Bank of New Zealand v Garnham
[2015] NZHC 2922
•23 November 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-447 [2015] NZHC 2922
BETWEEN BANK OF NEW ZEALAND
Plaintiff
AND
MICHAEL ROBERT GARNHAM First Defendant
MICHAEL BRIAN SPACKMAN Second Defendant
PRIME COMMERCIAL LIMITED Third Defendant
BALLANTYNE BARKER HOLDINGS LIMITED
Fourth Defendant
SAMS BAY HOLDINGS LIMITED Fifth Defendant
CRIFFEL DEER LIMITED Sixth Defendant
Hearing: 9 November 2015 Counsel:
R J Gordon and D P MacKenzie for the plaintiff
J R Sumner for the DefendantsJudgment:
23 November 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (the bank) has issued proceedings against the defendants in which it seeks to recover from the defendants (in their capacities as borrowers or guarantors) various loans which expired or were called up in late 2014. The amounts claimed are substantial. For example, the bank claims a total of $1,808,653.80 from the first to fourth defendants on its first cause of action, together with ongoing
interest and costs. On its second cause of action, the bank claims against the first to
BANK OF NEW ZEALAND v MICHAEL ROBERT GARNHAM [2015] NZHC 2922 [23 November 2015]
fifth defendants a total sum of $3,904,937.86, together with interest and costs. And in the fifth cause of action the bank claims a total of $255,056.64, plus ongoing interest and costs from the sixth defendant.
[2] The bank says the defendants have no reasonably arguable defence to its claims, and it has applied for summary judgment. The defendants have filed a notice of opposition to the summary judgment application, and they have also filed a statement of defence.
[3] In advance of the hearing of the summary judgment application, the defendants filed an application for orders that two officers of the bank who filed affidavits, Mr Willdig and Mr Plummer, be required to attend for cross-examination, and that the bank be directed to provide discovery of certain documents set out in a schedule to the application. A copy of that schedule is annexed to this judgment. A third part of the application asked for a direction that the issues in the case were not suitable for determination by summary judgment, but that application has now been withdrawn.
[4] On 8 September 2015 the Court directed that the defendants’ cross- examination and discovery applications were to be heard in advance of the hearing of the summary judgment application.
[5] I now give judgment on the defendants’ cross-examination and discovery applications.
Background
[6] The defendants are all companies or entities associated with the first defendant Mr Garnham, who is a solicitor based in Wellington. Mr Garnham personally guaranteed the lending to the second defendant, and he is the sole director of the third defendant. He is a director of each of the fourth, fifth, and sixth defendants. Mr Garnham occupies a property at Seatoun, Wellington, owned by the second defendant, and the bank seeks an order for vacant possession of this property so that it can effect a mortgagee sale in a manner most likely to realise the best price reasonably obtainable.
[7] In their statement of defence the defendants plead various affirmative defences including alleged misrepresentation by the bank, breach of the bank’s obligations under the Fair Trading Act 1986, mistake, and non est factum. Broadly, the pleaded defences all arise out of a contention by the defendants that, when two of the facilities granted by the bank to the second defendant were amalgamated and refinanced in July 2013, the amalgamated facility was to continue on an interest-only basis, with no obligation to make repayments of principal. In fact the documentation completed in July 2013 did provide for payments of principal in addition to the interest. The defendants make a similar allegation about an advance the bank had made to the fourth defendant which was also refinanced in July 2013. The defendants say that they were misled into signing the July 2013 refinancing documents in the mistaken belief that there would be no principal repayments.
[8] The amalgamation involved the re-documentation and amalgamation of two separate loans made by the bank to the second defendant in his capacity as trustee of the Miro trust, on 15 April 2011 and 31 August 2012. The total of the two loans was
$1.8 million, and both had been on an interest-only basis. The rearrangement of these two loans in July 2013 involved the repayment of the loans and the making of a new advance of $1.8 million with a two year term.
[9] The loan to the fourth defendants which was refinanced in July 2013 was a loan of $750,000, with a two year term, originally made on 15 April 2011.
