Bank of New Zealand v Lothian Partners Capital Limited

[2022] NZHC 2489

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000795

[2022] NZHC 2489

BETWEEN

BANK OF NEW ZEALAND

Plaintiff

AND

LOTHIAN PARTNERS CAPITAL LIMITED

First Defendant

GLENCOE LAND (JOINT VENTURE) LIMITED (IN RECEIVERSHIP)
Second Defendant

GALT NOMINEES LIMITED
Third Defendant

GEORGE CHARLES DESMOND KERR
Fourth Defendant

PYNE HOLDINGS LIMITED (IN RECEIVERSHIP)

Fifth Defendant

Hearing:

13, 14 December 2021 and 29 March 2022

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:

30 September 2022

Reissued:

17 October 2022

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by Associate Judge Gardiner

on 30 September 2022 at 4.00 pm, pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar – Date: ………………………………..

BANK OF NEW ZEALAND v LOTHIAN PARTNERS CAPITAL LTD [2022] NZHC 2489

[30 September 2022]

TABLE OF CONTENTS

Para No.

Introduction  [1]

Factual background  [9]
BNZ’s statement of claim  [27]
Legal principles – summary judgment  [29]
Issues to be resolved  [31]
Relevant terms of the facilities, guarantees and indemnities

The LPC Facility – LPC’s obligation as Borrower to

repay the loan  [36]

Guarantees of LPC’s borrowing by LPC, Mr Kerr, Galt and PHL    [40]
Glencoe JV’s guarantee of LPC’s borrowing  [49]
The PHL Facility – PHL’s obligation as Borrower to repay
the loan  [59]
Mr Kerr’s guarantee of PHL’s borrowing  [61]

LIABILITY

The defendants’ time-bar defence  [69]
Did the defendants contract out of the Limitation Act 2010?                  [78]

Can parties to a contract exclude the operation of the
Act entirely?  [90]
What is the correct approach to interpreting the clauses?                [97]

The plain meaning of the words in their context  [108]

Did the defendants acknowledge their liability to BNZ,

creating fresh claims?  [118]

The approach to determining whether a statement is an
acknowledgment  [129]
Are acknowledgements unsuitable for summary judgment?              [156]
The alleged acknowledgements  [163]
Early communications  [166]
More recent communications  [176]
The settlement deed  [210]
Part-repayments  [222]

Did Mr Kerr acknowledge liability for the Guarantors?                   [224] Did the defendants only acknowledge principal and not interest? [260] Is the settlement deed an acknowledgement?  [273]

Conclusion – acknowledgements  [283]

Is BNZ’s claim against Mr Kerr under the indemnities time-barred?    [285]

Is the Costs Award irrecoverable from Galt and Glencoe JV because
of the liability cap?  [296]
Is the Costs Award irrecoverable from LPC, Mr Kerr and PHL?         [322]
QUANTUM
Procedural matters  [328]

Quantum according to BNZ  [347]

Quantum according to the defendants  [352]
Who bears the onus of establishing that the amounts are wrong
or uncertain?  [355]
PHL Facility  [373]

Pre-expiry transactions – Activity prior to drawdown dates             [375]

Erroneous $800,000 advance  [378]

Advance of $4,250,000 not proved  [381]
Drawdown of $642,829 not repaid  [388]
Deposits of $7,913,056 without drawdown notices  [393]
$4,000,000 payment to unknown account  [407]
Post-expiry transactions  [410]

Commitment fee  [411]

Interest  [415]
Conclusion – PHL Facility  [423]
LPC Facility  [426]
Term Deposit Account  [427]

Interest  [445]

Was BNZ entitled to charge overdraft interest?  [453]

Simple interest  [454]
Default interest  [462]
Unarranged overdraft interest  [467]
Are the Guarantors liable for overdraft interest?  [484]

Mr Kerr’s counterclaim  [488]

Conclusions  [499]
Orders  [506]

Introduction

[1]  Bank of New Zealand seeks summary judgment against the defendants, George Kerr and related companies, for approximately $62 million said to be owing under two loan facilities. The defendants are borrowers and/or guarantors under one or both facilities. They also indemnified BNZ for any losses arising out of a guarantor not meeting their obligations.

[2]                 BNZ also seeks to recover an indemnity costs award made by the Court in related injunction proceedings.

[3]                 Mr Kerr and two of the corporate defendants oppose summary judgment on the grounds that BNZ’s claims are time-barred under the Limitation Act 2010. BNZ says that the claims are not time-barred, either because the defendants contracted out of the Limitation Act 2010 or because they acknowledged their liability in writing to BNZ, creating fresh claims.

[4]                 Additionally, the two corporate defendants involved in the injunction proceedings say that because their liability is limited to the value of their secured assets, which have already been realised by BNZ, they are not liable to pay the costs award. The other corporate defendants say this means they are not liable for the costs award as co-guarantors.

[5]                 A significant area of focus is the extent to which Mr Kerr is liable under his personal guarantees and indemnities. He maintains that any acknowledgements were made by or on behalf of the corporate defendants and not by him personally. BNZ disputes this and says that, in any event, if the actions under the guarantees are time-barred, Mr Kerr must indemnify the bank for its loss. Mr Kerr says that the indemnities are also time-barred.

[6]                 The defendants also oppose summary judgment on the basis that there is a substantial dispute over the amounts BNZ claims under both facilities. They maintain that there are serious errors and uncertainties in BNZ’s calculations.

[7]                 Finally, Mr Kerr argues that summary judgment should be refused because he has a counterclaim for losses sustained when BNZ forced him to sell assets to make repayments on the facilities, based on what he says were inflated outstanding balances.

[8]                 In this judgment I first set out the factual background, BNZ’s causes of action, the key clauses from the loan agreements and guarantees, and the issues to be resolved. I then deal with issues related to whether the defendants are liable to BNZ under the loan agreements, guarantees and indemnities. Next, I address the defendants’ claim that the amounts claimed  by  BNZ  are  wrong  or  uncertain.  Finally,  I  consider Mr Kerr’s counterclaim.

Factual background

[9]                 On 26 November 2008, Lothian Partners Capital Limited (LPC) entered into a loan facility agreement with BNZ (the LPC Facility Agreement). LPC, Galt Nominees Limited (Galt), George Kerr and Pyne Holdings Limited (PHL) provided guarantees and indemnities for the facility. Glencoe Land (Joint Venture) Limited (Glencoe JV) also gave a guarantee and indemnity under a separate guarantee (Glencoe JV Guarantee).

[10]              Mr Kerr is the sole director of LPC. He is also the sole director of Galt and has held that position since 25 September 2019. Prior to that, Mr Kerr was a director from 8 December 1999 to 26 October 2010, when he was replaced by Michael Tinkler of Burton Partners until 25 September 2019. Mr Kerr has been the sole director of Glencoe JV since 22 May 2019. Before that, there were various directors who served with Mr Kerr on the board.

[11]              In addition to the guarantees, LPC gave specific security over a deposit account and PHL gave general security over all its assets. As security for the guarantee obligations, Galt gave BNZ a mortgage over coastal land at New Chums Beach in the Coromandel, and Glencoe JV gave BNZ a mortgage over land east of Arrowtown in the South Island.

[12]              BNZ made available to LPC $31,700,000 pursuant to the terms and conditions in the LPC Facility Agreement.

[13]              The facility was available for LPC to draw down from 26 November 2008   up until 30 days before the expiry date. The original expiry date was 10 January 2010. On  7  January  2010,  the  expiry  date  was  extended  to  10  January  2011.1  On  29 March 2011, the expiry date was extended to 31 May 2011.

[14]              On 28 May 2010, Pyne Holdings Limited (PHL) entered into a loan facility agreement with BNZ (the PHL Facility Agreement). PHL gave BNZ security over all its assets. Mr Kerr gave a guarantee and indemnity of PHL’s borrowing (the Kerr PHL Guarantee).

[15]              Mr Kerr has been the sole director of PHL (named Pyne Family Holdings Ltd until April 2010) since its incorporation in 2008.

[16]Under the PHL Facility, BNZ made available to PHL cash in the sum of

$20,000,000. The facility was available  to  be  drawn down from 28 May 2010 to  30 days before the PHL expiry date on 28 May 2013.

[17]              LPC defaulted on the LPC Facility on its expiry on 31 May 2011 (the LPC Expiry Date). At that time, according to BNZ’s calculations, $24.994,230.14 was owing. This amount comprised:2

(a)       $23,903,277.98 in principal;

(b)       interest of $1,090,952.16.

[18]              PHL defaulted on the PHL Facility on 28 May 2013 (the PHL Expiry Date), with $21,372,948.73 owing, according to BNZ. This amount comprised:3

(a)       $19,996,355.62 in principal;

(b)$936,593.11 in interest;

1 Affidavit of Dermot Michael Rodden affirmed 5 May 2021 [First Rodden Affidavit] at [12].

2 At [30].

3 At [33].

(c)$440,000 in unpaid commitment fees.

[19]              Rather than take immediate enforcement action, BNZ engaged in lengthy discussions with Mr Kerr about repayment of the LPC and PHL Facilities.

[20]              Between November 2013 and June 2017, part-repayments were made against the loan balances under both the LPC and PHL Facilities.

[21]              On 22 October 2020, BNZ by its solicitors wrote to LPC, PHL and each of the guarantors, declaring events of default and making demand under the two facilities.4

[22]              In November 2020, BNZ served notices under ss 118 and 119 of the Property Law Act 2007 on Glencoe JV and Galt pursuant to the mortgages granted to BNZ to secure their guarantee obligations under the LPC Facility. BNZ then appointed receivers to Glencoe JV and Galt and took steps to sell the secured assets. Glencoe JV and Galt brought injunction proceedings to prevent the asset sales. Ultimately, they discontinued the proceedings. BNZ was awarded indemnity costs of $243,419.84 under the terms of the facilities (the Costs Award).5 BNZ seeks summary judgment for the Costs Award.

[23]              BNZ appointed receivers to PHL on 29 April 2021. The bank issued these proceedings on 5 May 2021.

[24]              On 19 May 2021, Glencoe JV’s secured property was sold by mortgagee sale for $5,675,000. BNZ recovered net sale proceeds of $5,534,181.82. The sum was applied against the amount outstanding under the LPC Facility.6

[25]              On 3 December 2021, BNZ received net sale proceeds from the sale of Galt’s secured property of $2,051,501.80. This was applied against the amount owing under the LPC Facility.7

4 Affidavit of Ennis John Young sworn 6 May 2021 [First Young Affidavit] at [41].

5      Galt Nominees Ltd v Bank of New Zealand [2021] NZHC 875.

6 Updating affidavit of Ennis John Young sworn 29 November 2021 [Second Young Affidavit] at [25].

7 Further updating affidavit of Ennis John Young sworn 8 December 2021 [Third Young Affidavit] at [6].

[26]After realisation of the secured assets, the amounts now claimed by BNZ are:8

(a)$29,713,901.21 under the LPC Facility Agreement and Glencoe JV Guarantee; and

(b)$32,198,186.89 under the PHL Facility Agreement and the Kerr PHL Guarantee.

