ANZ Bank New Zealand Limited v Unka [2014] NZHC 1320 (12 June 2014)

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BETWEEN	ANZ BANK NEW ZEALAND LIMITED Plaintiff
AND	SURESH UNKA and KORIN UNKA as trustees of THE DUBLIN BAY FAMILY TRUST (NO 2) First Defendant KORIN UNKA Second Defendant SURESH UNKA Third Defendant KERAN KANU UNKA Fourth Defendant LESLEY CHRISTINE UNKA Fifth Defendant LARRY WALTER OGG Sixth Defendant CAROL EDITH OGG Seventh Defendant

Hearing:	4 March 2014
Counsel:	S A Barker and B Gnanalingam for plaintiff D D Vincent and A J Watt for defendants
_Judgment:	_{12 June 2014}

ANZ BANK NEW ZEALAND LIMITED v SURESH UNKA and KORIN UNKA as trustees of THE DUBLIN BAY FAMILY TRUST (NO 2) [2014] NZHC 1320 [12 June 2014]

Background........................................................................................................................................ [7] Defendants’ evidence ....................................................................................................................... [19] The Bank’s evidence in reply.......................................................................................................... [24]

Legal Principles ............................................................................................................................... [38]

An arguable defence in this case? ................................................................................................ [41]

Defendants’ counterclaims.............................................................................................................. [46] The Fair Trading Act Allegations against the Bank ..................................................................... [49] The Negligence and Negligent Misstatement Allegations ............................................................ [53] The Breach of Fiduciary Duties Allegations ................................................................................ [54]

The Defendants’ submissions ......................................................................................................... [56] Breaches of the Fair Trading Act ................................................................................................. [57] Negligence .................................................................................................................................... [63] Breaches of alleged fiduciary duties............................................................................................. [66]

The Bank’s submissions .................................................................................................................. [73] Discussion......................................................................................................................................... [87] Alleged Breaches of the Fair Trading Act ......................................................................................... [87] Negligence....................................................................................................................................... [109]

Breaches of alleged fiduciary duties ................................................................................................[118]

Additional considerations in respect of the sixth and seventh defendants....................................... [122] Conclusions on liability ................................................................................................................. [123] Judgment – claims for Principal, Interest and Costs ................................................................. [124] Claims for Post-Judgment Interest .............................................................................................. [126]

[1] The plaintiff (the Bank) has sued the defendants in their capacity as guarantors of loans made by the Bank to three companies:

[2] The first, second, third, fourth and fifth defendants were guarantors of the liability of Seed Group under written guarantees dated 19 November 2003. The sixth and seventh defendants were guarantors of the liability of PHKC under written guarantees dated 11 February 2008, and the sixth defendant guaranteed the liability of RPHN1 under a written guarantee dated 30 May 2006.

[3] The Bank now applies for summary judgment against all defendants. It seeks judgment against the first to fifth defendants in respect of their liability as guarantors of Seed Group, in the total sum of $913,608.92, including interest calculated to

4 March 2014. It seeks judgment against the sixth and seventh defendants in their capacity as guarantors of the liability of PHKC, in the total sum of $1, 064,487.23, including interest calculated to 4 March 2014. It seeks judgment against the sixth defendant in his capacity as guarantor of the liability of RPHN1, in the total sum of

[4] The Bank also claims interest at various contractual rates for the period from

4 March 2014 to the date of full repayment (including interest at those rates for the period after the date of any judgment).

[5] There is no dispute that Seed Group, PHKC and RPHN1 are in default under the terms of their various loans as pleaded by the Bank in its claim. Nor is there any dispute that the defendants have not met demands made of them by the Bank under their respective guarantees.

[6] The dispute arises out of certain matters pleaded by the defendants in a counterclaim dated 20 February 2014. The defendants say that the matters pleaded in the counterclaim provide an available set-off defence which should go to trial, or alternatively provide grounds on which the Court should decline to enter summary judgment in the exercise of its discretion.

[7] Seed Group, PHKC and RPHN1 are all companies which have owned blocks of land which have formed part of, or been contiguous to, the Raumati Shopping Centre (the shopping centre). The Bank made financial accommodation available to

these three companies for the purpose of funding either land purchases or development costs associated with a large redevelopment of the shopping centre.

[8] The three companies are related companies within a group of companies known as the Raumati Property Group, and the defendants are all shareholders in one or more of the companies within the Raumati Property Group. The fourth defendant is the father of the second and third defendants and the husband of the fifth defendant. He conducted the relevant negotiations with the Bank for the financial accommodation made available to the group.

2003. There were subsequent loans to Seed Group, and a “business flexible agreement”. Seed Group defaulted in its obligations to the Bank from 21 April 2010, and those defaults remain un-remedied. Demands were served in April 2011, and notices served under the Property Law Act 2007 on 2 May 2011.

[10] The Bank entered into a home loan agreement with PHKC on 6 May 2010. PHKC defaulted in its obligations to the Bank from 7 November 2010, and the default remains unremedied.

[12] A fourth company within the group, Raumati Property Holdings Management Limited (RPHML), was the central company in the group. It owned the shopping centre land, and it received the largest advance from the Bank, which was the sum of

$3.4 million dollars advanced under a loan agreement dated 12 May 2006. The loan to RPHML was secured by a first ranking mortgage and a general security agreement, and was for a term of two years expiring on 1 June 2008. The loan agreement provided for a floating interest rate, determined by reference to the Bank’s

90 day bill rate, which included priced interest rates applicable to RPHML (as determined by the Bank). The interest rate was to be reviewed every 90 days. RPHML is not a party to this proceeding.

[13] On 15 May 2006, the Bank and RPHML entered into an Interest Rate Swap agreement (IRS). Mr Esquilant, a senior dealer employed by the Bank, explained how an IRS operates in the following terms:

... An interest rate swap allows a customer to nominate a notional amount on which the customer wishes to base exchanged amounts for the duration of the interest rate swap. The benefit for the customer is that it provides protection against increases in the referenced floating rate. It does not however provide protection against changes in credit margins or total funding costs on the associated loan(s). The Bank and the customer agree on a fixed rate applicable for the interest rate swap. The customer receives payments from the Bank on the current floating rate and makes payments to the Bank on the agreed fixed rate. These payments are netted off and the difference is paid or charged by [the Bank] to the customer, as appropriate.

An IRS is a separate agreement, which operates “alongside” the loan agreement to

[14] An example of how an IRS works, provided by the Bank in a slide presentation shown to the fourth defendant as part of the Bank’s proposal for the loan to RPHML, reads:

Swap Rate 7.00%	-1.00%	1.00%
Swap interest adjustments	-5,000.00dr	$5,000.00cr

Total Funding Rate	8.00%	10.00%
Funding Interest expense	-$40,000.00dr	-$50,000.00dr

[15] An “Important Information” section, which was at the end of the slide presentation, contained disclaimers. Relevant provisions included:

Having entered into a swap, each party is bound to the agreement regardless of where rates move. Any termination of the swap will be at the discretion of the Bank at the then market rates.

