Black v ASB Bank Ltd HC Auckland CIV-2010-404-003252 [2011] NZHC 703 (8 July 2011)

Last Updated: 25 July 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2010-404-003252}

BETWEEN RICHARD JOHN CARSON BLACK Plaintiff

AND ASB BANK LTD First Defendant

AND RSL TRUSTEE SERVICES LTD, COLLEEN MARGARET OSBORNE AND PETER JOHN OSBORNE AS

TRUSTEES OF THE OSBORNE FAMILY TRUST

Second Defendants

Hearing: 10-11 February 2011

Appearances: M C Black for Plaintiff

M V Robinson and E C Gellert for First Defendant

No appearance for Second Defendants

Judgment: 8 July 2011 at 2:30 PM

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 8 July 2011 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ......................

Solicitors/Counsel:

Craig Griffin & Lord, PO Box 9049, Newmarket, Auckland

Simpson Grierson, Private Bag 92518, Auckland

_{M C Black, PO Box 1984, Auckland}

RJC BLACK V ASB BANK LTD HC AK CIV-2010-404-003252 8 July 2011

Introduction

[1] In this case, the plaintiff and the first defendant each apply for summary judgment against the other. The plaintiff’s application for summary judgment was out of time under r 12.4(3) of the High Court Rules and the plaintiff applied for leave. The first defendant did not oppose the grant of leave but dealt with the plaintiff’s application on its merits. The plaintiff is given leave to apply for summary judgment out of time.

[2] The plaintiff is Richard John Carson Black. He has a number of roles – as director of a company, as trustee of a family trust which owned shares in the company and a residential property, and as a guarantor. He challenges his liability as guarantor. His co-trustees are also guarantors. They also face the same liability. Mr Black has brought this proceeding without joining them. He is entitled to the Court’s determination of his personal liability without them as parties. In this decision ―the Blacks‖ are the plaintiff and his co-trustee guarantors. ―Mr Black‖ is the plaintiff, not his counsel.

[3] As well as contesting his liability to the first defendant as guarantor, Mr Black also claims contribution from another set of guarantors, the second defendants. This decision is not about his claim for contribution. The second defendants did not take part in the hearing.

Facts

[4] The proceeding arises out of the failure of a company, Deli Ca Sea Wholesale Ltd. It was incorporated on 25 October 2006. The shareholders passed a resolution for its voluntary liquidation on 20 February 2009. The first defendant, the ASB, was the company’s bank. The directors of the company were Mr Black, and Peter John Osborne, one of the second defendants. The shareholders of the company were the trustees of the Richard and Anna Black Family Trust (Richard Black, Anna Jordan Lilburn Black and Selwyn Paul Eden) and the trustees of the Osborne Family Trust (RSL Trustee Services Ltd, Colleen Margaret Osborne and Peter John Osborne). Their shareholdings were equal.

[5] Deli Ca Sea was a wholesale and retail seafood outlet based in Whakatane with licence holders in Gisborne, Taupo, Opotiki and Palmerston North. Mr Black also owned a retail store in Mt Maunganui on his own account.

[6] The Blacks were already customers of the ASB. The Osbornes had been customers of another bank but refinanced their personal borrowings with the ASB.

[7] Deli Ca Sea first arranged borrowing from the bank in April 2007. It took out a term loan for $150,000 and a revolving credit facility with a limit of $50,000. The following securities were provided:

(a) A general security deed given by the company;

(b) A guarantee and indemnity dated 20 April 2007 signed by the trustees of the Black Family Trust, limited to $300,000;

(c) An all obligations mortgage over a residential property at Motiti

Road, Papamoa, owned by the Black Family Trust;

(d) A guarantee and indemnity dated 30 April 2007 signed by the trustees of the Osborne Family Trust, limited to $300,000; and

(e) An all obligations mortgage over the residential property at 34 Ohiwa

Parade, Ohope, Whakatane, owned by the Osborne Family Trust.

[8] The Black Trustees also guaranteed the indebtedness of Mr and Mrs Black to the bank under their personal borrowings and those guarantee obligations were secured by the all obligations mortgage over the property at Papamoa.

[9] The Osborne Family Trustees guaranteed Mr and Mrs Osbornes’ personal borrowing under an unlimited guarantee dated 30 April 2007 and those guarantee obligations were in turn secured by the bank’s all obligations mortgage over the property at Ohope.

[10] In July 2007, the bank agreed to increase the company’s revolving credit facility limit from $50,000 to $250,000. With the increase in the revolving credit facilities, the bank requested fresh guarantees to secure the extra lending. The trustees of the Black Family Trust and the trustees of the Osborne Family Trust each gave new guarantees dated 21 August 2007, limited to $600,000 for each.

[11] In November 2007, the bank agreed to a further increase in the revolving credit facility limit – to $475,000. Under this increased facility, together with the term loan, the ASB’s total exposure to the company was now $625,000. That exceeded the $600,000 limit under the guarantees given by each of the family trusts by $25,000.

[12] The bank’s commercial manager, Mr Bresnahan, says that towards the end of

2007, the bank also obtained an updated registered valuation of the Osborne Family Trust property at Ohope, which showed that the funds secured by the mortgage were at its limit and the property had insufficient equity to secure further lending.

[13] In May 2008, the Black Family Trustees gave a further guarantee to the bank. This time the guarantee was not limited. Mr Bresnahan says that the guarantee was given in contemplation of the bank extending its facilities to Deli Ca Sea.

[14] In October 2008, the bank gave a temporary increase to the company’s revolving credit facility’s limit from $475,000 to $575,000.1 This was to carry the company over the summer period, with the facilities to be reduced by $25,000 per month from 31 December 2008 until the original limit of $475,000 was restored. The company made the first two reductions of $25,000, but payments stopped when the company went into liquidation on 20 February 2009. On going into liquidation, Deli Ca Sea became in default of its obligations to the ASB, allowing the bank to call up all outstanding facilities and to enforce its rights under the loan agreements and

securities.

[15] On 12 February 2010, the bank made demand on the Black Trustees and on the Osborne Family Trustees for payment of $446,464.47, being the amount owing

1 Facility agreement of 15 October 2008, exhibit M, affidavit of Richard Bresnahan.

under the revolving credit facility. That demand did not cover the sum owing under

the company’s term loan. Neither set of trustees met the demand.

[16] On 10 March 2010, the bank’s solicitors served notices under ss 119 and 122 of the Property Law Act 2007 on the Black Trustees and the Osborne Family Trustees. Neither set of trustees remedied the defaults in payment.

[17] On 8 June 2010, the bank entered into a deed of settlement with the Osborne Family Trustees under which the bank accepted the sum of $300,000 in full repayment of the Osbornes’ personal indebtedness and in part payment of the company’s indebtedness. The deed did not discharge the trustees from their guarantee of the company’s indebtedness, but contained a covenant not to sue the trustees for the balance of the company’s indebtedness.

[18] The bank applied the $300,000 first in reduction of the Osbornes’ personal debt to the ASB. That left only $41,060.10 available to reduce the indebtedness of Deli Ca Sea. Once that payment of $41,060.10 was taken into account, the company’s debt was reduced to $528,082.68, as at 10 June 2010, as the total outstanding under both the term loan and the revolving credit facilities.

[19] On 6 August 2010, the Black Family Trustees sold the Papamoa property. The bank received the proceeds of sale after payment of conveyancing and real estate agent’s costs. The amount it received was $1,392,484.44. The bank applied the proceeds of sale to pay its own costs and expenses, repaid the Deli Ca Sea term loan of $101,206.86, and the Deli Ca Sea revolving credit facility of $433,357.43. It then applied the balance, $831,825.50, in partial reduction of the Blacks’ personal borrowing from the ASB. This repaid the indebtedness of Deli Ca Sea in full, but

left $504,967.67 remaining payable by the Blacks as at 2 September 2010.2

The bank’s position – interpretation issues

_{[20] The effects of these steps following liquidation are:}

2 Kirschberg 1st affidavit, paras 13,15,16.

(a) The Osbornes’ personal indebtedness to the bank has been paid in full;

(b) From their payment of $300,000 the Osbornes contributed only

$41,060.10 towards their repayment of company indebtedness;

(c) The balance of the company’s indebtedness has been repaid in full out of the sale of the Black Family Trust property; and

(d) The Black Trustees and Mr and Mrs Black personally remain liable to the bank for $504,967.67 and accruing interest.

