Bank of New Zealand v Koroniadis

[2013] NZHC 2775

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-271 [2013] NZHC 2775

BETWEEN  BANK OF NEW ZEALAND Plaintiff

ANDKOSTANDINOS EVLAMBIOS KORONIADIS

First Defendant

ATHANASIOS KORONIADIS Second Defendant

Hearing:                   21 October 2013

Appearances:           J G Toebes for Plaintiff

Athanasiois Koroniadis, Second Defendant in person udgment:  21 October 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

JT Law, Wellington

Copy for:

Mr A Koroniadis, Wellington, Second Defendant

BANK OF NEW ZEALAND v KORONIADIS [2013] NZHC 2775 [21 October 2013]

[1]      There are two applications.   The BNZ has applied for summary judgment against the second defendant, Mr Athanasios Koroniadis.  In turn, Mr Koroniadis has applied for an order for discovery.   Judgment has already been given by default against the first defendant, Kostandinos Evlambios Koroniadis.  He has taken no part in this application, although there will be reference to him later in this decision. Where I refer to Mr Koroniadis in this decision, I refer to the second defendant.

[2]      The bank has already obtained summary judgment against Mr Koroniadis on its statement of claim.  Mr Koroniadis has also filed a counterclaim against the bank. For this application the bank is applying for summary judgment against Mr Koroniadis on his counterclaim.  This summary judgment application is one made by a defendant, a defendant to a counterclaim.  Its application is under r 12.2(2) of the High Court Rules.

[3]      It will be necessary to re-trace some of the procedural background, before the merits of the bank’s present summary judgment application can be addressed.

[4]      In its statement of claim the bank sued both defendants on a guarantee.  The bank had provided financial accommodation to Miramar Development Ltd by way of a term loan for $1,100,000 and an overdraft facility.   For security, the bank had a general security agreement, a registered first mortgage over the property of Miramar Development Ltd at 19 Edwards Street, central Wellington, and written guarantees given by each of the defendants.

[5]      The  bank’s  case  is  that  in  2012  Miramar  Development  Ltd  defaulted  in payments under the term loans.  The premises at 19 Edward Street were commercial premises.  Tenants were paying their rent into an account in the name of Miramar Development  Ltd  with  the Bank  of  New  Zealand  but  the bank’s  case was  that Mr Koroniadis gave instructions to the tenants to pay the rent into an account with another bank.

[6]      In August 2012 the bank made demand on the company to pay the debit balance of the overdraft account and the arrears on the loan facility.   When the company did not comply with the demand the bank appointed receivers under the general security agreement.

[7]      The bank  also  issued  notices  under the Property Law Act  2007.   These notices were dated 5 October 2012.  The notice under s 119 of the Property Law Act required the defaults to be remedied by 9 November 2012.  There was also a notice under s 122 of the Property Law Act.  One of the matters that Mr Koroniadis has raised with me is that he did not receive the notice until after the date for remedying the defaults had expired.

[8]      The  bank’s  case  is  that  the  notices  expired  without  the  defaults  being remedied.   The bank then became entitled to accelerate the term loan and it also acquired a power of sale over the property at 19 Edward Street.   Mr Koroniadis points out – and this is a matter I will have to consider further – that the receivers had already put the property at 19 Edward Street on the market for sale before 9

November 2012.  It also appears to be undisputed that although the receivers put the property on the market for sale then, it has not in fact sold.  Apparently some offers were made but these were not accepted as adequate.

[9]      It appears that although the receivers are agents of Miramar Development Ltd by virtue of s 6 of the Receiverships Act 1993 and the provisions of the general security agreement, the bank is able to exercise some control over the sale price of the  property  because  the  bank  can  control  whether  to  give  a  discharge  of  its mortgage if the price obtained is not to the bank’s satisfaction.

[10]     In addition to serving notices under the Property Law Act the bank also made demand on both the defendants under the guarantee and later sued.   The first defendant did not oppose, and judgment was entered against him by default.   Mr Koroniadis  did  oppose.    Associate  Judge  Gendall  heard  the  bank’s  summary judgment application on 4 July 2013 and gave judgment on 8 July 2013.  He held that Mr Koroniadis was liable and gave judgment in favour of the bank in terms of the statement of claim.  He held that Mr Koroniadis was liable under the term loan

for $1,070,795.32 plus interest up until the date of judgment, and also under the current account for $36,436.70 plus interest up until the date of judgment.  He also awarded the bank costs.

