Introduction

[1] The defendant applies to strike out the plaintiffs’ Statement of Claim in this proceeding. This application is opposed.

[2] In their Statement of Claim the plaintiffs claim that they are entitled to rescind a loan agreement with the defendant Bank for $260,000.00 which they entered into along with their daughter Lisa Simon (“Lisa”) and her partner Ropata Reweti (“Ropata”).

[3] The plaintiffs claim that they signed the loan agreement as a result of the undue influence of their daughter Lisa, who was an employee of the defendant at the time. They claim that they are entitled to rescind the loan agreement and to be restored to the pre-contractual position. In addition they claim judgment for damages of $600,000.00.

[4] The defendant’s strike out application is based upon the grounds that:

(1) The pleading discloses no reasonable cause of action, and

(2) The Statement of Claim is otherwise an abuse of the process of the Court.

Background facts

[5] The plaintiffs had owned a property at 39 Thornlow Street, Glendene, Auckland since 1983. On 3 April 1996 they signed a mortgage over this property in favour of Trust Bank New Zealand Limited, the predecessor of the defendant. Also on 3 April 1996, together with Lisa, they signed a mortgage in favour of Trust Bank over a property at 58 Whitaker Street, Kihikihi, which they and Lisa were acquiring at that time.

[6] The mortgages to Trust Bank were standard all-obligations bank mortgages securing all loans and debt which any of the mortgagors owed to Trust Bank as lender from time to time, including past and future loans.

[7] On 3 April 1996 when the mortgages noted in paragraph [5] above were signed, the plaintiffs and Lisa also signed two loan agreements with Trust Bank for advances of $65,000.00 and $100,000.00. These advances, as I understand it, were in part to refinance previous loans and in part to fund the purchase of the 58 Whitaker Street property. Importantly, the signatures of the plaintiffs and of Lisa on the mortgages and on the 3 April 1996 loan agreements were witnessed by an independent solicitor, who presumably advised them at the time concerning the transactions.

[8] It should be noted that the plaintiffs together with Lisa had previously entered into a number of loan agreements with Trust Bank. From September 1996 all the loan agreements were acquired by the defendant when it took over the property rights and powers of Trust Bank.

[9] Subsequent to 3 April 1996 the plaintiffs and Lisa also entered into a number of new loan transactions with the defendant for:

(a) A $35,500.00 loan dated 14 July 1998.

(b) A $10,000.00 loan dated 28 October 1998.

(c) A $98,000.00 loan dated 27 October 1998.

Some of these loans were to refinance existing loans the plaintiffs and Lisa had with the defendant, as well as with other lenders.

[10] And then, on 26 November 1998 the plaintiffs, Lisa and Ropata signed a loan agreement as borrowers with the defendant for $260,000.00 (“the $260,000.00 loan”). This loan, it seems, however, was for the benefit of Lisa and Ropata alone.

[11] Lisa and Ropata at that time granted a mortgage to Westpac to provide security for the $260,000.00 loan and the earlier bank loans over their property at 15 Cognac Place, Henderson. In their Statement of Claim, it is this $260,000.00 loan which the plaintiffs complain about and seek to rescind.

[12] Then, on 30 May 2003 Lisa and Ropata sold their Cognac Place property and the proceeds of sale were applied to repay the $260,000.00 loan in its entirety and certain other loans.

[13] Previously, the plaintiffs had sold their property at Thornlow Street in about December 2000, and the plaintiffs and Lisa had sold their property at Whitaker Street in May 2001. The full proceeds of these sales were used to repay to the defendant the loans referred to in paragraph [9] above and the $65,000.00 loan made on 3 April 1996 referred to in paragraph [7] above.

[14] The plaintiffs’ broad claim in this proceeding appears to be that first, they were induced to sign the $260,000.00 loan documents by Lisa without independent advice, and secondly, when Lisa and Ropata’s loan repayments on the $260,000.00 loan fell into arrears, Property Law Act notices were served on the plaintiffs (although this was not directly pleaded in their Statement of Claim) and it was this that forced them to sell their Thornlow Street home and the Whitaker Street property.

[15] This in turn has resulted in a claim by the plaintiffs for an alleged loss of an opportunity to seek an improved sale of the two properties.

Counsel’s arguments and my decision

[16] This strike out application is made pursuant to Rule 186 High Court Rules which provides:

Without prejudice to the inherent jurisdiction of the Court in that regard, where a pleading –

(a) Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(b) Is likely to cause prejudice, embarrassment, or delay in the proceeding; or

(c) Is otherwise an abuse of the process of the Court, the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.

