Bank of New Zealand v Lothian Partners Capital Limited
[2023] NZHC 196
•15 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000795
[2023] NZHC 196
BETWEEN BANK OF NEW ZEALAND
Plaintiff
AND
LOTHIAN PARTNERS CAPITAL LIMITED
First Defendant
GLENCOE LAND (JOINT VENTURE) LIMITED (IN RECEIVERSHIP)
Second DefendantGALT NOMINEES LIMITED
Third DefendantGEORGE CHARLES DESMOND KERR
Fourth DefendantPYNE HOLDINGS LIMITED (IN RECEIVERSHIP)
Fifth Defendant
Hearing: On the papers Appearances:
Z G Kennedy and N R Frith for Plaintiff
G P Blanchard KC for First, Second, Third and Fifth Defendants J K Goodall, S J Nicolson and J Hansen for Fourth Defendant
Judgment:
15 February 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by Associate Judge Gardiner
on 15 February 2023 at 3.30 pm, pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar – Date: ………………………………..
BANK OF NEW ZEALAND v LOTHIAN PARTNERS CAPITAL LTD [2023] NZHC 196 [15 February 2023]
Introduction
[1] Lothian Partners Capital Limited (LPC) and Pyne Holdings Limited (PHL) had loan facilities with Bank of New Zealand (BNZ). George Kerr, director of those companies, provided a guarantee and indemnity for each of the facilities. Other companies associated with Mr Kerr, Galt Nominees Limited (Galt) and Glencoe Land (Joint Venture) Limited (Glencoe JV) also gave guarantees and indemnities.
[2]The LPC facility expired on 31 May 2011 and the PHL facility expired on
28 May 2013, with approximately $25 million and $21 million outstanding respectively. After extensive negotiations with Mr Kerr concerning repayment, BNZ issued proceedings against LPC, PHL and the guarantors in May 2021 to recover the outstanding sums. BNZ also sought to recover an indemnity costs award made in related injunction proceedings.
[3] BNZ applied for summary judgment of its claims. LPC, PHL and the guarantors opposed the application. The principal argument the guarantors advanced was that BNZ’s claims were time-barred under the Limitation Act 2010. Mr Kerr maintained that to the extent he acknowledged liability to BNZ during their negotiations, he did so for the borrowers, not personally as guarantor. Mr Kerr and the corporate defendants also argued that there was a substantial dispute over the amounts owing under each facility as BNZ’s calculations were wrong or uncertain. Additionally, Mr Kerr contended that he had a counterclaim for losses sustained when he was required to sell shares to pay down the facilities based on, he claimed, incorrect loan balances.
[4] In a judgment delivered on 30 September 2022, I rejected the defences raised by Mr Kerr and the corporate defendants as inarguable, with one exception.1 I found that BNZ’s claims were not time-barred, because Mr Kerr and the other guarantors had acknowledged their liability to BNZ in writing during negotiations, giving rise to
1 Bank of New Zealand v Lothian Partners Capital Ltd & Ors [2022] NZHC 2489 [Substantive judgment].
fresh claims.2 I also found that LPC, Mr Kerr and PHL had no defence to BNZ’s claim for the indemnity costs award.3
[5] I concluded that there was no merit to the defence that the outstanding amounts claimed by BNZ were wrong or uncertain. The specific issues identified by the defendants did not meet the threshold of being reasonably arguable.4
[6] The exception concerned the guarantors’ liability for overdraft interest charged to LPC and PHL. The defendants argued that the closing balances on the facilities were overstated, because BNZ had wrongly charged LPC and PHL overdraft interest on their current accounts associated with the facilities. I rejected that argument, finding that BNZ was entitled to charge the borrowers overdraft interest on these accounts. However, I found that the guarantors had a reasonable defence that they had not guaranteed the borrowers’ obligation to pay this overdraft interest.5
[7] Accordingly, I entered summary judgment against LPC and PHL for the amounts outstanding under their respective facilities, and for interest and costs. I entered summary judgment for the indemnity costs award.
[8] I entered summary judgment against the guarantors for the amounts outstanding under the LPC and PHL facilities excluding any overdraft interest claimed. I directed BNZ to file a memorandum and affidavit quantifying the judgment sums, with the defendants to file a memorandum and affidavit in response identifying any issues with the quantification by BNZ.
[9] BNZ filed a memorandum of counsel and a further affidavit of Ennis Young, Risk Manager at BNZ, confirming the amounts claimed at the date of the judgment.6 The defendants filed a memorandum in response and an affidavit of Steven Cornmell, forensic accounting expert.7
2 Substantive judgment, above n 1 at [283].
3 Substantive judgment, above n 1 at [325–327].
4 Substantive judgment, above n 1 at [422] and [443].
5 Substantive judgment, above n 1 at [483].
6 Affidavit of Ennis John Young sworn 31 October 2022.
7 Affidavit of Steven Joseph Cornmell affirmed 20 November 2022. [Cornmell Affidavit].
[10] In this judgment I determine the extent of the guarantors’ liability given the potential defence relating to overdraft interest. I also restate my earlier orders to contain the judgment sums at the date of the substantive judgment.
