Larkin v Ministry of Social Development
[2015] NZHC 670
•8 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-005103 [2015] NZHC 670
BETWEEN STAPLES RODWAY LIMITED
Plaintiff
AND
JOHN ANTHONY CRISFORD First Defendant
AND
1689149 LIMITED as trustee of the JOHN CRISFORD FAMILY TRUST
Second Defendant
Hearing: 14 October 2014 Appearances:
C Webber for Plaintiff
J A Crisford appears in Person on own behalf
No appearance of Second DefendantJudgment:
8 April 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 8 April 2015 at 4.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Wynn Williams, Christchurch
J Crisford, Auckland
STAPLES RODWAY LIMITED v JOHN ANTHONY CRISFORD [2015] NZHC 670 [8 April 2015]
[1] Staples Rodway Limited applies for summary judgment against the defendants for the full amount of its claim of $249,135.43 for outstanding professional service fees and disbursements, plus interest and costs. The professional fees are said to have been incurred in the period between March and early October 2012.
[2] The defendants, Mr Crisford and 1689149 Limited, oppose the application for summary judgment. Each claims to have an arguable defence to the plaintiff’s claim.
[3] I begin with the background, but I pause momentarily to record that Mr Crisford was given leave to appear for the second defendant on the basis that his co-director, Mrs Crisford, appeared and indicated her consent.
Background
[4] The John Crisford Family Trust (the Trust) was settled on 8 October 1999. Crisford Trustee Ltd was incorporated on 6 September 2005 and became the sole trustee of the Trust.
[5] On 10 November 2006, Crisford Trustee Ltd became the registered proprietor and mortgagor of three properties on Kawau Island in its capacity as trustee of the Trust. The properties were acquired with a loan of approximately $1 million advanced to Crisford Trustee Ltd by the Bank of New Zealand (BNZ), which was secured over the properties by a first mortgage.
[6] Crisford Trustee Ltd was struck off the Companies Register in January 2009 but was later reinstated to the Register in November 2012. It is one and the same as the second defendant (the second defendant is the old company renamed). Mr Crisford and his wife, Mrs Crisford, were directors of the Crisford Trustee Ltd. In that capacity they were in effect the trustees of the Trust. Their role as trustees was not interrupted by the removal of the company from the Register, for reasons explained below. This position remained until Mr Crisford was appointed trustee of the Trust on 2 October 2012.
[7] After Crisford Trustee Limited was struck off, Mr Crisford arranged for another company with the same name, Crisford Trustee Limited, to be incorporated. This company was never appointed as a trustee of the Trust, and unlike the second defendant it has had only one director, Mr Crisford.
[8] In late 2011 the BNZ loan came due for repayment and fell into default. When it was not repaid, BNZ gave notice of its intention to commence a mortgagee sale of the Kawau properties. Mr Crisford approached Staples Rodway for advice in the hope that the loan could be refinanced or the properties sold for their estimated value of approximately $3 million.
[9] Staples Rodway was unaware that there was no operating trustee for the Trust, and it agreed to give advice to Mr Crisford and the Trust commencing in March 2012. It says it entered into three written agreements with Mr Crisford and the second defendant as follows:
(a) an agreement dated 27 March 2012 for the provision of professional services in the nature of financial and business advice (the agreement);
(b)a guarantee of the same date securing payment for fees and disbursements that it incurs in the course of providing services under the agreement (the guarantee); and
(c) a deed of acknowledgement of debt and security dated 24 May 2012, whereby Mr Crisford and the second defendant acknowledged liability for fees already incurred of $26,450 and for all future fees; and undertook to provide a registered mortgage over the Kawau Properties (the deed).
The agreement
[10] The agreement is in the form of an engagement letter. It is addressed to “Mr John Crisford” and “Crisford Family Trust”. It is endorsed with an acknowledgement signed by Mr Crisford.
[11] Materially, Clause 1 (headed “Advisory Services”) states “the assignment” with which Staples Rodway was tasked. It was “to seek a suspension of the BNZ’s recovery processes and either arrange replacement facilities or assist in an orderly sale of the property at value.”
