Bank of New Zealand Limited v Fernando
[2021] NZHC 1683
•7 July 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000015
[2021] NZHC 1683
UNDER the Senior Courts Act 2016 BETWEEN
BANK OF NEW ZEALAND LIMITED
Plaintiff
AND
JOHN WINSTON LAKSHAN FERNANDO
Defendant
Hearing: On the papers Counsel:
N J Robertson for Plaintiff G P Davis for Defendant
Judgment:
7 July 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 7 July 2021 at 10.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
BANK OF NEW ZEALAND LTD v FERNANDO [2021] NZHC 1683 [7 July 2021]
[1] The Bank of New Zealand (the bank) brings this proceeding against the defendant, John Fernando (Mr Fernando), pursuant to his guarantee of loan agreements between the bank and Mr Fernando’s companies, JohnF-LTC Ltd and Worcester Developments Ltd. Following the filing of Mr Fernando’s statement of defence, the bank applied for summary judgment. Under r 12.4(2) of the High Court Rules 2016, the bank requires leave to apply for summary judgment. The application for leave is opposed by Mr Fernando.
The facts
[2] The bank’s claim arises from several loan agreements entered into in 2018 by the bank and Mr Fernando’s companies and guaranteed by Mr Fernando. The loans were secured by mortgages over properties at Stanmore Road and Quaifes Road.
[3] In around December 2018, the loans fell into arrears. The bank engaged a collection agent called Verofi Ltd (Verofi) to pursue the arrears.
[4] In May 2019, Verofi made demand for full payment of the loans. It followed this by issuing default notices under the mortgages and then Property Law Act 2007 notices, which specified that all amounts secured by the bank’s mortgages became due and payable if defaults were not remedied by 29 July 2019. The defaults were not remedied.
[5] In October 2019, Mr Fernando sold the Quaifes Road property and the bank received the net proceeds of sale which cleared a personal loan of Mr Fernando and some of the indebtedness of his companies.
[6] The Stanmore Road properties, consisting of two one-bedroom and one two- bedroom residential units, were subsequently sold by the bank as mortgagee following a sales campaign conducted by Harcourts Grenadier. The net proceeds of sale were applied to the outstanding loans leaving balances of $370,057.23 and $74,463.45 owing by JohnF-LTC Ltd and Worcester Developments Ltd respectively.
[7] On 20 January 2020, Verofi wrote to Mr Fernando, JohnF-LTC Ltd and Worcester Developments Ltd advising of the amounts then owing and demanding payment. No responses were received to the demands.
[8] This proceeding was commenced on 18 December 2020 but service was not effected on Mr Fernando until 2 March 2021.
[9] Following service, Mr Fernando requested an extension of time to file a statement of defence. His request was refused.
[10] On 8 April 2021, Mr Fernando filed a statement of defence. It consisted almost entirely of bare admissions and denials of the allegations in the bank’s statement of claim. Mr Fernando pleaded a single affirmative allegation that the sales of the Stanmore Road properties had been significantly below reasonable market value.
[11] On 30 April 2021, the bank made its application for summary judgment which, on 4 May 2021, was followed by an application for leave under r 12.4.
[12] On 21 May 2021, Mr Fernando filed a notice of opposition to the application for leave and, on 24 May 2021, a brief affidavit in support of that opposition.
[13] The matter came before me in the Associate Judges List on 27 May 2021. I directed the bank’s leave application would be dealt with as a stand-alone matter and required counsel to confer as to a suitable timetabling for the filing of evidence and submissions. Counsel subsequently agreed on a timetable. They agreed, also, that the application could be determined on the papers.
The law
[14] The High Court Rules contemplate a plaintiff’s application for summary judgment will generally be made at the time a proceeding is commenced and served on the defendant. An application may be made at a later time with leave of the Court. Rule 12.4(2) High Court Rules provides:
An application by a plaintiff may be made either at the time the statement of claim is served on the defendant, or later with the leave of the court.
