Wiltshire Investments Limited v Symons
[2013] NZHC 1300
•4 June 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-1011 [2013] NZHC 1300
BETWEEN WILTSHIRE INVESTMENTS LIMITED Plaintiff
ANDROBERT MICHAEL SYMONS First Defendant
GREGORY JOHN SYMONS Second Defendant
CIV-2010-404-1572 [2013] NZHC 1300
BETWEEN WILTSHIRE INVESTMENTS LIMITED Plaintiff
ANDROBERT MICHAEL SYMONS AND ANNETTE SYMONS as Trustees of the ST. ANTHONY TRUST
First Defendants
GREGORY JOHN SYMONS, CLAIRE ANNE SYMONS and LORRAINE JEAN SYMONS as Trustees of the DRAKENSBERG TRUST
Second Defendants
Hearing: 21 February 2013
Appearances: J K Goodall and H Lees for Plaintiff
S P Bryers and M A Karam for Second Defendants in CIV-
2010-404-1011 and CIV-2010-404-1572
No appearance for Robert Symons, First Defendant in 1011,or for Robert Symons and Annette Symons as trustees of the St. Anthony Trust, first defendants in CIV-2010-404-1572
Judgment: 4 June 2013
JUDGMENT OF ASSOCIATE JUDGE BELL
WILTSHIRE INVESTMENTS LIMITED v SYMONS [2013] NZHC 1300 [4 June 2013]
This judgment was delivered by me on 4 June 2013 at 5:40pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Hornabrook Macdonald, Auckland, for Plaintiff
Rogers & Rutherford, Auckland, for Defendants
Counsel:
J K Goodall and H Lees, Auckland, for Plaintiff
S P Bryers and M A Karam, Auckland, for Defendants
[1] This decision is given on the rehearing of two summary judgment applications. On 26 July 2010 I gave judgment to Wiltshire Investments Ltd on guarantees for the indebtedness of two companies, Opus Fintek Ltd and Fibroin Initiatives Ltd. Robert Symons and Gregory Symons, the defendants in CIV-2020-
404-1011, were liable for guarantees for the indebtedness of both Opus Fintek Ltd and Fibroin Initiatives Ltd. The defendants in CIV-2010-404-1572, the trustees of the St Anthony Trust and the trustees of the Drakensberg Trust, were liable only for the indebtedness of Opus Fintek Ltd.
[2] On the re-hearing, Wiltshire Investments Ltd did not seek judgment against
Robert Symons. He is now bankrupt.
[3] As creditor of Opus Fintek Ltd and Fibroin Initiatives Ltd, Wiltshire Investments Ltd also had security by way of general security deeds given by Opus Fintek Ltd and Fibroin Initiatives Ltd. Wiltshire Investments Ltd had appointed a receiver of Opus Fintek Ltd, Mr Sills. The receiver had negotiated a settlement of litigation which resulted in Opus Fintek Ltd receiving payments of $1,400,000. I took those payments into account in fixing the amount for which the defendants were liable under the guarantees, even though the Wiltshire Investments Ltd had not put the settlement agreement in evidence.
[4] The Supreme Court held that I was in error in accepting the plaintiff’s evidence without seeing the settlement agreement. It set aside the summary judgment and directed a rehearing on the following terms:1
Upon disclosure of the settlement agreement to the appellant, the application for summary judgment is, at the option of the respondent, to be reheard in the High Court with the appellants at liberty to resist a claim (and, if they think it appropriate, produce additional evidence) on the basis of (i) the defence associated with, or arising out of the disclosure of the settlement and (ii) subject to the leave of the court being obtained, on any other basis. The appellants are also at liberty to make such interlocutory applications to the High Court as they see fit.
1 Symons v Wiltshire Investments Ltd [2012] NZSC 70.
The settlement deeds
[5] Wiltshire Investments Ltd has now disclosed the settlement agreement. In fact there are two settlement deeds.
[6] The earlier judgments give the background to the litigation among the shareholders of Hopscotch Money Ltd - that is, Opus Fintek Ltd and Opus Fintek Investments Ltd on the one side and Hats Holdings Ltd on the other.2 The settlement was negotiated in December 2009, while Opus Fintek Ltd was in receivership. Opus Fintek Investments Ltd was a subsidiary of Opus Fintek Ltd. The receiver had removed Gregory Symons as director of Opus Fintek Investments Ltd and had
appointed Alan Wiltshire of Wiltshire Investments Ltd as a director in his place.
[7] The litigation arose out of an earlier settlement agreement of 20 November
2007 under which Hats Holdings Ltd had agreed to buy the shares of Opus Fintek Ltd and Opus Fintek Investments Ltd for $5,200,000. Hats Holdings Ltd had paid only $500,000. Hats was being sued for the balance. Hats Holdings Ltd had counterclaimed for more than $4,700,000. It had joined the Symons brothers as counterclaim defendants.
[8] The settlement of the proceeding by Opus Fintek Ltd and Opus Fintek Investments Ltd against Hats Holdings Ltd was carried into effect by two settlement deeds. The parties to the first deed are Opus Fintek Ltd, Opus Fintek Investments Ltd and Hats Holdings Ltd. The parties to the second deed are Alan Wiltshire, Wiltshire Investments Ltd, Wiltshire Property Management Ltd (the Wiltshire interests) and Hats Holdings Ltd. Alan Wiltshire is a director of Wiltshire Investments Ltd and Wiltshire Property Management Ltd.
[9] Under the first deed, Opus Fintek Ltd agreed to transfer its 38 per cent shareholding in Hopscotch Money Ltd to Hats Holdings Ltd for $1,400,000. The deed also provided that Opus Fintek Ltd and Opus Fintek Investments Ltd would
arrange for Gregory Symons to be removed as a director of Hopscotch Money Ltd.
2 Wiltshire Investments Ltd v Symons HC Auckland CIV-2010-404-1011, 26 July 2010; Symons v Wiltshire Investments Ltd [2011] NZCA 397 and Symons v Wiltshire Investments Ltd [2012] NZSC 70.
The deed was to be kept confidential between the parties. In all other respects the deed contains provisions commonly found in agreements settling litigation.
[10] The recitals to the second settlement deed recorded, amongst other things, that the Wiltshire interests had provided funding to Opus Fintek Ltd and related parties, including the Symons brothers; and that as part of the settlement of the dispute, the Wiltshire interests agreed to cease funding of the Symons interests and to enforce securities against the Symons interests.
[11] The second settlement deed included these provisions:
2. Alan, WIL and WPML will:
(a) Cease all funding of OFL and/or OFIL other than for funding of the receiver regarding the receivership of OFL and/or OFIL;
(b) Cease all funding of the Symons’ interests, together with their respective wives and Robert Symons’ parents; and
3.Alan, WIL and WPML will take all reasonable steps to enforce the securities held by WIL against the Symons’ interests. Those steps will include the bankruptcy of Greg Symons and Robert Symons should they not be in a position to repay what is due and owing to Alan, WIL and WPML on demand. Any bankruptcy proceedings shall be enforced within a reasonable period and there shall be no undue delay by Alan, WIL or WPML in making demand and pursuing their remedies against Greg and Robert Symons.
...
