Financial Trust Limited v Bishop HC Wellington CIV-2006-485-2321

[2007] NZHC 1714

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2006-485-2321

BETWEEN  FINANCIAL TRUST LIMITED First Plaintiff

ANDORANGE FINANCE LIMITED Second Plaintiff

ANDJOAN ELIZABETH BISHOP First Defendant

ANDDONALD JOHN BISHOP Second Defendant

ANDEMMA CATHERINE FURSMAN Third Defendant

ANDDAVID ANTHONY TOBIN Fourth Defendant

Hearing:         19 March 2007

Appearances: M. Sandelin for Plaintiffs

J. Langford for Defendants

Judgment:      3 April 2007 at 4.00 pm

In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4.00pm on the 3rd day of April 2007.

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Introduction

[1]      The plaintiffs Financial Trust Limited (“FTL”) and Orange Finance Limited

(“OFL”)  seek  summary judgment  against  the  defendants  pursuant  to  guarantees provided by the defendants in respect of loan advances.  These loans were originally

FINANCIAL TRUST LIMITED AND ANOR V BISHOP AND ORS HC WN CIV-2006-485-2321  3 April

2007

advanced by Securities Registry Limited (“SRL”) to BFA Development Company

Limited (in receivership) (“the company”) and guaranteed by the defendants.

[2]     According to the plaintiffs, the loans and associated guarantees were subsequently assigned by SRL to FTL and OFL, the plaintiffs here.   In this proceeding they seek to enforce the guarantees.

[3]      The summary judgment application is opposed by the defendants.

Background Facts

[4]      In January 2003 and October 2003 SRL in its capacity as trustee of Securities Registry (No. 3) Trust (“the S.R. Trust”) entered into loan agreements to advance moneys to the company.   These loan agreements were initially for an advance of

$1,876,000 to enable the purchase of properties at Webb Street and Willis Street Wellington (“the properties”) and then for a development facility loan of $8,835,000 to repay the first loan and provide substantial additional funds to develop the properties.

[5]      The loans were secured by a mortgage over the properties and guarantees provided by each of the defendants.

[6]      From the plaintiffs’ amended Statement of Claim filed 15 February 2007 it is clear that in October 2003 SRL and FTL entered into a document described as “a Deed  of  Removal  and  Appointment  Concerning the  Securities  Registry (No.  3) Trust” (“Deed of Removal”) whereby FTL was appointed to become the new trustee of the S.R. Trust in place of SRL, and the name of the S.R. Trust was changed to “Financial (No. 3) Trust”.

[7]      It appears that although the parties entered into the Deed of Removal in October 2003, the formal document was post-dated to 18 December 2003 as the “effective date”.   This was, it seems, the date upon which the appointment and removal was to come into effect.

[8]      The legal effect of the Deed of Removal  was  apparently brought  to  the attention of the defendants in notices pursuant to s130 Property Law Act 1952 given to the defendants by solicitors acting for both SRL and FTL on 28 November 2003. The defendants have acknowledged they received those notices.

[9]      Then on 17 December 2004 FTL as lender, the company as borrower and the defendants as guarantors entered into a Deed of Variation of the $8,835,000 development loan facility.  This Deed confirmed that FTL contracted in its capacity as trustee of the S.R. Trust, now the renamed Financial (No. 3) Trust as lender.

[10]    Some three months later on 31 March 2005 FTL, the company and the defendants  entered  into  a  (second)  Deed  of  Variation  of  the  development  loan facility.  Again, FTL was noted in the Deed as contracting in its capacity as trustee of the Financial (No. 3) Trust as lender.

[11]     The next day, on 1 April 2005, the rights in respect of a $4,000,000.00 portion of the development loan facility were assigned by Deed from FTL to OFL.

[12]     On 8 June 2005 the defendants were given formal notice under s130 Property

Law Act 1952 of this assignment to OFL.

[13]     On 13 April 2005 the company defaulted under the development loan facility in failing to pay an interest instalment of $159,775.72.

[14]     Demands  were  made and  expired  unremedied.    On  16  June  2005  a  s92

Property Law Act notice was served on the company, and a notice under s92(6) Property Law Act served on each of the defendants as guarantors.

