Mortgage Administration Services (Calibre) Limited v Calibre Financial Services Limited [2012] NZHC 732 (18 April 2012)

Last Updated: 5 July 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-3862 [2012] NZHC 732

UNDER the District Courts Act 1947

BETWEEN MORTGAGE ADMINISTRATION SERVICES (CALIBRE) LIMITED First Appellant

AND CAIRNS LOCKIE LIMITED (IN LIQUIDATION)

Second Appellant

AND CALIBRE FINANCIAL SERVICES LIMITED

Respondent

Hearing: 20 October 2011

Appearances: S McAnally for Appellants

P Rice for Respondent

Judgment: 18 April 2012

_{JUDGMENT OF PETERS J}

This judgment was delivered by Justice Peters on 18 April 2012 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

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

_{Solicitors: Keegan Alexander, Auckland – email:} [e-mail]

_{Counsel: P Rice, Barrister, Auckland – email:} [e-mail]

MORTGAGE ADMINISTRATION SERVICES (CALIBRE) LIMITED V CALIBRE FINANCIAL SERVICES LIMITED HC AK CIV-2011-404-3862 [18 April 2012]

Introduction

[1] This is an appeal from a decision of a District Court Judge sitting at

Auckland.[1]

[2] Three points were raised on the appeal. However, given the view I take of the matter, it is necessary for me to deal only with the first of these.

[3] The dispute between the parties arises from an agreement between the respondent (“Calibre”) and the first appellant (“MAS”), entered into in or about October 2007 (“agreement”). It is unnecessary to refer in any detail to the second appellant’s position, as its role was to guarantee MAS’ performance of its obligations under the agreement.

[4] The essence of the agreement was that Calibre appointed MAS as one of its “mortgage managers”. MAS was to receive and, subject to certain criteria, refer to Calibre applications by third parties for loans. These applications might be made by a borrower or by a mortgage broker on a borrower’s behalf. Any loan resulting from such an application would be made by a party associated with Calibre, namely Linkloan Trustees Limited (“Linkloan”). If Linkloan made a loan, then MAS was to manage the making of the loan and any subsequent steps required. In return, MAS was paid “establishment” and “management” fees, the latter being referred to as Trailing Servicing Fees (“commissions”). No point arises on the different relationships between Calibre, Linkloan and the borrower.

[5] In about September 2009, the parties disagreed as to MAS’ obligations under the agreement. This disagreement culminated in Calibre terminating the agreement on 25 November 2009 and ceasing to pay commissions. Calibre considered that MAS had breached a contractual obligation to indemnify Calibre for an amount of

$41,888.89, referred to as “the GST sum”. Calibre also contended that MAS’

performance under the agreement had been unsatisfactory and that it was entitled to terminate for that reason also.

(a) An order that MAS indemnify Calibre in respect of the GST sum.

MAS defended this aspect of the claim on the basis that it was not required to pay the GST sum to Calibre and that, in any event, Calibre was insured in respect of the loss of that amount.

(b) A declaration that Calibre was entitled to terminate the agreement on two distinct grounds, namely MAS’ failure to pay the GST sum and MAS’ unsatisfactory performance. MAS disputed the right to terminate and counterclaimed for commissions it contended were due under the agreement.

[7] The Judge determined that:

(a) MAS was required to indemnify Calibre for the GST sum.

(b) The insurance that Calibre held did not cover it in respect of the GST

sum.

(c) Calibre was entitled to terminate because of MAS’ failure to pay the GST sum and MAS’ counterclaim failed accordingly. The Judge made no determination on the issue of whether Calibre might have had other grounds on which to terminate.

[8] MAS appeals each finding. This Court is required to reach its own view on the merits of the appeal.[2]

[9] I am satisfied that MAS’ appeal in respect of the first point should be allowed. That makes it unnecessary for me to consider the second point as to the ambit of the insurance cover. As for the third ground, for reasons set out below, it is

_{necessary to refer the matter back to the Judge for determination.}

[10] The issue on the first ground is whether the Judge erred in finding that MAS

was required under the agreement to indemnify Calibre for the GST sum.

[11] In February 2008 Linkloan made an advance to a third party (“borrower”) of

$437,500.00. The terms on which the advance was made were recorded in a loan agreement (“loan agreement”) which itself comprised two documents, the first being a loan offer between Linkloan and the borrower, and the second being a document called “Home and Investment Property Loans - Booklet of Standard Terms and Conditions”. The advance was secured by a first mortgage over real property. The borrower defaulted and in April 2009 Linkloan sold the mortgaged property by mortgagee sale, for $377,000.00. Linkloan was required to pay GST of $41,888.89, that being the GST sum, on the mortgagee sale.

[12] Calibre demanded that MAS reimburse Calibre for the GST sum pursuant to clause 11.2(a) of the agreement. Clause 11.2(a) reads as follows:

11.2 [MAS] to Indemnify Calibre for Costs

[MAS] must indemnify [Calibre] on demand for:

(a) all stamp duty, taxes, registration and similar fees and charges payable on or in connection with any Secured Agreements, which are payable by the relevant Borrower under that Secured Agreement, and which are not paid by that Borrower; ...

