Briggs v Hutton
[2013] NZHC 1938
•5 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-001623 [2013] NZHC 1938
BETWEEN PHILIP ROBERT BRIGGS and PAMELA
ANNETTE BRIGGS Plaintiffs
AND
JASON CHARLES HUTTON First Defendant
AND
TIMOTHY MADDERN HUTTON Second Defendant
Hearing: 31 July 2013 Appearances:
D Marriott for the Plaintiffs
J J McGuire for the DefendantsJudgment:
5 August 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
05.08.13 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
PHILIP ROBERT BRIGGS and PAMELA ANNETTE BRIGGS v JASON CHARLES HUTTON [2013] NZHC
1938 [5 August 2013]
[1] This judgment rules upon the plaintiffs’ application for summary judgment
Background
[2] The plaintiffs were the majority shareholders in 22 Hannigan Drive Limited (HDL) which purchased the land and an existing bakery business at 22 Hannigan Drive. The plaintiffs say that from 2007 to 2010 they and the first defendant (Mr Hutton) were jointly engaged in the operation of a bakery business involving several companies including HDL.
[3] Funding for the purchase of the property and associated businesses was provided by The National Bank (now ANZ Bank) (the bank) as is recorded by a loan agreement dated 26 October 2007. A sum of $2,650,000 was borrowed. The plaintiffs arranged the loan and personally guaranteed its repayment. They also provided security for it by a registered mortgage over an apartment property they owned in Auckland city (the apartment mortgage).
[4] Initially Mr Hutton was a director of HDL and of Plum Holdings and Investments Ltd (Plum) through which various business corporate entities were controlled.
[5] From September 2009 (when Mr Hutton’s directorships were taken from him by Mr Briggs) until May 2010 a number of disputes arose between the plaintiffs and Mr Hutton in relation to the operation of the bakery business companies.
[6] On 11 May 2010 the parties agreed to settle their disputes. Their settlement is recorded in two written agreements entitled “binding settlement agreement for Plum Holdings and subsidiaries”; (the Plum agreement) and “binding settlement agreement for 22 Hannigan Drive Limited (the HDL agreement)”.
[7] Those agreements required:
(a) The discontinuance of all pending and future litigation between the parties.
(b) The transfer of the plaintiffs’ shares in the bakery business companies to Mr Hutton.
(c) The resignation of the plaintiffs as directors of the bakery business companies and, after the settlement agreements were executed, the appointment of Mr Hutton as a director of those.
[8] The plaintiffs plead that those agreements required the release of the plaintiffs from liability for any obligations of the bakery business companies; and for Mr Hutton to use his best endeavours to secure the release of the plaintiffs’ personal guarantees and their apartment mortgage. The plaintiffs say further that by clause 8 of the HDL agreement the defendants personally guaranteed and indemnified the plaintiffs in respect of any obligations under the bank loan. The defendants deny the settlement agreements provided for any such guarantee or indemnity. The parties differ over the interpretation of the effect of clause 8.
[9] Three months after the agreements were signed on 26 August 2010 HDL was placed into liquidation by resolution of the defendant shareholders and thereafter no further payments were made under the bank loan.
[10] On 11 January 2012 the bank issued a notice of default and gave notice of its intention to exercise its rights of mortgagee sale of the HDL property. That property was subsequently sold at mortgagee sale by the bank’s liquidator on 28 November
2012. The proceeds of sale were insufficient to repay the bank loan and the bank gave notice of its intention to effect a mortgagee sale of the plaintiffs’ apartment. With the agreement of the bank the plaintiffs effected a sale of their apartment for a sum of $999,866.84, which proceeds were paid to the bank.
[11] The plaintiffs’ claim against the defendants is for a refund of the proceeds from the sale of their apartment together with the costs associated with that sale. In total a sum of $1,051,737.61 is claimed.
[12] The defendants have pleaded affirmative defences and they say:
(a) No resolution of HDL 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 HDL 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 HDL agreement terminated on the date of liquidation and clause 10 provides, the defendants say, an absolute defence to these proceedings.
