DB Breweries Limited v McCann HC Nelson CIV-2011-442-000119

[2011] NZHC 1678

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2011-442-000119

BETWEEN  DB BREWERIES LIMITED Plaintiff

ANDBARRY JOHN MCCANN Defendant

Hearing:         24 August 2011

Counsel:         A Shakespeare for Plaintiff

Defendant appears In Person

Judgment:      20 September 2011

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      The plaintiff (DB) has applied for summary judgment against the defendant (Mr McCann) in the sum of $63,576.57.  The claim comprises a sum owing to DB by Irish Hospitality Limited, now in liquidation, on current account for liquor supplied to the company’s bar and restaurant “House of Ales”, together with interest, costs on a solicitor client basis, and disbursements.  Mr McCann is the guarantor of the  indebtedness  of  Irish  Hospitality  Limited  to  DB.    Under  the  terms  of  the guarantee he also agreed to pay interest at the base commercial lending rate charged by DB’s primary banker, plus 5 percent – in this case 15.8 percent.  He also agreed to pay costs incurred in recovery of sums owing, on the above basis.

[2]      The defendant does not deny the existence or validity of the guarantee, nor the quantum of the claim.  He maintains, however, that he has three defences to the claim:

(a)     Estoppel, based on an alleged promise by the plaintiff that it would not pursue  him  for  the  shortfall,  a  promise  on  which  he  relied  to  his

detriment.

DB BREWERIES LIMITED V BARRY JOHN MCCANN HC NEL CIV-2011-442-000119 20 September 2011

(b)A contract with DB based on the same promise, in respect of which Mr McCann  says  he  provided  consideration  including  assistance  to achieve an optimum sale price for the business.

(c)    Conduct  by the plaintiff preventing it  enforcing the  guarantee,  that conduct resulting in a reduction of $15,000 in a sale price which could otherwise  have  been  achieved,  and  the  incurring  of  an  additional

$38,000  in  liquidator’s  fees,  thereby leaving  a  shortfall  of  $53,000 which is a sum exceeding the entire debt of Irish Hospitality Limited at the time of sale.  Although well short of the sum now claimed, interest would not have been incurred, nor costs, so Mr McCann’s liability would have been extinguished.

Principles of summary judgment

[3]      Before  the  Court  can  enter  summary  judgment  for  a  plaintiff  against  a defendant, the plaintiff must satisfy the Court that the defendant does not have a defence to the claim (r.12.2 of the High Court Rules).  The onus is on the plaintiff to satisfy the Court.   However, although the evidentiary burden remains throughout with the plaintiff, it is for a defendant to introduce sufficient evidence to demonstrate

the existence of a tenable defence (Pemberton v Chappell;[1] Auckett v Falvey[2]).

[1] [1987] 1 NZLR 1

[2] HC Wellington CP296/86, 20 August 1986, Eichelbaum J

[4]      The Court will generally refrain from attempting to resolve genuine conflicts of evidence or to assess the credibility of the statements made by deponents in affidavits. As noted by Greig J in A-G v Rakiura Holdings Ltd:[3]

[3] (1986) 1 PRNZ 12 at p 14

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them.  On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331, at

341 E, the judge is not bound

“ to accept uncritically as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.”

The factual basis of the defendant’s case

[5]      Irish Hospitality Limited was placed in liquidation by the High Court on

3 November 2010.  The Court appointed Rhys Cain as liquidator.  On 4 November Mr Cain travelled to Nelson and held a meeting at the premises of the company, with the defendant, the defendant’s wife, David Allpress, a businessman present at the meeting to represent the landlord of the company’s premises, and two other men representing  a  prospective  purchaser  of  the  company’s  bar,  Battersea  Projects Limited.   Battersea and the company had entered a conditional agreement for Battersea to buy the bar for $150,000, on 29 October 2010.   Mr Cain said in his affidavit that the purpose of the meeting was to bring the agreement to a close and ensure that the sale went through, as he considered the price was fair, given that the business had ceased to trade and if the agreement was confirmed and settled, the liquidation would be completed at minimum cost, maximising returns to creditors, particularly secured creditors.

[6]      The sale agreement was conditional upon Dominion Breweries assigning to the purchaser its supply agreement, or granting to the purchaser a supply agreement on terms satisfactory to both the vendor and the purchaser.  It was also subject to full due diligence, including the purchaser being satisfied with the lease of the premises.

