Beggs v North Face Construction 2022 Limited
[2024] NZHC 1254
•20 May 2024
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2023-454-90
[2024] NZHC 1254
BETWEEN CHRISTOPHER DAVID BEGGS and LEONIE FRANCES BEGGS
PlaintiffsAND
NORTH FACE CONSTRUCTION 2022 LIMITED
First Defendant
ANITA MAREE LANCASTER
Second Defendant
Hearing: 30 April 2024 Appearances:
S Barker and M Garlick for Plaintiffs S Connolly for Defendants
Judgment:
20 May 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] The plaintiffs apply for summary judgment against the first and second defendants in respect of vendor finance provided by the plaintiffs’ former company to the first defendant.
[2] The amount claimed by the plaintiffs is the outstanding sum of $574,942.22, together with interest at the default interest rate of 15 per cent per annum and costs on a solicitor-client basis.
[3] The first defendant concedes that it has not repaid the amount owed and that it has no defence to the plaintiffs’ claim for summary judgment as to liability, quantum and costs.
BEGGS v NORTH FACE CONSTRUCTION 2022 LIMITED [2024] NZHC 1254 [20 May 2024]
[4] The plaintiffs contend that the second defendant is personally liable as covenantor under a general security agreement provided as security for the loan. The second defendant disputes that she has any liability for the claimed amounts as covenantor.
[5] The issue to be determined is whether the second defendant has no defence to the plaintiffs’ claim that she is liable as covenantor under the general security agreement.
What happened?
[6] On 21 March 2022, North Face Construction Ltd (NFC) entered into an agreement to sell its business to North Face Construction 2022 Ltd (NFC22) (ASP). The second defendant, Anita Lancaster, is the sole director and shareholder of NFC22. The plaintiffs are shareholders of NFC. Christopher Beggs is also a director of NFC.
[7]The ASP provided that:
(a)Part of the purchase price would be left in by way of vendor finance and subject to certain financial performance targets;
(b)To secure the loan, NFC22 would grant in favour of NFC a first ranking general security agreement.
(c)NFC as lender and NFC22 as borrower entered into a term loan agreement for the vendor finance (Loan Agreement). The second defendant signed the Loan Agreement as guarantor.
[8] It was a condition precedent of the loan advance that “[i]f any person is named in this agreement as a guarantor, the guarantor must have signed a deed of guarantee and indemnity …”. No separate deed of guarantee was signed by the second defendant.
[9] On 31 March 2022 a form of Auckland District Law Society (ADLS) general security agreement (GSA) was entered into by NFC and NFC22, incorporating the
ADLS memorandum of general terms and conditions number 2018/4344 (General Terms) and the Loan Agreement by reference. The second defendant signed the GSA as covenantor.
[10] On 21 December 2022, NFC assigned its right, title and interest in the GSA and Loan Agreement to the plaintiffs. The second defendant signed as director of NFC22 and by herself personally.
[11] On 8 August 2023, NFC22 ceased to carry on business, a default under the GSA. On 16 August 2023, the plaintiffs sent a formal demand to the defendants for payment of the amount outstanding and payable under the Loan Agreement as at 16 August 2023, being the sum of $646,666 and for interest and solicitor-client costs.
[12] Since making the demand, the plaintiffs have exercised power of sale pursuant to the GSA against certain items of NFC22’s property, which has yielded a gross sum of $104,261.67. After accounting for legal costs and realisation costs, the net sum owed to the plaintiffs as at the date of the claim is $574,942.22.
[13] The plaintiffs contend that the second defendant is personally liable as covenantor under the GSA. The plaintiffs acknowledge that the second defendant did not provide a written deed of guarantee and do not seek summary judgment against her as guarantor. However, the plaintiffs reserve their position regarding liability as guarantor if their application for summary judgment is unsuccessful.
Legal principles – summary judgment
[14]Rule 12.2(1) of the High Court Rules 2016 (HCR) provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) 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.
