Hosking Trailers Limited v HT 2017 Limited
[2021] NZHC 3559
•21 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1244
[2021] NZHC 3559
BETWEEN HOSKING TRAILERS LIMITED
Appellant
AND
HT 2017 LIMITED
Respondent
Hearing: 23 September 2021 Appearances:
B Gustafson and T M Bates for the Appellant R Hucker and M W Swan for the Respondent
Judgment:
21 December 2021
JUDGMENT OF GAULT J
This judgment was delivered by me on 21 December 2021 at 1:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Mr B Gustafson, Solicitor, Auckland
Mr T M Bates (appellant’s instructing solicitor), T M Bates & Co., Auckland Mr R Hucker and Mr M W Swan, Hucker & Associates, Auckland
HOSKING TRAILERS LTD v HT 2017 LTD [2021] NZHC 3559 [21 December 2021]
[1] Hosking Trailers Ltd (HTL) and Mr Jackson appeal against the judgment of Judge G M Harrison in the District Court at North Shore dated 28 June 2021.1 In proceedings to recover the unpaid portion owing under a loan agreement, the Judge granted summary judgment against HTL and Mr Jackson jointly and severally on the basis that a no set-off clause in the agreement precluded the defendants from raising defences against a claim for payment.
Factual background
[2] On 20 April 2018, HT 2017 Ltd2 (HT 2017) as vendor, its sole director Mr French as covenantor and Mr Jackson or nominee as purchaser, entered into an agreement for sale and purchase of HT 2017’s business (SPA) for $800,000. The business involved the construction of trailers, including boat trailers for the boat manufacturer Rayglass. Settlement of the SPA was to occur on 10 May 2018. Mr Jackson nominated HTL as purchaser.
[3] The SPA included provision for vendor finance. The parties agreed that the SPA was conditional on the vendor leaving $200,000 in the business as a vendor loan. The loan was to be interest free for three years, with repayment of $5,555 per month for 36 months.
[4] On 10 May 2018, the settlement date, the parties entered into a loan agreement in respect of the vendor loan. The loan agreement deemed HT 2017 to have advanced
$200,000 to HTL and HTL to have paid $200,000 of the purchase price payable under the SPA. The loan agreement included the following clause:
4.5 Free and clear payment:
All sums payable by the borrower under this agreement shall be paid during normal business hours on or before the due date, into the bank account specified by the lender from time to time, in cleared funds from and clear of any restriction or condition and (except to the extent required by law) without any deduction, setoff or withholding.
[5]Mr Jackson guaranteed the obligations of HTL under the loan agreement.
1 HT 2017 Ltd v Hosking Trailers Ltd [2021] NZDC 12480.
2 Then named Hosking Trailers Ltd.
[6] On 6 June 2018 Rayglass informed HTL/Mr Jackson that it was terminating its trailer supplier arrangement with the business.
[7] On 19 March 2019 HTL/Mr Jackson’s solicitors served a notice on HT 2017 stating that no further payments would be made under the loan agreement because they had been induced to enter into the loan agreement by misrepresentation about the Rayglass contract. This left $133,333.40 of the loan unpaid. HTL claims that it paid too much for the business because HT 2017 failed to disclose during negotiations that Rayglass was terminating its trading relationship.
Procedural history of dispute
[8] On 30 April 2019, following a referral by HTL, the Auckland District Law Society appointed an expert to determine the dispute. On 8 May 2019 HT 2017 protested the jurisdiction of the expert to determine the issues raised.
[9] On 9 August 2019 HT 2017 commenced proceedings in the District Court and applied for summary judgment.
[10] On 22 October 2019 HTL and Mr Jackson protested the District Court’s jurisdiction on the basis that the dispute resolution clause in the loan agreement required determination of the alleged dispute by an expert. That issue was determined by Judge Cunningham in a decision dated 4 August 2020 in which she concluded that the operative clause did not preclude the jurisdiction of the Court and that the application for summary judgment could proceed.3 She held that the loan agreement stood alone from the SPA.
