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High Court of New Zealand Decisions |
Last Updated: 12 April 2012
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2011-488-485 [2012] NZHC 497
BETWEEN SOUTHLAND BUILDING SOCIETY Plaintiff
AND MICHAEL DAVID AUSTIN First Defendant
AND MELANIE ELIZABETH AUSTIN Second Defendant
AND MARIE ANNE AUSTIN Third Defendant
Hearing: 28 February 2012
Appearances: D Chan for Plaintiff
First Defendant in person
Judgment: 22 March 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 22 March 2012 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Carlile Dowling (D Chan), Private Bag 6021 Napier 4142.
Email: david.chan@cardow.co.nz
Copy for:
Mr Michael David Austin, 1 Montague Place, Onerahi, Whangarei.
Email: mike@montague.co.nz
SOUTHLAND BUILDING SOCIETY V AUSTIN HC WHA CIV-2011-488-485 [22 March 2012]
[1] The plaintiff sues the defendants as guarantors of three loans made by the Hastings Building Society to Good Start Property Development Ltd, as trustee of the Emanem Property Development Trust, for the shortfalls following the sales of properties which secured the loans. The plaintiff applies for summary judgment.
[2] Although the Hastings Building Society made the loans, the plaintiff is the Southland Building Society. The societies were merged under s 33 of the Building Societies Act 1965, with the result that the funds, property and assets of the Hastings Building Society were transferred to the Southland Building Society under s 34(4) of that Act. The assets transferred to the Southland Building Society included the loans to Good Start Property Development Ltd, the mortgages securing those loans, the guarantees given by the defendants and the causes of action against the defendants.
[3] Good Start Property Development Ltd is the sole trustee of the Emanem Trust, a trust which traded in property. The defendants are all directors of Good Start Property Development Ltd. Good Start had its registered office at the home of the defendants.
[4] Only Mr Austin, the first defendant, filed and served a notice of opposition. Melanie Austin and Marie Austin have sworn affidavits in opposition. They also oppose summary judgment being given against them, although they have not filed separate notices of opposition. The matters they raise are consistent with the matters raised by Mr Austin.
[5] The Hastings Building Society first provided finance to Good Start in December 2005. Loans were made to purchase properties at Moki Place, Ruakaka, and at Ngunguru Ford Road, Glenbervie, Whangarei. At the time of these initial loans, the defendants gave a written guarantee in favour of the Hastings Building Society. Under the guarantee, “guarantee debt” is defined to include:
all indebtedness (of whatever nature and for the present or future, or actual or contingent) due, owing, payable remaining unpaid by the account holder to HBS on any account whatever ...
Those initial loans were apparently successfully repaid. The building society relies on the guarantee for later loans. The loans in issue are:
[a] Loan 21060 under an agreement of 13 December 2006 for $70,000 secured by a mortgage over 809B Kaimaumau Road, Kaimaumau;
[b] Loan 21119 under an agreement dated 25 January 2007 for $158,200 secured by a mortgage over 811 (also referred to as 809C) Kaimaumau Road, Kaimaumau; and
[c] Loan 21799 under a loan agreement dated 16 January 2008 for
$270,400 secured by a mortgage over 20 Lester Heights Drive, Whangarei.
[6] Good Start Property Development Ltd defaulted under each of the loans. Hastings Building Society served notices under s 119 of the Property Law Act and conducted sales in the exercise of its powers under the mortgages. Following the sales, the balance payable under all the loans was $364,098.59. The plaintiff claims that sum, plus interest and solicitor-client costs.
[7] The defendants have raised these grounds in opposition to the application for summary judgment:
[a] They did not receive adequate independent legal advice before they signed the guarantee or the loan documents;
[b] They did not receive due disclosure under the Credit Contracts and
Consumer Finance Act 2003;
[c] They did not sign the loan agreement 21060 as guarantors;
[d] Hastings Building Society breached its duty of reasonable care to obtain the best price reasonably obtainable when selling the properties because:
[i] It sold the two Kaimaumau properties as one lot, instead of two separate lots;
[ii] It did not obtain information from the defendants about the work that had been carried out on the property at 20 Lester Heights, Whangarei, so that the information could not be passed onto prospective buyers;
[iii] It did not obtain written assurances from the defendants that the defendants would not obstruct the sales or remove chattels so that these assurances could not be passed onto prospective buyers; and
[iv] It sold the properties by auction.
