Jaques v Crazy Town Limited (in liquidation)
[2014] NZHC 718
•9 April 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-9010 [2014] NZHC 718
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of Mirusia Jaques
BETWEEN
MIRUSIA JAQUES Applicant
AND
CRAZY TOWN LIMITED (IN LIQUIDATION)
Respondent
Hearing: 25 March 2014 Counsel:
N J Davis for applicant
J R Sumner for respondentJudgment:
9 April 2014
RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH
Contents
The District Court Judgment ....................................................................................................................[2] The Application to Set Aside the Bankruptcy Notice ..............................................................................[6] Negotiations leading to the claimed accord and satisfaction ..................................................................[7] The Claimed “Accord” – the April emails .............................................................................................[26] Mr Jaques’ Authority to Negotiate .........................................................................................................[28] The Respondent’s Opposition .................................................................................................................[30] The Applicant’s Evidence in Reply .........................................................................................................[39] Discussion .................................................................................................................................................[45] Did Mr Jaques enter into the agreement recorded in the April emails as agent for the applicant? ......[51] The interpretation of the contract in the 17 April emails ......................................................................[58] Order.........................................................................................................................................................[69] Costs ..........................................................................................................................................................[70]
JAQUES v CRAZY TOWN LTD (IN LIQ) [2014] NZHC 718 [9 April 2014]
[1] This is an application to set aside a bankruptcy notice issued on 14 November
2013.
The District Court Judgment
[2] The respondent (Crazy Town) obtained judgment against the applicant and her husband (Mr Jaques) in the District Court at Wellington on 18 December 2012.1
The applicant and Mr Jaques were held jointly and severally liable to Crazy Town in the sum of $55,797.95, and Mr Jaques was held to be separately liable to for the sum of $8,184.55. In a subsequent judgment on costs dated 26 June 2013, the applicant and Mr Jaques were held jointly and severally liable for an additional sum of
$23,757.81 (including disbursements).2
[3] The judgment in the District Court followed a trial held in July 2012. In his reserved judgment of 18 December 2012, Judge T J Broadmore outlined the broad nature of the dispute in the following terms:3
[1] In this proceeding the liquidators of the plaintiff, Crazy Town Limited, seek to recover from the defendants sums totalling $67,482.50. The defendants were formerly, but at different times, directors and shareholders of Crazy Town. The liquidators assert that the defendants had money from the company, which in the circumstances should be treated as loans repayable on demand. The defendants argue that they are not obliged to repay any amount to the company, because the money they received was used either for the purposes of the company or in payment of wages properly due to them. And further that they made payments from their private moneys for the purposes of the company which they are entitled to set off against any liability they might otherwise have.
[2] The defendants are husband and wife. Although part of the liquidators’ claim is against Mrs Jaques, it is clear that the company was essentially managed by Mr Jaques with Mrs Jaques having little knowledge of what was going on, much less exercising any decision-making power. Whether in the circumstances Mr Jaques should jointly be liable with Mrs Jaques for any sum which may be found to be due from her is also an issue to be resolved. Without objection either from me or from counsel for the company, Mr Jaques conducted the case both for himself and Mrs Jaques.
1 Crazy Town Ltd (in liq) v Jaques DC Wellington CIV-2011-085-449, 18 December 2012.
2 Crazy Town Ltd (in liq) v Jaques DC Wellington CIV-2011-085-449, 26 June 2013.
3 Crazy Town Ltd (in liq) v Jaques, above n 1, at [1]–[2].
[4] The Judge noted that Crazy Town was put into liquidation in 2008 on the application of the Inland Revenue Department and that following the liquidation Mr Jaques never made good on various promises made to the liquidators.
[5] The District Court Judge expressed the view that the circumstances were such that the applicant would be entitled to claim an indemnity from Mr Jaques in respect of any money which she might be required to repay the liquidators.4 That was because it was he who made all the decisions and implemented all the arrangements to enable her to receive from Crazy Town monies and other benefits, recovery of which was sought by the liquidators. The circumstances were held to disclose an
implied contract between the applicant and Mr Jaques, under which the applicant’s acceptance of the office of director was in consideration of Mr Jaques making the arrangements described. The District Court Judge took the view that it was an implied term of an arrangement of that kind that both Mr Jaques might properly make the arrangements, and that the applicant could assume that the benefits she received from the arrangements were genuine and that she was entitled to receive them. Nevertheless, the District Court Judge concluded that the absence of any personal fault on the part of the applicant was irrelevant, given her position as a director of Crazy Town. She was held liable to the liquidators accordingly.
