Skidmore v Pye
[2013] NZHC 3171
•25 November 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001337 [2013] NZHC 3171
BETWEEN ANDREW JAMES SKIDMORE Plaintiff
ANDALAN JOHN PYE Defendant
Hearing: 25 November 2013
Appearances: T Mackenzie for Plaintiff
H D P van Schreven for Defendant
Judgment: 25 November 2013
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on plaintiff ’s summary judgment application
Two finance facilities
[1] The plaintiff sought judgment for a debt of $280,022.40 owing as commission for arranging finance. The defendant admits that he is liable to pay something. The defendant says that he has however a set-off for a payment of
$71,831.73 which the plaintiff was required to meet in relation to a previous facility arranged by the plaintiff. The defendant has since the proceeding was issued paid the undisputed portion so that the plaintiff now seeks judgment for $71,831.73. The defendant said in opposition:
That whilst the Defendant does not dispute a liability in respect to the
Plaintiff’s claims, the Defendant does dispute the quantum of that claim.
The Defendant claims he is entitled to set off against the Plaintiff’s demand, the sum of $71,831.73 being legal expenses which the Defendant has incurred and paid and being expenses which the Plaintiff agreed he would pay.
SKIDMORE v PYE [2013] NZHC 3171 [25 November 2013]
[2] The issues for resolution are therefore:
(a) Has the defendant established an evidential foundation for asserting a claim of $71,831.73 against the plaintiff; and
(b)Does such a claim constitute as a matter of law an arguable set-off of the kind recognised in Grant v NZMC Ltd.1
Summary judgment context
[3] As the plaintiff pursues summary judgment the application is to be dealt with in terms of r 12.2(1) High Court Rules. The plaintiff must satisfy me that the defendant has no defence to the plaintiff’s cause of action. In examining defences in this context, I am not required to accept uncritically every allegation put before me.2
[4] I will refer to the plaintiff and defendant respectively as Mr Skidmore and Mr
Pye.
Finance facilities
[5] Mr Skidmore and Mr Pye have had two contracts whereby Mr Skidmore agreed to arrange finance facilities for Mr Pye.
[6] In the first contract (contract 1) Mr Skidmore arranged a facility of $20 million in 2011.
[7] In the second contract (contract 2) Mr Skidmore arranged a facility of
$7,560,000. Mr Skidmore claims, and Mr Pye accepts, that facility fee payable under contract 2 was partly paid by Mr Pye (as to approximately one-fifth) in February 2012 with the balance of $280,022.40 becoming due for payment in August
2012. It is that sum on contract 2, now unpaid by Mr Pye to the extent of
$71,831.73, which is the subject of this summary judgment application.
1 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) per Somers J at 12 – 13.
2 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).
[8] Mr Pye asserts that he is entitled to set-off the sum of $71,831.73 arising under contract 1.
Contract 1
[9] The agreed commission under contract 1 was 5 percent of the finance facility sum.
[10] At the point (later than expected) when Mr Skidmore was able to arrange the required facility, he wrote to Mr Pye by email dated 21 September 2011. He offered Mr Pye a concession in relation to the 5 percent commission. Mr Skidmore in his email stated:
As per our conversation and agreement several months ago, I have now arranged a facility for you for $20,000,000.00 NZD.
Better late than never.
It would appear reasonable to me, and I am sure to you as well, that the legals incurred for the loan documentation etc from both Shehadie and MDS Law be paid for out of the 5% fee on the total of funds raised for you. At least this makes me pay for the [sic] all the grief that the time to arrange these funds for you has taken.
I am flexible with the timeframe over which you choose to pay this establishment/procurement fee and to whom I invoice for it.
What will need paying immediately after you receive funds from John Grill is the legal costs of Shehadie and MDS Law along with $200,000.
The balance can then be paid by $250,000 in 12 months time with the final amount due on expiry of the facility in 2-3 years time.
…
[11] Mr Pye accepted the concession offered and indeed now seeks to enforce what he asserts to be the correct construction of the arrangement.
[12] It is common ground between counsel that the final payment under contract 1 will become due for payment when the finance facility arranged in 2011 expires or terminates.
[13] The contract 1 facility was drawn down by Mr Pye in October 2011.
[14] At the time of the drawdown, Mr Pye made two sets of payments:
(a) The legal fees payable to Shehadie and MDS Law (met by deduction from the drawdown);
(b) The $200,000 first tranche of commission to Mr Skidmore (paid).
[15] Mr Pye paid the second tranche to Mr Skidmore namely $250,000 as required under the arrangement approximately 12 months later.
