BANK OF NEW ZEALAND LTD v FERNANDO [2021] NZHC 1683

BANK OF NEW ZEALAND LTD v FERNANDO [2021] NZHC 1683 [7 July 2021]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2021-409-000015[2021] NZHC 1683UNDER the Senior Courts Act 2016BETWEEN BANK OF NEW ZEALAND LIMITEDPlaintiffAND JOHN WINSTON LAKSHAN FERNANDODefendantHearing: On the papersCounsel: N J Robertson for PlaintiffG P Davis for DefendantJudgment: 7 July 2021JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 7 July 2021 at 10.30 ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] The Bank of New Zealand (the bank) brings this proceeding against thedefendant, John Fernando (Mr Fernando), pursuant to his guarantee of loanagreements between the bank and Mr Fernando's companies, JohnF-LTC Ltd andWorcester Developments Ltd. Following the filing of Mr Fernando's statement ofdefence, the bank applied for summary judgment. Under r 12.4(2) of the High CourtRules 2016, the bank requires leave to apply for summary judgment. The applicationfor leave is opposed by Mr Fernando.The facts[2] The bank's claim arises from several loan agreements entered into in 2018 bythe bank and Mr Fernando's companies and guaranteed by Mr Fernando. The loanswere secured by mortgages over properties at Stanmore Road and Quaifes Road.[3] In around December 2018, the loans fell into arrears. The bank engaged acollection agent called Verofi Ltd (Verofi) to pursue the arrears.[4] In May 2019, Verofi made demand for full payment of the loans. It followedthis by issuing default notices under the mortgages and then Property Law Act 2007notices, which specified that all amounts secured by the bank's mortgages became dueand payable if defaults were not remedied by 29 July 2019. The defaults were notremedied.[5] In October 2019, Mr Fernando sold the Quaifes Road property and the bankreceived the net proceeds of sale which cleared a personal loan of Mr Fernando andsome of the indebtedness of his companies.[6] The Stanmore Road properties, consisting of two one-bedroom and one two-bedroom residential units, were subsequently sold by the bank as mortgagee followinga sales campaign conducted by Harcourts Grenadier. The net proceeds of sale wereapplied to the outstanding loans leaving balances of $370,057.23 and $74,463.45owing by JohnF-LTC Ltd and Worcester Developments Ltd respectively.[7] On 20 January 2020, Verofi wrote to Mr Fernando, JohnF-LTC Ltd andWorcester Developments Ltd advising of the amounts then owing and demandingpayment. No responses were received to the demands.[8] This proceeding was commenced on 18 December 2020 but service was noteffected on Mr Fernando until 2 March 2021.[9] Following service, Mr Fernando requested an extension of time to file astatement of defence. His request was refused.[10] On 8 April 2021, Mr Fernando filed a statement of defence. It consisted almostentirely of bare admissions and denials of the allegations in the bank's statement ofclaim. Mr Fernando pleaded a single affirmative allegation that the sales of theStanmore Road properties had been significantly below reasonable market value.[11] On 30 April 2021, the bank made its application for summary judgment which,on 4 May 2021, was followed by an application for leave under r 12.4.[12] On 21 May 2021, Mr Fernando filed a notice of opposition to the applicationfor leave and, on 24 May 2021, a brief affidavit in support of that opposition.[13] The matter came before me in the Associate Judges List on 27 May 2021. Idirected the bank's leave application would be dealt with as a stand-alone matter andrequired counsel to confer as to a suitable timetabling for the filing of evidence andsubmissions. Counsel subsequently agreed on a timetable. They agreed, also, that theapplication could be determined on the papers.The law[14] The High Court Rules contemplate a plaintiff's application for summaryjudgment will generally be made at the time a proceeding is commenced and servedon the defendant. An application may be made at a later time with leave of the Court.Rule 12.4(2) High Court Rules provides:An application by a plaintiff may be made either at the time the statement ofclaim is served on the defendant, or later with the leave of the court.[15] Rule 12.4(2) does not provide any guidelines as to when leave of the Court willbe granted. The commentary in McGechan on Procedure states:1 The question is clearly a discretionary one, and it will be up to the partyapplying for leave to show why it should be granted. If the absence of adefence has only become apparent after discovery or the exchange of briefs,this may well be an adequate reason for granting leave. In many cases, as withappeals, the leave question will be bound up with the merits, and it may bedifficult to determine the leave question without some consideration of themerits.