Green v D'Esposito
[2024] NZHC 1964
•16 July 2024
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2023-441-63
[2024] NZHC 1964
UNDER rule 12.2 of the High Court Rules 2016 IN THE MATTER
of an application for summary judgment
BETWEEN
RODNEY JOHN GREEN and
JOHN ROBERT MCCORKINDALE as
trustees of the RJG Trust Plaintiffs/ApplicantsAND
GIANCARLO HAROLD D’ESPOSITO
First Defendant/Respondent
ANTONINO GIOVANNI D’ESPOSITO
Second Defendant/Respondent
Hearing: 17 May 2024 Appearances:
J V R James and N E Jirkowsky for Plaintiffs (via VMR) S Kang for First Defendant
No appearance by or for Second Defendant
Judgment:
16 July 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] This is an application for summary judgment by Rodney John Green and John Robert McCorkindale, in their capacity as trustees of the RJG Trust (the plaintiffs), against Giancarlo Harold D’Esposito (the first defendant) and Antonino Giovanni D’Esposito (the second defendant), seeking recovery of amounts owed by the defendants in their capacity as guarantors for companies to which loans were advanced by the plaintiffs.
GREEN v D’ESPOSITO [2024] NZHC 1964 [16 July 2024]
[2] The first defendant opposes the plaintiffs’ application. There is no dispute as to the obligation under the guarantee. However, the first defendant raises issues as to breach by the plaintiffs of their duties with regard to sale of assets owned by the debtor companies. The first defendant contends that if the plaintiffs had complied with their duties the outstanding loan balance would have been substantially reduced or fully paid.
[3] The second defendant has not filed a notice of opposition to the application and was not represented at the hearing.
[4] The issue is whether the plaintiffs have satisfied me that the defendants have no defence to the cause of action for breach of the guarantee.
What happened?
[5] Between November 2015 and September 2020, the plaintiffs and Mr Green, in his personal capacity, advanced loans to various entities within the Hawkes Bay Seafoods Group namely Pania Seafoods Ltd, HBS Tuna Ltd, Westerner Fishing Ltd and Hawkes Bay Seafoods Ltd. The group is entirely owned or controlled by the defendants, with the directors of all entities being either both defendants or one of them, and the shareholding is held either by both defendants or one of their business trusts. It is not disputed that these loans were made.
[6]The securities granted in relation to these loans were:
(a)a general security over TFB Fishing Ltd’s vessel “Two Fold Bay” under a general security agreement dated 26 January 2017;
(b)a mortgage over Westerner’s vessel “Westerner” and a mortgage over Mutiara Fishing Ltd’s vessel “Mutiara II” under a security amendment agreement dated 28 April 2017;
(c)under a deed of variation of the loan agreement between Westerner Fishing Ltd and Mr Green dated 1 August 2017:
(i)a general security over Jeanette Fishing Ltd’s vessels “Stella B” and “Jeanette”;
(ii)a general security over Danielle Fishing Enterprises Ltd’s vessel “Danielle”;
(iii)a general security over Trial B Fishing Ltd’s vessel “Trial B”;
(iv)a general security over St Judge Fishing Ltd’s vessel “St Jude”;
(v)a second registered ships mortgage over the fishing vessel “Pacific Explorer”; and
(d)a mortgage over all quota shares held by Duart Quota Holdings Ltd under a seventh deed of variation of the loan agreement between Westerner Fishing Ltd and Mr Green dated 14 August 2019.
[7] On 23 May 2019, the parties agreed that the various loans would be refinanced under a refinance agreement, the terms of which were:
(a)All loans advanced up to that date to be consolidated as follows:
(i)as at 1 April 2019, the principal amount outstanding be
$7,651,034.65;
(ii)as at 31 May 2019, the ordinary interest outstanding for the period of 1 April 2019 to 31 May 2019 at a rate of 10 per cent be $127,866.60; and
(iii)as at 31 May 2019, the penalty interest outstanding for the period of 1 April 2019 to 31 May 2019 at a rate of 10 per cent be $127,866.60.
(b)Subject to the refinance conditions being met, the interest rates will be reduced until 15 September 2019 as follows:
(i)the ordinary interest rate to 7% per annum; and
(ii)the penalty interest rate to 17% per annum.
[8] The defendants provided a personal guarantee pursuant to a deed of guarantee and indemnity dated 14 August 2019 (Deed of Guarantee). The Deed of Guarantee provided that the defendants were liable, on a joint and several basis, for all outstanding debt owed by the debtors listed in the Deed of Guarantee, as well as all costs and expenses incurred in connection with enforcement of the Deed of Guarantee on a full indemnity basis. The defendants do not dispute the validity of the Deed of Guarantee.
[9] All funds advanced are due and owing as the various due dates for repayments under the contractual agreements have passed. In regard to the loans to Hawkes Bay Seafoods Ltd, a liquidator was appointed over the company on 16 March 2022, which gives rise to a default under cl 8.1.5 of the Westerner Loan Agreement.
