FM Custodians Limited v Johnson

[2012] NZHC 2666

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-007794 [2012] NZHC 2666

BETWEEN  FM CUSTODIANS LIMITED Plaintiff

ANDBONNIE DAWN JOHNSON Defendant

Hearing:         9 October 2012

Appearances: R B Hucker for the Plaintiff

S Ellis for the Defendant

Judgment:      12 October 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

12.10.12 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

R Hucker, Hucker & Associates, Auckland –  [email protected]

S Ellis, LeeSalmonLong, Auckland – [email protected]

FM CUSTODIANS LIMITED V BONNIE DAWN JOHNSON HC AK CIV 2011-404-007794 [12 October

2012]

[1]      The plaintiff (FMC) provided funding in connection with the purchase by Stewart  Street  Properties  Limited  (Stewart  Street)  of land and  buildings  at  [   ] Auckland (the property) by an agreement for sale and purchase dated 25 March 2009 (the ASP).   The defendant  (Ms  Johnson) is  the sole  director  of Stewart  Street. Previously she had managed the Ramarama Country Inn (the Business) that operated from the property.

[2]      FMC provided funding for the purchase, first by a loan agreement dated 19

May 2009 for $1.45M and secondly by a loan agreement dated 9 October 2009 for

$1.8M.  The second loan was a refinancing of the first and included further lending of $350,000 to finance an upgrade to the sewerage system and related works on the property.  Ms Johnson guaranteed both loans.  Her deed of guarantee and indemnity was dated 9 June 2009.  She had the services of a solicitor, Mr Bilkey, at the time.

[3]      The loan has fallen into default.   FMC has applied for summary judgment and claims the amount of $2,312,469.26 (plus legal, receivership and administrative costs) is owed to-date.

Opposition

[4]      Ms Johnson claims that consistent and unequivocal statements were made by FMC’s representatives on multiple occasions that funding would be provided for completion of all compliance works required to upgrade the property to a sufficient standard that enabled the business there to trade profitably.

[5]      The  business  had  experienced  difficulties  in  securing  a  renewal  of  its temporary liquor licence mainly because of the need of a wastewater disposal upgrade.  She said as well there was a need for building work to the accommodation facility.  Therefore, in addition to obtaining a liquor licence, she said building work was needed for which a building warrant of fitness, building consents and code compliance certificates had to be obtained.

[6]      All  of  these  matters,  Ms  Johnson  says,  were  the  subject  of  FMC’s commitment to provide funding for completion of all the compliance works required i.e. not only for the liquor licence but also for building works to the accommodation block, if the business was to be able to trade profitably.

[7]      Ms Johnson does not dispute her having signed on behalf of Stewart Street the first loan agreement, or (now) her having signed the second loan agreement.  Ms Johnson is also aware of her obligations as guarantor of Stewart Street’s borrowings. But, for reasons related to her claim that the funding promised was not provided to the extent she says was promised it is on her behalf argued that a number of defences are arguable.

[8]      Before  considering  those  defences  it  is  necessary  to  briefly  refer  to  Ms

Johnson’s claims.  She deposed (by her affidavit dated 22 May 2012):

(a)       It was agreed that the plaintiff would lend an amount [for completion of the compliance works required] at a low interest rate, however the timing of the loans was not agreed to at that stage. [para 17]

(b)       All through the negotiation period up until when I eventually signed a loan agreement, the main issue which was discussed between the parties was the compliance works and how they could be funded.  I was told throughout that time by Mr Hutchison [of FMC] that the funding would be available. [para 22]

(c)       He said that a letter of comfort would be provided setting out the terms of the loan for the compliance works and promised to send it [para 28]

(d)      At all times I was told that the funds would be provided. [para 29]

[9]      It is claimed Ms Johnson has arguable defences under s 7 of the Contractual Remedies Act 1979 (CRA), under ss 9 and 43 of the Fair Trading Act 1986 (FTA), under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), and in equity upon a claim of estoppel.

[10]     I will briefly consider each of the prospective defences.