[11] On the summary judgment application, HTL and Mr Jackson acknowledged that Judge Cunningham was correct in finding that a claim for damages against HT 2017 for a breach of the SPA could not be raised as a reason not to pay amounts owing under the loan agreement because of the no set-off clause in that agreement.
3 HT 2017 Ltd v Hosking Trailers Ltd [2020] NZDC 14425.
[12] But HTL and Mr Jackson argued that Judge Cunningham did not rule that the no set-off clause precludes the raising of a defence to enforcement of the loan agreement. In particular, Mr Gustafson submitted that if HTL and Mr Jackson were induced into the loan agreement by a misrepresentation, defences would be available pursuant to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the Fair Trading Act 1986 (FTA).
District Court judgment
[13] After referring to authorities dealing with the effect of a no set-off clause, the Judge concluded:4
I accept therefore that cl 4.5 precludes the defendants from raising defences. A setoff is a defence. The authorities I have referred to confirm that where the parties have agreed on a no setoff clause no defences can be raised against a claim for payment. That being the case the plaintiff has discharged its burden of establishing that the defendants have no defence and that they are entitled to summary judgment.
Approach on appeal
[14] This Court’s approach on a general appeal is settled following the Supreme Court’s decisions in Austin, Nichols & Co Inc v Stichting Lodestar and Kacem v Bashir.5 The appellate court has the responsibility of considering the merits of the case afresh.6 The appellate court must be persuaded that the decision is wrong,7 but the weight it gives to the reasoning of the court below is a matter for the appellate court’s assessment.8 Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the
4 HT 2017 Ltd v Hosking Trailers Ltd [2021] NZDC 12480 at [22].
5 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13] and [16]; and Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31]-[32].
6 Kacem v Bashir at [31].
7 Austin, Nichols at [13].
8 Kacem v Bashir at [31]. No deference is required beyond the customary caution appropriate when seeing the witnesses provides an advantage because credibility is important: see Austin, Nichols at [13]; and Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [27]-[32].
decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.9
Approach on summary judgment applications
[15] The principles applying on a summary judgment application are not in dispute. As the Court of Appeal said in Krukziener v Hanover Finance Ltd:10
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; (1986) 1 PRNZ 183 (CA), at p 3; p 185. 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; [1979] 3 WLR 373 (PC), at p 341; p 381. 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 Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Issues
[16]The issues to be determined are whether:
(a)cl 4.5 precludes defences against a claim for payment;
(b)there is an arguable defence under the CCCFA or FTA; and
(c)a stay of enforcement should be granted.
9 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
10 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]; and see
Cockburn v C S Development No 2 Ltd [2010] NZCA 373, (2010) 24 NZTC 24,431 at [26].
Does cl 4.5 preclude defences against a claim for payment?
Submissions
[17] Mr Gustafson, for HTL and Mr Jackson, submitted that the Judge erred in deciding that cl 4.5 of the loan agreement precludes the defendants from raising any defences and not considering the two defences raised. He submitted that the Judge wrongly interpreted the Court of Appeal’s decision in Browns Real Estate Ltd v Grand Lakes Properties Ltd,11 which dealt with the different situation of whether a counterclaim could be raised to set aside a statutory demand. He submitted the appellants do not attempt to prove a counterclaim to give rise to a set-off, but instead say that HT 2017’s claim itself is impugned and/or rendered null and void as a result of breaches of s 120 of the CCCFA and s 43 of the FTA. He relied on two decisions of this Court, Madagascar (No 3) 2013 Ltd v Paulsen and Harcourts Group Ltd v Grewal.12
[18] Mr Hucker, for HT 2017, submitted the Judge’s statement that no defences can be raised against a claim for payment implicitly recognises the scope for separate proceedings; that is, “pay now claim later”, as in Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd.13 He submitted that cl 4.5 of the loan agreement applies. He relied on the policy reasons in Browns and Bromley for upholding a no set-off contractual provision. He also submitted the CCCFA and FTA provisions relied on empower the Court to make remedial orders, rather than having any automatic effect. He submitted that the earlier decision of Strategic Finance Ltd (in rec and in liq) v Moss14 was to be preferred over Madagascar and Harcourts, or alternatively that this case should be distinguished from those two cases since the appellants are not seeking statutory rescission to avoid the loan agreement.
