Chadda v Yasmine Holdings Limited
[2024] NZHC 2437
•29 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000847
[2024] NZHC 2437
BETWEEN NAVJOT CHADDA
Plaintiff
AND
YASMINE HOLDINGS LIMITED
Defendant
CIV-2024-404-000849 BETWEEN
NAVJOT CHADDA
PlaintiffAND
BHUMI HOLDING LIMITED
Defendant
Hearing: 5 August 2024 Appearances:
D Hoskin for the Plaintiff
D Purusram for the Defendants
Judgment:
29 August 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 29 August 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Steindle Williams Legal, Auckland Victorian Lawyers, Auckland
CHADDA v YASMINE HOLDINGS LTD [2024] NZHC 2437 [29 August 2024]
Introduction
[1] Gurpreet Singh required funds so that he could settle the purchase of a residential property in Clarks Beach, Auckland. Mr Singh had been unable to raise finance to complete the purchase, and he had negotiated an extension of the settlement date. An intermediary, Ms Neha Arora, introduced Mr Singh to the plaintiff, Navjot Chadda. Mr Chadda agreed to provide Mr Singh with bridging finance for two months.
[2] The loan was recorded in a Term Loan Agreement (loan agreement) dated 18 July 2022. The principal sum of $380,000 was repayable on 18 September 2022. The ordinary interest rate was 4 per cent per month. The default interest rate was 16 per cent per month, compounding monthly.
[3] The defendants, Yasmine Holdings Ltd (Yasmine) and Bhumi Holding Ltd (Bhumi), are companies associated with Mr Singh. Bhumi is a holding company for Mr Singh’s investment properties. Yasmine is a trucking company. The companies guaranteed Mr Singh’s obligations under the loan agreement pursuant to a Deed of Guarantee and Indemnity (guarantee and indemnity), also dated 18 July 2022.
[4] On 18 July 2022, Mr Chadda’s solicitor transferred $364,019 to Mr Singh’s bank account. The balance of the advance of $380,000 was applied towards the first month’s interest of $15,200 and Mr Chadda’s legal costs.
[5] The property purchase settled, and the property was transferred into the name of Bhumi.
[6] Mr Singh made further payments of interest of $15,200 to Mr Chadda on 2 August and 17 August 2022. Mr Singh failed to repay the advance of $380,000 on the due date of 18 September 2022.
[7] Mr Singh made further payments to Mr Chadda after his default, ostensibly of interest. The total amount paid by Mr Singh to Mr Chadda, excluding the amount deducted when the advance was made on 18 July 2022, is $111,200.1
[8] Mr Chadda has filed proceedings against Mr Singh in this Court for the outstanding principal sum of $380,000 and interest totalling $360,000. His application for summary judgment of his claim was also heard on 5 August 2024, by Associate Judge Brittain, with judgment reserved.
[9] On 4 March 2024, Mr Chadda served statutory demands on the defendants for the amounts they were said to be liable for under the guarantee and indemnity. The demands stated that the amount owing as at 17 February 2024 was $547,200, comprising the principal sum of $380,000 and accumulated interest of $167,200.2 The defendants did not comply with the statutory demands.
[10] On 12 April 2024, Mr Chadda filed applications to have Yasmine and Bhumi placed into liquidation based on the unmet statutory demands. The statement of claim filed in the proceeding against Bhumi pleads that Bhumi owes Mr Chadda
$741,050.10 as at 2 April 2024, comprising the $380,000 principal sum, interest at 4 per cent of $243,200, interest at 16 per cent of $243,200, a service fee of $184, and solicitors’ costs of $866.10, less the repayment of $126,400. The statement of claim filed in the proceeding against Yasmine pleads that Yasmine owes Mr Chadda
$741,373.13 as at 2 April 2024, comprising the $380,000 principal sum, interest at 4 per cent of $243,200, interest at 16 per cent of $243,200, a service fee of $184, and solicitors’ costs of $1,189.13, less repayments made of $126,400.
