GUARDIAN PROPERTY MANAGEMENT LIMITED AND ORS V ANZ NATIONAL BANK LIMITED, FORMERLY ANZ BANKING GROUP (NEW ZEALAND) LIMITED HC AK CIV-2005-404-004205

GUARDIAN PROPERTY MANAGEMENT LIMITED AND ORS V ANZ NATIONAL BANK LIMITED, FORMERLY ANZ BANKING GROUP (NEW ZEALAND) LIMITED HC AK CIV-2005-404-004205 5 December 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2005-404-004205BETWEEN GUARDIAN PROPERTY MANAGEMENT LIMITED First Plaintiff AND WHITNEY PARK LIMITED Second Plaintiff AND CLODE INVESTMENTS (NO 1) LTD Third Plaintiff AND ANZ NATIONAL BANK LIMITED, FORMERLY ANZ BANKING GROUP (NEW ZEALAND) LIMITED Defendant Hearing: 4 December 2006 Appearances: D A Wood for Plaintiffs/Respondents J A McKay & B J Burt for Defendant/Applicant Judgment: 5 December 2006JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN Upon Defendant's Application for Summary Judgment[1] There are two applications for consideration: a) the defendant's application for leave to bring its summary judgment application; b) the defendant's summary judgment application.[2] In 2000, the plaintiffs undertook three developments; the first plaintiff in Albany, the second plaintiff at Blockhouse Bay, and the third plaintiff of various properties in Auckland. In each instance funding was obtained from the ANZ. Mr Brent Clode was a principal of the controlling interests in each plaintiff company.First plaintiff's development in Albany[3] ANZ provided two development facilities. The first involved an advance of $5,700,000, interest only, to 31 July 2001 when it would be refinanced as an investment facility. The interest rate was ANZ's reference rate plus a margin of 2.25% per annum. A line fee and other fees were payable. [4] Subsequently, on 23 July 2000 the parties entered into a fixed funded rate term agreement importing further terms to the first development facility. They included a term that the default interest rate would be 5% above the interest rate, and that default interest would be payable on demand on all monies from time-to-time overdue. [5] On 20 November 2000 the fixed funded rate term agreement was amended to include a term that in the event the first plaintiff failed to repay monies owed on the repayment date, then at the discretion of ANZ, and without prejudice to its rights, the first plaintiff would pay to it an extension fee of $5000 for each week when monies were owed and remained unpaid following the repayment date ("the extension fee clause").The second plaintiff's Blockhouse Bay development[6] The amount advanced was $6,494,000. The essential terms were similar to the development facility provided by ANZ to the first plaintiff. [7] On 20 November 2000 the parties entered into a fixed funded rate term agreement whereby the second plaintiff would pay a default interest rate of 5% per annum above the interest rate set out in the development facility.The third plaintiff's loan arrangement[8] The advance was for $3,550,000 to be secured against its Auckland properties by way of first mortgage. Two days later the parties entered into a variation of that agreement by which the third plaintiff would borrow the sum of $3,550,000 to be secured by way of first and second mortgages over the developments of all three plaintiffs. [9] On 2 July 2003 ANZ assigned its rights in these loan arrangements to Bridgecorp Finance Limited.The claims[10] The plaintiffs allege misleading and deceptive conduct by ANZ pursuant to s 9 of the Fair Trading Act. They claim to have overpaid default interest in an amount of $1,792,792.98. They also claim consequential losses of $5,509,800 as a result of the distressed sale of the first plaintiff's assets. [11] The claim is founded on a letter dated 2 August 2002 ("the letter") signed by ANZ's Mr Webber. It was addressed to Mr Clode. It read:Re: Default Interest We refer to the PLA notice issued by Bridgecorp and the bank's subsequent request to Bridgecorp to cancel a PLA proceeding. We note that cancellation has not occurred and as a result you are now in default of your facility arrangement with the bank As a result of the above the bank will exercise its right to charge default interest (at a rate of 5%) on all your facilities with ANZ until the situation has been rectified. We advise this will commence from 5 August 2002. [12] The plaintiffs claim that by that letter it was represented to them that as a result of their default ANZ would exercise its right to charge default interest until the situation was rectified. The plaintiffs state that representation "implied that in the event the plaintiffs were no longer in default, penalty interest would not be chargedby ANZ or [its assignee, Bridgecorp] and implied that the cost to the plaintiffs of the default would be the imposition of default interest." [13] As a result of the representation, the plaintiffs met with ANZ in around October 2002 and agreed that all properties subject to the facilities would be sold under the control and direction of the ANZ, with the proceeds of sale to be applied to reduce the monies owing. [14] Subsequently all properties were sold. However, and notwithstanding the matter was rectified, ANZ and/or Bridgecorp continued to charge default interest. Further, Bridgecorp sought to charge extension fees under the extension fee clause. [15] The plaintiffs say had they known