Lombard Finance & Investments Limited v Hewitt HC Wellington CIV-2004-485-2679
[2005] NZHC 1237
•13 April 2005
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2004-485-2679
BETWEENLOMBARD FINANCE & INVESTMENTS LIMITED
Plaintiff
AND A.P. HEWITT
Defendant
Hearing: 30 March 2005 Appearances: S.M. Dawson for Plaintiff
M.C. Black for Defendant Judgment: 13 April 2005 at 4.45pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Introduction
[1] This is an application by the plaintiff for summary judgment. It is opposed by the defendant.
[2] Also before me is an application by the defendant for discovery against the plaintiff. This application is opposed by the plaintiff.
Background Facts
[3] In its summary judgment application the plaintiff seeks repayment from the defendant of a loan to Beyond the Obvious Limited (in liquidation) (“BTO”) which was guaranteed by the defendant. The defendant was a director of and 25% shareholder in BTO.
LOMBARD FINANCE & INVESTMENTS LIMITED V A.P. HEWITT HC WN CIV-2004-485-2679 13 April 2005
[4] BTO was a property development company which was placed into liquidation on 27 September 2004. It owns properties at 122, 128 and 142 Nicholson Road, Khandallah, Wellington.
[5] Originally BTO arranged mortgage finance through Lombard Mortgage and Nominee Company Limited (‘LMNC”) for the purposes of developing 122 and 128 Nicholson Road. To record this loan, on 12 December 2002 a loan agreement was entered into between LMNC and BTO, guaranteed by the defendant. This loan was due for repayment on 11 December 2003.
[6] Development of the Nicholson Road properties took place in the meantime. As the date for repayment of the LMNC loan (11 December 2003) was approaching, it seemed that BTO was unlikely to be in a position to repay the amount outstanding ($1,329,571.00) as the development remained unfinished.
[7] BTO was aware that the LMNC loan needed to be repaid on 11 December 2003. As repayment date approached, it needed to find other financiers to refinance the LMNC mortgage if the Nicholson Road developments then uncompleted, were to continue.
[8] On 13 November 2003 BTO entered into a new written term loan agreement with Newcliff Limited (“Newcliff”) to obtain loan finance. This finance was first, to clear the LMNC loan and secondly, to provide further funds to carry out work on the development.
[9] Newcliff was the trustee of a Trust known as the Lombard Mortgage Income Trust, which provided the funds for this loan advance.
[10] The Newcliff loan agreement and mortgage security taken over 122 and 128 Nicholson Road (“the Newcliff loan”) was also personally guaranteed by the defendant under a deed of guarantee and indemnity dated 13 November 2003.
[11] The terms of the Newcliff loan provided for a facility of $1,873,500.00 available to be drawn in loan advances over a period of time. These advances were
to be repaid within six months of the date of the drawdown of each individual advance. Interest was to accrue on all loan advances at 12% per annum, with a penalty interest rate of 19.5% per annum. Interest accrued on any undrawn portion of the available loan at 8% per annum as a loan holding fee.
[12] The documentation provided that Newcliff was entitled to assign its rights under the loan agreement to any person. The Newcliff loan was guaranteed by the defendant jointly and severally with David Andrew Monro (“Mr Monro”).
[13]It appears that the initial drawdown of the Newcliff loan totalling
$1,329,571.00 was utilised to repay the LMNC loan.
[14] This repayment occurred on 24 November 2003. The LMNC loan being repaid, the securities held for this loan and the guarantees given by the defendant and Mr Monro were discharged.
[15] From that time on, the loan to BTO was recorded in the Newcliff loan documents.
[16] Over the course of the next six months, BTO requested further advances under the Newcliff loan, and these were made.
[17] Six months after the date of the initial advance on 24 May 2004, BTO was due to repay the $1,329,571.00 advance under the Newcliff loan. It was unable to do so. For Newcliff to have comfort due to this default, BTO provided by way of further security a second mortgage over another property it owned at 142 Nicholson Road, Khandallah.
[18] This second mortgage, however, was unable to be registered because of prior caveats.
[19] By 23 August 2004 a range of defaults under the Newcliff loan agreements remained unremedied by BTO. Property Law Act notices were served on BTO and the guarantors, including the defendant. These required repayment of the full loans outstanding at that time, plus interest, amounts totalling $1,965,284.89.
[20] As I have noted above, soon after, on 27 September 2004 BTO was placed into liquidation by another unsecured creditor.
[21] Then, on 13 October 2004 Newcliff assigned its rights in the Newcliff loan and the defendant’s guarantee to the plaintiff.
