Pertronic Industries Limited v Nathan

[2017] NZHC 1726

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2017-404-231 [2017] NZHC 1726

BETWEEN

PERTRONIC INDUSTRIES LIMITED

Plaintiff

AND

DAVID ANDREW NATHAN First Defendant

DAVID ANDREW NATHAN and PETER ROBERT BULLEN as trustees of DA & ML NATHAN FAMILY TRUST

Second Defendants

DAVID ANDREW NATHAN, PETER ROBERT BULLEN and EVANS BAILEY TRUSTEES LIMITED as trustees of DAVID NATHAN TRUST

Third Defendants

SIMON LAWRENCE NATHAN Fourth Defendant

Hearing:	25 July 2017
Appearances:	M J Tingey for Plaintiff No appearance for Fourth Defendant
Judgment:	25 July 2017

JUDGMENT OF LANG J

[on application for summary judgment]

This judgment was delivered by me on 25 July 2017 at 2.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

PERTRONIC INDUSTRIES LTD v NATHAN [2017] NZHC 1726 [25 July 2017]

[1]      In this proceeding the plaintiff, Pertronic Industries Limited (Pertronic), seeks to recover funds that it advanced to a company called Fire Security Services Limited (FSSL).  It seeks to recover those funds from the defendants, all of whom guaranteed the advances to FSSL.

[2]      Summary  judgment  has  already  been  entered  against  the  first  to  third defendants because they took no steps to oppose Pertronic’s claim.  I am now asked to determine the application so far as it relates to Mr Simon Nathan, the fourth defendant.  He opposes Pertronic’s claim on the basis that he has an arguable defence to it.

[3]      Although Mr Nathan filed documents in opposition to the claim his solicitors obtained leave to withdraw shortly before the hearing.  They advised that Mr Nathan did not propose to take any further part in the proceeding, and Mr Nathan did not appear when the application for summary judgment was called on 25 July 2017.  The application therefore proceeded on an undefended basis.

Background

[4]      FSSL is an installer of electronic fire equipment.  It was incorporated by the first defendant, Mr David Nathan, who is Mr Simon Nathan’s father.  FSSL acquires much of the equipment that it installs from Pertronic.  Mr Simon Nathan became a director of FSSL in 2013.

[5]      On 4 March 2014, FSSL and the first to third defendants entered into a loan agreement under which Pertronic advanced FSSL the sum of $900,000.  FSSL used that loan to clear its indebtedness to Pertronic as at that date.  The loan was to be repaid by way of  monthly payments  of $30,000.   The first  to  third defendants guaranteed FSSL’s obligations under the loan agreement.

[6]      The loan agreement was subsequently varied in May 2014, May 2015 and

March  2016.    Under  the  final  variation,  Pertronic  made  a  further  advance  of

$300,000 to FSSL, thereby taking the total amount of advances as at that date to $1.3

million.  In consideration for this advance the existing guarantors, the first to third defendants, signed fresh guarantees.  In addition, and for the first time, Mr Nathan gave a guarantee in respect of FSSL’s total indebtedness to Pertronic.  The issue for present purposes is whether he should be held to that guarantee.

Relevant principles

[7]      The  principles  to  be  applied  in  considering  an  application  for  summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell; Grant v New Zealand Motor Corporation Ltd and Westpac Banking Corporation v MM Kembla New Zealand Ltd.1

[8]      In  considering  Pertronic’s  application  I  propose  to  apply  the  following general principles, which apply to all applications by a plaintiff for summary judgment:

(a)      Pertronic  must  satisfy the  Court  that  Mr  Nathan  has  no  arguable defence to the claim brought against him.   The issue is whether there is a real question to be tried.

(b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise.      Issues  of  law,  even  though  they  may  be  complex,  can, however, be determined in an application for summary judgment.

(c)      Although the Court should adopt a robust approach, nevertheless summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.

[9]      With  those principles  in  mind  I now set  out  the matters  relied  upon  by

Mr Nathan in opposition to the application for summary judgment.

1      Pemberton v Chappell [1987] 1 NZLR 1; Grant v New Zealand Motor Corporation Ltd [1989] 1

NZLR 8 and Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR
298.