[10] Various assets owned by the companies which the defendants had control over were sold to recover some of the debt owed. These were:
(a)The sale of fishing quota for $1,086,445.90 on 22 July 2020 (first quota sale).
(b)The sale of fishing quota for $4,130,365.78 on 10 November 2021, and the sale of fishing quota for $12,940.22 on 16 November 2021 (second quota sale).
(c)The sale of the vessel “MV Patriarch” for $178,600 on 13 August 2021.
(d)The sale of the vessel “St Jude” for $60,000 on 20 August 2021.
(e)The part sale of the vessel “Sidina” for $73,000 on 3 September 2021, with another part sale for $107,000 on 6 September 2021.
(f)The sale of the vessel “Thelma G” for $84,600 on 23 September 2021.
(g)The sale of the vessel “Jeanette” for $163,478.26 on 1 October 2021.
(h)The sale of the vessel “Stella B” for $85,000 on 29 November 2021.
(i)The sale of the vessel “Trial B” for $35,732.08 on 31 March 2022.
(j)The sale of the vessel “Westerner” for $93,586.96 on 9 June 2022.
(k)The sale of the vessel “Danielle” for $85,000 on 8 July 2022.
(l)The sale of the vessel “Pacific Explorer” for $121,030 on 12 October 2022.
(m)The sale of the vessel “Mutiara II” for $69,825 on 13 December 2022.
[11] The debt was further reduced by $20,000 to take into account the donation of the vessel “Two Fold Bay” to a local dive club.
[12]The total proceeds from these assets sales and the donation amounts to
$6,400,779.79. A further $817,624 received from a loan made to Eastern Fishing Ltd was applied to the various Hawkes Bay Seafood Group loans.
[13] On 26 April 2023, a demand for payment of the amount of $6,889,281.68 was made by Anthony Harper on behalf of the plaintiffs. The letters of demand advised that if payment of the demanded amount was not made within two months, namely 26 June 2023, the plaintiffs may take further enforcement steps, including seeking summary judgment against the defendants.
[14] As at the date of the hearing, the outstanding amount is $6,062,497.92, consisting of $3,403,417.59 of the principal loan amount and $2,659,080.33 for the outstanding interest. The plaintiffs also seek costs on a solicitor/client basis.
[15]The defendants have failed to make payment.
Legal principles — summary judgment
[16]Rule 12.2(1) of the High Court Rules 2016 (HCR) 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.
[17] The principles that govern summary judgment are now very well settled. In Krukziener v Hanover Finance Ltd, the Court of Appeal summarised the principles as follows:1
… 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 conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is 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 warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A [of the previous iteration of the High Court Rules; now r 12.10] the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[18] In Pemberton v Chappell, Somers J observed (in regard to the predecessor to r 12.2) that:2
… 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 …
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]–[27].
2 Pemberton v Chappell [1987] 1 NZLR 1 at 3–4.
[19]Somers J also stated:3
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. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yong v Letchumanan [1980] AC 331, 341 and in A-G v Rakiura Holdings Ltd (1986) 1 PRNZ 12.
[20]In S H Lock (NZ) Limited v Oremland,4 the Court stated:5
Clearly the onus of showing there is no defence lies with the plaintiff, but the discharge of that onus is not in my view, to be frustrated by a defendant raising hypothetical possibilities in vague terms unsupported by any positive assertions or corroborative documentation. In so far as the defendant’s affidavit amounts to a denial of the plaintiff’s case, it is a denial without even the appearance of substance.
Issues to be determined
[21] Based on the submissions of counsel for the parties, the issues to be determined are:
(a)the scope of the plaintiffs’ duty when exercising the power of sale;
(b)whether the plaintiffs breached their duty with regard to the second quota sale;
(c)whether the plaintiffs breached their duty with regard to the sale of fishing vessels; and
(d)whether the plaintiffs breached their duty with regard to other plant, equipment and chattels.
The scope of the plaintiffs’ duty
[22] Section 110 of the Personal Properties Securities Act 1999 (PPSA) provides that a secured party who exercises a power of sale of collateral under s 109 of the
3 At 4 (lines 10–17).
4 S H Lock (NZ) Ltd v Oremland HC Auckland CP 641/86, 19 August 1986.
5 At 11.
PPSA owes a duty to obtain the best price reasonably obtainable as at the time of the sale.
[23] Section 140(7) of the Fisheries Act 1996 (Fisheries Act) provides that a mortgagee who exercises a power of sale of quota shares owes a duty to the mortgagor to take reasonable care to obtain the best price reasonably obtainable as at the time of sale.
[24] Counsel for the parties agree that the relevant principles to apply in relation to these duties are those applicable to a mortgagee’s duty when exercising a power of sale under s 176 of the Property Law Act 2007 (PLA). These principles are:6
(a)A secured party has no duty to exercise the powers of sale or possession at any particular time. In default of any provision to the contrary, the sale is for the benefit of a secured party, who can sell at any time in accordance with the secured party’s convenience.
