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High Court of New Zealand Decisions |
Last Updated: 28 May 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-4406
BETWEEN ALLIED FARMERS INVESTMENTS LIMITED
Plaintiff
AND FENTON PROJECTS LIMITED First Defendant
AND ANTHONY JOHN GAPES Second Defendant
Hearing: 15 February 2011
Appearances: Mr N Gedye for Plaintiff
Ms S Grant for Defendants
Judgment: 7 March 2011 16:30:00
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
07.03.11 at 4.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Solicitors:
Mr N Gedye, P O Box 2097, Auckland – Nathan.gedye@xtra.co.nz
Ms S Grant, Shortland Chambers, Auckland – sgrant@shortlandchambers.co.nz
ALLIED FARMERS INVESTMENTS LIMITED V FENTON PROJECTS LIMITED HC AK CIV-2010-404-
4406 7 March 2011
Background
[1] On 21 August 2007, Hanover Finance Limited (“HF”) entered into a loan agreement to advance funds to the first defendant. The second defendant was guarantor. The following were the main features of the agreement:
a) The loan amount was $1,160,000 comprising principal of $1,000,000 and capitalised interest for 12 months of $160,000.
b) The loan was to be on demand but pending demand for a period of 12 months from the date of the advance.
c) The interest rate was 16 per cent.
d) The loan was to be secured by a registered second mortgage over property at 77 Carlton Gore Road, Newmarket (“Carlton Gore”), a registered second ranking general security agreement granted by the first defendant, and by an all-obligations deed of guarantee and indemnity executed by the second defendant.
[2] The second defendant executed a deed of guarantee on or about 21 August
2007 and on or about 22 August 2007, HF advanced the loan sum. The loan agreement in its terms expired and fell due 22 August 2008.
[3] On 17 December 2009, HF agreed with the defendants that, notwithstanding that an amount of $1,553,945.45 was owing at that time, the amount of the defendants’ liability would be varied as follows:
a) the balance owing under the loan agreement as at 17 December 2009 was to become $600,000;
b) the deed of guarantee and indemnity between HF and the second defendant was to be capped at $600,000; and
[4] As at June 2010, the amount of $666,735.86 was owing pursuant to the loan agreement as varied by the December 2009 variations.
[5] The plaintiff made a demand for payment of the outstanding amounts on 30
June 2010 but payment has not been made.
[6] The plaintiff came into the picture by reason of a deed of assignment of the loan, entered into on 18 December 2009. Notice of the assignment was given to the defendants on or about 18 December 2009.
[7] The brief background to the making of the loan was as follows. The shares in the first defendant are owned by the second defendant. The second defendant is a property developer and the first defendant is one of the corporate vehicles that he uses.
[8] In 2007, the defendants and Hanover Property Group Holdings Limited (“HP”) and the first defendant entered into a joint venture to acquire and develop the former Lion Breweries site at Khyber Pass, Newmarket. The parties considered that development of the Khyber Pass property would be facilitated by providing further access to the site from Carlton Gore Road. For that reason they decided that it would be desirable to acquire the Carlton Gore property. They proceeded with this proposal and the property was transferred to the first defendant to hold for the first defendant and HP. The borrowing from HF was part of the financing package for the acquisition of Carlton Gore, the total price of which was $2,800,000. Funding for the acquisition of Carlton Gore was as follows:
a) $1,400,000 was to be advanced by Westpac;
b) $1,000,000 was to be advanced by HF.
[9] The loan from HF was secured by a registered second mortgage security over the property. A valuation report was acquired before the advance was made and
Westpac, ranking as the senior lender, was acknowledged in the agreement with normal commercial priority arrangements between the first and second mortgagees.
