Singh v New Zealand Home Bonds Ltd

[2009] NZCA 103

IN THE COURT OF APPEAL OF NEW ZEALAND

CA602/2008
[2009] NZCA 103

BETWEENDHIRENDRA SINGH

Appellant

ANDNEW ZEALAND HOME BONDS LIMITED

Respondent

Hearing:3 March 2009

Court:Hammond, Robertson and Ellen France JJ

Counsel:Appellant in person

D M Lester for Respondent

Judgment:30 March 2009 at 2.30 pm

JUDGMENT OF THE COURT

AThe appeal is allowed to the extent that the obligation on the appellant to pay interest is restricted to the period from 31 March 2008 to 24 September 2008 at 7.5 per cent per annum.

BThe appeal is otherwise dismissed.

CThe appellant must pay the respondent 75 per cent of its costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Robertson J)

Introduction

[1]       This is an appeal against a judgment of Associate Judge Christiansen (HC CHCH CIV 2008-409-584 4 September 2008) in which he granted summary judgment to the respondent, New Zealand Home Bonds Limited (“NZHBL”) against the appellant, Mr Singh, on the basis of an undertaking which Mr Singh had provided.

[2]       Mr Singh is a solicitor.  He acted for Ms Yiin and her son Mr Lau when they entered into an agreement for sale and purchase for some apartments being developed in Auckland by Winsun Developments Limited (“Winsun”).  Ms Yiin and Mr Lau chose to meet the deposit requirement under the agreement for sale and purchase by way of a “Home Bond” from NZHBL rather than a cash deposit.

[3]       As security for the bond, NZHBL registered a caveat over a Mt Albert property owned by Ms Yiin and Mr Lau.  Later, Ms Yiin and Mr Lau wanted to refinance that property.  Mr Singh wrote to NZHBL requesting a withdrawal of the caveat and undertook in return to “hold the documents to NZHBL’s account pending repayment of the required indebtedness”.

[4]       NZHBL replied that they would release the caveat if Mr Singh provided an “irrevocable undertaking to hold not less than $73,400 from the refinance in your trust account for the sole benefit of New Zealand Home Bonds”.  Mr Singh requested a signed withdrawal of the caveat “on [his] undertaking to hold $73,000 following refinance on behalf of New Zealand Home Bonds Limited”.  NZHBL signed and forwarded to Mr Singh the withdrawal of the caveat, acknowledging the “undertaking that you will hold $73,400 for the sole benefit of New Zealand Home Bonds Limited”.  The reference by NZHBL in its correspondence to $73,400 was an error.   It is common ground that the correct sum was $73,000. 

[5]       Winsun was placed into receivership in August 2007, and liquidators were appointed in October.  In his affidavit Mr Miller asserted that Winsun’s lawyers, Wadsworth Ray, issued a valid settlement notice to Ms Yiin and Mr Lau in September 2007, and that NZHBL was thereafter obligated to pay out the bond to Winsun’s liquidator.  Mr Singh claims that Wadsworth Ray did not have the authority of the receivers to issue the settlement notice, and that it was therefore invalid.  NZHBL was not, he claims, obliged to pay the bond to the liquidators, and should not have done so when presented with the (invalid) settlement notice. 

[6]       The validity of the settlement notice is the heart of the dispute between NZHBL and Mr Singh.  The evidence presented by each party on that issue is therefore the material in respect of which we must assess the appeal against summary judgment. 

[7]       Upon paying the $73,000 bond to the liquidator, NZHBL requested that Mr Singh make payment in accordance with his undertaking.  When he did not, NZHBL filed a Statement of Claim on 21 March 2008, seeking an order that Mr Singh fulfil and honour his undertaking to pay out to NZHBL the $73,000 that he held on trust.  Mr Singh filed no Statement of Defence.

