Crown Finance Limited v Cronin [2018] NZHC 2535 (27 September 2018)

Last Updated: 18 October 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2725 [2018] NZHC 2535

BETWEEN	CROWN FINANCE LIMITED Plaintiff
AND	TIMOTHY MORGAN FITZGERALD CRONIN Defendant

Hearing:	On the papers
Counsel:	I Denton and K Webster for the Plaintiff No appearance for Defendant
Judgment:	27 September 2018

_{JUDGMENT OF MUIR J}

This judgment was delivered by me on Thursday 27 September 2018 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:...............................

Solicitors:

Wilson Harle, Auckland

Copy to: Defendant

CROWN FINANCE LIMITED v CRONIN [2018] NZHC 2535 [27 September 2018]

Introduction

[1] The plaintiff, Crown Finance Ltd (Crown), seeks judgment by default against the defendant, Mr Cronin.

Background

[2] Crown is a creditor of Malone No.5 Ltd, a single venture property developer. Mr Cronin was its director. Crown advanced a loan to Malone No.5 for the purposes of completing a property development, and Mr Cronin acted as its guarantor. The development ran into problems and Malone No.5 defaulted on its debt. Crown appointed a receiver, who completed the development and sold the properties. The proceeds of the sale did not cover the full amount outstanding. In proceedings filed on 15 November 2017, Crown sought to recover the balance of $762,278.81 (plus interest) from Mr Cronin under the contract of guarantee. The guarantee also provided that the plaintiff was entitled to indemnity costs associated with its recovery proceedings.

[3] In a judgment dated 1 June 2018, Associate Judge Bell gave summary judgment for part of the amount claimed.¹ He directed that Mr Cronin file a statement of defence to the remaining claims by 25 June 2018. On 8 August 2018 Associate Judge Andrew extended this deadline by consent. He directed:

[a] The defendant is to file and serve his statement of defence within 10 working days and, if he fails to do so, his defence will be struck out and the plaintiff will be entitled to obtain judgment against him.

(emphasis in original)

[4] That deadline has now passed, and Mr Cronin has since advised that “I shall not be filing a defence”.² Crown accordingly seeks judgment by default in the amount of $734,978 comprising the amount stated to be outstanding under the loan ($689,999) plus interest of $42,525.55 and costs of $2,453.00.

¹ Crown Finance Ltd v Cronin [2018] NZHC 1289.

² Email to the Case Manager dated 3 August 2018 at 4.03 pm.

Further inquiry

[5] I have since the request for judgment by default published two Minutes seeking clarification of aspects of the claim. In particular:

(a) I was unable to identify how the sum of $689,999 was calculated.

(b) Associate Judge Bell identified the claim as including default interest calculated at the rate of 20 per cent per annum on advances made to the receiver to complete the development. He said it was arguable such advances had not been made under the Term Loan Agreement which when they were made had expired. In that context I sought clarification as to whether such claim was maintained.

[6] In response:

(a) The plaintiff advises that there was an error in its calculations and that the correct claim was $692,147.87. Nevertheless, to expedite delivery of judgment it said that it confined its claim to the lesser amount.

(b) It continued to seek default interest on advances made to the receiver but, in the alternative sought judgment in the lesser amount of

$583,572.79.

Discussion

[7] Although the defendant has not filed a defence, the Court must nevertheless be satisfied that on the balance of probabilities the amount sought by way of default judgment aligns with the plaintiff’s contractual entitlements.

[8] In the present case, the original advance was made under a Term Loan Agreement dated 10 September 2015 pursuant to which the expiry date was “nine months from the first Drawdown Date”. Such Drawdown Date was 14 September

2016 with the result that the loan expired on 14 June 2016. On 21 November 2017 a

receiver was appointed to the borrower and thereafter advances were made to the receiver to complete the development.

[9] Although the receiver had the power to borrow money under cl 11.3(b) of the

General Security Agreement no formal loan agreement was entered into.

[10] The plaintiff submits that there is “no suggestion in any of the evidence that there was a new and separate loan to the receiver on different terms to the Term Loan Agreement” and points to evidence of the receiver in the context of the summary judgment application that he was “conscious that the debt Malone No 5 Ltd (in rec and liq) owed Crown Finance continued to increase as interest was continuing to be incurred”. However, such observation was one directed generally to Malone No 5’s debt position. It cannot be considered confirmation on the receiver’s part that the monies advanced to him to complete the development were advanced under the Term Loan Agreement.

[11] I share the concerns identified by Associate Judge Bell with respect to this aspect of the claim. The Term Loan Agreement had expired. Crown had called up all monies payable under that loan and the loan agreement made no provision for further advances to be made after maturity date or earlier default. The Associate Judge put it in the following terms which I respectfully adopt:

[44] ... Accordingly any advances by Crown Finance Ltd during the receivership were made under a separate agreement. The evidence is not clear whether the advances were to the company or to Mr Tietjens personally. Crown Finance Ltd has not put in evidence any documents evidencing the advances. As Mr Tietjens would be personally liable to repay the advances under s 32(1)(a) of the Receiverships Act and as Crown made the advances to help him in the receivership, it would not be surprising for Mr Tietjens to borrow the money interest free. There is no suggestion of default by Mr Tietjens or the company in repaying the advances. If Mr Tietjens and the company in receivership are not liable to pay interest on the advances, Mr Cronin’s liability as guarantor of the company’s indebtedness cannot be more extensive.

[12] As a result, I am not satisfied that the plaintiff establishes its claim for $689,999 and give judgment for the alternative and reduced sum of $583,572.79 which the plaintiff calculates as follows:

Loan as at receivership $1,369,847.71

Plus interest on above to 26/9/17³ $ 234,187.66

Plus advances to receiver $ 559,115.35

Less distributions by receiver $1,515,965.00

Less amount for which judgment was given by

Associate Judge $ 63,612.81⁴

_{Total $ 583,572.79}⁵

Costs

[13] Crown seek costs on the application. Although it has a contractual entitlement to indemnity costs, it confines itself to a 2B claim on the basis that it considers the defendant unlikely to be able to meet its claims and does not therefore wish to incur the costs of preparing an indemnity claim.

[14] I allow costs of $1,561. I disallow Crown’s claim in respect of the memoranda supporting judgment without appearance. Item 28 implicitly captures such claim. My

_{calculation is as follows:}

³ I note the plaintiff’s alternative claim does not seek default interest from 29/9/17 to date of judgment. This reflects its pessimism about any substantial recovery from the defendant and difficulties in quantification. I further note that the default interest claim, of 20 per cent compounded monthly, appears to represent a concession on contractual entitlements given that the “Default Interest Rate” under the Term Loan Agreement is stated to be 20 per cent above the “Interest Rate” and the “Interest Rate” is defined as 10 per cent per annum.

⁴ The Associate Judge’s judgment also included interest on this sum from 26 September 2017.

Because interest is not sought in the context of this judgment for the same period (refer footnote

3 above), no deduction is required in respect of that aspect of the previous judgment.

⁵ The memorandum dated 27 September 2018 identified this total as $439,998.06. This was an arithmetical error which was corrected during two telephone conferences with Mr I Denton on 27

September 2018.

_{Item Description Part Day Amount}

11 Memorandum for 1^st case management

_conference

0.4 892

28 Obtaining judgment without appearance 0.3 669

_{Total $1,561}

Muir J