Ace Vending Limited v Harris HC Wellington CIV 2008-485-1479

[2008] NZHC 2623

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2008-485-1479

BETWEEN  ACE VENDING LIMITED AND SAM HOLDINGS LIMITED

Plaintiffs

ANDBRENDON JAMES HARRIS First Defendant

ANDDEREK ROBERT NEAL Second Defendant

Hearing:         25 September 2008

Appearances: P.W. Michalik - Counsel for plaintiffs

J.A. Langford - Counsel for First and Second Defendants

Judgment:      14 October 2008 at 3.30 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by the Registrar on 14 October 2008 at

3.30 p.m. pursuant to r 540(4) of the High Court Rules 1985.

Solicitors:           Morrison Kent, Solicitors, PO Box 10-035, Wellington

Langford Law, Solicitors, PO Box 344, Wellington

ACE VENDING LIMITED AND SAM HOLDINGS LIMITED V BJ HARRIS AND ANOR HC WN CIV 2008-

485-1479  14 October 2008

Introduction

[1]    Ace Vending Ltd and Sam Holdings Ltd (“the plaintiffs”) apply for summary judgment against the defendants Mr  Harris  and  Mr  Neal  (“the  defendants”)  for monies said to be due and owing by the defendants in their capacity as guarantors of a loan advanced by the plaintiffs to Fusion Finance Limited (“Fusion”).

[2]    The defendants oppose this application.

Background Facts

[3]    Fusion is a company owned and operated by the defendants.

[4]    In December 2003, the plaintiffs entered into two separate loan agreements (“the  2003  agreements”)  with  Fusion  to  advance  to  it  a  total  of  $700,000. Repayment of the principal plus interest compounding monthly at 8% was due to be made three months after the loan was advanced. The 2003 agreements were guaranteed by the defendants and Tyers Properties Limited (“Tyers”), being another company owned and operated by the defendants.

[5]    In accordance with the 2003 agreements, the plaintiffs advanced $700,000 to

Fusion in December 2003.

[6]    The loan monies were due  for repayment in early 2004. At this  time  the monies were not repaid and instead it was agreed that the loans would be rolled over. This allowed Fusion to retain the benefit of a significant portion of the loan monies for an additional period. This agreement was on the basis that the loan terms would remain as established in the 2003 loan agreements and the existing guarantors would continue to guarantee the new loans.

[7]    In October 2004, Mr Harris arranged for further loan documents to be drawn up to reflect the new agreement (“the 2004 agreements”). These documents followed the form used for the 2003 advance and the defendants were named as guarantors. However, the loan amount, term and interest payable were varied to reflect changes in the parties’ agreement. Interest was due monthly at 9.25%. Repayment of the

principal sum and interest was due on demand or, failing demand, six months after the drawdown date.

[8]    No demand was made. The loan monies were thus due for repayment by mid

2005. Again, however, no repayment was made and the parties reached a second agreement on roll-over terms.   The defendants and Tyers once again guaranteed repayment of the loan. In addition, specific security was given over four identified properties.

[9]    On this claim, Kensington Swan prepared the relevant loan documentation (“the 2005 agreement”) but again they followed the same basic form used for the previous advances. Again the 2005 agreement recorded variations as to the sum lent, term, applicable interest rates and the method of paying interest – relevantly, interest at 9.5% was payable monthly and the principal sum and any outstanding interest was to be repaid on the earlier of the date of demand or 13 January 2006.

[10]  The 2005 agreement was executed by all parties including the  Guarantors showing a date of execution of 19 September 2005. The plaintiffs’ statement of claim here refers to the advance being made on 14 September 2005. I am satisfied that nothing turns on this discrepancy for the purposes of the present application.

[11]  Shortly afterwards, on 20 September 2005, Fusion went into receivership. This was before Fusion had made any interest payments under the 2005 agreement.

[12]  Mr Kerr, the director of the plaintiffs, then attempted to recover some of the plaintiffs’ losses from Mr Harris (who was a friend of his at the time) as guarantor. In December 2005, Mr Harris agreed to repay $162,000 of the debt owing to the plaintiffs by procuring the sale to the plaintiffs of a property owned by his family trust at a discount. This occurred and the debt owing was therefore reduced by

$162,000.

[13]  As  of  30  June  2008,  the  debt  owing  under  the  2005  agreement  totalled

$570,547.70.  This comprised a principal amount of $426,143.33 and $144,404.37 in default interest. The plaintiffs now apply for summary judgment in this sum against the defendants as guarantors under the 2005 agreement.

[14]  The Court’s jurisdiction to grant summary judgment is pursuant to r 136 (1) of the High Court Rules, which states:

(1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim.

[15]  The onus is on the plaintiff to satisfy this Court that the defendants have no defence to its claim - in Pemberton v Chappell [1987] 1 NZLR 1.

