PIPER V ANZ NATIONAL BANK HC AK CIV 2008-404-2686

PIPER V ANZ NATIONAL BANK HC AK CIV 2008-404-2686 10 June 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-2686BETWEEN PATRICIA JANE PIPER IN HER CAPACITY AS REMAINING TRUSTEE OF THE PATRICIA PIPER FAMILY TRUST First Plaintiff AND PATRICIA JANE PIPER Second Plaintiff AND ANZ NATIONAL BANK LIMITED Defendant Hearing: 9 June 2008 Appearances: J McCartney for plaintiffs M R Bos for defendant Judgment: 10 June 2008 at 3.00 pm Reasons: 20 June 2008JUDGMENT OF WINKELMANN JThis judgment was delivered by me on 20 June 2008 at, 3.00 pm pursuant to Rule540(4) of the High Court Rules. Registrar/ Deputy RegistrarGraeme Skeates Law, Auckland DLA Phillips Fox, Auckland Counsel Jan McCartney, Barrister, PonsonbyIntroduction[1] In December 2003 the first plaintiffs, the trustees of the Patricia Piper Family Trust, entered into an agreement with the defendant, the National Bank of New Zealand Limited (now ANZ National Bank Limited), to borrow a maximum of $600,000 to finance development of a house. The Trust is now in default under the terms of that loan agreement. In purported exercise of powers under a mortgage secured over the property, the Bank has undertaken a tender process in respect of the property and, following on from that, entered into an unconditional agreement for the sale of the house. [2] The second plaintiff, Dr Patricia Piper, is the former owner of the property, a trustee of the Trust, and according to the Bank, a guarantor of the Trust's borrowings. The Trust is the registered proprietor of the property. It took a transfer of the property subject to the mortgage that had earlier been granted to the Bank by Dr Piper as security for the money she borrowed to purchase the property. The mortgage continues to secure Dr Piper's indebtedness to the Bank. [3] The plaintiffs seek an order restraining the Bank from settling the sale of the property, and requiring the Bank to rescind any agreement it has purported to enter into for the sale of the property. [4] On 9 June 2008 I heard argument in relation to that application. On 10 June 2008 I issued a minute declining the application with reasons to follow. I now set out those reasons.The plaintiffs' claim[5] There are two principal grounds relied upon in support of the application for interim orders:a) First, that the mortgage over the property does not secure most of the amounts the Bank now seeks to recover. The guarantee the Bank says Dr Piper provided as security for the Trust's borrowings was not signed by her, and in any event is not binding on her. b) Secondly, the plaintiffs allege that the Bank was in breach of tortious, contractual and fiduciary duties it had assumed to the plaintiffs, and that the plaintiffs have a valid counterclaim, and or setoff which they value at no less than $350,000.Factual background[6] Dr Piper bought the property in Westmere in 1998. At that time she borrowed money from the Bank, and granted it a mortgage as security for those borrowings. [7] In December 2003 the trustees of the Patricia Piper Family Trust applied for a loan from the Bank for the purpose of developing the existing house on the property. The Bank made a loan offer to provide funding up to $600,000. The offer stipulated that all draw-downs were to be effected against full certification from a bank- appointed Quantity Surveyor, at the borrower's cost. Implicit in the terms of the offer was an assumption that ownership of the property was to be transferred from Dr Piper to the Patricia Piper Family Trust. The securities stipulated for by the Bank included transfer of the existing registered first mortgage over the property to the Patricia Piper Family Trust. The loan offer also stated that a change from personal ownership to Trust ownership required new linking guarantees to support current Group advances (by which I understand the Bank to mean advances to interests associated with Dr Piper) as follows:Guarantee from Patricia Piper Family Trust in favour of P J Piper Limited – for all obligations. Guarantee from the Patty Piper Family Trust in favour of Sunset Family Doctors Servco Limited – limited to $20,000.[8] P J Piper Limited was a company associated with Dr Piper and in one of the affidavits filed in support of this application, Dr Piper refers to it as "her" company. It too was borrowing money from the Bank at around this time. Sunset Family Doctors Serve Co Limited seems to be a service company associated with Dr Piper's medical practice. [9] As conditions precedent to draw-down the Bank stipulated that it, or its solicitors, were to be satisfied of various matters including the following:2. The Bank appointed Quantity Surveyors is to confirm full town planning approval in all respects under the Resource Management Act 1991. 3. The Bank appointed Quantity Surveyor is to confirm full town planning approval in all respects under the Building Act 1991. 4. All costs involved in the development and the proposed time-frame are to be verified to the Bank by the Bank appointed Quantity Surveyor. Verification is to include confirmation that "sunset clauses" (if any) are safely outside the expected completion and settlement dates. 5. A Registered Valuation confirming a completed value of no less than $1,200,000 for the house, .. is to be submitted to the Bank and be acceptable at the Bank's sole discretion. 6. A fixed price contract from an acceptable contractor is to be submitted to the Bank appointed Quantity Surveyor and be acceptable at the sole discretion of the Bank and its appointed Quantity Surveyor. 7. A maximum of $600,000 is available for drawdown to be effected against full certification from the Quantity Surveyor appointed by the Bank on a cost to complete basis. 8. All costs overruns are to be met by the Borrower and/or its trustees.[10] The Bank also stipulated that it had the right to verify that the contractors/development creditors received appropriate payments from the draw downs and that the project was carried out in full accordance with the plans and specifications submitted, "utilising first-class workmanship and materials." [11] It is clear from the security requirements of the Bank that it intended its loan to be secured by a registered mortgage granted by the Trust as registered proprietor of the land, and that the Trustees guarantee advances to the various entitiesassociated with Dr Piper. The effect of this security structure would be that the mortgage over the Westmere property would provide security for all advances to the "group" including advances to the Trust. [12] On 23 December 2005, the Trustees executed a "Flexible Home Loan Facility Agreement" in respect of the proposed $600,000 of the facility. The agreement contained provision that at any time the Bank could require additional security. It recorded that the liability of the two Trustees other than Dr Piper was limited to the assets of the Trust. There was no such limitation in relation to the liability