Henderson and Goodall Trustee Services Limited v Henderson and Sandlant as Trustees of Shed 21 Investments Limited HC Auckland CIV 2009-404-5557
[2010] NZHC 547
•26 April 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2009-404-005557
BETWEEN ROCHELLE DOROTHY HENDERSON
AND GOODALL TRUSTEE SERVICES LIMITED
Plaintiffs
AND DAVID STEWART HENDERSON AND
ANTHONY CLIVE SANDLANT AS TRUSTEES OF SHED 21
INVESTMENTS LIMITED
Defendants
CIV 2009-404-005837
AND BETWEEN SHED 21 INVESTMENTS LIMITED
Applicant
AND ROCHELLE DOROTHY HENDERSON
AND GOODALL TRUSTEE SERVICES LIMITED
Respondents
Hearing: 12 April 2010
Counsel: H L Thompson for plaintiffs in 5557 and respondents in 5837
D W Grove for D S Henderson in 5557 and Shed 21 applicant in 5837 K A Muir/L Cox for A C Sandlant second named defendant in 5557
Judgment: 26 April 2010 at 5:15pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 26 April 2010 at 5:15pm,
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
McMahon Butterworth Thompson, PO Box 106073, Auckland Ellis Law, PO Box 4516, Auckland
Morgan Coakle, PO Box 114, Auckland
HENDERSON & ANOR V HENDERSON & ORS HC AK CIV 2009-404-005557 26 April 2010
[ 1 ] These proceedings are being heard together as they both concern the liability
of guarantors under the same loan agreement. In the first proceeding, the plaintiffs seek summary judgment for the amount owing under the loan agreement against the persons (including a corporate trustee) who signed the agreement as guarantors. In the second proceeding, the corporate trustee applies to set aside a statutory demand for payment of the amount claimed under the guarantee.
The disputes have their genesis in commercial arrangements made between Mrs Rochelle Henderson and Mr David Henderson following the breakdown of their marriage, recorded in a deed of agreement made in 2003 for division of their relationship property (the 2003 deed).
In March 2007, Mrs Henderson and Goodall Trustee Services Limited, as trustees of a family trust associated with Mrs Henderson (known as the No 9 Trust), entered into a loan agreement with Rockwall Management Pty Limited. Rockwall is managed by Mr Henderson’s son by an earlier marriage. It is common ground that the loan was a consolidation of three earlier loans made either to Mr Henderson and Mr Anthony Sandlant as trustees of a trust associated with Mr Henderson (Hauraki Trust) or to Rockwall. The loan was secured by guarantees given by Mr Henderson, Mr Sandlant, and Shed 21 Investments Limited.
The loan has fallen due and has not been repaid. Mrs Henderson and Goodall Trustee Services Limited seek summary judgment against all guarantors personally for the amount now due. In addition, they have made a statutory demand on Shed 21 for payment under its guarantee.
Mr Henderson and Shed 21 oppose summary judgment on the ground that the loan is inextricably linked to the 2003 deed, and Mr Henderson has applied to set the deed aside on the grounds that it has become unfair or unreasonable. They say that the present loan will fall away with the 2008 deed. Mr Sandlant opposes summary judgment on the grounds that his liability is limited to the assets of the two trusts on whose behalf he gave the guarantee.
For the reasons I will now give I find that Mr Henderson and Shed 21 do not have an arguable defence, but that Mr Sandlant does.
Preliminary matters
At the commencement of the hearing I made an order on the application of counsel for Mrs Henderson excluding the public and media from the hearing of the summary judgment application, on the grounds that this was essentially a family matter and would involve consideration of the terms and effect of the deed of family arrangement and other family circumstances. The application was supported by the other parties. I did not extend the order to the hearing of the application to set aside the statutory demand, but stood that matter down until the summary judgment application had been heard (it was common ground that the outcome of the summary judgment application was likely to determine the outcome of that application).
