Stockco Limited v Sharpin
[2017] NZHC 1999
•21 August 2017
IN THE HIGH COURT OF NEW ZEALAND
DUNEDIN REGISTRY
CIV 2017-412-000015
[2017] NZHC 1999
BETWEEN STOCKCO LIMITED
Plaintiff
AND
RICHARD ANDREW SHARPIN AND JOHN FRANCIS WILLIAMS
Defendants
Hearing: 16 August 2017 Appearances:
J L Bates for the Plaintiff
R M Reeve for the First-named Defendant
B M Stewart for the Second-named DefendantJudgment:
21 August 2017
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on 21.08.2017 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date ………………..
STOCKCO LTD v SHARPIN AND WILLIAMS [2017] NZHC 1999 [21 August 2017]
The Claim
[1] The plaintiff (StockCo) applies for summary judgment upon its claim that the defendants owe payments of $1,348,367.25 under a Master Livestock Agreement (MLA) in relation to 1050 dairy heifers StockCo claims it funded the purchase of. It is pleaded that sum includes:
$
Accrued finance costs 206,215.88 Break/Comm fees
18,762.26
Late fee
111,515.00
Repayment
835,955.00
GST
175,867.24
Less – Loss adjustments
(51.87)
$1,348,367.25 =========
[2]StockCo’s business is to fund the purchase and lease of livestock.
[3] The defendants were at all material times the directors of RJL Farming Limited (RJL) which operated a stock grazing business at and from Reserve Road, Tuapeka West.
[4] It is pleaded that by documents dated 20 December 2012 StockCo, RJL and the defendants executed documents including:
(a)A Master Livestock Agreement (MLA).
(b)A General Security Agreement between StockCo and RJL as lender and borrower.
(c)A Deed of Guarantee between StockCo and the defendants.
(d)Those arrangements were complemented by supplementary agreements to deal with specific events by which StockCo financed the purchase of stock, and amounts of money.
[5] Those were intended to regulate future business terms between the parties. Beyond reference to these contract terms, the statement of claim provides little detail regarding the background of all the circumstances concerning liability arising in regard to 1050 dairy heifers. The pleadings do not refer to the particulars of any arrangement in that regard.
[6] It is StockCo’s position that at a certain date a certain amount was owed for which other costs and penalties were incurred. There is no reference when, why or how that specific debt was incurred.
The plaintiff’s evidence
[7] Mr Hall is StockCo’s finance manager. He provides copies of those documents executed in December 2012 which provide the basis of StockCo’s claim in this proceeding. He also attaches sixteen supplementary agreements concluded in 2014 and 2015. Each of those he notes provides the listed stock that would form part of and were, he says, subject to the terms and conditions of the MLA Agreement completed in 2012.
[8] Each of those is addressed to RJL and refers to the parties’ MLA. Although partly illegible they do refer to the stock numbers and the value per head for which credit was provided and for which penalty fees might apply.
[9] Mr Hall refers to the default payment notice which is the subject of this proceeding. As earlier noted it refers to 1050 dairy heifers. Mr Hall deposes:
15. StockCo is unsure of the whereabouts of the stock it has provided financing for, which under the transactional documents it retains ownership of and sorted by assisted whereabouts of its stock and/or the proceeds of sale. It believes some of the stock may have been sold, in which case RJL… is required to repay StockCo from amounts outstanding.
[10] Mr Hall refers to StockCo being aware that Mr Williams of RJL was subject to investigation by the Serious Fraud Office (SFO).
Notice of opposition
[11] By the notice of opposition pleaded on behalf of the Mr Sharpin the first- named respondent, it is claimed, inter alia:
(a)It has not been shown there is a prima facie entitlement to judgment on the material put before the Court;
(b)There are major errors, defects and omissions of information in the statement of claim;
(c)Ancillary amounts claimed for costs and fees are oppressive, harsh, unjustly burdensome and unconscionable and/or are in breach of reasonable standards of commercial practice; and
(d)The losses claimed are at best questionable.
[12] The notice of opposition on behalf of Mr Williams the second-named respondent, provides detail regarding the nature of RJL’s contract with StockCo albeit Mr Williams claims regarding the purchase of the 1050 heifer stock that the particular contractual obligations were specifically related to events that began in November 2014 when Mr Williams said StockCo by its managing director Mr Kight, its finance manager Mr Hall and others entered into an oral agreement with RJL by which RJL would, at StockCo’s request, purchase those dairy heifers already sourced by Mr Williams on behalf of StockCo in his capacity as a livestock agent with Rural Livestock Limited (Rural Livestock).
