Manukamed Investors v Salem Honey Limited Partnership HC Masterton CIV-2010-435-241
[2011] NZHC 1057
•23 August 2011
IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY
CIV-2010-435-241
BETWEEN MANUKAMED INVESTORS Plaintiff
ANDSALEM HONEY LIMITED PARTNERSHIP
First Defendant
ANDDENIS ERIC WATSON Second Defendant
Hearing: 26 May 2011 (and memoranda filed 9, 16 and 21 June 2011) (Heard at Wellington)
Counsel: A Johnson for plaintiff
K Sullivan for defendant
Judgment: 23 August 2011 at 4:00 PM
JUDGMENT OF ASSOCIATE JUDGE D. I .GENDALL
Thisjudgment was delivered by Associate Judge Gendall on 23 August 2011 at 4.00 pm under r 11.5 of the High Court Rules.
Solicitors: Martelli McKegg, Solicitors, PO Box 5745, Wellesley Street, Auckland
Wilson & Co, Solicitors, PO Box 208, Wellington
MANUKAMED INVESTORS V SALEM HONEY LIMITED PARTNERSHIP HC MAS CIV-2010-435-241 23
August 2011
Introduction
[1] The plaintiff, Manukamed Investors, an unincorporated joint venture, applies for summary judgment for part of a debt, being $150,000.00, said to be owing to it by the defendants, under a signed loan agreement dated about 5 September 2009 (the Loan Agreement). Interest and costs are also sought against the first defendant, Salem Honey Limited Partnership (Salem Honey) as borrower under the Loan Agreement, and the second defendant, Denis Eric Watson (Mr Watson) as guarantor under the Loan Agreement. The defendants oppose the application.
[2] Before I turn to consider the summary judgment application, I first say something as to how these proceedings have progressed. The plaintiff ‟s application was set down to be heard before me on 26 May 2011. Half a day only was allocated for that hearing at counsel‟s request, and the hearing commenced at 10.00 am. Just prior to conclusion of the hearing, which was extended to 1.30pm, I was advised that the matter would not be completed within that extended time. After discussions with counsel, it was agreed that the hearing of the application should be concluded by way of final submissions filed by each party by memoranda. I have since received those final written submissions from the defendants, dated 9 June 2011, a memorandum in reply to those submissions from the plaintiff dated 16 June 2011, and a further memorandum in reply dated 21 June 2011 from the defendants. I thank counsel for those memoranda, which I have considered, along with the earlier submissions made to me.
[3] I also note that at the hearing before me both parties sought leave to adduce further affidavits. Such a course is usually not to be encouraged, and it will generally be in the interests of justice for parties to present all their material and relevant facts in affidavits filed in good time. However, in the present case as I see it, no prejudice is caused to the other sides respectively in granting the leave which has been sought. As I indicated in a Minute I issued on 26 May 2011, I am to consider this application on the basis of all the material before the Court. I therefore
have regard to:
the memoranda filed;
the further reply affidavit of Thomas Buckley (Mr Buckley) dated 20
May 2011 and the affidavit sworn 25 May 2011 of Glenn Brosche (Mr
Brosche) (both on behalf of the plaintiff); and
the affidavit of Meryl Joy Watson (Mrs Watson) dated 24 May 2011 (on
behalf of the defendants).
[4] There is some degree of complexity here over the business and commercial relationships between the parties to this proceeding and other entities involving some of the wider parties. A description of the major parties involved in these commercial relationships is useful.
Background
[5] Mr Watson founded a company known as Watson & Son Limited (Watson & Son) in 2003, to be involved in businesses involving manuka honey. Watson & Son specialises in the development of medical products associated with manuka honey. Mr Watson is a trustee of Salem Charitable Trust which owned and held hives from which Watson & Son obtained manuka honey.
[6] In or around 2009, Mr Watson formed a close business relationship with Mr Buckley, an American businessman. Mr Buckley had founded Links Medical Products Inc (Links Medical), an American company which develops, manufactures and distributes medical products including manuka honey-based products.