Before the hearing of the summary judgment application resumed after the lunch adjournment, counsel filed a joint memorandum recording their agreement that the application to set aside the statutory demand should be determined in accordance with the outcome of the application for summary judgment against Shed 21. If summary judgment was granted, the company’s application to set aside must fail. If judgment was not granted, the application was to succeed.
Background for summary judgment application
The 2003 deed provided for Mr Henderson to pay Mrs Henderson a substantial sum in cash, and to transfer to her several properties held by entities which he controlled some of which were still part of ongoing developments. It contemplated further steps being taken by Mr Henderson or his interests to complete projects and effect transfer of properties to Mrs Henderson. It also provided for Mrs Henderson, within the following 18 months, to make advances to the trustees of a family trust (the Hauraki Trust) up to an agreed sum. The Hauraki Trust was the owner of a substantial holding property, part of which was to be transferred to Mrs Henderson but with an option for the trustees to replace it within a set time frame. The trustees of the Hauraki Trust and another trust (the Wairangi Trust) were also parties to the 2003 deed as they undertook certain obligations under the deed.
[ 10] On 31 March 2005, the parties to the 2003 deed entered into a deed of variation, in which they recorded the exercise of the option given in the 2003 deed to the trustees of the Hauraki Trust, and provided a time frame for Mr Henderson to comply with his obligations for transfer of properties (being a reasonable time having regard to applicable market conditions).
[ 11 ] On 9 October 2006, the plaintiffs entered into the term loan agreement with trustees of the Hauraki Trust for a loan advance of $AUD1,500,000 for the purchase of a property in Alexandria, New South Wales. The trustees of the Wairangi Trust guaranteed the Hauraki Trust’s obligations. On 29 January 2007 plaintiffs entered into a term loan agreement with Rockwall under which they agreed to advance Rockwall $AUD150,000, to be used towards purchase of an apartment at Potts Point in Sydney. Mr Henderson signed the agreement as guarantor of Rockwall’s obligations. On or about 2 February 2007, the trustees of No 9 Trust advanced a further $AUD600,000 to Rockwall for the same purpose and on the same terms as the earlier advance of $AUD150,000.
On 28 March 2007, the plaintiffs entered the term loan agreement with Rockwall, on the Auckland District Law Society’s standard form, for the sum of $AUD1,215,000, that was then due to them in respect of the prior advances to the Hauraki Trust and Rockwall. Mr Henderson and Mr Sandlant as trustees of the Hauraki Trust and of the Wairangi Trust, Shed 21 as trustee of Shed 21 Investments Limited, and Mr Henderson signed the loan agreement as covenantors and guarantors.
At the same time as signing the loan agreement, Mr Henderson, Mr Sandlant and Shed 21 signed a separate guarantee of Rockwall’s obligations under the loan agreement.
[ 14] The loan agreement provided that the principal was to be paid, together with
interest, on 22 March 2008. Rockwall made some payments of interest and some
capital repayments, but as at commencement of this proceeding on 27 August 2009 the sum of $1,184,277 was outstanding.
Mr Henderson’s fortunes have suffered a significant reversal in recent times. In September 2009 he applied to the Family Court for an order setting aside the 2003 deed on the grounds that it has become unfair or unreasonable in light of changes of circumstances since it was signed.
The principles for summary judgment
The plaintiffs seek summary judgment under r 12.2 of the High Court Rules. Under that rule the court may give judgment if the plaintiff satisfies the court that the defendant has no defence to a cause of action or a particular part of it. The principles that the court applies in determining an application are well known, and derived from the leading cases of Pemberton v Chappell[1] and Bilbie Dymock Corp Ltd v Patel.[2] The following principles (drawn from the leading cases or as noted) are relevant to this application:
[1] Pemberton v Chappell [1987] 1 NZLR 1(CA).
