All Metals Trading Company Limited v Eagle Wire Products Limited

[2013] NZHC 425

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2012-404-004152 [2013] NZHC 425

BETWEEN  ALL METALS TRADING COMPANY LIMITED

Plaintiff

ANDEAGLE WIRE PRODUCTS LIMITED Defendant

CIV 2012-404-004154

AND BETWEEN            ALL METALS TRADING LIMITED Plaintiff

ANDTAWIL HOLDINGS LIMITED Defendant

Hearing:         4 March 2013

Appearances: P Dalkie for the Plaintiff/Respondent

A Commons for the Defendants/Applicants

Judgment:      6 March 2013

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

06.03.13 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

P Dalkie, P Dalkie, Barrister, Auckland – [email protected]

A Commons, Auckland – [email protected]

ALL METALS TRADING COMPANY LIMITED V EAGLE WIRE PRODUCTS LIMITED HC AK CIV 2012-

404-004152 [6 March 2013]

Background

[1]      Wire by Design Ltd was the tenant of the plaintiff’s premises at Alfred Street, Onehunga (the premises) pursuant to an agreement to lease dated 1 December 2010 (the agreement to lease).  When Wire by Design went into receivership and in liquidation on 9 May 2012 it owed the plaintiff $405,577.01 for unpaid rent and outgoings.

[2]      The plaintiff served statutory demands upon Eagle and Tawil to recover the debt owing by Wire by Design.  Mr Wright was the sole director of those three companies.  In issue is whether Eagle and Tawil guaranteed Wire by Design’s debt to the plaintiff, and if they were, whether there is available to them a right of set-off due to the plaintiff having converted Wire by Design’s property in the factory and electrical fit-outs when the plaintiff resumed control of the premises upon Wire by Design’s liquidation.

[3]      The plaintiff has filed applications for the liquidation of Eagle and Tawil. They have responded with applications for leave to file a statement of defence out of time, and to stay the liquidation proceedings.  The success of those applications depends on whether Eagle and Tawil can satisfy the Court that there is a genuine dispute with the claim of a debt due.   They bear an onus to demonstrate a strong prima face case of the existence of a genuine dispute.

[4]      This  case  focuses  initially  upon  the  parties’ agreement  to  lease  dated  1

December 2010.   It then focuses upon the defendants’ claims that the plaintiff wrongfully resumed control for itself of the property in the factory fit-out and also assisted the Crown to obtain control of the property comprised in the electrical fit- out at a time when it is said the plaintiff had no authority to deal with the property in those fit-outs.

[5]      Tawil and Eagle say they did not execute the agreement to lease in any capacity whatsoever.  However, if the Court is of the view that Eagle and Tawil have a  debt  to  the  plaintiff  then  the  Receiver  of  Wire  by  Design  and/or  Wrights

Investments Limited (the security holder with respect to the factory and electrical fit- outs of the premises Wire by Design had leased), will assign to Tawil and Eagle their interest in those which they say far exceeds the value of the plaintiff’s claims against them.

Agreement to lease

[6]      It is in standard Auckland District Law Society form.   On the first page it records:

TENANT:                   Wire by Design Limited

GUARANTOR:          Eagle   Wire   Products   Limited,   Tawil   Holdings

Limited and Hadley John Wright

[7]      At the bottom of the first page it notes:

THE GUARANTOR (and if more than one jointly and severally), in consideration of the Landlord entering into this Agreement at the guarantors request, agrees with the landlord to guarantee to the landlord the obligations of the tenant and to sign the lease as a guarantor.

...

Signed by the tenant

Signed by the guarantor

[8]      The  document  bears  Mr  Wright’s  signature  for  the  tenant  and  for  the

guarantor.

[9]      In support of his claim that he did not sign on behalf of Eagle or Tawil Mr

Wright deposes in his affidavits dated 12 September 2012:

5.The  agreement  to  lease  anticipates  three  guarantors,  Eagle  Wire Products Limited, Tawil and me.   I executed under the place for guarantor only in my name and in my personal capacity.   I did not intend and in any event was not authorised to execute the agreement to lease on behalf of Tawil [or Eagle] as guarantor.  No company resolutions were executed by Tawil [or Eagle] in relation to providing a guarantee under the agreement to lease.

solicitors... required that in addition to the lease, a general security agreement should be executed by Tawil [and Eagle] in favour of All Metals...

