Bank of New Zealand v Jarvie [2012] NZHC 612 (3 April 2012)

Last Updated: 2 May 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-007297 [2012] NZHC 612

BETWEEN BANK OF NEW ZEALAND Plaintiff

AND ANDREW WILSON JARVIE Defendant

Hearing: 2 April 2011

Appearances: J Toebes for the Plaintiff

A W Jarvie, in person the Defendant

Judgment: 3 April 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN (SUMMARY JUDGMENT)

This judgment was delivered by me on

03.04.12 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors/Counsel:

J Toebes, JT Law, Wellington – [e-mail]

A Jarvie, 453 Riddell Road, Glendowie, Auckland – Fax: [phone]

BANK OF NEW ZEALAND V ANDREW WILSON JARVIE HC AK CIV 2011-404-007297 [3 April 2012]

Background

[1] The plaintiff (the Bank) provided financial facilities to Hendrika Investments Limited (In Receivership) (Hendrika). The Bank lent Hendrika $1,160,000 pursuant to a term loan agreement for which security was provided over Hendrika’s properties at:

(a) Unit 2 and several car parks of the Prospective Apartments, 20 – 28

College Hill, Freemans Bay, Auckland. (b) Unit 32, Edgewater Palms, Paihia.

[2] In addition Mr Jarvie provided a guarantee of Hendrika’s obligations.

[3] Hendrika failed to pay its loan when due on 31 August 2008. On 16

November 2009 the Bank appointed receivers over all the property of Hendrika.

[4] On 26 February 2010 the receivers sold the College Hill property under two contracts, one for the sale of the apartment for $500,000 (GST incl.) and the other for the sale of 11 car parks for $280,000 (GST incl.).

[5] The Paihia property was sold on 15 April 2010 for $365,000 (excl. GST).

[6] After receipt of the sale proceeds and other payments, the Bank claims there is a balance due as at 29 January 2011 of $371,016.10 plus accrued interest.

[7] The Bank sues Mr Jarvie under his guarantee to recover what it says is due from Hendrika.

[8] Mr Jarvie’s sole basis of his defence to the Bank’s summary judgment application concerns the sale processes used and the prices achieved from the sale of the security properties. He asserts:

(a) The College Hill apartment was sold at under value to the real estate agent acting for the receivers.

(b) That a “ridiculously low and only tender” for the Paihia apartment was accepted.

(c) That the Bank failed in its duty of care owed pursuant to s 176 of the

Property Law Act.

[9] It his notice of opposition Mr Jarvie asserts that the dispute between the Bank and he will require evidence to be tested by cross-examination to ascertain whether or not the receiver acted reasonably in the circumstances, and accordingly that the claim is not suitable for summary judgment.

[10] Mr Jarvie says that when the matter proceeds after summary judgment he will file a counter-claim for an amount of $214,384 (including interest, costs and rental) which he says would have been receivable had proper sale processes been engaged for the sale of the security properties.

Relevant principles

[11] If a Court is to grant summary judgment it should not be left with any real doubt or uncertainty about an applicant’s claim. The applicant must show there is no defence and in a case where such a defence is not apparent from the papers which bind a defendant, the defendant will have to respond with evidence showing the basis of an arguable defence.

[12] The Court does not normally resolve material conflicts of evidence or assess credibility of deponents. However the Court may reject evidence which lacks credibility or which is improbable.

[13] A useful summary of the general principles applicable to a mortgagee’s

_{statutory duty of care can be found in Public Trust v Ottow} [1]_:

(a) A mortgagee has no duty at any time to exercise the powers of sale or possession. In default of any provision to the contrary in the mortgage, the power of sale is for the benefit of the mortgagee, who can sell at any time in accordance with the mortgagee’s convenience: Raja (Administratrix of the Estate of Raja (Dcd) v Austin Gray (A firm) [2002] EWCA CIV 1965 at [55], per Peter Gibson LJ; Silven Properties v Royal Bank of Scotland [2004] 1 WLR 1997 at [14].

(b) The mortgagee’s duty of care is to take reasonable care to obtain the best price reasonably obtainable at the time of sale: Agio Trustee Co. Ltd v Harts Contributory Mortgages Nominee Co. Ltd (2001) 4 NZ ConvC 193, 480 (HC).

(c) It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1355B; Silven Properties v Royal Bank of Scotland at [14].

(d) A mortgagee is under no obligation to improve the property or increase its value: Silven Properties v Royal Bank of Scotland at [16].

(e) A mortgagee 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: Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262,

448 at [61].

(f) A mortgagee does not have any general duty to maintain properties prior to sale: Silven Properties v Royal bank of Scotland at [16].

(g) Following the service of property Law Act Notice there is no duty on a mortgagee to keep a guarantor informed of sales activities: G Merel

& Co. Ltd v Barclays Bank (1963) 1 SJ 542.

(h) 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 leads to a lower price than could otherwise be obtained: see Palk v Mortgage Services Funding Plc [1993] 1 Ch 330 at 337-8.

