Stellar Homes Limited (in receivership) v Fordsan Construction Limited
[2019] NZHC 2061
•23 August 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001586
[2019] NZHC 2061
BETWEEN STELLAR HOMES LIMITED (IN RECEIVERSHIP)
PlaintiffAND
FORDSAN CONSTRUCTION LIMITED
First Defendant
FREDERICK RYDER VERBEEK VAN DER SANDE
Second Defendant
Hearing: 5 March 2019 Appearances:
A W Johnson and K R Narayanan for the Plaintiff B Molloy and K R Lydiard for the Defendants
Judgment:
23 August 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 23 August 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors / Counsel:
Haigh Lyon, Auckland
Martelli McKegg, Auckland
STELLAR HOMES LTD v FORDSAN CONSTRUCTION LTD [2019] NZHC 2061 [23 August 2019]
Introduction
[1] The plaintiff, Stellar Homes Ltd (in receivership) seeks summary judgment for an alleged debt in a proceeding arising out of a failed joint venture.
[2] The joint venture was established to realise the aspirations of two individuals: an accountant, Mr Kelvin Syms, and a builder, the second defendant, Mr Frederick Van der Sande. They agreed, through a trust in which Mr Syms had an interest, and corporate entities of Mr Van der Sande, to undertake residential property development. In broad terms, Mr Syms’ role was to provide funding from a family trust, the K J Syms No 2 Trust (the trust). Mr Van der Sande’s role was to apply his expertise in securing contracts and in management of the development and building work.
[3] The joint venture vehicle was Stellar. It was incorporated in 2011. On 28 July 2017, receivers were appointed to Stellar pursuant to a general security held by the trust over all Stellar’s assets.
[4] The first defendant, Fordsan Construction Ltd, is a company controlled by Mr Van der Sande. Stellar engaged Fordsan as project manager for construction work and agreed to pay Fordsan a monthly fee for this service.
[5] The statement of claim is founded on what is said to be a deed made in mid-2017 which Stellar claims is binding on Fordsan and Mr Van der Sande. A central issue is whether this document is binding on the defendants as a deed. I am satisfied that it is arguable that it is not binding. Despite this, for convenience, I will refer to it as “the Deed”. Stellar in its pleadings contends that the Deed establishes Fordsan’s liability in debt arising from an advance of $840,049 by Stellar to Fordsan and guarantee of repayment from Mr Van der Sande. The receivers accept that a set-off claim of Fordsan is arguable and seek summary judgment for $703,345 plus interest.
[6] Fordsan and Mr Van der Sande oppose summary judgment. They say they have arguable defences to the entire claim; notably that there was and is no debt owed by Fordsan to Stellar and that the Deed has no effect.
[7] For reasons that follow I am satisfied that Stellar is not entitled to summary judgment on the pleaded claim. It has not discharged the onus it has to demonstrate a clear evidentiary foundation for liability or for the sum claimed. Nor has it met the heavy onus to establish that there is no tenable defence or set-off to the claim.
[8] I refer purposefully to “the pleaded claim”. This is because, in the reply evidence and at the hearing, there was a marked change in Stellar’s case from the claims in the statement of claim and affidavit evidence in support from one of the receivers. After the defendants’ evidence was filed, what amounts to a new case was advanced. This was founded on evidence purportedly in reply. This evidence in fact confirmed a defence contention that, contrary to the pleaded case, there never was a simple debt arising from an advance of $840,049. But it went further and was the foundation for a case different from the pleaded claim. This is, in essence two-pronged: that Fordsan paid for expenses unrelated to Stellar (which is disputed), and most significantly, that:
(a)Monthly management fees paid by Stellar to Fordsan throughout the joint venture operation could not be retained by Fordsan.
(b)The founding agreements for the joint venture provide that Fordsan could only retain fees if Stellar had what is defined as “surplus” income in each financial year and that Stellar’s profit was insufficient. In other words, the new case is that Fordsan is not entitled to be paid for the services it has provided.
(c)All parties had agreed in 2016 to treat the fees and expenses paid to Fordsan as a loan from Stellar to Fordsan.
