Whakaruru v Bath
[2023] NZHC 2474
•11 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2387
[2023] NZHC 2474
BETWEEN ANNA KATARAINA WHAKARURU and SONNY MARUPO WHAKARURU as
trustees of the SONNY AND ANNA WHAKARURU FAMILY TRUSTPlaintiff
AND
JAY BATH
Defendant
Hearing: 14 June 2023 Appearances:
J Loh for the Plaintiffs
T Nelson for the Defendant
Judgment:
11 September 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 11 September 2023 at 10 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Inder lynch Solicitors, Manukau Bankside Chambers, Auckland
WHAKARURU v BATH [2023] NZHC 2474 [5 September 2023]
Introduction Table of Contents [1]
Issues [6] Legal principles [8] Summary judgment [8] Duty to mitigate loss [10] Factual background [19]
Is it reasonably arguable the plaintiffs unreasonably declined Mr Bath’s offer?
[41]
Is it reasonably arguable that the plaintiffs should have revisited Mr Bath’s offer? [55]
Is it reasonably arguable that the plaintiffs did not follow a reasonable resale process? [62]
Listing period too short [65]
Plaintiffs’ appraisal and real estate advice not before the Court [74]
Expert evidence [85]
Are the circumstances appropriate for summary judgment? [87]
Conclusion on alleged failure to mitigate loss on resale [91]
Further amounts [93]
Result [103]
Costs and interest [105]
Introduction
[1] The plaintiffs seek summary judgment for losses arising from the defendant’s breach of an agreement to purchase a residential property for $1,160,000 entered into on 14 September 2021.
[2] The sale and purchase agreement was on the ADLS/REINZ – Particulars and Conditions of Sale of Real Estate by Auction form (5 ed, 2020). Clause 12.4(1) provides that if the purchaser does not comply with a settlement notice then the vendor may either sue the purchaser for specific performance or cancel the agreement by notice and pursue the remedies set out. The remedies are that the purchaser forfeit the deposit paid (but not exceeding 10 per cent of the purchase price) and/or for the vendor to sue the purchaser for damages. Clause 12.4(3) then provides that the damages claimable by the vendor include all damages at common law or equity plus any loss incurred by the vendor on any bona fide resale contracted within one year, and interest and costs.
[3] The property was resold for $378,500 less than the original purchase price. The plaintiffs claim the net loss of $320,500, after deducting the original deposit of
$58,000, plus further amounts by way of penalty interest, costs and expenses on the resale, outgoings and maintenance, and interest and costs.
[4] The defendant does not contest liability but opposes summary judgment on quantum on the grounds that, by reselling the property for approximately 30 per cent less than the original price, the plaintiffs failed to act reasonably to mitigate their loss on resale. The defendant relies on three particular aspects:
(a)the plaintiffs failed to accept the defendant’s offer on the settlement date to complete the purchase at a reduced purchase price of $1,000,000 in six months’ time;
(b)the plaintiffs failed to revisit the defendant’s offer prior to accepting an offer from a third party following the failed auction; and
(c)the plaintiffs otherwise failed to follow a reasonable resale process.
[5] The defendant submits that these matters are not suitable for determination by summary judgment as the reasonableness of the plaintiffs’ actions needs to be assessed and determined through a full hearing.
Issues
[6] The overarching issue for determination is whether the plaintiffs have failed to act reasonably to mitigate their loss on the resale. Because it is a summary judgment application the question is whether any of the three aspects advanced by the defendant raise a reasonably arguable defence that there was a failure to mitigate:
(a)Is it reasonably arguable that the plaintiffs unreasonably declined the defendant’s offer on settlement date?
(b)Is it reasonably arguable that the plaintiffs acted unreasonably by failing to revisit the defendant’s offer prior to resale?
(c)Is it reasonably arguable that the plaintiffs failed to follow a reasonable resale process?
[7] I begin by setting out the general principles applying to summary judgment and to mitigation of loss.
Legal principles
Summary judgment
[8] Rule 12.2(1) of the High Court Rules 2016 provides that summary judgment may be granted where a plaintiff satisfies the Court that the defendant “has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.”
[9] The principles applying to summary judgment applications are well established by the leading authority, Krukziener v Hanover Finance Ltd:1
The principles are well settled. 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 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its 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). 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). 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).
Duty to mitigate loss
[10] Clause 12.4(3) of the sale and purchase agreement provides that the damages claimable by the vendor may include the loss incurred on a bona fide resale within one year of the settlement date agreed.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[11] In Sale of Land D W McMorland summarises the measure of damages on resale under the general law as follows:2
A vendor who resells following cancellation for repudiation or breach by the purchaser does not owe a duty of care to the purchaser based on proximity; there is no analogy between such a vendor and a mortgagee selling in exercise of the power of sale. The vendor is in the same position as any other person seeking damages after the cancellation of a contract; the duty is the ordinary common law duty to mitigate the loss. The duty to mitigate requires only that the vendor take such steps to obtain a proper price as are reasonable in the circumstances, including those in which the vendor is placed by the purchaser’s default. In assessing what is reasonable in those circumstances “the conduct of the vendor is not to be weighed in nice scales” and “the urgency of the need of a vendor to sell his property and receive the proceeds of sale will often have appealing features”. A vendor is not obliged to delay a sale in the hope, or even expectation, the market prices will increase. On the other hand, adequate steps must be taken in relation to advertising and promotion of the resale and the property must be kept in reasonable order and condition to encourage such a sale.