[15]     Over a year later, on 17 November 2006, FTL and OFL sold the properties by way of mortgagee sale.   Settlement of the mortgagee sale was completed on 20

December 2006, but there was a shortfall in the amount received on the sale.

[16]   This meant that as at 16 January 2007 the amount outstanding on the development loan facility was $3,379,023.69, and interest was continuing to accrue on that sum.

[17]     According to FTL and OFL, the total amount now outstanding under the development   loan   facility   guaranteed   by   the   defendants   is   this   figure   of

$3,379,023.69, together with accruing interest and costs.

[18]     As I understand the position, no argument or complaint is raised on behalf of the defendants as to the shortfall amount on the mortgagee sale.   Further, the defendants do not appear to contest that the $3,379,023.69 figure, together with interest and costs, is properly payable under the development loan facility.

[19]     The only arguments before me are the suggestion by the defendants that:

a)       First, the development loan facility and associated guarantees were not validly assigned by SRL to FTL;

b)The defendants have not been given proper notice of the assignment for the purposes of s130 of the Property Law Act 1952;

c)        The defendants’ guarantees were not given to the plaintiffs but to SRL

and as noted above, the guarantees were not validly assigned.

d)Although default by the company is admitted, the defendants deny that any valid demand was made on them, because all demands were made by or on behalf of FTL, and neither FTL or OFL had the right to make such demand because the debt had not been validly assigned to either entity.

Counsel’s Arguments and My Decision

[20]     In seeking summary judgment here, the plaintiff relies upon Rule 136 High

Court Rules, which states:

The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim.

[21]     Under Rule 136 the onus is clearly on the plaintiff to satisfy the Court that the defendant has no defence to the claim.

[22]     In Pemberton v Chappell [1987] 1 NZLR, Somers J said at 3:

At the end of the day Rule 136 requires that the plaintiff ‘satisfies the Court that a defendant has no defence’. In this context the words ‘no defence’ have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence. See for example Wallingford v Mutual Society [1880] 5 App Cas 685, 693; and Fancourt v Mercantile Credits Limited [1983] 154

CLR 87, 99; Orme v de Boyette [1981] 1 NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty.

And:

Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident – that is to say, satisfied – that the defendant’s statements as to matters of fact are baseless.

[23]     Although the Court must be cautious in summary judgment applications, a

Judge is not bound:

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

Eng Mee Young v Letchumanan [1980] AC 331 at 341.

[24]     Thus, whilst it is for the plaintiff to show that its case is unanswerable, and that the defendant has no arguable defence, the Court ought to assess any defence, or narrative, presented by the  defendant  in  a  “robust  and  realistic”  manner:  Bilbie Dymock Corporation v Patel (1987) 1 PRNZ 84 (CA) at 85.

[25]     Before me, counsel for the plaintiffs set out the plaintiffs’ position in the following way:

a)       The relevant loan and security documents were validly assigned by

SRL to FTL.

b)The defendants have been duly notified of that assignment for the purposes of s130 Property Law Act.

c)       Consequently there was a valid statutory assignment of the relevant loan and security documents by SRL.

d)In  the  alternative,  if  it  is  found  that  the  Property  Law  Act’s requirements have not been complied with by the plaintiffs, there is nonetheless  an  equitable  assignment  which  can  and  should  be enforced by the Court here.

[26]     The defendants assert that there is no valid assignment of the development loan facility here.  In addition, because the Deed of Removal and Appointment was post-dated to 18 December 2003, there is no effective assignment at the time notice of the assignment was given to the defendants on 28 November 2003, and that the Deed of Removal and Appointment as a whole is invalid.

[27]     The evidence of Mr Murray on behalf of the plaintiffs is that SRL and FTL entered into the Deed of Removal and Appointment in October 2003.   It is not entirely clear why the document was post-dated.   In any event, as I see it, any suggested lack of certainty as to when the parties executed the Deed would have been relevant only if the present case had raised issues related to the priority of successors assignments of the relative loan and security documents.  This is not the case here, however.

[28]     The central issues in the present case are first whether the Deed of Removal and Appointment satisfies the requirements of a valid assignment either statutory or equitable, and secondly, whether the defendants have been given notice of the assignment for the purposes of s130 Property Law Act.

