IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-002420 [2015] NZHC 184

BETWEEN	WESTPAC NEW ZEALAND LIMITED
Plaintiff	

AND	
TUSCANY PROPERTIES LIMITED Defendant	

Hearing:	16 February 2015	

Appearances:	
N R Frith for the Plaintiff
J L Foster for the Defendant	

Judgment:	
19 February 2015	

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on
19.02.15 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar
Date……………

WESTPAC NEW ZEALAND LIMITED v TUSCANY PROPERTIES LIMITED [2015] NZHC 184 [19
February 2015]

Background

[1]       Westpac New Zealand Limited (Westpac) applies to place Tuscany Properties

Ltd (Tuscany) into liquidation. Tuscany opposes.

[2]       On 29 August 2012 Tuscany entered into a term loan agreement with Westpac by which Westpac lent Tuscany $1,015,000.00.   As security for the borrowings Tuscany executed an  all  obligations  mortgage over a Rifle Range Road, Taupo property (the property).   The property formerly operated as a motel and contained four residential townhouse units and a managers unit.

[3]       When Tuscany defaulted on its loan obligations Westpac served on Tuscany a s 119 Property Law Act 2007 (PLA) notice.

[4]       On  or  about  20  June  2014  Westpac  sold  the  property  as  mortgagee. Following the sale Westpac says there is an amount of $584,992.32 plus interest owing.

Tuscany’s case in opposition

[5]       Tuscany’s defence pleads that on 22 January 2014 Mr Barrie Brill, a director of Tuscany and a solicitor for the Brill Trust, together with Virginia Gomes, accountant for Tuscany and the Brill Trust, met with two managers of Westpac’s Loan  Management  Unit  being  Mr  Yao  and  Ms  Malcolm-Smith  at  Westpac’s Auckland office (the January meeting).   Tuscany pleads an agreement was then reached “upon a framework for completion of… negotiations relating to repayment of Tuscany’s debt…”.  It is pleaded the agreement (the January agreement) included terms:

(a)       The parties would continue to negotiate in  good faith to bring to finality the repayment plan and other matters discussed at the January meeting;

(b)       The PLA notice would not be withdrawn but would be suspended on the basis it could be reactivated by one month’s written notice if

negotiations failed or if the defendant breached the terms of an agreed repayment plan;

(c)       The terms of a repayment plan were agreed subject only to approval by Westpac’s credit committee of a written record of that plan.  These terms include a provision for repairs to the property that would maximize  the  recovery  as  recommended  in  a  valuation  dated  30
September 2013;

(d)       Mr Brill would submit a written record of the terms of the repayment plan by 31 January 2014;

(e)       The managers would advise Mr Brill by telephone if they had any disagreement with the written record he had drafted;

(f)       The  managers  would  submit  the  repayment  plan  to  its  credit committee for consideration at its meeting on 8 February 2015.

[6]       Tuscany pleads that on 28 January 2014 Mr Brill emailed Westpac with a

“Heads of Agreement” (HOA). The email recorded:

Attached  is  a  draft  Heads  of Agreement  which  outlines  a  possible  way forward.  Please let me have your comments in due course.

[7]       Tuscany says Westpac did not express any concerns about the terms of the HOA or at all until in April, when Westpac through its solicitors, advised it had commenced marketing the property for sale by mortgagee tender.   In response Tuscany requested Westpac to consider the HOA and proposed a meeting.  Westpac’s response through its solicitors purported to reject outright the repayment plan recorded in the HOA.

[8]       Tuscany’s case is that in breach of the January agreement Westpac;

(a)	Failed  to  have the  HOA considered  by its credit  committee on  8

February 2014, or at all;

(b)	Failed and refused to negotiate in good faith;

(c)	Proceeded to a mortgagee sale without responding to the HOA;

(d)       Failed to give Tuscany one month’s notice of its intention to reactivate the PLA notices;

(e)       Purported  to  reactivate  the  PLA notices  when  there  had  been  no failure of negotiations and Tuscany had not breached the terms of the January agreement or the repayment plan agreed to at the January meeting.

[9]       Tuscany says that had the HOA proceeded as agreed the property would have sold for $1.2M which would have repaid the entire indebtedness due to Westpac. Instead the property sold for $500,000.

[10]     As an alternative defence Tuscany pleads that if the January agreement was not a binding agreement that nevertheless statements were made by Westpac’s managers which amounted to representations as to Westpac’s future conduct including:

(a)	Westpac would reopen access to Tuscany’s account so that revenue

could be paid into and expenses paid out of it;

(b)	That if a repayment plan was submitted in writing by 31 January 2014

it would be favourably considered by Westpac’s credit committee;

(c)       In the event the repayment plan was not to Westpac’s satisfaction Westpac’s credit committee would direct its managers to request changes and negotiate with Tuscany in good faith;

(d)       Westpac would reactivate the PLA notice if Tuscany failed to submit the proposal, or breached the terms of the repayment plan, or negotiations broke down;

(e)	Westpac would give Tuscany one month’s notice before reactivating

the PLA notice.

