Chapman-Smith v Allerby
[2012] NZHC 802
•27 April 2012
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-2114 [2012] NZHC 802
BETWEEN MICHAEL CHAPMAN-SMITH AND LABYRINTH HOLDINGS TRUSTEE COMPANY LIMITED AS TRUSTEES OF THE MICHAEL CHAPMAN-SMITH FAMILY TRUST
Plaintiffs
ANDMURRAY BRENT ALLERBY AND PAUL AIDEN MCBRIDE AS TRUSTEES OF THE ALLERBY FAMILY TRUST
First Defendants
ANDMURRAY BRENT ALLERBY Second Defendant
(Heard at Wellington)
Counsel: C. Baker - Counsel for Plaintiff
K. Sullivan - Counsel for Second Defendant
Judgment: 27 April 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This decision of Associate Judge Gendall was delivered on 27 April 2012 at 3.00 pm under r 11.5 of the High Court Rules.
Solicitors: Price, Baker, Berridge, Solicitors, PO Box 21-463, Henderson, Auckland
Wilson & Co, Solicitors, PO Box 208, Wellington 6143
M CHAPMAN-SMITH AND LABYRINTH HOLDINGS TRUSTEE COMPANY LIMITED AS TRUSTEES OF THE MICHAEL CHAPMAN-SMITH FAMILY TRUST V MB ALLERBY AND PA MCBRIDE AS TRUSTEES OF THE ALLERBY FAMILY TRUST & ANOR HC WN CIV-2011-485-2114 [27 April 2012]
Introduction
[1] The plaintiffs, as trustees of the Michael Chapman-Smith Family Trust apply for summary judgment to enforce a personal guarantee against the second defendant (Mr Allerby). The personal guarantee was allegedly given for a series of loan advances made by the plaintiff trust to the first defendant, Allerby Family Trust between 24 April 2005 and 29 June 2010. As the Allerby Family Trust has defaulted on repayment of those loans, the plaintiffs seek to recover the debt from the guarantor, Mr Allerby.
[2] The original summary judgment application brought by the plaintiffs here was against both the first defendants and the second defendant, Mr Allerby. The plaintiffs are not pursuing their claim for summary judgment against the first defendants however.
[3] The application before me is thus for summary judgment against Mr Allerby, the second defendant alone. It is opposed by him.
Background
[4] The plaintiffs are Michael Chapman-Smith (Mr Chapman-Smith) and Labyrinth Holdings Trustee Company Limited, as trustees of the Michael Chapman- Smith Family Trust (the plaintiff trust). The second defendant in this action as noted above is Mr Allerby in his personal capacity. Mr Allerby is also a trustee of the Murray Allerby Family Trust (the Allerby Trust) the first defendant which is the principal debtor in this case. The Allerby Trust’s principal asset is a shareholding in Jump NZ Limited, which Mr Allerby runs. He was also involved in the establishment and running of other companies, Easy Energy Limited (EEL) and Envirogroup Limited. He has a beneficial ownership share in EEL through the Sea Dog and Barnacle Trust.
[5] Mr Chapman Smith and Mr Allerby have known each other for some time through their various business dealings. According to Mr Chapman-Smith, in early
2005 Mr Allerby requested from him a series of loans to cover a funding shortfall with respect to the companies in which he was involved. The transactions at issue
began as a series of oral loan arrangements between the plaintiff trust and the Allerby
Trust. These loans constituted a series of five payments between April 2005 and June
2010 totalling $304,000 which, at the time they were made it seems were unsupported by written documentation.
[6] Then, a letter from the Allerby Trust as principal debtor to the plaintiff trust dated 14 May 2010 acknowledged the loans and agreed to pay interest at 14% on these monies “until our full agreement is in place.” The plaintiff trust on 12 October
2010 demanded repayment of the principal and interest (a right it says was provided for in the original “agreement”). The Allerby Trust responded by providing evidence of the automatic payment it had been making for interest payments and a comment that it anticipated that a future loan agreement would be signed.
[7] On 12th November 2010 a written loan agreement and guarantee (the November Agreement) was signed by Mr Chapman-Smith and Mr Allerby. This November Agreement is described as a “variation” to the existing loan arrangement. It confirms the principal amount owing to the plaintiff trust as $304,000 with an interest rate of 14%, and an additional 4% penalty interest rate in the event of default. This variation has been characterised by the plaintiff trust as postponing the date for repayment and the corresponding right to sue the principal debtor until 20
March 2011. It contained the personal guarantee of Mr Allerby.