(b)The secured party’s duty is to take reasonable care to obtain the best price reasonably obtainable at the time of the sale.
(c)It does not matter that the time may be unfavourable and that by waiting a higher price could be obtained.
(d)A secured party is under no obligation to improve the collateral or increase its value.
(e)A sale of collateral for a price less than the current market value assessed by valuers does not, of itself, establish a breach of duty, although a large discrepancy may indicate a failure to take reasonable steps.
(f)A secured party does not have any general duty to maintain the collateral prior to sale.
6 Murray v UDC Finance Ltd [2018] NZHC 3386 at [36].
(g)The secured party is not entitled to sell in a hasty way at a knock-down price sufficient to pay the debt, which because of the speed of the sale leads to a lower price in what would have otherwise been obtained.
(h)Proper care must be taken to expose the collateral to the market and to obtain the best price reasonably possible.
[25] The duty to obtain the best price reasonably obtainable requires the secured party to select an appropriate method of marketing the sale that is likely to achieve market value, or close to, for that particular form of collateral.7
[26] The following steps, albeit in the context of the sale of real estate, can indicate reasonable efforts have been made:8
(a)Appointment of a reputable real estate agent to market the property.
(b)Obtaining a valuation report from an experienced valuer as a guide as to what could reasonably be expected for the property.
(c)Marketing over a reasonably long period of time.
(d)An extensive advertising and promotional campaign.
(e)A properly conducted auction.
(f)A sale price that given all the circumstances, can be reconciled with expert opinion as to value.
[27] Caution should be applied in strictly following the above without tailoring the steps for the circumstances of the case.9
7 At [38].
8 At [37].
9 UDC Finance Ltd v Brunton [2014] NZHC 2247 at [62].
[28] Mr Kang, for the first defendant, submits that it is reasonably arguable that the plaintiffs also had a common law duty of care owed to all borrowers and guarantors, including the first defendant. This contention is based on Westpac Banking Corporation v McKenzie.10 In that case, the Court declined the bank’s summary judgment application, holding that there was a possibility that the bank owed a common law duty of care to the guarantor and the guarantor may be able to claim damages arising from the bank’s failure to appoint a receiver.
[29] Mr Kang submits, on the basis of Westpac Banking Corporation, that whether a lender owes a common law duty of care to a guarantor in the course of enforcement is open for further development, and is to be assessed on a case-by-case basis. In this case, Mr Kang submits that the duty arguably arises from the following clause in the loan documentation:
8 Attorney
(a)Lender as Attorney: The Borrower and Guarantor each irrevocably appoint the Lender and every director, officer or duly appointed agent for the time being of the Lender severally the lawful attorney of the Borrower and Guarantor in the Borrower’s and Guarantor’s name and on the Borrower’s and Guarantor’s behalf, at any time from time to time and in such manner as the Lender at its absolute discretion shall think fit, to take all steps and proceedings and to do all acts, matters and things as the Lender shall think proper to:
(i)remedy any default or breach of the terms and provisions of this Agreement or any of the Security Documents by the Borrower and Guarantor;
(ii)exercise any of the rights, powers and remedies of the Lender contained in this Agreement or the Security Documents;
(iii)execute any deed, instrument or document necessary for the Lender to perfect its title to any of the assets charged or intended to be charged by the Security Documents as required for the purpose of this clause;
and the Lender as attorney shall have power from time to time to appoint a substitute or substitutes and to remove that substitute or those substitutes at its pleasure and the Borrower and Guarantor agree to ratify and confirm whatever the Lender or its substitutes may lawfully do or cause to be done by virtue of this clause.
10 Westpac Banking Corporation v McKenzie HC Christchurch CP151/87, 8 October 1987 at 6.
(b)Exercise of Rights: The powers conferred on the Lender pursuant to clause 8(a) shall only arise after the occurrence of an Event of Default or Potential Event of Default.
[30] Mr Kang submits that the first defendant has an arguable case that, in the light of the appointment as attorney when the event of default first occurred, the plaintiffs owed a common law duty of care to all borrowers and guarantors including the first defendant. He submits that this common law duty of care is wider than the statutory duty to obtain the best price reasonably obtainable at the time of sale because the plaintiffs have agreed to have wider powers under the contract.
[31] Mr James, for the plaintiffs, submits that Westpac Banking Corporation is not authority supporting a reasonably arguable common law duty of care owed by lenders to guarantors. He submits that the discussion in Westpac Banking Corporation in this regard has not been discussed in any case since. Mr James also submits that there is other authority which establishes that there is no general duty of care on the lender. 11
[32] The decision in Westpac Banking Corporation seems to me to be authority for nothing more than the possibility that the lender in that case may have been liable for damages for breach of a common law duty of care because, although requested to do so by the guarantor, the lender failed to protect the security by exercising its power to appoint a receiver. However, subsequent authority and commentary indicates that there is no general duty of care on a lender to act to take any steps to protect value in the security.12
[33] Even if there was a reasonable argument for a general common law duty of care in the circumstances of this case, I do not consider that the scope of any such duty would be wider that the statutory duty as described above at [24]. Mr Kang submits that the any common law duty would be wider because the plaintiffs agreed to have wider powers under the contract as attorney. But the power as attorney is a power for the benefit of the lender to act “…at any time from time to time and in such manner
11 UDC Finance Ltd v Whitley HC Auckland CIV-2008-404-608, 17 December 2009 at [36] and [42]; China and South Sea Bank v Tan [1990] 1 AC 536 at 545; Wayne Courtney, James O’Donovan and John Phillips The Modern Contract of Guarantee (4th ed, Sweet and Maxwell, London, 2020) at 8-075 – 8-081.