[12] The author goes on to say in respect of the contractual measure of damages on resale under cl 12.4(3) (referring to the equivalent clause under the 11th edition of the standard REINZ/ADLS agreement for sale and purchase) that it can be seen as designed to foreclose controversy over “foreseeability and remoteness of loss” in post cancellation claims, referring to Mana v Fleming.3 The passage in Sale of Land continues that if these damages can be categorised as liquidated damages, the common law duty to mitigate loss does not apply, citing a decision of the New South Wales Court of Appeal, Galafassi v Kelly.4 The New South Wales Court of Appeal however stated that whether the case was approached on the basis of the common law duty to mitigate or on the basis of an implied term to act reasonably on the resale (their equivalent clause not including a reference to the resale being bona fide), the result would be the same.5
[13] In Masterton Investments Ltd v Watson Ellis J held that the duty to act bona fide on the resale was a duty to act reasonably, citing Tucker v Sun, where the further requirement that the resale be “bona fide” was held to import:6
2 D W McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [12.57(a)] (footnotes omitted).
3 At [12.57(b)]; citing Mana v Fleming (2007) NZCA 324, (2007) 8 NZCPR 469.
4 Galafassi v Kelly [2014] NSWCA 190, [2014] NSWLR 119 at [154].
5 At [154] to [157].
6 Masterton Investments Ltd v Watson [2022] NZHC 3113, (2022) 23 NZCPR 856 at [83]; citing
Tucker v Sun (2009) 10 NZCPR 542 at [48].
… little more than a consideration of whether the plaintiff has acted reasonably on the resale. That assessment invites an overall view rather than hindsight criticism of particular aspects undertaken.
[14] Counsel in this case approached the application on the basis the common law duty to mitigate was in issue and so I approach the case on that basis, noting that if there is any difference between the duty to mitigate loss and the duty to act bona fide on the resale it would be in the defendant’s favour.
[15] In Tucker v Sun, Associate Judge Christiansen held that the standard of reasonableness in the vendor’s duty to mitigate is not high, as it is the purchaser who is the wrongdoer for failing to complete the contract as required,7 referring to Banco de Portugal v Waterlow & Sons Ltd in which Lord MacMillan observed:8
It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.
[16] In Mana v Fleming the Court of Appeal confirmed that the duty to mitigate was to “take such steps as were reasonable in the circumstances” and confirmed that the reselling vendor's conduct was “not to be weighed in nice scales.”9 In addition the Court commented that counsel was correct in conceding that the authorities gave the reselling vendor “a fair amount of leeway” in relation to its duty to mitigate loss.10
[17] The defendant emphasised that mitigation is a question of fact to be decided in the circumstances of each case.11 The defendant therefore submits that mitigation issues are particularly unsuitable for determination in a summary setting, referring to Zespri Group Ltd v Southlink Supply Ltd, where summary judgment on quantum was
7 Tucker v Sun, above n 6, at [40].
8 Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506.
9 Mana v Fleming, above n 3, at [41], referring to Sullivan v Darkin [1986] 1 NZLR 214 (CA) at 223.
10 At [41].
11 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [55] per Elias CJ; and Kop-Coat New Zealand Ltd v Incodo Ltd [2018] NZCA 430, [2019] NZCCLR 2 at [68].
declined on the basis that questions of mitigation and the extent of loss are matters properly for trial.12
[18] Bearing the above principles in mind, I turn to the factual background before considering each of the three grounds on which the defendant submits it is reasonably arguable there has been a failure by the plaintiffs to mitigate their loss.
Factual background
[19] On 14 September 2021 the plaintiffs, as trustees of the Sonny and Anna Whakaruru Family Trust (Trust), and the defendant entered into an unconditional agreement for the defendant to purchase the plaintiffs’ residential property on Pallant Street, Manurewa (Property) for the sum of $1,160,000 inclusive of GST (Agreement). The defendant paid a deposit of five per cent of the purchase price, or $58,000, with the balance to be paid on 17 May 2022 (Settlement Date).
[20] By email dated 5 April 2022, the defendant’s solicitors advised that due to recent changes in lending criteria and decreases in property valuations the defendant’s financial position had changed and he was now seeking to arrange finance through a second tier lender which would take additional time. The defendant therefore sought a reduction in the purchase price to $900,000 and an extension of the settlement date by six months.
[21] On 8 April 2022, the plaintiffs’ solicitors rejected the request to reduce the purchase price and extend the Settlement Date. Solicitors for the plaintiffs advised that if the defendant was not able to complete at the purchase price stipulated in the Agreement on the Settlement Date, the plaintiffs intended to sue for specific performance or penalty interest and consequential losses incurred, including legal fees. Bankruptcy proceedings were referred to as a possible option if the defendant was unable to pay. There appears to have been no response to this email.
[22] After a request from the plaintiffs’ solicitors on 4 May 2022, the defendant’s solicitor provided e-dealing details on 9 May 2022. A settlement statement, settlement
12 Zespri Group Ltd v Southlink Supply Ltd [2017] NZHC 1378 at [24].
requirements and trust account deposit slip were then sent to the defendant’s solicitors on 9 May 2022. On the Settlement Date, 17 May 2022, the plaintiffs’ solicitors provided their undertakings for settlement and confirmed their clients were ready, willing and able to settle.
