RUTHERFORD V BANK OF NEW ZEALAND HC WN CIV-2006-485-1345

RUTHERFORD V BANK OF NEW ZEALAND HC WN CIV-2006-485-1345 5 February 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-1345BETWEEN NICOLA JANE RUTHERFORD Plaintiff AND BANK OF NEW ZEALAND Defendant Hearing: 15 December 2006 Appearances: J.O. Upton QC for Plaintiff J. Toebes for Defendant Judgment: 5 February 2007 In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4.45pm on the 5th day of February 2007.JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL Introduction[1] This is an application for summary judgment by the defendant. The application is opposed by the plaintiff. [2] The plaintiff (Mrs Rutherford), executed with her husband ("Mr Rutherford") an all obligations mortgage in favour of the defendant over their jointly owned home. Unbeknownst to the plaintiff, her husband at the same time arranged with the defendant a further credit facility for his business which was secured in part by the bank's mortgage. The plaintiff alleges that, while she was advised by a solicitor, that solicitor was not appraised by the defendant of her husband's associated credit arrangements. Further, her husband had engaged other solicitors to act with respectto that other transaction. In the event, the business was unable to meet its obligations and the defendant exercised its power of sale over the plaintiff's home. [3] The plaintiff alleges in her present claim that it would be inequitable for the defendant to accept the full benefit of this mortgage due to its actual or constructive knowledge of the undue influence exercised by the plaintiff's husband. The defendant has responded by making this application for summary judgment, saying that it was entitled to rely on the solicitor's certificate warranting that advice was given. The defendant suggests that it was the plaintiff's solicitor who erred, by failing to properly advise the plaintiff. The plaintiff submits that the defendant is not entitled to rely on the solicitor's certificate, as in giving instructions to the solicitors concerned the defendant failed to appraise them of the extent of the risk the plaintiff was facing.Background Facts[4] The plaintiff and her husband married in 1970 and separated in November 2004. For the majority of their married life, it appears Mr Rutherford was a farmer. In paragraph 2 of her Statement of Claim the plaintiff states:The plaintiff has had little or no experience in business (other than working as an assistant in a shop in Palmerston North) having been a housewife and mother and totally reliant on her husband to manage their financial affairs. The relationship between the plaintiff and her husband was non-commercial at all times.[5] The plaintiff and her husband purchased as their home the residential property at 173 Staces Road, RD1, Palmerston North ("the home") in 1999. A major part of the purchase price ($200,000) was contributed by the plaintiff from an inheritance she received from the estate of her parents. The balance of the purchase price was made up from sale proceeds of their farm ($62,500) and a mortgage with the National Bank of $130,000. That loan was later increased to $160,000. [6] At some point, Mr Rutherford, with a business partner, incorporated Euro- China Company Ltd ("Euro-China") as a vehicle for a wool trading business they were engaged in. The plaintiff says she has no personal knowledge of the date ofincorporation but has been told that it occurred in March 2001. The plaintiff says she had nothing to do with the day to day management of Euro-China. She was neither a shareholder nor an officer of the company. The plaintiff comments that occasionally Mr Rutherford would mention Euro-China to her in passing but she was otherwise completely ignorant of its affairs. [7] The plaintiff acknowledges she was aware that Euro-China had accounts with the National Bank but she says she was unaware of any indebtedness in respect of those accounts. [8] In early 2002, Mr Rutherford advised the plaintiff that Euro-China was changing its bank accounts to the defendant, the BNZ, and that he intended to transfer their personal bank accounts and mortgage over the house to the defendant as well. The plaintiff says that she asked her husband why this was necessary and he explained that it "made sense" now that Euro-China had transferred its accounts. The plaintiff says her husband told her she would have to attend on their family solicitor, a Mr Paul Enersen of the firm Barltrop Graham for the purposes of transferring the mortgage. [9] On 23 April 2002 the defendant wrote to the plaintiff and her husband offering them a loan of $160,000 by way of first mortgage over the home. The purpose of the loan recorded on the offer was stated to be to "refinance existing housing loan". On 9 May 2002, the plaintiff and her husband accepted that offer. Both parties accept that the effect of the all obligations mortgage was to secure the present and future indebtedness of the plaintiff and Mr Rutherford, either jointly or severally incurred. [10] On that same day, 23 April 2002, the defendant made an additional loan offer to Euro-China. This offered a trade finance facility of $1,900,000 and an overdraft of $150,000. The security for those credit facilities is recorded in that offer:Registered First Debenture over the assets and undertakings of the company. Guarantee from Andrew Rutherford and [his business partner] for the sum of $2,050,000.00 plus interest and costs in terms of the Bank's standard Guarantee form backed by mortgages over the Director's personal properties.