Price v Killarney Capital Limited
[2023] NZHC 2753
•29 September 2023
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2023-441-000038
[2023] NZHC 2753
BETWEEN MURRAY PRICE and SHARRON PRICE
as trustees of the Price Karaka Trust, TRENT CARY and LYON TRUSTEE NO 10
LIMITED
PlaintiffsAND
KILLARNEY CAPITAL LIMITED
Defendant
Hearing: 26 September 2023 Appearances:
B Gustafson for Plaintiffs
R J Gordon and S Howard-Brown for Defendant
Judgment:
29 September 2023
JUDGMENT OF CHURCHMAN J
[Application for interim injunction]
Introduction
[1] The plaintiffs are guarantors of borrowing from the defendant in relation to a sum which now exceeds $18 million. They seek an interim injunction restraining the defendant from exercising its power of sale in relation to properties they had put up as security for the borrowing.
Facts
[2] Parklane Infrastruct Ltd (now in liquidation) (Parklane) was the owner and mortgagor of a nine stage property development in Wellington (the Development). Parklane is controlled by the plaintiffs.
PRICE & ORS v KILLARNEY CAPITAL LIMITED [2023] NZHC 2753 [29 September 2023]
[3] The defendant’s first involvement with Parklane occurred in 2016. Parklane was at that stage in default on its obligations to its then funder, INNO Capital No. 3 Ltd (INNO), in respect of the Development funding. INNO had commenced a mortgagee sale process. Parklane refinanced the Development, avoiding the mortgagee sale.
[4] By April 2020, Stage 5 of the Development project had been completed, the first ranking lending to ANZ Bank had been repaid in full, the defendant had now become the first mortgagee and the sum outstanding had been reduced to less than
$2 million.
[5] In April 2020, a new sum of $1,150,000 was advanced via Parklane but instead of being related to the Development, it was for the personal benefit of two of the plaintiffs, Mr Price and Mr Cary.
[6] In September 2020, a further loan was entered into in the sum of $8,200,000. This was to fund Stage 6 and Stage 8 in the Development. The term of the loan was for one year expiring 31 August 2021.
[7] The reason for the one-year term was that it was anticipated that the provision of the funds would allow these stages of the Development to be completed, the sections sold and the funding repaid.
[8] This timeline was not met because Parklane decided to pursue a variation to their existing subdivision resource consent in order to create additional sections. This application resulted in significant delays.
[9] In September 2021, the expired term loan was restructured. Additional funding was advanced to assist in progressing the Development. The term of the renewed loan expired on 2 September 2022. Stages 6, 7 and 8 of the Development had still not been completed by September 2022.
[10] The defendant was becoming increasingly concerned at the lack of pre-sales, but it agreed to one further variation which extended the term of the loan to 2 February
2023. At the time of granting this final extension, the balance of the unpaid loan stood at $14,320,071. The defendant expressly warned Parklane that there would be no extension beyond 2 February 2023.
[11] The outstanding balance of $14,320,071 included a separate advance in the sum of $1,062,000. This advance had nothing to do with the Development project in Wellington but was advanced in order to allow Mr Price and Mr Cary and interests associated with them to repay debt on a commercial investment property in Grey Lynn owned by a company called Park Avenue Properties Limited (PAPL) which was wholly owned by Murray and Sharron Price. The purpose of the new loan was to enable settlement of the purchase of a villa at Herne Bay, Auckland where Mr Cary and his wife (who is the daughter of Mr and Mrs Price) would reside.
[12] The defendant advanced the money on the basis of assurances that an apartment in Parnell, Auckland, owned by one of the plaintiffs, Lyon Trustee No 10 Ltd (of which Mr Cary was the sole director and shareholder), would be sold.
[13] The PAPL loan term was 12 months. The amount of $250,000 of the loan was to be repaid in one lump sum within six months of being advanced. That term expired on 12 August 2022 and the $250,000 was not repaid.
[14]The final date for repayment of all the borrowing expired on 11 February 2023.
[15] Default notices under ss, 119, 122 and 128 of the Property Law Act 2007 (the Act) in respect of that part of the borrowing relating to the Development, were served on 3 March 2023 and expired unremedied on 5 May 2023. Further default notices were served in respect of the other secured properties and all had expired (unremedied) by 6 July 2023.
[16] As well as the loans being in default, unpaid interest in the sum of $350,000 per month was also accruing.
[17] The defendant resolved to exercise its power of sale over the remaining unsold lots in the subdivision (39 individual lots and two larger lots referred to as “super lots”) as well as the three Auckland properties the plaintiffs had put up as security for their further personal borrowing, being properties in Takapuna, Parnell and Grey Lynn.
