Propst v ANZ National Bank Limited

[2012] NZHC 1012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-2345 [2012] NZHC 1012

BETWEEN  AUDREY ELIZABETH PROPST Plaintiff

ANDANZ NATIONAL BANK LIMITED Defendant

Hearing:         8 May 2012

Appearances: P L Rice for plaintiff

L A O'Gorman and A L Williams for defendant

Judgment:      11 May 2012

JUDGMENT OF GILBERT J

This judgment was delivered by me on 11 May 2012 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………….

Counsel:            P L Rice, Auckland: [email protected]

Solicitors:           Buddle Findlay, Auckland:  [email protected]

PROPST V ANZ NATIONAL BANK LTD HC AK CIV 2012-404-2345 [11 May 2012]

Introduction

[1]      The  plaintiff,  Mrs  Propst,  seeks  an  interim  injunction  restraining  the defendant, ANZ National Bank Ltd (the Bank), from taking any further steps to sell her interest in two properties, one at Waimauku and the other at Muriwai.   She claims that the Bank has no right to sell her interest in the properties because she has paid all monies due by her to the Bank.  She also claims that the notice issued by the Bank under s 119 of the Property Law Act 2007 (PLA) was defective.

Background

[2]      Mrs Propst is a 75-year old widow and Barry Hart’s sister.  In early 1997, she purchased the Waimauku property with her sister-in-law, Susan Hart, as tenants in common.  Mrs Propst holds a two-thirds share and Ms Hart holds the remaining one- third share.  The purchase was partly funded with a loan from the Bank which was secured by a first mortgage granted by Mrs Propst and Ms Hart (the Waimauku Mortgage).

[3]      The Waimauku Mortgage was fully repaid in 2003 but no discharge was sought.

[4]      In April 2007, Mrs Propst, Ms Hart and Mr Hart purchased the Muriwai property as tenants in common in equal shares.  This purchase was partly funded by borrowing from the Bank secured by a first mortgage (the Muriwai Mortgage).

[5]      Mr Hart has a number of other facilities with the Bank in his own name and in the name of Malory Corporation Limited (Malory).   He guaranteed Malory’s obligations to the Bank.

[6]      On 20 March 2006, Mrs Propst signed a deed of guarantee in the Bank’s favour in respect of all amounts due at any time to the Bank by her brother, Barry Hart.  Mrs Propst’s liability under this guarantee was limited to the sum of $300,000, plus 12 months’ interest and various other amounts payable under the guarantee.

[7]      On 15 October 2008, Ms Hart also guaranteed Mr Hart’s obligations to the

Bank.  Her guarantee was limited to $1.4 million plus 12 months’ interest.

[8]      Mr Hart has defaulted on his obligations to the Bank and is currently indebted to the Bank for in excess of $30 million.  Interest is accruing on these debts at a rate exceeding $200,000 per month.  The loans are secured by mortgages over various properties, including the Waimauku and Muriwai properties.  The combined capital value of all of the properties is approximately $26 million.  The Bank is therefore expecting that there will be a shortfall following realisation of these properties.

[9]      On 22 June 2011, the Bank made demand on Mr Hart for all sums due under his facilities and the Malory facilities which he had guaranteed.

[10]     On 11 July 2011, Mr Hart requested an extension of time from the Bank to enable agreements to be concluded with existing prospective purchasers.  The Bank responded on 20 July 2011 offering a three month “standstill period”, subject to various  conditions  including  co-operation  with  the  Bank  in  any mortgagee  sale process if a sale of the properties could not be achieved for a price in the region of

$30 million during the standstill period.  The Bank proposed to serve default notices pursuant to ss 119, 121 and 122 of the PLA during the standstill period.  On 1 August

2011, Mr Hart advised the Bank that he would co-operate with a mortgagee sale if he could not achieve a sale at the required level within the three-month period.

[11]     On 3 August 2011, the Bank served demands on Mrs Propst, Ms Hart and Mr Hart  for  the  sum  outstanding  on  the  loan  for  the  purchase  of  the  Muriwai property.

[12]     On 5 August 2011, the Bank served demands on Mrs Propst, Mr Hart and Ms Hart in respect of an amount of $4,130,893.93 due by Mr Hart as borrower under four bank facilities.  The demand notice recorded that the Bank had made demand on Mr Hart on 22 June 2011, but the debt had not been paid.  The demand served on Mrs Propst stated:

Accordingly the ANZ now makes demand upon you as guarantor pursuant to the  guarantee  for  immediate  payment  of  the  Debt,  being  $4,130,893.93

subject to the limitation of your liability in accordance with the terms of the Guarantee such that demand is hereby made on you for immediate payment of an amount of $335,700.00, without set-off or deduction.