[9] There is a question whether this new case (which is denied) can be considered on a summary judgment application. This turns, at least in part, on whether the new evidence is admissible as evidence in reply in terms of r 12.11(2)(a) of the High Court Rules. I discuss these issues, together with the principles applicable, and my conclusion, in the next section.
Summary judgment principles
The general principles
[10] Summary judgment for a plaintiff is provided for in High Court Rule 12.2(1). The driving question is whether the defendant has no defence to the claim.1 The plaintiff has the onus, but where its evidence is sufficient to show there is no defence the defendant will have to respond to show why the application should be defeated. But the Court must be left with no real doubt or uncertainty.
[11]It is worth restating the way the Court of Appeal framed these principles in
Krukziener v Hanover Finance Ltd:2
[26] 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. 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. 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. 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.
[27] Under r 141A of the High Court Rules the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
(citations omitted)
[12] The courts have consistently noted that summary judgment is not the appropriate procedure for the determination of issues of fact.3 In Westpac Banking Corporation v M M Kembla New Zealand Limited Elias CJ set out the following principles, subsequently endorsed by the Privy Council in Jones v Attorney General:4
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
2 Krukziener v Hanover Finance Limited [2008] NZCA 187, [2010] NZAR 307.
3 At [26].
4 Westpac Banking Corporation v M M Kembla New Zealand Limited [2001] 2 NZLR 298 (CA); cited in Jones v Attorney General [2004] 1 NZLR 433 (PC) at [5].
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear, novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the plaintiff’s claim ….
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
(citations omitted)
[13]The assessment of the evidence is in the end a matter of judgment.
Reply principles
[14] Rule 12.11(2)(a) provides that a reply affidavit may be filed by the plaintiff in a summary judgment application, but that the matters in the reply must be limited to “new matters” raised by the opposition in its affidavit. As the Court said in Heli Holding Ltd v The Helicopter Line Ltd, new matters will generally be limited to the following:5
(a)the grounds of defence which the plaintiff, prior to filing its application for summary judgment in the supporting affidavit, was not aware; and
5 Heli Holdings Ltd v Helicopter Line Ltd [2014] NZHC 664 at [29].
(b)any sophisticated arguments or evidence going to support that ground (of defence) which have not previously been provided by the defendant to the plaintiff.
[15] In this case, Stellar, in support of its summary judgment application, provided a relatively brief affidavit sworn by Mr Greenway, one of the receivers. Mr Van der Sande filed a notice of opposition for Fordsan and himself, supported by his own affidavit evidence.
[16] In purported reply, Stellar filed three affidavits from three new deponents, all of whom depose that they are trustees of the trust. They are Gina Cartwright, David Stock and Mr Andrew Harris, an accountant with the accounting practice Grant Thornton and the accountant for Stellar.6 As well as being the trust’s accountant, he prepared the annual financial statements for Stellar from 2013 and was, it seems, increasingly involved more broadly in Stellar’s affairs since then. Mr Stock, a solicitor was also actively and increasingly involved in Stellar’s affairs over the years of its operation. Mr Stock also appears to have drafted the Deed on which the trust as well as Stellar rely. His firm was responsible for the preparation of the founding agreements for the joint venture agreement. A body of new documentary evidence was produced.
[17] The evidence in reply is evidence that could and should have been given in support of Stellar’s claim. It goes much further than that contained in Mr Greenway’s affidavit. New or substantially developed material in the reply evidence includes evidence that provides the grounds for the new claim against Fordsan. It discusses a changed approach to management fees paid by Stellar to Fordsan as recorded in the financial statements as well as indicating a dispute over the authorisation and payment of certain expenses.
[18] Mr Greenway, in his affidavit, in contesting Mr Van der Sande’s contention in earlier correspondence that Fordsan was not a debtor of Stellar, referred to Stellar’s
6 It might be inferred that Mr Harris is in fact the representative of the third trustee referred to in the deed, Trust Service 2 Ltd, and that the third trustee is a Grant Thornton trust company, but these are unanswered questions.
financial statements for the year ended 31 March 2015 recording a debt owed by Fordsan of $479,475. The new evidence develops a different basis for the alleged undisputed debt of $437,785, and for the increase in the alleged debt to $840,049. It could be argued that some of this new, or substantially developed, evidence is properly in reply to Mr Van der Sande’s evidence, but, in my assessment, the important part of it for Stellar goes well beyond an answer to “new matters” raised in opposition and changes the very basis of its claim.
