Ferguson v Road Metals Company Limited

[2016] NZHC 847

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-000810 [2016] NZHC 847

BETWEEN

MACKLEY WILLIAM SCOTT

FERGUSON Appellant

AND

ROAD METALS COMPANY LIMITED Respondent

Hearing:	28 April 2016
Appearances:	Appellant appears in Person A J Davis for the Respondent
Judgment:	29 April 2016

JUDGMENT OF MANDER J

[1]      The appellant, Mackley Ferguson, appeals a decision of Judge MacAskill declining to set aside a judgment entered by default in the sum of $163,900.52 in favour of the respondent, Road Metals Company Limited (Road Metals).1   Judgment was entered against Mr Ferguson on a debt owed by Skye Construction Limited (Skye) on the basis of a guarantee provided by Mr Ferguson.

Background

[2]      In July 2011 Mr Ferguson signed a credit account application on behalf of Skye in favour of Road Metals.   The application included a personal guarantee provided by Mr Ferguson.

[3]      Later  that  year  Mr  Ferguson  entered  into  a  joint  venture  with  another contractor, a Mr Campbell.   They incorporated a company called Campbell Skye

Civil Limited (CSC).  CSC was successful in obtaining a contract to undertake sewer

1      Road Metals Company Limited v Ferguson [2015] NZDC 22143

MACKLEY WILLIAM SCOTT FERGUSON v ROAD METALS COMPANY LIMITED [2016] NZHC 847 [29

April 2016]

renewal work associated with the Christchurch rebuild.  This necessitated obtaining goods and services from a supplier such as Road Metals.

[4]      CSC did not have a credit account with Road Metals.  However goods were able to be supplied on credit by Road Metals through a company associated with Mr Ferguson’s partner in the joint venture, Campbell Contractors Limited (CCL).

[5]      The joint venture eventually failed and Mr Ferguson and his partner resolved to  wind  up  CSC.    Mr  Ferguson  however  wanted  to  continue  with  the  contract through his own company, Skye.  In order to do this it was agreed Skye would take over responsibility for monies owed by CSC.  This included responsibility for the credit extended by Road Metals to CCL on behalf of CSC to supply the now defunct joint venture which Skye was taking over (the debt).

[6]      Mr Ferguson, both in the District Court and on the appeal, sought to suggest that in taking over this liability he only undertook on behalf of Skye to exercise best endeavours to “honour” the debt.  While there was no formal agreement recording a novation of the debt the documentary record clearly demonstrates that Skye agreed to  assume  liability.    Skye  and  Road  Metals  subsequently  negotiated  over  the following two years on that unchallenged premise.   Skye was finally put into liquidation without any suggestion it was not liable for the debt.

The appeal

[7]      Mr Ferguson, who appeared in person on the appeal, accepted the reason for Skye taking responsibility for the debt was to retain the contract work secured by CSC and preserve his business relationship with Road Metals.  Mr Ferguson deposed in an affidavit in support of his application before the District Court that it was his intention that Skye would pay or attempt to pay the debt on CCL’s behalf.

[8]      However Mr Ferguson maintained he did not assume any personal liability as a result of agreeing to Skye taking responsibility for the debt.     He argued any payments made by Skye to Road Metals to reduce the debt were to preserve the business  relationship  with  that  company  and  to  avoid  Skye  being  liquidated.

Mr Ferguson did not accept he was personally liable for the debt because in his view any guarantee he entered into in relation to Skye did not extend to include the debts of CCL.

Was there a novation?

[9]      A novation will arise when a person assumes an obligation to pay that was incurred by an original party to a contract.  In the present case a novation occurred when the original debtor, CSC, was released from the obligation to pay the debt incurred by CCL as its agent when Skye agreed to the debt being transferred to it. Novation is dependent upon there being an agreement between the parties to such a course.2    The uncontradicted evidence, which is supported by Mr Ferguson’s own understanding of the position, is that Skye took over responsibility for the debt to Road Metals.

The guarantees

[10]     Mr Ferguson’s argument was not focused on disputing Skye’s responsibility for the debt in respect of which it was ultimately put into liquidation.   Rather he maintained he could not be made personally liable as a result of any guarantee he had provided to Road Metals for the provision of credit to Skye.  In order to examine that contention it is necessary to set out the relevant parts of the credit account application which Mr Ferguson signed in his capacity as managing director of Skye. The application form includes two guarantees, the first of which takes the following

form:

Guarantee

In consideration of Road Metals agreeing to supply Skye Construction Ltd (“the customer”) with goods on credit, I/We hereby jointly and severally agree with Road Metals as follows:

To  guarantee  the  due  performance  by  the  Customer  of  the  terms  and conditions attached hereto and the payment of any moneys advanced by way

of credit to the Customer.

That this agreement shall be a continuing guarantee to Road Metals for all debts of the Customer with Road Metals, in respect of goods and services to

be supplied to the Customer.

Dated    18/7/2011  Guarantor(s)  Signature  “Mr  Ferguson’s

signature”

2      Peter Spiller Butterworths New Zealand Law Dictionary (7th ed, Lexis Nexis, Wellington, 2011)

at 206.