[12] This statement is prefaced with the following:
We understand that you own through a family trust, a property at Home Bay on Kawau Island. You have a mortgage from BNZ Bank of approximately
$1.3 m secured over this property and BNZ has indicated that they wish the loan to be repaid. You have advised that BNZ issued a demand by way of a
property law notice approximately 6 months ago.
The Bank has recently indicated that they require urgent action to avoid the Bank requiring a mortgagee sale of the property. You wish to engage Staples Rodway to seek a suspension of the BNZ’s recovery processes and either arrange replacement facilities or assist in an orderly sale of the property at value.
You have advised that you have a lodge at the property suitable for paying guests. We understand that you are preparing some financial information that will support the BNZ’s and or another financial institution funding your Kawau business activities.
[13] The acknowledgement states:
I have read, understand and accept the terms and conditions set out in the above letter and the attached terms of engagement.
I am authorised to accept the terms and conditions on behalf of client name(s).
[14] The letter omits to set out the client names. Mr Crisford accepts nonetheless that he is a party to the agreement (his dispute is with the nature of the agreement). He does not however accept that the second defendant can to be taken to be a party simply as a matter of inference. His position is that it is not enough that he signed the agreement and that one of the addressees was “Crisford Family Trust”, as Staples Rodway contends.
The guarantee
[15] The guarantee has the same addressees as the engagement letter and it names Staples Rodway, John Crisford and “the Crisford Family Trust” as parties. John Crisford and the Crisford Family Trust are jointly named as “Guarantor”.
[16] The guarantee is signed by Mr Crisford “for the Guarantor” (his signature is witnessed by a third party).
[17] The guarantee states the “duties” set out in the engagement letter are undertaken at the request of Mr Crisford and the Crisford Family Trust, and that in consideration for those duties the “Guarantor” accepts liability for and the obligation to pay upon demand fees incurred during the course of “the assignment”. In the preamble it states:
In consideration of [Staples Rodway] undertaking of such duties detailed in the attached engagement letter dated 26th March 2012 at the request of John Crisford and the Crisford Family Trust, the Guarantor hereby …
b)… agrees to be liable and to pay immediately upon demand by [Staples Rodway], professional fees … together with any other disbursements and/or cost incurred by [Staples Rodway] during the course of the assignment …
The deed of acknowledgement of debt and security
[18] The deed is made between John Antony Crisford and Crisford Trustee Ltd as sole trustee of the Crisford Family Trust (the “clients”) and Staples Rodway (“Staples”). It is signed by Mr Crisford in his personal capacity and for and on behalf of the second defendant. Staples Rodway says that by May 2012 it had become concerned about the level of outstanding fees, and for that reason required Mr Crisford in his personal capacity, and for and on behalf of the second defendant for the trust, to enter into the deed.
[19] The deed records that as clients, Mr Crisford and the Trust have agreed and accepted the terms of engagement in the agreement of 26 March 2012, and that they have executed the guarantee. It also records that they:
A. … have agreed and accepted Staples’ terms of engagement dated 26
March 2012 (Terms) and executed the deed of guarantee of the same
date … which … are deemed incorporated in this Deed and re- executed on execution of this Deed.
B. On the date of this Deed the [they] together owe Staples $26,450 …
C. Staples require [them] to acknowledge their indebtedness to Staples and to provide security for such indebtedness and any future indebtedness which [they] have agreed to do as set out in this Deed.
…
[20] The operative provisions contain the following material declarations:
IT IS HEREBY DECLARED AND ACKNOWLEDGED as follows:
1. … [they] are jointly and severally liable to Staples for the whole of the
Debt as principal debtors.
