Dilseacht Trustee Limited v Kiwi Funds No.1 Limited
[2024] NZHC 3190
•31 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-998 [2024] NZHC 3190
BETWEEN DILSEACHT TRUSTEES LIMITED
Plaintiff
AND
KIWI FUNDS NO.1 LIMITED
First Defendant
Continued over…
CIV-2024-404-1843 BETWEEN
NZ FINANCE GROUP LIMITED
Plaintiff
AND
DILSEACHT TRUSTEES LIMITED
First Defendant
Continued over…
Hearing: 21 October 2024 Counsel:
B H Dickey / J L Butcher for the Plaintiff
D Neutze/ A C Elia for First, Second and Third Defendants
Judgment:
31 October 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 31 October 2024 at 12 midday Pursuant to r 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Brookfields Lawyers, Auckland Hunwick Law, Hamilton
Brian Dickey / David Hayes, Auckland
DILSEACHT TRUSTEES LTD v KIWI FUNDS NO.1 LTD [2024] NZHC 3190 [31 October 2024]
AND
CIV-2024-404-998
NZ TRADE FINANCE LIMITED
Second Defendant
NZ FINANCE GROUP LIMITED
Third Defendant
CIV-2024-404-1843
AND
DILSEACHT TRUSTEES LIMITED as
trustees of the DILSEACHT TRUST Second Defendant
JEAN MICHEL RENE POULOT and SUSAN ANN POULOT
Third Defendants
Introduction
[1] The first defendant, Kiwi Funds No.1 Ltd (Kiwi Funds No.1), the second defendant, NZ Trade Finance Ltd (NZTF), and the third defendant, NZ Finance Group Ltd (NZFG), are related companies and in business together. Kiwi Funds No.1 procured investments from wholesale investors, and those investments were advanced by Kiwi Funds No.1 to NZTF and NZFG. NZTF provides finance to trade creditors by factoring debts. NZFG provides finance by mortgage-backed lending.
[2]On 31 March 2023, the plaintiff, Dilseacht Trustee Ltd (Dilseacht), invested
$4 million with Kiwi Funds No.1 (the Dilseacht investment), for the purpose of Kiwi Funds No.1 investing the funds in NZFG and NZTF.
[3] The parties agree that the Dilseacht investment is subject to the terms of an information memorandum dated 1 December 2022 (the information memorandum), which comprises the terms of the contract between Dilseacht and Kiwi Funds No.1 (the contract).
[4] It was a term of the contract that the advances by Kiwi Funds No.1 to NZFG and NZTF would be secured by first ranking general security agreements (GSAs) over the assets of those companies (the security term).
[5] The Dilseacht investment was for an initial term of one year, and it automatically rolled over for a further year on 31 March 2024, pursuant to an express term of the contract.
[6]In or after April 2023:
(a)NZFG made loan advances of $800,000 to Dilseacht (the Dilseacht borrowings).
(b)NZFG made loan advances of $500,000 to Lough Corrib Ltd (the Lough Corrib loan), a company related to Dilseacht. Dilseacht guaranteed repayment of the Lough Corrib loan (the Dilseacht guarantee).
[7] Dilseacht says that the security term was essential. Dilseacht alleges that Kiwi Funds No.1 breached the security term, entitling Dilseacht to cancel the contract on 8 April 2024.
[8]There are two proceedings involving the parties that have been consolidated:
(a)Dilseacht commenced CIV-2024-404-998 seeking, inter alia, an order requiring Kiwi Funds No.1 to refund the Dilseacht investment and an order vitiating the Dilseacht guarantee; and
(b)NZFG commenced CIV-2024-404-1843 seeking, inter alia, to enforce the Dilseacht guarantee.
[9] Dilseacht now seeks summary judgment for an order requiring Kiwi Funds No.1 to refund a substantial part of the Dilseacht investment. A full refund is no longer sought at this summary stage due to issues arising in respect of the Lough Corrib loan and the Dilseacht guarantee. Dilseacht’s application for summary judgment in CIV-2024-404-998 is determined in this judgment.
[10] Kiwi Funds No.1 denies that it is liable to refund any part of the Dilseacht investment. Kiwi Funds No.1 argues that the security term was not breached, and if it was, any breach did not give rise to a right to cancel because the security term was not essential to Dilseacht.
