Spinnaker v Moss
[2013] NZHC 2295
•4 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-002282 [2013] NZHC 2295
BETWEEN SPINNAKER CAPITAL LIMITED Plaintiff AND
JEFF MOSS Defendant
Hearing: 20 August 2013 Appearances:
S Grant for Plaintiff
D Hurd for DefendantJudgment:
4 September 2013
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Wednesday, 4 September 2013 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Counsel: S Grant, Auckland
Stewart Germann Law Office, Auckland
SPINNAKER CAPITAL LIMITED v MOSS [2013] NZHC 2295 [4 September 2013]
Introduction
[1] Spinnaker Capital Limited (Spinnaker) applies for summary judgment against
Jeffrey Moss (Mr Moss) to enforce a personal guarantee that he gave for a loan of
$2,052,000 advanced on 17 March 2011 by Spinnaker to Peacock Street Trust Limited (PSTL) as trustee of the Peacock Street (No 2) Trust (the loan). The loan was secured by registered first mortgages over numbers 15, 23 and 25 Peacock Street, Glendowie, and a registered general security agreement over all present and after acquired property of the borrower.
[2] The purpose of the loan was to refinance existing debt. On 12 May 2010, Spinnaker had advanced a loan of $2,010,000 (which included an establishment fee of $110,000) to Moss Auckland Trust Limited (MATL). The loan to MATL was repaid by the loan to PSTL on 17 March 2011. The term of the loan to PSTL was less than two months, with the repayment date being 13 May 2011. The interest rate was 10 per cent per annum with a default rate of 15 per cent per annum above the interest rate.
[3] The loan was not repaid on 13 May 2011. Four and a half months later, on
29 September 2011, the repayment date was extended to 13 February 2012. A further fee of $130,000 was added to the loan as of 1 August 2011 and incurred interest accordingly. At that time, the loan facility was said to be $2,362,000, which included capitalised interest of $82,000. The interest rate remained unchanged but five per cent of the interest was to be paid monthly, with the balance of five per cent interest being added to the loan and itself incurring interest. The loan was to be further secured by an unregistered second mortgage over Levels 1-4, 233 Queen Street, Auckland (the Strand property), with a priority of $450,000 plus costs and interest.
[4] The loan was not repaid on 13 February 2012. Three months later, on
18 April 2012, the repayment date was extended to 30 June 2012. A further fee of
$100,000 was added to the loan as of 31 March 2012 and incurred interest accordingly. At that time, the loan facility was said to be $2,450,000 plus interest. It was also agreed that interest was to be paid “in monthly payments and at the rate of
$10,000 per month”. The priority in respect of the unregistered mortgage over the
Strand property was increased to $1,000,000 plus costs and interest.
[5] The loan was not repaid on 30 June 2012. Seven and a half months later, on
18 February 2013, Spinnaker served a notice of demand on Mr Moss for
$2,740,582.67, the outstanding amount due under the loan pursuant to the guarantee. Mr Moss has failed to comply with the demand. The amount due under the loan as at 30 April 2013, including interest, is said to be $2,838,730.56. Spinnaker now seeks summary judgment against Mr Moss for that sum, arguing that Mr Moss has no defence to its claim.
[6] Mr Moss opposes the application for summary judgment and argues that he has a number of defences, which he says, are reasonably arguable, such that Spinnaker is not entitled to summary judgment. In summary, his defences are:
(a) At the time of the earlier loan to MATL on 12 May 2010, Spinnaker made misrepresentations under the Contractual Remedies Act 1979 and/or engaged in misleading or deceptive conduct under the Fair Trading Act 1986.
(b) The guarantee was entered into without independent legal advice.
(c) Spinnaker’s subsequent conduct in relation to the Strand property is of serious concern and needs proper investigation before any judgment can fairly or safely be entered against him based on the guarantee.
(d)There are serious issues on the quantum of Spinnaker’s claim, including the interest rate applied from time to time and the need to bring into account the value of a profit sharing agreement entered into by Spinnaker with a third party to share any profit from the ultimate sale of 27 Peacock Street, Glendowie, in return for Spinnaker releasing rights under financial statements which form part of its security for the lending to which Mr Moss’ guarantee relates.
