Whitford Properties Ltd (in liq) v Bruce

[2017] NZHC 625

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2014-404-001977 [2017] NZHC 625

BETWEEN

WHITFORD PROPERTIES LIMITED

Plaintiff

AND

ROBERT IAN BRUCE First Defendant

COUMAT LIMITED Second Defendant

GREGORY BRUCE HAYHOW Third Defendant

Hearing:	8-12 August 2016
Appearances:	M C Black for Plaintiff First Defendant in person S H Barter and L M Herbke for Second and Third Defendants
Judgment:	4 April 2017

JUDGMENT OF DUFFY J

This judgment was delivered by me on 4 April 2017 at pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Alexander Dorrington Lawyers, Auckland. Barter Law, Auckland.

MC Black, Auckland.

WHITFORD PROPERTIES LIMITED v BRUCE & ORS [2017] NZHC 625 [4 April 2017]

[1]      The  plaintiff,  Whitford  Properties  Ltd  (WPL),  now  in  liquidation,  once owned land at Whitford (the land) which it intended to sub-divide into residential lots.   Towards this end it borrowed funds from the ANZ Bank New Zealand Ltd (ANZ).1   WPL’s directors, Robert Bruce, now the first defendant, and Wayne Allen guaranteed the borrowing.

[2]      Later  WPL  defaulted  on  the  loan  repayments  and  ANZ  commenced  a mortgagee sale of the land by tender.  At the time it was owed approximately $8.5 million.

[3]      A  deal  was  struck  which  involved  Mr  Allen  buying  the  land  with  the assistance of funds from either the third defendant Gregory Hayhow or a company he was associated with.  Mr Hayhow and his wife paid the deposit of $1.25 million. However, this deal fell through, which meant the Hayhows would lose their deposit. At the time Mr Hayhow was an unsecured creditor of Mr Bruce for the sum of

$1,310,054 (with little likelihood of being repaid); the potential loss of the $1.25 million deposit was a further financial blow.

[4]      Then  a further deal  was  struck.    Because he was  a guarantor  of WPL’s borrowing, if Mr Bruce paid WPL’s debt to ANZ the mortgage securities could be transferred to him, thus enabling him to carry out a mortgagee sale of the land.2

ANZ and Mr Hayhow were agreeable to this happening.   They came to an arrangement whereby on the same day the following steps would be taken:

(a)      ANZ would cancel the tender agreement, forfeit the $1.25 million

deposit, and apply those funds to reduce WPL’s borrowing;

(b)Mr Bruce would give notice requesting ANZ transfer the mortgage securities to him as guarantor;

1      Ultimately WPL’s  borrowing  from ANZ  was  serviced  by  two  mortgages  (6485175.1  and

6485203.2).

2      Section 102 of the Property Law Act 2007 makes these rights available to a guarantor.

(c)      Mr Bruce, purporting to act as mortgagee, would sell the land by private  treaty  to  the  second  defendant,  Coumat  Ltd  (Coumat). Mr Hayhow is the sole director and shareholder of Coumat.

[5]      This arrangement was purportedly put into effect on 23 July 2014 when an agreement was executed selling the land for $7,454,903 (private treaty agreement). However, ANZ was not paid and so nothing was done under this agreement.  Then on or about 26 July 2014, a second agreement was executed selling the land for

$10,014,956 (substitute private treaty agreement).3     Even then nothing happened

until approximately 4 August 2014 when sufficient funds were advanced to repay the ANZ, and it released the mortgage securities to Mr Bruce, which enabled sale under the substitute private treaty agreement to proceed.

[6]      It is common ground that the substitute private treaty agreement is what effected the sale to Coumat.  This agreement now founds the claims brought by WPL against the defendants.

[7]      The stated purchase price under the substitute private treaty agreement is made up as follows:

(a)     a deposit of $2,560.054 which comprises $1,310,054 being the extinguishment of a debt Mr Bruce owed to Mr Hayhow; $1,250,000 being  the  deposit  forfeited  by ANZ  on  cancellation  of  the  tender agreement, which Mr & Mrs Hayhow had paid; and

(b)a balance of $7,454,902 being the equivalent of the amount secured by the mortgages to the ANZ.

[8]      WPL accepts that $7,454,902 of the purchase price went indirectly (through

Mr Bruce as guarantor/ substitute mortgagee) to pay the ANZ debt.  WPL contends the balance of the purchase price (being the deposit of $2,560,054) is surplus funds,

3      Each agreement was recorded as having been executed on 4.17 pm on 23 July 2014.  However, the parties accept the substitute private treaty agreement was actually executed later than 23 July

2014. Apart from the purchase price for the land the terms of each agreement were the same.

which therefore belongs to it as owner/mortgagor of the property. Accordingly, WPL

seeks to recover this sum from the defendants.

[9]      The defendants contend the property’s true sale price (in terms of funds payable) was no more than the $7,454,902 that went to release WPL from the ANZ debt.

[10]     Mr Hayhow admits the $10,014,956 sale price was intentionally structured in a way that enabled him to recover the personal debt he was owed by Mr Bruce and the forfeited deposit for the tender agreement.

[11]     The core issues for determination are whether there are surplus funds owing to WPL from the sale of the land, and whether it was open to Mr Bruce to sell the land in the way that he did.

Facts

[12]     The land comprises 6.3075 hectares at 40 Whitford Park Road (NA21A/974) and 2.3978 hectares at 18 Saleyard Road (NA89C/16).  At the relevant time the land was zoned rural, but provided certain consents were obtained it could be subdivided for residential purposes.  Its acquisition and proposed development has a convoluted history, some of which is marginally relevant to understanding how it came to be sold to Coumat.  The parties also referred to earlier transactions as indicators of the land’s value. At the hearing no one produced evidence of the land’s value at the time it was sold under the substitute private treaty agreement.

Initial purchase and development – 2002 until early 2014

[13]     WPL was incorporated on 26 March 2002 by Mr Allen and Mr Bruce.  They were  its  directors.    Mr Allen  and  his  wife,  together  with  Mr  Bruce,  were  the shareholders.  A few days after incorporation, on 3 April 2002, WPL purchased the land.  At the time of purchase, the land was designated “Rural” under the Auckland City Council Operative District Plan.   However, there was clear potential for development and it appears that WPL eventually intended to carry out a residential subdivision on the land.

[14]     At some stage during the first few years of ownership WPL borrowed money from ANZ.   The borrowings were secured by two registered mortgages, a general security agreement and the personal guarantees of Messrs Allen and Bruce.   The mortgage was registered on 6 July 2005.

[15]     As part of its preparation for an intended subdivision, WPL sought to make arrangements  for  sewerage  and  waste  water  disposal  from  the  land.    Mr Allen negotiated an agreement which apparently gave WPL an option to use land owned by a company named Whitford 140 Ltd for the disposal of sewage and waste water.  He also negotiated an agreement with two other entities, Whitford Green Ltd and Whitford Park Golf Club Inc, which permitted the installation of a pipeline over the golf course in order to convey sewage and waste water for disposal.

[16]     WPL was ultimately unable to advance the subdivision.   Finance was an issue.  Also disposal of sewage and waste water was a hurdle which WPL could not seem to overcome.

[17]     By early 2014, the amount owing to ANZ had increased to approximately

$8.5 million and WPL was unable to service the loan.   Discussions between ANZ

and WPL broke down and ANZ determined to sell the land by mortgagee’s tender.

The beginning of the tender process

[18]     On 16 April 2014, ANZ issued an invitation to tender.   The terms of the tender process required the successful tenderer to pay a deposit of 10 per cent of the tendered sum.

[19]     Mr Allen lodged a tender in his name in the sum of $12.5 million (the tender agreement), despite him lacking sufficient funds to complete a purchase at that price. He approached Mr Hayhow for assistance, which Mr Hayhow agreed to provide. The precise terms of that agreement are disputed; however, there is no dispute that Mr Allen was the successful tenderer and that Mr Hayhow and his wife paid the required deposit of $1.25 million.

[20]     On 8 May 2014, Mr Hayhow formed a new company, Whitford Property Developments Ltd (“PDL”).  He was the sole director and shareholder.  Mr Hayhow says  that  he  and  Mr Allen  planned  a  joint  venture  to  develop  the  land,  which involved PDL being incorporated for the purpose of buying the land.  PDL was the nominated  purchaser  under  a  deed  of  nomination,  which  the  tender  agreement

recognised.4   However, neither Mr Allen nor PDL settled with ANZ on the due date.

Mr Hayhow asserts that Mr Allen failed to comply with his obligations under the deed of nomination, which prevented PDL from raising the necessary funds to settle the tender agreement.

[21]     On 16 July 2014, ANZ issued a settlement notice making time of the essence and giving Mr Allen, as successful tenderer, and PDL, as the nominee purchaser, until 23 July 2014 to complete settlement of the tender.

Loss of deposit

[22]     Mr Hayhow realised once the arrangements with Mr Allen fell through the deposit of $1.25 million would be forfeit.5   Seemingly Mr Hayhow wanted to acquire the land, either directly or through a company associated with him, because once the tender agreement could not be completed he turned his attention to Mr Bruce.  As one of the guarantors of the ANZ mortgage, Mr Bruce had the ability under s 102 of the Property Law Act 2007 (“PLA”), to acquire the mortgagee’s interest in the land,

and thus effect a mortgagee sale of it.

Mr Hayhow’s loan to Mr Bruce

[23]     Mr Hayhow was first introduced to Mr Bruce when he was looking to borrow money to meet a tax liability and to resolve other serious cash flow problems.  On 16

October 2013 Mr Hayhow lent Mr Bruce $330,000 to assist him to meet his debts. The interest rate was 400% and the loan was to be repaid on 16 January 2014.