[11]     Stewart  Street  and  Ms  Johnson  claim  they were induced  to  enter into  a contract by misrepresentations made by/on behalf of FMC in circumstances where all parties agreed that the truth of the representation was essential to Stewart Street and  Ms  Johnson,  or  the  affect  of  the  misrepresentation  or  breach  substantially reduced the benefit/increased the burden of what was agreed would be provided.

[12]   The defence claims all parties impliedly agreed that the truth of the representation and the performance of the funding commitment were essential to Ms Johnson and the failure to provide to the extent agreed resulted in the business not being able to trade properly and profitably.  For the defence it is claimed there is no evidence that Ms Johnson affirmed the contracts having full knowledge of the repudiation or misrepresentation for had she been, then relief under the CRA would not be available to her.

Sections 9 and 43 Fair Trading Act 1986

[13]     For the defence it is argued Stewart Street is entitled to an order from the Court declaring its loan agreements void ab initio under s 43 of the FTA.  Section 9 provides that no person shall, in trade, engage  in conduct that is misleading or deceptive or is likely to mislead or deceive.  For Ms Johnson it is claimed that she and Stewart Street suffered loss or damage because of statements made by FMC or on its behalf by Mr Hutchison.  If the Court did accept at trial the defence claims of funding commitment representations, which it considered to be misleading and deceptive conduct, then it is argued the Court would conclude Stewart Street would never have entered into the ASP, nor have borrowed from FMC and Ms Johnson would not have guaranteed the loan and Stewart Street would not have defaulted on the loan and Ms Johnson would not have been called upon under her guarantee.

Credit Contracts and Consumer Finance Act 2003

[14]     The  defence  says  it  is  arguable  that  the  Court  would  reopen  the  loan agreements and the guarantee under s 7 CCCFA.  The Court has power under s 120

to reopen relevant agreements if the contract is oppressive or if a party has exercised a right or power conferred by the contract in an oppressive manner or if a party has induced another party to enter into the contract by oppressive means.  The defence asserts that as well as the loan agreement and guarantee having been induced by FMC  using  oppressive  means,  FMC  has  exercised  its  rights  under  the  loan agreement and in an oppressive manner in that the exercise of its rights is unconscionable and unjustly burdensome in the circumstances.   The defence says that FMC’s attempts to resile from the funding commitment and/or rely upon a breach  of  contract  occasioned  by  its  breach,  is  unconscionable.    Quoting  from

Manion v Marac Finance Limited [1]  Ms Ellis submits FMC’s conduct is unjustly

burdensome in that it has broken faith with the basic condition upon which the contract was entered into and is therefore oppressive.

[1] [1986] 2 NZLR 586.

[15]     If the Court reopens a credit contract it may make orders it thinks necessary in the circumstances including extinguishing any obligations or directing they be revised or altered or indeed directing the termination of proceedings against Stewart Street or Ms Johnson.

Estoppel

[16]     The defendant says the plaintiff created or encouraged an assumption that the funding commitment would be honoured and that funding in addition to the $1.8M loan would be provided, and that FMC knew Ms Johnson would rely on this assumption to her detriment.

[17]     As with the availability of a defence under the FTA so too with the defence claim of estoppel it would be necessary for Ms Johnson to provide a sustainable foundation for claims of losses.  From the defence point of view loss is a clear and natural result of the breaches alleged.

[18]     Ms Johnson says FMC has acted unconscionably in resiling from the funding commitment and is estopped from resiling from it, and that a material affect of that is

that Stewart Street could not meet its obligations under the loan agreement.

[19]     It is sufficient in this case for the Court to adopt what was said by the Court of Appeal in Krukziener v Hanover Finance Limited [2]:

The principles are well settled.   The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. 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: MacLean v Stewart (1997) 11 PRNZ 66 (CA).  The Court will not normally resolve material conflict 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 inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). 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 are warranted: Bilbie Dymock Corp Ltd v Patel (1987) 1

PRNZ 84 (CA).