[29]     For a statutory assignment of any debt or guarantee, s130(1) Property Law

Act requires the following matters to be satisfied:

a)       The  assignment  must  be  in  writing  and  must  be  signed  by  the assignor.    The  document  must  have  evidence  of  the  intention  to transfer the property right to be assigned – Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724.

b)        The assignment must be absolute and not by way of charge only.

c)        Actual written notice of the assignment must be given to the debtor.

No particular form of notice is required, provided it is in writing –

Beyer v Hingley and Guest and Keyes [1929] NZLR 18.

[30]     In the present case I am satisfied that the necessary pre-requisites for a valid assignment as set out in Commercial Factors Ltd v Maxwell Printing Ltd have been satisfied.  The assignment is in writing and signed by the assignor and is an absolute assignment which puts the assignee in full legal control of the whole of the assigned subject matter.  Essentially there has been simply a change in the trustees of the SR Trust.   The principal beneficial lender of the loan advance to the company has effectively remained unchanged.

[31]     And  in  particular,  the  relevant  clauses  of  the  Deed  of  Removal  and

Appointment provide:

a)        The effective date of the assignment as 18 December 2003.

b)SRL was removed as trustee of the Securities Registry (No. 3) Trust and FTL was appointed as the new trustee of that Trust.

c)        The Trust Fund was transferred by SRL to FTL.

d)The  rights  and  obligations  in  connection  with  the  Trust  Fund, including  the  development  loan  facility  and  associated  guarantees were absolutely assigned by SRL to FTL.

e)       Securities  Registry  (No.  3)  Trust  was  renamed  Financial  (No.  3) Trust.

[32]     I am satisfied when considering the wording used in the Deed of Removal and Appointment that the document affects the unconditional transfer of all SRL’s rights under the relevant loan and security documents to FTL as from 18 December

2003.

[33]     I turn  now  to  consider  the  second  requirement  –  this  is  the  question  of whether valid notice of the assignment was given to the defendants.  Again, I have little hesitation in finding that in the present case this requirement is satisfied.  The notice given to the defendants on 28 November 2003 informed them of the legal effects of the Deed of Removal and Appointment.   The notice advised that the assignment had been made by SRL, it identified the development loan facility debt, and the assignee as FTL.  The defendants could have been in no doubt as to whom the debt was to be repaid from the effective assignment date 18 December 2003.

[34]     I am satisfied, therefore, that the notice was a valid notice for the purposes of s130 Property Law Act – see Van Lynn Developments Ltd v Pelias Construction Company Ltd [1969] 1 QB 607 at 613.

[35]     Before me counsel for the defendants raised timing issues.  He asserted that because the notice was dated 28 November 2003 and the Deed of Removal and Appointment stated it was to be effective from 18 December 2003, the assignment had not occurred at the date of the notice and therefore the defendants were not duly notified of the assignment in terms of the decision in New Zealand Factors Limited v Farmers Trading Co Limited [1992] 3 NZLR 703. That case found that a notice for the purposes of s130(1) Property Law Act must follow the assignment of which it is notice.

[36]     In my view, this argument on the part of the defendants is quickly answered. The evidence before  the  Court  is  that  SRL  and  FTL  entered  into  the  Deed  of Removal  and  Appointment  in  October  2003.    The  assignment  was  said  to  be effective from 18 December 2003, and the notice itself made it clear that “SRL has entered into a deed…” and thus indicated that the assignment was concluded.

[37]     I am satisfied that the Deed of Removal and Appointment was a clear and absolute assignment, and that it was entered into in October 2003.  Accordingly, the notice satisfied the requirements set out in the New Zealand Factors Limited case in the sense that the notice followed the assignment, notwithstanding the fact that the effective date of operation of the assignment was to be 18  December 2003.    I distinguish Cardrona Properties Ltd v Newmans Tours Ltd referred to me by counsel for the defendants.  In that case when the notice was given, there was no assignment

– it occurred some five days later.  That is not the case here.

