Labrador Holdings Limited v Dorchester Finance (Bop) Limited

[2009] NZCA 131

IN THE COURT OF APPEAL OF NEW ZEALAND

CA540/08
[2009] NZCA 131

BETWEENLABRADOR HOLDINGS LIMITED

First Appellant

ANDERYN LLOYD MOORE

Second Appellant

ANDSTEPHEN JAMES BRENNAN

Third Appellant

ANDMALLARD TRUSTEES LIMITED

Fourth Appellant

ANDAWATERE TRUSTEES LIMITED

Fifth Appellant

ANDDORCHESTER FINANCE (BOP) LIMITED

Respondent

Hearing:24 March 2009

Court:Chambers, Randerson and Potter JJ

Counsel:J O Upton QC & P J Reardon for Appellants

Z G Kennedy & S K Hindle for Respondent

Judgment:8 April 2009 at 3 pm

JUDGMENT OF THE COURT

A        The appeal against the grant of summary judgment is dismissed.

BThe appellants must pay the reasonable solicitor and client costs of the respondent as agreed or, if there is no agreement, as taxed by the Registrar of the High Court at Auckland.

CThe High Court is to determine the final amount for which judgment is to be entered in the High Court.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Introduction

[1]       The respondent (“Dorchester”) obtained summary judgment in the High Court against the appellants for $999,531.84 together with interest and costs.  The judgment was obtained following failed attempts to extend existing loan facilities provided by Dorchester to Labrador Holdings Limited (“Labrador”).  The second, third, fourth and fifth appellants guaranteed Labrador’s obligations to Dorchester under the existing loan facilities.  There is no dispute that they are responsible under their guarantees for any liability established against Labrador.

[2]       The total sum of $999,531.84 comprised:

Balance due under first loan agreement (including costs and legal fees to 25 February 2009)	$907,811.07
Legal fees – Brown & Sargent (from 25 February 2008 to 7 March 2008)	$10,954.63
Interest (20.25% per annum from 23 February 2008 to 7 March 2008 on the amount outstanding under the first loan agreement)	$25,766.14
Extension fee – second offer of finance and second loan agreement	$55,000.00
Total	$999,531.84

[3]       The appellants accept liability for the amounts claimed under the first loan agreement and for interest.  However, they dispute liability for the legal fees of $10,954.63 and the extension fee of $55,000.

[4]       The contractual arrangements relied upon by Dorchester were set out in a letter of offer dated 17 October 2007 and a finance facility (described here as “the rollover agreement”) executed by the appellants on 7 November 2007.  Dorchester contends that the offer to extend the existing loan was dependent upon completion of settlement of the transaction within the “availability period” defined in the contractual documents.  Dorchester says it extended the availability period on several occasions but by 22 November 2007, its patience was exhausted.  On that day, Dorchester says it advised Labrador that the availability period would only be extended if Labrador complied with an additional condition by a stipulated date.

[5]       On or about 26 November 2007, Labrador advised that it could not meet the condition and the transaction effectively terminated.  Dorchester then issued proceedings to recover the existing loan, interest and costs.  In addition, it claimed the disputed legal fees and extension fees contending that the contractual documents obliged the appellants to meet them irrespective of whether the transaction proceeded.

The judgment in the High Court

[6]       Associate Judge Doogue granted summary judgment in a reserved decision delivered on 7 August 2008.  The Judge recorded that there was no dispute that the letter of offer and the rollover agreement were both binding on the parties.  It appears that the appellants resisted summary judgment on the basis that Dorchester had breached the agreements by purporting to add the condition on 22 November 2007.  In consequence of that breach, Labrador maintained it had incurred losses through Dorchester’s breach which it was entitled to set off against the amounts claimed.

[7]       The Judge found it was reasonably arguable that Dorchester was in breach of the letter of offer and rollover agreement.  He did so on the footing that the availability period described in the rollover agreement had already expired a week before the rollover agreement was executed on 7 November 2007.  While acknowledging the point had not been argued before him, the Judge considered it might be possible to imply a term that the availability period should be extended for a period of one month from the date the appellants executed the loan documents i.e. until 7 December 2007.  On that basis, the Judge considered it was reasonably arguable that Dorchester was not entitled to withdraw the loan facilities prior to that date.