[11] That loan offer was accepted by Mr Rutherford and his business partner on 9 May 2002, the same day as Mr Rutherford and the plaintiff accepted the offer in respect of the mortgage over the home. The plaintiff says that she was not aware at the time of signing the mortgage loan offer that her husband had arranged the separate credit facility for Euro-China. It needs to be noted that, as well as being sent out on the same day, both loan offers originated from the same BNZ Business Banking Manager, one Robert Nicholson. [12] Having received the signed loan offers, the defendant set about instructing the parties' solicitors to prepare the security documentation. It is a crucial aspect of this case that different solicitors handled the security documentation in respect of the home loan on the one hand, and the Euro-China company loan on the other. For the purposes of the mortgage over the home, the services of their family solicitor, Mr Enersen of Barltrop Graham, were used. A separate firm of solicitors, Fitzherbert Rowe, was used for all matters involving Euro-China. [13] The defendant wrote separately to Barltrop Graham and Fitzherbert Rowe on 17 May 2002, instructing them to prepare the security documentation for the home loan and the company loan respectively. The letter to Barltrop Graham instructed the solicitors to prepare, execute and register a mortgage over the home owned by the plaintiff and Mr Rutherford as security for "advances to $160,000". The instructions provided for the completion of a solicitor's certificate warranting that the solicitor had given advice to the plaintiff and her husband. Nowhere in the instructions does there appear to be any reference to the additional loan that the defendant was at the same time in the process of finalising with Mr Rutherford and Euro-China through Fitzherbert Rowe. [14] Again, I note that, as well as being sent out on the same day, both letters of instruction originated from the same person at the bank, one Andrew Riordan, identified in the letters as "lender". [15] The plaintiff acknowledges that she received advice from Mr Enerson of Barltrop Graham before signing the mortgage to the defendant. She and her husband both attended at that meeting. She says that she does not recall perfectly the detailsof that conversation but she says that Mr Enersen explained the defendant' s loan in general terms and she was left with the impression that the mortgage secured the defendant's advances of $160,000 in the form of a home loan. The plaintiff says that she was never informed about the additional credit facility with Euro-China and that her husband did not mention it at the meeting with Mr Enersen. It is apparent from the documentation that the defendant and Fitzherbert Rowe were aware of the fuller story of Mr Rutherford's financial dealings with the defendant. The defendant bank, however, did not inform Barltrop Graham about the Euro-China credit facility. [16] On or about 6 June 2002, the plaintiff and her husband signed the mortgage (a standard all obligations form of mortgage of the type used by most trading banks) in favour of the defendant. [17] Then, in November 2003, the plaintiff says her husband mentioned to her that he might have to consider selling the home in order to repay monies owing by Euro- China to a finance company. The plaintiff says that on 20 November 2003, representatives from the defendant arrived at the plaintiff's home and informed the plaintiff and her husband that the house was to be sold and the proceeds put towards satisfaction of Euro-China's outstanding debts. The plaintiff says this was the first time that she became aware of the loan arrangement between Euro-China and the defendant. [18] The house was subsequently sold. All the sale proceeds were taken by the defendant under its mortgage and applied first in repayment of the house loan and secondly towards a part repayment of the Euro-China facility. The plaintiff has now instituted this action to recover an amount from the defendant representing her one- half share equity in the home.Statement of Claim[19] At the outset, it needs to be noted that the plaintiff's Statement of Claim appears to be deficient in certain respects. It does not specify the nature of the cause of action. It has become clear though in the course of submissions before me that the plaintiff alleges undue influence on the part of her husband, of which undueinfluence the bank had actual or constructive knowledge. The facts pleaded in the Statement of Claim would also seem to require more elaboration if this proceeding is to continue. This was conceded by counsel for the plaintiff before me and he indicated that if necessary he would seek leave to amend the Statement of Claim. [20] The plaintiff acknowledges that she received advice from Mr Enersen of Barltrop Graham in respect of the transaction. She alleges (paragraph 13 of her Statement of Claim), however, that the defendant's instructions to Barltrop Graham were misleading and defective in that:(a) Material information known to the defendant was not disclosed to Barltrop Graham;(b) Despite the defendant's own knowledge, the defendant failed to identify to the plaintiff or to Barltrop Graham the true purpose of the borrowing; (c) The instructions given by the defendant to Barltrop Graham were limited and they were not specifically asked or required to give independent advice nor to explain the true purpose of the borrowings; (d) The defendant failed to ensure that the plaintiff was advised independently of her husband and in the absence of her husband of the purpose of the borrowings and the all obligations mortgage.[21] Accordingly, the plaintiff invokes the Court's equitable jurisdiction and submits the defendant was not entitled in all the circumstances to rely on the solicitor's certificate. The plaintiff asks the Court to set aside the mortgage and the subsequent sale of the home and to order the defendant to compensate her for her equity of $281,712.68 together with interest, and to pay general damages in the sum of $40,000 and costs.The present Application by the Defendant's Summary Judgment and the Plaintiff's Response[22] In the present application, the defendant seeks summary judgment in its favour on the broad basis that the plaintiff's claim is entirely misguided and has no chance of success.