The Application to Set Aside the Bankruptcy Notice
[6] The application to set aside the bankruptcy notice was filed on 2 December
2013. Unlike many such applications, it was not based on any claimed counterclaim, set-off or cross-claim against the respondents. Rather, the application was based on an alleged accord and satisfaction arising out of certain arrangements recorded in email communications made in April 2013 between Mr Jaques and Crazy Town. The application to set aside pleaded that the District Court judgment had been settled on particular terms, and payment made in accordance with those terms. On that basis, the applicant contends that when the bankruptcy notice was issued in November 2013, Crazy Town was no longer a creditor and the applicant was no longer a debtor. The issue of the bankruptcy notice is said to have been an abuse of
the process of the Court.
4 At [95].
Negotiations leading to the claimed accord and satisfaction
[7] The application was supported by affidavits sworn by the applicant and by
Mr Jaques. In his affidavit, Mr Jaques said that following the judgment in December
2012, he received an email from Crazy Town’s solicitors attaching a sealed copy of the judgment and stating that costs would be dealt with in the New Year. Crazy Town’s solicitors sought payment of the judgment sum in full, together with indemnity costs. The applicant and Mr Jaques were given until Tuesday, 22 January
2013 to make payment.
[8] The letter from Crazy Town’s solicitors was sent to Mr Jaques, and to a solicitor then acting for the applicant in family law matters (the applicant and Mr Jaques had separated in 2012).
[9] Mr Jaques replied on 21 December 2012, advising that he was not in a position to make one payment of $63,982.50 in January. However, he indicated that he had funds becoming available prior to 31 March 2013 from trading from his business, although those funds would not be sufficient to meet the judgment debt. He proposed to make payments on account of $384.62 per week for the first
52 weeks; that would remove $20,000 from the debt. Mr Jaques advised that enforcement action would not be required, as it was his intention to put every effort into working with Crazy Town to bring the matter to a conclusion.
[10] Mr Jaques received an out-of-office reply from Crazy Town’s solicitors, but went ahead anyway and made three payments of $384.62 over the holiday period. Those payments were acknowledged by Crazy Town’s solicitors by email to Mr Jaques dated 16 January 2013. Crazy Town’s solicitors noted that their receipt of the payments did not constitute agreement by their client to the payment proposal – the payments were accepted “in reduction of our client’s judgment against you and Mrs Jaques”.
[11] Crazy Town’s solicitors replied in substance to Mr Jaques’ proposal for time payments, by email dated 23 January 2013. Mr Jaques’ proposal was rejected, and the solicitors notified Mr Jaques that Crazy Town required payment of at least
$50,000 by 20 February 2013, together with the weekly payment of $384.62. If the
lump sum payment was not made by 20 February 2013, Crazy Town would issue bankruptcy proceedings against “you” without further notice. Mr Jaques was required to complete and have sworn a statement of his financial means, and forward that to Crazy Town’s solicitors with his confirmation of agreement to Crazy Town’s proposal. The 23 January 2013 email from Crazy Town’s solicitors was sent to Mr Jaques only; it was not sent to the applicant.
[12] Mr Jaques sent a further email to Crazy Town’s solicitors on 20 February
2013. In it, he said that he had been unsuccessful in raising the required deposit of
$50,000. He explained that his only asset was his business, and that the business was currently part of a personal property separation matter with the applicant. He advised Crazy Town that he and the applicant had separated on 23 June 2011, and had not been able to complete a settlement of their affairs, due in part to Crazy Town’s case against them in the District Court. Mr Jaques said that he had not had permission to use his business as security for a loan of $50,000, and that had made it impossible for him to obtain funding to settle the judgment debt. Mr Jaques went on to advise that he had the applicant’s permission to sell his business, and had it listed with a firm of Auckland business brokers. The sale price was reckoned to be between $1 million and $1.5 million, and Mr Jaques said that he would instruct his lawyers to pay Crazy Town first from the proceeds.
[13] Mr Jaques concluded his 20 February 2013 email to Crazy Town’s solicitors
by saying:
Please could you confirm that this is satisfactory to settle the debt owed by
Mirusia and myself.
[14] Crazy Town’s solicitors replied by email to Mr Jaques on 27 February 2013. The email was not copied to the applicant. Crazy Town’s solicitors advised that they had taken instructions from Crazy Town, and that “before our clients can agree to your proposal” Crazy Town would require certain further information (a valuation report on Mr Jaques’ business confirming its value, and a letter from Mr Jaques’ accountants confirming when the financials for the business would be made available to the brokers). Mr Jaques was required to provide that information by
5 pm on 6 March 2013.
[15] Mr Jaques stated in his affidavit that it was necessary from the perspective of the applicant and himself that any settlement agreement was full and final, as funds would have to be borrowed to pay the claim. He said that it was also necessary to confirm the settlement debt to allow Mr Jaques and the applicant to reach a settlement of their relationship property issues.
