Kiwibank Limited v Jain HC Auckland CIV-2010-404-4410
[2011] NZHC 1865
•13 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-4410
BETWEEN KIWIBANK LIMITED Judgment Creditor
ANDJOTI JAIN AND RUPINDER CHAHIL Judgment Debtor
Hearing: 12 August 2011
7 November 2011
Counsel: R J Gordon and J D Hughes for Judgment Creditor (12 August)
S Barker and B Balderstone for Judgment Creditor (7 November) M Tolhurst for Judgment Debtor
Judgment: 13 December 2011 at 5:00 PM
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (To set aside summary judgment)
This judgment was delivered by me on 13 December 2011 at 5 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Buddle Findlay, PO Box 2694, Wellington
Citylaw, P O Box 6086, Wellesley Street, Auckland
KIWIBANK LIMITED V JAIN AND CHAHIL HC AK CIV-2010-404-4410 13 December 2011
Introduction
[1] On 7 October 2010, Kiwibank Limited, the judgment creditor, obtained summary judgment against Ms Jain and Mr Chahil in the amount of $1,396,884.84 plus interest and costs.
[2] Ms Jain and Mr Chahil now apply for an order setting aside the summary judgment. Kiwibank opposes the application.
[3] High Court Rule 12.14 governs the application. It states:
A judgment given against a party who does not appear at the hearing of an application for judgment under r 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.
[4] Ms Jain and Mr Chahil did not appear at the hearing of Kiwibank’s application for summary judgment under r 12.2. They give as their reasons that Mr Chahil was in prison and Ms Jain could not afford legal counsel. Nothing turns on these reasons. Rather, the parties agree that whether Ms Jane and Mr Chahil have arguable defences to summary judgment will determine the application to set it aside. I proceed on that basis.
[5] Ms Jain and Mr Chahil claim to have such defences based on breach of contract and a counterclaim. At the hearing, their counsel also raised a defence based on estoppel.
[6] The essential factual contentions that Ms Jain and Mr Chahil rely on are common to each defence and are essentially that:
(a) In April 2009, Kiwibank agreed to provide funding for their townhouse development at Ms Jain’s property at Bolton Street, Blockhouse Bay by way of two loans and a revolving credit facility that covered the interest on the loans. Kiwibank envisaged that the revolving credit facility would have to be extended beyond its expiry date of 22 October 2009, possibly throughout November and
December 2009, to allow for marketing and sale of the townhouses. It also ought to have anticipated an extension would be needed to allow time to complete construction, as the work was late in commencing.
(b)On 30 October 2009, Kiwibank agreed unreservedly to release a further drawdown of funds for construction costs and to extend the revolving credit facility, though its term had expired, to enable them to finish the development by the extended completion date of 14
December 2009.
(c) Kiwibank confirmed its agreement by letter of 9 November 2009.
(d)Despite this agreement, and though there was no default or other basis that justified termination, Kiwibank acted on incorrect information that it received from Placemakers in terminating the loans and the revolving credit facility and the loans.
(e) The result was that they were unable to complete the project and suffered serious losses.
[7] Kiwibank does not dispute that an extension of the revolving credit facility was always a possibility but its position is that these factual contentions are wrong in material respects and do not, in any event, give rise to the purported defences. In essence, Kiwibank says that:
(a) By the date of expiry of the revolving credit facility, 22 October 2009, the townhouses were far from finished, the advances under the revolving credit facility were close to the agreed limit, and the Jain Group was embroiled in a dispute with its main supplier, Placemakers, about on-going supplies.
(b)It was not prepared, nor obliged, to let the revolving credit facility run on after expiry. As Ms Jain had breached the standard terms and conditions of the loan agreement and security documentation, it was
also entitled to call up the balances of Ms Jain’s current account and
the various loans.
(c) Ultimately, it was also entitled to the judgment it obtained summarily against Ms Jain, the borrower and against Mr Chahil, her guarantor, when neither paid the amounts owed.
[8] Kiwibank has made applications for orders for the adjudication of Ms Jain and Mr Chahil based on their failure to comply with bankruptcy notices that are founded on the summary judgment. Those applications stand adjourned. It is common ground that orders of adjudication should not be made if Ms Jain and Mr Chahil succeed in obtaining an order setting aside the foundation judgment.
Background
[9] Ms Jain held a Business Edge Transactional Current Account with Kiwibank under the account number ..... . Relevantly, under the terms of operation, Kiwibank was entitled to demand repayment if the account was operating in debit.