[11]     As a further alternative defence Tuscany says Westpac breached its duty of care as a mortgagee by failing to take reasonable steps to obtain the best price reasonably obtainable because:

(a)	Essential repairs ought to have been undertaken pre-sale to dispel the

potential for “leaky home” stigma;

(b)       The property was sold without prudent and reasonable steps being undertaken to render it fit for retail sale;

(c)	Westpac failed to reasonably prepare or present the property for sale;

(d)       The  marketing  and  promotion  of  the  property  was  directed  to wholesale buyers then resident in Taupo, and but a small subset of the true potential market;

(e)       Inadequate resources were provided for the marketing and promotion of the property;

(f)       Westpac did not pursue negotiations with known interested parties including the Brill Trust which had agreed to purchase one unit at valuation and had expressed interest in other units on the property.

[12]     Tuscany pleads the sale should have recovered $1M rather than the $500,000 forced sale price obtained.  Tuscany therefore seeks to set off the sum of $500,000 against any sum that might be found to be due by it to Westpac.

Tuscany’s evidence

[13]     Evidence in support of Tuscany’s defence is provided by the affidavit of Mr Brill.   His evidence is that the property was one of a number that Tuscany had acquired or obtained the right to acquire within the neighbourhood.  In later years the

market and development considerations did not favour further development upon those properties.

[14]     A 2010 valuation of the property indicated a wholesale or block value of

$1.2M.  Mr Brill had discussions with Westpac’s Taupo manager.  Concerns arose

suggesting the buildings on the property may be affected by leaky home factors.

[15]     In July to September 2013 Westpac decided not to rollover the loans then expiring in September and transferred its Tuscany file to its Loan Management Unit in Auckland.

[16]     Other properties owned by Tuscany nearby did not sell at auction and on 23

October 2013 a PLA notice was served along with a letter from Westpac’s solicitors

requiring repayment of loans by 2 December 2013.

[17]     On 15 October 2013 a nearby property belonging to Tuscany was sold and in that outcome a sum of about $208,000 was repaid to Westpac.

[18]     On 26 November 2013 Mr Brill wrote to Ms Malcolm-Smith of Westpac’s

Auckland  office,  suggesting  a  meeting  to  discuss  the  repayment  plan.    On  20

December 2013 Mr Brill wrote again to Ms Malcolm-Smith offering to purchase one of the units on the property.

[19]     On 22 January 2014 Mr Brill met with Ms Malcolm-Smith and Mr Yao at Westpac’s Auckland office (January meeting).   Mr Brill was accompanied by Ms Combes whom he said advised him that Mr Yao would have sufficient authority to negotiate the terms of a settlement but that any agreement reached would inevitably be conditional upon final sign-off by a more senior executive or a committee and that Mr Yao would only agree to terms he expected to survive that sign-off process.

[20]     Mr Brill says he and Ms Combes agreed their objective was to reach final agreement with Mr Yao “so we would need to massage the terms until he was satisfied”.

[21]     During the conversation Mr Brill reports Ms Malcolm-Smith saying that the PLA notice already issued  would  not  be waived  but  merely suspended  as  long negotiations were going on and that if the negotiations failed or if agreements were not kept the bank would want to resurrect its power of sale without the need of re- serving a PLA notice.

[22]     Mr Brill reports replying that he understood and was happy for a resurrection right to be a condition of the negotiations, subject to reasonable notice being given.

[23]     Mr Brill says that discussions included referring to the possibility of his Trust purchasing two of the five dwellings on the property.  He reports Westpac’s position being that it would not accept any lengthy delays and that it would be better for Mr Brill’s Trust to hold off until the bank’s realisation program had concluded.

[24]     Referring to the 2013 valuation report obtained by Westpac for the purpose of guiding the process for realisation of the bank’s securities, it showed a value of
$800,000 for an immediate block sale into a dormant wholesale market.   Mr Brill considered that assessment to be pessimistic and that it represented a considerable discount from the 2010 valuation.

[25]     As  discussions  continued  Mr  Brill  reports  Mr  Yao  saying  “we  are  not interested in a forced sale, except as a very last resort, that the bank accepted better results could usually be obtained if the mortgagor handles the sale process “in a framework that is agreed with the bank”.”

