Black v Asb Bank Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeWild
Judgment Date24 Aug 2012
Neutral Citation[2012] NZCA 384
Docket NumberCA398/2011

[2012] NZCA 384

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Randerson, Wild and Venning JJ

CA398/2011

Between
Richard John Carson Black
Appellant
and
Asb Bank Limited
Respondent
Counsel:

M C Black for Appellant

M V Robinson and E C Gellert for Respondent

Appeal from indemnity costs award of $93,000 — bank held securities from company and the two family trusts which owned the company — business failed — substantial sums owed to bank — first family trust (“FFT”) sold property secured to bank and bank applied most of monies to repay personal borrowings of FFT — second family trust (“SFT”) sold property secured to bank and bank applied the monies first to discharge company's indebtedness — SFT trustees at different times had executed both a limited liability and an unlimited liability guarantee and indemnity in respect of company and trust borrowing from bank — whether unlimited guarantee applied — whether bank restricted in how it had to apply proceeds — whether indemnity costs award in favour of the bank was unreasonable.

The main issues were whether the Judge erred in: (1) holding that Deli's revolving credit facility was secured by the unlimited guarantee given to ASB by the BFT trustees; (2) holding that ASB was entitled to apply the proceeds as it chose; and (3) awarding ASB costs of $93,000.

Held: (1) The BFT trustees could not invoke the provisions of the 2008 Facility Agreement to limit their liability to ASB under their unlimited guarantee of the term loan. B's interpretation of the 2008 Facility Agreement would have resulted in a commercial absurdity as it would have meant that ASB was taking reduced security for increased lending by somehow reviving a guarantee that had been extinguished and substituting that revived guarantee for the existing unlimited guarantee that nevertheless remained in force.

Further, limiting the BFT trustees' liability to $300,000 could not be reconciled with an acknowledgement by the trustees when executing the Facility Agreement that all existing and future securities granted by them secured all amounts owing under the Facility. As all B's causes of action were dependent on the 2008 Facility Agreement limiting the BFT trustees' liability to $300,000 none of them were reasonably arguable.

(2) Clause 9.1 of the mortgage ASB held over the OFT's property entitled ASB to appropriate the sale proceeds to discharge costs and expenses, and then to discharge indebtedness secured by the mortgage in the order ASB saw fit. None of the clauses in the 2008 Facility Agreement relied on by B required ASB to apportion the sale proceeds in any other way than ASB saw fit. In fact ASB could quite properly have sought repayment of Deli's indebtedness by recourse solely to the securities it held from the BFT trustees.

(3) ASB's contractual entitlement to indemnity costs in respect of the litigation in the High Court was contained in two of the security documents. ASB's actual costs were $131,000 but were written down to $91,000. However, this did not entitle the Judge, without more, to conclude that the charges were reasonable. It was appropriate for a fresh assessment into whether the indemnity costs were reasonable to be undertaken — r48(4) Court of Appeal (Civil) Rules 2005 (powers of Court in hearing appeals).

Indemnity costs were determined with reference to actual costs, but might be less than the actual costs if the Court considered the actual costs were not reasonably incurred (Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd). The Court had to make an objective assessment of: (a) what tasks attracted a costs indemnity on a proper construction of the contract; (b) whether the tasks undertaken were those contemplated in the contract; (c) whether the steps undertaken were reasonably necessary in pursuance of those tasks; (d) whether the rate charged was reasonable; and (e) whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

A complaint under s132(2) Lawyers and Conveyancers Act 2006 (complaints about practitioners, incorporated firms, and their employees) was a potential avenue for dealing with a challenge to the reasonableness of indemnity costs. ASB had no option but to defend B's claims on behalf of the BFT trustees as it launched a wide attack on ASB's right to enforce the securities it held from the BFT trustees for Deli's indebtedness to ASB. B pursued at least 10 discrete issues that ASB was obliged to research, and prepare and present submissions on. ASB's costs reflected the breadth and complexity of the points raised by B and it was significant that the argument extended into a second day, so that the hearing before the Judge took one and a half days. The indemnity costs were not out of line with other recent awards of indemnity costs in proceedings where summary judgment was sought.

ASB was entitled to indemnity costs and the costs of $91,000 were reasonably and properly incurred in defending B's challenge.

Appeal dismissed.

JUDGMENT OF THE COURT
  • A The appeal is dismissed.

