Senior Trust Capital Ltd v Holmes

[2023] NZHC 3108

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-952

[2023] NZHC 3108

BETWEEN

SENIOR TRUST CAPITAL LIMITED

Plaintiff

AND

CHRISTOPHER ALAN HOLMES

First Defendant

ANTHONY CHARLES RUSSELL HANNON

Second Defendant

Hearing:

10 October 2023

Appearances:

M Tingey and C S Morrison for Plaintiff

D A C Bullock and A W McDonald for First and Second Defendants

Judgment:

3 November 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 2 November 2023 at 2.30pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

………………………………

SENIOR TRUST CAPITAL LIMITED v HOLMES [2023] NZHC 3108 [3 November 2023]

[1]    Senior Trust Capital Limited (Senior Trust) is a property development financier including in respect of retirement villages. It provided finance to Roy’s Bay Estate Limited (RBEL) for a substantial multi-unit property development in Wānaka. Mr Holmes, the first defendant, was director of RBEL, Mr Hannon was an indirect shareholder in RBEL and both Messes Holmes and Hannon provided a guarantee in respect of RBEL’s debt. RBEL is now in liquidation.

[2]    The development did not prosper. RBEL was forced to request and obtain extensions of the repayment date of its facility and ultimately defaulted.

[3]    The facility, on its third extension, was due for payment on 30 September 2021. RBEL, conscious that it was under pressure in respect of its debt to Senior Trust, sought to explore selling its land as it was conscious that it would achieve a better result than a mortgagee sale.

[4]    In October 2021, RBEL obtained a conditional contract to sell the Wānaka site to S5 Consulting Group Limited (S5) at a price of $24,000,000.00. This contract became unconditional on 3 December 2021. However, that contract was replaced with a new sale and purchase agreement also with S5 in February 2022 at a price of

$22,000,000.00; the reduction of purchase price relating to consenting and works issues raised by S5. The February 2022 sale to S5 was due to settle on 31 March 2022.

[5]    In the meantime, Senior Trust had commenced the mortgagee sale process in respect of the Wānaka land. By the end of February 2022, Senior Trust had instructed real estate agents to conduct a mortgagee sale of RBEL’s property. By a contract dated 20 May 2022, Senior Trust as mortgagee, sold the Wānaka land to a company called Roy’s Bay GCO Limited, a subsidiary of S5.

[6]    The mortgagee sale resulted in a shortfall for which Senior Trust seeks summary judgment. Messrs Holmes and Hannon, as guarantors, resist summary judgment saying Senior Trust  breached  its  duty  under  s 176  of  the  Property  Law Act 2007 (the Act) to take reasonable care to obtain the best price reasonably obtainable at the time of sale. Messrs Holmes and Hannon point to the contract

between RBEL and S5 at  $22,000,000.00 and  complain  that Senior Trust  sold  to  a subsidiary of S5 for $4,000,000.00 less.

[7]    Additionally, Messrs Holmes and Hannon say that Senior Trust breached its duty of good faith to RBEL. The guarantors also complain that Senior Trust’s actions were designed to exclude them from the development and that Senior  Trust’s  actions were aimed at securing ongoing finance business as it was a condition of the tender term that Senior Trust provide finance to the purchaser.

[8]    Mr Bullock, counsel for Messrs Holmes and Hannon, submits that the February 2022 sale agreement at $22,000,000.00 was never cancelled.

[9]    Finally, Messrs Holmes and Hannon dispute the quantification of the amount claimed by Senior Trust. This is important because even if Senior Trust had been able to sell the Wānaka land for $22,000,000.00, Senior Trust says there would still have been a shortfall of some $1,200,000.00 for which Messrs Holmes and Hannon would be liable for in any event.

Summary judgment principles

[10]   Rule 12.2(1) of the High Court Rules 2016 provides that summary judgment may be granted where a plaintiff satisfies the Court that the defendant:

has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[11]   If the dispute relates only to part of a claim, then the Court may grant judgment on the part of the claim to which there is no defence.1

1      High Court Rules, r 12.2(1) see also Spinnaker Capital Ltd v Moss [2013] NZHC 2295, ANZ Bank New Zealand Ltd v Lumsden [2014] NZHC 370 and Tea Custodians (Bluestone) Ltd v Mouroukis HC Wellington CIV-2010-485-1585, 28 October 2010.

