Harrison v Harrison
[2013] NZHC 2181
•27 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-002424 [2013] NZHC 2181
BETWEEN MARIA SIMONE HARRISON AND
ANGELA KAREN HARRISON Plaintiffs
AND
PATRICK DAVID HARRISON Defendant
Hearing: 14 March 2013 Counsel:
A C C Hooker for Plaintiffs
D A T Chambers QC for DefendantJudgment:
27 August 2013
JUDGMENT OF KEANE J
This judgment was delivered by on 27 August 2013 at 12pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
Solicitors:
A Hooker, Auckland
B Hopkins, Auckland
HARRISON v HARRISON [2013] NZHC 2181 [27 August 2013]
[1] On 19 October 2009 Maria Harrison and Patrick Harrison, who had separated in December 2007 after a marriage exceeding 20 years, entered into a separation and relationship property agreement first in their personal capacities; and then also in their capacities, with Michael Simpson, as trustees of the Riley Business Trust.
[2] The Riley Business Trust owned 47 per cent of the shares of Carpet One NZ Limited, an asset central to their division of property. The property they agreed to divide was indeed, as the preamble to their agreement says, largely held by trusts, the Riley Business Trust and by their own mirror trusts, the M S Harrison Family Trust and the P D Harrison Family Trust.1
[3] They agreed that, in their division of relationship property, they had taken into account the distribution of trust assets also to be made under the agreement and that, as to that also, it was to have the status of a relationship property agreement under the Property (Relationships) Act 1976 and the Family Proceedings Act 1980. They undertook, in the exercise of their powers as trustees of their parallel trusts, to sign all resolutions and other documents required to give effect to the division.2 As Riley Business Trust trustees they confirmed they had resolved to distribute that trust's assets as the agreement required.3
[4] On settlement date, 30 October 2009, they agreed, Patrick Harrison was to take sole title to the former home (in reality to assume a very significant debt because their equity was small) and was, therefore, to assume the interest in the home held by the Maria Harrison Trust as well as the Patrick Harrison Trust. He was to assume their full beneficial interest in the Riley Business Trust. He was to take title to all the shares in his name in three companies, and title to three other properties and two various other property items. Conversely, he was to assume sole responsibility for a debt owed to the Riley Business Trust for marriage living expenses.
[5] According to a schedule to the agreement the total property to be divided was worth $5,871,021, and a half share was worth $2,935,510. Patrick Harrison was to
1 Preamble paras (a) - (c); cl 1.
2 Paragraph (d).
3 Paragraph (e).
take property worth $5,794,021 and Maria Harrison $77,000. Maria Harrison's half share was to be accorded to her by a $3.6M adjustment, giving her slightly in excess of one half of the value of the property divided.
[6] Under the agreement that payment was to be made, not by Patrick Harrison directly to Maria Harrison, but by the Riley Business Trust to the Maria Harrison Trust, and was to be in nine instalments. The first two only have been paid, $70,000 on the date of the agreement, 19 October 2009, and $930,000 on settlement date, 30
October 2009. There are now six outstanding, totalling $1M, attracting penalty interest daily at the 90 day bill rate, plus two per cent.
[7] On this application for summary judgment the trustees of the Maria Harrison Trust, Maria Harrison herself and her sister, seek judgment against Patrick Harrison personally for the instalments outstanding, contending that in his capacity as a Riley Business Trust trustee he is liable personally as both principal and guarantor. Patrick Harrison denies any personal liability in either capacity. In those two capacities, he contends, he can only be liable as a trustee and then only to the extent of the Trust's assets. He and Mr Simpson ceased to be trustees of the Riley Business Trust on 7
March 2012. The sole trustee is now T R Corporate Trustee Limited.
[8] Until the hearing, the Maria Harrison Trust trustees relied on emails, exchanged between Patrick Harrison and Maria Harrison, to contend that he had admitted liability. Patrick Harrison contended that this exchange was inadmissible. It was an exchange in confidence, and without prejudice, in an attempt to settle. The trustees no longer rely on that exchange.
