A.C.N. 634 927 469 Pty Ltd v Fawcet
[2023] NZHC 381
•3 March 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000445
[2023] NZHC 381
BETWEEN A.C.N. 634 927 469 PTY LTD (as trustee of the Union Green Trust)
First Plaintiff
PERPETUAL CORPORATE TRUSTEE LIMITED
Second Plaintiff
AND
ANDREW JAMES FAWCET
First Defendant
FARHAD MOINFAR
Second Defendant
Hearing: 29 August 2022 Appearances:
M Kersey / A R MacDuff for the Plaintiffs
A R B Barker KC / A T Grant for the First Defendant D J Chisholm KC / J D Ryan for the Second Defendant
Judgment:
3 March 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 3 March 2023 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Alexander Dorrington, Auckland Claymore Partners Ltd, Auckland Russell McVeagh, Auckland
A.C.N. 634 927 469 PTY LTD v FAWCET [2023] NZHC 381 [3 March 2023]
Introduction
[1] West Village Capital Partners Limited (West Village) developed the Union Green development in central Auckland. Since completing the development, it has been placed in receivership and liquidation.
[2] A.C.N. 634 927 469 Pty Ltd (as trustee for the Union Green Trust) (the Lender), part of the Qualitas group of companies, loaned West Village money for the development. West Village granted the Lender a mortgage over the development property as security for the loan. The mortgage is held by Perpetual Corporate Trust Limited (the Custodian).
[3] Andrew Fawcet and Farhad Moinfar (the Guarantors), directors of West Village, guaranteed the company’s indebtedness to the Lender.
[4] The plaintiffs seek summary judgment against the Guarantors for amounts they owe under the guarantee. They claim that at the date of filing the application, the Guarantors owed them at least $3,200,359.86.
[5] The Guarantors oppose the application. Their primary argument is that West Village’s repayment obligation/indebtedness to the plaintiffs is limited to the amount realisable from West Village’s assets (after repayment of other priority amounts) and discharged once the assets are realised and the proceeds applied to the loan facility. They say that because West Village has no present repayment obligation/indebtedness to the plaintiffs they are not liable to the plaintiffs under the guarantee. Their secondary argument is that the plaintiffs have failed to prove West Village’s “maximum borrower liability” as defined in the loan documents and therefore the amount said to be owed by the Guarantors.
[6] The issue I must determine is one of contractual interpretation. Have the plaintiffs established that the Guarantors have no defence to the claim; or is there a tenable defence that the Guarantors are not presently liable because the borrower, West Village, is not presently liable?
Background facts
[7] On 4 September 2015, West Village entered into a property finance facility agreement (Facility Agreement) with Alta Twenty Twenty Limited (ATTL) as lender. Mr Fawcet and Mr Moinfar executed (amongst other documents) the Facility Agreement, which contains the guarantee, as “Guarantors”.
[8] On 7 October 2015, ATTL assigned its rights under the Facility Agreement and associated securities to Twenty Twenty Property Finance Limited as general partner of the Twenty Twenty Property Finance Partners Limited Partnership (TTP).
[9] West Village also obtained financing from ANZ Bank New Zealand Limited. As part of this arrangement, ANZ became the first ranking secured lender and mortgagee and TTP became the second ranking secured lender and mortgagee.
[10] On 30 July 2019, the Lender took an assignment (for value) of all TTP’s rights, titles and interests in connection with the Facility Agreement. As part of this transaction, the Facility Agreement was amended and restated into the A&R Facility Agreement by deed dated 30 July 2019. Under this deed, the Custodian became a party to the A & R Facility Agreement and the security documents. The guarantee, as amended, remained in the A&R Facility Agreement and the Guarantors executed the A&R Facility Agreement in their capacities as "Guarantors".
[11] On 8 July 2021, ANZ confirmed its lending to West Village was repaid in full. Accordingly, the Lender is the only secured lender to West Village in respect of the Union Green development.
[12] When the facility terminated on 30 June 2021, the outstanding principal loan balance was $39,850,087.29 excluding interest, fees, and costs.1
[13] On 14 September 2021, the Custodian acting on instructions of the Lender, appointed receivers over West Village’s property. West Village’s shareholder appointed a liquidator on the same date.