[17] As a strike out application, this application must proceed on the assumption that the facts pleaded in the Statement of Claim are true, and that to strike out the proceedings the Court must be satisfied the causes of action are so untenable that they could not succeed – Attorney-General v Prince and Gardiner [1998] 1 NZLR 262.

[18] In addition, Attorney-General v Prince and Gardiner made clear that the strike out jurisdiction is one to be exercised sparingly and only in a clear case where the Court is satisfied it has the requisite material – Gartside v Sheffield Young and Ellis [1983] NZLR 37, 45 and Electricity Corporation Limited v Geotherm Energy Ltd [1992] 2NZLR 641. The fact, however, that applications to strike out raise difficult questions of law, and require extensive argument – does not exclude jurisdiction – see Gartside v Sheffield Young and Ellis.

[19] To succeed, the defendant must show that the cause of action is so clearly untenable that it cannot possibly succeed – see R Lucas & Son (Nelson Mail) Limited v O’Brien [1978] 2 NZLR 289 and Takaro Properties Limited v Rowling [1987] 2 NZLR 314.

[20] The plaintiffs’ specific allegations in their Statement of Claim to support this proceeding are:

a) Lisa was an employee of Westpac.

b) Between April 1996 and November 1998, Lisa brought to the plaintiffs home bank loan documents for them to sign and they were misled by Lisa into signing those documents.

c) A relationship had developed between the plaintiffs and their daughter Lisa that gave rise to a presumption that they were unduly influenced by Lisa for loan advances, and particularly the $260,000.00 advance loan documents signed on 26 November 1998.

d) This loan was to the knowledge of the defendant for the benefit of Lisa and Ropata, her partner, alone.

e) The plaintiffs were induced by Lisa to sign the documents. No independent advice was given to them.

f) After Lisa and Ropata failed to make regular repayments and the $260,000.00 loan fell into arrears, the defendant looked to Lisa, Ropata and the plaintiffs to recover the debt.

g) Accordingly, the plaintiffs were forced to sell their two properties to meet the demands of the defendant.

[21] As noted in paragraph [3] above, the plaintiffs seek to rescind the $260,000.00 loan agreement. In addition, they allege that they have suffered loss first, with respect to the payments made to the defendant, and secondly, for loss of the opportunity to obtain an improved sale of their two properties. Their prayer for relief in the Statement of Claim seeks judgment for $600,000.00.

[22] The specific cause of action pleaded by the plaintiffs here is a claim of undue influence. In particular, the plaintiffs allege that the relationship between Lisa as an employee of the defendant and themselves “gave rise to a presumption of undue influence”. The leading authorities in New Zealand on undue influence are Wilkinson v ASB Bank Limited [1998] 1 NZLR 675 (CA), and ASB Bank Limited v Harlick [1996] 1 NZLR 655 (CA).

[23] I will consider these authorities shortly, but deal first with a preliminary matter raised before me.

[24] This was an attempt by counsel to refer to a complaint made by the plaintiffs with respect to the defendant’s actions here which was investigated by the Banking Ombudsman. Apparently that complaint was not upheld, although there has been a suggestion made that the decision of the Banking Ombudsman included some reference to a possible claim of undue influence against the Bank. The defendant objects to any consideration of this or the Banking Ombudsman complaint itself.

[25] As I see it, the material which the plaintiffs have endeavoured to put before the Court regarding the Banking Ombudsman’s decision is not relevant to this strike out application and is probably in any event hearsay evidence. Therefore, I ignore any reference to the Banking Ombudsman’s decision or comments in considering this strike out application.

[26] I turn now to consider the principles outlined in the New Zealand decisions on undue influence noted at paragraph [22] above.

[27] From these it is clear that initially the plaintiffs will need to establish two things – first, that they had a relationship with their daughter Lisa which was one under which they generally reposed ‘trust and confidence’ in their daughter, the existence of which relationship raises the presumption of undue influence, and secondly, that the defendant Bank was aware of the facts giving rise to that presumption, to the extent that the defendant had notice actual or constructive, of the undue influence exercised by Lisa over the plaintiffs.

[28] As to these aspects, Blanchard J in Wilkinson v ASB Bank Limited [1998] 1 NZLR 675 (CA) at page 690 said:

The questions initially to be asked ... are:

(i) Whether there was between the guarantor and the principal a relationship under which the guarantor generally reposed trust and confidence in the principal debtor; and thus

(ii) Whether there was at the time when the guarantee was in contemplation a presumption of undue influence or misrepresentation.

