MARTELLI MCKADAM NOMINEES LIMITED V BRB LIMITED AND ANOR HC AK CIV 2008-404-2140

MARTELLI MCKADAM NOMINEES LIMITED V BRB LIMITED AND ANOR HC AK CIV 2008-404-2140 26 November 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-2140BETWEEN MARTELLI MCKADAM NOMINEES LIMITED Plaintiff AND BRB LIMITED First Defendant AND ROBERT JAMES BANGERTER Second Defendant Hearing: 21 November 2008 Appearances: A.W. Johnson - Plaintiff P.M. Phillips - Second Defendant Judgment: 26 November 2008 at 4.00 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by The Registrar on 26 November 2008 at 4.00 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Martelli McKegg, PO Box 5745, Wellesley Street, Auckland Phillips Law, PO Box 35015, AucklandIntroduction[1] This is an application by the plaintiff for summary judgment against the second defendant in this proceeding. The application is opposed by the second defendant. [2] On 25 July 2008 summary judgment was granted to the plaintiff against the first defendant in this proceeding for the sum of $1,837,641.01 plus interest of $163,794.22 and ongoing interest at $712.69 per day from the date of the judgment until the date of payment. [3] The summary judgment application before me concerns a claim against the second defendant as covenantor and guarantor in respect of Term Loan Contracts and a Mortgage to secure an initial loan of $1.8 million made to the first defendant. These loan documents were entered into by the plaintiff as lender and mortgagee, the first defendant as principal borrower and mortgagor, and the second defendant as covenantor/guarantor.Background Facts[4] The plaintiff is a solicitors' nominee company. The first defendant is a company borrower which I understand is now in liquidation. The plaintiff alleges that the second defendant personally guaranteed the first defendant's debt and borrowing with the plaintiff. [5] The initial defence to this application advanced by the second defendant is simply that he denies knowledge of the loan, the Term Loan Contract and the Mortgage and in turn his guarantee of the first defendant's debt. He does however add a further defence by way of a claim for negligence or breach of fiduciary duty on the part of the plaintiff but I will say more on this later. [6] The genesis of the loan arrangements in question appears to be a letter dated 13 September 2004 from Executive Mortgages Limited to the plaintiff's solicitors seeking a loan and enclosing an application from the first defendant. The loanrequested was $2,121,900.00 which was said to represent 67% of a valuation provided for the security property offered. This was the ground floor and basement at 85 Beach Road, Auckland ("85 Beach Road") owned by the first defendant. Para. 10 of the 13 September 2004 letter stated:"Robert James Bangerter will be the guarantor. The purchasing company BRB Limited is effectively owned by Bob, Lowthers Nominees Limited hold these shares in Trust."A detailed Credit Check Report on the second defendant from Baycorp Advantage (NZ) Ltd was attached to the loan application and letter. [7] The loan application was considered and then, on 1 October 2004, Martelli McKegg Wells & Cormack ("Martelli McKegg") on behalf of the plaintiff approved a loan and made an offer to the first defendant of a $1.8 million advance for a 2 year period from 1 November 2004. This was against the security of a first mortgage over 85 Beach Road and was to include a personal covenant/guarantee of the obligations of the first defendant from the second defendant. That 1 October 2004 loan offer was accepted by both the first defendant and the second defendant (subject to a minor condition later clarified). The acceptance of the loan offer and the requirement for a guarantee from the second defendant were personally signed and acknowledged by the second defendant himself, I understand on or about 6 October 2004. [8] Final loan documents followed. On or about 4 November 2004 the Term Loan Contract and Mortgage documents were signed on behalf of the first defendant as borrower and the second defendant as covenantor/guarantor. In so far as the second defendant is concerned, the documents were signed by his attorney, Mr John Muru Walters ("Mr Walters") under a power of attorney given by the second defendant on 20 June 2003. A certificate of non-revocation of that power of attorney completed by Mr Walters was attached. [9] Following execution of the Term Loan Contract and Mortgage, the principal sum under the loan of $1,800,000.00 was drawn down by the first defendant. Theloan continued for the next 2 years and then on 1 November 2006 the principal sum was due to be repaid. This did not occur however. Instead the first defendant sought a renewal of the loan on similar terms. [10] On 27 November 2006 Martelli McKegg made an offer both to the first defendant as borrower and the second defendant as covenantor to renew the loan for a further term of 2 years from 1 November 2006. This formal offer to renew the loan was accepted by the first defendant and by the second defendant as covenantor. Indeed, the second defendant signed his acceptance personally and his signature was witnessed by "Nick Kearney, Solicitor, Auckland". [11] Subsequently a formal "Variation of Term Loan Contract" document was prepared by Martelli McKegg. This stated that the principal sum