IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV-2019-485-85
[2019] NZHC 2474	

BETWEEN	GRAEME LESTER FARR
Appellant	
AND	ALEX FERGUSON KNOWLES
Respondent	

Hearing:	16 July 2019	
Appearances:	J Porter for Appellant J Haig for Respondent	
Judgment:	30 September 2019	

JUDGMENT OF GRICE J

Introduction

[1]	On 24 January 2019 summary judgment for the sum of $105,000 was entered against Mr Farr in favour of Mr Knowles.1 The Judge found that the series of agreements entered into between them evidenced personal loans repayable by Mr Farr.

[2]	Mr Farr appeals against the summary judgment on the basis:

(a)	leave should never have been granted to bring a summary judgment application;

(b)	the Judge failed to appropriately consider the defences raised by Mr Farr;

1	Farr v Knowles [2018] NZDC 25898.

FARR v KNOWLES [2019] NZHC 2474 [30 September 2019]

(c)	the underlying facts were disputed making the matter inappropriate for summary judgment; and

(d)	the summary judgment application was conducted in an unfair and prejudicial manner because Mr Farr was not allowed to be properly heard either orally or in written submissions.

The District Court proceedings

Procedural background

[3]	Between 2010 and 2011 Mr Knowles made a series of payments to Mr Farr pursuant to a series of written agreements. In 2012 Mr Knowles demanded payment. Mr Farr failed to comply with that demand. In March 2013 Mr Knowles filed a statement of claim in the District Court and Mr Farr responded with a protest as to jurisdiction. It appears that Mr Farr was uninformed about the progress of the proceedings beyond that point. His protest was set aside2 and a default judgment was entered against him without his knowledge in November 2013.

[4]	Four and a half years later, in May 2018, Mr Knowles took steps to enforce that default judgment. Mr Farr then applied to set aside the judgment on the basis it was made irregularly as he had not been served with any documents following the filing of the protest as to jurisdiction.

[5]	Mr Farr’s application was successful. On 29 August 2018 the default judgment was set aside.3 In the same decision the Judge granted leave to Mr Knowles to file a summary judgment application out of time. That decision has not been appealed.

District Court decision

[6]	On 23 November 2018 a defended summary judgment hearing took place. The Judge issued his decision on  24  January  2019  granting  summary  judgment  to  Mr Knowles.

2	Farr v Knowles DC Wellington CIV-2013-085-164, 26 July 2013.
3	Farr v Knowles DC Wellington CIV-2013-085-164, 29 August 2018 [Leave Decision].

 Factual background

[7]	The decision outlined the background. The following is based on the narration in the judgment.

[8]	In 2009 Mr Knowles decided to become involved in two ventures proposed by Mr Farr: the development of a shopping mall in New Plymouth and a “car supermarket” operation. Mr Farr was to undertake the work required to establish the businesses and Mr Knowles would supply the capital required.

[9]	Mangati Holdings Ltd had already been formed by Mr Farr for the New Plymouth development. Mr Farr held all the shares in it. In July 2010 Mr Farr also incorporated Car Giant Ltd for the proposed car supermarket venture. Mr Farr also held all of the shares in this company.

[10]	Between May 2010 to April 2011  Mr Knowles paid a total of $105,000 to  Mr Farr in nine separate payments. Each payment was made following a written agreement recording the payment drafted by Mr Farr. Those agreements were signed by him and Mr Knowles.

[11]	The New Plymouth shopping mall venture did not proceed. Significant expenses had already been incurred on that project. The car supermarket operation did, however, go ahead. On 1 July 2011 Mr Knowles and Mr Farr entered into a further agreement (the Shareholding Agreement) drafted by Mr Farr in relation to Car Giant Ltd.

[12]	The Shareholding Agreement contemplated advances by Mr Knowles to Car Giant Ltd in consideration of which Mr Knowles was given the right to acquire all the shares in the company. The agreement provided for Mr Farr to reacquire up to 50 per cent of the shares within certain time limits, conditional upon all loans owing to Mr Knowles by Car Giant Ltd being repaid. The Agreement included an undertaking by Mr Farr to pay Mr Knowles 50 per cent of monies lost by him in the event of the failure of the company.

