Heartland Bank Limited v Hillend Station Limited (in liq)

[2018] NZHC 2919

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-000041

[2018] NZHC 2919

BETWEEN

HEARTLAND BANK LIMITED

Plaintiff

AND

HILLEND STATION LIMITED (in liq)

First Defendant

AND

TONY PETER HAINES

Second Defendant

Hearing:

23 October 2018

Appearances:

K Wakelin for Plaintiff

No appearance for First Defendant (in liquidation) T P Haines (Second Defendant) in person

D R Tobin, prior counsel for Second Defendant appearing but then excused

Judgment:

9 November 2018

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

(Summary judgment application)

[1]    The second defendant, Tony Peter Haines, guaranteed the debt owed by his company, Hillend Station Ltd (Hillend) under a facility agreement with Heartland Bank Ltd (Heartland).

[2]    Heartland now seeks summary judgment against Mr Haines for $476,174.51 on account of the balance of Hillend’s debt and arising out of the alleged default of Hillend to account to Heartland for the proceeds of sale of stock.

HEARTLAND BANK LIMITED v HILLEND STATION LIMITED (in liq) [2018] NZHC 2919 [9 November 2018]

[3]    After this proceeding was issued, Hillend was put into liquidation with the consequence that the proceeding is stayed against Hillend.1

Summary judgment opposed

[4]    Mr Haines opposes the summary judgment application. His notice of opposition identifies what may be stated as three grounds:

(a)Hillend was not in default of its contractual obligations as alleged;

(b)Heartland’s allegations (in its statement of claim) contain “major errors, defects and omissions of information”;

(c)Heartland failed to comply with its duty to realise secured stock for a reasonable and fair price or value.

[5]    Mr Haines does not challenge the arithmetic of Heartland’s calculations in this proceeding as to the sums provided for Hillend under the Facility Agreement or the amounts which Heartland now acknowledges it has received on account of Hillend’s debt. Some “errors and defects” identified under Mr Haines’ second ground are historical. The grounds with most significance are those denying a breach of authority and asserting a cross-claim based on Heartland’s conduct in selling secured stock. But the alleged “errors, defects and omissions of information” may go some way to explaining the way in which Mr Haines made his responses to Heartland’s demands.

The Hillend operation

[6]    Hillend was incorporated as a company in 2015 with Mr Haines and his (since estranged) father holding 600 and 400 shares respectively. Mr Haines (junior) has been the sole director.

[7]    Hillend was to provide grazing for clients (for a weekly fee) and carry out stock finishing (usually store lambs or calves). Hillend initially carried on both activities

1      Section 248(1)(c) Companies Act 1993.

from Hillend Station in Coe Road, a property of 500 acres near Balclutha, which it leased from the owners.

[8]    Hillend arranged finance for its capital needs. It changed its finance facility to Heartland in late-2016, the facility then being for $250,000.

[9]    In mid-2017, Hillend took a lease of a 4,500 acre property at Table Hill (in addition to the Coe Road property). The facility from Heartland was increased to

$850,000 and re-documented on 26 July 2017 into the four contracts on which Heartland here relies:

(a)a Facility Agreement (for revolving credit) incorporating Mr Haines’ guarantee of Hillend’s obligations;

(b)a Specific Security Deed (over present and after-acquired livestock) (SSD);

(c)a General Security Deed (GSD); and

(d)a separate Deed of Guarantee and Indemnity executed by Mr Haines in favour of Heartland.

[10]   From mid-2017, Hillend carried on as it had in the past, acquiring stock for the purpose of finishing, with Hillend’s purchases funded by the Heartland facility.

Heartland’s claimed entitlement

[11]Heartland has filed a relatively simple claim. In essence, it pleads:

(a)it has contractual rights under the facility documents and guarantee (paragraphs 6 to 7);

(b)Hillend committed events of default under the facility documents in or about December 2017 by not accounting to Heartland for the proceeds of secured stock it had sold and thereafter failing to pay on due date the

amount payable, which Heartland demanded by three letters of demand (20 December 2017, 20 February 2018 and 17 May 2018 – collectively “the three demands”) (paragraph 8);

(c)Hillend has neglected or refused to pay to Heartland [the sums demanded] (paragraph 9).

