CALIBRE FINANCIAL SERVICES LIMITED V MORTGAGE ADMINISTRATION SERVICES (CALIBRE) LIMITED CA538/2012 [2013] NZCA 503

DRAFTCALIBRE FINANCIAL SERVICES LIMITED V MORTGAGE ADMINISTRATION SERVICES (CALIBRE) LIMITED CA538/2012 [2013] NZCA 503 [21 October 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA538/2012[2013] NZCA 503BETWEEN CALIBRE FINANCIAL SERVICESLIMITEDAppellantAND MORTGAGE ADMINISTRATIONSERVICES (CALIBRE) LIMITEDFirst RespondentAND CAIRNS LOCKIE LIMITED (INLIQUIDATION)Second RespondentHearing: 2 October 2013Court: Harrison, White and Priestley JJCounsel: P L Rice and N J Robertson for AppellantS O McAnally for First RespondentJudgment: 21 October 2013 at 10.15 amJUDGMENT OF THE COURTA The appeal is allowed.B The decision of the High Court is set aside and the decision of the District Court in reinstated.C The first respondent must pay the appellant costs for a standard application for leave to appeal and for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Priestley J)Introduction[1] The appellant Calibre Financial Services Ltd (Calibre) and the first respondent Mortgage Administration Services (Calibre) Ltd (Mortgage Administration) had a commercial relationship in the mortgage market. Calibre was the trust manager of a holding trust1 which provided loans secured by registered mortgages over residential properties.[2] Although Calibre had the responsibility of loan approvals and advances, most of the preparatory work and loan administration was performed by Mortgage Administration. Mortgage Administration was effectively a mortgage manager, responsible for sourcing new loans, managing them, and dealing with mortgage brokers and the general public.[3] The contractual relationship between Calibre and Mortgage Administration was governed by two documents, the relevant portions of which we shall scrutinise later in this judgment. The first was dated 5 October 2007, being a Mortgage Origination and Management Agreement (MOMA).2 The second document was an Operations Manual. Clause 2.2 of MOMA obliged Mortgage Administration to comply and act in accordance with the Operations Manual in all respects.[4] In late February 2008 Calibre advanced a loan of $437,500 to Murrays Bay Property Ltd (Murrays Bay). Its loan was secured by a registered first mortgage against bare land on Waiheke Island. It is common ground that Mortgage Administration sourced, initiated, and managed the Murrays Bay loan.[5] Murrays Bay failed to meet its loan obligations. As a result the Waiheke property was auctioned by mortgagee sale. By that stage Murrays Bay was registered for the purposes of the Goods and Services Tax Act 1985. It is common1 LinkLoan Trustees Ltd (LinkLoan).2 The second respondent Cairns Lockie Ltd (in liq) is guarantor of the obligations of Mortgage Administration under the MOMA, but it took no part in the appeal.ground that the statute imposed a duty on Calibre, as a mortgagee exercising a power of sale in respect of property owned by a GST registered entity, to pay GST of $41,888.89 (the GST sum). Calibre considered that, in terms of an indemnity clause in MOMA, Mortgage Administration was obliged to reimburse it. Mortgage Administration disagreed. Calibre therefore took proceedings in the District Court to recover the GST sum.Litigation history[6] Calibre's cause of action in the District Court to recover the GST sum wasfounded on Mortgage Administration's obligation under MOMA to provideindemnity. In the alternative Calibre alleged that Mortgage Administration had been negligent in its performance of its MOMA obligations. Calibre had purportedlyterminated MOMA because of Mortgage Administration's alleged failure toindemnify. Thus Calibre sought a declaration that MOMA had been validly terminated in November 2009.[7] Mortgage Administration for its part counterclaimed for special damages totalling $406,000, being trailing service fees to which it would have been entitledunder MOMA but for Calibre's wrongful repudiation.[8] In a careful judgment delivered on 31 May 2011 Judge A A Sinclair gave judgment in favour of Calibre for the GST sum.3 She also made a declaration that MOMA had been validly terminated by Calibre in November 2009.4 It was thus unnecessary for the Judge to determine the alternative cause of action. Thedeclaration about MOMA's termination destroyed Mortgage Administration'scounterclaim.