Walterfang v Westpac New Zealand Limited [2016] NZHC 805 (27 April 2016)

Last Updated: 13 May 2016

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2015-442-000061 [2016] NZHC 805

BETWEEN	TILMAN SVEN HELGE WALTERFANG AND ILKA WALTERFANG Appellant
AND	WESTPAC NEW ZEALAND LIMITED Respondent

Hearing:	26 April 2016
Counsel:	P J Bellamy for Appellant C T Jolliffe for Respondent
Judgment:	27 April 2016

_{JUDGMENT OF COLLINS J}

Summary of judgment

[1] I am dismissing Mr and Mrs Walterfang’s appeal from a summary judgment

entered against them by Judge Tuohy in the Nelson District Court on 28 August

2015. Judgment was entered in favour of Westpac New Zealand Ltd (Westpac) for the sum of $99,917.89 (the judgment sum).

[2] I am dismissing Mr and Mrs Walterfang’s appeal because Judge Tuohy correctly decided Mr and Mrs Walterfang owed Westpac the judgment sum, which was the amount left owing to Westpac following a mortgagee sale of two properties owned by Mr and Mrs Walterfang. Judge Tuohy properly rejected a claim by Mr and Mrs Walterfang that Westpac had failed to discharge its duty to obtain the best price

_{reasonably obtainable at the time of sale.}¹

¹ _{Property Law Act 2007, s 176.}

WALTERFANG v WESTPAC NEW ZEALAND LIMITED [2016] NZHC 805 [27 April 2016]

Background

[3] Mr and Mrs Walterfang owned adjoining properties at 318 and 320

Princes Drive, Nelson (the properties). Mr and Mrs Walterfang inhabited the house located at 320 Princes Drive.² The adjoining section at 318 Princes Drive was vacant.³ Mr and Mrs Walterfang took out a loan from Westpac that was secured by a mortgage over the properties. Unfortunately, Mr and Mrs Walterfang failed to make repayments as required under the mortgage. On 26 May 2014, Westpac sent letters

of demand to Mr and Mrs Walterfang but they failed to remedy the demand. On

9 June 2014, Westpac issued default notices to Mr and Mrs Walterfang pursuant to s 119(1) of the Property Law Act 2007 (the Act). The default notices were not remedied by Mr and Mrs Walterfang thereby enabling Westpac to sell the properties to recover the debt Mr and Mrs Walterfang owed Westpac.

[4] The properties were sold by Westpac on 10 December 2014. At that time

Mr and Mrs Walterfang owed Westpac $1,247,521.43. The properties were sold for

$1,200,000, together with a $156.22 contribution to the rates from the purchaser. From the sale price deductions were made to pay land agents’ commissions, rate payments, legal fees and valuers’ fees. The total deductions were $48,090.62, meaning the net proceeds of sale amounted to $1,152,059.60.

[5] Westpac sought summary judgment for $95,917.89, being the balance then owed by the Walterfangs under the mortgage.

[6] The Walterfangs’ defence to the summary judgment application was that Westpac did not discharge the duty of care it owed under s 176 of the Act to take reasonable care to obtain the best price reasonably obtainable at the time of sale.

_{The same ground underpins the appeal to this Court.}

² The house at 320 Princes Drive is approximately 760 m² (including the decks and garage area).

_{Refer to agreed bundle of documents at 213.}

³ The section at 318 Princes Drive is 2,402 m². Refer to agreed bundle of documents at 219.

Sale process

[7] The process of selling the properties commenced in April 2014 when Mr and Mrs Walterfang placed the properties on the market with Harcourts Real Estate in Nelson (Harcourts).

[8] In May 2015, Westpac obtained a valuation of the properties from Duke & Cooke, who are registered valuers in Nelson. That firm assessed the market value of both properties as $1,880,000 as at 28 May 2014. Duke & Cooke advised Westpac that if the properties were the subject of a forced sale then the possible range of sale prices was between $1,504,000 to $1,880,000.

[9] In September 2014, Westpac obtained two appraisals from real estate agents. The first, from First National Real Estate in Richmond, appraised the properties as having a forced sale value of between $1,060,000 and $1,390,000. The second, from Fifeshire Realty Limited in Nelson (Remax), advised Westpac that the market value of the properties was in the vicinity of $1,340,000 but that if the properties were sold through a forced sale process the sale price would be in the vicinity of $900,000.

[10] Westpac elected to list the properties with Ms Dickie, an agent of Remax. Ms Dickie has been a real estate agent for 29 years and was considered by Westpac to be reputable and experienced. The properties were advertised for tender following four weeks of advertising in local and South Island newspapers.

[11] On 8 October 2014, PIB Investments Ltd (PIB) made an offer for the properties to Mr and Mrs Walterfang via Harcourts. The offer was $900,000. Mr and Mrs Walterfang made a counter-offer of $1.4 million only in relation to the house property at 320 Princes Drive. On 10 October 2014, PIB increased its offer for both properties to $1.130 million and in doing so said that that was its “final

offer”.⁴ No counter-offer was made by Mr and Mrs Walterfang.

[12] Tenders for the properties closed on 5 November 2014. Ms Dickie explained in an affidavit there was very little interest in the properties during the marketing

⁴ Agreed bundle of documents at 347.

phase. The three tender offers for the home at 320 Princes Drive ranged from

$380,000 to $600,000 and the two offers for the vacant section at 318 Princes Drive were $85,000 and $85,500. These were rejected on the basis of being too low.

[13] On 10 November 2014 Harcourts advised Westpac that PIB was willing to make an offer to purchase the properties for $1,130,000. That offer was made on 11

November 2014. Upon receiving that offer Westpac counter-offered at $1,650,000. On 12 November 2014, PIB increased its offer to $1,200,000.