If any transaction described or referred to in the material is entered into with the Bank, it is entered into on the following terms and conditions. Each party to the transaction is acting for its own account, and it has made its own independent decisions to enter into that transaction and as to whether that transaction is appropriate or proper for it based upon its own judgement and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other. Each party is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, and conditions and risks of that transaction. It is also capable of assuming, and assumes, the risks of that transaction. No party is acting as a fiduciary for or an advisor for the other in respect of that transaction.

To the extent limited by law the bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.

[16] In this case, the notional amount nominated by RPHML for the purpose of the IRS was the full amount of the loan, and the interest rate fixed was

[17] RPHML was unable to repay the loan on 1 June 2008, and requested that the loan be rolled over. The Bank extended the RPHML loan to 30 November 2008. The Bank declined any further rollover of the loan to RPHML. A subsequent demand on RPHML was not met, and receivers of that company were appointed on

[18] The defendants oppose the application for summary judgment on the basis of various alleged breaches of duty by the Bank in respect of the IRS. The defendants say that these duties were owed not only to RPHML but also to Seed Group, PHKC and RPHN1, and to themselves as guarantors of those companies’ liabilities to the Bank. They say that Seed Group, PHKC and RPHN1 all relied on RPHML’s rental income from the retail businesses in the shopping centre to meet their own commitments, and that the various breaches by the Bank of its obligations to RPHML resulted in RPHML’s rental income being insufficient for RPHML to meet its obligations to the Bank. RPHML was consequently unable to fund Seed Group, PHKC and RPHN1, resulting in those companies defaulting on their loans.

[19] There was one affidavit filed by the defendants in opposition, being that of the fourth defendant. It is common ground that the fourth defendant, although not a director of RPHML, effectively managed that company for its director, Mr Lambert, and was the principal party representing the Raumati Property Group in all negotiations with the Bank.

[20] In his affidavit, the fourth defendant stated that the Raumati Property Group was able to borrow funds for the overall project in excess of the income flows for some of the smaller companies in the group (for example PHKC) on the basis of the value of the project properties as a whole, and the income generated across the group. He said that the Bank had always been aware of the inter-dependency and inter-mingling of affairs within the group, and had treated the companies as a single group for lending, security and interest payments. He said that some of the companies in the group were in fact incorporated on the advice and at the direction of the Bank’s commercial manager, so the group could maximise the borrowings which could be secured over the individual properties.

[21] The fourth defendant deposed that because the project was part of a commercial development, the Bank’s commercial manager advised that the loans would be interest only, with short term agreements of 12 to 24 months which would be rolled over. Once the development was finished it could then be financed on a long term basis.

[22] The fourth defendant’s evidence was that the IRS was promoted by the Bank through one of its specialist commercial lenders (Mr Lawrence), and by Mr Esquilant. The fourth defendant said that the reason an IRS was promoted to RPHML was that there was a concern about rising interest rates in 2006, and there was a desire to keep RPHML on a fixed rate beyond two years. The fourth defendant’s evidence was that the IRS was promoted by the Bank as being at no risk to RPHML. According to the fourth defendant, the IRS was touted as being profitable for both RPHML and the Bank.

[23] The fourth defendant also stated that the Bank promoted the IRS on the basis that its staff would monitor the interest rates 24 hours per day, and if a shift in interest rates meant that RPHML was entitled to a profit, it would be able to access that profit. He said that the IRS was promoted as a fixed rate tradable financial vehicle that would be beneficial to both parties and would augment the existing relationship with the Bank.

[24] The Bank submitted three affidavits in reply. First, there was an affidavit by Mr Esquilant. In his affidavit, Mr Esquilant acknowledged that he met the fourth defendant in 2006 in relation to the Bank’s lending to RPHML. He also acknowledged that he and Mr Lawrence discussed IRSs with the fourth defendant.

[25] Mr Esquilant stated that the fourth defendant was a qualified financial planner with a strong commercial background as a director of various companies associated with rest homes. Further, Mr Lambert, RPHML’s sole director, was a director of a number of other companies.

[26] Mr Esquilant’s evidence was that the IRS was offered as a way of fixing the base interest rate beyond the two year loan term. It would help provide certainty for the business, compared to a floating rate or short term fixed rate loan.

[27] Mr Esquilant said in his evidence that RPHML’s failure to repay the loan on its due date was unconnected to the IRS. The Bank did not adjust its margin on the loan between the loan commencement date in May 2006 and the extended repayment date of 30 November 2008. The floating interest rate during the first two years of RPHML’s facility was higher than the fixed swap rate plus credit margin. That meant that the Bank made netting payments under the IRS to RPHML. December 2008 was the first month that the floating interest rate fell below the fixed swap rate plus credit margin, and RPHML was required to make a netting payment to the Bank.

[28] In his affidavit, Mr Esquilant referred to a number of disclaimers contained in

the Bank’s Terms and Conditions of Institutional Financial Markets Transactions.

On the first page of these terms and conditions, customers were warned that derivatives transactions can be complicated and expose customers to risk. Derivatives markets were said to be highly volatile, and the prices of underlying rates were said to be capable of fluctuating rapidly over wide ranges. Customers were expressly warned that they could suffer substantial losses as a result of those fluctuations. The text recorded that the Bank would not be liable for such losses in any circumstances, and went on to advise:

... It is the customer’s responsibility to understand the nature of the transactions the customer enters into, the risks associated with those transactions, and to monitor the transactions. The customer should not enter into transactions if the transactions or the risks are not understood.

Independent Advice: The customer has entered into and will enter into each Transaction and the Agreement in reliance on such independent advice (including tax, legal and financial advice) as the customer considers necessary and not on any representation or information made or given by the Bank. To the maximum extent permissible by law, the Bank will not be liable for the Customer’s loss in any circumstance.

a) Is capable of assessing the merits of and understanding (on its own behalf or through independent expert advice) and understands, accepts and assumes the terms, conditions and risks of that Transaction and the Agreement;

b) Is satisfied that the Transaction is suitable for its objectives, financial situations and needs; and

[31] Finally, Mr Esquilant referred to cl 14.2 of the terms and conditions, which provided:

Entire Agreement: The agreement contains all of the terms, representations and warranties made between the parties with respect to its subject matter and supersedes all prior discussions and agreements relating thereto.

[32] The second reply affidavit for the Bank was that of Mr Cooper, a manager of lending services for the Bank.

[33] Mr Cooper stated that RPHML was unable to repay the loan when it matured on 1 June 2008, and that on 30 July 2008 the Bank approved an additional facility of

$68,000 when rolling over the principal debt. The total overdraft limit for RPHML was increased to $153,000 at that stage, and was to expire on 30 November 2008. The Bank advised RPHML on 30 July 2008 that any further funding for the proposed development would have to come from other sources.

