Dominion Finance Group Limited (in receivership & liquidation) v O'Halloran
[2015] NZHC 2386
•2 October 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2015-404-001374 [2015] NZHC 2386
BETWEEN DOMINION FINANCE GROUP
LIMITED (IN RECEIVERSHIP & LIQUIDATION)
Plaintiff
AND
TERRENCE MICHAEL O'HALLORAN AND JOHN CHARLES THOMAS DAVIS
Defendants
Hearing: 28 September 2015 Appearances:
A W Johnson for the Plaintiff
T M O'Halloran and JCT Davis, the Defendants in personJudgment:
2 October 2015
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
02.10.15 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP & LIQUIDATION) v T M O'HALLORAN AND J C T DAVIS [2015] NZHC 2386 [2 October 2015]
Background
[1] The plaintiff (Dominion Finance) previously carried on business as a finance company. It was placed into receivership on 9 September 2008 and into liquidation on 15 May 2009.
[2] The defendants, who are self represented, were directors of Lonely Track Land Company Limited (Lonely Track) and as well of other property development companies.
[3] The defendants’ companies were involved in a number of development projects funded by loans with Dominion Finance between 2001 and 2007, including through their companies Estate Homes Limited and Okura Limited, but most recently through Lonely Track.
[4] It is in respect of that latter, the sixth of the Lonely Track loans, Dominion Finance now sues the defendants upon their guarantees and seeks summary judgment.
[5] Dominion Finance acknowledges it is only in respect of the Lonely
Track loan that the defendants have not met their obligations.
[6] The sixth Lonely Track loan agreement is dated 19 December 2007 and recorded terms including:
(a) The sum borrowed was $2,060,000.
(b) Interest was payable at 15 per cent per annum.
(c) The loan was repayable on 31 January 2008 i.e. about 6 weeks after the advance.
(d) Interest would be capitalised monthly.
(e) Interest at 24 per cent was payable in the event of default.
[7] Security for the loan was provided by registered first mortgages over other development properties of the defendants. Deeds of indemnity and guarantee were provided by other development companies of the defendants and as well by the defendants personally.
[8] Dominion Finance pleads that Lonely Track and the defendants fell into default in respect of the loan agreement and that there was a failure to repay the principal sum and capitalised interest on the due date or thereafter. Lonely Track was struck off the Companies Register on 21 January 2009.
[9] The evidence of Mr G J Pearce (Mr Pearce) a consultant of Dominion Finance is that as at 15 February 2008 the debt owing was $308,572.64. Since then interest amounting to $539,503.33 has accumulated to 28 May 2015.
[10] The notice of opposition of each defendant is the same, as is, more or less, the affidavit of each in opposition.
[11] It is not disputed that the defendants completed deeds of guarantee but they claim the amount claimed is manifestly incorrect; and that given the undue delay of Dominion Finance in bringing the claim the defendants assert that to allow the claim would be unreasonable and inequitable.
[12] Claims of defence are based upon the following: (a) The calculation of the debts;
(b) Claims that the contract and/or demand was oppressive; (c) Misrepresentation or deceptive practice;
(d) Excessive delay/Laches or acquiescence.
[13] In response to the defendants’ accounts of those factors Mr Pearce filed a reply affidavit which, upon the Courts review, appeared to respond adequately to the defendants’ claims of evidential deficiencies with calculation
of the debt. In that regard the court hearing began with discussion with the defendants to get a better understanding of those remaining aspects of the defendants’ claims of an arguable defence. Foremost the Court needs to consider relevant legal principles.
Legal principles
[14] Upon its summary judgment application Dominion Finance must satisfy the Court that the defendants have no defence that is, no bona fide defence, no reasonable ground of defence, nor any fairly arguable defence.1
[15] In appropriate circumstances it is for the defendants to provide some evidential foundation for a defence for otherwise Dominion Finance’s verification will stand unchallenged and therefore ought to be accepted unless clearly it was wrong.2
[16] Mr Johnson counsel for Dominion Finance also helpfully refers to the decision of the High Court in United Homes (1998) Limited v Workman3 wherein McGeehan J noted:
The Court is not requiring cases of this character meekly to accept for that question whatever unvarnished statements may happen to be made on affidavit. The Court is entitled to act in a more robust and common sense manner.
