ANZ Bank New Zealand Limited v Erasmus

[2013] NZHC 2026

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1500 [2013] NZHC 2026

BETWEEN  ANZ BANK NEW ZEALAND LIMITED Plaintiff

ANDABEL HENDRIK ERASMUS First Defendant

ANDDEANE ERASMUS Second Defendant

Hearing:                   07 August 2013

Appearances: Other appearances

N D F Moffatt for plaintiff

Defendant in person

Judgment:                12 August 2013

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3.00 pm on Monday 12 August 2013

Solicitors/counsel/party: Bell Gully, Auckland Hein Erasmus, Auckland

ANZ BANK NEW ZEALAND LIMITED v ERASMUS [2013] NZHC 2026 [12 August 2013]

Introduction

[1]      The  plaintiff,  ANZ  Bank  New  Zealand  Limited,  applies  for  summary judgment on its claim against the defendants, Mr and Mrs Erasmus.  The claim is for the balance owing on four loan advances, following the sales of two properties over which the advances were secured.  The advances, totalling $905,300, were made by the bank to Mr and Mrs Erasmus in their capacity as trustees of the Hein and Deane Erasmus Family Trust.  The balance owing, after deduction of the net proceeds of the two sales and related interest and enforcement costs, is $390,857.51.

[2]      The  trustees  accept  that  they  are  prima  facie  liable  in  their  personal capacities, for this sum.   Nonetheless, they oppose the application on the grounds that there is an arguable defence available to them, and that the question of their liability should be determined at trial.

[3]      The issue for determination is whether there is an arguable defence on one or other of the following grounds:

a)       That the bank owed, and breached, a duty of care to alert the trustees to the possibility that one of the two properties over which it had security could have weathertightness issues, and to require them to obtain a building report from a leaky building specialist before committing to the purchase of the property;

b)Whether, by failing to take these two steps, the bank acted in breach of reasonable standards of commercial practice and therefore in an oppressive  manner  so  as  to  raise  the  possibility  of  relief  for  the trustees under the Credit Contract and Consumer Finance Act 2003.

[4]      The trustees are self-represented.  The grounds in their submissions and other grounds raised in their evidence are wider-ranging than these two grounds, which reflects that fact.  But at the hearing it was these to grounds that they made clear they were relying upon.  I proceed on that basis.

[5]      In April and May 2008, the trustees borrowed sums totalling $905,300 from the plaintiff, pursuant to four loan agreements, one of which was for a loan called a Flexi-loan.

[6]      The bank, by memoranda of mortgage secured mortgages over the trustees’ properties at Gulf Harbour and Red Beach to secure the trustees’ obligations under the loan agreements.   The property at Gulf Harbour was part of an overall development called Santa Rosa.

[7]      It is common ground that the trustees are personally liable for the repayment of all moneys and the performance of the borrower’s obligations under the loan agreements.

[8]      By November 2011, the trustees defaulted on their obligation to pay interest under three of the loan agreements.  Additionally they exceeded the credit limit on the fourth loan.  In December 2011, the bank served on the trustees a notice under s

119 of the Property Law Act 2007 requiring that the defaults be remedied.   The trustees took steps to remedy the defaults.   They sold the property at Red Beach. The proceeds were applied to the first and second loans with the bank’s consent. However, the trustees fell into default in respect of the two remaining loans and in June 2012 the Bank served another notice on them under the Property Law Act, requiring that the latest defaults be remedied.  They were not.

[9]      The  bank  exercised  its  power  of  sale  under  its  mortgage  over  the  Gulf

Harbour property and settled the sale on 10 October 2012.  It obtained a sale price of

$71,000 for the property.  The net sale proceeds of $48,015.17 were applied by the bank to the flexi-loan, but were not sufficient to discharge the balance owing under the remaining loans.

[10]     The bank applies for summary judgment for the balance, plus interest and costs.

[11]     I turn presently to the trustees’ grounds of opposition.  I first set out the legal

principles applying to an application for summary judgment and refer to the law

material to the question of whether a lending bank has a duty to its borrower to give advice. I also refer to the law material to the defence of oppressive conduct under the Credit Contracts and Consumer Finance Act 2003 based on the alleged failure to give such advice.

