Briggs v Hutton
[2014] NZCA 392
•13 August 2014 at 2.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA580/2013 [2014] NZCA 392 |
| BETWEEN | PHILIP ROBERT BRIGGS AND |
| AND | JASON CHARLES HUTTON |
| AND | TIMOTHY MADDERN HUTTON |
| Hearing: | 3 July 2014 |
Court: | Miller, Ronald Young and Cooper JJ |
Counsel: | D L Marriott for Appellants |
Judgment: | 13 August 2014 at 2.30 pm |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellants must pay the respondents costs on a band A basis as for a standard appeal and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Ronald Young J)
Introduction
Mr and Mrs Briggs and Jason Hutton were jointly engaged in a bakery business. Through a company called 22 Hannigan Drive Ltd (Hannigan) they borrowed substantial funds from The National Bank of New Zealand to purchase the bakery premises. But they fell out. The Briggs had guaranteed the money borrowed from the National Bank (now the ANZ Bank) to buy the bakery. Hannigan went into liquidation. The premises were sold but there was a shortfall. The Briggses were required by ANZ to meet the shortfall through their guarantee. They sold an apartment they owned and repaid the bank. The Briggses in turn claimed, in summary judgment proceedings, that an agreement signed in 2010 settling the dispute required Jason and Timothy Hutton (Jason’s father) to indemnify them for the money they paid to ANZ arising from their guarantee (just over $1 million).
In the High Court, Associate Judge Christiansen refused summary judgment.[1] The Judge concluded that the indemnity clause in the settlement agreement did not clearly require the Huttons to indemnify the Briggses. The Judge considered there remained significant relevant disputes of fact and that further discovery was required before the indemnity clause could be properly interpreted.
[1]Briggs v Hutton [2013] NZHC 1938.
In this appeal the Briggses say the Judge was wrong to refuse summary judgment because the terms of the settlement were clear.
Further background facts
In 2007, through Hannigan, Mr and Mrs Briggs and Jason Hutton purchased a property at 22 Hannigan Drive from which they ran a bakery business then known as Eves Pantry. To finance the purchase Hannigan borrowed $2.65 million from the National Bank. A condition of the loan was that Mr and Mrs Briggs guaranteed the loan and provided mortgage security for the loan over their apartment at Customs Street West in Auckland (as they did).
This business operated a wholesale bakery at Hannigan Drive and a number of retail outlets around Auckland. Other bakery businesses were also purchased. The business was run by Eves Pantry Capital Holdings Ltd (Evpach), a holding company ultimately owned by the parties through Plum Holdings Ltd. This company leased the commercial premises at Hannigan Drive from the property owning company, Hannigan. The Briggses owned in excess of 80 per cent of Hannigan and 80 per cent of Plum Holdings. Mr Jason Hutton and his wife owned about 20 per cent of both these companies. Evpach was also a guarantor of the ANZ loan.
Unfortunately the bakery business did not prosper. By September 2009 the two families had become involved in litigation with each other. Mr Briggs, who was the managing director of many of these companies, reorganised the various businesses. Mr Jason Hutton’s evidence was that much of the reorganisation was done without his knowledge. He said that the business and most of the assets of Evpach were sold by Mr Briggs. Evpach was only left with the plant and equipment which was leased to Auckland Bakery Ltd, a company owned in part by Jason Hutton. Evpach had leased the Hannigan Drive premises for 10 years at an annual rental of $440,000 per annum.
When the Evpach business was sold, Mr Briggs is said, on behalf of Evpach, to have surrendered the Hannigan Drive lease from Hannigan. Then, on behalf of Hannigan, he is said to have entered into a new lease with Auckland Bakeries Ltd for two years at a rental of $265,000 per annum, significantly less than the rent under the Evpach lease.
Ultimately two settlement agreements were signed between the Huttons and the Briggses relating to the various businesses operated by them both. The settlement agreement relating to Hannigan and the Briggses’ guarantee to the ANZ, is described as a “Binding Settlement Agreement for 22 Hannigan Drive Ltd” (the Hannigan agreement). The other settlement agreement is for “Plum Holdings and Subsidiaries”.
The Hannigan agreement was signed on 11 May 2010. The agreement said its purpose was to “avoid the need and cost of ongoing litigation and potential future claims against [each] other”.
The two settlement agreements broadly involved the Briggses transferring their shares in the various companies to the Huttons, with some contingent payments due to both parties in the case of Hannigan, and a cash payment to the Briggses for shares purchased by Mr Hutton in Plum Holdings and other associated companies.
