GFNZ Group Limited v Walker [2014] NZHC 1115 (23 May 2014)

Last Updated: 27 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-003292 [2014] NZHC 1115

BETWEEN	GFNZ GROUP LIMITED Plaintiff
AND	GLENN ANDREW WALKER Defendant

Hearing:	17 February 2014
Appearances:	E Sweet for Plaintiff P Andrew for Respondent
Judgment:	23 May 2014

JUDGMENT OF WOOLFORD J [Plaintiff's application for summary judgment]

This judgment was delivered by me on Friday, 23 May 2014 at 12.15 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors: Carter Kirkland Morrison (Auckland) for Plaintiff

Wackrow Williams & Davies (Auckland) for Defendant

Counsel: P J Andrew (Auckland) for Defendant

[1] The plaintiff, GFNZ Group Limited (GFNZ), previously known as Geneva Finance Limited, has issued proceedings against the defendant, Glenn Andrew Walker, a former director and shareholder of the plaintiff, claiming the sum of

$150,000 in respect of a loan originally advanced to Mr Walker on 31 March 2006. GFNZ now makes application for summary judgment pursuant to r 12.2 High Court Rules on the basis that Mr Walker has no defence to the claim.

[2] Mr Walker opposes the application for summary judgment on the basis that he has a good defence to GFNZ’s claim, namely, the defence of equitable set-off, based on proceedings brought under s 174 of the Companies Act 1993 (the Act) for oppressive and unfairly prejudicial conduct by GFNZ and its directors.

Background

[3] On 31 March 2006, GFNZ and Mr Walker entered into a loan agreement whereby GFNZ advanced the sum of $225,000 to Mr Walker.

[4] The loan agreement contained the following terms and conditions:

(a) The loan was to be applied by Mr Walker in paying the subscription price of shares issued by GFNZ or other associated companies as approved by the board of directors;

(b) The outstanding balance of the loan was to be repaid five years after the date of the advance, being 31 March 2011; and

(c) Interest was payable daily on the outstanding balance of the loan at the fringe benefit tax prescribed rate as advised by the IRD monthly in arrears, with a first payment on 30 April 2006.

[5] Pursuant to the loan agreement, GFNZ advanced $225,000 to Mr Walker on

31 March 2006. Mr Walker’s family trust, the Windermere Trust, then purchased shares in Geneva Finance Holdings Limited (GFHL), an associated company of GFNZ, using the sum advanced by GFNZ.

[6] A variation to the loan agreement was subsequently made which reduced the interest payable to 0%. GFNZ and Mr Walker further varied the loan by agreements dated 14 March and 1 May 2008 whereby the amount owing was reduced to

$150,000. The maturity date of the loan was confirmed as 31 March 2011.

[7] On 31 March 2011, Mr Walker failed to repay the outstanding balance of the loan, being $150,000. GFNZ issued a demand notice to Mr Walker on 1 September

2011 requiring immediate payment of the loan. Mr Walker has failed to comply with the demand and the debt remains due and payable to GFNZ.

Related proceedings

[8] Mr Walker has had judgment entered against him in the District Court in favour of G2 Finance Holdings Limited (G2FHL) in a case involving broadly similar facts. In a decision dated 7 February 2012, Judge B A Gibson gave judgment for G2FHL against Mr Walker for $111,099.89, the principal and interest then outstanding on an A$60,000 loan made to Mr Walker on 31 March 2007 to meet “the subscription price of shares issued to him by G2FHL as approved by the board of directors.”

[9] Mr Walker then appealed to the High Court on the basis that the District Court was wrong to enter judgment in the face of two cross-claims, neither of which he could advance in the District Court but which he contended gave him a complete right of set-off in equity. One of the proposed cross-claims was the proceedings filed in the High Court on 12 February 2014 and now raised as a defence by Mr Walker. The appeal was dismissed by Keane J on 13 February 2013.¹ Mr Walker then applied to the Court of Appeal for special leave to appeal pursuant to s 67 of the Judicature Act 1908. This was also dismissed on 9 December 2013.² On each occasion, Mr Walker’s claim failed as the proposed proceedings (subsequently filed in the High Court) could not qualify as an equitable set-off. Firstly, the parties to the proposed proceedings were not the same as the parties to the District Court proceeding. The proposed proceedings could only be advanced by the trustees of the Windermere Family Trust not by Mr Walker personally. Secondly, notwithstanding

the lack of mutuality of the parties, the proposed proceedings involved a distinct transaction to be pursued independently. That did not impede entry of judgment on the debt owed by Mr Walker to G2FHL.

[10] In dismissing Mr Walker’s application for leave to appeal, the Court of

Appeal stated:³

In our view, the law relating to equitable set-off and identity of parties is settled. The general rule is a lack of mutuality of parties will be fatal to any cross-claim except in rare and unusual circumstances. Further, even if there are rare and unusual circumstances justifying waiving the requirement for mutuality, the claim and cross-claim must still be interdependent. As noted in Grant v NZMC Ltd, what is required is that judgment on the one cannot fairly be given without regard to the other. The defendant’s claim must call into question or impeach the plaintiff’s demand.