The Bank recorded in the demand that interest would continue to accrue on the debt. It set out the current rates of interest payable under the facilities and noted that the applicable interest rates could vary on three of the four facilities.

[13]     Following a meeting with Mr Hart’s solicitor on 27 October 2011, Mr Hart agreed to pay $100,000 in return for a one-month extension to the standstill period. The Bank agreed not to serve any further PLA notices before 1 December 2011.

[14]     The Bank later agreed to a further extension until 31 December 2011 subject to  various  conditions.    One  of  these  conditions  was  not  satisfied  and  so,  on

20 December 2011, the Bank served further PLA notices.   These included notices under  ss  119  and  122  of  the  PLA  in  respect  of  the  Waimauku  and  Muriwai properties.  Mr Hart’s solicitor, Warren Simpson, accepted service of these notices on behalf of Mrs Propst, Ms Hart and Mr Hart.

[15]     Following service of the PLA notices, Mr Simpson corresponded with the Bank’s solicitors regarding the amount required to settle Mrs Propst’s obligations and  the mortgages  that  would  be discharged  upon  doing so.    I interpolate that Mrs Propst owned two other properties that were mortgaged to the Bank.   These properties  have  been  sold  and  no  issue  arises  in  respect  of  them.    Their  only relevance, for present purposes, is that the Bank advised that the mortgages over those  properties  would  be  discharged  upon  payment  of  all  amounts  owing  by Mrs Propst.  However, the Bank’s solicitors advised Mr Simpson that the mortgage over  the  Muriwai  property  secured  Mr  Hart’s  indebtedness  and  would  not  be released until that debt was paid.  There was no mention of the Waimauku property in this correspondence.

[16]     Following the expiry of the PLA notices, on 27 March 2012, Mrs Propst paid all sums due by her to the Bank, being the sum of $1,125,312.43.  This included the amount outstanding under the loan for the purchase of the Muriwai property, the balance outstanding under two separate loans to Mrs Propst in her own name, and

the sum of $352,101.43, being the limit of her liability under her guarantee of Mr Hart’s indebtedness.   The Bank discharged its mortgages over the two other properties in return for this payment but did not discharge the mortgages over the Waimauku and Muriwai properties.  The Bank contends that those mortgages secure other amounts due by Mrs Propst’s co-owners and must therefore remain in place until their obligations have been satisfied.

[17]     The  Bank  appointed  Bayleys  to  conduct  mortgagee  sales  of  all  of  the properties through a competitive tender process.  A marketing campaign commenced on 24 March 2012.   Prospective purchasers were invited to submit tenders by the tender closing date of 3 May 2012. Any offers will lapse unless accepted by 5.00 pm on 14 May 2012.

[18]     Potential buyers have been refused access to the Muriwai property. The Bank complains  that  this is contrary to  Mr Hart’s  agreement  as  part  of the standstill arrangement to co-operate in the mortgagee sale process, and is also contrary to separate written confirmation from Mrs Propst and Ms Hart that they would allow access.

[19]     The Bank’s patience is at an end.  It wishes to proceed with a sale of all of the properties.  It is not prepared to allow further time for the mortgagors to arrange the sales themselves.

Application for injunction

[20]     Mrs Propst seeks an interim injunction restraining the Bank from relying on the notice issued to her pursuant to s 119 of the PLA and from taking any steps to exercise their mortgagee power of sale over the Waimauku and Muriwai properties. The application is made on the grounds that there is a serious question to be tried as to whether:

(a)       the s 119 notice is valid;

(b)      Mrs Propst has satisfied all her obligations to the Bank; and

(c)      the  Bank  has  clogged   Mrs  Propst’s   equity  of  redemption  by wrongfully refusing to discharge the mortgage over the Waimauku property.[1]

Mrs Propst claims that the balance of convenience favours an injunction because the Bank has not yet sold the property and there will be no real detriment to the Bank if an injunction is granted.  On the other hand, she claims that damages will not be an adequate remedy for her if the injunction is not granted.

[1] Although the Muriwai property is not referred to in the application, no issue was taken by counsel for the Bank about this. Counsel proceeded on the basis that the argument, if valid, would apply to both properties.