[22] On 12 November 2004 the National Bank, the first mortgagee over 142 Nicholson Road, also assigned to the plaintiff its mortgage over that property and its loan agreements with BTO.
[23] The plaintiff was now first mortgagee over 122, 128 and 142 Nicholson Road. As such, the plaintiff pursuant to its rights as mortgagee has now entered into conditional agreements to sell each of these properties to a company known as Nicholson Road Developments Limited (“NRDL”). The shares in NRDL are owned by Mr Monro and he is sole director of this company. The sale contracts remain conditional. They are at sale prices of $600,000.00 with respect to 142 Nicholson Road, and $890,000.00 with respect to 122 and 128 Nicholson Road.
[24] The plaintiff has provided by way of evidence to the Court a valuation of 142 Nicholson Road as at 25 August 2004 of $600,000.00, and a valuation of 122 and 128 Nicholson Road as at 25 August 2004 of $850,000.00.
[25] The defendant has himself put before the Court a valuation of 142 Nicholson Road as at 19 May 2004 (upon the basis of a subdivision) totalling $833,000.00.
[26] As these sale agreements are still conditional, the plaintiff presently has not realised any of its security pursuant to the Newcliff loan. Nevertheless, it seeks summary judgment against the defendant as guarantor for the full outstanding debt, interest and costs owed pursuant to that loan.
Counsel’s Arguments and My Decision
[27] In seeking summary judgment here, the plaintiff relies upon Rule 136 High Court Rules which states:
The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim.
[28] Under Rule 136 the onus is clearly on the plaintiff to satisfy the Court that the defendant has no defence to the claim.
[29]In Pemberton v Chappell [1987] 1 NZLR, Somers J said at p3:
At the end of the day Rule 136 requires that the plaintiff ‘satisfies the Court that a defendant has no defence’. In this context the words ‘no defence’ have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence. See for example Wallingford v Mutual Society [1880] 5 App Cas 685, 693; and
Fancourt v Mercantile Credits Limited [1983] 154 CLR 87, 99; Orme v de Boyette [1981] 1 NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty.
And:
Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident – that is to say, satisfied – that the defendant’s statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Young v Letchumanan [1980] AC 331, 341 and in the judgment of Greig J in Attorney-General v Rakiura Holdings Ltd (Wellington, CP23/86, 8 April 1986).
[30] It is clear that the Court must be satisfied that there is no defence. In Towers v R & W Hellaby Limited [1987] 3 NZCLC, 100,064, Thorp J said that the crucial question under Rule 136 would generally be whether the Court is satisfied that the plaintiff’s case is unanswerable and the Court will not reach that conclusion if it can see an arguable defence – see McGechan HR136.09.
[31] It is clear also that the Court is entitled to take a robust approach to cases involving summary judgment, and to dismiss defences which do not stand up to scrutiny. As to this, in Bilbie Dymock Corporation Ltd v Patel 1 PRNZ 84 at pages 85-86 the Court said:
But the need for judicial caution has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and
realistic judicial attitude when that is called for by the particular facts of the case. In the end it can only be a matter of judgment on the particular facts.
[32] Here, counsel for the plaintiff contends that the defendant’s grounds of opposition to their application do not stand up to scrutiny. He argues that these grounds are either irrelevant to the current claim, or they are contradicted by the undisputed documents of the time.
[33] The plaintiff’s position is that this is a simple case of enforcement of a straightforward guarantee liability on a commercial loan contract given by an experienced business person freely and with legal advice.
[34]On the face of it, this argument would appear to be reasonably compelling.
[35] I turn now, however, to consider the defendant’s points in opposition, which in broad terms raise ten matters. These are:
(1)The prior loan by LMNC had conditions precedent to the making of advances under that loan which were not complied with by the lender at the time.
(2)The securities have been allowed to deteriorate.
(3)Matters of concern are raised with respect to the circumstances in which the plaintiff took further security over 142 Nicholson Road.
(4)When the plaintiff took an assignment of the National Bank’s first mortgage over 142 Nicholson Road, this raised additional matters of concern which need investigation.
(5)The properties which make up the security at 122, 128 and 142 Nicholson Road have been sold at an undervalue.
(6)There is some connection between the plaintiff and the purchaser of the security properties NRDL.
(7)The co-guarantor Mr Monro has been discharged and this affects the liability of the defendant.
(8)In taking possession of the property and otherwise the plaintiff has not complied with the requirements of the Property Law Act 1952.
(9)In any event, the defendant had a reduced role in the running and operation of BTO.