[e] There were errors in the identification of the debtor in the guarantee
and in some solicitors’ certificates.
[8] Before I consider these defences I also note that there was no evidence that the plaintiff or the Hastings Building Society had served notices under s 122 of the Property Law Act 2007 on the defendants as guarantors before the power of sale was exercised. Mr Chan said that evidence could be provided that notices under s 122 were served. Section 122(4) and (5) provide:
(4) A failure to serve a notice under subsection (2) on a former mortgagor or a covenantor does not prevent —
(a) the mortgagor or receiver from exercising the power of sale;
or
(b) the mortgagee from recovering any deficiency from the former mortgagor or covenantor.
(5) However, a former mortgagor or a covenantor who is prejudiced by a failure to serve a notice under subsection (2) is, to the extent of the prejudice, released from liability to the mortgagee for the deficiency.
[9] As the defendants all live at the same address as the registered office of Good Start Property Development Ltd, and as the notices under s 119 of the Property Law Act were served at the company’s registered office, the defendants will have been
aware of the intention of the Hastings Building Society to exercise its powers under the mortgage because of the defaults in payment. The defences and evidence of the defendants show that they were well aware that the properties were to be sold by auction. The evidence shows that they did not obstruct the sales but were aware of them and, if anything, were co-operative. Any failure to serve notices under s 122 cannot have prejudiced the defendants. The omission to adduce evidence of service of notices under s 122 is not fatal to the plaintiff’s summary judgment application.
No adequate independent legal advice
[10] The first page of the deed of guarantee the defendants signed in December
2005 has a warning in bold print, which includes the following:
Before signing the Guarantee document you should seek independent legal advice because of the risk of ultimate liability.
[11] The warning sets out some of the consequences of signing the guarantee, including personal liability for amounts payable to Hastings Building Society by the account holder. Clause 21 of the deed says:
Each Guarantor acknowledges that prior to entering into this Deed it obtained legal advice from or (sic) its solicitor as to the nature and extent of the Guarantor’s obligations under this Deed.
[12] At the end of the deed there is provision for a solicitor’s certificate and for an alternative if legal advice is not sought. The certificate provides for a solicitor to certify that before the guarantors signed the deed the solicitor explained generally the nature and extent of the obligation of the guarantors in the guarantee and indemnity; the guarantor indicated to the solicitor that the guarantor fully understood the nature and extent of their liability, and that where the guarantor is a company it had power to guarantee; the guarantee was authorised in accordance with relevant corporate authorisations under the Companies Act; and all other things that were required to be done to make the guarantee valid and binding had been done.
[13] In the alternative provision, a guarantor may acknowledge in writing that they had read the warning, including the recommendation to take independent legal
advice, understood the nature and extent of their obligations under the guarantee, and declined to take independent advice.
[14] In this case, a solicitor has signed as having witnessed the signatures of the guarantors. The same solicitor has signed the solicitor’s certificate. Each of the guarantors has also signed the alternative provision, acknowledging that they declined to take independent advice.
[15] The defendants say that they signed the deed of guarantee on 7 December
2005, at the same time as they signed the mortgage over Moki Place, Ruakaka. Although they signed the documents in the office of a lawyer, the person who attended to them was a legal executive, not the lawyer herself. They say that the legal executive did not explain to them the effects and implications of entering into the guarantee. They do not believe that he was independent, because he was also acting for the Hastings Building Society.
[16] The law does not require that a person giving a guarantee must first have independent legal advice. There are relatively few documents where a person signing must first take independent legal advice. Perhaps the best known examples are agreements under Part 6 of the Property (Relationships) Act 1976.[1] Absence of independent legal advice, by itself, does not mean that the guarantee is invalid.[2]
Similarly, there was no obligation on the Hastings Building Society to ensure that the defendants did have independent legal advice or to explain the effects and implications of the documents to be signed.[3]
[17] The defendants do not say that they did notunderstand the effects and implications of the guarantee. It is clear from the affidavit that Mr Austin swore on
9 March 2011, setting out his personal financial position, that he had a clear understanding of his personal liabilities under the guarantee given in favour of the
Hastings Building Society.