[10] The second defendant has deposed in his affidavit that while the loans from Westpac and HF were “documented as loans to Fenton”, liability for those loans was governed by the terms of “the joint venture, that is Hanover was to be responsible for half of the debt and half the cost”. The second defendant said that Mr Colin Saunders (apparently an employee of HP) said that HP wanted the loans documented in that way so as to avoid them being recorded as related party loans. The joint venture which the second defendant refers to is apparently the joint venture arrangement entered into with respect to the Lion Brewery site. The second defendant says that it was never discussed, agreed or anticipated by HP, the first or the second defendant that the loan could be assigned to a third party independently of the joint venture or that it could be called up before the property was sold and without bringing into account all aspects of the joint venture. I pause to note that the loan agreement in fact contained at paragraph 14.5 an express power on the part of HF to assign or transfer its rights or obligations under the agreement without the consent of the borrower or any guarantor. However that may be, the second defendant says that the agreement was that the loan would not be repayable until settlement of the sale of the property and then only on the basis that the profits and losses were to be shared. Carlton Gore has yet to be sold.
[11] In the meantime, the first defendant has continued to meet charges such as the invoices for the valuation account, legal costs and interest on the Westpac first mortgage. The second defendant has attempted to recover one half of these various costs from yet another Hanover company, Hanover Equity Partners Limited (“HE”). The second defendant deposes that the accounts were directed to that entity at the request of officers or employees of the Hanover Group.
[12] The defendants have filed a notice of opposition to the application for summary judgment which states:
a) The defendants have arguable defences as follows:
i) the first defendant has a claim for set-off against half of the debt owed on the property, with the other half owed by HP;
ii) HF’s assignment of the “loan variation agreement” to the plaintiff was a breach of the joint venture agreement as it did not go towards the common objective of developing the Lion Breweries site; and
iii) the sums payable pursuant to the loan variation agreement are not yet due, as they are not repayable until the property is sold.
Set-off
[13] Mr Gedye for the plaintiff submitted that there were three answers to the set- off claim:
a) Different identities, no mutuality and no extinguishment of liability;
b) Set-off contractually excluded; and
c) No interdependence between obligations.
Who were the Parties to the Joint Venture?
[14] It is of crucial importance to determine who the parties to the contract were as I now explain.
Set-off only available to parties to contract
[15] Mr Gedye submitted that:
As a general rule, set-off may only be maintained where the claims to be set-off against each other exist between the same parties and in the same right: Hamilton Ice Arena Ltd v Perry Developments Ltd[1] at 312.
[16] He said that on the face of Mr Gapes’ own affidavit, there is no unity
between the creditor (HF) and the parties alleged to have been in a joint venture
(various different Hanover property companies). He further submitted that all of the evidence adduced on behalf of the defendants relates to an alleged joint venture with either HE, Hanover Group Limited or HP. There is no allegation that HF was a joint venturer.
[17] As Mr Gedye pointed out, Osborne AJ in Allied Farmers Investments Ltd v
Elgin Investments Ltd (in rec),[2] held that:
[t]he need for identity of the parties is consistent with the fact that the cross-claim is regarded in equity as fully or pro tanto extinguishing the plaintiff’s right to judgment on its claim .... The concept of extinguishment is difficult if a cross-claim is made by a different party.[3]
I agree.
[18] The claim for the defendants was that notwithstanding that there was no explicit evidence tying HF into the joint venture arrangement, it is at least arguable for the purposes of summary judgment application that it was part of those arrangements.
[19] The key issue in deciding the set-off point is to examine Ms Grant’s submission that despite the fact that the plaintiff was not described as a party to the contract and the documentation, it was nonetheless arguable that it was such a party from the outset or became such, and that it breached the joint venture with the result that a set-off arose which could be advanced as a defence to the claim in debt which the plaintiff brings.
[20] The principal issue that needs to be examined it is how HF could be tied into the joint venture when it was not identified as a party in any of the documents which
the parties executed.
Written agreement did not describe parties’ true agreement
[21] Ms Grant disclaimed any assertion that the corporate veil should be lifted. That being so, it would be impermissible to gloss over the separate legal identity of each of the companies in the Hanover group.
