Casata Limited v Farr

[2020] NZHC 1645

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2013-485-9470

[2020] NZHC 1645

BETWEEN

CASATA LIMITED

Plaintiff

AND

GRAEME LESTER FARR

First Defendant

ALEXANDER FERGUSON KNOWLES

Second Defendant

Hearing:

24 June 2020

Appearances:

C Chapman for the plaintiff/respondent J Porter for first defendant/applicant

No appearance by or for second defendant

Judgment:

10 July 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]    In March 2014 the plaintiff, Casata Ltd, obtained summary judgment by default against the first defendant, Mr Graeme Farr, Mr Farr having not entered a defence or taken any other step in this proceeding.

[2]    Casata did not initiate any formal execution process for close to six years. However, in October 2019 it served a bankruptcy notice. When Mr Farr did not apply to set that notice aside within the statutory period, bankruptcy proceedings followed. Mr Farr did not file and serve a statement of defence within the statutory period, though he did so on 31 January 2020. Then, on 20 February 2020, he filed and served

CASATA LIMITED v FARR [2020] NZHC 1645 [10 July 2020]

an application for an order pursuant to r 12.14 of the High Court Rules 2016 setting aside the original judgment in this proceeding.

[3]Before the Court for determination are therefore:

(a)Mr Farr’s application for an order setting aside the original judgment (in this proceeding);

(b)Casata’s application for an  order  adjudicating  Mr  Farr  bankrupt  (in CIV-2019-485-572).

[4]Both applications are opposed.

[5]    They were set down to be heard together. On the premise that the application in this proceeding to set aside judgment could be dealt with immediately, setting both matters down for hearing at the same time made perfect sense. However, having heard counsel’s submissions, I reserved judgment in relation to the application to set aside judgment. As the outcome of that application will affect what if anything can happen next insofar as the application for an order adjudicating Mr Farr bankrupt in the bankruptcy proceeding is concerned, I adjourned that application.

[6]This judgment deals only with the application to set aside judgment.

Background

[7]    It will assist the analysis to summarise the main aspects of the background at this stage, and I do so below drawing primarily on Mr Farr’s affidavit evidence.

[8]    In or around 2011 Mr Farr and the second defendant, Mr Alexander Knowles, were involved in the promotion of a second-hand car dealership in Lower Hutt. The proposed business model relied on volume sales of used cars. Mr Farr describes this as a supermarket model. He says that he had seen such businesses operate successfully abroad. In his affidavit evidence Mr Farr goes into some detail in describing the ownership and governance arrangements between himself and Mr Knowles. It is not necessary to recount this evidence in detail. Essentially, a company was formed by

the name of Car Giant Ltd in which Mr Farr and Mr Knowles were both shareholders, though Mr Farr was the only registered shareholder because, he says, Mr Knowles did not wish to appear on the register. Mr Farr was also the sole registered director.

[9]    Obviously, one requirement of such a business is space. The promoters needed to secure a large open area from which to display and sell cars. They ultimately identified suitable premises near the Petone railway station.

[10]   A complication with these premises was that whilst the entire site was owned by Casata, roughly half of it was already the subject of a lease to the New Zealand Transport Authority. Thus, for matters to move forward, Casata needed to terminate its lease with NZTA and lease the entire site to Car Giant.

[11]   That is where matters stood as at 16 June 2011, on or about which date the parties, Casata, Car Giant Ltd, Mr Farr and Mr Knowles, all signed an agreement to lease. The agreement to lease was based on the Real Estate Institute of New Zealand’s standard form document, various iterations of which have now been in common use for a good many years, and the terms of which are well known and understood by solicitors and experienced business people.

[12]Features of the agreement to lease in this case included the following:

(a)It was conditional upon Casata being in a position to lease the entire site (inclusive of the proportion it was  then  leasing  to  NZTA)  to Car Giant;

(b)Casata agreed to lease and Car Giant agreed to take on lease the site for an initial term of three years and three months;

(c)Contingent upon Casata and Car Giant being able to agree on rental, the latter was to have certain rights of renewal;

(d)Rental for the initial term was set at $569,910 plus GST per annum;

(e)Car Giant’s obligations in respect of rental were to be the subject of limited guarantees to be given by Mr Farr and Mr Knowles. Mr Farr agreed to guarantee up to $500,000. Mr Knowles agreed to guarantee up to $200,000.

[13]   In due course, Casata was able to free up the site and Car Giant moved in and opened for business during the last quarter of 2011.