[12]   Heartland does not in its pleading allege a specific sum to be owing. Its first claim or prayer for relief seeks judgment for $476,174.51 (owing as at 30 April 2018), representing the closing balance of debt claimed by Heartland in a 17 May 2018 email.2

[13]   When I referred Ms Wakelin at the hearing to the lack of a pleading as to what was owing, she sought leave to amend the statement of claim to incorporate a specific allegation that $476,174.51 was and remains owing.

[14]   Had I been otherwise satisfied that Heartland is entitled to summary judgment, I would have granted Heartland leave to amend. While the statement of claim is technically deficient, the first prayer for relief makes it clear that Heartland was implicitly alleging a debt of the claimed sum. Neither the Court nor the defendant would reasonably misunderstand what was implicit. In the event, for other reasons it is unnecessary I grant such leave. Amendment may be attended to by the plaintiff in the usual way.

Heartland’s initial evidence

[15]   The evidence initially filed by Heartland in support of its application was a single affidavit of its Ashburton Rural Lending Manager, Paul Macfie.

[16]   In summary, his evidence (after speaking to and exhibiting the contractual documents) was that:

2      The relief or remedy sought by a plaintiff must appear at the conclusion of the statement of claim: High Court Rules, r 5.27. In the preceding section of the statement of claim the plaintiff must, pursuant to r 5.26, set out the factual allegations said to give rise to a cause of action.

(a)in or about December 2017, Hillend sold livestock which was subject to the bank’s security but did not account to the bank for the proceeds;

(b)Hillend failed to repay the balance of the facility on a due date following the three demands; and

(c)currently $476,174.51 was outstanding under the facility agreement (with interest accruing).

[17]   The case thereby presented was that unanswerably a debt of $476,174.51 was due and owing by Hillend and Mr Haines.

Events from December 2017

[18]   The history identified by Mr Macfie in his initial affidavit is not a complete summary of relevant interactions between the parties.

[19]   Mr Macfie, in his affidavit, did not explain by reason of which contractual provisions he was asserting that Hillend had defaulted in its accounting obligations in or about December 2017.

[20]   In his notice of opposition, Mr Haines denied the allegation of “breach” of the agreement, referring to what Heartland expressed to be an “event of default”. Mr Haines deposed in his affidavit in opposition:

94.Through late December to probably the end of March 2018 I tried to work with the Plaintiff to satisfy them that I was not in breach or at least that I could provide payment and security to satisfy them.

95.As an example I arranged for payment of $62,000 in December 2017.

96.However those discussions did not get anywhere and these proceedings were issued.

[21]   Heartland’s accounting statements were exhibited by Mr Macfie. When the payments recorded there are considered, the allegation of “payment of $62,000 in December 2017” is unsustainable. Heartland’s accounts instead show two payments by Hillend in the latter part of 2017. First, a sum of $19,600 was receipted by Heartland to Hillend’s credit on 10 October 2017. Secondly, a sum of $31,000 was

receipted by Heartland to Hillend’s credit on 27 September 2017. These payments represent a total of $50,060, not $62,000.

Plaintiff’s summary judgment application – the principles

[22]   The starting point for a plaintiff’s summary judgment application is r 12.2(1) High Court Rules, which requires that the plaintiff satisfy the Court that the defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.

[23]I summarise the general principles which I adopt in relation to this application:

(a)Commonsense, flexibility and a sense of justice are required.3

(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.4

(c)The Court will not hesitate to decide questions of law where appropriate.5

(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements in affidavits.6

(e)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. 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.7

3      Haines v Carter [2001] 2 NZLR 167 (CA) at [97].

4      Pemberton v Chappell [1987] 1 NZLR 1 (CA).

5      European Asian Bank AG v Punjab & Sind Bank [1983] 2 All ER 508 (CA) at 516.

6      Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21 (SC).

7      Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).

(f)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.8

(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.9

(h)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. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required for the protection of the integrity of the summary judgment process.10

(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.11

[24]   Rule 12.4(5) contains requirements of the affidavit to be filed in support of a summary judgment application.12

[25]The Rule provides:

(5)The affidavit—

(a)must be by or on behalf of the person making the application:

(b)if given by or on behalf of the plaintiff, must verify the allegations in the statement of claim to which it is alleged that the defendant has no defence, and must depose to the belief of the person making the

8      Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA).