[22] This highlights the difficulty which lies in the defendants’ path. HF can only be regarded as being a separate legal entity distinct from those which entered into joint venture. This distinction must be respected. Therefore it would be necessary for a Court when determining this issue to conclude that the provisions of the loan agreement and the variation entered into in 2009 were not intended by the parties to take effect according to their tenor. In other words, it was alleged that the loan arrangements were “shams” as that concept is explained in Paintin and Nottingham
Ltd v Miller Gale and Winter.[4]
[23] I put it to Ms Grant that what the defendants were suggesting was that the
loan arrangements were a “sham”. She did not dissent from the suggestion.
[24] In the case of a sham, it is necessary in order to establish the existence of such an arrangement to demonstrate that the parties had a common intention that the document is not to create the legal rights and obligations which it gives the appearance of creating.[5] Not surprisingly, the plaintiff did not accept that it had such an intention. It therefore becomes a matter of examining what inferences can be drawn from the evidence to see whether there is any substance to the suggestion of a “sham”.
[25] It is necessary to make some reference to the evidential bases upon which the defendants founded their submission that set-off was available.
Hanover’s alleged wish to disguise that the loan was to a related party and the sham
arrangement
[26] For the defendants it was claimed that the reason why the loan arrangement took the form that it did was deception to avoid any problems about lending to related parties. Mr Gapes’ explanation of the background to the contract was that HF did not want to make a loan to any entity which included another Hanover company because it was unattractive to Hanover to make loans that might be viewed as being to a related party. That is why Fenton was to be the recipient of the advances and would hold the property at 77 Carlton Gore Road once it had been acquired. This was said to demonstrate the interweaving of the Hanover companies through the fabric of the relationships between the parties.
[27] But this factor does not have any significance concerning which parties in the Hanover Group were to be parties to the joint venture. If it demonstrates anything, it is that if a Hanover company was lending, it would not lend to another Hanover company, whether on its own or associated with a third party. It does not throw any light on the question of whether the company which does the lending is thereby to be drawn into the joint venture and assume obligations under those arrangements to other members of the joint venture, which is the key issue.
[28] I have difficulty following how the suggested motive for allegedly dressing up the transaction as something different from what it was would accomplish the objective in view, namely the wish to disguise related party transactions. It is inherently unlikely that the plaintiffs would have agreed to an arrangement which does not appear to be rational.
[29] Apart from such probative strength as the inference that I have just referred to has, there was no other evidence of an agreement of the kind that the defendants now advance. Mr Gapes did not provide any details about the circumstances in which the parties arrived at a common intention to disguise the transaction. There are no particulars of the person with whom this arrangement was agreed or when it was agreed to.
[30] I consider that the suggestion that this arrangement was a sham has an air of unreality about it and cannot be viewed as providing the basis for an arguable defence.
[31] The defendants regarded it as significant that when HP was negotiating the outlines of the arrangements with Fenton and Mr Gapes, it was in a position to advise that it would arrange a loan of $1,000,000 from HF. The defendants argued that this showed that in substance, HF was part of the arrangements for the acquisition of Carlton Gore and its involvement was not just that of an arms-length financier. Further, Mr Gapes said that the deed of reduction of the loan liability (to which I refer in more detail in the next section of the judgment) recognised that Fenton and Mr Gapes were entitled to credit for expenses, costs, interest and other charges they had paid, which were liabilities of the joint venture arrangement. This, Ms Grant submitted, tied HP into the development project.
[32] The grounds justifying the submission based on the alleged ability of HP to raise the loan, appear to be as follows. In a general sense, HF was a member of the Hanover group of companies. Further, during the negotiations for the purchase of Carlton Gore, an officer or employee of HP advised the defendants on 21 August
2007 that part of the suggested financing arrangements were that a loan of $1 million would be available from HF.
[33] In my view, it is impossible to argue from such grounds that HF was a party to the arrangements between the defendants and HP.
