Ensuring
a business proposition is viable before advancing a bank loan does not make the
bank liable as a business advisor, the High Court ruled in dismissing a Marton
cropping farm’s claim of $1.2 million for losses suffered after a 2008 property
purchase. This follows allegations that
banks engaged in aggressive product promotion to farmers in Northland and the
Manawatu when competing for market share.
The Whale family has substantial farming
and rural contracting interests in and around the Manawatu. Holding $700,000 in cash after selling off
some land, they were looking to buy elsewhere.
The High Court was told of a June 2008 meeting between the Whales, their
lawyer, their accountant and a Mr Ellis who was the relationship manager
overseeing their business account with the Bank of New Zealand. Mr Ellis undertook to prepare a “discussion
document” to assist in any new land purchase.
A week later, he circulated a document stated as giving “an indication
of the Bank’s requirements if [the Whales] sought to purchase more farmland.” The document concentrated on a block of land
available for sale near Marton. It
“assumed” a purchase price of $4.5 million, as an “indicative assessment” of the
land selling at $10,000 per acre. The
Whales were to subsequently buy at $4.55 million and sued the BNZ after
suffering losses every year it cropped the land for barley and wheat. Just on a year after purchase, the land was
valued at $3.7 million. The Whales
argued that they had paid too much and that they had relied on Mr Ellis and the
Bank’s specialised rural-sector knowledge to determine the price. Before purchase, Mr Ellis told the Whales
there was no need to get a valuation of the land, but he told the court this advice
was only in the context of determining whether the bank had sufficient margin
as security for a loan. The Whales
further argued that when the Bank sent them its analysis of their income,
cashflow and borrowings for the then current year it was assisting them in
deciding whether to purchase. The Bank
denied this was the reason. It said
these were internal Bank documents assessing the creditworthiness of the
borrower. It said it was asking the
Whales to advise if there were any factual errors in the assumptions used. Some of the data was changed following the
Whales’ response. The Whales complained
the Bank had a conflict of interest, alleging it was keen to find a buyer for
the Marton farmland which had been on the market for some time with the Bank
having a mortgage over the land.
Farmer advocate, Ms Janette Walker, told
the court she had assisted farmers facing pressure from banks and threats of
receivership where bank staff seeking to reach certain business targets to earn
a bonus had manipulated customer budgets to get loan proposals through banks’
credit departments. The Whales alleged
their budgetted analysis of annual crop yields for barley and wheat of 4.9-5.5
tons per hectare was increased unilaterally by the bank to 6.0-6.5 tons per hectare,
making the business proposition more favourable.
Associate Judge Smith ruled there was no
contractual obligation on the bank to provide its credit assessment to the
borrower. The exchange of information
between the Bank and the Whales was to assess whether any loan should be made. There was no evidence of any agreement that
the Bank was to act as a business advisor. He further ruled the Bank’s relationship had
been that of banker/client only. The
Bank did not “cross the line” to become a business advisor. There was no obligation on the Bank to advise
the Whales on the business merit of their borrowing. The Whales had significant experience in farm
ownership and rural contracting businesses.
Cantara
Ltd v. BNZ – High Court (9.11.15)
16.002