[7] Around 2009, Messrs Watson and Buckley resolved to form a joint venture between them. The plaintiff is that unincorporated joint venture. It is a joint venture between Mr Buckley‟s incorporated American company BMH Investors LLC (BMH Investors) and a registered New Zealand partnership operated by Mr Watson, Salem Honey which is also the first defendant. Salem Honey has as its partners Salem Charitable Trust and Salem General Partner Limited. The joint venture was established by a Joint Venture Agreement dated 26 June 2009. Its purpose was to establish a business producing honey from hives it was acquiring and to sell that honey to Watson & Son. The specific terms of the joint venture were, in short, that
BMH Investors would provide $1,500,000.00 in working capital and Salem Honey would provide 1000 hives for the business operation. As I understand it, the
$1,500,000.00 provided by BMH Investors was to be used by the plaintiff first, as to
$1 million, to buy a further 1000 hives for the joint venture‟s operations from Salem Charitable Trust and secondly, as to $500,000.00, to make a loan of this sum to Mr Watson‟s interests, part of which loan is the subject of this proceeding.
[8] There is also one further company which is said to have some relevance here. This is Manuka Medical Limited (Manuka Medical), a manuka honey manufacturing company incorporated in May 2008 in the United Kingdom. Mr Watson is the major shareholder and director of Manuka Medical. In 2009, Mr Buckley also became a director of this company and Links Medical a 22 per cent shareholder. Mr Buckley was also appointed CEO of Manuka Medical. That relationship, between Manuka Medical and Links Medical was expected to create considerable revenue for Manuka Medical, and accordingly to benefit Mr Watson. Links Medical was expected to be Manuka Medical‟s biggest customer and, indeed, was to be the exclusive distributor of its products in the United States of America, Canada and Mexico.
[9] Stripping away the complex business arrangements between the parties, Mr Watson deposes that in simple terms, the joint venture was arranged in order for Links Medical to provide working capital for Watson & Son to manage the production of medical grade manuka honey.
[10] Returning to the joint venture agreement itself, it was stated to be conditional on several matters. First, a sale agreement for the 1000 hives was to be entered into between the Salem Charitable Trust and the plaintiff, secondly, a supply and services agreement was to be concluded between the plaintiff and Watson & Son which company was to look after the hives and manage the honey production, and thirdly, the “Loan Agreement” was to be entered into. (Interestingly, this Loan Agreement is defined in the 26 June 2009 Joint Venture Agreement to mean the “loan agreement between the Joint Venture and Watson & Son”).
[11] On 5 September 2009, the plaintiff and the first defendant Salem Honey entered into an agreement purporting to be “the Loan Agreement”. That agreement
provided for a lump sum advance to Salem Honey of $500,000 to be paid on the Drawdown Date. The Drawdown Date was defined as the Commencement Date as defined in the Joint Venture Agreement. The Commencement Date in the Joint Venture Agreement was 16 June 2009. The advance was, in fact, made some time earlier on 6 May 2009 (ie prior to commencement of the joint venture) by way of transfer from Links Medical, it appears to the personal bank account in New Zealand of Mr Watson and his wife. As I have noted above, Mr Watson was guarantor of that loan. Minimum repayments under that loan agreement were set as:
a NZ$150,000 by the first anniversary of the date of this
Agreement;
b NZ$300,000 by the second anniversary of the date of this
Agreement; and
c NZ$50,000 by the third anniversary of the date of this
Agreement.
[12] On 5 September 2010, no payment had been received by the plaintiff. A demand for payment was made by solicitors acting for the plaintiff Manukamed Investors on 4 November 2010.
[13] Mr Watson deposes that payment could not be made by Salem Honey due to a partial failure of the production of honey in the 2009/2010 season. That failure was due he says, predominantly to the weather which had affected the flowering of manuka trees as well as the availability of bees.