of Dr Piper under the Agreement. [13] On 29 December 2003, the Bank sent three letters to Dr Piper's solicitors, McVeagh Fleming Kennedy Tudehope. The first was the letter of instruction in respect of proposed advances to P J Piper Limited asking Mr James Carney of McVeagh Fleming to act for the Bank in obtaining guarantees from the Patty Piper Family Trust guaranteeing the obligations of P J Piper Limited and providing a solicitor's certificate. I observe that the Bank already had a guarantee from Dr Piper in respect of obligations of P J Piper Limited; that guarantee had been in place since December 2001. [14] The second letter was the letter of instruction in relation to the $600,000 facility. The Bank asked McVeagh Fleming to act for the Bank in obtaining the security required for the advance to the Trust, namely a guarantee from P J Piper guaranteeing the obligations of the Trust. [15] Finally, on the same day, the Bank sent a letter to McVeagh Fleming Kennedy Tudehope consenting to a transfer of the Westmere property to the Trust subject to the existing mortgage granted by Dr Piper to the Bank. [16] The trustees of the Patty Piper Family Trust duly executed a joint guarantee in favour of the Bank in respect of the borrowings of the customer P J Piper Limited. The standard trustees limitation of liability clause was included in respect of the two trustees other than Dr Piper.[17] The parties dispute whether Dr Piper guaranteed the obligations of the Trust. Mr Graham Goodhew, Manager of the Business Credit Manager of the Bank, has filed an affidavit in opposition to this application. He annexes a copy of a guarantee which the Bank says is signed by Dr Piper as guarantor in respect of the obligations of the Patty Piper Family Trust. One of the key issues in this proceeding is whether Dr Piper executed that guarantee. [18] The annexed document records a guarantee by Dr Piper of amounts owed by the Patty Piper Family Trust to the Bank. The guarantee is a Bank standard form, and contains a notice informing the guarantor that the guarantee is an important document under which the guarantor may become liable to the Bank instead of, or as well as, the Customer. Before signing this guarantee the Guarantor should obtain legal advice independent of any legal advice obtained by the customer.The guarantee document also contains a solicitor's attestation form completed by Mr Varney in which he attests to the fact that:The guarantor signed this deed in my presence after the contents of this deed and the nature of the transaction were explained by me.[19] In her fourth affidavit in support of the application Dr Piper says that on about six separation occasions she has requested the opportunity to see the originals of the guarantees provided by her but the originals have not been provided. Having seen the copy Mr Goodhew annexes to his affidavit, she says that the guarantee was not granted by her. [20] Mr Goodhew confirms that the Bank does not have an original copy of the guarantee provided by Dr Piper in respect of the $600,000 facility. The explanation he gives is that in 2005 the Bank instigated a new document management practice, whereby all new securities taken by the Bank from that date, and all existing securities, were "imaged" into an electronic file. This included all new and existing guarantees and mortgages. The original versions of the documents were disposed of and only an electronic file on the Bank's computer systems was retained. That electronic file is stored in the Bank's internal web based database with a specific programme for the purpose.[21] To support its position that the document annexed is a true copy of an authentic document, the Bank offers a solicitor's certificate from Mr Varney certifying that he acted in compliance with the Bank's instruction in obtaining valid and enforceable securities, deeds and agreements in accordance with its instructions; that each party had validly executed the securities deeds and agreements to which it was party; and that the nature and the effect of the provisions of the securities, deeds and agreements had been explained to the parties. Mr Varney gave those certificates on the basis of his awareness "having made enquiries and taken action to the standards of a prudent and competent solicitor." [22] The Bank also produces a letter of 16 February 2004 from McVeagh Fleming to the Bank. The letter deals with the three transactions involving the Patty Piper Family Trust, P J Piper Limited and Sunset Family Doctors Serve Co Limited. The letter confirms that McVeagh Fleming had "now attended on our client for signing of the loan agreements and ancillary documentation". The letter records the following as enclosed: "1. Patty Piper Family Trust a) Bank's copy home loan flexible facility; b) Bank's copy all obligations guarantee (2 – from the trustees of Patty Piper Family Trust and from Patricia Jane Piper); c) Our solicitor's certificate. 2. P J Piper Limited a) Our solicitors certificates (2) 3. Sunset Family Doctors Serve Co Limiteda) Bank's copy guarantee from Patty Piper Family Trust." [23] In due course the Bank appointed its Quantity Surveyor. The letter of appointment of 22 December 2003 is attached to the affidavit of Mr Goodhew. It is recorded as copied to the Patty Piper Family Trust. Kingston Partners Quantity Surveyors is asked to "act for the Bank as independent Quantity Surveyors to confirm the following"1. Review the plans and specifications and verify the total development costs required to complete the project in accordance with the plans and specifications (including the appropriateness of the contingency sum). 2. Confirm that the necessary Resource Consents and Buildings Consents are held for the project. 3. Confirm that the proposed development is being completed consistent with resource and building consents and specifications in any sale and purchase agreements / leasing agreements. 4. Suitability of the contractor and the contract type. 5. Timeframe and insurances required. 6. Provide monthly drawdown certificates on a cost to complete basis. As part of the certification you will be required to confirm that there have been no alterations to the plans and specifications and that there are no costs overruns. 7. Advise any other issues that arise from investigation that are considered relevant; and 8. Confirm that payments are being made to subcontractors on a monthly basis.[24] By letter dated 17 February 2004 Kingston Partners Limited replied to the Bank, confirming that it would act for the Bank and providing its initial report in relation to the residence. The report describes the contractual relationship between the Trust and the Trust's builder Mr Dalton for the construction of the property as being on "presumably an informed basis". The report covers various matters requested by the Bank including the programme and refers to a start date for the project of 14 January 2004. The summary appearing at the end of the report states that the report is prepared by Kingston Partners Ltd "for the benefit of National Bank of New Zealand Limited". The report is copied to the Patty Piper Family Trust.