1 Affidavit of Peter Brian Lawlor affirmed 24 March 2022 at [37] [Lawlor Affidavit].
[14] The plaintiffs made a formal demand on the Guarantors on 10 December 2021. They recorded that on 16 September 2021, after the receivers were appointed, the amount outstanding under the Facility Agreement was $56,862,467.31. Since then, West Village, by its receivers, had remitted $4,817,569.08 in net sale proceeds to the Lender. They estimated West Village’s Maximum Borrower Liability to be
$24,000,000. The meaning of this term is addressed below.
Legal principles
Summary judgment
[15] Rule 12.2(1) of the High Court Rules 2016 provides that this Court may give judgment against a defendant if the plaintiff has satisfied the Court that the defendant has no defence to a cause of action in statement of claim or a part of any cause of action.
[16] The relevant principles governing a summary judgment application are well established:2
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Contractual interpretation
[17] The Court adopts an objective approach to ascertain "the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
they were at the time of the contract".3 It is not concerned with the uncommunicated subjective intention of one of the parties to a contract.4
[18] In principle, both pre-contractual negotiations and the parties' post-contractual conduct may be admissible when interpreting a contract.5 The admissibility of such evidence "is determined by the laws of evidence".6 However, the law of evidence and the law of contractual interpretation "do not…operate independently".7 The law of contractual interpretation "fundamentally shapes what is relevant, and what is therefore admissible, extrinsic evidence".8
[19] In this case Mr Moinfar produces the record of negotiations between Peter Lawlor, director in Qualitas Group, the Lender’s solicitor, and himself that led to the A & R Facility Agreement including various drafts of the key contractual terms. The Guarantors look to rely on aspects of this pre-contractual record. The plaintiffs do not object to the admissibility of this evidence and rely on other aspects in turn. I refer to the particular items of correspondence drawn to my attention by the parties, where I consider them relevant.
A & R Facility Agreement
[20] This case depends on interpreting the A & R Facility Agreement in its relevant background. The A & R Facility Agreement materially comprises:
(a)An Amendment and Restatement Deed.
(b)An Amended Property Finance Facility Agreement, containing a
Development Facility Schedule and a General Facility Schedule.
3 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60] citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 endorsed in Bathurst Resources Ltd v L & M Coal Holdings [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
4 Bathurst Resources Ltd v L & M Coal Holdings, above n 3 at [48].
5 Bathurst Resources Ltd v L & M Coal Holdings, above n 3 at [48] and [54]–[65].
6 Bathurst Resources Ltd v L & M Coal Holdings, above n 3 at [54].
7 Bathurst Resources Ltd v L & M Coal Holdings, above n 3 at [55].
8 Bathurst Resources Ltd v L & M Coal Holdings, above n 3 at [55].
(c)Amended General Terms (incorporated into the Amended Property Finance Facility Agreement) (General Terms).
[21]The relevant terms of this document are set out below.
Amendment and Restatement Deed
[22]Recital A of the Amendment and Restatement Deed provides:
The parties wish to amend and restate the Restated Facility Agreement and the Security Documents as set out in this deed.
[23]Clause 3.1 relevantly provides:
The Loan Agreement (Property Finance Facility Agreement) shall be amended and restated in the form of the agreement set out in appendix 1 to this deed…
[24]Clause 4.2 relevantly provides:
Guarantees: Each Obligor acknowledges and agrees that its obligations as guarantor or surety under the Relevant Documents remain in full force and effect (and from the Effective Date will support the obligations of the Borrower to Twenty Twenty or both the Lender and Custodian) (as applicable) and are and will be effective to support the obligations of the Borrower under the Loan Agreement and relevant Security Documents as they are to be amended by this deed.
(emphasis added)
[25]“Obligor” is defined at cl 1.1 to mean “the Borrower or a Guarantor”.
Property Finance Facility Agreement
[26] The pertinent parts of this agreement are found in the Development Facility Schedule.
[27] Under the section entitled “Termination Date”, the Termination Date is the earlier of 31 December 2020 and the date falling three months following practical completion of the development. The Termination Date was extended, most recently by letter dated 1 June 2021, to 30 June 2021.
[28]Pursuant to the section entitled “Repayment’, repayment is to be made:
On the terms set out in the General Terms. In addition, the Borrower shall promptly, and in any event within two business days of receipt use all net proceeds of sale of all or any part of the Land to permanently repay the Facility to the fullest extent permitted by the terms of the Senior Facility.