(10) There was no consideration given for the Newcliff loan or the defendant’s guarantee.
[36]I turn to consider each of these grounds of opposition in turn.
The prior loan by LMNC
[37] As to this, the defendant contends that the original loan documents and supporting guarantee with LMNC were subject to certain express conditions. These required the plaintiff to provide valuations and surveyor’s certificates to support drawdowns of the loan which were to be made in relation to progress with the development. Secondly, the defendant contends that his guarantee was provided on the basis that these terms and conditions were complied with. The defendant’s position is that these processes did not occur, and this must flavour the potential liability of the defendant under the guarantee.
[38]As I see it, this matter is quickly dealt with.
[39]The LMNC loan was repaid in full in November 2003.
[40] Therefore, consequent upon the repayment, any terms, conditions or obligations under the LMNC loan were no longer relevant. All securities and guarantees were discharged.
[41] The Newcliff loan was an entirely new loan entered into between BTO and the defendant. Any allegations by the defendant relating to the terms of the LMNC loan or its related security cannot, as I see it, support any opposition to the plaintiff’s claim here. The plaintiff was not a party to the LMNC loan documentation, and owes no obligations to the defendant relating to it.
[42] Although the conditions in the LMNC loan are not relevant to this proceeding, there were certain similar conditions precedent in the Newcliff loan.
[43] These conditions precedent also related to the obtaining of valuations and quantity surveyor certification prior to the release of advances under this loan.
[44] As a preliminary matter, in my view as those conditions were inserted clearly for the benefit of the lender, there is an argument that as such, the lender was entitled to waive the conditions.
[45] But, in any event, it would appear from material before the Court here that the quantity surveyor projections and certifications and valuations were obtained by the lender to satisfy these conditions under the Newcliff loan.
[46] Further, it is significant too that the defendant as a guarantor of the BTO debts was both a director and a 25% shareholder in that company. If there was any suggestion that these conditions precedent were not satisfied, then it would be as a result of contractual failures on the part of his own company to obtain the valuations and certificates. To endeavour to avoid liability as a guarantor on this basis would have little merit.
[47] In summary then, I find that there is nothing in this ground put forward by the defendant in opposition to the plaintiff’s application.
Have the securities been allowed to deteriorate by the plaintiff?
[48] The defendant alleges that in about April 2004 Newcliff held up advances for contractors working on the sites in question, and this caused those contractors to leave, which had the effect of causing deterioration to the sites.
[49] Although this argument appears to relate only to quantum and not to liability, in any event, it seems from the quantity surveyor certificate provided in April 2004, which is part of the evidence here, that the builder walked off the site without any explanation, and not because he was unpaid.
[50] Later, it does appear that Newcliff did withhold advances for the project, but this appears to be because the relevant quantity surveyor reports and certificates were not provided at the time.
[51] There is nothing before the Court, therefore, to substantiate the contention by the defendant that the plaintiff has allowed the securities to deteriorate. I reject this ground put forward by the defendant in its opposition.
Additional security over 142 Nicholson Road
[52] The defendant appears to question the events surrounding the taking by the plaintiff of further security for the Newcliff loan over BTO’s other property at 142 Nicholson Road. This security took the form of a second mortgage. The additional security was given because the initial drawdown of the Newcliff loan, which was due for repayment on 24 May 2004, could not be repaid on that date.
[53] As best as I can tell, the defendant’s argument here is that as BTO had provided further security, it should have been entitled to further finance upon the basis of that additional security. There is no evidence before the Court that this was in any way agreed. The further security appears to have been provided simply because BTO was in default at that point.
[54] Further, the additional security provided, in any event, would potentially limit the ultimate exposure of the defendant as guarantor under the loan to the plaintiff. I agree with the plaintiff that it is questionable why the defendant should now wish to raise any challenge to this further security.
[55]There is nothing in this further point of opposition raised by the defendant.
The plaintiff’s acquisition by assignment of the first mortgage over 142 Nicholson Road
[56] The plaintiff became first mortgagee over 142 Nicholson Road when it took an assignment of the National Bank first mortgage, and its loans to BTO.
[57] The assignment documentation appears to have been properly completed, and notice of the assignment was served on the liquidators of BTO, which has been acknowledged.
[58] As first mortgagee of 142 Nicholson Road, the plaintiff is entitled to arrange a mortgagee sale of the property, as the mortgage was clearly in default.
[59] Although a conditional agreement has been entered into for the sale of this property, it has not as yet been completed. Any question of the handing of any funds to a second mortgagee or registered proprietor from the sale must await a settlement of that transaction.