[18] In any event, the Hastings Building Society was entitled to rely on the certificate given by the lawyer for the guarantee. The practice of providing for guarantors to take legal advice before signing a guarantee, or to expressly waive taking legal advice, has arisen to forestall allegations that the guarantee is not enforceable because of undue influence, unconscionable bargain, or some similar vitiating factor. In the context of cases where guarantors have sought to avoid guarantees, the courts have had to consider whether banks and building societies are entitled to rely on certificates given by a solicitor. There is a consistent line of cases that a bank or building society is entitled to rely on a solicitor’s certificate that
proper advice has been given to a guarantor.[4] Hoffmann LJ explained the matter in
Bank of Baroda v Rayarel:[5]
If a prospective surety deals with a bank through a solicitor, the bank is entitled to assume that the solicitor has given her appropriate advice. If there is a possibility of a conflict of interest between the surety and the other parties whom the solicitor is also advising, the bank is entitled to assume that the solicitor will have told her that she is entitled to take independent advice. The bank’s legal department is not obliged to commit the professional discourtesy of communicating directly with the solicitor’s client and tendering such advice itself. Nor is it obliged to inform the solicitor of his professional duties. This will be a fortiori the case when the documents submitted by the bank to the surety’s solicitor contain a certificate that she has been advised of the effect of the document and her right to have independent legal advice. The bank was therefore not in the circumstances fixed with constructive notice of the undue influence which the Judge found to have been exerted by the husband. I do not think that one needs to say that this is because the bank has taken reasonable steps to ensure that the wife was separately advised. It is true that the bank did take the step of including the certificate in its draft document but I would not regard this as essential.
[19] The defendants add that the lawyer in this case also acted for the Hastings Building Society when registering the mortgage and giving the normal solicitor’s certificate to the building society before drawdown. The defendants say that the lawyer cannot have been truly independent.
[20] However, while the solicitors may have acted for the building society for one particular purpose in relation to the one transaction, that does not mean that the
lawyer acted for the building society generally for other purposes. The fact that the lawyers acted for the society in registering mortgages does not make the lawyer the society’s agent when giving advice about the deed of guarantee.[6]
[21] In the cases cited in the footnote, guarantors were seeking to avoid liability by having knowledge of solicitors attributed to the lender. That was for the purpose of fixing the lender with knowledge of some irregularity in the transaction which would allow it to be set aside. In this case, apart from attacking the quality of the advice they received, the defendants do not suggest that there was any irregularity or vitiating factor in the loans or the guarantee which would require the guarantee to be set aside. All transactions were orthodox loans to a company of which the defendants were directors. They did not require independent legal advice. They understood the effects and implications of giving the guarantee.
Alleged non-disclosure
[22] The defendants say that they did not receive disclosure required under the Credit Contracts and Consumer Finance Act 2003. Part 2 of the Credit Contracts and Consumer Finance Act 2003 provides for disclosure to guarantors.[7] It applies only to consumer credit contracts. A “Consumer credit contract” is defined in s 11 of the Credit Contracts and Consumer Finance Act:
(1) A credit contract is a consumer credit contract if—
(a) the debtor is a natural person; and
(b) the debtor enters into the contract primarily for personal, domestic, or household purposes; and
(c) 1 or more of the following applies:
(i) interest charges are or may be payable under the contract:
(ii) credit fees are or may be payable under the contract: (iii) a security interest is or may be taken under the
contract; and
(d) when the contract is entered into, 1 or more of the following applies:
(i) the creditor, or one of the creditors, carries on a business of providing credit (whether or not the business is the creditor's only business or the creditor's principal business):
(ii) the creditor, or one of the creditors, makes a practice of providing credit in the course of a business carried on by the creditor:
(iii) the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor's own name as creditor on behalf of, or as trustee or nominee for, any other person:
(iv) the contract results from an introduction of one party to another party by a paid adviser or broker.
(2) This section is subject to sections 14 and 15.
[23] Under s 12, investment by a debtor is not a personal, domestic or household purpose. Under s 13, in any proceedings in which a party claims that a credit contract is a consumer credit contract there is a presumption that the credit contract is a consumer credit contract unless the contrary is established.
[24] In this case, all the loans were made to Good Start Property Development Ltd, a company, not a natural person. The loans were all made to enable it, as trustee, to buy properties for re-sale. That is not a personal, domestic or household purpose. The building society has established that the loan agreements are not consumer credit contracts, notwithstanding the presumption in s 13.