[34] Mr Cooper said that, from September 2008, the fourth defendant was advising the Bank that he would obtain second tier financing to repay the Bank debt. Various promises to refinance or to sell came to nothing.

[35] On 14 November 2008, the Bank sent an email to the fourth defendant stating that the RPHML facility would expire on 30 November 2008. The fourth defendant asked for a meeting to discuss an extension, stating that the reason for the delay in the Raumati development (and the reason for the extension request) was that “funding sources [were] suddenly and unexpectedly drying up”. Mr Cooper said that the Bank told the fourth defendant that the RPHML loan was above the Bank’s desired loan to value (LVR) ratio.

[36] Mr Cooper referred to a letter dated 23 February 2009, in which the fourth defendant blamed the IRS for RPHML’s failure to comply with the loan agreement. Mr Cooper’s response was that the IRS had been “positive” for RPHML until December 2008.

[37] The third affidavit for the Bank was that of Mr Vance, one of the receivers. This affidavit was principally directed to steps taken following receivership to realise assets. The defendants have not taken issue with the quantum of the Bank’s claims, so it is unnecessary to refer to this affidavit any further.

[38] The following general principles to be applied in considering an application for summary judgment have been established by decisions of the Court of Appeal:¹

(1) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim brought against it. The question is whether there is a real question to be tried.

(2) It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, although they may be complex, can be determined in an application for summary judgment.

(3) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.

12.2 or 12.3 that the defendant has a counterclaim that ought to be tried, the court—

(a) may give judgment for the amount that appears just on any terms it thinks just; or

[40] Rule 12.2(2) imports a measure of flexibility, allowing the Court to fashion a just result where, although the defendant may have no defence to a claim, it has a

_{possibly meritorious counterclaim. Rather than give an immediately
enforceable}

¹Pemberton v Chappell [1987] 1 NZLR 1 (CA), Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8 (CA) and Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).

judgment to the plaintiff on the plaintiff’s claim (perhaps allowing the plaintiff to bankrupt the defendant before the latter’s counterclaim can be brought to judgment and offset), the Court may either:²

(1) grant the plaintiff summary judgment accompanied by a stay of execution of such judgment pending resolution of the counterclaim; or

(2) dismiss the summary judgment application, directing trial of both claim and counterclaim.

In Pemberton v Chappell, Casey J noted that a first impression of r 12.12(2)(a) is that the discretion to enter judgment on terms protects a defendant having no defence while bringing a counterclaim.³

[41] The first question is whether the defendants have an arguable defence. The only defence for which they contend is the defence of set-off.⁴

[42] The law of New Zealand recognises two forms of set-off which a defendant may raise. The first form, under the old Imperial Statutes of Set-Off,⁵which remain in force in New Zealand,⁶permits the set-off of mutual debts. This kind of set-off is limited to liquidated claims, and I consider it can have no application to this case. The defendants’ claims are clearly unliquidated claims for damages.

[43] The kind of set-off on which the defendants must rely is equitable set-off. It was described by the Court of Appeal in Grant v New Zealand Motor Corporation

... The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.

[44] The question, then, is whether the defendants have made out an arguable case for the existence of such a set-off. In particular, is there a sufficient degree of interdependence between the counterclaims and the Bank’s claims under the guarantees?

[45] If they have made out an arguable case, the application for summary judgment must be dismissed. If they have not, the questions will be:

[46] The defendants plead three causes of action in their counterclaim: (1) breaches of ss 9, 11 and 13 of the Fair Trading Act 1986; (2) negligence and negligent misstatement; and

[47] The defendants say that the risks to RPHML inherent in the IRS were not adequately explained to RPHML at the time it entered into the IRS. They say the Bank subsequently failed to monitor the IRS and provide advice to RPHML from time to time that would ensure that RPHML’s interest exposure under the loan was managed to its best advantage.

[48] The defendants also plead that in late 2008 when the Bank refused to roll over the existing loan and instead demanded full repayment, RPHML was unable to reduce the debt to equity ratio. The various defaults referred to in the Bank’s statement of claim followed as RPHML’s income was insufficient to meet the additional costs from the swap arrangements over 2008 and following, and the penalty interest charged thereafter.

[49] The Fair Trading Act cause of action is solely concerned with the IRS. The defendants say misrepresentations were made. The defendants refer to the Bank’s 1

May 2006 proposal for the loan of $3.4 million to RPHML. They point to a section of the May 2006 slide presentation made by Mr Esquilant headed “Interest Rate Risk Management”. In it, the Bank stated that an IRS would provide a known “fixed” interest rate for the term chosen, and benefits would be paid out on advantageous movements.

[50] The defendants also referred in their counterclaim to Bank brochures which were said to have been provided to the fourth defendant on behalf of the Raumati Property Group, explaining IRSs. Copies of these brochures were not produced in evidence, but the defendants allege in their counterclaim that the brochures stated that:

(2) an IRS would be “negotiable, allowing quick entry and exit from the market and can be restructured”; and

defendants’ group, in or about May 2006, that the group’s decision to enter into an

IRS arrangement would “augment” the “partnership relationship” with the Bank

[52] The defendants say that they relied on those representations by the Bank, and they “directed RPHML to borrow $3.4 million from the Bank and to enter into an IRS agreement for the payment of interest on that loan”. They contend that, at all material times, the Bank knew that they were relying on the Bank’s representations, and were not sophisticated investors. The defendants say the Bank knew that they would be dependent on the Bank to manage the IRS arrangements for them. The defendants also say that the Bank knew that they were relying on obtaining a fixed interest rate equivalent through the use of the IRS in their costing of the redevelopment project.

[53] The defendant’s negligence cause of action goes wider than the Fair Trading Act cause of action. It pleads that the Bank breached a duty of care in making the alleged representations about the IRS, and adds allegations that the Bank breached an alleged duty to exercise reasonable skill and care in:

(1) managing the IRS so as to minimise loss to RPHML in the period from December 2007 to December 2008;

(2) recommending or implementing adequate risk management strategies to RPHML in that period;

(3) sufficiently advising RPHML of the balance of funds standing to its credit in the IRS swap account, so that RPHML could itself take steps to manage its exposure under the IRS; and

(4) unilaterally increasing the margins on the loan in late 2008 and requiring the debt/equity ratio to be improved, and then refusing to roll over the loan when the extended term expired in November 2008.

[54] The defendants plead that the Bank owed a fiduciary duty to them. The fiduciary relationship is alleged to have arisen out of a number of matters, including:

(3) the Bank having proposed the IRS to the defendants on the basis that it would “augment” the “partnership arrangement” between the defendants and the Bank. The Bank’s local branch manager was said to have assumed the position of a financial advisor.