[19] I am satisfied that much of the new evidence is not in reply as defined in r 12.11(2)(a). And the case initially advanced on the statement of claim and the affidavit in support from Mr Greenway is materially different from the case as advanced at the hearing (the new case). On a reasonable application of the Rules, Stellar has, for these reasons, failed to meet the onus on it to be entitled to summary judgment. However, the Court has power under r 1.5(2)(b) to make a just order to deal with the breach. I consider it just that the Court should take account of the “reply evidence”, and assess the new case, but in doing so such evidence is to be scrutinised with a heightened degree of caution. This is because the defendants, when filing their opposition and evidence, did not have the new evidence, or the new case, to respond to.
Background
[20] Upon Stellar’s incorporation in 2011, its founding directors were Mr Van der Sande and a Mr Maude, an associate of Mr Syms. The evidence suggests that Mr Syms was an active de facto director of Stellar and that Mr Maude may have taken a back seat. Stellar’s shareholders were Trans-Tasman Corporate Trustees (2010) Ltd (TTC) and FDS Group Ltd (FDS). The evidence is not entirely clear, but it appears that TTC was the sole trustee of the trust. FDS, as with Fordsan, was a company controlled by Mr Van der Sande.
[21] The evidence indicates that, for several years, Stellar operated without discord between the principals, Mr Van der Sande and Mr Syms. They appear to have been at the forefront of Stellar’s activities and to have enjoyed a good working relationship. On the issue central to this proceeding, it seems they were of one mind regarding
payment for Fordsan’s services: payments were made in accordance with the two founding documents for the joint venture – a Shareholders’ Agreement and a Management Agreement – and there was no requirement that Fordsan repay, or in some other way account to, Stellar for the fees paid for its services over some four years. These were services essential to Stellar’s operation. Some of the provisions of the two founding agreements are central to the present application and are recorded or summarised in the next paragraphs.
The Shareholders’ Agreement
[22] Clause 5.4 of the Shareholders’ Agreement set outs the basis on which “surplus moneys” were to be distributed between FDC and TTC. It also makes provision for treatment, as between the shareholders, of monthly management fees paid to Fordsan if there were any surplus monies to be shared by the shareholders. Fordsan was not a party to this agreement. The central provisions of clause 5.4 are as follows:
Distribution of Moneys
(a)The parties agree that after meeting all interest payable on moneys borrowed by the Company [Stellar] and all other liabilities of the Company any surplus moneys available for distribution shall be distributed in the following manner:
(i)65% thereof to FDS provided that any management fees paid to Fordsan Limited shall be taken into account as being in part payment of that 65% payable to FDS; and
(ii)35% thereof to TTC.
(b)Payment of the amount due under clause 5.49(a) may be made by way of a management fee, dividends, or in such other manner as the parties may agree in accordance with best practice and in compliance with all tax requirements.
[23] Clause 5.4(a) refers to payment of interest on all monies borrowed by Stellar. As noted in the introduction and recorded in the Shareholders’ Agreement (and the Management Agreement, which I will come to), the trust’s contribution to the joint venture was funding. This came as a loan to Stellar. Interest was paid regularly to the trust as an expense of Stellar. Particulars of interest payments, and repayments of the principal (referred to in the evidence) are set out in a table included as a schedule to this judgment. The management fees to Fordsan, noted in clause 5.4(a)(i), are shown
in the statements as paid regularly until the year ended March 2014. Those monthly management fees, like the interest to the trust, were treated as an expense of Stellar. They were also provided for in the management agreement, as noted below. The Shareholders’ Agreement appears not to have been signed by the parties (and the same is true of the Management Agreement), but it is common ground that they were binding on the parties from the outset. The signing page of the agreement includes, as additional signatories, Mr Syms and Mr Stock.