[8]       The Judge went on to find that the obligation to pay the disputed fees was an independent obligation in terms of the contractual documents and was payable notwithstanding any possible breach by Dorchester.  The Judge also found there was no basis upon which the appellants could claim a set-off against Dorchester.  This last point was not challenged before us and we were told there are separate proceedings pending by the appellants against Dorchester in the High Court in which damages are claimed.

[9]       In the meantime, we were told that the appellants have paid the amount of the judgment pending appeal.

The appellants’ arguments on appeal

[10]     Mr Upton QC presented the argument on behalf of the appellants.  He did not appear as counsel in the High Court.  Mr Upton was critical of the Judge introducing the implied term argument when the matter had neither been pleaded nor mentioned in argument in the High Court.  He submitted that summary judgment should have been refused.

[11]     In addition, Mr Upton raised a number of alternative arguments at least some of which do not appear to have been argued in the High Court.  And, as Mr Zane Kennedy for Dorchester pointed out, some of the submissions made before us were contrary to concessions made in the High Court.  In particular, Mr Kennedy pointed to the acceptance by the appellants in the High Court that the rollover agreement was binding on the parties.

[12]     The alternative arguments raised by Mr Upton can be summarised as follows:

a)There was no concluded agreement by Dorchester to provide loan finance because there was no evidence that the Dorchester directors had ever consented to the transaction as required by the letter of offer or because there was no consideration for the rollover agreement since the availability period had expired prior to the execution of that agreement by the appellants.

b)Alternatively, if the rollover agreement was enforceable, Dorchester was in breach in unilaterally purporting to impose a further term.

c)If Dorchester were in breach, it could not insist on payment of the disputed fees.  This was so whether the appellants’ principal arguments were accepted or if this Court accepted it was open for the Judge to find the implied term.

Issues

[13]     Arising from this background we define the issues as follows:

a)Was there a concluded and enforceable agreement to provide loan finance?

b)Was the availability period capable of being extended and, if so, was it extended and on what terms?

c)Is it arguable that Dorchester was in breach of any contractual obligation?

d)If so, is recovery of the disputed fees arguably precluded by the terms of the contractual arrangements?

Factual background

[14]     The evidence for Dorchester in the High Court comprised affidavits from Dorchester’s General Manager Mr L Neilson, Dorchester’s lawyer Mr P W Sargent and another Dorchester officer, Mr G J Pearce.  The principal evidence for the appellants comprised affidavits from Mr S J Brennan.  Three further affidavits on behalf of the appellants were admitted on appeal without opposition by Dorchester.  These included an affidavit from Mr R M Kennedy, the lawyer who represented the appellants in connection with the disputed transactions.

[15]     Dorchester had provided finance both to Labrador and a related company Bethco Limited.  The advances were substantial.  Dorchester loaned $1.65 million to Labrador and two separate sums to Bethco of $5.7 million and $2.5 million respectively.  The Labrador advance was due for repayment on 30 September 2007.  The Bethco loans fell due shortly afterwards on 10 October 2007. 

[16]     In October 2007 Dorchester and Bethco sought an extension of their loans.  By separate letters of offer dated 17 October 2007, Dorchester offered to extend the existing loans until 1 February 2008 upon terms including the capitalisation of accrued interest and new rates of interest at levels higher than those applicable to the existing loans.  For present purposes, the relevant terms of the offer to Dorchester for a total advance of $1.838 million were:

a)The loan could be drawn down at any time after the availability date which was specified to be 1 October 2007.  However this was subject to the satisfaction of certain conditions precedent described in clause 4, further conditions specified in an appendix, and compliance with any other terms of the offer.

b)If the loan was not drawn down within 10 days of the availability date, Dorchester reserved the right to cancel the obligation to make the loan.

c)By clause 6 the offer was expressed to be conditional upon the consent of Dorchester’s directors:

6.     Directors Approval

This offer is entirely conditional upon the consent of our Directors.  Any further conditions required by the Directors shall be advised to you in writing for your acceptance.  In the event that the Directors withhold their consent then this offer shall be void, the establishment fee if paid refunded, and all matters deemed to be at an end without obligation on us.

d)The fees payable by Labrador included an extension fee of $55,000.  By clause 4 of the acceptance conditions of the offer, Labrador undertook:

...to pay the establishment fee (or any part thereof remaining outstanding), together with your Solicitor’s fees, whether or not the loan proceeds for whatever reason.

e)Clause 2.4 of the general terms and conditions of the offer provided:

All costs of the transaction including preparation, registration and stamp duty and the legal costs incurred by Dorchester relating to Investor funding of this transaction are your responsibility and are to be paid in full at or prior to drawdown of the loan.  In the event that the loan does not proceed for any reason, all fees, legal costs (including our Solicitor’s fees) and disbursements shall remain your responsibility and are to be paid immediately.

f)A special condition of the loan offer was:

Acceptance of this Loan for $1,838,000 to Labrador Holdings Ltd is conditional on the contemporaneous acceptance of the Loans (x2) to Bethco for $5,735,000 and $2,536,000 and vice versa.

[17]     Labrador and Bethco accepted the loan offers almost immediately and negotiations began between the lawyers to settle the terms of the rollover agreements for all three loans.  Draft documentation was provided by Dorchester’s lawyers.  On 30 October 2007 Labrador’s lawyers asked whether anything further was required with regard to two conditions described in the draft rollover agreements.  These related to satisfaction of the special and general conditions in the letters of offer and “confirmation of the Lender’s directors’ consent to the Facility...”.  The response the same day from Dorchester’s lawyers was that the general and special conditions were those set out in the letters of offer but in relation to the issue of the consent of Dorchester’s directors the response stated:  “nothing further required”. 

[18]     On 31 October 2007 Labrador’s lawyers drew attention to the fact that the availability period had already passed.  Dorchester’s lawyers responded the same day stating:

Dorchester is now targeting settlement by Monday 5 November 2007 at the latest and has confirmed that the Availability Period can be extended to that date provided that all requirements have been satisfied by that date.  As the Availability Period is defined as “30 October 2007 or such later date as the Lender may agree” no further changes are required.

[19]     This was a reference to the definition of “Availability Period” in clause 1.1 of the rollover agreement which, when executed, stated:

“Availability Period” means the period starting on the Availability Date [which was defined as meaning 1 October 2007] and ending on 30 October 2007 or such later date as the Lender agrees in writing.

[20]     On 1 November 2007 Dorchester’s lawyers advised Labrador’s lawyer that the matter “must be finalised by close of business 5 November 2007 at the latest”.

[21]     A series of email exchanges then followed between the lawyers for the parties in which Dorchester continued to stress the urgent need to obtain execution of the rollover agreements given that the existing loans had all expired. All parties were proceeding on the understanding that all loans would be settled simultaneously.  Labrador’s lawyers promised to do their best to obtain execution of the documents but on 2 November 2007 advised that a realistic timeframe would be 9 November 2007.  There were other difficulties in this period in relation to obtaining the consent of a caveator to the registration of securities in connection with the Bethco loans.

[22]     The appellants executed the rollover agreement on 7 November 2007 and the documents were received by Labrador’s advisers soon after.  By 20 November 2007, the transaction had still not been settled.  The caveator’s consent was still required and Dorchester was seeking advice of the estimated timeframe for the issue of titles for a subdivision Bethco was undertaking.

[23]     By an email sent at 9.49 am on Thursday 22 November 2007, Mr Sargent asked Mr R M Kennedy for his advice about the caveator consent issue and informed him that Dorchester wanted to settle that day.  At 2.38 pm on the same day, Mr Neilson advised Mr Moore and Mr Brennan (the second and third appellants) that:

Subject:  Bethco Ltd-Offers of Finance x2

Given the significant delays in settleing (sic) these Rollovers, (Offers Dated 17/10/07), and the well over due “Availability Date” Dorchester is now invoking Clause 6 “Directors Approval” clause, by way of advising & requiring an additional Condition, namely:

“The issue of new Titles for the Bethlehem development, by LINZ, is required by 7/12/07.  Non-satisfaction of this requirement to constitute a default, under the facilities, at Dorchesters discretion.”

[24]     Later the same day at 4:37 pm Mr Sargent advised Mr R M Kennedy by email:

Subject: Bethco – Labrador

Roger

I have been advised by Dorchester that given ongoing delays Dorchester’s directors have required a further condition to extension of the Bethco and Labrador loan facilities, namely:

The issue by LINZ of new certificates of title for the sub division of the Bethlehem development is required by 7 December 2007.