[26]     Mr Brill recalls the managers saying that $800,000 was not enough to repay the bank in full and that they saw no reason why the security should be sold in bulk; that they would prefer to look at a planned sell down at retail prices as long as that could be done over a short period.

[27]     Mr Brill said there was a discussion regarding the valuation report’s reference to exterior and interior maintenance, upgrading and tidying required.

[28]     Mr Brill reports the managers saying their key concern was with the servicing of the loan up to the point the last unit was sold; that the bank had limited tolerance for delay in dealing with problem loans and less tolerance for the problem becoming worse during those delays; and that they needed to see figures showing that revenue would consistently cover interest and other outgoings while the townhouse units were being refurbished until sold.   Then there was discussion regarding the bank providing funding for refurbishing costs.  Mr Brill says that discussion focussed on whether Tuscany could service a loan of $800,000 whilst repairs and subsequently unit sales were effected.

[29]     Mr Brill says Mr Yao said he would prefer to see any plan completed within

12 months and requested to sight a repayment plan “on an objective document rather than [upon] subjective expectations”.  Mr Brill said there would be “a firm deal for the Trust to buy the managers unit and at least one townhouse…”.  He said it was agreed the loan would be restructured so that $200,000 would be repayable in February 2015…”.   Mr Brill said the managers reminded him that the bank could resurrect its PLA notice if Tuscany breached any of the agreed terms.  He responded that reasonable notice of any resurrection needed to be given and he said it was agreed that one month would be acceptable.

[30]     According to Mr Brill the January meeting then reviewed all points before Mr Yao and Ms Malcolm-Smith withdrew to confer.  He said that on their return they said they were happy with the plan and were prepared to recommend it to the bank’s credit committee for final signoff.  Mr Brill said the following process was agreed upon:

(a)	He would write up the plan that had been discussed;

(b)	The document would need to be in the hands of managers as soon as possible but not later than by the end of the month;

(c)	If the managers had any concerns about his wording of the record they would contact him by phone right away;

(d)     They would  then  apply the  bank’s  internal  analyses  and documentation in time for the plan to be submitted to the credit committee meeting to be held on 8 February;

(e)       If the credit committee approved the proposal they would send him confirmation;

(f)       The committee might disagree with one or two of the terms or want to add additional terms and if so a further meeting could be set up to discuss those changes.

[31]     Mr Brill says that in a final discussion the managers said they expected the committee to accept the plan; that managers might take a bit of convincing to allow a full two years for sales and that the overdraft request (for building repairs) would raise some eyebrows but that they would probably look at the plan as an overall package rather than pick off pieces of it.   Mr Brill says and Ms Malcolm-Smith mentioned the credit committee members sometimes had long agendas and it was possible that the Tuscany item would not be reached at the 8 February 2014 meeting.

[32]     Mr Brill deposes that over the course of the following week he drafted a record of “the agreed repayment plan in the form of a three-way HOA between Tuscany and its two secured creditors” and that in doing this he “used notes [he] had jotted throughout the meeting on the draft proposal [he] had with [him]”.

[33]     Mr Brill is not now able to find those notes.

[34]     On 28 January 2014 he sent a copy of this document to Ms Malcolm-Smith as an attachment to an email.  Copies were also sent to Mr Yao and Ms Gomes.

[35]     Mr Brill did not hear from the managers by 31 January.   He assumed the agreement terms to be acceptable and that it was proposed to present it unchanged to the  credit  committee.   When  later by mid-February he had  not  heard  from  the managers  he  assumed  “the  plan  had  slipped  off  the  committee’s  agenda  on
8 February 2014”.

[36]     Mr Brill says that also during February he had a phone call from a Mr Bland of Harcourts Taupo branch, who said he had been approached by Westpac a few months earlier but that it now seemed a mortgagee auction would not be proceeding. Mr Bland asked Mr Brill if he could list the units on Tuscany’s behalf.

[37]     On 27 March Mr Brill received an email from Ms Banuelos of Westpac loans management advising him that neither Ms Malcolm-Smith nor Mr Yao were any longer handling the file.  The email opened with: “This is just to follow-up on your proposal for the settlement of the debt”.   Sometime later Mr Brill replied to Ms Banuelos’ email enquiring whether the actions of the managers were being repudiated.   Ms Banuelos replied the managers were no longer available and that there was “no proposal held on file”.

[38]     Mr Brill immediately responded providing a copy of the HOA earlier sent.

[39]     In the course of an email exchange that followed Ms Banuelos advised that Westpac  intended  to  resurrect  the  PLA  notice  immediately  on  three  specified grounds, namely:

(a)       Deterioration of the account.

