Dempsey v South Island Investments Limited
[2023] NZHC 1999
•28 July 2023
THIS IS A REDACTED VERSION OF THE JUDGMENT. THE REDACTED PART OF
PARAGRAPH [7] IS PERMANENTLY SUPPRESSED. PUBLICATION IN LAW REPORT OR LAW DIGEST PERMITTED OF THE REDACTED JUDGMENT.
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2023-412-16
[2023] NZHC 1999
BETWEEN NEIL ALLEN DEMPSEY
Plaintiff
AND
AND
SOUTH ISLAND INVESTMENTS LIMITED
First Defendant
KEVIN DAVID CARLIN
Second Defendant
Hearing: 25 July 2023 Appearances:
B B Gresson for Plaintiff
D J Anderson for First and Second Defendants
Judgment:
28 July 2023
REDACTED
JUDGMENT OF ASSOCIATE JUDGE LESTER
DEMPSEY v SOUTH ISLAND INVESTMENTS LIMITED [2023] NZHC 1999 [28 July 2023]
[1] In 2018, Mr Carlin sought funding from Mr Dempsey for a property development being undertaken by Mr Carlin’s company, South Island Investments Limited (SIIL).
[2]Mr Dempsey agreed to make two advances to SIIL. The first advance of
$300,000 is recorded in an agreement prepared by Mr Carlin dated 16 April 2018, the date the advance was made. The second advance of $200,000 was made on 28 September 2018 on similar but not identical terms to the 16 April 2018 agreement and again, that agreement was prepared by Mr Carlin and is dated 28 September 2018.
[3] Mr Dempsey says that in December 2018, both loans were consolidated on the same terms that applied to the 16 April 2018 agreement. A new loan agreement was not entered into in December 2018.
[4] Mr Dempsey says the loan principal of $500,000 plus interest has been properly called up and he seeks summary judgment against SIIL as borrower and against Mr Carlin as guarantor.
[5] Mr Carlin and SIIL have applied for dismissal or stay of the proceeding as the 16 April 2018 loan agreement (as did the 28 September 2018 loan agreement) contains an obligation on the parties to attend mediation in the event there is a dispute. Mr Carlin asserts there are the following disputes:
(i)that while neither the 16 April 2018 or 28 September 2018 agreements link repayment of the loans to the completion of SIIL’s development, that was in fact agreed by Mr Dempsey;
(ii)that while the loan documents record “A personal guarantee is offered by [Mr Carlin]…”, that offer was not accepted and/or at no time was a guarantee reduced to writing and/or signed by Mr Carlin;
(iii)as to the calculation of interest; and
(iv)if Mr Carlin did guarantee the two advances, he disputes his guarantee survived the consolidation of the loans in December 2018.
[6] Mr Dempsey opposes the application for dismissal or stay on the grounds that there is no dispute between the parties that could be referred to mediation. Mr Dempsey says the disputes raised by the defendants are not bona fide, genuine or real disputes. Even if there is a dispute concerning the interest, there is no dispute in relation to principal and at least his claim for judgment for the principal should be permitted to proceed.
The terms of the 16 April 2018 agreement
[7]I set out the terms of that agreement in full, given the issues I need to address.
LOAN AGREEMENT
Lender:
Neil Dempsey
Borrower:
South Island Investments 20 Athol Street Queenstown
Loan agreement terms:
1. The loan amount:
NZD $300,000 to be transferred to:
South Island Investments Bank of New Zealand [REDACTED]
2. Interest Rate:
16% per annum.
Interest is to be paid in one lump sum at the same time the loan is repaid on the Repayment date stated below.
3. Repayment date:
·6 months from the date of loan transfer. Proposed for 16 April 2018
·30 business days prior to the repayment date the lender may either call for the termination of the loan or extend for a further 6 month term.
·The 6 months terms may be extended for up to 5 further terms by mutual agreement of both parties.
·If the loan term is extended the principle and interest will roll over until the next 6 month term expires.
·The full principle and interest will be repaid to the lender by the borrower six months after the term commences if written notice is issued by the lender to terminate the loan.
5. Person Guarantee:
A personal guarantee is offered by Kevin David Carlin for the repayment of the loan principle and interest. The Company South Island Investments Ltd. Also offers its guarantee to Mr. Dempsey.
If there is a dispute the parties agree to the mediation process prior to any legal proceedings.
Thank you for your support and confidence Neil.
[signed in handwriting by Mr Carlin]
Date: 16 April 2018
Kevin D. Carlin
Sincerely,
Kevin CarlinManaging Director
South Island Investments Ltd.
