COOK NELSON STREET LEASEHOLD LIMITED V CASTLE PROPERTY MANAGERS LIMITED AND ANOR HC AK CIV 2008-404-693

COOK NELSON STREET LEASEHOLD LIMITED V CASTLE PROPERTY MANAGERS LIMITED AND ANOR HC AK CIV 2008-404-693 18 November 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-693BETWEEN COOK NELSON STREET LEASEHOLD LIMITED Plaintiff AND CASTLE PROPERTY MANAGERS LIMITED First Defendant AND MARK RONALD BRYERS Second Defendant Hearing: 17 November 2008 Appearances: A. Commons - Plaintiff No appearance - First Defendant No appearance - Second Defendant Judgment: 18 November 2008 at 10.30 amJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by The Registrar on 18 November 2008 at 10.30 am pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Hornabrook MacDonald, Lawyers, PO Box 91845, Auckland Sygrove Law, Lawyers, PO Box 2890, WellingtonIntroduction[1] Before the Court is an application by the plaintiff for summary judgment against the first defendant and the second defendant. [2] At the hearing of this matter yesterday, Mr Commons appeared as counsel for the plaintiff. There was no appearance on behalf of either the first defendant or the second defendant. Mr Stapleton, previous counsel for the second and third defendants advised the Court by letter dated 7 November 2008 that he had ceased to act as counsel for the defendants in this proceeding but that Mr Sygrove remained as solicitor on the record for the defendants and his office was their address for service in this proceeding. [3] Mr Stapleton confirmed however that all documentation had been forwarded to the defendants and the second defendant, Mark Ronald Bryers ("Mr Bryers") in particular. At para. 5 of his 7 November 2008 letter Mr Stapleton noted:" Mr Bryers and the Defendants' new counsel may well be working on the basis that the Defendants' documents and submissions do not have to be filed and served until 10 November 2007 (7 days before the new fixture date)."[4] No submissions have been filed on behalf of the first and second defendants. Nor as I have noted was there any appearance for the first and second defendants before me yesterday. [5] Notwithstanding this, the hearing of the plaintiff's summary judgment application originally scheduled on 1 May 2008 to take place on 3 November 2008 and then on 1 July 2008 adjourned to 17 November 2008, proceeded yesterday. [6] The summary judgment application, however, was formally opposed by the first and second defendants in a Notice of Opposition filed 6 May 2008 together with a supporting affidavit of Mr Bryers also sworn and filed on 6 May 2008.Background Facts[7] Some time ago, certain companies within the Starline Group sold the Gulf Harbour Country Club and its assets to Gulf Harbour Holdings Limited, a company controlled by Mr Bryers. As part of this larger transaction various entities controlled by Mr Bryers sold property assets to the plaintiff Cook Nelson Street Leasehold Limited ("Cook"). Cook is a company controlled by the Starline Group. Linked to the present transaction before the Court, Cook bought two units at Gulf Harbour Lodge and the management business for Gulf Harbour Lodge (together, "the Lodge Assets"). These were purchased from Harbour Management Limited ("Harbour Management"), one of Mr Bryer's companies as I understand it in effect as part of a swap arrangement for part of the Gulf Harbour Country Club purchase. Mr Bryers was adamant that he wished to involve the Lodge Assets in the overall larger transaction, but in evidence advanced here on behalf of Cook, it seems clear that Cook first was unconvinced of the value of the Lodge Assets and secondly doubted that Mr Bryers would be able to arrange sufficient debt finance on those assets to enable the principal transaction to proceed. Ultimately, however, it was agreed that if equity in the Lodge Assets was at least $835,000 and the necessary debt finance could be arranged by Mr Bryers, then the Lodge Assets would be included. Apparently, Cook regarded it as essential that Mr Bryers was to be responsible for arranging this loan finance funding over the Lodge Assets which was to total $1.1 million. This led to execution on 2 February 2007 of a Deed of Trust and Indemnity("Deed of Trust"). The parties to the Deed of Trust were Harbour Management, Mr Bryers, Cook and James Mathew Peters ("Mr Peters"). [8] As I have noted, Cook accepted the Lodge Assets as part of the overall transaction on the basis that necessary debt finance over these assets was to be arranged by Mr Bryers (covering the $1.1 million residual value), and that subsequently, if roll-over of this debt or refinancing was not arranged, Cook could then require Castle to purchase the shares in Harbour Management on terms specifically set out in an "Option Relating to Shares" ("the Option") dated 8 February 2007. The parties to the Option were the first defendant Castle Property Managers Limited ("Castle"), Cook and Mr Bryers. Under the Option, as I have noted, on the one hand, Castle granted Cook an Option to require Castle to purchasethe shares and on the other, Cook granted Castle an option to require Cook to sell the shares on the terms and conditions contained in the Option Agreement. [9] By the Deed of Trust, Mr Bryers confirmed