Reddington v Hieber as Executor of the Estate of R J Hieber HC Auckland Civ-2009-404-007524

[2011] NZHC 2402

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-007524

BETWEEN  P J REDDINGTON & ORS AS TRUSTEES OF THE P & L TRUST Plaintiffs

ANDR C HIEBER AS EXECUTOR OF THE ESTATE OF R J HIEBER

Defendant

Hearing:         29 November 2010

Appearances: Mr W G Templeton for Plaintiffs

Mr R J Macdonald for Defendant

Judgment:      17 December 2010 at 10 a.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

17.12.10 at 10 a.m., pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:

W G Templeton, Barrister, P O box 5444, Auckland – [email protected]

Short & Partners, P O Box 137-241, Parnell – [email protected]

P J REDDINGTON & ORS V R C HIEBER AS EXECUTOR OF THE ESTATE OF R J HIEBER HC AK CIV-

2009-404-007524  17 December 2010

Background

[1]      The Hieber trust of which Rudolf Hieber was a trustee owned an industrial property in Penrose.   The property was tenanted by a company which carried on Hieber family business, RMS.   In early 2004 the trust wished to dispose of the commercial property.  In order to make it more attractive to potential purchasers it was seen as being desirable for there to be a lease in place between the trust and RMS replacing the informal tenancy arrangements that had governed their relationship up until that point.  On 26 February 2004 the trust and RMS executed the lease.  The principal terms of the lease were:

a)        The lease was for ten years with a right of renewal for five years;

b)        Rent review dates were for January 2008, 2011 and 2014;

c)        There was no guarantee;

d)The lease was signed on behalf of RMS by its managing director, the defendant.   The third schedule to the standard lease form had been deleted in its entirety.

[2]      In  early  2004  the  plaintiffs  commenced  negotiations  to  purchase  the commercial property from the Hieber Family Trust.  It was proposed that the lease term would be extended to 15 years, there would be an agreed rent increase in January 2006 and there would be a review “to market” in January 2009.

[3]      The plaintiffs through their lawyer, Mr Foley, negotiated with Mr Hieber, represented by his lawyer, Ms Quinn.  The substance of the negotiations concerned possible amendments to the lease which the plaintiffs sought if they were to acquire the property.  It is at this point that the central issue in the dispute emerged.

[4]      The  key  point  of  difference  concerned  a  personal  guarantee  which  the plaintiffs required to be available from Mr Hieber if they were to proceed.  Ms Quinn advised that Mr Hieber was prepared to provide a personal guarantee but subject to conditions.   Mr Hieber did not wish to remain subject to liabilities arising from a

personal guarantee in the event that his company, RMS, was no longer the tenant of the property.  This reflected Mr Hieber’s concern that if he wished to dispose of the business of the company and no longer had an association with it, it did not seem prudent for him to be liable for rent obligations which would devolve on a stranger who had acquired the business.

[5]      The detailed sequence of the negotiations was as follows.

[6]      In the course of the negotiations between the parties which were conducted by the solicitors, Mr Hieber’s position was put to the purchaser’s solicitors.   In a letter  dated  12  March  2004  they proposed  the  following  concerning  a  personal guarantee.

4.John  Hieber  provides  a  personal  guarantee  for  the tenant.    This guarantee would be subject to our client remaining as managing director of RMS Shopfitters Limited.  Accordingly, if the company is sold to a third party or the lease is assigned then the personal guarantee will lapse.

[7]      That  proposal  was  not  acceptable  to  the  purchaser’s  solicitors.    On  the morning of 18 March 2004 at 9:48 am Glaister Ennor, acting for Mr Hieber, in a fax referred to Mr Foley’s "recent telephone message" and enclosed  “an amended clause relating  to  our  client’s  personal  guarantee".    The  proposed  new  clause  read  as follows:

Rudolph John Hieber has entered into this deed of lease as guarantor of the obligations of the tenant RMS Shopfitters Limited. However, the parties acknowledge that this is a limited guarantee. If the ownership of RMS Shopfitters Limited should change or should the lease be assigned from RMS Shopfitters Limited to a third party then the guarantee granted by Rudolph John Hieber shall automatically lapse on the date of the change of ownership or the date of assignment.