[10] Mr Garnham acknowledged that Mr Plummer did say at a meeting on
26 March 2013 that the bank wanted to introduce capital reductions as a requirement of the refinancing of these loans. But Mr Garnham says that he strongly resisted that suggestion, and at a later meeting (on 21 June 2015) Mr Plummer confirmed that the bank would not be insisting on further capital reductions on either the loan of $400 to the second defendant or the loan of $750,000 to the fourth defendant – both would be rolled over on an interest-only basis for two years. Mr Garnham says that there was no negotiation or correspondence in relation to placing either of the two loans to the second defendant on a table basis involving capital reductions, and no indication given by the bank that the material terms of these two loans would change in any way adversely to the second defendant.
[11] Mr Plummer does not accept Mr Garnham’s account on this issue. He says that the bank’s requirement for principal reductions was made clear at the meeting of
21 June 2013, and the loan refinancing documents subsequently sent to the defendants reflected that requirement.
[12] The defendants contend that there are very substantial factual disputes between them and the bank over the events of July 2013, in particular over the inclusion of the requirement to make principal repayments in addition to interest.
[13] The defendants’ applications are opposed by the bank, which says that no extraordinary or special circumstances exist which would justify cross-examination or discovery in advance of the summary judgment hearing. The bank says that it is entitled to have its summary judgment application heard promptly.
The defendants’ submissions – cross-examination
[14] On the merits of the case Mr Sumner submits that the addition of the principal repayments on the loans which were amalgamated and refinanced in July 2013 placed more financial pressure on the second defendant and the Garnham group than they were able to bear and indirectly led to defaults in other group facilities with the bank. He submits the defendants have satisfied their obligations to the bank on the basis of the arrangements as they were represented to Mr Garnham by the bank.
[15] Mr Sumner acknowledges that the defendants did not pick up the fact that their bank account was being debited with instalments which included principal repayments as well as interest, until approximately December 2013. He explains that in part by referring to events in the period immediately after July 2013, including an earthquake which damaged Mr Garnham’s business premises and prevented access to many of his files, including those of the defendants. Also, the July 2013 re-documented loan documents did not state any specific amount for monthly instalments, and did not contain any form of advice to borrower setting out details of the loan, such as principal amount, term, interest rate, capital repayments, and the amounts of monthly instalments.
[16] Mr Sumner’s principal concern is that the defendants’ affirmative defences may fail at the summary judgment stage if the Court concludes that the defendants have failed to provide any supporting documents or other corroboration of Mr Garnham’s contention that he was misled on the terms of the July 2013 refinancing. The defendants believe they have meritorious defences, but that they may not be able to effectively advance them at summary judgment stage if Mr Willdig and Mr Plummer are not cross-examined and they do not have the discovery which they seek from the bank.
[17] Mr Sumner accepts that special circumstances must be shown before the Court will order cross-examination of witnesses in an interlocutory application.1 He refers to the Court of Appeal decision in Kidd v Van Heeren for the proposition that “special circumstances” are wide, comprehensive and flexible words which indicate something abnormal, uncommon or out of the ordinary, but less than extraordinary or unique.2 He acknowledges that factual conflicts in interlocutory affidavits seldom amount to special circumstances, but submits that this case is unique, and that cross- examination of Mr Willdig and Mr Plummer is warranted.
[18] Mr Sumner’s submission is that the uniqueness lies in factual and credibility issues which are apparent on the affidavits, which go to the heart of the questions the Court must determine. He refers to Mr Garnham’s evidence being in stark contrast to the evidence for the bank, and submits that an injustice could arise if the parties’ respective rights were finally determined in the absence of cross-examination. He submits that the affirmative defences pleaded by the defendants would not ordinarily be determined in the absence of cross-examination, and if Mr Willdig and Mr Plummer are not cross-examined the Court may not hear and/or review evidence relating to the allegations raised in Mr Garnham’s affidavits. Mr Sumner points also
to the general duty of counsel to cross-examine on matters that are in issue.3
1 Rule 7.28 of the High Court Rules provides that a Judge may, in special circumstances, order the attendance for cross-examination of a person who has made an affidavit in support of, or opposition to an interlocutory application.