[11]     As well as opposing the application for summary judgment, Mr Koroniadis filed a counterclaim in this proceeding.   He filed that counterclaim before the application for summary judgment was heard.   In his decision, Associate Judge Gendall noted that the counterclaim had been filed.   He held that the fact that a counterclaim had been filed did not mean that the counterclaim could be considered on the application for summary judgment.  The matters raised in the counterclaim were  independent  of  matters  that  could  be  raised  in  defence  of  the  summary judgment application.

[12]     Mr Koroniadis has appealed to the Court of Appeal against the decision of Associate Judge Gendall.  The court file shows a notice of appeal by Mr Koroniadis. I am advised that the notice of appeal is out of time and that Mr Koroniadis needs leave of the Court of Appeal to continue with the appeal.

[13]     I comment that, to the extent that Mr Koroniadis wishes to challenge the decision of Associate Judge Gendall, the proper way for him to do so is to appeal to the Court of Appeal.  I say that because matters that Mr Koroniadis may wish to raise before me today cannot go by way of challenge to the decision of Associate Judge Gendall.  That is, it is not for me to review the decision of Associate Judge Gendall. There is a binding decision which, but for the question of appeal, is final.   That means that the matters it decides cannot be the subject of further litigation between the parties. That is in the interest of bringing finality to disputes.

[14]     There is a finality in the decision of Associate Judge Gendall in two respects. First, the bank has sued Mr Koroniadis on a guarantee.  The court has found that Mr Koroniadis is liable under that guarantee.  That creates what is known in the law as “cause of action estoppel”.  It means that that cause of action cannot be subject to question further because there is a final judgment in respect of that cause of action. It can also happen that in a decision a Judge decides certain issues in contest between the parties.  That can create what is called “issue estoppel”.  Issue estoppel means

that there has been a binding final decision on a particular issue.  It means that that particular issue cannot be litigated between the parties in later proceedings.

[15]     There is another aspect to the matter to consider.   The bank’s guarantee is in the bank’s standard terms.  The guarantee has a number of extensive provisions – one of them is what is called a “no set-off” provision.  Clause 15.1 provides that the guarantor must make any payments without any set-offs or counterclaim and without claiming any deductions or withholdings. That has significance for any counterclaim which Mr Koroniadis might wish to bring.

[16]     The courts recognise that matters of common law set-off and equitable set-off can be excluded by contract.  The standard New Zealand authority relied on for that proposition is Grant v NZMC Ltd.1    It entitles the bank to obtain judgment without having to confront arguments of equitable set-off.  The effect of that exclusion is that although the bank can obtain judgment, it leaves the guarantor free to bring other claims if the guarantor has other valid counterclaims against the bank.   So to that extent the very fact that the bank has obtained summary judgment on its guarantee against  Mr  Koroniadis  does  not,  by  itself,  stand  in  the  way  of  Mr  Koroniadis

bringing a counterclaim against the bank.  That is, the first summary judgment is not, by itself, conclusive against Mr Koroniadis.

[17]     The bank filed a statement of defence to the counterclaim of Mr Koroniadis and at the same time it also made this summary judgment application.  That means that its application is within time. The bank does not require leave for its summary judgment application.

[18]     I refer to the approach which the courts take on defendants’ applications for summary judgment.  The leading authority in this area of the law is the decision of the Court of Appeal in Westpac Banking Corporation v MM Kembla NZ Ltd.  The key paragraphs in that decision set out the general test for a summary judgment

application by a defendant: 2

1      Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).

2      Westpac Banking Corporation v MM Kembla NZ Ltd [2001] 2 NZLR 298 (CA) at [58]-[64].

[58]     The  applications  for  summary  judgment  were  made  under  Rule

136(2) of the High Court Rules which permits the Court to give

judgment against the plaintiff “if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed”.

[59]     Since  Rule  136(2)  permits  summary  judgment  only  where  a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by Rule 136(1).

[60]      Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under Rule 186. Rather Rule 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.

[61]      The   defendant   has   the   onus   of   proving   on   the   balance   of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.

[62]      Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[63]      Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more  in  possession  of  the  facts  than  the  plaintiff  (as  is  not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other

interlocutory steps and before the plaintiff's evidence can reasonably be assembled.

[64]      The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.

