Redden v Harvey HC Nelson CIV-2011-442-000469 [2011] NZHC 2017 (16 December 2011)

Last Updated: 11 February 2012

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

_{CIV-2011-442-000469}

BETWEEN LYNN MICHAEL REDDEN Plaintiff

AND MICHAEL HENRY HARVEY AND KIM HARVEY

Defendants

Hearing: 8 December 2011

Counsel: G M Downing and G C Engelbrecht for Plaintiff

E J H Morrison for Defendants

Judgment: 16 December 2011

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] This is an application for summary judgment by the plaintiff in respect of an advance to the defendants of $36,000 plus interest in accordance with the terms of a term loan agreement executed by the parties on 16 July 2008.

Principles of summary judgment

[2] Under r 12.2 of the High Court Rules the onus is on the plaintiff to satisfy the Court that the defendant does not have a defence to the claim: Pemberton v Chappell.[1] The evidentiary burden remains on the plaintiff at all times, but where a defendant alleges a defence it must do more than merely raise it as a hypothetical possibility. In Pemberton v Chappell Somers J noted that to defeat an application for summary judgment a defendant must provide sufficient particulars to show that there

_{is an issue worthy of trial.}

[3] In Krukziener v Hanover Finance Ltd,[2] the Court said:

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ

84 (CA).

Facts

[4] On 14 July 2008 the defendants sold to Spice 08 Limited, a company owned and controlled by the plaintiff, their property described as Lot 13 Appleby Hills, Nelson, for $250,000. It was a vacant piece of land. At the time of sale there was secured on the title a mortgage to Fico Finance. The sum owing was $286,000. The agreement for sale and purchase contains the following further terms of sale:

15.0

The parties acknowledge that Lynn Michael Redden is lending the vendor the sum of $36,000.00 at 10% p.a. interest, compounded quarterly, to enable

repayment of the debt owed by the vendor to Fico Finance Limited. The

terms of such loan to be recorded in a Loan Agreement to be signed by the vendor and Lynn Michael Redden.

16.0

The parties further acknowledge that it is their intention to enter into a Joint

Venture agreement to complete the construction of a home on the property and for the on-sale of the home to a third party. The terms of such JV will be recorded in an agreement to be signed by the parties. The parties wish to record herein that the critical terms to be included in the Joint Venture Agreement are as follows:

16.1

That upon the sale of the house and land, any profit received (being calculated by any monies earned over and above the cost price of the house

_{and land together with interest), shall be paid out as follows:}

(a) Repayment to Lynn Michael Redden the sum of $36,000.00 together with interest compounded quarterly;

(b) The total cost price to erect the dwelling on the land together with interest at the rate of 10% per annum compounded quarterly on the total cost

price; and

(c) The balance profit to be divided equally between the parties.

[5] Although clause 16 states the intention of the defendants and Spice 08

Limited to record a joint venture agreement in writing, this step was not taken. The only written terms of the joint venture are those recorded in further term 16.1, together with two further requirements about record keeping and the plaintiff advancing funds to the joint venture, which are recorded in further terms 16.2 and

16.3.

[6] The term loan agreement dated 16 July 2008 recorded the advance referred to in further term 15 of the agreement for sale and purchase.

[7] The term loan agreement contained the following term:

Term expiry date: 2 years from the date of advance or on the sale of a house and land package completed by Spice 08 Limited on Certificate of Title

399427 whichever is the earlier.

Title 399427 is the title of Appleby Hills property.

The plaintiff ’s claim

[8] The case for the plaintiff is that at the time his company agreed to buy the Appleby property, the sum owing on mortgage to Fico Finance exceeded the agreed sale price by $36,000 so he personally agreed to advance this sum to the defendants, unsecured, on the terms contained in the term loan agreement. This required payment at the earlier of the two specified events. This was the expiration of two years from the date of advance, with the result that the sum of $36,000 became payable on 17 July 2010, together with interest compounded quarterly as provided for in the term loan agreement.

[9] As matters have turned out, the house which was built on the land under the joint venture was not sold as readily as the parties intended, and their expectation

that the venture would result in a profit was not borne out. There is argument between the defendants and Spice 08 Limited about whether the financial results from the venture, produced by Spice 08 Limited, are correct.

[10] The plaintiff ’s position is that whether, ultimately, the venture is to have made a profit or not is irrelevant. The loan which he, as distinct from Spice 08

Limited, made to the defendants was a separate arrangement necessitated solely by the fact that the defendants could not transfer their property to Spice 08 Limited without repaying their mortgage. The price Spice 08 Limited agreed to pay was less than the sum owing to Fico Finance Limited by the sum of $36,000 and the plaintiff personally stepped in to advance the defendants this sum. The plaintiff simply says the first of the two stipulated repayment dates has passed and he is entitled to be paid.

The case for the defendants

[11] The position of the defendants is that the terms of the joint venture recorded in the agreement for sale and purchase are, as Mr Morrison put it, the umbrella terms of the agreement, and this is not a simple case of a term loan agreement being enforced. Rather, Mr Morrison submitted, the term loan by the plaintiff is part of an overall commercial agreement between the plaintiff, defendants and Spice 08

Limited, and unless and until a profit is derived from the joint venture, no part of the

$36,000 advanced by the plaintiff is repayable, nor interest thereon. As Mr Harvey put it in his affidavit:

I believe that the joint venture was clear that we would all share in the risks and rewards of development of the property. If “any profit” were made, this would then first repay Mr Redden’s loan for $36,000 (refer my annexure 1 at clause 16.1). If no profit were received, then we would have no liability to repay Mr Redden, because the venture had failed.

