ANZ National Bank Limited v Kohimaramara Tarawera Limited HC Auckland CIV 2009-404-3290

[2010] NZHC 1176

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-003290

BETWEEN  ANZ NATIONAL BANK LIMITED Plaintiff

ANDKOHIMARAMARA TARAWERA LIMITED

First Defendant

ANDEUN KYUANG HA Second Defendant

Hearing:         23 November 2009

Counsel:         E M Toebeck for plaintiff

A D Sharp for second defendant

Judgment:      2 July 2010 at 5:00pm

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 2 July 2010 at 5:00pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Morgan Coakle, PO Box 114, Auckland 1140 for plaintiff

Vlatkovich & McGowan, PO Box 10054, Auckland 1446 for second defendant

ANZ NATIONAL BANK LIMITED V KOHIMARAMARA TARAWERA LIMITED & ANOR HC AK CIV

2009-404-003290  2 July 2010

[1]      ANZ National Bank Limited (ANZ) seeks summary judgment for the balance of a loan advanced to purchase a residential property at 105A Tarawera Terrace, Kohimaramara, Auckland (following a mortgagee sale of that property).   It seeks judgment against the first defendant (KTL)  as  borrower and against the second defendant (Mrs Ha) as guarantor.   Mrs Ha is the sole director and shareholder of KTL.

[2]      KTL does not oppose the application.  Mrs Ha does.

[3]      Mrs Ha is of Korean background.   She has a limited ability to speak and write English.  She opposes the application on the ground that she entered into the guarantee under the undue influence of another member of the Korean community in New Zealand, Edward Kang.   Mrs Ha says that she and her husband had been requested by Mr Kang to “lend him our name” to buy properties, and that she did not feel able to refuse because of Mr Kang’s standing in the Korean community, and because Mr Kang was providing work for her husband.  She says that Mr Kang made all the arrangements for the loans, including engagement of the solicitor who acted for KTL on the purchase.   She says that she did not appreciate the nature of the documents that she was signing (she was told by Mr Kang that they were “general documents” needed to complete the purchase).

[4]      Mrs Ha accepts that ANZ did not know of Mr Kang’s part in the transaction. However, she says that the nature of the transaction was such that ANZ must be taken to have constructive notice of Mr Kang’s undue influence on her, and that she has an arguable defence because ANZ failed to make enquiries or take steps to ensure that she was entering into the guarantee of her own free will.

[5]      ANZ  says  that  Mrs  Ha  has  failed  to  establish  grounds  for  an  arguable defence.  It says that she has not produced any independent evidence of the alleged influence of Mr Kang or that Mr Kang, in fact, exercised that influence, nor any evidence of matters which could reasonably be said to give ANZ reason to question the transaction.  It also says that, even if it could be argued that ANZ had reason to

question whether she was entering into the transaction and giving the guarantee willingly, it was entitled to rely on the certificate given by the solicitor.

[6]      The  primary  issue  for  determination  in  this  case  is  whether  ANZ  is accountable for any undue influence which Mr Kang may have exerted on Mrs Ha. The question for the court is whether that primary issue can be decided on this application.

Background

[7]      Before examining Mrs Ha’s contentions that ANZ ought to have been aware that the guarantee was not freely given, I will set out the background circumstances. Except where indicated otherwise, these facts are not in dispute.

[8]      Mrs Ha, her husband Jong Jin Seo (Mr Seo), and their young son immigrated to New Zealand from Korea in 1998.   Mr Kang was the principal of Wasan International Co Limited (now in liquidation), which operated an immigration consulting business.  Mr Kang helped Mrs Ha and her family to obtain permanent residence.

[9]      Mrs Ha and her family took up residence in Rotorua.   She and Mr Seo obtained employment managing a BP petrol station in that city.  They continued to work in that business until the owner sold it in 2007.