  • B The appellant is to indemnify the respondent for its actual costs reasonably incurred in respect of this appeal plus usual disbursements.

REASONS OF THE COURT

(Given by Wild J)

Table of Contents

Para No

Introduction

[1]

Factual background

[11]

The issues

[28]

Issue One: Did the Judge err in holding that Deli's revolving credit facility was secured by the unlimited guarantee of Deli's indebtedness to the ASB which the trustees of the BFT had given the ASB on 13 May 2008?

[29]

Issue Two: Did the Judge err in dismissing, as not reasonably arguable, Mr Black's causes of action under the Fair Trading Act 1986, the Contractual Remedies Act 1979, or upon an estoppel by deed?

[45]

Issue Three: Did the Judge err in holding that the ASB was entitled to apply the proceeds of the realisation of the securities it held in respect of its lending to Deli as it chose?

[46]

Issue Four: Did the Judge err in holding that the ASB neither had nor breached any relevant disclosure obligations it had to the BFT trustees?

[55]

Issue Five: Did the Judge err in entering summary judgment in favour of the ASB without first giving the BFT trustees discovery?

[65]

Issue Six: Did the Judge err in awarding the ASB costs of $93,268.90

[69]

Result

[109]

1

This appeal results from the business failure of a company called Deli Ca Sea Wholesale Limited (Deli). The respondent (the ASB) held securities from Deli and from two family trusts which owned Deli. The trusts were associated with the two directors of Deli, the appellant Mr Richard Black and Mr Peter Osborne. The trusts are the Black Family Trust (the BFT) and the Osborne Family Trust (the OFT) respectively. The trustees of the two family trusts (including Mr Black and Mr Osborne) also provided personal guarantees to the ASB.

2

The ASB was owed substantial sums by Deli as well as by Mr and Mrs Black, and Mr and Mrs Osborne, for their personal borrowings. The OFT trustees voluntarily sold the property they owned which was secured to the ASB and paid the sale proceeds to the ASB. The ASB applied most of those monies to repay the Osbornes personal borrowings. The BFT trustees then sold their property, also secured to the ASB, and accounted to the ASB for the proceeds. The ASB applied these monies first to discharge the whole of Deli's indebtedness. Mr Black raised two principal objections to this. First, he maintained that the BFT trustees' personal guarantee was limited to $300,000. Secondly, he argued that the proceeds of sale of the property owned by the OFT should first have been applied in payment of Deli's indebtedness rather than to the Osbornes' personal borrowings.

3

Mr Black issued a proceeding seeking by way of summary judgment a declaration that the BFT trustees' personal guarantee and an associated mortgage were limited to $300,000, and a declaration as to the correct application of the proceeds of sale of the two mortgaged properties. The ASB responded by seeking summary judgment against Mr Black on all the causes of action in his statement of claim or, alternatively, an order striking out those claims. 1

4

The appellant, Mr Black, appeals against two judgments of Associate Judge Bell. In the first judgment, delivered on 8 July 2011, the Judge dismissed Mr Black's application for summary judgment against the ASB, but granted the ASB's application for summary judgment against Mr Black. 2

5

Mr Black had applied for summary judgment in his capacity as one of the trustees of the BFT. Essentially, he sought summary judgment that the liability of the BFT trustees to the ASB under the securities they had given the ASB was:

  • (a) “expressly limited to $300,000”; 3 and

  • (b) reduced by the $300,000 it received from the sale of the OFT trustees' property. 4

6

The Judge dismissed Mr Black's application for summary judgment but granted the ASB's cross-application, entering judgment for it against Mr Black.

7

In his second judgment given on 30 September 2011, the Judge ordered Mr Black to pay the ASB indemnity costs plus disbursements totalling $93,268.90. 5

8

The grounds on which Mr Black appeals the substantive judgment relate to the correct interpretation of provisions in the security documents, the manner in

which the ASB went about realising its securities, the ASB's disclosure obligations to the BFT trustees as guarantors of Deli's indebtedness to the ASB and whether the Judge was wrong to enter summary judgment without first ordering the ASB to make discovery to Mr Black.
9

The costs judgment is challenged on two bases. First, that indemnity costs ought not to have been awarded. Secondly, that even if indemnity costs were appropriate, $93,268.90 was excessive.

10

Some factual background is necessary before these issues can be...

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