Pacific Crest Limited v McDonald

[2024] NZHC 2357

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2759

[2024] NZHC 2357

UNDER

the District Court Act 2016

IN THE MATTER OF

an appeal against a decision of the District Court at Auckland

BETWEEN

PACIFIC CREST LIMITED

Appellant

AND

BRIAN RONALD MCDONALD AND NORMA TIKA MCDONALD

Respondents

Hearing:

28 May 2024 (by VMR)

Appearances:

D G Dewar for the Appellant

M I S Phillipps for the Respondents

Judgment:

22 August 2024

JUDGMENT OF PALMER J

Solicitors

Thomas Dewar Sziranyi Letts, Lower Hutt Vicki Ammundsen Trust Law, Auckland

PACIFIC CREST LIMITED v MCDONALD [2024] NZHC 2357 [22 August 2024]

What happened?

The truck and trailer

[1]    Mr Brian McDonald and Ms Norma McDonald, the respondents, operate a scrap metal business through their company, McDonald Trading  NZ  Ltd (McDonald Trading).1 They wanted a truck and trailer  for  their  business.  In August 2020, Mr McDonald responded to a Trade Me advertisement about a Freightliner Argosy truck and McEwan trailer offered “as is where is” in Blenheim by Smart Assets Ltd (Smart Assets), owned and  operated  by  Mr  Michael  Gifford.  Mr Gifford referred Mr McDonald to Smart Money Ltd (Smart Money), operated by Mr Stephen Reid,  so  that  McDonald  Trading  could  finance   the   purchase. Smart Money had entered into an agency agreement with Partners Finance Limited (Partners Finance) (Agency agreement).2

[2]    A price of $88,500 (GST inclusive) for the sale and purchase of the truck and trailer was agreed between McDonald Trading and Smart Assets. On 28 August 2020, an invoice issued by Smart Assets to McDonald Trading. On 2 September 2020, McDonald Trading paid $17,700 as a deposit. A further invoice was issued for

$70,800. There was no written sale and purchase agreement. The invoices referred to the truck and trailer being supplied with a new Certificate of Fitness (COF).

The loan

[3]    On 31 August 2020, McDonald Trading applied for credit from Smart Money. On 14 September 2020, Mr and Mrs McDonald signed the Loan and Security Agreement with Partners Finance in which they guaranteed McDonald Trading’s obligations under the loan. That loan agreement stated, at cl 5 of the Specific Terms, that the commencement date was “[t]he date that funds are advanced to you or on your behalf under this agreement”.

[4]    Clauses 4.4(a), 4.7(g) and 6.1(a)(i) of the Agency agreement required the agent, Smart Money, to obtain and act in accordance with the instructions of

1      Formerly registered as McDonald Trust Trading Ltd.

2      Formerly (and at that time) registered as Partners Finance & Lease Ltd.

McDonald Trading.  At  trial,  Mr  Colin  Hamilton,  the  Credit  Manager  of Partners Finance, who had some direct involvement in this matter, acknowledged under cross-examination that the money had to be advanced when the conditions of the sale and purchase agreement were met. On 21 September 2020, Partners Finance assigned their claims against the McDonalds to Pacific Crest Ltd (Pacific Crest), the appellant.3

Dispute but payment

[5]    In September 2020 there was toing and froing about the truck and trailer being readied. Mr McDonald became increasingly concerned about the state of the vehicles. Following an inspection on 17 September 2020, the truck and trailer did not receive a COF because a certification plate was not sighted. On 18 September 2020, after a recheck, a COF was issued, and the truck and trailer were taken to Wellington and then driven to Auckland the next day. But Mr McDonald was not happy with the roadworthiness of the truck and trailer. Initially the issues seemed relatively small. But, by 24 September 2020, Mr McDonald was telling Mr Gifford that the truck had a transplanted engine, was not fit for purpose, and was “a lemon”. On 28 September 2020, Mr McDonald gave notice that he was cancelling the contract and expected his deposit back.

[6]    On 21 September 2020, Mr Reid, of Smart Money, emailed Mrs McDonald saying he would not settle until Mr McDonald said it was okay. Later that same day, Mr Gifford confirmed to Mr Reid that the issues with the truck had been resolved and he was entitled to be paid. Still on the same day, Mr Keith Wong of Partners Finance paid Smart Assets $70,800 for the truck and trailer. On 21 October 2020, 23 November 2020, and 21 December 2020, Partners Finance activated a direct debit authority that had been provided by McDonald Trading and deducted $1,925.48 on each occasion.

[7]    Smart Assets registered the truck and trailer in the names of “BR McDonald Trading Limited”, which the McDonalds say is a non-existent company.

3      Pacific Crest has since amalgamated with Pacific Dawn Limited to become Pacific Dawn Limited. For consistency, Pacific Crest is used in this judgment.

The truck no one wants

[8]    The truck is still in McDonald Trading’s yard in Auckland but has not been used by the McDonalds, except to be moved around the yard. The McDonalds say it still belongs to Smart Assets and there is no problem in Smart Assets picking it up, though the McDonalds did not agree to Partners Finance picking it up to realise what Partners Finance said was McDonald Trading’s liability. McDonalds Trading has not yet claimed a refund of the amounts they did pay.

