Finlay v Westpac New Zealand Limited [2014] NZHC 2640 (28 October 2014)

Last Updated: 6 November 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001709 [2014] NZHC 2640

BETWEEN	PETER RONALD FINLAY Appellant
AND	WESTPAC NEW ZEALAND LIMITED Respondent

Hearing:	23 October 2014
Appearances:	Appellant in Person B J Upton and D J Tillett for Respondent
Judgment:	28 October 2014

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 28 October 2014 at 1.00 pm, pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

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

Solicitors: Simpson Grierson, Auckland

Copy to: Appellant

FINLAY v WESTPAC NZ LTD [2014] NZHC 2640 [28 October 2014]

Introduction

[1] Mr Finlay appeals against a decision of the District Court at North Shore. On

12 June 2014 Judge Hinton entered summary judgment in favour of Westpac New Zealand Limited (Westpac) against Mr Finlay in the sum of $212,675.04 (including costs and disbursements).

[2] The judgment related to a shortfall owed by Mr Finlay to Westpac under a

loan. Westpac’s claim followed the sale of two properties secured to it located at

41B and 43 Gordon Road, Western Heights, Rotorua.

Chronology

[3] The following brief summary of events is sufficient to set the background context:

(a) On 12 January 2012 Westpac made demand of Mr Finlay in relation to the loan he had with the Bank.

(b) On 26 January 2012 Mr Finlay was served with a Property Law Act notice.

(c) On 7 March 2012 Westpac wrote to Mr Finlay following a telephone discussion between him and Mr Hoy of the Bank.

(d) On 13 March 2012 Westpac’s solicitors wrote to Mr Finlay advising him that Westpac was obtaining registered valuations and marketing proposals for the properties from Harcourts Real Estate and Bayleys Real Estate.

(e) On 21 March 2012 Westpac obtained market valuations for the property from Reid and Reynolds Ltd, trading as Telfer Young (Rotorua) (Telfer Young).

(f) On 2 April 2012 Westpac’s solicitors wrote to Mr Finlay advising him that Westpac had instructed Bayleys to market and sell the property.

(g) The properties went to auction on 24 May 2012 but were not sold as there were no bids received for either section.

(h) On 10 October 2012 Westpac obtained updated valuations for the properties from Telfer Young.

(i) On 19 October 2012 Westpac received an offer for 43 Gordon Road for $25,000. After negotiations it accepted the offer. Settlement occurred on 30 October 2012.

(j) On 1 November 2012 Westpac received an offer for the property at

41B Gordon Road for $25,000. After negotiations it accepted that offer. Settlement occurred on 9 November 2012.

The appeal

[4] Mr Finlay appeals on the grounds that:

(a) the Judge was wrong to take a robust approach to the summary judgment application;

(b) the Judge was not entitled to reject the valuation evidence adduced by Mr Finlay’s valuer, Mr Davies. Westpac’s valuers were wrong to consider the properties lacked subdivision potential. The conflict between Mr Davies’ valuation evidence and Westpac’s experts required resolution at a full hearing;

(c) the Judge was wrong to consider that Mr Finlay had not co-operated with Westpac in providing information; and

(d) Westpac was in breach of its obligations under s 176(1) of the Property Law Act 2007. The section did not permit the Bank to effectively “fire sale” assets at will.

[5] The feature underlying all these propositions is Mr Finlay’s argument that the sections were sub-divisible, and that he was very close to obtaining resource consent from the Rotorua District Council for the subdivision, so that the properties should have been marketed on that basis and interested purchasers should have been told about the state of the application for resource consent. He also argues the Bank had a duty to ask him for details of that application. If Westpac or its agents had told prospective purchasers about the state of the application for resource consent the sections would have sold for substantially more than they did.

[6] In that context the three issues for the Court on this appeal are:

(a) whether the Judge erred in dealing with the valuation evidence in a practical and robust way;

(b) whether Westpac breached its obligations under s 176 of the Property

Law Act; and

(c) whether the price the sections were sold for was so far removed from being a realistic market price the Bank can be said to have been in breach of its obligation to Mr Finlay.

The valuation evidence

[7] In March 2012 Telfer Young initially valued the sections in a forced sale situation between $36,000 to $39,000 each. Later, in October 2012, they revised their valuation down to $32,000 and $30,000. Mr Davies, the valuer instructed by Mr Finlay for the purposes of the summary judgment application, valued the sections as at June 2012 at “around $150,000 possibly $170,000”. It is that stark difference in opinion that Mr Finlay says should have been the subject of a full hearing.