2 Kidd v Van Heeren [1997] 11 PRNZ 422 (CA).
3 Evidence Act 2006, s 92.
The bank’s submissions – cross-examination
[19] The bank essentially seeks to bypass the issues raised by the defendants over the terms of the July 2013 refinancing. Mr Gordon says that the bank is not relying on any default by the defendants under the facilities that were refinanced in July
2013 – it is relying on the defendants’ defaults under two other, unrelated, facilities which fell due for repayment in September 2014, namely advances of $928,000 and
$100,000 made to the fourth and third defendants respectively in September 2012. It is common ground that the relevant loan documents provided that default in repaying those facilities would have the effect of accelerating the defendants’ liability under all of their facilities with the bank.
[20] Mr Gordon formally confirmed in the course of his oral submissions that the bank accepts for the purposes of its summary judgment application that the issues of non est factum, misrepresentation, breach of the Fair Trading Act and mistake which the defendants have raised in respect of the July 2013 refinancing, are not suitable for determination on a summary judgment application.
[21] Mr Gordon submits that cross-examination in summary judgment proceedings should be allowed only in the most exceptional cases, and that this is not such a case. Allowing cross-examination in anything other than that very limited range of circumstances carries the prospect of subverting the whole summary judgment procedure which is designed to allow plaintiffs to obtain early determination of their claims where there is no reasonably arguable defence. Mr Garnham refers to Hurle v Eder, where Master Venning (as he then was) held that cross-examination in a summary judgment case will only be appropriate in
“exceptional” circumstances.4
[22] In Hurle the Master noted that the Court’s task is to balance the plaintiff’s natural desire to deal with their claim promptly and at a reduced cost against the possible injustice or prejudice of dealing with the matter without both parties having the benefit of full preparation.5 The Master referred to the decision of Megarry J in
Sullivan v Henderson in which the Judge noted that allowing cross-examination at summary judgment stage can lead to difficulties because:
The summary process … is one thing and the trial of an action is another: a [summary judgment hearing] with oral evidence is likely to become neither one thing nor the other and to share the disadvantages of each. The hearing ceases to be summary, and the absence of pleadings and discovery, for example, prevents the hearing from achieving the exhaustiveness of a trial.
[23] The Master accepted that there may be limited and exceptional cases where cross-examination will be appropriate on an application for summary judgment, but the case before him was not in that category.
[24] Mr Gordon submits that there is nothing unique or unusual about conflicts of evidence in affidavits filed in summary judgment applications: if there is a genuine conflict going to a relevant issue, the answer is simple: the Court will exercise its discretion against the entry of summary judgment.
Discussion and conclusions – cross-examination application
[25] The leading authority is the Court of Appeal decision in Ian Buckeridge
Transport Ltd v Paku.6 In that case the Court said:7
[W]e do not think that on the short argument we have had on this we should do more than observe that in the very nature of summary proceedings cross- examination is likely to be allowed in only the most exceptional cases. If there is no material on the papers to raise an arguable defence then cross- examination is not likely to put one in existence, and a defendant should not be allowed to raise by cross-examination what he has been unable to do or has neglected to do by affidavits sworn for the purpose. Conversely if a defence is apparent on the papers, there will be no need for cross- examination at all. We note that in England the practice in summary judgment cases is that the examination of parties is only to be exercised in exceptional cases. See the White Book vol 1 p 168. And, we note the observations of Megarry VC in Sullivan v Henderson [1973] 1 WLR 333 on the difficulties which are likely to arise if indeed cross-examination is allowed. For these reasons both of the appeals are dismissed.
[26] In my view the present application falls well short of the “exceptional cases” threshold referred to by the Court of Appeal in Ian Buckeridge. Any slender basis for the order sought largely disappears when regard is had to the bank’s
acknowledgement at the hearing that the various affirmative defences based on the
July 2013 refinancing are not suitable for determination by summary judgment.
