Mortgagee sale: Hart v. ANZ

The forced sale of properties owned by high profile Auckland barrister Barry John Hart left him with a $20.5 million shortfall.  The High Court dismissed his claim that ANZ National sold the properties at an undervalue.

Mr Hart garnered considerable publicity in his campaign against ANZ Bank alleging the bank failed to act properly in its forced sale of substantial landholdings on Highway 16 in west Auckland.  At the time, Mr Hart owed ANZ in excess of $30 million with interest accruing at $200,000 a month.

The court was told ANZ took action after loan payments fell into arrears.  A “stand still” arrangement gave Mr Hart six months to find a buyer or buyers for the properties.  After that the Bank proceeded with mortgagee sales.

Mr Hart was highly critical of the Bank’s forced sale process, claiming the properties were sold at a gross undervalue.  Properties he claimed were worth in the region of $29 million were sold for $8 million.

Associate Judge Abbott said a mortgagee is required to take reasonable care in the sale process to obtain the best price reasonably obtainable at the time of the sale.  There is no obligation to postpone a sale in the hope of a better price later, or to break up assets and sell in a piecemeal fashion.  Specialist advice should be taken in selling assets with unique characteristics.  Descriptive advertising is required and must reach the largest possible number of potential purchasers.

He ruled that ANZ Bank had acted properly in conducting the sales.  It sought competitive tenders from three real estate agencies asking them to highlight their expertise in selling properties of the type in question and seeking their advice on the best marketing strategies.  The Bank undertook a $55,000 marketing programme spread over six weeks.  The court was told 116 people registered an interest.   Each was invited to tender for some or all of the properties on offer.

Mr Hart’s main criticism centred on the sale prices.

Evidence was given that ANZ Bank first obtained valuations from professional valuers Darroch.  They valued the three main farming blocks being sold at $14.3 million (market value) and $10.1 million (forced sale value).  They in fact sold for some $8 million.

Associate Judge Abbott said the prices obtained were not so widely different from the Darroch forced sale valuation to suggest the sale process was inadequate.  The advice ANZ received was that $8 million represented the best they could receive at the time.

The court was told forced sale prices commonly range at a discount of 26%-30% below market prices, but can reach discounts of up to 40%.  The discount in this case was 44%.

He dismissed Mr Hart’s claim that the properties were worth $29 million; a valuation obtained from valuers Colliers International in 2010.  This valuation was two years old and was based on an assumption that the farm blocks could be subdivided into residential lifestyle blocks. A subsequent application for a zoning change had been unsuccessful.

Hart v. ANZ National Bank – High Court (29.10.12)

12.040

Leaky homes: "Byron Ave"

In a landmark ruling with huge costs for ratepayers, the Supreme Court has extended council liability for negligent building inspections to include commercial buildings.  The previous legal view was that council liability extended only to residential homes.

Changes to the building code in the 1990s coupled with poor construction techniques has resulted in an avalanche of legal claims for the cost of remedial work on leaky buildings.  Often, a local authority is the only solvent party left standing as property owners sue builders, sub-contractors and the local council for damages.  Potential council liability has arisen where a local authority acted as certifier, signing off code compliance certificates stating that the building does comply with the building code.

Councils have strongly resisted liability.  But a string of New Zealand cases over previous decades have established a rule that owners of residential houses can sue councils for negligence.

A novel question arose with a Takapuna leaky building, being a “mixed use” development: a 23 level building known as Spencer on Byron containing a hotel on the lower floors and residential apartments on the upper floors. 

North Shore City argued there were strong policy reasons to limit council liability to residential homeowners only: homeowners lacked the sophistication to look after their own interests; by contrast, owners of commercial properties were not so vulnerable.

The Supreme Court ruled there were no policy reasons to stop council liability being extended to cover “mixed-use” buildings and purely commercial buildings.  It said not all homeowners are naïve; the wealthy and commercially sophisticated also own homes.  And not all commercial property owners are sophisticated; a first time business owner purchasing a corner dairy in a country town may well lack any business experience.

North Shore City argued the extension of liability to commercial premises will transfer millions, if not billions, of dollars in repair costs from building owners to council ratepayers.  The Supreme Court said this argument overstates the position: ratepayers will pick up any residual liability, but before that councils with insurance cover for negligence will get compensation from their insurer and they will also be earning income in fees for ongoing building inspection work.

Body Corp. No. 207624 (Byron Ave) v. North Shore City – Supreme Court (11.10.12)

12.041