[12]The principles applying to a summary judgment application are well settled:2

(a)the question is whether the defendant has no defence to the claim; that is, there is no real question to be tried. The Court must be left without any real doubt or uncertainty;

(b)the onus is on the plaintiff, but where the plaintiff’s evidence is sufficient to show that there is no defence, the defendant will have to respond if the application is to be defeated;

(c)the Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. However, the Court need not accept evidence that is inherently lacking in credibility; and

(d)the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust approach where the facts warrant.

[13]   The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.3

[14]   The above is taken from Mr Tingey’s submissions (counsel for Senior Trust), with which Mr Bullock agreed. Not surprisingly, Mr Bullock emphasised the Court should keep in mind that the summary judgment procedure denies the defendants the ordinary procedural rights in defending a claim. Mr Bullock reminded the Court that the authorities make it clear that where there are genuine conflicts of evidence or credibility, summary judgment is not appropriate, although the Court is not bound to accept any material conflict of evidence which contradicts documents or which is “inherently improbable”.4

The mortgagee sale process – duties on a mortgagee

[15]Section 176 of the Property Law Act 2007 provides:

2      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

3      Middleditch v New Zealand Hotel Investments Ltd CA33/91, 28 February 1992 at [5].

4      Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at [4].

176.     Duty of mortgagee exercising power of sale

(1)A mortgagee who exercises a power to sell mortgaged property, including exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable as at the time of sale:

(a)the current mortgagor:

(b)any former mortgagor:

(c)any covenantor:

(d)any mortgagee under a subsequent mortgage:

(e)any holder of any other subsequent encumbrance.

(2)A mortgagee who exercises a power to sell mortgaged property may not become the purchaser of the mortgaged property except in accordance with section 196 or an order of a court made under section 200.

[16]   The obligation is to take reasonable care to obtain the best price reasonably obtainable, not to in-fact obtain that price.5

[17]   In addressing the need under s 176 of the Act for a mortgagee to take “reasonable care … to obtain the best price reasonably obtainable”, Asher J  in Public Trust v Ottow summarised the factors that indicate a mortgagee has made reasonable efforts to obtain the best price obtainable as follows:6

(a)the appointment of a reputable real estate agent to market the property;

(b)obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property;

(c)marketing over a reasonably prolonged period of time;

(d)an extensive advertising and promotional campaign;

(e)a properly conducted auction;

5      Moritzson Properties Ltd v McLachlan HC Dunedin CP135/91, 4 December 2000 at [55].

6      Public Trust v Ottow HC Auckland CIV-2009-404-3825, 4 November 2009.

(f)a sale price that given all the circumstances can be reconciled with the expert opinion as to value.

[18]   Section 176 of the Act does not require a mortgagee to delay a sale in an attempt to obtain a higher price.7 Accordingly, the mortgagee’s right to decide whether and, if so, when to sell is not qualified by s 176 of the Act.8

[19]   In deciding whether a mortgagee has breached s 176 of the Act, the facts must be looked at broadly and a mortgagee “will not be adjudged to be in default unless he is plainly on the wrong side of the line”.9

[20]   The Court of Appeal in Long v ANZ National Bank Ltd held that: “the courts should be slow to second guess the actions of a mortgagee acting on apparently sound professional advice”.10 When a mortgagee has more to gain if a higher price is achieved, then it cannot be assumed likely that the mortgagee has acted contrary to his own interests.11

[21]   In terms of valuations, the Court accepts that they lose much of their significance if reasonable care is taken by the mortgagee, there has been a properly advertised and conducted sale process, and the property has been sold after proper negotiations.12 If the mechanism adopted for the mortgagee sale properly tested the market, then the results obtained at auction, rather than the opinion of the valuer, must be taken as demonstrating what the market value of the property is.13

[22]   Lastly, the mortgagee is under no obligation to support a contract for sale entered into by the mortgagor prior to the mortgagee sale, especially if there is doubt

7      Allerby v ASB Bank Ltd [2014] NZHC 807.

8      Apple Fields Ltd v Damesh Holdings Ltd [2001] 2 NZLR 586 (CA).

9      Whitford Properties Ltd (in liq) v Bruce [2017] NZHC 625 at [74] and Robertson v ASB Bank Ltd

[2014] NZCA 597.

