Guardian Property Management Limited as Trustee of 11 the Avenue Trust and as Trustee of Whitney Park Trust v Bridgecorp Limited C Auckland CIV 2005-404-3219
[2007] NZHC 1568
•26 January 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2005-404-3219
BETWEEN GUARDIAN PROPERTY MANAGEMENT LIMITED AS TRUSTEE OF 11 THE AVENUE TRUST AND AS TRUSTEE OF WHITNEY PARK TRUST
First Plaintiff
ANDCLODE INVESTMENTS (NO.1) LIMITED
Second Plaintiff
ANDBRIDGECORP LIMITED Defendant
AND ANZ NATIONAL BANK LIMITED, FORMERLY ANZ BANKING GROUP (NEW ZEALAND) LIMITED
Third Party
Hearing: 28 November 2006
Appearances: D A Wood for Plaintiffs (for initial appearance) C R Andrews for Defendant
J A McKay and J Burt for Third Party
Judgment: 26 January 2007 at 3.45 pm
JUDGMENT OF ASSOCIATE JUDGE H SARGISSON
This judgment was delivered by me on 26 January 2007 at 3.45 pm, Pursuant to Rule 540(4) of the High
Court Rules
Registrar/Deputy Registrar
Date: ..................................
Solicitors:
Bytalus Legal (DSM Gloyn) 35 Mokoia Road, Birkenhead, Auckland
McVeagh Fleming, PO Box 4099, AucklandChapman Tripp, PO Box 2206, Auckland
GUARDIAN PROPERTY MANAGEMENT LIMITED AS TRUSTEE OF 11 THE AVENUE TRUST AND AS TRUSTEE OF WHITNEY PARK TRUST AND ANOR V BRIDGECORP LIMITED HC AK CIV2005-
404-3219 26 January 2007
[1] Bridgecorp Limited is the sole remaining defendant in this proceeding brought by Guardian Property Management Limited and Clode Investments (No 1) Limited. It has joined ANZ National Bank Limited as a third party.
[2] ANZ is seeking the dismissal of Bridgecorp’s claim, by way of summary judgment.
Background
[3] In July 2003 ANZ assigned to Bridgecorp its interest as lender in several loan agreements or facilities and in related securities. Bridgecorp paid $10.6m for the interests.
[4] 11 The Avenue Trust is the borrower under one of the loan agreements. The agreement contains a clause which authorises the lender to charge extension fees of
$5,000.00 per week in the event of the trust’s default. The trust was in default at the time of the assignment and Bridgecorp charged the trust extension fees of $480,000.00. Bridgecorp charged the fees under the extension fee clause on the understanding that they were outstanding and that the ANZ had added them to the trust’s account.
[5] It is common ground that the price Bridgecorp paid ANZ for the assignment included a sum for the right to collect the extension fees that Bridgecorp believed were outstanding, and that the trust’s former corporate trustee paid the fees to Bridgecorp.
[6] The first plaintiff, Guardian, is the current trustee of 11 The Avenue Trust. Guardian holds the view that the trust should not have paid the extension fees and in this proceeding one of the orders it is seeking is an order on behalf of the trust, requiring Bridgecorp to refund the extension fees. Guardian maintains that the extension fee clause in the loan agreement is an invalid and unenforceable penalty provision and that the trustee paid the extension fees to Bridgecorp by mistake.
[7] Bridgecorp is defending the various claims brought in this proceeding against it. In the case of the claim for a refund of the extension fees, it has also joined ANZ as third party to the proceeding.
[8] Bridgecorp’s purpose in joining ANZ is to seek an indemnity in the event that the trust’s claim against it is successful and it is required, as a result, to refund the extension fees to the trust. Bridgecorp contends that because it paid for the right to cover the extension fees, it will be out of pocket if it is forced to refund them without itself receiving a refund of the same amount from the purchase price it paid ANZ for the assignment.
[9] ANZ rejects Bridgecorp’s third party claim and has filed a summary judgment application seeking judgment dismissing Bridgecorp’s claim. ANZ contends that the two causes of action Bridgecorp relies on cannot succeed.
[10] I am required to determine ANZ’s summary judgment application on the third party claim.
Procedural Matters
[11] At the hearing, counsel for the plaintiffs appeared and sought leave to be excused on the basis that the plaintiffs abide the Court’s decision on the summary judgment application. I gave leave accordingly.
