In the Court Of Appeal of New Zealand
CA399/2009
[2010] NZCA 105

BETWEEN	IDA VALLEY HOLDINGS LTD
First Appellant

AND	PETER MARTYN ROBERTS
Second Appellant

AND	ASL MORTGAGES LTD
Respondent

Hearing:	17 March 2010

Court:	Arnold, Harrison and Fogarty JJ

Counsel:	D G Hayes for Appellants
K I Bond and K Lomas for Respondent

Judgment:	30 March 2010 at 10.30 am 

JUDGMENT OF THE COURT	

A	The appeal is dismissed.
B	The respondent is entitled to costs on an indemnity basis.  Leave is reserved to counsel to file memoranda as to quantum if necessary.

REASONS OF THE COURT
(Given by Arnold J)

Introduction
[1]	This is an appeal from a decision of Associate Judge Faire in which he granted summary judgment to the respondent against the appellants for amounts outstanding under a loan agreement, together with interest, costs and disbursements.
Preliminary point – composition of Bench
[2]	Panckhurst J was originally assigned to sit on this case.  However, he issued a minute drawing the parties’ attention to the fact that he had prosecuted the second appellant, Mr Peter Roberts, for fraud in the early 1990s.  Mr Roberts was convicted and sentenced to a term of imprisonment.  Following that disclosure, Mr Roberts objected to Panckhurst J sitting on the present appeal.  Panckhurst J recused himself and Fogarty J took his place.
[3]	After the hearing, Mr Hayes, counsel for Mr Roberts, filed a memorandum in which he noted Mr Robert’s objection to Fogarty J sitting on the appeal.  This was on the basis that Fogarty J was the trial Judge in a case in which Mr Roberts was involved and gave evidence, namely Orongomai Reserve Ltd v Cashmere Lakes Reserve Ltd.  Mr Hayes said that Fogarty J had rejected Mr Roberts’ evidence and so should not sit on the present appeal.
[4]	The approach to judicial bias has recently been confirmed by the Supreme Court in Saxmere Co Ltd v Wool Board Disestablishment Co Ltd.  The essential question is whether “a fair-minded and informed lay observer would have a reasonable apprehension that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide”.  
[5]	The particular issue raised in the present case was addressed by the English Court of Appeal in Locabail (UK) Ltd v Bayfield Properties Ltd.  There the Court discussed (without purporting to be definitive as everything depends on the particular facts) the circumstances where judges might or might not be required to recuse themselves.  Although the test being applied by the Court in Locabail was the real danger test rather than the reasonable apprehension test adopted in New Zealand, the Court’s discussion is nevertheless helpful.  The Court said:
… a real danger of bias might well be thought to arise … if, in a case where the credibility of any individual were an issue to be decided by the judge, he had in a previous case rejected the evidence of that person in such outspoken terms as to throw doubt on his ability to approach such person’s evidence with an open mind on any later occasion; … The mere fact that a judge, earlier in the same case or in a previous case, had commented adversely on a party or witness, or found the evidence of a party or witness to be unreliable, would not without more found a sustainable objection.  
[6]	Under the reasonable apprehension test for bias, the key question is whether the fair-minded and informed lay observer would have a reasonable apprehension that the judge might not approach the issue which he or she is required to determine with an impartial mind.  We consider that the extract just quoted provides useful guidance in the context of that test as well.
[7]	In the Orongomai Reserve case Fogarty J described Mr Robert’s answers in cross-examination as “careful”.  He later said that he was satisfied that Mr Roberts and another witness had not been “forthcoming in revealing all the discussions which led to the heads of agreement”.  He then said: “The question becomes whether or not it is reasonable to draw an adverse inference”.  The Judge then discussed the evidence in some detail, before drawing his conclusions.  
[8]	There is nothing in the judgment that even approaches the type of outspoken comment contemplated in the extract from Locabail.  Rather, there is simply a careful analysis of the evidence and the drawing of conclusions.  Furthermore, the issue in this appeal is whether, on the evidence, the Associate Judge was right to conclude that the appellants have not raised an arguable defence to the respondent’s claim.  Mr Roberts has filed an affidavit in which he contends that the appellants have a defence.  The question for us is whether, looking at the evidence overall, that contention is arguable, and that does not raise an issue of credibility in the usual sense.