The appellants’ primary focus on summary judgment was on the Hannigan agreement. Mr Briggs had 80,000 shares in Hannigan. He agreed to transfer those shares to Mr Jason Hutton for $1,000 plus any further sums provided for in cl 9 of the Hannigan agreement. Mr Briggs was to resign as a director. The agreement would, therefore, end the Briggses’ involvement in Hannigan.
Clause 8 of the Hannigan agreement dealt with the Briggses’ guarantee and mortgage security with respect to the ANZ loan. It said:
8.The security of [the] Customs St West [property] for the loan held by National Bank of New Zealand Limited (NBNZ) would be maintained. JC Hutton will immediately following settlement make a formal application to the NBNZ to fully release the personal guarantees and securities given by PR and PA Briggs and the security over the property … on a best endeavours basis. In the event that the application is unsuccessful, JC Hutton will immediately make application for new funding. In any event, JC Hutton and TM Hutton personally guarantee that the NBNZ loan will be serviced and indemnify PR and PA Briggs against any costs or expenses incurred by them as a result of any sum payable to NBNZ in respect of the loan not being paid when due.
Clause 9 dealt with the intention to sell the 22 Hannigan Drive property and the distribution of surplus funds after sale. It said:
9.It is intended to sell 22 Hannigan Drive within a period of 3 years. JC Hutton will pay to PR and PA Briggs, as consideration for the purchase by JC Hutton of their shares in 22 Hannigan Drive Limited, 50% of the amount by which the sale price of the property exceeds $2.25m (without deduction of any costs of sale or any other moneys). That payment must be made contemporaneously with settlement of the sale. If the property is not sold within 3 years from the date of settlement, then the property is to be independently valued by Gribble Churton and Taylor on a vacant possession basis and JC Hutton will pay to PR and PA Briggs, as consideration for the purchase by JC Hutton of their shares in 22 Hannigan Drive, 50 per cent of the amount by which the valuation of the property exceeds $2.25m. Payment will be due within one calendar month of 3 years from the date of settlement. JC Hutton will not sell any shares in 22 Hannigan Drive Limited and will ensure that 22 Hannigan Drive Limited does not sell or encumber the property or incur any liability, or do any other act which might affect the value of the property or of 22 Hannigan Drive Limited without the prior written consent of PR Briggs. PR Briggs will not unreasonably withhold or delay his consent in respect of any arms’ length sale of the property for fair market value on usual terms. To avoid doubt, no sum is payable by PR and PA Briggs to JC Hutton if the sale price (or valuation, as the case may be) is less than $2.25m.
In summary, the Huttons would own the shares in Hannigan. Hannigan’s only asset was the property at 22 Hannigan Drive. The Huttons had three years in which to sell the property. If they did, they kept the first $2.25 million of the proceeds of sale and shared any excess above $2.25 million equally with the Briggses. If they could not sell the property then it had to be valued. If the value exceeded $2.25 million the Huttons had to pay half the excess to the Briggses.
The Huttons were not able to sell the 22 Hannigan Drive property at what they thought it was worth. Mr Jason Hutton placed Hannigan into voluntary liquidation. This breached the terms of the ANZ mortgage. Interest instalments went unpaid and in October 2010 ANZ required repayment of the loan in full. No further payments under the ANZ loan were then made. The property was sold for $1.685 million. This left a shortfall of some $971,000 still owing under the loan to ANZ. The bank made demand of the Briggses for this amount under the guarantee. The Briggses sold an apartment (over which ANZ had taken a mortgage for the Hannigan loan) and repaid the shortfall in full. The Briggses then made demand of the Huttons to indemnify them for their payments to ANZ, claiming cl 8 of the Hannigan agreement required them to do so. The Huttons refused to pay. They said they had not indemnified the Briggses with respect to the bank loan.
Decision in the High Court
As the Judge noted, the Briggses’ position was straightforward. Their case was that they had sold their interests in the various companies, including Hannigan, to the Huttons. The Huttons were to do all they could to release the Briggses from their guarantee of the ANZ loan and the mortgage security. In the meantime the Huttons were required to guarantee that the loan would be serviced in the sense that the required regular payments would be made. Finally, the 22 Hannigan Drive property would be sold. If the sale price was more than $2.25 million the excess would be split evenly between the parties. If after sale there were insufficient funds to meet the ANZ loan then the Huttons would indemnify the Briggs for any sum they had to pay to ANZ. And so the Briggs paid the shortfall to the ANZ and sought to enforce the indemnity.