If the financier was aware of facts giving rise to that presumption, it must show that it took adequate steps in the circumstances to allay any reasonable suspicion of undue influence or misrepresentation:

would an observer, knowing only what the financier knew, have concluded that reasonable suspicion of undue influence or misrepresentation remained when the guarantee was signed?

[29] It is significant also to consider the words of Blanchard J at page 689 of the same judgment where he said:

When it is said that undue influence has been exercised by the principal debtor on a guarantor (either positively by application of pressure or by taking advantage of the guarantor’s dependency) or that the principal debtor has persuaded the guarantor to enter into the transaction by a misrepresentation, the guarantor is not asking the Court to set aside the transaction because of any unconscionable behaviour by the creditor. The guarantor does so, rather because the creditor has taken the benefit of the guarantee with actual or constructive knowledge of what has occurred, or is presumed to have occurred, between the principal debtor and the guarantor.

The Court must balance the desirability of protecting vulnerable persons from loss of their assets, particularly their homes, against the undesirability of economically sterilising those assets. Sympathy for a victim of undue influence or misrepresentation should not lead a Court into the error or imposing upon lenders an unrealistic standard. Transactions in which one relative assists another to borrow are common place.

[30] In the present case, there was a reasonably significant history of dealings between the plaintiffs and the defendant Bank leading up to the transactions in question. These dealings involved financing of various property arrangements entered into by the plaintiffs, by Lisa and Ropata alone, and also by Lisa and the plaintiffs together.

[31] As I understand it, there is no suggestion by the plaintiffs here that the transaction or transactions which they are endeavouring to impinge were entered into because of unconscionable behaviour on the part of the defendant as creditor. The plaintiffs, who are in part principal borrowers and in part guarantors of debt from the defendant allege that this action is brought, to use the words of Blanchard J. as noted in paragraph [29] above:

... rather because the creditor (the defendant) has taken the benefit of the guarantee with actual or constructive knowledge of what has occurred or is presumed to have occurred between the principal debtor [Lisa and Ropata] and the guarantor (the plaintiffs).

[32] Counsel for the plaintiffs acknowledged before me that the instigator of any financial problems which occurred here was indeed not the defendant, but their daughter Lisa, and those problems arose from transactions which she entered into with her partner Ropata.

[33] That said, it remains necessary for the plaintiffs to establish that the defendant Bank has taken the benefit of their guarantee and securities with actual or constructive knowledge that the plaintiffs were persuaded to enter into the transactions by undue influence or a misrepresentation on the part of Lisa as principal debtor.

[34] It appears to me that there is little in the plaintiff’s Statement of Claim or before the Court to support this position in any way.

[35] I turn now to consider the plaintiffs’ Statement of Claim. I note again that this strike out application is to proceed on the assumption that the facts pleaded in the Statement of Claim are true, and that to strike out the proceedings the Court must be satisfied the causes of action are so untenable that they could not succeed.

[36] In this regard, the defendant contends that the Statement of Claim is lacking, in that it:

(a) Fails to detail the nature of the alleged relationship between the plaintiffs and Lisa which gives rise to the presumption of undue influence (bearing in mind that with the parent/daughter relationship here, there is no presumption of influence as a matter of law in terms of the Class 2(A) test confirmed in Barclays Bank PLC v O’Brien (1994) 1 AC 180 (HL) and followed in the New Zealand decisions in Wilkinson and Harlick.

(b) Fails to provide any particulars as to how the defendant could have known that a presumption of undue influence had arisen. In other words, what factors existed wherein the defendant should have had a reasonable suspicion of undue influence on the plaintiffs by Lisa.

(c) Failed to provide particulars as to how the defendant knew that the $260,000.00 loan was only for the benefit of Lisa and Ropata, when all four parties were borrowers under the loan agreement; and

(d) Failed to provide particulars of loss to the plaintiffs, which was occasioned by their entering into the $260,000.00 loan agreement.

[37] The defendant maintains that the plaintiffs’ Statement of Claim lacks particularity and does not comply with Rule 108(b) High Court Rules, which requires a Statement of Claim to provide particulars of the time, place, amounts, names of persons, nature and dates of instruments and any other circumstances as may suffice to inform the Court and the defendant of the plaintiffs’ cause of action.

[38] To a large extent I agree with these contentions by the defendant.

[39] In my view, the only factor here which might give rise to a presumption of undue influence is the fact that Lisa was employed by the defendant Bank, and her status as a bank officer, coupled with her relationship with the plaintiffs as their daughter, might have led to some presumption. But here, a long history of similar dealings between the defendant Bank, the plaintiffs and Lisa had occurred prior to November 1998.

