STRATEGIC FINANCE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) V J MOSS HC WN CIV-2012-485-1402

STRATEGIC FINANCE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) V J MOSS HC WN CIV- 2012-485-1402 [15 November 2012]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2012-485-1402[2012] NZHC 3032BETWEEN STRATEGIC FINANCE LIMITED (INRECEIVERSHIP AND INLIQUIDATION)PlaintiffAND JEFFREY MOSSDefendantHearing: 24 October 2012(Heard at Wellington)Counsel: J.C. Caird - Counsel for PlaintiffR.J. Hollyman and D.J. Pannett - Counsel for DefendantJudgment: 15 November 2012JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLUnder r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 3.00 pm on 15 November 2012.Solicitors: Simpson Grierson, Solicitors, PO Box 2402, WellingtonBrookfields Lawyers, PO Box 240, Auckland 1140Introduction[1] The plaintiff (Strategic) applies for summary judgment against the defendant (Mr Moss) to enforce a personal guarantee that he gave for a loan of $500,000.00 advanced in November 2010 by Strategic to a company Moss Auckland Trust Limited (MATL) owned and operated by Mr Moss. This loan was unsecured and represented a vendor advance under an agreement whereby Strategic agreed to assign a range of loans and mortgages it held securing in total about $6 million overseveral residential properties at Peacock Street, Glendowie, Auckland to Mr Moss'scompany MATL, for a purchase price of $2 million. MATL borrowed $500,000.00 from Strategic to contribute to that purchase price, with Mr Moss providing the personal guarantee for the loan. It is the guarantee of that loan that is in issue here.[2] This $500,000.00 loan from Strategic attracted interest at 15% per annum capitalising monthly and was repayable as to $50,000.00 by 15 December 2010 and as to the balance by 25 May 2012.[3] MATL subsequently defaulted on the loan and Strategic now by way of summary judgment seeks to enforce repayment of the loan, interest and costs together totalling something over $563,000.00 from Mr Moss under his personal guarantee. Mr Moss in turn opposes that application and proposes a number of defences which he says are reasonably arguable, such that Strategic is not entitled to summary judgment on its claim here.[4] Essentially, Mr Moss contends that Strategic did not disclose to him that some of the Peacock Street, Glendowie land subject to the relevant mortgages had serious instability issues and was unsellable as a result. On that basis he says he has a valid counterclaim that should be tested at trial, and summary judgment should be refused.Background[5] Over some years from about 2006 Strategic had made a range of loan advances which ultimately totalled with interest approximately $6 million tocompanies and interests controlled by Mr Andrew Krukziener (Mr Krukziener) on the security of various mortgages over residential properties at 15, 17, 23, 25 and 27 Peacock Street, Glendowie, Auckland (the properties). The mortgages over 17 and 27 Peacock Street were first ranking securities and the mortgages over 15, 23 and 25 Peacock Street were second ranking securities. In November 2010, all theseproperties at Peacock Street were owned by Mr Krukziener's company Peacock Street Trust Limited (previously known as Andrew Krukziener No. 6 Limited) and the mortgages to Strategic as I understand it were in default.[6] On 12 March 2010 Strategic was placed into receivership and on 26 July 2010 it was placed into liquidation. Needless to say, Strategic was keen to achieve some repayment or realise as much return as possible for its creditors from these Krukziener loans.[7] Mr Moss says he first became aware of the opportunity to purchase the outstanding loan and the mortgage securities from Strategic and its receivers in around February 2010. He says he understood that the mortgages could be purchased cheaply because they were in default.[8] Thus, Mr Moss finally on 18 November 2010 arranged for the company MATL, of which he is the sole director and shareholder, to enter into an agreement with Strategic to purchase and take an assignment (the Deed of Assignment) of all the mortgages and loans in respect of the Peacock Street properties. At the time a debt of approximately $6 million was outstanding, with Peacock St Trust Limited the mortgagor at that stage in default.[9] The purchase price under the Deed of Assignment was $2 million. Clause 2.1of the Deed of Assignment makes the performance of Strategic's obligationsconditional upon Mr Moss providing an unconditional guarantee of the $500,000.00 vendor finance provided to MATL as a contribution to the purchase price.[10] The loan agreement between Strategic and MATL for this vendor finance is dated 22 November 2010, and provides that Strategic will provide $500,000.00 towards the purchase price, repayable within 18 months of settlement. This LoanAgreement was accompanied by a Deed of Guarantee which provided that Mr Mossguaranteed to Strategic MATL's indebtedness in respect of the loan.[11] Mr Moss maintains now that he was planning to build a house on part of the land at Peacock Street and to develop and then eventually sell the remainder. Some time after settlement with Strategic, Mr Moss and MATL decided to execute mortgagee sales of certain of the properties which were initially successful and MATL became the registered proprietor of the land. Mr Moss says he then commissioned a report which estimated that the full extent of geotechnical problems with the properties would cost $3 million to repair. These issues Mr Moss maintains have hampered attempts to sell the properties, with only one of the five, 17 Peacock Street having been sold at this stage. This sale was at a price of $1.06 million. The second mortgages with MATL held with respect to two of the other properties were of little value it seems, due to the value of the prior first mortgages to third parties also registered on the titles to those properties.