[8] A number of issues arise concerning the valuations. Mr Finlay criticised the Telfer Young valuation and complains that Telfer Young did not obtain a LIM report from the Council in relation to the sections. However, while recording that they had not obtained a LIM report or inspected the Rotorua District Council’s property file, Telfer Young did access the Rotorua District Council property database. That

recorded that one resource consent was closed on 26 June 2007, one was refused on

24 April 2007, and a third was refused on 5 June 2007. The valuers also reported:

We have spoken to the Rotorua District Council planning department (Portia McKenzie) and obtained a copy of the letter refusing resource consent to subdivide the two adjoining properties dated 23 April 2007. Council refused consent because insufficient information was submitted to demonstrate that the land would not be likely to be subject to material damage by erosion, falling debris, subsidence, slippage or inundation from any source.

We have been informed verbally that the sites were terraced and there is at least 2metres of uncontrolled fill on the sites which have moderately steep to steep contour and therefore it would be difficult to establish stable building platforms. We believe under current market conditions that there is no subdivision potential due to the steepness of the site and uncontrolled fill making it too costly to develop stable building platforms.

[9] In any event, nothing turns on the valuer’s failure to obtain a LIM report. The real estate agent engaged by Westpac, Bayleys, did obtain a LIM report from the Rotorua District Council. The report also disclosed that there was slippage, subsidence, inundation and that a hazard notice attached to the land. The only information the LIM disclosed about resource consents was the record a subdivision consent had been refused on 24 April 2007. Even if the valuers had obtained a LIM they would not have received any different information than was available on the property database.

[10] Mr Finlay also criticised the Judge for taking a robust approach when dismissing Mr Davies’ evidence. The Court is entitled to take a robust approach in appropriate cases. In Krukziener v Hanover Finance the Court of Appeal confirmed the principles relating to summary judgment as follows:¹

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan. In the end the Court's assessment of the evidence is a matter

of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel.

[11] In the earlier case referred to of Bilbie Dymock Corporation Ltd v Patel & Bajaj the Court said:²

... the need for judicial caution has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. In the end it can only be a matter of judgment on the particular facts.

[12] There are a number of aspects of Mr Davies’ evidence that support the Judge’s approach to it. First, it was only obtained in May 2013 for the purpose of the summary judgment application. Next, and importantly, Mr Davies did not physically inspect the properties. Telfer Young did, (at the relevant time) and noted the overgrown nature of the sections. Next, Mr Davies did not suggest a valuation in a forced sale/mortgagee sale valuation, which was the situation the properties were marketed in. Finally, Mr Davies relied on information that was not available to Telfer Young at the time of their first valuation.

[13] The high point for Mr Finlay’s appeal and the point on which Mr Davies relied to support his valuation is the advanced state of the discussions with the Rotorua District Council in relation to the subdivision in mid 2012 (which was some time after the initial Telfer Young valuation).

[14] Mr Finlay initially referred to correspondence from McKay Knarston Ltd, his surveyors on 24 September 2010 in which they said:

It seems ... that you are very close to having a subdivision consent which I

assume would add significant value to the land.

That however rather begs the question of why, if it was that close, it was not resolved by March or even June 2012. The fact another 18 to 21 months had passed without apparent progress does not assist Mr Finlay.

[15] Mr Finlay also referred to (and Mr Davies referred to it as correspondence he relied upon) a letter from CBA consultants (Mr Finlay’s engineers) to the Rotorua District Council on 19 June 2012 in which CBA said:

1. According to Keith Lloyd, the overland flow path that he has been referring to is from [Lo1] and Lot2. As shown by the contours, there is no overland flow path as such from these two lots, however because of the relatively steep gradient of the site sheet flow will come down, we have proposed swale along the ROW to collect this water.

2. In order to reduce the velocity of the water in the main overland flow path, we propose rock barrier to reduce the velocity of the overland flow. We have also provided details of the inlet structure.

3. Please note that the swales are all sized to collect the 1 in 100 year overland flow.

[16] However, it appears the Rotorua District Council then took further advice. Also attached to the materials is a first page of a report from the Rotorua District Council’s consultants in response dated 20 July 2012 in which they say in response to the first of the above points:

This is not correct. There is a distinct overland flow path through Lots 1 and

2. Reliance on the contours indicates CBA have not had the opportunity to carry out a site inspection. Also, capturing the flows at level of the ROW at the base of the slope misses the point as it first flows across the building platforms.