[40] To establish undue influence here, however, the plaintiffs would have to show that they reposed trust and confidence in Lisa, and furthermore, they would need to provide particulars of the circumstances giving rise to that relationship of trust and confidence. In the absence of this, they could not succeed in establishing presumed undue influence.

[41] Significantly, the plaintiffs’ Statement of Claim appears to allege undue influence only with respect to the $260,000.00 loan agreement. No similar allegation is made with regard to the six previous loan agreements, and the two sets of mortgage documents signed by the plaintiffs in favour of the defendant. As I see it, there is nothing in the plaintiffs’ pleadings to suggest that the situation here, akin to that in ASB v Harlick was anything other than the normal family relationship in which parents readily agreed to assist children in their business ventures. Nothing has been put forward by the plaintiffs which even hints at there being any greater element of trust or confidence or reliance by the plaintiffs upon Lisa than was to be expected between parents and adult children, and I am satisfied that the situation pleaded here is not sufficient to raise a presumption of undue influence.

[42] Counsel for the plaintiffs argued that although there may be some deficiencies in the pleading here, the Court has the discretion to direct that such defects are cured by amendment rather than taking the draconian step of striking out the proceedings. As to this process, McGechan on Procedure at paragraph HR186.08 states:

In Marshall Futures Limited v Marshall [1992] 1 NZLR 216 ... Tipping J by analogy to motor vehicle insurance saw the difference as that between a pleading “which is a total write-off and one which is deficient but is capable of effective repair”.

[43] At this point, I am satisfied that the plaintiffs’ pleading here is not capable of effective repair. In my view, they are so deficient that they are not capable of “effective repair”. I accept the contentions noted in paragraph [36] above by counsel for the defendant in this respect.

[44] Although this may deal with the issue before me, I am reinforced in the conclusion I have reached by certain additional matters. I will now deal with these.

[45] Even if the plaintiffs’ pleadings could be rectified, and it is accepted that the plaintiffs signed the loan agreement as a result of being induced by Lisa to do so, the defendant’s rights under the loan agreement will only be effective:

(1) If Lisa was acting as agent for the defendant, or

(2) If the defendant had notice actual or constructive of the undue influence exercised by Lisa over the plaintiffs.

[46] The pleadings do not contain any allegation that Lisa was the agent of the defendant Bank for the purposes of obtaining the plaintiffs’ agreement. The only basis, therefore, upon which the defendant’s rights under the loan agreement could be affected, would be if the defendant had actual or constructive notice of Lisa’s undue influence over her parents, the plaintiffs.

[47] As I have noted above, the Statement of Claim fails to provide any particularisation of that allegation, and accordingly the defendant is quite unable to adequately respond to it.

[48] Other than the fact that Lisa, their employee, was the daughter of the plaintiffs, which under the circumstances prevailing here I do not see as a critical factor, there is no allegation whatever of the basis upon which the defendant was “on notice” of the circumstances giving rise to a presumption of Lisa’s alleged undue influence on her parents. Accordingly, the plaintiffs’ claim in my view must fail on this basis as well.

[49] It is not uncommon for parents to enter into loan transactions for the benefit of their children, and here the plaintiffs were free to do so. That does not necessarily impugn the transaction.

[50] Further, upon the face of the documents for the $260,000.00 loan, the plaintiffs were joint borrowers with Lisa and Ropata, so it would seem difficult for them to allege that they had no financial interest in the borrowing. In any event, they had readily entered into loan arrangements with the defendant in the past that had assisted Lisa and this transaction was not significantly different.

[51] A further matter, in my view, is fatal to the plaintiffs’ claim here. This is the fact that the $260,000.00 loan, it is acknowledged, was repaid by Lisa and Ropata personally from the sale of their Cognac Place property. This occurred on 30 May 2003, whereas the plaintiffs had already voluntarily sold their Thornlow Street property in December 2000 and their Whitaker Street property in May 2001.

[52] The plaintiffs were not called upon to repay the $260,000.00, and accordingly they have not suffered any detriment as a result of its repayment.

[53] At the most, the plaintiffs might claim that some 2-3 years earlier they were “encouraged” to sell their Thornlow Street and Whitaker Street properties because of difficulties Lisa and Ropata may have been facing in making the repayments under the $260,000.00 loan. There is no pleading to this effect, however, nor is there anything before the Court to establish or suggest this.

[54] Further, what seems clear is that when the Thornlow Street and Whitaker Street properties were sold, the sale proceeds were applied in repayment of the other outstanding loan obligations to the defendant, which the plaintiffs and Lisa had incurred between April 1996 and October 1998. Significantly, in this proceeding the plaintiffs do not complain of any undue influence with respect to those loan agreements.

