Trustees Executors Limited v Richards and Mitchell HC AK CIV 2009-404-4693

[2010] NZHC 66

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2009-404-4693

BETWEEN  TRUSTEES EXECUTORS LIMITED

Plaintiff

ANDRHYS DAVID PALMER RICHARDS (NOW A BANKRUPT)

First Defendant

ANDSHELLY ANNE FRANCIS MITCHELL Second Defendant

Hearing:         13 November 2009

Appearances:  Mr Gordon for Plaintiff

Mr Carter for Defendant

Judgment:      28 January 2010 at 3 p.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

28.01.10 at 3 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Buddle Findlay, P O Box 1433, Auckland

Carter & Partners, P O Box 2137, Auckland

TRUSTEES EXECUTORS LIMITED V  RICHARDS (NOW A BANKRUPT) AND ANOR HC AK CIV-2009-

404-4693  28 January 2010

Background

[1]      The  statement  of  background  is  largely  taken  from  the  memorandum  that counsel for the plaintiff has filed. I accept that memorandum contains a substantially accurate account of the dealings between the parties. I have therefore adopted that account for the purposes of this judgment.

[2]      This is an application by the plaintiff (“TEL”) for summary judgment for an unpaid loan owing to it by one of the defendants’ companies, River Cottage Limited (now struck off) (“River  Cottage”), and personally guaranteed by them both.   The first  defendant  has  recently  been  adjudicated  bankrupt,  and  accordingly  TEL  no longer pursues the claim as against him.

[3]      Liability  under  the  subject  loan  agreement  (and  the  second  defendant’s personal  guarantee)  is  not  disputed  per  se.  However,  the  second  defendant  still opposes judgment, on the following grounds:

a)        She asserts that TEL, as mortgagee exercising power of sale over two apartments secured to it, breached its duty under s 176 of the Property Law Act 2007 (“the Act”) to take “reasonable care … to obtain the best price reasonably obtainable as at the time of sale”.

b)She  asserts  that  TEL  is  estopped  from  claiming  any  shortfall  due because of oral statements alleged to have been made by one of TEL’s employees on or about 3 June 2008.

c)        She  asserts  that  she  is  entitled  to  have  the  loan  agreement  between River Cottage and TEL re-opened under s 120 of the Credit Contracts and  Consumer  Finance  Act  2003  (“the  CCCFA”)  –  presumably (although this is not specifically pleaded) because it is “oppressive”.

[4]      The  defendants  are  property  developers,  and  were  (together  with  the  first defendant’s  then  business  partners)  the  original  developers  behind  the  “Quattro Apartments” complex at 444 Great North Road, Grey Lynn, Auckland.  The project

ran into financial difficulties, as a result of which the original head developer needed

to  “sell  down”  some  of  the  apartments.  The  defendants  achieved  this  by  forming three   separate   companies   (River   Cottage,   Arnold   Group   (2006)   Limited   and Chaparel Investments Limited), each of which were to purchase two apartments in the complex with loans obtained from TEL. Viewed as a group, there were in total six apartments of which TEL was a mortgagee – and for which loans the defendants had also given their personal guarantees.

[5]      The  second  defendant  is  the  sole  director  of  and  sole  shareholder  in  River Cottage.           On  20  July  2006,  TEL  and  River  Cottage  entered  into  a  written  loan agreement whereby a loan of $808,000 (“the Loan”) was advanced for a term of five years.  As  well  as  personal  guarantees,  the  Loan  was  secured  by  registered  first mortgages   over   River   Cottage’s   two   apartments in   the   “Quattro   Apartments” complex, being Unit 3D and Unit 3H.

[6]      By early 2008, more of the defendants’ property developments had also run into financial difficulty. In February 2008, the defendants approached TEL to advise that  their  companies  would  no  longer  be  able  to  meet  the  interest  payments  due under  the  various  loan  agreements.  However,  they  also  advised  that  they  were themselves  now  selling  all  six  of  the  apartments  to  repay the  debts  owed  to  TEL. They advised that there was to be an auction conducted by their real estate agents, Harcourts, on 31 March 2008. For its part, and although the loans did soon fall into default, TEL allowed the defendants the time to undertake their own sale process.

[7]      The Harcourts’ auction was unsuccessful, and all six of the apartments were passed in on 31  March  2008.  Insofar  as  the  River  Cottage  apartments  were concerned, the defendants’ advice to TEL was that the best offer received was for Unit 3D, for $320,000.   Harcourts continued to market the apartments for sale, but by mid-April 2008 still no sales had been achieved.   On 15 April 2008, the second defendant wrote to TEL summarising where matters stood:

We have been unable to secure a buyer on any of the 6 apartments unless they are in the very very low 3’s.  Offers have come in and I have countered them to quit debt only but we are unable to get anyone to commit. We ran an  extensive  marketing  campaign  but  unfortunately  due  to  the  current

climate, the blue-chip fall out (on-going) no-one is ready to purchase unless they pick them up for nothing.

[8]      On 24 April 2008, TEL instructed its solicitors to issues notices under ss 119 and 122 of the Act, and advised the defendants accordingly. The notices were duly served, not complied with, and from 6 June 2008 TEL had an accrued power of sale over all of the apartments.

[9]      Following service of the Property Law Act notices, the defendants and TEL continued to be in contact.   In particular, in early June 2008 the defendants advised TEL that they had potentially sold three of the six apartments. It eventually turned that the proposal was part of a conditional underwrite arrangement, whereby it was intended that a company called Betros Consultancy  Limited   (“Betros”)   would provide services to River Cottage by itself going to the market to find buyers – for a fee  of  30%  of  the  purchase  price.  Further  particulars  of  the  Betros  proposal  are given below. Notwithstanding the Betros offer TEL emailed the defendants 3 June 2008  to  the  effect  that  the  conditional  Betros  underwrite  agreements  were  not agreeable to it – i.e. TEL would not hold off on its own mortgagee sale process just because  of  them.  TEL  advised  of  its  intention  to  take  the  apartments  to  the  open market for sale.