[12] MATL defaulted on its loan to Strategic, which became repayable on 25 May 2012. Strategic sought to enforce the guarantee by demanding repayment from Mr Moss personally on 1 June 2012. No repayments of the loan have been made todate, and the amount claimed to be outstanding in Strategic's statement of claim as at25 May 2012 is said to be $563,431.80.Summary Judgment Principles[13] Rule 12.2(1) of the High Court Rules applies here and provides:12.2 Judgment where there is no defence or when no cause of action can succeed(1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.[14] The principles of summary judgment have been recently summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]:The principles 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; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, 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:MacLean 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; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd vPatel (1987) 1 PRNZ 84 (CA).[15] Therefore, Strategic's application for summary judgment can only succeed if I am satisfied that Mr Moss has no arguable defence to the claim for repayment of the debt on the strength of the guarantee.Counsels' Submissions and My Decision[16] Strategic relies here on the terms of the three agreements (the Deed of Assignment, the Loan Agreement and the Deed of Guarantee) which show that MrMoss is personally liable to the extent of MATL's indebtedness to Strategic. It is Strategic's position that this is a simple guaranteed debt recovery action entirely suitable to a summary judgment action and that Mr Moss has no tenable defence to the enforcement of the guarantee.[17] In response, Mr Moss argues that he has a valid counterclaim in misrepresentation, breaches of the Fair Trading Act 1986 and the Trade Practices Act 1974(Aus).[18] Mr Moss contends that, by Strategic's omission to disclose relevantinformation, it materially misrepresented its position in respect of the properties atthe time he acquired the loans. This "silence" on the part of Strategic he says reassured him that there were no issues with the properties that would undermine their value. In doing so, Mr Moss claims it engaged in misleading and deceptive conduct contrary to s 9 of the Fair Trading Act 1986. It says that this counterclaim amounts to an arguable defence that needs to be tested at trial, and cannot be disposed of by way of summary judgment.[19] Strategic in turn claims that it did not know that the properties suffered from subsidence or stability problems at the relevant time. Mr Moss responds submitting that it had actual or constructive knowledge of the problems, and knew that he would have problems on-selling the land when it entered into the Deed of Assignment, as he claims:(a) Strategic had financed the properties for 10-12 years;(b) Strategic had unsuccessfully tried to sell the properties on previous occasions;(c) Strategic was eager to proceed with the assignment and lend funds to MATL to meet the purchase price.Misrepresentation[20] A claim for damages for misrepresentation requires the following elements to be made out:(a) A misstatement by Strategic as to past or present facts;(b) That statement induced the defendant to enter into the agreement;(c) That statement caused loss to the defendant.[21] The first element is disputed on the grounds that silence or an omission to disclose subsidence problems in these circumstances cannot constitute a misrepresentation. In March Construction Ltd v Christchurch City Council,1 the Court held however that silence could constitute misrepresentation where the defendant is under a duty to disclose the material fact within its knowledge. But, the circumstances where that duty will arise are very limited, and there is no general duty on vendors to disclose defects in the quality of the land at issue.2[22] Strategic, in its position as lender here, has a duty to disclose certain matters to the guarantor of a loan, including anything unusual in the course of dealings1 HC Christchurch CP326/92, 20 February 1995 at 13.2 Spooner v Eustace [1963] NZLR 913.between the principal debtor and the lender.3 However, the obligations between guarantor and lender in my view could not import a duty to disclose matters of substance relating to the subject matter of the loan, in circumstances where the principal debtor is essentially controlled by the guarantor.[23] In King v Wilkinson, the position of a fence, driveway and garden led a purchaser to assume that the fence was on the boundary of the property when in fact it was not. The misleading appearance created a duty on the vendor to disclose the true boundary, and its silence on that matter was held to be a misrepresentation. I consider however that the present case is sufficiently different as the alleged instability of the properties was part of general defects in the quality of the land that may have existed, and there were no patently misleading qualities that Strategic was under a duty to raise with Mr Moss.[24] Silence could amount to a misrepresentation where the vendor makes astatement on the matter at issue which amounts to a "half-truth", due to the materialpart of the statement that is left out. In those circumstances the vendor would be under an obligation to make a full and complete disclosure on the matter, and the omission to do so could constitute a misrepresentation. There is no evidence here however that Strategic made any statement to Mr Moss regarding the structuralintegrity of the land at issue that could amount to a "half-truth" in this sense.