Beneficial Finance Ltd v Brown
[2017] NZHC 964
•12 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000983 [2017] NZHC 964
BETWEEN BENEFICIAL FINANCE LIMITED
Plaintiff
AND
SUSAN CLARE BROWN First Defendant
AND
AIDAN MCALISTER BARR Second Defendant
Hearing: 10 April 2017 Appearances:
A W Johnson for Plaintiff
S D Campbell for First Defendant
No appearance for Second DefendantJudgment:
12 May 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
[on plaintiffʼs summary judgment application]
Introduction
[1] The plaintiff, Beneficial Finance Ltd (Beneficial) is a finance company. The defendants were associated with NZ Clean Energy Systems Ltd (Clean Energy). Clean Energy was put into liquidation by its shareholders on 9 June 2016.
[2] Clean Energy had been a trading company. It wanted to obtain immediate finance for working capital when customers placed orders for its systems. In May
2014 and June 2015, it entered into factoring agreements with Beneficial. The parties called them “Invoice Financing Agreements”. The agreements were in materially identical terms. I will generally refer to the second agreement only as that
is the agreement on which Beneficial sues (the contract).
BENEFICIAL FINANCE LIMITED v BROWN [2017] NZHC 964 [12 May 2017]
[3] Clean Energy’s obligations under the contract were guaranteed by the two defendants and others. Susan Brown was, when the contract was entered into, the director, chief executive and a shareholder of Clean Energy.
[4] Beneficial asserts that when Clean Energy was placed in liquidation it was indebted to Beneficial under the contract (and continues to be).
[5] In this proceeding, Beneficial sues two of the guarantors and seeks summary judgment.
[6] Ms Brown defends the proceeding and opposes summary judgment. The other guarantor sued, Aidan Barr, has taken no step in the proceeding.
[7] By its statement of claim and evidence in support, Beneficial asserted that the debt owed by the defendants was $374,300.94 together with interest accruing on a compounding basis. By an updating affidavit filed shortly before the hearing, Beneficial identified the debt as $299,370.90 at the date of hearing.
The issues
[8] It is common ground between Beneficial and Ms Brown that the contract binds the parties and that is the terms of the contract which are to be applied.
[9] Ms Brown by her notice of opposition asserted that she has an arguable defence for three reasons:
The correct plaintiff issue
(a) It was Financial Holdings Ltd (Financial) and not Beneficial which lent the money to Clean Energy – it is Financial (not Beneficial) which has suffered any loss – only Financial may sue.
The variation issue
(b)Beneficial (through one Ian McLaren), without the knowledge or consent of Ms Brown, varied the contract by permitting Clean Energy
to retain borrowings and to not pay accrued interest – Ms Brown invokes the doctrine of discharge or avoidance by material alteration and additionally asserts that any variation was oral and therefore precluded by the express terms of the contract.
The quantification issue
(c) Beneficial has failed to provide evidence which adequately verifies the alleged debt.
The contract
Entry into the contract
[10] Beneficial and Clean Energy entered into the contract around 10 June 2015. As between those parties, it was materially identical to the May 2014 contract previously in existence. What changed were the guarantee arrangements. The liability of one guarantor (Antony Rains) was surrendered. The liability of another guarantor (Peter Summerfield) was limited to a sum of $50,000 and to a period of two years. Ms Brown and Mr Barr remained as unlimited guarantors.
The terms of the contract
[11] Material terms of the contract were:
Parties
1 NZ Clean Energy Systems Limited (Company No: 3900116)… (“the
Borrower”), and
2 Beneficial Finance Ltd (Company No: 85259)… (“the Lender”),
and
3Aidan McAlister Barr…, Ian Thomas McLaren…, Peter John Summerfield… and Susan Clare Brown… (together “the Guarantor”).
…
1. DEFINITIONS
1.1 In this Agreement:
…
“Applicable Rate” is 12.95% per annum calculated daily.
…
“Receivables” are all existing and later arising accounts receivable, chattel paper, contract rights, rights to payment and other obligations owed to Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision or services, along with all credit insurance, guarantees, letters of credits or other security associated therewith and all merchandise returned or reclaimed by Borrower relating to any of the foregoing and any proceeds therefrom.
…
“Reconciliation Period” is each calendar month.
…
2. FINANCING OF RECEIVABLES
…
2.2.Acceptance of Receivables; Advances: … When Lender accepts a Receivable, within 5 days thereafter, Lender will lend to Borrower an amount equal to the Advance Rate times the face amount of the Receivable (the “Advance”)…
…
3.COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES
The Obligations shall be subject to the following fees and Finance Charges. Fees and Finance Charges may, in Lender’s discretion, be charged as an Advance, and shall thereafter accrue fees and Finance Charges as described below. Lender may, in its discretion, charge fee and Finance Charges to Borrower’s deposit account maintained with Lender.
3.1.Collections: Collections of each Financed Receivable will be credited by Lender within one business day of its receipt against the Advance made with respect to such Financed Receivable. As long as there is not an event of Default, or an event that with notice of lapse of time will be an Event of Default, within 3 business days of Lender’s receipt of any Collections, Lender will use its best efforts to remit to Borrower within 3 days after payment has been made to the Lender Trust Account in Section 3.9 the difference of (i) the amount of Collections in excess of the amount for which Lender has made an Advance to Borrower for such Financed Receivable, plus any amount received for Receivables other
than Financed Receivables, minus (ii) any amount then due and owing to lender hereunder, such as outstanding fees, expenses or otherwise. This Section does not impose any affirmative duty on Lender to do any act other than to turn over amounts. All Receivables and Collections are Collateral and if an Event of Default occurs, Lender need not remit Collections of Collateral and may apply them to the Obligations.
3.2.Finance Charges: In computing Finance Charges on the Obligations, all Collections received by Lender shall be deemed applied by Lender on account of the Obligations within one business day after receipt of the Collections. Borrower will pay a finance charge (the “Finance Charge”, of (i) the Applicable Rate times (ii) the number of days in the Reconciliation Period divided by 360 days times (iii) the outstanding average daily Financed Receivable Balance for that Reconciliation Period. After an Event of Default, Obligations accrue interest at 5 percent above the Applicable Rate effective immediately before the Event of Default
3.3. Commitment fee: [omitted deliberately].
3.4.Collateral Handling Fee: On each Reconciliation Day under Section 3.9, Borrower will pay to lender a collateral handling fee, equal to 1% of the aggregate Financed Receivables immediately prior to the Reconciliation Day, any adjustment occurring in an amended direct debit for the following Reconciliation Period which (under Section 5) the Borrower authorises the Lender to make with the Borrower’s bank (the “Collateral Handling fee”).
3.5. Early Termination fee: [omitted deliberately].
3.6.Accounting: After each Reconciliation Period, Lender will provide an accounting of the transactions for that Reconciliation Period, including the amount of all Financed Receivables, all Collections, Adjustments, Finance Charges, and the Collateral Handling Fee. If Borrower does not object to the accounting in writing within 30 days it is considered correct. All Finance Charges and other interest and fees calculated on the basis of a 360 day year and actual days elapsed.
3.7.Deductions: Lender may deduct fees, finance charges and other amounts due from any Advances made or Collections received by Lender.