10     Long v ANZ National Bank Ltd [2012] NZCA 132 at [21] (leave to appeal dismissed: Long v ANZ National Bank Ltd [2012] NZSC 51).

11     Re Bank of New Zealand, ex parte O’Connor [2014] NZHC 3004 at [54], Harts Contributory Mortgage Nominee Company Ltd v Bryers HC Auckland CP403-IM00, 19 December 2001 at [43].

12     Long v ANZ National Bank Ltd [2012] above n 10, at [21].

13     Mitchell v Trustee Executors Ltd [2011] NZCA 519.

as to whether the purchaser would have been able to complete the sale.14 The ultimate question is whether, in an objective assessment, a mortgagee has acted primarily for the purpose of recovering its debt, bearing in mind a mortgagee’s entitlement to prefer its own interests wherever they conflict with other interested parties.15 If yes, then it is not ordinarily for the Court to substitute its commercial judgment for that of the mortgagee.16

Correctness of sale process not challenged

[23]   An  important  acknowledgement  (and  one  I  think  properly  made)  by   Mr Bullock is that the mortgagee sale process undertaken by Senior Trust is not challenged. While the process adopted by Senior Trust is not in issue, how it dealt with the $22,000,000.00 contract is.

[24]   The high point for Messrs Holmes and Hannon is that the February 2022 contract to sell to S5 for $22,000,000.00 had been made known to Senior Trust.

[25]   Mr Bullock submits that in effect, given that knowledge Senior Trust’s obligation of good faith meant it should have stayed its hand in relation to the mortgagee sale process.

[26]Mr Bullock submits:17

The mortgagee’s duty requires it to use its powers for the predominant purpose of recovering its debt and ‘not [to]’ act in a manner which unfairly prejudices or willingly and recklessly sacrifices the interests of the mortgagor or a party claiming through it.

[27]   Mr Bullock submits Senior Trust sold to a subsidiary of S5 for a sum substantially less than S5 had agreed to pay in February 2022, only a few months earlier. Mr Bullock submits that in doing so: “Senior Trust was able to entice S5 to repudiate its agreement with RBEL”.

14 British Mercantile & Loan Trust Co Ltd v Trustees Executors Ltd HC Auckland CIV-2006-404-6112, 10 November 2006 at [29], Westpac New Zealand Ltd v Golian HC Auckland CIV-2010-404-7556, 21 September 2011.

15 Oxford Finance Ltd v Pointe Ormiston Estate Ltd [2019] NZHC 634 at [29](c).
16 At [29](c).

17  Coltart v Lepionka & Co Investments  [2016] NZCA 102; [2016] 3 NZLR 36 (CA) at [54] and [60].

[28]   Mr Bullock also submits there were collateral advantages to Senior Trust as it was able to finance the purchase by S5’s subsidiary. Mr Bullock submits Senior Trust “… was able to ensure that RBEL, Mr Holmes and Mr Hannon would have no ongoing involvement with the project …”. Mr Bullock submits that Mr Jackson of Senior Trust had a personal animosity towards the Hannons and their relationship had broken down and finally, he submits that Senior Trust knew it had the benefit of the guarantees in issue in this proceeding.

[29]I do not accept Mr Bullock’s submissions on this point.

[30]   The starting point is, as already noted, there is no issue with the sale process. A proper and unchallenged testing of the market produced a price of $18,000,000.00 and that was after negotiation between Senior Trust and the purchaser whose initial offer was as low as $12,000,000.00.

