Baxter v Murray [2020] NZCA 222, 8 June 2020
- Court
- Court of Appeal
- Judgment
- 8 June 2020
- Neutral
- [2020] NZCA 222
Areas of law
Judgment analysis
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Facts
In September 2017, Zeecol Finance LLC purchased the shares in JLE Holdings Ltd from the respondents. The sale included USD 1,000,000 in vendor finance, documented in a Sale and Purchase Agreement (SPA). The SPA contained clauses for a 'working capital adjustment' and a 'no right of set-off' provision. In December 2017, the respondents provided further lending of USD 220,000 to Zeecol via a loan agreement, which Mr. Baxter guaranteed and which also contained a no set-off clause. After making some payments, Zeecol began to default. On 11 August 2018, the parties entered into a Variation Agreement to restructure the outstanding debt of USD 730,000. Both appellants became parties to this Variation as 'covenantors', unconditionally guaranteeing Zeecol's performance. The Variation explicitly confirmed that the terms of the original SPA remained in full force and effect. Zeecol made one further payment of USD 30,000 under the Variation and then defaulted completely. The respondents made a demand on the appellants as guarantors, who failed to pay. The respondents successfully sought summary judgment in the High Court for USD 713,428.36 plus interest and costs.
Held
- A no set-off clause (cl 13.18) in an underlying Sale and Purchase Agreement (SPA) is incorporated into a subsequent Variation Agreement and binds all parties to that Variation, including guarantors who were not parties to the original SPA.
- Where a Variation Agreement defines the 'Parties' to include the original buyer, sellers, and new guarantors ('Covenantors'), a clause stating that 'The Parties acknowledge and confirm that they are and continue to be bound by the terms of the SPA' applies to all named parties, including the guarantors.
- Guarantors cannot rely on a provision from an incorporated agreement (the working capital adjustment from the SPA) as the basis for a set-off, while simultaneously arguing that an exclusionary clause from the same agreement (the no set-off clause) does not apply to them.
- The court's discretion to refuse summary judgment or grant a stay of execution should not be exercised where it would defeat the commercial purpose of a guarantee that, by incorporation, excludes the right of set-off.
The appeal is dismissed. The appellants are to pay the actual and reasonable costs of the respondents on this appeal on an indemnity basis in accordance with cl 2.1 of the Variation Agreement.
Key passages1
A set-off, either legal or equitable, will be regarded as a defence and sufficient to defeat an application for summary judgment.
“The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.”
Cases mentioned in judgment