Legal principles – summary judgment

[12]     The bank applies for summary judgment under r 12.2 of the High Court

Rules. Rule 12.2 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no  defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

…

[13]     The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd:1

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11

PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence  or  assess  the  credibility  of  deponents.  But  it  need  not  accept

uncritically evidence that is inherently lacking in credibility, as for example

where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng

Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s

assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[14]     While the onus is on the bank, the defendant will need to provide some evidential foundation for the defences raised.2

1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].

2 Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 59.

Legal principles – the alleged duty to give advice and oppressive conduct

[15]     The trustees allege that the bank breached a duty of care it owed them.  The duty they allege is a tortious duty akin to that held by local authorities to take reasonable care to ensure houses are sound.

[16]     Whether or not banks owe such a duty to their customers to give advice or to warn is discussed in Wilkins v Bank of New Zealand and in Bank of New Zealand v Geddes.  In the first case, Judge Hubble extracted the following general propositions from the authorities (at [8]):3

That a banker is under no obligation to give advice unless it specifically takes on itself to do so.  The bank will then incur liability if it gives that advice negligently.

[17]     In the second case, Asher J considered the imposition of a duty of care on the bank.  His Honour held:4

The trend of authority in New Zealand is entirely against imposition of a tortious duty of care on new customers … banks in New Zealand will examine a transaction from the point of view of their own purposes.   In doing so they take on no duty to the person who is seeking the loan to advise  or  warn.    The  imposition  of  such  a  duty  would  disrupt  current banking practice and add to the cost of bank loans.   There is no policy reason why it should be imposed, particularly in a situation such as this where the bank and customer have no on-going relationship and the customers had the opportunity of getting their own advice.

[18]     Oppressive behaviour means:5

Oppressive, harsh, unduly burdensome, unconscionable or in breach of reasonable standards of commercial practice.

[19]    The threshold for oppression is set deliberately high.   The Courts have emphasised  the  importance  to  commercial  stability that  credit  contracts  are  not opened  too  readily.    Rather,  they  should  be  opened  only  where  there  is  clear evidence or the conclusion is otherwise irresistible, that the contract or term is

oppressive, within the proper meaning of that term.6

3 Wilkins v Bank of New Zealand [1998] DCR 520.

4 Bank of New Zealand v Geddes HC Auckland CIV-2008-404-8082, 28 May 2009 at [23].
5 Credit Contracts and Consumer Finance Act 2003, s 118.

6 Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341 at 349 (CA).

[20]     Unfairness is not sufficient.  In Taylor v Westpac Banking Corporation, the

Court of Appeal said:7

A right or power conferred by a contract is not exercised in an oppressive manner simply because it is thought, even by the Court, that it is unfair.  It must meet the description of oppressiveness … unfairness itself is not sufficient.

[21]     It is not enough simply to assert that the contract or conduct in issue is oppressive – except in the plainest of cases, evidence to support the assertion is required.  In Greenbank, Tipping J said:8

To determine whether a contract is oppressive ... it is necessary to have some basis of comparison. ... It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standard of commercial practice. That will usually, indeed almost always, necessitate the calling of evidence on the point...

[22]     The onus is on the party asserting oppression to provide the evidence to support the assertion.  The party whose conduct is complained of is not obliged to adduce evidence to counter a mere assertion.9   This accords with the Court’s classic finding in Pemberton v Chappell, that if a defence is not evident on the plaintiff’s pleading, the defendant must file an affidavit raising an issue of fact or law, and give reasonable particulars of the matters which he or she claims ought to be put in issue.10

Discussion

Is there a duty of care to provide advice and if so has the duty been breached?

[23]     The trustees allege that the bank breached a duty of care to provide advice on whether  the  Gulf  Harbour  property  could  have  weathertightness  issues,  and  to require a building report from a leaky building specialist before the trustees accepted

liability for the lending.  The trustees do not suggest that the bank did anything that