(b)       Upon the assumption that no written proposal had been sent;

(c)	That Tuscany had not shown any figures that could service the debt. [40]	Ms Banuelos had acknowledged there was an oral agreement.  She said “the
bank is not at all ignoring whatever was discussed and agreed in your January 2014 discussions…

[41]     On  8  May  Tuscany  received  a  letter  dated  17  April  advising  that  the mortgagee sale process had commenced.   By email dated 24 June 2014 Westpac’s solicitors advised all five properties had been sold for $500,000 with the advice:

Feedback  from  interested  parties  to  the  real  estate  agent  noted  that significant work was needed to bring the managers unit back to a liveable condition and concerns were raised in relation to the plaster cladding which

is showing signs of moisture issues. These factors would have been taken by account by the parties submitting tenders.

[42]     Mr Brill says that the bank’s agents, Harcourts, made no attempt to market or sell any of the units to retail buyers neither in Auckland or Wellington nor even in Taupo.

[43]     Regarding service of Westpac’s statutory demand for a sum of $585,196.50

Mr Brill responds that the sum was not paid because it was disputed and continues to be disputed.  Mr Brill says he has never received details of any calculations of a debt due.

[44]     Mr  Brill  says  neither  Westpac  nor  its  solicitors  has  ever  offered  any explanation as to why Mr Yao did not submit the HOA to Westpac’s credit committee or how the bank’s file came to be mislaid.  He says he does not understand why a repayment plan that was acceptable to the bank in January was summarily dismissed in April.   He believes the bank’s communications with Tuscany throughout 2014 have been well below any acceptable commercial standard.

Westpac’s evidence in response

[45]     Evidence from Westpac in response has been provided by the affidavits of Ms

Malcolm-Smith and Ms Banuelos, both dated 27 January 2015. [46]	Ms Malcolm-Smith deposes:
(a)       Mr Yao has since left Westpac and is in China and that neither he nor she  had  any  authority  to  bind  Westpac  to  any  form  of  payment proposal and nor was any such representation made, but that it was clear any proposal would need to be approved internally at Westpac;

(b)       That Westpac’s power of sale would be put on hold on a without prejudice basis while discussions were held and that if ongoing debt servicing could be committed to then Westpac could possibly look to

forebear on the mortgagee sale while informally extending Tuscany’s

expired facilities on interest only terms;

(c)       That any proposal for repayment was to be put in writing to allow it to be reviewed formally by Westpac’s credit authorities and that if any such proposal covered ongoing debt servicing and also improved Westpac’s position then it would likely be supported;

(d)       That at the meeting Mr Yao had noted that the proposal as discussed appeared  to  be  a shuffling of debt  that  would  result  in  a loss  to Westpac;

(e)       That if the proposal was accepted and the restructured debt was still not able to be serviced then Tuscany would again be in default and the mortgagee sale of the property would likely recommence;

(f)	That Mr Brill agreed to submit a proposal early the following week. [47]	Ms Malcolm-Smith deposes it was not agreed:
(a)	Tuscany’s facilities would be restructured so that $200,000 would be

repaid in February 2015;

(b)       Reasonable notice needed to be given prior to Westpac acting on its power of sale;

(c)	That the parties would negotiate in good faith;

(d)       That she would telephone Mr Brill if there were some deficiencies in any proposal submitted and nor did she agree to apply Westpac’s internal analyses or documentation, as such did not exist.

[48]	Regarding Mr Brill’s assertions of there being a “committee” within Westpac,

Ms Malcolm-Smith says such was a colloquial term used to describe the senior

managers and the loan management team who review such proposals and that they did not have a set of rules or procedures available for that purpose.

[49]     Ms Malcolm-Smith is firm that no binding agreement of any sort was reached either at or after the January meeting.

[50]     Ms Malcolm-Smith acknowledges receiving Mr Brill’s email on 28 January together with a HOA.  Because Ms Malcolm-Smith needed to take leave from work she referred the matter to a fellow manager.

[51]     Regarding Mr Brill’s proposal she says it was far from acceptable.

[52]     In her affidavit Ms Banuelos advises that when she reviewed the file she was unable to identify any record of Westpac having received a repayment proposal.  By her email to Mr Brill dated 27 March 2014 she wrote:

This is just to follow up on your proposal for the settlement of the debt…

…

Please note to send us your  refinance proposal by no later than 4/4/2014 as we are about to appoint an agent for the sale of the bank’s remaining securities.

[53]     She also noted that Westpac would only defer any recovery action if accrued defaults were cleared and interest payments were maintained.

[54]     She said she did not receive any proposal by 4 April 2014.   She says that having  not  received  any  proposal  as  at  4 April  2014  she  instructed  Westpac’s solicitors to appoint Harcourt’s Taupo to undertake a mortgagee tender program for the property.