[2] Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
a)The plaintiff seeking summary judgment has to satisfy the court on the necessary facts and legal bases to establish its claim and that there is no arguable defence (the court must be left without any real doubt or uncertainty);
b)The court will decide questions of law where appropriate;
c)The court will not attempt to resolve genuine conflicts of material facts, or to assess the credibility of the statements in affidavits, but in deciding whether there is a genuine and relevant conflict of fact it is entitled to examine and reject spurious defences or plainly contrived factual conflicts;
d)Summary judgment will generally be inappropriate where material facts need to be ascertained by the court, and the ultimate
determination depends on a judgment only able to be properly arrived at after a full hearing of the evidence;[3]
[3] Westpac Banking Corporation v M M Kembla (New Zealand) Ltd [2001 ] 2 NZLR 298 at [62].
e) In weighing these matters, the court will take a robust approach and
enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the court.
The claim against Mr Henderson
[ 17] Mr Henderson does not dispute the terms of the loan agreement (including his signature of it as a guarantor), nor the amount being sought by way of principal and interest. He contends, however, that he has an arguable defence on the ground that the loan agreement is inextricably linked to the 2003 deed and any change to the entitlements under that deed will affect obligations under the loan agreements (he did not pursue various other grounds for defence initially advanced in his notice of opposition).
[ 18] The linkage between the 2003 deed and the loan agreement is said to arise as follows:
a)Clause 6.1 of the 2003 deed provided for Mrs Henderson to make advances to the Hauraki Trust;
b)Although advances were made and repaid, Mr Henderson reached an agreement with Mrs Henderson under which funds she received pursuant to the 2003 deed were to be re-advanced;
c)Mr Henderson’s counsel in the relationship property application has provided an affidavit in which he deposes that if the application is successful, division of relationship property will be “at large” and such relationship property as exists will be divided on the principles set out in the Property (Relationships) Act 1976 rather than by reference to the 2003 deed;
d) Mr Henderson’s circumstances have deteriorated to such an
(unforeseen) extent that it would be unjust to allow the 2003 deed to stand, and it would cause serious injustice to give effect to the 2003 deed, and it would be unjust to allow it to be enforced before his application to set aside was determined.
[ 19] Counsel for Mr Henderson and Shed 21 submitted that the matter was not appropriate for determination by summary judgment. He said that there was a credible dispute as to whether the loan was an extension of the advances which Mrs Henderson had agreed to make in the 2003 deed. He argued that there was corroboration for Mr Henderson’s evidence to that effect, in Mrs Henderson’s acknowledgment that the loan was a consolidation of earlier loans (including one to Hauraki Trust) and a statement prepared by the financial controller of one of Mr Henderson’s companies, immediately prior to the execution of the loan agreement, attributing approximately $475,000 of the loan to refinancing of the earlier loan to Hauraki Trust. He submitted that discovery was required as to the history of lending, and cross-examination was needed, to determine Mr Henderson’s contention that the agreement in respect of this loan was an extension of the agreement in the 2003 deed.
[20] The trustees say simply that there is no credible dispute. They say that Mrs Henderson met her obligation under the 2003 deed to make advances to the Hauraki Trust, and those advances were subsequently repaid. They say that the loan they seek to enforce is a subsequent and entirely different commercial arrangement between them and Rockwall (a company run by one of Mr Henderson’s sons, Tony).
[21 ] Although it is for the plaintiffs to satisfy the court that Mr Henderson and Shed 21 do not have an arguable defence, where (as here) the party seeking summary judgment has established a prima facie case, the defendant must show that there is a credible evidential basis for any defences raised. The contention that the loan represents, at least in part, an extension of Mrs Henderson’s obligation under the
2003 deed to provide advances to the Hauraki Trust is inconsistent with the following undisputed facts:
a)Mrs Henderson’s obligation to make advances to Hauraki Trust (under clause 6.1(a) of the 2003 deed) was for a period of 18 months from the date of the deed;
b)Mr Henderson acknowledges that the advances contemplated by clause 6.1 of the 2003 deed were repaid, in the course or the exercise by the trustees of the Hauraki Trust of their option to purchase the part of the beach property vested in Mrs Henderson under the 2003 deed, and the advances were offset against the agreed purchase price;
c)The original advances were repaid to Mrs Henderson on or about 31 March 2005. The advance made in October 2006 was made by plaintiffs as the trustees of the No 9 Trust, not by Mrs Henderson herself;
d)When the arrangements were changed in March 2005, all parties to the 2003 deed signed a deed of variation. The variation deed provided that it and the 2003 deed were intended to be in full and final settlement of all issues between the parties.
