Heartland Bank Limited v Domecq
[2019] NZHC 1356
•14 June 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001812
[2019] NZHC 1356
BETWEEN HEARTLAND BANK LIMITED
Plaintiff
AND
CHRISTINA FLORENCE DOMECQ
Defendant
Hearing: 7 June 2019 Appearances:
I J Thain for Plaintiff
No appearance for Defendant
Judgment:
14 June 2019
REASONS JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
Solicitors:
DLA Piper, Auckland
HEARTLAND BANK LTD v DOMECQ [2019] NZHC 1356 [14 June 2019]
Introduction
[1] The plaintiff, Heartland Bank Ltd (Heartland), is a registered bank. It seeks summary judgment against the defendant, Ms Christine Domecq, for the repayment of debts due to Heartland pursuant to various personal guarantees given by Ms Domecq. The guarantees were for loans to four companies of which she was a director and shareholder.
[2] Heartland seeks summary judgment in the sum of $12,814,367.23, together with costs and interest.
[3] Ms Domecq has filed a Notice of Opposition, affidavit in support and a statement of defence. However, she has not filed any written submissions, as directed, and did not appear at the hearing on 7 June 2019. She has been self-represented since February 2019.
[4] In her Notice of Opposition, Ms Domecq opposes the application for summary judgment on the grounds that the financial arrangements that Heartland entered into with her were oppressive, that Heartland caused and/or contributed to its own loss, and that Heartland has recovered part-payment of the debt from Ms Domecq and other guarantors.
[5] At the conclusion of the hearing I gave a brief oral judgment granting summary judgment and entered judgment against Ms Domecq in the sum of $12,814,367.23 together with costs and interest. I concluded that Heartland had established that Ms Domecq has no defence to its application for summary judgment.
[6] Those orders are recorded in my minute of 7 June 2019. This judgment contains the reasons for my decision.
Relevant legal principles
[7]Rule 12.2(1) of the High Court Rules 2016 provides:
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.
[8]The principles are summarised in Krukziener v Hanover Finance Ltd:1
[26] 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 (CA) at 3. 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 (PC) at
341. 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).
[9] In Gardner v Gardner, Associate Judge Osborne summarised the general principles of summary judgment.2 These include:
(a)Common-sense, flexibility and a sense of justice.
(b)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to determine and reject spurious defences or plainly contrived factual conflict. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable.
(c)In assessing a defence, the Court will look for appropriate particulars and a reasonable level of detailed substantiation. The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.
(d)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences in certain factual
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
2 Gardner v Gardner [2015] NZHC 2018 at [20].
matters if the lack of a tenable defence is plain on the material before the Court.
(e)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case.
Background
[10] Foundry Innovations Ltd (Foundry), Fulcrum Ltd (Fulcrum) and Ora HQ Ltd (Ora HQ) are all related companies that were operating in the software-based marketing and business consultant services area. Ms Domecq was a director and shareholder of the companies. Wild Logic Ltd (Wild Logic) was listed on the Companies Office register as a business consultant services company. Ms Domecq was also a director and shareholder of that company.
[11] Each of the four companies executed various term loan facility agreements (facility agreements) dated 22 December 2017, 3 June 2016, 22 December 2017 and 22 December 2017, and General Security Deeds (GSDs) dated 16 May 2016, 3 June 2016, 11 February 2015 and 3 June 2016, with Heartland. Foundry and Fulcrum also had everyday business accounts with Heartland since May 2016 and June 2016 respectively.
[12] In August 2018, each of the companies was placed into receivership and subsequently, Foundry, Fulcrum and Ora HQ have been placed into liquidation.