[25] The building society also argued that the solicitors’ certificates, given by the defendants’ solicitors, recorded that disclosure had been made under the Credit Contracts and Consumer Finance Act in any event. For summary judgment purposes, I am not persuaded that there was disclosure in terms of subpart 4 of Part 2 of that Act. If disclosure had been made, I would expect the disclosure to be set out in a disclosure statement under s 32(1) prepared by the building society. There is no evidence that there was any such disclosure for any of the loan agreements. If the loans were consumer credit contracts, there would be an arguable question whether disclosure had been made, notwithstanding the solicitors’ certificates.
[26] The forms for all three loan agreements provide for signing by guarantors. For loans 21119 and 21799, the defendants signed as guarantors as well as directors of Good Start Property Developments Ltd. In the case of loan 21060, they signed as directors of the company but did not sign separately as guarantors.
[27] However, the defendants had already signed the deed of guarantee. The deed of guarantee covered all present and future indebtedness of Good Start Property Development Ltd. The deed of guarantee applied to loan 21060 just as much as it covered indebtedness under loans 21119 and 21799.
Breach of duty under s 176 of the Property Law Act
[28] Mr Austin’s complaints as to selling the two Kaimaumau properties as one lot, not obtaining information about the work carried out on the property at 20 Lester Heights, not obtaining written assurances from the Austins, and selling the properties by auction are all relevant to the building society’s compliance with its duty under s
176 of the Property Law Act 2007. Section 176 says:
176 Duty of mortgagee exercising power of sale
(1) A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:
(a) the current mortgagor: (b) any former mortgagor: (c) any covenantor:
(d) any mortgagee under a subsequent mortgage:
(e) any holder of any other subsequent encumbrance.
(2) A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.
The defendants are covenantors to whom the building society owed its duty under s 176.
[29] Case law establishes the following propositions:[8]
1 Section 176 of the Property Law Act 2007 codifies the duty which, under the general law, a mortgagee exercising a power of sale will be taken to owe to the persons named in the section, including guarantors.
2 The duty of care is concerned with obtaining the best price reasonably obtainable as at the time of sale. It is a duty to take reasonable care. It does not necessarily follow that the best price reasonably obtainable will be achieved.
3 The duty has to be measured at the time of sale. The duty arises at the time that the decision to sell is made. There is a need to analyse the steps taken once the decision to sell is made, up to the time of sale.
4 The duty of care does not qualify the mortgagee’s right to decide if and
when to sell.
5 When deciding whether reasonable steps have been taken by the mortgagee to obtain the best price, the steps taken by the mortgagee and those acting for it must be looked at in the round. The issue is a commercial one to be viewed in practical commercial terms.
6 Where the security is substantial, or specialised property is involved, it will usually be necessary for the mortgagee to obtain and act upon specialised advice as to the method of sale. Appointing a competent agent to sell does not discharge the mortgagee’s duties, but since its duty
is ultimately only one of reasonable care, putting the matter in the hands
of a competent agent will usually go a long way towards discharging the
mortgagee’s duties.
7 In the normal course, the proposed sale will need to be advertised with adequate description of the property’s attributes and within reason while wanting to attract all possible purchasers. In some cases this will need to extend to both general and specialist publications.
8 There is no obligation to postpone the sale in the hope of obtaining a better price later. Nor is there an obligation to break up the assets to sell in a piecemeal manner, if this can only be carried out over a substantial period or at a risk of loss.
9 When assets are sold by tender or auction, a reasonable period must usually be allowed for purchasers to inspect the property and arrange finance before submitting bids.
10 For a breach of duty to be actionable, there must be proof of damage.
11 A mortgagee is under no obligation to improve the property or increase its value.
12 A mortgagee’s sale for a price less than the current market value assessed by valuers does not of itself establish a breach of duty although a large discrepancy may indicate a failure to take reasonable care.
13 A mortgagee does not have any general duty to maintain a property prior to sale.
14 Following the service of the Property Law Act notice, there is no duty on a mortgagee to keep the guarantor informed of sales activities.
15 The mortgagee is not entitled to sell in a hasty way, at a knock-down price sufficient to pay the debt which, because of the speed of sale, leaves a lower price than could otherwise be obtained.
[30] It has been said that the following steps indicate that a mortgagee has made reasonable efforts to obtain the best reasonably obtainable price:
[a] The appointment of a reputable estate agent to market the property.
[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.