I find that there is no credible evidential basis for Mr Henderson’s assertion that the loan which the No 9 Trust now seeks to enforce is an extension of Mrs Henderson’s obligations under the 2003 deed, and dependent on that deed being upheld.
Although, as one of the trustees of the No 9 Trust, Mrs Henderson was a party to the loan to the Hauraki Trust in October 2006 there is no evidence of any agreement by her to an extension of her obligations under the 2003 deed other than Mr Henderson’s (disputed) assertion. Mr Henderson provides no detail of the alleged agreement (when and where it was reached). He says only that “there was an ongoing agreement”, that Mrs Henderson “agreed she would re-advance funds to
[him] from time to time” (given the significant cash sums she was receiving under the terms of the 2003 deed), and that “it was agreed that she would re-advance funds as and when needed”. Mrs Henderson agrees that she was obliged to make advances as provided under the 2003 deed, but says that she did not otherwise agree to re-advance funds to Mr Henderson. She acknowledges that she had a discussion with Mr Henderson about the No 9 Trust’s loan to Rockwall, but says that the only matter she can recall discussing was security, and that she negotiated the terms of the loan with Tony Henderson.
Further, if the later advances were intended to be an extension of those obligations, it is a reasonable inference that the parties would have documented the arrangement accordingly (as occurred in 2005). This is particularly so given that the funds were advanced through the trustees of No 9 Trust (which was not a party to the 2003 deed) rather than by Mrs Henderson personally. I can accept that Mrs Henderson was prepared to consider further advances (certainly in her capacity as trustee of a fund available for investment), but that falls well short of an agreement to extend the obligation that she undertook in the 2003 deed. Mr Henderson’s contention to this effect does not pass the threshold of credibility.
The claim against Mr Sandlant
The trustees seek summary judgment against Mr Sandlant personally. They rely on clause 14(b) of the loan agreement which reads:
Trustees have full and unlimited personal liability: Unless you have been named in this contract as a limited liability trustee (in which case the provisions of clause 14(c) will apply) all of you have full and unlimited personal liability for the repayment of the moneys owing and the compliance with all obligations in this contract.
Mr Sandlant accepts that he was not named in the loan agreement as a limited liability trustee, but says that was an oversight and it was always intended that his liability would be limited to the assets of the trust. He says that the guarantee under the loan agreement is to be read together with the separate guarantee prepared by the plaintiffs’ solicitor, which contained a clause excluding his personal liability. He relies on a stipulation in the loan agreement that it was a condition precedent to the
advance that any person named in the agreement as a guarantor was to sign a deed of guarantee in a form acceptable to the lender.
In the alternative, Mr Sandlant contends that, even if the loan agreement cannot be construed in that manner, it was the common intention of the parties that his liability was to be limited and the loan agreement should be rectified. He also says that there was an underlying common understanding (arising out of knowledge of his position as a professional trustee and evidenced by the separate guarantee prepared by Mrs Henderson’s solicitor) that Mr Sandlant’s liability was limited to the assets of the trust, and the trustees are estopped from denying that common understanding. Finally, he also contends that he has an arguable defence based on a common mistake as to the loan agreement, namely that the limitation of liability under the guarantee extended to the same covenants in the loan agreement.
The trustees say that none of these matters provides an arguable defence. First, they say that their claim is brought only under the loan agreement, and that the parties intended the loan agreement to be enforceable separately from the guarantee. In support of this proposition, counsel for the plaintiffs argued that the obligations under the guarantee were more extensive than under the loan agreement, and for that reason the guarantee expressly provided that it was not to merger with but be collateral to the loan agreement.