[7]      In  the  event,  both  of  these  conditions  proved  to  be  stumbling  blocks. Battersea was unable to reach an agreement with DB that it found to be satisfactory. There were arrears of rental amounting to some $20,000 which the landlord required to be paid.   This was accommodated in an arrangement made at the meeting, provisionally, but later there were further disagreements and in the end this contract was not confirmed.   Other parties later entered conditional contracts to buy the business but these contracts, too, did not become unconditional.   Later Battersea entered a new contract at a price of $135,000, $15,000 lower than the price under the first contract.  By that time additional expenses had been incurred in the liquidation amounting to some $38,000.  Therefore by the time the company’s sole asset was sold the position was some $53,000 worse than when the meeting took place on

4 November.  It is necessary now to examine the evidence on what was said at that meeting as it is of direct relevance to the first and second claimed defences.

[8]      Mr Allpress swore two affidavits.   In the first he stated that prior to the meeting on 4 November he had not met Mr Cain.  At the meeting he said to him words to the effect that he was concerned as to the personal safety of the defendant and he probably went on to make reference to his having lost everything.  He stated that Mr Cain’s response was that it was clear that the defendant had not hidden anything and that he is just one of many in “this predicament within the hospitality industry”.  Mr Allpress then said:

I said to Mr Cain something very similar to “if he is pressured it would be unbearable for Barry” and Mr Cain indicated (by word and body language) that he though DB would be unlikely to pursue Barry.  He then said words very similar to “I’ll make a phone call and clarify that”.   Mr Cain went towards the door opening to the street but remained inside, and phoned DB. Obviously I only heard one side of the conversation but I heard Mr Cain explain the concern to the person he was talking to on the other end of the phone.  He then hung up.  Mr Cain then came back to Barry and Liz (the defendant and his wife) and me and said words very similar to “so long as you continue to cooperate you will not be pursued by DB”.  He might have added (after the word “cooperate”) words similar to “with the liquidation and disposal of the business but I am not sure of that.

The 3 of us (Barry, Liz and me) were all sitting on the tall bar stools. Mr Paul Max was also present.

At the end of the discussion, as “everyone” was preparing to leave the building Mr Cain said to the group at large, but directed to Barry and Liz, words similar to “Barry and Liz, this will be the best sleep you have had in years.  It’s all been taken away from you now. The worry is gone”.

(The words in italics are mine).

[9]      Mr Allpress went on to say that this led to an emotional response from the defendant and from his wife, Liz, to a greater extent.

[10]     In his first affidavit in opposition to this application the defendant deposed that he had read the affidavit sworn by Mr Allpress and confirmed the evidence Mr Allpress gave about statements made at the meeting.

[11]     In support of the application for summary judgment DB filed an affidavit from its South Island credit manager, Lynette Grant setting out the basis of the plaintiff’s claim.   After service of the affidavits in opposition Ms Grant swore a further affidavit.   She stated that she knew and had worked with Rhys Cain on a

number of occasions as a liquidator or receiver of bars in which DB has a financial interest.

[12]     Ms Grant said the following:

I recall the conversation with Rhys Cain on 4th  November 2010 although I

made no note of the conversation.

I recall Mr Cain called me and said that he was with Mr McCann and that he had made some rough calculations about the potential of recovery out of this company.   He advised me that based on his calculations, DB would likely recover approximately $60,000 of its loan.  He said that he had had a very helpful meeting with Mr McCann who was being cooperative with the sale process, and asked, on that basis, whether DB would pursue Mr McCann under his personal guarantee.

I indicated that if DB had a shortfall of only $5,000 or so we would probably not elect to pursue Mr McCann but that of course would depend on his cooperation with completing the sale.  I indicated to Mr Cain that he could relay my indication to Mr McCann.

[13]     DB also filed an affidavit from Mr Cain.  He gave detailed evidence of the meeting.  After relating the point that negotiations in relation to the sale contact had reached by the end of the meeting, he said:

It is true that at that meeting Mr and Mrs McCann were understandably emotional and Mr Allpress indicated to me his concerns about Mr McCann. It is also true that Mr McCann inquired of me about the potential of further proceedings against him by either the IRD or DB Breweries.

At this stage we had just negotiated an agreement that would result in the sale of the company’s assets for effectively $150,000.  Based on my rough calculations   of   the   anticipated   receipts   and   required   payments   as   I understood them to be at the time, based on information Mr McCann and Mr Allpress provided to me, I believed that the first secured creditor, the bank, would be paid in full and that the second ranking secured creditor, DB Breweries, may be short approximately $5,000.