[18] The defendant took professional advice from two established Wellington real estate agencies, Tommys and Bayleys. Tommys estimated the 39 lots, under mortgagee sale conditions, would realise between $219,000 to $326,000 per lot (GST inclusive). One of the super lots (9A) had a forced sale estimate of $1 million (GST exclusive). Tommys was unable to estimate the value of super lot 9B due to the extensive work still required on it. Tommys proposed as a method of sale a four week tender process.
[19] Bayleys’ appraisal was similar with an estimate of the 39 lots likely, under mortgagee sale conditions, to achieve between $280,000 to $330,000 per lot (GST inclusive) and the two super lots, under mortgagee sale conditions, to achieve
$900,000 and $950,000 respectively. The suggested method of sale was either an auction or a four to five week tender process.
[20] The defendant accepted Bayleys’ proposal and instructed it to commence the mortgagee sale process on the basis recommended. However, other real estate agents were still permitted to introduce purchasers and to receive commissions on any resulting sale.
[21] Bayleys marketed the Development lots for sale over a four week tender period using a variety of media.
[22] The plaintiffs did not co-operate with the sale process. Throughout the four week sales and marketing campaign, they refused access to the site, resulting in Bayleys’ agents being unable to show potentially interested purchasers over the properties and they removed large sign boards that Bayleys had erected at the entrance to the Development so as to promote the mortgagee sales.
[23] As a result of the marketing campaign, Bayleys received some 24 tenders, which ranged from tenders on single lots to multiple lot tenders and tenders to buy the entire Development. The tenders received covered all the lots in the Development. Bayleys did not simply accept the tenders, but negotiated with tenderers to obtain better prices.
[24] As at 20 September 2023, the defendant had in place unconditional sale contracts for 37 of the 39 lots. Mr Gordon advised at the hearing that the two super lots were also now unconditionally sold.
[25] The defendant had received five tenders for the entire project, but rejected them all. The tenders ranged from $4,805,000 to $11,100,000. The highest of those tenders was lower than the sum realised by the sale of the 37 single unit lots without any allowance for the two remaining individual lots and two super lots.
[26] The defendant estimated the total recovery from the mortgagee sale of the Development was around $14,418,000 plus GST but net of commissions.
[27] It is estimated that following the settlement of the sale of the sections in the Development, there will still be a sum of between $4–5 million owing on the borrowing.
[28] Of the Auckland properties, the Grey Lynn property has been tendered but no tenders had yet been received. It allegedly has some leaky building issues. By memorandum filed on 14 September 2023, the defendant agreed to pause the mortgagee sale process in respect of the Takapuna property and not enter into any agreement for sale and purchase under a mortgagee sale until the interim injunction application had been heard and determined by the Court. The Parnell property had not sold either. The defendant submitted that the plaintiffs had failed to co-operate with the sale of the Auckland rental properties by failing to provide rental details.
The plaintiffs’ case
[29] The plaintiffs’ case has changed significantly since the initial statement of claim was filed on 8 September 2023. The original application was for without notice
orders directing that the defendant file any affidavits and notice of opposition to the interim injunction within three working days and that a fixture be allocated as soon as possible after the three working days had expired.
[30] Following an urgent teleconference on 13 September 2023, I declined that application, directed that the defendant was to file its notice of opposition and supporting affidavits no later than 22 September 2023 and directed a hearing be allocated in relation to the interim injunction at the earliest possible date after 22 September 2023.
[31] The plaintiffs had initially sought an injunction in very broad terms seeking orders:
(a)the defendant only sell any of the 33 (sic) subdivided lots in Stage 6 of the Development if the sale price for each lot was in excess of
$450,000; and
(b)the defendant cease marketing for sale as mortgagee:
(i)the Takapuna property;
(ii)the Grey Lynn property; and
(iii)the Parnell property.
[32] At the hearing, the plaintiffs abandoned the interim injunction application in respect of any of the Development lots and also the Grey Lynn property. The application was maintained in respect of the Takapuna property occupied by Mr and Mrs Price as their home and the rental apartment in Parnell owned by Mr Cary.
[33] During the course of submissions, Mr Gustafson’s position was further refined and it was suggested that all that the plaintiffs wanted was a 28 day delay in respect of the mortgagee sale of the two Auckland properties. This period of time was calculated on the basis that the titles for all of the Development lots were anticipated to be issued in early October with settlement promptly thereafter and therefore, in approximately
four weeks’ time, the plaintiffs would know what the outstanding balance was in order to redeem the mortgage.
[34] The plaintiffs’ case is founded on a claim of a breach of the duty in s 176 of the Act. Section 176(1) of the Act provides:
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:
[35] That duty is owed to the current mortgagor, any former mortgagor, any covenantor, any mortgagee under a subsequent mortgage and any holder of any other subsequent encumbrance. The term “covenantor” is defined in s 4 of the Act as including a guarantor.