[23] The defendant's essential contention is that the plaintiff's real complaint is against her solicitors Barltrop Graham, who, the defendant says, did not properly advise the plaintiff of the risk she faced in executing the mortgage. [24] The defendant argues that the plaintiff's only real complaint is that the defendant's instructions to Barltrop Graham were insufficient. The defendant submits that complaint is misconceived. It maintains the transaction in respect of which the instructions were given was an ordinary, every day transaction, with no special circumstances or requirements. The instructions provided to Barltrop Graham were more than sufficient to advise of the nature of the transaction. In particular, the transaction at issue between the parties was entirely separate from the independent loan arrangement reached between the defendant and Euro-China. Although the plaintiff alleges in her statement of claim that the "true purpose" of the loan arrangement was in reality broader than simply home loan refinancing, the defendant rejects this allegation, emphasising that the purpose of the transaction now sought to be impeached was just that – to refinance the plaintiff's existing National Bank mortgage, a mortgage which was a similar all-obligations mortgage covering the home loan and all guarantee liability of the husband for the Euro-China borrowing. [25] The plaintiff, in support of her claim, has obtained an affidavit from an expert, John Paul Greenwood, a commercial property and conveyancing lawyer, which suggests that the solicitor's instructions provided by the defendant were insufficient. Mr Greenwood observes that the instructions do not request that Barltrop Graham explain the purpose of the lending, there is no express mention of, or insistence upon, the need for independent advice for the plaintiff and there is no information about the link between the proposed home loan and the Euro-China loans. [26] The defendant submits in reply that it was entitled to rely upon the competence of the solicitors selected by the plaintiff for the purpose of advising her on the transaction. The defendant refers to authority to that effect. The defendant submits that the extent of the advice provided to a surety is a matter for the solicitor's own judgment. The creditor is not generally involved in the nature andextent of the solicitor's advice. The defendant furthermore puts in evidence an expert affidavit (from Bruce Andrew Galloway, an experienced consultant lawyer) to the effect that in the event it was the solicitors' advice which was insufficient. The defendant says it had no reason to inquire further into the advice provided by the solicitors and accordingly it is not liable for their failure. [27] For these reasons, the defendant submits the plaintiff's claim has no possibility of success, and accordingly judgment should be entered summarily for the defendant. [28] In response to the defendant's application, the plaintiff maintains that, given the high threshold for a defendant's summary judgment, there is enough in this claim for it to proceed to trial. [29] The plaintiff submits that the relationship between the plaintiff and her husband raised a presumption of undue influence, and that the defendant took the benefit of the mortgage with actual or constructive knowledge of that undue influence. The plaintiff emphasises the point that a single bank manager dealt with both the home loan and the company loan, and therefore the defendant had actual knowledge of the nature and circumstances of the risk the plaintiff was taking on. [30] The plaintiff submits that to avoid liability the defendant should be required to demonstrate that it ensured that the plaintiff received independent advice. The plaintiff says that, to the defendant's knowledge, the advice in this case was insufficient to properly appraise her of the risk. This was the case because the solicitor was not sufficiently informed of the circumstances of the lending, and was accordingly unable to explain to the plaintiff that she was taking on greater risk than she thought she was.Principles Governing Defendant's Summary Judgment Application[31] Defendant's summary judgment is provided for in r 136(2), which states:The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed.[32] A defendant's summary judgment application is therefore similar to a strike- out application, in that the defendant must demonstrate there is no possibility of the claim or any of the causes of action succeeding. However, determination of the application does proceed on the basis of affidavit evidence in addition to the pleadings. The general rule is that the Court will not attempt to resolve on a summary judgment application a genuine evidential dispute between the parties. Nonetheless, the Court may disregard factual disputes that are plainly spurious or contrived: A-G v Rakiura Holdings Ltd (1986) 1 PRNZ 12, at 14. [33] The Court of Appeal has considered r 136(2) in a number of cases includingWestpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298,Bernard v Space 2000 Ltd [2001] 15 PRNZ 338 and A-G v Jones [2001] 15 PRNZ 347 – also considered by the Privy Council at [2004] 1 NZLR 433. [34] The starting point in determining a defendant's summary judgment application must be the principle that a plaintiff has the right to have its claim determined following a fair hearing by the Court: A-G v Jones. In that case, the Privy Council said, at 440:Summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless.[35] Where the defendant applies for summary judgment, it will have the significant burden of establishing that none of the plaintiff's causes of action can succeed. The Court should only give judgment against the plaintiff where the defendant has a clear answer to the plaintiff which cannot be contradicted: Westpac Banking Corporation v M M Kembla New Zealand Ltd. [36] And, as the Privy Council stated in Jones v Attorney-General at page 439:It cannot be doubted that, properly used, Rule 136(2) can save both time and cost by permitting claims with no hope of success to be summarily dismissed at an early stage. But rarely, if ever, will the procedure be appropriate wherethe outcome of the action may depend on disputed issues of fact, and reliance on the rule in an inappropriate case may serve to increase both the length and the cost of proceedings.Discussion[37] As will become evident from the discussion that follows, I am of the view that the plaintiff has made out a case for undue influence on the part of the husband that ought to be imputed to the defendant. The defendant has attempted to avoid liability for that undue influence with reference to the independent advice given by Barltrop Graham. The defendant says it was entitled to rely on the solicitor's certificate in respect of that advice, and that this is a complete answer to the claim. I disagree. As I will discuss, the advice provided to the plaintiff was insufficient to properly inform her of the risk, and, on the evidence before me, it is arguable that the defendant had actual or constructive knowledge of that insufficiency. Accordingly, the plaintiff has satisfied me to the extent required in the context of this application that her claim should be allowed to continue.Undue influence – elements of the cause of action[38] The law as it currently stands in New Zealand in respect of the equitable action for undue influence is set out in two decisions of the Court of Appeal:Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 and Hogan v Commercial Factors Ltd [2006] 3 NZLR 619. [39] In Wilkinson, the plaintiff, a woman of 70 with a history of psychiatric illness, executed a guarantee and mortgage over her home as security for a loan for her husband's accountancy practice and a company run by her son. The plaintiff was advised independently of her husband and son as to the effect of the transaction. The mortgage was executed and, when defaults on the loans occurred, a demand was made under the plaintiff's guarantees. [40] The Court traversed authorities in England, Australia and New Zealand and made a number of comments relevant to the cause of action. First, the Court recognised that a claim made against a creditor in respect of the undue influence of athird party does not allege any wrongdoing on the part of the creditor. Rather, the Court is asked to avoid the transaction due to the inequitability of allowing a creditor with actual or constructive knowledge of the undue influence to take the benefit of the security. [41] The Court cited with approval the decision of the House of Lords in Barclays Bank plc v O'Brien [1994] 1 AC 180, in which the Court approved a two-fold classification of undue influence into (1) actual undue influence, and (2) presumed undue influence. In the first category, the Court observed that the onus lies on the plaintiff to prove affirmatively that the wrongdoer exerted undue influence on the plaintiff to induce her to enter into the impugned transaction. Under the second category, the plaintiff need only show that there was a relationship of trust and confidence between the plaintiff and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in order to procure the plaintiff to enter into the impugned transaction. The Court further subdivided presumed undue influence into two sub-categories. Class 2(A) covers relationships, for example that of solicitor and client, that as a matter of law raise the presumption that undue influence has been exercised. Class 2(B) applies where the complainant can prove the existence of a relationship within which the complainant generally reposed trust and confidence in the wrongdoer. The existence of such a relationship raises a presumption of undue influence that obliges that defendant to adduce evidence to disprove it. In a class 2(B) case the plaintiff will succeed in setting aside the impugned transaction merely by proof of the nature of the relationship. [42] The Court in Wilkinson at p680 noted that the relationship between a husband and wife does not as a matter of law raise a presumption of undue influence such that it falls within class 2(A). However, a husband or wife may, by evidence of the nature of their relationship, bring themselves within the ambit of class 2(B). [43] In cases such as the present, involving undue influence by a third party, in order to succeed the plaintiff must be able to impute the undue influence to the creditor bank. The Court will impute the undue influence to the creditor bank in two situations: where the wrongdoer (in this case allegedly the husband) is acting as an agent of the creditor bank or, more commonly, where the creditor bank has actual orconstructive notice of the undue influence. The creditor bank will have constructive knowledge of the undue influence where it had actual knowledge of the circumstances of the relationship such that it was put on inquiry as to the possibility of undue influence. By imputing constructive knowledge, the Court places on the creditor bank an obligation to inquire into the possibility of undue influence where the features of the relationship suggest to the bank, or ought to have suggested, that there was a risk of undue influence as between the plaintiff and the wrongdoer. [44] The Court identified two factors that put the creditor on inquiry when a wife offers to stand surety for her husband's debts (at 680):The transaction is on its face not to the financial advantage of the wife; and. 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.