The Huttons in response said cl 8 did not require them to indemnify the Briggses for liabilities incurred under the guarantee. They also pleaded a number of affirmative defences. They were:[2]
[2]Briggs v Hutton, above n 1, at [12].
(a)No resolution of [Hannigan] records a purported transfer or assignment of the plaintiffs’ personal guarantee for the company loans to the defendants.
(b)The bank was not informed about any such arrangement.
(c)The plaintiffs’ personal guarantee to the bank was not assignable under the terms of the guarantee.
(d)The plaintiffs’ purported assignment of their guarantee to the defendants, without notice to the Bank, is in breach of clause 7.1 of their guarantee. Such purported assignment could not be lawful unless the bank expressly agreed to it.
(e)The bank did not agree to terminate or release the plaintiffs’ personal guarantee.
(f)The lack of any written waiver of the right to obtain independent legal advice renders any purported guarantee by the defendants unconscionable and unenforceable.
(g)When [Hannigan] was placed into liquidation the liquidators assumed responsibility for repaying the loan.
(h)At the date of liquidation the loan was not in default or arrears and there were no costs or expenses associated with its repayment.
(i)Clause 8 of the [Hannigan] agreement terminated on the date of liquidation and clause 10 provides, the defendants say, an absolute defence to these proceedings.
The Judge concluded that because Mr Briggs had kept “critical control of matters [relating to the parties’ businesses] until 11 May 2010”, it was unlikely that the Huttons knew and understood the rearrangement of the businesses and the full extent of the guarantees and securities provided to ANZ by Hannigan and the Briggses.[3]
[3]At [49].
The Judge said:
[50] The businesses were winding down. The [Hannigan] property was likely to be sold. The defendants had provided no guarantees or security for the borrowing. Yet, the plaintiffs would have it that the defendants agreed to assume all responsibility for an unpaid loan of $2.65m in circumstances when it is not clear at all that the defendants were aware of the full extent of that loan.
He concluded that this was the context against which cl 8 in the Hannigan agreement (the indemnity clause) needed to be interpreted. He said that an obligation to pay “costs” or “expenses” in cl 8 may be considered to be different than bearing full responsibility for repayment of ANZ’s loan. If full indemnity for the ANZ loan was intended, he asked, why did the settlement document not expressly say so?
The Judge then turned to the sufficiency of the evidence relating to the circumstances which gave rise to the signing of the Hannigan agreement. He considered that the Court did not have before it all of the evidence:[4]
that may bear on the actions of Mr Briggs that might have affected the value of those assets which he sold, the reduction of value in which … it appears, may not have been understood by the defendants.
[4]At [56].
He concluded that there were significant disputes on relevant facts, the interpretation of the indemnity clause was not clear and there were reasons to believe that the Huttons did not know and understand the full extent of the loan they were guaranteeing (if indeed there was a guarantee of the loan). He, therefore, refused summary judgment.
The appellants’ case
The appellants say that there was no uncertainty in the terms of the indemnity; the Associate Judge failed to analyse each of the respondents’ defences and if he had done so he would have concluded that none were arguable; there were no significant disputes of fact because the material relevant facts were agreed upon; the Associate Judge had regard to matters that were not relevant to a summary judgment; and no further discovery was necessary because all of the material facts were before the Court.
Counsel for the appellants accepted that if we concluded there was uncertainty about the meaning of the vital part of cl 8, then this appeal would inevitably fail and the Briggses’ claim would need to go to trial.
The respondents’ case
The Huttons’ submissions focused on the meaning of cl 8 of the Hannigan agreement. They said an analysis of cl 8 illustrated that the Huttons guaranteed to meet the servicing of the loan by ensuring the periodic payments under the loan were made. This obligation ended when Hannigan went into liquidation. The whole of the loan then became payable and there was no further question of the loan being “serviced”.
The “indemnity” in cl 8 required them to meet the costs and expenses payable by the Briggses with respect to the loan. This was not an indemnity of the loan itself, but only for any costs and expenses required to be paid by the Briggses if, for example, there was a late payment of an instalment. The loan itself was not guaranteed.
Discussion
We are satisfied the Associate Judge was correct not to grant summary judgment. We consider the respondents’ interpretation of cl 8 is arguable. We agree that there are ambiguities in cl 8. Evidence as to the circumstances under which cl 8 was drafted and the agreements entered into might well assist in the interpretation of the clause.
Clause 6 of the Hannigan agreement records that the Briggses would transfer all of their 80,000 shares in Hannigan for $1,000 (plus any cl 9 payments) to the Huttons. Once the $1,000 is paid the Briggses agreed to transfer their shares and resign as directors. Thus, the agreement intended the Briggses to have no interest in Hannigan.