[25] The parties give conflicting evidence as to how the amounts were drawn down from the loan. Mr Goodhew's evidence is that on receipt of approved draw- down certificates from Kingston Partners the Bank would first draw down the approved amount from the Flexible Home Loan. The draw-down amount was then transferred to the Trust's current account. The Trust could then draw down the approved amount for payment to the builder. The Bank did not pay the builder. Any payments to the builder would have been made by the Trust. By contrast, Dr Piper has annexed to the affidavit a Debit note which she says is evidence that the Bank paid the builder direct, and, it is submitted on her behalf, without the Trustees direction. [26] During the period February 2004 to 16 September 2004, approximately once a month the Bank received draw-down requests from Kingston Partners in respect of the Flexible Home Loan. A total of 10 approved draw-down requests were received by the Bank. The final approved draw-down request from Kingston Partners was dated 16 September 2004 and records that the amount of draw-down requested was $86,695. The total building costs at that date including final draw-down were $554,017. That left an amount of $70,642 in the construction budget to complete the work, which Kingston Partners said it believed was sufficient. [27] In the same letter, Kingston Partners drew the Bank's attention to a list of "extras to the contract" that the builder had provided to Kingston Partners. Kingston Partners wrote that the builder's claims fell into two categories: upgrades requested and agreed to by Dr Piper; and work that the builder insisted was due but that was not agreed to. Kingston Partners considered that the second category could become a dispute between Dr Piper and the builder. Kingston Partners estimated that the amount in dispute was likely to be approximately $32,000. [28] After that, the Bank received no further draw-down requests from Kingston Partners. This matter was raised by the Bank with the Trust. By that stage relations between the builder and Dr Piper had deteriorated and proceedings were eventually issued by the builder against Dr Piper and the Trustees. The Bank informally proposed to Dr Piper that she obtain quotes from another builder to undertake rectification work, and that the $80,000 remaining undrawn on the facilitycould be used for that purpose. That option was not pursued by Dr Piper. She said however that she would like to draw down money to put in place some temporary measures. The Bank declined to make money available for that purpose. [29] Dr Piper says that in the period March/April 2004 to September 2004 she advised the Bank of her concerns about the development including delays, lack of quality and workmanship, and the level of progress payments being certified given these concerns. She says the Bank was well aware of her concerns but notwithstanding that they allowed nearly the whole of the facility to be drawn in circumstances where the work was not in compliance with the plans and specifications, was of poor quality and where progress was not as had been certified by the Quantity Surveyor. Dr Piper says she relied on the Quantity Surveyor from Kingston Partners, Mr Coe, to ensure that building claims he was certifying for were for work that had been done, complied with all relevant consents, was in full accordance with plans and specifications submitted and was to the standard required by her and the Bank, namely done utilising first class workmanship and materials. She says that although she told Mr Coe of her concerns regarding the construction on several occasions, Mr Coe continued to give that certification to the Bank and to reassure her that she could rely on his skill and expertise in that regard. She did rely on him and that is the reason why, following his telephone call to her to write the cheque to the builder, she did so. [30] The last payment made by the Trust in respect of the Flexible Home Loan Facility was received by the Bank on 27 February 2006. On 10 April 2006 Dr Piper sent a very lengthy email to the Chief Executive Officer of the Bank outlining a number of complaints and allegations against the Bank including allegations of fraud and dishonesty on the part of bank officers. That email was responded to by a letter dated 25 August 2006 from the CEO. [31] The last payment made to repay Dr Piper's personal loan was received by the Bank on 1 October 2006. The last payment to repay the P J Piper Limited's loan was received by the Bank on 16 October 2006. Demand letters were issued in May 2007. Initial default notices under the Property Law Act 1952 were issued but withdrawn and notices were re-served on 18 July 2007. There then followed aperiod of time during which the parties exchanged emails and correspondence with a view to resolution of the issues between them. [32] In early 2008, the Bank instructed Barfoot & Thompson to act as the Bank's agent for the sale of the property. On the advice of Barfoot & Thompson, the Bank undertook a tender process for mortgagee sale, the marketing for which commenced on 12 April 2008. The tender closed on 6 May 2008. On 13 May 2008 the Bank, as first mortgagee, entered into an agreement for sale and purchase of the property. The sale price achieved by the Bank was $995,000. [33] Mr Goodhew's evidence is that as at 30 May 2008, the amounts secured by the mortgage were as follows: a) Dr Piper's loan account: 47,997.23 b) Current account in the name of Dr Piper 8,136.65 c) Current account in the name of P J Piper Ltd 10,071.24 d) P J Piper Limited's loan account 154,051.60 e) Flexible Home Loan Facility account 667,962.78 TOTAL $888,229.50 [34] The Bank has also incurred costs and expenses in relation to the recovery of the outstanding amounts of $33,746.90 as at 30 April 2008. Legal costs are on-going and the Bank has also to pay the commission and marketing costs of the real estate agent of $29,869.87. Mr Goodhew says that, taking into account ongoing costs and interest, it is uncertain that sufficient will be realised from the sale of the property to cover the total amount owing to the Bank. [35] This application for injunction was filed on 13 May 2008. The plaintiffs initially sought to proceed on an ex parte basis, but the judge who considered the exparte application directed that the application be served on the defendant and proceed on an inter parties basis.Relevant principles[36] The purpose of an interim injunction is to protect the plaintiff against injury arising from a violation of the plaintiff's rights, for which the plaintiff would not be adequately compensated in damages recoverable in the action were the claim resolved in the plaintiff's favour at trial. The plaintiff's need for protection must be weighed against a