Beale v BR Properties No.8 Limited HC Auckland CIV 2005-404-6009
[2007] NZHC 1707
•30 March 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2005-404-6009
BETWEEN MICHAEL BEALE Plaintiff AND
BR PROPERTIES NO.8 LIMITED
First Defendant AND
SIMON GREGORY THOMSON Second Defendant
AND
LANCE EDWARD WILLSON
Third Defendant AND
KIM EILEEN THOROWGOOD Fourth Defendant
AND
LISA MARY KERSHAW
Fifth Defendant AND
GLAISTER ENNOR TRUSTEE CO LIMITED
Sixth Defendant AND
GLAISTER ENNOR Third Party
Hearing:
25 July 2006
Appearances: A. Maclean for Plaintiff
R.J. MacDonald for Fifth Defendant
S.M. Hunter for Third Party
Judgment: 30 March 2007 at 4.30 pm
JUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTT
This judgment was delivered by Associate Judge Abbott on 30 March 2007 at 4.30 pm pursuant to Rule 540(4) of the High Court Rules
Registrar/Deputy Registrar
BEALE V BR PROPERTIES LTD & ORS HC AK CIV 2005-404-6009 30 March 2007
Date:………………………
[1] The Court has been asked to determine two applications for summary judgment: one by the plaintiff (Mr Beale) against the fourth and fifth defendants (Ms Thorowgood and Ms Kershaw), and the other by the third party (Glaister Ennor) against the defendants.
[2] Mr Beale seeks summary judgment against Ms Thorowgood and Ms Kershaw under deeds of guarantee. They signed as trustees for two trusts. The guarantees were given as security for money due to Mr Beale by a building company (Lockheed Construction Limited) in which the trusts were shareholders. The sixth defendant (Glaister Ennor Trustee Co Ltd) is a professional trustee of the same trusts.
[3] The trustees do not oppose the application insofar as the assets of the trust are concerned. However, Ms Thorowgood and Ms Kershaw resist any judgment extending to them personally (they say the guarantee is limited to the assets of the trust).
[4] Ms Kershaw opposes the application both on grounds that the guarantee was invalid, and on grounds that it did not impose personal liability.
[5] Ms Thorowgood filed a notice of opposition on the ground that the terms of the guarantee excluded her personal liability. She did not appear at the hearing of the application. As the terms of the guarantees she signed are identical to those that Ms Kershaw signed, the application against her will stand or fall on the decision reached on the same point in the application against Ms Kershaw.
[6] Ms Kershaw has joined Glaister Ennor as the solicitors who drafted the guarantee. She says that Glaister Ennor owed her a duty to draft the guarantee so as to exclude her personal liability, and are liable to her if that liability is not excluded. She initially applied for summary judgment against them but has accepted that that claim is not suitable for summary judgment.
[7] In the second application Glaister Ennor seeks summary judgment against Ms Kershaw on the grounds that she is not their client and they owed her no duty in contract or in tort, and also because there is no personal liability on her under the guarantee.
Background
[8] Mr Beale is a painting contractor. He has undertaken work in recent years for Lockheed Construction Limited on properties being developed by the first defendant (BR Properties No.8 Limited) in recent years. In the course of this he developed a personal relationship with the second and third defendants (Mr Thomson and Mr Willson) who were directors of Lockheed and BR Properties.
[9] The majority of the shares in Lockheed and in BR Properties are owned by family trusts. Mr Thomson is the principal beneficiary of two of them (“the Thomson trusts”). Mr Willson is the principal beneficiary of the other two (“the Willson trusts”).
[10] Ms Thorowgood and Ms Kershaw are the wives of Mr Thomson and Mr Willson respectively. At all material times Ms Thorowgood was a trustee of one of the Thomson trusts (the Summit Trust) which holds shares in BR Properties. She also holds one share in Lockheed in her sole name. Ms Kershaw was a trustee of both of the Willson trusts (the Muirfield Trust which holds shares in Lockheed and the Turnberry Trust which holds shares in BR Properties). She also holds a share in [each of] Lockheed [and BR Properties].
[11] Mr Thomson and Mr Willson (for their respective trusts) and Glaister Ennor Trustee Co Limited (Glaister Ennor’s trustee company) were also trustees of the trusts. Glaister Ennor Trustee Co Ltd was appointed a trustee when Glaister Ennor formed the trusts. A Mr De Latour was the third trustee of the second of the Thomson trusts (the Lohtse Trust, which held shares in Lockheed).
[12] In early 2003 Lockheed was experiencing financial difficulties and was unable to pay Mr Beale for painting work on one of its construction projects.
It agreed to arrange for the amount owed to be offset against the deposit on an apartment in a property (Quattro Apartments) being developed by BR Properties which Mr Beale agreed to buy in July 2003. Mr Beale agreed to continue painting work for Lockheed.
