ANZ Bank New Zealand Limited (Formerly ANZ National Bank Limited) v Calvert
[2013] NZHC 3169
•29 November 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-5210 [2013] NZHC 3169
BETWEEN ANZ BANK NEW ZEALAND LIMTED (formerly ANZ NATIONAL BANK LIMITED)
Plaintiff
ANDJOHN BARRY CALVERT Defendant
Hearing: 25 September 2013
Counsel: D T Broadmore for Plaintiff
P R Cogswell for Defendant
Judgment: 29 November 2013
JUDGMENT OF KATZ J
This judgment was delivered by me on 29 November 2013 at 3:30 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Buddle Findlay, Auckland
Cogswell Law, Auckland
ANZ BANK NEW ZEALAND LIMTED v CALVERT [2013] NZHC 3169 [29 November 2013]
Introduction
[1] John Calvert provided a guarantee to the ANZ Bank New Zealand Limited (“Bank”) of all amounts payable to the Bank by Northland Herbs Limited (“Northland Herbs”), pursuant to certain loan agreements. Mr Calvert is the sole director and shareholder of Northland Herbs.
[2] On 11 December 2012, the Bank obtained summary judgment against
Mr Calvert, by default, pursuant to his obligations under that guarantee.
[3] On 11 March 2013, Mr Calvert applied for that default judgment to be set aside. Associate Judge Doogue dismissed that application,1 finding that none of the arguments advanced by Mr Calvert by way of defence to the Bank’s claims had merit. Mr Calvert now seeks to review Associate Judge Doogue’s decision.
[4] I must first determine whether I have jurisdiction to review the Associate Judge’s decision. If I do, I will then consider the substantive merits of the decision. First, however, I will outline the relevant factual background.
Factual Background
[5] On or about 23 April 2007, the Bank agreed to provide two loan facilities to Northland Herbs (“Initial Loans”). As security for the Initial Loans, on 3 May 2007, the Bank obtained a guarantee from Mr Calvert of all amounts payable to the Bank by Northland Herbs (“Calvert Guarantee”). Mr Calvert acknowledges that he signed the Calvert Guarantee, which was a continuing guarantee for the payment of all amounts Northland Herbs may at any time become liable to pay to the Bank. However, unbeknownst to the Bank, the document was not correctly witnessed and accordingly could not take effect as a deed, as originally intended by the Bank.
[6] On 27 May 2009, following repayment of the Initial Loans, the Bank made two further loan facilities available to Northland Herbs (“Loan Agreements”). As
further security for the Loan Agreements the Bank obtained:
1 ANZ Bank New Zealand Ltd v Calvert [2013] NZHC 1624.
(a) a mortgage over Northland Herbs’s property at Ohaeawai (“Ohaeawai
Property”); and
(b)a guarantee from a company called CFNZ Estates Limited (“CFNZ”) of all amounts payable to the Bank by Northland Herbs (“CFNZ Guarantee”). Mr Calvert is the sole director and shareholder of CFNZ. In support of the CFNZ guarantee, the Bank took a mortgage over CFNZ’s property at Hot Water Beach (“Hot Water Beach Property”).
[7] On 9 September 2011, Northland Herbs was placed into liquidation. This was an event of default under the Loan Agreements. As a result, the Bank served the following notices under the Property Law Act 2007 (“PLA”):
(a) in respect of the Ohaeawai Property a s 119 notice was served on Northland Herbs as the registered proprietor and s 122 notices were served on Mr Calvert and CFNZ as guarantors of Northland Herbs;
(b)in respect of the Hot Water Beach Property, a s 119 notice was served on CFNZ, as the registered proprietor.
[8] A shortfall remained owing under the Loan Agreements after sale of the Ohaeawai and the Hot Water Beach Properties. The Bank accordingly pursued Mr Calvert pursuant to his personal guarantee, culminating in summary judgment being entered against Mr Calvert by default.
Do I have jurisdiction to review the Associate Judge’s decision?
[9] The first issue I must determine is whether I have jurisdiction to review the
Associate Judge’s decision. The relevant provision is s 26P of the Judicature Act
1908, which provides:
26P Review of, or appeals against, decisions of Associate Judges
(1) Any party to any proceedings who is affected by any order or decision made by an Associate Judge in Chambers may apply to the Court to review that order or decision and, where a party so applies in accordance with the High Court Rules, the Court—
...