that he held the shares in Harbour Management ("the Shares") on trust for Cook. Mr Bryers agreed he would only exercise his rights and powers as holder of the Shares in accordance with the directions of Cook and that he was not authorised to exercise any of those rights and powers in his own discretion without Cook's authority. [10] The initial financing as acknowledged in the Deed of Trust was to be $1.1 million ("the Borrowings") from Capital + Merchant Finance Limited ("Capital + Merchant"). There was no provision for any amount other than the $1.1 million to be borrowed by Harbour Management. Any extra borrowings would of course erode the equity in the Lodge Assets. [11] Under the Deed of Trust, Harbour Management and Mr Bryers were authorised to refinance the Borrowings provided that the terms had been first approved by Cook and were no less favourable (cl. 4.4). Provided any such refinancing was completed for a term expiring no earlier than 31 December 2008, Mr Bryers was entitled under the Deed of Trust to require Cook to take a transfer of the Shares, accept a resignation by him as Director of Harbour Management and release him from his trusteeship, guarantee and indemnity given under the Deed of Trust (cl. 4.5). [12] Correspondingly, however, the Option was drafted amongst other things, to address the situation if the Facility (the Borrowings from Capital + Merchant) had not been rolled over or refinanced after its initial expiry date. On this, the Option provided that if roll-over or alternative funding by Castle for at least a further 6 month period was not obtained prior to expiry of the initial 6 month loan period and thereafter on each occasion up to 31 December 2008, then this constituted an "Option Event" and Cook could require Castle on notice under the Put Option to buy back the Shares. The purchase price of the Shares was to be $1,935,000.[13] By clause 6.1 of the Option Mr Bryers provided a guarantee to Cook of the performance by Castle of all covenants, conditions, agreements and provisions to be performed by Castle under the Option. Clause 6.3 provided that as between Mr Bryers and Cook, Mr Bryers might for all purposes be treated as primary obligor under the option and Cook would be under no obligation to take proceedings against Castle before issuing proceedings against Mr Bryers. [14] Settlement date under the larger transaction and for the sale of the Lodge Assets was scheduled to take place on 8 February 2007. Harbour Management did manage to arrange the $1.1 million borrowings under a Financing Agreement dated 2 February 2007 from Capital + Merchant. The facility was for 6 months and was due for repayment on 8 August 2007. [15] According to evidence before the Court provided by Roger Alan Coulson ("Mr Coulson") for Cook, without its knowledge or consent, by a formal Deed of Variation of Loan dated 16 February 2007, Harbour Management increased the principal sum under the 2 February 2007 Financing Agreement with Capital + Merchant from $1.1 million to $1.446 million. It seems that neither Harbour Management nor Mr Bryers or Castle (who both guaranteed the new loan as covenantors) advised Cook of the 16 February 2007 variation nor did they seek Cook's consent. Mr Coulson's uncontradicted evidence is that it appears Harbour Management increased the Borrowings from Capital + Merchant, by $75,000 as there was a shortfall "to settle" the 2 February 2007 Financing Agreement and by a further $250,000 to repay a separate and entirely unrelated facility of Mr Bryers. [16] As I have noted above, the 2 February 2007 Financing Agreement expired 8 August 2007. On expiry, no roll-over of the borrowings or refinancing had been arranged. As no refinancing was in place, under para. 4.2 of the Option, Castle was obliged to give written notice of that fact to Cook. That is, as at 8 August 2007 the Option Event under para. 1.1 of the Option had occurred. However, despite its obligation to do so, Castle did not give any written or other notice to Cook of Castle's failure to secure and complete documentation for either a rollover or refinancing of the $1.1 million debt. It seems likely from the comments in Martelli McKegg's letter of 15 October 2007 (Coulson 12 February 2008 affidavit annexure"I") that the reason this notice was not given was to try to avoid the effect of the Option Event. Mr Coulson deposes further that had Cook received notice in August 2007 that Castle had failed to complete all documentation for either a rollover of the facility or funding from an alternative lender, it would have immediately served the Put Option Notice as required by para. 2.2 of the Option. Had that occurred, settlement date for the re-purchase of the Shares would have been "30 days after the date of the Option Notice" (Option para. 1.1) being around 7 September 2007. [17] Subsequently, it seems that legal counsel for the Starline Group of Companies (of which Cook is one) unsuccessfully sought the advice of solicitors acting for Castle and Mr Bryers, Martelli McKegg, in relation to the refinancing as required by the Deed of Trust and Option. [18] On 29 October 2007, an email from Martelli McKegg attached"the variation to the Harbour Management Limited Facility which