[13] By January 2004 the amount due from Lockheed to Mr Beale had risen to
$118,032.73. On 21 January 2004 Lockheed and Mr Beale agreed that the whole amount would be paid by way of a credit towards the purchase of the apartment. This was recorded in a document prepared by Mr Beale, and signed by Mr Beale and by Mr Thomson and Mr Willson as directors of Lockheed. The agreement reads:
1.The purpose of this agreement is to ensure payment of monies owed to Michael Beale by Lockheed Limited as set out on the attached statement dated 20 January 2004 for the amount of One Hundred and Eighteen Thousand and Thirty Two Dollars and Seventy Three Cents ($118,032.73).
2.Lockheed Limited agree to off-set the total amount owing to Michael Beale against the purchase of apartment 3G in the Quattro Apartment Development in Great North Road hereafter referred to as “the apartment”.
3.The amount to be offset will be adjusted by any amount Lockheed Limited pay Michael Beale for the debt as set out in item 1 above, prior to the settlement of “the apartment”.
4.The deposit for “the apartment” will be offset against monies owed between the parties as referred to in item 1 above.
5.Lance Willson and Simon Thompson [sic] shall provide personal guarantees for the debt owed, as detailed in item 1 of this agreement.
6. The Turnberry Trust and Summit Trust agree to meet 50% each of
Lockheed Limited liabilities, as set out in item 1 above.
7.The parties acknowledge that execution of a facsimile copy of this agreement and transmission thereof by facsimile each to the other or their respective agents or solicitors shall be sufficient to constitute offer and acceptance and to satisfy the requirements of section 2, Contracts Enforcement Act 1956.
[14] No steps were taken at that time to provide the guarantees.
[15] Mr Beale’s purchase of the apartment was expected to take place in late
2004. There were delays on the project. The sale was deferred. Mr Beale then sought the security for Lockheed’s debt that had been agreed in January 2004. In January
2005 Mr Beale’s solicitors sent Messrs Thomson and Willson proposed deeds of indemnity for signature by the trustees of the respective trusts.
[16] On 4 February 2005 Mr Willson sent the two deeds affecting him to Glaister
Ennor. In his covering letter (signed as a director of Lockheed) he said:
I have a document that you need to sign on behalf of one of my trusts – the Turnberry Trust. We are doing a contra deal with Michael Beale as set out in an agreement we entered into (along with Simon Thomson and his Trust – The Summit Trust), a copy of which is attached. The Turnberry Trust is liable for a maximum of half the debt owed.
Could you please review the 2 deeds of Indemnity (one of which is my personal one) and, if all is in order, have 2 Glaister Ennor Trustee Co. Limited directors sign where required.
[17] Glaister Ennor noticed an error in the documents and asked Mr Beale’s solicitors to correct it. The person at Glaister Ennor who was handling this, Ms L. Quinn sent an email to Mr Beale’s solicitors early on 15 February 2005 asking for a replacement document for the Turnberry Trust to sign.
[18] Ms Quinn has provided an affidavit in which she deposes that Mr Willson asked her to move this along. Later on 15 February 2005 she sent Mr Beale’s solicitors a further email stating:
Further to my email of this morning I advise that I have spoken to my client who has confirmed that the guarantees are from Lance Wilson [sic], the Muirfield Trust and the Turnberry Trust. I am happy to prepare this.
[19] Ms Quinn proceeded to draft the documents, and at the end of the day sent
Mr Willson an email stating:
I have spoken to the solicitor for Michael Beale. They did not prepare the indemnities that were given to you to sign and which were passed onto me. That was why there was some confusion when I asked the solicitor to redo them. In any event they are not needed. Instead I have prepared a deed of guarantee and indemnity in favour of Michael personally and to be signed by your self [sic] together with the trustees of the Muirfield Trust and the trustees of the Turnberry Trust. It is just being typed. When completed I will arrange for Glaister Ennor to sign then forward it to you for you and Lisa to sign.
[20] Two draft deeds (one for Mr Willson and the Willson trusts and one for
Mr Thomson and the Thomson trusts) were sent to Mr Beale’s solicitors the
following morning with a request that they confirm that they were acceptable. The deeds were identical, save for the parties, with one exception.
[21] Both deeds contained clauses limiting the liability of Glaister Ennor Trustee Co Limited to the assets of the trusts. The exception to the wording of the deeds was that the deed for Mr Thomson and his trusts included a limitation of the liability of Mr De Latour (trustee of the Lohtse Trust).
[22] The reference to the Summit Trust is clearly an error. Ms Thorowgood rather than Mr De Latour was the third trustee of that trust. The deed also contained another limitation of liability clause relating to Summit Trust, but that referred only to Glaister Ennor Trustee Co Limited.
[23] Ms Quinn states that Mr Willson telephoned her later in the day and asked her to follow up, as he wanted the documents completed as a matter of urgency. Ms Quinn approached Mr Beale’s solicitors and asked whether they had reviewed the drafts. They replied that they had not. She reported that to Mr Willson in an email late the same day which reads:
I followed up the document with the solicitor but he has not had a chance to look at it yet. I advised that there is some pressure to get it moving. If I don’t hear back by the end of the day then I wil [sic] organise it to be signed in the morning regardless. Following execution by Glaister Ennor will you be able to pick it up or do you want me to send it to the offices of Lockheed Limited?
