Bishop v Financial Trust Ltd

[2008] NZCA 170

IN THE COURT OF APPEAL OF NEW ZEALAND

CA160/07
[2008] NZCA 170

BETWEENJOAN ELIZABETH BISHOP

First Appellant

ANDDONALD JOHN BISHOP

Second Appellant

ANDEMMA CATHERINE FURSMAN

Third Appellant

ANDDAVID ANTHONY TOBIN

Fourth Appellant

ANDFINANCIAL TRUST LIMITED

Respondent

Hearing:29 May 2008

Court:O'Regan, Arnold and Ellen France JJ

Counsel:J A Langford for Appellants

G M Sandelin and M D Pascariu for Respondents

Judgment:18 June 2008 at 2.30 pm

JUDGMENT OF THE COURT

A        We dismiss both the appeal and the cross-appeal.

BWe award to FTL costs of $2,000 plus two-thirds of its usual disbursements.

REASONS OF THE COURT

(Given by O’Regan J)

Payment demanded from guarantors

[1]       The appellants are guarantors of the obligations of BFA Development Company Limited (in receivership) (BFA) to the respondent, Financial Trust Limited (FTL), in its capacity as Trustee of the Financial (No. 3) Trust. 

[2]       BFA undertook a major property development in Wellington which was unsuccessful, and, after a mortgagee sale of the development property a substantial shortfall remained. 

[3]       FTL demanded payment of the shortfall from the appellants as guarantors: at the time of the High Court case the amount outstanding was nearly $3.4 million, with interest accruing.  The appellants did not meet the demand.  FTL sought summary judgment against the appellants, in the High Court.  The case was heard by Associate Judge Gendall, and FTL was successful: Financial Trust Ltd v Bishop HC WN CIV 2006-485-2321 3 April 2007.  The appellants appeal against that judgment.

Issues

[4]       The focus of the appeal was on the effectiveness of the assignment to FTL by the original lender Securities Registry Limited (SRL) of SRL’s rights against BFA and the appellants as guarantors, and in particular whether proper notice of that assignment had been given in terms of s 130 of the Property Law Act 1952 (the assignment preceded the coming into force of the Property Law Act 2007).  The appellants contend that proper notice was not given, because the purported notice predated the effective date of the assignment.  The respondents argue that the notice was sufficient and, in the alternative, if it was not sufficient then subsequent actions on its part constituted notice.  The issue for determination in the appeal is, therefore, whether the respondents have satisfied the Court that the appellants do not have a defence based on a failure to give notice of the assignment under s 130.

[5]       FTL cross-appealed against the award of costs in the High Court on a 2B basis.  It contends that it was entitled to an award of costs equal to its actual costs, as specified in the Deeds of Guarantee executed by each appellant.  That is the sole issue in the cross-appeal.

[6]       Before considering these issues, we will set out the factual background, and the approach which the Associate Judge took to the issues.

Facts

[7]       The factual background was fairly and succinctly outlined in the Associate Judge’s judgment, and we reproduce his summary (with minor amendments) in the paragraphs which follow.

[8]       In January 2003 and October 2003 SRL in its capacity as trustee of Securities Registry (No. 3) Trust (SR Trust) entered into loan agreements to advance moneys to BFA.  These loan agreements were initially for an advance of $1,876,000 to enable the purchase of properties at Webb Street and Willis Street Wellington and then for a development facility loan of $8,835,000 to repay the first loan and provide substantial additional funds to develop those properties.

[9]       The loans were secured by a mortgage over the properties and guarantees provided by each of the appellants.

[10]     Towards the end of October 2003, SRL and FTL entered into a document described as “a Deed of Removal and Appointment Concerning the Securities Registry (No. 3) Trust” under which FTL was appointed to become the new trustee of the SR Trust in place of SRL, and the name of the SR Trust was changed to “Financial (No. 3) Trust” (F3 Trust).  The Deed of Removal was dated 18 December 2003.  Clause 1 dealt with interpretation and defined “Effective Date” to mean 18 December 2003.