[34] The statement was not made on the behalf of HF and did not commit that company to provide the loan. The statement simply set out where the funds were available from. It was an equivocal act. What it may amount to (although I accept there is no evidence on this point) is one Hanover company understandably viewing another company in the same group as a preferred financier. But this does not make the latter a party to any joint venture if it takes up the opportunity to provide funds.
[35] The co-operative venture between the defendants and Hanover group in a property development was a marriage of the different resources of the two groups.
The former specialised in property development and the latter in providing finance. The fact that an executive of HP expressed herself in terms of confidence in stating that finance would be available from another member of the Hanover group does not give rise to an inference that she had made that statement in circumstances where HF had expressly authorised her to make the offer that she did on the basis and in the understanding that HF was to become a member of the joint venture.
The significance of the agreement to reduce the debt owing by Fenton and Mr Gapes in December 2009
[36] As already noted, on 17 December 2009, HF and the defendants agreed that HF would write off part of the loan balance owing as at that date. A deed was executed by the parties to effect this arrangement. The deed was a brief one. It did not contain a preamble setting out the reasons for the change. It simply provided:
1. Hanover has agreed to write off part of the Loan so that the balance of the Loan as at 17 December 2009 is $600,000 and the Deed of Guarantee and Indemnity granted by Anthony John Gapes is limited to a maximum of $600,000.
2. Subject only to the variation above, all other terms and conditions in the Loan Agreement remain in full force and effect, and all representations, warranties and undertakings made in the Loan Agreement remain true and accurate as if made as of today’s date, and all parties continue to be bound by the Loan Agreement.
[37] Mr Gapes said in his affidavit:
In or about 2009, Fenton and Hanover Property agreed to write off some of the debt recorded in the Hanover loan documents, to reflect its share of the unpaid costs under the joint venture agreement. This is why the debt was reduced to $600,000. Hanover Property assured me that it would pay its share of costs from the time that this new arrangement was made. It has not done so.
Fenton is fully funding the liability for the $1,400,000 owing to Westpac. That represents 50% of the purchase price of the property. I believe that Fenton has a defence to the claim by Allied/Hanover for the payment of $600,000 to the effect that Hanover Property was and is liable for half the debt on the property and Fenton has a set-off against Hanover for that amount.
[38] Mr Gapes’ affidavit refers to the fact that HP came to the agreement with Fenton to write off some of the debt. The fact that HP apparently managed to procure HF, which was the creditor, to write off part of the debt is viewed by the defendants as evidence that HF must have been a party to the joint venture arrangements and that its agreement to reduce the debt reflected recognition by HF that it, and possibly HP and other Hanover parties, were in breach of obligations
owed to the defendants under the joint venture agreement. That breach, as I understand the argument, is that Hanover had not been meeting its one-half share of the outgoings on the Carlton Gore property.
[39] An affidavit was filed in reply to this deposition of the defendants by a Ms Gilbert, who is employed by the plaintiff as a legal executive and loan administrator. Ms Gilbert was formerly employed by HF. She has reviewed HF’s files and, on the basis of that review, has given certain opinions. Some of the statements (for example, paragraph 9 of her affidavit) are plainly inadmissible. Ms Gilbert did not take part in the discussions between Mr Gapes and officers of HF which led up to the reduction of the Carlton Gore loan. She did, however, locate in HF’s files two file notes which had been brought into existence approximately at the time when the agreement to reduce the Carlton Gore loan was reached. Ms Grant characterised these file notes as not being primary evidence. I agree, in that they do not contain sworn statements from the persons who made the file notes concerning the subject matter of the file notes. Nonetheless, they are relevant and they are contemporaneous docments. It can be said that the file notes, which were made by Mr Finnigan (a director and manager of HF) and Mr Hotchin, indicate that the reason why those two persons met with Mr Gapes was to discuss an American
development, “7th Camel”, and a Queenstown development, “5 mile”. In one of the
file notes, it is noted that Mr Gapes wanted to “limit his exposure on the Carlton Gore debt” (Mr Finnigan’s file note) or, as Mr Hotchin put it, “[Mr Gapes] also wanted to limit the debt and therefore personal guarantee on the Carlton Gore loan to
500k”.