11 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141.
12 Madagascar (No 3) 2013 Ltd v Paulsen [2016] NZHC 553; and Harcourts Group Ltd v Grewal
[2018] NZHC 2983.
13 Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850.
14 Strategic Finance Ltd (in rec and in liq) v Moss [2012] NZHC 3032 at [36].
Discussion
[19] Mr Gustafson accepted the effect of cl 4.5 of the loan agreement is that there could be no set-off in respect of a counterclaim for damages under the SPA. That accords with authority,15 and the good policy reasons for upholding no set-off contractual provisions. As Mr Hucker submitted, such a no set-off provision is common in circumstances where possession has been provided to the purchaser of a business, and a misrepresentation claim can be pursued in the same manner as if the purchase price had been paid in full.
[20] But Mr Gustafson distinguishes between a counterclaim for damages under the SPA and impugning the loan agreement itself by way of defence. As he submitted, Browns was concerned with an attempt to raise a counterclaim to set aside a statutory demand.
[21] I accept in principle that a loan agreement may be impugned on the basis of a breach of the CCCFA or FTA and that a defence to a claim for payment under a loan or guarantee may be raised despite a no set-off clause, as this Court has held in respect of guarantees in Madagascar and Harcourts, based on a line of Australian authorities.16 Mr Hucker relied on the contrary view that had been expressed (obiter) in the earlier case of Strategic, without the benefit of the line of Australian authorities. It suffices to refer to Harcourts, another summary judgment case, where Associate Judge Bell referred to Strategic, Madagascar and the Australian authorities, and said:17
[61] In my judgment, the better view is that the no set-off clause does not prevent Mr Grewal saying in defence that he is not bound by the guarantee at all because it should be set aside under s 43 of the Fair Trading Act. A contractual no set-off clause is procedural. It suspends a party’s right to raise a matter of opposition to a claim, as opposed to extinguishing those rights.
15 Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850 at [55]-[56]; and see Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141 at [12] and [17], n 12.
16 St George Bank Ltd v Field [2007] NSWSC 902; Bank of Western Australia Ltd v O’Brien [2012] NSWSC 456; GE Capital Australia v Davis [2002] NSWSC 1146, (2002) 180 FLR 250; Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd [2000] QSC 950; Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2003] QSC 151, [2004] 1 Qd R 122; Westpac Banking Corp v Helicopters Brisbane Pty Ltd [2012] QSC 263; and Bank of Western Australia Ltd v El-Khoury [2013] NSWSC 157.
17 Harcourts Group Ltd v Grewal [2018] NZHC 2983 (footnote omitted).
A defendant barred from raising a cross-claim because of a no set-off clause may run its claim later, as it is only barred from raising the matter in reduction of its liability to the plaintiff. Set-off is used to reduce a liability which is otherwise binding. Set-off does not, however, invalidate the original obligation on which the defendant is sued. When a defendant denies any liability at all to the plaintiff — as when the defendant alleges the obligation never arose or that, if it arose, it should be set aside — the defendant is not raising a set-off. Instead, the defendant is asserting a defence which goes to the foundation of the plaintiff’s claim, not just to reduction of an established liability.
[62] Misleading or deceptive conduct under the Fair Trading Act does not automatically avoid the contract induced by that misleading conduct. The contract is avoided only if the court makes an order declaring the contract to be void, in whole or in part, under s 43(3)(a). A party sued under an agreement, wishing to have the agreement avoided under s 43(3)(a), will need to claim that relief expressly. Mr Grewal has done so in his counterclaim. That should not obscure the point that in seeking an order avoiding the guarantee, he is not pleading a set-off within the no set-off clauses but is instead … attacking the very guarantee on which he is sued.