Mr Hayhow was given security over Mr Bruce’s shares in WPL.

4      The deed of nomination was dated 18 June 2014.

5      The tender included the usual provision for the forfeiture of the deposit if the successful tenderer did not settle.

[24]     The loan was not repaid on the due date.  Mr Hayhow took steps to enforce his security over Mr Bruce’s WPL shares.  He soon learned that someone else had a prior claim on those shares.  He found the loan was effectively unsecured and he had little prospect of being repaid.  Although initially disillusioned with Mr Bruce as a result of the loan to him going bad, the experience with Mr Allen seemingly renewed Mr Hayhow’s interest in working with Mr Bruce.

Rescue

[25]     Mr  Hayhow  testified  that  as  early  as  7  July  2014  he  was  open  to  an arrangement in which Mr Bruce, as guarantor, redeemed the mortgaged land, and Mr Hayhow provided funds for this redemption on the basis Coumat became the registered proprietor of the land.  Everything was to happen contemporaneously.

[26]     A series of steps were planned.   On 14 July 2015 Mr Hayhow’s lawyer corresponded  with  ANZ  about  the  possibility  of  the  tender  agreement  being cancelled, and Mr Bruce exercising his rights under s 102 of the PLA.  Mr Bruce could only do this if someone advanced him the funds to repay ANZ.  There were a series of exchanges between ANZ’s solicitors and Mr Hayhow/Coumat’s solicitors regarding the implementation of this plan.

[27]     On  22  July  2014  (the  day  before  the  dates  noted  on  the  private  treaty agreement and the substitute treaty agreement), ANZ made it clear it was not a party to,  nor  did  it  have  any  interest  in  the  other  steps  contemplated  by  Mr  Bruce, Mr Hayhow, and Coumat.  All ANZ wanted was repayment of the debt.  To this end it was prepared to cancel the tender agreement and so forfeit the $1.25 million

deposit.6    Once this occurred, Mr Bruce could redeem the mortgages and so obtain

the benefit of the mortgage securities – this was simply the exercise of his legal rights under s 102 of the PLA, which ANZ recognised. ANZ insisted the redemption and transfer of securities were subject to any existing caveats on the titles to the land,

of which there were some.

6      This was consistent with the 16 July 2014 settlement notice ANZ issued to Mr Allen and PDL which made time of the essence and stipulated 23 July 2014 as the final day to settle the tender agreement.

[28]     Then following a meeting on 23 July 2014 between the legal advisors for ANZ, Mr Hayhow and Coumat, ANZ reiterated its position and further noted, inter alia,  that  if  it  entered  into  a  new  mortgagee  sale  agreement  for  the  land  the redemption rights of WPL and the guarantors (which included Mr Bruce) would be at an end.   This must have been a spur to Mr Bruce, Mr Hayhow and Coumat to proceed with their plans.

Deed between Mr Bruce and Mr Hayhow

[29]     On 21 July 2014 Mr Bruce and Mr Hayhow entered into a Deed.  Whilst it complies with the requirements for a deed and uses legal language its authorship is not attributed to any solicitor.

[30]     The Deed records that Mr Bruce assigned and transferred to Mr Hayhow the benefit but not the obligation of all his right, title and interest in WPL, including the land and the plans, agreements, consents and approvals relating to sub-division of the land and the obtaining of a resource consent for such sub-division.

[31]     Under cl 3 of the Deed Mr Bruce was required at Mr Hayhow’s request to give notice to ANZ of his redemption of the land.   Mr Hayhow was to make the payments required to effect the redemption in consideration of Mr Bruce requesting ANZ to transfer the mortgage securities to or as directed by Mr Hayhow, with Mr Hayhow fully indemnifying Mr Bruce accordingly.  This indemnity was recorded by a handwritten addition to cl 3.7

[32]     Mr   Bruce   irrevocably   appointed   Mr   Hayhow   and   Mr   Hayhow’s representatives to be Mr Bruce’s attorney to do anything which Mr Bruce may do or agree to do firstly as guarantor of the obligations of WPL to ANZ (including the

rights as guarantor to request ANZ to transfer the mortgage securities registered

7      Other than the rights Mr Bruce held under s 102 of the Property Law Act as guarantor of the mortgages, it is difficult to know what other rights or interests he held in WPL as at 21 July

2014.  Mr Hayhow’s evidence was that his earlier claim on Mr Bruce’s shares in WPL (which secured the personal loan Mr Hayhow made to Mr Bruce) failed because on 27 February 2014 those shares were sold in a sale by a Sheriff of this Court to Owen Harnish.  This suggests that by 21 July 2014 Mr Bruce had no interest in WPL’s shares.  The land was owned by WPL and the plans, agreements, consents and approvals relating to the subdivision are likely to have been owned by WPL as the land owner.

against the land) and secondly, anything which Mr Hayhow thought desirable to protect his interests (including power to delegate his powers to any person for any period  and  to  revoke  such  delegation).    Mr  Bruce  ratified  anything  done  by Mr Hayhow.  Further, Mr Hayhow as Mr Bruce’s attorney was not to be responsible for any damage, loss or cost to Mr Bruce or any other person.

[33]     Mr Bruce was obligated under the Deed to pass to Mr Hayhow unfettered the land, its planned sub-division and the sewage solution.  Further, the express intent of the power of attorney was that Mr Hayhow could effect this.

[34]     In consideration of Mr Bruce’s covenants and his execution of the Deed, Mr Hayhow agreed to contract Mr Bruce’s personal services as project assistant in respect of the sub-division of the land for a salary of $100,000 per annum.  The Deed then set  out the obligations  Mr Bruce owed  to  Mr Hayhow under the  services contract.   Mr Bruce was obliged to maintain confidential and private all matters pertaining to the Deed and to conduct himself in respect of the matters covered by the  Deed  only  after  discussing  the  same  with  Mr  Hayhow  and  obtaining  his approval.  Subject to Mr Bruce performing his obligations under the Deed and the services contract, Mr Hayhow agreed to write off Mr Bruce’s debt to him.

The “Private Treaty Agreements”

[35]     On 23 July 2014 the rescue plan commenced.   ANZ cancelled the tender agreement.  Mr Bruce gave notice under s 102 of the PLA, requesting ANZ transfer the mortgages to him as guarantor.   The private treaty agreement was executed. Again, whilst it has the appearance of a legally drafted document the authorship of the private treaty agreement is not attributed to any solicitor.  With this agreement the price is stated to be “$7,454,903 representing the proceeds of sale”.  A deposit of

$1.00 was recorded as already paid to the vendor which left a balance of $7,454,902 to be paid on the settlement date, which was also 23 July 2014 or such later date as the parties agreed.  The document records that “the Vendor sells and the Purchaser purchases  the  property  for  the  Price  to  be  paid  upon  the  Payment  terms  for settlement on the Settlement Date subject only to the Conditions and otherwise upon

the terms of the Auckland District Law Society Agreement for Sale and Purchase

form”, with the terms of the private treaty agreement “[taking] precedence.”

[36]     Then the substitute private treaty agreement was executed on or about 26 July

2014, although it was back dated to 23 July 2014.  However, due to the presence of caveats on the titles of the land, the substituted private treaty agreement could not be performed.   This meant Mr Bruce did not receive the funds to redeem the ANZ mortgages, so the rescue plan remained in limbo.

[37]     The terms of the substitute private treaty agreement replicated the private treaty agreement save for the price and its components, as well as the inclusion of an interest rate of 17 per cent.  The stated price was now “$10,014,956 representing the gross proceeds of sale.”  The “Deposit” was now the sum of $2,560,054 which was said to comprise the extinguishment of Mr Bruce’s personal debt of $1,310,054 and the forfeit deposit of $1.25 million from the earlier tender agreement involving Mr Allen.    The  balance  was  stated  to  be  the  $7,454,902  secured  by  the ANZ mortgages.  The same formula stating “the Vendor sells and the Purchaser purchases the Property for the Price to be paid upon the Payment terms for settlement on the Settlement Date” was used.

[38]     The titles were not cleared until 30 July 2014.8    Also on 30 July 2014, the solicitors  acting  for  WPL  and  Mr  Allen  wrote  to  the  solicitors  representing Mr Hayhow,  Coumat  and  ANZ,  requesting  that  they  hold  in  trust  the  sum  of

$2,560,054 pending a court application, this being the difference between the sale price of $10,014,956 and the amount secured by the mortgages to ANZ.

[39]     On 31 July 2014, Buddle Finlay for ANZ responded.  In summary, the letter noted that ANZ was obliged to transfer the mortgages to any person complying with the requirements set out in ss 102 and 103 of the PLA; however, since Mr Bruce had failed to tender payment of the moneys due, the mortgages remained with ANZ.

Accordingly Mr Bruce did not have any interest in the land to sell.

8      Woolford J made an order removing a caveat on the title in Bruce v Allen HC Auckland CIV-

2014-404-1867, 30 July 2014.

[40]     Following that  letter and  the removal  of  the caveats,  on  4 August  2014

Mr Bruce made payment of the amounts required to repay the ANZ debt and the mortgages were assigned to him.   He also settled the substitute private treaty agreement, and so transferred the land to Coumat.

[41]     In addition, Mr Bruce took assignment of ANZ’s rights under the general security agreement which had been given by WPL.  He appointed a receiver of WPL on the basis that as the assignee of that agreement, he was owed $86,758.

Aftermath

[42]     On 17 September 2014, Mr Whittfield was appointed as the liquidator of

WPL.   His solicitors wrote to Mr Bruce in April 2015, recording that the sum of

$1,310,054 (which Mr Bruce claimed to be entitled to from the proceeds of the mortgagee sale to Coumat) was an insolvent transaction.   The liquidator sought payment of this sum by Mr Bruce.