Discussion
Misrepresentations and/or misleading or deceptive conduct
[7] Mr Moss says that the misrepresentations and/or misleading or deceptive conduct occurred when he signed a guarantee for the earlier loan to MATL on 12
May 2010. He explains that in February 2010, he was approached by his brother-in- law, Mr Andrew Krukziener, with a proposal that a party friendly to him should purchase certain mortgages over numbers 15, 17, 23, 25 and 27 Peacock Street, Glendowie. The properties had been purchased by Mr Krukziener or his interests over the previous decade as the site on which he planned to construct his dream home. The properties had been purchased with advances from three lenders – Balmain Securities Limited (Balmain), Rice Craig Solicitors Nominee Company Limited (Rice Craig) and Strategic Finance Limited (Strategic). Mr Moss had no prior involvement with the properties or with the debts relating to them. At the time, Mr Krukziener was in financial difficulty and had failed to meet interest payments to the three lenders. Mr Krukziener proposed that the mortgages should be purchased at a highly discounted figure and developed to accommodate three houses. One would be for Mr Krukziener and his family, a second would be for Mr Krukziener’s parents and a third would be for Mr Moss and his wife, Lisa, who is Mr Krukziener’s sister.
[8] In his first affidavit dated 15 July 2013, Mr Moss states:
21.What Andrew knew, but failed to disclose to me, was that these properties had serious slippage issues. I have little doubt that this issue would also have been known to Mr Reesby, given Andrew’s longstanding association with Mr Reesby and his knowledge of this and other properties with which Andrew was involved. The slippage issues ultimately rendered the land unworkable from a redevelopment point of view and, in fact, it has proved to be totally unsaleable. Had these problems been disclosed to me, I would have had no involvement with the properties, the plaintiff, or the transactions on which it now relies.
[9] Mr Moss further states:
24.At the meeting, Mr Reesby told me that he had huge respect for Andrew and his property knowledge and that he had worked on this site for so many years that he knew it best. He advised that the
plaintiff would lend the money to Andrew to complete these transactions but would require my personal guarantee to do so.
[10] Mr Reesby is one of the directors of Spinnaker. In a reply affidavit dated
9 August 2013, Mr Reesby states:
12.I had limited knowledge of the land slippage issues in relation to the Peacock properties at the time the Spinnaker loan agreement and the guarantee were executed. Given his involvement with the properties, Mr Moss was in a much better position than Spinnaker to assess the stability of the properties. If I had known the extent of the land stability issues Spinnaker would not have entered into the loan. Mr Moss says that Mr Krukziener failed to disclose to him that there were serious slippage issues with the Peacock Road properties. Mr Moss implies that he was unaware of the serious slippage issues due to this alleged non-disclosure.
[11] In order to show Mr Moss’ knowledge of the slippage issues, Mr Reesby annexes a copy of an e-mail dated 25 February 2010, sent by Mr Krukziener to Mr Moss. This is two and half months prior to Mr Moss executing the first guarantee. This e-mail attaches an e-mail Mr Krukziener had sent one minute earlier to a Mr Lissington. In the e-mail to Mr Lissington, Mr Krukziener records that 25
Peacock Street was “subject to a major landslip” which would cause stability problems for numbers 15 and 27 Peacock Street, and major damage if certain construction works required by the Council were to be carried out on 23 Peacock Street. He also noted that the problems were so serious that it would be extremely difficult to develop the properties separately.
[12] In his third affidavit dated 15 August 2013, Mr Moss states that the e-mail to Mr Lissington needs to be put in context. Mr Lissington was employed by Balmain, who held a mortgage over 23 Peacock Street. At the time, Mr Krukziener was in negotiations with Mr Lissington to try and purchase the Balmain mortgage at a substantial discount. His ability to purchase the mortgage at a discount depended in part, at least, on Mr Lissington reaching agreement with the ultimate lender in Australia to accept a substantially discounted figure for its mortgage. In this context, Mr Krukziener was exaggerating the land stability issues so that Mr Lissington would be able to use this exaggerated statement to secure a favourable deal with the Australian lender. If achieved, that would then be reflected in a favourable arrangement with Balmain.