The Management Agreement
[24] The Management Agreement was made between the two shareholders and Stellar. FDS was designated as “Manager”, a role to be distinguished from Fordsan’s provision of managerial services. FDS’s role was to bring to the joint venture expertise that it had acquired in the provision of management services to property and residential house building companies. TTC was to provide funding, to come primarily from a loan to be advanced by the trustees of the trust. Stellar was to engage Fordsan to undertake the necessary management services for the day to day building operations of Stellar, and to pay Fordsan a monthly management fee. That fee was to be “as agreed by Stellar and TTC”.
[25] These arrangements are set out in clauses 4, 5 and 6 of the agreement. The clauses state:
4.PROVISION OF FUNDING
The parties agree to enter into a loan agreement with the trustees of the K J Syms No 2 Trust (the Funder) under which the Funder shall have the first right to provide moneys to Stellar for the purposes of carrying out Developments as set out in this agreement. All interest under that Loan Agreement shall be paid before any distributions are made to TCC or the Manager, and before determining the pre-tax profits of Stellar.
5.ENGAGEMENT OF FORDSAN
Stellar agrees to engage Fordsan Limited to arrange all contracts for the construction work required by Stellar subject to Fordsan being able to provide a competitive and timely service. Stellar shall pay to Fordsan a monthly management fee for that service as agreed by Stellar and TTC. Where any cash is available for distribution under the provisions of clause 6 then any fees paid to Fordsan shall be added back to the amount distributable to the Manager. Any change of
control of Fordsan shall entitle Stellar to cancel any arrangements with Fordsan.
6.MANAGEMENT FEE
6.1The Manager [FDS] shall receive a management fee equal to 65% of the pre-tax profits of Stellar at the end of each financial year with any payment to Fordsan Ltd under clause
5 being on account of distribution of such profit to the Manager. The fees to Fordsan under clause 5 shall be payable monthly and recovered from the Manager’s share of the profits as set out in clause 5.4 of the Shareholders Agreement. Such fee shall be credited to the Manager in the financial statements of Stellar within six (6) months of the end of each financial year. Stellar shall pay GST on such payment within 14 days from receipt of a GST tax invoice. The balance of those profits comprising 35% of all pretax profits shall be payable to TTC and shall be credited to TTC in the financial statements of Stellar on the same basis as the share of profits of the Manager.
6.2All fees payable pursuant to the terms of this Agreement shall be payable together with goods and services tax and the Manager and TTC shall provide an appropriate tax invoice to Stellar in respect of payments of Management Fees and other amounts pursuant to this Agreement.
6.3The amount of the Management Fee will be reviewed by the parties if the nature or extent of the business or proposed activities of Stellar differ significantly from those contemplated by the Shareholders’ Agreement.
[26] These clauses, somewhat confusingly, refer to two types of manager and two types of management fee relating to Mr Van der Sande’s companies, FDS and Fordsan. The management fee payable to Fordsan is referred to in this judgment as “the monthly management fee”. What is described in clause 6 as a “management fee” payable to FDS will be referred to as “the FDS profit share”. The nature of this payment to FDS is the same as the nature of the annual profit share for TTC: clause 5.4(b) of the Shareholders’ Agreement provides that payment of the “surplus” – profit before tax – to TTC as well as FDS could be made “by way of a management fee, dividends, or in such other manner as the parties may agree.”
[27] Clause 16.1 of the Management Agreement is also relevant. It provides that no amendment of the agreement “will be effective unless it is in writing and signed by each of the parties”.
Operations from 2011 to 2015
[28] Operations began in 2011. Mr Van der Sande said, essentially, that no material issues arose between him and Mr Syms throughout their dealings.
