Bank of New Zealand v Davey

[2021] NZHC 1854

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-000046

[2021] NZHC 1854

BETWEEN

BANK OF NEW ZEALAND

Plaintiff

AND

MATTHEW ROBERT DAVEY

Defendant

Hearing:	16 July 2021
Appearances:	K M Paterson and C F Olds for Plaintiff C Lin for Defendant
Judgment:	21 July 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 21 July 2021 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

BANK OF NEW ZEALAND v DAVEY [2021] NZHC 1854 [21 July 2021]

[1]                 The plaintiff, Bank of New Zealand (the Bank), applied for summary judgment against the defendant, Matthew Robert Davey (Mr Davey), for $3,851,640 plus interest as a debt due to the Bank under a guarantee dated 27 June 2014, given by  Mr Davey in favour of the Bank in respect of the obligations of Fortress Information Systems Ltd (in rec and liq) (Fortress).

[2]                 The application came before me for hearing on 16 July 2021. At the commencement of the hearing I dismissed an application by Mr Davey for an adjournment and for leave to file an amended notice of opposition and further evidence.1

[3]                 I then considered the Bank’s application for summary judgment. Mr Davey’s counsel, Mr Lin, advised me he had no instructions to make any further submissions, notwithstanding that Mr Davey has filed a substantive opposition to the Bank’s application. Mr Lin did not, however, seek to withdraw as counsel.

[4]                 After hearing from Ms Paterson on behalf of the Bank, I entered summary judgment. I said my reasons would be provided in writing following the hearing. These are those reasons.

[5]                 As Mr Davey did not give Mr Lin instructions to present any submissions on his behalf my reasons are briefer than might otherwise be the case. I have, however, considered all that was put before me including three affidavits of Mr Davey.

The Bank’s claim

[6]Mr Davey is the sole director and majority shareholder of Fortress.

[7]                 Fortress, together with related entities, provided an event ticketing platform and event ticketing services.

[8]                 Fortress had several facilities with the Bank which are identified in the statement of claim as the Merchant Agreement of 13 April 2006, an Irrevocable

1      Bank of New Zealand v Davey [2021] NZHC 1816.

Standby Letter of Credit of 20 August 2014, an Overdraft Facility Agreement of     26 August 2019 and a Customised Average Rate Loan Facility (CARL Facility) Agreement dated 20 December 2019.

[9]                 The relevant terms of these facilities are set out in the statement of claim and the agreements are annexed to the first affidavit of Rodney Boon in support of the Bank’s application.

[10]             On 27 June 2014, Mr Davey executed a Deed of Guarantee and Indemnity (the Guarantee) in favour of the Bank in respect of Fortress’s existing and future obligations to the Bank. It, too, is annexed to Mr Boon’s affidavit.

[11]             Mr Davey’s liability under the Guarantee is capped at $3,600,000 plus additional amounts by way of interest and costs. He is to pay any Guaranteed Amounts upon demand. The additional amounts payable under the Guarantee are set out in the Guarantee as follows:

5Additional Amounts: In addition to the Guaranteed Amounts, your liability under this Guarantee includes:

a.an amount equal to one year’s interest on the Guaranteed Amounts in respect of which we make demand, calculated at the highest rate payable by the Customer on any Guaranteed Amounts;

b.interest at the rate referred to in paragraph 5(a) above on the Guaranteed Amounts in respect of which we make demand, from the date demand is made to the date we receive payment of the Guaranteed Amounts; and

c.reimbursement of any costs, expenses, liabilities, taxes and duties payable by you under clause 5 of the Schedule and any amounts in connection with foreign currencies payable by you under clause 6 of the Schedule.

Any additional amount payable under this clause must be paid upon demand being made on you.

[12]             Under cl 5.1 of the Schedule to the Guarantee, Mr Davey agrees to pay all costs, expenses and liabilities incurred by the Bank in connection with the actual or attempted exercise or enforcement of any power or remedy under the Guarantee, including legal fees and expenses on a solicitor and client basis.

[13]             Under cl 12.2, until payment of all Guaranteed Amounts Mr Davey gave up certain rights against Fortress, the Bank and third parties. It relevantly provides:

Until we have received all the Guaranteed Amounts, you give up in our favour any right you have against us and against any other person, estate or assets which would reduce your liability under this Guarantee or would reduce our claims against the Customer or any other person for the Guaranteed Amounts.

[14]Most importantly, cl 15.1 provides:

You must pay us without any set-off or counterclaim and without any deduction or withholding.

[15]             Fortress was in default of its facilities with the Bank from 22 May 2020. On 22 May 2020, Fortress generated a batch of credit refunds under the Merchant Agreement causing the account to be substantially overdrawn. On 12 June 2020, Fortress failed to pay amounts due under the CARL Facility. On 1 July 2020, Fortress failed to pay amounts due under the Overdraft Facility Agreement.

