Warren

[2013] NZHC 2199

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2013-488-396 [2013] NZHC 2199

UNDER  the Property Law Act 2007

IN THE MATTER OF       an application by FRANCIS LEWIS DAVID WARREN, AVERIL PAMELA WARREN, FRANCIS HORTON TUCK and CATHERINE ANNE TUCK Applicants

On the papers:

Appearances:           C S Stuhlmann for Applicants

Judgment:                28 August 2013

JUDGMENT OF ASSOCIATE JUDGE BELL

This judgment was delivered by me on   28th August 2013 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules.

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Registrar/Deputy Registrar

Solicitors:

Bruce Scott Stevens (C S Stuhlmann), Ellerslie, Auckland, for Applicants

Re WARREN and TUCK [2013] NZHC 2199 [28 August 2013]

[1]      The applicants apply under s 200(3)(d) of the Property Law Act 2007 for an order permitting them, as mortgagees, to buy the property at 7 Sammaree Place, Kerikeri, otherwise than by purchasing at a sale through the Registrar of the Court under s 196 of the Property Law Act.   They also ask for orders allowing them to begin the proceeding by originating application under Part 19 of the High Court Rules, and that the application be made without notice.

[2]      No.7 Sammaree Place, Kerikeri, is a vacant industrial lot off Mill Lane in a light industrial area in Kerikeri.   In June 2010 the applicants sold the property to John Walter Clifford Robinson for $400,000 plus GST.  Mr Robinson paid $100,000 on settlement.  The applicants left in the remaining $300,000, which was to be repaid under a term loan, secured by a registered first mortgage.  Mr Robinson was to make a principal reduction of $50,000 after three years, another principal reduction of

$50,000 after four years, and was to repay the remaining $200,000 after five years.

[3]      The mortgage in favour of the applicants is the only mortgage registered against the title.   There are no other interests registered against the title after the applicants’ mortgage.

[4]      Mr Robinson defaulted in paying interest under the term loan. The applicants served a notice under s 119 of the Property Law Act on Mr Robinson on 14 May

2012.  He did not remedy the defaults identified in the notice.  The power to sell the property accrued to the applicants on 25 June 2012.  The defaults have still not been remedied.  At June 2013 the amount owing under the term loan, including penalty interest, was $390,000.

[5]      I adjudicated Mr Robinson bankrupt on 3 December 2012 on the application of the Bank of New Zealand.  On 23 May 2013, the Official Assignee disclaimed the property under s 117 of the Insolvency Act 2007.

[6]      In the meantime, the applicants tried to sell the property.   They engaged

Bayleys Real Estate, who recommended sale by tender with a four week marketing

campaign.  Bayleys warned that selling vacant industrial land in the Far North in the current economic is difficult.  Even industrial properties with buildings on them are hard to sell, and seemingly harder to lease.

[7]      There was a four week marketing campaign.   I am satisfied that through Bayleys the property was properly advertised to arouse interest among potential purchasers.   Tenders closed on 4 April 2013.   Bayleys reported that there was no interest in buying the property.

[8]      The  applicants  instructed  Moir  McBain  Valuations  to  provide  a  current market valuation of the property.  Moir McBain are recognised registered valuers in the  Bay  of  Islands.    Their  report  assesses  the  market  value  of  the  property  at

$160,000 exclusive of GST.  They valued the property at Sammaree Place as vacant industrial land, and as having no current tenancy.  The report recorded slow market conditions and poor demand for this class of property.  There were no recent open market sales in the immediate area for value comparison.  The best that the valuers could do was to take the sales of two properties at Waipapa.  For Sammaree Place, they adopted a rate of $70 per square metre, which appears to be an average of the square metre rates for the two Waipapa properties.

[9]      In the absence of any market interest in the property, the applicants propose that they buy the property at the price fixed by the valuers, $160,000.

[10]     I am satisfied that this is an appropriate case to permit the proceeding to be commenced by originating application, even though it is not a proceeding within rr 19.2-19.4.  I follow the approach taken by Randerson J in Commissioner of Inland Revenue v McIlraith.1    There is no real opposing party in this case.   It is a single issue case, where there is no need for a fully-pleaded statement of claim.  Permission is accordingly granted under r 19.5(1) to proceed by originating application.