[8] There is evidence that the payments between April 2005 and June 2010 were advanced to the defendant from different sources, principally Akarana Real Estate Limited, a company I understand owned by Mr Chapman-Smith. Mr Allerby contends therefore that Mr Chapman-Smith cannot now claim repayment in his own or in his trust’s name as a result. I note also that payments of interest were made to the account of Akarana Real Estate Limited as evidenced by an automatic payment authority arranged at the time. On these aspects, para [3] of the November Agreement acknowledged the involvement of Akarana Real Estate Limited here and, although the actual source of the funds may be different in respect of the different loan transactions, that November Agreement acknowledged the total loans amount as received from the plaintiff trust. In my view it must follow that there is a reasonable
argument that the amounts were advanced at the direction of the plaintiff trust, albeit sourced from different bank accounts.
[9] As to the guarantee itself, cl 5 of the November Agreement notes:
The advance is to be personally guaranteed by Mr MB Allerby both as a trustee for
The Allerby Family Trust and also by himself.
Mr Allerby signed the document in a number of places, both as trustee for the Allerby Family Trust, as guarantor for the Allerby Family Trust, and as guarantor in his personal capacity.
[10] The last clause of the November Agreement states that the terms in the contract will be embodied in a formal legal document prepared by the parties’ solicitors. This did not occur however. But, I do not see that as undermining the validity of the November Agreement.
[11] The principal debt was not repaid on 20 March 2011. Monthly interest payments of $3,546.67 have been regularly paid up to now however. The plaintiff trust now seeks repayment of this principal amount of $304,000 by way of summary judgment against Mr Allerby as personal guarantor, relying primarily on clause 5 of the November Agreement.
Summary Judgment Principles
[12] The present summary judgment application is brought pursuant to r 12.2(1)
of the High Court Rules which provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[13] The principles of summary judgment have been recently summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]:
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[14] Therefore, the application for summary judgment can only succeed if I am satisfied that the second defendant Mr Allerby has no arguable defence to the claim against him on the basis of his personal guarantee.
Discussion
[15] My primary consideration in this case must be the November Agreement, which contains the personal guarantee and confirms an existing loan arrangement. The plaintiffs say that this is conclusive proof that the Allerby Trust owes the amount claimed, and that Mr Allerby is also personally liable as guarantor for that amount.
[16] A guarantee is a secondary contract, ancillary to an agreement recording a principal debt. Section 27 (4) of the Property Law Act 2007 defines the term “contract of guarantee” as a contract “under which a person agrees to answer to another person for the debt, default or liability of a third person.” It is a distinct promise to perform the principal obligation if the principal debtor fails to do so.1 A
contract of guarantee must be in writing and signed by the guarantor.2 A guarantee
1 Burrows Finn & Todd Law of Contract in New Zealand (4rd ed, LexisNexis NZ, 2012) at 9.3.1
2 Property Law Act 2007, s 27.
must be supported by consideration, which need not be evidenced in writing as long as it is valid.3 Here, although the guarantee was not in the form of a Deed, in my view it clearly satisfied the requirements of s 27 as a contract in writing signed by the guarantor and was truly on all its stated terms a contract of guarantee.
[17] In the situation before me, the plaintiffs initially made demand for repayment of the existing overdue debt, and this was not met. Then the original loans become repayable upon demand but the plaintiffs agreed to forbear from suing for repayment on the basis the parties would enter into the November Agreement. This provided for an extended repayment date for the $304,000.00 principal sum of 20 March 2011, monthly interest payments in the meantime and further consideration provided by way of an additional personal guarantee on the part of Mr Allerby. The authors of Law of Guarantees state at 2-014 that a creditor’s agreement to reschedule a debt, or to withdraw legal proceedings against a principal or to suspend execution of a judgment is sufficient consideration to support a guarantee. Moreover, where there is actual forbearance by a creditor given at the request of a guarantor, “a court will readily infer that the inaction is attributable to an express or implicit request by the
surety.”4 The consideration need not directly benefit the guarantor and will ordinarily
“consist entirely of some advantage given to or conferred on the principal by the creditor at the request of the surety”.5 In this case, however, as I see it the consideration did directly benefit the guarantor as it was Mr Allerby’s own trust, the first defendant that was the principal debtor, and liable for the principal sum before the guarantee was given.