[13]There is no dispute:
(a)about the terms of the facility agreements or the GSDs except that in relation to the term loan facility agreement between Heartland and Fulcrum, Ms Domecq denies that the final payment date is 7 June 2021;
(b)that Heartland advanced the amounts specified in the facility agreements to the agreed accounts;
(c)that Foundry and Fulcrum opened everyday business accounts with Heartland and that these were each subsequently overdrawn (the overdraft accounts);
(d)that the companies failed to pay and have not repaid the amounts pursuant to the relevant facility agreements and in relation to the relevant overdraft accounts that Heartland claims were due;
(e)that the GSDs were each enforceable as against the companies and the companies have not been released from their obligations under the GSDs; and
(f)that all relevant payment acceleration and payment demand notices were delivered by Heartland to the companies and Ms Domecq.
[14] Ms Domecq executed guarantee and indemnity deeds with Heartland. She personally guaranteed the indebtedness of each of the four companies under the relevant facility agreements and GSDs, as well as indemnifying Heartland for its expenses incurred in connection with its rights under those guarantee and indemnity deeds. She also indemnified Heartland for expenses certified by Heartland to have been incurred as a result of the failure by the companies to pay any of the indebtedness guaranteed under those guarantee and indemnity deeds. These deeds were executed on 16 May 2016, 3 June 2016, 11 February 2015 and 22 December 2017.
[15] There is no dispute about the terms of the guarantee and indemnity deeds, that all relevant payment demands and notices were delivered by Heartland to Ms Domecq, and that Ms Domecq has not been released from her obligations under the deed.
[16] Heartland claims that Ms Domecq, pursuant to the relevant guarantee and indemnity deeds, owes it:
(a)$3,096,023.39 plus interest at the contractual default interest rate of
26.70 per cent per annum and costs in relation to the indebtedness of Foundry (first cause of action);
(b)$5,293,156.30 plus interest at the contractual default interest rate of
18.75 per cent per annum and costs in relation to the indebtedness of Ora HQ (second cause of action);
(c)$2,011,894.95 plus interest at the contractual default interest rates of 18 per cent and 26.70 per cent per annum and costs, in relation to the indebtedness of Fulcrum (third cause of action);
(d)$2,649.845.35 plus interest at the contractual default interest rate of 18 per cent per annum and costs (less $404,157.12 received in part- payment on 11 October 2018) in relation to the indebtedness of Wild Logic (fourth cause of action); and
(e)$167,604.36 plus interest and costs as indemnifier of Heartland’s expenses (fifth cause of action).
[17] In October 2018, a property at Makora Avenue, Waiheke, owned by a trust in which Ms Domecq has an interest, was sold. Pursuant to a caveat on that property the sum of $404,157.12 was paid to Heartland in part-payment of the various debts. Heartland has applied that sum in reduction of the debt owed by Wild Logic and included such deduction in its calculation of the amount outstanding of
$12,814,367.23.
Ms Domecq’s grounds of opposition
[18] In her Notice of Opposition of 6 November 2018, Ms Domecq contends that she has an arguable defence to Heartland’s claim on the basis that:
(a)The financial arrangements that Heartland entered into with her were oppressive and therefore unenforceable due to:
(i)the disparity in bargaining power between Heartland and herself;
(ii)Heartland subjecting her to unfair pressure or tactics or otherwise unfairly influencing her to enter into the financial arrangements;
(iii)Heartland did not advise her to obtain independent legal or other professional advice;
(iv)the length of time afforded to her to repay the debts was unreasonable; and
(b)Heartland caused and/or contributed to its own loss by:
(i)preventing her from accepting alternative funding arrangements by prematurely appointing receivers in relation to Fulcrum, which prevented Fulcrum from meeting its financial obligations to Heartland;
(ii)allocating Wild Logic funds to other entities, thereby causing that entity to be in arrears; and
(c)Heartland has recovered part-payment of the debt from her and other guarantors.
Analysis and decision
[19] In contending that she has an arguable defence of oppression, Ms Domecq relies upon ss 118 and 120 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
[20]Section 118 of the CCCFA reads:
118 Meaning of oppressive
In this Act, oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.