[36] The main process defects relied on at the hearing to support a claim of breach of the s 176 obligation were the failure of the defendant to obtain a registered valuation of the lots in the Development prior to embarking on the mortgagee sale process and an alleged failure to market the whole of the Development offshore. The pleadings had also alleged a breach of duty by the defendant in not adequately marketing the Development as a going concern to developers and construction companies by means of using a business broker, and marketing the Development nationally and internationally; by not investing $300,000 in marketing the Development to potential buyers and not using the same real estate agent who had been used some years previously to sell lots in Stages 1 to 5 of the subdivision.
[37] The plaintiffs asserted that the alleged breaches of the duty in s 176 meant that there was a serious question to be tried, that the balance of convenience favoured the plaintiffs and that damages would not be an adequate remedy for the plaintiffs. These allegations are denied by the defendant. They also point to the fact that the plaintiffs have not made a payment into Court of the outstanding mortgage balance as required by the rule in Parry v Grace1 and that no undertaking as to damages was filed with the application as was required by r 7.54 of the High Court Rules 2016 and, when one was
1 Parry v Grace [1981] 2 NZLR 273 (HC).
belatedly filed on the morning of the hearing, it was only signed by one of the plaintiffs (Mr Price), who purported to sign on behalf of all the plaintiffs.
The law on interim injunctions
[38] The principles applying to the grant of an interim injunction are well-settled. It requires the Court to find that:
(a)there is a serious question to be tried;
(b)the balance of convenience favours the granting of the injunction; and
(c)the overall justice of the case requires it.2
[39] The purpose of an interim injunction is to improve the chance of the court being able to do justice after a determination of the merits at trial.3 The basic principle is for a court to take whichever course seems likely to cause the least irremediable prejudice to one party or another.4
[40] A serious question is one that is not frivolous or vexatious, and one where the plaintiff is able to satisfy the court that it has a real prospect of succeeding at trial.5
[41] The essence of the latter two stages is whether the effect of refusing the injunction would be harder on a plaintiff who succeeds at trial than granting it would be on an ultimately successful defendant.6 In making this assessment, the Court should consider what is in the overall interests of justice by reference to the relative strengths
2 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; Intellihub v Genesis Energy Ltd [2020] NZCA 344 at [23]; Klissers Farmhouse Bakeries v Harvest Bakeries Ltd [1985] 2 NZLR 129 at 142; and American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).
3 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [31], citing National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [2009] 1 WLR 1405 at [16]–[17].
4 At [31], citing National Commercial Bank Jamaica Ltd v Olint Corp Ltd, above n 3, at [16]–[17].
5 Re Lord Cable (dec’d) [1976] 3 All ER 417 (Ch) at 431; and Hannon v Senior Trust Capital Ltd
[2023] NZHC 16 at [40].
6 Roman Catholic Bishop of the Diocese of Auckland v Boynton [2018] NZHC 2636 at [14].
of the cases, the preservation of the status quo, the uncompensable disadvantages to either party, and the adequacy of damages as a remedy.7
[42] The second stage, assessing the balance of convenience, involves balancing the risk of doing an injustice. 8 It is a broad and flexible inquiry.9 The Court must decide whether granting or refusing an injunction would, after the action itself has been tried and the issues between the parties determined, fairly allow the adjustment of the rights of the parties in a way that accords with fairness and justice.10 The question of balance of convenience arises generally only where there is doubt as to the adequacy of damages.11
[43] The third stage is the overall justice assessment. The Court of Appeal has emphasised that in every case the Judge has to stand back and ask where overall justice lies.12 Marshalling considerations under the non-exhaustive heads of serious question to be tried and balance of convenience is an aid to determining this ultimate question.13 It is essentially a check on the position that has been reached following analysis of the first two stages.14 It may involve considerations such as the public interest and the connection of the defendant to New Zealand.
[44] The overall grant of an interim injunction involves the exercise of a discretion, which is amenable to appeal on the basis that the judge has erred in law, taken account of an irrelevant matter, failed to take account of a relevant matter or is plainly wrong.15 However, the individual stages of the court’s consideration involve judicial evaluation rather than the exercise of a discretion.
7 Jacanna Holdings Ltd v Pacific Auto Carrier (NZ) Ltd [2019] NZHC 931 at [92]; and Wellington International Airport Ltd v Air New Zealand HC Wellington CIV-2007-485-1756, 30 July 2008 at [6]–[14].
8 McLaughlin v McLaughlin [2019] NZHC 2597 at [37], citing Cayne v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.
9 At [38].
10 Congoleum Corp Ltd v Poly-Flor Products (NZ) Ltd [1979] 2 NZLR 560 (CA) at 571.
11 American Cyanamid Co v Ethicon Ltd, above n 2, at 408–409 and 510–511.
12 Klissers Farmhouse Bakeries v Harvest Bakeries Ltd, above n 2, at 142.
13 At 142; and see NZ Baking Trades Employees’ Industrial Union v General Foods Corp (NZ) Ltd
[1985] 2 NZLR 110 (CA).