[13]Mr Williams says it was agreed that:
(a)StockCo would advance sufficient funds to RJL as and when RJL was required to pay for livestock purchased through Rural Livestock as the livestock agent;
(b)The sale proceeds of any livestock sold by RJL would be paid to Rural livestock as StockCo’s agent leaving it to Rural Livestock to account to StockCo for the net proceeds of sale after deduction of Rural Livestock’s commission;
(c)StockCo would not require RJL to repay any sums advanced for the purchase of the livestock pending the sale of the livestock;
(d)Following completion of the sale of all livestock, StockCo would compensate RJL for any losses suffered by RJL as a result of the acquisition of livestock at StockCo’s request.
[14] Mr Williams pleads that in breach of that agreement StockCo by its solicitors issued a demand in the amount claimed by the summary judgment application, and further served a statutory demand on RJL in circumstances Mr Williams says where there are no monies payable either by RJL or the defendants to the plaintiff.
[15]Mr Williams pleads other defences including:
(a)Estoppel - because he says by words and conduct from November 2014 to February 2017 it was agreed RJL and the defendants would not be required to pay any sum to the plaintiff other than the net sale proceeds when the livestock was sold;
(b)Misrepresentation (Contractual Remedies Act 1979) – claiming that in reliance upon the plaintiff’s representations RJL was induced to enter into the oral agreement but in the outcome StockCo has made a demand for payment when RJL and Mr Williams are entitled to a declaration that no payment is due.
(c)Misleading and Deceptive Conduct – because it is claimed RJL and Mr Williams will likely suffer loss or damage by reason of StockCo’s conduct;
(d)The parties contractual arrangements are subject to the provisions of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) when in the particular circumstances demand was made for payment when no monies are due or owing and because StockCo seeks penalty payments in a manner that is oppressive, harsh and unconscionable and should permit the parties original contract and guarantee documents to be reopened;
(e)The guarantee obligations originally committed to do not apply because it is denied it was operative in respect of the November 2014 oral agreement;
(f)There is inadequate information to establish a claim, because there are major errors defects and omissions of information in the statement of claim to properly assist the Court.
The defendants’ evidence
Mr Sharpin
[16] Mr Sharpin says he is a stock agent for Rural Livestock and a former director of RJL. He understands the SFO is investigating Mr Williams for alleged fraud in connection with his stock trading including RJL’s operations and believes StockCo’s claim arises from extensible shortfalls following claims of alleged fraud. In his view the primary dispute is between StockCo and Rural Livestock, two companies, he considers, to have had an uneasy relationship. He says that RJL was set up with the purpose of trading livestock to make a margin gain, with purchases funded by StockCo and involving stock generally bought and sold through Rural Livestock; Rural Livestock would pay RJL the proceeds from any such stock sale less its commission for arranging for the purchases of stock. RJL would then take its commission from those proceeds and pay the net balance to StockCo.
[17] RJL was, he says, responsible for grazing and maintenance of the stock from the time it purchased the stock up until when it sold the stock to Rural Livestock’s
clients (farmers or sometimes processors). To fulfil these tasks, RJL contracted a number of third party graziers, including Mr Sharpin, who would then invoice RJL for grazing and maintenance services.
[18]Mr Williams, he said, looked after RJL’s financial affairs and it was Mr
Williams alone who signed the supplementary agreements on behalf of RJL.
[19] When Mr Sharpin learned that Mr Williams was being investigated by the SFO, he resigned as a director of RJL. He says he has no knowledge of any fraud allegedly committed by Mr Williams.
[20] Mr Sharpin’s investigation has included identifying 199 head of rising two- year-old heifers grazing at his property at Tuapeka West, and a further 52 head of rising three-year-old cows grazing at another property nearby, all of which were Nait-scanned by the SFO. That, he said, involved scanning the mandatory tags placed on animals within six months of their birth. He was present when that scanning occurred. The results of that scanning have not yet, he says, been released. He believes stock ownership of the animals in question has not yet been determined but considers that all of that stock most likely is owned by StockCo and that if sold on a buoyant market would fetch in excess of $483,000 (inclusive of GST) and possibly more. He says, contrary to StockCo’s claim, StockCo was in fact informed about the whereabouts of that stock prior to it issuing this proceeding.