(i) Proper care must be taken to expose the property to the market and to obtain the best price reasonably obtainable: Harts Contributory Mortgages Nominee Co. Ltd v Bryers HC AK CP403-IM00 19

December 2001 at [43](d) and (f).

Evidence in opposition to summary judgment - an affidavit from Mr Jarvie

[14] He is the sole shareholder and director of Hendrika which through a trustee company purchased the security properties.

[15] Mr Jarvie deposes:

(a) That the receivers sold the College Hill apartment to Ms Lyn Lockwood (through 324 Limited) in partnership with Mr Bill Smale (through Toy Holdings Limited).

(b) Ms Lockwood’s real estate company, Hallmark Real Estate was the agent for the sale of the College Hill apartment and the car parks.

(c) To his knowledge the apartment was not marketed or advertised “in any way” to the market in general and simply sold to the agent acting for the receiver and the Bank. No attempt was made to obtain a market value.

(d) The College Hill apartment had been listed on Trade Me on 4

November 2011 (one year and nine months after purchase) and was sold on 7 November 2011 for $785,000.

(e) The 11 car parks were sold to Mr Smale, Ms Lockwood’s partner in the apartment purchase and to whom $12,000 was paid as commission upon that sale.

(f) No attempt was made by the receivers or Ms Lockwood to find a buyer other than Mr Smale.

(g) A valuation of the Paihia apartment dated 8 December 2009 indicated a value of $610,000, or $500,000 excluding GST if sold under forced sale circumstances.

(h) Although sold by mortgagee tender one low tender only was received and the apartment was sold to that buyer. That buyer put the apartment back on the market within three months at an asking price of $595,000 excl. GST, and eventually resold the apartment four months later at $485,000. It is not clear if this price was inclusive or exclusive of GST.

[16] Following the protocol advised to him by the Bank, Mr Jarvie sent a letter of complaint to the Bank. He says the Bank refused to address the sale process and decisions made by the receiver.

[17] Mr Jarvie estimates that had the receiver made a reasonable attempt to obtain market value for the properties, then the Paihia apartment would have sold for

$485,000, the College Hill apartment for $785,000, and the 11 car parks would have sold for $440,000. As well Mr Jarvie contends that rental would have been collected on the College Hill apartment from February to November 2010 at $600 per week, amounting to $20,400.

[18] Mr Jarvie calculates there was a sale value and rental shortfall of $585,400 which after payment of the Bank’s claim would have netted Hendrika $214,384. That sum he says is the amount for which he proposes lodging a claim for against the Bank in due course.

Bank’s response to Mr Jarvie’s opposition

[19] The Bank contends Mr Jarvie’s guarantee requires him to make all payments due under it without any set off or counterclaim and without any deduction or withholding of any kind. Accordingly judgment must be entered against him for the amount claimed and matters he raises in opposition will be appropriate in the context of any application for stay in enforcement of the judgment that Mr Jarvie might make.

[20] Also, the Bank contends it has no duty to Hendrika or to Mr Jarvie in relation to the sale of Hendrika’s properties secured to the Bank, as they were not the subject of mortgagee sales. Instead, they were sold by the receivers who were agents of the company, not the Bank. Section 176 of the Property Law Act is not engaged because the Bank did not exercise power of sale as mortgagee.

[21] In the submission of Mr Toebes that is the end of Mr Jarvie’s case in opposition. However, and in relation to the sales by the company of its properties, the Bank asserts, and where appropriate on its behalf it is deposed:

(a) Hendrika by its receivers continued to use the same real estate agent as did Hendrika by its director Mr Jarvie.

(b) The sale process was carried out in accordance with the recommendations of that agent.

(c) At about the time of the appointment of the receivers, Hendrika by Mr Jarvie had obtained an agreement for the sale of the College Hill apartment and car parks for $800,800 inclusive of GST, subject to a purchaser’s due diligence action – which was not satisfied.

(d) The receivers achieved a sale of the apartment and two car parks and the balance of car parks under contract for sale prices totalling

$780,000 inclusive of GST.

(e) The sale prices achieved exceeded the assessment of value from a reputable registered valuer obtained by the receivers.

(f) In response to Mr Jarvie’s claim that he was not aware of any advertising for the apartments, the Bank’s evidence is a reputable real estate agent was used (Mr Jarvie having advised the receiver that the agent in question (Ms Lockwood) was the only agent to be successful in selling units in the College Hill apartment complex).

(g) Only one tender was received for the Paihia apartment under the

company’s sale process.

(h) The successful tenderer put the property back on the market asking

$590,000 exclusive of GST and eventually resold four months later for $485,000.

(i) Hendrika by its receivers was a willing vendor prepared to meet the market by careful process using a reputable real estate agent, following the recommendations of that agent as to the presentation of

the property to the market and the recommended advertising and marketing process.