[11] The Court of Appeal further stated:⁴

The other difficulty that Mr Walker faces is that despite having had four years to do so, the family trust has never filed the proposed s 174 oppression proceedings ... Mr Walker says the delays are due to difficulties in obtaining legal aid. However, as far as the family trust is concerned, Mr Walker has known for some considerable time that the trustees will never obtain legal aid.

Oppression proceedings

[12] Mindful perhaps of the Court of Appeal’s comments on his failure to file the proposed s 174 oppression proceedings, Mr Walker filed the proceedings two days before the hearing of this summary judgment application. Insofar as the oppression proceedings relate to GFNZ, the trustees of the Windermere Trust claim that they held 30 per cent of the shares in GFHL and in accordance with the constitution of GFHL their approval was required to every major transaction, including a substantial financial restructure.

[13] The trustees claim that the actions of GFNZ have been conducted in a manner which was oppressive, unfairly discriminatory and/or unfairly prejudicial to them in their capacity as shareholders and/or entitled persons. In particular, they claim that in February 2008 a proposal was presented to the board of directors of GFNZ to

significantly restructure GFNZ’s financial position by requiring depositors to convert their deposits into shares in GFNZ. This involved a fundamental change to GFNZ’s trust deed which required the approval of depositors.

[14] The trustees further claim that a director of GFNZ, Mr Peter Francis, advised Mr Walker that he would contribute $2.5m worth of property assets as a capital injection to GFHL (which at that time owned all of the shares in GFNZ). As a condition of Mr Francis making the capital contribution, the trustees claim that Mr Walker was required by coercion and/or duress to agree to a change in the constitution of GFHL (whereby Mr Walker and Mr Francis had to agree all major decisions) so that the shares held by Mr Francis would assume all voting rights.

[15] The trustees allege that as a consequence Mr Francis increased his shareholding in GFHL and thus control of GFNZ from 50 per cent to 86 per cent. This, in turn, obviated the requirement that the trustees’ consent be obtained to all major transactions involving both GFHL and GFNZ.

[16] The trustees claim that the actions of GFNZ have substantially reduced the value of their shareholding in GFHL. They claim that GFHL is now in liquidation and their shares have no value.

[17] The trustees therefore seek an order pursuant to s 174(2) of the Companies Act 1993 that the loan of $150,000 be cancelled/annulled and that Mr Walker be released from any obligation to make repayment of it. The trustees also seek an order pursuant to s 174 that GFNZ pay compensation to the trustees for the reduction in value of their shares.

Submissions

[18] Counsel for the plaintiff submits that the present case concerns the application of settled law to the facts. There is no material conflict of evidence in this case and Mr Walker does not dispute that the loan has matured and no evidence has been produced that would conflict with the plaintiff’s position that the loan is due and payable by Mr Walker.

[19] Counsel further submits that Mr Walker’s defence of equitable set-off arising from the oppression proceedings has already been considered by the Court of Appeal and cannot succeed.

[20] Counsel submits that the law regarding equitable set-off is well settled. Mutuality of parties is required for equitable set-off in all but the most unusual of cases. In the present case there is no mutuality of parties. The plaintiffs in the oppression proceedings are the trustees of the Windermere trust, whereas the defendant in the present proceedings is Mr Walker in person.

[21] Counsel further submits that even in cases involving unusual circumstances, the party seeking to invoke an equitable set-off has to establish that the claims are interdependent. In the present case counsel submits there is no such interdependence. The oppression proceedings involve a distinct transaction that can be pursued independently by the trustees of the Windermere Trust and do not impede entry of judgment against Mr Walker on the debt.

[22] On the other hand, counsel for Mr Walker submits that the claims made by GFNZ in the present case and the cross-claim made against it by the trustees of the Windermere Trust in the oppression proceedings are interdependent. Counsel submits that the loan monies the subject of this proceeding were an integral part of Mr Walker’s employment with GFNZ and intended to give him something of value. The loan was made for the express purpose of subscribing for shares.

[23] Counsel submits that GFNZ, through its oppressive and prejudicial conduct, has completely undermined the original value of the shares and they are now worthless. Counsel submits that the relief sought in the oppression proceedings, being equitable and discretionary in nature, is intended to address this unconscionable conduct. If the relief sought is granted it will extinguish the plaintiff’s claim in this proceeding and accordingly the necessary element of a particularly close inter-relationship is made out.

[24] Counsel submits that the Court of Appeal decision does not preclude

Mr Walker from contending in this case that there are exceptional or unusual

circumstances such that the element of mutuality of parties is not required for the equitable set-off claim. Counsel submits that the Court did not hold conclusively that Mr Walker’s particular claim (which at that time had not been brought) was incapable of success. Counsel submits that Mr Walker has an arguable case that the oppression proceedings fall under the category of unusual circumstances. There is no absolute rule that there be identity of parties and it would be wrong, in the absence of testing all the evidence before the Court, to prematurely determine this issue.