[31]   The effect of Mr Bullock’s submission is that where the mortgagor has an unconditional agreement for sale and purchase, the mortgagee cannot commence the mortgagee sale process because of the risk the purchaser will be incentivised to not honour the existing agreement with the mortgagor.   This amounts to saying that      a mortgagee cannot exercise its power of sale while there is an agreement for sale and purchase in place between a mortgagor and a third party.

[32]   No authority was advanced by Mr Bullock in support of this proposition. Coltart v Lepionka & Co Investments Ltd, relied on by Mr Bullock, which concerns  a mortgagee’s duty of good faith does not support this proposition.18

[33]   It is clear that a mortgagee is not obliged to adopt a contract its mortgagor may have entered to sell the property.     Nor indeed is a mortgagee obliged to permit      a mortgagor time to sell pursuant to an existing contract, albeit it may choose to do so for commercial reasons. However, I note here there is no evidence whatsoever of RBEL or Messrs Holmes or Hannon calling upon Senior Trust to permit RBEL time to settle the $22,000,000.00 contract which was meant to settle on 31 March 2022.

18     Coltart v Lepionka & Co Investments Ltd, above n 17.

There is no mention of that agreement after it was sent to Senior Trust shortly after it was made in February 2022.

[34]   The $22,000,000.00 contained the usual vendor’s warranties. These warranties were deleted from the sale agreement between Senior Trust and the purchaser. The mortgagee sale contract also contained robust exclusion clauses and significantly excluded two further units in the mortgaged development.

[35]   There is limited evidence as to the value of these two excluded units but the best indication is that they may have been worth around $800,000.00 plus GST each.

[36]Accordingly, the apparent discrepancy between the sale price of

$18,000,000.00 and $22,000,000.00 is not as great as it first appears.

[37]   A mortgagee is not required to give the type of warranties that a mortgagor in an arms-length sale is likely to be prepared (or required) to give; indeed, it is routine for vendor warranties to be excluded.

[38]   I come back to the fact that the process to test the market is not criticised. It is not surprising the eventual purchaser had already shown an interest in the property. That the mortgagee sale may have resulted in it paying less than the previously contracted amount is a consequence of the state of the market – no other buyer was prepared to pay more. The sale excluded the two units I have already noted, excluded warranties and included exclusion clauses.

[39]   The obligation of good faith on Senior Trust in this case, did not require it to refrain from exercising its right as mortgagee because of the pre-existing contract, especially when Senior Trust was not called upon to stay its hand. At the risk of repetition, it is significant that following the contract being sent in February 2022, there was no further reference whatsoever to that agreement made by RBEL in its dealings with Senior Trust.

[40]   Mr Bullock submitted that RBEL, Messrs Holmes and Hannon were under considerable commercial pressure with limited options. That may well be the case,

but that is the very situation where one would expect them to highlight to Senior Trust the existence of a binding contract to sell at $22,000,000.00 and that they were taking steps to enforce what they say was an unconditional contract. However, there is no evidence concerning that contract after February 2022; either communication to S5 as purchaser or to Senior Trust. As noted by Mr Tingey, when RBEL’s lawyers wrote to S5 in December 2022 to complain about S5 not settling, they referred to the

$24,000,000.00 contract from late 2021 rather than the February 2022 contract (albeit S5’s lawyers in reply said the reason the 2021 agreement was not binding was it had been overtaken by the February 2022 agreement).

[41]   Accordingly, I do not accept, as Mr Bullock put it, that Senior Trust “pulled the rug out underneath RBEL”. Nor do I accept that the evidence points to the February 2022 contract remaining alive at the time of the mortgagee sale process.

[42]   Shortly before the hearing on 10 October 2023, Senior Trust filed an affidavit which, amongst other things, sought to produce without prejudice material which  Mr Tingey submitted shows the assertions by Messrs Holmes and Hannon that the February 2022 contract remain alive, were not correct.   In a Ruling recorded on     12 October 2023, I gave the reasons why I permitted that evidence to be admitted. Mr Holmes, in his evidence, had said the $22,000,000.00 contract was not cancelled and remained alive.