[11]     Although the Deed of Removal was dated 18 December 2003, evidence was led to the effect that it was in fact executed in mid-October 2003.

[12]     The legal effect of the Deed of Removal was apparently brought to the attention of the appellants in notices pursuant to s 130 of the Property Law Act 1952 given to the appellants by solicitors acting for both SRL and FTL on 28 November 2003 (i.e. after the Deed of Release was signed but before it became effective).  The appellants have acknowledged they received those notices.

[13]     On 17 December 2004, FTL as lender, BFA as borrower and the appellants as guarantors entered into a Deed of Variation of the $8,835,000 development loan facility.  This Deed confirmed that FTL contracted in its capacity as trustee of the SR Trust, now renamed the F3 Trust, as lender.

[14]     On 31 March 2005, FTL, BFA and the appellants entered into a (second) Deed of Variation of the development loan facility.  Again, FTL was noted in the Deed as contracting in its capacity as trustee of the F3 Trust as lender.

[15]     On 1 April 2005, FTL assigned the rights in respect of a $4,000,000 portion of the development loan to Orange Finance Limited.  Notice of this assignment was given to the appellants.  Orange was fully repaid from the proceeds of the mortgagee sale of the properties and no longer has any interest in the loan or in this litigation.

[16]     On 13 April 2005, BFA defaulted under the development loan facility in failing to pay an interest instalment of $159,775.72.

[17]     Demands were made and expired unremedied.  On 16 June 2005 a s 92 Property Law Act notice was served on BFA, and a notice under s 92(6) of the Property Law Act served on each of the appellants as guarantors.

[18]     Over a year later, on 17 November 2006, FTL and OFL sold the properties by way of mortgagee sale.  Settlement of the mortgagee sale was completed on 20 December 2006, but there was a shortfall in the amount received on the sale. 

[19]     At the time of the High Court hearing, it was accepted the total amount outstanding under the development loan facility guaranteed by the appellants was $3,379,023.69, together with accruing interest and costs.

High Court judgment

[20]     Having correctly directed himself as to summary judgment principles, the Associate Judge considered first whether an effective assignment had occurred from SRL to FTL. 

[21]     He noted the requirements of s 130, namely that the assignment must be in writing, be signed by the assignor, indicate an intention to transfer the assigned property right, be absolute and that written notice of assignment be given to the debtor. 

[22]     Applying the decision in Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724, the Associate Judge determined that the prerequisites for a valid assignment were satisfied. He noted that the nature of the assignment in this case was that the trustee of the SR Trust (renamed the F3 Trust) had changed, but the beneficial lender remained unchanged. He was satisfied that the Deed of Removal effected an unconditional transfer of SRL’s rights under the relevant loan and security documents to FTL as from 18 December 2003.

[23]     He then turned to the point which is the principal focus of the present appeal, namely whether valid notice of the assignment had been given to the appellants.  He was satisfied that it had.  His reasons appear at [33]:

The notice given to the defendants on 28 November 2003 informed them of the legal effects of the Deed of Removal and Appointment.  The notice advised that the assignment had been made by SRL, it identified the development loan facility debt, and the assignee as FTL.  The defendants could have been in no doubt as to whom the debt was to be repaid from the effective assignment date 18 December 2003. 

[24]     In support of that conclusion he cited Van Lynn Developments Ltd v Pelias Construction Company Ltd [1969] 1QB 607 at 613.

[25]     The Associate Judge rejected the argument made on behalf of the appellants that the notice of 28 November 2003 was ineffective because it predated the effective date of the Deed of Removal.  His reason for this was that he was satisfied that the document effecting the assignment, the Deed of Removal, had been signed in October 2003, even though it was dated 18 December 2003 and expressed to be effective only as from the latter date.  For that reason, he distinguished the decisions relied on by the appellants in the High Court, New Zealand Factors Ltd v Farmers Trading Co Ltd [1992] 3 NZLR 703 and Cardrona Properties Ltd v Newmans Tours Ltd (1990) 1 NZ ConvC 190, 542. 