7 Taylor v Westpac Banking Corporation (1996) 5 NZBLC 104,104 (CA).

8 Greenbank, above n 6 at [23] – [24].
9 Greenbank at [28].

10 Pemberton v Chappell [1987] 1 NZLR 1 (CA).

amounted to a positive assumption of responsibility to provide such advice.  They contend however, that a duty should be imposed for these reasons:

a)       The property was part of the Santa Rosa development at Gulf Harbour where a number of properties were affected by what is sometimes referred to as “leaky home syndrome”.   Though the bank may not have had specific knowledge of the problems at Santa Rosa, it should have, because they were reasonably well known in the public domain;

b)There are good policy reasons for imposing a duty due to banks’ intelligence of the property market in New Zealand and because of their existing exposure and knowledge of properties they hold as securities.

c)      Other banks have, as a matter of policy, assumed a degree of responsibility to require such reports, as a public statement made by the ASB’s Head of Retail Banking in November 2002 shows:

[ASB] has been talking to the building industry professionals and they have given us very good advice on what type of buildings are likely  to  have  a  higher  probability  of  having  leaking  problems. Where necessary, the bank now asks for a report from a suitably qualified building inspector before agreeing to provide mortgages on such properties.

d)The statement refers to another large bank that has adopted a similar policy.

e)      ASB’s policy requires a full building report for all houses of Mediterranean  style  with  no  eaves  and  monolithic  cladding,  and which were built in the 1990s. The bank also will not lend on developments already publicly identified as having leaky problems.

[24]     There can, in my view, be no challenge to the bank’s lending policy on the basis suggested by the trustees.  There is nothing in the evidence to suggest that the bank had specific knowledge about the weathertightness problems at Santa Rosa,

and the evidence for the bank is that there is nothing on its files to show such knowledge.

[25]     Additionally, I accept the submission of counsel for the bank that the law is clear, and to impose a duty of the kind proposed on banks would be inconsistent with well established authority.  Even if the bank did have some awareness that properties at Santa Rose suffered from weathertightness problems, to impose a duty on that basis would run counter to the trend of authority in New Zealand.  The imposition of a duty to advise customers on the wisdom of “accepting liability for the lending”, or in other words, for their borrowing, is rejected because of countervailing policy reasons.   Putting aside momentarily the obligations of a lender under the Credit Contracts and Consumer Finance Act I agree with counsel for the bank that there is no good policy reason to impose a general duty in tort on the banks in respect of advice.   As noted by Asher J, imposing a duty on banks to provide such advice would disrupt current banking practice and add to the cost of bank loans.  There is no sufficient policy reason, at least not raised by the present application, to transfer the purchasers’ responsibility  to undertake their own due diligence, including deciding whether to obtain a builder’s report, to their bank.  Imposing a requirement that a building report be obtained by applicants in all cases where a building is being offered as security would, in effect, require customers to incur sufficient additional

costs for each loan application.11

[26]     Accordingly, I am satisfied it is not reasonably arguable that the bank was under a duty in tort to advise the trustees on potential building defects in the Gulf Harbour property, or a duty to require the trustees to obtain a building report prior to entering into the loan agreements.  Though I am sympathetic to the trustees and the predicament they find themselves in, I do not accept their submission that there is an arguable proposition that should be tested at trial.

[27]     It is not enough that the bank may have been in a position to suspect that the property was  a leaky building because of corporate intelligence of the property

market.  As the trustees accept, the bank probably did not know about specific leaky

11 Bank of New Zealand v Geddes, above n 4.

building problems at Santa Rosa.  At best, it may have been aware of the general problem of leaky building syndrome.

[28]     Materially, the trustees do not suggest that the Gulf Harbour property was sold at an under-value.   Their contention is that there was a failure to give them advice, and to require them to obtain a report.

Has the bank acted in a way that amounts to oppressive behaviour in breach of reasonable standards of commercial practice?

[29]     The trustees also argue that the bank acted in an oppressive manner in that the failure to take those two steps is a breach of reasonable standards of commercial practice, particularly given that the lender and the borrower were on an unequal footing when they entered into the loan agreements.   They say they did all they reasonably could to be satisfied about the soundness of the property.

[30]     The trustees rely on the same alleged breach of duty in respect of this ground of opposition, coupled with allegations of unreasonable conduct. Specifically, in this second respect the trustees assert that the bank acted unreasonably by:

a)       refusing two offers of settlement and pursuing payment of the outs debt from the trustees.  The first offer was for 5 million shares or a

3.5%  shareholding  in  a  business,  but  the  business  had  debts  of

$250,000.  The second was an offer of Kiwi Saver funds which would have provided recovery of 2.4 cents in the dollar;

b)refusing to specify the purchase price upon which the bank would release the mortgage over the Red Beach property, which caused the trustees to lose their interested purchasers who had indicated they would pay around $600,000;

c)       failing to provide funding for remedial work on the Gulf Harbour property.

