IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-5210 [2013] NZHC 1624

BETWEEN	ANZ BANK NEW ZEALAND LIMITED (formerly ANZ NATIONAL BANK LIMITED)
Plaintiff/Judgment Debtor	

AND	
JOHN BARRY CALVERT Defendant/Judgment Debtor	

Hearing:	26 June 2013	

Appearances:	
Mr D Broadmore for plaintiff
Mr Cogswell for defendant	

Judgment:	
3 July 2013	

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on
3.07.13 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

ANZ BANK NEW ZEALAND LIMITED (formerly ANZ NATIONAL BANK LIMITED) v CALVERT [2013] NZHC 1624 [3 July 2013]

Background

[1]       The defendant, Mr Calvert, seeks orders setting aside the summary judgment which was entered against him on 11 December 2012.   The plaintiff, ANZ Bank New Zealand Limited, opposes the application to set aside summary judgment in their favour.

[2]       The  defendant  is  the  sole  director  and  shareholder  of  Northland  Herbs Limited  (“NHL”) and  CFNZ Estates  Limited  (“CFNZ”).    In  2007,  the plaintiff agreed to provide two loan facilities to NHL, for which it obtained a guarantee from Mr Calvert of all amounts payable to the bank by NHL.  This guarantee was signed by Mr Calvert.  Following repayment of the initial loans, the bank made two further loan facilities available to NHL in 2009.   As security for these loans, the bank obtained a mortgage over a property owned by NHL (“the Ohaeawai Property”), a guarantee from CFNZ, and a mortgage over a property owned by CFNZ (“the Hot Water Beach property”).

[3]       On 9 September 2011, NHL was placed into liquidation. The bank served a s

119 Property Law Act 2007 (“PLA”) notice on NHL and a s 122 PLA notice on Mr Calvert and CFNZ as guarantors of NHL.  A s 119 notice was also served on CFNZ. On 4 September 2012, the bank applied for summary judgment against Mr Calvert for the amount outstanding following the sale of the mortgaged properties.  Mr Calvert  was  living  in  the  United  Kingdom  at  the  time  and  was  served  on  27
September 2011.   On 11 December 2012 the bank obtained summary judgment against him. Mr Calvert did not appear.

[4]       The defendant argues that summary judgment should be set aside because he has a defence to the plaintiff’s claim. Firstly, the defendant argues that the guarantee the judgment was based on is of no effect.   This is because Mr Calvert was not advised to seek independent advice before signing the guarantee, he signed it in the United Kingdom and emailed it back to the relevant lawyers who then said it had been witnessed in Mr Calvert’s presence which was incorrect, the effect of the guarantee was not explained to Mr Calvert, and the guarantee was intended to be a deed but was not signed as such.   Secondly, the bank failed to serve him with a

notice under s 122 PLA as mortgagee of the Hot Water Beach Property, which caused him prejudice.

Principles for setting aside summary judgment

[5]       The defendant applies under r 12.14 High Court Rules, which is as follows:

12.41   Setting aside judgment

A judgment given against a party who does not appear at the hearing of an application for judgment under rule 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.

[6]      There are three main considerations in deciding whether there has been a miscarriage of justice.1  These are:

a)        whether the defendant has a substantial ground of defence;

b)	whether the delay in raising this defence is reasonably explained; and c)	whether the plaintiff will suffer irreparable injury if the judgment is
set aside.

[7]       In Equiticorp Finance Group Ltd v Collett Somers J expressed the view that:2

In the case of a summary judgment regularly obtained it will normally be necessary for the defendant seeking to set aside judgment to adduce material which leads the Court to the conclusion that the plaintiff has not satisfied the Court that there is a defence to the claim.

Witnessing of the document - independent legal advice

[8]       During the course of argument, I raised with Mr Cogswell whether the fact that  the  document was  not  witnessed and  that  the  defendant allegedly had  not received independent legal advice really added anything to the case which the defendant brought.  It became apparent from the response that Mr Cogswell gave me
that the issue about witnessing of the signatures related to the question of whether

1 Russell v Cox [1983] NZLR 654 (CA).
2  Equiticorp Finance Group Ltd v Collett [1989] 3 NZLR 1 (CA), upheld in Cheah v Equiticorp
Finance Group Ltd [1989] 3 NZLR 1 (NZPCC).

the guarantee was executed as a deed (as to which see the next section of this judgment).