defendant's need to be protected against injury resulting from being prevented from exercising legal rights for which the defendant could not be adequately compensated under the plaintiffs' undertaking for damages, if the defendant were instead successful at trial. [37] The accepted framework for determining an application for an interim injunction is the test enunciated by the House of Lords in American Cyanamid Co v Ethicon Ltd [1975] AC 396: 1) is there a serious question to be tried in the proceeding; and 2) where does the balance of convenience lie? [38] The test is an aid to determining where the overall justice lies. If the balance of convenience overwhelmingly or very clearly favours one party, it will usually be right to be guided accordingly. But if the rival considerations are fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate: Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).Serious question to be tried[39] The following explanation of Lush J Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309, 311 as to what must be considered under this limb of the test has been adopted in New Zealand (Klissers at 133):In order to determine whether there is a serious question to be tried it is necessary to consider what is the applicable law and whether there are arguable differences concerning it, what the facts are said to be on the opposing sides, and where the issues lie, and whether there is a tenable combination of resolutions of the issues of law and fact on which the plaintiffs could succeed.[40] Hardie Boys J in Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd[1984] 2 NZLR 154, 157 stated that while the relative merits of the parties' cases should not assume prominence in a consideration of where the balance of convenience lies, in deciding whether there is a serious question to be tried the court may consider carefully the merits of the plaintiff's claim, in fact and in law, and if necessary fully examine the legal issues involved. If it is obvious that, on the facts presented, the law can give the plaintiff no remedy, then the plaintiff cannot obtain interim relief.The balance of convenience[41] This limb of the test involves deciding whether granting or refusing an injunction is the course which, after the action itself has been tried and the issues between the parties determined, would best allow the adjustment of the rights of the parties in a way that accords with fairness and justice: Congoleum Corp Ltd v Poly- Flor Products (NZ) Ltd [1979] 2 NZLR 560, 571 (CA). [42] The adequacy of damages as a remedy available to the plaintiff if the plaintiff were to succeed at trial is the primary consideration: American Cyanamid at 408. If damages would be an adequate remedy, an injunction will not normally be granted. However, if damages would not provide an adequate remedy for the plaintiff, the court will also consider whether the defendant would be adequately compensated under the plaintiff's undertaking as to damages should the defendant be successful at trial. [43] Other considerations relevant to this limb of the test include:(a) Whether the rights of an innocent non-party would be adversely affected were an injunction to be granted. (b) Any delay by the plaintiffs in bringing the application. (c) Conduct of the parties.Is there a serious question to be tried that the mortgage does not secure the Flexible Home Loan advance?[44] Section 104 of the Property Law Act 1952 provides in material part:(1) Where a person acquires any land by conveyance or transfer subject to any mortgage, the person acquiring the land shall, unless a contrary intention appears in the mortgage, and irrespective of whether he has signed the conveyance or transfer, become personally liable to the mortgagee for the payment of all principal money and interest secured by the mortgage, and shall also become personally liable to the mortgagee for the fulfilment and observance of any other covenant or agreement contained or implied in the mortgage as if he were an original mortgagor of the land and had covenanted with the mortgagee for such payment as aforesaid and for the fulfilment and observance of such covenants and agreements as aforesaid, and the mortgagee shall have remedy directly against that person accordingly, but nothing herein shall extinguish the liability of any original mortgagor under the mortgage or the liability of any intermediate transferee of the land acquired by him subject to the mortgage aforesaid.The Bank relies upon this provision to argue that following the transfer of the property to the Trust subject to mortgage, the mortgage continues to secure advances for which Dr Piper was personally liable. [45] It is the plaintiffs' case that the current mortgage on the property only secures the balance of the original loan advanced for the purchase of the property, Dr Piper's current account and her guarantee of the P J Piper Ltd current account loan. The plaintiffs say that the amounts for each of those accounts should be calculated at the date of the last payment, because that is the date on which they began to assert what they claim are lawful rights of set-off. The Bank is not entitled to claim interest or costs thereafter.[46] The plaintiffs contend that the amounts advanced under the Flexible Home Loan Facility are not secured because there is no linking of that facility to the mortgage. That being the case, the Property Law Act Notices substantially overstate the amounts secured by the mortgagee and that the mortgagee could legitimately make demand on Dr Piper for. The notices are therefore invalid. [47] The plaintiffs do not dispute that s 104 has the effect contended for by the Bank; that the mortgage is continuing security for Dr Piper's personal indebtedness to the Bank. The plaintiffs' argument, rather, is that the mortgage does not secure the Flexible Home Loan Facility because Dr Piper has not, contrary to the claims of the Bank, guaranteed the Flexible Home Loan Facility. The basis upon which that loan was offered and agreed did not require the provision of such a guarantee. Although it may be her signature that is depicted on the electronic version the Bank has, she did not sign such a guarantee. [48] Alternatively, if it transpires that such guarantee exists, then the plaintiffs say that it cannot be enforced because it was executed by Dr Piper by mistake or by reason of misrepresentation. The terms of the advance did not require the guarantee and at the very least the Bank was obliged to ensure that it was drawn to the attention of the plaintiffs that the guarantee involved a "super added" term so that the plaintiffs had full opportunity to consider their position and their exposure. The failure to explain was that of Mr Varney. Mr Varney was acting for the Bank in obtaining the guarantee and, it is argued, his conduct is therefore the conduct of the Bank. Reliance is placed upon the Supreme Court decision in Dollars & Sense v Nathan [2008] NZSC 20. [49] The first limb of the plaintiffs' argument cannot succeed. There is ample evidence in the way of contemporaneous documents that makes it highly improbable that the copy of the guarantee in evidence is a post-fact fabrication, concocted, I assume it is said, to better secure the Bank's position. Not only does the Bank hold the copy of the document but it also has the solicitor's certificate prepared by Mr Varney in relation to the guarantee and Mr Varney's letter to the Bank enclosing a copy of the guarantee.