[55] As the $260,000.00 loan was repaid by Lisa and Ropata, it is difficult to see that, even if the plaintiffs could establish that they were unduly influenced to enter into this loan agreement, this has resulted in their suffering any loss.

[56] One final matter requires consideration. This relates to the remedies sought by the plaintiffs in this proceeding.

[57] If the plaintiffs could amend their pleading to allege the facts necessary to establish a cause of action of undue influence, in my view any such amendment would not ultimately lead to there being an effective remedy for them.

[58] The remedy for transactions initiated by undue influence is rescission. In New Zealand, neither equity nor the common law give damages for complaints of undue influence – see Equity and Trusts in New Zealand, p614-616 and Meagher Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed, Butterworths Lexis Nexis Australia 2002 page 523.

[59] Rescission is the right of a party to a contract to have it set aside, and to be restored to that party’s former position. In bringing its claim here that the loan agreement was signed by the plaintiffs as a result of Lisa’s undue influence, the most the plaintiffs can seek is to rescind the loan agreement, and to be restored to the position that they would have been in if they had not entered into it.

[60] Here, rescinding the loan agreement would require the Court to restore the parties to their original positions, which would require repayment of the loan money advanced. On the facts of this case, however, this has already occurred – notably from the sale of the Cognac Place property owned by Lisa and Ropata. This case clearly differs from most undue influence cases which relate to guarantors. There, if successful, the Court is able to rescind the guarantee and this does not affect the underlying transaction the subject of the guarantee.

[61] In this case, the plaintiffs arguably could have sought the equitable remedy of an injunction to restrain the defendant from enforcing its rights under the $260,000.00 loan agreement pending rescission. They did not do so, however, and sold their own properties themselves. It is therefore impossible now for there to be restitutio in integrum, so it is unlikely that there would be any remedy available to the plaintiffs.

[62] Notwithstanding this, even if it was possible to rescind the $260,000.00 loan agreement, the most that the plaintiffs could have done would be to be restored to their “former” position. In my view, this would not have assisted them.

[63] This is because at the time the $260,000.00 loan was entered into, and the documentation signed on 26 November 1998, the plaintiffs were already liable at that point for all Lisa’s future debts to the defendant in any event. This resulted from the nature of the standard all-obligations bank mortgage and documentation signed in favour of the defendant some two years earlier. The plaintiffs were not therefore required to be signatories to the $260,000.00 loan agreement for this amount to be secured under the mortgages over their properties.

[64] The plaintiffs have not alleged undue influence in respect of the two mortgages and earlier loan agreements in favour of the defendant signed on 3 April 1996. As I have said earlier, it would be difficult for the plaintiffs to allege a situation of undue influence in respect of those two mortgages which could be visited upon the defendant. This is because the loan agreements and mortgages were signed in the presence of an independent solicitor and the loans at the time were for the benefit of the plaintiffs, in that they were loans to refinance an existing mortgage over the Thornlow Street property, and to purchase the Whitaker Street property.

[65] In short, therefore, whether the plaintiffs had signed the $260,000.00 loan agreement or not, this may not have affected their liability to the defendant. They would in any event be liable for Lisa’s debts in terms of the provisions of the mortgages signed earlier. Rescinding the $260,000.00 loan agreement would not, therefore, affect the eventual outcome. As I see it, this is an additional reason why the plaintiffs’ claim here could not succeed.

Conclusion

[66] For the reasons I have outlined above, and in terms of the strike out test outlined in Attorney-General v Prince & Gardiner, I am satisfied therefore that the causes of action pleaded by the plaintiffs here are so clearly untenable that they could not succeed. I find that the elements required to establish undue influence on the part of the defendant Bank have not been properly pleaded here, nor has there in any event been anything pleaded or put before the Court to indicate that the plaintiffs were required to sell their Thornlow Street and Whitaker Street properties, other than voluntarily, and that they might have suffered any loss. Indeed, the $260,000.00 loan in question, it seems to be accepted, was repaid in full by Lisa and Ropata, and the plaintiffs played no part in this. I am satisfied that rescission is no longer possible here, but even if it were, the status quo ante would have led to the same result in any event.

[67] Accordingly, the defendant’s strike out application succeeds. The plaintiffs’ Statement of Claim is struck out.

[68] The defendant, having been successful, is entitled to an award of costs. Costs are ordered against the plaintiffs on a category 2B basis together with disbursements as fixed by the Registrar.

Master D.I. Gendall