[24] The following morning, at Mr Willson’s request, Glaister Ennor sent the deed for Mr Willson and his trusts to Mr Willson by courier. At that time it had been signed by Glaister Ennor Trustee Co Limited. Mr Willson arranged for it to be signed by Ms Kershaw before delivering it to Mr Beale. The signed deed was unchanged from that sent to Mr Beale’s solicitors.
[25] In the meantime, on 18 February 2005 Mr Beale’s solicitors responded to Glaister Ennor seeking changes to the draft deeds (by including provision for the guarantee to cover legal costs and inserting a non competition clause). Ms Quinn reported the requested change on costs to Mr Willson but sought information from Mr Beale’s solicitors on the non competition clause. By the time they responded
(the following working day), Ms Quinn appears to have been advised by Mr Willson that the guarantees had been signed, as she responded to Mr Beale’s solicitors in an email reading:
Thank you for your facsimile attaching the no competition clause. My clients were not willing to wait for feedback and have arranged for execution of the deeds in their current form. I will however provide them with the new clause as an additional page which can be initialed [sic] by all the parties.
[26] Mr Beale states in evidence that he was given signed copies of the deeds, dated 18 February 2005, shortly after that date, and that he gave them to his solicitors. On 1 March 2005 Mr Beale’s solicitors wrote to Glaister Ennor as follows:
Our client has brought to us the two guarantees (each in duplicate) which you had forwarded to him for execution, following signing by your clients.
We note they do not include the three additional 3 issues we raised with you, one at least of which you had indicated would be inserted in an additional page.
We remind you the 3 issues raised were:
1.Our client’s costs in respect of negotiation and preparation of the guarantee were to be paid by your clients.
2.The solicitor client costs issue was to be expanded as described in our fax of 21 February 2005.
3.A no competition clause (along the lines of that faxed to you in the fax of 21 February 2005) was to be included in the guarantee, adapted appropriately.
Whilst we will hold the guarantees which your clients have signed and will enforce them if instructed by our client, new guarantees must be executed incorporating the above. Please attend to that as soon as possible. Doubtless our client will take this into account in any other negotiations our respective clients are involved in.
We look forward to seeing a draft guarantee shortly.
[27] On 7 March 2005 Glaister Ennor sent re-drawn deeds to Mr Willson, incorporating the changes sought on behalf of Mr Beale in the covering letter. They advised him that Mr Beale’s solicitors preferred to do it this way, rather than having the signed documents changed and initialled. Those amended deeds were not signed.
[28] Lockheed went into liquidation on 30 March 2005. Mr Beale issued this proceeding in October 2005. Mr Thomson and Mr Willson have since been adjudicated bankrupt.
Principles on the applications for summary judgment
[29] A plaintiff applying for summary judgment must satisfy the Court that there is no defence to the claim. The Court must be confident, sure, convinced, persuaded to the point of belief or left without any real doubt or uncertainty: Pemberton v Chappell [1987] 1 NZLR 1.
[30] To defeat the application, the defendant must show that there is a factual or legal issue worthy of trial. The defence raised must be substantiated by some evidential foundation, going beyond unsubstantiated general statements or bare assertions. Where the defence raises questions of fact upon which the outcome of the case may turn, it will not usually be right to enter summary judgment: Pemberton v Chappell.
[31] The Court of Appeal summarised the principles of summary judgment in
Jowada Holdings Ltd v Cullen Investments Ltd CA248/02 5 June 2003 at [28]:
In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. This is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered.
[32] A defendant applying for summary judgment must prove that none of the claims can succeed. It is insufficient to show that they have weaknesses: Westpac Banking Corporation v MM Kembla (New Zealand) Ltd [2001] 2 NZLR 298.
[33] Again, summary judgment will be inappropriate where there are disputed issues of material fact and may also be inappropriate where the ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence: Westpac Banking Corporation v MM Kembla.
Opposing arguments and issues arising
[34] Mr Beale’s claim is based on the deed of guarantee which I have referred to in paragraph 20 of this judgment. Although Ms Kershaw signed that deed “as a trustee of the Turnberry Trust and Muirfield Trust”, Mr Maclean submitted that that is insufficient to avoid personal liability.
[35] Mr Macdonald, on behalf of Ms Kershaw, submitted that on a true construction of the guarantee, considered against the relevant background, Ms Kershaw’s personal liability had been excluded. He also argued that even if the guarantee was construed as imposing personal liability on Ms Kershaw, the guarantee was invalid (because it was not signed by Mr Beale, and was not to come into effect until it was, and because it was lacking consideration). He also said that Ms Kershaw had arguable defences under the Contractual Mistakes Act, and that Mr Beale estopped from claiming that Ms Kershaw had personal liability. Finally, Mr Macdonald submitted that there were disputes of material facts which made the case inappropriate for summary judgment.
[36] Ms Kershaw had joined Glaister Ennor seeking either indemnity or contribution if she is found to be personally liable under the guarantee. She says, first, that Glaister Ennor is in breach of contract to provide legal advice to her as a trustee of the Turnberry Trust and the Muirfield Trust in relation to the preparation and execution of the deed of guarantee (by failing to exclude her personal liability). Secondly, she says Glaister Ennor was negligent in its advice to the trustees in respect of the preparation and execution of the guarantee (in failing to ensure that personal liability was excluded).
