Fai Money Limited v Johnston - [2015] NZHC 2060

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1201 [2015] NZHC 2060

BETWEEN
FAI MONEY LIMITED

Plaintiff

AND

EDWARD ERROL JOHNSTON First Defendant

AND

GAVIN CRAWLEY AND RICHARD ANTHONY JOHNSTON

Second Defendants

AND

SEABREEZE TRUSTEES LIMITED (IN LIQ) AND JOHNSTON ASSOCIATES TRUSTEES LIMITED (IN LIQ)

Third Defendants

Hearing: 8 - 10 June 2015

Appearances:

B D Gustafson for Plaintiff
No appearance for First Defendant
S I Perese for Second Defendants
No appearance for Third Defendants

Judgment:

28 August 2015

JUDGMENT OF KEANE J

This judgment was delivered by me on 28 August 2015 at 11am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Macky Robertson, Parnell, Auckland for Plaintiff
Walters Law, Auckland for Second Defendants

FAI MONEY v JOHNSTON [2015] & ORS NZHC 2060 [28 August 2015]

[1] In this action FAI Money Limited seeks judgment for $386,267, and default interest against Gavin Crawley and Richard Johnston, as guarantors of a loan, dated
23 December 2009, and made to Edward Johnston, then a West Auckland lawyer, who in late 2011 defaulted under the agreement and has since been adjudicated bankrupt.

[2] Richard Johnston, who is Edward Johnston’s brother and is an accountant, and Mr Crawley, who is Edward Johnston’s father in law and is a flight attendant, gave the guarantees in issue as trustees of Edward Johnston’s two family trusts, the Puketaha Trust and the Puketaha No 1 Trust, which at the time of the loan owned in equal shares Edward Johnston’s family home at Puketaha Road, Swanson.

[3] The trustees bear the full brunt of this claim. FAI does not pursue its claim against Edward Johnston. Nor, equally understandably, does it pursue the two companies linked with Richard Johnston’s accountancy practice, Seabreeze Trustees Limited and Johnston Associates Trustees Limited, which have since early 2012 owned the Swanson property on behalf of the Ullaru Trust, the principal beneficiary of which is, I understand, Edward Johnston’s wife. Those companies have been in liquidation since 7 March 2014.

[4] In pursuing the trustees as guarantors, moreover, FAI has elected not to pursue them for the sum outstanding under the loan agreement, relying instead on the indemnity under the guarantees they gave in the event of Edward Johnston’s default, as to which their liability is unconditional and irrevocable. Under that indemnity FAI’s recourse against the trustees is confined to the two trusts’ assets. Once the Swanson property was sold in February 2012, the trusts ceased to have any asset worth.

[5] When, therefore, Edward Johnston defaulted on FAI’s notice of demand, dated 29 November 2011, and FAI evidently anticipated that recourse to the trust assets might prove insufficient, FAI’s solicitors gave the trustees notice by letter, dated 13 December 2011, that it intended to pursue them personally for their own distinct breaches of their undertakings.

[6] Under the loan agreement and the guarantees, FAI has that ability, though the ability is expressed in those documents in different ways, if it is deprived of recourse to the trusts’ assets…

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: [2015] NZHC 2060
Decision Date: 28 August 2015

CaseChat Overview and Summary

FAI Money Limited sought judgment against Gavin Crawley and Richard Johnston, who were guarantors of a loan made to Edward Johnston. FAI claimed that the trustees breached their undertakings, which led to FAI's loss. The trustees denied the allegations and argued that they were not liable beyond the assets of the trusts. The court had to decide whether FAI was entitled to pursue the trustees for their personal assets beyond the trusts' assets and to what extent, if any, the trustees breached their undertakings. The court found that Richard Johnston was negligent in breaching the warranty about the financial statement, which led to FAI's loss. However, FAI could not establish that Mr Crawley was negligent. The court granted judgment in favour of FAI against Richard Johnston to the extent of his personal assets, as to $137,000. Conversely, on FAI's claim against Mr Crawley, the court gave judgment in his favour. Costs must follow the event, and FAI is entitled to a scale 2B award against Richard Johnston and disbursements as fixed by the Registrar. Mr Crawley is entitled to a scale 2B award and any costs as fixed by the Registrar, against FAI.

Orders