IN THE HIGH COURT OF NEW ZEALAND
WANGANUI REGISTRY
CIV-2004-483-367
BETWEEN
NEW ZEALAND BREWERIES LIMITED
Plaintiff
and
ROHAN CHARLES JAYS AND SIMON NEIL HEWSON AS TRUSTEES OF THE JAYS FAMILY
TRUST OF 99A GUYTON STREET, WANGANUI
First Defendant
and
SARAH HELEN JAYS
Second Defendant
and
FRANCES MAUREEN JAYS
Third Defendant
and
MELISSA ANNE JAYS
Fourth Defendant
Hearing:
8 December 2004
Appearances:
S. Burlace for Plaintiff; H.T. Macdonald for Second, Third and Fourth Defendants;
First Defendant R.C. Jays in person
Judgment:
14 December 2004 at 4.00pm
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JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
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Introduction
[1] This is an application by the plaintiff for summary judgment against each of the four defendants.
[2] The second, third and fourth defendants oppose the application and a Notice of Opposition has been filed on their behalf.
[3] In so far as the application against the first defendants is concerned, the first-named first defendant Mr R.C. Jays, appeared before me today, and indicated that there is no opposition on the part of the first defendants to the present summary judgment application, except to the extent that the liability of the second-named defendant in terms of clause 4 of the guarantee is to be limited to the assets of the Jays Family Trust.
[4] An order for summary judgment therefore will follow in favour of the plaintiff against the first defendants. This order is to be subject to the proviso that the liability of the second-named first defendant Simon Neil Hewson under this judgment is not personal, but is limited to the assets from time to time of the Jays Family Trust.
[5] So far as the second, third and fourth defendants are concerned, as I have noted, this summary judgment application is opposed. I now turn to consider the application against these defendants.
Background Facts
[6] The second, third and fourth defendants are the sole shareholders and directors of Grand International Limited (now in liquidation) (G.I. Limited). This company until recently operated The Grand Hotel in Wanganui. The second, third and fourth defendants are also the daughters of the first-named first defendant Mr R.C. Jays.
[7] The plaintiff brewery supplied products to G.I. Limited as operator of The Grand Hotel and in addition, made substantial loans to G.I. Limited in October 2002, presumably to set up the hotel operation. These loans initially were for sums of $250,000.00 and $100,000.00 and were repayable over a term of about eighteen years.
[8] The loans and other indebtedness of G.I. Limited were guaranteed by the second, third and fourth defendants, and also by Mr R. Jays, the first-named first defendant.
[9] As I have noted, Mr R.C. Jays is the father of the second, third and fourth defendants. At the time the initial loans were made by the plaintiff in 2002, the second defendant was aged 23, and the second and third defendants aged 22. From their affidavits filed in opposition to the summary judgment application, they contend that they had little or no previous experience in the hotel industry. Further, they depose that their shareholding in and directorships of G.I. Limited occurred at the behest of their father, who they claim was the driving force in purchasing and setting up The Grand Hotel business. They state that they have not received any directors' fees, nor have they received any dividends as a result of their shareholding in G.I. Limited.
[10] G.I. Limited defaulted in its loan arrangements with the plaintiff, and on 13 October 2004 demand was made upon the second, third and fourth defendants as guarantors for the total sum of $245,661.29.
[11] Neither the second, third nor fourth defendant has made any payment to the plaintiff in satisfaction of this demand.
[12] G.I. Limited, as I have noted, is now in liquidation.
[13] On 8 November 2004 these proceedings and the application for summary judgment were issued by the plaintiff against each of the loan guarantors.
[14] A Notice of Opposition to the summary judgment application was filed by the second, third and fourth defendants on 3 December 2004. It lists the following specific grounds in opposition:
1. The Defendants have an arguable defence because the Guarantee and Indemnity and Trading Account Application were signed under undue influence.
2. The Defendants have an arguable defence because the Guarantee and Indemnity and the Trading Account Application are unconscionable bargains.