BNZ’s statement of claim

[27]              BNZ pleads 18 causes of action.9 Eight of the first 16 causes of action are essentially duplicative: BNZ seeks to recover against the borrowers (under the relevant facility agreements) and the guarantors (under their guarantees) in both debt and for breach of contract. BNZ says both causes of action are available because:

(a)the defendants assumed primary payment obligations (as opposed to obligations to indemnify or for costs) under the LPC and PHL Facilities and associated guarantees; and

(b)the defendants had contractual obligations either to pay BNZ the amounts owing at the relevant times (in the case of the primary borrowers) or to see to it that the primary borrowers met their respective repayment obligations.

[28]              The final two causes of action are pleaded in the alternative to the primary causes of action. BNZ says that, under indemnities given by Mr Kerr, Mr Kerr is required to indemnify it for loss suffered if the defendants are correct that BNZ’s claims are out of time.

Legal principles – summary judgment

[29]Rule 12.2(1) of the High Court Rules 2016 provides:

8 At [9]; Second Young Affidavit at [31].

9      Amended statement of claim dated 29 November 2021.

The court may give 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.

[30]              The relevant principles governing a summary judgment application are well established and were not disputed by the parties:10

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).

Issues to be resolved

[31]              Determining whether the defendants have no defence to BNZ’s claims that they are liable for the amounts said to be due and owing under the LPC and PHL Facilities involves these issues:

(a)Did the defendants contract out of the Limitation Act 2010?

(b)Did the defendants acknowledge their liability in writing to BNZ, creating fresh claims?

(c)Is BNZ’s claim against Mr Kerr under the indemnities time-barred?

[32]              Determining whether the defendants have no defence to BNZ’s claim that they are liable to pay BNZ the Costs Award raises these issues:

(a)Is the Costs Award irrecoverable from Galt and Glencoe JV because their liability is limited to the value of their security properties?

10     Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

(b)If so, is the Costs Award irrecoverable against LPC, Mr Kerr and PHL?

[33]              Whether the amounts said to be due and owing by BNZ are wrong or uncertain involves these issues:

(a)Who bears the onus of establishing that the amounts are wrong or uncertain and what is the correct threshold?

(b)Is there any merit to the specific issues the defendants identify in relation to the amount said to be due and owing under the PHL Facility?

(c)Is there any merit to the specific issues the defendants identify in relation to the amount said to be due and owing under the LPC Facility?

(d)Was BNZ entitled to charge unarranged overdraft interest?

[34]              The final issue to determine is whether summary judgment should be declined because Mr Kerr has a counterclaim against BNZ that should be set off against BNZ’s claim.

[35]              Before considering these issues, I will set out the terms of the facilities, guarantees and indemnities, on which much depends.

Relevant terms of the facilities, guarantees and indemnities

The LPC Facility – LPC’s obligation as Borrower to repay the loan

[36]                   Clause 7.1 deals with LPC’s obligation to repay the loan on the LPC Expiry Date:

Repayment: the Borrower shall repay the Outstanding Moneys in full and in cleared funds by no later than 2.00pm on the Expiry Date.

[37]              ‘‘Outstanding Moneys’’ is defined to mean the ‘‘Outstanding Amount’’ (the aggregate principal amount of all outstanding drawings), all interest (including default interest), fees, costs and other expenses owing by LPC to BNZ, and any other amounts owing by LPC to BNZ under the Transaction Documents.

[38]              The “Transaction Documents’’ are defined as the LPC Facility Agreement, the “Security” and any other agreement or document that BNZ and LPC agree is a Transaction Document.

[39]              “Security” means the documents listed in Schedule 5, each “Collateral Security” and any other documents BNZ agrees will constitute security for the purposes of the LPC Facility. The securities listed in Schedule 5 include a general security deed and a specific security deed from LPC over the “Deposit Account”; the Galt mortgage over New Chums Beach; and a general security deed from Pyne Family Holdings Ltd. The other Kerr-related companies who were Guarantors but are not defendants also gave mortgages over specific properties.

Guarantees of LPC’s borrowing by LPC, Mr Kerr, Galt and PHL

[40]              The Guarantee is found at cl 13 of the LPC Facility Agreement under the heading “Guarantee and Indemnity”.

[41]              Clause 13.1 contains the Guarantee, which is a cross-guarantee. It states that, subject to cl 13.2, “each Guarantor jointly and severally guarantees to the Lender the due and punctual payment by each other Guarantor of that other Guarantor’s Guaranteed Indebtedness”.

[42]              Clause 13.2 limits the liability of some Guarantors to the value of their secured property. The only relevant Guarantor affected by this limitation is Galt, whose liability is limited to the value of the New Chums property.

[43]              The Guarantors are identified at Schedule 1 to the LPC Facility Agreement. They include the Borrower (LPC), Galt, Mr Kerr, and PHL (at the time called Pyne Family Holdings Ltd). There were other companies related to Mr Kerr named as Guarantors who are not defendants in this proceeding because their liability was limited to the value of their security properties and the securities have been realised.11

[44]The term “Guaranteed Indebtedness” is defined at cl 1.1 as:

11     Equity Partners Finance, Mokopeka Holdings Limited and Glencoe Station Limited.

“Guaranteed Indebtedness” means, when used with reference to a Guarantor, all amounts of any nature which that Guarantor (whether alone, or jointly or jointly or severally with any other person (whether or not a Guarantor) is, or may at any time become, liable (whether actually or contingently) to pay to the Lender (whether alone, or jointly and severally with any other person) under the Transaction Documents and, when used without reference to a particular Guarantor, means the Guaranteed Indebtedness of the Guarantors collectively, and a reference to Guaranteed Indebtedness in either context includes any part of it.

[45]Clause 13.3 contains the indemnity. It states:

Indemnity: Each Guarantor jointly and severally indemnifies the Lender against all costs, losses and liabilities (including legal expenses on a full indemnity basis and goods and services and similar taxes thereon) incurred or sustained by the Lender at any time as a consequence of:

(a)any Guaranteed Indebtedness not being recoverable from the Guarantor under the guarantee given in clause 13.1; or

(b)any monetary obligation of a Guarantor to the Lender under the Transaction Documents not being duly satisfied or performed by that Guarantor.

[46]              The term “costs” is defined as “any charges, fees, commissions, indemnities, taxes, damages, losses, expenses (including without limitation, legal fees and expenses), liabilities, fines and penalties.”

[47]              Clause 13.4 addresses “Payment”. It states that if a Guarantor does not pay all or part of its Guaranteed Indebtedness to BNZ by the due date for payment, each other Guarantor must pay the Guaranteed Indebtedness to BNZ (whether or not payment has been demanded).

[48]              Under cl 13.9, “Liability”, each Guarantor is liable under the Guarantee as a principal debtor and not merely a surety, and each of the Guarantor’s obligations are unconditional and irrevocable.

Glencoe JV’s guarantee of LPC’s borrowing

[49]              Glencoe JV guaranteed LPC’s indebtedness to BNZ through the separate Glencoe JV Guarantee.

[50]              The Guarantee is at cl 2.1 under the heading “Guarantee and Payment.” It states:

Guarantee: The Guarantor unconditionally and irrevocably guarantees to the Beneficiary the due and punctual payment of the Guaranteed Indebtedness as and when it becomes due and payable under the Transaction Documents (whether on the normal due date, on acceleration or otherwise) and the due observance and punctual performance of and compliance with the Obligations.

[51]Guaranteed Indebtedness means:

… all indebtedness (whether on account of principal moneys, interest, bank fees or charges, taxes or otherwise) due, owing, payable or remaining unpaid by the Principal Debtor to the Beneficiary under the Facility Agreement and includes any part thereof;

[52]The “Principal Debtor” is LPC.

[53]The term “Obligations” is defined as:

… all covenants, conditions, stipulations, representations, warranties, guarantees, undertakings, assurances, agreements and other obligations of any nature (whether present or future, express or implied, actual or contingent, secured or unsecured and whether incurred alone, severally, jointly and severally, as principal, surety or otherwise) of any Relevant Party to or for the Beneficiary under, or contemplated by, any of the Transaction Documents;

[54]A “Relevant Party” is:

… the Guarantor, the Principal Debtor, and any other person (other than the Beneficiary) that is party to a Transaction Document;

[55]And “Transaction Documents” are defined as:

… this Deed, the Facility Agreement, each Transaction Document (as defined in the Facility Agreement) and all other agreements setting out the terms of the Guaranteed Indebtedness, any document setting out the terms of Collateral Security and any other document that the parties agree will be a Transaction Document for the purposes of this Deed (and when used in relation to any particular person, means every Transaction Document to which that person is party);

[56]Clause 2.2 concerns “Payment” and provides:

If, for any reason, the Principal Debtor defaults in the due and punctual payment to the Beneficiary of all or any of the Guaranteed Indebtedness, the

Guarantor undertakes to pay the relevant amount to the Beneficiary on demand.

[57]              By virtue of cl 3.1, Glencoe JV is deemed a principal debtor and not merely a surety.

[58]              Under cl 8, Glencoe JV indemnifies BNZ if any of the Guaranteed Indebtedness is irrecoverable from LPC or from Glencoe JV under the Guarantee.

The PHL Facility – PHL’s obligation as Borrower to repay the loan

[59]PHL’s obligation to repay the PHL Facility is recorded in cl 6.1:

Repayment: the Borrower shall repay each Drawing in cleared funds by no later than 2.00pm on the last day of the Interest period for the Drawing. Any Outstanding Moneys on the Expiry Date shall be repaid or paid (as the case may be) in full by no later than 2:00pm on that date.

[60]              “Outstanding Moneys” is defined in the same way as it is in the LPC Facility Agreement.

Mr Kerr’s guarantee of PHL’s borrowing

[61]              Mr Kerr’s guarantee of PHL’s indebtedness to BNZ is contained in the separate Kerr PHL Guarantee. The Guarantee is found in cl 2 under the heading “Guarantee, Indemnity and Payment.” Mr Kerr is the only Guarantor of PHL’s borrowing.

[62]              The wording of the Guarantee at cl 2.1 is in all material respects the same as the Glencoe JV Guarantee:

Guarantee: The Guarantor unconditionally and irrevocably guarantees to the Secured Party the due and punctual payment of the Guaranteed Indebtedness as and when it becomes due and payable under the Transaction Documents (whether on the normal due date, on acceleration or otherwise) and the due observance and punctual performance of and compliance with the Guaranteed Obligations.

[63]              The Payment clause at 2.3 is a variation of the equivalent  clauses in  the  LPC Facility Agreement and the Glencoe JV Guarantee, stating:

Payment: If, for any reason, the Borrower does not pay all or any part of the Guaranteed Indebtedness to the Secured Party on or before the due date for

payment, the Guarantor shall pay the Guaranteed Indebtedness to the Secured Party on demand (whether or not demand for payment has been made on the Guarantor or any other person).