[23] The solicitor for the defendant responded saying the defendant was eager to settle but “as previously advised, due to changes in the lending criteria and decrease in property valuations, our client’s financial position has changed.” The defendant again requested an extension of six months to the Settlement Date and, this time, a reduction in the purchase price to $1,000,000.
[24] Still on 17 May 2022, the plaintiffs declined the offer but counter-offered on the basis of a six month extension but with no reduction in the purchase price, and further payments that day of five per cent of the purchase price ($58,000) plus an additional $30,000 to cover the plaintiffs’ holding costs for the delayed settlement. That counter-offer was rejected by the defendant on the same day with the defendant’s solicitors confirming that the defendant was not in a position “financially to complete settlement at the purchase price referred to in the Agreement and also to pay [the plaintiffs] the additional deposits that are being requested”. The defendant’s solicitors confirmed that the defendant’s offer to purchase made earlier that day (i.e for
$1,000,000 in six months) remained open. The plaintiffs’ solicitors declined that offer again on 18 May 2022 and made a further counter-offer, this time proposing a three month extension to the Settlement Date with a reduction in purchase price to
$1,100,000 on the basis of immediate payment of $52,000 plus one day’s penalty interest of $543.45. On the same day, the defendant declined that counter-offer and repeated his previous offer.
[25] On 19 May 2022 the plaintiffs’ solicitors again declined the defendant’s offer and withdrew their counter-offer of 18 May 2022. The plaintiffs’ solicitor confirmed the plaintiffs were ready, willing and able to settle and that the plaintiffs required the defendant to settle in accordance with the Agreement. A settlement notice was attached requiring the defendant to settle within 12 working days.
[26] On 7 June 2022, the plaintiffs’ solicitors emailed the defendant’s solicitors attaching an amended settlement statement and noting that 7 June 2022 was the final day for the defendant to settle before the plaintiffs were entitled to cancel the Agreement, retain the deposit paid and pursue other remedies available under the Agreement.
The defendant failed to comply with the settlement notice by 7 June 2022.
[28] On 16 June 2022, the plaintiffs gave notice that the Agreement was cancelled, that the defendant’s deposit was forfeited pursuant to cl 12.4 of the Agreement and that the plaintiffs were entitled to sue for damages. The plaintiffs’ solicitors recorded that the plaintiffs would be entitled to file summary judgment proceedings as the defendant did not appear to have any viable defence. The plaintiffs’ solicitors quantified their clients’ claim as including:
(a)estimated potential loss from the resale of approximately $296,000 (noting that there was potential for this loss to increase);
(b)penalty interest on the unpaid portion of the purchase price in the amount of $97,821;
(c)costs of resale in the amount of between $20,000 to $25,000 for Ray White’s commission; and
(d)outgoings and maintenance in the amount of $1,648.99 (for rates).
[29] The letter therefore estimated that the plaintiffs’ claim for damages may total approximately $415,470. The letter confirmed that the plaintiffs were in the process of relisting the Property with Ray White and that they had been advised that the property market was currently experiencing a significant decline with properties being sold in the previous three months for approximately 10 per cent less than their CV. The letter further recorded that with interest rates and inflation increasing, there was potential for the loss on resale to continue to increase. In addition, the letter said there
may be further costs, including $270 per month for storage of the plaintiffs’ belongings pending the resale. Again, no response appears to have been received.
[30] One of the real estate agents engaged by the plaintiffs on the resale, Pat Lapalapa from Ray White, has filed an affidavit in support of the plaintiffs’ application.
[31] Mr Lapalapa’s evidence is that Mrs Whakaruru contacted him in June 2022 advising that the defendant was unable to settle the purchase of the Property and that the plaintiffs urgently needed to resell. Mr Lapalapa records in his affidavit that he was engaged by the plaintiffs in the original sale and that the original sale was by auction. Mr Lapalapa says that given the urgency for resale, he advised the plaintiffs that the best way to ensure the Property would be sold within a 90-day period was by auction. He based this advice on statistics available to him from Ray White’s PULSE application. These statistics assessed the success rate of selling within a 90-day period as 19.2 per cent by way of negotiation or asking price, whereas sale by auction (even if it did not sell under the hammer) had a 60.5 per cent success rate. A copy of the statistics relied on for the relevant period, June 2022 to August 2022, is annexed to his affidavit.
[32] The contract for Ray White to resell the Property is dated 13 July 2022. The Property was marketed on 14 July 2022 and listed for auction on 2 August 2022, a period of 20 days.
[33] Mr Lapalapa gives evidence that the period of 20 days was approximately the same time period for which the property was marketed for the initial sale, which was 22 days.
[34]The amount spent on marketing for the resale was $2,391.87 compared to
$864.43 for the initial sale in 2021. Mr Lapalapa explains that further funds were spent on the campaign for the resale to ensure proper exposure to the market.
[35] Following the marketing period, eight bidders registered for the auction on 2 August 2022. The highest bid at the auction was $700,000. The plaintiffs did not
accept this and the Property was passed in. After setting out this evidence, Mr Lapalapa explains:
At the time, the market was in heavy decline given the prices that we were getting for not only the sale of [the plaintiffs’] property but on other properties as well. It was also a time of uncertainty as the interest rates continued to climb. There was no way to be certain when the market would improve.