Other sale agreements in respect of the land

[43]     Apart  from  the  $12.5  million  tender  agreement,  around  the  same  time Mr Allen made two other tender bids for the land; one on his own and one with Catherine Ma.  Each bid was for $9 million.

[44]     Coumat attempted to sell the land once it secured its purchase.  There was more than one attempt.  Sale and purchase agreements were executed but it was not clear to me if any had settled and ownership of the land transferred to someone else. I do not see these as relevant as the circumstances are quite different from the subject sale.

Valuation evidence

[45]     As already mentioned, no party produced expert evidence of the land’s value at the time it was sold to Coumat.  Evidence of earlier valuations or proposed sales is not helpful as it involves viewing the land on a hypothetical basis of what it might realise if developed.

Plaintiff ’s causes of action

[46]     WPL brings three causes of action against the defendants:

(a)      Against Mr Bruce, Coumat and Mr Hayhow: mortgagee’s failure to strictly account for the mortgagee sale proceeds and liability as a statutory trustee;

(b)      Against Mr Bruce: breach of duty of care;

(c)      Against Mr Bruce, Coumat and Mr Hayhow: knowing receipt and dishonest accessory.

Mortgagee’s failure to account

[47]     WPL claims that the defendants have failed to comply with the terms of s 185 of the PLA, which mandates how the proceeds of a mortgagee sale are to be applied. WPL says that Mr Bruce, as mortgagee, was a statutory trustee of the funds received following the sale to Coumat; alternatively that the surplus proceeds were accounted in law to WPL.  It defines the “surplus proceeds” as the proceeds of the sale price which remained after the payment of the ANZ mortgage of $7,454,902. WPL further says that Coumat and Mr Hayhow knew of and directly participated in Mr Bruce’s breach of his duties to WPL.  WPL alleges that Mr Bruce, Coumat and Mr Hayhow received the surplus proceeds for their own personal benefit, profit or gain.

[48]     WPL claims that the defendants failed to account for the surplus proceeds and are therefore in breach of s 185 of the PLA.  As a result of this failure, WPL has suffered harm as it has not received the surplus proceeds.

[49]     WPL seeks:

(a)       a declaration that Mr Bruce is in breach of s 185 of the PLA;

(b)      an order requiring the defendants to account to WPL for the sum of

$2,560,054;

(c)      a declaration or order that the defendants are accountable to WPL for an equitable and proprietary interest and claim over the Property;

(d)      equitable compensation of $2,560,054;

(e)      an order requiring the defendants to account for any consequential benefits or gains derived by them from the mortgagee sale and in obtaining the Property;

(f)       interest; and

(g)      costs.

Breach of duty of care

[50]     WPL says that as a mortgagee exercising a power of sale, Mr Bruce owed a duty of care to WPL under s 176 of the Property Law Act to obtain the best price reasonably obtainable, which he failed to do.

[51]     WPL says that by the mortgagee sale to Coumat on 23 July 2014, Mr Bruce breached his duty of care to WPL, was negligent and failed to act with reasonable care and in “good faith” by failing to obtain the best price and to account for all the sale proceeds.

[52]     WPL seeks:

(a)      a declaration that Mr Bruce is in breach of his obligations under s 176 of the PLA;

(b)      judgment for the sum of $2,560,054;

(c)      judgment for such further sum as shall be determined at trial to be the best reasonable price for the property at the time of sale;

(d)      damages for the foreseeable losses resulting from the breach; (e)       interest; and

(f)       costs.

Knowing receipt and dishonest accessory

[53]     WPL says that the defendants acted in breach of trust and received personal benefits and gains from the mortgagee sale by Mr Bruce.  It says that Coumat and Mr Hayhow acquired the Property as a dishonest recipient and accessory.

[54]     Further,  WPL  says  that  on  or  about  5  September  2015,  Coumat  and Mr Hayhow sold the Property to VHL.  It says that the sale was designed or intended to transfer the benefits and proceeds of sale away from the plaintiff and to defeat the plaintiff’s rights and interests in the proceeds of the mortgagee sale.   In doing so, WPL says that Coumat and Mr Hayhow acted unreasonably and dishonestly.

[55]     WPL seeks:

(a)       a declaration that the defendants are accountable for any gains derived from the mortgagee sale and subsequent on-sale of the Property;

(b)a declaration or order that the defendants account to the WPL for the sum of $2,560,054;

(c)       equitable compensation;

(d)a declaration or order that the defendants are accountable to WPL for an equitable and proprietary interest and claim over the Property;

(e)       judgment for the sum of $2,560,054; (f)          interest; and

(g)      costs.

Statement of defence – first defendant

[56]     Mr Bruce denies the claims made by WPL.   In particular, he says that he acted with reasonable care and in good faith in obtaining the best price and the sale proceeds.   He adds further that the market value of the property was accurately reflected in the sales to the second defendant.

Amended statement of defence – second and third defendants

[57]     Coumat and Mr Hayhow deny any wrongdoing in respect of the mortgagee sale.  In particular, they say that the Substituted Private Treaty Agreement differed from the Private Treaty Agreement in respect of the purchase merely by recording two additional notional figures.  They say that it was not intended by Mr Bruce that Coumat would actually pay either of those sums in cash, nor did the Substituted Private Treaty Agreement  require that  to  occur,  nor was  the recording  of those matters intended to create a benefit to WPL.

Mortgagee’s failure to account

[58]     Coumat and Mr Hayhow deny that any statutory trust arose or that they had knowledge of  such  trusteeship.   They further  deny that  there  were any surplus proceeds of sale or that they personally benefited from the sale other than as a bona fide purchaser for value. They deny any liability under s 185 of the PLA.

Affirmative defence – s 184 of the Property Law Act 2007

[59]     Coumat and Mr Hayhow say that pursuant to s 184 of the PLA they are not answerable for any loss suffered by WPL. That section provides for the protection of a purchaser at a mortgagee sale.

Knowing receipt and dishonest accessory

[60]     Coumat and Mr Hayhow deny any wrongdoing in relation to the Substituted Private Treaty Agreement.  They deny the existence of or having had any knowledge of the existence of any equitable or proprietary claim or trust said to exist, and further deny any dishonest  behaviour.    Mr  Hayhow denies  that  he derived  any personal benefit from the sale.

[61]     Coumat and Mr Hayhow say further by way of affirmative defence that Coumat paid valuable consideration for the land at market value, and that the money alleged to be surplus proceeds was never payable to WPL, being an independent agreement separate from the purchase between Mr Bruce and Coumat.

Affirmative defence – mistake

[62]     Coumat and Mr Hayhow say that if the wording of the Substituted Private Treaty Agreement is interpreted to have the meaning advanced by WPL, then any such wording was by virtue of mistake and does not properly record the common intention of the parties to the agreement.

[63]     If that is the case, Coumat and Mr Hayhow seek that the Court grant relief by varying the Substitute Private Treaty to make it clear that the additional $2,560,054 were not proceeds of sale.

Claim for set-off

[64]     Mr Hayhow says that he paid the $1,250,000 deposit to ANZ on the basis of false representations made by Mr Allen in his capacity as a director of WPL.   On cancellation of the tender agreement, that money was credited to reduce WPL’s debt to ANZ.  Therefore Mr Hayhow says that WPL was the only party to benefit from Mr Allen’s false representations.

[65]     Mr Hayhow therefore seeks judgment for $1,250,000 by way of a set-off against any claim which might be found against him, together with interests and costs thereon.

Analysis

Mortgagee’s breach of duty

[66]     WPL  alleges  breaches  of  two  duties:  (a)  the  duty  to  account  for  the mortgagee sale proceeds; and (b) the duty to obtain the best price reasonably obtainable.  Each complements the other.  The first alleged breach is founded on the argument the land sold for $10,014,956 and the only consideration WPL received was discharge of the $7,454,902 debt owed to ANZ.   Accordingly, Mr Bruce has failed to account to WPL for the remaining $2,560.054.  The second alleged breach also refers to the unaccounted-for $2,560,054 and contends Mr Bruce failed to obtain the best price reasonably obtainable. The unspoken suggestion here is that a sale and purchase  agreement  with  a  gross  sale  price  of  $10,014,956  which  saw  only

$7,454,902 ( by way of discharge of debt) go to benefit WPL and the surplus go to benefit others (Mr Bruce and Mr Hayhow) cannot be characterised as the best price reasonably obtainable for the land.

Duty to account for proceeds of sale

[67]     The duties of a mortgagee to account for mortgagee sale proceeds are set out in s 185 of the Property Law Act, the provisions of which are self-explanatory:9

185 Application of proceeds of sale of mortgaged property

(1)      The proceeds arising from the sale by a mortgagee of mortgaged property must be applied—

(a)       first, to the payment of all amounts (if any) referred to in subsection (2), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

(b)       secondly, to the payment of amounts secured by any other mortgage,   encumbrance,   or   security   interest   over   the property   to   the   extent   that   it   has   priority   over   the mortgagee’s mortgage:

(c)       thirdly, to the repayment of all amounts (if any) paid or advanced by the mortgagee for the purpose referred to in paragraph (b), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

(d)       fourthly, to the payment of amounts secured by the mortgage (to the extent that those amounts have not been paid under paragraphs (a) to (c)):

(e)       fifthly,   to   the   payment   of   amounts   secured   by   any subsequent mortgage, subsequent encumbrance, or subsequent security interest over the property if—

(i)        the subsequent mortgage, subsequent encumbrance, or subsequent security interest is registered; or

(ii)      the subsequent mortgage, subsequent encumbrance, or subsequent security interest is unregistered, but the mortgagee has actual notice of it:

(f)       sixthly,  to  the  payment  of  any  surplus  to  the  current mortgagor.