9      Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [28].

10     Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).

11     Pemberton v Chappell, above n 4.

12     Under r 12.4(4)(b).

affidavit that the defendant has no defence to the allegations and set out the grounds of that belief:

(c)if given by or on behalf of the defendant, must show why none of the causes of action in the plaintiff's statement of claim can succeed.

[26]   It was early established that there is a duty on a plaintiff to disclose in its affidavit any facts of which it is aware that could amount to a defence.13 In Westpac New Zealand Ltd v Cooper,14 Duffy J dismissed a summary judgment application in a case where the balance of debt claimed by the bank was affected by recoveries made through the sale of a mortgaged property. Her Honour emphasised that the statement of claim in a summary judgment application (that is, before the affidavit evidence is even reached) should provide the Court and the defendant with a road map which sets out the essential elements of the plaintiff’s claim.15 Her Honour continued:16

Neither the Court nor the defendant should be placed in the position of having to make sense of the plaintiff’s claim by reference to the plaintiff’s affidavit evidence, particularly evidence that has been filed by way of reply.

[27]   Duffy J found that the plaintiff’s verification of its statement of claim did not assist the plaintiff as the statement of claim itself did not sufficiently establish the facts which Westpac needed to in order to sue the defendant for the deficiency after a mortgagee sale had been effected.17 Her Honour explained:18

Westpac’s statement of claim is not well drawn. It does not provide a road map for either Mr Cooper or the Court. The statement of claim does not inform the reader that part of the indebtedness of South Pacific and Enfield has been recovered under mortgagee sales. At the time the statement of claim was filed, one of the mortgagee sales had not gone ahead, but by the time the application was due to be heard, that sale had been completed. Westpac had the opportunity to file an amended statement of claim to take this event into account.

[28]   Her Honour cited Public Trustee v Ottow & Ottow19 for its identification of the evidence which a mortgagee might adduce to establish prima facie that its sale process had reasonably complied with its duties.20

13     Comalco-CCH Aluminium v Chapman (1992) 5 PRNZ 382 at 384.

14     Westpac New Zealand Ltd v Cooper (2010) 20 PRNZ 568.

15 At [32].

16 At [32].

17 At [45].

18 At [33].

19     Public Trustee v Ottow & Ottow HC AK CIV 2009-404-3825, 4 November 2009 at [31].

20     Westpac New Zealand Ltd v Cooper, above n 14, at [30].

[29]   Recently, Associate Judge Andrew cited Westpac New Zealand Ltd v Cooper in this context. In Jaychem Industries Ltd v Vincents Preparations Ltd,21 his Honour, having referred to Westpac, continued:22

As a matter of policy, it is wrong in principle for applicants for summary judgment to bring poorly prepared applications and then to attempt to repair them once the defendant has identified the deficiencies.

I respectfully adopt that statement of principle and apply it below.

Heartland’s statement of claim and initial affidavit evidence

[30]   As recorded above, Heartland’s statement of claim did not express a particular sum to be due and owing by Hillend. Neither did it make any pleading as to its possession and sale of secured stock.

[31]   In the initial affidavit in support, Mr Macfie dealt with the fact of livestock sale and the balance claimed as due and owing in two paragraphs:

8.The Company defaulted on its obligation in respect of the Facility Agreement by:

(a)On or about December 2017 the Company sold livestock that was the subject of the Bank’s security in December 2017 and did not account to the Bank;

(b)Failing to repay the balance of the facility on a due date following issuing of letters of demand dated 20 December 2017, 20 February 2018 and 16 May 2018.

Attached marked “H” is a copy of the letters of demand dated 20 December 2017, 20 February 2018 and 17 May 2018.

9.The current amount outstanding under the Facility Agreement as at 30 April 2018 is $476,174.51.

10.Interest continues to accrue at the default rate of 15.00% per annum from the last entry shown in the statement of account, namely 30 April 2018 until payment is made including after judgment. A copy of this statement of account is attached marked “I”.

