Peters v NZHB Holdings Ltd

[2004] NZCA 245

IN THE COURT OF APPEAL OF NEW ZEALAND

CA207/03

BETWEENJAMES MATHEW PETERS

Appellant

ANDNZHB HOLDINGS LIMITED

Respondent

Hearing:6 September 2004

Coram:Anderson P
Glazebrook J
William Young J

Appearances:  W A McCartney for Appellant

M G Ring QC for Respondent

Judgment:30 September 2004 

JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J

Introduction

[1]       NZHB is a financier. It offers a service, called a “Homebond”, whereby it will finance the payment of a deposit on real estate transactions. Repayment of the advance (plus a fee) is expected to occur at settlement of the transaction.

[2]       NZHB funded the payment of a deposit by Mr Jamie Peters’ brother, Symon, on the purchase of a property in Adelaide Road, Wellington. The vendor was Jamie’s company, Caravelle Holdings Ltd. Settlement was to take place contemporaneously with that company’s purchase of the property, but the onsale to Symon was at a higher price.

[3]       Symon did not repay the bond on the due date. Extensions were granted but Symon was still not able to pay. NZHB realised its security and made demand on Jamie for the shortfall, pursuant to a deed of indemnity Jamie had entered into. Jamie refused to pay.

[4]       NZHB issued proceedings and applied for summary judgment. This was granted by Baragwanath J on 20 August 2003. Jamie appeals against that judgment. He also made application before us to adduce further evidence. We refused that application. As well as dealing with the appeal, this judgment gives the reasons for that refusal.

Terms of the deed and the bond

[5]       The relevant Homebond entered into by Symon was repayable on the earliest of settlement of the sale and purchase agreement, default on the agreement on the part of Symon or the expiry of the anticipated bond period. In this case that period was to expire on 11 May 2000. The fee for the bond was set on the basis of the anticipated bond period. The bond conditions contained the following terms:

11.  If the Agreement is not settled within the Anticipated Bond Period the purchaser may apply to NZHB for an extension of the Anticipated Bond Period which will be granted at the discretion of NZHB upon receipt by NZHB of evidence of acceptance by the vendor of delayed settlement and upon receipt of all fees payable to NZHB including fees for which the Anticipated Bond Period is extended.

12.  If the purchaser fails to settle the Agreement before expiry of the Anticipated Bond Period or any extension thereof NZHB will, when a Cashless Home Deposit is used pay the deposit less any Agent’s commission already paid, to the vendor within 7 days after receipt of (a) notice from the vendor that the purchaser(s) has defaulted under the Agreement following expiry of a settlement notice; and (b) certified copies of the settlement notice and proof of valid service.

13.  If the purchaser(s) notifies NZHB of failure to settle the Agreement because of dispute between the parties, then the amounts to be paid to the vendor pursuant to clause 12 shall be retained by NZHB, and amounts paid into a solicitor’s or agent’s trust account by NZHB shall not be disbursed, until that dispute is determined by agreement or by litigation.

14.  At the earliest of the settlement of the Agreement or the expiry of the Anticipated Bond Period or the purchaser first defaulting in settling the Agreement the purchaser shall repay to NZHB all amounts paid by NZHB under the Cashless or Full Cash Home Deposits.

15.  In the event of late payment to NZHB of the amounts owing pursuant to this application the purchaser(s) shall pay to NZHB interest at 18% per annum (calculated on a daily basis) on those amounts and shall pay any solicitor and client costs incurred by NZHB in collecting those amounts on a solicitor and client basis.

16.  The purchaser appoints the solicitor specified in this application as their solicitor for settlement of the Agreement and hereby instructs their solicitor not to settle the Agreement without contemporaneously paying all amounts owed by the purchaser to NZHB. The purchaser authorises NZHB to advise the solicitor, on behalf of the purchaser, of these directions and that these directions are irrevocable without the prior written consent of NZHB.

[6]       The deed signed by Jamie was entitled “Deed of Indemnity & Right to Mortgage”.  It provided that:

In consideration of New Zealand Home Bonds Ltd (“NZHB”) having provided or providing at any time in the future Homebond products and deposits including but not limited to those listed in schedule A (“the Bonds”) to the persons listed in schedule B (“the Purchasers”), to allow any one or more of the Purchasers to satisfy sale and purchase deposit obligations arising at any time, the Purchasers and the persons listed in schedule C (“the Covenantors”) together hereby indemnify NZHB and HIH Casualty and General Insurance (NZ) Ltd. (“HIH") for any loss, claim, demand or expense suffered from time to time by NZHB or by HIH in relationship to the Bonds and other products.