[60] As the plaintiff is legitimately in the position of first mortgagee over 142 Nicholson Road, upon the basis of the material before the Court, I fail to see any valid points of objection on the part of the defendant to the actions of the plaintiff here.
[61] I find, therefore, that there is no substance in this ground for the defendant’s opposition.
Has the plaintiff sold the properties at 122, 128 and 42 Nicholson Road at undervalue?
[62] The defendant has alleged that these properties have been sold at an undervalue.
[63] What is clear at present is that the sale contracts entered into by the plaintiff for these properties are not as yet unconditional or settled.
[64] Further, as I have noted at paragraph [24] above, a valuation of 142 Nicholson Road as at 25 August 2004 has been provided at $600,000.00 to justify the sale price of $600,000.00 obtained for that property. A further valuation of
$850,000.00 has been provided for 122 and 128 Nicholson Road, which is below the
$890,000.00 sale price achieved for these properties under the existing conditional sale agreement.
[65] The defendant’s suggestion of a sale undervalue seems to be based upon a valuation that he has provided for 142 Nicholson Road. This suggests a sale price value of $833,000.00. It seems, however, that this valuation is on a completed development basis, and includes the proposed subdividing of the property which once completed would provide an increase in the value.
[66] Counsel for the plaintiff makes the point that this subdivision has not been completed. A considerable amount of work would be required before this might occur if at all, and before any additional value was ever to be realised.
[67] The plaintiff notes first, that its valuations provided were completed independently, and secondly that they were prepared on the basis of the actual value of the properties at the time.
[68] I accept these arguments. There is nothing before the Court to support the defendant’s contention that the existing conditional sale agreements for 122, 128 and 142 Nicholson Road are at an undervalue.
Is there some connection between the plaintiff and the purchaser of the security properties NRDL?
[69] It seems that the defendant has made a suggestion first, that NRDL has been set up as a nominee or is somehow related to the plaintiff, and secondly, linked to this, that NRDL’s proposed purchase of the properties is at an undervalue.
[70]There is no evidence before the Court to support these allegations.
[71] From company searches which have been provided, it appears that the companies are in no way related.
[72] It is also significant, as I see it, that the conditional sale agreements and valuations supporting those agreements have been considered by the liquidator of BTO, and the liquidator has raised no issue in relation to the respective agreements or the sale prices.
[73] I find, therefore, that there is nothing in this ground of opposition put forward by the defendant.
Has the co-guarantor Mr Monro been discharged and does this affect the defendant’s liability?
[74] A further claim from the defendant appears to be that, as Mr Monro has not been named as a defendant in these proceedings, the plaintiff has made some arrangement with him which may release him from liability as a co-guarantor.
[75] The plaintiff contends that this is not the case and that no agreement has been entered into with Mr Monro in relation to his debt.
[76] Counsel for the plaintiff submitted that the plaintiff considers Mr Monro remains liable for the full amount of the guaranteed debt, and that although Mr Monro is a director of NRDL, the proposed purchaser of the Nicholson Road properties, this does not in any way release him as a guarantor of the Newcliff loan.
[77] It is clear that the defendant and Mr Monro are jointly and severally liable as guarantors of the BTO loan, and the plaintiff is entitled to proceed against the defendant solely in this proceeding, as it has done here.
[78] At a later time there may be issues as to contribution between the co- guarantors, but that remains a matter between the defendant and Mr Monro.
[79]I reject this ground in opposition raised by the defendant.
In taking possession of the property, has the plaintiff complied with the Property Law Act 1952 requirements?
[80] The defendant appears also to claim that he has not been served with the requisite notices as guarantor pursuant to the Property Law Act.
[81] This is strongly disputed by the plaintiff, which points to evidence before the Court confirming that the defendant was served personally with the required notices in relation to 122 and 128 Nicholson Road. It seems, also, that the liquidator of BTO was served with Property Law Act notices relating to 142 Nicholson Road as was required, but there was no requirement to serve the defendant with any notices in relation to this property, as he had not guaranteed the National Bank loan that was assigned to the plaintiff.
[82] Again, as I see it, there is no evidence before this Court suggesting that the plaintiff did not in any way comply with its obligations as mortgagee under Part VIIA Property Law Act 1952 or otherwise. There is nothing in this ground of opposition put forward by the defendant and I reject it.
The defendant’s role in running BTO
[83] The defendant at paragraph 28 of his affidavit claims that he had a reduced role in the running of BTO and this should somehow affect his liability as a guarantor.