[29] Through to the end of the financial year on 31 March 2014, monthly management fees were paid to Fordsan and recorded in Stellar’s accounts as an operating expense. Overall, there were no surpluses for division between FDS and TTC. Consistently with the Shareholders’ and Management agreements, there were no adjustments between the shareholders in respect of the monthly management fees.7 Nor was there any suggestion by or on behalf of Stellar that Fordsan had to account for the fees to Stellar in some way. Particulars of the payments to Fordsan and the way in which they were recorded in Stellar’s accounts are in the table attached as a schedule to this judgment. As shown, the consistent treatment of the monthly management fee to Fordsan, as an expense, continued until it markedly changed in the financial statements for the year ended 31 March 2015.
From 2015: changes in control and accounting
[30] It appears that Mr Syms died unexpectedly in 2014. Mr Van der Sande says that Mr Syms’ death proved to be a turning point for Stellar’s business and for Fordsan. He says the attitudes of those who took control of the trust represented a major shift and that Stellar’s business ceased to function as agreed and intended.
[31] There were changes in the trustees of the trust and in the effective directors of Stellar for the trust. The evidence on both sides establishes that, following these changes, there was a major shift in the way in which the monthly management fees were treated.
[32]The following changes of personnel occurred following Mr Syms’ death:
7 I pause to note that I discuss the interpretation of the agreements later, in my analysis of the Stellar’s case.
(a)Three new trustees were appointed to the trust: Ms Gina Cartwright, Mr David Lock, and Mr Harris for, it seems, the Trust Service 2 Ltd.
(b)The formally appointed directors of Stellar remained the same until December 2017 when Mr Maude, representative of the trust, was declared bankrupt. As I discussed earlier, the evidence suggests that, when Mr Syms was alive, Mr Maude’s role had been largely passive, and that it was Mr Syms – as de facto director of Stellar – who was the active mind in the decision making concerning the advancement of trust funds to Stellar for the joint venture, and in making Stellar’s board decisions with Mr Van der Sande. This included decisions on the payment of monthly management fees to Fordsan, and how they should be treated in relation to Stellar’s before-tax surplus at the end of each financial year. The evidence from Mr Van der Sande, which I cannot dismiss on this application, indicates that, after Mr Syms died, Mr Maude’s role remained passive and the new trustees, or at least some of them, also acted as de facto directors of Stellar. Mr Van der Sande’s evidence is that they did so without proper regard for his opinions and wishes in spite of his continuing as a director.
(c)It appears that TTC remained a shareholder of Stellar throughout the relevant period, but there is a suggestion in the evidence that its active involvement in Stellar’s affairs came to an end on or about 11 June 2015.
[33] Mr Harris continued as Stellar’s accountant and as accountant for the trust. There were other changes in treatment regarding Stellar’s accounts of importance to its case, in addition to that of the monthly management fee. The trust also took steps to shore up its position as a creditor of Stellar. According to the financial statements for the financial year ended 31 March 2012, the funds advanced by the trust were not secured. The trust became a secured creditor of Stellar pursuant to a general security that is first referred to in the financial statements for the financial year ended 31 March 2014.
[34] The trustees also required a change in the treatment of the monthly management fees. This change was despite what appears to be the ongoing reality, acknowledged in the trust’s minutes of 11 May 2016, that “the management fee was now $8,000”. The management fees were instead treated as an advance to Fordsan and, in Stellar’s annual financial statements for the financial year ended 31 March 2015, Fordsan was, for the first time, recorded as a debtor of Stellar. The total of the purported debt is $479,457. It is not entirely clear how this was calculated, but it seems reasonably clear that it is the sum of monthly management fees for 2015 and some of the preceding years, together with some expenses paid by Stellar to Fordsan which the trustees disputed.
[35] The 2015 financial statements were adopted by a resolution of the then shareholders, FDS and TTC. The resolution and financial statements themselves were signed by Mr Van der Sande and Mr Maude. The purported debt recorded in the annual statements increased over the following two years to the sum of $840,049 which are claimed in this proceeding.
[36] This involved a fundamental change in the way the monthly management fees had been reflected in the annual financial statements prepared by Mr Harris from 2013 to 2014, and those prepared by him for 2015 and the following years. This can be shown in a simple table which is set out in a schedule to this judgment. What occurred with the advances from the trust to Stellar also has some relevance, by way of comparison, and it is convenient also to record the figures in the table.