2. [they] each acknowledge and declare they … are jointly and severally liable to Staples for any services undertaken for either of them after the date of this Deed pursuant to the Terms … or Staples then current standard terms of engagement …
3. The Trust agrees that the Debt and all monies in future due or to become due to Staples from the Clients will be secured to Staples by mortgage over the under-mentioned properties at Home Bay on Kawau Island (“the Security”) and on the terms of the Auckland District Law Society Mortgage Memorandum (all obligations) 2007/4238 (Ref 8010) which are deemed incorporated in this Deed:
NA 698/263
NA 22B/634
NA 24A/164
And the Clients agree to do all things necessary on request of Staples to facilitate registration of the mortgage over the Security including but not limited to the signing of an Authority and Instruction form for registration of the mortgage by e-dealing at Landonline.
4. Pending registration of the mortgage over the Security the Trust agrees to
Staples registering a caveat(s) over the properties.
(Emphasis added)
[21] On 12 June 2012 Staples Rodway lodged caveats over the Kawau properties. On 5 July with Mr Crisford’s consent Staples Rodway registered an all-obligations mortgage over the three titles for the properties.
[22] By October 2012 the total amount that Staples Rodway had invoiced on a monthly basis had grown to $259,238.31, including GST. Regrettably Staples Rodway’s efforts to find a commercial solution to the Trust’s refinancing problems had come to nothing, and Mr Crisford terminated its services.
[23] The Kawau properties were sold by BNZ at a mortgagee sale on
24 December 2012. On 17 April 2013, Staples Rodway received the sum of
$9,102.88 from BNZ. This was the total of the surplus funds following the mortgagee sale.
[24] On 5 December 2013 Staples Rodway commenced this proceeding. The statement of claim relied on two causes of action against both defendants: the first for breach of the agreement and the guarantee; and the second for breach of the deed.
[25] The amount claimed in the statement of claim, $249,135.43, is the total sum of the invoices less the amount received from the mortgagee sale.
Issues
[26] The defendants rely on several grounds of opposition to summary judgment. Essentially, they are that the agreement was limited by the existence of a contingency agreement governing fees and that for a number of reasons explained below, the second defendant was not a party to the agreement, guarantee or deed.
[27] Initially the defendants contended that the work that Staples Rodway carried out was unsatisfactory. That argument was abandoned at the hearing. There is now no dispute that Staples Rodway did the work which it has invoiced and claims for in its statement of claim. At the hearing Mr Crisford made clear that he accepts that the work charged for was in fact undertaken, and that it was charged at an appropriate hourly rate. Nor is there any dispute that Mr Crisford signed all three agreements in his personal capacity.
[28] The dispute essentially centres on the following questions.
(a) Is there a tenable argument the agreement was subject to a condition limiting fees to $5,000 with anything further to be paid on a contingency basis (as Mr Crisford contends)?
(b)If the answer is no, is Mr Crisford clearly liable for the fees, or does the evidence give rise to unanswered questions that suggest a possible defence?
(c) If Mr Crisford is liable, did he alone assume liability or is it clear that the second defendant is also bound?
[29] The last question turns on the effect of s 330 of the Companies Act 1993 and whether Staples Rodway can show, on the available evidence, that Mr Crisford had actual, implied, or apparent authority to enter the second defendant into the agreement, guarantee or deed.
Summary judgment principles
[30] Rule 12.2 of the High Court Rules relevantly provides as follows:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if Staples Rodway satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[31] A useful synopsis of the Courts’s approach to summary judgment applications is set out in the Court of Appeal’s decision in Jowada Holdings Ltd v Cullen Investments Ltd.1 Though determined under the former High Court Rules it remains apposite:
In order to obtain summary judgment under Rule 136 of the High Court Rules a plaintiff must satisfy the Court that the defendant has no defence to its claim. In essence, the Court must be persuaded that on the material before
1 Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [28].
the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered. That will be the case even if legal arguments must be ruled on to reach the decision. Once the Court has been satisfied there is no defence Rule 136 confers a discretion to refuse summary judgment. The general purpose of the Rules however is the just, speedy, and inexpensive determination of proceedings, and if there are no circumstances suggesting summary judgment might cause injustice, the application will invariably be granted. All these principles emerge from well known decisions of the Court including Pemberton v Chappell (1987) NZLR
1, 3-4, 5; National Bank of New Zealand Ltd v Loomes (1989) 2 PRNZ
211,214; and Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205, 209.
