ANZ BANK NEW ZEALAND LIMITED v HUME [2017] NZHC 1390

ANZ BANK NEW ZEALAND LIMITED v HUME [2017] NZHC 1390 [22 June 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2017-404-17[2017] NZHC 1390BETWEEN ANZ BANK NEW ZEALAND LIMITEDPlaintiffAND DAVID ALEXANDER HUME ANDFRANCES ELIZABTH HUMEDefendantsHearing: 13 June 2017Appearances: N F D Moffatt and B A Morris for PlaintiffD and F Hume in person (by video-link)klkljkl 22 June 2017JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on22.06.17 at 3.30 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] The background to this proceeding was set out in the plaintiff's submissionsin the following terms. I understand that there is no disagreement by Mr and Mrs Hume in relation to that statement of background.1. The defendants, David Hume and Frances Hume, entered into a Deed of Debt Compromise (the Deed) and a Loan Agreement (the Loan) with the plaintiff, ANZ Bank New Zealand Limited (ANZ), after they failed to repay $1,230,032.14 (the Debt) that ANZ had advanced to them.2. The Deed provided that ANZ would release the Humes from their full debt to ANZ after they had paid the sum of $400,000 to ANZ. The $400,000 was to be paid in fortnightly instalments over twenty years.3. After initially making payments under the Deed and the Loan, the Humes defaulted on their repayment obligations. As a consequence, ANZ has exercised its powers under the Deed to require payment of the full amount of the Debt.4. The Humes do not deny that they incurred the Debt, that they entered into the Deed and that they have failed to comply with the requirements of the Deed. The substantive allegation that they attempt to raise in defence is that ANZ has not properly investigated whether a former employee, Alex Fauck, who managed the Humes'accounts between September 2008 and September 2010 engaged in"unauthorised lending" on their account.6. On or about 30 December 2009, ANZ, as lender, entered into two home loan agreements with the defendants, as borrowers, for a total of $2,366,551.80. These loans were a restructuring of facilities that had been provided by ANZ to the Humes earlier.7. The loan agreements were secured by a first ranking, registered mortgage up to a priority amount of $2,500,000.00 over the property at 298 Points Wells Road, Warkworth (the Property).8. On or about 25 January 2010, the sums of $316,061.94 and $2,050,489.86 were drawn down under the loan agreements.9. In 2011, the defendants defaulted on their obligations under the loan agreements by failing to pay amounts when due. On or about 23 February 2011, ANZ served a default notice, issued under section 119 of the Property Law Act 2007, on the defendants (the PLA Notice), which expired unremedied.10. On or about 23 May 2011, the Property was sold by the defendants and the net proceeds from the sale were applied to the amounts owing under the loan agreements.11. As at 15 August 2012, the defendants owed a total of $1,230,032.14 to ANZ under the two loan agreements as well as a personal overdraft and a company overdraft. The $1,230,032.14 was broken down as follows:(a) $17,179.64 was owing under the personal overdraft number (the Personal Overdraft Account);(b) $653,726.17 was owing under home loan agreement 0575- 85779383-1002 (Home Loan 1002);(c) $355,932.50 was owing under home loan agreement 0575- 82050229-1014 (Home Loan 1014); and(d) $203,193.83 was owing under a company overdraft facility(together, the Debt).15. The Loan relevantly provided that:(a) payments of the Loan, interest and any other amounts payable under the Loan were to be made by 521 consecutive fortnightly payments of $1,284.28 each, commencing on 8 October 2012, with a final payment of $1,284.28 on 24 September 2032; and(b) ANZ's floating interest rate would be applied for the entiretyof the term of the Loan, which at the date of the agreement was set at 5.74% per annum;16. The amounts advanced under the Loan were used to repay the Personal Overdraft Account in full and repay $382,820.36 of the Home Loan 1002.[2] When Mr and Mrs Hume got into difficulties with their loan arrangements they entered into a compromise arrangement the ANZ in August of 2012.[3] The effect of the arrangements that the defendants came to needs to be briefly explained. Approximately speaking, of the $1.23 million owing, $0.8 million was to be written off, conditionally, and a fresh loan of $400,000 was to be made to the defendants.[4] On or about 21 August 2012, ANZ and the defendants executed the deed setting out those arrangements and a term loan agreement the terms of which are set out below.