Baba Nyonya Limited v Loh
[2024] NZHC 1774
•2 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1656
[2024] NZHC 1774
BETWEEN BABA NYONYA LIMITED
First Plaintiff/First Plaintiff
PETER WEN FONG KUOK
Second Plaintiff/Second PlaintiffAND
TZE HWAI LOH
First Defendant/First Respondent
PRR RICCARTON LIMITED (in
liquidation) StayedSecond Defendant/Second Respondent
Hearing: 4 March 2024
Further affidavit filed 8 March 2024 and memorandum 27 March 2024
Appearances:
SD Campbell and K Kokje for the Plaintiff R Lal for the First Defendant
Judgment:
2 July 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 2 July 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Wynn Williams, Christchurch Sutcliffe Matson Law, Auckland
BABA NYONYA LTD v LOH [2024] NZHC 1774 [2 July 2024]
Introduction
[1]The plaintiffs have applied for summary judgment seeking recovery of
$1,133,217.92 together with interests and costs alleged to be overdue pursuant to a loan agreement between the parties. In addition, the plaintiffs seek $104,516.60 in costs incurred in relation to the release of personal guarantees under a share sale agreement and in relation to the defendants’ defaults under the loan agreement.
[2] By the time of the hearing, summary judgment was opposed by the first defendant on the following grounds:
(a)impossibility of performance of the loan agreement on the basis that the second plaintiff’s previous mismanagement of the business resulted in significant cash flow issues for when the defendants took over and that gas burners vital for the operation of the business were removed by a company associated with the second plaintiff;
(b)the loan agreement was signed under duress and so is not enforceable on a summary judgment basis; and
(c)the costs claimed by the plaintiffs are unreasonable, with no justification or breakdown provided so that the legitimacy of these costs is in question.
[3] The plaintiffs says none of these defences are available, both because there is no evidence in support of them and because the terms of the share sale agreement and term loan agreement prevent them.
[4] The second defendant is now in liquidation and so the proceedings are automatically stayed against it pursuant to s 248(c) of the Companies Act 1993. The plaintiffs do not seek leave to continue the proceedings against the second defendant.
Issues
[5]The issues that I need to determine are therefore:
(a)Does the first defendant have a reasonably arguable defence that the plaintiffs have made performance of the agreements impossible?
(b)Does the first defendant have a reasonably arguable defence that the loan agreement was signed under duress?
(c)Is it reasonably arguable that the recovery costs claimed by the plaintiffs are unreasonable?
[6] I set out the background below and the relevant legal principles before considering each of the issues to determine whether summary judgment ought to be granted.
Factual background
[7] The first defendant, Tze Hwai Loh, owns PappaRich Ltd, the franchisor of PappaRich restaurants in New Zealand, including the second defendant, PPR Riccarton Ltd (in liq) (PRR Riccarton).
[8] The second plaintiff, Peter Wen Fong Kuok, says in evidence that he was introduced to Mr Loh in around February 2019 after he became aware that PappaRich was expanding into New Zealand.
[9] In approximately October 2020, Mr Kuok says Mr Loh approached him looking for investors in a PappaRich restaurant in the Riccarton Westfield Mall, Christchurch. Mr Kuok says he decided to invest and on 26 March 2021 purchased 510 ordinary shares (51 per cent) in the second defendant, PPR Riccarton Limited (in liquidation) (PPR Riccarton). Mr Loh purchased the balance of 490 ordinary shares (49 per cent).
[10] On 25 January 2022 the first plaintiff, Baba Nyonya Ltd (BNL), a company for whom Mr Kuok is the sole director and shareholder, purchased Mr Kuok’s shares in PPR Riccarton. Mr Kuok was therefore removed as a shareholder of PPR Riccarton.
[11] Mr Kuok’s evidence is that between April and June 2022, BNL advised Mr Loh that it no longer wished to be a shareholder in PPR Riccarton and Mr Loh agreed to purchase BNL’s shares.
[12] On 9 January 2023, BNL and Mr Loh entered into an agreement for the sale and purchase of BNL’s shares in PPR Riccarton by Mr Loh (Share Sale Agreement). Under cl 3.1 of the Share Sale Agreement, Mr Loh was to satisfy the purchase price by:
(a)transferring legal ownership of two properties in Melbourne (Melbourne Properties) to BNL or its nominee; and
(b)entering into a written loan agreement under which BNL would lend Mr Loh money to complete the balance of the purchase.