12 Whitley, Tan and Courtney, above n 11.
as the Lender at its absolute discretion shall think fit” and “…to take all steps and proceedings and to do all acts, matters and things as the Lender shall think proper…” (emphasis added). I do not consider that it is reasonably arguable that this power can give rise to a common law duty of care which is wider than the statutory duty.
Second quota sale
[34] There is no dispute that the second quota was sold on or about 10 November 2021 and the proceeds applied to reduce the loan by $4,130,365.78.
[35] However, the first defendant contends that the plaintiffs breached their duty in relation to the sale of second quota on various bases.
[36] First, the first defendant contends that the plaintiffs were aware of a potential buyer for the quota at $8,286,750 in February 2020 but they never contacted the purchaser to initiate discussion. The first defendant relies on a single text message dated 26 February 2020 which appears to be from the second defendant (known as Nino) to the potential purchaser as follows:
Hi Anthony, just talked to Tony and very sorry to hear about your dad, I hope he gets better soon. Happy to sell you $66,294 of my Southern Blue Fin Quota at NZ$125,000 plus GST (if any) a ton and lease back annually. Please keep this to ourselves. Best regards Nino.
[37] Mr Green deposes in his affidavit in reply that “… John and I do not recall seeing this text previously. No evidence has been provided to suggest that the Trust was made aware of this”.
[38] Mr Kang submits that the onus is on the plaintiffs to establish that the defendant has no defence. He submits that the plaintiffs have not put forward any contemporaneous document to suggest that the first defendant’s allegation is improbable. Mr Kang submits that the plaintiffs have not expressly denied whether they were aware of the potential buyer, and it is a factual issue for trial. Mr Kang submits that the first defendant has an arguable defence that had the plaintiffs initiated discussion with the potential purchaser, the second quota could have been sold at
$8,286,750 in early or mid-2020.
[39] In Public Trust v Ottow,13 the Public Trust sought summary judgment against Mr and Mrs Ottow who had guaranteed loan advances from the Public Trust secured by mortgages over two Waiheke Island properties. Mr and Mrs Ottow contended that the Public Trust had breached s 176 of the Property Law Act by failing to meet its obligation to obtain the best price reasonably obtainable when conducting the mortgagee sales of the properties. One of the issues was that there had been other interested purchasers of the properties which should have been followed up by the Public Trust. In this regard, Asher J held that:14
[24] In her affidavit the owner and manager of Bayleys Waiheke Island, Mary Curnow, went through earlier offers on the property that Mr Ottow claimed had been made to Mr Darlow. I do not propose going through these individually. Suffice to say that none of them can be construed as genuine, firm, unconditional offers from a third party that could profitably have been pursued in September and October 2009. There is simply no solid evidence to support the contention that better offers that could have led to a better sale price were not pursued. The Ottows have not produced any independent person or expert who supports the claim that some offers should have been followed up, or who is critical of the Public Trust’s marketing efforts.
[40] In the present case, I do not consider that the single text message put forward by the first defendant on this issue gives rise to a genuine dispute of fact or an arguable defence. The text relied on states “[p]lease keep this to ourselves” which indicates that the plaintiffs would not have been aware of the opportunity. Further, the first defendant has not produced any corroborative evidence from the potential buyer or the second defendant to confirm the opportunity. Even if the plaintiffs were aware of the opportunity, the first defendant has not produced any independent person or expert to support the contention that the plaintiffs should have initiated discussions or that the proposed price was a realistic or achievable price at the time.
[41] The second issue raised by the first defendant is that the plaintiffs unreasonably declined to finalise a potential sale contract with Kahungunu Asset Holding Company Ltd (Kahungunu) in or around October 2020 in the sum of $8,282,958 million. The first defendant has produced an agreement for sale and purchase of fishing quota between the plaintiffs and Kahungunu which has been signed by the plaintiffs but not by the purchaser. The first defendant states in his affidavit that he understands the
13 Public Trust v Ottow (2009) 10 NZCPR 879.
14 At [24].
plaintiffs declined to finalise the contract over an issue with securities which he does not believe was reasonable.
[42] In reply, Mr Green deposes that the plaintiffs engaged lawyers early on to provide a draft agreement for review. The plaintiffs were not involved in the negotiations directly. That was because the second defendant insisted on handling the negotiations. Once the draft agreement was provided to the second defendant, the plaintiffs never received a formal response from Kahungunu. Mr Green states that the plaintiffs did not decline to finalise the agreement, rather it never progressed to a point where it could be finalised.