[14] Notwithstanding this, by that time it is clear the relationship between Mr Buckley and his interests and Mr Watson and his interests had deteriorated to a significant extent. It appears that, to put matters at their lowest, there had been nearly a complete breakdown in the relationship between Messrs Watson and Buckley.
Summary judgment principles
[15] Rule 12.2(1) of the High Court Rules deals with summary judgment applications and provides that this Court may give judgment against a defendant if
the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The principles relevant to that assessment were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd:1
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).
Counsels’ submissions and my decision
[16] In this case, the plaintiff‟s position is a simple one. First, it says that the Loan Agreement was signed to record the loan made between the parties at arm‟s length, secondly, that nothing affects its validity, and thirdly, as the first instalment payment under the loan has not been made by either Salem Honey or its guarantor, a clear default has occurred. The plaintiff goes on to contend that neither Salem Honey nor Mr Watson have a valid counter-claim or set-off against the plaintiff and therefore, summary judgment should be entered here.
[17] The defendants response as I understand it is that, in essence, for seven reasons, summary judgment should be declined here. Those reasons are broadly:
(a) The plaintiff has no authority to bring an action against the defendants and therefore lacks standing here.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (adopted more recently by the Court of Appeal in Cockburn v CS Development No 2 Ltd [2010] NZCA 373, (2010) 24 NZTC 24,431 at [26]):
(b)There are significant issues of material fact upon which the parties differ in the present case and this case therefore is not a proper candidate for summary judgment;
(c) The structure of the transactions and in particular the Loan
Agreement, puts into question enforceability issues;
(d) Litigation is inappropriate here given the Joint Venture Agreement‟s
direction for mediation;
(e) The defendants have valid claims of equitable set-off;
(f) No legal advice was provided to Mr Watson prior to his signing as guarantor;
(g) This action against Salem Honey is in breach of the principles of the
Joint Venture Agreement.
[18] The starting point here is the defendants‟ fundamental claim against the plaintiff‟s case as to its standing and the suggestion that the plaintiffs lacked authority to bring this action against the defendants.
Standing
[19] The plaintiff in its statement of claim here is described as an unincorporated joint venture. In order for a party to have standing to bring an action in this Court it must be a natural person or have separate legal personality, such as by way of s 15 of the Companies Act 1993. As noted by Blanchard J in Wallis v Sutton2 unincorporated bodies are lawful but legally non-existent.
[20] I note that r 4.25 of the High Court Rules allows a partnership to sue in the name of the partnership firm, rather than in the names of the individual partners. I
accept that there is considerable discourse as to whether a firm will be considered a
2 Wallis v Sutton (1993) 8 PRNZ 163 (HC) at 164.
partnership or a joint venture: see, for example Chirnside v Fay3 and Joint Ventures Law.4 It is my view that the present arrangement between the parties is a joint venture5 because the parties describe it as such and were clearly intending on working together towards a common goal which they expected would be for their mutual benefit.6 As such, it is clear that, where parties enter into a joint venture, one party cannot bind another.7 Therefore, to bring an action all of the joint venture‟s members must either consent to joining as plaintiffs, or consent to one of them bringing representative proceedings under r 4.24.8
[21] Here, evidence has been adduced by the plaintiff purporting to be evidence of that authority. In addition, Mr Johnson for the plaintiff, in his submissions in reply, seeks leave to amend the statement of claim in the event that I am inclined to the view that the plaintiff is named incorrectly. However, a question first remains as to whether the first defendant Salem Honey as one of the Joint Venture parties consented to the action. It certainly has not expressly consented. I accept, however, that the nature of the relationship between the parties here is contractual and by this, they have agreed to be bound by the terms of the Joint Venture Agreement. Accordingly, parties to a joint venture must be deemed to have consented to an action being brought, even if it is against their own interests, where that action is properly brought in accordance with the contract.