[55] The defendants allege that between December 2007 and December 2008 the Bank failed to manage the IRS appropriately for RPHML, and by December 2008 the swap account had fallen from a credit figure of $168,385 to a debit figure of

(1) liaise with RPHML about the IRS and adequately advise of the balance in the swap account;

(2) advise RPHML that it was able to cash out of the swap account at a profit in early 2008; and

(3) advise RPHML of appropriate strategies to minimise its interest rate exposure.

[56] The defendants say that the Bank’s refusal to roll over the $3.4 million loan to RPHML in November 2008 is at the heart of their counterclaims. They say that the IRS was fixed for five years to June 2011 in the expectation of the loan being rolled over at least until that date.

[57] The defendants say that the decision not to roll the loan over occurred in late

2008, just as the global financial crisis was unfolding. They submit that the Bank reacted to these wider economic issues unfairly by requiring a greater LVR than they had required before, and increasing the interest cover required on the loan. They allege the Bank “changed its lending parameters” at this time, requiring a maximum LVR of 60 per cent and a minimum interest cover of 1.5 times. In order to meet those criteria, the Bank stated that the loan principal would need to be reduced by

$200,000 to $3.2 million. RPHML was unable to meet those requirements, and the loan was placed in default.

[58] In the course of the oral argument, I asked Mr Vincent to identify any duty which the Bank is said to have owed the defendants to roll over the loan in November 2008. Mr Vincent acknowledged that it would be difficult to argue that the Bank could not change its LVR or interest rate cover requirements, but submitted that in exercising its discretion to change its lending requirements the Bank was subject to the duties pleaded in the counterclaim.

[59] With respect to the alleged mismanagement of the IRS, the defendants submitted that there appeared to have been no proactive management of the IRS by the Bank, and in particular no strategic options provided to the defendants for restructuring their IRS arrangements. Specifically:

(1) no advice was given about the use of the balance in the swap account (by November 2008 the IRS swap account was said to have been significantly in credit, in a sum which would have been over

(2) the prospect of falling interest rates was not taken into account and a risk strategy implemented.

The defendants submitted that, throughout the later part of 2008, it was clear that interest rates would fall significantly, and that this would have a major impact on IRS arrangements like RPHML’s.

[60] In his oral submissions, Mr Vincent referred to the slide presentation made by Mr Esquilant in May 2006 in which, under a heading “What We Do ....”, the Bank stated that its rural banking interest rate risk management is about utilising interest rate market specialists equipped with strong market knowledge and flexible tools to recognise those opportunities and threats, to proactively manage this risk. The same page in the slide presentation referred to the Bank educating rural managers and clients about alternative products available to manage interest rate risk, and “advise and recommend [to rural managers and clients] interest rate risk strategies, including appropriate fixed rate exposure and optimal product mix to achieve financial objectives”.

[61] The defendants contend that the Bank had a duty to proactively manage the IRS risk. Mr Vincent contrasted the fact that on 22 April 2008, approximately two months before the RPHML loan was due to expire, the Bank provided RPHML with a range of options set out in a document called “Interest Rate Strategy”, with the absence of any “proactive” advice from the Bank in the weeks prior to November

2008 (when the six month extension was due to expire but the IRS still had approximately two and a half years of its term to run).

[62] Although certain disclaimers were contained in the Bank’s May 2006 documents, the defendants submitted that the documents were not signed by them (they were signed by Mr Lambert), and that they themselves did not receive them. They submitted that one cannot contract out of the Fair Trading Act:⁸disclaimers will be considered as part of the factual matrix in determining whether there has been misleading conduct, and if so, whether it has been causative of loss. They submitted that any effect of the disclaimers should be dealt with at trial on consideration of all the evidence.

[63] On the negligence counterclaim, the defendants submitted that in appropriate circumstances a duty of care can be owed by a bank to guarantors of bank lending.⁹

They accepted that the guarantors in this case did not guarantee the loan to RPHML;

they guaranteed what Mr Vincent described as “associated loans” to other companies. But in the defendants’ submission there was a special relationship between the parties which gave rise to a duty of care from the Bank to them as guarantors. Mr Vincent submitted that the duty was breached by the manner in which the Bank:

(1) misstated the IRS arrangements; (2) managed the IRS agreement; and (3) refused to roll over the loan.

[64] Mr Vincent submitted that the issue of whether a duty of care was owed by the Bank to all, or at least some, of the defendants turns on the nature of the relationship between the parties and the foreseeability of damage. Those were said to be material factual issues which are inappropriate for resolution on a summary judgment application.

[65] In his oral submissions, Mr Vincent accepted that his clients were asking the

[66] On their third cause of action, the defendants submitted that a fiduciary duty can be found where a Bank has taken on the role of an adviser to a customer, such that the customer is placing trust and confidence in the Bank that it is acting in the customer’s best interests. A fiduciary relationship can also arise where the Bank and

[67] The defendants relied on Pacific Industrial Corporation SA v BNZ where, on the particular facts of the case, Thomas J found it likely that there was a fiduciary relationship.¹¹In that case, the bank had agreed to lend money to the fourth plaintiff, Nauhria Properties Limited. By mid-1989, Nauhria’s financial position was

precarious, and it approached the second plaintiff, Comcraft Asia Private Limited (Comcraft), for assistance. Comcraft agreed to assist with a substantial investment in Nauhria, but it was essential that various loan facilities from the bank would continue.

[68] The bank indicated its acceptance of a seven year period and a pricing structure for an extension of Nauhria’s existing facility. There were further delays between Comcraft and Nauhria, and the bank eventually made demand of Nauhria for repayment of the existing facility. Comcraft then made good Nauhria’s defaults in meeting the bank’s conditions, and sought an injunction to restrain the bank from exercising its powers of possession and sale under its mortgage from Nauhria. Comcraft said that the sale would lead to the collapse of Nauhria, and would cause Comcraft to lose the substantial investment it had by then made in Nauhria in reliance on the bank’s undertaking to extend its funding.

[69] Thomas J considered in those circumstances that it was arguable that a fiduciary relationship existed between Comcraft and the bank in November 1989, and that this fiduciary relationship required the bank to negotiate directly with Comcraft over any modifications to the bank’s proposal, and to refrain from calling up Nauhria’s mortgage at least until Comcraft had the opportunity of rectifying Nauhria’s default.

[70] Mr Vincent submitted that the circumstances may be similar in the present case, particularly with the sixth and seventh defendants, who committed to the shopping centre project in May 2006 by guaranteeing related borrowing and by mortgaging their personal properties.

[71] In this case, the defendants submitted that the Bank stepped out of the role of simply being a lender, and became an adviser. The defendants repeated their submission that the cause of action is entirely fact specific, and cannot be resolved at summary judgment level on affidavit evidence.

[72] In conclusion, the defendants submitted that their claims against the Bank provide them with a set-off against the Bank’s claim: the Court cannot in fairness

look at the specific loans and defaults in isolation from the redevelopment as a whole.