[13]	Mr  Knowles4  started  advancing  funds  to  Car  Giant  Ltd  in  late  2011.  Mr Knowles estimated that the total advances amounted to $1,700,000. Those advances are not the subject of this decision. Car Giant Ltd commenced operating the car sales in about November 2012. Initially, Mr Farr was in charge of running the operation, but issues quickly arose between him and Mr Knowles. Mr Farr ceased to have any involvement from May 2012. The business subsequently failed. Car Giant Ltd ceased trading in May 2015. It has now been put into liquidation.

 The Agreements

[14]	The Judge noted nine loan agreements were entered into of which the first eight followed the same format. The operative provisions in those eight were all variations on the following formula:

It is hereby agreed the following:

1.	Knowles will provide a personal loan to Farr for the sum of $20,000 in a lump sum on the execution of this agreement.

2.	This loan will be interest free unless agreed otherwise by both parties

3.	The term of the loan is 2 years from the date of execution.

4.	Farr grants Knowles an option for 2 years to acquire for the sum of One Dollar either 20% of the shareholding in Mangati Holdings Ltd or 20% of the shares in CarSuperCo, or 10% of the shares in both entities or any other amount on a pro rata basis provided the total shareholding is equivalent to the above.

5.	The amount of shareholding acquired in either entity is totally at the discretion of Knowles.

6.	It is acknowledged by Farr and Knowles that this arrangement is an interim one and a formal shareholding arrangement will be entered into when the entities start business activity. At this future time, the allocation of shares to be acquired by the parties may be different to the present arrangement.

7.	Farr acknowledges Knowles interest in the entities and all major decisions are to be entered into with the agreement of both parties. This includes all decisions that would normally require a Special Resolution by a vote of shareholders.

8.	The interests of Farr and Knowles in the entities is not transferable to other parties unless by mutual agreement.

4	Or trusts controlled by him.

9.	The agreement here is to be treated as confidential to the parties.

10.	Costs in progressing both projects are to be borne entirely by Farr until the option is exercised after which costs are on a pro rata basis of shares held.

11.	Farr is obliged to ensure the progress of both projects to the best of his abilities and keep Knowles informed of progress on a regular basis.

[15]	The differences between the eight agreements were:

(a)	the date of each agreement;

(b)	the amounts in cl 1: $20,000 in the first two, $5,000 in the third and
$10,000 in each of the remaining five;

(c)	the shareholding percentages in cl 4 in each agreement were proportionate to the amount advanced;5

(d)		In the first four agreements the company was named as CarSuperCo, but the fifth and following agreements, named it as Car Giant Ltd.6

[16]	The Judge noted the ninth agreement was different. It read:

LOAN AGREEMENT BETWEEN ALEX KNOWLES AND GRAEME FARR

28th April 2011

I, Graeme Farr acknowledge the receipt of a personal loan of ten thousand dollars ($10,000) from Alex Knowles. The full amount is to be repaid on the receipt of a tax return of approximately $25,000 due to me in approximately four to six weeks from the day of this agreement and I undertake that first $10,000 of that refund will be paid to settle this loan.

[17]	This was the only one of the agreements which was specifically referred to as a “loan agreement.”

5	For example, where the payment was $20,000 the option to purchase was 20 per cent of the shares in either company or 10 per cent of both. Where the payment was $5,000 the option was to purchase 5 per cent of the shares in either company or 2.5 per cent of both.
6	There were corresponding changes in the “Definitions” section of the agreements in which “CarSuperCo” had been referred to as “a company to be formed”.

[18]	The Judge went on to note that Mr Knowles’ position was that the claim was a straightforward recovery of a series of personal loans advanced to Mr Farr. The Judge said they were clear on their face and there was nothing to suggest that Mr Farr had been released from his obligation to repay.7

[19]	The Judge first dealt with procedural argument raised by Mr Farr. Mr Farr argued there were fundamental procedural errors in Mr Knowles statement of claim which were fatal. He said Mr Knowles had failed verify the allegations in the statement of claim or depose to a belief that the defendant had no defence to the claims.8     The Judge noted that no reference had been made to this argument in      Mr Farr’s notice of opposition,9 and the submissions had only been handed up during the hearing. Mr Knowles argued that leave was required for Mr Farr to rely on the submissions to the Judge or to amend his notice of opposition. Mr Knowles submitted leave should not be granted in light of Mr Farr’s “ambush” technique.10 The Judge agreed. He refused leave to Mr Farr to amend his notice of opposition. This meant the procedural defect point argued by Mr Farr was no longer a live issue. The Judge said in making that decision there  were  reasonable  and  sufficient  assurances  in Mr Knowles’ affidavit to believe Mr Farr had no defence to his allegations.