[16] Mr Jaques replied to Crazy Town’s solicitors on 8 March 2013. He explained that he had been waiting for his accountants to complete some work relating to the annual accounts for the 2012 financial year. He said that he had not been successful in securing the services of the expert valuer he had in mind, because the accounts for his business were still not complete. He did, however, provide an asset list which would be included in the sale of the business, and invited Crazy Town’s solicitors to conclude that there would be sufficient value in the business to cover Crazy Town’s debt when the business was sold.
[17] On 13 March 2013, Crazy Town’s solicitors sent a letter to Ms Cheer, the solicitor acting for the applicant in her relationship property dispute with Mr Jaques. The letter began with the words “Please find enclosed a copy of a letter sent today to Mr Jaques for your information.” It went on to advise that Crazy Town’s instructions were to issue a bankruptcy notice against the applicant if the documentation requested in the enclosed letter to Mr Jaques was not received from him by 31 March 2013. A draft bankruptcy notice addressed to the applicant was enclosed, setting out a total claim against her of $60,806.44 plus costs and disbursements.
[18] Crazy Town’s solicitors concluded that their letter to Ms Cheer by saying:
We trust that this course of action will not be necessary and your client can assist in ensuring the sale of [Mr Jaques’ business] is progressed and the documentation requested is provided to our clients without any further delay.
[19] The letter to Mr Jaques which was copied to Ms Cheer was also dated 13
March 2013. It advised Mr Jaques that Crazy Town was agreeable to providing him with one final extension until 5.00 pm on 31 March 2013, to provide a number of
documents.5 Crazy Town’s solicitors also required payment of the sum of $15,000 towards the judgment on or before 31 March 2013. They advised Mr Jaques that if the requested documentation in payment was not received by 31 March 2013, their instructions were to issue and serve a bankruptcy notice without further notice to him.
[20] The letters dated 13 March 2013 from Crazy Town’ solicitors to Ms Cheer and to Mr Jaques were both marked “without prejudice save as to costs”. There was no objection to their production at the hearing on 25 March 2014.
[21] On 15 March 2013, Ms Cheer asked Crazy Town’s solicitors to confirm that they had copied their 13 March email to Ms Cheer, to Mr Jaques. Ms Cheer also advised that she understood that Mr Jaques was living in Lower Hutt. She asked if Crazy Town wanted his address, and went on to say that “as you are aware Mirusia has no control, or input, into the business”. Ms Cheer advised that the applicant had issued proceedings in the Lower Hutt Family Court seeking orders relating to relationship property, and said “that is all she can do to progress matters between herself and [Mr Jaques]”.
[22] Ms Cheer advised that, as part of the relationship property application, she had included Crazy Town as a debt to be repaid immediately upon sale (presumably a reference to the proposed sale of Mr Jaques’ business). She concluded by saying that, in her view, it would hardly be just to bankrupt the applicant when she had done all she could, and was also a victim of Mr Jaques. Bankruptcy proceedings against the applicant would not achieve any payment for Crazy Town. She advised Crazy Town’s solicitors that “it is Keith Jaques who you need to pursue vigorously”.
[23] There was a subsequent email from Crazy Town’s solicitors to Ms Cheer, dated 18 March 2013, in which the solicitors requested details of Mr Jaques’ current address. Ms Cheer responded by email dated 9 April 2013 advising that the applicant had had no direct contact with Mr Jaques, and did not know whether he
was still at his former address. She went on to advise that Mr Jaques was working in
5 Those documents included a copy of the completed accounts for Mr Jaques’ business, and a copy
of the valuation report for that business.
the Wellington area, so it was possible that he might be at his former address. Ms Cheer also passed on the name of Mr Jaques’ lawyer acting in the family law proceeding.
[24] The next step was an email from Mr Jaques to Crazy Town’s solicitors dated
16 April 2013. In this email, Mr Jaques advised as follows:
Further to my last email I have [sic] made sought finance and rallied around family and friends and ask you to put the following settlement offer to your client:
$50,000 payable $25,000 now and $25,000 seven days after.
[25] Mr Jaques advised that, since his last email, he had been advised by the business broker and accountant that his business would not sell at the expected level, as it had been run too much as a cash business in the past. GST and tax issues had also apparently come to the surface. Mr Jaques concluded his email by asking:
Would you please advise if this matter is able to be settled or if it needs to go the whole distance.