[32]   The “statement of account” attached as exhibit “I” to Mr Macfie’s affidavit appears to be the ledger entries made by Heartland of all credits and debits from 31

21     Jaychem Industries Ltd v Vincents Preparations Ltd [2018] NZHC 1180.

22 At [6].

May 2017 to 18 April 2018, (with the statement dated 30 April 2018) with an additional page showing two further entries for the period to 14 May 2018 (dated 14 May 2018). The statement contains a number of entries such as “adjustment”, “pay- off payment” and “payment”, which are not elsewhere explained in Mr Macfie’s affidavit.

[33]   The 30 April 2018 statement of account indicates that it commences (as with entries as at 31 May 2017) with an opening debit balance of $202,809.93 which is not otherwise explained or verified. Whereas the closing balance of the 30 April 2018 statement is stated to be for “$476,174.51 DR”, the opening balance of the 14 May 2018 statement is stated to be “$456,632.16 DR”. The reason for a difference between those figures is not explained.

[34]Such was Heartland’s case as presented to the defendants for response.

[35]   Mr Macfie’s initial affidavit made no reference to any discussions or correspondence between the parties or their lawyers from December 2017 when Heartland alleged Hillend had defaulted on its obligations.

Events disclosed in the defendants’ evidence and Heartland’s reply evidence

[36]   The following matters not referred to in Heartland’s statement of claim or affidavit in support of summary judgment are disclosed in the affidavit evidence subsequently filed:

(a)18 December 2017 meeting at Coe Road

On 18 December 2017, Mr Macfie called at the Coe Road property. He had with him a PGG agent and Mr Haines’ father, neither of whom has provided an affidavit in this proceeding. Mr Haines (junior) at the time of the visit was drenching lambs with his employee, William Kearon. Both Mr Haines and Mr Kearon have provided affidavits in opposition. Mr Haines gives evidence as to the meeting in 13 paragraphs. Mr Haines refers to an allegation made in later correspondence from Heartland’s solicitors that Mr Haines had admitted to Mr Macfie that

he had been selling stock and diverting the proceeds to Clutha Transport. Mr Haines deposes that he never told Mr Macfie anything of the sort.

Mr Haines deposes that, on his arrival at the farm, Mr Macfie began asking Mr Haines questions about stock numbers and discussing values of the stock-on-hand with his companions. Mr Haines deposes that he rejected the attributed values. Mr Haines deposes that Mr Macfie told him that there seemed to be a shortfall in stock based on value and also that PGG Wrightson had notified Mr Macfie of the sale of 80 Angus 18 month steers earlier in December. Mr Macfie told him he wanted to do a reconciliation of stock-on-hand as a result. Mr Haines refers to correspondence received from Heartland’s solicitor subsequently in which it was alleged that he had, on 18 December 2017, admitted selling stock and diverting proceeds to Clutha Transport Ltd. Mr Haines deposes that Mr Macfie did not allege that day that he thought that Mr Haines had done anything wrong or was in breach of the facility agreement.

Mr Haines’ farm-hand, Mr Kearon, deposed that he was at the Coe Road property during Mr Macfie’s visit. He deposes that he was drenching lambs and that the lambs were all in good condition, as were all the other stock on the farm. He could hear the PGG agent and Mr Peter Haines (senior) both “running down the condition of the stock to the Bank Manager”. He deposed that he did not think it was his business to say anything but states that what they were saying to Mr Macfie about values was “way out of order”.

(b)20 December 2017 letter from Heartland Bank

Mr Haines, in his opposition affidavit, exhibited a letter he received from the Heartland Bank (Mr Macfie) dated 20 December 2017. The letter does not allege that Mr Haines had on 18 December 2017 admitted that he had breached the terms of the Facility Agreement.

Rather, Mr Macfie records his understanding from the 18 December discussion that Mr Haines had sold livestock funded under the Facility Agreement. Then contains the assertion that a failure to pay the proceeds to Heartland would be an Event of Default which entitled Heartland to call up all the debt and to enforce its security. The letter required immediate payment of all proceeds from the “Sale” to be made to Mr Haines’ Heartland account.

(c)Heartland taking possession of stock

Mr Haines deposes in his affidavit that he was stunned to hear on 20 December 2017 from one of his Clutha Transport drivers that they had seen Wynyard Transport at Coe Road loading stock. He deposes that it was later that day that he received from Heartland the email letter referred to at [36](b) above. When Heartland subsequently issued to Mr Haines its notice of entry into possession of the stock, it referred to having entered into possession with effect from 23 December 2017. That is also a date identified by Heartland’s solicitors in subsequent correspondence. It is not immediately reconcilable with transport dockets subsequently produced by Heartland – two of those stock consignment notes are dated 21 December 2017.