[55]     Mr  Brill’s  response  to  Ms  Banuelos  on  29 April  2014  was  that  he  had received no response to his proposal for three months; and he also queried whether Westpac intended to ignore the January meeting or his proposal.

[56]     Ms Banuelos’ email response two hours later recorded, inter alia:

(a)	Tuscany  had  failed  to  ensure  that  its  default  position  did  not deteriorate;

(b)	Westpac had no proposal on file, nor had she received any response to her email dated 27 March 2014;

(c)	Mr Brill had been given a further opportunity to forward a proposal to refinance by 4 April 2014;

(d)	Westpac was not ignoring what was discussed at the January meeting; (e)	That Westpac wished to exercise its power of mortgagee sale.
[57]     That same day Mr Brill forwarded her a copy of his 28 January 2014 email to Ms Malcolm-Smith.  He said he was most distressed to learn that his correspondence of 28 January had been mislaid.  He confessed he had misread the email of 27 March
2014 and requested that “we set the clock back and” start again with Westpac’s credit officers giving full consideration to the HOA.

[58]     Ms Banuelos deposes she had reviewed the HOA and determined it was unsatisfactory because it did not address Tuscany’s present default position and because the time period over which the property were to be sold was too long.  For these reasons she instructed the solicitors to write to Tuscany rejecting the HOA.

[59]     Ms Banuelos denies Mr Brill’s claim that Westpac’s decision to proceed to recover the debt remaining was “based on its unfounded belief that Tuscany had defaulted”  on  an  agreement  made  at  the  January  meeting.    Ms  Banuelos  says Westpac never reached a binding agreement with Tuscany and that it remained clear that any forbearance on pursuing Westpac’s right was informal and without prejudice to the expired Property Law Act notice.

[60]     Regarding Mr Brill’s complaints of the mortgagee sale process, Ms Banuelos

responds:

(a)       Expert real estate sales people were engaged and the property was marketed both nationally and internationally as evidence supports;

(b)       Westpac  considered  carrying  out  repairs  to  the  units  but  did  not because there was no guarantee of obtaining a higher sale price;

(c)       Whilst Westpac was prepared to consider selling the property on a per unit basis the highest tender received was for the property as a single sale;

(d)	The highest tender received was accepted.

Tuscany’s evidence in reply

[61]     In a reply affidavit Mr Brill notes that whilst Ms Malcolm-Smith’s record made immediately after the meeting of 22 February 2014 appears broadly consistent with his own account he believes that it omits, significantly, the offer of the Brill Trust to have all of the revenue from its securities applied to servicing the bank loans throughout the sell down period.  Mr Brill saw this offer as a major concession that took care of the bank’s worries regarding loan servicing.

[62]     Mr Brill says the two major points for discussion was Tuscany’s request for a

24 month period to allow for all five unit sales at a price that would fully repay Westpac, and that Westpac’s further overdraft would provide a safeguard for loss of revenue during repair periods.

[63]     Mr Brill says Mr Yao finally agreed both terms improved certainties for the bank and that he would support them in the proposal to the credit committee.  Mr Brill said Mr Yao expected the committee would accept the whole package but if they were to demure then both parties would agree that Tuscany would speed the sale process and tailor the renovation costs accordingly.

[64]     Contrary to  Ms  Malcolm-Smith’s  indication  otherwise,  Mr  Brill  said  the

entire purpose of the meeting was to discover which payment terms would be both

appealing to the Bank and achievable to Tuscany.   Mr Brill adds that the meeting would have been a total failure if no consensus had been reached on those matters.

[65]     In  his  reply  affidavit  Mr  Brill  reiterates  concerns  that  arose  regarding blockage to access of accounts from which payments could be made – a blockage which Mr Brill said Westpac had undertaken to remedy, but did not.

[66]     Regarding Ms Banuelos’ affidavit Mr Brill comments that the whereabouts of the Westpac file between January and May 2014 is unclear.  He comments that as late as 29 April 2014 Ms Banuelos advised that her version of the file contained no record  of  the  HOA and  that  she  was  clearly  unaware  of  Ms  Malcolm-Smith’s undertaking to unblock the account.

[67]     Mr  Brill  comments  further  that  Westpac  has  not  disclosed  when   it rediscovered Ms Malcolm-Smith’s copy of the HOA or whether it was marked up or contained marginal notes.

[68]     Mr Brill queries the absence of Mr Yao’s meeting notes.

[69]     Mr Brill queries also the reason why Westpac’s solicitor’s letter dated 17

April  2014,  advising  that  the  mortgagee  sale  process  would  proceed,  was  not received until 8 May 2014.