Issues of interpretation
[9] The difficult issue of interpretation that this case raises is whether the fact that Patrick Harrison assumed liability as a principal debtor and as a guarantor, indistinguishably in the same apparent capacity, namely as a trustee of the Riley Business Trust, in each case accepting a liability limited to the assets of the trust, is to be taken literally in each case.
[10] If those two liabilities are indistinguishable, as they are on a literal reading, must that mean that Patrick Harrison’s liability as a guarantor adds nothing to his liability as a principal debtor and is worthless? Or does the fact he assumed liability as a guarantor, as well as a principal debtor, mean that despite the words used, he assumed that secondary liability wholly personally? So too, does the limit on his liability to the assets of the trust in each case mean that in each he assumed liability only as a trustee? Or may it mean that, if he assumed his secondary liability personally, that liability has to be limited to a sum equal to the total value of the trust assets?
[11] Complicating this analysis still further is that under the deed Patrick Harrison has assumed liabilities that are clearly identified to be personal and his two contrasting categories of liability are linked in various ways. The agreement must be construed as a whole, according to its tenor. The analysis is, however, one well able to be accomplished within the compass of an application for summary judgment. It can be resolved one way or the other within the confines of the agreement itself.
Trustee and personal liabilities
[12] Patrick Harrison's liability as principal debtor, as a trustee of the Riley
Business Trust, is imposed by clause 4.7, which says this:
In settlement of Maria's entitlement in respect of the property being retained exclusively by Patrick or the trustees of the Riley Business Trust or the P D Harrison Family Trust, the trustees of the Riley Business Trust agree to distribute or resettle to the trustees of the M S Harrison Family Trust the sum of $3.6M being the agreed adjustment sum ('the adjustment') owing in accordance with the schedule annexed hereto.
[13] The schedule to the agreement sets out that adjustment sum calculation against a description of the property to be divided and its value. Clause 4.7 concludes ‘Such payment to be made in accordance with the following schedule and clause 4.3.’ The schedule sets out the nine payments called for and clause 4.3 identifies the settlement date as that for the second instalment:
For the purposes of this agreement settlement date shall be 30 October 2009, being the date of the transfer of all necessary documents ensuring the division of property, together with the second payment (in accordance with clause 4.7) of $930,000 being part of the adjustment sum to the trustees of
the M S Harrison Family Trust, pursuant to this agreement and referred to in clause 4.7.
[14] Patrick Harrison’s related primary liability, as a trustee, is imposed by clause 5.8, which says this:
In the event of any late payment to Maria or the M S Harrison Family Trust of moneys owed under this agreement (including those specified in clauses
5.2 and 5.3), the amount outstanding will incur penalty interest at the 90 day bill rate applicable at the time, plus 2% on a daily basis.
[15] Patrick Harrison’s secondary liability as guarantor, as a trustee, is imposed by clause 5.4, which says this:
Patrick, Maria and Michael John Simpson, as trustees of the Riley Business Trust, guarantee performance of payment of all adjustment sums and any penalty interest and also guarantee the payments to be made to Maria pursuant to clauses 5.2 and 5.3 of this agreement.
[16] Each of Patrick Harrison’s liabilities as a trustee is qualified, or limited by, clause 5.6, which says this:
To the extent there is any liability under this agreement on the trustees of the Riley Business Trust, as trustees, their liability will be limited to the assets of the trust.
Contrasting personal liabilities
[17] By contrast, the agreement also imposes on Patrick Harrison liabilities that are explicitly personal; and that must be relevant to the issue whether those it imposes on him as a trustee can be in any other capacity than as a trustee to the extent of the trust’s assets.