[37] Mr Hunter, for Glaister Ennor, submitted that Ms Kershaw could not succeed on her claims against Glaister Ennor because Mr Willson, and not Ms Kershaw, was
Glaister Ennor’s client, and because Glaister Ennor had not been instructed to advise on the trustees’ personal liability under the guarantee. He also submitted that the claim should be dismissed as the deed of guarantee excluded Ms Kershaw’s personal liability.
[38] Mr Macdonald in reply to Glaister Ennor’s application for summary judgment submitted that at the least it was arguable that there was a contract of services between the trustees (including Ms Kershaw) and Glaister Ennor, and a sufficient relationship for a finding of duty of care.
[39] The issues that the Court needs to address on these applications are:
a) Is it arguable that Ms Kershaw is not personally liable under the guarantee?
b) If so, is it arguable that Ms Kershaw can avoid personal liability on the grounds of invalidity of the guarantee, mistake or estoppel?
c) Are there disputes as to material facts which make Mr Beale’s claim unsuitable for summary judgment?
d)If Ms Kershaw is personally liable under the guarantee, is it arguable that she was Glaister Ennor’s client and that Glaister Ennor were under a duty to advise her as to her personal liability?
e) If Ms Kershaw is not personally liable under the guarantee, should summary judgment nevertheless be entered against her, limited to the assets of the trust, given that she is no longer a trustee?
Is Ms Kershaw personally liable under the guarantee?
[40] The relevant parts of the Willson guarantee read:
Parties
1Lance Edward Willson, Lisa Mary Kershaw and Glaister Ennor Trustee Co Limited as trustees of the Turnberry Trust and Lance Edward Willson, Lisa Mary Kershaw and Glaister Ennor Trustee Co Limited as trustees of the Muirfield Trust and Lance Edward Willson (each a “Guarantor” and together the “Guarantor”)
2 Michael Beale (“Beale”)
Background
ABeale has, at the request of the Guarantor, agreed to make financial accommodation available to Lockhead [sic] Limited (“Debtor”) on condition that each Guarantor enters into this Deed.
The Parties Agree:
1. Guarantee
1.1 The Guarantor hereby guarantees to Beale that the Guarantor will be with the Debtor jointly and severally liable to Beale for the due payment of all moneys to be paid to Beale by the Debtor and the due performance and observance by the Debtor of all the covenants, terms and conditions of the Agreement dated 21 January 2004 (“Agreement”) on the part of the Debtor to be performed and observed.
…
1.7 Glaister Ennor Trustee Co Limited enters into and execute this Deed only in its capacity as trustee of the Turnbury Trust, which Trust was created by a certain Deed of Trust dated 20 December 2002 and not otherwise and it shall not be personally liable for any sum or sums owing or covenant to be performed pursuant to this Deed and its liability hereunder shall extend only to the assets and funds for the time being of the aforesaid Trust.
1.8 Glaister Ennor Trustee Co Limited enters into and execute this Deed only in its capacity as trustee of the Muirfield Trust, which Trust was created by a certain Deed of Trust dated 20 December 2002 and not otherwise and it shall not be personally liable for any sum or sums owing or covenant to be performed pursuant to this Deed and its liability hereunder shall extend only to the assets and funds for the time being of the aforesaid Trust.
[41] Provision was made for signature of the deed by each of the named trustees, including Mr Willson, in the following terms:
Signed by… as trustee of the Turnbury Trust and Muirfield Trust in the presence of…
Separate provision was made for signature by Mr Willson in his own right, and for signature by Mr Beale.
Exclusion of personal liability
[42] The primary question in this case is whether the language of the guarantee expressly excludes liability. The starting point in construing the guarantee must be the long established principles that trustees are personally liable for contracts entered into on behalf of the trust, but can exclude that liability by express words. These principles can be traced back at least to the decisions of the House of Lords Lumsden v Buchanan (1865) 4 Macq 950 and Muir v City of Glasgow Bank (1879) 4 AC 337. Both cases involve claims by liquidators of banks against trustees holding shares in those banks.
[43] In Muir, the Lord Chancellor of the time, Earl Cairns, set out the general approach to be taken (at p 355):
…[w]hether in any particular case, the contract of an executor or trustee is one which binds himself personally, or is to be satisfied only out of the estate of which he is the representative, is, as it seems to me, a question of construction to be decided with reference to all the circumstances of the case; the nature of the contract; the subject-matter on which it is to operate, and the capacity and duty of the parties to make the contract in one form or in the other.
[44] In Lumsden, the trustees accepted the shares under a deed of accession to which they added the words “Trustees for…” when signing. The House of Lords found that description was insufficient to exclude personal liability. It found that the purpose of the description was to mark the shares as being held for the trust estate.