[43] Mr Kang submits that the plaintiffs have not put forward any contemporaneous documents to support their position such as a chain of emails showing all correspondence that took place between the plaintiffs, the second defendant and Kahungunu. He submits that the first defendant has an arguable defence that, had the plaintiffs not declined to finalise the contract, the second quota could have been sold at approximately $8.3 million in late 2020.
[44] However, as stated by Mr Green in his affidavit, if there had been an opportunity to recover a greater sum for the quota, the plaintiffs’ preference would have been to finalise the contract. Mr Green states that the deal never progressed to a point where it could be finalised. There is no evidence put forward by the first defendant to contradict or raise any doubt about this evidence. The first defendant baldly asserts that he understands that the plaintiffs declined to finalise the contract over an issue with securities which he does not “believe” was reasonable. The first defendant has not put forward any evidence from Kahungunu or the second defendant to support this contention.15 It seems improbable that the plaintiffs would not have attempted to finalise this sale if reasonably possible. As with the other alleged potential sale discussed above, there is no independent or expert evidence put forward by the first defendant in relation to the potential sale including as to whether the price referred to in the draft contract was a realistic or achievable price for the quota at the time. In
15 The first defendant does not state that he requested the second defendant or Kahungunu to provide affidavits. Even if he did, and they refused to do so, the first defendant could have made an application under r 9.75 of the High Court Rules [Person refusing to make affidavit].
my view, the evidence is not sufficient to give rise to an arguable defence of breach of duty.
[45] The third issue raised by the first defendant is that the plaintiffs did not take any other reasonable steps with regard to the sale of the quota until November 2021. The extent of the first defendant’s evidence in this regard is that he does not “believe” that the plaintiffs took any other reasonable steps to sell the quota until November 2021 when it was sold “at significant undervalue”. The first defendant says that from his 40 years’ experience in the seafoods businesses, the value of fishing quota generally increases significantly over time.
[46] The evidence from Mr Green is that the quota was ultimately sold by mortgagee sale as follows:
(a)In or around 2020, Nino (in his capacity as director of the debtor companies) insisted that he would manage the process of securing a sale of the quota. This went on for many months with no success.
(b)Once it became apparent that Nino was making little to no progress, the Trust instructed Carlile Dowling Lawyers to approach Commercial Fisheries Services Ltd, trading as FishServe, to assist with the quota sale….16
(c)A mortgagee sale was eventually necessary as Nino refused to consent to the proposed sale (notwithstanding he had initially been given sufficient time to arrange the sale himself with no meaningful progress), with the sale completed and finalised on 10 November 2021.
[47] Mr Green has produced a copy of an email from FishServe dated 12 July 2021 outlining the process for the sale as follows:
1.Set up for tender process, including setup of database for recording of bids, generation of outcome letters and invoices, and an inbox for receipt of e-mailed bids.
2.Create an advert that will be published on our website and send out notifications to the quota register. This will advise the stock for tender, commencement and close date, reserve price (if any), terms of sale and a bid form will be enclosed that can be posted or e-mailed.
3.All bids received will be stored securely and confidentially until the close date.
16 Mr Green has produced the email correspondence between Carlile Dowling Lawyers and FishServe dated 8 July 2021 and 12 July 2021.
4.Once the tender is closed, the tender administrator along with a witness will record all bids and create a summary advice paper for the seller.
5.The seller will advise us which bids are declined and which are accepted, for all bids declined we will notify the bidder.
6.For all accepted bids, we will send the bidder an invoice for payment into the sellers designated account. Also for each accepted bid we will generate a Quota Transfer application for the seller to sign and return to us.
7.Once the Quota Transfer applications are received, we will confirm with the seller that payment has been made and once confirmed, transfer the Quota.
* Note that the seller will be required to pay the Quota Transfer application fee.
The cost will be a set-up fee of $1,500 plus GST and a 1.5% commission on accepted Quota bids, plus GST. If no tender bids are accepted but multiple bids are received we will charge an additional amount to a maximum of $300 to cover the work in recording and witnessing the bid details.
[48] Mr Kang submits that as the plaintiffs were already appointed as attorney under the relevant loan agreements, they were not required to give the second defendant an opportunity to manage the sale or obtain his consent for the sale. Mr Kang submits that the first defendant has an arguable defence that these actions or omissions by the plaintiffs caused the value of the second quota to be halved in breach of their duty.
[49] However, in my view, given the duty to obtain the best price reasonably obtainable, it was reasonable for the plaintiffs to give the second defendant, as a director of the debtor companies, and as a person experienced in the industry, an opportunity to sell the second quota. Further, the evidence is that the second defendant who is a guarantor wanted to manage the process. When it became apparent that the second defendant would not be able to achieve a sale, the plaintiffs engaged an agent (FishServe) to market and sell the quota over a roughly four-month period, following advertising on FishServe’s website and notifications on the quota register. The second defendant did not consent to the sale and so the plaintiffs went ahead with a mortgagee sale.