14 NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 2, at [47].
15 At [13].
Section 176
[45] The nature of the duty in s 176 was (ultimately) agreed between counsel as being an obligation to take a reasonable care to obtain the best price reasonably obtainable as at the time of sale.
[46] The fact that a mortgagee is exercising a power of sale when a mortgage is in default is not, of itself, inherently unreasonable or oppressive.16 The focus is on the process followed by the mortgagee rather than on the decision to undertake a mortgagee sale.
[47] The relevant principles are set out in a number of leading cases. In Harts Contributory Mortgagees Nominee Co Ltd v Bryers,17 the Court confirmed:18
(a)The mortgagee has the power to decide, purely in the interests of the mortgagee, if and when to sell and therefore, that it was only the best price reasonably obtainable at the time of sale that mattered.
(b)Where the security is substantial or specialised property is involved, it will usually be necessary for the mortgagee to obtain and act upon specialised advice as to the method of sale — “appointing a competent agent to sell does not discharge the mortgagee’s duties, but since its duty is ultimately only 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”.
(c)In the normal course, the proposed sale will need to be advertised with an adequate description of the properties’ attributes and, within reason, widely enough to attract all possible purchasers.
16 Taylor v Westpac Banking Corp (1996) 7 TCLR 177 (CA) at 182–183.
17 Harts Contributory Mortgagees Nominee Co Ltd v Bryers HC Auckland, CP403-IM00, 19 December 2001.
18 At [43].
(d)There is no obligation to postpone the sale in the hope of a better price later, or to break up the assets and sell in a piecemeal manner if this can only be carried out over a substantial period or at a risk of loss.
(e)When assets are sold by tender or auction, a reasonable period must usually be allowed for purchasers to inspect the property and to arrange finance before submitting bids.
(f)In evaluating judgements made by or on behalf of the mortgagee, it should not be forgotten that in the absence of bad faith, the mortgagee shares with the mortgagor and guarantor an incentive to maximise the price obtained. It is not likely to be assumed that the mortgagee has acted in a way that was contrary to its own interests as well as the interests of others.
[48] The principles set out by Fisher J have been commented on in subsequent decisions. Mr Gustafson put particular emphasis on the decision of Asher J in Public Trust v Ottow.19 In that case, Asher J said:
[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.
19 Public Trust v Ottow (2009) 10 NZCPR 879 (HC).
[49] A particular paragraph that Mr Gustafson relied on was [33], where Asher J said:
[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: Moritzon 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 Auckland, CIV-2009-404-3534, 1 July 2009 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.
[34] In a poor and receding market as there was in October 2008, it is entirely understandable that prices will be somewhat lower than those anticipated in valuations …
[50] In support of his contention that it was necessary for the defendant to have obtained its own valuation prior to exercising its power of sale, Mr Gustafson relied on the decision of the Queensland Supreme Court in Sablebrook P/L v Credit Union Australia Ltd.20 However, Applegarth J in that case appears to have indicated that either an updated valuation “or at least, an estimate of current market value from local real estate agents” was required and that without either of those, the mortgagee “had no reliable information concerning the current market value of the land proposed to sell by private treaty”.21 The fact that the mortgagee in the present case had obtained estimates of current market value, in a forced sales situation distinguishes the present case from Sablebrook.
[51] The utility of a valuation has been doubted by the High Court. In Westpac New Zealand Ltd v Lamb, Wylie J noted:22
A property is only worth what someone is prepared to pay for it at the time of sale;
Valuations lose much of their significance if reasonable care is taken, there has been a properly advertised and conducted auction, then the property has been sold has been auction or by negotiation after the auction …
[52] The New Zealand Courts have specifically rejected the submission that a failure to obtain a valuation prior to exercising a mortgagee sale is a breach of the duty
20 Sablebrook P/L v Credit Union Australia Ltd [2008] QSC 242.
21 At [52].
22 Westpac New Zealand Ltd v Lamb [2012] NZHC 319 at [34].
of care in s 176: see Southern Cross Building Society v Vuletic23 and Liddle v Bank of New Zealand.24
[53] I therefore do not accept that where the defendant obtained estimates of value from two reputable local real estate agencies, the failure to obtain a valuation per se amounted to a breach of the duty of care. It is now necessary to consider the subsidiary argument, which was that the sale price was much less than the assessed value and there was no explanation for the discrepancy.
[54] Mr Gustafson relied on several different factors as establishing that the sale price was much less than the assessed value and that there was no explanation for the discrepancy. He referred to the sale price achieved for sections in Stage 1 to 5 of the Development and the fact that the defendant had, in 2019, approved a release of three sections for sale at values in excess of $500,000. There was also reference of a sale of Lot 29 on 3 July 2023 for $640,000.
[55]What this submission overlooks is that it is the best price reasonably obtainable
as at the time of sale that is relevant.