[11]The following issues arise:
(a)What did the security term require Kiwi Funds No.1 to do?
(b)Was performance of the security term essential to Dilseacht?
(c)Was the security term breached?
(d)If so, what relief, if any, is Dilseacht entitled to?
Summary judgment principles
[12] The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.1
[13] The leading authority on applications for summary judgment is Krukziener v Hanover Finance Ltd.2 The Court of Appeal set out the following principles:3
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried. The Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.
(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
[14] The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.4
1 High Court Rules 2016, r 12.2.
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
3 At [26].
4 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.
What did the security term require Kiwi Funds No.1 to do?
[15] The information memorandum was forwarded to Dilseacht by an email from a director of Kiwi Funds No.1, Craig Urquhart (Mr Urquhart), including the following statement:
All investments in Kiwi Funds No.1 Limited are secured by first ranking secured general security agreements over all of the assets and undertakings of NZ Trade Finance Limited and NZ Finance Group Limited.
[16] The information memorandum included a letter from the chairman of Kiwi Funds No.1 which stated:
Kiwi Funds will use the funds raised pursuant to the Offer to provide, through intermediary companies, short term onshore and offshore trade finance to approved trade creditors and first or second mortgage finance to approved borrowers.
The provision of short term onshore and offshore trade finance to approved trade creditors will be made by NZ Trade Finance Ltd (NZTF). Kiwi Funds will lend funds to NZTF secured by first ranking general security agreement over all of the assets and undertaking of NZTF. NZTF will use the funds borrowed from Kiwi Funds to lend as short-term finance only to the highest quality credit customers in the supply chain.
Likewise, Kiwi Funds will lend funds from the Offer to NZ Finance Group Ltd (NZFG) secured by first ranking general security agreement over all of the assets and undertaking of NZFG. NZFG will use the funds borrowed from Kiwi Funds to provide first and second ranking mortgage finance to approved borrowers.
[17] A term of the information memorandum confirmed that Kiwi Funds No.1 proposed to use the investment solely for the purpose of advances to NZFG and NZTF.
[18]The information memorandum included a term stating:
Kiwi Funds has an experienced Board (Board) that oversees the use of funds raised and ensures the highest standards in corporate governance and compliance.
[19] The information memorandum referred to the investments in Kiwi Funds No.1 as “Notes”, and included a section titled “INVESTOR RISKS”. The relevant terms are:
1.The Kiwi Funds’ business model involves Kiwi Funds collecting funds from approved Investors by issuing Notes to them as set out in this Offer and lending those funds to companies which will in turn provide short term onshore and offshore trade finance to approved trade creditors and second or third mortgage finance to approved borrowers.
2.Kiwi Funds will lend funds to NZTF and NZFG to carry on their financing businesses. …
3.Kiwi Funds will be taking security from each of NZTF and NZFG when it lends proceeds of the Notes to them. The security will be over all of the assets and undertaking of each of those companies and will rank ahead of any other lenders to those companies. …
[20] Contractual interpretation requires ascertainment of the meaning the document would convey to a reasonable person having all the background knowledge that would reasonably have been available to the parties in the situation they were in at the time of the contract.5
[21] A reasonable person with the background knowledge to be expected of a wholesale investor would have understood that the security term obliged Kiwi Funds No.1:
(a)to take security from NZTF and NZFG at the time that Kiwi Funds No.1 lent to those companies;
(b)in the form of a GSA over all of the assets and undertakings of those companies; and
(c)to be first ranking by registration on the Personal Property Securities Register (PPSR).
5 Bathurst Resources Ltd v L & M Coal Holdings [2021] NZSC 85, [2021] 1 NZLR 696 at [43]; and Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60], citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912.
Was the security term breached?
[22] There is no evidence on behalf of Kiwi Funds No.1 to confirm when the Dilseacht investment was advanced by Kiwi Funds No.1 to NZFG and NZTF. Kiwi Funds No.1 admits that it did not obtain GSAs from NZTF or NZFG when the advances were made. That was a breach of the security term.
