Forivermor Ltd v Anz Bank New Zealand Ltd (Formerly Anz National Bank Ltd)

• Jurisdiction: New Zealand
• Judge: White J
• Judgment Date: 07 April 2014
• Neutral Citation: [2014] NZCA 129
• Docket Number: CA790/2012
• Court: Court of Appeal
• Date: 07 April 2014

BETWEEN

Forivermor Limited

Appellant

and

ANZ Bank New Zealand Limited (Formerly ANZ National Bank Limited)

Respondent

[2014] NZCA 129

Court:

Harrison, White and Venning JJ

CA790/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision dismissing the appellant's claims for breach of contract, damages for misrepresentation under the Contractual Remedies Act 1979, breach of two provisions in the Code of Banking Practice (“the Code”), negligence, breach of fiduciary duty, breaches of s9 Fair Trading Act 1986 (FTA) (misleading behaviour generally) and s13(h) FTA and breach of the Consumer Guarantees Act 1993 — appellant entered into a contract to purchase a neighbouring farm — respondent provided a loan on the basis the balance was to be made by the appellant selling another dairy farm — shortly afterwards the market for dairy farms fell — respondent then declined to provide the additional funds required to settle the purchase — vendor cancelled the agreement — whether the respondent's offer contained an absolute promise to finance — whether there had been an explicit condition requiring the prior sale of the appellant's farm — whether the Code had been incorporated into the finance contract expressly or implicitly, by custom — whether respondent owed the appellant a duty of care — whether the appellant had suffered loss.

Counsel:

G J Thwaite for Appellant

C T Walker and A T B Joseph for Respondent

• A The appeal is dismissed.

• B The appellant is to pay the respondent costs on a band A basis with a 50 per cent uplift plus usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by White J)

Table of Contents

	Para No
Introduction	[1]
Background
The terms of the finance contract	[11]
The agreement for the farm purchase becomes unconditional	[18]
An ANZ assurance on 9 September 2008?	[21]
Nine causes of action
Breach of contract?	[25]
Damages for misrepresentation under the Contractual Remedies
Act 1979?	[30]
Breach of clause 1.2(b)(iv) of the Code of Banking Practice 2007?	[36]
Breach of clause 5.1 of the Code of Banking Practice?	[47]
Negligence?	[52]
Breach of fiduciary duty?	[60]
Breach of s 9 of the Fair Trading Act 1986?	[63]
Breach of s 13(h) of the Fair Trading Act?	[67]
Breach of the Consumer Guarantees Act 1993?	[70]
No loss	[72]
Result	[75]

Introduction

1 The appellant, Forivermor Ltd (Forivermor), a company owned by Stuart and Joanne Morley (Mr and Mrs Morley), owned a successful dairy farm in Manawaru. The farm was financed with loans from the respondent, ANZ National Bank Limited (the ANZ).

2 On 3 September 2008 Forivermor entered into an agreement for the purchase of a neighbouring dairy farm and associated Fonterra shares from a Mr and Mrs Borkin (the Borkins), for $7,298,928 plus GST. The agreement was conditional on Forivermor obtaining finance within seven working days. A deposit of

$821,129.40, being 10 per cent of the purchase price plus GST, was payable when the agreement became unconditional. The settlement date was 29 May 2009.

3 On 5 September 2008 ANZ approved finance for the purchase, being a “term loan” of $2,167,000 and a “GST bridging loan” of $874,000. The new lending was “on the basis” that Forivermor would obtain the balance of the purchase price from the sale of 57 ha of another farm Forivermor already owned for $4,300,000, associated Fonterra shares and a Morley family contribution of $1,000,000.

4 After a telephone conversation on 8 September 2008 between Forivermor's lawyer, Mr Richard Blackwood, and Mr Mark McLauchlan, the ANZ's representative, about the ANZ's position in the event that the other farm did not sell as anticipated, the deposit was paid and the agreement declared unconditional.

5 Shortly afterwards the market for dairy farms began to fall sharply on the back of a declining Fonterra milk payout projection and a collapsing Fonterra share price. The value of the Borkins' farm declined by 36 per cent and Forivermor was unable to sell any part of its farm.

6 Ultimately Forivermor had to sell its whole farm for $3,300,000 plus GST and the ANZ declined to provide the additional funds required to settle the purchase of the Borkins' farm. The Borkins cancelled their agreement with Forivermor and instead sold to a third party for $4,500,000 plus GST, including shares, in March 2010.

7 Forivermor issued proceedings in the High Court against the ANZ claiming breach of contract, damages for misrepresentation under the Contractual Remedies Act 1979, breach of contract based on two provisions in the Code of Banking Practice, negligence, breach of fiduciary duty, breaches of ss 9 and 13(h) of the Fair Trading Act 1986 and breach of the Consumer Guarantees Act 1993. Forivermor sought judgment for its actual liability to the Borkins, expenditure in preparation for the purchase of the Borkins' farm, the deposit on the Borkins' farm ($821,129.40),

$4,498,363 representing the loss of the equity of the farm property it used to own, exemplary damages, interest and costs.