The Claimed “Accord” – the April emails
[26] Crazy Town’s solicitors replied on 17 April 2013 in the following terms:
Dear Mr Jaques,
Thank you for your email yesterday. We confirm that we have taken our
clients’ instructions with respect to your offer and advise as follows:
Albeit that our clients are entitled to the full judgment sum (plus interest), they are willing to accept payment of $50,000.00 (by way of one payment on or before 24 April 2013) in satisfaction of your liability arising out of Judge Broadmore’s decision of 19 December 2013.
As you are aware, we are still currently awaiting Judge Broadmore’s decision with respect to costs. Our clients instruct us that they would be willing to accept payment of 72% of any amount of costs awarded to them by the Court (for example, if the Court awards $20,000.00, you pay our clients $14,400.00). This concession is subject to our clients receiving payment within 14 days of receipt of Judge Broadmore’s decision.
We confirm that these two payments will satisfy your liability to our clients arising out of the Court proceedings (CIV-2011-085-449).
Please confirm your agreement to our clients’ above proposal by 5pm
tomorrow.
[27] Mr Jaques replied the same day saying that he was in agreement with the proposal from Crazy Town, and would arrange a bank transfer for the $50,000.
Mr Jaques’ Authority to Negotiate
[28] Mr Jaques stated in his affidavit that he had the applicant’s authority to negotiate, and had always been negotiating with Crazy Town on behalf of both himself and the applicant. He said that he would not have accepted the settlement just for himself and not for the applicant, as at that stage he and the applicant were negotiating a relationship property settlement and all debts were being negotiated and distributed. As he put it in his affidavit:
It would make no sense for me to negotiate settlement for my half if Mirusia was left out of the settlement, as it would still form part of our relationship debt which would need to be determined and settled.
[29] In her affidavit, the applicant acknowledged that she appeared at the Court hearing in the District Court with Mr Jaques, but said that she let him represent her and deal with the matter. She stated that the liquidators knew that she had let Mr Jaques do the talking and represent both her and her husband regarding the matter. Following the judgment in the District Court, the applicant’s evidence was that she left Mr Jaques to deal with the liquidators. She said that Mr Jaques subsequently provided her with a copy of the email from Crazy Town’s solicitors setting out the settlement arrangement. She said that she trusted that the matter had then been finalised.
The Respondent’s Opposition
[30] The application to set aside the bankruptcy notice is opposed by Crazy Town. In essence, Crazy Town says that the agreement reached with Mr Jaques in April
2013 was an agreement to settle only with Mr Jaques: there was no settlement with the applicant. Crazy Town also challenges Mr Jaques’ authority to negotiate any settlement on behalf of the applicant. The claim to a settlement of the applicant’s liability by accord and satisfaction is denied. Crazy Town contends that, as the judgment was not fully settled, and the applicant has not paid anything towards the
judgment debt, there is nothing to prevent Crazy Town from pursuing her for the balance of the judgment for which she is jointly and severally liable. Crazy Town denies any abuse of process.
[31] There was one affidavit filed in opposition to the application, being the affidavit of Ms Louise Craig, a manager working in the recovery team at Deloitte. Ms Craig had been involved assisting the liquidators in the conduct of the liquidation of Crazy Town, including the proceeding taken by the liquidators in the Wellington District Court against the applicant and Mr Jaques.
[32] In respect of the chain of email correspondence between Mr Jaques and Crazy Town’s solicitors in the period December 2012 to April 2013, Ms Craig pointed out that, at the time of the February emails, Mr Jaques’ proposal was for repayment of the judgment debt in full, from the proceeds of sale of his company. She said that in those circumstances, it was immaterial to Crazy Town whether Mr Jaques was negotiating for both himself and the applicant, or solely on his own behalf.
[33] Following the agreement reached in the email correspondence of 17 April
2013, Ms Craig confirmed that the liquidators of Crazy Town received the following payments from Mr Jaques:
(a) $48,800 on 23 April 2013; (b) $1,200 on 26 April 2013;
(c) $15,641.74 on 14 June 2013.
[34] Allowing for those repayments and the three payments of $384.62 made by Mr Jaques over the 2012/2013 holiday period, and allocating $8,184.55 of the total amount paid to that part of the judgment for which Mr Jaques was solely liable, Ms Craig calculated a shortfall in the total judgment debt (including costs and disbursements) of $22,098.71.
[35] Ms Craig described in her affidavit an approach made by the liquidators’ solicitors to Ms Cheer on 4 July 2013. Demand was then made of the applicant (via Ms Cheer) for the sum of $23,471.99. A follow-up letter was sent on 14 August
2013, and Ms Cheer responded on 15 August 2013. In her 15 August email, Ms Cheer advised that Mr Jaques had told her that he had negotiated a full and final settlement on behalf of both himself and Mrs Jaques. Ms Cheer suggested that, given the lack of clarity about the terms of accepting the sums from Mr Jaques, Crazy Town had had its full settlement.