[21]Section 120 of the CCCFA reads:
Reopening of credit contracts, consumer leases, and buy-back transactions
The Court may reopen a credit contract, a consumer lease, or a buy-back transaction if, in any proceedings (whether or not brought under this Act), it considers that –
(a)the contract, lease, or transaction is oppressive; or
(b)a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or
(c)a party has induced another party to enter into the contract, lease, or transaction by oppressive means.
[22] The Supreme Court in GE Custodians v Bartle held that the various words which together form the definition of the term “oppressive” all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice.3 They further held as follows:4
… a credit contract should not be seen as oppressive unless the lender has a basis for knowing that to be so … Even when a lender has knowledge of circumstances which might otherwise cause it to suspect something about the borrower or the borrowing which might make the borrowing highly improvident, it will ordinarily be excused from making inquiry if it is also aware that the borrower is being advised about the transaction by an independent lawyer.
[23] These proceedings are not concerned with consumer credit contracts. However, Heartland accepts that the financial arrangements at issue (that is, the guarantee and indemnities, facility agreements and GSDs) are credit contracts for the purposes of the CCCFA.
[24]I now turn to examine each of the specific grounds of opposition.
Alleged disparity in bargaining power
[25] A disparity in bargaining power is not per se oppressive. It is important to have regard to all of the factual circumstances. In a summary judgment context, such as this one, it is also important to recall that a defendant is under an evidential obligation
3 GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31 at [46].
4 At [47]–[48].
to lay a proper evidential foundation for the specific defence claimed. The Court is not required to accept uncritically every statement put before it, particularly when such assertions are inconsistent with undisputed contemporary documents.
[26] Ms Domecq claims in her affidavit that, at the time she signed each guarantee and indemnity deed, she had no significant assets in her name and was never asked by Heartland about her ability to repay the companies’ indebtedness to Heartland or required to produce any evidence of her assets or financial standing.5 She also claims that she found it difficult to keep track of finances and that there did not seem to be any alternative to her guaranteeing the various loans.
[27] However, on the documentary evidence before the Court it is difficult to accept that there is any substance to those assertions. Ms Domecq has provided no documents to the Court to support her claim that she had no significant assets at the time of entering into the disputed financial arrangements. Likewise, she did not claim that she told Heartland that she could not meet her obligations.
[28] In any event, there is no evidence that Heartland, as the lender, had any basis for knowing that Ms Domecq had no ability to repay the companies’ indebtedness or that she had no assets or financial standing. The evidence available at the time to Heartland suggests, in fact, the very opposite. The evidence of Heartland is that Ms Domecq was an internationally recognised entrepreneur and business leader from a wealthy family. She was also the director of a publicly listed company. Heartland understood that she was business-savvy and very familiar with the requirements for commercial lending. As Mr Thain submitted, it is not unusual or outside of normal commercial lending practices for directors to personally guarantee company debts.
[29] Heartland further understood, from enquiries that it had made prior to establishing a business relationship with Ms Domecq and her companies, that she held in her own name, millions of dollars worth of shares in public and private companies and was entitled to the beneficial ownership of almost $80,000,000 in assets. Heartland placed in evidence before the Court a statement signed by Ms Domecq in 2014 confirming her ownership of these assets.
5 Affidavit of Ms Domecq (sworn 6 November 2018) at [29].
[30] I find that there is no merit to the contention that any disparity in bargaining power reached the threshold of oppressive.
Alleged unfair pressure to enter into financial arrangements
[31] As noted above, Ms Domecq contends, in relation to the guarantee for Ora HQ, that there did not seem to be any alternative to her guaranteeing the loan. Again, however, there is very little evidence provided to substantiate that contention and, in particular, no evidence to suggest that Ms Domecq was not making an informed and rational business decision.
