BANK OF NEW ZEALAND v DAVEY [2021] NZHC 1854

BANK OF NEW ZEALAND v DAVEY [2021] NZHC 1854 [21 July 2021]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2021-409-000046[2021] NZHC 1854BETWEEN BANK OF NEW ZEALANDPlaintiffAND MATTHEW ROBERT DAVEYDefendantHearing: 16 July 2021Appearances: K M Paterson and C F Olds for PlaintiffC Lin for DefendantJudgment: 21 July 2021JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 21 July 2021 at 4.30 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] The plaintiff, Bank of New Zealand (the Bank), applied for summary judgmentagainst the defendant, Matthew Robert Davey (Mr Davey), for $3,851,640 plusinterest as a debt due to the Bank under a guarantee dated 27 June 2014, given byMr Davey in favour of the Bank in respect of the obligations of Fortress InformationSystems Ltd (in rec and liq) (Fortress).[2] The application came before me for hearing on 16 July 2021. At thecommencement of the hearing I dismissed an application by Mr Davey for anadjournment and for leave to file an amended notice of opposition and furtherevidence.1[3] I then considered the Bank's application for summary judgment. Mr Davey'scounsel, Mr Lin, advised me he had no instructions to make any further submissions,notwithstanding that Mr Davey has filed a substantive opposition to the Bank'sapplication. Mr Lin did not, however, seek to withdraw as counsel.[4] After hearing from Ms Paterson on behalf of the Bank, I entered summaryjudgment. I said my reasons would be provided in writing following the hearing.These are those reasons.[5] As Mr Davey did not give Mr Lin instructions to present any submissions onhis behalf my reasons are briefer than might otherwise be the case. I have, however,considered all that was put before me including three affidavits of Mr Davey.The Bank's claim[6] Mr Davey is the sole director and majority shareholder of Fortress.[7] Fortress, together with related entities, provided an event ticketing platformand event ticketing services.[8] Fortress had several facilities with the Bank which are identified in thestatement of claim as the Merchant Agreement of 13 April 2006, an Irrevocable1 Bank of New Zealand v Davey [2021] NZHC 1816.Standby Letter of Credit of 20 August 2014, an Overdraft Facility Agreement of26 August 2019 and a Customised Average Rate Loan Facility (CARL Facility)Agreement dated 20 December 2019.[9] The relevant terms of these facilities are set out in the statement of claim andthe agreements are annexed to the first affidavit of Rodney Boon in support of theBank's application.[10] On 27 June 2014, Mr Davey executed a Deed of Guarantee and Indemnity (theGuarantee) in favour of the Bank in respect of Fortress's existing and futureobligations to the Bank. It, too, is annexed to Mr Boon's affidavit.[11] Mr Davey's liability under the Guarantee is capped at $3,600,000 plusadditional amounts by way of interest and costs. He is to pay any Guaranteed Amountsupon demand. The additional amounts payable under the Guarantee are set out in theGuarantee as follows:5 Additional Amounts: In addition to the Guaranteed Amounts, yourliability under this Guarantee includes:a. an amount equal to one year's interest on the GuaranteedAmounts in respect of which we make demand, calculated atthe highest rate payable by the Customer on any GuaranteedAmounts;b. interest at the rate referred to in paragraph 5(a) above on theGuaranteed Amounts in respect of which we make demand,from the date demand is made to the date we receive paymentof the Guaranteed Amounts; andc. reimbursement of any costs, expenses, liabilities, taxes andduties payable by you under clause 5 of the Schedule and anyamounts in connection with foreign currencies payable by youunder clause 6 of the Schedule.Any additional amount payable under this clause must be paid upondemand being made on you.[12] Under cl 5.1 of the Schedule to the Guarantee, Mr Davey agrees to pay allcosts, expenses and liabilities incurred by the Bank in connection with the actual orattempted exercise or enforcement of any power or remedy under the Guarantee,including legal fees and expenses on a solicitor and client basis.[13] Under cl 12.2, until payment of all Guaranteed Amounts Mr Davey gave upcertain rights against Fortress, the Bank and third parties. It relevantly provides:Until we have received all the Guaranteed Amounts, you give up in our favourany right you have against us and against any other person, estate or assetswhich would reduce your liability under this Guarantee or would reduce ourclaims against the Customer or any other person for the Guaranteed Amounts.[14] Most importantly, cl 15.1 provides:You must pay us without any set-off or counterclaim and without anydeduction or withholding.[15] Fortress was in default of its facilities with the Bank from 22 May 2020. On22 May 2020, Fortress generated a batch of credit refunds under the MerchantAgreement causing the account to be substantially overdrawn. On 12 June 2020,Fortress failed to pay amounts due under the CARL Facility. On 1 July 2020, Fortressfailed to pay amounts due under the Overdraft Facility Agreement.[16] On 10 June 2020, the Palmerston North City Council obtained a freezing orderagainst Fortress. The freezing order was stated to be made in respect of $675,958.40held by Fortress in an account with the Bank "or any other bank account under theownership or control of [Fortress]".[17] Upon the occurrence of the defaults, the Bank exercised its right to demandpayment of the sums owing to it. On 28 July 2020, the Bank made demand uponFortress for payment of the sum of $4,346,508.84, but payment was not made.