[21] The bank says that it was entitled to take these steps because:

(a) The bank’s mortgage over the Osborne Family Trust’s Ohope property secured all indebtedness of the trustees to the bank, including their liabilities as sureties;

(b) The trustees of the Osborne Family Trust had given a guarantee of the

Osbornes’ personal borrowings;

(c) The Osborne trustees had given a guarantee, limited to $600,000, of

Deli Ca Sea’s indebtedness to the bank;

(d) The bank’s mortgage expressly allows it to allocate the proceeds of enforcement to debts in whichever order it chooses;

(e) The power to allocate proceeds of enforcement to debts in whatever order it chooses also arises under the general law;

(f) The settlement it entered into with the Osbornes was appropriate, given the value put on the Ohope property by a recent report by a registered valuer;

(g) The settlement agreement was not a discharge of the Osbornes’

trustees’ indebtedness but contained a covenant not to sue. This

meant that the Black trustees could not claim that the Osborne trustees were discharged from indebtedness and the Black trustees retained the right to claim a contribution from the Osborne trustees as co-sureties;

(h) Moreover, under the terms of the bank guarantee, including the guarantees the Black trustees had signed, the Black trustees were not entitled to take issue with the way the bank had enforced its securities and had allocated the Osbornes’ payments. The bank could have given the Osborne trustees a discharge of the bank’s guarantee and the bank retained recourse against the Black trustees under the guarantees they had signed;

(i) The bank was likewise entitled to apply the proceeds of sale of the Black trustees’ Papamoa property to debts owing to it in whatever order the bank thought fit. That allowed it to pay off the company indebtedness before it applied any of the proceeds of sale towards discharge of the Blacks’ personal indebtedness; and

(j) The Black trustees had given an unlimited guarantee and there was no limit to the amount of the proceeds of sale of the Papamoa property which the bank could apply to pay off Deli Ca Sea’s indebtedness.

[22] I give my findings on these points.

[23] As to (a), the terms of the mortgage given by the Osborne trustees effectively secure the indebtedness claimed, including indebtedness under guarantees.3 Clause

3.1 says that the mortgage:

secures the due payment of the Secured Indebtedness ...

―Secured Indebtedness‖ is defined to mean:

all indebtedness of the Mortgagor to the Bank or incurred by the Bank on behalf of the Mortgagor (including all interest, costs, taxes, stamp and similar duties and taxes, commission, charges and expenses (including legal fees on a solicitor and own client basis) and expenses incurred or sustained in any way by the Bank in connection with that

3 Bresnahan affidavit exhibit G.

indebtedness or the enforcement or attempted enforcement of this

Mortgage and includes:

(a) Where the Mortgagor consists of partners in a partnership, all indebtedness of all former, present and future partners to the Bank; and

(b) Where the Mortgagor is described (in this Mortgage or elsewhere) as the trustee of a trust, all indebtedness to the Bank of all former, present and future trustees of the trust incurred (or purporting to be incurred) as trustee of the trust ...

―indebtedness‖ includes:

... an obligation (whether present or future, actual or contingent, secured or unsecured, joint or several, as principal, surety or otherwise) relating to the payment of money. (Emphasis added)

[24] As to (b) the Osborne Family Trustees gave an unlimited written guarantee dated 30 April 2007 of the personal indebtedness of Mr and Mrs Osborne to the bank.4 This finding addresses that part of Mr Black’s complaint that the Ohope mortgage did not secure the Osbornes’ personal indebtedness.

[25] As to (c), the Osborne Family Trustees gave a written guarantee, limited to

$600,000, dated 21 August 20075 of the indebtedness of Deli Ca Sea. That guarantee replaced their earlier guarantee of 20 April 2007.

[26] As to (d), under clause 9.1(b) of its mortgage, the bank can decide among which secured debts it allocates payments received:

Proceeds of Enforcement: All money received by a Receiver or the Bank after the exercise of any enforcement right is to be applied, and any money received by the Bank after an Event of Default has occurred is to be applied by it, subject to any claim ranking in priority to the Secured Indebtedness (and subject to any law to the contrary), in the following order of priority towards:

(a) all costs and expenses (including legal fees (on a solicitor and own client basis) and taxes) incurred by a Receiver or the Bank in connection with , or as a result of the exercise of, their respective rights (including the remuneration of a Receiver) under or otherwise in relation to this Mortgage in the order determined from time to time by the Receiver or the Bank;

4 _{Kirschberg 4}th _affidavit.

5 Bresnahan affidavit exhibit I.

(b) all other Secured Indebtedness, in the order determined from time to time by the Bank; and

(c) the claims of those entitled to any surplus. (Emphasis added)

[27] The bank received the payment of $300,000 from the Osborne Family

Trustees on 9 June 2010 after the bank had made demand on the trustees on

12 February 2010 for their indebtedness under their guarantee of Deli Ca Sea and that demand had not been met.6 Relevant events of default7 were the non- compliance with the demand and the failure of the Osborne Family Trustees to comply with notices under s 119 and 122 of the Property Law Act served on them on

15 and 16 March 2010. The conditions for the exercise of the power under clause

9.1(b) were satisfied.

[28] Mr Black referred to a number of provisions8 showing that the bank required security for the indebtedness of Deli Ca Sea, including the first-ranking mortgage over the Ohope property. He argued that the effect of these provisions was to impose a duty on the bank to have recourse against those securities first to pay off the indebtedness of Deli Ca Sea ahead of the Osbornes’ personal debts. The provisions Mr Black relies on impose obligations on Deli Ca Sea and the guarantors, not on the bank. The provisions are not in conflict with clause 9.1 of the mortgage. They do not impose on the bank any duty of the kind claimed.

[29] As to (e), aside from its express powers under the mortgage, as a secured creditor, the bank was entitled to appropriate the proceeds of sale to whichever debts it chose.9 There is authority for this in Fisher and Lightwood’s Law of Mortgage:10

Where at the time of payment the debtor fails to declare the debt towards which the money was paid, he cannot afterwards do so. The right of appropriation is then with the creditor who may allocate the payment to the debt for which he has the least available security. However, when the creditor by himself or his authorised agent has accepted the payment on a particular account, he cannot afterwards change the appropriation without the debtor’s consent.

6 _{Kirschberg 1}st _{affidavit paras 5- 6, exhibit A.}

7 _{Under clause 7.1(a) and the definition of ―Event of Default‖.}

8 Security provision in facility agreement, borrower acknowledgement and guarantor acknowledgement in same agreement, clause 6.1 in General Terms and Conditions of the Facility.

9 _{See Bank of New Zealand v McCall HC Auckland CIV 2010-404-1646, 20 August 2010.}

10( 12th ed. LexisNexus, 2006) at [47.49].

The creditor may appropriate the payment to a debt at any time after payment and before action brought or account settled between him and his debtor.

[30] One of the authorities cited by Fisher & Lightwood is re William Hall (Contractors) Ltd (In Liquidation).11 In that case, Plowman J reviewed many old authorities. One of the cases of note is Ex Parte Glyn12 where a secured creditor was held entitled to allocate payment amongst debts of different debtors.

[31] As to (f), the bank justified its decision to accept $300,000 from the Osborne Family Trustees by referring to a valuation it had obtained from a registered valuer in March 2010 that showed that the security, the Ohope property, had a current market value of $380,000, but that in forced sale conditions, it had a realisable value of $320,000 inclusive of GST. The bank says that it did not believe that it would achieve a better recovery if it had exercised its power of sale under the mortgage.13

The Blacks say that they believed that the Ohope property was worth $600,000–

$700,000.14 For that they rely on a condition of the facility agreement15 of

7 November 2007, which required a valuation report of the Ohope property to be provided with the report to show a current market valuation of no less than $700,000 exclusive of GST. Mr Black does not adduce any evidence that gives reason to question the March 2010 valuation of the Ohope property. The bank was entitled to act on the basis of an expert report as to the value of the property at that time. In the absence of any reason not to accept the valuer’s report of March 2010, I cannot see any basis for an argument that the bank might have breached a duty under s 176 of the Property Law Act to obtain the best price reasonable obtainable when exercising a power of sale or any comparable duty to the Blacks.

[32] As to (g), the deed of settlement of 8 June 2010 between the bank and the

Osborne Family Trustees provided in part:

1. As agreed between ASB and the Debtors the Debtors will repay to the ASB the sum of $300,000 in full repayment of the Debtors’ indebtedness and in part payment of the Company’s indebtedness.

11 _{[1967] 1 WLR 948 (EWHC).}

12 _{(1840) 1 Mont D & de G 25.}

13 _{Kirschberg 2}nd _{affidavit para 5 exhibit A.}

14 _{Richard Black 1}st _{affidavit para 20 and Cleaver affidavit para 5.}

15 Bresnahan 1st affidavit Exhibit J.

2. On receipt of the payment of $300,000 ASB covenants that it will not sue the Debtors for the balance of the Company’s indebtedness. The Debtors acknowledge that this deed does not release the Debtors from the Guarantee dated 21 August 2007. ASB reserves its rights in relation to any co-guarantors who are jointly or severally liable to ASB with the Debtors.