[16]  However, where prima facie there appears to be no defence to the plaintiff’s case, an evidential burden to raise a defence may be imposed on the defendant. This is explained by Somers J in Pemberton v Chappell (at 3) in the following way:

“If a defence is not evident on the plaintiff’s pleading, I am of the opinion that if the defendant wishes to resist summary judgment, he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff’s right to have his case proceed to judgment without tendentious delay and a defendant’s right to put forward a real defence.”

[17]  On an application for summary judgment, the Court will not normally “attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them”: Attorney-General v Rakiura Holdings Ltd (1986)  1  PRNZ 12,  14.  Nor  will  the  Court  determine  real  issues  of  credibility because   the   determination   of   such   issues   requires   examination   and   cross- examination  of  witnesses  not  possible  under  the  summary  judgment  procedure: Busch v Dive & Marine Tours Ltd HC AK CP1587/86 19 February 1987; McGechan on Procedure at HR136.03.

[18]  However, Somers J commented in Pemberton v Chappell at 3:

“Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There

may however be cases in which the Court can be confident – that is to say, satisfied – that the defendant’s statements as to matters of fact are baseless.”

[19]  Adopting this statement, Wylie J stated in S H Lock (New Zealand) Ltd v

Oremland HC AK CP641/86 19 August 1986 at 11:

“Clearly the onus of showing there is no defence lies with the plaintiff, but the discharge of that onus is not in my view, to be frustrated by a defendant raising hypothetical   possibilities   in   vague   terms   unsupported   by   any   positive assertions or corroborative documentation.”

[20]  Thus, in Eng Mee Young v Letchumanan [1980] AC 331 at 341 the Court held that a Judge will not be bound:

“…[t]o accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.”

[21]  Similarly, the Court in Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ

84 observed (at 85-86) that a Judge is entitled to take a robust approach to cases involving summary judgment, and to dismiss defences which do not stand up to scrutiny – that:

“… the need for judicial caution has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case.  In the end it can only be a matter of judgment on the particular facts.”

[22]  Ultimately, “[t]he Court must be satisfied there is no defence”. The “critical question under r.136 will generally be whether the Court is satisfied that the plaintiff’s case is unanswerable and the Court will not reach that conclusion if it can see an arguable defence”: McGechan on Procedure at HR136.06, citing Towers v R

& W Hellaby Ltd (1987) 3 NZCLC 100,064.

[23]  The defendants in their notice of opposition and statement of defence sought to oppose the application for summary judgment on the grounds that they had arguable defences in sham, non est factum and on the basis that the 2005 agreement was improperly executed. However, at the hearing before me on 25 September 2008, Mr Langford for the defendants indicated that all these defences were abandoned.

[24] Effectively, therefore, the sole defence advanced – which Mr Langford acknowledges is a “technical” defence – is simply that the loan as pleaded in the plaintiffs’ statement of claim did not occur on either 19 September 2005 or 14

September 2005. In other words, it is said that the loan monies were not made

“available” to Fusion under the 2005 agreement and that the mere roll-over of the

2003 and 2004 agreements did not constitute sufficient consideration for the guarantee given in the 2005 agreement.

[25]  Mr Langford acknowledges that the loans were made on or about 18 December

2003. He says that the loans were subsequently reduced and the balance then owing simply “rolled over” in October 2004 and again in September 2005. He contends that the loans were not physically repaid and fresh advances made.

[26]  As  such,  Mr  Langford  submits  that  the  2005  agreement  did  not  relate  to monies being advanced by way of loan on that date. He submits that for there to have been an effective advance on either 14 or 19 September 2005, there would have needed to be a repayment of the old debt followed by a fresh advance – by, for example, a cheque swap or a journal entry within the solicitor’s trust account.  This did not occur.

[27]  Therefore, in Mr Langford’s submission, there was no consideration provided by the plaintiffs in return for the defendants providing their guarantees of repayment of the monies due under the 2005 agreement. He notes that here the defendants are only being sued under the 2005 agreement and this leaves open the issue – which is not relevant to the present application – of whether the defendants might be liable under the 2003 or 2004 agreements.

[28]  In  response,  counsel  for  the  plaintiffs,  Mr  Michalik,  submits  that  it  is immaterial whether the funds were physically repaid and re-advanced. He maintains that the consideration for the defendants’ guarantees in the 2005 agreement is that the plaintiffs have forborne to call for repayment of the previously loaned money from Fusion, and that this forbearance is equivalent in all material respects to an advance of fresh funds at the time. In that the loan monies were past due for repayment and the defendant had given personal guarantees and had agreed to be treated as principal debtors, the plaintiffs’ forbearance also amounted to forbearance to sue the defendants personally and this was of direct value to the defendants. As such, Mr Michalik submits that there was clearly sufficient consideration for the guarantees.