[7]       The purchaser was set out as being Symon Peters and one of the covenantors was Jamie Peters. The deed went on to require that the purchasers and the covenantors would execute in favour of NZHB a mortgage over the properties set out in the schedule and any future properties owned by them. It continued:

The Purchasers appoints [sic] Knight Coldicutt, or any other solicitor approved in writing by NZHB, as their solicitor for settlement of the sale and purchase agreements where deposit obligations are secured by the Bonds (“Agreements”), and hereby instructs their solicitor not to settle Agreements without contemporaneously paying to NZHB all amounts owed by the Purchasers to NZHB pursuant to such Bonds and Agreements. The Purchasers authorises [sic] NZHB to advise the Purchaser’s solicitor, on behalf of the Purchasers, of these directions and that these, directions are irrevocable without the prior written consent of NZHB.

[8]       It will be noted that this clause mirrors clause 16 in the bond as set out above.

Baragwanath J’s judgment

[9]       The Judge held that the deed entered into by Jamie is to be characterised as one of indemnity rather than a guarantee. It was argued by Jamie that, even if that were the case, NZHB breached an obligation to Jamie to require payment by Symon at the date of settlement of the Adelaide Rd purchase. The Judge was prepared to assume that it was arguable that what the Judge called a business efficacy term should be implied into the deed to the effect that NZHB would not fail to require such payment, at least without Jamie’s consent.

[10]     However, the Judge pointed to the uncontested evidence from Mr Rudkin, a director of NZHB, that Jamie, as well as Symon, actively sought extensions of the bond from NZHB. The Judge also pointed out that, as Jamie was the sole director of Caravelle, any sale of Adelaide Rd by it can only have occurred with his participation. As a result, the Judge held that Jamie was estopped from alleging, as breach on the part of NZHB, conduct to which he was party.

[11]     Jamie was also relying on a re-arrangement of Symon’s securities as being a variation of the bond which discharged his liability under the indemnity. The Judge held that, as the deed is one of indemnity, variations in Symon’s obligations did not relieve Jamie from liability and, in any event, Jamie had, in a letter of 8 May 2001, given his consent to what was to occur, albeit while preserving existing defences.   

Grounds of appeal

[12]     Jamie argues that the Judge was wrong to hold that the deed was of indemnity. His liability was only as guarantor and he is relieved from liability because NZHB granted extensions to Symon without Jamie’s knowledge. He then argues that, even if the deed is of indemnity, NZHB breached a condition precedent to Jamie’s liability by failing to secure repayment of the bond from Symon when he settled the purchase of Adelaide Rd. As a consequence, Jamie had the right to cancel the indemnity and has done so. Jamie also says that the Judge was wrong to hold that he was estopped from asserting breach (whether or not the new evidence is taken into account).

Application to adduce new evidence

[13]     Jamie’s application to adduce new evidence on the appeal covered three items. The first was his express denial that he had requested extensions to Symon’s Homebond and his assertion that he had not even had a discussion on this topic with NZHB before settlement of the purchase. He said that this evidence was not before the High Court because NZHB’s statement of claim did not plead estoppel. Nor did it plead the facts relied upon by Baragwanath J to find an estoppel. If it had, then he would have put his express denial before the High Court. As it was, he says that the question of estoppel only arose during the hearing and by that time it was too late to respond.

[14]     The second piece of evidence he wished to adduce was a letter from NZHB of 7 March 2001, which he said that he had only just found. He maintained that this backed up his position on the alleged estoppel. Thirdly, he wished to place before the Court the certificate of title for Adelaide Rd, which, he maintains, shows the date of settlement of the purchase by Symon’s company. The certificate of title shows a transfer was registered on 30 May 2000. We note, however, that he did not set out in his affidavit the exact date of settlement, even though this must clearly have been within his knowledge as he controlled the vendor.   

[15]     Jamie’s assertion that he was not aware that there was an issue over whether he had consented to extensions of time given to Symon on the bond does not withstand scrutiny of the NZHB affidavit evidence that was before the High Court. In Mr Rudkin’s affidavit in support of summary judgment he noted that the anticipated bond period for the Homebond in question expired on 11 May 2000. He then said that he had various discussions with Symon and his solicitors and with Jamie. They sought extension to the bond period, which Mr Rudkin deposed that he had agreed to as long as Symon agreed to pay the requisite extension fees.