[64]The term ‘Guaranteed Indebtedness’ is defined as:

… all Indebtedness (of whatever nature and whether present or future or actual or contingent and whether on account of principal moneys, interest, fees or charges, lax or otherwise) due, owing, payable or remaining unpaid by the Borrower to the Secured Party including without limitation under the Transaction Documents (in each case whether alone or together with any other or as principal, guarantor, surety or otherwise) and includes any part thereof.

[65]‘Guaranteed Obligations’ is defined as:

… all covenants, conditions, stipulations, representations, warranties, guarantees, undertakings, assurances, agreements and other obligations of any nature (whether present or future, express or implied, actual or contingent, secured or unsecured and whether incurred alone, jointly, severally, or jointly and severally, as principal, surety or otherwise) of the Borrower to or for the benefit of the Secured Party including without limitation under, or as contemplated by, each or any of the Transaction Documents.

[66]The indemnity is contained at cl 2.2:

Indemnity: As a separate and additional indemnity under this Deed, the Guarantor unconditionally and irrevocably indemnifies the Secured Party against all costs incurred or sustained by the Secured Party at any time as a consequence of:

(a)        Guaranteed Indebtedness: any Guaranteed Indebtedness (or any amount which, if recoverable, would have formed part of the Guaranteed Indebtedness) not being recoverable or recovered from the Guarantor under the guarantee given in clause 2.1; or

(b)        Monetary Obligation: any monetary obligation of the Borrower to the Secured Party under the Transaction Documents not being duly satisfied or performed by the Borrower.

This clause shall apply to any of the Guaranteed Indebtedness (or any amount which, if recoverable, would have formed part of the Guaranteed Indebtedness) which is not or may not be recoverable or recovered for any reason (whether or not within the Secured Party’s knowledge) including any legal or equitable limitation, disability or incapacity of or affecting the Borrower, any other Relevant Party or any other person, any transaction relating to such moneys being or becoming at any time void, voidable, defective, or otherwise unenforceable and any other circumstances which allow the Borrower or the Guarantor to avoid paying such amounts, in whole or in part.

[67]              The term “costs” is defined by reference to the PHL Facility Agreement as including: “any costs, charges, fees, commissions, indemnities, taxes, damages, losses, expenses (including legal fees and expenses on a full indemnity basis and goods and services and similar taxes thereon)”.

[68]              Under the heading “Guarantor as Principal Debtor”, Mr Kerr’s liability is deemed to be the liability of a principal debtor and not merely a surety.

LIABILITY

The defendants’ time-bar defence

[69]              Under s 11 of the Limitation Act 2010 (the Act), it is a defence to a money claim if a defendant proves that the date on which the claim is filed is “at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period)”.

[70]              The defendants say that none of the Guarantees are on-demand guarantees, and as such, the relevant act or omission is the date of default by LPC and PHL.12 They point to the terms of the Guarantees.

[71]              Clause 13.4 of the LPC Facility Agreement provides that the Guarantee is triggered immediately upon payment default by LPC, without any requirement to make demand. The defendants submit that the immediate triggering of the Guarantee is supported by the principal debtor clause at 13.9 of the LPC Facility Agreement.

[72]              While cl 2.2 of the Glencoe JV Guarantee seemingly requires a demand of Glencoe JV, Glencoe JV submits that the principal debtor provision at cl 3.1 obviates that requirement. It says that the effect of such clauses is to constitute the guarantor as a principal debtor such that demand is not a precursor to enforcement.13

12     Mr Kerr’s submissions dated 8 December 2021 at [15]–[16] and First, Second, Third and Fifth Defendants’ submissions dated 8 December 2021 at [20].

13     Wayne Courtney, John Phillips and James O’Donovan (eds) The Modern Contract of Guarantee, English edition (3rd ed, Sweet & Maxwell, London, 2016) at [10-115].

[73]              As regards the Kerr PHL Guarantee, the payment clause purports to contain a requirement for a ‘demand’, but immediately follows that with the words “whether or not demand for payment has been made on the Guarantor”. Mr Kerr submits that there is therefore no requirement for a demand to trigger his guarantee of PHL’s Indebtedness and Obligations. Further, that the requirement for a demand would have been obviated in any event by the presence of the principal debtor provision at cl 3.1, which means that on default the lender can take immediate steps against the guarantor.14

[74]              The defendants say that it follows that the relevant “act or omission” for the purposes of the Act is the date(s) of default by LPC and PHL. LPC defaulted on the LPC Expiry Date on 31 May 2011. Accordingly, the defendants say that the primary period under the Act for claims against the Guarantors began on 31 May 2011 and expired on 31 May 2017. BNZ did not issue proceedings against the defendants until 5 May 2021. Thus, BNZ’s claims against the Guarantors of the LPC Facility are time- barred.

[75]              In relation to the PHL Facility, PHL defaulted on the PHL Expiry Date on   28 May 2013. Accordingly, the defendants say that the primary period for a claim against Mr Kerr as Guarantor began on 28 May 2013 and expired on 28 May 2019. As a result, BNZ’s claim against Mr Kerr under the PHL Guarantee is also time-barred.

[76]              BNZ does not dispute that the Guarantees are not on-demand guarantees. Nor does it dispute that where a guarantee is not an on-demand guarantee, the relevant “act or omission” is the date of default by the borrower.

[77]              However, BNZ says that the parties contracted out of the Act, so the defence of time-bar is not available to the defendants.

14     Relying on MS Fashions Ltd v Bank of Credit and Commercial International SA (in liq) [1993] Ch 425 (CA) at 447.

Did the defendants contract out of the Limitation Act 2010?

[78]              BNZ relies on cls 13.7 of the LPC Facility Agreement, 3.1 of the Glencoe JV Guarantee and 3.2 of the Kerr PHL Guarantee. It argues that these clauses exclude the application of the Act.

[79]Clause 13.7 of the LPC Facility Agreement states:

Liability not prejudiced: Neither the liability of a Guarantor, nor any of the rights of the Lender under this Guarantee shall be affected or discharged by anything which, apart from this clause, might operate to affect or discharge the liability of, or otherwise provide a defence to, a Guarantor (whether or not known to, or done, or admitted to be done by a Guarantor of the Lender, or any other person).

[80]Clause 3.1 of the Glencoe JV Guarantee provides:

Principal Debtor: The Guarantor’s liability to the Beneficiary under this Guarantee is deemed to be the liability of a principal debtor, and not merely a surety and such liability will not be affected or diminished, nor will any security or guarantee provided by the Guarantor be released or discharged, by any act, omission or matter which, but for this clause 3.1 would have released the Guarantor wholly or partly from its liability to the Beneficiary including (without limitation):

(a)        Granting of Time: the granting of any time, credit, indulgence, waiver or other concession to any Relevant Party or any other person whether by the Beneficiary or any other person (whe ther or not at the request of the Relevant Party or other such person);

(b)        Insolvency: the dissolution of any Relevant Party or any other person or the appointment of any receiver, manager, administrator, inspector, trustee, statutory manager or other similar person in respect of any Relevant Party or any other person over the whole or any part of its or their respective assets or any step being taken towards such dissolution or appointment;

(c)        Change in Position; any Relevant Party or other person being party to an amalgamation, assignment for the benefit of creditors, scheme of arrangement, composition of debts, scheme of reconstruction or change in constitution, composition, slab.ls or control whether by reason of a change in constitutive documents or by incorporation or the death, incapacity, retirement, appointment or admission of any partner, trustee or other person;

(d)        Liability Ceasing: any liability of a Relevant Party or any other person ceasing from any cause whatever (including any release or discharge by the Beneficiary or by operation of law);

(e)        Other Agreements: any person providing or joining in providing any Transaction Document or other agreement, guarantee or security or the failure by any Relevant Party or any other person to provide, or It being incompetent

to give, any Transaction Document or any other agreement, guarantee or security;

(f)         Other Obligations: any Transaction Document any other agreement, guarantee, or security in favour of the Beneficiary, or any right of the Beneficiary, at any time being or becoming in whole or in part void, voidable, defective or unenforceable for any reason or being released, discharged or varied in whole or in part;

(g)        Amendment: any amendment, waiver, compounding, compromise, release, abandonment, relinquishment or renewal of any Transaction Document or any other agreement, guarantee security, or any assets, or any rights of the Beneficiary against any Relevant Party or any other person ('change in circumstance’) or any failure to notify any Relevant Party or such person of such change in circumstance; or

(h)        Enforcement: the enforcement of, or failure to enforce (including1 without limitation, the failure to make a valid demand), any rights under any Transaction Document or any other agreement, guarantee or security or any law.

[81]              The Kerr PHL Guarantee has the same provision at cl 3.2, with Mr Kerr deemed a principal debtor in the preceding cl 3.1.

[82]              BNZ says that as it provided PHL, LPC and the Guarantors, including Mr Kerr, with additional time to repay the amounts owing under the LPC and PHL Facilities after their expiry, these clauses are engaged and their effect is to exclude the Act.

[83]              Further, BNZ submits that these provisions are consistent with s 41 of the Act, which provides that no provision of the Act “makes ineffective, or prevents the enforcement of, an agreement that conflicts or is inconsistent with, or that modifies or prevents some or all of the operation or effects of, a defence under this Act.” BNZ submits that the Act was not intended to change the position prior to the Act’s commencement that gave parties the freedom to vary to time limits;15 and s 41 expressly contemplates and permits agreements to contract out of its application.

[84]              Additionally, BNZ says that s 41 does not require an agreement to be explicit that the parties are contracting out of the Act (i.e. by specifically referring to the Act). It says that s 41 is clear that “an agreement” that is merely inconsistent with the Act is enough to exclude or limit its operation.

15     Chris Corry Limitation Defences in Civil Cases: Update Report for the Law Commission (NZLC MP16, 2007) at [166].

[85]              The defendants advance several arguments for why these clauses do not exclude the operation of the Act. First, that their purpose is to ensure that any steps taken as between the lender and another party (borrower or co-obligor) will not release the guarantor, i.e. they render the guarantor a principal debtor. Their purpose is not to exclude the operation of the Act.

[86]              Second, because BNZ’s interpretation would result in the clauses operating as exclusion clauses overriding a statutory right, the contra proferentem rule applies and ‘‘clear and unambiguous language’’ is necessary for the exclusion to operate.16 The defendants submit that the wording is nowhere near clear enough to override statutory rights under the Act. Clause 13.7 of the LPC Facility Agreement is vague and ambiguous, in the form of a boiler-plate provision, and makes no reference to the Act. In the absence of clear language, the clauses must be construed contra proferentem; that is, against BNZ as the party relying on them.

[87]              They submit that the policy implications of a “wholesale and permanent exclusion of the limitation period” in a contract have not yet been considered in New Zealand. They highlight cases from the United States where they say it has been held that an agreement to permanently exclude a limitation statute is void on public policy grounds.17 They submit that s 41 permits contracting out in the sense of parties agreeing to vary the limitation period rather than to permanently exclude it entirely.

