New Zealand Credit Law Bulletin - Vol 6, No 7, November 2006
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- If the bank says your mortgage is cleared when it's not, do you get off without paying?
You need to understand the concept of estoppel - An interesting case on lending on the security of Maori land
Bank finds 6 years later that they hadn't registered the mortgage - Auckland debt collector sued by client
A messy but fascinating case
1. If the bank says your mortgage is cleared when it's not, do you get off without paying?
Taylor v Bank of New Zealand [2006] NZCA 245 (8 September 2006)
Mr Taylor was unable to repay a loan to the BNZ. The bank had security over property owned by his mother and his family trust. Mrs Taylor and the trustees of the family trust disputed the validity of the loan and securities. A settlement was agreed, which, among other things, meant that the last $150,000 was not payable until after the death of Mrs Taylor. The BNZ believed that the deed set out that, after Mrs Taylor's death, the remaining $150,000 became payable 6 months later, or earlier if the property in Akaroa was sold before the six months was up.
Mrs Taylor died in 1999. Six weeks later, in response to a query from the executors of her estate, the bank sent a fax saying that, after a thorough search of its records, "no money is owed under the customer's mortgage". The bank discharged the mortgage without requiring the $150,000 to be repaid. When the bank found out its mistake, it started recovery proceedings.
Mr Taylor argued that the deed said that if the property wasn't sold within 6 months, he didn't have to pay anything. In both the High Court and the Court of Appeal, this argument was dismissed. His other argument was that because the bank had said that the mortgage was cleared, he believed it had been written off. He claimed he was entitled to rely on that, and the bank therefore couldn't demand payment.
This is an example of a legal concept called estoppel. In essence, if one party (here, the bank) makes a clear statement or promise which the other party (Taylor) relies on, this may override the legal rights that would otherwise apply. The bank might be "estopped" from going back on its word. This would only apply if it would be very unfair (in law "inequitable" or "unconscionable") to allow the bank to renege on its previous statement.
The Court of Appeal said that there was not a clear statement that the loan had been forgiven. The bank's fax said that "no money is owed", not that the debt had been written off. In addition, Taylor knew that the money was still owed. The Court didn't believe he had relied on the bank's statement. "A person cannot rely on a statement they know to be untrue and Mr Taylor knew the loan had not been repaid or forgiven."
"Even had there been a representation that the loan had been forgiven and Mr Taylor had believed that representation, the final issue is whether it would be unconscionable to allow the BNZ to withdraw the representation... In our view, Mr Taylor has not shown any detriment. He claims that he relied on the BNZ's representation when he did not bring a claim against his mother's estate under the Family Protection Act [i.e. to overturn the will]. We accept the BNZ's submission that the evidence suggests that Mrs Taylor senior treated her sons approximately equally under her will and that any such claim would likely have failed."
This area of the law is often relevant to businesses which make a mistake in their billing. A common problem for a business, for example, is that it fails to bill a customer, or fails to bill it all that is owed. Can they send a huge bill, years later? What if the customer rang and asked the creditor's customer service people whether they were sure the bill was right, and they said it was? Estoppel cases depend very much on their own facts so we can't generalise. However, this case shows that the debtor won't always escape liability in estoppel cases.
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2. An interesting case on lending on the security of Maori land
DICK V LEE & ANOR HC DUN CIV 2004 412 310 [2006] NZHC 602 (31 May 2006)
Mr Dick specialised in building work relating to restaurants and take away bars, particularly for members of the Asian community. Mr and Mrs Lee emigrated to New Zealand from Korea in 1995 and set up a restaurant in 1997. Dick did almost all of their building work on this and other subsequent restaurants, and on their house.
Between 5 February 1998 and 10 October 2002 the Lees made lump sum payments totalling $248,500. All of those payments were for round figures with the smallest being $2,000 and the largest $30,000. Dick was, he admitted, "slack" in not getting around to preparing a final account.
Early in 2004 the plaintiff became concerned that the Lees were overseas and their Dunedin house was on the market. He set about calculating the amount the defendants still owed, arrived at a figure of $326,822.37, issued proceedings, and obtained a Mareva injunction and charging order over some of the Lees' property. (A Mareva injunction is an order to freeze assets, particularly where there is a risk of those assets leaving the country, and a charging order on land gives the creditor concerned the right to be paid before title can be transferred to a new owner.) These orders were subsequently set aside, but the relationship between the parties was destroyed and they were unable to negotiate a settlement.
The judge said, "Contrary to the evidence of the parties I have concluded that there was never any agreement as to the basis upon which Mr Dick was to be paid. I believe this conclusion is entirely consistent with the unorthodox and extraordinarily relaxed approach displayed by both parties before they fell out."
In the circumstances, it was very difficult for him to work out how much was due. He concluded that Dick was entitled to payment of $85,023.64. This compares with the figure of $326,822.37 originally claimed.
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3. Auckland debt collector sued by client
Peter and Katherina Erskine had two businesses, Scampi Investments, and Silver Age Investments, both financing hire purchase agreements. They contracted for related companies Debt Recovery Co. NZ Ltd and Ruarakau Holdings Limited to collect their debts. Subsequently, they claimed they had paid for sums which were not correctly charged, for sums where the charges were unauthorised by them, and where monies had been wrongly withheld from them. The claim was for around $130,000.
Alternatively, they sought "a taking of accounts". Taking of accounts would typically see the appointment of an independent accountant by the court to work out who is owed what. A recent example of this was seen in the litigation between New Zealand boxer, David Tua, and his former management - see TUAMAN INC LTD AND ORS V MAFAUFAU SITA AKA DAVID TUA HC AK CIV.2003-404-5593 [2006] NZHC 518 (16 May 2006).
Debt Recovery and Ruarakau counterclaimed. They said the contract was wrongly terminated and that this had triggered an obligation to pay the closure fees to them. The figure sought on the counterclaim was some $30,000.
The judge in the District Court was critical of the confusion surrounding the parties' "haphazard" arrangements. He said that "seldom were the parties ad idem [of the same understanding] on matters of detail." He found that "the evidence did not disclose the parties' precise arrangements" in respect of much of the debt.
One solution would therefore have been a taking of accounts. However, "the judge was reluctant to order that. … [D]espite the comparative modesty of the claim, the proceedings had become unusually complex. There had been a three day hearing and 223 pages of evidence. Any taking of accounts would involve costs outweighing any final award."
He did, however, find that the Erskines were entitled to recover money collected, including money paid after the purported termination of the relationship, but subject to the debt collector's reasonable expenses. Debt Recovery and Ruarakau were not entitled to charge penalty commission after termination but they were entitled to a "closure fee" on accounts which were withdrawn.
He sent the parties away to try to negotiate a settlement. If they couldn't do that, he could either, (reluctantly), order a taking of accounts, or (essentially) make his best guess as to who should be paid what. This was one of the "cases where, although assessment can only be largely speculative and the evidence is exiguous [extremely scanty] the Court will do the best it can to arrive at a figure if satisfied that there has been some real damage."
The parties came back to court in agreement that there shouldn't be a taking of accounts, but with no agreement about how much should be paid to the Erskines. They asked the judge to come up with his best guess - essentially a fair figure for the actual value of services performed. He said, "the closest reliable figure to support the [Erskine's] claim is $21,187. Against this amount, [Debt Recovery and Ruarakau are] entitled to a commission of 18% and to an additional deduction representing closure fees on … [fifty] files in respect of which no recovery was made...