The defendants claims of an arguable defence
[17] The Court will consider these and at the conclusion of each will offer its finding regarding those.
Whether Dominion Finance’s records are accurate
[18] The defendants are concerned with the accuracy of Dominion Finance’s
records and in particular regarding the absence of any record of receipt by
1 Pemberton v Chappell [1987] 1 NZLR 1 at 3.
2 Australian Guarantee Corporation (NZ) Limited v McBeth [1992] 3 NZLR 54.
3 [2001] 3 NZLR 447, 452 at p.252.
Dominion finance of the sum of $250,000 from Lonely Track as the loan agreement contemplated might occur. Evidence shows that amount was required to be paid by the Waitakere City Council in the outcome of a claim by another of the defendants’ companies. However it is clear from the evidence that the Waitakere City Council payment had already been credited to the loan account of another of the defendants companies. Therefore, it not having been received on account of Lonely Track it could not have provided any credit to the Lonely Track loan account.
[19] Also and with regard to their challenges of Dominion Finance’s records the defendants claim no knowledge relating to another sum of $250,000 which was debited to Lonely Tracks account with Dominion Finance on 12 August
2005.
[20] This concern was raised for the first time in oral submissions. The query arises in relation to the first of Lonely Track’s six loans from Dominion Finance. However neither in relation to the first, nor in relation to the sixth which this proceeding is about, did the defendants ever before challenge Lonely Tracks responsibility for that amount of $250,000 debited to their account on 12 August 2005.
[21] In the circumstances the Court does not consider this challenge warrants further consideration.
[22] By Mr Pearce’s reply affidavit Dominion Finance has provided a full loan statement setting out all debits and credits from the time funds were first advanced in June 2005.
[23] Each of the six loan arrangements contains the commitment of Lonely Track and the defendants to repay the debt. Each attaches the defendants’ deeds of guarantee containing a commitment of responsibility for payment. Other guarantees of the defendants were also the subject of loan arrangements made between Dominion Finance and their other development companies.
[24] In the sixth loan with which this proceeding is concerned mortgage security was required to be given over properties owned by Estate Homes Ltd another of the defendants’ development companies.
[25] The defendants challenged the reliability of evidence suggesting credit had been given following the sale of those properties. It is clear from the detailed account summary provided by Mr Pearce’s reply affidavit that full credit indeed was received by Lonely Track in respect of the sale of those security properties.
[26] In summary the Court accepts, as Mr Johnson submits, that Mr Pearce’s reply affidavit answers all of the matters raised by the defendants as to calculation of the loan sum payable of $308,572.64 as at 15 February 2008.
Limitation
[27] Dominion Finance asserts that the Lonely Track loan was in default as at 1 February 2008. The defendants say the first issue of a demand was on
2 June 2015 although both defendants say they did not receive that. Their first notice of the claim was, they say, when the summary judgment applications were served later in the month of June.
[28] In support of their position that Dominion Finance’s proceeding is statute barred they claim the proceeding has been brought more than six years after the date of default. The date of default is that date on which the loan ought to have been repaid i.e. 31 January 2008. The defendants say Dominion Finances claim should have been filed and served by 31 January 2014.
[29] The defendants’ submissions focus upon s 4 of the Limitation Act 1950.
That provides:
4 Limitation of actions of contract and tort, and certain other actions
(1) …the following actions shall not be brought after the expiration of 6
years from the date on which the cause of action accrued, that is to say,—
(a) actions founded on simple contract or on tort:
…
[30] The defendants submit the relevant provision for consideration is s 4(1)(a) i.e. preventing overdue claims of a debt due for actions founded on simple contract.
[31] The defendants submit s 4(3) should not prevail. Section 4(3)
provided:
An action upon a deed [of guarantee] shall not be brought after the expiration of 12 years from the date on which the cause of action accrued.