5.Alan, WIL and WPML will, if requested by HHL, provide written evidence of the fact that WIL and WPML are the sole funders of the dispute. HHL shall use that information only in relation to any costs claim by Greg Symons or Robert Symons in relation to the counterclaims brought by Hopscotch Money Ltd and Hopscotch Money NZ Securities Ltd against Greg Symons and Robert Symons.
There was also a provision for confidentiality.
[12] Hats Holdings Ltd paid Opus Fintek Ltd the $1.400,000 under the first deed of settlement. The settlement deed did not require Hats Holdings Ltd to confer any other benefits on any other parties under either of the settlement deeds. It is common ground that Opus Fintek Ltd and the Wiltshire interests have received no more than the sum of $1.400,000 under the deed of settlement. That payment was
not enough to clear the indebtedness of Opus Fintek Ltd to Wiltshire Investments Ltd. The Symons interests, that is, Robert and Gregory Symons and their family trusts, the St Anthony Trust and the Drakensberg Trust, no longer claim that the Wiltshire interests received any collateral benefits under the settlement. The Symons interests are still exposed under their guarantees.
The Symons’ defences
[13] The Supreme Court’s primary purpose in setting aside summary judgment and directing a rehearing was to address the complaint by the Symons interests that it was arguable that Opus Fintek Ltd and the Wiltshire interests may have received more than $1,400,000 under the settlement with Hats Holdings Ltd. That is no longer a live issue. The Supreme Court contemplated that other matters might come to light as a result of the disclosure of the terms of the settlement deed. It left it open to the Symons’ interests to raise those matters as well.
[14] The Symons interests say that disclosure of settlement agreement has shown misconduct on the part of the Wiltshire interests. Aspects of the settlement that they target are:
(a) the provision in clause 2 of the second settlement deed to cease all funding of Opus Fintek Ltd and the Symons interests;
(b)the requirement in clause 3 to enforce securities against the Symons interests up to and including bankruptcy of Gregory and Robert Symons; and
(c) the requirement in clause 5 to furnish evidence that the Wiltshire interests are the sole funders of the proceedings against Hats Holdings Ltd.
[15] They also contend that the claim by Opus Fintek Ltd against Hats Holdings Ltd was much stronger than is reflected in the terms of settlement. The Symons interests say that the settlement process should be re-examined.
[16] They allege misconduct by Wiltshire Investments Ltd in:
(a) negotiating with Hats Holdings Ltd in secret; failing to keep the Symons interests informed of the negotiations, failing to consult with the Symons interests during negotiations and to obtain their responses to allegations; and excluding the Symons brothers from the settlement negotiations;
(b)not giving the Symons interests the opportunity to source alternative funding to continue with the litigation;
(c) appointing a receiver so as to obtain sole control of the negotiation of any settlement;
(d)being a party to negotiations which were solely for Wiltshire’s advantage and which were extremely detrimental to the Symons interests; and
(e) not disclosing the terms of settlement to the Symons interests and not seeking their consent to those terms.
[17] They say that this misconduct gives them three affirmative defences:
(a) discharge of the guarantees because Wiltshire Investments Ltd acted in bad faith. The alleged bad faith is a breach of fiduciary obligations by Alan Wiltshire under a joint venture;
(b) oppression under the Credit Contracts and Consumer Finance Act
2003; and
(c) interference in the conduct of the receivership. [18] These defences require two questions to be addressed:
(a) Are they matters that can be considered under the terms on which the Supreme Court referred the summary judgment applications for rehearing?
(b)Has Wiltshire Investments Ltd shown that the defences are not arguable?
[19] These defences need to be put into context. They are being raised as defences to claims by a creditor suing on guarantees. In general, and subject to the particular provisions of the guarantees in question, a creditor may have a range of remedies available:
(a) the creditor can sue the debtor on personal covenants;
(b)the creditor can exercise its rights under any security given by the debtor;
(c) the creditor can sue the guarantor; and
(d)the creditor can exercise its rights under any security given by the guarantor.
[20] Again, subject to any particular provisions in the contract of guarantee, the general law is that the creditor can choose what remedies he wishes and in whichever order he wishes. The Privy Council recognised that in China and South Sea Bank Ltd v Tan.3 There is also general support in The Modern Contract of Guarantee.4
The rationale of this principle is that it is the duty of the guarantor, not the creditor, to ensure that the debtor performs the principal obligation and that the creditor should have almost unbridled control over the remedies which the contract provides. The creditor should not be hampered in pursuing a specific course of legal action by a person who remains his debtor.5
3 China and South Sea Bank Ltd v Tan [1990] 1 AC 536 (PC) at 545.
4 James O’Donovan and John Phillips The Modern Contract of Guarantee (2nd English ed., Sweet
& Maxwell, London, 2010) at [11.11]-[11.28].
5 At [11.16].
[21] Wiltshire Investments Ltd sues as assignee of guarantees the Symons interests gave the ASB Bank. The ASB Bank guarantee contains extensive terms that strengthen its rights as creditor and exclude certain defences that might otherwise be available to a guarantor. Accordingly the defences need to prevail over a creditor’s general right to choose its remedies and also over the specific terms of the ASB Bank’s guarantee.
The standard of conduct required of a receiver
[22] In considering allegations of misconduct, it is necessary to measure the conduct complained of against some standard. For this case, I have taken as an appropriate measure the standard expected of a competent receiver. That standard is relevant to the allegation that Wiltshire Investments Ltd interfered in the receivership. If Wiltshire Investments Ltd can meet the appropriate receivership standard of conduct, then the other defences of bad faith and oppression under the credit contracts legislation will likewise not be sustainable.
[23] Sections 18 and 19 of the Receiverships Act 1993 set out the relevant duties:
18. General duties of receivers
(1) A receiver must exercise his or her powers in good faith and for a proper purpose.
(2) A receiver must exercise his or her powers in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interests he or she was appointed.
(3) To the extent consistent with subsections (1) and (2) of this section, a receiver must exercise his or her powers with reasonable regard to the interests of—
(a) The grantor; and
(b) Persons claiming, through the grantor, interests in the property in receivership; and
(c) Unsecured creditors of the grantor; and
(d) Sureties who may be called upon to fulfil obligations of the grantor.
(4) Where a receiver appointed under a deed or agreement acts or refrains from acting in accordance with any directions given by the person in whose interests he or she was appointed, the receiver—
(a) Is not in breach of the duty referred to in subsection (2) of this section; but
(b) Is still liable for any breach of the duty referred to in subsection (1) and the duty referred to in subsection (3) of this section.
(5) Nothing in this section limits or affects section 19 of this Act.
19 Duty of receiver selling property
A receiver who exercises a power of sale of property in receivership owes a duty to—
(a) The grantor; and
(b) Persons claiming, through the grantor, interests in the property in receivership; and
(c) Unsecured creditors of the grantor; and
(d) Sureties who may be called upon to fulfil obligations of the grantor—
to obtain the best price reasonably obtainable as at the time of sale.
[24] The duty under s 19 prevails over the general duties under s 18 – see s 18(5). Under s 18(3)(d) a receiver must exercise his powers with reasonable regard to the interests of guarantors, but only to the extent consistent with the duty to exercise powers in good faith and for a proper purpose under s 18(1) and the duty under s 18(2) to exercise powers in a manner that he or she believes on reasonable grounds to be in the best interests of the person in whose interest he or she was appointed. The receiver owes a duty to guarantors under s 19(d), but that is the same duty as the receiver owes to the grantor, or persons claiming through the grantor, and unsecured creditors of the grantor.
