MALL SUPPLIES & SERVICES LIMITED V ALFONSO LIGUORI HC AK CIV-2007-404-005204

MALL SUPPLIES & SERVICES LIMITED V ALFONSO LIGUORI HC AK CIV-2007-404-005204 12 October 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-005204BETWEEN MALL SUPPLIES & SERVICES LIMITED Plaintiff AND ALFONSO LIGUORI Defendant Hearing: 12 October 2009 Appearances: C T Patterson and Z Hill for Plaintiff Defendant in Person Judgment: 12 October 2009ORAL JUDGMENT OF VENNING JSolicitors: Lovegroves Lawyers, Auckland Copy to: C T Patterson, Auckland A Liguori, AucklandIntroduction[1] In these proceedings the plaintiff seeks judgment against the defendant based on an admission and agreement concluded in May and August 2001. The defendant opposes the entry of judgment and says that that admission and agreement no longer record the agreement between the parties. He says that a later agreement was made in December 2002 as a result of which he has no personal liability to the plaintiff.Background[2] As a result of a business transaction in 1996 the defendant became the guarantor of the debt of $700,000 owed to the plaintiff. The $700,000 was due for repayment in August 1998. The principal, Circuit Graphix Limited failed to pay. The plaintiff brought proceedings in this Court against the defendant. During the course of the proceedings the parties went to mediation. As the defendant colourfully said in evidence today the business he bought "was a dud". As a result of the mediation the plaintiff agreed to accept less than it was strictly entitled to under the previous agreement. [3] On 17 May 2001 the defendant signed an admission of claim whereby he admitted the claims raised by the plaintiff and agreed to the following: i) To pay $350,000 to the plaintiff on or before 30 June 2001. ii) To pay $49,500 to the plaintiff by 30 June 2001. iii) To pay Mr Wackrow, a director of the plaintiff, $10,000 by 17 May 2001. iv) To pay Mr Wackrow $10,000 by 30 July 2001.v) To be liable to pay a penalty of $20,000 on 30 July 2001 in the event any of the above payments were not made on the due date. [4] On 31 August 2001 an agreement was signed between the plaintiff and the defendant recording inter alia: a) the plaintiff agreed to discontinue the proceedings; b) the defendant acknowledged his liability to the plaintiff and Mr Wackrow; c) the defendant agreed to pay any costs associated with the proceedings brought to enforce the payment of moneys due pursuant to the admission of agreement; d) there was an acknowledgement of payments of $10,000 to Mr Wackrow on 17 May 2001 and $10,000 on 29 August 2001 on account of the extra time and expense in pursuing the money owed. e) The defendant also agreed to pay interest to the plaintiff at $4,500 a month commencing 30 June 2001, ending 28 February 2002. f) The defendant agreed to pay the outstanding balance pursuant to the admission and the agreement by 28 February 2002. g) In the event the defendant failed to make the interest payments on the due dates the plaintiff reserved the right to accelerate payment of the balance of moneys. [5] Once again the defendant fell into default under the agreement of 31 August 2001. By December 2001 the defendant had missed all of the monthly interest payments due under the agreement. At the defendant's request the plaintiff gave him further time and did not enforce the condition allowing the plaintiff to accelerate earlier repayment. However, when things had not improved by December 2002 theplaintiff's director Mr Wackrow met with the defendant. The meeting took place at a McDonalds. At that meeting an arrangement was agreed to pursuant to which the defendant would pay $2,000 per month. It was to be structured so that the payment was to be made by Circuit. An invoice was to be raised by a company or entity associated with Mr Wackrow for the sum of $2,000 plus GST per month. The $2,000 a month was to be paid from early 2003. There was disagreement between the parties as to the precise terms of that agreement. It is that disagreement that this case turns upon.The issue[6] The issue for the Court in this case is what was agreed in December 2002. It is the plaintiff's case that in exchange for the payments of $2,000 per month the plaintiff agreed to give the defendant further time to sell the business and repay the capital sums owing under the agreement in that way. It is the defendant's case that as a result of the meeting in December 2002 the plaintiff agreed to release the defendant from his personal guarantee.The evidence[7] Mr Wackrow's evidence about the matter is that at the meeting in December 2002 the defendant was