[43]   On 12 April 2022, RBEL made a without prejudice offer to redeem the mortgage for $15,982,000.00 which was to be financed by an offer from Patriot Finance. Mr Tingey submitted two aspects of RBEL’s offer were inconsistent with the February 2022 contract remaining alive. The first was that the offer referred to RBEL making a further payment upon the existing unconditional sale of unit 49 for which RBEL’s lawyers provided a sale and purchase agreement. However, this was one of the units included in the February 2022 sale to S5 which is said by Messrs Holmes and Hannon to have still been alive as at the date of the 12 April 2022 offer.

[44]   As to the second unit included in the S5 contract, unit 50, RBEL’s solicitors advised that efforts to sell unit 50 would begin as soon as the mortgagee sale process was terminated. Accordingly, the treatment of units 49 and 50 in the 12 April 2022

offer, as explained in the surrounding correspondence, is inconsistent with the February 2022 agreement which includes those two units still being alive. Also inconsistent with the February 2022 contract still being in existence was RBEL seeking loan finance with pre-paid interest for six months when it would have the Court accept that the February 2022 contract, due for settlement on 31 March 2022, was unconditional and still alive. If that was the case then there would be no need for six months’ finance. Equally, if finance was only needed to clear the Senior Trust debt pending settlement of the February 2022 contract, one would expect that to be referred to in the loan offer produced by Mr Holmes.

[45]   Given that material was produced by Senior Trust only one working day before the hearing, I timetabled reply evidence on the above points. That evidence was due on by 25 October 2023, being 10 working days from the hearing, albeit I requested that Mr Bullock, on a best endeavours basis, try and file the evidence within five working days. However, Mr Bullock on 20 October 2023, applied for leave to withdraw as counsel advising that he had ceased to act on 19 October 2023.

[46]   In an informal email to the Registry, Mr Holmes sought what amounted to an open-ended extension to instruct new counsel and file the affidavit. The fact is, the affidavit should have been well advanced by the time Mr Bullock ceased to act. No formal application for an extension of time has been made, nor any indication that the affidavit had even been commenced. I was not prepared to delay the issue of this judgment further.

[47]   The submission that Senior Trust acted in bad faith in conducting the mortgagee sale is at the heart of the defence.

[48]   Mr Bullock submitted that Messrs Holmes and Hannon have a credible defence that reasonable care was not taken to achieve the best price reasonably obtainable because they had themselves succeeded in negotiating a higher price only months’ earlier. However, I cannot reconcile that submission with Mr Bullock accepting that the mortgagee sale process was properly conducted. As Mr Tingey submitted, the obligation is to take reasonable care to obtain the best price reasonably obtainable, not to in fact obtain that price. Given the acknowledgment by Mr Bullock that the

mortgagee sale process is not in issue, I cannot conclude there has been a breach of   s 176 of the Act by Senior Trust.

[49]   It also follows from what I have said above, that I do not accept Senior Trust breached its obligation of good faith. The equitable duty of good faith did not require Senior Trust to refuse to sell to the S5 subsidiary simply because that buyer was unwilling to match the $22,000,000.00 which S5 had previously offered. Again, the terms of the $22,000,000.00 and the mortgagee sale contract were materially different. In the context of Mr Bullock’s submissions under s 176 of the Act, he submitted:

Senior Trust had no excuse for exercising its power of sale to sell the property for substantially less than [$22,000,000.00] in May 2022.

[50]   Again, this is not to compare apples with apples. The $22,000,000.00 contract was willing buyer/willing seller and included two further units and warranties. The

$18,000,000.00 achieved after a proper marketing programme, was a forced sale price without the two units, without warranties and with exclusions.

[51]   Mr Holmes characterises the mortgagee sale of Senior Trust as undermining the deal RBEL had with S5. Again, that amounts to Mr Holmes saying that Senior Trust could not sell while RBEL itself had a contract to sell.

