ASB Bank Limited v Davis
[2021] NZHC 1812
•16 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000939
[2021] NZHC 1812
BETWEEN ASB BANK LIMITED
Plaintiff
AND
CHRISTOPHER EDWARD DAVIS
First Defendant
YVETTE MAY DAVIS
Second Defendant
Hearing: 22 April 2021 Appearances:
J Caird and S Hawksworth for the Plaintiff Defendants in Person
Judgment:
16 July 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 16 July 2021 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Simpson Grierson, Auckland
ASB BANK LTD v DAVIS [2021] NZHC 1812 [16 July 2021]
Introduction
[1] Mr and Mrs Davis owned and ran a trucking business called Grays Transport NZ Ltd. In 2015 they refinanced the company’s loans from Westpac to ASB. They each gave a personal guarantee and indemnity as required by ASB. The company began to experience financial difficulties in 2016. The company’s position deteriorated and in July 2018 it defaulted on its loans with ASB. ASB demanded repayment of the loans from the company, and Mr and Mrs Davis as guarantors. The demand was not met. ASB repossessed and sold two trucks. A shortfall remained. ASB now claims the shortfall of $502,181.42 plus interest and costs from Mr and Mrs Davis under the guarantee.
[2] Mr and Mrs Davis maintain that the guarantee they gave related to an earlier facility agreement, which ASB withdrew. They say that the guarantee is invalid as it does not attach to any facility agreement.
[3] They also counterclaim that ASB was negligent in several ways. They claim that ASB should have explained to them the nature and effect of the documents they were signing, including the guarantee. They claim that ASB should have registered a security interest over two trailers owned by the company. They contend that when the company’s financial position deteriorated, ASB gave them negligent financial advice and failed to sell the company’s assets soon enough.
[4] ASB applies for summary judgment of its claim against Mr and Mrs Davis; and for summary judgment and/or strike out of their counterclaim.
[5] I need to decide whether Mr and Mrs Davis have no defence to ASB’s claim; and whether their counterclaim has no prospect of success. This requires me to decide the following questions.
ASB’s claim
(a)Did the guarantee given by Mr and Mrs Davis guarantee the company’s December facility agreement?
The Davis’s counterclaim
(b)Did ASB owe Mr and Mrs Davis a duty of care to explain the nature and effect of the guarantee?
(c)If so, did ASB breach that duty of care, causing Mr and Mrs Davis loss?
(d)Did ASB owe Mr and Mrs Davis a duty to obtain and register a security interest over two of the company’s trailers?
(e)If so, did ASB breach that duty, causing loss to Mr and Mrs Davis?
(f)Did ASB provide Mr and Mrs Davis with negligent financial advice which they relied on to their detriment?
(g)Did ASB owe Mr and Mrs Davis a duty to repossess and sell the company’s assets?
(h)If so, did they breach that duty, causing loss to Mr and Mrs Davis?
Legal principles
[6] Plaintiff and defendant applications for summary judgment are made pursuant to r 12.2 of the High Court Rules 2016:
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.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[7] The principles to be applied in applications for summary judgment have been clearly established through decisions of the Court of Appeal in Pemberton v Chappell,
Westpac Banking Corporation v MN Kembla New Zealand Ltd, and Krukziener v Hanover Finance Ltd.1
[8] In considering ASB’s application for summary judgment of its claim, I propose to apply the following general principles:
(a)ASB must satisfy the Court that Mr and Mrs Davis have no arguable defence to their claim. This means that there is no real question to be tried.
(b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, especially where issues of credibility arise.
(c)This does not mean that the Court must accept every factual assertion made in opposition to an application for summary judgment. The Court is entitled to take a robust and realistic approach where the facts require it.