[9] Mortgage Administration appealed to the High Court. In a reserved decision delivered on 18 April 2012 Peters J allowed the appeal.5 Her Honour did not consider that Mortgage Administration had breached MOMA by failing to pay3 Calibre Financial Services Ltd v Mortgage Administration Services (Calibre) DC Auckland CIV-2009-004-3175, 31 May 2011.4 At [47].5 Mortgage Administration Services (Calibre) Ltd v Calibre Financial Services Ltd [2012] NZHC 732.Calibre the GST sum. In her view MOMA imposed no such obligation on Mortgage Administration.[10] Calibre sought leave to appeal to this Court, relying on the policy contained in s 67 of the Judicature Act 1908.6 Peters J declined leave.7 Leave was sought from this Court, which was given.8 The Court considered that it was noteworthy, in terms of the s 67 test, that the District Court and the High Court had reached different conclusions on the interpretation of the agreement between the parties.9 It also considered that although the amount in dispute was not significant, the interpretationof the parties' agreement may have a broader impact on other issues between theparties, and possibly more generally.Relevant contractual provisions[11] The focus of inquiry in both the District Court and High Court was cl 11.2(a) of MOMA which imposed an indemnity obligation on Mortgage Administration. The clause provided:11.2 Mortgage Manager to Indemnify Calibre for CostsThe Mortgage Manager must indemnify Calibre and each Mortgagee on demand for:(a) all stamp duty, taxes, registration and similar fees and charges payable on or in connection with any Secured Agreement, which are payable by the relevant Borrower under that Secured Agreement, and which are not paid by that Borrower; and...[12] The indemnity specifies various sums "payable on or in connection with any Secured Agreement" which are payable by "the relevant Borrower under that Secured Agreement" and are not paid. The potential scope of this clause isimmediately apparent. Murrays Bay, as a GST registered entity, had an obligation to6 See also Waller v Hider [1998] 1 NZLR 412 (CA) at 413.7 Mortgage Administration Services (Calibre) Ltd v Calibre Financial Services Ltd [2012] NZHC 1921.8 Calibre Financial Services Ltd v Mortgage Administration Services (Calibre) Ltd [2012] NZCA 548.9 At [3].pay the GST sum which was a "tax". But was the GST sum, payable as it was by Calibre when it exercised its mortgagee power of sale, "payable on or in connection with any Secured Agreement"?[13] The definition of "Secured Agreement" is found in MOMA.10 It means:... in relation to a Mortgage, any document or agreement under which any money secured by that Mortgage is or may become outstanding.[14] A "mortgage" is also defined in cl 1.1 of MOMA. The definition includes any registered or registerable mortgage:(a) originated and settled (or proposed to be originated or settled) by the Mortgage Manager or by Calibre as a result of the Loan Application introduced to Calibre by the Mortgage Manager under this Agreement; and/or(b) managed by the Mortgage Manager under this Agreement.[15] So, as a matter of contractual interpretation, "Secured Agreement" as thatexpression is used in cl 11.2(a), embraces Murrays Bay's mortgage document oragreement flowing from its loan application.[16] Murrays Bay's loan application incorporated a booklet of LinkLoan's standard terms and conditions entitled "Home and investment property loans". Murrays Bay's loan offer, dated 25 February 2008 and clearly prompted by the loanapplication, specifically states that the terms of LinkLoan's offer are set out in both the loan offer itself and also the booklet. Relevant to Murrays Bay's obligations on default is the booklet's definition of "Enforcement Expense".11 An "Enforcement Expense" is defined as any reasonable amount spent or incurred in relation toenforcement or the exercise of any powers under the Loan Contract or security or:any Property, including amounts claimed against us or our officers/representatives relating to that Property and any goods and services or other tax payable by us in connection with the sale of any Property.This definition clearly and specifically refers to the lender's GST liability.10 "Secured Agreement" is one of many definitions spelled out in cl 1.1 of MOMA which alphabetically lists definitions.11 Definitions are contained in cl 16.1 of the booklet.[17] Clause 5.3 of the booklet states a borrower may have to pay enforcementexpenses after a default. Such expenses "are payable on demand or when we debit your Loan Account for them".