Hornsby v Haines
[2013] NZHC 2477
•20 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-006914 [2013] NZHC 2477
BETWEEN EDWARD THOMAS HORNSBY
Appellant
AND
RODNEY DAVID HAINES
Respondent
| Hearing: | 4 June 2013 |
Counsel: | GP Denholm for Appellant ER Briggs and GP Muller for Respondent |
Judgment: | 20 September 2013 |
JUDGMENT OF KATZ J
Thisjudgment was delivered by me on 20 September 2013 at 4:00 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Foy & Halse, Auckland
Smith & Partners, Auckland
Counsel: GP Denholm, Auckland
HORNSBY v HAINES [2013] NZHC 2477 [20 September 2013]
Introduction
[1] On 3 November 2011, Mr Haines obtained a default judgment of $102,080.90 in the District Court against Mr Hornsby and Okura Developments Limited (“Okura Developments”). Mr Hornsby is a shareholder and director of Okura Developments. The judgment related to three distinct, but inter-related, debts.
[2] Mr Hornsby and Okura Developments applied to the District Court to set aside the default judgment. Mr Haines accepted that he had overlooked that one of the three debts had in fact been paid. He accordingly did not oppose the default judgment being varied to reflect that. He did, however, oppose the default judgment being set aside in relation to the other two debts. The parties referred to the first debt as the “default interest/rental shortfall debt” and the second debt as the “property purchase/price reduction” debt. I will adopt that terminology.
[3] Judge HM Taumaunu found that there was no basis to set aside the default judgment in relation to the two disputed debts. He concluded that there was no substantial ground of defence in relation to either of them.
[4] Mr Hornsby appeals to this Court against the Judge’s decision not to set aside the default judgment. The key issue on appeal is whether Mr Hornsby has a substantial defence in relation to the two debts, on the basis that Mr Hornsby was acting solely on behalf of Okura Developments, and not in a personal capacity. (I note that this ground of defence was not advanced before Judge Taumaunu in any meaningful way). Mr Hornsby also alleges that the quantum of one of the debts is overstated, as credit has not been allowed for certain payments that he made.
Setting aside a default judgment – legal principles
[5] Under r 12.34 of the District Court Rules 2009 any judgment obtained by default may be set aside or varied by the Court on any terms it thinks fit, if it appears to the Court that there has been, or may have been, a miscarriage of justice.
[6] In Patterson v Wellington Free Kindergarten Association Inc1 the Court of Appeal identified three factors that were of key importance in approaching an application to set aside a judgment regularly obtained. They are as follows:
(a)That the defendant has a substantial ground of defence.
(b)That the delay is reasonably explained.
(c)That the plaintiff will not suffer irreparable injury if the judgment is set aside.
[7] The Patterson factors were subsequently referred to in Russell v Cox where McMullin J observed on behalf of the Court that:2
We think that in the light of Evans v Bartlam the passage to which reference has just been made should be read as doing no more than emphasising three matters which, as a matter of commonsense and practice, the court will generally regard as of importance in deciding whether it is just to set aside a judgment. But it should not be regarded as laying down a general rule that an application to set aside a judgment must satisfy these conditions as a necessary prerequisite to the exercise of the discretion; it should be taken as doing no more than highlight factors which on any application to set aside a judgment may generally be regarded as relevant to an enquiry which will determine where the justice of the case will lie.
[8] Accordingly, the overall enquiry for the Court is whether it is just in all the circumstances to set aside the default judgment. The factors in Patterson v Wellington Free Kindergarten Association Inc provide helpful guidance in that exercise.
[9] In this case, Mr Hornsby’s appeal focussed on the first of the Patterson factors. He submitted that he has a substantial ground of defence because he is not personally liable in respect of the relevant debts. Rather, Okura Developments is solely liable.
1 Patterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 at 983.
2 Russell v Cox [1983] NZLR 654 (CA), at 659.
[10] I will consider each debt in turn. First, however, I will briefly discuss the legal principles relevant to determining the capacity in which Mr Hornsby signed the relevant agreements on which the claim is founded.