[25] The Symons interests allege that the receiver breached duties under both s 18 and s 19. They tendered a draft statement of claim which includes causes of action against Mr Sills for breaches of the duties under both sections. They intend to join him as a third party.
[26] For a breach of the duty under s 18(3)(d), they say that Mr Sills did not take into account their interests when trying to settle the Hats litigation, and negotiated or was a party to terms of settlement which were seriously prejudicial to their interests, especially the provisions requiring the Wiltshire interests to cease funding of the Symons interests and to take all reasonable steps to enforce the securities held by Wiltshire Investments Ltd against the Symons interests. They also allege that Mr Sills acted for an improper purpose, namely in advancing the personal interest of Alan Wiltshire, without regard to the interests of Opus Fintek Ltd or the guarantors.
[27] Their allegations as to breach of s 19 of the Receiverships Act are that Mr Sills entered into an agreement at a gross undervalue and without proper regard to the merits of the claim against Hats Holdings Ltd, to possible alternative funding arrangements for prosecuting the claim, and to the position of the Symons brothers as guarantors of the debt Opus Fintek Ltd owed Wiltshire Investments Ltd.
[28] In his affidavits, Gregory Symons has raised the following:
(a) Opus Fintek Ltd and Opus Fintek Investments Ltd had a good claim against Hats Holdings Ltd for $4.7m and a settlement for $1.4m was at a gross under-value.
(b)Mr Sills could have and ought to have obtained funding to take the litigation through to a hearing.
(c) Mr Sills ought to have consulted him as he was a director of Opus
Fintek Ltd and was a guarantor, but did not do so.
(d)The settlement negotiations were conducted in secret and were kept confidential.
(e) He was peremptorily removed as a director of Opus Fintek
Investments Ltd.
(f) There was a pre-existing relationship between Mr Sills and
Mr Wiltshire.
(g)Mr Sills was involved in the negotiation of the settlement agreements, which contained provisions adverse to the Symons interests – requiring disclosure of the extent to which the Wiltshire interests had funded the litigation and providing that Wiltshire Investments Ltd would pursue them to bankruptcy on the guarantees.
[29] Apart from the last point, all of these matters had been canvassed in evidence in the first hearing of the summary judgment application.
[30] In assessing the receiver’s compliance with his duties under ss 18 and 19, I put to one side the fact that he may have been acting under instructions from Alan Wiltshire, director of Wiltshire Investments Ltd. The fact that he was acting under instructions does not relieve him of any duties to the Symons under s 18(3).6
[31] When Mr Sills was appointed receiver, Opus Fintek Ltd was suing Hats Holdings Ltd under the November 2007 settlement agreement. Opus Fintek Ltd had instructed solicitors, who had in turn instructed counsel. Hats Holdings Ltd had also instructed solicitors and counsel. There had been a mediation, which had not resulted in a settlement. Mr Wiltshire had been meeting the costs of the litigation up until the receivership, but he had decided to appoint a receiver because he no longer wished to fund the litigation. The Symons interests had not funded the litigation. Opus Fintek Ltd had no other funds to meet the costs of the proceeding.
[32] The receiver was a barrister. He is experienced in both receiverships and in litigation. Mr Sills says that he reviewed the proceedings, including materials held by the solicitors for Opus Fintek Ltd. That included extensive materials and commentary provided by Gregory Symons. He also met Gregory Symons. He discussed the matter with the lawyers involved in the proceeding, including the Queen’s counsel appointed for Opus Fintek Ltd. He also discussed the matter with the lawyers for Hats Holdings Ltd. He confirmed that Wiltshire Investments Ltd was not prepared to fund the litigation further. He investigated third party litigation funding options. Having canvassed the matter with the Symons brothers, he formed
the view that they were unlikely to provide any funding, because they had their own
6 See s 18(4)(b).
financial difficulties. He also spoke with a solicitor representing the Symons brothers.
[33] The Queen’s counsel appointed to act for Opus Fintek Ltd advised settlement. Success in the proceeding would turn on the credibility of the Symons brothers. Mr Sills had good grounds for believing that there would be significant litigation risk if the case were taken through to a hearing.
[34] The settlement took the form of an agreement for Opus Fintek Ltd and Opus Fintek Investments Ltd to sell their shares to Hats Holdings Ltd. That is enough to trigger the duty under s 19. A receiver’s duty to obtain the best price reasonably obtainable at the time of sale under s 19 may have some parallels with the duty on a mortgagee under s 176 of the Property Law Act 2007, which confers a similar duty in the same terms. Under s 176 it is recognised that a mortgagee may exercise its power of sale at a time the mortgagee chooses, and is not required to delay the sale in the hope of obtaining a better price. Similarly the mortgagee can dispose of the asset in its existing condition without carrying out improvements which might bring
a higher price.7 The duty on receivers is no different.8
[35] However, there are distinguishing features between the sale of a property by a mortgagee and this case, where the sale of an asset involved the compromise of heavily-contested litigation. The exercise of a power of sale by a mortgagee usually involves taking steps to obtain the best price reasonably obtainable on an open market. So there is an enquiry into the state of the market and efforts to promote the property on the market. But in this case there was only one possible purchaser, Hats Holdings Ltd.
[36] Instead of assessing the value of the shares by reference to their sale price on the open market, the receiver had to assess their value in relation to benefits and risks of litigation. In particular, Opus Fintek Ltd was also facing a substantial
counterclaim for sums which exceeded its claims against Hats Holdings Ltd. While
7 See Southland Building Society v Austin [2012] NZHC 497 at [29] for a summary of the case law on the duty under s 176.
8 Silven Properties Ltd v Rural Bank of Scotland plc [2004] 1 WLR 997 at [28].
the Symons brothers were also counterclaim defendants, there was no assurance they would be good for any judgment.
[37] Private Receivers of Companies in New Zealand9 comments:
In determining whether a receiver has acted in breach of the section 19 duty, the courts are likely to allow a margin of tolerance, not finding a breach unless, to adopt the words of Elias CJ in Moritzson Properties Ltd v McLachlan ((2001) 9 NZCLC 262,448 at [58] the receiver is plainly on the wrong side of the line.
[38] Negotiating a settlement of litigation requires judgment. A range of outcomes is possible and there is no single right answer.
[39] The Symons interests propose that funding could have been available from a litigation funder which could have allowed the proceeding to go to a hearing. Mr Sills considered that and rejected it. Just as a mortgagee is under no duty to carry out improvements with a view to selling a property at an enhanced price, a receiver is under no general duty to keep a business running.10 Requiring the receiver to obtain litigation funding to continue complex litigation is akin to placing the receiver
under a duty to run a business, when profitability cannot be assured. Mr Sills did not breach his duty by electing not to continue with the litigation or to pursue litigation funding. He was entitled to settle the proceeding without progressing it further.
[40] The Symons interests also criticise the receiver for matters of process and procedure:
(a) in not consulting with Gregory Symons as director of Opus Fintek
Ltd;
(b) in conducting settlement negotiations in secret; and
(c) Mr Sills’ earlier association with Mr Wiltshire.
9 Peter Blanchard and Michael Gedye Private Receivers of Companies in New Zealand
(LexisNexis, Wellington 2008) at 327 [11.29].
