BANK OF NEW ZEALAND v VAN HEERDEN [2017] NZHC 395

BANK OF NEW ZEALAND v VAN HEERDEN [2017] NZHC 395 [9 March 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-2246[2017] NZHC 395IN THE MATTER OF an application for summary judgmentBETWEEN BANK OF NEW ZEALANDPlaintiffAND JENNIFER VAN HEERDENDefendantHearing: 9 March 2017Appearances: P J Anderson for the PlaintiffNo appearance for Mrs van Heerden the DefendantJudgment: 9 March 2017ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLSolicitors:Sanderson Weir Ltd (P J Anderson), Auckland, for the PlaintiffCopy for:Mrs Jennifer van Heerden[1] The Bank of New Zealand applies for summary judgment. The defendant did not appear. She had filed a statement of defence, a notice of opposition to the application for summary judgment and an affidavit in support of her opposition. Timetable directions were given for a hearing. That required her to file and serve a synopsis of her submissions before the hearing. She did not file them on time. The registry took the matter up with her. She is not legally represented. She explained that she could not afford a lawyer. She said in an email of 28 February 2017 that she tried to do submissions but found it very overwhelming and so stressful that it made her sick. When the registry pressed her, she eventually sent an email on 1 March 2017 saying:I have no other option but to withdraw my opposition.[2] Notwithstanding that, I directed that the case should be called today: I would consider the matter fully, as though Mrs van Heerden was continuing to oppose the summary judgment application. I bear in mind that the defendant does not have legal representation, and says that she cannot afford a lawyer but has taken activesteps to oppose the bank's claim. I do not regard her withdrawal of opposition asconsent to judgment. I am still required to be satisfied that the Bank of New Zealand has shown that Mrs van Heerden has no defence to the bank's claim against her.[3] The bank sues Mrs van Heerden for $211,199.76 plus interest and costs. The claim is for the shortfall owing to the bank after a mortgaged property at 99 Loburn Terrace, Rangiora, was sold. The property was owned by the van Heerden Family Trust. The trustees were Mrs van Heerden, her husband and a trustee company, St Martins Trustee Services Ltd. Mrs van Heerden signed two loan agreements which were secured by the mortgage against the Loburn Terrace property.[4] To complete the picture, it is necessary to add that in addition to the Family Trust of Mr and Mrs van Heerden, there was a company called van Heerden Rentals Ltd. Mr and Mrs van Heerden were shareholders of that company. Mr van Heerden was the director of the company. The bank advanced funds to van Heerden Rentals Ltd as well as to the family trust. The business of van Heerden Rentals Ltd hasfailed and the company has gone into liquidation. Mr van Heerden has been made bankrupt and the marriage has also failed.[5] The bank has established that in November 2009 Mr and Mrs van Heerden each gave a written guarantee for the indebtedness of the family trust. Strictly speaking, that guarantee may not have been necessary because Mrs van Heerden, as a trustee, would be personally liable for any indebtedness incurred by the trustees. In any event there is no challenge to the validity of the guarantee she gave in favour of the indebtedness of the family trust. An independent lawyer has certified that he advised her as to the effects of the agreement.[6] The bank says that at the same time Mrs van Heerden also signed a guarantee for the indebtedness of van Heerden Rentals Ltd. While the guarantee of the indebtedness of the family trust has been put in evidence, the guarantee in respect of van Heerden Rentals Ltd has not. The bank has tried to persuade me that I should accept that Mrs van Heerden did give a valid guarantee that satisfies the requirements of s 27 of the Property Law Act 2007. It refers to bank records which record that Mrs van Heerden has given a guarantee for van Heerden Rentals Ltd. Some of those records are in language specific to the bank and require some interpretation. For the purpose of a summary judgment application, I do not regard this secondary evidence as adequate to prove that Mrs van Heerden has given an enforceable guarantee of the indebtedness of van Heerden Rentals Ltd.[7] The bank says that the guarantee does exist but it is presently inaccessible. It is said to be held in a building in Wellington which has been inaccessible since the Kaikoura earthquakes at the end of 2016. It may be that by the time this case comes to a hearing the guarantee can be produced. And it may be that even if it cannot be produced the bank may be able to persuade a judge at a hearing that there are grounds to believe that the guarantee was given. But, on a summary judgment basis, the absence of the written guarantee is, in my view, a gap in the case for the bank. That guarantee does have relevance in the light of later events.[8] In February 2010 the bank gave a loan for $641,280.00. This was secured over the Loburn Terrace property and was also secured by the family trust guarantee.It was a table loan, repayable over 29 years 6 months. The bank refers to that loan as"loan 1". Mrs van Heerden does not challenge her indebtedness under that loan.[9] There was a second loan for which a loan agreement was signed in 2013.The bank refers to that as "loan 2". That loan was a restructuring of other indebtedness. The amount of the loan was $150,400.00. It was also a table loan repayable in instalments over 30 years. Existing debts were repaid out of the proceeds of each loan. There were arrears for loan 1 of $4,829.41. There was a joint visa account for $9,951.94. Mr van Heerden had a visa account in his own name –that was in arrears by $20,795.07. And there was a loan to van Heerden Rentals Ltd for $114,455.09. Those debts were all repaid from the drawdown of loan 2.