[32] In relation to the term loan facility agreement between Wild Logic and Heartland of December 2017, Ms Domecq claims this was a loan to finance the purchase of Heartland’s shares in Ora HQ. She further says that Wild Logic only agreed to this arrangement because Heartland would not extend further finance to Ora HQ, Foundry or Fulcrum without this arrangement in place, and that Heartland had realised a profit on the sale of the shares.
[33] However, it is necessary to look critically at the documentation. It seems clear from the documentary material that the purchase of Heartland’s shareholding in Ora HQ was part of a package to effectively address repayment of Heartland. It was a business decision made by the companies and Heartland for consideration and agreed to by the companies as part of a broader plan to sell down assets, raise funds, restructure the companies’ debts to Heartland and to re-finance.
[34] Furthermore, the documentation does not support the contention that Wild Logic was somehow forced to enter into the relevant term loan facility agreement. As evidenced by the correspondence annexed to Mr Donnelly’s reply affidavit, Ms Domecq offered the option of financing Wild Logic to purchase the Ora HQ shares from Heartland. Heartland agreed to consider this subject to its usual internal approval processes. The sale price for the Ora HQ shares was also proposed by Ms Domecq as director of the companies and based on her valuation of Ora HQ.
[35] Ms Domecq claims that she did not know what was going on with the Fulcrum or Foundry accounts.6 However, she does not make any specific allegation that there was a breach by Heartland of the terms of the loan facility agreement; all she says is that she did not follow matters. I accept the submission of Mr Thain that the evidence demonstrates a failure by Ms Domecq to exercise reasonable care. That provides no basis for opposing a summary judgment application.
[36] I find Ms Domecq’s claims that there was some unfair pressure or influence on her to enter into the guarantee and indemnity in relation to the indebtedness of Wild Logic have no substance. Likewise, her contention that there was unfair pressure for Wild Logic to enter into a term loan facility with Heartland lacks substance.
Independent legal advice
[37] Ms Domecq claims in her affidavit that in relation to each of the guarantees she was not advised to seek, nor did she seek, independent legal advice.
[38] However, once again, it is important to look critically at the documentation to establish whether these bald assertions have substance and whether, in fact, they are contradicted by the undisputed contemporary documentation.
[39] It is in fact clear from the documentation provided to the Court that at least in relation to some of the disputed transactions, Ms Domecq was given legal advice. That is apparent from the certificate of the borrower’s solicitors7 and the certification and undertaking of the solicitors that they had explained to Ms Domecq, as guarantor, the terms and effects of the guarantees she granted in favour of Heartland.
[40] Ms Domecq’s assertions in relation to the other transactions appear equally to be unsound. The evidence from Heartland clearly demonstrates, with reference to documents signed by Ms Domecq (signed acknowledgements), that she had been advised that she should seek independent legal advice and had freely chosen not to do so. On the evidence before me it is reasonable to infer that in respect of those transactions where Ms Domecq chose not to get legal advice, she did so on the basis
6 Affidavit of Ms Domecq (sworn 6 November 2018) at [16] and [20].
7 Affidavit of Peter Donnelly (sworn 22 August 2018) at HB39.
that she had legal advice in relation to other transactions of a very similar nature and there was therefore little point in taking further advice which would essentially have been the same as that previously given to her.
[41] As Mr Thain submitted, the terms of all the relevant guarantee and indemnity deeds were standard terms. Heartland had no reason to doubt any advice received by Ms Domecq from the relevant solicitors was not adequate advice.
[42] I also note that Ms Domecq does not say that she did not understand the nature of the guarantees or that having had the legal ramifications explained to her that she would never have signed the relevant documentation. In my view, this is a contrived defence and provides no basis for defending the summary judgment.
Alleged unreasonable time frames for repayment
[43] Ms Domecq claims that the time frames for repayment of the debts to Heartland by the companies and herself, as guarantor, were unreasonably short, being either immediately on demand or within one working day of the relevant payment demand.