in October 2002 that default interest would be charged by the ANZ/Bridgecorp regardless of the agreement to sell all properties and to apply the proceeds of sale to the debt, and that ANZ/Bridgecorp would also seek to charge extension fees, they would not have sold the properties but would have sought to refinance them, or they would have sold the properties themselves in order to achieve the best possible price. [16] In reply, ANZ refers to the fact that at the time of the letter Mr Clode was in default of his facility arrangement with ANZ as a result of a "PLA notice issued by Bridgecorp", and as a result of that default the letter stated ANZ "will exercise its right to charge default interest (at a rate of 5%) on all your facilities with ANZ until the situation has been rectified. [17] ANZ states the letter represented it would impose default interest in relation to the particular default referred to in the letter, for as long as the default continued, and it did not include any representation in relation to any other existing or future default under the facilities referred to, and did not affect ANZ's rights and remedies arising out of, or in relation to, such other default. [18] Regarding asset sales, ANZ claims Mr Clode approached ANZ in about October 2002 and proposed selling property to reduce his company's indebtedness to ANZ and to avoid the reduced sale prices that might otherwise be obtained as aresult of mortgagee sale. ANZ says the arrangement proposed by Mr Clode was subject to ANZ's internal approval and the attainment by Mr Clode of milestones prescribed by ANZ. Those arrangements did not affect any of ANZ's rights and remedies under the facility agreements. ANZ says rectification was not achieved before ANZ/Bridgecorp ceased charging default interest and extension fees. Further, but for Mr Clode's proposal ANZ would have charged default interest and extension fees in any event, and had they conducted the mortgagee sales the resulting sale prices would have been lower than those achieved by Mr Clode.Procedural history[19] The second plaintiff is no longer a party to this proceeding. [20] Just one week before this fixture the plaintiffs engaged the services of new solicitors, who in turn instructed new counsel, Mr Wood. [21] This proceeding is akin to another under CIV-2005-404-003219, in which Bridgecorp is the defendant and ANZ the third party. [22] In her minute dated 5 July 2006, Judge Sargisson directed that ANZ's summary judgment application (including the application for leave) be filed and served by 21 July 2006, and for responses to be filed and served by 21 August 2006. At that time a fixture for the application was arranged for 28 November 2006. The learned Judge also required ANZ to file and serve its verified list of documents by 19 July 2006, and for inspection to be completed by 9 August 2006. [23] ANZ's summary judgment application was filed on 24 July 2006. It was accompanied by an affidavit of a Ms Vaughan, corporate counsel for ANZ. She deposed: a) The summary judgment application was made following its "thorough review of its documents, undertaken in fulfilment of its discovery obligations. That review confirmed the complete absence of any documentary evidence to support the plaintiff's contention."b) ANZ filed its application as soon as possible after completing a review of its documents: ". it anticipates filing [its affidavit of documents] shortly after this affidavit. The plaintiffs will have the opportunity to inspect ANZ's documents some months prior to the hearing of the application." [24] ANZ's affidavit of documents was sworn on 20 November 2006 and filed the following day. [25] The plaintiffs notice of opposition and affidavit from Mr Clode in opposition were filed on 27 November 2006, the day prior to the scheduled fixture.Whether leave should be granted to hear ANZ upon its summary judgment application[26] The rules prescribe for summary judgment applications to be filed at the same time as a party files its statement of claim or statement of defence. In this case ANZ's statement of defence was filed on 23 September 2005. The application for summary judgment was not filed until ten months later. Elements of delay are covered by the affidavit of Ms Vaughan to which I earlier referred. In essence ANZ is saying that it needed ten months to review its own documents before it could conclude the claim against it could not succeed. [27] In an affidavit dated 28 November 2006 and filed on 1 December 2006, Mr Tau, of ANZ's solicitors, annexes copies of correspondence from his firm to plaintiff's counsel by which, for the first time, ANZ identifies an additional reason for its delay in filing the summary judgment application. In general terms ANZ, by various facsimiles dated February, March and April 2006, complained of the impossibility for ANZ to complete discovery until the "scope of the issues in the proceeding are properly determined". [28] The reference in the preceding paragraph of this judgment to outstanding issues relates:a) to a request dated 23 September 2005 for the plaintiffs to file a more explicit statement of claim; b) to the fact that ANZ's request for further particulars was not responded to until 10 February 2006; c) to ANZ's solicitors' facsimile dated 23 February 2006 complaining about the