[36] Following the auction, Mr Lapalapa deposes that the plaintiffs received three offers from prospective purchasers. The terms of each of these offers are set out in both Mrs Whakaruru’s and Mr Lapalapa’s affidavits. Mr Lapalapa explains that two of the offers had only a five per cent deposit and were subject to a due diligence clause. One of these offers was for $790,000, slightly more than the offer accepted by the plaintiffs. The offer accepted of $781,500 included a 10 per cent deposit and its conditions were, in Mr Lapalapa’s view, less likely to result in cancellation as they were standard finance and building report conditions rather than a due diligence condition. Mr Lapalapa describes the offer accepted by the plaintiffs as the strongest conditional offer. Mrs Whakaruru further records that the offer accepted only requested access to the Property once before settlement, as opposed to weekly access for the highest offer, and so in the plaintiffs’ view “had the least amount of risk of cancellation, as we could not go through that again.”
[37]The sale went unconditional and was settled as agreed on 28 September 2022.
[38] The plaintiffs filed the application for summary judgment together with the substantive proceedings in December 2022 and are seeking losses arising from the defendant’s failure to comply with the settlement notice in the following amounts:
(a)damages for the net loss on resale of the Property amounting to
$320,500;
(b)penalty interest on the unpaid portion of the purchase price amounting to $72,822.30;
(c)costs and expenses incurred on resale amounting to $36,080.75;
(d)Auckland Council rates amounting to $1,200.64;
(e)interest under the Interest on Money Claims Act 2016 in respect of (a),
(c) and (d); and
(f)costs.
[39] The defendant’s opposition does not expressly challenge the losses claimed at [38(b)] to [38(f)] above. I discuss these below under the heading “Further amounts”.
[40] I now consider whether the defendant has a reasonably arguable defence that the plaintiffs failed to mitigate their loss on the resale, [38(a)], by considering each of the three aspects relied on by the defendant.
Is it reasonably arguable the plaintiffs unreasonably declined Mr Bath’s offer?
[41] Counsel for the defendant says that on 18 May 2022, the day after defaulting, Mr Bath offered to complete the purchase at the reduced purchase price of $1,000,000 with a six month settlement period. Counsel submits that the defendant has given evidence that he was willing and able to settle on those terms and that he could draw on family and friends if he had to, including through nominating them as additional or substitute purchasers. The defendant says further that the amount would have been reasonable to the plaintiffs at the time and was $218,500 more than the price for which the plaintiffs eventually resold the Property. It was also $75,000 more than the plaintiffs’ agent’s appraisal of $925,000.
[42] Counsel for the defendant helpfully summarised a number of cases considering mitigation, relying on Payzu Ltd v Saunders13 and Sotiros Shipping Inc v Sameiet Solholt (The Solholt)14 in particular to submit that reasonable mitigation extends to accepting an offer made by the party in breach when that offer is reasonable. In R B Road 391 Ltd v Johnstone, the defendant sought to rely on a similar submission, also relying on Payzu and The Solhot. In that case, no offer had been made and so the Court was considering whether the property ought to have been reoffered to the
13 Payzu Ltd v Saunders [1919] 2 KB 581 (CA) at 588–589.
14 Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] I Lloyd’s Rep 605 (CA).
purchaser but the Court confirmed that what is reasonable will depend on the facts.15 This must be the case whether an offer has been made or not.
[43] The plaintiffs say that in this case it was not reasonable to accept the offer made by the defendant on or around the Settlement Date because:
(a)a settlement period of six months was too long and they could not afford that delay; and
(b)that they had no certainty that the defendant would not default again in six months and could not take that risk.
[44] Responding to the plaintiffs’ first point, counsel for the defendant submits that while an inability to afford the delay may be a sound reason in principle, the plaintiffs have not proved it to be beyond argument on the facts. Originally the defendant relied on there not being sufficient evidence of the Trust’s financial position or the plaintiffs’ own financial positions to allow the Court to determine whether six months was too long to wait. However the plaintiffs provided this evidence in reply. The plaintiffs explained the reason for selling their house was that they intended to relocate to Tauranga to look after one of the plaintiffs’ parents and that Mr Whakaruru’s employer had organised for him to relocate his job to allow them to do so.
[45] The plaintiffs provide evidence of the Trust’s and their personal financial positions in some detail including attaching Mr Whakaruru’s pay slip as the sole income earner in the household, rental arrangements being brought to an end and loan and bank documentation evidencing increasing floating interest rates. Mrs Whakaruru explains:
This significant increase in our mortgage payments coupled with our loss of rental income put us in a bad position financially. The majority of Sonny’s monthly pay was going towards the Property and payment of our loan. It was simply unsustainable for us to wait and hope for the market to improve. Further, we had made commitments to my family and Sonny’s employer to relocate to Tauranga.
15 R B Road 391 Ltd v Johnstone [2011] BCL 563 at [64], overturned on appeal but not on this point, Johnstone v R B Road 391 Ltd [2011] NZCA 393 at [45], leave declined in R B Road 391 Ltd v Johnstone [2011] NZSC 141.
[46] At no stage during the negotiation process prior to issue of the settlement notice did the defendant indicate that he was prepared to purchase the Property at any earlier time than six months after the initially agreed Settlement Date, the Whakarurus having offered to delay settlement for three months at a reduced price. Even in his affidavit, the defendant still says that he would need extra time:
My offer to buy the property for $1,000,000, which did not have an expiration date on it, was open throughout this time. I was still willing to settle and able to settle at that price, with some extra time, and would have done so if the Plaintiffs returned to me.