[20]	The Judge analysed the substantive arguments raised by Mr Farr as follows:11

(a)	Mr Farr argued the advances made to him were made to him as agent or nominee of a company or companies formed for the purpose of the proposed business ventures.

The Judge rejected this argument and concluded the advances were made to Mr Farr personally. This was clear he said from the description of “personal loans” in the loan agreements. He noted much was made of cl 6 of the agreement by Mr Farr, but that clause did not absolve  Mr Farr from liability for the loans. Rather, it was a statement of the

7	Farr v Knowles, above n 1, at [13].
8	District Court Rules 2014, r 12.4(6).
9	Rule 12.9 and 7.17.
10	Rule 7.32(5).
11	Farr v Knowles, above n 1, at [15].

parties intention to review shareholding arrangements when business activity commenced.

(b)	Mr Farr argued that, with the exception of the ninth, the agreements were “interim arrangements” which were varied by subsequent oral agreements so that he would only remain liable for repayment if the business venture(s) did not proceed.

The Judge concluded this argument was “so weak that it is unsustainable in the summary judgment context.”12 This was in light of the parties being business people who lived in different countries, so most of their communications were by email. The evidence indicated they documented their agreements in formal documents and there was no evidence before the Court to support any sort of oral agreement.

(c)	Mr Farr submitted that the Shareholding Agreement, dated 1 July 2011, further varied the nine agreements so that the defendant was not liable to repay the sums advanced under them.

The Judge rejected this and concluded that there were no references in the Shareholding Agreement to the payments made to Mr Farr under the other agreements. There was also no implied release to be taken from the terms of the other payment agreements.

(d)	Mr Farr argued Mr Knowles had a remedy against Car Giant Ltd for repayment of the advances.

The Judge concluded that in light of his findings on the other defences raised by Mr Farr, this defence was untenable.

12	At [40].

 Conclusion 

[21]	The Judge granted the application for summary judgment for the principal sum of $105,000.

The approach on appeal

[22]	The applicable standard of appeal is that articulated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.13 The appellate court has the responsibility of arriving at its own assessment of the merits of the case, but the appellant bears the onus of satisfying the Court that it should differ from the decision below. No deference is required beyond the customary caution appropriate when the tribunal had a particular advantage, such as technical expertise or the opportunity to assess the credibility of witnesses.14 Elias CJ summarised the position of the Supreme Court as follows:

[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate Court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[23]	In this case of course the evidence was adduced by affidavit without cross- examination, therefore I am in a similar position to the Judge hearing the summary judgment. He had no better opportunity to assess the credibility of the witnesses than is available to me on appeal.

[24]	There is no issue taken with the principles of Summary Judgement as referred to by the Judge:15

[24]	The principles to be applied in an application for summary judgment are well established. They were set out by the Court of Appeal in Krukziener

13	Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5] and [16].
14	At [3] to [5], [13] and [21].
15	Farr v Knowles, above n 1.

v Hanover Finance Ltd16 and usefully summarised by Osborne AJ in Bell v Bell17.

(a)	Common sense, flexibility and a sense of justice are required.18

(b)	The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.19

(c)	The Court will not hesitate to decide questions of law where appropriate.20

(d)	The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits.21

(e)	In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable.22

(f)	In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the Notice of Opposition.23

(g)	In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.24

(h)	The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required for the protection of the integrity of the summary judgment process.25

(i)	Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.

16	[2008] NZCA 187 at [26]
17	[2015] NZHC 3059 at [27]
18	Haines v Carter [2001] 2 NZLR 167 (CA) at [97].
19	Pemberton v Chappell [1987] 1 NZLR 1 (CA).
20	European Asian Bank AG v Punjab & Sind Bank [1983] 2 All ER 508 (CA) at 516.
21	Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21.
22	Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).
23	Middleditch v NZ Hotel Investments Ltd (1992) 5 PRNZ 392 (CA).
24	Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [28].
25	Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).

Issues on appeal

[25]	Mr Farr appeals the entry of summary judgment. I have set out the general grounds above. In summary, Mr Farr says:

(a)	leave should never have been granted to bring a summary judgment application;

(b)	the Judge failed to appropriately consider the defences raised by Mr Farr—particularly, his defence that his personal liability to pay back the loans was varied by the Shareholding Agreement;

(c)	the underlying facts were disputed so the matter is inappropriate for a summary judgment decision; and

(d)	the summary judgment hearing was conducted in an unfair and prejudicial manner because Mr Farr was not properly allowed to be heard orally or by written submissions.