[45] In Muir, the liquidators accepted shares under a deed of transfer which they signed “as trust disponees”. The House of Lords found unanimously that the trustees
had not limited their liability. Their Lordships had regard to the subject matter of the contract, and possible purposes of the phrase. Earl Cairns in particular did not rule out the possibility that the phrase could, in some cases, negative personal responsibility, but found that it had purposes in that case other than limitation of personal liability. The deed of partnership constituting the bank provided that shareholder liability was unlimited. Their Lordships found that the words used were not enough to displace that clear indicator of unlimited liability.
[46] Two modern day cases which have considered these principles are also instructive.
[47] In Helvetic Investment Corporation Pty Ltd v Knight (1982) 7 ACLR 225; (1984) 9 ACLR 773 the New South Wales Supreme Court, and then Court of Appeal, had to construe a joint and several guarantee of a loan, signed by all shareholders of a company. One of the shareholders was a family trust. The company defaulted. The lendor sought to discover from the trustee of the family trust (a Mr Knight) personally.
[48] The guarantee stated that the guarantor was “The John Knight Family Trust”. It was signed “The John Knight Family Trust; JC Knight, Trustee”. The Supreme Court held that the words had no meaning if they were not construed as having been inserted to limit liability. The Court of Appeal, reversing the Supreme Court, was unanimous in finding that the words were not apt to exclude personal liability, and were merely descriptive of the capacity in which Mr Knight contracted. Glass JA said (at p 774):
Language which asserts that Mr Knight executed the instrument because he was the trustee of the trust falls short of stipulating that he contracted only in that capacity.
[49] In NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506 this Court had to consider a claim against trustees personally under deeds of indemnity. The substantive clauses of the deeds were followed by three clauses confirming the trustees’ authority to give the guarantee and the phrase “Signed by the trustees of the [name of the trust]”. The execution clause read simply “Signed by [name of trustee]”. The deed also contained clauses defining and limiting the personal
liability of “independent trustees”. The trustees argued that the form of execution excluded personal liability. In his judgment, Baragwanath J accepted the general principle that trustees can stipulate the extent of their liability and that if they contract “as such trustee but not otherwise” they would achieve that result. He summarised the legal position in New Zealand as (at para [43]):
So in New Zealand law, and in that of England and of New South Wales, in the absence of more limiting language the description of a contracting party simply as “trustee” renders that party personally liable. There is a presumption in favour of personal liability which must be refuted if a person contracting as “trustee” is to be relieved of liability beyond the extent of the trust assets.
[50] The learned Judge then considered whether the other clauses in the deed assisted in refuting the presumptive liability cast on the trustees. He found they did not. In finding against the trustees he emphasised the importance of construing contractual documents, such as guarantees, consistently with precedent.
[51] Having regard to this authority I hold that personal liability of Ms Kershaw is not excluded merely by her signature “as trustee”. I turn then to consider whether the presumption of personal liability can be refuted by the other language of the guarantee in this case.
[52] The language of the guarantee in the present case, on its face, is contradictory. I accept the submission by counsel for Ms Kershaw that the naming of Mr Willson as a party both as trustee and in his own right suggests that his signature “as trustee” can be construed as excluding personal liability. If that is accepted, he argued that the naming of Ms Kershaw merely as trustee indicates that personal liability was not intended. On the other hand, the same argument could be applied to Glaister Trustee Co Ltd which, if they accepted, would mean that the clauses expressly excluding its liability were unnecessary.
[53] There is no clear way to resolve this contradiction within the four corners of the document. Counsel for Ms Kershaw argued that the Court was entitled to take the contractual matrix into account in resolving any ambiguity, and particularly in relation to determining the capacity in which a party has signed. In particular, he invited me to take into account pre-contract dealings between the parties, as a guide
to what the parties intended in deciding the question of capacity in which
Ms Kershaw executed the guarantee.
[54] I will come back to the question of the contractual matrix, but see that as a different issue to allowing extrinsic evidence on the issue of capacity. In the present case, there is no issue as to capacity. It is not in dispute that Ms Kershaw signed as trustee. The issue is the effect of her signature as a trustee, and in particular whether the terms of the document exclude the presumption of personal liability. This distinction is made, for example, in Re Inter-West Hotels Pty Ltd (In Liquidation) (1993) 12 ACSR 78.
[55] Although it is not open to the Court to take into account Ms Kershaw’s understandings and intention in signing the guarantee to determine the apparent contradiction in its form and language, it can have regard to objective background facts known to the parties, and the subject matter of the guarantee. In doing so, the Court has to satisfy itself that viewed in context the language expresses the intention of the parties to exclude liability. The converse is also true, namely that there is nothing in the subject matter of the contract that is inconsistent with a construction limiting personal liability.
[56] It is common ground that this guarantee arose out of the agreement of
21 January 2004. The terms of that agreement are plain and clear, namely to allow Lockheed’s debt to be met by offset ultimately against the purchase of the Quattro apartment and to provide security for those debts. As with the guarantee, that agreement distinguished between personal liability of Lockheed’s directors (Mr Willson and Mr Thomson) and obligations to be imposed on their trusts. It is Ms Kershaw’s case that the agreement was drawn in that way to ensure enforceability of the setoff against the purchase price of the apartment (by locking in shareholders of the company building the apartments, BR Properties) and in a known context (that Ms Kershaw kept her financial interests separate from Mr Willson, and Mr Beale had been informed that a personal guarantee from Ms Kershaw would not be forthcoming).