[18] Patrick Harrison became personally liable under clause 5.2 to pay Maria Harrison $2,000 a week, and to meet the tax related, until 31 December 2009; and, under clause 5.3, he is still obliged to ensure personally that Carpet One NZ Limited employs Maria Harrison at a gross annual salary of $100,000, from 1 January 2010 until 30 December 2013, or until all payments are complete. He is under a related personal liability as guarantor:
Should salary payments to Maria cease (or fail to eventuate) for reasons other than that provided for within this clause, then Patrick guarantees
payment to Maria of a sum equivalent to the salary payments as provided herein.
[19] Under clause 5.9 Patrick Harrison became obliged to provide to Maria Harrison on settlement ‘a duly executed share security deed ... creating a security interest ... first-ranking in priority over 50% of the shares owned by the Riley Business Trust in Carpet One NZ Ltd’, ranking first in priority, ‘to provide security for the performance by Patrick and/or the Riley Business Trust of his/its obligations pursuant to this agreement’.
[20] This security over the shares is to continue until Maria Harrison receives the final amount due to her under cl 4.7, together with any interest for late payment;4 and so long as it continues Patrick Harrison, as a trustee, became obliged under clause
5.11 not to erode its value:
The trustees of the Riley Business Trust agree that they will not sell more than 50% of their shares in Carpet One NZ Limited until all funds are paid out, pursuant to this agreement, to Maria or the M S Harrison Trust, unless it is on the basis that the funds from the sale of the shares will be used to discharge any obligations the trustees have to Maria or the trustees of the M S Harrison Trust, pursuant to this agreement.
Principles of law
[21] The issues of interpretation to which this agreement gives rise, as Tipping J said in Vector Gas v Bay of Plenty Energy Ltd,5 must be decided by identifying objectively ‘the meaning the parties intended their words to bear’. As he there said:
The language used by the parties, appropriately interpreted, is the only source of their intended meaning. As a matter of policy, our law has always required interpretation issues to be addressed on an objective basis. The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contact to mean. The Court embodies that person.
To be properly informed the Court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties' minds. Evidence is not relevant if it does no more than tend to prove that individual parties subjectively intended or understood their words to mean, or what their negotiating stance was ...
4 Clause 5.10.
5 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444, 457 at [19].
[22] That these issues arise within a relationship property agreement does not mean that they are to be decided on any different principle of interpretation, but the purpose and status accorded to such agreements under the Property (Relationships) Act 1976 has to be taken into account, I consider, in the objective analysis called for.
[23] Relationship property agreements are entered into under a statutory regime which has as its purpose to ensure that they effect a ‘just division’ of property between spouses.6 To be valid they must be entered under a procedure designed to ensure that each spouse receives beforehand independent legal advice as to its ‘effect and implications’.7 Where, in such an agreement, a term appears on a literal reading to be inconsistent with the ‘just outcome’ agreed to, a less than literal reading consistent with that agreed outcome may be warranted.
[24] That the issues to be decided in this case concern the nature of the liability of a trustee, and whether that is merely as a trustee or wholly personally, does not call in a general sense for any departure from the usual principles of interpretation either. But, once again, in another sense it does.
[25] In NZHB Holdings Ltd v Bartells,8 a decision I have found especially helpful, Baragwanath J said that a trustee’s liability is to be decided according to the construction that ‘conforms with settled legal principle and settled commercial practice and thus suggests the meaning most reasonably to be ascribed to contracting parties.’9
[26] Baragwanath J also said, however, that, while trustees, who contract as such, have complete freedom as to whether the liability they assume is personal, or only as trustees, that question has to be resolved against this presumption:10
... in New Zealand law, and in that of England and of New South Wales, in the absence of more limiting language the description of a contracting party simply as 'trustee' renders that party personally liable. There is a presumption in favour of personal liability which must be refuted if a person
6 Property (Relationships) Act 1976, s 1N(c).
7 Sections 21D, 21F.
8 NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506 at [34] - [35] (HC).
9 At [43].
10 At [41].
contracting as 'trustee is to be relieved of liability beyond the extent of the trust assets.