[18] In Hay v Nieper,6 Chisholm J considered that the appellant’s undertaking to
repay an investment by the respondents in his company was enforceable on the basis that there had been forbearance to sue at the request of the appellant. The
3 Scott v Broadlands Finance Ltd [1972] NZLR 268 at 270.
4 Geraldine Andrews and Richard Millet Law of Guarantees (6th ed, Sweet and Maxwell, London,
2011) at 2-014.
5 At 2-009.
6 HC Christchurch, CIV-2007-409-2647, 6 March 2008
undertaking was given after the respondents had pressed for the return of their money by threatening legal action and the appellant had asked for further time. I consider in this case that the variation to the original loan arrangements was entered into on similar terms, whereby the plaintiff trust would not take action to recover the outstanding debt for a specified period while the Allerby Trust found the means to repay if necessary by recovering moneys it had on-lent. The undertaking provided by Mr Allerby essentially guaranteed his trustee’s obligations, and for these reasons I am satisfied that the November Agreement is a valid guarantee contract.
[19] Before me, the defendant went on to claim that there is an arguable defence in that the November Agreement was never intended as such to include a personal guarantee and that repayment of the principal amount was always understood to be achieved by and take the form of an allocation to the plaintiffs of shares in EEL. Mr Allerby seems to allege that the entire transaction was a mechanism for his trust to buy shares in EEL on behalf of the plaintiff trust, as he contends the plaintiffs could not do so outright due to an alleged conflict of interest. In that sense he says the Allerby Trust was a mere conduit for the purchase of shares and it was never intended that the monetary amounts transferred totalling $304,000.00 would have to be repaid in any form other than EEL shares. He states that the situation has become complicated because a number of the shares that Mr Chapman-Smith or his trust were meant to receive in satisfaction of the loan are held by the Sea Dog and Barnacle Trust, which he maintains are currently out of his control. Mr Allerby deposed that for these reasons, repayment of the loan could not be demanded from his trust, or from him as guarantor, as his liability is contingent on that of the principal. He further asserts that because this was part of a complicated financial arrangement it is a matter inappropriate for summary judgment here. For reasons I will now outline, I do not accept this argument however.
[20] As the November Agreement and guarantee contract does not mention EEL or the transfer of any shares, I must look to the surrounding circumstances to give the words in the document the meaning contended for by the plaintiff: that is that “the principal amount to be repaid” has not its ordinary meaning, but instead actually means “repayment in the form of shares in EEL allocated to the plaintiff”.
[21] A contract of this sort is to be given the meaning that a reasonable person would infer, with knowledge of the background that was reasonably available to the parties at the time they entered into the agreement.7 The ultimate objective is to establish the objective meaning the parties intended their words to bear, and pre- contractual materials can be used to shed objective light on that meaning.8
[22] In the present situation, in my view the pre-contractual materials before me do not justify a departure from the plain and ordinary meaning of the words contained in the November Agreement. A letter from Mr Allerby to Mr Chapman- Smith dated April 21 2005 does state however that “before the expiry of the loan, and at your discretion ... [you may] convert the loan and any outstanding interest, to purchase 1/5 of EEL company shares, at a share value to be agreed at a later date”. In addition, a facsimile dated 31 March 2010 to Mr Allerby from the plaintiff outlines the existing loans and notes the amount of that debt which would need to be converted to obtain a 20% shareholding in EEL. Another letter from Mr Allerby dated 29 June 2010 describes the Allerby Trust as a “go between vessel”. However, when repayment of the loan was demanded, the defendant’s response did not mention shares, yet specifically confirmed the existence of the loan and the anticipation of a further loan agreement. One would expect any such document, and in particular the subsequent November Agreement, to mention the EEL shares if they were the agreed method of repayment or, as the defendant contends, they constituted the entire purpose of the transaction.
[23] All this extraneous material as I see it does evidence the fact that Mr Chapman Smith had an interest in acquiring shares in EEL at some point during the 5 year period over which the loans were made. It also establishes that shares may have been at one point foreseen by the parties as one option for repayment of the debt or part of it. However, this cannot displace what as I see it is the clear meaning of the November Agreement as a guaranteed loan agreement, with the Allerby Trust liable for the principal debt, $304,000, to be repaid on 20 March 2011 and a personal
guarantee of Mr Allerby. In my judgment, this is the objective meaning of the November Agreement which the parties intended it to bear. There is no other evidence that Mr Allerby and the Allerby Trust were mere conduits for buying shares, and were never to be liable in monetary terms for the stated debt. The monthly interest paid regularly from the Allerby Trust (which I understand is not in any way in arrears) would further undermine any contention to the contrary. And all the evidence before me, including many references from Mr Allerby in correspondence to the $304,000.00 representing a repayable loan, in my view clearly supports the view that the loan was repayable in cash on 20 March 2011.