[12] The second plaintiff, Clode joins Guardian in this proceeding. Together, they seek various orders arising out of their dealings with the ANZ and Bridgecorp over the loan agreements. For present purposes, I proceed on the basis that it is only Guardian’s claim for a refund of extension fees that is relevant to the third party claim that I am concerned with.
Guardian’s claim against Bridgecorp to recover extension fees
[13] In its cause of action to recover the extension fees, the relevant part of Guardian’s pleading states:
20.The extension fee clause is invalid and unenforceable because it is a penalty clause.
21.Pursuant to the extension fee clause, the first plaintiff has therefore paid the sum of $2,257,972.34 to the defendants by way of mistake.
22.The said monies have been wrongfully retained by the defendants and have accordingly been converted to the use of the defendants and ought to be refunded to the first plaintiff.
[14] In the prayer for relief, Guardian claims judgment against the defendants (now against Bridgecorp solely) for the sum allegedly paid by mistake together with interest and costs.
Bridgecorp’s Third Party Claim – The assignment contract
[15] Bridgecorp’s third party claim is based on two causes of action. The first is made under the Contractual Mistakes Act 1977, and alleges that Bridgecorp entered into the assignment contract under mistaken beliefs induced by ANZ. The second relies on deceptive and misleading conduct under s 9 of the Fair Trading Act 1986 which Bridgecorp says induced it to enter into the assignment contract. In each case, Bridgecorp pleads it has suffered loss as a result of ANZ’s actions.
[16] In each cause of action, Bridgecorp says it entered into the deed of assignment under the mistaken beliefs that ANZ had charged extension fees to the trust’s account and that it, Bridgecorp, would be entitled to charge extension fees under the loan agreement following its assignment. Bridgecorp says that these beliefs were induced by the contents of a settlement statement provided to it by ANZ’s solicitors on 23 June 2005.
[17] Bridgecorp’s pleading (repeated in both causes of action) states:
10.The ... defendant was influenced in entering into the assignment by a mistaken belief or beliefs ... induced by the third party through its agent and solicitors, Alexander Dorrington, in a settlement statement dated 18
June 2000 ... that
10.1$480,000.00 in fees had been added to the first plaintiff’s indebtedness under the agreement pursuant to the extension fee clause; and
10.2Subject to it being held that the extension fee clause is unenforceable, the third party, and after the date of the assignment of the agreement, the defendant were entitled at law to charge fees increasing the first plaintiff’s indebtedness under the agreement pursuant to the extension fee clause.
[Emphasis added]
[18] The settlement statement in so far as it relates to the trust’s loan agreement, reads:
ANZ BANKING GROUP (NEW ZEALAND) LIMITED
11 The Avenue
Current Balance (including accrued default interest of $81,741.50, extension fees of $480,000.00 and
administration costs of $18,000.00) 6,002,980.02
Accrued Interest 17,591.54
Line Fee (charged 1/4ly – next charge
due August 2003) 6,775.89 6,027,347.45
...
[Emphasis added]
[19] It is not in dispute that the settlement statement shows that the sum of
$6,002,980.02 required on settlement for the assignment of the trust’s loan agreement, included a figure of $480,000.00 for extension fees of that amount, and Bridgecorp paid ANZ a discounted figure of $469,589.06 for the right to receive those fees.
[20] In its mistake cause of action Bridgecorp goes on to plead that:
11. The third party knew of the mistakes made by the first plaintiff.
12.As a result of the mistakes, the first defendant entered into the assignment resulting in a substantially unequal exchange of bargains.
13.The ... defendant is not obliged by the terms of the assignment to assume the burden of mistake for the following reasons:
13.1 There is no clause to that effect in the assignment;
13.2The third party through the conduct of its agents and solicitors Alexander Dorrington is estopped from relying on any provision to the contrary.
[Emphasis added]
[21] It is clear from the qualification in paragraph 10.2 of Bridgecorp’s pleading, that Bridgecorp acknowledges that there can be no mistake causing it loss, unless Guardian succeeds in showing that the extension fee clause is an unlawful penalty provision and Bridgecorp is ordered to refund the extension fees to the trust.
[22] In its second cause of action, Bridgecorp repeats the above pleading and alleges that the ANZ engaged in deceptive and misleading conduct because the settlement statement provided by its solicitors was a misrepresentation that the trust owed extension fees to the first defendant in the amount of $480,000.00 pursuant to the establishment fee clause, when the ANZ had not in fact added that amount to the trust’s indebtedness. Bridgecorp pleads that the result is that it suffered loss and is entitled to relief by way of contribution or indemnity under s 43 of the Fair Trading Act.