[10] In July 2007, Kiwibank advanced a home loan of $1.4 million to Ms Jain under a term loan facility to enable Ms Jain to refinance existing borrowing secured over her property at 57 Bolton Street, Blockhouse Bay.
[11] In April 2009, Kiwibank provided Ms Jain with second term loan facility. This was for funding of up to a maximum of $1.612 million for a townhouse development at her Bolton Street property. The named developer was the Jain Group, which was essentially Mr Chahil and Ms Jain. The builder was BF Mudgway Limited.
[12] Kiwibank also provided Ms Jain with a revolving credit facility to cover advances of up to a maximum of $140,000 on 28 April 2009. The advances were to be used for the purpose of meeting capitalised interest on the term loans, thereby effectively funding the cost of the borrowings for the development pending completion and sale of the townhouses.
[13] Though cl 6.2 of the revolving credit facility expressly states that all advances under it are to be repaid by 22 October 2009, the clause allows for the possibility of extension. Materially, it states:
Final payment…
The borrower will pay to Kiwibank all amounts owing under this agreement… no later than 11 am on 22 October 2009 unless Kiwibank agrees to extend the date.
[14] The possibility of a review by which Kiwibank decides whether to extend the revolving credit facility is referred in the loan summary that is set out as a preface to the facility. It states:
Loan Summary
Loan type: The loan is a revolving credit agreement. Maximum amount: The maximum amount of the loan is $140,000.00.
Expiry: The loan expires on 22 October 2009. Prior to that expiry date, Kiwibank will review the loan and either terminate the loan or agree to extend the term of the loan from that expiry date.
Interest: The rate of interest charged on the loan is variable.
This is only a summary of the terms of the loan, which are set out in more detail below.
[Emphasis added]
[15] The revolving credit facility and the advances made under the term loans were secured by a first mortgage over the Bolton Street property and Mr Chahil’s personal guarantee.
[16] On 22 July 2009, Ms Jain as the registered proprietor further charged the property by granting a second mortgage to another lender. Kiwibank became aware of this some months later after it had issued demand for repayment of the overdraft on Ms Jain’s current account.
[17] By early October 2009, the townhouse development was suffering from a serious lack of progress. The head contractor was not able to uplift materials from
its supplier, Placemakers. Placemakers maintained that it was owed significant overdue sums on the materials it had supplied for the development, and it advised Kiwibank accordingly. It also maintained that Mr Mudgway, director of the head contractor, had acknowledged the debt of monies owing on the Bolton Street development, and that Mr Chahil was causing problems in meeting the debt because he was using monies drawn down for his personal use. Mr Chahil disputes this.
[18] On 30 October 2009, there was an on-site meeting at Bolton Street. Kiwibank representatives, Mr Grenfell of Ortus, who was responsible for certifying monthly draw-downs to meet construction costs, Ms Jain and Mr Chahil, and Mr Mudgway attended. They discussed in particular whether any creditors of the Bolton Street development were owed money. Ms Jain and Mr Chahil said that there were not. Mr Mudgway agreed. On this basis, Mr Jain, Mr Chahil and Mr Mudgway agreed that the development could be finished by 14 December 2009. It seems that Kiwibank indicated it would release a further interim payment, although the parties dispute whether this amounts to a firm agreement.
[19] On 1 November 2009, Placemakers provided Kiwibank with a copy of a letter it had received from Ms Jain and Mr Chahil’s solicitors, Richard Allen Law. The letter, dated 2 September 2009 and signed by Mr Allen, principal of Richard Allen Law, indicates a somewhat different position with respect to Bolton Street. It states:
RE JOTI JAIN & RUPINDER SINGH CHAHIL – Supplies for 57
Bolton Street, Blockhouse Bay Auckland
We act for the above clients.
Our clients acknowledge the total amount outstanding to the date is
$137,771.17.
We confirm on behalf of our clients that $100,000.00 will be paid on or before 20 September 2009 and the remaining balance paid on or before 25
October 2009. We note our client’s confirmation is given on the basis that you remove any restrictions on the account and continue with the supply of goods to our client. We also note our client’ advice that the delay in supply
will likely result in the delay in payment.
Please acknowledge receipt of this letter and confirm that you will continue supply of goods to our clients.
