F M Custodians Limited v Mills HC Napier CIV 2010-441-258
[2010] NZHC 1327
•4 August 2010
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV 2010-441-258
BETWEEN F M CUSTODIANS LIMITED Plaintiff
ANDBARRY HERBERT MILLS First Defendant
ANDROSEMARY MARGARET MILLS Second Defendant
Hearing: 3 August 2010
Counsel: D M Kennedy for Plaintiff
A Gallie for Defendants
Judgment: 4 August 2010
JUDGMENT OF HEATH J
This judgment was delivered by me on 4 August 2010 at 4.30pm pursuant to Rule 11.5 of the High
Court Rules
Registrar/Deputy Registrar
Solicitors:
Bramwell Grossman, PO Box 500, HastingsMcKay Mackie, PO Box 125, Waipawa
F M CUSTODIANS LIMITED V MILLS AND ANOR HC NAP CIV 2010-441-258 4 August 2010
The application
[1] FM Custodians Ltd applies for summary judgment against Mr and Mrs Mills. The claim is based on non-payment of loans and also seeks an order for possession of certain mortgaged land.
[2] The application for summary judgment is opposed. While Mr and Mrs Mills acknowledge liability under the loan and mortgage documentation, they assert the existence of a collateral agreement that has the effect of preventing FM Custodians from presently seeking judgment or exercising remedies under the mortgages granted to secure the debts.
The factual matrix
[3] Mr and Mrs Mills live on a property situated at Russell Street in Waipukurau. Since the early 1970s, they have been involved in property investment and development. In 2004, they suffered a financial set-back through events that led to the liquidation of a company called Inlors Developments Ltd. While their financial viability was fragile, their existing lenders awaited the outcome of litigation, by which Mr and Mrs Mills sought to recoup losses arising on of the liquidation of that company.
[4] On 27 November 2006, FM Custodians advanced to Mr Mills the sum of
$240,000. That loan was advanced on the faith of security over land at 12 and 14
Russell Street, Waipukurau. The principal amount was repayable on 26 November
2008.
[5] On 7 March 2008, FM Custodians advanced the sum of $290,912.07 to Ancienar Ltd. That loan was guaranteed personally by Mr and Mrs Mills. The loan was due for repayment on 2 June 2009. The advance was secured over properties previously encumbered. In addition to the Russell Street properties, land situated at
5 Ruataniwha Street, 4 Racecourse Road and 78 Racecourse Road, all in
Waipukurau, form the security for the loan.
[6] On 1 July 2008, FM Custodians lent $191,287.93 to the trustees of the Sequioa Trust. Mr and Mrs Mills were two of the four trustees. They also guaranteed this loan. The loan was secured over the Russell Street properties and the land at Ruataniwha Street and 84 Racecourse Road. The loan was due for repayment on 2 June 2009.
[7] Demand was first made on Mr Mills, in respect of his contractual liabilities, on 24 March 2010. The sum demanded from Mr Mills was $623,519.47. On the same day, demand was made on Mrs Mills, under her guarantees, in the sum of
$329,606.64. Interest continued to accrue on those amounts. At the time demand was made, FM Custodians’ position was that a penalty rate of 17% per annum applied.
[8] In an affidavit sworn on 14 April 2010, in support of the summary judgment application, Mr Harrison, the manager with responsibility for FM Custodians’ loans to the Mills’ interests, deposed that Mr and Mrs Mills had not raised any defence or opposition to the claims made by FM Custodians under its loan and mortgage documents. On that basis, he stated his belief that Mr and Mrs Mills had no defence to FM Custodians’ claims.
[9] In an affidavit sworn on 28 May 2010, Mr and Mrs Mills set out their grounds for opposing the summary judgment application. While acknowledging the validity of the loan and mortgage documentation, Mr and Mrs Mills contended that they had reached an agreement with FM Custodians, by which that company was prevented from pursuing its right to repayment of the debts for at least one year, from 3 July 2009. They relied on a series of written communications passing between the parties to evidence that agreement. Even though a period of more than one year has expired since the alleged agreement was reached, Mr and Mrs Mills maintain their position that, based on that arrangement, the Court ought to exercise its discretion to refuse summary judgment.
[10] Initially, Mr and Mrs Mills raised questions about the amount of the debt claimed by FM Custodians. Those concerns have since been answered by a further affidavit, sworn by Mr Harrison on 24 June 2010. Solely for the purpose of enabling the summary judgment application to be determined on an undisputed basis as to quantum, FM Custodians has made concessions in relation to the interest rates applicable from time to time. The revised basis of the claim is accepted by Mr and Mills.