[63] Applying the no set-off clause to bar Mr Grewal from obtaining an order avoiding the guarantee in this proceeding would not just suspend his right to obtain that relief. It would take it away altogether, because once judgment is given against him, he would lose the right to say he is not bound by the guarantee. He could not have the judgment re-opened. That would go beyond the suspensory effect of the no set-off clauses. “Pay now, argue later” would become “pay now” without the opportunity to challenge liability later.
[22] I agree with this summary of the legal position. I do not accept Mr Hucker’s submission that Judge Harrison’s statement in the key paragraph of his reasons that no defences can be raised “against a claim for payment” recognised the separate counterclaim and reflected a “pay now, argue later” approach. As the above passage in Harcourts indicates, the remedial nature of the orders sought in a counterclaim should not obscure the point that the counterclaim is attacking the very agreement on which the claim is based. I consider the same reasoning applies whether the attack is to avoid the agreement entirely or to vary it insofar as the variation impugns the very payment obligation on which the claim is based. Thus, cl 4.5 does not preclude such a defence even though it precludes a set-off in respect of a counterclaim for damages under the SPA. I accept Mr Gustafson’s submission that the Judge needed to address the defendants’ claims that breach of the CCCFA and FTA impugned the loan agreement. The real issue is whether there is an arguable defence on the basis that the alleged breaches impugn the loan agreement.
Is there an arguable defence under the CCCFA or FTA?
[23] In relation to the CCCFA, Mr Gustafson relied on s 120(c) which provides that the Court may reopen a credit contract if it considers that “a party has induced another party to enter into the contract … by oppressive means”. He submitted that the loan agreement was oppressive because HT 2017 failed to disclose that the Rayglass relationship was in jeopardy when the SPA warranties required disclosure of such information, and HT 2017 induced the appellants to borrow money and overpay for the business.
[24] Mr Gustafson submitted this case is similar to GE Custodians v Bartle, where the Supreme Court said the scope of oppression under the CCCFA is broader than the equitable doctrine of unconscionability and includes a breach of reasonable standards of commercial practice.18 It is an objective standard. But it is based on matters known to the lender (or its agent).19 Ultimately, on appeal following a trial (not summary judgment), the Supreme Court said that there had been nothing known to the lender or its agent which made the loans in breach of reasonable standards of commercial practice. Here, Mr Gustafson submitted, HT 2017 knew there were issues with the Rayglass relationship.
[25] In relation to the FTA, Mr Gustafson relied on the Court’s power to vary a contract under s 43(3)(c). Mr Gustafson submitted that HT 2017’s disclosure of the financial statements of the business without any disclosure that Rayglass had advised of its dissatisfaction and was considering ending its relationship was misleading and deceptive conduct. HTL and Mr Jackson seek to vary the amount owed under the loan agreement to zero.
[26] Several issues arise on appeal which were not addressed in the District Court judgment. Mr Hucker submitted the appellants had not discharged the evidential onus in relation to the alleged breaches, reliance, causation and loss.
18 GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31 at [46].
19 At [47].
[27] Dealing first with the alleged breaches, Mr Hucker submitted there was no misleading or deceptive conduct, and that HT 2017 thought the problem was limited to Stabicraft (another key customer that was lost in 2017). Bearing in mind that settlement of the SPA occurred on 10 May 2018, the evidence was that Mr Jackson said he suspected such knowledge on the basis that Rayglass’ letter of 6 June 2018 had not come out of nowhere and he had then obtained a letter from HT 2017’s solicitors to the previous owner dated 28 November 2017 in the context of a not dissimilar dispute concerning issues with Stabicraft and Rayglass. Mr Jackson said that letter established that Mr French knew the relationship with Rayglass was not strong leading up to settlement and that he was aware that Rayglass intended to cease or reduce its customary level of business and cease to use Hosking Trailers on a preferred basis. The letter referred to significant and long-standing issues. I consider that satisfied the defendants’ evidential onus.
