Scargetta v ASB Bank Limited
[2023] NZHC 2413
•1 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000198
[2023] NZHC 2413
BETWEEN ELLIOT DANIEL SCARGETTA
Plaintiff
AND
ASB BANK LIMITED
Defendant
ANDREW JOHN HAWKES and VIVIAN JUDITH FATUPAITO
Second Defendants
Hearing: 2 August 2023 Appearances:
Plaintiff in Person
A E Simkiss / J J K Spring for the Defendants
Judgment:
1 September 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 1 September 2023 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
MinterEllisonRuddWatts, Auckland
SCARGETTA v ASB BANK LTD [2023] NZHC 2413 [1 September 2023]
Introduction
[1] In 2017 this Court entered summary judgment for ASB Bank Limited (ASB) against Mr Sgargetta in reliance on an unlimited deed of guarantee and indemnity he had given for loans made by ASB to Sleep Overs Limited (in receivership and liquidation) (Sleep Overs).1 The judgment was for the shortfall between the outstanding loans and the net proceeds of the mortgagee sales of two properties over which ASB had security.
[2] Mr Sgargetta resisted summary judgment on various grounds, including that it was reasonably arguable that ASB was liable for the sale of the two properties at an undervalue. The Court rejected that argument and others put forward by Mr Sgargetta.
[3] Mr Sgargetta appealed. The Court of Appeal dismissed Mr Sgargetta’s appeal, finding that there was no sufficiently tenable defence that the properties were sold at an undervalue.2 The Court of Appeal also found that there was insufficient evidence to establish that Mr Sgargetta’s other defences were reasonably arguable.
[4] In February 2022, Mr Sgargetta filed this proceeding against ASB and the receivers of Sleep Overs. In the statement of claim he claims, across three causes of action, that:
(a)ASB and/or the receivers sold the properties at an undervalue in breach of their statutory duties to obtain the best obtainable price; and
(b)ASB represented, promised, or impliedly agreed to facilitate syndication of the properties by Sleep Overs, and then inhibited the syndication process.
[5]In each case Mr Sgargetta claims relief in the form of damages of over
$1 million.
1 ASB Bank Ltd v Sgargetta [2017] NZHC 3097 [HC judgment].
2 Sgargetta v ASB Bank Ltd [2021] NZCA 459 [CA judgment].
[6] ASB now applies to strike out all the causes of action as they relate to ASB, or alternatively for defendant summary judgment. If the Court declines to strike out all the causes of action or enter summary judgment, ASB seeks an order for security for costs against Mr Sgargetta in the amount of $150,000.
[7] ASB maintains that this Court and the Court of Appeal considered and determined the issues raised by Mr Sgargetta in his statement of claim, and his attempt to relitigate the same claims is an abuse of process. Alternatively, ASB claims that Mr Sgargetta has not pleaded any facts to support his claims. ASB also submits that Mr Sgargetta does not have standing to bring the second cause of action, which lies with Sleep Over.
[8]The issues are:
(a)Are all claims relating to an alleged sale at an undervalue barred because this Court and the Court of Appeal have already determined that issue against Mr Sgargetta?
(b)Is the syndication claim barred by issue estoppel, or does the statement of claim fail to disclose a reasonably arguable cause of action?
(c)Does Mr Sgargetta have standing to bring the second cause of action?
[9] To the extent that any cause of action survives the strike-out/summary judgment applications:
(a)Is there reason to believe Mr Sgargetta will be unable to meet an award of costs?
(b)Is it appropriate for an order for security for costs to be made?
(c)How much security is appropriate?
Background facts
[10] The essential facts that follow are largely taken from the Court of Appeal’s judgment.3
[11] Mr Sgargetta was the sole director of three New Zealand companies (Sleep Overs Limited, Evergreen Lodge Limited (Evergreen), and Remarkables Lodge Limited (Remarkables) (together, the Companies). Sleep Overs owned and operated two Queenstown accommodation lodges (the Secured Properties).4 The lodges are called Evergreen Lodge and Remarkables Lodge.
[12] ASB advanced a total sum of $3,452,625 under three facility agreements to Sleep Overs.
[13] The security for the loans was an unlimited cross guarantee and indemnity from Mr Sgargetta, Remarkables and Evergreen (the Guarantee) and mortgages over the Secured Properties. The loans fell into default in April/May 2015.
[14] ASB advised Sleep Overs and Mr Sgargetta that the unarranged loan excesses must be cleared before any restructure of the facilities could be considered.
[15] In August 2015, ASB formally gave notice of default. On 21 September 2015, ASB served notices under the Property Law Act 2007 (PLA) on the Companies and Mr Sgargetta. These expired unremedied.
[16] On 8 September 2015, Sleep Overs appointed Ray White Real Estate (Ray White) to market the Secured Properties. Sleep Overs was unable to achieve a sale.
[17] ASB took no steps in 2015 in reliance upon the expired PLA notices, other than obtaining valuations and marketing appraisals, and appointing Bayleys Realty Group (Bayleys). On 31 December 2015, ASB’s solicitors instructed Bayleys to market and sell the Secured Properties for sale by mortgagee.
