Ikon Building Co-operation Ltd v Dumasia
[2020] NZHC 223
•21 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-986
[2020] NZHC 223
BETWEEN IKON BUILDING CO-OPERATION LIMITED
PlaintiffAND
POURUSHASP ROHINTON DUMASIA
First Defendant
DAVID HILLIAM
Second Defendant
Hearing: 17 February 2020 Appearances:
M Lenihan and D A Cowan for Plaintiff D Grove for Defendants
Judgment:
21 February 2020
JUDGMENT OF LANG J
[on application for summary judgment]
This judgment was delivered by me on 21 February 2020 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
IKON BUILDING CO-OPERATION LTD v DUMASIA [2020] NZHC 223 [21 February 2020]
[1] In this proceeding the plaintiff, Ikon Building Co-operation Ltd (Ikon), seeks summary judgment against the two defendants, Mr Dumasia and Mr Hilliam. Ikon sues each defendant in his capacity as guarantor of a loan advanced to SKKY Holdings 2015 Limited (SKKY).
Background
[2] In September 2016, SKKY obtained a loan facility from a company called New Zealand Mortgages and Securities Limited (NZMS). The facility entitled SKKY to draw down a maximum sum of $4.473 million. SKKY obtained the facility to enable it to fund the development of a property in Stanmore Bay into residential units. The loan was to be repaid in full on 23 September 2017.
[3] The loan arrangements were documented in a term loan agreement dated 21 September 2016. The defendants signed the agreement both as directors of SKKY and as guarantors of SKKY’s obligations under the agreement. On or about the same date, both defendants entered into separate deeds of guarantee and indemnity with NZMS under which they guaranteed SKKY’s obligations under the term loan agreement. The loan was secured by a mortgage registered against SKKY’s property.
[4] On 9 June 2017, NZMS entered into an agreement with Bolter Management Group Limited (Bolter) under which NZMS agreed to sell Bolter its contractual rights in relation to the loan to SKKY and the guarantees given by the defendants. The transaction settled on 13 June 2017. On that date NZMS assigned its rights under those contractual arrangements to Bolter. Following settlement Bolter was registered as transferee of the mortgage securing SKKY’s obligations under the term loan agreement.
[5] A week earlier, on 6 June 2017, Bolter and Ikon had signed a deed under which Bolter agreed it would hold the rights and obligations it was to purchase from NZMS as bare trustee for Ikon.
[6] Bolter called up the loan shortly after settlement. It then sold the property in February 2018 using its power of sale as mortgagee. It applied the sale proceeds in reduction of the amount then owing under the term loan agreement.
[7] On 13 March 2019 Bolter formally assigned its rights under the term loan and guarantee arrangements to Ikon. It did so to enable Ikon to enforce its rights against the defendants as guarantors of SKYY’s obligations under that agreement. Ikon now seeks summary judgment against Mr Dumasia and Mr Hilliam for the sum of
$1,468,933.35 being the balance outstanding under the loan agreement.
Relevant principles
[8] The principles to be applied by an applicant for summary judgment have been clearly established through decisions of the Court of Appeal in Pemberton v Chappell, Grant v NZMC Ltd, Westpac Banking Corporation v MM Kembla New Zealand Ltd and Krukziener v Hanover Development Ltd.1
[9] In considering Ikon’s application I propose to apply the following general principles, which apply to all applications by a plaintiff for summary judgment:
(a)Ikon must satisfy the Court that the defendants have no arguable defence to Ikon’s claim. The issue is whether there is a real question to be tried.
(b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
(c)Although the Court should adopt a robust approach, nevertheless summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA); Grant v NZMC Ltd [1989] 1 NZLR 8 (CA), Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) and Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
The proposed defence
[10] In April 2017 the main contractor SKYY had engaged to develop the Stanmore Bay property advised SKKY there were defects in concreting work it had already carried out under the construction contract. This prompted the contractor to terminate the construction contract with immediate effect.
[11]The contractor then refunded both a bond SKKY had paid in the sum of
$150,000 and the last progress claim SKKY had paid under the contract. SKKY immediately notified NZMS of this development and a meeting was arranged for 1 May 2017. Both defendants were present at the meeting. NZMS was represented by one of its directors, Mr James Kellow.
[12] Mr Dumasia contends Mr Kellow agreed during this meeting that the contractual arrangement would be varied to enable SKKY to complete both the necessary remedial work and the development of the property. He says Mr Kellow agreed NZMS would fund this work provided SKKY paid NZMS the funds that were to be refunded to it by the contractor. Mr Dumasia says Mr Kellow also suggested the development be completed in stages to enable SKKY to repay its borrowings from NZMS as units in the development were sold.