[9]	In our view, the present circumstances fall far short of raising a reasonable apprehension in a fair-minded and informed lay observer that Fogarty J might not approach the issue which has to be decided in the present appeal with an impartial mind.
[10]	Accordingly, we reject Mr Roberts’ objection to Fogarty J’s sitting on the appeal.
Factual background
[11]	The first appellant, Ida Valley Holdings Ltd (Ida), was incorporated in 2007.  Its sole director was Mr Sebastian Stapleton and its shares were held by his family trust.  Ida acquired a property in the Ida Valley in Central Otago and obtained finance for the purchase from the respondent, ASL Mortgages Ltd (ASL).  Mr Stapleton gave his personal guarantee in respect of the borrowing.
[12]	In April 2008 Mr Stapleton approached Mr Robb about his acquiring Mr Stapleton’s interest in Ida.  Mr Roberts is apparently an associate of Mr Robb.  They agreed that they would acquire Mr Stapleton’s interest in Ida.  Accordingly, on 22 April 2008 ABC Finance Ltd (ABC), a company of which Mr Roberts is the sole director, sent a letter by facsimile to ASL in the following terms:
We confirm that a change of ownership of Ida Valley Holdings Limited is in progress.  
There are several elements to the change:
(a)	The shares are to be transferred to Jason Robb.
(b)	The director will be Jason Robb instead of Sebastian Stapleton.
(c)	The first mortgage on the property has Sebastian Stapleton as guarantor and as part of this change the parties request Advanced Securities Limited to release him and accept Jason Robb and Peter Roberts in his place (confirmation of new guarantors included herein).
(d)	The second mortgage on the property is to be discharged. 
The company will offer the property for sale or exchange in part or whole.
Please confirm that such a change would be acceptable to Advanced Securities Limited and advise documentation required. 
Although sent to ASL, the letter was unsigned and marked “Draft”.  There was an annexure to it reading:
Signed by Jason Robb and Peter Roberts confirming guarantee of Ida Valley Holdings Limited mortgage to Advanced Securities Limited.
Beneath that there was provision for the signatures of Messrs Robb and Roberts.
[13]	The following day, ASL sent a facsimile message to ABC, for the attention of Mr Roberts, reading:
Thank you for your fax dated 22 April.  To enable us to consider your request can you and Mr Robb (individually) complete the attached application form.  We will also need to complete a current ‘credit check’ on you both.
As discussed, the loan is currently in arrears by two payments totalling $12,190.13, plus default interest totalling $10,948.51.  These amounts must be paid in full immediately to enable us to put the proposal to our board. 
This was copied to Mr Stapleton.
[14]	Mr Roberts completed the loan application form on 1 May 2008, and provided it to ASL, through Mr Stapleton according to Mr Roberts.  Then, on 9 May 2008  Mr McHardy of ASL sent an email message to Mr Stapleton, which read:
I confirm that we will agree to transfer this loan with the change of shareholding.
This is subject to the loan being redocumented to our entire satisfaction with the provision of additional information from Mr Robb and/or Mr Roberts.
[15]	On 20 May 2008 ASL sent a fax to Mr Stapleton attaching loan offer addressed to “Director”, Ida.  The fax said:
Letter of offer herewith.  Please ensure that all pages are initialled.  
The loan offer identified the borrower as Ida and the guarantors as Messrs Robb and Roberts.  The amount of the loan was $435,000 for a period of 12 months at an interest rate of 17.45 per cent per annum, with the draw down date being 30 May 2008.  The existing first mortgage over the Ida Valley property was to remain in place.  
[16]	On 13 June 2008, Mr Stapleton resigned as a director of Ida and Messrs Robb and Roberts were appointed.  That same day, Messrs Robb and Roberts executed the loan agreement on behalf of Ida and gave their personal guarantees.  The executed agreement recorded the guarantors’ agent as being ABC.
The proceedings
[17]	The loan quickly fell into arrears.  ASL issued a notice to Ida under s 119 of the Property Law Act 2007, and notices to Mr Roberts as guarantor under ss 121 and 122.  When they were not satisfied, ASL issued the present proceedings and sought summary judgment.
[18]	Ida and Mr Roberts opposed the application for summary judgment on the ground that:
[ASL’s] agent (Stapleton) misled [Ida] into agreeing to borrow the money and [Mr Roberts] into guaranteeing the loan ... by misrepresenting the suitability and or capital value of the property.