[33] Whereas the release by a creditor of one guarantor discharges the other guarantors, because the release deprives the other guarantors of any right to claim contribution, the bank has avoided this effect by not releasing the debt, but instead covenanting not to sue.16 While the bank has expressly saved its rights to sue other guarantors, the effect of clause 2 is also to save other guarantors’ rights to claim contribution from the Osborne Family Trustees.17

[34] As to (h), it is open to parties to a guarantee to provide in the guarantee that the normal incidents of a guarantee will not apply. They may agree that matters that might ordinarily discharge a guarantor will not apply. The terms of the bank’s guarantee18 preserve the bank’s right of recourse against the Blacks under their guarantee, notwithstanding the settlement with the Osborne Family Trustees. Clause

3.2 of the guarantee says:

3.2 No Discharge: You are not to be discharged, nor are your obligations to be affected, by anything which, but for this clause, would or might have discharged you or affected your obligations, including:

(a) time, indulgence, waiver or consent whenever given to the Customer, you or any other person; or

(b) an amendment to any security interest, Guarantee, indemnity or other agreement (whether or not that amendment might increase your liability under this Deed or otherwise); or

(c) the making of, or failure to make, a demand on the Customer, you or any other person for payment; or

(d) the failure to obtain a security interest (or a particular priority ranking of that security interest), or the failure of a person to execute or otherwise be bound by, a security interest, Guarantee, indemnity or other agreement (including without limitation, the failure of any person named above as the Guarantor, to execute this Deed); or

(e) the enforcement of, or failure to enforce this Deed or any other security interest, Guarantee, indemnity or other agreement; or

16 _{Price v Barker [1855] EngR 262; (1855) 4 E & B 760, 119 ER 281; Laws of New Zealand: Guarantee at [234].}

17 _{Coffey v Morris HC Christchurch CP 90/94, 2 August 1995.}

18 Every guarantee in this case follows the same standard terms.

(f) the release of, or the release of the Customer, you or any other person from, this Deed or any other security interest, Guarantee, indemnity or other agreement; or

(g) the dissolution, amalgamation, change in status, constitution or control, reconstruction or reorganisation of the Customer, you or any other person (or the commencement of steps to effect the same); or

(h) any other matter or thing whatsoever.

[35] The clause is wide enough to cover the deed of settlement between the bank and the Osborne Family Trustees. The agreement with the Osborne Family Trustees may be an indulgence or waiver under (a); an amendment to a guarantee under (b); a failure to enforce a guarantee under (e); a possible release of a co-guarantor under (f); or any other matter or thing under (h).

[36] Under the guarantees, each guarantor is liable as sole and principal debtor and not as surety.19 The continuing guarantee provision of each guarantee20 says:

Your obligations under this Deed:

(a) Are in addition to, are not to be merged in and are without prejudice to, any security interest, guarantee, indemnity or other agreement, whenever in existence, in favour of any person, whether from a Guarantor or otherwise...

[37] Further, clause 14.1(iv) of the general terms and conditions of the facility agreement21 provides that on an event of default (which includes non-payment), the bank may:

Exercise all or any of our rights under any Security Document...

[38] As to (i), in their guarantees, the Black Trustees guaranteed the indebtedness of Deli Ca Sea to the bank. The mortgage the Black Trustees gave over the Papamoa property had the same standard terms as the mortgage given by the Osborne Family Trustees. The mortgage was security for the guarantees of the indebtedness of both Mr and Mrs Black and Deli Ca Sea. As with the Osborne Family Trustees, there had been relevant events of default: Deli Ca Sea had gone into liquidation, the bank had

_{made demand on the trustees under the guarantees, and had issued notices under}

19 _{Clause 3.1}

20 _{Clause 3.3(b)}

21 Richard Black affidavit exhibit A

s 119 and 122 of the Property Law Act (although the bank’s process servers were not able to serve Mr and Mrs Black). When the Black Trustees sold the Papamoa property in August 2010, the bank was entitled to allocate the proceeds of sale against the indebtedness of both Deli Ca Sea and the Blacks as it thought fit.

[39] The last matter, (j), requires longer consideration. Mr Black says that the bank was limited to applying no more than $300,000 from the proceeds of sale of the Papamoa property towards the indebtedness of Deli Ca Sea. While the Blacks gave the bank an unlimited guarantee for the indebtedness of Deli Ca Sea on 13 May

2008, the Blacks rely on the terms of the facility agreement of 15 October 2008. The facility agreement does not create any new securities. Instead it refers to securities for the revolving credit facility. The Security section22 provides:

Security for the Facility is as set out below ...

The securities listed for the facility are the existing mortgage over the Papamoa property, the Osborne Family Trustees’ existing guarantee limited to $600,000, the existing all obligations general security deed, the existing mortgage over the Ohope property, and

An existing limited guarantee and indemnity on our standard form from ANNA JORDAN LILBURN BLACK, RICHARD JOHN CARSON BLACK, SELWYN PAUL EDEN (as trustees for RICHARD AND ANNA BLACK FAMILY TRUST). Limited to $300,000.

[40] The terms of the facility agreement make it clear that the securities were a requirement of the agreement. Both Deli Ca Sea and the guarantors signed the facility agreement. The borrower acknowledgement and agreement provided that (you):

... acknowledge and agree that all existing and future securities will also secure your indebtedness to us for all moneys outstanding under this Facility

...

[41] The guarantor acknowledgement and agreement provided that the guarantors:

... acknowledge and agree that all existing and future securities granted to us by the Guarantor(s) will also secure the Guarantor(s) indebtedness to us for all moneys outstanding under this Facility, unless otherwise specified in the Guarantee ...

22 Bresnahan affidavit Exhibit M.

[42] The Black Trustees each say that before signing the facility agreement they read it carefully, noted that the guarantee the bank was relying on was limited to

$300,000 and signed the agreement believing that their liability was limited to that sum. On the other hand, the bank says that the reference to a guarantee limited to

$300,000 was a clerical mistake and the facility agreement ought correctly to have referred to an unlimited guarantee, being the guarantee signed by the Black Trustees on 13 May 2008.

[43] The assertion that there was a mistake in the drafting of the agreement might give the bank a basis for claiming rectification of the facility agreement, but this is a summary judgment application. While there is an arguable case for rectification, the bank has not asked for rectification in its pleadings or its summary judgment application. Given the difficulty of proving rectification, ordinarily a claim for rectification in a summary judgment application is not likely to succeed. Instead, the bank puts its case this way:

(a) It can enforce the unlimited guarantee of 13 May 2008 directly and its right to do so is not fettered by the terms of the facility agreement;

(b) On its true construction, the facility agreement does not limit the bank to enforcing its guarantee only to the sum of $300,000. The existing guarantee is not limited to that sum.

[44] The bank starts with the unlimited guarantee of 13 May 2008. It says that it can rely on the guarantee given by the Black Trustees to recover from them all debts owed by Deli Ca Sea to the bank, including sums owing under both term loans and facility agreements. The words of guarantee, and the definitions of ―guaranteed

indebtedness‖ and ―indebtedness‖ in the guarantee23 cover future as well as present

obligations to pay money. The Black Trustees’ liability under the guarantee is not

_{limited to a fixed sum.}

23 Bresnahan affidavit exhibit K.

[45] It also says that although the guarantee allows a surety to give notice terminating future liability24, the effect of clause 3 of the guarantee is that no later agreement, waiver or indulgence can discharge the Black Trustees. In particular it relies on clause 3.2(f):

the release of, or the release of the Customer, you or any other person from, this Deed or any other security interest, Guarantee, indemnity or other agreement.

[46] It therefore argues that nothing in the facility agreement can discharge the

Black Trustees or limit their liability under the guarantee.

[47] In some respects clause 3.2(f) purports to go further than is legally possible. Taken literally, it would mean that the parties have contracted that any later contract they might enter into could not be effective as a discharge of the guarantee. That cannot be correct. It is always open to the parties to enter into a new agreement, which brings an earlier agreement to an end, or varies it, or replaces it with a new agreement. As an example, the Black Trustees’ guarantee of 20 April 2007, limited to a liability of $300,000, contained clause 3. That was replaced by the Black Trustees’ guarantee of 21 August 2007, limited to $600,000, which also contained clause 3. And that guarantee was in turn replaced by the 13 May 2008 guarantee. The bank does not say that all three guarantees remain in force. The bank could not use the April 07 and the August 07 guarantees cumulatively to require the Black Trustees to pay indebtedness up to $900,000. The later guarantees brought the earlier guarantees to an end, even though they did not say so expressly. Clause 3.2(f) does not stand in the way of the Black Trustees showing that their liability under the unlimited guarantee has been varied by a later agreement with the bank. The inquiry is whether the facility agreement of 15 October 2008 did vary the unlimited guarantee.

