PATRICK v BANK OF NEW ZEALAND [2018] NZCA 122

PATRICK v BANK OF NEW ZEALAND [2018] NZCA 122 [26 April 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA353/2017[2018] NZCA 122BETWEEN JOHN STEPHEN PATRICKAppellantAND BANK OF NEW ZEALANDRespondentHearing: 9 April 2018Court: Gilbert, Dobson and Toogood JJCounsel: A J Woodhouse for AppellantR J Gordon and N J Smith for RespondentJudgment: 26 April 2018 at 11 amRecalled andReissued:4 May 2018Effective dateof Judgment: 26 April 2018JUDGMENT OF THE COURTA The application for leave to adduce further evidence is declined.B The appeal is dismissed.C If the appellant had not been legally aided, we certify that we would haveordered him to pay the respondent costs for a standard appeal on a band Abasis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Dobson J)Background[1] In June 2017, the respondent (the Bank) obtained summary judgment againstthe appellant (Mr Patrick) for the sum of approximately $1.1 million.1 Liability arosefrom Mr Patrick's guarantee of obligations owed to the Bank by family-ownedcompanies that he had operated in Hawke's Bay in the businesses of grape-growing,contract harvesting and machinery engineering (the Moteo Group).[2] Mr Patrick and his wife have had a relationship with the Bank as customerssince shortly after their arrival in Hawke's Bay from the United Kingdom in 2006.The Bank partially financed the acquisition and development of grape-growing landand relatively extensive machinery, and funded other working capital requirements forwhat became the Moteo Group. The first contentious refinancing of advances to theMoteo Group occurred in June 2010. The extent and terms of financialaccommodation were thereafter revisited in 2011, 2012 and 2014.[3] Mr Patrick complained about the Bank's conduct to the Banking Ombudsmanin 2014. There were delays in that complaint being addressed. Matters came to a headin November 2015 when formal demands for repayment were made. At a meetingfacilitated by the Banking Ombudsman and which Mr Patrick thought was solelyintended to advance a mediated solution, Bank representatives served notices underthe Property Law Act 2007 and thereafter appointed receivers.[4] The claim against Mr Patrick in the High Court was based on hisDecember 2013 guarantee of the last refinancing arrangements concluded between theparties at that time. That guarantee was on terms that required Mr Patrick to guaranteeobligations assumed thereafter by the Moteo Group as principal debtors. It wastherefore effective as a guarantee of obligations assumed by the principal debtors in2014. A list of criticisms of the Bank said to found arguable set-offs of Mr Patrick's1 Bank of New Zealand v Patrick [2017] NZHC 1184. That amount includes interest up to1 June 2017.admitted liability under the guarantee were all argued without success in the hearingof a summary judgment application before Associate Judge Smith.[5] Mr Patrick wishes to advance an expanded list of criticisms as grounds fora counterclaim or set-off on appeal. He does not take serious issue with much of thereasoning of Associate Judge Smith, although he seeks to re-argue some of the findingsmade against him. Instead, he argues that the fault of counsel retained in the HighCourt led to numerous viable arguments for a set-off or counterclaim not beingadvanced.Further evidence[6] Mr Patrick commenced the appeal on his own behalf. More recently, newcounsel on his behalf (Mr Woodhouse) applied for leave to file an amended notice offappeal and for leave to adduce five new affidavits that traverse additional backgroundto the relationship between the Moteo Group, Mr Patrick and the Bank. The newevidence is intended to provide a factual basis for a number of fresh arguments.Essentially Mr Patrick seeks to argue that the Bank acted unreasonably and in breachof obligations it ought to recognise that it owed to him and the Moteo Group in thecourse of earlier funding transactions in and since 2010.[7] The evidence filed in the High Court opposing the Bank's application forsummary judgment comprised two affidavits. The first from Mr Patrick contained46 paragraphs and a small number of exhibits. That affidavit traversed the history ofhis and the Moteo Group's dealings with the Bank and outlined grounds for thecomplaints he made about the manner in which they had been treated by the Bank.[8] The second affidavit was from Mr Erik Behringer, a business consultant inHastings. Mr Behringer has experience in rural banking. His affidavit deposed bothto factual matters from his involvement as a consultant to Mr Patrick in his dealingswith the Bank, and also expressions of opinion about breaches of reasonable standardsby the Bank as he perceived them to be. That affidavit extended to 32 paragraphs.