Wallace Corporation Limited v Gross - [2023] NZHC 2731

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2414

[2023] NZHC 2731

BETWEEN
WALLACE CORPORATION LIMITED

Plaintiff/Applicant

AND

ILAN GROSS

Defendant/Respondent

Hearing: 19 June 2023

Appearances:

N Moffatt and I Shores for the Plaintiff/Applicant K Puddle for the Defendant/Respondent

Judgment:

29 September 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 29 September 2023 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:
Wynn Williams, Auckland TWA Legal, Auckland

WALLACE CORPORATION LIMITED v GROSS [2023] NZHC 2731 [29 September 2023]

Table of Contents

Introduction [1]

Summary judgment principles [10]

Factual background [12]

Preliminary issue — leave to file further evidence in response to plaintiff’s reply evidence  [35]
Is it reasonably arguable that the actions (or inaction) of WCL in relation to the proposed sale to Petra provide a defence?  [42] Is a defence relying on the “prevention principle” reasonably arguable?  [50] Terms of the Guarantee  [51]
Is it reasonably arguable that WCL did take control of Podular?  [70] Is it reasonably arguable WCL actions or inactions prevented the sale from happening?        [108]
If the sale had happened, would there have been money owing by Podular and
therefore Mr Gross under the Guarantee?  [110]
Conclusion on defence based on the “prevention principle”  [112]

Further available defences [114]

Result [120]
Costs [121]

Introduction

[1] The plaintiff, Wallace Corporation Limited (WCL), seeks summary judgment against the defendant under a guarantee. The defendant, Mr Ilan Gross, was the founding director of Podular Housing Systems Limited (Podular) and at all material times held more than three quarters of the issued shares.

[2] This case concerns the final months of Podular’s existence prior to liquidation. In early September 2022, Mr Gross asked WCL to provide him with a personal loan so he could provide additional funding to Podular for its prefabricated building business. WCL agreed but required the loan to be provided to Podular directly and for Mr Gross to provide a guarantee.

[3] WCL therefore entered into a loan agreement with Podular in September 2022 under which WCL, as lender, agreed to make advances of up to $500,000 (Loan Agreement). On the same date, Mr Gross personally entered into a deed of guarantee (Guarantee). Lumen Business Solutions Limited (Lumen), a company of which Mr Gross was the sole director and his son the sole shareholder, entered into a further deed of guarantee on 4 November 2022.

[4] Between 15 September 2022 and 22 November 2022, WCL says it lent a total of $1,196,709.04 to Podular. WCL alleges that in procuring funds over and above the initial loan amount of $500,000, Mr Gross advised on 6 October 2022 that he was now “managing director” of Podular and that WCL had the benefit of his personal guarantee.

[5] On 25 November 2022 Mr Gross placed Podular into liquidation, three days after WCL’s alleged final advance to Podular.…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] NZHC 2731
Decision Date: 29 September 2023

CaseChat Overview and Summary

Wallace Corporation Limited (WCL) sought summary judgment against Ilan Gross (Mr Gross) under a guarantee Mr Gross provided for loans made by WCL to Podular Housing Systems Limited (Podular). WCL alleged that Mr Gross, a significant shareholder and director of Podular, had breached the guarantee by failing to repay the loans after Podular's liquidation. Mr Gross opposed the application, arguing that the guarantee was unconscionable and that WCL's actions prevented the proposed sale of Podular to Petra Group, which would have resulted in repayment of the loans.

The court found that Mr Gross' defence, based on the "prevention principle," was reasonably arguable. This principle holds that a party cannot benefit from their own wrongdoing if it prevents the other party from fulfilling a contract. The court considered that it was reasonably arguable that WCL took control of Podular, prevented the sale to Petra, and that if the sale had occurred, Podular would have repaid the loans. Consequently, Mr Gross would not be liable under the guarantee. The court also noted that Mr Gross had other defences, such as the unconscionability of the guarantee, which should be determined at the substantive hearing rather than in the summary judgment application. The application for summary judgment was therefore dismissed.

Costs were reserved pending any agreement between the parties, with an opportunity for the parties to file memoranda if they could not reach an agreement.

Orders