[56] The plaintiffs attached to the affidavit of Mr Cary a number of valuations undertaken by Truebridge Valuation (Truebridge). Those documents noted that there had been a rapid increase in house prices in Wellington until late 2021, but then a significant downward adjustment to prices in most sectors of the housing market had occurred and from then through 2023 what was described as “major retrenchment” of value had occurred.
[57] On the plaintiffs’ own evidence, what might have been achievable in 2019 or 2020 is not an indicator of what would be achievable in 2023.
[58] The contract for the sale of Lot 29 on 3 July 2023 is also unhelpful as the sale never became unconditional and ultimately fell over.
23 See Southern Cross Building Society v Vuletic HC Auckland, CIV-2008-404-8684, Andrews J at [23].
24 Liddle v Bank of New Zealand HC Auckland, CIV-2009-404-6189, Potter J at [45].
[59] The plaintiffs also point to an offer made on 25 February 2022 for the sale of some 11 lots for $500,000 each plus GST. However, this sale did not proceed either. This transaction was addressed by the affidavit of Peter Cooke filed on behalf of the defendant and Mr Cooke expresses the view that these 11 sales had nothing to do with any mortgagee sale and the relevant events occurred as long as ago as February 2022, some 18 months before the mortgagee sale process. He says the transaction was in fact an attempt by Parklane to extract further loan funding out of the defendant. He notes that some $5,100,189 of the Development funding was conditional upon a number of matters, including Parklane providing the defendant with copies of “11 qualifying sale and purchase agreements”. These were agreements relating to pre-sales of lots in the Development. There were qualifications around what a “qualifying sale and purchase agreement” had to be. These included:
(a)on arm’s length commercial terms;
(b)for a purchase price of no less than $500,000 including GST;
(c)with a deposit of not less than 10 per cent of the purchase price, to be paid into a solicitor’s trust account and held pending settlement of the sale; and
(d)if the purchaser is a company, the obligations of the purchaser to be personally guaranteed by the directors or another person.
[60] Mr Cooke deposes that by February 2022, the original $800,000 of Development funding had been exhausted and Mr Cary was pressuring the defendant to advance more money to Parklane, but no pre-sale contracts had been provided as was required.
[61] Mr Cooke said that he received advice on 25 February 2022 that Parklane was now in receipt of 11 unconditional agreements for sale and purchase which meet the qualifying sale price of $500,000. When Mr Cooke requested details and copies of the contract, he received a telephone call from Mr Cary which revealed that the 11 purported sales contracts were to a company Modeco Ltd (Modeco), which was a
company owned 100 per cent by him. The deposits were well less than the 10 per cent required and had not been paid into a solicitor’s trust account. Because the requirements for “qualifying” sales had not been met, Mr Cooke refused to advance the further funds sought. The 11 purported sales to Modeco are therefore of no assistance in establishing the value of the lots in the Development as at July 2023.
[62] It was undisputed that prices reasonably achievable in the context of a forced sale would be substantially lower than those otherwise achievable. The reason for this was explained by Truebridge in a “forced sale” valuation dated 6 July 2023 commissioned by the plaintiffs. The valuation said:
A sale under constrained circumstances does not meet the criteria of a normal market transaction as there is an element of undue compulsion or influence affecting the seller. Accordingly, one of the essential elements of the definition of Market Value is missing and therefore a sale under constrained circumstances is inconsistent with the definition of such. The circumstances usually involve an owner under some form of duress or pressured to sell and/or a third party such as a mortgagee or receiver in possession.
[63]Truebridge’s estimate of the forced sale value of all of the remaining lots was
$15,621,000.
[64] The defendant, prior to undertaking the power of sale, possessed marketing appraisals from both Tommys and Bayleys. Those appraisals gave both a market value and a forced sale value. Both were similar. Tommys assessed a market value of ready- to-build lots as being between $327,000 and $488,000 per lot, but a forced sale valuation of between $219,000 to $327,000. Bayleys’ appraisal was a market value of between $400,000 to $460,000 per lot or a forced sale valuation of $280,000 to
$330,000 per lot. Tommys’ forced sale estimate for the super lot 9A was $1,000,000. Bayleys was $900,000 for super lot 9A and $950,000 for 9B under forced sale conditions.
[65] The defendant noted that the value of the unconditional sales achieved shortly before the hearing date of $14,418,000 (plus GST but net of commissions) was close to the Truebridge valuation of July 2023 relied on by the plaintiffs which gave a forced sales valuation for the same stages in the development of $14,758,000 in total.
[66] Weighing this evidence, I do not accept that it can be said that the value of sales achieved is “much less than the assessed value” and that there is no explanation for the discrepancy. Notwithstanding the obstructive efforts of the plaintiffs, values consistent with the two real estate agent appraisals were achieved and the values achieved were not “much less” than the Truebridge estimate.