[38]     And as Lord Denning MR noted in Van Lynn Developments Ltd v Pelias

Construction Co. Ltd at 826:

It  seems  to  me  to  be  unnecessary  that  it  should  give  the  date  of  the assignment so long as it makes it plain that there has in fact been an assignment so that the debtor knows to whom he has to pay the debt in the future.

[39]     As I see it, that is precisely what has occurred here.

[40]     And Ms Bishop on behalf of the defendants acknowledged at paragraph 4 of her second  affidavit that she received the notice  “probably…on  29  November”. Although she asserts that she did not understand what the letter meant, she does indicate that she understood it to be related to a formality to do with the loan from SRL.

[41]     When they had received the notice, the defendants were entitled of course to require a copy of the Deed of Removal and Appointment so as to be satisfied first that it was valid, and secondly to be clear that FTL could give them a good discharge when the debt was repaid.  They did not do so.  Nor did the defendants in any way query the validity of the assignment at that point.

[42]     I conclude, therefore, first that the relevant loan and security documents were validly assigned by SRL to FTL and secondly, that the defendants were duly notified of that assignment in terms of s130 Property Law Act.  A valid statutory assignment by SRL occurred.   That is enough to dispose of the defendants’ opposition to the present application.

[43]     If I may be wrong as to these aspects, however, the fact that subsequent deeds of variation of the development loan facility were entered into by FTL, the company and  the  defendants  following  legal  advice,  whereby  FTL  is  acknowledged  as “lender”, the company acknowledged as “borrower” and the defendants acknowledged as “guarantors” of the loan variously described as $8,835,000 in 2004 and $9,455,000 in 2005 in my view may well itself in any event constitute a valid s130 Notice of the assignment of the relevant loan and security.  Further, the Deeds of Variation clearly identified the debt and the schedule of payments to be made by the company, so all the parties knew what payments were required and to whom the debt  was  to  be  paid  –  see  Van  Lynn  Developments  Ltd  v  Pelias  Construction Company Ltd.

[44]     In addition, in terms of clause 3.3 of those respective Deeds of Variation, the plaintiffs and the defendants confirmed that the guarantees in each case remained in full force and effect for all indebtedness under the development loan facility and they acknowledged they would be relied upon by FTL as security for that facility.

[45]     That said, I am satisfied that the defendants are also estopped from denying their liability as guarantors of the company’s indebtedness, when in fact they themselves on two occasions (in 2004 and 2005) chose to enter into variations of the development facility with FTL as lender – see Beyer v Hingley and Guest and Keyes which provided that no particular form is required for the notice.

[46]     A  further  aspects  arises.    The  issuing  of  a  letter  of  formal  demand  for repayment of a loan may itself amount to clear and unequivocal notice of an assignment – Stewart v Havanaco Limited (HC AK, CIV-2004-404-923, 5 April

2005, Associate Judge Sargisson) - upheld on appeal in Havanaco Ltd v Stewart 17

PRNZ 622 (CA).

[47]     As I understand the position, it is common ground that on 5 May 2006 FTL made demand on the company and the defendants were provided with a copy of the demand.  That said, if I may be wrong in my finding earlier that the s130 Notices issued on 28 November 2003 were valid, then in any event, according to Stewart v Havanaco Limited, the 5 May 2006 the demand may well be seen as amounting to a

clear and unequivocal notice to the defendants of the assignment of the relevant loan and security.

[48]     And finally, although given my earlier findings it is not strictly necessary for me to do so here, I turn now to consider one last matter.     This is the point that notwithstanding my earlier findings that SRL and FTL have complied with the rules for assignment of the present choses in action under the Property Law Act, in my view there is a further aspect which assists the plaintiffs here.  This is the fact that the  Deed  of  Removal  and  Appointment  may  in  any  event  constitute  a  proper equitable assignment of the debt, even if for some reason it was not a valid statutory assignment – Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724.

[49]     As to this, the Courts in previous decisions have found that an equitable assignment may be converted into a statutory assignment in circumstances where, for example, in proceedings an affidavit is filed and served in reply with a Deed of Assignment annexed to it.   On occasions this has been seen as constituting valid notice for the purposes of s130 Property Law Act - Stewart v Havanaco Limited.