[18] On 3 August 2020, the Bank made demand upon Mr Davey under theGuarantee for payment of $3,851,640 (which included a sum on account of interest).Mr Davey made no payment.[19] On 31 August 2020, the Bank appointed receivers to Fortress. The receiversare Colin Gower, Andrew Sallway and Diana Matchett of the firm BDO (BDO).[20] Fortress was placed into liquidation on 22 October 2020.[21] On 22 February 2021, the Bank commenced this proceeding which was servedon Mr Davey in Sydney, Australia on 3 March 2021.Summary judgment principles[22] The Bank's application is brought pursuant to r 12.2(1) of the High Court Rules2016. The relevant principles were set out by the Court of Appeal in Krukziener vHanover Finance Ltd.2 The Court of Appeal said:[26] The principles are well settled. The question on a summary judgmentapplication is whether the defendant has no defence to the claim; that is, thatthere is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1at 3 (CA). The Court must be left without any real doubt or uncertainty. Theonus is on the plaintiff, but where its evidence is sufficient to show there is nodefence, 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 normallyresolve material conflicts of evidence or assess the credibility of deponents.But it need not accept uncritically evidence that is inherently lacking incredibility, as for example where the evidence is inconsistent with undisputedcontemporary documents or other statements by the same deponent, or isinherently 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 ofjudgment. The Court may take a robust and realistic approach where the factswarrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).[23] The Court's power to enter summary judgment is discretionary, but thediscretion is of a residual kind. There is little scope for exercising the discretion notto grant summary judgment where there is no suggestion of injustice.3The issues[24] The evidence on behalf of the Bank establishes to my satisfaction:(a) the existence of the several facility agreements between Fortress andthe Bank;(b) the existence of Mr Davey's Guarantee,(c) the terms of the facility agreements and the Guarantee as pleaded,2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162.3 Sudfeldt v UDC Finance Ltd (1987 1 NZPC 120; (1987) 1 PRNZ 205 (CA) at 209.(d) the fact of defaults by Fortress;(e) the demands upon Fortress and upon Mr Davey under the Guarantee;(f) the amounts owing to the Bank at the time of the demands; and(g) that neither Fortress nor Mr Davey have satisfied the demands.[25] The matters that have been raised in opposition to the Bank's claim are thefollowing:(a) that the amount of the debt payable under the Guarantee may bereduced by distributions from the receivership of Fortress;(b) Fortress may have a claim (and wishes to issue third party proceedings)against the receivers in respect to their conduct of the receivership;(c) that Mr Davey has counterclaims against the Bank on the basis that:(i) the Bank did not properly administer payments by Fortresswhile Fortress's accounts were the subject of the freezing order;and(ii) the Bank did not adequately assist Fortress or was negligent inthe manner in which it handled Fortress's requests for lendingin 2020.[26] I will deal with each matter seriatim.Further payments from the receivership[27] There is a possibility of further recoveries by the Bank from the receivershipof Fortress. Mr Davey says it is premature for the Court to enter summary judgmentagainst him when the Bank might receive payments that reduce his indebtedness. I donot accept Mr Davey's position.[28] The Bank's right of action against Mr Davey, to recover the GuaranteedAmounts, accrued when he failed to comply with the Bank's demand. The Bank isnot required to exhaust all other avenues to obtain payment of what is owed beforeobtaining judgment against Mr Davey. If payments are received by the Bank whichreduce Mr Davey's liability they must be taken into account at the enforcement stage.The possibility of further payments might also be considered in the exercise of theCourt's discretion if the Bank sought to have Mr Davey adjudicated bankrupt.4Third party proceeding against BDO[29] Mr Davey says he intends to issue a third party proceeding against BDO if theBank's application for summary judgment is dismissed. He alleges BDO failed to takesteps to complete a data migration process causing Fortress's systems to crash withwidespread event ticketing service failures for major events. He also alleges BDOfailed to make timely payments for Fortress's underlying services platforms, failed tochase up payment of amounts owed to Fortress, and used funds owed to creditors forpayment of its own fees. Mr Davey says that if successful any claim against BDOwill reduce his liability to the Bank by way of third-party contribution.[30] I do not accept that Mr Davey's proposed claim against BDO is a basis to refusethe Bank summary judgment for several reasons. First, if Mr Davey has a claimagainst BDO that does not provide him with a defence to the Bank's claim. The Bankis not responsible for the receivers' actions. The receivers were appointed on the basisthey were the agents of Fortress and not the Bank.5[31] Second, I do not accept there is a valid basis for Mr Davey to issue a third partynotice against BDO. The grounds upon which a third party notice may be issued areset out in r 4.4(1) of the High Court Rules 2016. I do not see that any such groundsexist in this case. Mr Davey appears to suggest that he is entitled to contribution fromBDO in respect of any amount he owes to the Bank. It is unclear in what sense heuses the term contribution. In the sense it is used in r 4.4(1)(a), the essence of the right4 Spanbild Holdings Ltd v Miller High Court Wellington CIV-2009-485-2027, 11 May 2010.5 Receiverships Act 1993, s 6(3) and Patrick v Bank of New Zealand [2018] NZCA 122 at [47].to contribution lies in the liability to a common demand.6 BDO has no concurrentliability with Mr Davey under the Guarantee.