[48] Mr Black says that the security provisions of the facility agreement did vary the unlimited guarantee, because the facility agreement provides that the securities include the existing guarantee limited to $300,000 but the agreement does not refer to the unlimited guarantee. His argument is that the effect of the facility agreement

_{is that the bank cannot rely on the unlimited guarantee.}

24 Clause 4.

[49] The bank says that the Black trustees gave the unlimited guarantee in contemplation of the funds under the revolving credit facility being increased. Mr Black claims that it applied to the increase in funding in the facility agreement of November 2007.25 Even so, as an unlimited guarantee of present and future indebtedness, it also applied to the increase in the revolving credit facility in October

2008.

[50] The unlimited guarantee applies to the indebtedness of Deli Ca Sea under the term loan of $150,000 as well as under the revolving credit facility. The terms of the facility agreement of October 2008 do not apply to the term loan or to the Black Trustees’ guarantee of the term loan. The Blacks cannot invoke the provisions of the facility agreement to reduce their liability to the bank under their unlimited guarantee of the term loan.

[51] The particular words Mr Black relies on are:

An existing limited guarantee and indemnity on our standard form from ANNA JORDAN LILBURN BLACK, RICHARD JOHN CARSON BLACK, SELWYN PAUL EDEN (as trustees for RICHARD AND ANNA BLACK FAMILY TRUST). Limited to $300,000.

[52] At the time of the facility agreement of October 2008 the Black Trustees’ existing guarantee and indemnity was the unlimited guarantee of May 2008. They had given a guarantee limited to $300,000 in April 2007, but that was no longer an existing guarantee. The guarantee limited to $600,000 had replaced it in August

2007. Something has gone wrong with the language. The text in the security provision is ambiguous. It refers either to an existing guarantee that is not limited or to a guarantee that no longer exists but is limited.

[53] The ambiguity can be resolved. The context provides the answer. No new securities or guarantees were required. The security provision listed existing securities and guarantees. Consistent with the listing of the other existing securities and guarantees, the reference to the Black Trustees’ guarantee means their existing

_guarantee.

25 Richard Black affidavit para 30.

[54] As it had agreed to extend the revolving credit facility to $575,000, it would not make business sense for the bank to accept a guarantee limited to $300,000. It makes better business sense to read the words as applying to the existing unlimited guarantee instead of a limited guarantee that has been replaced.

[55] The bank also refers to these words in the guarantor acknowledgement:

... acknowledge and agree that all existing and future securities granted to us by the Guarantor(s) will also secure the Guarantor(s) indebtedness to us for all moneys outstanding under this Facility, unless otherwise specified in the Guarantee ...

[56] It says that ―all existing and future securities‖ makes it clear that any securities already given apply to the indebtedness incurred under the facility agreement. The listing of the securities in the facility agreement does not narrow the scope of those words. It asks rhetorically, if the mortgage over the Papamoa property had been omitted from the list of securities, would that have prevented the bank from enforcing the mortgage? The argument is sound. It makes the point that the listing of existing securities in the facility agreement is descriptive, not performative. Errors or ambiguities in the references to the securities in the facility agreement do not stand in the way of the bank enforcing securities it held for Deli Ca Sea’s indebtedness under the facility agreement or otherwise. The facility agreement has not varied or displaced the unlimited guarantee of May 2008.

[57] Mr Black’s argument is that the bank could apply only $300,000 from the proceeds of sale of the Papamoa property towards the indebtedness of Deli Ca Sea, leaving the balance to be applied towards the Blacks’ personal indebtedness. It asks the court to find that as a result of the facility agreement a guarantee that had been replaced in August 2007 has somehow been revived without the parties using any express words to bring it back into force, and that an existing guarantee given five months before is not to apply, even though it would not make commercial sense for the bank to allow credit limits to be increased without taking adequate security to cover the added exposure.

[58] I have taken an objective approach to the interpretation of the facility agreement – to say what a reasonable person, in the circumstances of these parties,

would have understood was meant by the specific words in the agreement. I have not considered the parties’ subjective understanding of what they read in the agreement. I have had regard to context and to business purpose. It is no longer necessary to cite authority for this approach.

[59] Mr Black counters that guarantees are strictly construed, citing Deane J in

Ankar v Natwest Finance Ltd:26

... the obligations of a surety are strictly confined to what he has undertaken in the contract which constitutes him a surety; he is bound merely to the letter of his engagement ...

[60] In the commercial context the modern approach is to apply the ordinary principles of construction to guarantees.27 Cases that illustrate this are Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd28 and Egan v Static Control Components (Europe) Ltd29 and Krtolica v Westpac Banking Corporation.30 In this case, the Blacks’ liability is within the letter of the unlimited guarantee. The facility agreement is ineffective to alter that liability.

Black defences

[61] The Blacks are upset that the securities have been realised in such a way that they remain personally liable for their own borrowings after sale of the Papamoa property. Mr Black attacks the steps taken by the bank:

(a) He says that the funds received in settlement from the Osborne trustees should have been first applied in reduction of the indebtedness of Deli Ca Sea, instead of in reduction of the Osbornes’

_{personal borrowing;}

26 _{(1987) 70 ALR 641, 654.}

27 _{G McMeel [The Construction of Contracts] (2nd ed, Oxford University Press, 2011) at [6.28].}

28 _{[1982] QB 84 (CA).}

29 _{[2004] EWCA Civ 392.}

30 [2008] NZHC 1; [2008] NZCCLR 24 at [70]

(b) The Blacks have been prejudiced, because after Deli Ca Sea went into liquidation, the bank allowed the Osbornes to continue using their personal facilities with the bank so as to run up more personal debt;

(c) The bank ought to have told the Blacks that the bank had limited security from the Osborne trustees and that that security was also required to secure the Osbornes’ personal borrowing; and

(d) The Blacks understood their liability under any guarantee was limited to $300,000.

[62] Mr Black raises a number of legal arguments in support.

Breach of contract

[63] Mr Black says that the bank breached terms of contract in that the Blacks’ liability for the indebtedness of Deli Ca Sea was limited to $300,000 and the bank was required to have recourse to the Ohope property to repay Deli Ca Sea indebtedness, not to repay the Osbornes’ personal indebtedness. Those arguments have been addressed above in the discussion of the steps taken by the bank. The submissions for Mr Black raised arguments as to implied terms and collateral contracts, but they cannot prevail against the express terms of the bank’s documents.

Estoppel by deed

[64] Mr Black invokes estoppel by deed to say that the bank cannot recover more than $300,000 under the guarantee of Deli Ca Sea’s indebtedness. He says that facility agreement referred to an existing guarantee limited to $300,000. Under his argument the bank cannot now assert that the existing guarantee is unlimited, because it is bound by its agreement. That argument would have some weight if that is what the facility agreement meant. But the interpretation of the facility agreement has to be addressed first. The facility agreement does not mean that there is an existing guarantee limited to $300,000. It refers to an unlimited guarantee. There is no estoppel by deed.

Misrepresentation

[65] Mr Black alleges misrepresentation in oral statements by Mr Bresnahan

―throughout the Deli Ca Sea lending‖31 that the Osborne mortgage applied and was collateral security for the Deli Ca Sea lending. The only evidence of Mr Bresnahan making such statements is in meetings in May and June 200932 when the Blacks were pressing the bank to have recourse to the Osborne mortgage to repay Deli Ca Sea indebtedness. There is no evidence of Mr Bresnahan making such statements at a time when the Blacks were being asked to give their guarantees. The statements of May and June 2009 are immaterial as inducements for the Blacks to give the guarantees in 2007 and 2008.

[66] The alleged statements do no more than describe the security arrangements for the Deli Ca Sea lending. Under those security arrangements the bank had powers and a wide discretion how it might exercise those powers. There are no allegations that the bank gave any commitments how it would exercise those powers. Any such allegations would be about future conduct, and would not be misrepresentations unless made knowing that they were not truthful. The statements that are alleged are not misrepresentations.