[10]     Mrs Ha and Mr Seo decided to move to Auckland when the petrol station was sold.   Mrs Ha says that Mr Kang heard of this and offered Mr Seo a role as a consultant in his business.  They regarded that as a compliment given his standing in the Korean community.  It also gave them an income to support themselves.  Mrs Ha says that after this, Mr Kang asked them to “lend him our name” to buy properties. as people were reluctant to sell to him as a developer.   She contends that he told them that there would be no risk as he would then arrange for the property to be transferred into his name.  Mrs Ha says that because of Mr Kang’s standing in the Korean community it was impossible for them to refuse as to have done so would

have jeopardised their relationship with Mr Kang and caused them to be looked down upon by the Korean community.

[11]     On Monday 29 October 2007, ANZ received an application for loan finance in Mrs Ha’s name (although the application form also referred to KTL).   The application was submitted by a mortgage broker who was accredited with ANZ.  The broker’s covering letter said that the loan sought was for the purchase of a residential property at 105A Tarawera Terrace, Kohimaramara, as an investment.  The purchase price was said to be $1,150,000.   The loan sought was $997,500.   The broker enclosed a loan application dated 25 October 2007, a signed agreement for sale and purchase of 105A Tarawera Terrace, also dated 25 October 2007, and statements for two bank accounts in the name of Mrs Ha and Mr Seo covering the period from

1 July 2007 to 30 September 2007.  Although the broker’s covering letter refers also to a registered valuation and credit checks having been enclosed, those documents are not before the court as part of the fax sent on 29 October 2007 (4 pages of that transmission are missing).

[12]     The  broker’s  covering  letter  said  that  “a  letter  from  the  accountant  or financials” had still to be received, but asked that the application be processed under ANZ’s “Lo Doc” procedure as the transaction was to settle on 2 November 2007 (this procedure is available where a borrower is unable to provide confirmation of annual income to meet the bank’s standard requirements).  The broker noted that she had “only interviewed on telephone at this stage”, and “hence have got 2 forms of ID”.  A photocopy of Mrs Ha’s passport and of her driver’s licence were enclosed. The photocopy of the driver’s licence carries an imprint showing that it was faxed from BP Barnetts, and a Rotorua number, on 18 October 2007.  The broker referred to Mrs Ha having businesses here in New Zealand and overseas, and having sold a BP service station in 2006.

[13]     A bank officer in ANZ’s broker unit approved the application on 29 October

2007 subject to receipt of a registered valuation addressed to ANZ, completion of a “Lo Doc” declaration, and provision of evidence of the deposit and details of the applicants’ accountants (a name only had been given).   On the basis of the information  provided,  the  bank  officer  determined  that  Mrs  Ha  had  sufficient

uncommitted monthly income to meet the debt servicing arrangements under the loan.

[14]     The bank officer says in evidence that on 31 October 2007, after receiving contact details for the accountants, she contacted them and received confirmation that Mrs Ha was self employed as declared on the loan application with an export/import business.  The same day ANZ received an investment statement to the effect that Mrs Ha had $US482,000 in investments.   The bank officer was also advised that the loan (and the property) were to be taken in the name of KTL and established that Mrs Ha was its sole director and shareholder.  KTL was incorporated on 26 October 2007.

[15]     On 1 November 2007, Mrs Ha went into ANZ’s Rotorua branch and opened an account in the name of KTL.

[16]     Final  approval  of  the  loan  was  given  on  1  November  2007  after  ANZ received a registered valuation for the property, addressed to it.  The valuation was for a current market value of $1,150,000.   ANZ sent loan instructions that day to Hesketh Henry, as the solicitors understood to be acting for Mrs Ha and KTL, and asked it to act on the execution of the loan documents (including the guarantee) and provision of the usual certificate as to due execution as a precursor to drawdown.

[17]     On 2 November 2007 Mrs Ha met Mr Kang at the offices of Hesketh Henry. In a meeting with Mr Toepfer of that firm, she signed a loan agreement (both on behalf of KTL as borrower and personally as guarantor) and a deed of guarantee of the loan.

[18]     Mr Toepfer says that Mrs Ha was introduced to Hesketh Henry by Mr Kang, but that he made her aware that the firm was advising her personally (he obtained a written instruction to act from Mrs Ha on behalf of the company, and a written waiver of independent legal advice in relation to her guarantee of the company’s obligations under the loan).   Mr Toepfer also says that he was aware that English was not Mrs Ha’s first language, and “tried very carefully to explain the documents to her”.  He says that, although Mr Kang appeared to be translating his explanation at

times, he spoke to her directly and believed that she understood as she responded appropriately to the questions asked, including whether she understood the documents.  Mr Toepfer felt confident that he could sign the solicitor’s certificate to ANZ, stating (inter alia) that he had explained the meaning and effect of the documents.

