Calibre Financial Services Ltd v Mortgage Administration Services (Calibre) Ltd

• Jurisdiction: New Zealand
• Judge: Priestley J
• Judgment Date: 21 October 2013
• Neutral Citation: [2013] NZCA 503
• Docket Number: CA538/2012
• Court: Court of Appeal
• Date: 21 October 2013

BETWEEN

Calibre Financial Services Limited

Appellant

and

Mortgage Administration Services (Calibre) Limited

First Respondent

and

Cairns Lockie Limited (In Liquidation)

Second Respondent

[2013] NZCA 503

Court:

Harrison, White and Priestley JJ

CA538/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against High Court decision as to the interpretation of the Mortgage Origination and Management Agreement “MOMA”) entered between the parties-appellant provided loans secured by registered mortgages over properties-first respondent performed preparatory work and loan administration-following failure of one of loans arranged by first respondent, secured property was auctioned by mortgagee sale-appellant sought to recover GST paid on sale from first respondent under indemnity clause in MOMA-meaning of “in connection with” –whether GST was payable by first respondent under cl 11.2(a) MOMA (indemnify on demand for all stamp duty, taxes, registration and similar fees and charges payable on or in connection with any secured agreement).

Counsel:

P L Rice and N J Robertson for Appellant

S O McAnally for First Respondent

• A The appeal is allowed.

• B The decision of the High Court is set aside and the decision of the District Court in reinstated.

• C The first respondent must pay the appellant costs for a standard application for leave to appeal and for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Priestley J)

Introduction

1 The appellant Calibre Financial Services Ltd (Calibre) and the first respondent Mortgage Administration Services (Calibre) Ltd (Mortgage Administration) had a commercial relationship in the mortgage market. Calibre was the trust manager of a holding trust 1 which provided loans secured by registered mortgages over residential properties.

2 Although Calibre had the responsibility of loan approvals and advances, most of the preparatory work and loan administration was performed by Mortgage Administration. Mortgage Administration was effectively a mortgage manager, responsible for sourcing new loans, managing them, and dealing with mortgage brokers and the general public.

3 The contractual relationship between Calibre and Mortgage Administration was governed by two documents, the relevant portions of which we shall scrutinise later in this judgment. The first was dated 5 October 2007, being a Mortgage Origination and Management Agreement (MOMA). 2 The second document was an

Operations Manual. Clause 2.2 of MOMA obliged Mortgage Administration to comply and act in accordance with the Operations Manual in all respects.

4 In late February 2008 Calibre advanced a loan of $437,500 to Murrays Bay Property Ltd (Murrays Bay). Its loan was secured by a registered first mortgage against bare land on Waiheke Island. It is common ground that Mortgage Administration sourced, initiated, and managed the Murrays Bay loan.

5 Murrays Bay failed to meet its loan obligations. As a result the Waiheke property was auctioned by mortgagee sale. By that stage Murrays Bay was registered for the purposes of the Goods and Services Tax Act 1985. It is common

ground that the statute imposed a duty on Calibre, as a mortgagee exercising a power of sale in respect of property owned by a GST registered entity, to pay GST of $41,888.89 (the GST sum). Calibre considered that, in terms of an indemnity clause in MOMA, Mortgage Administration was obliged to reimburse it. Mortgage Administration disagreed. Calibre therefore took proceedings in the District Court to recover the GST sum

Litigation history

6 Calibre's cause of action in the District Court to recover the GST sum was founded on Mortgage Administration's obligation under MOMA to provide indemnity. In the alternative Calibre alleged that Mortgage Administration had been negligent in its performance of its MOMA obligations. Calibre had purportedly terminated MOMA because of Mortgage Administration's alleged failure to indemnify. Thus Calibre sought a declaration that MOMA had been validly terminated in November 2009.

7 Mortgage Administration for its part counterclaimed for special damages totalling $406,000, being trailing service fees to which it would have been entitled under MOMA but for Calibre's wrongful repudiation.

8 In a careful judgment delivered on 31 May 2011 Judge A A Sinclair gave judgment in favour of Calibre for the GST sum. 3 She also made a declaration that MOMA had been validly terminated by Calibre in November 2009. 4 It was thus unnecessary for the Judge to determine the alternative cause of action. The declaration about MOMA's termination destroyed Mortgage Administration's counterclaim.

