In the December 1999 issue of Banking Law Update we reported that the High Court had found Bank of New Zealand ("BNZ") to have incorrectly given a Property Law Act 1952 notice when enforcing a mortgage. The Court of Appeal has now reversed that decision and struck out the Adsetts' claim that BNZ wrongfully exercised its power of sale under the mortgage.

To recap the facts, BNZ had lent money to the Adsetts personally and also to their company. A debenture and a personal guarantee secured the company loan, and the Adsetts' personal loan was secured by an all obligations mortgage over the Adsetts' home. When the Adsetts' company defaulted in repayment, BNZ made demand on the Adsetts under the guarantee. When payment under the guarantee was not made BNZ appointed receivers to the company under the debenture, and served on the Adsetts a Property Law Act notice for the full amount owing by them, before exercising its power of sale as mortgagee.

The Adsetts argued that BNZ should have issued a s 92 notice in relation to the initial default by their company on the basis that it was a default in the payment of money secured by a mortgage. The Court of Appeal rejected that argument on the language of the statute. The mortgage only secured money owed by Adsett, not money owed by their company for which the Adsetts had only become liable to pay upon exercise of BNZ's rights under the guarantee. Accordingly, Adsetts' claim was struck out.

This is a general summary only and should not be taken as a substitute for specific advice.

Russell McVeagh, law firm
Web site: Russell McVeagh

March 2001