[12] The annexure referred to by Mr Harvey is the agreement for sale and purchase to Spice 08 Limited.

[13] Mr Morrison also argued that the plaintiff failed to take reasonable steps to sell the property at its best available market price on behalf of the joint venture,

delayed any sale of the property, and these factors resulted in an inflated claim for interest.

Discussion

[14] There is no disagreement between the parties that the plaintiff agreed to advance to the defendants the sum of $36,000 to enable the defendants to repay the balance of their mortgage to Fico Finance which could not be repaid from the proceeds of sale of the land to Spice 08 Limited. Both gave evidence to this effect and it is consistent with further term 15 of the agreement for sale and purchase and the term loan agreement.

[15] The term loan agreement, executed two days after the agreement for sale and purchase, clearly sets out the defendants’ obligation in relation to repayment of the advance, namely that it was to occur on the earlier of two specified events, the expiration of two years or the sale of the house which was to be built by Spice 08

Limited on the land. There is no disagreement that the earlier of these events was the expiration of two years.

[16] It is necessary, next, to consider what effect further term 16.1 of the agreement has on the position established by the term loan agreement and further term 15. Clause 16.1 is entirely predicated on the joint venture deriving a profit, because its entire thrust is to provide how that profit “shall be paid out”. The profit is to be applied first to repayment to the plaintiff of his advance for $36,000 together with interest. Further term 16.1 does not apply at all if no profit is made. At present there is a dispute between the defendants and Spice 08 Limited as to whether the venture ran at a profit or not. Therefore it cannot, at present, be determined whether further term 16.1 applies or not. In the context of a summary judgment application it is necessary to determine whether this dispute on the facts, and the resultant question mark over the application of further term 16.1, amounts to an arguable defence to the claim.

[17] In my opinion it does not. Read in conjunction with the term loan agreement, which imposes an absolute obligation on the defendants to repay the advance made

by the plaintiff on the happening of the first of two events, the proper interpretation of further term 16.1 is that it is an agreement between Spice 08 Limited and the defendants about application of the profit in their venture (if any), providing for the defendants to use this profit (if derived) as a source of funding to meet their obligations to the plaintiff. That, in my opinion, is the clear meaning of further term

16.1, and this is entirely consistent with further term 15 and the clear and express terms of the term loan agreement.

[18] If the joint venture had been completed prior to the expiration of two years from the date of advance, and had shown a profit, that profit could have been applied to repaying the advance. If it had been completed in that time but shown a loss, further term 16.1 would not have applied but the defendants’ obligation under the term loan agreement would have remained. Further term 16.1 has no application where a loss is incurred on the joint venture.

[19] In this context it is necessary to consider the statement of Mr Harvey which I have recorded in paragraph [11] above. In my view this statement is completely inconsistent with the clear terms of the documents which Mr Harvey signed and accordingly I am not required to accept that evidence “uncritically” – see the principles set out in paragraph [2] above.

[20] It will be noted, also, that the Court is entitled to take a robust approach where the facts warrant it. In my view the term loan clearly imposes on the defendants an obligation to repay the advance, and interest, at the expiration of two years from the date of advance, at the latest. Any provision to the effect that the obligation to repay the advance was cancelled if the joint venture did not make a profit would need to be in clear terms. Far from that being the position, both contract documents are entirely silent on what is to happen as between any of the three parties in the event of the venture running at a loss. For example, there is no provision requiring Spice 08 Limited and the defendants to share that loss equally, just as there is no provision saying the advance of $36,000 by the plaintiff is not recoverable in that event. I note that the plaintiff disagreed, in his affidavit in reply, with Mr Harvey’s interpretation of the position as set out in [11] above. This conflict

on the evidence cannot assist the defendants. The documents are in my view clear

on this point and the defendants’ view of the position conflicts with them.

[21] The defendants also argued that Spice 08 Limited had delayed sale of the house with the effect that more expense had been incurred by Spice 08 Limited by way of interest on borrowed funds, with a consequent negative impact on potential profit, and with a second result that the earlier of the two repayment events – expiration of time – had come about first. The evidence on this point is insufficient to raise an arguable defence. The parties recognise in their evidence that there had been a downturn in the real estate market, and the house was listed for sale with Mr Harvey, who is a real estate agent, for some four months without success, and was on the market for a total of some five months. It was then sold at a sum above the price range given in an independent market assessment.

Outcome

[22] The plaintiff has satisfied me that the defendants do not have an arguable defence to the claim, either for principal or interest. There will be judgment for the plaintiffs in the sum of $57.506.11.

[23] The plaintiff is entitled to costs on a 2B basis plus disbursements, a total of

_$9,037.20.

J G Matthews

_{Associate Judge}

Solicitors:

McFadden McMeeken Phillips, PO Box 656, Nelson for Plaintiff

Kirkland Enright, PO Box 1290, Auckland for Defendants

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[1] Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA)

[2] Krukziener v Hanover Finance Ltd [2008] NZCA 187