[67] I now address the plaintiffs’ contention that there was a “fire sale”. The evidence for the defendant was that they did not simply accept all of the offers received whatever the price, but instructed Bayleys to continue to negotiate with tenderers to obtain better prices as well as receiving other offers following the close of the tender process which were also negotiated and that the sale prices ultimately negotiated were in line with both of the real estate agents’ estimates.
[68] The plaintiffs also rely on the opinions expressed by Iain McLennan who filed an affidavit in support. Mr McLennan was not either a valuer or a real estate agent. He is the liquidator of Parklane. As well as his opinions arguably being outside his area of expertise, they also appear to be based on an incorrect understanding of the facts. His view was that the defendant only marketed the lots within the Development as individual properties for sale rather than attempting to sell the Development as a going concern. That is incorrect. The defendant’s evidence was that the Development was marketed as either individual lots, in multiples, or as one lot and that, in fact, five offers were received at the close of tenders from builders or developers looking to purchase the entire development as a whole.
[69] Mr McLennan’s assumption that the marketing was limited to New Zealand is also incorrect. This issue was addressed in Mr Cooke’s affidavit, who confirmed that the Development was marketed both nationally and internationally (including in the locations the plaintiffs suggested it should have been marketed) through Bayleys’ international network. Mr McLennan expressed the view that there should have been a longer marketing campaign followed by a period for prospective purchasers to complete due diligence and then a further three week tender process. Such a suggestion is inconsistent with the timeframes recommended by both Tommys and Bayleys, who I accept do have expertise in the marketing and sale of properties like this.
[70] Another opinion proffered by Mr McLennan is that the defendant should have spent an additional $300,000 in a marketing campaign. There are a number of difficulties with this proposition. Firstly, there is no legal obligation on a mortgagee to spend any money on a property subject to a mortgagee sale, let alone a sum as large as $300,000. There is no suggestion here that the plaintiffs were prepared to provide
$300,000 or any other sum of their own money for further advertising. In terms of the suggestion of a longer sales campaign, the defendant was also entitled to have regard to the fact that not only had the mortgage been in default since February 2023, there was an ongoing unpaid interest bill of $350,000 per month accruing.
[71] There is nothing in the opinions of Mr McLennan that would justify a finding that the defendant engaged in a “fire sale” or otherwise breached his duty of care. The Court is generally slow to come to a conclusion that a mortgagee has engaged in “fire sale” tactics where that would work against the mortgagee’s interest in obtaining the best possible return. That is particularly so in the present case, where even on the values able to be obtained from sale of all the lots in the Development, there was still an estimated $4–5 million deficit. Parklane itself is in liquidation and the defendant’s evidence was that the liquidator’s initial statement indicated that, in addition to secured liabilities, there was some $4 million of unsecured trade and other debtors. Given the potential exposure of the defendant, it defies common sense that they would have done anything other than attempt to achieve the best sale price available in the circumstances.
[72] A further matter raised by the plaintiffs as supporting a breach of the duty of care was that the defendant should have agreed to let Mr Bagley, the Ray White agent involved in selling Stages 1 to 5, continue to sell the 39 subdivided lots. However, this submission ignores the defendant’s evidence that other agents were at liberty to introduce buyers and would have been paid their commission had they done so. Neither have the plaintiffs explained how Mr Bagley would have done things better or any different to Bayleys, particularly given the poor sales record since the completion of Stage 5.
[73] For the reasons set out above, I have come to the conclusion that there is no serious question to be tried that the defendant breached the obligations in s 176 of the Act.
Balance of convenience
[74] Notwithstanding my finding on the issue of whether there is a serious question, I will now address the balance of convenience. A relevant matter here is whether damages would be an adequate remedy. There is no suggestion that the defendant is anything other than the substantial entity well able to meet any damages that might potentially be awarded.
[75] The plaintiffs’ case is that the Takapuna property is the Prices’ family home and that puts it in a different category to other properties. The plaintiffs also asserted the defendant has not advised the Prices what the current equity of redemption to redeem the mortgage over the Prices’ home is.
[76] Mr Gustafson relied on the decision of Dobson J in McDonald v Toko,25 suggesting that this case was analogous. A reading of that case does not support that submission. It appears in that case that Ms McDonald had been dealt with fraudulently by Mr Toko and that he had become the registered proprietor of the property in circumstances where he had breached his equitable obligations to Ms McDonald. Once Mr Toko had wrongfully registered the property in his name, it seems he arranged substantial borrowings on mortgage and then disappeared. He did not pay the rates or the mortgage. The mortgagee refused to deal with anyone other than the registered proprietor (Mr Toko) and would not even disclose the amounts sought to be recovered by the mortgagee from the sale. All that applicant sought was a deferral of the proposed mortgagee sale for one month to allow Ms McDonald to refinance and be in a position to redeem the mortgage. On the issue of the balance of convenience, the Judge said:
[14] I discussed with counsel the opposing views on the balance of convenience. My concern is that a mortgagee sale of a residential property in Kaikoura that is inevitably sold subject to the undefined occupancy rights of the present occupant will more likely than not occur on “fire sale” terms …
25 McDonald v Toko [2020] NZHC 2104.
[77] The Judge also noted that Ms McDonald and her mother needed the property to live in and had nowhere else available to them in the short term. The Judge noted that a sale at an undervalue would eliminate the rights Ms McDonald might have against Mr Toko. The Judge also noted Ms McDonald’s acknowledgement that if her attempts to repay the mortgage were not able to be confirmed unconditionally within four weeks, then she would take no further steps to disrupt a sale by the mortgagee.