[40] The overall tone of the file notes is that the main pre-occupation of Messrs Finnigan and Hotchin were to get the developments of 7th Camel and 5 mile underway, and that in the course of the meeting, the defendants raised the issue of the Carlton Gore debt. No reasons are detailed in the file notes as to how Mr Gapes justified asking for a scaling back of the Carlton Gore debt.
[41] The defendants have only to show that there is an arguable defence to resist summary judgment. They need to show that the view of the facts which they adopt is arguable and that the inferences which they ground on those facts are also
arguable. Ms Grant reminded me that it is not for the Court to attempt to resolve any substantial disputes of fact on a summary judgment application.
[42] On the one hand, it would seem likely that Mr Hotchin, who through a series of interlinked contractual arrangements had control of the various entities making up the Hanover group, in conjunction with Mr E Watson, engaged in discussions with the defendants on the basis that he was representing the broad interests of not just HF but other companies in the Hanover group at the time when the reduction of the Carlton Gore loan was negotiated. It is also a reasonable inference that Mr Finnigan, a director and manager of HF was responsive to the wider interests of the Hanover group when the decision was made in principle.
[43] While Mr Gapes’ evidence is unparticularised as to the circumstances of the alleged agreement, I do not regard it as being so incredible and inconsistent with background material that it cannot give rise to the inferences that he would wish the Court to draw from it. That is, the actions of the Hanover executives in agreeing to a write-down of the loans for the Carlton Gore property reflected an underlying agreement that HF’s loan would be reduced to compensate the defendants for the outgoings that they paid on the Carlton Gore property. But not even Mr Gapes in his evidence asserts that there was an explicit agreement that Hanover agreed there would be future reductions in the loan which corresponded with a one-half share of the future outgoings payable on the Carlton Gore property.
[44] Overall, I consider that the correct inference to be drawn from the Hanover executives agreeing to a reduction in the Carlton Gore debt recognised an acceptance by Hanover that it would be reasonable to do so. This could have been for a number of reasons, including the need to retain the goodwill of Mr Gapes. The issue is whether the fact that Mr Hotchin and Mr Finnigan on behalf of Hanover, in agreeing to write off part of the loan, were evincing their acceptance of a contractual liability to HF under the joint venture which would give rise to rights of set-off. This issue would be resolved at trial (if matters went to the stage) as an issue of inference to be drawn from the facts which essentially are not in dispute. The Court would then arrive at a conclusion as to what contractual intention was manifested by the circumstances objectively considered. The subjective views of the parties would not,
of course, be of assistance. The defence that would be raised, I understand, would essentially be that the Hanover executives, by agreeing to a partial write-off of a loan, demonstrated that they agreed to, or admitted the existence of, concurrent legal responsibility on the part of the Hanover group companies generally or HF in particular, for breaches of contract by HP. Further, HF’s responsibility to the defendants extended in quantum beyond the value of the part of the loan that was written off to an amount that was potentially at least as much as the value of the whole loan.
[45] In theory, that is one possible inference that could be drawn from their actions. But a judgment is required as to whether it is anything more than that. I remind myself that the issue at this point is not whether the defence will succeed, but rather, whether it is reasonably arguable. Is it a defence that a court at trial would entertain as a serious possibility?
[46] Because the summary judgment effectively precludes the defendant from defending the claim, in a case where the situation is unclear and the Court is doubtful whether the asserted defence is arguable in the sense that I have just been discussing, I consider that the correct approach is to give the defendants the benefit of that doubt. I accept therefore that it is reasonably arguable that HF’s contractual rights are linked in to those between the defendants and HP, so that a claim arising from the actions of HP can be set off against a claim brought by HF against the defendants.
[47] This issue on its own, though, is not determinative of the defendants’
liability. I now go on to consider other aspects of the claim.