[15] Rule 12.4(2) does not provide any guidelines as to when leave of the Court will be granted. The commentary in McGechan on Procedure states:1
… The question is clearly a discretionary one, and it will be up to the party applying for leave to show why it should be granted. If the absence of a defence has only become apparent after discovery or the exchange of briefs, this may well be an adequate reason for granting leave. In many cases, as with appeals, the leave question will be bound up with the merits, and it may be difficult to determine the leave question without some consideration of the merits.
[16] In Stephens v Barron, the Court of Appeal noted it was important that leave applications be dealt with as a step prior to a full consideration of the merits of an application for which leave is required.2 The Court said the criteria for granting leave needed to be addressed, even if the merits of the substantive application are, themselves, an important aspect of the leave decision.3
[17] Case law has identified factors that are relevant in determining whether to grant leave. A decision often referred to is Tip Top Ice Cream Co Ltd v Polarland Ltd, where Master Faire considered three factors assume importance where a matter of discretion was raised by the High Court Rules, namely: 4
(a)Has the delay been satisfactorily explained?
(b)Are the merits of the applicant’s case for the relief sought particularly strong and therefore deserving of determination by the Court at a later time than is prescribed by the Rules? And,
(c)Is there any risk of a miscarriage of justice by determining the application at the later point in time?
[18] These are not the only factors to be considered. The overriding consideration must be the interests of justice having regard to the stated objectives of the High Court Rules to secure the just, speedy and inexpensive determination of proceedings.5
1 Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR12.4.01A].
2 Stephens v Barron [2014] NZCA 82.
3 At [13].
4 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564 (HC) at [28].
5 High Court Rules 2016, r 1.2.
[19] In Corbans Viticulture Ltd v Waihopai Valley Management Ltd, Associate Judge Matthews said: 6
Each application must, in my opinion, be considered in light of the objective of the High Court Rules, to secure the just, speedy and inexpensive determination of any proceeding [r 1.2], and the Court must take into account the interests of the party applying, the party against whom the application has been made, and in a case where there are other parties who are not parties to the application, their interests, to the extent that they are relevant. It may also be appropriate, in my view, to make a preliminary assessment of the merits of the proposed application, to the extent that this can fairly be done on the evidence available, but this will only be one factor to take into account in an overall assessment.
[20] In Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd, the High Court considered an application for leave to make a second application for summary judgment.7 At that time the application fell to be considered under r 12.4(2).8 Andrews J referred, with approval, to the approach of Associate Judge Matthews in Corbans Viticulture Ltd. Importantly, her Honour stated:
[35] The purpose of summary judgment is to avoid prolonged proceedings when the matters at issue are capable of summary disposition. It follows that leave should not be given to apply for summary judgment if it will not avoid prolonged proceedings.
[21] On the facts, Andrews J was not persuaded to grant leave. In summary, her reasons were that:
(a)the granting of leave to apply for summary judgment would not save the parties time and expense or avoid delay;
(b)the case was already set down for trial; and
(c)she was not persuaded of the merits of the proposed application for summary judgment; rather, she considered there was an arguable defence to the application.
6 Corbans Viticulture Ltd v Waihopai Valley Management Ltd [2012] NZHC 2799 at [60]. (footnote omitted).
7 Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 592.
8 This would now be dealt with under r 12.4(2AA) of the High Court Rules, inserted as from 24 July 2020 by r 11 High Court Amendment Rules 2020 (LI 2020/125).
The submissions
The bank’s position
[22] The bank did not file any evidence specifically in relation to the leave application. It relied upon the very substantial affidavit filed in support of the application for summary judgment.
[23] In the bank’s submissions in support of the leave application the following matters are relied upon:
(a)the application for summary judgment is consistent with the objectives of the High Court Rules;9
(b)upon receipt of the statement of defence, the bank’s counsel considered it was appropriate to proceed by way of summary judgment because of the absence of any reasonably arguable defence raised by Mr Fernando;
(c)the application for leave was filed very shortly after Mr Fernando’s statement of defence was served upon the bank (within eight working days);
(d)by analogy with the District Court Rules, it was appropriate to apply for summary judgment at that time;10
(e)the parties have not taken any interlocutory steps and no case management timetable has yet been set;
(f)there is no prejudice to Mr Fernando in granting leave;
(g)Mr Fernando has had since 20 January 2020, to enter into discussions with the bank but has not done so; and
9 High Court Rules, r 1.2.
10 Rule 12.4(2) of the District Court Rules 2014 provides a plaintiff may apply for summary judgment until the expiry of 10 working days after the date on which the statement of defence is served on the plaintiff, or later by leave of the court.