Legal principles
[8] Rule 15.1(d)(1) of the High Court Rules 2016 permits the court to strike out a proceeding if it is an abuse of the court’s processes. Rule 15.1(3) provides:
Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
[9] One of the categories where a stay is appropriate is where the parties have agreed to alternative methods of dispute resolution. The presence of an agreement to mediate can warrant a stay.1
[10] The defendants filed a notice of appearance protesting jurisdiction, meaning they have not submitted to the jurisdiction of the Court. The onus is on a defendant who protests the Court’s jurisdiction to establish that the Court does not have jurisdiction.
[11] In Braid Motors Ltd v Scott, the Court held that an agreement to go to mediation will be enforced by the Court directing a stay of proceedings if it is appropriate to do so and the agreement is sufficiently certain. The Court said it would invoke the general power to grant a stay where to not do so would be to allow an abuse of process. As the Court noted:2
If [the parties] have contractually bound themselves to attend mediation and the process is sufficiently certain …then the parties will be kept to the bargain
1 Braid Motors Ltd v Scott (2001) 15 PRNZ 508 (HC).
2 At [33].
they have made. To allow otherwise would be to permit an abuse of process of the Court.
[12] The Court went on to note:3 “The question for the Court in each case is whether the agreement to mediate is sufficiently certain in the circumstances of the case.”
[13] In Braid Motors Ltd, the agreement to mediate was held to be sufficiently certain. The terms were clear and in writing and set out fully the process to be followed. The parties in that case had bound themselves to a clear mediation process and a stay of proceedings was ordered.
[14] However, the Court has declined to grant a stay of proceedings where the mediation agreement is uncertain. In Efstratiou v Archaeology North Ltd, the mediation agreement was described as being; “simply devoid of any provisions as to process”.4
[15] In Jones v Tasman Motorcamp 201 Ltd, Justice Gendall noted the importance of the clarity of the process under the mediation clause.5
[16]In Braid Motors Ltd, Master Venning (as he then was) said:
The Court may invoke either the general provision of r 477(c) [the predecessor to r 15.1] or its inherent jurisdiction to stay proceedings that are otherwise properly before the Court where the parties have agreed on an alternative method of dispute resolution (i.e. have agreed to go to mediation) and that agreement is sufficiently certain … if they [the parties] have contractually bound themselves to attend mediation and the process is sufficiently certain either from the express terms of the agreement or otherwise from terms that may properly be implied, then the parties will be kept to the bargain they have made. To allow otherwise would be to permit an abuse of process of the Court. (emphasis added)
[17] In Efstratiou, the dispute resolution provision did not in fact refer to the parties having to attend mediation.
3 At [38].
4 Efstratiou v Archaeology North Ltd HC Whanganui, CIV-2011-483-175, 7 September 2011.
5 Jones v Tasman Motorcamp 2011 Ltd [2022] NZHC 207.
The 16 April 2018 agreement – is it a valid mediation agreement?
[18]The clause in question in the 16 April 2018 agreement is:
If there is a dispute the parties agree to the mediation process prior to any legal proceedings.
[19] “The mediation process” is not defined in the 16 April 2018 agreement. The reference to mediation is part of paragraph 5 of the agreement (there being no paragraph 4). It may be that the mediation provision was lifted from another agreement.
[20] There is nothing in the 16 April 2018 agreement in respect of the process for mediation beyond that which I have set out above. However, as the then Master Venning’s decision shows, it is possible to imply terms to make the mediation agreement workable. Further, if the court is satisfied that the mediation agreement is binding then through the imposition of conditions it can, for example, prescribe time limits for the completion of mediation as occurred in Jones v Tasman Motorcamp.
[21] Mr Anderson, counsel for the defendants, submitted that the processes around mediation are so well known that the basic terms can easily be implied. For example, he said that a party would have to, within a reasonable time, provide notice of their dispute and propose a mediator. The party receiving the notice would either agree to the proposed mediator or nominate an alternative mediator. Once these steps were complete, mediation could occur. Mr Anderson submitted that the default rule in mediation is that the cost of mediation is shared by the parties equally.
[22] I am satisfied that the parties agreed to mediate all disputes between them, not merely those related to Mr Carlin’s guarantee – that being the extent of the mediation clause argued for by Mr Gresson, counsel for Mr Dempsey. The fact that the clause appears to be part of the personal guarantee provision, in my view, is not determinative.
[23] In my view, there is no difficulty implying machinery terms to give effect to the parties’ agreement to mediate. Indeed, the fact that the parties’ agreement to mediate is in such short terms to such extent supports the argument that the parties understood
the mechanics of mediation. The Courts are willing to make contracts work as the parties must have intended. The Court is well used to requiring steps to be taken within a reasonable time where a contract is silent on the issue of timing.