[15] The principles governing summary judgment are now very well settled. In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the principles as follows:1
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 Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A [of the previous iteration of the High Court Rules; now r 12.10] the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[16] The Court will deal with questions of law on a summary judgment application,2 and this includes issues of contractual interpretation.3 This is so even where the question of law is difficult and requires argument, including reference to authority.4
[17] Further, summary judgment may be given where the interpretation of a contract is an issue. In Jowada Holdings Ltd v Cullen Investments Ltd, the Court of Appeal stated:5
This present appeal is concerned with a contract based claim in circumstances where both parties seek to rely on evidence of circumstances said to form part of the relevant context in which the contract is to be interpreted. Their evidence is in conflict. That, however, does not preclude the Court from giving summary judgment in a contract claim if it is satisfied that resolution of the factual matters in dispute is not necessary to provide the Court with such contextual background as is necessary to resolve the claim. This is simply an application of the principle that where, despite differences on
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]–[27].
2 Pemberton v Chappell [1987] NZLR 1 (CA) at 4.
3 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 at [37].
4 At [37] citing International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd [1987] 1 NZLR 9 (CA) at 16.
5 Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [29].
factual matters, the lack of a tenable defence to a cause of action is plain on the material before the Court, and the Court is sure on that point, summary judgment will normally be entered. In such circumstances there is no reason why a contract should not be interpreted and applied in summary judgment proceedings…
[18]Further, in Tegal Foods Ltd v Neal, the Court stated:6
I have noted Mr Thompson’s submission that unless a contractual interpretation advanced by a party is clearly without merit, the Court should be extremely cautious about resolving disputes about interpretation by way of summary judgment, particularly when the words of the contract do not clearly support one meaning over another. However, I consider that submission is not consistent with the observations of the Court of Appeal in Jowada Holdings that there is no reason why a contract should not be interpreted and applied in summary judgment proceedings where the lack of a tenable defence is plain on the material before the Court, and the Court is sure on that point. … The key question is not whether there is an issue of contractual interpretation but whether the Court is left with any real doubt or uncertainty about whether the defendant has a defence.
Is the second defendant liable as covenantor under the GSA?
[19] The plaintiffs note that the GSA incorporates the Loan Agreement and General Terms (at D). The plaintiffs refer to the GSA at E(b) which provides that “the covenantor by signing this GSA covenants with the secured party as provided in the general terms …”.
[20]With regard to the General Terms the plaintiffs rely on the following clauses:
(a)Clause 1(c)(ii):
the expression “party granting the security” includes all persons executing this instrument regardless of how they may be described in the instrument and … if this instrument is a security agreement as defined in the Personal Property Securities Act 1999, means the debtor as that term is defined in that Act;
(b)Clause 1(d):
“secured agreement” means every contract, agreement, arrangement, services, or facility provided or entered into by the security holder: (i) for the accommodation of any accommodated person; and/or (ii) relating to the secured money;
6 Tegal Foods Ltd v Neal [2018] NZHC 1921 at [40] (footnotes omitted).
(c)Clause 2(a)(i):
In this instrument, “the secured moneys” means: (i) all moneys which are now or at any time in the future owing by a party granting the security or an accommodated person to the security holder;
(d)Clause 3:
Covenant to pay and to comply with obligations
(a)Pay and comply: The party granting the security must:
(i) pay the secured moneys at the times and In the manner provided by any secured agreement and, to the extent that there is no such agreement, then upon demand;
(ii) comply with all of the obligations contained in every secured agreement or arrangement relating to the secured money where such obligations are:
(A)undertaken by any person liable for payment of the secured moneys; and
(B)intended to be for the benefit of the security holder; and
(iii) comply with the terms of every other security at any time held by the security holder for the secured moneys.
…
[21] The plaintiffs submit that the second defendant is a “party granting the security” as she signed the GSA as covenantor. The plaintiffs submit that the definition extends to “all persons” executing the GSA “regardless of how they may be described”. The plaintiffs further submit that the vendor finance in the Loan Agreement is “secured moneys” as it is owed by NFC22 to NFC, and the Loan Agreement is a “secured agreement” as it is signed between NFC and NFC22 and relates to the secured moneys. The plaintiffs submit that by signing the GSA personally as covenantor, the second defendant is obliged to pay the moneys in accordance with the Loan Agreement’s terms and clause 3 of the General Terms which relate to “all of the obligations contained in every secured agreement or arrangement relating to the secured moneys” and such obligations are undertaken by “any person liable for payment of the secured monies”.
