Primary Services New Zealand Ltd v Colombo Projects Ltd
[2020] NZHC 549
•18 March 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000404
[2020] NZHC 549
BETWEEN PRIMARY SERVICES NEW ZEALAND LIMITED
Plaintiff
AND
COLOMBO PROJECTS LIMITED
First Defendant
AND
ANDREW MICHAEL FONAGY
Second Defendant
AND
JOHN RICHMOND PAYNTER
Third Defendant
Hearing: 3 March 2020 Appearances:
J L Bates for Plaintiff
M D Pascariu and E I D Fox for Second Defendant
Judgment:
18 March 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 18 March 2020 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
PRIMARY SERVICES NEW ZEALAND LTD v FONAGY [2020] NZHC 549 [18 March 2020]
Introduction
[1] Colombo Projects Ltd (Colombo) and Primary Services New Zealand Ltd (Primary) entered into a loan facility agreement dated 21 December 2015 (the LFA) pursuant to which Primary made advances to Colombo for a development project at 818 Colombo Street, Christchurch (818 Colombo). Colombo’s obligations were guaranteed by Andrew Fonagy (Mr Fonagy) and John Paynter (Mr Paynter). Colombo defaulted under the LFA. Primary called up the loan and made demand upon Colombo, Mr Fonagy and Mr Paynter for payment. No payment has been made.
[2] Primary has already obtained summary judgment against Colombo and Mr Paynter. It now seeks summary judgment against Mr Fonagy. Mr Fonagy opposes summary judgment. He says he is not liable on his guarantee or has a set-off and/or counterclaim against Primary because of misrepresentations made to him by Primary’s agent, David Short, without which he would not have provided his guarantee.
[3]Specifically, Mr Fonagy alleges Mr Short represented to him that:
(a)Mr Short was a lawyer who had been involved in property deals all the time; and
(b)Mr Short had access to funds, including through Primary and the Jocelyn Grattan Charitable Trust (JGCT), to fund the development of 818 Colombo to completion.
[4] Mr Fonagy says these representations were false because Mr Short was no longer a practicing lawyer and Mr Short did not have the ability and declined to provide funding necessary to complete the project.
[5]Primary raises several matters in response but principally, that:
(a)The representations were not made; and
(b)The LFA contained an entire agreement clause which is conclusive and by which any previous agreements or understandings between the parties were superseded.
Facts
[6] Mr Paynter and Mr Fonagy incorporated a company called 818 Central Ltd (Central) which acquired 818 Colombo to develop into a multi-storey unit title development. The purchase was funded by:
(a)a $1,250,000 loan from MG & SJ Howard Limited (Howard), secured by a first ranking mortgage; and
(b)a $1,000,000 loan from Frank Colombo Ltd (Frank), secured by a second ranking mortgage.
[7] Both the Howard and Frank loans were also secured by the personal guarantees of Mr Fonagy and Mr Paynter.
[8] In June 2015, Central entered into an agreement to lease units to Quest Hotels following completion of the project.
[9] The Howard loan went into default. On 21 September 2015, Howard issued notices under the Property Law Act 2007 to exercise its power of sale of 818 Colombo.
[10] Mr Fonagy first met Mr Short, a director of Primary, on or about 25 October 2015. Mr Short had been a lawyer for many years but had allowed his practicing certificate to lapse in June 2015 following his retirement from Short & Partners. In October 2015 he was working in another law firm as a consultant.
[11] Mr Fonagy says that Mr Short told him that he was a lawyer involved in property development deals all the time and that he had access to several funding lines including through Primary and JGCT.
[12] At around this time (it is not clear exactly when) Mr Fonagy provided Mr Short with an investment information memorandum for the project (the memorandum). The memorandum was to attract funding of approximately $850,000 from an investor in a to be formed Special Purposes Vehicle for the development of 818 Colombo. It also noted that the total cost of the project was approximately $14,400,000 and stated:
A further funding commitment or strength of balance sheet and or underwrites for purchase of units will be required from the investor to allow prime bank funding to be secured to support construction funding.
…
ROI
The current project completion date is Sept 2016 (TBC)
In return for the new funding the developer is offering 50% of the development shareholding and profits …
Equity Placement Process & Waterfall of Repayment
The developers will enter into a deed with the investor to secure the recovery of the investor’s monies. The pertinent points of the deed will allow the formation of an SPV for this development in its own silo as not to reflect on the investors other business dealings and taxable activities. The investor will have preferential shareholding to ensure the project profits are replenished to the investor as priority after debt is repaid.