(emphasis added)
[47] In addition, the defendant’s offer had in fact been declined by the plaintiffs’ solicitors for the third time on 19 May 2022 and, on the evidence, had not been repeated since. It did not therefore remain an open offer as the defendant appears to contend.
[48] The defendant submits that as matters eventuated, the plaintiffs had to wait until 28 September 2022 for settlement of the resale and that his offer to settle six months from the original Settlement Date would only have had the plaintiffs wait two months longer. However this submission depends on the offer still being open and the defendant being in a position to settle. I consider this further in discussing the plaintiffs’ second concern.
[49] The plaintiffs’ second concern was the risk of the defendant defaulting again. Counsel for the defendant submits there was nothing to indicate he would not perform other than the fact of default and that this cannot be held against the defendant as offers of this kind will always be premised on prior default.
[50]However, the defendant’s evidence as far as his ability to pay is brief, stating:
The plaintiffs did not contact me to take up my offer to complete the transaction at a price of $1,000,000 dollars around the time of the auction or to buy the Property at a different price, nor did they do so after it. I remained willing to do that and could have done so with second tier lending. I could also have drawn on friends and family if I had to.
[51] There is no evidence to support the defendant’s ability to pay. The only correspondence with potential funders annexed to the defendant’s affidavit shows they were unwilling to lend. The defendant’s evidence that he could have paid in my view is a simple assertion made in hindsight.
[52] A critical factor in this case is that the defendant’s solicitors were advised that the plaintiffs would resell the Property and that damages would be sought for the difference in price on resale, with the loss estimated at $296,000. Despite this the defendant did not attend the auction or take any steps to indicate he was still prepared to buy the Property at any price, including the $1,000,000 previously offered.
[53] I consider it was clearly reasonable in the circumstances for the plaintiff to take the risk of default into account. If Mr Bath had made a clean offer of $1,000,000 payable immediately then it may have been reasonable for the plaintiffs to obtain advice on the likely resale value before declining his offer. But where the offer was for $1,000,000 in six months’ time and the plaintiffs have provided evidence of their need for urgency then the same does not apply.
[54] In these circumstances, even if the defendant could establish his offer remained open (which I doubt), I do not consider that Mr Bath has a reasonably arguable defence that the plaintiffs unreasonably declined any such offer.
Is it reasonably arguable that the plaintiffs should have revisited Mr Bath’s offer?
[55] This question overlaps to some extent with the previous question but focuses instead on the time following the auction. The defendant needs to establish that it is reasonably arguable that the plaintiffs could be found to have failed to mitigate their loss by not returning to the defendant following the auction.
[56] Counsel for the defendant submits that in the circumstances it would have been reasonable for the plaintiffs to take the initiative and revisit the defendant’s offer. The defendant relies again on The Solhot where the Court held it depended on the circumstances whether it was reasonable for a buyer to await an offer from the sellers
or whether a reasonable buyer would have taken the initiative themself.16 In that case, the buyers of a USD 5 million merchant vessel cancelled the contract because of the sellers’ breach in tendering delivery several days late. The buyers then offered to buy it for USD 4.75 million but the sellers declined. The English Court of Appeal held that had the buyers re-offered to buy the vessel for USD 5 million, the sellers would have accepted, and that reasonable mitigation extended to the buyers making such an offer on their own initiative.17
[57] The difficulty with the defendant’s position in this case is that the defendant had made it clear that he was not prepared to settle any earlier than six months from the Settlement Date. The defendant’s evidence only goes so far as to say that he could have purchased for $1,000,000 “with some extra time” and there is no further detail or supporting evidence to establish his financial ability to do so. In fact, correspondence annexed to his affidavit shows his unsuccessful attempts to obtain funding.
[58] As referred to above, the plaintiffs have set out their financial position in their affidavits in reply, both of the Trust and personally, which they describe as “very precarious”. They explain that they were not able to afford to move to Tauranga, even to rent, while still paying for the mortgage on the Property. Their situation was urgent and their evidence is that they were not prepared to wait or to take the risk by accepting a revised offer from the defendant. The factual position is therefore distinguishable from the position in The Solhot as not only were the plaintiffs here not offered the original price, there is no evidence that if the plaintiffs had gone back to the defendant, he would have agreed still to pay $1,000,000 as he asserts. Furthermore, the evidence is that any amount payable would only have been “with some extra time”.
[59] Mr Bath was aware that the Property was to be resold and the possible damages claim he was facing had been spelled out to his solicitors. He could have approached the plaintiffs if he wished to make it clear that his offer remained open or that he was prepared to pay more than they could obtain at auction and at an earlier time. He does not suggest that he did so.
16 Sotiros Shipping Inc v Sameiet Solhot (The Solhot), above n 14, at 609.
17 Sotiros Shipping Inc v Sameiet Solhot (The Solhot), above n 14, at 609–610.
[60] The plaintiffs confirm in their affidavits that at no time did the defendant or his representatives communicate that the defendant’s offer was still open or that the defendant was still willing to settle the purchase. Mrs Whakaruru goes on to say that, in any event:
…Sonny and I had no confidence that Mr Bath would be able to fulfil his purchase of the Property. We had no guarantees we would not end up in the same position in six months given that he clearly appeared to have financial difficulties and had already failed to settle on the first occasion.
[61] In these circumstances, I do not consider that it is reasonably arguable that the plaintiffs could be found to have failed to mitigate their loss by not taking the initiative in asking Mr Bath whether his offer remained open.
Is it reasonably arguable that the plaintiffs did not follow a reasonable resale process?