[23] The genesis of the dispute between the parties was circumstances relating to the Lough Corrib loan, which impacted on Dilseacht’s exposure under the Dilseacht guarantee. During 2023, it became evident that Dilseacht might be exposed under the Dilseacht guarantee and Dilseacht blamed NZFG for that exposure.
[24] It appears that this tension led Dilseacht to review the Dilseacht investment. In early March 2024, Dilseacht discovered that GSAs from NZFG and NZTF had not been registered on the PPSR. On 18 March 2024, Dilseacht’s director, Susan Poulot (Ms Poulot), emailed Kiwi Funds No.1 seeking confirmation that Kiwi Funds No.1 had the benefit of first ranking GSAs over all the assets and undertakings of NZFG and NZTF.
[25]On 20 March 2024, Mr Urquhart responded by email:
FYI, the registration of interests between Kiwi Funds entities, NZTF and NZFG is an internal best practice matter that had been discussed with our Solicitors previously. Given the requirement for a shared GSA, whereby Kiwi Funds No.1 Ltd shares equally in priority with Kiwi Funds No.2 Ltd, Kiwi Funds No.3, plus any further offers by Kiwi Funds, and given this matter is fluid, it had not been progressed and registration not effected.
This matter has been resurrected and will be resolved following completion of a shared GSA agreement by our Solicitors.
[26] The existence of related companies, Kiwi Funds No.2 Ltd (Kiwi Funds No.2) and Kiwi Funds No.3 Ltd (Kiwi Funds No.3), had been disclosed to Dilseacht in October 2023. On 19 October 2023, Ms Poulot sent an email to Mr Urquhart and others, recording a discussion that had taken place regarding the nature of the Dilseacht investment, and acknowledging the existence of Kiwi Funds No.2 and Kiwi Funds No.3:
As per discussion Kiwi Funds No.1 is now technically a closed fund made up of investment dollars from Dilseacht 40% and the remaining 60% split amongst you and your family members.
The fund is holding circa 10m and you have recently set up Kiwi Funds No.2 and 3 for further investment and lending purposes.
[27] The information memorandum includes a section titled “KEY INFORMATION ABOUT THIS OFFER”. Clauses 8 and 10 provide:
8. Kiwi Funds aims to raise money under this Information Memorandum throughout its open period and is targeting to raise $5 million. However, Kiwi Funds may raise more or less than the targeted amount, at its discretion.
10.Kiwi Funds reserves the right to close the Offer at any time without ascribing any reason. Accordingly, you are encouraged to make early application under this Information Memorandum.
[28]It appears that investments in Kiwi Funds No.1 had closed by October 2023.
[29]There is no evidence from Kiwi Funds No.1 regarding:
(a)the discussions during the meeting referred to by Ms Poulet in her email on 19 October 2023; or
(b)any other discussions or communications between the parties about Kiwi Funds No.2 or Kiwi Funds No.3.
[30] Kiwi Funds No.1 did not argue that Dilseacht agreed to any variation or waiver of the security term.
[31] On 28 March 2024, Kiwi Funds No.1 registered financing statements on the PPSR, recording security interests in “All Present and After Acquired Personal Property” of NZFG and NZTF. This appears to be a reference to GSAs. Kiwi Funds No.1 has not produced the GSAs.
[32] NZFG and NZTF also granted GSAs to Kiwi Funds No.2 and Kiwi Funds No.3. Those GSAs were registered immediately after the GSAs granted to Kiwi Funds No.1.
[33] Kiwi Funds No.1, Kiwi Funds No.2, Kiwi Funds No.3, NZFG and NZTF executed a “Pari Passu Deed” dated 26 March 2024 (the Pari Passu Deed). The recitals to the deed record that Kiwi Funds No.1, Kiwi Funds No.2 and Kiwi Funds No.3 had lent money to NZFG and NZTF.
[34] The Pari Passu Deed provided for the security interests of Kiwi Funds No.1, Kiwi Funds No.2 and Kiwi Funds No.3 to rank equally in relation to the amounts secured to each of the companies. The securities were to be redeemed pro-rata. The registered security interests would rank equally in proportion to the lending of each Kiwi Funds company.
[35] It is likely that Kiwi Funds No.1 procured the GSAs from NZFG and NZTF on or about 26 March 2024, consistent with the date of the Pari Passu Deed.
