Cowan, Cowan and Bvond Trust Limited and Trustees of the Blanda Trust v Staples HC Napier CIV 2010-441-181
[2010] NZHC 1636
•24 August 2010
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2010-441-181
BETWEEN CHRISTOPHER JAMES COWAN, JOCELYN CAROL COWAN AND BVOND TRUST LIMITED AS TRUSTEES OF THE BLANDA TRUST Plaintiffs
ANDKAREN ANNE STAPLES (NEE DURNEY)
First Defendant
ANDCHESTER OTIS STAPLES Second Defendant
Hearing: 16 August 2010
Appearances: J.M. Dadelszen - Counsel for Plaintiffs
J.G. Krebs - Counsel for Defendants
Judgment: 24 August 2010 at 3.00 pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by me
on 24 August 2010
at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Solicitors: Bannister & von Dadelszen, Solicitors, PO Box 745, Hastings
Gifford Devine, Solicitors, PO Box 148, Hastings
Introduction
CJ COWAN, JC COWAN AND BVOND TRUST LIMITED AS TRUSTEES OF THE BLANDA TRUST V KAREN ANNE STAPLES (NEE DURNEY) AND ANOR HC NAP CIV-2010-441-181 24 August 2010
[1] The plaintiffs, as trustees of the Blanda Trust(“the Trust”), seek summary judgment against both the first defendant, Karen Anne Staples (Nee Durney) (“Ms Durney”) and the second defendant, Mr Chester Otis Staples (“Mr Staples”), in the sum of $68,307.00 plus interest and costs. The basis of the plaintiffs’ application is that Mr Staples provided a written undertaking for payment of a debt that is owed under a Term Loan Agreement signed by Ms Durney in favour of the Trust. Mr Staples is the partner of Ms Durney. The debt is the result of a Term Loan Agreement dated 14 May 2009 entered into as part of an agreement to sell a property at 25 St Hill Lane, Havelock North from the Trust to Ms Durney. The property, as I understand it, has since been occupied by Ms Durney and Mr Staples as their home.
[2] The application for summary judgment was brought against the first as well as the second defendant. Both defendants initially opposed the application. On the day of the hearing before me, however, Ms Durney agreed that judgment should be entered against her. Confirmation of an order to this effect is noted below. It follows that the only opposed application remaining before the Court is that against Mr Staples.
Background
[3] In March 2008, Mr Raymond Durney (“Mr Durney”), who is the father of Ms Durney, entered into an agreement with the Blanda Trust to purchase the Trust’s property at 25 St Hill Lane, Havelock North. When Mr Durney defaulted on his obligation to settle, it was agreed that Ms Durney would acquire the property.
[4] On 14 May 2009, Ms Durney entered into the Term Loan Agreement (“the Loan Agreement”) with the Trust specifying a principal sum of $98,307.00. The principal sum was to be repaid on 15 November 2009. The Loan Agreement specified that interest was to be payable in arrears at 12% per annum (with a default interest rate at 14% per annum). The loan was secured by way of two second mortgages. The first of these mortgages was over the purchased property at 25 St Hill Lane, Havelock North and the second of these mortgages was over a property at
301 Railway Road, Hastings.
[5] Also on 14 May 2009, Mr Durney, as well as two companies (Heretaunga Properties Ltd and Durney Land Company Ltd), provided guarantees to the Trust of Ms Durney’s Loan Agreement obligations under three separate Deeds of Guarantee and Indemnity.
[6] In August 2009, the Trust agreed to release the 301 Railway Road, Hastings mortgage in exchange for a part payment of $30,000.00 by Ms Durney towards the principal sum.
[7] Ms Durney subsequently defaulted on monthly interest payments. In addition, no additional payments were made towards the principal sum since that August 2009 payment and $68,307.00 remains outstanding.