Extent of the guarantors’ liability
[11] In its memorandum BNZ confirms that the sums claimed by BNZ under each facility do not include any amount of unpaid overdraft interest. That is because the only overdraft interest charged by BNZ was allocated as paid before the current accounts entered permanent overdraft. BNZ has reversed any overdraft interest charged subsequently. BNZ is therefore not claiming any overdraft interest from either the borrowers or the guarantors.
[12]In their memorandum in response, the defendants say:
(a)The guarantors cannot be liable for any overdraft interest, so for the purposes of calculating the "Guaranteed Indebtedness" for which they are liable, that interest must be excluded.
(b)It is not correct to say the overdraft interest was allocated as paid, so it does not form part of BNZ’s claim. The Court carried out an account to determine the amounts outstanding on the LPC and PHL facilities that involved identifying the advances to LPC and PHL, adding interest over the period of the facilities, and deducting repayments. As a result, interest payments of interest did form part of the claims; they were an integral part of the accounting process.
(c)This was clear from the fact there was a dispute, and findings, about the ability to charge overdraft interest. Had the Court found that LPC and PHL were not liable for overdraft interest, as contended by the defendants, that interest would have been removed from the judgment sums against them.
[13] The defendants argue that had funds deposited into LPC and PHL’s current accounts not been allocated towards paying overdraft interest and instead been
allocated to repaying loan principal, this would have reduced the level of interest accruing over the subsequent 10-12 years. Mr Cornmell calculates that under that scenario, the balances of these facilities at 30 September 2022 would have been:
(a)$29,315,838 on the LPC facility, as compared with BNZ’s sum of
$31,222,901; and
(b)$33,418,923 on the PHL facility, as compared with BNZ’s sum of
$33,588,414.
[14] The defendants say that, based on the approach taken in the substantive judgment, the sums calculated by Mr Cornmell reflect the extent of the guarantors’ liability to BNZ.
[15] The defendants have filed a memorandum in reply, subject to the Court’s leave. I give BNZ leave to file this memorandum.
[16]I find that BNZ’s approach is correct.
[17] Mr Young’s evidence is that BNZ charged $216,401.46 in overdraft interest to the LPC current account, which was paid in full prior to the LPC current account entering permanent overdraft on 22 July 2010.8 BNZ charged $102,611.38 in overdraft interest to the PHL current account, which was paid in full prior to the PHL current account entering permanent overdraft on 20 April 2012.9
[18] Mr Young explains that BNZ no longer claims overdraft interest for the periods after the PHL and LPC current accounts went into permanent overdraft. BNZ has recalculated the amounts owing under the relevant facilities from the respective permanent overdraft dates:
(a)using the principal amounts outstanding at those dates (ie, not including any accrued but unpaid overdraft interest); and
8 Updating Affidavit of Ennis John Young sworn 29 November 2021 at [13(d)] and exhibit EJY-2 0158 [Second Young Affidavit].
9 Second Young Affidavit, above n 8 at [13(d)] and exhibit EJY-2 0161.
(b)applying simple interest at the rates provided for in the relevant facility agreements; and
(c)from the respective facility agreement expiry dates only, applying default interest in accordance with those agreements.
[19] The defendants’ expert, Mr Cornmell, does not dispute this evidence. He confirms that:
(a)Overdraft interest of $216,401.46 was charged to LPC and paid in the period between the facility opening and the current account going into permanent overdraft; and overdraft interest of $102,611.38 was charged to PHL and paid between the facility opening and the current account going into permanent overdraft.10
(b)Taking this into account, and as BNZ is not claiming overdraft interest for the periods after the LPC and PHL current accounts went into permanent overdraft, BNZ is not now claiming any unpaid overdraft interest charged to LPC and PHL’s current accounts.11
[20] It seems it is common ground that any current account overdraft interest charged to LPC and PHL was paid by deposits into the accounts, up until when the accounts went into permanent overdraft. In my view this follows logically from the fact that prior to then, the current account balances were always returned to credit, which necessarily involved all overdraft interest charged to the accounts being paid. As BNZ does not seek to recover any overdraft interest charged after the permanent overdraft dates and has recalculated the sums claimed to exclude this interest, it follows that the outstanding amounts claimed by BNZ do not contain any element of overdraft interest.
[21] Consequently, it is not necessary to make any deduction from the amounts claimed from the guarantors to reflect my decision that arguably, their liability for the
10 Cornmell Affidavit, above n 7 at exhibit SC1(6–8).
11 Cornmell Affidavit, above n 7 at exhibit SC1(5) and (9).
“Guaranteed Indebtedness” does not extend to interest charged on the LPC and PHL current accounts. As the amounts claimed from the borrowers and therefore the guarantors do not include any unpaid overdraft interest, the point is moot.