(a) Must review the order or decision in accordance with the
High Court Rules; and
(b) May make such order as may be just.
(2) Any party to any proceedings may appeal to the Court of Appeal against any order or decision of an Associate Judge in those proceedings (other than an order or decision made in Chambers).
(3) Section 66 of this Act shall apply to any appeal under subsection (2)
of this section.
[10] Accordingly, where a decision is made by an Associate Judge in chambers, the procedure is to apply for a review of that decision. All other decisions made by Associate Judges are to be dealt with by way of appeal to the Court of Appeal.
[11] The Bank has raised the possibility that this Court does not have jurisdiction to hear and determine Mr Calvert’s application for review, on the basis that Associate Judge Doogue’s decision was arguably made in open court, rather than in chambers. If so, an appeal would be the appropriate course.
[12] Determining whether the decision was made in chambers or open court is not entirely straightforward. An interlocutory application for which a hearing is required must be heard in chambers unless a Judge otherwise directs.2 However, every
application for summary judgment must be heard in open court.3
[13] The Bank referred to the following matters as indicating that the Associate Judge’s decision to dismiss Mr Calvert’s application to set aside the default summary judgment may have been a decision made in open court:
(a) The Court of Appeal has recently heard at least one appeal of an Associate Judge’s decision to not set aside a summary judgment.4 (I note that in that case, however, the issue of whether the decision appealed from was made in chambers or open court does not appear to
have been raised or argued).
2 High Court Rules, r 7.34(1).
3 Ibid, r 7.36.
4 Jain v Kiwibank [2012] NZCA 242.
(b)In Garry Denning Ltd v Wright5 Barker J considered whether Masters had jurisdiction to determine applications to set aside summary judgments. He determined that they did. He commented that the power to set aside a summary judgment is a power of the Court “in relation to an application for summary judgment” and “incidental” to the grant of summary judgment. (As noted above, every application for summary judgment must be heard in open court.)
[14] On the other hand, support for the view that the Associate Judge’s decision was an interlocutory one, heard in chambers (in the absence of a direction to the contrary) includes that:
(a) In Westpac Banking Corporation v Wayland,6 Master Gambrill held that “in the summary jurisdiction the application [to set aside a judgment] is technically an interlocutory application but nevertheless it is determined by a judgment of this Court”.7 Her Honour observed
that:8
... the Court within its overriding jurisdiction has always recognized that a final judgment could and may be set aside but that step to apply to have it set aside may not be an integral part of the steps of procedure that have produced the judgment.
(Emphasis added)
(b)In Dominion Finance Ltd (in liq) v Young,9 an application to set aside a default judgment was held to be an interlocutory application,10 even if it appeared to have been heard in open court.11
(c) Finally, in Nottingham v Registered Securities Limited (in liq)12 the
Court of Appeal held that a Master’s decision refusing to set aside a
5 Garry Denning Ltd v Wright [1989] 1 NZLR 45 (CA).
6 Westpac Banking Corporation v Wayland (1992) 6 PRNZ 75 (HC).
7 At 77.
8 At 78.
9 Dominion Finance Ltd (in Liquidation) v Young (1993) 7 PRNZ 168 (HC).
10 At 173.
11 At 172, referring to Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA): “[T]he place and the dress do not alter the nature of the jurisdiction (again subject to the question of a direction being made for hearing in open Court)”.
12 Nottingham v Registered Securities Limited (In Liquidation) (1998) 12 PRNZ 625 (CA).
summary judgment was made in chambers and that the only way in which that decision could be challenged was a review by a High Court Judge, rather than in the Court of Appeal.13 In that case, the Court of Appeal heard the appeal only because of the exceptional circumstances of the case and because both parties consented to having it heard there.
[15] The Court of Appeal in Nottingham has accordingly expressly determined that an application to set aside a summary judgment is heard in chambers. There appears to be no express Court of Appeal authority to the contrary. In particular, in Jain v Kiwibank, the Court of Appeal did not consider Nottingham and the issue of whether the relevant decision had been made in open court or chambers was not argued.
[16] In my view Nottingham remains good law. I see no basis for distinguishing it in this case. It follows that the application to set aside was an interlocutory application. As there was no direction for it to be heard in open court, it was heard in chambers. It is therefore appropriate for this Court to hear Mr Calvert’s review application.
Application for review
[17] A review of an Associate Judge’s decision proceeds by way of rehearing14
and, therefore:15
(a) Mr Calvert bears the burden of persuading the Court that the Associate Judge’s decision was wrong. Only if I consider the Associate Judge’s decision to be wrong should it be interfered with.