Notwithstanding anything to the contrary in this Facility Agreement or any other Relevant Document, the maximum amount that the Borrower will be obliged to pay the Lender and/or Custodian under the Relevant Documents, whether on the Termination Date or on any other date shall be limited to the amount realisable from the Borrower’s assets less the aggregate of:
(a)all amounts at that time that are owing to any creditor with a prior ranking claim to those assets; and
(b) $1,000.
(Maximum Borrower Liability)
…
No Guarantor’s liability under the Relevant Documents shall exceed the lowest of: (1) $3,000,000 plus any default interest payable in respect of that amount; (2) the greater of $500,000 and the Maximum Borrower Liability at the relevant time and (3) any other cap on the relevant Guarantor’s liability contained in another Relevant Document.
[29]The section entitled “Guarantors’, provides:
(a)Subject to paragraphs (b), (c) and (d), the Lender and Custodian agree that the maximum amount payable by the Guarantors in aggregate under the Relevant Documents is $3,000,000 plus any default interest payable pursuant to clause 7 of the Agreement, in respect of that amount provided that this limitation shall not affect the joint and several liability of the Guarantors nor the rights of the lender to proceed against any Guarantor before the other or against one or more Guarantor before seeking payment from any other Guarantor.
(b)If the lender in its sole discretion is satisfied that the Guarantors have co-operated in the completion of the Development in a manner satisfactory to the Lender then the Lender will (and will procure that the Custodian will) enter into a deed of release to release each Guarantor from the guarantee provided pursuant to clause 12 of the Agreement and under any other Relevant Document. For the avoidance of doubt neither the Lender or the Custodian has any obligation to provide this release if it is not satisfied in its sole discretion with the level of cooperation provided by the Guarantors.
(c)The limitation of the aggregate liability of the Guarantors contemplated by paragraph (a) above is conditional on the Borrower and the Guarantors not undertaking any action outside their obligations under the Relevant Documents which has a material
adverse impact on any of the matters in paragraph (d) below. If any such action is taken that has that impact the limitation on the Guarantors' liability under paragraph (a) above shall not apply.
(d)The Lender further agrees that it will release each Guarantor from its guarantee under Clause 12 of the Agreement and under each other Relevant Document (if any) upon the following having occurred:
(i)all assets of the Borrower are disposed of within the term of the Facility;
(ii)all assets are disposed of within 5% of the latest "as completed" valuation or contracted purchase price (as applicable), with the valuation to be acceptable to the Lender at its sole discretion; and
(iii)the total development costs for the Development, as advised by the Quality Surveyor total to not more than $127,500,000.
Notwithstanding anything to the contrary in any Relevant Document, no demand may be made against any Guarantor under any guarantee or indemnity in a Relevant Document unless the Borrower is in voluntary administration or liquidation or any other secured creditor, the Lender or Custodian (as relevant) has taken steps to enforce, or concurrently with such demand takes steps to enforce, and in either case continues to enforce, against all or substantially all of the assets of the Borrower under its security documents. For the purposes of this clause, "enforce" has the meaning attributed to it in any of paragraphs (a) - (d) (but excluding paragraph (e)) of s 239ABK of the Companies Act 1993 and also includes a mortgagee exercising its power of sale under any Relevant Document but without any requirement that the relevant person is in administration
General Terms
[30]Clause 12.1 of the General Terms contains the Guarantee:
Each Guarantor jointly and severally, unconditionally and irrevocably guarantees to the Lender and the Custodian (in this clause, each, severally, a “Creditor”) due payment by the Borrower of the Guaranteed Indebtedness.
(emphasis added)
[31]“Guaranteed Indebtedness” is defined at cl 1.1 as:
All indebtedness of the Borrower to the Lender and/or the Custodian as the context requires as the same may be limited under a Property Finance Facility Agreement.
(emphasis added)
[32] Under cl 12.2 the Guarantors undertook to pay on demand any of the Guaranteed Indebtedness if the Borrower did not pay those amounts when due:
Each Guarantor undertakes to the Creditor that if, for any reason, the Borrower does not pay when due (whether by acceleration or otherwise), any of its Guaranteed Indebtedness, it will pay the relevant amount to the Creditor on demand.