[27] The effect of that acknowledgement would appear to be that the only questions likely to rise at the summary judgment hearing will be:
(a) did the defendants have a reasonable expectation that the facilities falling due in September 2014 would be rolled over (and if so does that reasonable expectation provide them with an arguable defence)?
(b)if not, how did any belief of the defendants that the instalment amounts which would be payable following the July 2013 refinancing would not include repayments of principal, relevantly contribute to the September 2014 defaults under the unrelated facilities (if at all)?
[28] Mr Gordon submits that the bank has unassailable answers to those questions, but whether or not that is so is not something with which I need to be concerned in dealing with the present application. For present purposes, the significance of the bank’s acknowledgement is that the events leading up to the July 2013 refinancing on which the defendants rely will no longer be in issue at the summary judgment hearing and cross-examination directed to them would appear to be unnecessary.
[29] On the question of whether the defendants had a reasonable expectation that the facilities expiring in September 2014 would be rolled over (the question identified at para [27](a) of this judgment), I can see no exceptional circumstances which would justify an order permitting cross-examination of the bank’s witnesses. Whether or not the defendants had any relevant expectations is a matter entirely within their own knowledge, and whether any such expectations were reasonable would appear to be a matter for submissions.
[30] On the question of whether there may have been some (relevantly causative) “linkage” between the defendants’ claimed misapprehension over the basis on which the refinancing took place in July 2013 and their failure to repay the unrelated facilities when they expired in September 2014 (the question identified at para
[27](b) of this judgment), again I cannot see that there is anything in the issue which would justify the exceptional course of allowing cross-examination of Mr Willdig or Mr Plummer on their affidavits. The relevant facts would appear to be within the defendants’ own knowledge.
[31] I conclude that the defendants have not made out any case for what would in effect be the substitution of a partial trial for the ordinary summary judgment hearing to which the bank is prima facie entitled (I say “partial”, because the defendants do not suggest that Mr Garnham would also be cross-examined.) The application for the cross-examination order is accordingly dismissed.
Defendants’ submissions – discovery
[32] The defendants submit that the bank has refused to discover relevant documents which should have been disclosed, some of them requested prior to the commencement of the proceeding. They say that the bank’s actions in limiting the disclosure have prejudiced them in their preparation of their defences. They contend that access to the documents listed in the schedule to this judgment is required so that they can properly put forward their defence at the summary judgment hearing.
[33] The documents cover a time period of approximately four years.
[34] Mr Sumner acknowledges the Court’s ability to dismiss the bank’s application for summary judgment if it considers that the application cannot be fairly determined when the defendants have not had access to the bank’s documents. His submission is that the documents are necessary to support the evidence of Mr Garnham, and to “put some merit” into the affirmative defences.
[35] Mr Sumner was unable to satisfactorily explain how the discovery which is now sought would differ from the scope of discovery the defendants might be expected to obtain if this were an ordinary proceeding, with no application for summary judgment. He stated only that the schedule documents would provide a very good starting point for tailored discovery, and that there might be other documents the defendants will think of which should also be disclosed.
[36] As with the cross-examination application, Mr Sumner acknowledges that the defendants need to show that there are exceptional circumstances which justify the making of the discovery order. Their overriding concern is that the Court may not be able to satisfactorily decide if there is or is not merit in their affirmative defences if they are unable to support their contentions by reference to documents held by the bank.
[37] Mr Sumner acknowledges that the scope of the discovery request might be able to be reduced if required. However he submits that the documents sought are relevant, and that they are necessary for the defendants to “flesh out” what Mr Sumner submits are meritorious defences.
The bank’s submissions – discovery
[38] Mr Gordon referred to the judgment of Wilde J in Mobil Oil NZ Ltd v Bagnall in support of the proposition that discovery should only be granted before an application for summary judgment is heard in exceptional circumstances.8
[39] In Mobil Oil, the exceptional circumstance was that the defendant had lost its file, and had no documents whatsoever to support its defence. Wilde J accepted that that qualified as an exceptional state of affairs which justified an order for discovery.
