Montgomerie v Montgomerie
[2019] NZHC 989
•8 May 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-002745
[2019] NZHC 989
BETWEEN JAMES LESTER MONTGOMERIE
Plaintiff
AND
ANDREW LAURIE MONTGOMERIE
First Defendant
MIA BELLA TRUSTEE LIMITED
Second Defendant
Hearing: 30 April 2019 Appearances:
D Neutze for the Plaintiff
W G C Templeton for the Defendants
Judgment:
8 May 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 8 May 2019 at 3.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel: Woodhouse Law, Auckland Brookfields, Auckland
Foy & Halse, Auckland
W G C Templeton, Auckland
MONTGOMERIE v MONTGOMERIE [2019] NZHC 989 [8 May 2019]
[1] This is an application by the plaintiff for summary judgment. The plaintiff seeks to recover amounts lent by him to the defendant under a loan agreement made in 2011 and varied in 2016. The loan agreement (as varied) was followed by a later agreement, made in March 2017, which was intended to cap the defendant's liability at a lower figure, and provide for repayment of the capped amount. If the defendant defaulted under the March 2017 agreement, his liability would revert to that provided for in the 2011 agreement as varied.
[2] The plaintiff contends that the defendant has failed to comply with the March 2017 agreement, and he has demanded payment of the amount of the debt calculated under the 2011 agreement (as varied), plus costs. The defendant says that he has complied with such of his obligations under the March 2017 agreement as he has been required to perform so far, and that the time for repayment of the bulk of the debt under the March 2017 agreement has not yet arrived.
The parties
[3] The plaintiff is a businessman based in Florida, United States, and he is the brother of the first defendant. The first defendant is a property developer based in Auckland.
[4] The second defendant (the Trust) is the trustee of a family trust associated with the first defendant.
Background
[5] The plaintiff lent money to the first defendant when the first defendant ran into financial difficulty following the global financial crisis in 2008. As part of the assistance he provided at that time, the plaintiff purchased the first defendant's family home on Waiheke Island (the property), with mortgage funding from the Bank of New Zealand, allowing the first defendant and his family to continue to live in the property on the basis that the first defendant would cover the interest payments on the BNZ mortgage and the rates and other outgoings on the property.
The Loan Agreement
[6] In 2011 the first defendant arranged for the Trust to refinance the BNZ mortgage. The Trust did that with the assistance of a loan from Westpac New Zealand Ltd, and the property was then transferred to the Trust. While this transaction had the effect of taking the plaintiff out of his liability to the BNZ under the mortgage, it did not result in repayment of any part of the debt owed by the first defendant to the plaintiff. The first defendant's debt to the plaintiff was addressed separately by loan agreement dated 26 August 2011 (the Loan Agreement).
[7] Under the Loan Agreement, the first defendant acknowledged a debt to the plaintiff in the sum of US$709,303.53.
[8]The Loan Agreement contained the following provisions:
(i)The principal sum and all interest and costs were to be paid on or before 25 August 2016.
(ii)Lump sum repayments could be made without penalty.
(iii)Interest was chargeable at 4.5 per cent payable monthly and if not paid then capitalised.
(iv)Default interest was payable at the rate of 9.5 per cent per annum.
(v)A certificate from time to time issued by the plaintiff as lender as to the principal sum, interest rate and interest then due, was (absent manifest error) to be conclusive.
(vi)The first defendant agreed to give the plaintiff a second-ranking mortgage over the property. The mortgage was to be held unregistered except in the event of default.
(vii)The first defendant agreed to pay all costs relating to the drafting and execution of the Loan Agreement (limited to $2,000 plus GST),
payable on the same terms as the loan. In the event of default by either party, the defaulting party agreed to meet the non-defaulting party's costs of enforcement (including legal costs on a full indemnity basis).
[9] The Trust became the registered proprietor of the property on 13 December 2011, following the refinancing referred to above. In accordance with the Loan Agreement, the Trust then granted a mortgage over the property to the first defendant. The plaintiff registered a caveat over the property to protect his interest under the unregistered mortgage.
[10] The plaintiff says that in late 2015 he discovered that the Trust had defaulted under the mortgage by failing to pay rates on the property. He registered his mortgage on the title to the property, on 11 March 2016.
Variations to the Loan Agreement
[11] The parties signed a loan variation agreement (the First Variation Agreement) on 25 May 2016. In late July or early August 2016, they signed a second loan variation agreement (the Second Variation Agreement).
[12] The plaintiff contends that the effect of the First Variation Agreement and the Second Variation Agreement was that:
(a)The first defendant agreed to pay to the plaintiff:
(i)US$445,000, being approximately half the amount outstanding on the loan, on or before 1 September 2016; and
(ii)the balance on or before 1 August 2017, including all accrued interest (agreed to be paid at 4.5 per cent per annum, compounding monthly); and
(iii)agreed costs in relation to the First Variation Agreement of NZ$2,500.
(b)Otherwise, the terms of the Loan Agreement were to remain in force.
[13] The first defendant (and the second defendant, as mortgagor under the mortgage) failed to make the payment of US$445,000 due on 1 September 2016. The plaintiff then issued a notice under s 119 of the Property Law Act 2007 (the PLA). The notice (the PLA Notice) required the first and second defendants to pay the US$445,000 within 20 working days, failing which the plaintiff would be entitled to demand the full amount owing under the Loan Agreement (US$709,303.53) together with all accrued interest and enter into possession of and/or sell the property.
[14] The defendants failed to remedy the PLA Notice, and the plaintiff became entitled to arrange a mortgagee sale. However, in December 2016 the parties agreed that the first defendant and the Trust could market and sell the property themselves. An adjacent property (the Neil Avenue property) owned by a company associated with the first defendant would also be marketed for sale. The intention of selling the two properties together was to maximise the value of both, and in any event to maximise the repayment that would be available to the plaintiff from the net proceeds of sale of the two properties. If the defendants failed to sell the properties, the plaintiff would be entitled to sell the property by mortgagee sale.
[15] The Trust did enter into a conditional contract to sell the property in January 2017, but in February the purchaser cancelled the contract under a due diligence clause.