Failure to comply with this condition will, at Dorchester’s discretion, be deemed to constitute an Event of Default/Enforcement Event under the loan facilities.

Dorchester has advised your client direct of this requirement.

[25]     In a further email sent to Messrs Brennan & Moore at 3.38 am on Friday 23 November 2007, Mr Neilson repeated the message he had sent at 2.38 pm the previous day.  It is not clear why this was sent and the timing in the early hours of the morning suggests there may have been some form of error.

[26]     On Friday 23 November 2007 at 12.35 pm Mr Neilson sent an email to Messrs Brennan and Moore advising amongst other things:

3.   Labrador & Bethco.

Our telephone discussion this morn refers.  In Summary:

We require a yes/no decision on the additional Title issuance clause by 3.00pm today from you.  In the event that I don’t hear from you or that the decision is a NO, then PLNs will be promptly issued on all parties and the unsettled offers will be withdrawn.

[27]     On Monday 26 November 2007 Mr R M Kennedy sent an email to Mr Sargent which commenced:

We acknowledge your client’s withdrawal and consequential termination of the unsettled offers.

[28]     The email went on to express concern at this development and explained the reasons for the delay.  It was apparent that Labrador and Bethco wished to proceed with the transaction and it was said that a proposal concerning the Bethco subdivision would be sent to Dorchester.  In the event, no accommodation was reached between the parties and Dorchester proceeded with enforcement action including the issue of notices under s 92 Property Law Act 1952.

The terms of the rollover agreement

[29]     We have already mentioned the definitions of the terms “Availability Date” and “Availability Period”.  Clause 2.3 of the rollover agreement relevantly provided:

The Lender will advance the Loan to the Borrower in one amount on any Business Day during the Availability Period if:

Conditions Precedent

(a)(i)    the Lender has received and found satisfactory not later than the last day of the Availability Period:

(A)this agreement, duly executed;

(B)a certificate of a director of the Borrower and each company Guarantor attaching the documents referred to in that certificate;

(C)a trustee certificate from each trustee Guarantor;

(D)confirmation of insurance for the Borrower and all property subject to the Securities; and

(E)satisfaction of all general conditions and special conditions specified in the letter of offer;

(F)confirmation of the Lender’s directors’ consent to the Facility; and

(ii)     The Lender has received and found satisfactory on or before the Date of Advance:

(A)payment of the Lender’s reasonable solicitors costs and estimated disbursements (including GST) to be deducted from the proceeds of the Loan on drawdown; and

(B)payment of the Lender’s extension fee of $55,000 to be deducted from the proceeds of the Loan on drawndown;

No Enforcement Event

(b)no Enforcement Event has occurred;

...

failing which the Lender may:

(e)discontinue drawdown of the Loan and, at its discretion, cancel the Facility; or

(f)     draw down the Loan but withhold its disbursement and place the Loan to the credit of a blocked interest bearing call deposit account in the name of the Lender until the conditions set out above have been satisfied.

[30]     Principal reliance is placed by Dorchester on clause 2.4 of the rollover agreement:

If drawdown of the Loan does not proceed for any reason the Borrower shall remain liable to pay on demand all fees, expenses and costs payable by the Borrower to the Lender under this agreement, including, without limitation, the Extension Fee and the Lender’s legal costs.

[31]     Clause 3.5 provides that the borrower must pay to the lender an extension fee of $55,000 to be deducted from the proceeds of the loan on drawdown.  Clause 3.6 re-emphasises clause 2.4 by providing:

No fee payable by the Borrower will be refundable in any circumstance.

First issue - Was there a concluded and enforceable agreement to provide loan finance?

[32]     Under this heading, Mr Upton submitted there was no evidence that the directors of Dorchester had consented to the transaction in terms of clause 6 of the letters of offer.  We do not accept that submission.  It is plain from the exchange of communications between the respective lawyers on 30 October 2007 that there was no longer any issue regarding the consent of the directors of Dorchester.  Had there been any issue in that respect, we would have expected it to have been raised subsequently when the loan documentation was prepared and sent to Labrador’s solicitors.  No reference was made to the absence of the consent of the directors in any of the subsequent dealings between the parties.  Nor was the point raised in the High Court.  We are satisfied that the consent of the directors of Dorchester was given not later than 30 October 2007.