[22] What the facility balances would have been had overdraft interest not been charged to and paid by LPC and PHL is irrelevant. In my substantive judgment I found that BNZ was entitled to charge the borrowers overdraft interest under the terms of the current accounts. The residual question was whether the guarantors had guaranteed the borrowers’ obligations to pay overdraft interest. As it turns out, the question does not arise because BNZ does not now claim any unpaid overdraft interest from the borrowers.
Orders
[23] Here I restate the orders I made in my substantive judgment, now containing the judgment sums as at the date of that judgment.
The first defendant: LPC
[24]Judgment is entered against LPC:
(a)on the first cause of action for:
(i) the sum of $31,222,901.34;
(ii)interest on the sum of $31,222,901.34 which continues to accrue pursuant to s 22 of the Interest on Money Claims Act 2016 (Act) and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which LPC's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement, to be quantified.
(b)on the second and third causes of action for:
(i)the sum of $262,666.61, made up as follows:
judgment sum $243,419.84
interest on the judgment sum in the manner and at the rate set out in cl 16 of the LPC Facility Agreement from 5 May 2021 to 30 September 2022
$19,246.77
(ii)interest on the sum of $262,666.61 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which LPC's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement, to be quantified.
The second defendant: Glencoe JV
[25]Judgment is entered against Glencoe JV:
(a)on the fourth and fifth causes of action for the LPC Guaranteed Indebtedness, with enforcement limited to the value of the Glencoe JV property realised at mortgagee sale.
(b)on the sixth and seventh causes of action for:
(i)the sum of $249,124.45 made up as follows:
judgment sum $243,419.84
interest on the judgment sum in the manner and at the rate set out in ss 10, 12, 14 and 15 of the Act $5,704.61
(ii)interest on the sum of $249,124.45 which continues to accrue pursuant to ss 9 and 10 of the Act from 1 October 2022 to the date on which Glencoe JV's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cl 17.1 of the Glencoe JV Guarantee, to be quantified.
The third defendant: Galt
[26]Judgment is entered against Galt:
(a)on the eighth and ninth causes of action for the LPC Guaranteed Indebtedness, with enforcement against Galt limited to the value of the Galt property realised at mortgagee sale.
(b)on the tenth and eleventh causes of action for:
(i)the sum of $262,666.61 made up as follows:
judgment sum $243,419.84
interest on the judgment sum in the manner and at the rate set out in cls 16.1 and 16.2 of the LPC Facility Agreement from 5 May 2021 to 30 September 2022 $19,246.77
(ii)interest on the sum of $262,666.61 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which Galt's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement, to be quantified.
The fourth defendant: George Kerr
[27]Judgment is entered against Mr Kerr:
(a)on the eighth and ninth causes of action for:
(i) the sum of $31,222,901.34;
(ii)interest on the sum of $31,222,901.34 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which Mr Kerr's obligation to pay that sum is discharged;
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility, to be quantified.
(b)on the twelfth and thirteenth causes of action for:
(i)the sum of $262,666.61 made up as follows:
judgment sum $243,419.84
interest on the judgment sum in the manner and at the rate set out cls 16.1 and 16.2 of the LPC Facility Agreement from 5 May 2021 to 30 September 2022 $19,246.77
(ii)interest on the sum of $262,666.61 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which Mr Kerr's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility, to be quantified.
(c)on the fifteenth and sixteenth causes of action for:
(i) the sum of $33,588,414.24;
(ii)interest on the sum of $33,588,414.24 which continues to accrue pursuant to s 22 of the Act, cl 2.4 of the Kerr PHL Guarantee and cl 14 of the PHL Facility Agreement from 1 October 2022 to the date on which Mr Kerr's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 2.2 and 13.1(b) of the Kerr PHL Guarantee, to be quantified.
The fifth defendant: PHL
[28]Judgment is entered against PHL:
(a)on the eighth and ninth causes of action for:
(i) the sum of $31,222,901.34;
(ii)interest on the sum of $31,222,901.34 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which PHL’s obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement, to be quantified.
(b)on the twelfth and thirteenth causes of action for:
(i)the sum of $262,666.61 made up as follows:
judgment sum $243,419.84
interest on the judgment sum in the manner and at the rate set out in cls 16.1 and 16.2 of the LPC Facility Agreement from 5 May 2021 to 30 September 2022 $19,246.77
(ii)interest on the sum of $262,666.61 which continues to accrue pursuant to s 22 of the Act and cl 16 of the LPC Facility Agreement from 1 October 2022 to the date on which PHL's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement, to be quantified; and
(c)on the fourteenth cause of action for:
(i) the sum of $33,588,414.24;
(ii)interest on the sum of $33,588,414.24 which continues to accrue pursuant to s 22 of the Act and cl 14 of the PHL Facility Agreement from 1 October 2022 to the date on which PHL's obligation to pay that sum is discharged; and
(iii)reasonable solicitor client costs pursuant to cls 14.4 and 21.2 of the PHL Facility Agreement, to be quantified.
Associate Judge Gardiner
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