Udc Finance Ltd v Rout

JurisdictionNew Zealand
JudgeMatthews
Judgment Date19 February 2015
Neutral Citation[2015] NZHC 212
Docket NumberCIV-2014-409-000577
CourtHigh Court
Date19 February 2015

[2015] NZHC 212

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000577

BETWEEN
UDC Finance Limited
Plaintiff
and
Stephen Dale Rout
First Defendant

and

Maru Stacey Rout
Second Defendant

and

Jane Rout and Stephen Dale Rout as trustees of the Sd and Jm Rout Family Trust
Third Defendants
Appearances:

M D Pascariu for Plaintiff

A N Riches for Second Defendant

JUDGMENT OF ASSOCIATE JUDGE Matthews

1

The plaintiff (UDC) sues the second defendant (Mr Rout) under a guarantee he signed on 13 June 2007 by which he, the first defendant Stephen Rout (his father), and three companies in which his father and others held shares, guaranteed repayment to UDC of all guaranteed amounts then or in the future payable to UDC by each of the other guarantors. UDC seeks judgment for the sum owed to it by Stephen Rout as guarantor of the indebtedness of three companies, Steve Rout Contracting Limited, Blue 9 Limited, and Southern L C Limited.

2

Mr Rout does not deny that he signed the guarantee, nor does he dispute the amount claimed from him by UDC. He says, however, that he signed the guarantee under undue influence, and that UDC is estopped from claiming any sum from him.

3

UDC applies for summary judgment against Mr Rout, under r 12.2 of the High Court Rules. This provides:

12.2 Judgment when 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.

4

The principles the Court is to apply on an application for summary judgment are summarised in Krukziener v Hanover Finance Ltd: 1

[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 at 3 (CA). 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 at 341 (PC). 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 v Patel (1987) 1 PRNZ 84 (CA).

5

In Auckett v Falvey, Eichelbaum J said: 2

On a summary judgment application, the onus is on the plaintiff to show that there is no defence. On the present facts, the plaintiffs are able to pass an evidential onus to the defendants by exhibiting the contract which on its face, entitles them to the remedy they now seek. The defendants are then in a position of having to demonstrate a tenable defence. However, the overall position concerning onus on the application is that at the end of the day the question is whether the plaintiffs have satisfied the Court as to the absence of a defence.

6

I take from these authorities that the correct approach of the Court is to consider the following:

  • (a) Does the evidence for the plaintiff establish a position which on its face would entitle it to the remedies it now seeks?

  • (b) If so, has the defendant demonstrated a tenable defence?

  • (c) The onus which shifts to the defendant is an evidential one only; the burden of proving that the defendant does not have a defence rests throughout with the plaintiff.

7

Because Mr Rout accepts that he signed the guarantee on which UDC relies, and has no quarrel with UDC's assessment of the amount it says Stephen Rout, and therefore he owes under the guarantee, UDC has established a position which, prima facie, entitles it to judgment in the sum claimed.

8

The issues on this application, therefore, are whether Mr Rout has demonstrated that he has a tenable defence, either:

  • (a) on the basis of undue influence at the time that he signed the guarantee relied on by UDC; or

  • (b) on the basis that UDC is estopped from claiming under the guarantee

and thus whether UDC has proved that Mr Rout does not have a defence to its claim.

First issue: has Mr Rout demonstrated that he has a tenable defence on the basis that he signed the guarantee under undue influence?
9

It is necessary, first, to record the terms of the guarantee on which Mr Rout is sued, and how it came to be given. Since 1998 UDC had made financial facilities available to Steve Rout Contracting Limited, a company in which Stephen Rout and his wife were the shareholders. Stephen Rout was its sole director, and one of the guarantors of advances made by UDC.

10

According to Mr Rout, he started working for Steve Rout Contracting Limited in 1999, when aged 16. He started by helping out with emergency works required to deal with flooding in Queenstown. After that he did not return to school and he did not complete School Certificate qualifications. He worked with the company as a labourer, full-time. This involved him working “out in the field” doing various physical jobs. In 2001 he became a truck driver and in 2002 he was promoted to site supervisor. In 2004, when he says he was 24 years old, Mr Rout moved into the office for the first time. He says that he then began attempting to learn what he describes as “the other side of the business”. I note in passing that the dates given by Mr Rout do not entirely align. If he was 16 in 1999, he would have been born in 1983 so in 2004 he would have been 21, not 24. In his affidavit sworn in 2014 he says he is 31, supporting this position.

11

In 2004, Steve Rout Contracting Limited was expanding and had an opportunity to enter a 10 year supply contract with a developer of a very substantial planned project for approximately 200,000 cubic metres of concrete, at a contract value of some $40,000,000. At that point Steve Rout Contracting Limited was not involved in batching and selling concrete. It was Mr Rout's task to do some business planning for this venture and obtain equipment quotes. He says, however, that his father handled the financing details of the proposal with finance suppliers. That included UDC.

12

In June 2006 a company called Southern L C Limited was incorporated to manufacture and supply concrete. Mr Rout was appointed as a director, as was his father. The shares were all held by Blue 9 Limited of which Stephen Rout was the sole director, and he and his wife were the only shareholders.

13

According to Mr Rout, he was not paid any director's fees, rewarded on the basis of any share in the profits of the company, or indeed paid at all by that company. He received remuneration at $26 per hour for work he undertook for the company, but the paying company was Steve Rout Contracting Limited.

14

In June 2007 Mr Rout was appointed a director of Procure Cement Limited. It seems this company was to supply cement for the concrete. Another company was incorporated as well, Procure Concrete Limited, but on the evidence before me there is no suggestion that Mr Rout was a director of this company. Mr Sunderland of UDC says that Southern L C Limited traded as Procure Concrete. The intricacies of which company performed which tasks are obscure but it is clear that by the time the guarantee in question was signed, Mr Rout was a director of Southern L C Limited and Procure Cement Limited, both of which were to be engaged in the venture I have described.

15

Since March 2004 and August 2004 respectively, Mr Rout had also been a director of Queenstown Hardfill Management Company Limited, and MOVENZ.Com. Mr Stephen Rout was also a director of both these companies. There were four other directors of the former, and in the latter Mr Rout held 100 of the 2,600 shares, and was one of 26 equal shareholders (on the evidence, his only shareholding in any company). There is no evidence before me of what, if anything, either of these companies did or what role, if any, Mr Rout played in either of them.

16

UDC's decision to fund the new venture was based at least in part by a business plan for the operation of the Procure Cement and Procure Concrete businesses, prepared by McCulloch and Partners, chartered accountants. In that document it is said that executive management of Procure Cement and Procure Concrete would be provided by Stephen Rout and Mr Rout, with day-to-day management provided by another person. The plan states that Procure Cement and Procure Concrete (Southern L C Limited):

are part of the Rout Group of companies which is actively involved in civil engineering contracting, screening and crushing contracting, landfill management, project management, property development and cartage contracting. The Rout Group operates throughout the South Island and in the Fijian Islands. Group turnover was around $10.5M for the 2006 year.

17

The plan goes on to say that Procure Cement and Procure Concrete, while separate companies, operate as an integrated business and they “leverag[e] off relationships and activities” of other companies within the Rout group.

18

The extent, if any, to which Mr Rout contributed to the preparation of this document is unclear. It was produced in evidence by Mr G E Hawke, an account manager with UDC, at the reply stage of affidavit exchange, so Mr Rout has not had an opportunity to give evidence on it. Mr Pascariu submits that because Mr Rout says in his affidavit that he was involved in planning the new...

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