(b)Mr Calvert should, therefore, show that the Judge acted on a wrong principle, that the Judge failed to take into account some relevant
13 At 628.
14 High Court Rules, r 2.3(4).
15 Teinangaro v Fastway Couriers (NZ) Limited HC Napier CIV-2009-441-751, 25 November 2011 at [23].
matter or took into account some irrelevant matter, or was plainly wrong.
(c) As the decision being reviewed is a chambers decision without oral evidence, the High Court on review is not required to defer to the decision of the Associate Judge. Accordingly, if I conclude that the Associate Judge was wrong, I should say so “forthrightly”.
[18] Mr Calvert’s application for review relies upon the same alleged defences that were raised in the original application before the Associate Judge being that:
(a) the Calvert Guarantee is not enforceable because: (i) it was not executed as a deed;
(ii) there was no consideration;
(iii) it does not secure the Loan Agreements; and
(b)before selling the Hot Water Beach Property, the Bank was required to serve Mr Calvert with a notice under s 122 of the PLA and Mr Calvert has suffered prejudice because of its failure to do so.
[19] I address each proposed ground of defence below, to determine whether Mr Calvert has established that the Judge erred in concluding that none of these matters gave rise to a substantial ground of defence.
Is it reasonably arguable that the Calvert Guarantee is not enforceable because it was not executed as a deed?
Mr Calvert’s submissions
[20] The guarantee was intended to operate as a deed. However, it was not executed in accordance with the formalities applying to deeds, because (unbeknownst to the Bank) Mr Calvert’s solicitor witnessed the document “remotely”, as Mr Calvert was overseas at the time.
[21] Mr Calvert submitted that the failure to execute the guarantee as a deed was a fundamental departure from both the terms of guarantee, which repeatedly used the word “deed”, and the letter of instructions to his solicitor. He submitted that the significance of the fact that the document was not signed as a deed, as the Bank required, is that it is now not clear whether:
(a) the Bank’s intention was to accept a simple contract of guarantee in substitution for its clear requirement that it required the guarantee to be signed as a deed; or
(b)the guarantee falls away and is of no effect, as it was not signed as a deed.
[22] Mr Calvert submitted that the Bank had specified very clear terms what was required to be done. The guarantee was to be signed as a deed. There is no reference in the document to it taking effect as a simple contract of guarantee if the statutory requirements for execution of a deed were not met. Evidence from the Bank would be required on this issue, namely as to whether the Bank’s intention would be that the guarantee, if failing as a deed, would “default” to a simple guarantee.
The Associate Judge’s decision
[23] The Associate Judge addressed this issue at some length at [10] to [20] of his judgment. He correctly summarised the legal principles relevant to ascertaining the intention of the parties (at [13] and [14]) and then carefully analysed the intentions of the parties (at [15] to [20]). His Honour concluded as follows:
[18] My conclusion is that it is unlikely that the parties intended that the failure to correctly execute the document as a deed would result in the bank lending money without the protection of the guarantee to which it could have recourse in the event of a default by the borrowing company. There is no reason why it should be supposed that that is the view that the parties took. They might well have understood that the bank might have diminished rights if the document was not executed as a deed. But there is no reason to suppose that the issue of the execution of a deed or not was important to the defendant, or that there would be any reason why if the document was not executed as a deed, he should find himself in the fortunate circumstance that he had no liability at all under the guarantee.
[19] The outcome for which the defendant contends is not a rational one. It involves an acceptance of the proposition that it was logical to expect that a possible failure to obtain execution as a deed - an outcome which was favourable rather than unfavourable to the guarantor - should not just result in diminished rights to the bank but should have the more radical consequence of the guarantor being entirely discharged from responsibility.
[20] Mr Cogswell suggested that the issue of what the parties’ intentions were could only be determined once the court had heard evidence at trial. He did not say what that evidence would be. He did not indicate the subject- areas where such evidence would add to what the court already has available to it to assist in interpretation of the contract. His client, who has given evidence in affidavit form, has not provided any evidence, even in summary, of matters that he considers would be influential in the process of ascertaining the contractual intentions of the parties to the guarantee. Nor has an indication been given of the source of the evidence that would be put before the court at trial if such were ordered.