we have received from the Capital + Merchant Finance Limited today. Mark Bryers is out of the country at the moment; however we will arrange for him to execute the variation upon his return."The draft Deed of Variation attached referred to the principal sum under the Borrowings having been varied on 16 February 2007 and then again an increase was now proposed to the sum of $1,995,000 (first Coulson affidavit para. 19, annexure "O"). [19] This would seem to further substantiate that the Harbour Management Borrowings had not been rolled over or documentation put in place for refinancing by the earlier 8 August 2007 refinance date. [20] Subsequently, in an exchange of correspondence between Martelli McKegg and Hornabrook Macdonald (solicitors to Cook) this refinance position was queried. This resulted in an assertion by Martelli McKegg that:"the Capital + Merchant Finance Limited facility for Harbour Management Limited was varied so that the Facility expires on 29 February"(first, Coulson affidavit, paras 20,21, annexures "P, Q").[21] When a request was then made for evidence of the asserted rollover or alternative funding, Martelli McKegg forwarded a copy of a Deed of Variation of Loan Contract dated 30 November 2007 between Capital + Merchant and Harbour Management (first Coulson annexure "S"). It is apparent that this 30 November 2007 Deed of Variation occurred well after the 8 August 2007 original refinance date. It also increased the principal sum to $1,588,455 it is said without Cook's consent or authority (first Coulson, para 23, annexure "S"). [22] Then, by letter dated 21 December 2007 Cook served a Put Option Notice on Castle (first Coulson affidavit, annexure "U"). The settlement date under this Put Option Notice was to be 20 January 2008. The Default Rate of interest pursuant to the Option as at 21 January 2008 was said to be 12.70% per annum (first Coulson affidavit, paras 29, 30.2). This met with no effective response. [23] Subsequently, on 3 March 2008 Cook served a further Put Option Notice on Castle without prejudice to the previous 21 December 2007 Notice. This followed expiry of what was alleged to be the extension to the Capital + Merchant facility to 29 February 2008 (first Doo affidavit, annexure "A"). Castle and Mr Bryers were informed that the settlement date for the 3 March 2008 Put Option Notice was 2 April 2008. An undertaking was given that written confirmation was held signed by the directors of Cook in compliance with clause 2.3.1 of the Option and that Cook was ready, willing and able to settle as set out therein (first Doo affidavit, annexure "B"). [24] Settlement however was refused. By facsimile dated 2 April 2008, Martelli McKegg advised that whilst they had no instructions in the matter, they maintained that their client did not accept the validity of the exercise of Castle's option and did not accept there was any obligation to settle that day (first Doo affidavit, annexure "C"). Cook disputes this however. [25] The Default Rate of interest as at 2 April 2008 was said to be 12.90% (second Coulson affidavit para. 7.3).Counsel's Arguments and My Submissions[26] In seeking summary judgment the plaintiff relies upon r 136(1) High Court Rules which states:"The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim."[27] The principles for summary judgment applications 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 to satisfy the Court that the defendant has no defence to the claim. 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:Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 andMacLean 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). [28] Thus while it is for the plaintiff to show that its case is unanswerable and that the defendant has no arguable defence, the Court ought to assess any defence or a narrative presented by the defendant in a "robust and realistic" manner – Bilbie Dymock Corporation v Patel (1987) 1 PRNZ 84 (CA) at 85. The Court may take a robust and realistic approach where the facts warrant it. [29] In the present case the essential position advanced for Cook is that neither Castle nor Bryers have any arguable defence to its claim here that "an Option Event" occurred under the Option either on 8 August 2007 or alternatively on 19 October 2007 or on 28 February 2008 at the latest and this triggered Cook's abilityto provide a Put Option Notice requiring Castle to "re-purchase" the Shares in Harbour Management at the agreed price of $1,935,000. This was because in terms of the Option at these specified dates there was no roll-over or refinancing of the Borrowing in place. Specifically "Castle had not been able to complete all documentation for either a roll-over of that Facility (the $1.1 million Capital + Merchant loan) or funding from an alternative lender ".