The competing contentions
[11] Ms Kennedy, for FM Custodians, submits that Mr and Mrs Mills have no defence to the claims. She contends that no agreement of the type suggested by Mr and Mrs Mills can be discerned from the documentary evidence put before the Court. Nor, she submits, does any lesser obligation arise out of some looser form of “arrangement”.
[12] Ms Kennedy submits that FM Custodians is entitled to seek judgment for the amounts outstanding, as well as an order granting it possession of the Russell Street property.
[13] Mr Gallie, for Mr and Mrs Mills, submits that even though more than a year has passed since the alleged agreement was entered into, the Court should exercise its discretion to refuse summary judgment. In addition, he submits that the failure of FM Custodians to disclose the correspondence on which Mr and Mrs Mills rely to found the alleged agreement should be marked by peremptory dismissal of the summary judgment application.
[14] If I were not satisfied that a binding agreement had been entered into by FM Custodians and Mr and Mrs Mills of the type alleged, Mr Gallie submitted that an arguable defence still exists, based on promissory estoppel.
[15] No specific complaint was made in respect of any of the amounts claimed under the loan, though Mr Gallie submitted there was inadequate evidence that a sum of $8000 charged by another firm of solicitors could properly be bought within the
contractual clause requiring the debtor to meet the solicitor and own client costs of the lender’s enforcement of the loan. Having reviewed the evidence, I am satisfied that the fees charged are reasonable and come within the contractual terms.
[16] No dispute was raised about compliance with all necessary prerequisites to an order for possession of the land. That means my inquiry is limited to the question whether the residual discretion to refuse the application should be exercised.
Analysis
(a) Exercise of the discretion to refuse summary judgment
[17] Rule 12.2 of the High Court Rules provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
[18] The use of the word “may” in r 12.2(1) makes it clear that the Court can decline to grant summary judgment, even if otherwise satisfied that a defendant has no defence to the particular claim. Nevertheless, the authorities have held that such a discretion should be exercised only in rare circumstances. It is clear that the discretion has a limited scope.[1] Generally speaking, summary judgment will only be declined if there is a possibility of injustice to a defendant, or where the procedure is being used as an instrument of oppression.[2]
[1] Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5 (Casey J), in agreement with European Asian
Bank AG v Punjab & Sind Bank (No 2) [1983] 2 All ER 508 (CA) at 515 (Robert Goff LJ).
[2] See Sayles v Sayles (1986) 1 PRNZ 95 (HC) and Berg v Anglo-Pacific International (1988) Ltd
(1989) 1 PRNZ 713 (CA) at 717.
[19] In determining whether a sufficient evidential foundation has been laid for an arguable defence, the Court is entitled to take a realistic view of the facts presented,
in the context of the particular claim. After the summary judgment procedure was first introduced, early decisions of this Court emphasised the need for a plaintiff to demonstrate clearly that a defendant had no defence to the claim. The onus lay on the plaintiff, in that regard. Other than the need to raise an evidential foundation for a defence in respect of matters within the exclusive knowledge of the defendant,[3] no onus lies on that party when the Court determines whether a fairly arguable defence exists.[4]
[3] See, for example, Blatch v Archer (1774) 1 Cowp 63 at 65; Snell v Farrell [1990] 2 SCR 311 at 328;
and Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 (HL).
[4] Ma v Ming Shan Holdings Ltd [2010] NZCA 325 at para [25].
[20] In those early days, particularly in the aftermath of the 1987 share-market crash when many attempts were made to avoid liability under guarantees, a robust approach was taken to determining whether a sufficient evidential basis was available for a particular defence to be truly arguable.[5] However, by 1998, suspicions that summary judgment applications were being determined too robustly emerged. The need for a degree of caution was emphasised.[6]
[5] An early example is Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA) at 85-86.
[6] Lyndale Financial Services Ltd v Colonial Mutual Life Assurance Society Ltd (1998) 12 PRNZ 320 (CA) at 324.
[21] In discussing those competing approaches, the Court of Appeal, in Ma v
Ming Shan Holdings Ltd observed:[7]
[7] Ma v Ming Shan Holdings Ltd [2010] NZCA 325.
[29] Those cases reveal a simple truth. While the Court should not be too ready to accept uncritically allegations of fact made in affidavits, care must be taken to ensure a fair trial is not foreclosed by making premature findings of fact on affidavit evidence, without the benefit of cross-examination.