[36] By 26 September 2013 the applicant had instructed separate solicitors to represent her in respect of the claim made against her by Crazy Town. By letter dated 26 September 2013, these solicitors advised Crazy Town’s solicitors of their view that Mr Jaques had settled both the core debt and agreed costs, both in respect of himself and the applicant.
[37] Further correspondence passed between Crazy Town’s solicitors and the
applicant’s new solicitors, but no resolution was reached.
[38] In her affidavit Ms Craig responded to each of the affidavits made by the applicant and Mr Jaques. Much of this part of Ms Craig’s affidavit appears to consist of argument rather than evidence, but I note the following:
(a) Ms Craig said that any “understanding” between the applicant and Mr Jaques as to the remaining sums owed to the liquidators, was not conveyed to the liquidators.
(b)Ms Craig contended that, by the date of Ms Craig’s affidavit, Mr Jaques had not provided any evidence supporting his claim that he had authority to negotiate on the applicant’s behalf (as well as for himself). Ms Craig asserted that neither Mr Jaques nor the applicant ever conveyed to Crazy Town that Mr Jaques was negotiating settlement on behalf of the applicant.
The Applicant’s Evidence in Reply
[39] There was one affidavit filed in reply, being an affidavit of the applicant sworn on 12 March 2014. In the affidavit, the applicant confirmed that she had authorised Mr Jaques to act for her regarding all matters to do with the liquidation. As she put it: “I also authorised and relied on Keith to sort out the judgment debt”. She said that she had had no contact with Crazy Town regarding the judgment debt, except for an email dated 21 December 2012, until Crazy Town’s solicitors contacted Ms Cheer.
[40] The applicant stated in her reply affidavit that she and Mr Jaques talked about what was happening, and she said that he gave her updates about how things were going with sorting out the judgment. They had less contact than before, because they were separated, but her evidence was that Mr Jaques would still call or email her. In support of that evidence, she produced a copy of an email from Mr Jaques dated
23 December 2012, in which Mr Jaques set out, apparently at the applicant’s request, his outline plan for sorting out the payment of the Crazy Town debt. He asked the applicant to take some time to think about it, so they could discuss some options at a later time. Mr Jaques noted that the Crazy Town debt was to be paid by himself and the applicant personally, and that the liquidators of Crazy Town would likely request that the applicant and he complete a “means test” form before deciding whether to accept “my proposal”.
[41] In his 23 December email to the applicant, Mr Jaques advised her that he had started weekly payments of $384.62. He said that he was not wanting to raise a loan, and in any event it was not likely that he could get one. In the event of the business being sold, Mr Jaques anticipated that Crazy Town would want to be paid first from the proceeds of the sale, and the applicant would be required to agree with any such request. He concluded his email by asking the applicant to give some thought as to how much she might be prepared to pay on a weekly basis “towards your side of the debt”.
[42] The second document attached to the applicant’s reply affidavit was an email
from Mr Jaques to the applicant (copied to Ms Cheer) dated 3 April 2013, attaching a
copy of the submission he had prepared relating to the issue of costs in the District Court. The submission was signed by Mr Jaques “for First & Second Defendants” (in other words, for Mr Jaques and the applicant).
[43] The text of the costs submission left no room for doubt that the document was written for and on behalf of both the applicant and Mr Jaques.6
[44] In addition to copying the costs submission to the applicant on 3 April 2013, Mr Jaques told the applicant that he was:
… preparing to obtain a loan in April of $80,000 to settle the [Crazy Town] debt. I feel that this is the best course of action as it takes great pressure away from our current situation.
Discussion
[45] I am satisfied that if the applicant has made out her defence of accord and satisfaction, the bankruptcy notice should be set aside. Clearly that defence did not exist at the time of the District Court judgment, and if the defence is made out, Crazy Town could not have been a “creditor” of the applicant when it issued the bankruptcy notice in November 2013. And the applicant would not then have been a “debtor”. In those circumstances, I have no doubt that the Court could exercise the inherent
jurisdiction to set aside a bankruptcy notice, as discussed in Re Wise.7 The Court’s
inherent jurisdiction in this context is available to control any abuse of process, and the grounds on which that jurisdiction may be exercised extend to any circumstances where the Court feels it necessary to intervene to prevent injustice.
[46] Accord and satisfaction has been judicially defined as follows:8
Accord and satisfaction is the purchase of a release from an obligation, whether arising under contract or tort, by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
6 For example, at [9] the submission concluded “having failed to make out their defence at the hearing the defendants accept they must be liable for costs, but submit this should be at the 1b level”.