Guarantor(s) Name(s) Mackley Ferguson    Position in Company Managing Director

[11]     In clause 11 of the Terms and Conditions of Trade, which were expressly accepted by Mr Ferguson in his capacity as the managing director of Skye, is a further guarantee.  It provides as follows:

11.    GUARANTEE

The person(s) signing the credit application form do jointly and severally personally guarantee to pay all monies due to Road Metals. This guarantee is continuous and remains in effect at all times until all obligations of the Customer have been fully discharged.

Decision

[12]     In  support  of  his  appeal,  Mr  Ferguson  essentially  repeated  the  same submission he made to the District Court.  He submitted the terms of the guarantees did not extend to cover the debt because it did not relate to the provision of goods and services supplied to Skye.

[13]     Mr Ferguson’s submission was the subject of close examination by Judge MacAskill.  He concluded, and I agree, that no issue arises regarding the adequacy of the consideration provided in return for the guarantee.3    The form of the guarantee includes  an  express  acknowledgement  that  it  was  given in  consideration  of the plaintiff agreeing to supply Skye with goods on credit.  It does not follow from that statement that any debt guaranteed by Mr Ferguson is limited to debt arising from

the supply of goods or services on credit to Skye.

[14]     However the guarantee provided by Mr Ferguson was the payment “of any moneys advanced by way of credit to the Customer.”  Judge MacAskill found the debt transferred to Skye as a result of the novation was caught by this expression, even though the credit did not relate to the provision of goods and services to Skye in its capacity as the customer.4

[15]     It may be arguable whether the monies advanced by way of credit for the supply of goods to CCL / CSC can be treated as monies advanced by way of credit to

3      Roads Metals Company Limited v Ferguson, above n 1, at [20].

4 At [20].

the Customer which in the credit account application form means Skye.   The alternative view accepted by the District Court is that once Skye took responsibility for the debt the advance of monies by way of credit was now to that company, the “Customer,” under the credit contact as referred to in the guarantee.   This is the interpretation I would favour.

[16]     It is not however necessary to come to any concluded view because the more formidable difficulty for Mr Ferguson to overcome is the guarantee contained within the conditions of trade.  This is a separate guarantee which is enforceable against the person  who  signed  the  credit  agreement  on  behalf  of  the  Customer,  namely Mr Ferguson.

[17]     This guarantee is not limited to the advancement of monies for the supply of goods  and  services  to  the  customer.      Its  terms  are  wider  and  provide  that Mr Ferguson guarantees to pay all monies owed by Skye to Road Metals.  There is no reason why this would not include the obligation to pay assumed by Skye as a result of the novation arising out of the agreement entered into between Mr Ferguson and his former joint partner.   This guarantee in respect of all monies due by Skye to Road Metals remains in effect until all obligations of Skye have been fully discharged.

[18]     For  completeness  I  note  Mr  Ferguson  made  two  further  submissions  in support of his appeal.   The first was his identification of an error of fact by the District Court Judge when he referred to Mr Ferguson having a formal connection or interest in CCL.  Road Metals accept this was an error on the Judge’s part but I agree it had no material effect on the Court’s reasoning or ultimate decision.  No contrary view was advanced on the hearing of the appeal by Mr Ferguson, nor was any argument offered as to how the error affected the outcome of his application to the District Court.

[19]     Secondly, Mr Ferguson maintained the extent of his personal guarantee was limited to a maximum sum of $15,000.   Road Metals denied any such cap.   Mr Ferguson advised that some documents had been lost as a result of the Christchurch earthquake,  which  he  would  otherwise  have  sought  to  rely.    However  the  key

document, the credit account application form which contains the guarantees, is available.  It makes no reference to such a limitation of liability.

[20]     The  terms  and  conditions  of  the  credit  contract  make  provision  for  the charging of interest upon default of payment.   It is difficult to perceive why any monetary cap would be applied to a guarantee intended to cover debts that may increase in the event of non-payment, or why Road Metals would limit the guarantee to only partially cover credit it may potentially provide.

[21]     It is possible there may at some point have been some ceiling on the amount of credit Road Metals was prepared to extend to Skye, however that would not limit the guarantee.  In the absence of any such limitation contained in the formal written record of the guarantees produced in evidence, I am not persuaded Mr Ferguson’s personal liability under the guarantees was the subject of the type of cap contended for.

Conclusion

[22]     I conclude that Mr Ferguson was rendered liable to pay the debt which Skye accepted responsibility for, because of the guarantee he provided to Road Metals under the terms and conditions of trade contained in the credit account application.

[23]     It follows that I am of the view Judge MacAskill made no error in finding that Mr Ferguson had no reasonably arguable defence to Road Metals’ claim and that his application to set aside the default judgment was properly declined.   For these reasons the appeal is dismissed.

Costs

[24]     Road Metals is entitled to costs on a category 2A basis.

Solicitors:

A J Davis, Clark Boyce, Christchurch

Copy to:

Mr M W S Ferguson, Christchurch