[57] The distinction between liability of the trustees, and separate personal liability of Mr Willson is carried through to the initial deeds of indemnity drafted on Mr Beale’s behalf and sent to Mr Willson in early February 2005, and used as the basis for the deeds drafted by Glaister Ennor. These in turn appear to be based on earlier deeds of indemnity given to support a separate obligation of Lockheed to Mr Beale’s family trust. These other documents all raise the same point which arises on the guarantee, namely whether execution of a separate indemnity by Mr Willson (and to Mr Thomson) personally is a sufficient contrary indicator to exclude personal liability on the part of the trustees. I regard the issue as finely balanced. It may well hinge on whether Mr Beale knew, and accepted, that Ms Kershaw’s assets were not available to support any guarantee. If that were found to be the context in which the agreement of 21 January 2004 was signed, and that is the sole basis for the giving of the guarantee, that could be sufficient to support a construction excluding personal liability. Absent a clear finding in Ms Kershaw’s favour on that, however, I tend to the view that the signing “as trustee” was simply to indicate signature in that capacity, and not to exclude personal liability.
[58] I accept Mr Macdonald’s submission that as a matter of construction, any ambiguity is to be construed in favour of the guarantor: Eastern Counties Building Society v Russell [1947] 1 All ER 500, 503. The limitation of liability of Glaister Ennor Trustee Co Limited may be explicable on the basis of a lack of knowledge of the background circumstances between Mr Beale, Mr Willson and Ms Kershaw, but it is nevertheless a strong factor pointing against exclusion of personal liability. So too is the exclusion of Mr De Latour in respect of the liability of the Lhotse Trust.
[59] In summary, I find that Ms Kershaw has an arguable case for saying that on a proper interpretation of the guarantee her personal liability is excluded. I am not persuaded that an exclusion of personal liability would necessarily be inconsistent with the purpose of the guarantee. The factual matrix needs to be established at trial.
Is the guarantee invalid, or the obligations avoidable on other grounds?
[60] Given that I have decided that Ms Kershaw has an arguable case on a construction, it is not necessary for me to address her further grounds of opposition. Nevertheless, it may assist the parties for me to indicate my view on these arguments.
[61] Mr Macdonald argued that the provision for signature by Mr Beale, and the link to performance of the 21 January 2004 agreement, indicated that Mr Beale’s acceptance was required before it became binding. He argued that the deed was delivered in escrow pending that acceptance, and that Mr Beale had rejected it by seeking changes, and never completing his obligation to complete the purchase.
[62] The fact that provision was made for Mr Beale to sign the document does not, of itself, carry with it any implication that it is not to become binding until that signature is added. That would cut across well established law that only the signature of the party sought to be bound is required in relation to a deed (s 4 of the Property Law Act 1952) or the contract (s 2 of the Contracts Enforcement Act 1956).
[63] Mr Macdonald argued that the guarantee imposed obligations on Mr Beale as well as Ms Kershaw. I do not read it that way. Clause 1.1 speaks only of the obligations of the guarantor. Mr Macdonald submitted that the reference in that agreement to the agreement of 21 January 2004 brought in the obligations on Mr Beale in relation to purchase of the Quattro Apartment. I consider that too long a bow to draw. I accept Mr Maclean’s submission that those obligations arise only under the agreement already entered into for sale and purchase of the apartment.
[64] Mr Macdonald also argued that Mr Beale, through his solicitors, had rejected the guarantee by requiring inclusion of further terms. This submission cannot stand in the face of Glaister Ennor’s advice to Mr Beale’s solicitors early on Monday
21 February 2005 that “her clients were not willing to wait for feedback and have arranged for execution of the deeds in their current form” and Mr Beale’s solicitors at the beginning of the following week that Mr Beale had brought them the signed guarantees (lacking the additional issues) and that they would “hold the guarantees
which your clients have signed and enforce them if instructed by our client….” Even if there was an argument available to Ms Kershaw up to that point, I regard that as clear acceptance. If Mr Beale’s solicitors had authority to seek changes to the guarantee, they also had authority to accept it without those changes.
[65] The last argument for invalidity was that Mr Beale gave no consideration for the guarantee.
[66] I accept Mr Maclean’s submission that consideration is not required as the guarantee is in the form of a deed. The guarantee meets the formalities for a deed prescribed by s 4(1) of the Property Law Act 1952, and conforms with the nature of a deed described in Re Wilson Settlements [1972] NZLR 13, 22.
[67] Mr Macdonald also argued that Ms Kershaw had an arguable defence to the claim either on the grounds that she entered into the guarantee under a mistake, or that an estoppel operated to bar Mr Beale’s claim. Both defences were based on Mr Beale’s alleged knowledge that Ms Kershaw’s assets were not available to support the guarantee. I understood Mr Macdonald to argue that both Ms Kershaw and Mr Beale were under the mistaken belief that the guarantee did not impose personal liability. Ms Kershaw knew that she was signing a guarantee, and that she was signing as trustee. What she did not understand was the effect of signing. That is a matter of interpretation of the deed for which relief is not available.