[18] So the central interpretative issue of the parties' dispute is whether the "taxes" referred to in cl 11.2(a) of MOMA extends (by virtue of the contractualdefinitions of "Secured Agreement", "Mortgage" and "Enforcement Expense", thelatter clearly referring to GST payable in connection with the sale of the property and contained in the booklet incorporated into the loan offer), to the GST sum which Calibre paid.How did the Courts below interpret cl 11.2(a)?[19] Judge Sinclair saw the issue in simple terms.12 The clause obliged Mortgage Administration to indemnify taxes payable on or in connection with any securedagreement. The clause was not limited to taxes incurred "on the entering into" of theagreement. The loan agreement itself, under which the funds were advanced toMurrays Bay, specified the borrower's obligation to pay enforcement expenseswhich included GST payable on any mortgagee sale. Thus those enforcementexpenses were payable "under or in connection with" the secured agreement. Thefact that Mortgage Administration was never a party to the contract did not exonerate it.[20] Peters J saw cl 11.2(a) as more narrowly cast:[21] Counsel for MAS submitted that clause [11.2(a)]13 is intended to encompass fees or charges that might have to be paid to ensure that Calibre or Linkloan obtains an enforceable, or perfected, agreement with the borrower. I accept that submission. I consider that clause [11.2(a)] is intended to ensure that all amounts required to be paid to obtain an enforceable agreement are in fact paid. In the scheme of things, these are likely to be relatively small amounts. I do not consider the types of charge referred to were intended to include GST that might arise on a sale of the mortgaged property in the event of a default by the borrower.[22] I note also that, although there is no longer any obligation in New Zealand to pay stamp duty, Calibre commenced operations in Australia and it12 Articulated at [17]–[21], above n 3.13 The High Court judgment contains a typographical error in referring to cl 12.2(a) instead of cl 11.2(a) of MOMA.may be that Australian law requires a party to pay stamp duty before it can sue on a document such as the loan agreement.(Footnote omitted.)[21] Her Honour did not overlook definition of enforcement expenses in cl 5.3 of the booklet. Indeed she appears to have accepted that Mortgage Administration would have been obliged to pay the GST sum if demand had been made. She stated:[19] Accordingly, the borrower would have become obliged to pay the GST sum if Linkloan made demand or if Linkloan debited the sum to theborrower's loan account. Calibre pleaded that the loan agreement requiredthe borrower to pay the GST sum but did not plead that Linkloan had demanded the sum or debited the amount to the borrower's loan account.Counsel for the appellant also seems to have proceeded on the basis that the borrower was required to pay such GST, regardless of any demand or debit, and the Judge likewise. In my view, that is not correct and there needed to be evidence of a demand or debit, or a concession that one had been made.[22] But despite seeing Calibre's inability to recover GST as an enforcementexpense as a pleading issue, Her Honour then returned to her interpretation of cl 11.2(a):[23] Even if the view I have reached in [21] is incorrect, I accept thesubmission of counsel for MAS that the GST sum was not payable "on" the loan agreement or, as Calibre contended, "in connection with" the loanagreement. The GST sum had to be paid because that is what the Goods and Services Tax Act 1985 required on the mortgagee sale. There is no link between the payment to the Inland Revenue Department of the GST sum and the loan agreement itself. Although GST might be payable as an Enforcement Expense under the loan agreement, as clause [11.2(a)] itselfmakes clear, that is not the same as being "in connection with" the loanagreement. I note also the definition of Enforcement Expense itself, namely"any goods and services ... tax payable by us ... in connection with the sale ..." indicate that the payment of GST arises from the sale, not from thefact of the loan agreement.