Interpretation of loan agreement
The difference in interpretation essentially is that Mrs Henderson relies on a literal and confined interpretation of clause 14(b), whereas Mr Sandlant says that when the loan agreement is construed in context, it is clear that the parties did not intend clause 14(b) to apply. These differing positions depend, in large part, on whether the loan agreement is to be construed entirely independently of the deed of guarantee.
[30] The approach to contractual interpretation has recently been reviewed by the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd .[4] In that case, after referring to the ultimate objective of establishing the meaning that the parties intended their words to bear, and observing that the necessary enquiry is “what a reasonable and properly informed third party would consider the parties intended the words of the contract to mean”[5], Tipping J commented that this objective approach does not prohibit the court going outside the terms of the written instrument even where the words appear to have a plain and unambiguous meaning:
[22] Nor does the objective approach require there to be an embargo on going outside the terms of the written instrument when the words in issue appear to have a plain and unambiguous meaning. This is because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean. An example of that situation is when plain words, read contextually, lead to a result which does make sense, whether commercially or otherwise: a meaning that flouts business commonsense must yield to one that accords with business commonsense. The appropriate contextual meaning, if disputed, will, almost invariably, involve consideration of facts and circumstances not apparent solely from the written contract. While displacement of an apparently plain and unambiguous meaning may well be difficult as a matter of proof, an absolute rule precluding any attempt would not be consistent either with principle or with modern authority.
[23] The proposition that a party may not refer to extrinsic evidence “to create an ambiguity” is at least potentially misleading. It does not mean context is irrelevant unless there is a patent ambiguity. Context is always a necessary ingredient in ascertaining meaning. You cannot claim to have identified the intended meaning without reference to context. Hence it is always permissible to go outside the written words for the purpose of identifying the context in which the contract was made and its objective purpose. While there are no necessary preconditions which must be satisfied before going outside the words of the contract, the exercise is and remains one of interpretation. Subject to the private dictionary and estoppel exceptions to be mentioned below, it is fundamental that words can never be construed as having a meaning they cannot reasonably bear. This is an important control on the raising of implausible interpretation arguments. Furthermore, the plainer the words, the more improbable it is that the parties intended them to be understood in any sense other than what they plainly say.
The view that evidence of contractual background can be used to test the apparent plain meaning and ensure that the court does not attribute an intention to the parties that they did not have, was expressly supported by Blanchard J[6] and McGrath J,[7] by reference to the remarks of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society:[8]
... if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to the attribute to parties an intention which they plainly could not have had.
[4] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5.
[5] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5 at [19]
[6] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5at [11].
[7] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5at [57].
[8] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at, 115.
Read in isolation, the plain meaning of clause 14(b) suggests that the parties intended that Mr Sandlant would have personal liability (as already mentioned, he accepts that he was not named as a limited liability trustee). However, the plain language of clause 14(b) has to be considered in context: the whole of the loan agreement, its inter-relationship with the deed of guarantee, and the background circumstances to the agreement.
The naming of the parties in the loan agreement is a pointer to another possible meaning. This specific drafting appears to conflict with the standard form wording of clause 14(b). Mr Henderson and Mr Sandlant are both parties as trustees of the Hauraki and the Wairangi Trust. In that capacity Mr Henderson is not identified as a limited liability trustee. On Mrs Henderson’s view of interpretation, that would be all that was required to give Mr Henderson personal liability. However, he is also named as separately as a covenantor and guarantor. This suggests that the parties intended that this would create some liability upon him additional to his liability as a trustee. It also suggests, conversely, that the parties did not intend that additional liability for Mr Sandlant.
The agreement also has a possible counter-indication in its provision that execution of a separate guarantee, in a form satisfactory to the lender, was a precondition to any advance. This is a direct link between the two documents. It suggests that the separate guarantee was to have primacy over the guarantee obligations in the loan agreement (there would be little point to it if that was not so).