It is apparent the issue was far from resolved even in mid 2012.

[17] In the circumstances, and given Mr Davies valuation proceeded on the apparently incorrect assumption that “negotiations had virtually concluded with the Rotorua District Council ... and a subdivision consent was to be advanced within the next two or three months”, it was clearly overly optimistic. The Judge was entitled to prefer the evidence of Telfer Young as to the appropriate valuation for mortgagee sale purposes.

The duty of care

[18] I return to the issue of the duty Westpac owed Mr Finlay.

[19] In Long v ANZ National Bank Ltd the Court of Appeal identified the following relevant principles arising from the duty of care a mortgagee owes a mortgagor under s 176 of the Property Law Act:³

[18] Equally, the relevant principles relating to the interpretation and application of s 176 of the Property Law Act 2002 are well established and were not in dispute. The leading case is Apple Fields Ltd v Damesh Holdings Ltd. In that case this Court emphasised that:

“(a) The purpose of [the predecessor to s 176 was] to protect those to whom the duty was owed in the absence of any other incentive for a mortgagee selling the property to obtain the full economic value over and above the sum which will clear the mortgage.

(b) The duty of care owed by the mortgagee is concerned with obtaining the best price reasonably obtainable as at the time of sale. As such, it does not qualify the mortgagee's right to decide in its own interest if and when to sell.

(c) What constitutes reasonable care will, of course, always turn on the facts of the case. ”

[19] In upholding the decision of this Court, the Privy Council in its advice delivered by Lord Scott of Foscote said that the issue was a “commercial one, to be viewed in practical commercial terms”.

[20] A number of High Court decisions applying s 176 and its predecessor have also identified a range of relevant factors: see Harts Contributory Mortgages Nominee Co Ltd v Bryers; Crown Money Corporation Ltd v Pink-Martin; Public Trust v Ottow; and Westpac New Zealand Ltd v Lamb.

[21] For present purposes we note the following specific points:

(a) The statutory obligation is not to obtain the best price reasonably obtainable, but to take reasonable care to obtain the best price reasonably obtainable. That price might not necessarily be obtained.

(b) When the property is sold in a forced sale, such as at a mortgagee sale, it is likely to sell at a substantial discount from the market value that the property would achieve in a sale undertaken by an owner not under financial pressure to sell.

(c) Valuations lose much of their significance if reasonable care is taken, there has been a properly advertised and conducted auction, and the property has been sold at auction or by negotiation after the auction.

³ Long v ANZ National Bank Ltd [2012] NZCA 132 (footnotes omitted).

(d) What constitutes reasonable care will always turn on the facts of the case. The steps taken by the mortgagee in fulfilling the statutory duty have to be looked at in the round.

(e) In considering the reasonableness of the care taken, the courts should be slow to second guess the actions of a mortgagee acting on apparently sound professional advice.

[20] In the present case, Westpac instructed reputable valuers and real estate agents to provide advice to it in relation to the marketing of the sections.

[21] The properties were marketed on the basis that subdivision was a possibility. The marketing package put together by Bayleys suggested that subdivision was an option. It provided as follows:

Calling all land bankers, this is your opportunity to own one or two large sections with views in Gordon Road, 41 Gordon Road offers 6,245m² and 43

Gordon Road offers 4,669m² of mainly sloping contour. Both are rear

sections, in need of clearing but do have some mature plantings. Zoned Residential B you have the choice of future sub-division if that is your interest. Alternatively, build or relocate a home on the sections, enjoy the city lights and give your children the outdoor life style, ...

[22] The only further information which the agents were not aware of was the state of Mr Finlay and his engineers dealing with the Council regarding the latest resource consent application. But even if that information had been made available, all that could properly have been said to any potential purchaser or in marketing material was that there was scope for subdivision and that an application for resource consent was currently before the Council. Importantly, no resource consent had been obtained. That would not have advanced the matter at all, particularly given the Council’s advice as noted above.

[23] Next, any purchaser potentially interested in subdivision would have carried out their own due diligence or made their own inquiries of the Council in any event. Indeed it appears from the marketing reports that some did and were persuaded by the information obtained from the Council not to take the matter further. For instance, the marketing report from Bayleys of 22 May 2012 records:

On speaking with Mandy after their visit to the council they advise that they have no further interest in the land as a result of the following:

The earth works that took place back in the 1980s were unapproved and not completed to the council requirements at the time. This has left the land unsafe and intensive geo-tech reports would need to be completed before any approval to build would be given by the council. This would include major retaining walls and reinforcing.