[13] Under cl 6.1 of the Share Sale Agreement, in addition to agreeing to purchase the shares, Mr Loh agreed to use his best endeavours to procure the release of all personal guarantees provided by Mr Kuok and to indemnify Mr Kuok and hold him harmless against any liability that arose under any guarantee given.
[14] On 17 March 2023, BNL and Mr Loh entered into the loan agreement to enable the purchase of the PPR Riccarton shares (Loan Agreement). Under the Loan Agreement, BNL agreed to lend Mr Loh $1,090,711.71 to purchase the shares and included the following terms:
(a)Mr Loh agreed to repay BNL in weekly instalments of at least $10,000 plus interest; and
(b)instead of transferring his Melbourne Properties as provided for in the Share Sale Agreement, cl 4 of the Loan Agreement required Mr Loh to sell his Melbourne Properties as soon as possible and in any event within 10 weeks and apply the proceeds to repayment of the amount owing.
[15] On 20 June 2023, the plaintiffs’ lawyers notified Mr Loh’s lawyers that after a number of events of default, notice was being given under the acceleration clause in the Loan Agreement (cl 8.1(a)) declaring the balance owing immediately due and payable (Acceleration Notice).
[16] Mr Loh’s lawyer responded on 27 June 2023 denying that any events of default had occurred under the Loan Agreement and therefore denying that there was a right to accelerate payment of the whole of the outstanding amount.
[17] The Acceleration Notice advised that if payment was not received by 28 June 2023 summary judgment proceedings would be brought without further notice. Further payments were made following the Acceleration Letter but more than
$1 million remained outstanding.
[18] Summary judgment proceedings were served on the defendants on 17 August 2023 seeking judgment for:
(a)the balance of the loan outstanding and overdue under the Loan Agreement as at the date of judgment ($1,133,717.92 at the date of the hearing);
(b)the costs incurred by BNL in relation to Mr Loh’s breaches of his obligations to use his best endeavours to procure release of Mr Kuok’s personal guarantees and/or enforcing Mr Loh’s breaches under the Loan Agreement ($104,516.00 as at the date of the hearing);
(c)contractual interest on the amount outstanding under the Loan Agreement pursuant to ss 22 and 23 of the Interest on Money Claims Act 2016 at the contractual default rate of 18 per cent from 28 June 2023 until payment is made; and
(d)costs on a solicitor/client basis in accordance with cl 9.6 of the Loan Agreement.
Summary judgment principles
[19] Under r 12.2(1) of the High Court Rules 2016, the court may give summary judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[20] The principles applying to a plaintiff’s application for summary judgment are well settled and are set out by the Court of Appeal in Krukziener v Hanover Finance Ltd.1 The ultimate question is whether there is a “real question to be tried” that warrants the time and expense of a trial.2
[21] The plaintiff has the overall onus. Where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.3
[22] 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 where it is inherently improbable.4
[23] 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.5
Sums claimed and Mr Loh’s evidence
[24] As set out above, the plaintiffs are seeking summary judgment for the amount owing under the Loan Agreement plus interest together with the costs incurred by the plaintiffs both in respect of the breaches of the obligations under the agreements and for enforcing these agreements.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26] to [27].
2 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
3 MacLean v Stewart (1997) 11 PRNZ 66 (CA).
4 Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).
5 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[25] In his affidavits, Mr Loh accepts that prior to the Acceleration Notice payments under the Loan Agreement were not made on time or were sometimes lower than required.
[26] “Events of Default” are deemed under cl 8.1(b) of the Loan Agreement to include where “the borrower [Mr Loh] fails to pay any amount due in the manner and at the time specified in this Agreement”. It is clear therefore that at least one event of default had occurred prior to the Acceleration Notice. BNL was therefore entitled to give the Acceleration Notice under cl 8.1 that the balance owing was immediately due and payable. Furthermore, Mr Loh accepts that following the Acceleration Notice he was unable to pay the balance owing.
[27] The Acceleration Notice advised that default interest would accrue on the outstanding amount and that BNL would be seeking to recover its costs (including “costs on a solicitor – own – client basis”) under cl 9.6 of the Loan Agreement.