[9] In relation to an application for summary judgment by a defendant, the onus is on the defendant to satisfy the Court the plaintiff has no arguable answer to the defence raised.2 The Supreme Court has emphasised that a defendant applying for summary judgment bears a heavy onus – a defendant should apply only “where there is a complete and incontrovertible answer on the facts”.3
[10]However, as with plaintiff applications for summary judgment,4 this Court:5
…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
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA); Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA); and Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
2 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616, [1999] NZAR 529 (HC) at [11]. See also Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32]–[35].
3 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 at [4], as cited in Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [32].
4 Webster Farm Management, above n 2, at [35].
5 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable…
[11] The court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence or case appropriate to the nature of the pleading.6 The Court of Appeal summarised the principles applicable to the exercise of this discretion in Attorney-General v Prince:7
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed…; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material…; but the fact that applications to strike out raise difficult questions of law, and require extensive argument, does not exclude jurisdiction.
Did the guarantee given by Mr and Mrs Davis guarantee the December facility agreement?
The sequence of events
[12] On 28 August 2015, Mr and Mrs Davis met with ASB (Mr Legg and Ms Cooney) to discuss refinancing the debts of the company from Westpac to ASB. As a result, a credit application was commenced for the refinancing.
[13] As usual, ASB required the company to provide it with first registered security interests in its assets to secure any money advanced by ASB. During the credit application process, it became apparent that other creditors had registered security interests over the company’s assets, but subordinate to Westpac’s security interests. Accordingly, it was not possible for ASB to obtain a first-ranking security interest by registering new financing statements, as any new security would rank behind existing creditors.
[14] It was thought therefore that the company would ask Westpac to assign its security interests to ASB. On or about 2 October 2020, the company’s solicitor (Mr Simon Palmer of Palmer & Associates) wrote to Westpac requesting such an
6 High Court Rules 2016, r 15.1(1)(a).
7 Attorney-General v Prince [1998] 1 NZLR 262 at 264; endorsed by the Supreme Court in Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
assignment. Westpac’s solicitors replied on 2 October 2015, indicating that it agreed to assign its security to ASB.
[15] On 29 October 2015, Westpac’s solicitor provided Mr Palmer with a draft of the deed of assignment. Westpac also advised Mr Palmer that it had never been granted any security over two of the company’s trailers, those with registration numbers 535AB and 536AB (the AB trailers). The draft deed of assignment was provided to ASB on 3 November 2015.
[16] ASB responded to Mr Palmer on 9 November 2015 requesting settlement statements for Westpac and another lender, Auckland Finance, so that the loan documents could be completed. Mr Palmer responded on 20 November 2015.
[17] The settlement statements revealed that the amount to be refinanced from Westpac included an additional break fee sum of $40,000. As a result, the credit application had to be amended and resubmitted for approval.
[18] On 30 November 2015, ASB provided a facility agreement to the company (November facility agreement). The November facility agreement contemplated that ASB would be able to take a first registered security interest in the AB trailers via the Westpac assignment.
[19] As Westpac had not in fact taken security over the AB trailers, it was not possible for ASB to obtain a first registered security interest in them. Initially, ASB considered taking an apportioned second registered security interest in the AB trailers, whereby Mount Truck Sales Ltd would retain first registered security to the maximum value of $50,000. However, ASB was advised by Mr Palmer that Mount Truck Sales Ltd would be unlikely to agree to enter into a deed of priority, or a similar arrangement, to give effect to that arrangement. Ultimately it was decided that ASB would forgo security over the AB trailers and would reduce the debt offering by $100,000 to reflect the reduced security position.
[20] As a result, the November security agreement and a specific security deed which included the AB trailers was withdrawn. On or about 9 December 2015 ASB
provided the company’s solicitor, Mr Palmer, with a new facility agreement, under which ASB advanced the total sum of $1,125,000 (the December facility agreement)8 and a new specific security deed which excluded the AB Trailers (the SSD).9
[21] By this time, Mr and Mrs Davis had already signed (on 2 December 2015) two of the documents required by ASB to secure the finance for the company:
(a)a general security deed (GSD) by which the company gave ASB security in all the company’s assets;10
(b)a guarantee and indemnity in favour of ASB by Mr and Mrs Davis personally (the Guarantee).11
[22] On 16 December 2015, the company’s solicitor returned to ASB the signed December facility agreement (dated 10 December 2015), the signed GSD (dated 2 December 2015), the signed SSD over specific assets (dated 11 December 2015) and the signed Guarantee (dated 2 December 2015).