The March 2017 agreement
[16] A further agreement was signed by the plaintiff and the defendants on 9 March 2017 (the March 2017 Agreement). The "Background" section of the March 2017 Agreement recited the main terms of the Loan Agreement and the First Variation Agreement and the Second Variation Agreement. It referred to the issue of the PLA Notice and the fact that it expired unremedied, and to the plaintiff's agreement not to proceed with a mortgagee sale, so that the defendants could sell the property and the
Neil Avenue property. It recited the December 2016 agreement, under which the defendants had been given until 16 January 2017 to sell the properties, and it referred to the February 2017 cancellation of the sale agreement on the property.
[17] The "Background" section of the March 2017 Agreement then provided as follows:
H.[The first defendant] had in the meantime offered that, if [the plaintiff] will agree to a concession on the debt (cap it at NZD1m) he will repay the capped debt from:
(a)a sum of $200,000 paid on or before 28 March 2017 through refinance offered through Foy & Halse contributory mortgage scheme; and
(b)net proceeds of sale of the Neil Avenue property; and
(c)net proceeds of sale of the Alberton Lane development of 8 townhouse units that is current under construction by an entity related to [the first defendant], namely Alberton Lane Limited. [The first defendant] estimates that there should be sufficient proceeds from the sale of the Units, after the payment to [the plaintiff] referred to in (a), to repay the balance of the Capped Debt (in other words it is estimated that there will be approximately $840,000 net proceeds from the Alberton Lane Development, sufficient to pay the balance of the Capped Debt (including interest));
Strictly on the terms set out in this agreement (that is upon repayment by the above means), [the plaintiff] is willing to cap the debt to the amount requested by [the first defendant]. If the debt is not paid by the above means then [the plaintiff] will be entitled enforce payment of the full debt, and costs.
[18] The Background section concluded by recording that, as at 15 February 2017, the full amount owing by the first defendant to the plaintiff under the Loan Agreement (as varied) was agreed to be US$921,264.31, plus "agreed costs" of NZ$4,750 and "further costs" of NZ$12,119.09.
[19] The operative part of the March 2017 Agreement recorded the parties' agreement to cap the debt at NZ$1 million, on the following basis:
Capped Debt (defined in clause 3) and Repayment of the Same
2.[The first defendant] has agreed to repay and/or procure the repayment of the debt owing to [the plaintiff] by payments to [the plaintiff]:
2.1of a payment to [the plaintiff] of NZ$200,000 on or before 28 March 2017 being (time being of the essence) finance in the sum of no less than $200,000 from Foy & Halse's contributory mortgage lending, secured by a second mortgage over [the property] to replace [the plaintiff's] mortgage and with such finance being paid to [the plaintiff] to reduce the Capped Debt, and [the plaintiff] agrees to discharge his mortgage contemporaneously with receipt of payment of $200,000; and
2.2of the net proceeds of sale of the Neil Avenue property (and of [the property], in relation to which [the first defendant] undertakes that he will:
(a)continue to market for sale [the property and the Neil Avenue property];
(b)procure that Foy & Halse (or any successor or replacement law firm) (hereafter "Foy & Halse") will act on the sale of those properties and will provide an undertaking to [the plaintiff's] solicitors (on terms satisfactory to [the plaintiff's] solicitors) to account to them for the net proceeds of sale (after payment of bona fide registered charges and reasonable costs of sale, including GST (if any)) from the sale of those properties; and
2.3of the net proceeds of sale (up to an amount required to repay the Capped Debt in full) from settlement of the Units being developed by Alberton Lane Limited at Alberton Lane, Mt Albert, Auckland, which [the first defendant] anticipates will be completed/settled by 30 April 2018, but with such payment of full net proceeds to made to [the plaintiff] no later than 15 October 2016, (time being of the essence).1 [The first defendant] will procure that Foy & Halse will act on the sale of those Units and will provide an undertaking to [the plaintiff's] solicitors (on terms satisfactory to [the plaintiff's] solicitors) to account to and pay to [the plaintiff's] solicitors the full net proceeds (after payment of bona fide registered charges and reasonable costs of sale (including GST)) from the sale of those Units.
3.[The plaintiff] agrees that in consideration for [the first defendant] procuring the assistance of Foy & Halse and committing his related entities to the payments promised in 2.2 and 2.3 above and strictly on the basis that [the plaintiff] receives the payments referred to in 2.1 and 2.3 above (and in 2.2, if [the property and/or the Neil Avenue property] are sold before Alberton Lane), [the plaintiff] (and [the first defendant]) agrees that the amount to repaid by [the first defendant] will be "capped" as at 15 February 2017 at NZ$1 million (the "Capped Debt") to the intent that:
3.1interest will accrue on the Capped Debt from 15 February 2017 to the date of payment in full at the same rate(s) and in the same manner as set out in [the Loan Agreement] (namely, 4.5% per annum
1 It is common ground that the reference here to 15 October 2016 was a mistake, and should be read as "15 October 2018".
compounding monthly or 9.5% per annum compounding monthly in the event of default); and
3.2any payments made by on or on behalf of [the first defendant], either in accordance with clauses 2.1-2.3 above, or otherwise howsoever made by him or on his behalf) will be applied to reduce the balance owing under the Capped Debt, and interest will continue to accrue on the reduced balance owing.
4.[The plaintiff], and [the first defendant], agree and acknowledge that, if contrary to [the first defendant's] estimate [the plaintiff] is not repaid in full through payment to [the plaintiff] from the proceeds of the Alberton Lane Development (or has otherwise paid the Capped Debt), but provided [the plaintiff] has, by 15 October 2018 (time being of the essence) received the payment referred to in clause 2.1 (or from clause 5) plus a substantial payment from the proceeds of the Alberton Lane Development (and is satisfied on reasonable grounds that [the first defendant] has accounted to him fully for the full net proceeds of those sales), then [the plaintiff] and [the first defendant] will negotiate in good faith for the payment by [the first defendant] of the balance of the Capped Debt, either through the sale of [the property and/or the Neil Avenue property], if not sold prior, or otherwise.
[20] Clause 5 of the March 2017 Agreement provided that the plaintiff could exercise his accrued right to sell the property if the Foy & Halse contributory funders/mortgagees did not refinance the first defendant's debt (as contemplated by cl 2.1).