[11] The defendants have each made an interlocutory application for orders staying the liquidation proceedings and restraining publication on the grounds that there is a genuine dispute about the underlying debt, they have a counterclaim against Mr Chadda, and they are not insolvent. They say that the continuation of the
1 Chadda v Singh [2024] NZHC 2318 at [5]; Affidavit of Navjot Chadda in Support of Notice of Opposition to Application for Orders for Stay and Restraint of Advertising, dated 5 July 2024, at [24]. This amount is not clearly corroborated by the underlying records provided with Mr Chadda’s affidavit, but does not appear to be in dispute.
2 The statutory demand served on Yasmine is not in evidence, but is presumed to replicate the statutory demand served on Bhumi.
liquidation proceedings and publication thereof would be “unfair, unnecessary and inappropriate”.
[12] In written submissions filed for the hearing, Mr Purusram for the defendants advised that the applications to stay the proceedings were not pursued. At the hearing, Mr Purusram confirmed that these parts of the applications were withdrawn.
[13] Mr Chadda opposes the orders sought, saying that there is no genuine dispute about the debt underlying the statutory demands, the financial information provided does not establish the defendants’ solvency, and there is reason to believe that Mr Singh is transferring assets out of Bhumi to defeat Mr Chadda’s claim.
Legal principles
[14] Rule 31.11 of the High Court Rules 2016 supplements the Court's inherent jurisdiction and empowers the Court to stay any liquidation proceeding and restrain advertisements of liquidation proceedings:
31.11 Power to stay liquidation proceedings
(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company… may … apply to the court–
(a) for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b) for an order staying any further proceedings in relation to the liquidation.
(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3) The inherent jurisdiction of the court is not limited by this rule.
[15]The Court in Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd
set out a summary of the relevant principles as follows:3
3 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
(a)The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b)The jurisdiction to stay is an inherent one to prevent abuse of process. There is no inflexible rule.
(c)The governing consideration is whether the proceedings suggest unfairness or undue pressure.
(d)It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for an interim injunction. If the defendant company has had an opportunity to file appropriate affidavits they are required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.
[16] The power to restrain advertising may be exercised separately from the power to stay the proceeding.4
Is there a genuine dispute?
[17] The defendants claim that there is a genuine dispute over the debt underlying the statutory demands for three reasons. These issues also form the basis of their counterclaim.
4 Walls v Arbor Real Ltd (1994) 8 PRNZ 61 (HC) at 62; and Zenscape Ltd v Collective Contractors Ltd [2023] NZHC 1410 at [52].
[18] First, that the guarantee and indemnity is invalid and/or not binding on the defendants because they did not sign it and/or their signatures were not witnessed and/or there are irregularities in the documents.
[19] Second, that “the loan documents” were obtained by oppression and/or undue influence and/or misrepresentation and are therefore void or voidable.
[20] Third, Mr Chadda failed to comply with his statutory obligations as a creditor under a consumer credit contract, including the disclosure requirements prescribed in the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and registration as a provider of financial services under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA). The defendants argue that these failures by Mr Chadda render the loan agreement unenforceable, either under the CCCFA or as an illegal contract under s 73 of the Contract and Commercial Law Act 2017 (CCLA). They submit that it follows that the guarantee and indemnity is unenforceable.
[21]I address these arguments in reverse order.
Failure to comply with statutory obligations
[22] The defendants did not identify this issue as a ground in their interlocutory applications or in their primary written submissions. Mr Purusram raised the FSPA argument for the first time through “further submissions” filed and served on the Tuesday before the Monday hearing. He raised the CCCFA for the first time in oral submissions, explaining that Mr Singh was advancing this argument in defence to the application for summary judgment.