3 CA judgment, above n 2.
4 28 Evergreen Place, certificate of title OT3A/1339 (Evergreen Lodge); and 595 Kingston Road, certificate of title OT14D/45 (Remarkables Lodge): affidavit of Stuart Dunlop, dated 12 April 2017.
[18] On 4 February 2016, ASB appointed Andrew Hawkes and Vivian Fatupaito of KPMG as receivers (Receivers). The Receivers terminated Ray White’s agency on 15 February 2016.
[19] On 19 February 2016, the Receivers served further PLA notices on the Companies and Mr Sgargetta which expired unremedied.
[20] A tender process was selected by the Receivers, and they decided to keep the Secured Properties trading and sell them as going concerns. They appointed Bayleys to conduct the campaign.
[21] On 22 April 2016, the Receivers, having conducted a four-week marketing campaign, sold the Secured Properties. There was a shortfall of $588,134.81 following the sale of the Secured Properties, plus interest and costs.
[22] The Companies were placed into liquidation on 15 September 2016. They have been removed from the Register.
[23] ASB commenced summary judgment proceedings against Mr Sgargetta in April 2017. In a judgment dated 13 December 2017, the High Court granted ASB summary judgment.5
[24] Mr Sgargetta appealed the High Court decision. While he was unrepresented in the High Court, Mr Sgargetta obtained legal aid and was represented by counsel at the Court of Appeal.
[25] In a judgment dated 10 September 2021, the Court of Appeal dismissed Mr Sgargetta’s appeal.6
[26] This proceeding was filed in February 2022. Mr Sgargetta served ASB in January 2023.
5 [HC judgment], above n 1.
6 [CA judgment], above n 2.
Legal principles
Strike-out
[27] The Court’s power to strike out a cause of action is provided by r 15.1(1) of the High Court Rules 2016 (Rules). It provides:
(1)The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
[28] The principles applying to strike out applications involving no reasonably arguable cause of action are:7
(a)Pleaded facts are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b)The cause of action or defence must be clearly untenable. The court must be satisfied that it cannot succeed.
(c)The jurisdiction is to be exercised sparingly and only in clear cases.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.
(e)The court should be particularly slow to strike out a claim in any developing area of the law.
7 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33]; Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
[29] The Court’s ability to strike out all or part of a pleading under r 15.1(1)(d) of the Rules because it is an abuse of process has been held to extend to attempts to re- litigate matters already determined,8 and duplicate proceedings.9
[30] ASB relies on the principles of res judicata and issue estoppel. The Court of Appeal in Shiels v Blakely defined the res judicata principle as follows:10
… where a final judicial decision has been pronounced by a New Zealand judicial tribunal of competent jurisdiction over the parties to, and the subject- matter of, the litigation, any party or privy to such litigation, as against any other party or privy thereto, is estopped in any subsequent litigation from disputing or questioning the decision on the merits.
[31] Issue estoppel is a species of estoppel based on the maxim of res judicata. A party is precluded from contending the contrary on any precise point (whether of fact, law or both) which, having been distinctly put at issue, has been determined against that party.11 An issue estoppel must be founded on determinations which are fundamental to the decision and without which it cannot stand.12
[32] A related principle is that parties are required to bring forward their whole case and cannot later attempt to relitigate the same subject on a different basis:13
[16] … Res judicata applies where a cause of action has been determined in earlier proceedings between the same parties or their privies –– cause of action estoppel. The doctrine prevents re-litigation of the same cause of action in any subsequent proceedings….
[17] A related principle is that the parties are required to bring forward their whole case and will generally be prevented from later attempting to re- open the same subject on a different basis. This principle was first recognised by Wigram V-C in Henderson v Henderson:14
8 Jessica Gorman (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR15.1.05(2)], citing Hunter v Chief Constable of West Midlands Police [1982] AC 529 (HL) at 541; and Collier v Butterworths of New Zealand Ltd (1997) 11 PRNZ 581 (HC) at 586.
9 At [HR15.1.05(2)], citing Otis Elevator Co Ltd v Linnel Builders Ltd (1991) 5 PRNZ 72 (HC); and Cowley v Shortland Publications Ltd (1991) 5 PRNZ 76 (HC).
10 Colin Fraser The Laws of New Zealand Estoppel (online ed) at [20]; Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.
11 K R Handley Spencer Bower and Handley Res Judicata (5th ed, LexisNexis, London, 2019) at [1.01]–[1.06].
12 Siemer v Chief Justice HC Auckland CIV-2009-404-8435, 22 August 2011 at [5]–[9]; Collier v Butterworths of New Zealand Ltd (1997) 11 PRNZ 581 (HC) at 586.
13 Craig v Stringer [2020] NZCA 260. See also Contact Energy Ltd v Attorney-General [2009] NZCA 351 at [85]–[87].
14 Henderson v Henderson (1843) 3 Hare 100, 67 ER 313 (Ch) at 115.
[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.