9      Emphasis added.

(2)      The amounts are amounts reasonably paid or advanced at any time by the mortgagee—

(a)       for the protection, insurance, maintenance, preservation, or repair of the mortgaged property; or

(b)      for the payment of rates or other outgoings; or

(c)      to meet the expenses of the mortgagee in entering into possession, or in doing anything that a mortgagee in possession is required or entitled to do; or

(d)      with a view to realisation of the security (including any additional amount referred to in section 120(2) or 129(2)).

…

[68]     The obligation on a mortgagee to account properly for the proceeds of the sale of a mortgaged property was well established before s 185 was passed.  Such a duty has long existed in general law and it continues to co-exist with the statutory duty imposed by s 185 of the Property Law Act.10     In Cuckmere Brick Co Ltd v Mutual Finance Ltd, Salmon LJ described the duty of a mortgagee holding a surplus after a mortgagee sale as one of trust:11

Approaching the matter first of all on principle, it is to be observed that if the sale  yields  a  surplus  over  the  amount  owed  under  the  mortgage,  the mortgagee holds this surplus in trust for the mortgagor.

This circumstance is to be distinguished from the mortgagee’s exercise of the power

of sale, which is earlier in time and of which Salmon LJ said:12

It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so.

[69]     Here the argument is one of contractual interpretation.   WPL contends the substitute private treaty agreement states the gross proceeds of sale as $10,014,956, so that is the price for which the land sold.   Accordingly, once the ANZ debt of

$7,454,902 was repaid, the surplus funds were payable to WPL.  On the other hand,

10     See Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA) at [47] where McGrath J recognised that the statutory duty of care that the Property Law Act imposed on mortgagees selling mortgaged property did not extinguish the well-settled duty of care in negligence or the equitable duty of good faith, both of which had developed under the general law.

11     Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 (CA) at 966.

12     At 965.

the defendants contend that the proper interpretation of the substitute private treaty agreement is that the purchase price is comprised of two distinct parts (a deposit and a  balance)  which  in  total  add  up  to  $10,014,956  but  with  only the  balance  of

$7,454,902 being of actual benefit to WPL.

[70]     It is customary to read a contract in its factual matrix.13    The factual matrix here is the context in which the substitute private treaty agreement arose, namely a mortgagee sale by private treaty.  This includes consideration of the circumstances pertaining to the alleged failure by Mr Bruce to obtain the best price reasonably obtainable.  I propose, therefore, to consider those circumstances before reaching a view on the correct interpretation of the sale price.

Duties to obtain best price reasonably obtainable

[71]     The duties of a mortgagee to the mortgagor when selling mortgaged land by private treaty are well settled.  Section 176 of the Property Law Act imposes a duty of reasonable care to obtain the best price reasonably obtainable at the time of sale:14

176     Duty of mortgagee exercising power of sale

(1)       A mortgagee who exercises a power to sell mortgaged property … 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.

13     Firm Pl 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147, [2015] 1 NZLR 432 at [60]–[64].

14     This duty is imposed on all types of mortgagee sale.

[72]     Section 176 is the successor to s 103A of the Property Law Act 1952, which was seen as the legislative affirmation of the scope of the duty of care in negligence owed by a mortgagee who decides to sell (as recognised in earlier New Zealand case law).15   This duty of care co-exists with an equitable duty of good faith, but in most cases the duty of care is the more onerous.16

[73]     The purpose of s 176 includes protection of the mortgagor, who is otherwise vulnerable to the risk of a poorly conducted mortgagee sale and continued liability for any shortfall (given the absence of any other incentive for the mortgagee to obtain a good price).17

[74]     However, there are limits on the scope of the duty under s 176.  The courts have acknowledged that in deciding whether the mortgagee exercising the power of sale has fallen short of that duty, “the facts must be looked at broadly”, and the mortgagee “will not be adjudged to be in default unless [he or she] is plainly on the

wrong side of the line”.18   Further, the s 176 duty only arises once the decision to sell

is made.19

[75]     Section 176(2) of the Properly Law Act indicates that a mortgagee may not by private treaty purchase the mortgaged land.  There is no rule against a mortgagee selling by private treaty to a company in which he holds shares or otherwise has an interest, or to someone associated with him.20     However, the courts apply more rigorous scrutiny to a mortgagee sale where the purchaser is not “at arms length” from the mortgagee and some conflict of interest arises as a result.21     In those circumstances, the mortgagee must establish (to the civil standard of proof) that he

or she took reasonable precautions to obtain the best price reasonably obtainable at

15     See Apple Fields Ltd v Damesh Holdings Ltd, above n 10, at [47], applied in Agio Trustees Company Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZ ConvC 193,480 (HC) at [70].

16     Apple Fields Ltd v Damesh Holdings Ltd, above n 10, at [47].

17     See Crown Money Corp Ltd v Pink-Martin HC Auckland CIV-2008-404-297, 5 September 2008 at [77]; Apple Fields Ltd v Damesh Holdings Ltd, above n 10, at [56].

18     Cuckmere Brick Co Ltd v Mutual Finance Ltd, above n 11, cited with approval in Apple Fields

Ltd v Damesh Holdings, above n 10, at [41].

19     See Apple Fields Ltd v Damesh Holdings, above n 10, at [53] and [54].

20     See discussion in Agio Trustees, above n 15, at [81]–[90].

21     Agio Trustees, above n 15, at [88]–[89].

the time of sale.22    In other words, the burden of proof shifts to the mortgagee to show that he or she has complied with the s 176 duty.

[76]     The  sale  from  Mr  Bruce  to  Coumat  undoubtedly  qualifies  as  a  close relationship.  First, Mr Hayhow is the sole shareholder and director of Coumat.  At the relevant time he also held the irrevocable power of attorney under the deed of 21

July 2014 which enabled him to effect the sale of the land on his terms.  In short this deed bound Mr Bruce to do Mr Hayhow’s bidding when it came to the sale of the land to Coumat.  At trial Mr Bruce denied this and asserted that he was content to sale the land to Coumat.   However, that assertion does not detract from the legal position in which Mr Bruce had placed himself vis-à-vis Mr Hayhow.  Mr Bruce also sought to explain the power of attorney on the basis he was in poor health and it was required in case he could not act.  Mr Hayhow said his lenders required the power of attorney so the arrangement could proceed smoothly and each step occur contemporaneously.   I consider the power of attorney was required to ensure the arrangement proceeded as planned, including permitting Mr Hayhow to act in place of Mr Bruce if for any reason Mr Bruce did not do all that he was obliged to do.  The irrevocable character of the power of attorney meant that Mr Bruce could not back out of the arrangement for any reason, whether due to ill health, a charge of heart or if a higher offer for the land had suddenly appeared.

[77]     Secondly, at the time the land was sold Mr Bruce was in debt to Mr Hayhow in the sum of $1,301,054.  The terms of the substitute private treaty agreement (as well as the deed of 21 July 2014) purported to relieve Mr Bruce of this liability. Thus, the bargain he struck with Mr Coumat carried a personal benefit for Mr Bruce, which in itself placed him in a conflict of interest when it came to him selling the land as a mortgagee.

[78]     Thirdly, the sale of the land to Coumat enabled Mr Bruce to discharge his obligations under the guarantee of WPL’s debt to the ANZ.  The proposed sale of the land to Coumat provided Mr Bruce with funds to repay the ANZ.  Absent that, he

had no access to sufficient funds to pay the guaranteed debt.   Release from his

22     See Apple Fields, above n 10, at [51], citing the Privy Council in Tse Kwong Lam v Wong Chit

Sen [1983] 1 WLR 1349 (PC).

liability as guarantor was part of the package of the sale to Coumat.   This was a further conflict of interest between his personal interest and his obligations as a vendor effecting a mortgagee sale.

[79]     Fourthly, under the terms of the deed of 21 July 2014 there was a further personal benefit for Mr Bruce in the form of the salary of $100,000 per annum he was to receive for services to assist with sub-division of the land once it sold to Coumat.

[80]     As a mortgagee undertaking a mortgagee sale by private treaty Mr Bruce was under an equitable duty of good faith as well as a statutory duty of care.  Relevant here is the principle that equity looks to intent rather than to form and that equity will give effect to the substance of a transaction rather than merely to its surface

appearance.23   There are a collection of legal steps: namely, the deed of 21 July 2014

between Mr Bruce and Mr Hayhow; Mr Bruce exercising rights as a guarantor under s 102 of the Property Law Act; and the substitute private treaty agreement.   The substantial  intent  of  those  transactions  was  to  achieve  an  outcome  whereby Mr Hayhow  obtained  payment  of  the  debt  owed  to  him  by  Bruce;  obtained recompense for the forfeit deposit of $1.25 million; and the company he controlled, Coumat, gained ownership of the land with a cash payment of just under $7.5 million.  Mr Hayhow said as much in his evidence at trial.  In return Mr Bruce was relieved of his liabilities.

[81]     In Tse Kwong Lam v Wong Chit Sen, the Privy Council was faced  with circumstances where the mortgagee had sold to a company in which he and his wife were the only directors and they and their children were the only share holders.  The mortgaged property was sold by auction where the mortgagee’s wife placed the only bid.  When the sale was subsequently challenged by the mortgagor, the mortgagee contended that he was free to sell the mortgaged property to a company in which he and his family held the only interests provided the property was advertised and sold

by auction. The Privy Council held otherwise:

23     Parkin v Thorold (1852) 16 Beav 59 (Ch) at 66, cited with approval in Harris v Taylor [2015] NZHC 3190, [2016] NZAR 363 at [125].