[21] Mr Sharpin attaches copies of sale notices issued by Rural Livestock to RJL for funds held by Rural Livestock pending resolution of a dispute between it and StockCo. An amount of $414,776.25 inclusive of GST is noted. He says to the best of his knowledge the sale notes refer to stock of Rural Livestock having been funded by StockCo. He is unaware whether the sale proceeds have been paid to StockCo or have been retained by Rural Livestock. In his view he says, as the sale notes show, that potentially over $400,000 payable to StockCo is currently being held by Rural Livestock. He assumes StockCo must have contacted Rural Livestock regarding these withheld funds when attempting to identify the whereabouts of its alleged loss. The figures, Mr Sharpin says, involve almost $800,000 of the $835,955.00 which forms the basis of StockCo’s claim.
[22]It is Mr Sharpin’s view, inter alia:
(a)No fraud has been committed;
(b)StockCo’s assets (its heifer stock) has not been lost or dissipated as claimed;
(c)StockCo was aware of the location of its assets before issuing proceedings;
(d)StockCo knew the reasons for the assets being withheld and specifically knew that Rural Livestock, rather than RJL were the underlying agents for the present retention of its assets;
(e)StockCo was aware its written contracts were between it and RJL and the defendants, and not with Rural Livestock even though the income stream for StockCo’s transactions derive from Rural Livestock;
(f)StockCo knew if it sued Rural Livestock the claim would be vigorously opposed; and
(g)StockCo has cynically served summary judgment proceedings knowing full well that a successful application could result in the defendants losing their livelihoods and their homes.
[23] Mr Sharpin believes that the repayment sum StockCo claims may be wholly explainable by reference to both the value of stock presently held with RJL and, the funds held with Rural Livestock.
[24] Mr Sharpin cannot understand the additional $336,494.14 relating to various charges, and does not know how those have been calculated. He says he is shocked by the scale of those which seem to him to be “totally oppressive, unethical and unfair”. He says he does not understand why RJL should be paying default interest on advances from StockCo when ownership of the stock purchased by RJL vests, according to the terms of its MLA, with StockCo rather than RJL.
Mr Williams
[25] By his affidavit in opposition Mr Williams says he was employed by Rural Livestock from 2008 until July 2016 when forced to resign. His relationship with StockCo began when he was a livestock agent for Rural Livestock and when he then acted as agent for both companies’ clients in the purchase of livestock, mainly dairy yearlings and heifers.
[26] Sometime after meeting Mr Sharpin they discussed the idea of starting a company with the aid of StockCo funding to trade in livestock and in particular dairy heifers; and that they incorporated RJL in November 2012 when a facility up to
$350,000 was provided by StockCo. He and Mr Sharpin remained directors of RJL until Mr Sharpin resigned in 8 March 2017. The business model was, he said, that they would either lease land (including that owned by Mr Sharpin and separately by Mr Williams), or pay for grazing on other farmer’s land where they would raise the livestock and later sell them at the appropriate time for profit. All stock purchases and sales were he says were made through Rural Livestock as the livestock agent and as the stock was sold, the sale proceeds would be paid by the purchaser to Rural Livestock as the agent and after deduction of their commission, the sale proceeds would then be paid direct to StockCo in reduction of the outstanding loan. He says each month StockCo provided a client activity summary report showing all transactions for the month. Their relationship was he said very amicable.
[27] Mr Williams refers to an Australian company called Austrex (NZ) Limited (Austrex) which specialised in international shipping of livestock around the world from New Zealand and Australia. He said he had sold export heifers on behalf of StockCo’s clients to Austrex on a number of occasions before that contract which is the subject he says of this proceeding.
[28] Mr Williams then provides detail regarding a meeting with Mr Sam Earl from StockCo in May 2014. Mr Earl asked him if there were any forward contracts available for the acquisition of dairy heifers in the market. There followed negotiations with Mr Tippett from Austrex. It was proposed an offer would be put to StockCo. Mr Earl and then another asked Mr Williams if he could source for
StockCo approximately 2000 dairy heifers for an agreement StockCo had with Austrex for StockCo to arrange for the supply of dairy heifers to be part of a live shipment of livestock to China.
[29] Discussions with Mr Kight of StockCo followed. Mr Williams said on 15 August 2014 a contract was signed between StockCo and Austrex for approximately 2000 dairy heifers for export. The plan was, he says, that he as Rural Livestock’s agent would source eligible heifers that met export criteria and the team from StockCo would fund the purchases for StockCo’s clients who would purchase the heifers knowing they had a guaranteed minimum price on the eventual on-sale to Austrex. Mr Williams said the contract that was supposed to work was that StockCo would source and acquire the stock through Rural Livestock as agent, and StockCo would then sell the stock to individual livestock traders who are clients of StockCo, with StockCo financing the traders for the purchase of stock. StockCo would then be repaid when the stock was on-sold by the livestock traders to Austrex for the proposed livestock shipment to China. Mr Williams says having been told to source the stock at an agreed price he had got farmer clients to rear extra heifers having guaranteed them a price for the animals. Stock was acquired before on-sale contracts could be completed.
