Marac Finance Limited v Burling HC Auckland CIV-2010-404-7155
[2011] NZHC 770
•8 July 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-7155
BETWEEN MARAC FINANCE LIMITED Plaintiff
ANDRUSSELL FREDERICK BURLING Defendant
Hearing: 10 May 2011
Counsel: R Hollyman and M Heard for the Plaintiff
P Phillips for the Defendant
Judgment: 8 July 2011
RESERVED JUDGMENT OF PETERS J
This judgment was delivered by me on 8 July 2011 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ........................................
Solicitors/Counsel:
R Hollyman, Barrister – Email: [email protected]
Lee Salmon Long – Email: [email protected]
Phillips Law – Email: [email protected]
MARAC FINANCE LIMITED V BURLING HC AK CIV-2010-404-7155 8 July 2011
[1] The plaintiff applies for summary judgment on its claim against the
defendant. The plaintiff ’s claim is for:
(a) judgment in the sum of $250,000.00 pursuant to the terms of a guarantee given by the defendant to the plaintiff dated 6 December
2001 (“first guarantee”);
(b)judgment in the sum of $250,000.00 pursuant to the terms of a guarantee given by the defendant to the plaintiff dated 14 December
2001 (“second guarantee”);
(c) interest; and
(d) costs on an indemnity basis.
[2] The defendant opposes the plaintiff’s application and contends that he has a defence to the plaintiff’s claim.
Legal principles – summary judgment
[3] The plaintiff’s application for summary judgment is brought pursuant to r 12.2 of the High Court Rules. Rule 12.2 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The 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.
…
[4] The legal principles applying to an application for summary judgment were expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd1:
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 at 3 (CA). 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 at 341 (PC). 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).
[5] While the onus is on the plaintiff, the defendant will need to provide some evidential foundation for any defence raised: Australian Guarantee Corporation (NZ) Ltd v McBeth2.
Background
[6] The plaintiff advanced funds to Rapson Holdings Limited (in liquidation) (“Rapson”). Rapson imported and sold Korean vehicles. The defendant was a director of Rapson.
The plaintiff advanced funds to Rapson pursuant to a “Dealer Floor Plan Facility” (“facility”) dated 6 December 2001, between the plaintiff, or Allied Finance Limited as it then was, as “Lender”; Rapson as “Dealer”; and the defendant and a Kevin Bruce Woods as “Covenantors”. The terms of the first guarantee are contained in the facility.
[7] Subsequently, the defendant gave the second guarantee. The terms of the second guarantee are contained in a “Cross Guarantee and Indemnity” (“cross guarantee”) dated 14 December 2001 between the plaintiff as “Lender” and Rapson, CBC Limited (“CBC”), the defendant and Mr Woods as “Guarantors”. Rapson was the sole shareholder of CBC and the defendant was CBC’s sole director.
[8] The defendant’s liability under each guarantee was not to exceed
$250,000.00, that is $500,000.00 in total.
[9] CBC went into liquidation on 1 August 2003. Rapson went into liquidation on 3 May 2010.
[10] The plaintiff ’s case is that the defendant guaranteed the repayment of sums to the plaintiff, that it has made demand of the defendant in accordance with the terms of the facility and cross guarantee and it seeks judgment accordingly.
[11] The defendant submits that he has two defences to the plaintiff’s claim.
[12] First, the defendant submits that he has a defence to the plaintiff’s claim on the first guarantee because, he says, the effect of the second guarantee was to discharge the first guarantee. On that view of it, any liability the defendant may have had under the first guarantee was extinguished on his execution of the second guarantee.
[13] I do not consider that the defendant has a defence to the plaintiff ’s claim on the first guarantee on this basis. There is nothing in the terms of either the facility or cross guarantee to effect such a discharge.