[73] The Bank submitted that the counterclaim does not raise any real question to be tried. It contended that there is no justification for the Court treating separate lending with separate security as being interrelated, when all alleged breaches were separate from each other. Nor is there any basis on which the contractual provisions entered into by the various parties should be disregarded.

[74] In answer to all of the defendants’ counterclaim causes of action the Bank:

(2) submitted that RPHML’s losses were caused by its own breach of contract in failing to repay the loan on the 30 November 2008 due date (noting that RPHML had not lost anything on the IRS by that date).

[75] Further, the Bank submitted that there is no basis in the evidence to conclude

[76] The Bank says that this counterclaim is out of time under s 43(5) of the Fair Trading Act. Any “loss” would have occurred from about December 2008, and RPHML was aware of the relevant circumstances at that time. The three year time limit had expired well before the counterclaim was filed in this proceeding.

[77] The Bank elected not to reply in substance to the various allegations of misrepresentation associated with the IRS which were made in the counterclaim or in the fourth defendant’s affidavit. There was no affidavit in reply from Mr Lawrence, one of the bank officers who was substantially involved in the discussions with the fourth defendant at the time. Mr Esquilant’s affidavit, apart

from explaining how IRSs work generally, stated only that he emphasised in discussions with the fourth defendant that the IRS is a separate process to the loan itself, and that the IRS was offered to the fourth defendant as a way of fixing the base interest rate beyond the two year loan term and would help provide certainty to the business, compared to a floating rate or a short term fixed rate loan.

[78] Instead, the Bank relied on clauses in the IRS documents which it says effectively excluded any liability on the part of the bank for breach of the Fair Trading Act.

[79] The first such clause was set out prominently on page 3 of the IRS agreement itself, a few lines above the place where Mr Lambert signed the document for RPHML. The clause reads:

Each party agrees that it has not relied on any advice (whether oral or written) from the other party other than as set out in this confirmation) and that:

[80] For the Bank, Mr Barker noted that a duty of care has been found to exist by the English courts when a bank has taken it upon itself to advise on the merits of the transaction.¹²

[81] Mr Barker submitted that the subject matter and value of the IRS was substantial enough to justify the expectation that the parties understood the terms and conditions and intended to be bound by them. RPHML’s sole director Mr Lambert was known to be an experienced company director, and the fourth defendant had extensive experience as a director of various rest-home companies.

[82] Mr Barker further submitted that there is no New Zealand case in which an argument that a lender is liable to a borrower, in tort, has been successful. He

referred to a number of authorities in support of that proposition.¹³He also referred to Warne & Elliott Banking Litigation where the authors state:¹⁴

... A banker cannot be liable for failing to advise a customer if he owes the customer no duty to do so. Generally speaking, banks do not owe their customers a duty to advise them on the wisdom of commercial projects for the purpose of which the bank is asked to lend them money. If the bank is to be placed under such a duty, there must be a request from the customer, accepted by the bank, under which the advice is to be given.

[83] The Bank denied the existence of any duty of care to the defendants or to RPHML, but if any duty of care is found to have existed, the Bank denied that it was breached.

[84] In the present case, Mr Barker submitted that there was no special relationship between RPHML and the Bank beyond the ordinary lender/customer relationship. Further, the Bank had no fiduciary relationship with the defendants in respect of the RPHML lending. The defendants were not parties to, or guarantors of, the RPHML lending (or the IRS) until 26 August 2011 when cross-guarantees were entered into among RPHML, PHKC and Seed Group. By then, all issues relating to the IRS, and the Bank’s decision not to extend the RPHML loan beyond November

[85] In reply to the defendants’ reliance on Pacific Industrial Corporation SA v Bank of New Zealand, Mr Barker submitted that the decision was made on an interim injunction application on an urgent basis. Thomas J acknowledged in the decision that his findings on both fact and law were tentative. In Taylor v Bank of New Zealand Panckhurst J considered Pacific Industrial Corporation SA to be of limited

¹³Eadie v National Bank of New Zealand Ltd HC Auckland, CP1290/91, 12 December 2001; Frost v James Finlay Bank Ltd [2001] All ER 261; National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51.

¹⁴_{David Warne and Nicholas Elliott Banking Litigation
(Sweet & Maxwell, London, 1999) at 36.}

... A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single- minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations.

[87] The alleged misleading and deceptive conduct that underpins the defendants’ Fair Trading Act cause of action concerns the manner in which the IRS was sold to RPHML. The defendants say that although the representations were made to RPHML, the Bank was aware that they were received and would be relied upon by the defendants and the group as a whole.

[88] In response, the Bank relies on the “entire agreement” clause in the IRS, and on a number of disclaimers or exclusion of liability clauses contained in the contract documents which governed its relationship with RPHML, or in material provided by the Bank to the fourth defendant. It also says that any misleading or deceptive statement by its employees did not cause the defendants any loss.

[89] In addition to the entire agreement clause in the IRS, in the loan agreement between the Bank and RPHML, RPHML expressly acknowledged that “no representation, warranty or undertaking has been made by or on behalf of the Bank in relation to the loan which is not expressly set out in this agreement”. RPHML further acknowledged that in deciding to obtain the loan and or to proceed with the transaction, RPHML had not received or relied on any advice given by or on behalf

¹⁶Arklow Investments Ltd v MacLean [2000] 2 NZLR 1 (PC) citing Bristol and West Building

[90] The Bank also relies on the fact that the IRS agreement was expressly made subject to the Bank’s Terms and Conditions of Institutional Financial Markets Transactions, and the IRS agreement recorded that a copy of those terms and conditions had been provided to RPHML. Those terms and conditions contained the exclusion clauses set out at paragraphs [28] - [31].

[91] In considering the entire agreement and exclusion clauses, it is appropriate to acknowledge that the Courts have long held that it is generally not possible to contract out of the Fair Trading Act.¹⁷The justification for this is that, as the Fair Trading Act is consumer protection legislation, it would be contrary to its protective policy to allow contracting out.¹⁸However that does not mean that the presence of an entire agreement or exclusion clause will not be relevant to the questions of whether what was represented was in fact misleading or deceptive, whether it was reasonable for the plaintiff to rely on it if so, and whether any loss has been caused by the misrepresentation.

[92] For the Bank, Mr Barker referred to the Court of Appeal decision in Brownlie v Shotover Mining Limited, where an entire agreement clause was upheld by the Court.¹⁹That case involved a commercial contract relating to the sale of a gold mining licence, and the representations relied upon by the respondent were not included in the written contract. In the agreement, the respondent acknowledged that it had purchased the licence solely in reliance on its own judgment and not upon any representation or warranty by the appellant. Each party obtained separate legal advice.