[19]     Mrs Ha accepts that she signed documents that day, but says that Mr Kang merely  told  her  that  they  were  “general  documents”  to  allow  purchase  of  the property, and she did not understand that she was providing a guarantee of a loan for that purpose.

[20]     Hesketh Henry sent Mr Toepfer’s certificate to ANZ that day.  On receipt of the certificate ANZ paid the loan amount into Hesketh Henry’s trust account.  The money was used to settle the purchase, but at a lower purchase price than was stated in the agreement for sale and purchase provided to ANZ, and $100,000 of the loan money  was  transferred  to  Mr  Kang’s  company,  Wasan  International  Co  Ltd (Wasan), in accordance with the authority signed by Mrs Ha on 2 November 2007.

[21]     The property was not transferred to Mr Kang.  KTL failed to make payments under the loan agreement.  ANZ served Property Law Act notices on KTL and on Mrs Ha.   Following service of the demands, Mr Kang advised ANZ that he took responsibility for the debt and would arrange for it to be cleared.  He did not do so. He  has  since  been  made  bankrupt,  and  Wasan  has  gone  into  liquidation.    The demands were not met, and ANZ sold 105A Tarawera Terrace.  The proceeds were insufficient to clear the loan.  ANZ now seeks judgment for the balance against Mrs Ha as guarantor.

Summary judgment principles

[22]     The application is made under r 12.2 of the High Court Rules.  Counsel were agreed on the principles which the Court applies when determining whether a defendant has no defence in terms of that rule:

a)        The onus is on the plaintiff to establish that there is no defence.

However, where the plaintiff establishes a prima facie case (for example by exhibiting a contract which on its face entitles the plaintiff to the remedy it seeks) the defendant must establish an evidential basis for its contentions in order to challenge that prima facie case.[1]

[1] Pemberton v Chappell [1997] 1 NZLR 1, 3 (CA).

b)        The defendant must put forward an evidential basis for its defence.

That evidence must pass a “threshold of credibility”.[2]

[2] Reeves v One World Challenge LLC [2006] 2 NZLR 184, at [72] and [75].

c)       In most cases it will be inappropriate to determine any dispute of material fact.  However, the court is not bound to “accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it

may be”.[3]

[3] Eng Mee Yong v Letchumanan [1980] AC 331, 341.

d)The need for judicial caution has been balanced with a robust and realistic judicial attitude where that is called for by the particular facts of the case.[4]

[4] Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84, 85.

The grounds for defence

[23]     ANZ has established a clear prima facie case against Mrs Ha on the face of the documents.   She acknowledges that she signed both the loan agreement (for KTL) and the guarantee.  There is no dispute that there is a balance owing to ANZ under the loan, and that ANZ has made appropriate demand on Mr Ha for payment under the guarantee.  The focus, therefore, turns to whether Mr Ha has established a

sufficient evidential basis for her defence that the guarantee is vitiated by ANZ’s constructive notice of  Mr Kang’s influence at the time that Mrs Ha signed the guarantee.

[24]     The grounds of defence (as set out in Mrs Ha’s notice of opposition), are:

a)The Second Defendant/Respondent entered into the Guarantee and Loan under the undue influence of one Edward Kang;

b)The  undue  influence  brought  about  the  transaction  which  was  to  the manifest disadvantage of the complainant;

c)The Plaintiff was or ought to have been on enquiry in the circumstances of the matter given:

i)         The absence of any statement of affairs or application by the Second Respondent / Defendant for financing or assistance from the bank; and/or

ii)     The   absence   of   any   enquiry   into   the   Second Defendant/Respondent’s assets or income stream to service any guarantee or loan;

iii)       The direct advantage to Edward Kang of in excess of $100,000 upon signature by her;

iv)       That  the  guarantee  was  in  excess  of  the  purchase  price  of  the property; and/or

v)        That the Second Respondent / Defendant was clearly a person who was not English speaking and therefore enquiry as to whether she understood or could understand English adequately was important.