[21]     The Bank opposes the application on the basis that it is entitled to exercise its power of sale over the entire freehold estate of both properties because secured monies remain outstanding by the other owner(s).   It claims that the PLA notices were valid and the balance of convenience does not favour the grant of an injunction.

Legal principles

[22]     The plaintiff must show that there is a serious question to be tried. The Court must consider where the balance of convenience lies and whether overall justice is best served by granting or withholding the injunction in all of the circumstances of the particular case.[2]

[2] American Cyanaphid v Ethicon Ltd [1975] AC 396 (HC).

[23]     Unless the validity of a mortgagee’s power of sale has been impeached, the normal rule is that an injunction restraining the exercise of that power will not be granted unless the mortgagor pays the amount secured by the mortgage to the court.[3]

However, there is no such requirement where the dispute concerns whether the power is exercisable at all.  In such cases, the court will consider what sum, if any,

should be paid to the court to protect the mortgagee.[4]

First issue: Is Mrs Propst entitled to a discharge of the mortgage over her interests in the properties?

[3] Parry v Grace [1981] 2 NZLR 273 (HC).

[4] Development Consultants Ltd v Lion Breweries Ltd [1981] 2 NZLR 258 (HC).

[24]     The first issue is whether the Bank retains a power of sale over the entire fee simple estate in both properties, despite full payment by Mrs Propst pursuant to her personal covenant. This turns on the proper construction of the mortgages.

Submissions

[25]     Mr Rice for Mrs Propst submitted that, although:

[T]here is only one registered mortgage instrument [over the Muriwai property], the mortgage is not a joint charge over the fee simple estate but is three separate mortgages given by three separate land holders over three separate estates in land.

...

As neither [Mr Hart] nor [Ms Hart] have any interest in the estate or share of [Mrs Propst], their granting of a mortgage security over their respective shares cannot extend to the granting of a mortgage over [Mrs Propst’s] estate.    Accordingly,  there  is  no  basis  for  the  bank’s  claim  that  their mortgages over [Mrs Propst’s] estate cannot be released until the debts of the mortgagors of the other estates in common are paid.

[26]     Mr  Rice  argued  that  Mrs  Propst  became  entitled  to  a  discharge  of  the mortgages over her share of the Muriwai and Waimauku properties upon payment of all monies due under her personal covenant.

[27]     The Bank acknowledges that Mrs Propst has paid all sums due by her under

her personal covenant.  However, Ms O’Gorman submitted that:

All of the tenants in common together granted a mortgage over all of the interests in the legal fee simple estate to secure all obligations of each of the mortgagors to the Bank, howsoever arising.   The obligations under each mortgage are expressed to be joint and several.

...

Significant amounts presently remain unsatisfied and outstanding for each property:

(a)       In   respect   of   [the   Muriwai   property]   and   the   corresponding mortgage, the amounts owed to the Bank by each of [Mr Hart] (as both borrower and guarantor and as joint mortgagor) and of [Ms

Hart] (as guarantor pursuant to [Ms Hart’s] Guarantee and as joint

mortgagor) each remain unsatisfied and outstanding; and

(b)       In  respect  of  [the  Waimauku  property]  and  the  corresponding mortgage, the amounts owed to the Bank by [Ms Hart] (as guarantor pursuant to [Ms Hart’s] Guarantee and as joint mortgagor) remain unsatisfied and outstanding.

Therefore, in the present circumstances of default, the Bank is entitled to exercise its power of sale in respect of the entirety of each property (i.e. all interests in the freehold estate), and then to apply the proceeds of sale to give effect  to  the  statutory  order  of  priority  and  the  specific  arrangements between the parties (including any relevant limitations of liability not provided for in the mortgage itself).

...

[U]pon completion of the sale ... the Bank will account for Mrs Propst’s respective beneficial share of the proceeds of sale of such properties ... This approach will produce an economic result in respect of the proceeds of sale consistent  with  the  limitations  on  liability  included  in  Mrs  Propst’s Guarantee.

[28]     Ms O’Gorman submitted that there is no defect in the s 119 PLA notices which set out the amount for which Mrs Propst was personally liable and the further amount that would have to be paid to remedy the default and avert a mortgagee sale of each property.