[70]     Regarding Ms Banuelos’ two reasons for her May 2014 decision to reject the repayment proposal plan, she advises the first was because she was unaware that Westpac had failed to unblock the relevant bank account from which payments could be made, and secondly that she was unaware that Tuscany was prepared to shorten the sales period that was preferred by the bank.

[71]     Mr Brill queries Westpac’s failure to respond to the offer of the Brill Trust to purchase the managers unit at full valuation even though Westpac retains a record of that offer.

[72]     Mr Brill queries Westpac’s acceptance of the $500,000 offer price on the tender date and without any attempt to further negotiations.

Westpac’s case

[73]     It is that Tuscany is insolvent and its defences are not substantiated by the evidence.

[74]     For Westpac it is submitted it is in controvertible that Tuscany defaulted on its obligations upon expiry of the term loan; that a Property Law Act notice was served which expired unremedied.

[75]     Westpac’s case is that its officers met with Mr Brill and Ms Combes on 22

January 2014 and that no binding agreement was reached and that a subsequent written proposal submitted to Westpac was unsatisfactory and was rejected.

[76]     Mr Frith for Westpac submits the property was sold by competitive tender upon acceptance of the highest of three tenders received; that the balance sought is the amount short paid on Tuscany’s term loan.

[77]     Westpac’s position is:

(a)       It was not obliged to undertake any form of “essential repairs” or to take any “steps to dispel the potential for ‘leaky’ home stigma” as it was open to Tuscany to maintain the security property itself;

(b)       It was not obliged to “adopt Operational Rules” or take other steps to render the security property fit for retail sale which could amount to significant improvements to it;

(c)       Westpac was not obliged to take any steps to “prepare or present” the security property for sale nor to take steps that would  amount to carrying out routine maintenance and improvement of the security property;

(d)       Westpac’s officers expressed a willingness to consider any proposal that might be put forward for the full repayment of Tuscany’s debt, so long  as  the  interest  arrears  were  remedied  and  Tuscany’s  default

position did not deteriorate; that they did not agree to the terms of a repayment proposal subject only to “credit committee approval” because they were not authorised to do so.

[78]     Westpac’s  case  is  that  on  the  basis  of  this  analysis  there  is  no  binding agreement having been reached at or after the January meeting.   Accordingly, it follows, submits Mr Frith, that if no binding agreement was reached then settlement statements allegedly made by Westpac’s officers at the January meeting did not constitute representations much less those able to be relied upon by Tuscany.

[79]     Mr Frith submits there is no evidence of alleged representations and that the only documentary records of a January meeting are Westpac’s which do not disclose a record of the alleged representations in terms pleaded.

[80]     Regardless, even if there were representations only two of those could have been actionable and those related to Westpac’s ability to enforce its rights arising following the expiry of a PLA notice.  In that regard Mr Frith submits that the clear documentary evidence is that Westpac’s accrued power to commence the mortgagee sale process was held in abeyance “without prejudice” and also that that forbearance was “possible” if ongoing debt servicing could be committed to.  Mr Frith submits that “without prejudice” in this context means that Westpac wished to preserve its ability to effect a mortgagee sale as it saw fit.

[81]     Mr Frith further submits that in any event the proposal submitted to Westpac by Mr Brill did not address ongoing debt servicing in a satisfactory manner and was rejected.

[82]    Regarding Tuscany’s claim that Westpac failed to discharge its duty of reasonable care to obtain the best price reasonably obtainable at the time the property was sold Mr Frith submits:

(a)       There is no evidence that Harcourts marketing campaign was directed to wholesale buyers then resident in Taupo; to the contrary there is evidence the property was marketed internationally.

(b)       Westpac engaged the services of an expert valuation firm and real estate agency, utilising the most expensive marketing schedule;

(c)       There is no evidence of any genuine firm offer having been made for the managers unit and neither was Westpac obliged to pursue negotiations in particular with the Brill Trust as there was no firm offer from which to negotiate;

(d)       Although a forced sale valuation of $680,000 had been provided the sum achieved of $500,000 was, in all the circumstances, the best price reasonably obtainable.

[83]     Westpac’s  evidence  is  that  it  obtained  the  services  of  expert  valuers, experienced and respected real estate agents, having selected the most expensive and expansive marketing schedule suggested by its sale agents; that the security property was marketed in print and internet media, both nationally and internationally; and it was sold by competitive tender with the highest price accepted.

Considerations

[84]     The evidence indicates Westpac engaged the process of discussion with the debtor’s  representatives;  that  the  discussion  endured  for  about  2  hours  whilst payment options were reviewed.   In the course of which clear indications were provided by Westpac’s Mr Yao regarding what might and might not be acceptable to Westpac, for which purpose Westpac agreed to receive a proposal for the consideration of other managers.