Determining the capacity in which a document was signed - legal principles
[11] A document does not necessarily have to be signed twice, once in a personal capacity and once on behalf of the company. If a person signs a document solely on behalf of a company, then only the company will be contractually liable, and not the individual.3 However, if a person signs a document in a dual capacity the company
will be bound as well as the individual personally.4 Determining the capacity in
which a person signs a document can therefore be critical to determining contractual liability. However, where there is a sole signature it can be difficult to establish if the signatory was acting in a sole or dual capacity.
[12] Whether a signatory intended to sign the document in a dual capacity (corporate and personal) must be determined objectively. A single signature, without more, will generally not be sufficient to establish an intention to sign in a dual capacity. In most cases it will be necessary to consider other evidence, either within the document or extrinsic to it, to establish the objective intention of the relevant signatory.
[13] In Doughty-Pratt Group Limited v Perry Castle5 two directors signed a lease agreement on behalf of the lessee company. The agreement contained a clause naming the directors as guarantors but they did not sign the agreement separately in that capacity. The directors had, however, hand written their names into the guarantee clause and initialled that clause. In addition they had orally confirmed that they accepted the role of guarantors. This evidence was sufficient to persuade the Court of Appeal that they had signed the lease agreement in a dual capacity, namely on behalf of the company (as lessee) and personally (as guarantor).
3 Doughty-Pratt Group Limited v Perry Castle [1995] 2 NZLR 398 (CA).
4 Young v Schuler (1883) 11 QBD 651 (CA); and Elpis Maritime Co Limited v Marti Chartering Co Inc; The Maria D [1992] 1 AC 21 at 28 – 31; [1991] 3 All ER 758 at 763.
5 Doughty-Pratt Group Limited v Perry Castle [1995] 2 NZLR 398 (CA).
[14] The evidence before the Court was not, however, sufficient to establish a dual capacity in Trotter v Avonmore Holdings Limited.6 In that case the directors signed a licence agreement on behalf of the licensing company. Their status as directors was clearly indicated next to their signatures. The licence agreement also included a shareholders’ guarantee clause. However, the directors (who were also shareholders) did not sign that clause when they executed the licence agreement.
The Court of Appeal held that there was no evidence to indicate that the directors had intended to sign the agreement in a dual capacity.
It is reasonably arguable that Okura Developments is solely liable for the default interest/rental shortfall debt?
[15] I now turn to consider whether it is reasonably arguable that Okura Developments is solely liable for the default interest/rental shortfall debt.
Factual background
[16] Mr Haines owned a commercial property at Riverhead (“Duke Street property”). On 1 September 2003 he leased that property to Amalgamated Building Limited (“Amalgamated Building”), a company associated with Mr Hornsby. The initial lease agreement was fairly informal (one page). It recorded the lessor as Mr Haines, the lessee as Amalgamated Building, and the guarantor as Mr Hornsby. The document was signed by Mr Haines and Mr Hornsby.
[17] Subsequently, on 30 September 2003, the parties entered into a formal deed of lease. That document was signed by Mr Haines as landlord, Mr Hornsby as tenant, and (separately) Mr Hornsby as guarantor. The terms of Mr Hornsby’s guarantee were set out in a third schedule to the lease.
[18] On 5 May 2004 Mr Haines sold the Duke Street property to Okura Developments, for $820,000. Mr Hornsby was a director and shareholder of Okura Developments. He signed the agreement for sale and purchase on behalf of that company.
6 Trotter v Avonmore Holdings Limited (2005) 8 NZBLC 101, 646 (CA).
[19] Okura Developments obtained finance to purchase the Duke Street property from Rice Craig Solicitors, as well as vendor finance from Mr Haines. Rice Craig’s loan of $510,000 was secured by way of a first mortgage over the property. Repayment of that loan was personally guaranteed by both Mr Haines and Mr Hornsby. Mr Haines’ vendor finance of $310,000 was secured by way of a second mortgage. The second mortgage was in the name of Mr Haines as mortgagee, Okura Developments as mortgagor and Mr Hornsby as covenantor. Mr Hornsby signed the mortgage twice, once as authorised signatory for Okura Developments and once as covenantor.
[20] A company associated with Mr Haines, Haines House Removals Limited (“Haines Limited”), remained in occupation of part of the Duke St Property pursuant to a lease. That lease agreement (one page) was signed by Mr Hornsby and Mr Haines on behalf of their respective companies.