[16] In Stephens v Barron, the Court of Appeal noted it was important that leaveapplications be dealt with as a step prior to a full consideration of the merits of anapplication for which leave is required.2 The Court said the criteria for granting leaveneeded to be addressed, even if the merits of the substantive application are,themselves, an important aspect of the leave decision.3[17] Case law has identified factors that are relevant in determining whether to grantleave. A decision often referred to is Tip Top Ice Cream Co Ltd v Polarland Ltd, whereMaster Faire considered three factors assume importance where a matter of discretionwas raised by the High Court Rules, namely: 4(a) Has the delay been satisfactorily explained?(b) Are the merits of the applicant's case for the relief soughtparticularly strong and therefore deserving of determination bythe Court at a later time than is prescribed by the Rules? And,(c) Is there any risk of a miscarriage of justice by determining theapplication at the later point in time?[18] These are not the only factors to be considered. The overriding considerationmust be the interests of justice having regard to the stated objectives of the High CourtRules to secure the just, speedy and inexpensive determination of proceedings.51 Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR12.4.01A].2 Stephens v Barron [2014] NZCA 82.3 At [13].4 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564 (HC) at [28].5 High Court Rules 2016, r 1.2.[19] In Corbans Viticulture Ltd v Waihopai Valley Management Ltd, AssociateJudge Matthews said: 6Each application must, in my opinion, be considered in light of the objectiveof the High Court Rules, to secure the just, speedy and inexpensivedetermination of any proceeding [r 1.2], and the Court must take into accountthe interests of the party applying, the party against whom the application hasbeen made, and in a case where there are other parties who are not parties tothe application, their interests, to the extent that they are relevant. It may alsobe appropriate, in my view, to make a preliminary assessment of the merits ofthe proposed application, to the extent that this can fairly be done on theevidence available, but this will only be one factor to take into account in anoverall assessment.[20] In Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd, the High Courtconsidered an application for leave to make a second application for summaryjudgment.7 At that time the application fell to be considered under r 12.4(2).8 AndrewsJ referred, with approval, to the approach of Associate Judge Matthews in CorbansViticulture Ltd. Importantly, her Honour stated:[35] The purpose of summary judgment is to avoid prolonged proceedingswhen the matters at issue are capable of summary disposition. It follows thatleave should not be given to apply for summary judgment if it will not avoidprolonged proceedings.[21] On the facts, Andrews J was not persuaded to grant leave. In summary, herreasons were that:(a) the granting of leave to apply for summary judgment would not savethe parties time and expense or avoid delay;(b) the case was already set down for trial; and(c) she was not persuaded of the merits of the proposed application forsummary judgment; rather, she considered there was an arguabledefence to the application.6 Corbans Viticulture Ltd v Waihopai Valley Management Ltd [2012] NZHC 2799 at [60]. (footnoteomitted).7 Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 592.8 This would now be dealt with under r 12.4(2AA) of the High Court Rules, inserted as from 24July 2020 by r 11 High Court Amendment Rules 2020 (LI 2020/125).The submissionsThe bank's position[22] The bank did not file any evidence specifically in relation to the leaveapplication. It relied upon the very substantial affidavit filed in support of theapplication for summary judgment.[23] In the bank's submissions in support of the leave application the followingmatters are relied upon:(a) the application for summary judgment is consistent with the objectivesof the High Court Rules;9(b) upon receipt of the statement of defence, the bank's counsel consideredit was appropriate to proceed by way of summary judgment because ofthe absence of any reasonably arguable defence raised by Mr Fernando;(c) the application for leave was filed very shortly after Mr Fernando'sstatement of defence was served upon the bank (within eight workingdays);(d) by analogy with the District Court Rules, it was appropriate to applyfor summary judgment at that time;10(e) the parties have not taken any interlocutory steps and no casemanagement timetable has yet been set;(f) there is no prejudice to Mr Fernando in granting leave;(g) Mr Fernando has had since 20 January 2020, to enter into discussionswith the bank but has not done so; and9 High Court Rules, r 1.2.10 Rule 12.4(2) of the District Court Rules 2014 provides a plaintiff may apply for summaryjudgment until the expiry of 10 working days after the date on which the statement of defence isserved on the plaintiff, or later by leave of the court.