…
[19] Lord Sumption explained the juridical difference between the doctrine of res judicata and the Henderson v Henderson principle in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [Virgin Atlantic v Zodiac]:15
Res judicata is a rule of substantive law, while abuse of process is a concept which informs the exercise of the court’s procedural powers. In my view, they are distinct although overlapping legal principles with the common underlying purpose of limiting abusive and duplicative litigation. That purpose makes it necessary to qualify the absolute character of both cause of action estoppel and issue estoppel where the conduct is not abusive.
Defendant summary judgment
[33]Rule 12.2(2) of the Rules provides:
The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[34] Master Venning (as he then was) summarised the effect of the rule in Ferrymead Tavern Ltd v Christchurch Press Co Ltd, drawing upon the commentary in McGechan on Procedure:16
…an application for summary judgment by a defendant is similar to a striking- out application except the defendant has to show that all of the plaintiff’s causes of action cannot succeed. The major difference between an application for summary judgment and a strike-out application is, of course, that a defendant making an application for summary judgment may put evidence before the Court by way of affidavit. If that evidence is disputed or is insufficient to satisfy the Court then the matter will have to proceed to a full hearing. The onus is on the defendant to satisfy the Court the plaintiff has no arguable answer to the defence raised.
15 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160 at [25].
16 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616, [1999] NZAR 529 (HC) at [11]. See also Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32]–[35].
[35] More recently, the Supreme Court has emphasised that this is a heavy onus on the defendant, observing that a defendant should apply for summary judgment only “where there is a complete and incontrovertible answer on the facts (in which case summary judgment may be entered for the defendant)”.17
[36]However, as with plaintiff applications for summary judgment,18 this Court:19
…will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable…
Are all claims relating to an alleged sale at an undervalue barred?
[37] Mr Sgargetta’s first cause of action is that ASB breached its statutory duty under s 176(1)(c) of the Property Law Act 2007 to obtain the best price reasonably obtainable. Specifically, Mr Sgargetta claims that ASB:
(a)undermined a timely sale at higher prices that was then achievable using a voluntary sale process, without proper justification;
(b)(through Bayleys as its agent) gave price indications and released lower valuations to prospects which drove down offers;
(c)marketed the sale in a way that created “fire sale” expectations.
[38] Mr Sgargetta claims that ASB’s conduct affected the sales process adopted by the Receivers, causing the Secured Properties to be sold at undervalue. He claims that had the proper market value been achieved, there would have been a surplus from the sale of the Secured Properties to be paid to Sleep Over. Consequently, he claims, ASB’s breach of duty caused him loss.
17 Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 at [4], as cited in Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32].
18 Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [35].
19 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[39] ASB submits that this ‘sale at an undervalue’ cause of action rests precisely on the primary claims advanced in the summary judgment proceeding and decided by the Court of Appeal. It says the principle of res judicata applies and Mr Sgargetta is estopped from advancing this cause of action.
[40] Mr Sgargetta submits that his present ‘sale at an undervalue’ claim was not decided by the High Court or Court of Appeal. There are several aspects to his submission. First, that Woodhouse J did not decide his ‘sale at an undervalue’ claim. Second, that the Court of Appeal considered the bank’s actions in terms of a potential breach of duty, whereas Mr Sgargetta now characterises ASB’s actions as misconduct or misleading conduct. Third, and this is his central submission, his claim now centres around ASB’s release of low valuations to potential buyers during the marketing campaign which he says caused buyers to lower their offers. He submits that the bank’s release of these valuations was not a focus in his opposition to summary judgment and therefore was not “fully ventilated and determined” by the High Court or Court of Appeal. Relatedly, he says that there is fresh evidence on this issue that was not before the High Court or Court of Appeal. Fourth, Mr Sgargetta intends to file an application for discovery against ASB and the Receivers. Fifth, Woodhouse J refused to consider evidence he had filed in the High Court and this evidence was not before the Court of Appeal either.
[41] To assess these submissions, it is necessary to review Mr Sgargetta’s grounds for opposing summary judgment, the basis for the High Court’s decision, his grounds for appeal, and the Court of Appeal judgment.
[42] Mr Sgargetta advanced his claim that the Secured Properties were sold at an undervalue in his second and fourth grounds of opposition to ASB’s application for summary judgment. His second ground of opposition was that ASB marketed the lodges before the Receivers were appointed in a way that was reckless, negligent, or unconscionable and this conduct adversely affected the value of the properties. His fourth ground of opposition was that ASB was liable for the sale of the lodges by the Receivers at an undervalue.
[43] As Mr Sgargetta correctly notes, these claims were not assessed in the High Court, because Woodhouse J found that as a matter of law, being counterclaims, they could not be raised as a defence to ASB’s application for summary judgment.20 Further, that Mr Sgargetta was prevented from raising the claims by way of set-off, because of a provision in the guarantee which precluded a claim of set-off, and counterclaim, in response to the creditor’s claims.
