ASB Bank Limited v Lin

[2013] NZHC 2528

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-4486 [2013] NZHC 2528

BETWEEN

ASB BANK LIMITED

Plaintiff

AND

RUI YU LIN

First Defendant

AND

QIAN GUAN CHEN

Second Defendant

Hearing:	24 April 2013
Appearances:	H K MacDonald for Plaintiff A S R Kashyap for Defendants
Judgment:	26 September 2013

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 26 September 2013 at 4.30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: ...................................

Solicitors:             Bell Gully, Auckland

Aaron Kashyap, Auckland

ASB BANK LIMITED v LIN [2013] NZHC 2528 [26 September 2013]

Introduction

[1] The Plaintiff (“Bank”) seeks summary judgment against each of the Defendants, Ms Lin and Mr Chen, in the amount of $134,350.68. The Bank contends this sum is due from each Defendant pursuant to the facility agreements and guarantees referred to below. In each case the Bank also seeks interest from 11 July 2012 and costs on a solicitor/client basis.

[2] The Defendants have filed a notice of opposition to  the  application  for summary judgment, evidence in support and a statement of defence. The Defendants accept that they are in default under the various agreements and guarantees. They submit, however, that they have a defence on grounds that:

(a)The Bank breached a duty owed to the Defendants when approving a loan to a third party, Jack’s Ventures Limited (“JVL”).

(b)The Bank failed to take reasonable security in respect of its loan to JVL and its failure to do so prejudiced the Defendants. In particular the Defendants contend that the Bank was required to take a General Security Agreement (“GSA”) in respect of JVL’s undertaking.

(c)The Bank failed to take reasonable or proper care to realise mortgaged properties at the best possible price.

[3]      Having considered the submissions of all parties, I am satisfied that the Bank is entitled to summary judgment, costs and interest.

Approach to summary judgment

[4] Rule 12.2 of the High Court Rules requires a plaintiff seeking summary judgment to satisfy the Court that the defendant has no defence to the claim. In Krukziener v Hanover Finance Ltd1 guidance was given as to how the Court should

approach this issue:2

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).

Background

Advance to Mr Chen

[5] On or about 11 January 2006 the Bank and Mr Chen  entered  into  an agreement pursuant to which the Bank advanced $168,750 to Mr Chen3 (“Chen Agreement”). The advance to Mr Chen was secured by an “all obligations” mortgage of 51 Pitt Avenue, Manurewa and 15 Ihaka Place, Papatoetoe.

[6] From 2 February 2007, the Bank held a Deed of Guarantee from Ms Lin (“Lin Guarantee”) of Mr Chen’s obligations.4 Mr Chen and Ms Lin are married. The Lin Guarantee was executed by Mr Chen pursuant to a power of attorney. I raised with counsel whether anything turned on the fact that Mr Chen had executed the Lin Guarantee pursuant to a power of attorney from Ms Lin. After considering the matter, I am satisfied that no issue arises in the context of this proceeding.

[7]      Clauses 2.1 and 2.2 of the Lin Guarantee provided:

2.1Guarantee: You unconditionally and irrevocably Guarantee to us:

(a)the  due  payment  of  the  Customer  of  the  Guaranteed Indebtedness and;

(b)the due performance of and compliance by the Customer with the Guaranteed Obligations.

2.2Payment: You undertake that if, for any reason, the Customer does not pay when due (whether by acceleration or otherwise) any Guaranteed Indebtedness, you will pay the relevant amount immediately on demand by us.

[8] The Customer was defined as Mr Chen and Guaranteed Indebtedness was defined to mean, amongst other things, “all indebtedness of the Customer to us or incurred by us on behalf of the Customer (including all interest, costs ...)”.

Advance to Ms Lin

[9] On or about 10 June 2008 the Bank and Ms Lin entered into an agreement (“Lin Agreement”), pursuant to which the Bank advanced two loans to Ms Lin, each of $128,000.5

[10]     The advances to Ms Lin were secured by “all obligations” mortgages of:

51 Pitt Avenue, Manurewa;       15 Ihaka Place, Papatoetoe;

lot 172 Keri Vista Rise (subsequently 96 Keri Vista Rise), Papakura;       966 Papakura Clevedon Road; and

lot 26 Kirikiri Drive (subsequently 2 Kirikiri Drive), Papakura.

(Together “the mortgaged properties”).