[13] However, having carefully considered the affidavit evidence and the submissions of counsel, I am of the view that there is insufficient evidence of any misrepresentations and/or misleading or deceptive conduct on the part of Spinnaker to establish a real question to be tried. Mr Reesby does not deny having some knowledge of the land stability issues. In fact, he says, that he explained to Mr Moss that because of those issues Spinnaker needed a guarantee of substance. This is, however, denied by Mr Moss.
[14] Mr Reesby also says that if he had known the full extent of the land stability issues, Spinnaker would not have entered into the loan. Here I accept what Mr Reesby says, as it is inconceivable that a commercial lender would advance such a substantial sum of money on the basis of a proposal to build three houses on the land if it knew that such a development was not feasible.
[15] The e-mail from Mr Krukziener to Mr Moss dated 25 February 2010 shows that Mr Moss also knew about the land stability issues. Counsel for Mr Moss submitted that Mr Moss thought the attached e-mail to Mr Lissington was somewhat of an overstatement but that it is now clear that it was an understatement. Be that as it may, the e-mail fixes Mr Moss with knowledge.
[16] The fact that Mr Moss assumed Mr Reesby knew just as much as Mr Krukziener because of their close friendship and the fact that Mr Reesby may have told Mr Moss that he had huge respect for Mr Krukziener and his property knowledge, cannot form the basis for an action for misrepresentation under the Contractual Remedies Act and/or for misleading or deceptive conduct under the Fair Trading Act. It seems that at the time when Mr Moss signed the guarantee for the earlier loan to MATL on 12 May 2010, no one knew the full extent of the land stability issues. It has certainly not been shown, even to the lesser standard required to successfully defend summary judgment proceedings, that Spinnaker had more knowledge of the land stability issues than Mr Moss and failed to disclose that information to him.
[17] Because I am of the view that there is insufficient evidence of any misrepresentation and/or misleading or deceptive conduct on the part of Spinnaker to
establish a real question to be tried, I do not need to consider whether the terms of the guarantee even preclude such a claim, as counsel for Spinnaker submits.
Lack of independent legal advice
[18] As to the lack of independent legal advice, Mr Moss states that the documentation in respect of the earlier loan in May 2010, was prepared on his behalf by Chapman Tripp, who also acted for Spinnaker. He states that Shelley Hodge was the partner of Chapman Tripp involved. He says that she e-mailed him in May 2010, asking him to acknowledge that a “Chinese wall” would be in place in respect of the transaction due to a potential conflict of interest. Mr Moss did not annex this documentation to any of his three affidavits. At the time of the loan in March 2011, Mr Moss was represented by Brookfields. In a letter dated 17 March 2011, which is annexed to Mr Reesby’s reply affidavit, Deborah Miller, a partner at Brookfields, confirmed that the firm had acted as solicitors to both the borrower and the guarantor and had advised them accordingly. She also confirmed that they had separately advised Mr Moss that they had a conflict of interest in that they were acting for the borrower and the guarantor in the transaction. She confirmed that Brookfields had advised Mr Moss that he should obtain independent legal advice and had offered to refer him to a firm of independent solicitors. Notwithstanding that advice, Mr Moss continued to instruct Brookfields to act for him and consented to Brookfields acting for the borrower in the same transaction. The letter from Ms Miller went on to state:
3.In discharging our solicitors’ obligations and duties to the Guarantor we have fully advised him of his obligations under the guarantee given, or to be given, by him and, in particular, that:
3.1the guarantee shall extend to, and be security for, the facility made available by the Lender to the Borrower pursuant to a facility agreement intended to be dated on or about the date of this letter;
3.2the Guarantor is liable for all moneys which may at any time be owing by the Borrower to the Lender and the Guarantor’s liability is not limited to amounts arising out of any particular transaction;
3.3 the Lender is not required to take action against the
Borrower before having recourse to the Guarantor; and
3.4the liability of the Guarantor is not and shall not be prejudiced by any arrangement, compromise or other
transaction entered into between the Lender and the Borrower and/or any other company or entity of any nature whatsoever including, without limitation, any deed of priority, compromise, scheme of arrangement, release of securities, waiver of rights or forgiveness of any debt or other obligations.