(h)there are no material conflicts of evidence that would prevent the matter being suitable for summary judgment and, related to this, the bank has provided a large amount of contemporaneous documentary evidence in support of the application.
Mr Fernando’s position
[24] Mr Fernando has filed two affidavits in opposition to the leave application. The second is a substantial affidavit extending to 53 paragraphs with exhibits attached. His counsel has filed fulsome submissions. The grounds of opposition can be summarised as:
(a)the bank has not satisfactorily explained the delay in applying for summary judgment;
(b)the merits of the bank’s case are not strong; and
(c)Mr Fernando will suffer prejudice if leave is granted.
[25] Mr Fernando argues there is no evidence before the Court as to why the bank failed to apply for summary judgment upon commencement of the proceeding. He argues that only inferences can be drawn as to why the bank did not apply for summary judgment immediately, none of which are logical, particularly when the bank is a seasoned user of the summary judgment procedure.
[26] Mr Fernando disputes the relevance of the District Court Rules, as this case is brought in the High Court. He says, also, that in determining whether the bank has delayed in bringing its application, time should be measured from the commencement of this proceeding not the date of service upon him.
[27] In respect to the merits, Mr Fernando says the bank’s application is not so deserving as to entitle it to obtain leave. He notes that:
(a)he intends to raise defences that the Stanmore Road properties were sold at an undervalue;
(b)the bank’s conduct was oppressive in refusing to accept reasonable proposals and in selling the properties at significantly under-value contributed to the alleged losses;
(c)there are likely to be conflicts of evidence on a number of points making the claim unsuitable for summary judgment; and
(d)it is likely expert evidence will be required as well as discovery in respect to such matters as whether the properties were appropriately marketed and what the reserve prices were set at.
[28] Prejudice is said to arise because had the bank applied for summary judgment at commencement, Mr Fernando would have responded to it directly, but he has been forced to take additional steps in the proceeding which are said to be:
(a)filing a statement of defence;
(b)opposing the bank’s leave application;
(c)defending the application for summary judgment, if leave is granted.
[29] Mr Fernando says the costs consequences of these additional steps should not be borne by him, particularly when the bank has failed to provide an adequate explanation for not applying for summary judgment at the appropriate time.
Discussion
[30] It is correct the bank has not filed affidavit evidence as to the reasons it did not apply for summary judgment upon commencing the proceeding. Counsel says in her submissions that following receipt of Mr Fernando’s statement of defence it was determined that applying for summary judgment was the best way forward as the statement of defence provided no reasonably arguable defence. That should have been set out in an affidavit.
[31] However, this is not of itself reason to refuse the bank’s application. While I accept Mr Fernando’s submission that the District Court Rules are not directly applicable, consistent with the bank’s position the application for leave was promptly filed after receipt of Mr Fernando’s statement of defence and before any further steps were taken in the proceeding. The absence of delay distinguishes this case from others where leave to make an application for summary judgment is sought at a later stage of a proceeding.11
[32] In my view also, the decision to apply for summary judgment is not surprising given the proforma nature of Mr Fernando’s statement of defence. It was quite inadequate, notwithstanding Mr Fernando saying this was filed to preserve his position. The statement of defence raised only one affirmative matter concerning the sale price of the Stanmore Road properties which does not, at least as expressed, amount to a defence of the claim.
[33] It is necessary for me to have some regard to the merits of the bank’s application for summary judgment. Although Mr Fernando has yet to file his opposition to that application he has filed a substantive affidavit which addresses the merits from his perspective. That said, my assessment of the merits, while more than an impression, cannot be a definite indicator of the outcome if the bank is granted leave to proceed with its application for summary judgment.