[50]     And  so  far  as  this  issue  of  an  equitable  assignment  is  concerned,  I  am satisfied that the prerequisites for such an equitable assignment exist here.  The form of deed, as I have noted, clearly shows that the assignor irrevocably divests itself of the rights to the loans by assigning these to the assignee.  The assignment is absolute, the subject matter of that assignment is clear, and any consideration requirements are met here.

[51]     In addition, in my view, even if in the present case the conclusion is reached that there was only an equitable assignment of the relevant loan and security, the filing and serving of Mr Murray’s second affidavit may well have amounted to proper notice of the assignment for the purposes of s130 Property Law Act.

[52]     Returning now to the principles to be applied when the Court is to consider summary judgment applications, although the onus is on the plaintiffs throughout to show that the defendant has no arguable defence to their claim, the defendants must produce an evidential foundation for any defences raised.   If not, the plaintiff’s

verification stands unchallenged, and it ought to be accepted unless it is patently wrong – Australian Guarantee Corporation (NZ) Limited v McBeth (1992) 4 PRNZ

544 (CA).

[53]     For the reasons I have outlined above, in the present case, I find:

a)        The relevant loan and security documents were validly assigned by

SRL to FTL;

b)The defendants have been duly notified of that assignment for the purpose of s130 of the Property Law Act;

c)       Consequently, there was a valid statutory assignment of the relevant loan and security documents by SRL.

d)Alternatively, if the requirements of the Property Law Act have not been complied with by the plaintiffs, there was nonetheless an equitable assignment here which can and should be enforced by the Court.

[54]     I am satisfied, therefore, that the plaintiffs have clearly established through the material before the Court that the defendants have no defence to their   claim. The existence of the debt itself is not disputed in any real way.

[55]     The arguments raised by the defendants in opposing the summary judgment application, relating as they do to the assignment of the debt and notice of that assignment are technical and as I see it, they are not supported by the evidence before the Court.  In my view, they lack any real degree of credibility and must be dismissed.

[56]     For these reasons, the application for summary judgment based upon the plaintiffs’  amended  Statement  of  Claim  must  succeed.    As  to  the  question  of quantum,  no  issues  have  been  taken  by  the  defendants  with  the  plaintiffs’ calculations in their amended Statement of Claim.

[57]     An issue has arisen, however, over which of the plaintiffs FTL or OFL is owed the judgment sum of $3,379,023.69, plus interest, sought in the plaintiff’s Statement of Claim.  It has been suggested, and there seems little argument on this point that following the mortgagee sale of the company’s security property, the second plaintiff OFL has had its principal of $4,000,000.00 repaid in full from the proceeds of that sale.  This seems to be acknowledged in the second affidavit of Mr Murray sworn 13 February 2007, and the settlement statement exhibited as Exhibit I.

[58]     The outstanding debt from the guarantors of $3,379,023.69, plus interest, therefore appears to be owed to the first plaintiff FTL.

[59]     It is the first plaintiff FTL which is therefore entitled to summary judgment against the defendants under their guarantees here, guarantees which are clear and state unequivocally that the lenders are entitled to seek repayment in full from each of the guarantors.

[60]     It follows, therefore, that given that each of the defendants has no arguable defence to the claim by FTL for payment under the respective guarantees, summary judgment is to be granted in favour of FTL.

Conclusion

[61]     The application by the plaintiff FTL for summary judgment against each of the defendants therefore succeeds.

[62]     An order is now made granting summary judgment to the plaintiff Financial Trust Limited against each of the defendants in terms of the amended Statement of Claim filed 15 February 2007 for:

a)        The sum of $3,379,023.69.

b)        Interest  at  the  interest  rate  of  12.5%  per  annum  on  this  sum  of

$3,379,023.69  from  16  January  2007  down  to  the  date  of  this judgment.

[63]     As to costs, the plaintiff FTL has been successful in this summary judgment application and is entitled to an order for  costs  in  the normal  way.    Costs  are therefore awarded in favour of the plaintiff FTL against the defendants calculated on a category 2B basis, together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’

Solicitors:

Minter Ellison Rudd Watts, Auckland for Plaintiffs

Langford Law, Wellington for Defendants