[31] Evidence proving these steps go towards showing compliance with the duty under s 176. However, a warning must be given. While mortgagees such as banks, building societies, finance companies and similar lenders may follow these steps as a matter of routine, it is still necessary to check whether these steps are appropriate in the particular circumstances of the case.
[32] In this case, the building society followed the routine. In May 2010, it obtained valuation reports from an experienced and reputable valuation practice. The valuer reported that 809B Kaimaumau Road had a current market value of
$185,000 inclusive of GST and 809C Kaimaumau Road had a current market value of $80,000 inclusive of GST. The forced sale values were $130,000-$150,000 and
$50,000-$65,000 respectively.
[33] The house at 20 Lester Heights Drive had watertightness defects. Remedial work had been carried out, but had not been completed. A valuation made in May
2010 showed that the property, as inspected, had a current market value of $195,000 inclusive of GST and a forced sale value of $155,000-$170,000 inclusive of GST. If the property were completed, it would have a value of $275,000 inclusive of GST
and a forced sale value (if completed) of $220,000-$240,000 inclusive of GST. The “as completed" valuation was subject to conditions that proposed improvements were carried out to a good standard of workmanship and that the local authority issued a code of compliance. The “as inspected” valuation was subject to conditions that the building consent was extended and that it was possible for a code of compliance certificate to be issued once work had been carried out that complied with Building Act requirements.
[34] The defendants did not file any valuation evidence of their own and did not take issue with the reports made by the registered valuer.
[35] The building society’s lawyers instructed the Whangarei franchisee of L J Hooker to market and sell the Lester Heights Drive property and the Kaitaia franchisee to market and sell the Kaimaumau properties. In each case the building society’s lawyers asked the land agents to report as to the marketing and sale of the properties. The Kaitaia and Whangarei land agents were very experienced. Both the Kaitaia and Whangarei land agents proposed a four week marketing programme, followed by an auction. Mr Springford, of L J Hooker in Whangarei, says that a four week marketing period was common for mortgagee sales. He considered that an auction was the most suitable method to obtain the best possible price. He inspected the Lester Heights property and found it to be in very poor condition. He contacted Mr Austin and found him to be friendly and co-operative. He records that Mr Austin and the other defendants did not interfere with the sales process.
Sale of Kaimaumau
[36] Mr Ponsonby, in Kaitaia, inspected the properties at Kaimaumau. 809B is a section with a three to four bedroom house on it and 809C is an adjoining vacant section. In August 2010, the building society’s lawyers specifically asked him whether it would be better to offer the properties for sale with fixed asking prices, or to sell later in the spring with a six-week advertising campaign. Mr Ponsonby’s advice was that a six-week marketing campaign was not necessary and would not be better than a four-week campaign. The market was very difficult and worsening, with only one recent sale in the area. Mr Ponsonby recommended a marketing
proposal, and an alternative marketing proposal for each property. Mr Ponsonby says that the advertising was appropriate and adequate. The building society’s lawyers asked whether it would be better to auction the properties separately or as one lot. Mr Ponsonby advised that the properties would be more attractive if sold separately.
[37] The properties were advertised. Open homes were held. The properties were listed on three real estate websites. Mr Ponsonby also sent emails to potential buyers. An auction was held on 16 November 2010. The lots were offered separately but there were no bids for either lot. Mr Ponsonby then called the lots together and received one bid of $151,000 plus GST. The building society did not accept that bid, so the properties were passed in. Later, after negotiations, the properties were sold for $175,000 including GST. Mr Ponsonby says that he believes this was a very good price in the circumstances, given the poor state of the market and the fact that there was only one bidder at the auction.
[38] It is clear from Mr Ponsonby’s affidavit that the market for coastal properties in the far Far North is depressed. Kaimaumau is a small settlement on the north- western side of the Rangaunu Harbour, north of Awanui. Mr Austin does not contest that the market is depressed. His complaints for the sale of the Kaimaumau properties are that they were sold as one lot, instead of two separate lots; they were sold by auction; and Mr Ponsonby had conditioned the building society to accept a sale at a low value.
[39] Mr Austin’s criticism of the sale of the Kaimaumau properties as one lot is that in earlier more buoyant times, he had been able to buy two properties separately and then sell them, combined, at a higher price. By selling the two Kaimaumau properties as one lot, the building society was foregoing an advantage. I am not confident that I follow the logic of Mr Austin’s criticism. Besides, his experience of successfully selling two lots as one in earlier times is not relevant to a sale in depressed market conditions.