4.The Guarantor has confirmed to us that he fully understands his obligations under the guarantee.
[19] Spinnaker does not however rely on the guarantee signed by Mr Moss for the earlier loan to MATL on 12 May 2010. It relies on the guarantee signed by Mr Moss on 16 March 2011, which is the one referred to in the letter from Ms Miller confirming the advice given to him both to obtain independent legal advice and as to the effect of the guarantee. Counsel for Mr Moss accepts that the advice given to Mr Moss about the effect of the guarantee was accurate. In all the circumstances, I am of the view that the lack of independent legal advice, in itself, is not a defence to the summary judgment application. Again, there is no real question to be tried.
The Strand property
[20] Mr Moss also complains of subsequent dealings by Spinnaker with the Strand property. The Strand property was included as a security for the loan when it was further extended on 29 September 2011. The security took the form of an unregistered second mortgage with a priority sum of $400,000 and later $1,000,000.
[21] In March 2013, the Strand property was sold by the first mortgagee, NM New Zealand Nominees Limited (NMNZNL) (previously known as AXA New Zealand Nominees Limited). The sale was insufficient to repay to NMNZNL the full amount of the outstanding loan. In his first affidavit dated 15 July 2013, Mr Moss states that the Strand property appears to have been sold to interests associated with Mr Krukziener and his family at a substantially discounted price. He says that he is presently being pursued by NMNZNL under another guarantee he provided of that loan. An identical guarantee of that loan was provided by Mr Krukziener’s wife, Gitta Saidi. In the course of dealings with NMNZNL about that guarantee, Mr Moss says that he has been informed that Mr Reesby or Spinnaker has since purchased the debt from NMNZNL on a discounted basis. Mr Moss says that he has been told that Mr Reesby or Spinnaker has agreed with Mr Krukziener to release the guarantee
provided by Ms Saidi in favour of NMNZNL, which leaves Mr Moss as the sole party exposed on the transaction. He says he has no explanation as to why Mr Reesby or Spinnaker has acted in this way and so clearly to his detriment.
[22] In a reply affidavit dated 9 August 2013, Mr Reesby states that the allegation that the Strand property was sold to interests associated with Mr Krukziener is incorrect, but he is aware that those interests are attempting to buy the Strand property from the entity which purchased it from NMNZNL. He also says that neither he nor Spinnaker has purchased the debt from NMNZNL but that he has purchased the deficit under its mortgage. He states that this transaction has no connection with the loan on 17 March 2011, or the guarantee at issue in the present proceeding.
[23] In his third affidavit dated 15 August 2013, Mr Moss sees the subsequent transactions in relation to the Strand property as highly relevant. He says that it is a transaction under which, or following, the sale of the primary security for Spinnaker’s debt. That security is being sold to interests associated with Mr Reesby’s close friend, Mr Krukziener. It also involves, as he understands it, the release of the guarantee provided by Ms Saidi, his co-guarantor of the loan from NMNZNL. He says this directly impacts on his exposure under the NMNZNL loan, the benefit of the personal covenants under which have now apparently been purchased by Mr Reesby. As Mr Moss sees it, this confirms the extraordinary close relationship between Mr Reesby and Mr Krukziener and the on-going dealings between Mr Reesby and Mr Krukziener, which appear to be designed to damage and have the effect of damaging his personal position. Mr Moss says he sees a real connection between these transactions and the plaintiff ’s claim here. He states that it seems to him that these matters need to be fully investigated through discovery and at trial and it would be unjust for a judgment to be entered against him on a summary basis in those circumstances.