[13] On 27 October 2015, Mr Fonagy accepted an offer from Anmol Asset Management Limited (Anmol) to provide staged loan facilities to Central up to a total limit of $15,750,000.
[14] In an email of 28 October 2015, Mr Short offered Mr Fonagy funding on terms that Mr Fonagy considered were preferable to those offered by Anmol. Mr Short’s proposal was quite different from Anmol’s and appears to have been based on the memorandum and other information provided by Mr Fonagy. Mr Short wrote to Mr Fonagy:
Hi Andrew,
Thank you for your email and information you have supplied. Essentially I understand your requirements are:
(a)You require an immediate advance of $250,000 to reduce your existing first mortgage of $1.4 million and get your first mortgage back under control.
(b)You require six months servicing for this mortgage amounting to $84,000.
(c)You require $341,000 to cover the costs and expenses relating to design, development and obtaining a building consent.
(d)You require $140,000 to pay 50% of the current creditors.
This totals $810,000.00 and I should be able to make these funds available provided all is in order and my trustees agree. I should have access to $250,000 on or before Friday this week.
You have also offered a second mortgage security and presumably a second GSA in order to protect the intellectual property and documentation relating to the development. In return you have set out on page 10 of your investment information Memorandum of September, 2015, what the deal is relating to the financing …
[15] On 3 November 2015, Primary advanced $250,000 to Central, so that it could make payment to Howard to prevent Howard exercising its power of sale.
[16] Mr Fonagy instructed Central’s solicitors to revoke Anmol’s offer of finance, which they did on 4 November 2015.
[17] On 11 November 2015, Mr Short emailed Mr Fonagy from an MBC Law Limited email address. Mr Short complained that some information he had been given was not correct and expressed other concerns about documents provided with regards to the proposed SPV. Mr Fonagy says that in this email Mr Short stated that he would underwrite $2,500,000 of unit sales of the completed project. What Mr Short actually wrote was:
5. I also want to document the preferential payment requirement for the input from Primary and require that a guaranteed preferential take out of
$2,500,000 (which could involve the underwriting of up to 4 units at cost plus 10%) plus the advances and interest.
6. After payment of the above second mortgage advance and $2,500,000 payment. Andrew’s shareholding group would be entitled to take the next
$2,500,000 and any balance after the payment of all creditors etc would be split equally.
[18] On 20 November 2015, a project meeting of Central was held at the offices of MBC Law. There are unsigned minutes of this meeting which record that Mr Short had $925,000 available for replacing the Howard mortgage, and that there were further funds required of up to $1,404,000 which Mr Short “would continue to action.” The
minutes also record that Mr Short had additional funds of $550,000 becoming available in December 2015 which could be applied to the project.
[19] There were further negotiations between the parties to formalise the terms upon which Primary would provide funding to the project. These were concluded by 21 December 2015 when documents were signed. These included the LFA and a Profit Sharing and Shareholders Agreement (PSSA). These were prepared by Mr Fonagy’s solicitors Anderson Creagh Lai Ltd.
[20] Colombo was incorporated on 21 December 2015. Upon incorporation, Colombo had the following registered shareholders:
(a)Frank as to 249 shares (24.9%);
(b)Fontur Trustee Ltd (Fontur) as to 251 shares (25.1%); and
(c)Brian Ferguson as to 500 shares (50%), as trustee for Mr Short’s interests.
[21] The PSSA was between Central, Fontur, Primary, Mr Fonagy, Colombo, Mr Paynter, Frank and Brian Ferguson. Under the PSSA:
(a)818 Colombo was to be sold by Central to Colombo;
(b)Colombo assumed Central’s debt;
(c)Frank agreed to accept in satisfaction of its debt a 24.9% shareholding in Colombo;
(d)Howard’s first ranking mortgage over 818 Colombo remained; and
(e)A “waterfall” arrangement was set out in respect of the application of proceeds from the sale of 818 Colombo, whether through completed units or in its undeveloped state.
[22] Contemporaneously with the PSSA, Colombo entered into the LFA under which Primary advanced $850,000 to Colombo in tranches (of which $250,000 had been advanced prior to entry into the LFA). The full amount was advanced by 3 February 2016. Mr Fonagy and Mr Paynter signed the LFA as guarantors and the advances were further secured by:
(a)a second ranking mortgage over 818 Colombo; and
(b)separate deeds of personal guarantees given by Mr Paynter and Mr Fonagy.