[40] The building society refers to s 182 of the Property Law Act:
182(1) A mortgagee or receiver who is entitled to sell mortgaged property may sell the whole or any part of the property, together with other property that is the subject of any collateral security from the current mortgagor to the mortgagee at a single price ...
It points out that the Kaimaumau properties were collateral security. Clause 16(e) of the mortgage provides:
16 Relationship with other securities held:
(e) This mortgage is collateral with each and every other security held by the mortgagee for all or any part of the secured monies and secures all amounts owing by the party giving this mortgage to the mortgagee. Default under the provisions of such collateral securities will be a default under this mortgage and remedies of the mortgagee under such collateral securities to this mortgage will be collateral and co-existent and may be exercised at the same time ...
That establishes that the building society had the power to sell the two properties together, but by itself it does not establish that it complied with the duty of reasonable care under s 176 of the Property Law Act.
[41] However, the evidence of the circumstances of the sale supports the building society. It followed a recommended method of marketing and a recommended method of sale – by auction. At auction it offered the lots separately, but did not obtain any offers for them. It then offered them for sale together, but received only one offer, which it did not accept. The eventual sale price of $175,000 inclusive of GST is only $5,000 below the sum of $180,000 (inclusive of GST) proposed as a value obtainable by forced sale by the registered valuer. The building society did follow an established routine, but at the auction it did not accept the only offer made. It tried and succeeded in negotiating for a higher offer. In the circumstances, I am satisfied that the building society has shown that Mr Austin does not have an arguable defence that it did not comply with its duty under s 176.
Sale of Lester Heights
[42] The Lester Heights property had a leaky home. Mr Austin said that when Good Start Property Development Ltd bought it, the property had a large number of defects, which were recorded in a very large file of the local Council. Good Start
had work carried out by contractors to deal with the defects, although these had not been completed by the time of the sale by the building society.
[43] Mr Austin says that the unattractiveness of the property could have been mitigated by giving information to interested purchasers to show the work that had been carried out.
[44] The building society’s lawyers gave instructions to the land agents that because the property had limitations, it was important that any marketing and discussions with potential buyers made it clear that the property was being sold by a mortgagee in the exercise of its power of sale, and that there were no warranties of any description included as terms of the sale. Mr Springford, one of the land agents, explains that he did not ask Mr Austin to provide information about the property to pass on to potential purchasers because he was not in a position to verify any representations which Mr Austin might offer. Instead, potential purchasers were to be told to make their own investigations and to obtain information from the local Council.
[45] Ms Glavish, a real estate agent with LJ Hooker in Whangarei, attended open homes. She said that there was a box of documents in the house relating to the construction of the house. She says that buyers were free to look at the documents but could not take them away. She followed the building society’s instructions not to make any statements about the property because of its condition. She says that she also made it clear that no chattels were included. She told prospective buyers they must make their own investigations and should inspect the Council file. She says that it is her normal practice to say that. The property had been marketed as suitable for builders, handymen and investors. She says that although there had been a good response with plenty of prospective buyers inspecting the property, because of the condition of the house there were only a few who showed any interest in buying it.
[46] An auction was held on 28 October 2010. Only five people attended and only two of them bid. The highest bid was $140,000 inclusive of GST. There was a reserve of $175,000. The property was passed in. After the auction, the highest
bidder made a written offer of $140,000 plus GST. The building society tried to get the bidder to offer a higher sum but was unsuccessful, and the offer of $140,000 plus GST was accepted. The valuer had suggested that on a forced sale in its current condition, the property might get $155,000-$170,000 inclusive of GST. Once adjustments are made for GST, the purchaser’s offer of $140,000 plus GST is within the range given by the valuer.
[47] The building society took a cautious approach of ensuring that no representations or warranties were given as to the state of the premises. It applied a deliberate caveat emptor policy. However, it is not to be criticised for taking that course. The Austins, the building society, and the land agents were all well aware that this was a leaky building with significant defects and on which work had been carried out to address those defects. There were clear risks if the building society or the land agents were to give warranties or make representations as to the state of the property. The advantages of a mortgagee’s sale would be lost if the agents or the building society were to be sued for alleged breach of warranty or alleged misrepresentation either under the Contractual Remedies Act or under the Fair Trading Act. In the circumstances an approach which avoided that risk was entirely understandable.