[22] The plaintiffs submit that it does not matter that the second defendant did not personally sign the Loan Agreement as covenantor because she is bound by the terms of the GSA. The plaintiffs submit that the purpose of signing as covenantor is to provide the other party the benefit of a separate primary liability. The plaintiffs submit that if the second defendant’s signing of the GSA does not oblige her to pay money and perform obligations secured by the GSA, then it has no benefit and puts the plaintiffs in no better position (in relation to the second defendant) than the Loan Agreement.
[23] The plaintiffs also submit that the definition of the “party granting the security” provides that where the instrument is a security agreement has declined in the Personal Property Securities Act 1999, then the expression “party granting the security” includes the “debtor” as that term is defined in that Act. Clause 16(1)(a)(i) of that Act defines “debtor” as “a person who owes payment or performance of an obligation secured, whether or not that person owns or has other rights in the collateral”. Therefore, the plaintiffs submit that a “party granting the security” under the General Terms does not need to be the owner of the collateral or have other rights in the collateral.
Assessment
[24] The General Terms and Loan Agreement are incorporated into the GSA by reference (GSA, at D). Therefore, in interpreting the General Terms, the documents must be read together as forming part of the same contract.7
[25] Further, clause 1(c) of the General Terms (Construction of terms) provides that the definitions apply “unless inconsistent with the context”. In this case, the context includes the provisions of the General Terms, GSA and Loan Agreement, read together.
[26] The definition of “party granting the security” in clause 1(c)(ii) of the General Terms appears to include all persons who have signed the GSA , which would include the second defendant as covenantor, even though the second defendant does not own
7 Burrows, Finn and Todd on the Law of Contract in New Zealand, 7th Ed, 6.3.4(b).
or have any other rights in the collateral. However, I do not consider this is the proper interpretation of “party granting the security” in the context of this case when the documents are read together.
[27]The GSA, at C, records:
the granting of a security interest by the debtor in favour of the secured party in respect of all of the debtor’s right, title and interest in the following property (referred to as collateral);
all the debtor’s present and after acquired property, being all the
debtor’s:
(i)personal property; and
(ii)all other property
[28]The GSA, at E, provides that the GSA is in consideration of
the secured party providing, or agreeing to provide any and all of the secured moneys to the debtor or to others at the request of the debtor so that:
(a)the debtor by signing this GSA:
(i)grants the secured party a security interest in all collateral that is personal property;
(ii)mortgages to the secured party all the debtor’s estate and interest in the collateral, if any, that may be other property;
(iii)agrees that any collateral or any proceeds of collateral that come into existence after the date of this GSA will come into existence subject to the security interest granted herein without the need for any further action by any party to this GSA;
(iv)acknowledges that the debtor has received valuable consideration from the secured party, agrees that it is sufficient and attachment is immediate and is not postponed; and
(v)confirms their obligations to the secured party as set out in the general terms;
(b)The covenantor by signing this GSA covenants with the secured party as provided in the general terms; and
…
[29] E distinguishes between the debtor and the covenantor and the “obligations” of the debtor and the “covenants” of the covenantor under the General Terms.
[30] The covenants of the covenantor referred to E(b) are found in Clause 7 of the General Terms (Representations and Warranties), which distinguishes between the “party granting the security” and the covenantor. Clause 7 provides that the party granting the security and the covenantor make representations and warranties to the security holder, including that:
(a)the instrument (GSA) has been granted in accordance with the resolutions of the director and shareholders of the party granting the security (where the party is a company) and all other matters and things have been done and performed so as to authorise and make the delivery of the instrument, and the performance of the party granting the security’s obligations to the security holder, legal, valid and binding;
(b)the party granting the security lawfully owns, possesses and has rights in the collateral;
(c)no event of default has occurred and that the party granting the security has no knowledge that an event of default is about to occur nor does it reasonably suspect that an event of default will occur;
(d)if the party granting the security is a company, it is solvent; and
(e)the information provided by the party granting the security is true and accurate.
[31] It would not be necessary to refer separately to the covenantor in clause 7 if the covenantor was a “party granting the security”.