[10] Later, the van Heerdens fell into default again and the bank issued a notice under s 119 of the Property Law Act 2007. The bank did not have to take the matter to sale as the van Heerdens arranged the sale of the Loburn Terrace property. The property sold for $625,877.74 after GST, agents' commission, rates and legal feeswere taken into account. The bank repaid loan 2 entirely from the proceeds of sale. The amount owing under loan 1 was $470,050.94. After certain other deductions, that left a residue outstanding, the amount the bank is suing for in this proceeding.[11] During the hearing, I asked about an acceleration clause in the loan documents. Mr Anderson referred me to cl 8.11(a) and (d) of the home loan facility master agreement. I am satisfied, in particular by reason of cl 8.11(b), that the bank had the power to accelerate on defaults and that the power of acceleration was exercised after the time for remedying defaults under the s 119 notice had expired. So far, the bank has established the matters it needs to prove for its cause of action, subject to any matters raised by Mrs van Heerden.[12] Her defence may be characterised as either coercion or undue influence. Her statement of defence says at [10] that she was coerced by the plaintiff into signing the guarantee and she had done so without legal advice or advice from the bank.[13] Her paragraph [12] makes allegations of undue influence and unconscionable dealing and pleads:This resulted in an outcome whereby the defendant was forced to sign documents against [her] will, with overt or covert threat, under "duress".She says she had no legal advice. In that, she is referring to the signing of loan 2.[14] In her affidavit, she complains of pressure put upon her by the bank to sign loan 2. She says that she queried the need to sign the loan Her affidavit says:16. When I asked what this was for BNZ told me that if I did not sign it they had the powers to prosecute and take possession of my home and evict me. I kept requesting information on this loan that BNZ referred, but no information was provided. This added even more stress to my already fragile state and the threat of losing my home compounded my insecurity and fuelled terrible anxiety.[15] She refers to two officers of the bank requesting her to sign a contract for alleged monies owed by her husband and the company for a property sale concluded in 2011. They told her that she was unconditionally responsible for this debtanyway, "as I was Rudy's wife at the time." She says that the bank continued totelephone her with what she alleges was a "good cop/bad cop" approach. She saysthat one bank officer made her believe that the only way to escape criminalprosecution from the bank's fierce legal team was by entering into a contract for her husband's past debts. She alleges that this behaviour continued from the start of 2013 for almost six months, and that they threatened to repossess her house, repossess what little furniture she had to cover the legal fees, and threatened to prosecute her. She says the harassment felt as though it would never end. She saysthat she was also facing pressure from other creditors of her husband's failedbusiness.[16] Paragraph [28] of her affidavit says:On the 15th April 2013, Rudy returned home with documents that he had already signed and stated that he had meetings with BNZ and [the couple'ssolicitor] and said I had no choice left in the matter. He said that he was told by the bank that I would be in considerable trouble if I did not sign them. I still refused, we had a huge fight, he left [the] house. I was distraught and very upset, in tears. Later that evening Rudy returned home after I had consumed a number of bottles of wine and we had another argument when I said that I had not signed. I reached a point where I could not take the stress and threats anymore and just wanted it all to go away so I signed the documents in my living room while in a state of considerable intoxication.She makes the point that she did not enter into the agreement for loan 2 willingly, in the presence of a witness, her husband or a lawyer.[17] No doubt it was a challenge for Mrs van Heerden as a lay person to build a legal argument relying on those allegations in her evidence for resisting summary judgment. It is because of the issues raised there that I have not treated her as having withdrawn from the case entirely, and I shall consider the merits of the defence.[18] The burden, of course, is on the bank to negate that defence on a summary judgment application. At a full trial Mrs van Heerden will have the burden of proof of her affirmative defence. The test for summary judgment has been stated a number of times. Mr Anderson usefully referred to Associate Judge Osborne's judgment inSouthland Building Society v Price which suitably encapsulates the approach.1 I put the matter in even simpler terms. A judge will only grant summary judgment on aplaintiff's application if the judge can be satisfied, on the evidence given on theapplication, that it would be pointless to allow the case to go to a full hearing on the merits, as no useful purpose will be served by taking interlocutory steps such as discovery, by an exchange of evidence, or by having witnesses cross-examined in court.