[25] Therefore, any omission by Strategic to disclose the subsidence problems on the land cannot amount to a misrepresentation, and Mr Moss's counterclaim on this ground is untenable for summary judgment purposes. And, in the event that I am wrong and Strategic was under a duty of disclosure, I am not satisfied that such an omission would have influenced Mr Moss to enter into the agreements, for reasons discussed at [30] below.3 Scales Trading Ltd v Far Eastern Shipping Co Public Ltd [1999] 3 NZLR 26 (CA)Misleading or deceptive conduct[26] Mr Moss's second counterclaim is that Strategic's failure to disclose the fullextent of the instability problems on the properties amounts to misleading and deceptive conduct in trade, in breach of s 9 of the Fair Trading Act 1986.[27] There are some circumstances where silence may amount to misleading and deceptive conduct, where conduct is defined in s 2(2)(a) of the Fair Trading Act 1986 as including an omission to do an act. Mr Moss would need to show that, viewedholistically, Strategic's conduct in negotiating the transaction gave rise to areasonable expectation that if particular matters existed, they would be disclosed.[28] Mr Moss maintains here that, in the context of the whole transaction, Strategic's silence conveyed the impression that the underlying properties had value and could be on sold, or would be suitable for him to build his own house.[29] In response, Strategic contends that a sophisticated businessman in MrMoss's position, who took legal and valuation advice prior to entering the guarantee, cannot have reasonably relied on the silence on the part of Strategic in entering into the transaction.[30] I am not satisfied here that Mr Moss was in fact misled or deceived byStrategic's conduct, nor I am satisfied that this conduct was an effective cause of the loss pleaded by Mr Moss.4 Although it is possible that Mr Moss may not have been aware of the full extent of the problem, he was not unaware of the subsidence issues at the properties at the material times before he entered into the agreements and the guarantee. Therefore, any assurance he may have received from Strategic from its silence that there were no such problems cannot have misled him or influenced him. In making that finding, I rely on the following evidence:(a) On 20 August 2010, shortly before the agreements were signed, Mr Moss obtained from Gribble, Churton Taylor Ltd registered valuers, a detailed registered valuation of 17 and 27 Peacock Streets which4 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [29].estimated their total value at $2 million. Materially this valuation specifically disclosed:Please note that this report in no way purports to be an engineering orgeotechnical survey into either of the site's stability. We have been advised that this coastal area of Glendowie has some stability problems and has previously suffered from some landslides. Any new development upon coastal sites in this area is a discretionary activity, and is required to incorporate retaining walls and the like to address these stability issues...We note that this dwelling (on 27 Peacock Street) appears to be situated in an area that is prone to slipping with the rear of this site being steep, bush clad land. We also note that some of the foundations to the dwelling appear to be structurally unsound, with one of the corner foundations is missing.(b) In addition, an email in the common bundle (CB. Page 130) from Chapman Tripp, Mr Moss's solicitors in acquiring these securities, to Strategic'ssolicitors dated 4 August 2010 requested a 2 week extension on settlement of the transaction as "the geotechnical aspects of the property have meant that the parties who had initially indicated an intention to fund the purchase price are no longer able to do so – hence the delay."(c) An uncontested file note in the common bundle (CB Page 132) made by MsStacey Wymer of Price Waterhouse Coopers (Strategic's receivers)recording a telephone call with Mr Moss on 17 August 2010 records: "issueswith instability – causing issues with lenders. Funders – get new valuation...biggest issue is with 27"(d) The bargain between the parties involved Mr Moss through his company MATL acquiring loans amounting to $6 million, secured against the properties, for a purchase price of $2 million. A businessman in his position as I see it could not have expected the original value of the properties (against which the money was initially borrowed from Strategic) to be realised upon mortgagee sale.(e) And, in any event, what Mr Moss's company MATL acquired fromStrategic was an assignment of the loans and mortgages with MrKrukziener's company. Although those loans were in default, had thatdefault been remedied MATL as mortgagee would have had no right to take steps under the mortgages against any of the properties. There is noevidence before the Court of any "arrangements" that may have been madebetween Mr Moss and Mr Krukziener at the time regarding this default under the loans. Nor could it have been seen as certain that, on a public mortgagee sale of any of the properties, MATL, Mr Moss or his interests would necessarily have become owners.[31] In possession of the knowledge that there were stability issues with a significant part of the properties and the foundations of at least one of the houses on the land, Mr Moss nevertheless chose to enter into the transactions as I see it at his own risk. There can be no duty on Strategic as creditor or as vendor to advise him of the wisdom or otherwise of taking that risk. Due to the extent of his knowledge, Mr Moss could not have been misled or deceived by the conduct of Strategic and therefore the counterclaim on the basis of s 9 Fair Trading Act 1986 in my view is also untenable.Are either or both of these counterclaims bound to fail in any event due to the"no set-off" clause?