Discussion
[24] Mr Calvert has failed to persuade me that the Associate Judge’s conclusion on this issue was wrong. On the contrary, I find his reasoning compelling. A guarantee does not need to be in deed form in order to be valid. Where consideration is given, the guarantee only needs to be recorded in writing and signed by the guarantor (and the signature does not need to be witnessed).16
[25] A guarantee expressed to be a deed will not be unenforceable merely because it is not executed as a valid deed. In Ryan & Ors v Mason17 the agreement provided that “this document is executed as a deed”. Although the agreement was not a valid deed, the High Court concluded that the parties intended to be bound once the agreement was signed and:18
To conclude otherwise could risk undermining the certainty of a contract, which usually dictates that a signature on a written agreement indicates acceptance of the terms of that agreement, subject to a few very limited exceptions, such as a plea of non est factum, which is rightly not pleaded here. It is also relevant that in this case there does not appear to have been any particular reason (save for clause 15.5) why the partnership agreement had to be executed as a deed, as opposed to a simple contract.
16 Austin v Southland Building Society [2012] NZCA 337 at [15], s 2 Contracts Enforcement Act
1956 (for guarantees coming into operation after 1 January 2008 s 27 of the Property Law Act
2007 applies).
17 Ryan v Mason [2012] NZHC 3105.
18 Ibid, at [45].
[26] Nor, in my view, would evidence as to the Bank’s subjective intentions advance matters. Interpretation issues are addressed on an objective basis:19
The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean ... Evidence is not relevant if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean, or what their negotiating stance was at any particular time.
[27] It is not, in my view, seriously arguable that the parties would have objectively intended that the consequence of any deficiency in execution of the guarantee as a formal deed would be that Mr Calvert was entirely absolved from his commitment to the Bank to guarantee the borrowings of Northland Herbs. Such an interpretation would defy commonsense.
[28] The objective of the parties was for the Bank to provide the Initial Loans to Mr Calvert’s company (Northland Herbs). Before providing the Initial Loans, the Bank required an enforceable guarantee from Mr Calvert. Entering into the Calvert Guarantee was a condition of the Initial Loans. The purpose of the Calvert Guarantee was to provide the Bank with security in the event that Northland Herbs defaulted on its obligations.
[29] The Calvert Guarantee was in writing and signed by Mr Calvert. Mr Calvert did not dispute that he intended to be bound by it. In return for the guarantee, the Bank provided the Initial Loans. I accept the Bank’s submission that consideration is an important signal that the parties intended to be bound by the contract.20
[30] It would make no commercial sense for the Bank to have intended the Calvert Guarantee to be unenforceable if not executed as a deed. The Bank clearly intended the Calvert Guarantee to be executed as a deed but, objectively, the parties must have also intended that, if the document was signed by Mr Calvert but not executed as a
deed, it would nevertheless be valid and enforceable.
19 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC) at [19].
20 Laws of New Zealand Contract [62] pp 279 – 294, citing Antons Trawling Co Ltd v Smith [2003]
2 NZLR 23 (CA) at [93], pp 52-53.
[31] For these reasons I am left in no doubt that the Associate Judge correctly concluded that the parties cannot have intended that if the Calvert Guarantee was not executed as a deed it would be of no effect and could not be enforced as a contract.
Is it reasonably arguable that the Calvert Guarantee is not enforceable because there was no consideration for it?
Mr Calvert’s submissions
[32] The Calvert Guarantee is dated 3 May 2007. The Loan Agreements in respect of which recovery is now sought were entered into in 2009, following repayment of the Initial Loans. Mr Calvert submitted that the Calvert Guarantee did not operate to secure the two new advances in 2009, as fresh consideration was required in order for the guarantee (operating as a simple contract) to secure any new advances.
The Associate Judge’s decision
[33] The Associate Judge undertook a careful analysis of this issue (at [21]-[32]). His Honour concluded that the Calvert Guarantee was supported by consideration and that further consideration was not required for the further advances in 2009:
[29] Mr Broadmore for the plaintiff further referred to the fact that the guarantee contained the following provision:
[the guarantee]
(c) Will operate irrespective of any intervening payment, settlement of account or other matter or thing whatsoever, until a release has been signed by the Bank and delivered to that Guarantor,
(d) Despite anything in this deed is a continuing obligation, separate and independent from each Guarantor’s other obligations under this deed, and survives payment of the Guaranteed money and termination or release of this deed.
