ASB Bank Limited v Carney
[2016] NZHC 992
•16 May 2016
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2013-488-426 [2016] NZHC 992
BETWEEN ASB BANK LIMITED
Plaintiff
AND
JOHN CARNEY First Defendant
BERNADETTE ANNE CARNEY Second Defendant
Hearing: 13 May 2016 Counsel:
M Sandelin & JJK Spring for Plaintiff
No appearance for DefendantsJudgment:
16 May 2016
JUDGMENT OF DUFFY J
This judgment was delivered by me on 16 May 2016 at 4.30 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Minter Ellison Rudd Watts, Auckland
ASB BANK LIMITED v CARNEY [2016] NZHC 992 [16 May 2016]
[1] The plaintiff (ASB Bank) applies for review of Bell AJ’s judgment dismissing the plaintiff’s summary judgment application.
[2] Summary judgment was refused by Bell AJ on the ground the defendants had an arguable defence to the claims of the ASB Bank.
[3] The defendants borrowed funds from the ASB Bank secured by mortgage. The loan agreement and mortgage contained a call up acceleration clause. In the appropriate circumstances and on the giving of notice, this clause permitted the lender to choose to call up the full amount of the loan secured by the mortgage.
[4] The defendants fell behind with their loan payments. Ultimately the ASB Bank issued a notice under s 119 of the Property Law Act 2007 (the s 119 notice). Later the land was sold by mortgagee sale. However, there was a shortfall between the sale price of the land and the monies owing under the loan. The ASB Bank sued to recover the shortfall and sought summary judgment against the defendants.
[5] When the matter came before Bell AJ he declined summary judgment, as he was of the view that the ASB Bank had failed to trigger the call up clause correctly. In his view, the s 119 notice which the ASB Bank issued was not sufficient notice in itself to trigger the accelerated call up clause. Something more was required.
[6] Section 120(1)(d) of the Property Law Act requires a mortgagee to state one of two consequences if a notice issued under s 119 is not remedied in time. The first consequence is that the full amount secured by the mortgage will become automatically payable (s 120(1)(d)(i)). The second consequence is that the full amount secured by the mortgage may be called up (s 120(1)(d)(ii)).
[7] Bell AJ considered that the two optional consequences in s 120(1)(d) simply reflected the two options for an acceleration clause that a lender might include in its loan agreements. Thus in his view if a loan agreement provided a call up acceleration clause, notice independent of s 119 was required before the borrowers became liable to repay the full amount outstanding of the loan.
[8] In the present case the s 119 notice issued by the ASB Bank specified that the amounts owing to the Bank would be accelerated on expiry of those notices, which accorded with s 120(1)(d)(i) of the Property Law Act. The ASB Bank considered it had validly and effectively communicated notice to the defendants that the outstanding full amount of the loan secured by mortgage became immediately payable in the event of the expiry of the s 119 notices without remedy.
[9] Bell AJ took a different view. He considered that the s 119 notice could not be relied upon to trigger a call up acceleration clause.
[10] The reasoning that led Associate Judge Bell to the conclusion the ASB Bank had not validly or effectively taken steps to accelerate the amounts owing under the loan and mortgage was recently considered by the Court of Appeal in Koroniadis v Bank of New Zealand.1 The Court of Appeal rejected the reasoning Bell AJ relied upon.
[11] In Koroniadis the Court of Appeal was of the view that the issue of a s 119 notice specifying acceleration in accordance with s 120(1)(d)(i) was sufficient notice to trigger a call up acceleration clause.
[12] I have carefully considered the Court of Appeal’s judgment in Koroniadis, which is directly applicable to the present case. I am satisfied that the steps taken by the ASB Bank were sufficient to validly and effectively accelerate the call up provisions of the loan agreement. It follows that Bell AJ was wrong to refuse summary judgment on the grounds that he did.
[13] The next question is whether the ASB Bank is entitled to summary judgment against the defendants. From my reading of Bell AJ’s decision he could find no reason other than the grounds he relied upon in the refusal to grant summary judgment.
[14] The evidence adduced by the ASB Bank establishes the following:
1 Koroniadis v Bank of New Zealand [2015] NZCA 337.
(a) On 14 June 2011, the defendants entered into a loan agreement whereby the ASB Bank agreed to provide a loan facility of $528,000. In exchange, the defendants granted mortgages to the ASB Bank over properties located at 494A Kerikeri Road, Kerikeri as well as 12 and
18 Kingfisher Drive, Kerikeri.
(b)Clause 10.1 of the loan agreement provides that if at any time, for any reason, the defendants fail to make a payment due under any document or if they otherwise fail to comply with their obligations under any document, the ASB Bank is empowered to:
(i) Cancel the agreement; and/or
(ii)Declare the loan to be due and payable either immediately or at such later date as specified by the ASB Bank; and/or
(iii)Exercise all its rights under any security or any other bank documents.
(c) Clause 7.1 of the mortgage documents provides that if the defendants fail to pay on the due date any amount of the secured indebtedness, or do not comply with or perform any of their obligations under the mortgages, the securities constituted by the mortgages will become immediately enforceable. Clause 7.2 of the mortgage documents provides that once the securities created under the mortgages become enforceable, the ASB Bank may at any time do anything that the defendant could do or exercise in relation to the Kerikeri Road and Kingfisher Drive properties, including disposing of the properties upon whatever terms it thinks fit.
(d) On or about 30 April 2013, the defendants were in default in that:
(i)They had failed to pay one or more monthly instalments due under the loan agreement; and
(ii)The current account that was utilised by the defendants was overdrawn in excess of its overdraft limit by $22,307.67.
(e) On 21 May 2012, the ASB Bank issued notices under s 119 of the Property Law Act. The notices were served on the first and second defendants on 14 August 2012 and 12 May 2012 respectively. The notices expired unremedied and on 30 November 2012 the properties at Kerikeri Road and Kingfisher Drive were sold at auction with net sale proceeds of $408,963.20. Following the application of the net sale proceeds, there remained due and owing to the ASB Bank the sum of $197,329.43.
(f) On 1 August 2013, the ASB Bank wrote to the defendants demanding payment of the sum of $197,329.43. The defendants have failed to pay the sum to the ASB Bank since that time.
[15] Accordingly I am satisfied that the defendants have no defence to the cause
of action set out in the ASB Bank’s statement of claim.2
[16] Clauses 3.13 and 4.1 of the loan agreement provide that interest on any sums of money outstanding following the call up of the loan will be subject to interest at the ASB Bank’s unarranged overdraft rate, which for the relevant time is 22.50%. I am satisfied, therefore that the ASB Bank is entitled to claim interest at this rate for the period from 24 May 2013, being when the acceleration clause took effect, until delivery of judgment.
[17] Clauses 3.4, 9.1 and 22.1 provide that the ASB Bank can recover costs on a full solicitor client basis should it be required to bring legal proceedings to recover monies owing under the loan. I am satisfied, therefore, that the ASB Bank is entitled to claim full solicitor client costs for bringing this proceeding.
[18] Accordingly judgment is entered for the ASB Bank in the following terms:
2 High Court Rules, r 12.2.
(a) Judgment in the sum of $197,329.43
(b)Interest on the sum of $197,329.43 at the ASB Bank’s unarranged overdraft interest rate of 22.50% per annum from 24 May 2013 until the date of judgment;
(c) Costs of and incidental to the proceedings on a full solicitor client basis, and disbursements.
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