[62] The defendant accepts that the plaintiffs’ conduct is not required to be measured in “nice scales” but says that the plaintiffs were still required to “act reasonably in the circumstances and offer the land for resale at a proper price having regard to the state of the market; take adequate steps to advertise and promote the sale and keep the property in reasonable order and condition so as to encourage a sale”.18
[63] The defendant says the plaintiffs resold the Property for $781,500 after a listing period of only 20 days and an unsuccessful auction. The defendant has calculated that this was 32.6 per cent ($378,500) below the original contract price, 17.7 per cent ($168,500) below CV and 16 per cent ($143,500) under their own agent’s appraisal of market value.
[64] Counsel for the defendant describes the essence of this ground of opposition as being that when the auction failed to produce a bid at market value, the plaintiffs should have kept the Property on the market for sale by negotiation for a further period.
18 Sullivan v Darkin, above n 9, at 217–218.
Listing period too short
[65]The defendant’s first complaint is that the listing period was too short at only
20 days. The defendant has attached data from the Real Estate Institute of New Zealand (REINZ) that shows that the average listing period at the time was 45 days.
[66] In reply to this evidence, Mr Lapalapa has confirmed the period for which the Property was marketed for resale was only 2 days shorter than the period for which the Property had been marketed in the original sale. In addition, the real estate agent records that the amount spent on marketing for the resale was significantly more than on the initial sale, with $2391.87 spent on the resale compared to $864.43 on the initial sale. Importantly the real estate agent explains that at the time the market was in heavy decline, that it was a time of uncertainty as interest rates continued to climb and that there was no way to be certain when the market would improve.
[67] The defendant says in his affidavit that he was unable to obtain expert evidence from a real estate agent in time for the summary judgment application but there is no explanation as to why he was not able to do so. The summary judgment application was first filed in December 2022, with the hearing not until 14 June 2023. This ought to have allowed sufficient time to obtain expert evidence if the defendant wished to do so. Instead, the defendant attaches material collected on neighbouring property sales and sets out his own belief that if the Property had been marketed for a longer period, it would have been sold “at the market price, or at least close to it.”
[68] Counsel for the defendant submits that the defendant is not saying the Property ought to have been marketed for much longer, but he says it may only have taken another 25 days, using the average listing time, or another 70 days, using “Mr Lapalapa’s benchmark of 90 days”.
[69] The difficulty for the defendant is that the evidence before the Court does not show that a longer time on the market would have resulted in a higher price. Although the information attached to his affidavit shows that the average number of days that properties were on the market was 45, it does not follow that a property sold after a period shorter than that average will be sold for a lower price. The opposite may have
happened if interest rates continued to rise (as Mr Lapalapa’s evidence and the plaintiffs’ bank records appear to show).
[70] In any event, the plaintiffs rely on Masterton Investments Ltd v Watson for the proposition that they did not have to wait until a better price was obtained provided they acted reasonably, Ellis J holding:19
Lastly, I find the valuation evidence about the market value of the property at the relevant time of little moment. Market value is meaningless in the absence of potential buyers. There is no authority for the proposition that a vendor should wait until a better price is obtained. Rather, the question is whether, in all the circumstances as they were at the time, [the vendor’s] decision to accept the offer that it did was unreasonable. In my clear view it was not. The evidence was that [the vendor] wanted, and needed, to sell the property. The company had been trying to do so for almost a year. There had been few interested parties and fewer offers. The $1.3 million price was not wholly outside of range.
[71] Similarly in Sullivan v Darkin, the Court of Appeal held in relation to the predecessor to cl 12.4(3), which was to similar effect, that it is unnecessary to prove that the resale price represents the market value at the appropriate date, though it remains open to the purchaser to show that the resale was not bona fide.20
[72] Given the plaintiffs’ circumstances, as set out in their affidavits, and the need for them to settle the sale of the Property as soon as possible, I do not consider that it is reasonably arguable that the duration of the period for which the Property was marketed was so short that the Court could conclude that the plaintiffs failed to reasonably mitigate their loss.
[73] It is not enough for a defendant to assert a defence in response to an application for summary judgment; they must provide a sufficient evidential foundation to show that it is reasonably arguable. I do not consider that the evidence filed for the defendant does so sufficiently in terms of the duration for which the Property was listed.
19 Masterton Investments Ltd v Watson, above n 6, at [94].
20 Sullivan v Darkin, above n 9, at 222–224.
Plaintiffs’ appraisal and real estate advice not before the Court
[74] The defendant further submits that the evidence of Mr Lapalapa, the plaintiffs’ real estate agent, raises issues that can only be determined after discovery, cross examination and trial. Three points are made in support of this submission.
[75] First, the defendant says that Mr Lapalapa has not given evidence on the advice he gave when the auction failed to produce a bid close to market value. The defendant accepts that Mr Lapalapa advised the plaintiffs that the best way to ensure the Property was sold within 90 days was by auction but says that this is a different point. The defendant complains that Mr Lapalapa has not addressed the advice given to the plaintiffs when the auction failed.
[76] Mr Lapalapa however sets out what happened at and after the auction including the terms of the three bids that were obtained following the auction and the reason for the plaintiffs choosing the bid that they did. Whether or not Mr Lapalapa advised the plaintiffs to instead put the Property back onto the market for a further period in my view will not establish a reasonably arguable defence for the defendant as the plaintiffs have put their personal and financial position in evidence as to why they needed to conclude the sale urgently and this has not been challenged.