[29]  A useful starting point here is what I find to be the operative clause of the 2005 agreement, which provides:

“The Borrower owes the Lenders the Principal Sum which is currently payable on demand. The Guarantors have guaranteed payment of the Principal Sum.

In consideration of the Lenders not demanding the immediate repayment of the Principal Sum:

(a) The  Borrower  and  the  Guarantors  have  agreed  to  enter  into  this

Agreement; and

(b) The Borrower and the Guarantors hereby covenant and agree with the

Lenders as set out in Schedules A, B, C, D and E.” (my emphasis)

The Borrower is Fusion, the Lender the Plaintiffs and the Guarantors the Defendants and Tyers.   The Schedules A, B, C, D and E, all carrying initials of the parties followed.

[30]  It is established law that forbearance to sue can constitute valid consideration provided that the promisee honestly believes that he or she has a good cause of action and the surrendered claim is not:

“a sham, or so frivolous or vexatious that it is patently obvious, even to a layman, that it could not succeed, or so lacking in any foundation as to make

its assertion incompatible with both honesty and a reasonable degree of intelligence”: Couch v Branch Investments (1969) Ltd [1980] 2 NZLR 314,

335, per McMullin J.

[31]  Couch itself concerned debtors who had missed a loan repayment and then entered into a subsequent agreement with the creditor under which the creditor was to forbear to sue for the missed payment for one month in return for the debtors agreeing first, to pay the sum on demand with interest at 10% per annum, secondly, to give the creditor a mortgage over two properties and thirdly, to put the properties on the market for sale. There was no repayment and re-advance but the mere forbearance to sue was held to be valid consideration.

[32]  A more recent example is Hay v Nieper HC CHCH CIV 2007-409-002647

Chisholm J. 6 March 2008. Mr and Mrs Nieper had invested $25,000 in a company formed by Mr Hay. The company’s venture failed, Mr and Mrs Nieper pressed for the return of their money and ultimately threatened legal action. They alleged that Mr Hay undertook to repay the money in two equal instalments, over approximately two months. The District Court Judge found that, in fact, the Niepers could not have recovered the $25,000 from Mr Hay (rather than the company). However, their claim was  “not  transparently  hopeless”  and  they  “genuinely  believed  that  they  had  a claim”. As such, their forbearance to sue constituted valid consideration for Mr Hay’s undertaking. In the High Court Chisholm J agreed that this was fresh consideration and that the findings of fact were open to the Judge and dismissed the appeal.

[33]  Similarly, in the present case it is clear that the plaintiffs honestly believed that, in 2005, they had a claim against the defendants under the guarantee incorporated in the 2004 agreements and that this claim was not a sham, vexatious or frivolous,  or  incompatible  with  honesty  or  reasonableness.     In  my  view,  by forbearing to sue on this claim the plaintiffs have thereby given good consideration for the guarantee entered into by the defendants. It is not necessary for the loan monies to be repaid and re-advanced.

[34] Moreover, for the sake of completeness, one further matter needs to be mentioned.  This is what I see as a clear subsequent acknowledgement by the first

defendant Mr Harris in the December 2005 property sale agreement (noted at para. [12] above) that the guarantee was in effect. In that agreement for sale and purchase which Mr Harris signed on behalf of his family trust, para 17(b) specifically states that the purchase price is to be satisfied in part by “the purchaser procuring an assignment, as to $162,000, of the debt owed by Brendon Harris to Ace Vending and Sam Holdings Limited”.   In addition, Mr Harris signed a subsequent Deed of Assignment to this effect, although it appears the plaintiffs may not have signed this Deed.  The Deed of Assignment itself recited that Mr Harris:

“…is indebted to (the Plaintiffs) for the sum of $162,000 (“the Debt”) due in respect of certain advances made by the (Plaintiffs) to (Mr Harris) which amount remains outstanding …”.

[35]  For all these reasons I am satisfied that the defendants have raised no evidence or grounds going to an arguable defence and the plaintiffs have clearly satisfied the onus upon them to show that the defendants have no reasonable ground of defence here.  Nor before me did the defendants raise any objections or concerns over the

$570,547.70 quantum of the plaintiff’s summary judgment claim against them.

Result

[36]  The plaintiffs therefore succeed in their application for summary judgment. Judgment is now granted to the plaintiffs against the first defendant and the second defendant in the sum of $570,547.70 as sought in the plaintiff’s statement of claim. For the sake of clarity I note that in their present application the plaintiffs do not seek additional interest over and above this sum.

[37]  As to costs, the plaintiffs have been successful in their application and, in my view, are entitled to an  order  for  costs  in  the normal  way.  Costs  are therefore awarded against the defendants with respect to this application calculated on a 2B basis, together with disbursements if any as approved by the Registrar.

‘Associate Judge D.I. Gendall’