[26]	I will deal with each of these matters in turn.

Leave should not have been granted

[27]	At the hearing on  29  August  2018  in  the  District  Court,  Mr Haig,  for  Mr Knowles, applied orally for leave to apply for summary judgment out of time. Leave was granted without allowing Mr Porter, who was appearing for Mr Farr, an opportunity to comment.26

[28]	Mr Farr did not, however, take any steps to appeal that decision. Nor did he raise this issue in his notice of appeal filed in this Court as required.27 Instead it was raised in submissions at the hearing of the appeal. Mr Porter then made an oral application for leave to appeal that earlier decision.

26	Leave Decision, above n 3.
27	High Court Rules 2016, r 20.9(1)(c).

[29]	Given my findings, set out below, that summary judgment should not have been entered it is not necessary to deal with this application.

Factual disputes and available defences

[30]	Whether Mr Farr has no defence to Mr Knowles’ claims is linked to potential factual disputes in the proceedings. Therefore, those matters will be dealt with together.

Shareholding Agreement

[31]	The focus of Mr Farr’s appeal is the effect of the 1 July 2011 Shareholding Agreement. I set out the most relevant aspects of that document:

PREAMBLE

…

6. Farr holds 100 percent of the shares in Car Giant at the signing of this document and this agreement will describe Knowles rights over those shares.

…

8. Knowles has agreed to provide capital for the establishment of the car supermarket subject to this document and other requirements agreed between Farr and Knowles which are not necessarily part of this document.

IT IS AGREED THAT

1.	Knowles will lend Car Giant funds sufficient to cover set up costs and initial trading losses, the exact amount being an agreed amount between Knowles and Farr and based on the budget prepared by Farr.

2.	The funds will be made available on an as-required basis rather than held by Car Giant. Car Giant will give three working days notice to Knowles when further funds are required.

3.	In exchange for the loan facility Knowles has the ongoing right to acquire all of the shares and therefore complete ownership of Car Giant.

…

5. Farr will hold all the shares in Car Giant on behalf of Knowles and transfer the shares to Knowles as requested by Knowles.

…

7.  Car Giant will pay back all of the loans made by Knowles before  accruing assets such as vehicle stock or retained capital except with the express approval, and at the sole discretion of Knowles.

…

10.	Within a period of 13 months after the execution of this agreement Farr can buy shares or rights to shares from Knowles up to 50% of the value of the company by instructing the Car Giant to pay Knowles 50% of the total amount loaned by Knowles to Car Giant plus the taxable element of the payment to result in a zero tax liability for Knowles in respect of the transaction. This clause is conditional on Clause 7 being completed, that is Knowles being repaid all funds loaded by Knowles to Car Giant.

11.	If Clause 10 is not completed within the time frame then within a period of 19 months from the execution of this agreement and subject to the completion of Clause 7, Farr can buy shares or rights to shares from Knowles up to 50% of the value of the company by instructing Car Giant to pay Knowles 75% of the total amount loaned by Knowles to Car Giant plus the taxable element of the payment to result in a zero tax liability for Knowles in respect of the transaction. This clause is
 conditional on Clause 7 being completed, that is Knowles being repaid
 all funds loaned by Knowles to Car Giant.

12.	If Clause 11 is not completed within the time frame then within a period of 25 months from the execution of this agreement and subject to the completion of Clause 7, Farr can buy shares or rights to shares from Knowles up to 50% of the value of the company by instructing Car Giant to pay Knowles 100% of the total amount loaned by Knowles to Car Giant plus the taxable element of the payment to result in a zero tax liability for Knowles in respect of the transaction. This
 clause is conditional on Clause 7 Being completed, that is Knowles
 being repaid all funds loaned by Knowles to Car Giant.

13.	If Clause 12 is not completed within the timeframe then Farr has no further rights to buy shares or rights to shares in Car Giant.

…

The proposed defences

[32]	In the District Court Mr Knowles maintained the nine loan agreements were personal loans which had not been discharged and therefore were due and payable by Mr Farr. Mr Farr maintained the Shareholding Agreement altered those agreements as it had the retrospective effect of absolving him from liability for the previous personal loans.