[10]         TEL then sought advice from the professional real estate agency, Barfoot & Thompson Limited MREINZ (“Barfoots”), on the best way to take the apartments to the open market for a mortgagee sale.   Barfoots’ recommendation to TEL was that the apartments should be sold by way of auction – and that the particular structure of the sale should be seven auctions (the  first  being  an  auction  for  all  of  the  six apartments  together,  and  if  that  did  not  reach  an  appropriate  price  level,  then a separate auction for each of them  individually).  Barfoots  also  recommended  an advertising  and  marketing  campaign  that  they  had  designed,  and  which  in  their opinion was the best way to publicise the mortgagee sales to the market.

[11]     TEL duly considered and then accepted the recommendations made to it by Barfoots. It instructed Barfoots to proceed with the sales on the basis set out in their proposal.  The  apartments  were  then  subject  to  a  marketing  campaign  by  Barfoots with the auction scheduled for 13 August 2008.

[12]     Pre-auction offers for individual apartments were received as a result of the Barfoots’ marketing campaign, but at very low prices. TEL did not accept them. One conditional  offerer  also  offered  to  purchase  all  six  apartments  together,  first  for $2,100,000 and then increased to $2,400,000, equating to $400,000 per  apartment. This “bulk” offer was conditional, and was also not in cash. The assessed prices both involved a property ‘swap’ deal being agreed to.  TEL elected to proceed to auction.

[13]     On auction day, only one offer was received to purchase the six apartments together.   This was for $1,450,000 (equating to $241,667 per apartment).   This was not acceptable to TEL, and the apartments (as one lot) were passed in.  Barfoots then proceeded to auction them separately.  An unconditional offer of $330,000 was then made  for  Unit  3D,  and  accepted  by  TEL.  The  bids  received  for  Unit  3H  were $300,000  and  $308,000.      It  was  passed  in  and  has  not  sold  since  then.  TEL  has recently appointed receivers of income.

Issues

[14]     In response to the plaintiff’s claim the defendant raises issues under a number

of headings which are as follows:

a)        First  issue  arising  under  s  176:  Auction  was  a  flawed  method  of selling property given that the defendants had failed when they tried to  auction  the  property  in  March  2008;  the  way  the  auction  was conducted was also flawed

b)	Second ground under s 176:	Plaintiff failed to accept an offer made
shortly   before   the   auction	to   purchase   the   six   apartments   for

$2,400,000, or $400,000 each;

c)        Third ground under s 176:  Price obtained for unit 3D was substantially less than opinion of Mr Buckley, the registered valuer.

d)Fourth ground under s 176: Fourth ground under s 176:  plaintiff ought not to have declined the Betros’   proposal

e)        Estoppel;

f)        Fourth ground: the plaintiff’s claim that there the transaction ought to

be re-opened under the Credit Contracts and Consumer Finance Act

2003 on miscellaneous grounds;

[15]     I will deal with the issues in the above order.

Summary judgment principles

[16]     The   legal   principles   relating   to   the   grant   of   summary  judgment   were summarised in the recent Court of Appeal decision of Krukziener v Hanover Finance Ltd (2008) 19 PRNZ 162 at [26]. They are as follows:

a) The  question  on  a  summary  judgment  application  is  whether  the defendant  has  no  defence  to  the  claim;  that  is,  that  there  is  no  real question  to  be  tried:  Pemberton  v  Chappell  [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty.

b) The  onus  is  on  the  plaintiff,  but  where  the  plaintiff’s  evidence  is sufficient  to  show  there  is  no  defence,  the  defendant  will  have  to respond  if  the  application  is  to  be  defeated:  MacLean  v  Stewart (1997) 11 PRNZ 66 (CA).

c)  The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence  that  is  inherently  lacking  in  credibility,  as  for  example where  the  evidence  is  inconsistent  with  undisputed  contemporary documents or other statements by the same deponent, or is inherently improbable:  Eng  Mee  Yong  v  Letchumanan  [1980] AC 331 at 341 (PC).

d) In  the  end  the  Court’s  assessment  of  the  evidence  is  a  matter  of judgment. The Court may take a robust and realistic approach where

the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ

84 (CA).

Ground under s 176: Auction was flawed method of selling property given that the defendants had failed when they tried to auction the property in June 2008;

the way the auction was conducted was also flawed.

[17]     Section 176 provides as follows:

176	Duty of mortgagee exercising power of sale
(1)	A  mortgagee  who  exercises  a  power  to  sell  mortgaged	property,

including  exercise of the power through the Registrar under section

187, or through a court under section 200, owes a duty of reasonable care  to  the  following  persons  to  obtain  the  best  price  reasonably obtainable as at the time of sale:

(a)      the current mortgagor: (b) any former mortgagor: (c)     any covenantor:

(d)      any mortgagee under a subsequent mortgage:

(e)      any holder of any other subsequent encumbrance.

(2)A mortgagee who exercises a power to sell mortgaged property may not  become  the  purchaser  of  the  mortgaged  property  except  in accordance  with  section  196  or  an  order  of  a  court  made  under section 200.

[18]     The  plaintiff’s  decision  that  the  properties  should  go  to  auction  again  is attacked  by  the  defendants.  The  defendants  say  that  in  making  the  decision  and giving instructions to implement it the plaintiffs were in breach of s 176. It was said that  the  failure  of  the  June  auction  showed  that  use  of  the  auction  mode  was ‘flawed’. I note that Mr Buckley, the defendants’ expert valuer, does not criticize the choice of sale by auction.

[19]     Further, the fact that the apartments (which totalled six in number with two being the subject of the present proceedings) were generally offered for sale en bloc and then individually was also said to be a mistake because those who were at the auction with an interest in buying one apartment, would, in effect, scale back their

view of the value of the auctions having seen what a bulk purchaser would pay for them – that figure being a lower one than units would have sold for individually.