I explained to Mr McCann that it was possible that DB Breweries would not pursue him for the $5,000 balance given it was quite small.  Indeed I rang Lyn Grant at DB Breweries to ask her for her views.  I made the case for Mr McCann saying that he had been helpful and would continue to be so and explained my view that, based on the information I had, DB Breweries would likely be left with a shortfall of only approximately $5,000.  Based on that information Lyn Grant indicated to me that it was unlikely that DB Breweries would pursue Mr McCann under the guarantee.

I relayed this information to Mr McCann and reiterated that, assuming his continued cooperation with the sale which would see DB Breweries receive

just $5,000 less than its full debt, DB Breweries had indicated they would not pursue him for the balance.

[14]     Mr Cain produced a note he had made of the meeting, but it does not make any reference to his conversations with Ms Grant or Mr or Mrs McCann.

[15]     Mr McCann and Mr Allpress then swore, filed and served a further affidavit, with a jointly sworn portion and a separately deposed portion by each.  In the first portion they stated that they did not consider that Mr Cain’s affidavit “tells the full story”. They then stated:

As to paragraph 11 of Mr Cain’s affidavit: no figures were put on paper at that meeting to show that DB would only lose approximately $5,000.  We accept that Mr Cain might have done the figures in his head – but we are adamant that he didn’t do them in writing and he did not mention any figure to us.

[16]     As to paragraph 12 of Mr Cain’s affidavit:

Both of us heard all the discussion that took place between Mr Cain and Mr McCann and we deny that there was any mention of there being a $5,000 balance.  No figure whatsoever was articulated by Mr Cain.

[17]     As to paragraph 13 of Mr Cain’s affidavit:

Again, we deny that there was any mention of the figure of $5,000.  What Mr Cain said to us (after the phone call to somebody from DB – whom we now know to be Ms Grant) was that DB would not pursue Mr McCann on his personal guarantee; so long as he continues to cooperate.

[18]     In his separate portion of the affidavit Mr Allpress advised that he is retired and in addition to handling his own investments, assists people in financial distress. In this case he was called in to assist the landlord in its negotiations over the sale of the business and the prospective purchaser, as a tenant, the landlord being the Nelson Women’s Club Incorporated. After outlining some of the potential difficulties for the landlord, Mr Allpress said that at the meeting he had no understanding, either general or detailed, of the debt position of Mr McCann apart from the fact that he was unable to pay the rent.   He was not in a position to his own calculations as to whether a given sale price of the assets and business would clear the DB debt or not.   He reiterated the evidence he had given earlier about there being no mention at any time

in the discussions between Mr Cain, Mr McCann and himself of the figure of $5,000, or any sum.  He then said:

I am emphatic in saying that had any figure whatsoever been mentioned (be it $5,000 or anything), I would immediately have responded along the lines of asking for how the calculation took place giving rise to such figure.  If Mr Cain has set out the figures to me (either orally or in writing) I would immediately have asked him “What is the position if this sale collapses and the property is sold eventually for a lesser sum?”  I didn’t ask that question but the only reason was that no figure had been mentioned, and I understood that  Mr  Cain  had  given  an  undertaking  to  Mr  McCann  that  provided Mr McCann took all reasonable steps to assist the sale process, and the settlement thereof, DB would not pursue him (under his guarantee) for any shortfall.

I accept (from my experience with people who have financial difficulties) that sometimes in the stress of discussion the debtor may misunderstand what a creditor is actually saying – or at least meaning.  I would described myself as the dispassionate observer and participant in the discussion, and I believe that I would not have misunderstood the precise words Mr Cain used, or the tenor of them.

[19]     There is a conflict in the evidence between Mr Cain, on the one hand, and Mr McCann and Mr Allpress, on the other hand, the conflict being whether there was any mention of the position of DB in relation to later enforcing its guarantee being confined only to the circumstance of the outstanding balance of the account being around $5,000.  There is no contemporaneous file note or other document making reference  to  this  issue,  on  which  I might  draw  for  assistance  in  resolving  this conflict.  Nor is either version of the facts inherently more probable or improbable than the other.   Looked at from Mr Cain’s perspective, there seems no reason to doubt that he had worked out some provisional figures for a possible outcome of the liquidation  based  on  a  sale  price  of  $150,000  but  there  is  nothing  to  give  me guidance on whether to accept that he gave this information  to Mr McCann or whether he did not.  Perhaps it is slightly more likely that Mr Cain would have rung DB to inquire about its attitude to pursuing the balance if it was only $5,000, than it would be if the balance was some $50,000, but that is insufficient to assist.  I note, too, that although Ms Grant referred to a possible shortfall of $5,000, she does not say that Mr Cain gave her this figure, whereas he maintains that he did.