[23]Settlement under the PSSA occurred on 25 January 2016.
[24] On 27 May 2016, JGCT and Waitangi Investments Limited (Waitangi) advanced $1,600,000 to Colombo (JGCT Loan). Waitangi was a company of which Mr Short was a director. He was also a trustee of JGCT. The JGCT Loan was secured by a first ranking mortgage over 818 Colombo. It was used to repay the Howard loan in full such that, as at 27 May 2016, Colombo had liabilities to (among others):
(a)JGCT and Waitangi under the JGCT Loan; and
(b)Primary under the LFA.
[25] Mr Fonagy says that on around 3 November 2016, Mr Short advised him that he was having issues with the Law Society, was in poor health, and would be unable to provide further funding toward the project.
[26]Colombo defaulted under the JGCT Loan and the LFA.
[27] In May 2017, JGCT and Waitangi served a Property Law Act notice on Colombo of their intention to exercise their power of sale of 818 Colombo. JGCT and Waitangi served a further Property Law Act notice on 8 August 2017.
[28] Alexandra Low, an Auckland solicitor, was instructed to act for Waitangi and JGCT on the sale of 818 Colombo. Between June 2017 and July 2018 she had
meetings and communications with Mr Fonagy and his lawyer to discuss solutions in respect of Colombo’s defaults but these came to nothing.
[29] Also during this period, Mr Fonagy negotiated a lease agreement of 818 Colombo on a completed basis with Sarin Hotel Group and on 25 October 2017, Ford Baker issued a valuation of 818 Colombo of $2,700,000 which took account of a newly obtained resource consent and the Sarin Hotel Group lease.
[30] On 13 July 2018, JGCT and Waitangi exercised their power of sale. 818 Colombo was sold for $1,350,000. Following the application of the sale proceeds
$678,782 remained owing to JGCT and Waitangi. No further payments have been made to them or Primary.
[31] On 3 December 2018, Primary’s solicitors wrote to Mr Fonagy demanding payment under his guarantee of the balance owing under the LFA which was
$1,165,595 inclusive of interest and costs.
[32] On 17 December 2018, Anderson Creagh Lai Ltd responded to the demand denying that Mr Fonagy had any liability under his guarantee.
[33] Following Primary issuing this claim, Mr Fonagy learnt that Mr Short had not held a practicing certificate since 30 June 2015 and had been the subject of disciplinary proceedings. He had his lawyers investigate those matters.
Relevant law
[34] Primary must satisfy the court that Mr Fonagy has no defence to its claim. In Krukziener v Hanover Finance Ltd, the Court of Appeal stated the following principles in summary judgment applications which I adopt: 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 (CA) at 3. 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:
1 Krukzeiner v Hanover Finance Ltd [2008] NZCA 187, [2008] NZAR 307 at [26].
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 (PC) at
341. 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 Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
[35] I understood counsel to accept that the fate of Primary’s application depends upon my findings on the two issues identified in paragraph [5].
Mr Fonagy’s defence
[36] Mr Fonagy’s defence to the summary judgment application is that he has provided an evidential basis that:
(a)Mr Short, as agent for Primary, made false representations that induced him to give the guarantee; or
(b)Mr Short’s conduct in making such false representations was misleading or deceptive conduct in trade.
[37] In either case, Mr Fonagy argues, he is entitled to cancel the guarantee and/or to an award of damages/compensation under the Contract and Commercial Law Act2 2017 or the Fair Trading Act 19863 which arguably exceeds any amount owed to Primary.
[38] The evidential basis for his defence is contained in several paragraphs of Mr Fonagy’s first affidavit and particularly the following:
13. I first met David on or about 25 October 2015. David told me that he was a lawyer, who was involved in property development deals all the time. He also stated that he had access to several funding lines including funds through a company of which he was a director, PSNZ, and through the Jocelyn Grattan Charitable Trust (JGCT) a charitable trust of which he was a trustee.
…
2 Contract and Commercial Law Act 2017, ss 35 and 37.
3 Fair Trading Act 1986, s 9.
17. David also verbally assured me that through his associates and his experience in property finance, he could provide future funding to the project as required. …
…
35. As mentioned at paragraph 13 above, David represented to me that he was a practising lawyer and had sufficient funds available to him as trustee of JGCT and from other sources to fund the development to completion. …
36. Following PSNZ issuing its claim, I learnt (after investigations by my solicitors) that David last held a practising certificate on 30 June 2015. It therefore appears that David’s statement at paragraph 10 of his affidavit is false.