[10]     Mr Dalkie for the plaintiff challenges the admissibility of Mr Wright’s claims that he executed the guarantee in his name and in his personal capacity and not on behalf of Tawil and Eagle as guarantors.  He submits it is evidence of subjective intention and is therefore irrelevant.  He also relies upon the decision of Associate Judge Faire in Contributory Mortgage Nominees Limited v Harris Road (no.10) Limited [1]:

[1] 27 October 2005, High Court Auckland, CIV 2005-404-3078.

a)        The Court must determine the issue objectively. A party’s subjective

understanding of the meaning of what that party signed is irrelevant.

b)The objective assessment commences with a consideration of the document which was signed itself.  In this respect, the position is probably no different in essence from that which applies in any case where the Court is required to interpret a contract.

c)Where the Court is called upon to interpret a contract, if the words have only one meaning, then there is no need to go beyond the document itself in ascertaining its meaning: Quainoo v NZ Breweries Ltd [1991] 1 NZLR 161 at 165.

d)If the words, however, are susceptible of more than one meaning, the Court must look at the surrounding circumstances.  The approach which the Court adopts was examined by the Court of Appeal in Boat Park Ltd v Hutchison [1999] 2 NZLR 74 at 82.

e)Where it is necessary to go into those background facts, it will often not be appropriate to determine the meaning on an interlocutory application:  Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR 298 at 315.

[11]    In response Mr Commons for the defendants comments that none of the authorities referred to by Associate Judge Faire concerning whether or not execution of the relevant documents were signed in a dual capacity, was resolved in the normal jurisdiction (as opposed to the companies jurisdiction).   He submits, in particular

with reference to the Court of Appeal’s decision in Vuletic v Contributory Mortgage

Nominees  Limited[2]      that  a  presumption  arises  that  if  a  person  signs  without

[2] (2006) 7 NZ CPR 552 at para [37].

identifying that he does so on behalf of a company, then he signs for himself alone

and not for a company.

[12]     In Vuletic the Court of Appeal at paragraph 13 stated:

No one disputes that it is possible for a person to sign a contract once but in a dual capacity.  But there is a presumption that, if the signer purports to sign on behalf of a company or another, he or she is signing only in that capacity. Such presumption may be displaced by clear words within the contract or by intrinsic evidence from which may be inferred the signer’s intention when affixing his or her signature...  There is no such intrinsic evidence (at least at this stage) in the present case.  And the structure and words of the sale agreement, far from displacing the presumption, reinforce it.

[13]     The Court of Appeal referred to the overall structure of the sale agreement in question.  It said it could be fairly arguable that the drafters of the sale agreement did not envisage that Mrs Vuletic would be a party; that it appears to have been contemplated that her guarantee would be provided in a separate document; and there was no reference in the document to Mrs Vuletic as a party.

[14]     Mr Commons submits that if it can be presumed that a signer is signing only on behalf of a company that it follows that if he does not disclose that he is signing on behalf of a company then he is signing for himself alone.

[15]     Mr Commons contends:

(a)       There  was  no  prior  agreement  that  Eagle/Tawil  would  provide guarantees.

(b)That the agreement to lease was not executed by Eagle/Tawil, but alone by Mr Wright personally.

(c)       There is nothing on the face of the document to indicate Mr Wright executed a guarantee in any capacity other than personally.

(e)      The agreement to lease envisaged further steps to be taken in relation to any guarantee that Eagle/Tawil provided including the provision of general security agreements over those companies present and after acquired personal property.

[16]     As Mr Commons notes in all of the dual signature cases, the defendant signed the agreement in a single place and the plaintiff asserted that that single execution was sufficient for dual purposes.  The present cases are different; the agreement to lease was signed once in the place for the tenant and quite separately in the place for the guarantor.

[17]     Mr Commons submits it is the plaintiff’s case that for Mr Wright to have signed as guarantor in only his personal capacity he should have expressly provided a note to that effect.  Mr Commons says that is not the law; that unless there is something to indicate Mr Wright signed other than in his personal capacity as guarantor, the presumption is he signed for himself alone.  Mr Commons says he is unaware of any authority for the proposition that where a person signs personally, he can be presumed to have signed on behalf of three entities.