[21] If the first defendant did not repay the Total Debt in accordance with cl 2 – 5 above, or if there was any material breach of cls 2 – 4, the plaintiff could make demand for the immediate repayment of the Total Debt2 plus costs and interest.3
[22]Clause 6 then provided:
Hierarchy of agreements
6.The parties agree that it is intended that:
6.1provided the repayment terms for the Capped Debt are adhered to by [the first defendant] (and [the Trust]) then this agreement supersedes and replaces [the Loan Agreement and the First Variation Agreement and the Second Variation Agreement]); and
6.2in the event that there is any default of repayment of the Capped Debt under this agreement the parties will revert to the terms of the Loan
2 US$921,264.31.
3 Clause 1(d) of the March 2017 Agreement.
Agreement (and [the First Variation Agreement and the Second Variation Agreement]) and [the plaintiff] will be entitled to immediately call up commence proceedings to recover the Total Debt owing; and
6.3where there is any conflict between the terms of this agreement and those of the Loan Agreement (together with the [the First Variation Agreement and the Second Variation Agreement]) then the terms of this agreement will prevail.
Implementation of the March 2017 Agreement
[23] The Trust did manage to refinance by the end of March 2017, and the plaintiff received the sum of NZ$200,000 on account of the capped debt on or about 28 March 2017. No other payment has been made by the defendants.
[24] The plaintiff asked his solicitor to communicate with Foy & Halse from about April 2018, to ascertain whether the balance of the capped debt would be repaid by 15 October 2018, or whether the defendants would offer some reasonable proposal if they could not make that payment. Neither the plaintiff nor his solicitors received any payment or offer of repayment prior to 15 October 2018.
[25] On 3 October 2018 Foy & Halse wrote to the plaintiff's solicitors. They said that it had been hoped that an agreement for the sale of the Neil Avenue property would enable the first defendant to put a firm proposal to the plaintiff, but the agent involved with the sale had advised that the agreement was not proceeding.
[26] Foy & Halse advised that the Alberton Lane development had not progressed to the point where sales of the townhouses could be settled. They referred to difficulties with the builder having defaulted and a new building contractor having to be appointed, which had caused delays to the project. Foy & Halse noted that it was unlikely that the Alberton Lane development would be finished in 2018. Holding costs on the development were said to have "increased exponentially".
[27] Foy & Halse went on to say that the first defendant was not seeking to avoid the debt owing to the plaintiff, but circumstances beyond his control (and the negligence and default of the builder engaged on the development) had severely impacted upon the first defendant. They said that, at that stage, there was "simply
nothing to offer [the plaintiff] — [the first defendant] cannot borrow any further against any of the properties and has nothing else that he can sell. He is seeking an extension of the agreement between our clients to 1 May 2019 to enable [the Alberton Lane development] to be completed and hopefully Neil Avenue and [the property] to sell over the coming summer".
[28] The plaintiff's response was to call up the amount owing under the Loan Agreement, allowing for the NZ$200,000 the defendants had paid on 28 March 2018. The total sum of US$865,123.72 was demanded by letter from the plaintiff's solicitors dated 23 October 2018. The letter required repayment of the US$865,123.72, plus further interest at 4.5 per cent per annum from 15 October 2018, on or before 5 November 2018. Thereafter the default interest rate of 9.5 per cent per annum, compounding, would apply.
[29] The plaintiff's solicitors did note in their 23 October 2018 letter that the plaintiff remained willing to hear any reasonable proposals made by the first defendant. However, in the absence of any proposal by 5 November 2018, the plaintiff considered that he would have no realistic option but to commence proceedings. The solicitors ended the letter by intimating that if the first defendant was able to offer something, the plaintiff would be likely to be more receptive to the first defendant's request to extend the "capped debt" arrangement through to May 2019.
[30] Foy & Halse replied on 2 November 2018 confirming that there were no funds available to make any further payment offer. They reiterated the defendants' request for an extension of time to May 2019 to complete payment under the March 2017 Agreement.
The arguments over the meaning of the March 2017 Agreement
[31]Foy & Halse said in their letter of 2 November 2018:
[The first defendant] has made the payment of $200,000 and it is our opinion that the reference to "a substantial payment" from the proceeds of the Alberton Lane development would be unenforceable in legal terms, being open to subjective interpretation. Our client has no wish to cause difficulties but we will respectfully point out there can be no default of a clause which is unenforceable.
[The first defendant] fully intends to account to [the plaintiff] for the proceeds of the Alberton Lane development once completed and sold and of course you have our undertaking regarding this. We reiterate that our client is in no way seeking to avoid the debt owed to [the plaintiff] and is endeavouring to comply with [the March 2017 Agreement] to the best of his ability.
[32] In his affidavit in opposition sworn on 20 February 2019, the first defendant contended that the agreed basis for the payment of the capped debt was that the balance (after payment of the first $200,000) had to come from sales of the properties. The repayment date of 15 October 2018 under cl 4 of the March 2017 Agreement was subject to completion and sale of the townhouses, and that had not occurred. Moreover, settlement under the March 2017 Agreement was also on the basis that after completion, and with the sale proceeds of the townhouses being available, a full "accounting" and a "substantial payment" would be made from those sale proceeds. No sale proceeds from Alberton Lane are expected to be available until about the middle of 2019.
[33] The first defendant said that the failure to realise any funds from the Alberton Lane development was not due to any fault on his behalf; it was due to the unforeseen default of the main builder on the development.
[34] The plaintiff filed a reply affidavit, dated 20 March 2019. The reply affidavit addressed certain issues going back to 2011 which I do not need to traverse for the purposes of the present application. The plaintiff then addressed the issue of what was meant by the requirement (cl 4 of the March 2017 Agreement) for payment from the proceeds of sale of the townhouses by 15 October 2018. He referred in support to a number of communications leading up to the signing of the March 2017 Agreement.
[35] The plaintiff said that the first defendant had estimated (prior to the March 2017 Agreement) that the net proceeds of the sale of the Alberton Lane townhouses would be $844,000, and that the development would be completed by 30 April 2018 at latest. The plaintiff then instructed his solicitor to send an email to Foy & Halse specifying 1 May 2018 as the date by which the capped debt was to be repaid in full (failing which the capped debt agreement would be null and void, and the full balance owing under the Loan Agreement as varied would be repayable on demand).
[36] Foy & Halse replied on 28 February 2017. Their letter included comments on a draft of the March 2017 Agreement that had been submitted by the plaintiff's solicitors. One of the points Foy & Halse made in this letter was that there should be no final date for the completion/sale of the Alberton Lane development. Were the development to be delayed, as was extremely common, the investors (the funders of the townhouse development) would not place themselves in a position whereby their security could be jeopardised through the first defendant being unable to achieve sales in time to meet a specified date. Foy & Halse advised that the defendants would have both first and second tier funding, and would be using their best endeavours to ensure that the development was completed in a timely manner. And any delay would be to their detriment. Foy & Halse concluded on this point:
Provided [the plaintiff's] position is secured by an undertaking from this firm to pay to [the plaintiff] our client's share of the net proceeds of sale (or sufficient to repay the debt, whichever is the lesser), then [the plaintiff's] position is not affected by the completion date.