[16]             On 10 June 2020, the Palmerston North City Council obtained a freezing order against Fortress. The freezing order was stated to be made in respect of $675,958.40 held by Fortress in an account with the Bank “or any other bank account under the ownership or control of [Fortress]”.

[17]             Upon the occurrence of the defaults, the Bank exercised its right to demand payment of the sums owing to it. On 28 July 2020, the Bank made demand upon Fortress for payment of the sum of $4,346,508.84, but payment was not made.

[18]             On 3 August 2020, the Bank made demand upon Mr Davey under the Guarantee for payment of $3,851,640 (which included a sum on account of interest). Mr Davey made no payment.

[19]             On 31 August 2020, the Bank appointed receivers to Fortress. The receivers are Colin Gower, Andrew Sallway and Diana Matchett of the firm BDO (BDO).

[20]Fortress was placed into liquidation on 22 October 2020.

[21]             On 22 February 2021, the Bank commenced this proceeding which was served on Mr Davey in Sydney, Australia on 3 March 2021.

Summary judgment principles

[22]             The Bank’s application is brought pursuant to r 12.2(1) of the High Court Rules 2016. The relevant principles were set out by the Court of Appeal in Krukziener v Hanover Finance Ltd.2 The Court of Appeal said:

[26] 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).

[23]             The Court’s power to enter summary judgment is discretionary, but the discretion is of a residual kind. There is little scope for exercising the discretion not to grant summary judgment where there is no suggestion of injustice.3

The issues

[24]The evidence on behalf of the Bank establishes to my satisfaction:

a.the existence of the several facility agreements between Fortress and the Bank;

b.the existence of Mr Davey’s Guarantee,

c.the terms of the facility agreements and the Guarantee as pleaded,

2      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162.

3      Sudfeldt v UDC Finance Ltd (1987 1 NZPC 120; (1987) 1 PRNZ 205 (CA) at 209.

d.the fact of defaults by Fortress;

e.the demands upon Fortress and upon Mr Davey under the Guarantee;

f.the amounts owing to the Bank at the time of the demands; and

g.that neither Fortress nor Mr Davey have satisfied the demands.

[25]             The matters that have been raised in opposition to the Bank’s claim are the following:

a.that the amount of the debt payable under the Guarantee may be reduced by distributions from the receivership of Fortress;

b.Fortress may have a claim (and wishes to issue third party proceedings) against the receivers in respect to their conduct of the receivership;

c.that Mr Davey has counterclaims against the Bank on the basis that:

(i)the Bank did not properly administer payments by Fortress while Fortress’s accounts were the subject of the freezing order; and

(ii)the Bank did not adequately assist Fortress or was negligent in the manner in which it handled Fortress’s requests for lending in 2020.

[26]I will deal with each matter seriatim.

Further payments from the receivership

[27]             There is a possibility of further recoveries by the Bank from the receivership of Fortress. Mr Davey says it is premature for the Court to enter summary judgment against him when the Bank might receive payments that reduce his indebtedness. I do not accept Mr Davey’s position.

[28]             The Bank’s right of action against Mr Davey, to recover the Guaranteed Amounts, accrued when he failed to comply with the Bank’s demand. The Bank is not required to exhaust all other avenues to obtain payment of what is owed before obtaining judgment against Mr Davey. If payments are received by the Bank which reduce Mr Davey’s liability they must be taken into account at the enforcement stage. The possibility of further payments might also be considered in the exercise of the Court’s discretion if the Bank sought to have Mr Davey adjudicated bankrupt.4

Third party proceeding against BDO

[29]             Mr Davey says he intends to issue a third party proceeding against BDO if the Bank’s application for summary judgment is dismissed. He alleges BDO failed to take steps to complete a data migration process causing Fortress’s systems to crash with widespread event ticketing service failures for major events. He also alleges BDO failed to make timely payments for Fortress’s underlying services platforms, failed to chase up payment of amounts owed to Fortress, and used funds owed to creditors for payment of its own fees. Mr Davey says that if successful any claim against BDO will reduce his liability to the Bank by way of third-party contribution.

[30]             I do not accept that Mr Davey’s proposed claim against BDO is a basis to refuse the Bank summary judgment for several reasons. First, if Mr Davey has a claim against BDO that does not provide him with a defence to the Bank’s claim. The Bank is not responsible for the receivers’ actions. The receivers were appointed on the basis they were the agents of Fortress and not the Bank.5

[31]             Second, I do not accept there is a valid basis for Mr Davey to issue a third party notice against BDO. The grounds upon which a third party notice may be issued are set out in r 4.4(1) of the High Court Rules 2016. I do not see that any such grounds exist in this case. Mr Davey appears to suggest that he is entitled to contribution from BDO in respect of any amount he owes to the Bank. It is unclear in what sense he uses the term contribution. In the sense it is used in r 4.4(1)(a), the essence of the right

4      Spanbild Holdings Ltd v Miller High Court Wellington CIV-2009-485-2027, 11 May 2010.

5      Receiverships Act 1993, s 6(3) and Patrick v Bank of New Zealand [2018] NZCA 122 at [47].

to contribution lies in the liability  to a  common demand.6     BDO has no concurrent liability with Mr Davey under the Guarantee.