[21] The monthly rental payable by Haines Limited to Okura Developments was
$2,359.95. The parties agreed to offset that rental against the monthly interest payable by Okura Developments to Mr Haines (personally) in respect of the vendor finance he had provided. However, the two amounts were unequal and over time a shortfall accumulated in favour of Mr Haines.
[22] Okura Developments defaulted on a principal payment due to Mr Haines. A Property Law Act Notice was served. However, agreement was reached on 3 July 2008 (“3 July 2008 Agreement”) resolving the parties differences and the Property Law Act Notice was withdrawn. The 3 July 2008 Agreement is the critical document relating to the default interest/rental shortfall debt. It is discussed in further detail at [24] to [30] below.
[23] Subsequently, in December 2008, the second mortgage was discharged. Mr Hornsby accordingly no longer has any liability as covenantor under that mortgage.
The 3 July 2008 Agreement
[24] Against this general background, I now turn to focus in particular on the 3 July 2008 Agreement. That agreement was apparently drafted by Mr Haines. It is less than a page in length, together with a one page schedule. It is headed:
Agreement made between Tucker Hornsby (Okura) and Rod Haines (Haines).
[25] The annexed schedule set out in one column the rent and other sums owing by Haines Limited to Okura Developments, which totalled $110,626.50. The other column set out the amounts owing by Okura Developments to Mr Haines totalling
$135,912.71 (this sum appears to primarily comprise interest). The difference between these two sums is $25,286.21. This is the “default interest/rental shortfall” debt.
[26] The 3 July 2008 Agreement was entered into against a background of prior discussions between the parties regarding the possibility of Mr Haines trading Okura Developments in order to utilise its tax losses. The parties agreed that Mr Haines would retain certain Okura Developments shares. If he was able to satisfactorily trade the company then “Hornsby” would not be required to pay the default interest/rental shortfall debt. However, if he was unable to trade Okura Developments “then the “$25,286.21 is to be paid to Haines within 12 months”. On this basis, the Property Law Act Notice was withdrawn
[27] The only reference in the 3 July 2008 Agreement to any personal guarantee on the part of either party is the following:
This agreement has been entered into on the basis that the second mortgage will be paid on or before the end of July and Haines accepts that he will provide a personal guarantee to Rice Craig for a limited period until that guarantee has been replaced by David Kimpton on his return from holiday.
[28] The 3 July 2008 Agreement was signed by both Mr Hornsby and Mr Haines, without any reference to the capacity in which they were signing it. The key issue is whether it is reasonably arguable that Mr Hornsby signed the document solely on behalf of Okura Developments. If it is, he will have a substantial defence.
[29] In my view it is far from clear whether Mr Hornsby was signing the 3 July 2008 Agreement solely in his capacity as a director of Okura Developments or in a dual corporate and personal capacity. Mr Hornsby advanced the following matters in support of his submission that he signed the agreement solely in a corporate capacity:
(a)The amounts owing, as set out in the schedule to the agreement, were debts of Okura Developments.
(b)The agreement does not expressly state that Mr Hornsby guarantees Okura Development’s payment of the sum of $25,286.21 due by it, whereas the parties did expressly refer to Mr Haines’ personal guarantee obligations.
(c)Mr Hornsby’s own evidence was that:
As I have previously stated I was acting throughout as a director of the Hornsby Group of companies and for those individual companies of which I was a director during that period. At no time did I act on my own behalf. I signed those documents which have been produced in this proceeding as a director of the relevant companies concerned.
(I give this evidence relatively little weight, however, given that the assessment of his intention when signing the agreement must be viewed objectively.)
(d)In previous dealings between the parties where personal guarantees were required, these were clearly identified in the relevant documentation. If it were intended that Mr Hornsby was to personally guarantee the obligations of Okura Developments under the 3 July 2008 agreement it is arguable that this would have been be made clear on the face of the documents.
(e)Mr Hornsby has not signed the document separately as a guarantor.
(f)The history of previous dealings between the parties demonstrates that where agreements were drafted by the parties themselves, without the benefit of legal advice, it was not unusual for personal names to be used as a form of “shorthand” for the relevant corporate entity.