3. Appearing in the Affidavits of Sarah Helen Jays, Frances Maureen Jays and Melissa Anne Jays dated 3 December 2004.
Counsel's Arguments and My Decision
[15] In seeking summary judgment here, the plaintiff relies upon Rule 136 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.
[16] Under Rule 136 the onus is clearly on the plaintiff to satisfy the Court that the defendant has no defence to the claim.
[17] In Pemberton v. Chappell [1987] 1 NZLR, Somers J said at p3:
At the end of the day Rule 136 requires that the plaintiff 'satisfies the Court that a defendant has no defence'. In this context the words 'no defence' have reference to the absence of any real question to be tried. That notion has been expressed in a variety of ways, as for example, no bona fide defence, no reasonable ground of defence, no fairly arguable defence. See for example Wallingford v. Mutual Society (1880) 5 App Cas 685, 693; and Fancourt v. Mercantile Credits Limited (1983) 154 CLR 87, 99; Orme v. de Boyette [1981] 1 NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive burden. Satisfaction here indicates that the Court is confident, sure convinced, is persuaded to the point of belief, is left without any real doubt or uncertainty.
And:
Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident - that is to say, satisfied - that the defendant's statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Young v. Letchumanan [1980] AC 331, 341 and in the judgment of Greig J in Attorney-General v. Rakiura Holdings Ltd (Wellington, CP23/86, 8 April 1986).
[18] It is clear that the Court must be satisfied that there is no defence. In Towers v. R & W Hellaby Limited [1987] 3 NZCLC, 100,064, Thorp J said that the crucial question under Rule 136 would generally be whether the Court is satisfied that the plaintiff's case is unanswerable and the Court will not reach that conclusion if it can see an arguable defence - see McGechan HR136.09.
[19] Although in summary judgment applications it is clear that the plaintiff must establish that the defendant has no arguable defence to the plaintiff's claim, it must also be emphasised that a robust approach needs to be taken in considering the defendants' defences, and the affidavit evidence placed by them before the Court. Defences which are spurious are to be seen for what they are, and are to be given little credence - see McGechan paragraph HR136.08 and Bilbie Dymock Corp Ltd v. Patel (1987) 1 PRNZ 84 (CA).
[20] That said, I now turn to consider the defences raised by the second, third and fourth defendants here.
Undue Influence
[21] The second, third and fourth defendants submit that their personal guarantee for the loan should be set aside as against the plaintiff because their father Mr Jays pressured them into signing it, and that knowledge of his undue influence should be imputed to the plaintiff - Contractors Bonding v. Smee [1992] 2 NZLR 157.
[22] As to this, in my view, even if it could be said that Mr Jays did in fact exert undue influence over his daughters, and this pressure caused them to enter into the guarantee, I am not satisfied that the second, third and fourth defendants have an arguable defence against the plaintiff. This is because, as I see it, on the basis of the material before the Court, any wrongdoing by their father Mr Jays or the knowledge of that wrongdoing can not in any way be imputed to the plaintiff here.
[23] Responsibility for Mr Jays' alleged undue influence can be imputed to the plaintiff if, and only if, the plaintiff was put on notice as to his wrongdoing, and, being "on notice" it failed to take reasonable steps to satisfy itself that the agreement of the second, third and fourth defendants had been properly obtained.
[24] It is well-settled that a creditor will be put on inquiry where there is a relationship of trust and confidence between the surety and the debtor, and where the proposed transaction does not provide any financial advantage to the surety: Barclays Bank Plc v. O'Brien [1994] 1 AC 180.
[25] Although there is a relationship of trust and confidence between the second, third and fourth defendants as daughters and their father Mr Jays, the fundamental problem for the defendants here is that their father Mr Jays is not the debtor. Rather, the debtor is G.I. Limited, a company in which the daughters were the sole directors and shareholders. The relationship between the company G.I. Limited, "the debtor", and the second, third and fourth defendants, "the surety", is clearly a commercial one, and not one based on trust and confidence.