[11] On or about 10 June 2008, Mr Chen executed a Deed of Guarantee (“Chen Guarantee”) in respect of Ms Lin’s obligations to the Bank.6 Clauses 2.1 and 2.2 of the Chen Guarantee were identical to those in the Lin Guarantee, but with the Customer defined as Ms Lin.

[12]   The Defendants defaulted on the sums due under their respective agreements in October 2011. Each agreement provided that the advances made were repayable on demand, which demand the Bank might make at any time.

[13]     On or about 28 October 2011 the Bank made demand of:

(a)        Mr Chen for payment of $4,674.46; and

(b)        Ms Lin for payment of $7,269.89. [14] The demands were not met.

[15] On or about 23 December 2011 the Bank served notices under s 119 Property Law Act 2007 (“PLA”) as follows:

(a)on    Mr Chen    as    mortgagor    under   memorandum    of    mortgage

6748655.5 registered against the title to 51 Pitt Avenue. The notice referred to a default of $19,208.13 and required that default to be remedied by 1 February 2012.

(b)on Ms Lin as mortgagor under memoranda of mortgage 7832178.3 and 7832186.3 registered against the titles to 96 Keri Vista Rise and 2 Kirikiri  Drive  respectively.    The  notice  referred  to  a  default  of

$21,803.56, also to be remedied by 1 February 2012.

[16] Each notice stated that all amounts secured by the mortgage would become payable if the default were not remedied by the due date.

[17] In their statement of defence, the Defendants deny service of the s  119 notices but I am satisfied that they were properly served.7

[18] The Defendants did not remedy the defaults in the s 119 notices and the Bank exercised its powers of sale in respect of the mortgaged properties.

7 Ibid, Exhibit “G”.

[19] The mortgaged properties secured not only the Bank’s lending to the Defendants but also the Bank’s lending to JVL and Qian Kun International Limited (“QKIL”). The Bank’s evidence is that the Defendants were shareholders of JVL and directors of QKIL. The Bank has applied the proceeds of sale of the mortgaged properties in reduction of the indebtedness of all four parties, and the sum for which the Bank now seeks judgment represents the shortfall.

[20] Subject to the matters to which I refer below, on the face of it the Bank’s claim is made out. There is no dispute that the advances were made, that the Defendants defaulted, and that the Bank was entitled to realise the security and apply the proceeds of sale as it has done.

Defence

[21] The issue which arises is whether summary judgment should be declined on the basis that the Defendants have an arguable defence on the grounds referred to in [2] above.

Lending to JVL

[22] I address first the points that are relied on in connection with the Bank’s lending to JVL. It was, however, the second ground referred to in [2](b) above which the Defendants pursued at the hearing.

[23] The relevant evidence for the Defendants is contained in affidavits sworn by Mr Chen on 5 December 2012, 12 March 2013 and 19 April 2013. The latter was filed at the hearing, without leave. I accepted it on the basis that the Bank would have an opportunity to reply, if I considered it necessary. As it turned out, that has not been necessary.

[24] On or about 18 November 2008 the Bank and JVL entered into an agreement pursuant to which the Bank advanced funds to JVL (“JVL agreement”). JVL defaulted on its obligations.

[25] As I have said, the Defendants were shareholders in JVL and they guaranteed the repayment of JVL’s indebtedness. Mr Chen, for himself and pursuant to his power of attorney from Ms Lin, signed a “Guarantor Acknowledgment and Agreement” form dated 18 November 2008. By this document the Defendants stated:

The Guarantor(s) (each):

1.     acknowledge receipt of this Facility Agreement, (which includes the Terms and any initial disclosure required under the Credit Contracts and Consumer Finance Act 2003), the Guarantee and a copy of each of the new Security Documents referred to in the paragraph headed “Security” herein; and

2.     acknowledge and accept of [sic] the terms and conditions contained in these documents (including each of the Conditions Precedent to Drawdown); and

...

[26] These acknowledgements are material because the JVL agreement listed the security that the Bank was to take for the advance. This included the guarantees to be given by the Defendants and mortgages of the mortgaged properties but made no mention of a GSA from JVL.

[27] Counsel for the Defendants made a number of submissions as regards the advance to JVL and the Defendants’ guarantee of JVL’s obligations.

[28] First, counsel submitted that the relationship between the Bank and the Defendants was not merely that of banker and customer but that of advisor and customer and that the Bank stood as a fiduciary to the Defendants. Counsel referred me to Shotter v Westpac Banking Corporation as support for that submission.8 I note that the evidence to support that allegation was contained in Mr Chen’s third affidavit.  Ultimately it has not affected my decision on this application.