[20]     Counsel for DB, Ms Shakespeare, argued that it was not necessary to resolve this conflict because the crucial issue was the extent to which, if at all, DB had

appointed Mr Cain as agent to make a representation to Mr McCann.  Reference to Ms Grant’s evidence quoted earlier confirms that Mr Cain did inquire whether DB would pursue Mr McCann under its personal guarantee.  She said that Mr Cain told her of DB’s likely recovery, on the basis of some rough calculations.  She authorised Mr Cain to relay her indication of DB’s position to Mr McCann, and that indication was, on her evidence, that if DB had a shortfall of only $5,000 or so it probably would not elect to pursue Mr McCann, though that would depend on his cooperation with completing the sale.

[21]     On the basis of this information I find it to be arguable that DB expressly appointed Mr Cain its agent.   There is, however, an issue about the scope of the authority DB gave to  Mr Cain.   Ms Grant’s evidence is that he could relay an indication of DB’s position, based on there only being a shortfall of around $5,000 or so.  On this point Mr Cain’s evidence is to the same effect, and it is this which he said he relayed to Mr McCann.  Mr McCann and Mr Allpress, however, both say that no such limitation was expressed.

[22]     Ms Shakespeare argued that whether Mr Cain went outside the scope of his authority as agent was irrelevant because his authority was in fact limited and the principle is only bound to the extent of the agency given.   She pointed out that Mr Cain stated in his affidavit that he was not the agent of DB.  On the other hand, Ms Grant clearly stated that she authorised Mr Cain to relay her stated position to Mr McCann, which is sufficient on the evidence before me, and on an application for summary judgment, to be satisfied that arguably Mr Cain was appointed as agent by DB, leaving a further inquiry as to the scope of that appointment.   If Ms Grant’s evidence is accepted in relation to the limitation she placed on the indication that Mr Cain could give, and if the evidence of Mr Allpress and Mr McCann is accepted to the effect that no such limitation was expressed, Mr Cain would have gone outside the scope of his agency and DB would not be bound.

[23]     However, after considering the evidence as a whole I am not satisfied that the evidence of Ms Grant can be accepted on its face.  The limitation of her indication of position to a shortfall of $5,000 or so was based on her having been given a likely recovery figure by Mr Cain, in the conversation which took place on 4 November.

But in his paragraph 22 of his second affidavit Mr Allpress referred again to mention of the figure of $5,000, and stated that had any figure whatsoever been mentioned,

$5,000 or another figure, he would have responded to inquire about how the calculation of that sum had been made. Although he stated that this did not occur “in the  discussion  between  Mr  Cain,  Mr McCann  and  me”  rather  than  by  specific reference to the side of Mr Cain’s conversation with Ms Grant that he also heard, in the context of the meeting and the telephone conversation having occurred in one room the reference to the discussions between those three parties is arguably sufficiently broad to encompass the period during those discussions where Mr Cain moved towards the door onto the street, though remaining inside the building, and made the call.   He was close enough for his side of the conversation to be heard, according to the evidence.

[24]     Therefore  had  the  rough  calculations,  and  a  possible  account  balance  of

$5,000  been  discussed  with  Ms  Grant  on  the  telephone,  both  Mr Allpress  and Mr McCann are likely to have heard, and both say it did not occur.  Crucially, as it was the relaying of the rough calculations which Ms Grant states she relied on to formulate her instruction to Mr Cain to relay DB’s position with a $5,000 limitation upon it, a real doubt is raised about whether that limitation was in fact expressed. Without the rough calculations, it is unclear how Ms Grant would have come up with such a figure.

[25]     This conflict, also, cannot be resolved on the affidavits before me. The extent of the scope of Ms Grant’s express appointment of Mr Cain as DB’s agent to relay DB’s position to Mr McCann is a matter requiring determination in favour of DB if the  potential  defence  of  estoppel,  and  the  potential  defence  of  accord  and satisfaction, are to be found to be inarguable.  If after the evidence is tested at trial it is found that Ms Grant did not place the limitation she has described on the information that could be passed onto Mr McCann, then a promise by DB not to rely upon its strict legal rights will have been established.  The evidence is contradictory in material respects as it stands at present.