wanting more time to pay the money owing. Mr Wackrow's recollection is that the defendant told him that he hoped the business would improve but if it didn't he would look at selling the business and repay the plaintiff from the proceeds. Mr Wackrow was comfortable with this as he mistakenly believed he had security over the business (an unregistered debenture). I note that as matters turned out the debenture was not re-registered under the relevant legislation and was not an effective security. Mr Wackrow said that the defendant told him the most he could afford to pay was $2,000 a month starting in January 2003 and the only way he could pay those sums would be if they were structured so as to be made by Circuit and be tax deductible by that company. Mr Wackrow believes that that was because the defendant had removed the debt to the plaintiff from Circuit's books of account. It was agreed that the payments would be directed to Plasma Systems Limited, acompany associated with the plaintiff. The payments were to be $2,000 plus GST a month. [8] Mr Wackrow says there was no set period agreed as to how long the arrangement would continue other than he was conscious of the statutory limitation period and did not wish to be barred from proceeding against the defendant. The defendant had indicated to him that if the business did not pick up in the next few years he would sell the business anyway and the outstanding moneys would be paid from the sale of the business but that was as concrete as the agreement got in relation to a time period. [9] The defendant's position about it is set out in Mr Liguori's affidavit and the evidence he gave to the Court today. Mr Liguori says in his affidavit that he told Mr Wackrow the only way he would agree to paying $2,000 a month would be on terms that the agreement to pay the $2,000 a month would supercede the admission and earlier agreement and his personal guarantee. The payments would be in reduction of the liability that was owing by Circuit, there would be no interest component charged, and the plaintiff would indemnify Circuit, Mr Liguori, against any claim by his wife or any other party under the debenture. Mr Liguori also said the parties agreed that:e. In the event that Circuit from time to time was not able to make any payments because of financial circumstances, this would not constitute a breach as long as the missed payments were accounted for ultimately[10] Mr Liguori said that Mr Wackrow agreed to those terms as they were non- negotiable so the plaintiff and Mr Wackrow had no alternative but to accept those terms. [11] In the event 32 payments in total were made of the $2,000 plus GST a month, although payments ceased in March 2005 and did not commence again until November 2006. [12] Mr Liguori gave evidence in his affidavit that in March 2005 he telephoned Mr Wackrow and explained that Circuit was not turning over sufficient to even meetthe company expenses and that in the interim Circuit could not continue to make payments but would resume the payments as soon as it was able. Circuit sold its business in October 2005 but did not receive sufficient by way of capital or cash to pay its debt to the plaintiff. [13] The plaintiff was not prepared to put up with the matter any further and in August 2007 issued proceedings against the defendant. Those proceedings were met by the defence that the defendant had been released from his guarantee.Decision[14] As Mr Patterson submitted the case essentially turns on the credibility of Mr Wackrow and Mr Liguori. The issue for the Court is just what was agreed in December 2002. In relation to that issue I have had the benefit of seeing both Mr Wackrow and Mr Liguori give evidence and I have also been able to consider the documentation before the Court and the practical position that existed as at December 2002. [15] The arrangement reached in December 2002 for the defendant or Circuit to pay $2,000 a month to a company associated with the plaintiff was an unusual arrangement. Mr Wackrow explained that in his evidence by saying that he was more concerned with obtaining payments from Mr Liguori than in the mechanics of how that was achieved. He was not particularly concerned about the details of invoicing Circuit through Plasma. All that he was concerned with was an assurance that the business would be sold and that, in the interim, some compensation would be paid for the money which the plaintiff was out of pocket. [16] It is the plaintiff's position that the payments of $2,000 were effectively interest payments. The payments of $2,000 a month or $24,000 a year were less