[13] Mr Dumasia says Mr Kellow did not raise any concerns during the meeting about potential delay in completing the development. Nor did he suggest NZMS would charge penalty interest on the outstanding balance. Mr Dumasia says Mr Kellow did suggest SKKY should obtain updated advice regarding the likely scope and cost of completing the project. Mr Kellow also recommended a builder who might be able to carry out the necessary remedial works and assist with completing the development.
[14] Mr Dumasia says that SKKY promptly honoured its side of the bargain by paying the funds it received from the contractor to NZMS. It also endeavoured to engage a replacement contractor. In addition, and in anticipation that NZMS would continue to fund the project, the defendants advanced the sum of $100,000 to SKKY to enable work on the development to continue.
[15] Mr Dumasia contends SKKY was “taken by surprise” to receive an email from Mr Kellow on 14 June 2017 stating that NZMS had sold the loan to Bolter. Mr Kellow explained that NZMS needed to exit the loan because it was in default and this placed NZMS at risk from its bank. Mr Dumasia says NZMS had never previously told SKKY the loan was in default.
[16] Two days later, on 16 June 2017, Bolter issued notices of default. These were served on both SKKY and the defendants on 19 June 2017. The notices alleged SKYY was in default because the development of the property was approximately 16 weeks behind schedule and the construction contract with the main contractor had been cancelled. The notices did not specify how SKKY could remedy the alleged defaults.
[17] Bolter subsequently served notices under s 119 of the Property Law Act 2007 (PLA) on both SKKY and the defendants on or about 14 August 2017. It served further PLA notices on or about 29 September 2017 after the term specified by the loan agreement had expired. When this notice went unremedied Bolter exercised its power of sale under the mortgage.
[18] The defendants contend the development of the Stanmore Bay property was a viable project because SKYY had already entered into agreements to sell nine of the ten units in the development. It says that, had Bolter continued to fund the development as NZMS promised it would, SKKY would have sold all the units in the development and this would have produced a substantial profit. It would also have enabled the loan facility to be repaid.
[19] The defendants therefore contend they have an arguable defence to Ikon’s claim based on the following matters:
(a)The parties agreed to vary the term loan arrangement at the meeting on 1 May 2017 so as to require NZMS to provide funding to enable the development to be completed.
(b)NZMS and Bolter, breached the varied contract by failing to provide funding as promised.
(c)The plaintiff is estopped from relying on the strict terms of the term loan agreement by virtue of the agreement concluded at the meeting on 1 May 2007.
(d)Bolter did not have the power to issue a valid notice of default on 19 June 2017 because SKKY was arguably not in default under the term loan agreement when it issued the notice
Other defences
[20] During the hearing Mr Grove abandoned, correctly in my view, two further arguments the defendants had raised in their notice of opposition. The first of these was based on the fact that, in earlier proceedings in this Court, Bolter failed to disclose it held the mortgage on trust for Ikon. In that proceeding (the injunction proceeding) SKKY and the defendants sought an injunction preventing Bolter from exercising its powers of sale as mortgagee under the mortgage registered against the property. Gordon J dismissed SKKY’s application in a judgment delivered on 27 October 2017.2
[21] This argument clearly has no merit. Bolter was the legal owner of the mortgage and as such it was entitled to exercise the powers given to the mortgagee under the mortgage. For the same reason it was correctly named as the defendant in the injunction proceeding. I do not consider Bolter was under any obligation in that proceeding to disclose that it held the mortgage as bare trustee for Ikon. Furthermore, Bolter’s actions in the injunction proceeding have no bearing on or relevance to the present proceeding.
[22] The defendants also raised concerns regarding the manner in which Bolter had funded the purchase of the loan and securities from NZMS. They suggested the transaction may be tainted because of the possible involvement of a Mr Yan in the funding of the purchase. They contended this may have caused the transaction to breach the requirements of the Overseas Investments Act 2005 (OIA).
2 SKKY Holdings 2015 Ltd v Bolter Management Group Ltd [2017] NZHC 2641.
[23] This argument has no factual basis. There is no evidence the Stanmore Bay property was “sensitive land” so that it became subject to the requirements of the OIA.3 Furthermore, such evidence as there is suggests Mr Yan was a New Zealand citizen at the time of the transaction. If so, he would not be subject to the OIA regime. Furthermore, a breach of the OIA may lead to the transgressor being subject to criminal sanctions.4 It would not, however, affect the contractual position as between the parties to the transaction.