[33]	The Judge agreed with Mr Knowles, and found the Shareholding Agreement was a forward-looking document that did not have any bearing on the previously made loans. The Judge recorded this defence as follows:28
[41] The argument that there has been an agreed variation is based alternatively or additionally on the proposition that the obligation to repay the advances was subsumed by the Shareholding Agreement. It is important first to record the business context in which that was made. It was made some months after the last of the eight agreements, that is, when the plaintiff had already advanced a total of $95,000, but had not acquired any shares in either company. The defendant continued to hold 100% of the shares in both. It was made before the Car Giant business had been actually established as an operating business. Although it is not entirely clear from the evidence, it appears that the parties had accepted by then that the Bell Block venture would not proceed further.

[34]	The Judge found that Mr Knowles became the sole beneficial owner of the company but concluded that the Shareholding Agreement recorded a new arrangement in which Mr Knowles agreed to put up a loan facility to support the establishment of Car Giant Ltd. The Judge found it was not possible to read the agreement as containing any implied release of the defendant’s liability for those advances. The Judge said:

[45]	There is no specific reference in the Shareholding Agreement to the advances made to the defendant under any of the agreements which are the subject of this claim. Nor is it possible to read the Agreement as containing any implied release of the defendant’s liability for those advances. Indeed, the terms of it show that the plaintiff was to acquire the defendant’s shareholding in Car Giant Limited in consideration of loans to be made to the company in accordance with a budget prepared by the defendant. The language used by the defendant when he drafted the agreement is not apt to encompass the intended extinction of his personal liability for the existing advances made to him in the period May 2010 to January 2011. Nor is there any suggestion in the evidence that the budget made any reference to those loans.

[46]	The defendant pointed to an email exchange of 31 May 2011 in the period leading up to the signing of the Shareholding Agreement. That exchange in fact indicates that the defendant understood that he was personally liable for the advances (“or should really be paid from our shared profit after I have bought in – otherwise I am paying you back from money the company, owned 100% by you, is earning”). The exchange signifies no more than that it was anticipated that profits from Car Giant Limited might be used for repayment, the repayment of all loans made by the plaintiff to Car Giant being a prior condition for the reacquisition of shares in the company by the defendant.29 In the event the loans made by the plaintiff to Car Giant

28	Farr v Knowles, above n 1, at [41].
29	Clauses 10,11 and 12 of the Shareholding Agreement.

were never repaid and the defendant never reacquired beneficial ownership of the shares.

[35]	Mr Farr says the Judge was wrong and that he has a viable defence, so summary judgment was inappropriate. Mr Porter framed this argument as follows:

(a)	At least eight of the loan agreements were referred to as “interim” arrangements, with specific reference being made to a “formal shareholding arrangement” that was to be entered into once business activity began.

(b)	At least eight of the loan agreements made reference at cl 4 to an option for Mr Knowles to acquire a percentage amount of the shareholding in one or both of the companies that were to be created for the business ventures planned. Surrounding email correspondence makes it clear that if this option was taken up the relevant loan would be extinguished.

(c)	The Shareholding Agreement was entered into on 1 July 2011. This was the “formal shareholding arrangement” contemplated in the agreements and to which the parties had referred to the various loan agreements.

(d)	Clause 5 of the Shareholding Agreement makes it clear that Mr Farr held the shares of Car Giant Ltd for Mr Knowles. This was recognised by the Judge in his decision.

(e)	Clause 7 of the Shareholding Agreement specifies that “Car Giant will pay back all of the loans made by Mr Knowles before accruing assets…” Mr Farr argues the wording of cl 7 and the surrounding context indicate that the loans referred to include the personal loans recorded in the earlier agreements.

(f)	The surrounding context makes it clear that the “interim” loan agreements were just that. That they were interim interim until a more formal agreement was entered into. Once the Shareholding Agreement

was made, that document “subsumed” the previous personal loan agreements.

(g)	Under the personal loan agreements, if Mr Knowles exercised his option to obtain a percentage of the shares of the company for $1, the loan owed to him was to be extinguished. That option had effectively been taken up in the Shareholding Agreement as Mr Farr held all the shares in Car Giant Ltd for Mr Knowles.

[36]	Mr Farr also seeks leave to produce an email not previously produced. He says it supports his defence.