[77] The second point advanced by the defendant is that Mr Lapalapa’s own data indicates that at the time the most common form of sale (assuming an initial auction) was to keep the property on the market after the auction. The defendant relies on the statistics attached to Mr Lapalapa’s affidavit which show that of properties put to auction 24.6 per cent sold at auction, 28.5 per cent sold after auction (with the defendant presuming this means “straight after” the auction) and 30 per cent were kept on the market and then sold. The defendant therefore submits that the most common sale method was for properties to be kept on the market after auction and that this is what should have been done.
[78] In my view, in addition to there only being a difference of 1.5 per cent between properties sold “after auction” and those kept on the market, this point is only relevant if the 30 per cent that were kept on the market achieved higher prices than if they had
sold after auction. The statistics relied on do not reveal whether this is the case and nor is there any other evidence before the Court in support of the defendant’s opinion.
[79] The third point made by the defendant is that Mr Lapalapa’s evidence is selective and incomplete. The defendant points specifically to the following:
(a)Mr Lapalapa did not produce or even address his appraisal of the Property at $925,000 even though Mr Bath raised an issue in his affidavit regarding whether it contained a range of prices;
(b)Mr Lapalapa did not address the short listing period, even after Mr Bath pointed out that the average listing was 45 days; and
(c)neither Mr Lapalapa nor the plaintiffs have produced any of the other documents that would inform whether the plaintiffs acted reasonably, including reports on open homes, market reports, reports on prospective bidders and Mr Lapalapa’s advice on the reserve price.
[80] Counsel for the defendant made much of the plaintiffs’ failure to produce a copy of the appraisal received in respect of the resale saying that this was despite the defendant raising an issue in respect of the appraisal in his affidavit. However, considering the defendant’s evidence, after referring briefly to the amount of the appraisal earlier, all the defendant’s evidence said was:
29.The Plaintiffs seem to have had some advice that at the time properties sold for around 10 per cent less than CV, which here with a CV of
$960,000 would have been $864,000.
30.I don’t accept that the market had declined that much. The plaintiffs’ agent’s own appraisal was $925,000, possibly more as in my experience these appraisals often contain a range of prices.
[81] Counsel for the defendant submits that the failure of the plaintiffs to provide a copy of the appraisal in reply ought to lead to an inference that the appraisal did not support the plaintiffs’ position. I do not accept however that the defendant’s reference to the appraisal containing a range of prices clearly raised an issue in respect of the appraisal. I do not therefore consider that this provides a sufficient basis for finding
that the defendant has a reasonably arguable defence that the plaintiffs failed to mitigate their loss.
[82] Although the defendant submits that Mr Lapalapa did not address the short listing period, in my view he did by recording that it was only two days shorter than the original period and that the plaintiffs advised him they needed to sell urgently. I note that the listing period included three weekends, as the first listing period did and this does not appear unreasonable.
[83] Finally I consider that sufficient information has been put forward by the plaintiffs to support the position that they prima facie took reasonable steps to mitigate their loss on the resale. Both the plaintiffs and Mr Lapalapa have given evidence of the increased marketing spend, that eight bidders had registered for the auction, the price at which the Property was passed in and the details of the bids received following the auction. If the defendant wished to challenge the process undertaken he needed to provide evidence that the house was not properly readied for sale or marketed or that there were other difficulties in how the house was presented, but he has not.
[84] In my view, none of these reasons provide a sufficient basis for an arguable defence that the plaintiffs failed to reasonably mitigate their loss.
Expert evidence
[85] Finally, the defendant submits expert evidence is necessary to assist on the critical question of whether the plaintiffs acted reasonably in the way they resold the Property. In the defendant’s submission, expert evidence is necessary to explore the steps that should have been taken. The defendant points out that even the plaintiff has not produced expert evidence, with Mr Lapalapa providing evidence as the real estate agent acting on the resale, not expert evidence.
[86] I accept that Mr Lapalapa’s evidence is not presented as an expert and that he is not independent but I consider that the evidence given is sufficient in the circumstances of this case. I refer again to the fact that the defendant had several months within which to obtain expert evidence himself challenging the steps taken but he did not. It is not sufficient for a party to submit summary judgment should not be
entered because expert evidence is needed without filing at least initial expert evidence itself challenging the steps taken. In my view this would lead to abuse of the summary judgment procedure.
Are the circumstances appropriate for summary judgment?
[87] As referred to above, the defendant submits that it is inappropriate to grant summary judgment where the issue relates to mitigation of loss. Counsel for the defendant refers to the summary judgment application in Masterton Investments Ltd v Watson and submits that it failed for the same reason that the plaintiffs’ claim should fail here, that the issue of mitigation is inappropriate for summary judgment.21 However, as recorded by Ellis J in the substantive decision, the primary reason the summary judgment application failed was that the defendant, Mr Watson, had an arguable defence that the original agreement for sale and purchase had been conclusively converted into a lease to buy agreement as a result of further negotiations between the parties.22
[88] Furthermore, Associate Judge Johnston commented in the summary judgment decision in relation to the duty to mitigate:23
It is not of course for a plaintiff to prove that they have taken every step to mitigate their loss, but rather for a defendant seeking to defend the proceedings on the basis that a plaintiff has failed to mitigate loss to establish that failure. However, once the issue is at large it is not unreasonable for the Court to expect to hear independent expert evidence as to value in a case such as this. Although, had this defence been the only basis for Mr Watson’s opposition to the application for summary judgment, he may have faced difficulties, nevertheless, this too is an issue that in my view cannot be determined on the untested affidavit evidence before the Court.