[52]   As Mr Bullock recorded in his submissions, Mr Holmes was aware  that       a market sale was likely to yield greater returns than a mortgagee sale. That proved to be the case, but that fact alone does not mean Senior Trust is guilty of bad faith in undertaking the sale.

[53]   RBEL’s  debt  after  three  extensions,  was  finally  due  for  payment   on   30 September 2021. RBEL had been unable to sell the development. It is not denied that the pre-conditions for Senior Trust to conduct a mortgagee sale were satisfied. The only issue raised is the existence of the $22,000,000.00 February 2022 contract.

[54]   For the reasons I have given above, I do not consider the fact Senior Trust’s sale process did not achieve the same price as the February 2022 contract, demonstrates a breach of the good faith obligation and I dismiss this defence.

Quantum

[55]   The statement of claim seeks judgment in the sum of $3,429,259.52 as the outstanding debt under the loan agreement and its variations.

[56]Interest is sought in the following terms:

B. Default interest of 20.8% per annum  (calculated  daily  and  compounding monthly) on the sum at (A) above from 20 April 2021 to the date of payment in accordance with clause 4.5 of the Loan Agreement, and the First to Third Variations; and19

[57]   The principal sum for which judgment is sought is pleaded as being principal of $402,955.39 and interest as at 31 March 2023 of $3,026,304.13. In response to that pleading, Messrs Holmes and Hannon in their statement of defence say they have insufficient knowledge of and therefore deny that pleading.

[58]   The loan agreement between RBEL and Senior Trust contains the following clause:

The certificate of the Lender as to the rate or amount of interest payable pursuant to this Agreement shall be conclusive and binding upon the Borrower except in the case of manifest error or fraud.

[59]The guarantee in issue in this proceeding contains the following provision:

Certificate conclusive: Any certificate setting out the amount of the Moneys Hereby Secured signed by a director, the secretary, solicitor or any officer of the Lender shall, save for manifest error, be conclusive as between the Covenantor and the Lender as to the amount owing by the Covenantor to the Lender under this deed and the Covenantor shall pay the money stated in any certificate as being due despite any dispute existing as to whether or how much money is payable to the Lender by the Covenantor.

[60] This proceeding was commenced on 26 April 2023. On 17 April 2023, a notice of demand was sent to Messrs Holmes and Hannon. The letter of demand records it is a certificate as to the monies owing to Senior Trust in accordance with cl 2.5 of the guarantee. That letter set out the amounts referred to at [57] above. It provided six

19   Senior Trust does not seek interest under the Interest on Money Claims Act 2016, rather it relies  on cl 4.5 of the Loan Agreement. Clause 4.5 provides that interest will “… accrue after as well as before judgment and up to and including the date of actual payment”. Senior Trust’s common law right to claim interest pursuant to its contract is preserved by s 26 of the Interest on Money Claims Act 2016.

pages of statements which list what are described as being “sales” but are in fact charges of interest.   The statements do not include a running balance.   There is       a document called a  “General  Ledger”  covering  the  period  31  March 2023  to  17 April 2023.

[61]   The 17 April 2023 demand claims principal as at 18 April 2023 to take into account  that  the  sale  proceeds  of  another  secured  property  were  received  on 14 April 2023. Interest however was calculated to 31 March 2023.

[62]   The notice of opposition filed by Messrs Holmes and Hannon did not take issue with the quantum of the claim. Mr Holmes, in his affidavit in opposition, said as follows:

Amount alleged to be owing

51.Senior Trust’s application for summary judgment states at paragraph 2(vi) that the total debt outstanding at the time of the application is

$3,429,259.52. In support of this proposition, Mr Jackson’s affidavit merely appends a statement issued to Roy’s Bay Estate Limited, dated 31 March 2023.

52.As a consequence of the matters set out above in this affidavit, I do not accept that the sum sought is payable. Further, there is insufficient information to establish whether the underlying calculations are correct, or on what basis this specific sum is claimed. For example, it is far from clear that Senior Trust has correctly recorded and applied interest, were it ultimately to be payable.

[63]   The “… matters set out above …” referred to by Mr Holmes’ concern at the February 2022 contract – not a challenge to the quantum of the claim.