[67] Mr Black says that the reference in the facility agreement of October 2008 to the existing guarantee limited to $300,000 is misleading. It is said to be a representation of fact that there was an existing guarantee limited to $300,000. This argument presupposes that terms of a contract can be subject to two interpretations, one as a contractual provision and the other as a representation, with different meanings for each interpretation. Before the Contractual Remedies Act 1979 it was established that if a misrepresentation inducing a contract was later embodied in writing as a term of the contract, the misrepresentation lost any independent force and merged in the term which could then alone be relied upon as a ground for a

claim33. On that approach, only one meaning was available. With the remedies for

_{breach of contract and for misrepresentation assimilated under the Contractual}

31 _{Statement of claim para 8(e).}

32 _{Richard Black 1}st _{affidavit paras 51- 58.}

33 Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All ER 1167 (EWHC)

Remedies Act 1979, the distinction has not always been strictly observed.34 But that is not reason to say that a provision in a contract can have two meanings, one as a contractual term and the other as a representation. A statement that has been incorporated in a contract as a term of the contract is construed as a contract term and not as anything else. In this case, the contractual interpretation has established that the provision in question refers to the unlimited guarantee of May 2008. It cannot have a different meaning as a representation. It is not misleading and not a misrepresentation.

Fair Trading Act 1986

[68] Mr Black repeats the claims of misrepresentation as claims of breaches of sections 9 and 14(1)(b) of the Fair Trading Act 1986. While s 9 is well-known, s 14(1)(b) bears repeating:

14 False representations and other misleading conduct in relation to land

(1) No person shall, in trade, in connection with the sale or grant or possible sale or grant of an interest in land or with the promotion by any means of the sale or

grant of an interest in land,—

...

(b) make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put, or the existence or availability of facilities associated with the land.

[69] I cannot see how this section applies to a financier such as a bank taking an interest by way of mortgage in land for security for advances when it deals with another guarantor of those advances. The section is clearly directed at conduct leading to an interest in land being taken by sale or other grant. It is possible to think of cases where it might apply to conduct inducing an owner to part with land. But statements made by a mortgagee about its security to another guarantor are not within s 14. The alleged statements of Mr Bresnahan in May and June 2009 were not made in connection with the sale or grant or possible sale or grant of an interest in land. The security provisions of the facility agreement of October 2008 recorded

_{existing securities and were not made in connection with the sale or grant or possible}

34 _{See the discussion in John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New}

Zealand 3rd ed, LexisNexis, Wellington, 2007) at [11.2.5].

sale or grant of an interest in land. Only s 9 of the Fair Trading Act could possibly be relevant in this case.

[70] The answers to the claims of misrepresentation also apply to the claims of misleading or deceptive misconduct:

(a) It was not misleading for bank officers to say that the Ohope property was security for the Osborne trustees’ guarantees of company indebtedness;

(b) Those statements of Mr Bresnahan put in evidence did not give rise to any loss on the part of the Black trustees – they had already given their securities; and

(c) Once its construction is established, the reference to the Black trustees’ guarantee in the statement as to securities in the facility agreement was not misleading.

[71] The bank also responds by referring to the decision of the Supreme Court in

Red Eagle Corporation v Ellis35 at [28]:

It is, to begin with, necessary to decide whether the claimant has proved a breach of s 9. That section is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. Naturally that will depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated businessman may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. Richardson J in Goldsbro v Walker said that there must be an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected by it. The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware

– would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else.17

If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely

35 [2010] NZSC 20; and [2010] 2 NZLR 492 (SC).

to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed.

[72] The Blacks were experienced business people. They took independent legal advice when signing the bank’s guarantees and facility agreements. They can be taken as knowing that banks have comprehensive documents drawn to protect the bank’s position in a wide range of circumstances. They would know that banks require guarantees from directors and shareholders of closely-held companies to match advances made to companies. They had given an unlimited guarantee to the bank five months before they signed the October 2008 facility agreement. That was an existing guarantee. Their guarantee limited to $300,000 had been replaced. Experienced business people reading the facility agreement would not believe that the bank had abandoned commercial prudence and was limiting its reliance on the Black Trustees to $300,000 after increasing the accommodation to Deli Ca Sea to

$725,000.

[73] The bank also refers to [29]:

Then, with breach proved and moving to s 43, the court must look to see whether it is proved that the claimant has suffered loss or damage ―by‖ the conduct of the defendant. The language of s 43 has been said to require a

―common law practical or common-sense concept of causation‖.18 The court must first ask itself whether the particular claimant was actually misled or

deceived by the defendant’s conduct. It does not follow from the fact that a reasonable person would have been misled or deceived (the capacity of the conduct) that the particular claimant was actually misled or deceived. If the

court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask

whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. Put another way, was the defendant’s breach the effective cause or an effective cause? Richardson J in Goldsbro spoke of

the need for, or, as he put it, the sufficiency of, a ―clear nexus‖ between the

conduct and the loss or damage. The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not

merely something which was, in the end, immaterial to the suffering of the

loss or damage. The claimant may, for instance, have been materially influenced exclusively by some other matter, such as advice from a third

party.

[74] The bank says that the Black Trustees had given the unlimited guarantee before they signed the October 2008 facility agreement. The Black Trustees did not have to sign that agreement. The company could enter into the facility agreement

with the bank without the guarantors being parties to that agreement. In those circumstances the Black Trustees would still be bound by their unlimited guarantee. The bank therefore says that the statement as to the existing limited guarantee in the facility agreement was not an effective cause of any loss to the Black Trustees arising under the guarantee. Such an argument might win the day after a full defended hearing, but I am not confident of its success for summary judgment purposes. That is because Mr Black is both director of Deli Ca Sea and one of the guarantor trustees. As director he still had to sign the facility agreement. If, for the purpose of argument, the statement as to the existing guarantee were misleading and if the company had executed the agreement but not the guarantors, Mr Black has a possible argument that he was misled into signing the agreement and incurring further debt for the company, believing that his and his co-trustees’ liability under the guarantee was limited.

[75] The bank is on stronger ground with causation arguments for Mr Bresnahan’s alleged statements in May and June 2009. There is no evidence that they caused any loss.

[76] In summary, Mr Black does not have an arguable case as to misleading or deceptive conduct by the bank.

Alleged non-disclosure

[77] Mr Black says that the bank failed to make due disclosure of the financial arrangement and accommodation given to the Osbornes. He says that the personal lending to the Osbornes materially affected the risk assumed by the Blacks under their guarantee of the obligations of Deli Ca Sea, because the Osbornes’ ability to meet their obligations under their guarantees of the company’s debt to the bank was compromised by their other obligations to the bank. Mr Black says that the accommodation given to the Osbornes had unusual features that had to be disclosed. He characterises it as delinquent lending. He also claims that the bank had an ongoing duty of disclosure. In particular the bank failed to respond to requests by Mr Black for information about the Osborne borrowings.

[78] The bank denies any duty to make disclosure and any breach of any duty.

Breach of statutory duty of disclosure

[79] Mr Black says that the bank was under a duty of disclosure under the Credit Contracts and Consumer Finance Act 2003. He relies on the disclosure provisions of Part 2 of the Act, especially those relating to guarantors under s 25, disclosure of guarantee, and s 26, disclosure of changes to guarantors. He says that the disclosure by the bank did not meet the requirements of these sections or of ss 32-35. He also refers to s 17, the duty of initial disclosure to a debtor.

[80] Under s 10 the duties of disclosure in Part 2 of the act apply only to consumer credit contracts, which are defined in s 11:

(1) A credit contract is a consumer credit contract if—

(a) the debtor is a natural person; and

(b) the debtor enters into the contract primarily for personal, domestic, or household purposes; and

(c) 1 or more of the following applies:

(i) interest charges are or may be payable under the contract: (ii) credit fees are or may be payable under the contract:

\ (iii) a security interest is or may be taken under the contract; and

(d) when the contract is entered into, 1 or more of the following applies: (i) the creditor, or one of the creditors, carries on a business of

providing credit (whether or not the business is the creditor's only

business or the creditor's principal business):

(ii) the creditor, or one of the creditors, makes a practice of providing

credit in the course of a business carried on by the creditor:

(iii) the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor's own name as creditor on behalf of, or as trustee or nominee for, any other person:

(iv) the contract results from an introduction of one party to another party by a paid adviser or broker.

(2) This section is subject to sections 14 and 15.