[8] On 16 October 2009, the Trust issued a notice to Ms Durney pursuant to s
119 of the Property Law Act 2007 of exercise of their powers as mortgagee. On the same day, the Trust notified the guarantors Mr Durney, Heretaunga Properties Ltd and Durney Land Company Ltd, that payment or a satisfactory arrangement for payment was to be made by 19 October 2009. Because the guarantors failed to comply with the demand, the Trust filed summary judgment proceedings in the Hastings District Court against the guarantors in respect of the outstanding principal sum.
[9] On 18 December 2009, Mr Bryan King (“Mr King”), who was the solicitor acting for both Mr Durney and Ms Durney at the time, wrote to the plaintiffs in an attempt to assure the plaintiffs that repayment of the debt would be made:
We understand that after a personal appearance by Karen Durney at the hearing on
Monday, further time was given to enable repayment of the debt.
In that time we have conferred with Karen’s partner, Chester Staples, in an endeavour to provide you with evidence, satisfactory to your client, that there is a process in train that will see the debt repaid within a reasonable time-frame, so that the sealing of judgment and any further enforcement steps (and associated costs) might be seen as unnecessary.
The position is that the home owned by Mr Staples and his former partner in South
Africa has been sold ...
...
While I accept of course that the foregoing does not represent payment in full of your client’s debt I do hope that it is sufficient evidence of the forthcoming payment to encourage your client from further enforcement steps until those funds arrive.
[10] On 21 December 2009 the District Court gave judgment in favour of the plaintiffs for the sum of $77,393.45.
[11] On the same day, Mr King sent a fax to the plaintiffs’ solicitor, attaching confirmation of the arrangements for sale of Mr Staples’ property in South Africa. Also attached was correspondence from Mr Staples in the form of an email, confirming that his share of the proceeds would be applied to repayment of Ms Durney’s debt to the plaintiff. The email was in the following terms:
This records my undertaking that proceeds from my recent property sale in South Africa ... will be remitted to the Langley Twigg Trust account and are to be applied in full payment of the debt in favour of Blanda Trust secured over 25 St Hill Lane, Havelock North.
[12] By reference to these two attachments, Mr King’s fax requested:
On the basis of those confirmations could you please confirm that your client will agree to adjourning the matter until the first Court date in January (which will be after the date on which there is a bank guarantee available for the purchase price in terms of Mr Bester’s letter). Your client would in any event be unable to take any further enforcement steps until then and significant prejudice might result to our client from the Judgment being entered in the meantime.
[13] On 22 December, the plaintiffs’ solicitor sent a copy of the sealed judgment to Mr King, advising that:
Realistically, no enforcement steps can be taken prior to the New Year. If repayment is available when this office re-opens on Monday 11 January please contact Alan Pierce who will be back in the office then. If Alan Pierce has not been advised accordingly then Monday morning the Judgment will be enforced without further notice.
[14] On 14 January 2010, the plaintiffs filed a request in the High Court for the issue of a bankruptcy notice against Mr Durney.
[15] On 26 March 2010, the present application for summary judgment was brought against – and initially opposed by - both Ms Durney and Mr Staples. Ms Durney opposed the application on the grounds that she alleged she never consented to the Loan Agreement, which was signed by her father as attorney on her behalf,
and that in any event, she never authorised her father to enter into the Loan Agreement on her behalf. At the hearing for this matter, however, it became clear that Ms Durney no longer wished to oppose an entry of judgment against her. There was, however, a rather belated attempt by her to dispute the 14% per annum higher interest rate charged by the Trust under the Loan Agreement as “oppressive” under the Credit Contracts and Consumer Finance Act 2003. I reject this contention, however. That higher rate of 14% per annum was only 2% above the agreed standard rate under the Loan Agreement and, in my view, it could not be said under all the circumstances here that this rate was in any way oppressive. An order against Ms Durney for the principal sum and interest thereon at 14% per annum will follow.
Counsel’s Arguments and My Decision
[16] The application before me is one for summary judgment. The principles of summary judgment to be applied here were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 as follows:
[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).
