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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2008-404-008133
BETWEEN DORCHESTER FINANCE LIMITED
Applicant
AND IVAN VLADIMAR JOSEPH ERCEG
Respondent
Hearing: 7 July 2009
Appearances: M Robinson/E Gellert for the Applicant
L Ponniah for the Respondent
Judgment:
10 July 2009
JUDGMENT OF
ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
10.07.09 at 4:00pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Solicitors/Counsel:
M Robinson/E Gellert, Simpson Grierson, Auckland - Fax: (09) 307 0331
L Ponniah, Corban Revell, Waitakere City - Fax: (09) 838 7187
DORCHESTER FINANCE LIMITED V IVAN VLADIMAR JOSEPH ERCEG HC AK CIV
2008-404-008133
10 July 2009
[1] The Applicant (Dorchester) seeks summary judgment in respect of the
Respondent's (Mr Erceg)
obligations under a loan agreement and deed of guarantee.
By loan agreement dated 6 November 2006 Mr Erceg borrowed the sum of
$2,074,784.
The loan agreement was amended from time to time, most recently on
22 July 2008. On the latter occasion the terms and conditions
of the loan agreement
were inter alia:
a) The term is for 4 months from 21 July 2008.
b) The annual interest
rate was 24% and default interest was 30% per
annum.
c) All customary bank fees and charges would be
paid.
d) Mr Erceg would ensure the completion of the construction of the
yacht known as "SY23", to Dorchester's
satisfaction by 17 September
2008.
e) A marketing campaign for the sale of SY23 would be commenced by
17 September through a boat sales company nominated by
Dorchester.
f) Principal and interest
was to be repaid in three consecutive monthly
payments of $41,495.68 followed by one final payment of
$2,116,279.68.
g) The whole of the money payable under the loan was payable on
demand in the event
of default under the terms of the loan
arrangement.
[2] There is no issue about these details nor that Mr Erceg
is in default of his
repayment obligations.
[3] Between 2002 and June 2006 Dorchester had provided commercial lending to
Mr Erceg and to entities related to him on a number of occasions. It was in his
capacity as a trustee of the Belle Der Mer Trust
(Trust) that he approached
Dorchester in June 2006 for a revolving credit facility for $2.4M. At that time Mr
Erceg signed a deed
of guarantee and indemnity securing all monies then or
thereafter due and owing by the Trust to Dorchester.
[4] On or about
6 November Mr Erceg approached Dorchester for a personal
term loan facility of $2M. Dorchester agreed to provide it and a loan agreement
was
signed.
[5] On or about 12 September 2007 the trustees of the Trust asked Dorchester for
a further lending facility.
Dorchester agreed and the further lending was recorded in
a second trust loan agreement.
[6] On or about 12 May 2008 Mr Erceg
as director of C K & S Limited (CK&S)
approached Dorchester for a business credit facility. Dorchester agreed and the
arrangement
was recorded in a business loan agreement. At the same time Mr Erceg
signed a deed of guarantee and indemnity securing all monies
then or thereafter due
and owing by CK&S, the Trust and other related business entities.
[7] In early July 2008 Mr Erceg,
as trustee of the Trust and in his personal
capacity approached Dorchester for a rollover of his personal and the Trust's lending
facilities. These were negotiated
through a broker, Mr Jenson. On 17 July 2008
Dorchester agreed and on 18 July 2008 Mr Erceg and related entities signed offers of
finance.
[8] On 21 July 2008 Mr Erceg made a loan reduction payment of $500,000 to
Dorchester in accordance with the special
conditions precedent set out in the offers
of finance.
[9] On 22 July 2008 Dorchester and the respondent in his various capacities
signed three formal loan variation agreements for the lending facilities of the Trust
and Mr Erceg personally. Prior to the advances
being made Mr Erceg's solicitor
provided solicitor's certificates to Dorchester.
[10] On 13 August 2008 the amount owing under
the CK&S business loan
agreement fell due but CK&S failed to make repayment. Accordingly and on or
about 8 September 2008 Dorchester
made demand for the amounts due and owing by
CK&S. Subsequently Dorchester took possession of SY23.
[11] On 21 November 2008
the variation loan agreements matured and repayment
of all amounts due and owing was required. No payments were made.
[12] On
24 November 2008 demand was made upon Mr Erceg personally and as a
guarantor of the various loan agreements.
[13] On 23 March
2009 the respondent's solicitor's requested a settlement
statement from Dorchester's solicitors for repayment of all loans associated
with Mr
Erceg. The defendant's solicitor's facsimile indicated that repayment of all loans
would be completed within 30 days thereafter.