Mr and Mrs Davis’s defence
[23] Mr and Mrs Davis contend that the Guarantee related to the withdrawn November facility agreement. They claim that there is in fact no signed guarantee for the December facility agreement.
[24] At the hearing Mr Davis said that they were told by Mr Legg that, when the correct position regarding the AB trailers emerged, ASB would be withdrawing the November facility agreement and all related documents, including the guarantee. Mr Davis referred to an internal email between Mr Ormsby of ASB and Ms Cooney dated 9 December 2015. In that email Mr Ormsby states:
In order to return the AL, I’ll need to withdraw the proposed loan and all proposed security and start again. If it is possible, it would be a lot easier to forward me Credit approval of the changes. I can go into CRABBS and reduce the amount and remove the x 2 trailers …
8 Affidavit of Stuart Carl Dunlop affirmed 18 June 2020, annexure C.
9 Affidavit of Stuart Carl Dunlop affirmed 18 June 2020, annexure H.
10 Affidavit of Stuart Carl Dunlop affirmed 18 June 2020, annexure G.
11 Affidavit of Stuart Carl Dunlop affirmed 18 June 2020, annexure E.
My assessment
[25] Mr and Mrs Davis do not have an arguable defence to ASB’s claim under the Guarantee, for the following reasons. The Guarantee which they signed on 2 December 2015 is clear that it relates to all amounts owing to ASB by their company, including future advances. This is stated quite plainly on the second page of the Guarantee, which contains an acknowledgement from them that:
(a)You [Mr and Mrs Davis] have been advised by us [ASB] in the absence of the Borrower [GTNZL] to obtain independent legal advice before signing the Guarantee and Indemnity;
(b)…[Y]ou understand that the Guarantee and Indemnity makes you liable for all present and future amounts owing to us by the Borrower, including future advances, amounts owing under the guarantees given by the Borrower, and amounts owing by the Borrower together with any other person.
[26]The front page of the Guarantee also contains the following statement in bold:
IMPORTANT:
This is a Guarantee and Indemnity for all joint and several obligations of the Borrower to us from time to time …
[27] Moreover, the December facility agreement lists on page 3 the securities required by ASB before the facilities will be made available to the company. The list includes “a new unlimited guarantee and indemnity on our standard form, from YVETTE MAY DAVIS, CHRISTOPHER EDWARD DAVIS”.
[28] Mr and Mrs Davis had a solicitor representing them and the company in relation to the refinancing, and who attended the execution of the documents. Taking that into account, it strains credibility that they did not understand that the guarantee they signed on 2 December 2015 covered sums lent to the company pursuant to the December facility agreement. When questioned at the hearing, Mr Davis was not able to explain how he thought ASB would be satisfied to advance the loans pursuant to the December facility agreement without a personal guarantee from him and Mrs Davis when it had required a guarantee in relation to the November facility agreement. The only aspect of the arrangement that had changed was the removal of the AB trailers as specific security and a commensurate reduction in lending by $100,000.
[29] Even if Mr and Mrs Davis did not appreciate that the guarantee they had already signed guaranteed the sums advanced under the December facility agreement, which I doubt, that does not relieve them of their legal obligations under the Guarantee.
[30] In their notice of opposition, Mr and Mrs Davis state that they have an arguable claim that the loan did not meet the requirements of s 27(2) of the Property Law Act 2007. This ground for defence was not developed at the hearing. If it is a reference to their complaint that there is no signed guarantee for the December facility agreement, I have addressed that. Otherwise, the terms of the Guarantee are set out in writing, and it is signed by Mr and Mrs Davis, as guarantors, in the presence of their solicitor.