[78] All of this is very different to the circumstances of the plaintiffs in the present case. They are not the victims of fraud, and have not had a mortgagee sale sprung upon them without knowledge that there was a mortgage on their property and it was in default. There is no suggestion that if the Prices’ house was sold they would have nowhere else to go. The Parnell property is also not Mr and Mrs Cary’s home.
[79] Mr Burns filed an affidavit on behalf of the defendant demonstrating that Mr and Mrs Price were the owners of a property at Pauanui and that a company called Connemara No. 6 Ltd (a company of which Mr Price was the sole shareholder and director of) owned a number of apartments in Hamilton. They would appear to have some options for alternative accommodation should the Takapuna property be sold.
[80] Mr Gustafson also relied on an Australian decision of Nolan v MBF Investments Pty Ltd.26 But the facts of that case are also distinguishable. The plaintiff owned three adjoining parcels, all of which were mortgaged to the defendant. One parcel comprised the plaintiff’s home, the other two were vacant land. The plaintiff’s position was that sale of the two vacant lots would produce sufficient to discharge his indebtedness to the defendant but, notwithstanding that, the defendant had sold all three lots. The case involved interpretation of s 77(1) of the Victorian Transfer of Land Act 1958 which required a mortgagee to have regard to the “interest” of the mortgagor when conducting a mortgagee sale. There was valuation evidence as to the value likely to be achieved by selling the two vacant lots and that selling the separate allotments would maximise the overall value obtained. The second mortgagee also supported the proposal to have the three lots sold separately in order to maximise value.
26 Nolan v MBF Investments Pty Ltd [2009] VSC 244.
[81] The Court held that the particular provision of the Victorian statute that applied did not limit the “interest” of the mortgagor to the interest in obtaining the best price for the property. The Judge noted:
[96] Apart from Tasmania, the requirements of s 77(1) TLA differ markedly from those contained in a number of pieces of legislation in Australia where the duty of a mortgagee in selling mortgaged property is confined to achieving the market value of that property …
[82] There is no equivalent in the Act to the concept of “interest” in the Victorian legislation that the Court in Nolan was construing.
[83] That case also involved a consideration of rights conferred by the Victorian Charter of Human Rights, which included a right not to have one’s home arbitrarily interfered with.
[84] The defendant in that case had also received (but apparently ignored) advice from senior counsel immediately prior to the sale which was to the effect that the mortgagee could only sell sufficient lots to satisfy the mortgage debt, interest and costs.
[85] The defendant insisted on selling all three lots. One of the vacant lots was sold first and achieved a sale price close to clearing all of the mortgage debt. However, instead of selling the other vacant lot, the defendant insisted on selling the lot with the house on it next. The sale of the second lot realised much more than was required to discharge all the debt, but the third lot was also sold. The results achieved from the sale of the two vacant lots yielded much more than what was required to repay both mortgages. The judgment ultimately turned on the reasonableness of the sale of the various lots in the order that they were sold. The Court said:27
… In exercising its power of sale in the way it did, [the defendant] carried into effect the indirect object of destroying [the plaintiff’s] legal interest in the land by depriving him of full ownership of the property by the exercise of his right of redemption. [The defendant’s] decision also had the effect of evicting [the plaintiff] and his family from occupation of the land and the dwelling house situated on the land.
27 At [282].
[86]Importantly, the Court also held:28
There was no need for [the defendant] to sell this property for the purpose of obtaining payment of its mortgaged debt.
[87] As can be seen, both the statutory obligations and the facts of this case are so different from those in the present case that the case is of no relevance.
[88] I also note that the personal circumstances of the plaintiffs in the present case are vastly different from the plaintiffs in either McDonald or Nolan. They are both experienced property developers. They were used to entering into mortgages. Some of the borrowings secured against the three Auckland properties had nothing to do with the Development but related to other projects of the plaintiffs including the financing of a new house for Mr and Mrs Cary to live in, in Herne Bay. I conclude that, on the facts of this case, there is nothing flowing from the Takapuna property being Mr and Mrs Price’s residence that distinguishes that property being available to the mortgagee by way of mortgagee sale.