[20]     I do not consider that there is any substance to these complaints.   First, the mortgagee  owes  a  duty  of  reasonable  care  to  obtain  the  best  price  reasonably obtainable.  One  might  speculate  that  the  split  of  the  auction  into  bulk/individual units phases might mean that the prices offered in the first phase would work out as less per unit than might be achievable if the same units were sold separately one by one. On the other hand, most of those attending at the auction would know that if they were to succeed in buying one of the units they would have to provide the best price on the day. If competitive bidding was to develop for the individual units on a one by one basis, the individual bidders would presumably be actuated by a number of considerations. These might include what the rate of return on the property would be if they brought the unit as an investment and base any bid on such a calculation. Another factor might be whether on the present state of the market capital gains in the near future would be likely if they purchased at a certain level. Still other factors might  include  more  subjective  considerations,  such  as  whether  they  liked  the appearance and ambiance of the units, the location and the fact that they suited their personal or family purposes. Conversely, it would seem to me to be unlikely that a purchaser who was considering an intention to make an offer on an individual unit would  be  negatively influenced  by  what  had  happened  in  the  course  of  an  earlier phase  in  the  auction  (i.e.  when  the  units  were  offered  for  sale  en  bloc)  which,  for financial or other reasons, in which that individual bidder could not, or chose not to, participate. Whatever had happened at an earlier stage of the auction, once the sale of  units  individually  started  the  individual  buyers  would  in  the  usual  way  make offers limited by the lesser of what they thought the units were worth and what they could afford to pay.

[21]     It  is correct  that the  defendants’ valuer,  Mr  Buckley,  expresses  a view that that approach may have had a dampening effect on the values. The Court, though, is expected to critically assess evidence placed before it, including opinion evidence. Mr Buckley’s assertion of belief concerning the ‘en bloc’ offer is not elaborated or particularised in his affidavit.

[22]          In  summary,  my  scepticism  about  this  issue  is  that  if  the  sales  to  small investors on a one-off basis represented a better chance of optimising the prices for the  apartments,  then  that  opportunity  was  never  ruled  out  by  the  method  of  sale which the plaintiff adopted. It is unclear exactly what was said at the auction about the  possibility  of  buying  the  apartments  en  bloc  but  from  what  I  gather  the  pre- auction publicity may have invited buyers on the basis that they could come along to the auction buy one or buy all of the apartments. That would not, in my view, convey to single one-off buyers  that the probability was  that apartments would be sold en bloc and that they would be wasting their time to go along if they had an interest in only one  of  them.  Further,  the  overall  evidence  showed  that  the  auction  was  well attended. Overall, I would not be prepared to assume that the evidence gives rise to inferences which would constitute a reasonably arguable defence on the part of the defendants that the fact that the vendor was open to offers for the six apartments as a group  had  a  depressive  affect  on  the  level  of  competition  amongst  buyers  for  the apartments on a one-off basis.

[23]     I would not be prepared to accept without further explanation from an expert

on the point why the bulk/individual sales format had a depressing effect when the second part of the auction was reached. Nor would I accept that a mortgagee who ran the alleged risks inherent in a two-phase auction was guilty of a want of reasonable care in obtaining the best price possible for the apartments.

Second ground under s 176:  Plaintiff failed to accept an offer made shortly before the auction to purchase the six apartments for $2,400,000, or $400,000 each.

[24]     I start with the observation that no claim could arise with regard to Unit 3H because it is yet to be sold and the duty under s 176 arises in the case of a mortgagee “who exercises a power to sell mortgaged property”.

[25]     As  the  plaintiff  submitted,  the  pre-auction  offer  which  I  have  described  in [12] that was made prior to the auction for the 6 units was subject to a condition that the  purchaser  be  entitled  to  exercise  ‘due  diligence’  and  that  the  sale,  rather  than being a cash sale, involved a property swap. Mr Gordon also drew my attention to the fact that at the auction itself the offer of the apartments en bloc only elicited a

maximum  offer  of  $1,450,000.  That  offer  did  not  come  from  the  person  who  had made the pre-auction offer. The latter person was apparently present at the auction but did not bid.

[26]     The claim by the defendants is  that  had  the  offer,  which  worked  out  to

$400,000  per  unit  been  accepted,  a  price  some  $70,000  greater  than  that  actually realised at auction for Unit 3D would have been obtained. All this assumes that the pre-auction offer would have ultimately proved successful. That is, if the offer had been accepted, the property would have been realised by sale at a level which, when added to any cash component, meant that the proposed $400,000 per unit would be realised.   But when further considered, the defendants’ argument goes further than that. It assumes, in effect, that such a favourable outcome was so manifest that the plaintiff acted unreasonably in not cancelling the auction so that the conditional offer could work its way to a conclusion. That is a conclusion which is unsupportable.

[27]     If  and  when  a  sale  occurs  of  Unit  3H,  the  defendant  may  consider  that circumstances justify it in bringing a claim under s 176 but it cannot do so at this point.

[28]     There  is  another  aspect  to  this  issue  which  arises  out  of  the  attempts  the defendants  made  to  sell  the  units  at  auction  in  June  2008.  They  reported  to  the plaintiff that “no one is ready to purchase unless they pick [the units] up for nothing” and that the prices being offered were in the “very very low 3’s”.   The defendants’ experience is another circumstance that points to a market value in the region of the price at which 3D ultimately sold.

Third ground under s 176:  Price obtained for unit 3D was substantially less than opinion of Mr Buckley, the registered valuer.

[29]     The  defendants  relied  upon  an  affidavit  obtained  from  Mr  A  R  Buckley,  a registered valuer who carried out a valuation of Units 3D and 3H. Mr Buckley fixed the value of Unit 3D at $490,000 and 3H at $500,000. Mr Buckley stated his opinion that a likely discount on market value to reflect a forced sale would be in the order of 15-20%  and  that  a  discount  beyond  that  range  would  normally  reflect  some  other extrinsic circumstances, such a lack of cooperation from the mortgagor in allowing

access to the property.  He noted that the  ultimate  sale  price  of  apartment  3D  was

$330,000  which  was  well  under  the  20%  discount  he  referred  to.  He  said  he understood that apartment 3D was first offered in a ‘bulk lot’ included as one of six apartments for sale in one offering. Mr Buckley observed that in his opinion there would  generally  be  fewer  potential  purchasers  who  would  be  in  a  position  to purchase six apartments in one bid, as this requires significantly more capital outlay. He said:

Consequently,  there  would  be  less  competition  for  the  apartments  as  first home buyers and/or small investors are effectively eliminated. Accordingly, in my opinion the price achieved if there was such a ‘bulk offering’ would be significantly less than the aggregate value of the individual apartments.