[40] Mr Gordon also referred to the decision of McGechan J in NZI Bank v Philpott,9 in which the Court held that discovery orders would not normally be granted prior to the first hearing of a summary judgment application. As the learned Judge put it, an order will not be granted where a defendant, bereft of any significant defence framework, simply wishes to go fishing oceanwide to see if something may be trawled up. The Judge considered that there will only be a relatively narrow band
of marginal cases where an outlined defence is made out but the Court encounters genuine difficulty in determining whether or not there is no defence, and has substantial reason to believe discovery in the proceeding will or may well assist that determination. Even in that limited range of situations, a Court encountering such
difficulties might prefer to dismiss the summary judgment application under its
8 Mobil Oil NZ Ltd v Bagnall (1999) 12 PRNZ 655 (HC) at 659.
9 NZI Bank Ltd v Philpott (1988) 1 PRNZ 560 at 565.
general discretion as a simple matter of caution and justice, rather than prolong matters through discovery.
[41] Mr Gordon submits that the discovery sought here is virtually unlimited, including as it does all communications, notices, meeting/telephone/file notes, reports, memoranda, credit submissions or proposals passing between the bank’s staff members involved with the Garnham group. He submits that the discovery application is no more than a fishing expedition.
[42] More generally, Mr Gordon submits that discovery is not necessary on any of the grounds pleaded in the defendants’ notice of opposition. The defendants have identified and pleaded the defences they say are arguable, and this is not a case like Mobil Oil where the defendants have no documents – they already have access to a significant volume of material. In short, there is nothing “exceptional” which would justify the order sought.
Discussion and conclusions – discovery
[43] I accept the bank’s submissions on this point. Particularly in light of the bank’s acknowledgement at the hearing that the affirmative defences of non est factum, misrepresentation, breach of the Fair Trading Act and mistake raised in respect of the July 2013 refinancing are not suitable for determination on a summary judgment application, I see nothing exceptional in the circumstances of this case which would justify the order sought. Mr Sumner did not identify any particular issue for which the documents requested are said to be relevant, and the very scope of the application, which appears to cover almost everything the defendants could have expected to obtain under any tailored discovery order which might have been made if no summary judgment application had been filed, is far wider than would be necessary to “flesh out” any defences which the defendants have already identified.
Result
[44] The applications for an order directing the attendance of Mr Willdig and Mr
Plummer for cross-examination at the summary judgment hearing, and an order
directing the bank to provide discovery in advance of the summary judgment hearing, are dismissed.
[45] The dismissal of the defendants’ application does not mean they are precluded from submitting at the hearing that summary judgment should not be entered because there are substantial issues, including credibility issues, which can only properly be addressed with the benefit of discovery on both sides and/or the Court having the opportunity to see the witnesses being cross-examined. Submissions of that sort are routinely made at summary judgment hearings, and it will be for the defendant to decide whether any such submissions will be made in this case. All that it is necessary for me to decide now, and all that I do decide, is that the circumstances have not been shown to be so exceptional that orders for cross-examination or discovery should be made in advance of the summary judgment hearing.
[46] I direct that the bank’s application for summary judgment is to be heard at
10am on Friday 12 February 2016. The bank is to file and serve its written submissions, together with an indexed and paginated casebook of the relevant pleadings, application, notice of opposition and affidavits, and copies of any authorities to be relied upon, by 29 January 2016. The defendants are to file their written submissions, together with copies of any additional authorities to be referred to, by 5 February 2016.
Costs
[47] The bank applies for indemnity costs on the basis that the application was clearly misconceived. Mr Gordon refers to r 14.6(4)(a) of the High Court Rules, which provides that the Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly or unnecessarily in continuing or defending a proceeding or a step in a proceeding. He submits that costs should be fixed now, rather than being reserved.