[93] The Court of Appeal in Brownlie held that if the parties had not agreed to include express warranties in their written contract, then it was reasonable for them to state expressly that verbal warranties were excluded. The subject-matter and the value of the transaction were sufficiently substantial to justify the expectation that

_{each party would be familiar with its terms and intended to be bound by
them.}²⁰

¹⁷Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83 at 98-99; Picture

Perfect Ltd v Camera House Ltd [1996] 1 NZLR 310 (HC) at 317; David v TFAC Ltd [2009] 3

[94] In PAE (New Zealand Ltd) v Brosnahan the Court of Appeal applied the principles in Brownlie to a contract for a sale of shares containing an entire agreement clause.²¹During the negotiation process, the appellant relied on information provided by the directors. The issues raised on appeal were concerned with the effect of the entire agreement clause in the contract under both the Contractual Remedies Act 1979 and the Fair Trading Act.

[95] The Court of Appeal held that the appellant acted unreasonably in relying on the representations, and that the directors’ conduct did not cause the appellant’s loss. The essential elements of the appellant’s claims under the Contractual Remedies Act and the Fair Trading Act were similar. Each was based upon the existence of a misstatement, and each required proof of reasonable reliance and thus causation of loss.

[96] The Court of Appeal referred to various mechanisms used by drafters of contracts to attempt to circumvent the bar on contracting out of the s 9 Fair Trading Act statutory prohibition on misleading or deceptive conduct.²²One such mechanism has been the entire agreement clause. The Court of Appeal considered that while such a mechanism is not determinative, it has been accepted that it may be relevant to the s 9 Fair Trading Act analysis. An exclusion clause will affect liability for misleading or deceptive conduct only if it deprives the conduct of its misleading or deceptive quality, or breaks the causal connection between the conduct and loss.²³

[97] The Court of Appeal in PAE noted that the relevant contractual provisions in the case did not purport to affect or alter the legal character of the directors’ pre- contractual conduct. Instead, the clauses acknowledged the existence of representations, without commentary on their accuracy or otherwise, and recited the parties’ consensus that, first, the contract constituted their entire agreement, thus

... The parties were agreeing, in unequivocal terms at PAE’s instigation, that what the directors had said and done before the agreement no longer mattered. Effectively, they drew down the curtain of liability, excluding from it all preceding conduct. By this means, they also broke the chain of causation: s 43 FTA ... There is nothing in this agreement and in its particular commercial context which was contrary to public policy, or to the underlying purpose of the FTA...

[99] Mr Vincent pointed out for the defendants that the contractual warranties and disclaimers in the lending contract were not signed by the defendants: they were signed only by Mr Lambert as a director of RPHML. The defendants did not themselves provide any contractual warranties nor did they receive any contractual disclaimers. But it is not suggested that the terms of the proposed IRS were not made available to the fourth defendant before the IRS was signed, and I do not think the defendants can have their cake and eat it on this issue. They are seeking to rely on alleged misrepresentations made to the fourth defendant on their behalf, and the court must take into account all relevant material communicated by the Bank to the fourth defendant, including the entire agreement clause and the various disclaimers.

[100] I do not accept that the fact that a number of the defendants were not parties to the negotiations makes this case different from PAE. If and to the extent that there may have been relevant misrepresentations made to RPHML in the negotiations for the IRS, RPHML and the Bank agreed that those misrepresentations would have no effect, and that RPHML would rely on its own analysis of the proposed IRS. If that agreement was not communicated by the fourth defendant to the other defendants at the time, any loss suffered by them has not been caused by any misrepresentation by the Bank but by the fourth defendant’s failure, or RPHML’s failure, to advise them that the representations could not be relied upon if RPHML decided to proceed and enter into the loan and IRS agreements.

[101] It seems to me that the entire agreement clause in this case was intended to achieve precisely the same result as the entire agreement clause in PAE: what may have been said or done by the Bank before the date of the agreement no longer

_{mattered. As in PAE, that was sufficient to break the chain of
causation for the}

purposes of s 43 of the Fair Trading Act. For that reason, and for the reasons set out below, I do not believe that the defendants have an arguable defence under the Fair Trading Act.

[102] The first additional reason is that a breach of the Fair Trading Act requires that there must have been a misrepresentation of some sort.²⁶And a “misrepresentation” must be a misrepresentation about some existing fact.²⁷In this case, I do not think that any failure by the Bank to do anything it said it would do at the time that RPHML entered into the IRS agreement could be considered a

misrepresentation of an existing fact. A failure to honour a commitment is normally a matter of contract law rather than misleading or deceptive conduct under the Fair Trading Act, especially when there is no suggestion (as there is not in this case) that the Bank promised to do things or take steps that it knew it had no intention of doing.

[103] Secondly, I am not satisfied that the defendants have made out an arguable case that any breach of the Fair Trading Act by the Bank has caused them any loss. For the reasons which are discussed in more detail in the next section of this judgment, the real cause of the loss to RPHML was its inability to repay the Bank on the extended due date. Its IRS account did not fall into debit until after the time when the loan should have been repaid.

[104] Thirdly, the defendants’ claim that the IRS was promoted by the Bank as being at no risk to RPHML does not seem to me to be consistent with the warnings about the risks of such transactions which were contained in the contract documents,²⁸or with the Bank’s slide presentation on which the defendants rely.

The example of how the IRS might work provided in the slide presentation²⁹plainly

showed that, at any point in the duration of the IRS, RPHML could have been in a

_{credit or debit situation, depending on fluctuations in the Bank’s
bill rate.}

²⁷Bonz Group (Pty) Ltd v Cooke (1996) 5 NZBLC 104,188 at 104,193 (CA); Hornsby Building

²⁸Terms and Conditions of Institutional Financial Markets Transactions: “It is the customer’s responsibility to understand the nature of the transactions the customer enters into, the risks associated with those transactions, and to monitor the transactions. The customer should not enter into transactions if transactions or the risks are not understood”.

[105] Fourthly, I am of the view that any misleading or deceptive conduct in which the Bank may have engaged in its relationship with RPHML (I make no finding that there was any such conduct) would be too far removed from the obligations undertaken by the defendants in guaranteeing the indebtedness of other companies in the Raumati Property Group, for it to be said that issues in the Bank’s claim and the defendants’ Fair Trading Act claims are “inextricably linked”, to the point where it would be unjust to allow the Bank to obtain judgment on its claims without bringing

the defendants’ counterclaim to account.³⁰The respective rights and obligations of

the Bank and RPHML were carefully and fully set out in one set of documents (which made it plain that any statements made by Bank employees were not to be relied upon). The respective rights and obligations which were to apply as between the Bank and each of the defendants were carefully set out in separate sets of documents, completed on different dates and no doubt subject to different considerations.

[106] Furthermore, the defendants must be taken to have known (through the fourth defendant who negotiated on their behalf) that if RPHML were to suffer loss as a result of any statement made by employees of the Bank with regard to the IRS, RPHML would have no claim against the Bank for that loss. In the foregoing circumstances, I see no inequity in permitting the Bank to enforce the guarantees without waiting for the defendants to prosecute claims which, if they had any validity, could have and should have been brought by RPHML.