[22] As to this, the Joint Venture Agreement relevantly provides:
3.11 No Authority to Act
No party has any authority to act for or to assume any obligation or responsibility on behalf of any other party, except as otherwise expressly provided in this Agreement or by express written agreement between the parties.
…
3 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
4 Maree Chetwin & Philip A Joseph Joint Ventures Law (The Centre for Commercial and
Corporate Law Inc, Christchurch, 2008).
5 See, for example the summary of criteria John McDermott Understanding Company Law
(2nd ed, LexisNexis, Wellington, 2011) at [12.7]; The Laws of New Zealand Partnerships and
Joint Ventures at [225] and [227].
6 Chirnside v Fay at [71].
7 The Laws of New Zealand Partnerships and Joint Ventures at [228].
8 Wallis v Sutton (1993) 8 PRNZ 163 (HC); Andrew Beck Principles of Civil Procedure (2nd ed, Brookers, Wellington, 2001) at [3.5.4].
6.4 Authority of Board
Subject as provided in this Agreement, the Board shall have full authority to make all decisions and take all actions concerning the operation of the Joint Venture and its Business.
[23] Clause 6.1 establishes a board of management. By clause 6.2, the board comprises four people. Two are to be appointed by each party. Each party may appoint a member or remove a member by way of written notice to the other party. All members must be officers or employees of one or other of the parties to the Joint Venture Agreement unless otherwise agreed by the parties. Quorum at a board meeting is two members. If a quorum is not achieved, those present may call a supplementary meeting of the board. Members attending that supplementary meeting will constitute a quorum: clause 3(b) of Schedule 1 to the Joint Venture Agreement. Schedule 1 to the Joint Venture Agreement provides for the conduct of board meetings. Mr Buckley has a casting vote. Meetings are to be set by way of five business days‟ written notice and are to be held in Auckland unless otherwise unanimously agreed by all members of the board. Alternatively, meetings may be held by way of audio conference if requested by either party. By clause 17.1 all notices must be served either personally or forwarded by facsimile.
[24] At the commencement date of the Joint Venture Agreement, the board comprised Messrs Watson and Scarlet for Salem Honey and Mr Buckley “and such other person nominated by Tom Buckley” for BMH Investors. On 27 September
2010, Mr Buckley gave notice by way of email to Salem Honey nominating Mr Brosche, recorded as being an employee of BMH Investors, to the board. In that same email, Mr Buckley also gave written notice to Mr Watson of a board meeting to be held on 5 October 2010 by way of telephone conference. One item on the agenda for that meeting was the initiation of these proceedings by the joint venture against the defendants. That meeting was held on 13 October 2010. From the minutes of those meetings, it appears that the members appointed by Salem Honey, including Mr Watson were present for much of the meeting but ended the telephone conference part way through – taking issue with Mr Buckley‟s vote to appoint solicitors to represent the joint venture. Following this, the minutes record that there was no longer a quorum. A supplementary meeting was then called to deal with the issue of appointment of solicitors and whether Mr Buckley is authorised to take all steps and
authorise all actions necessary to achieve repayment of the outstanding moneys from the defendants.
[25] That supplementary meeting was held on 21 October 2010 (notice was given on 13 October 2010 by way of facsimile). At the supplementary meeting, which was held by way of audio conference, only Messrs Buckley and Brosche were present. Votes were made accordingly to initiate the action culminating in the present proceedings.
[26] Mr Watson now deposes that he does not believe the process followed by Mr Buckley was correct or in the interests of the joint venture. Mr Sullivan for the defendants submitted that the process which Mr Buckley undertook, as outlined above, does not overcome this issue as to the fundamental lack of standing. Further, he argues that the notice issued appointing Mr Brosche was communicated by way of email, not facsimile as required in the Joint Venture Agreement.
[27] In weighing up all these matters, I am of the view that it is reasonably arguable here that the proper processes have not been followed in order to achieve the consent of both joint venture parties to allow these proceedings to be brought.
