Kiwibank Limited v Hutchin [2014] NZHC 3122 (8 December 2014)

Last Updated: 10 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-002065 [2014] NZHC 3122

BETWEEN	KIWIBANK LIMITED Plaintiff
AND	M N HUTCHIN AND E S HUTCHIN Defendants

Hearing:	20 November 2014
Appearances:	D A Lester for Plaintiff JAR Cox for Defendants
Judgment:	8 December 2014

_{(RESERVED) JUDGMENT OF ANDREWS J}

This judgment is delivered by me on 8 December 2014 at 5 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

KIWIBANK LTD v HUTCHIN AND HUTCHIN [2014] NZHC 3122 [8 December 2014]

Introduction

[1] The plaintiff, Kiwibank Limited, has applied for summary judgment against the defendants, Mr and Mrs Hutchin, on its claim for $241,978.69, together with interest as from 1 July 2014 at 6.35 per cent per annum. Mr and Mrs Hutchin oppose Kiwibank’s claim and application for summary judgment.

[2] Kiwibank’s application was supported by two affidavits sworn by

Mr I L Kennedy, a recoveries team leader employed by Kiwibank, dated 6 August

2014 and 12 November 2014. Mr Hutchin swore an affidavit in opposition to the application for summary judgment dated 3 October 2014.

Background facts

[3] On 23 June 2000 Mr and Mrs Hutchin borrowed a total of $544,000 from AMP Bank Ltd, for a term of 25 years. The lending was secured by a registered first mortgage over their properties at Seaview Road, Glenfield; Emily Place, Auckland; and 125A Birkdale Road, Birkdale. The Seaview Road property was sold in November 2002. The sale proceeds were applied to reduce AMP Bank’s lending to

$246,000. The mortgage over the Seaview Road property was discharged.

[4] In 2004, the Hongkong and Shanghai Banking Corporation (“HSBC”)

acquired the AMP Home Loan Portfolio from AMP.

[5] On 8 June 2004, the first mortgages over the properties at Emily Place and Birkdale Road were discharged and those properties transferred to Silverdale Trustees Limited. HSBC’s consent to the transaction was conditional on the KJAM Trust (a trust associated with Mr and Mrs Hutchin) providing a guarantee of the amount still owing on Mr and Mrs Hutchin’s loan, to be secured by way of an existing registered first mortgage over their property at Windmill Drive, Silverdale. The property secured separate lending that AMP Bank, then HSBC, had provided to the KJAM Trust. The priority sum in respect of the mortgage over Windmill Drive was increased to $1.30 million.

[6] The Windmill Drive property was sold in December 2005. On 12 December

2005 HSBC advised Mr and Mrs Hutchin’s solicitors, Bloomfield Cox, that it required a partial repayment in the sum of $403,645.19. HSBC’s notification to Bloomfield Cox referred to facilities under two account references: 036-015550 (the separate lending to the KJAM Trust) and 036-263234 (the lending to Mr and Mrs Hutchin which had been transferred in 2004). The notification further recorded that the partial repayment would be applied to the 036-015550 account lending, only. No repayment of the 036-263234 account was recorded. The mortgage over Windmill Drive was discharged. Mr and Mrs Hutchin continued to make payments on their lending.

[7] Kiwibank purchased the AMP Bank Home Loan Portfolio from HSBC on

7 April 2007. At the time the balance of the loan to Mr and Mrs Hutchin was

$228,401.30. Mr and Mrs Hutchin continued to make payments on the loan. However, they went into default in 2013.

[8] When Kiwibank followed up on the default, Mr and Mrs Hutchin asserted, through Bloomfield Cox, that they believed their loans had been repaid.

Summary judgment principles

[9] It is not necessary to set out in detail the relevant principles under which summary judgment may be given under r 12.2. The plaintiff must satisfy the court that the defendant has no defence; that is, that there is no real question to be tried. If the plaintiff establishes a prima facie case for there being no defence, the defendant must provide an evidential foundation for any defence raised. The court need not accept uncritically evidence that is inherently lacking in credibility, or is inherently

improbable.¹

The issues

[10] Mr and Mrs Hutchin contend that summary judgment should not be given against them for the following reasons:

¹ See Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 (CA); Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA); Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

(a) There is a reasonable doubt as to whether there is an outstanding loan

owed by them, and Kiwibank’s evidence does not satisfy its onus.

(b) Kiwibank lacks standing to recover the loan.

(c) The loan became unsecured in 2004. Repayment should have been required either then, or in 2005 when the security over Windmill Drive was discharged. Kiwibank’s demand in 2014 is therefore outside the limitation period.