[19]     Likewise,  it  is  useful  to  refer to  the  approach  which  the courts  take  on discovery applications in the context of a summary judgment application.  There is helpful guidance in the judgment of McGechan J in NZI Bank Ltd v Philpott.3

(11)      In practical terms, it may well be that discovery will have only minor importance in summary judgment matters. Generally, I suggest, it will not be granted prior to first hearing of the summary judgment application  itself.  Even  at  that  hearing,  such  orders  will  not  be granted at all unless “necessary”. Such orders hardly will be “necessary” where a defendant, bereft of any significant defence framework, simply wishes to go fishing oceanwide to see if something can be trawled up. It will not be necessary in the converse situation where quite apart from questions of discovery the Court is not  satisfied  the  defendant  has  no  defence,  and  the  summary judgment application therefore is to be dismissed on ordinary principles. Its likely significance will be in the relatively narrow band of marginal cases where an outline defence is made out, but the Court encounters genuine difficulty in determining whether or not there is no defence, and has a 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 general discretion, as a simple matter of caution and justice, rather than prolong matters through discovery, but the latter course would be open. Unjustified applications for discovery can of course be suitably dealt with by costs.

[20]     That decision was given in the early days of summary judgment applications. Experience since then is  that  discovery is  rarely ordered  in  summary judgment applications.   That is because when a court considers a summary judgment application, the court has to be satisfied that it should be able to give judgment there

and then in favour of the party applying for it.  That means that the court has to be

3      NZI Bank Ltd v Philpott (1988) 1 PRNZ 560 (HC) at 565.

satisfied on the material then placed before the court that no useful purpose would be served by further interlocutory steps or by having a full hearing where parties may be required to give evidence in person and be cross-examined.  If the court believes on a summary judgment application that some worthwhile purpose would be served by allowing one party to have discovery of the other party’s documents, the court is more likely to dismiss the summary judgment application and allow the matter to proceed to a full hearing than to order discovery for the purpose of deciding the summary judgment application.  The short point there is that the court does not treat a summary judgment application as a mini-trial.

[21]     At the outset of this hearing I asked Mr Koroniadis to identify for me what his heads of claim were in his counterclaim.  He identified matters under two main heads.  The first aspect was that he said he was a person who had suffered prejudice under s 122(5) of the Property Law Act so as to entitle him to make a claim against the bank.

[22]     The second main head was that his actual indebtedness to the bank was not clear and he relied on certain matters.  He said that the receivers, or the bank, had not yet sold the property in Edward Street.  The sales process had been protracted and he was left in uncertainty as to how he would answer his liabilities.  Second, the bank had received a payment of $250,000 from the first defendant and he was concerned that that might prejudice him in his right to pursue the first defendant.   Third, he raised the point that this was a commercial property which would be rentable and funds may be coming in sufficient to cover outgoings on the property including servicing the bank’s debt.   Although he did not put this in his evidence or in his pleading, he also noted that the bank had applied for Miramar Development Ltd to be put into liquidation.   Those particular matters all go to the amount of his indebtedness and I shall consider them under that general head.

Section 122 of the Property Law Act 2007

[23]     Section 122 of the Property Law Act provides:

122Notice of intention to recover deficiency in relation to mortgages over land

(1)      This section applies if, under a mortgage over land,—

(a)      the mortgagee or receiver proposes, by reason of a default, to exercise a power to sell the mortgaged land; and

(b)      the mortgagee proposes to recover any deficiency on the sale from a former mortgagor or a covenantor.

(2)       The  mortgagee  or  receiver  must  serve  notice  of  the  intentions referred to in subsection (1) on the former mortgagor or covenantor concerned at least 20 working days before the exercise of the power of sale.

(3)      Subsection (2) applies whether or not the former mortgagor or covenantor has been served with a copy of the notice required under section 118 or 119.

(4)       A  failure  to  serve  a  notice  under  subsection  (2)  on  a  former mortgagor or a covenantor does not prevent—

(a)      the mortgagee or receiver from exercising the power of sale;

or

(b)      the  mortgagee  from  recovering  any  deficiency  from  the former mortgagor or covenantor.

(5)       However, a former mortgagor or a covenantor who is prejudiced by a failure to serve a notice under subsection (2) is, to the extent of the prejudice, released from liability to the mortgagee for the deficiency.

[24]     The requirement to give notice under the section applies if there is a proposed sale by either a mortgagee or a receiver.  And it applies if the mortgagee proposes to recover  any  deficiency  on  a  sale  from  a  former  mortgagor  or  covenantor. Mr Koroniadis is a covenantor under that provision.