[9] The new evidence sought to be adduced on the appeal comprises substantiallylonger affidavits from Messrs Patrick and Behringer. Mr Patrick's affidavit extendsto 39 pages of text and 165 pages of exhibits. Mr Behringer's affidavit containssubstantially more by way of criticism of the Bank's conduct. Both deponentscorrected errors or omissions in the exhibits they appended to those affidavits in briefsupplementary affidavits sworn shortly after their larger ones.[10] A new affidavit has also been filed from Ms Pidd, formerly a solicitor inpractice in Napier who acted for the Moteo Group and Mr Patrick on the June 2010refinancing with the Bank. That affidavit deposes that the refinancing appears to havebeen done in relatively short order and that Mr Patrick was seriously unhappy aboutits terms.[11] Mr Woodhouse applied for leave to adduce the new evidence and to file theamended notice of appeal.2 On the basis that the opposed applications would be heardat the same time as the substantive appeal, both parties filed relatively extensivewritten submissions in support of and in opposition to the application to adduce furtherevidence. Thorough submissions were also filed on the issues raised by the amendednotice of appeal. Mr Woodhouse's substantive submissions optimistically addressedfactual matters raised in the new evidence. For the Bank, Mr Gordon's submissionsresisted the need to address matters raised by the further evidence, but couldnonetheless be read as applying to any broader arguments that arose from the newevidence, should it be admitted.[12] Oral submissions at the hearing focused on the criteria for admission of newevidence. However, because consideration as to whether the proposed evidence wascogent involved questions of the tenability of various claims Mr Patrick would seekto advance against the Bank, the scope of argument inevitably expanded to deal withthe issues as if the proposed evidence was admissible.The test for adducing further evidence on appeal[13] The well-settled test for admitting further evidence requires it to be fresh,credible and cogent. The approach is as follows:32 The amended grounds of appeal are outlined at [17] below.3 Court of Appeal (Civil) Rules 2005, r 45; and Erceg v Balenia Ltd [2008] NZCA 535.[15] Those requirements are that the evidence be fresh, credible andcogent. It will not be regarded as fresh if it could, with reasonable diligence,have been produced at the trial: Rae v International Insurance Brokers(Nelson Marlborough) Ltd [1998] 3 NZLR 190 at 192. Particular weight willbe accorded in summary judgment proceedings to the need for finality: it isonly in exceptional circumstances that the Court will permit further evidenceto be filed on appeal: Lawrence v Bank of New Zealand (2001) 16 PRNZ 207(CA).Cogency[14] The main plank of Mr Gordon's opposition was that none of the proposed newevidence was cogent because it did not address factual matters bearing on any tenabledefence. If the proposed evidence only addressed topics that could not give rise to atenable defence, then such evidence arguably lacked cogency. This required anassessment of whether any of the grounds for opposing summary judgmentforeshadowed in the amended grounds of appeal were sufficiently tenable to raise theprospect of an arguable defence.[15] A matter dealt with towards the end of Associate Judge Smith's judgment wasa provision in Mr Patrick's guarantee provided to the Bank that prevented him fromraising any counterclaim or set-off as a ground for resisting a demand under theguarantee. That provision adopted a routinely used formula, in the following terms:15 No deductions from payments15.1 You must pay us without any set-off or counterclaim and without anydeduction or withholding.[16] The Associate Judge had already rejected all arguments for the existence of atenable defence. However, in the event that he was wrong in doing so, he acceptedthe Bank's submission that any arguable defence signalled by way of a set-off orcounterclaim was precluded by this term in Mr Patrick's guarantee.4[17] The somewhat discursive amended notice of appeal foreshadowed claimsallegedly available to Mr Patrick against the Bank as follows:4 Bank of New Zealand v Patrick, above n 1, at [153]–[155].