7 Re Wise HC Auckland B227/95, 21 June 1995.
8 British Russian Gazette Ltd v Associated Newspapers Ltd [1933] 2 KB 616 (CA) at 643-644; John Burrows, Jeremy Finn & Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [19.2.2].
[47] In this case, the claimed “accord” is said to be found in the two emails which passed between Mr Jaques and Crazy Town on 17 April 2013 (the April emails). The “satisfaction” is said to reside in the payments subsequently made by Mr Jaques to Crazy Town. The principal question for determination on the application is whether the agreement recorded in the 17 April emails was intended to discharge both debtors’ liability to Crazy Town, or only Mr Jaques’ liability.
[48] To answer that question, it is necessary to consider the following subsidiary questions:
(1)Did Mr Jaques enter into the agreement evidenced by the April emails as agent for the applicant, as well as on his own behalf, such that Crazy Town should be taken as having contracted with both the applicant and Mr Jaques?
(2)If the answer to Question (1) above is “yes”, what is the correct interpretation to be put on the April emails? Are they to be taken as having been intended to effect a settlement of the entire District Court judgment, or only Mr Jaques’ liability under that judgment?
(3)If the answer to Question (2) above is that the agreement evidenced by the April emails, properly construed, was an agreement to settle the applicant’s liability under the judgment (as well as that of Mr Jaques), but Mr Jaques was not acting as the agent of the applicant in making the agreement, can the applicant nevertheless claim the benefit of the agreement under s 4 of the Contracts (Privity) Act
1982?
[49] There may have been a further issue as to whether there was sufficient consideration to support the settlement agreement evidenced by the April emails, but I did not understand Crazy Town to be contending on this application that the agreement it made with Mr Jaques is not binding on it (so that it would be entitled to pursue Mr Jaques, as well as the applicant, for the balance of the judgment). Rather,
the argument was put on the basis that the applicant having contributed nothing to the settlement, she should not be allowed to claim the benefit of it.
[50] On that point, it seems to me that if the applicant was a party to the agreement set out in the April emails, and the agreement was intended to effect a settlement of Crazy Town’s claims against both the applicant and Mr Jaques, it cannot matter that the applicant did not contribute to the payments subsequently made in “satisfaction” by Mr Jaques: if the “accord” involved an agreement to accept a particular sum of money in full satisfaction of the liability of both the applicant and Mr Jaques under the judgment (on payment of a certain amount of money), then payment of that amount of money must be enough, on its own, to constitute “satisfaction”.
Did Mr Jaques enter into the agreement recorded in the April emails as agent for the applicant?
[51] In my view, the weight of the evidence establishes that he probably did.
[52] Both the applicant and Mr Jaques say in their affidavits that Mr Jaques had full authority from the applicant to “sort out” the debt the two of them owed to Crazy Town. While counsel for Crazy Town submitted that it would be unsafe to accept the word of the applicant and Mr Jaques on that issue, it seems to me that the supporting documents do tend to support them on this point. First, the District Court judgment makes it clear that Mr Jaques acted throughout the hearing in the District Court on
behalf of both himself and the applicant.9 Then, shortly after the judgment was
delivered in the District Court in December 2012, Mr Jaques emailed the applicant outlining his plan to “sort the payment of the Deloittes debt”. He set out for the applicant his proposed strategy, and thereafter proceeded to negotiate with the solicitors for Crazy Town to resolve the debt for the benefit of both himself and the applicant. For example, Mr Jaques’ 20 February 2013 email made it clear that he was putting forward a proposition on behalf of both himself and the applicant, and as late as 3 April 2013 Mr Jaques was reporting to the applicant and Ms Cheer that he
was preparing to obtain a loan in April of $80,000 to settle the (entire) debt due to
9 Crazy Town Ltd (in liq) v Jaques, above n 1, at [2].
Crazy Town. In that email, Mr Jaques expressed the view that that would be the best course of action, as it would take great pressure away from “our current situation”.
[53] In short, I think the evidence shows that Mr Jaques was authorised to, and did, attempt to negotiate a settlement with Crazy Town which would effect the complete release of himself and the applicant from any further liability under the District Court judgment. If the applicant authorised Mr Jaques to endeavour to negotiate full settlement of the judgment with Crazy Town (on the basis that she would not be required to make any contribution), as I find that she did, his authority must have extended to the ability to negotiate a release (for both debtors) for any lesser sum than that which was owing under the judgments.
[54] Accordingly, I find that Mr Jaques had actual authority from the applicant to negotiate a settlement of the entire judgment debt on the basis that the applicant would not be required to contribute to the settlement.