[30] I accept that the argument that Mr Broadmore has advanced is persuasive. I therefore conclude that he was correct in submitting that the fact that Northland Herbs had repaid the first loan did not discharge the guarantee.
[31] Consideration was required to support the contract when it first came into existence. Unless there was some specific provision providing for extinction of the contract unless further consideration was given, there is no reason to question that the contract remained in existence.
[34] Again, I accept the Bank’s submission that the Associate Judge did not err in his analysis. The Calvert Guarantee did not cease to become valid and binding (and further consideration was not required) when the Initial Loans were repaid. It was “a continuing guarantee”21 in respect of any loans advanced to Northland Herbs by the Bank, which operated irrespective of any intervening payment, settlement of account or other matter or thing whatsoever, until a release had been signed by the Bank and delivered to Mr Calvert.22
[35] Mr Calvert guaranteed all future loans made to Northland Herbs pursuant to the terms of the Calvert Guarantee. Accordingly, there was no need to provide any further consideration to Mr Calvert to secure the Loan Agreements in 2009.
Is it reasonably arguable that the Calvert Guarantee does not secure the Loan
Agreements?
Mr Calvert’s submissions
[36] Mr Calvert advanced a related argument, which was that the Loan Agreements in 2009 were not secured by the Calvert Guarantee because the Calvert Guarantee was not expressly listed as security in the Loan Agreements.
[37] Mr Calvert’s submission was based on the fact that the Bank made it a requirement of granting the 2009 loan that security was to include “All existing and future securities from the Customer to the Bank secure the Loan, interest and other amounts payable under this agreement”. Mr Calvert argued that, as a matter of contractual interpretation, a guarantee from him could not be aptly described as a security “from the Customer”. The relevant customer, he submitted, was Northland Herbs.
The Associate Judge’s decision
[38] The Associate Judge addressed this issue at [33] to [41] of his Judgment. He noted that this argument also involves the proposition that fresh consideration was required for each further advance if the guarantee was to apply and that he had already rejected that argument. However, his Honour also set out other reasons why this particular argument is incorrect, as follows:
[34] The submission for the defendant is based upon the fact that the Bank made it a requirement of granting the 2009 loan that security was to include “All existing and future securities from the Customer to the Bank secure the Loan, interest and other amounts payable under this agreement”. It was said that as a matter of contractual interpretation a guarantee from the defendant could not be aptly described as a security “from the Customer”. I do not consider that the evidential value of such a statement, when considering the question of whether the bank was relying upon the guarantee which the defendant gave, will be correctly assessed by interpreting the provision as though it were a contractual term. There is no reason to suppose that the document represented a considered statement, the probable meaning of which was that the bank would no longer be relying upon the personal guarantee. It seems more likely that the bank was attempting to state that all the existing securities which the customer had provided to the bank would continue to apply. There is no reason why the statement should be read down in such a way that it was to be understood as being restricted to securities which [Northland Herbs] itself had executed. It was perfectly capable of applying to guarantees which the customer, [Northland Herbs], had procured third parties to provide on its behalf.
...
[39] There is an additional reason why the argument cannot prevail. First, the loan agreement was a bipartite agreement between the bank and [Northland Herbs]. It was describing as between the bank and [Northland Herbs] what the security position would be. While it did refer to the agreement that all existing securities “from the customer” were to apply, it said nothing about the position as between the bank and the guarantor.
[40] Because the guarantor was not a party to that agreement, it is not a realistic interpretation to place on the agreement that its terms amounted to an implied release of the existing guarantee. The second point is that there was no need for the bank to make any reference to the guarantee. The terms of the bank’s contract of guarantee with Mr Calvert were, as I have already noted, to the effect that it was a continuing guarantee and that it was irrevocable.
[39] Again, I find no fault in the Associate Judge’s reasoning and accept the Bank’s submissions that there was no need for the Loan Agreements to refer to the Calvert Guarantee as:
(a) Mr Calvert guaranteed the due payment by Northland Herbs of the “Debt” to the Bank.23 The Debt was “all amounts of any nature which [Northland Herbs] is or may become liable ... to pay to the Bank”.
(b)It was a continuing guarantee that was irrevocable and operated until a release had been signed by the Bank and delivered to Mr Calvert.24
No such release was ever provided.
(c) Mr Calvert was not (personally) a party to the Loan Agreements and any reference (or lack of reference) in the Loan Agreements to his guarantee has no bearing on the validity of his guarantee.