[50] On 5 June 2008 the defendant filed an affidavit of Pranushka Naidoo, a secretary in the employ of the solicitors for the defendant, annexing a copy of a letter received from McVeagh Fleming. The defendant seeks to rely on the letter as supporting the defendant's case that a guarantee was executed by Dr Piper but counsel for Dr Piper objects to its admissibility. She says that it is privileged under legal advice privilege, a privilege attaching to Dr Piper that McVeagh Fleming cannot waive (see s 54 of the Evidence Act 2006). I make no determination in relation to the claim to privilege; I do not need to for the purposes of this application. I am satisfied, without reference to that evidence, that a guarantee was executed by Dr Piper. I do comment however that the Bank's management policy of destroying its original documentation and retaining electronic copies will likely make it difficult on occasion for the Bank to counter allegations of fraud or document tampering. It is a policy the Bank might well reconsider. [51] The alternative challenge to the Notices is that the guarantee was executed by reason of a mistake on the part of Dr Piper or a misrepresentation to her. Dr Piper claims that the solicitor did not bring to her attention that the terms of the advance had changed. In aid of their argument that Dr Piper did not know of her requirement for the guarantee, and did not understand that she had signed one, the plaintiffs point to the absence of a stipulation for such a guarantee in the original Flexible Home Loan Facility offer. [52] But the Bank has produced a certificate from Mr Varney issued at the time that the guarantee was executed in which Mr Varney certifies that he has fully explained the nature and effect of the provisions of the securities, deeds and agreements. Furthermore, in circumstances where the plaintiffs seek interim relief on the grounds that Dr Piper was not informed of or was misinformed by her solicitor in relation to certain matters, I am entitled to take into account that Dr Piper has not produced that part of her solicitor's file that relates to the advice she received. Counsel confirms that no request has been made for the file. Where the dispute with the Bank is so longstanding, this omission is significant. [53] As to the Bank's requirement of mortgage security for the facility, when the loan offer was made it was contemplated that the mortgage would be transferred tothe Trust. If that had occurred, the security structure proposed in the offer would have resulted in the mortgage being security for the loan. At some point the decision was taken to proceed in an alternative way: transferring the property to the Trust, subject to the existing mortgage. The Bank's agreement to that proposal is set out in the Bank's letter to the solicitors for Dr Piper and the Trust dated 29 December 2003. [54] Dr Piper was a trustee of the Trust. She would have understood that the intention of the parties was that the Bank's security for the loan would include a mortgage by the Trustees over the property. That is to be expected when a loan is to be expended on improvements to a property. She would also have been aware of the changed basis upon which matters were proposed to proceed; namely that the property would instead be transferred subject to the existing mortgage. In those circumstances, to ensure that the mortgage would provide security for the loan, it seems that the Bank required Dr Piper's guarantee. For these reasons, Dr Piper's argument is unattractive, and can best be described as opportunistic. [55] In any case, although it is not determinative, I note that under clause 18 of the Flexible Home Loan Facility agreement, while the liability of the other two trustees is limited to the assets of the Trust, there is no such limitation in respect of the liability of Dr Piper. Even if the guarantee had not been executed, she would still have been personally liable under the Facility Agreement, a liability which would not be limited to the assets of the trust. Her personal liability is secured by the mortgage. The simple point is that even were it not for the guarantee, the amounts would be secured under the existing mortgage. [56] Accordingly there is no serious question to be tried that the existing mortgage does not secure the amounts recited in the Property Law Act Notices.Is there a serious question to be tried that the bank assumed duties to the plaintiffs which it has breached?[57] In their statement of claim, the plaintiffs plead three causes of action based upon the allegation that by reason of the Bank's appointment of the Quantity Surveyor, the Bank owed duties to the plaintiffs and that it breached those duties.[58] First, it is alleged that the Bank owed the plaintiffs a contractual duty to exercise reasonable care to ensure that the Quantity Surveyor appointed had the skills, knowledge and acumen to: a) Determine the suitability of a builder who could complete the building work in accordance with the fixed price contract; b) Ensure the contract entered into with the builder fully protected the first and second plaintiffs; c) Ensure that certificates for progress payments were in accordance with work actually completed, work completed in accordance with the building consent and work completed with proper skill and workmanship; d) Not allow draw-downs which depleted the facility leaving insufficient funds to complete the development. [59] The plaintiffs allege that in breach of the contract, the Bank appointed a Quantity Surveyor without the skills required to ensure the development was completed in accordance with the fixed price contract, the building and planning consents and with proper skill and workmanship. The Quantity Surveyor certified for draw-downs in circumstances where the draw-downs resulted in depletion of the facility leaving insufficient funds to complete the development. It is alleged that when the Bank's contractual defaults and breaches were brought to its attention the Bank failed to require its Quantity Surveyor to make good his various defaults. [60] In her oral submissions, counsel for the plaintiffs said that the essential submission was that the Bank owed a contractual duty to Dr Piper to exercise reasonable care that payments were made in accordance with work that had actually been completed, had been completed in accordance with the building and planning consents, and had been completed with proper skill and workmanship. The