[18]     As Mr Commons notes that it is usual in cases of these kinds for a defendant to deny providing a personal guarantee.   By contrast in this case Mr Wright acknowledges he provided a personal guarantee which the plaintiff wishes to transform into a guarantee made simultaneously by three entities.

[19]     To  this  Court  at  this  time it  is  clear that  there is  need  for  an  objective assessment and there may be proper reason for being wary of Mr Wright’s contention that he signed under his own guarantee and not on behalf of Eagle and Tawil.  What is clear from the authorities is that a director of a company may sign in that capacity and as well can covenant on his/her behalf personally.

[21]     Mr Commons’ submission is that because Mr Wright did not indicate he was signing on behalf of the companies there is a presumption he did not sign other than for himself.   Further that the affidavit evidence before the Court is insufficient to allow the Court at this stage to take any other view.  Therefore a better examination of the intrinsic evidence ought to be left to a trial.

[22]     Respectfully, I disagree with Mr Commons analysis that there is insufficient evidence to determine if Mr Wright signed the agreement to lease for himself alone.

Discussion

[23]    The agreement to lease dated 1 December 2010 was the fourth version of agreements that had been signed by the parties.  The first of those noted the lease commencement date of 16 August 2010.  The tenant was described as Eagle and the guarantor as Faulkner Collins Limited (Faulkner), Tawil Holdings Limited and Hadley John Wright.  Mr Wright is the director of Faulkner.

[24]     Mr Wright signed as the tenant, and separately as the guarantor.  His personal guarantee was limited to rental arrears if any, which accrued during the first year of the lease.   It appears to be the case that no rental arrears accumulated during that period.

[25]     Attached to that version is an option to purchase granted by the plaintiff to

Eagle. Mr Wright signed that option on behalf of Eagle.

[26]     A second version of the agreement to lease is dated 30 September 2010 and noted a commencement date of 12 October 2010.  It notes that the tenant was Faulkner and that the guarantor was Eagle, Tawil and Hadley John Wright.  It was signed by Mr Wright for the tenant and separately for the guarantor. Attached to it is an option for purchase from the plaintiff to Faulkner.  That is signed by Mr Wright on behalf of Faulkner.

version and it, along with an option to purchase was signed in the same way by Mr

Wright.

[28]     The fourth, and for our purposes the relevant version notes a change in the annual rent and the substitution of Wire by Design for Faulkner as the tenant.

[29]     The evidence of Mr Westgaard for the plaintiff is that Mr Wright asked to change Eagle as tenant to Faulkner to which Mr Westgaard agreed provided Eagle and Tawil became guarantors along with Mr Wright.  This evidence is not disputed. From  it  can  be  assumed  that  Mr  Wright  had  authority  to  offer  up  Eagle  as  a guarantor.  Also as earlier noted Mr Wright signed the lease version wherein Eagle was to be the tenant.

[30]     Also on 1 December Mr Wright signed an option to purchase on behalf of

Tawil.

[31]     It is against this background of matters the Court has to consider Mr Wright’s claim that he signed as guarantor but on behalf of himself only and not on behalf of his two companies for whom he otherwise had clear authority to contract.

[32]     The Court accepts Mr Dalkie’s analysis of the agreement to lease.  Mr Wright has signed it in two places, first as director for the tenant on the line provided for the tenant to sign, and the second as guarantor.  He only signed this once.  There is no notation that he only signed for himself and not for the companies.  Mr Wright is the sole director of the other two companies.   Mr Wright also initialled each page including the page that concerns the term of the guarantee.  On the front page there is reference to the guarantors being jointly and severally liable.  The clear evidence is that Mr Westgaard knew Mr Wright was the sole director of Eagle and Tawil.

[33]     These kinds of cases normally are concerned with assertions by an individual and that he/she signed on behalf of a company and not for himself personally.   In those cases there is an examination of the relevant contract to determine whether clearly  the  signature  was  provided  on  behalf  of  the  company  and  not  for  the

individual.  Certainly if the person had added the word “director” after his/her name it would create a presumption he/she was signing solely as a director of the company and not as a guarantor.