[31] I find that Mr and Mrs Davis do not have an arguable defence to ASB’s claim to recovery of the shortfall under the Guarantee.
Did ASB owe Mr and Mrs Davis a duty of care to explain the nature and effect of the guarantee?
[32] Mr and Mrs Davis contend that ASB owed them a duty of care to explain the nature and effect of the documents they were signing, including the Guarantee. At the hearing this aspect of the counterclaim was reframed to a claim that ASB (and Mr Palmer) should have required that Mr and Mrs Davis obtain independent legal advice, given that ASB had instructed Mr Palmer to act for it in relation to the execution of the documents, giving rise to a conflict of interest.
[33] The law is firmly against Mr and Mrs Davis on this point. In Shivas v Bank of New Zealand, Tipping J held that a guarantor who is concerned about the circumstances in which they have given a bank guarantee will only be able to complain if there is: deceit by the bank; misrepresentation; negligence if advice or information is sought and given or volunteered by the bank in a careless manner; breach of
fiduciary duty in the terms of Hamilton v Watson12 (where there is something unusual in relation to the transaction); unconscionable bargain; mistake; or undue influence.13
[34] Justice Tipping considered whether it was desirable or necessary to extend those circumstances to include a positive obligation on a bank to warn a guarantor about a guarantee, explain the nature and effect of it, or to encourage them to obtain independent legal advice. He concluded:14
If the guarantor cannot succeed on one or other of the recognised causes of action in my view the pendulum would be swinging too far if one were to permit an action for the tort of negligence on the premise not of advice negligently given but on the basis of a failure to explain, warn or recommend separate advice.
[35] The legal position is clear: there is no positive duty on a bank to explain the nature and effect of a guarantee to intended guarantors, to warn them, or to recommend that they take independent legal advice. No actual undue influence is asserted here, and the Guarantee relates to an unexceptional transaction where the guarantors are the directors and/or shareholders of the company whose debts they are being asked to guarantee. Moreover, Mr and Mrs Davis had access to legal advice from Mr Palmer, who acted for them and the company.
[36] The position is not altered by the fact that ASB instructed Mr Palmer on a limited retainer to facilitate the execution of the lending and security documents. It is usual in these types of transactions for the bank to engage the borrower’s solicitor for that limited purpose. The bank’s instructions to Mr Palmer are set out at page 3 of its letter of instruction dated 30 November 2015. Mr Palmer did not act for ASB beyond that limited role. Page 7 of the letter of instruction records that all costs and charges in relation to the limited retainer are to be met by the borrower.
[37] Further, in the acknowledgement page of the Guarantee, Mr and Mrs Davis acknowledged that:
12 Hamilton v Watson (1845) 8 ER 1339 (HL).
13 Shivas v Bank of New Zealand [1990] 2 NZLR 327 (HC) at 368; Westpac Banking Corporation v McCreanor [1990] 1 NZLR 580 (HC).
14 Shivas v Bank of New Zealand [1990] 2 NZLR 327 (HC) at 368; cited with approval in Chapman v Westpac New Zealand Ltd [2018] NZHC 1986 at [51].
(a)they had been advised by ASB to take independent legal advice; and
(b)they understood that the Guarantee made them liable for all present and future amounts owing by Grays Transport to ASB.
[38] ASB did not owe Mr and Mrs Davis a duty of care to advise them of the meaning and effect of the Guarantee; or to get independent legal advice. Mr and Mrs Davis cannot avoid their liability under the Guarantee for this reason. Nor does it give rise to a counterclaim in negligence against ASB.
[39] As there was no duty of care, it is not necessary for me to consider the next question, whether a duty of care was breached causing Mr and Mrs Davis loss.
Did ASB owe Mr and Mrs Davis a duty to obtain and register a security interest over the AB trailers?