[30]     Before  I  consider  further  these  expressions  of  opinion  on  the  part  of  Mr Buckley,  I will briefly refer to legal authority on the issue of the implications and effect of a sale at less than the level expected by a registered valuer’s opinion.  In my respectful opinion, Asher J  stated the correct position in Public Trust v Ottow HC AK CIV-2009-404-3825, 4 November 2009:

e)           A  mortgagee  sale  for  a  price  less  than  the  current  market value  assessed  by  valuers  does  not,  of  itself,  establish  a breach of duty, although a large discrepancy may indicate a failure  to  take  reasonable  care:  Moritzson  Properties  Ltd  v McLachlan (2001) 9 NZCLC 262,448 at [61].

[31]     If there was in fact a sale at substantially less than market value as estimated

by Mr Buckley because of lack of vendor cooperation, I consider that that would not

be a matter which would give rise to a reasonably arguable defence available to the mortgagors/defendants. It would not seem to me that losses due to that course could

be  recovered  under  s  176  of  the  Property Law  Act  2007.  The  cause  would  not  be breach by the mortgagee of his obligations to take reasonable steps to obtain the best sale price. That particular instance given by Mr Buckley may therefore be ruled out of consideration in the present case.

[32]     The fact that the  price  was  substantially less  than  Mr  Buckley’s  valuation, according to the Public Trust decision, may indicate a failure to take reasonable care. In order to determine whether the value obtained in this case may indicate a failure to take reasonable care it is necessary to look at the wider circumstances. I will do

that shortly. But the fact of a sale at less than the estimates of value by a valuer may reflect only that the valuer has misjudged the market. It is a distinct possibility that

in times of volatility prices may be obtained which are outside the range that valuers might expect.

[33]     In  this  case,  issue  was  taken  by  the  defendants  with  one  aspect  of  the marketing  of  the  property:  the  limited  number  of  open  homes  that  were  available because  of  the  timing  of  the  pre-sale  programme.  However  the  ‘proof  of  the pudding’  is  that  the  sale  of  the  apartments  generated  widespread  interest.  The Barfoot & Thompson website recorded activity which Mr Brain (an employee of that company)  said  was  above  the  normal  level  of  activity  with  345  ‘unique  views’. Seventy  three  phone  calls  and  87  email  enquiries  were  received.  Five  pre-auction offers were received.  Approximately 30 people attended the auction, and there were four  buyers  registered  to  bid  on  all  of  the  apartments  together.  Twelve  buyers registered  to  bid  on  the  individual  apartments. Mr  Brain  identified  a  number  of problems with the sale of the properties. The six apartments had been on the market for  a  long  time. They  had  been  rented  out  and  that  had  had  an  effect  on  their condition with the apartments looking ‘very tired’.   Buyers who were interested in the apartments as investments would be expecting an 8% per annum return which on the basis of the rentals then being received placed the values of the apartments in the range of $282,500 to $318,500. But the biggest factor, according to Mr Brain, was that the global financial crises had hit home in mid-2008.  He said:  “the market was extremely tough”.

[34]     Before  leaving  Mr  Buckley’s  report  two  other  comments  should  be  made. First, Mr Buckley himself noted that:

Some  very  low  sales  have  taken  place  in  2008,  however  these  are  often attributable  to  a  situation  where  the  vendor  is  under  duress,  often  having committed to the purchase of another property.

[35]     I would imagine that the reference to the vendors being ‘under duress’ has to

do with the question of the time available to the vendor to achieve an unhurried sale

of the property after proper exploration of the market and adequate publicity being given to the intended sales. If I am correct in that, then it must be said that by the date of the auction in August 2009, that point had  long  been  passed.  As  I  have

mentioned the defendants had been attempting to sell the units as far back as March

2008 with the results I have described in paragraph [7].

[36]     The second point is that in his report annexed to his affidavit Mr Buckley sets out comparable sales which he considered were influential on an assessment of the value of the units. He referred the sales of other apartments in the complex and sales

in the wider area. Dealing first with sales in the development in question, the Quattro development, some of those which he considered were relevant had occurred as far back as February 2007. The sales evidence from the wider area included sales from the first half of the previous year.

[37]     In fairness to Mr Buckley his  valuation  report  was  provided  as  at  12  June

2008, some two months prior to the auction sale. Nonetheless, even by that stage the global  financial  crises  had  begun  to  impact  –  as  Mr  Buckley  himself  notes  in  his affidavit.

[38]     To summarise overall these aspects of the evidence my conclusions are:

a)        A discrepancy between the sale price and a valuer’s opinion may, not must, establish that a breach of duty of care is taken has occurred.

b)Whether there has been a breach of duty of care or a breach of duty must be assessed by considering factors that provide an indication of the reliability and accuracy of the valuer’s report.

c)        If the position emerges is that it appears that the mechanism adopted for the mortgagee sale was such as to have properly tested the market then the results obtained at the auction, rather than the opinion of the valuer, must be taken as demonstrating what the market value of the property was. Further, if the report of the expert on its face indicates that the conclusions reached are questionable because, for example, of the methodology received or because of other shortcomings, then the Court will have less concern about  divergence  between  what  the

valuer said the property was worth  and what it actually obtained on mortgagee sale.

[39]     In the present case there are two aspects of Mr Buckley’s report which make

it  less  than  convincing.  The  first  is  the  recognition  that  sales  ‘under  duress’  will achieve substantially less than sales which are not in that category and there is no explanation  as  to  why  that  observation  is  not  applicable  to  the  sale  of  Unit  3D. Second, the comparable sales evidence seems in large part to be out of date.

[40]     For  all  of  these  reasons,  the  anomalies  between  Mr  Buckley’s  view  of  the market value and what was actually obtained on sale of Unit 3D does not persuade me  that  there  has  been  an  arguable  breach  by  the  mortgagee  of  its  duty  to  take reasonable care to obtain the best price.

Fourth ground under s 176:  plaintiff ought not to have declined the Betros’
proposal

[41]     In June 2008 the mortgagor entered into a so-called ‘underwrite agreement’ with a company called  Betros Consultancy Limited (“Betros”).   Essentially Betros agreed to find buyers for Unit D at a price of not less than $586,000, which would result  in  Betros  receiving  a  ‘underwrite’  fee  of  $176,000  –  or  one  third  of  the purchase price. If Betros was unable to locate a third party to buy apartment 3D at this  price  then  it  would, itself,  enter  into  an  agreement  to  buy the  property at  that price. The following were other features of the Betros agreement.

