Bosher v Allied Liquor Merchants Limited HC Auckland AP 69-Sw01

[2001] NZHC 842

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY AP 69-SW01

BETWEEN ADRIAN COLIN BOSHER
Appellant

AND ALLIED LIQUOR MERCHANTS LIMITED
Respondent

Hearing: 6 July 2001

Counsel: M P Glucina for Appellant
L K O’Connor for Respondent

Judgment: 11 September 2001

JUDGMENT OF ANDERSON J

SOLICITORS
A R Thomas (Auckland) for Appellant
Simpson Grierson (Auckland) for Respondent

[1] This is an appeal against a summary judgment in the District Court against the appellant at the suit of the respondent for the sum of $17,843.93 together with interest thereon at 11 % per annum from 4 May 2000, as well as costs of $1000 and disbursements as fixed by the Registrar.

[2] The statement of claim alleged that the appellant was liable as guarantor in respect of an agreement for the supply of liquor products and services by the respondent to a company called Bat Holdings Limited (“Bat”).

[3] The appellant was one of two guarantors. The other was the appellant’s business associate, Mr D F Newby.

[4] On 22 October 1999 Mr Newby, by his solicitors, wrote to the respondent requesting a release from his guarantee as at 1 November 1999.

[5] On 2 November 1999, in writing, the respondent released Mr Newby from his guarantee effective from 1 November 1999. That release was without the appellant’s knowledge or consent.

[6] As at 1 November 1999 Bat’s account with the respondent was in debit in the sum of $6454.79. That debit extended to $17,846.93 by the time the respondent made demand on the appellant as guarantor.

[7] The principal issue, both in the District Court and on appeal, is whether the appellant was liable only as guarantor in respect of the monies claimed or as an indemnifier. No authority is needed for the trite principle that if he was liable as guarantor then his liability was entirely discharged by the release of the co-guarantor without his knowledge or consent as at 1 November 1999.

[8] Whether he was liable as a guarantor or as an indemnifier depends on the true construction of the written agreement entered into between the appellant, respondent, Bat, and Mr Newby.

The Agreement

[9] The relevant part of the agreement is in these terms:-

“GUARANTEE AND INDEMNITY IN FAVOUR OF DB GROUP LIMITED AND ITS SUBSIDIARIES

IN CONSIDERATION of DB Group and/or its subsidiaries (“DB Group”) supplying and continuing to supply goods and/or services to BAT HOLDINGS LTD (the “Purchaser”), I/WE JOINTLY AND SEVERALLY:

1. GUARANTEE the payment to DB Group on demand of all moneys now owing to DB Group by the Purchaser and all further sums of money from time to time owing to DB Group by the Purchaser, in respect of goods and services supplied or to be supplied by DB Group to the Purchaser or in respect of any other liability of the Purchaser to DB Group.

2. HOLD HARMLESS AND INDEMNIFY DB Group on demand, as a separate obligation, against any liability (including, but not limited to, damages, costs, losses, and reasonable legal fees) incurred by or assessed against DB Group in connection with the supply of goods or services to the Purchaser, the recovery of moneys owing to DB Group by the Purchaser, the failure of the Purchaser to observe and perform any covenant, condition, or obligation that the Purchaser ought to have performed or observed under any contract with DB Group, and/or for moneys paid by DB Group, with the Purchaser’s consent, in settlement of a dispute that arises or results form a dispute between DB Group, the Purchaser, and a third party, or any combination thereof, over the supply of goods or services by DB Group to the Purchaser.

This Guarantee and Indemnity shall constitute an unconditional and continuing guarantee and indemnity and accordingly shall be irrecoverable and shall remain in full force and effect until the whole of the moneys owing to DB Group by the Purchaser and all obligations hereunder have been fully paid, satisfied, or performed.

No granting of credit, extension of former credit, or granting of time and no waiver, indulgence, or neglect to sue on DB Group’s part (whether in respect of the Purchaser or any one or more of the guarantors or otherwise) and no failure by any named guarantor to properly execute this deed shall impair or limit the liability under this Guarantee and Indemnity of any guarantor. Without affecting the Purchaser’s obligation to DB Group, each guarantor shall be a principal debtor and liable to DB Group accordingly.”