[85]     Whilst Westpac says there was no agreement that a month’s notice would be given before further PLA action was undertaken, it was clear from the evidence that there would be a consideration by other Westpac officers of the proposal Mr Brill had undertaken to provide.  It was implicit therefore that notice would be provided to Tuscany in the event its proposal was rejected.

[86]     Westpac through Ms Banuelos wrote to and asked for a refinance proposal when not aware that Westpac already had one.  In absence of a response to her email she, on behalf of Westpac, contacted Harcourts to commence the mortgagee sale process.

[87]     It is clear that as late as 29 April 2014 Ms Banuelos did not have a record of the HOA earlier provided to Ms Malcolm-Smith.   The evidence is not clear as to when that originally provided copy was located again.

[88]     Although Ms Banuelos did not appear to have obtained Westpac’s copy of the HOA as at 29 April 2014, she did on behalf of Westpac write to Tuscany in May providing reasons for rejection of the HOA.

[89]     Mr Frith challenges Mr Brill’s recollections of the January meeting noting that although Mr Brill reported making extensive notes of that meeting, those cannot now be found.  On the other hand Westpac has a record in the file note made by Ms Malcolm-Smith wherein no mention is made of Westpac providing one month’s notice before continuing with its mortgagee sale process.

[90]     As Mr Frith acknowledges there is considerable dispute about what was and what was not said at that January meeting.  He believes Tuscany’s real concern is about the process that Westpac adopted after the January meeting and not so much about the terms of Tuscany’s proposal.  It is Mr Brill’s evidence that when he sent the proposal it was agreed Westpac would contact him if any issues were raised regarding its terms.  Westpac denies this and Ms Malcolm-Smith’s record does not support Mr Brill’s claim.   Mr Frith urges that if credibility issues arise then those ought, in the context of the present hearing, be resolved by reference to the written record.

[91]     Regarding Mr Brill’s claims that access to his bank accounts was blocked by Westpac, Mr Frith suggests that Mr Brill should have tried other methods than by email to bring the blockage to the attention of Westpac.

[92]     Central to Westpac’s position is Ms Banuelos’ email to Mr Brill dated 27

March 2014.  That said the Bank would only defer its recovery action if debts were cleared and that if Tuscany wished to refinance those debts it was to confirm timeframes involved and the level of funding that would be available to Tuscany. She concluded by requiring Tuscany’s refinance proposal no later than one week later as agents were about to be appointed to sell the property.

[93]     Mr Frith submits that the reference to “refinance proposal” is in reality a

request for repayment.

[94]     Ms Banuelos’ email dated 29 April complained there had been no response to her earlier email.  She required a satisfactory proposal to be forwarded to Westpac if it was to consider deferment of sale action.   One week later Westpac’s solicitors emailed Mr Brill and advised that the proposal contained in the HOA (sent on 28
February 2014) was rejected.

[95]     It is Westpac’s position it has considered and it did reject the HOA.   In summary Westpac’s position is that there was no agreement and therefore no breach occurred, but Westpac did review Mr Brill’s proposal as it said it would, albeit later than it said it would.

[96]     Westpac rejects assertions that its bank officers indicated they would accept those terms, and there is no documentary evidence to indicate otherwise.

[97]     As  to  what  occurred  at  the January meeting the Court  should,  Mr Frith submits, accept Ms Malcolm-Smith’s report and not accept that account of Mr Brill where that varies from the Westpac record.

[98]     Mr Frith submits there was no agreed process and therefore there was no agreement and in those circumstances no claim of a set off can arise.  Likewise if there was no binding agreement any claim that Westpac is estopped from relying on an expired PLA, must fail.  In any event, it is Westpac’s position that claims that it would provide one month’s notice before reactivating the mortgagee sale process, amounts only to a representation of a forbearance provided on a “without prejudice”

basis.  Also Westpac says that because it provided Mr Brill with another opportunity to submit another refinance proposal, it was not unconscionable for the bank to act as it did by instructing real estate agents to proceed with the sale.

[99]     In response to Tuscany’s claim of losses incurred by the mortgagee sale process utilised, Mr Frith submits there was no evidence to support claims of detriment suffered.  He submits other claims of failure on behalf of Westpac were contrary to case authority regarding the sale obligations of a mortgagee.

[100]   Regarding Mr Brill’s claims that the Brill Trust was prepared to purchase the managers  unit  and  at  least  one  other  residential  unit  on  the  property,  Mr  Frith submits there is no record of a “firm offer”, and that nothing less could have obliged Westpac to pursue that offer further.