[9]       Concerning the allegation of lack of independent legal advice, Mr Cogswell submitted that this issue was related to the general overall question of whether there had been a miscarriage of justice.  He agreed that the failure of the bank to ensure that the defendant as its customer had independent legal advice could not be relied upon as a separate basis for setting aside the transaction and therefore that fact on its own could not give rise to an arguable defence.

The failure to execute the guarantee as a deed

[10]     In  the  course  of  his  thorough  and  focused  submissions,  Mr  Cogswell explained that the defendant attaches significance to the fact that the deed, being admittedly not executed as such, was unenforceable.  The bank’s position was that even if the guarantee was not executed as a deed, it was entitled to sue on the document as a contract.

[11]     It is clear that the document is not a deed due to the absence of the necessary formalities.    The  question  then  becomes what  effect  the  document might  have without being a deed. The alternative possibilities are these:

a)	that the document was of no effect at all as between the bank and the guarantor;

b)	that the obligations and entitlements that would have arisen under the document had  it  been  a  deed  were  not  included, but  nonetheless limited effect is given to the document which is to be viewed as a simple contract.

[12]     There is no doubt that certain advantages would have accrued to the bank under a deed that would not be present if the arrangement was a simple contract.
Mr Cogswell  for  the defendant mentioned the  issue of  limitation.3     A  common

3	See the discussion about the relevant advantages and disadvantages in Burrows, Finn and Todd
Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at 3.1.

advantage obtained through being able to sue on a deed, as opposed to a simple contract, is that there is no need to establish that the agreement was supported by consideration.

[13]     The first step is to ascertain what the intention of the parties to the document was in regard to this issue.   This involves ascertaining the meaning which the document  would  convey  to  a  reasonable  person  having  all  the  background knowledge  which  would  reasonably  have  been  available  to  the  parties  in  the situation they were in at the time of the contract.4   The background, circumstances,
or factual matrix, includes the commercial purpose of the contract.5

[14]     In undertaking the process of ascertaining the intention of the parties, the court is confined to the objective circumstances, and the personal views or opinions of the parties to the arrangement are generally not considered to be relevant.

[15]     The paramount objective of the parties was  for the bank to provide the finance that NHL wanted.  For his part, the defendant’s objective was to come to an arrangement whereby the bank would make advances to his company. The bank did not wish to make advances without having the security of the guarantee.   The defendant would have understood that unless the bank had an enforceable contract of guarantee which gave it rights against the defendant, it was unlikely to make such advances.

[16]     It may be unlikely that either the bank officer who arranged for the taking of the guarantee or the defendant himself were alive to the subtleties about differences between deeds and simple contracts and the requirements for a valid deed in s 9 of the Property Law Act 2007.

[17]     Apart from analysing what the parties’ objectives were when entering into the contract, the court is also able to have regard to what considerations of business commonsense would have been present in the parties’ minds.   An interpretation
which is consonant with business commonsense will be adopted rather than one that

4 Investors Compensation Scheme Ltd v West Brunswick Building Society [1998] 1 WLR 896, at 912-
913.
5 Prenn v Simmonds [1971] 1 WLR 1381.

does  not  have  that  effect.6      When  interpreting  contracts,  the  courts  adopt  the approach that a meaning that flouts business commonsense must yield to one that accords with business commonsense.7   In my view, the same approach should guide the court when it is assessing a submission that the parties must be taken to have anticipated that a failure to execute a document as a deed would result in one party losing its entire rights under the contract.  Because such an outcome does not result from any statutory or common law mandate, it could only be justified on the basis that it reflected the parties’ contractual intentions.

