Keith Richard Mason and Glenys v National Australia Bank Limited

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 178/01

BETWEEN	KEITH RICHARD MASON AND GLENYS MARGARET MASON
Appellants

AND	NATIONAL AUSTRALIA BANK LIMITED
Respondent

Hearing:	18 April 2002
Coram:	Richardson P Keith J Anderson J
Appearances:	G J Thwaite for Appellants P D Sills for Respondent
Judgment:	18 April 2002

JUDGMENT OF THE COURT DELIVERED BY ANDERSON J

Nature of the appeal

This is an appeal against a summary judgment entered by a Master against the appellants at the suit of the respondent from whom they had borrowed large sums of money. The loans were made pursuant to a loan facility agreement entered into in April 1997 and a bill acceptance facility offered by the respondent in November 1997 and accepted by the appellants in December 1997. The appellants borrowed from the respondent bank in order to buy six residential units in developments being carried out at various places on the Gold Coast of Queensland. Securities for the loans included the units. When the appellants defaulted the bank had recourse to those securities and sold them, leaving a shortfall of AUD$442,095.99. Summary judgment was given for that amount, together with interest to the date of judgment in the sum of AUD$29,802.21 as well as costs of $7,410.00 and disbursements. The appellants argue that the Master erred in law in various respects.
The appellants believe they are the victims of a disreputable marketing practice which had currency in Queensland at the time they bought their units. A characteristic of the practice is the promotion of real estate at inflated prices to persons who are unfamiliar with the market because they normally reside remote from it. A Report on an Investigation conducted for the Queensland Office of Fair Trading dated July 1999, referred to two tier markets where one property can at the same time have two wildly divergent values, depending on how and to whom the property is sold. The report observed:
Central to the marketing techniques are the recruitment of a large pool of potential purchasers, an emphasis on negative gearing as the key to successful property investment, the provision of all facilities and services for rapidly concluding the purchase process, and closeting of potential purchasers from independent sources of local knowledge and professional advice.
…
In what has collectively become known as ‘the foodchain’ a range of professionals performing services within the marketing system may be systematically ignoring professional obligations and overcharging for their services. There are concerns also in relation to undisclosed payments and secret commissions between parties to marketing transactions and third parties.
The appellants have brought proceedings against the vendors, their agents and their own solicitors to recover losses said to be referable to the two tier and foodchain activities attending their purchase of the units. Mason v Camoola Pty Ltd & Ors High Court, Auckland, CP 636/00.
Central to this appeal is the question whether there is a sufficient link between any unlawful conduct by or on behalf of the vendors to the appellants and the respondent so as to make it wrong to enter a summary judgment. It is not sufficient for the appellants to point to the market practice of which they complain they are victims without demonstrating some evidential basis for relief against the respondent for complicity in that practice. As this Court observed in AGC (NZ) Ltd v McBeth [1992] 3 NZLR 54, at page 59, a defendant to an application for summary judgment needs to provide some evidential foundation for defences which are raised.

Opposition in the High Court to summary judgment

The appellants sought to show a sufficient link to the bank in various ways. They invoked the Fair Trading Act 1986; misrepresentation under the Contractual Remedies Act 1979; mistake under the Contractual Mistakes Act 1977; and unconscionability. In addition they alleged a set-off for alleged negligence on the part of the bank; relief for alleged breach of an alleged implied term that the bank would not act unreasonably (the breach apparently consisting of the bank’s requiring the borrowers to keep within the terms of their agreement); relief under the Credit Contracts Act 1981 against alleged oppression; relief against an alleged failure by the bank to mitigate its loss; and a discretionary withholding of summary judgment by the Court for various reasons. They argue that on this appeal the Master erred in law in rejecting these various grounds of opposition to summary judgment.