[81] The term loan agreement between Deli Ca Sea and the bank and the facility agreements are not consumer credit contracts. The Blacks are not guarantors of consumer credit contracts. The bank was not required to make disclosure to the Blacks under Part 2 of the Act. Mr Black counters that objection by alleging that the bank elected to adopt and apply the act under s 142. He relies on provisions in the facility agreement such as the borrower and guarantor acknowledgements under which receipt of any initial disclosure required under the act is acknowledged. These acknowledgements operate if the bank is under a duty to disclose, that is when the act applies a duty to disclose. They do not operate when the act does not require the bank to disclose. Mr Black says that the bank is bound by an election under s 142:

142 Election for Act to apply

(1) A creditor under a credit contract made before the commencement of this section may, after the commencement of this section, elect that this Act apply to the credit contract and any guarantee made in connection with the credit contract from a particular date (the effective date).

(2) A creditor must not make an election under subsection (1) if that election increases any obligation that the debtor has in connection with the credit contract.

(3) The effective date must be a date after the date that the election is made. (4) If a creditor makes an election under subsection (1),—

(a) the Credit Contracts Act 1981 and the Hire Purchase Act 1971 do not apply to the credit contract or the guarantee from the effective date; and

(b) the creditor must, within 5 working days of the day that the election is made, notify the debtor or guarantor in writing—

(i) that the creditor has made an election under this section; and

(ii) that this Act applies to the credit contract or guarantee from the effective date; and

(c) the election does not affect the completion of a matter or thing, or the bringing or completion of proceedings that relate to a right, interest, title, immunity, or duty that existed immediately before the election takes effect; and

(d) the Credit Contracts Act 1981 and the Hire Purchase Act 1971 continue to have effect as if the election had not been made for the purpose of completing the matter or thing or the bringing or completion of proceedings that relate to a right, interest, title, immunity, or duty that existed immediately before the election takes effect.

[82] Section 142 came into force on 1 April 2005.36 It is a transitional provision for credit contracts made before the section came into force. It does not apply to the credit contracts in this case. The parties entered into the credit contracts in this case after that date. The bank is bound by the disclosure requirements of the act only to the extent provided in Part 2 of the Act. It is outside those requirements in this case. It was not under a statutory duty of disclosure.

Breach of common law duty of disclosure

[83] Tipping J summarised the common law37 as to disclosure by a creditor to a surety in Bank of New Zealand v Shivas:38

It may be said at the outset that a contract of guarantee between a bank and a guarantor, even if that guarantor is himself a customer of the bank, is not a contract of the utmost good faith — uberrimae fidei: 20 Halsbury's Laws of England (4th ed) para 241; Commercial Bank of Australia v Amadio (1983)

[1983] HCA 14; 57 ALJR 358 particularly per Gibbs CJ at p 360.

The extent to which a bank as the creditor is bound to make disclosure to an intending surety was discussed by the House of Lords in Hamilton v Watson (1845) 12 Cl & Fin 109; Lord Campbell in a passage which has consistently been followed ever since said at p 119:

". . . I should think that this might be considered as the criterion whether the disclosure ought to be made voluntarily, namely, whether there is anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect; and, if so, the surety is to see whether that is disclosed to him. But if there be nothing which might not naturally take place between these parties, then, if the surety would guard against particular perils, he must put the question, and he must gain the information which he requires."

Put more simply the proposition is that a bank as creditor is bound to disclose to the intending surety only something which has taken place between the bank and its customer which would not normally be expected. In Lloyds Bank Ltd v Harrison (1925) 4 Legal Decisions Affecting Bankers 12 cited in Paget's Law of Banking (7th ed, 1966) at p 583 Pollock MR said:

"The necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to the particular account which is to be guaranteed".

36 _{Section 2(3) Credit Contracts and Consumer Finance Act 2003.}

37 _{See also Laws of New Zealand:Guarantee at [34] and [35].}

38 [1990] 2 NZLR 327 (HC) at 363.

This approach was adopted by the High Court of Australia in Goodwin v National Bank of Australasia Ltd [1968] HCA 30; (1968) 117 CLR 173, 175 and also by the same Court in the Amadio case mentioned above. Similarly there is no general duty on a creditor to disclose to an intending surety facts affecting the risk which he is being asked to undertake: Seaton v Heath [1899] 1 QB

782, 792 per Romer LJ; 20 Halsbury's Laws of England (4th ed) para 243.

It is emphasised in the authorities that a person who is asked to guarantee the bank account of another can be expected to appreciate that the bank is dissatisfied with its customer's credit. Thus it is also a general rule that a bank is not obliged, unless asked, to disclose to an intending surety matters which simply affect the credit of its customer. As Gibbs CJ pointed out in Amadio the fact that a company may be in grave financial difficulty and its cheques are being dishonoured would be matters which did no more than touch upon the creditworthiness of the customer. This line of authority, starting with Hamilton v Watson and encompassing many cases since, was referred to and applied by Hardie Boys J in Westpac Banking Corporation v McCreanor [1990] 1 NZLR 580.

I do not consider that a bank when dealing with an intending guarantor, irrespective of whether that intending guarantor is also a customer of the bank, owes any greater fiduciary duty than that implicit in the authorities mentioned. I adopt, with respect, what Gibbs CJ said in Amadio that to require a bank to make disclosure to an intending surety in greater detail might prove to be both vexatious and misleading. I also consider it important to remember that there is a relationship of confidence between a bank and its customer and the bank would risk committing a breach of confidence if it were to disclose unasked to an intending surety matters going beyond what can properly be described as unusual features in the particular case relating to the account which is to be guaranteed.

Inherent in any request for a guarantee is obviously the proposition that the creditor (the bank) is not content to rely upon the creditworthiness of the debtor (its customer) alone. It should be emphasised that these principles relate to what a bank must voluntarily disclose to an intending surety. The position will be different if the intending surety makes a specific request for information or advice from the bank and the bank responds. In that situation the bank will be under wider duties than those outlined, but there is no allegation in the present case that the bank did not properly or adequately respond to a specific request for information or advice. In the absence of such a request the bank was only obliged to volunteer matters beyond those which the surety ought naturally to expect to be inherent in the request for a guarantee.

It must not be overlooked in the present case that one of the plaintiffs was not only an intending surety but also the accountant of the company whose bank account was to be guaranteed. To suggest in those circumstances that the bank had a wider duty of disclosure is an unattractive proposition because the bank would have had every reason to expect that Mr Falloon in his capacity as accountant of the company was fully familiar with the company's financial position or could make himself familiar if he wished. The bank was also entitled in my view to take the view that Mrs Shivas as the co-trustee could, if she had wished, have made an appropriate inquiry of Mr Falloon as to the company's position and as to the risks inherent in the transaction of guarantee into which she was being requested to enter.

What I am saying is that the bank's duty of disclosure must be assessed against what the bank might reasonably have expected the intending guarantors to know already or to be able to ascertain without difficulty should they have been minded to do so. While I accept that the bank was under a fiduciary duty to the plaintiffs as intending guarantors, in my judgment that duty did not extend beyond disclosure in terms of the foregoing principles.

[84] Mr Black tries to overcome the general rule that a creditor is not obliged to make disclosure of risk matters to a guarantee by asserting:

(a) There were unusual features that required disclosure; (b) The bank did not reply to requests of information; and (c) The bank was required to make ongoing disclosure.

_{[85] On the duty to disclose unusual features, in Commonwealth Bank v Amadio,}39

Gibbs CJ said:

The obligation is to reveal anything in the transaction between the banker and the customer which has the effect that the position of the customer is different from that which the surety would naturally expect, particularly if it affects the nature or degree of the surety's responsibility.

[86] Usually the duty is said to go to unusual matters involving the creditor and the principal debtor. Here Mr Black says that the unusual matters requiring disclosure were the facts that the bank had given accommodation to the Osbornes personally and that the security given by the Osborne Family Trustees, the mortgage over the Ohope property, was to support not only the indebtedness of Deli Ca Sea but also the Osbornes’ personal indebtedness. He also claims that the bank ought to have told the Blacks that the value of the Ohope property had fallen.

[87] I am not aware of any decision holding that a creditor was in breach of a duty to disclose for not giving information about a co-guarantor. In Behan v Obelon Pty Ltd40 the High Court of Australia heard a submission that the duty to disclose

_{unusual and unexpected features required the creditor to disclose to one guarantor}

39 _{[1983] HCA 14; (1983) 151 CLR 447 (HCA) at 457.}

40 [1985] HCA 51; (1985) 157 CLR 326.

adverse information acquired by the creditor as to the financial worth or creditworthiness of another guarantor. The High Court held that that case did not require an examination of that submission, because the facts in that case would not have imposed such a duty on the creditor. This case is similar. The Blacks and the Osbornes were co-venturers, who gave their guarantees to the bank. Mr Black and Mr Osborne were co-directors in Deli Ca Sea and the family trusts (of which Mr Black and Mr Osborne were trustees) were shareholders in the company. The Blacks were likely to know as much about the financial position of the Osbornes as the bank and they were in at least as good a position to find out. The Blacks would appreciate that the bank required guarantees from both the Blacks and the Osbornes. One reason for that was to allow the bank to have recourse against one set of guarantors in case the other set was not good for its guarantee. The Papamoa property was security both for the guarantee of the company’s indebtedness and for the Blacks’ personal indebtedness to the bank. It was not unusual or unexpected that the Ohope property was also security for the Osbornes’ personal indebtedness. The information the bank held about the Osbornes’ banking arrangements was not unusual or unexpected. It could not generate a duty to disclose.