A decision to this effect [for which the mortgagee contended] would expose borrowers to greater perils than those to which they are now subject as a result of decisions which enable the mortgagee to choose the date of the exercise of his power.    A mortgagee who wishes to secure the mortgaged property for a company in which he is interested ought to show that he protected the interests of the borrower by taking expert advice as to the method of sale, as to the steps which ought reasonably to be taken to make the sale a success and as to the amount of the reserve.  There is no difficulty in obtaining such advice orally and in writing and no good reason why a mortgagee,  concerned  to  act  fairly  towards  his  borrower,  should  fail  or neglect to obtain or act upon such advice in all respects as if the mortgagee were desirous of realising the best price reasonably obtainable at the date of the sale for property belonging to the mortgagee himself.

[82]     The sale from Mr Bruce to Coumat is essentially analogous to the sale in Tse Kwong Lam v Wong Chit Sen.  Although Mr Bruce was not selling to a company in which he was a director or held shares, the effect of the deed he had executed with Mr Hayhow essentially made Mr Bruce Mr Hayhow’s puppet or agent.   He had bound himself to do as Mr Hayhow directed when it came to the sale of the land; under the terms of the deed he could not do otherwise.  In essence, therefore, when the private treaty sale to Coumat proceeded it did so as if it were Mr Hayhow in the role of mortgagee/vendor and not Mr Bruce.   Seen in this way the sale readily engages the principle formulated in Tse Kwong Lam v Wong Chit Sen.

[83]     I find the sale from Mr Bruce to Coumat has many features that distinguish it from an arms’ length transaction.  Mr Bruce was clearly conflicted. Accordingly, the connection between Mr Bruce, Mr Hayhow and Coumat is sufficiently close to engage the principle that shifts the burden of proof onto Mr Bruce to prove he took reasonable precautions to obtain the best price reasonably obtainable at the time of the sale.

[84]     What constitutes reasonable precautions will always turn on the facts of the case.24   Helpful indicators include:25

(a)       the  appointment  of  a  reputable  real  estate  agent  to  market  the property;

24     See Long v ANZ National Bank Ltd [2012] NZCA 132 at [21].

25     See Public Trust v Ottow (2010) 10 NZCPR 879 (HC) at [31].

(b)obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property;

(c)       marketing over a reasonably long period of time;

(d)      an extensive advertising and promotional campaign; (e)         a properly conducted auction;

(f)       a sale price that, given all the circumstances, can be reconciled with expert opinion as to value.

[85]     None of the defendants advanced evidence that could show any of the above indicators were present in the mortgagee sale by Mr Bruce.  At times during the trial they each  referred  to  earlier  unsuccessful  attempts  to  sell  the  land.   They  also referred to the potential impediments to realising a good price for the land such as the problems obtaining resource consent and disposal of waste water.   However, those issues happened some time before the sale by Mr Bruce to Coumat and in circumstances where the proposed sales involved more than a sale of bare land, which was the case here.   The defendants portrayed the land as difficult to sell, carrying a stigma as a result of earlier unsuccessful attempts to market it.  However, the defendants’ self serving portrayal of the problems affecting the value of the land was not supported by expert evidence. Thus I place little weight on their evidence.

[86]     The defendants assert that a sale price which saw WPL only benefit to the sum of $7,454,902 was the best price reasonably obtainable for the land in a mortgagee sale by private treaty.   However, it was incumbent upon them to prove that to the civil standard.  They have advanced no evidence to this end. Accordingly, their assertion fails.

[87]     WPL relies on the gross sale price of $10,014,956 as being the best price reasonably  obtainable  in  the  circumstances.    WPL did  not  adduce  evidence  to support $10,014,956 being the best price reasonably obtainable.  It simply asks the Court to read the gross sale price of substitute private treaty agreement as the price for which the land sold without reference to the explanations for the deposit and how

this was formed. WPL is content to accept that $10,014,959 represents the best price reasonably obtainable for this land.

[88]     The sale closest in time to the substitute private treaty agreement was the tender agreement, which occurred in April 2014.  That was an unconditional sale for

$12.5 million, with Mr Hayhow and his wife providing a deposit of $1.25 million. This shows Mr Hayhow was prepared to become involved in an unconditional purchase of the land at a higher price than the amount for which it was sold to Coumat.   Although  the finance Mr Allen was  raising was  dependent  upon  him securing solutions for the resource and waste water issues, both he and Mr Hayhow were seemingly prepared to commit to buying the land unconditionally without those solutions first being firmly in place.  This suggests to me that the purchase price of

$12.5 million did not hinge on those solutions. Accordingly the purchase price under the tender agreement goes some way to support the view that the sale price of

$10,014,956 was the best price reasonably obtainable, and that the lower sum of

$7,454,902 would not qualify as such.

[89]     Mr Hayhow said in evidence the bid of $12.5 million was a “jacked up”

price.  However he gave no plausible explanation to support that assertion.

[90]     The two other tender bids by Mr Allen, one with a co-bidder Ms Ma, were for

$9,000,000, which is closer to the sale price of $10,454,902 than the $7,454,902 which the defendants contend to be the best price for the land.

[91]     There  is  also  the  fact  that  the  first  sale  agreement,  the  private  treaty agreement, had the price of $7,454,902.  If both Mr Bruce and Mr Hayhow saw this figure as the price Coumat was to pay for the land, it is difficult to see why three days later they entered into a substitute agreement with a higher stated sale price.  If the $7,455,902 was the real price for the land, the private treaty agreement could have been left in place with Mr Bruce and Mr Hayhow coming to a separate agreement about how the personal Bruce debt and the forfeit deposit were to be

accounted for.26    That Mr Bruce and Coumat agreed to sell the land for the higher sum of $10,014,956 only three days later suggests that each party saw some benefit in the sale price for the land being higher than $7,454,902.

[92]     Given the factual matrix of the substitute private treaty agreement I consider the intended sale price was one of $10,014,956.  Whilst the defendants testified to the contrary, their evidence of what they intended the price to be is not relevant when it comes to interpreting the substitute private treaty agreement.27   Nor did I find this evidence credible.

[93]     The defendants’ explanations for why the deposit payment was structured in the way that it was are not plausible.  Regarding both the personal debt Mr Bruce owed to Mr Hayhow (which Mr Bruce lacked funds to repay) and the forfeit deposit, those monies were lost.   Mr Hayhow was never going to recover them.   Yet he wanted them treated as payment of the deposit, and to him this offered some means of recovery.  Mr Hayhow said this more than once in his evidence.  However, this would only make sense if: (a) the intended  sale  price was set at a sum which accommodated this recovery; and (b) the land was worth that price, otherwise realistically there could be no recovery.   So, whilst Mr Hayhow testified that the parties’ intended sale price was no more than $7,454,902 and he would have paid no

more for the land,28 I cannot reconcile this evidence with his other evidence that the

purpose of the deposit payment was to allow him to recover his earlier losses.

[94]     Nor  do  I  accept  the  defendants’  argument  that  in  accordance  with  the reasoning in Bhasin v Elite Lifestyles Ltd the deposit payment should not be viewed as surplus proceeds.29   The present circumstances are different from those in Bhasin v Elite Lifestyles Ltd.  In that case the sum of $100,000 was part of monies received from a mortgagee sale which were over and above the sum required to pay the

mortgagee.   There was a dispute between the mortgagee and the purchaser over the

26     Insofar as a separate agreement involved Mr Bruce treating the extinguishment of his personal debt to Mr Hayhow in return for selling the land to Coumat, the purpose of the agreement would place Mr Bruce in breach of his duties as a mortgagee selling the land, but that is a separate issue.

27     See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [28] and

[30]; and Firm Pl 1 Ltd, above n 13, at [60].

28     As Coumat’s sole director the decision was for him to make.

29     Bhasin v Elite Lifestyles Ltd CA195/89, 11 October 1990.

state of the property.  Pending the resolution of their dispute they agreed they would jointly hold $100,000 to cover costs of any remediation.  The mortgagor claimed this sum as surplus proceeds of sale and sought recovery under the former equivalent of s

185 of the Property Law Act.30     The Court of Appeal rejected the mortgagor’s

argument, finding that if there were issues regarding the state of the property the vendor and purchaser were entitled to set aside a sum that could potentially resolve the dispute.   Further, until the dispute was resolved it was not clear whether the

$100,000 was a surplus that was payable to the mortgagor, since it was potentially required to bring the property up to the contracted standard.

[95]     Viewed objectively, the components of the deposit appear as a way in which the defendants for their own personal reasons sought to make up this part of the sale price without advancing a cash sum.   Consideration need not be in cash.   The problem here for the defendants is that the non-cash consideration was not good consideration  vis-à-vis WPL.    Writing  off  a  debt  owed  between  Mr  Bruce  and Mr Hayhow  is  of  no  value  to  WPL.    Crediting  Coumat  with  the  benefit  of Mr Hayhow’s forfeit deposit for the tender agreement is also of no value to WPL. Whilst the forfeit deposit reduced WPL’s debt to ANZ, the reason for the forfeiture was  the  failure  of  the  purchaser  under  the  tender  agreement  to  settle.    That transaction did not directly involve WPL.  Further, had there been no forfeiture, the sum payable by Mr Bruce to redeem the ANZ mortgage would have been $1.25 million more.  For Mr Bruce to obtain the rights to exercise a mortgagee sale he had to pay ANZ whatever was owed under the mortgages.   There is no evidence to suggest ANZ would have agreed to the assignment for a lesser payment.

[96]     Accordingly I find the land sold for the sum of $10,454,902.  I also find that this would have been the best price reasonably obtainable, if it had comprised consideration that allowed the mortgage debt to be repaid and for surplus proceeds to go to the benefit of WPL.  But that was not so. The contract price was structured in a way that deprived WPL of the benefit of any surplus proceeds.  For this reason I find

Mr Bruce did not obtain the best price reasonably obtainable for this land.