…
38. … In any event, prior to entering into the PSNZ Loan and PSSA, he represented that he would have access to funding from JGCT and other sources, so I was shocked when it became apparent that he would be unable to procure this funding given that the basis of my agreement to his involvement in the Project, including by agreeing to PSNZ taking a major share of any profits which ultimately may have been derived from the project, was because of this.
…
40. Had I been aware that:
(a)David was not in fact a practising lawyer at the time he represented this to me;
(b)David was subject to a Law Society investigation of the type he was eventually censured for; and
(c)David’s funding from JGCT and other sources was less assured.
I would have never have agreed to his involvement, would not have agreed to the financial restructure of the project and certainly would not have given a personal guarantee for Colombo’s debts. David’s representations gave me the impression that he was an honest and experienced professional which would give the Project added credibility in the market, so I felt comfortable in obtaining finance from him by the provision of my personal guarantee and was prepared to agree to PSNZ taking at least half of the profits from the Project, as well as full repayment of its debts.
Primary’s submissions
[39] Primary says that the representations were not made. It argues that Mr Fonagy’s evidence is contrived and can be safely rejected even on a summary judgment application. It relies upon the following matters.
[40] First, nowhere in correspondence prior to Mr Fonagy giving his guarantee is there any reference to the representations. Some context is important here. Mr Fonagy says that the representations were made at the meeting of 25 October 2015. On 28 October 2015, Mr Short emailed Mr Fonagy and described Mr Fonagy’s requirement for funding totalling just $810,000. There is no mention of, let alone a commitment to, providing funding for the entire project. There is no such commitment in Mr Short’s email of 11 November 2015 or the minutes of the 20 November 2015 meeting either.
[41] Second, the memorandum states that prime bank funding will be secured to support construction. Mr Fonagy did not therefore expect an investor to provide funding for the entire project. The memorandum refers to only a “further funding commitment or strength of balance sheet and or underwrites for purchase of units will be required from the investor to allow prime bank funding” to be obtained. This is reflected in cl 7 of the PSSA where Fontur and Primary have agreed to take options to purchase Quest units.
[42] Third, the LFA, the PSSA and the accompanying security documents contain no requirement for additional funding to Colombo. The documents were prepared by Colombo’s solicitors who were also Mr Fonagy’s solicitors. Solicitors representing Mr Fonagy, Mr Chambers and Mr Craig, were present at the 21 October 2015 meeting prior to the preparation of the LFA, PSSA and security documents. They had every opportunity to include terms recording Mr Short’s commitment to provide further funding if that had been discussed and was a matter of importance to Mr Fonagy.
[43] Related to this, Mr Chambers and Mr Craig have not made affidavits to confirm Mr Fonagy’s evidence, whereas Mr Ferguson, who was also present at the 25 October 2015 meeting, has made an affidavit saying the representations were not made.
[44] Mr Bates submits that it is particularly telling that Mr Fonagy’s own solicitors have not given evidence or produced any notes or minutes recording the representations. The inference is irresistible, he submits, that Mr Fonagy’s evidence is false.
[45] Fourth, Mr Bates referred to the terms of the LFA and the PSSA which are inconsistent with the representations having been made. Specifically, cls 23.7 and
23.8 of the LFA provide:
23.7Entire agreement:
This agreement and the other Finance Documents shall constitute the entire agreement between the parties in connection with their subject matter and supersede all previous agreements or understandings between the parties in connection therewith.
23.8Acknowledgements: The Borrower acknowledges:
(a)that no representation, warranty or undertaking has been made by or on behalf of the Lender in relation to the Facility which is not expressly set out in this agreement;
(b)that in deciding to obtain the Facility and/or to proceed with any transaction or project for which the Borrower has sought the facility, the Borrower has not received or relied upon any advice given by or on behalf of the Lender; and
(c)the Borrower has received a copy of each Finance Document.
[46] Similarly, Mr Bates submits that cl 12 of the PSSA, contains no obligation on shareholders to do anything other than consult to pursue options to obtain further capital. It provides:
Further Funding
12.1The Shareholders acknowledge that the Company will require significant capital to complete the Project. The Shareholders must consult with each other in good faith to pursue options to obtain such further capital as and when the Company requires them. The Shareholders agree that such funding may dilute their interests.
12.2The Shareholders may by agreement make further contributions by way of loan funds or equity to the Company:
(a)In proportion to their respective Shareholding or as otherwise agreed; and
(b)on terms agreed by the Shareholders and approved by the Board.