Decision
Variation and breach of contract
[24] I deal with these arguments together because the success of the second is wholly dependent on the outcome of the first. I also proceed on the basis that, if the contractual arrangement was validly varied prior to Bolter acquiring NZMS’s rights under it, Bolter would have been bound by that variation.
[25] The defendants rely primarily on Mr Dumasia’s evidence regarding the outcome of the meeting on 1 May 2017. They say this derives support from email correspondence that passed between Mr Dumasia and Mr Kellow in the days following the meeting on 1 May 2017.
[26] Mr Dumasia sent an email to Mr Kellow on the evening of 3 May 2017 advising him of developments that had taken place since the meeting on 1 May. Then, in an email sent to Mr Kellow on 4 May 2017, Mr Dumasia stated:
Hi James
Just wanted to advise that we have received the quote from the contractor to start the remedials for the cracked grade on slab floors for Units 4 to 7 which are in the critical path.
Should Tony approve (currently reviewing the quote) the same are we able to start the work or wait till we get the insurance outcome.
The contractor is able to start the work from 9th May and will be done by the 18th of May subject to weather. The main materials for these works are on site already.
3 Overseas Investment Act 2005, s 10(1)(a).
4 Section 43.
Kindly advise us if we are able to start these works.
[27]Mr Dumasia wrote to Mr Kellow again the next day, this time stating:
Hi James
Just to advise we are awaiting your confirmation to start the remedial works (pending insurance claims) as per my email yesterday and our phone conversation.
We have not yet had confirmation from the insurers, the last we were advised to Carl (Kensway) that the assessor has sent all the paperwork to AMP for a decision.
Tony advised that since this was not in the budget where would the funds come from, I advised we should use the contingency funds or DD 8 funds to get this very critical work underway without any further delays.
The contractors ready to go and has organised all the necessary resources to start from 9th May 2017.
We await your confirmation.
[28] Mr Kellow responded to both emails on the afternoon of 5 May with the following advice:
Sorry for delay. Just back in office now. Start remedials as can fund from Bond when gets back.
[29] Mr Grove submits that these emails demonstrate both parties were proceeding on the basis of the varied agreement very shortly after the meeting on 1 May 2017. He says this submission is supported by the fact that SKYY paid the bond and retentions to NZMS immediately after they were refunded.
[30] Mr Kellow did not file an affidavit in the present proceeding but he provided an affidavit in opposition to SKKY’s application in the injunction proceeding. The parties have agreed that evidence filed in the injunction proceeding shall be taken into account in the present proceeding. Mr Kellow’s evidence regarding the meeting on 1 May 2017 was as follows:
6.The cancellation of the building contract was an event of default under the Loan. At the meeting on 1 May 2017 the borrowers discussed their intention to undertake some remediation work. I do not accept that I made any commitment to pay for it but I would have accepted that it was possible that NZMS would consider funding it – no commitment was given. The Plaintiffs had insurance that it was
anticipated would cover the remedial work. This is referred to in the email of 5 May 2017 which is Dumasia Affidavit exhibit ‘O’.
7.The remediation work that was discussed was completed before the Loan was sold. The only communication in relation to the remediation works after 1 May 2017 were in emails [on] 3, 4, 5 and 13 May 20175 (Dumasia Affidavit exhibits ‘O’ and ‘Q’. While the emails of 4 and 5 May ask that we approve the work commencing they do not suggest we have agreed to pay for it but rather ask where the funds would come from. The 13 May 2017 email records that I have suggested that the clients (ie the Plaintiffs) pay them. I understand that this is what happened. There was no formal request for payment from the Quantity Surveyor in relation to the remediation works. The informal request by email on 13 June 2017 Dumasia Affidavit Exhibit ‘Q’ was not made in accordance with the Loan Agreement and I had previously advised that the borrowers should pay it themselves or provide further security.
8.I did not consider the discussion regarding the remediation as part of an agreement re the contractors bond being returned to us. In my view we were entitled to the bond as we had an assignment over the construction contract.
9.The meeting on 1 May 2017 was a ‘big picture’ discussion. I was gathering information and do not accept that I made any representations, agreements or commitments. Mr Dumasia said that the cost to complete would be unchanged with a new builder. He said that there would be no cost overruns. I was aware that Skky was obliged to pay any cost overruns in any event. However we did not discuss the obligations of clients to meet cost over-runs because at this time clients advised cost to complete was intact.