The bank’s response in the High Court

The bank’s response, repeated on appeal, was that the case for the appellants is misconceived. They cannot escape their obligation to repay money they borrowed from the respondent by reference to the conduct of a third party or parties for whom the bank is not responsible or on the basis that the bank ought to have given them unsolicited financial advice in connection with the unit purchases. The respondent asserted that there was no adequate evidential foundation for the defences raised and in this respect they are able to invoke the finding by the Master, appearing at paragraph [48] of the judgment under appeal, that the appellants had simply not produced any evidence to suggest agency or that the bank was in any way responsible for the actions of the vendors.

Fair Trading legislation

No doubt conscious of the difficulties of applying the provisions of the Fair Trading Act 1986 to activities in the Queensland market, the appellants took a compendious grasp of the New Zealand Act, the Commonwealth of Australia Trade Practices Act 1974 and the State of Queensland Fair Trading Act.
There are underlying jurisdictional difficulties for the appellants, not confined to the fair trading legislation but in respect of other defences based on New Zealand statutory provisions. The first loan agreement was completed in Australia and there is no reason to assume that its proper law is other than that of the State of Queensland. The second loan agreement stipulates Queensland law as the proper law. Notwithstanding which the case proceeded before the Master, who dealt with it accordingly, on the basis that New Zealand law was applicable. Without intending to indicate that approach as necessarily correct, we think it appropriate for the sake of the parties to deal with the arguments on the assumption that New Zealand law might have some application.
The respondent is a foreign corporation. The units in question were marketed in New Zealand, but not by or on behalf of the bank. The loan agreements were prepared in Australia and signed by the appellants in New Zealand. The earlier agreement stipulated that the first use of the account would be taken as acceptance by the appellants of the bank’s offer. On this basis the agreement would have been made in Australia where the account was located. The bill acceptance facility did not have a similar provision. This agreement was arguably made in New Zealand when the appellants signed it on 2 December 1997. However the bank’s offer was dated 24 November 1997, and the negotiations for it were carried out in April 1997 at the Bundall, Queensland, branch when the appellants were visiting Australia.
The New Zealand Fair Trading Act 1986 has the following provisions as to territorial jurisdiction and limitations, in the latter case as applying for the purposes of this proceeding, although subsequently amended.
3. Application of Act to conduct outside New Zealand
This Act extends to the engaging in conduct outside New Zealand by any person resident or carrying on business in New Zealand to the extent that such conduct relates to the supply of goods or services, or the granting of interests in land, within New Zealand.
43.Other orders
…
(5) An application under subsection (1) of this section may be made at any time within 3 years from the time when the matter giving rise to the application occurred.
The Queensland Fair Trading Act 1989 has a similar time limitation for the recovery of loss or damage suffered by an act or omission contravening the legislation. The limitation period under s99(2) is three years after the date on which the cause of action occurred.
Under the Commonwealth of Australia Trade Practices Act 1974, the cause of action does not accrue until actual loss or damage is sustained. The point was discussed by this Court in Murray v Eliza Jane Holdings Ltd (1993) 6PRNZ 251, 256.
The loan facility was executed on 7 April 1997 and the commercial bill facility was executed on or about the beginning of December 1997. The Judge held that in respect of the loan facility time expired on 7 April 2000, whereas the counterclaim was filed on 20 November 2000. As far as the bill facility was concerned, in the Judge’s view, the appellants had entered into all the agreements for sale and purchase by February 1997 when they met with an officer of the bank to arrange finance to buy the last three units on 90 day bills. Any representations by or on behalf of the vendors had been made by that stage and again the conduct complained of was out of time.
Counsel for the appellants submitted that proscribed conduct giving entitlement to relief included, in terms of the appellants’ case, the bill acceptance facility which was plainly signed after 20 November 1997 so that the counterclaim filed on 20 November 2000 was just within time. Accordingly, it was submitted, part of the cause of action under the Fair Trading Act 1986 was not statute-barred.