[28] On this, clause 6.5 of the Joint Venture Agreement provides:
Subject to clause 3.b of Schedule 1, a quorum for meetings of the Board shall be 2 members of the Board so appointed or their alternates (provided such quorum includes at least one member of the Board from each party) being present in person at the commencement of the meeting. If a member of the Board leaves the meeting after its commencement, no resolutions may be passed or business transacted by the Board which was not on the agenda for that meeting unless otherwise agreed by the Board member that has left the meeting.
[29] By clause 6.5, a quorum existed at the 13 October 2010 meeting regardless of the fact that the Watson members from Salem Honey left the meeting as there was a quorum at the commencement of the meeting. The remaining members could have continued to conduct the board‟s business set out on the agenda in the Salem Honey members‟ absence. They did not do so. A supplementary meeting may only be called where a quorum is not present. In light of that, as I see it there is a reasonable argument that the supplementary meeting held on 21 October 2010 was not valid
under the Joint Venture Agreement. Accordingly, it is arguable that the resolutions passed on 21 October 2010 could not bind Salem Honey as there was no quorum at that meeting and the supplementary meeting exception to the quorum requirement could not apply. On that ground alone and given that I need to be satisfied that the defendants have no reasonably arguable defence to the claim against them, summary judgment here must be declined.
[30] That effectively disposes of the present application before me. If I am wrong in this conclusion, however, I need to say at this point that I am also satisfied summary judgment should be declined in this case for other reasons which I now set out.
The Loan Agreement
[31] As outlined above, on 6 May 2009 it was Mr Watson who received a transfer of what purported to be the loan advance at issue here. This was made to his and his wife‟s joint bank account and was for the sum of $NZ500,000.00 (US$292,540.00). That transfer had followed an email sent by Mr Watson to Mr Buckley, where Mr Watson provided his personal account details. Mr Watson‟s email was itself a reply to an email sent from Mr Buckley to Mr Watson dated 29 April 2009 which
reads:9
I can offer $500,000. Will this help. Maybe a loan to get funding started
and convert later. I‟ll need wire transfer details to speed it up. Advise.
[32] The Joint Venture Agreement, which commenced on 16 June 2009 (and was signed on that same date) noted that it was made conditional on “the Loan Agreement”. The “Loan Agreement” was defined in the Joint Venture Agreement perhaps somewhat confusingly as “... the loan agreement between the Joint Venture (the plaintiff) and Watson & Son in the form set out in Schedule 4”. The Loan Agreement at issue in the present case according to the plaintiff‟s statement of claim is dated 5 September 2009 and is headed “Term Loan Agreement”. That agreement is, of course, between Salem Honey and BMH Investors as parties to the Manukamed Investors unincorporated joint venture as lenders, Salem Honey as
borrower and Mr Watson as guarantor.
9 The full email chain has not been provided.
[33] Subsequently, what I see as further confusion arose here. This occurred on
24 March 2010, when Mr Brosche, the Chief Financial Officer of Links Medical, wrote an email to Mr Watson. In that email, he outlined several promissory notes recording certain loans, which had been recorded in Links Medical‟s financial accounts and balance sheet. One of those notes was recorded as:
(2) $292,450 Note – Salem Honey Limited Partnership & Manukamed Investors (Joint Venture) – dated May 6, 2009 – Interest Rate 6% per annum – This note was prepared in concert with the Term Loan Agreement, executed May 9, 2009…
[34] No copies of any signed promissory notes however have been referred to me in this case.
[35] Mr Buckley‟s explanation for this somewhat confused state of affairs is that Mr Watson had indicated earlier that he desperately needed funds to advance his business. Mr Buckley further deposes that as interim security, a promissory note was prepared in the name of Links Medical and the intention was that the promissory note would be superseded once a formal loan agreement was entered into. Mr Buckley deposes that all parties proceeded on that basis.