The seizure and sale of stock

[37]   The way in which Heartland dealt with Hillend’s stock is not the only issue raised by Mr Haines in opposition. But I find it to be a matter which determines the outcome of this summary judgment application, I will deal with it first.

[38] As identified at [30] – [35] above, Heartland did not refer to the realisation of its security in either its statement of claim or in its evidence in support of the summary judgment application.

[39]   Heartland first gave notice to Mr Haines that it had entered into possession of his livestock (“including but not limited to 1605 lambs, 701 ewes, 84 calves and

62 cattle mixed age”) by a notice sent on 21 February 2018. In that notice Heartland stated that it had taken possession with effect from 23 December 2017.

[40]   Correspondence ensued between Heartland’s and Mr Haines’ solicitors (for the most part Richard Reeve for Mr Haines and David Morrison for Heartland). Mr Reeve recorded on 20 March 2018:

Our client has expressed concern that the collateral sold by Heartland appears to have realised substantially less proceeds than he would have anticipated. Please provide us with a statement of the sale proceeds for his review.

[41]   In the same letter Mr Reeve referred to the need to be able to reconcile certain Heartland transactions to PGG Wrightson Ltd on behalf of Hillend with transactions undertaken by Hillend itself with PGG Wrightson. Mr Reeve requested a statement of relevant transactions.

[42]   On 29 March 2018 Mr Macfie provided through Mr Morrison a bundle of documents comprising receipts from freezing works, sales dockets from PGG Wrightson, Heartland tax invoices for stock sales, shearing invoices, tax invoices for wool, and transport company consignment notes (collectively “Heartland sales records”).

[43]   Mr Haines through his evidence and submissions identifies his concerns with Heartland’s sales records:

Stock numbers

(a)On Mr Haines’ tallying of the number of stock covered by the sales records, Heartland asserts that it disposed of 2270 stock.23 He contrasts that number with the total of 4735 animals which he has deposed were at Coe Road and Table Hill on 18 December 2017 (respectively 2850 and 1885).

23     The difference between this figure (2270 stock) and the total refuted is in Heartland’s notes of 21 February 2018 (being 2452) is not explained in Heartland’s evidence.

(b)Following receipt of the Heartland sales records, Mr Reeve on 6 April 2018 wrote to Mr Morrison expressing concern both as to discrepancies in the numbers of stock identified as sold by Heartland and the values achieved by Heartland on sale. Mr Reeve stated that, on Mr Haines’ reckoning, taking into account the available information, there appeared to be a shortfall of approximately $97,000. He requested a copy of Heartland’s written record of the tally for review by Mr Haines.

(c)There was apparently a telephone conversation between Mr Morrison and Mr Reeve after Mr Morrison received the 6 April letter.    On     10 April 2017 Mr Reeve wrote again. Mr Reeve noted a suggestion by Mr Morrison – that “Heartland is similarly in the dark as to the whereabouts of missing stock”. He continued:

For that reason alone, our client requests a written record of Heartland’s tally at the date of entry …”

(d)In a reply dated 16 April 2018, Mr Morrison dealt with Mr Reeve’s letters of both 6 April 2018 and 10 April 2018. He presented Heartland’s position in relation to some detailed matters of stock sales, rejecting the assertion that any of the stock had been sold at less than market value. Mr Reeve’s request for a written record of Heartland’s tally as at the date of entry was not directly responded to.  Instead,   Mr Morrison recorded:

“If your client wishes to further query the exercise of Heartland’s rights then we suggest the appropriate forum is for summary judgment procedure. Your client can introduce evidence as to the stock numbers which it claims, sale prices etc as part of that forum.”

(e)There is no evidence that Heartland provided any further tally numbers or documentary records of any tally before issuing its summary judgment application in May 2018.

(f)In the documents subsequently filed in this summary judgment proceeding:

(i)Neither Heartland’s statement of claim nor its affidavit in support of summary judgment dealt with stock numbers.

(ii)Mr Haines in his opposition deposed in detail as to the December 2017 stock numbers and identified his concern as to Heartland’s failure to account for all of the stock it had seized.