[16] Mr Pye did not make any suggestion to Mr Skidmore that Mr Skidmore should at that point cover the legal fees, either when Mr Pye paid them (through his solicitors’ deduction) or when Mr Pye paid the first tranche of the $200,000 at that time. Nor did Mr Pye make such suggestion when he paid the second tranche of
$250,000 a year later. If Mr Pye’s present argument as to the interpretation of the legal fees arrangement under contract 1 were correct, he would have been entitled to deduct the legal expenses of $71,831.73 from either the first $200,000 tranche or the second $250,000 tranche.
The asserted rights under contract 1
[17] For Mr Pye, Mr van Schreven asserts that:
(a) Mr Pye has a present right to deduct the contract 1 legal fees; and
(b)That right constitutes an entitlement to set-off the $71,831.73 against money owed to Mr Skidmore under contract 2 because the two contracts have the degree of inter-dependence required as the link under the principles in Grant v NZMC Ltd.3
The commitment to meeting Mr Pye’s legal fees – the timing
[18] Mr van Schreven submits that the proper construction to be placed on Mr
Skidmore’s email offer of September 2011 (accepted by Mr Pye) is that Mr
Skidmore thereby committed himself to meet Mr Pye’s legal expenses. I quote that submission from Mr van Schreven’s written submissions.
[19] When, in his oral submissions, Mr van Schreven referred to a contractual commitment whereby Mr Skidmore would “pay” the legal fees. I challenged Mr van Schreven as to the source of such an obligation in the documented offer. Mr van Schreven appeared to accept that he could not go so far on the evidence as to assert an obligation to pay (as against an obligation to absorb the legal fees).
[20] It is clear beyond argument from the 21 September 2011 email that what Mr
Skidmore offered was to absorb the legal fees. In the fifth paragraph of the email,4
Mr Skidmore made it clear to Mr Pye that Mr Pye would have to pay the legal fees on top of the $200,000 he would be paying to Mr Skidmore. Mr Skidmore’s express reference to two tranches as being $200,000 and $250,000 then confirmed the amounts that Mr Skidmore would receive. Mr Skidmore’s email then refers to the balance (being the balance of 5 percent fee after deduction of $200,000 and
$250,0000 and of the $71,831.73 legal costs) as being paid on the expiry of the facility (expected in two to three years’ time). In that way, the meaning of the email offer is that Mr Skidmore would absorb the cost of the legal fees with the consequence that Mr Pye would pay through three tranches of payment the 5 percent commission less the legal fees. In effect the 5 percent commission was reduced at the outset by the figure represented by the legal fees. That was the benefit of Mr Skidmore’s gesture to Mr Pye.
[21] The 21 September 2011 email is the single contemporaneous document which informs the contractual interpretation in this case. Nothing in the arrangement entitled Mr Pye to call upon Mr Skidmore to pay legal fees (to someone with whom he had no legal relationship) or to reimburse by a cash payment to Mr Pye the legal fees which Mr Pye paid.
[22] It does not arguably confer on Mr Pye a contractual right to call for cash reimbursement of legal costs he paid.
[23] Beyond the document itself, Mr Pye’s conduct is very strongly indicative that that was the view which he took of the arrangement from the outset until Mr Skidmore last year sought payment of his entitlement under contract 2. He did not make any request for payment of or reimbursement of legal expenses in October
2011, when Mr Pye met the legal fees. Similarly, Mr Pye did not purport to deduct from the $250,000 tranche he paid a year later. But if his now asserted view of the arrangement were correct, he would have been entitled to do so.
[24] Mr Pye raised these matters only when demand for payment of Mr
Skidmore’s undisputed entitlements under contract 2 arose.
[25] Although evidence of the conduct after the contract must be very carefully scrutinised for relevance even in a trial context, this is a case where Mr Pye’s subsequent conduct completely reinforces the ordinary contractual meaning. Mr Pye has chosen in his evidence in opposition not to provide any explanation as to his failure to pursue from October 2011 repayment of legal expenses. Tellingly he did not, when making the second payment of the $250,000, raise the issue let alone make any deduction as he could have, if the present assertion were correct. I find that Mr Pye’s opposition fails on the first ground of opposition, because there is no arguable case that Mr Pye has a present right to payment of $71,831.73 from Mr Skidmore under contract 1.
