DLA Phillips Fox recently acted for ANZ National Bank in defending an interim injunction sought by a mortgagor who alleged that the Bank was liable for the failure of a property development it had funded. In the case, Piper v ANZ National Bank Limited [2008] NZHC 872, it was alleged that the Bank was liable for the costs to complete the unfinished development and the costs to repair defects in the construction work. Lenders may breathe a sigh of relief at the decision of Justice Winkelmann that the claim against the Bank could not succeed.

The Facts

The Bank had agreed to advance the mortgagor up to NZ$600,000 under a development loan facility. As part of the funding arrangements, the Bank appointed an independent Quantity Surveyor. The Quantity Surveyor was required to provide the Bank with monthly drawdown certificates for the development facility on a cost to complete basis. The Bank relied on the drawdown certificates to make advances to the mortgagor under the development loan facility.

Before the development was completed, a dispute arose between the mortgagor and the builder. The mortgagor alleged there were significant defects in the builder's work. The builder denied the allegations and stopped work. The mortgagor claimed that over NZ$350,000 was required to complete the development and remedy the defects in the work.

The Bank became involved in the dispute when the mortgagor stopped paying her mortgage and the Bank took steps to sell the property at mortgagee sale. The mortgagor alleged, amongst other things, that the Bank's appointment of the Quantity Surveyor meant the Bank owed the mortgagor duties which it had breached. It was alleged that the Bank was liable for the costs to successfully complete the development and the costs to repair defects in the construction work.

Findings

The Bank successfully defended the application for interim injunction. Justice Winkelmann found that there was not a serious question to be tried as:

  • There was no express contractual term in the loan documents imposing any duties on the Bank.
  • There was no implied term in the loan documents. The purpose behind the transaction was for the mortgagor to obtain funding for the development and for the Bank to obtain adequate security to protect its interests. To introduce the notion that the Bank assumed responsibility to the mortgagor to ensure that the property was developed under all appropriate regulatory requirements and with appropriate standards of workmanship, was to 'introduce entirely alien concepts into the contract'.
  • The Bank was not responsible for any alleged negligent misstatement made by the Quantity Surveyor.
  • The relationship between the Bank and the mortgagor was not a fiduciary relationship. The Bank did not assume the responsibility of safeguarding the mortgagor's interests before its own. The stipulation in the loan documents for a Quantity Surveyor and for reports and certificates from the Quantity Surveyor, were intended for the benefit of the Bank. The Bank did not exercise control over the mortgagor's interests.

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