[50] The first defendant also takes issue with the mortgagee sale process undertaken by the plaintiffs using FishServe. Mr Kang submits that there is no evidence as to how
the $4.13 million became net sale proceeds, and there is no information as to when and how the quota was advertised, what offers were received and the reason the plaintiffs accepted the final price.
[51] However, in my view, the plaintiffs have put forward sufficient evidence to establish their case against the first defendant for breach of the guarantee and to explain the second quota sale process. The first defendant has not raised any specific criticisms of, or issues with, the second quota sale process except that it was sold at a “significant undervalue”. The first defendant has not put forward any evidence from the second defendant raising issues with the sale process when it would presumably be in the second defendant’s interest to do so if he had concerns. The first defendant has not put forward any independent or expert evidence raising issues with the sale process, or as to the alleged value of the quota in 2020 or 2021, as the basis for an arguable defence based on sale at a “significant undervalue”.17 The first defendant may be relying on the alleged potential sales discussed above as evidence of market value of the quota. But these are hypothetical values for the quota as no sales were finalised and there is no expert evidence to corroborate them.
[52] In summary, the first defendant’s evidence with regard to the second quota sale is lacking in precision and is largely based on the first defendant’s understandings and beliefs which are not substantiated or corroborated. The first defendant’s contentions are unsupported by any evidence from alleged potential purchasers or from the second defendant, and unsupported by any expert evidence. I am satisfied on the basis of the evidence before me that the first defendant does not have an arguable defence that the plaintiffs breached their duty with regard to the second quota sale.
Vessel sales
[53] The first defendant’s first argument with regard to the sale of the vessels is that there was a breach of duty because the vessels were sold at significantly lower prices than their market value. The first defendant relies on valuations of the vessels undertaken in May 2018. However, again, in contending that the sales were at an
17 See Murray, above n 6, at [41]–[47], where expert evidence was adduced as to deficiencies with the sale process which was accepted by the Court.
undervalue, the first defendant has not put forward any independent or expert evidence as to the value of the vessels at the time of sale or as to the sales process.
[54] As noted above, sale at less than the current market value does not, of itself, establish a breach of duty, although a large discrepancy may indicate a failure to take reasonable steps.
[55] The plaintiffs have adduced evidence from Godfrey Wilson, the director of Maritime International Ltd, which is a specialist broker for the sale and purchase of fishing vessels, work boats, tugs, barges, support vessels, passenger ferries and small cargo vessels. Mr Wilson provided the valuations of the fishing vessels in May 2018 which are relied on by the first defendant as evidence of market value. Mr Wilson also worked directly with the owners of some of the vessels to broker their sales in 2021 and 2022. Mr Wilson states that none of the sales in which he was involved were mortgagee/secured party sales, rather they were sales by the owners of the vessels.
[56] Mr Wilson deposes that at the time he undertook the valuations in 2018, his understanding was that the purpose of the valuations was that the vessels were to be included as part of a larger sale of the entire fishing business. He states that he understands there was a delay between when the valuations had been obtained and when the sales were eventually brokered because, when the fishing business was sold, the buyers did not want to include the vessels in the purchase. By the time the vessels were listed for sale, most, if not all, of the vessels that were sold were out of commission. He states that he was advised that the owners no longer had a use for them and the net sale proceeds were to be paid to the RJG Trust to reduce debt. He says he also understood that the outcome of various fisheries prosecutions of the owners was a factor in the delay.
[57] With regard to the difference between the values recorded in 2018 and the eventual sale price, Mr Wilson states that, at the time of the valuations in May 2018, the fishing industry was in a very different state to what it was at the time of the sale of the vessels. He states that the reasons for this were:
(a)Covid was affecting catch due to staffing issues, as vessels could no longer be operated by foreign crews. New Zealand crews, including captains, were extremely difficult to obtain. Fish processors also stopped accepting catch from vessels for a period. Shore facilities were also unable to handle and store more fish.
(b)Fish markets in China, Japan and the United States were also restricted or closing for periods due to there being a lack of international freight capacity including ships and aircraft.
(c)Fishing fleets have generally been shrinking over the last 30 years.
(d)The vessels associated with the defendants were also in a very poor condition by the time they were sold in 2021 and 2022 (3–4 years after the valuations). There was gear and equipment missing. In some cases the Maritime New Zealand vessel safety certification was no longer valid. In general, the market was aware that the vessels were not up to standard and, as a result, there was very limited interest.
(e)In addition there was some market resistance to buying the defendants’ boats due to the background of the owners regarding breaching fishing regulations.
(f)In general, there was a substantial oversupply of vessels targeting a very small market. This was also reflected in the price and saleability of the vessels belonging to other owners. There are superior vessels, which were listed for sale in mid-2022 that are still not sold.