[30] Issues arose regarding RJL’s lending limits with StockCo. Mr Williams said there was regular communications with StockCo of difficulties. He was assured that RJL’s facility limit would not be an issue in the circumstances where it was effectively purchasing the stock on StockCo’s behalf, until they could sort out the arrangements with their own client traders and with Austrex. Mr Williams says he was advised by Mr Kight that as part of the overall arrangement for RJL to acquire the stock on StockCo’s behalf of the Austrex contract, they would look after RJL to ensure that they did not suffer any loss as a result of assisting StockCo. However, the export order through Austrex was cancelled and RJL was left with having to trade as best it could on the basis that StockCo would look after them and compensate the company in the end.
[31] Mr Williams says, he being the agent for Rural Livestock the agent for StockCo that it was his farm block to which vendor calves were delivered in the
interim but that his block was too small for that purpose. He explained the issues involved about further resources being obtained and the significant additional costs incurred. Later he started on-selling the stock and said all sales were conducted through Rural Livestock as the livestock agent. StockCo, he says, were fully aware that the stock was being sold as invoices and statements were provided in each case by Rural Livestock to StockCo.
[32] Mr Williams was aware of other issues affecting the StockCo and Rural Livestock relationship, which were not related to the present issues this proceeding is concerned with. Those other issues included claims that StockCo was paying Rural Livestock for more animals than they were actually receiving and that Rural Livestock was sometimes very slow in paying at all.
[33] Mr Williams’ enquiries show that the total number of stock acquired from the supplementary agreements was 1136 dairy heifers. He comments however that until he has copies of all invoices and statements he is not confident this is a correct figure. He says all of the stock totalling 251 presently held on Mr Sharpin’s Tuapeka West property and on another property at Omakau are the remaining unsold stock from the StockCo/Austrex contract, while the stock that was sold through Rural Livestock has been properly accounted for. He says what is clear from the statement received from StockCo as at 31 March 2017 is that StockCo have not credited the RJL account for most if not all of the stock sold in the May to October 2016 period. Mr Williams says he was advised by StockCo that the reason StockCo did not credit the RJL account is because Rural Livestock claims that StockCo owes it substantial monies under other contracts completely unrelated to the StockCo/Austrex contract, which have nothing to do with RJL he says.
[34] Mr Williams says the remaining 251 stock which is yet to be sold would have a present market value in excess of $400,000. He says it is not clear whether StockCo has received additional monies on the sale of stock or whether their additional stock has been sold, when Rural Livestock has refused to make payment to StockCo to be credited to the RJL account.
[35] With regard to the SFO enquiry Mr Williams says it appears Rural Livestock is blaming him for problems that they themselves have created. He says he welcomes the investigation by the SFO.
[36] Mr Williams comments that the working relationship between RJL and StockCo was good from December 2012 until the StockCo/Austrex contract.
[37] He agrees that Supplementary Agreements do refer to the livestock agreement between StockCo and RJL and that those refer to application fees and finance rates and default provisions. He denies however that RJL is in any way in default on its payment of delivery obligations under those Supplementary Agreements. He believes it is likely with the stock already sold together with the remaining 251 stock yet to be sold that there will be no monies owed by RJL to StockCo.
[38] Mr Williams has issues with additional cost claims and comments he believes that Mr Hall is completely wrong when he asserts that StockCo is not sure of the whereabouts of the stock. Mr Hall is, he says, fully aware of the stock that has been sold for it is subject to sale notes and other documents that it would have received direct from Rural Livestock. Mr Hall he says fails to provide any detail regarding the nature of the dispute between StockCo and Rural Livestock which is clearly relevant to the dispute between StockCo and RJL and the defendants as guarantors.
[39] Mr Williams believes StockCo is not entitled to make demand upon RJL for any amount at this point in time or upon the defendants as guarantors, notwithstanding that Rural Livestock, for reasons which have not been explained, has retained the sale proceeds of stock sold so far, and pending the sale of the remaining stock. Mr Williams believes it is more than likely that once the remaining stock is sold that RJL would have suffered substantial losses and opportunities over the relevant period which it will rightfully be able to claim from StockCo to compensate RJL for its losses.
StockCo’s reply
Mr Hall
[40] Mr Hall has sworn two affidavits in reply to the affidavits of Mr Sharpin and Mr Williams.