Mr Nathan’s defence

[10]     Mr Nathan deposes that he became aware at the beginning of 2014 that FSSL was  in  financial  trouble.    He  also  knew  that  FSSL owed  a  significant  debt  to Pertronic.  In May 2015 Pertronic agreed to increase FSSL’s credit limit to the sum of $1 million.

[11]     By  11  March  2016,  FSSL  owed  Pertronic  the  sum  of  approximately

$760,000.  Mr Nathan says there was a lot of uncertainty in the marketplace at that time, and FSSL was having issues obtaining payment from customers.   For that reason it sought again to vary the terms of its indebtedness to Pertronic.  Rather than attempt to paraphrase the balance of Mr Nathan’s evidence I set it out in full:

15.FSSL at 11 March 2016 employed around 240 people.   My sister, Sarah, my Dad, David and I were all invested in the business.  I had mortgaged or sold property at times to prop up the business as had David and Sarah.  As directors we were particularly concerned for FSSL’s 200-plus employees.

16.I can’t speak for Dad and Sarah, but I am sure they feel a similar way, but another very important consideration for me was preserving part of my Mum’s legacy.  She and Dad had built the business from the ground up and I felt a particular sense of duty to try and maintain the business.

17.Feelings of guilt and loyalty to our employees and to my mum’s legacy, not to mention the financial stress the company was in, the threats to the property and livelihoods of my own family, my Dad and Sarah’s family, these issues created a perfect storm for stress, uncertainty and indecision.

18.We  had  regular  meetings  with  Pertronic  and  its  CFO  regarding FSSL’s  performance  and  outstanding  liabilities  to  Pertronic.    At some time prior to March 2016 David2 was made aware that some of us  had  assets  like  our  family  homes  in  trust  which  were  not accessible to satisfy FSSL’s debt to Pertronic.

19I am of the belief that David took exception to our family trusts owning assets while FSSL owed significant debt to Pertronic.

20.As a result of one of our regular meetings with David and his CFO, in March of 2016 we were presented with a choice from Pertronic. The choice was either to accept the line of credit up to $1,300,000.00 and for us defendants to accept personal guarantees; or lose our supplier and no longer be able to trade.  After much negotiation, it was agreed that Sarah would not be required to sign a guarantee.

2      David Percy, Pertronic’s managing director.

However, we could not avoid, Peter (PETER ROBERT BULLEN) Dad and I having to sign.

21.At the time it was an impossible decision.  FSSL had an income and had previously been able to meet its ongoing obligation to Pertronic. However,  Pertronic  was  saying  to  me:  sign  a  guarantee  in  our favour or we will revoke FSSL’s ability to trade.

22.At the time this impossible choice was offered to me, I was under significant stress already about the performance of the business and FSSL’s existing debt to Pertronic; I couldn’t help thinking about the workers who would lose their jobs (and obviously my own income) if we could not get products to sell and install for clients; the thought of letting Mum down; I could only see one option, being to try and trade out of trouble. To do that, I was forced to sign the guarantee.

23.Things were so tight financially in my household due to Sarah and I both sacrificing good portions of our salaries to support FSSL.  At the time, I could not even afford to see a lawyer and get proper legal advice on the terms of the guarantee before I was required to sign.

24.Now that things have turned really sour for FSSL, the liquidators called in, and now this claim, in hindsight I can see that maybe a more sensible option would have been for FSSL to simply cut its losses rather than burden ourselves with these guarantees.  But at the time I was so stressed, like tunnel vision.

25.I feel that Pertronic took advantage of our situation at the time.  If at March 2016 FSSL had folded that would have meant the end for Pertronic and FSSL’s custom.  It would have meant FSSL would be into Pertronic for $760,262.13, rather than $1,745,697.00.

26.Pertronic wanted to have the best of both worlds: to keep racking up the sales to FSSL knowing that FSSL were in trouble, but knowing they were guaranteed if FSSL folded.  Pertronic were hedging their bets and now they’ve lost the bet.   To me Pertronic has to acknowledge their own contribution to the situation they now find themselves in.