[16]     This evidence was put in an even clearer manner in Mr Rudkin’s affidavit in reply. He said in that affidavit that the extensions of time were given at the request and with the full knowledge of Jamie. He said that, during the period of the extensions from 11 May 2000 to 11 June 2001, he spoke with Jamie on several occasions by telephone and that Jamie had urged him on each occasion to extend the bond beyond the next expiry date rather than take enforcement action against Symon. 

[17]     Mr Rudkin expressed surprise and anger that Jamie was now raising the extensions of Symon’s bonds, effectively made by him at Jamie’s specific request, as the main or only defence to his own liability. For Jamie, in the face of such a statement, to maintain that he did not realise that his consent to the extensions was an issue in the proceedings beggars belief.

[18]     We refused to accept the new evidence on the basis that it was clearly evidence that was in Jamie’s possession and there was no reason for it not to have been adduced by him before the High Court. In any event, we comment that, on the view we take of the case, it does not matter whether or not Jamie consented to the extensions of time and, therefore, the evidence is of no relevance.

Guarantee or indemnity?

[19]     The Judge was correct in our view to characterise the deed as one of indemnity rather than guarantee. In a contract of indemnity a primary liability is assumed. By contrast, in a contract of guarantee the surety assumes a secondary liability to the creditor for the default of another who remains primarily liable to the creditor – see Dr James O’Donovan and Dr John Phillips The Modern Contract of Guarantee (Sweet and Maxwell, 2003) at 37-43 for a full discussion of the distinction between a guarantee and an indemnity.

[20]     In this case, the document is headed up “Deed of Indemnity”. While this is not decisive, it gives a strong indication of the intention of the parties. The deed also uses the word “indemnify” in describing the obligation. The indemnity is expressed as being “for any loss, claim, demand or expense suffered from time to time by NZHB or by HIH in relationship to the Bonds and other products”. It is clearly a primary liability and wider than an obligation to guarantee the obligations of the purchasers.

[21]     Mr McCartney submitted that the deed had to be one of guarantee as the obligations of the purchaser and the covenantor would always be the same because the purchaser was also party to the deed of indemnity. We reject that argument. That the purchaser is also an indemnifier cannot turn an indemnity into a guarantee.

[22]     Mr McCartney also submitted that, as a practical matter, the obligations of the purchaser and the covenantor would be the same, even if the purchaser had not been a party to the deed of indemnity. The only losses that can arise with regard to the bonds are, in his submission, losses associated with non-payment of the bond. We reject that submission also. In this case, the indemnity covers not only losses but also claims (which could be third party claims), expenses and demands. It obviously is intended to cover more than losses associated with non-payment. It also extended to HIH, the underwriters. In any event, it is, as pointed out by the Judge, not a necessary condition that an indemnity renders a promisor liable for a greater amount than the principal debtor, although that can be (as it was here) one indication of an indemnity rather than a guarantee.     

Implied term in indemnity?

[23]     As the deed is an indemnity it would not normally matter whether or not  extensions of time to pay, that were not contemplated by the bond conditions, were given to Symon. An indemnifier is not discharged by such conduct of the creditor – see O’Donovan and Phillips at 39.

[24]     Mr McCartney submitted, however, that it is a term of the indemnity that such extensions should not be given. This is clearly not the case. Indeed, to the contrary, it is contemplated in the deed (and the bond) that NZHB can give prior written consent to the solicitors to settle without repaying the bond amounts. With respect to Baragwanath J, we also see no possible argument that there is an implied term that NZHB’s consent would not be given without the convenantor’s consent. Such a term could never meet the tests for implying terms into contracts set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC).

Result and costs

[25]     The appeal is dismissed.

[26]     Baragwanath J held that the indemnity included actual reasonable legal expenses incurred in enforcing payment under the deed. That finding has not been appealed. NZHB has filed an affidavit detailing costs since Baragwanath J’s supplementary judgment of 7 November. These total $58,164.51. Costs of that amount are therefore awarded to NZHB. 

Solicitors:
Carson & Co, Auckland for Appellant
Chapman Tripp, Auckland for Respondent