[20] On 4 November 2009, Ortus gave Kiwibank a report. The report recommended that a draw-down be issued in favour of Jain Group for $219,814.74, which included “a catch-up payment of $178,345.03 ... as discussed with the Builder and the Bank’s representative, Mr John Mowat.” The report also stressed, however, that “any payment on this project is totally at the discretion of Kiwibank…”
[21] On 6 November 2009, Placemakers issued formal notices of demand on Ms Jain and Mr Chahil for the outstanding debt on the Bolton Street development. Placemakers claimed the outstanding debt stood at $166,646.50. The notices of demand were copied to Kiwibank by Placemakers.
[22] On 9 November 2009, Kiwibank wrote to Mr Mudgway about the updated cost to complete the project. Its letter refers to their previous discussions and Mr Allen’s Bolton Street spreadsheet dated 6 November 2009 setting out the updated cost to complete as at 20 October 2009. The letter also sets out Mr Mudgway’s response to its proposal for a drawdown of $219,874.74, which included
$178,345.03, as set out in the spreadsheet, for invoices yet to be paid.
[23] Materially, the letter does not give unqualified agreement to the proposed drawdown. Rather, it requires copies of council onsite inspection sheets and the applicable invoices and advises that:
Should the Bank agree to release funds to meet the abovementioned payments [its] intention would be to make these payments direct to the respective subcontractors involved.
[24] There is no evidence that the invoices were provided in a way that satisfied Kiwibank. But it seems that Mr Mudgway’s position had changed somewhat since the meeting on 30 October, given that substantial sums were now requested for invoices yet to be paid.
[25] On 17 November 2009 Mr Apperley, Kiwibank’s Business Recovery Manager, met with Ms Jain and Mr Chahil and on Kiwibanks’s behalf and served them with written demands for repayment of the overdraft on the current account.
[26] No other grounds were stated in the demands.
[27] The demands were not complied with. On 26 November 2009, Kiwibank issued notices under the Property Law Act 2007, on Ms Jain as principal debtor pursuant to s119 and on Mr Chahil as guarantor pursuant to s122. The default specified in the notices was the failure to repay on demand the overdraft on the current account. It is common ground that Mr Jain and Mr Chahil did not comply with these notices.
[28] Kiwibank decided to proceed to a mortgagee sale of the property on an “as is” basis. After a tender process, the mortgagee sale settled and Kiwibank received the net proceeds on 21 July 2010, after commencement of the summary judgment proceeding. However, the net proceeds were duly accounted for ahead of the hearing. The summary judgment entered on 7 October 2010 reflects the balance of the outstanding debt then said to be owed.
Issues
[29] Broadly, the issues for determination are:
(a) Is it arguable that Kiwibank unreservedly agreed to further drawdown and to extend the revolving credit facility run on 30 October 2009, though its term had earlier expired, to enable Ms Jain and Mr Chahil to complete the development by 14 December 2009?
(b)If arguably Kiwibank did so agree, what are the legal effects of that agreement?
The Law
[30] Though the judgments debtors’ application pleads that it is brought in
reliance on r 15.13, it is common ground that r 12.14 governs the application.
[31] The case law authorities draw a clear distinction between judgments which are regularly and irregularly obtained. If judgment is irregularly obtained, then the
defendant is usually entitled to have judgment set aside ex debito justitiae.[1] That is not the case here. The parties agree that the judgment in favour of Kiwibank has been regularly obtained. Therefore, the issue for determination is, broadly, whether there are grounds to set aside on the basis of the three pronged test set out by the Court of Appeal in Russell v Cox:[2]
(a) Has the defendant a substantial ground of defence? (b) Is the delay by the defendants reasonably explained?
(c) Will the plaintiff suffer irreparable injury if the judgment is set aside?
[1] ANZ Banking Group (NZ) Ltd v Ord (2000) 14 PRNZ 31.
[2] Russell v Cox [1983] NZLR 654 at p659 per McMillan J.
[32] Counsel agree that this application turns on the first consideration. The others, and that Kiwibank has established a prima facie case for summary judgment, can be treated as satisfied.
[33] As to the first consideration, the comments of the Privy Counsel Cheah v
Equiticorp Finance Group Ltd are apposite:[3]
In the case of a summary judgment regularly obtained it will normally be necessary for the defendant seeking to set aside judgment to adduce material which leads the Court to the conclusion that the plaintiff has not satisfied the Court that there is no defence to the claim.
[3] Cheah v Equiticorp Finance Group Ltd [1989] 3 NZLR 1 (PC) per Somers J.
[34] It is also well established authority that in determining summary judgment cases, the court is not bound:[4]
[4] Eng Mee Yong v Letchumanan [1980] AC 331 at 341E.
[t]o accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself it may be.