(iii)Mr Macfie in his “reply” affidavit dealt with a number of other allegations made by Mr Haines but did not deal directly with stock numbers (other than in relation to some specific sales). Mr Macfie did not produce any evidence as to any tally of stock undertaken by Heartland either at the date of their taking possession of the stock or later.

(g)In Mr Macfie’s evidence as to the quantum of Heartland’s claim, he refers to the figure of $97,000 identified in Mr Reeve’s 6 April letter as Mr Haines’ calculation, based on the Heartland sales records, of a shortfall which Heartland had achieved on sale of the stock through a combination of sale at undervalue and omission of sales. Mr Macfie deposes in relation to that:

“Whilst there was a dispute as to the $97,000 differential, the First Defendant and the Second Defendant reaffirmed their positions that they would either realise assets to pay the shortfall owed to the Plaintiff or provide security.”

Mr Macfie’s purported summary of the defendants’ “reaffirmation” does not accurately capture the balance of Mr Reeve’s 6 April 2018 letter. What Mr Reeve stated immediately after setting out the potential shortfall of $97,000 in value was:

“Our client’s concern is genuine and you will appreciate that the discrepancies and values outlined above are not insubstantial. Mr Haines remained willing to enter into the previously-discussed security arrangements but is mindful that the quantum of indebtedness needs to be tested and verified before these new arrangements are established.”

“There remains too the possibility that, subject to the above information, our client will simply realise a selection of assets to clear the shortfall.”

[44]   Heartland had to account for the value of the stock if summary judgment was to be sought. The debt sought by Heartland is the balance of debt remaining after Heartland had realised its security. In the bare presentation of its debt claim and affidavit in support of summary judgment, Heartland failed to provide a road map for either Mr Haines or the Court. As happened in Westpac New Zealand Ltd v Cooper,24 neither the statement of claim nor the documents filed on the summary judgment application informed the reader of the detail of security seized and sold.

[45]   In itself, that is sufficient to dispose of this summary judgment application. Heartland failed to meet its obligation, in pursuing summary judgment, to adequately explain in the context of a mortgagee sale process how the balance of claimed debt had been arrived at.

[46]   Then there is the matter of a dispute already identified and signalled to Heartland before it commenced this proceeding. From March 2018 (within the month after Heartland sent its notice to Mr Haines that it had entered into possession of his livestock), Mr Haines through his solicitor had expressed the concern that the collateral sold by Heartland appeared to have realised substantially less in proceeds than he would have anticipated. Mr Haines at that point called for a statement of the sale proceeds for his review and subsequently sought Heartland’s tally figures as at the date of possession. In the correspondence which followed, Mr Haines clearly identified a dispute both as to the stock numbers asserted by Heartland and the values achieved by Heartland on sale.

[47]   I have recorded Mr Morrison’s 16 April 2018 advice to Mr Reeve that he viewed the appropriate forum for Mr Haines’ queries as to the exercise of Heartland’s rights to lie in a summary judgment procedure, where Mr Haines could introduce evidence as to the stock numbers he claimed and the sale prices. In taking that position, Mr Morrison failed to recognise the unsuitability of the summary judgment jurisdiction for resolution of the dispute which Mr Haines had raised. In relation to

24     Westpac New Zealand Limited v Cooper, above n 14.

stock numbers, it is a notable feature of this case that Heartland to this day has not presented evidence of any tally of stock numbers seized in December 2017. While Mr Haines’ detailed evidence as to stock numbers has come through the filing of his opposition evidence, Heartland must have understood before it issued this proceeding that Mr Haines had previously unsuccessfully sought from Heartland its own assessment of stock numbers and had identified apparent discrepancies in stock numbers sold as a real issue.

[48]   In his reply evidence, (recorded above at [43](g)), Mr Macfie recognised that there was a dispute (flowing from the issues raised by Mr Haines as to stock numbers and sales values) at least as to the $97,000 initially identified in Mr Reeve’s 6 April 2018 response to the Heartland sales records.

[49]   In her reply submissions Ms Wakelin accepted that summary judgment should be refused for the $97,000 referred to in Mr Reeve’s 10 April 2018 letter. The very fact that such a concession was made in submissions at the hearing reinforces the inappropriateness of the manner in which Heartland’s summary judgment application was presented.

