Westpac New Zealand Limited v Hadlow
[2013] NZHC 499
•15 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-003521 [2013] NZHC 499
BETWEEN WESTPAC NEW ZEALAND LIMITED Plaintiff
ANDCAMERON GROSVENOR HADLOW Defendant
Hearing: 7 December 2012
Counsel: S Pearson and A Sinkiss for Plaintiff
R Hucker and D LangSiu for Defendant
Judgment: 15 March 2013
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment Application)
This judgment was delivered by me on 15 March 2013 at 2.30pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Minter Ellison Rudd Watts, PO Box 3798, Auckland
Hucker & Associates, PO Box 3843, Auckland 1140
WESTPAC NEW ZEALAND LIMITED V HADLOW HC AK CIV-2012-404-003521 [15 March 2013]
[1] The plaintiff, Westpac New Zealand Limited, applies for summary judgment on its claim against the defendant, Mr Hadlow, for $869,244.40, plus default interest on that sum1 and costs on a solicitor client basis.
[2] The claim is in essence that Mr Hadlow is liable as guarantor for the failure of MacEnnvoy Trust Ltd, which has been placed into receivership and liquidation, to meet its debt obligations owing under overdraft and loan facilities.
[3] There is no dispute that, on a prima facie basis, MacEnnvoy is indebted to Westpac for the amount claimed against Mr Hadlow or that Mr Hadlow guaranteed payment of the debt. The application for summary judgment is however opposed as Mr Hadlow maintains he has an arguable defence in respect of all or most of Westpac’s claim. He says Westpac’s claim should therefore be determined by trial in the usual way and not by summary judgment.
[4] The overarching issue for determination is whether or not Mr Hadlow has an arguable defence, based on the right to be discharged from his guarantee or a right of set off against the amounts owing under the guarantee. The onus remains on Westpac to show the absence of such a defence, in which case it would be entitled to summary judgment.
[5] Mr Hadlow’s defence arises out of the settlement of protracted litigation concerning the sale of two apartments owned and developed by MacEnnvoy. The receivers settled with each set of purchasers at a significantly reduced purchase price which left MacEnnvoy unable to meet its liabilities to Westpac, thereby exposing Mr Hadlow under his guarantees.
[6] Whether or not summary judgment should be ordered turns essentially on these issues:
(a) Did the receivers arguably enter into settlements that were injurious to
MacEnnvoy and Mr Hadlow and that were in breach of their duties under s 18(2) of the Receiverships Act 1993 and, if so, did the
1 At 20.95 per cent per annum from 23 November 2011 until the date of payment.
receivers act as the agent of Westpac for the purpose of concluding the settlement?
(b)Did Westpac arguably have a duty to MacEnnvoy and Mr Hadlow to keep its mortgage security intact and was such duty breached when it granted a discharge of its mortgage over the two apartments?
Background
[7] MacEnnvoy Trust Ltd was a developer of apartments. Between January and June 2007 it approached Westpac for finance to assist with the development of five apartments on its land at 14 Ventnor Road, Remuera, Auckland. Mr Hadlow was at the time the sole director of MacEnnvoy.
[8] In early June 2007, Westpac offered the following to MacEnnvoy:
(a) An overdraft facility to assist with the payment of GST associated with the development; and
(b)A loan facility to cover specified costs associated with the development.
[9] MacEnnvoy and Mr Hadlow accepted Westpac’s terms on 7 June 2007 with the result that MacEnnvoy’s obligations under the overdraft facility and the loan facility were secured:
(a) Against the property at Ventnor Road by a registered mortgage and a general security agreement dated 18 June 2007; and
(b) By Mr Hadlow’s personal written guarantee.
MacEnnvoy’s Default
[10] As at 12 July 2010, MacEnnvoy was in default under both facilities. Under the overdraft facility it had exceeded the credit limit by approximately $29,000.
Under the loan facility it had failed to make repayment of the moneys advanced by
27 March 2009, being the date of expiry of the facility.
[11] On 12 July 2010, Westpac made demand for full repayment of both facilities on MacEnnvoy and on Mr Hadlow pursuant to his guarantee. Westpac received no payment and the demands expired unremedied.