plaintiffs say that they have raised a serious question that the Bank did owe such contractual duty: the Bank required as a term of its contract with the plaintiffs that it beresponsible for the appointment of the Quantity Surveyor and that all payments only be made on the basis of its Quantity Surveyor's certifications. [61] The requirement for certificates from a Quantity Surveyor was a condition precedent to draw-down expressly incorporated into the Flexible Home Loan Facility Agreement. The Quantity Surveyor was to be appointed for the Bank, and the Quantity Surveyor's certification was to satisfy the Bank and/or its solicitors of the matters stipulated there. The stipulation was plainly for the benefit of the Bank and directed to ensuring the maintenance of the value of the security, namely the developed property. [62] There is nothing in the terms of the agreement which expressly imposed on the Bank contractual duties to the plaintiffs as alleged in the statement of claim or as articulated during argument. Imposition of such contractual duties would require the implication of a contractual term or terms, although no such term was formulated for me in pleading or in argument. [63] There are three broad classes of contractual terms implied by law as follows: 1. Those implied under certain types of contract by statute or custom. 2. Those deduced by implication and interpretation from the express terms of the contract (often referred to as the implicit term); and 3. Those implied for business efficacy to the contract. Often the second and third type of implied term shade into each other. Any attempt at regimented classification is therefore unhelpful and to be avoided: Vickery v Waitaki International Ltd [1992] 2 NZLR 58 at 64 per Cooke P. [64] The plaintiffs' argument can only be that the implied term that is alleged arises either by deduction from the express terms or as one implied to give the contract business efficacy. It is certainly not implicit in the conditions precedent or the overall transaction that the Bank was assuming a responsibility to look after the plaintiffs' interests in the construction of the property. Nor is it necessary to givebusiness efficacy to the transaction. The purpose behind the business transaction is for the plaintiffs to obtain the funding they require for the development of the property that they are undertaking, and for the Bank to obtain adequate security so as to protect its interests. I note that the Bank had a valuation that the improved value of the property was $1.2 million, which could not be described as generous security for the total amounts to be secured against the property. Since the value of the security depended on the advances being spent to achieve an improvement to the value of the property at least equal to the expenditure, the requirement of a valuation and certification from a Quantity Surveyor were necessary to protect the Bank's interests. But to introduce the notion that the Bank thereby assumed responsibility to the plaintiffs to ensure that the property was developed in compliance with all appropriate regulatory requirements and with appropriate standards of workmanship, is to introduce entirely alien concepts into the contract. The argument is simply untenable. [65] The next alternative cause of action and argument is that the Bank owed a tortious duty to the plaintiffs which has been breached. In the statement of claim the duty is pleaded as follows:The relationship between the bank and the first and second plaintiffs as customers gave rise to duties of care by which the bank was required to exercise reasonable care as follows: (a) In appointing a quantity surveyor who had the knowledge, skills, knowledge and acumen to: (i) Determine the suitability of a builder who could complete the building work in accordance with a fixed price contract; (ii) Ensure the contract entered into with the builder fully protected the first and second plaintiffs; (iii) Ensure that certificates for progress payments were in accordance with work actually completed, work completed in accordance with the building consent, work completed with proper skill and workmanship; (iv) Not allow draw downs which depleted the facility leaving insufficient funds to complete the development.[66] Even were the Bank to owe such a duty, there is no evidence of a breach of the duty. In particular, there is no evidence that the defendant failed to usereasonable care in appointing the Quantity Surveyor to act for it. The Quantity Surveyor appointed by the Bank is a member of the New Zealand Institute of Quantity Surveyors with a number of years experience. [67] Perhaps recognising the difficulty with this argument, in oral submissions counsel for the plaintiffs submitted that the Quantity Surveyor was the Bank's agent, and that the Bank, or at least the Quantity Surveyor, knew that Dr Piper was relying on him to ensure that the work was carried out to the requisite standards. It is alleged that he effectively appointed the builder for the Bank, and that he then negligently represented that the builder's work was being carried out in compliance with relevant consents and to the value of the amounts advanced by the Bank. Dr Piper relied on those representations. She continued to pay the builder and draw down funds from the Bank. The plaintiffs are now entitled to recover from the Bank by way of set-off or counterclaim the losses suffered by them by reason of that reliance. [68] In substance this is a claim that the Bank is liable to the plaintiffs for negligent misstatements by the Quantity Surveyor. To make out a cause of action based on negligent misstatement, the plaintiffs must establish that: a) the Bank assumed responsibility for the reliability of the Quantity Surveyor's statements; b) the plaintiffs relied upon those statements; c) the plaintiffs' reliance upon those statements was foreseeable and reasonable reliance (Attorney-General v Carter [2003] 2 NZLR 160); d) the statements made were wrong or inaccurate; and e) the statements were made in breach of the Bank's duty to take reasonable care when providing the information relied upon. [69] The concepts of reliance and assumption of responsibility are related. InCaparo Industries plc v Dickman [1990] 2 AC 605, the House of Lords approved apassage from the judgment of Richmond P in Scott Group Ltd v McFarlane and Others [1978] 1 NZLR 553 at (556):The question in any given case is whether the nature of the relationship is such that one party can fairly be held to have assumed a responsibility to the other as regards the reliability of the advice or information. I do not think that such a relationship should be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied on by a particular person or class of persons for the purposes of a particular transaction or type of transaction. I would especially emphasise that to my mind it does not seem reasonable to attribute an assumption of responsibility unless the maker of the statement ought in all the circumstances, both in preparing himself for what he said and in saying it, to have directed his mind, and to have been able to direct his mind, to some particular and specific purpose for which he was aware that his advice or information would be relied on.