Discussion

[29]     The mortgages are in similar terms.  Although they are not identical, there is no material difference for the purposes of the present dispute.   I will address the terms  of  the  Waimauku  Mortgage  before  making  brief  observations  about  the Muriwai Mortgage.

The Waimauku Mortgage

[30]     The mortgage over the Waimauku property was executed on 19 December

1996.  It is an ‘all obligations’ mortgage, securing the payment of “Secured Money”,

which is broadly defined in clause 1.1 and includes:

(a)       All  moneys  advanced,  credited,  paid  over  or  otherwise  made available, lent, and all other banking accommodation or financial assistance provided, by the Bank, directly or indirectly, to the Mortgagor or to any other Person on behalf or at the request or

direction of the Mortgagor in any way whatsoever before, upon, or after the execution of this Mortgage and all principal, interest, fees, costs, losses and expenses or other moneys or liabilities payable to or in favour of or incurred by the Bank in respect thereof; and

...

(d)       All moneys which are or may become due, owing, or payable on or in respect of any guarantee, indemnity or other obligation (express or implied) given or undertaken to the Bank by the Mortgagor or by the Bank to any Person on behalf of, or at the request or direction of, the Mortgagor;

...

[31]     Clause 1.2 provides:

The moneys, liabilities and obligations described in Clause 1.1 are in all cases to be regarded as Secured Money whether or not: ...

(c)       They relate to the Mortgagor alone or (where there is more than one Person comprising the Mortgagor) to any one or more of such Persons and in any such case either jointly or together with any other Person.

At the time the mortgage was granted, the only “Secured Money” was the Bank borrowing required for the purchase of the property.  As noted, that borrowing was fully  repaid  in  2003,  but  a  discharge  was  not  sought.    That  was  long  before Mrs Propst signed the limited liability guarantee on 20 March 2006, but monies payable by Mrs Propst under the guarantee came within the definition of “Secured Money” in the mortgage.

[32]     The “Mortgagor” is shown on the face page of the Mortgage as “Audrey Elizabeth  Propst  of Auckland, Widow  as  to  two-thirds  share  and  Susan  Denise Thomson,[5] Farmer of Auckland as to one-third share as tenants in common in these said shares”. The Mortgage provides that:[6]

[5] Ms Hart is referred to as Susan Denise Thomson in this document.

[6] Clause 35.4 of the Mortgage.

Where the Mortgagor comprises more than one Person:

(a)       The obligations and liabilities of each such Person under this Deed shall be joint and several; and

(b)       Each reference in this Deed to the Mortgagor (including without limitation in Clause 1) shall be read and construed as extending to a reference to each such Person individually, or to any combination of

any two or more of such Persons (in any legal relationship, whether joint or otherwise), or to both.

[33]     The operative clause is as follows:

IN CONSIDERATION of the Bank ... the Mortgagor hereby –

(a)       COVENANTS AND AGREES with the Bank as set out in Parts I and II of this mortgage; and

(b)       To secure the payment to the Bank of the Secured Money (as defined in this Mortgage),  Mortgages  to  the  Bank  or  the  estate  and  interest  of  the Mortgagor in the Land as defined in this Mortgage.

[34]     The “Land” is defined as the fee simple estate in CT 97D/642 comprising

40.424 hectares.

[35]     Clause 5 of the Mortgage provides:

The Mortgagor shall duly and punctually perform and observe all the terms and conditions of each and every Loan Agreement and every other deed, agreement, guarantee, indemnity, or other obligation entered into or undertaken by the Mortgagor at any time or times with or in favour of the Bank.

[36]     I  note  in  passing  that  the  face  of  the  mortgage  document  records  the “Collateral Securities” as “Nil”.  Clause 23 of the Mortgage, which provides that it secures the same monies as are intended to be secured by the Collateral Securities, therefore has no application.

[37]     Clause 13 provides:

13.1Subject to the rights of any mortgagee under any prior mortgage, so long as any Secured Money remains owing under this mortgage, the Bank shall be entitled to retain custody of all documents of title to the Land.

13.2The Bank shall not be compelled to produce this mortgage or the documents of title to the Land in any Land Registry Office or elsewhere whilst the Mortgagor is in default under this mortgage ...

[38]     Clause 12.1(f) provides that the Bank may call up the “Secured Money” if:

Any Secured Money is not paid to the Bank on the date upon which it is due and payable pursuant to this Mortgage and/or pursuant to any Loan Agreement or other agreement, guarantee, indemnity, deed, or other obligation in writing between the Bank and the Mortgagor and/or pursuant to any other agreement by or obligation of the Mortgagor or any other Person.