[32] The defendants rely upon the decision of the High Court in Rhodes v
Shaw4 wherein it was stated:
It is common ground that, as the claim is based on alleged breaches of contract, the relevant limitation period within which the proceeding must have been issued is six years from the date on which the causes of action accrued.
[33] The defendants’ position is that s 4(1)(a) encompasses “actions
founded on simple contract…”.
[34] The defendants argue the meaning of “founded on” is pivotal to determine whether s 4.1(a) or s 4(3) is applicable in the present situation. The defendants submit the Interpretation Act 1999 at ss 5 and 6 assists for in s 5(1) it is stated “the meaning of an enactment must be ascertained from its text and in the light of its purpose”. Section 6 provides “an enactment applies to circumstances as they arise”.
[35] The defendants submit that the words s 4(1)(a) “founded on” means: serving as the base, originated from, created, based on. By contrast they argue the words in s 4(3) being “an action upon a deed”, provides for the specific
situation in which the sole instrument giving rise to action is a deed”.
4 [2015] NZHC 1530.
[36] In the defendants submission s 4(1)(a) is the appropriate determinant of the relevant time period and the reason for Dominion Finance’s action to be held to be statute barred and struck out. That position is better understood, they claim, by knowledge of the wider extent of the loan funding arrangements from the start.
[37] The present proceeding focuses upon the sixth, the last of Dominion Finance’s loans to Lonely Track. The defendants depose the first of those six loans was made on 1 June 2005 in an amount of $1.665M with an establishment fee of $61,875 and required the loan to be repaid about eight months later on 9 February 2006.
[38] The defendants say that in common with all of the many loans advanced by Dominion Finance to their development companies the terms of the loan were manifestly insufficient to enable the completion of the loan and so, out of necessity, it required a “rollover” and the payment of a further establishment fee.
[39] The defendants agree that this practice was accepted on the basis that the loan rollovers would ensure access to further on-going sufficient funding to complete a project.
[40] The original loan agreement envisaged further advances would be made. That loan, as were the other five loans, was guaranteed by the defendants. Each of those guarantees was a replica of its predecessor.
[41] The defendants’ position is that the guarantee obligation, having been established by the original loan agreement, was inclusive of all further advances which necessarily included Dominion Finances standard series of “rollovers” – by which Dominion Finance funded the completion of the development. That was the purpose of the original loan, and by which it generated a significant establishment fee.
[42] The defendants submit therefore that any deed of guarantee was entirely superfluous given that the simple contract that was the original loan agreement was the basis of the defendants undertaking of guarantee; that without any deed of guarantee the obligation of that original guarantee had been created, originated, and remained extant until the loan was fully satisfied.
[43] The defendants rely also upon the judgment of McKay J in Morley v
Spencer5 wherein it was stated:
Even if the form of the document that is a deed of guarantee complies with the formalities required of a deed in s 4 of the Property Law Act
1952, it will not necessarily be a deed. Whether it is or not depends
on the intention of the parties.
[44] The defendants submit that the guarantees under which they are sued cannot in the circumstances be considered to be deeds by which they are bound. The defendants argue that the sole practical effect of adding a deed to the loan agreement was to provide the plaintiff with a longer limitation period for the purpose of bringing about a claim, and that the defendants would never reasonably have had the intention of participating in such an exercise for that purpose. The defendants say that given that their undertaking of guarantees was founded on a simple contract of which was the original loan agreement, the applicable determinant of the expiration period under the Limitation Act s 4(1)(a), and therefore the relevant limitation period is 6 years.
[45] The Court does not accept the defendants Limitation Act submission. Dominion Finance took action upon the defendants deeds of guarantee within
12 years as was then permitted and accordingly those claims are not statute barred. Also, there is evidence of communication between the parties during that period 15 February 2008 and June 2015. On 9 February 2009 the defendants received an email on behalf of Dominion Finance confirming that the Lonely Track loan as at 31 January 2009 was $404,909.80. The email advised that because there may be other debts or cross guarantees in relation to those debts that a thorough enquiry was required before the amount of those
outstanding loans could be confirmed.
5 [1994] 1 NZLR 27.