[37] The plaintiff says that he did not agree to that, and his solicitors made it clear to Foy & Halse by email dated 1 March 2017 that the plaintiff remained very concerned about the open-ended nature of the repayment proposal.
[38] There were further communications between the solicitors, which the plaintiff says resulted in agreement on a "cut-off" date of 15 October 2018 for completion of repayment under the capped debt agreement. The plaintiff produced a copy of an email dated 7 March 2017 from his solicitor to the defendants' solicitor, in which his solicitor said:
Thank you for your call yesterday afternoon advising that your firm's client contributors would (reluctantly) agree to a cut-off date of 15 October for [the plaintiff] to receive proceeds of the Alberton Lane development.
I have amended the draft agreement sent to you last month … the amended agreement is attached – both as a "tracked change" and "clean" version. …
If the attached agreement is acceptable to [the first defendant] please have him (and [the Trust]) execute and return the same to me by email as soon as possible. …
[39] The plaintiff produced a copy of the draft March 2017 Agreement with the "tracked changes" referred to in his email, saying that the tracked changes relating to
the 15 October 2018 date were inserted into the March 2017 Agreement at cls 2.3 and 4, without amendment.
[40] The first defendant filed an affidavit in reply to the "contract background" matters raised in the plaintiff's reply affidavit.
[41] He took the position that the various exhibits referred to in the plaintiff's reply affidavit relating to the negotiations for the March 2017 Agreement are not admissible, and in any event they do not comprise a full and complete record of the position leading up to the signing of the March 2017 Agreement. He said that there were various discussions, some of which were not referred to in the plaintiff's last affidavit. Various drafts were circulated which required changes.
[42] The first defendant rejected the plaintiff's claim that the plaintiff was concerned about the open-ended nature of the time for completion of the Alberton Lane development and the sale of the townhouses, saying that it was always clear that payment had to come from the proceeds of the sale of the townhouses. Once a substantial payment had been made from the proceeds of the Alberton Lane development, with a full accounting of the full net proceeds from the sale, the plaintiff and the first defendant would negotiate in good faith over payment of the balance of the capped debt. That position has never been yet reached, and no negotiations have yet begun.
[43] Further, the property has not been sold, and it is still on the market. The Neil Avenue property was sold, but with no proceeds available after payment of secured creditors. A full accounting of that sale was sent to the plaintiff's lawyers earlier this year.
The summary judgment application and the defendants' notice of opposition
[44] The plaintiff asks for summary judgment in the sums of US$865,123.72, plus NZ$5,210 as claimed in his statement of claim. The plaintiff also asks for interest, and costs on a solicitor/client basis.
[45] The plaintiff acknowledges the payment of $200,000 made on 28 March 2017, but says that the defendants defaulted in their obligations by failing to make a further payment from net proceeds of sales on or before 15 October 2018. The plaintiffs says that, under cl 6.2 of the March 2017 Agreement, he was entitled to immediately call up the loan, and he did that by his solicitors' letter of 23 October 2018. He says that the debt has not been paid, and contends that the defendants have no reasonably arguable defence to his claim.
[46]In their notice of opposition, the defendants say:
3.1The Defendants are not in breach of payment of the relevant instalment of the capped debt under clause 4 of [the March 2017 Agreement] as the "substantial payment" to be made was to come from the "sale proceeds" of the development at Alberton Lane Ltd which has not yet been completed with the result there are no sale proceeds available to form the basis of any "substantial payment".
3.2The fact the development has not yet been completed providing sale proceeds is not the fault of the defendants but due to unforeseen default of the main builder for the development who failed to carry out the construction work in accordance with its contractual obligations and as a result a further main contractor has had to be engaged and as a direct result the development will take further time and months to complete in order to carry out the full accounting and payment obligations under clause 4.
3.3As the completion of the Alberton Lane development has not occurred there are no sale proceeds to be paid, nor accounting to be able to be given.
3.4Because there has been no completion and with sale proceeds able to be obtained the Defendant is not in breach of the payment obligations detailed in clause 4 of [the March 2017 Agreement] which requires further payment to come from those sale proceeds.
3.5Further in the alternative the payment of a "substantial payment" is legally uncertain, incapable of objective determination and enforcement and as a result is meaningless as to being a term of repayment of the capped debt.
[47] At the hearing, Mr Templeton made an argument that the March 2017 Agreement was frustrated by the unforeseen default of the main builder on the Alberton Lane development (referred to at [3.2] of the notice of opposition). In response to my enquiry, Mr Templeton said that the alleged frustrating events were:
The default and subsequent abandonment of the contract by the main builder, which then required an entirely new contractor to come in, with new subcontractors, with inevitable delays that were unforeseen, resulting in the project still being incomplete and a final completion date for sales still being uncertain.
[48] Mr Neutze submitted that frustration of the March 2017 Agreement was not sufficiently pleaded in the notice of opposition. However, he made oral submissions at the hearing on the frustration issue, referring to ss 60 to 69 of the Contract and Commercial Law Act 2017 (the CCLA), and referring to the leading decision of the Supreme Court in Planet Kids Ltd v Auckland Council.4
Applications for summary judgment — legal principles
[49]Rule 12.2(1) of the High Court Rules provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff 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.
…
[50] The proper approach to be taken to such applications was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:5
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: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). 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: MacLean v Stewart (1997) 11 PRNZ 66 (CA). 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: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). 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: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
4 Planet Kids Ltd v Auckland Council [2014] 1 NZLR 149; [2013] NZSC 147.
5 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
[51] The Supreme Court has confirmed that the fact that the Court may be required to determine questions of law does not preclude summary judgment. In Zurich Australian Insurance Ltd v Cognition Education Ltd, the Court said:6
… in other situations falling within the broad test (that is, the "no arguable defence" test applied on summary judgment), there will be what can properly be described as "disputes" even though they are ultimately capable of being determined by a summary process.