…
[32] Also useful is the more recent statement of principle set out in the Court of
Appeal’s decision in Krukziener v Hanover Finance Ltd:2
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
Discussion
Was the agreement a contingency agreement?
[33] Clause 3 of the engagement letter concerns fees, and states the following:
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26] per Miller J (citations omitted).
In accordance with normal professional practice, our fees, which will be billed as work progresses, will be based on the actual time spent on each assignment … and disbursements.
…
If it appears that, following our commencement of the assignment, the fee is likely to be significantly greater than we have estimated, we will discuss this with you.
[34] Staples Rodway’s estimate for the particular assignment it had agreed to
undertake is provided in the same clause:
We are happy to provide you with a fee estimate for any particular assignment; such a fee estimate is given in good faith but is not contractually binding.
Based on our understanding of the work required, we estimate our fees for the assignment will be approximately $5000 plus GST, office services and out of pocket expenses. Please not that this is an estimate and not a quotation.
(Emphasis added)
[35] Mr Crisford says that prior to signing the agreement and guarantee, he phoned Mr Theyers of Staples Rodway and explained to him that he would be unable to pay anything above $5000, and that Mr Theyers readily agreed and said he was comfortable with a contingency arrangement. Mr Crisford says that at no point in the discussion or thereafter, did he agree to extend the guarantee beyond $5,000. He says that Mr Theyers was under no illusion that Staples Rodway would not be paid unless it achieved one of the following three outcomes:
(a) The Trust was able to sell the Kawau properties; or
(b)The Trust was able to refinance the properties to free up equity which could be used to pay fees owed to Staples Rodway; or
(c) The Trust was to buy a business that would create cash flow from which the debt could be paid.
[36] Mr Theyers denies that this conversation occurred or that payment was contingent upon the achievement of desired outcomes. Staples Rodway relies on the
words of the agreement and the guarantee, which contain no reference to or suggestion of a contingency agreement.
[37] The point was not lost on Mr Crisford at the hearing. He concedes that there is nothing in the agreement, guarantee, or indeed the deed that reveals the existence of a contingency agreement and has no explanation for signing the documents without insisting on the inclusion of an appropriate qualification. But he says that irrespective of the wording, the parties intended that there would be no fee over and above $5,000 (which later conceded was increased to $26,450) unless one or other of the three agreed events occurred, and they did not.
[38] It appears that Mr Crisford is arguing that in this case the contract set out in the agreement(and referred to in the guarantee and confirmed in the deed) should be rectified on the basis that the language does not reflect what was said when the agreement was created. The Court of Appeal in Krukziener said the following on the
law of rectification:3
[32] Where the terms of an agreement do not accurately reflect the mutual intention and agreement of the parties, equity may rectify the record of the agreement so that it reflects the parties' true intention, and not that imperfectly recorded by the contract. The common intention must persist right up until the contract is signed: Realty Services Holdings Ltd v Slater (2005) 6 NZCPR 657 (HC). Proof of it may be established by reference to pre-contractual negotiations between the parties, and by other surrounding circumstances (Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at [55] (CA)), but if the proof put forward is inconclusive, then there is not sufficient material from which to find a common intention with which to rectify the contract.
[39] To ascertain the parties’ mutual intention it is necessary at times to look beyond the natural and ordinary meaning of the words in a contract. The well known dictum of Lord Hoffmann in Investors Compensation Scheme Limited v West Brunswick Building Society stated:4
The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162.
4 Investors Compensation Scheme Limited v West Brunswick Building Society [1997] UKHL 28, [1998] 1 WLR 896 at 913.
the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
[40] In order for rectification to occur, Mr Crisford’s contentions must be balanced against the plain language of the agreement and the surrounding factual matrix, including his omission to require the inclusion of an appropriate provision in the deed to rectify any omission in the agreement and the guarantee. This points strongly against any case for rectification.