[46] Further in a number of emails from Dominion Finance’s Mr Pearce beginning 18 August 2011 and concluding 6 August 2014 the defendants were invited to complete statements of means and to provide payment proposals, if any. On 1 May 2014 Mr Pearce advised the defendants that:
The receiver wants to bring any outstanding guarantors to a conclusion and intends to commence enforcement if no cooperation is forthcoming… A previously requested could you therefore please complete and swear the attached statement of means… As previously advised the remaining debt owed by Okura Limited which you are jointly and severally liable for as guarantors exceeds $3.5m.
[47] It is correct that from mid-2009 onwards Dominion Finance focused on the much larger Okura Limited loan. However, as early as September 2009 it was clear what the extent of Okura’s outstanding debt would be after the sale of the last of Okura’s development properties. It was then that Dominion Finance said it focussed on the Lonely Track debt – albeit more than five years before the present proceeding issued.
[48] It appears to be suggested by the defendants that notwithstanding a deed of guarantee was executed, there shall be no liability upon that deed but only upon the loan agreement which records the defendants’ obligations to repay Lonely Tracks debts. The defendants’ argument also suggests the deeds of guarantee contained no commitment other than that of the loan agreement.
[49] However it is clear that the loan rollovers did not mean the release of liability of the deeds of guarantee successively provided. Those record the fact that there was an ongoing and continuing liability recorded by documents prepared professionally as and when the circumstances arose.
[50] The defendants through their companies had an ongoing and enduring business relationship with Dominion Finance. Indeed the Okura Limited loan provided Dominion Finance with a profit share entitlement as well as the repayment of its loan. However no similar arrangement was in place regarding the Lonely Track loan.
Laches
[51] The defendants plead Laches in the event their other defences should fail.
[52] Laches is about the balancing of equities. The defendants have quoted from a decision of the High Court in Zwarst v Saxton6. In that decision the Court noted:
[21] …Equity approaches concepts of delay through the doctrine of Laches which has at its heart the concept of an applicant sleeping on his or her rights…
[22] Equity responds to delay by weighing considerations of justice. I adopt as an accurate summary of the law in relation to delay the passage from Laws of New Zealand Specific Performance… delay in the balance of justice. In every case involving the defence of Laches, the validity of the defence must be tried on substantially equitable principles. The onus of showing that on balance it would be inequitable to allow the claim to proceed is on the defendant. Equity can condone or excuse delay where the justice of the case requires. The real enquiry is always the balance of justice.
[53] In its consideration of equities, the Court will consider also the defendants claims of oppression.
[54] The defendants say they are men of integrity who pursued development opportunities with pride and integrity. The Court agrees that they may well be.
[55] It is clear from talking to the defendants that these proceedings have had a significant impact upon them. Both are retired.
[56] The defendants say their companies have constructed approximately
300 houses through their various developments, each on individual titles mostly in the Waitakere City and North Shore City areas, which would have produced “a turn-over of approximately $70M”.
[57] The bulk of the funding for those subdivisions and housing construction was advanced by Dominion Finance.
6 HC CHCH CIV 2012-409-0047.
[58] Whilst not conceding they owe money to Dominion Finance the defendants say that equity should intervene to relieve them of any responsibility for payment. They say Dominion Finance’s delay in commencing proceedings was inordinate, inexcusable and has seriously prejudiced them. They say they genuinely believed that since 2008 Lonely Track did not owe any money to Dominion Finance; that they have not themselves retained any records and therefore are solely reliant upon their memory of the events. They say they are prejudiced because of the difficulty of accessing prospective witnesses, one of whom, Mr Butler, was Dominion Finance’s senior official.
[59] In the Court’s view there is some limited scope for arguing that upon the balance of equities summary judgment should not be entered against the defendants – but on a limited basis only.