[42]     In terms of the contract Betros was required to arrange a sale of Unit 3D at a purchase price of $586,000.00. Under this agreement, if Betros failed to obtain a purchaser at $586,000.00, Betros was itself required to purchase the Unit at the net price of $410,000.00. If successful, Betros would  be entitled to an “underwrite fee”

of $176,000.00 so that the net amount the mortgagor would have received would be

$410,000.00.  The second agreement related to Unit 3H and provided for a purchase price of $460,000 with an underwrite fee of $140,100.

[43]     The agreement for sale and purchase with Betros was subject to 15 days due diligence. However,  before  even  getting to  that  point  it  was  a term of the  Betros

Underwrite Agreement that the agreement was subject to the mortgagee’s approval. Clause 4 of the Underwrite Agreement stated:

4.        The  Owner  shall  within  five  working  days  of  the  date  of  this agreement   obtain   a   written   confirmation   from   any   mortgagee registered  over  the  title  to  the  properties  that  such  mortgagee  will make available a discharge of mortgage in consideration of receiving not more than 70% of the stated purchase price for each property, to the  intent  that  there  shall  be  available  funds  upon  completion  of settlement  of  the  owner  (sic)  to  pay  the  underwrite  fee  to  the Underwriter.

[44]     The response of the plaintiff to this proposal was negative.   The reasons for that  were  subsequently  summarised  in  an  affidavit  filed  on  its  behalf  by  Mr  I Kennedy as follows:

(a)The  minimum  deposits  payable  were  only  on  the  sale  becoming unconditional – there was to be nothing paid up front and hardly and commitment to buy;

(b)      The purchaser/underwriters were able to purchase the properties at a

30% discount on the amounts contained in the sale agreements – and they were able to get this discount whether or not they introduced a

buyer or brought the properties themselves;

(c)The way the transactions were structured did not produce sufficient funds to repay the part of the debt that they represented;

(d)It  was  not  clear  whether  or  not  the  buyers  were  real  buyers  or whether they were Bayleys real estate agents;

(e)       There  was  no  set  time  limit  for  the  purchaser  to  perform  its obligations  under  the  agreement. This  was  to  be  agreed  by  the mortgagor per clause 1 and therefore “it could go on indefinitely”;

(f)It  was  not  clear  whether  the  purchasers  were  to  buy  all  of  the apartments (i.e the other ones not mentioned); and

(g)       The  apartments  had  not  yet  been  valued  despite  statements  by  the mortgagors to the contrary.

20.Accordingly, Mr Dellabarca advised the second defendant  that TEL would  not  be  prepared  to  provide  a  discharge  of  its  mortgages  as detailed in/required     by the conditional Betros underwrite agreements. Rather,   TEL   would   now   proceed   with   its   own mortgagee  sales:   “Shelley  this  is  not  our  preferred  action  but  we have   given   you   every   opportunity   to   sell   and   must   now   act ourselves.”

[45]     Counsel for the defendant in his submissions commented:

12.The Plaintiff has raised, in affidavits filed in reply, points concerning Betros Consultancy Limited’s modus operandi (refer paragraphs 23 and 24 of Cameron Brain’s affidavit in  reply  dated  4  November

2009) to the effect that Mr Betros’ operations were aimed at selling

to an Asian student immigrant market – and that this had effectively dried up by  2008. First, Mr Brain’s evidence on this point is conjecture/opinion. Secondly, this is beside the  point. The  point was  that  under  the  Betros  Agreement  (in  respect  of  Unit  3D  for example) Betros would have been obliged to buy the apartment for at least  $410,000.00 (taking into account the reduction for his fee) regardless of whether Betros could source a third party to on sell the Unit to.

13.Accordingly, had it been allowed to run  its  course  the  Betros Agreement would likely have realised  $80,000.00  more  than  the price ultimately obtained by the Plaintiff, whether it was reasonable

or not oppressive for the Plaintiff to refuse to give its consent to the

Betros  contracts  is  only  something  that  can  be  determined  after hearing/testing all evidence in relation to that issue.

[46]     It is implicit in the defendants’ defence that the plaintiff was in error and in breach of its duty under s 176 in failing to approve the Betros agreement.

[47]     But Mr Gordon for the plaintiff emphasized that whether or not the plaintiff consented, it was always open to a mortgagor, as in this case, to invoke its equity of redemption  and,  in  doing  so,  if  necessary  tender  the  amount  required  to  clear  the mortgagee’s mortgage off the title. Therefore, Mr Gordon said, the reference to the consent of the plaintiff was neither here nor there.

[48]     In  my  view,  the  key  point  though  is  that  the  plaintiff  was  not  obliged  to accept arrangements that would drift on indefinitely.  The mortgagee was entitled to expect prompt action and an arrangement which was as open-ended as to time as the one which was being put forward by the mortgagor was one that the mortgagee was entitled to reject.

[49]     In my view the plaintiff by rejecting the Betros proposal and proceeding with the  auction  could  not  be  said  to  have  breached  its  duty to  take  reasonable  care  to obtain the best price reasonably obtainable as at the time of sale.

Estoppel

[50]     The  estoppel  ground  is  based  upon  the  assertion  that  Mr  Richards  makes concerning  the  response  which  the  plaintiff  through  its  employee,  Mr  Dellabarca, made to the defendants when the parties were discussing the Betros agreements and whether  they  should  proceed.  The  Betros  agreement,  as  I  have  set  out  elsewhere, included a requirement on the part of the purchaser, Betros, that the plaintiff consent to the agreement.   Mr Richards said that he spoke to Mr Dellabarca.   I assume that the date of the conversation was at the approximate time when the Betros agreement was put forward by the purchaser, in or about May 2008.  Mr Richards says that he tried to persuade Mr Dellabarca that the plaintiff should give the Betros contracts ‘a go’:

...  in  terms  of  allowing  him  to  carry  out  his  due  diligence  and  hopefully declare these contracts unconditional, as I couldn’t see any down side to that.

[51]     He says that Mr Dellabarca pointed to the open-ended nature of the  Betros agreements  and  in  the  end  could  not  be  moved  to  progress  those  agreements.  Mr Richards says that he asked Mr Dellabarca what would happen if the plaintiff took the apartments to auction and the price realised turned out to be less than would have been  received  under  the  Betros  contract  and  who  would  be  responsible  for  the shortfall. He says:

Mr Dellabarca’s reply to me was that this would be to Trustees Executor’s cost if that were the outcome.  I reported these comments to Shelley.