Also there is a major storm water issue with the properties below that would need to be looked into and dealt with before building could take place. The Council then advised our client that this was not to say that a home could not be built on the land but the work involved and costs prior to this happening would be immense.

[24] Further similar negative comments were made by other potentially interested purchasers who made any investigations in relation to the property.

[25] In relation to Mr Finlay’s suggestion that Westpac should have obtained further information from him the short answer is the point identified by the Judge. When the Property Law Act notice was running against him Mr Finlay spoke to Mr Hoy of Westpac on 2 March and then sent a fax to him on 5 March. It appears Mr Finlay raised the issue of the application for resource consent. In response Mr Hoy wrote on 7 March 2012 advising of the state of Mr Finlay’s arrears. Mr Hoy also advised that should the Property Law Act notice expire unremedied on 9 March the Bank would proceed to mortgagee sale. The letter concluded:

Additionally can you please provide the following for our records:

– Documentation regarding the proposed subdivision of your properties at

41B and 43 Gordon Road, Western Heights, Rotorua detailing

• Timeframes for completion

_{• Specifics as to the engineering issue referred to in your fax}

• Costs [involved] to complete the subdivision including obtaining the necessary consent.

Please forward the above to my attention at your earliest convenience and do not hesitate to contact me should you have any queries.

[26] Mr Finlay latched onto the reference to the “for our records” and submitted that there was no reason for him to make the information available to the Bank for its records. He fully expected to meet the demand under the Property Law Act. For those reasons he did not make the information available to the Bank. However, that is not a credible explanation for his failure to provide the information. Clearly Mr Finlay was not in a position to meet the Bank’s demand, which expired unremedied two days after the letter. He was on notice the Bank was going to proceed to

mortgagee sale. Mr Hoy’s request for information relating to it was a direct response to Mr Finlay raising the issue of the application for resource consent. It was up to Mr Finlay to respond and provide the information which the Bank requested. He failed to do so. There was no onus or obligation on the Bank to seek him out any further.

[27] Further, it was open to Mr Finlay to advise the real estate agent marketing the property about the state of the resource consent application. He did not do so.

[28] The Bank engaged properly qualified professionals to value and market the property. The property was advertised as having subdivision potential, which was all that fairly could be said for it. The Bank was not required to chase Mr Finlay up and seek to obtain further information from him. Further, as noted, even if the further information had been available the effect of it would have been limited. The short point is that there was no resource consent for a subdivision and there remained issues with the site. When interested parties made enquiries of the Council, they received negative or at least less than positive feedback. Despite the marketing the property did not sell at auction. The Bank was entitled to obtain revised valuations and to sell in October 2012.

The sale price/valuation issue

[29] The last and related issue is Mr Finlay’s complaint the properties were sold too cheaply. But as noted in Long v ANZ when a property is sold at mortgagee sale it is likely to sell at a substantial discount and valuations lose much of their significance if reasonable care is taken, the property is properly marketed (as I have found it was), and the property was sold following an unsuccessful auction.

[30] While the sale prices of the sections were on their face very low, the sale prices were consistent with the more recent valuations the Bank obtained, or had available to it at the time of sale. As noted, Telfer Young initially advised the Bank that on the basis of a forced sale valuation as at 28 March 2012, the price range for the sections was $36,000 to $39,000 in each case. However following the downward movement in the market and the unsuccessful auction, as at 10 October 2012 it

revised that valuation down to $32,000 in the case of 41B Gordon Road and $30,000 for 43 Gordon Road.

[31] Bayley’s estimate initially placed the valuations at $60,000 in each case. Harcourts gave an estimate as at 13 September 2012 of $35,000 to $45,000 in each case. L J Hookers gave an estimate on 18 September 2012 of $20,000 for each section. In those circumstances a sale price of $25,000 in each case, while no doubt disappointing to Mr Finlay, was not so out of the range of the recent valuations to suggest Westpac was in breach of the obligation it owed Mr Finlay in selling at those prices.

Conclusion/Result

[32] The Judge was correct to conclude that Westpac had satisfied the onus on it and that Mr Finlay had no arguable defence. The appeal is dismissed with costs on a

_{2B basis together with disbursement as fixed by the Registrar to Westpac.}

Venning J