[32] Mr Barker, for the plaintiffs, submits that the use of the word “covenantor” in clause 7 of the General Terms is redundant and a hangover from earlier versions of the
General Terms which included specific clauses dealing with the liability of the covenantor.8
[33] However, I do not consider that the use of the word “covenantor” in clause 7 can be dismissed as being redundant and a hangover from earlier versions of the General Terms. It seems to me that the word “covenantor” has been included or retained in clause 7 to distinguish between the “party giving the security” and the covenantor and to identify the covenants given by the covenantor. In circumstances such as the present case, where the debtor and party giving the security is a company, it makes sense that certain representations and warranties (for example, as to insolvency) would also be given by a director or shareholder of the company as covenantor, so that the lender can sue the director or shareholder personally for any breach of the warranties.
[34] I do not agree with the plaintiffs that, if the second defendant’s signing of the GSA as covenantor does not oblige her to pay money and perform obligations secured by the GSA, the GSA has no benefit and puts the plaintiffs in no better position in relation to the second defendant than the Loan Agreement. By signing the GSA as covenantor, the second defendant has given representations and warranties as set out in clause 7 of the General Terms and may be personally liable to the plaintiffs for any loss suffered as a result of breach of those representations and warranties.
[35] Further, reading the documents together, there are clauses in the General Terms which would not make sense if the “party granting the security” was interpreted to include the covenantor under the GSA. For example, clause 4(c) of the General Terms states that “[i]f this instrument is a general security agreement over all of the property of the party granting the security then the party granting the security grants to the security holder a security interest … in and over (I) … all its personal property and (ii)… all its real property … and (iii)… all its other property of any kind.” If the expression “party granting the security” included the covenantor, then clause 4 would have the effect that the covenantor’s property would also be collateral and the covenantor would also be granting a security interest. However, it is clear from the
8 For example, see BW Herbert Ltd v Herbert [2020] NZHC 2717 at [21] and [40].
Loan Agreement and C and E of the GSA that it is only the debtor’s property which is collateral and only the debtor grants a security interest in that property.
[36] If the plaintiffs’ interpretation was correct then, by signing the GSA as covenantor, the second defendant would, without any other notice, be assuming primary liability for the loan amount under the Loan Agreement, pursuant to clause 3 of the General Terms. I do not consider this can be the proper interpretation of the documents. If it was intended that primary liability was to be imposed on the covenantor by signing the GSA, then it would be expected that the covenantor would be expressly referred to in clause 3, as in clause 7 of the General Terms, or there would be a specific provision to this effect. There is no such provision in the General Terms,
GSA or the Loan Agreement. 9
[37]For the reasons set out above:
(a)I find that the second defendant is not a “party granting the security” under the General Terms; and, therefore,
(b)I am not satisfied that the second defendant has no defence to the plaintiffs’ claim.
Result
[38]Summary judgment is granted for the plaintiffs against the first defendant for:
(a)the sum of $629,608 made up as follows:
(i)the principal sum of $646,666;
(ii)interest at the default interest rate of 15 per cent per annum on
$646,666 from 16 August 2023 to 20 October 2023 in the sum of $17,273.95;
9 An example of such a clause used in a form of ADLS Term Loan Agreement is referred to in Regan and Tuffin as Trustees of the Winchester Trust v Brougham [2017] NZHC 1091 at [13]. See also B W Herbert Ltd v Herbert above n 8 at [21].
(iii)realisation costs in the sum of $8,240.17;
(iv)less realisations to date in the sum of ($104,261.67);
(v)interest at 15 per cent per annum on $542,404.33 from 21 October 2023 until 30 April 2024 in the sum of $42,797.93; and
(vi)legal costs on a solicitor-client basis in the sum of $18,891.57;
(b)interest at the default rate of 15 per cent per annum on $542,404.33 from 1 May 2023 until the date of payment.
[39] The plaintiffs’ claim for summary judgment against the second defendant is dismissed.
[40] With regard to costs, the plaintiffs have been successful against the first defendant but unsuccessful against the second defendant. The parties should endeavour to agree costs. However, if agreement cannot be reached, then memoranda may be filed (not exceeding three pages – excluding costs schedules) and costs will be determined on the papers.
[41] The matter is to be listed in the next Associate Judge’s chambers list for Palmerston North for directions to be given as to the progress of the substantive proceeding. The parties are to file a joint memorandum or separate memoranda three working days in advance of the conference seeking appropriate directions and addressing all relevant matters in sch 5 to the High Court Rules 2016.
Associate Judge Skelton
Solicitors:
Buddle Findlay, Wellington for Plaintiffs
Wakefields Lawyers Ltd, Paraparaumu for Defendants
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