[14] After receiving PIB’s offer of $1,200,000 Westpac sought advice from Duke

& Cooke and Ms Dickie. Duke & Cooke wrote to Westpac on 8 December 2014 and advised that it had reassessed the forced sale value of the properties and concluded their value to be $1,400,000. Ms Dickie advised that in her opinion the offer of

$1,200,000 from PIB “was a very good offer” and consistent with her original appraisal.⁵ Ms Dickie confirmed she had not received any offers over $1,200,000 for the properties.

[15] On 9 December 2015, Westpac asked Ms Dickie to approach Harcourts to see if PIB would increase its offer. Later that day, Harcourts told Ms Dickie that PIB “did not wish to increase [its] offer and that it was considering other options”.⁶

[16] On 10 December 2015, Westpac accepted the offer of $1,200,000 from PIB.

District Court judgment

[17] Judge Tuohy identified the issue in the following way:⁷

The specific breach of the duty of care alleged is a failure to negotiate properly with the ultimate purchaser. In particular, Mr Bellamy [counsel for Mr and Mrs Walterfang] says that in the circumstances, Westpac should not have accepted an offer of $1.2 million, at least without first making a counter-offer to the purchasers, when their own valuers had provided an up- to-date valuation on a forced sale basis of $1.4 million.

⁵ _{Affidavit of J E Dickie, 30 June 2015 at [13].}

⁶ _{At [18].}

⁷ Westpac New Zealand Ltd v Walterfang [2005] NZDC 18143 at [4].

[18] Judge Tuohy explained that he could “find nothing which might support a claim that Westpac breached its duty under s 176 [of the Act]”.⁸ The Judge therefore entered summary judgment in favour of Westpac for $99,917.89 together with interest and costs.⁹

Section 176 of the Property Law Act 2007

[19] The case for Mr and Mrs Walterfang hinges upon the application of s 176 of the Act. The relevant portions of that section state:

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 current mortgagor] to obtain the best price reasonably obtainable as at the time of sale ...

[20] Two aspects of s 176 of the Act are relevant to this appeal.

[21] First, the duty on Westpac was to obtain the best price for the property reasonably obtainable as at the time of sale. Whether a sale price is reasonable must be assessed in the context of all relevant facts. The reasonableness of the procedure followed by Westpac to obtain the final purchase price is therefore relevant.

[22] Second, the duty on Westpac was to obtain the best price reasonably obtainable as at the time of sale. This qualification in s 176 of the Act recognises that Westpac did not have a duty to obtain the best price that might theoretically have been obtained at a later point in time.

Analysis

[23] It is primarily a question of fact in this case as to whether or not the price obtained for the properties was the best price that was reasonably obtainable.

[24] I am in no doubt Westpac followed a very reasonable procedure when it decided to sell the properties. The procedure followed by Westpac included:

⁸ _{Westpac New Zealand Ltd v Walterfang, above n 7, at [15].}

⁹ At [16].

(1) obtaining valuations and appraisals from reputable sources;

(2) appointing a reputable and experienced real estate agent to market the properties;

(3) advertising the properties extensively; (4) seeking tenders for the properties;

(5) reassessing the forced sale value of the properties;

(6) making a counter-offer to the offer made by PIB on 10 November

2014; and

(7) informally approaching PIB to seek a higher offer.

[25] The evidence demonstrates Westpac accepted the highest offer that had been made for the properties over an extensive period of marketing.

[26] I do not accept the submission that Westpac had a duty to make a counter- offer of $1.3 million in order to cover the debt which Mr and Mrs Walterfang owed Westpac. While it would of course have been desirable if the debt which Mr and Mrs Walterfang owed Westpac had been extinguished by the mortgagee sale, Westpac’s duty was confined to obtain the best price reasonably obtainable.

[27] Contrary to Mr Bellamy’s submission, there was no evidence PIB was “bluffing” when it said that its offer of $1.2 million was its final offer and that it was considering other options. The reality facing Westpac was that it had to either accept the offer from PIB or risk losing the prospect of selling the property for $1.2 million. Having conscientiously tested the market, Westpac was entitled to conclude the offer of $1.2 million from PIB was the best price that was reasonably obtainable at that time.

[28] I must also reject the submission made by Mr Bellamy that the revaluation of the property undertaken by Duke & Cooke on 8 December 2014 demonstrated the

true value of the properties was $1.4 million. The fallacy with that submission is that the revaluation undertaken by Duke & Cooke was that company’s genuine opinion of the value of the properties. The market said otherwise. This point was made by the Court of Appeal in Mitchell v Trustees Executors Ltd,¹⁰ where it was explained that a discrepancy between a valuer’s opinion and the actual sale price did not indicate a breach of duty under s 176 of the Act. The Court of Appeal said:¹¹

If the mechanism adopted for the mortgagee sale properly tested the market, then the results obtained at auction, rather than the opinion of the valuer, must be taken as demonstrating what the market value of the property was.

[29] In this case the value of the properties was properly tested in the market. Westpac discharged its duty to take reasonable care to obtain the best price reasonably obtainable at the time of sale.

Conclusion

[30] The appeal is dismissed.

[31] The judgment entered in the District Court on 28 August 2015 is upheld.

[32] Westpac is entitled to costs on a scale 2B basis in relation to the appeal in this

_Court.

_{D B Collins J}

Solicitors:

Philip Bellamy, Nelson for Appellants

Anthony Harper, Christchurch for Respondent

¹⁰ _{Mitchell v Trustees Executors Ltd [2011] NZCA 519, (2011) 12 NZCPR 659.}

¹¹ At [68(c)].