[40] Mr and Mrs Davis allege that ASB breached a duty of care to them as guarantors by failing to obtain and register proper security for the loan.15 They further say that ASB breached their duty of care by failing to act in a timely manner and register PPSRs on all assets described in the SSD.
[41] Mr Davis’s evidence, and his submissions at the hearing, are focused on the AB Trailers. In his evidence Mr Davis states:16
We later found out that Ms Cooney did not register the PPSRs as instructed. This directly resulted in the ASB losing first priority security over a number of GTNZL’s assets. ASB continually failed to follow instructions in this regard which has caused us ongoing problems. GTNZL’s assets would have covered all the loans had the PPSRs been registered and we would now not be facing claims as guarantors.
…
ASB’s failure to register the PPSRs as instructed on a number of occasions resulted in a third party obtaining first priority security over the trailers, 535AB and 536AB.
ASB’s failure to register the PPSRs and ensure it had first priority security over the trailers resulted in a shortfall of $100,000 equity to GTNZL. The
15 Statement of defence and counterclaim at [40](d) and (e); amended notice of opposition to plaintiff’s application for summary judgment at [3](d)(i).
16 Affidavit of Christopher Edward Davis sworn 17 September 2020, at [16], [22]–[23].
failure to register its security meant that GTNZL had to borrow the shortfall of a $100,000 from another lender. The further loan was to be repaid to the lender within 12 months, which caused an unintended increase in the overall monthly loan repayments by GTNZL and a tightness within the operational costs.
[42] In his written submissions, Mr Davis refers to an email he sent ASB on 15 September 2015 requesting that they immediately register PPSRs over all the company’s assets. Mr Davis acknowledges that a company called Mount Truck Sales Ltd already had a financing statement registered against the AB trailers but claims that the registration was illegal and was to be removed. Mr Davis submits that had ASB registered financing statements over all the company’s assets as instructed, the bank would have obtained a first-ranking registered security over the AB trailers.
[43] At the hearing, Mr Davis conceded that ASB could not have obtained and registered a first-ranking security interest in the AB trailers in September 2015 when requested, or in December 2015 when the documents were executed and the loans advanced, because Mount Truck Sales had a pre-existing first-ranking registered security. However, he submitted that ASB should have registered a second-ranking security, which would have become first-ranking when the dispute with Mount Truck Sales was resolved.
[44] Westpac did not have financing statements registered on the PPSR in respect of the AB trailers, so the ASB could not obtain a first-ranking security interest by way of assignment from Westpac, as it could with the other trucks and trailers.
[45]This aspect of the Davis’s counterclaim cannot succeed.
[46] As the learned author of Personal Property Securities Act 1999 – Act and Analysis outlines, there are three phases involved in the taking of security:17
The creditor’s security interest must attach to the collateral (so that it becomes subject to the security); the creditor must satisfy the requirements for enforceability (so that the security is valid as against third parties) and the creditor must perfect its security (so that it maximises its priority position).
17 Barry Allan Personal Property Securities Act 1999 – Act & Analysis (Thomson Reuters, Wellington, 2010) at 80.
[47] I do not accept that a lender could owe a guarantor a duty to register (and thereby perfect) a security interest in an asset before the borrower has even granted the lender the security. In September 2015 when Mr and Mrs Davis sent the email to the ASB, and until the company gave the bank security in its assets via the GSD and SSD, the bank had no security interest attached to the company’s trucks and trailers,18 much less one that could be perfected by registration of a financing statement in the PPSR.
[48] Nor do I accept that when ASB was made aware of the fact that it could not obtain security over the AB trailers from Westpac, and that another creditor had a pre- existing financing statement registered over the AB trailers, that it had a duty to accept and register a second-ranking security behind Mount Truck Sales.