[18]     My conclusion is that it is unlikely that the parties intended that the failure to correctly execute the document as a deed would result in the bank lending money without the protection of the guarantee to which it could have recourse in the event of a default by the borrowing company.   There is no reason why it should be supposed  that  that  is  the  view  that  the  parties  took.    They  might  well  have understood that the bank might have diminished rights if the document was not executed as a deed.  But there is no reason to suppose that the issue of the execution of a deed or not was important to the defendant, or that there would be any reason why if the document was not executed as a deed, he should find himself in the fortunate circumstance that he had no liability at all under the guarantee.

[19]     The outcome for which the defendant contends is not a rational one.   It involves an acceptance of the proposition that it was logical to expect that a possible failure to obtain execution as a deed - an outcome which was favourable rather than unfavourable to the guarantor - should not just result in diminished rights to the bank but should have the more radical consequence of the guarantor being entirely discharged from responsibility.

[20]	Mr Cogswell suggested that the issue of what the parties’ intentions were could only be determined once the court had heard evidence at trial. He did not say what that evidence would be. He did not indicate the subject-areas where such evidence would add to what the court already has available to it to assist in
interpretation of the contract. His client, who has given evidence in affidavit form,

6 Technix Group Ltd v Fitzroy Engineering Group Ltd [2011] NZCA 17.
7 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [22].

has not provided any evidence, even in summary, of matters that he considers would be influential in the process of ascertaining the contractual intentions of the parties to the guarantee. Nor has an indication been given of the source of the evidence that would be put before the court at trial if such were ordered.

Guarantee not supported by consideration

[21]     Mr Cogswell submitted that in order for the contract of guarantee which Mr Calvert  gave  in  2007  to  be  enforceable,  consideration  was  necessary  and  was lacking.  Reference was made to the fact that in May 2007 Mr Calvert signed the guarantee and in the same month the bank provided finance for NHL to purchase the Kaikohe property.  On October 28 NHL repaid that loan.  In May 2009, NHL took out two further loans and an overdraft facility to purchase a property at Ohaeawai and in regard to that loan an additional guarantee was obtained from CFNZ, another Calvert company.

[22]     The applicant’s counsel’s submission was as follows:

46.	The guarantee was given to support NHL’s borrowings on the first purchase – the Te Pua Road, Kaikohe property – in May 2007. Arguably, there was consideration for that advance as it was a term of the advance.

47.	But,  the  first  affidavit  of  Mr  Calvert  states  that  the  borrowing required for that purchase was fully repaid by October 2008.

48.	In order for the guarantee to operate to secure the next advance, the borrowing in 2009, it is submitted that fresh consideration was required for the guarantee – operating as a simple contract  – to secure the new advances.

49.	There is no evidence of fresh consideration for that guarantee to apply.

[23]     In order to understand the submission more fully, it is necessary to make further reference to the background.

[24]     The disputed guarantee was dated 3 May 2007.   The loan agreements in regard to which recovery is now sought provided for an advance of $1 million and a second loan for $1,360,075, both of which were to be drawn 29 May 2009.  As well,

an overdraft was provided by the bank, the commencement date of which was stated to be 5 June 2009 in the loan agreement.

[25]     The submission is made for the applicant that:

54.	The Ohaewai, Northland property was purchased in May 2009 with
2  loans.	They are  exhibited to  Mr  Langwell’s  first  affidavit as exhibits “B” and “C”.

55.	Neither rely on the Calvert guarantee as part of the funding package.

56.	Both loan agreements (exhibits “B” and “C”) specify the securities relied on

a [sic] consideration for the loans.

[26]     The point was then made that the securities which the bank stated in the loan offer, required by the bank to support the 2009 loans, did not include the personal guarantee.  Mr Cogswell referred to clause 2 of the loan agreements which were in the following identical terms:

2.  Security

2.1.	All existing and future securities from the Customer to the Bank secure (sic) the  loan,  interest  and  other  amounts  payable  under  this  agreement. (Emphasis added)

[27]     It is against this background that Mr Cogswell’s submission that there was no consideration supporting the guarantee in relation to the 2009 advances has to be assessed.

[28]     The argument for the bank was that the terms of the guarantee stated that it was “a continuing guarantee” per clause 1.2(a), and it was irrevocable and unconditional (clause 1.2(b)).