[88] All the bank’s guarantees in this case have this warning:

IMPORTANT:

There is no obligation for us to inform you or to provide you with any other information concerning the financial condition or any other matter concerning the Customer. You must make your own arrangements with the Customer to keep yourself informed as to all matters relevant to the Guarantee and Indemnity.

[89] Mr Black argues that this warning directs guarantors to make their own inquiries only about the customer, in this case, Deli Ca Sea. Because it does not direct customers to make their own inquiries about co-sureties, they say that the bank retained a duty of disclosure as to co-sureties. The argument presupposes that there is such a duty. In the absence of such a duty already in force, the warning does not impose any added duty on the bank to make disclosure. Contrary to another of the submissions for Mr Black, the warning is not a representation by the bank that it had assumed a duty to make disclosure about the Osbornes.

The bank’s alleged failure to reply to requests for information

[90] Mr Black’s affidavit refers to requests for information he made of Mr Bresnahan in meetings in May and June 2009. He says that he asked Mr Bresnahan for the source of the Osbornes’ funds to continue servicing Deli Ca Sea’s interest. Mr Bresnahan declined to give details, but said the Osbornes were borrowing from the bank on some basis that he did not disclose to Mr Black. The Blacks argue that the bank’s reticence is breach of a duty to make disclosure.

[91] By May 2009 Deli Ca Sea was in liquidation. All of the guarantees and securities in issue had been given by then. The bank’s reticence to give the Blacks full information about the banking arrangements with the Osbornes at the stage where all parties are concerned with repayment of loans to the bank, rather than with entering into fresh loans, does not allow the Blacks to claim that the guarantees they had already given were now at an end. Any alleged failure to give information after request might be relevant before a guarantee is given as grounds for setting aside the guarantee. It is not relevant at the debt enforcement stage.

No duty to make ongoing disclosure

[92] For Mr Black to argue that the bank had to answer questions fully after the Blacks had given the guarantees in issue, there would have to be some relevant ongoing duty of disclosure. The authorities do not support such a claim. Law of Guarantees41 says:

The duty not to misrepresent material facts ends when the contract is made and if the basis of the limited principle of disclosure is an implied representation that the unusual fact does not exist, then the duty of disclosure should do likewise.

[93] The text cites New Zealand authority: Clark v Westpac Banking Corporation42 and Westpac Banking Corporation v Hansen.43 In this case any disclosure duties under non-statutory law ended on the signing of guarantees and

_{other loan documents. The bank was not under any ongoing duty of disclosure.}

41 _{G M Andrews and R Millett QC (5}th _{ed, Sweet & Maxwell, London, 2008) at 187.}

42 _{HC New Plymouth CP 21/96, 7 November 1996.}

43 HC Wellington CP 43/97, 7 July 1997.

[94] For fullness, and because Mr Black pleads breaches of contract by the bank, there are no terms in any contract imposing any disclosure duty on the bank.

Oppressive Conduct

[95] Mr Black alleges oppressiveness by the bank under Part 5 of the Credit Contracts and Consumer Finance Act 2003. The reopening provisions of Part 5 apply to every credit contract, whether or not it is a consumer credit contract.44 The term loan and revolving credit facility agreements were credit contracts under the act. The mortgages and associated guarantees are part of the credit contracts under s 119:

Collateral contracts and linked transactions

(1) If a security interest is or may be taken in connection with a credit contract, consumer lease, or buy-back transaction, the contract or arrangement that creates or provides for the security interest is to be treated as forming part of the credit contract, lease, or transaction for the purposes of this Part.

(2) If it is a term of a credit contract that another contract or arrangement be entered into, any part of that other contract or arrangement that relates to the provision of credit to, or the payment of money by, a debtor under the credit contract is to be treated as forming part of the credit contract for the purposes of this Part.

(3) If it is a term of a consumer lease or buy-back transaction that another contract or arrangement be entered into, any part of that other contract or arrangement that relates to the payment of money by a lessee under the consumer lease or by an occupier under a buy-back transaction is to be treated as forming part of the consumer lease or transaction for the purposes of this Part.

[96] Oppressive is defined in s 118:

In this Act oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.

[97] Section 120 confers the power to reopen credit contracts for oppression:

The Court may reopen a credit contract, a consumer lease, or a buy-back transaction if, in any proceedings (whether or not brought under this Act), it considers that—

_{(a) the contract, lease, or transaction is oppressive; or}

44 Section 117.

(b) a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or

(c) a party has induced another party to enter into the contract, lease, or transaction by oppressive means.

[98] Section 123 provides:

A credit contract, a consumer lease, a buy-back transaction, a term of a credit contract, a consumer lease, or a buy-back transaction, or an act performed under, or in connection with, a credit contract, a consumer lease, or a buy- back transaction is not oppressive if the contract, lease, transaction, term, or act would not have been considered oppressive at the time, and in the circumstances, that it was made or performed.

[99] Section 124 gives guidelines for reopening credit contracts:

In deciding whether section 120 applies and whether to reopen a credit contract, consumer lease, or buy-back transaction, the Court must have regard to—

(a) all of the circumstances relating to the making of the contract, lease, or transaction, or the exercise of any right or power conferred by the contract, lease, or transaction, or the inducement to enter the contract, lease, or transaction (as the case may be); and

(b) the following matters if they are applicable:

(i) whether the amount payable by the debtor under the contract, lessee under the lease, or occupier under the transaction is oppressive (whether or not on default by the debtor, lessee, or occupier):

(ii) if a debtor, lessee, or occupier is in default under the contract, lease, or transaction, whether the time given to the debtor, the lessee, or the occupier to remedy the default is oppressive, having regard to the likelihood of loss to the creditor, lessor, or transferee:

(iii) if the creditor has required, as a condition of the full prepayment of a credit contract, that the debtor pay a certain amount, whether the amount is oppressive having regard to the expenses of the creditor and the likelihood that the amount repaid can be reinvested on similar terms:

(iv) if the creditor, lessor, or transferee has refused to release part of any security interest relating to the contract, lease, or transaction, or has agreed to the release subject to conditions, whether the refusal is, or the conditions are, oppressive, having regard to the obligations secured by the security interest and the extent of the security that would remain after the release; and

(c) any other matters that the Court thinks fit.

[100] There is also guidance from the case law, including cases decided under the Credit Contracts Act 1981. The provisions for reopening credit contracts for oppressiveness under that Act have been reproduced in the 2003 Act. In Greenbank v Hass the Court of Appeal said: 45

The various words which together form the definition of the term

―oppressive'' all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of

reasonable standards of commercial practice. In a sense that phrase gives the

underlying commercial rationale for the earlier words or phrases. Something which is, for example, unjustly burdensome must necessarily be regarded as being in contravention of reasonable standards of commercial practice; similarly with something harsh. To determine whether a contract or term is oppressive within any of the words or phrases in the definition, it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with such reasonable standards could hardly be held to be oppressive. Conversely something which is not in accordance with (ie in contravention of) such standards is, by definition, oppressive. It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standards of commercial practice.

[101] While the Court of Appeal in that case emphasised the focus on reasonable standards of commercial practice and the need to have regard to evidence of what is regarded as acceptable or unacceptable in the market place, in GE Custodians v Bartle46 the Supreme Court added the qualification that the courts set the standard of reasonableness:

The Court of Appeal has correctly said in Greenbank New Zealand Ltd v

Haas that the various words which together form the definition of the term

―oppressive‖ all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice.58 That sets an objective standard. A contract or course of conduct may therefore, as Arnold J also said, be treated as oppressive even though the party whose conduct is said to be oppressive may be (subjectively) blameless because the party is simply following industry practice. Where that practice is in breach of reasonable standards, compliance with it will not immunise a lender. It is for the courts rather than the industry to set the standard.