[30] In my view these contentions are not effectively disputed here by either Harbour Management or by Mr Bryers. Nor is the contention by Cook that neither Castle nor Mr Bryers, at least until 19 October 2007, gave any notice of their inability to effect this roll-over or refinancing. [31] In my view all these circumstances are sufficient to activate the right Cook holds to serve on Castle and Mr Bryers the Put Option provided for in para. 2.1 of the Option. And, once this occurred, the settlement date under the Option was to be 30 days after the date of the Option Notice (para. 1.1 of the Option). [32] It is undisputed that Put Option Notices were provided by Cook on 21 December 2007 (with settlement required 20 January 2008) and on 3 March 2008 (requiring settlement on 2 April 2008). [33] I leave on one side issues concerning what are claimed by Cook to be unauthorised increases in the borrowings from Capital + Merchant undertaken by Harbour Management at the behest of Mr Bryers and Castle. These increases appear to be entirely unauthorised by Cook and first, increase those borrowings to $1,446,000 on 16 February 2007 and secondly increase borrowings to $1,588,455 in November 2007. On its face these would appear to constitute a clear breach of arrangements between the parties. They certainly detrimentally affect the equity in Harbour Management. [34] Leaving this matter to one side, however, it is clear to me that both Castle and Mr Bryers are in breach of their other obligations to Cook under the Option.[35] I reiterate that this is because, as I see it, Castle is in breach of the Deed of Trust and the Option in that at the latest by 29 February 2008: (a) Castle had not completed all (or any) documentation for either a roll- over of the Borrowings or funding from an alternative lender; and (b) Castle had failed/refused to give written notice to Cook of Castle's failure to complete all documentation for either a roll-over of the borrowings or funding from an alternative lender (in breach of Castle's Notice Obligations). (c) And Castle failed on 2 April to settle the re-purchase of the Harbour Management shares pursuant to the Put Option Notice properly issued by Cook on 29 February 2008. [36] On these aspects, I note that in its Amended Statement of Claim Cook seeks judgment and orders for: (a) Castle to specifically perform its obligations pursuant to the Put Option Notice in that it pay to Cook $1,935,000 to acquire the shares in accordance with the Notice; and (b) Judgment against Mr Bryers for the sum of $1,935,000 as guarantor; and (c) Interest against both defendants at the rate of 12.9% per annum from 2 March 2008. [37] I remind myself that the application before me is one for summary judgment under which the Court must be satisfied that the defendants have no defence to the plaintiff's claim. [38] That said, the essential complaint from Cook in this proceeding is that Castle has failed to complete settlement under the Put Option Notice served upon it andsimilarly Mr Bryers has failed to honour his guarantee for the sum due in terms of this Notice. [39] The only evidence presently before the Court on this summary judgment application, however, relating to a default on the part of Castle and Mr Bryers to complete settlement when Cook was ready for and attempted settlement under the Put Option Notice, relates to their failure to complete settlement on 2 April 2008. Mr Caulson's evidence for Cook confirms that Cook was in a position to complete settlement on that date. It might be said that the evidence does not, however, unequivocally confirm that all arrangements were in place to complete settlement with Castle and Mr Bryers on 20 January 2008 pursuant to the earlier 21 December 2007 Put Option Notice. [40] Further, although there is some substance in the argument advanced for Cook that it was only because of the default of Castle and Mr Bryers to advise that refinancing was not possible at the earlier date on 8 August 2007 that no Put Option Notice was provided, then, it is clear that no Notice was provided or settlement offered at that time. Whilst there must be some sympathy for the position in which Cook found itself in August 2007 clearly Cook was in a position where it could have enquired of the refinancing arrangements. And, given that no formal Put Option Notice was provided by Cook in August 2007 and that the application before me is one for summary judgment for what is effectively a settlement default, in my view it cannot be said unequivocally that no arguable defence exists to a claim relating to default in August 2007. [41] I turn now to consider those defences advanced by Castle and Mr Bryers in their Notice of Opposition to the present application. [42] The first relates to a bare claim that certain material in Mr Caulson's 12 February 2008 affidavit is inadmissible. No submissions were made on this aspect. I do not understand this contention and must reject it. In any event in my view there is sufficient evidence before the Court based on the signed documentation for the present summary judgment application to succeed.