[28] In reply, Mr French said there had been warranty issues raised by Rayglass but described them as historic and said “We did not have notice of the termination of the Rayglass business nor did we think the business would have been stopped when we were negotiating the sale of the business”. Mr French’s affidavit attached a letter from Rayglass addressed ‘to whom it may concern’ dated 21 March 2018 confirming the strong relationship with Hosking Trailers. Mr Gustafson objected to the admissibility of that letter on the ground it was privileged, having been supplied on a without prejudice basis by the previous owner’s solicitors to HT 2017’s solicitors for the express and sole purpose of being used in a mediation to try and settle High Court proceedings between those parties. If the letter were privileged, the fact that Mr Jackson requested and was given a copy by HT 2017 in breach of privilege would not have changed its status and HT 2017 would have needed consent, or a Court determination,20 to use it in the District Court proceeding. Without prejudice privilege applies to settlement communications and documents prepared for the purpose of settlement including mediation. But disclosing a document in a mediation does not make the document itself privileged. The purpose for which the document was prepared by Rayglass was not directly addressed. But its contents suggest it was prepared for use by HT 2017. Its subsequent discovery in that High Court proceeding
20 Evidence Act 2006, s 57(3)(d).
also suggests it was not privileged. In any event, the Rayglass letter is hearsay in relation to the truth of its contents.
[29] In a further affidavit, Mr Jackson said he had found emails that show that HT 2017 was selling trailers directly to Rayglass customers and that Rayglass found out about this in May 2018, and a Rayglass manager had subsequently told him that this was the last straw. But these emails were after 10 May 2018 and I acknowledge that Mr Jackson’s report of the conversation with the Rayglass manager is hearsay. Mr Jackson also referred to Mr French’s brief of evidence in the High Court proceeding, which Mr Jackson said took a contradictory position. Mr French’s response denied there was any inconsistency. Mr Larsen (a consultant during the purchase) said he was told in May 2018 that HT 2017 had sorted everything with Rayglass. I accept that the issues with the previous owner concerned customer relationships at an earlier time and so the issues may have been historic.
[30] While the evidence does not indicate that Mr French knew by 10 May 2018 that Rayglass intended to cease or reduce its customary level of business and cease to use Hosking Trailers on a preferred basis, that is not the only issue. A distinction needs to be drawn between the facts Mr French knew and his belief. I cannot determine that the issues with the Rayglass trading relationship were in fact entirely historic, nor that they did not require disclosure because Mr French believed they were historic. There is a factual dispute. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents on a summary judgment application. It is arguable Mr French knew the relationship with Rayglass was not strong and the issues were not entirely historic. Alternatively, it is arguable the issues needed to be disclosed despite his belief that they were historic.
[31] Also, given the nature of the alleged breach of the CCCFA, the lack of evidence of standard commercial practice is not determinative.
[32] As for reliance, it is arguable that HTL/Mr Jackson relied on and were misled by HT 2017’s non-disclosure or misrepresentation of issues with the Rayglass trading relationship although there was a nine month delay before their solicitors raised the issue with HT 2017 in March 2019.
[33] Turning to causation and loss, Mr Hucker also submitted there was no evidence of the actual performance of the business after purchase to support a claim for a capital or trading loss as a result of the Rayglass termination notice of 6 June 2018. Mr French said that he sold the business at a significant discount, having purchased it for
$1.8 million and that, in the context of the not dissimilar dispute with the previous owner following the loss of Stabicraft as a customer, HT 2017’s solicitors had stated that the indicative valuation of the business was $955,000, that is well above the
$800,000 purchase price. Mr Hucker also submitted that Rayglass was still a customer of the business despite its notice of 6 June 2018. In that regard, Mr Jackson’s evidence was that for two years he had been trying to recover the relationship with Rayglass and was doing some repair work for them.