[24] However, I am of the view that the terms of the guarantee signed by Mr Moss do not prohibit Mr Reesby or Spinnaker from dealing with the Strand property as they see fit. As noted by Ms Miller of Brookfields in the letter recording the advice given to Mr Moss, Mr Moss’s liability as guarantor remains notwithstanding any
arrangement, compromise or other transaction entered into between Spinnaker and any other company or entity of any nature, including without limitation any deed of priority, compromise, scheme of arrangement, release of securities, waiver of rights or forgiveness of any debt or other obligations. Any subsequent dealings with the Strand property do not alter Mr Moss’ obligations under the guarantee, nor do they offer a defence to the summary judgment proceedings. There is no real question to be tried.
Quantum of claim
[25] Mr Moss takes issue with two aspects of quantum. The first is the interest rate charged. The interest rate specified in the loan agreement executed by PSTL on
17 March 2011, was 10 per cent per annum with the default rate 15 per cent per annum above the interest rate. This was however subject to cl 6.2 of the loan agreement, which provided that Spinnaker was entitled at any time during the term of the loan (but not earlier than three months after commencement date) or after the term had expired and any part of the loan had been not repaid, to alter the interest rate (by not less than 14 days notice to the borrower) to any rate determined by Spinnaker in its absolute discretion. There is no contest that Spinnaker correctly charged interest of 10 per cent per annum from the date of the advance until 13
February 2012. Although penalty interest had been charged from 13 May 2011, the original due date for repayment, until 31 July 2011, this was reversed on 11 August
2011.
[26] As noted above, on 19 September 2011, the repayment date was extended to
13 February 2012. The loan was not repaid on 13 February 2012 and in terms of the loan agreement, Spinnaker was able to charge 25 per cent interest being 15 per cent interest in addition to the 10 per cent base interest from that date. However, Spinnaker chose to only charge 20 per cent interest from 14 February 2012, until the agreement to extend the repayment date, which was entered into on 18 April 2012. On 13 April 2012, Spinnaker advised Mr Moss that notwithstanding the base interest rate of 10 per cent and the default rate of plus 15 per cent, a reduced default rate of
20 per cent was applied to the loan from 14 February 2012, in accordance with cl 6.2 of the loan agreement.
[27] On 18 April 2012, the loan was further extended. Spinnaker sent a draft loan variation agreement to Mr Moss. The draft contained the following terms:
1. The Repayment Date will be extended to 30 June 2012.
2. The interest rate will reduce to 10 per cent as of 1 April 2012.
3.Interest is to be part paid in monthly payments of $10,000 to be paid on the last day of the month. The balance of the interest accrued will capitalise and be added to the loan and incur interest itself.
4. A further fee of $120,000 will be added to the loan as of 31 March
2012 and will bear interest accordingly.
[28] Mr Moss amended the draft loan variation agreement and returned it to
Spinnaker. He deleted cl 2 altogether. He altered cl 3 to read:
Interest is to be [
part] paid in monthly instalments of [and at the rate of]$10,000.00 [per month] to be paid on the last day of the month. [
Thebalance of the interest accrued will capitalise and be added to the loan and
incur interest itself].
[29] Mr Moss also altered cl 4 to reduce the further fee to be added to the loan from $120,000 to $100,000. Finally, Mr Moss inserted a new clause 10, which provided that the finance rate was to be less than 19 per cent per annum. Mr Reesby says that Spinnaker agreed to these changes in executing the document.
[30] There is however a dispute between the parties as to the meaning and intent of the amended loan variation agreement as executed by the parties. In his reply affidavit dated 9 August 2013, Mr Reesby states:
29.Mr Moss refers to an agreement that interest payments of $10,000 per month were agreed. While this is correct, the agreement did not change the liability for interest. Interest on the loan was initially capitalised. To keep the loan within acceptable credit limits, Spinnaker required monthly payments of $10,000 to be paid in reduction of interest, which was accruing at $40,000 per month. The difference between interest accrued and interest paid, was to be capitalised. This has been done in the calculation of the interest claimed in this proceeding by Spinnaker.
[31] This interpretation is disputed by Mr Moss, who states that interest from
18 April 2012 was to be paid in monthly payments of, and at the rate of, $10,000. He submits that the deletion of the word “part” before the word “paid” and the
deletion of the sentence relating to the balance of the interest accrued capitalising as well as the addition of the words “and at the rate of” make it plain that monthly interest was to be a fixed sum of $10,000 (an interest rate of approximately 4.9 per cent).