[34]     In this case the reverse applies.  But the Court’s enquiry should be the same. It should locate and refer to the intrinsic evidence to support Mr Wright’s claims.  In this case that does not include evidence in writing to show that when signing as a guarantor he was entering into a personal commitment, in contrast to those occasions when he signed in his capacity as directors of the companies concerned.

[35]     The Court is not prepared to accept Mr Wright’s claim that he did not sign for

Eagle and Tawil as guarantors of the lease obligations.

[36]     In Vuletic the Court of Appeal referred to the overall structure of the relevant sale agreement and noted it did not envisage that Mrs Vuletic would be a party.  It commented that her guarantee was to be provided in a separate document.  That was sufficient to enable the Court of Appeal to draw a conclusion regarding the capacity in which Mrs Vuletic signed.

[37]     Likewise, in this case there is sufficient to conclude that Mr Wright did sign in his capacity as a director of the tenanting and covenanting parties just as he clearly did when signing options for purchase of the plaintiff’s property.

[38]     Mr Commons submits there were no company resolutions executed by Eagle or Tawil to provide any guarantee.  But, that is a matter for issue, if at all between Mr Wright and his companies.  It has no relevance in this enquiry.

[39]     Mr Commons also submitted, as earlier noted, that further steps were to be taken in relation to the guarantees of Eagle and Tawil in that they were to provide general security agreements.   That those were not provided does not suggest that they had not been agreed to be provided.  That they were not only means that the formalities  involved  had  not  been  attended  to.    That  does  not  mean  that  any agreement given on their behalf was avoided.

Conversion

[40]     This other aspect of a defence to the plaintiff’s claims involves an assertion that the plaintiff by itself or with another converted Wire by Designs property at the subject premises to a value exceeding $1.6M.   That was the cost of a factory and electrical fit-out undertaken by Wire by Design of the plaintiff’s premises.  It is asserted that to the extent that the fit-outs remain at the premises it is apparent that it has been treated by the plaintiff as its own property when the property was leased to a new tenant, following Wire by Designs default.

[41]     The premises were vacated on about 10 August 2012 when the receiver (Ms Toon) removed the factory chattels she chose to take.  Mr Westgaard for the plaintiff confirms that in relation to the factory fit-out that was not taken by Ms Toon the plaintiff has either disposed of it as rubbish or retained the same.

[42]     The defendants’ position  is  that  the plaintiff had  no  right  to  acquire  the property in or dispose of any of the factory fit-out; that the agreement to lease had come to an end and had been followed by a licence to occupy between the plaintiff and the receiver appointed by Wrights Investments Limited which held security over the factory fit-out – which licence included no right to take ownership of or to dispose of any of that fit-out.

[43]     The argument follows that having denied Wire by Design or its receiver of the possessory interest or title in that property, the plaintiff has converted the same. Further that Wire by Design could raise this conversion as a set off to the rent owed to the plaintiff.   That, the defendants say would extinguish their debt because the new receiver and Wrights Investments Limited have agreed that to the extent it may be necessary, they will assign to the defendants their interest in the fit-out to a sufficient extent to offset the current claims by the plaintiff against them.

[44]     This position is not altered by the fact that Simpson Grierson, solicitors for the Crown arranged to uplift items comprising the electrical fit-out (as opposed to the factory fit-out) from the premises on 28 August 2012.  Mr Commons submits it appears that the plaintiffs allowed the electrical fitout to be taken by the Crown on

the basis of a specific security agreement.  The defendants submit that agreement is not valid because it contravened the compensation agreement reached between Wire by Design and the Crown – in relation to the Crown having taken Wire by Designs previous business premises for public works.

[45]     Mr Commons submits that the compensation agreement identified a sum of

$306,000 plus GST to be secured by a specific security agreement secured over the electrical installation.  However the specific security agreement secured greater than that sum as was confirmed by the Crown’s solicitors in a letter dated 18 December

2012:

The Crown is acting pursuant to a specific security deed dated 13 December

2010  (SSD).     That  agreement  secures  and  amount  of  approximately

$828,838 advanced to [Wire by Design] to meet the cost of electrical equipment and its installation at the Onehunga premises.