The same principle applies when assessing whether or not a defendant has a substantial ground of defence under r 12.14.
No substantial ground of defence
[35] I am satisfied that there is no substantial ground of defence. The defendant has failed to adduce material which leads me to the conclusion that the plaintiff has not established that there is no defence to the claim.
[36] My reasons can be stated briefly.
[37] First, I do not accept the submission that it is arguable that Kiwibank unconditionally agreed to extend the revolving credit facility on 30 October. Though Mr Chahil claims his belief is that there was such agreement, his recollection of 30
October meeting does not support that belief. He states:
11. On 30 October 2009 I had a meeting on site at 57 Bolton Street with Barry Mudgeway of BF Mudgeway Limited, John Mowat and Shashi Srivastava from Kiwibank and David Grenfell from Ortus. At that meeting it was confirmed that BF Mudgeway Limited could complete the project within the required timeframe and budget and that all creditors of the project up to that point had been paid. Barry Mudgeway reiterated several times to Kiwibank and Ortus that the monies which had been paid to Placemakers Takanini had been paid on behalf of the Bolton Street development and that they should have been credited towards payment for the costs of that development and not towards his Company’s debts owed to them. BF Mudgeway signed an agreement with Joti Jain pursuant to this meeting, a copy of which agreement is attached and marked with letter “D”.
[38] Relevantly, counsel did not to point to evidence of any discussion about the precise terms of the extension such as how much additional credit was required or for how long. There is no suggestion of the kind of particulars that one would expect to be discussed.
[39] Further, contrary to counsel’s submission, the letter of 9 November 2009 cannot be taken to confirm the alleged agreement. The letter is in terms that show that Kiwibank’s consent to extending the revolving credit facility was very much conditional. It was conditional upon Mr Mudgway’s providing Kiwibank with copies of all council onsite inspection sheets confirming that the inspections to date have been passed, and copies of the applicable invoices giving rise to the $178,345.03 debt stated in the 6 November spreadsheet. There is no evidence that either of these
conditions were fulfilled to Kiwibank’s satisfaction, nor that Kiwibank gave its consent regardless. The letter is, however, wholly consistent with Kiwibank’s undertaking an ongoing assessment.
[40] In addition, there was to be no recommendation from Ortus for a further drawdown until 4 November 2009. It is inconceivable that Kiwibank would agree to a drawdown prior to receiving certification or a recommendation from Ortus.
[41] Ms Jain and Mr Chahil cannot derive any comfort on the letter from Ortus recommending a drawdown. As stated at [20] above, the letter is couched in terms that make it clear that any drawdown is a matter of discretion for the bank. Ortus’ position is hardly surprising given the unfolding disclosures about the dispute with Placemakers.
[42] Secondly, even if Kiwibank did agree to some kind of extension to the revolving credit facility, such agreement could not impugn its decision to call up the loans and to decline to extend the revolving credit facility. This is because Kiwibank learned of breaches of its standard terms and conditions and the memorandum of mortgage between 30 October and 17 November 2009, entitling it to demand repayment of the overdraft on the current account under cl 8.2. These breaches are beyond dispute. They include:
(a) Ms Jain’s granting a second mortgage on the Bolton Street property without Kiwibank’s consent in breach of cl 6 of the memorandum of mortgage.
(b)The dispute with Placemakers. Though I expressly do not comment on the merits of the dispute, it plainly adversely affected Ms Jain and Mr Chahil’s ability to comply with their obligations to the bank because it led to a lack of supply and therefore a lack of certainty as to their ability to complete the Bolton Street development. This is a breach of cl 8.1(1) of the Revolving Credit Agreement. I do not overlook counsel’s submission that this dispute related to the Takanini property, but this is irrelevant under cl 8.1(l).
(c) Mr Allen’s letter canvassed at [19] above represents an admission that Ms Jain and Mr Chahil were unable to pay their debts when they were due because it proposed payment in instalments. Such inability is a breach of cl 8.1(f) of the Revolving Credit Agreement.
[43] The result is that the factual bases that Ms Jain and Mr Chahil rely on for wrongful termination and refusal to extend are unsupported by the evidence. It is therefore unnecessary to consider further whether there was a breach of contract or estoppel. The facts are simply not made out.
Result
[44] For the above reasons, the application to set aside Kiwibank’s summary
judgment is declined.
[45] Costs should follow the event. Kiwibank is entitled to costs on a 2B basis plus disbursements as found by the Registrar.
Associate Judge Sargisson
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