[2] [2008] NZCA 187 at para 26.

[20]     In this case the ASP, the loan agreements and Ms Johnson’s guarantee contain no express or implied funding commitment of the kind argued for or on behalf of Ms Johnson.    Therefore  the  Court  needs  to  look  closely  at  Ms  Johnson’s  claims contained in those statements already referred to paragraph [8] herein.  As well the Court should review other evidence including the documentation for the purpose of considering Ms Johnson’s claims.

Background

Mortgagee auction 3 December 2008

[21]     Ms Johnson had been engaged to manage the business on behalf of the then owner of the property.  Because of loan default a mortgagee sale of the property was arranged on 3 December 2008.  Shortly prior to the auction Ms Johnson obtained a registered valuer’s valuation of the property.

[22]     There  were  no  bids  for  the  property.   An  agent  of  the  vendor  enquired whether Ms Johnson was interested in purchasing.  Ms Johnson said that was not the

reason she had attended the auction.  Rather her concern was in assets and ‘capital’

she had put into the business.

[23]     She said she had a 10 – 15 minute discussion with the agent, and with Mr Hutchison for FMC, and with others during which she said there was a discussion about what work was required to be done and how much it would cost.  Ms Johnson deposes:

This was important because from my perspective, unless there was money for  the  compliance  works  to  be  completed,  the  business  could  not  be properly operated and there would be no way of servicing the loan let alone paying it back.

[24]     She said she could offer no more than $1.1M for the property.  She added:

...and that this would involve the trustees separately advancing funds for the compliance works.  I was clear at the time I would only buy the property on the condition that the plaintiff would fund the compliance works.  It was an important aspect from my perspective, as if the site was not compliant, then I could not operate the business to generate income to service the loan.

[25]     She said there was a discussion that the total cost of compliance works would be in the vicinity of $600,000 – $800,000.  She said it was agreed the plaintiff would lend that amount at a low interest rate, however the timing of the loans was not agreed to at that stage, nor was the purchase price for the property.

[26]     At the parties auction meeting a price of $1.5M to purchase the property was agreed in principle and that FMC would provide a loan to cover the purchase price – FMC says dependent on Ms Johnson satisfying its lending criteria.

[27]     According to Mr Hutchison Ms Johnson stated that she would seek a loan from an alternative lender to cover the compliance costs.  He said she said she would rectify and meet all costs of compliance issues associated with the property.

[28]     After that Ms Johnson said that she immediately contacted her lawyer, Mr

Bilkey to assist with the purchase of the property.

[29]     On 5 December 2008 Mr Bilkey sent a letter to FMC, it advised Ms Johnson had given instructions for an agreement for purchase to be prepared.   It noted a purchase price of $1.5M with settlement nearly a year later on 1 December 2009.  It noted there was to be nil deposit “however the purchaser warrants and undertakes to proceed at her cost to complete all outstanding issues with the sewerage system so that  that  becomes  operational  and  is  approved  and  signed  off  by the Auckland Regional Council”.

[30]     The letter also confirmed that Ms Johnson’s proposed terms included:

5.Following signing of the agreement our client will have possession of the property and will run the business paying all outgoings and complying with all statutory obligations.  Pending the completion of settlement no rental will be payable.  Our client will be responsible for the payment of outgoings from the time the agreement is signed however the vendor will pay any arrears of outgoings.

6.The Vendor will agree to provide the purchaser with 60 per cent finance on the vendor’s then current standard lending terms upon receipt of a registered valuer’s report from a valuer acceptable to the vendor.

[31]     It appears from Mr Bilkey’s letter that Ms Johnson was willing to undertake and proceed with the sale on the basis that she complete all outstanding issues with the sewerage system and bear this cost.  There was no mention in the letter of FMC providing additional funds for compliance works.  Yet, it is her claim that she said she would only buy the property on the condition that FMC fund the compliance works.