[24] As to whether there is a valid dispute that should be referred to mediation, the Court will grant a stay unless it is immediately demonstrable either that the defendant is not acting bona fide asserting that there is a dispute or that there is, in reality, no dispute.6
[25] Mr Anderson also relied on Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, where Lord Mustill said:7
I believe however that care should be taken not to confuse a situation in which the defendant disputes the claim on grounds which the plaintiff is very likely indeed to overcome, with the situation in which the defendant is not really raising a dispute at all.
[26]The Supreme Court in Zurich Australian Insurance further states:8
There is a real “dispute” even though a court may ultimately be prepared to grant summary judgment in relation to it. In principle, such a dispute should be referred to arbitration.
[27] Also, “The bald assertion of a dispute is not enough to justify the granting of a stay where it is immediately demonstrable that there is, in reality, no dispute.” 9
The asserted disputes assessed
[28] I start from the position already mentioned that the onus is on the defendants to establish the grounds for a stay.
6 Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd [2014] NZSC 199, [2015] 1 NZLR 383.
7 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd[1993] 1 All ER 664 (HC).
8 Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd, above n 6 at [38].
9 At [39].
(A)Is repayment of the principal linked to the completion of the development by SIIL?
[29] I am satisfied that this alleged dispute does not rise above a bald assertion. The reasons for that are as follows:
(i)Lack of evidence as to terms of original advance
[30]Mr Carlin’s evidence on this point is, at best, skeletal. He says:
8.1 In 2018 and 2019, I used to meet Mr Dempsey regularly for coffee or lunch in Queenstown and on the Gold Coast. At our meetings, Mr Dempsey and I discussed how repayment of his loan was to come from proceeds to be available to South Island Investments Limited on completion of the Radisson Hotel development that was being undertaken in Man Street, Queenstown. Mr Dempsey agreed to this and was unconcerned when repayment from the development was delayed. The last of these meetings was in January 2020. To date, the Radisson Hotel development has not been completed.
[31] Mr Carlin does not assert the discussions in 2019 amended the terms of the loan agreements made on 16 April 2018 and 28 September 2018 and consolidated in December 2018. In the above passage, Mr Carlin talks about how repayment was to be funded. He does not say it was agreed at the times of the original advances that they would be repaid from the proceeds of the completion of the Radisson Hotel.
(ii)Defendants’ case inconsistent with loan agreements
[32] The loan agreements were, as I have said, drafted by Mr Carlin. They are express as to the timing of repayments. They do not link repayment to the completion of the Radisson Hotel development. No explanation for this inconsistency is provided.
(iii)Inconsistency with Morrison Kent letter of 6 April 2020
[33] In early 2020, Mr Dempsey had called up his loan. Morrison Kent, solicitors, then acting for the defendants, wrote to Mr Dempsey referring to the 16 April 2018 and 28 September 2018 loan agreements. Morrison Kent analysed when repayments would be due under those loan agreements and said:
As set out above, the loans are not due for repayment before 15 November 2020 and therefore at this time no funds are due and owing to you.
[34] There was no mention that the loans were only due for repayment upon the completion of the Raddison Hotel.
[35] Indeed, the Morrison Kent letter is inconsistent with that proposition as under the heading “Payment Proposal” it says:
9. …
(a)The final repayment of all outstanding principal and interest will occur on the earlier of the following dates:
(i)forty (40) working days following the date on which our client obtains a copy of the practical completion certificate for the Raddison Hotel; or
(ii)five (5) working days following our client obtaining sufficient finance from an alternative source.
[36] The Morrison Kent letter concluded with: “Could you please confirm acceptance of the above payment proposal set out above.”
[37] What was advanced as a payment proposal is what Mr Carlin now asserts as being the agreement with Mr Dempsey from the outset.
(iv)Inconsistency with Mr Carlin’s March 2020 email
[38] Mr Dempsey produces email exchanges between him and Mr Carlin in March and April 2020. There is an email from Mr Carlin to Mr Dempsey which, while undated, from context was sent by Mr Carlin in March 2020. The email from Mr Carlin to Mr Dempsey contains the following:
By 30 April 2020 (next month), will you delete the 6 month review term in our 2 loan agreements and revise the repayment date to be when the Radisson Hotel is at Practical Completion plus 40 working days? Never had a 6 month review term. (emphasis added)
[39] The response in the email from Mr Dempsey recorded (in a different colour) that the loans:
[were] always a month to month with you opting out with a 2 week notice of repaying all money owed.
[40] Mr Dempsey did not agree to the revised term. Just as Morrison Kent putting forward the proposal was inconsistent with the defendants’ position, Mr Carlin’s own proposal to link the repayment to practical completion of the Radisson Hotel is inconsistent with his present assertion as to when repayment is due.