[68] If I have misunderstood Mr Macdonald’s argument, there may be a basis for developing an argument on mistake. If so, it is unlikely that that would be a matter capable of determination on summary judgment. It seems highly unlikely that there would not be disputes on material facts which would need to be resolved in a full trial.
[69] The final argument presented under this heading was that Ms Kershaw had an arguable defence based on estoppel. Mr Macdonald argued that this arose from an implied representation made to Mr Willson that he would only seek personal guarantees from Lockheed’s directors (Mr Willson and Mr Thomson) and otherwise security would be limited to the assets of the trusts.
[70] In his submissions I understood Mr Macdonald to put this law on the basis of a negligent misrepresentation, arising out of the terms of the agreement of
21 January 2004.
[71] Whichever way it was to be put, it is difficult to see how there could be any arguable basis for defence here. There is no specific representation by Mr Beale to Ms Kershaw, nor any evidence of any reliance by Ms Kershaw on anything said to her by Mr Beale. I accept Mr Maclean’s submission that her belief as to limited liability was the result of advice from Mr Willson. I do not see how this can be sheeted back to Mr Beale either on the basis of estoppel or negligent misrepresentation.
Does Ms Kershaw have an arguable claim against Glaister Ennor?
[72] Ms Kershaw has pleaded that there was a contractual relationship between herself (as one of the trustees) and Glaister Ennor, and that Glaister Ennor owed her (against as a trustee) a duty of care.
[73] Mr Hunter submitted that all Glaister Ennor’s instructions came from Mr Willson, any contract for services was limited to him and that Glaister Ennor had proffered no advice of any form to Ms Kershaw. Counsel pointed out that Ms Kershaw had signed the deed of indemnity drawn up by Mr Beale’s solicitors before that reached Glaister Ennor, and signed the guarantee without reference back to Glaister Ennor. When she retired as a trustee in August 2005 she signed the deed of retirement in front of her own solicitor.
[74] Mr Hunter submitted that there were two key questions bearing upon Glaister Ennor’s possible liability. The first was who was the firm’s client. The second was what was the firm instructed to do. He submitted that there was no evidence that Glaister Ennor acted for the trusts as distinct from Mr Willson personally. Secondly, he submitted that Glaister Ennor was never asked for advice in relation to liability under the guarantees. They had simply been sent to the firm for execution by its trustee company. He submitted that Austrust Limited v Astley (1993) 60 SASR 354 (a decision of the Supreme Court of Australia) could be
distinguished on its facts. In that case solicitors were found to owe a duty in contract and tort to warn a client that accepting appointment as a trustee of a commercial trading trust would give rise to personal liability for any obligations incurred as trustee unless they were expressly excluded. Counsel submitted that that principle was incontrovertible in relation to a longstanding client, but could not apply to someone for whom a firm had never agreed to act and in relation to advice it was not asked to give.
[75] On the claim of breach of duty of care, Mr Hunter submitted that there was no basis for a finding that Glaister Ennor owed Ms Kershaw a duty of care even if she was not a client of the firm. He submitted that she does not fall within the limited category of cases in which lawyers owe duties to persons who are not their clients (for example White v Jones [1995] 2 AC 207). He argued that Glaister Ennor did not undertake any responsibility to act for her or safeguard her interests, she was able to take her own legal advice, and had already taken a step towards the liability (by signing the first version of the deed) by the time Glaister Ennor became involved. He relied on the decision of the Court of Appeal in Eksteen v White and McKay Hill (Auckland High Court CP196/96) where the Court rejected the imposition of a duty of care by a law firm instructed by a third party, on the ground that there was no basis on which to find that the firm had assumed any responsibility to the plaintiff.
[76] These points may well turn out to be determinative of the matter. However, it is for Glaister Ennor (as the applicant for summary judgment) to show that Ms Kershaw’s claim against it cannot succeed. I accept Mr Hunter’s submission that the two key questions on existence of a contractual duty are whether there was a solicitor/client relationship between Ms Kershaw and Glaister Ennor, and the scope of that retainer.
[77] As to the claim for breach of contract, Ms Kershaw pleads that from December 2002 onwards Glaister Ennor entered into (oral) agreements with Mr Willson to provide legal services to him and to the trustees of the Willson trusts. These services were to be performed in connection with the establishment of the trusts, the acquisition of shares by the trusts in the two operating companies
(BR Properties and Lockheed), the signing of term loan agreements in December
2003 by the Turnberry Trust as guarantor, and the preparation and execution of guarantees by the Turnberry Trust and Muirfield Trust in February 2005.