[41] Each affidavit deposes that claims of a primary dispute between StockCo and Rural Livestock are irrelevant to StockCo’s claim under its guarantee and indemnity with the defendants. Its position is and remains that it has not been fully repaid on the amounts it has advanced. He says Rural Livestock denies it retains any money from the on-sale of StockCo’s stock but that even if that allegation was correct StockCo has not been repaid and that RJL and the defendants remain liable by their guarantee.
[42] Mr Hall’s affidavit then repeats, again, the relevant clauses of the MLA he says compels the defendants’ repayment obligations. Regarding unsold stock Mr Hall says StockCo has provided an indemnity to proceed with the sale of the livestock, the proceeds from which will be deducted from the outstanding debt. Noting that unsold stock of 251 head are located at Mr Sharpins’ property, he says the balance of the stock financed by StockCo through its agreement is unaccounted for. He said Rural Livestock’s lawyers have confirmed they are not holding any funds due to StockCo from the sale of livestock. StockCo does not, he says, know where its assets are with the exception of the 251 head of stock.
[43]Regarding concerns expressed about the accrued finance costs of
$206,216.88, Mr Hall explains that this is the interest rate per annum that is capitalised monthly as is contained in the parties’ written agreement. Mr Hall says full and regular detail has always been provided to explain the debt now claimed.
Mr Kight
[44] An affidavit from Mr Kight has also been received in reply. He denies informing Mr Williams that StockCo would ensure that RJL would not suffer any
losses in regard to the Austrex contract. He said it was not part of StockCo’s contractual arrangements to carry the risk of finding purchasers of the stock; that they financed the purchase of stock as a loan, with retention of title as a security interest. He said there was discussion regarding the prospect that Austrex might purchase some stock but to claim, as Mr Williams suggests, that StockCo would guarantee that Austrex would purchase the stock that RJL or Rural Livestock would buy from funds advanced by StockCo, “is simply untrue”. There was, he said, no specific plan discussed nor any assurances given that Austrex would purchase any such stock. That was not, Mr Kight said, consistent with the finance work it did.
Principles
[45] StockCo needs to satisfy the Court there is no arguable defence and the Court must be left without any real doubt or uncertainty about the defendants’ obligations to pay StockCo’s claims.. The Court will not endeavour to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits. A defendant needs to provide a proper foundation for a defence by its affidavit evidence.
[46] In weighing up the evidence the Court must take a robust approach even though there may be differences on certain factual matters, if the lack of a tenable defence is clear on the material before the Court. If however the defence raises questions of fact that cannot confidently be concluded from affidavits, then summary judgment is usually inappropriate.
Considerations
[47] StockCo considers the matter is a simple case involving debt collection. StockCo’s claim rests on its contractual rights to recover funds advanced to Rural Livestock under its standard commercial terms and conditions to fund the purchase of livestock, when funds have not been repaid. StockCo relies on its MLA by which RJL (its obligations being supported by the defendants’ guarantees) was to deliver stock to the nominated processing plant. Significant penalties would incur if delivery was late. Supplementary agreements specified the approved period for delivery, referred to a finance rate capitalised monthly and an application fee of
2 per cent, and identified that specified service fees may be payable in the event the amount of credit was not paid within the approved period of delivery.
[48] The agreement provided that StockCo would retain ownership of the stock for which it had lent funds to effect purchase of stock. The purpose of the agreements was to require such stock to be sold by a specified delivery date, from which commission would be deducted and the balance of the funds after sale were to be paid to StockCo.
[49] The general position adopted by the defendants is that most of the 1050 stock in question has been sold, except for 251. The defendants say that stock was sold by Rural Livestock and that it is Rural Livestock who should account for that payment. StockCo says it has not been paid and that it is for the defendants to take action against Rural Livestock.
[50] StockCo appears to acknowledge that while it has a security interest through retention of title in that stock, to the extent the defendants say they have sold stock to third parties, StockCo agrees they will unlikely retain any rights in the stock because of s 53(1) of the PPSA.1
[51] Regarding the defendants’ claims of an oral agreement, Mr Bates counsel for the plaintiff comments that it appears to be suggested on behalf of the defendants that StockCo entered into an oral agreement whereby it would advance money to RJL for an arrangement by which delivery dates were to be ignored and the obligation to repay was suspended indefinitely. Counsel says those assertions conflict with actual written terms of the parties’ MLA which provided an entire agreement provision and no set off position which the plaintiff is entitled to rely on. Counsel does not accept it is open for the defendants to argue that the base contractual terms were varied orally when they had agreed in writing that any changes also have to occur in writing. Moreover counsel comments that claims of an oral agreement came before subsequent supplementary agreements were completed and which provided delivery dates and payment obligations. Counsel submits the defendants’ position is really about a counterclaim involving an allegation that
1 Personal Property Securities Act 1999.
StockCo would compensate RJL for any losses suffered by RJL as a result of the acquisition of the livestock at the request of StockCo and that upon establishing the amount of such losses RJL claims it has suffered, StockCo would make payment in compensation for such loss to RJL.
