Fai Money Limited v Crawley - [2016] NZCA 219

IN THE COURT OF APPEAL OF NEW ZEALAND

CA544/2015
[2016] NZCA 219

BETWEEN	FAI MONEY LIMITED Appellant
AND	GAVIN CRAWLEY AND RICHARD ANTHONY JOHNSTON Respondents

Hearing:	4 May 2016
Court:	Randerson, Stevens and Wild JJ
Counsel:	B D Gustafson for Appellant S I Perese for Respondents
Judgment:	24 May 2016 at 9:00 am

JUDGMENT OF THE COURT

AThe appeal is allowed in part.
BThe cross-appeal is dismissed.
CThe appellant is entitled to judgment for the principal sum of $300,000 together with default interest and solicitor/client costs to be fixed by the High Court against both respondents jointly and severally as trustees of the Puketaha Trust and the Puketaha No. 1 Trust on the basis that they are liable only to the extent of the assets of those trusts.

DThe High Court judgment is varied to provide that, in the event the judgment in C is not satisfied out of the assets of the trusts, the appellant is entitled to have recourse to the personal assets of each of the respondents jointly and severally to the extent of $137,000 plus interest thereon at the rate specified in the Judicature Act 1908 from the date the Swanson property owned by the trusts was sold.
EThe respondents must jointly and severally pay to the appellant costs for a standard appeal on a band A basis with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No

Introduction
Background facts
The relevant terms of the loan agreement and guarantees

The loan agreement
The guarantees

Were the respondents in breach of the warranty or covenant relied upon by FAI?

Breach of cl 7.1(c) of the loan agreement
Breach of cl 14.4(d)(ii) of the loan agreement

What was the extent of loss sustained by FAI?
Are the respondents personally liable for FAI’s losses?

Discussion

Result

[1]
[11]
[17]
[17]
[19]

[21]
[21]
[33]
[37]
[42]
[50]
[66]

Introduction

This appeal arises from a loan agreement entered into in December 2009 in which the appellant (FAI) advanced $300,000 to a solicitor, Mr Edward Johnston. The borrowing was guaranteed by the respondents as trustees of two trusts, the Puketaha Trust and the Puketaha No. 1 Trust (together “the Trusts”). The respondents were also principal obligors under the loan agreement.
The respondent Richard Johnston is an accountant and the brother of Edward Johnston. The respondent Mr Crawley is Edward Johnston’s father-in-law. When Edward Johnston defaulted under the loan agreement, notices of demand were served on him and on the respondents. The loan was not repaid. FAI issued proceedings seeking recovery of $386,267.96 as well as ongoing default interest and costs. After the issue of proceedings Edward Johnston was adjudicated bankrupt. The claim therefore proceeded only against the respondents.[1]
[1]Two other companies, Seabreeze Trustees Limited and Johnston Associates Trustees Limited, were joined as third defendants in circumstances we detail below but, since they were in liquidation, they were not pursued by FAI.
The case in the High Court proceeded on FAI’s second amended…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NZCA 219
Decision Date: 24 May 2016 at 9:00 am

CaseChat Overview and Summary

FAI Money Limited appealed against a High Court judgment which found that FAI Money Limited was entitled to recover only $137,000 from the respondents jointly and severally as trustees of the Puketaha Trust and the Puketaha No. 1 Trust on the basis that they were liable only to the extent of the assets of those trusts. The respondents cross-appealed against the finding that Richard Johnston was personally liable under the second cause of action to the extent of $137,000. The issues on appeal were whether either or both the respondents breached the warranty and covenant relied upon by FAI; if so, what was the extent of the loss; and are the respondents personally liable for any such loss in the sense that FAI may have recourse to their personal assets? The Court found that the respondents were negligent in breach of the covenant not to dispose of the assets of the Trusts otherwise than in the normal course of business. The Court found that the respondents were not in breach of the warranty relied upon by FAI as to the accuracy of the financial information in a statement of position provided by Edward Johnston to FAI before the loan was made. The Court found that FAI is entitled to judgment against both respondents for the full amount of the debt owed under the loan agreement and guarantees together with interest at the default rate of 25.5 per cent and solicitor/client costs. The Court found that FAI is entitled to have recourse to the personal assets of both respondents to the extent of $137,000 plus interest. The appeal was allowed in part. The cross-appeal was dismissed. The appellant is entitled to judgment for the principal sum of $300,000 together with default interest and solicitor/client costs to be fixed by the High Court against both respondents jointly and severally as trustees of the Puketaha Trust and the Puketaha No. 1 Trust on the basis that they are liable only to the extent of the assets of those trusts. The High Court judgment is varied to provide that, in the event the judgment in C is not satisfied out of the assets of the trusts, the appellant is entitled to have recourse to the personal assets of each of the respondents jointly and severally to the extent of $137,000 plus interest thereon at the rate specified in the Judicature Act 1908 from the date the Swanson property owned by the trusts was sold. The respondents must jointly and severally pay to the appellant costs for a standard appeal on a band A basis with usual disbursements.

Orders