[14] Secondly, the defendant submits that the indebtedness which he guaranteed was reduced or discharged as a result of subsequent events between the parties. The defendant alleges that the plaintiff and the defendant entered into a partnership, in lieu of repayment of $3,000,000.00 of Rapson’s debt to the plaintiff. The defendant submits that the partnership provided for the plaintiff was be granted an equity interest in and security over Rapson Holdings Pty Australia Limited (“Rapson Australia”).
[15] The defendant put in evidence a form of agreement in respect of an arrangement whereby shares in Rapson Australia were to be issued to the plaintiff. The defendant has executed the document but the plaintiff has not, at least not the copy in evidence. The defendant also alleges that the plaintiff thereafter involved itself in, and mismanaged, Rapson’s business, that the plaintiff’s mismanagement brought about Rapson’s insolvency and in those circumstances he should not be liable on the guarantees.
[16] The plaintiff’s response to this allegation is that no agreement of the type alleged by the defendant was ever finalised and nor did it involve itself in, let alone mismanage, Rapson’s business. In an affidavit sworn on behalf of the plaintiff, Mr C P F Flood says that although the parties discussed the possibility of the plaintiff taking shares in Rapson Australia, the shares were to be additional security for Rapson’s debt, rather than in lieu of debt. Mr Flood also states that the parties did not finalise an agreement, that the plaintiff did not execute the form of agreement on which the defendant relies and that no share capital in Rapson Australia was ever issued to the plaintiff. The plaintiff also submits that, even if agreement had been reached, there was no provision for the defendant’s liability under either or both of the guarantees to be discharged or reduced.
[17] The plaintiff has satisfied me that the defendant has no defence to the plaintiff’s claim on the basis of the defence alleged in paragraphs [14] and [15] above. There is no signed agreement between the parties in evidence and no share capital in Rapson Australia was ever issued to the plaintiff.
[18] Accordingly, subject to the plaintiff making out its case that the defendant is liable on the two guarantees, it would be entitled to summary judgment. As can be seen from what follows however, I do not consider the plaintiff has made out its case in relation to the sum claimed pursuant to the first guarantee. I am satisfied, however, that the plaintiff is entitled to summary judgment pursuant to the second guarantee.
First guarantee
[19] I turn now to consider the plaintiff’s claim on the first guarantee. As stated above, the plaintiff is the Lender, Rapson is the Dealer and the defendant is a Covenantor in the facility.
[20] Rapson and the defendant covenanted as follows:
4.1The Dealer and the Covenantors covenant jointly and severally to repay the Credit together with interest thereon upon demand free of any deduction, to grant all Security required hereunder (the terms of which are hereby incorporated in and form part of this Facility) and to comply with the terms
of all Security. In the event of any conflict the terms and conditions in the
Security are paramount.
4.2All Credit and other moneys payable hereunder shall be payable on demand but the parties acknowledge without derogating from the foregoing that in granting any Credit the Lender may indicate an anticipated mode by which repayment is to occur and in the normal course of events contemplates that payment in accordance with the specified mode will be acceptable to the Dealer.
[21] Each of clauses 4.1 and 4.2 refer to “Credit”. Credit is defined in clause 1.4
as:
“Credit” means the total moneys expended by the Lender pursuant to these presents including but without in any way limiting the generality of the foregoing moneys expended by the Lender to the Dealer and money disbursed from the Facility Account to or for the benefit of the Dealer less any moneys repaid by the Dealer.
[22] Clause 1.7 defines “Facility Account” as follows:
“Facility Account” means an account to be kept by the Lender recording all moneys expended by the Lender and all moneys owing by the Dealer to the Lender pursuant to the Facility and showing the date on which all such moneys are debited to such account, all moneys paid into such account and the date thereof, and all interest or other charges debited by the Lender to such account.
[23] Clause 5.1.2 of the facility provides as follows:
The Covenantors shall be liable for the payment performance and observance of all moneys covenants conditions and agreements on the part of the Dealer herein contained or implied and shall be obliged to pay perform or observe the same upon demand by the Lender and shall indemnify the Lender in respect of any failure by the Dealer to Pay the moneys or comply with the obligations imposed by this Facility notwithstanding that the Lender may not have called on the Dealer and may not have exhausted its remedies against the Dealer or against any other person or persons.