[8]       Simultaneously NZHBL filed an application for summary judgment, to which was appended a supporting affidavit from Mr Paul Miller, the Credit Manager of NZHBL, who described the operation of “Development Home Bonds” in the following terms:

The Development Home Bonds benefits purchasers of Units in what are generally multi-level apartment blocks.  A Development Home Bond is beneficial to these purchasers because they are not required to pay a deposit until settlement and it also gives the vendor certainty that the deposit will be paid in the event the purchase does not settle.  In all aspects, the role of the Deposit Bond is the equivalent of a cash deposit.  That is a principal appeal of the product and why it is accepted by Developers and relied on by Developers’ banks.

[9]       Mr Miller recorded the history of events that precipitated this proceeding, and then said:

A dispute has apparently arisen between the purchaser and Winsun Developments Limited [the developers of the apartments].  The plaintiff is not involved in that dispute.  We received a request in August 2007 authorising the release of the funds from the defendant’s trust account and that was declined.

The Developer’s solicitors issued a Settlement Notice to the purchaser and completed the process by which they could call upon Home Bonds to pay under the Deposit Bond.

The plaintiff has met its obligations under the Bond and called upon the defendant to honour his guarantee and pay the $73,000.00 held in trust.

[10]     In his Notice of Opposition to summary judgment, Mr Singh said that:

1.The plaintiff underwrote Ann Mee Kiong Yiin and Ee Ming Lau (“Yiin & Lau”) obligation to pay deposit on settlement of various properties (the properties"” which were being developed by Winsun Developments Limited (“Winsun”).

2.Against this background the defendant undertook to hold $73,000.00 on behalf of the plaintiff but not to pay this sum to the plaintiff on demand.

3.Winsun was placed into receivership and liquidation.  The liquidator repudiated the contract between Winsun and Yiin & Lau and sold the properties to a third party.

4.Yiin and Lau are entitled to the moneys held by the defendant.

5.The defendant however has made it clear to both the plaintiff and Yiin & Lau that he will release the $73,000.00 currently held by him in his trust account as the Court directs.

[11]     Mr Singh filed what can only be described as a discursive affidavit which did not directly engage with that of Mr Miller, and which, in large part, raised issues about the contractual arrangements between Ms Yiin and Mr Lau on the one hand, and the original developer, and receiver and liquidator of Winsun on the other.

[12]     The matter was heard by the Associate Judge on 28 August 2008.

Associate Judge Christiansen’s judgment

[13]     Associate Judge Christiansen found that Mr Singh was bound by his undertaking to meet NZHBL’s demand for the sum of $73,000.

[14]     The Judge considered that there were three substantive issues germane to the application:

(a)       the purpose of the bond instead of a deposit;

(b)the application of the conditions of the contract between Ms Yiin and Mr Lau and Winsun, on the one hand, to the contract between Ms Yiin and Mr Lau and NZHBL, on the other, in respect of payment of the deposit and settlement obligations; and

(c)the relationship (if any) between the obligations owed to the vendor by Ms Yiin and Mr Lau, on the one hand, and NZHBL on the other.

[15]     As it was a summary judgment application, the Associate Judge acknowledged the need for the plaintiff to prove that the defendant had no defence to the plaintiff’s claim.

[16]     In respect of the undertaking itself, the Associate Judge considered that Mr Singh undertook to hold the $73,000 on behalf of NZHBL, and that from that point on his obligation in respect of the money was to NZHBL, not to Ms Yiin and Mr Lau.

[17]     He found that the contract between the vendor and purchasers had been cancelled, either unilaterally by Ms Yiin and Mr Lau in mid 2006, or later by the liquidator.  He noted that Mr Singh was attempting to protect his client from loss, but that he was bound by his undertaking to make payment to NZHBL.

[18]     Mr Singh objected that, apart from the effect of his undertaking, NZHBL had in any event not provided evidence in support of its claim sufficient for summary judgment.  He complained that neither the home bond agreement nor the liquidators’ alleged settlement notice had been produced, and that there was only a single instance of oral testimony in the High Court as to the alleged demand by the vendor to NZHBL.

[19]     The Associate Judge held that these matters raised by Mr Singh did not weaken NZHBL’s case.