(g)Interest rates were also increasing and generally more difficult financing conditions meant buyers could not fund larger purchases.
(h)The continuing negative pressure on the fishing industry contributed to a downward slide in values.
(i)Increasing fuel prices also meant that fishing vessels were not going out because the cost of fuel outweighed the revenue generated from fish being caught.
[58] Mr Wilson also deposes that offers for the vessels were presented to the second defendant as a director of the relevant companies which owned the vessels being sold. Mr Wilson states that the second defendant was aware of what was happening in the market and that it was unlikely he would receive a better offer, or any other offer at all. If the second defendant was prepared to accept an offer, then the RJG Trust was informed.
[59] Mr Kang submits that Mr Wilson’s evidence should have explained how each factor he identified was attributable to the reduction in value of the vessels. However, Mr Wilson has provided a full and cogent explanation for why the sale values achieved in 2021 and 2022 were below the 2018 market values that he provided. There is no evidence provided by the first defendant to cast doubt on Mr Wilson’s expert evidence as to the market factors. Even if it might be possible to break down the reduction in value of the vessels across each factor identified by Mr Wilson, I do not consider that that level of evidence is required for the plaintiffs to discharge the onus on them.
[60] Mr Kang also submits that the fact that the vessels were in a poor condition by the time of sale in 2021 and 2022 is a result of the plaintiffs’ breach of their duty. He submits that as attorney appointed under cl 8, the plaintiffs should have taken all reasonable steps to seize the vessels and sell them as soon as possible before the vessels deteriorated, or at least had them maintained. He submits that the plaintiffs breached their duty because, as attorney, they were not required to obtain consent from anyone before selling the vessels.
[61] Mr James submits that as none of the vessels were sold pursuant to the security interests held by the plaintiffs, there can be no issue of breach of duty. He submits that all the offers received for the vessels were presented to the second defendant, as a director of the relevant owner companies, who would then accept the offer.
[62] Even if the vessels were sold pursuant to the security interests held by the plaintiffs, it is clear that, in terms of the statutory duty, the plaintiffs were not required to sell the vessels at any particular time or to maintain the vessels.18 Further, in terms of any general duty of care, it is apparent that the plaintiffs were not under a duty to exercise any right of possession and/or to take steps to protect value in the security.19 As discussed above, I do not consider that it is reasonably arguable that appointment as attorney can give rise to a wider duty given the power as attorney is a power to act “…at any time from time to time and in such manner as the Lender at its absolute discretion shall think fit” and “…to take all steps and proceedings and to do all acts, matters and things as the Lender shall think proper…” (emphasis added). In my view, it was reasonable for the plaintiffs and Mr Wilson to work directly with the owners of the relevant vessels (through the second defendant as a director) to broker the sales.
[63] The first defendant also contends that some of the vessels, “Sidina”, “St Jude” and “Stella B”, were sold at an undervalue to Saltwater Fishing Ltd. The second defendant’s son is the sole director and shareholder of Saltwater Fishing Ltd, and the first defendant suggests in his affidavit that the second defendant has been significantly involved in the company.
[64] There are a number of difficulties with this argument. First, the expert evidence of Mr Wilson explains the market conditions in 2021 and 2022 and why vessels were sold at below their 2018 market value. The first defendant has not put forward any independent or expert evidence to support the contention that these vessels were sold at an “undervalue” in 2021. With regard to Sidina, there is no independent valuation evidence before the Court. The first defendant has estimated the market value himself on the basis of the purchase price in December 2018 and work done in 2019.
[65] Secondly, Mr Green’s evidence is that Sidina was sold to Azzurro Breeding Ltd, not to Saltwater Fishing Ltd. However, even if all three vessels were sold to Saltwater Fishing Ltd there is no solid evidence put forward by the first defendant that
18 Ottow, above n 13, at [17] and [23]; and Murray, above n 6, at [36].
19 Whitley, above n 11, at [36] and [42].
the second defendant has an interest in the company beyond the fact that his son is the sole director and shareholder. Mr Kang submits that the plaintiffs effectively put their “favourable relationship” with the second defendant over their duty owed to all other borrowers and guarantors. However, there is no evidential basis for this submission. Further, given the evidence of the second defendant’s involvement in the sale of other vessels, it seems improbable that the second defendant would be involved in arranging for the sale of these particular vessels at an undervalue which would be contrary to his interests as a guarantor. He is now being sued personally along with the first defendant for the outstanding debt.
[66] The first defendant also argues that the plaintiffs have not even referred to the vessels “Lady Ruth” and “Sonar Mia” which the first defendant contends were owned by Hawkes Bay Seafoods Ltd and should have been sold by the plaintiffs to reduce the loan. The first defendant states in his affidavit that the plaintiffs had general securities over these vessels. He states that he understands that Lady Ruth was sold by the second defendant and proceeds used by him. He also understands that the Sonar Mia is still the second defendant’s possession.