[25]   Mr Sharp, counsel for Mrs Ha, submitted that these grounds require determinations of fact, which make the case unsuitable for summary judgment.  He argued that there was an evidential basis for undue influence by Mr Kang, and that the nature of the transaction, as it was put to ANZ, was so improvident that it could not be explained except in terms of undue influence.  He said that ANZ was put on an inquiry by the questionable nature of the information provided and should have instructed Mr Toepfer, as the solicitor acting for the bank on the execution of the loan agreement and guarantee, to satisfy himself as to Mrs Ha’s understanding of the transaction.   He submitted that the case turned on whether Mrs Ha had, in fact, understood what she was signing, and that that could not be determined without investigating the conflicting evidence given by Mrs Ha and Mr Toepfer as to that understanding.

[26]     Ms Toebeck, for ANZ, submitted that it was not necessary to investigate Mr Ha’s understanding of Mr Toepfer’s explanation.  She submitted that Mrs Ha had not produced any evidence to show that Mr Kang had in fact exercised any power he may have had over her in an unconscientious way.  Moreover, there was nothing in the facts known to ANZ to put it on inquiry that Mrs Ha was acting under the influence of another: it received information from her broker which indicated that she was a businesswoman and a person of substance, and she was guaranteeing the borrowings of a company of which she was sole shareholder and director.  Further, even if the court accepted that there was some evidential basis for constructive notice, the bank was entitled to rely on Mr Toepfer’s certificate.

[27]     Before examining the opposing contentions, I will set out the circumstances in which the law provides for a transaction to be set aside against a creditor on the basis of undue influence of a third party.

Undue influence as it affects ANZ as a third party creditor

[28]     The Court of Appeal has recently noted that the defence of undue influence is directed towards conduct that equity treats as, in some way, vitiating the person’s consent to a transaction.[5]   The rationale for the defence is that the law will not permit a  transaction  to  stand  if  the  intention  to  enter  into  it  was  produced  by  an unacceptable means, so that the act of entry into the transaction “ought not fairly to be treated as the expression of a person’s free will”.[6]

[5] UDC Finance Ltd v Down [2009] NZCA 192 at 28.

[6] Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 (HC) at [6] and [7], cited in UDC Finance v Down at 28.

[29]     Undue  influence  can  be  established  either  as  a  matter  of  fact,  or  by presumption of law.   A presumption of undue influence can be rebutted.   A presumption  can  arise  in  two  ways.    In  certain  categories  of  relationships  (for example solicitor and client or doctor and patient) a relationship of trust and confidence is presumed from the nature of the relationship.  Alternatively, the party raising the defence may be able to prove a relationship which gives rise to a presumption of trust and confidence.  Where a relationship of trust and confidence is

presumed either by virtue of the particular relationship or from proved facts, and the nature of the transaction calls for explanation in light of that relationship, the evidential onus shifts to the other party to demonstrate the absence of undue influence.[7]

[7] Attorney-General for England and Wales v R [2002] 2 NZLR 91(CA) at [71]-[72], citing Barclays Bank plc v O’Brien [1994] 1 AC 180 (HL) as clarified in Royal Bank of Scotland v Etridge (No 2) above n6.

[30]     A transaction which has been procured by undue influence of a third party may be set aside against a bank or other financier in two circumstances.  The first is where the third party is agent for the bank or financier and procures execution of the document creating the obligation (such as a guarantee).   The second is where the bank  or  financier  has  actual  or  constructive  notice  of  the  third  party’s  undue

influence.[8]    The transaction is not set aside because the bank or financier has acted

[8] Contractors Bonding Ltd v Snee [1992] 2 NZLR 157, 167 (CA); Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674, 680 (CA).

unconscionably, but because it had, or is deemed to have, notice that the other party did not enter into the transaction freely.[9]

[9] Wilkinson v ASB Bank Ltd above n8 at 689.