(d) Kiwibank is estopped from claiming for repayment of the loan.

(e) In the event that the court finds that their defences are not arguable, the court should exercise its residual discretion to decline to give summary judgment.

Is there an outstanding loan?

Submissions

[11] Ms Lester submitted for Kiwibank that there can be no doubt that Mr and Mrs Hutchin’s loan is still outstanding. She submitted that the loan was transferred as part of AMP Bank’s loan book to HSBC in 2004, and then to Kiwibank in 2007. She further submitted that the defendants cannot contend that they were not aware of the transfers, as their solicitors dealt with HSBC in 2004 and 2005 in relation to the release of mortgages, and they themselves dealt with Kiwibank from 2007 onwards.

[12] Ms Lester further submitted that the account records clearly indicate that Mr and Mrs Hutchin’s loan was not repaid in June 2004 (when Emily Place and Birkdale Road were transferred to Silverdale Trustees Limited and the KJAM lending priority amount increased to $1.30 million) or in December 2005 (when the KJAM lending was repaid and the mortgage over Windmill Drive was discharged). The fact that security for a loan was discharged did not, she submitted, prove that the loan had been repaid. All that the discharge did was to leave the loan unsecured.

[13] Mr Cox submitted for Mr and Mrs Hutchin that Kiwibank had not established any connection between the original loan in 2000 and Kiwibank’s transaction history from 2007 to 2013. He submitted that without a complete transaction history, over the entire period from 2000 to 2013, Kiwibank could not prove the history of the loan facility and could not, therefore, prove that any loan was in fact still outstanding.

[14] Mr Cox also referred to an “AMP Home Loan Statement” for the period

31 July to 1 September 2014, which showed a “closing account balance” of “$0.00”.

[15] In response to the submission that Kiwibank had not provided a full transaction history, Ms Lester first submitted that Mr and Mrs Hutchin, themselves, had received regular statements in respect of the lending, throughout. She further submitted that Kiwibank had offered to request old records from AMP Bank and HSBC, but Mr and Mrs Hutchin had failed or refused to meet the costs of their doing so. Kiwibank had no obligation to obtain earlier records at its own cost. Accordingly, she submitted, Mr and Mrs Hutchin had not established a sufficient evidential platform for this alleged defence.

Analysis

[16] There is no evidence that Mr and Mrs Hutchin’s loan was repaid, either in

2004, or 2005.

[17] As noted earlier, in June 2004 the mortgages over Emily Place and Birkdale Road were discharged. Letters from HSBC to Bloomfield Cox, dated 17 May 2004, record the discharge of the mortgage and the increase of the priority sum in respect of the KJAM mortgage over Windmill Drive. Nowhere is it recorded that Mr and Mrs Hutchin’s loan was to be, or was, repaid.

[18] The position is equally clear with respect to 2005, when the mortgage over Windmill Drive was discharged. HSBC’s notification to Bloomfield Cox clearly refers to the “partial repayment” amount required to be paid. Further, although two loan account numbers are clearly referenced, the partial repayment is expressly in

respect of only one loan account. Mr and Mrs Hutchin’s loan account is not referred

to as being repaid.

[19] Nor do I accept that the statement of the “AMP Home Loan” for 31 July to

1 September 2014 provides evidence that Mr and Mrs Hutchin’s loan has been repaid. Significantly, the statement records “mortgage loss” of $244,314.28. I accept Mr Kennedy’s evidence that this statement simply reflects standard banking accounting provision for a loan in default.

[20] Further, I do not accept that there is any “fundamental gap” in the records of Mr and Mrs Hutchin’s loan, as Mr Cox submitted, such that the Court should conclude that summary judgment should not be given. It is clear from the material before the Court that there were transactions relating to the loan, and correspondence with Bloomfield Cox, at various times between 2000 and 2013. Mr and Mrs Hutchin continued to make payments on the loan, up to 2013. Further, as Kiwibank records show, there was also a considerable amount of personal interaction between Mr and Mrs Hutchin and Kiwibank concerning the loan, after 2007.

[21] In all of the circumstances, I conclude that Kiwibank has satisfied its onus of establishing that Mr and Mrs Hutchin have no reasonably arguable defence to Kiwibank’s claim, based on a contention that there is no outstanding loan. To the contrary, Kiwibank has established that Mr and Mrs Hutchin’s loan has not been repaid.

Does Kiwibank have standing to bring this proceeding?

Submissions

[22] Mr Cox acknowledged that in his affidavit, Mr Hutchin accepted that the AMP Bank Home Loan Portfolio was transferred to HSBC. However, he submitted that there was no evidence that there had been a valid transfer of the loan portfolio to Kiwibank.