inadequacy of the plaintiffs' response on 10 February 2006. [29] Notwithstanding its concern regarding the state of the plaintiffs' pleading, ANZ did not at any stage file any application for further particulars or better pleadings. Nor were those matters raised for consideration in the conference held before Judge Sargisson on 5 July 2006. [30] On the face of matters there appears little justification for the delay of ANZ for the late filing of its summary judgment application. A deeper analysis suggests the blame for the delay is probably evenly balanced between the parties. ANZ knew the plaintiffs were awaiting discovery by it before addressing complaints concerning its pleadings. Also, ANZ gave a clear indication its list of discoverable documents would be available months prior to this fixture. ANZ fell down on that promise. I infer that the plaintiffs intended, in this fixture, to argue for an opportunity to re- plead. The late filing of ANZ's lists of documents has effectively prevented access to documents, and information in those, in time to argue deficiencies with present pleadings. [31] Counterbalancing that view of matters is the fact that the plaintiffs' statement of claim is seriously deficient because: a) it contains a complete lack of particulars supporting a claim for misrepresentation; b) the very detailed sum sought by way of damages is supported by reference to no detail at all within the statement of claim;c) it is very difficult to comprehend the plaintiffs' explanation of the meaning it takes upon the relevant words in the letter. [32] In my view the criticisms of the pleadings raised at an early stage by ANZ's solicitors were properly answerable and required an appropriate response in the form of an amended pleading. [33] Moreover, since the plaintiffs' claim was filed the plaintiffs have not pursued prosecution of the claim vigorously, and only filed an eleventh-hour notice in opposition to the present application – and I acknowledge immediately, no responsibility attaches to Mr Wood for this. [34] I consider, somewhat cynically, the explanation given by Ms Vaughan's affidavit that the summary judgment application was filed late because ANZ decided after a review of its own documents that the plaintiffs could not succeed with their claim. Likewise, Mr Toa's affidavit that the delays were caused by the plaintiffs' failure to provide further particulars offers reasons that had no relationship to the reasons for delay given by Ms Vaughan when the application was originally filed. [35] Usually, and even upon a balancing of considerations, there would be enough reason to refuse ANZ leave to bring its summary judgment application. Seldom, however, could any final answer be given on that without there first being a consideration of the merits of the application. If those are so strong and so compelling then they ought to be given weight in the final analysis. What this really means is that where a defendant has delayed a summary judgment application for longer than it should have, there ought to be very convincing reasons why nonetheless leave should be given to bring the application. It may mean a defendant bears a heavier burden than the high burden it already faces. Also, even if ANZ is successful upon the summary judgment application, the Court may express its concern over considerations of delay by the award of costs, if any, that follows.Consideration of case and reasons for judgment[36] The relevant principles are well understood by counsel in this case. ANZ bears the burden of proving the plaintiffs cannot succeed in their claim. Disputed issues concerning material facts ought to be left for trial as usually they are inappropriate to be decided upon an assessment of affidavit evidence. [37] A claim under s 9 of the Fair Trading Act 1986 involves allegations of deceptive and misleading conduct, in this case by ANZ. Usually such elements ought to be subject to investigation at trial. However, in this case the Court is concerned with the interpretation of one sentence in a letter. Unless ANZ can convince the Court that neither proper construction, nor reasonable inference, logic or commonsense could reasonably avail the plaintiffs in their claim then its application for summary judgment will fail. Further, it is arguable in the present case ANZ has more information at its disposal than do the plaintiffs, and in that case it ought to make appropriate disclosure of all relevant facts by which a proper assessment of the factual background can be understood. [38] A fallback position for a plaintiff is that it should not be at risk of an adverse summary judgment when defects in its pleadings may be cured by amendment – otherwise a proper and available opportunity to pursue a claim would be pre-empted. [39] The relevant principles involving a s 9 Fair Trading Act claim include: i) whether, viewed objectively, the conduct complained of (in this case the letter written) was capable of being misleading; ii) the truth of the representations made by the letter is to be assessed at the time they were given, ie on 2 August 2002; and iii) the mere fact that representations as to future conduct do not come to pass does not make them misleading or deceptive. The plaintiffs must prove that ANZ had no intention of honouring the "promise" at the time it was made.