[31]     If a bank or financier is aware of facts giving rise to a presumption of undue influence, it must show that it took adequate steps in the circumstances to allay the suspicion of undue influence.  If it fails to do so it will be fixed with constructive notice.[10]

[10] ibid 690.

Analysis for present case

[32]     It follows from the above that Mrs Ha’s guarantee given to ANZ may be set aside if the following conditions are satisfied:

a)        Mrs Ha proves that she was under the undue influence of Mr Kang when she gave the guarantee.

b)The  undue  influence  can  be  proved  either  by  Mr  Kang’s  actual conduct, or by proof of matters from which the law will presume undue influence in the absence of any rebuttal.

c)       To raise the presumption, Mrs Ha must prove a specific relationship with Mr Kang in which trust and confidence can be presumed, or facts about the relationship to justify a presumption of trust and confidence.

d)Mrs Ha must also prove aspects of the transaction which call for explanation in light of the presumed or proved relationship of trust and confidence.

e)       Mrs Ha must then prove that ANZ either knew of Mr Kang’s undue influence, or knew of facts which ought to have put it on inquiry as to whether the guarantee was being freely given.

f)        The  guarantee  will  be  set  aside  unless  ANZ  either  rebuts  the presumption of trust and confidence or provides a reasonable explanation of the transaction, or shows that it took reasonable steps to allay any suspicion.

[33]     Counsel for Mrs Ha accepted that ANZ did not have any actual knowledge of

Mr Kang and hence of any undue influence he may have exercised.

[34]     Accordingly, for Mrs Ha to succeed in her opposition to this application, she must establish an evidential basis for:

a)        The existence of undue influence by Mr Kang; and

b)        ANZ to be on inquiry as to the risk of undue influence.

[35]     The Court only needs to consider the materiality of the dispute over Mr Toepfer’s explanation to Mrs Ha if she has established an evidential basis for her contentions on the other points.

[36]     There is no evidence of any conduct on the part of Mr Kang which could constitute actual undue influence (as I have said, Mr Sharp did not contend otherwise).  Mrs Ha did not give any evidence of “over-reaching or unconscientious use” [11]  by Mr Kang of his alleged influence in connection with the giving of the guarantee.  She simply refers to Mr Kang’s request to use her and Mr Seo’s names, and his request to sign documents to effect the purchase.   This cannot amount to

[11] UDC Finance Ltd v Down above n5 at [33].

evidence of actual influence. She knew she was signing documents to assist the purchase of the property.   The inquiry, therefore, must be as to whether there is evidence to support an argument for a relationship of trust and confidence as a starting point for a presumption of undue influence.

[37]     Mr Sharp submitted that there was an evidential basis for undue influence both in the employer/employee relationship between Mr Kang and Mr Seo and as a matter of fact arising out of their relationship within the Korean community.

[38]     A relationship of employer and employee is not one which gives rise to the presumption of trust and confidence required for a claim of undue influence.[12]   This is particularly so where Mrs Ha herself was not a party to the employer/employee relationship and the transaction in issue does not arise out of it.

[12] Matthew v Bobbins (1980) 41 PCR 1 (CA).

[39]     As  there  is  no  presumption  arising  directly  out  of  the  employment relationship, Mrs Ha has to provide an evidential basis for her contention that she placed trust and confidence in Mr Kang.   Mr Sharp advanced two matters as that evidential basis:  the Korean community involvement, and Mr Seo’s employment.

[40]     There is a slight, but sufficient, evidential basis for Mrs Ha’s contention that Mr Kang was well regarded in the Korean community, and was considered to be a successful  businessman.    Similarly,  there  is  a  basis  for  saying  that  Mr  Kang’s apparent commercial honesty and integrity have since been called into question and that Mrs Ha and Mr Seo were not the only members of the Korean community to

have been taken in by him.   Mr Sharp produced reports by the liquidators of Mr Kang’s company (Wasan International Co Limited (in liquidation) to the effect that Mr Kang was a high profile immigration consultant who recruited aggressively in the Korean community in New Zealand, and that the liquidators had met a large number of members of the Korean community who had lost large sums of money in their dealings with Wasan and Mr Kang.