[29]     Mr Broadmore for the plaintiff further referred to the fact that the guarantee contained the following provision:

[the guarantee]

(c)        Will operate irrespective of any intervening payment, settlement of account or other matter or thing whatsoever, until a release has been signed by the Bank and delivered to that Guarantor,

(d)        Despite anything in this deed is a continuing obligation, separate and independent  from  each  Guarantor’s  other  obligations  under  this deed,   and   survives   payment   of   the   Guaranteed   money   and termination or release of this deed.

[30]     I accept that the argument that Mr Broadmore has advanced is persuasive.  I therefore conclude that he was correct in submitting that the fact that NHL had repaid the first loan did not discharge the guarantee.

[31]     Consideration was required to support the contract when it first came into existence.  Unless there was some specific provision providing for extinction of the contract unless further consideration was given, there is no reason to question that the contract remained in existence.

[32]     The real issue is not one of consideration at all, in my view.  The real issue is whether the contract, once entered into, contemplated the provision of the guarantee only with respect to the loans which were in actual contemplation at the time when the guarantee was entered into, or whether it could embrace future loans.   It is a matter of construing the contract.  It is correct that at the time when the defendant agreed to provide a guarantee for all future loans, the only consideration the bank was required to provide was its agreement to advance the 2007 loan.  The only remaining issue is whether the terms of the loan contract made that guarantor liable for  future  loans  as  well.    That  is  a  matter  of  contractual interpretation of  the guarantee which is a distinct issue from the question of whether there was consideration to support the guarantee when it was given.  On the last point, it is clear that the intention of the contract was that it would apply to future advances as well.  It follows from the statement that the guarantee is a continuing one.  It is also consistent with the fact that repayment of any existing loan did not discharge the guarantee.   The only purpose for including such a provision was that it was contemplated that there might be a requirement in the future that the guarantee should extend to fresh loans or advances not then in contemplation.

[33]     A further argument was put forward that when the bank was considering further advances in 2009, it did not have regard to the continuation in existence of the guarantee which it had obtained two years previously.   This argument also involves the proposition that fresh consideration was required for each further advance if the guarantee were to apply.   It is that argument which I have already rejected.  But there are other reasons why the argument is incorrect which I will now set out in case my earlier conclusion is incorrect.

[34]     The submission for the defendant is based upon the fact that the bank made it a requirement of granting the 2009 loan that security was to include “All existing and future securities from the Customer to the Bank secure the Loan, interest and other amounts payable under this agreement”.   It was said that as a matter of contractual  interpretation  a  guarantee  from  the  defendant  could  not  be  aptly described as a security “from the Customer”.  I do not consider that the evidential value of such a statement, when considering the question of whether the bank was relying upon the guarantee which the defendant gave, will be correctly assessed by interpreting the provision as though it were a contractual term.  There is no reason to suppose that the document represented a considered statement, the probable meaning of which was that the bank would no longer be relying upon the personal guarantee. It seems more likely that the bank was attempting to state that all the existing securities which the customer had provided to the bank would continue to apply. There is no reason why the statement should be read down in such a way that it was to be understood as being restricted to securities which NHL itself had executed.  It was perfectly capable of applying to guarantees which the customer, NHL, had procured third parties to provide on its behalf.

[35]     It may have been open to Mr Calvert following the repayment of the loan for the Kaikohe property which occurred in October 2008 to give a termination notice under clause 11 of the guarantee document. He did not do that.

[36]     That being so, Mr Calvert continued to be liable to indemnify the bank against all costs, losses, expenses and liabilities “incurred or sustained by the bank at any time as a direct or indirect consequence of any Debt not being recoverable ...”8

[37]     The further submission was made for Mr Calvert to the following effect:

56.	Both loan agreements (exhibits “B” and “C”) specify the securities
relied on a consideration for the loans. Those securities are:
a.	All existing and future securities from the Customer to the Bank;

plus;

b.	New securities from other parties, not Mr Calvert.

