BANK OF NEW ZEALAND v LOTHIAN PARTNERS CAPITAL LTD [2023] NZHC 196

BANK OF NEW ZEALAND v LOTHIAN PARTNERS CAPITAL LTD [2023] NZHC 196 [15 February 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-000795[2023] NZHC 196BETWEEN BANK OF NEW ZEALANDPlaintiffAND LOTHIAN PARTNERS CAPITALLIMITEDFirst DefendantGLENCOE LAND (JOINT VENTURE)LIMITED (IN RECEIVERSHIP)Second DefendantGALT NOMINEES LIMITEDThird DefendantGEORGE CHARLES DESMOND KERRFourth DefendantPYNE HOLDINGS LIMITED (INRECEIVERSHIP)Fifth DefendantHearing: On the papersAppearances: Z G Kennedy and N R Frith for PlaintiffG P Blanchard KC for First, Second, Third and Fifth DefendantsJ K Goodall, S J Nicolson and J Hansen for Fourth DefendantJudgment: 15 February 2023JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by Associate Judge Gardineron 15 February 2023 at 3.30 pm, pursuant to r 11.5 of the High Court RulesRegistrar / Deputy Registrar – Date: ..Introduction[1] Lothian Partners Capital Limited (LPC) and Pyne Holdings Limited (PHL)had loan facilities with Bank of New Zealand (BNZ). George Kerr, director of thosecompanies, provided a guarantee and indemnity for each of the facilities. Othercompanies associated with Mr Kerr, Galt Nominees Limited (Galt) and Glencoe Land(Joint Venture) Limited (Glencoe JV) also gave guarantees and indemnities.[2] The LPC facility expired on 31 May 2011 and the PHL facility expired on28 May 2013, with approximately $25 million and $21 million outstandingrespectively. After extensive negotiations with Mr Kerr concerning repayment, BNZissued proceedings against LPC, PHL and the guarantors in May 2021 to recover theoutstanding sums. BNZ also sought to recover an indemnity costs award made inrelated injunction proceedings.[3] BNZ applied for summary judgment of its claims. LPC, PHL and theguarantors opposed the application. The principal argument the guarantors advancedwas that BNZ's claims were time-barred under the Limitation Act 2010. Mr Kerrmaintained that to the extent he acknowledged liability to BNZ during theirnegotiations, he did so for the borrowers, not personally as guarantor. Mr Kerr andthe corporate defendants also argued that there was a substantial dispute over theamounts owing under each facility as BNZ's calculations were wrong or uncertain.Additionally, Mr Kerr contended that he had a counterclaim for losses sustained whenhe was required to sell shares to pay down the facilities based on, he claimed, incorrectloan balances.[4] In a judgment delivered on 30 September 2022, I rejected the defences raisedby Mr Kerr and the corporate defendants as inarguable, with one exception.1 I foundthat BNZ's claims were not time-barred, because Mr Kerr and the other guarantorshad acknowledged their liability to BNZ in writing during negotiations, giving rise to1 Bank of New Zealand v Lothian Partners Capital Ltd & Ors [2022] NZHC 2489 [Substantivejudgment].fresh claims.2 I also found that LPC, Mr Kerr and PHL had no defence to BNZ's claimfor the indemnity costs award.3[5] I concluded that there was no merit to the defence that the outstanding amountsclaimed by BNZ were wrong or uncertain. The specific issues identified by thedefendants did not meet the threshold of being reasonably arguable.4[6] The exception concerned the guarantors' liability for overdraft interest chargedto LPC and PHL. The defendants argued that the closing balances on the facilitieswere overstated, because BNZ had wrongly charged LPC and PHL overdraft intereston their current accounts associated with the facilities. I rejected that argument,finding that BNZ was entitled to charge the borrowers overdraft interest on theseaccounts. However, I found that the guarantors had a reasonable defence that they hadnot guaranteed the borrowers' obligation to pay this overdraft interest.5[7] Accordingly, I entered summary judgment against LPC and PHL for theamounts outstanding under their respective facilities, and for interest and costs.I entered summary judgment for the indemnity costs award.[8] I entered summary judgment against the guarantors for the amountsoutstanding under the LPC and PHL facilities excluding any overdraft interestclaimed. I directed BNZ to file a memorandum and affidavit quantifying the judgmentsums, with the defendants to file a memorandum and affidavit in response identifyingany issues with the quantification by BNZ.[9] BNZ filed a memorandum of counsel and a further affidavit of Ennis Young,Risk Manager at BNZ, confirming the amounts claimed at the date of the judgment.6The defendants filed a memorandum in response and an affidavit of Steven Cornmell,forensic accounting expert.72 Substantive judgment, above n 1 at [283].3 Substantive judgment, above n 1 at [325–327].4 Substantive judgment, above n 1 at [422] and [443].5 Substantive judgment, above n 1 at [483].6 Affidavit of Ennis John Young sworn 31 October 2022.7 Affidavit of Steven Joseph Cornmell affirmed 20 November 2022. [Cornmell Affidavit].[10] In this judgment I determine the extent of the guarantors' liability given thepotential defence relating to overdraft interest. I also restate my earlier orders tocontain the judgment sums at the date of the substantive judgment.Extent of the guarantors' liability[11] In its memorandum BNZ confirms that the sums claimed by BNZ under eachfacility do not include any amount of unpaid overdraft interest. That is because theonly overdraft interest charged by BNZ was allocated as paid before the currentaccounts entered permanent overdraft. BNZ has reversed any overdraft interestcharged subsequently. BNZ is therefore not claiming any overdraft interest from eitherthe borrowers or the guarantors.