30     Section 104 of the Land Transfer Act 1952.

[97]     The conclusions I have reached means that in terms of the first alleged breach of duty – the duty to account for the proceeds of the mortgagee sale – Mr Bruce breached that duty.   By accepting bad consideration as a deposit he has failed to collect from Coumat the deposit of $2,560,054 which was a part of the contract price surplus to the ANZ debt.   In this way Mr Bruce has failed to account for all the proceeds of the mortgagee sale.

[98]     In terms of the second duty breach – the failure to obtain the best price reasonably obtainable– I find that the total sum of $10,014,956 was the best price reasonably obtainable.  However, by agreeing to accept a deposit that could never be of benefit to WPL, Mr Bruce essentially discounted the contract price to the lesser sum of $7,454,902.  In this way Mr Bruce breached the duty under s 176 of the PLA and the general law to obtain the best price reasonably obtainable.

Dishonest assistance and knowing receipt

[99]     The claims of dishonest assistance and knowing receipt both capture third parties who are strangers to the trust / fiduciary relationship, in the sense that they do not directly owe a duty of trust or a fiduciary duty to the wronged party.31   I begin by addressing the claims of dishonest assistance against Mr Hayhow and Coumat.

[100]   Dishonest  assistance  can  be  distinguished  from  knowing  receipt  in  that receipt of trust property is not required.32    Rather, the defining element is that of dishonest participation in a breach of duty.33    This means that there must first have been a breach of trust or fiduciary duty by another party, to which the defendant was an accessory.

[101]   The three key elements of dishonest assistance are as follows:34

(a)      money is lost as a result of a breach of trust or a breach of fiduciary duty;

31     Eden Refuge Trust v Hohepa [2011] 1 NZLR 197 (HC) at [190].

32     See Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC) at 382.

33     See Burmeister v O’Brien [2010] 2 NZLR 395 (HC) at [92].

34     See Burmeister v O’Brien, above n 33, at [93], cited in Eden Refuge Trust v Hohepa, above n 31, at [207]. These were affirmed on appeal, see Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227.

(b)      the defendant has participated in the breach of duty by helping or assisting in some way with those breaches; and

(c)      there  is  dishonesty  (objectively  assessed)  on  the  part  of  the defendant.

[102]   The first element of dishonest assistance is satisfied.  I have already identified Mr Bruce’s breach of statutory duty in respect of his failure to properly account for the proceeds of the mortgagee sale to Coumat.  However, as mentioned earlier, the statutory duty imposed by s 185 co-exists with the duties imposed by equity and the common law, which include the principle that a mortgagee holds surplus funds from the sale of mortgaged land on trust for the mortgagor.   Accordingly, a failure by

Mr Bruce to account properly for the surplus funds to WPL is a breach of trust.35

[103]   I am satisfied, for reasons earlier provided, that in relation to the deposit sum of $2,560,054 Mr Bruce has failed to account for that sum.  In short, Mr Bruce as trustee of the surplus funds has engaged in self-dealing.  By entering into the deed of

21 July 2014 Mr Bruce placed the personal interest of himself, Coumat as purchaser, and Mr Hayhow, as the driver of the arrangement to acquire the land, ahead of duties owed to WPL as mortgagor, including the duty to hold surplus funds from the mortgagee sale on trust for WPL.  Instead of selling the land on terms that ensured any surplus from the sale price of $10,014,956 was in the form of good consideration for  WPL,  Mr  Bruce  sold  it  on  terms  that  directed  the  benefit  of  the  surplus elsewhere: namely, to his personal benefit and that of Mr Hayhow.  The result was that consideration to the value of $2,560,054 which should have gone to WPL was lost to it.

[104]   Regarding the second element of dishonest assistance, I am satisfied that Mr Hayhow participated in Mr Bruce’s breach of trust by helping or assisting in some way with the breach.   The sale from Mr Bruce to Coumat could not have happened without: (a) Mr Hayhow being willing to enter into the deed of 21 July

2014 with Mr Bruce; (b) Mr Hayhow being instrumental in securing the finance for Coumat  to  purchase the  land, thus  enabling Mr Bruce  to  redeem  the  mortgage securities so that he could then effect the mortgagee sale; and (c) Mr Hayhow on

behalf  of  Coumat  agreeing  to  purchase  the  land  from  Mr  Bruce.     In  short,

35 See discussion herein at [68].

Mr Hayhow played an instrumental part in ensuring the sale of the land by the substitute private treaty agreement  went  ahead.   Accordingly,  I find  the second element of dishonest assistance is satisfied.

[105]   Regarding the third element, dishonesty on the part of Mr Hayhow is to be objectively assessed.36     In Westpac New Zealand Ltd v MAP and Associates Ltd, Tipping J in the Supreme Court described the third element in this way:37

[26]      In Barlow Clowes, which represented a significant volte-face from the decision of the House of Lords in Twinsectra Ltd v Yardley, Lord Hoffmann summarised the state of the law on dishonest assistance.   The major difference between Twinsectra and Barlow Clowes is that in the latter case their Lordships recognised, as had Lord Millett in his dissenting speech in Twinsectra, that although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective.   If by ordinary standards a defendant’s mental state would be described as dishonest, it is irrelevant that the defendant has different standards and does not appreciate that his conduct, by ordinary standards, would be regarded as dishonest.  We would adopt his Lordship’s summary in Barlow  Clowes  but  with  some  elaboration  as  regards  when  suspicion amounts to dishonesty.   In that respect the Privy Council said that the necessary  state  of  mind  could  consist  in  suspicion  combined  with  a conscious decision not to make inquiries which might result in knowledge.

[27]     The key ingredient in the cause of action for dishonest assistance is the need for a dishonest state of mind on the part of the person who assists in the breach of trust.  We agree with the statement in Barlow Clowes that such a state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate.   But it may also consist in what we would describe as a sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge.  For the purpose of this alternative, it is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest to decide not to make inquiry.  That state of mind, which equity equates with actual knowledge, is usually referred to as wilful blindness.  It involves shutting one’s eyes to the obvious and can thus fairly be equated with the dishonesty involved when there is actual knowledge.

(footnotes omitted)

[106]   Further guidance as to what is meant by a “dishonest state of mind” can be

found in the speech of Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan:38

Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context.

36     See Fletcher v Eden Refuge Trust, above n 34, at [67].

37     Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.

38     Royal Brunei Airlines Sdn Bhd v Tan, above n 32, at 389.

Whatever may be the position in some criminal or other contexts (see, for instance, Reg v Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.

In  most  situations  there  is  little  difficulty  in  identifying  how  an  honest person would behave. Honest people do not intentionally deceive others to their  detriment.  Honest  people  do  not  knowingly  take  others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions,  lest  he  learn  something  he  would  rather  not  know,  and  then proceed regardless.

[107]   In  summary,  therefore,  one  takes  as  a  starting  point  what  the  defendant actually knew or suspected about the facts of the transaction that gave rise to a breach of trust or fiduciary duty.  The defendant need not have appreciated that, in legal terms, a breach of trust or fiduciary duty occurred.  However, the defendant’s actions  (in  light  of  their  knowledge  about  the  transaction)  must  have  been objectively dishonest. This means that an honest person with the knowledge that the defendant had about the facts of the transaction would not have participated in it.  In the  same  vein,  a  person  can  be  “dishonest”  if  they  have  suspicions  about  a transaction, but they shut their eyes and refrain from making further inquiries.

[108]   On  any  occasion,   however,   the  defendant   need   not   have  personally appreciated that their actions were dishonest: that is what is meant by an objective standard of dishonesty.

[109]   I consider that  a reasonable person vested with the actual knowledge of Mr Hayhow regarding the structure of these arrangements could not honestly have participated in it.  The arrangements necessarily involved Mr Bruce acting contrary to his duties as a mortgagee effecting a mortgagee sale, including the duty to hold surplus funds from the mortgagee sale on trust for WPL.   The substance of the arrangement Mr Hayhow entered into with Mr Bruce was one which essentially gave Mr Hayhow the power to control how Mr Bruce effected the mortgagee sale to Mr Hayhow’s company Coumat on terms decided by Mr Hayhow.  Naturally, as the sole director of Coumat, Mr Hayhow would want to ensure Coumat acquired the land at the best possible price for Coumat, which for a purchaser would mean the lowest  price  possible.    Here,  Mr Hayhow  achieved  this  end  by  using  non-cash consideration of no value to WPL to pay the deposit.  This advantaged himself and Coumat.  This arrangement, in which Mr Hayhow was a willing participant, cannot be reconciled with the duty of trust Mr Bruce owed WPL for the surplus funds from the mortgagee sale, let alone his other duties as mortgagee exercising the power of sale.  An honest person with Mr Hayhow’s knowledge would not have assisted to deprive WPL of funds it was entitled to.

[110]   Mr Hayhow gave evidence that the idea that Mr Bruce would redeem the land by paying the ANZ debt was one put forward by Mr Bruce’s solicitor at a meeting Mr  Hayhow  had  with  Mr  Bruce  in  the  solicitor’s  office.    This  cannot  protect Mr Hayhow from a finding of dishonesty.  First, the solicitor never gave evidence so I do not know if he approved the entire arrangement or limited his advice to explaining how s 102 of the Property Law Act worked as a way in which Mr Bruce could gain control over the sale of the land. Second, because the solicitor did not testify he could not be cross-examined and so WPL could not explore with him the extent to which, if at all, the conflict of interest and breach of trust issues were canvassed.