…
4. REPAYMENT OF OBLIGATIONS
…
4.2Repayment on Event of Default: When there is an Event of Default, Borrower will, if Lender demands (or, in an Event of Default under Section 9(b), immediately without notice or demand from Lender) repay all of the Advances…
…
9. EVENTS OF DEFAULT
Any one or more of the following is an event of default:
(a) Borrower fails to satisfy or pay any Obligation to Lender when due:
(b) Borrower files or has filed against it any Insolvency Proceedings or any assignment for the benefit of creditors, or appointment or a receiver, liquidator, assignee or custodian for any of its assets:
…
10. REMEDIES
10.1Remedies Upon Default: When an Event of Default occurs, (1)…; (2) at Lender’s option and on demand, all or a portion of the Obligations or, for an Event of Default described in Section 9(b), automatically and without demand, are due and payable in full…
…
10.3Default Rate: If any obligation is not paid when due, the amount of such unpaid Obligation bears interest at the Applicable Rate plus 5 percent until the earlier of (a) payment in cleared, non-reversible funds or (b) entry of a final judgment when the principal amount of any money judgement will accrue interest at the highest rate allowed by law.
11. FEES, COSTS AND EXPENSES
The Borrower will pay on demand all fees, costs and expenses (including legal and professional fees with costs and expenses) that the Lender incurs from:
…
(c) enforcing any rights against Borrower or any guarantor, or any Account Debtor,
…
16. AMENDMENTS IN WRITING, ENTIRE AGREEMENT
All amendments to this Agreement must in (sic) in writing. This Agreement is the entire agreement about this subject matter and supersedes prior negotiations or agreements.
…
23. GUARANTEE AND INDEMNITY
23.1In consideration of the Advance by the Lender to the Borrower, the Guarantor guarantees to the Lender, and indemnifies the Lender against loss incurred by the Lender from a breach in the due and punctual payment of the Advance and the observance and performance of the Borrower’s obligations under this Agreement and the security granted in favour of the Lender for the payment of the Advance. The Guarantor is liable under this guarantee and this Agreement as if it were the sole principal debtor and not merely a surety. The Guarantor agrees that no indulgence, granting of time, waiver or forbearance to sue or any other thing whereby the Guarantor would be released as a surety or otherwise shall in any way release the liability of the Guarantor under this Agreement. The guarantee under this clause 23 is in addition to and not in substitution for or in replacement of any guarantee and indemnity granted by the Guarantor as part of its security for the Advance and if given by more than one person is a joint and several guarantee with those other Guarantors.
…
Performance – Beneficial’s evidence
[12] Ronesh Chand is the General Manager of Financial. He gave the initial
affidavit in support of Beneficial’s summary judgment application.
[13] Mr Chand deposes that Financial is the bare trustee for Beneficial. He says that Financial has the responsibility “on the file” and Mr Chand deposes that he has overall control of “the loan”.
[14] Mr Chand’s affidavit contained the usual verification of the contents of the statement of claim. The statement of claim alleges that Clean Energy and the guarantors failed to repay advances as required by the contract, with advances of
$374,300.94 owing at 9 June 2016.
[15] Mr Chand exhibited letters of demand dated 26 July 2016 issued to Ms Brown and Mr Barr. The demands were on the head-note of Financial. Each letter demanded payment to Financial’s identified bank account. The letters commenced under a heading “Invoice Finance Facility” and continued:
NZ CLEAN ENERGY SYSTEMS LIMITED is indebted to us in the amount of $374,300.94 as per the attached statement.
[16] Mr Chand exhibited to his affidavit (impliedly as the “attached statement”) a two-page statement headed “Loan Trial Balance as at 09/06/2016”, recording 45 loans amounting to a total “settlement” sum of $374,300.94.
[17] Mr Chand concluded his affidavit:
I confirm that as at the date of swearing this affidavit [29 September 2016], the demands have not been met by the Defendants. As I have indicated above, there is no defence available to the Defendants in relation to the claim against them. This affidavit is accordingly sworn in support of the Plaintiff’s application for summary judgment.
Performance – the evidence for Ms Brown
[18] Ms Brown’s affidavit in opposition was filed in support of the three grounds of opposition which I have identified at [9] above.
[19] In her evidence, Ms Brown accepted that Clean Energy had received advances. But she deposed:
I understand that the advances paid under the Agreements were paid by [Financial] and not by [Beneficial]. This is despite both agreements being only between [Beneficial] and [Clean Energy]. Attached … is an example from 5 June 2015 of a factoring request to [Financial] (Ronesh Chand) along with the assignment of [Clean Energy’s] interest in the invoices to [Financial]. [Beneficial] is not mentioned and is not a party to these arrangements.
[20] Ms Brown has correctly described the documents exhibited – the documents do not identify Beneficial.
[21] Ms Brown’s solicitors (Wynn Williams) wrote to Financial on 19 August
2016 in response to the July 2016 demand. Ms Brown exhibited the letter. It records:
The information you have provided in that [demand] is insufficient to allow us to properly advise our client.
Please advise us with the following documents and information:
a. Copies of the fully signed Guarantees … referred to in your letter
and the Invoice Financing Agreement.
b.We do not understand the calculations in the spreadsheet attached to your letter. Would you please explain how the figures in your spreadsheet have been calculated by specific reference to the relevant clauses in the Invoice Financing Agreement.
c.We understand Beneficial Finance Ltd was the financier. Please explain why you believe Financial Holdings Ltd has a claim against our client since it is not a party.
[22] On 29 August 2016, Financial’s Chief Financial Officer, Kane Oldham, emailed a reply to Wynn Williams. By the email, Mr Oldham attached the two agreements. In relation to Wynn Williams’ request for explanation of the calculations, Mr Oldham stated simply, “The interest, and fee-calculations are described accordingly”. In relation to the status of Financial, Mr Oldham stated, “I confirm that the debt is in the name of Beneficial Finance Ltd (“BFL”). Financial Holdings Ltd acts as a bare trust in this matter”.
[23] By email dated 6 September 2016, Wynn Williams sought further information from Mr Oldham, in these terms:
1.What are the Guarantees dated 30 April 2014 and 10 June 2015 you refer to in your letter of 26 July 2016?
2.The Invoice Financing Agreement does not assist in deciphering the calculations in the spreadsheet attached to your letter. How do the calculations in the spreadsheet match up with the fee and interest clauses in the Invoice Financing Agreement? It appears to us that the calculations may not reflect what has been agreed in the Invoice Financing Agreement. Would you please explain how you calculated these figures by specifically referring to the fee and interest clauses in the Invoice Financing Agreement.
3.You have advised that Financial Holdings Limited is acting as bare trustee but that the debt is in the name of Beneficial Finance Limited. Please provide us with documentation reflecting that
arrangement because the Invoice Finance Agreement does not refer to Financial Holdings Limited.
[24] On 8 September 2016, Mr Oldham replied by email to Wynn Williams stating:
The invoice finance agreement makes reference to Guarantees and Indemnity under section 23. Clauses 23.1 to 23.6. The counterparties have signed as joint and several guarantor.
With respect to fees and interest. Clause 3 covers Finance Charges and Fees. Definitions clause 1.1 makes reference to the “applicable rate” which is specified at 12.95%. Clause 3.4 refers to a 1% collateral handling fee, and the “Reconciliation Period”. The facility fee was reduced to .50% during September 2015 by mutual agreement when we first became aware that NZ Clean Energy were having problems getting paid by Stonewood Homes CHCH.