The judgment appealed against

[10] A number of points were raised before the District Court which were determined against the appellant. Some have been repeated on appeal but they are not persuasive. The crucial issue is whether the debt pursued by the respondent was recoverable from the appellant because he was a principal debtor, or whether it was not recoverable by reason of his liability in that behalf being confined to a guarantee when, by reason of the discharge of his co-guarantor, he was himself discharged.

[11] The learned District Court Judge acknowledged the position if the debt were pursued on a guarantee, but held that in view of the principal debtor clause appearing at the end of the relevant section referred to in paragraph [9] hereof the appellant was liable notwithstanding the release of Mr Newby. With respect, if the District Court interpretation of the agreement were correct, the legal consequences found by the District Court were correct. The issue is accordingly confined to interpretation.

Submissions for the Appellant

[12] Counsel for the appellant argued that a principal debtor clause should be strictly construed against the creditor - Nelson Fishers Ltd v Boese [1975] 2 NZLR 233. Further, that whether a guarantor is constituted a principal debtor in any particular case is a question of construction to be determined having regard to the substance of the transaction and not merely its form. The authority for that proposition was Dunlop New Zealand Ltd v Dumbleton [1968] NZLR 1092.

[13] Further, the respondent’s conduct throughout the claim was on the basis that the appellant was a guarantor, not a principal debtor, and the statement of claim alleged liability as a guarantor. In this last respect counsel invoked Edmonds and Dennes v Westland Bank Ltd (CA153/90, 20 November 1990) in which case, as here, the creditor made demand on the appellant on an allegation of personal guarantee and where the statement of claim alleged liability of the appellant as a guarantor in summary judgment proceedings. In that case the Court of Appeal set aside summary judgment on grounds which included that demand had not been made on the appellants as principal debtors and that they had not been sued as such.

Submissions for the Respondent

[14] It was submitted on behalf of the respondent that Edmonds and Dennes v Westland Bank Ltd (supra) could be distinguished on its facts on the basis that there the alleged debtors were potentially liable as guarantors under a debenture and as principal debtors under a guarantee.

[15] It was further submitted that the plain and natural meaning of the terms of trade in the contract between the various parties stipulated the appellant’s obligation as a principal debtor in spite of any waiver. Essentially the respondent relied on the proposition that the interpretation of the agreement stipulated for liability on the part of the appellant as a principal debtor.

Decision

[16] In my judgment the provisions of the arrangement set out in paragraph [9] hereof contain obligations on the part of the appellant as guarantor for some purposes and as a principal debtor for other purposes. In terms of clause 1 of that agreement there is a guarantee in respect of goods and services supplied or to be supplied by the respondent. On the other hand, there is an indemnity, as a separate obligation, against other liabilities of the nature specified in clause 2. Nothing in clause 2 can be properly construed as relating to a principal debtor’s liability in respect of goods and services supplied. Further, the tacked on sentence at the end of the last paragraph in the form of guarantee and indemnity cannot be construed as contradicting the distinct liability of the respondent as a guarantor for specified purposes. It must be construed as affecting liability only in relation to the matters appearing in the last paragraph, which are granting of credit, extension of former credit, or granting of time, waiver, indulgence, or neglect to sue, as well as the other matters therein mentioned. Discharge of a co-guarantor is not referred to, nor should be implied in the respondent’s list of relevant circumstances.

[17] It is perfectly plain to my mind that in relation to the supply of goods and services to Bat, the appellant was a mere guarantor; that the release of the co-guarantor from liability does not fall within the circumstances envisaged in the last paragraph of the quoted section of the agreement which might in applicable circumstances invest the appellant with the character of a principal debtor; and that accordingly the appeal must succeed.

[18] I think the appellant was also entitled to succeed on the basis that summary judgment was entered on a pleading which asserted liability as a guarantor.

[19] Counsel for the appellant submitted that if the appeal should succeed then summary judgment should be entered in his favour pursuant to R152(2) of the District Courts Rules 1992 which came into force on 31 March 2001.

[20] Because the appellant has succeeded not merely on a technical argument relating to the statement of claim but also substantively on the issue of discharge, there is no sense in the matter being remitted to the District Court to undergo the formality of a hearing with an inevitable result in favour of the appellant.

[21] Accordingly, for the sake of finality, the appeal is allowed, judgment in favour of the respondent in the District Court is quashed, and there will be an order directing judgment to be entered in that Court in favour of the appellant.

[22] The appellant is entitled to costs on this appeal on a 2B basis.