[30] In a case like the present, where dishonest application of a company’s money has been admitted, it would be wrong for a Court not to examine carefully assertions of fact on which reliance is placed in an endeavour to resist a claim to recover property allegedly acquired with stolen funds. A different approach might encourage defendants in such circumstances to give false evidence to avoid the entry of summary judgment; if only as a delaying mechanism. After a careful examination of the facts, the Judge should stand back and ask himself or herself whether there is any realistic prospect that the defence could succeed if the proceeding were allowed to go to trial. That is the approach Associate Judge Robinson took in the present case. In our view, he was right to determine the application in that way. (my emphasis)
While there is no suggestion of dishonest conduct on the part of Mr and Mrs Mills, the reference to assessment of “any realistic prospect that the defence could succeed if the proceeding were allowed to go to trial” remains apposite in the present circumstances.
(b) Was there an “agreement”?
[22] I have read carefully the correspondence on which Mr and Mrs Mills rely to found an agreement, or some lesser arrangement constituting a promissory estoppel, preventing FM Custodians from exercising enforcement rights under its loan documents and securities. I am not satisfied that either an agreement or some other arrangement giving rise to any legal obligation can be discerned from the correspondence. I conclude there is no arguable defence based on an agreement or promissory estoppel.
[23] The correspondence contains elements of compromise or, more accurately, a willingness on the part of FM Custodians to yield ground, provided a firm settlement agreement could be reached. Correspondence that appears to have been generated on or about 17 and 18 June 2009 evidences that willingness.
[24] By 24 June 2009, Mr and Mrs Mills were writing to FM Custodians thanking it for “your positive response to our proposal of 17th June 2009”, adding that they were “impressed with and indebted to” FM Custodians “for [its] generosity”. The proposal from FM Custodians included a statement that no further action would be taken to sell 12 and 14 Russell Street, Waipukurau for a period of 12 months provided all other terms of the agreement were met.
[25] Notwithstanding those promising comments, Mr and Mrs Mills could not bring themselves to commit to a binding agreement, at that time. In a letter of 24
June 2009 to the directors of the lender, they said:
... We are hopeful that negotiations can continue and a mutually beneficial situation can be reached in the near future. The outcomes of the auctions due in a few days may have a significant impact. There is considerable interest in the 5 Ruataniwha Street property in particular.
In response to your counter proposal, ... we suggest that rent payments from Mills properties be directed to ongoing interest payments rather than to the “parked” arrears, and that property management fees, rates, insurance and maintenance first be deducted from those rents. Any property with a “for sale” sign will be difficult to rent.
Our proposal omitted at least two vital components, and we apologise for those omissions.
First, and as discussed at our recent meeting, it needs to be stated again that any proposal must find the approval of our supporters. We can not proceed without that support.
Secondly, for us to trade our way into gaining sufficient cash-flow to maintain the interest payments to [FM Custodians]for the full 12 months, we need to have the ability to borrow on future investment property purchases. There are several run down properties currently available at bargain basement prices. Any borrowing would be funded by rental returns paid directly to the lender.
We have presented your counterproposal to our supporters and a mortgage broker. Full support is not forthcoming from either parties for that counterproposal.
We have incurred considerable expenses with our professional advisors in the last few weeks and we are hopeful that they will not be further required for us to reach an agreement.
We seek further input and guidance from the Directors and once more express our appreciation of your endeavours. (my emphasis)
[26] Some consternation was shown in Mr Harrison’s next communication to Mr Mills, on 26 June 2009. In particular, that email characterised “as a further attempt to delay” the issue raised about the need for (unidentified) “supporters” to approve any proposal. Mr Harrison also expressed concerns about the need for full disclosure of Mr Mills’ financial position.
[27] There followed a series of email exchanges between Mr Harrison and Mr Mills, or the latter’s solicitor, Mr Porteous. A sum of $35,000 was deposited by Mr Mills with Mr Porteous’ firm, in terms of prior correspondence, for the purpose of being used to pay interest on the outstanding loans, at the rate of 7% per annum. On my reading of the documents, that did not represent the consummation of an agreement or some lesser form of obligation but, rather, it was part of an attempt by Mr and Mrs Mills to convince FM Custodians that they were acting in good faith, so that they could attempt to trade out of their financial difficulties.