Set-off Contractually Excluded
[48] The loan agreement contained a provision which required payments under the loan agreement to be made without set-off (clause 5.8). There is no doubt that such a provision in the usual way would prevent the defendants from raising the defences that are raised in the notice of opposition.
[49] But the defendants say in answer to that submission that effect should not be given to the “no set-off” clause because the plaintiff’s right to invoke that clause is subject to a superior obligation which it owes to the defendants and which arises from the joint venture agreement.
[50] Ms Grant, in her comprehensive submissions for the defendant, was not able to put forward anything that I regard as being a sufficient answer to the “no set-off” clause. In my view, it provides a complete answer to any assertion that the defendants have a right of set-off.
[51] Even were that not so, I agree with the submissions by Mr Gedye that there is no basis upon which the Court would conclude in this case that there is any cross- claim that qualifies as an equitable set-off.
[52] I earlier discussed the contentions of the defendants that they were able to point to a basis for a claimable set-off arising out of the circumstances in which the Hanover executives agreed to a reduction in the loan from HF. However, even the view that I take in the defendants’ favour does not extend to the point where I would conclude that it is arguable that the parties further intended that as part of their agreement the “no set off” clause would not apply. As long as that provision does apply, it rules out any defence being available to the defendants.
Assignment
[53] The defendants’ counsel submitted:
Under the joint venture agreement, it was never discussed, agreed or anticipated that the loan variation agreement could be assigned to a third party independently of the joint venture ... . Hanover Finance’s assignment of the loan variation agreement to the plaintiff was a breach of the joint venture agreement, as it did not go towards the common objective of
redeveloping the Lion site. The assignment was a breach of trust and confidence as it was not
for the purpose of facilitating the common objective of the joint venture. As a consequence, the plaintiff is not entitled to call up the loan variation agreement.
[54] Clause 14.5 of the loan agreement gave to HF the necessary authority to assign the loan agreement. In clause 13 of the deed of guarantee, the parties acknowledged that the guarantee would bind upon and enure for the benefit of the lender’s assignees or transferees.
[55] As I understand it, the submission that is made is predicated upon HF having been a party to the joint venture from the outset which in turn reflects the alleged fact that the agreement that the parties signed was drawn as it was in order to conceal the fact that HF was a party to the agreement. As I have indicated, I do not accept that such a submission is seriously arguable. What I have concluded is that it is arguable that the agreement to reduce the amount that the defendants owed under the loan in some way tied HF into the contractual arrangements. Whatever effect such arrangements might have had, it could not be anything more than that HF accepted responsibility to give credit against its loan advance equivalent to the amount that HP was in arrears and contributing to the joint venture between itself and the defendants. I cannot see why it should be arguable that a necessary attribute of this agreement was that HF would, contrary to the express power contained in the loan agreement, not assign to third parties such as the plaintiff. It was the common position of the parties that that any assignment would be subject to equities that might have arisen between the assignor, HF and the borrower.
[56] I further consider that the stance now taken by the defendants is inconsistent with the provisions of the variation agreement that they entered into with HF in December 2009 and to which I make reference at [62].
[57] I do not consider that HF’s conduct gave rise to a variation of the contractual obligations to include an additional covenant not to assign the loan agreement to the plaintiff.
Defence that Loan Amount is Not Due to the Plaintiff Until Property Sold
[58] A further ground of defence to the summary judgment application was that the loan amount was not due until the property was sold. This ground of defence stands or falls with the issue of whether the transaction that HF entered into was a straightforward loan transaction or whether it was part of a larger transaction in terms of which HF assumed obligations to the defendants by reason of the fact that it became contractually associated with the joint venture between the defendants and HP. Whether that is correct or not, I do not consider that there is an arguable defence available to the defendants as pleaded under this head.