[88]              In response, BNZ contends that in New Zealand exclusion clauses are not interpreted contra proferentem but according to their natural and ordinary meaning. The bank submits that where the parties are commercial entities who received legal advice throughout, there is no basis for reading down the clauses which, on their natural and ordinary meaning, and consistent with s 41, exclude the Act.

[89]I will now set out my conclusions on these submissions.

16 Matthew Barber and Stephen Todd Burrows, Finn and Todd on the Law of Contract in New  Zealand (online ed, LexisNexis) at [7.3.1].

17    First Nat Bank of Eastern Arkansas v Arkansas Development Finance Authority, 870 SW 2d 400 at 402 (Ark CT Appeal, 1994), Haggerty v Williams, 84 Conn App 675 at 679-680 (2004), T & N PLC v Fred S James & Co of New York Inc, 29 F 3d 57 (2nd Cir, 1994), Clarendon Nat’l Ins Co v Culley, 2012 US Dist LEXIS 58067, Collins v Environmental Systems Co, 3 F 3d 238, 241-242 (8th Cir, 1993).

Can parties to a contract exclude the operation of the Act entirely?

[90]              I was only referred to one New Zealand authority where contracting out of the Act was at issue or where the Court discussed s 41: Lee v Mangapapa B2 Incorporation.18 That authority does not assist with the question before me.

[91]              The predecessor to the 2010 Act, the Limitation Act 1950, had no provision enabling parties to contract out of or vary its application.19 That said, the courts have upheld parties’ agreed variation of the statutory limitation period. In DHL International (NZ) Ltd v Richmond Ltd, the Court of Appeal upheld a clause in which the parties had modified the statutory period by agreeing on a time limit of 30 days for notification of a claim.20

[92]              In its 1988 report Limitation Defences in Civil Proceedings, the Law Commission noted that English limitation statutes and legislation based on those statutes, such as New Zealand’s Limitation Act 1950, do not mention parties’ ability to modify or exclude the statutory periods.21 It observed however that case law recognises that contracting parties are free to stipulate that legal or arbitral proceedings must be commenced within a shorter period than that specified by legislation, and that this is not contrary to public policy.22 The Commission stated further:23

Although there is no substantial body of case-law suggesting that a contract to extend limitation periods is valid, we see no reason why parties to a dispute should not be able effectively to agree that a limitation defence not be taken for a particular period (or at all). This also follows from the nature of the limitation defence, which does not extinguish the underlying right, and may be waived by a defendant by simply choosing not to plea[d] passage of the limitation period as an affirmative defence.

18 Lee v Mangapapa B2 Incorporation  (2017) 140 Waikato Maniapoto MB 84 (140 WMN 83) at  [37].

19 See J C Corry The Laws of New Zealand — Limitation of Civil Proceedings  (online  ed, LexisNexis) at [7] and n 2 and T Kennedy-Grant and M Weatherall Kennedy-Grant and Weatherall on Construction Law — The Law of Contract (online ed, LexisNexis) at [55,860] and n 27, citing English cases as examples of contracting out of a statutory limitation period: Howe Sound School District No 48 v Killick Metz Bowen Rose Architects and Planners Inc (2008) BCCA 195 and Inframatrix Investments Ltd v Dean Construction Ltd [2012] EWCA Civ 64.

20 DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA).

21 Law Commission Limitation Defences in Civil Proceedings (NZLC R6, 1988) at [263].

22 At [263], referring to Chitty on Contracts (25th ed, vol 1) at [986] and [1891], citing Atlantic Shipping Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250.

23 At [266].

[93]              The Commission noted that some submissions made in response to its discussion paper expressed concern at the possibility of a more powerful party forcing a weaker party to agree to an “oppressive or unfair” limitation period. It decided however not to suggest law reform in this area.24

[94]              A miscellaneous paper prepared a few years before the introduction of the 2010 Act, Limitation Defences in Civil Cases: Update Report for the Law Commission, also did not recommend preventing parties from contracting out of the Act.25

[95]              There appears to have been no discussion at the time of the enactment of the Limitation Act 2010 around the introduction of s 41.

[96]              Section 41 explicitly contemplates an agreement that “prevents some or all of the operation or effects of a defence under [the] Act.”26 On the basis of those words, and in the absence of any authority on the issue, I conclude that it is theoretically possible for contracting parties to agree that a defence under the Act cannot be raised. However, for reasons which I will explain next, I agree with the defendants that it will need to be very clear from the words of the contract, read in their context, that this is what the parties intended.

What is the correct approach to interpreting the clauses?

[97]              The clauses in question are different from many of the exclusion clauses dealt with in case law where one party’s liability is limited or excluded in specified circumstances. A typical clause may be one which limits or excludes a party’s right to seek damages for breach of contract by the other party. Here, on the meaning contended by BNZ, the clauses prevent the defendants from relying on a limitation defence. Despite that difference, both parties proceeded on the basis that case law and commentary concerning exclusion clauses was relevant.

24     At [264]–[265].

25     Chris Corry Limitation Defences in Civil Cases: Update Report for the Law Commission

(NZLC MP16, 2007) at [166].

26     (Emphasis added).

[98]              Broadly, the Courts will approach the interpretation of an exclusion clause the same way that they approach the interpretation of any other contractual clause.27 In other words, the Court will embark on the usual exercise of ascertaining the intention of the parties by asking what a reasonable third party informed of the relevant circumstances would consider the parties intended the words to mean (having regard to the context and background knowledge possessed by the parties at the time). These general principles of construction were most recently outlined by the Supreme Court in Bathurst Resources Ltd v L & M Cole Holdings Ltd,28 reaffirming its earlier judgment in Firm Pl 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand.29

[99]              At the same time, the Court will normally look for clear language or necessary implication before concluding that a party has agreed to “waive or limit a right of significance” under common law or statute.30 As Asher J put it in a frequently cited passage from i-Health Ltd v iSoft NZ Ltd:

[20] … in interpreting a limitation clause the interpretation exercise is like any other. However, because a limitation clause involves a party abrogating his rights at common law it is to be assumed that the parties will not have intended to limit liability unless clear and unambiguous language is used. I do not see this as involving an application of the contra proferentum rule. Rather, it results from the expectation that any reasonable person would have in interpreting the contract objectively, that no party will lightly limit its common law right to sue for damages.

[100]          The Court of Appeal has endorsed this approach, again in a case where it was argued that the parties had surrendered their right to claim for damages under the terms of the contract (which prevented parties from bringing an action for a debt more than one year after the cause of action accrued).31 The Court confirmed that:

[32]      … The approach to interpreting a limitation clause is like any other contractual interpretation exercise. The interpretation of the contract involves an inquiry as to what a reasonable and properly informed third party would

27 Dorchester Finance Ltd v Deloitte [2012] NZCA 226 at [32]; i-Health Ltd v iSoft NZ Ltd HC Auckland CIV-2006-404-007881, 8 September 2010 at [20].

28 Bathurst Resources Ltd v L & M Cole Holdings Ltd [2021] NZSC 85.

29 Firm Pl 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147. See also Vector Gas Ltd v Bay of Plenty Energy [2010] 2 NZLR 444 (SC), citing the principles of contractual interpretation referred to in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28.

30 i-Health Ltd v iSoft NZ Ltd HC Auckland CIV-2006-404-007881, 8 September 2010 at [45].

31 Dorchester Finance Ltd v Deloitte [2012] NZCA 226 at [33]–[34].

consider the parties to mean.32 The overall commercial context may be relevant.

[33]      Given the premise that an exclusion clause will enable a party to escape liability for a breach of a contractual promise, it will be assumed that a party will not have intended to limit liability unless clear and unambiguous language is used.33 A court will ordinarily look for clear language or necessary implication before concluding that the right to claim for damages is extinguished. Such an intention will not be lightly attributed. The ultimate objective is to ascertain what the parties intended their words to mean in the particular factual context in which the contract was made.

[101]Recent decisions of this Court have echoed these comments.34

[102]         As to whether the contra proferentem rule remains relevant, the authorities to which I was referred suggest that it continues to be invoked by the courts, but only where there is genuine ambiguity following the objective interpretative exercise described by the Supreme Court in Bathurst Resources Ltd v L & M Cole Holdings Ltd.

[103]          In Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand, the Supreme Court acknowledged the existence of the contra proferentem rule, citing D A Constable Syndicate 386 v Auckland District Law Society Inc.35 In D A Constable, the Court of Appeal confirmed that in cases of genuine ambiguity, a court will resolve the ambiguity against the party who proffered the phrase. There, the rule was invoked in the interpretation of an insurance contract, with the Court finding the clause ambiguous and construing it in favour of the insured.

[104]          In Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, the Court of Appeal interpreted a settlement negotiated by an insured and insurer where the insurer later argued that at the time of settlement both parties were mistaken about the measure of its entitlement.36 The Court examined the exclusion clause in the settlement to

32 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4]–[5], [19]– [21], [61]–[64], [119] and [151]

33 DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA) at 17–18; Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22, [2005] 1 NZLR 433 at [12]; i-Health Ltd v iSoft NZ Ltd [2011] NZCA 575, [2012] 1 NZLR 379 at [43]–[45]

34 See for example JNJ Holdings Ltd v Kent Sing Trading Co Ltd [2017] NZHC 3274 at [401] and

Winiata v Steedman [2022] NZHC 502 at [22].

35 D A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA 237 at [69]–[70].

36 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67.

determine whether it had assigned the risk of any mistake to Prattley. It said the authorities reflected that:

[62] … the object of interpretation is to ascertain the parties’ presumed intention and give effect to it.37 That remains true when an exclusion clause is in issue. A purposive or contextual interpretation does not require that the court first identify an ambiguity in the language; there may be cases, as in Shotover Mining, in which context and purpose make it clear that the general language of an exclusion clause cannot be taken literally. Any doubt may be resolved against the party benefiting from the exclusion. We note that it was not in issue before us that the contra proferentem rule survives as part of a court’s interpretive toolkit.38

[105]          The Court of Appeal agreed with the conclusion of this Court that the plain language of the settlement assigned the risk of a mistake to Prattley and there was no basis on which to read down those general words.

[106]          In a recent case in this Court, CBL Insurance Ltd (in liq) v Johnstone39, Gault J summarised the approach to interpreting exclusion clauses. He noted that the general method of contractual interpretation applies to exclusion clauses, but any lack of clarity must be resolved against the party seeking to exclude liability, citing i-Health Ltd v iSoft NZ Ltd. He observed that “in any event”, the Court of Appeal stated in Trustees Executors Ltd v QBE Insurance (International) Ltd that genuine ambiguity must exist before the Court applies contra proferentem. Gault J went on to analyse the ordinary meaning of the exclusion clause in that case, concluding that the words were not ambiguous and so the plain meaning should apply.40

37     Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147, [2015] 1 NZLR 432 at [60].

38 D A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA 237, [2010] 3 NZLR 23 at [69]; Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015] 1 NZLR 341 at [32]; and QBE Insurance (International) Ltd v Wild South Holdings Ltd at [18]. Compare Bank of Credit and Commerce International SA (in liq) v Ali (No 1) [2001] UKHL 8, [2002] 1 AC 251 at [66] per Lord Hoffmann, dissenting; and John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at 221– 222.