It is common ground that the separate guarantee excludes Mr Sandlant’s personal liability. This again conflicts with the language of clause 14(b). Counsel for Mr Sandlant supported his argument by pointing out that the guarantee rendered the guarantors liable for all of the obligations of the borrower and covenantors under the loan agreement: it indemnified the plaintiffs against any failure to pay secured money and to comply with other obligations (clause 2.2); it provided that the guarantor was to be liable as a principal debtor (clause 2.3); and it expressly excluded rights a guarantor would otherwise have to be released from obligations in a range of circumstances (clause 2.4).
The facts that the guarantee was prepared by Mrs Henderson’s solicitor, and the express provision that it is to be on her terms, are also relevant contextual material, as is the fact that her solicitor specifically pointed out Mr Henderson’s separate and personal liability under the guarantee when sending the guarantee documents to him. I accept that the terms of the guarantee and this covering letter are potential evidence of Mrs Henderson’s instructions and her intention with respect to the extent of Mr Sandlant’s obligations under his guarantee.
Counsel for Mrs Henderson sought to “de-link” the guarantee from the loan agreement by referring to clauses in the guarantee to the effect that the plaintiffs’ rights under the loan agreement were not to merge with the guarantor’s obligations to pay the secured money under the guarantee, and that the guarantee was to be in addition to any collateral security (which could be interpreted as the guarantee obligation under the loan agreement). He argued that the parties had intended to give the two documents “stand alone” status because the guarantee was an “all obligations” guarantee linked to “all obligations” mortgages also given as security.
Whilst I accept that the clauses on which Mrs Henderson relies would allow her to pursue claims separately under either document, I do not accept that, for that reason, they preclude taking the terms of the guarantee into account in determining the proper interpretation of the loan agreement. I accept the submission of counsel for Mr Sandlant that there is no evidence to suggest that the parties were contemplating any further advances to be covered by the mortgage. There does not
appear to be any good reason for Mr Sandlant’s liability to be limited under the guarantee if he remains exposed to personal liability under the loan agreement.
The factual matrix is also available as an aide to interpretation of the obligations of the guarantors under the loan agreement. It is an accepted fact that this agreement was by way of consolidation of the earlier loan agreement between the plaintiffs (lenders), Mr Henderson and Mr Sandlant as trustees of the Hauraki Trust (as borrower) and both Mr Henderson in his own right and Mr Henderson and Mr Sandlant as trustees of the Wairangi Trust (as covenantors and guarantors). That agreement was also drawn up on the standard Auckland District Law Society term loan agreement form, and thus included clause 14(b). There is no evidence before the court, however, as to whether the plaintiffs required execution of the separate guarantee on that occasion or, if so, whether it too contained an express exclusion of Mr Sandlant’s liability.
Mr Sandlant says that Mrs Henderson knew that he was signing these documents as a professional trustee. He also says that his practice (as a professional trustee) was not to incur any personal liability. Mrs Henderson says that she merely knew Mr Sandlant as a long-standing solicitor for, and friend of, Mr Henderson (as distinct from having any knowledge of him as a professional trustee). Although I accept that Mr Sandlant’s evidence as to what he intended when he signed the loan agreement is not admissible in determining the proper interpretation of the agreement (because it is evidence of subjective intention), evidence of what happened on the prior occasion (and any other loan transactions between Mr and Mrs Henderson to which he was also a party) is admissible to provide relevant contextual material.
[41 ] Finally, counsel for Mr Henderson submitted that she was entitled to take advantage of a legal presumption that a trustee will be personally liable on any obligations incurred as trustee. This principle derives from dicta of Lord Chancellor Cairns in Muir v City of Glasgow Bank,[9] adopted in a number of New Zealand cases.[10] As I read this line of authority, it provides that a trustee will be personally liable for obligations incurred on behalf of the trust unless his or her liability is expressly excluded by the terms of the contract.