[41] There are further reasons why rectification is not available in this case. I agree with the submission of counsel for Staples Rodway that viewed overall, the evidence does not support the existence of a contingency agreement, and that a robust view of Mr Crisford’s assertions to the contrary is warranted. I adopt this view for the following reasons:
(a) The language of the agreement is plain, and uncomplicated. It states clearly that billing will depend on the time spent on the assignment, and that the fee estimate was not a quotation and not contractually binding. It expressly contemplates the possibility of fees significantly greater than the provided estimate, as the initial $5,000 fee estimate was based on Staples Rodway’s then incomplete understanding of what was being required of it.
(b)The estimate was, as the evidence shows, based on incomplete instructions. The assignment proved to be more difficult and time- consuming than first anticipated. Mr Crisford conceded that he later gave instructions for more extensive work to be done.
(c) Neither the guarantee nor the deed limit Mr Crisford’s or the second defendant’s liability to $5000. The guarantee does not state any amount at all. In the deed Mr Crisford acknowledges an existing debt in excess of $26,000 as well as any future debt. At the hearing Mr Crisford conceded he could not dispute his liability for the increased figure as set out in the deed. He has the same difficulty
with respect to liability for future debt referred to in the deed. If Mr Crisford were willing to pay only up to $5000, he would not have acknowledged liability for greater or future amounts in the guarantee and deed.
(d)Staples Rodway’s failure or inability to achieve one of the three desired outcomes does not negate Mr Crisford’s (and possibly the second defendant’s) liability to pay the fees. Plainly, the deed was intended as a method by which Staples Rodway could secure payment in case the mortgagee sale could not be prevented. By signing the deed Mr Crisford (if not also the second defendant) recognised two things:
(i)that Staples Rodway was entitled to payment even if it could not achieve the task set out in the assignment; and
(ii) that the agreement was not contingent on any specific results.
(e) Significantly, at the hearing Mr Crisford accepted that Staples Rodway provided all of the services invoiced, and at the agreed charge-out rate. At the hearing he volunteered that the amount of the invoices did not therefore surprise him, and acknowledged that had the refinancing gone ahead, he would have willingly paid the full amount of $259,231.38 claimed by Staples Rodway.
[42] Mr Crisford placed considerable weight on an email sent by Wynn Williams to Mr Theyer on 29 May 2012. Staples Rodway employed the services of the solicitors to assist with the legal and conveyance aspects of the assignment. In that email Wynn Williams agreed that its agreement with Staples Rodway was contingent on the latter receiving payment from Mr Crisford. Contrary to Mr Crisford’s assertion, this email does not mean that the agreement between him (possibly together the second defendant) and Staples Rodway was a contingency one. It merely reinforces the conclusion that if the engagement letter was meant to be a
contingency agreement, it would have used the same explicit language as the email to spell out such an intention.
[43] It follows that in this case there is no evidence to suggest that the parties intended to contract on a contingency basis. There is no tenable argument to the contrary. Mr Crisford’s version of events is wholly inconsistent with the language of the agreement and the later deed.
Is Mr Crisford personally bound or does the evidence leave any unanswered questions that indicate a possible defence?
[44] I did have reservations about the size of the fees invoiced compared to the initial fee estimate of $5,000 and whether one would have to ask whether something has gone wrong with the language of the agreement. But Mr Crisford’s acceptance of the work done and the amounts invoiced put these reservations to rest. There is no tenable defence available on the evidence.
[45] It follows that Mr Crisford is personally liable to Staples Rodway for
$249,135.43.
Did Mr Crisford assume liability alone or also for the second defendant?
[46] To find the second defendant liable, Staples Rodway must first establish on a prima facie basis that the second defendant agreed to assume liability for Staples Rodway’s fees. Its contention is that Mr Crisford’s signature on the agreement, guarantee and deed was given for and on behalf of the second defendant and with the necessary authority.