39 CBL Insurance Ltd (in liq) v Johnstone [2021] NZHC 1393 at [89]–[92].

40 At [97]. See also Stonewood Homes NZ (ChCh) Franchisor Ltd v Mettrick [2017] NZHC 1659 at

[21] where the Court held that the ordinary principles of contractual interpretation applied to guarantees and that where the words are ambiguous, contra proferentem applies and the clause should be resolved in favour of the guarantors; and Farrand Orchards Ltd v Kerikeri Irrigation Company Ltd [2020] NZHC 2840 at [42]–[44].

[107]          I respectively take the approach of Asher J in i-Health Ltd, endorsed by the Court of Appeal in Dorchester Finance Ltd v Deloitte.41 The clauses in question should be interpreted in the same way as any other – by seeking to ascertain the intention of the parties by asking what a reasonable third party informed of the relevant circumstances would consider the parties intended the words to mean, having regard to the context and background knowledge possessed by the parties at the time. Because the clause (under BNZ’s interpretation) would abrogate a statutory right, it is to be assumed that the parties will not have intended to exclude that right unless clear and unambiguous language is used. As Asher J put it, this approach results from the expectation that any reasonable person would have when interpreting the contract objectively; that no party will lightly exclude their statutory right to raise a limitation defence. However, that is not to say that the ordinary and natural meaning of the words should be ‘read down’. It simply means that clarity is required.

The plain meaning of the words in their context

[108]          I find that the defendants have at least a reasonable argument that the clauses at issue do not clearly and unambiguously contract out of the Act, for the following reasons.

[109]          First, the position of the clauses, at least in the Glencoe JV Guarantee and PHL Kerr Guarantee, supports the interpretation that their purpose is to ensure that any steps taken as between the lender and another party (borrower or co-obligor) will not release the guarantor. That is, they render the guarantor as principal debtor and have the effect of preventing equity operating to release the guarantor.42

[110]          The relevant clause in the Glencoe JV Guarantee, cl 3.1 set out above, is headed “Guarantor as Principal Debtor”. The words BNZ relies on as excluding the Act are part of a single sentence that deems the Guarantor a principal debtor and then provides

41 Dorchester Finance Ltd v Deloitte [2012] NZCA 226.

42 At [206]. See Regan v Brougham [2017] NZHC 1091 at [21]–[22]; Stonewood Homes NZ (ChCh) Franchisor Ltd v Mettrick [2017] NZHC 1659 at [71]–[75]; and Overton Holdings Ltd v Owens Properties Ltd CA114/02, 24 October 2002 at [13]–[16]. For older but helpful discussions of such clauses, see Bank of New Zealand v Baker [1926] NZLR 462 (SC) and Orme v De Boyette [1981] 1 NZLR 576 (CA) at 579–581.

that the Guarantor’s liability will not be released in any circumstances including those identified.

[111]          The relevant clause of the PHL Kerr Guarantee, cl 3.2, is also found within a section headed “Guarantor as Principal Debtor”. However, what is one sentence in the Glencoe JV Guarantee is divided into two separate clauses in the PHL Kerr Guarantee. Clause 3.1 deems the Guarantor a principal debtor. Clause 3.2 provides that the Guarantor’s liability will not be released, including in the listed circumstances. BNZ submits that cl 3.2 must mean something different and additional to cl 3.1.

[112]          However, the clause at issue is not placed within the “Guarantor as Principal Debtor” part of the LPC Facility Agreement. The relevant clause, 13.7, appears under the heading “Guarantee and Indemnity” with the sub-heading “Liability not prejudiced”. The Guarantors are deemed principal debtors through a separate clause, 13.9.

[113]          Second, there is considerable merit in the defendants’ submission that the raising of a defence under the Act does not fall within the natural and ordinary meaning of the words used in these clauses.

[114]          The Kerr PHL Guarantee provides that the Guarantor’s liability will not be affected or diminished, nor will the Guarantee be released or discharged, by an act, omission or matter which “but for this clause 3.2 would have released the Guarantor wholly or partly from its liability”. There is a credible argument that the Act does not operate to “release” a party from liability. Rather, it provides a defence that must first be pleaded. I consider this a reasonable argument that applies equally to the Glencoe JV Guarantee which, as noted, has substantially the same wording.

[115]          The LPC clause states that neither the liability of a Guarantor, or rights of the lender, are “affected or discharged” by anything which “but for this clause, might operate to affect or discharge the liability of, or otherwise provide a defence to, a Guarantor”. The defendants submit that the clause only applies to matters which would “affect or discharge liability” as this is the operative part of the clause, and the reference to “a defence” follows. They say that a limitation defence does not operate

to “affect or discharge liability”; it provides a defence that must first be pleaded.

I consider that this submission is reasonably arguable.

[116]          I find therefore that the defendants have at least a tenable defence that the parties did not contract out of the Act. Based on the words used and their placement in the documents, I do not consider that a reasonable third party would conclude that the defendants clearly intended to contract out of their statutory right to raise a limitation defence. It is relevant that these are boiler-plate provisions. The widespread exclusion by lenders of limitation defences to guarantors would be a matter of some general significance. In my view, and consistent with the authorities I have discussed, such wholesale exclusions would need to be clear and unambiguous. That is not the case here.

[117]Therefore, I proceed to the next issue on the basis that the Act applies.

Did the defendants acknowledge their liability to BNZ, creating fresh claims?

[118]          The defendants who raise a defence of time-bar are Mr Kerr (as Guarantor of the LPC and PHL Facilities), Galt and PHL (as Guarantors of the LPC Facility).

[119]          I note that the Borrowers, LPC and PHL, do not raise defences of time-bar. PHL does not appear to dispute that by making two part-repayments against the PHL Facility it acknowledged liability as Borrower, creating a fresh claim against it. 43

[120]          Glencoe JV also does not appear to dispute that by making a part-repayment of the LPC Facility, it acknowledged liability as Guarantor and created a fresh claim.44

43 On 5 May 2015, BNZ received part-payment of $1m from PHL in respect of the amounts outstanding under the PHL Facility: First Rodden Affidavit at [57] and DMR-1 0802. On 29 July 2016, BNZ received part-payment of $6,220.26 from PHL in respect of amounts outstanding under the PHL Facility: First Rodden Affidavit at [74] and DMR-1 0865.

44 On 11 April 2017, BNZ received part-payment of $180,000 from Glencoe JV in respect of amounts outstanding under the LPC Facility. The $180,000 was the purchase price Glencoe JV received from the sale of part of its land to Glencoe Land Development Ltd. $63,983.50 of that amount was paid in reduction of the LPC Facility on 1 June 2017: First Rodden Affidavit at [78] and DMR-1 0981.

[121]          BNZ says that its claims against Mr Kerr, Galt and PHL are not out of time because the Guarantors acknowledged their liability to BNZ for the guaranteed debt in writing, restarting the primary period.

[122]          Section 47(1)(a) of the Act provides that if a claimant proves that, after the start date of a claim’s primary period, the defendant acknowledges to the claimant in writing a liability to the claimant, the claimant is deemed to have a fresh claim on the day after the date or the latest of the dates on which the acknowledgement is given.

[123]          The rationale is that it is “in the public interest that a debtor who acknowledges [their] debt, and so induces [their] creditor not to have immediate resort to litigation, should not then be able to claim that the debt is statute-barred because the creditor held [their] hand”.45

[124]          Mr Kerr, Galt and PHL each argue that they did not at any time acknowledge that they were liable to BNZ for the amounts outstanding under the LPC or PHL Facilities  under  their  respective  guarantees.  Their  main  submission  concerns  Mr Kerr’s capacity when he was communicating with BNZ. They argue that it is not enough to acknowledge a debt; a debtor must acknowledge a liability to pay. Where there is one borrower and one lender, an admission of a debt can be equated with an acknowledgment of liability. Here, however, Mr Kerr was wearing several different ‘hats’ and communicating with  BNZ  in  several  different  capacities.  Therefore, Mr Kerr submits, BNZ needs to point to something in which he clearly acknowledged personal liability as Guarantor, as distinct from liability of the Borrowers.

[125]          Further, Mr Kerr deposes that the facilities were intended to be “self- amortising” facilities, that is, it was always intended that the facilities would be repaid through asset realisations.46 Therefore, he says that rather than acknowledging his liability, when his emails to BNZ are placed in context, he was simply identifying assets that were to be realised to pay down the facilities. He claims that whenever he

45     Bradford & Bingley Plc v Rashid [2006] UKHL 37 at [38].

46     Affidavit of George Charles Desmond Kerr sworn 7 July 2021 [Third Kerr Affidavit] at [11] and [13].

referred to a corporate entity, an asset and a repayment, he was communicating that information on behalf of that entity, not in his personal capacity.

[126]          Similarly, Galt and PHL say that there must be something in the acknowledgements to show that Mr Kerr was acknowledging liability for Galt and/or PHL as Guarantors of the LPC Facility. They say that Mr Kerr never did so. Rather, Mr Kerr spoke for the Borrower, LPC, and was merely providing information about assets they held as Guarantors.

[127]          The defendants’ secondary submission is that to the extent any acknowledgements were made, and except for the settlement deed discussed below, they only acknowledged liability to pay the principal amounts outstanding, not interest.

[128]          Before considering these submissions, it is necessary to review the authorities for guidance on the correct approach to determining whether a statement is an acknowledgement for the purposes of s 47(1)(a) of the Act.

The approach to determining whether a statement is an acknowledgement

[129]          There are only two New Zealand authorities concerning s 47(1(a), both decisions of Associate Judge Paulsen: Inicio Ltd v Tower Insurance Ltd and Eversons International Ltd (in liq) v Bionutrient Customs Ltd.

[130]          In Inicio, Inicio brought proceedings in 2019 asserting that Tower Insurance had undervalued its insurance claim arising from damage to its property in the 2011 earthquake. It submitted that Tower had acknowledged its liability through a letter containing a written settlement offer in 2018, giving rise to a fresh claim under s 47.47 The letter stated that Tower had reviewed Inicio’s concerns that its insurance claim was settled without taking into account special features of the damaged property, and a quantity surveyor had quantified those features at $55,030.08. Tower said that based on the legal advice it had received, that amount “represent[ed] Tower’s outstanding liability with your claim”. Then, in a separate paragraph, Tower said it was prepared

47     Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90 at [10].

to make payment of $55,030.08 in full and final settlement of the claim. On its words, Associate Judge Paulsen found that the letter constituted an acknowledgement of liability. He rejected Tower’s argument that it was simply an offer to settle a disputed claim for damages.48

[131]          In Eversons, the liquidator of Eversons, which had gone into liquidation in 2018, made demand on Bionutrient for repayment of multiple sums Eversons had transferred to it in 2013 and 2014. It submitted that a letter from the director of Bionutrient in reply to the demand was an acknowledgement triggering s 47.49 The letter read:

Dear Andrew,

In reply to your letter dated 24th October 2018, I wish to advise that Bionutrient Customs Limited did receive the payments as per your attached list.