[36] On 28 March 2024, the solicitor for Kiwi Funds No.1, Mr Speakman, sent an email to Mr Urquhart which was forwarded to Dilseacht, seeking to explain the change in the security arrangements. Mr Speakman stated his view that there was no disadvantage to Kiwi Funds No.1 from the existence of other equal ranking GSAs.
[37] Mr Speakman’s explanation was rejected by Dilseacht. Dilseacht wrote to Kiwi Funds No.1 on 8 April 2024 demanding immediate repayment of the Dilseacht investment. The parties agree that the letter was a purported cancellation of the contract.
[38] Although the GSAs granted by NZFG and NZTF to Kiwi Funds No.1 are not in evidence, the issue of breach of the security term can be resolved on the assumption that the GSAs were on orthodox commercial terms and created security interests over all of the assets and undertakings of each of the grantors. That assumption favours Kiwi Funds No.1.
[39] Even if that assumption is correct, the security interests granted to Kiwi Funds No.1 were not first ranking. Under the Pari Passu Deed, the security interests in favour of Kiwi Funds No.1 ranked equally with the security interests granted by NZFG and
NZTF to Kiwi Funds No.2 and Kiwi Funds No.3. On 8 April 2024, Kiwi Funds No.1 remained in breach of the security term.
[40] Kiwi Funds No.1 sought to improve its position after 8 April 2024. Mr Urquhart swore an affidavit dated 26 June 2024, averring that, as at that date, Kiwi Funds No.2 and Kiwi Funds No.3 had not made any advances to NZTF or NZFG, contradicting the recitals to the Pari Passu Deed.
[41] On 12 July 2024, the Pari Passu Deed was terminated. From then on, the security interests granted by NZFG and NZTF to Kiwi Funds No.1 were first ranking, by virtue of being registered first in time on the PPSR. However, this change in position does not alter the fact that Kiwi Funds No.1 was in breach of the security term on 8 April 2024 when Dilseacht cancelled the contract.
Was performance of the security term essential to Dilseacht?
Legal principles
[42] Section 37 of the Contract and Commercial Law Act 2017 (CCLA) relevantly provides:
37Party may cancel contract if induced to enter into it by misrepresentation or if term is or will be breached
(1)A party to a contract may cancel it if—
…
(b) a term in the contract is breached by another party to the contract; …
(2)If subsection (1)(a), (b), or (c) applies, a party may exercise the right to cancel the contract if, and only if,—
(a)the parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to the cancelling party; or
…
…
[43] The information memorandum did not include an express term making performance of the security term essential.
[44] The test for implication of essentiality was stated by the Supreme Court in Mana Property Trustee Ltd v James Developments Ltd.6 The Court must ascertain the intention of the parties from the language of the term read in the context of the whole contract and the surrounding circumstances when the contract was made.7
[45]The Supreme Court stated a simple test:8
In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contractual appraisal which disregards what a party may unilaterally have said about its intention in that regard.
Discussion
[46] Counsel for Kiwi Funds No.1, Mr Neutze, submitted that this is not an appropriate case for the Court to make findings on essentiality on an application for summary judgment. The circumstances that prevailed at the time of the Dilseacht investment can only be established at trial.
[47] I consider that the issue of essentiality can be resolved by reference to the terms of the contract, an exercise that is appropriate on an application for summary judgment.
[48] Mr Neutze submitted that the terms of the information memorandum support a finding that the security term was not essential to Dilseacht.
[49] The information memorandum included a section titled “KEY INFORMATION ABOUT THIS OFFER”. The relevant clauses are:
11.The Notes are unsecured and so they rank behind any claims of secured creditors and preferential creditors to Kiwi Funds such as Kiwi Funds No.1 bank facilities. …
…
6 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90, [2010] 3 NZLR 805.
7 At [24].
8 At [25].
14.The Notes are not an investment in, deposit with, or the liability of any person other than Kiwi Funds.
[50] In addition to the terms cited at 0 above, the section titled “INVESTOR RISKS” included the following relevant terms:
3.… In the event that either of NZTF or NZFG default on the repayment of the principal and/or accrued interest in respect of the loans made by Kiwi Funds to them, then such defaults shall have a negative impact upon the financial position of Kiwi Funds, and potentially on the ability of Kiwi Funds to pay the Notes in full.