[46]     Therefore Mr Commons submits the Crown by its agent has misrepresented to Wire by Design that the specific security agreement was in accordance with the compensation  agreement;  that  that  misrepresentation  induced  execution  of  the specific security agreement.  Mr Commons submits pursuant to s 43 of the Fair Trading Act 1986 the Court may declare the whole or any part of the  specific security agreement void.  He submits a claim for conversion on the part of both the Crown and the plaintiff can be made out.

Discussion

[47]     Wire by Design is now in liquidation.  It is clear the lease came to an end as at 9 May 2012 from which date no rent was paid, as indeed none had been for a considerable period prior.

[48]     In accordance with the agreement to lease the parties agreed to be bound by the standard terms of the fifth edition of the Auckland District Law Society deed of lease, clause 31.1 of which provides:

The Tenant may at any time before and will if required by the landlord at the end or earlier termination of the term remove all the tenant’s fixtures, fittings and chattels and make good at the tenant’s own expense or resulting damage and if not removed within five working days after the date of termination

ownership of the fixtures, fittings and chattels may at the Landlord’s election pass to the Landlord or the Landlord may in a proper and workmanlike manner remove the same from the premises and forward them to a refuse collection centre.

[49]     On 9 May 2012 Wrights Investment Limited appointed Ms Toon as receiver to act in its interests pursuant to a general security agreement held by Wrights Investments  Limited  over  the  factory  fit-out.    Wrights  Investments  Limited  is another of Mr Wright’s companies, he being its director.

[50]     It was anticipated Ms Toon would need to have access to the premises for a period of about three months to effect the purpose of recovering the factory fit-out property Wrights Investments Limited was entitled to pursuant to the terms of its security agreement with Wire by Design.  The plaintiff initially wished the receiver to take occupation pursuant to a deed of lease.  Ultimately it was agreed the receiver would take occupation as a licensee.

[51]    The receiver vacated the premises on 12 August 2012 by which time the receiver had by auction, arranged for the sale of items subject to Wrights Investments Limited’s security.  It is assumed the receiver was by then satisfied she had attended to  her  tasks  and  obligations  on  behalf  of  Mr  Wright  and  Wrights  Investments Limited.

[52]     About two weeks later the Crown exercised its security rights in relation to the electrical fit-out.

[53]     The defendants’ position is that what remained of the factory fit-out and which was not disposed of by the receiver is the property of Wire by Design because the lease had expired; that because the lease had expired clause 31.1 no longer applied and therefore to the extent that the plaintiff continues to make available to its new tenant whatever there remains of that fit-out, the plaintiff has converted the fit- out by treating it as its own.

[54]    To the extent the plaintiff allowed, albeit unknowingly, the Crown to take property of greater value than it was entitled to pursuant to the Wire by Design compensation agreement means it was a party in that outcome.

[55]     The defendants’ claims in conversion are premised upon evidence of the

value of those fit-outs as provided by records of actual cost to install.

[56]     The evidence is far from clear in identifying a proper value for that property comprised in the factory fit-out which, if any, was not sold or otherwise disposed of by the security holder’s receiver.

[57]     The Court infers that the Crown recovered all that was the subject of its security agreement and therefore nothing remains at all of any value in relation to the electrical fit-out.

[58]    The defendants’ position relies on claims that, the terms of the security agreement notwithstanding, the Crown’s rights of recovery were much less than was obtained.

[59]     In the upshot a new receiver has been appointed by Wire by Design whose enquiries with the Crown have initiated those claims of excess recovery by the Crown and, it seems, of insufficient recovery by Ms Toon.

[60]     Fundamental to the claim of conversion in respect of fit-out property (of the factory and separately of electrical equipment) is the submission of Mr Commons’ adopting the words of a leading text, that “liability is generally strict and conversion may be committed with no moral fault or dishonest intention on the part of the defendant.  The defendant need not know that he or she was acting in violation of the plaintiff’s rights and may be acting in the honest belief that his or her actions are lawful.   It does not matter that the defendant could not by the exercise of any reasonable care have known of the plaintiff’s  interest in the goods; the duty is absolute and the defendant acts at his or her peril.  The intention that is required is to

do the act itself, not to challenge the plaintiff ’s rights...”. [3]

[3] Law of Torts in New Zealand (3rd Ed, Todd, 2001) on Conversion at 11.3.1.