(h) there are no material conflicts of evidence that would prevent the matterbeing suitable for summary judgment and, related to this, the bank hasprovided a large amount of contemporaneous documentary evidence insupport of the application.Mr Fernando's position[24] Mr Fernando has filed two affidavits in opposition to the leave application.The second is a substantial affidavit extending to 53 paragraphs with exhibits attached.His counsel has filed fulsome submissions. The grounds of opposition can besummarised as:(a) the bank has not satisfactorily explained the delay in applying forsummary judgment;(b) the merits of the bank's case are not strong; and(c) Mr Fernando will suffer prejudice if leave is granted.[25] Mr Fernando argues there is no evidence before the Court as to why the bankfailed to apply for summary judgment upon commencement of the proceeding. Heargues that only inferences can be drawn as to why the bank did not apply for summaryjudgment immediately, none of which are logical, particularly when the bank is aseasoned user of the summary judgment procedure.[26] Mr Fernando disputes the relevance of the District Court Rules, as this case isbrought in the High Court. He says, also, that in determining whether the bank hasdelayed in bringing its application, time should be measured from the commencementof this proceeding not the date of service upon him.[27] In respect to the merits, Mr Fernando says the bank's application is not sodeserving as to entitle it to obtain leave. He notes that:(a) he intends to raise defences that the Stanmore Road properties weresold at an undervalue;(b) the bank's conduct was oppressive in refusing to accept reasonableproposals and in selling the properties at significantly under-valuecontributed to the alleged losses;(c) there are likely to be conflicts of evidence on a number of pointsmaking the claim unsuitable for summary judgment; and(d) it is likely expert evidence will be required as well as discovery inrespect to such matters as whether the properties were appropriatelymarketed and what the reserve prices were set at.[28] Prejudice is said to arise because had the bank applied for summary judgmentat commencement, Mr Fernando would have responded to it directly, but he has beenforced to take additional steps in the proceeding which are said to be:(a) filing a statement of defence;(b) opposing the bank's leave application;(c) defending the application for summary judgment, if leave is granted.[29] Mr Fernando says the costs consequences of these additional steps should notbe borne by him, particularly when the bank has failed to provide an adequateexplanation for not applying for summary judgment at the appropriate time.Discussion[30] It is correct the bank has not filed affidavit evidence as to the reasons it did notapply for summary judgment upon commencing the proceeding. Counsel says in hersubmissions that following receipt of Mr Fernando's statement of defence it wasdetermined that applying for summary judgment was the best way forward as thestatement of defence provided no reasonably arguable defence. That should have beenset out in an affidavit.[31] However, this is not of itself reason to refuse the bank's application. While Iaccept Mr Fernando's submission that the District Court Rules are not directlyapplicable, consistent with the bank's position the application for leave was promptlyfiled after receipt of Mr Fernando's statement of defence and before any further stepswere taken in the proceeding. The absence of delay distinguishes this case from otherswhere leave to make an application for summary judgment is sought at a later stage ofa proceeding.11[32] In my view also, the decision to apply for summary judgment is not surprisinggiven the proforma nature of Mr Fernando's statement of defence. It was quiteinadequate, notwithstanding Mr Fernando saying this was filed to preserve hisposition. The statement of defence raised only one affirmative matter concerning thesale price of the Stanmore Road properties which does not, at least as expressed,amount to a defence of the claim.[33] It is necessary for me to have some regard to the merits of the bank'sapplication for summary judgment. Although Mr Fernando has yet to file hisopposition to that application he has filed a substantive affidavit which addresses themerits from his perspective. That said, my assessment of the merits, while more thanan impression, cannot be a definite indicator of the outcome if the bank is grantedleave to proceed with its application for summary judgment.