[26]     The Associate Judge noted that the appellants had acknowledged receipt of the letter of 28 November 2003, and that being the case he was satisfied that there had been a valid assignment from SRL to FTL of the loan and security documents and that the appellants had been duly notified of that assignment in terms of s 130 of the Property Law Act.

[27]     Having reached that conclusion, which effectively disposed of the case, the Associate Judge nevertheless considered alternative arguments in case he were found to be wrong in his principal conclusion.  He considered a number of alternative arguments and ruled as follows:

(a)The subsequent Deeds of Variation of the loan and security documents entered into by FTL, BFA and the appellants may well have constituted a valid s 130 notice;

(b)The appellants were estopped from denying their liability as guarantors when they had chosen to enter into those variations with FTL as lender;

(c)The issuing of a formal demand for repayment of the loan by FTL may itself have amounted to clear and unequivocal notice for the purposes of s 130;

(d)Even if there had not been an effective s 130 notice, the Deed of Removal may in any event have constituted an equitable assignment of the debt.  An equitable assignment could be converted into a statutory assignment in circumstances where an affidavit is filed and served with a copy of the relevant deed of assignment annexed to it.  This has on occasions been seen as constituting a valid notice for the purposes of s 130.  The Associate Judge decided that this is what had occurred in the present case, so that the filing and serving of an affidavit from a representative of the manager of FTL to which a copy of the Deed of Removal was annexed may well have amounted to a proper notice of assignment for the purposes of s 130.

[28]     The Associate Judge therefore entered summary judgment in favour of FTL for $3,379,023.69, with interest at the rate of 12.5 per cent per annum on that sum from 16 January 2007 down to the date of judgment.  He awarded costs to FTL on a 2B basis.

Did the 28 November letter constitute effective notice?

[29]     The document on which FTL relied as notice of assignment was a letter of 28 November 2003 sent by its then solicitors to each of the appellants (each letter was in exactly the same terms).  This was, on any view, an enigmatic document.  Although dated 28 November 2003, the letter advised the recipient as follows:

…This letter is to advise you that SRL has entered into a deed of removal and appointment dated 18 December 2003 under which:

1.SRL was removed as trustee of the Securities Registry (No.3) Trust and FTL was appointed as the new trustee of that Trust; and

2.SRL assigned all its rights and obligations in relation to the Loan Agreement and related securities (including the guarantee provided by you) to FTL (in its capacity as trustee of the Securities Registry (No.3) Trust).

We also advise that the Securities Registry (No.3) Trust has now been renamed The Financial (No.3) Trust. 

SRL has done all things necessary to give effect to the assignment of the Loan Agreement and related securities to FTL and this notice serves as notice of such assignment to you pursuant to section 130 of the Property Law Act 1952.

[30]     This would have been an unexceptional document if it had been sent after 18 December 2003.  As it was, it advised that a Deed dated some three weeks after the date of the notice had already been entered into, and that various steps had been taken when the Deed made it clear that none of those steps would be effective until 18 December 2003.

[31]     Mr Langford’s argument was simple: the 28 November 2003 letter advised that an assignment had taken place, but in fact no such assignment occurred until 18 December 2003.  This, he said, meant that the 28 November 2003 letter could not be effective as a s 130 notice.  He relied on the decision of Master Williams QC (as he then was) in Cardrona where a notice of assignment given before the assignment had taken place was found to be ineffectual.  In that decision Master Williams QC found that s 130(1) clearly contemplated the giving of notice after an assignment has become effectual in law.  Since, in that case, the notice appeared to have been given prior to the date of the assignment, it was ineffectual.