[52] Counsel rejects that proposition which he submits does not operate as a defence to the claim and he says Mr Williams does not quantify alleged losses for having to hold onto the stock longer than expected and therefore it is not open to him to argue that a write off/set off claim regarding alleged additional holding costs.
[53] Mr Bates submits claims of an alleged oral agreement are about a matter between StockCo and RJL and clause 6 of the defendants’ guarantee document precludes the defendants from benefitting from any separate arrangement that StockCo and RJL may have agreed to.
[54] Mr Bates comments that what in reality the defendants are claiming is the existence of an oral variation of a written term or that there is a collateral oral contract existing that overrides payment obligations and that also survives the terms of the supplementary agreements entered into after the alleged oral agreement, which supplementary agreements specific delivery dates. Mr Bates says the defence rests on Mr Williams’ allegation that in light of “the Austrex contract” StockCo would “look after RJL to ensure that RJL did not suffer any loss as a result of assisting the plaintiff”. Mr Bates describes that position as “farfetched”.
[55] Mr Bates submits the basis of any counterclaim or set off rests on additional holding costs being recoverable against StockCo. That is not, he says a defence in the amounts claimed, whatever they are, and cannot be set off against RJL’s indebtedness.
[56] Regarding claims that the contractual documents were “credit contracts” under the CCCFA2 and are oppressive Mr Bates comments that those claims are unsupported by any evidential foundation. Also those documents included a solicitor’s certificate acknowledging that all necessary disclosure has been made to
2 Credit Contracts and Consumer Finance Act 2003.
RJL and the guarantors. It is submitted no evidence at all is provided to support any allegation of oppression.
Review
[57] In the Court’s view it is clear that there are evidential inconsistencies that warrant further investigation by the Court. Also there appears proper reason for reviewing StockCo’s security interest terms. Addressing in turn the respective issues raised on behalf of Mr Sharpin and Mr Williams, the Court comments further as follows.
Credit Contracts and Consumer Finance Act 2003
[58] The MSL agreement [clauses 6.7 and 6.8] notes that StockCo owned the stock, while also asserting a security interest over that stock. Nevertheless it is clear that the MSL is a credit contract and Section 120 of the CCCFA empowers a Court to reopen a credit contract if it is oppressive or if a party exercises or intends to exercise contractual rights or powers in an oppressive manner, or if a party has induced another to enter into the contract by oppressive means3.
[59] Section 124(1) lists the range of matters to which the Court is obliged to have regard. Rights of review extend also to the guarantor of any obligations.
Unconscionable/oppressive contract terms
[60] Mr Sharpin seeks relief from both what he says is StockCo’s oppressive conduct as a lender and from what is contained by the MLA’s terms. He notes that despite having received statements from StockCo since September 2016, no notice of alleged defaults was provided until by the solicitor’s letter of 17 February 2017. Perhaps, with the involvement of the SFO, some warning ought to have been expected but Mr Sharpin says the monthly statements did not provide settlement or minimum repayment amounts.
3 CCCFA ss 120(a) – (c).
[61] It is Mr Sharpin’s position that those reports only provided a notice of default and did not acquaint to a threat of imminent legal action. Furthermore, the reports do not explain the accrual of finance charges and although the statement of claim refers to a finance rate of 12 per cent per annum capitalised monthly, an application fee of two per cent and specified service fees, there was no mention of any penalty interest payable.
MLA – Oppressive terms
[62]Mr Reeve, counsel for Mr Sharpin refers to two clauses which outline
StockCo’s claim of contractual rights in the event of default:
Clause 12.4 states:
In the event of termination pursuant to clause 12.2… we at our option are entitled to elect to make demand upon you a sum equal to all the aggregates of the sums set forth in clause 10 insofar as they are applicable together with penalty interest at a rate 6% above the rate set out in the Schedule calculated from the date of purchase [sic] together with the costs and expenses…
[63]Self evidently, Mr Reeve submits, clause 12.4 relies on clause 12.2. Clause
12.2 outlines StockCo’s alleged contractual right on payment default to:
Enter the land or any other property where we believe the Stock may be located and repossess the Stock AND at our discretion and without prejudice to the foregoing rights we may elect to give you notice at any time:
EITHER
12.2.1To remedy the default within 14 days in cases where we deem the
default is capable of remedy […]
OR
12.2.2 To immediately deliver up possession of the Stock to us AND you must indemnify us for any costs, loss, expense or liability in exercising our rights under this clause
AND we are entitled in the event as of right to terminate this Agreement with effect from any dates specified as a result of default under clause 12.1.