[30] There are also a number of arguments that can be advanced to the contrary. However, for present purposes my role is not to determine the capacity in which Mr Hornsby signed the 3 July 2008 Agreement. The issue is solely whether it is reasonably arguable that Mr Hornsby signed it solely in a corporate capacity. In my view it is. It is certainly not clear on the face of the document whether Mr Hornsby signed it in a sole (corporate) or dual (corporate and personal) capacity. Nor does the extrinsic evidence put this issue beyond doubt. The evidence appears to be equivocal and open to differing interpretations. It will need to be tested at trial.
[31] Mr Hornsby has accordingly established that he has a substantial defence in relation to this aspect of the default judgment.
Is it reasonably arguable that Okura Developments is solely liable for the property purchase/price reduction debt?
[32] I now turn to consider whether it is reasonably arguable that Okura Developments is solely liable for the property purchase/price reduction debt.
Factual background
[33] The market valuation of the Duke St Property was $850,000. However, the price was reduced by $30,000 for reasons which appear to relate to the discussions between Mr Hornsby and Mr Haines as to the possibility of Mr Haines utilising the Hornsby Group’s tax losses. Ultimately, however, Mr Haines elected not to proceed with this. Mr Haines’s position, therefore, was that the $30,000 Duke Street property purchase price reduction remained a debt owed to him in relation to the purchase of the Duke St Property.
The 14 August 2008 Agreement
[34] The 14 August 2008 Agreement was also drafted by Mr Haines. It refers to the 3 July 2008 agreement and “sets out and records amendments to that agreement”. The essence of the 14 August 2008 Agreement was that if Mr Haines did not wish to trade Okura Developments (and utilise its tax losses) then the $30,000 purchase price reduction would be payable on or before 5 May 2009, with interest. The 14 August 2008 Agreement is a one page document. It is headed as follows:
TUCKER HORNSBY – OKURA DEVELOPMENTS LTD – RD HAINES
[35] The document contains several references to “Tucker” (Mr Hornsby). For example it states that:
Any rent that is due to Tucker from the storage of houses to be deducted from this amount on a regular basis.
[36] However, this reference to “Tucker” is presumably a reference to Okura Developments, as no rent was due to Mr Hornsby personally. The relevant lease agreement was between Haines Limited and Okura Developments.
[37] Again, it is far from clear on the face of the 14 August 2008 Agreement whether Mr Hornsby signed it in a sole (corporate) or dual (corporate and personal) capacity. The surrounding circumstances, including the history of contractual dealings between the parties, are open to differing interpretations. The matters outlined at [29](c) – (f) above apply equally to the 14 August 2008 Agreement. References to “Tucker” may (or may not) be shorthand for Okura Developments. There is no direct reference in the agreement to Mr Hornsby guaranteeing Okura Developments’ obligations under the agreement, although it may be implicit from the overall dealings between the parties.
[38] Taking all of these contextual matters into account, in my view it is at least arguable that Mr Hornsby signed the 14 August 2008 Agreement solely on behalf of Okura Developments. I therefore conclude that Mr Hornsby also has a substantial defence in relation to the property/purchase price reduction debt.
default judgment being set aside.
The default interest/rental shortfall debt – alleged calculation error
[40] For completeness, I note that Mr Hornsby also submitted that there was an error in the calculation of the default interest/rental shortfall debt. In particular he alleged that payments totalling $9,000 had not been factored into the calculation of that debt.
[41] Mr Haines deposed that these sums were accounted for in the relevant calculations. Further, the amount recorded in the default judgment matches the amount set out in the notice of claim, which took the relevant payments into account. Based on that evidence it appears likely that Mr Hornsby has misunderstood the position and that credit has indeed been given for the relevant payments.
[42] I do not, however, have a copy of the notice of claim. The default judgment does not break down the individual components of the judgment debt. Given that the matter is entirely one of evidence, and there will need to be a further hearing in the District Court in any event, it is obviously appropriate that the precise quantification of any sums owing be determined in that forum.
Result
[43] I have found that Mr Hornsby has substantial defences in relation to both limbs of the judgment debt. It is accordingly in the interests of justice that the default judgment be set aside. I note again, however, that the defences I have found to be arguable were not advanced before Judge Taumaunu in any meaningful way. Accordingly, any failure to address such issues in his Honour’s judgment is attributable to counsel, not the Judge. The Judge appears to have fully and fairly addressed the matters argued before him.
[44] The District Court default judgment of 3 November 2011 is set aside.
Katz J