[23] Mr Cox referred to the sale deed between HSBC and Kiwibank, and noted

that the operative clause referred to HSBC transferring and assigning “the AMP

Mortgage Portfolio” to Kiwibank.² At the time of the transfer (2007) HSBC did not hold any mortgage security over Mr and Mrs Hutchin’s loan, the mortgage over Windmill Drive having been discharged in 2005. Accordingly, Mr Cox submitted, there is a real issue as to whether there was an effective assignment of the loan, and there is therefore a real issue as to whether Kiwibank has standing to claim for repayment of the loan.

[24] Ms Lester, in response, submitted that there could be no real issue as to whether the loan had been transferred to Kiwibank. She submitted that that was established by the terms of the sale deed, by subsequent correspondence between HSBC and Kiwibank, and by Mr and Mrs Hutchin’s subsequent dealings with Kiwibank.

Analysis

[25] While Mr Cox is correct in observing that the sale deed refers to the assignment of the “Mortgage Portfolio”, I accept Ms Lester’s submission that subsequent correspondence makes it clear that the loan to Mr and Mrs Hutchin was assigned to Kiwibank. The correspondence includes letters sent to AMP Bank Home Loan Customers advising of the sale (which note that statements will be provided by Kiwibank), and an exchange of letters between Kiwibank and HSBC, after Mr and Mrs Hutchin asserted that their loan had been repaid. In particular, a letter from Kiwibank to HSBC dated 3 September 2013 which begins:

I am writing in relation to the Hutchin Facilities and the relating security that Kiwibank purchased from HSBC as part of the sale and purchase of the AMP Home Loan Portfolio in April 2007. These particular facilities were part of the ‘036 Portfolio’ and were detailed in schedule 2 of the sale deed dated 4 April 2007 between Kiwibank and HSBC.

[26] I am satisfied that Kiwibank has standing to bring this proceeding. Mr and

_{Mrs Hutchin do not have a reasonably arguable defence to the contrary.}

² A copy of relevant pages of the sale deed was exhibited to Mr Kennedy’s second affidavit.

[27] Mr Cox submitted that when the Windmill Drive mortgage was discharged in

2005, the loan to Mr and Mrs Hutchin became unsecured. He submitted that HSBC (the then lender) would then have been entitled to call up the loan and demand repayment. For that reason, he submitted, the limitation period should run from December 2005. The consequence, if this argument were to be accepted, is that Kiwibank’s proceeding is out of time pursuant to the Limitation Act 1950 by some two years six months.

[28] Ms Lester submitted that Mr Hutchin’s loan was for 25 years. There is nothing in the loan documentation, or anything else before the Court, which would support an argument that upon release of security, all debt immediately became due and payable. She submitted that so long as Mr and Mrs Hutchin made payments, which they did until 2013, Kiwibank correctly did not call it up.

Analysis

[29] I accept Ms Lester’s submission that there is nothing in the loan documents, or otherwise, to the effect that in the event that the loan to Mr and Mrs Hutchin became unsecured, it was immediately repayable in full.

[30] I am satisfied that Kiwibank is not out of time in bringing this proceeding. Mr and Mrs Hutchin continued to make payments on their loan for several years after the last remaining security for it had been discharged. They defaulted on payments during 2013. Kiwibank was then entitled to call up the loan and demand repayment in full. Kiwibank issued this proceeding on 20 August 2014, well within the six year limitation period.

[31] I am satisfied that Mr and Mrs Hutchin do not have a reasonably arguable defence based on the Limitation Act.

[32] The crux of Mr Cox’s submissions was that Mr and Mrs Hutchin reasonably believed that their loan had been repaid either in 2004 (when the securities over Emily Place and Birkdale Road were discharged) or in 2005 (when the security over Windmill Drive was discharged). He submitted that from that time Mr and Mrs Hutchin were not aware of any outstanding loan facility.

[33] Mr Cox further submitted that Mr and Mrs Hutchin had changed their position on the basis of Kiwibank’s implied representation that the loan had been repaid, and that it would be unjust and unconscionable for Kiwibank to be allowed to enforce payment of the loan, ten years later.

[34] Ms Lester submitted that Kiwibank’s evidence that the loan has not been repaid is compelling. She further submitted that Mr and Mrs Hutchin had failed to establish any of the requirements for a valid estoppel submission.

Analysis

[35] As Ms Lester submitted, to succeed in their estoppel submission, Mr and Mrs

Hutchin are required to establish:

(a) a belief or expectation created or encouraged by an action, representation, or omission by Kiwibank;

(b) reasonable reliance by them on that belief or expectation;

(c) detriment to them if the belief or expectation is departed from; and

(d) it would be unconscionable for Kiwibank to depart from the belief or expectation.