[28] Clause 3.6 of the Loan Agreement clearly provides that default interest is payable “on the overdue sum from the due date for payment until the date of payment (both before and after judgment)”. The default interest rate is defined in clause 1 of the Loan Agreement as:
18% per annum, being the rate at which any amount in default under this agreement shall accrue interest under clause 3.6 which shall be in addition to any interest accrued under clause 2.3.
[29] Clause 3.6 further provides that default interest will accrue on a daily basis, compound and be added to the outstanding amount as set out in clause 2.3(d).
[30] Clause 2.3 is the clause applying to standard interest on the loan. This provides at cl 2.3(d) that any interest accruing on the amount outstanding and not paid when due “shall, from the time that such payment is due, be added to the Outstanding Amount and itself bear interest accordingly.”
[31] I have considered the schedules attached to Mr Kuok’s affidavits, including the further affidavit dated 19 February 2023 updating the amount due under the Loan Agreement as at the date of the hearing. I am satisfied that the updated schedule
correctly records the amount due under the Loan Agreement as at the date of the hearing and that both the standard and default interest have been calculated correctly.
[32] Mr Loh originally opposed the summary judgment application on the basis that the plaintiffs were claiming default interest on top of interest claimable under the Loan Agreement but now accepts that there is a proper basis for doing so under the Loan Agreement. This ground was therefore not advanced at the hearing. I record that since 28 June 2023, the updating schedule only includes default interest at 18 per cent on the balance owing under the loan and not standard interest as well.
[33] In his evidence, Mr Loh further accepts that he was unable to have Mr Kuok’s personal guarantees released for some time and not at all for two creditors — including a kitchen fitout company that was owed in excess of $200,000 at the time of his affidavit. Mr Loh explains in his affidavit that he was unable to obtain releases from the guarantees until the debts owing were paid. On that basis, Mr Loh submits that he has not breached his best endeavours obligation to have the personal guarantees released.
[34] The clause in the Share Sale Agreement relating to the release of the personal guarantees included an agreement that Mr Loh “indemnify [Mr Kuok] and hold him harmless against any liability whatsoever that arises under any guarantee(s) given by him.” The plaintiffs are seeking the legal costs associated with the failure to have the personal guarantees released. Those costs are recoverable by Mr Kuok under the indemnity in the personal guarantees’ clause whether or not Mr Loh breached his best endeavours obligation to have the guarantees released on a best endeavours basis or not.
[35] In addition, Mr Loh accepts that the Melbourne Properties were not sold within the ten weeks required but instead were sold after 12 and 14 weeks. He also accepts that there were defaults in terms of the requirements to engage real estate agents and provide updates.
[36] As a result, unless Mr Loh can establish that the defences that he has raised are reasonably arguable, the plaintiffs are entitled to summary judgment for the amounts sought.
Does Mr Loh have a reasonably arguable defence that the plaintiffs have made performance of the agreements impossible?
[37] The first of the defences raised by Mr Loh is that the steps taken by the plaintiffs have rendered performance of the loan agreement impossible.
[38]The steps that Mr Loh relies on are that:
(a)prior to taking over the operation of the business Mr Kuok was in charge of its day-to-day operation and while in charge a number of debts had accrued;
(b)after Mr Loh took over, he says it became evident that Mr Kuok’s mismanagement had resulted in significant cashflow issues; and
(c)after Mr Kuok exited day-to-day operation of the business, “Mr Kuok’s second business”, Makan Aoteoroa Ltd (Makan) removed the gas burners supplied to PPR Riccarton.
[39] Mr Loh says that the removal of the gas burners, in conjunction with the debts accrued during the time Mr Kuok managed the operations of PPR Riccarton resulted in significantly diminished cash flow. As a result, Mr Loh says repaying debts to suppliers, paying employee wages and making payments to Mr Kuok under the Loan Agreement became impossible.
[40] Putting aside for a moment whether such a defence of impossibility might be available as a matter of law, the facts that have now been accepted by Mr Loh do not support such a defence being arguable as framed.
[41] Mr Kuok’s evidence is that Mr Loh was responsible for day-to-day operation of PPR Riccarton from June 2022. Mr Loh himself accepts in his affidavit that he was
responsible for day-to-day operations from late August 2022. Mr Kuok attaches correspondence to his affidavit in reply confirming that the gas burners rented from Makan were removed on 6 November 2022 while Mr Loh accepts he was in charge of day to day operations.