[14]   Mr Farr’s evidence provides a narrative description of what happened between then and the business’ closure. Again, a summary of this will suffice:

(a)Mr Farr deposes that Casata delayed making the necessary arrangements and the delay imposed unnecessary financial strain on the new business, and ultimately on him;

(b)This gave rise to a degree of tension between Mr Farr and Mr Knowles;

(c)Nevertheless, initially, Car Giant operated successfully;

(d)The tension between Mr Farr and Mr Knowles  came to a head on    30 November 2011 on which date, Mr Farr says “Knowles fired me and installed an old friend of his named Greg Philpott as CEO”;

(e)Mr Farr says that as at that date the business was solvent and it had no outstanding rental obligations, though there is no independent evidence of this. He says that the new CEO “changed the whole business model

— increased prices — and sales virtually stopped. When I protested, I was forced out altogether, and Philpott threatened me with physical violence. I was subsequently trespassed from the site in the early months of 2012, and I never went back”;

(f)Car Giant’s business failed towards the end of 2012. By then there were rental arrears. Casata cancelled the lease and called upon Mr Farr and Mr Knowles’ guarantees;

(g)This proceeding in which Casata applied for summary judgment against Mr Farr and Mr Knowles in respect of their guarantees was commenced on 22 November 2013.

Law

[15]Rule 12.14 upon which Mr Farr relies provides as follows:

A judgment given against a party who does not appear at the hearing of an application for judgment under rule 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.

[16]   My analysis of the authorities1 to which counsel referred, and which my own research has thrown up, suggests to me that the approach to be adopted in making an assessment under r 12.14 can be summarised as follows:

(a)The burden is on the applicant to demonstrate that there are proper grounds for the setting aside of a judgment;

(b)In the case of an irregularly obtained judgment, that is to say where there has been a material irregularity in the obtaining of the judgment (as opposed to any irregularity in the judgment itself), it is unnecessary to make any further enquiry, and the judgment should be set aside;

(c)Beyond that the focus is on whether a refusal to set aside the judgment would result in a miscarriage of justice. The courts have declined to lay down an exhaustive list of factors to be taken into account in addressing that issue. But factors that are often of importance are, whether the applicant can demonstrate the existence of an arguable defence; whether the applicant is able to offer a reasonable explanation for the failure to defend the proceeding or any delay in making an application to set the judgment aside; and whether the respondent would suffer irreparable injury if the judgment were set aside.

1      See Equiticorp Finance Group Ltd v Cheah [1989) 3 NZLR 1 and Russell v Cox [1983] NZLR 654 (CA).

Mr Farr’s case

[17]   In his submissions on behalf of Mr Farr, Mr Porter adhered closely to the grounds set out in the notice of application.

[18]   His submissions proceeded on the basis that Mr Farr had the burden of persuading the Court that there were grounds for setting the judgment aside.

[19]Mr Porter contended first that the judgment had been irregularly obtained.

[20]He advanced this contention on two interrelated bases.

[21]   First, Mr Porter submitted that Casata’s originating documentation — essentially the affidavit of Mr Wall, the company’s Managing Director, in support of its application for summary judgment — was irregular because the version of the agreement to lease exhibited to the same and relied on was not an original.

[22]This submission requires an explanation.

[23]   In the past, “the best evidence rule” was an important principle of the law of evidence. As recorded in the first New Zealand edition of Cross on Evidence,2 the classic statement of this rule is that of Lord Hardwicke in Omychund v Barker, where his Lordship said:3

… the judges and sages of the law have laid it down that there is but one general rule of evidence, the best that the nature of the case will allow.

[24]   As Cross goes on to note the rule was capable of having both inclusionary and exclusionary consequences. Insofar as it was exclusionary, it prohibited a party from relying on evidence where better evidence could and should have been called. Even in 1963, Cross was able to conclude the section on the best evidence rule with a paragraph headed “The Remains of the Rule” in which this was said:4

It is sometimes said that all that is left of the best evidence rule is the requirement that the original of a private document must be produced in order

2      D L Matheson (ed) Cross on Evidence (1st ed, Butterworths, Wellington, 1963) 1963) at 12.

3      Omychund v Barker (1745)] 1 Atk. 21, 49.

4      Above n 2, at 14.

to prove its contents unless its absence can be explained; apart from this, it is said that the rule is merely a counsel of prudence, for the absence of the best evidence may always be the subject of adverse comment by the Judge. There are, however, a few decisions which can be cited as isolated instances of the continued application of the rule, although it has long since lost its title to be regarded as a general principle of the law of evidence.

[footnotes omitted]

[25]   It is probably fair to say that at the time the summary judgment procedure was introduced into the High Court Rules, the best evidence rule was still a feature, though a much diluted feature, of the law of evidence, and contemporaneous cases can be found suggesting that the rule had particular application to summary judgment proceedings so that where the affidavit evidence in support of such an application exhibited documentation, this should be original documentation or there should be an explanation for why this was unavailable in order to justify the use of copies.5

[26]   It is not, perhaps, going too far to suggest that judges at that time were wary about this new and unfamiliar summary process, and saw the best evidence rule as a means of ensuring that it was not allowed to become oppressive in its operation.