[60] The leading New Zealand authority is the Court of Appeal decision in No.68 Limited v Eastern Services Limited7. That Court overturned a High Court decision that the equitable principle of Laches applied. Mr Johnson in referring to the case noted it related to a 25 year delay in a party to a sale and purchase agreement asserting its rights relating to construction of an access way and providing a registered easement granting a right of way. Balancing the various equities the Court at [70] noted:
The reality of this case is that during the period of length of delay little happened in relation to No.70, which was not tenanted in the latter stages. It is not possible to identify circumstances linked to the delay which prejudiced the respondent. It follows that the respondent has not been placed in a situation because of the delays which makes it unreasonable or unconscionable to allow the appellant to enforce its rights. In brief, the appellant’s contractual rights are not outweighed by the equity of the respondent’s position.
[61] In this case the defendants claim there has been excessive delay by
Dominion Finance in seeking to enforce its rights and that a potential for adverse consequences to the defendants has occurred.
7 [2006] 2 NZLR 43.
[62] Both sides accept action was not taken against Lonely Track because of
Dominion Finance’s focus upon recovery of the very much larger debt of about
$9M owed by the defendants’ company Okura Limited. Then it seems clear that when in February this year counsel was instructed to pursue claims against the defendants in relation to the Okura Limited debt that it was found the liability of the defendants pursuant to their guarantees of that debt was limited to the value of a security property which had already been sold and the proceeds of sale had been received by Dominion Finance.
[63] It is reasonable to assume the present proceeding has been brought because of the unavailability of guarantee recourse in respect of the Okura Limited loan.
[64] Regarding the loan rollover arrangements and in particular the sixth loan with which this proceeding is concerned, the defendants assert that was oppressive because of the loan’s short duration and because of the Christmas/New Year holiday period that was included in its term.
[65] The Court does not accept that account of matters was oppressive to the defendants. The funds were loaned at the defendants request and for a period it was agreed those funds should be advanced.
[66] The defendants were experienced property developers who had borrowed money from Dominion Finance and, other financiers, on many occasions and were familiar with the terms of those loans.
[67] It is the Court’s view that the balancing of equities does not favour the defendants. As earlier noted they were advised on 9 February 2009 of the amounts outstanding and thereafter there were ongoing communications in which it was clear the defendants’ guarantee obligations were being considered by Dominion Finance.
[68] Only when it was clear there was a problem in relation to the limit of the guarantee liability affecting the Okura Limited debt, was there a necessity to turn back to the Lonely Track loan.
[69] There is no evidence and it is clear that throughout that no indication has been provided by the defendants that they would pay any money towards the Okura Limited debt. It was reasonable therefore to imply that they would not have been able to pay any money towards the Lonely Track debt.
[70] Finally, and as Mr Johnson submits, no evidence at all has been put forward to indicate the defendants have changed their position or acted to their detriment as a result of the demand on them not having been made earlier.
Conclusion
[71] In the Court’s view no fairly arguable defence has been raised; that the defendants have failed to provide an evidential foundation for their various alleged defences.
[72] However and as was indicated in paragraph [59] herein the Court considers in one respect its decision ought to be deferred for the sake of further enquiry and that is in regard to that portion of the claim relating to the interest that has accrued at 24 per cent from 15 February 2008 to 25 June 2015 when the Dominion Finance’s claim was filed. In that time interest has added
$539,503.33 to the amount of $848,075.98 claimed.
[73] For Dominion Finance, on one hand it could be argued that the defendants have had the benefit of the use of that unpaid loan of $308,572.64 since 15 February 2008. On the other hand there is no evidence to suggest they were ever going to be able to pay that debt. Also there was the expectation for a reasonable period that the Okura Limited development might extinguish any debt responsibility. Further, it is clear that whilst Dominion Finance was relying upon guarantees given in relation to the Okura Limited
debt it was clear that only earlier this year was it determined that there was no ability to recover under those guarantees.
[74] Whilst it is appropriate that judgment be entered against the defendants in the sum of $308,572.64 the Court should defer for trial enquiry a consideration of circumstances that may properly influence a calculation of any interest to be paid by the defendants.
Judgment
[75] Judgment is entered jointly and severally against the defendants in the sum of $308,572.64.
[76] Costs shall be reserved for determination in the outcome of the Court’s
consideration of the penalty interest claim.
Associate Judge Christiansen
2