[11]     I am also satisfied that it is in order to proceed on a without notice basis. Mr Robinson is bankrupt and could have no interest in the property.  Any interest

1      Commissioner of Inland Revenue v McIlraith (2003) 21 NZTC 18,112.

that Mr Robinson had in the property has now passed to the Official Assignee, but the Official Assignee has disclaimed, under s 117 of the Insolvency Act.

[12]     Section 176 of the Property Law Act 2007 can be used as a checklist for people to be considered for service.   Section 176 imposes on a mortgagee a duty when exercising a power of sale to obtain the best price reasonably obtainable as at the time of sale.  In Re Canterbury Building Society,2 French J noted the relationship between the power of the court under s 200(3)(d) of the Property Law Act to permit mortgagees to buy and mortgagees’ duties when exercising a power of sale:3

The power conferred on the court by s 200(3)(d) of the Property Law Act is new.  The legislation does not set out any criteria to which the court is to have regard. However it would seem axiomatic that the application must be considered in the context of the mortgagees’ obligations when conducting a mortgagee sale; namely, the duty to exercise the power of sale in good faith, and to obtain the best price reasonably obtainable.

[13]     The  duty  under  s  176  is  owed  to  the  current  mortgagor,  any  former mortgagor, any covenantor, any mortgagee under a subsequent mortgage, and any holder of any other subsequent encumbrance.   In this case there is no former mortgagor, covenantor, mortgagee under a subsequent mortgagee, or holder of any other subsequent encumbrance.   Mr Robinson is the current mortgagor.   As the Official Assignee has disclaimed under s 117, and as Mr Robinson is bankrupt, I regard it as no more than a fanciful speculation to suggest that there would be useful benefit in serving the present proceeding on Mr Robinson.  He or the Official Assignee would only be able to assert some interest in the property if there was reason to believe that there would be some equity in the property after satisfying the debt to the applicants.  The Official Assignee’s disclaimer is an assurance that that possibility does not need to be taken seriously.   It is supported by the marketing evidence showing a lack of interest in the property.  No-one else needs to be served.

[14]     Accordingly, the application will be considered on a without notice basis.

[15]     In Re Southland Building Society, Lang J said:4

In the context of the present case, the primary principle to be taken from these authorities is that the court will only permit a mortgagee to acquire the mortgaged property when it is satisfied that the price that the mortgagee is prepared to pay reflects the best price that is reasonably attainable in respect of the property as at the time of acquisition.

[16]     In Re Property Finance Securities Ltd,5  Fogarty J commented on the use of s 200 after attempts to sell have failed, and after the market has been tested.  He said:

But I would not want to suggest that use of s 200 in this way will become a perfunctory exercise by the High Court.  Each case will depend on its own facts.

[17]     In  this case  I regard it  as  appropriate that  the applicants  first tested  the market.  It was appropriate for them to seek the advice of an experienced local real estate agent and to follow that advice by putting the property on the market for tender.  Ideally, they ought to have obtained a report from a registered valuer when they first instructed the land agent, but they remedied that by obtaining a more recent registered valuation.  Both the report by the valuers and the efforts by the real estate agent show that there is very little demand for vacant industrial land in Kerikeri and neighbouring areas such as Waipapa.  The paucity of comparable sales has made it difficult for the valuers to provide a more refined valuation for the property.  I accept that their valuation is the best that could be hoped for in the circumstances.  Fixing an appropriate amount for a sale price is important, even when there are no subsequent mortgagees or encumbrancees, because it will go to establish the applicants’ shortfall under the term loan, and will go to the amount for which they can claim in Mr Robinson’s bankruptcy.

[18]     In the circumstances, I am satisfied that the price of $160,000, exclusive of GST, is the best price reasonably obtainable for 7 Sammaree Place, Kerikeri, at the current state of the market.  Accordingly, I make an order under s 200(3)(d) of the Property Law Act 2007 permitting the applicants to buy the property at 7 Sammaree Place, Kerikeri, for the price of $160,000 exclusive of GST.

[19]     The  applicants  sought  an  order  authorising  the  purchase  at  a  price  of

$160,000  without  addressing  the  question  of  GST.    It  is  my  intention  that  the purchase price be $160,000 exclusive of GST, so that any GST issues arising as a consequence of this being a sale in satisfaction of a debt under s 5(2) of the Goods and Services Tax Act 1986 can be addressed.

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Associate Judge R M Bell