(emphasis added)
[33] Pursuant to cl 12.5, each Guarantor is liable as a principal debtor and not a surety:
As between each Guarantor and the Creditor (but without affecting the obligations of the Borrower) each Guarantor is liable under this clause in relation to the Guaranteed Indebtedness as a sole and principal debtor and not as a surety.
[34]Clause 3 sets out the repayment obligation of the Borrower:
The Borrower will repay the Loan and all other Amounts Outstanding in one amount on the Termination Date.
[35]The term “Amounts Outstanding” is defined in cl 1.1 as:
Amounts Outstanding means, at any time, the aggregate principal amount of the Loan Outstanding at that time, together with any accrued and unpaid interest, fees and all costs and other amounts then due and payable by the Borrowers to the Lender.
[36]The term “Loan” is defined in cl 1.1 as:
Loan means the aggregate principal amount advanced (or to be advanced) to the Borrower under the Facility in accordance with the terms of this agreement (whether or not a Drawing Notice is used in relation to any such advance) (including any accrued, compounded, or capitalised interest and fees), or such amount of it as remains outstanding on any day (and, where relevant, includes any tranche of the Loan, including as detailed in a Property Finance Facility Agreement).
The parties’ respective interpretations
[37] The plaintiffs claim that, based on the plain and ordinary meaning of the guarantee, including the Guarantee limitation provisions in the “Repayment” and “Guarantors” sections of the Development Facility Schedule, they are entitled to
recover at least $3,200,359.68 from the Guarantors, with interest continuing to accrue on that amount.
[38] Referring to the limitation on the Guarantors’ liability immediately after the description of “Maximum Borrower Liability” in the Development Facility Schedule, they describe the first limb as the “Baseline Limb”, the second as the “Maximum Borrower Liability Limb” and the third as the “Cap Limb”. They claim that for the purposes of this limitation clause, the Maximum Borrower Liability can be quantified at any given time by an estimate of the value of the remaining secured assets.
[39] To that end, the plaintiffs have filed evidence from Mr Lawlor, who estimates the value of the remaining 29 unsold apartments in Union Green at 24 March 2022 as
$20,931,337.9 He attaches an internal working document detailing how the estimate
has been calculated. Three units are subject to sale agreements and the estimated realisable amount is the contracted sale price less expected realisation costs. The estimated realisable value from the remaining 26 units is based on actual sales of other units in the development and the opinions of licensed New Zealand real estate agents.
[40] In response to the Guarantors objecting to the admissibility of Mr Lawlor’s non-expert evidence on the estimated realisable amount, the plaintiffs filed an affidavit from a registered valuer, Matthew Straka, who gives the opinion that the remaining units in Union Green are realisable and the aggregate realisable value is highly likely to exceed $5,000,000.10
[41] The plaintiffs say that, as the Maximum Borrower Liability is far more than the Baseline Limb of the Guarantors’ liability (and it is not disputed that the Cap Limb does not apply), they are entitled to recover from the Guarantors the Baseline Limb of
$3,000,000 plus default interest already accrued of $200,359.68.
[42] The Guarantors say that the plaintiffs’ claim against them starts in the wrong place. They say that any determination of their liability must start by ascertaining
9 Lawlor Affidavit, above n 1 at [46(b)(i)].
10 The Guarantors object to this affidavit as it was filed late and is not in reply.
West Village’s repayment obligation/indebtedness to the plaintiffs under the Facility Agreement.
[43] In that regard, the Guarantors say that West Village’s obligation to repay the moneys outstanding on the Termination Date was “redefined” during negotiations according to the Maximum Borrower Liability definition in the Repayment section of the Development Facility Schedule (the MBL definition). They submit that the MBL definition takes precedence over the terms set out in the General Terms.
[44] The Guarantors say that the effect of the MBL definition is that upon Termination Date, West Village’s repayment obligation/indebtedness was equal to the value of its realisable assets (after repayment of other priority amounts) with such repayment obligation/indebtedness met and discharged by the realisation of West Village’s assets and application of the proceeds to the facility (i.e. West Village has no residual obligation to pay any shortfall to the plaintiffs).