The plaintiffs’ evidence
[13] Mr Briggs deposes he was, at relevant times, a former director of HDL and with his wife they held in excess of 80% of the shares in the company. Initially Mr
Hutton was also a director (until 16 September 2009) and he and his wife held a minority (about 20%) of the shares. Mr Briggs is also a former director of Evpach Limited the shares of which were owned by Plum and he and his wife owned 80 per cent of the shares in Plum.
[14] In September 2009 Mr Briggs took Mr Hutton’s directorship of HDL from him because he considered Mr Hutton had in certain respects exceeded his authority as director.
[15] Mr Briggs says that a key aspect of the settlement involved he and his wife transferring “all of our shares in the various companies” to Mr Hutton and they being relieved from any liability for any indebtedness of the companies. As well he said the plaintiffs wrote off a personal loan they had made to Evpach of $2.2M. It appears clear that this personal loan was in fact sourced from the initial bank loan which funded the purchase of the land and business.
[16] Mr Briggs deposes the details of settlement were separated into two agreements because the intention at the time was that the HDL property would be sold and that the properties and businesses run by Evpach would be kept separate. It seems it was also contemplated by Mr Briggs that some or all of the separate Plum businesses would be liquidated.
[17] Mr Briggs says that at the time of the settlement it was envisaged by all of the parties that Mr Hutton would secure a release of the personal guarantee Mr Briggs had given in relation to the bank loan advanced to enable the purchase of the HDL property.
[18] Mr Briggs says it was to that end that clause 8 of the HDL agreement provided that Mr Hutton was to use his best endeavours to obtain the release of the plaintiffs’ personal guarantees for payments due under the loan.
[19] He said clause 8 recorded that in any event the defendants agreed to indemnify the plaintiffs against all costs and expenses that they might be required to pay as a result of the loan not being paid when due.
[20] Mr Briggs says Mr Hutton never succeeded in securing the release of the plaintiffs’ personal guarantees. Consequently the plaintiffs’ apartment mortgage likewise was not released.
The defendants’ evidence
[21] Mr Hutton deposes that he initially approached Mr Briggs in early 2007 about an idea to acquire a private company to list publicly. He had identified Eves Pantry as a well known retail bakery business that might be suitable. He and his wife together with Mr and Mrs Briggs invested in Eves Pantry, ownership of which was achieved through Plum in which he and his wife held a 20.2 per cent shareholding.
[22] At the time Eves Pantry consisted of a wholesale operation based at
Hannigan Drive with nine retail outlets.
[23] Not long after the joint enterprise began Eves Pantry ran into financial difficulties. Relations between the two families became strained. Mr Hutton was removed as a director of all Plum companies. The disputes spilled over into litigation. Mr Hutton says none of these involved his father the second defendant (Mr T Hutton).
[24] In April 2010 he and Mr Briggs agreed to negotiate. He circulated draft settlement proposals. He said it was agreed that Harrison Stone, solicitors of Auckland would represent all parties and prepare draft settlement agreements. Before then that firm had been the legal representatives of the plaintiffs, HDL, Evpach and Plum. He said they had considerable input into the final settlement agreements and advised all of the parties during these negotiations. The evidence discloses significant input by the solicitors in the reformulation of a single agreement into two agreements.
[25] Mr Hutton says he was not advised to get independent legal advice. Mr Hutton says the idea behind the settlement agreements was “to resolve and determine previous differences and to move on”.
[26] Following the execution of the agreements Mr Hutton contacted the Bank for the purpose, as clause 8 directed, to request the release of the plaintiffs’ personal guarantees and to release the mortgage security over the apartment. He says he was advised by the bank that under no circumstances at all would either guarantees or security be released.
[27] It became apparent to Mr Hutton that the bank had not been advised that the plaintiffs had transferred their controlling share in HDL to him. Nor, was the bank aware of the transactions involving the sale of Evpach and other businesses by the plaintiffs. The bank was not aware that Mr Briggs had sold the Evpach business and an associated business earlier on 1 March 2010. Although Mr Hutton appears to have been aware of the fact that those sales had taken place, Mr Hutton’s father complains that Mr Hutton was unable to provide any details as he had no knowledge of those. Indeed Mr Hutton’s father says that when he discovered that the sale had included customers of the company he had owned he immediately sought an undertaking from Mr Briggs that the money owed to his company by Evpach would be fully repaid.