_{[102] The matters said to be oppressive under the Act are:}

45 _{[2000] 3 NZLR 341 at [24].}

46 GE Custodians v Bartle [2010] NZSC 146 at [46].

(a) Allocating payments from the Osborne Trustees first to payment of the Osbornes’ personal debts before paying any of the indebtedness of Deli Ca Sea;

(b) Not ensuring that the Osbornes contributed equally towards repayment of Deli Ca Sea’s debt to the bank;

(c) Not making due disclosure to the Black Trustees of the Osbornes’ personal borrowings and that the Ohope property was security for those borrowings;

(d) Misdescribing the existing guarantee as limited; and

(e) Allowing the Osbornes to continue borrowing from the bank after Deli Ca Sea had defaulted, thereby increasing the Osbornes’ indebtedness to the disadvantage of the Black trustees, who faced increased exposure under their guarantee.

[103] The first four matters have already been addressed under Mr Black’s other arguments. There is a further question whether those matters give rise to oppressiveness. That is not answered by reciting the grounds for rejecting Mr Black’s earlier arguments.

[104] Mr Black makes no complaint about the initial arrangements for banking accommodation made in April 2007. The security taken over company assets, the guarantees given by the directors and the shareholding trusts, and the mortgages taken over land belonging to the trustees, to secure both company and personal borrowing are standard for lending to small closely-held companies. There was no submission that any provisions of any of the loan or facility agreements were harsh, unjustly burdensome or otherwise oppressive. The provisions are those commonly found in bank loan and security documents. To reduce the bank’s exposure to risk, they are comprehensive. In significant aspects they shift risk to those associated with the borrower. A relevant example in this case is the guarantees’ removal of defences based on creditor conduct, such as release of securities and co-guarantors.

[105] The bank required increased guarantees as the limits under the revolving credit facilities were raised. That was consistent with reasonable standards of commercial practice. Mr Black makes no complaint about giving the unlimited guarantee of May 2008. His complaints really go to the bank’s exercise of its powers under its securities and guarantees.

[106] The bank did not share with the Blacks information it had about the Osbornes. It explains that it was required to keep information about its customers’ affairs confidential. It was not under a duty to make disclosure. It followed a standard practice. The Blacks could ask the Osbornes themselves for information. The bank did not act oppressively in not telling the Blacks about the Osbornes’ affairs.

[107] The settlement agreement with the Osbornes, with the bulk of the payment of

$300,000 going to extinguish the Osbornes’ personal debt and a relatively small amount going towards company debt, favoured the Osbornes and the bank at the expense of the Blacks. Mr Black says that this is unfair, but unfairness is not enough.47 Mr Black hoped that the bank would enforce its rights against the two sets of guarantors equally so as to receive equal reductions in company debt from them. But he could not insist on it. The bank’s terms of its guarantees and mortgage

allowed it to enforce them to its advantage. That was a risk the Blacks took under the guarantees. It is not oppressive for the bank to enforce its rights to the disadvantage of the Blacks.

[108] Mr Black hoped to take advantage of a drafting slip in the facility agreement of October 2008 to argue that his personal liability for company debt was limited to

$300,000 despite giving an unlimited guarantee. The bank has succeeded in holding him to his unlimited guarantee. Mr Black characterises the drafting slip as a misrepresentation. Even if that were so, it is not unjustly burdensome, harsh or otherwise oppressive for the bank to hold Mr Black to the unlimited guarantee he

_signed.

47 Shotter v Westpac Banking Corporation [1988] 2 NZLR 316 (HC) at 326 per Wylie J: It is, I think clear that "oppressive" and the exegetical words set out in s 9 viz "harsh, unjustly burdensome, unconscionable, or in contravention of reasonable standards of commercial practice" mean something much more than "unfair".

[109] The new element is the complaint that the bank continued to let the Osbornes borrow more funds after Deli Ca Sea went into liquidation. Mr Black complains that these borrowings were used to service the Osbornes’ share of the interest on Deli Ca Sea term loan.48 In October 2008 the bank recorded all the accommodation of Deli Ca Sea, the Blacks and the Osbornes under the heading, ―Black Group‖. The bank’s existing exposure was $1,902,000. The limit for lending was increased to

$2,179,000. Of the existing exposure, the Osbornes’ personal indebtedness was

$207,000. The Blacks did not have any responsibility for paying the Osbornes’ personal indebtedness. The rest of the existing exposure was for company debt and for the Blacks’ personal indebtedness to the bank. The Blacks did have responsibility for the rest through the guarantees they had signed. That was about

$1,695,000 of existing exposure, which was to be increased under the October 2008 revolving credit facility.

[110] The records show that the Osbornes had two term loans totalling $149,000. In addition, they had a revolving credit facility for their oyster farm with a limit of

$30,000 (which was fully drawn) and a further facility of $75,000, which was drawn only up to $38,000. The Osbornes could draw against that facility for a further

$37,000 within current arrangements. Mr Black’s complaint is against the Osbornes’ continued use of this facility after the liquidation of Deli Ca Sea. The point of his complaint is that the Blacks were disadvantaged by this increase in the Osbornes’ indebtedness to the bank because it reduced the funds available from the Ohope security to pay company debt.

[111] Apart from what Mr Black alleges, there is no direct evidence how the Osbornes used the facility. For summary judgment purposes I assume that the Osbornes used it to the fullest extent and did not use any of the funds to service company indebtedness. That is the worst possible case for Mr Black. If, as Mr Black alleges, the Osbornes used the facility to service company debt, there would be less of an effect on the Blacks, because company debt, for which the Blacks were

_{also responsible, was being addressed.}

48 Richard Black affidavit para 53.

[112] There is also no direct evidence of the terms of the Osbornes’ personal facility and whether the bank could terminate it. I assume the worst for Mr Black: the bank could have stopped the Osbornes using the facility after the liquidation of Deli Ca Sea, but did not do so.

[113] The bank also points out that Mr and Mrs Black also had a personal revolving credit facility. Theirs was for $550,000. They had drawn $480,000 under it, leaving them a further $70,000 which they could draw under the current arrangements.

[114] At its most serious, Mr Black’s complaint is that the Osbornes’ continued use of the facility potentially adding extra debt of up to $37,000 reduced the amount of security in the Ohope property available to meet bank debt, and threw a greater burden on the Blacks. When the Blacks sold the Papamoa property in August and paid the proceeds to the bank, their indebtedness to the bank under their personal borrowing and their guarantee of company debt totalled about $1,897,000.49 In the worst possible case, any increase in the Osbornes’ debt by use of the facility could not have contributed more than about 2.5% of the total debt the Blacks had to meet.

[115] While Mr Black might say that it is unfair that the Black trustees have to pay this added debt, I do not find it harsh, unconscionable, unjustly burdensome or in any other sense oppressive under the Credit Contracts and Consumer Finance Act. Overall the impact of the continued use of the facility is slight. The Osbornes’ use of the facility was a risk the Blacks were exposed to under the original banking and security arrangements. The Osbornes had less substance than the Blacks. That threw a greater burden on the Blacks as co-guarantors. The bank did not breach reasonable standards of commercial practice when its security arrangements gave it recourse against the Blacks, even after the Osbornes’ continuing and increasing indebtedness to the bank was to the disadvantage of the Blacks.

[116] The bank has shown that Mr Black’s claims of oppressiveness could not

_succeed.

49 The figures are derived from the 1st Kirschberg affidavit para 15.

Conclusion

[117] Mr Black’s first cause of action alleges breaches of terms or conditions by the bank. It includes claims of misrepresentation and non-disclosure. It seeks declarations that Mr Black’s liability for company debt is limited to $300,000 and that the bank should apply the funds from the Osborne settlement towards company debt, and related relief. His second cause of action alleges breach of the Fair Trading Act and seeks similar relief. His third cause of action pleads non-disclosure and oppression and seeks similar relief. Mr Black has not shown that the bank does not have any defence to his claims. On the other hand, the bank has shown that none of the causes of action in Mr Black’s statement of claim can succeed.

[118] I make these orders:

(a) I dismiss Mr Black’s application for summary judgment;

(b) I grant the bank’s application and enter judgment for it against

Mr Black; and

(c) I reserve costs and will fix them after receiving memoranda from the parties.

[119] After the hearing the parties filed a joint memorandum asking for the opportunity to file memoranda as to costs. I hope that the parties will confer and be able to agree costs. Failing that, any memorandum by the bank seeking costs is to be filed and served no later than 22 July 2011. Any memorandum by Mr Black in response is to be filed and served no later than 29 July 2011.

[120] Mr Black’s claim for contribution against the Osborne Family Trustees remains alive. The Registrar is to arrange a case management conference for directions to be given for that claim.

[121] It has taken me much longer to give this judgment than I wished. I apologise

_{to the parties for the time it has taken.}

R M Bell

Associate Judge