[9] Muir v City of Glasgow Bank (1879) 4 App Cas 337 at 355.
[10] In Re Graham Pitt & Bennett, ex parte Nolan & Skeet (1891) 9 NZLR 617; CIR v Chester Trustee Services Ltd [2003] 1 NZLR 395 at [37]; NZHB Holdings Ltd v Bartells (2005) 5 NZCPR 506; and AMP General Insurance Ltd v Macalaister Todd Phillips Bodkins (2006) 22 NZTC 19,740.
For the purposes of the present application, the question has to be whether Mr Sandlant has an arguable case for contending that the parties did not intend the standard wording of clause 14(b) to apply and something went amiss in the drafting of the loan agreements. I have some doubt whether the loan agreement can be construed in the manner advanced for Mr Sandlant (the other defences may be more appropriate) but, having regard to the apparent conflicts within the wording of the loan agreement itself, the contractual linking between the loan agreement and the guarantee, the matching obligations of the guarantor under the term loan agreement and the guarantee, and the express limitation of liability in the guarantee, I consider that further examination of the context and background is needed to decide the proper interpretation.
Because of what I am about to say on estoppel and rectification, I do not consider that I should express any further view, at this point, on the interpretation issues, and particularly whether this is a case (as counsel for Mr Sandlant suggests), where imposition of personal liability would flout business common sense. It would be surprising for a professional trustee to intend to accept liability beyond the assets of the trust, but that is a matter that should be determined at trial, with the benefit of the contractual matrix. I have in mind, in particular, any pattern that may emerge from previous dealings, in particular the loan agreement in October 2006.
Estoppel/Rectification
As an alternative to his argument on interpretation, Mr Sandlant contends that the parties had a common intention, or acted on a common assumption, that his personal liability was to be limited to the assets of the trusts. He says that these matters cannot be determined on a summary judgment application. He refers to his
practice and his own intention, and notes that Mrs Henderson has given no evidence to contradict his statement that that was the common intention. As already mentioned, he also invites the court to draw the inference that this was the parties’ common intention from the fact that Mrs Henderson solicitors drew the guarantee with the clause limiting his liability, and expressly drew Mr Henderson’s attention to the fact that he had to sign in his personal capacity.
[45] Although counsel for Mrs Henderson challenged the admissibility of Mr Sandlant’s evidence as to his subjective intentions, it is well established that pre-contractual evidence is available on the question of the parties’ common intention for the purposes of rectification, and also for considering the aspect of mutual assent or common assumption required for an estoppel by convention. In Vector Gas Ltd v Bay of Plenty Energy Ltd,[11] McGrath J summarised the position:
[11] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5.
[67] The House of Lords in Chartbrook also reaffirmed the rule that pre-contractual negotiations are inadmissible as evidence of the parties’
contractual intentions. The rule excluding evidence or pre-contractual
negotiations does not, however, exclude use for the purpose of establishing
facts relevant as background which were know to the parties. Nor does it
preclude such evidence from support a claim for rectification or estoppel.
Relevant in the present case is estoppel by convention which is defined in
the current edition of a leading text as follows:
This form of estoppel is founded, not on a representation made by a representor and believed by a representee, but on an agreed statement of facts or law, the trust of which has been assumed, by convention of the parties, as the basis of their relationship. When the parties have so acted in law is to be accepted between them as true, that it would be unfair on one for the other to resile from the agreed assumption, then he will be entitled to relief against the other according to whether the estoppel is as to a matter o fact or promissory, and/or proprietary.
[68] The essence of estoppel by convention and its distinguishing characteristic is that there is mutual assent or a common assumption as to the relevant fact:
... both parties are thinking the same; they both know that the other is thinking the same and each expressly or implicitly agrees that the basis of their thinking shall be the basis of the contract.
[69] The effect of the estoppel is to prevent a party from going back on the mutual assumption if it would be unjust to allow him to do so.