10 See R A Price Securities Ltd v Henderson [1989] 2 NZLR 257 for a case of a receiver who erred, continuing to run the business.
[41] While a receiver is required to have regard to the interests of guarantors, and while a receiver may chose to consult directors of the company, a receiver is not under a duty to consult. As it is, Mr Sills’ evidence shows that he did discuss matters with Gregory Symons. Under the Receiverships Act, receivers have statutory duties to report on the affairs of the company,11 but a receiver has no wider obligations to supply information to directors.
[42] Similarly, Alan Wiltshire’s earlier acquaintance with Mr Sills is not enough to
trigger any concerns.
[43] The matters reviewed so far were all in evidence at the first hearing, even though the allegation of breach of a duty under the Receiverships Act was not specifically raised. The Supreme Court did not order a rehearing to allow the Symons interests to run arguments that were already available on the evidence. Even so, the rehearing has not changed my views that nothing has been raised to suggest that Mr Sills was in breach of any duties as a receiver in settling the litigation.
[44] There is also the question of the terms of settlement. The Symons interests focus on them because they did not know of them before, and because they see themselves as targeted. In particular, they take issue with clauses 2, 3 and 5 of the second settlement deed. Opus Fintek Ltd was not a party to that deed. No doubt Mr Sills had a part in negotiating it. Alan Wiltshire and his companies, Wiltshire Property Management Ltd and Wiltshire Investments Ltd were parties to the second deed. Accordingly the question of breach of receivership duty in respect of those provisions is better considered directly against Wiltshire Investments Ltd.
Interference in the receivership
[45] 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 in the conduct of
the receivership and gives directions to the receiver.12 Where the secured party is
11 Receiverships Act 1993, s 23.
12 Private Receivers of Companies in New Zealand , above n 9, at paragraph [2.06] p 38; Standard Chartered Bank Ltd v Walker [1982] 3 All ER 938, American Express International Banking Corporation v Hurley [1985] 3 All ER 564; Medforth v Blake [2000] Ch 86 at 95; and State
liable, it is held to account in the same manner as the receiver and to the same standards.13
[46] Wiltshire Investments Ltd did not submit that its actions were limited to those of a secured creditor who appoints a receiver but does no more than receive reports and consult with the receiver. It is arguable that Wiltshire Investments Ltd’s participation in the receivership went beyond the normal role of a secured creditor. Alan Wiltshire, a director of the plaintiff, was appointed a director of Opus Fintek Investments Ltd in place of Gregory Symons, to enable that company to enter into the settlement deeds. Wiltshire Investments Ltd was itself a party to the second settlement deed and undertook to pursue the Symons interests as part of the overall settlement. Instead, the case for Wiltshire Investments Ltd was that there was no breach of duty.
[47] The focus here is on the admittedly unusual provisions of the second settlement deed - that is, clauses 2, 3 and 5. While the terms may be unusual, it is hard to see how they give any basis for complaint by the Symons interests. Under clause 2(b), the Wiltshire interests undertook to cease all funding of the Symons interests. The Symons interests do not say that that amounted to a breach of any specific agreement between them and the Wiltshire interests. Nor do they assert that they had any entitlement to be funded by the Wiltshire interests. As they do not point to any entitlement to be funded, they can hardly complain about a contractual provision that they were not to be funded.
[48] As to the undertaking by the Wiltshire interests in clause 3 to enforce the securities against the Symons interests, they could have no argument if the Wiltshire interests had resolved by themselves to enforce the securities against the Symons interests, even as far as bankruptcy. The Symons’ complaint about the Wiltshires having agreed with Hats Holdings Ltd to enforce the securities is that, whereas they may have been able to negotiate payment arrangements with the Wiltshire interests alone, that is not now open. The response from the Wiltshire interests is that if the
Symons interests were to attempt to negotiate some compromise with the Wiltshire
Bank of New South Wales v Chia [2000] NSWLR 587 at [885].
13 State Bank of New South Wales v Chia at [886].
interests, the Wiltshire interests would need to consult with Hats Holdings Ltd and obtain their agreement.
[49] The objection by the Symons interests is insignificant. It cannot be a defence to a guarantee that a creditor has agreed with a third party that the creditor will enforce his rights against the guarantor. The fact that such an agreement forms part of a settlement agreement entered into as part of a receivership does not change the point.
[50] Clause 5, providing for the Wiltshire interests to show that they had funded the dispute rather than the Symons interests, arose only if the Symons interests did seek costs in relation to counterclaims brought by Hopscotch Money Ltd and Hopscotch Money NZ Securities Ltd. It does not appear to be disputed that the Wiltshire interests was the sole funder of the litigation against Hats Holdings Ltd up until the receivership. That had apparently covered the costs of defending the counterclaims against the Symons brothers. Clearly Hats Holdings Ltd, Hopscotch Money Ltd and Hopscotch Money NZ Securities Ltd wanted to have that information available to rebut any costs application which the Symons interests might raise. Clause 5 would provide information to counter any false costs application the Symons interests might make. That was a proper commercial arrangement. The Symons interests can have no objection to it.
[51] Clauses 2, 3, and 5 are all matters which the Wiltshire interests could legitimately enter into in their own right. The appearance of those provisions in the settlement deed does not change that position. Before the settlement deed, the Symons interests were already subject to liability under the guarantees that they had given. They had no entitlement to funding from Wiltshire Investments Ltd, and could not insist that in any application for costs they made, Wiltshire Investments Ltd should not be allowed to disclose that it was in fact the funder of the litigation rather than the Symons. No doubt the reason why these provisions found their way into the settlement deed was to allow the receiver, with Wiltshire Investments Ltd, to negotiate a settlement of the litigation.
[52] The Symons interests complain that by including these provisions in the settlement deed, the Wiltshire interests and the receiver did not have proper regard to their interests. However, the receiver and the Wiltshire interests can legitimately point to the priority of the duties under s 18(1) and 18(2) of the Receiverships Act. If the price of obtaining a settlement with Hats Holdings Ltd was to include these provisions, then the receiver - and Wiltshire Investment Ltd – can properly say that they were acting in good faith and for a proper purpose in the interests of Wiltshire Investments Ltd as secured creditor, and those matters are not to be subordinated to those of the Symons interests as guarantors.
[53] In summary, on the defence of interference in the receivership, the only fresh matter that the Symons interests can raise under the decision of the Supreme Court is the terms of the second settlement deed. Its provisions do not give them an arguable defence.
Bad faith by Wiltshire Investments Ltd
[54] The Symons interests say that Wiltshire Investments Ltd acted in bad faith towards them, with the effect that they are discharged from liability and from guarantees. The allegations in paragraph [16] above are said to constitute bad faith conduct by Wiltshire Investments Ltd. They say that by reason of these matters they are entitled to be released from any liability under the guarantees.
[55] Wiltshire Investments Ltd accepts that a guarantor may be discharged from liability under a guarantee if the creditor has acted in bad faith.14 It also accepts that the terms of the ASB Bank guarantee are not effective to oust that defence.