12.3For the avoidance of doubt, unless agreed by all Shareholders no Shareholder is obliged to contribute additional funds either by way of debt or equity under this clause.
[47] Fifth, Mr Bates submits that the alleged representations were nebulous. In effect, Mr Fonagy asserts that Mr Short promised to arrange continuous lines of funding for the project to the full amount needed (over $14,000,000) with no discussion of terms. That is, he submits, commercially absurd.
[48] Sixth, Mr Bates submits that despite Mr Fonagy saying Mr Short told him in November 2016 that he would not be able to provide further funding there was no suggestion at that time, nor in any of the meetings or communications he subsequently had over an extended period with Ms Low, that the representations had been made.
[49] Finally, in so far as Mr Short is said to have represented that he was a lawyer, Mr Bates notes this was not raised when demand was first made upon Mr Fonagy in December 2018 and only arose from investigations made by his solicitors after this proceeding was commenced.
Mr Fonagy’s submissions
[50] Mr Pascariu argues that there are several matters which support Mr Fonagy’s evidence that the representations were made. First, when Mr Fonagy and Mr Short first met in around October 2015, Mr Fonagy had an offer of finance from Anmol. He therefore had options open to him and would not have accepted finance from Primary unless there was an assurance that it would fund the project to completion.
[51] Mr Pascariu referred to the memorandum which stated that total project costs were circa $14,400,000 and referred to the investor making a “further funding commitment”.
[52] He referred me to several terms in the LFA which he submits contemplated that Primary would provide further advances. These included definitions of terms such as the “Facility Amount”, defined as “$850,000 plus any further amounts which the Lender agrees to advance upon request by the Borrower,” and that the LFA contemplated repayment of the loan upon completion of the project.
[53] Mr Pascariu also relies upon the PSSA that states, at cl 2.1(b), as one of its purposes that Colombo obtain finance so that it could undertake the project. He took me also to cl 12 and argues that it is significant as an acknowledgment of the need for further significant capital investment. This, he says, was consistent with Mr Fonagy’s stance that Mr Short represented that he would fund the development to completion and that in his discussions with Ms Low Mr Fonagy was acting consistently with cl 12 in negotiating with Mr Short’s interests to remain as investors rather than exit the project.
Discussion
[54] Mr Fonagy’s case has been presented on an incorrect basis in so far as he relies upon the Contract and Commercial Law Act. A representation, that turns out to be false, that Mr Short would provide funding for the project to completion is not a misrepresentation because it is a statement of intention or of future fact. What is being alleged here is that the representation was a collateral obligation that Mr Short assumed, the consideration for which included the giving of Mr Fonagy’s guarantee.4 In the result, whether it is regarded as a misrepresentation or collateral obligation is of no consequence because Primary has satisfied me that the representation was not made.
[55] The starting point, of course, is that the burden is upon Primary to prove that Mr Fonagy does not have an arguable defence to the claim. It is well established that generally the court will not on a summary judgment application resolve genuine conflicts of evidence. But it is noted in McGechan on Procedure:5
However, the object of the procedure would be thwarted if spurious defences or plainly contrived factual conflicts were permitted to prevent judgment being obtained. … A helpful indicator as to where the line should be drawn is found in the judgment of Greig J in A-G v Rakiura Holdings Ltd (1986) 1 PRNZ 12, at 14:
“In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980]
4 Krukziener v Hanover Finance Ltd, above n 1, at [35]-[36].
5 Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at [HRpt 12.2.06].
AC 331 at 341E, the Judge is not bound: ‘to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be’.”
[56] Mr Fonagy’s case rests on his own evidence of what Mr Short said at the meeting of 25 October 2015. There is almost nothing in the surrounding circumstances, contemporaneous correspondence, the parties’ agreements or evidence from any other person who was at that meeting that the representations were made.
[57] None of the matters that Mr Pascariu relied upon, individually or collectively, suggest the representations were made. As far as Anmol is concerned, it is clear why Mr Fonagy preferred Primary’s offer of funding. Mr Fonagy said the offer was more beneficial in that it allowed for an immediate payment to be made which was clearly significant when Howard was threatening a mortgagee sale. The offer was also consistent with the investment proposal Mr Fonagy was seeking in the memorandum, whereas Anmol’s offer was not.