[37] Stellar and the trustees, in the new evidence and in support of the new case, sought to rely on trust minutes of meetings the trustees had with Mr Van der Sande in May and September 2016. Mr Harris attended these meetings. The trustees and Stellar argue that the trust minutes aid in rebutting Mr Van der Sande’s contention he had not accepted that Fordsan was indebted to Stellar; and that he did not appreciate that his signing the accounts or resolution could be construed as his accepting reclassification of the monthly management fees as a loan.
[38] Even if the evidence from the minutes, which came in reply, is admissible, I am not persuaded it could support a conclusive finding on this application that
Mr Van der Sande’s evidence is implausible or, more broadly, that Stellar has met the onus on it, both in respect of its original or new case, or to defeat the defences advanced by Mr Van der Sande.
[39]The new case also sought to expand on Stellar’s reliance upon the Deed.
[40] The parties to the Deed are the three new trustees of the trust (Ms Cartwright, Mr Stock and Trust Service 2 Ltd), defined as “the Trustees” and Stellar, Fordsan and Mr Van der Sande. Mr Van der Sande is defined as “the Guarantor”. Stellar, Fordsan and Mr Van der Sande are together defined as “the Obligors”.
[41] The only signatory is Mr Van der Sande. His signature appears for himself and Fordsan. The Deed is dated 6 June 2017, but it is agreed that Mr Van der Sande likely signed on 6 July 2017.
[42]The background recitals in the deed are as follows:
BACKGROUND
AThe Trustees have advanced moneys to Stellar and the Guarantor has guaranteed the repayment of such moneys.
BFordsan owes moneys to Stellar and Fordsan has agreed to guarantee the repayment of moneys owing to the Trustees in consideration of the Trustees not requiring Stellar to make immediate demand for repayment of those moneys.
CStellar, the Guarantor and Fordsan (the Obligors) have all agreed to become jointly and severally liable for all moneys owing by Fordsan to Stellar and by Stellar and the Guarantor to the Trustees (the debt Obligations).
[43]The relevant operative provisions are:
1GUARANTEE OF PAYMENT
The Obligors jointly and severally agree to be liable to pay the Debt Obligations more particularly set out in Schedule 1 and all interest thereon (the Liabilities) and to be jointly and severally liable for the payment of the Liabilities on due dates as set out in Schedule 2.
2ADMITTANCE OF DEBT
Each Obligor agrees that if there is a failure to make payment of any interest on the Liabilities or to meet the debt repayment requirements set out in Schedule 2 that the Trustees can immediately seek judgement against any of the Obligors and this deed is an admittance of debt by each Obligor.
3COVENANTS BY EACH OBLIGOR
3.1Each Obligor agrees that in consideration of the Trustees agreeing not to make immediate demand for repayment of the Liabilities at the request of each Obligor then each Obligor jointly and severally guarantees the repayment of all moneys and the payment of all interest as set out in Schedule 2 and indemnifies the Trustees against any loss the Trustees may suffer by reason of any non payment by any Obligor.
…
[3.2](b) As between each of the Obligors and the Trustees, each Obligor may for all purposes be treated as the principal debtor and the Trustees shall be under no obligation to take proceedings against the party owing the obligation before taking proceedings against any Obligor.
[44] Schedule 1 of the deed sets out a principal amount owing of $840,000 with an interest rate of eight per cent and a penal interest rate of 12 per cent.8 Schedule 2 sets out a repayment schedule for principal payments to be made between 1 December 2017 and 1 June 2018.
[45] As noted earlier, the receivers were appointed by the trustees on 28 July 2017. This was just 22 days after Mr Fordsan, but no other party, had signed the deed.
Discussion
[46] For reasons noted in the introduction, Stellar’s application should be declined because the claim pleaded as justifying summary judgment is materially inconsistent with evidence adduced by Stellar in reply and Stellar’s new case pursued at the hearing. This is plainly visible in the fact that the original case, laid out in the statement of claim and the receiver’s evidence in support, recognizes Fordsan’s entitlement not only to be paid monthly management fees, but also to retain them irrespective of whether Stellar had a “surplus” in the year in which the fees were paid.