[12] On 13 July 2010 Westpac appointed Mr Brian Mayo-Smith and Mr Andrew Bethell of BDO Spicers as joint and several receivers and managers of MacEnnvoy under the terms of the general security agreement.
[13] On 30 July 2010, MacEnnvoy was placed into liquidation by order of this court on the application of Sefton Construction Limited.
[14] It is common ground that the required notices were given to the liquidators, MacEnnvoy and Mr Hadlow under ss 119, 121 and 122 of the Property Law Act
2007. The notices required payment of amounts outstanding under the overdraft and the loan facilities secured by the mortgage and the general security agreement totalling $6,566,585.57, plus legal costs. The date for payment was 17 September
2010. The notices expired unremedied.
The sale of the two apartments and subsequent litigation and settlement
[15] MacEnnvoy’s default had its origin in the sale of two of the apartments in its development at Ventnor Road. In May 2007, MacEnnvoy sold Apartment 14B to the trustees of the Tauhara Trust and on 25 July 2007, MacEnnvoy entered into a further agreement for sale and purchase with purchasers, Mr and Mrs Leigh, in relation to Apartment 14C. Both sets of purchasers declined to settle their purchases and brought proceedings in this Court seeking cancellation of their agreements for sale and purchase and return of their substantial deposits on the basis that MacEnnvoy misrepresented the size of the actual and practical living area of each apartment.
[16] On 31 March 2010, Harrison J ruled that while there had been misleading and
deceptive conduct on the part of MacEnnvoy’s agent, the appropriate remedy was to
reduce the purchase price of each apartment. The sale price for Apartment 14B was reduced from $2.6m to $2.2m (including GST), while the sale price for Apartment
14C was reduced from $2.7m to $2.3m (including GST). His Honour made orders for specific performance of the agreements for sale and purchase.
[17] In determining the reduction in purchase price Harrison J took a broad approach. He considered numerous valuation reports from 2006-2009. The difference between the purchase price and the actual value was assessed in December 2008 and May 2009 as $525,000 and $700,000. Harrison J took into account the progressive stages of market deterioration and determined that a reduction of $400,000 of each purchase price reflected the actual value of the apartments if the representations had been correct.
[18] The purchasers appealed the High Court’s decision to the Court of Appeal seeking orders for cancellation and MacEnnvoy cross-appealed seeking a finding that it was not by reason of any misleading or deceptive conduct on the part of MacEnnvoy that the appellants suffered the loss. Settlement of the agreements was again deferred due to the inevitable costs and delays caused by the on-going litigation, and in July MacEnnvoy’s receivers stepped in.
[19] Shortly before the appeals were due to be heard, MacEnnvoy’s receivers
reached a settlement of the appeals with both sets of purchasers. On 14 September
2010, the receivers and the trustees of Tauhara Trust entered into a deed of settlement in which the trustees agreed to complete the purchase of Apartment 14B at a reduced purchase price of $1.9m (including GST). Settlement of the purchase took place on
12 January 2011. In the case of the Leighs, they entered into a deed of settlement with the receivers on 14 September 2010 in which they agreed to complete the purchase of Apartment 14C for the reduced purchase price of $2 million (including GST). This purchase settled on 29 April 2011. The result was that the appeals were withdrawn.
[20] All parties were legally represented by senior counsel.
[21] The receivers’ decision to settle was made as a result of a number of factors including the risk that MacEnnvoy would lose the appeal and cross appeal meaning that the apartments would have to be re-sold in a declining market. Further, the receivers were advised that if they tried to sell all four apartments at once, this could possibly result in lower purchase prices. Reselling the apartments would also result in further costs for a new marketing plan, holding costs, commissions and the obligation to refund deposits. Additionally, if the sale and purchase agreements settled, any GST liability would have been a pre-receivership debt of MacEnnvoy Trust. If new ones were concluded such liability would be post-receivership and would have to be met from the proceeds, reducing recovery by creditors. The receivers estimated the potential liability at $437,000.00. Finally, the receivers’ decision was supported by the advice they obtained from a registered valuer that the price proposed in settlement was reflective of market value at that time.