The appeal hearing

[20]     Mr Singh advanced his appeal on the ground that NZHBL in the High Court presented an evidentially inadequate case and failed to establish that Mr Singh did not have an arguable defence.

[21]     Before us, there was a good deal of argument in respect of the nature of the proceeding and the precise issues in contention.  Mr Singh referred extensively to the concurrent District Court proceeding between NZHBL and Ms Yiin and Mr Lau (Yiin and Lau v New Zealand Home Bonds DC AK CIV 2008-004-225).  He submitted that the dispute between Ms Yiin and Mr Lau and NZHBL was linked to this proceeding because the issues raised in both proceedings are essentially the same, namely whether or nor NZHBL was right to pay the $73,000 to the liquidator. 

[22]     On the assumption that the two proceedings are substantially linked, Mr Singh made an informal application for evidence filed in the Auckland District Court proceeding to be admitted.  The evidence included affidavits filed in the Auckland District Court and NZHBL opposed its introduction.  This summary judgment is a stand-alone proceeding, and the concurrent dispute between Ms Yiin and Mr Lau with NZHBL does not affect the outcome of this appeal.  However, we were willing to informally look at the material to see if it included evidence relevant to the validity of the settlement notice, which was the core of Mr Singh’s opposition to summary judgment.

[23]     Mr Singh submitted that his undertaking was premised on settlement of the agreement or default by Ms Yiin and Mr Lau.  He submitted that, in the ordinary course of events, the $73,000 would have been paid by him upon settlement.  NZHBL had made a misstep when it paid the $73,000 to the liquidator, he submitted, because Winsun was only entitled to the money if Ms Yiin and Mr Lau defaulted on settlement and Winsun then took the steps prescribed by cl 27 of the agreement.  Since neither of those preconditions were met, Winsun had no entitlement to the money and because NZHBL was not therefore required to pay out the money, Mr Singh’s obligation in his undertaking was not triggered. 

[24]     Mr Singh adverted to large gaps in the evidence provided by NZHBL.  NZHBL did not, he submitted, produce:

(a)       the documentation in respect of its agreement with Winsun;

(b)correspondence from Winsun’s solicitors over the pre-receivership, receivership, or liquidation period;

(c)the alleged settlement notice, proof of service (as required by cl 27 of the Home Bond Agreement), or whether NZHBL made enquiry as to the status of the agreement between Ms Yiin and Mr Lau and Winsun.

[25]     Mr Singh submits that, in light of the scant evidence produced, it is at least arguable that NZHBL may have breached its agreement with Ms Yiin and Mr Lau by unnecessarily making payment to the liquidator. 

[26]     Mr Singh seeks release from his undertaking by way of variation to the effect that he holds the sum on trust for the benefit of the party ultimately found in the District Court to be entitled to it and to pay out that sum upon judgment in that Court.

[27]     Mr Lester, for NZHBL, submits that on the ordinary meaning of the words in the undertaking, the $73,000 was held at NZHBL’s direction.

[28]     He contends that Mr Singh’s complaints over inadequate evidence cannot be advanced on appeal because they were not made in the High Court and because the evidence offered in the High Court was unchallenged and, therefore, rightly accepted by the Associate Judge.

[29]     In respect of the alleged dispute between the vendor and Ms Yiin and Mr Lau over whether the contract in fact became unconditional, Mr Lester submits that NZHBL was not given notice of any such dispute and was not obliged to make enquiry.  In respect of the alleged failure of the parties to settle, he contends that this amounts to the claim by Mr Singh that NZHBL should have accepted and acted upon the purchaser’s mere assertion that the contract was cancelled and not paid out the $73,000.

[30]     Mr Lester contends that Mr Singh has not shown that the Associate Judge’s reasoning was wrong and that the Associate Judge simply applied “standard principles of contractual interpretation”, taking into account the commercial context and the need for certainty.  There are not, therefore, grounds to interfere with his judgment on appeal.