[67] Mr Green states in his reply affidavit that Lady Ruth is not mentioned because the RJG Trust understood it had no security over it. He states that the Trust was never advised that Lady Ruth was owned by Hawkes Bay Seafoods Ltd (in liquidation). Mr Green says the Trust understood that the vessel was being fished and may have been owned by Eastern Fishing Ltd (in liquidation). Mr Green produces a survey report which records the owner as Eastern Fishing Ltd. The date of the survey is 4 September 2020. Mr Green says that he has never heard of the vessel Sonar Mia.
[68] Mr Kang submits that there is a factual dispute as to whether these vessels were owned by Hawkes Bay Seafoods Ltd and should have been sold by the plaintiffs to reduce the loan. However, I am not satisfied on the basis of the evidence before me that the first defendant has raised a genuine factual dispute that should go to trial or a reasonable argument of breach of duty by the plaintiffs with regard to these vessels. The documentary evidence put forward by the plaintiffs indicates that Lady Ruth was owned by another company, and Mr Green states that the plaintiffs have never heard of Sonar Mia. The first defendant simply asserts that the vessels were owned by
Hawkes Bay Seafoods Ltd and that the plaintiffs held securities over the vessels without putting forward any supporting evidence. The first defendant asserts his understanding that the second defendant sold Lady Ruth and used the proceeds, and is still in possession of Sonar Mia, without putting forward any supporting evidence. Even if the first defendant’s understanding is correct, it seems improbable, given the evidence of the second defendant’s involvement in sales of the other vessels, and application of the proceeds of these sales to reduction of the loan, that the second defendant would not apply the proceeds of any sale of Lady Ruth to reduction of the loan, and also arrange for sale of the Sonar Mia, if the vessels were owned by Hawkes Bay Seafoods Ltd. Further, there is no independent valuation of Sonar Mia, and the first defendant has simply estimated its market value as $15,000 based on its purchase price in 2015.
[69] In summary, for the reasons set out above, I am satisfied that the first defendant does not have an arguable defence that the plaintiffs have breached their duty with regard to the sale of vessels.
Plant/equipment/chattels not sold
[70] The first defendant further contends that the plaintiffs have not sold various plant/equipment/chattels set out in a spreadsheet produced by the first defendant. The first defendant asserts that certain items remain in the second defendant’s possession and could have been sold which would reduce the debt by about $225,859.21.
[71] Mr Green deposes that these items have not been sold, but that is because the plaintiffs did not consider the items were in saleable condition. Further, Mr Green states that the items are not worth the amount contended by the first defendant. Mr Green states that if either the first defendant or second defendant now wish to sell these items then the plaintiffs would accept payment of any amount recovered in reduction of the outstanding debt.
[72] I do not consider on the basis of the evidence before me that there is an arguable defence that the plaintiffs are in breach of duty by not having sold the items referred to. As noted at [24] above, the plaintiffs have no duty to exercise powers of sale or possession at any particular time. The first defendant simply asserts that the listed
items should have been sold by the plaintiffs, unsupported by any evidence from the second defendant, who the first defendant contends is in possession of the items. Nor is there any corroborating independent or expert evidence that the items are in saleable condition or as to their value. If the items are saleable and the defendants want to sell them, then any proceeds can be applied to reduce the outstanding debt.
Conclusion
[73] For the reasons set out above, I am satisfied that the first and second defendants have no defence to the plaintiffs’ cause of action for breach of guarantee.
[74] The plaintiffs have also referred to two clauses in the guarantee which they contend would prevent the first defendant from relying on any alleged breach of duty by the plaintiffs as a defence. These are cl 3.2.14 (Liability Not Prejudiced) and cl
6.2.3 (no set-off or counterclaim clause). Consideration has been given to the effect of such clauses in relation to s 176 of the Property Law Act in Public Trust v Ottow.20 However, given the conclusion I have reached above, I do not need to consider this issue further.
Result
[75] Summary judgment is granted for the plaintiffs against the first defendant, Giancarlo Harold D’Esposito, and the second defendant, Antonio Giovanni D’Esposito, on a joint and several basis, for:
(a)the sum of $6,062,497.92, calculated as follows:
(i) outstanding principal amount $3,403,417.59 (ii) outstanding interest (both ordinary as well as penalty interest)
$2,659,080.33
[76] An order is made pursuant to s 22 of the Interest on Money Claims Act 2016 that the sums for which judgment is given above, including interest, continue to carry
20 Ottow, above n 13, at [14].
interest at the relevant contractual rates from the date judgment is entered until the judgment debt is paid in full.
[77] I understand that the first defendant is legally aided. Counsel should confer and attempt to reach agreement on costs in respect of the first defendant. However, if agreement cannot be reached then memoranda may be filed (not exceeding three pages excluding costs schedules) and costs will be determined on the papers.
[78] With regard to the second defendant, counsel for the plaintiffs is to provide an updated quantification of the costs claim, and an order for costs will then be made.
Associate Judge Skelton
Solicitors:
Anthony Harper, Auckland for Plaintiffs/Applicants
Fairbrother Family Law, Napier for First Defendant/Respondent
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