From April 2014 up until NZ Clean Energy Systems Ltd was put into liquidation in June, we have received no communication from the Company that there was any dispute over the way in which interest, and fees were accounted for. During this time 163 accounts have been settled.
The debt is in the name of Beneficial Finance Ltd (“BFL”). Financial
Holdings Ltd (“FHL”) simply acts as a bare trust in this matter.
Subsequent to our last communication we anticipate the amount owing will reduce by $50,000 from the end of his month, as we have received a settlement offer from Peter Summerfield’s lawyer which we will accept.
[25] Ms Brown deposes that she received no further information from Beneficial or Financial after the 8 September 2016 Oldham email. Beneficial commenced this proceeding three weeks later. Ms Brown does not suggest that she or Wynn Williams went back to Mr Oldham with further queries following his 8 September
2016 email.
[26] Ms Brown in her evidence deals with the three issues she raises in opposition.
Issue 1: the correct plaintiff issue
[27] Ms Brown states she has “seen no evidence to confirm that trustee relationship [between Beneficial and Financial] actually existed at the time any advances were paid by [Financial]”. Further, she records that she has in any event provided no guarantee in favour of Financial.
Issue 2: the variation issue
[28] Ms Brown deposes that although Mr McLaren retired as a director in
November 2012:
…Mr McLaren remained intimately involved in the management of the company and ultimately controlled the company.
[29] Later in her affidavit, Ms Brown deposes:
At all times the company was managed by Mr McLaren; he was effectively a shadow director. It was Mr McLaren who I reported to when I first became an employee of [Clean Energy] and he regularly made managerial decisions without my knowledge or consent, including financing decisions which gave rise to this proceeding.
[30] Ms Brown deposes that she understands that Mr McLaren had a close business relationship with Mr Oldham (a director and shareholder of both Beneficial and Financial). She says that she was “often kept in the dark by Mr McLaren despite being a director, shareholder and guarantor under the Agreements”.
[31] Under a heading “Varied Agreement”, Ms Brown continues:
Varied Agreement
15.Without my knowledge or consent, Messrs McLaren and Oldham agreed to materially vary or avoid clause 4.1 of the Agreement but allowing [Clean Energy] to retain receivables without paying these on to [Beneficial] once received as is required under the Agreement. In effect, Messrs McLaren and Oldham agreed that [Clean Energy] would retain funds and capitalise them on top of [Clean Energy]’s outstanding debts to [Beneficial].
16.The effect of this was to significantly increase the debt burden. This was agreed to without my knowledge or consent. I did not, and would not, provide any form of guarantee for such an arrangement which allowed [Clean Energy] to incur significant liability, especially given the poor financial position it was in. I raised by concerns around this issue in a 27 June 2015 Status Report…
17.Because my consent was not sought for this arrangement and because [Beneficial] and [Financial] have been unable to provide any detailed reconciliation of how the sum claimed has been quantified, I have no idea of exactly when this varied agreement was entered into. Nor do I have any understanding of what amount (if any) was properly owed by [Clean Energy] to [Beneficial] pursuant to the agreements prior to the varied agreement being entered into.
18.Mr McLaren and Mr Oldham appear to have managed this financing arrangement without any concern for the guarantors or the creditors of [Clean Energy]. The fact that Mr McLaren has not been named as a defendant raises concerns that he may have been dealt with more favourably by [Beneficial]/[Financial] as a guarantor as a result of his business relationship with Mr Oldham.
[32] For Ms Brown, Mr Campbell further submitted that any oral agreement varying the contract in the way described in Ms Brown’s affidavit (above at [31]) was in breach of clause 16 of the contract – because it was not in writing. As a consequence, it could not have been the intention of the parties that the guarantors were continuing to guarantee the performance of contractual obligations when lending and repayment were now taking place on orally varied terms.
Issue 3: the quantification issue
[33] Under a heading “Failure to Quantify Claim”, Ms Brown deposed:
19.To date neither [Beneficial] nor [Financial] have been able to explain how their claim has been quantified in terms of principal, interest, fees and charges etc. [Financial] have provided a Loan Trial Balance document as at 9 June 2016… however the figures do not appear to reflect the terms of the agreements.
20. I instructed my solicitors to seek clarification on this issue. See the
letter sent to Mr Oldham… as well as the email to Mr Oldham dated
6 September 2016… Mr Oldham responded on 8 September
2016…simply paraphrasing what the terms of the agreement says
without any calculations as to how the quantum was reached.
Beneficial’s reply evidence
[34] Beneficial filed a reply affidavit of Kane Oldham, its Chief Financial Officer. He deposed that Financial acts as bare trustee and agent for Beneficial.
[35] Mr Oldham replied in relation to the three grounds of opposition.
Issue 1: the correct plaintiff issue
[36] Mr Oldham referred to a process which Beneficial has used since it commenced business in 1996 by which it channels money to its borrowers under its factoring arrangements. He deposes that the process has the following steps:
(a) Beneficial enters into a contract with its borrower;
(b)The borrower assigns to Financial the value of invoices and undertakes immediately to pay to the account of Financial the assigned proceeds from the invoiced customers;
(c) Beneficial transfers the loan finance to Financial which transfers it to the borrower;
(d) Financial takes an assignment of the invoice;
(e) The borrower gives Financial access to its bank account; and
(f) As money comes into the borrower’s bank account, Financial direct debits the money into its own account and, at the end of each day, transfers the net money received into Beneficial’s bank account.
[37] Mr Oldham exhibited sample sets of 2015 documents involved in the process he has described. The documents included a letter dated 20 May 2015 sent by Financial to Clean Energy. The letter is addressed to:
Sue Brown
NZ Clean Energy Systems Ltd – Invoice Finance
PO Box 31042
Ilam
Christchurch 8444
[38] The letter refers to the invoiced sums owed by four customers whose invoices had been assigned. The letter commences:
Financial Holdings Ltd gives you notice that it has taken an Assignment of the invoice agreement/s noted below as trustee for: Beneficial Finance Ltd.
Issue 2: the variation issue
[39] Mr Oldham referred to the variation issue in a single paragraph:
I am advised that the defence based on material variation, is primarily a legal issue. It is relevant, however, to refer the Court to clause 23 of the 2015
Financing Agreement… That clause confirms the guarantors are liable under
the guarantee and agreement as if they were the sole principal debtor, not
merely as a surety. The clause also confirms that the guarantor agrees that no indulgence, granting of time, waiver or forbearance to sue, or any other thing whereby the guarantor would have been released as a surety or otherwise shall in any way release the liability of the guarantor under the agreement.
Issue 3: quantification of the claim
[40] Mr Oldham exhibited a more detailed version of the 9 June 2016 balance statement which had been attached to the demands made upon the guarantors. The new spreadsheet breaks down the interest calculations on the 45 invoices for each month up to the date of Mr Oldham’s affidavit (16 December 2016), commencing at the last day of the month following execution of the contract (30 June 2016). Set out at the bottom is a calculation of the balance debt owing in these terms:
Original debt $374,300.94
Less Summerfield – full and final $50,000.00
Less Ian McLaren - $5,000/mth (agreed) $57,195.55
Interest accrued to 16/12/2016 at 12.95% $21,100.74
Balance owing at 16/12/2016 $288,206.13
Note. We have suspended the 1% monthly invoice financing fee. Interest is accrued at 12.95% monthly in accordance with the IF agreement.