[12] In their memorandum in response, the defendants say:(a) The guarantors cannot be liable for any overdraft interest, so for thepurposes of calculating the "Guaranteed Indebtedness" for which theyare liable, that interest must be excluded.(b) It is not correct to say the overdraft interest was allocated as paid, so itdoes not form part of BNZ's claim. The Court carried out an accountto determine the amounts outstanding on the LPC and PHL facilitiesthat involved identifying the advances to LPC and PHL, adding interestover the period of the facilities, and deducting repayments. As a result,interest payments of interest did form part of the claims; they were anintegral part of the accounting process.(c) This was clear from the fact there was a dispute, and findings, about theability to charge overdraft interest. Had the Court found that LPC andPHL were not liable for overdraft interest, as contended by thedefendants, that interest would have been removed from the judgmentsums against them.[13] The defendants argue that had funds deposited into LPC and PHL's currentaccounts not been allocated towards paying overdraft interest and instead beenallocated to repaying loan principal, this would have reduced the level of interestaccruing over the subsequent 10-12 years. Mr Cornmell calculates that under thatscenario, the balances of these facilities at 30 September 2022 would have been:(a) $29,315,838 on the LPC facility, as compared with BNZ's sum of$31,222,901; and(b) $33,418,923 on the PHL facility, as compared with BNZ's sum of$33,588,414.[14] The defendants say that, based on the approach taken in the substantivejudgment, the sums calculated by Mr Cornmell reflect the extent of the guarantors'liability to BNZ.[15] The defendants have filed a memorandum in reply, subject to the Court's leave.I give BNZ leave to file this memorandum.[16] I find that BNZ's approach is correct.[17] Mr Young's evidence is that BNZ charged $216,401.46 in overdraft interest tothe LPC current account, which was paid in full prior to the LPC current accountentering permanent overdraft on 22 July 2010.8 BNZ charged $102,611.38 inoverdraft interest to the PHL current account, which was paid in full prior to the PHLcurrent account entering permanent overdraft on 20 April 2012.9[18] Mr Young explains that BNZ no longer claims overdraft interest for the periodsafter the PHL and LPC current accounts went into permanent overdraft. BNZ hasrecalculated the amounts owing under the relevant facilities from the respectivepermanent overdraft dates:(a) using the principal amounts outstanding at those dates (ie, not includingany accrued but unpaid overdraft interest); and8 Updating Affidavit of Ennis John Young sworn 29 November 2021 at [13(d)] and exhibit EJY-20158 [Second Young Affidavit].9 Second Young Affidavit, above n 8 at [13(d)] and exhibit EJY-2 0161.(b) applying simple interest at the rates provided for in the relevant facilityagreements; and(c) from the respective facility agreement expiry dates only, applyingdefault interest in accordance with those agreements.[19] The defendants' expert, Mr Cornmell, does not dispute this evidence. Heconfirms that:(a) Overdraft interest of $216,401.46 was charged to LPC and paid in theperiod between the facility opening and the current account going intopermanent overdraft; and overdraft interest of $102,611.38 was chargedto PHL and paid between the facility opening and the current accountgoing into permanent overdraft.10(b) Taking this into account, and as BNZ is not claiming overdraft interestfor the periods after the LPC and PHL current accounts went intopermanent overdraft, BNZ is not now claiming any unpaid overdraftinterest charged to LPC and PHL's current accounts.11[20] It seems it is common ground that any current account overdraft interestcharged to LPC and PHL was paid by deposits into the accounts, up until when theaccounts went into permanent overdraft. In my view this follows logically from thefact that prior to then, the current account balances were always returned to credit,which necessarily involved all overdraft interest charged to the accounts being paid.As BNZ does not seek to recover any overdraft interest charged after the permanentoverdraft dates and has recalculated the sums claimed to exclude this interest, itfollows that the outstanding amounts claimed by BNZ do not contain any element ofoverdraft interest.[21] Consequently, it is not necessary to make any deduction from the amountsclaimed from the guarantors to reflect my decision that arguably, their liability for the10 Cornmell Affidavit, above n 7 at exhibit SC1(6–8).11 Cornmell Affidavit, above n 7 at exhibit SC1(5) and (9)."Guaranteed Indebtedness" does not extend to interest charged on the LPC and PHLcurrent accounts. As the amounts claimed from the borrowers and therefore theguarantors do not include any unpaid overdraft interest, the point is moot.