[64]   Mr Jackson of Senior Trust, in his reply to this evidence, says that RBEL was provided with monthly invoices and statements through his accountants until the debt went into dispute.

[65]   Mr Bullock, in his written submissions, said the 17 April 2023 certificate does not contain sufficient information for Messrs Holmes and Hannon to assess whether there are errors. He submits that while a certificate obviates the need to prove every invoice, draw down or calculation, it must contain sufficient information so that

Messrs Holmes and Hannon and the Court can understand how the figures have been arrived at.

[66]   Mr Bullock submits that Mr Jackson’s evidence is difficult to reconcile, suggesting there are errors in his calculations. Mr Bullock submits that:

Mr Jackson provides asserted balances of principal and interest said to be owed as at 17 April 2023, 31 July 2023 and 31 August 2023. However, there is a randomness to these figures;

[67]   Mr Bullock then refers to an increase in principal in July and August 2023 which he says may possibly reflect Senior Trust incurring further professional fees, presumably legal fees, but that cannot be identified. I put this issue to one side given the amount for which judgment is sought pre-dates this increase in principal.

[68]   Mr Bullock then refers to Mr Jackson’s evidence that total interest increased by $123,301.00 between 31 July 2023 and 31 August 2023. Again, I put that issue to one side given it is an issue that post-dates the figure claimed in the statement of claim.

[69]   Mr Bullock submits: “The level of detail [provided] does not exclude the possibility of manifest error …”.

[70]   In oral submissions, Mr Bullock went into more detail in respect of what he identified as discrepancies, albeit relatively minor ones in respect of some figures. For example, in the General Ledger printout that accompanied the letter of demand/certificate of debt of 17 April 2023, the opening balance is expressed to be

$1,119,987.46. However, in a separate document said to be created on 31 March 2023 (also a General Ledger which has the same reference number), the opening balance is said to be $1,104,692.46. This issue relates to the principal which is due. The General Ledger sent 17 April 2023 recorded the principal due as at the date of the certificate was $402,955.39.

[71]   As noted, Mr Bullock opposed Mr Barnett’s late affidavit being read. I have already said I will not read those aspects of Mr Barnett’s affidavit dealing with quantum. Accordingly, any argument Mr Bullock sought to mount relying on documents produced in the late affidavit, falls away. Mr Bullock could not maintain

that he objected to the affidavit being read but at the same time seek to build arguments that relied on that affidavit. In any event, the issues raised by Mr Bullock do not establish an error in the certificate.

[72] It is not satisfactory that the issue as to quantum was not raised in the notice of opposition. The extent of Mr Holmes’ objection to quantum in his affidavit, did not go beyond the bare assertion set out at [62] above, nor were objections developed in Mr Bullock’s written submissions. The points raised orally by Mr Bullock at the hearing concerned detail Mr Tingey could not be expected to reply to without prior notice. There is no suggestion that Messrs Holmes or Hannon, or their solicitors, wrote seeking details of how the debt was made up.

The conclusive certificate

[73]   Mr Tingey referred to Associate Judge Gardiner’s detailed review of certificates of amount due contained in her judgment of 17 October 2022.20 The Judge there dealt with a certificate that provided that it would be prima facie evidence of the amount due. The Judge discussed authorities that dealt with prima facie evidence clauses and cases that dealt with conclusive evidence clauses.

[74]   In the context of a prima facie evidence clause, the Judge concluded that the creditor does not need to demonstrate the reliability of the certificate any further unless the borrower produces evidence showing the certificate to be incorrect.21 The Judge concluded:22

[370] On a summary judgment application, the plaintiff bears the onus of satisfying the Court that the defendant has no defence. It may be that evidence adduced by the plaintiff in support of the application would, in the absence of response by the defendant, satisfy the Court that the defendant has no defence. In my view, where loan instruments contain provisions that a certificate will be prima facie proof of the outstanding amount, the lender can rely on that certificate as proof and need not plead and prove every transaction. The defendant may  adduce  evidence  directed  at  showing  that  they  do  have  a defence, namely that the certified amount is incorrect. They need not prove that the amounts are incorrect but need only identify issues. That does not mean that the defendant can raise vague or spurious issues and broadly allege that there are uncertainties. The defendant must identify specific credible

20     Bank of New Zealand v Lothian Partners Capital Ltd [2022] NZHC 2489.

21 At [366].

22 At [370].

issues; but need only prove them to an arguable level. The ultimate question for the Court remains whether it is satisfied that the defendant has no defence.