[34] There was some evidence from Mr Jackson about the impact of the alleged misrepresentations on the value of the business. In this summary judgment context, even though the claimed defence is based on counterclaims alleging breach of the CCCFA and FTA to reduce the amount owing, the defendants need not establish a full reduction of the amount owing. It remains for the plaintiff to establish there is no defence to its claimed amount.
[35] An issue remains, however, as to the relief sought by HTL and Mr Jackson. It is at least arguable that HT 2017’s non-disclosure or misrepresentation of issues with the Rayglass trading relationship give rise to counterclaims for damages for breach of warranty, pre-contractual misrepresentation or breach of the FTA in respect of the SPA. But a counterclaim for breach of the FTA and CCCFA in respect of the loan agreement is a different matter.
[36] Mr Gustafson submitted that HTL and Mr Jackson were misled into entering both the SPA and the loan agreement. He submitted the alleged breaches also impugn the loan agreement since they induced entry into the loan agreement. He also submitted the loan agreement and SPA are linked transactions under s 119 of the CCCFA.21 He submitted the causative link here is that there would have been no loan
21 As the Supreme Court said in GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31 at [43], these include, where it is a term of the credit contract that another contract or arrangement be entered into, any part of that other contract or arrangement that relates to the provision of credit to or the payment of money by the debtor under the credit contract.
if there had been no purchase or a lower purchase price. It is arguable that, but for the breach, HTL and Mr Jackson would not have entered the loan agreement/guarantee on the basis that HTL would not have entered the SPA at all or only at a reduced price such that vendor finance would not have been required. I do not accept Mr Hucker’s submission that this situation is no different from a loan by a third party. The position is different where the party in breach is also the lender. However, while it is not a complete answer to say the SPA and the loan agreement are separate contracts, I consider the link with the loan agreement does not amount to a causative link between breach and loss. It is the purchase of the business at an alleged over-value that gave rise to the alleged loss, not the loan agreement. Relief in respect of the SPA is the appropriate relief.
[37] It is also relevant that HTL and Mr Jackson do not seek to avoid the SPA and return the business. As Mr Hucker submitted, they want to keep the benefit of performance. HTL and Mr Jackson are in effect seeking to reduce the purchase price under the SPA by impugning the loan agreement even though the loan agreement deemed HTL to have paid $200,000 of the purchase price payable under the SPA. Thus, the $200,000 loan was advanced and applied towards payment of the SPA purchase price (fully performing HT 2017’s obligations under the loan agreement).
[38] Further, even though HTL and Mr Jackson claim they would not have entered the loan agreement and the pleading seeks to avoid the loan agreement,22 Mr Gustafson said they are instead seeking to vary it to reduce the amount owing to zero. In effect, as Mr Hucker submitted, they are not seeking statutory rescission to expunge the loan agreement but rather to adjust the rights under it.23 This may be contrasted with the defendants’ position in Madagascar and Harcourts. Although that distinction did not affect my earlier conclusion in relation to the effect of cl 4.5, it is necessary to consider whether the different relief sought in this case is arguable.
[39] I accept the Court has broad remedial powers under the CCCFA and the FTA. But, in these circumstances, it is implausible that the Court would address what is in
22 Restoring the parties to the position if the loan agreement was void would be problematic given the SPA was conditional on the vendor loan.
23 Mr Hucker accepted that defences such as lack of capacity, undue influence and unconscionability would lead to vitiation of the agreement.
substance a complaint about the value of the business already transferred under the SPA by instead reopening or varying the terms of the loan agreement to reduce the amount outstanding to zero under the CCCFA or the FTA. It is not the terms of the loan agreement that gave rise to the alleged loss. There is no suggestion the terms of the loan agreement are themselves onerous. As indicated, it is the purchase of the business at an alleged over-value that gave rise to the alleged loss. The claims to reopen or vary the loan agreement do not give rise to an arguable defence.