[78] Ms Kershaw claims that there were three implied terms of the agreements:
a) Glaister Ennor knew of or would obtain all necessary instructions and information as to the circumstances of the Turnberry and Muirfield Trusts, the trustees, the Lockheed agreement and the guarantee as required to enable them to advise properly;
b) Glaister Ennor would exercise reasonable care and skill in giving advice to the trusts in connection with the guarantee; and
c) Documents prepared, provided or approved by Glaister Ennor were appropriate to bring about the legal consequences intended by the parties and could be relied on by the trustees.
[79] In terms of breach, Ms Kershaw says that Glaister Ennor failed to obtain proper instructions from the trustees (including the extent of Ms Kershaw’s liability as a trustee), failed to give proper consideration to information already held by it, excluded its own liability without limiting that of Ms Kershaw when it knew or ought to have known of her limited role, failed to draft the guarantee to accord with the requirement of the 21 January 2004 agreement and generally failed to advise Ms Kershaw as to the extent of her liability. Under her claim for negligence, Ms Kershaw pleads that Glaister Ennor owed her a duty of care in respect of the tasks undertaken for the trustees, and breached that duty in the same ways as it breached its contract.
[80] Although Mr Hunter endeavoured to persuade me that neither cause of action could succeed on the facts, I am not satisfied that this is a matter that ought to be decided on an application for summary judgment.
[81] There is evidence both for and against the existence of an agreement to act for Ms Kershaw.
[82] On the one hand (in favour of an agreement) is the evidence that Glaister Ennor prepared the trust deeds, and were asked by Mr Willson to review the deeds to be provided by the trustees (not just advised whether they were prepared to have Glaister Ennor Trustee Co Limited sign them). There is also disputed evidence from Mr Willson that he sought advice on the deeds from Ms Quinn. Then, in electing to redraft the deed, Glaister Ennor included a reference to Ms Kershaw signing “as trustee” when that qualification did not appear in the deeds provided by Mr Beale’s solicitors. Added to that, Ms Quinn wrote to Mr Beale’s solicitors on
15 February advising that she had confirmation from Mr Willson that the guarantees were from him and the two trusts, and on 22 February 2005 Glaister Ennor rendered a fee invoice to the trusts.
[83] On the other hand, it seems to be accepted that Ms Kershaw never had any dealings with Glaister Ennor, it was never instructed explicitly to provide advice on the deeds, the first version of the deed of guarantee was signed by Ms Kershaw before it was given to Glaister Ennor to review (which was consistent with Ms Kershaw signing earlier legal documents without express limitations of personal liability) and there was no evidence as to whether Ms Quinn was aware of the one documented occasion when Ms Kershaw did limit her liability (a resolution of the trustees of the Turnberry Trust of 19 July 2003).
[84] Even if a contract is found to exist between Glaister Ennor and the trustees, the terms of the agreement will determine the scope of the duties owed. There were clearly communications between Mr Willson and Ms Quinn over the relevant period which could bear upon this.
[85] Similar considerations apply to the second cause of action. Mr Hunter referred me to the Court of Appeal’s decision in McKay Hill & Co v Eksteen (CA161/99, 30 May 2000). That case centred on the existence or otherwise of a duty of care between the Eksteens and McKay Hill and particularly whether the firm had assumed a responsibility to the Eksteens (who were not clients of the firm).
The Court of Appeal decided the case on the question of whether or not McKay Hill had assumed any responsibility. The factual nature of that enquiry is apparent from the following extract from the decision:
[18] It is sufficient for present purposes to begin (and end) by considering whether McKay Hill can be said to have assumed any responsibility to the Eksteens and, if so, what was the content of that responsibility. That inquiry involves examining the letter of 24 June in its factual background and in the light of the important finding of the Judge that the Eksteens’ reliance on McKay Hill was limited to what he had said in that letter he would do…
[86] Mr Hunter, in his written submissions, acknowledged the need for detailed consideration of the facts in deciding whether a duty of care arises. He referred to the decision of the House of Lords in Her Majesty’s Commissioners of Customs and Excise v Barclays Bank plc [2006] UKHL 28, and the comment in the judgment of Lord Bingham that what was required was careful consideration of “detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole”.
[87] This is the very reason that this aspect of the claim, too, is not appropriate for summary judgment.
Decision
[88] For the reasons I have set out above, Mr Beale has not satisfied me that Ms Kershaw does not have a defence to his claim, and Glaister Ennor has not satisfied me that none of the causes of action in Ms Kershaw’s claim for indemnity or contribution can succeed. Both applications are dismissed accordingly.
[89] Costs are reserved pending substantive determination of the claims (there being no good reason to depart from the standard practice stated in NZI Bank Limited v Philpott [1990] 2 NZLR 403.
Directions
[90] Neither Ms Kershaw nor Glaister Ennor have yet filed statements of defence to the respective claims against them. They are to do so by 27 April 2007.
Next event
[91] The proceeding is to be listed for a case management conference before me at
4.30 pm on 3 May 2007 (by telephone) for directions in relation to discovery and any other interlocutory matters applicable at this point.
Solicitors:
Kidd Tattersfield, PO Box 40 294, Glenfield, Auckland Short & Partners, PO Box 137 241, Parnell, Auckland Gilbert Walker, PO Box 1595, Auckland
Associate Judge D H Abbott
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