4.Repayment of the Notes by Kiwi Funds will depend on the ability of each of NZTF and NZFG to repay the amounts they have borrowed from Kiwi Funds. Repayment of the loans to those companies will be linked to the maturity date of the Notes issued by Kiwi Funds, so that repayment of the loans generates funds to repay the Notes.
5.NZFG will lake a registered mortgage against land from the borrowing party securing the loan made to that party. …
6.NZTF will take an absolute assignment of trade receivables (invoices issued by NZTF’s borrower to its customer for goods and services rendered to that customer) in relation to which it is providing funding.
…
7.The ability of Kiwi Funds to meet its repayment obligations under the Notes is dependent on the performance of its underlying borrowers (NZTF and NZFG) as well as its own cash flow management. …
…
13. The Notes are unsecured and so they rank behind any claims of senior creditors and preferential creditors of Kiwi Funds. …
…
16. Kiwi Funds may incur more debt than it currently has or issue further Notes on similar or different terms to the Notes which rank equally with the Notes. Further, Kiwi Funds may grant security over its assets in respect of existing or any future obligations at its absolute discretion.
[51] Mr Neutze argued that the Dilseacht investment is unsecured and the terms of the information memorandum expressly record that Kiwi Funds No.1 retained the right to accept further investments from unsecured creditors, and to grant security to other parties in its absolute discretion. Given this risk accepted by an investor, it could not be implied that security for the lending between Kiwi Funds No.1 and NZFG and NZTF was essential.
[52] Mr Neutze argued that the information memorandum defined an event of default by Kiwi Funds No.1 by reference to specific circumstances which did not include a failure to perform the security term, which is inconsistent with a finding of essentiality.
[53] Mr Neutze submitted that Dilseacht’s conduct during 2023 confirms that the performance of the security term was not essential to Dilseacht:
(a)there was no evidence that Dilseacht checked the PPSR during 2023; and
(b)Dilseacht did not raise an issue with the GSAs until 18 March 2024 despite having knowledge of the existence of Kiwi Funds No.2 and Kiwi Funds No.3 from October 2023.
[54] The test for implying a term of essentiality is applied at the time of the contract. It is irrelevant whether Dilseacht did not raise the issue of breach until March 2024. Essentiality turns on the interpretation of the information memorandum.
[55] The primary risk of the Dilseacht investment is the solvency of Kiwi Funds No.1. This risk has at least two components:
(a)the risk of NZTF and/or NZFG becoming insolvent (the first risk); and
(b)the risk of other creditors of Kiwi Funds No.1 having priority over Dilseacht (the second risk).
[56] In respect of the first risk, the information memorandum informed Dilseacht that the risk was mitigated because:
(a)the business of NZFG and NZTF was making advances that were secured, either by registered mortgages or by an absolute assignment of trade receivables; and
(b)in turn, NZFG and NZTF would grant first ranking GSAs to Kiwi Funds No.1.
[57] In respect of the second risk, the information memorandum informed Dilseacht that:
(a)other investors in Kiwi Funds No.1 would rank equally with Dilseacht and all investments would be applied to NZFG and NZTF; and
(b)“senior creditors” of Kiwi Funds No.1 would have priority — the information memorandum described senior creditors as a senior lender who holds a security interest or a government body who holds a security interest by virtue of the operation of law, giving an example of a bank.
[58] It was reasonable for Dilseacht to assume that the addition of other “Notes” investments into Kiwi Funds No.1, to be invested into NZFG and NZTF, would not materially alter the risk of Kiwi Funds No. 1 becoming insolvent. The potential for secured lenders to Kiwi Funds No.1 to take priority, with the example of bank lending given, was disclosed but not emphasised.
[59] The information memorandum focused on the ability of Kiwi Funds No.1 to recoup its investments in NZFG and NZTF i.e. the first risk, and not on the risk of a loss of priority to any secured creditors of Kiwi Funds No.1.