[36] Mr Hutchin’s evidence was that his “belief or expectation” was that he

assumed that the loan had been fully repaid when the mortgages were discharged. I

am satisfied that there was no representation, by any means, that the loan had been repaid. As I found earlier in this judgment at [17]–[19], notifications to Bloomfield Cox were quite clear as to what occurred. There was a partial repayment, only, in

2004, and an adjustment of the security in 2005.

[37] It follows that any “belief or expectation” on the part of Mr and Mrs Hutchin was not reasonable. The fact that the loan was not fully repaid was clear on the face of the notifications to Bloomfield Cox at the time of each discharge.

[38] Further, there is no evidence of Mr and Mrs Hutchin having reasonably relied on a representation that the loan had been repaid. To the contrary, the evidence is that they continued to make payments, and Kiwibank’s diary notes record a considerable amount of contact between Mr and Mrs Hutchin and Kiwibank staff in relation to the loan.

[39] Nor is there any evidence as to any particular detriment. Mr Hutchin said in his affidavit that:

38. In the almost ten years since these transactions, we have proceeded with structuring our financial affairs on the basis that there were no outstanding moneys owing to HSBC. We have acted in reliance on representations of HSBC in 2004 and particularly 2005 that the loan facilities secured over the properties have been paid in full.

[40] As Mr Cox acknowledged, there is no further evidence of detriment. Mr Cox then submitted that had it not been for the “implied representation as to full repayment”, Mr and Mrs Hutchin would have repaid the loan when the securities were discharged. However, the corollary of Mr Cox’s submission is that Mr and Mrs Hutchin did not repay the loan at that time, so will have had the use of funds that would otherwise been used to repay the loan. In the circumstances, they cannot now claim detriment.

[41] I accept Ms Lester’s submission that Mr and Mrs Hutchin do not have a reasonably arguable defence based on estoppel.

Should summary judgment be entered?

[42] I have concluded that none of the defences raised by Mr and Mrs Hutchin are reasonably arguable. I now consider Mr Cox’s final submission, which was that I should decline to give summary judgment. Mr Cox submitted:

(a) at no time did Mr and Mrs Hutchin believe they had received an unexpected windfall by not having to repay the loan;

(b) at no material time were Mr and Mrs Hutchin aware that the loan was outstanding or unsecured;

(c) Mr and Mrs Hutchin’s understanding was that when a property is sold or refinanced, all loans are repaid or transferred, and that that had occurred in this case;

(d) If it is not accepted that the loan was repaid, AMP Bank and HSBC had made a series of errors relating to the loan, in particular in failing to require repayment when the mortgages were discharged, and failing to identify the loan as being unsecured; and

(e) Kiwibank had also made an error in failing to recognise that the loan was unsecured.

[43] Mr Cox submitted that the court’s discretion as to giving summary judgment is unrestricted, and the proceeding is factually more complex than can properly be dealt with on an application for summary judgment. He further submitted that Mr and Mrs Hutchin do not own their own home, and will be unable to meet any judgment debt if judgment is entered. They will face the prospect of bankruptcy ultimately, he submitted, due solely to a series of errors by the three banks.

[44] In large part, Mr Cox’s submissions at this point reflect those he made earlier

in respect of the claimed defences.

[45] Ms Lester submitted that the submission of a “series of errors by three banks” is not justified, because it is clear on the evidence that the loan was only partially repaid in 2004, and that the balance was not repaid in 2005. She submitted that there was at that time an outstanding debt, which remains outstanding.

[46] While I have carefully considered Mr Cox’s final submission, I am not satisfied that I should not exercise my discretion to give summary judgment. The residual discretion not to give summary judgment is to be restrictively applied, but may be invoked to avoid oppression or injustice to the defendant.³ I am satisfied that the plaintiff is not using the summary judgment procedure as an instrument of oppression. Kiwibank has established that Mr and Mrs Hutchin have no arguable defence, and it is entitled to judgment.

Result

[47] I give judgment in favour of Kiwibank in the sum of $241,978.69, being the amount owing as at 31 July 2014. Kiwibank is also entitled to interest on the outstanding amount from and including 1 July 2014 at the rate of 6.35 per cent per annum.

[48] Kiwibank is entitled to costs of and incidental to this proceeding. If costs cannot be agreed, memoranda should be filed and, unless the parties specifically

_{request a hearing, I will deal with the issue on the papers.}

_{Andrews J}

³ See McGechan on Procedure (Brookers looseleaf ed) at [HR 12.2.11].