[37] To explain, it has been well established in New Zealand since Pemberton v Chappell that a court can properly determine questions of law on a summary judgment application, and that this includes issues of contractual interpretation. The Court of Appeal has accepted that such a determination may be made even though the question of law is difficult and requires argument (including reference to authority). In International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd, a case under the old bill writ procedure, Cooke P, by analogy with the summary judgment procedure which had just been introduced in New Zealand, said that where the facts were adequately ascertained and the Court could be confident that the point at issue turned on pure questions of law or interpretation, it should be prepared "to determine, on adequate argument, even difficult legal questions". Similarly, in Jowada Holdings Ltd v Cullen Investments Ltd, McGrath J, delivering the judgment of the Court of Appeal, said that a court should be prepared to grant summary judgment "even if legal arguments must be ruled on to reach the decision".
The issues
[52]As the matter was argued, there were only two issues:
(1)Have the defendants breached their obligations under the March 2017 Agreement, so that the plaintiff became entitled to demand payment of the Total Debt,7 minus the $200,000 paid on 28 March 2017, plus further interest to the date of judgment?
(2)Is it reasonably arguable for the defendants that the "events of frustration" referred to at paragraph [47] of this judgment made it impossible for the defendants to perform, or otherwise frustrated, the March 2017 Agreement, so that the defendants were discharged from further performance of the March 2017 Agreement?
6 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 (footnotes omitted).
7 As at 15 February 2017, US$921,264.31, plus agreed costs of NZ$4,750 and further costs of NZ$12,119.09, all as defined in cl I of the Background section of the March 2017 Agreement.
[53]I will deal with each of those issues in turn.
The interpretation of the March 2017 Agreement
Interpretation principles
[54] Mr Neutze referred to a number of authorities, including the well-known speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society.8 Lord Hoffmann's approach was adopted by the New Zealand Court of Appeal in Boat Park Ltd v Hutchinson.9 Mr Neutze then referred to three decisions of the New Zealand Supreme Court on the interpretation of written contracts: Vector Gas Ltd v Bay of Plenty Energy Ltd,10 Firm PI 1 Ltd v Zurich Australian Insurance Ltd,11 and Lakes International Golf Management Ltd v Vincent.12
[55] Mr Neutze submitted that three main principles can be distilled from these cases which bear on the interpretation of the contract in this case:
(i)the "plain meaning" principle — what is the natural, ordinary meaning of the words the parties have used?
(ii)the matrix of fact — what meaning would the words in the contract convey to a reasonable, objective observer, when considered in context of the surrounding circumstances known to both parties?
(iii)("slightly more problematic" in terms of current jurisprudence), the "commercial common sense" principle.
[56] Mr Neutze submitted that the Court does not need to pick or choose between those interpretation aids, because all lead to the same conclusion: if the capped debt was not repaid in full (or at least a substantial repayment made and a full accounting
8 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912-913.
9 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81-82.
10 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444.
11 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 432.
12 Lakes International Golf Management Ltd v Vincent [2017] NZSC 99; [2017] 1 NZLR 935.
given) by 15 October 2018, the capped debt arrangement was at an end, and the original loan amount was able to be enforced by the plaintiff.
[57] Mr Templeton referred to the judgment of the majority of the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,13 emphasising that the Court will not be justified in concluding that a contract does not mean what it seems to say simply because the Court considers that, so interpreted, the contract is unduly favourable to one party. He emphasised the need for the Court to be cautious in this area, because commercial absurdity tends to lie in the eye of the beholder, and those who negotiate commercial contracts will be influenced by a range of considerations in reaching their final bargains. The contracts that emerge from the negotiating process will reflect accommodations of the parties' varying interests, assessed by them at the time.14 Any conclusion that the ordinary and natural meaning produces a commercially absurd result should be reached only in the most obvious and extreme of cases.15
Counsel's submissions
[58] Each counsel contended that reading the March 2017 Agreement in accordance with its plain and ordinary meaning should be sufficient for the Court to decide the application in his client's favour. Mr Neutze submitted that the plaintiff's position is also supported by the communications between the parties' solicitors in early March 2017, and in particular the letter from the plaintiff's solicitor dated 7 March 2017 (referred to at paragraph [38] of this judgment). Mr Templeton submitted that the pre-contract communications referred to by the plaintiff are incomplete and selective, and should not be used to inform the interpretation exercise.
[59] Mr Neutze submitted that the key provisions of the March 2017 Agreement are recital H and operative cls 2, 3, and 6. He discounted the relevance of cl 4, submitting that the clause could not even be engaged in circumstances where the defendants had paid nothing by 15 October 2018. He referred to the use (in the March 2017 Agreement) of expressions such as "no later than", "time being of the essence", and "full net proceeds", in support of the submission that the overall intention of the parties
13 Above n 11.
14 At [89] to [90], and [91].
15 At [93].
must have been to bring the long-running debt situation to an end by providing a final date for payment (subject only to the possibility of an extension of the 15 October 2018 date if the defendants met the "substantial payment" requirement of cl 4).
[60] Mr Neutze submitted that any debate over what may have been meant by "substantial payment" is unnecessary, because no payment was made at all — whatever may have been required of the defendants under the cl 4 "substantial payment" provision, paying nothing could not have met the requirement.
[61] Mr Neutze further submitted that a commercial common sense approach to the interpretation of the March 2017 Agreement favours the plaintiff. On the defendants' argument, if the Alberton Lane development had not been completed by 15 October 2018 (and there were thus no net proceeds of sale to pay to the plaintiff), there would be no breach of the express time stipulations set out in cls 2.3 and 4 of the March 2017 Agreement. Mr Neutze submitted that if that were correct, the consequence would be that if the Alberton Lane development was never completed, or was completed but with no proceeds of sale available, the defendants would never be in breach: neither the capped debt nor the original loan would ever become payable. In those circumstances, the "sunset date" of 15 October 2018 would be rendered meaningless.
[62] In his submissions, Mr Templeton submitted that the March 2017 Agreement does not contain any cut-off date for payment of the capped debt. It simply refers to three payment sources, one of which has no timeline for payment at all (cl 2.2, relating to the sale of the property and the Neil Avenue property).
[63] Mr Templeton submitted that the 15 October 2018 date did not relate to the payment of the capped debt — it related only to payment of the proceeds from the sales of the townhouses. He submitted that it is impossible to imply a final cut-off date for payment of the capped debt when none is specified in the March 2017 Agreement.
[64] Mr Templeton then submitted that cl 4 clearly contemplated that the time for payment could be extended beyond 15 October 2018, and that the defendants could not be in default under cl 4 when the relevant extension condition (the making of a
"substantial payment") was essentially meaningless (what might qualify as a "substantial payment" being an entirely subjective matter).