[111]   Mr Hayhow’s evidence revealed that his solicitors were involved in various steps of the arrangement.   However, the deed of 21 July 2014 and the substitute private treaty agreement are documents executed by Mr Bruce and Mr Hayhow without  reference to  legal  advisors.   Given  the absence of evidence  from  legal advisors as to their input into the overall arrangement and advice they gave as to its

bona fides, I am not prepared to infer from the evidence presently available to me that the overall arrangement was legally approved.   Indeed I find it difficult to contemplate that a solicitor would have approved the arrangement’s overall form. Evidence of the involvement of solicitors acting for Mr Bruce and for Mr Hayhow cannot displace the finding of dishonesty on the part of Mr Hayhow.  Accordingly I am satisfied the third element of dishonest assistance is satisfied.

[112]   It follows that WPL has proved dishonest assistance against Mr Hayhow.

[113]   WPL also claims dishonest assistance against Coumat. As the sole director of Coumat Mr Hayhow’s knowledge can be attributed to Coumat.39     Coumat participated in Mr Bruce’s breach of duty by being prepared to be a purchaser in this arrangement. The elements of dishonest assistance by Coumat are also present here.

[114]   WPL also alleges that Coumat, as the purchaser of the land, is liable in knowing receipt.  To prove knowing receipt, the plaintiff must prove the following three elements:40

(a)      a disposal of the plaintiff’s property in breach of fiduciary duty or on some other unauthorised basis;

(b)      the beneficial receipt by the defendant of that property; and

(c)      knowledge by the defendant that the transfer of the property to it was in consequence of a breach of fiduciary duty or other unauthorised act.

[115]   I find that the three elements are established:

(a)      As discussed earlier, Mr Bruce was in breach of trust as the reduced price that Coumat paid ($7,454,902) meant that surplus funds from

39     See Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7

(PC); and see Eilis Ferran “Corporate Attribution and the Directing Mind and Will” (2011) 127

LQR 239.  As the sole director and shareholder of Coumat, Mr Hayhow was the only natural person through whom Coumat could act.

40     Equiticorp Industries Group Ltd (in stat man) v R (Judgment no 47) [1998] 2 NZLR 481 (HC) at

540.

the mortgage sale (the $2,560,054 deposit) could not be distributed to

WPL.

(b)Coumat received the property by paying less than the contract sale price from Mr Bruce, and thus received and enjoyed the benefit of Mr Bruce’s breach of trust; and

(c)       As discussed earlier, Coumat did this with the dishonest knowledge I

have already found can be attributed to it.

[116]   Accordingly, I find that WPL also has established its claim knowing receipt against Coumat.

[117]   However, Coumat is the purchaser in a mortgagee sale and has raised s 184 of the Property Law Act as a defence to the accessory liability causes of action.

Section 184 of the Property Law Act

[118]   Section 184 is in the following terms:

184     Protection of purchaser at sale by mortgagee

(1)      This section applies to—

(a)       a  person  who  purchases  mortgaged  property  from  the mortgagee or a receiver (excluding the mortgagee if the mortgagee is the purchaser); and

(b)       a  person  claiming  the  property  through  a  person  who purchases mortgaged property from the mortgagee or a receiver (including  person claiming through the mortgagee if the mortgagee is the purchaser).

(2)      The person—

(a)      is not answerable for the loss, misapplication, or non- application of the purchase money paid for the property; and

(b)       is  not  obliged  to  see  to  the  application  of  the  purchase money; and

(c)      need not inquire whether—

(i)       there has been a default; or

(ii)      in the case of personal property, the property is at risk;

or

(iii)     any notice required to be given by this Part has been duly given; or

(iv)     the sale is otherwise necessary, regular, or proper.

(3)       The person is protected from liability under subsection (2) (except in the case of fraud of which that person was aware) even if, at the time of purchase or other acquisition of the property, that person has actual notice that—

(a)      there has not been a default; or

(b)      in the case of personal property, the property is not at risk; or

(c)      a notice required by this Part was not duly given; or

(d)      the sale is otherwise unnecessary, irregular, or improper.

[119]   I consider that this section does not allow Coumat or Mr Hayhow to escape liability for dishonest assistance.  Section 184 is designed to protect the purchaser in a mortgagee sale from liability once the purchase price has been paid and the sale completed.   That is apparent from the wording of the section, which refers to “purchase money paid for the property” and a “sale” that is unnecessary, irregular, or improper – suggesting a completed sale in which the purchaser has paid the money in full.

[120]   In this case, Coumat did not pay the purchase price in full.  As I have found, the   intended   sale   price   under   the   substitute   private   treaty   agreement   was

$10,014,956.   Coumat has not paid the balance of the purchase price (being the deposit of $2,560,054) to Mr Bruce.  Instead, Mr Hayhow wrote off the debts that Mr Bruce owed to him.  That was not good consideration, as I have already noted. Coumat cannot now rely on s 184 to claim that it need not make good its failure to pay the balance of the purchase price.

[121]   WPL sought in its submissions to rely upon the fraud exception in s 184.  It cannot do this.  WPL filed a reply in answer to Coumat’s affirmative defence.  WPL denied s 184 applied but it did not expressly plead that the presence of fraud precluded reliance on s 184.   Fraud should always be expressly pleaded and particularised.    Moreover,  it  seems  to  me  that  fraud  in  s  184  entails  actual  or

common law fraud.   Here Coumat  has been  found to be an  accessory in  what constitutes an equitable fraud, but that is not the same as actual fraud.  Coumat and its director Mr Hayhow have been found dishonest by objective standards, which is all equity requires for accessory liability.  Their conduct has not been assessed by the more stringent (subjective) requirements of common law fraud, which requires proof

of an intention to cheat.41

Contractual mistake

[122]   The Contractual Mistakes Act 1977 is a code that governs the circumstances in which relief may be granted to a contracting party on the grounds of mistake.42

[123]   Section 6 sets out when relief may be granted:

6  Relief  may  be  granted  where  mistake  by  one  party  is  known  to opposing party or is common or mutual

(1) A court may in the course of any proceedings or on application made for the purpose grant relief under section 7 to any party to a contract—

(a)  if in entering into that contract—

(i)        that party was influenced in his decision to enter into the contract by a mistake that was material to him, and the existence of the mistake was known to the other party or 1 or more of the other parties to the contract (not being a party or parties having substantially the same interest under the contract as the party seeking relief); or

(ii)      all the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or

(iii)      that party and at least 1 other party (not being a party having substantially the same interest under the contract as the party seeking relief) were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and

(b)   the mistake or mistakes, as the case may be, resulted at the time of the contract—

41     See discussion in Avondale Printers and Stationers Ltd v Haggle [1979] 2 NZLR 124 (SC) at

159–160.

42     See Contractual Mistakes Act 1977, s 5(1). There are limited exceptions to this broad provision.

(i)       in a substantially unequal exchange of values; or

(ii)       in the conferment of a benefit, or in the imposition or inclusion of an obligation, which was, in all the circumstances, a benefit or obligation substantially disproportionate to the consideration therefore; and

(c)       where the contract expressly or by implication makes provision for the risk of mistakes, the party seeking relief or the party through or under whom relief is sought, as the case may require, is not obliged by a term of the contract to assume the risk that his belief about the matter in question might be mistaken.

(2)      For  the  purposes  of  an  application  for  relief  under  section  7  in respect of any contract,—

(a)  a mistake, in relation to that contract, does not include a mistake in its interpretation:

(b) the decision of a party to that contract to enter into it is not made under the influence of a mistake if, before he enters into it and at a time when he can elect not to enter into it, he becomes aware of   the   mistake   but   elects   to   enter   into   the   contract notwithstanding the mistake.

[124]    In  broad  terms,  therefore,  there  are  three  categories  of  mistake  which qualify: unilateral mistake known to the other party (s 6(1)(a)(i)); common mistake (s  6(1)(a)(ii));  and  different  mistakes  about  the  same  matter  of  fact  or  law (s 6(1)(a)(iii)).

[125]   Coumat and Mr Hayhow appear to allege common mistake, namely that Coumat and Mr Bruce were both influenced in their respective decisions to enter into the contract by the same mistake: they believed that the purchase price for the property was $7,454.902 and what was described as the “Deposit” was simply a “side arrangement” to extinguish Mr Bruce’s debts to Mr Hayhow.  They claim they did not intend to create a monetary payment that Coumat would be required to pay in cash to Mr Bruce.

[126]   Coumat and Mr Hayhow’s view of the contract does not accord with my conclusions as to its proper interpretation.  In my view, their mistake was a mistake as to the interpretation of the contract, which s 6(2)(a) excludes from the category of mistakes giving rise to relief.   Coumat and Mr Hayhow cannot now seek relief

because they meant something quite different to the meaning I have concluded is appropriate. As the Court of Appeal has observed about s 6(2)(a):43

Parliament plainly intended to maintain the well established principle that contracts are to be construed objectively, and to avoid the great uncertainty that would arise were a party to be permitted to plead as a mistake that he understood  the  contract  to  mean  something  different  from its  plain  and ordinary meaning.

Rectification

[127]   Rectification is an equitable remedy that may be granted where there is a defect in the way the parties’ agreement has been recorded, so that it has been expressed in terms that neither party intended.44   The requirements for the Court to order rectification are well settled. The Court must be satisfied:45

(1) That,  whether  there  is  in  antecedent  agreement  or  not,  the  parties formed and continued to hold a single corresponding intention on the point in question.

(2) That such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.

(3) That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.

(4) That the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.

[128]   Rectification is a discretionary remedy,46  and the Court may be required to consider any potentially competing equities in granting or refusing rectification.47

43     Paulger v Butland Industries Ltd [1989] 3 NZLR 549 (CA) at 553.

44     Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [84].

45     Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 30, cited with approval in Robb v

James [2014] NZCA 42 at [21].

46     Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2016] NZCA 308, [2016]

3 NZLR 726 at [58].

47     Robb v James [2014] NZCA 42 at [23].

[129]   The body of law governing rectification of contracts survives the Contractual Mistakes Act 1977, which provides in s 5(2)(b) that nothing in the Act shall affect the law relating to the rectification of contracts.