[41]     However, these matters fall well short of evidence of a relationship between Mrs Ha and Mr Kang of trust and confidence.   Further, there is no independent evidence from within the Korean community either of Mr Kang’s standing or of the cultural expectations within that community.

[42]     Depending on the actual circumstances, Mr Seo’s employment with Mr Kang could be a factor in the assessment of whether or not there was a relationship of trust and confidence.   However, the facts of the present case do not call for such presumption.  Whilst I accept that Mrs Ha would have been gratified by Mr Kang’s offer of employment to Mr Seo, and Mr Seo would have been keen to take up and retain this employment following sale of the Rotorua service station and the family’s decision to move to Auckland, Mrs Ha has not provided evidence to as to when Mr Seo took up his employment.   It is difficult to see how a prospect of employment could  result  in  a  relationship  of  trust  and  confidence.     Further,  even  if  the employment had commenced by the time that Mrs Ha came to sign the guarantee, there is no evidence to suggest that the offer of employment was conditional on “lending Mr Kang their names” or any other link between that arrangement and the employment.

[43]     Something more cogent is needed to establish a relationship as a result of which Mr Ha’s free will was suborned.   Mrs Ha has the onus of establishing an evidential basis for her defence.  The evidence that she has produced does not reach the evidential threshold.

[44]    Mr Sharp undertook a detailed examination of the documents that were submitted to ANZ and argued that it should have been immediately apparent from those documents that this was not a transaction that Mrs Ha should be undertaking, so  that  it could  be  explained  only by the  presence  of  some  outside  and  undue influence.

[45]     Mr Sharp referred to the size of the loan, the fact that bank statements did not support the cash flow needed to meet the interest payments, the absence of details of assets in the statement of assets and liabilities, an inconsistency between her declared income in the loan application (NZ$500,00 per annum) and income disclosed in a letter purportedly coming from an investment firm in Korea (USD$482,000), and failure to include the alleged investment in Korea which was said to have produced that income.  In addition, Mr Sharp pointed out that the broker had not met Mrs Ha before submitting the application and that there was no documentary support for the statement that she was a successful businesswoman, and submitted that there was reason to question her understanding of the transaction (because she was obviously foreign born, and indeed lacked familiarity with English).

[46]     These  matters  are  not  sufficient  to  put  ANZ  on  inquiry.    It  has  to  be remembered that ANZ knew nothing of Mr Kang.  There is nothing in the material submitted to ANZ to alert it to any interest on his past.  This distinguishes it from cases such as Credit Lyonnais Bank Nederland NV v Burch[13] and National Westminster Bank plc v Amin[14]  where the bank was aware of a third party interest. In  the  former,  a  junior  employee  provided  mortgage  security  for  her  employer

[13] Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 (CA).

[14] National Westminster Bank plc v Amin [2002] 1 FLR 735 (HL).

company’s overdraft at the request of the main shareholder and alter ego of the company.  In the latter, parents provided their home as security for a loan from the plaintiff bank to the son.  In the present case, the application was made by a broker purportedly  acting  for  Mrs Ha.    It  had  all  the  hallmarks  of  a  straight-forward commercial transaction of a loan to KTL to purchase an investment property, guaranteed by Mrs Ha as KTL’s sole director and shareholder.  Mr Sharp’s argument

that the transaction was improvident is not sufficient to put ANZ on inquiry in the absence of any known interest lying behind the transaction.  A lender will usually make inquiries to satisfy itself that a transaction is commercially sensible before making a loan, but it is not bound to do so and the nature and extent of any inquiries is a matter for its own judgment: Bartle v GE Custodians.[15]

[15] Bartle v GE Custodians HC Auckland CIV-2008-404-3460, 30 September 2009 at 351.

[47]     There was no express term in the loan agreement or guarantee requiring ANZ to warn Mrs Ha of any dangers or risks in the transaction, nor any basis for implying such a term (it was not necessary to make the contract work) and there was no basis for finding that ANZ had assumed a duty to explain the transaction:  Bank of New

Zealand v Geddes.[16]

[16] Bank of New Zealand v Geddes HC Auckland CIV-2008-404-8082, 28 May 2009 at [18]-[29].