under the loan was reduced to $1,733,000.00 and this was to be repaid on 1 November 2008. In all other respects the terms of the original Term Loan Contract and Mortgage were confirmed. This Variation document was signed on behalf of the first defendant company and again it was signed personally by the second defendant as covenantor. His signature on the Variation document was witnessed by "Marcia Thomas, Executive Assistant, Auckland". [12] The reduced loan continued and then around May 2007 the interest rate was increased from its original rate in terms of an interest review clause in the Term Loan Contract. [13] Matters ran on satisfactorily it seems until 1 February 2008 and thereafter, when it appears to be undisputed, that, in breach of the Term Loan Contract, the first defendant failed to pay interest. [14] As a result, on 18 February 2008 the plaintiff served a Property Law Act Notice on the first defendant and this notice expired unremedied on 19 March 2008. And, around 6 March 2008, the plaintiff served a notice on the second defendant as guarantor pursuant to s. 122 Property Law Act 2007. This notice also met with no response.[15] Then, on 18 April 2008 the present summary judgment proceedings were issued by the plaintiff against both the first defendant and the second defendant. The second defendant filed his notice of opposition dated 18 July 2008. The first defendant did nothing. [16] As I have noted above, on 25 July 2008 this Court entered summary judgment against the first defendant. [17] In the meantime, the plaintiff completed a mortgagee sale of 85 Beach Road at an effective price of about $2,210,000.00. This was sufficient to repay the principal sum owing under the mortgage together with a small portion of the outstanding interest and some costs. Accordingly, to the plaintiff there remained a short fall of $154,712.68 which is the amount now sought by way of summary judgment against the second defendant. A further amount for costs incurred by the plaintiff since 16 September 2008 totalling $3,712.50 (including GST) is also sought.Counsel's Arguments and My Decision[18] In seeking summary judgment here, 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."[19] The principles for a summary judgment application 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). On a summary judgment application, 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). [20] 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. [21] But as McGechan on Procedure notes at para. HR136.08:"The Court does not have to be convinced of the truth of the statements made by the defendant; so long as there are unequivocal statements which amount to an arguable defence, that will generally be sufficient to justify a refusal of the summary judgment application: Local Courier Service Ltd v Kesha (1995) 8 PRNZ 690".Liability[22] The plaintiff's claim here is that the second defendant is liable as covenantor and guarantor for any liability owed by the first defendant under the loan. The plaintiff maintains that liability is confirmed in the following documents: a) The initial loan offer from the plaintiff to the first defendant and second defendant as covenantor, an offer accepted by fax on 6 October 2004.b) The Term Loan Contract and Mortgage dated 4 November 2004 executed by the first defendant and by Mr Walters on behalf of the second defendant as his duly appointed attorney. c) Accepted offer from the plaintiff to renew the Term Loan Contract and Mortgage to the first defendant and the second defendant dated 27 November 2006. The acceptance of this offer was signed by the second defendant personally. d) Variation of the Term Loan Contract between the plaintiff, the first defendant and the second defendant whereby the second defendant confirmed the terms of the earlier Term Loan Agreement other than the principal sum reduction. Again this was signed personally by the second defendant. [23] So far as the second defendant's defence to this claim is concerned, from his notice of opposition, essentially this defence is: a) He is not liable to the plaintiff as covenantor or guarantor as he "had no knowledge of the Term Loan Agreement and the Guarantee allegedly given by him on 4 November 2004 until the early part of 2007."b) He has never at any stage signed any guarantee in respect of the amount claimed by the plaintiff nor has he authorised any other party to do so under any purported power of attorney. c) And in any event he maintains that "he has a claim for damages for negligence and breach of fiduciary duties against Walters Law, Barristers & Solicitors, Auckland and Martelli McKegg, Auckland in respect of the same matter arising in these proceedings."