[27] That presumption, Baragwanath J explained, is inherent in the concept of a trust:11
Unlike a company or an incorporated society a 'trust' is not a legal person recognised as distinct from the humans who direct their affairs. On the contrary, trustees can contract only in their own right: either they do so and are personally liable to the extent provided by the ordinary law which the agreement may modify or there is no agreement at all.
[28] Furthermore, as he then said, ‘although a trust is not a legal person distinct from the trustee, its assets are distinct from those of the trustees’;12 and while ‘a trustee will normally have indemnity against those assets in respect of a liability in a trust transaction’13 how far that is so can be an issue. Where trust assets exceed those of the trustee the issue will be whether the other contracting party can have recourse to the trust assets. Where trust assets are less than the amount claimed, the issue will be whether the trustee, or the other contracting party, is to carry the loss.
[29] In that case, Baragwanath J held one trustee to be personally liable and another to be liable only as a trustee and to the extent of the trust assets. In this case Patrick Harrison assumed both primary and secondary liabilities as a trustee to the extent of the trust’s assets, and whether he assumed the second of those liabilities wholly personally and not merely as a trustee, calls for equivalent discrimination.
[30] This issue is not merely one of interpretation. It is one governed by the law as to guarantees. The same person cannot, at once, be both principal debtor (assuming primary liability) and guarantor (assuming secondary liability) unless he or she assumes those liabilities in different capacities.14 Where that is in issue, as it is here, on one view, any ambiguity is to be resolved in favour of the alleged guarantor.15 On
the other it is to be resolved so as to ensure that the creditor is protected.16
11 At [34].
12 At [36].
13 At [36].
14 Beale v BR Properties (No 8) Ltd HC Auckland CIV-2005-404-6009, 30 March 2007.
15 Coghlan v SH Lock (Australia) Ltd (1978) 8 NSWLR 88; Geraldine Andrews & Richard Millett
Law of Guarantees (6th ed, Thomas Reuters, London, 2011) at 129.
16 Andrews & Richard Millett, above n 15.
[31] The latter of these two preferences has been described as, ‘merely an application of the general rule of interpretation that a contract will be construed in such a way as to give effect to its terms wherever possible’.17 And another way to express that rule is to say that an agreement is to be interpreted in a less than literal way if that is required to give effect to its manifest purpose, assessed objectively. As was said in the Boat Park case:18
if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense’.
[32] This is not a licence to rewrite the contract. In Starrenburg v Mortre Holdings Ltd19 the Court of Appeal accepted that it may be possible ‘to read words as having an effect different from their literal meaning, or even on occasion to conclude that the wrong words were used and ... must be given no effect’. But, the Court went on to say:
The Court must be very cautious indeed in applying that approach where the effect is substantially to rewrite the contract. The more reconstruction that is required, the more difficult it is to displace what Lord Hoffman called ‘the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents ... .
[33] On that appeal against summary judgment, one reason why the Court of Appeal declined to give a less than literal meaning to a term, which relied on disputed evidence, was because that would have abrogated a statutory responsibility. In this case, as I shall say, it seems to me that the considerations are the other way.
[34] Finally, I should refer to two principles of law, neither of which I recall being contested, or at least contested vigorously. The first is that Patrick Harrison cannot avoid liability as a trustee as from the date on which he resigned, 8 March 2012, when arrears already stood at $600,000. His resignation cannot have any effect on
his liability at common law or under the guarantee.20 The second principle is that the
17 Andrews & Millett, above n 15 at 129.
18 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81 – 82; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 – 913; Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1985] AC 191; Technix Group Ltd v Fitzroy Engineering Group Ltd [2011] NZCA 17 at [16].