[23] In a judgment delivered on 19 August 2024, Associate Judge Brittain rejected this aspect of Mr Singh’s defence.5 The Associate Judge held that the loan agreement is not a consumer credit contract under the CCCFA because Mr Singh’s predominant intended use of the advance from Mr Chadda was to acquire a residential property as an investment.6 Further, Associate Judge Brittain held that while it is arguable that
5 Chadda v Singh, above n 1.
6 At [34]–[35].
Mr Chadda should have been registered under the FSPA, a credit contract is not an unenforceable illegal contract if the registration requirements are not met.7
[24] The matter the defendants look to raise is, as far as I can see, the same as the defence raised by Mr Singh against Mr Chadda’s claim under the loan agreement. This defence is res judicata.8
Oppression/undue influence/duress/misrepresentation
[25] The defendants’ interlocutory applications refer to “the loan documents” (the loan agreement and the guarantee and indemnity) being “procured by oppression and or misrepresentation and or undue influence”. Mr Purusram’s written submissions refer to “misrepresentation or duress or oppression or undue influence”. Mr Purusram did not elaborate on how the legal principles relevant to these concepts apply to the facts of this case, leaving the Court to guess. I understand the essential allegation to be that Ms Arora pressured Mr Singh to enter into the loan agreement and the guarantee and indemnity, did not disclose the contents of the loan agreement (including the default interest rate) or the guarantee and indemnity to Mr Singh, required Mr Singh to sign the documents in haste before he had the opportunity to read them, and then did not provide Mr Singh with copies of the documents until some months later. Ms Arora denies these allegations.
[26] Associate Judge Brittain records that in the alternative to the loan agreement being unenforceable or illegal, Mr Singh argued that the Court should re-open the loan agreement under Part 5 of the CCCFA on the grounds of oppression.9 Mr Singh argued that the default interest rate and Mr Chadda’s exercise of his right to claim the default interest is oppressive. He also argued that he was induced to enter into the loan agreement by the oppressive conduct of Ms Arora, acting as Mr Chadda’s agent.10
7 At [44]–[49].
8 Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.
9 At [8].
10 At [62].
[27] Alternatively, Mr Singh argued that Ms Arora was guilty of misleading or deceptive conduct in breach of the Fair Trading Act 1986 which induced him to enter into the loan agreement.11
[28] Associate Judge Brittain found that it was arguable that Ms Arora was acting as Mr Chadda’s agent.12 Relevantly, he also found that the allegation that Ms Arora misled Mr Singh about the terms of the loan needs to be tested at trial.13
[29] The Associate Judge held that it is arguable that the default interest rate is oppressive, and higher than was reasonably necessary to protect the interests of Mr Chadda as creditor. He decided that a final determination of whether the loan agreement is oppressive would require factual findings on disputed evidence, and potentially expert evidence on reasonable standards of commercial practice, and that these matters could not be determined on an application for summary judgment.14
[30] However, he concluded that even if Mr Singh succeeds with a claim of oppression, or misleading or deceptive conduct, and the Court is prepared to re-open the loan agreement, the issue for the Court will be the interest component.15 Associate Judge Brittain did not consider it arguable that discretionary relief from the Court will extend to extinguishing Mr Singh’s obligation to repay the principal.16 Indeed,
Mr Singh’s counsel acknowledged that the principal sum must be repaid.17
[31] On that basis, Associate Judge Brittain entered summary judgment for the outstanding principal ($364,019) less the cash payments made by Mr Singh (totalling
$111,200), an amount of $252,819.18 This was on the basis that if the loan agreement is re-opened and all interest is extinguished, the cash payments made by Mr Singh might be applied to the principal.19
11 At [8] and [91].
12 At [78].
13 At [82].
14 At [85]–[86].
15 At [88] and [93].
16 At [93].
17 At [88].
18 At [96].
19 At [90].
[32] Consequently, there is no dispute that Mr Singh is indebted to Mr Chadda for the principal sum less the cash payments he has made, an amount of $252,819. If the guarantee and indemnity is valid and binding on Yasmine and Bhumi, there can be no dispute that they are liable to Mr Chadda in this same amount.
[33] As far as I can discern, the allegations about Ms Arora that form the basis for the defendants’ claims of misrepresentation/oppression/undue influence are the same as the allegations underlying Mr Singh’s defence of misleading and deceptive conduct. Associate Judge Brittain determined that these allegations should be determined at trial. If there are any subtle differences, and for the avoidance of doubt, I concur that the allegations cannot be dismissed as inarguable at this stage. But these issues go to the interest component of the outstanding sum only. The principal, as Mr Purusram also accepted, is indisputably owed.