[43] Secondly, Castle and Mr Bryers contend that responsibility for repayment of the gross amount of the Capital + Merchant borrowings as at 8 February 2007 rests with Cook and not with Harbour Management. Whilst that may well be the case and on this I note that para. 6.1 of the Deed of Trust states specifically that Cook is to provide sufficient funds to meet the Capital + Merchant borrowings and interest and to repay them as and when they fall due, these are clearly matters either in the nature of a possible counter-claim or alternatively a separate action by Harbour Management which might lie against Cook. [44] It is clear that where a claim amounts to a set-off this will provide a defence to a summary judgment application – see McGechan on Procedure para. HR 141.09 and HR 142.02. In cases, however, where a defendant has a counter-claim which cannot be classified as a set-off then r. 142(2) provides that the Court may give judgment for the amount that appears just on any terms it thinks fit or may dismiss the application and give directions for the future conduct of the proceedings. In addition, as McGechan on Procedure at para. HR 141.10 notes:"141.10 CounterclaimIn Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183, Casey J commented that a counterclaim is not a defence and that it was always open to the defendant in that case to bring a counterclaim notwithstanding the application for summary judgment and that he might have had no defence to the claim."[45] In the present case the undertaking from Cook to repay the Capital + Merchant borrowings is ultimately an obligation to Harbour Management. It is that company which can bring proceedings to enforce the obligation. In my view it does not affect the granting of summary judgment here – Pemberton v Chappell. [46] In their next point of opposition to the present application,Castle and Mr Bryers contend that what they say was an extension of time for repayment of the Borrowings from 8 August 2007 to 29 February 2008 and the fact that the Facility has been neither extended nor repaid since 29 February 2008 does not give rise toany liability to Cook. With respect I reject this contention. The Option clearly provided for the right on the part of Cook to give notice of a Put Option if the events which have occurred here arose and certainly on and after the events of 29 February 2008. Notice of that Put Option has been given and settlement under the Option refused. [47] Next, Castle and Mr Bryers endeavour to argue that the Deed of Trust and the Option are not valid and effective documents which bind the parties as they were not properly signed for and on behalf of Cook and Mr Peters. Again this contention is quickly rejected. The documents were signed for Cook and Mr Peters by Mr Coulson as attorney for each party. He has provided a Certificate of Non-Revocation of the Power of Attorney in each case. [48] There is no doubt pursuant to ss. 180 and 181 Companies Act 1993 that company documents can be signed by an attorney and that is what has occurred for Cook here. In addition, nothing has been placed before the Court to suggest in any way that these documents have not been properly signed by Mr Coulson as attorney for either Cook or for Mr Peters. [49] Finally, the Notice of Opposition blandly contends that the plaintiff was not entitled to exercise the Put Option on 21 December 2007 nor at any time on or after 29 February 2008 and therefore Castle and Mr Bryers were under no obligations to complete settlement thereafter. [50] For all the reasons I have outlined above I also reject this ground of opposition to the present application. I have concluded here that, if not before, the exercise of the Put Option by Notice given by Cook on 3 March 2008 was valid and Castle and Mr Bryers have defaulted in completing settlement on 2 April 2008. There is also no substance in this defence.Conclusion[51] It will be clear from the above that Cook has done sufficient here to show that the defendants have no arguable defence to the claim for payment to Cook of thesum of $1,935,000 following the default in settlement by Castle (and under his Guarantee) by Mr Bryers on 2 April 2008. [52] In addition, interest accrues from that default date at 12.9% per annum. Evidence before the Court confirms that default interest rate represents Westpac bank's base lending rate on 2 April 2008 at 8.9% per annum plus 4% above the bank's base lending rate – para. 1.1 of the Option and para. 7.3 of Mr Coulson's second affidavit dated 14 April 2008. [53] Summary judgment is now granted to Cook against both Castle and Mr Bryers in terms of the amended statement of claim as follows: (a) An order is made that Castle is to specifically perform its obligations pursuant to the Put Option Notice in that it shall pay to Cook $1,935,000 to acquire the shares in accordance with that Notice. The settlement date for this obligation is to be 10 working days after the date of this judgment. (b) An order is made that Mr Bryers is to forthwith pay to Cook the sum of $1,935,000 in the event that Castle fails to specifically perform its obligations pursuant to the Put Option Notice referred to in the preceding clause (a) within the said 10 working days of the date of this judgment. (c) A further order is made that Castle and Mr Bryers are to pay to Cook interest on the $1,935,000 at the default rate of 12.9% per annum from 2 April 2008 down to the date of final payment.Costs[54] As to costs, the plaintiff has succeeded in this summary judgment application and is entitled to an order of costs in the usual way. Costs are now awarded to the plaintiff against the first defendant Cook and against the second defendant Mr Bryers on a Category 2B basis together with disbursements as fixed by the Registrar.'Associate Judge D.I. Gendall'