[107] Having regard to all these considerations, I am not satisfied that the defendants have raised an arguable set-off under the Fair Trading Act, and accordingly that defence to the summary judgment application is rejected.

[108] The Bank also submitted that the counterclaim under the Fair Trading Act is time-barred under s 43(5). On the face of it that argument appears to have merit, as the defendants raised their concerns about the IRS as early as February 2009 in a letter from Mr Unka to the Bank. However in light of my findings as set out above it

_{is not necessary to rule on this issue: I am satisfied that the
defendants have raised}

³⁰Grant v New Zealand Motor Corporation Ltd, above n 7, at 12. Equitable set-off is available only where the competing claims are inextricably connected and it would be unjust to allow the plaintiff to have judgment without bringing the counterclaim to account.

neither an arguable set-off nor an arguable counterclaim, regardless of whether their

[109] The first requirement for the defendants was to show that the Bank owed them a duty of care as guarantors of the Seed Group, PHKC, and RPHN1 banking accommodation. Mr Vincent submitted that, depending on the facts, a bank may owe a duty of care to a guarantor.³¹

[110] The first point to be made is that the defendants did not guarantee the loan to RPHML. They guaranteed separate loans from the Bank to other companies associated in one way or another with the Raumati Shopping Centre redevelopment.

[111] The second point is that the defendants’ claim to loss is entirely dependent upon the Bank having owed the defendants some duty to extend or roll over the RPHML loan beyond 30 November 2008, when RPHML fell into debit under the IRS.

[112] The loan to RPHML was for a term of two years, expiring in June 2008. RPHML was unable to pay the loan when it matured on 1 June 2008, but the Bank agreed to a six month extension to 30 November 2008. The facility expired unremedied on 30 November 2008.³²Absent any agreement for a further extension or rollover, the Bank was entitled to full repayment on 30 November 2008.

[113] The table produced by Mr Esquilant as exhibit SJE1, shows that throughout the term of the loan, including during the rollover period to 30 November 2008, the floating interest rate applicable to the interest rate swap was higher than the fixed swap rate under the IRS plus the credit margin payable by RPHML. Mr Esquilant explained in his affidavit that, during the extended period of the loan, the Bank made netting payments to RPHML, and December 2008 was the first month that the

_{floating interest rate was below the fixed swap rate plus credit margin.
The first}

³¹Shotter v Westpac Banking Corporation, above n 9; Westpac Banking Corporation v McCreanor

point in time when RPHML was obliged to make a netting payment to the Bank was in December 2008, by which time RPHML (absent any agreed extension) should have already repaid the full amount of the loan to the Bank. In those circumstances, the defendant cannot have suffered any loss as a result of either the entry into the IRS by RPHML or its management by the Bank during the term of the loan.

[114] The loan agreement itself required repayment in full on 1 June 2008. It is true that in an early proposal dated 1 May 2006, the Bank proposed to RPHML that if it wished to fix the interest rate beyond the two year loan term, it would be necessary for the company to enter into an IRS agreement. The Bank provided an indicative floating interest rate and fixed rates for terms ranging from six months to five years.

[115] But while the possibility of the loan being extended beyond the two year period was allowed for in the loan agreement executed by the Bank on 12 May 2006 and by RPHML on 30 May 2006, the mechanism by which the loan might extend beyond the stated two year term was dealt with on a discretionary basis. Clause 12 of the loan agreement provided that the Bank might at any time “following a request from the Customer extend the term of the Loan”.

[116] In all of the correspondence which was produced prior to the expiry of the extended term on 30 November 2008, my attention was not drawn to any document which appeared to suggest that the fourth defendant believed that RPHML was then entitled to a further rollover when the loan expired on 30 November 2008. Nor was Mr Vincent able to identify any such entitlement in his submissions made at the hearing. And if RPHML itself had no contractual entitlement to require an extension of the loan beyond 30 November 2008, I do not consider it seriously arguable that the Bank owed a duty in tort to guarantors of associated companies within the Raumati Property Group to provide RPHML with a right for which it had not bargained.

[117] In those circumstances, I am not satisfied that the defendants have made out an arguable case that any negligence by the Bank concerning the IRS has caused them any loss. The Bank was entitled to repayment of the loan on 30 November

2008, and on that date RPHML’s account with the Bank under the IRS was in credit. The losses have instead been caused by the inability of RPHML to attract an equity investor or investors, or refinance the loan when it fell due at the end of the extended term.

[118] There is no general rule that a bank owes a fiduciary duty to a customer in an ordinary lender and borrower transaction.³³The existence of a fiduciary relationship and fiduciary duties outside relationships which are inherently fiduciary, is dependent on the facts of the particular case.³⁴A fiduciary relationship will arise in addition to relationships which are inherently fiduciary, when one party is entitled to repose trust and confidence in the other.³⁵

[119] In Arklow Investments Ltd, the Privy Council referred to the entitlement of one party to repose trust and confidence in the other as a “legitimate expectation”. That party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests.³⁶

[120] In this case, I think it improbable that the relationship between RPHML and the Bank extended any further than the ordinary lender/customer relationship. But even if that were arguable, I am satisfied that there can be no serious argument that the Bank assumed fiduciary obligations to the defendants arising out of the RPHML lending. The defendants were not parties to, or guarantors of, the RPHML lending (or the IRS) until 26 August 2011, when cross-guarantees were entered into between RPHML, PHKC and Seed Group Limited. In circumstances where both the defendants’ obligations and those of RPHML were carefully and separately

_{documented, I do not consider it seriously arguable that the defendants
could have}

³³Bank of New Zealand v Geddes HC Auckland CIV-2008-404-8082, 28 May 2009 at [24];

Dorchester Finance Ltd v Christchurch Foodcourts Ltd HC Auckland CIV-2005-404-6193,

³⁴Dorchester Finance Ltd v Christchurch Foodcourts Ltd citing Arklow Investments Ltd v MacLean [2000] 2 NZLR 1 (PC) at 4–6; Chirnside v Fay [2006] NZSC 68 at [79]–[80]; Saunders v Houghton [2009] NZCA 610 at [100].

had any legitimate expectation that the Bank would act in their interests in transactions to which they were not expressly made parties.

[121] For the foregoing reasons, I am satisfied that the defendants do not have any arguable case that:

(1) the Bank owed the fiduciary duties to them (or any of them) for which the defendants contend; or

(2) their losses are attributable to breach by the Bank of any such fiduciary duties.