[49] The evidence indicates that ASB considered different options for dealing with the situation, including agreeing to a second-ranking security interest behind Mount Truck Sales, with a commensurate reduction in the bank’s security; or trying to reach an agreement with Mount Truck Sales to provide ASB with a partial priority in the AB trailers. The bank, it appears, based on information from Mr Palmer, was of the view that it was going to be “challenging” to reach an agreement with Mount Truck Sales, and therefore opted to reduce the debt offering by $100,000 to reflect the reduced security position. The bank was entitled to make its own assessment of the security available to it and decide whether to proceed based on a second-ranking security interest, or to do what it did, namely, reduce the amount of the loan to a level it was comfortable with (without security over the AB trailers).
[50] I reject Mr Davis’s submission that, based on his assurances to the bank that the dispute with Mount Truck Sales would be resolved and its security interest removed, the bank owed him and Mrs Davis a duty to proceed with the original lending arrangements and to take and register a second-ranking security interest over the AB trailers. ASB had no certainty of the outcome of the dispute between Grays Transport and Mount Truck Sales. Internal ASB emails record that the dispute was subject to a mediation in February 2016 and that Mount Truck Sales would not
18 Personal Property Securities Act 1999, s 40.
relinquish their charge until the mediation was concluded. The bank was under no obligation to lend to the company based on an uncertain security position. Having relinquished specific security over the AB trailers, it was under no duty to register a second security interest in those trailers.
[51] I have found that ASB did not owe Mr and Mrs Davis a duty of care to obtain and perfect a security interest over the AB trailers. This part of their counterclaim cannot succeed for that reason. However, I also observe that they have not established to an arguable level that they suffered any loss because of ASB’s actions. Because security over the AB trailers was unavailable, the bank reduced the lending to the company, and reduced Mr and Mrs Davis’s exposure as guarantors to the same degree.
[52] At the hearing, Mr Davis referred to the fact that the reduction in finance from ASB meant the company had to take another loan, which had high instalments over a shorter period, increasing the financial pressure on the company. That claim does not establish a causal connection between the ASB’s actions and Mr and Mrs Davis’s liability as guarantors in July 2018 when ASB made its demand.
[53] Finally, it is relevant that when Mr Davis executed the December facility agreement and the SSD, he knew that ASB had decided to relinquish a security interest in the AB trailers. He proceeded to accept the finance and security arrangements on offer and draw down the loans.
Did ASB provide Mr and Mrs Davis with negligent financial advice which they relied on to their detriment?
[54] Mr and Mrs Davis allege that ASB provided them with negligent advice about when to sell the company’s assets. Specially, they claim:
(a)ASB caused the company to sell two trucks and trailers to Celtic Transport Group on the advice of Mr Dunlop in July / August 2017; and
(b)Mr Dunlop told them to “sell all units” and for the company to cease working for Freightlines.
[55] Mr Davis also asserts that Mr Dunlop said that the bank would not pursue him (and Mrs Davis) if there was any loss.
[56] I see no evidence of ASB providing Mr and Mrs Davis as guarantors, or indeed Mr Davis as a director of the company, with financial advice. A letter summarising a meeting between Mr Dunlop and Mr and Mrs Davis on 28 March 2017 records Mr Dunlop reiterating that ASB had serious concerns about the company’s financial position. The ASB advised that the company’s accounts had been downgraded from a credit risk perspective and referred to the Group Credit Structuring Unit of the bank. Mr Dunlop stated that the bank’s assessment was that the level of debt in the company was unsustainable, and that a significant improvement in trading results, and/or a significant reduction in total debt was required to meet ASB’s ongoing credit criteria. The letter records that discussed at the meeting were “options open to the directors regarding reducing the company’s high debt level”, including selling one or more of the trucks, selling one or more of the trucks with a lease-back option, or selling an unencumbered trailer unit. Mr Dunlop stated that the bank understood that the directors of the company had employed a new accountant to provide the company with monthly profit and loss and 12-month cashflow forecasts. Mr Dunlop strongly suggested that Mr and Mrs Davis discuss all the options with their accountant. Mr Dunlop stated that the bank would require a written business plan with financial analysis detailing how the company would address the above issues. He advised that the bank would be reviewing the company’s financial performance on a monthly basis and would revisit its ongoing support if the financial position of the company did not improve. He signalled that this might involve the bank requiring the shareholders to reduce debt further, via monthly overdraft limit reductions, asset sales, or by requesting the company to refinance all facilities with another financial institution.