(a) the Bank was bound to comply with the New Zealand Bankers'Association Code of Banking Practice (the NZBA Code) to act fairly,reasonably, consistently and in a timely manner in relation to itsdealings with Mr Patrick and the Moteo Group, and had arguablybreached those obligations in a number of respects;(b) the terms of communications from the Bank in 2010 committed theBank to providing the best loan structures for the Moteo Group and hadfailed to do so, instead providing loan structures that weredisadvantageous to the Moteo Group;(c) the Bank breached s 118 of the Credit Contracts and Consumer FinanceAct 2003 (the CCCFA) because it breached reasonable standards ofcommercial practice in its dealings with him;(d) in enforcing securities over Moteo Group assets, the Bank had acted inbreach of s 25 of the Personal Property Securities Act 1999 (the PPSA);(e) the extent of the Bank's involvement in the operation of theMoteo Group constituted it a shadow director, for which it should beheld liable; and(f) the receivership of the Moteo Group had been conducted negligently orimproperly, and the Bank was liable for not taking action to control thereceivers it had appointed.[18] The amended notice of appeal contended that these claims were sufficientlytenable to constitute a set-off that justified reversing the summary judgment or weresufficient for the Court to exercise its discretion to either not enter summary judgmentor to enter a stay in respect of any judgment in favour of the Bank.[19] Unless Mr Patrick could raise an argument that the no set-off clause should notapply, claims against the Bank stemming from a set-off or counterclaim could not availhim and evidence intended to support those claims would lack cogency.The enforceability of no set-off clauses in guarantee documents is well-settled.5Mr Woodhouse was not persuasive in suggesting that we should reverse the line ofauthority, including decisions of this Court, that have upheld the enforceability of suchclauses.[20] If the no set-off clause was enforceable against Mr Patrick in this case,Mr Woodhouse suggested that the potential availability of counterclaims or set-offagainst the Bank could nonetheless be relevant given the need for the Court to considerwhether to exercise its residual discretion to award summary judgment once the Courtwas satisfied that no arguable defence existed. Certainly in the present circumstances,we do not see the prospect of counterclaims such as those foreshadowed in theamended grounds for appeal as affecting an evaluation of that relatively narrowresidual discretion.[21] Accordingly, the proposed arguments for claims by way of set-off orcounterclaim cannot avail Mr Patrick because he has committed to a guarantee with ano set-off provision.[22] To avoid this outcome, Mr Woodhouse argued that forms of statutory relief thatmight be available to Mr Patrick under the CCCFA or PPSA fell outside the notions ofset-off or counterclaim as contemplated in cl 15 of the guarantee, so he was notprecluded from raising claims for those forms of statutory relief. It would follow thatevidence to support them would be cogent in terms of the test for adducing furtherevidence.[23] For the Bank, Mr Gordon argued that both types of possible claim were caughtwithin the scope of "set-off or counterclaim" as that expression was used in cl 15 ofthe guarantee. He submitted that any attempt under the CCCFA to re-open the creditcontract obligations which triggered the call on Mr Patrick's guarantee would now besubstantially out of time. So far as the prospect of claims under the PPSA wereconcerned, although provided for by the terms of a statute, they were rights of action5 Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd [2009] NZCA 382,(2009) 19 PRNZ 850.that, if at all, gave rise to a right for damages which constituted a form of set-off orcounterclaim in any event.Re-opening an allegedly oppressive credit contract[24] A first point taken by Mr Gordon against the prospect of any re-opening thatmight be initiated now is that Mr Patrick's complaint about oppression related to theJune 2010 refinancing. He submitted that the CCCFA could not apply belatedly tocredit arrangements between the Moteo Group and the Bank, where thosearrangements had been revisited at least three times between the June 2010 refinancingand the advances which were called up in 2015, on which the Bank has now claimedagainst Mr Patrick's guarantee.[25] The ability for a debtor to raise a claim of oppression to a credit contract thathas subsequently been superseded is provided for in s 125(2) of the CCCFA:125 When reopening proceedings may be commenced(2) , subsection (3) applies if,—(a) with the knowledge of the creditor under a credit contract,—(i) the credit provided under the contract is used (inwhole or in part) to pay amounts owing under anothercredit contract or other credit contracts; or(ii) amounts owing under the contract were paid fromcredit provided under another credit contract or othercredit contracts; and(b) the creditors under the credit contracts are either the sameperson or related companies.