[48] While this may not be easy for Mr Austin to understand, that careful approach would also require that the building society and the land agents not rely on any information which the Austins might offer. As guarantors of loans where there had been defaults, there was a clear risk for the land agents and the building society in relying on any information the Austins might offer because of the potential absence of effective recourse against the Austins in the light of their poor financial position.
[49] The Austins also object that the building society and the land agents did not obtain written assurances that the Austins would not obstruct the sales or remove chattels, and did not pass on any such assurances to prospective buyers.
[50] Mr Austin has apparently bought properties from mortgagees exercising their powers of sale. In his experience, there is a risk of a stressed or aggrieved owner
removing chattels or damaging the property. He says that purchasers factor that into what they will offer on a sale by a mortgagee. He says that this risk could have been discounted in this case because the Austins had no intention of obstructing the sale and would have given written assurances that they would not obstruct the sales or remove any chattels. There is evidence that the Austins were completely co- operative.
[51] Mr Austin’s objection is similar to his complaint that the land agents and building society did not obtain information from him that would reassure purchasers interested in buying the Lester Heights property. It is understandable that, as a matter of general policy, mortgagees will tend to conduct sales of mortgaged properties with minimal involvement or contact with mortgagors or their guarantors. In many cases, mortgagees seek vacant possession of the premises and may apply to the court for orders for vacant possession, although Asher J’s decision in Public
Trust v Ottow[9] shows that that is not required. The Austins are not to be criticised
for stepping back and allowing the building society to have unhindered access to the premises to be sold, and to have a free hand to sell the premises. There is no evidence that the Austins themselves were likely to obstruct the sales process.
[52] Mr Austin’s argument is a somewhat theoretical one. Neither the Kaimaumau nor the Lester Heights properties were easy to sell, notwithstanding the Austins’ co-operation. The Kaimaumau properties were in a remote coastal location where the market was saturated with coastal properties for sale, and there was limited demand. The Lester Heights property was a leaky home where remedial work had been undertaken but not completed. In both cases, it is unlikely to have meant much to an interested purchaser that the guarantors of the defaulting mortgagor would be absent and would not obstruct their purchase of the property. The prices obtained were generally consistent with what the registered valuers had indicated were likely to be obtained on a forced sale. I am not aware of any case where a mortgagee has been held to have breached its duty under s 176 by not obtaining assurances as to co-operation from guarantors. In my judgment, the building society has satisfied me that, on this aspect, it did not breach its duty under
s 176 of the Property Law Act.
[53] Finally, the Austins contest the sales process by saying that the properties ought not to have been sold by auction. The building society obtained advice from reputable land agents. In the case of the Kaimaumau properties, it enquired about sale by private treaty instead of by auction. It received advice from Mr Ponsonby that a sale by auction would be more effective. A sale by private treaty in a depressed market, where neither the Kaimaumau properties nor the Lester Heights property had any obvious attractions that would place them above other residential properties, offered the prospects of long exposure on the market where it would be difficult to interest potential purchasers. There was no breach of the duty under s 176 in following the advice given by the land agents to sell by auction.
Identification of the debtor
[54] In the deed of guarantee of 7 December 2005 the debtor, called “the Account Holder”, is identified as “Good Start Property Development as trustees of Emanem Property Development Trust”.
[55] Good Start Property Development Ltd is a company incorporated under the Companies Act 1993. Its full legal name includes the word “Limited” but that has been omitted from the guarantee. It was also the only trustee of the Emanem Property Development Trust. Mr Austin argues that as the full correct name of the company was not used in the deed of guarantee, the guarantee is ineffective as a guarantee of the indebtedness of the company to the building society.
[56] It is uncontested that Good Start Property Development Ltd was a trustee of Emanem Property Development Trust. Mr Austin acknowledged this in an affidavit he swore on 9 March 2011, in which he set out his personal financial position and acknowledged his liability under the guarantee. The name of the account holder in the deed of guarantee refers, unambiguously, to Good Start Property Development Ltd. Mr Austin did not suggest that the words in the guarantee referred to some other entity. Good Start Property Development Ltd is not a party to the deed of guarantee. Accordingly, the requirement under s 25 of the Companies Act 1993 that a company must ensure that its name is clearly stated in any document signed on its behalf creating a legal obligation is not triggered in this case. Even if it were,
I would not regard the omission of the word “Limited” as misleading in the circumstances of this case.