[48]     If ANZ had made inquiries and established facts which should have alerted it to the involvement of Mr Kang, there could be an argument (dependent on the nature of the further information) that that was sufficient to put it on notice.  However, the only additional  inquiry made  in  this  case  was to  the  accountants  named  in  the application.   ANZ’s officer handling the application says that the accountants confirmed information in the application (as to Mrs Ha being self employed and as to her income).  There may well be questions as to this advice (in hindsight it seems that these were Mr Kang’s accountants) but there is nothing to suggest that the accountants revealed Mr Kang’s involvement to ANZ.

[49]     On the other hand, ANZ received information from a broker who said she was acting for Mrs Ha, which included a photocopy of her passport and driver’s licence and bank statements.  The photocopy of the driver’s licence show that it was transmitted by Mrs Ha or Mr Seo on 18 October 2007 and the bank statements were downloaded on 21 October 2007 – both before the date of the agreement and lodging of the application.   KTL was formed just before the application was lodged (and Mrs Ha acknowledges that she asked to go to Mr Kang’s office to sign papers for that, and I infer that she did so).  ANZ also knew that Mrs Ha opened a bank account for the loan in November 2007.   The accountants purportedly acting for Mrs Ha

confirmed  information in the application.  The transaction seemed to be a perfectly normal commercial transaction.

[50]     It is also significant that Mrs Ha did not produce any evidence from the broker, which suggests that the broker also had no reason to question the transaction.

[51]     Among the facts that Mr Sharp contended should have put ANZ on notice were that the property was purchased for less than the sum shown on the agreement submitted with the application, and that $102,626.80 of the loan money was paid to Wasan.   There is no evidence that ANZ had any knowledge of these matters. Although Mr Toepfer can be taken to have had the knowledge of them at the time that Mrs Ha signed the guarantee (because she also gave him written authority for the transfer of $100,000 to Wasan) that knowledge cannot be imputed to ANZ.  He had only a limited role for ANZ.  He did not obtain this information whilst acting for ANZ.  The mere fact that ANZ instructed Mr Toepfer to act for it in advising KTL and Mrs Ha on the loan documents and the guarantee does not make Mr Toepfer its

agent in respect of the advice given or completion of the purchase transaction.[17]

[17] Royal Bank of Scotland v Etridge (No 2), above n6 at [77], Burmeister v O’Brien HC Tauranga

CIV-2005-470-396 2 September 2008 at [68]-[85].

[52]     In the absence of any knowledge of the relationship between Mrs Ha and Mr Kang, there was no reason for ANZ to go past the information presented by Mrs Ha’s broker.  Mrs Ha has not provided sufficient evidential basis for her contention that ANZ was put on inquiry as to whether Mrs Ha was entering into the transaction (the guarantee) of her own free will.

The certificate – was anything more required

[53]     Although it is not necessary to do so, in light of the above findings, I will comment on the arguments as to whether ANZ took reasonable steps to allay any suspicion.

[54]     Mr   Sharp   placed   considerable   weight   on   Mrs   Ha’s   contention   that

Mr Toepfer failed to make known to her that she was signing a guarantee of a loan

for the purchase of 105A Tarawera Terrace.  Assuming that ANZ had been put on inquiry, he submitted that ANZ could only avoid being fixed with constructive notice  of  Mr  Kang’s  undue  influence  by  instructing  Mr Toepfer  not  merely  to explain the transaction but to satisfy himself as to her understanding (relying on Credit Lyonnais Bank Nederland NV v Burch and National Westminster Bank plc v Amin).   He relied in particular on Amin where the House of Lords said that the question of Mr and Mrs Amin’s understanding needed to be explored at trial given the allegation that the bank knew that Mr and Mrs Amin could not speak English, knew of their cultural, ethnic minority background, and therefore knew that they might be vulnerable to exploitation.  He noted the House of Lord’s comment that the bank had given no indication to the solicitor of the need for special care to be taken and when the solicitor reported back he had said nothing about Mr and Mrs Amin’s apparent understanding of the explanation.