[32] The second aspect of quantum with which issue is taken by Mr Moss is a profit sharing agreement apparently entered into between Spinnaker and PSTL. The loan to PSTL was secured by mortgages registered against numbers 15, 23 and 25
Peacock Street, Auckland, and financing instruments registered on the Personal Property Securities Register against PSTL and PS2T for all present and after acquired personal property. PSTL has now given notice to Spinnaker that it intends to acquire 27 Peacock Street, which is presently subject to two mortgages in favour of Johnston Prichard Solicitors Nominee Company Limited. Spinnaker has been advised that the two mortgages will remain in place following the sale of 27 Peacock Street to PSTL, which will also grant a third mortgage in favour of Matakana Farm Investments Limited. In order to facilitate the purchase of 27 Peacock Street, PSTL seeks partial deed poll releases of the financing statements from Spinnaker. The effects of the releases are intended to exclude Spinnaker from any interest in the personal property derived from or associated with 27 Peacock Street. In consideration for Spinnaker granting the releases, PSTL will grant Spinnaker the right to 50 per cent of the profit (if any) made following the sale of 27 Peacock Street. Such profit is net of the repayment of the three mortgages, all interest payable on the mortgages and all costs incurred by PSTL in relation to the ownership, redevelopment and sale of 27 Peacock Street.
[33] Mr Moss complains that the arrangement grants Spinnaker potentially valuable rights in return for security presently held being released. As such, he submits that any profit must be offset against any amount outstanding under the loan and therefore outstanding under the guarantee. He submits it would be fundamentally wrong to enter summary judgment for the amount claimed by Spinnaker, when Spinnaker itself has received or will receive valuable rights on account of the same debt. Mr Moss also says that it is yet another demonstration of the close relationship between Spinnaker and interests associated with the principal debtor and the Krukziener family, who control that principal debtor.
[34] Finally, there is a discrepancy of approximately $4,000 between what Spinnaker says Mr Moss has paid in terms of the guarantee and what Mr Moss says he has in fact paid. Mr Reesby acknowledges that a number of interest payments have been made but states they have all been accounted for. However, as Mr Moss has not produced his records, Mr Reesby says that he has not been able to investigate the $4,000 discrepancy. However, it is not shown in Spinnaker’s bank records as far as his staff can ascertain.
[35] Spinnaker relies on cl 12.3 of the guarantee which provides:
12.3 Certificates Conclusive
A certificate by the Lender of an amount payable under this deed is in the absence of manifest error to be conclusive evidence for all
purposes including for any proceedings.
Spinnaker therefore submits that the loan statement printed as at 30 April 2013, showing the amount due under the loan as $2,838,730.56, is conclusive.
[36] However, I am of the view that there is a real question to be tried about the amount of the interest payable under the loan from the date of its extension on 18
April 2012. Mr Reesby states that Spinnaker accepted the changes made to the draft loan variation agreement by Mr Moss. Mr Moss deleted the word “part” before the word “paid” and inserted the words “and at the rate of”. He also deleted the following sentence: “The balance of the interest accrued will capitalise and be added to the loan and incur interest itself”. Spinnaker has, however, continued to charge interest on the loan at the rate of approximately $40,000 per month. Summary judgment is therefore not appropriate for the full amount of interest claimed. It is accepted however that as at 18 April 2012, the date the loan was further extended, the amount outstanding was $2,450,000 (including the further facility fee of
$100,000 agreed to by Mr Moss).
Conclusion
[37] There being no real question to be tried apart from the question of interest payable from 18 April 2012, there will be summary judgment against the defendant in favour of the plaintiff for the sum of $2,450,000. The issue of the proper interest payable since 18 April 2012, any credit to be given for the profit sharing
arrangement on the future sale of 27 Peacock Street and the $4,000 discrepancy is to go to trial. I request that the Registry now allocate a case management conference to advance those aspects of quantum to a hearing.
[38] The defendant is also to pay the costs of and incidental to this proceeding on a full indemnity basis pursuant to cl 11.2 of the guarantee.
……………………………….
Woolford J
0
1