[55] Once that point is reached, it seems to me that it is immaterial whether the fact of that authority was conveyed to Crazy Town or its solicitors. Under the undisclosed principal doctrine, either the agent or the principal (when discovered) may be sued, and either the agent or the principal may sue the other party to the
contract.10 A principal may disclose his or her existence and may maintain an action
against the person with whom his or her agent contracted.
[56] The authors of Burrows, Finn & Todd cite two limitations to the right of action possessed by the undisclosed principal. First, the authority of the agent to act for the principal must have existed at the time of the contract. In this case, I find that it did. Secondly, if the contract, expressly or by implication, shows that it is to be confined in its operation to the negotiating parties themselves, the possibility of agency is negatived, and no one else can intervene as principal.11 Whether this was
the intention of the parties is said to be a matter of construction.
10 See John Burrows, Jeremy Finn & Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [16.3.2], citing Fairlie v Fenton (1870) LR 5 Exch 169.
11 West v Dillicar [1921] NZLR 617 (SC) at 629; Siu Yin Kwan v Eastern Insurance Co Ltd [1994]
2 AC 199 (PC) at 207 and Shogun Finance Ltd v Hudson [2004] 1 All ER 215 (HL) at [159].
[57] Once the existence of an actual agency authority is established then, the issue becomes one of interpretation of the contract, and whether on its true construction the parties intended that anyone additional to Mr Jaques could take the benefits provided for in the contract.
The interpretation of the contract in the 17 April emails
[58] As a preliminary matter, I note that this is not a case where any part of the negotiations took place orally: there were no relevant meetings or telephone conversations between Mr Jaques or the applicant on the one hand, and Crazy Town or its solicitors on the other. There was simply a written agreement, consisting of the April emails.
[59] The leading New Zealand authority on the interpretation of written contracts is the decision of the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd.12
See too, Boat Park Ltd v Hutchinson.13 The ultimate question is what meaning the
words of the contract would convey to a reasonable person.
[60] In Vector Gas, Tipping J said that the objective approach to interpretation which is required does not place any embargo on going outside the terms of the written document 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 may not, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean.14
[61] In the earlier case of Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd McGechan J, delivering the judgment of the Court of Appeal, said:15
The best start to understanding a document is to read the words used, and to ascertain their natural and ordinary meaning in the context of the document as a whole. One then looks to the background – to “surrounding circumstances” – to cross-check whether some other or modified meaning was intended. Apart from matters of previous negotiation, and matters of purely subjective intention as to meaning, both excluded on policy grounds,
12 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
13 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA).
14 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 12, at [22] per Tipping J, [64] per McGrath J
and [4] per Blanchard J.
15 Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [2001] NZAR 789 (CA) at [29].
one looks at everything logically relevant. At some extremes, background can be compelling. If background shows natural and ordinary meaning flouts common-sense, natural and ordinary meaning very probably must give way.
[62] The extent to which pre-contractual negotiations can be considered as part of that “background”, or those “surrounding circumstances”, was addressed by the Supreme Court in Vector Gas. While the members of the Supreme Court did not adopt any uniform approach on the issue, Blanchard J, with whom Gault J agreed, considered that prior negotiations could be called in aid to establish background facts which were known to both parties, and also to establish the “subject matter” of the contract. Tipping J would allow evidence of pre-contractual negotiations to the extent that they showed objectively the meaning the parties intended their words to convey (a different matter from the parties’ subjective stances taken in the negotiations).
[63] I think it is clear enough from the judgments of Blanchard and Gault JJ, and from that of Tipping J, that prior negotiations between the parties can be looked at to establish background facts known to both parties, and also to establish the purpose, or subject matter, of the contract, all with a view to shedding light on the meaning the parties must be taken to have intended their words to convey. In this case, I take the relevant “subject matter”, to include exactly what Crazy Town and Mr Jaques considered that they were settling. Was it “what will be required to satisfy the liability of both debtors under the District Court judgment?”, or “what will be required to settle the liability of Mr Jaques alone?”?
[64] Following the approach proposed by McGechan J in Pyne Gould Guinness, it seems to me that the first question is to ask “what is the natural and ordinary meaning of the words ‘in satisfaction of your liability’ in the second paragraph of the email from Crazy Town’s solicitors dated 17 April 2013?” The same issue arises in respect of the expression “will satisfy your liability to our clients …” in the penultimate paragraph of the email.