[55]     I do not consider that the matter needs to go to trial on the issue of Mrs Ha’s understanding of the explanation given.  As I have indicated above, ANZ would only be put on inquiry, and thereby required to take that step, if it had knowledge of another interest in actual or potential conflict with Mrs Ha, which could raise the possibility of undue influence.  That cannot arise in the present case where Mrs Ha was guaranteeing the obligation of a company of which she was sole director and shareholder and the bank had no knowledge of her relationship with Mr Kang.   This was a commercial loan.   As was said by the Court of Appeal in UDC Finance v Down,  the requirement identified in Royal Bank of Scotland v Etridge (No 2) to take steps to bring home to a guarantor the risk he or she runs by standing as surety does

not apply:[18]

[18] UDC Finance Ltd v Down above n5, at [36]-[37].

[36]      .... The most significant change to the pre-existing law introduced by Etridge was the Court’s statement that from that point on banks and other lenders should regulate their affairs on the basis that unless they take steps to bring home to the individual guarantor the risks that he or she is running by standing as surety, they will be deemed to have notice that the transaction was the product of undue influence or misrepresentation (at [44]-[49]). This rule was described as applying wherever the relationship between the surety and the debtor is non-commercial: Etridge at [87]; Hogan at [43].

[37]     This  rule  has  no  application  in  this  case  as  Ms  Down  had  a commercial relationship with the debtor. In Etridge examples of commercial

relationships given were where a guarantor receives a fee for providing the guarantee, or where one company guarantees the debts of another in a group (at [88]). We consider another example to be where a sole director and shareholder of a company guarantees advances to the company. As the Lord Nicholls  said  in  Etridge, those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees (at [88]).

[56]     Moreover,  even  if  ANZ  had  been  put  on  inquiry,  it  did  all  that  could reasonably be expected to do to allay any suspicion.  It followed a generally accepted path of instructing the borrowers’ solicitors to explain the transaction and procure execution of the loan agreement and guarantee.   It received a certificate from the solicitor confirming that he had carried out his instructions to explain the documents, and that Mrs Ha had appeared to understand the explanation.  There was no need for any further inquiry by ANZ before it disbursed the loan proceeds.  It was entitled to rely on the certificate by Mr Toepfer, an officer of this Court, that he had carried out

his obligations to it.[19]    If Mr Toepfer did not carry out any obligations to Mrs Ha,

[19] Royal Bank of Scotland v Etridge (No 2) above n6 at [74]; Rollo v Westpac Banking Corporation

CIV-2003-419-843, 18 December 2003 at [32].

that is a matter between the two of them.

Conclusion

[57]     One can have sympathy for Mrs Ha if, as she claims, she has been a victim of improper conduct on the part of Mr Kang.  However, she must bring herself within the applicable legal principles if she seeks to extend responsibility for that behaviour to ANZ.

[58]     There is no question that Mrs Ha knew that she was signing documents which had the effect of acquiring the property “using her name”.  Even if she did so on the basis that she believed she would not be at risk, the evidence shows that this was because she believed that Mr Kang would take steps to protect her from that risk and not because she did not intend to enter into any legal obligations.

[59]     Mr Sharp concentrated his argument for Mrs Ha on alleged language and cultural disadvantages.   However, these disadvantages were not made known to ANZ.  From its perspective this was a commercial transaction being undertaken by a person with business experience and a reasonable financial base.  There is no good reason to make it responsible for Mrs Ha’s misfortune.

Decision

[60]     I am satisfied that Mrs Ha does not have an arguable defence to ANZ’s demand on her under the guarantee.   I enter judgment for ANZ against both defendants for the sum of $508,221.87 in respect of the sum due as at 21 April 2009.

[61]     ANZ is also entitled to judgment for interest at the appropriate contractual rate from 21 April 2009 up to the present date.   If counsel cannot agree on the quantum of interest, ANZ is to file and serve a memorandum setting out its claim within 15 working days.  Mrs Ha is to respond within a further 10 working days.

[62]     Mrs Ha is legally aided.  If ANZ seeks any order in respect of costs it is to file and serve a memorandum setting out the orders sought, and the grounds, again

within 15 working days.  Mrs Ha has a further 10 working days in which to respond.

Associate Judge Abbott