[23] In this cause of action, Bridgecorp acknowledges expressly that the loss it pleads is subject to or dependent on the success of Guardian’s claim that the extension fee clause is unenforceable and that the extension fee must be refunded. The acknowledgement is stated in the following pleading:
18.To the extent that the first plaintiff is successful in any claim against the first defendant that the extension fee clause is unenforceable and the amounts charged and paid there under are recoverable from the first defendant, the said deceptive and misleading conduct has caused loss to the first defendant in that the first defendant has paid to the third party the amount of $469,589.66 of the amount of $480,000.00 wrongly stated by the third party to have been charged to the first plaintiff’s indebtedness.
[Emphasis added]
Issue for Decision
[24] As is generally the case with claims under the Contractual Mistakes Act and s 9 of the Fair Trading Act, Bridgecorp’s claims involve allegations about factual matters of mistaken belief or of deceptive and misleading conduct. Usually summary judgment is not an appropriate procedure to deal with such allegations and they ought to be subject to scrutiny at trial. However, ANZ contends there is good reason why such scrutiny is not necessary because neither cause of action can possibly succeed.
[25] The issue I must decide, is whether the ANZ is right in its contention that neither cause of action against it can succeed. If the contention is right, then it is common ground that it is entitled to an order for summary judgment unless Bridgecorp is able to amend its pleading to include a further or further causes of action.
[26] In this last respect, counsel for Bridgecorp made brief submissions to the effect that Bridgecorp should be given an opportunity to include two further causes of action based on common mistake and a misrepresentation that the extension fee clause is enforceable.
Legal Principles – Summary Judgment
[27] The relevant legal principles are not in dispute and can be summarised briefly:
a) ANZ has the burden of proving that both defendants’ causes of action against it cannot succeed;
b)It is usually inappropriate to decide issues involving disputes of material fact on affidavit evidence. Such issues ought to be left for determination at trial;
c) A plaintiff should not be at risk of an adverse summary judgment when defects in pleadings may be cured by amendment, because a proper and available opportunity to pursue a claim would be pre-empted by the summary judgment procedure.
Mistake – Is the cause of action bound to fail?
[28] As both sides acknowledge, in order for Bridgecorp to obtain relief under s 7 of the Contractual Mistakes Act, it must be able to satisfy the requirements of s 6 (1) of the Act, in so far as the assignment contract is concerned. The relevant provisions of s 6 (1) provide that the Court may grant relief:
(a) If in entering into that contract –
(i) That party was influenced in his decision to enter into the contract by a mistake that was material to him, and the existence of the mistake was known to the other party or one or more of the other parties to the contract (not being a party or parties having substantially the same interest under the contract as the party seeking relief); ...
(ii) All the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; ...
(b) The mistake or mistakes, as the case may be, resulted at the time of the contract –
(i) In a substantially unequal exchange of values; ...
(c) Where the contract expressly or by implication makes provision for the risk of mistakes, the party seeking relief or the party through or under whom relief is sought, as the case may require, is not obliged by a term of the contract to assume the risk that his belief about the matter in question might be mistaken.
[29] The ANZ argues that even if the extension fee clause is not enforceable, there are four essential elements which Bridgecorp cannot possibly prove. They are:
a) That Bridgecorp was influenced in its decision to enter into the assignment by a mistake that was material to it;
b) That ANZ knew of the alleged mistake;
c) That there was a substantially unequal exchange of values;
d)That under the assignment, Bridgecorp did not assume the risk of any mistake.
[30] It is convenient to deal first with the first and last of these elements. It is ANZ’s contention that the terms of the assignment are a complete answer to the mistake cause of action, because the terms of the assignment include provisions that expressly negative reliance by Bridgecorp on the settlement statement and show that Bridgecorp assumed the risk of any mistake. The specific terms of the deed of assignment ANZ relies on are the following terms:
No warranties: [ANZ] makes no warranty or representation of any nature in respect of the Facilities or Securities and further makes no warranty or representation as to the amount or amounts outstanding under, chargeable under or recoverable under the Facilities or Securities” (clause 4);
Due Diligence: [The defendant] confirms that it has conducted its own full and complete due diligence in respect of the Facilities and Securities and the moneys outstanding thereunder, and in entering into this deed and assignment and transfer of the Facilities and Securities, it is not in any way or manner relying on:
(a) Any information or documentation provided by [ANZ]; (b) Any representations or statements made by [ANZ];
(c) Any act or omission of [ANZ]” (clause 7);
Full Settlement: This deed and the transfer and assignment of the Facilities and Securities is in full and final settlement of all matters and claims of any nature as may exist between the parties on or pertaining to the Facilities or Securities or any priority documentation between the parties or otherwise on any account whatsoever” (clause 10); and
Contractual Remedies Act 1979: [The defendant] hereby waives and release [ANZ] from any liability implied, or which would have been implied or imposed but for this clause, by section 11(3) of the Contractual Remedies Act 1979” (clause 11).