District Court decision

[9]    Pacific Crest claimed in the District Court that McDonald Trading was in default under the terms of the loan agreement and that the McDonalds were liable as guarantors. The McDonalds argued the loan agreement failed for uncertainty or never commenced or was replaced by a compromise agreement which was repudiated by Pacific Crest and left unperformed by both parties.

[10]   On 28 September 2023, in the District Court at Auckland, Judge L I Hinton held that the McDonalds were not liable as guarantors.4 He held the loan agreement did not fail for uncertainty because the advance was made to the borrower, despite there being no commencement date for funds to be advanced.5 But he accepted the loan agreement never commenced. Mr Reid informed the McDonalds that no payment would be made unless Mr McDonald approved it.6 Mr McDonald did not approve it.7 There was no meaningful “contractual nexus” between the loan agreement and the purchase.8 It was clear on the evidence that the approval of McDonalds Trading had to be obtained for the funds to be advanced.9 Mr Reid had impermissibly decided on the terms of the sale contract and the exercise of any rights by McDonalds Trading.10 The Judge accepted Mrs McDonald’s evidence over Mr Reid’s evidence as to whether they discussed the matter.11

4      Pacific Crest Ltd v McDonald [2023] NZDC 20831 at [65].

5 At [26].

6 At [43].

7 At [46].

8 At [53].

9 At [59].

10 At [62].

11 At [63].

[11]   So the loan needed to be authorised by the McDonalds and it was not.12 If there was a compromise, and it enured in relation to the loan agreement, the Judge observed the outcome would be similar in practice to the outcome the parties now have to address.13 Accordingly, he held the McDonalds are not liable as guarantors.14

[12]   Pacific Crest appeals under s 124(2) of the District Courts Act 2016, which proceeds by way of rehearing.15

Submissions

[13]   Mr Dewar, for Pacific Crest, submits that the McDonalds agreed to purchase the truck and trailer and to pay the price by way of the loan. The sale and purchase agreement was never upset and that contract is complete, valid and binding. The McDonalds took possession of the truck and trailer which was delivered to them and one of them has been transferred into the name of Mrs McDonald. The McDonalds have gained the full benefit of the purchase and own the vehicles, and Partners Finance paid the vendor. But the McDonalds  have  not  paid  the  purchase  price  to  Partners Finance or complied with the terms of the loan. It is untenable that the McDonalds can obtain ownership of, and title to, the truck and trailer, and take the position that they did not authorise payment of the purchase price. The loan agreement was effective when it was signed. The commencement date referred to in the agreement was the date the loan obligation payments commenced. The agreement did not require express consent to pay the vendor. Mr Reid was clearly a go-between, between the McDonalds and the vendor. The promise was to pay the balance of the purchase price. It is simply wrong that there was no meaningful contractual nexus between the purchase and the loan, which are plainly interlinked. This is a simple contract case where the McDonalds promised to perform by doing something. There is no written authority to the contrary. The only just outcome is to hold the McDonalds to the covenants they entered.

12 At [64].

13 At [66].

14 At [68].

15     Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

[14]   Mr Phillips, for the McDonalds, submits Partners Finance paid Smart Assets the balance of the purchase price without the McDonalds knowing. The loan agreement is entirely separate  from  the  sale  and  purchase  agreement.  McDonalds Trading was not bound to use the loan advance to buy the truck and trailer. The issue requires determining the meaning of the words in cl 5 of the loan agreement. The McDonalds, as guarantors, have no obligations under the loan agreement unless the loan was drawn down. But only McDonalds Trading could authorise the drawdown and it did not, because the truck was not ready for delivery. There had to be something in the loan agreement that triggered the lending. Nothing indicates that was when the sale and purchase agreement became unconditional, the truck and tailer were delivered, or when the loan agreement was entered into. It had to occur on the authority of the borrower. It was not for Partners Finance to determine for itself when the conditions of the sale and purchase were satisfied.

Are the McDonalds liable under the guarantee?

[15]   Pacific Crest’s appeal is founded on the McDonalds being bound by the loan agreement. But I agree with the Judge that the plain meaning of cl 5 of the loan agreement is that it commenced when the funds were advanced under that agreement. That required McDonald Trading to authorise the drawdown. The Judge’s assessment of the evidence, with the benefit of hearing directly from the parties, is that they did not do so. On the basis of what is before me, I cannot say he was wrong. So the loan agreement did not  commence.  Partners  Finance’s  payment  to  Smart  Assets  on 21 September 2020, on the authorisation of Smart Assets but not on the authorisation of McDonald Trading, was made in error. Accordingly, the McDonalds are not liable to fulfil their guarantee.

[16]   The above conclusion stands irrespective of whether the loan agreement and the sale and purchase agreement were contractually interlinked and the status of that contract. Smart Assets is not attempting to enforce the sale and purchase agreement in these proceedings or, as I understand it, in any proceedings. I agree with the Judge that McDonald Trading was not required to authorise drawdown of the loan and it did not do so.

[17]   Mr Dewar’s best point is that the truck and trailer is parked in the McDonald’s yard, may be used by the McDonalds, and the McDonalds have not paid for them. But the McDonalds do not agree they own them and say Smart Assets owns them. These proceedings do not determine who owns the truck and trailer. They only determine whether the McDonalds are liable on the guarantee. Because of the conclusions I reach above, I agree they are not.

Result

[18]I dismiss the appeal.

Palmer J