[46] Although I have taken the view that there is an arguable case for Mr Sandlant on interpretation, he will need to make out a strong case to overcome the meaning of clause 14(b). However, if he cannot do so (because the loan agreement cannot reasonably be construed to exclude his personal liability) he relies on the same extrinsic evidence to support a case either for rectification or estoppel. As to the former, I consider that Mr Sandlant has established a sufficient evidential basis to raise an arguable defence, having regard to the four-step summary given by Tipping J in Westland Savings Bank v Hancock[12] as to what must be shown. As to the latter, in his written submissions counsel relied on an estoppel by representation (preparation in tender of the guarantee by Mrs Henderson’s solicitor), but in the course of oral submissions he placed greater weight on an estoppel by convention.
[12] Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 29-30.
There does not appear to be much difference between the bases for rectification or estoppel by convention in this case. Counsel for Mrs Henderson argued that there was no evidence of a common intention (for rectification) or sufficient to warrant an inference of a common understanding (for estoppel by convention). I am not persuaded that this is the case, even without the subjective evidence of Mr Sandlant which Mrs Henderson challenges: I refer here to the terms of the documents and the circumstances of preparation and delivery of the guarantee. In addition, the court can taken into account evidence of the negotiations (and hence the preceding loan) and expressions of subjective intent: Butler v Countrywide Finance[13] and Dreux Holdings Ltd v Attorney-General.[14]
[13] Butler v Countrywide Finance Ltd [1993] 3 NZLR 623.
[14] Dreux Holdings Ltd v Attorney-General (1996) 7 TCLR 82.
Disputed matters of common intention or mutual understanding will usually require testing against surrounding circumstances and relevant documents. Without saying that they can never be resolved in a summary judgment context, I do not consider it appropriate for the court to determine these matters by way of a summary judgment application in this case. They need to be determined after a full trial, conducted with the benefits of discovery and following cross-examination.
Mistake
[49] As a further alternative defence, Mr Sandlant contends that the facts in this case would also give rise to a defence based on a common mistake. Although I do not need to determine this point, given the findings I have already made, I will add that I would not have accepted this as an arguable ground for defence. If the eventual finding is that the loan agreement cannot be interpreted as Mr Sandlant contends, the only mistake would appear to be a mistake in legal interpretation, which does not entitle Mr Sandlant to relief. [15]
[15] Shotter v Westpac Banking Corporation Ltd [1988] 2 NZLR 316; Paulger v Butlin Industries Ltd [1989] 3 NZLR 549.
Decision
[50] The plaintiffs are entitled to summary judgment against Mr Henderson and Shed 21 Investments Limited in accordance with their statement of claim:
a)Judgment in the sum of AUD$1,184,277.00.
b)Interest on the outstanding principal balance of AUD$997,832 at the contractual rate of 20% per annum from 23 August 2009 to the date of final payment.
c)Reasonable costs of this proceeding as between solicitor and client, pursuant to the loan agreement.
[51] The application by Shed 21 Investments Limited to set aside the plaintiffs’ statutory demand is dismissed. The time for compliance is extended, by consent, to 10 May 2010.
[52] The plaintiffs’ application for summary judgment against Mr Sandlant is dismissed. I make the following timetable orders in respect of that aspect of the plaintiffs’ claim:
a)Mr Sandlant is to file and serve his statement of defence by 10 May 2010.
b)The parties are to file and serve affidavits of documents by 4 June 2010.
c)Inspection (including production of documents) is to be completed by 25 June 2010.
d)Any interlocutory applications are to be filed and served by 16 July 2010, and listed for first call at the next case management conference.
e)The Registrar is to allocate a case management conference at the first available date after 16 July 2010 for the purpose of giving further directions. Memoranda are to be filed for that conference by the plaintiffs 3 working days in advance and by Mr Sandlant 2 working days in advance.
[53] The costs of the plaintiffs’ application for summary judgment against Mr Sandlant are reserved.
Associate Judge Abbott
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