19 Starrenburg v Mortre Holdings Ltd (2004) 6 NZCPR 193 (CA) at [44].
20 Ian Rowe and Simon Weil Working with Trusts (Thomson Reuters, on line ed) at 5.6.03.
Maria Harrison Trust is able to pursue Patrick Harrison in his personal capacity, whether as a principal debtor or as a guarantor. His liability as a guarantor stands independently of that as a principal debtor.21
Conclusions
[35] The primary and secondary liabilities Patrick Harrison assumed to pay the
$3.6M adjustment sum to Maria Harrison, to my mind, are expressed unambiguously and indistinguishably. In each Patrick Harrison undertakes to pay that sum to Maria Harrison, in the instalments the agreement sets out, as one of the ‘trustees of the Riley Business Trust’. In each, his ‘liability will be limited to the assets of the trust’.
[36] In each instance, I consider therefore, as a matter of plain language, Patrick Harrison assumed liability only as a trustee of the Riley Business Trust to the extent of its assets only. He did not assume personal liability. Consistent with that interpretation, I consider, is that the other liabilities he assumed under the agreement are explicitly personal. The difficulty with that literal interpretation is, however, fundamental. It offends the law as to guarantees. Patrick Harrison cannot have assumed both liabilities in the same capacity. If he assumed his primary liability as a trustee to the extent of the trust assets, as I find he must have, that puts in issue what liability, if any, he assumed as guarantor.
[37] One answer is to give first place to the words in which he accepted those two liabilities. That is the approach the rules of interpretation ordinarily require. But if that approach is taken Patrick Harrison is freed of his secondary liability as guarantor. He can then only be answerable as a principal debtor in his capacity as trustee. The contrasting answer is to give first place to the purpose for which Patrick Harrison assumed that secondary liability. It was to give Maria Harrison recourse to him distinctly from the recourse she had to him as a trustee. That may not accord with the words used. But it does accord with the purpose of the agreement: to achieve a ‘just division’ of their relationship property, whether they held it personally
or by the medium of trusts, securely by a variety of means.
21 Moschi v Lep Air Services [1973] AC 331 (HL) at 356 – 357; Coffey v DFC Financial Services
Ltd (1991) 5 NZCLC 67,403.
[38] Under the agreement Patrick Harrison received almost all their relationship property, however held, and Maria Harrison became entitled to receive her half share by way of the adjustment sum, $3.6M. Patrick Harrison agreed to secure that sum to her first as a principal debtor and then as a guarantor. Though in each case he did so as a trustee, those undertakings are underpinned by the share security deed he had to provide Maria Harrison, and by the undertaking of trustees to retain at least half the shares until payments to her were complete. It would be entirely inconsistent with that security scheme, I consider, if the secondary liability Patrick Harrison assumed were devoid of effect. To ascribe personal secondary liability to him, furthermore, does not seem to me to offend any other term of the agreement.
[39] At the date of the agreement Maria Harrison and Michael Simpson may also have been trustees. But Maria Harrison was to cease to be a trustee on settlement date and Michael Simpson was a ‘third party’ trustee. He was not and could not be a party to the agreement insofar as it divided relationship property. His liability can only have been as a trustee and, therefore, perhaps only as a principal debtor. That would not offend the purpose of the agreement as a whole.
[40] Nor does ascribing personal secondary liability to Patrick Harrison, I consider, deprive of all meaning the term limiting his liability to the assets of the trust. It can be given reduced but consistent effect. Patrick Harrison’s personal liability can be limited to a sum equating the value of the assets of the trust. This may make no difference if the assets of the trust exceed those of Patrick Harrison. It may make a real difference if his assets exceed those of the trust.
[41] For those reasons, I give summary judgment against Patrick Harrison personally as to the adjustment sum instalments presently outstanding, not as a principal debtor, a liability he has solely as a trustee of the trust to the extent of its assets, but as a guarantor to the extent of his own assets limited to a sum equating to the total value of the assets of the trust.
[42] The Maria Harrison Trust is entitled also to an award of costs, at scale 2B, and disbursements. Any issue of calculation is to be resolved by the Registrar.
P.J. Keane J
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