[32] In the alternative, if I may be wrong about the nature of the misrepresentation, or the extent of Mr Moss's knowledge about the subsidence issues, Strategic also relies on a clause contained in 13.1 of the Deed of Guarantee which it says would make both of Mr Moss's counterclaims untenable:The Guarantor must pay all money payable by it under this deed...(b) free and clear of and (except to the extent required by law) without any deduction or withholding for or on account of tax or otherwise, whether by way of set-off, counterclaim or otherwise...[33] With respect to the claim of misrepresentation, any remedy would be determined under s 6 of the Contractual Remedies Act. If successful Mr Moss would be entitled to be restored to the position he would have been in had the contract been performed as promised. However, this claim would be subject to the no set off clause which would essentially negate any remedy that Mr Moss would otherwise be entitled to.[34] Mr Moss claims that this clause would not apply in the same way to his claim under s 9 of the Fair Trading Act 1986. If successful, he maintains he would be entitled to treat the agreements as void ab initio, and as though the parties had never entered into them.[35] The orders available to the Court to remedy a breach of s 9 are explained in s 43(2) of the Fair Trading Act 1986:(2) For the purposes of subsection (1) of this section, the Court may make the following orders—(a) An order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct referred to in subsection (1) of this section or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date, before the date on which the order is made, as is specified in the order:(b) An order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date, before the date on which the order is made, as is so specified:(c) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to refund money or return property to the person who suffered the loss or damage:(d) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to pay to the person who suffered the loss or damage the amount of the loss or damage:(e) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage:(f) An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to supplyspecified services to the person who suffered, or is likely to suffer, the loss or damage.[36] Putting aside the requirement to show that Mr Moss has suffered loss or damage here, the Court could only declare a contract void ab initio if a claim under s 9 is successfully made out. That would require pursuing a set off or counterclaim, which clause 13.1 of the Deed of Guarantee essentially bars. Before even deciding on the appropriate remedy under s 43, the Court would need to determine whether a claim for relief is even available, and due to the terms of the guarantee in my view it is not. Therefore the prospect of the agreements being declared void ab initio does not avail Mr Moss of the contractual bar to this cause of action.Australian Competition and Consumer Law[37] The remaining allegation by Mr Moss of a potential claim under the Australian Competition and Consumer Law (Australian Trade Practices Act) is rather equivocal and lacking in precision. In supporting this allegation, Mr Moss says that the negotiations for the assignment of the loans and mortgages took place between Strategic in New Zealand and Mr Moss who was in Melbourne, Australia at the time.[38] It is clear, however, that the Deed of Assignment under which the mortgages were assigned is between MATL a New Zealand company and Strategic. Mr Moss is not a party to the Deed of Assignment. So, as I see it, any claim that might arise under the Australian Competition and Consumer Law arising from the assignment of the mortgages would vest in MATL and no such claim is being pursued at this point.[39] And, in any event, all the reasons outlined above would generally also apply with appropriate modification to any claims made under the Australian Competition and Consumer Law.[40] Finally and significantly in my view, in cl 9 of the Deed of Assignment and cl 36.7 of the Deed of Guarantee, all parties agreed that the Deeds were to be governed and construed in accordance with the laws of New Zealand.[41] There is nothing in this claim which Mr Moss purports to advance which might assist his position in opposing the present summary judgment application.Conclusion[42] For all the reasons outlined above, I am satisfied that Strategic has shown that Mr Moss has no defence to the claim it makes against him here and there is no real doubt or uncertainty as to this aspect. This is in my view a straight forward case where Strategic is entitled to enforce the personal guarantee given by Mr Moss underMATL's loan agreement and there is no substance in any of the defences he haspurported to advance here.[43] It must follow therefore that Strategic's summary judgment applicationsucceeds. Summary judgment is now granted to Strategic against Mr Moss for the following:(a) The sum of $563,431.80 as claimed in Strategic's statement of claim.(b) Interest on the sum of $563,431.80 at the rate of 8.5% per annum, compounding monthly from 25 May 2012 until the date of actual payment.(c) The costs of and incidental to this proceeding on a full indemnity basis pursuant to clause 10.1 of the Loan Agreement and clause 19 of the Guarantee.'Associate Judge D.I. Gendall'