[70] On the evidence, including the evidence contained in the affidavits of Dr Piper, there is nothing to suggest that the Bank, through its contractual arrangements with the plaintiffs, assumed responsibility to monitor for the benefit of the plaintiffs the quality or value of the work being undertaken or the work's compliance with relevant consents, or more particularly responsibility for the reliability of the advice or information that the Quantity Surveyor was providing to the Bank. The contractual stipulations in the loan documentation in relation to the Quantity Surveyor were there for the benefit of the Bank. In short, there was no express assumption of such responsibility. [71] In certain circumstances, although there is no express assumption, the law will deem a person to have assumed responsibility (Attorney-General v Carter) but that is on the basis of a finding the defendant foresaw or ought to have foreseen the plaintiffs would reasonably place reliance on what was said. Here, within the particular contractual context, the Bank could not have foreseen nor should it have foreseen that the plaintiffs would place reliance on what was said in the manner that they now claim to have. The documentation was clear that the requirement of a Quantity Surveyor was for the benefit of the Bank, and that he was reporting to the Bank. [72] There are some factual allegations made by the plaintiffs that if true might justify deeming the Bank to have assumed responsibility. In the Statement of Claimthe plaintiffs allege that the Bank appointed the builder. That factual allegation is inconsistent with contemporaneous documents. In particular, Dr Piper countersigned a quotation from the builder dated August 2003. That was before the Bank was approached for funding for the project. The plaintiffs also say that the Bank paid the builder directly, effectively cutting the plaintiffs out of the decision to pay. There is no factual support for this allegation. The documents Dr Piper annexes appear to be internal Bank documents authorising payment to the builder from a trust bank account. That is consistent with Mr Goodhew's account that the trustees paid the builder by cheque. Further, I note that Dr Piper refers in her evidence to writing cheques to the builder. [73] The plaintiffs might argue that the Quantity Surveyor expressly assumed responsibility by his statements to Dr Piper that she could rely on him, that he was the Bank's agent and at law his actions were those of the Bank. But there are very real obstacles in the way of such an argument. The Quantity Surveyor was appointed by the bank on a limited basis. It was not within the terms of the Quantity Surveyor's appointment to effectively project manage in the way that the plaintiffs now claim that they understood him to be doing, nor to make statements to the plaintiffs or assist the plaintiffs in relation to the quality and nature of the work being undertaken. The terms of the appointment were copied to the plaintiffs and so were known to them. It could not be said that there was any holding out by the Bank of the Quantity Surveyor as its agent for purposes beyond the written brief. So even if it is assumed that the Quantity Surveyor did make the statements which the plaintiffs claim, it was beyond the scope of both his actual and ostensible authority to act as the Bank's agent in assisting the plaintiffs in the manner claimed, and the Bank would not be liable for any negligent misstatement made by the Quantity Surveyor in the course of that assistance. [74] In any case, I find the affidavit statements and the evidence in Dr Piper's affidavits both as to statements by the Quantity Surveyor and as to her reliance improbable. Although this is a hearing of an interlocutory application, the Court is not bound to uncritically accept every statement in an affidavit.[75] Dr Piper claims that the Quantity Surveyor told her she could rely on his skill and expertise in certifying to the Bank. That claim appears for the first time in Dr Piper's fourth affidavit, filed after all of the defendant's affidavits had been received. There is no reference to these matters in either the statement of claim, or the earlier affidavits. Nor can I find a trace of it in the various emails from Dr Piper to the Bank. Further, I note the lack of detail as to the place and circumstances of this statement. [76] The plaintiffs claim that invoices were paid in reliance on the Quantity Surveyor's say-so, but of course, in reality they were paid when funds became available from the Bank because the builder had a contractual claim for payment. [77] To conclude, I consider this cause of action, whether as pleaded, or as argued before me, not to be arguable. It raises no serious questions to be tried. [78] In the final alternative cause of action the plaintiffs allege that the relationship between the defendant and the plaintiffs was a fiduciary relationship pursuant to which the defendant was obliged to:(a) To ensure there was no conflict between the interests of the plaintiffs and the Bank's own interest. (b) To not derive profit by reason of its position.[79] It is alleged that in breach of the fiduciary relationship the Bank:(a) Has allowed a conflict to arise and continue between the interest of the plaintiffs' to have the development of the property completed in accordance with a fixed price contract and to a proper standard and in accordance with building consent issued and the interests of the Bank to secure to itself monies that have been allowed to have been drawn down on the certification of the Bank's agent for payment to the builder appointed by the Bank's agent; (b) as a result of the conflict of interest the Bank has refused/declined to take any action against the Quantity Surveyor and/or against the builder; (c) has sought to continue to take interest on amounts drawn down in breach of the obligations the Bank owed to the plaintiff; (d) has declined to make funds available to the development can be completed as per the obligations.[80] The relationship between bank and customer is not per se a fiduciary relationship: Shotter v Westpac Banking Corporation [1988] 2 NZLR 316 at 333;Goddard v DFC New Zealand Ltd [1991] 3 NZLR 580 at 587. It is possible for a fiduciary relationship to arise between a bank and its customer in certain circumstances; however, to establish such a relationship a plaintiff must prove that the circumstances go beyond the normal relationship of banker and customer:Shotter v Westpac at 333. In Bristol and West Building Society v Mothew [1998] (approved by the Privy Council in Arklow Investments Ltd v MacLean [2003] 2 NZLR 1, 5-6) Millett LJ described the characteristics of a fiduciary as follows:A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.