[26] Accordingly, where the proceeds of successive advances from the Bank wereapplied to discharge the Moteo Group's obligations under the preceding creditcontracts, then oppression might still be raised in relation to a credit contract that hadbeen superseded.[27] However, a specific time limitation for any re-opening of a credit contract onthe ground that it was oppressive is provided for in s 125(3):(3) Proceedings seeking the reopening of all or any of the credit contractsreferred to in subsection (2) may be commenced at any time earlierthan 1 year after the due date for the performance of the last obligationrequired to be performed under any of those contracts.[28] The last obligations under the final set of credit contracts with the Bank wererequired of the debtors on 30 November 2015 – the due date for repayment of the loan.Accordingly, the time limit in s 125(3) would have required any application forre-opening on the ground of oppression to have been commenced before30 November 2016. No such step was taken.[29] Mr Woodhouse sought to avoid the s 125(3) time limit applying in this way byarguing that the Bank still contends that obligations continue to be owed because itcontinued to charge interest for non-payment of the amounts originally demanded.It would follow that the "due date for performance" of obligations under thosecontracts continued to run. With respect, that argument is untenable. Unless extended,the last obligation in terms of the contracts on which the material default occurred wasthe date for performance of the debtors' obligation to make repayment.[30] It follows that Mr Patrick could not now initiate any proceedings for are-opening of the relevant contracts on the ground of oppression under the provisionsof the CCCFA.[31] We accept the position of the Bank on all other potential claims raised by theamended grounds of appeal, namely that they would constitute a set-off orcounterclaim and are therefore precluded as matters of arguable defence for thepurposes of opposing summary judgment.Lack of tenable grounds for claims[32] Out of a deference to the wide-ranging arguments we heard from counsel, andin particular Mr Woodhouse's concern to give a full airing to all of the grounds forcomplaint which Mr Patrick considered had been inadequately raised on his behalf inthe High Court, we summarise briefly why we are not satisfied they would raise atenable basis for a defence, even if not precluded by the no set-off clause.Breach of the NZBA Code[33] Mr Patrick wished to claim that the Bank was obliged to deal withthe Moteo Group and with him in accordance with the standards agreed betweenmembers of the NZBA in its Code. Arguably, in a number of respects, the Bank haddealt with the Moteo Group or Mr Patrick on terms or in circumstances that did notmeet the aspirational terms of various provisions of the NZBA Code. Mr Behringer'sexisting and proposed evidence included opinions applying his experience that suchbreaches had occurred.[34] Mr Woodhouse would not commit to whether this duty arose in tort, incontract, or possibly as an incident of a fiduciary relationship between bank andcustomer. We are satisfied that there is no basis for altering the terms of contractualdealings between a bank and a customer, so as to require a bank to adhere to thestandards stipulated in the NZBA Code. This Court rejected that prospect inForivermor Ltd v ANZ Bank New Zealand Ltd, holding that the NZBA Code is notdesigned as a contractual code enforceable by private action.6 That decision isconsistent with a number of High Court decisions rejecting this notion.7[35] Mr Gordon argued that even if there was a legal basis for such a claim, thenthere was no sufficient evidentiary basis to make out an actionable breach of thestandards required by the NZBA Code. He emphasised the Bank had no opportunityto respond to the fuller version of Mr Behringer's criticisms, but submitted any weightgiven to Mr Behringer's opinions ought to be reduced because of his obvious identitywith Mr Patrick's interests, having acted as consultant to him in dealings with the Bankthroughout much of the relevant period. The Bank would also rely on the evidencethat complaints made by Mr Patrick to the Banking Ombudsman were (after delayscaused or contributed to by the Bank for which they compensated Mr Patrick) resolvedby the Ombudsman finding the Bank had dealt with the Moteo Group and Mr Patrickon reasonable terms.6 Forivermor Ltd v ANZ Bank New Zealand Ltd [2014] NZCA 129 at [43].7 For example Clarke v Westpac Banking Corporation (1996) 7 TCLR 436 (HC); Dungey vANZ Banking Group Ltd [1997] NZFLR 404 (HC); and TSB Bank Ltd v Burgess [2013] NZHC3291.