Repayment was not made. Instead a
notice of opposition to Dorchester's summary judgment application was filed.
Opposition to summary
judgment and consideration of same
Past or no consideration
[14] Mr Erceg claims there is past consideration or no consideration
at all in
relation to the loan to him on 6 November 2006, as it was varied on 22 July 2008.
[15] The first cause of action averred
that the sum in question was advanced on or
about 21 July 2008 on terms as contained in a loan variation agreement dated 22 July
2008. Therefore it says the loan was made before it was documented and
accordingly there is past or insufficient consideration
for the variation loan
agreement dated 22 July 2008 pursuant to which Dorchester sues.
[16] Mr Ponniah submits that Dorchester's
Mr French has inadequately explained
reference to a date of 21 July 2008 in relation to loading details of the transactions on
Dorchester's electronic database system. Mr Ponniah says Mr French's claims are
hearsay.
[17] But it is a statement in relation
to the creation of a business record and
accordingly is admissible for the Court's purposes. Mr French explained that during
the
loading of the transaction the date of the loan advance was incorrectly recorded
by a Dorchester staff member. It was, he said a
simple typographical error. In fact
the transactions were loaded on 31 July 2008. All relevant associated documents
were dated 22
July 2008. Importantly, there is no independent evidence of the loan
in question having been advanced prior to that date.
[18]
Regardless, and in spite of the pleading, it is arguable the loan agreement in
question was completed on 18 July 2008. On 17 July
an offer was put to Mr Erceg,
the purpose of which was described to be a rollover of an existing loan. The offer
contained those
terms, which are referred to in paragraph 1 herein. The offer
required acceptance by 4:00pm 18 July 2008. There is no dispute
but that it was
accepted at that time. As earlier noted, full documentation was contained in the
agreement dated 22 July 2008. Also
all agreements were accompanied by Mr
Erceg's solicitor's undertaking and certification. There is nothing in any record at all
querying
the process by which the documentation was completed.
The failure to credit a loan reduction payment made
[19] A sum of $500,000
was paid to Dorchester on 21 July 2008 by Mr Erceg for
the purposes of reducing the principal due. For Mr Erceg it is claimed it is not clear
that sum
has in fact been credited. To the contrary, the Court accepts Mr French's
evidence that that sum was received from Mr Erceg's solicitors
on 22 July 2008 and
applied in reduction of Mr Erceg's indebtedness as at that time.
Loan agreements/guarantees allegedly oppressive
and unconscionable
[20] Mr Erceg claims that in the circumstances then prevailing there was an
inequality of bargaining power
held by Dorchester which applied pressure on Mr
Erceg to enter into the loan variation agreements.
[21] The loan agreements were
put in place in the expectation of selling SY23,
which was then near completed before being marketed for sale.
[22] During the
period of these variations economic conditions collapsed globally.
Mr Erceg says there was a severe financial impact on the super
yacht market; that
Dorchester was aware of this and exploited it to Mr Erceg's disadvantage.
[23] Mr Erceg refers to the fact
that the interest rate charged on principal had
increased to 24% with a default rate of 30% per annum. In addition Dorchester
charged
an establishment fee of $295,500 in relation to Mr Erceg's loan despite
having charged an establishment fee of $35,000 at the time
of the original advance in
2006. Also Dorchester charged a $35,000 establishment fee for the CK&S loan, and
$77,900 and $71,095 for
the Trust loan.
[24] In addition Dorchester charged loan variation application fees, a
documentation fee, a holding fee of 7%,
a fee of 20% of the sale price of SY23 over
4M and a default fee per fortnight of 10% of the credit rate on the various loans.
All
of this for a loan that was rolled over for a period of four months only.
[25] Mr Ponniah says the test is to compare the loan
provisions contained in the
variation agreements, with those which previously applied. Because of the
accumulation of
added establishment fees, the increase in interest charges and as
well for the other fees payable Mr Ponniah submits the agreement
should be varied
or set aside under the Credit Contracts and Consumer Finance Act (CCCFA) and/or
the Contractual Remedies Act.
Dorchester was aware of Mr Erceg's financial
difficulties. This alone would have signalled Mr Erceg's vulnerability who, it was
submitted, had no option but to seek refinancing from Dorchester. By Mr Ponniah's
calculations fees and other charges accounting
for about $1M of the amount financed
in July 2008.
[26] Mr Ponniah's calculations are fanciful. All that is sought by the current
claim is the outstanding principal and interest together with costs. Also and in
relation to the establishment fees paid it was Mr
Erceg who in writing completed a
direction to Dorchester to meet payment of same.
