IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2010-488-000439

BETWEEN	RUDIGER PRIEBS AND FIONA SOUTHORN
Plaintiffs

AND	ROBERT JOHN HUNT Defendant

Hearing:	14 September 2010

Appearances: A Malone for Plaintiffs
R J Hunt (Defendant in person) Judgment:	14 September 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:
Webb Ross, Private Bag 9012, Whangarei

Copy to:
R Hunt (Defendant in person), 19 Taumata Close,Te Haumi, Paihia 0200

R PRIEBS AND F SOUTHORN V R J HUNT HC WHA CIV-2010-488-000439  14 September 2010

[1]       This matter is an application for summary judgment.  The plaintiffs sue on a document called a heads of agreement.  It is dated 20 May 2008 but in his evidence, the defendant says that that is not the actual date of signing.   The parties to the agreement are Rudiger Priebs and Robert Hunt.  Fiona Southorn has been joined as a plaintiff in the proceeding because Mr Priebs later assigned his interest under this agreement to her.  The plaintiffs are both properly before the Court as parties to the proceeding as assignor and assignee.

[2]       Rudiger Priebs held 62,500 shares in Turkilsen Holdings Ltd.   This was a holding company.   It held shares in Whangarei Flooring (2007) Ltd and Kaitaia Flooring (2007)  Ltd.   Originally, Mr  Turkilsen was the sole shareholder of the company.  There are various transactions relating to the shares in the company.   I record  that  the  defendant  does  not  necessarily  concur  fully  with  the  plaintiffs’ account of the changes in shareholding.   At this stage, I am simply recording the plaintiffs’ case. The company was incorporated 31 May 2007 with 250,000 shares all held by Mr Steven Turkilsen.   On 24 July 2007, Mr Turkilsen transferred all his shares in Turkilsen Holdings Ltd to the defendant, Mr Hunt, to hold on trust for him. The background to this was that Mr Turkilsen was insolvent and he was expected to go bankrupt.  I am told by the plaintiffs that Mr Turkilsen was paid $250,000 for his shares.

[3]       On 27 November 2007, Mr Hunt transferred 62,500 shares to Mr Priebs and on the same date he transferred another 62,500 shares to Mr and Mrs Bristow.  Then, during 2008, Mr Hunt transferred the remaining 125,000 shares which he held to Mr Priebs.

[4]       Mr Priebs and Mr Hunt entered into a heads of agreement which provided for Mr Priebs to sell Mr Hunt 62,500 shares in Turkilsen Holdings Ltd at a price of $1 a share and in addition to transfer shareholders’ accounts in Turkilsen Holdings Ltd amounting  to  $187,500.    This  made  a  total  purchase  price  of  $250,000.    The purchase price was to be paid by a loan from the plaintiffs to the defendant.

[5]       The agreement was prepared by an accountant and not by a lawyer.  It may be that if the parties had had the assistance of a lawyer, the terms of the agreement

would have been drawn up differently.   But as it is, my task is to consider the agreement as it is drawn up as reflecting the intention of the parties.

[6]       The parties may have contemplated that a further agreement would be drawn up which would provide for security provisions and for more detail about loan payments.  But no such agreement has been put in evidence.  The only agreement in evidence is the document for the heads of agreement.

[7]       One part of the agreement says:   “The details of the loan are as per the attached schedule.”   No such schedule has been put in evidence, which might be referred to as indicating how the loan was to be repaid.

[8]       There is another provision that says:  “The parties further agree the loan will be documented in such a form to allow for security to be taken on the shares until such time as the loan is fully repaid.”  Again, there is no further documentation to reflect that.

[9]       There are these provisions about repayment.  First of all, there are provisions for interest rate. It says:

The interest rate used as a calculation of interest for the days in a quarter will be the Westpac Banking Corporation first mortgage floating home loan rate that prevails at the last day of the quarter plus a margin of 3%.

[10]     The agreement also says:

Interest on the loan will be calculated on a daily compounding basis with the interest calculated added to the loan balance, with interest calculations to be completed quarterly on the last days of March, June, September and September.

[11]     The principal is said to be $250,000.  The only repayment provisions come under the heading “Payment of principle (sic)”.  It says:

The borrower may at any time repay the whole or any part of the principle
(sic) sum to the lender.

If in respect of the borrower there is a resolution passed or order made for winding-up or a receiver, liquidator, provisional liquidator or statutory manager appointed, then the principle (sic) sum shall be due and payable by

the borrower seven days after the date of service on the borrower of notice making demand for payment of the same.

The borrower agrees any income received from Turkilsen Holdings Group by the purchaser in relation to the 62,500 shares or the $187,500 loan purchased as part of this transaction will be applied in repayment of the outstanding balance of the loan.

[12]     These repayment provisions fall into three parts.  The first part, allowing the borrower  to  repay the  whole  or  part  at  any time,  is  permissive.    It  allows  the borrower to make voluntary payments.  It does not impose any obligation on him to make any payments.  If he has made any payments, that is simply evidence that he has made voluntary payments in terms of that provision.  It does not prove anything else.

[13]     The  final  repayment  provision  says  that  the  borrower  agrees  to  pay any income referable to the shares or the loan in repayment of the outstanding balance of the  loan.    The  records  show  that  payments  totalling  some  $95,000  were  made between 30 December 2008 and 28 September 2009.  Most of those payments are shown as having been derived from Whangarei Flooring, with only one payment having been made by the defendant personally.  I take it that those payments may be referable to the shareholding or the loan, although the payments may be more in the nature of drawings by the defendant from the company rather than income received by him.  I do not need to decide whether it is income or drawings at this stage.