[8]      The solicitors for the purchasers replied the same morning, 18 March 2004, and confirmed, amongst other things, that the purchasers were prepared to agree to Mr Hieber’s guarantee ceasing when the lease:

..is assigned pursuant to the provisions of clauses 35.1 or 35.4 of the lease. We set out the amendment to the proposed guarantee clause sent by you this morning as agreed with you in our subsequent telephone conversation.

[9]      The  key  words  from  the  above  communication  were  “pursuant  to  the provisions  of  clauses  35.1  or  35.4  of  the  lease”.     In  accordance  with  the arrangements so negotiated, the guaranteed clause would now read as follows:

Rudolph John Hieber has entered into this deed of lease as guarantor of the obligations of the tenant RMS Shopfitters Limited. However, the parties acknowledge that this is a limited guarantee. If as provided for in this lease the ownership of RMS Shopfitters Limited should change or should the lease be  assigned  from  RMS  Shopfitters  Limited  to  a  third  party  then  the guarantee granted by Rudolph John Hieber shall automatically lapse on the date of the change of ownership or the date of assignment.

[10]     On 18 March at approximately 7:30 pm Mr Hieber e-mailed his solicitor and said that he had spoken to the estate agent that morning and understood that all was agreed including the "limited guarantee".

[11]     The next day, 19 March 2004, Glaister Ennor on behalf of the vendor wrote confirming that “our client is in agreement with settlement proceeding on the basis of the changes referred to in your letter”.  Therefore the counter-proposal that had been made by the purchaser’s solicitor had been accepted and amended draft terms of the guarantee provision in the lease as proposed by the purchaser agreed to.  The solicitors advised that they were currently arranging for the guarantor’s attorney to sign.

[12]     Clause 35.1 to 35.4 were provisions of the lease which were concerned with assignment of letting.  Clause 35.1 stated that the tenant shall not assign, sublet or otherwise part with the possession of the premises or any part thereof without first obtaining the written consent of the landlord which the landlord “shall give” if a number of conditions were fulfilled.  These included that the proposed assignee or sub-tenant was a suitable person, that the rent was up to date, that in the case of assignment a deed of covenant “in customary form” is executed and delivered to the landlord and that in the case of assignment to a company that “a deed of guarantee in customary form approved or prepared by the Landlord” is duly executed by the principal shareholders of that company and delivered to the landlord.  Clause 35.4 dealt with a situation where there was a change of ownership of the company.  In summary it provided that any change in the legal or beneficial ownership of the shares of the company or a change in the effect of management or control of the

company were deemed to amount to assignments of the lease.  The effect of clause

35.4 was that if the events such as change of ownership of shares occurred then an assignment  was  deemed  to  have  taken  place.    That  in  turn  would  trigger  the provisions of clause 35.1.

[13]     On 19 March Ms Quinn wrote to Mr Foley confirming the terms of the guarantee and attaching copies of the relevant pages of the lease.  She said that she was able to:

... confirm that our client is in agreement with settlement proceeding on the basis of the changes referred to in your letter.

Please find attached a copy of those pages of the lease which have been amended.   We are currently arranging for the guarantor’s attorney to sign and we will send through a copy of the attestation pages once it is to hand.

[14]     The pages that accompanied that letter included the face page of the deed of lease which included this provision:

THE GUARANTOR covenants with the Landlord as set out in the Third

Schedule subject to clause 48.

[15] The pages sent to Mr Foley included the form of clause 48 with the amendments that Mr Foley had proposed included. Clause 48 of the lease followed the wording that the solicitors had negotiated culminating in the formula I have set out in paragraph [9].

[16]     Throughout this period of the negotiations right up until the date when the settlement of the purchase of the property occurred which was on 2 April 2004, Mr Hieber was absent from New Zealand.  However he had given a power of attorney to Mr Robert Nareb who was a consultant to the firm of Glaister Ennor.  There is no dispute that the guarantor’s attorney referred to in Ms Quinn’s letter of 19 March

2004 was Mr Nareb.