[60] Any reasonable wholesale investor reading the information memorandum would understand that their investment risk would be mitigated by vertical layers of securities. Any reasonable wholesale investor would consider it essential that Kiwi Funds No.1 would have in place registered first ranking security interests over all assets and undertakings of NZFG and NZTF before advancing funds to those companies.
[61] Applying the objective test from Mana Property, I find that Dilseacht would more probably than not have declined to enter into the contract if it did not include the security term. The parties impliedly agreed that the performance of the security term
was essential to Dilseacht, entitling Dilseacht to cancel the contract for breach on 8 April 2024.
What relief, if any, is Dilseacht entitled to?
Legal principles
[62]The default effect of cancellation under the CCLA is provided for in s 42(1):
42Effect of cancellation
(1)When a contract is cancelled, the following provisions apply:
(a)to the extent that the contract remains unperformed at the time of the cancellation, no party is obliged or entitled to perform it further:
(b)to the extent that the contract has been performed at the time of the cancellation, no party is, by reason only of the cancellation, divested of any property transferred or money paid under the contract.
[63]Section 43 of the CCLA relevantly provides:
43Power of court to grant relief
(1)When a contract is cancelled by any party, the court may, if it is just and practicable to do so, make an order or orders granting relief under this section.
(2)The relief may be granted in the course of any proceeding or on application made for the purpose.
(3)An order under this section may—
(a)direct a party to pay to any other party the sum that the court thinks just (subject to section 35):
(b)direct a party to do or refrain from doing, in relation to any other party, any act or thing that the court thinks just:
(c)vest the whole or any part of any relevant property in a party:
(d)direct a party to transfer or assign the whole or any part of any relevant property to any other party:
(e)direct a party to deliver the whole or any part of the possession of any relevant property to any other party.
…
[64]Section 45 of the CCLA relevantly provides:
Matters court must have regard to
In considering whether to make an order under section 43, and in considering the terms of any order, the court must have regard to—
(a)the terms of the contract; and
(b)the extent to which any party to the contract was or would have been able to perform it in whole or in part; and
(c)any expenditure incurred by a party in, or for the purpose of, performing the contract; and
(d)the value, in the court’s opinion, of any work or services performed by a party in, or for the purpose of, performing the contract; and
(e)any benefit or advantage obtained by a party because of anything done by another party in, or for the purpose of, performing the contract; and
(f)any other matters that the court thinks proper.
[65] In Garratt v Ikeda, the Court of Appeal observed that the broad purpose of s 9 of the Contractual Remedies Act 1979 (CRA), the predecessor to s 43 of the CCLA, was to relieve against any particular injustice or hardship caused by the operation of the rules applying on cancellation as set out in s 8 (now s 42 of the CCLA).9 Whether relief is appropriate should be looked at from the point of view of the party in default and from the point of view of the innocent party.10
[66] Generally, relief upon cancellation must be determined in a global exercise which takes into account all the performances, breaches, gains and losses of the parties to the contract.11
[67] The only pre-conditions for a grant of relief under s 43 are that the contract has been validly cancelled and that it is just and practicable to grant relief. In Perry v O’Neills Building Removals Ltd, Downs J observed that s 9 of the CRA afforded jurisdiction for relief in advance of trial.12
9 Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [48].
10 At [48].
11 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at 92.
12 Perry v O’Neills Building Removals Ltd [2017] NZHC 2060 at [14].
[68] However, it is usually inappropriate to make orders under s 43 of the CCLA on an application for summary judgment, where the Court is often unable to form a clear view on at least some of the factors to be considered under s 45.13
[69] The Court can give summary judgment for an amount that is indisputably due and owing but which is only part of a cause of action and not the whole relief sought in a cause of action.14
[70] This discretion is consistent with the Court’s discretion to order an interim payment under rr 7.70 or 7.71 of the HCR where the Court is satisfied that the plaintiff is likely to be awarded substantial damages or other monetary relief at trial.
[71] The Court’s general discretion to give summary judgment for an amount that is only part of the whole relief sought in a cause of action is also consistent with the broad discretion conferred by section 43 of the CCLA.