[32]     Mr Hutchison says that during subsequent negotiations Ms Johnson enquired as to whether in the event she was unable to obtain a loan from a third party, FMC would consider lending additional funds to cover compliance costs.  Mr Hutchison says he advised Ms Johnson that FMC would be willing to loan additional funds of

$300,000 to upgrade the sewerage system, based on FMC’s lending policies and guidelines.   He says at no time did he indicate to Ms Johnson that the loan funds would cover all compliance costs or that the funds would be unlimited.

[33]     According to Mr Hutchison he suggested Ms Johnson tackle the compliance works in two stages:

(a)       An upgrade of the sewerage system to be completed by September

2009.

(b)      Completion of the accommodation units to occur within 12 months of purchase.

[34]     Mr Hutchison said the additional funds were to fund the first stage only i.e. to ensure the upgrade of the sewerage system so that Ms Johnson could obtain a liquor licence and continue trading.  As much was confirmed to Mr Swain, Ms Johnson’s advocate for the liquor licence application when Mr Hutchison wrote that continuing support would depend on Ms Johnson’s ability to meet normal lending policies and guidelines.

[35]     Also Mr Bilkey deposed:

I  recall  the  agreement  was  that  funding  would  be  available  for  the

Significant  Compliance  Works.     Mr  Hutchison  mentioned  a  figure  of

$300,000 although it was acknowledged at that time that the cost would likely be higher.  My understanding was that further information as to costs needed to be obtained.

[36]     Mr Bilkey mentions this figure in the context of works required to obtain the liquor licence.  I agree it seems therefore that Mr Bilkey is referring to the sewerage upgrade.

[37]     The final form of the ASP was prepared by Mr Bilkey.  It was signed on 25

March 2009 at a purchase price of $1.5M.  The agreement was conditional upon Ms

Johnson completing due diligence, and FMC providing vendor finance.

[38]     As to due diligence Ms Johnson had to be entirely satisfied with the overall financial suitability of the project and regarding her ability to finance same. Regarding vendor finance it was stated FMC would provide the purchaser with first mortgage finance of up to $1.395M at nil per cent for 16 months to be secured by first mortgage and upon the condition requiring the purchaser to obtain the necessary consents from the Territorial Authority to build a sewerage system for the property,

construct the sewerage system and obtain a code compliance certificate in respect of same by 1 September 2009.

[39]     In effect the agreement for sale and purchase did not become unconditional until after delivery of a favourable decision by  the Liquor  Licensing Authority, granting an extension to the business liquor licence.

Events pre-settlement

[40]     The parties completed a loan agreement on 19 May 2009 whereby Stewart Street borrowed $1.45M, the altered amount for which it was agreed the property would be purchased.

[41]     On 21 May 2009 Mr Bilkey wrote to FMC’s solicitors noting:

The loan offer [that is the first loan offer] as presented does not allow our client to confirm its agreement to purchase the property and satisfy the due diligence condition.

As your client is aware there are significant and longstanding compliance issues with the local Council and the Regional Council.  The main issue is the  sewerage  system.    As  we  understand  it  the  costs  of  getting  that operational and certified could be as high as $375,000 ($250,000 for the plant and $120,000 for drainage and site works).

In addition there are several outstanding building issues.   It is anticipated that likely costs to have these signed off will be $100,000.

The [original] loan offer does not make funds available to enable these works to be completed...

If it is your client’s intention to fund the remedial works the loan offer will need to be increased bearing in mind that our client is not prepared to accept all of the risk associated with undertaking the works particularly in the event that there are cost overruns or delays in obtaining sign-offs.

The whole process will require further discussion as will the purchase price of the building itself...  We believe that your client has a valuation for the property at $1.7M assuming the sewerage system is operational and that any outstanding building work has been completed.  If the additional costs are to be added to the purchase price this will in effect push the price over $2M which is in excess of the valuation your client has.

[42]     Mr Bilkey indicates that Ms Johnson was not prepared to accept all of the risk associated with undertaking the works.   It follows that she contemplated accepting some of that risk.