[45] Once a creditor bank is fixed with knowledge of the undue influence, either actual or constructive, the bank must take steps to ensure that the plaintiff's agreement to stand surety has been properly obtained. In most circumstances, this will be satisfied by ensuring that the plaintiff obtains independent legal advice as to the nature and effect of the transaction. In this case, the sufficiency of the legal advice provided by Barltrop Graham is at the heart of the claim, and I will return to discuss the requirement of independent legal advice in more detail later. [46] The Court in Wilkinson outlined a series of (non-exhaustive) principles governing the cause of action of undue influence as against a creditor bank. I paraphrase those principles below: (1) A contract of surety is not a contract requiring full disclosure on the part of the lender. If questions are not put by the surety the lender is not bound to reveal material facts unless something has occurred between the principal debtor and the lender which goes beyond that which the surety might naturally expect. (2) The questions initially to be asked of a relationship allegedly falling within class 2(B) are: (i) whether there was a relationship underwhich the surety generally reposed trust and confidence in the principal debtor; and thus (ii) whether there was at the time the contract was in contemplation a presumption of undue influence. If the creditor bank was aware of facts giving rise to that presumption, it must show that it took adequate steps to allay any reasonable suspicion of undue influence or misrepresentation. (3) Undue influence on a surety is likely to be presumed if the following features are present: (a) limited commercial ability of the surety; (b) absence of a more than minimal financial stake by the surety in the enterprise guaranteed; (c) a relationship involving an emotional tie or dependency on the part of the surety towards the principal debtor. (4) A wife is not automatically regarded as being subject to undue influence from her husband. She must plead the undue influence or the facts that give rise to the presumption of undue influence. (5) In assessing a situation where the surety has executed a guarantee or security for the benefit of a family business in which she has no, or only a limited, financial interest, it should not be overlooked that she may have been motivated by an indirect personal advantage associated with the success of the business. (6) In order to allay reasonable suspicion of undue influence, a prudent course is for the creditor bank to insist that the surety receive independent legal advice, and to obtain a solicitor's certificate to that effect. (7) If a surety declines independent advice, a prudent creditor bank will endeavour to ensure that someone explains the effect of the documents to the surety. (8) Generally speaking, it is not part of the solicitor's function to give investment or financial advice or advice on the merits of thetransaction. However, it is obvious that a solicitor cannot give adequate advice without raising questions about the creditworthiness of the principal debtor and pointing out to the surety the need to consider the extent of the risk involved. If the surety does not appear able to make an adequate assessment of the risk, either the solicitor should look into the matter personally, or should refer the surety to someone appropriately qualified. Upon receiving an unqualified certificate, the creditor bank can usually assume that this has occurred. (9) It is not for the creditor bank to tell a solicitor how to perform his or her duties, or to enquire about the adequacy of the advice. However, if the creditor bank knew that the solicitor was unaware of crucial facts, known to the creditor bank, about the transaction and the risk to which the surety was being exposed, the bank may not be able to rely on the solicitor's certificate. Therefore, before accepting a certificate, the creditor bank may sometimes need to ensure that the advising solicitor had access to certain information. If the principal debtor is unwilling to permit disclosure, the financier may be unable to rely on the certificate. (10) There may be cases in which the transaction is so disadvantageous that no solicitor would advise in favour of it. In those circumstances, a creditor bank may be unable to rely upon a certificate. [47] Hogan, which was decided subsequently to the House of Lords decision inRoyal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773, which was in turn decided subsequently to Wilkinson, adjusts the law slightly in respect of the categories of presumption of undue influence. In the first place, the Court in Etridgepointed out that the presumptive categories are rules of evidence rather than descriptive of particular kinds of undue influence. Accordingly, while the presumptive approach may still apply, it is a forensic tool that excuses the plaintiff from having to prove every element of the cause of action. Secondly, the Court inEtridge raised the threshold for presumed undue influence, holding that more was required than simply a relationship of trust and confidence. [48] The Court in Hogan picked up on this shift and, while not expressly deciding the point as between the Wilkinson and Etridge approaches, it referred with approval to the approach outlined by Lord Nicholls, in which the plaintiff has to show a relationship of "trust and confidence, reliance, dependence or vulnerability [on the plaintiff's side] and ascendancy, domination or control on the [alleged wrongdoer's side]" as a result of which the plaintiff "was disposed to agree with a course of action proposed" by the alleged wrongdoer. The requirement was put another way by Lord Nicholls, who held that the transaction must "call for explanation". [49] The plaintiff refers to Hogan as constituting a "shift in emphasis" and says that, regardless of which approach is adopted, there is material before the Court sufficient to satisfy the test.Application of the elements of the cause of action to this case[50] In this case, the plaintiff in her present Statement of Claim does not plead actual undue influence. Nevertheless, the plaintiff contends that it is properly arguable on the facts here that undue influence is present on the basis of a number of matters. First, the disparity in commercial ability between Mr and Mrs Rutherford, secondly, the plaintiff's lack of any involvement or knowledge in Euro-China, thirdly, the