8 In the High Court, Forivermor's claim failed on all grounds and judgment was entered in favour of the ANZ. 1

9 Forivermor appeals to this Court on the grounds that the High Court Judge, Goddard J, erred in respect of her assessment of the evidence and her application of the law relating to each of the nine causes of action. Notwithstanding the apparent scope of the appeal, Mr Thwaite for Forivermor acknowledged that the appeal turns

principally on the terms of the September 2008 finance contract between Forivermor and the ANZ

10 The ANZ supports the judgment under appeal.

Background

The terms of the finance contract

11 The ANZ's offer of finance was contained in a letter dated 5 September 2008 from Mr McLauchlan to Mr and Mrs Morley, which read:

5th September 2008

Forivermor Ltd, C/o the Directors, S J & J M Morley, 1268 Gordon Road, RD1

Te Aroha

Dear, Stuart & Joanne

I am please [sic] to confirm that The National Bank [now ANZ] has approved finance to purchase a 81.0992Ha located 140 Shaftsbury Rd, Te Aroha.

Finance has been based on the following proposal as discussed with you both:

Required For		Funded By
Property Purchase & Shares	$7,299,000	National Bank, Term Loan	$2,167,000
MA Cows 150@ $2,000/Hd	$300,000	GST Bridging Loan	$874,000
Assorted Machinery	$100,000	Proceeds from 57 ha Sale	$4,300,000
Development, races	$20,000	Proceeds, Dairy Shares 45,000 Sale	$252,000
GST on Land & Stock	$874,000	Family Contribution	$1,000,000
TOTAL	$8,593,000	TOTAL	$8,593,000

The new lending is on the basis:

- Customer Contribution from:

• a) Sale of 57 ha of $4,300,000

• b) Sale of 45,000 Fonterra Dairy Co shares, from 57 ha Dairy unit being sold.

• c) Contribution from Family of $1,000,000.

- New 1st mortgage over the 81Ha Borkin block. Yours sincerely

Mark McLauchlan Rural Manager,

Matamata Branch

12 Mr and Mrs Morley referred this offer to their lawyer, Mr Blackwood, for advice. As Goddard J found, 2 Mr Blackwood “clearly had some concern about the Bank's offer of finance requiring a sale of the 57 ha block for $4.3 m”.

13 Mr Blackwood therefore telephoned Mr McLauchlan on 8 September 2008 and made a file note of the discussion, which read:

8/9/08

I rang Mark McLauchlan at NBNZ [ANZ] Matamata and asked if they would confirm their offer of finance even though the 57 ha property does not sell in time – or sell for enough. Will the Bank still cover them for finance to complete the deal? The best he can say is that this offer is based on a projected sale or even if it didn't happen they would probably still cover them at least for the short term. They have done budgets on a conservative basis. The bank won't walk away from them he says – but he can't/won't put it in writing.

14 In his brief of evidence for the High Court, Mr Blackwood said:

13 The purpose of the conversation was to discuss the financial position in the case that the present property of 57 ha would not sell in time, or would not sell for enough. I wanted to know whether the Bank would still cover Forivermor Limited for the finance to complete the purchase of the farm from Mr. & Mrs. Borkin.

14 Mr. MacLauchlan told me:

• (a) the Bank's offer was based on a projected sale;

• (b) even if the sale didn't happen, the Bank would probably still cover the Morleys at least for the short-term;

• (c) the Bank had done budgets on a conservative basis;

• (d) the Bank would not walk away from Mr. & Mrs. Morley.

He did say he can't/won't put that in writing.

15 Although it is not recorded in my file note, I recall the words being used, that the Bank would not ‘leave the Morleys to be hung out to dry’.

15 Under cross-examination, Mr Blackwood confirmed that he reported the content of his conversation with Mr McLauchlan to Mr and Mrs Morley. Mr Blackwood gave no evidence, however, as to any advice he gave to Mr and Mrs Morley about his concerns, and the risks Forivermor would run if it accepted the ANZ's offer on those terms and declared the agreement for the purchase of the Borkins' farm unconditional. In these circumstances an inference may be drawn that Mr Blackwood's evidence on this issue would not have assisted Forivermor. 3

16 Mr Morley confirmed under cross-examination that Mr Blackwood had reported on his conversation with Mr McLauchlan. Mr Morley's evidence was that Mr Blackwood had said:

The bank hasn't given me much to go on and are you sure about the assurances that you've been given.

Mr Morley said that he had told Mr Blackwood that “We've been given multiple assurances.” Mr Morley gave no evidence, however, as to any advice he received from Mr Blackwood about Mr Blackwood's concerns and the risks Forivermor...