[23] In short, Her Honour's approach was to see the payment obligation of the GST sum as not being captured by the words "on or in connection with" the secured agreement or the loan agreement.Discussion[24] MOMA clearly delineated the parties' respective functions. As Mr Ricesubmitted, it is very clear that, under MOMA, all the work of preparing a loanapplication, making relevant inquiries, and ensuring that a potential borrower completes the loan application form fell on Mortgage Administration. The responsibility of Calibre (acting as trust manager for LinkLoan) was largely limited to making the loan offer and, if the borrower accepted it, ensuring through its solicitors that a registered first mortgage was obtained.[25] In terms of MOMA, Mortgage Administration's status was that of mortgagemanager. It agreed to exercise certain powers and discretions and perform certainobligations relating to the "origination (sic) and management of Loans andMortgages".14 Except for the expressed delegation of powers under the agreement or the Operations Manual, the Mortgage Manager was performing its obligations as an independent contractor.15 Were there to be an "Event of Default" (defined as anevent which entitled the mortgagee to demand immediate repayment of secured money),16 Mortgage Administration was empowered to take such action it considered reasonably necessary to remedy the default, recover monies secured under the defaulting mortgage, and protect and preserve the mortgagee's rights.17Clause 9.2(b) of MOMA obliged Mortgage Administration to take such action as required to ensure that any losses under the mortgage which might be insured under a mortgage insurance policy were able to be claimed.18[26] Thus, the parties clearly contemplated Mortgage Administration being involved in mortgage defaults and recoveries to a significant extent. There was no exclusion of any GST dimensions.[27] The contentious cl 11.2(a) appears in MOMA under a specific sectionheading "Costs and Expenses". To assist with interpretation we set out the twoadjoining clauses:11.1 Bear Own CostsThe Mortgage Manager must pay all Costs and Expenses incurred by it:14 Clause 2.1.15 Clause 3.1.16 Clause 1.1.17 Clause 9.2.18 Mortgage losses were covered by a mortgage insurance policy with an appropriate premium being paid by the borrower out of the loan advance.(a) in connection with the entering into of this Agreement; or(b) in performing its obligations under this Agreement,and is not entitled to reimbursement or compensation from Calibre or the relevant Mortgagee except to the extent expressly stated in this Agreement or as otherwise agreed in writing....11.3 Reimbursement of Mortgage ManagerThe Mortgage Manager will be entitled to be reimbursed from money received under or in connection with the relevant Mortgage Documents for all Costs and Expenses incurred in the performance by the Mortgage Manager of its obligations under clauses 9, 10 and 11.2, any appointment under clause 9.7, and in the exercise of any Power. This entitlement will be subject to the provisions of the relevant Mortgage Documents (including the relevant Mortgage Insurance Policy) and any document by which Calibre or the relevant Mortgagee is bound as to the order in which any such money is to be applied.It is clear that, as mortgage manager, Mortgage Administration's costs and expensesboth in connection with entering into MOMA and in performing its MOMA obligations must be borne by it alone (cl 11.1). Clause 11.3 entitles Mortgage Administration to reimbursement in relation to its obligations under cls 9, 10, and 11.2.[28] Clause 9.2 is headed "Procedures on Default". We set out cl 9.2:The Mortgage Manager must (in accordance with and subject to the Operations Manual, and subject also to clause 9.5), take such action following the occurrence of an Event of Default, and enforce the Powers (including by taking legal proceedings) in respect of any Defaulting Mortgage in such manner as:(a) the Mortgage Manager reasonably considers necessary to:(i) remedy that Event of Default;(ii) recover the money secured by that Defaulting Mortgage; and(iii) protect and preserve the rights of the relevant Mortgagee; and(b) is required under a Mortgage Insurance Policy to ensure that any losses suffered in relation to that Mortgage which are, or arerequired to be insured under that Mortgage Insurance Policy, are able to be claimed under that Mortgage Insurance Policy.19[29] Clause 9.5, referred to in the body of cl 9.2, prohibits a mortgage manager from commencing legal proceedings in the name of Calibre unless expressly permitted.