[41] Mr Oldham explained that Beneficial has entered into arrangements with two other guarantors, namely Mr Summerfield and Mr McLaren. He deposes that Mr Summerfield has paid $35,000 which has been accepted in full and final satisfaction of his liability, with the remaining $15,000, for which he would have otherwise been liable (pursuant to his capped liability), written off. Mr Oldham deposes that Mr McLaren has paid $57,195.55 and is now paying $5,000 per month towards the debt.
[42] Mr Oldham deposed that the figures in the Loan Trial Balance are generated through Beneficial’s computer software and that (as at 16 December 2016) the amount outstanding including interest, was $288,206.13.
Beneficial’s “updating evidence”
[43] By his “updating affidavit”, Mr Oldham produced loan trial balance figures updated to 10 April 2017. In relation to what were now 31 remaining loans, Mr Oldham deposes that the total debt (including accrued interest) is $299,370.90.
Ruling on “Updating Evidence”
[44] Mr Oldham’s “updating affidavit” was filed on 4 April 2017.
[45] To the extent it contained evidence (referred to at [42] above) as to the balance of the debt updated to the date of hearing (10 April 2017) it was appropriately filed as an updating affidavit. Three pages of Mr Oldham’s exhibit contained the loan trial balance through to 10 April 2017.
[46] Beyond providing that updating evidence, Mr Oldham included in the narrative of his affidavit further explanation “to assist the Court in understanding that debt sum”. He exhibited printouts of “Loan Ledgers” which provided for the first time details of charges and fees (in addition to interest) charged on each invoice advance.
[47] To the extent that information was provided by Mr Oldham, it was not truly “updating” information. It was provided very close to the hearing at a time when (if the hearing was to proceed) meaningful analysis of the detail and appropriately amended opposition was no longer feasible. The affidavit was filed more than three months after Beneficial’s reply affidavit.
[48] For convenience, I heard at the commencement of the hearing submissions as to whether the non-reply aspects of Mr Oldham’s “updating affidavit” should be read. I reserved my ruling to be given in the context of this judgment.
[49] I conclude that it would be inappropriate to read in the context of the summary judgment application any part of Mr Oldham’s 31 March 2017 affidavit other than paras [1] – [3] and paras [8.1] – [8.2] together with pages 12 – 14 of the exhibit. Those contain legitimate updating information.
[50] The balance of the affidavit is not to be read – it constitutes material which, if it was to be relied upon by the plaintiff as supporting the summary judgment application, should have been provided at the outset. For the most part it provides a more detailed statement of account of the nature which Ms Brown’s solicitors had unsuccessfully requested before the commencement of the litigation.
Discussion of substantive issues Issue 1: the correct plaintiff issue Beneficial’s case
[51] Beneficial sues for payment of guaranteed debt. It relies on the contract by which it agreed to provide a facility to Clean Energy for the purposes of Clean Energy’s working capital.
[52] The evidence indicates that as Clean Energy presented invoices, Beneficial met its obligations by providing funds to Clean Energy on the security of those invoices. Throughout its dealings with Clean Energy, Beneficial utilised the services of Financial both to process payments and to act as the assignee of security.
[53] Beneficial’s deponents describe the role of Financial as that of a bare trustee for Beneficial. Ms Brown was aware of a trust relationship between Financial and Beneficial when the (June 2015) contract was executed – the 20 May 2015 letter (above at [36] – [37]), which she personally received from Financial, expressly recorded the fact that Financial would hold the assigned invoices as trustee for Beneficial.
[54] On 27 June 2015, Ms Brown wrote a Status Report as Chief Executive Officer. She recorded that she was awaiting the signed Finance Agreement from Mr Oldham. Under “Financial Situation” she recorded: “We owe [Beneficial] significant amounts of money now for factoring that we have been paid for …”.
[55] The evidence is that Beneficial’s funds advanced on the security of each
invoice passed through Financial to Clean Energy.
Ms Brown’s opposition
[56] For Ms Brown, Mr Campbell encapsulated the ground of opposition in one paragraph of his synopsis:
… she only guaranteed the obligations of [Clean Energy] to [Beneficial]. All funds were advanced by Financial …, not [Beneficial]. [Clean Energy] therefore has no liability under either the [2014] Agreement or the 2015
Agreement, with the result that Ms Brown’s guarantee is not engaged.
[57] Mr Campbell further submitted that Beneficial had failed to provide supporting evidence as to the existence of the alleged trust relationship and the arrangements in relation to assignment.
Discussion
[58] Beneficial’s claim is for repayment of a debt, which guarantors agreed to repay in the event of default. The evidence establishes that Beneficial’s money was advanced to Clean Energy pursuant to the contract.
[59] This ground of opposition of Ms Brown proceeds on the false premise that the funds advanced to Clean Energy were those of Financial and not Beneficial. In his written synopsis, Mr Campbell further developed his submission as to the right to sue by asserting:
Rudimentary trust law dictates that [Financial] remains the true party so far
as [Clean Energy] and the guarantors were concerned…
[60] Mr Campbell submitted that, if the role of Financial was as bare trustee for Beneficial, the right to enforce obligations in relation to any debt created lay with Financial.
[61] Central to this litigation is Beneficial’s agreement to lend sums to Clean Energy and the fact that Beneficial subsequently advanced sums which were received by Clean Energy. Ms Brown’s Status Report of 27 June 2015 (above at [54]) contained her recognition that it was to Beneficial that Clean Energy owed “significant amounts of money” pursuant to the “Finance Agreement”. The exhibits also show that, in the month that the June 2015 contract was entered into, Ms Brown
was personally receiving Financial’s correspondence in which Financial recorded
that it was taking an assignment of particular invoices as trustee for Beneficial.
[62] The evidence indicates (through statements made both by and to Ms Brown around the time the June 2015 contract was executed) that both parties to the contract were aware that Beneficial was using Financial as a conduit, both for making payments to Clean Energy under the Invoice Financing Agreements and for taking the invoice securities. On that basis Financial did not become at any point the beneficial owner of the funds advanced through it. If Financial’s role were to be viewed as that of agent, ownership would have remained with Beneficial. Ownership (both legal and beneficial) remained with Beneficial until Clean Energy received the money, at which point a debt was created. Alternatively, if Financial’s role involved a trust obligation to receive and pass on the funds to be advanced, it was a bare trust in which Financial’s obligations (and legal entitlements) came to an end when it discharged its role by paying the money to Clean Energy. At that point there would have existed a debt to Beneficial in terms of the contract.
[63] On this basis, I would have found that Ms Brown’s first ground of opposition failed.
Issue 2: the variation issue
[64] Counsels’ submissions identified two distinct issues arising in relation to the variation of arrangements under the Invoice Financing Agreements. The first arises under clause 16 of the contract (set out above at [11]), which provided that all amendments to the contract must be in writing. The second involves the doctrine of discharge or avoidance by material variation.
Ms Brown’s opposition
[65] In his written synopsis, Mr Campbell referred to Ms Brown’s evidence as to the “varied agreement” (quoted above at [31]). In particular, Mr Campbell identified Ms Brown’s evidence that Mr McLaren (of Clean Energy) reached an agreement with Mr Oldham (of Beneficial) to alter the contractual requirements by permitting Clean Energy to retain receivables paid to it. Mr Campbell submitted that the effect
of such an arrangement was to significantly increase Clean Energy’s indebtedness
because it allowed debts to compound (outside the express terms of the contract).1
[66] Mr Campbell’s submission is that such arrangement amounted to an amendment to the contract which, by clause 16 of the contract, was required to be in writing. As a consequence, the guarantors cannot be taken to have guaranteed payment of debt when the debt now sued for arises, at least in part, as a consequence of oral variations of contract which the parties, by the contract, had agreed would not take place.