Pertronic’s response

[12]     Mr David Percy, Pertronic’s managing director, does not accept many of the factual assertions contained in Mr Nathan’s affidavit.   Putting those issues to one side, however, Mr Percy points out that the arrangement between FSSL and Pertronic was a straightforward commercial transaction under which Pertronic agreed to make additional funds available to FSSL on the basis that it provided additional security in the form of Mr Nathan’s guarantee.  Furthermore, he points out that the guarantee was sent to Mr Nathan’s lawyer in the first instance and that Mr Nathan appeared to

be quite happy to sign the guarantee.  He adds that there was every opportunity for

SFFL and the guarantors not to proceed with the new loan if they chose not to do so.

Decision

[13]     A defence based  on  economic duress  may be  available in  circumstances where a party enters into a contract under coercion and there is no practical option but to do so.  Coercion in this context must require pressure that is illegitimate.  In Attorney-General for England and Wales v R, Tipping J explained the approach to be taken when the defence is relied upon as follows:3

The starting point must be the law recognises people generally act under some degree of pressure in making decisions affecting the commercial and other interests.   In all duress cases the Court must consider whether the pressure  under  which  the  plaintiff  was  acting  should  be  regarded  as legitimate or illegitimate and, in that respect, the nature of any alternatives reasonably open to the plaintiff will be of major importance.

[14]     To similar effect, in Shivas v Bank of New Zealand Tipping J observed:4

It was suggested at one time in the course of argument that the trustees were really over a barrel.  That in my view is not so.  They had to weigh up the unpalatable suggestion that they should give a mortgage against the equally unpalatable prospect that if they declined the family home may be sold.  In my judgment they did have a choice albeit that both prospects were unwelcome.  There are many occasions and comments where people have to make choices between unwelcome alternatives but that does not mean for one moment that they having chosen one they can claim to have acted under duress.

[15]     Applying these principles, Pertronic’s claim is unanswerable.   Mr Nathan elected to provide a guarantee in consideration for Pertronic providing additional funds to a company of which he was a director.  This was an arm’s length transaction in which both parties had access to legal advice and were pursuing a commercial outcome.   As Mr Percy says, Mr Nathan did not need to sign the guarantee.   He elected  to  do  so  because  he  wished  to  assist  FSSL to  obtain  further  financial

accommodation from Pertronic.

3      Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at [62].

4      Shivas v Bank of New Zealand [1990] 2 NZLR 327 (HC) at 351.

[16]     These indisputable facts emerge from an email exchange that Mr Percy has provided.  This shows that on the morning of 15 March 2016 Mr Nathan sent the following email to Mr Percy:

Morning gentleman,

I believe we are waiting on documentation that requires my signature.   I have not sited [sic] this yet but I have no issues with signing once it has arrived.

[17]     On the afternoon of the following day Pertronic’s solicitor sent Mr Nathan’s solicitor the guarantee for Mr Nathan’s signature.  The email that accompanied the guarantee contained the following advice:

Hello David

Guarantee from Simon Nathan is attached.   Please note that we have not provided Simon with any advice in relation to the guarantee.  We do not act for Simon and we have encouraged him to seek independent advice from his own lawyer.  Our solicitor’s certificate does not apply to this guarantee.

[18]     On the same afternoon Mr Nathan sent an email to Pertronic in which he said he had “signed the documents” and sent them back to his lawyer.    By that stage Pertronic had already advanced FSSL the additional sum of $300,000 based on Mr Nathan’s assurance that he would sign the guarantee.

[19]     This exchange makes it clear that Mr Nathan was perfectly willing to sign the guarantee.  Furthermore, Mr Nathan had every opportunity to seek advice from his solicitor in the event that he was unsure about any aspect of the arrangement.  He cannot now argue that he was subject to any illegitimate pressure from Pertronic.

[20]     I therefore consider Mr Nathan has no arguable defence to Pertronic’s claim.

Result

I enter summary judgment in favour of Pertronic against Mr Nathan in the sum of

$1,408,807.23 comprising:

Principal sum	$1,302,000.00
Interest on $1,302,000 at the Judicature Act rate of 5% from 22 December 2016 (date of expiry on demand) until 25 July 2017 (215 days)	$38,346.58
Costs on an indemnity basis	$68,460.65

Lang J

Solicitors:

Gibson Sheat, Wellington
Grantham Law, Hamilton