[130]   In closing submissions Mr Hayhow and Coumat relied on rectification.  This was not signalled in their statement of defence.  Nevertheless, WPL did not raise any serious objection.  Here Mr Bruce and Mr Hayhow gave evidence that the common intent of the substitute private treaty agreement was for Coumat to pay no more than

$7,454,902  by  cash  funds  with  the  deposit  representing  a  sorting  out  between

Mr Bruce and Mr Hayhow.

[131]   This evidence flies in the face of their conduct at the time.  If Coumat was intended to pay no more than $7,454,912 for the land only, it is unclear why the private  treaty  agreement  was  abandoned  and  replaced  with  the  higher  priced substitute private treaty agreement.   The defendants say the purpose of the higher price was to provide for what they now term a side deal.  It is hard to make sense of this answer.  The sale was between Mr Bruce as mortgagee vendor and Coumat as purchaser.  Mr Hayhow was not a party to the agreement at all.  It is difficult to see how the deposit can be seen to comprise in part a side deal between Mr Bruce and Mr Hayhow when Mr Hayhow is not even a party to the agreement.

[132]   I have already expressed my view on the parties’ evidence on their intention

behind the substitute private treaty agreement.   Those views are applicable here.48

Contrary to what they now say, I consider the circumstances at the time the land was sold  show  a  clear  intent  to  have  the  sale  price  increased  from  $7,454,902  to

$10,014,956.  The purpose of doing so is not evident to me but I have no doubt that at  the  time  that  is  the  result  they  wanted.    Accordingly  the  application  for rectification fails.

Claim for set-off

[133]   Mr Hayhow claims a set-off of the $1.25 million forfeit deposit against any relief ordered against him on the ground that the tender he made as part of a venture

48 See [94] to [96] herein.

with Mr Allen can be referenced to WPL because Mr Allen was a director of WPL and WPL has benefited from the forfeiture.   This is nonsense.   The $12.5 million tender bid Mr Allen made to purchase the land was made in his personal capacity. He was not making the bid as a director of WPL.   The deposit was lost because, having made an unconditional bid for the land, Mr Allen and his nominee PDL failed to settle.  Mr Hayhow was not involved in this.  He provided the funds that enabled the deposit to be paid but he was not a named party in the tender bid. WPL benefited indirectly because ANZ credited the forfeit deposit to the mortgage debt.  This act on the  part  of ANZ  cannot  be  relied  upon  to  draw  WPL into  a  relationship  with Mr Hayhow vis-à-vis the lost deposit.  Mr Hayhow has no claim against WPL for the forfeit deposit.  Indeed he has no basis for seeking a set-off for this amount, as the payment of the deposit meant when it came to purchasing the land under the rescue plan the ANZ debt was reduced by this forfeiture.   Had it not happened, the debt would have been greater and so more funds would have been required for Mr Bruce to redeem the land.

Measure of WPL’s loss and the defendants’ gain

[134]   WPL has succeeded in its claims against all defendants.  In a variety of forms of  relief, WPL seeks  orders  from  the  Court  requiring  the  defendants  jointly or severally to pay it the sum of $2,560,054, which represents the deposit payment.

[135]   The defendants’ argument was that none of the $2,560,054 was recoverable against them.  They never, in the alternative, sought to identify any deductible costs to be subtracted from the sale proceeds before a surplus was reached.49     Usually there are such costs.  However, here since the land was sold by private treaty, with no real estate agents involved and no advertising or marketing campaign, there are no obvious costs other than conveyancing costs which Mr Bruce might have claimed as a deductible item.  He did not do so.

[136]   In view of the findings I have made and the state of the evidence, I find that the surplus proceeds of the mortgage sale of the land are in the sum of $2,560,054

which WPL is entitled to recover.

49     Section 185 of the PLA provides for deductions of this type.

Relief

[137]   For the first breach of duty (duty to account for proceeds of sale) WPL seeks declarations that Mr Bruce breached this duty,  and orders that Mr Bruce either account to WPL for the sum of $2,560,054 or pay equitable compensation in the same sum.

[138]   Regarding an order to account this can only be in relation to profits Mr Bruce has enjoyed as a result of the breach of duty to account for the surplus proceeds of sale. The only personal profit Mr Bruce made from this breach is the extinguishment of the personal debt of $1,310,054 that he owed to Mr Hayhow.  To this extent he can be ordered to account to WPL for profits arising from his breach of duty.

[139]   Because Mr Bruce’s breach of duty also caused WPL not to receive the surplus proceeds from the sale of the land, Mr Bruce can be ordered to pay WPL equitable compensation to make good that loss.

[140]   Accordingly, Mr Bruce can be ordered to account to WPL in the sum of

$1,310,054 and to pay equitable compensation in the sum of $1.25 million (being the remainder of the lost deposit payment) or he can be ordered to pay the sum of

$2,560,054 as equitable compensation.

[141]   The same applies in relation to the relief for the breach of the duty under s

176 of the PLA.

[142]   For the breaches of the duties Mr Bruce owed to WPL, WPL also seeks orders for an account and equitable compensation from Mr Hayhow and Coumat. However, they did not owe those duties to WPL.  Accordingly, WPL can claim no relief against Mr Hayhow and Mr Coumat for breaching those duties.

[143]   WPL has also sought declarations giving it a proprietary interest in the land or for the defendants to account for consequential benefits or gains derived by them from the mortgagee sale or from obtaining the property.

[144]   WPL has provided little in the way of legal argument to support it having a proprietary interest in the land.  It has not sought to undo the sale of the land, which is sensible in the circumstances.  Once the mortgagee sale proceeded to settlement WPL’s entitlement to relief became restricted to recovery of the surplus funds from the mortgagee sale together with interest.  Accordingly WPL’s request for orders or declarations recognising it as having a proprietary interest in the land, or ordering the defendants to account for benefits and gains derived from the mortgagee sale (other than the failure to pay the deposit payment) is dismissed.

[145]   In addition to seeking orders for payment of a money sum equivalent to the deposit  payment,  in  relation  to  the  breach  of  the  s  176  duty WPL sought:  (a) judgment for such further sum as is determined to be the best price reasonably obtainable for the land at the time of sale; and (b) damages for the foreseeable losses resulting from this breach of duty.  However, regarding (a) WPL adduced no reliable evidence to identify what that sum might be; and regarding (b) WPL produced no evidence of what the foreseeable losses might be.   Accordingly, it is denied this relief.

[146]   When it comes to relief against Mr Hayhow and Coumat, WPL has succeeded in proof of its claims of accessory liability against both those defendants.

[147]   Against both Mr Hayhow and Coumat, WPL seeks an order for an account or in the alternative equitable compensation.  As a result of Mr Hayhow and Coumat’s dishonest assistance with Mr Bruce’s breach of trust, WPL did not receive any of the surplus proceeds of sale it was due.   Further Coumat, received legal ownership of land sold to it for $10,014,956 without having to pay any more than $7,454,902 for the land.

[148]   Mr Hayhow enjoyed no direct profit from his acts of dishonest assistance. Accordingly, as against him WPL can only recover equitable compensation for the loss his equitable wrongdoing caused WPL.

[149]   Coumat has effectively received the land at a discount price (as a result of

Mr Bruce’s breach of trust) and in this way it has profited from its equitable wrong

doing.  Accordingly, Coumat can be ordered to account for profit of $2,560,054 or, alternatively, to pay WPL equitable compensation of the same sum.

[150]   Because I consider all of WPL’s interest and entitlements in the land ceased at the time it was sold to Coumat I consider that, as with the relief sought in relation to Mr Bruce, WPL can claim no ongoing proprietary interest in the land.  Nor can it claim recovery from Mr Hayhow or Coumat of any benefits they may have subsequently derived from Coumat’s acquisition of the land.

[151]   Accordingly I make declarations as follows:

(a)      Mr  Bruce  has  breached  the  mortgagee’s  duty  to  account  for  the surplus proceeds of the mortgagee sale of the land, insofar as he accepted payment less than the contract price.

(b)Mr Bruce has breached the mortgagee’s duty to obtain the best price reasonably possible insofar as he sold the land on terms whereby he did not receive good consideration for the full sale price of the land.

(c)      Mr Hayhow and Coumat dishonestly assisted Mr Bruce in his breach of trust to account for the surplus proceeds of the sale of the land.

(d)Coumat knowingly received and enjoyed the surplus proceeds of the sale that were held on trust for WPL.

[152]   I order as follows:

(a)      Mr Bruce is to account to WPL in the sum of $1,310,054 and to pay equitable compensation to WPL in the sum of $1.25 million.

(b)      Coumat is to account to WPL in the sum of $2,560,054;

(c)      In the alternative, Mr Bruce, Mr Hayhow and Coumat are jointly or severally  to  pay  WPL  equitable  compensation  in  the  sum  of

$2,560,054;

(d)      WPL’s total recovery from all defendants is limited to the sum of

$2,569,054 together with such interest as the Court may order.

[153]   Regarding interest, part of the case against the defendants was based upon breach  of  trust  and  accessory  liability  for  such  breach.    Compound  interest  is therefore available.

[154]   Leave is reserved to the parties to file memoranda on interest payable on the monetary sum I have ordered be paid to WPL and on costs.

Result

[155]   WPL has succeeded in its claims against Mr Bruce, Mr Hayhow and Coumat.

[156]   The  affirmative  defences  raised  by  Mr  Hayhow  and  Coumat  have  been rejected and those defences are dismissed accordingly.

[157]   Mr Hayhow’s set-off has been rejected and is dismissed accordingly. [158]   The relief awarded to WPL is as set out above.

[159]   Leave is reserved to the parties to make further submissions on interest and costs.