8 This is despite the plaintiff’s claim that the true figure should be $840,049.
The new case is to the opposite effect. Nonetheless, as noted in the introduction I will also address the new case.
[47] The foundation of the new case turns largely on Stellar’s interpretation of the Shareholders’ Agreement and the Management Agreement. Stellar, and in substance the trustees, contend that those agreements mean that Fordsan was not entitled to retain monthly management fees unless, in each year, Stellar had a surplus as defined in the Shareholders’ Agreement. This interpretation is the basis on which the trustees argued at the time, and on which they and Stellar now argue, that the alleged debt owed by Fordsan to Stellar was properly recorded in Stellar’s accounts from 2015 and that the Deed records a valid debt owed by Fordsan to Stellar.
[48] In my judgment, the interpretation of the Shareholders’ and Management agreements advanced by Stellar is wrong. It is certainly arguably wrong, which is sufficient to deny summary judgment.
[49] The Shareholders’ and Management agreements are to be read together. As a matter of simple interpretation, the monthly management fee and the FDS profit share are quite distinct and are required to be treated by the parties in quite different ways. Those parties are TTC, or any new trustees exercising TTC’s rights and obligations as a shareholder party to the agreements, FDS and Stellar. Fordsan is not a party. The agreements provide and mean:
(a)The “monthly management fee” is to be paid to Fordsan for specific services to be rendered by it for Stellar’s benefit. In terms of the management agreement this fee is an operating cost of Stellar.9 As such it is no different from any other expense of Stellar, including interest paid to the trust.
(b)The FDS share of profit – any “surplus” as defined in the Shareholders’ Agreement – is an annual payment of FDS’s share of any surplus after payment of all interest to the trust and other expenses of Stellar. The
9 This reading is supported by that agreement’s definitions of Development Expenditure and its first appendix headed “Costs of Joint Venture”.
monthly management fee to Fordsan is clearly one of the other expenses of Stellar.
(c)If there is a surplus in a financial year, the monthly management fees paid to Fordsan during that year (implicitly not exceeding the total of the FDS profit share) are recovered from FDS by treating the relevant sum, as between Stellar’s shareholders, as a part payment to FDS of its profit share. This produces a corresponding benefit to the trust, through its Stellar shareholder.
(d)The provisions of the Shareholders’ and Management agreements cannot in my judgment be read as entitling Stellar or the trustees to recover monthly management fees from Fordsan if Stellar does not have a surplus.
(e)Those agreements also cannot be read as meaning that monthly managements fees when paid, were, or were to be treated as, some form of conditional advance by Stellar to Fordsan.
(f)Those conclusions are consistent with what occurred before Mr Syms died and new trustees were appointed.
[50] Given those conclusions, the application for summary judgment on the new case must also fail, notwithstanding further arguments for Stellar and the trustees. I will nevertheless record my conclusions on further arguments of consequence, and on the merit of some of the positive defences advanced by the defendants.
[51] It is reasonably arguable that the Deed is not binding because only two of the six parties – the defendants – have signed it. This might not have been a problem for Stellar if no obligations were assumed by any of the other parties. But the deed itself and, separately, some of the evidence does not persuade me to the requisite standard that the other parties did not, and do not, have obligations to, among others, each of the defendants. For example:
(a)The Deed recites that Fordsan agrees to guarantee repayment of money owed by Stellar to the trustees in consideration of the trustees not requiring Stellar to make immediate demand for repayment of money said to be owed by Fordsan to Stellar. The latter is an obligation of the trustees.
(b)There is evidence I cannot dismiss that, on 5 July 2017, the day before Mr Van der Sande signed the Deed, in order to persuade him to do so he was assured by Mr Harris (for the trustees and for Stellar) that the trustees would pay, or cause Stellar to pay, Stellar’s creditors for construction work. Mr Van der Sande says the trustees had taken control of Stellar’s bank accounts and he was desperate to have the creditors paid. This was both on behalf of Fordsan as contract manager and for his own reasons. He says he signed the Deed the following day in reliance on that assurance. That is arguably an obligation binding on Stellar and the trustees.