[84]This is disputed by the plaintiff.
[85] The defendant was a director of BTO and from the evidence before this Court, it is clear that he was at least involved in signing a range of documents as director, including the initial Newcliff loan documentation, a director’s resolution from June 2004, as well as the mortgage over 142 Nicholson Road.
[86] It is also apparent from a Network Plumbing Limited subcontractor’s invoice to BTO dated 11 June 2004 (exhibited to the second affidavit of Mr Thorpe for the plaintiff) that despite suggestions to the contrary, the defendant was to an extent involved with subcontractors during the development.
[87] I find, therefore, that there is little before the Court to establish that the defendant had any significantly reduced role in the running of BTO. Further, and in any event, the defendant throughout remained a director of BTO with concomitant obligations as such. His liability under the guarantee, as I see it, is unaffected by the contentions he puts forward in this area.
Was there consideration for the guarantee?
[88] Before me, counsel for the defendant finally endeavoured to argue that the true basis of the lending carried out by Newcliff here was unenforceable for want of consideration. The defendant suggests that Newcliff in fact initially advanced monies under its loan direct to LMNC and not to BTO, and therefore there is no consideration for the loan to BTO and the defendant’s guarantee. In this regard, he referred me to the authorities of Sims v Lowe [1988] 1 NZLR 656 (CA) and Wadsworth Norton Solicitors Nominee Company Ltd v Edmonds [1992] 1 NZLR 596.
[89] As to these aspects, the evidence before the Court contained in the second affidavit of Mr Thorpe dated 18 March 2005 on behalf of the plaintiff (paragraph 7) is:
The LMNC loan was repaid in full by BTO from proceeds from the Newcliff loan, at BTO’s direction.
(emphasis added)
[90] And in the affidavit of Mr Beddie dated 18 March 2005 in support of the summary judgment application, he deposes at paragraph 5:
The LMNC loan was repaid in full on 24 November 2003. I understand the funds for the repayment of this loan were provided by a secured loan taken out by BTO with the Lombard Mortgage Income Trust which has as its trustee Newcliff Limited.
(emphasis added)
[91] I reject the suggestion, therefore, by counsel for the defendant that there was no consideration for the Newcliff loan, and that this tainted the defendant’s guarantee. There is nothing in this ground of opposition as well.
Conclusion
[92] I noted at paragraph [31] above that when considering summary judgment applications, the Court is entitled to take a robust approach and to dismiss defences which do not stand up to scrutiny. I am satisfied that the defences put forward by the defendant here fall into this category.
[93] In considering all the circumstances here, I find that the plaintiff has met the onus upon it to establish that the defendant has no defence in terms of the test outlined in Pemberton v Chappell.
[94]This summary judgment application therefore succeeds.
[95] That said, strictly speaking it is unnecessary, therefore, for me to consider the defendant’s discovery application.
[96] While in principle the Court has power to order discovery in a summary judgment application, the authorities establish that it is only to do so in exceptional circumstances when the documentation in question is necessary – NZI Bank Ltd v Philpott (1988) 1 PRNZ 560 and Merit Finance and Investments Group Limited (in liquidation) v Anderson (1993) 6 PRNZ 620.
[97] Here I am satisfied that given the absence of any substance in the defences put forward by the defendant, discovery is not necessary, and that there are no exceptional circumstances here which would warrant any other conclusion.
[98] As far as it is necessary to decide this issue, the defendant’s discovery application therefore fails.
[99] Returning to the plaintiff’s application, summary judgment is granted against the defendant as to liability with respect to the plaintiff’s claim set out in its Statement of Claim.
[100] As far as quantum is concerned, the amount owing under the defendant’s guarantee for which summary judgment has been granted is still to be finally determined.
[101] A direction is now made that the plaintiff within 15 working days of the date of this judgment is to file and serve an appropriate memorandum setting out the calculation of this amount.
[102] The defendant is to have a further 10 working days from receipt of the plaintiff’s memorandum to file and serve his memorandum as to quantum.
[103] I will then decide the issue of quantum upon the basis of the memoranda filed, unless either party gives notice that it wishes to be heard as to that issue.
Costs
[104] The plaintiff has been successful with this summary judgment application and is entitled to an order for costs. Costs are awarded against the defendant upon a category 2B basis, together with disbursements as fixed by the Registrar.
Associate Judge D.I. Gendall
Delivered at 4.45pm on 13 April 2005.
Solicitors:
Gibson Sheat, Wellington for PlaintiffThe Auckland Harbour Law Office, Auckland for Defendant
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