[17]     It would appear that the lease which had been entered into in February of

2004 was never formally re-executed by the tenant and the guarantor.  But there is no doubt that the solicitors agreed to changes to the lease by adding a provision that the guarantor covenanted with the landlord as set out in the third schedule subject to

clause  48  and  in  clause  48  providing  for  an  automatic  lapse  of  the  guarantee provided that ownership of RMS changed or there was an assignment from RMS to a third party.  The defendant contends that the exchange of correspondence to which I have referred and which he does not deny occurred, did not have the effect of constituting an agreement to lease between the parties.  He submits that there was therefore no primary obligation which the deceased guaranteed.  He further contends that because the company RMS went into voluntary administration at a later point in time, 28 March 2008 and following which there was a change in the shareholding of RMS, at least from that point forward he was discharged from any liability he might have had as a guarantor.  I will consider what the legal position is further on in my judgment.

[18]     The agreement for sale and purchase of the business settled later in March (there does not seem to be agreement as to what the date was). It is not entirely clear to me what lease document or documents were actually provided on settlement. What seems likely is that a copy of the original lease entered into in February 2004 together with the pages as amended were provided.  In the circumstances I do not regard that aspect of the matter as being of significance.   The analysis of the contractual arrangements that I set out further on in this judgment is not affected by that question.

Did  the Hieber Trust enter into a binding lease with RMS?

[19]     In their notice of opposition at paragraph 3 (a) the defendant states:

the proposed lease relied upon by the plaintiffs was never agreed by the landlord and/or tenant and/or executed by them

[20]     I understand that as a corollary of that defence, it is further contended that there is no liability on the part of the defendant because there was no principal debt or obligation in existence which was covered by the guarantee.  It was submitted by Mr Macdonald that the R.J. Hieber Family Trust (“Hieber Trust”) and tenant had entered into a lease or agreement to lease in February 2004.

[21]     What occurred was the following.    First, the parties entered into an initial agreement in February of 2004 which contained a due diligence provision.  Because

that was not satisfied the agreement was terminated on 8 March 2004.   However further negotiations followed and the sale of the property was renegotiated with changes to price, terms of lease and a guarantee.

[22]     I agree that there was a lease entered into in February and that there were variations carried out to it in March.   I do not agree that any particular form of formality was required in order for an effective variation to be made.

Was liability dependent on a formal agreement being executed by all relevant parties?

[23]    Mr Macdonald submitted that if there was a variation of a lease agreement it was customary conveyancing practice for the parties to initial changes.   I have no doubt that is a matter of practice or a pattern that is usually observed.  However it is not a requirement of law and whether the parties intended to enter into a binding agreement without such initialling of variations taking place should be decided in the overall context of what they actually did.  In this case the fact was that the parties implemented two legal transactions – an agreement for sale and purchase of the property and a leasing by the new owner of the property.  From those circumstances even if there was some uncertainty about matters of form such as the absence of initialling, it can be inferred from their conduct that the parties entered into an agreement – in deciding whether there has been an agreement reached the parties look  at  the  whole  context  to  see  whether  that  has  occurred:  see  Broadcasting

Corporation of New Zealand v Daniels.[1]   I respectfully agree with what Miller J said

in his judgment in Welsh v Gatchell 2009 that the ordinary inference where parties contemplate a written agreement is that they do not mean to be bound until it is signed and that it is for the plaintiffs to displace that inference.[2]   But it is only an inference.  The parties are free, though, to choose the means by which they express their agreement:  Smith v Taylor.[3]

... The Court must deduce from the way the parties to a transaction have conducted themselves what they contemplated would bring finality to their negotiations.

[1] Broadcasting Corporation of New Zealand v Daniels (1988) 2 NZBLC 103, 535 at 103,541.

[2] Welsh v Gatchell 2009 1 NZLR 241 at [35].

[3] Smith v Taylor [1987] CA 9/85, 16 December 1987 at 3.

[24]     I consider that the parties here made it clear that they would be bound to the lease even without execution of a formal deed of lease.  That is why Ms Quinn was content to have the provisions of the lease which had been changed agreed upon by Mr Foley through an exchange of correspondence rather than re-execution of the lease: see her letter of 19 March 2004.  Consistent with that approach, the vendors transferred the property and the purchasers paid the price on settlement without requiring that there first be in existence an executed formal agreement. The first suggestion that that was a requirement seems to have emerged when these proceedings commenced some years later.   The conclusion that I have reached is based upon a consideration of the objective factual situation.  That conclusion could not be displaced by evidence of the subjective points of view of the parties who were involved at the time – even if it were available which it is not – at least in the case of Mr Hieber.   I do not therefore consider that there is an arguable defence on this point.