[22] The receivers sold the two remaining apartments, with both agreements settling in October 2010. The fifth apartment had been sold prior to the receivership.
[23] Between 22 October 2010 and 4 May 2011, the receivers distributed $5.7m to
Westpac. Westpac applied the distribution in the following way:
(a) On 27 October 2010 $105,910.06 was applied in reduction of the
amounts owing under MacEnnvoy’s overdraft facility;
(b) Between 22 October 2010 and 4 May 2011 Westpac applied
$5,594,089.94 in reduction of the amounts outstanding under
MacEnnvoy’s loan facility.
[24] As at 23 June 2011, the total amount outstanding under the facilities was
$1,062,216.64. This comprised:
(a) $1,694.24 under the overdraft facility; (b) $1,060,522.40 under the loan facility.
[25] On 5 October 2011, Westpac made demand on Mr Hadlow for repayment of
$1,125,652.48, being the amount outstanding under both facilities plus the default interest that had accrued as at that date. It sought, in the alternative, submission of a repayment proposal satisfactory to it in all respects on or before 12 October 2011. No payment or proposal was put to Westpac in the time allowed. The receivers made a final distribution of $193,857.72 to Westpac. Westpac applied this to reduce the amount outstanding on the two facilities and in payment of associated legal fees of $885.04, leaving an overall shortfall on the two facilities of
$869,244.40 which Westpac is seeking to recover from Mr Hadlow under the terms of his guarantee.
Parties’ submissions
[26] Counsel for Mr Hadlow submits he is entitled to be discharged from, or to set off amounts owing under, the guarantee because of the way the security was dealt with by the receivers and Westpac. He submits that the High Court’s orders for specific performance established the best price reasonably obtainable for the two apartments at the time of sale and that was no suggestion that the purchasers could not pay that price. Thus there could be no call to settle the appeals for a lesser sum. It was, he contends, not reasonably open to the receivers to enter into settlements for less or for Westpac to direct or enable such settlements.
[27] Counsel for Mr Hadlow submits in these circumstances there is a sound arguable case that Westpac is liable:
(a) For the receivers’ decision to settle for substantially lower purchase prices contrary to MacEnnvoy’s best interests, as the receivers were acting as agents of Westpac.
(b)For allowing a discharge of the mortgage which enabled the settlements, and thus breaching its duty to keep its security intact.
[28] Counsel for Westpac submits that Mr Hadlow has no credible defence. For reasons I will come to presently, I agree with this submission.
Principles applicable to summary judgment
[29] Westpac applies for summary judgment under r 12.2 of the High Court Rules. Rule 12.2 states:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed
[30] The legal principles applying to applications for summary judgment are succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Limited:2
(a) 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
(b) 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.
(c) 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.
(d) The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not uncritically accept 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.
(e) 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.
2 Krukziener v Hanover Finance Limited [2008] NZCA 187, [2010] NZAR 307, (2008) 19
PRNZ 162 (CA) at [26].
(f) Under r 141A3 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.
[31] Though the onus is upon the plaintiff, the defendant must provide some evidential foundation for the defences that are raised. If no evidential foundation is provided, the plaintiff ’s verification of the statement of claim stands unchallenged and ought to be accepted unless it is patently wrong.4
[32] If it has been established that there is no defence, rule 12.2 confers discretion on the court to grant summary judgement. Refusal of summary judgment when it has been established that no defence exists will only occur in rare circumstances.5
Discussion
[33] I am satisfied on the evidence before me that Mr Hadlow has no arguable
defence to Westpac’s claim. My reasons follow.
Issue 1 – Were the receivers acting as agents of Westpac and therefore Westpac
should be held liable for the receivers’ decision to settle?
[34] To prove such liability it needs to be established that receivers were acting as agents of Westpac.
[35] The Receiverships Act 1993, s 6(3) states:
A receiver appointed by, or under a power conferred by, a deed or agreement is the agent of the grantor unless it is expressly provided otherwise in the deed or agreement or the instrument by or under which the receiver was appointed.
[36] The receivers in this case were appointed by Westpac under a power conferred by MacEnnvoy in the general security agreement. Neither side suggests that the general security agreement, or any instrument by which Westpac appointed
the receivers, contains an express contrary provision that provides the receivers are
3 Now r 12.10.
4 Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at [58]-[59].