[81] The plaintiffs submit that the circumstances of its relationship with the Bank took the relationship outside a normal bank-customer relationship. The plaintiffs argue that the Bank required that it have the sole discretion as to the appointment of the builder and the Quantity Surveyor. This discretion, together with the requirement that draw-down of the Flexible Home Loan Facility be effected against certification by the Quantity Surveyor, left the plaintiffs powerless to control or supervise the certification of payment claims. The plaintiffs allege that in these circumstances the Bank undertook to act in the plaintiffs' interests in the exercise of a power that affected the plaintiffs' interests and where the plaintiffs did not have the supervision of the power or function exercised by the Bank. [82] I accept the defendant's submission that there was no evidence of an assumption of responsibility by the Bank to safeguard the plaintiffs' interests before its own. The stipulation for a Quantity Surveyor, and reports and certificates from the Quantity Surveyor, were intended for the benefit of the Bank. Nor did the Bankexercise control over the plaintiffs' interests in the manner alleged. I have already found that the builder was involved in the project before the appointment of the project manager and that Dr Piper had counter-signed a quotation from him before the plaintiffs approached the bank for funding. Further, payments to the builder were made by the Trust, not the Bank. The Bank is, and was always, entitled to act in its own interests in accordance with the Facility Agreement. The circumstances do not create a fiduciary obligation on the part of the Bank. [83] Finally, as regards the merits of these three causes of action, it is to be observed that in terms of the loan documentation, the plaintiffs would have been well aware that they had no right to make deductions in respect of any purported claim to set-off. Clause 1.5 of the mortgage document states that payments are to be made without deduction, and clause 11 of the Flexible Home Loan Agreement is to the same effect. Parties to a contract are free to agree to exclude the right to deduct or set off cross- claims, but to do so they must use clear and unequivocal words (Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyd's Rep 441). I consider that the clauses in question are clearly expressed to exclude such rights of deduction. [84] The plaintiffs have been in default under the various loan agreements and mortgage now for nearly two years.Balance of convenience[85] I have concluded that there is no serious issue to be tried. Notwithstanding that, I proceed to consider the issue of balance of convenience as that is equally as determinative against the plaintiff as the first limb of the American Cyanamid test. [86] Relevant to the balance of convenience is the plaintiffs' delay in bringing this application. No proper excuse is offered for that delay. Property Law Act Notices were served in August 2007. It was open to the plaintiffs to seek injunctive relief at any time thereafter. The delay becomes even more inexcusable when it is taken into account that the plaintiffs were advised that in exercise of the power of sale the Bankwas proceeding through a sale by tender process. The ex parte application for injunction was made after tenders closed, and on the day that the Bank accepted an offer made through the tender process. During the period in which the plaintiffs have delayed the amount owing under the mortgage has rapidly increased, and so too have the Bank's costs of enforcement. [87] It was also during the period of delay that the agreement for sale and purchase in respect of the property was signed. The interests of the purchaser of the property weigh heavily against the grant of an injunction in this case. It is well established that potential hardship caused to third parties may be taken into account in determining whether to grant relief: Finnigan v New Zealand Rugby Football Union Inc (No 2) [1985] 2 NZLR 181, 188. [88] The plaintiffs dispute that the purchaser is an innocent third party in the sense of being a bona fide purchaser without notice. Although the named purchaser is unrelated to any person involved with this litigation, the purchaser has a right to nominate another purchaser in his place. The plaintiffs say they suspect that the purchaser is acting as a front for the builder with whom they are in dispute. But they can put the matter no higher than speculation, and I attach no weight to that consideration. In any case, even if the purchaser were the builder, it does not follow that he would have knowledge or notice of the plaintiffs' claims against the Bank. Alternatively, the plaintiffs say that the purchaser is not an innocent party, since the Bank has retained to itself a right to delay settlement should it be injuncted. However, again that does not put the purchaser on notice of the plaintiffs' claims. [89] The final consideration is the adequacy of damages. Should the plaintiffs ultimately succeed with their claims against the Bank, there can be no doubt that damages will be readily calculable, and that the defendant will be able to make payment of any judgment sums. The position is less clear in respect of the plaintiffs. The amount for which the property has been sold is $991,000. As Mr Goodhew says, that provides slim, if any margin, over the amount secured under the mortgage. Should the Bank lose the sale, but ultimately be successful in the proceedings and then be forced to sell in a falling market, it is likely it will be left with a sizeable shortfall after realisation of the property. Although Dr Piper has provided anundertaking as to damages there is no evidence to provide comfort that she or the Trust would be able to meet any amount she was directed to pay following enforcement of the undertaking. [90] For these reasons I conclude the balance of convenience heavily favours the refusal of the restraining orders sought by the plaintiffs. [91] Finally, I consider that the overall justice of the situation requires that the Bank be able to exercise its lawful rights of sale in circumstances where: (a) The plaintiffs have no tenable cause of action which in any way impeaches that right of sale. (b) The plaintiffs have been guilty of such extensive delay in bringing these issues before this Court. (c) It was always the parties' intention that the property would be security for the Bank's loans to the interests associated with Dr Piper. (d) Dr Piper has been in default under those loans since late 2006. [92] Accordingly, the plaintiffs' application is dismissed. [93] The parties may file memoranda as to costs as follows: 1. The defendant is to file a memorandum in relation to its costs by 5.00 pm, 25 June 2008. 2. The plaintiffs are to file memorandum in reply by 5.00 pm, 1 July 2008. Winkelmann J