[52]     The plaintiff attacks these assertions. It has not attempted to contradict him directly by filing an affidavit from Mr Dellabarca, as it could have. It says that the assertions are improbable and “astonishing”. Mr Gordon also submitted that if there had  been  such  an  arrangement  one  would  have  expected  to  see  it  reflected  in communications  exchanged  between  the  parties  following  the  point  where  Mr Dellabarca is alleged to have made the assertion he did. The second defendant says that as a result of Mr Dellabarca’s assertion they took no further steps to market the apartments.

[53]     Presumably,   the   second   defendant   seeks   compensation   on   one   of   the following basis:

a)        She  would  claim  that  had  the  plaintiff  cooperated  in  the  Betros agreements $80,000 more would have been received for apartment 3D than was  achieved  at auction and she ought to be credited with that sum; or

b)That  in  relying  on  Mr  Dellabarca’s  expression  of  intention  that  the plaintiff  would  take  the  risk  of  not  receiving  $410,000  under  the Betros  agreement  for  apartment  3D,  she  and  Mr  Richards  took  no further steps to market the apartments, but that if they had, they would have  obtained  a  figure  decidedly in  excess  of  the  $330,000  actually obtained at auction.

[54]     The first issue is whether the defendants have established a factual platform

for  asserting  that  there  is  a  reasonably arguable  defence  arising  out  of  the  alleged statements that Mr Dellabarca made.

[55]     I have hesitation in accepting what Mr Richards has said about this matter. It

is correct that following the limited factual enquiry that I am able to embark upon at summary  judgment  stage  one  does  not  find  the  account  given  by  Mr  Richards  to mesh with the exchanges of documents that occurred concurrently and after the time when Mr Dellabarca is said to have made the remarks he did. On the other hand, the proposed arrangement may not be quite as outlandish as Mr Gordon believes it to be. Certainly,  it  is  not  one  that  one  would  expect  a  competent  property  manager employed  by  a  lender  such  as  the  plaintiff  to  make  in  an  off-hand  way,  as  it  is apparently suggested he did. It really amounted to Mr Dellabarca going along with an  assumption  that  the  Betros  agreements  were  serious  and  substantial  offers  that were  likely to  bear  fruit  existed,  but  nonetheless  concluding  that  the  plaintiff  was confident that it would do as well or better at auction; and further that he gratuitously offered for the plaintiff to take any risk in the matter.

[56]     It also gives pause for thought that the point when Mr Dellabarca is alleged to have  done  this  was  at  a  very early stage  for  the  plaintiff.  At  that  point  it  had  not apparently  obtained  a  valuation  of  the  properties,  it  did  not  have  an  unexpired demand  outstanding  against  the  defendants,  and  it  had  not,  itself,  received  any recommendations about a suitable marketing programme for the apartments.

[57]     Against that we have Mr Richards swearing on oath in explicit terms that the arrangement was as he described it.

[58]     Lastly  there  is  the  issue  of  Mr  Dellabarca’s  authority  to  negotiate  such  an arrangement.  Mr  Gordon  said  that  it  was  out  of  the  question  that  Mr  Dellabarca would  have  authority to  counter  any such  terms  with  a  debtor.  While  I regard  Mr Gordon’s  submission  as  probably  being  correct,  it  is  not  completely  out  of  the question  that  Mr  Dellabarca  may  have  been  implicitly  authorised  to  enter  the arrangement that he did.

[59]     On  balance,  I  conclude  that,  notwithstanding  the  considerable  reservations that  I  have  on  the  matter,  given  particularly  the  absence  of  an  affidavit  from  Mr Dellabarca,  the  defendants  may be  able  to  establish  that  the  representation  was  in fact made.

[60]     The   elements   of   modern   equitable   estoppel   are   well   settled   and   are summarised  in  paragraph  19.2  of  Equity  and  Trusts  in  New  Zealand. A  party alleging estoppel must show that:

a)A belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged;

b)The belief or expectation has been reasonably relied on by the party alleging the estoppel;

c)        Detriment will be suffered if the belief or expectation is departed from; and

d)It  would  be  unconscionable  for  the  party  against  whom  the  estoppel  is alleged to depart from the belief or expectation.

[61]     The elements of estoppel were also discussed by the Court of Appeal in Gold

Star  Insurance  Co  Ltd  v  Gaunt  (1992)  7  ANZ  Insurance  Cases  621-097  (at  p 77,397):

The judgments in Gillies v Keogh (supra) disclose a tendency to depart from  strict  criteria  and  to  direct  attention  to  overall  unconscionable behaviour.          It  nevertheless  remains  clear  that  before  judgment  can  be given  against  a  defendant  on  the  grounds  of  estoppel,  some  action,  or representation, or omission to act, must have been carried out by, or on behalf of, that defendant causing the plaintiff to have acted in a manner causing loss.

[62]     It is at this point that I consider the proposed ground of estoppel fails. I have already  made  reference  to  the  attempts  that  the  defendants  made  to  market  the apartments  on  their  own  account.   They were unsuccessful.  I have  also  concluded that the sale achieved by the plaintiff resulted in a price being obtained which fairly represented the then market value of the apartments.

[63]     I have also noted that because of the disadvantageous features of the Betros proposal,  it  was  understandable  that  the  mortgagee  should  reject  it  and  that  the mortgagee  was  not  in  breach  of  its  obligations  under  s  176  in  doing  so.  That  is because I consider that the Betros proposal was not a realistic one, anticipating as it did a price of $586,000  for Unit D – a figure that was in excess of what even Mr Buckley, the defendant’s expert valuer, assessed its worth at. I have also noted that Mr Buckley’s valuation was not a reliable one given the basis upon which he made his assessment of the market value. That is to say, even if the evidence put forward by Mr Buckley could be relied upon (which it cannot in my view) the Betros offer was unrealistic.

[64]     There is no other basis upon which I can deduce that the defendants suffered some  loss  through  their  alleged  reliance  upon  Mr  Dellabarca’s  alleged  statement. That being so, the defence of estoppel is not one which is grounded in reality and it falls away.