These were on forwarded to Australia and my company was only used as a vehicle to facilitate this. Accordingly Bionutrient Customs Limited does not have access to any funds in relation to these transactions.

I therefore further advise it cannot make payment of $2,999,417.92 as requested.

[132]          Associate Judge Paulsen concluded that the letter did not involve any express acknowledgement of liability and nor could any be inferred from the circumstances and the words used.50 The liquidator had demanded “repayment” of the sums Everson had transferred Bionutrient, and Bionutrient simply provided explanations for those transactions and confirmed that it had no access to the funds. The Judge considered that Bionutrient’s response contained assertions of fact, not an acceptance that Bionutrient was liable to repay Eversons even though it did not have the payments.

[133]          Two cases under earlier versions of the Act also provide guidance. In Frankton Gateway Apartments (2003) Ltd (in liq) v Sullivan, when determining whether a statement was an acknowledgement under s 26 of the Limitation Act 1950, this Court said “the Court will examine what the document says in order to determine whether

48     At [33]–[55].

49     Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [32].

50     At [33]–[36].

or not it is an acknowledgement.”51 In that case, the liquidator of the plaintiff brought proceedings in 2011 seeking to recover advances the plaintiff had made to the defendant trustees prior to going into liquidation in 2004. It was argued that the claim was not time-barred because one of the defendants had acknowledged his indebtedness in the accounts for the trust up to 2007 and a deed of appointment of new trustees in 2011.52 The accounts contained a statement of financial position which identified that a sum was owed to the plaintiff. The deed, which was signed by the defendant, stated that the investments and property as described in those accounts would vest in the new trustees and continuing trust. Although the accounts were not signed, Associate Judge Matthews held that the deed in combination with the accounts constituted an acknowledgement.53

[134]          Smith v Smith was decided under the Statute of Limitations.54 At that time, the law required there to be an acknowledgement of the debt coupled with a promise to pay. The acknowledgement by the defendant was as follows:

Dear Bro-in-law –

Yours with statement to hand last week. Would it put you to too much trouble to send me a list with dates of Wat’s drawings and what he paid in. You say it won’t be hard to understand, but when one does not expect such an amount to be owing, I feel I would like to see all the details. I can’t understand why you did not put your claim through the solicitors when they were putting Wat’s estate through. I know Wat did not expect such an amount to be owing. You knew he had that trouble, and yet you made no move to get a settlement in his lifetime. Hoping I am not putting you to too much trouble, and trusting both Mrs R and yourself are in good health. With kind regards, I am, yours truly,

E Smith

[135]Sim J stated that:55

Where there is a simple acknowledgement of a debt a promise to pay is implied therefrom. Where the acknowledge is coupled with other expressions, such a promise to pay at a future time or on a condition, or an absolute refusal to pay, it is for the Court to say whether these other expressions are sufficient to qualify or negate the implied promise to pay … If some debt is acknowledged, it is immaterial that the correctness of the amount claimed is disputed in the acknowledgement … And where the claim is for an account it is enough if there is an acknowledgement that an account is pending … Where

51     Frankton Gateway Apartments (2003) Ltd (in liq) v Sullivan [2012] NZHC 2399.

52 At [48].

53     At [55]–[57].

54     Smith v Smith [1926] NZLR 311 (SC).

55     At 314–315.

there is an unqualified admission that there is an unsettled account pending between two parties, which has to be examined, a promise to pay the balance when ascertained may be inferred from such an admission … The letter from the defendant does contain, I think, an acknowledgement sufficient to bring the case within these authorities.

[136]          Authorities from the United Kingdom are also instructive. In Bradford & Bingley Plc v Rashid, the House of Lords considered whether statements made by a debtor, Mr Rashid, in two letters to the creditor constituted acknowledgements for the purposes of s 29(5) of the Limitation Act 1980.56 In the first letter, an advice centre said on Mr Rashid’s behalf:57

Please find attached Mr Rashid’s financial statement, which clearly indicates that at present he is not in a position to repay the outstanding balance, owed to you. However, my client requests that once his financial situation is stable, he will start to repay. This could be in year 2003/04.

[137]In a second letter, the advice centre stated:58

I have informed my client, Mr M Rashid, of the contents of your letter. He is willing to pay approximately £500 towards the outstanding amount as final settlement. He is only able to afford this amount by borrowing from friends and family.

[138]          The main issue on appeal was whether the written acknowledgements were inadmissible evidence pursuant to the ‘without prejudice’ rule. However, a subsidiary issue was whether either or both documents constituted an acknowledgement of Bradford & Bingley’s claim within the meaning of the 1980 Act.

[139]          Counsel for Mr Rashid submitted that unless there is an admission of a definite amount due, or an amount ascertainable by mere calculation, there is no acknowledgement within the statute. Lord Brown of Eaton-under-Heywood observed that there was some support for this argument in the view of Lord Denning MR in Good v Parry,59 but that the issue was resolved by the Court of Appeal in the subsequent decision of Dungate v Dungate.60

56     Bradford & Bingley Plc v Rashid [2006] UKHL 37.

57 At [46].

58 At [48].

59     Good v Parry [1963] 2 QB 418.

60     Dungate v Dungate [1965] 1WLR 1477 (CA).

[140]          In Dungate v Dungate, the debtor’s letter read, “Keep a check on totals and amounts I owe you and we will have account now and then … Sorry I cannot do you a cheque yet – terribly short at the moment”. Holding this to be an acknowledgement of the claim, Diplock LJ said:61

… an acknowledgement under this Act need not identify the amount of the debt, and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence.

[141]          Russell and Sellers LJJ agreed, with Russell LJ stating that the words used in the letter were equivalent to the debtor stating “I owe you money”. Not only was there an acknowledgement of the indebtedness, the quantum could also be established, as it had been, by extrinsic evidence.62

[142]In Bradford & Bingley, Lord Brown said:63

Assume, for example, that a creditor seeks to recover an outstanding debt of

£1,000, and the debtor, asserting that he has made a number of unreceipted cash payments and partial repayment, admits that he owes something but not as much as £1,000. It may be doubted whether Lord Denning would have regarded that as an acknowledgement, the precise sum owed being capable of ascertainment ‘by calculation’ and without ‘separate agreement’ of the parties. Dungate v Dungate, however, appears to me clear authority for holding that it would be an acknowledgement (although, had the debtor in fact admitted liability only for £500 rather than some unspecified sums short of £1,000, that in my opinion would constitute an acknowledgement of the claim only to the extent of £500 – see Kerr J’s judgment in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565).

[143]          Lord Brown concluded that Dungate v Dungate was rightly decided, confirming that “[a]cknowledgements are not confined to admissions of debts which are indisputable as to quantum as well as liability.”64 He concluded that each of the letters constituted a clear acknowledgement for the purposes of the 1980 Act.

[144]          Similarly, Lord Hope of Craighead said he had no difficulty regarding the first letter as an acknowledgement of the claimant’s claim within the meaning of the statute. He confirmed that the acknowledgement need not identify the amount of the debt and, referring to the judgment of Diplock LJ in Dungate v Dungate, an acknowledgement

61     At 1487.

62     At 1488.

63     Bradford & Bingley Plc v Rashid [2006] UKHL 37 at [58].

64 At [60].

will be enough if the amount for which the debtor accepts legal liability can be ascertained by extrinsic evidence.

[145]          He considered that the plain meaning of the words “the outstanding balance, owed to you” in the first letter was that the debtor was admitting he owed the claimant a sum of money which, for the time being, he was unable to pay. He considered that there could not be a clearer way of acknowledging that the defendant was under a legal liability to pay the outstanding balance. It was not disputed that the amount of the balance was capable of being determined by extrinsic evidence.65

[146]          He considered that the wording of the second letter was slightly different, as it referred to “the outstanding amount”, but the key to the meaning of that phrase lay in the use of the definite article. He considered that indicated that there was an amount representing the defendant’s present state of indebtedness, which was readily ascertainable. He concluded that this letter too was an acknowledgement within the meaning of the statute.66

[147]          The other members of the House of Lords agreed with the conclusions of Lord Brown and Lord Hope.

[148]          In Edginton v Clark,67 the English Court of Appeal said that it is not possible to set out any general rule as to what constitutes an acknowledgement; rather, whether a statement is an acknowledgement “depend[s] on the true construction of the document and all the surrounding circumstances.”68

[149]          In summary, the principles I discern from the statute and the New Zealand and United Kingdom authorities are:

(a)an acknowledgement must made be in writing by the defendant (or their agent) to the claimant;69

65 At [22].

66 At [22].

67     Edginton v Clark [1964] 1 QB 367, [1963] 3 All ER 468.

68     At 158.

69     Limitation Act 2010, s 47(1).

(b)the acknowledgement can be made at any time after the start date of the claim’s primary period (and need not be made during the primary period);70

(c)there is no requirement for proven reliance by the claimant on the acknowledgment;71

(d)no particular words are required, and the acknowledgement can be broad and informal provided that, judged objectively, the words used indicate an admission of liability to the claimant;

(e)in respect of a money claim, it is not necessary for the defendant to acknowledge the amount claimed or any other specific amount provided they acknowledge that they owe something, and the amount can be ascertained by extrinsic evidence;72

(f)if they acknowledge they owe something, it is immaterial that they dispute the correctness of the amount claimed;73

(g)on the other hand, if they acknowledge they owe a specific part of the amount claimed, their acknowledgement is limited to that part;74

(h)the acknowledgement must be read in the context of the document as a whole and all the surrounding circumstances.75

[150]The parties do not disagree on these basic principles.

70 Section 47(1) and Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90 at [36].

71 Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [30].

72 Bradford & Bingley Plc v Rashid  [2006] UKHL 37 at [21]; Dungate v Dungate [1965] 1WLR 1477 (CA) at 184; Good Challenger Navegante SA v Metalexportimport SA [2003] EWHC 10 (Comm) at p 199,200.

73 Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90 at [49], citing Smith v Smith [1926] NZLR 311 (SC).

74     Eversons International Ltd (in liq) v Bionutrient Customs Ltd [2020] NZHC 2989 at [30] and

Bradford & Bingley Plc v Rashid [2006] UKHL 37 at [58].

75     Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90 at [36], citing In re Flynn, decd (No 2) [1969] 2 Ch 403 at 412 and Heli Holdings Ltd v Helicopter Line Ltd [2016] NZHC 976 at [726].

[151]          The one point on which they disagree is the relevance of evidence of the subjective intention of the maker of the statement. Mr Kerr has sworn affidavits in which he states the capacity in which he made, and did not make, each of the alleged acknowledgements. Mr Goodall submits that this evidence of Mr Kerr’s subjective intent when making the statements is admissible extrinsic evidence that provides context for his statements. The defendants place weight on Associate Judge Paulsen’s statement in Eversons that when determining whether a written communication constitutes an acknowledgement, that communication “must be read as a whole and construed having regard to the circumstances under which it is written and in the manner the writer intended to convey to the recipient”.76

[152]          BNZ contends that the approach to interpretation of an alleged acknowledgement is a purely objective exercise, much like the approach to contractual interpretation.