“Accordingly, had I not concluded that the summary judgment application should be dismissed by reason of the failure of the statement of claim and the summary judgment application to deal with third party (though this is presently speculation only). For that reason alone our client requests a written record of Heartland’s tally as at the date of entry …”

[50]   In presenting this summary judgment application Heartland was not entitled to ignore the identified matter of defence. It was incumbent upon Heartland to identify in its summary judgment application the dispute and to explain why Heartland’s claim was established beyond argument.

[51]   Accordingly, had I not determined to dismiss the summary judgment application by reason of Heartland’s failure to provide a statement of claim and affidavit in support, a roadmap as to the calculation of the balance of debt claimed, I would have dismissed the application on account of the failure of Heartland to identify in its summary judgment application the matters of defence already signalled by    Mr Haines. I place this summary judgment application squarely within the category

of cases, identified by Associate Judge Andrew in Jaychem Industries Limited v Vincents Preparations Limited, in which a plaintiff seeks through reply evidence to repair deficiencies which the defendant identifies in opposition.25

[52]   Furthermore, in this case (even had Heartland been able to establish an absence of arguable defence on the documentation and information so far available) I would also have dismissed this application pursuant to the residual discretion under r 12.2(1) High Court Rules. To the extent that Mr Haines’ defence is based on discrepancies in stock numbers, neither the Court nor Mr Haines yet through the evidence provided by Heartland any clear statement as to Heartland’s assertions as to the stock numbers of which it took possession. There has been no discovery of such records or internal reports as Heartland’s employees or agents may have made. Equally, there has been no opportunity for Mr Haines to establish through interrogatories of Heartland’s employees involved in taking possession of the stock what they did in relation to counting stock at the point of possession and thereafter safeguarding the stock before transport or sale. In that regard, Mr Haines had identified before this proceeding was issued a number of unusual sales by Heartland (such as to Mr Haines’ estranged father and to the subsequent leaseholder of Table Hill) – unusual in the sense that both purchasers had close associations with the properties on which Mr Haines’ stock was held while Heartland was in possession. The testing of evidence in relation to those sales is reasonably called for.

[53]   In these circumstances I am not satisfied that it would have been just to enter summary judgment against Mr Haines even had Heartland presented an otherwise appropriate summary judgment application.

Further matters not to be analysed

[54]   By reason of the conclusions reached, it is unnecessary that I reach any determination on other matters raised in the course of the summary judgment application.

25     Jaychem Industries Limited v Vincents Preparations Limited, above n 21, at [29].

Stock prices realised by Heartland

[55]   Another matter of defence raised by Mr Haines related to the prices achieved by Heartland on sale of his stock. Mr Haines, through Mr Reeve, raised those issues in conjunction with his concerns as to stock numbers. Mr Reeve’s 6 April 2018 identification of a potential shortfall of $97,000 in value was arrived at through a combination of alleged omissions of stock numbers and inadequate sales prices. When Mr Morrison on 16 April 2018 suggested that the summary judgment procedure was the appropriate place in which to introduce evidence, he referred to evidence both as to stock numbers and as to sale prices. Mr Reeve had identified Mr Haines’ dispute in relation to both aspects. Since then, with the filing of Mr Haines’ affidavit in opposition and Heartland’s “reply” evidence, there has been much more detail as to the particular issues which arise in relation to sales prices. That includes substantial evidence as to the quality of stock and the availability of feed both in December 2017 and February 2018, with differences which are beyond resolution through a summary judgment procedure. As with the dispute over stock numbers, there is the difficulty for Heartland that it did not deal with the dispute over sales prices in its application for summary judgment and Mr Macfie’s short supporting affidavit.

[56]   As it is, I do not need to determine the summary judgment application by reference to the dispute over sales prices. I do not do so.