(emphasis added)
[89] I agree that where the defendant successfully puts the question of whether the plaintiff has mitigated their loss in issue, it will be unlikely to be appropriate to enter summary judgment. Here, however, I do not consider “the issue is at large” in terms of there being an arguable defence that the plaintiffs failed to act reasonably to mitigate
21 Masterton Investments Ltd v Watson [2021] NZHC 1681.
22 Masterton Investments Ltd v Watson, above n 6, at [3].
23 Masterton Investments Limited v Watson, above n 21, at [50].
their loss. Where a defendant simply asserts it is in issue without sufficient evidence in support then summary judgment will still be available. The position in this case is clearly the latter.
[90] Furthermore, the circumstances in Zespri Group Ltd v Southlink Supply Limited, also relied on by the defendant, are readily distinguishable. In that case the defendant disputed the steps taken by Zespri in dumping fruit overseas rather than inspecting and repackaging it.24 Here there is no question that the plaintiffs were entitled to resell the Property, the question is whether they took reasonable steps in doing so.
Conclusion on alleged failure to mitigate loss on resale
[91] As will be clear from the discussion above I consider that the circumstances are appropriate for summary judgment to be entered. The defendant has not established that he has a reasonably arguable defence that the plaintiffs have failed to act reasonably to mitigate their loss.
[92]I therefore grant summary judgment as sought on the net loss on resale of
$320,500.
Further amounts
[93] I now consider each of the further amounts claimed by the plaintiffs as set in paragraph [38(b)] to [38(f)] above.
[94] The penalty interest claimed of $72,822.30, as set out at [38(b)], is calculated at the late settlement rate of 18 per cent, as set out in cl 1.5 of the Agreement. Clause 12.4(3)(a) provides that this rate can be applied to the unpaid portion of the purchase price for the period from the Settlement Date, 17 May 2022, to the settlement date for resale, 28 September 2022.
[95]The unpaid portion of the purchase price was $1,160,000 minus the deposit of
$58,000 which equals $1,102,000. Applying the 18 per cent interest rate, the total
24 Zespri Group Ltd v Southlink Supply Ltd, above n 12, at [24].
interest for a year would have been $198,360, giving daily interest of $543.45 (when divided by 365 days). The period for which it is payable is 134 days, including the Settlement Date but not the settlement date for resale. I accept the penalty interest payable is therefore 134 multiplied by $543.45 equalling $72,822.30.
[96] The costs and expenses incurred on the resale are claimed pursuant to cl 12.4(3)(b) of the Agreement and include real estate agent fees of $33,772.50 plus conveyancing fees of $2,308.25 for a total of $36,080.75. Supporting documentation for these claims is attached to Mrs Whakaruru’s affidavit.
[97] Auckland Council rates are claimed pursuant to cl 12.4(3)(c), being outgoings in respect of the property from the Settlement Date to the settlement of the resale. A copy of the settlement statement account on the resale is attached to Mrs Whakaruru’s affidavit showing that rates for the 2022 to 2023 period total $3,271.68 from which 134 days’ worth is calculated to amount to $1200.64 I agree that this amount is appropriately claimed.
[98] Each of these amounts fall within the categories expressly set out in cl 12.4(3)(a), (b) and (c) and appear to have been calculated correctly, therefore summary judgment is entered into in respect of each of these amounts.
[99] Interest is also claimed under the Interest on Money Claims Act 2016 (IOMCA) on the net loss on resale, the costs and expenses of the resale and the outgoings in respect of the property, as set out in the statement of claim.
[100] The statement of claim pleads that interest is payable on the net loss on resale either pursuant to ss 22 and 23 of the IOMCA, at a rate of 18 per cent from 28 September 2022 until payment, or in the alternative under ss 9 to 12 of the IOMCA, also from 28 September 2022 to payment. Interest is claimed on the expenses of resale and outgoings pursuant only to ss 9 to 12 of the IOMCA.
[101] Although these orders were included in the orders opposed by the defendant in his notice of opposition, no specific grounds of opposition were raised and no
submissions were made in relation to interest. The plaintiffs’ submissions did not address the question of interest either.
[102] In the circumstances I ask the parties to confer and to attempt to agree on the interest payable on the basis of this judgment. If interest cannot be agreed then submissions may be filed together with the costs’ submissions.
Result
[103] The plaintiffs’ application for summary judgment is granted except for the application for interest under the IOMCA which is adjourned for further submissions as directed below.
[104]I order the defendant to pay the plaintiffs the following amounts:
(a)damages for the net loss on resale of the Property amounting to
$320,500;
(b)penalty interest on the unpaid portion of the purchase price amounting to $72,822.30;
(c)costs and expenses incurred on resale amounting to $36,080.75; and
(d)Auckland Council rates amounting to $1,200.64.
Costs and interest
[105] The plaintiffs have succeeded and so are entitled to costs. My preliminary view is that costs ought to be awarded on a 2B basis.
[106] I ask the parties to confer on costs and on interest under the IOMCA (as referred to above) and only if agreement cannot be reached to file memoranda, on behalf of the plaintiffs within 25 working days of this judgment and the defendant a further 10 working days.
[107]A decision on costs and interest will then be made on the papers.
Associate Judge Sussock
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