[5] The Deed relevantly provided that:a) The Humes irrevocably acknowledged and confirmed their liability to ANZ for the Debt (clause 2.1);b) The Humes agreed to pay the sum of $400,000 (the Deed Debt Sum) to ANZ by 522 equal fortnightly payments of $1,289.13 commencing on 8 October 2012 (clause 3.1);c) ANZ agreed to accept the $400,000 and any other amounts payable under the Deed in full satisfaction of the Debt. If the Deed Debt Sum (and any other amounts payable under the Deed) were paid in accordance with the terms of the Deed, ANZ would release the Humes from the Debt (clause 3.2);d) All payments under the Deed were to be made without any deduction or set-off (clause 3.3);e) If the Humes breached any provision of the Deed, including by failing to make any of the payments required by the Deed, then ANZ could, at any time, without notice declare that the amount of the Debt then owing is immediately due, owing and payable to ANZ (clause 4.1); andf) The Humes unconditionally and irrevocably waived, released and discharge each and every claim, right of any kind, cause of action or any suit whatsoever that they might have, whether or not presently known about, against ANZ in connection with the Debt or any other matters arising before the date of the Deed (clause 6.1).g) On or about 21 August 2012, ANZ and the defendants also entered into a loan agreement, under which ANZ, as lender, agreed to advance the sum of $400,000 to the defendants as borrowers (the Loan).[6] One effect of the provisions of the deed was that if there was a default, notonly would the Hume's be required to pay the $400,000 loan, but also the original amount of the debt which would otherwise be written off could be called up at the election of the plaintiff.[7] At the point where the deed was entered into Mr and Mrs Hume owed approximately $1,230,032.14.1 That represented their approximate total liability if there was a default leading to the cancellation of the compromise arrangement set out in the deed.[8] In accordance with the agreement expressed in the deed, on or about 21 August 2012, ANZ and the defendants also entered into a loan agreement, under which ANZ, as lender, agreed to advance the sum of $400,000 to the defendants as borrowers (the Loan).2[9] The Loan relevantly provided that:3a) payments of the Loan, interest and any other amounts payable under the Loan were to be made by 521 consecutive fortnightly payments of $1,284.28 each, commencing on 8 October 2012, with a final payment of $1,284.28 on 24 September 2032; andb) ANZ's floating interest rate would be applied for the entirety of theterm of the Loan, which at the date of the agreement was set at 5.74% per annum;[10] The amounts advanced under the Loan were used to repay the Personal Overdraft Account in full and repay $382,820.36 of the Home Loan 1002.[11] Unfortunately about a year later the defendants began defaulting on their re- payment obligations and the bank made demand for $401,899.54.1 Balance as at 15 August 2012.2 Ibid at [15] and exhibit "G" (BOP 21 and 77).3 Ibid at exhibit "G" (BOP 77).[12] The Hume's now dispute that they are liable under the deed. Before I consider that aspect of the matter it is necessary to make further reference to the compromise deed.Summary judgment principles[13] It was not in dispute that a key authority which the Court's are guided bywhen determining summary judgment applications was Pemberton v Chappell.4 As the Court determined in that case:5At the end of the day R 136 requires that the plaintiff "satisfies the Court that a defendant has no defence". In this context the words "no defence" have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence. See egWallingford v Mutual Society (1880) 5 App Cas 685, 693; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99; Orme v De Boyette [1981] 1 NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure, convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty.Where the only arguable defence is a question of law which is clear-cut and does not require findings on disputed facts or the ascertainment of further facts the Court should normally decide it on the application for summary judgment, just as it will do so on an application to strike out a claim or defence before trial on the ground that it raises no cause of action or no defence: cf R Lucas & Son (Nelson Mail) Ltd v O'Brien [1978] 2 NZLR 289; and see European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508, 516. Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident -- that is to say, satisfied -- that the defendant's statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yong v Letchumanan[1980] AC 331, 341 and in the judgment of Greig J in Attorney-General v Rakiura Holdings Ltd (Wellington, CP 23/86, 8 April 1986).[14] Counsel for the plaintiff also referred to another Court of Appeal decision:Krukziener v Hanover Finance Limited where the Court said:626. The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell4 Pemberton v Chappell [1987] 1 NZLR 1.5 At page 3 per Somers J.6 Krukziener v Hanover Finance Limited (2008) 19 PRNZ 162.[1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA) at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA) . The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC) , at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA)27. Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.