[19]	In his supporting affidavit, Mr Roberts said:
At all times I believed Stapleton was acting as agent for [ASL] and that they were working together on one side of the transaction and Mr Robb and myself were on the other.
In support of this, Mr Roberts referred to the facsimile communications from ASL to Mr Stapleton on 9 and 20 May 2008.  Mr Roberts went on to say:
6.	Naturally the objective of the deal was to on-sell the property at a profit.  We were unable to on-sell the property.  Stapleton had assured us that the property had water springs, (which are essential for any residential development) but in fact this was a false claim.  In fact I became aware after signing the documents there is a neighbouring property that is uninhabited for that same reason, lack of water.  In addition I subsequently learned that Stapleton’s entities had attempted a resource consent application to subdivide the land and the application was turned down.  This had not been advised to us.
7.	Stapleton further stated to me that the property was worth some $570,000 which would yield cash to me after taking over the $430,000 Mortgage. 
8.	It was on those representations that I entered the deal.
9.	Both statements are in my opinion misleading and deceptive.  I believe Stapleton was an agent for [ASL] and that his statements and knowledge are their knowledge.  Secondly it appears to me that as [ASL] had previously held a mortgage on the property they would reasonably have known the difficulties with the property.
[20]	ASL’s Lending Manager, Mr Grant, filed an affidavit in response denying that Mr Stapleton was ASL’s agent and that ASL had anything to do with the sale of the shares in Ida.
The Associate Judge’s decision
[21]	Associate Judge Faire considered whether there was any evidence that Mr Stapleton had actual authority to act as ASL’s agent in relation to the loan agreement, or whether any evidence would support such an inference.  He concluded that there was none.  In relation to the material received by Mr Stapleton from ASL, it was received in his then capacity as a director of Ida.  The Associate Judge said that he considered that Mr Roberts had confused Mr Stapleton’s role as a seller of the shares in Ida and his role in relation to the loan agreement, which were two separate transactions.
Discussion
[22]	Mr Hayes argued that the Associate Judge could not be certain to the requisite standard that there was no arguable defence.  We reject that submission.  On the evidence the appellants’ position is unarguable.
[23]	First, as the Associate Judge held, the evidence falls far short of showing that there is an arguable case that Mr Stapleton was ASL’s agent on the loan transaction.  As the material referred to above shows, there were, from an early stage, direct discussions and communications between Mr Roberts (including ABC) and ASL about the possibility of transferring the loan.  In particular, it was ABC which first wrote to ASL on 22 April 2008, confirming that the transfer of the ownership of Ida was “in progress” and identifying what would need to be done to effect the transfer of the borrowing, which included Messrs Robb and Roberts giving personal guarantees.  While it is true that later in the process Mr Stapleton forwarded the completed loan application and facilitated the execution of the loan documentation, there is nothing unusual in that and it certainly does not make him the agent of ASL.
[24]	On analysis, the evidence of agency in this case consists of a statement of belief in Mr Robert’s affidavit, where he refers to documents which manifestly do not evidence an agency relationship but does not attempt to explain documents which are inconsistent with the alleged relationship.  The Associate Judge was fully entitled to reject his contention. 
[25]	Second, even if the agency argument was accepted, the most that could be said is that Mr Stapleton acted as ASL’s agent in respect of the execution of the documents.  The alleged misrepresentations were not made in that capacity, but in Mr Stapleton’s role as the principal, and effective owner, of Ida.  There is no basis on which statements made in that latter capacity could be attributed back to ASL.  As the Associate Judge said, the sale of the shares in Ida and the arranging of the loan were two separate transactions.
Decision
[26]	We dismiss the appeal.  The loan agreement provides for ASL to recover its costs on an indemnity basis.  We consider that it is entitled to do so.  We reserve leave for counsel to file memoranda as to quantum if necessary.

Solicitors:
Brook Law, Hamilton for Appellant
Harkness Henry, Hamilton for Respondent