But even if that were the case, that service by the respondent did not relate to the supply of goods or services within New Zealand. Whether the service was the offer to provide the facility, or the advances made pursuant to the agreement, these did not occur in New Zealand. In any event the negotiations for that facility were carried out in Queensland earlier in 1997. Whether for a limitation or a jurisdictional impediment, the New Zealand Fair Trading Act cause of action is plainly untenable. The Australian legislation causes problems for the appellants by virtue of its own limitation provisions.
But the appellants’ argument is untenable as are the balance of the appellants’ arguments for an equally fundamental reason; the manifest inadequacy of evidence linking the bank to unlawful conduct by anyone.
Counsel for the appellants submitted that the extensive documentation showed that the bank knew of the two tier market at the time finance was arranged. The Master did not accept that was so. Counsel argued that it is implausible to conclude that nobody in the bank knew of the system. He then sought to argue from the assumed knowledge of someone to the proposition of assumed knowledge by someone relevant to the appellants’ transactions. This technique is inherently unconvincing. But the Master tested the argument against the untenability of the proposition that the bank would lend money against securities which it knew were inadequate, in order to obtain some perceived advantage. Before us Mr Thwaite argued to the effect that there could be a rational economic decision to take such a security risk because of the prospective profits to be made for the bank from the operation of the two tier market even if sometimes losses were made on particular transactions. Whilst in theory this could be so the application of it to this transaction is entirely speculative. The proposition was rightly rejected.
Counsel for the appellants submitted that in the context of a summary judgment application the appellants had not needed to provide all the evidential foundation but can rely on the totality of the evidence to show that an applicant has failed to discharge the burden of demonstrating that there is no reasonably arguable defence. The appellants’ proposition of law is right. It is their attempt to apply it to advantage which is wrong.
The Master found that there was no evidential basis for the appellants’ complaints. We agree. The argument for the appellants misreads the Master’s decision on the point.
Given these conclusions many of the remaining arguments for the appellants are undercut. But in deference to counsel’s submissions we deal with them, albeit succinctly.
The appellants say they were mistaken in their decisions to enter into the loan contract, the mistake being as to the value of the units in question. That may well be so but the issue is whether any such mistake can sound against the respondent who did not have any involvement with the purchase of the units beyond financing the purchases.
The Master held first that there was no evidential basis for thinking the bank knew of any mistake. Second, there was no suggestion that the mistake had resulted in a substantially unequal exchange of values. Both features are necessary for relief under the Contractual Mistakes Act 1977.
The first point has already been dealt with. As to the other point the Master’s analysis is unanswerable. The appellants contracted with the bank for the benefit of loans in accordance with the agreements. That is what they got. The securities, if inadequate, affected the bank’s remedies, not the appellants’.
Counsel referred us to Shotter v Westpac Banking Corporation [1988] 2 NZLR 316, where the High Court found a material mistake in terms of the Contractual Mistakes Act 1977 where a guarantor had given his guarantee under a mistake as to its terms. The High Court found a substantial disproportionality in the circumstances but the present case is readily distinguishable. The appellants were not mistaken about what they were getting from the bank, and they got what they knowingly contracted for.
Their argument under the Contractual Remedies Act 1979 is also unpersuasive. It depends on the feasibility of an assertion that in agreeing to advance the loan monies the respondent represented that the price the appellants were paying was a realistic price. It may be the case that Mr and Mrs Mason were not inclined to question the wisdom of their transactions by the respondent’s agreeing to finance the purchase. But to take the matter further they would have to provide some evidential basis for an argument that the respondent was privy to a scheme for over-commitment by purchasers on the basis of prices being asked. They stumble on the evidential threshold.
The appellants’ plea of unconscionability is founded on the argument that the appellants were unsophisticated, they relied on the bank, and they lacked independent advice.
An underlying assumption of this argument must be that the respondent was or should have been aware, not only that the appellants were unsophisticated seemingly in a way which is inconsistent with their occupations of, respectively, an electrical contractor and a teacher, but also that they were victims of an unconscionable transaction. The argument fails on the evidence point in the respects already indicated.