Discussion and conclusions on the interpretation issue
[65] In my view, the Background section of the March 2017 Agreement, and in particular cl H, provides the key to the essential question, which is whether the plaintiff could demand payment of the full debt in circumstances where none of the townhouses had been sold before 15 October 2018.
[66] Clause H first recorded the first defendant's offer to settle for the capped amount, by making or procuring payments to the plaintiff from three named sources. The clause then recorded the plaintiff's willingness to accept the capped amount in full settlement, provided payment was made "by the above means". However, if payment was not made "by the above means", the plaintiff would become entitled to enforce payment of the original debt, plus interest and costs.
[67] The operative part of the March 2017 Agreement introduced an additional requirement, namely a requirement that the defendants account to the plaintiff for the net proceeds of sale of the townhouses, by 15 October 2018. Time for payment of those net proceeds by 15 October 2018 was of the essence, and I think that is entirely consistent with the plaintiff's position that the parties accepted the need to establish a date by which the capped debt would (i) have been wholly paid (or substantially paid) or (ii) the plaintiff would be entitled to revert to and enforce the terms of the Loan Agreement, as varied by the First Variation Agreement and the Second Variation Agreement.
[68] Mr Templeton submitted that the March 2017 agreement does not provide any cut-off, or final, date for payment of the capped amount. In my view, that is not correct, or at least not complete. Under cl 1(d) of the March 2017 Agreement, the plaintiff was entitled to demand immediate repayment of the total debt, plus costs and interest, if the capped debt had not been "repaid in accordance with clauses 2 to 5
below".16 Importing the reference to cls 2 to 5 into cl 1(d) had the effect of making 15 October 2018 a final repayment date for the capped debt, subject only to the cl 4 possibility that (i) the net proceeds of sale of the townhouses might not be sufficient to cover the capped debt but (ii) a substantial amount of the capped debt might nevertheless have been paid to the plaintiff by 15 October 2018.
[69] Clause 3 of the March 2017 Agreement also made receipt of the payments referred to in cls 2.1 and 2.3 a condition of the plaintiff being bound to accept the capped debt in satisfaction of his claims. The cl 3 reference to receipt of the "payment referred to in … 2.3", was in my view a reference to a payment to be made "no later than 15 October 2018 (time being of the essence)" — it was not a payment to be made at some unspecified future time when the defendants might finally sell the townhouses. If the intention had been that no further payment would have to be made by the defendants by 15 October 2018 if the development had not by then been completed, it would have been a simple enough matter for the parties to have included a qualification to that effect in the March 2017 Agreement. They did not do so, and it is difficult in those circumstances to see what purpose the 15 October 2018 date was intended to have if it was not intended to establish a date by which the Alberton Lane development had to be completed, the townhouses sold, and the net proceeds of sale paid to the plaintiff.
[70] In my view the essential purpose of the March 2017 Agreement was to define a particular set of circumstances in which the plaintiff would be prepared to accept in full satisfaction a sum that was much lower than the debt that was owed to him. Part of that definition was full payment of the capped debt by 15 October 2018, but how that would be achieved was the defendants' concern, not the plaintiff’s. The defendants would lose the benefit of having the debt capped at the lower amount if it was not paid by 15 October 2018.
[71] Mr Neutze referred to cl 6.2, and I think that clause reinforces Background cl H and the latter part of cl 1(d), which establish the primacy of the defendants' obligation to pay the capped debt (all of it), in accordance with cls 2 to 5. In my view that primary
16 Alternatively, the total debt, costs and interest, could be demanded under cl 1(d) if there was any material breach of cls 2 to 4.
obligation to pay is confirmed by the various references in cls 2 to 5 to the defendants paying the capped amount from sources other than those identified in cl 2 — see, for example, the reference in cl 3.2 to any payments made by or on behalf of the first defendant "either in accordance with clauses 2.1 to 2.3 above, or otherwise howsoever
…" (emphasis added).
[72] The parties' substantial agreement, then, was that the defendants would pay the capped amount by 15 October 2018. How the defendants chose to achieve that was a matter for them, but to the extent they had not paid the capped debt from other sources they were required to apply the net proceeds of the sales referred to at cls 2.2 and 2.3 in reduction of the capped debt.
[73] The expectation that the Alberton Lane development would be completed by 30 April 2018 was expressly recorded in cl 2.3, and I think it is clear that the parties expected that the townhouses would have been sold in time to permit the defendants to pay the full net proceeds of sale of the townhouses to the plaintiff under cl 2.3 by 15 October 2018. In my view cl 4 was included in the March 2017 Agreement only to address the possibility that the sales of the townhouses (by 15 October 2018) might not yield sufficient to cover the balance of the capped debt owing as at 15 October 2018. If that occurred, the parties would consider the amount that the plaintiff had received by way of the net proceeds of sale of the townhouses. If it was a "substantial" amount, the cl 4 obligation on the parties to negotiate in good faith for payment of the balance of the capped debt would be triggered. The implementation of the "good faith negotiation and payment of the balance" steps would simply be steps in the repayment of the capped debt "in accordance with clauses 2 to 5", as that expression is used in cl 1(d) of the March 2017 Agreement.
[74] I do not think there is anything in the defendant's submission that the expression "substantial payment" used in cl 4 is so subjective as to be meaningless. The use of that expression in cl 4 was not intended to prescribe some standard that would have to be met prospectively as, for example, where someone was required by a contract to pay a sum of money at a future time but was not sufficiently informed how much he or she would have to pay. Rather, the intention was to prescribe consequences that would follow under cl 4 in respect of an amount which would by
15 October 2018 be known to the parties.17 I accept that there could be room for doubt in some cases over whether the amount paid to the plaintiff from the proceeds of the sale of the Alberton Lane development qualified as "substantial", but I do not consider that answering that question would be any more difficult than many other legal and factual issues the courts are often required to determine to ensure that effect is given to the parties' contractual intentions. In the context just described, I do not consider that the expression "substantial payment" as used in cl 4 was "meaningless", or void for uncertainty, as the defendants contend.
[75] It follows that I accept Mr Neutze's position on the ""substantial payment" is meaningless" argument. As no part of any proceeds of sale of the townhouses has been paid to the plaintiff, the issue falls away, and cannot affect the interpretation issue.