[32]     Mr Langford also relied on the decision of Master Kennedy-Grant in New Zealand Factors at 709, which is to the same effect.

[33]     Counsel for FTL, Mr Sandelin, sought to distinguish Cardrona and New Zealand Factors.  While no deed of assignment had been signed at the time notice was given in Cardrona and New Zealand Factors, that was not the case here: the Deed of Release was signed in October 2003, before notice was given, even though it was dated 18 December 2003 and did not come into effect until 18 December 2003.

[34]     We accept that the present case is not on all fours with Cardrona and New Zealand Factors, but we do not see the distinction as having the significance attributed to it by Mr Sandelin.  The Deed of Release is dated 18 December 2003 and it is not clear to us on what basis evidence contradicting the document itself was permissible.  That aside, however, there is no doubt that the Deed of Release provided that the assignment would take place on 18 December 2003, so that no effective assignment had occurred as at 28 November 2003.  This triggers the same problem as was identified in Cardrona. 

[35]     Under s 130, an absolute assignment becomes effective if notice is given from the date of the notice.  That only makes sense if the notice is given at the same time as or after the assignment takes place because the assignment obviously cannot become effective before it happens. 

[36]     We accept Mr Langford’s submission that the 28 November 2003 letter was not an effective notice for the purposes of s 130.  We disagree with the Associate Judge’s finding to the contrary.

Did the variation amount to notice?

[37]     Associate Judge Gendall found that the successive Deeds of Variation which clearly identified FTL as the lender, and which was signed by BFA and all of the guarantors, effectively communicated to the guarantors that the assignment from SRL to FTL had occurred.  Mr Langford contested that finding on two bases namely:

(a)There was no pleading that the variations were notice for the purposes of s 130;

(b)In any event, the Deeds of Variation did not contain recitals outlining the fact that assignment had occurred: rather they simply recorded that FTL was the lender, in terms which implied that FTL had been originally a party to the financing and security agreements. 

[38]     While we agree with Mr Langford that, taken on their own, the Deeds of Variation do not explicitly refer to the assignment, we consider that when read against the background of the 28 November 2003 letters, the Deeds of Variation did suffice to meet the requirements of s 130.  The guarantors were informed by the 28 November 2003 letter that an assignment had occurred (albeit that this notice was given too early), and then entered into agreements with FTL,  the first recital of which recited:

The Lender [FTL], the Borrower [BFA] and the Guarantor [the appellants] are parties to the Loan Agreement pursuant to which the Lender agreed to make available to the Borrower a loan of $9,455,000 on the terms of the Loan Agreement.

[39]     That statement made no sense unless an effective assignment had occurred.  The document then made amendments to the Loan Agreement.  Such variations were signed on 17 December 2004 and 31 March 2005.  In our view the first of these Deeds of Variation, when read in tandem with the 28 November 2003 letter, satisfied the requirements for the giving of notice under s 130 of the Property Law Act (see [21] above).

[40]     This view of the case emerged from the oral argument in this Court, as a result of points raised by the Bench.  FTL’s argument in the High Court was not put on this basis and the argument did not feature in FTL’s written submissions in this Court either.

[41]     We do not accept Mr Langford’s pleading point.  The statement of claim which was before the High Court pleads that the Loan Agreement was entered into between BFA and SRL, the obligations of BFA were guaranteed by the appellants, the Deed of Removal was entered into in October 2003 and post-dated to 18 December 2003, the appellants were duly notified of the assignment from SRL to FTL by the 28 November 2003 letter and the Loan Agreement was varied twice, on 17 December 2004 and 31 March 2005.  The appellant’s statement of defence denied that notice had been given in terms of s 130 by the 28 November 2003 letter. 

[42]     In the context of a summary judgment hearing, FTL was entitled to seek to pursuade the Judge that the defence raised by the appellants (no valid notice) could not succeed at trial.  It did this by pointing out that subsequent events constituted notice if the 28 November 2003 letter did not.  We can see no reason to deprive FTL of summary judgment in those circumstances, if its contention is, in fact, correct.