[44] However, Mr Sgargetta’s case was reframed in the Court of Appeal, where he was represented by counsel. Ms O’Gorman for Mr Sgargetta identified that the key ground of appeal was ASB’s liability for the sale at an undervalue, and whether the liability could be advanced as a reasonably arguable defence to a claim for the shortfall.21 Ms O’Gorman identified three issues arising out of that ground:
(a)Was the High Court correct, as a matter of law, to conclude that Mr Sgargetta’s arguments amounted to counterclaims and/or were precluded by a “pay now, argue later” clause so they could not form a basis of refusing summary judgment?
(b)Was the High Court correct, as a matter of law, to conclude that ASB could not validly be a defendant for any alleged breach of the statutory duty of care in conducting the forced sales, because the sales were completed by the Receivers?
(c)If the above questions are answered in the negative, are there any reasonably arguable issues as to the way in which the properties were sold?
[45] The Court of Appeal noted that the High Court’s findings on the law meant that it did not need to engage with the substance of the argument regarding sale at an undervalue.22 The Court of Appeal considered it preferable to start with that issue. Therefore, the Court of Appeal considered the following question:
20 HC judgment, above n 1, at [33(f)], [37] and [38].
21 CA judgment, above n 2, at [26].
22 At [34].
Is there a tenable argument that ASB breached its duties leading to the properties being sold at an undervalue?
[46]The Court first recorded Mr Sgargetta’s claim as summarised by his counsel:23
By the end of 2015/early 2016, Ray White for the debtor was already in the concluding phases of a voluntary sale process. The appellant has evidence to support his allegation that from at least January 2016 onwards Bayleys (as ASB’s agent) wrongly created fire sale price expectations with potential buyers (including giving price indications in the $1 millions, compared with price indications Bayleys gave in the $3 millions some six months later when acting as agents on sale). The case is that potential purchasers would have offered higher (market) prices if Ray White had reasonably been permitted to conclude its own process in early 2016 (under bank oversight), or if Bayleys had not wrongly and detrimentally affected price expectation. The causative impact of those detrimental price expectations continued when Bayleys remained agents (this time on a sole agency basis) after the appointment of the receivers. Nothing in the receivers’ sale process broke that chain of causation (i.e. restored expectations to the pre-existing commercial levels); the ultimate purchasers remained those sourced by Ray White. The sale prices achieved have not been properly reconciled with the expert opinions as to value, nor the prices sought by Bayleys, when the purchasers on-sold the properties.
[47] The Court then proceeded to analyse each ‘strand’ of this argument. The Court described evidence Alan Lethbridge, former manager of Emerald Lodge and casual real estate agent for Ray White, gave for Mr Sgargetta. Mr Lethbridge gave evidence that several potential buyers identified by Ray White lost interest in the properties after seeing Bayleys’ sale process. The Court recorded that reliance was placed on an email from Mr Lethbridge referring to a purchaser wanting to submit $400,000 less than previously offered, and a letter Mr Lethbridge wrote to Sleep Overs on 8 December 2015 stating that he had three sale and purchase agreements out to prospective buyers, and expressing concern that Bayleys would proceed with their mortgagee marketing “over the time most critical to my potential negotiations”.24 The Court concluded that none of this evidence showed a tenable claim that potential buyers were lost because of Bayleys’ marketing campaign.25
[48] In terms of the complaint that Bayleys created fire sale expectations by indicating to interested purchasers that the price was in the low $1 millions, Mr Sgargetta sought to rely on an email from an individual named ‘Paul’ to Mr
23 At [39].
24 At [44].
25 At [45].
Lethbridge to substantiate that concern. The Court of Appeal concluded that the statement in the email from ‘Paul’ was not sufficiently reliable to form the basis of a tenable defence.
[49]The discussion at [57]–[60] of the judgment is critical to the present issue:
[57] The receivers had to negotiate clean tenders for each property. The actual sales prices achieved were $1.85 million for the Remarkables lodge and
$1.93 million for the Evergreen lodge. Both included chattels. The valuations undertaken by Mr Jarvis in November 2015 for the Remarkables and Evergreen lodges were $1.85 million and $2 million (both including chattels), respectively, and the forced sales values were $1.58 million and $1.78 million (both excluding chattels), respectively. Importantly, the actual sales prices were in the vicinity of the valuations and exceeded the forced sales values.
[58] The sales prices achieved were also very close to the anticipated offers of $2 million for each property, which Mr Lethbridge said were ready to be made on 10 March 2016, and the offer of $2.16 million for the Evergreen lodge received by Ray White in July 2015. That evidence suggests that the prices obtained were true market values for the properties at the time.
[59] Evidence from late 2015 and 2016 is a better comparator than valuations obtained from 2013 and 2014, which were not proximate to the sales date. We also do not consider any weight can be put on emails sent six months after sale in which the price expectations for each property were set at a minimum of $3 million. These emails are not indications of value but are simply reflective of the hopes and expectations of the owners of the lodges at the time. Similarly, the fact that each lodge sold for $2.7 million on 19 October 2017, nearly 18 months after sale, cannot be compared to the sales achieved by the receivers. The obligation to obtain the best price reasonably obtainable is assessed at the time of sale.