[32] Third, Mr Davey's third party claim is quite unrelated to the Bank's claimagainst him. It does not raise any common issues of fact or law. There is nojustification for refusing summary judgment so as to allow Mr Davey to pursue sucha claim. The Bank is entitled to its judgment and Mr Davey is able to commence aclaim against BDO in separate proceedings if he wishes.7Potential counterclaims[33] Mr Davey asserts he has counterclaims against the Bank. It is not necessaryfor me to consider the merit of those counterclaims, although they were responded toin detail by the Bank. That is because generally a counterclaim is not a defence to anapplication for summary judgment. Further, parties to a contract may exclude,expressly or by clear implication, a right of counterclaim (or set-off) that wouldprevent such matters being raised. As noted above, cl 15 of the Schedule to theGuarantee is just such a clause. It provides that Mr Davey is obliged to make paymentwithout set-off or counterclaim or any other deduction or withholding.[34] Baxter v Murray concerned an appeal from the entry of summary judgmentwhere the appellants claimed to have an equitable set-off to the claim.8 The Court ofAppeal recognised the Court retains a discretion not to enter summary judgment inorder to avoid an injustice and has a discretion to issue a stay of execution if satisfiedthere is a counterclaim that ought to be heard.9 However, the Court cited, withapproval, Continental Illinois National Bank & Trust Co of Chicago v Papanicolaouto the effect the Court's discretion ought to be rarely exercised in circumstances wherea loan agreement and guarantees provide that payment should be made free from any6 Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR4.4.01].7 See for instance Thomson v Woolford [1987] 1 NZLR 604; BNZ v Mulholland (1991) 3 NZBLC101,970 and BNZ v Hunt (1990) 3 PRNZ 676.8 Baxter v Murray [2020] NZCA 222.9 At [38].set-off or counterclaim.10 The Court referred to this passage from Continental IllinoisNational Bank & Trust Co of Chicago v Papanicolaou:11Indeed the present cases make it the more necessary that the Court should notinterfere, for here the parties have specifically provided both in the loanagreement and the guarantees that payment should be made free of any set offor counterclaim. It would defeat the whole commercial purpose of thetransaction, would be out of touch with business realities and would keep thebank waiting for a payment, which both the borrowers and the guarantorsintended that it should have, whilst protracted proceedings on the allegedcounterclaims were litigated. We do not doubt that the Court has a discretionto grant a stay but it should in our view be "rarely if ever" exercised Guarantees such as these are the equivalent of letters of credit and only inexceptional circumstances should the Court exercise its power to stayexecution.[35] In Patrick v Bank of New Zealand, the Court of Appeal held that an arguabledefence signalled by way of a set-off or counterclaim was precluded by a clause of theguarantee. 12 The clause in issue was the same one as is in issue in this case. TheCourt of Appeal held that:[21] Accordingly, the proposed arguments for claims by way of set-off orcounterclaim cannot avail Mr Patrick because he has committed to a guaranteewith a no set-off provision.[36] The Court of Appeal recognised the enforceability of no set-off clauses inguarantee documents is well-settled and was not persuaded to reverse the line ofauthority, including other decisions of the Court of Appeal, that have upheld theenforceability of such clauses.13[37] It follows that Mr Davey's contention that he has counterclaims against theBank does not assist him due to the application of the no set-off clause in theGuarantee.10 Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyd's Rep441 (CA).11 At [39].12 Patrick v Bank of New Zealand [2018] NZCA 122.13 At [19].Discretion[38] Mr Davey considers that if judgment is entered against him it would be unjustbut the matters relied upon are largely related to his wish to pursue claims againstBDO and the Bank. Mr Davey is able to pursue BDO and nothing in this judgmentwill prevent him from doing so. To refuse the Bank summary judgment in the exerciseof the Court's discretion would be unjust and defeat the commercial arrangements thatexisted between it and Mr Davey.14 I do not see anything in the facts of this casejustifying the refusal of summary judgment in the exercise of the Court's discretion.Result[39] Summary judgment has been entered for the Bank in the following amounts:(a) principal sum of $3,851,640;(b) interest on that sum at 6.99% per annum from 3 August 2020 to the dateof hearing (16 July 2021) being 347 days at $737.62 per day;(c) interest on the sum of $3,851,640 at the rate of 6.99% per annum from17 July 2021 to the date of payment in full; and(d) costs on a solicitor and client basis.[40] In respect to costs, the Bank's counsel is to submit a memorandum setting outthe detail and quantum of the costs that are claimed for the Court's approval._______________________O G PaulsenAssociate JudgeSolicitors:Buddle Findlay, ChristchurchNorling Law Limited, Auckland14 Dominion Breweries Ltd v Countrywide Banking Corp Ltd CA314/91, 18 August 1992 at 5-6.