[39]     The Bank’s power of sale is set out in clause 15 which, relevantly, provides:

15.1      If:

(a)       Default  it  made  by  the  Mortgagor  in  payment  of  any  Secured Money to the Bank after demand for payment has been made by the Bank in accordance with this mortgage; or ...

then, it shall be lawful for the Bank to sell the Land and exercise the power of sale ...

[40]     Mr Rice is undoubtedly correct when he says that only Mrs Propst could grant a power of sale over her separate estate.  However, she and Ms Hart together owned the entire fee simple estate.  Together, they were able to grant a power of sale over that entire estate.   The question is whether they did so; and if so, in what circumstances that power became exercisable by the Bank.   As I have said, the answer to these questions depends on the proper construction of the mortgage.

[41]     “Secured Money” includes moneys due under any guarantees given by the “Mortgagor”.  Such moneys are “Secured Money” whether or not they relate to any one or more of the Mortgagor(s).   In this case, the “Mortgagor” comprises both Mrs Propst and Ms Hart and all references to the “Mortgagor” in the mortgage are to be read as referring to each, or both, of them.

[42]     Mrs Propst and Ms Hart as “Mortgagor” mortgaged “to the Bank all the estate and interest of the Mortgagor”, which comprised Mrs Propst’s and Ms Hart’s separate estates, being the entire fee simple estate in CT 97D/642 (“the Land”).

[43]     Mrs Propst and Ms Hart granted the Bank power to sell the Land if default was made by the Mortgagor (Mrs Propst or Ms Hart, or both) in payment of any “Secured Money”.  Ms Hart has defaulted in paying monies due under her guarantee. Those moneys are “Secured Money”.  This triggered the Bank’s power of sale of the Land.

[44]     The Muriwai Mortgage was executed on 10 April 2007.   It describes the Mortgagor as “Barry John Hart, Susan Denise Hart and Audrey Elizabeth Ann Propst as tenants in common in equal shares”.  The estate or interest mortgaged is the fee simple estate in all of the land in Certificate of Title NA21A/627.

[45]     As noted, the terms of this mortgage are, in all material respects, to the same effect as the terms of the Waimauku mortgage.  I therefore do not need to set out the comparable provisions in this mortgage.   The analysis and the conclusion are the same.  Default by any of the mortgagors enables the Bank to exercise its power of sale over the entire fee simple estate.  Mr Hart and Ms Hart have both defaulted, and the power of sale has accordingly been triggered under this mortgage as well.

Conclusion

[46]     I conclude that Mrs Propst has failed to make out an arguable case on this ground of her application.  Although she has paid all monies due by her to the Bank, she is not entitled to require a discharge of either mortgage over her interest in the properties.

Second issue: Was the s 119 PLA notice valid?

Submissions

[47]     Mr Rice submitted that  the s 119 PLA notice was defective and invalid because it grossly overstated the amount required from Mrs Propst to remedy the default.  He also submitted that the interest claimed was “overly difficult to calculate with accuracy”.

[48]     Ms O’Gorman submitted that the notice, read with other notices served on Mrs Propst at the same time, adequately informed her of the nature and extent of the default and the action required to remedy the default.

[49]     No mortgagee may exercise a power to sell mortgaged land unless the default relied on has not been remedied following the expiry of a notice served on the mortgagor under s 119 of the PLA.  The notice must comply with the requirements of s 120 of the PLA and must adequately inform the mortgagor of the nature and extent of the default, the action required to remedy the default, the period within which the default must be remedied, and the consequences if it is not remedied. Minor errors will not invalidate the notice.   The essential requirement is to “adequately inform” the mortgagor of these matters.

[50]     A copy of the notice must also be served on other interested parties, as listed in s 121, including any former mortgagor or covenantor.  This is so that they receive notice of the pending sale and have the opportunity to take steps to protect their position, including by remedying the default, if they wish.

[51]     No issue is taken in this case with three of the four requirements for a valid notice: the nature and extent of the default, the period within which the default had to be remedied and the consequences if it was not remedied.  The statement of claim focuses solely on whether the notice adequately informed Mrs Propst of the action required to remedy the default.