[47] Mr Crisford submits the contrary. He contends there are three possible
defences to Staples Rodway’s claim:
(a) Staples Rodway never dealt with the second defendant because it was struck off when the agreement and guarantee were signed, therefore the second defendant could not have been a party to the agreement and guarantee;
(b)If he named the Trust in his capacity as director of the second defendant, the Trust was an entity over which the second defendant had no control;
(c) The second defendant could not have been a party because its structure requires both directors to sign the agreement and guarantee.
[48] I consider it unnecessary to analyse in great depth the first two arguments. This is because the inquiry should focus only on the deed, for the reasons I explain below.
[49] The letter of engagement and the guarantee were both addressed to Mr Crisford and the Trust. The letter outlines that Staples Rodway understood that Mr Crisford owned the properties through a family trust. This was clearly not the true position. The wording however sheds light on why the agreement and guarantee were addressed to the Trust rather than to the corporate trustee. At the time the agreement and guarantee were signed, Staples Rodway was clearly uninformed about the true identity of the owner of the properties.
[50] Over the next month or so Staples Rodway became increasingly concerned about Mr Crisford’s ability to pay and it sought security over the Trust properties. In preparing for this course of action it must have become apparent to Staples Rodway that the agreement and guarantee were not executed properly because the second defendant, rather than Mr Crisford, was the trustee of the Trust. There is no doubt Staples Rodway feared it would be unable to enforce the agreement and guarantee if Mr Crisford failed to pay. To safeguard itself from this possibility eventuating, Staples Rodway asked Mr Crisford in his personal capacity and as a director of the second defendant to sign the deed giving Staples Rodway security over the properties.
[51] The deed’s other equally important purpose was to reaffirm the existence and terms of the agreement and the guarantee. It is highly likely that this was done to ensure the terms of the agreement and guarantee could be enforced even if they were not properly executed.
[52] It follows that the second defendant could not (arguably) have been a party to the agreement and guarantee because these documents were not properly executed. However, the affirmation of their existence and terms in the deed means that the inquiry should instead focus on whether the second defendant was a party to the deed. This turns on two questions:
(a) Did the second defendant exist at the time the deed was signed?
(b)If yes, did Mr Crisford have the actual, implied, or apparent authority to enter the second defendant into the deed?
Did the second defendant exist at the time the deed was signed?
[53] Section 330(2) of the Companies Act 1993 provides that when a company is restored to the Register, it shall be deemed to have continued its existence as if it had not been struck off:
330 Restoration to register
a)A company is restored to the New Zealand register when a notice signed by the Registrar stating that the company is restored to the New Zealand register is registered under this Act.
b)A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.
[54] Clark v Libra Developments Ltd was the first case where s 330(2) was first put before the Court of Appeal.5 The Court concluded that s 330(2) should be given a literal interpretation. The subsection effectively ratifies a company’s corporate existence and activity during the period that it is removed from the register until it is restored to the register.6 Clark was upheld in Crisford v Bank of New Zealand where the High Court, expressly in relation to the second defendant, held:7
The effect in the present case is that Company A [second defendant] is deemed to have continued in existence upon removal on 21 January 2009 through to its reinstatement on 8 November 2012 so that the documents executed in 2010 were effectively executed on behalf of and by Company A.
5 Clark v Libra Developments Ltd [2007] 2 NZLR 709, (2006) 3 NZCCLR 751 (CA).
6 At [202]-[205].
7 Crisford v Bank of New Zealand [2012] NZHC 3290 at [25] per Venning J.
[55] It follows that the second defendant existed in 2012 when the deed was signed. This however does not mean that the second defendant entered into the deed. All it means is that any documents which Mr Crisford purported to sign for and on behalf of the trustee were effectively signed by the second defendant, provided that Mr Crisford had, or is deemed to have had, sufficient authority to enter the second defendant into the deed.
Did Mr Crisford have the authority to enter the second defendant into the deed?
[56] The onus is on Staples Rodway to show that Mr Crisford was acting with the actual, implied, or apparent authority of the second defendant when he signed the deed.