Guarantee and indemnity invalid and/or not binding
[34] However, the defendants claim that the guarantee and indemnity is not valid and binding on them. They point to the fact that while Mr Singh signed on the “Signature of Guarantor” lines, he did not delete any of the options underneath of “Director / Trustee / Authorised signatory / Attorney”. The note under those options states “If no option is deleted, the signatory is signing in their personal capacity”.
[35] I reject the submission that this means that the defendants are not bound by the guarantee. The defendants are identified as the guarantors on the front page of the deed. Mr Singh is the sole director of the defendant companies. It cannot seriously be suggested that Mr Singh signed the documents in his personal capacity.
[36] I note also that several payments were made to Mr Chadda from the bank account of Yasmine.
[37]Further, s 18(1)(b)(iii) of the Companies Act 1993 provides the following:
18 Dealings between company and other persons
(1) A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
…
(b) a person named as a director of the company in the most recent notice received by the Registrar under section 159—
(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
…
[38] As the sole director of a company customarily has “all powers necessary for managing… the business and affairs of the company”,20 this provision prevents the defendants from asserting against Mr Chadda that Mr Singh did not have the authority to bind the companies by signing the guarantee and indemnity.
[39] The next issue raised is that Mr Singh’s signature has not been witnessed. A note at the bottom of that page of the deed states:
Note: Signing by a company – Companies must sign this document in accordance with section 180 of the Companies Act 1993, to ensure it is binding as a deed. In general, this means:
…
(b) if there is only one director of the company, that director signs and the signature must be witnessed.
[40] It is undisputed that Ms Arora was present when Mr Singh signed the loan agreement and the guarantee and indemnity. However, she did not record that she witnessed Mr Singh signing the guarantee and indemnity. Section 180(1)(a)(ii) of the Companies Act provides that an obligation which, if entered into by a natural person, would be legally required to be by deed, may be entered into on behalf of a company that has only one director in writing and must be signed by that director, whose signature must be witnessed. There is, therefore, a reasonable argument that this is not in fact a binding deed.
[41] However, a guarantee does not need to be in deed form in order to be valid.21 Where consideration is given, the guarantee only needs to be recorded in writing and
20 Companies Act 1993, ss 127(b) and 128(2).
21 ANZ Bank New Zealand Ltd (formerly ANZ National Bank Ltd) v Calvert [2013] NZHC 3169 at [24].
signed by the guarantor (and the signature does not need to be witnessed).22 This applies even where guarantees are intended to be effected in the form of a deed, but are invalid as deeds — this Court has held that a guarantee expressed to be a deed will not be unenforceable as a contract merely because it is not executed as a valid deed.23 The consideration requirement is satisfied as the consideration that a lender provides for a guarantee can simply be their agreement to advance the loan to the principal obligor.24
[42] Section 180(1)(b) of the Companies Act provides that an obligation which, if entered into by a natural person, is, by law, required to be in writing, may be entered into on behalf of a company in writing by a person acting under the company’s express or implied authority. As discussed already, as the sole director of Bhumi and Yasmine, Mr Singh is deemed to have had authority to enter into the contract of guarantee on behalf of those companies.
[43] I therefore accept Mr Chadda’s submission that the guarantee and indemnity is valid as a contract of guarantee.
[44] Next, the defendants submit that the guarantee and indemnity is defective because it does not attach the loan agreement. I reject that concern. The second page of the document requires the obligations of the principal obligor to the beneficiary, the relevant documents under which the obligations arise, and monies which may be payable in respect of them, to be described. The deed identifies the “Term Loan Agreement of even date”. I see no requirement that the loan agreement is attached. Furthermore, in this case, the two documents were executed together.
[45] Finally, the applicants identify two errors in the document. The front page of the guarantee and indemnity appears to be dated 18 February 2022 when the last page is dated 18 July 2022. The last page refers to “SSA 2021 Limited” as the principal obligor, rather than Mr Singh. I do not see these issues as rendering the guarantee and
22 ANZ Bank New Zealand Ltd (formerly ANZ National Bank Ltd) v Calvert, above n 21, at [24]; Property Law Act 2007, s 27.