[61]     The defendants’ position is that clause 31.1 of the lease do not apply because

the property that the plaintiff has acquired in the factory fit-out has come to it in the period when the premises were occupied pursuant to a licence and not a lease, and

therefore the plaintiff is not entitled to rely upon clause 31.1 to acquire any property in that factory fit-out.

[62]     As for the claim that the Crown took more of the property in the electoral fit- out then it was entitled to, the defendant’s position is that it matters not that the plaintiff was aware of that fact – much less that the claim is based upon the recently established analysis of the compensation agreement and specific security agreement involving the Crown.

[63]    Even if a claim of conversion could be made out against the plaintiff in connection with the Crown’s recovery actions, (notwithstanding there is no evidence of fault on the part of the plaintiff’s in allowing the Crown to recover that which the Crown clearly believed it was entitled to), the Court is not prepared to entertain any claim of a set-off because Wire by Designs receiver or because Wrights Investments Limited may be prepared to assign their interest in the converted property to the defendants.  The claim of set off should not be entertained where the claim of conversion relies on an arrangement which involves the Crown and the interpretation of documents prepared or reviewed by legal representatives and upon which agreement has been made where, in that outcome it is alleged the Crown may have misrepresented their extent of entitlement pursuant to those documents.   If that is what it at the core of any perspective claim for set off then it is something that ought to be pursued against the Crown, in the outcome of which if the claim for conversion can be proved then Wire by Design can be certain of payment in due course.

[64]     That leaves the set off claim in connection with that part of the factory fit-out which was not disposed of by the receiver Ms Toon.  The defendants claim that even if the plaintiff believes the property is theirs conversion may occur if it can be shown the unsold factory fit-out was indeed never entitled to be taken by the plaintiffs in the circumstances it has been.

[65]     At the core of the defendants claim in relation to the factory fit-out is that clause  31.1  does  not  apply.     In  the  Court’s  assessment  that  is  an  incorrect assumption; that indeed it is the Court’s view that whatever factory fit-out was retained by the plaintiff was properly acquired by it pursuant to the provisions of that

going to retain as theirs that property which Ms Toon did not retain on behalf of Wrights Investments Limited.  The unsold surplus had already become the plaintiff’s property.  If there is an issue regarding the extent to which Ms Toon recovered property on behalf of the security holder then that is a matter between Ms Toon and the security holder.

[66]     There is no reliable evidence of the value of the factory fit-out property which was not recovered on behalf of Wrights Investments Limited.  In light of the fact that it can be assumed Ms Toon believed she recovered as much as she could on behalf of Wrights Investments Limited then it must also be assumed that what was left was of far less value than the amount for which the plaintiff now seeks to recover by way of unpaid rent.

Conclusion

(a)      That Mr Wright signed guarantees on behalf of Eagle and Tawil is clearly supported from an assessment of the agreement to lease and also by reference to draft copies of prior lease proposals.  Save for Mr Wright’s own claim that he did not sign on behalf of the guarantor companies  no  evidence  has  been  provided  nor  likely  can  be  to persuade a Court otherwise.  In the circumstances Mr Wright’s claims can appropriately be dismissed.

(b)Claims for conversion giving rise to the potential for a claim which it is asserted give right of set off need to be measured by an analysis of the conversion claim and by reference to outcomes, even if those could be proved.   In this case claims of conversion arise in circumstances relating to legal documents prepared or reviewed by professionals or concern the actions of a receiver appointed by a security holder.  Inherently those claims are speculative but in the outcome even if they could be proved it is unlikely any issue will arise with respect to recovery.  In this case there is insufficient evidence to

sufficient to be claimed by way of offset.

Decision

[67]     The application for stay is refused.

[68]     Costs and disbursements are fixed at 2B in relation to each application.

[69]     These matters are adjourned for call in the Companies List at 11:45am on

13 March 2013 for the purpose of dealing with the liquidation applications.

Associate Judge Christiansen