[15] A further matter that requires brief mention is that the defendants sought the assistance of the Banking Ombudsman Scheme (BOS). Brief reference will be made below to the outcome of their communications with the Ombudsman.The plaintiff's case[15] The plaintiff's case is that because of the default on the part of the Hume'sthey are now indebted to the ASB as at the date of hearing in a sum of $1,300,708.79.Defendant's case[16] The Hume's were not represented by counsel in the current proceeding. Theyhave no doubt done their best to put forward their case. The following points of opposition are those which they put forward. I will deal with each of them in order and after setting out the ground of opposition I shall record the arguments for and against and then set out my assessment of the point.Misconduct by Mr Fauck a former employee of ANZ[17] The Hume's dealt with a bank employee by the name of Mr Fauck. He left the employment of the Bank in September 2010. They say that they discovered that Mr Fauck had left the bank when they spoke to another employee of the bank in August 2011. They claim that the employee told them that Mr Fauck's departure was due to "inappropriate lending" in which he had engaged.[18] The circumstances of Mr Fauck's departure are at the heart of the proposeddefence which the defendants put forward. It is their case that Mr Fauck engaged in inappropriate lending to them. This was the cause of their financial difficulties, they say. Alternatively, they say that information provided to them suggests thatMr Fauck's management of client files was deficient. They say that their files mayhave been mismanaged as well causing financial loss to them. In either case they should not have to repay the debt claimed by the bank.[19] The defendants did not provide any detail about how inappropriate lending on the part of Mr Fauck may have caused loss to them.Discussion[20] If the complaint of the Hume's was that it Mr Fauck who was responsible for any "inappropriate" lending, then it does not appear to be justified by the facts of thecase.[21] At this point it will be helpful to refer the investigation that the BOS made concerning this issue. The Banking Ombudsman responded to their complaint on 22 October 2015.7[22] As the Banking Ombudsman noted in her report of 22 October 2015, her office was unable to identify any information that any additional lending took placewhile Mr Fauck was involved in the management of the accounts of the Hume's.7 BD 135.[23] The position which the bank takes is similar. Mr Moffat told me that the documentary evidence showed that the first indebtedness to the bank arose as a result of the defendants entering into the loan contracts in January 2008. Mr Moffat said the evidence further shows that Mr Fauck was not managing the files of thedefendants at that time. His involvement in the defendants' files occurred later between September 2008 and September 2010.[24] It was accepted for the bank that during the time when Mr Fauck was involved, the loans which had been made to the defendants were restructured by way of replacement loans being entered into under which the defendants continued to be liable for the antecedent debt but with different terms applying. These replacement or restructured loans were entered into in January 2010. However, according to the evidence of the bankers, they did not result in any material increase in the liabilities incurred back.[25] The plaintiff submitted that the involvement of Mr Fauck, therefore, did not affect the liability of the defendants to it.[26] In any case, it was the contention of the plaintiff that, the deed of compromise which the defendants entered into was executed after a point where, they claimed to have learnt that Mr Fauck's employment had been terminated. Theyhad notice of that event, in other words, before they signed the deed and with that knowledge, they entered into the deed and the $400,000 loan agreement. Under the terms of the deed they accepted liability for the debt and waived any claims against the ANZ. Further they contracted out of any right of set-off by virtue of clause 3.3 of the settlement deed.8[27] The defendants in answer to those points say that they have been trying to investigate the circumstances of the departure of Mr Fauck from the plaintiff. They say that the bank has wrongly declined to provide them with this information. They want to know why Mr Fauck left. The plaintiff says that this information isconfidential and it is not authorised to release it. The defendants also say that the8 Contracting out was recognised as being the parties' entitlement in Grant v NZMC Limited[1989] 1 NZLR 8 at page 13.bank has (by concealing the details about the departure of Mr Fauck from the bank) been guilty of misrepresentation or suppression of information which means that the deed ought to be set aside.[28] In response to this last point, Mr Moffat for the bank said that silence does not, in the absence of special circumstances, constitute misrepresentation.Conclusion on the issue of Mr Fauck's involvement in the defendant's files[29] There do not appear to me to be any grounds for setting the deed asidebecause of Mr Fauck's involvement in the management of the bank's files relating to the defendant's accounts.[30] The chronology of events establishes that the liability of the defendants to the bank accrued before Mr Fauck was involved in administering their accounts. There is no evidence of any misconduct on the part of Mr Fauck which might have caused a loss to the defendants which would not otherwise have occurred. I do not accept the suggestion that even the management of the files (leaving aside the question of the alleged inappropriate lending) may have led to loss as such a contention is quite unsupported by the evidence.