[31] I agree with ANZ’s contention. My reasons follow.
[32] Bridgecorp’s decision to enter into the assignment could not have been influenced by any mistaken belief arising out of the settlement statement about what was outstanding or chargeable under the loan agreement because the loan agreement to which it is a party, expressly states that the ANZ makes no such warranties or representations. As the parties have agreed that statements as to what is owing are neither warranties nor representations, the settlement statement could not induce a belief that its contents are a binding or reliable representation of what is owing. In addition, the terms of the agreement expressly negative reliance on any representations or statements made by the ANZ, requiring Bridgecorp instead to conduct its own due diligence in respect of the moneys outstanding.
[33] Further, even if Bridgecorp had proceeded under that belief, as an applicant for relief under the Act, it must show that it is not obliged by the terms of the contract to shoulder any burden of risk of mistake: s 6(1)(c). It is plain that the parties have impliedly provided that the risk of mistake is to be borne by Bridgecorp. This is the combined effect of the “no warranties” and “due diligence” clauses. These clauses make it clear that ANZ makes no warranty as to the amounts chargeable under the facilities and securities and that Bridgecorp is required to conduct its own due diligence in respect of moneys outstanding, and is in no way relying on any information or documents provided by ANZ, or on any representations or statements made by ANZ in relation to the facilities and securities and the moneys outstanding thereunder.
[34] Additionally, clause 15.5 dealing with partial invalidity of the loan facility expressly contemplates that there could be legal reasons why one or more of its clauses
could be unenforceable. This is a further clear indication that Bridgecorp could not have been mistaken in the way it claims. It knew there was a risk that the enforcement fee clause may not be enforceable, because the loan agreement itself expressly recognises the risk. That knowledge is not consistent with Bridgecorp’s contention that it mistakenly believed the clause was enforceable. The effect of the clause is therefore that Bridgecorp is unable to claim relief under the Act as, regardless of any expectation it may have held as to the enforceability of the extension fees, it has assumed the risk that those fees are not recoverable. Further, there is no allegation or suggestion of fraud on the part of ANZ, nor has Bridgecorp advanced any other reasons that would make it unfair or unreasonable to give effect to the clauses.
[35] Mr McKay relied on Brownlie v Shotover Mining Ltd (CA 187/87, 21 February
1992, Richardson, Hardie Boys & McKay JJ) where it was noted that there is nothing inherently unfair in exclusionary clauses of this nature, and that commercial parties contracting in good faith should be able to achieve certainty by excluding liability for prior statements by one of them if this is what they wish to do (pp 30-33). I agree that this rationale is applicable in the instant case.
[36] The result is that I am led to the conclusion that Bridgecorp cannot prove, as it pleads, that it was influenced in its decision to enter into the assignment by mistaken beliefs induced by the settlement statement, and in any event, that it cannot prove it was not obliged to take the risk of mistake.
[37] Mr McKay also made various alternative submissions based on matters of fact. Among other things, he submitted that Bridgecorp’s lack of reliance is demonstrated by the factual matrix surrounding the assignment. In that regard, he pointed to various background facts including:
a) The assignment was a commercial contract between sophisticated commercial entities;
b) The value of the assignment was very substantial and far in excess of the
$500,000.00 purchase price;
c) Both parties had separate legal advice;
d)Bridgecorp turned down ANZ’s offer to provide a final settlement statement and confirmed it had conducted its own full and complete due diligence and taken responsibility for the adequacy of its due diligence;
e) The assignment was a brief document which contained few material clauses and which the defendant did not seek to amend.
[38] Mr McKay also pointed among other things to correspondence relating to the settlement statement, which he alleged indicated a lack of reliance in fact. Its general effect is that Bridgecorp acknowledged that it would review for itself the relevant loan documentation and a legal opinion written by Bell Gully as to the enforceability of the extension fees. It also acknowledged that it knew no warranties would be provided by ANZ.