10.During the meeting Mr Dumasia undertook to provide documentation from the Quantity Surveyor confirming cost to complete was intact and project could still be completed within sunset date period of the presales. We discussed delay and thought a staged council completion would speed up settlements/debt repayment to mitigate any delays on last few units. I accept that I suggested a staged development but this was to speed up the project not delay it. Some of the units were more complete than others.
11.No information was provided from the Quantity Surveyor over subsequent weeks and the clients appeared unable to fund the cost over-runs that were becoming apparent.
12.After the meeting on 1 May 2017 the Quantity Surveyor was unable to certify any payments because he did not have the required information regarding cost to complete. No drawdown requests were received from Tony between 1 May and 14 June when we sold the Loan. The last drawdown request that was received prior to the sale was in April 2017. Annexed marked ‘JRSK1’ is the letter and cost to complete certificate from the Quantity Surveyor. This drawdown request is annexed marked ‘JRSK2’.
5 This email was not contained in the evidence filed in support of either application.
13.The need for the ‘cost to complete’ information was made clear in Tony’s email of 25 May 2017 a copy of which is annexed marked ‘JRSK3’.
14.I never made any commitment to fund the cost overruns as seems to be alleged in Dumasia Affidavit paragraph 28. The Plaintiff was obliged to fund any increase in costs under the Loan Agreement.
[31] Mr Kellow’s evidence clearly conflicts with that given by Mr Dumasia in material respects. To the extent that these involve an assessment of the credibility of the two men it is obviously not possible to resolve these in the context of an application for summary judgment. I nevertheless consider three factors support Mr Kellow’s version of events.
[32] First, the original loan arrangement was carefully recorded in a detailed loan agreement and supporting securities. Each of these documents contained a provision requiring any subsequent amendment to be recorded in writing. This was never done following the meeting on 1 May 2017. If the parties intended the original loan arrangement to be varied I have no doubt they would have recorded the variation in writing as the loan agreement and securities required.
[33] Secondly, Mr Dumasia challenges Mr Kellow’s evidence that Mr Dumasia told him the project could be completed within the original budget. He says SKYY did not know how much the remedial work would cost and this meant he would not have said the project could be completed within the existing budget. This conflict in the evidence obviously cannot be reconciled in an application for summary judgment. Mr Dumasia’s evidence regarding this issue creates significant difficulties, however, for the argument now advanced by the defendants.
[34] As Mr Dumasia points out, at the time of the meeting on 1 May 2017 SKKY did not know precisely what work was needed to complete the development of the Stanmore Bay property. This meant it did not know what the work was likely to cost. It is highly unlikely in my view that a commercial financier such as NZMS would commit itself to an increased funding arrangement when it did not know how much the project would cost to complete. Mr Kellow also makes the valid point that the existing loan agreement required the borrower to fund any cost overrun. It is difficult
to see why NZMS would have been prepared to meet cost overruns on 1 May 2017 when that was not previously the case.
[35] Furthermore, I do not accept that the emails on which the defendants rely support their argument that the parties agreed to vary the terms of the original loan agreement. Rather, they are consistent with the proposition that both parties were proceeding on the basis of the existing funding arrangement. By 1 May 2017 SKYY had drawn down approximately $2.4 million of the amount that NZMS had agreed to advance. SKYY therefore had the ability to draw down further funds under the existing contractual arrangement. Before it could do so, however, the loan agreement required it to provide NZMS with drawdown notices containing specified information. SKKY never provided any further drawdown notices after 1 May 2007. There is no evidence that SKKY ever sought further funding from NZMS before it transferred the loan and securities to Bolter in June 2017.
[36] It is also significant that SKKY negotiated with Bolter to obtain loan finance during June and July 2017. On 18 July 2017 Bolter’s solicitors sent SKKY a letter setting out the terms on which Bolter would loan SKKY a total sum of $4.73 million to enable it to repay its existing indebtedness and to fund the completion of the development. Mr Dumasia says SKKY rejected this offer because it was not viable from SKKY’s perspective. The significance of this evidence, however, is that SKKY would not have negotiated with Bolter to obtain loan finance if it genuinely believed Bolter was already contractually committed to provide such funding as was necessary to complete the project.