Next, the appellants argue that a term is to be implied in the loan contracts that the respondent would act reasonably. The bank is said to have acted unreasonably in requiring the appellants to remedy the contractual default by reducing their liability by AUD$160,000 in order to comply with the bank’s margins of equity. The argument falls to be assessed in circumstances where the appellants can point to no evidential basis for an allegation of complicity by the bank in an unlawful scheme. Accordingly the appellants must be taken to be arguing that the respondent has acted unconscionably merely by requiring the appellants to conform to those conditions of the loan which insisted on the maintenance of equity margins. We reject the argument for obvious reasons. It is not necessary to advert to the well known principles relating to implied terms considered, for example, in Devonport Borough Council v Robbins [1979] 1 NZLR 1.
The appellants then argue the possibility of relief under the Credit Contracts Act 1981. The basis for relief is oppression and in support they say that they are in an oppressed state. But there is no reasonably arguable case that the loan agreements were oppressive. Under s10(1) of the Credit Contracts Act 1981, for the Court to re-open a credit contract it must consider that the contract or any term thereof is oppressive.
In this case oppression seems to be argued on two essential bases. One is that in circumstances where the appellants had not defaulted on periodically due payments but only in respect of capital, it was oppressive on the part of the creditor not to contemplate an orderly sale of the securities. The argument is plainly untenable. The proposition that a creditor is to be regarded as acting oppressively in requiring payment on due date is unsupported by authority.
The appellants then argue that the Court should re-open the credit contract because, in terms of s10(1)(c) of the Credit Contracts Act 1981 “A party under a credit contract has induced another party to enter into the contract by oppressive means.”
To have any prospect of defending the claim on this basis the appellants would have to show some evidential basis for imputing oppressive conduct in respect of the loan agreements to the respondent. There is simply none.
Apart from the merits there is a difficulty with territorial jurisdiction by virtue of s7 of the Credit Contracts Act 1981 which provides:
Nothing in this Act shall apply in respect of a credit contract, or part of a credit contract, if the contract or part is not governed by the law of New Zealand.
As previously mentioned, the proper law of the agreements with the bank is the law of the State of Queensland. The Credit Contracts Act 1981 does not apply.
The appellants next submit that the respondent failed to mitigate its loss. This submission is entirely misconceived. The respondent was not suing for damages, whereby it would have been fixed with a duty to take reasonable steps to mitigate its loss. It was suing in debt where no such obligation attaches.
It is not necessary for a creditor for a liquidated sum to show that in respect of the pecuniary loss represented by the debt it has not failed to take reasonable steps to recoup the financial loss. There is no legal obligation to take reasonable steps to mitigate the impact of non-payment of a liquidated debt when only that debt is sued upon. The proposition is elementary.
Then the appellants argue for a set-off based on negligence. The suggestion of negligence is itself based on a supposed duty by the bank to warn the appellants of the existence of the so called “two tier market and foodchain”.
We iterate our opinion about the absence of any evidential basis for a reasonable argument that the respondent had some responsibility for any alleged unlawfulness by vendors of Queensland real estate. In addition, as counsel for the respondent submits, there is no basis for suggesting any duty of care on the bank to tender unsolicited advice about the alleged market.
The appellants’ final argument is that the High Court should have exercised its residual discretion to decline summary judgment. That argument is advanced on the grounds that summary judgment would, in effect, by bankruptcy, pre-empt the appellants’ counterclaim against the respondent; and that the Court should have regard to widespread dishonesty in the Queensland real estate market.
Each such argument is entirely unpersuasive. First, the counterclaim is dependent on those factual assumptions for which there is no disclosed evidential basis. Second, a general apprehension about alleged features of a foreign market could hardly justify the withholding of judgment by a New Zealand Court for an unrelated claim in debt.

Conclusion

For these reasons we are of the opinion that the appeal is entirely unfounded and it is dismissed.
The respondent will have costs against the appellants in the sum of $5,000 together with disbursements, including the reasonable travelling and accommodation costs, if any, for respondent’s counsel.

Solicitors
David Thwaite, Auckland for Appellant
Bell Gully, Auckland for Respondent

[2002] NZCA 75

18 April 2002