[75]   The Judge however was careful to note that her comment concerned certificates that provided they were prima facie evidence of the amount outstanding. The Judge referred to Heartland Bank Ltd v Mahoney, which concerned a conclusive certificate.23

[76]In Heartland Bank Ltd, the clause provided:

A certificate by Heartland of any amount payable under this Agreement is in the absence of manifest error, conclusive evidence for all purposes, including for all proceedings.

[77]   The clause in issue in this case, if anything, goes further. It requires Messrs Holmes and Hannon to pay the money stated in any certificate, despite any dispute existing as to whether or how much money is payable to the lender by them save for manifest error.

[78]   This is similar to the obligation to “pay first, argue later”, where there is a no set-off clause.24 To give effect to the provision in the certificate paragraph that the covenantors must pay the certified amount even if they dispute that amount, the reference to manifest error must mean an  error evident in the certificate itself.   As   I have said, no such error exists.

[79]   Clearly, a certificate must be a genuine certificate in the sense that it reflects the creditor’s genuine and reasonable calculation of the amount due. Further, an error on the face of the certificate, that is a manifest error, will undermine the efficacy of the certificate.  However, absent  a  certificate being so plainly wrong  that it is not   a genuine certificate or an error on the face of the certificate, the guarantors are obliged to pay the amount in the certificate even if they dispute it. The guarantors contracted out of their ability to dispute the amount of the certificate save where there was an error on the face of the certificate.

23     Heartland Bank Ltd v Mahoney [2021] NZHC 1363.

24     See Browns Real Estate Ltd v Grand Lakes Properties Ltd HC Invercargill CIV-2009-425-670, 10 March 2010.

[80]   Messrs Holmes and Hannon do not suggest there is an error on the face of the certificate, nor do they suggest that the amount claimed is so incorrect that it means a genuine certificate has not been issued.

[81]   Issues identified by Mr Bullock are all from documents that post-date the issuing of the certificate.

[82]   The concerns Messrs Hannon and Holmes asserted about the amount due and the adequacy of the certificate would have carried more weight if the issue had been squarely raised in the notice of opposition or there had been a request for a copy of   a running ledger or the like to show how the amount claimed was made up. In the absence of such a request going unanswered and in the absence of there being an error on the face of the certificate, I conclude the defendants do not have a reasonably arguable defence in relation to the question of quantum.

[83]   As the onus in an application for summary judgment remains on a plaintiff even where they have the benefit of a certificate,25 a plaintiff’s failure to provide copies of ledgers et cetera when requested, may lead a court to decline to grant judgment even in the face of a certificate as to the amount due.

Orders

[84]   It follows I am satisfied Senior Trust is entitled to summary judgment for the principal amount claimed in the statement of claim being $3,429,259.52. Summary judgment in respect of interest is granted as sought in the statement of claim. Senior Trust has a contractual right to indemnity costs. Accordingly, there is an order that

25     BNZ v Lothian Partners Capital Ltd, above n 19 at [370].

Messrs Holmes and Hannon will pay Senior Trust’s indemnity costs in respect of this proceeding. If such cannot be agreed then they may be established by memorandum with the usual supporting details, such to be filed within 15 working days.

Associate Judge Lester

Solicitors:

Couch Harlowe Kovacevich, Auckland (for Plaintiff) Lee Salmon Long, Auckland (for Defendants)

Copy to:

M J Tingey, Barrister, Auckland (for Plaintiff)

Mr C A Holmes (now self-represented First Defendant)
Mr A C R Hannon (now self-represented Second Defendant)