[25]     It is common ground that the bank did issue a notice under s 122 of the

Property Law Act.  It issued that notice at the same time as it issued its notice under s

119 of the Property Law Act.   Copies of both notices are on the court file.   The notice under s 119 of the Property Law Act is addressed to Miramar Development Ltd.    It  is  then  signed  by  both  the  solicitor  for  the  Bank  of  New  Zealand  as mortgagee and also on behalf of the receivers.   The notice under s 122 of the Property Law Act is addressed to both the defendants.  It meets the requirements of s

122 of the Property Law Act and is also dated 5 October 2012.

[26]     It is also common ground that Mr Koroniadis did not receive it until 19

November 2012.  The complaint by Mr Koroniadis is that the notice under s 119 of the Property Law Act required any defaults to be remedied by 9 November 2012.  He says that by the time he received the notice the receivers had already put the property on the market for sale.   He says that having received the notice on 19 November

2012 he was prejudiced in terms of s 122(5) of the Property Law Act.  He says that the power of sale had already been exercised by the receivers putting the property on the market for sale.  As he has been prejudiced, he seeks a declaration that he is immune from any proceeding by the bank to recover any deficiency on the sale of the property.

[27]     So  far the  property has  not  yet  been  sold  either by the  bank  or by the receivers.   While  the  power  of  sale  may have  accrued,  the  step  of  putting  the property on the market and advertising it for sale is not by itself the exercise of the power of sale.  As Mr Toebes submitted, that is merely a preparatory step to a sale. The power of sale is exercised when the receiver or the mortgagee enters into an agreement for sale and purchase over the property.  Until that stage, all steps taken are simply preparatory.

[28]     I also accept the submission of Mr Toebes that while the property remains unsold,  the power of redemption under s 97 of the Property Law Act may still be exercised.  That means that Mr Koroniadis still has the right, at law, to tender to the bank as mortgagee all sums payable under the mortgage so as to have the bank’s security against the property discharged.

[29]     The purpose of s 122 is to offer a form of protection or safeguard to former mortgagors or covenantors.  It puts them on notice that a property is to be sold, so that they can take steps before sale to redeem the mortgage if they can.  Here, Mr Koroniadis has received the requisite notice under s 122.   He has had it since 19

November 2012.  He is aware that the power of sale may be exercised although it has not been exercised yet.  He has the legal right, until the exercise of the power of sale, to use the power of redemption under s 97 of the Property Law Act.  While those rights remain available to him he cannot be a prejudiced person under s 122(5) of the

Property  Law  Act.     Accordingly,  the  bank  has  succeeded  in  showing  that

Mr Koroniadis does not have a proper cause of action in respect of s 122.

[30]     For fullness, I should also mention that in the summary judgment application Associate Judge Gendall dealt with a similar argument by Mr Koroniadis as to late service of the notice under s 119.  Section 121 requires that a copy of a notice under s 119 must be served on a covenantor as well as a former mortgagor, subsequent mortgagee and caveator.  That section requires that the notice be served as soon as possible. Associate Judge Gendall found on the facts that the notice had been served as soon as possible under s 121(2) and because Asssociate Judge Gendall has already made that finding I am not require to revisit that aspect.

[31]     To summarise so far, I find that Mr Koroniadis does not have a cause of action in respect of notices under ss 119, 121 and 122 of the Property Law Act.

Uncertainty as to extent of Mr Koroniadis’ liability

[32]     Taking  matters  generally,  the  matters  that  Mr  Koroniadis  has  raised  go towards reduction of his liability under the judgment debt.  The sale of the property is obviously an important factor in determining whether there will be any residual liability on the part of Mr Koroniadis.  The time that has been taken for the property to sell is going to be a source of worry and concern to Mr Koroniadis.   That is understandable.   I was given an explanation from the bar – and I emphasise it is simply  an  explanation  from  the  bar  –  that  the  property  at  19  Edward  Street apparently has leaky problems.  There are also questions as to seismic risks and apparently two of the three tenants have departed.  This has caused delays in being able to sell the property.

[33]     Case law has established – particularly case law under s 176 of the Property

Law Act although the same would, I think, apply under s 18 of the Receiverships Act

1993 – that it is the choice of the mortgagee or the receiver when to sell.  Others with secondary liability can only await developments.  There is nothing that I can see that Mr Koroniadis can usefully do at this stage that can require that he be informed by the receivers as to steps they are taking.   The receivers have no duty as such to

impart information to him.  They are the ones now with control of the company and are under no duty to consult with him or impart information to him.  It is for their judgment as receivers to decide when to sell and at what price to sell.   That, of course, is subject to the bank’s own power to refuse to give a discharge if the bank itself is not happy with the price which the receivers have obtained.  But, other than that, Mr Koroniadis has no claim.