[45] Critically, they reject the notion that West Village’s Maximum Borrower Liability is capable of estimation, contending that, read in the context of the agreement, “realisable” means that the assets have been realised and the funds are available to repay the facility. They submit that this interpretation is consistent with the plaintiffs’ interpretation, referring to an email from the plaintiffs’ solicitor when negotiating the terms of the loan and guarantee with Mr Moinfar.11 On changing the word “realised” to “realisable” assets, the lawyer said “[t]he actual cap will only be known once all the assets have been realised”.12
[46] Consequently, the Guarantors submit, West Village is not required to make payment under the Facility Agreement based on the plaintiffs’ assessment of the realisable value. It is required to make payment only when the value of the assets is known through their realisation, and more importantly, when there are proceeds that can be applied against the outstanding loan balance. Further, once the assets are realised and the Lender receives the proceeds, West Village has met its repayment
11 Affidavit of Farhad Moinfar affirmed 17 June 2022 at [33.11] [Moinfar Affidavit].
12 Moinfar Affidavit, above n 11 at Exhibit FM-1-661.
obligation and its principal indebtedness is discharged. This is the effect of the evidence of Mr Moinfar, who describes the arrangement as an “asset lend”.13
[47] Accordingly, the Guarantors submit, as West Village has no present liability and is not required to make a payment at this time, the Guarantors have no present liability and cannot be required to make payment either.
Is the Guarantors’ interpretation tenable?
[48] To enter summary judgment, the plaintiffs must persuade me that the Guarantors have no defence. That requires me to find that the plaintiffs’ interpretation of the provisions is beyond dispute, such that the Guarantors have no real defence to the claim.14
[49]I start with the terms of the guarantee.
[50] Under cl 4.2 of the Amendment and Restatement Deed the Guarantors acknowledged that their pre-existing guarantees remained in force “as they are to be amended by this deed.”
[51] Under cl 12.1 of the General Terms, each Guarantor “…guarantees to the Lender and the Custodian…due payment by the Borrower of the Guaranteed Indebtedness.”
[52] Under cl 12.2 of the General Terms, each Guarantor “undertakes…that if, for any reason, the Borrower does not pay when due…any of its Guaranteed Indebtedness, it will pay the relevant amount to the Creditor immediately on demand.”
[53] “Guaranteed Indebtedness” means all indebtedness of West Village to the plaintiffs “as the context requires as the same may be limited under a Property Finance Facility Agreement”.15 The italicised words were added to the General Terms during the negotiation. The term “Indebtedness” is not defined.
13 Moinfar Affidavit, above n 11 at [24.1(e)]
14 Commercial Metals v Wright [2015] NZCA 450 at [13].
15 General Terms, cl 1.1.
[54] To my mind, these provisions suggest that for there to be a valid claim against the Guarantors two elements must be satisfied. First, the claim must be for West Village’s indebtedness to the Lender as limited according to the terms of the Property Finance Facility Agreement. Second, the claim must be for an amount that West Village was obliged to pay and did not pay when due.
[55] Turning to West Village’s obligation to pay, the Repayment section of the Property Development Schedule states that West Village is required to make payment “[O]n the terms set out in the General Terms.” The General Terms require payment of all Amounts Outstanding in one amount on Termination Date. Amounts Outstanding means the aggregate principal outstanding, together with any accrued and unpaid interest, fees and costs. So, according to the General Terms, on the Termination Date of 30 July 2021, West Village was obliged to repay all outstanding principal, an amount of $39,850,087.29 and all accrued interest and costs.
[56] However, specific repayment terms were negotiated and inserted into the Repayment section of the Development Facility Schedule to the Property Finance Facility Agreement. After the statement that repayment must be made according to the General Terms is the requirement that West Village promptly apply the net proceeds of the sale of any part of the land (ie. a finished unit) to permanently repay the facility.
[57]Then, the MBL definition:
Notwithstanding anything to the contrary in this Facility Agreement or any other Relevant Document, the maximum amount that the Borrower will be obliged to pay the Lender and/or Custodian under the Relevant Documents, whether on the Termination Date or on any other date shall be limited to the amount realisable from the Borrower’s assets less the aggregate of:
(a)all amounts at that time that are owing to any creditor with a prior ranking claim to those assets; and
(b) $1,000.
(Maximum Borrower Liability)
[58] The plaintiffs make three points about the MBL definition. First, that it is a purely numerical cap. I understand them to say that the cap does not alter the timing
of West Village’s repayment obligation – so it is still obliged to repay the facility on Termination Date, albeit the obligation is capped at the Maximum Borrower Liability. Mr Kersey emphasises the following sentence which reads:16
Notwithstanding the above, where a Refinancing occurs, the amount that the Borrower is required to pay to the Lender and Custodian under the Relevant Documents shall not be deemed capped at the Maximum Borrower Liability.