[26]     The defendant further maintains that he relied on the undertaking by DB in the terms he maintains it was given, by continuing to assist with the liquidation and

in particular with the sale of the business so that the highest possible sale price could be achieved, to the benefit of DB. Amongst other matters he assisted with the stock- take after the sale and provided assistance to DB’s day to day representative, Mr Paul Max,   and   to   Mr   Cain   the   liquidator,   in   maximising   the   sale   proceeds. Ms Shakespeare submitted that Mr McCann could not point to any detriment which he suffered as a result of the belief on DB’s position that he maintains he had, beyond his disappointment, now, in not being released from his obligations under the guarantee.   The only detriment was, in her submission, lost time or earning opportunity.   She submitted that equity would redress this, if established, by compensating  for  that  time  or  opportunity,  relying  on  Krukziener  v  Hanover

Finance:[4]

... the departure from a voluntary promise is not unconscionable in itself, even if detriment results.  Rather, equity responds to the defendant creating or encouraging an assumption in the plaintiff, and its knowledge that the plaintiff will rely on the assumption to its detriment.  The plaintiff must have been led to believe that the promise would affect or result in legal relations: thus a promise made in negotiations that are subject to contract will not lead to an estoppel ...  Lastly, equity does not intervene to satisfy the promise, but to avoid the detriment.

[4] Krukziener v Hanover Finance (2008) 19 PRNZ 162

[27]     Estoppel is established where a belief or expectation is created or encouraged through some action, representation or omission to act by the party against whom the estoppel is alleged, where that belief or expectation has been relied upon by the party alleging the estoppel, where detriment will be suffered if the belief or expectation is departed from, and it would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation (Equity and Trusts in New

Zealand  (2nd   ed  Brookers  2009, Andrew  Butler),  cited  with  approval  in  South

Canterbury Finance Ltd v Hooker Ltd.[5]    Equity will act on the conscience of the party creating the belief or expectation if the circumstances described are made out. In some circumstances, that may be to compensate the promisee for the detriment. In others it will take the form of equity preventing the party whose conscience is affected from resiling from the promise.  If the elements of promissory estoppel are

made out at trial in this case, the remedy equity would give would be determined and

arguably that would include preventing DB from resiling from the promise it had made.

[5] South Canterbury Finance Ltd v Hooker Ltd HC Auckland CIV-2010-404-4947 Associate Judge Bell, 30 November 2010

[28]     The evidence for the defendant on the extent of his reliance on the promise he maintains was given is at best limited in its extent, but after considering it with care I cannot fairly eliminate as inarguable this element of the factual foundation for an estoppel.  The plaintiff does not contest that Mr McCann assisted in achieving a sale and  in  dealing  with  the  handover  of  the  business  once  that  sale  was  effected. Mr McCann  was  the  former  publican,  in  Nelson,  and  available  to  assist.    The liquidator was an accountant, in Christchurch.  Certain tangible steps were required to complete a sale in this context.   There is sufficient before me to establish that Mr McCann took actions that he may not otherwise have taken, in reliance on the promise.   At trial DB might argue successfully that the appropriate remedy for Mr McCann would be some compensation for his efforts, but as I have indicated the remedy preventing DB from resiling from its promise remains available to the Court.

[29]     Ms Shakespeare submitted that in any event whatever Mr McCann is able to establish by way of reliance provided benefits to the liquidator, and not to DB.  On the information before me it seems that the Inland Revenue Department was to receive funds from the liquidation as a first priority and DB stood to receive the rest. A maximisation of the returns in the liquidation was therefore of direct benefit to DB.  Whilst Mr Cain was not the agent of the company, it would in this context be taking a fine point indeed to say that DB did not receive the benefits of the steps taken by Mr McCann in reliance on the promises, if those steps are established in evidence.   Certainly in the context of a summary judgment application I am not prepared to eliminate that prospect.

Outcome of the defence of estoppel

[30]     The plaintiff has not established that the defendant does not have an arguable

defence. Accordingly the plaintiff’s application for summary judgment is declined.

Further pleaded defences

[31]     Given my findings in relation to the first claimed defence it is unnecessary for me to deal with the second and third claimed defences and it is preferable in the circumstances that I refrain from doing so.

Costs

[32]     The defendant is entitled to costs on a 2B basis with disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Young Hunter, PO Box 929, DX WP 21513, Christchurch for Plaintiff

(Counsel – Amy Shakespeare. Email: [email protected]) Defendant – Mr B J McCann, 15 Suter Street, Stoke, Nelson 7011.