[29] Counsel further submitted that, given the alleged nature of the relationship, the Bank owed a duty to the Defendants “to exercise the degree of skill, competence, and diligence that is generally shown by an advisor”.  Counsel went on to submit

8 Shotter v Westpac Banking Corporation [1988] 2 NZLR 316.

that the Bank had a duty to disclose to the Defendants that it did not propose to take a GSA in respect of JVL’s undertaking, when a surety would usually expect such security to be taken. In that regard, referred me to Westpac Banking Corporation v McCreanor and Shivas v Bank of New Zealand.9

[30]     The Bank made a number of submissions in response.

[31] First, even if the Defendants’ allegations were correct (denied), the Bank submitted that they would give rise to a counterclaim. A counterclaim is not a defence to an application for summary judgment.10

[32] Secondly, the Bank acknowledged that the Court may refuse summary judgment if it considers that a cross-claim raised by a defendant is such that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim in to account.11  Even if, however, the Defendants’ contentions were to give rise to such a set-off, the Bank submitted that provisions in the Chen and Lin agreements and guarantees have the effect of precluding the Defendants from relying on the same.12 These provisions are cl 2.1 of the Chen agreement, cl 8.1 of the Lin Guarantee, cl 4.4 of the Lin agreement, and cl 8.1 of the Chen guarantee.13

[33]     By way of example, cl 2.1 of the Chen agreement provides:

Each payment by you to us under this Agreement is to be made free and clear of any deduction or withholding for or on account of tax or any other account whether by way of set-off, counterclaim, charge or otherwise. For the avoidance of doubt and by way of illustration, you shall not be entitled to claim a right of set-off against any obligation arising under this Agreement or to claim the benefit of any right of set-off in respect of any monies you may have on deposit with us.

9  Westpac Banking Corporation v McCreanor [1991] NZLR 580 at 583, 584; and Shivas v Bank of New Zealand [1990] 2 NZLR 327.

10 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5-6.

11 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 11 – 13.
12 Ibid at [13].

13 Affidavit of J G Wood sworn 1 August 2012, Exhibits “A” – “D”.

[34] I accept the Bank’s submission that contractual provisions which exclude a right of set-off will be enforced against a defendant who seeks to rely on a set-off as a defence to an application for summary judgment.14

[35]  Thirdly, the Bank submits that a lender does not owe a surety a duty to seek all possible security nor to take particular forms of security.15 The Bank’s evidence is that usually the Bank would take security over the assets of a borrower company, but in this case it elected not to do so.16

[36] Fourthly, the Bank makes the point that the Defendants knew or were on notice that the Bank did not propose to take a GSA, given their receipt of the JVL agreement.

Discussion

[37] I do not consider that the Defendants have an  arguable  defence  on  the grounds raised in relation to the lending to JVL.

[38]   First, as I have said, I accept the Bank’s submission that the Court is required to give effect to contractual provisions excluding a right of set-off. The Defendants are bound by those provisions.

[39] Secondly, I accept the Bank’s submission that it is a matter for a lender to determine the security, if any, that it will take for an advance. There can be no obligation to take a GSA over the borrower’s undertaking.

[40] Thirdly, and most importantly, I accept that the Defendants knew, or must be taken to have known, that the Bank did not propose to take a GSA. Such knowledge is incompatible with the allegation that the Defendants believed otherwise or relied on the Bank to take a GSA.

14 Grant v NZMC Ltd, above n 11; and Gielens v Broadway Developments Ltd (2008) 9 NZCPR 857 (HC).

15  Security Pacific Bank New Zealand Ltd v Blomfield Nominees Ltd HC Auckland CP1624/88, 9 December 1988 at 18 – 18.

16 Affidavit of J G Wood sworn 22 March 2013.

Section 176 Property Law Act 2007

[41] The third ground of opposition relied on by the Defendants is that the Bank failed to take reasonable or proper care to realise the mortgaged properties at the best possible price.

[42]     The relevant duty is that contained in s 176(1) of the PLA, which provides:

176     Duty of mortgagee exercising power of sale

(1)A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:

(a)the current mortgagor:

(b)any former mortgagor:

(c)any covenantor:

(d)any mortgagee under a subsequent mortgage:

(e)any holder of any other subsequent encumbrance.

(2)A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.

[43] The Defendants submit that the Bank breached this duty by engaging inexperienced valuers and real estate agents and that, had local agents been engaged, greater sale prices would have been achieved.