[24] In my view, these defences are wholly without substance and are quickly disposed of. I reach this conclusion for the following reasons:a) The initial request for funding of this loan from the plaintiff came from Executive Mortgages Limited in its 13 September 2004 letter noted at para. [6] above. This mortgage broker both confirmed that the second defendant was going to be the guarantor and provided detailed credit check information in relation to the second defendant with the application. b) At para. 2 of his affidavit dated 17 July 2008 the second defendant deposes "I am not a shareholder in the first defendant company, BRB Limited ("BRB") nor am I director and I have never had any personal interest in this company." (emphasis added). And at para. 3 he states specifically that:"I have never at any time been asked if I would guarantee any loan facility from the plaintiff to BRB and I certainly have not authorised any attorney to execute a guarantee on my behalf for such a purpose."The initial statement above appears to directly contradict the statement at para. 10 of the Executive Mortgages Limited letter to Martelli McKegg (noted at para. [6] above) that:"Robert James Bangerter will be the guarantor. The purchasing company BRB Limited is effectively owned by Bob, Lowthers Nominees Limited hold these shares in Trust." (emphasis added). c) And although this is not in any way conclusive, the second defendant's attempts to distance himself from 85 Beach Road and the first defendant's ownership and borrowings for that property might be seen as somewhat questionable given the fact that from 23 September 2003 he held a directorship in a company named "85 Beach Road Management Services Limited" and from 1 July 2003 similarly he was a director in another company named "85 Beach Road Limited".– see Baycorp Advantage Credit Check (Page 4) attached to Executive Mortgages Limited letter of 13 September 2004. d) More importantly however, and related to the second defendant's claim that he had never been asked to guarantee the plaintiff's loan, the initial loan offer from the plaintiff referred specifically to the second defendant as covenantor. And, an acceptance of this loan offer was signed by the second defendant personally – see para. [7] above. This begs the obvious question of why as an experienced business person at the time the second defendant would have signed this detailed loan offer to an (he says unrelated) company if he was unaware that this was in the capacity of a covenantor/guarantor? e) Then, on 4 November 2004 Martelli McKegg forwarded various documentation for the loan which was to be signed before draw down. This was sent to the lawyers nominated to act for both the first defendant and personally for the second defendant, Walters Law. As I have noted, those documents included a mortgage to be executed by the second defendant as covenantor, Term Loan Contract to be executed as guarantor, letter of waiver of independent advice and a solicitor's certificate. f) The loan documents were signed and Walters Law returned them. With regard to those documents: (i) The solicitors certificate from Mr Walters confirmed the second defendant as covenantor had been advised to seek independent legal advice but had elected not to do so. (ii) Using the power of attorney given earlier by the second defendant, Mr Walters waived the need for independent legal advice on behalf of the second defendant.(iii) The Term Loan Contract was executed on behalf of the second defendant by Mr Walters as attorney. (iv) The Mortgage was executed by Mr Walters as attorney again on behalf of the second defendant. g) Mr Walters in an affidavit he has filed in these proceedings sworn 7 August 2008 states unequivocally at para. 8:"I have been unable to locate the original 2004 loan file, but I confirm to the Court in respect to that loan that I executed the mortgage on behalf of Bob (the second defendant) as covenantor (utilising the Power of Attorney) after Bob specifically authorised me to do so. At the same time, I also executed on behalf of Bob, the Term Loan Contract attached to Ms Clark's affidavit ".(emphasis added) And at para. 9 he deposes:"I confirm to the Court that my then firm, Walters Law, acted for both BRB Limited and Bob in respect to the loan. It was for that reason that Martelli McKegg ... required the execution of the waiver of independent legal advice for Bob. Being aware of that requirement, as set out in para. 3 of the waiver, I explained to Bob the effect of the loan documents he was executing as guarantor."(emphasis added) h) At para. 6 of this 7 August 2008 affidavit Mr Walters explains that the second defendant gave him the power of attorney for his personal convenience to sign documents on his behalf when he was not available to do so. At para. 10 of this affidavit Mr Walters acknowledges that earlier he was aware the second defendant as guarantor had signed the acceptance of the loan offer.i) With regard to the extension of the loan in November 2006, the second defendant acknowledges he personally signed both the acceptance of the offer of renewal and subsequently the Variation of the Term Loan Contract – see paras. [10] and [11] above. Those documents extended the loan for 2 years and varied the principal sum under the initial Term Loan Contract but otherwise confirmed all the terms of that loan. j) Mr Walters also annexes (as exhibit "B") to his affidavit a document dated 28 November 2006 whereby the second defendant personally acknowledges having been advised to obtain independent legal advice before signing the renewal documents for the earlier loan but that he had elected not to do so. In addition, the second defendant confirms these Variation documents were explained to him and that he understands the terms and provisions of the documents and the guarantee he is giving. This 28 November 2006 acknowledgement is signed by the second defendant personally. His signature again is witnessed by "Nick Kearney, Solicitor, Auckland."k) Taking