[34]     What might happen – and I am speaking hypothetically at this stage – is that once  the  receivers  exercise  the  power  of  sale,  Mr  Koroniadis  will  have  the opportunity then to review what has happened.  It may be – and I am simply talking in terms of legal possibility rather than actuality – that if Mr Koroniadis can show that the property has been sold at an under-value then he may have some cause of action against the receivers under s 18 of the Receiverships Act 1993 or if the bank itself exercises the power of sale under s 176 of the Property Law Act.  I say that only as a matter of possibility. I emphasise that until the property has been sold no cause of action has accrued. As an example of that I refer to the decision of Toogood

J in the case of ASB Bank Ltd v Robertson4 and my subsequent decision.5

[35]     The next matter that Mr Koroniadis has raised under this head is that the first defendant has paid the bank $250,000.  Apparently there is a settlement agreement between the bank and the first defendant.  That settlement agreement has not been put into evidence.  Mr Toebes has referred me to the terms of the bank guarantee.  I will assume – because the settlement agreement has not been put in front of me – that the settlement agreement releases the first defendant from any liability.  I make that assumption because that is the assumption most favourable to Mr Koroniadis. Even if the bank gives the first defendant a release from liability, that does not change the liability of Mr Koroniadis under his judgment. That arises from the terms of the bank’s guarantee.  The relevant provision is clause 11 which has the heading “ A continuing liability”.  Clause 11 says:

11.1     This guarantee is a continuing guarantee for the guaranteed amounts.

It is not discharged by a payment received by us or by any settlement of accounts.

4      ASB Bank Ltd v Robertson [2012] NZHC 1587.

5      ASB Bank Ltd v Robertson [2013] NZHC 2125.

11.2      Your obligations under this guarantee are not affected by anything that might otherwise affect them under the law relating to sureties including: ...

...

(c)      the fact that in relation to any guaranteed amount or any security guarantee or indemnity for them we – ...

...

(iii)      release or grant time for any other concession to or compound compromise with or do or omit to do anything   which   affects   the   obligations   of   the customer or any other guarantor or person.

(Emphasis added)

[36]     What that means is the fact that the bank has released the first defendant from any further liability under the judgment  does  not  amount  to any release of Mr Koroniadis from his liability under the guarantee and the judgment.  Even if the bank has given a release and if Mr Koroniadis were to meet his liability under the judgment, it seems to me that the settlement agreement would not stand in the way of Mr Koroniadis exercising his own claim to contribution if he has paid more under the guarantee than his co-guarantor.

[37]     Mr Koroniadis, in effect, is left with claims for more information particularly as to what has happened to tenants, as what has happened to rent from the property and as to what choices the receivers and the bank might be taking as to how to exercise  their  remedies.    I  am  not  satisfied  that  any  of  those  matters  do  give Mr Koroniadis a cause of action against the bank.  The payment of $250,000 is a matter  to  be  taken  into  account  in  establishing  that  the  indebtedness  of  Mr Koroniadis has been reduced under the judgment.  There may be further accounting to take place once the receivership is completed, once the property has been sold and the proceeds of sale can be accounted for.  None of those matters at this stage give Mr Koroniadis a right by way of a cause of action against the bank.

[38]     The amended counterclaim for Mr Koroniadis does set out other materials as well.  However I am satisfied that I have clarified with Mr Koroniadis  the basis on which he is bringing his counterclaim and what he has identified as his causes of action.

[39]     I am satisfied that the matters Mr Koroniadis has set out in his pleading do not constitute valid causes of action against the bank.  That means that the bank has succeeded in showing that his causes of action cannot succeed.  That means that I must give the bank summary judgment on its application.

[40]     The Bank has satisfied me that the matters raised by Mr Koroniadis cannot possibly succeed.  It has been possible to reach a decision on that by considering the material  on  the  court  file  without  having  to  speculate  on  what  might  become available on discovery.   Because I have granted the bank summary judgment, I dismiss the application for the discovery order.

Costs

[41]     As the bank has succeeded on its summary judgment application, it is entitled to costs on a 2B basis with disbursements as agreed by the Registrar.

[42]     If there is any issue as to the calculation of costs, I will decide that on the papers.

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

Associate Judge R M Bell