Beneficial’s case
[67] Mr Johnson, in his synopsis, did not directly address this point or refer to clause 16.
[68] In his oral submissions, Mr Johnson submitted that the requirements of clause
16 did not undermine Beneficial’s entitlement to enforce guarantee liabilities as it is
generally open to parties to a written contract to vary the contract by oral agreement.
Discussion
[69] Counsel did not refer me to any authority in relation to a provision such as contained in clause 16 of the contract.
[70] A leading New Zealand commentary which is consistent with at least the starting point of Mr Johnson’s submission is that contained in Burrows’ Law of Contract in New Zealand where Professor Burrows states:2
19.3 Variation of contract and waiver
19.3.1 General
A contract once made can be varied by agreement between the parties. They can add terms, omit terms, or alter terms. There is authority that a clause of a contract cannot validly provide that the terms of the contract cannot be
1 Clause 4.1 of the Contract stipulated dates for Clean Energy’s repayment of advances by
reference to the payment of receivables.
2 Burrows, Finn and Todd (ed) Law of Contract in New Zealand, (5th ed, LexisNexis, Wellington,
2016) at 19.3.1.
varied: it must logically be open to the parties to revoke that clause. In other words, a contract cannot be entrenched for all time contrary to the mutual wishes of the parties.
(footnotes omitted).
[71] The authority referred to in the third sentence is a decision of the Court of
Appeal of Ontario in Shelanu Inc v Print Three Franchising Corp.3
[72] The topic of clauses prohibiting oral amendment is also addressed by Edwin Peel in the current edition of Treitel on the Law of Contract, in the following passage:4
A contract may contain a term stipulating that it cannot be modified or varied unless in writing. Such terms cannot entirely prevent an oral variation since “there is no reason why the contract, including the clause requiring variation to be in writing, could not have been varied orally.” It is, ultimately, a question of the intention of the parties.
(footnotes omitted).
[73] The quotation included in the Treitel passage is taken from the judgment of the English Court of Appeal in Westbrook Resources Ltd v Globe Metallurgical Inc.5
The authority cited as to the intention of the parties is the English decision in Virulite
LLC v Virulite Distribution Ltd.6
[74] There has been a significant consideration of clauses prohibiting oral amendment in a number of recent decisions of the English Courts. Several are footnoted in the Treitel passage to which I have referred. While I have not been referred by counsel to a similar body of discussion in New Zealand, I regard the developing English approach as likely to be applied also in New Zealand. It is sufficient that I refer to but one of the recent English judgments, that of
Stewart-Smith J in Virulite. His Lordship there dealt with a distribution and license
3 Shelanu Inc v Print Three Franchising Corp (2003) 226 DLR (4th) 577 (Ontario CA).
4 Edwin Peel Treitel on The Law of Contract (14th ed, Sweet & Maxwell, London, 2015) at [5-
036].
5 Westbrook Resources Ltd v Globe Metallurgical Inc [2009] EWCA Civ 310; [2009] 2 Lloyd’s
Rep 224 at [13].
6 Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366 (QB); [2015] 1 All ER (Comm) 204 at [60].
agreement which (following an “entire agreement” provision) contained a clause, providing:7
This Agreement shall not be modified in anyway except by a subsequent written instrument signed by both parties.
[75] Stewart-Smith J recognised, by reference to authority, that a subsequent variation may have effect notwithstanding such a clause. His Lordship then referred to authorities which suggested either that there is an “evidential presumption” against variation being effective or that parties seeking to displace the effect of such a clause face a “very high evidential burden”. In particular His Lordship referred to the judgment of Judge Mackie QC in Globe Motors Inc v TRW Lucasvarity Electric Steering Limited, who had referred to “a requirement for strong evidence before
reaching such a finding”.8
[76] Stewart-Smith J then continued:
[58] In McKay v Centurion Credit Resources LLC9 and Energy Venture Partners Ltd v Malabu Oil and Gas Ltd10 it was either conceded or agreed that Judge Mackie QC’s obiter dictum was correct. However, in Energy Venture Partners Gloster LJ went further in giving her view of the law (at [273]–[274]):
‘… as at present advised, I incline to the view that there can be an oral variation in such circumstances, notwithstanding a clause requiring written modifications, where the evidence on the balance of probabilities establishes such variation was indeed concluded. In many cases, such as United Bank Ltd v Asif [11 February 2000, unreported] (where the relationship between the parties was a formal banking relationship) the factual matrix of the contract and other circumstances may well preclude the raising of an alleged oral variation to defeat an entire agreement clause. In others, the evidence may establish on the balance of probabilities that the parties by their oral agreement and/or conduct have varied the basis of their contractual dealings, and have effectively overridden a written clause excluding any unwritten modification.’
[59] I do not understand Gloster LJ to mean that the existence of a particular form of agreement (as in Asif) will preclude the raising of the argument that an alleged oral variation should defeat an entire agreement clause. Rather, I
7 At [19].
8 Globe Motors Inc v TRW Lucasvarity Electric Steering Limited [2012] EWHC 3134 (QB); [2012] All ER (D) 138 (Nov) at [53].
9 McKay v Centurion Credit Resources LLC [2011] EWHC 3198 (QB), [2011] All ER (D) 88 (Dec).
10 Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2013] EWHC 2118 (Comm), [2013] All
ER (D) 347 (Jul).
understand her to be contrasting those cases where the facts are sufficient to establish that the parties have subsequently overridden the terms of the original contract and those where they are not. With that minor gloss I would respectfully adopt Gloster LJ’s formulation of the law.
[60] Each case will be fact sensitive, depending upon the terms of the original contract and what has happened thereafter. To my mind, the fact that a clause was specifically negotiated or was insisted on by one party or the other(for a particular reason or no reason at all) may be a relevant factor; and the existence of a written clause excluding any unwritten modification will require the court to look closely both at whether the parties subsequently reached an agreement that would, if enforced, vary the effect of the original contract and also at whether in reaching that agreement the parties intended to enter into legal relations so as to vary the terms of their original contractual obligations. But it seems to me that, while all relevant facts should be given their due weight in assessing these questions and the burden of proof rests on the person who alleges that the original contractual obligations have changed, the standard of proof is and remains the balance of probabilities throughout. I would prefer not to adopt the use of ‘strong evidence’ or ‘a very high evidential burden’ since there is a danger that they may be treated as affecting the burden or standard of proof. Similarly, I would prefer not to adopt the phrase ‘evidential presumption’, though the intent behind it is clear. Rather, I adopt the approach that the court should give all relevant evidence its due weight when asked to find on the balance of probabilities that there has been a subsequent variation which has legal affect even though it does not comply with the formalities stipulated by the original contract. The terms of the original contract will always be material to that exercise; the circumstances in which those terms were negotiated and agreed may also be.