[57] It is clear from this communication that any discussion of the potential sale of trucks or trailers by the company was in the context of ASB’s concern about its own position as a secured creditor. There is no evidence that Mr Dunlop was adopting an advisory role to Mr Davis as director of the company, let alone to Mr and Mrs Davis as guarantors. It is also clear that Mr Dunlop encouraged Mr and Mrs Davis to make use of their accountant and discuss options for reducing the company’s indebtedness with the accountant.
[58] There is also no evidence of Mr Dunlop advising Mr and Mrs Davis to sell all truck and trailer units in December 2017. To support this assertion, Mr Davis has appended to his affidavit a letter from him to Mr Dunlop dated 10 December 2017 in which he states it was suggested by Mr Dunlop that he look at selling all the transport units and cease working for Freightlines. In an internal ASB email dated 13 December 2017,19 Mr Dunlop refers to this email and denies that he ever advised Mr Davis to sell all the vehicles, saying that he and Mr Davis discussed all his options, and that it was Mr Davis’s decision to sell as he could not afford to meet loan payments and operating costs. This is consistent with the 27 March 2017 letter. Mr Dunlop does not recall discussing ceasing working for Freightlines, and states that if he did, it would have been in order to suggest all appropriate loss-making / cost-saving options were considered by the directors of the company.
[59] I see no evidence to support the claim that ASB adopted a financial advisory role to the company or to Mr and Mrs Davis as guarantors of the company’s indebtedness to the bank. To the contrary, the evidence is consistent with the bank encouraging Mr Davis to consider all options to manage operating costs and reduce indebtedness to the bank in order to avoid the consequences signalled to Mr Davis by Mr Dunlop in the March 2017 letter. That is entirely consistent with the bank being concerned to protect its own position as a creditor of the company.
[60] In terms of the internal email in which Mr Dunlop commented to his colleague that the bank would not pursue Mr and Mrs Davis under the Guarantee, I reject the claim that this was financial advice to Mr and Mrs Davis. First, it was an internal email, and Mr Dunlop has given evidence that at no time did he advise Mr and Mrs Davis that ASB would not seek to enforce its guarantee. Mr Davis has not suggested that Mr Dunlop made this statement to him.
[61] Second, the comment is made in the context of Mr Dunlop proffering his thoughts on the options for the bank at that point. The paragraph opens with, “I am of the mind…”. The email concludes with, “Maybe once you both have considered, we can get together to discuss our thoughts???”. Internal, speculative comment made by
19 Affidavit of Christopher Edward Davis sworn 17 September 2020, annexure D.
Mr Dunlop at one point in time does not constitute financial advice to Mr and Mrs Davis. Nor is it binding on the bank.
[62] Therefore, this aspect of Mr and Mrs Davis’s counterclaim has no prospect of success.
Did ASB owe Mr and Mrs Davis a duty to repossess and sell the company’s assets?
[63] Mr and Mrs Davis claim that ASB was negligent by failing to sell the company’s assets when requested by them in December 2017. They say that as a result, the bank failed to obtain market value for the assets that it did sell, thereby increasing their exposure under the Guarantee. Mr Davis states in his affidavit that had the units been sold at market value in 2017, or early 2018, with the assistance of ASB, the market value for the assets would have covered the debt owed.20
[64] This aspect of the counterclaim also fails to meet the threshold of having any chance of success. There is no obligation on ASB to exercise its rights as a secured creditor to sell secured assets at any particular time. The Personal Property Securities Act 1999 provides that a secured party may take possession of and sell collateral when the debtor is in default under the security agreement.21 If the secured creditor chooses to exercise its power of sale, it owes a duty to the debtor to obtain the best price reasonably obtainable as at the time of sale.22 The secured creditor’s fulfilment of this duty is assessed “at the time of sale”, and accordingly, the decision of when to sell lies with the secured creditor.23
[65] Further, Mr Davis has not provided any evidence that he or the company requested that ASB sell the assets. Mr Dunlop has deposed that he does not recall such requests being made.24