[27]Things have moved on in the intervening thirty years.

[28]   For a start, the law of evidence has been codified in the Evidence Act 2006. That Act is silent as to the best evidence rule. So are the commentaries such as the most recent edition of Cross on Evidence.6 It is now established that “the best evidence rule, long on its deathbed, has finally expired.”7 The modern rule is that all relevant evidence is admissible in a proceeding, subject to express exclusionary provisions.8

[29]   And of course, judges have become more familiar with the summary judgment process.

[30]   I imagine it is now a wee while since any plaintiff in a summary judgment application felt compelled to put in original documentation.

5      For example Foodstuffs (Auckland) Ltd v Schweiger [1986] 1 NZLR 463 per Barker J at 465.

6      Matthew Downs (ed) Cross on Evidence (online ed, LexisNexis).

7      At 7.1 quoting Parker LJ in Masquerade Music Ltd v Springsteen [2001] CPLR 369.

8      Evidence Act 2006, s 7.

[31]   I reject the submission that Casata’s judgment in this case was irregularly obtained, simply because Mr Wall’s affidavit did not exhibit an original version of the agreement to lease.

[32]   Mr Porter’s second submission in relation to the same document was that there was reason to think that the copy of the document produced to the Court was not in fact a copy of the document executed by the parties. That is a serious suggestion, and I accept if it could be established that would suggest an irregularity in the process which could — and indeed most probably would — vitiate the judgment obtained by default.

[33]   Although, as I understood him, Mr Porter submitted that the evidence was that the copy of the agreement to lease in evidence was not the document ultimately signed, nowhere in his affidavit that I can see does Mr Farr say that.

[34]   In the end, Mr Porter advanced this submission on the basis that whilst signed by or on behalf of the parties, and whilst for the most part regularly initialled in the usual way where necessary, there is one page that Mr Farr does not appear to have initialled. This is the page which concerns tenant’s works, which is otherwise irrelevant to any issue in the case.

[35]   It appears to me that there are two conceivable explanations for this. Either, the copy of the agreement to lease in evidence is not a true copy of the document signed. Or, in the process of initialling this document following his execution of it, Mr Farr missed one page and no one noticed.

[36]The latter explanation appears to me to be overwhelmingly more likely.

[37]   I reject the submission advanced on Mr Farr’s behalf that there was any irregularity in the process whereby the judgment against him was obtained.

[38]   Mr Porter also contended that if Casata’s judgment was not set aside this would result in a miscarriage of justice.

[39]   This contention was advanced on several bases, which I address below in the order that seems most logical.

[40]   Mr Porter placed some emphasis on the fact that Casata’s case had been based on an agreement to lease and provide guarantees, which he contrasted with formal arrangements such as a deed of lease and deeds of guarantee.

[41]   Whilst it is entirely correct that Cassata’s case was based, and could only have been based, on the 16 June 2011 agreement,  I am  not  convinced  that  this takes  Mr Farr’s case anywhere.

[42]   Whilst it is of course correct that the law will not enforce agreements to agree, that is a principle that applies where parties enter into an agreement of any sort, whether it relates to leases, guarantees or anything else, that is uncertain because it does not deal with fundamental components of the arrangement and leaves them to be agreed at a later stage. So, for example, if two parties were to enter into an agreement to lease, leaving for subsequent determination what premises were to be the subject of the demise, it is inconceivable that the law would step in at the behest of either of them to fill that yawning gap in their arrangement. But such a criticism could hardly be made of the 16 June 2011 agreement. As far as I am able to see, it deals with all aspects of the lease between the parties and the terms of the guarantees being provided by Mr Farr and Mr Knowles.

[43]   It is also true that, at common law at least, leases and guarantees are both arrangements which are required to be formally executed in the form of deeds. But equity has always enforced agreements to lease and agreements to provide guarantees, provided that such arrangements comply with the requirements of the Statute of Frauds (now contained in sub-pt 2 of pt 2 of the Property Law Act 2007), on the basis of the maxim that equity will require to be done that which ought to be done.

[44]   In my judgement, the fact that this was an agreement as between Casata and Car Giant to lease the property and agreements as between Casata and Mr Farr and Mr Knowles that Car Giant’s obligations would in part be guaranteed by Mr Farr and Mr Knowles, is not, in and of itself, indicative of any miscarriage of justice.