[43]     By May 2009 Ms Johnson had requested FMC to loan additional funds to cover the upgrade of the sewerage works.  FMC indicated a preparedness to loan an additional $300,000 for the cost of the sewerage system upgrade, bringing a total loan amount required of $1.8M.  Of course drawdown would not occur until the ASP had been confirmed as unconditional.

[44]     In May 2009 FMC obtained an independent valuation of the property.  The estimated value at that time with all compliance issues rectified was $2.7M.  FMC typically lent two thirds of a property’s valuation.  In this instance that amounted to

$1.8M.  Mr Hutchison informed Ms Johnson that FMC would be prepared to lend

$1.8M as it was within FMC’s two thirds lending policy to do so.

[45]     On 10 June 2009 Mr Bilkey wrote to FMC’s solicitors noting:

One issue that our client has raised is that the next liquor licence hearing is this Friday.  In the event that the District Licensing Authority elects not to renew the Liquor Licence the value of the business from our client’s point of view will diminish remarkably.  It will be our suggestion that all steps are taken so that settlement can be completed on Friday subject to the Liquor Licence being renewed.   We believe that if your client could provide confirmation (as will we) that settlement will be completed on the renewal of the licence and that funding is in place to undertake the upgrade of the sewerage system immediately that the chances of having the licence renewed will be enhanced.

[46]     And then on 11 June 2009 Mr Bilkey wrote again to FMC’s solicitors:

We confirm out telephone advice that as yet the contract to purchase the property has  not  been  declared  unconditional.   The  final  obstacle  to  be overcome is the confirmation tomorrow that the liquor licence for the premises will not be cancelled.

[47]     It was on that basis that Mr Bilkey forwarded to FMC’s solicitors signed copies of the loan agreement, solicitor’s certificate, deed of guarantee and indemnity, general security agreement, among others.   There is no reference in Mr Bilkey’s

letter about  conditional  arrangements  outstanding of the kind  related  to  another funding commitment.

[48]     The  Liquor  Licence  hearing  took  place  on  12  June  2009.    Mr  Swain

represented Ms Johnson’s interests.  The authority’s decision released on 7 August

2009 includes reference to Ms Johnson’s evidence. The decision reports:

[38]     ...She said that settlement was imminent and that funds to complete the settlement are to be advanced through Mr Hutchison.   She produced a copy of an email from Mr Hutchison to Mr Swain confirming that funds are available.

[39]     In  relation  to  the  wastewater  plant  she...  said  that  funds  were available for this work...

[40]     Ms Johnson said that she had been advised that there needed to be planning and building certificates for the premises from a council before an application can be made for a substantive on-licence.

[49]     In  short  Ms  Johnson  is  referring to  imminent  settlement  and  of  funding available for the wastewater plant.  There is no reference to funding being available for any other purpose.

[50]     In her evidence Ms Johnson asserts that “had FMC done as it had promised and funded the compliance works, then she believes the business would have been more successful and would have been able to service proper finance charges...”.

[51]     By statements like these the Court is invited to infer that losses indeed did occur which could have been avoided if funding had been available as well to complete works needed to the accommodation area.  But, there is no actual evidence of losses or indeed about how those occurred.

[52]     By letter dated 7 August 2009 Mr Bilkey wrote to FMC’s solicitors noting:

... We can advise that special condition 31 [the due diligence clause] of the agreement is waived.

We propose settlement for next Friday the 14th of August 2009.

We will contact you by telephone on Monday to discuss the arrangements for settlement.  It is noted that some of the arrangements between our respective clients are to be recorded in a separate letter and with Mr Hutchison away this may take some time to organise.

[53]     The Court is invited to infer that there is a side agreement between the parties.   Mr Bilkey does not say what that contained or how it was to affect arrangements subject to the sale and purchase agreement or the loan and guarantee obligations.  It seems as best can be inferred, that any outstanding arrangements were to be subject of the replacement loan agreement which was forwarded to Mr Bilkey by letter dated 9 October 2009 and which was executed by Ms Johnson for herself and for Stewart Street on 14 October 2009.  As earlier noted the replacement loan agreement provided for an advance of $1.8M which included an additional $350,000 advanced for completion of the wastewater works.  A special term of the borrowing provided for Stewart Street to obtain:

Necessary consents to build a sewerage treatment system, construct the sewerage treatment system and to obtain a code of compliance certificate in respect of same...