fact that Mr Rutherford made all the business decisions relating to their affairs, fourthly, the non-commercial nature of their relationship and fifthly, the material disparity in financial benefit arising from the overall transaction. If theHogan test is to be applied here, some amendment to the plaintiff's Statement of Claim may be required to remedy the deficiencies. In my view, granting of leave to make this amendment is entirely proper here – see Westpac Bank v M M Kembla NZ Ltd and McGechan HR136.07. [51] In terms of the factors outlined in Wilkinson, as I see it, for the purposes of the present application there is sufficient before the Court at this point to suggest a presumption of undue influence. The Court in Wilkinson considered as paramountfactors the limited commercial ability of the plaintiff, the absence of a more than minimal financial stake in the transaction, and a relationship of dependency. As I have noted above, these are all factors present in this case. [52] An objection might be raised on the part of the defendant to the effect that the transaction complained of simply refinanced the earlier National Bank loans and in any event could not be seen in any way as disadvantageous to the plaintiff. The defendant might endeavour to argue that the transaction was in fact advantageous, and that the plaintiff had an actual substantial financial stake in it. This approach, however, in my view, would generally depend on viewing the transaction narrowly, as one comprising only the home loan. The defendant has sought to press this approach, by arguing that the home loan and concomitant mortgage were the only transactions involving the plaintiff, and that they were very ordinary examples of their kind. In my view, it is too narrow an approach to ignore the company loan, which from the defendant's point of view was very much part of the overall transaction. It was also a part of the transaction in respect of which the defendant knew the plaintiff would be bearing the risk at the time the mortgage was contemplated. The assessment of risk in respect of the mortgage necessarily had to take into account the associated indebtedness of the plaintiff, Mr Rutherford and Euro-China and the defendant was clearly aware that the level of risk associated with the transaction was substantially greater than that represented by the home loan. [53] In support of its argument that the mortgage transaction was unexceptional, the defendant posited two similar scenarios, which it argued demonstrated the unimpeachability of the mortgage. In the first place, the defendant argued that, had the plaintiff simply continued with the earlier mortgage to the National Bank, and not executed the new mortgage to the defendant, she could not have complained if Mr Rutherford had then acquired further debt without telling her and as a result the mortgage was called in. She could not have complained because the all-obligations nature of the mortgage meant that future borrowing was secured against the existing mortgage. The defendant says that all that happened here is that the existing mortgage was replaced by a new mortgage in identical terms, and the simple fact of executing a new mortgage ought not mean that the plaintiff has a cause of action she would otherwise not have had.[54] In the second place, the defendant argued that the plaintiff similarly could not have impeached the validity of the mortgage if the company loan had been acquired some time after the new mortgage was executed. Again, the all-obligations nature of the mortgage would meant that future borrowing, of which the plaintiff might well be unaware if Mr Rutherford declined to tell her, could result in the bank exercising its rights under the mortgage. [55] The defendant argues that these two hypothetical scenarios demonstrate that the plaintiff's claim is misguided. They are analogous to the present situation, in that in both cases the plaintiff might be exposed to financial risk due to her husband's undisclosed borrowing, and yet no one would argue the defendant was unable to enforce the mortgage under those circumstances. [56] I agree with the defendant that in the scenarios it identifies the plaintiff would have great difficulty in avoiding the mortgage. However, both of those scenarios are distinguishable. The case turns on the advice that the defendant was required to ensure the plaintiff receive and the point at which she was supposed to receive it. She was supposed to receive advice sufficient to appraise her of the risk she faced in executing the mortgage and she was supposed to receive that advice at the time at which she executed the mortgage. In both of the defendant's scenarios, the future indebtedness would not have been contemplated by the bank – in the first scenario the National Bank, in the second the defendant – at the time at which the mortgage was executed. It therefore would not have factored into the calculation of risk, and accordingly would not have formed part of the advice. Indeed, the future indebtedness could not have been advised on in anything other than the most general terms because it was not yet contemplated. This case is different because at the time at which the mortgage was executed, and the plaintiff was being advised, the company loan was actually on foot. The advice that the plaintiff was supposed to receive therefore necessarily needed to include the company loan in order to properly appraise her of the risk she faced. [57] To put this another way, the obligation to advise arises afresh each time a new security is entered into. The question then is what the content of that advicemust include. In my view it is at least arguable that the advice had to include an assessment of the risk posed by the company loan. [58] Finally, I note that this is an action based in equity, and accordingly at this early stage of the proceeding I am not inclined to construe the transactions in an overly technical or formal fashion. The overall inquiry