[72] In summary, there will be rare applications for discretionary relief under s 43 of the CCLA which are suitable for determination on an application for summary judgment, and where it will be appropriate to grant judgment for part of the relief claimed in the cause of action. For example, this approach may be appropriate where:
(a)only the defendant has breached the contract;
(b)the plaintiff’s claim is for a liquidated amount;
(c)the defendant does not have a set-off or counterclaim, or the value of any set-off or counterclaim is readily ascertainable; and
(d)the Court can ascertain sufficient facts to assess the factors in s 45 of the CCLA and determine the appropriate relief.
13 Glanz v JL Management Ltd [2020] NZHC 342 at [134]; Donovan v Nixon HC Hamilton CIV-2006-419-505, 6 December 2006 at [19]; and Webster v Ren [2017] NZHC 479 at [5].
14 High Court Rules, r 12.2(1); and Australian Guarantee Corp (NZ) Ltd v McBeth
[1992] 3 NZLR 54 (CA) at 61.
Discussion
[73] I have made a finding that the contract has been validly cancelled by Dilseacht, so relief under s 43 is available. Mr Neutze argued that any exercise of the Court’s discretion to grant relief should be done after all surrounding circumstances are clarified at trial. I do not accept that submission. In my view, this is a case where there are sufficient indisputable facts before the Court to enable the Court to grant relief under s 43 at this summary stage of the proceeding.
[74] Regarding s 45(a) of the CCLA and the terms of the contract, Mr Neutze submitted that the information memorandum makes it clear that it would be difficult for Kiwi Funds No.1 to redeem its investments in NZFG and NZTF other than on the expiration of the fixed term of Dilseacht’s investment, and this should be taken into account when considering discretionary relief under s 43.
[75] In addition to the terms cited in [19] and [50] above, the section in the information memorandum titled “INVESTOR RISKS” included the following relevant terms:
8.The Notes represent a relatively illiquid investment and Investors cannot require Kiwi Funds to redeem Notes before their Maturity Date. …
9.The Notes are a fixed term investment and Investors have no right to redeem their Notes at any time prior to their Maturity Date. However, Kiwi Funds may, in its absolute discretion, consider a request for early redemption.
[76] The fixed term nature of the investment is not unusual, and the explanation for it adds nothing. An agreement to invest for a fixed term should not displace rights to relief following a valid cancellation.
[77] Regarding s 45(b) of the CCLA, Mr Neutze submitted that the Court should take into account that Kiwi Funds No.1 has met all interest payments to Dilseacht and was able to perform the security term:
(a)Mr Urquhart’s affidavit evidence is that Kiwi Funds No.2 and Kiwi Funds No.3 had not made any advances to NZFG or NZTF prior to
12 July 2024, so there was no potential for Kiwi Funds No.1 to lose its priority to Kiwi Funds No.2 or Kiwi Funds No.3.
(b)Kiwi Funds No.1 obtained first priority on 12 July 2024, when the Pari Passu Deed was cancelled.
[78] I do not accept that these matters should deny Dilseacht relief. Payment of interest is not the issue. The email from Mr Urquhart to Dilseacht on 20 March 2024 demonstrated a cavalier attitude to obtaining essential securities. This was followed by Mr Speakman’s attempt on 28 March 2024 to explain away the loss of priority that resulted from the Pari Passu Deed. Dilseacht was entitled to cancel and Kiwi Funds No.1 did not comply with the security term until after litigation was commenced.
[79] It is arguable that, after registration of the GSAs by Kiwi Funds No.1, Kiwi Funds No.2 and Kiwi Funds No.3 on 28 March 2024, and execution of the Pari Passu Deed, the breach of the security term was minor. Any investments into Kiwi Funds No.2 and Kiwi Funds No.3 could just as easily have been accepted into Kiwi Funds No.1, where the investments would also have ranked equally with the Dilseacht investment.
[80] However, Kiwi Funds No.1 had failed to register any form of security over the assets of NZFG and NZTF for nearly a year, and there is no evidence or assertion that Dilseacht agreed to the varied security arrangements put in place in March 2024. The breach was not a mere technicality.
[81]There are no factors under s 45(c), (d) or (e) of the CCLA to take into account.