[56] However, the defence has narrow application. A leading case in this area is
Bank of India v Patel.15 There, Robert Goff LJ quoted the judge at first instance:
But as a matter of principle I cannot accept Mr Murray’s submission that a surety is discharged if a creditor acts towards the principal debtor in a manner which is irregular and prejudicial to the interests of the surety. Leaving aside what may be the special case of fidelity guarantees, I consider
14 Laws of New Zealand Guarantee (online ed.) [2.04].
15 Bank of India v Patel [1983] 2 Lloyds L R 298 (CA); Also refer to Westpac Securities Ltd v
Dickie [1991] 1 NZLR 657 (CA) at 663-664.
the true principle to be that while a surety is discharged if the creditor acts in bad faith towards him or is guilty of concealment amounting to misrepresentation or causes or connives at the default of the principal debtor in respect of which the guarantee is given or varies the terms of the contract between him and the principal debtor in a way which could prejudice the interests of the surety, other conduct on the part of the creditor, not having these features, even if irregular, and even if prejudicial to the interests of the surety in a general sense, does not discharge the surety.
Robert Goff LJ went on to say:
With that statement of principle I find myself in agreement, subject to the comment that I would perhaps have preferred to state it the other way round, that is to say that there is no general principle that “irregular” conduct on the part of the creditor, even if prejudicial to the interest of the surety, discharges the surety, although there are particular circumstances in which the surety may be discharged, of which the instances specified by the learned Judge provide certainly the most significant, and possibly the only, examples. I say that simply because I do not wish to be thought to be shutting the door upon any further development of law in this field by rigidly confining the circumstances in which a surety may be discharged to the specified instances, though I freely recognise that I am unaware at present of any others. But that merely irregular conduct on the part of the creditor, even if prejudicial to the interests of the surety, does not discharge the surety, there can in my judgment be no doubt.
[57] In O’Dea v Commonwealth Bank of Australia Ltd, McTierman J said: 16
In Black v Ottoman Bank Lord Kingsdowne, dealing with the converse case of conduct on the part of a creditor which would appear to have been beneficial to a debtor but disadvantage to a surety said:
From these cases it is clear that ... the mere passive inactivity of a person to whom the guarantee is given, has neglected to call the principal debtor to account ... does not discharge the surety; that there must be some positive act done to him to the prejudice of the surety, or such degree of negligence as, in the language of Vice Chancellor Wood in Dawson v Lawes ((1854) Kay 280; 69 ER 119), to imply connivance and amount to fraud.
Wood VC, after referring to discussions with respect to the right to be discharged of a surety who had guaranteed the conduct of a person in office, there said:
All those remarks point to active connivance amounting, in fact, as it would do in such a case, almost, if not entirely, to a fraud on the part of the person, in particular officers who were so conducting themselves.
I think that action by a creditor against a debtor which has no other colour or character than action bona fide taken in pursuit of his remedies will not
16 O’Dea v Commonwealth Bank of Australia Ltd (1953) 50 CLR 200 at 224.
discharge a surety though such action may be taken under a mistake of law as to the creditor’s rights. Assuming the creditor’s action in the present case to have been tortious, and relate to the additional colour and character necessary to render it an equitable cause for the discharge of the surety on the ground that it injured him.
[58] Most of the Symons’ complaints of bad faith were the subject of evidence in the first hearing of the summary judgment applications. This rehearing was not ordered for those matters to be traversed again. So complaints about settlement negotiations being run secretly with the Symons being kept deliberately in the dark without adequate consultation and without any say in the terms of the settlement are not new.
[59] The only new element is the terms of the settlement deeds, in particular clauses 2, 3 and 5 of the second deed. The conclusions arising out of the consideration of the duties of Wiltshire Investments Ltd during the receivership can be applied here. These clauses were matters that Mr Sills as receiver and Wiltshire Investments Ltd as secured creditor were entitled to accept as terms of the settlement of the litigation. They arose as part of the legitimate pursuit of the interests of the secured creditor. The Symons cannot demand that their own interests take priority. Nor can they have legitimate objections to the terms. Those provisions do not impose any new liabilities on the Symons, and do not deprive them of anything to which they were otherwise entitled. The provisions may increase the prospect of them being pursued under their guarantees, but that cannot be a basis for legitimate complaint. Those matters do not give grounds for an argument that Wiltshire Investments Ltd has acted in bad faith so as to discharge them from the guarantees.
[60] Their complaints fall well short of the standard of misconduct required to show bad faith under this part of the law of guarantees.
[61] The Symons however put their case as one of breach of fiduciary obligation arising out of a joint venture. Their argument is that Alan Wiltshire came under fiduciary obligations by reason of a joint venture with the Symons interests, that that joint venture and the associated fiduciary obligations remained in full force and effect up to and during the receivership and that Alan Wiltshire and, by association, Wiltshire Investments Ltd, were in breach of their fiduciary duties.
[62] The Symons, however, say that there was a relationship between them and Alan Wiltshire which began in 2004 and which was in the nature of a joint venture partnership, under which the joint venture partners would work together to develop a finance company in conjunction with a suitable partner. Alan Wiltshire was to contribute investment capital while the Symons brothers were to contribute their experience, intellectual property and expertise, with profits and liabilities to be divided equally. Alan Wiltshire denies that there was a joint venture partnership, and says that he was no more than a passive investor.
[63] For this application, I assume that the Symons interests have an arguable case that while Alan Wiltshire was not himself a director, the relationship between the Symons brothers and Alan Wiltshire was one of trust and confidence which could give rise to certain fiduciary obligations. Wiltshire Investments Ltd did not strongly contend that the submission of an initial joint venture arrangement between the Symons brothers and Alan Wiltshire was unarguable. It said, however, that the position of Wiltshire Investments Ltd was different.
[64] The argument for the Symons interests ran that Mr Wiltshire’s fiduciary duties extended to preventing him obtaining any collateral advantage for himself without the knowledge or informed consent of other joint venturers - that is, the Symons interests. They argue that Wiltshire Investments Ltd is simply another vehicle, through which Alan Wiltshire engaged as a joint venture partner with them. When Wiltshire Investments Ltd took an assignment of the ASB Bank securities in June 2008, it took them subject to Alan Wiltshire’s personal fiduciary obligations as a joint venture partner. Accordingly, Wiltshire Investments Ltd could not use its powers as a secured creditor of Opus Fintek Ltd to obtain advantages for Mr Wiltshire over the joint venture partners, the Symons interests.
[65] In support, the Symons interests cited United Dominions Corporation Ltd v Bryan Pty Ltd.17 In that case there was a joint venture between Security Projects Ltd, United Dominions Corporation Ltd, and Bryan Pty Ltd and others. Security Projects Ltd executed three mortgages in favour of UDC. When the property the
subject of the joint venture was sold, UDC claimed the entire proceeds of sale on the
17 United Dominions Corporation Ltd v Bryan Pty Ltd (1985) 60 ALR 741.
basis of a collateralisation clause under which the mortgages secured the borrowings of Security Projects Ltd unrelated to the joint venture. Bryan Pty Ltd did not know about the collateralisation clause. Gibbs CJ put the duty as follows:18
That being so, the proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given an accepted. Each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed consent of the other participants.