[42] Significantly, the Share Sale Agreement was not signed until 9 January 2023 and the Loan Agreement not until 17 March 2023. Mr Loh therefore entered into those agreements after running the business, by his own admission, for over four months and including after the gas burners had been removed.
[43] Counsel for Mr Loh did not expand on the legal basis for an impossibility defence but with any such defence, it would not be available on the facts accepted by Mr Loh as discussed above.
[44] The plaintiffs further rely on the terms of the Loan Agreement as preventing an impossibility defence being raised even if there was evidence before the court in support of such a defence. It is unnecessary to determine whether this is correct as the accepted evidence is that Mr Loh took over day to day management prior to the gas burners being removed and several months in advance of entering into the Share Sale and Loan Agreements.
Does Mr Loh have a reasonably arguable defence that the Loan Agreement was signed under duress?
[45] The second defence that Mr Loh seeks to rely on is that he signed the Loan Agreement under duress.
[46] Mr Loh’s evidence is that the relationship between Mr Kuok and Mr Loh had soured significantly by the time he took over the day-to-day operation of the business and that he saw no way forward other than to purchase Mr Kuok’s shares.
[47] Mr Loh says that at this time he had no funds available to completely purchase Mr Kuok’s shares so he entered into the Loan Agreement. Mr Loh says that he wanted to negotiate the terms of the Loan Agreement but Mr Kuok flatly refused. Mr Loh’s
position is that Mr Kuok exerted undue pressure on him to sign the Loan Agreement otherwise Mr Kuok would enforce the Share Sale Agreement.
[48] The threshold for a defence of duress is high. Mr Loh was represented throughout and freely entered into the Share Sale Agreement which expressly recorded that payment of the purchase price would be through a loan from BNL. At the time Mr Loh entered into the Share Sale Agreement, he was aware that the gas burners had been removed and he had been responsible for the day-to-day running of the business for four months and so would have been aware of likely cash flow.
[49] Mr Loh does not say in his first affidavit that he felt he had no choice but to enter into the Loan Agreement or that Mr Kuok flatly refused to negotiate (even if that were sufficient). Duress is raised for the first time in Mr Loh’s second affidavit when he says:
I did not understand my repayment obligations due to the haste with which I signed the agreements. I was put under duress by Mr Kuok constantly demanding that I sign the [Loan Agreement] and left no room for negotiation of the terms.
[50] Other than this assertion that there was duress, there is no evidence put forward in support of such a defence. This is not sufficient to find that a defence of duress is reasonably arguable. Such a defence would require evidence in the nature of an overbearing of will or illegitimate pressure.6 It is not, therefore, reasonably arguable that Mr Loh has a defence available that the Loan Agreement was signed under duress.
Is there a reasonably arguable defence that the costs and expenses claimed by the plaintiffs are not valid or reasonable?
[51] Clause 9.6 of the Loan Agreement provides a broad right to full costs recovery against Mr Loh:
9.6 Default
In the event of a default or apprehended default by the Borrower, the Lender shall be entitled to a full costs recovery against the Borrower for any costs, fees, liabilities, incurred or suffered as a result of the default (including costs on a solicitor-own-client basis), including but not limited to costs of
6 Pharmacy Care Systems Ltd v The Attorney-General CA198/03, 16 August 2004 at [98].
investigating, corresponding, commencing a proceeding or process of any kind (in a court, tribunal, before an expert or other forum) and enforcing any award, determination, agreement or other outcome.
[52] Mr Loh accepts in his affidavit that he is liable for costs associated with default or enforcement but submits they must be reasonable and legitimate. Mr Loh submits that the explanation for the costs claimed is generic and vague and evidence ought to be provided as to the work undertaken by consultants as part of “investigations and administration”.
[53] Counsel for Mr Loh acknowledged that the detail of Mr Kuok’s legal expenses may be protected by privilege but that a breakdown of the hourly costs of each person handling the file and some explanation as to the work done on the file by them without revealing advice should be provided.
[54] In his affidavit in reply, Mr Kuok confirmed that the costs that the plaintiffs seek to recover are reasonably incurred and were the direct result of Mr Loh’s breaches of the Share Sale and Loan Agreements. Mr Kuok’s evidence is:
21The administrative and consulting costs incurred were required as Mr Loh repeatedly failed to make his repayments and he made it my responsibility to tell him how much was owing for each payment. When he failed to make payments as required (which happened from the very first payment), I needed to have calculations done for him, so he knew how much to pay. By example only, annexed to this affidavit and marked "F" is email correspondence where Mr Loh's lawyers requested confirmation and clarity as to the value of interest and weekly payments to be paid.