than interest calculated at 7.5 percent on the principal sum that was payable under the Judicature Act rate, quite apart from any bank rate. [17] As at December 2002 the plaintiff had an enforceable agreement against Mr Liguori personally for $415,000 together with $36,000 in respect of the contractualinterest at $4,500 up until a month until February 2002. Mr Liguori's case is that the plaintiff agreed to forego the right to seek to enforce payment of those sums from him personally in exchange for the receipt of $2,000 a month with no end date for ultimate payment and the matter was just left on the basis that when Circuit's business was ultimately sold the plaintiff would be repaid. This, despite the fact that the defendant had essentially effectively breached each previous agreement the parties had entered in relation to the payment of the original debt. [18] The defendant's case is simply not commercially realistic. It is based on the defendant essentially putting a non-negotiable position to the plaintiff which the plaintiff accepted and as part of that acceptance released the defendant from his personal guarantee. But as at December 2002 all of the cards were in the plaintiff's hands. The plaintiff had an immediately enforceable admission and agreement. It could have moved against Mr Liguori personally and taken whatever steps it wanted to obtain judgment against him at that time. [19] It was Mr Liguori who had something to gain from the payments of $2,000 a month. That was time. The payments enabled him to try and sell the business of Circuit and in doing so reduce, if not clear entirely, the debt that Circuit and he personally owed the plaintiff. [20] It made commercial sense for the plaintiff to accept the $2,000 by way of compensation for allowing further time, even though it was at a modest interest rate in exchange for further time being provided. It makes no sense for the plaintiff to have foregone the right to pursue the defendant. [21] When the defendant was still not, despite that further time, able to clear the debt the plaintiff moved to execute the admission and agreement. [22] The defendant said in evidence this morning that the reason he stopped paying the $2,000 under the agreement was that the Inland Revenue intervened and stopped further payments because they were carrying out an investigation. But that is contrary to his own evidence in his earlier affidavit sworn in these proceedings when he said he told Mr Wackrow that Circuit was not turning over sufficient tomeet the payments at that time and that payments would be resumed as soon as they were able to. [23] The defendant's attempt to rationalise the arrangement on the basis that in some way Mr Wackrow did not want to share the payments with other people or that he wanted the money, the $2,000 and was so desperate for the money that he was prepared to forego the personal claim against Mr Liguori simply is not credible. Mr Liguori was not convincing when giving his evidence. His evidence is illogical and does not fit with the commercial common sense of the position. [24] It follows that I prefer the evidence of Mr Wackrow to that of Mr Liguori on this matter. I find that the agreement made in December 2002, whatever the mechanics of it were to be, was to the effect that in exchange for the payment of $2,000 a month the plaintiff would not immediately execute its rights or take steps to execute its rights against the defendant personally. The plaintiff agreed to give the defendant further time to make payment contemplating that the defendant would sell Circuit's business. When, however, the business was sold and the plaintiff was not repaid and, what is more, the defendant failed to maintain the payments of $2,000 per month, there was no reason why the plaintiff should not pursue its existing rights under the admission and agreement.Result[25] It follows that I find the plaintiff's claim proved. The plaintiff is entitled to the judgment it seeks. The plaintiff is to have judgment against the defendant in the following sums: a) the principal sum of $419,500; b) a further sum of $36,000 to represent interest at the rate of $4,500 per month from 30 June 2001 to 28 February 2002;c) interest on the sum of $455,500 at the Judicature rate of 7½ percent from 28 February 2002 until 1 July 2008; and 8.4 percent thereafter to judgment; d) the defendant is to pay the plaintiff costs and disbursements on a reasonable solicitor/client basis in the sum of $16,452.83 (being the sum of $19,562.83 less the payment of $3,110 already paid by the defendant). __________________________ Venning J