Discussion

[44] The duty imposed by s 176 is a duty to take reasonable care to obtain the best price reasonably obtainable at the time of sale. In Public Trust v Ottow,17 Asher J set out the steps that usually would indicate that a mortgagee has complied with its duty under s 176. Those steps are:18

17 Public Trust v Ottow (2010) 10 NZCPR 879.

18 Ibid at [31]

(a)the  appointment  of  a  reputable  real  estate  agent  to  market  the property;

(b)obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property;

(c)marketing over a reasonably long period of time;

(d)an extensive advertising and promotional campaign;

(e)a properly conducted auction; and

(f)a sale price that, given all the circumstances, can be reconciled with expert opinion as to value.

[45]   There is clear authority that a failure to achieve a price equal to market value as assessed by a registered valuer does not of itself evidence a breach of s 176.19

[46] I do not consider there is an arguable breach of s 176 on the evidence before me.

[47] The Bank engaged Albion Banks Valuation Limited, registered valuers, to give a fair market valuation for each mortgaged property and also to provide an estimate of the price likely to be obtained on a mortgagee sale.

[48] The Bank also engaged Barfoot & Thompson (“Barfoot”) to act on the sale of the mortgaged properties. Specifically, the Bank appointed two agents with that firm who have more than 14 years’ experience in residential mortgagee sales in the Auckland area.

[49] The Bank’s evidence is that Barfoot conducted a four week marketing campaign in March 2012. This included listing the properties on Barfoot’s own website, and on Trade Me, realestate.co.nz and nzrealtors.co.nz, and advertising the same in the New Zealand Herald, Property Press and Property Hotline (Chinese

19 Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262,448.

Edition). Barfoot also held open homes (or open sections in the case of the development sites), and contacted prospective buyers known to Barfoots.

[50] Barfoot conducted auctions of each of the mortgaged properties. 15 Ihaka Place and 2 Kirikiri Drive were sold at auction. The other properties were passed in and sold subsequently for substantially more than the highest bid made at auction. The following table sets out the prices realised, as against the Albion Banks’ mortgagee sale estimate.

Albion estimate

51 Pitt Ave  $170,000

Sale Price

$145,000

96 Keri Vista Dr  $95,000

$131,000

2 Kirikiri Dr  $95,000

$128,000

15 Ihaka Pl  $360,000

$352,000

966 Papakura Clevedon Rd                   $350,000

$305,000

[51]     On  the  basis  of  the  evidence  before  the  Court,

I  am  satisfied  that  the

Defendants do not have an arguable defence to the Bank’s claim on the ground that the Bank breached its duty under s 176 PLA. The Bank appointed agents who were experienced in the marketing of properties for mortgagee sale. The marketing programme appears to have been adequate and there is nothing in the sale prices ultimately achieved that might put one on enquiry as to whether there had been a failure to exercise the reasonable care required by s 176 PLA.

Interest and costs

[52]     I turn now to the matter of interest and costs.

[53]   In the prayer for relief in its statement of claim, the Bank seeks interest from 11 July 2012. It is not apparent from the statement of claim or the affidavit evidence as to the relevance of that date. Leaving that to one side the Bank seeks interest at different  rates  depending  on  the  account  or  agreement  to  which  the  interest  is

charged. The Bank seeks interest at the rate of 22.5 per cent (presumably per annum) on each of what are referred to as the Lin Deduction Account and the Chen Deduction Account. Interest is sought at 5.75 per cent under the Chen Agreement and at 6 per cent under the Lin Agreement.

[54] It is not apparent from the statement of claim or from the affidavit evidence filed for the Bank which amounts are said to accrue interest at which rate and why. Absent that evidence, I am not willing to grant the Bank interest at the rates sought. I add also that I was not referred to the precise clauses of the contractual documents relied upon for these claims. Given that, I disallow that claim for interest and, instead, grant the Bank interest at the Judicature Act rate from the date the proceedings were issued.

[55] In its prayer for relief, the Bank also seeks costs against each Defendant on a solicitor/client basis. Again, however, I am not able to determine from the evidence before me as to basis for the contractual claim to such costs. In particular, it is not apparent which clauses of which agreements are relied upon. Given that, I disallow the claim for costs and grant costs on a 2B basis, together with disbursements.

Result

[56] I enter judgment for the Bank in the sum of $134,350.68. I make an award of interest at the prevailing Judicature Act rate or rates since 2 August 2012 and award costs on a 2B basis, together with disbursements.

..................................................................

M Peters J