[40] In this case, as far as I can infer, the plaintiffs are pleading that once their default position was rectified, neither penalty interest nor other fees would be charged to them. If any sense at all is to be made of that ckaun, then the plaintiffs are asserting there is no right to interest/fees beyond the date of rectification and, it may follow, that a right to penalty interest/fees at all would be foregone by the fact of rectification. [41] The plaintiffs assert there were subsequent meetings in which it was discussed and it was agreed that properties of the first plaintiff would be sold with a view to ANZ's debt being repaid. In my judgment the events which are pleaded to have occurred subsequent to the letter cannot be used to explain the meaning given to the words in the letter. Rather, if an agreement was reached at a later date then those subsequent events may of themselves give right to a cause of action. However, those events do not explain the truth of the meaning given by the letter, nor do they prove that the writer of the letter had no intention of honouring any "promises" given at the time they were made. [42] For the plaintiffs to succeed they must prove that at the time the letter was written ANZ never intended to deliver on its promise and was somehow going to keep charging default interest after that default had been rectified. But, there is no evidence the words had that effect. A proper inference is that ANZ did not even know if the plaintiffs could possibly achieve rectification, let alone what it might entail. [43] I accept Mr McKay's submission that the implication that the plaintiffs try to place on the letter is utterly implausible; and that it is far fetched to suggest that ANZ, on learning the plaintiffs were in default, hatched a plan to lure them into rectifying the situation (in what at that time could only be an unspecified sense, as no repayment plan was on foot) and then still to charge default interest once that plan was implemented. It is to be remembered at that time there had been no meetings between the parties to deal with the plaintiffs' default of their loan obligations. [44] Upon any view the letter was only a promise as to future conduct, namely that ANZ would exercise its right to charge default interest on all of Mr Clode's loanfacilities until the situation had been rectified. The only promise was to exercise a contractual right for so long as that contractual right existed. It does not speak of, nor could it reasonably be implied, that default interest would be charged once the default had been cured. In this context, the word "rectify" had no special or unusual meaning. The letter simply required the plaintiffs to rectify their situation of default. The letter contains no suggestion of any situation by which ANZ agreed to compromise those rights it held. Unquestionably, and at all relevant times, the plaintiffs were in default to ANZ. [45] No interpretation of the letter could suggest that ANZ was compromising on its ability to recover in terms of the loan arrangements. There is a complete lack of detail in the statement of claim regarding any contrary proposition, much less how such would be supportable by reference to the contents of the letter. Even more curious is how the plaintiffs could quantify a claim of an overpayment of default interest amounting to exactly $1,792,792.98. [46] The plaintiffs seem to be saying that given access to ANZ's discoverable material it could prove there is substance to its claim. In that outcome it would be prepared to recast its claim to avoid the present criticisms of its pleadings. That is not an appropriate use of the proceedings process. Nor does Mr Wood suggest it is. Regardless, it is clear from any proper construction of the letter that a claim based upon it under s 9 could not succeed. If instead there is a basis for a claim in relation to what was said at subsequent meetings between the parties concerning the sale of the first plaintiff's assets, then that is the matter of a separate claim altogether. [47] I have given some thought to whether I should allow the present statement of claim to be amended. In the end I have decided the proper course on the present proceeding is to award summary judgment to ANZ because the plaintiffs could not possibly succeed upon it. Another claim based upon representations made on another occasion ought to be the subject of another proceeding altogether. Such would introduce new facts, in the form of alleged conduct which took place well after the letter was written. As a result, any such claim could only be brought if it was not time barred. Such a claim in this case would likely have considerable hurdles ahead of it.Judgment[48] Upon its present claim, and arising out of the contents of ANZ's letter dated 2 August 2002, the plaintiffs cannot succeed upon their s 9 Fair Trading Act claim against ANZ. Therefore, summary judgment will be entered in favour of ANZ against the plaintiffs. [49] For reasons identified by my criticism of the delay in filing the summary judgment application it is appropriate to award costs to ANZ on a category 1B basis rather than, as is more common, a category 2B basis.Solicitors: Bytalus Legal, Auckland for Plaintiffs (Counsel: D A Wood) Chapman Tripp, Auckland for Defendant