[34] My view is the bank has a sufficient prospect of obtaining summary judgment. Mr Fernando appears to be advancing two principal matters in defence. In relation to the issue of alleged oppression by the bank, his submissions do not identify how this provides him with a defence. On the documents before me, it is difficult to see how oppression could be established on the facts either.
[35] In relation to the allegation the bank sold the Stanmore Road properties at an undervalue, it appears what is being alleged is that the bank breached its duty of reasonable care under s 176(1) of the Property Law Act “to obtain the best price reasonably obtainable as at the time of sale”. The relevant principles are well
11 Jones Lang Lasalle Ltd v Soft Technology JR Ltd [2019] NZHC 1965 and Scully v Holland [2018] NZHC 3440.
established.12 The cases emphasise the statutory obligation is not to obtain the best price reasonably obtainable in fact, but to take reasonable care to do so. It appears to me there is ample evidence for the bank to argue it acted appropriately in the marketing of the properties.
[36] Furthermore, even if Mr Fernando can establish an arguable case, the bank breached its duty under s 176(1) entitling him to compensation, it is likely there will remain a significant sum owing to the bank. In such circumstances, the bank would be entitled to summary judgment as to liability, if not quantum. In this regard, I note Mr Fernando says in his affidavit, “I accept that some amounts might be owing to BNZ, but I do not accept that it is the amounts claimed in the statement of claim”. Similarly, his counsel submits, “Mr Fernando accepts that some amounts may be owing, but disputes BNZ’s quantification.”
[37] I do not accept that formal discovery of documents will be required to determine the summary judgment application. The bank has filed an affidavit containing much of the information that Mr Fernando says he requires to respond to the claim. If there is other information that Mr Fernando requires and is entitled to, it would be in the bank’s interests to provide it.
[38] As far as prejudice is concerned, Mr Fernando is not in a significantly different position than he would have been had the bank sought summary judgment upon commencing the proceeding. Contrary to his submissions, the only additional step he has taken in the proceeding is to file his largely proforma statement of defence.
[39] On the other hand, I consider if I refuse the bank leave to apply for summary judgment that may very well result in significant prejudice to both the bank and Mr Fernando. They have a common interest in the prompt resolution of this matter. The airing of issues on a summary judgment application will, at the very least, have the benefit of defining the real issues and, potentially, lead to a resolution. If I refuse the bank leave, the case will proceed in the ordinary manner and involve both parties
12 Public Trust v Ottow (2009) 10 NZCPR 879 (HC) at [17] and Westpac New Zealand Ltd v Lamb
[2012] NZHC 319.
in considerable, and possibly needless, expense. It would also delay recovery by the bank, should it ultimately establish its claim, by months, if not years.
[40] In summary, I am satisfied the bank applied promptly for summary judgment upon receipt of Mr Fernando’s statement of defence. The statement of defence raised just one affirmative issue which, on its face, was not a defence to the claim. The bank’s case is in my view sufficiently strong to justify granting leave to apply for summary judgment. I do not consider Mr Fernando will suffer any material prejudice by the granting of leave and that the interests of both parties may be advanced by doing so.
Result
[41] The bank’s application for leave to apply for summary judgment under r 12.4(2) is granted.
[42]I direct the following timetable shall apply:
(a)Mr Fernando is to file a notice of opposition to the application for summary judgment and any further affidavit by no later than 30 July 2021;
(b)The bank shall have until 13 August 2021 to file any further evidence strictly in reply;
(c)The application for summary judgment shall be heard at 10.00 am on 27 August 2021;
(d)The bank shall file its submissions in support of the application along with an indexed and paginated bundle of documents and bundle of relevant authorities by no later than 20 August 2021;
(e)Mr Fernando shall file his submissions in opposition along with a bundle of any relevant authorities by no later than 24 August 2021;
(f)The bundles of authorities are not to include cases dealing with well- established principles or uncontentious matters;
(g)The costs of the application for leave are reserved to be dealt with at the time the summary judgment application is determined; and
(h)I reserve leave to apply for variations to the timetable should that be necessary.
O G Paulsen Associate Judge
Solicitors:
Sanderson Weir Limited, Auckland Shaun Cottrell Law, Christchurch
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