all the matters I have noted above into consideration, in my view it is simply not credible for the second defendant to contend that he did not know that he had guaranteed the initial Term Loan Agreement or Mortgage and that he was not aware this loan had been renewed. Although some documents for these loan arrangements are signed by the first defendant's attorney, Mr Walters, many other documents and acknowledgements are signed by the first defendant personally. In addition Mr Walters as the second defendant's solicitor deposes that those documents he has signed on behalf of the second defendant were properly signed and only after specific authorisation to do so was provided by the second defendant. l) In my view, bare assertions from the second defendant that he "had no knowledge" of the Term Loan Agreement and Guarantee until the early part of 2007 and that he has never at any stage signed anyguarantee, in the face of the clear uncontradicted documentation before the Court, do not provide an arguable defence here. In the words of Doogue J. in Chappell v Pemberton, High Court Auckland, 24 July 1986 CP 633/86 the second defendant's attempted explanation of the course of events which occurred here is simply so incredible as to indicate a complete lack of bona fides in respect of those particular claimed defences. m) The second defendant's notice of opposition does go on to refer to claims he says he has for negligence and breaches of fiduciary duties on the part of Walters Law and/or Martelli McKegg here. With regard to these claims, at the outset it needs to be noted that the plaintiff is Martelli McKadam Nominees Limited a solicitors' nominee company. This is a different entity from Martelli McKegg. n) Notwithstanding this, as I understand the position, no actual claim for negligence or breach of fiduciary duty has been brought by the second defendant. This is despite the fact that 4 months has passed since the filing of his Notice of Opposition. o) Further, Walters Law are not a party to this proceeding and any action the second defendant may have against that firm would seem to have little relevance to the present application before the Court. p) With regard to the second defendant's allegations against Martelli McKegg these would appear in his 17 July 2008 affidavit to encompass statements he has made in four specific paragraphs:Para. 9 – This indicates that Martelli McKegg acted for the second defendant both before and after November 2004 when the Loan Contract was entered into.Para. 10 – This seems to indicate the second defendant had confidence in the people he was dealing with and particularly Mr Bygrave, a partner at Martelli McKegg. Para. 18 – This states the Variation of Loan Agreement dated 4 November 2007 was prepared by Martelli McKegg but was not signed at a legal office with the benefit of legal advice. Para.20 – This indicates the first defendant is 72 years old, not in good health and is insolvent."As I see the position none of these statements made by the first defendant can form the basis of an arguable affirmative defence based on negligence or breach of fiduciary duty. And, even if there was such a breach it would be on the part of Martelli McKegg rather than the plaintiff itself. q) And, in any event, with respect to the possible claim for breach of fiduciary duty, the following matters in my view are significant: (i) Although the plaintiff acknowledges Martelli McKegg has acted for the second defendant in the past, it is confirmed that this has only been in respect to his personal matters rather than his business affairs. At no stage, it is said, has Martelli McKegg acted for the second defendant in relation to his business interests. (ii) It is clear from the documentation before the Court that, with respect to this loan, the second defendant was represented by his solicitor, Mr Walters of Walters, Law. The second defendant noted in his acceptance of the original loan offer that Walters Law were his solicitors. He does not suggest that Martelli McKegg acted for him in relation to this loan.(iii) The independence of Martelli McKegg here is supported in my view by the following:• The original Funding Proposal Application to the plaintiff's solicitors came from independent brokers, Executive Mortgages Limited, rather than directly through the second defendant.• That Walters Law acted for the second defendant is confirmed in the solicitor's certificate provided by that firm for the initial loan advance in November 2004.• This is also confirmed by Mr Walters in his 7 August 2008 affidavit (para. 9) and, so far as the renewal of the loan is concerned, the 28 November 2006 acknowledgement signed by the second defendant as to waiver of independent legal advice confirmed that he had been advised by his solicitors, Walters Law to obtain independent legal advice and he had elected not to do so.• Although the second defendant appears to depict himself as being a person influenced by his business partner, Mr Mark Bryers, it is undisputed that he was also the guarantor under a previous mortgage advance from the plaintiff in 2003. This related to a loan to Coltman Investments Limited in which he was named as the covenantor/guarantor. Interestingly, the acceptance of this Coltman Investments Limited Loan Offer in 2003 was also signed (on 15 August 2003) on his behalf by his attorney, Mr Walters with the subsequent mortgage and Term Loan Contract for that advance signed personally by the second defendant as covenantor. This previous pattern of use of the second defendant's power of attorney by Mr Walters,with no issues arising subsequently, may well be seen as significant.