[31]     Central to the trustees’ case is that, as the bank has not adopted a policy similar to that publicised by the ASB in November 2002, it is not meeting reasonable standards of commercial practice.   For reasons discussed, the argument cannot succeed.   The trend of authority in New Zealand is against transferring the responsibility of purchasers of property to undertake their own due diligence to their bank.  Additionally, the ASB’s public statement, as quoted by the trustees, does not demonstrate any assumption of a purchaser’s responsibility to undertake his or her own due diligence. It is suggestive of the quite different purpose for requiring a building report is to protect the bank’s position “before agreeing to provide mortgages”.

[32]     As counsel for the bank has pointed out, the evidence on the point lacks sufficient substance to elevate the case for oppressive conduct above mere assertion. There is no tenable evidence to support the allegations of oppressive conduct, or that could be adduced to support such an allegation.

[33]     Given these findings, it is unnecessary to consider the second aspect of the trustees’ case, that there has arguably been oppressive conduct.  There is no evidence that supports the contention that the bank acted oppressively in rejecting settlement offers, or that it caused the trustees to lose a sale of the Red Beach property at a higher price than the price they realised upon sale.   The trustees’ own evidence indicates  that  it  was  their  view  that  they  were  unlikely  to  achieve  more  than

$580,000, and that they would possibly achieve between $550,000 and $580,000. The property was sold for $550,000.

[34]     The trustees’ complaint that the bank failed to fund remedial work for the Gulf Harbour property, also does not assist the trustees.  As counsel for the bank put it, the simple point is that this is a matter of providing further funding.  The bank has no record of a request for further funding, but if there was such a request, it would be a commercial decision for the bank to make and entirely within the bank’s discretion to say no if it considered the security to be insufficient.  It is trite that a mortgagee has no duty to lend to improve the value of a mortgaged property.

[35]     There is no general duty on a mortgagee to maintain a mortgaged property prior to exercising its power of sale.12   A finding that the bank ought to have funded the remedial works in the absence of a request by the trustees, would be inconsistent with this well established principle.

Conclusion

[36]     For the above reasons, I have reached the conclusion that there is no arguable defence to the bank’s claim for summary judgment.

Result

[37]     The bank’s application for summary judgment is granted.

[38]     The trustees advise that they do not dispute the quantum that is claimed in the statement of claim and that their defence goes to liability only. Accordingly, I order as follows:

a)       I give summary judgment to the plaintiff, ANZ Bank New Zealand Limited against the defendants, Abel Hendrik Erasmus and Deane Erasmus for the outstanding amount under the loan agreements of

$390,857.51:

b)Accrued  interest  on  the  sum  of  $390,857.51  at  the  applicable contractual interest rates from 13 March 2013 to 7 August 2013 (148 days), being $25,023.84, comprising:

i)$20,006.64, being interest accruing on the sum of $175,282.22 at the contractual interest rate of 28.15% per annum for 148 days;  and

ii)$5,017.20 being interest accruing on the sum of $215,575.29 at the contractual interest rate of 5.74% per annum for 148

days.

12 Public Trust v Ottow (2010) 10 NZCPR 879, (HC) at [17].

c)       Post judgment interest on the judgment debt of $390,857.51 pursuant to r 11.27 of the High Court Rules at the rate of 5% per annum or such lower rate as may be specified from time to time pursuant to s 87 of the Judicature Act 1908.

[39]     Costs are reserved.  The bank is to file a memorandum if it pursues costs on a solicitor/client basis under the contract, setting out the basis for the claim under the terms of the relevant loan agreements, and particulars of the amounts claimed. Alternatively, they are to set out what costs they claim on a 2B basis. The memorandum  is  to  be  filed  within  five  working  days  of  this  judgment.     If Mr and Mrs  Erasmus  take  issue  with  the  amounts  claimed,  they  are  to  file  a memorandum within a further five working days.

H Sargisson

Associate Judge