(j) Mr Jarvie through another company of his developed the Paihia apartment complex but could not sell the subject apartment on the open market. Instead it ‘sold’ it to Mr Jarvie’s company Hendrika. From then the apartment was on the market without sale; Hendrika took the apartment to a formal tender without getting a single offer; that the apartment was then relisted for sale but the property market was in a slump, and refinance was not a possibility; that renting out the apartment did not generate enough income; that the apartment had been available for sale for over five years since the apartment complex was completed in December 2005.

(k) Hendrika in receivership did not have the luxury of waiting while its debt to the Bank incurred interest and receivership costs; and therefore every care was taken to achieve the best price obtainable.

Considerations

[22] Mr Jarvie invites the Court to draw certain conclusions based on valuations and sale figures. There is no evidence but that from Mr Jarvie supporting the conclusions he has drawn.

[23] The Bank’s position is that Mr Jarvie’s guarantee should bind him to make payment without any set-off or counterclaim and without any deduction or withholding (cl. 16.1 of Mr Jarvie’s guarantee). In this case the calculation of his debt has been concluded in the outcome of an asset sale process which he challenges and in the outcome of which he says the Bank owes Hendrika money of sufficient amount to eliminate his debt entirely, indeed to provide Hendrika with a credit in a significant sum.

[24] Mr Jarvie does not dispute he is bound by his guarantee to the Bank. In the course of our discussion Mr Jarvie accepted the proper course for this Court was to

enter judgment against him and for him to pursue his challenges to the security property sale processes, against the receivers.

[25] Although appointed by the Bank the receivers became the agents of the company and subject to obligations of responsibility and duty pursuant to the provisions of the Receiverships Act 1993. The Bank assumes no duty to guarantors when a receiver is appointed.

[26] However, s 19 of the Receiverships Act 1993 requires a receiver, exercising the power of sale of the property in receivership to obtain the best price reasonably obtainable as at the time of sale because of the receiver’s duty to sureties – among others – who may be called upon to fulfil obligations.

[27] In this case the Bank did not exercise a power of sale as mortgage in possession. Instead it appointed receivers under a general security agreement. Obviously the duties under s 19 of the Receiverships Act and under s 176 of the Property Law Act (as they relate to sales by mortgagees) are similar.

[28] Mr Jarvie assumes the receivers would have consulted with the Bank before accepting a sale price for the Pahia apartment which was significantly below market value. Undoubtedly Mr Jarvie is correct but this does not mean the receivers were asking the Bank what to do about the offer. Rather that action could be considered as required in terms of the receiver’s obligations to consult with the security holder in any event to obtain approval for a sale, particularly when it was for a price less than was sufficient to meet payment of the Bank’s debt.

[29] I have briefly reviewed some of the case authorities that have dealt with general principles applicable to a mortgagee’s statutory duty of care. I have also commented about the conclusions drawn by Mr Jarvie in relation to valuation information obtained. In my assessment there is nothing in this, nor by comparison to standards approved, to suggest the receivers have failed in any duty in connection with the marketing or sale of the security properties.

[30] In support of the process adopted in relation to the sale of the Pahia apartment, Mr Chilcott annexed a report from the real estate agents. It confirms the property was marketed vigorously until the time that tenders closed. A reasonable inference in the outcome is that the best price reasonably obtainable was achieved at the time.

[31] Likewise in relation to the College Hill apartment and car parks. The price achieved was very close to that for which an offer had been made – subject to due diligence – at about the time Hendrika was placed into receivership. There also, a reasonable inference can be drawn that the receivers have satisfied all obligations upon them through the sale process.

[32] Mr Jarvie has raised issues involving the integrity of other persons involved. There is no suggestion at all that the receivers were party to or had any knowledge of those aspects that Mr Jarvie complains about.

[33] As I explained to Mr Jarvie his concerns about sale processes are properly left until such time as he intends to apply for a stay of the judgment per Rule 17.29.

[34] A Court has the ability to grant an interim stay pending an application being filed at the hearing of which the Court would have to be satisfied “that a substantial miscarriage of justice would be likely to result if the judgment were executed”.

[35] In this case there is naturally some concern about the circumstances relating to the sale of the College Hill apartment and car parks but, it is inappropriate for this Court upon the basis of the information it has at this time to draw any adverse inferences. Besides, the Court has already commented that the sale price of that property was close to a price earlier received. Therefore it is appropriate that any application for stay of execution be advanced later as a discreet application when this Court could expect there is better information available to assist it.

Decision

[36] The application for summary judgment is granted.

[37] Judgment is entered in favour of the Bank against Mr Jarvie in the sum of

$374,233.33 together with interest on that sum at 10.21 per cent from 30 January

2011 until 2 April 2012 amounting to $44,760.24.

[38] Costs are awarded against Mr Jarvie in favour of the Bank on a 2B basis together with disbursements, in terms of the schedule attached to counsel’s

_submissions.

Associate Judge Christiansen

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[1] [2009] NZHC 2904; 10 NZCPR 879 at para [17] (per Asher J).