[60] The upshot of all this evidence is that we do not consider there to be a sufficiently tenable defence that ASB’s marketing strategy, prior to the appointment of the receivers, was flawed and led to the properties being sold at an undervalue. Nor is there a reasonably arguable case that the receivers’ sales process was a continuation of the prior process or that ASB (via Bayleys) was so involved with that process so as to be liable for any breach by the receivers. Finally, to the extent that there was any flaw in any of the sales processes, we do not consider there to be a tenable claim that these lead to the properties being sold at an undervaluation.
[50] It is indisputable that the issue of whether ASB caused the Secured Properties to be sold at an undervalue by actions it took during the marketing process was squarely before the Court of Appeal. The Court of Appeal held, after reviewing the evidence before it, including the valuations, offers and sale prices described, that there was no tenable case that ASB’s marketing strategy was flawed and led to the properties being sold at an undervalue.
[51] I am mindful however that this decision was not reached following a full trial on the merits of Mr Sgargetta’s ‘sale at an undervalue’ claim. Rather, it was an appeal against the entry of summary judgment against Mr Sgargetta. The Court of Appeal decided, based on the evidence filed in that summary context, that the evidence did not establish a tenable case that ASB’s marketing strategy was flawed causing the properties to be sold at an undervalue.
[52] It is necessary therefore to consider closely the particulars for the claim now pleaded by Mr Sgargetta, and the ‘fresh evidence’ he describes to support that claim, to determine whether he is estopped from advancing it now, either because the Court of Appeal has already decided the claim; or it is a claim he could and should have made in the earlier proceeding.
[53] In his statement of claim, Mr Sgargetta pleads the ways in which he says Bayley’s (as an agent of ASB) adversely affected the price obtainable at the time:
22.Bayleys nevertheless listed Evergreen Lodge and Remarkables Lodge on their systems and then proceeded with a campaign. During the course of that marketing campaign, Bayleys adversely affected the price reasonably obtainable at the time. Among other things, Bayleys (as agent for ASB as principal):
(a)represented that the sales were occurring in a distressed situation in which the businesses were not profitable so no goodwill value should be attributed to the properties operating as lodge businesses;
(b)represented that this was a fire sale situation in which buyers would obtain the properties at a price well below their true market value at the time;
(c)gave potential purchasers price indications in the low
$1 millions, well below a reasonable market value assessment for the properties; and
(d)indicated to potential purchasers that ASB had valuations (the valuations by Mr Jarvis dated 29 November 2015) that justified selling the properties at unusually low prices.
Particulars
(i)The fact that a mortgagee sale process was adopted when a voluntary sale or a receivership sale process were both available as alternatives itself implies the representation in paragraph 22(a) above. Any express representations will be further particularised following discovery.
(ii)The nature of the express and implied price indication representations is evident from the email from Paul to Alan Lethbridge dated 15 January 2016 at 2:07pm. Further particulars will be provided following discovery.
(iii)The fact that purchasers were told about the valuations by Mr Jarvis is evident from an email from Bas Smith of Ray White dated 10 March 2016 at 12:42pm. Further particulars will be provided following discovery.
(iv)The valuations by Mr Jarvis dated 29 November 2015 were unrealistically low, and out of line with actual offers received (including an executed offer sent to ASB on 22 July 2013), the valuations by APL for Sleep Over Limited dated 12 November 2013 (Remarkables Lodge), APL for ASB dated 17 December 2013 (Evergreen Lodge), APL for ASB dated 7 October 2014 (Remarkables Lodge); APL for ASB dated 1 July 2015 (Evergreen Lodge), and the trend of increasing property values in Queenstown over the relevant period. These Jarvis valuations now became the yardstick to where all buyers would now realign (lower) their offers to, knowing importantly these valuations would be adopted by their mortgagees and lenders to formulate their loan to value advancements.
[54] Mr Sgargetta submits that his claim (that ASB released the Jarvis valuations to potential buyers, lowering price expectations) is new and was not decided by the Court of Appeal. He emphasises that the Jarvis valuations were remarkably different from other valuations, focusing particularly on the APL valuation of Evergreen in July 2015 for $2.75 million. He acknowledges that the Jarvis valuations were in evidence and were considered by the Court of Appeal but says that he did not rely on them in this way. He says that he has fresh evidence that shows that ASB released the Jarvis valuations to potential buyers.
[55] As noted above, a litigant must bring their full case and cannot later seek to relitigate the same issue by presenting their case in a different way.26 In my assessment that is what Mr Sgargetta is trying to do here. His essential claim is the same: that ASB’s marketing strategy caused the Secured Properties to be sold at less than market value. In the Court of Appeal, he alleged that ASB did this by “creating fire sale expectations” and releasing price estimates as low as $1 million. The Court of Appeal found against him on that issue. He now alleges that ASB caused buyers to lower their
26 Henderson v Henderson above n 14, at 114. See also Chamberlain v Lai [2006] NZSC 70, [2007] 2 NZLR 7.
expectations by releasing low valuations by Mr Jarvis. In so doing he is reframing the same claim to rely on existing facts in a new way.