(emphasis added)
[59] Second, that the “amount realisable” from West Village’s assets can be calculated at any time before the assets are in fact realised. They highlight the words “on the Termination Date or any other date”; and “at the relevant time” in the Maximum Borrower Liability Limb.
[60] Third, that it is not necessary for them to quantify the Maximum Borrower Liability for the purposes of a claim against the Guarantors, because the cap on West Village’s liability does not apply to the Guarantors, other than for the Maximum Borrower Liability Limb of the limitation on the Guarantors’ liability. Because they only claim the Baseline Limb amount of $3,000,000 from the Guarantors, they need only establish that the Maximum Borrower Liability exceeds the Baseline Limb, which it clearly does. Mr Kersey draws attention to an email from the plaintiffs’ solicitor during negotiations, in which he said, “The Borrower’s cap does not apply to the Guarantee”.17
[61] In my view there are aspects of the plaintiffs’ interpretation that are, at least, disputable.
[62] The opening words of the MBL provision are “Notwithstanding anything to the contrary in this Facility Agreement or any other Relevant Document…” The plain and ordinary meaning of these introductory words is that what follows, namely the MBL definition, is intended to have primacy over any other terms. Accordingly, there is a credible argument that West Village’s obligation to pay the full amount of the
16 Development Facility Schedule, at Repayments.
17 Moinfar Affidavit, above n 11 at Exhibit -592.
indebtedness (Amounts Outstanding) on the Termination Date according to the General Terms was altered by the following words.
[63] The statement that follows is that “the maximum amount that the Borrower will be obliged to pay the Lender and/or Custodian under the Relevant Documents whether on the Termination Date or any other date shall be limited to the amount realisable from [West Village’s] assets…”.” The plain and ordinary meaning of these words is that the most West Village is obliged to pay on Termination Date, or any date thereafter, is the amount that will be realised from its assets.
[64] In that case, there a reasonable argument that the plaintiffs cannot demand from West Village, on Termination Date or subsequently, an amount greater than the amount that will be realised from its assets. This interpretation is consistent with uncontested evidence of Mr Moinfar that from the directors’ perspective an important part of the renegotiation of the facility was to maintain West Village’s solvency.18 The terms of the MBL definition are consistent with that intention: the amount that West Village must repay is the amount of the realisable assets less $1,000. The evidence of pre- contractual negotiations corroborates that position, with the first draft of the Repayment part of the Facility Agreement providing:19
Notwithstanding anything to the contrary in this Facility Agreement, the maximum amount that the Borrower may be obliged to pay the Lender and Custodian under the Relevant Documents shall be limited to the amount actually or contingently realisable from the Borrower’s assets at the relevant time less $1,000 with the intent that the Borrower shall at all times remain solvent.
(emphasis added)
[65] So, how is the amount that will be realised from its assets be determined for the purposes of a demand on West Village? It cannot be possible to know precisely how much will be realised from West Village’s remaining assets until they are actually sold.
[66] The Guarantors say that the plaintiffs cannot demand payment from West Village based on an estimate of the value of its realisable assets; and that is not
18 Moinfar Affidavit, above n 11 at [22.2].
19 Moinfar Affidavit, above n 11 at [31.1].
what the parties intended. They highlight problems with this notion, including if the estimate overvalues the realisable assets. In my view there is force to this submission. It would be contrary to the undisputed purpose of the MBL definition and the words of the definition itself if the plaintiffs could demand from West Village on Termination Date or any date an amount beyond what it is able to pay from the realisation of its assets.
[67] The plaintiffs do not satisfactorily explain how the Maximum Borrower Liability is to be determined for the purposes of a demand on West Village. As noted, their focus is on the claim against the Guarantors, and they say that it is not necessary to quantify the Maximum Borrower Liability with precision for that claim because it is plainly much more than the Baseline Limb amount of the Guarantors’ liability. But that is to sidestep the critical starting point for any claim against the Guarantors. As discussed, a valid claim against the Guarantors must be for West Village’s indebtedness to the Lender as limited according to the terms of the Property Finance Facility Agreement. Further, the claim must be for an amount that West Village was obliged to pay and did not pay when due.