[76] Mr Templeton submitted that some significance should be attributed to the fact that cl 2.2 of the March 2017 Agreement provided no timeline, or cut-off point, for the sale of the property and the Neil Avenue property. The short answer to that submission is that it did not need to. Clause 3 identified the primary sources of likely repayment as the NZ$200,000 to be paid 28 March 2017, and the net proceeds of sale of the townhouses. If the net proceeds of sale of the townhouses did not produce sufficient to pay the balance of the capped debt in full (allowing for any payments the plaintiff may have received by 15 October 2018 from the sale of the property and/or the Neil Avenue property), one of two consequences would follow: either (i) the parties would enter into good faith negotiations for payment of the balance of the capped debt under cl 4 (which would only happen if a "substantial payment" was made before 15 October 2018); or (ii) the plaintiff would be entitled to demand full repayment under the Loan Agreement (as varied).
[77] I conclude on this issue that the parties' intention was that payment of the capped debt had to be made by 15 October 2018, whether from the sources identified
17 A hypothetical example might help to illustrate the point. If the defendants had sold the townhouses and accounted to the plaintiff before 15 October 2018 for, say, NZ$700,000, the parties could reasonably have been expected to conclude that a "substantial payment" had been made to the plaintiff from the proceeds of the Alberton Lane development. If on the other hand the net proceeds of sale made available to the plaintiff from the Alberton Lane development before 15 October 2018 were only, say, $75.00, the parties might easily have reached the view that no "substantial payment" had been made to the plaintiff from the proceeds.
at cl 2 of the March 2017 Agreement or from other sources. The only qualification on that obligation was the cl 4 situation, but it was only intended to apply when the townhouses had actually been sold and the defendants had accounted to the plaintiff for the net proceeds of sale by 15 October 2018 (time being of the essence). That situation has not arisen, and the capped amount was therefore not repaid in accordance with cls 2 to 5 of the March 2017 Agreement. The plaintiff thereupon became entitled to make immediate demand for the total debt, plus the additional costs and interest which he seeks.
[78] I add that the foregoing interpretation, reached on the plain ordinary language of the March 2017 Agreement, is not displaced by anything in the factual background known to the parties when they entered into the March 2017 Agreement. A substantial part of that factual matrix is recorded in the Background section of the March 2017 Agreement, and I have taken that into account (in particular, cl H) in construing the operative parts of the contract. I also accept Mr Neutze's submission that the plaintiff made numerous attempts over the years since 2011 to secure repayment of the money he lent to the first defendant, and in circumstances where he was agreeing to accept a substantial discount on the debt, the cut-off date for payment for which he contends makes complete sense.
[79] Subject to the issue of frustration referred to below, I conclude that the defendants do not have an arguable case that the plaintiff was not entitled to demand repayment as he did on 23 October 2018.
Issue (2) — frustration
The supervening events that are said to have made it impossible for the defendants to perform the March 2017 Agreement (or to have otherwise frustrated the March 2017 Agreement)
[80] The first defendant produced a copy of a letter dated 30 October 2018 from Mr Tony Scragg, the project engineer on the Alberton Lane development. Mr Scragg said that on 17 May 2018 the then head contractor on the development was given notice to remedy specific contractual shortcomings, including poor workmanship, incorrect materials, non-compliance in relation to design of the contract works and health and safety issues. A "letter of default" was issued to the head contractor on
15 June 2018 under the building contract, allowing 10 working days for the head contractor to remedy all of the issues outlined in the letter of default.
[81] The 10 working day period was extended to 30 August 2018, but the defaults were not remedied. Alberton Lane Ltd then resumed possession of the site and assumed responsibility for completing the contract works.
[82] Mr Scragg said that Alberton Lane Ltd has since experienced "inevitable delays" associated with engaging contractors and subcontractors at a time when there is high demand on limited resources in the construction sector. Mr Scragg said that completion of the project and reconciling various costs issues was "some months away".
Legal principles
[83]Sections 60-62 of the CCLA provide:
60Application
(1)Sections 61 to 66 apply if—
(a)a contract governed by New Zealand law has become impossible to perform or has been otherwise frustrated; and
(b)the parties to the contract have for that reason been discharged from the further performance of the contract.
(2)Subsection (1) and sections 61 to 66 are subject to sections 67 to 69.
(3)In this subpart, time of discharge means the time at which the parties to the contract were discharged as referred to in subsection (1).
61Money paid may be recovered and money payable ceases to be payable
(1)All money paid to a party (A) under the contract before the time of discharge is recoverable from A as money received by A for the use of the party who paid it.
(2)All money payable to a party under the contract before the time of discharge ceases to be payable.
62Court may allow party who has incurred expenses to retain or recover money
(1)This section applies if the party to whom the money was paid or payable under the contract incurred expenses before the time of discharge in, or for the purpose of, performing the contract.
(2)The court may, if it considers it just to do so having regard to all the circumstances, allow the party to retain or recover the whole or any part of the money that was paid or payable.
(3)However, the amount to be retained or recovered must not exceed the expenses that were incurred.
[84] Sections 63-65 of the CCLA generally confer jurisdiction on the Court to make compensation orders where a party has obtained a valuable benefit (before the contract is discharged) from the actions of the other party to the contract.
[85]Section 67 of the CCLA provides:
67 Court must give effect to provision in contract
(1)This section applies if a contract to which this subpart applies contains a provision that, on the true construction of the contract, is—
(a)intended to have effect in the event of circumstances arising that operate, or would but for the provision operate, to frustrate the contract; or
(b)intended to have effect whether those circumstances arise or not.
(2)The court must—
(a)give effect to the provision; and
(b)give effect to sections 60 to 66 only to the extent (if any) that appears to the court to be consistent with the provision.
[86] In Planet Kids v Auckland Council, the majority of the Supreme Court described the doctrine of frustration (as then enacted in the Frustrated Contracts Act 1944) in the following terms:18
(a)For fundamental policy reasons to the sanctity of contract, the threshold for frustration is high.
18 Planet Kids v Auckland Council, above n 4 at [48].
(b)It does not depend on application or election by the parties but occurs automatically by operation of law to discharge the contract "forthwith, without more and automatically."
(c)The doctrine of frustration operates to bring the contract to an end at the time of the frustrating event. The contract is not deemed invalid from the outset and so at common law there was usually no relief for part performance occurring prior to the supervening event. The Frustrated Contacts Act now allows some restitutionary relief.
(Citations omitted.)