Assessment

[31]     The appeal gives rise to two substantial issues.  The first is the nature of Mr Singh’s undertaking, and the second is whether the evidence that was before the Associate Judge was sufficient for summary judgment.  In addition, Mr Singh contends that the Associate Judge’s order that Mr Singh pay interest from November 2005 gave NZHBL a windfall, and that it should be varied to be interest from the date of the commencement of proceedings, in March 2008.

[32]     On its face, Mr Singh’s undertaking was unqualified.  He stated that he undertook to hold the material documents pending repayment of his clients’ indebtedness, and NZHBL acknowledged its understanding that the undertaking was for its sole benefit.  The question is whether, in light of the “commercial reality” in which it was given, Mr Singh’s undertaking entailed an implicit condition that the money would be paid to NZHBL if and only if NZHBL was itself obliged to pay Winsun. 

The undertaking

[33]     There is no doubt that in terms of his undertaking, Mr Singh’s first obligation in respect of the $73,000 held was to NZHBL.  Mr Singh did not contend otherwise, but he submitted that he did not undertake to hold the money on trust for NZHBL.  He says that a failure to settle by the vendors gave NZHBL the right to refuse to pay out the $73,000 and therefore a corresponding right of Mr Singh to retain the $73,000 for his clients.

[34]     Of course, if Mr Singh was obligated by his undertaking to pay out the $73,000 to NZHBL, then all is not lost for Ms Yiin and Mr Lau.  They may still pursue NZHBL for paying the liquidator, in breach of contract.

[35]     Two clauses of NZHBL’s application form, which contained the terms of the contract for the home bond, are of particular importance.  Mr Singh placed emphasis on cl 22, which provides:

Homebond Delivery

…

If, prior to delivery of the Development Homebond to the Vendor, there is a dispute between the Vendor and the Purchaser as to whether the Unconditional date has arisen, the Development Homebond will not be delivered to the Vendor until the dispute is determined by agreement between the Vendor and the Purchaser or by litigation.

[36]     We are satisfied that this clause has no application to the current proceeding.  It applies to a situation, which might arise earlier in time to a dispute over settlement, where there is a dispute as to whether or not the contract has become unconditional.  The dispute between the vendor and purchaser in this case is over settlement.

[37]     In respect of purchaser default on settlement, cl 27 provides:

Purchaser default

…

Following failure by a Purchaser to settle an Agreement, the purchaser acknowledges that the Vendor may, before the last day of the Anticipated Bond Period (as extended) deliver to NZHB a written demand which (a) confirms the failure of the Purchaser to settle the Agreement and (b) attaches a certified copy of an expired settlement notice and proof of valid service on the Purchaser.  The Purchaser further acknowledges that NZHB will within 7 days of receipt of a claim pay the amount of the Development Homebond (“the Amount”) to the Vendor.  NZHB may, if requested by the Vendor, delay payment of the Amount without prejudicing NZHB’s obligation to make that payment.

[38]     We are satisfied that this case turns on this clause.

[39]     In terms of cl 27, NZHBL’s entitlement to receive the $73,000 was contingent on the occurrence of one of two events.  First, upon settlement.  Alternatively, in the event that the purchasers failed to settle, upon service by the vendor to NZHBL of a formal written demand confirming the purchaser’s failure to settle and attaching a copy of an expired settlement notice, and proof of its valid service on the purchaser.  NZHBL would then be obliged to make payment to the vendor within 7 days.

[40]     Under the agreement for sale and purchase, the option of a home bond was available to purchasers as an alternative to a cash deposit.  In respect of this issue, and concluding that NZHBL had established a sufficient case for summary judgment, Associate Judge Christiansen said that interpreting NZHBL’s obligations in terms of an apparently valid settlement notice would put the parties in the position they would have been in if a cash deposit had been paid.  That would provide the same degree of certainty as if a cash deposit had been paid.

[41]     The terms of the contract as a whole make it clear that dealings and disputes between the vendor and the purchasers are not relevant to the issue of whether or not NZHBL was right to pay out the $73,000 and whether Mr Singh in turn was obliged to pay that sum to NZHBL.  Either upon settlement of the agreement or upon valid service by the vendor of, and non-compliance by the purchasers with, a demand for settlement, NZHBL was entitled to demand the $73,000 from Mr Singh.