[59] Apparently the Carlton Gore property has not yet been sold. This was not disputed by the plaintiff. The defendants said that the advances from HF were not to become repayable until such time as the property had been sold. I understand that the argument is that because the lending was part of the joint venture for the development of the Lion Breweries site which is no longer proceeding, the plaintiff has become subject, as a party to the joint venture, to a replacement obligation not to enforce the loan agreement until the sale of the Carlton Gore property has occurred.
[60] The underlying premise for this analysis is that the rights which the plaintiff acquired under the loan agreement were in some way modified in order to accommodate its obligations as a member of the joint venture.
[61] Such a conclusion would involve substantial re-casting of the obligations of the parties under the loan agreement. The loan was repayable on demand or otherwise after 12 months. That term would have substituted for it, presumably, a term that the loan would not be repayable until the conclusion of the joint venture. It is suggested for the defendants that the necessary modifications would be implied. No express agreement varying the terms of the written loan agreement is alleged. Such an implied arrangement would be inconsistent with the express terms of the parties’ written agreement and is therefore outside the scope of the types of conditions that the Court will imply.
[62] Further, such an arrangement would be inconsistent with the provisions of the variation deed which the parties entered into 17 December 2009. This agreement constituted an admission and acknowledgment by the defendants, as at that date, of their liability under the loan agreement dated 21 August 2007. See in particular clause 2 of the Variation Agreement which contains an acknowledgment that, subject to the variation, all other terms and conditions in the loan agreement remain in full force and effect. As Mr Gedye submitted, it had the effect of a ratification of the loan agreement. Apart from any other consideration, those acknowledgements are at variance with a claim that on 17 December 2009 the parties entered into an arrangement which radically altered the nature of the defendants’ liability.
[63] In my view, there is no arguable defence available to the defendants as pleaded under this head.
Conclusion
[64] The defendants have advanced a number of what they consider to be arguable defences. I have concluded that only one of these is partially arguable. That is the contention that the loan write-off arrangements in 2009 had the effect of reconfiguring the parties’ contract. Although I have accepted that this is arguable, I did not accept that it was arguable that any restructuring of the contract included abrogation of the “no set-off” clause. I consider therefore that the plaintiff is entitled to judgment.
[65] The plaintiff seeks judgment in the sum of $755,520.67. This is made up of the loan figure that became owing as a result of the parties entering into the variation agreement on 17 December 2009. There is therefore claimed the principal amount as varied by that agreement, $600,000. Further, interest is claimed at the rate of 20 per cent compounding monthly from 18 December 2009 on the sum of $600,000 down to 30 June 2010, which results in a figure owing of $666,735.86. An additional sum of $88,784.81 is claimed for the period 1 July 2010 down to the date of the hearing (231 days).
[66] The defendants did not make any submissions on the quantum of the
plaintiff’s claim.
[67] In the agreement originally entered into, the interest rate provided for was 16 per cent per annum compounding monthly. It would appear that the plaintiff's justification for claiming 20 per cent interest is to be found in clause 5.3 of the agreement which provides as follows:
5.3 Alteration of Rates: Hanover shall be entitled at any time prior to the Date of Advance, or at any time during the Term, or after the Term has expired and the Loan has not been repaid, to alter the Interest Rate to any rate decided by Hanover in its absolute discretion.
[68] Given that the penalty interest rate under the contract is 24 per cent and that the event of default has actually occurred I will allow interest at the lesser rate of 20 per cent. I would suggest that counsel confer between themselves on the figure at
which judgment ought to be entered, having regard to the terms of my decision. In case of difficulty, either counsel has leave to file a memorandum.
[69] I note that the plaintiff is content with costs on a 2B basis and I will make an order as to costs on that basis together with disbursements as fixed by the registrar.
J.P. Doogue
Associate Judge
[1] Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA).
[2] Allied Farmer Investments Ltd v Elgin Investments Ltd (in rec) HC Christchurch CIV-2010-409-656, 20 July 2010.
[3] Ibid, at [47].
[4] Paintin and Nottingham Ltd v Miller Gale and Winter [1971] NZLR 164 (CA).
[5] Ibid, at 168.
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