[56] The Jarvis valuations were in evidence in the summary judgment proceeding and were referred to by the Court of Appeal. The APL valuations particularised in his statement of claim were prepared by Sleep Overs and were also in evidence.27 Mr Sgargetta cannot say that he was unaware of the discrepancy between the Jarvis valuations and the APL valuations when he advanced his appeal.
[57] I understand Mr Sgargetta to contend that he has fresh evidence that ASB released the Jarvis valuations to potential buyers. This takes the form of evidence from Mr Lethbridge contained in an affidavit sworn on 6 March 2023; and the email from Bas Smith of Ray White particularised in the statement of claim.
[58] He has provided the email from Bas Smith of Ray White with a memorandum filed after the hearing (without leave). This email is dated 10 March 2016 and is sent from Bas Smith to Mr Lethbridge and the Receivers, copied to Mr Sgargetta. The email states that someone is ready to make an offer of $2 million plus GST for Remarkables Lodge subject to seeing the valuation completed by Mr Jarvis.
[59] In terms of Mr Lethbridge’s affidavit, a considerable portion of it is inadmissible, as it involves him expressing his opinion that the Bayleys marketing campaign reduced the perceived value of the properties in the minds of the buyers he was working with at the time. In terms of factual evidence, Mr Lethbridge records that in his capacity as a Ray White agent, he received a signed sale and purchase agreement for $2.16 million for Evergreen Lodge in July/August 2015. This evidence is not new – it was before the Court of Appeal and is recorded in the judgment.28 He repeats his evidence that several potential buyers he had identified withdrew their interest or reduced their offers because of the Bayleys campaign, and that Bayleys informed buyers that offers in the mid-to-high $1 million would be in the selling range. This is not new evidence and is recorded in the Court of Appeal judgment.29
27 Affidavit of Natasha Michelle Rowe sworn 11 August 2017 at [7] and “C”.
28 At [8].
29 See, for example, at [45]–[46].
[60] The purportedly fresh evidence, on which Mr Sgargetta now focuses, is Mr Lethbridge’s evidence that he “discovered that the purchasers were aware of recent bank valuations that also reflected the lodges to be valued under $2 million”. Mr Lethbridge’s new evidence suffers from the same problems identified by the Court of Appeal (with respect to the email from ‘Paul’). It is inadmissible hearsay evidence of what unidentified purchasers allegedly knew. Further, it could and should have been included in Mr Lethbridge’s affidavit in the summary judgment proceedings. Mr Sgargetta alleges in his submission that Mr Lethbridge did not provide this evidence earlier because he was threatened by the Receivers. There is no evidence offered by Mr Lethbridge to support this serious allegation.
[61] Again, it was incumbent on Mr Sgargetta to put forward his full case in the earlier proceeding. Mr Sgargetta had the Ray White email on which he now relies. It is not fresh evidence. Mr Lethbridge gave evidence for him in the earlier proceeding. He is unable to relitigate the same claim, highlighting different evidence, none of which is new.
[62] In any case, the Court of Appeal made a factual finding that there was no evidence that the Secured Properties were sold for less than market value.30 The Court of Appeal considered the actual sales prices achieved against the valuations undertaken by Jarvis, the anticipated offers of $2 million for each property which Mr Lethbridge said were ready to be made in March 2016, and the offer of $2.16 million for Evergreen Lodge received by Ray White in July 2015.31 The Court also explicitly considered the fact that each lodge sold for $2.7 million on 19 October 2017. It considered the APL valuations obtained in 2013 and 2014 which Mr Sgargetta particularises in his present statement of claim. It was explicit that it did not consider these to be a good comparator.32 The Court of Appeal did not explicitly refer to the APL valuation of July 2015 for $2.75 million, but this valuation was in the evidence.33 Based on all the evidence before it, the Court of Appeal decided that the claim that the properties were sold for less than market value was untenable. This issue is decided, and Mr Sgargetta is estopped from contending to the contrary in any court proceeding.
30 CA judgment, above n 2, at [63].
31 At [57]–[58].
32 At [59].
33 Affidavit of Natasha Michelle Rowe sworn 11 August 2017 at [7] and “C”.
[63] Dealing briefly with Mr Sgargetta’s remaining submissions, it is immaterial whether the first cause of action is reframed from ‘breach of duty’ to ‘misconduct’ or ‘misleading conduct’. The essence of the claim remains the same and it has been decided by the Court of Appeal.
[64] The fact that Mr Sgargetta professes an intention to file an application for discovery against ASB and the Receivers does not assist him in terms of res judicata/ issue estoppel. Mr Sgargetta has provided a draft of this application. It includes a request for all offers made for the Secured Properties, and all correspondence between ASB, the Receivers, Bayleys, the valuers and all potential buyers and enquirers. Mr Sgargetta says that these documents are relevant to the ‘sale at an undervalue’ claim. The fact remains that the Court of Appeal has determined that the properties were not sold at an undervalue.