[24] And, in any event, regardless of the exact nature of the principal repayment obligations, and what the parties intended as to the form of repayment of the principal debt, the plaintiff trust is relying only on Mr Allerby’s personal guarantee here to enforce the debt. A personal guarantee in its standard form means that the guarantor undertakes to perform the obligation of the principal debtor. In this case, that is the repayment of the amount stated in the November Agreement. The guarantee was provided as fresh consideration to forestall attempts by the plaintiff trust to recover the existing debt. Whether that existing debt may possibly have been intended to be wholly or partly repaid with capital in EEL, it is not in my view, in any event, an arguable defence to the enforcement of the personal guarantee in all the circumstances here.
[25] Another argument raised in defence of this application is that the plaintiff trust has attempted to “fast circuit” the debt recovery process, as it is said they have not first attempted to pursue the Allerby Trust as principal debtor for the outstanding loan. As I see it, the guarantee is a separate contract in its own right, and liability on the part of the guarantor arises when the principal debtor defaults.9 Once a debt is due, it is clear that a creditor is not bound to exhaust remedies against a principal debtor before it enforces a guarantee against a guarantor, unless there is an express term requiring them to do so.10 There is no such express term here.
[26] The other argument raised in defence of this application was that all the loan monies were on-lent to EEL, so it is that entity which is the correct defendant in this action rather than Mr Allerby. I note that litigation is pending between EEL and Mr Allerby’s company Jump Limited, in respect of a dispute over money owed to EEL and an equitable counterclaim on behalf of Jump Limited. In a decision dated 1 July
2011 in that proceeding, I denied summary judgment.11 I am not sure at this point
what stage those substantive proceedings may have reached. Mr Allerby asserts that the existence of ongoing litigation between parties that he says are indirectly related to the present case is a reason to deny summary judgment here, especially when it is EEL who holds the money advanced by the plaintiff. Determination of this issue, in Mr Allerby’s opinion would require analysis of advances that EEL paid to entities that he controls, and whether this was repayment of EEL’s obligations to the plaintiff or satisfaction of other inter-company debt. Proper resolution of the issue he maintains would require EEL to be joined as a defendant to the present action for recovery of the debt. As to that contention, he concludes that as you cannot properly join a party in an application for summary judgment, the orders sought ought to be denied at this preliminary stage.
[27] I do not accept Mr Allerby’s argument here, however. The fact that money was on lent to EEL (if this was the case) does not amount to an arguable defence here to a claim on the personal guarantee because, in normal circumstances, a plaintiff can only join defendants against whom there is a right to relief in respect of
the same transaction.12 In this case that would mean joining parties who are jointly or
severably liable under the guarantee agreement. There is no right to relief in respect of EEL as they are not parties to the guarantee and owe no obligations in respect of it. Therefore, any attempt to join EEL as a party here is unlikely to be successful and summary judgment should not be denied on this basis.
[28] Moreover, entering summary judgment in this instance will not preclude the defendant from suing EEL to recover any funds that were in fact on-lent to it.
Conclusion
[29] In summary, the loan agreement and ancillary guarantee are contained in the November Agreement. These documents were properly signed by Mr Allerby as personal guarantor. Interest on the principal amount has been continuously paid to date and there is an outstanding debt for which Mr Allerby is liable.
[30] There is nothing in the defences which Mr Allerby has purported to advance here. The facts in my view clearly warrant a robust and realistic approach being taken to this case – Bilbie Dymock Corp Limited v Patel. A guaranteed loan advance remains overdue and unpaid and Mr Allerby is liable here as guarantor.
[31] Summary judgment for the principal sum outstanding is therefore appropriate and is to be granted.
[32] Finally, it needs to be noted that, before me counsel for the plaintiff confirmed that the plaintiffs do not claim interest in this present summary judgment application as it has been paid up to date by the Allerby Family Trust.
Orders
[33] An order is now made by way of summary judgment that the second defendant Murray Brent Allerby is to pay to the plaintiffs the principal sum of
$304,000.00.
[34] As to costs, the plaintiffs have been successful in this summary judgment application against the second defendant Mr Allerby and I see no reason why costs should not follow the event in the usual way.
[35] Costs on this application are therefore awarded to the plaintiffs against the second defendant, Murray Brent Allerby on a Category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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