[26] Furthermore, in distinct contrast to the classic case of undue influence, the impugned transaction here is manifestly, and indeed exclusively, to the financial advantage of the second, third and fourth defendants as the guarantee made possible the loan to their company G.I. Limited.
[27] The inherent difficulty with the complaint of undue influence here by the second, third and fourth defendants is that the purported wrongdoer, their father Mr Jays, had no interest in procuring the guarantee for the loan. On the contrary, the father, Mr Jays, though himself a surety to the agreement, did not personally stand to gain anything from the loan. He was not connected in any legal or other sense to G.I. Limited. Ironically, if anyone was in a position potentially to be able to invoke the doctrine of undue influence in the present case, it might be the father Mr Jays.
[28] Since the surety and the debtor had essentially the same broad interests, there was simply nothing to alert the plaintiff to any risk of undue influence. The plaintiff was never put on inquiry, and it is therefore unnecessary to consider whether it took reasonable steps to ensure that the second, third and fourth defendants' agreement was properly obtained.
[29] Further, the guarantee agreement was part of a completely usual everyday commercial arrangement where shareholders of closely held companies are required to give guarantees. And, in addition, the document was signed in accordance with entirely normal practices at a solicitor's office (presumably solicitors for the wider Jays family) and the defendants' signatures witnessed by a legal executive there.
[30] In my view, the second, third and fourth defendants' reliance on undue influence to set aside the guarantee agreement is misplaced. I reject this ground advanced in opposition to the summary judgment application.
Unconscionable Bargain
[31] Equally, the doctrine of unconscionable bargain is unavailable to assist the defendants here. Even if the second, third and fourth defendants were in a disadvantaged position, on the basis that they had no previous business experience, there is nothing before the Court to show the plaintiff had any knowledge of this. The plaintiff was simply seeking a guarantee from the directors of the company to whom it was extending a substantial loan. From their perspective, this was an ordinary commercial arrangement. There was no inadequacy of consideration as the second, third and fourth defendants, in providing the guarantee, stood to gain all the benefits from a loan made to a company in which they were the sole shareholders and directors.
Conclusion
[32] For the reasons I have outlined above, I am of the view that the plaintiff here in terms of the recognised test for summary judgments outlined in Pemberton v. Chappell has satisfied the onus upon it to establish that the second, third and fourth defendants have no arguable defence to the plaintiff's claim against them as guarantors of this debt.
[33] The plaintiff's application for summary judgment therefore succeeds in its entirety.
[34] Summary judgment is therefore granted in favour of the plaintiff against the first defendant, second defendant, third defendant and fourth defendant for the following:
(1) The sum of $232,146.11, together with interest on this sum from 6 November 2004 at 12.7% per annum down to the date of payment.
(2) The sum of $15,370.59, together with interest on this sum from 6 November 2004 at 12.7% per annum down to the date of payment.
[35] Notwithstanding the provisions of paragraph [34] hereof, the liability of the second-named first defendant Simon Neil Hewson, under this judgment is not personal but is limited to the assets from time to time of the Jays Family Trust, provided that if the plaintiff has incurred any loss the subject of this judgment as a result of a breach of trust by the said Simon Neil Hewson due to wilful default or dishonesty on his part, this limitation of liability will not apply to the extent that the assets of the Jays Family Trust do not satisfy all liability hereunder of the Jays Family Trust to the plaintiff.
[36] The plaintiff has succeeded with its summary judgment application and is entitled to costs, which are awarded against the defendants upon a category 2B basis, together with disbursements as fixed by the Registrar.
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Associate Judge D.I. Gendall
Delivered at 4.00pm on 14 December 2004.
Solicitors:
K.P. McDonald, Solicitor, Takapuna for Plaintiff
Horsley Christie, Wanganui for Defendants