[24] The effect of clause 5.1.6 of the facility was to provide that the defendant’s
liability would not exceed NZ$250,000.00. Clause 5.1.6 reads as follows:
The Covenantors’ liability shall be security for the whole of the monies hereby
guaranteed provided however that the Covenantors shall not be liable by reason of
this guarantee to pay to the Lender more than the total sum of NZ$250,000.00 each being a maximum of NZ$500,000.00 in total.
[25] I do not consider the plaintiff has made out its case against the defendant on the first guarantee for the following reason.
[26] The defendant covenanted to repay “Credit”, subject to his liability to do so not exceeding $250,000.00.
[27] Credit is moneys expended by the plaintiff “pursuant to these presents”, that is pursuant to the terms of the facility. In paragraph 12 of his first affidavit, Mr Flood says as follows:
In accordance with the [facility], the [cross guarantee] and related agreements between the Plaintiff, CBC Limited, and Rapson Holdings Limited, the Plaintiff advanced various sums to CBC Limited and Rapson Holdings Limited.
[28] There is no statement in Mr Flood’s evidence of how much money the plaintiff advanced pursuant to the terms of the facility, so as to constitute Credit and no confirmation that at least $250,000.00 of Credit remains outstanding.
[29] When this point arose at the hearing, counsel for the plaintiff referred me to an affidavit which the defendant swore on 24 January 2011. In paragraph 5 of his affidavit, the defendant says that advances under the facility were to account number
115352 and that there is no balance owing on that account. A copy of a statement in respect of account number 115352 records that the account is in the name of Rapson. The statement runs from 1 February 2002 to 26 January 2010. The statement shows that the plaintiff had advanced to Rapson more than $6,000,000.00 as of
31 December 2003. Following that date, there is an entry of a “Specific Writeoff” of
$4,500,000.00, and then other deductions and additions giving a nil balance on the account as of 6 August 2004.
[30] In his evidence in reply, Mr Flood addressed the defendant’s comments
regarding account number 115352.
[31] First, Mr Flood states that the “Specific Writeoff” entry is merely a record of an internal transfer of the balance on account number 115352 to the plaintiff’s “Doubtful Debtors” ledger. Mr Flood’s evidence is that such a transfer does not mean the debt is extinguished.
[32] Secondly, Mr Flood states:
Whether or not Mr Burling is correct about account 11532 [sic], as set out in my first affidavit, the obligation of Rapson (guaranteed by Mr Burling) is to repay its indebtedness to MARAC. That is not limited to specific accounts. The balance owing from Rapson to MARAC under account 464788 as at 3 May October 2010 [sic] was $4,432,510.07 (see paragraph 18; exhibit H).
[33] Mr Flood’s statement is incorrect. The defendant did not guarantee Rapson’s obligation to repay its indebtedness. The defendant guaranteed repayment of Credit. I am not satisfied on the evidence that it is Credit which the plaintiff seeks to recover on its first claim. Given that, the plaintiff has not made out its case for summary judgment on its claim under the first guarantee. The plaintiff’s application in respect that claim is dismissed.
Second guarantee
[34] As stated above, the terms of the second guarantee are contained in the cross guarantee.
[35] Clause 2.1 of the cross guarantee reads as follows:
2.1Each Guarantor unconditionally and irrevocably guarantees to the Lender the due payment by each other Guarantor of the Guaranteed Indebtedness and the due performance of and compliance by each other Guarantor with the Guaranteed Obligations.
[36] “Guaranteed Indebtedness” is defined in clause 1.1 of the cross guarantee as
follows:
“Guaranteed Indebtedness” means all indebtedness of any one or more of the Guarantors (whether alone or with any other person) to the Lender or incurred by the Lender on behalf of any one of more of the Guarantors (whether alone or with
any other person) (including all interest, costs, taxes, stamp or similar duties or taxes, commissions, charges and expenses (including legal fees and expenses) incurred or sustained in any way by the Lender in connection with that indebtedness or the enforcement or attempted enforcement of that indebtedness).