9 Mortgage Administration appealed to the High Court. In a reserved decision delivered on 18 April 2012 Peters J allowed the appeal. 5 Her Honour did not consider that Mortgage Administration had breached MOMA by failing to pay

Calibre the GST sum. In her view MOMA imposed no such obligation on Mortgage Administration

10 Calibre sought leave to appeal to this Court, relying on the policy contained in s 67 of the Judicature Act 1908. 6 Peters J declined leave. 7 Leave was sought from this Court, which was given. 8 The Court considered that it was noteworthy, in terms of the s 67 test, that the District Court and the High Court had reached different conclusions on the interpretation of the agreement between the parties. 9 It also considered that although the amount in dispute was not significant, the interpretation of the parties' agreement may have a broader impact on other issues between the parties, and possibly more generally.

Relevant contractual provisions

11 The focus of inquiry in both the District Court and High Court was cl 11.2(a) of MOMA which imposed an indemnity obligation on Mortgage Administration. The clause provided:

11.2 Mortgage Manager to Indemnify Calibre for Costs

The Mortgage Manager must indemnify Calibre and each Mortgagee on demand for:

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

…

12 The indemnity specifies various sums “payable on or in connection with any Secured Agreement” which are payable by “the relevant Borrower under that Secured Agreement” and are not paid. The potential scope of this clause is immediately apparent. Murrays Bay, as a GST registered entity, had an obligation to

pay the GST sum which was a “tax”. But was the GST sum, payable as it was by Calibre when it exercised its mortgagee power of sale, “payable on or in connection with any Secured Agreement”

13 The definition of “Secured Agreement” is found in MOMA. 10 It means:

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

14 A “mortgage” is also defined in cl 1.1 of MOMA. The definition includes any registered or registerable mortgage:

• (a) originated and settled (or proposed to be originated or settled) by the Mortgage Manager or by Calibre as a result of the Loan Application introduced to Calibre by the Mortgage Manager under this Agreement; and/or

• (b) managed by the Mortgage Manager under this Agreement.

15 So, as a matter of contractual interpretation, “Secured Agreement” as that expression is used in cl 11.2(a), embraces Murrays Bay's mortgage document or agreement flowing from its loan application.

16 Murrays Bay's loan application incorporated a booklet of LinkLoan's standard terms and conditions entitled “Home and investment property loans”. Murrays Bay's loan offer, dated 25 February 2008 and clearly prompted by the loan application, specifically states that the terms of LinkLoan's offer are set out in both the loan offer itself and also the booklet. Relevant to Murrays Bay's obligations on default is the booklet's definition of “Enforcement Expense”. 11 An “Enforcement Expense” is defined as any reasonable amount spent or incurred in relation to enforcement or the exercise of any powers under the Loan Contract or security or:

any Property, including amounts claimed against us or our officers/representatives relating to that Property and any goods and services or other tax payable by us in connection with the sale of any Property.

This definition clearly and specifically refers to the lender's GST liability.

17 Clause 5.3 of the booklet states a borrower may have to pay enforcement expenses after a default. Such expenses “are payable on demand or when we debit your Loan Account for them”.

18 So the central interpretative issue of the parties' dispute is whether the “taxes” referred to in cl 11.2(a) of MOMA extends (by virtue of the contractual definitions of “Secured Agreement”, “Mortgage” and “Enforcement Expense”, the latter clearly referring to GST payable in connection with the sale of the property and contained in the booklet incorporated into the loan offer), to the GST sum which Calibre paid.

How did the Courts below interpret cl 11.2(a)?

19 Judge Sinclair saw the issue in simple terms. 12 The clause obliged Mortgage Administration to indemnify taxes payable on or in connection with any secured agreement. The clause was not limited to taxes incurred “on the entering into” of the agreement. The loan agreement itself, under which the funds were advanced to Murrays Bay, specified the borrower's obligation to pay enforcement expenses which included GST payable on any mortgagee sale. Thus those enforcement expenses were payable “under or in connection with” the secured agreement. The fact that Mortgage Administration was never a party to the contract did not exonerate it.

20 Peters J saw cl 11.2(a) as more narrowly cast:

[21] Counsel for MAS submitted that clause [11.2(a)] 13 is intended to encompass fees...