57.	In terms of the sub-paragraph (a) above, the “customer” is NHL, not
Mr Calvert.

58.	Accordingly, there was no consideration for the Calvert guarantee and even if it was a simple contract (denied), then there was no consideration for it and so it fails.  The Bank did not rely on the Calvert guarantee when it made the new advances.   It was not, therefore, consideration for the two new advances.

[38]     This point is met by my conclusion that consideration was required only at the time when the guarantee was first entered into.9

[39]     There is an additional reason why the argument cannot prevail.   First, the loan agreement was a bipartite agreement between the bank and NHL.   It was describing as between the bank and NHL what the security position would be. While it did refer to the agreement that all existing securities “from the customer” were to apply, it said nothing about the position as between the bank and the guarantor.

[40]     Because the guarantor was not a party to that agreement, it is not a realistic interpretation to place on the agreement that its terms amounted to an implied release of the existing guarantee.  The second point is that there was no need for the bank to make any reference to the guarantee.  The terms of the bank’s contract of guarantee with Mr Calvert were, as I have already noted, to the effect that it was a continuing
guarantee and that it was irrevocable.

8 Guarantee 3 May 2007, clause 1.1 (b).
9 See [29].

[41]	Because of the terms in which the duration of the guarantee was stated, no further document needed to be executed each time a fresh loan advance was made. The guarantee contemplated all future advances and therefore extended to, and secured, the advance made pursuant to the loan agreement dated 27 May 2009.

The argument based on s 122 of the Property Law Act 2007

[42]	The argument for the defendant under this part of  the application is as follows:

56.	The Bank did not serve a section 122 PLA notice on Mr Calvert in relation to the Hot Water Beach property.  That was despite the fact that, through his guarantee of NHL’s obligations to the Bank, he was exposed   to   the   Bank   through   CFNZ’s   guarantee   of   NHL’s obligations to the Bank.   Should CFNZ not meet NHL’s obligations to the Bank, then the Bank was (assuming a valid guarantee) entitled to look to Mr Calvert.

57.	Section 122 of the Property Law Act 2007 makes it a requirement for a mortgagee, who wishes to ultimately recover a shortfall from a party other than the mortgagor, to issue a notice to that covenantor of its intention to proceed to mortgagee sale and then to look to the covenantor.
58.	The Bank has opposed this leg of Mr Calvert’s application on the grounds

that:

“[the Bank] was not required to serve a notice under the Property Law Act 2007 on [Mr Calvert] in respect of the Hot Water   Beach   Property   as   he   was   not   the   registered proprietor, nor was he a guarantor of the registered proprietor.”

59.	With respect,  that  opposition  confuses  the role  of guarantor  and convenantor and the wording of section 122 of the Property Law Act
2007.

60.	Whilst  it  is  true  that  Mr  Calvert  is  not  a  guarantor  of  CFNZ’s obligations to the Bank, he is a person who has agreed to pay money or perform obligations secured by the mortgage.  Those obligations include the payment of all amounts owing to the Bank by NHL. Accordingly, Mr Calvert, through the “Calvert guarantee” is a person who has agreed to pay money or perform obligations secured by the mortgage.

[43]	Section 122 of the PLA provides that:

(1)	This section applies if, under a mortgage over land,—

(a)        the mortgagee or receiver proposes, by reason of a default,  to exercise a power to sell the mortgaged land; and

(b)        the mortgagee proposes to recover any deficiency on the sale from a former mortgagor or a covenantor.

(2)        The   mortgagee   or   receiver   must   serve   notice   of   the intentions referred to in subsection (1) on the former mortgagor or covenantor concerned at least 20 working days before the exercise of the power of sale...

[44]     A notice under s 122 PLA must be served on a covenantor, which is a person “who has agreed to pay money or perform the obligations secured by the mortgage; and includes a guarantor”.10

[45]     Counsel told me that there was no authority covering the point which is now raised.

[46]     The wording of the section seems to limit cases where a notice under s 122 is required to cases where the person to be served has agreed to pay money etc secured by the mortgage.

