TSB Bank Limited v Taylor

[2017] NZHC 2743

IN THE HIGH COURT OF NEW ZEALAND

TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV 2017-470-000075

[2017] NZHC 2743

BETWEEN

TSB BANK LIMITED

Plaintiff

AND

WILLIAM FERGUSON TAYLOR

Defendant

Hearing:

2 November 2017

Appearances:

P Chisnall for the Plaintiff

K E Cotter for the Defendant

Judgment:

10 November 2017

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

10.11.17 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

TSB BANK LIMITED v W F TAYLOR [2017] NZHC 2743 [10 November 2017]

The application

[1]    The plaintiff, TSB Bank Limited (TSB) applies for summary judgment for payment of debts owing under three loan agreements. Upon its summary judgment application TSB must satisfy the Court that Mr Taylor has no defence.

[2]    The claim concerns mortgage debt shortfalls following the sale of three properties. One of those, at Hayward Court, Te Puke was sold by mortgagee sale. Mr Taylor was the borrower. There was a debt shortfall of $35,745.93 following the mortgagee sale of that property.

[3]    The second property was at Wharf Street, Tauranga. There was a debt shortfall of $7,864.03 for which Mr Taylor was liable when the property was sold.

[4]Mr Taylor accepts his liability to TSB for those debt shortfalls.

[5]    The summary judgment application issues concern the sale of the third property at Edgecumbe Road, Tauranga, (the property) by mortgagee sale for

$500,000. TSB claims Mr Taylor owes $336,094.47 as covenantor under a loan following the mortgagee sale of that property. TSB also claims its costs on a solicitor/client basis.

Mr Taylor’s opposition

[6]    Mr Taylor says he has a defence to that claim. He says that TSB, in exercising its power of sale over the property, breached its obligations under s 176 of the Property Law Act 2007 (PLA). That section provides:

1.A mortgagee who exercises a power to sell mortgage property… owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:

…

(c)       Any covenantor.

[7]    Mr Taylor’s concern is with the manner in which the property was marketed and sold he having obtained a resource consent to subdivide the property into three

residential lots. He had informed TSB that he was in the process of working with the Tauranga City Council (TCC) and that geotechnical testing was being completed and site plans had been submitted for subdivision purposes. Prior to the subdivision plans being drawn up he had submitted architectural drawings to TCC. A great deal of time and money was he says, spent on the development potential of the property. Mr Taylor says it appears that TSB had not informed the land agent about the potential for subdivision when it was marketed for sale. Although TSB had copies of the subdivision plans, those appear not to have been mentioned during the marketing campaign.

[8]    Mr Taylor says he provided TSB with updates as to TCC’s position on subdividing the property; that TCC rejected the first proposal in 2010 but then indicated a willingness to allow for the property dwelling to be relocated with two additional sections being created.

[9]    When TSB sent him a letter on 5 March 2014 informing him that TSB planned to proceed with plans to sell the property if the loan balances in arrears were not paid within 14 days, he was surprised such action was being considered in light of the information he shared regarding his plans for development of the property.

[10]   Mr Taylor has reviewed TSB’s documents produced by Mr Kendall, TSB’s senior creditor control specialist and provided by Mr Kendall’s first affidavit in support of the summary judgment application. Mr Taylor says:

[16]     …Nowhere do I find any mention of the property’s value taking into account its subdivision potential…

[11]   Mr Taylor notes that an associate of his, a Mr Nesdale had offered to purchase the property for $500,000 (net of GST). Mr Nesdale’s offer was provided to TSB by email the day before the mortgagee sale on 10 September 2014. In response Mr Nesdale was advised the bank required all offers of purchase to be by way of an unconditional offer via a sale and purchase agreement. Mr Taylor’s concern is that TSB did nothing to counter the proposal nor consider postponing the auction.

[12]   Mr Taylor says although L J Hooker of Tauranga was instructed by TSB to conduct the sale of the property by auction, that real estate agent did not contact him to discuss any of the development plans.

[13]   Until Mr Taylor had filed his opposition and affidavit in opposition the basis of his opposition was unclear. In response, TSB filed out of time a reply affidavit and sought leave for it to be read. The application was opposed. The Court granted leave nevertheless.

[14]   It was not until Mr Taylor’s affidavit was filed that the full measure of his defence became known. Also, nothing was provided by the second affidavit of Mr Kendall that affected Mr Taylor’s ability to advance his opposition to the claim.

[15]   In summary, it is Mr Taylor’s case that TSB did not act reasonably in exercising its power of sale over the property and failed to adequately and reasonably instruct its land agent L J Hooker to properly advertise the property.

Submissions on behalf of Mr Taylor

[16]   Mr Cotter confirms Mr Taylor does not question TSB’s right to issue a s 176 PLA notice. He also does not question the process with the sale of the other two properties, one of which was sold by mortgagee sale.

[17]   Referring to a valuation obtained by TSB’s solicitors from Property Solutions (BOP) Limited dated 23 July 2014, Mr Cotter comments on behalf of Mr Taylor that the market value of the property was noted as $640,000 and on a forced sale value basis at $544,000.

[18]   It is clear Mr Taylor’s primary criticism focusses upon L J Hooker’s internet advertisement. That stated:

Once in a Lifetime Opportunity

With great bones, this generous 320m2 home is on two levels offering five bedrooms, two bathrooms and huge rumpus room. The lounge, dining and kitchen command impressive views over urban Tauranga and the rural

surrounds of the Papamoa Hills. And best of all, the private gardens and mature trees offer the best of environments to raise a family.

Or, take advantage of the 4262m2 site in the Avenues with an approved 3 lot subdivision.