[77] Virulite is accordingly authority for the proposition that whether an oral variation becomes operative turns on the intention of the parties. The burden of proof rests on the party alleging the variation. The standard of proof is the balance of probabilities. The Court will need to assess all relevant evidence relating to the parties’ contractual dealings. Finally, as recognised by Gloster LJ in Energy Venture Partners, there may be formal relationships (such as banking relationships) in which the factual matrix of the contract and other circumstances preclude the raising of an
alleged oral variation to defeat an entire agreement clause.11
Beneficial’s case
[78] Beneficial asserts that the contractual obligations of the guarantors remain in force and that the defendants’ guarantees have not been discharged. In particular, Beneficial invokes the terms of the contract as excluding the operation of a common law discharge of the nature asserted by Ms Brown. Mr Johnson relies upon part of in clause 23.1 of the contract (quoted in full above at [11]):
…[T]he Guarantor is liable under this guarantee and this Agreement as if it were the sole principal debtor and not merely a surety. … no indulgence, granting on time, waiver, or forbearance to sue or any other thing whereby the Guarantor would be released as a surety or otherwise shall in any way release the liability of the Guarantor under this Agreement.
Ms Brown’s opposition
[79] Mr Campbell’s summary of this ground of opposition was that:
[Beneficial] and [Clean Energy] mutually agreed to a material variation of the 2014 Agreement and the 2015 Agreement (without the consent of Ms Brown) such that Ms Brown was released from liability from the point of the material variation.
[80] Mr Campbell noted the discussion by the authors of Laws of New Zealand – Guarantees and Indemnities where one of the entries under the heading “Discharge by Operation of Law” reads:12
202. Material alteration of guarantee. An immaterial alteration, such as the correction of an innocent misdescription of the principal debtor, will not prevent a guarantee being enforceable, even if the alteration is made after signature and the guarantor does not consent to the alteration being made.
However, a material alteration, not approved by all the parties to the original document, will avoid the guarantee. A material alteration is one which has an effect on some contractual right contained in, or arising out of the instrument itself…
(footnotes omitted).
[81] Mr Campbell referred to two judgments of the Court of Appeal which recognise the principles stated in the Laws of New Zealand commentary, namely Gillespie v Algert Co Inc13 and Benchmark Building Supplies Ltd v Weatherby.14
[82] Mr Campbell submits that Ms Brown’s evidence establishes arguably that Beneficial entered into a material variation of the contractual arrangements without the consent of Ms Brown. Mr Campbell refers to Ms Brown’s evidence (above at [31]) of an agreement as to receivables reached between Mr McLaren and Mr
Oldham. Mr Campbell submits that the effect of that agreement was to significantly
12 Laws of New Zealand – Guarantees and Indemnities (online ed, LexisNexis).
13 Gillespie v Algert Co Inc CA85/01, 11 October 2001 at [23].
14 Benchmark Building Supplies Ltd v Weatherby CA 278/00, 19 July 2001 at [10] and [15] – [17].
increase Clean Energy’s indebtedness because it allowed debts to compound and
allowed Clean Energy to retain funds it should have paid through to Beneficial.
[83] Mr Campbell submits that Mr Oldham (through his evidence) failed to provide a “meaningful response”, in as much as Mr Oldham limited his comments upon the basis that the matter was “primarily a legal issue”.
Discussion
[84] Given the express provisions of the contract, it was correct to identify the discharge ground of opposition as involving a legal issue.
[85] The authorities cited by Mr Campbell discuss principles relating to the discharge of guarantees established at common law. They are subject to contractual variation or extinguishment.
[86] I adopt the conclusions I reached in Bushnell Builders Ltd v McGoverne,
where I observed:15
[17] The general principles relating to the formation of contracts apply to the formation of contracts of guarantee. It is the parties to the contract of guarantee who determine the terms on which they contract. In the absence of express terms, the common law provides a range of applicable principles.
[18] I adopt as a summary of the general position the following passage in Laws of New Zealand, Guarantees and Indemnities para 76:
76. Terms of contract may modify usual incidents. The general principles governing the rights and obligations of the parties to a contract of guarantee may in many instances be modified or negative by the express of implied terms of the particular contract. Standard form guarantees drafted for institutional lenders are typically drafted to ensure that many of the protections which would otherwise be afforded a guarantor are removed. Each contract of guarantee should be construed according to its own terms.
[19] It follows that the court must give effect to the intention of the contracting parties as expressed in the guarantee document. I adopt as a correct summary of the law the following additional passage from Laws of New Zealand Guarantees and Indemnities para 77:
77. Principles of construction. …Wide clauses in the guarantee
will be given full effect, even if they will negate defences which
would otherwise be available to the guarantor. Nor will the Court strain for a meaning of the words of the guarantee so as to enable the guarantor to escape liability, for instance upon the principal debtor being adjudicated bankrupt or being wound up. It is purely a question of construction as to whether the guarantor’s right to treat the guarantee as discharged has been effectively excluded.
[87] In this case, I would have found if necessary that the parties agreed that circumstances which would otherwise lead to discharge of the guarantor would not have that effect. The relevant circumstances could not have been more broadly stated than the words used in the contract:
[No] indulgence, granting of time, waiver or forbearance to sue or any other
thing whereby the Guarantor would be released as a surety or otherwise…
[88] The difficulty for Beneficial which nevertheless stands in the way of summary judgment lies in the fact that, in terms of clause 16 of the contract, the parties were precluded from entering into variations except in writing. In this summary judgment context, the Court must regard as arguable Ms Brown’s evidence as to both oral variations and Clean Energy’s consequential retention of receivables and effective compounding of debt. The issue at that point becomes more fundamental than whether the contract of guarantee in this case negated common law grounds of discharge. The core issue becomes whether Beneficial here has established beyond argument that the parties to the contract subsequently intended to bind themselves by an oral variation, notwithstanding the contractual requirement that variations be in writing.
[89] The analysis of “the factual matrix of the contract and other circumstances” (as Gloster LJ put it in Energy Venture Partners) is beyond the limited evidence available on this application. The evidence filed leaves uncertainty about both the arrangements which may have taken place, and any (contractual) intention of the parties concerning those arrangements.
[90] Once there is identified an arguable defence based on Ms Brown’s evidence as to variation of the contractual terms, there is an arguable defence as to liability in its entirety. Because Beneficial chose to view Ms Brown’s evidence about post- contract arrangements as raising purely legal issues and therefore did not engage with Ms Brown’s factual allegations, the Court cannot reliably analyse what
Beneficial’s debt would (definitely) have been had the original terms of the contract been adhered to without the alleged variation.
Conclusion
[91] Beneficial, as plaintiff, has not discharged its onus of showing that there is not an arguable defence flowing from the variations alleged by Ms Brown. I am left with real doubt and uncertainty as to the nature of post-contract agreements orally agreed to and as to the intention of the parties (whether to modify the contract or not).
[92] Whether or not Ms Brown’s allegations as to their discussions entered into by other persons are correct and whether, if established, Beneficial and Clean Energy intended them to be operative variations are matters requiring trial. Nothing in this judgment is intended to express a view on the facts other than that there is available to the defendants an arguable defence as to liability.
Issue 3: the quantification issue
Introduction
[93] Given my finding that the defendants have an arguable defence as to liability, it is strictly unnecessary that I consider the alternative proposition that they have an arguable defence to the plaintiff’s quantification. As I would have found on the evidence and submissions that there was an arguable defence in relation to the amount of the claim, and lest I am found to have been incorrect in my earlier findings, I now consider the issue of quantification.