[31] I do not consider that the bank is to be criticised for not releasing details ofthe circumstances in which Mr Fauck's employment was apparently terminated.[32] It seems clear that Mr Fauck's employment was terminated because ofsubstandard performance on his part. Beyond that there is little evidence available as to why he left the employment of the bank. He may have simply been incompetent. There is even less evidence that the deficiencies that Mr Fauckapparently demonstrated had any negative effect on the state of the defendants'account with the bank.[33] Had Mr Fauck been discharged because of dishonesty which caused loss to the defendants, to take an extreme example – and one for which there is no evidence– it would not have been open to the bank to seek summary judgment and for a bankemployee with the authority of the bank to swear an affidavit that he and the bank did not believe that the defendants had any defence to the claim.[34] As well I consider that the fact that the defendants knew about thetermination of Mr Fauck's employment before they signed the deed in terms of which they abandon any rights to claim against the bank is fatal to their proposeddefence. So are the other provisions of the contract including the "no set-off"clause.9[35] As well, there is no evidential basis for the contention that poor management of files by Mr Fauck, which may have been the reason why his employment was terminated, actually had any effect on the accounts that the defendants had with the bank. To contend otherwise is simply to speculate.Other mattersInappropriate lending by bank[36] Given that the complaint that the Hume's make concerning Mr Fauck islinked more generally to complaints about inappropriate lending I will, as the Ombudsman did, consider briefly the background to their complaint.[37] The Hume's complaint to the Ombudsman was that the plaintiff encouragedthem to purchase a new property without waiting until they had sold their existing property at 54 Harbourview Road. The complaint was that the bank encouraged them to do this at the peak of the property market "when it should have warned youthe market would fall due to the pending global financial crises. You believe thebank coerced you into taking out more lending than you could afford".[38] The Ombudsman took the view that there was no information available thatwould support a finding that the plaintiff encouraged the Hume's to purchase thesecond property with bridging finance instead of selling their Harbourview Road property first. The Ombudsman was of the view that the Hume's were alreadyseeking finance through a broker to bridge the purchase of the second property even9 Grant v NZMC Limited [1989] 1 NZLR 8 at page 13.before an approach was made to the plaintiff on their behalf for this funding. The position that the Ombudsman took was that while the bank agreed to the loan request:This does not indicate that the bank advised you to purchase a new property using bridging finance.[39] On the basis of the evidence which is before the Court, I agree with that conclusion. There is no evidence to support the contention of the defendants that the bank persuaded them to enter disadvantageous transactions.[40] I would also add that there could never have been any duty on the plaintiff todetermine whether the property market had reached its peak or to predict the globalfinancial crises. Claims of that kind could never be the basis of a sustainable claimagainst a bank.Factors vitiating the deed[41] The defendants also raise the possibility that the deed might not have been binding upon them because they considered that they had no option but to sign it.[42] The fact that the defendants felt under pressure of this kind is not sufficient to provide them with the means of avoiding the deed or the loan agreement. Further, they acknowledge that before they signed the deed they had spoken to at least one lawyer about it. As well, they have stated that they were told that the alternative would be for them to be adjudicated in bankruptcy which would release them from the debt but with that knowledge they entered into the deed of compromise which did not release them from debt but only did so conditionally and required that they make substantial payments towards the reduced debt. No doubt the defendants had to make a choice between two unpalatable outcomes. That in itself, though, does not give rise to an arguable defence to the summary judgment application.Conclusion[43] For all of these reasons I am unable to agree that the defendants have any arguable defence to the claim which the ANZ has brought against them.[44] There will be summary judgment as sought in paragraph 1 of the notice of application dated 23 December 2016.[45] The plaintiff seeks costs on a solicitor client basis as it is contractually entitled to. The defendants have not made any submissions in opposition to the costs being awarded against them and being calculated on a solicitor client basis. I consider that their application is justifiable and there will be an order that costs are to be paid on the basis just mentioned._____________J.P. DoogueAssociate Judge