[14]     The defendant says that he stopped making payments from the company because there were no longer any funds available in the company from which to make payments.  He was at the time the director of the company.  In his summary judgment application, his evidence that there were not funds available has not been refuted  by  evidence  from  the  plaintiffs.    Provisionally,  his  evidence  has  to  be accepted as throwing up a basis for saying that there was not income available from the company which he could apply towards the reduction of the loan.

[15]     There is no evidence that the defendant is in breach of those provisions of the agreement.  The plaintiffs take issue with this analysis so far because, they say, that surely it was intended that they should have the loan repaid in the fullness of time. They say that the law therefore implies a term that they ought to be repaid.  There is,

however, a term which does allow the plaintiffs to require the defendant to pay in full.   That is the provision relating to the  winding-up, receivership of statutory management.   In that event, the plaintiffs can then issue a notice to the defendant requiring payment of the amount in full.

[16]     The plaintiffs are trying to persuade the Court that there ought to be some basis for implying some other acceleration provision into the agreement in addition to the winding-up provision.  The plaintiffs have referred to the principle that where no time for performance is specified, then the law will require an obligation to be performed within a reasonable time.

[17]     For  the  purpose  of  the  summary  judgment  application,  I  have  trouble accepting that approach to the extent that I am persuaded that the defendant does not have an arguable defence.  The authority referred to me by the plaintiff, Burrows, Finn and Todd, Law of Contract in New Zealand, pp 579 at s 18.2.2(ii) on the essentiality of time, refers to authorities mainly concerned with agreements for sale and purchase of land where there was typically a fixed purchase price payable.  It is usually possible to implement machinery which will ensure that that sum becomes payable after lapse of a reasonable period of time.  But this is a loan agreement that contemplates that payments be paid over a period of time, except in the event of liquidation, when there can be an acceleration provision.  It is not clear to me how it would be possible to imply further terms to allow for acceleration of the loan in the way that the plaintiffs have tried to do in this case.

[18]     The plaintiffs’ lawyers wrote to Mr Hunt on 8 February 2010, demanding payment.   Mr Hunt was entitled to ignore those demands because he was not in breach of the agreement, at least in terms of the case presented in his affidavits today.    At the time of the letter of 8 February 2010, the plaintiff could not, on the evidence I have seen, point to any breach of agreement by Mr Hunt. In the absence of any breach by Mr Hunt, I cannot see any basis for acceleration.

[19]     The plaintiffs argued that there has been repudiation by Mr Hunt.  If a person has failed to perform a contract because of a bona fide interpretation of an agreement open to him, that is not repudiation.   It is simply a bona fide difference in views.

Here, I see nothing in Mr Hunt’s conduct that suggests on the evidence presented by the plaintiff, that he has repudiated.

[20]     There is, in my view, an arguable defence open to Mr Hunt that the only acceleration provision that can be used against him is the provision in the agreement relating to receivership, winding-up and statutory management.   Short of that, he cannot be compelled to pay the loan in full and he can only be required to pay to the extent that he receives income from the company attributable to his shareholder’s loan or his shares in the company.

[21]     That, by itself, is enough for me to find that there is reason to dismiss the application for summary judgment.  That is, Mr Hunt has an arguable defence based on the wording of the contract.

[22]     In addition, I have concerns about the quantum.   The plaintiffs say that at

28 September 2009, Mr Hunt owed $237,464 under the loan.   This is when the agreement had been apparently running since about the beginning of June 2008. Payments made under the loan amount to some $95,000.  I am puzzled how, after payments of $95,000, the loan can be reduced by only $13,000.  Mrs Malone says that the compounding interest has that effect.

[23]     The plaintiffs also say that on 21 October 2009, Mr Priebs assigned the agreement to Ms Southorn.   His affidavit shows that the amount he assigned was
$247,014.62.   I am troubled that this loan has increased by an amount of approximately $10,000 in the space of three weeks.  If that was a simple interest rate, it looks as though the interest is running on the loan at more than 50% per annum. While this might have been a hazardous and speculative loan, I would still need good evidence as to why it is not oppressive in terms of the Credit Contract and Consumer Finance Act 2003.   Such high interest rates can, in circumstances, amount to oppression.   This is not a concluded view, it is simply an observation.

[24]     Mr Hunt has advanced other matters in his case in opposition to the claim for summary judgment.  I have  not  been  required  to  consider  those  because,  in  my

judgment, the plaintiffs have not yet established their case to the prima facie stage where I have to then go off to consider defences raised by the defendant.

[25]	Accordingly, I dismiss the application for summary judgment.

[26]	The plaintiffs are to pay the defendant costs on the application of $1,128. [27]	I give these further directions:
a)	The  defendant  is  to  file  and  serve  a  statement  of  defence  by

6 October 2010;

b)	Both  parties  are  to  file  and  serve  affidavits  of  documents  by

27 October 2010;

c)	There  is  to  be  a  telephone  conference  on  18  November  2010  at
9:00 am  to  review  compliance  with  these  directions  and  to  give directions for the matter to be set down for hearing.

R M Bell
Associate Judge