Beneficial’s case
[94] Beneficial relies upon the documents which it produces as “loan trial
balances”. The exhibits report positions at 9 June 2016, 16 December 2016, and 10
April 2017.
[95] Mr Johnson submits that the reports are “extensive” and that they fully set out
the nature of the debt including the interest calculations.
[96] Mr Johnson referred also to the sum of $50,000 deducted from the balance owing by reason of a settlement effected by the guarantor, Peter Summerfield. Mr Summerfield’s guarantee liability had been capped under the 2015 contract at
$50,000. Although Mr Summerfield made payment of only $35,000, Beneficial credited the Clean Energy account to the extent of $50,000 (a step which was to the benefit of Clean Energy and all guarantors).
Ms Brown’s opposition
[97] Ms Brown’s recorded ground of opposition was that Beneficial had failed to provide evidence as to how it had quantified its losses, and that the sum claimed does not reflect Clean Energy’s liability to Beneficial under the financing agreement.
[98] In his submissions, Mr Campbell described this ground of opposition as “one of proof”.
[99] Mr Campbell, in his written synopsis, set out his analysis of the evidence in three paragraphs:
The evidence of Messrs Ronesh Chand and Kane Oldham utterly fails to provide an evidential foundation for quantification. Mr Oldham attempts to shore up this lacuna by stating:
It is the plaintiff’s position that the summary attached to this affidavit sets out the current amount outstanding, including interest. The figures are generated through the plaintiff's computer software. I am not aware of any basis to challenge the figures or any information that inflates the figures are incorrect [sic].
Mr Oldham’s evidence is effectively stating that because [Beneficial] has generated figures quantifying its claim, those figures are therefore true and correct. This is circular and provides no substantive explanation. The lack of explanation is despite repeated requests.
[Beneficial] has indicated that it will file updated evidence prior to trial. Counsel reserves the right to respond to that evidence as required, including by handing up further submissions on the day of the hearing.
Discussion – summary judgment on guarantee claims
[100] An explanation of the correct approach to summary judgment applications,
which binds this Court, is that set out in the Court of Appeal’s judgment in
Australian Guarantee Corporation (NZ) Ltd v McBeth.16 Greig J, delivering the judgment of the Court, said:17
The summary judgment procedure is a simple expeditious way to enable a plaintiff to obtain judgment where there is no real defence to the claim made: see Pemberton v Chappell.18 The essence of the procedure is the plaintiff's own verification by affidavit of his own statement of claim and the allegations made in it: Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd.19 There has to be a balancing between the right of the defendant to have his day in Court and to have his proper defences explored and the appropriate robust and realistic approach called for by the particular facts of the case: see Bilbie Dymock Corp Ltd v Patel and Cegami Investments Ltd v AMP Financial Corp.20 Although the onus is upon the plaintiff there is upon the defendant a need to provide some evidential foundation for the defences which are raised. If not, the plaintiff's verification stands unchallenged and ought to be accepted unless it is patently wrong.
[101] In the context of the present ground of opposition, which involves criticism of the plaintiff’s quantification of principal and interest, the subject-matter of AGC (NZ) Ltd v McBeth is instructive.
[102] The appellant in AGC (NZ) Ltd v McBeth was a finance company which had provided finance to a vehicle dealing company secured over vehicles and guaranteed by individuals (including Mr and Mrs McBeth). An earlier contract was replaced in
1988 by a new contract in which the principal was acknowledged to be $324,093.14. Interest was to accrue at 20 per cent with repayments of principal and interest over an agreed period. Upon default in 1989, vehicles were sold as was Mr and Mrs McBeth’s house with net proceeds appropriated to reduce the indebtedness. AGC provided a statement of the receipts in early-1990. AGC subsequently issued
proceedings for $202,803.84 which the statement of claim recorded as follows:21
Total amount payable under the loan $386,343.73
Less deposit and instalments paid $79,646.42
Less net proceeds of sale of residential property
and vehicles 119,582.00 (sic) Plus penalty interest (remedying breaches of
16 Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (AGC (NZ) Ltd v
McBeth).
17 At 58 – 59.
18 Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 at 2.
19 Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21.
20 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 and Cegami Investments Ltd v AMP Financial Corp (NZ) Ltd [1990] 2 NZLR 308 at 313; (1990) 2 PRNZ 271 at 276.
agreement) 15,688.64
$202,803.84
[103] Mr and Mrs McBeth opposed a summary judgment application, upon grounds recorded by the Court of Appeal as:22
1.The plaintiff has not proved all of the allegations set out in the statement of claim. The plaintiff has not produced evidence of the truth or otherwise of the matters set out in the annexures to the affidavit of Geoffrey Michael Powell sworn 30th January 1991. In particular, there is no proof that the alleged sum of $324,093.14 was advanced as alleged in paragraph 6 of the statement of claim.
2.The plaintiff has breached its duty to the defendants to strictly account for all amounts incurred by and received from the defendants.
3.The plaintiff has failed in its duty to obtain the best possible price for the motor vehicles repossessed by it.
[104] In the High Court, the Master entered summary judgment as to liability but dismissed the application so far as it related to quantum. In doing so, the Master recorded:23
The quantum of claims for summary judgment requires to be proved to the same standard and with the same precision as questions of liability. The imprecision of numerous aspects of the claim as regards liability is demonstrated by the review just undertaken. In those circumstances, this Court is driven to the conclusion that it would be quite unsafe for it to take the view that the plaintiff has discharged the onus on it of proving quantum to the requisite standard.
[105] The Court of Appeal found that the Master had embarked on his own analysis of the quantum, rather than considering allegations specifically raised in opposition. Greig J concluded (upon a review of the Master’s judgment) that:24
In undertaking his own analysis of the underlying claim of the appellant the Master was diverted from the specific allegations made by way of defence and was led into an inquiry behind and beyond the sworn assertions made on behalf of the appellant as to the truth of the claims in respect of which no complaint was made.
22 At 57.
23 At 57.
[106] Greig J proceeded to identify the principles related to the summary judgment procedure which I have set out at [86] above before continuing:25
While the plaintiff must verify its claim it is not required to prove the details with the same precision as might be required in a viva voce hearing where everything might be in issue. That standard would undermine the simplicity and the benefit of the summary judgment procedure.
[107] The Court of Appeal’s enunciation of principle in AGC (NZ) Ltd v McBeth has been applied repeatedly in subsequent cases. An example is in the judgment of Associate Judge Christiansen in Dominion Finance Group Ltd v O’Halloran.26 His Honour, with reference to the Court of Appeal judgment in AGC (NZ) Ltd v McBeth, there noted:27
In appropriate circumstances it is for the defendants to provide some evidential foundation for a defence or otherwise Dominion Finance’s verification will stand unchallenged and therefore ought to be accepted unless clearly it was wrong.
[108] In Dominion Finance Group Ltd v O’Halloran, the plaintiff was again a finance company which sued guarantors. One ground of opposition challenged the accuracy of Dominion Finance’s records. By its reply evidence, Dominion Finance provided a full loan statement setting out all debits and credits from the time the loans had been made. The Court accepted the loan statement as sufficient evidence in the summary judgment context.
Discussion – Beneficial’s evidence as to the state of account
[109] Through Beneficial’s initial affidavit (of Mr Chand) in support, it provided a statement of account of the debt owing at 29 June 2016 (above at [14] – [15]). The statement identified the totals owing in relation to each invoice broken down to principal and interest.