[45]   Second, Mr Porter emphasised Mr Farr’s affidavit evidence to the effect that the negotiation of these arrangements between the parties took place over a lengthy period of time and that changes took place after the agreement was signed on 16 June 2011. In his evidence Mr Farr tended to rely on this fact as a basis for the view he says he had at the time that the parties were not, in signing the agreement, committing themselves to a settled basis for their arrangements, and that he perceived the 16 June 2011 document to be nothing more than a non-binding heads of agreement.

[46]   Again, the view I take is that this does not advance Mr Farr’s application in any material way. I accept his evidence to the effect that negotiations between the parties continued after they executed the 16 June 2011, but that does not alter the essential enforceability of the signed agreement.

[47]   I accept also the third submission made on Mr Farr’s behalf by Mr Porter that there are some comparatively unimportant, if not trivial, differences between the terms of the 16 June 2011 agreement and the draft deed of lease which was attached to it. However, as Mr Chapman submitted, all that means is that in preparing the draft deed, the draftsman incorrectly translated the terms of the agreement into the deed, and that any of the parties — Casata, Car Giant and the two guarantors — would have been entitled to insist that the deed properly reflect the arrangements made before executing it.

[48]   Mr Porter next advanced a submission founded on evidence offered by Mr Farr in his affidavit in support of his application to the effect that, at the time that Casata commenced this proceeding, he was told by Mr Wall that the company was not intending to pursue a claim against him, but needed him to refrain from defending the claim in order to enable it to obtain judgment against Mr Knowles on his guarantee. This evidence is directed towards an argument that Casata, through Mr Wall, deceived Mr Farr into refraining from defending the proceeding by promising him that it would not enforce any judgment against him and that that is enough to raise an estoppel against Casata and a proper basis upon which the Court should either make an order setting the judgment aside or stay any of it.

[49]   A sub-component of this argument is to be found in Mr Farr’s evidence and Mr Porter’s submission that Casata kept its word and refrained from seeking to enforce the judgment against Mr Farr for years. This is relied on as corroborative evidence supporting Mr Farr’s evidence that the promise was made in the first place.

[50]In my assessment, Mr Farr’s evidence in relation to this issue is not credible.

[51]   For a start, it is difficult to see how, when Casata had independent claims against Mr Farr and Mr Knowles, Mr Farr’s response to the claim against him would have affected the company’s ability to secure a judgment against Mr Knowles. That being so, it is not obvious to me that there was any reason for Casata or Mr Wall to make any representation or promise of the sort alleged.

[52]   Although Mr Farr said in his affidavit evidence that he did not have the benefit of legal advice at the time he chose not to take any step to defend Casata’s proceeding, from the correspondence it is quite clear that he was receiving advice from the late Mr Justin Toebes. It is inconceivable that Mr Toebes, known to the Court as a competent practitioner who specialised in debt recovery and insolvency, would have advised Mr Farr that he could rely on an oral promise and allow Casata to obtain a judgment against him.

[53]   In any event, in February 2014, Casata agreed to an adjournment of the proceeding requested by Mr Farr to allow him time to put together a settlement proposal. Then, in October 2014, a settlement  agreement  was  reached  in  which Mr Farr agreed to pay $100,000 in full and final satisfaction of his obligations under the guarantee. As it happens, he paid only $20,000. But the point is that if a promise not to enforce any judgment had been made by Casata or Mr Wall, Mr Farr would surely not have instructed Mr Toebes to make any settlement proposal.

[54]   At a later stage it is apparent that Mr Farr sought advice as to whether he had grounds to apply to set aside the judgment, and was advised that he did not.

[55]   It stretches credibility quite beyond endurance to suggest that had Casata made a representation to Mr Farr along the lines that he now claims, he would not have raised it at some stage before bankruptcy proceedings were commenced years later.

[56]   Finally, Mr Porter suggested that Mr Farr might have had defences to Casata’s claim. He mentioned the discussions that took place after the execution of the agreement to lease relating to the quantum of Mr Farr’s guarantee, Mr Farr’s claim that the indebtedness of Car Giant to Casata that was the basis for its claims under the guarantees having arisen after he had left the business, and potential claims against Mr Wall and possibly others.

[57]   I am not satisfied that the evidence supports any such claims. In any event, all of this was known to Mr Farr prior to the commencement by Casata of this proceeding and he appears not to have raised it with Mr Toebes and refrained from taking any steps to defend the claim against him.

[58]   I am not persuaded that there has been a miscarriage of justice so that the Court should exercise its discretion to set aside the judgment.

Conclusion

[59]The first defendant’s application is dismissed.

[60]   Costs are reserved. If counsel are unable to resolve costs, as I would expect them to be able to do, they may file and serve memoranda in the usual way and I will deal with costs on the papers.

Associate Judge Johnston

Solicitors:

Rickit Law, Wellington for plaintiff Langford Law, Wellington for first defendant