Is it reasonably arguable that before selling the Hot Water Beach Property the
Bank was required to serve a notice under s 122 of the PLA on Mr Calvert?
Mr Calvert’s submissions
[40] The Bank did not serve a s 122 PLA notice on Mr Calvert in relation to the Hot Water Beach property. Mr Calvert submitted that it was required to do so as, through his guarantee of Northland Herbs’s obligations to the Bank, he was exposed to the Bank through CFNZ’s separate guarantee of Northland Herbs’s obligations to the Bank. Should CFNZ not meet Northland Herbs’s obligations to the Bank, then the Bank was entitled to look to Mr Calvert.
[41] Section 122 of the PLA provides that:
(1) This section applies if, under a mortgage over land,-
(a) the mortgagee or receiver proposes, by reason of a default, to exercise a power to sell the mortgaged land; and
(b) the mortgagee proposes to recover any deficiency on the sale from a former mortgagor or a covenantor.
(2) The mortgagee or receiver must serve notice of the intentions referred to in subsection (1) on the former mortgagor or covenantor concerned at least
20 working days before the exercise of the power of sale ...
[42] Mr Calvert submitted that, although he is not a guarantor of CFNZ’s obligations to the Bank, he is a person who has agreed to pay money or perform obligations “secured by the mortgage” and is therefore a “covenantor”.25 Those obligations include the payment of all amounts owing to the Bank by Northland Herbs. The section does not specify “that” mortgage, rather it refers to the obligations being those secured by the mortgage.
The Associate Judge’s decision
[43] The Associate Judge’s analysis of this issue was as follows:
[46] The wording of the section seems to limit cases where a notice under s
122 is required to cases where the person to be served has agreed to pay money etc secured by the mortgage.
[47] I consider that Mr Broadmore was correct when he submitted that Mr Calvert’s obligations arose out of his guarantee and were not obligations secured by the mortgage. While Mr Calvert is indeed a guarantor, he did not guarantee the obligations which were secured under the mortgage which CFNZ granted in favour of the Bank.
[48] A brief consideration of the underlying policy behind the section reinforces that that is the correct approach to take when interpreting the section.
[49] Section 122 does not generate any rights on the part of the person to whom the notice is to be served. The function of the notice is to alert persons who may have rights in the matter to take steps for their protection.
[50] It is clear that any person who had guaranteed the CFNZ mortgage would have the right on discharging the liability to require a creditor to make available the security in the form of the mortgage. The newly subrogated guarantor would then be able to make decisions including whether the power of sale contained in the mortgage was to be exercised at all or whether its exercise ought to be deferred. The important point, though, is that such a person could intervene as a matter of right.
[51] It is correct that, in theory, strangers to the mortgage could seek to arrive at an agreement with the security holder. If they were able to persuade the bank that it was in its interests to assign the security then it might be that
25 Property Law Act 2007, s 4.
such a person would find him/herself in the position of controlling the exercise of the power of sale contained in the mortgage.
[52] It follows from the nature of the case that because the covenantor or guarantor referred to in the section would be known to the mortgagee, there should be no difficulty flowing from the requirement that the mortgagee serve a notice under s 122 on such a person. The same cannot be said of any other person whose rights might be indirectly affected by the outcome of the mortgagee sale-such as a guarantor of the debtor’s liability.
[53] For the foregoing reasons, I conclude that there was no obligation on the Bank to serve a notice under section 122 on the defendant.
[44] The Associate Judge therefore concluded that the Bank was not required to serve Mr Calvert with a s 122 PLA notice relating to the Hot Water Beach Property.
Discussion
[45] The Bank supported the Associate Judge’s analysis of this issue and submitted that it was not required to serve a PLA notice on Mr Calvert in respect of the Hot Water Beach Property. Mr Calvert was not the registered proprietor, nor was he a guarantor of the registered proprietor. He was not a person who had agreed to pay money or perform the obligations secured by the mortgage given by CFNZ over the Hot Water Beach Property.
[46] I accept the Bank’s submissions on this issue and again find no error in the Associate Judge’s approach. The obligations secured by the mortgage over the Hot Water Beach Property were all the obligations of CFNZ, including its obligations under the CFNZ Guarantee. Mr Calvert was not a guarantor of CFNZ. He did not agree to pay money or perform the obligations of CFNZ under the CFNZ Guarantee or otherwise. Indeed, as the Bank noted, at the time Mr Calvert provided the Calvert Guarantee, the CFNZ Guarantee did not exist.