22I explained at paragraph 150 of my original affidavit sworn 7 August 2023 that I was willing to provide copies of invoices I have needed to pay as result of Mr Loh's repeated breaches of the Share Sale Agreement and Loan Agreement provided privilege was protected. Annexed to this affidavit and marked "G" are the invoices set out in the spreadsheet annexed to my original affidavit marked "PWF.249", redacted to protect privilege.
23The majority of the fees are legal fees, plus the consultant and administrative fees described above and in my original affidavit.
[55] I consider that the above categories of costs fall within the terms of cl 9.6 of the Loan Agreement. As a check that the costs claimed were reasonable, at the hearing I directed the plaintiffs to provide further evidence setting out a breakdown of the
invoices by role, hourly rate and numbers of hours invoiced. Mr Loh was then to have an opportunity to reply. A minute was issued confirming those directions on 5 March 2024.
[56] An affidavit was filed on behalf of the plaintiffs by Toni Randles, a personal assistant at the lawyers for the plaintiffs, Wynn Williams, providing the breakdown requested for each invoice annexed to Mr Kuok’s affidavit as well as breakdowns of the invoices issued for the months of August 2023 to February 2024.
[57] In the breakdowns, costs relating to the liquidation of the second defendant, PPR Riccarton, are highlighted in yellow. The plaintiffs submits that these costs are able to be claimed pursuant to cl 9.6 of the Loan Agreement but have highlighted them in case the Court disagrees.
[58] Mr Loh did not file any evidence or submissions in response to the further evidence filed on behalf of the plaintiffs.
[59] A memorandum was filed on behalf of the plaintiffs on 27 March 2024 requesting that I proceed to determine the summary judgment application in the absence of a response as sufficient time had been allowed. No memorandum in response was filed and so I have proceeded on the basis that Mr Loh does not raise any issues with the further evidence provided.
[60] I have considered the breakdowns and there is nothing that appears to provide a basis for a defence that the costs claimed are unreasonable in terms of, for example, the level at which work is being completed or for particular time periods. Furthermore, I consider that the broad terms of cl 9.6 clearly extend to the work completed as a result of the liquidation of PPR Riccarton. If cl 9.6 does not respond, cl 12.2(a) appears to extend to such costs as it provides that Mr Loh is to reimburse BNL “for all costs and any taxes thereon incurred in or in connection with the preservation and/or enforcement or attempted enforcement of any of the lender’s rights under [the Loan Agreement]”. I consider therefore that it is not reasonably arguable that the costs claimed are not reasonably incurred. I therefore make orders for costs as sought.
Result
[61] The application for summary judgment is granted. Mr Loh is to pay to the plaintiffs:
(a)the balance of the loan outstanding and overdue under the Loan Agreement as at the date of judgment ($1,133,717.92 at the date of the hearing);
(b)the costs incurred by BNL in relation to Mr Loh’s breaches of his obligations to use his best endeavours to procure release of Mr Kuok’s personal guarantees and/or enforcing Mr Loh’s breaches under the Loan Agreement of $104,516.00;
(c)contractual interest on the amount outstanding under the Loan Agreement pursuant to ss 22 and 23 of the Interest on Money Claims Act 2016 at the contractual default rate of 18 per cent from 28 June 2023 until payment is made; and
(d)costs on a solicitor/client basis in accordance with cl 9.6 of the Loan Agreement.
Costs
[62] As set out above, the plaintiffs have a right to full costs recovery under cl 9.6 of the Loan Agreement including costs on a solicitor-own-client basis and including, but not limited to, costs of investigating, corresponding, commencing a proceeding or process of any kind (in a court, tribunal, before an expert or other forum) and for enforcing any award, determination, agreement or other outcome. These broad terms allow a claim for full indemnity legal costs by the plaintiffs.
[63] The parties are to confer and try to agree costs with evidence of costs to be provided by the plaintiffs to Mr Loh including breakdowns.
[64] If agreement is not reached, memoranda may be filed of no more than three pages (excluding schedules), on behalf of the plaintiffs by 2 August 2024 and Mr Loh by 16 August 2024. Costs will then be determined on the papers.
Associate Judge Sussock
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