[41] Had Mr Carlin given express evidence that notwithstanding the wording of the loan agreement, nonetheless he had orally agreed with Mr Dempsey that payment was to follow the Radisson Hotel achieving practical completion, then this alleged dispute may have fallen within Lord Mustill’s description of a claim which the plaintiff was very likely indeed to overcome but nonetheless was one which should go to mediation.10 But Mr Carlin does not give that evidence. In the absence of direct evidence from Mr Carlin supporting his assertion that it was a term of the loan agreements that repayment was only to be made on the Radisson Hotel achieving practical completion, his claim does not even get to the level of a bald assertion.
[42] I am satisfied the defendants have not met the onus of demonstrating there is a dispute that should go to mediation in respect of the issue of when the principal under the loans is repayable.
(B)The remaining issues
(i)Interest
[43] I am satisfied that there is arguable dispute between the parties in respect of the interest arrangements. Arguably the interest arrangements recorded in the loan agreement set out in paragraph [7] above mean that the loans were a series of six month advances with interest being added to the principal every six months. However, the correspondence between the parties shows (arguably) a different approach in respect of interest.
10 For example, sworn evidence as to what was agreed at the time of the advance may have supported a rectification argument in relation to the loan agreements.
[44] Mr Dempsey has sent emails to Mr Carlin with interest calculations showing interest compounding monthly. Mr Carlin, in his email of March 2020, says he referred the interest calculations to his accountant who says the calculations are correct. Mr Dempsey’s calculations at first appearance, approved by Mr Carlin’s accountant, do not appear to be calculated as provided for in the 16 April 2018 agreement which Mr Dempsey says was to contain the terms for the consolidated advance. Mr Dempsey would have to plead the interest arrangements he says were agreed if they are different from those contained in the 16 April 2018 agreement. There is presently no such pleading.
[45]Accordingly, I am satisfied this is a genuine issue.
(ii)Personal guarantee
[46] I am also satisfied there is a genuine issue between the parties as to whether Mr Carlin is bound by his personal guarantee.
[47] First, Mr Dempsey in his pleading says it was on 14 April 2018 that he agreed to make the advance to SIIL. The document containing the alleged guarantee is dated 16 April 2018. While Mr Carlin does not raise the issue of consideration, if Mr Dempsey was already committed to making the advance to SIIL, that raises the issue of the consideration provided to Mr Carlin for his guarantee.
[48] Mr Gresson submits the words in the guarantee: “A personal guarantee is offered by Kevin David Carlin for the repayment of the loan …” should be read: “A personal guarantee is agreed to by Kevin David Carlin for the repayment of the loan …”. This is the type of issue that would be subject to considerable debate at a summary judgment hearing. Such an issue, that is, one that is capable of genuine debate is a dispute that should go to mediation.
[49] There is also potentially an argument about the manner in which the document has been executed. Mr Carlin has signed the document above his name, but his name is typed above the words “Managing Director”. Does this mean that he has signed the document twice; once as personal guarantor and the other as managing director?
[50] Mr Anderson further raised the effect of the agreed consolidation on the guarantee if it exists. On the one hand it would have made no sense for Mr Dempsey to agree to consolidation if such was to deprive him of his guarantees but again, this is an issue capable of real debate.
[51] I am satisfied Mr Dempsey’s proceeding so far as it relates to interest and the personal guarantee issues should be stayed pending mediation. The stay does not apply to Mr Dempsey’s proceeding to recover his principal. It is therefore necessary for directions to be made in relation to the hearing of Mr Dempsey’s summary judgment claim for the principal he advanced.
[52] As discussed with counsel during the hearing, there is a practical issue as to the availability of a summary judgment hearing. The reality is that mediation on the issues I have identified (which no doubt will encompass all issues between the parties) can take place before the summary judgment hearing.
[53] I set down the summary judgment hearing for Tuesday 14 November 2023 at 10:00am before Associate Judge Paulsen.
[54] The stay of the proceedings is on the condition that the parties agree the identity of a mediator within 10 working days. If the parties cannot agree on a mediator then one will be appointed by the Court. The mediation is to be completed prior to the 14 November 2023 hearing.
[55] If the mediation results in a settlement of all issues then well and good. If any issues are not resolved at mediation then the stay will be lifted in respect of those issues. I direct pursuant to r 15.1(3) of the High Court Rules 2016, that the mediation is to be completed before the end of September 2023.
[56] The parties are to discuss the timing of the notice of opposition and affidavit in relation to the summary judgment. The material filed by the defendants to date has been in support of their application for a stay. Counsel may agree to defer the filing of papers in opposition until after completion of mediation, but I leave that to counsel.
Counsel may request a telephone conference if any issues arise in relation to the timetable or if there is a need for the Court to appoint the mediator.
Costs
[57]Costs in relation to the application for a stay are reserved.
Associate Judge Lester
Solicitors:
Todd & Walker Law Limited t/a Todd & Walker Law, Queenstown (for Plaintiff) A J Anderson, Dunedin (for Defendants)
0
2
0