[65] Finally, Mr Sgargetta’s claim that this Court and the Court of Appeal did not have before it important evidence on this issue because Woodhouse J refused to consider such evidence misunderstands what happened. Mr Sgargetta focuses on the paragraph in the judgment where Woodhouse J said that he had not had regard to any of the documents tendered for filing by Mr Sgargetta before 28 August 2017 and rejected by the Court. The preceding paragraphs of the judgment make clear that Mr Sgargetta originally filed documents for the hearing that did not comply with the rules. He was directed to file and serve compliant documents. Eventually, on 28 August 2017, he filed a fresh set of documents in opposition and in support of his counterclaim. These documents were over a month late and still not compliant, but Woodhouse J gave Mr Sgargetta leave to rely on them for the hearing. Mr Sgargetta was given the full opportunity to present his case in reliance on the documents he had filed.
[66] There is no basis therefore for Mr Sgargetta’s submission that he was prevented from putting before the High Court and the Court of Appeal the evidence he wanted to rely on that he considered relevant to the ‘sale at an undervalue’ issue. As a
“substantial dispensation in his favour” he was allowed to rely on all the documents he chose to put forward for the hearing.34
[67] For the above reasons Mr Sgargetta’s first cause of action is an abuse of process He is seeking to relitigate an issue already determined by the Court of Appeal. The first cause of action must be struck out.
[68] To the extent that the third cause of action seeks to hold ASB liable for the alleged breach by the Receivers of their duty under s 19 of the Receiverships Act 1993 to obtain the best price reasonably obtainable, that cause of action is an abuse of process for the same reasons. It is true that the Court of Appeal did not decide whether the High Court was correct, as a matter of law, to conclude that ASB could not validly be a defendant for any alleged breach of the statutory duty of care in conducting the forced sales, because the sales were completed by the Receivers (the second issue on appeal). It was not necessary for the Court of Appeal to decide this issue because it had decided as a matter of fact that the properties were not sold at an undervalue. But Mr Sgargetta is estopped from advancing the third cause of action against ASB because of this finding of fact.
Is the syndication claim barred by issue estoppel, or does the statement of claim fail to disclose a reasonably arguable cause of action?
[69] The second cause of action is that ASB was, before and during the lending, aware of Sleep Overs’ syndication business model and its plans to acquire, redevelop, and sell the secured property. It was therefore obliged to assist with or not block Sleep Overs’ plans to syndicate the secured properties. The second cause of action refers to promissory estoppel, breach of an implied agreement or promise, misrepresentation,35 and misleading conduct.
[70]ASB applies to strike out the second cause of action, because:
34 HC judgment, above n 1, at [8].
35 Under s 6 of the Contractual Remedies Act 1979, now s 35 of the Contract and Commercial Law Act 2017.
(a)the loss claim has the same premise as the first, namely sale at an undervalue; and/or
(b)the facts pleaded, even if proven to be true, do not establish an arguable case that ASB agreed to facilitate the syndication process.
[71] Additionally, ASB claims that Mr Sgargetta does not have standing to bring the second cause of action because he is not a party to the alleged agreement/ representation/promise.
[72] Mr Sgargetta maintains that his ‘syndication claim’ that forms the basis of his second cause of action has not been determined by either the High Court or the Court of Appeal. He has submitted a significant volume of material through affidavits and memoranda which he says demonstrates that “ASB assessed and approved the loan based on Sleep Over’s syndication plans”. He emphasises that the bank’s approval of the syndication plans was a core element of its approval of the loans.
[73] Mr Sgargetta is correct that the syndication claim was not determined by Woodhouse J in the High Court, who held that his grounds of opposition reflecting this claim were counterclaims, and a counterclaim is not a basis for refusing summary judgment.36 Furthermore, they could not be argued to be claims by way of set-off, rather than counterclaims, because of the ‘no set-off’ clause in the contract.
[74] However, despite this finding Woodhouse J described difficulties with Mr Sgargetta’s syndication claim.37 The Judge noted that the rights contended by Mr Sgargetta were inconsistent with the terms of the facility agreements and securities, and as such Mr Sgargetta was arguing that there were significant oral variations to the provisions recorded in the documents that were signed. The Judge said:
[44] Assuming, but without determining, that Mr Sgargetta could rely on contractual provisions not expressly contained in the facility agreements, he would have to provide an evidential foundation to argue that, at the time each of the facility agreements was entered into, ASB had, at the least, represented to Mr Sgargetta or other representatives of Sleep Overs, by words of conduct, that ASB in making the loans accepted an obligation to facilitate syndication.
36 HC judgment, above n 1, at [37]–[38].
37 At [42]–[45].
Mr Sgargetta sought to provide an evidential foundation for the argument on the basis that ASB had seen prospectuses of Sleep Overs, and these prospectuses refer to syndication. There is no evidence that either of the prospectuses referred to by Mr Sgargetta were presented to ASB as part of Sleep Overs’ application for the loans. In any event, neither of the prospectuses advances Mr Sgargetta’s argument.
