, could alter the terms of the first mortgage (which was for a term of 30 years at a comparatively low interest rate).  I do not understand how this could have ever been a possibility or how a solicitor could have thought it was a possibility.

[21]     Thirdly, ss 102 and 103 of the Property Law Act do not require notice to be given.   Finally, to the extent that it is suggested that the refinancing package negotiated on the eve of the auction added to the problem, the reality is that that refinancing package came to nothing.

[22]     All of this means that there is not an arguable cause of action based on unconscionable conduct.

[23]     The second cause of action relies on a breach of s 176 of the Act which provides that a mortgagee who exercises a power to sell mortgaged property  ”owes a duty of reasonable care ... to obtain the best price reasonably obtainable as at the time of sale”. That duty was owed to the applicant.

[24]     The  applicant  claims  that  the  price  of  $356,000  was  not  the  best  price reasonably obtainable.  Mr Nee Harland suggested that something in the region of

$455,000 would be more realistic.  He mentioned the rating value of the property. He also said that the property had attracted considerable interest and that if it was to be sold it should have been sold by auction.

[25]     As mentioned earlier, the mortgagee had the benefit of a valuation from a registered valuer and a real estate appraisal.   It is significant that the real estate appraisal indicated that in the context of a forced sale any offers over $300,000 should be seriously considered.  Given that the auction in December was aborted at the last minute, the market place must have been aware from the preceding publicity that this was a forced sale.

[26]     In all the circumstances it was open to the mortgagee to decide that rather than attempting a further auction there should be sale by private treaty.  The steps that were then taken have been detailed in Mr George’s affidavit.  Clearly there were efforts to promote the sale.  Several offers were rejected because the price was too low.  The offer that was accepted was well above the $300,000 mentioned in the real estate agent’s appraisal.

[27]     The allegation that s 176 was breached lacks strength.   Although I have a good deal of sympathy for Mr and Mrs Nee Harland’s predicament I do not see how I could responsibly conclude that there was an arguable case in relation to either cause of action.

Balance of convenience

[28]     The first issue is whether damages would provide an adequate remedy in the event  that  the  applicant’s  claim  succeeded.      Mr  Nee  Harland  emphasised  the family’s long association with this property, Waahi Tapu, and other factors that could never be replaced if they lose the property.  However, it is necessary to consider this aspect through reasonably clinical eyes.  I would be hard pressed to say in this case that damages would not provide an adequate remedy.

[29]     The law governing the priority of the two contracts under consideration also counts against an interim injunction. As Associate Judge Gendall noted, the contract entered  into  by  Mrs  Nee  Harland  as  registered  proprietor  could  not  trump  the contract entered into by the mortgagee unless notice had been given to the mortgagee or equity justified intervention.   That conclusion is supported by National Mutual

Finance (1988) Limited v Berryman[2] and Canterbury Finance Limited v Sagar Trust

Limited.[3]   There is no suggestion that notice was given in this case.  Thus the only issue is whether there might be some equitable basis on which the  Court could intervene.  Given the conclusions that I have reached as to the causes of action relied on by the applicant, I am afraid that equity does not provide any salvation.

[2] National Mutual Finance (1988) Limited v Berryman HC Wellington M 451/91 2 October 1991 McGechan J

[3] Canterbury Finance Limited v Sagar Trust Limited HC Christchurch M 285/97 27 June 1997 Master Venning

[30]     The next issue is possible prejudice to third parties, namely, the purchaser under the agreement of 26 January 2011.   Possibly the prejudice to that party is ameliorated to some extent by the escape clause.  However, the reality is that there has been a legitimate sale by the mortgagee to this third party and there is no legal impediment to settlement.  The third party is entitled to expect that this contract will now be performed and settled.  I cannot accept Mr Nee Harland’s argument that this is a  caveat  emptor  situation  and  that  the  interests of  the  third  party should  be effectively ignored.

[31]     Another concern is Mr Nee Harland’s ability to perform the contract dated

15 January 2011.  Obviously Mr Nee Harland cannot complete.  But he has assured me that the nominee he has in mind to complete the purchase is in a financial position to do so. While this might be so it seems that still further time would still be

required before there would be any certainty about that. Time has run out.

Overall justice

[32]     Stepping back and looking at the overall justice of the situation I am afraid that this consideration does not favour an interim order.  The law needs to be applied and when it is applied in this case there is no basis on which I could responsibly grant an interim injunction.

Result

[33]     The application for an interim injunction is refused. There will be 2B costs in favour of the respondent against the applicant.  If the substantive claim is to continue a proposed timetable will have to be submitted.

Subsequent matters

[34]     Mr Nee Harland now requests an order that he and his family have 21 days to move out of the property.  I have declined to make an order.  Perhaps the parties can discuss that matter.   It is not a matter that the Court can or should rule on in the present context.

[35]     Mr  Nee  Harland  has  also  told  me that  the  applicant  now wants to  take counsel’s advice with a view to appealing this decision.   The applicant will have until 5 p.m. on Monday 11 April 2011 to lodge an appeal with the Court of Appeal and to seek a stay.  The interim order made at [4] in the minute of 5 April 2011 will only continue until that time.

Solicitors:

Sainsbury Logan and Williams, Napier