Was summary judgment appropriate?

[42]     It is unfortunate that Mr Miller’s evidence (see, particularly, [9] above) was so skeletal.  Importantly, however, that evidence was not meaningfully challenged by Mr Singh.  Mr Miller asserted in his affidavit that the settlement notice was valid, and that cl 27 was complied with.  Mr Singh did not provide a satisfactory evidential challenge to that assertion before Associate Judge Christiansen. 

[43]     Mr Miller contended that there was valid service to NZHBL of the formal written demand, and that contention was not effectively countered by Mr Singh.  Whether that is, from Ms Yiin and Mr Lau’s point of view, an unfair, unjust or unreasonable trigger for payment of the $73,000 by NZHBL, is not a material consideration.  The dispute between the vendor and Mr Singh’s clients does not affect NZHBL’s rights and obligations under its agreement with the vendor.

[44]     NZHBL provided affidavit evidence that the settlement notice was valid and that cl 27 was complied with.  We are satisfied on the basis of conventional summary judgment principles that in the absence of contrary evidence adduced by Mr Singh, that was sufficient for the entry of summary judgment.  The appeal cannot succeed.

The interest award

[45]     Following the delivery of judgment, NZHBL made an application for recall on the basis that the Associate Judge had not addressed the question of interest contained in the prayer for relief.  In that application, NZHBL argued that interest should run from the date the Mr Singh agreed to hold the funds (7 November 2005) until the date of judgment.

[46]     Mr Singh opposed the application, first on the basis that application by way of memorandum did not comply with the formal requirements and, secondly, that there had been no obligation on him to place the funds in an interest-bearing arrangement, so that an award of interest penalised him unfairly.  Further, he argued, prior to the undertaking the security had been by way of caveat from which no interest would have arisen, meaning that the interest award was really a windfall for NZHBL: any entitlement to interest lay with Ms Yiin and Mr Lau, and not against Mr Singh.

[47]     In a Minute of 23 September 2008 the Associate Judge informed the parties that:

… notwithstanding Mr Singh’s advice to Mr Lester, it follows that interest shall be payable on the judgment sum from 7 November 2005 to date of judgment at the Judicature Amendment Act rate (assuming no rate was agreed to).  Therefore, as requested by judgment dated 4 September 2008 is recalled and shall be reissued to add the interest award.

[48]     Mr Singh filed a subsequent memorandum, requesting that the Associate Judge recall and vary the interest award to order interest from February 2008, not November 2005.  Mr Lester filed a memorandum in reply, opposing variation.  The Associate Judge declined to vary the order.

[49]     Mr Lester responsibly accepted that if payment by Mr Singh to NZHBL of the $73,000 had been triggered by settlement of the agreement, or by an alternative but functionally similar process, then interest would have run from settlement, not from the date on which the undertaking was first given.

[50]     An interest award dated back to Mr Singh’s undertaking, in 2005, constituted a windfall for NZHBL and is unsustainable.  In all the circumstances of the case, we are satisfied on the basis of the evidence that NZHBL’s entitlement to interest ran from the commencement of the proceedings in the High Court on 31 March 2008 to the date of the judgment, 24 September 2008.  It is true that NZHBL requested, before commencing proceedings in the High Court, that Mr Singh pay the $73,000.  Notwithstanding, we are satisfied that interest should not run from that date.  In this regard, it is to be noted that Mr Singh paid the $73,000 to NZHBL promptly, as soon as the High Court ordered that he do so.

Result

[51]     The appeal is allowed to the extent that the obligation on Mr Singh to pay interest is restricted to the period from 31 March 2008 to 24 September 2008 at 7.5 per cent per annum.

[52]     The appeal otherwise is unsuccessful.

Costs

[53]     In the circumstances, each party has had a degree of success, but the appellant has succeeded only on the narrow point of the date from which interest should run.

[54]     The appellant must pay the respondent 75 per cent of the costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
GCA Lawyers, Christchurch, for Respondent