[58] The terms of the LFA and the PSSA do not assist Mr Fonagy as they did not contain any obligation to provide funding beyond the amount advanced under the LFA. Nothing in any of the terms of the LFA or PSSA that Mr Pascariu referred me to impose, or even suggest, an obligation upon Primary or Mr Short to provide further funding to complete the project.
[59] A realistic approach to the evidence is warranted. There is no correspondence, no file note, no minutes of any meeting, indeed, no written record of any type, which records the representations. The terms of the LFA and the PSSA were drafted by Mr Fonagy’s lawyers. He does not suggest that they were not drafted according to his instructions. There is no evidence from Mr Fonagy’s lawyers that the representations had been made although they were present at the 25 October 2015 meeting. Mr Fonagy does not explain why the LFA and the PSSA are not consistent with the representations. An explanation is called for. As Mr Fonagy is still represented by the same lawyers it could be expected that they would make an affidavit to support his case if they considered they could do so. Their failure to do so is also not explained.
A need for explanations is so vital that the only inference that can be drawn from their absence is that the representations were not made.
[60] It is notable also, Mr Fonagy did not allege that the representations had been made until demand was made upon him under his guarantee. Prior to this he negotiated with Ms Low, who was acting on behalf of Waitangi, JGCT and Primary, concerning the mortgagee sale of 818 Colombo. It is inconceivable that faced with the prospect of losing 818 Colombo Mr Fonagy would not have raised the representations in those discussions. Ms Low says in her affidavit Mr Fonagy “never once” mentioned that Mr Short had made the representations.
[61] As to the allegation that Mr Short represented that he was a lawyer when he did not hold a practising certificate, I am satisfied no such representation was made. I have no doubt that Mr Fonagy knew Mr Short had been a lawyer. In an email Mr Fonagy sent to Mr Howard on 30 October 2015 he referred to Mr Short as a solicitor, but it cannot be inferred from this that Mr Short made any such representation as to his present status as such. Mr Fonagy’s evidence is, again, not supported by any evidence from his own lawyers that such a representation was made. On 11 November 2015, Mr Short sent Mr Fonagy an email from the law firm where he was working and notably his sign off did not describe him as a solicitor. Furthermore, despite Mr Fonagy’s evidence that he was told that Mr Short had problems with the Law Society in December 2016 he did not raise that as a matter of concern and he only had his solicitors investigate Mr Short to raise in defence of this proceeding.
[62] Mr Fonagy’s complaint is not that Mr Short was not a qualified solicitor, as he plainly was, but that he did not hold a current practising certificate and was subject to disciplinary proceedings. The disciplinary proceedings are irrelevant as Mr Short made no representations concerning them. To suggest, as Mr Fonagy does, that because Mr Short no longer held a current practising certificate he could not be considered honest or an experienced professional is fanciful and contrived. There is also no suggestion that it was because Mr Short did not hold a practising certificate he was unable to provide further funding.
[63] I am satisfied that the representations were not made. Primary has satisfied me that Mr Fonagy has no defence to its claim.
The entire agreement clause
[64] Primary argues that the entire agreements clause is conclusive that the LFA contains the only terms agreed as between the parties superseding any prior agreements or understandings.
[65]Section 50 of the Contract and Commercial Law Act provides:
50 Statement, promise, or undertaking during negotiations
(1)This section applies if a contract, or any other document, contains a provision purporting to prevent a court from inquiring into or determining the question of—
(a) whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or
(b) whether, if it was so made or given, it constituted a representation or a term of the contract; or
(c) whether, if it was a representation, it was relied on.
(2)The court is not, in any proceeding in relation to the contract, prevented by the provision from inquiring into and determining any question referred to in subsection (1) unless the court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to the matters specified in subsection (3).
(3)The matters are all the circumstances of the case, including—
(a) the subject matter and value of the transaction; and
(b) the respective bargaining strengths of the parties; and
(c) whether any party was represented or advised by a lawyer at the time of the negotiations or at any other relevant time.
[66] The predecessor of s 50 was s 4(1) of the Contractual Remedies Act 1979 which was in materially similar terms. The interpretation of s 4(1) was discussed in PAE (New Zealand) Ltd v Brosnahan. In that case the Court of Appeal said:6
6 PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611 at [15].
An entire agreement clause, however, is not absolute or conclusive. Section 4(1) recognises a wide judicial discretion to determine whether it is “fair and reasonable that the provision should be conclusive”. While the issue is to be determined “having regard to all the circumstances of the case”, the specified criteria focus the inquiry on an assessment of the relative positions of the parties and their access to independent legal advice. Its apparent purpose is to protect one party’s relative vulnerability from another party’s power to impose an exemption from liability which is contrary to the factual reality or an existing legal obligation and is thus unreasonable and unfair. Section 4(1) is a mechanism for striking balances, both individually between parties and conceptually between freedom of contract and unfair or unreasonable commercial conduct.
