18 March 2020

Guarantee: Primary Services New Zealand Ltd v. Fonagy

Property developer Andrew Fonagy was ordered to pay $850,000 on his guarantee of funding for a central Christchurch hotel project.  Nervous creditors are hunting down assets allegedly moved off-shore.
The High Court was told of financial difficulties surrounding Mr Fonagy’s $14.4 million project proposed for Colombo Street in Christchurch. In September 2015, a mortgagee sale was threatened.  Looking to refinance, Mr Fonagy met with David Short, a retired lawyer working as a property consultant.  New cash came from interests associated with Mr Short.  As well as interest on the funding, the deal promised a share of the finished project.  Mr Fonagy guaranteed payment.  The project fell over in mid-2018, with secured creditors recovering $1.35 million in a mortgagee sale.  Primary Services New Zealand Ltd, which provided a credit line organised by Mr Short, claims Mr Fonagy owes it $1.1 million.  It took immediate steps to sue Mr Fonagy on a signed guarantee for $850,000 and started identifying what personal assets he might own.    
In the High Court, Mr Fonagy denied liability.  He said he was conned into signing the guarantee: Mr Short said he was lawyer, when he no longer held a practising certificate; funding to complete the project was promised by Mr Short, but not delivered. Associate judge Paulsen ruled there was no contemporary evidence of a promise to fund the project to completion. It was ‘fanciful and contrived’ to say Mr Short was not a lawyer, he said.  Mr Short was a solicitor; albeit a solicitor who did not hold a current practicing certificate.  Mr Fonagy’s complaint that unbeknown to him Mr Short was subject of a complaint to the Law Society was irrelevant, Judge Paulsen said.  This had no bearing on Mr Fonagy’s decision to sign the guarantee. The $850,000 guarantee was enforceable.
Primary Services allege Mr Fonagy is looking to transfer assets out of New Zealand to Cook Islands’ company Ora Trustees Ltd. Ora acts as a corporate trustee for the benefit of off-shore beneficiaries.
Primary Services New Zealand Ltd v. Fonagy – High Court (18.03.20)
20.060