Set-off as a ground of opposition
[26] Although I must find for the plaintiff by reason of the finding just made, I would also have found against the defendant on the basis that the two contracts involved and the obligations under them do not contain the link that is required for inter-relationship in terms of the authorities. Mr Mackenzie and Mr van Schreven both accepted the principles in this area as enunciated by the Court of Appeal in Grant v NZMC Ltd:5
The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiffs’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one
cannot fairly be given without regard to the other; the defendant's claim calls into question or impeaches the plaintiff's demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
Counsel also accepted as applicable the further enunciation by Tipping J in Hamilton
Ice Arena Ltd v Perry Developments Ltd in which his Honour said:6
Equitable set-off – general principles
[3] Before examining the facts of the present case, we will identify the general principles which apply to equitable set-off. A set-off is a right vested in a defendant facing a money claim by a plaintiff to use its own money claim against the plaintiff to absolve itself wholly or partially from its obligation to the plaintiff. A set-off is different from a counterclaim which, if established, gives the defendant a right to an independent judgment against the plaintiff, but no ability to reduce or extinguish the plaintiff’s claim against the defendant. Common law set-off originated in statutes passed early in the eighteenth century. Essentially the common law right was to set- off mutual liquidated debts. Equity intervened to allow set-off on a wider basis than that available at law. Cross-claims were allowed by way of defence, and the Courts of equity would also restrain a plaintiff from proceeding at law if the defendant could show a cross-claim which had the effect of impeaching the plaintiff’s title to make the claim at law. It is helpful to remember this historical origin when examining claims of equitable set- off today.
[4] Equity would intervene only if the defendant in the suit at law could show some cross-claim for a sum of money which, in the eyes of equity, undermined the right of the plaintiff in the suit at law to enforce his legal claim either at all, or to the extent of the cross-claim. Equity always acknowledged the defendant’s right to counterclaim but took the view that in some circumstances such right was not sufficient to do justice. The Courts of equity would not readily interfere with the proceedings at law and confined themselves to cases where the claim at law and the defendant’s cross-claim were so closely interrelated that it would be unconscionable for the plaintiff to seek judgment at law without bringing the defendant’s cross-claim to account.
[5] The need for such close inter-relationship was and still is underscored by the fact that an equitable set-off extinguishes the plaintiff’s right to judgment, either entirely or pro tanto, according to the amount which the defendant is entitled to set-off.
[27] I also adopt, as Mr Mackenzie did, the observation of Forbes J in British
Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd7 where it was said:
6 Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 at [3] – [5] per Tipping J.
7 British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 at
145.
… the equity must go to the very root of the plaintiff’s claim.
[28] In this case, contract 1 and contract 2 are between the same parties. That said, Mr Mackenzie submitted that there is no real link between the debts themselves. Two different contracts were entered to. Each had its own spelt out arrangements as to payments to be made.
[29] Mr van Schreven puts emphasis upon a single aspect of evidence namely a reference by Mr Skidmore in a 2012 email when contract 2 was being put in place. In that email, Mr Skidmore said:
As per our original understanding and our ongoing arrangement, my facilittion (sic)/procurement fee for the NZ$7,000,560.00 is my standard 5% with one fifth payable on drawdown of the funds and the balance payable on final repayment of this specific facility.
(Mr van Schreven’s emphasis)
[30] Mr van Schreven submitted that the words “our ongoing arrangement” suggested such a connection or inter-relationship as to attract the application of the set-off principles to debts under the two contracts. Mr Pye did not give any evidence explaining such inter-relationship or identifying any points of factual tie-up between the two debts. Many commercial people in organisations have their ongoing arrangements. Lawyers, accountants, banks and insurers are some who come to mind. They often have arrangements as to the levels of fees and commissions which remain in place and are applied to later contracts unless and until altered between the parties. That does not make the contracts interdependent or sufficiently linked so as to make it inequitable for a party to insist on the contractual rights which the parties had agreed in relation to a particular contract. A failure by Mr Skidmore to honour a payment under contract 1 would not be an injustice going to the root of Mr Skidmore’s claim on contract 2. Mr Pye’s opposition in this case fails for lack of interdependence of the debt owed to Mr Skidmore and that which Mr Pye claims is owed to him.
Orders
[31] I therefore order:
(a) Summary judgment is entered against the defendant for $71,831.73;
(b) The defendant is to pay interest to the plaintiff on the sum of
$280,022.40 at the Judicature Act rate from 2 July 2013 to 2
September (inclusive);
(c) The defendant is to pay interest to the plaintiff on the sum of
$71,831.73 at the Judicature Act rate from 3 September to today
(inclusive); and
(d)The defendant is to pay the costs of this proceeding on a 2B basis together with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Solicitors:
Wynn Williams & Co, Christchurch for Plaintiff
Clarke Boyce, Christchurch for Defendant
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