[82] It is significant that Dilseacht seeks an order for summary judgment directing Kiwi Funds No.1 to refund only part of the Dilseacht investment. This would allow Kiwi Funds No.1 to retain part of its investment in NZFG reflecting the amounts in issue in the causes of action in CIV-2024-404-998 that are not subject to the application for summary judgment, and the causes of action in CIV-2024-404-1843, which relate to the Dilseacht guarantee. It is those causes of action that raise disputes of fact and may call into question the conduct of Dilseacht.
[83] If judgment is given for an amount that allows Kiwi Funds No.1 to retain part of the Dilseacht investment, and the amount retained exceeds the amounts in issue in the remaining causes of action, then conduct by Dilseacht in respect of the Lough Corrib loan and the Dilseacht guarantee can be disregarded at this stage of the proceeding.
Quantum
[84] On 5 May 2024, the parties entered into a settlement agreement in respect of the Dilseacht borrowings. Under the provisions of that agreement, Kiwi Funds No.1 repaid $870,136.34 of the Dilseacht investment, which was applied to repay the Dilseacht borrowings. The parties agree that the total of the Dilseacht investment on 1 June 2024 was $3,129,863.66.
[85] The parties agree that Kiwi Funds No.1 has continued to pay interest on the remaining portion of the Dilseacht investment since 1 June 2024. Therefore, the starting point is that Kiwi Funds No.1 is liable to repay Dilseacht $3,129,863.66.
[86] Dilseacht proposes that a further sum of $600,000 be deducted from the judgment sum and retained as an investment by Kiwi Funds No.1 in NZFG, comprised of the amount allegedly due under the Dilseacht guarantee of $576,518.91, and a further allowance of approximately $24,000 to account for interest that continues to accrue under the Lough Corrib loan.
[87] Mr Neutze took no issue with the figure of $576,518.91, noting that interest continues to accrue on the Lough Corrib loan at the rate of 22.95 per cent per annum. Interest in the vicinity of $115,000 per year might accrue for two years before the issues in respect of the Dilseacht guarantee go to trial.
[88] An appropriate allowance for the issues in respect of the Dilseacht guarantee is $806,518.91, allowing $230,000 for interest that might accrue before the remaining issues in the proceedings are determined at trial.
[89] This is an appropriate case for the Court to grant summary judgment for part of Dilseacht’s claim on its first cause of action in the statement of claim dated
26 September 2024. I consider that it is appropriate that Kiwi Funds No.1 pay Dilseacht $2,323,344.75 as relief under s 43 of the CCLA.
[90] Kiwi Funds No.1 should continue to pay the interest that will accrue on the portion of the Dilseacht investment retained by Kiwi Funds No.1, as that interest falls due. An account can be taken when the balance of Dilseacht’s claim against Kiwi Funds No.1 proceeds to trial together with the other consolidated causes of action.
Other matters raised by Dilseacht
[91] Dilseacht advanced alternative claims based on precontractual misrepresentation and false or misleading representations under the Financial Markets Conduct Act 2013. I have determined the application for summary judgment based on the cause of action for breach of contract. Having found that the statements that form the basis of all three causes of action are terms of the contract, it is not necessary for me to consider the claims for precontractual misrepresentation and false or misleading representations.
[92] Dilseacht alleged that the contract included an implied term requiring Kiwi Funds No.1 to be registered as a provider of financial services, under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Kiwi Funds No.1 accepts that it was not registered until recently. I do not need to address this argument given my findings on the security term.
Orders
[93] I grant judgment for the plaintiff against the first defendant on part of the plaintiff’s first cause of action in the statement of claim dated 26 September 2024, and order the following relief under s 43 of the Contract and Commercial Law Act 2017:
(a)the first defendant shall immediately pay $2,323,344.75 to the plaintiff; and
(b)the first defendant shall continue to pay interest on the plaintiff’s remaining investment in the first defendant at the rate prescribed in the information memorandum dated 1 December 2022.
[94] These consolidated proceedings shall be allocated a case management conference on the first available date in 2025 for directions in respect of the remaining claims.
[95]If the parties are unable to agree on costs, then:
(a)the plaintiff may file and serve submissions on costs, of no more than five pages, by 15 November 2024;
(b)the first defendant may file and serve submissions on costs, of no more than five pages, by 29 November 2024;
(c)I will then determine costs on the papers.
Associate Judge Brittain
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