• Finally, it is clear that Martelli McKegg at no stage acted for the second defendant on the present loan in question (his solicitor being Walters Law) and therefore it is difficult to see how in any event either Martelli McKegg or more particularly the plaintiff could be liable to the second defendant in negligence or in breach of a fiduciary duty. r) I am satisfied therefore that the second defendant has been quite unable here to show that the plaintiff either owed fiduciary duties to the second defendant which were breached or had any liability to him in negligence. [25] For all these reasons, it is clear to me that the plaintiff has satisfied the onus upon it to show that the second defendant has no arguable defence to the plaintiff's claim. An order for summary judgment is to follow.Quantum[26] I turn now to consider the issue of quantum. As I have noted at para. [17] above the plaintiff here seeks summary judgment against the second defendant for the sum of $154,712.68 together with a further amount for legal costs incurred since 16 September 2008 totalling $3,712.50. [27] As to the $154,712.68, a detailed calculation of this amount is set out in the Affidavit of Melissa Clark sworn 14 November 2008 filed in this proceeding. [28] Significantly before me here, despite my invitation to counsel for the second defendant to do so, he had no submissions to make as to the quantum of the plaintiff's present claim. Effectively, therefore, there was no opposition to the quantum claimed.[29] Turning to the issue of quantum, the figure of $154,712.68 as I understand it effectively relates to the balance interest due under the loan following the mortgagee sale of 85 Beach Road. That interest is calculated as follows: a) Interest from 1 February 2008 to 30 August 2008 (9 months) $188,463.78 b) Interest from 1 September 2008 to 16 September 2008 (16 days) at a daily rate of $688.45 (calculated on $1,733,000.00 principal sum x 14.5% per annum) $ 11,015.20 $199,478.98 [30] Following the mortgagee sale and clearance of the principal sum and costs, Melissa Clark in her affidavit deposes to the sum of $44,766.30 being available to apply toward the outstanding interest of $199,478.98. That left a total amount due for interest as at 16 September 2008 of $154,712.68. It is judgment for that sum which is sought here. No objection is taken to this. In my view it is in order. [31] As to costs, the plaintiff seeks additional legal costs and GST of $3,712.50 for work carried out from 16 September 2008 up to the present time. An account for these costs has been provided together with a time sheet breakdown to show the work undertaken over this period (amounting to 84 six minute units) by the individual persons concerned at Martelli McKegg. [32] Recovery of these actual solicitor client costs sought on default is stipulated for in the various loan contracts between the plaintiff, the first defendant and the second defendant. Parties are entitled to so stipulate and this position was confirmed by the Court of Appeal in ANZ Banking Group (NZ) Limited v Gibson [1986] 1 NZLR 556 at 566. As the Court noted there, there is no good reason why a lender should be out of pocket as a result of a default when the parties have expressly agreed to be indemnified by one another in the event of one party defaulting. [33] The costs concerned, however, must be objectively reasonable – Frater Williams & Co Limited v Australian Guarantee Corporation (NZ) Limited [1994] 2 NZ Conv.C. 191, 873 and see also Crown Money Corporation Limited v Grassmere Estate Trustco Limited High Court Auckland, Associate Judge Faire, 21 November 2008, 2008-404-3801.[34] In the present case, as I have noted these additional costs of $3,712.50 from 16 September 2008 are supported by a detailed time sheet provided by the plaintiff. This also shows the charge-out rate for the individual authors who have been engaged in the work in question. [35] In my view these costs are objectively reasonable and they are approved. [36] One last matter needs to be mentioned. This relates to the legal costs and disbursements which as I understand it were effectively deducted from the mortgagee sale proceeds of 85 Beach Road. Details of those costs and disbursements together with extensive time sheets setting out the work involved and the individual charge-out rates of the Martelli McKegg personnel concerned have been provided. [37] Again I note that none of these charges are effectively queried by the second defendant. Notwithstanding this, I am satisfied on the material before the Court that again these charges are reasonable in an objective sense and were properly deducted.Conclusion[38] For the reasons outlined above the plaintiff's application for summary judgment against the second defendant succeeds. [39] Summary judgment is now granted in favour of the plaintiff against the second defendant in the sum of $154,712.68 together with the further sum of $3,712.50 for legal costs from 16 September 2008 to the present time.'Associate Judge D.I. Gendall'