[52] It is arguable that the trustees and Stellar did not meet one or more of their obligations and that this provides an arguable defence. The evidence is that Stellar’s creditors did not get paid. It is also arguable that the trustees did not meet their obligation not to require Stellar to make immediate demand on Fordsan because, only 22 days after Mr Van der Sande signed the deed, the trustees appointed the receivers.
[53] Another difficulty for Stellar is that the Deed arguably was intended as a variation of the provisions of the Shareholders’ and Management agreements. If that is its intended effect, the objective has not been achieved because the Management Agreement could not be varied unless in writing signed by all the parties to it – the Stellar shareholders, TTC and FDS, and Stellar itself. None of those parties have signed the Deed and, of course, only Stellar is even named as a party to it.
[54] Even if the Deed binds the defendants, the true nature and extent of Fordsan’s liability to Stellar is not clear. The Deed identifies only one principal sum outstanding: the $840,000 recorded in schedule 1. This is the sum recorded in Stellar’s 2017 financial statements as a sum owed to it by Fordsan, but the Deed states that the
identical sum is owed by Stellar to the trust. The Deed makes Stellar, Fordsan and Mr Van der Sande joint and several obligors to the trust for that sum. There is no provision for Stellar to recover the same sum from Fordsan or Mr Van der Sande.
[55] The fact that the amount of Fordsan’s alleged debt to Stellar is identical to the amount said to be owed by Stellar to the trust appears to be a rare coincidence. Given the evidence of the changes in Stellar’s accounting for the monthly management fees, reinforced by evidence for the defendants and some of the content of trust minutes and correspondence, this identity of debt supports a conclusion that summary judgment must be declined to enable full exploration of these facts at trial alongside the other arguable issues already identified.
[56] Stellar points to the debt owed by Fordsan listed in Stellar’s 2015 accounts as supporting the claim. It does provide evidence requiring a full response from Mr Van der Sande in relation to his own knowledge and understanding. But it provides no evidence against Fordsan. Fordsan cannot be bound by an entry in the accounts of another company.
[57] There is one further reason for declining summary judgement. A broad issue, arising from Mr Van der Sande’s evidence, is whether it is implausible when he says, in essence, that he did not willingly and knowingly commit himself and Fordsan to the obligations Stellar and the trustees now rely on. It is for Stellar to establish that the evidence does not support such a defence.
[58] For the following reasons I am not satisfied that this evidence is implausible. What Stellar’s and the trustees’ view of the facts would mean is that:
(a)Mr Van der Sande knowingly and willingly committed Fordsan to at least a reasonable possibility that Fordsan would not receive any remuneration for the services it provided over six or more years, the central contribution to the joint venture on Mr Van der Sande’s side;
(b)Fordsan and Mr Van der Sande would be indebted not only to Stellar but also to the trust for the total of the remuneration that had been paid to Fordsan for its services; and
(c)that the other party to the joint venture, the trust, would not only have been fully paid for its central contribution – through interest on its loan to Stellar – but also would have substantially recovered the contribution itself.
[59] Mr Van der Sande’s evidence that he did not knowingly and willingly enter into such an arrangement cannot be dismissed on a summary judgment application.
Orders
[60]I order:
(a)The plaintiff’s application for summary judgment is dismissed.
(b)The costs and disbursement of the summary judgment application are reserved pending the outcome of the substantive proceeding.10
(c)The Registrar is to allocate an initial case management conference for this proceeding.
Associate Judge Sargisson
10 In accordance with the Court of Appeal’s approach in NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
SCHEDULE
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2018 | |
| Management fee / operating expense | $0 | $144,000 | $144,000 | $108,000 | - | - | |
| Loan advance | $479,475 | $840,049 | $703,345 | ||||
| Stellar debt to trust | $221,000 | $4,651,000 | $4,951,000 | $2,338,000 | $1,721,000 | $840,049 | $703,345 |
| Interest to trust | $0 | $273,718 | $418,395 | $282,747 | $191,361 | ? | ? |
0
1
0