Further evidence on appeal

[37]	Mr Farr filed a memorandum received by the Court on 4 July 2019 seeking to introduce an email exchange into evidence. This evidence was not produced before the District Court Judge at the summary judgment hearing. Mr Farr argued that this email evidence supported his defence to the claims and was evidence that the Shareholding Agreement was intended to absolve him of liability to repay the personal loans.

[38]	The rules concerning the adducing of new evidence  on appeal are set out at   r 20.6 of the High Court Rules 2016 (the Rules) as follows:

20.16	Further evidence

(1)	Without leave, a party to an appeal may adduce further evidence on a question of fact if the evidence is necessary to determine an interlocutory application that relates to the appeal.

(2)	In all other cases, a party to an appeal may adduce further evidence only with the leave of the court.

(3)	The court may grant leave only if there are special reasons for hearing the evidence. An example of a special reason is that the evidence relates to matters that have arisen after the date of the decision appealed against and that are or may be relevant to the determination of the appeal.

(4)	Further evidence under this rule must be given by affidavit, unless the court otherwise directs.

[39]	Mr Haig objected to the admission of the further evidence.

[40]	Mr Haig submitted that there were no special reasons for hearing the evidence.

[41]	The general test for admission of new evidence was summarised in Culverden Retirement Village Ltd v McLuckie as follows:30

The discretion is sparingly exercised and the presumption is that appeals will be heard on the record, as it exists. In order to satisfy the test the evidence must be cogent and likely to be material and could not reasonably have been produced at first instance.

[42]	The overarching consideration is that of doing justice. Duffy J described the approach as follows:31

[21]	There is always room for the special case where fresh evidence is admitted, even though it was reasonably available for the hearing at first instance. The discretionary power in r 716 is broad enough to permit a Court to allow such evidence to be adduced. Furthermore, discretionary authority should never be fettered by fixed guidelines. But such exceptions would be rare and to occur, the fresh evidence would need to be cogent and material to the appeal’s resolution … When the fresh evidence is neither relevant nor likely to be material and, as well as that, is not new (in the sense it was reasonably available at the first hearing) there is no apparent basis for departing from the standard tests for its admission.

[22]	It has always been said that the discretion to admit fresh evidence should be sparingly used and not to provide litigants with an opportunity to bolster their case on appeal.

[43]	Mr Farr says that he had only recently recovered the email from his old computer system. He had used a product called “live mail” to handle his email but it had been discontinued by Microsoft. He says as he was unaware that the proceedings were still on foot until 2018, he had not taken steps to move his archived correspondence to a new platform when Microsoft discontinued its services. Therefore, Mr Farr said his son had only recently been able to recover various emails from the relevant period. He said the special reasons for allowing the evidence to be adduced were that:

30	Culverden  Retirement  Village  Limited  v  McLuckie  HC  Auckland  CIV-2007-404-000750,  18 September 2007 at [16]. This decision dealt with the predecessor of r 20.16.
31	Complaints Committee No 1 of the Auckland District Law Society v P (2007) 18 PRNZ 760 (HC).

(a)	the evidence could not be recovered in the time leading up to the summary judgment application hearing. He said many years had elapsed since the email and he had been unable to recover the email correspondence until recently.

(b)	the relevant email provides the context for the subsequent exchanges between the parties. It is important evidence and should be admitted and considered.

[44]	In my view there are special reasons for allowing the hearing of the evidence. A reason for the failure to produce the email earlier has been provided. The time which elapsed before the proceedings were heard does give some weight to the reason for the technical difficulties Mr Farr encountered in recovering his emails. It is relevant that if the case had progressed as ordinary proceedings rather than on the summary judgment track it is likely the email would have been recovered for the purposes of discovery. Given the possible significance of that the email it is both relevant and material and it should be admitted. Accordingly, leave is granted to adduce the email as evidence.

The emails

[45]	The relevant email trail sought to be adduced reads as follows. The reply from Mr Knowles is later in time but first in the email trail:32

From: Alex Knowles

Sent:	Thursday, May 13, 2010 8:18 AM

To: Graeme Farr

Subject: Re: Shareholding G
Sounds fair, is this the same deal you have with Q, happy to front 20 to give you the room to move if required.

The issues is that you need to draw up a small document just recording this situation as these are interim steps that will all need to get formalised in equity holdings ideally as they progress.

32	(emphasis added).

The issue is to keep focusing on using others money to get there otherwise this will eat into your equity.

So draw it up and lets go. A
On 5/11/10 4:45 AM, “Graeme Farr” <wlmailhtml:glfarr@xtra.co.nz> wrote:

How about this as an arrangement.