[27] Claims of oppression are not to be judged
by reference alone to interest rates,
nor to the extent of securities already held by the borrower. Mr Ponniah discounts
Mr French's
claim that the rollover of lending represented a very high risk and
therefore justified the interest rates, fees and charges applied.
[28] Section 120 of the CCCFA permits the Court to reopen a credit contract if it
considers such was oppressive or if a party
was induced to enter into the contract by
oppressive means.
[29] In that exercise, s124 of the CCCFA directs the court to have
regard to all of
the circumstances relating to the making of the contract.
[30] A party seeking to rely on s120 of the CCCFA
as a defence must advance
evidence of the reasonable standards of commercial practice which it says supports a
finding of oppression:
Italia Holdings (Properties) Limited v Longsdale Holdings
(Auckland) Limited [1984] 2 NZLR 1 (at p16):
"... It requires something more than a simple uninformed conclusion as to
what is fair or unfair from a
standpoint of commercial dealings. Except in
the plainest of cases I would consider that some evidence as to what the
standards of commercial practice are relative to the particular type of
contract under consideration would be necessary
before the Court could
conclude that those standards were contravened in that particular case."
[31] Also as noted in
Italia, where the debtor has obtained independent legal
advice the threshold for oppression is significantly raised.
[32] Further,
and as acknowledged in Italia (at p14):
"... If the situation was that no other lender was prepared to entertain making
the advance sought by the plaintiff then the irresistible inference is that there
was reason to regard the plaintiff's
proposals as bad risk with the likely
result that any lender would seek some quid pro quo of one kind or another
as a consideration for taking an unusual risk."
[33] The clear facts in this case are that with the services of a broker, Mr
Erceg
approached Dorchester to secure rollover finance. His company Sensation Yachts
was experiencing financial difficulties as a
succession of liquidation applications
showed. This occurred at a time when a financial crisis was looming and certainly
apparent.
Mr French said Dorchester would rather its debt had been repaid at that
time. Terms were offered to reflect the degree of risk involved.
Mr Erceg was an
experienced businessman. He anticipated a large profit from the sale of SY23. He
was throughout in receipt of competent
legal advice. It was at his specific direct
written instruction that the fees in question were paid.
[34] In all of those circumstances
it cannot be considered the terms of the
variation agreement were unfair or oppressive. A case for reopening the contract
would fail.
Oppressive conduct
[35] Considerable affidavit evidence has been given relating to the circumstances
by which Dorchester took
possession of SY23. It is acknowledged by all that having
taken possession Dorchester was obliged to use best endeavours to obtain
the best
possible price for the security, at the time it endeavours to sell it.
Mr Erceg deposed SY23 was valued at 4M (then
about $9.5M). Mr Erceg
[36]
deposed: "the understanding in the loan documentation was that the marketing
campaign would be undertaken
in respect of this eventual sale of SY23, the loan
documents specifically provided that a marketing campaign plan be submitted to
the
plaintiff. This marketing plan was submitted and initially received approval by the
plaintiff and subsequently, for reasons best
known to them, was rejected, in favour of
their own marketing plan involving one only broker exclusive for one year".
[37] Mr
Erceg describes Dorchester's taking of possession as "high handed, self
serving and contumelious". He said that when in possession
Dorchester carried out
material alterations to SY23 "and have prejudiced and/or avoided the builders and
manufacturers warranty".
He referred to a number of works undertaken to illustrate
this. He said from his knowledge and experience "the material alterations
will
adversely affect the warranties... and ... would have a major detrimental effect on
the value and saleability of the vessel...".
[38] Mr Erceg annexed a copy of a draft agreement for sale and purchase between
he and a French corporation for the sum of $3,973,508.95
including GST.
[39] By response and in a second affidavit Mr French took issue with some of Mr
Erceg's claims. He said once Dorchester
took possession Mr Erceg was asked for a
timeframe for him to finally complete outstanding works on the vessel, so that it
could
be marketed and sold at the first opportunity. He said Mr Erceg was unhelpful
and made no effort to complete the works.
[40]
Mr French says that after possession was taken, an inspection was conducted
and it became apparent the vessel was unsellable and required extensive
repair work.
Dorchester engaged the services of Mr Gilmore a marine engineer.
[41] As for the rejection of Mr Erceg's marketing
plan, Mr French deposed he
telephoned Mr Erceg to advise him of its inadequacies, including:
a) There was no timeframe
for completion of works on the boat.
b) There was no timeframe for sea tests to be completed and
certification.
c) There was no timeframe for sale of the yacht or marketing.
d) There was no recommendation of brokers.