[32]             Third, Mr Davey’s third party claim is quite unrelated to the Bank’s claim against him. It does not raise any common issues of fact or law. There is no justification for refusing summary judgment so as to allow Mr Davey to pursue such a claim. The Bank is entitled to its judgment and Mr Davey is able to commence a claim against BDO in separate proceedings if he wishes.7

Potential counterclaims

[33]             Mr Davey asserts he has counterclaims against the Bank. It is not necessary for me to consider the merit of those counterclaims, although they were responded to in detail by the Bank. That is because generally a counterclaim is not a defence to an application for summary judgment. Further, parties to a contract may exclude, expressly or by clear implication, a right of counterclaim (or set-off) that would prevent such matters being raised. As noted above, cl 15 of the Schedule to the Guarantee is just such a clause. It provides that Mr Davey is obliged to make payment without set-off or counterclaim or any other deduction or withholding.

[34]             Baxter v Murray concerned an appeal from the entry of summary judgment where the appellants claimed to have an equitable set-off to the claim.8 The Court of Appeal recognised the Court retains a discretion not to enter summary judgment in order to avoid an injustice and has a discretion to issue a stay of execution if satisfied there is a counterclaim that ought to be heard.9 However, the Court cited, with approval, Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou to the effect the Court’s discretion ought to be rarely exercised in circumstances where a loan agreement and guarantees provide that payment should be made free from any

6      Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR4.4.01].

7      See for instance Thomson v Woolford [1987] 1 NZLR 604; BNZ v Mulholland (1991) 3 NZBLC 101,970 and BNZ v Hunt (1990) 3 PRNZ 676.

8      Baxter v Murray [2020] NZCA 222.

9 At [38].

set-off or counterclaim.10 The Court referred to this passage from Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou:11

Indeed the present cases make it the more necessary that the Court should not interfere, for here the parties have specifically provided both in the loan agreement and the guarantees that payment should be made free of any set off or counterclaim. It would defeat the whole commercial purpose of the transaction, would be out of touch with business realities and would keep the bank waiting for a payment, which both the borrowers and the guarantors intended that it should have, whilst protracted proceedings on the alleged counterclaims were litigated. We do not doubt that the Court has a discretion to grant a stay but it should in our view be “rarely if ever” exercised … Guarantees such as these are the equivalent of letters of credit and only in exceptional circumstances should the Court exercise its power to stay execution.

[35]             In Patrick v Bank of New Zealand, the Court of Appeal held that an arguable defence signalled by way of a set-off or counterclaim was precluded by a clause of the guarantee. 12 The clause in issue was the same one as is in issue in this case. The Court of Appeal held that:

[21] Accordingly, the proposed arguments for claims by way of set-off or counterclaim cannot avail Mr Patrick because he has committed to a guarantee with a no set-off provision.

[36]             The Court of Appeal recognised the enforceability of no set-off clauses in guarantee documents is well-settled and was not persuaded to reverse the line of authority, including other decisions of the Court of Appeal, that have upheld the enforceability of such clauses.13

[37]             It follows that Mr Davey’s contention that he has counterclaims against the Bank does not assist him due to the application of the no set-off clause in the Guarantee.

10     Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyd’s Rep 441 (CA).

11 At [39].

12     Patrick v Bank of New Zealand [2018] NZCA 122.

13 At [19].

Discretion

[38]             Mr Davey considers that if judgment is entered against him it would be unjust but the matters relied upon are largely related to his wish to pursue claims against BDO and the Bank. Mr Davey is able to pursue BDO and nothing in this judgment will prevent him from doing so. To refuse the Bank summary judgment in the exercise of the Court’s discretion would be unjust and defeat the commercial arrangements that existed between it and Mr Davey.14 I do not see anything in the facts of this case justifying the refusal of summary judgment in the exercise of the Court’s discretion.

Result

[39]Summary judgment has been entered for the Bank in the following amounts:

a.principal sum of $3,851,640;

b.interest on that sum at 6.99% per annum from 3 August 2020 to the date of hearing (16 July 2021) being 347 days at $737.62 per day;

c.interest on the sum of $3,851,640 at the rate of 6.99% per annum from 17 July 2021 to the date of payment in full; and

d.costs on a solicitor and client basis.

[40]             In respect to costs, the Bank’s counsel is to submit a memorandum setting out the detail and quantum of the costs that are claimed for the Court’s approval.

O G Paulsen Associate Judge

Solicitors:

Buddle Findlay, Christchurch Norling Law Limited, Auckland

14     Dominion Breweries Ltd v Countrywide Banking Corp Ltd CA314/91, 18 August 1992 at 5-6.