[89] A further factor relevant in the present case is the ability and/or willingness of the plaintiffs for an interim injunction to meet the costs that might be incurred by the defendant if the injunction is granted. Here the principle in Parry v Grace29 also applies where an injunction sought relates to the exercise of a mortgagee’s powers but where the mortgage itself is not sought to be impeached. The normal rule is that the mortgagor or guarantor seeking to restrain a mortgagee sale must first pay into Court the amount secured by the mortgage before they will be granted any injunction restraining the exercise of the mortgagee’s powers. The decision in Parry is not an exception to that general rule but merely an example where the Court granted an injunction for the express purpose of allowing the plaintiff time to arrange such a payment. The injunction was to lapse if the applicant for the interim injunction had not paid either into Court or to some other depository approved by the first defendants, within 28 days of delivery of the judgment, the full sum secured under the mortgage as well as costs to the defendant in respect of the application.
28 At [283].
29 Parry v Grace, above n 1.
[90] The plaintiffs in the present case imply that they need to know the amount required to redeem their equity. However, the Auckland properties are not subject to a separate mortgage, they were provided as security for all of the sums advanced by the defendant. They are security for the full amount of the borrowing. The amount that will be realised once the sales of the various lots in the Development are settled is known and, at least to an approximate level, it is known what the deficit will be. Given that Parklane is now in liquidation and is hopelessly insolvent with some
$4 million of unsecured debtors, it is inevitable that the guarantees of the plaintiffs will be called upon. While the $350,000 per month accruing interest will reduce as the sale transactions settle, given the magnitude of the anticipated outstanding deficit once all the lots in the Development settle, there will still be sizeable ongoing interest.
[91] The failure of the plaintiffs to provide an undertaking as to damages when the proceedings were commenced is also relevant. The purpose of providing an undertaking as to damages is to satisfy the Court that if an interim injunction is issued, then the applicants are able to meet any damages. If there is any doubt about that then generally evidence of the worth of the undertaking is required.30 Here the plaintiffs have chosen not to provide any such evidence and there is also the difficulty of the undertaking as to damages having only been signed by Mr Price “on behalf of all the other plaintiffs”. There is no evidence of any authority he might have to bind all of the plaintiffs. Neither is there any evidence of the financial ability of the other plaintiffs to meet an award of damages.
[92] Such inferences as I am able to draw from the information that is before the Court does not support a conclusion that the plaintiffs are in a strong financial position. These factors all weigh against the grant of an interim injunction.
Overall justice
[93] The defendant submits that the conduct of the plaintiffs is relevant in assessing overall justice. They refer to the obstruction of the sale of the lots in the Development and the refusal to disclose the tenancy details in relation to the Auckland investment
30 See Sanson v Energy Products Ltd HC Auckland CIV 2009 404 5464, 4 December 2009 and Park Lane Builds Ltd v Shiva Eco Homes [2022] NZHC 1438 at [58].
properties. They refer also to the purported 11 lot sale to Modeco discussed above and also the way in which lot 32 was sold. Lot 32 was purchased by Mr Cary (via Modeco) from Parklane in March/April 2022 for the sum of $434,782 (excluding GST) (but simultaneously on sold for $750,000 (including GST)). The effect of the purchase by Mr Cary and on sale was that some $200,000 of the equity in lot 32 accrued to the benefit of Mr Cary or his interests rather than to Parklane as mortgagor.
[94] The defendant also refers to the fact that during the course of the past nine months (and unknown to the defendant), the plaintiffs caused Parklane to pay nearly
$400,000 in undisclosed and unapproved “consultancy” charges to itself and to a company called KCP Consultants Ltd. The sole director of that company is Mr Cary’s wife (and Mr and Mrs Price’s daughter (Kylie Cary-Price)). It is submitted this was a transparent scheme to remove money from Parklane that should otherwise have been used by it to either progress the Development and/or pay its unpaid trade creditors. I accept that these matters are relevant to a consideration of where the overall justice lies.
[95] Also relevant to the issue of overall justice is the apparent lack of utility in granting even a period of 28 days’ stay in the sale of the Auckland properties. There is no evidence that would support a conclusion that there is any realistic prospect of refinancing that could avoid the need for the Auckland properties to be sold. The Court would merely be delaying the inevitable at a time when interest continued to accrue.
Outcome
[96] For these reasons I conclude that there is no basis for the grant of an interim injunction and the application is dismissed.
Costs
[97] It is appropriate for the costs in respect of the injunction to be fixed. I invite the parties to agree amongst themselves but in the absence of agreement:
(a)the defendant is to file and serve a synopsis of no greater than five pages in length within 10 working days from the date of this judgment; with
(b)the plaintiffs having 10 working days thereafter to file and serve a response.
[98]Costs will then be dealt with on the papers.
Churchman J
Solicitors:
Cowan Law, Auckland for Plaintiffs MinterEllisonRuddWatts, Wellington for Defendant
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