Read together, cls 8 and 9 require the sale of Hannigan within three years. This would be either by private treaty or if no such sale could be arranged then the property would be valued and any surplus beyond $2.25 million would be shared equally by the Huttons and the Briggses. In those circumstances the only asset of Hannigan, the property at 22 Hannigan Drive, would continue to be owned by Hannigan and all of the shares in Hannigan would be owned by the Huttons.
The equal sharing of any surplus on sale probably reflected the parties’ view that Hannigan had no value other than any surplus sale price beyond the ANZ mortgage. This is reflected in the fact that 80 per cent of the shares in Hannigan were transferred from the Briggses to the Huttons for a nominal sum ($1,000).
Clause 9 anticipates that the 22 Hannigan Drive property will be sold or if it is not able to be sold the surplus value will be accounted for by payment to the parties. While the sale is advertised and arranged (potentially for up to three years) there would need to be continued mortgage payments (at least covering interest) by Hannigan (the borrower) of the ANZ loan. Given the Briggses had sold their shares in Hannigan, they had lost any control they had to ensure the ANZ mortgage interest was paid by Hannigan. They remained, however, subject to a guarantee and a mortgage securing the loan against their property and therefore remained vulnerable to any failure by Hannigan to meet interest payments. These facts can be seen as the context for cl 8.
In the first part of cl 8, the Huttons were obliged to try to get the Briggses released from the guarantee and mortgage by request to the Bank. If that failed, then the Huttons were obliged to try to remortgage the property.
Clause 8 then says:
In any event …
This phrase could indicate that whatever the success or otherwise of the efforts to obtain a release of the guarantee and mortgage or a remortgaging of Hannigan, the Huttons would “personally guarantee that the [ANZ] loan will be serviced” if and until a release or remortgage eventuated.
We consider there is a credible argument, given the context we have outlined, that this part of cl 8 required the Huttons to guarantee personally that if Hannigan failed to make the required periodic payments (servicing) under the mortgage to ANZ, then the Huttons would be required to do so. This interpretation could be seen to be consistent with the thrust of cls 6, 8 and 9 of the Hannigan agreement. The Briggses had sold their shares in Hannigan, but they still had the burden of a guarantee and mortgage of the main Hannigan debt. Every effort would be made to get them released from the guarantee and mortgage but if that failed, then the Huttons would ensure that Hannigan paid the mortgage in the meantime until the property could be sold by them. This would protect the Briggses’ position until sale.
While not directly part of this appeal, the fact that the Huttons put Hannigan into voluntary liquidation, thereby triggering liability to pay the ANZ loan in full, may be a breach of their obligations in cl 8, by a breach of their servicing obligation.
The last part of the final sentence in cl 8 is the pivotal provision. We consider this final portion of cl 8 is ambiguous.
The relevant part of cl 8 refers to an indemnity against the “costs or expenses” incurred by the Briggses. The use of the words “costs and expenses” could be interpreted as the incidental expenses incurred if the mortgage payments were not paid as required by the mortgage (for example, penalties incurred). And if what was being indemnified by the Huttons was the Briggses’ guarantee of the Hannigan mortgage (as the appellants claim), then it may be reasonable to ask why the Hannigan agreement does not directly say so.
On the other hand, cl 8 refers to the payment of costs and expenses incurred if “any sum payable to [ANZ] in respect of the loan [is] not … paid when due”. The appellants’ case is that interpreted literally, when ANZ called up the loan and was not paid then the whole of the unpaid mortgage was “a sum payable to [ANZ]” that was not paid when due.
We accept that either interpretation of cl 8 is open on the words used. We agree this part of cl 8 is ambiguous. As we have noted, this may well be a case where evidence of the surrounding circumstances of the Hannigan agreement will assist in the interpretation of the agreement itself.[5]
[5]See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [31]: “extrinsic evidence is admissible if it tends to establish a fact or circumstance capable of demonstrating objectively what meaning both or all parties intended their words to bear.”
Given the ambiguity, we agree with the Associate Judge in the High Court that the appellants could not establish that the defendants had no arguable defence. The appellants have not convinced us that the interpretation of cl 8 advocated by the respondents is clearly wrong. Given that conclusion we do not need to consider the other positive defences pleaded by the respondents.
Conclusion
For the reasons given, the appeal is dismissed. Standard costs on a band A basis are payable by the appellants to the respondents and usual disbursements.
Solicitors:
Foley Hughes, Auckland for Appellants
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