[52]     The  s  119  PLA notice  served  on  Mrs  Propst  in  respect  of  the  Muriwai Property was dated December 2011, but the day was not inserted.  The notice was served on 20 December 2011.   It contains a section headed “DEFAULT”, which commences:

As at the date of this notice, you are in default under the Mortgage in that you have failed to pay:

TO THE MORTGAGEE

The sum of $4,244,986.76 being the amount owing by you pursuant to the guarantee and indemnity dated 20 October 2006 provided by you in respect of the obligations of  BARRY JOHN HART (the  “Guarantee”)  in  favour  of the Mortgagee  and secured by the Mortgage subject to the limitation of your liability in accordance with the terms of the Guarantee such that demand is hereby by [sic] made on you for immediate payment of an amount of $335,700.00, without set-off or deduction.

Formal demand dated 5 August 2011 had been issued by the Mortgagee to you as guarantor and this demand has not been satisfied.

The total amount owing by you to the Mortgagee pursuant to the Guarantee as at

14 December 2011 is made up as follows: ...

[53]     The  demand  went  on  to  show  the  total  outstanding,  calculated  as  at

14 December 2011, under each of the four facilities provided to Mr Hart.  In all but one instance, the outstanding balance was broken down into principal and interest. However, in respect of a home loan agreement, the amount was simply described as “arrears”.    The  total  outstanding  under  all  of  the  facilities  as  at  that  date  was

$4,244,986.76.   This sum was referred to as “GUARANTOR SUB-TOTAL”.   Mrs

Propst  further  owed  $133.11  for  interest  arrears.    The  total  of  these  sums  was

$4,245,119.87 and was referred to in the notice as “BORROWER SUB-TOTAL”.

[54]     This  “DEFAULT” section  of the notice is  followed  by a section  headed “ACTION REQUIRED TO REMEDY DEFAULT”.  This is the section which Mrs Propst claims is defective.  It provides as follows:

You are hereby required to remedy the specified default(s), or to cause the default(s)

to be remedied, by payment:

To the Mortgagee:

(a)       the sum of  $335,700.00 in  cleared funds in respect  of your  liability as guarantor under the Guarantee (being your liability for the GUARANTOR SUB-TOTAL set out above but limited in accordance with your Guarantee);

(b)      the sum of $133.11 in cleared funds;

(c)       interest in respect of the amounts outstanding at the rates specified below from 14 December 2011 until the date payment is made in cleared funds:

(i)        5.74% per annum in respect of all amounts outstanding pursuant to the Fixed rate home loan agreement dated 13 March 2006;

(ii)       the following variable interest rates, being as at the date of this notice, as set out below and as each as may vary from time to time in accordance with terms of each of the relevant facility agreements:

[the relevant rate was then specified for each of the four

facilities and claimed on the “balance outstanding”]

(iii)      the applicable floating interest rates as determined and reviewed by the Mortgagee on a monthly basis (by reference to the 1 month BKBM rate plus a margin of 1.80% per annum) in accordance with

terms  of each relevant MCL facility agreement.   The  applicable floating interest rates as at the date of this notice are:

[these were set out for each of the two interest only loan facilities]

and

(d)      [costs]

[55]     The notice served on Mrs Propst in relation to the Waimauku Property was similarly dated “December 2011”, but the day was not inserted. This notice was also served  on  20  December  2011.    It  describes  the default  in  the same way.   The “BORROWER SUB-TOTAL” is again shown as $4,245,119.87.  The section headed “ACTION REQUIRED TO REMEDY DEFAULT” is the same.

[56]     Similar notices were served on Ms Hart.  The notice served on Ms Hart also referred to the agreed limit of liability under her guarantee.  Mr Hart was served with a notice in respect of the Muriwai Property only.

[57]     Mr Hart is a “Mortgagor” in respect of the Muriwai Property.  The default by the “Mortgagor” under that mortgage includes his default.  There is no suggestion that  the  Bank  made  any  error  in  calculating  his  outstanding  liability  as  at

14 December  2011  as  being  $4,244,986.76,  nor  is  there  any  suggestion  that Mrs Propst  was  separately liable  for an  additional  $133.11.    It  follows  that  the default was correctly stated.  Mr Rice did not suggest otherwise.

[58]     However,  the  stated  action  required  to  remedy  the  default  is  plainly insufficient to do so.  Self-evidently, a default in payment of $4,245,119.87 cannot be remedied by paying $335,700.00 plus $133.11 and interest on the four facility agreements from 14 December 2011 until payment.