[67] The Court in Brosnahan referred to McKay J’s words in Brownlie v Shotover Mining Ltd where he said:7
There can be nothing inherently unfair in such an exclusionary clause. It is highly desirable that written contracts should be so drawn as to state all the terms of the intended contract, and so avoid the uncertainties which can arise from allegations of verbal representations or collateral warranties. If parties have not agreed to include express warranties in their written contract, then it is reasonable for them to state expressly that verbal warranties are excluded. Other matters relevant under the section in determining whether it is fair and reasonable to enforce the clause include “all the circumstances of the case”. This was a commercial contract between commercial parties each with separate legal advice. The subject matter and value of the transaction were sufficiently substantial to justify the expectation that each party would be familiar with its terms and intended to be bound by them. The respective bargaining strengths of the parties would not justify any special indulgence to either. Both parties were represented and advised by solicitors at the relevant time.
[68] Mr Pascariu argues that it is not fair and reasonable that the entire agreement clause be regarded as conclusive because whilst Mr Fonagy had legal advice Mr Short was also a lawyer who had “significant bargaining strength” as a result. As a further matter, he submits that Mr Short had asserted on oath that he was a lawyer, and this was enough to warrant an investigation into the representations which can only be done at trial.
[69] I do not accept these submissions. Mr Fonagy is an experienced property developer. He was undertaking a multi-million dollar development. He had other options of funding available to him, he had legal representation and control over the content of the documents he signed because his solicitors prepared those documents.
7 Brownlie v Shotover Mining Ltd CA181/87, 21 February 1992 at 31 – 32.
If the representations were made (which I do not accept) he could have instructed his solicitors to include them as terms of the LFA or the PSSA or record them by way of collateral agreements. He did none of that. He was not at any disadvantage by way of bargaining strength. There is nothing unfair and unreasonable in the circumstances that he be held to his bargain.
[70] Mr Pascariu is asking the court to investigate whether the representations were made when that is the very thing the entire agreement clause is intended to prevent. Whether the representations were made is, in a case such as this, irrelevant because the parties have agreed that any prior agreements or understandings are superseded, and it is fair and reasonable that the parties’ common intention be given effect to.
[71]For all of the reasons above, Primary is entitled to summary judgment.
An outstanding issue of costs
[72] In a judgment of 21 November 2019, I granted Primary’s application (the protest application) to set aside a protest to jurisdiction filed by Ora Trustees Ltd (Ora). Ora’s protest was in response to an application by Primary for a freezing order over assets it alleged Mr Fonagy had transferred to Ora. The protest application was opposed by Ora. Mr Fonagy took no position on the application. Ora filed an affidavit of Kim Martin White, its then general manager, which stated:
Mr Fonagy is neither a trustee, protector or beneficiary of the [Wharerimu Trust] and therefore does not have any legal or beneficial interests in the Trust’s assets.
[73] Primary considered that Mr White’s evidence was incorrect and was contrary to evidence given by Mr Fonagy in opposition to Primary’s summary judgment application. Primary filed an application for leave to cross-examine witnesses and issue subpoenas (the subpoena application) at the hearing of the protest application. Relevantly in relation to Mr Fonagy, the orders sought included:
(a)that Mr Fonagy provide an affidavit of his personal property including in respect of his personal powers under the Wharerimu Trust deed as settlor;
(b)leave to cross-examine Mr Fonagy on his affidavit of 30 September 2019; and
(c)that Mr Fonagy disclose copies and produce at the hearing the originals of documents relating to the Wharerimu Trust.
[74] The subpoena application was filed on 15 October 2019 and was accompanied by a lengthy memorandum of counsel which noted amongst other things that:
(a)Mr Fonagy had not provided any affidavit evidence to the court supporting Mr White’s evidence;
(b)Mr Fonagy’s affidavit evidence filed in opposition to the summary judgment application was consistent with him maintaining a beneficial interest in the Wharerimu Trust; and
(c)special circumstances existed to allow Mr Fonagy to be cross- examined.