[48] I indicated at the hearing that I would allow further time for submissions on costs in the event of the applications being dismissed and the bank pursuing its application for indemnity costs. I accordingly direct that the bank may file a
supplementary memorandum dealing with costs within 14 days of the date of this judgment. The defendants may file a memorandum in reply within 14 days after their receipt of the bank’s memorandum.
Associate Judge Smith
Solicitors:
Minter Ellis Rudd Watts, Wellington for the plaintiff
Ford Sumner, Wellington for the defendants
Schedule A
Item Proposed categories of documents Date range 1 Ballantyne Barker Holdings Limited (“BBHL
and/or Fourth Defendant”)
April 2011 to October
2015
1.1 All communications (including emails (internal
and external), notices, meeting/telephone/file notes, including reports, memoranda, credit submissions or proposals – draft or in final form) relating to all loan facilities entered into between BBHL and the plaintiff between Mr Willdig and Mr Plummer or any other BNZ staff member involved in the credit approvals relating to all new loans or variations of existing loans or facilities provided to BBHL during the date range to be provided in their native format);
1.2 All BBHL bank statements, loan account
summaries and financial year end balances as previously sought but not provided evidencing all principal and interest payments made by BBHL to the plaintiff on each loan held by it during the date range (including all default and penalty interest applied (to be provided in their native format);
1.3 All non-privileged advice from third parties
relating to all loan facilities between BBHL and
the plaintiff (to be provided in their native format).
2 Prime Commercial Property (PCL and/or
Third Defendant)
April 2011 to October
2015
2.1 All communications (including emails (internal
and external), notices, meeting/telephone/file notes, including reports, memoranda, credit submissions or proposals – draft or in final form) relating to all loan facilities entered into between
PCL and the plaintiff between Mr Willdig and Mr
Plummer or any other BNZ staff member involved in the credit approvals relating to all new loans or variations of existing loans or facilities provided
to BBHL during the date range to be provided in their native format);
2.2 All PCL bank statements, loan account summaries
and financial year end balances as previously sought but not provided evidencing all principal and interest payments made by PCL to the plaintiff on each loan held by it during the date range (including all default and penalty interest applied (to be provided in their native format);
2.3 All non-privileged advice from third parties
relating to all loan facilities between PCL and the plaintiff (to be provided in their native format).
3 Criffel Deer Limited (“CDL and/or Fifth
Defendant”)
April 2011 to October
2015
3.1 All communications (including emails (internal
and external), notices, meeting/telephone/file notes, including reports, memoranda, credit submissions or proposals – draft or in final form) relating to all loan facilities entered into between CDL and the plaintiff between Mr Willdig,
Mr Plummer or any other BNZ staff member involved in the credit approvals relating to all new loans or variations of existing loans or facilities provided to CDL during the date range to be provided in their native format);
3.2 All CDL bank statements, loan account summaries
and financial year end balances as previously sought but not provided evidencing all principal
and interest payments made by CDL to the
plaintiff on each loan held by it during the date range (including all default and penalty interest applied (to be provided in their native format);
3.3 All non-privileged advice from third parties
relating to all loan facilities between CDL and the plaintiff (to be provided in their native format).
4 Miro Trust (“Miro and/or Second Defendant”) April 2011 to October
2015
4.1 All communications (including emails (internal
and external), notices, meeting/telephone/file notes, including reports, memoranda, credit submissions or proposals – draft or in final form) relating to all loan facilities entered into between Miro and the plaintiff between Mr Willdig,
Mr Plummer or any other BNZ staff member involved in the credit approvals relating to all new loans or variations of existing loans or facilities provided to Miro during the date range to be provided in their native format);
4.2 All Miro bank statements, loan account summaries
and financial year end balances as previously sought but not provided evidencing all principal and interest payments made by Miro to the plaintiff on each loan held by it during the date range (including all default and penalty interest applied (to be provided in their native format);
4.3 All non-privileged advice from third parties
relating to all loan facilities between Miro and the plaintiff (to be provided in their native format).
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