[28] In his refinancing discussions with the bank Mr Hutton was advised that the existing interest only terms on the HDL loan would lapse at the end of July 2010. He said the bank assured him in no uncertain terms that the existing loan securities provided by the plaintiffs in support of the HDL loan would not be released unless replacement security of sufficient quality could be pledged to the bank. He said in those circumstances it was impossible for him to negotiate a release of the plaintiffs’ securities.
[29] In conjunction with the aforesaid business sales it appears that Mr Briggs had permitted a 10 year lease (with an annual rental of $440,000 between Evpach (tenant) and HDL (landlord) have been surrendered and in its place a new two year lease (with an annual rental of $265,000) was executed with effect from 1 March
2010. Apparently it seems, indeed it appears arguable that the original 10 year lease was a precondition of the bank loan to HDL.
[30] When Mr Hutton informed Mr Briggs of these difficulties he said Mr Briggs became frustrated and said the bank was obliged to release those securities under the parties’ settlement agreement and that he would personally get them released.
The HDL settlement agreement
[31] It provided inter alia:
6.P R Briggs is the legal owner of 80,000 shares in [HDL]. P R Briggs agrees to sell and transfer the Shares to J C Hutton for $1,000... plus any amount payable in accordance with clause 9 of this agreement... J C Hutton will on 11 May 2010 be appointed as a director of [HDL] and P R Briggs will resign as a director of the company...
8.The security of 2a, 120 Customs Street West for the loan held by the National Bank of New Zealand Limited [the apartment mortgage] (NBNZ) would be maintained. J C Hutton will immediately following settlement make a formal application to the NBNZ to fully release the personal guarantees and securities given by P R and P A Briggs and the security over the property at 2a, 120 Customs Street West on a best endeavours basis. In the event that the application is unsuccessful, J C Hutton will immediately make application for new funding. In any event, J C Hutton and T M Hutton personally guarantee that the NBNZ loan will be serviced and indemnify P R and P A 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.
9.It is intended to sell 22 Hannigan Drive within a period of 3 years. J C Hutton will pay to P R and P A Briggs, as consideration for the purchase by J C Hutton of their shares in [HDL], 50 % of the amount by which the sale price for the property exceeds $2.25m... If the property is not sold within 3 years from the date of settlement, then the property is to be independently valued... on a vacant possession basis and J C Hutton will pay to P R and P A Briggs, as consideration for the purchase by J C Hutton of their shares... 50 per cent of the amount by which the valuation of the property exceeds
$2.25m.
11. P R and P A Briggs to pay all legal bills to Harrison Stone for
[HDL]...
14.The parties agree to bear their own costs and legal fees in connection with the negotiation of this agreement. The parties agreed to provide all documents and any other papers necessary to carry out the intent of this agreement. The costs for Harrison Stone in drawing up this agreement are to be shared equally between J C Hutton and P R Briggs.
17.P R Briggs and P A Briggs agree to assign to J C Hutton all indebtedness of [HDL] for the consideration of $1.00 (it being
acknowledged that the loans have no value). This specifically includes any and all loans advanced by them jointly and severally to [HDL].
18.J C Hutton will provide reasonable assistance to obtain releases of any personal guarantees given by P R and P A Briggs in respect of obligations of any of the parties to this agreement.
The Plum settlement agreement
[32] It provided inter alia a record of an agreement between the individuals, Plum Holdings and its subsidiaries and Eves Pantry Franchise Limited “to ensure the vested interests of the parties in the former bakery business of Eves Pantry Capital Holdings Limited are liquidated in an orderly manner...”.
[33] Conditions included:
6.P R and P A Briggs are collectively the legal owners of 3,081,262 shares in Plum Holdings... P R and P A Briggs agree to sell and transfer the Shares to J C Hutton for $95,000, $80,000 payable on settlement, the balance of $15,000 payable in three equal $5,000 instalments... J C Hutton will upon settlement be appointed as a director of Plum and each of its subsidiaries and P R Briggs will resign as a director Plum and each of its subsidiaries.
7.P R Briggs is the legal owner of 808 shares in Eves Pantry Franchise Limited. P R Briggs agrees to sell and transfer the shares to J C Hutton for $1,000...