[47]     I  consider  that  Mr  Broadmore  was  correct  when  he  submitted  that  Mr Calvert’s obligations arose out of his guarantee and were not obligations secured by the mortgage.  While Mr Calvert is indeed a guarantor, he did not guarantee the obligations which were secured under the mortgage which CFNZ granted in favour of the bank.

[48]     A brief consideration of the underlying policy behind the section reinforces that that is the correct approach to take when interpreting the section.

[49]     Section 122 does not generate any rights on the part of the person to whom the notice is to be served.  The function of the notice is to alert persons who may
have rights in the matter to take steps for their protection.

10 Property Law Act 2007, s 4.

[50]     It is clear that any person who had guaranteed the CFNZ mortgage would have the right on discharging the liability to require a creditor to make available the security in the form of the mortgage.11   The newly subrogated guarantor would then be able to make decisions including whether the power of sale contained in the mortgage was to be exercised at all or whether its exercise ought to be deferred.  The important point, though, is that such a person could intervene as a matter of right.

[51]     It is correct that, in theory, strangers to the mortgage could seek to arrive at an agreement with the security holder.  If they were able to persuade the bank that it was in its interests to assign the security then it might be that such a person would find him/herself in the position of controlling the exercise of the power of sale contained in the mortgage.

[52]     It  follows  from  the  nature  of  the  case  that  because  the  covenantor  or guarantor referred to in the section would be known to the mortgagee, there should be no difficulty flowing from the requirement that the mortgagee serve a notice under s 122 on such a person.  The same cannot be said of any other person whose rights might be indirectly affected by the outcome of the mortgagee sale-such as a guarantor of the debtor’s liability.

[53]     For the foregoing reasons, I conclude that there was no obligation on the bank to serve a notice under section 122 on the defendant.

Conclusions

[54]     In the context of the present case, the defendant was required to satisfy the Court that he had an arguable defence to the application for summary judgment and that if the judgment were not set aside a miscarriage of justice would result.

[55]     I do not accept that there is an arguable defence.  I have dealt with the point advanced by the defendant to the effect that because the guarantee document was intended to be executed as a deed but was not, the consequence was that the deed
was of no effect and could not be enforced as a contract.  That contention is rejected

11 Laws of New Zealand Guarantees and Indemnities (online ed) at [131], citing Bank of New Zealand v Baker [1926] NZLR 462 (CA).

because there is no reason which would justify the Court concluding that that was what the parties intended to happen if the document was not executed as a deed. Such an approach is not supported by the apparent commercial objectives of the parties and it would not be consistent with common sense.  While the defendant said that the issue of interpretation was better left until trial, he was not able to point to any relevant evidence that would be put before the Court on the issue which required resolution at trial.

[56]     The argument based upon lack of consideration is similarly rejected.   The guarantee that the defendant gave in 2007 was supported by consideration.  The guarantee was a continuing one and was intended to apply to future borrowings. There was  no  requirement that fresh  consideration be supplied before it  would extend to later borrowings.

[57]     The defence based upon the failure on the part of the bank to give notice of the mortgagee sale of the property belonging to CFNZ at Hot Water Beach was similarly  rejected.    The  section  is  not  applicable  because  Mr  Calvert  did  not guarantee the indebtedness which was secured by the CFNZ mortgage.

[58]     Had there been an arguable defence, it is likely that the Court would have exercised its discretion to set the judgment aside.  There is a plausible reason why Mr Calvert failed to take steps to oppose the summary judgment.  His wife’s poor health made it at least understandable that his attention was taken up with that problem to the exclusion of the bank’s claim.

[59]     There was some delay in applying, but it is not a case where the defendant has left matters to drift for a year or several years before applying to set aside.  The relatively brief delay, in conjunction with the admitted lack of prejudice to the bank, would not have prevented the defendant from succeeding had his application otherwise been of merit.  However, for the reasons given, in my view the application ought not to be granted.

[60]	The parties should confer on the matter of costs.  If they are not able to agree they  should  file  memoranda not  exceeding four  pages  on  each  side  within  10
working days of the date of this judgment.

J.P. Doogue
Associate Judge