[57] Section 180 of the Companies Act 1993 details how companies may enter into contracts:
180 Method of contracting
(1) A contract or other enforceable obligation may be entered into by a company as follows:
(a) an obligation which, if entered into by a natural person, would, by law, be required to be by deed, may be entered into on behalf of the company in writing signed under the name of the company by—
(i) 2 or more directors of the company; or
(ii) if there is only 1 director, by that director whose signature must be witnessed; or
(iii) if the constitution of the company so provides, a director, or other person or class of persons whose signature or signatures must be witnessed; or
(iv) 1 or more attorneys appointed by the company in accordance with section 181:
(b) an obligation which, if entered into by a natural person, is, by law, required to be in writing, may be entered into on behalf of the company in writing by a person acting under the company's express or implied authority:
(c) an obligation which, if entered into by a natural person, is not, by law, required to be in writing, may be entered into on
behalf of the company in writing or orally by a person acting under the company's express or implied authority.
…
[58] Section 180(1)(a)(i) applies to the deed. It follows that prima facie, the deed was not properly executed because it was signed by Mr Crisford alone. However, it may still be the case that Mr Crisford had the authority to make the second defendant a party.
Actual or implied authority
[59] Actual authority is authority that has, as a matter of fact, been granted by the principal company to the agent. It is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties.8 In New Zealand,
the Court of Appeal has stated that actual authority exists in one of two situations:9
(a) When the principal confers specific authority on the agent to bind the principal to a particular transaction, or
(b)When the principal confers a general authority on the agent which covers the particular transaction at issue.
[60] Implied authority is a form of actual authority. It arises when an individual assumes a position, and those entitled to appoint the person to that position acquiesce this assumption of position;10 for example a board acquiescing an individual
assuming the position of de facto managing director.11 In that case the board does
not have to hold out to the relevant third party that the person has authority in order for the company to be bound.12
8 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (CA), per
Diplock LJ.
9 Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZLCLC 261,922 (CA), per Tipping J.
10 Farrar and Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson
Reuters, Wellington, 2013) at [9.3.3].
11 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.
12 Farrar and Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson
Reuters, Wellington, 2013) at [9.3.3].
[61] There is no evidence of a board resolution that granted Mr Crisford actual authority to bind the second defendant to the agreement and guarantee. Nor is there evidence of Mr Crisford’s appointment as managing director, or his assumption of that role and the corresponding acquiescence of that position by Mrs Crisford, the other director.
[62] For those reasons I am not satisfied that Staples Rodway had adequately demonstrated that Mr Crisford had actual or implied authority to make the second defendant a party to the deed. It is at least arguable that he did not.
Apparent authority
[63] The only way Staples Rodway may obtain summary judgment now is to show that Mr Crisford was acting under apparent authority to bind the second defendant as a party to the deed.
[64] Apparent authority arises when an agent does not have actual authority but the principal allows the agent to appear to have authority to third parties.13 The principal (being persons with the company’s actual authority to do so) must make an express or implied representation in some way to the third party.14 The essence of the doctrine of apparent authority is that it is the principal’s representation that creates the authority, not the agent’s assertion that he has that authority.15
[65] Apparent authority acts as a form of estoppel and prevents the principal from denying the validity of the acts carried out by the agent.16 Section 18(1)(c) of the Companies Act is a statutory estoppel derived from the concept of apparent
authority:
13 Levin Meats Ltd v Perfect Packaging Ltd (2011) 10 NZCLC 264,950 (HC) at [44].
14 Broadlands Finance Ltd v Gisbourne Aero Club Inc [1975] 2 NZLR 496 (CA) at 500; Farrar and Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson Reuters, Wellington, 2013) at [9.10].
15 Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257 at 305.