[17] Mr Staples opposes the present application on the formal basis that he contends he never assumed any responsibility for paying the debt owed to the Trust; that the undertaking he gave was offered conditionally and in consideration of the plaintiff further delaying the obtaining of summary judgment against Mr Durney; that the plaintiff did not accept the offer and instead obtained summary judgment; that the offer to provide the undertaking therefore lapsed or was withdrawn; that such undertaking is void, of no effect and is unenforceable; and that Mr Staples as with Ms Durney has no obligation in relation to the debt owed to the Trust.
[18] In essence, Mr Staples’ argument is that he never assumed any liability for the debt as a principal debtor or as a guarantor, and that a mere undertaking is not sufficient to render him liable to the plaintiffs. It is true, of course, that Mr Staples’ undertaking can only be enforceable if it constitutes some form of contractual obligation assumed in favour of the plaintiffs. Counsel for the plaintiffs, Mr von Dadelszen, did not specify whether the plaintiffs seek to rely upon the undertaking as an independent contract between the plaintiffs and Mr Staples, or whether they allege that the undertaking formed the basis of a contract of guarantee. In any event, however, it is clear that Mr Staples’ email does not constitute a deed of guarantee, as the requirements of s 9 of the Property Law Act 2007 are not fulfilled, and that consideration was thus a necessary element of any agreement entered into by the parties.
[19] In Hay v Nieper HC Christchurch CIV-2007-409-2647, 6 March 2008, which was a case with remarkably similar facts to the present situation, 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 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. The letter, which was signed by the appellant, was worded in the following terms:
Dear Mike and Bella
Further to our meeting today with Bella, I confirm that it is my intention to pay the
$25,000 owed to you as follows:
By the end of December 2005 $12,500.00
By the end of January 2005 (sic) $12,500.00
Yours faithfully, Ken Hay
[20] The appellant argued that any later promises of payment could not be enforced because they would have to rely on past consideration. Chisholm J, however, agreed with the District Court that forbearance to sue can constitute good consideration, and that there was sufficient evidence to show an understanding between the parties whereby the respondents would not sue for a specified period. Furthermore, the Judge concluded that this understanding had been carried into
effect, and that the undertaking was therefore enforceable. The effect of the undertaking was that the appellant had guaranteed his company’s obligations.
[21] I will assume for present purposes that, as in Hay v Nieper, the plaintiffs here rely on a contract of guarantee between Mr Staples and the plaintiffs. Section 27 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”. There may, however, be some difficulties with categorising the parties’ arrangement in the present case in this way, given that “[t]he essence of a contract of guarantee is that the guarantor agrees, not to discharge the liability in any event, but to do so only if the principal debtor fails to do so”: Burrows, Finn & Todd (Law of Contract in New Zealand (3rd ed, 2007, LexisNexis) at para 9.3.1. Based on the evidence before me, it is not entirely clear whether Mr Staples’ undertaking was to assume liability for the debt if Ms Durney (or the guarantors) failed to pay within the further time agreed, or if it was an original promise to pay the debt: see Laws of New Zealand: Guarantees and Indemnities at para 54.
[22] A guarantor can provide fresh consideration for pre-existing liabilities in a number of ways. As summarised by the authors of the Law of Guarantees (Sweet & Maxwell, 2008) at paras 2-014, a creditor’s agreement to reschedule a debt, or to withdraw legal proceedings against the principal, or to suspend execution of a judgment, is sufficient consideration to support a guarantee. Moreover, where there is actual forbearance by the creditor given at the request of the guarantor, “a court will readily infer that the inaction is attributable to an express or implicit request by the surety” (at para 2-014). The consideration need not directly benefit the guarantor and will, in most cases, “consist entirely of some advantage given to or conferred on the principal by the creditor at the request of the surety” (at para 2-009). A reasonable time for forbearance may be implied. If, however, the creditor breaks its promise, the guarantee will not be enforceable.