[75] Mr White filed a second affidavit of 23 October 2019 in which he corrected his earlier affidavit in the following terms:
During a further review of Ora Trustees’ files, I have identified that I had mistakenly relied on a draft of one of the Trust documents in our files, instead of the final executed version. Due to this administrative error, the statement that Mr Fonagy is not a beneficiary of the Wharerimu Trust is not correct.
The correct position is that Mr Fonagy is a discretionary beneficiary of the Trust.
[76] On 24 October 2019, Ora’s lawyers wrote to Primary’s lawyers in relation to the subpoena application as follows:
We perceive that your application to cross-examine and for subpoenas was based in large part on the status of Mr Fonagy as a beneficiary of the Wharerimu Trust. Now that you have Mr White’s second affidavit correcting his error in relation to Mr Fonagy’s status as a beneficiary, we invite you to withdraw the application before we incur further costs in relation to it. It is bound to fail as falling well short of the required special circumstances and will only serve to delay the proceedings further.
[77] The subpoena application was not withdrawn and on 29 October 2019 Mr Fonagy filed a notice of opposition to the application. At the hearing of the protest application Mr Fonagy’s counsel did not appear but had prepared and filed written submissions in opposition to the subpoena application.
[78] In my judgment of 21 November 2019 (granting the protest application) I found it was not necessary to consider the subpoena application and I dismissed it accordingly.
[79] Mr Fonagy applies for costs on the subpoena application. His counsel submits that in the subpoena application Primary sought orders directly against Mr Fonagy which he was entitled to, and did, oppose. However, Mr Fonagy only took steps to oppose the application when it became clear that Primary refused to withdraw it despite Mr White correcting the content of his affidavit. Ultimately the application was dismissed, and Mr Fonagy is the successful party entitled to costs.
[80] Primary argues that there was no event upon which costs should sound in favour of Mr Fonagy. It says the subpoena application was properly made and produced a correction of Mr White’s evidence. It also submits that Mr Fonagy had stood by silently until Mr White’s affidavit was corrected when he would have immediately known that Mr White’s evidence was false, and costs should lie where they fall.
[81] I am unable to accept Primary’s position. The subpoena application was filed largely in response to the incorrect evidence of Mr White. Whilst it is arguable the application was properly made, I do not consider Primary was justified in pursuing it when Mr White provided a correcting affidavit. Mr Fonagy was forced to defend his position and ultimately, and not surprisingly in my view, the subpoena application was found to be unnecessary. I consider Mr Fonagy was the successful party and entitled to costs.
[82] I do not accept that the court should exercise its discretion against Mr Fonagy on the basis that he had sat by silently knowing Mr White’s evidence was incorrect as he only opposed the subpoena application after Mr White’s evidence was corrected.
He is not claiming costs for anything done before it should have been clear to Primary the subpoena application was unnecessary. It does not matter, as Primary has suggested, that the subpoena application related to a protest to jurisdiction by Ora which was in control of assets to which Mr Fonagy might have a beneficial entitlement. Mr Fonagy is not responsible for steps taken by Ora.
[83] The costs sought by Mr Fonagy have been assessed on a 2B basis amounting to $6,613. I am satisfied that his costs and disbursements should be calculated on this basis and the schedule of costs and disbursements attached to counsel’s memorandum of 4 March 2020 appears correct. No issue has been taken with it by Primary. On the dismissal of the subpoena application Mr Fonagy is awarded costs of $6,613 (inclusive of disbursements).
Result
[84]Primary has satisfied me that Mr Fonagy has no arguable defence to its claim.
[85] There shall be summary judgment in favour of Primary against Mr Fonagy as follows:
(a)For the principal sum of $850,000; and
(b)Interest on the said sum of $850,000 from 26 May 2016 to the date of this judgment calculated in accordance with clause 6 and 7 of the LFA and pursuant to s 22 of the Interest on Money Claims Act 2016. Leave is reserved for the parties to apply as to any difference between them as to the calculation of interest; and
(c)Judgment for costs of $5,750 pursuant to clause 20.1 of the LFA.
(d)Save as provided below, costs in the proceeding are reserved. If the parties cannot agree on costs Primary may submit a memorandum setting out its claim for costs within 14 days. Mr Fonagy will have 7 days thereafter to respond. Memoranda should be no longer than 10 pages.
[86] In relation to the subpoena application, Mr Fonagy is awarded costs in the sum of $6,613 (including disbursements).
O G Paulsen
Associate Judge
Solicitors:
Brown & Bates, NapierAnderson Creagh Lai Limited (Paul Chambers), Auckland
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