[34] My view is the bank has a sufficient prospect of obtaining summary judgment.Mr Fernando appears to be advancing two principal matters in defence. In relation tothe issue of alleged oppression by the bank, his submissions do not identify how thisprovides him with a defence. On the documents before me, it is difficult to see howoppression could be established on the facts either.[35] In relation to the allegation the bank sold the Stanmore Road properties at anundervalue, it appears what is being alleged is that the bank breached its duty ofreasonable care under s 176(1) of the Property Law Act "to obtain the best pricereasonably obtainable as at the time of sale". The relevant principles are well11 Jones Lang Lasalle Ltd v Soft Technology JR Ltd [2019] NZHC 1965 and Scully v Holland [2018]NZHC 3440.established.12 The cases emphasise the statutory obligation is not to obtain the bestprice reasonably obtainable in fact, but to take reasonable care to do so. It appears tome there is ample evidence for the bank to argue it acted appropriately in the marketingof the properties.[36] Furthermore, even if Mr Fernando can establish an arguable case, the bankbreached its duty under s 176(1) entitling him to compensation, it is likely there willremain a significant sum owing to the bank. In such circumstances, the bank wouldbe entitled to summary judgment as to liability, if not quantum. In this regard, I noteMr Fernando says in his affidavit, "I accept that some amounts might be owing toBNZ, but I do not accept that it is the amounts claimed in the statement of claim".Similarly, his counsel submits, "Mr Fernando accepts that some amounts may beowing, but disputes BNZ's quantification."[37] I do not accept that formal discovery of documents will be required todetermine the summary judgment application. The bank has filed an affidavitcontaining much of the information that Mr Fernando says he requires to respond tothe claim. If there is other information that Mr Fernando requires and is entitled to, itwould be in the bank's interests to provide it.[38] As far as prejudice is concerned, Mr Fernando is not in a significantly differentposition than he would have been had the bank sought summary judgment uponcommencing the proceeding. Contrary to his submissions, the only additional step hehas taken in the proceeding is to file his largely proforma statement of defence.[39] On the other hand, I consider if I refuse the bank leave to apply for summaryjudgment that may very well result in significant prejudice to both the bank andMr Fernando. They have a common interest in the prompt resolution of this matter.The airing of issues on a summary judgment application will, at the very least, havethe benefit of defining the real issues and, potentially, lead to a resolution. If I refusethe bank leave, the case will proceed in the ordinary manner and involve both parties12 Public Trust v Ottow (2009) 10 NZCPR 879 (HC) at [17] and Westpac New Zealand Ltd v Lamb[2012] NZHC 319.in considerable, and possibly needless, expense. It would also delay recovery by thebank, should it ultimately establish its claim, by months, if not years.[40] In summary, I am satisfied the bank applied promptly for summary judgmentupon receipt of Mr Fernando's statement of defence. The statement of defence raisedjust one affirmative issue which, on its face, was not a defence to the claim. The bank'scase is in my view sufficiently strong to justify granting leave to apply for summaryjudgment. I do not consider Mr Fernando will suffer any material prejudice by thegranting of leave and that the interests of both parties may be advanced by doing so.Result[41] The bank's application for leave to apply for summary judgment underr 12.4(2) is granted.[42] I direct the following timetable shall apply:(a) Mr Fernando is to file a notice of opposition to the application forsummary judgment and any further affidavit by no later than 30 July2021;(b) The bank shall have until 13 August 2021 to file any further evidencestrictly in reply;(c) The application for summary judgment shall be heard at 10.00 am on27 August 2021;(d) The bank shall file its submissions in support of the application alongwith an indexed and paginated bundle of documents and bundle ofrelevant authorities by no later than 20 August 2021;(e) Mr Fernando shall file his submissions in opposition along with abundle of any relevant authorities by no later than 24 August 2021;(f) The bundles of authorities are not to include cases dealing with well-established principles or uncontentious matters;(g) The costs of the application for leave are reserved to be dealt with atthe time the summary judgment application is determined; and(h) I reserve leave to apply for variations to the timetable should that benecessary._______________________O G PaulsenAssociate JudgeSolicitors:Sanderson Weir Limited, AucklandShaun Cottrell Law, Christchurch