The home has been rented to the current tenants for the past 10 years. The choice can be yours; Keep as an investment and land bank for the future, Redevelop into 3 generous properties or, my favoured option, restore this fabulous property to its former glory.

Once thing is certain this property will be sold!

[19]   Mr Cotter states Mr Taylor’s concern is about a one sentence indication that the property had been approved for a three-lot subdivision. Counsel submits that was not reasonable in the circumstances; that TSB’s actions through its agents amounted to a minimum effort and not a reasonable effort, to obtain the best price reasonably obtainable at the time of sale.

[20]   Mr Taylor does not claim that TSB acted unreasonably in opting to engage the mortgagee sale process and acknowledges it was TSB’s right to do so. His position is that the process was flawed. He says marketing was designed for a quick sale and not a sale that would result in the best price reasonably obtainable on the sale date.

[21]   Mr Cotter submits that claims that the L J Hooker weekly vendor reports noted comments from prospective purchasers of them being aware of the property’s subdivision potential, are inconclusive with regard to determining whether a reasonable approach was taken in the marketing of the property.

[22]   It is accepted on Mr Taylor’s behalf that a mortgagee, while obliged to obtain the best price reasonably obtainable, is not under an absolute requirement to recover all monies owed when a loan is in default. Mr Cotter submits however that more was required other than a one line reference in the advertisement noting the property had been approved for subdivision.

[23]   Proper follow up was, Mr Cotter submits, required of prospective purchasers who enquired about the property’s subdivision potential. The agent’s weekly vendor report for the week ending 4 September 2014 noted the property’s good location and subdivision potential even though reporting negatively, as to the costs of removing the

house on the property. Mr Cotter submitted there was an obligation to follow up with that prospective buyer and to provide the information available regarding the testing done and the subdivision consent details available.

[24]   Mr Cotter submits that without knowing whether the agent had a follow up conversation with that potential buyer whose only concern was the cost of removing the existing home, the Court could not be satisfied that TSB acted unreasonably with this particular buyer, or indeed any others listed in the weekly vendor reports. While acknowledging that there was ample support for the notion the property as marketed did gain a great deal of interest, the comments about the potential sale price were significantly below that estimated by the Property Solution’s valuation. Therefore, it can be assumed, submits Mr Cotter that L J Hooker did not make a reasonable effort to sell the property at a fair price, but instead moved it for a quick sale that was $44,000 below the estimated forced sale value. Counsel submits this case is similar to that dealt with in McArthur Ridge1. In that case, there was an admission of liability but questions arose regarding claims of a reasonable outcome following the mortgagee sale.

[25]   Mr Cotter submits the Court must be satisfied Mr Taylor has no defence. He submits the Court cannot be satisfied because there is insufficient evidence before the Court to determine whether the sale price for the property was reasonably obtained in the circumstances.

[26]   Mr Cotter submits it is clear there was a great deal of interest in the property and that potential buyers commented on the subdivision potential. However, what is not clear, and what he says cannot be determined by the Court without a full hearing, is whether the agent, L J Hooker, conducted any reasonable follow-up marketing when a potential buyer expressed interest in the property with its obvious development potential.

[27]   Regarding the quantum obtained at the sale Mr Cotter submits the only evidence before the Court is that TSB was satisfied with a quick sale and the plan to recover any shortfall from Mr Taylor pursuant to his personal guarantee as a

1 McArthur Ridge Investments Limited v Schulz [2012] NZHC 43.

covenantor. In the McArthur Ridge case the Court found that the issue of quantum had not been properly addressed and that a trial upon the issue of the proper amount of damages was appropriate. Mr Cotter submits that is the proper approach for endorsement in the present situation.

Conclusions

[28]   The marketing campaign and advertising of the property occurred in August and early September 2014. The agent was aware of subdivision potential as their advertisement mentions – it having been noted that subdivision had been consented to. The acceptable evidence is:

(a)A reputable real estate agent was appointed to market the property.

(b)A valuation report was obtained from an experienced valuer to provide a guide as to what could reasonably be expected for the property.

(c)Marketing occurred over a reasonable period i.e. 5 weeks.

(d)There was an extensive advertising promotional campaign, and significant buyer interest was generated.

(e)The auction was properly conducted.

(f)The sale price was reconcilable with the expert’s valuation.2

(g)It was always in TSB’s interests to obtain the best sale price reasonably obtainable.

[29]   While under a duty to take reasonable care, it does not follow that the best price reasonably obtained will in fact be achieved.3

2 Public Trust v Ottow 2010 10 NZCPR 879 at [17].

3 Re Bank of New Zealand ex parte O’Connor [2014] NZHC 3004 at [54].

[30]   Mr Taylor’s  criticism  of  the  advertisement is unfounded.   He believes the “subdivision potential” should have been headlined in the advertisement.

[31]   In the Court’s view,  it was nevertheless, significantly and otherwise sufficiently, highlighted in the advertisement. There is no evidence but only speculation about how that advertising may have affected interest in the property. Likely those prospective buyers interested in the property’s subdivision potential would have undertaken their own enquiries. The advertisement clearly did express that there was subdivision potential.

[32]In the Court’s view, TSB has sufficiently satisfied its s 176 PLA obligations.

[33]   The Court is satisfied there is sufficient evidence, from which to conclude a defence focussed upon the conduct of the mortgagee sale, is not available to Mr Taylor.

[34]Upon all three causes of action TSB’s claims are granted.

Judgment

[35]Judgment is entered for TSB in the total sought namely $379,704.43.

[36]   Costs as by the terms of the loan arrangement shall be payable on a solicitor/client basis.

Associate Judge Christiansen