[42] During that conversation Mr French says there was a discussion regarding the
appointment of Camper Nicholson "a respected
and well established marketing firm
in the luxury boat industry". Mr French said Mr Erceg did not oppose that
appointment at that
time.
[43] Mr French rejects Mr Erceg's claims that material alterations were carried out
which were prejudiced and/or avoided
various warranties. He defers to the affidavit
of Mr Gilmore regarding work undertaken and the need for same. Without those he
said
the boat could not have been marketed or sold.
[44] In response to Mr Gilmore's affidavit an affidavit was provided by Mr K
Travers
on behalf of Mr Erceg. He is a boat builder and commercial skipper and at
the relevant time was employed by Sensation Yachts Limited.
One of his tasks was
to complete SY23. He has a different view from Mr French and Mr Gilmore
concerning the circumstances in which
possession was taken by Dorchester. He
disagrees about the need for the work carried out. I will not recount in detail his
evidence
in respect of those matters for, as will shortly appear, I do not consider it
relevant to my considerations. But, in other respects
Mr Travers' evidence is helpful
although not to the extent claimed on behalf of Mr Erceg.
[45] Mr Travers annexed a valuation
from Como Yachting of France. That
document, an email, provided a value of between 4.4 and 4.6M. The valuation is
not
useful because clearly the valuer had not seen the vessel. The valuation is made
on the basis of a completed vessel, at a time when
the vessel was significantly far
from completion.
[46] A second valuation was provided by Mr Bill Maddick in January 2008. That
valuation provided a value in the sum of 4.5M approximately "on completion of a
successful sea trial and issue of an EU compliance
certificate".
[47] The valuation noted that when seen the vessel was 90% complete.
[48] In short the Maddick valuation is
of limited assistance because it was subject
to the vessel being completed, and to certification following sea trial. Also, it was
provided at a time preceding the severe economic crisis which was well and truly
apparent in September when possession of the vessel
was taken.
[49] The fact is no other independent valuation has been provided on behalf of Mr
Erceg to show the boat's value as
at September 2008 and subsequently.
[50] On the other hand Dorchester has, I am satisfied, fulfilled its obligations as a
security
holder.
[51] Mr Travers complained about aspects of the way in which Camper Nicholson
have marketed the vessel for sale. In particular
by promoting a sale price of 1.5M.
But, although the vessel has been with Dorchester for about nine months during
which time significant
repair/maintenance was undertaken before it was listed in sale
of May of this year, it remains unsold. Perhaps the time is not right
for it to be sold.
It is not in Dorchester's interest for it to remain unsold.
[52] In summary this Court is satisfied that Dorchester
has done what it should
have in the circumstances by taking possession of the uncompleted vessel, and by
engaging the services of
a marine engineer to inspect and to prepare the boat for sale.
Thereafter the vessel has been placed with a reputable broker for
sale at a price
recommended by the broker. In all these things it is implicit that Dorchester has
fulfilled its obligations to Mr Erceg. No one has
a better interest than Dorchester in
promoting a sale at a price as high as is possible in the current market.
[53] Dorchester's
lawful obligations have been met.
Summary
[54] There is no dispute that Mr Erceg completed various agreements as borrower
or
guarantor on behalf of himself and related entities. There is no dispute either that
Dorchester advanced funds in reliance upon those
agreements and Mr Erceg's
commitment to make repayment. Dorchester has proved its case on the face of the
documents provided. Thereby
the evidential burden of proving a defence passes to
Mr Erceg. In its assessment of any proposed defence the Court should not, without
question, accept unsupported statements made by affidavit. The Court is entitled to
adopt a robust and common sense approach.
[55]
Throughout his dealings with Dorchester Mr Erceg was assisted by
competent legal advice.
[56] In the end the Court is certain
that appropriate documentation exists to
support the claims by the various causes of action pleaded in the statement of claim.
Likewise,
the Court is satisfied the actions of Dorchester both in connection with its
agreement to advance the loan funds, and subsequently
in recovering the security
property should not preclude its right of recovery from Mr Erceg.
Judgment
[57] Judgment shall be
entered against Mr Erceg on all three causes of action in a
total sum of $4,443,073.80.
[58] I direct that disbursements totalling
$1,976.25 be payable to the plaintiff.
[59] Costs shall be reserved to be fixed in the event the parties cannot agree on
costs
payable.
Associate Judge Christiansen
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URL: http://www.nzlii.org/nz/cases/NZHC/2009/791.html