[30] Mortgage Administration's right to reimbursement under cl 11.3 for the costs and expenses of performing its obligations under cl 11.2 at first blush raises an issue of circularity. If Mortgage Administration was indeed obliged to indemnify Calibre for the GST sum under cl 11.2(a), might it not be entitled to reimbursement by Calibre? However, the second sentence of cl 11.3 stipulates that the reimbursemententitlement is "subject to the provisions of the relevant Mortgage Documents". Amortgage document is defined in cl 1.1 as including, inter alia, each secured agreement relating to that mortgage. We have already examined the ambit of a secured agreement.[31] Although from an interpretative stand point little hangs on it, Mortgage Administration should have been aware of a probable GST issue at an early stage. The initial introduction of Murrays Bay to Mortgage Administration was through a mortgage broker, Allbanx Mortgages Ltd. A loan application form was signed on 16 January 2008 by Mr K A Taylor, then aged 21. The proposed borrower wasMurrays Bay, the principal activity of which was "property investment". The formposed various questions about GST registration and taxable activities. The option"I/we are not registered for GST" was selected by Mr Taylor. There was an obvious inconsistency between these two aspects of the loan application form.[32] Sometime between Mr Taylor's initial approach to Allbanx and the loanbeing drawn down, Murrays Bay was formed and registered as a company. Afterdefault, Murrays Bay's accountant advised Calibre's solicitors that the company hadbeen set up as a GST registered entity to conduct development trading, and that theWaiheke property had been purchased "for and in the furtherance of the taxable activity".19 Already referred to above at [25] and in footnote 18.[33] The extent to which Mortgage Administration had inquired and checked about these GST pointers is, as Mr Rice accepted, only relevant to the undetermined negligence cause of action.20 Nonetheless this factual narrative provides some context and, in the interpretation area, points to the potential of the GST regime of refunds and payments applying to mortgage loan borrowers.[34] The central issue remains whether under cl.11.2(a) of MOMA, the GST sumis a tax payable "on or in connection with any secured agreement". Mr Ricerealistically accepted that if the words "in connection with" did not appear in theclause, Calibre would have no tenable argument.[35] Those critical words "in connection with" have been the subject of previousjudicial comment. The Supreme Court of British Columbia in Re Nanaimo Community Hotel Ltd,21 considered the words as they appeared in a statute:[Counsel argued] the words "in connection with" mean "consequent upon". I do not think that is the correct construction to be put upon these words. One of the very generally accepted meanings of "connection" is "relation between things one of which is bound up or involved in another"; or again "having to do with". The words include matters occurring prior toas well as subsequent to or consequent upon so long as they are related tothe principal thing. The phrase "having to do with" perhaps gives as good asuggestion of the meaning as could be had.[36] This approach is consistent with interpretations this Court has given to the words. In Strachan v Marriott,22 Hardie Boys J considered the expression as used in r 5.4 of the Solicitors Nominee Company Rules 1988. He considered the phrase "in connection with" had a wide meaning, connoting a less immediate or direct relationship than the preposition "of". This Court further, in IAG New Zealand Ltd v Jackson,23 considered the words "in connection with" required some causal orconsequential relationship, albeit without the need for any direct proximate or temporal relationship.20 Above at [8].21 Re Nanaimo Community Hotel Ltd (1944) 4 DLR 638 (BCSC) at 639.22 Strachan v Marriott [1995] 3 NZLR 272 (CA) at 279.23 IAG New Zealand Ltd v Jackson [2013] NZCA 302 at [29].[37] Mr Rice cited to us a judgment of the Inner House of the Scottish Court of Sessions, Bank of Scotland v Dunedin Property Investment Co Ltd.24 At issue there was a clause in a loan stock deed which entitled the bank to be fully reimbursed forall costs, charges and expenses "incurred by it in connection with the stock". Thebank had sought reimbursement for its payment of a breakage charge it was obliged to pay because of premature termination of a swap agreement. The Divisional Court(of three Judges sitting on appeal), held that the words "in connection with" had tobe given their ordinary meaning.