[22] What the facility balances would have been had overdraft interest not beencharged to and paid by LPC and PHL is irrelevant. In my substantive judgment I foundthat BNZ was entitled to charge the borrowers overdraft interest under the terms of thecurrent accounts. The residual question was whether the guarantors had guaranteedthe borrowers' obligations to pay overdraft interest. As it turns out, the question doesnot arise because BNZ does not now claim any unpaid overdraft interest from theborrowers.Orders[23] Here I restate the orders I made in my substantive judgment, now containingthe judgment sums as at the date of that judgment.The first defendant: LPC[24] Judgment is entered against LPC:(a) on the first cause of action for:(i) the sum of $31,222,901.34;(ii) interest on the sum of $31,222,901.34 which continues to accruepursuant to s 22 of the Interest on Money Claims Act 2016 (Act)and cl 16 of the LPC Facility Agreement from 1 October 2022to the date on which LPC's obligation to pay that sum isdischarged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility Agreement, to be quantified.(b) on the second and third causes of action for:(i) the sum of $262,666.61, made up as follows:judgment sum $243,419.84interest on the judgment sum in the manner and at the rate setout in cl 16 of the LPC Facility Agreement from 5 May 2021 to30 September 2022$19,246.77(ii) interest on the sum of $262,666.61 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which LPC'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility Agreement, to be quantified.The second defendant: Glencoe JV[25] Judgment is entered against Glencoe JV:(a) on the fourth and fifth causes of action for the LPC GuaranteedIndebtedness, with enforcement limited to the value of the Glencoe JVproperty realised at mortgagee sale.(b) on the sixth and seventh causes of action for:(i) the sum of $249,124.45 made up as follows:judgment sum $243,419.84interest on the judgment sum in the manner and at the rate setout in ss 10, 12, 14 and 15 of the Act $5,704.61(ii) interest on the sum of $249,124.45 which continues to accruepursuant to ss 9 and 10 of the Act from 1 October 2022 to thedate on which Glencoe JV's obligation to pay that sum isdischarged; and(iii) reasonable solicitor client costs pursuant to cl 17.1 of theGlencoe JV Guarantee, to be quantified.The third defendant: Galt[26] Judgment is entered against Galt:(a) on the eighth and ninth causes of action for the LPC GuaranteedIndebtedness, with enforcement against Galt limited to the value of theGalt property realised at mortgagee sale.(b) on the tenth and eleventh causes of action for:(i) the sum of $262,666.61 made up as follows:judgment sum $243,419.84interest on the judgment sum in the manner and at the rate setout in cls 16.1 and 16.2 of the LPC Facility Agreement from5 May 2021 to 30 September 2022 $19,246.77(ii) interest on the sum of $262,666.61 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which Galt'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility Agreement, to be quantified.The fourth defendant: George Kerr[27] Judgment is entered against Mr Kerr:(a) on the eighth and ninth causes of action for:(i) the sum of $31,222,901.34;(ii) interest on the sum of $31,222,901.34 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which Mr Kerr'sobligation to pay that sum is discharged;(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility, to be quantified.(b) on the twelfth and thirteenth causes of action for:(i) the sum of $262,666.61 made up as follows:judgment sum $243,419.84interest on the judgment sum in the manner and at the rate setout cls 16.1 and 16.2 of the LPC Facility Agreement from 5 May2021 to 30 September 2022 $19,246.77(ii) interest on the sum of $262,666.61 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which Mr Kerr'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility, to be quantified.(c) on the fifteenth and sixteenth causes of action for:(i) the sum of $33,588,414.24;(ii) interest on the sum of $33,588,414.24 which continues to accruepursuant to s 22 of the Act, cl 2.4 of the Kerr PHL Guaranteeand cl 14 of the PHL Facility Agreement from 1 October 2022to the date on which Mr Kerr's obligation to pay that sum isdischarged; and(iii) reasonable solicitor client costs pursuant to cls 2.2 and 13.1(b)of the Kerr PHL Guarantee, to be quantified.The fifth defendant: PHL[28] Judgment is entered against PHL:(a) on the eighth and ninth causes of action for:(i) the sum of $31,222,901.34;(ii) interest on the sum of $31,222,901.34 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which PHL'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility Agreement, to be quantified.(b) on the twelfth and thirteenth causes of action for:(i) the sum of $262,666.61 made up as follows:judgment sum $243,419.84interest on the judgment sum in the manner and at the rate setout in cls 16.1 and 16.2 of the LPC Facility Agreement from5 May 2021 to 30 September 2022 $19,246.77(ii) interest on the sum of $262,666.61 which continues to accruepursuant to s 22 of the Act and cl 16 of the LPC FacilityAgreement from 1 October 2022 to the date on which PHL'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 16.4 and 25.2 ofthe LPC Facility Agreement, to be quantified; and(c) on the fourteenth cause of action for:(i) the sum of $33,588,414.24;(ii) interest on the sum of $33,588,414.24 which continues to accruepursuant to s 22 of the Act and cl 14 of the PHL FacilityAgreement from 1 October 2022 to the date on which PHL'sobligation to pay that sum is discharged; and(iii) reasonable solicitor client costs pursuant to cls 14.4 and 21.2 ofthe PHL Facility Agreement, to be quantified._____________________Associate Judge Gardiner