[68] This uncertainty is addressed if one takes the view that West Village’s repayment obligation is not determined by the Maximum Borrower Liability concept (rather, West Village is obliged to pay the Amounts Outstanding and it is that amount the plaintiffs were entitled to demand on Termination Date). But, as noted, that interpretation runs counter to the plain and ordinary words of the MBL definition, and the purpose behind its insertion into the contract – to maintain West Village’s solvency. Importantly, that interpretation is also contrary to the position the plaintiffs’ solicitors have taken in correspondence with the Guarantors’ solicitors where they have stated that West Village is in default of the obligation to pay the Maximum Borrower Liability, estimated to be around $24 million.20
[69] Working against the idea that West Village was obliged to pay an amount on Termination Date commensurate with the estimated value of its realisable assets, and that not paying such an amount was an act of default, is the absence of any machinery
20 Lawlor Affidavit, above n 1 at Exhibit PBL-10.
in the agreement setting out how the value is to be determined. The document was heavily negotiated, and if the parties intended that the Lender could make demand on West Village for a sum of money equivalent to the value of its realisable assets before they were realised, one would expect there to be an agreed process for how the value was to be calculated. The letter referred to illustrates the uncertainty surrounding the Maximum Borrower Liability concept, such that the plaintiffs have unilaterally made their own assessment of its approximate value.
[70] I conclude that the plaintiffs’ explanation of what this MBL definition means and how it interacts with the guarantee is not indisputable. There is certainly a sound argument that, whether it is what the plaintiffs intended or not, the Guarantors’ liability is subject to the Maximum Borrower Liability cap on West Village’s liability. How that cap was intended to work in practice remains unclear.
[71] At the same time, I acknowledge that the Guarantors do not present a wholly coherent alternative explanation. Under their interpretation, the plaintiffs are unable to demand repayment before the assets are realised and West Village has cash available to meet the demand. As such, West Village has no indebtedness and no obligation to repay until then. On realisation of the assets the repayment obligation is met and the indebtedness satisfied. It must be acknowledged that this explanation results in a commercial absurdity from the point of view of the Lender, who is unable to demand repayment on Termination Date and appoint a receiver to the company to recover the amounts due. I understood Mr Chisholm KC to acknowledge that appointing a receiver was an avenue open to the plaintiffs to recover the amounts due under the Facility Agreement. This interpretation is also contrary to the deliberate addition of a fixed Termination Date. This point was the subject of negotiation between the parties, with Mr Moinfar initially objecting, and Mr Lawlor insisting that the Lender required a fixed Termination Date.
[72] Additionally, on the Guarantors’ interpretation, the guarantee could never be called upon because West Village has no obligation to pay until all its assets are realised and the proceeds are available to be paid against the facility, at which point its indebtedness is extinguished. Such an outcome seems inconsistent with: the extensive negotiations between the plaintiffs’ lawyer, Mr Lawlor and Mr Moinfar over
the terms of the guarantee; the limitation on the Guarantors’ liability which seems to anticipate that a minimum of $500,000 will be recoverable from the Guarantors under any scenario; and the specific terms in the “Guarantors” section of the Development Facility Schedule. At the same time, I acknowledge that on the Guarantors’ case, the Guarantors would be liable for any proceeds of sale that West Village did not promptly apply against the facility. Additionally, Mr Barker KC submits that there was value in the guarantees to the plaintiffs in terms of ensuring the directors remained committed to the project.
[73] The conclusion I reach is that there are uncertainties and tensions within the documents that I am unable to resolve in this summary context. I note that while Mr Moinfar has put the record of pre-contractual negotiations into evidence and purported to provide context, there is no comparable evidence from Mr Lawlor or the Lender’s lawyer who negotiated the documents. This is a case where the Court would be assisted in the contractual interpretation exercise by hearing from all the negotiating parties to gain a thorough understanding of the context for the agreement and what the critical MBL definition was intended to achieve.
[74] I conclude that the plaintiffs’ position is not sufficiently indisputable to order summary judgment. The Guarantors’ have a reasonably arguable defence and the plaintiffs’ claim should go to trial.
Result
[75]The application for summary judgment is dismissed.
[76]In accordance with the principle in NZI Bank v Philpott,21 costs are reserved.
Associate Judge Gardiner
21 NZI Bank v Philpott [1990] 2 NZLR 403.
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