[23] Regardless of which view is taken of the parties’ arrangement in the present case, it seems that any consideration provided by the plaintiffs here consisted of an
advantage in favour of the guarantors, given that Mr Staples’ undertaking was provided in the context of the summary judgment proceeding against the guarantors.
[24] More importantly, however, there is clearly a factual dispute between the parties as to the nature of the consideration that the parties agreed would be given in exchange for Mr Staples’ undertaking. Mr Staples insists that the offer was made in return for an adjournment of the summary judgment proceedings, while the plaintiffs maintain that Mr Staples sought a suspension in execution of the summary judgment. If Mr Staples’ assertion is accepted, his undertaking would not be enforceable because the plaintiffs never agreed to an adjournment and obtained judgment on 21
December 2009. Mr King’s fax, to which Mr Staples’ undertaking was attached, would seem to support Mr Staples’ assertion.
[25] The plaintiffs contend that the communications from Mr King do not support Mr Staples’ version of events. Particular reliance here is placed on correspondence between Mr King and the plaintiffs’ solicitors between 22 December 2009 and 18
February 2010, relating to application of Mr Staples funds from South Africa to settlement of the debt. The plaintiffs submit that “[o]ngoing correspondence from 21
December was pointless and meaningless if the undertaking related to a requested adjournment from 21 December”, as the plaintiffs never agreed to an adjournment.
[26] The correspondence following Mr Staples’ undertaking would, of course, constitute subsequent conduct. Regardless of whether such evidence is admissible, however, I remind myself that the application before me is one for summary judgment. As such, in my view, Mr Staples has succeeded but only by a reasonably slim margin in establishing an arguable defence, on the basis that a possibly significant factual dispute exists here and it is arguable that Mr Staples’ undertaking was never actually accepted. Moreover, there is a possible view that might be adopted in this case that Mr King’s correspondence may have been nothing more than an attempt to hold off enforcement by keeping the plaintiffs informed of the possible availability of funds that could be applied in settlement of the debt, rather than the renewal of an earlier undertaking that such funds would be made available.
[27] For these reasons, the plaintiff’s summary judgment application against Mr Staples must fail and I do not need to go on to consider Mr Staples’ alternative argument that he entered into the undertaking under considerable duress from Mr Durney or that the undertaking was properly withdrawn. I briefly note, however, that to be enforceable, a contract of guarantee must be signed by the guarantor: s 27 of the Property Law Act 2007. Mr Staples’ email did not contain a hand-written signature. Ultimately, there may, therefore, be an issue whether Mr Staples’ email could satisfy the requirement of a signature under s 27 for the purposes of the Electronic Transactions Act 2002: see Welsh v Gatchell [2009] 1 NZLR 241.
Conclusion
[28] For the reasons noted above, the application for summary judgment against Mr Staples is dismissed. The substantive proceeding against Mr Staples is now listed for call at 10.00 am on 22 September 2010.
[29] The application for summary judgment against Ms Durney is granted. Judgment is now granted in favour of the plaintiff against Ms Durney for:
(a) The balance principal sum claimed in the
statement of claim $68,307.00
(b)Interest on this sum at the penalty interest rate of 14% per annum under the
Loan Agreement from 15.10.2009 to
24.08.2010 the date of this judgment(313 days) $ 8,200.58
$76,507.58
Costs
[30] Costs on the plaintiff’s unsuccessful summary judgment application against
Mr Staples are reserved to be dealt with at substantive trial.
[31] As to costs against Ms Durney, the plaintiffs are entitled to costs on their successful summary judgment application against her. Clause 7(f) of the Loan Agreement may well be relevant in considering such a costs award. If counsel are
unable to agree on the quantum of costs to be payable by Ms Durney, they may file memoranda (sequentially) on the issue and, in the absence of either party indicating they wish to be heard I will decide the costs question based on the material then before the Court.
‘Associate Judge D.I. Gendall’
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