8. Settlement will take place on Tuesday 11 May 2010...
10.P R and P A Briggs to pay all legal bills to Harrison Stone for Plum and Eves Pantry Capital Holdings Limited...
15.The parties agree to bear their own costs and legal fees in connection with the negotiation of this agreement... The costs for Harrison Stone in drawing up this agreement are to be shared equally between J C Hutton and P R Briggs.
18.P R Briggs and P A Briggs agree to assign to J C Hutton all indebtedness of any group company to them for a consideration of
$1.00 (it being acknowledged that the loans have no value). This
specifically includes any and all loans advanced by them jointly and severally to Plum and all its subsidiaries and Eves Pantry Franchise Limited...
19.P R Briggs and P A Briggs warrant that all the plant and machinery assets of Eves Pantry Capital Holdings Limited and its subsidiaries... are unencumbered...
20.P R Briggs and P A Briggs warrant that ASB Bank retain no security over Plum and its subsidiaries...
21.J C Hutton will provide reasonable assistance to obtain releases of any personal guarantees given by P R and P A Briggs in respect of the obligations of any of the parties to this Agreement.
The plaintiffs’ case for summary judgment
[34] The plaintiffs’ primary focus is upon the HDL settlement and in particular upon the guarantee it is said is provided by clause 8 of that agreement.
[35] The plaintiffs’ say the bank loan was not serviced causing them to incur costs totalling $1,051,737.61 when the plaintiffs were required to sell their apartment because in 2012 the bank required repayment of its loan.
[36] The plaintiffs say it is not in dispute that Mr Hutton failed to secure a release of the plaintiffs’ personal guarantees, or of the apartment mortgage. The plaintiffs do not suggest that Mr Hutton had not given his best endeavours to achieve those releases.
[37] On 26 August 2010 HDL was voluntarily placed into liquidation by resolution of its shareholders. This prompted the bank to require repayment of its loan by sale of those properties (including the plaintiffs’ apartment) which secured the loan.
[38] The bank had threatened a mortgagee sale of the apartment but then agreed to allow the plaintiffs to obtain a sale by private treaty. Such a sale was achieved in May 2013. The plaintiffs claim includes various real estate agents and legal costs in connection with the sale.
[39] The plaintiffs say the terms of the guarantee are clear and unambiguous and that there was no doubt that the bank loan was included, and for which security had been provided by the plaintiffs’ apartment.
[40] They say that all of the sums they now claim were directly incurred as a result of the failure of HDL and of the defendants to meet the bank loan obligations
and therefore that all sums claimed fall within the scope of the defendants’
guarantee.
[41] The plaintiffs reject the defendants’ claim that they were only to have assumed liability when the plaintiffs’ personal guarantees were assigned to them.
[42] The plaintiffs reject claims that the guarantee is unconscionable and therefore unenforceable because they never completed any written waiver of the right to obtain independent legal advice. The plaintiffs say the defendants were not in a position of special disadvantage nor were they the weaker party whose position was somehow exploited by the plaintiffs in the circumstances. To the contrary they say the defendants were experienced businessmen.
[43] It was, the plaintiffs say an arms-length commercial transaction wherein there was no legal requirement upon the plaintiffs to ensure that the other parties obtained independent legal advice, at least in the absence of any awareness by the plaintiffs of any special disadvantage affecting the defendants.
[44] The plaintiffs reject claims that the defendants’ guarantee ceased to have effect upon the liquidation of HDL. Indeed the guarantee expressly records that it was to endure “in any event”, and that this would include events such as liquidation.
[45] The plaintiffs reject also the defendants’ argument that clause 10 of the HDL agreement (and clause 11 of the Plum agreement) precludes any ability of any party to bring any further litigation of matters in issue. As the plaintiffs note the final sentence of those clauses specifically states the clause does not apply to any breach of the agreement.
Considerations
The extent of Mr Briggs authority
[46] The Court has unease about the plaintiffs claim for summary judgment. That unease focuses on Mr Briggs capacity for control throughout; his assumption of responsibility in connection with financial affairs of the relevant companies; his
decision to sell assets of the business enterprise a few months before the settlements were negotiated; his efforts in connection with the rearrangement of a lease for a considerably shorter term at a much reduced annual return, again just months before settlement; of his engagement of his solicitors who were also the business enterprise solicitors for the purpose of collating the respective views of the parties into settlement formulations that those solicitors knew would be executed in settlement of the parties’ disputes.