23 ANZ National Bank Ltd (formerly ANZ National Bank Ltd) v Calvert, above n 21, at [24]–[31].
24 ANZ Bank New Zealand Ltd (formerly ANZ National Bank Ltd) v Calvert [2013] NZHC 1624, (2013) 14 NZCPR 361 at [32].
indemnity invalid. They are obviously mistakes. It is not disputed that Mr Singh executed the guarantee and indemnity on 18 July 2022 together with the loan agreement. It is also not disputed that the principal obligor is Mr Singh.
[46] Additionally, Mr Purusram raises several issues with the loan agreement, including that the annexure schedule “is vague” as it records “4% per annum.month” as the “lower interest rate” and ”16% per annum.month” as the “higher interest rate”, it states that the loan expires on 18 July 2022, it is not signed by the guarantors, it does not attach the guarantee, and it describes a mortgage over a property in Papakura.
[47] These objections do not appear to have been raised by Mr Singh in the summary judgment proceeding concerning the loan agreement. The date of 18 July 2022 is plainly an error. The defendants are identified as the guarantors on the front page of the loan agreement. There is no requirement that the guarantee be attached to the loan agreement. I am unable to follow how the identification of a mortgage over a property owned by Bhumi in the loan agreement is problematic.
[48] Consequently, I reject the defendants’ case that there is a genuine dispute over whether the guarantee and indemnity is valid and/or binding on the defendants. To the extent that these same issues form the basis for the purported counterclaim, I find that the counterclaim is not arguable.
The defendants’ solvency
[49] In support of their application, the defendants also submit that they are “financially stable”. Recent authority has established that the solvency of a company that is subject to liquidation proceedings is generally unlikely to constitute a standalone ground for staying liquidation proceedings and/or restraining advertising.25 As recognised in Gill Construction Co Ltd v Butler, restraining the advertisement of liquidation proceedings on the basis that they are “unfair or improper” because the defendant company is solvent risks allowing solvent companies to “avoid what is an effective statutory mechanism for paying amounts that are established as due”.26
25 Gill Construction Co Ltd v Butler [2010] 2 NZLR 229 (HC) at [24]–[26].
26 At [25]–[26].
[50] In any event, the financial information provided by the defendants does not show that they are solvent. Some information is provided for Yasmine in the form of a series of “contractors tax invoices” for the month of March 2024 and “revenue summary reports” for individual trucks for February and March 2024. Yasmine has not provided evidence of cash reserves or any financial statements showing its assets or liabilities. There is no information provided for Bhumi at all.
Conclusion and result
[51] The defendants have guaranteed Mr Singh’s due payment of his indebtedness under the loan agreement. This Court has found that Mr Singh has no defence for the principal less cash payments made by Mr Singh, an amount of $252,819. It follows that there can be no genuine dispute that the defendants are liable to Mr Chadda for Mr Singh’s indebtedness in that amount.
[52] In these circumstances, I consider it appropriate to provide the defendants with an opportunity to pay this undisputed sum. If they do not pay the undisputed sum, there can be no oppression or unfairness in permitting the liquidation proceedings to continue and to be advertised.
[53] However, if the undisputed sum is paid by Mr Singh or the defendants, it will be an abuse of process for the liquidation proceedings to continue. The balance of the outstanding sum is the subject of a genuine dispute. Mr Singh has an arguable claim to have the loan agreement re-opened under Part 5 of the CCCFA on the grounds of oppression; and Mr Singh, Bhumi and Yasmine have an arguable claim that Ms Arora made misrepresentations to and misled Mr Singh about the terms of the loan agreement and the guarantee and indemnity.
[54]Consequently, I order:
(a)the defendants are to pay the undisputed principal sum of $252,819 within five working days;
(b)if the payment is made, the liquidation proceedings are stayed, Mr Chadda is prohibited from advertising the proceeding, and the hearing of the applications is vacated;
(c)if the principal sum is not paid within five working days, the proceedings may be advertised, and the hearing scheduled for 28 November 2024 will proceed.
[55] Counsel for Mr Chadda is to promptly inform the Court if payment is made under [54](a).
[56]Costs are reserved.
Associate Judge Gardiner
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