[122] The lending to PHKC which was guaranteed by the sixth and seventh defendants was only made in March 2010, after all issues relating to the IRS, and the Bank’s decision not to extend the RPHML loan beyond November 2008, were well known. On the evidence produced, it was open to the sixth and seventh defendants to withdraw their guarantees of future lending before the advances were made by the

(2) the defendants’ counterclaims are not so linked with the Bank’s claims that it would be inequitable to enter judgment on the Bank’s claims without bringing the counterclaims to account. I accordingly decline to exercise my discretion against the entry of judgment for the Bank. I also decline to direct any stay of judgment pending determination of

³⁷Clause 11.1 of the deeds of guarantee signed by each of the sixth and seventh defendants on 11

February 2008 provided for a right to terminate the guarantee in respect of future borrowings, by

[124] There will accordingly be judgment for the Bank for principal and interest as follows:

(i) The outstanding balance owing at the date of this judgment under the first loan to Seed Group (the balance was

(ii) Contractual interest on the first loan to Seed Group at the rate of 5.74 percent per annum, calculated to 4 March 2014:

(iii) The outstanding balance owing at the date of this judgment under the second loan to Seed Group (the balance was

(iv) Contractual interest on the second loan to Seed Group at the rate of 5.74 percent per annum calculated to 4 March 2014:

(v) The outstanding balance owing at the date of this judgment under the third loan to Seed Group (the balance was

(vi) Contractual interest on the third loan to Seed Group at the rate of 5.74 percent per annum, calculated to 4 March 2014:

(vii) The outstanding balance owing at the date of this judgment under the fourth loan to Seed Group: (the balance was

(viii) Contractual interest on the fourth loan to Seed Group, at the rate of 5.74 percent per annum, calculated to 4 March 2014:

(ix) The outstanding balance owing at the date of this judgment under the Business Flexible Agreement (the balance was

$220,000 and 5.74 percent per annum on the balance of principal above $220,000), calculated to 4 March 2014:

(ii) Contractual interest on $712,818.79 owing on PHKC’s 000 account to 30 January 2014 (when the balance was reduced by

$425,885.48), calculated at the rates of 11.9 percent per annum up to $150,000, and 14.9 percent per annum on the balance of principal above $150,000: $47,091.85

$286,933.31 calculated from 31 January 2014 to 4 March 2014 (at the rates of 11.9 percent per annum up to $150,000 and

26.9 percent per annum to 4 March 2014: $94,099.68 (3) Sixth defendant (in respect of the RPHN1 guarantee):

(i) The outstanding balance owing at the date of this judgment under RPHN1’s Business Flexible Account/Business Current Account (the balance was $137,685.01 as at 4 March 2014).

26.9 percent per annum on the balance above $100,000, calculated to 4 March 2014: $149,879.75

(4) The bank is also entitled to interest at the rates set out above on the balances for the time being owing under each of the loans and Business Flexible Agreements, for the period from 5 March 2014 to the date of this judgment. If and to the extent the principal sum owing on any of the loans or the Business Flexible Agreements has been reduced (by sale of assets or otherwise) from the figures shown in subparagraphs (1) to (3) above in the period between 4 March 2014 and the date of this judgment, the amount of principal for which judgment is to be entered is the balance owing on that loan or agreement at the date of judgment. Leave is reserved to the parties to apply by memorandum if they cannot agree on the quantification of principal, or interest for the period from 5 March 2014 to the date of this judgment, for which judgment is to be entered.

[125] There will also be judgment for the Bank against all defendants for costs, on a scale 2B basis, and disbursements as fixed by the Registrar.

[126] The Bank has also sought post-judgment interest at the various contractual rates.

[127] The starting point is that any obligation to pay interest at a rate prescribed by a contract normally merges in the judgment, and after the judgment the judgment creditor can only recover interest at the rate prescribed under s 87 of the Judicature Act 1908.³⁸But if a contractual provision expressly entitles a party to interest at a contract rate from the date of judgment until payment, including in respect of the period between judgment and actual payment, then that provision will be enforced, unless to do so would be unconscionable.³⁹However any such enforcement order cannot be in the form of a money judgment for contractual interest. That is because:⁴⁰

... [A] money judgment operates in the present. It enforces an obligation that has already accrued. A money judgment cannot be given for a future liability. A money judgment for a debt still to fall due is as mis-timed as an order to do something in the past.

[128] The parties’ agreement as to post-judgment interest must clearly exclude the doctrine of merger, and in a summary judgment application the evidence must refer to the clause relied upon and the contract in which it appears must be produced as an exhibit. The plaintiff must plead the contractual terms relied on and seek separate

relief for interest arising after judgment⁴¹. It is then necessary to consider whether,

in light of the circumstances as they exist at the date of judgment, there is legal justification to refuse to enforce the clause.

[129] In this case the Bank has not separately pleaded a claim to post-judgment interest against the first to fifth defendants – it has only asked for interest to the date of judgment. In those circumstances I do not think it would be fair or appropriate to make any order in respect of post judgment interest at the contract rates against the

_{first to fifth defendants, and I decline to do so. The judgment against
those parties}

⁴⁰Westpac New Zealand Ltd v Wright above n 38, at [15]-[16] citing Nottingham v Registered

will carry interest under r 11.27 at the rate prescribed under s 87 of The Judicature

[130] The position with the sixth and seventh defendants is different. Each agreed to pay post-judgment interest,⁴²and a sufficient claim for post judgment interest has been made against these defendants in the statement of claim. I can see no legal justification to decline to enforce those agreements. Accordingly, in addition to judgment for the amounts set out in paragraphs [124] and [125] above, I make the following declarations:

(1) In relation to PHKC, the sixth and seventh defendants are liable to pay interest from the date of judgment to the date of full repayment:

(i) On the principal for the time being owing on PHKC’s 000 account with the Bank, at the rate of 11.9 percent per annum up to $150,000 and at the rate of 14.90 percent per annum thereafter

⁴²In respect of the sixth and seventh defendants’ liability in respect of PHKC, the PHKC mortgage to the Bank provided at cl 2.4 that PHKC was to pay default interest on any money not paid when due (at the default rate required by the Bank at the time), from the due date until and including the date on which payment is received by the Bank (both before and after any judgment). ...And the deeds of guarantee respectively signed by the sixth and seventh defendants each contained the following clause 3.1: Each Guarantor Must: (c) pay interest to the Bank at the Appropriate Rate and calculated on a daily basis by reference to the amount of any Guaranteed Money not paid when due, from the date until and including the date on which payment is received by the Bank (both before and after any judgment). (the Court’s emphasis).

The Default Interest provision in the RPHN1 Business Flexible Agreement (cl 16.1) provided that default interest would be payable “after as well as before judgment”, and the sixth defendant’s guarantee of the PRHN1 borrowing also provided (at cl 6.1) that default interest would be payable “both before and after any judgment”.

(2) In relation to RPHN1 Limited, the sixth defendant is liable to pay interest from the date of judgment to the date of full repayment: on the principal for the time being owing on RPHN1’s Business Flexible Account/Business Current Account with the Bank, at the rate of

Funding rate	6.00%	8.00%
Plus Credit Margin	2.00%	2.00%

High Court of New Zealand Decisions

ANZ Bank New Zealand Limited v Unka [2014] NZHC 1320 (12 June 2014)