[43]     In the course of argument Mr Langford accepted that, if the matter were to proceed to trial, there would be minimal additional information before the Court.  Essentially a trial would be a re-run of the exercise undertaken by the Associate Judge.  There was no prejudice to the appellants in the alternative arguments being raised in the High Court (or in this Court), and they had a full opportunity to contest those arguments.  There would be no impediment to the amendment of pleadings before a High Court trial took place, if summary judgment were refused and, on our view of the law, the outcome of that trial would be inevitable.  In those circumstances, we see no flaw in the approach adopted by the Associate Judge to the alternative arguments raised by FTL.

[44]     We conclude that FTL has established that the defence postulated by the appellants cannot succeed at trial, and in those circumstances we conclude that the Associate Judge was correct to enter summary judgment against the appellants.  The appeal therefore fails.

Alternative arguments

[45]     Mr Langford was critical that the Associate Judge considered a number of alternative bases on which notice could be said to have been given by FTL, and concluded in respect of some of them that notice “may well have been” given.  He said this was not an appropriate basis for the granting of summary judgment.  We agree.  But the Associate Judge did not put these forward as a basis for granting summary judgment: rather he granted summary judgment on the basis that the 28 November 2003 letter constituted notice.  The fact that he went on to consider alternatives and made observations about those alternatives does not compromise his earlier decision that, in applying normal summary judgment principles, summary judgments should be entered against the appellants.

Cross appeal: costs

[46]     The Associate Judge awarded costs to FTL on a 2B basis.  He did not address FTL’s claim for indemnity costs – rather he simply stated that FTL was entitled to costs “in the normal way”.  This appears to have been an oversight.  FTL cross appeals this aspect of the decision, arguing that it should have been awarded its actual costs.  The appellants abided the decision of this Court on this aspect of the case. 

[47]     FTL relied on cl 15 of the Deed of Guarantee and Indemnity assigned by each of the appellants, which provides as follows:

15.Costs

15.1The Guarantor shall pay to the Lender all costs (including solicitor and own client fees) and disbursements (including duty and Tax) sustained or incurred by the Lender in relation to:

15.1.1obtaining or attempting to obtain payment of all or any of the moneys for which the Guarantor may from time to time be liable under the provisions of this Deed; or

15.1.2enforcing or attempting to enforce all or any of the obligations which the Guarantor may be liable to perform under the provisions of this Deed; or

15.1.3enforcing or attempting to enforce any remedy or power expressed or implied in this Deed,

in each case Upon Demand and on a full indemnity basis.

[48]     We agree that, in normal circumstances, this clause would have entitled FTL to its actual costs and disbursements in the High Court:  ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 and Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873.  But the unusual feature of this case was that the difficulties FTL had in enforcing the guarantees arose from the doubt created by the untidy manner of effecting the assignment from SRL to FTL.  But for that factor, FTL may not have been put to the cost of the defended High Court hearing and the hearing in this Court.  In light of that unusual feature of the case, we do not consider that all of FTL’s costs can fairly be characterised as properly incurred in enforcing its rights under the guarantees.  We consider that the award of costs on a 2B basis yields a fair outcome in the circumstances and we do not therefore allow the cross-appeal.

Result

[49]     We dismiss both the appeal and the cross-appeal.

Costs

[50]     Applying the same approach to costs in this Court as we have applied in relation to the cross-appeal, we award costs to FTL on the conventional basis for a half day hearing in this Court.  As the respondent was unsuccessful in relation to the cross-appeal we reduce the normal award for a successful party in this Court from $3,000 to $2,000.  We therefore award to FTL costs of $2,000 plus two-thirds of its usual disbursements.

Solicitors:
Langford Law, Wellington for Appellants
Minter Ellison Rudd Watts, Auckland for Respondent