Obtain building warrant of fitness pursuant to outstanding notice...

Satisfy  the  two  outstanding  building  consents...  and  have  code compliance certificates issued.

Satisfy and have issued the outstanding certificate of acceptance...

Have the abatement notices withdrawn once the sewerage system is in place.

[54]     Mr   Bilkey’s   solicitors   certificate   dated   14   October   2009   confirmed appropriate legal advice was given with respect to completion of the loan agreement. Subsequently the sum of $1.45M was drawn down to effect settlement and as well an additional sum of $123,356.09 was paid in accordance with Ms Johnson’s directions. It was agreed that the drawdown of further funds would be provided upon receipt of invoices from persons engaged at Ms Johnson’s request to undertake compliance works.

[55]     The evidence discloses that frequent invoices were sent by Ms Johnson to

FMC for payment from the loan facility available.

Contractual obligations

[56]     By clause 20 of the loan agreement Stewart Street acknowledged:

No representation, warranty or undertaking has been made on behalf of the lender in relation to the loan which is not expressly set out in this agreement.

[57]     By the deed of guarantee Ms Johnson acknowledged:

That  the  guaranteed  indebtedness  meant  all  the  indebtedness  of Stewart Street... incurred or sustained in any way in connection with the  indebtedness  or  attempted  enforcement  of  the  indebtedness. [cl 1.1]

That  she  has  a  separate  and  continuing  undertaking  to unconditionally and  irrevocably undertake  that  should  the guaranteed indebtedness not be recoverable for any reason at all that she would, as a sole and independent obligation, pay that amount which would otherwise have been recoverable from Stewart Street. [cl 2.3]

That she would assume liability as sole principal debtor. [cl 3.1]

That as guarantor she would not be discharged from any obligations for repayment by anything that might or would have discharged her as a guarantor. [cl 3.2]

That obligations to make payment as a guarantor would be free and clear of and without any deduction withholding on any account by way of set off, counterclaim or otherwise. [cl 6.2]

That costs and expenses incurred in enforcing the guarantee were to be paid on a full indemnity basis. [cl 12.2]

[58]     From these conditions it appears that even if a set off could be made out, no release would be provided even if it could be argued there should be.  In Mistry v Benchmark Building Supplies Limited [3] Randerson J referred to guarantee clauses in which the guarantor agreed to be bound as if he was a principal debtor.  The learned Judge said:

[3] High Court Auckland HC 144/97, 6 April 1998, Randerson J,.

It is well established that a clause of this nature will normally preclude a guarantor from relying upon  a range  of  matters  which  would ordinarily entitle a guarantor to be discharged from responsibility...  Although the issue will depend upon the true construction of the guarantee in each case, I am satisfied that the present guarantee is so worded that defences which would ordinarily be available to a guarantor in that capacity are not available to Mr Mistry as he has agreed to be bound as if he were the principal debtor.  In particular, he waived any need for notification of advances made to the company and expressly waived “all rights whatsoever which would be inconsistent with my liability hereunder”.  The effect of this clause was to render Mr Mistry liable as if he were the company and to deprive him of the right to be discharged...

Discussion

[59]     The arguability of defences under the CFA, the FTC, and the CCCFA and in equity rely significantly on the quality of evidence available in support of claims that funding would be provided for completion of all the compliance works required.  Ms Johnson’s evidence is that in the course of a conversation of 10 – 15 minutes it was explained exactly what was required to complete all works for which compliance was necessary, that FMC would advance by loan a sum sufficient to meet all of those costs (which she said were estimated between $600,000 - $800,000), at a low interest rate.