[36] The issues were focused on the cogency of the proposed evidence for potentialgrounds of counterclaim. It is therefore neither necessary nor appropriate to make afactual finding on the standard of the Bank's conduct against a hypothetical that is notrelevant to any potential cause of action against it.Lender liability to customers[37] Mr Woodhouse acknowledged that New Zealand courts have rejected anygeneral notion that lenders ought to be liable to their customers for loss caused byproviding advances on terms that subsequently appear to be disadvantageous orimpossible for the borrowers to repay. Mr Woodhouse submitted that the prospect ofsuch liability has been acknowledged in other jurisdictions, citing the decision of theNew South Wales Court of Appeal in Commonwealth Bank of Australia v Mehta.8However, we agree with Mr Gordon that the reasoning in that case does not recogniseany general duty owed by lenders. Rather, it was confined to circumstances where, ina particular bank/customer relationship, the bank had assumed an obligation to provideadvice to an intending borrower. In those circumstances the bank must do socompetently.[38] Mr Woodhouse urged that Mr Patrick's was an appropriate case in which toacknowledge the prospect of a trading bank owing duties to prevent borrowers takingadvances on terms that are disadvantageous. Again, Mr Woodhouse was not specificas to whether such obligations ought to arise as implied terms of the contractualdealings, in tort or arguably by virtue of some fiduciary obligation.[39] We agree with earlier decisions of this Court, and with decisions of theHigh Court in which the prospects of such a duty have been argued more thoroughlythan they were in the present case, all of which have rejected the notion.98 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 (CA).9 For example Bank of New Zealand v Ginivan [1991] 1 NZLR 178 (CA) at 181; Forivermor, aboven 6, at [56]; and Bank of New Zealand v Geddes HC Auckland CIV-2008-404-8082, 28 May 2009.Oppressive conduct or breach of reasonable standards under the CCCFA[40] The focus of this ground appeared to be that the Bank worked against the bestinterests of the Moteo Group and Mr Patrick in 2010, contrary to representations thatthey were working on a refinancing package that would be to the borrowers' bestadvantage. Mr Patrick complained that substantial and unexpected delays in the Bankpresenting him with a refinancing offer left him with no alternative but to accept whatit then proposed, despite very shortly thereafter complaining about the adverseconsequences of having done so. He would characterise that as a breach of reasonablestandards of commercial practice, resulting in oppressive terms.[41] The prospects for any relief under the CCCFA would depend on an applicationto re-open the financing contracts between Moteo Group and the Bank as a means ofreference back to the 2010 refinancing. We are satisfied that the time limit in s 125(3)of the CCCFA discussed above is a complete answer to the prospect of any such claimnow being pursued.Lack of good faith and breach of reasonable standards, contrary to the PPSA[42] The Bank took a general security agreement (GSA) over the assets of theMoteo Group to secure the advances made to those companies. In exercising rightsunder the GSA, the Bank is subject to the obligations created by s 25 of the PPSA:25 Rights or duties that apply to be exercised in good faith and inaccordance with reasonable standards of commercial practice(1) All rights, duties, or obligations that arise under a security agreementor this Act must be exercised or discharged in good faith and inaccordance with reasonable standards of commercial practice.(2) A person does not act in bad faith merely because the person acts withknowledge of the interest of some other person.[43] We understood Mr Woodhouse's argument to be separate from the discretecriticism of the conduct of the receivers during the receivership of the Moteo Group.Instead, Mr Patrick would seek to argue that the Bank had not exercised its securityrights over the Moteo Group's assets in good faith, or in accordance with reasonablestandards of commercial practice. Again in this regard, Mr Patrick would rely on theanalysis of the Bank's conduct by Mr Behringer, which included the opinion that theBank may arguably not have met the relevant standards in exercising its securityrights.