16 Levin Meats Ltd v Perfect Packaging Ltd (2011) 10 NZCLC 264,950 (HC) at [44].
18 Dealings between company and other persons
(1) A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
…
(c) A person held out by the company as a director, employee, or agent of the company—
(i) Has not been duly appointed; or
(ii) Does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise …
[66] There are three conditions that must be satisfied before the Court may apply the doctrine of apparent authority:17
c) That a representation was made to the contractor that the agent has the authority to enter on behalf of the company into a contract of the type sought to be enforced;
d)That representation was made by a person who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
e) The third party relied on the representation in entering the contract.18
[67] The authors of Company and Securities Law in New Zealand argue that there are two kinds of apparent authority:19
(a) Where the principal by its conduct allows the third party to assume that the agent has authority for a particular range of acts; and
17 Levin Meats Ltd v Perfect Packaging Ltd (2011) 10 NZCLC 264,950 (HC) at [45] citing
Freeman & Lockeyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (CA).
18 There is also a fourth condition that says that in its constitution, the company has not either restricted its capacity to enter into a contract of that type or to delegate authority to enter into a contract of that type to an agent. This condition has very little practical relevance in New Zealand, as noted by the High Court in Savill v Chase Holdings (Wellington) Ltd at [45].
19 Farrar and Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson
Reuters, Wellington, 2013) at [9.10].
(b)Where the principal creates implied authority to create the representation of authority, for example by putting the agent in a position where the agent might make a representation of authority that the third party will rely on.
[68] Where the principal did not make an express representation prior to the contract being made, it may nonetheless ratify the contract with subsequent conduct. The principal may ratify the contract at a later stage either by express words of by implied conduct, such as acting on, or taking advantage of the contract.20
[69] I now consider the available evidence.
[70] Mr Theyers in his first affidavit deposes that on 24 May 2012 he met with Mr and Mrs Crisford to discuss the deed. This evidence is not corroborated by any other. Staples Rodway did not offer any explanation as to why Mrs Crisford’s signature does not appear on the deed. The alleged, but unproven presence of Mrs Crisford when the deed was signed is not sufficient to conclude on summary judgment that Mr Crisford was acting under apparent authority.
[71] There is also no evidence before me that proves that Mrs Crisford somehow gave authority to Mr Crisford retrospectively. Significantly there is nothing to suggest she was required to sign the mortgage documents.
[72] Staples Rodway invites me to find that Mrs Crisford must have been aware of or has given apparent authority to Mr Crisford because she was one of the addressees of the monthly invoices and failed to raise any concerns about being invoiced. This argument is not supported by any evidence other than copies of invoices sent to the defendants and Mrs Crisford. It is not appropriate at summary judgment to draw the inference Staples Rodway suggests on the basis of this evidence alone.
[73] It would be unsafe on the evidence presently before the Court to make a positive finding of apparent authority.
20 Burrows, Finn and Todd Law of Contract in New Zealand at [16.2.3].
[74] It follows that Staples Rodway has failed to show (on the evidence as it presently stands) that Mr Crisford had apparent authority to bind the second defendant. I cannot, on the material before me, determine on summary judgment that Mrs Crisford was from the beginning fully aware of Mr Crisford’s representations to Staples Rodway and that she consented to the second defendant entering into the deed. I also cannot determine that at some later stage she ratified Mr Crisford’s possibly unauthorised actions.
[75] Mr Crisford’s argument that both directors ought to have signed the deed is therefore an arguable defence and summary judgment cannot be granted on the first cause of action against the second defendant.
Result
[76] For the above reasons:
(a) Staples Rodway has satisfied me that the first defendant has no defence to the first cause of action against it. Accordingly, the plaintiff’s application for summary judgment against the first defendant is granted. I give judgment against him in the sum of
$249,135.43 accordingly, plus interest to be calculated under s 87 of the Judicature Act 1908 at the rate of 5% per year from the date of commencement of the proceeding to the date of this judgment.
(b)Staples Rodway has not satisfied me that the second defendant has no defence to the cause of action against it in the statement of claim. Accordingly, the plaintiff ’s application for summary judgment against the second defendant is declined.
[77] Costs are reserved. If the plaintiff pursues costs against Mr Crisford at this stage, then counsel is to file and serve a memorandum within 10 working days.
[78] The Registrar is requested to allocate an initial case management conference
for the remaining claim against the second defendant.
Associate Judge Sargisson
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