[33]     Mr Upton also submitted there was no consideration for any promise to pay the establishment fee and other expenses because the availability period for drawing down the loan had expired before the date of the letter of offer and before the execution of the rollover agreement.  We will canvass this issue in further detail below but suffice to say at this point that we do not accept that the availability period (as distinct from the availability date) had expired prior to the date the rollover agreement was executed on 7 November 2007.  We have concluded that, in fact, the availability period was extended on a number of occasions at least until 22 November 2007.

[34]     Mr Upton submitted that the consideration was illusory since the ability to extend the availability period was at Dorchester’s sole discretion.  We are not persuaded by this submission.  The existing loans were all overdue.  Dorchester promised to extend the terms of the existing loan on terms accepted by the appellants.  One of those terms was that the loan should be drawn down by a stipulated date or as extended by Dorchester.  That term was accepted by the appellants when they executed the rollover agreement.  They also accepted that, in the event of the loan not proceeding for any reason, they would be liable for the extension fee and the legal costs involved. 

[35]     The fact that Dorchester might not be prepared to extend the availability period indefinitely does not mean there was no consideration.  Apart from the exchange of promises between the parties, Dorchester was forbearing to exercise its undoubted right to enforce the existing loans which, by then, were well overdue for payment.  We are satisfied there was consideration for the rollover agreement. 

[36]     Finally under this heading, Mr Upton submitted there was no enforceable agreement because the rollover agreement had never been executed by Dorchester.  While we accept that the rollover agreement provided for execution by Dorchester, we are not persuaded that the failure by Dorchester to execute the agreement means there is no enforceable agreement.  The relevant documents were prepared by Dorchester’s solicitors on terms satisfactory to Dorchester and sent to Labrador’s solicitors for execution.  They were duly executed by the appellants and returned to Dorchester’s lawyers.  At that point, the new contract between Dorchester and the appellants was made.  There is nothing in the documents themselves or in any of the surrounding correspondence or circumstances to suggest that the parties contemplated there would be no enforceable agreement unless and until the documents were executed by Dorchester.

[37]     In any event, we accept Mr Zane Kennedy’s submission on behalf of Dorchester that, even if there were no concluded rollover agreement, the appellants would be responsible for the payment of the disputed fees under clause 4 of the conditions of acceptance of the letter of offer and clause 2.4 of the general terms and conditions of that offer.

Second issue - Was the availability period capable of being extended and if so was it extended and on what terms?

[38] As we have already noted, Dorchester was entitled to extend the availability period for the drawdown of the loan at its discretion. On the evidence, that period was extended first to 30 October 2007 and then to 5 November 2007. Thereafter, there were continuing delays in obtaining execution of the documents by the appellants and continued insistence by Dorchester’s lawyers that settlement take place urgently. We are satisfied from a review of all the communications between the lawyers for the respective parties that Dorchester continued to acquiesce in the delayed settlement and implicitly extended the availability period until 22 November 2007. It was fully entitled to do so in terms of the rollover agreement. On that date, Mr Neilson sought to impose a further condition that new titles for Bethco’s subdivision at Bethlehem be available by 7 December 2007. That requirement was clarified later the same day by Mr Sargent in the terms described at [24] above. Effectively, the new term was being required as a condition to extension of the Availability Period for the Bethco and Labrador loan facilities.

[39]     Mr Zane Kennedy accepted that Dorchester could not impose a further condition as part of the directors’ approval clause in the letter of offer because that approval had already been given.  But we see little reason to doubt that Dorchester was entitled to impose the condition as a term of its agreement to extend the availability period as clarified later that day by Mr Sargent.  Mr Sargent’s clarification of the basis upon which the further condition was imposed was sent only a few hours after Mr Neilson’s email imposing the same condition.  We consider that should be taken to be the definitive expression of the basis upon which the additional condition was sought.

[40]     It is common ground that the appellants were unable to comply with the condition and that any obligation by Dorchester to conclude the rollover agreement had ended by 26 November 2007 when the appellants accepted they could not satisfy the condition imposed by Dorchester by 7 December 2007.