[57] The deed of guarantee identifies the account holder as the trustee of the Emanem Development Trust. That can mean only Good Start Property Development Ltd. That was the account holder whose indebtedness the defendants guaranteed.
[58] Mr Austin also referred to solicitors’ certificates given for the loans for
18 Moki Place, Ruakaka and Ngunguru Ford Road, Glenbervie, but those loans are not relevant to this case.
[59] Mr Austin also referred to the three loan agreements which have given rise to the claims under the guarantee in this case. In those loan agreements, the borrower is identified variously as Emanem Property Development Trust, Good Start Property Development Ltd as trustee of Emanem Property Development Trust, and the trustees of Emanem Property Development Trust. In each agreement the key provision is that part of the deed identifying the borrower. In each case, that is Good Start Property Development Ltd as trustee of Emanem Property Development Trust. That is an unambiguous identification of Good Start Property Development Ltd as the borrower. That is the same entity as the account holder in the deed of guarantee. There is nothing in the points that Mr Austin raises about identification of the account holder and the borrower that gives any defence to the claims under the guarantee.
Conclusion
[60] I am satisfied that the plaintiff has shown that the defendants do not have any defence to the plaintiff’s cause of action in its statement of claim. I give judgment for the plaintiff against the defendants as follows:
[a] Judgment for $364,098.59.
[b] Interest at the contractual rate on $364,098.59 at 9.25 per cent per annum from 10 May 2011 until the date of judgment.
[c] A declaration that interest continues to accrue after judgment at the contractual rate of 9.25 per cent.
[d] Costs on a solicitor-client basis in favour of the plaintiff in the sum of
$23,738.51.
[61] After the hearing the plaintiff filed a memorandum setting out its claim for costs on a solicitor-client basis. It sought the sum of $23,738.51. Mr Austin advised the court that he would not be making any submissions in reply. I accept that the
costs sought by the plaintiff are in order.
R M Bell
Associate Judge
[1] Section 21F(3)
Property (Relationships) Act 1976 requires each party to the agreement to have
independent legal advice before signing
the
agreement.
[2] See
McCaw v McCaw HC Napier CIV-2010-441-342, 7 September 2010 at [32] per
Associate Judge Gendall.
[3] Clarke v Westpac Banking Corporation (1996) 7 TCLR 436 per Paterson J at 444; Bank of
New Zealand v Geddes HC Auckland CIV-2008-404-8082, 28 May 2009 at [22] per Asher J.
[4] Massey v Midland Bank plc [1995] 1 All ER 929; Banco Exterior Internacional v Mann [1995]
1 All ER 936; Bank of Baroda v Rayarel [1995] 2 FLR 376; Bartle v G E Custodians HC Auckland, CIV-2008-404-3460, 30 September 2009, [292]-[296] per Randerson J; and GE Custodians v Bartle [2011] 2 NZLR 31 at 53.
[5] Bank of Baroda v Rayarel [1995] 2 FLR 376 at 386.
[6] Midland Bank plc v Serter [1995] 1 FLR 1034; Halifax Mortgage Services Ltd v Stepsky [1996] Ch 207; Bank of Credit and Commerce International v Aboody [1990] 1 QB 923 at 974-975.
[7] Credit Contracts and Consumer Finance Act 2003, ss 24, 25 and 26.
[8] AgioTrustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd (2001) 4 NZConvC
193,480 (HC); Tse Kwong Lam v Wong Chit Sem [1983] 3 All ER 54; Apple Fields Ltd v Damesh Holdings Ltd [2004] 1 NZLR 721 (PC); Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513 (PC); Harts Contributory Mortgages Nominee Co Ltd v Bryers HC Auckland CP403-IM009, 19 December 2001; Hansell v New Zealand Insurance Finance Ltd HC Wellington A434/83, 14 May 1984; Seafarer Fishing Co Ltd v Broadlands Finance Ltd HC Timaru A35/77, 17 August 1984; Crown Money Corporation Ltd v Pink-Martin HC Auckland CIV-2008-404-297, 5 September 2008; Public Trust v Kumar HC Auckland CIV-
2009-404-4886, 13 October 2010; Public Trust v Ottow [2009] NZHC 2904; (2010) 10 NZCPR 879 (HC).
[9] Public Trust v Ottow [2009] NZHC 2904; (2010) 10 NZCPR 879.
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