goes to the equitability of allowing the defendant to accept the benefit of the mortgage in all the circumstances of the case. [59] I therefore conclude that there is sufficient in the material before me to raise a presumption of undue influence. [60] The next issue is whether for the purposes of the present application that presumption can be sheeted home to the defendant. In my view it can. There is enough before the Court, as I see it, to suggest that the defendant would have been aware of the particular circumstances giving rise to the risk that the husband was exercising undue influence in respect of the plaintiff. The plaintiff emphasises that at all times, representatives of the defendant were dealing simultaneously with the plaintiff and her husband in respect of the mortgage, and with the husband separately in respect of Euro-China. They would no doubt have been aware of the allocation of responsibility over financial matters to the husband. It is likely they would also have been aware that the company loan was being driven solely by the husband, and therefore the plaintiff could not be said to have any more than an indirect interest in it. As a result, I conclude that the defendant was put on inquiry as to the risk of undue influence. [61] For completeness, I also record that the evidence before me satisfies the test in Etridge that the transaction here does "call for explanation". The fact that the defendant was independently dealing with the plaintiff and the husband in respect of different loans secured by the same mortgage, in circumstances where there was a clear risk that the plaintiff had not been appraised of the company loan, clearly calls for explanation.[62] At this stage of the present proceeding there is enough before the Court to suggest that the essential elements of the cause of action for undue influence may ultimately prove to be made out when the evidence is thoroughly tested. As I see it, there is sufficient in the affidavits to satisfy the threshold applicable in a defendant's summary judgment application. I now turn to consider the issue of the advice that was provided by Barltrop Graham to the plaintiff. The defendant's submission is that they were entitled to rely on the solicitors' certificate warranting that appropriate advice had been given.Independent advice[63] Both the plaintiff and the defendant acknowledge in effect that the advice given to the plaintiff was (potentially at least) insufficient to appraise her of the degree of risk she faced in executing the mortgage. However, whereas the plaintiff says that the reason for that is the defendant's failure to provide to the solicitors information about the company loan, the defendant says any inadequacy in the advice was due to the failure by Barltrop Graham as solicitors for the Rutherfords to inquire of Mr Rutherford with respect to his current and future indebtedness. [64] The defendant says it is not required to go behind the face of the solicitor's certificate in order to investigate the extent and sufficiency of the advice. It is entitled to rely on the competence of the solicitor and to assume that the solicitor will discharge his or her duties appropriately. The defendant says further that it was not required to disclose to the plaintiff any information regarding the indebtedness of Euro-China. As I see it, the defendant is supported in those submissions to a limited extent: see, Wilkinson at 690-692. However, the crucial point in this case is that Barltrop Graham did not have critical information necessary to appraise the plaintiff of the level of risk she was facing, and the defendant was either aware of that fact, or at the very least was put on inquiry as to the fact. This is particularly so, given the information which the defendant had at its disposal about the manner in which Mr Rutherford organised his finances. The defendant knew that Mr Rutherford was using separate firms of solicitors to arrange the security documentation for the home loan and the company loan and accordingly there is a reasonable argument that the defendant ought to have inquired from Mr Rutherford as to whether Barltrop Grahamhad been informed about the company loan. The plaintiff says that had they so inquired they would have discovered that Barltrop Graham was not aware of the company loan. As the Court, tellingly in my view, said in Wilkinson said, at 692:if the financier had good reason to believe that the solicitor was unaware of crucial facts, known to the financier, about the transaction and the risk to which the guarantor was being exposed, consultation with the solicitor may well not have allayed the suspicion of undue influence or misrepresentation. Therefore, before accepting a certificate the financier may sometimes need to ensure that the advising solicitor had access to certain information. If the principal debtor is not prepared to permit disclosure, the financier may be unable to rely on the certificate.[65] This, then was the course of action that the defendant ought to have followed. The information available to the defendant about Mr Rutherford's intention to use separate solicitors for the home loan and the company loan put the defendant on inquiry to ensure that Barltrop Graham were sufficiently informed of the relevant facts that they could in turn appraise the plaintiff about the real risk she faced. If Mr Rutherford declined to permit the defendant to inform Barltrop Graham, then arguably the only proper course of action open to the defendant would have been to decline to approve the loan. [66] The defendant objects to this line of reasoning, saying that it was entitled to expect that Barltrop Graham would conduct any necessary inquiries they saw fit in the exercise of their professional judgment. The defendant presented in evidence an expert affidavit in which the steps that a "competent" solicitor would take in these circumstances are outlined. One of the steps, it is said, would have been to inquire directly