[41]     Given the express terms of the rollover agreement with regard to the extension of the Availability Period, there was no room for the imposition of the implied term the Judge thought might be available.  However, as Mr Zane Kennedy pointed out, the Judge’s finding in that respect was favourable to the appellants.  In those circumstances, it is somewhat ironic that the appellants should be critical of the Judge’s approach. 

Third issue - Is it arguable that Dorchester was in breach of any contractual obligation?

[42]     Mr Zane Kennedy was inclined to accept for the purposes of the appeal that Dorchester was arguably in breach of the rollover agreement.  Although he did not seek by memorandum under r 33 of the Court of Appeal (Civil) Rules 2005 to support the decision on another ground, we do not consider this precludes us from reviewing the overall reasoning of the Judge given this Court’s wide powers under r 48. 

[43]     We consider Mr Zane Kennedy’s concession to be generous to the appellants.  For the reasons we have already given, we consider there is little doubt that Dorchester was entitled to impose the condition in terms of Mr Sargent’s email of 22 November 2007 when agreeing to further extend the availability period and to terminate the agreement when it was clear the appellants could not meet the condition.  Mr Upton’s submission that Dorchester had repudiated the agreement could not succeed since, on this basis, Dorchester was no longer obliged to make the loan as the Availability Period had expired. 

[44]     However, because this issue may have implications for the further proceeding yet to be determined between the parties, we do not reach a final view on this point.

Fourth issue - If so, is recovery of the disputed fees arguably precluded by the terms of the contractual arrangements?

[45]     Even if there were a breach by Dorchester of the rollover agreement, we accept Mr Zane Kennedy’s submission that the terms of the letter of offer and the rollover agreement preclude acceptance of Mr Upton’s submission that they should be read as preventing recovery of the disputed fees where the lender is in breach of the rollover agreement.  In that respect, Mr Upton submitted that clause 2.4 of the rollover agreement should be read as if the fees would only be refundable if the loan did not proceed for “any reason outside the control of the lender”. 

[46]     The terms of the letter of offer already discussed make it clear that the disputed fees are payable if the loan “does not proceed for any reason”. This was stated even more emphatically in clause 3.6 of the rollover agreement as noted at [31] above. Given the express terms of the letter of offer and the rollover agreement, there can be no room for an implied term of the kind suggested.

[47]     There is obvious commercial justification for the imposition of such a term.  The payment of the relevant fees does not constitute a windfall for Dorchester because, from the time of acceptance of the loan offer, Dorchester was obliged to arrange the funding necessary for the extension of the facility.  In doing so, Dorchester incurred costs for which it was entitled to be reimbursed in the event of the transaction not proceeding.  The only circumstances in which the fees are refundable is in the event of the directors of Dorchester withholding their consent (see clause 6 of the Letter of Offer).  Given our finding that the consent of the Dorchester directors was given, the refund provision does not apply.

Conclusions

[48]     We conclude for the reasons given that the Associate Judge was correct to enter summary judgment.  There was no defence to Dorchester’s claim.  There is no dispute as to the amount of the extension fee of $55,000 and we are satisfied that the legal fees of $10,954.63 are properly proved.

[49]     The appeal is dismissed.

[50]     The respondent is entitled to recover from the appellants the reasonable solicitor and client costs of appeal under clause 14.1 of the rollover agreement.  The amount of the costs is to be agreed by the parties but, in the absence of agreement, is to be fixed upon by a taxation by the Registrar of the High Court. 

[51]     The High Court is to determine the final amount for which judgment is to be entered in the High Court.

Postscript

[52]     We add that the notice of opposition filed by the appellants in the High Court did not comply with the High Court Rules because it did not particularise the grounds of defence.  The failure to do so meant that the issues lacked the definition they should have had in the High Court.  It is incumbent on parties seeking to resist summary judgment to give particulars of the defence sufficient to clearly inform the Court and the opposite party of the defence or defences to be raised.  Although on this occasion we have been prepared to extend some latitude to the appellants, it should not be assumed that this Court will lightly permit fresh evidence and the taking of new points in summary judgment cases.  The jurisdiction to grant or refuse summary judgment must generally proceed on the basis of the case as presented in the lower Court.

Solicitors

Cooper Rapley, Palmerston North for Appellants
Minter Ellison Rudd Watts, Auckland for Respondent