5 Jowada Holdings Ltd v Cullen Investment Ltd CA248/02, 5 June 2003.
not MacEnnvoy’s agent. Indeed, the general security agreement states expressly that receivers are the agents of the debtor and that the debtor alone is responsible for the receivers’ acts or defaults.
[37] Counsel for Mr Hadlow submits nonetheless that Westpac may be liable, as “a secured party may also be liable for the actions of a receiver who is appointed as agent of the debtor where the secured party interferes with the conduct of the receivership and gives directions to the receiver.”6 Counsel says that also apposite is Blanchard and Gedye’s outline of the situations in which such liability could occur:7
The secured party’s intervention will need to be serious before the secured party is found liable for receiver’s actions. Giving advice to, or holding discussions with, the receiver, or simply making known its preferences, will not render the secured party liable.8 In Florgale Uniforms Pty Ltd v Orders the receiver informed the secured creditor of the steps the receiver proposed to take in the receivership and the creditor concurred with the receiver’s recommendations.9 But the secured creditor did not go as far as telling the receiver what to do and accordingly incurred no liability. There will very probably be liability where the secured party clearly instructs the receiver to conduct the receivership in a manner that is in breach of the receiver’s duties to the debtor.10 And in State Bank of New South Wales v Chia it was stated that a secured party would be accountable where “heavily involved in the performance of the receiver’s duties even to the extent of directing when and to whom the receiver was to exercise his power of sale.”
[38] Counsel submits that Westpac did interfere with the conduct of the receivership and gave directions to the receivers that went beyond giving advice to or holding discussions with them, or simply making known its preferences. In other words, that Westpac did go so far as to tell the receivers what to do.
[39] I agree with counsel for Westpac that under the express provisions of the general security agreement the receivers are MacEnnvoy’s agent and that there is no evidence that is at all suggestive of interference by Westpac with the receiver’s conduct to conclude otherwise. I can only conclude that the statement that “the extent to which Westpac have involved themselves in the receivership goes beyond
that of a secured creditor” is bare assertion.
6 Peter Blanchard and Michael Gedye Private Receivers of Companies in New Zealand
(LexisNexis, Wellington, 2008) at 2.06.
7 At 2.06.
8 State Bank of New South Wales v Chia (2000) 50 NZWLR 587 at [885].
9 Florgale Uniforms Pty Ltd v Orders (2004) 51 ACSR 699 at 769.
10 Medforth v Blake [2000] CH 86 at 95.
[40] In taking this view I am mindful of Mr Hadlow’s submission that discovery is needed to establish what Westpac’s relationship with the receivers was and whether it interfered. However I take the view that to exercise my discretion to refuse summary judgment so as to allow such discovery would be futile due to the total lack of evidence that the receivers breached their duty under s 18. I will now outline my reasoning for such a finding.
Did the receivers breach their duty under s 18(2) be entering into settlements that were injurious to MacEnnvoy and thus Mr Hadlow?
[41] Even if agency could be established, for Westpac to be liable it would then be necessary for Mr Hadlow to establish some credible evidential foundation for his assertions that the receivers could not reasonably have believed their decision to settle was in MacEnnvoy’s best interest and that they did not comply with s 18(2).
[42] There is no dispute that the basis on which the receivers settled the appeal proceedings was less advantageous to MacEnnvoy than the specific performance orders given in the High Court. There is however, no suggestion in the evidence that as at the date of settlement of the appeals a willing buyer would have paid more and as such the receivers should have acceded to the buyer’s wish to cancel.
[43] The submission was undermined by the wholescale lack of evidence that might have gone some way to explain what the receivers did that could conceivably amount to a breach of s 18. Inferences cannot be drawn on the evidence that is before the Court that the receivers ignored the real possibility that the apartments were worth more than the settlement price. Settling uncertain court proceedings that may have resulted in a higher purchase price does not in itself amount to a breach of s 18(2).
[44] Accordingly I find that there is no evidence that the receivers breached their duty under s 18(2), nor is there any evidence that Westpac should be liable via agency for such a breach if such a breach had occurred.