[64] As Mr Reeve notes it is not fully known to what extent interest under other clauses has been applied and he says references to “accrued finance costs”, “break/comm. fees” and a “late fee” do not directly correspond to the MLA clause.
[65] Also Mr Reeve notes that in terms of s 124(1)(h) – (i), they quantitatively combine finance costs and late fees of $336,493.14. This cost counsel submits is to be compared unfavourably with the alleged interest of $299,801.37 incurred on a seven year loan of $650,000 in Chapman v Haughley4.
[66] Mr Reeve also comments regarding clauses 10.6.3 and 10.6.5 of the MLA which entitled StockCo to exercise its discretion to add “any fees agreed by us and specified in any Schedule or Supplementary Agreement or amendment” and “Any other costs incurred by us which ought to have been incurred by You under this agreement including…”.
[67] Mr Reeve notes that by his affidavit on behalf of StockCo Mr Foote admits that “applicable charges start accruing automatically within the system”. Despite this, no further information Mr Reeve says was provided to show how the penalty rates have been applied.
[68] Also there is clause 18 of the MLA which states “Statements of account and calculations of payment issued by us will in the absence of manifest error, be conclusive as between us and you. Mr Reeve has provided other examples by which StockCo was granted sweeping unilateral powers by its MLA including:
·To charge default interest at up to 20% per annum compounding monthly should StockCo deem the contracting party in default;
·To repossess stock without prior notice from any land;
·To be indemnified for all costs whatsoever, including legal fees;
·To require the contracting party to do anything “for aiding in the execution or exercise of any right, power, remedy or authority conferred by this Agreement […] immediately at your own cost”;
·To exercise an irrevocable power of attorney to give effect to any
alleged power or right, “even if we have conflict of duty”;
·To impose a legal mortgage over land on which stock are located and/or register a caveat (at the contracting party’s expense);
·To give personal information to “any person” whenever the
contracting party has been deemed to be in default by StockCo.
4 [2012] NZHC 2353.
[69]Mr Reeve submits that the MLA’s oppressive terms exacerbate the power
imbalance already between the parties.
Legal certification issues
[70] Mr Reeve notes that while the MLA and the guarantee are dated 20 December 2012, the solicitor’s certificate of RJL was ostensibly dated 4 February 2013 and it appears therefore the defendants signed the MLA six weeks before receiving legal advice. When Mr Bates’ letter on behalf of StockCo was sent on 4 February 2017, without notice, it sought payment of $1,348,367.25 within three days; it did not refer to the arbitration clause despite this apparently being mandatory where ever a difference arises that cannot be settled. The letter sought GST of
$175,867.24 without explaining to which principal sum this related. Also the letter of demand was sent to solicitors which meant there was little chance of complying with a demand to be satisfied within three days.
Retention of funds by Rural Livestock
[71] Mr Hall gave evidence on behalf of StockCo that Rural Livestock was not retaining StockCo funds and that StockCo was unsure where the stock was. Mr Reeve submits, that evidence was contradicted by the sale notes attached to the affidavits of Mr Sharpin and Mr Williams; and also that it appears Mr Hall has contradicted his own evidence he having noted that it was unclear who held the proceeds of the livestock in question whether it be Rural Livestock or RJL or Mr Williams or a third party.
Whereabouts of stock
[72] Claims on behalf of StockCo that they were unsure about the whereabouts of stock is not credible Mr Reeve submits for the signature page for the 2012 MLA refers to an address of two grazier acknowledgements being provided. A letter from StockCo refers to an audit having been carried out of RJL and Farming Limited livestock when the location of that stock was clearly provided. It is that stock which Mr Reeve submits substantially explains StockCo’s claim. It is the position of the
defendants that whilst StockCo disclaims knowledge of the whereabouts of unsold stock it is not prepared to assume any responsibility for the ongoing grazing costs of those animals.