…
[45] There is evidence from and for Mr Sgargetta of communications with ASB after the facility agreements were entered into, relating to syndication… But none of the evidence Mr Sgargetta relies on is evidence of ASB’s agreement, expressly or through representations, amounting to a variation of the existing facility agreements and securities, and binding ASB in some way to allow Sleep Overs to proceed with syndication.
[75] Mr Sgargetta advanced a similar claim under his fifth ground for opposing the summary judgment application where he alleged that ASB had breached the Fair Trading Act 1986. On that, Woodhouse J said:38
… But if the argument is reconstructed under the Fair Trading Act, the substance of the argument, whether it is based on s 9 or s 13 of the Fair Trading Act, would amount to a contention that Sleep Overs, Mr Sgargetta, Evergreen and Remarkables, were induced to enter into the facility agreements, and to provide the guarantees, as a consequence of representations of ASB, by words or by conduct, that ASB would facilitate syndication and that, at the time these representations were made by ASB, there was in fact no intention on the part of ASB to facilitate syndication. There is no evidential foundation for any such proposition.
[76] The observations of Woodhouse J are arguably obiter as they were not essential to his decision. However, his observations of what Mr Sgargetta would need to establish to prove his ‘syndication claim’ remain apposite.
[77] On appeal, the Court of Appeal addressed the ‘syndication claim’ even though it was not the focus of the appeal. The Court recorded that Mr Sgargetta’s original notice of appeal and written submissions (both filed before his counsel’s involvement) challenged the entirety of Woodhouse J’s judgment.39 The Court dealt with the other grounds of appeal because they were not expressly abandoned. In relation to the syndication claim the Court said:40
38 At [52].
39 CA judgment, above n 2, at [62].
40 At [63(a)].
The fact that ASB was aware that Sleep Overs was planning to syndicate the lodges is not enough to constitute an obligation to assist. There is no evidence that it was a term of the facility agreements and related securities that ASB would facilitate syndication.
[78] The terms of the loan arrangements were documented in formal documents. None of the loans were expressly conditioned on or for the purpose of facilitating syndication of the lodges. The agreements do not mention syndication. They say that a partial release of security is a matter entirely within ASB’s discretion, inconsistent with an agreement to syndicate.41
[79] As the High Court and Court of Appeal made clear, to have a claim against ASB, Mr Sgargetta would have to show that, despite the complete absence of provision for syndication in the loan and security documents, ASB made some representation, through words or conduct, that indicated that it would facilitate the syndication process, including refraining from enforcing its rights under the documents if Sleep Over fell into default. Mere knowledge by ASB of the syndication model is not enough.
[80] Yet mere knowledge by ASB of the syndication plans is all that is now pleaded in Mr Sgargetta’s second cause of action. The claim pleads that “[a]t all material times before and during the lending… ASB was aware of the SONZ Syndication Business Model and its corresponding plans to acquire, redevelop and sell Evergreen Lodge and Remarkables Lodge under a syndication structure”. The pleaded particulars are:
(a)An ASB employee (Ms Rowe) obtained knowledge of the business model during 2013 when she was an employee of the Bank of New Zealand.
(b)The loan broker was aware of the syndication business model when sourcing potential lenders in 2013, including ASB.
41 HC judgment, above n 1, at [42].
(c)During May to October 2014 another ASB employee (Ms Walsh) was presented with further information about the syndication business model.
[81] No representation by ASB is particularised to support the cause of action. Even if the pleaded facts are assumed to be true, namely that ASB was made aware of the syndication plans, the second cause of action does not disclose a legal cause of action for misrepresentation or breach of an implied agreement or promise.
[82] Mr Sgargetta places considerable weight on email exchanges between himself, the loan broker and ASB personnel. At best, this evidence establishes that ASB was aware of Sleep Overs’ syndication plans. Mr Sgargetta submits that these exchanges show that approval of the syndication process was a key element of the bank approving the loans. This is just another way of saying that the bank was aware of the syndication plans when it approved the loans. Again, that falls well short of a representation by ASB that it would facilitate the syndication process and, relevantly, refrain from taking enforcement steps if the loan was in default.
[83] I find that the statement of claim does not disclose a reasonable cause of action concerning the syndication model, and consequently the second cause of action must be struck out.
[84] Having reached this conclusion, it is not necessary for me to consider the issue of whether Mr Sgargetta has standing to bring the second cause of action. It is also unnecessary to consider the application for security for costs.
Result
[85] The first and third causes of action against ASB are struck out pursuant to r 15.1(1)(d) of the High Court Rules 2016 and the Court’s inherent jurisdiction as an abuse of process of the Court.
[86] The second cause of action against ASB is struck out pursuant to 15.1(1)(a) of the High Court Rules 2016 because it does not disclose a tenable cause of action.
[87] According to the usual principle that costs follow the event, my preliminary view is that Mr Sgargetta should pay ASB’s costs plus reasonable disbursements. ASB claims solicitor/client costs according to the contractual documents between it and Mr Sgargetta. I have reservations about the applicability of those provisions to Mr Sgargetta’s claim against ASB. If costs cannot be agreed, submissions of not more than four pages may be filed within 20 working days.
Associate Judge Gardiner
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