[66] The present case is different. In 2008 the ASB Bank had made demands on Opus Fintek Ltd and Fibroin Initiatives Ltd under various facilities. Alan Wiltshire personally, and the various Symons interests, were jointly and severally liable under guarantees they had given the ASB Bank. Wiltshire Investments Ltd provided the funds to meet all the liabilities due to the ASB Bank and took an assignment of all the securities held by the ASB bank, including all the guarantees. Before the assignment, the ASB Bank held its rights under its securities, free of any fiduciary obligations to the Symons interests. It assigned all its rights in those securities and guarantees to Wiltshire Investments Ltd, free of any fiduciary obligations owed to the Symons interests.
[67] The Symons interests were all parties to the deed of assignment as “Relevant Parties”. Under clause 7.2 they consented to Alan Wiltshire being discharged from his guarantee, but they acknowledged in clause 7.1 that they had notice of the assignment. As relevant parties, the Symons interests gave undertakings to Wiltshire Investments Ltd, including under 6.2(c) that they would:
... not do or permit (and will procure that no other Relevant Party does or permits to be done) anything that could reasonably be expected to have an adverse effect on the assignee’s position or rights of recovery under any assigned document or this deed.
[68] The assertion that Wiltshire Investments Ltd was somehow subject to fiduciary obligations to which ASB Bank was not subject is the assertion of a
“material adverse effect” on the rights of recovery of Wiltshire Investments Ltd.
18 At 748.
[69] Similarly, clause 7.4(c) of the deed of assignment provides that the liability of the Symons interests under this deed shall not be discharged or affected in any way by reason of a number of listed matters that broadly correspond with provisions in the bank’s guarantee.
[70] The general tenor of the provisions of the deed of assignment is that Wiltshire Investments Ltd is to succeed to all the rights and powers formerly held by the ASB Bank Ltd under the securities and guarantees, without any further limitations or restrictions. The Symons interests were parties to the deed. The assignment took place with their knowledge and consent. They cannot now be heard to contend that Wiltshire Investments Ltd’s exercise of its rights and powers under the securities and guarantees is subject to restrictions arising out of a joint venture.
[71] Accordingly, the argument as to breach of fiduciary obligations arising out of a joint venture does not add any strength to the bad faith defence. Moreover that defence was available at the first hearing of the summary judgment applications. The disclosure of the terms of the settlement deeds has not given any fresh force to that defence. It is outside the terms on which the Supreme Court referred the case for rehearing.
Re-opening under the Credit Contracts and Consumer Finance Act 2003
[72] The Symons interests allege oppressiveness by Wiltshire Investments Ltd under Part 5 of the Credit Contracts and Consumer Finance Act 2003. “Oppressive” is defined in s 118:
In this Act oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice
[73] The reopening provisions of Part 5 apply to every credit contract, whether or not it is a consumer credit contract. The agreement between the ASB Bank and Opus Fintek Ltd of 22 August 2005 for an overdraft facility, and the agreement of
15 December 2006 for a term loan of $2,200,000 to Opus Fintek Ltd were credit contracts under the Act. The general security deed over the assets of Opus Fintek
Ltd and the guarantees given by the Symons interests are part of the credit contracts under s 119:
Collateral contracts and linked transactions
(1) If a security interest is or may be taken in connection with a credit contract, consumer lease, or buy-back transaction, the contract or arrangement that creates or provides for the security interest is to be treated as forming part of the credit contract, lease, or transaction for the purposes of this Part.
(2) If it is a term of a credit contract that another contract or arrangement be entered into, any part of that other contract or arrangement that relates to the provision of credit to, or the payment of money by, a debtor under the credit contract is to be treated as forming part of the credit contract for the purposes of this Part.
(3) If it is a term of a consumer lease or buy-back transaction that another contract or arrangement be entered into, any part of that other contract or arrangement that relates to the payment of money by a lessee under the consumer lease or by an occupier under a buy- back transaction is to be treated as forming part of the consumer lease or transaction for the purposes of this Part.
Section 120 confers the power to reopen credit contracts for oppression:
120Reopening of credit contracts, consumer leases, and buy-back transactions
The Court may reopen a credit contract, a consumer lease, or a buy-back transaction if, in any proceedings (whether or not brought under this Act), it considers that—
(a) the contract, lease, or transaction is oppressive; or
(b) a party has exercised, or intends to exercise, a right or power conferred by the contract, lease, or transaction in an oppressive manner; or
(c) a party has induced another party to enter into the contract, lease, or transaction by oppressive means.
Section 123 provides:
123Time and circumstances relevant to reopening credit contracts, consumer leases, or buy-back transactions
A credit contract, a consumer lease, a buy-back transaction, a term of a credit contract, a consumer lease, or a buy-back transaction, or an act performed under, or in connection with, a credit contract, a consumer lease, or a buy- back transaction is not oppressive if the contract, lease, transaction, term, or
act would not have been considered oppressive at the time, and in the circumstances, that it was made or performed.
Section 124 gives guidelines for reopening credit contracts:
124Guidelines for reopening credit contracts, consumer leases, and buy-back transactions
In deciding whether section 120 applies and whether to reopen a credit contract, consumer lease, or buy-back transaction, the Court must have regard to—
(a) all of the circumstances relating to the making of the contract, lease, or transaction, or the exercise of any right or power conferred by the contract, lease, or transaction, or the inducement to enter the contract, lease, or transaction (as the case may be); and
(b) the following matters if they are applicable:
(i) whether the amount payable by the debtor under the contract, lessee under the lease, or occupier under the transaction is oppressive (whether or not on default by the debtor, lessee, or occupier):
(ii) if a debtor, lessee, or occupier is in default under the contract, lease, or transaction, whether the time given to the debtor, the lessee, or the occupier to remedy the default is oppressive, having regard to the likelihood of loss to the creditor, lessor, or transferee:
(iii) if the creditor has required, as a condition of the full prepayment of a credit contract, that the debtor pay a certain amount, whether the amount is oppressive having regard to the expenses of the creditor and the likelihood that the amount repaid can be reinvested on similar terms:
(iv) if the creditor, lessor, or transferee has refused to release part of any security interest relating to the contract, lease, or transaction, or has agreed to the release subject to conditions, whether the refusal is, or the conditions are, oppressive, having regard to the obligations secured by the security interest and the extent of the security that would remain after the release; and
(c) any other matters that the Court thinks fit.
[74] There is also guidance from the case law including cases decided under the
Credit Contracts Act 1981. The provisions for reopening credit contracts for
oppressiveness under that Act have been reproduced in the 2003 Act. In Greenbank v Haas the Court of Appeal said: 19
The various words which together form the definition of the term “oppressive'' all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice. In a sense that phrase gives the underlying commercial rationale for the earlier words or phrases. Something which is, for example, unjustly burdensome must necessarily be regarded as being in contravention of reasonable standards of commercial practice; similarly with something harsh. To determine whether a contract or term is oppressive within any of the words or phrases in the definition, it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with such reasonable standards could hardly be held to be oppressive. Conversely something which is not in accordance with (ie in contravention of) such standards is, by definition, oppressive. It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standards of commercial practice.
[75] While the Court of Appeal in that case emphasised the focus on reasonable standards of commercial practice and the need to have regard to evidence of what is considered acceptable or unacceptable in the market place, in GE Custodians v Bartle20 the Supreme Court added the qualification that the courts set the standard of reasonableness:
The Court of Appeal has correctly said in Greenbank New Zealand Ltd v Haas that the various words which together form the definition of the term “oppressive” all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice.58 That sets an objective standard. A contract or course of conduct may therefore, as Arnold J also said, be treated as oppressive even though the party whose conduct is said to be oppressive may be (subjectively) blameless because the party is simply following industry practice. Where that practice is in breach of reasonable standards, compliance with it will not immunise a lender. It is for the courts rather than the industry to set the standard.