Overview of complaints
[73] It is submitted by Mr Reeves on behalf of Mr Sharpin that it is oppressive for StockCo:
·To seek damages for “paper” losses, factoring in that StockCo knew where the stock were before serving proceedings, and has taken no steps to explain why the penalty interest is necessary;
·To claim significant penalties based on ostensible losses despite being aware of the cause of the delay in selling stock;
·To fail to exercise the duties of a responsible lender by formally notifying the defendants of the scale of their alleged debt and need to address this well before the demand of 17 February 2107;
·To require the defendants to pay $1,348,367.25 within three days;
·To sue the defendants for major damages without first exercising repossession rights by way of minimising its losses;
·To assert that the stock have been dissipated despite directing Mr Sharpin to sell that stock and pay the proceeds to StockCo;
·To limit Mr Sharpin’s ability to redeem the debt by prohibiting him from selling stock via Rural Livestock;
·To attempt to recover legal fees by masquerading the expense on
statements to the defendants under the title “lamb”;
·To rely on a personal guarantee and the terms of the MLA despite being aware the defendants did not receive legal advice either before or at the time of executing these legal documents;
·To refuse to recognise that there is a dispute in place requiring resolution via the mandatory arbitration clause under the MLA.
[74] In conclusion it is Mr Reeve’s submission for Mr Sharpin that this proceeding is not a simple “debt collection” matter but rather there are material facts in dispute and there are strongly arguable defences available.
[75] It is the case on behalf of Mr Williams that once the remaining stock of 251 dairy heifers grazed by Mr Sharpin and another contractor he sold and if credit is given for the stock already sold through Rural Livestock, that there will be no monies outstanding by RJL to StockCo or the defendants as guarantors.
[76] Mr Stewart for Mr Williams submits StockCo relies on hearsay evidence to assert that Rural Livestock denies there are any funds they hold for stock sold by RJL. That claim, submits Mr Stewart, flies in the face of the evidence of the defendants including copies of recent sale notes provided by Rural Livestock, that the sale proceeds of all the stock so far sold has been paid to Rural Livestock and that the balance of the unsold stock has been fully accounted for.
[77] Mr Williams deposes it was an oral agreement between RJL and StockCo the terms of which were formulated and agreed over a period from and including May 2014 when RJL started to locate and acquire stock from Rural Livestock’s farmer clients to enable StockCo to supply stock itself for its own contract with Austrex. This Mr Williams says follows representations made by StockCo that it would cover any losses that RJL suffered as a result of assisting StockCo. It is StockCo’s position there was no oral agreement with RJL or outside of the framework of their NLAs.
Conclusions
[78] Mr Stewart submits and the Court agrees there appears to be clear conflict in the evidence which cannot be resolved by the affidavit evidence provided. Also and for the reasons noted by Mr Reeve, some of the evidence on behalf of StockCo in particular regarding a claim of lack of knowledge about the 251 head stock, needs further consideration.
[79] Mr Stewart submits and again the Court agrees it is not yet possible to determine the precise contractual relationship between the parties and the legal and factual relevance of representations made in particular by StockCo in the absence of crucial documents and evidence. This would include, Mr Stewart submits, the email correspondence, communications and documents between StockCo and Austrex, StockCo and Rural Livestock and communications with Mr Williams on behalf of
RJL. Only full discovery will, Mr Stewart submits provide full access to all of the relevant material.
[80] StockCo relies on its entire MLA agreement clause to argue that there is no binding oral agreement between the parties. It is arguable this clause can only relate to any agreements or negotiations entered into prior to the MLA being signed and cannot override the oral agreement. Much will depend on a proper analysis of factual background being obtained for in that outcome it may be arguable that an oral agreement may fit the description of a “supplementary” or further agreement permitted by the MLA, but even if it does not it seems it is, despite the MLA, arguable an agreement was entered into which was not subject to the MLA.
Summary
[81] Finally and for reasons identified by counsel for both defendants it appears there is a proper basis to challenge the legality/enforceability of the parties MLA contract terms even if the defendants fail to convince a court there was a separate oral contract between the parties.
[82] There are conflicts regarding significant evidence in this case. There is a substantial body of evidence not available presently and it appears that unless and until discovery is obtained from StockCo and Rural Livestock and possibly other parties, the Court will not have sufficient material to rule upon matters in issue.
[83] The respective positions of each party are far apart. If the defendants are correct then nothing is owed by RJL or the defendants to StockCo.
[84] The Court agrees the defendants have raised substantial arguable defences that cannot be resolved in the summary judgment context.
Judgment
[85]The application for summary judgment is dismissed.
[86]The plaintiff shall pay 2B costs and disbursements to each of the defendants.
Associate Judge Christiansen