of the parties as to their level of indebtedness. [67] Amongst others, in my view, there are three possible responses to this objection. The first is that Barltrop Graham had no reason to make inquiries of the kind envisaged by the defendant as they had no reason to suspect Mr Rutherford was at the same time negotiating or had negotiated a further credit facility for a third party whose obligations he intended to guarantee. The second is that, even had they inquired, Mr Rutherford may have declined to tell them, in which case the defendant would not have been relieved of its obligations to ensure sufficient advice simply because Mr Rutherford had been dishonest. The third is that, were this objection acomplete answer, the Court in Wilkinson would not have seen fit to cast this responsibility upon the creditor bank. [68] Counsel for the plaintiff before me hinted that on further investigation Barltrop Graham as solicitors to the plaintiff and Mr Rutherford might ultimately prove to have some degree of responsibility in this matter. Notwithstanding this, the defendant's attitude before me that responsibility here rests totally with Barltrop Graham and not with the defendant was roundly rejected on behalf of the plaintiff. In my view, it is extremely difficult, if not impossible, in the present summary judgment context to adequately deal with the argument that responsibility here might rest only with Barltrop Graham. This is because it would require the Court to look at issues of causation or contribution which can only realistically be done after establishing the full factual situation and considering expert evidence and following proper cross-examination. It is clear that summary judgment applications are not the appropriate time to become involved in a finely balanced analysis of the evidence. A defendant's summary judgment application is only to be granted in a clearcut case or in situations where, as the Privy Council in Attorney-General v Jones said, the case "is quite clearly hopeless". [69] The evidence before the Court satisfies me that so far as the present application is concerned, the defendant cannot simply say that it was entitled to rely on the solicitors' certificate, in circumstances where it was arguably put on inquiry as to the possibility that Barltrop Graham would not know about the full extent of the risk secured by the mortgage. That being the case, there was a risk that the plaintiff would not be sufficiently advised of the effect of the transaction and thus the undue influence potentially acting upon her would go unnegatived. [70] Although the Banking Code of Practice which was in force at the relevant time and to which the defendant was a party reflecting as it does good banking practice but does not create a statutory duty upon the defendant, it is useful here to note the strictures of the Code and in particular paragraph 9.8.1 which states:9.8.1 We (the Bank) will ensure that those persons who propose to give us a guarantee or other security for a customer's liabilities are informed in the absence of the customer:(i) That by giving the guarantee or third party security that person may become liable instead of, or as well as, the bank customer; (ii) That they should seek independent advice before doing so because of the risk of ultimate liability. (emphasis added)[71] This provision of the Code specifically provides that it relates to "other securities" as well as guarantees. The plaintiff's argument in context is that these provisions in the Banking Code of Practice are a strong indication of the duty resting on the defendant if it wishes to dispel any presumption or suggestion of undue influence (and equally that a breach of the Banking Code equates to a breach of the equitable obligation otherwise resting on the defendant bank) – see Barclays Bank v O'Brien [1993] 4 All ER 417 at 430-431. In my view there is some substance in the argument advanced by the plaintiff that the defendant may have breached its obligations under para 9.8.1 in that it did not ensure the plaintiff was "informed in the absence of the customer Mr Rutherford" that she could effectively become liable under the third party mortgage security for debt incurred by him under his company guarantee and she should seek legal advice independent of Mr Rutherford.Result[72] I remind myself that the application before me is the defendant's application for summary judgment and applications of this type are only appropriate where it can be shown a defendant has a clear answer to a plaintiff's claim which cannot be contradicted, or cured by an amended pleading – McGechan HR136.07. For the reasons I have outlined above, I am satisfied that the threshold for defendant's summary judgment is not achieved here. There is evidence before the Court that supports a cause of action for undue influence, and that undue influence arguably can be imputed to the defendant. There is a reasonable argument too that the defendant here is unable to rely upon the solicitors' certificate, given that it had information relevant to the assessment of risk, which information it ought to have realised might have not been available to the plaintiff' s solicitors. The defendant does not therefore have a complete answer to the plaintiff's claim.[73] The application by the defendant for summary judgment is dismissed. [74] In so far as it may be necessary, leave is granted to the plaintiff to replead her Statement of Claim to meet the objections noted in this judgment. A direction is made that any amended Statement of Claim from the plaintiff is to be filed and served within 20 working days of this judgment. [75] Costs are reserved. If they are in issue, counsel may file memoranda, and unless either party wishes to be heard on the issue, I will decide the question on the basis of the material before the Court. ________________________________Associate Judge D.I. GendallSolicitors:Innes Dean, Palmerston North for Plaintiff Buddle Findlay, Wellington for Defendant