[65]     Because the defendants do not spell out what course they would have taken but for the Dellabarca representation, it is difficult to understand what prejudice they say flows from the making of that representation.  They appear to suggest that but for the making of the representation they would have continued their own efforts to sell the property. It is implicit that had they done so they would have found  buyers at higher values than were achieved at auction. But as I have noted previously, they had been given sufficient lee-way to make their own arrangements for sale and had not achieved success – even in the market as it was before it deteriorated further during 2008. In case they are suggesting that the Betros proposal might have saved the day, I should therefore return to that topic.

[66]     I have also noted that because of the disadvantageous features of the Betros proposal,  it  was  understandable  that  the  mortgagee  should  reject  it  and  that  the mortgagee was not in breach of its obligations under s 176 in doing so.   But in any case, I consider that the Betros proposal was not a realistic one, anticipating as it did a  price  of  $586,000  for  Unit  D  –  a  figure  that  was  in  excess  of  what  even  Mr Buckley, the defendant’s expert valuer, assessed its worth at – by a large margin – even assuming that Mr Buckley’s valuation was reasonable.  I have also  noted that Mr Buckley’s valuation was not a reliable one given the basis upon which he made his assessment of the market value. That is to say, even if the evidence put forward by Mr Buckley could be relied upon (which it cannot in my view) the Betros offer was unrealistic. In any event it never got past the stage of being a conditional offer. It is not therefore to be regarded as a sound indication of the state of the market at the relevant time.

[67]     There is no other basis upon which I can deduce that the defendants suffered some loss through their alleged reliance upon Mr Dellabarca’s statement. That being

so, the defence of estoppel is not one which is grounded in reality and it falls away.

Credit Contracts and Consumer Finance Act 2003

[68]     Counsel for the defendant submitted:

a)        The plaintiff unnecessarily delayed the sale of unit H;

b)        The plaintiff did not tell the defendants that unit H had not sold and,

as  a  result,  the  defendants  did  not,  as  was  their  right,  call  for  the plaintiff to sell the property;

c)        The plaintiff has not obtained sufficient rent for the property;

d)The plaintiff has not provided sufficient particulars of the state of the accounts  between  the  plaintiff  and  the  defendant,  including  rents received.

Delay in selling unit H

[69]     Counsel for the defendant submitted:

50.Further, a mortgagee does not have a carte blanche right to do as it pleases  with  respect  to  the  mortgagor’s  security:  Palk  v  Mortgage Services Funding Plc [1993] Ch. 330 [at 337-338]:

A mortgagee can sit back and do nothing.  He is not obliged to take steps to realise his security. But if he does take steps to exercise his rights  over  his  security,  common  law  and  equity  alike  have  set bounds to the extent to which he can look after himself and ignore the  mortgagor’s  interests.    In  the  exercise  of  his  rights  over  his security the mortgagee must act fairly towards the mortgagor.  … He can protect his own interest but he is not entitled to conduct himself in  a  way  which  unfairly  prejudices  the  mortgagor. If  he  takes possession  he may prefer to  do  nothing and  bide  his time,  waiting indefinitely  for  an  improvement  in  the  market,  with  the  property empty  meanwhile.   That  he  cannot  do.   He  is  accountable  for  his

actual receipts from the property.   … He must take reasonable care

to  maximise  his  return  from  the  property. He  must  also  take reasonable care of the property.

[70]     The point about the failure to rent and account to the mortgagor is at the base

of the submission that the credit contract should be re-opened.  I will deal below with the complaint about the failure to rent and will consider the failure to account in a subsequent section of the judgment.

[71]         It is suggested by the defendant that there have been unacceptable delays in this case in disposing of apartment 3H. I gather the defendants’ assertion centres on the fact that even as at the date of the hearing before me in November 2009, Unit H

had still not been sold.

[72]     It is said that, in this regard, the conduct of the plaintiff has been oppressive and that the creditor contract should be re-opened. I observe that this ground is quite inadequately particularised in the notice of opposition.

[73]     The  first  point  is  that  the  mortgagee  undoubtedly  has  the  right  to  choose when  to  sell.  Secondly,  I  respectfully  agree  with  Associate  Judge  Abbott  who concluded in the case of Contributory Mortgage Nominees Limited v Harrison HC AK CIV-2004-404-6417 that if the mortgagee has power to decide if and when to sell  it  cannot  be  a  departure  from  reasonable  commercial  practice  (and  hence oppressive)  simply  to  exercise  that  power.  As  His  Honour  also  noted,  while  the mortgagee has a wide discretion as to when to sell, it might still be possible on the facts of a particular case that excessive delay in selling could amount to an equitable breach of good faith.

[74]     In his synopsis (where for the first time the defendant particularised how the

CCCFA had been breached), counsel criticised the plaintiff for:

“Sitting  on  its  hands”  in  respect  of  the  non-sale  of  apartment  3H  –  and “gambling” that the price of the unit 3H would increase more than the extra interest accrued – to the detriment of the second defendant;

[75]     This  criticism  is  essentially  taking  the  plaintiff  to  task  for  exercising  the prerogative that I have already mentioned: the mortgagee has to choose when to sell.

[76]     Without the  existence  of  some  additional  element,  delay on  its  own  cannot amount  to  a  breach  of  the  equitable  obligations  of  good  faith. The  mortgagee’s conduct  cannot  on  the  basis  of  the  material  that  I have  before  me  be  described  as dishonest or malicious conduct towards the defendants.  Rather, at most, it could be viewed  as  an  assertion  that  the  plaintiff  made  the  wrong  commercial  decision, perhaps negligently. But that is not sufficient to found a claim to an entitlement to a re-opening of the credit contract.

The rents from 3H

[77]     This particular ground is stated in the following way:

(iv)     There is also an issue as to whether the Plaintiff is entitled to obtain the  rents  from  3H  whilst  not  formally  becoming  the  mortgagee  in possession  effectively  “hedging  its  bets”  to  the  detriment  of  the Second Defendant.

[78]     The   submission   in   expanded   form   is   set   out   later   in   counsel   for   the defendants’ synopsis in the following way:

48.The Plaintiff, it appears, stopped actively marketing the Apartment and did not even bother (it appears by reading “between the lines”)

to rent out the Apartment   for   approximately   8   months   (until

March/April 2009) presumably, in the entire period the Plaintiff has charged interest on the loans outstanding to River Cottage Limited (guaranteed by the Second Defendant). It is this conduct (in failing

to  report/keep  the  Second  Defendant  informed  and/or  do  anything with  the  property  while  incurring  interest  (presumably  at  penalty rates)) which requires, in Counsel’s submission, the credit contract to  be  reopened  pursuant  to  s120  of  the  CCCFA.  The  conduct  in Counsel’s  submission  falls  beneath  what  would  be  a  “reasonable standard of commercial practice” (s120 of CCCFA).