[37] Finally, before SKKY could enforce any variation of the agreement against NZMS it would need to establish that it provided valuable consideration for the variation. SKKY relies in this regard on the fact that it paid NZMS the monies it received back from the contractor. As Mr Kellow points out in his affidavit, however, under the term loan agreement SKKY assigned its rights under the construction contract to NZMS. It follows that NZMS was already the legal owner of the funds that it received from SKKY. SKKY could not rely on those payments as valuable consideration for any variation of the term loan agreement.
[38] For these reasons I am satisfied that the original contractual arrangement was never varied, and that the proposed defences under this head are not arguable on the facts.
Estoppel
[39] In considering this defence I again proceed on the basis that, if NZMS had conducted itself so as to give rise to an arguable estoppel, Bolter and Ikon would be in no better position than NZMS. Bolter and Ikon took their assignments of the contractual arrangements from NZMS subject to any equities in favour of SKKY that were already in existence.6
[40] In Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd the Court of Appeal confirmed that estoppel involves the following elements:7
(a)A belief or expectation by [A] has been created or encouraged by words or conduct by [B];
(b)To the extent an express representation is relied upon, it is clearly and unequivocally expressed;
(c)[A] reasonably relied to its detriment on the representation; and
(d)It would be unconscionable for [B] to depart from the belief or expectation.
[41] In the present case my conclusions in relation to the defences based on the alleged variation and breach of the term loan contract mean the defence based on estoppel must also fail. If NZMS never said it would depart from the terms of the existing contractual arrangements it follows that SKKY and the defendants had no reason to believe or expect NZMS would act other than in accordance with those arrangements. There is therefore no factual basis for a defence based on estoppel.
6 Jeremy Finn, Stephen Todd and Matthew Barber, Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, Lexis Nexis, Wellington, 2018) at 17.1.6; Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [86].
7 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
Validity of default notice
[42] This proposed defence was not referred to in either the Notice of Opposition that the defendants filed in the present proceeding8 or in Mr Grove’s written submissions. Nor did SKKY advance it in the injunction proceeding. It therefore appears to be an afterthought on the defendants’ part, but I will deal with it nonetheless.
[43] Bolter issued three notices of default. The first was the notice dated 16 June 2017 that Bolter served on SKKY and the defendants on 19 June 2017, three days after Bolter took the assignment of the contractual arrangement from NZMS. This notice purported to call up the loan on the basis of two events of default under the term loan agreement. These were the termination of the construction contract and the fact that the project was allegedly 16 weeks behind schedule. Mr Grove submits on the defendants’ behalf that they are entitled to challenge both these grounds.
[44] The first purported default was based on clause 11(1)(e) of the term loan agreement, which provides for an event of default where “an event or series of events occurs which, in the reasonable opinion of the Lender, may have a material adverse effect on the Borrower or Guarantor or any of their related companies.” Mr Grove points out there is no evidence to confirm that either NZMS or Bolter reasonably believed that the termination of the construction contract may have a material adverse effect on SKKY or the defendants. The second ground was based on alleged delay in the construction timetable, but Mr Dumasia deposes that neither NZMS nor Bolter had ever brought up the issue of delay before the notice was issued. Mr Grove contends the defendants should be permitted to explore the validity of the notice at trial after they have had the benefit of discovery from NZMS and Bolter.
[45] This argument faces an insuperable hurdle because this particular notice was not issued under or for the purposes of s 119 of the Property Law Act 2007. In addition, Bolter did not rely on SKKY’s non-compliance with the notice for any of its subsequent actions. As I have already recorded, Bolter negotiated with SKKY during
8 The Notice of Opposition contained a defence based on an assertion that “the bare trustee of the security, Bolter Management Group Ltd, was not legally entitled to serve a Property Law Act Notice”. I consider this to be an assertion based on Bolter’s status as bare trustee of the security rather than an argument based on the validity of the notice itself.
June and July 2017 regarding the provision of additional loan finance. It is therefore likely that Bolter issued the notice dated 16 June 2017 purely as a precautionary measure. It follows that, even if the grounds relied upon in the notice were invalid, SKKY and the defendants suffered no loss or damage as a result.
[46] Furthermore, Bolter ultimately sold the Stanmore Bay property after SKKY failed to comply with a notice issued on 29 September 2007 under s 119 of the Property Law Act 2007. That notice required SKKY to remedy its default in failing to repay the balance owing on 23 September 2017 as required under the term loan agreement. SKKY has never challenged the validity of this notice.
[47]This proposed ground of defence fails as a result.
The “no set-off” clause
[48] The position for the defendants is complicated further by the fact that the term loan agreement and deeds of guarantee both contained a clause requiring SKKY and the defendants as guarantors to pay all sums due under the agreement in full and without any deduction or withholding by way of set-off or counterclaim.