[65] In the ordinary course, one might expect the word “your” to refer to the addressee of the particular communication, in this case Mr Jaques alone. On the other hand, Crazy Town’s solicitors said in the third paragraph of the email that their
client “would be willing to accept payment of 72% of any amount of costs awarded to them by the Court …”. The focus of these words was not on who would be doing the paying, but on what Crazy Town would be receiving, namely 72 per cent of a costs award which Mr Jaques and Crazy Town would have expected to be made against the applicant and Mr Jaques jointly and severally, as had been the case with the substantive judgment in the District Court. The subsequent reference in the email to a “concession’ tends to suggest that Crazy town’s proposal contemplated that it would receive less than the full amounts due to it, something which is not easy to reconcile with its present claim that the settlement with Mr Jaques was only with him, and that it was free to pursue the applicant for the balance.
[66] Turning to the background of the April emails, I note the following:
(a) The starting point must be the District Court proceeding and judgment, in which Mr Jaques conducted the case on behalf of the applicant and himself and the District Court Judge expressed the view that the applicant would probably be entitled to look to Mr Jaques for indemnity in respect of her liability under the judgment. Crazy Town was aware from that point on that Mr Jaques was likely to be speaking on behalf of both the applicant and himself, and that remained the position through until early April 2013 when Mr Jaques signed a costs submission on behalf of the applicant and himself.
(b)By 17 April 2013, Crazy Town was aware of the relationship property proceeding between the applicant and Mr Jaques. Particularly in light of the District Court Judge’s indication that the applicant could be entitled to a complete indemnity from Mr Jaques. Crazy Town and Mr Jaques were both aware by 17 April 2013 that any settlement with Mr Jaques for a figure less than the total amount of the District Court judgment (which left Crazy Town free to pursue the applicant for the balance of the judgment), would leave Mr Jaques with further potential exposure on the District Court judgment by way of additional claims made against him by the applicant.
(c) Mr Jaques’ email dated 20 February 2013 made it clear that he was then negotiating on behalf of the applicant, as well as on his own behalf. And on 27 February 2013, Crazy Town’s solicitors referred to the proposal made by Mr Jaques jointly on behalf of the applicant and himself as “your proposal”. At that point, the parties’ focus was clearly on the satisfaction of both parties’ liability under the judgment.
(d)The “without prejudice save as to costs” letter dated 13 March 2013 from Crazy Town’s solicitors to Ms Cheer appears consistent with Crazy Town advancing the negotiations with Mr Jaques on the basis that the “subject matter” of any agreement would be the satisfaction of the entire District Court judgment. The applicant was encouraged to get Mr Jaques to provide the documentation requested, and to assist in ensuring the sale of his business. Beyond that, she was not asked (or apparently expected) to contribute.
(e) It seems more likely than not that by 17 April 2013 both Crazy Town and Mr Jaques were aware that the applicant probably could not then pay anything to reduce the judgment debt in any way. Ms Cheer had advised Crazy Town’s solicitors on 15 March 2013 that bankruptcy proceedings against the applicant “would not achieve any payment for Crazy Town”, and Mr Jaques would have been aware (from his relationship with the applicant, and from his participation in the relationship property proceeding) of the applicant’s financial position.
[67] I do not think that an objective interpretation of the April emails should be or is affected by the fact that the focus of the negotiations through to the end of March had been payment of the judgment debt in full. While I accept that Crazy Town had less reason in those circumstances to be interested in which of the debtors would be doing the paying, it was aware that Mr Jaques had been negotiating on behalf of both himself and the applicant, and Crazy Town had participated in the negotiations on that basis (for example, in its solicitors’ email dated 27 February 2013 to Mr Jaques). Nothing occurred between then and the making of the agreement recorded in the April emails to suggest that Mr Jaques had stopped negotiating on behalf of the
applicant and himself, and in those circumstances I am of the view that the meaning conveyed by the words “your liability” as used in the 17 April 2013 email, was the liability of both debtors under the judgments.
[68] Accordingly, I conclude that the applicant has made out her case of accord and satisfaction. In view of my finding that Mr Jaques had actual authority from the applicant to negotiate the agreement recorded in the April emails, and that he acted as her agent in so doing, there is no need to consider the third question posed at paragraph [48], namely whether the applicant might be entitled to rely on the Contract’s (Privity) Act 1982.
Order
[69] The bankruptcy notice is set aside.
Costs
[70] The applicant has sought indemnity costs on a solicitor/client basis. I am not presently inclined to award costs on that basis; my impression is that an award of costs on a scale 2B basis, with disbursements to be fixed by the Registrar, is probably the appropriate order. However, the issue was not argued at the hearing, and I think the applicant is entitled to be heard on the issue if she wishes to pursue the application for solicitor/client costs. Accordingly, if the parties are unable to agree, the applicant may file a memorandum on costs within seven days of the date of this judgment. The respondent may file a memorandum in reply within seven days after service of any such costs memorandum filed by the applicant.
Associate Judge Smith
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for applicant
Ford Sumner, Wellington for respondent
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