[44] However, as Heartland submitted, Ms Domecq agreed to standard commercial terms and was given legal advice about many of them. I also note that the relevant accounts had been in arrears since at least the end of June 2018 and promises by Ms Domecq to make payment within particular time frames were not upheld.
[45] Ms Domecq has put forward no evidence at all to suggest that the repayment terms complained of are contrary to the standards of commercial practice or are somehow extraordinary. There is no evidential foundation to support any arguable defence of oppression.8
8 See DFC Financial Services Ltd v Roberts (1989) 4 NZCLC 65,391 (HC) at 38–39; and
Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA).
Alleged contribution by Heartland to its own loss
[46] Ms Domecq claims that Heartland caused or contributed to its own loss by preventing her from accepting alternative funding arrangements in the form of share sales to support a later trade sale. She also says that Heartland prematurely appointed receivers in relation to Fulcrum which prevented Fulcrum from meeting its financial obligations to Heartland.
[47]Again, however, I find that these contentions lack merit.
[48] As Mr Donnelly explains in his reply affidavit, and confirmed by the attached correspondence, Fulcrum was already failing to meet its financial obligations to Heartland, and Heartland was unable to obtain any clarity from Fulcrum about the proposed share sale. Fulcrum had been unable to obtain external finance due to a lack of minority shareholder support. Heartland made it clear to Ms Domecq and Fulcrum that any finance from Heartland to support Fulcrum through to the completion of a trade sale would only be provided if satisfactory information and security could be obtained. That was not provided.
[49] There is no evidence to support the contention that the appointment of receivers by Heartland was premature. In any event, as Mr Thain submitted, if it had been viable for Fulcrum to continue trading into a trade sale, the receivers would surely have pursued that option.
[50] Ms Domecq has also claimed that she instructed Heartland to pay the remainder of the proceeds of the sale of various shares to the repayment only of the Wild Logic debt and that Heartland’s failure to comply with those instructions, and the repayment of the Ora HQ debt, caused or contributed to Heartland’s loss when Wild Logic then subsequently fell into arrears.
[51] However, those assertions are contrary to the documentary evidence attached to Mr Donnelly’s evidence in reply. It seems clear that Ms Domecq did, in fact, instruct Heartland to pay the remainder towards the Ora HQ debt. There was thus a valid basis for the appointment of receivers to Wild Logic when it subsequently fell into arrears.
Recovery of part-payment of the debt
[52] In the documentary evidence provided it is clear that Heartland has already applied the $404,157.12 received from the sale of the Makora Avenue property, Waiheke, in part-payment of the indebtedness of Wild Logic.
[53] Heartland accepts that this payment should reduce the amount due to it from Ms Domecq. In its calculation of the total amount of indebtedness, Heartland has properly made the relevant deduction.
[54]In the circumstances, there is no merit at all to Ms Domecq’s claims.
Conclusion
[55] I find that none of the matters advanced by Ms Domecq in her Notice of Opposition constitute an arguable defence to the summary judgment claim. I conclude that Heartland has established that Ms Domecq has no defence to any of the causes of action in the statement of claim.
Result
[56]The plaintiff’s application for summary judgment is granted.
[57] I enter judgment for the plaintiff against the defendant, Ms Christina Domecq, in the sum of $12,814,367.23.
[58]I also make the following orders:
(a)I award contractual interest on the sum of $12,814,367.23 from 15 August 2018 until 7 June 2019;
(b)Interest is to run on the sum of $12,814,367.23 from 7 June 2019 in accordance with s 9 of the Interest Money Claims Act 2016;
(c)Costs are awarded to the plaintiff.
[59] I direct that the plaintiff is to file a memorandum by 21 June 2019 containing the following:
(a)A detailed calculation of the contractual interest awarded and for approval by the Court;
(b)Details of the costs to be awarded to the plaintiff which are subject to the approval of the Court.
Associate Judge P J Andrew
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