[59]     By taking the opportunity to make a demand under the guarantees in the notice,  the  Bank  has  confused  the  default  under  the  mortgage,  which  includes Mr Hart’s default as mortgagor, with Ms Hart’s and Mrs Propst’s liabilities under their personal covenants in the limited guarantees.  Their respective exposures under these guarantees are not the same as the mortgagor default.

[60]     Further, the notice required payment of interest from 14 December 2011 until the date of payment.  In my view, there are two problems with this part of the notice. First, the Bank did not supply sufficient information to enable the interest to be calculated.   In relation to one of the facilities, the outstanding balance was not broken down between principal and interest.  No information was supplied as to the changes to the outstanding balances since 14 December 2011.  Mrs Propst would not know from the notice what changes to the variable interest rates might occur. Secondly, in requiring interest to be paid up to the date of payment, the Bank has purported to require payment of amounts not due at the date of the notice.  In my view, this is not permissible.   The purpose of the notice is to state the amount

required to remedy the default[7]  and allow the time provided under the Act for this

default to be remedied.  In my view, the notice was defective for these reasons.

[7] Where non-payment is the default relied on.

[61]    In relation to the Waimauku property, the default appears to have been overstated.  Mr Hart was not a mortgagor in respect of that property.  The “Secured Money” was confined to the amounts due by Ms Hart and Mrs Propst under their guarantees (plus the $133.11 due by Mrs Propst).  The Bank calculated that the limit of Mrs  Propst’s  liability under her  guarantee  was  $335,700.00  and  the limit  of Ms Hart’s liability was $1,566,600.00.  As noted, the Waimauku mortgage did not secure  monies  due  under “Collateral  Securities”,  because  “Collateral  Securities” were shown on the face page as “Nil”.

[62]     Accordingly, the default in respect of the Waimauku property consisted of the failure of both Ms Hart and Mrs Propst to pay the monies they owed under their respective guarantees, together with the sum of $133.11 owed by Mrs Propst.  Rather than setting out that default, the Bank has detailed Mr Hart’s default under his personal borrowings in the “DEFAULT” section of the notice.   Mr Hart is not a mortgagor of this property.  His default in payment to the Bank is not a default under this mortgage.   The default under the mortgage relates only to the monies due by Ms Hart and Mrs Propst.

[63]     Again, the Bank took the opportunity in the notice of making demand on each of Mrs Propst and Ms Hart for the limit of their respective liabilities under their

guarantees.   The notices served on each of them therefore required payment of different sums.  The default under the mortgage was the combination of these sums, not the amount owed by Mr Hart as detailed in the “DEFAULT” section of the notice.

[64]     The action required to remedy the default was said to be, in the case of Mrs Propst,  the  amount  due  under  her  guarantee  plus  interest  on  Mr  Hart’s borrowings and, in the case of Ms Hart, the amount due under her guarantee plus interest on Mr Hart’s borrowings.  The correct position was that the default under the mortgage was the amount due under both of the limited guarantees, not the amount owed by Mr Hart, or the limited sum due under only one of the guarantees.  Rather than  requiring  this  default  to  be  remedied,  the  notice  required  payment  of  the separate sum guaranteed by each recipient plus interest on Mr Hart’s debts from

14 December 2011 until repayment.  The notice is defective for this reason, and for the further reason that it is not possible to calculate the amount due from the information supplied.

Conclusion

[65]     Counsel agreed that all relevant facts, including as to context, have been provided to the Court and that no further relevant information would be available for the trial judge.  They agreed that an injunction should be issued if I found that the s 119 notices were invalid.  For the reasons given, I have concluded that the notices are invalid and therefore the overall justice of the case requires me to grant an interim injunction restraining the Bank from proceeding with the mortgagee sales in reliance on the s 119 PLA notices it has served.  It is therefore not necessary for me to go on to consider the balance of convenience.  Further, because the Bank’s right to proceed with the sale has been impeached, I do not consider that Mrs Propst should be required to pay any sum into Court as a condition of the issue of an injunction.

[66]     Mr Rice sought costs on a 2B basis in the event that the injunction is granted. Mr O’Gorman submitted that costs in that event should be reserved.  I consider that costs should follow the event in this case.

Result

[67]     The plaintiff ’s application for an interim injunction is granted in the terms sought in paragraph [1](a) of her application dated 1 May 2012.

[68]     The plaintiff is entitled to costs on this application on a 2B basis.

M A Gilbert J