[153]          I agree with BNZ. To the extent that Mr Kerr provides evidence of background facts at the time he made the statements, that is relevant extrinsic evidence. The authorities are clear that the alleged acknowledgements must be read in their surrounding context. Such evidence might include other written or oral communications between Mr Kerr and BNZ, or other contextual facts known to both parties.

[154]          However, Mr Kerr’s evidence of what he meant or did not mean at any given point is not relevant to the interpretative exercise. An acknowledgement is a communication from one to another. The subjective uncommunicated intention of the maker of a statement does not form part of the acknowledgement. The acknowledgement must be judged on the words expressed, placed in their context, and from the point of view of a reasonable person. That is the approach taken in the authorities to which I have referred.

[155]          This approach is consistent with the public policy behind the acknowledgement rule, which is to encourage creditors to give time to negotiate for payment of an admitted indebtedness without fear that the claim will become statute-

[448]          BNZ says that LPC was required to maintain its current account in credit and BNZ was entitled to charge overdraft interest if it went into unarranged overdraft. The payments identified by Mr Cornmell were made at times that LPC had allowed its current account to fall into overdraft and the payments were required to pay the overdraft interest and return the account to credit.

[449]          Further, BNZ has clarified that it originally charged $1,875,003.32 in overdraft interest on the LPC current account from the date the LPC Facility became available to the LPC Expiry Date.143 However, for the same reasons described in relation to the PHL Facility, in this proceeding BNZ is not claiming overdraft interest from when the LPC current account went into permanent overdraft on 22 July 2010. Instead, it has recalculated interest from that date at simple interest until the LPC Expiry Date, and thereafter at default interest as per the LPC Facility Agreement through to the present day.

[450]Accordingly, BNZ says that after that recalculation, LPC paid only

$216,401.46 of overdraft interest, up until when the current account went into permanent overdraft.144

[451]          I now turn to the essential issue in dispute: whether BNZ was entitled to charge overdraft interest.

Was BNZ entitled to charge overdraft interest?

[452]          The defendants submit that, as a matter of law, BNZ was not permitted to charge overdraft interest when the LPC and PHL current accounts went into unarranged overdraft. They contend that the bank was obliged to only claim default interest under the terms of the LPC and PHL Facility Agreements.

Simple interest

[453]          Under cl 6.1 of the LPC Facility Agreement, LPC was required to select the duration of the first interest period relating to each drawing in the drawdown notice

143   Second Young Affidavit at [13](d).

144   Second Young Affidavit at [13](d).

for that drawing. The duration of each interest period would be either 30, 60, 90 or 180 days or, if LPC failed to nominate the length of the interest period, as determined by BNZ. The first interest period began on the initial drawdown date. Interest periods for each successive interest period were to be the same as the preceding interest period unless LPC notified BNZ in writing, in which case the interest period was as notified.

[454]          Pursuant to cl 6.2, LPC was required to pay all unpaid interest accrued on a drawing during the relevant interest period on the last day of the relevant interest period or, where the interest period exceeded 90 days, each day falling at 90-day intervals.

[455]          The applicable interest rate charged over the relevant period was calculated in accordance with cl 6.3 of the LPC Facility Agreement, being the base rate for each interest period plus the agreed margin. The margin was 2.25 per cent per annum.

[456]Under cl 6.4, interest was to:

(a)accrue daily from (and including) the first day of the relevant interest period to (but excluding) the last day of that period; and

(b)be calculated based on a year of 365 days, and the actual number of days elapsed.

[457]Interest did not compound prior to the LPC Expiry Date.

[458]          BNZ was required  to notify LPC of each rate of  interest determined under  cl 6, but failure to do so did not relieve LPC of its obligation to pay the interest.

[459]          The PHL Facility Agreement contains comparable provisions. The only discernible difference is that if PHL did not select an interest period for a drawdown, the period would be 30 days.

[460]          The obligation to pay interest on each drawing on the final day of the relevant interest period is at cl 5.2 of the PHL Facility Agreement.

Default interest

[461]            Under cl 16.1 of the LPC Facility Agreement, default interest was charged during any period beginning on the due date for payment of any sum due and payable under the LPC Facility Agreement and ending on the date on which the obligation to pay was discharged. During such period, the outstanding balance accrued default interest at the base rate plus the margin of 2.25 per cent plus 2 per cent per annum (i.e. simple interest plus 2 per cent).

[462]          Under cl 16.2, default interest was due and payable without the need for demand at the end of each period by which it was calculated, and if not paid, was compounding.

[463]          The PHL Facility default interest clauses at 14.1 and 14.2 of the PHL Facility Agreement are expressed in similar terms.

[464]          Mr Young deposes that although these clauses entitled BNZ entitled to charge default interest on interest that LPC, PHL and the Guarantors failed to pay on each interest payment date, it chose not to do that. Instead, BNZ charged default interest from 2.00 pm on the LPC Expiry Date of 31 May 2011 and the PHL Expiry Date of 28 May 2013, being the date on which the Borrowers and Guarantors were obliged to pay all “Outstanding Moneys”.145

[465]          Default interest continues to accrue on the “Outstanding Moneys” and accrued default interest.

Unarranged overdraft interest

[466]          LPC operated two current accounts – an ‘00’ and an ‘01’ account. PHL operated one current account – the ‘00’ account. Drawings on the relevant facilities were deposited into the current accounts.

[467]          BNZ automatically debited the current accounts with the interest due under cls 6.2 and 5.2 of the LPC and PHL Facility Agreements respectively. The current

145   First Young Affidavit at [17] and [32].

accounts would occasionally go into overdraft following this process. At a certain point, the current accounts became permanently overdrawn.

[468]          BNZ claims that it was authorised to automatically debit the current accounts with interest due and payable under the facilities by the ‘Debit Account’ provisions at cl 19 of the LPC Facility and at cl 17 of the PHL Facility:

Without limiting any other provision of this Agreement, if the Borrower defaults in its obligations to pay moneys pursuant to a Transaction Document, the Borrower authorises the Lender in its discretion to debit any account which the Borrower may have with the Lender with the whole or any part of the amount which the Borrower has failed to pay notwithstanding that the moneys outstanding may be recorded in any other account. The Borrower also authorises the Lender to open a current account where one does not presently exist in the name of the Borrower with the Lender and to debit the Borrower’s account with the whole or any part of such moneys which the Borrower has failed to pay. The debiting of an account by the Lender shall not relieve the Borrower of its obligations under the Transaction Documents. The Lender is also authorised (a) to break the term of any deposit and (b) to convert moneys or moneys owing in one currency to another for the purposes of this clause 17.

(emphasis added)

[469]          BNZ says if the current accounts went into unarranged overdraft as a result of direct debits to pay interest, it was entitled to charge unarranged overdraft interest. The bank derives its authority from the “Account Operating Authority” forms for the current accounts. These forms were signed by Mr Kerr when he opened the current accounts for LPC and PHL on 14 November 2008 and 16 December 2008 respectively. These are standard forms which include a ‘declaration’ signed by the account owner that BNZ’s Standard Terms and Conditions have been read and understood and that these and any specific terms notified by BNZ apply and are binding. The declaration also states:

Where the bank acts upon a facsimile, telephone, email or other electronic instruction which appears, to its reasonable satisfaction, to have been made in accordance with the authorities held by the Bank (the “Instruction”), to the extent permitted at law, you indemnify the Bank against all losses, claims and expenses that the bank may incur by reason of acting upon the instruction, without further authority or enquiry. The bank may debit the account(s) above with all such claims and expenses, whether such account(s) is or may become overdrawn as a result. In the event that such account(s) becomes overdrawn, you will pay interest at the rate(s) normally charged by the bank. Any payment the bank makes in accordance or purported accordance with the Instruction shall be conclusive evidence that the bank was liable to make such payment.

[470]          BNZ submits that this clause means that to the extent that the bank complies with automated instructions, including to repay drawdowns or interest on drawdowns, the bank is entitled to debit them to the current accounts even if that causes the current account to become overdrawn, and in that event the bank is entitled to charge interest at the rates normally charged by the bank.

[471]In response, the defendants submit:

(a)The levying of overdraft interest at 20 per cent per annum was contrary to the express terms of the Facility Agreements. The parties agreed specifically on the interest to be charged on drawdowns and in the event of default, at simple interest plus 2 per cent (an average default rate of 4 to 7 per cent per annum).

(b)The reason overdraft interest was levied was because BNZ debited the LPC and PHL’s current accounts with unpaid interest. Its authority to process those debits could only arise under the Facility Agreements. However, as discussed above, the parties agreed expressly on the default interest rates paid. There was no authority to circumvent those rates and charge higher amounts.

(c)The debit account provisions of the Facility Agreements cannot be used to subvert the agreed interest rates. They are essentially set-off clauses, enabling monies outstanding on the loans to be recouped from balances in other accounts. They do not permit BNZ to debit an account with no money so it can recover a higher rate of interest.

(d)If the debit provisions  did enable overdraft interest to be charged,   Mr Kerr and the other defendants can seek relief under ss 120 and 127 of the Credit Contracts and Consumer Finance Act 2003. Those provisions enable relief whenever a party is seeking to exercise a right “in an oppressive manner”. Ultimately, this is not an issue that can be determined on a summary judgment application.

[472]          In my view, the defendants blur the distinction between the interest rates agreed to apply to drawdowns under the LPC and PHL Facilities (simple and default interest) and the obligation to pay overdraft interest at the bank’s usual rate on the current accounts under the separate terms and conditions applicable to those accounts. These terms and conditions were not part of the Facility Agreements. As such, the current accounts, and the terms and conditions governing their operation, sit alongside but separate to the loan facilities established and governed by the Facility Agreements.

[473]          To expand on that point, I consider that the debit account clauses clearly gave BNZ authority to debit interest payable under the Facility Agreements from the current accounts of LPC and PHL. There can be no serious argument about that.

[474]          Further, there is no basis for imposing the qualification advanced by the defendants that there must be money in the account from which the debit is made. That is not an interpretation available on the plain and ordinary meaning of the words.

[475]          Moreover, and critically, the conduct of BNZ and Mr Kerr does not support such an interpretation. There is no dispute that Mr Kerr opened the current accounts intending that loan funds would be drawn down into these accounts and interest would be paid at the end of each relevant interest period from these accounts by way of direct debit.

[476]          Mr Kerr has put in evidence a sample of the drawdown notices he received from BNZ for each loan drawdown. The drawdown notices confirm that the funds would be credited to LPC/PHL’s current account and record the following details:

(a)the amount of principal drawn down;

(b)the applicable interest rate;

(c)the interest period (expressed as ‘the term’);

(d)the maturity date;

(e)the total interest payable for that interest period.

[477]          Each drawdown notice states that principal and interest payments will be direct debited from the current account.