[13] Calibre’s case was that the GST sum fell within clause 11.2(a) on the basis that:

(a) as a tax, it fell within the words “all stamp duty, taxes, registration and

similar fees and charges”;

(b) it was payable “in connection with” the loan agreement between Linkloan and the borrower (“loan agreement”) and that the loan agreement was a Secured Agreement for the purposes of the agreement;

(c) that the GST sum was payable by the borrower under the loan agreement/Secured Agreement;

(d) that the borrower had not paid the GST sum; and

(e) that Calibre had demanded MAS indemnify it accordingly.

[14] There is no dispute as to (d) and (e) above. There is, however, dispute as to (a) and (b) and I consider that MAS is correct in its submission that the Judge erred in her findings on those aspects. I also have reservations as to whether (c) is satisfied.

Secured Agreement

[15] The parties are agreed, and the Judge accepted, that the loan agreement was a

Secured Agreement for the purposes of the agreement.

[16] The agreement defines Secured Agreement as follows:

Secured Agreement means, in relation to a Mortgage, any document or agreement under which any money secured by that Mortgage is or may become outstanding.

As to [13](c) above

[17] It is clear that, under the loan agreement, the borrower might have been required to pay any GST arising from a mortgagee sale of the mortgaged property. Clause 5.3 of the booklet of standard terms and conditions, which formed part of the loan agreement, provided:

5.3 Enforcement expenses

You may have to pay Enforcement Expenses after a default. All Enforcement Expenses are payable on demand or when we debit your Loan Account for them.

[18] An Enforcement Expense was defined to mean:

... any reasonable amount [we] reasonably spend or incur in relation to:

...

any Property, including ... any goods and services or other tax payable by us in connection with the sale of any Property.

[19] Accordingly, the borrower would have become obliged to pay the GST sum if Linkloan made demand or if Linkloan debited the sum to the borrower’s loan account. Calibre pleaded that the loan agreement required the borrower to pay the GST sum but did not plead that Linkloan had demanded the sum or debited the amount to the borrower’s loan account. Counsel for the appellant also seems to have proceeded on the basis that the borrower was required to pay such GST, regardless of any demand or debit, and the Judge likewise. In my view, that is not correct and there needed to be evidence of a demand or debit, or a concession that one had been made.

As to [13](a) and [13](b) above

[20] Coming back to the first part of clause 12.2(a), counsel for MAS submitted that the GST sum was not “stamp duty, taxes, registration and similar fees and charges payable on or in connection with” the loan agreement.

[21] Counsel for MAS submitted that clause 12.2(a) is intended to encompass fees or charges that might have to be paid to ensure that Calibre or Linkloan obtains an enforceable, or perfected, agreement with the borrower. I accept that submission. I consider that clause 12.2(a) is intended to ensure that all amounts required to be paid to obtain an enforceable agreement are in fact paid. In the scheme of things, these are likely to be relatively small amounts. I do not consider the types of charge referred to were intended to include GST that might arise on a sale of the mortgaged property in the event of a default by the borrower.

[22] I note also that, although there is no longer any obligation in New Zealand to pay stamp duty, Calibre commenced operations in Australia[3] and it may be that Australian law requires a party to pay stamp duty before it can sue on a document such as the loan agreement.

[23] Even if the view I have reached in [21] is incorrect, I accept the submission of counsel for MAS that the GST sum was not payable “on” the loan agreement or, as Calibre contended, “in connection with” the loan agreement. The GST sum had to be paid because that is what the Goods and Services Tax Act 1985 required on the mortgagee sale. There is no link between the payment to the Inland Revenue Department of the GST sum and the loan agreement itself. Although GST might be payable as an Enforcement Expense under the loan agreement, as clause 12.2(a) itself makes clear, that is not the same as being “in connection with” the loan agreement. I note also the definition of Enforcement Expense itself, namely “any goods and services ... tax payable by us ... in connection with the sale ...” indicate that the payment of GST arises from the sale, not from the fact of the loan agreement.

[24] Given the view I have reached, it is unnecessary for me to address the further submission of counsel for MAS, namely that it is improbable that the parties to the agreement intended that the mortgage manager should be required to pay the GST on a mortgagee sale if there were a shortfall.

[25] For the reasons given, I do not consider that MAS breached clause 12.2(a) by failing to pay the GST sum to Calibre.

Second ground of appeal – failure to mitigate

[26] That finding renders it unnecessary to determine the next ground of appeal, namely whether the insurance policy covered Calibre in respect of the loss.

Third ground of appeal – termination of the agreement

[27] The Judge determined that MAS’ failure to pay the GST sum constituted a Payment Default under the agreement and that as a result Calibre was entitled to terminate the agreement.4 Given that, the Judge did not have to decide whether Calibre was entitled to terminate for other alleged breaches of the agreement, about which there was considerable viva voce evidence.

[28] The conclusion I have reached on clause 11.2(a) means that the judgment must be set aside to the extent it rests on that determination. Accordingly, I shall remit the matter back the District Court Judge for determination of the issue of whether Calibre was entitled to terminate the agreement for the other reasons pleaded in its statement of claim and for determination of MAS’ counterclaim.

Result

[29] This appeal is allowed in the respect referred to above. I trust the parties will be able to resolve any matters regarding costs but they may submit memoranda if they are unable to do so.

..................................................................

M Peters J

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[1] Calibre Financial Services Ltd v Mortgage Administration Services (Calibre) DC Auckland CIV 2009-004-3175, 31 May 2011

[2] Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5], [13] and [16].

[3] Calibre Financial Services Limited Private Equity Information Pack 1 November 2006, Trial Bundle

502, 503.