[60]     Ms Johnson has deposed that throughout the negotiation period she was told that funding would be available to pay for all compliance works.

[61]     Her evidence, apparently confirmed by Mr Bilkey, was to the effect that a letter of comfort would be provided setting out the terms of the loan to meet the cost of compliance works although reference to such letter was made in the context of preparing loan and guarantee documents that precluded reason or opportunity to avoid the obligations agreed to.

[62]   Reference to the letter of comfort apart there appears nothing in the correspondence or on the documents exchanged to support a commitment by FMC other than that which is evidenced by the relevant legal documents.

[63]     Ms Johnson’s case squarely claims that there was a commitment to provide funding for works in addition to those required for the purpose of obtaining a liquor licence,  which  licence  both  parties  readily  agree  was  the  core  to  future  trade viability.  Ms Johnson’s case is that the viability of the business depended as well on sufficient building works being undertaken to the accommodation block.

[64]     Ms Johnson may well earnestly believe that now.  Ms Ellis on Ms Johnson’s behalf has submitted that Ms Johnson’s evidence is consistent and unequivocal concerning her belief about what was presented to her and why she acted as she did in reliance upon those representations.  She says from the very beginning there was a

commitment to provide funding at a “low interest rate” to meet all of the works required and not those just related to the immediate purpose of securing the liquor licence.  She says that commitment was at that time entered into by FMC through Mr Hutchison.    But,  Ms  Johnson’s  solicitor’s  letter  two  days  later  refers  to  her proceeding at her cost to complete all outstanding issues and that she would run the business paying all outgoings and complying with all statutory obligations.  It noted that any lending would be subject to FMC’s current standard lending terms.

[65]     The ASP prepared  by Mr Bilkey specifically referred  to  vendor finance. There is no reference at all by that agreement or otherwise to an unlimited funding arrangement or of a ‘low interest rate’.   Instead the position appears to have been covered by the clause 31 due diligence terms.   Those indicated that Ms Johnson would undertake an appraisal of the buildings on the property including investigating engineering and structural issues.

[66]     It could appear from this that the extent of works needed, including the costs involved, was yet, as at 25 March 2009, unknown.

[67]     The  effect  of  the  due  diligence  clause  was  to  enable  Stewart  Street  to withdraw from the ASP at any time if in doubt about its assessment of the viability of its purchase following its assessment of its means to complete and to operate profitably.     Ms  Johnson  said  that  there  was  always  in  the  background  this inducement of a commitment or undertaking that sufficient funds would be available to fund whatever was needed that would permit the business to trade profitably.

[68]     There is no  evidence of what  funds were needed to meet Ms Johnson’s expectations  in  this  respect.    She mentioned  discussions  identifying a  figure of between $600,000 - $800,000.  Mr Bilkey’s letter dated 21 May 2009 refers to a sum that “could be as high as $375,000” to deal with the sewerage system and that outstanding building issues would likely cost $100,000.

[69]     The written documents do not refer to an unconditional funding arrangement. Neither do Mr Bilkey’s letters.  To the extent they refer to other funding at all being required, there is reference to a sum much less than that which Ms Johnson claims.

[70]     The specific terms of the parties’ written arrangements preclude recourse to the types of claims now made by way of defence to the summary judgment application.  Those written arrangements do not provide an offer to complete other works as well as sewerage.   It is clear that a commitment to provide funding of

$1.8M for the property purchase and for upgrading works was offered in terms of FMC’s standard lending limits – as clearly Mr Bilkey originally anticipated by his letter written just two days after that date on which Ms Johnson said a commitment to unlimited funding at a low interest rate was provided.

[71]     However, neither loan offer purported to reserve obligations in anticipation of a further agreement being made about the extent or terms upon which other funding would be provided.   Clearly, by the time the ASP was declared unconditional, the intention  of  the  parties  was  that  the  arrangement  between  them  was  to  be documented and as at that time oral representations and pre contractual representations would not apply.