[87] The majority then referred to the speech of Lord Reid in Davis Contractors Ltd v Fareham Urban District Council, where his Lordship noted that frustration depends in most cases on the true construction of the terms of the contract read in the light of the nature of the contract and the surrounding circumstances when the contract was made. The question is whether the contract is, "on its true construction", wide enough to apply to the new situation: if it is not, then it is at an end.19
[88] In National Carriers Ltd v Panalpina (Northern) Ltd, Lord Simon described the doctrine in the following terms:20
Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.
[89] The majority in Planet Kids noted, however, that most of the formulations of the doctrine of frustration have been subject to some academic criticism. In the end, they appear to have favoured the following multi-factorial approach posited by Rix LJ in Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel). Consider:21
(a)the terms of the contract;
19 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL) at 720-721, referred to by Glazebrook J (giving the judgment of the majority) in Planet Kids, at [50].
20 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 (HL) at 49.
21 Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel) [2007] EWCA Civ 547; [2007] 2 Lloyds Rep 517, referred to by the majority in Planet Kids at [60]-[67].
(b)its matrix or context;
(c)the parties' knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at least to the extent that these can be ascribed mutually and objectively; and
(d)the nature of the supervening event, and
(e)the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.
[90] The majority in Planet Kids also referred with apparent approval to the comments of Stephen J in Brisbane City Council v Group Projects Pty Ltd, where the judge noted that the doctrine of frustration invites a very broad principle being applied to "infinitely variable fact situations". His Honour considered that the test is inherently imprecise as to the degree or extent that an event affects the foundation on which the parties contracted. Application of the text calls for the exercise of judgment.22
Discussion and conclusions on frustration
[91] The question is whether the plaintiff has shown that the defendants have no reasonable argument that the March 2017 Agreement "has become impossible to perform or has otherwise been frustrated" (CCLA, s 60(1)(a)).
[92] Mr Templeton referred to the multi-factorial approach referred to in Planet Kids, submitting that the broad enquiry that approach calls for can only properly be undertaken at trial. In response, Mr Neutze pointed out that even if the March 2017 Agreement was frustrated as the defendants contend, the effect would be that they would still be left facing the same debt (under the Loan Agreement as varied). The effect of any frustration of the March 2017 Agreement could not be to deprive the plaintiff of rights he enjoyed prior to, and quite separately from, the March 2017 Agreement.
[93] In the alternative, Mr Neutze submitted that the main purpose of the March 2017 Agreement was to "get payment by a certain time, or revert to the original
22 Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at 162-163.
contract": it was not concerned with when the Alberton Lane development would be completed. That main purpose has not been frustrated.
[94] I accept Mr Neutze's submission on the main purpose of the March 2017 Agreement, and I note that the majority in Planet Kids did consider it appropriate to start with an enquiry into what the parties' common objective, or purpose, was in entering into their contract.23
[95] As I have said in my discussion of Issue (1), I think the parties' principal purpose in entering into the March 2017 Agreement was to define particular circumstances in which the debt of US$971,264.31 plus costs owing by the first defendant to the plaintiff would be capped at the significantly lower figure of NZ$1 million. A date was fixed by which the NZ$1 million would have to be paid if that were to occur (15 October 2018), and in the meantime obligations were imposed on the defendants to apply three known potential sources of money towards payment of the debt. Completion of the Alberton Lane development was not a principal purpose of the March 2017 Agreement — the evidence shows that both parties were well aware of the risk of delays with development projects such as this,24 and the plaintiff's only interest was in getting paid by 15 October 2018. How the defendants might achieve that was of no concern to him.
[96] In those circumstances, I cannot see that this could be regarded as a situation where the default of the main building contractor on the development made the performance of their obligations by the defendants radically different from what was envisaged when the parties entered into the March 2017 Agreement.
[97] I have considered the terms of the March 2017 Agreement, its matrix or context, the parties' knowledge, expectations, assumptions and contemplations as at the time the March 2017 Agreement was entered into, earlier in this judgment, and I am of the clear view that the "supervening events" relied upon by the defendants cannot arguably have "affected the foundation on which the parties contracted"
23 Planet Kids, above n 4, at [83]-[85].
24 The defendants were originally unwilling to commit to a project completion date for just that reason.
(applying the test articulated by Stephen J in Brisbane City Council). The parties here did not contract on any "foundation" referable to the date when the Alberton Lane development would be completed. Either the capped debt would be paid by 15 October 2018 or it would not, and the contract was capable of operating perfectly satisfactorily according to its terms in either event. In those circumstances, I do not consider it reasonably arguable that the supervening events relied upon by the defendants rendered the March 2017 Agreement impossible to perform, or frustrated it.
[98] If I am wrong in my view that the defendants do not get over the definition hurdle (the s 60(1)(a) definition of frustration) in the CCLA, I am satisfied in any event that they fall at the second hurdle, s 67 of the CCLA. Under s 67, the Court is obliged to give effect to a provision in a contract if that provision was intended to have effect regardless of whether circumstances have arisen that would otherwise have constituted a contract-frustrating event.25 In this case, I consider that the provisions of cls 1(d) and 6(2) of the March 2017 Agreement entitling the plaintiff to demand payment of the full amount owing under the Loan Agreement (as varied) were intended to have effect whether or not the circumstances relied upon by the defendants as frustrating events arose.
[99] Finally, I think the justice of the case, a consideration referred to by Rix LJ in The Sea Angel,26 overwhelmingly favours the plaintiff. The March 2017 Agreement related to an existing debt that the plaintiff had every right to enforce, and it was not for him to concern himself with whether or not the construction work at the development was being carried out competently. I find for the plaintiff on Issue (2).
Result
[100] The plaintiff having shown that the defendants have no defence, judgment is entered for the plaintiff as follows:
(1)For the sum of US$865,123.72 owing as at 15 October 2018.
25 Contract and Commercial Law Act, s 67(1)(b) and (2)(a).
26 Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel), above n 22, at [113].
(2)For interest for the period from 15 October 2018 to 30 April 2019, in the amount of US$41,961.09.
(3)For further interest (on the sum of the amounts at (1) and (2) above) calculated at 9.5 per cent per annum from 1 May 2019 to 8 May 2019, US$1,888.72.
(4)The plaintiff is entitled to costs. If counsel are unable to agree on costs, the plaintiff may file and serve a memorandum within 20 working days. The defendants may file a memorandum in response within 15 working days of service of the plaintiff’s memorandum.
Associate Judge Smith
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