[40]For these reasons, I conclude that HT 2017 was entitled to summary judgment.
Should a stay of enforcement be granted?
[41] Mr Gustafson submitted the Judge also did not deal with an oral application seeking a stay of summary judgment until trial of the counterclaims since paying the balance of the loan to HT 2017 may mean the appellants are suing a non-trading shell, which is likely to cause potential injustice. It may be the Judge considered it was premature to address a stay in the summary judgment decision.
[42] On appeal, Mr Gustafson informally sought a stay under r 17.29 of the High Court Rules 2016, which provides:
A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.
[43] Mr Gustafson relied on Hellaby Resource Services Ltd v Body Corporate 197281.24 That case also involved a summary judgment claim with a no set-off clause. Associate Judge Gardiner granted summary judgment but also ordered a stay pending determination of a counterclaim on the basis that ordering payment of the judgment sum would place significant financial hardship on the counterclaimants.
[44] Associate Judge Gardiner conveniently summarised the applicable principles, which are not in dispute:25
24 Hellaby Resource Services Ltd v Body Corporate 197281 [2021] NZHC 554.
25 At [88] (footnotes omitted). See also Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd
HC Napier CIV-2010-441-134, 8 June 2011 at [19].
(a)The onus is on the applicant for a stay of enforcement to persuade the Court to exercise its discretion.
(b)A “substantial miscarriage of justice” must be involved. This means something more than minor or insubstantial.
(c)The substantial miscarriage of justice must be “likely to result” if the judgment were enforced. This means that such a miscarriage is probable rather than possible. The test may be expressed as “a real and substantial risk”.
(d)The Court must undertake a balancing exercise where it recognises and reconciles the conflicting interests of both parties in such a manner as will best serve the overall interests of justice.
(e)A miscarriage of justice is unlikely to result where a party is required to pay to another an amount that is owing to it and the paying party is free to pursue its counterclaim in the normal way.
(f)Other factors [may be relevant] including:
(i)the apparent strength or weakness of the claim or counterclaim;
(ii)any explanation as to why the counterclaim was not raised as an answer to the claim on which the judgment is based;
(iii)the ability of the applicant for the stay to meet the judgment that is being enforced;
(iv)the potential bankruptcy or liquidation of a party seeking to pursue an apparently strong claim.
[45] Here, there is no suggestion HTL/Mr Jackson cannot pay the judgment sum. Indeed, they have paid the judgment sum, interest and costs into the District Court to obtain an automatic stay pending appeal. That sum will be released following determination of the appeal,26 unless this Court grants other relief.27 Thus, payment of the amounts due will not preclude prosecution of the counterclaim. Rather, the concern is that HTL/Mr Jackson may be pursuing an empty shell.
[46] As Mr Hucker submitted, given the no set-off clause, it cannot be said to be an injustice to give effect to the bargain agreed between the parties. That is consistent with the good policy reasons for upholding no set-off contractual provisions. A real concern about dissipation may give rise to an exception, but here that concern is
26 District Court Act 2016, s 144.
27 No issue of enforcement arises but r 17.29 of the High Court Rules provides for a stay of enforcement or other relief.
speculative, for two reasons. First, Mr French is already a counterclaim defendant together with HT 2017. He was named as covenantor in the SPA and is also sued in relation to the misrepresentations. Secondly, there is no evidence suggesting that, with knowledge of the counterclaim, Mr French as HT 2017’s sole director will dissipate its assets and expose himself to a further personal claim.
[47] For these reasons, I do not consider that a substantial miscarriage of justice would be likely to result if the judgment sum is released to HT 2017.
Result
[48]The appeal is dismissed.
[49]The application for a stay is dismissed.
[50] Having (ultimately) succeeded, HT 2017 is entitled to its reasonable costs on appeal under cl 6.2 of the loan agreement. If costs cannot be agreed, I will receive memoranda (not exceeding four pages) within 20 working days and I will determine costs on the papers.
Gault J
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