[38] The Canadian judgment of Nanaimo had been cited to the Scottish Court.25We found the Court's analysis helpful:26As counsel ... pointed out, the phrase must have been intended to narrow the range of costs, charges or expenses which the Bank could recover. The limitation is in the requirement that there be a connection between the cost, charge, or expense and the loan stock. That is obviously correct so far as it goes. If there were no connection between a particular charge and the loan stock, then the Bank could not insist on reimbursement of the charge as a precondition of the company purchasing the stock. But, even though the words serve to exclude certain more remote costs, charges, or expenses incurred by the Bank, they also serve to include a range of such costs, charges, or expenses. In particular, the words are apt to bring within the scope of the condition, costs, charges, or expenses which are incurred outside the loan stock itself, but are connected with it. [The Court below] held that the phrase 'in connection with the Stock'imposed a limitation to costs 'directly connected with the stock' and [the Judge] instanced drafting costs in connection with the loan agreement, the costs of any necessary registration or any administrative costs that might beincurred. I can, however, find no justification for inserting the adverb 'directly' to describe the manner in which the costs are to be connected with the Stock. Had the parties wished to delimit the range of costs in this way, they could have used the phrase ['directly'] or something similar. In fact they used the phrase 'in connection with the Stock' and that phrase covers costs incurred by the Bank provided that they are incurred in connection with the loan stock. If costs can properly be described as having been incurred in connection with the loan stock, then they fall within the scope [of the contractual term] irrespective of whether the connection is direct or indirect.[39] We respectfully concur with that analysis. When applied to cl.11.2(a) of MOMA, the result is tolerably clear. The GST sum which Calibre paid was payable24 Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657 (1 Div).25 Above n 21.26 At 661–662.as a tax. Was it paid "in connection with any Secured Agreement"? The answermust be yes. The payment was "having to do with" (Nanaimo) and incurred "inconnection with" (Bank of Scotland) the secured agreement. The MOMA definitionsof "Secured Agreement" incorporate without difficulty27 the loan documents, theLinkLoan booklet, and the enforcement expense obligation imposed on the borrowerto meet any Goods and Services tax payable by the mortgagee in connection with thesale of any property. That obligation is unambiguously specified in cl.11.2(a) as atax "payable by the relevant Borrower under [the] Secured Agreement and which[has] not [been] paid".[40] On this analysis, many of Mr McAnally's submissions fall away.Clause 11.2(a) is not, as counsel successfully submitted to Peters J, limited to feesand charges necessary to ensure that Calibre or LinkLoan obtained an enforceable orperfected agreement. In that regard, we consider Peters J was wrong to conclude theclause was intended to cover "relatively small amounts" which had to be paid toensure there was an enforceable agreement.28 Nor, with respect, was the Judgecorrect to conclude that the definition of an "Enforcement Expense" in the booklet,payable in connection with the sale, was not something connected with the loanagreement.29[41] It is worth repeating Mr McAnally's submission as it was recorded by JudgeSinclair in the District Court. It was that it was "inconceivable" the parties toMOMA intended Mortgage Administration would be liable to meet the costs of amortgagee sale (including GST). Clause 11.2(a) was limited to transactional costs.Had the parties intended to extend Mortgage Administration's indemnity to a GSTsum payable on a mortgagee sale, then the agreement would have said sospecifically.[42] We can see a degree of commercial sense in that submission. However,cl 11.2(a) is widely cast, as are the relevant definitions which apply to "securedagreement". There is no apparent ambiguity. Furthermore, cl 9 of MOMA clearly27 Above at [16].28 Mortgage Administration Services (Calibre) Ltd v Calibre Financial Services Ltd, above n 5, at [21], set out above at [20].29 At [23], set out above at [22].envisages Mortgage Administration being involved with default procedures. Although cl 11.3 entitled the mortgage manager to reimbursement, that entitlement is"subject to the provisions of the relevant mortgage documents" which we havealready discussed in detail.30 Finally, there was no suggestion in the evidence of any commercial basis whereby the relevant clauses should be interpreted any other way.