[47] Section 122 of the PLA requires notices to be give to “persons who have secondary liability, not primary liability”, including covenantors, being “people who have guaranteed performance by the mortgagors”.26 I accept the Bank’s submission that Mr Calvert did not have either primary or secondary liability for CFNZ’s obligations under the CFNZ Guarantee. Mr Calvert did not guarantee any
performance by CFNZ. Mr Calvert’s obligations under the Calvert Guarantee were not secured by the mortgage over the Hot Water Beach Property.
[48] The Judge’s purposive approach to interpretation of the section supports the Bank’s position. The purpose of s 122 is to provide a guarantor with advance notice of a mortgagee sale so that they have the opportunity to assume the benefit of the mortgage security.27 However, Mr Calvert could gain no ultimate benefit from the mortgage security. It was security for CFNZ’s obligations under the CFNZ Guarantee. To the extent the mortgage security repaid Northland Herbs’s debt
beyond CFNZ’s share, CFNZ would have a claim for contribution against Mr
Calvert as a co-guarantor.28
[49] The Bank also submitted that this particular ground of defence could not succeed on an additional basis, which was that Mr Calvert has not been prejudiced by the failure to serve a s 122 PLA notice on him.
[50] Sections 122(4) and 122(5) of the PLA provide that:
(4) A failure to serve a notice under subsection (2) on a former mortgagor or a covenantor does not prevent -
(a) the mortgagee or receiver from exercising the power of sale; or
(b) the mortgagee from recovering any deficiency from the former mortgagor or covenantor.
(5) However, a former mortgagor or a covenantor who is prejudiced by a failure to serve a notice under subsection (2) is, to the extent of the prejudice, released from liability to the mortgagee for the deficiency.
[51] The party seeking to obtain the benefit of s 122(5) PLA will generally have the onus of proving that there should be a release from the liability to pay the deficiency.29
[52] The Bank submitted that if it was required to serve a s 122 notice (which it denied) there is no credible evidence that Mr Calvert has been prejudiced by the
failure to serve such a notice on him. In particular, the Bank served CFNZ with a s
27 Westpac New Zealand Ltd v Cooper (2010) 20 PRNZ 568 (HC) at [50].
28 Commercial Law in New Zealand (online ed, LexisNexis) at [25.5.4].
29 Westpac New Zealand Limited v Cooper (2010) 20 PRNZ 56 (HC) at [39].
119 notice in respect of the Hot Water Beach Property. Mr Calvert is the sole director and shareholder of CFNZ. As a result, Mr Calvert had notice that, if the defaults were not remedied, the Bank would obtain a power of sale over the Hot Water Beach Property.
[53] In addition, Mr Calvert had been sent a demand notice dated 29 September
2011, demanding payment of Northland Herbs’s debt. By 19 October 2011, he had also been served with a s 122 notice in respect of the Ohaeawai Property, recording that Northland Herbs was in default and that the Bank intended to recover from him the amounts owing by Northland Herbs. Subsequently, on 12 February 2012, Mr Calvert was notified about the sale of the Hot Water Beach Property. That sale did not settle until 29 February 2012.
[54] As noted above, the purpose of a s 122 notice is to provide a guarantor with advance notice of a mortgagee sale so that they have the opportunity to assume the benefit of the mortgage security.30 On several occasions, Mr Calvert was put on notice of Northland Herbs’s debt and the Bank’s power of sale. He had ample opportunity to repay the debt and assume the benefit of the CFNZ Guarantee (and the associated mortgage security); or market and sell the Hot Water Beach Property
(as the director of CFNZ). He took no steps, however, to do so. In such circumstances it is not seriously arguable that Mr Calvert suffered any prejudice from the failure to receive a s 122 Notice.
[55] It therefore follows that this limb of Mr Calvert’s argument does not give rise to a substantial defence because:
(a) the Bank was not required to serve Mr Calvert with a s 122 PLA
notice relating to the Hot Water Beach Property; and
(b)even if that were incorrect, Mr Calvert has suffered no prejudice by the Bank’s failure to serve such a notice.
Result
[56] The application is dismissed.
[57] My preliminary view is that the Bank is entitled to costs on a 2B basis. If agreement cannot be reached based on this indication, then any memorandum from the Bank is to be filed within 15 working days of this judgment. Any memorandum from Mr Calvert in response is to be filed within ten days of filing and service of the
Bank’s memorandum.
Katz J
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