[28] The language contained in Mr and Mrs Mills communication of 24 June
2009[8] is that of negotiation, not agreement. The letter is replete with the hallmarks of delay, not a willingness to bind to an agreed outcome. As I read the correspondence overall (including the exchanges that followed the 24 June 2004 letter), there is nothing to suggest an agreement that carried any form of certainty or benefit to FM Custodians. A “realistic” assessment[9] of the existence or otherwise of an arrangement of the type alleged by Mr and Mrs Mills needs to take account of the commercial probability of FM Custodians acting in the way Mr and Mrs Mills said they did. In my view, the claim of an enforceable arrangement of some type is
hopeless.
(c) Should the discretion to refuse summary judgment be exercised?
[8] See para [25] above.
[9] Ma v Ming Shan Holdings Ltd [2010] NZCA 325 at para [30].
[29] Having regard to my factual finding, there is no basis on which the discretion to refuse summary judgment could be exercised in relation to any alleged agreement or lesser obligation.
[30] That leaves for resolution only one point: whether the failure of FM Custodians to disclose the correspondence on which Mr and Mrs Mills relied is sufficient to justify refusal of the summary judgment application. To do so would act as some form of disciplinary measure rather than reflect any assessment of the merits of FM Custodians’ claims.
[31] As to jurisdiction, there is authority for the proposition that breach of an obligation to inform the Court of any possible defence could result in dismissal of a summary judgment application.[10] However, peremptory dismissal of a summary judgment application could, in my view, only occur where the material giving rise to the defence was so clear that any reasonable party bringing the application would realise that the Court should take it into account in determining whether summary judgment ought to be granted. And, it would be necessary for a party to turn its
mind to that issue because a deponent must confirm his or her belief there is no defence to the claim.[11] In this case, as I have found, there was nothing in the correspondence that could have given rise to any type of obligation asserted by Mr and Mrs Mills. Therefore, I find there was no breach of the disclosure obligation.
[10] Canning v Lucas Industries NZ Ltd CA 24/89, 22 March 1990 at 6-7, Scales Trading Ltd v Far Eastern Manufacturing Commerce Corporation HC Christchurch CP41/97, 11 September 1997 (Master Venning) at p 24 and Barfoot & Thompson Ltd v Eastwood [2000] DCR 621 (DC) at 632.
[11] High Court Rules, r 12.4(5)(b).
[32] There are no other grounds on which Mr Gallie could properly rely to challenge entry of summary judgment. In relation to the claim for possession of the land, Mr Gallie accepted that any defence stood or fell on the same grounds advanced in respect of the money claim.
[33] The transactions on which judgment is now sought were commercial in nature. Mr and Mrs Mills were experienced property investors at the time the loans were drawn down. In addition, they knew of potential financial problems arising out of the collapse of Inlors Developments Ltd.[12] Nevertheless, they agreed to enter into these commitments, providing their home at Russell Street as part of the secured land.
[12] See para [3] above.
[34] The subsequent collapse of the property market in more recent times has exacerbated their financial difficulties. However, there is no reason why they should not, as experienced business people, be held to their bargain. Summary judgment cannot and will not be refused simply on grounds of inability to pay caused by market forces. The possibility of loss being caused through a downturn in a relevant market is part of the risk assumed by any person doing business.
Result
[35] I am satisfied there is no defence to the claims brought by FM Custodians. I
make the following orders:
a) Judgment is entered against Mr Mills in the sum of $550,929.24. b) Judgment is entered against Mrs Mills in the sum of $286,525.38.
c) Interest on each of those amounts shall accrue from the date of judgment to the date of payment at the rate of 12% per annum, calculated daily in accordance with the relevant loan documentation.
d)An order for possession of the land at 12 and 14 Russell Streets, Waipukurau (contained and described in Certificates of Title HB89/86, HBJ2/625 and HBJ2/626, Hawkes Bay Land Registry) is made in favour of FM Custodians. Mr and Mrs Mills shall vacate the property by 4pm on Friday 27 August 2010 and shall hand over keys to Mr Harrison of FM Custodians by that time. Leave is reserved for FM Custodians to apply for any directions necessary to implement this order, in the event of non-compliance with it.
e) Costs and disbursements, on a solicitor and own client basis, in favour of FM Custodians against Mr and Mrs Mills (jointly and severally) in the total sum of $15,394.50. Those costs do not include the costs of the hearing on 3 August 2010.
f) In respect of the hearing on 3 August 2010, costs are awarded on a 2B basis together with reasonable disbursements, both to be fixed by the Registrar.
[36] I thank counsel for their assistance.
Delivered at 4.30pm on 4 August 2010
P R Heath
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