Conclusions

[101]   The evidence is that Tuscany has no significant debts other than that claimed by Westpac.   Therefore its insolvency is not an issue beyond those  matters for consideration today.

[102]   Even  if  a  company  is  considered  to  be  insolvent,  the  Court  retains  a discretion to refuse making an order for liquidation.

[103]   Issues between the parties focus on the January meeting and about whether an agreement was reached and if it was then it is about the extent of those terms agreed to.

[104]   Westpac’s position is its written account should be preferred.  Ms Foster for Tuscany urges caution with adopting that review of matters.  She points out that two other bank officers also received Mr Brill’s HOA and there is no report from either of them.

[105]   Ms Foster invites the Court to view cautiously the aforesaid April email of

Ms Banuelos. The Court agrees there is proper reason to do so.

[106]   The opening sentence of that email notes:

This is just to follow up on your proposal for the settlement of the debt…

[107]   Then later:

I note that you may have forwarded a proposal to the prior manager Justine
Malcolm-Smith and to Chris Yao.

[108]   The  email  then  in  its  concluding  paragraph  requests  the  sending  of  a refinance proposal by 4 April.

[109]   It is clear Ms Banuelos had not sighted the 28 January HOA.  Ms Foster is correct in her assessment that the frustrations contained by her email were indeed the bank’s responsibility.  Mr Brill sent the proposal.  He says it incorporated what he says would be acceptable to Westpac.  Ms Foster asks, what is the point of a lengthy meeting except to discuss what might work for both parties.

[110]   Clearly other managers had to view and approve that proposal but it is clear that  any  decision  upon  it  should  have  been  made  in  the  context  of  what  was discussed which included, according to Mr Brill, reference to mortgage service requirements being met by the Brill Trust.

[111]   In an initial report of Ms Malcolm-Smith dated 13 February 2014 she noted:

He has mentioned that remedial works and forming a proper body corporate should be undertaken prior to a sale to maximise return – we can’t really provide any further funding, but forbearance terms that placed existing debt on interest only (if he could service) and sell the property would be ok (tho this is not quite what he is proposing).  An IAP is going to be required no matter what we do, and total time for any work after may be too long, with the Taupo market not looking to improve in the near future, position could deteriorate further.

[112]   The Court agrees with Ms Foster that this account does not suggest any response to the January proposal, and indeed appears to indicate support for a proposal for a sale of the property by Tuscany.

[113]   But, Mr Brill never received a response.

[114]   Ms Banuelos’ email for a proposal seems to take a different approach, for it is clear at the time that she had not sighted that document received by three other bank officers on or about 28 January.  She said she was ignoring what was said in January, but how could she do that without knowing at all what had been sent.

[115]   Then it appears from the evidence that Ms Banuelos had on her own and without discussion with anyone and certainly without reference to any other person, made a decision declining the proposal which decision Mr Brill did not receive until
29 April.

[116]   Ms Foster submits the bank’s behaviour as ‘wanting’.

[117]   In the Court’s view the truth of what happened cannot be determined by file notes or affidavits but  ought properly to be examined upon the hearing of oral evidence.

[118]   The liquidation application before the Court does not provide an appropriate opportunity for considering that evidence.

[119]   If the Court is to refuse the liquidation application then it must accept there is a clear and persuasive argument in opposition to claims that a debt is due. The Court is not required to determine that disput, merely that it believes that opportunity for determination ought to be provided.

[120]   While   this   conclusion   probably   renders   further   discussion   about   the mortgagee  sale  process  redundant  for  present  purposes,  the  Court  makes  the following observations:

(a)       It appears accepted that a mortgagee has no obligation to repair a property for sale.   In this case there is evidence that a debtor and a related company were prepared to prepare the property for sale at a higher value;

(b)	That they had advised Westpac further time would be required and

earlier on Westpac’s officers were aware of this.

[121]   Westpac says it was under no obligation to consider offers of purchase by the Brill Trust because of uncertainty about those.  No further conclusion needed to be reached in that regard but some enquiry could be made about why that option was not pursued further, particularly having regard to the very significant shortfall which occurred in the outcome of the mortgagee sale.

Judgment

[122]   The application for liquidation is dismissed.

[123]   Westpac shall pay Tuscany’s costs on a 2B basis.   If counsel cannot agree

upon these then brief submissions are to be filed.

[124]   The Court considers it appropriate to make orders regarding the filing of proceedings for a determination of matters in issue.  Counsel are to file memoranda within 10 working days of receipt of this judgment reporting on their discussions
regarding their suggestions for orders to be made.

Associate Judge Christiansen