[72]     Mr Bilkey had referred to the need for a side letter to ensure all requirements were documented.  However by October 2009 and with the execution of the second loan offer there was no suggestion that the second loan offer documents were subject to considerations of a side offer.

[73]     Overall the Court considers claims of clear and consistent allegations of a commitment to a funding contribution of unlimited amount at a low interest rate are unrealistic and unreliable.  Commercially it is unreasonable.  If Ms Johnson believed it was so then she is mistaken.  Little support to her case has been provided by her solicitor’s correspondence.   Objectively construed all contemporary documents do not support any representation having been made to Ms Johnson as she said it was.

[74]     Contrary   to   her   counsel’s   submissions   Ms   Johnson’s   evidence   lacks specificity and clarity.  Her evidence is generalised.  She cannot point to any specific list of works it was she said FMC committed themselves to fund.  She has provided no evidence at all of a basis for those losses which she says occurred but which she has not identified.  The best written explanation of an understanding of the extent of works required beyond the installation of a replacement wastewater system was

provided by Mr Bilkey’s letter dated 21 May 2009 when additional works were estimated to cost $100,000 – and then that was in the context of it being acknowledged on behalf of Ms Johnson that she would bear some of the risks involved in completing those works.

[75]     It is from these observations that it appears clear that each of the pleaded grounds of defence faces difficulty.   Each relies upon a representation claim or understanding which is unsupported by reason or analysis.

[76]     Under the CRA even if the alleged misrepresentation was made it is far from clear there was reduction of benefit or increase in the burden of a kind to make the benefit received different from that represented. Also it is arguable that even if there had been misrepresentation that Ms Johnson affirmed the contract being the second loan agreement by drawing down the full amount including sufficient to meet the costs of the works required enabling her to trade at all.

[77]     There is a lack of evidence to show that the business would have been more profitable  than  it  was  in  the  outcome  of  the  wastewater  works  having  been completed.

[78]     Likewise in relation to a claim under the FTA, had there been a representation as alleged, there is a considerable difficulty in linking that as an effective cause for claims of loss or damage occurring.

[79]     The claim of promissory estoppel fails here for the same reason that it failed in the case of Krukziener v Hanover Finance Limited [4].   In that case the Court of Appeal noted:

[4] [2008] NZCA 187.

When negotiations result in a contract, the promises exchanged are no longer voluntary, and the question whether the contract will be enforced falls to be determined under the law of contract. [para 40]

Conclusion

[80]     As is apparent from the foregoing discussion the Court is of the view that FMC has proved Stewart Street and Ms Johnson have no defence available to FMC’s claims. Assertions of clear and consistent statements promising unlimited funding at a low interest rate do not survive analysis by reference to evidence which includes Ms Johnson’s actions, and those actions and statements by Mr Bilkey on her behalf, and by the clear and precise terms of those obligations she made in those relevant documents she signed.  It is for those reasons that the various claims postulated as possible can indeed be considered without any prospect at all of success.

[81]     Therefore FMC’s claims against Ms Johnson must succeed.

Judgment

[82]     Judgment is entered in favour of FMC against Ms Johnson in the sum of

$2,312,469.26, together with costs awarded on a 2B basis, and Ms Johnson is to pay associated disbursements.

[83]     As well the plaintiff claims more than $50,000 for collection fees and more than $154,000 for receivership costs in connection with the receivership of Stewart Street and Ms Johnson’s other operating company, the Boomerang Inn  Limited. Those receivership costs include payment of a number of invoices to the receiver’s solicitors.  As well legal fees are claimed in relation to this proceeding and as well for the services of solicitors engaged throughout in correspondence on behalf of FMC.

[84]     FMC wants an order for judgment to include those other costs which it claims are  payable  on  an  indemnity basis  pursuant  to  the  provisions  of  Ms  Johnson’s contractual obligations.  However the full particulars of those claims have only very recently been provided in circumstances where there has been no opportunity available to respond.

[85]     The Court will consider a claim for costs, expenses, fees and the like for

additional sums in due course upon written application.

Associate Judge Christiansen