[47] Some of those actions undertaken in the few months pre settlement may have significantly impacted on the value of those guarantees and securities the plaintiffs had provided in support of their loan obligations, which the plaintiffs say the defendants assumed responsibility for.
[48] The settlement agreements, by their wording, contemplated the winding up of the businesses.
[49] Mr Briggs kept a critical control of matters until 11 May 2010. It appears company records did not include copies of the extent of guarantees or securities provided for the bank loan. It is not clear how much Mr Hutton knew of the extent of the bank loan obligations prior to the settlement. There is some evidence that Mr Hutton accepted Mr Briggs assessment that the HDL property would sell for as much as $2.7m. This would explain clause 9 of the HDL agreement wherein the parties agreed to share any profit in excess of a sale at $2.25m.
[50] The businesses were winding down. The HDL 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.
The indemnity clause
[51] It is in this context of matters that clause 8 needs to be viewed, and also the fact of its inclusion by solicitors who, through their evidence, declare they were only acting for the plaintiffs.
[52] Clause 8 provides for a best endeavours effort by the defendants to secure the release of the plaintiffs’ personal guarantees and securities (including the apartment mortgage). The clause says that if those efforts were unsuccessful then the defendants would “in any event personally guarantee that the loan “will be serviced and [the plaintiffs will be] indemnified against any costs or expenses incurred... as a result of any sum payable to [the bank] not being paid when due”.
[53] On one account if the defendants could not obtain the release of the plaintiffs’ obligations by which they provided securities for the bank’s loan, then the defendants agreed to assume those responsibilities, even if they could not provide guarantees or securities by way of substitution. In that event they agreed to meet any “costs or expenses incurred by the plaintiffs” as a result of the bank’s loan not being paid.
[54] But, an obligation to pay, “costs and expenses” is far from explicit in terms of containing an acknowledgement to bear full responsibility for repayment of the bank’s loan.
[55] It might well be inferred that the indemnity was intended to provide an obligation to meet the bank’s loan. But, if that was the case then why was it not explicitly stated by clause 8? Why ask for an indemnity of “costs and expenses” when the words were meant to require the satisfaction of all obligations for repayment of the bank’s loans.
The sufficiency of the affidavit evidence
[56] The Court does not believe it has all evidence 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.
[57] Mr Briggs made certain decisions concerning the assets of the enterprise companies which may have significantly affected the value of those assets. Throughout, it seems until 11 May 2010, the plaintiffs had control of the information that might explain asset value changes.
[58] It appears clear that the bank was unaware of those value changes or indeed even of the settlement agreements by which the plaintiffs believed they had released themselves from all obligations to the bank.
[59] The defendants say the plaintiff’s solicitors acted for them also and that is why, among other reasons, they paid half of the solicitor costs for the preparation of the agreements.
[60] The plaintiffs say the defendants were experienced businessmen. That is not clear from the evidence. Certainly they had thoroughly investigated the business opportunity involved but it by no means clear they could be qualified as experienced businessmen.
[61] It is not the Court’s function to second guess what the defendants might have done had they had all of the relevant information at their disposal. But, it seems clear they were probably unaware at all of a number of factors that could have affected the value of the business and upon which they might, had they been properly alerted to the need, have consulted independent advice upon. Such advice might have identified that the bank’s loan was interest bearing only until about July
2010 from which time capital reduction payments were due. It is unclear but it appears knowledge of this additional obligation was not known until after the settlement agreements signed.
Conclusion
[62] There are significant disputes of fact. The Court considers that additional discovery will provide important background material to better explain the events that support the parties’ respective positions of their understanding of the truth of matters that were relied upon for their understanding of what it was they agreed by those somewhat otherwise imprecise terms contained in clause 8 of their agreement.
[63] This case is not suitable for the grant of summary judgment.
Judgment
[64] Summary judgment application is dismissed.
[65] Costs are reserved for determination in the cause.
Associate Judge Christiansen
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