[39] In the light of my finding as to assumption of risk, it is unnecessary to consider this correspondence and other matters of fact which ANZ advanced in its alternative submissions.
[40] It is also unnecessary to consider at length the possibility of amendment by Bridgecorp to include a claim based on common mistake. A claim based on common mistake would not dispense with the need for Bridgecorp to show that it did not assume the burden of the risk of mistake. Under s 6, that burden applies whether the mistake relied on is a unilateral mistake or a common mistake. For reasons I have discussed, I am satisfied that Bridgecorp did assume that burden.
Fair Trading Act claim – Is this cause of action bound to fail?
[41] I turn next to the cause of action under the Fair Trading Act.
[42] Both sides acknowledge that for Bridgecorp to obtain relief, it must be able to satisfy s 43(1) of the Fair Trading Act. This means that even assuming the settlement statement was misleading and deceptive (which ANZ does not accept), Bridgecorp must
still prove that the misleading or deceptive settlement statement was a cause of the loss it alleges.
[43] Mr McKay submitted that the cause of action must fail because the cause of loss pleaded cannot be proved. He pointed out that Bridgecorp pleads that the cause of loss is the settlement statement and that it represented that the ANZ had charged extension fees when in fact the ANZ had not charged them, and not on an allegation about enforceability.
[44] Mr McKay submitted, by way of explanation, that:
a) If the statement did contain such a representation, the representation could not have caused any loss because the trust in fact paid the extension fees.
b)If Bridgecorp does suffer a loss by having to refund the extension fees to Guardian, the cause will be the unenforceability of the penalty clause and there is no allegation that ANZ represented that the clause was enforceable.
c) It is now too late to amend the cause of action, to plead that ANZ represented that the fees were enforceable, because of the time limits for bringing proceedings under s 43(5) of the Act.
[45] I accept Mr McKay’s submission that the trust paid the extension fees to Bridgecorp, so any misrepresentation on ANZ’s part that it had charged the fees did not cause Bridgecorp not to receive the fees or to suffer any loss. If Bridgecorp suffers a loss, it will be for the reason Guardian now advances, so the material cause will be the unenforceability of the extension fee clause and not any failure on the ANZ’s part to charge Guardian’s account with the extension fees.
[46] I also accept that there is no express pleading by Bridgecorp that ANZ represented, by the settlement statement or other means, that the enforcement fees are enforceable. However, it might be argued that there is already sufficient indication of such a representation to justify the Court’s treating the pleading as broad enough to
contain an implicit representation by the ANZ that it was entitled to charge the extension fees. As Bridgecorp pleads at paragraph 10 of its claim that the settlement statement induced its belief as to enforceability, it could be said that it is saying, in effect, that the settlement statement represented as much. If the argument is right, then it would be permissible to amend the pleading to give it greater clarity, without breaching the limitation provisions in the Act.
[47] The difficulty for Bridgecorp does not however end there. Bridgecorp is still faced with Mr McKay’s alternative submission that the terms of the contract clearly absolve ANZ of any liability in relation to misrepresentation.
[48] Although it is not possible to simply exclude the operation of the Fair Trading Act by contract, I accept that there is merit in the submission and that there has been no reliance on the allegedly misleading or deceptive statement. As discussed above, the terms of the contract of assignment make it clear that Bridgecorp does not in any way or manner rely on any representations or statements made by ANZ. The fact is, the parties have included provisions in the contract that allow and lead me to conclude that there has been no reliance on the settlement statement in so far as it amounts to a representation as to what is owing and its enforceability. Further, this was an agreement entered into between sophisticated commercial parties, and there are no other factors which would make it unreasonable for the Court to enforce the terms of the non-reliance clauses of the contract.
[49] In these circumstances it is clear that Bridgecorp cannot reasonably argue that it was misled by ANZ’s deceptive or misleading conduct. That is the position irrespective of whether Bridgecorp has, or might be able to, plead a misrepresentation as to enforceability.
Result
[50] For the reasons I have given, neither cause of action can succeed and amendments of the kind Bridgecorp proposes would not change that outcome. The result is that ANZ is entitled to summary judgment. Accordingly, I make an order for summary judgment in favour of the ANZ against Bridgecorp dismissing Bridgecorp’s third party claim.
[51] As the successful party, the ANZ is entitled to costs on a 2B basis together with disbursements to be fixed by the Registrar.
Dated at Auckland on at am/pm.
Associate Judge Sargisson
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