Alleged breach of contract

[57]   Mr Haines, in his notice of opposition, raised a further defence, namely that Hillend had not committed a breach of the contractual arrangements and that there was therefore no sum for which Heartland could make a demand. In this area as others, Heartland’s position through its originating documents was less than clear. Although in its statement of claim Heartland alleged that there had been an event of default through sale of secured livestock and failing to pay an amount demanded by Heartland, Heartland did not in its pleadings identify which particular provisions of the facility agreements were said to have been breached. In her submissions, Ms Wakelin referred to evidence contained in Mr Macfie’s “reply” affidavit in which Mr Macfie gave evidence of an alleged default under the facility agreements. Mr Macfie identified the default as having been that the defendants had sold stock which was secured to

Heartland but had not accounted for the proceeds. Ms Wakelin in her submissions identified the contractual provisions which are thereby breached as being in cl 5.1.1 of the GSD. Clause 5.1.1 prohibited the debtor from disposing of secured property other than in identified circumstances. Under cl 5.1.1(a) an exempted circumstance is where inventory is sold in the ordinary course of business of the debtor. Under cl 5.1.1(b) an exempted category is where the debtor collects accounts receivable which are the proceeds of a sale under cl 5.1.1(a). The allegation made by a third party through Mr Macfie was that the defendants had sold stock, the proceeds of which had gone to the defendants rather than Heartland. Ms Wakelin did not in her submissions identify precisely how such a sale (apparently made in the ordinary course of Hillend’s business) was under cl 5.1.1 an act of default.

[58]   In the alternative to her submission as to an act of default under cl 5.1.1 of the GSD, Ms Wakelin submitted that the sale in question constituted a disposal of all, or a substantial part, of Hillend’s assets and was thereby a default under cl 10.1.6 of the Facility Agreement. Mr Macfie did not provide any evidence in his affidavit in support of the summary judgment application as to evidence of the sale of a substantial part of Hillend’s assets. Nor did he deal with that particular proposition in his “reply” evidence.

[59]   By reason of my earlier finding it is unnecessary that I determine whether  Mr Haines has an arguable defence in this regard.

Alleged admission of breach

[60]   In his reply evidence, Mr Macfie deposed that he informed Mr Haines of the breach on 18 December 2017 and that Mr Haines then admitted to him that he had sold stock which was funded by Heartland but had not accounted to Heartland for the proceeds. As that evidence of Mr Macfie was provided “in reply”, there has been no direct response to it. However, beforehand Mr Haines had in his opposition affidavit denied that Mr Macfie at the 18 December 2017 meeting had told him that he thought Mr Haines had done anything wrong or that he was in breach of his stock facility. The dispute in relation to the alleged admission cannot be resolved in a summary judgment context.

Proposals to settle shortfall

[61]   Finally, I refer to evidence and submission on one other matter which featured significantly in Heartland’s case but ultimately cannot affect this decision. In the period after Heartland took possession of Hillend’s stock, Mr Reeve’s correspondence with Mr Morrison included indications that Mr Haines had sufficient assets to cover the alleged shortfall of value in his stock, that he would present various details as to Hillend’s financial position, and that he would honour any legitimate payment requirement to the best of his ability. Mr Macfie in his reply affidavit records that his understanding of the situation was that the defendants accepted that they were liable for the shortfall but had an issue with quantum. In the circumstances of this judgment, I make no finding as to whether Mr Reeve’s correspondence communicates any acceptance of liability. Nor is it appropriate that I comment on whether any degree of recognition of liability would preclude the defendants from contending otherwise if they can establish that there was in law no liability.

Outcome

[62]   Heartland’s summary judgment application is to be dismissed. Rule 12.13 High Court Rules will apply to the filing of the second defendant’s statement of defence. Counsel for the plaintiff is to immediately notify Mr Haines if the plaintiff intends to amend its statement of claim with the consequence that Mr Haines’ pleading should await that event.

[63]   Costs and disbursements will be reserved in accordance with the practice outlined by the Court of Appeal in NZI Bank Limited v Philpott.26 To the extent that Mr Haines may later be found to be entitled to costs and/or disbursements, I record that he had legal representation in relation to the summary judgment application up to 3 October 2018 but not thereafter.

26     NZI Bank Limited v Philpott [1990] 2 NZLR 403.

[64]I order:

(a)The plaintiff’s summary judgment application filed 23 May 2018 is dismissed.

(b)The costs and disbursements of the application are reserved.

(c)The Case Officer is to issue at the appropriate time the standard notice of first case management event.

Associate Judge Osborne

Solicitors:

Grove Darlow & Partners, Auckland Wilkinson Rodgers, Dunedin

Counsel: D R Tobin, Barrister, Dunedin