[44] We are not persuaded that the criticisms of the Bank's conduct in relation toexercising its rights under the GSA could make out a tenable ground for breach of s 25of the PPSA. Mr Patrick's criticisms, and to a lesser extent Mr Behringer's opinions,relied on the premise that the Bank had to be mindful of the best interests of the debtorin all its dealings, including the timing and circumstances of making demands afterbreach of terms of the advances had occurred. That is not a tenable premise fromwhich to assess the reasonable commercial standards and we are not satisfied it couldfound any tenable claim in this case.The Bank operated as a shadow director[45] This foreshadowed ground was not pursued.Misconduct by the receivers[46] Mr Patrick made a series of specific criticisms of the conduct of thereceivership, contending that the receivers had failed to obtain the best price for assets,and had failed to exercise competent judgement in managing the Moteo Group tooptimise the return to creditors.[47] For any complaint of this type to be relevant, Mr Patrick would have toattribute responsibility to the Bank for the conduct of the receivers. However, this wasa receivership on conventional terms so that the receivers were acting as agent of thecompanies. There is no tenable basis for contending that a claim could be made againstthe Bank for deficiencies in their conduct.[48] We are accordingly satisfied that the new evidence is not admissible because itis not cogent in respect of any possible basis for a defence to the Bank's claim thatmight be raised by Mr Patrick. Given the breadth of argument we heard, we are alsoable to find that, even if it had been admissible, the new evidence would not provideany basis for reversing the High Court finding that there is no arguable defenceavailable to Mr Patrick.New evidence not "fresh"[49] That is sufficient to dispose of the appeal. However, we add a comment aboutthe argument advanced by Mr Woodhouse to avoid the requirement that new evidencehas to be fresh, in the sense that it could not, with reasonable diligence, have beenavailable for presentation before the High Court. It is clear from the content of thefurther affidavits that that the evidence could, with a measure of diligence, have allbeen placed before the High Court.[50] Mr Woodhouse submitted that the requirement for the evidence to be fresh wassatisfied because the failure to adduce it before the High Court was the responsibilityof incompetent counsel acting for Mr Patrick at that stage. Mr Woodhouse invitedanalogy with the test for adducing fresh evidence in criminal appeals where theappellant contends the absence of the evidence in the court below was caused bycounsel error. Arguably, a similar concern to avoid a miscarriage of justice ought topersuade the Court on Mr Patrick's assertion that the further evidence should betreated as fresh when its omission from the evidence before the High Court was causedby incompetent counsel.[51] We do not accept that argument enables Mr Patrick to avoid the usualrequirement that the proposed evidence be fresh in the conventional sense.The criminal context is quite distinct and the analogy is not a valid one. The generalpractice where trial counsel error is contended in a criminal appeal requires theappellant to waive solicitor/client privilege as between the appellant and trial counsel,so that both the appellant's and trial counsel's version of the circumstances in whichmatters were presented at trial is before the court on appeal.[52] Although it is somewhat self-serving, Mr Gordon's observation was thatcounsel in the High Court dealt as well as could be expected with the hand presentedto him. Relaxing the requirement for the evidence to be fresh in a case such as thepresent would be undesirable where the issue is one of summary judgment and thescope of such additional evidence is intended to enable what would effectively be amore thorough re-argument of many of the issues raised unsuccessfully inthe High Court.[53] In any event, there is no room for criticism of counsel who appeared forMr Patrick in the High Court. We have found that the arguments that Mr Patrickwished to have run, but which were not, were in any event untenable. Counsel cannotbe criticised for failing to run arguments that had no prospects of success.Result[54] The application for leave to adduce further evidence is declined.[55] The appeal is dismissed.[56] If the appellant had not been legally aided, we certify that we would haveordered him to pay the respondent costs for a standard appeal on a band A basis andusual disbursements.Solicitors:Woodhouse Law, Auckland for AppellantMinterEllisonRuddWatts, Wellington for Respondent