[49]Clause 8.2 of the term loan agreement provided:
8.2 Payments to be Free and Clear
Each payment to the Lender under each Transaction Document is to be made, to the maximum extent permitted by law, free of any restriction and without any deduction or withholding in respect of any taxes, duties, set-off, counterclaim or otherwise.
(Emphasis added)
[50]Clause 6.2 of each deed of guarantee likewise provided:
6.2 Payments Without Deduction
Each payment by the Guarantor to the Lender under a Relevant Document is to be made on the due date:
(a)Free of any restriction or condition; and
(b)In full, without any deduction or withholding whatsoever (whether in respect of set-off, counterclaim, charges, taxes (of any type, present or
future) or otherwise} unless such deduction or withholding is required by law in which event the Guarantor will pay to the Lender an additional amount so that the net amount (after the deduction or withholding) actually received by the Lender on the due date equals the full amount which it would have received had no deduction or withholding been made.
(Emphasis added)
[51]In addition, each guarantee contained the following clause:
3NATURE OF GUARANTEE AND INDEMNITY OBLIGATIONS
3.1Liability as Sole Principal Debtor
As between the Guarantor and the Lender (but without affecting the obligations of the Debtor) the Guarantor is liable under this deed as a sole and principal debtor and not as a surety. The Guarantor’s liability will not be discharged or impaired by:
…
[52] On Ikon’s behalf Mr Lenihan acknowledged that the defendants remain free to bring a claim against Ikon if they see fit. He says that the effect of these three clauses, however, is to prevent them from now relying on any counterclaim or alleged set-off as a defence to the present claim.
[53] Mr Grove relied in this context on Grant v NZMC Ltd. In that case the Court of Appeal confirmed that a cross-claim may result in an application for summary judgment being declined.9 This may occur where the cross-claim “so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account”.10 He says the clauses in the present case do not prevent the defendants from resisting the application for summary judgment on the basis of their proposed cross-claims.
[54] In Grant the Court of Appeal also acknowledged, however, that a clearly worded contractual provision may extinguish the ability of a defendant to rely on a right to set-off.11 There may be a question as to whether clauses such as these can
9 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
10 At 12-13.
11 At 13, citing Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689 (HL) at 712 and 723.
completely oust the jurisdiction of the courts to hear and determine counterclaims or claims for set-off.12 Even so, I consider it now to be well established that a clearly worded contractual provision may prevent a defendant from relying upon a cross- claim to prevent a plaintiff from obtaining summary judgment.
[55] In Gielens v Broadway Developments Ltd, for example, the appellant contested the entry of summary judgment based on her liability as guarantor under a lease.13 The lease in question required the lessee to pay all rent “without deduction or set-off”. Venning J observed:
[19] Mr Twist submitted that the clause was not “express enough” to exclude set-off for misrepresentation. I disagree. The clause is quite clear. It could not be more express. Rent is to be paid without deduction or set-off. The Court of Appeal in Grant were prepared to accept that an express clause could exclude the right of claim to a set-off in relation to misrepresentation.
[20] The present clause is sufficient to exclude the right of set-off by the tenant Constant Trendz. Any claims Constant Trendz may have for breach of lease are excluded from set-off. Ms Gielens cannot take advantage of or rely on any claims the company had under the lease to resist the claim for rent.
[56] Venning J also held that the appellant could not rely on a claim to set-off to resist an application for summary judgment based on her status as guarantor. The terms of the guarantee provided that “as between the Guarantor and the Landlord the Guarantor may for all purposes be treated as the Tenant and the Landlord shall be under no obligation to take proceedings against the Tenant before taking proceedings against the Guarantor”. Venning J held that this clause meant the appellant “stood in the same position as the tenant for all purposes”.14
[57] I consider the wording of the guarantees signed by the defendants in the present case to be similarly clear. They require both SKKY and the defendants to pay the amount outstanding under the term loan agreement in full and without any deduction for any counterclaim or claim to set-off they may have against Ikon.
12 Brown’s Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425 at [17].
13 Gielens v Broadway Developments Ltd (2008) 9 NZCPR 857 (HC).
14 At [22].
Result
[58] There being no dispute as to quantum I enter summary judgment against both defendants in the sum of $1,468,933.35 inclusive of costs and interest.
Lang J
Solicitors:
Doug Cowan, Titirangi, Auckland Foy & Halse, Auckland
Counsel:
D Grove, Barrister, Auckland
4
4
1