[43] Mr McAnally submitted that, even if we were to construe cl 11.2(a) in theway we have, Peters J was nonetheless correct, because no demand had been madeby Calibre of Murrays Bay. Nor had there been any debiting of the GST sum fromthe borrower's loan account. This submission was based on cl 5.3 of theincorporated terms and conditions in the booklet which stated enforcement expensesafter default were "payable on demand or when we debit your loan account forthem".31 This submission gained some traction with Peters J as a pleadings issue.Her Honour noted that Calibre had not pleaded LinkLoan had either demanded thesum or debited Murrays Bay's loan account.32 Her Honour's view was that thereneeded to be some evidence of a demand or debit. It was incorrect, she said, that theborrower was required to pay the GST sum regardless.[44] We disagree. Although cl 5.3 of the booklet states that enforcement expensesare payable on demand or when a borrower's loan account is debited, we do not seethat definition as limiting the word "payable" as it appears in cl 11.2(a) of MOMA.The MOMA clause imposes an indemnity obligation on Mortgage Administrationand has a wide ambit. Under the various relevant terms of the secured agreement,there was a contractual obligation imposed on Murrays Bay to pay GST if that taxwas paid by Calibre, on the exercise of its power of sale. There is nothingambiguous or restrictive about the word "payable" as it is used in the context ofcl 11.2(a). The ordinary meaning of the word is "legally due if demanded".33 It istrite law that a sum can be payable without being due. In the context of the securedagreement, the GST sum was payable by the borrower without any prior need for ademand or a loan account debit.30 Above at [27]–[30].31 Above at [17].32 At [19].33 See for instance Commissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd[2005] UKPC 53, [2005] 2 NZLR 722 at [5].[45] The final submission raised by Mr McAnally (albeit tentatively because it was not pursued with vigour elsewhere) was that Calibre had failed to mitigate its loss by not including the GST sum in its claim under the mortgage loss insurance policy. Counsel pointed to claim forms which initially suggested that the GST sum had been included in the insurance claim, but was subsequently deducted.[46] There was evidence in the District Court, from Calibre's executive director,Mr Cochrane, that the mortgage insurance policy did not cover claims for GSTshortfalls. Be that as it may, Judge Sinclair held that Calibre's decision not to pursuea claim under its mortgage insurance policy was entirely reasonable. Shecommented that the duty to mitigate did "not extend to taking risky litigation".34 She was further satisfied that Calibre had taken all reasonable steps in relation to its insurance policy to mitigate its loss.[47] We do not consider, in the circumstances, that there is any basis on which we should interfere with those findings. The mitigation issue was not pursued in the High Court.Result[48] For the reasons which we have stated in the previous section of this judgment, we are satisfied that cl 11.2(a) of MOMA obliges Mortgage Administration to indemnify Calibre for the GST sum it paid of $41,888.89.[49] It therefore follows that, because of Mortgage Administration's failure toreimburse the GST sum to Calibre, the MOMA dated 5 October 2007 was correctlyterminated and that Mortgage Administration's counterclaim cannot succeed.[50] We thus set aside the High Court judgment of 18 April 2012. The judgment of Judge Sinclair delivered in the Auckland District Court on 31 May 2011 is restored.34 At [35].Costs[51] This Court reserved costs on the application for leave to appeal to be determined after the hearing of the substantive appeal. We consider costs should follow the event on both the application for leave and the appeal. Accordingly Mortgage Administration must pay Calibre costs for a standard application for leave to appeal and for a standard appeal on a band A basis together with usual disbursements.Solicitors:Sanderson Weir, Auckland for AppellantKeegan Alexander, Auckland for First Respondent