[45] I turn to the next ground of defence.
Issue 2 – Did Westpac owe a duty to keep the security intact and was this duty breached?
[46] The holder of guarantees has a duty not to act or omit to act in a way that is injurious to the guarantor, or inconsistent with the guarantor’s rights.11 If there is a breach of the duty and the person guaranteed does an act injurious to the guarantor, or omits to do an act which his duty enjoins him to do, then equity will intervene to protect the guarantor.12
[47] However, that duty does not impose an obligation on the guarantor to exercise its power of sale over the mortgaged security.13 The holder of the mortgage, or the creditor, is entitled to decide in its own interests whether and when to sell.
[48] Mr Hadlow must show that Westpac acted in a way that injured him or that it had a duty to act in some claimed way which it failed to do.
[49] Mr Hadlow’s claim in respect of the breach of this duty appears to be that:
(a) Westpac did not act in a manner consistent with the orders for specific performance which he says essentially fixed the best reasonable price obtainable at the time of sale for the properties;
(b)Instead it discharged the mortgage to enable settlement of the two apartments to proceed on much less advantageous terms;
(c) As a result, it breached its duty.
[50] When I asked counsel for Mr Hadlow what Westpac should have done he said:
(a) It should have maintained the mortgage against the possibility that the orders for specific performance would be upheld on appeal;
11 Wulff v Jay (1872) LR 7 QB 756 at 762-763.
12 China and Southsea Bank v Tan [1989] 3 All ER 841 at [544].
13 At [544].
(b)It should not have discharged the mortgage because that was an act that enabled the receivers to proceed on less than advantageous terms.
[51] His argument proceeds on the basis that the act of signing the discharge was injurious and was coupled with a duty to maintain the mortgage.
[52] Therefore the question is whether Westpac should have maintained the mortgage as a means of preventing the settlement and forcing the purchasers to choose whether they would settle at the price determined by Harrison J, and abandon their appeal (in this respect counsel for Mr Hadlow argues that there is no suggestion that the purchasers could not pay that price), or forced the appeal to go ahead against the possibility that the order for specific performance would be upheld.
[53] I do not accept that Westpac had a duty to do these things in order to fulfil its duty to the guarantor. There is no basis for the argument that the guarantor is released from his obligations because Westpac discharged the mortgages on the instructions of the receivers. I do not think that Westpac acted in a way that placed the guarantor in a position that was inconsistent with his rights. Westpac would only have acted in such a way if there was evidence to show that Westpac was standing by while the properties were being sold at a serious undervalue. There is no evidence to that effect, therefore there is no breach of duty.
Conclusion
[54] I am satisfied on the evidence before me that Westpac has demonstrated that Mr Hadlow does not have an arguable defence to Westpac’s claim. I order accordingly.
Result
[55] Westpac is entitled to summary judgment on its claim for $869,244.40. I
order accordingly.
[56] Westpac is entitled to interest on that sum at its default interest rate under the terms of the development loan agreement until the date of judgment and to costs on a
solicitor/client basis pursuant to cl 4 of the guarantee. However, I defer making orders on these matters as updated affidavits are required and the parties may be able to agree on quantum. If the parties are able to settle the issues of interest and cost between them, then they need only file a joint memorandum confirming that position. Failing agreement, counsel for Westpac is to file and serve by 2 April 2013 a memorandum as to interest and costs supported by affidavit evidence:
(a) deposing to the interest rates applicable under the development loan agreement from 23 November 2011 to the date of judgment and the sum claimed for that period.
(b) updating and deposing to the legal costs that are claimed.
[57] Leave is reserved in the event that Mr Hadlow seeks to be heard on the calculation of interest or the reasonableness of the costs claimed. If necessary, I will convene a hearing to hear brief submissions. A memorandum is to be filed and served by 5 April 2013 for that purpose.
[58] I decline to make orders for interest beyond the date of judgment on the basis of the Court of Appeal’s decision in Nottingham v Registered Securities (In liquidation).14 However, a declaration is made that the right to contract interest
beyond this judgment does not merge with this judgment.
Associate Judge Sargisson
14 Nottingham v Registered Securities (In liquidation) 12 PRNZ 625 at 633.
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