For a $10K personal loan you get your choice of 10% of the Taranaki Mall project or 10% of the Car Giant Project – loan can be converted to shares at any time in either or both projects to a total of 10% - eg 5% and 5%. Loan to be paid back in 2 yrs if no shares taken up. Interest can be paid if required by tax rules.

This is an interim arrangement until a proper structure can be put in place. I pay all the bills till this structure is done – that will keep me frugal! I will need to pay $6K to extend the options one month after signing Max’s land so will need more then. You can invest on the same price per shareholding for 10% more total investment and that can be done as a loan too. Or Q might pick up more at that point.

The “proper structure” will allow you to go to more shareholding for helping raise money for start up capital – but this doesn’t have to be your money. We could sell a further shareholding to de-risk the projects. I figure if I have about the same as you in shares I will end up with more than if I try to go it alone. If we are clever we should be able to do these with very little cash in – otherwise they are not very good projects.

Do you have any ideas on this? Obviously not only do I have no cash to put in I don’t have any to live on while I work on them. But [t]hat has been the motivation to get things going!

Cheers G
Analysis

[46]	Mr Porter summarised Mr Farr’s substantive defence as being that it was never agreed that Mr Knowles would be able to take the company shares as well has having the benefit of the personal loans recorded in the nine earlier agreements.

[47]	Mr Porter says the emails provide a record of what the parties intended to do with their arrangements.33 He says that the true meaning of the various agreements

33 Evidence of prior negotiations may be admissible for the purpose of interpreting contractual conflicts: Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444. This will be a matter for argument at the hearing in the District Court.

when read together was that the personal loans were “to be paid back in two years if no shares taken up” as set out in the email. It was common ground that following the Shareholding Agreement the shares were held by Mr Farr on Mr Knowles’ behalf. The Shareholding Agreement at cl 7 says “Car Giant will pay back all of the loans made by Knowles…”. It is arguable this refers to all the loans made by Knowles to Mr Farr personally. The email above would support that interpretation.

[48]	The agreements were drawn up by Mr Farr, who is not a lawyer. They are not be as clear as they might be. Nevertheless, they are capable of an interpretation consistent with Mr Farr’s argument, being that the personal loans were subsumed or discharged by operation of the Shareholding Agreement.

[49]	Therefore, the evidence needs testing in a way that is not possible using the summary judgment procedure. The foundation has been laid for Mr Farr’s defence.

[50]	The appeal will be allowed on that basis.

[51]	I now briefly deal with the other procedural matters that Mr Porter raised. Given my conclusions above, however, they are not relevant to the outcome of this appeal.

Fairness and prejudice

[52]	First, Mr Porter says Mr Farr was not granted a proper right to be heard in the District Court and that his submissions were cut short by the Judge despite a request for more time. Secondly, Mr Porter says his written submissions were not properly considered (or considered at all) by the Court.

Insufficient time

[53]	Mr Porter did not suggest that he was not able to raise all the issues he wished to. He agrees that the written submissions handed up by him contained all issues he wished to raise at that stage. They were provided to the Judge during the hearing but Mr Porter says he did not have sufficient time to explain them all to the Judge.

[54]	I note that the hearing lasted one and a half hours. This is not unduly short for a summary judgment application based on a reasonably straight forward commercial arrangement. However, Mr Porter says he did not get a fair part of that hearing time.

[55]	No transcript of the hearing is available. As it was a summary judgment the evidence was contained in the affidavits. There was no cross-examination.

[56]	There is no real dispute that the hearing lasted about one and a half hours and that Mr Porter was on his feet making submissions for only 10 to 15 minutes of that time. Counsel agreed that most of the time was taken up with the judge questioning Mr Haig.

[57]	Mr Porter says he handed up his submissions at the commencement of his oral submissions. It was in those submissions that he raised for the first time the argument that Mr Knowles had failed to verify the Notice of Claim. Mr Haig objected to that issue being raised so late in the piece and sought to be heard in reply. However, due to the crowded District Court list and that another matter was due to be heard immediately following, Mr Haig did not get that opportunity.

[58]	While there were time constraints on the hearing the Judge did have the benefit of full submissions by Mr Porter. While he did not accept the arguments, nevertheless he dealt with them in his judgment. I do not consider that the summary judgment application was dealt with by the Judge in a manner that was unfair or prejudicial to Mr Farr. Mr Farr was represented by experienced counsel and had the opportunity to file written submissions addressing all the issues sought to be raised by the defence.