[79]     Then by making reference to Palk (see above) the defendants attempt to show that there is a defence arising from the allegation that the plaintiff has breached its duties.

[80]     It would appear, and I accept for the purposes of the present decision, that the plaintiff  by  arranging  tenants  and  accepting  rent  probably  became  a  mortgagee  in possession.  It  is  also  implicitly accepted  for  the  plaintiff  that  Unit  3H  has  taken  a long time to sell and that it has not been tenanted throughout. It is not necessary to discuss the defence further because   the   potential liability of a mortgagee in possession is restricted to committing to that which arises out of committing waste: s 151 Property Law Act 2007.  I do not know of any authority (and none was cited to me from  New  Zealand  Courts) which  establishes that the mortgagee in  possession will be liable for failure to obtain the maximum amount of rent potentially obtainable from letting the mortgaged premises.   In the absence of authority to the contrary, I would not be prepared to accept that the statement taken from Palk  represents the law in New Zealand.

[81]     In any case, had the issue of the rental of the premises been properly raised as the High Court Rules require in a particularized notice of opposition, it may have been found that there was a good answer to  the  various  belated  claim  by  the

defendants. It might, for example, have been difficult to obtain tenants. It might have been thought to be preferable to offer the unit for sale on a vacant-possession basis.

It may have been that the premises were not suitable to be let out because of their condition.

[82]     I am not prepared to accept that there is a reasonably arguable defence in the circumstances of this case that there has been oppressive conduct on the part of the mortgagee.

Failure to keep defendant informed about state of account

[83]     In his submissions counsel for the defendant outlines a number of complaints that the defendant makes about the lack of information she received about realising the securities and also the state of the loan. The particular complaints I will discuss

in the succeeding paragraphs.

[84]     The  defendants  complain  that  the  plaintiff  failed  to  advise  the  second defendant that Unit 3H  had not sold and that prevented her “from demanding that TEL sell it in a prompt fashion”. It is also said that the defendants made a number of requests for a statement of account but that the plaintiff failed to provide one until these proceedings had come round for hearing. It was the submission of counsel that there should have been continuing disclosure since the auction in 2008 and because there has not been there has been a contravention of the contractual requirement for the same. The defendant alleges that the plaintiff failed to give proper consideration to the Betros agreement and caused loss.

[85]     Counsel for the defendant submitted that the failure to provide a continuing disclosure of the state of the account “has effectively denied the Second Defendant the ability to audit/assess/challenge to the amount for which judgment is sought” and “in counsel’s submission [this] cannot satisfy the standard of proof that the Plaintiff needs to satisfy for it to  have judgment entered  in its favour”. The loan  was for  a fixed interest rate for the first 12 months but the defendant increased the rate. The plaintiff  did  not  give  the  defendant  the  required  notice  of  increases  in  the  interest rate.

[86]     Some  of  these  points  I  have  already  dealt  with.  I  will  consider  briefly  the others below.

[87]         There  are  two  points  of  substance  that  I  have  already  dealt  with. These concerned the failure to sell Unit 3H and the alleged failure to notify the defendant that the Unit had not sold.  Even if it is true that the defendant did not know that 3H had  not  sold  (because  the  plaintiff  did  not  tell  her),  I  do  not  regard  this  as  being oppressive  conduct.  The  thrust  of  the  defendant’s  submissions  is  that  the  various failures to provide disclosure were so serious that the Court would re-open the loan agreement and in effect substantially reduce the amount that the defendants would otherwise need to pay to the plaintiff by way of recognition of the seriousness of the breaches of duty on the part of the plaintiff. In my opinion, the Court will not likely find that conduct is ‘oppressive’. It would not be oppressive to advise about the non- sale 3H. If the plaintiff is under no obligation to sell 3H at any particular time, how can it have been under an obligation to advise the defendants that it had not arranged the sale in order to provide the defendant herself the opportunity to carry out her own sale?

[88]     Turning to the Betros agreement, I have already concluded that the proposed Betros  transaction  was  not  a  serious  and  substantial  proposition  that  the  plaintiff ought  to  have  pursued. If  that  is  so,  it  would  seem  to  follow  that  there  was  no obligation for the plaintiff to give reasons why it was not going to persevere with the Betros offer.

[89]     I accept that the contract imposed a requirement of continuing disclosure and that, pursuant to the contract, TEL was required to provide ‘regular statements’ about the account.   The same provision also said that statements were to be provided six monthly.

[90]     I agree that there seems to be some evidence suggesting that the plaintiff has been  less  than  scrupulous  in  its  compliance  with  the  requirement  to  provide continuing  disclosure.  Further,  if  the  plaintiff  undertook  that  the  loan  interest  rate would be fixed for the first 12 months and has acted in breach of that, then that is a matter  that  must  be  taken  into  account  when  assessing  quantum.  However  it  is

necessary to keep this issue in perspective. It would appear that if there was a breach

of  the  fixed  interest  component  of  the  loan  agreement  it  only  amounted  to  a additional  0.75%  being  charged  for  a  period  of  less  than  a  week.  In  the  overall context, the amount is trifling – some $120 as I calculate it. I do not consider that it would be a just or proportionate outcome for the Court to re-open the transaction on this ground alone. It is a matter that can be cured by a necessary adjustment to the quantum of the judgment.

Result

[91]     I am satisfied that the second defendant does not have a substantial defence to the plaintiff’s claim.

[92]     The  plaintiff  seeks  judgment  in  the  sum  of  $586,464.09  being  the  loan balance as at 17 March 2009.  It also seeks interest accruing at the contractual rate of 14.7% per annum. There is to be deducted from the above amounts rental payments totalling $9,695.60 and $1,648.12. The excess claim that I noted in [90] should also

be deducted.

[93]     The parties should confer on the matter of quantum and costs and if they are unable to agree on that issue I will hear them at 9 a.m. on a suitable date.

J.P. Doogue

Associate Judge