[76] The matters which the Symons interests say are oppressive under the Act are the same matters which they say constitute bad faith on the part of Wiltshire Investments Ltd, that is the alleged misconduct in paragraph [16] above. Just as
I have found that Wiltshire Investments Ltd was not in breach of any receivership
19 Greenbank New Zealand Ltd v Hass [2000] 3 NZLR 341 at [24].
20 GE Custodians v Bartle [2010] NZSC 146 at [46].
duties – that is, duties of the sort owed by a receiver by reason of its interference in the receivership – and that its actions do not amount to bad faith so as to give a discharge from the guarantees, I similarly find that the actions complained of do not give grounds for reopening the guarantees under the Credit Contracts and Consumer Finance Act 2003 for the same reasons. The standards of conduct for a receiver also set the standards for a secured creditor who interferes in the receivership. Those standards are also reasonable standards of commercial practice against which to measure the conduct of Wiltshire Investments Ltd. By those standards, Wiltshire Investments Ltd was doing no more than using its rights and powers as a secured creditor of Opus Fintek Ltd to extract something out of the litigation in CIV-2008-
404-7532 from which it could be partially satisfied for the debt owed to it by Opus Fintek Ltd. The exercise of those powers was not in breach of reasonable standards of commercial practice and cannot be considered oppressive, harsh, unjustly burdensome or unconscionable.
Fibroin Initiatives Ltd
[77] The decision so far has considered only the liability of the Symons interests under the guarantee of the indebtedness of Opus Fintek Ltd. There is also the matter of Gregory Symons’ guarantee of the indebtedness of Fibroin Initiatives Ltd. This part of the judgment does not concern the defendants in CIV-2010-404-1572, because Wiltshire Investments Ltd did not make demand on the trustees under their guarantees of the indebtedness of Fibroin Initiatives Ltd.21 Gregory Symons’ guarantee of the indebtedness of Fibroin Initiatives Ltd is independent of his separate guarantee of the indebtedness of Opus Fintek Ltd. He gave the Opus Fintek Ltd
guarantee in August 2005 and the Fibroin Initiatives Ltd guarantee in December
2006. The question here is whether any of the defences raised by Gregory Symons in opposition to his claim against him under his guarantee of the indebtedness of Opus Fintek Ltd could give him any defence to his liability for the guarantee of the
indebtedness of Fibroin Initiatives Ltd.
21 Wiltshire Investments Ltd v Symons HC Auckland CIV-2010-404-1011 and 1572 at [19] and
[24].
[78] The Supreme Court addressed the matter briefly in its judgment:22
The appellants’ guarantee of liabilities extended to the debt owed by Fibroin to the bank and thus later to Wiltshire Investments Ltd and the judgment against them included this indebtedness. When leave to appeal was granted in relation to the money owed by Opus, we were not satisfied that the approved ground of appeal, if successful, would necessarily encompass Fibroin’s debt. So we withheld leave on that aspect of the case, but on the basis that the appellants could pursue the issue at the hearing of the substantive appeal. Having heard counsel briefly on the point at that hearing we see no logical reason for distinguishing between the different debts. So leave to appeal is granted in relation to the Fibroin debt.
[79] As a result the judgment in respect of the guarantee for Fibroin Initiatives Ltd was also set aside and ordered to be reheard. It does not have any further effect. Any argument that any defence to liability on the Opus Fintek guarantee can also apply to a claim on the Fibroin guarantee remains an open issue. Of course, the matter is hypothetical in that Wiltshire Investments Ltd has shown that the Symons interests do not have any defence to the claims on the Opus Fintek guarantee.
[80] Gregory Symons says that he can resist the claim by Wiltshire Investments Ltd under his guarantee of the indebtedness of Fibroin Initiatives Ltd on the basis of defences under the Credit Contracts and Consumer Finance Act 2003. His guarantee of the indebtedness of Fibroin Initiatives Ltd is a linked transaction under s 119 of that Act and is therefore eligible for reopening.
[81] I record the various credit facilities in issue:
(a) The overdraft facility between the ASB Bank and Opus Fintek Ltd of
22 August 2005. The trustees of the Drakensberg Trust, the trustees of the St Anthony Trust, Greg Symons, Robert Symons and Alan Wiltshire are also parties to that facility agreement as guarantors. The overdraft facility agreement provides for securities for the facility, including the guarantees in issue in this proceeding and an all-
obligations general security deed.
22 Symons v Wiltshire Investments Ltd, above n 1, at [49].
(b)The floating term facility agreement between the ASB Bank and Opus Fintek Ltd. The amount of the facility was $2.200,000. The parties to that facility include the bank, Opus Fintek Ltd, the same guarantors as for the overdraft facility, plus other related companies, including Fibroin Initiatives Ltd. The existing guarantees given by Robert and Gregory Symons are recorded as existing securities. New securities provided were an all-obligations general security deed given by Opus Fintek Ltd, cross-guarantees by related companies including Fibroin Initiatives Ltd, guarantees given by the trustees of the Drakensberg Trust, the trustees of the St Anthony Trust and a guarantee given by Alan Wiltshire.
(c) The ASB Bank term facility floating agreement of 4 December 2006 for Fibroin Initiatives Ltd. The facility was for $750,000. The guarantors included the trustees of the Drakensberg Trust, the trustees of the St Anthony Trust, Robert and Greg Symons, Alan Wiltshire, and related companies including Opus Fintek Ltd. The securities included cross-guarantees including by Opus Fintek Ltd, the all- obligations general security deed given by Opus Fintek Ltd and the guarantees given by the Symons brothers, their family trusts, and by Alan Wiltshire.
[82] Fibroin Initiatives Ltd was a 7.3 per cent shareholder of Opus Fintek Ltd. The Opus Fintek Ltd and Fibroin Initiatives Ltd facilities of December 2006 were taken out to repay and refinance existing borrowings from the ASB Bank.
[83] Fibroin Initiatives Ltd and Opus Fintek Ltd are related companies under the definitions in s 5 of the Credit Contracts and Consumer Finance Act 2003 and s 2(3) of the Companies Act 1993, as they had common but not identical shareholding.
[84] On those facts, Gregory Symons argues:
(a) Fibroin Initiatives Ltd gave an all-obligations general security deed, which provided security for its cross-guarantee of the obligations of
Opus Fintek Ltd to the ASB Bank. The security given by Fibroin
Initiatives Ltd for the indebtedness of Opus Fintek Ltd is within s
119(1). Therefore, the credit contact between ASB and Opus Fintek Ltd on the one hand and ASB and Fibroin Initiatives Ltd on the other are collateral contracts or linked transactions under s 119.
(b)Section 119(2) applies because it was a term of each of the facility agreements that the other companies provide security for the facility.
(c) Section 122 applies where funds are borrowed to repay debt already owing to the creditor under a different credit contract. When one of these credit contracts is reopened, s 122 allows the others to be reopened, so long as the creditor knows the borrowing has been used to pay off other borrowing. Section 122 operates on the assumption that if one contract in an arrangement is tainted by oppression, then others will be too.