[36] In response, Mr Sullivan, for the defendants, submitted that there is no evidence before this Court that any money has been paid by the plaintiff to Salem Honey. Mr Sullivan contended that a contract entered into by a company prior to incorporation requires ratification to be binding on that company. He referred me to s 182 of the Companies Act 1993. Mr Sullivan argued that the onus is on the plaintiff to place material before this Court which evidences that ratification. That onus he says has not been discharged in the present case.
[37] In response, Mr Johnson, for the plaintiff, submitted that Mr Watson himself produced evidence of this ratification. Appended as “DEW9” to Mr Watson‟s
9 February 2011 affidavit at 111-117 is an email from Mr Brosche to Mr Watson. Attached to that email were notes taken at a meeting held on 2 August 2010 between Mr Buckley, Mr Watson, Mr Brosche and a Mr Craig Roberts who is recorded as Watson & Son‟s CFO. At 112, the notes record the following:
Manuka Medical Investors (Joint Venture) Salem Honey Partnership and
BMH Investors
Ø Promissory Note Obligation (existing) – Term Loan Agreement –
Salem Honey Partners & JV
[38] And at 113:
ØAll parties agree to the existence of the term loan agreement in the amount of $292,450 and the remedy outline above to bring this promissory out of a default status, as outlined above.
[39] I am satisfied that the defendants have an arguable defence to the plaintiff ‟s claim for this transaction. That defence, in my view, is a relatively simple one. It is essentially that here, there can be no ratification. The joint venture is an unincorporated body. It, therefore, cannot enjoy the benefits of the Companies Act
1993. Those benefits include s 182. The common law must therefore apply. The plaintiff was not a party to the original transaction (that between Links Medical and Mr Watson, presumably in his capacity as an agent of Watson & Son). The question is, therefore: could, and did, the plaintiff obtain any benefit and Salem Honey obtain an obligation under that original transaction, a transaction which was between Mr Watson and Links Medical.
[40] First, it will be noticed that I have used the term “original transaction”. From the email exchange described above at [31], it is unclear what benefit Links Medical may have taken from the transaction. Nevertheless, in circumstances where these two businessmen were negotiating at arm‟s length, and had a relatively complex history, I infer that this was a contractual relationship between the parties.
[41] Generally, a person who is not an original party to a contract may not take any benefit from that contract unless a right to sue arises under the Contracts (Privity) Act 1982. I heard no argument on that point. Nevertheless, parties may enter into a new transaction as a novation of an original agreement.10 In the present case, it is perhaps arguable that novation may have occurred. The parties here, by the September 2009 loan agreement, may have agreed that the plaintiff had assumed
the position of Links Medical and Salem Honey had assumed the position of
10 See Hela Pharma AB v Hela Pharma Australasian Ltd CA 165/03, 17 February 2005; Burrows, Finn & Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at [17.2.1].
Mr Watson, thereby extinguishing the earlier contract between Mr Watson and Links Medical. However, while novation might possibly be arguable here, for two reasons I am not prepared to grant summary judgment on that ground.
[42] First, the matter was not argued in that way. And, I cannot be satisfied that that is indeed what happened as none of the deponents who have provided evidence here make that point absolutely clear. Secondly, the loan agreement defines the Drawdown Date as being the Commencement Date of the Joint Venture Agreement. That date is not the date on which the advance was made by Links Medical to Mr Watson. Whilst the effect of that disparity in dates was not fully argued before me, I am not prepared to exercise my discretion in favour of summary judgment where such a position prevails.
[43] In those circumstances, I would also refuse summary judgment here on the basis that the plaintiff had not done sufficient to show no arguable defence remained open regarding who were parties to the loan, was it disbursed and to whom and what were its terms.
[44] One final matter needs to be mentioned. According to the defendants, related parties of the first and second defendant, as well as the second defendant personally, have claims against parties who exercise control of the plaintiff. Those parties as I understand it are Links Medical, Mr Buckley and the joint venture party BMH Investors. While I accept that generally, unless exceptional circumstances exist, equitable set-off claims must be set-off against claims between the same parties (Hamilton Ice Arena Ltd v Perry Developments Ltd) [2002] 1NZLR 309 (CA), when all evidence is properly tested at trial in the present case, the circumstances may well be sufficiently unusual to allow cross-claims or set-offs to be taken into account.