[110] By its updating affidavit (of Mr Oldham), Beneficial provided a statement of the debt owing at 16 December 2016. It again identified both the principal and interest owing in relation to each invoice. Additionally it provided breakdown of
25 At 59.
26 Dominion Finance Group Ltd v O’Halloran [2015] NZHC 2386.
27 At [15].
calculations for the period from 31 May 2016 to 16 December 2016.28 Finally, it gave account of payments by two other guarantors (and thereby reduction of the balance claimed as owing).
[111] The statement of account provided in Mr Oldham’s “updating affidavit” identified (by reference to the 31 unpaid invoices) the breakdown of principal and interest, with interest figures updated to 10 April 2017.
[112] By his affidavit, Mr Chand verified the accuracy of the amount Beneficial claimed to be owing, at 9 June 2016, in terms of the statement of account at that date. By his reply and updating affidavits, Mr Oldham verified the further changes (both credits and debits) which were recorded in the subsequent statements of account. Pursuant to my ruling at [49] – [50], the Court has not read in this application other parts of Mr Oldham’s affidavit which deal with other fees and charges.
Discussion – Ms Brown’s evidence as to the state of account
[113] Ms Brown’s evidence falls to be viewed in the context of her position and responsibilities at the time the June 2015 contract was executed and thereafter. She executed the contract as Clean Energy’s director, completed the Compliance Certificate within it as Clean Energy’s Chief Executive, and reported to Beneficial’s stakeholders on 27 June 2015 as to Beneficial’s imminent signing of the contract. It was Ms Brown to whom Financial was directing its correspondence for Clean Energy in relation to transactions under the financing agreement.
[114] In that context, the concerns as to the quantification of the claim which Ms Brown identified in her affidavit are cryptic (as set out above (at [33]). Ms Brown states simply in relation to the statement of account provided by Beneficial that, “… the figures do not appear to reflect the terms of the agreements”. Ms Brown does not identify any particular instance of error, such as might occur if a financier
debited the account for a loan which had not been made, or debited the account with
28 Above at [40] – [42].
an incorrect sum by way of principal, or interest (being the items for which she had received statement of account).
[115] Beneficial in its evidence has provided an accounting for the advances made and the interest charged. The defendants have not provided an evidential foundation for any dispute as to the quantum of advances or interest. If those were the only elements being provided by Beneficial, then in terms of the approach in AGC (NZ) Limited v McBeth, there would be sufficient evidence to give judgment on quantum.
[116] What is lacking in Beneficial’s evidence, as far calculation of the debit, is any identification of the other charges and fees which were levied. As I have quoted it (at [40] above), the loan trial balance identifies total advances together with interest (less on the credit side recoveries from other guarantors and retention sums).
[117] The omission in Beneficial’s evidence arises from Beneficial’s entitlement to impose fees and finance charges on its advances under clause 3 of the contract (above at [11]). In particular Beneficial had the right to impose finance charges (clause 3.2) and collateral handling fees (clause 3.4). It is common ground that such charges and fees were imposed. The loan trial balance which Financial attached to the 26 July 2016 demands and the further loan trial balances exhibited by Beneficial identify the balance of principal claimed on each loan and the calculation of interest. What they do not record are the calculations of other charges and fees which were imposed. In the extract I have quoted above (at [40]) from the 16 December 2016 balance, Financial records that the 1 percent monthly invoice financing fee had been suspended. The date of suspension is not recorded.
[118] This is not a case in which the plaintiff alleges that the defendant had received a comprehensive statement in relation to all charges imposed (in addition to the statement of principal, interest and recoveries). The evidence indicates that Financial’s practice, through its loan trial balances, was simply to account for principal and interest. The facts are therefore distinguishable from those in Dominion Finance Group Ltd v O’Halloran where the creditor had provided a full loan balance setting out all debits and credits.
[119] When the demands were first served on the guarantors, Ms Brown’s solicitors recorded in their 19 August 2016 letter the fact that they did not understand the calculations in the spreadsheet (that is the loan trial balance). They asked for an explanation of how the figures were calculated by specific reference to the relevant clauses in the invoice financing agreement (above at [21]).
[120] The 29 August 2016 reply from Mr Oldham (above at [22]) in which he recorded that “the interest and fee calculations are described accordingly” was manifestly incorrect. Neither the loan trial balance of 9 June 2016 nor the later balances filed in Beneficial’s initial and reply evidence provided calculations of the charges imposed under clause 3 of the contract.
[121] On 6 September 2016 (above at [23]), Wynn Williams persisted with the request for an explanation of the calculation of all figures by reference to the contract clauses relied on. The only relevant information provided by Mr Oldham in reply (above at [24]) was a narrative explanation referring to clause 3 generally and then explaining that under clause 3.4 the 1 percent collateral handling fee had been reduced by 50 percent in September 2015. The calculations were still not provided. That situation continued through Beneficial’s evidence in support of the summary judgement application and in its (December 2016) reply.
[122] Significantly, in the exhibits which Mr Oldham attached to his “updating affidavit” of 31 March 2017, there are Loan Ledgers produced by Financial (one of
11 pages and the second of 29 pages) which detail the fees and charges (in addition to interest) by reference to each invoice. These were provided, in Mr Oldham’s words, “to assist the Court in understanding that debt sum [of $299,370.90]”. As I have excluded that evidence it is not before the Court as evidence in this summary judgment application. The defendants did not have the opportunity either in response to the July 2016 demands or in response to the plaintiff’s regular evidence in this proceeding to meaningfully assess whether the plaintiff’s calculations of total debt were accurate.
[123] If I had not decided to dismiss the summary judgment application on the ground that there was arguable defence on liability, I would not have been satisfied
(beyond argument) that the full sum claimed by Beneficial is owing. I would therefore not have entered summary judgment for that sum.
[124] In a consideration of whether a lesser amount was indisputably due and owing, and for which judgment might be entered,29 I would have found that Ms Brown has not provided evidence to suggest that any of the advances identified by Beneficial (originally 45 outstanding but now 31) did not occur. Commonsense suggests that, whatever has been added to the advances by way of charges and fees, the principal debt would be substantial. The Court could hazard a guess at what the
maximum disputable level may be (representing a calculation of likely fees and charges). Counsel did not provide submissions in that regard and it would not have been appropriate to embark on an assessment of what is indisputably owing.
Overall conclusion
[125] Beneficial has not satisfied the onus upon it of showing that the defendants have no defence as to either liability or the amount of the claim.
[126] Upon that basis the summary judgment application is to be dismissed. In accordance with the practice established by the Court of Appeal in NZI Bank Ltd v Philpott, costs will be reserved.30
Orders
[127] I order:
(a) The plaintiff’s application for summary judgment is dismissed.
(b) The costs of the summary judgment application are fixed on a 2B
basis, with the incidence of costs and disbursements reserved.
29 AGC (NZ) Limited v McBeth, above n 16.
30 NZI Bank Ltd v Philpott [1990] 2 NZLR 403, (1990) 3 PRNZ 695.
Case management
[128] I allocate a first case management conference at 4.00 pm 7 June 2017 (Associate Judge Osborne). I direct counsel to file a joint memorandum addressing schedule 5 matters no later than five working days before the conference.
Associate Judge Osborne
Solicitors:
Martelli McKegg, Auckland
Wynn Williams, Christchurch
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