(d)Mr Symons also refers to s 124(a) and the need to have regard to the totality of the transaction in question.
[85] From these, it is submitted for Gregory Symons that his liability under the guarantee of the indebtedness of Fibroin Initiatives Ltd would be open for scrutiny by reopening under s 122.
[86] The credit provided to Fibroin Initiatives Ltd for $750,000 under the Fibroin
Initiatives Ltd term facility of 4 December 2006 is distinct from the credit of
$2.200,000 extended to Opus Fintek Ltd under the separate term facility agreement of 4 December 2006 and both are distinct from the Opus Fintek Ltd overdraft facility. Under s 119(1), security interests for credit contracts are treated as forming part of the credit contract. Security interests are interests in property.23 All- obligations securities, such as the general security deeds in this case given by Opus
Fintek Ltd and by Fibroin Initiatives Ltd may be security interests for more than one
23 See definition of “security interest” in s 5.
credit contract. However those overlapping securities should not disguise the fact that the credit contracts are distinct and do not overlap.
[87] The fact that the Opus Fintek Ltd overdraft and both term facilities are credit contracts under s 7, supported by general security deeds given by Opus Fintek Ltd and by Fibroin Initiatives Ltd and by various guarantees, does not mean that reopening of the Opus Fintek Ltd facilities under the Credit Contracts and Consumer Finance Act also extends to the separate credit contract for the Fibroin Initiatives Ltd term loan facility. The Fibroin facility, with its associated securities and guarantees, is separate and not vulnerable to any reopening application in respect of the Opus Fintek Ltd facility because:
(a) Fibroin Initiatives Ltd is a separate legal entity;
(b)The Fibroin facility is a separate loan facility supported by separate independent guarantees;
(c) Gregory Symons gave his guarantee for the Opus Fintek Ltd facility on 26 August 2005 but gave his guarantee for the Fibroin facility a year later, on 21 December 2006.
(d)The Fibroin facility and guarantees are not linked to the Opus Fintek Ltd guarantees under s 119 because the Fibroin credit contract and guarantees were not security interests for the Opus Fintek Ltd credit contract and it was not a term of the Opus Fintek Ltd credit contract that the Fibroin credit contract and guarantees be entered into.
(e) Similarly there was no refinancing between the Opus Fintek Ltd and
Fibroin Initiatives Ltd facilities, so as to trigger s 122 of the Act.
[88] Fibroin’s guarantee of the obligations of Opus Fintek Ltd is separate from and independent of the credit facilities granted to Fibroin Initiatives Ltd. As Wiltshire Investments Ltd submitted, if the Fibroin facility had been repaid in full,
Fibroin would still have been liable to the ASB Bank on its guarantee of the debt of
Opus Fintek Ltd.
[89] The reopening claimed in this case is for the alleged exercise of powers in an oppressive manner under s 120(b), that is in particular, the enforcement of the security over Opus Fintek Ltd, specifically the way that the settlement with Hats Holdings Ltd was concluded. None of this had anything to do with the Fibroin Initiatives Ltd facility. Fibroin Initiatives Ltd had not been put into receivership. Fibroin Initiatives Ltd was not party to the litigation with Hats Holdings Ltd. It was not a party to the settlement agreement with Hats Holdings Ltd. None of the terms of settlement related to Fibroin Initiatives Ltd, and none of the funds received from Hats were applied to the indebtedness of Fibroin Initiatives Ltd to Wiltshire Investments Ltd.
[90] The fact that Fibroin Initiatives Ltd was a 7.3 per cent shareholder in Opus Fintek Ltd is irrelevant. It does not go to show that the Fibroin loan facility is linked to or forms part of the separate facilities extended to Opus Fintek Ltd. In any event, on the facts, the possibility of any increased settlement with Hats Holdings Ltd benefitting Fibroin Initiatives Ltd as a shareholder is quite remote.
[91] In summary, even if there were grounds to reopen the Opus Fintek Ltd credit contract – and I have held that there are not any – that does not extend to the separate term facility for Fibroin Initiatives Ltd. Gregory Symons’ arguments as to the receivership and alleged oppressive conduct do not give him any defence to his liability under the guarantee of the indebtedness of Fibroin Initiatives Ltd.
Outcome
[92] Under the settlement of the litigation with Hats, Opus Fintek Ltd received no more than $1,400,000. There were no collateral benefits to the Wiltshire interests. The defendants do not have any good grounds for objecting to clauses 2, 3 and 5 of the second settlement deed, because those terms did not impose any new liabilities on them or deprive them of anything to which they were otherwise entitled. Wiltshire Investments Ltd has shown that the defendants do not have arguable
defences on bad faith, reopening under the Credit Contracts and Consumer Finance Act or interference in the receivership of Opus Fintek Ltd. Even if the Symons interests had a defence to the claim under the Opus Fintek Ltd guarantee, that does not give Gregory Symons any defence to his separate liability under his guarantee of Fibroin Initiatives Ltd. Apart from the matters relating directly to the provisions of the settlement deeds, none of the matters raised by the Symons interests are within the terms on which the Supreme Court referred the summary judgment applications for rehearing.
[93] I make these orders:
(a) Wiltshire Investments Ltd recovers judgment against Gregory John
Symons personally for:
(i)$1,144,504.77 under the Opus Fintek term loan plus interest at the contractual rate from 25 May 2010 to 4 June 2013;
(ii)$255,751.52 under the Opus Fintek overdraft agreement plus interest at the contractual rate from 25 May 2010 to 4 June
2013; and
(iii) $840,769.05 plus interest at the contractual rate from 25 May
2010 to 4 June 2013.
(b) Wiltshire Investments Ltd recovers judgment against Robert Michael
Symons and Annette Symons as trustees of the St Anthony Trust for:
(i)$1,144,504.77 under the Opus Fintek term loan plus interest at the contractual rate from 25 May 2010 to 4 June 2013;
(ii)$255,751.52 under the Opus Fintek overdraft agreement plus interest at the contractual rate from 25 May 2010 to 4 June
2013;
(c) Wiltshire Investments Ltd recovers judgment against Gregory John Symons, Claire Anne Symons and Lorraine Jean Symons as trustees of the Drakensberg Trust for:
(i)$1,144,504.77 under the Opus Fintek term loan plus interest at the contractual rate from 25 May 2010 to 4 June 2013; and
(ii) $255,751.52 under the Opus Fintek overdraft agreement plus interest at the contractual rate from 25 May 2010 to 4 June
2013;
(d)The liability of Annette Symons under this judgment is limited to the assets of the St Anthony Trust.
(e) The liability of Claire Anne Symons and Lorraine Jean Symons under this judgment is limited to the assets of the Drakensberg Trust.
(f) Wiltshire Investments Ltd is entitled to costs against all defendants on a solicitor-client basis. If the parties cannot agree on costs, memoranda may be filed, the defendants’ five working days after the plaintiff’s.
(g)Wiltshire Investments Ltd’s claim for the Fibroin Initiatives Ltd term loan against the trustees of the St Anthony Trust and the Drakensberg Trust is to be the subject of a case management conference, the time and date to be set by the Registrar.
(h)Leave is reserved to apply for any further rulings as to the final terms of judgment.
...........................................
Associate Judge R M Bell
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