20 Affidavit of Christopher Edward Davis sworn 17 September 2020, at [51].
21 Personal Property Securities Act 1999, s 109.
22 Personal Property Securities Act 1999, s 110.
23 Barry Allan Personal Property Securities Act 1999 – Act & Analysis (Thomson Reuters, Wellington, 2010) at 405.
24 Affidavit of Stuart Carl Dunlop affirmed 4 December 2020, at [35].
[66] Somewhat at odds with this complaint of ASB delaying in repossessing and selling the assets, Mr Davis also complains of ASB’s decision to do so in July 2018. Mr Davis says that when ASB issued a public notice of its intention to repossess the company’s assets, the company had a potential buyer for two units. Because of the public notice the sale was lost.
[67] However, Mr Dunlop has deposed that he provided Mr Davis with the opportunity to update the bank on the potential sale arranged by the company. On 4 July 2018 Mr Dunlop wrote to Mr Davis advising him that ASB had decided to appoint an agent to take control of the company’s assets, and to sell them on the bank’s behalf with proceeds to be applied against the company debt. Then, on 11 July 2018, ASB’s solicitors, Simpson Grierson, made demand on the company for arrears on accounts owing by the company to ASB. That demand advised that if payment was not made by 16 July 2018, then ASB may exercise its rights under the security documents.
[68] On 16 July 2018 Mr Davis emailed Mr Dunlop to advise that a prospective buyer had inspected some of the company’s assets and was interested in them. Mr Dunlop responded requesting that Mr Davis keep him informed of any progress. On 20 July 2018 Mr Dunlop sent a follow-up email to Mr Davis requesting a progress report on the potential sale. He did not receive any response from Mr Davis. On 25 July 2018 the ASB exercised its rights to repossess the company’s assets.
[69] In the end, due to the location and condition of the secured trailers, the bank only took physical possession of two articulated trucks (registration numbers HYH573 and HTL291). The trucks were sold via Turners after a marketing campaign and auction process. Mr and Mrs Davis have not proffered any evidence that the trucks were sold below market value.
[70] ASB accepted that Personal Property Securities Act registrations over two trailers (registrations Z1714 and Z1715) were released in error. Accordingly, ASB discounted the amount owing by the company by $30,000 to reflect the loss of the first registered security interest. Mr Dunlop has deposed that this reflected the highest valuation amount of each asset if ASB had been in a position to sell the assets as a
first-registered secured creditor in August 2018. This evidence is supported by valuations from Core Equity Valuation Ltd.
[71] Accordingly, this aspect of the counterclaim has no prospect of success. ASB did not owe Mr and Mrs Davis a duty to repossess and sell the company’s assets at any particular time; and furthermore, because there is no credible evidence that Mr and Mrs Davis suffered loss as a result of when ASB chose to take that action.
Result
[72] I order summary judgment against Mr and Mrs Davis on the plaintiff’s statement of claim dated 25 June 2020 for:
(a) $502,181.42; and
(b)interest pursuant to the Interest on Money Claims Act 2016, to be particularised by the plaintiff and subject to further order of the Court.
[73] I order summary judgment against Mr and Mrs Davis on their counterclaim in their statement of defence and counterclaim.
[74] As the unsuccessful parties, Mr and Mrs Davis will pay ASB’s costs relating to this proceeding. If the parties are unable to agree on the amount of costs, I accept memoranda of up to four pages, from ASB within 15 working days of this judgment; and from the defendants 10 working days after that.
Associate Judge Gardiner
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