[25] Alternatively, counsel for Mr Walker submits that the Court has a residual discretion to decline summary judgment and is entitled to look at any injustice to Mr Walker arising out of other aspects of an overall dispute between the parties. Here, counsel submits that there would be clear injustice for judgment to be entered against Mr Walker and he be made bankrupt before the oppression proceedings which are integral to the overall dispute between the parties are determined. Counsel notes that in the related District Court proceedings the execution of the judgment against Mr Walker has been stayed.

Discussion

[26] The question on a summary judgment application is whether the defendant has no defence to the claim;⁵ that is, that there is no real question to be tried. 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.⁶ I adopt the summary of principles set out in the Court of Appeal decision Walker v G2 Finance Holdings Ltd:

[10] In our view, the law relating to equitable set-off and identity of parties is settled. The general rule is that a lack of mutuality of parties will be fatal to any cross-claim except in rare and unusual circumstances. Further, even if there are rare and unusual circumstances justifying waiving the requirement for mutuality, the claim and cross-claim must still be interdependent. As noted in Grant v NZMC Ltd, what is required is that judgment on the one cannot fairly be given without regard to the other. The defendants claim must call into question or impeach the plaintiff’s demand.

⁵ _{High Court Rules, r 12.2(1).}

⁶ Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

[27] Here, there is no mutuality of parties. However, for the purposes of this summary judgment application I am prepared to approach the issue on the basis that these are rare and unusual circumstances. At the time of the loan agreement on

31 March 2006 Mr Walker was managing director of GFNZ. The loan agreement specified that GFNZ would advance the loan to Mr Walker on the date requested by him. It was also agreed that Mr Walker would apply the loan in paying the subscription price of shares issued to him by GFNZ or other associated companies approved by the board of directors. The loan agreement therefore envisaged that the shares would be issued not to the Windermere Trust but to Mr Walker personally. Notwithstanding the specific terms of the loan agreement it appears that there was a variation of the agreement to allow the shares to be issued to Mr Walker’s family trust, the Windermere Trust. In those circumstances I am of the view that there is a sufficient identity of parties such that the requirement that there be a mutuality of parties is not required.

[28] The sole issue, therefore, in this summary judgment application is whether these proceedings and the oppression proceedings are interdependent. If they are, then the defendant’s claim is more correctly classified as a counterclaim, rather than an equitable set-off, giving him a right against the plaintiff that is independent of the plaintiff’s claim against him. A set-off does not have a separate existence in its own right. In other words, can judgment fairly be given on these proceedings without regard to the oppression proceedings? The loan agreement is dated 31 March 2006. The oppression proceedings do not claim that there was anything oppressive in GFNZ’s conduct at the time the loan agreement was entered into, or indeed for two years after that. The trustees of the Windermere Trust complain about a proposal presented to the board of directors in February 2008 to significantly restructure GFNZ’s financial position by requiring depositors to convert their deposits into shares in GFNZ and changing its trust deed. The trustees do not allege that this proposal affected in any way the loan agreement entered into almost two years earlier.

[29] The trustees go on to claim that Mr Walker was required by coercion and/or duress to agree to a change in the constitution of GFHL so that he lost his voting rights at a time when another director offered to contribute $2.5m worth of property

assets as a capital injection into GFHL. No particulars of the coercion and/or duress are given in the statement of claim.

[30] The trustees then allege that the actions of GFNZ have substantially reduced the value of the trustees’ shareholding in GFHL. Again, no particulars are given in the statement of claim. I fail to see how claims of coercion and/or duress to agree to a change in the constitution of GFHL and subsequent actions undertaken by GFNZ are in any way related to the loan agreement entered into two or more years previously, let alone interdependent. The loss in value of the trustees’ shareholding in GFHL may be more related to the global finance crisis which saw the failure of a large number of finance companies in New Zealand.

[31] While the trustees of the Windermere Trust do seek an order that the loan agreement be cancelled or annulled and that Mr Walker be released from any obligation to make repayment of it, the trustees also seek an order pursuant to s 174 that GFNZ pay compensation to them for the reduction in value of their shares. This relief is, in my view, more appropriate. If they are successful in the oppression proceedings, the trustees of the Windermere Trust do not need an order that the loan agreement be cancelled or annulled as sufficient relief could be ordered by way of compensation.

[32] I also decline to exercise my discretion to dismiss the application for summary judgment. Mr Walker chose to borrow a substantial sum of money from GFNZ to purchase shares in a company associated with GFNZ, of which he was the managing director, in the hope and expectation that the shares would increase in value and that he would thereby profit. It was a risk he took which did not come to fruition. Although he now has a dispute with GFNZ over subsequent events, that dispute does not disentitle GFNZ from recovering the debt owed by him.

Result

[33] In accordance with my findings, I make the following orders:

(a) Judgment is given in the sum of $150,000 against Mr Walker in favour of GFNZ;

(b) Interest on the judgment sum is to be paid by Mr Walker at the Judicature Act rate of 5 per cent from the date of judgment to the date of payment; and

(c) Costs are payable by Mr Walker to GFNZ on a 2B basis. If the parties are unable to agree, memoranda are to be filed by 31 May 2014.

Woolford J