[478]          Therefore, Mr Kerr was aware that at the end of each interest period a known amount would be debited by BNZ from LPC and PHL’s current accounts. There is no evidence from Mr Kerr that this was not how he expected interest on the facilities to be paid.

[479]          If there were insufficient funds in the current accounts to cover the direct debit, the current accounts went into unarranged overdraft. In that event, BNZ’s Standard Terms and Conditions applied; and the agreement contained in the Account Operating Authority that “[i]n the event that such account(s) becomes overdrawn, you will pay interest at the rate(s) normally charged by the bank.” Mr Kerr agreed to these terms when he opened the current accounts.

[480]          In addition to receiving drawdown notices informing him of the amount of interest that would become payable at the end of each interest period, and that the interest would be debited from the current accounts on that date, Mr Kerr received regular bank statements for the current accounts. These statements will have shown the debit payments being made, the current accounts going into overdraft, and the overdraft interest rate being applied. Mr Rodden has put in evidence a sample of recent bank statements for the current accounts for LPC and PHL in 2018 which record the overdraft interest rate for the LPC 01 current account as the base rate of 10.450 per cent per annum plus 10 per cent, and for the PHL 00 account 20.450 per cent per annum.146

[481]          During the terms of the facilities, Mr Kerr did not raise any issue about the current accounts going into overdraft or the bank charging overdraft interest when that occurred. There is nothing in Mr Kerr’s conduct at the time to suggest that he expected that interest on the principal drawdowns would only be debited from the current accounts when they were in funds and, if so, how interest would otherwise be paid.

146 Affidavit of Dermot Michael Rodden in Reply affirmed 5 August 2021 [Second Rodden Affidavit] at [16].

[482]          I find therefore that there can be no serious argument that BNZ was not entitled to debit the LPC and PHL current accounts to pay interest under the facilities and charge overdraft interest at the bank’s usual rate if the current accounts became overdrawn. This was not a circumvention of the agreed interest rates under the facilities, but rather exactly what the facilities and the current account terms provided. Further, Mr Kerr raised no objection at the time suggesting that he expected the accounts to be managed any differently.

Are the Guarantors liable for overdraft interest?

[483]          Although I do not consider the defendants have a defence that BNZ was not entitled to charge overdraft interest, I do consider that the Guarantors have a potential defence that they are not liable as Guarantors of the facilities for this overdraft interest.

[484]          As mentioned, the Guarantors guaranteed the due and punctual payment of all amounts payable to BNZ under the Transaction Documents. The Transaction Documents are the Facility Agreements, the Securities and any other documents agreed to be Transaction Documents. I have not seen any evidence that Mr Kerr and BNZ agreed that BNZ’s Standard Terms and Conditions or the authorities governing the current accounts were to be Transaction Documents. Nor did BNZ advance that proposition. Therefore, there seems to be an argument that the Guarantors have not guaranteed PHL and LPC’s obligations to pay overdraft interest on their current accounts under these documents.

[485]          Accordingly, my orders will be that LPC and PHL are liable for the full sums claimed by BNZ, including any overdraft interest charged and now claimed. That interest was rightly charged.

[486]          However, summary judgment against the LPC Facility Guarantors and Mr Kerr as Guarantor of the PHL Facility must exclude any overdraft interest charged and claimed on the current accounts.

Mr Kerr’s counterclaim

[487]          Finally, Mr Kerr argues that summary judgment should be declined because he has a counterclaim that should be set off against any judgment against him.

[488]          The counterclaim was not pleaded in the defendants’ notice of opposition to the application for summary judgment but signalled by Mr Kerr in his affidavit sworn on 28 February 2022, after the liability hearing but before the quantum hearing.

[489]          As noted earlier, BNZ objects to this evidence. It says that the defendants have not pleaded a counterclaim or set-off in the proceeding, so Mr Kerr’s evidence is irrelevant; set-off is not available to the defendants as a defence to BNZ’s summary judgment application as each of the relevant agreements contained a no-set-off clause; and BNZ would be prejudiced if the affidavit is admitted, as there is insufficient time for it to consider and respond to it before the hearing.

[490]          I will admit Mr Kerr’s evidence because it provides essential context for consideration of his submission that summary judgment should be declined because of the counterclaim.

[491]            The classic statement of the principle behind equitable set-off is found in Grant v NZMC Ltd:¹⁴⁷

The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim into account. The link must be such that the two are in effect interdependent; judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.

[492]          In his affidavit, Mr Kerr describes a counterclaim he says he intends to make against BNZ in relation to his sale of shares in Heartland Bank in 2011. Mr Kerr explains that ‘his interests’ were the largest shareholder in Heartland Bank. Mr Kerr says that based on Mr Cornmell’s expert analysis, BNZ significantly overstated claims for principal and interest on the PHL and LPC Facilities. He alleges that as a direct

147   Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12.

result, PHL and his related entities were required to sell their stakes in Heartland Bank at a substantial discount to pay down the facilities. He says that they were required to exit their stakes in Heartland at an average price of around 45 cents per share, compared with a price of $2.30 per share at the time he swore his affidavit. In addition, dividends were forgone. He alleges that had BNZ correctly managed and communicated the PHL and LPC balances, he would never have needed to sell these shares.

[493]          In support of his counterclaim, Mr Kerr has put in evidence correspondence with Mr Downie at BNZ between September 2011 and February 2012. Key parts of this correspondence are set out at [244] to [256]. It is clear from the correspondence that Mr Kerr and Mr Downies were corresponding about both facilities. The emails record that Mr Kerr arranged for Heartland Bank shares held by the Kerr Family Trust and other entities under his control to be sold down to part pay the LPC and PHL Facilities.

[494]          I do not consider that this foreshadowed counterclaim provides me with any reason to decline to order summary judgment. It is based on Mr Cornmell’s assessment that the correct balance on the PHL Facility at the PHL Expiry Date was

$6,390,467.20, rather than the amount certified by BNZ of $19,996,354.12, and his assessment that the correct loan balance on the LPC Facility on the LPC Expiry Date was $22,697,424.47 as opposed to $23,903,277.98.

[495]          I have found there is no substance to that assessment. The LPC and PHL loan balances were not overstated by BNZ.

[496]          I note that even on Mr Cornmell’s assessment, based on the assumption that BNZ was not entitled to charge overdraft interest, the amount of principal outstanding on the LPC Facility at the relevant time was $22,697,424.47. The LPC Facility had expired on 31 May 2011 and LPC and the Guarantors were in default.

[497]          Accordingly, I do not consider that Mr Kerr’s purported counterclaim provides me with a reason to decline to order summary judgment.

Conclusions

[498]          I have found that the defendants have no defence to BNZ’s claims that they are liable as Guarantors for the amounts due and owing under the LPC and PHL Facilities, concluding that:

(a)the defendants did not contract out of the Limitation Act 2010; and

(b)they acknowledged their liability in writing to BNZ, giving rise to fresh claims.

[499]          I have also found that Mr Kerr has no defence to the claims against him under his indemnities in relation to the LPC and PHL Facilities. However, as I find him liable as Guarantor, it is not necessary to make orders against him under the indemnities.

[500]          I have concluded that Galt and Glencoe JV’s obligation to pay the Costs Award is not subject to the liability cap in the LPC Facility Agreement. As a result, LPC,  Mr Kerr and PHL are liable to pay the Costs Award as Guarantors.

[501]          I have found that the usual onus involved in a plaintiff’s application for summary judgment application is not altered by the terms of the Facility Agreements.

[502]          I have concluded that there is no merit to the defence that the amounts said to be due and owing by BNZ are wrong or uncertain. The specific issues identified by the defendants do not meet the threshold of being reasonable arguable, mainly because there is no factual foundation for Mr Cornmell’s expert assessment.

[503]          I have also found that the defendants do not have a defence that BNZ was not entitled to charge unarranged overdraft interest. However, I consider that the Guarantors have an arguable defence that they did not guarantee the Borrowers’ obligations to pay overdraft interest on their current accounts.

[504]          As a result of the conclusion that the balances according to BNZ at the facility expiry dates were correct, I find that there is no basis for Mr Kerr’s counterclaim that

he was required to sell shares to pay down the facilities based on inflated loan balances.

Orders

[505]I enter summary judgment against LPC in relation to:

(a)the first cause of action in relation to the LPC Facility;

(b)the second and third causes of action for the Costs Award;

(c)contractual interest on the above sums in accordance with the terms of the LPC Facility Agreement;

(d)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement.

[506]I enter summary judgment against Glencoe JV in relation to:

(a)the fourth and fifth causes of action for the LPC Guaranteed Indebtedness, quantified to exclude overdraft interest charged on the LPC current account, and with enforcement limited to the value of the Glencoe JV property realised at mortgagee sale;

(b)the sixth and seventh causes of action for the Costs Award;

(c)contractual interest on the above sums in accordance with the terms of the Glencoe JV Guarantee;

(d)reasonable solicitor client costs pursuant to cl 17.1 of the Glencoe JV Guarantee.

[507]I enter summary judgment against Galt, Mr Kerr and PHL in relation to:

(a)the eighth and ninth causes of action for the LPC Guaranteed Indebtedness, quantified to exclude overdraft interest charged on the

LPC current account, and with enforcement against Galt limited to the value of the Galt property realised at mortgagee sale;

(b)contractual interest on the above sum in accordance with the terms of the LPC Facility Agreement;

(c)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement.

[508]I enter summary judgment against Galt in relation to:

(a)the 10th and 11th causes of action for the Costs Award;

(b)contractual interest on the above sum in accordance with the terms of the LPC Facility Agreement;

(c)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement.

[509]I enter summary judgment against Mr Kerr and PHL in relation to:

(a)the 12th and 13th causes of action for the Costs Award;

(b)contractual interest on the above sum in accordance with the terms of the LPC Facility Agreement;

(c)reasonable solicitor client costs pursuant to cls 16.4 and 25.2 of the LPC Facility Agreement.

[510]I enter summary judgment against PHL in relation to:

(a)the 14th cause of action in relation to the PHL Facility;

(b)contractual interest on the above sum in accordance with the terms of the PHL Facility Agreement;

(c)reasonable solicitor client costs pursuant to cls 14.4 and 21.2 of the PHL Facility Agreement.

[511]I enter summary judgment against Mr Kerr in relation to:

(a)the 15th and 16th causes of action for the PHL Guaranteed Indebtedness, quantified to exclude overdraft interest charged on the PHL current account;

(b)contractual interest on the above sum in accordance with the terms of the Kerr PHL Guarantee and the PHL Facility Agreement;

(c)reasonable solicitor client costs pursuant to cls 2.2 and 13.1(b) of the Kerr PHL Guarantee.

[512]          BNZ is to file a memorandum and affidavit within 20 working days quantifying the Guaranteed Indebtedness less any overdraft interest charged and claimed for each of the LPC and PHL Facilities, together with a complete draft order.

[513]          The defendants may file a memorandum and an affidavit in response identifying any issues with the quantification of the orders by BNZ within a further 15 working days.

Associate Judge Gardiner