[45] In Easy Energy Ltd v Jump New Zealand Limited a case not dissimilar to the present one involving joint venture arrangements between parties, I noted:
[44] Although clearly here Jump is required initially to put before the Court sufficient material to show that it has a claim by way of equitable set-off that so affects the claim of EEL that it would be unjust to decide one claim without taking the other into account, this being a summary judgment application, the final onus still rests on EEL to show that Jump has no arguable defence in the sense that there is no real question to be tried.
[45] In the present case I am of the view that the overarching reality is that there is a high level of interconnectivity between all the businesses mentioned in this judgment and operated by Mr Allerby and Mr Davidson and a significant intermingling of their affairs. I reach the conclusion that it is arguable here that Jump may have an equitable set off between the claim against it and the various claims by the Allerby Family Trust, Envirogroup and Jump against EEL. What may well be a sorry saga between all these parties as I see it needs to be unravelled properly rather than considering just one aspect. I cannot dispel here the conclusion that to look at the EEL loan in isolation might very well lead to some injustice.
[46] That said, I am not minded here to exercise my discretion and allow summary judgment because I consider that EEL has not done enough to satisfy me that Jump has no arguable defence to the claim against it.
[46] Similar considerations apply here. I am satisfied in this case that there are close links between all parties and summary judgment on the Loan Agreement should not be given without giving the defendants the opportunity to advance and litigate their claims by way of defence, set-off and counter-claim.
[47] In response, Mr Johnson for the plaintiff referred me to the decision of Associate Judge Sargisson in this Court in Hanover Finance Ltd v Krukziener HC, Auckland, 5/4/07, CIV-2006-404-1667. There, joint venture cross-claim defences were rejected and summary judgment was granted to the plaintiff on its separate loan to the defendant. As I see the position, in Hanover, given the nature of the plaintiff as a professional finance company lender, that decision is distinguishable from the situation in the present case. And, in any event, in my view, the complex commercial arrangements between the parties and their related entities in the case before me, need scrutiny and testing with full evidence at trial rather than granting summary judgment on a „no defence‟ basis at this early stage on just one aspect of those relationships.
[48] And finally, I note that the loan here was set up in the context of the joint venture. That joint venture requires each party to exercise fiduciary duties to the other. This is a key and fundamental requirement in this case, as it seems any money to repay the loan, according to the defendants, was to come from Watson & Son. By allegedly cutting off the flow of funds to Watson & Son, it is argued that Mr Buckley as the principal behind the joint venture partner BMH has placed Watson & Son in a position where distributions cannot be made to any parties here, including both the
joint venture and the defendants to enable them to meet their loan commitments. The ultimate positions on all these matters are issues for trial.
Conclusion
[49] For all the reasons outlined above, I accordingly decline to award summary judgment. Before me, Mr Sullivan for the defendants sought an order that the matters at issue here be referred to mediation. Clause 16 of the Joint Venture Agreement provides that fundamental disputes following disagreement between the parties are to be referred to mediation after internal efforts are made to resolve the disputed issues. A fundamental dispute is defined as including, (without limitation) the incurring or repayment of significant loan finance. I read clause 16 as being limited however to disagreements between the parties with regard to the proper operation of the joint venture, not as between the joint venturer and a debtor who happens to be a party to the joint venture. I therefore decline to direct this matter to mediation.
[50] As to costs, summary judgment being declined here, they are reserved in the usual way, to be dealt with on ultimate disposal of the substantive proceeding.
[51] This matter is now to be the subject of a call in the List at 10.00 am on 12
September 2011 to time table a way forward on the plaintiff‟s substantive claim.
‘Associate Judge D.I. Gendall’
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