[37] Clauses 2.2.1 and 2.2.2 of the cross guarantee provide as follows:
2.2.1 Subject to Clauses 2.2.2 [...], each Guarantor undertakes that if, for any reason, any one or more of the Guarantors does not pay when due (whether by acceleration or otherwise) any Guaranteed Indebtedness, it will pay the relevant amount to the Lender immediately on demand.
2.2.2 The liability of [the defendant] by reason of this guarantee to pay to the
Lender shall not be more than $250,000.00.
[38] Taking those clauses together, the defendant agreed to pay to the plaintiff, on demand, sums which Rapson owed to the plaintiff, subject to a total liability of no more than $250,000.00.
[39] In paragraph 18 of his first affidavit, Mr Flood says that Rapson owed the plaintiff the sum of $4,432,510.07 as of, at the latest, 3 October 2010. In his affidavit, the defendant does not dispute that Rapson is indebted to the plaintiff in at least that amount.
[40] By letter dated 21 October 2010, the plaintiff by its solicitors made written demand on the defendant for payment of $500,000.00. This demand was in respect of the sums said to be due from the defendant to the plaintiff under the first and second guarantees. I am satisfied that that demand is a demand for the purposes of clause 2.2.1 of the second guarantee. The defendant has not taken any point to the contrary. Accordingly, the plaintiff has made out its case for summary judgment on its claim for $250,000.00 under the second guarantee.
[41] The plaintiff also seeks an award of interest from 31 March 2010. It is not apparent to me that the plaintiff is entitled to recover interest from the defendant pursuant to the terms of the second guarantee. Given that, I decline to enter summary judgment in respect of the claim for interest. I do, however, award interest to the plaintiff on the sum of $250,000.00 from the date it commenced proceedings
being 22 October 2010, at the maximum rate prescribed from time to time under s 87(1) Judicature Act 1908.
[42] The plaintiff also seeks costs on an indemnity basis pursuant to clause 14.2 of the cross guarantee. Clause 14.2 reads as follows:
The Guarantors will pay on demand each cost and expense (including all legal expenses and taxes) sustained or incurred by the Lender as a result of the exercise of, or in protecting or enforcing or otherwise in connection with, its rights under a Relevant Document or another transaction required or contemplated by a Relevant Document, in all cases on a full indemnity basis.
[43] “Relevant Documents” is defined in clause 1.1 of the cross guarantee as
follows:
“Relevant Documents” means this Deed and any other agreement, past, present or future, evidencing or securing the Guaranteed Indebtedness or the Guaranteed Obligations, or required or contemplated by this Deed or that other agreement.
[44] Accordingly, the plaintiff is entitled to costs on an indemnity basis in so far as concerns the plaintiff’s claim against the defendant on the second guarantee. I consider it implicit in clause 14.2 that the defendant’s liability for such costs is additional to his liability to pay up to $250,000.00 to the plaintiff. However, the plaintiff must offset against its costs award the sum to which the defendant is entitled as a result of the plaintiff’s failure on its claim under the first guarantee.
Result
[45] The plaintiff’s application for summary judgment for $250,000.00 pursuant
to the terms of the guarantee given by the defendant to the plaintiff dated
6 December 2001 is declined. The defendant is entitled to costs on a 2B basis and disbursements as fixed by the Registrar, which costs and disbursements are to be set off against the sums awarded to the plaintiff below.
[46] I enter judgment for the plaintiff in the sum of $250,000.00 pursuant to the terms of the guarantee given by the defendant to the plaintiff dated 14 December
2001. The plaintiff is entitled to interest on that sum at the maximum rate prescribed from time to time under s 87(1) Judicature Act 1908, from 22 October 2010 to the date of judgment. The plaintiff is also entitled to costs on an indemnity basis in respect of the plaintiff’s claim on the said guarantee.
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PETERS J
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