[59]	I do not consider any appeal ground is made out arising from the process in the District Court.

Insufficient consideration of arguments

[60]	The Judge dealt with a procedural argument raised by Mr Porter at the summary judgment hearing for the first time and said:34

34	Farr v Knowles, above n 1.

[20]	The notice of opposition filed by the defendant makes no reference of any sort to the procedural points now raised in breach of DCR 7.17 (2). The typewritten submissions in which these points were first raised were obviously prepared before the hearing. The fact that they were not served until the moment they were to be presented orally by counsel at the hearing suggests that there was a deliberate decision made not to forewarn the plaintiff’s advisors, presumably to prevent them from remedying any technical defects exposed. Indeed, counsel for the defendant made reference to his preference for the “old fashioned” approach when protest was made about that.

[21]	The days of trial by ambush in the civil jurisdiction have passed. Procedural justice requires parties to be given proper notice of arguments to be made so that the Court can decide cases with the benefit of considered argument on all the issues from both sides. The object is to provide the parties with a substantive decision of the highest quality possible, not to reward the party who has most successfully kept his cards up his sleeve.

[22]	In those circumstances, I am not prepared to grant the leave for the notice of opposition to be amended which is strictly necessary before these additional grounds of opposition can be raised. In coming to that decision, I have taken into account that whatever technical merit they might have, they lack any real substantive merit. The fact that the plaintiff has sworn an affidavit in support of the application for summary judgment provides reasonable assurance that he believes the defendant has no defence to the allegations in his notice of claim which are straightforward. Indeed, his affidavit states in Para 2, “For the reasons set out below I believe the defendant Graeme Farr has no defence to my claim against him for failing to repay personal loans totalling $105,000.”

[23]	Although he has not expressly verified the allegations in the notice of claim in those words, in substance his affidavit does that. The point about making demand for repayment has no substantive merit. The letters attached to counsel’s submission in reply show that had this defence been raised in the notice of opposition as it should have been, it would have easily been answered by an affidavit in reply. Furthermore, there is nothing apparent to me from the various affidavits which have been filed on either side on both the application to set aside judgment and the summary judgment application which suggest any relevant material has been withheld.

[61]	Therefore, the Judge dealt with the procedural argument. He did not accept the argument but he considered it and gave reasons for rejecting it. He made no error in that regard. This argument was not pursued by Mr Porter before me with any vigor. I am of the view that the failure to verify was a technical failure which in substance gad been rectified by Mr Knowles verifying the required matters on oath.

[62]	The Judge was correct to observe that the matters to be argued by Mr Farr should have been contained in his notice of opposition.35 As the Judge said, “[t]he

35	District Court Rules, rr 12.9(2)–(4) and 7.17(2).

days of trial by ambush in the civil jurisdiction have passed. Procedural justice requires parties to be given proper notice of arguments to be made so that the Court can decide cases with the benefit of considered argument on all the issues from both sides.”36

[63]	The Judge made no errors in relation to procedure or failure to consider the arguments.

Conclusion

[64]	As will have been obvious, I have concluded the appeal should succeed.     Mr Farr has raised an arguable defence that cannot be determined in the absence of a full hearing. The proceedings were therefore unsuitable for summary judgment.

[65]	The emails of May 2011, which I have granted leave to be adduced on appeal, lend weight to my conclusion. These emails were not before the District Court Judge, so he did not have the benefit of that information when assessing the possible defences.

[66]	Accordingly, the appeal is allowed. The proceedings are remitted to the District Court for hearing on the ordinary proceedings track.

Costs

[67]	Counsel requested that costs be the subject of submissions. There appears no reason why costs should not follow the event on a 2B basis, nevertheless, if counsel are unable to agree on costs, memoranda should be filed as follows:

(a)	By the appellant on or before five days following delivery of this judgment;

(b)	By the respondent on or before a further five days.

(c)	A reply (strictly in reply to the respondent’s submissions) on or before a further three days.

36	Farr v Knowles, above n 1, at [21].

[68]	Leave is reserved for ten days to counsel to file memoranda if there are any other issues arising from the judgment that should be dealt with by me.

Grice J

Solicitors:
Sievwrights Law, Barristers and Solicitors, Wellington Nowland Gordon & Associates, Wellington