[19] Mrs van Heerden has raised specific factual matters in support of her defence.The bank's approach has been to attack her defence as implausible. Quite properly, Mr Anderson referred me to the Court of Appeal's decision in Wilkinson v ASB Bank Ltd.2 That decision recognised the characterisation of undue influence cases set out in Barclay's Bank plc v O'Brien.3 The situation in this case falls within Class 2(B) under the classification, as given in Bank of Credit and Commerce International SA v Aboody.4 Class 2(B) are cases where there is no presumption that undue influence has been exercised. It is also distinct from Class 1 where a complainant can plead affirmatively that a wrongdoer has exercised undue influence on the complainant to1 Southland building Society v Price [2015] NZHC 1164 at [12].2 Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 (CA).3 Barclays Bank plc v O'Brien [1994] 1 AC 180 (HL).4 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923.enter into a particular transaction which is impugned. Class 2(B) is described as follows:5Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.[20] It has been recognised that wives who guarantee liabilities for their husband may come within Class 2(B). A creditor who takes a guarantee from a wife for herhusband's debts may be put on enquiry. In Wilkinson, the Court of Appeal said in such cases:6A combination of two factors puts the creditor on inquiry when a wife offersto stand surety for her husband's debts:(a) The transaction is on its face not to the financial advantage of the wife; and(b) There is a substantial risk in transactions of that kind, that, in procuring the wife to act as a surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.[21] The Court of Appeal set out certain observations, including:73. Undue influence on a guarantor is likely to be presumed if the following features are present: limited commercial ability of the guarantor; absence of a more than minimal financial stake by the guarantor in the enterprise guaranteed; and a relationship involving an emotional tie or dependency on the part of the guarantor towards the principal debtor.5 Wilkinson, above n 2, at 679.6 At 680.7 At 690-691[22] The bank submits that Mrs van Heerden cannot satisfy those requirements. It points out that she is educated and came to New Zealand as a skilled migrant. Her qualifications seem to be as an architectural draughtsperson. She has referred to working in a business where she has had some financial responsibility. She was also a shareholder in van Heerden Rentals Ltd, although her husband seems to have had primary responsibility for running the company. The bank points out that Mrs van Heerden has raised this objection only late in the piece. It refers to an older authority, Matthews v Baxter,8 which shows that a contract entered into by someone while intoxicated is not voidable and is capable of ratification. The bank contends that Mrs van Heerden allowed some payments to be made under the loan agreement 2 and that was ratification.[23] Mrs van Heerden may have an arguable defence in respect of the possibly flawed consent she gave to loan agreement 2. In part, the loan was used to repay indebtedness for which she was already responsible, a small amount of loan arrears for loan 1 and a joint Visa account. But I am in doubt as to her liability for the major part of the funds drawn down – that is, some $20,000 odd to repay her husband'sVisa account, and $114,000 required to pay the indebtedness of van Heerden Rentals Ltd.[24] As to the $134,000 for her husband's Visa debt and van Heerden Rentals Ltd, it is arguable for her that she was assuming for the first time the responsibility for an indebtedness to which she was not previously exposed. That might satisfy the second bullet point of factors identified by the Court of Appeal in Wilkinson v ASB Bank Ltd. There is the relationship with her husband. There is the absence of any legal advice. Those factors would arguably be enough to put the bank on notice as"notice" is used in this line of authorities.[25] Given these factors, it would be a tall order for me to rule out Mrs vanHeerden's undue influence defence at this stage. Mr Anderson has advancedpersuasive arguments to cast real doubt on the strength of the defence. But I am not persuaded that I can make that call on a summary judgment application. In my8 Matthews v Baxter (1873) LR 8 Ex 132.judgment, the safer course is to decline summary judgment at this stage and allow the defence to be tested at a fuller hearing.[26] For these reasons I dismiss the application for summary judgment. I do so only on the basis that there is a possible arguable defence. The bank was entitled to apply for summary judgment but it may turn out at a final hearing that there is no basis for the defence raised by Mrs van Heerden. Accordingly it is appropriate to follow the normal approach of reserving costs following NZI Bank Ltd v Philpott.9[27] I direct the Registrar to arrange a first case management conference. Thebank should file and serve a reply to Mrs van Heerden's statement of defence within three weeks' time. The bank should file a memorandum five working days before the conference. Mrs van Heerden should file a memorandum two working daysbefore the conference. I expect the bank and Mrs van Heerden to confer as to discovery.[28] I also encourage Mrs van Heerden to obtain legal advice. She has already been at a disadvantage through not having legal advice. It is in her interests to have legal assistance so that her case can be presented in the most advantageous way possible. She may not be able to count on favourable findings if she does not appear at a hearing in the future.............Associate Judge R M Bell9 NZI Bank Ltd v Philpott [1990] 2 NZLR 403.