[25]     In effect, what occurred was that there was a variation agreed to between the two solicitors as the authorised agents: Glaister Ennor for the tenant and guarantor, and  Mr  Foley  for  the  purchaser.    The  variations  are  to  be  gathered  from  the exchanges of correspondence that were exchanged between the solicitors and the agreement, as varied, was thereafter implemented when the parties settled the transaction.

The solicitors’ authority

[26]     The position that had been reached by March 2004 was that the parties were still in negotiation about the purchase of the property with the sticking points being the terms of the lease to RMS and the terms of the guarantee which the purchasers required Mr Hieber to provide. The plaintiffs’ case is that, Mr Hieber being out of the country, the negotiations were carried out on his behalf by the solicitor acting, Ms Quinn. In the notice of opposition no point was taken about whether Ms Quinn had the relevant authority to negotiate terms with the purchasers and to agree on behalf of the Hieber interests to any terms which might be negotiated. In his submissions Mr Macdonald said:

27.Ms Quinn in the light of the express terms communicated to her by John Hieber did not have authority to change the terms that were given to her….

[27]     The first issue then is whether Ms Quinn had been given instructions to offer a guarantee of a certain form which Mr Hieber had authorised and whether she departed from those instructions to offer a form of guarantee which was not authorised.

[28]     In the circumstances, of course, there is no evidence from Mr Hieber on this point.  Nor is there evidence from Ms Quinn.  It is a matter of seeing what inferences can be drawn from all the circumstances. Those circumstances are essentially the matters that are set out in the chronology in the background section of this judgment.

[29]     This issue requires analysis of the authority that Ms Quinn had as an agent. First I will consider the issue from the perspective of actual agency.

[30]     In the light of the fact that on 19 March 2004 Ms Quinn said that “our client is in agreement with settlement proceeding on the basis of the changes referred to in your letter of 18 March”, it is probable that she was accurately describing what had happened.  The alternative is to conclude that she was not telling the truth when she said that she had instructions or alternatively that while she may have thought she had instructions, she was mistaken. It would be wrong in my view to assume that Mr Hieber gave fixed instructions about the guarantee which were never to be departed from. After all, he had initially proposed that his solicitors try and obtain a form of guarantee which was limited to the period when he was a director of RMS but not thereafter.

[31]     Then there is the matter of apparent authority.  Mr Hieber who provided instructions from the Hieber interests to Glaister Ennor delegated to Ms Quinn the task of representing those interests in the dealings with the plaintiffs. He authorised or permitted Glaister Ennor to represent that they had authority to act on behalf of the Hieber interests. In those circumstances the Hieber interests are bound by the various agreements reached and concessions made that Glaister Ennor and Ms Quinn communicated to the purchasers’ solicitors.  Having delegated authority in this way,

it was not open to the Hieber interests to disclaim responsibility for what was agreed and attempt to resile from it. Whether or not Ms Quinn had responsibility to agree to the amended guarantee does not matter. She was permitted to represent herself as the Hieber’s delegate and that is sufficient.

Was it necessary for RMS to execute the lease in accordance with s 180 of the

Companies Act 1993

[32]     Mr Macdonald asserted that there was a further ground upon which there may have been no liability of the guarantor because there was no liability of the tenant, that  being  because  the  tenant  had  not  executed  the  lease  as  per  s  180  of  the Companies Act 1993.

[33]     The submission focuses on the requirement of s 180 and the submission, as I understand it, is that, in this case because the agreement to lease was not signed in this way, the guarantee given by Mr Hieber is not enforceable.   The assumption made is that the lease obligation is not enforceable and that therefore the obligation of the guarantor is likewise invalid.

[34]     I do not accept this submission.  The primary reason is that s 180 deals with cases where an obligation is required to be by deed.   There is no doubt that the agreement between the tenant and landlord in this case under which the tenant was required to pay rent was enforceable even though not executed as a deed.   Mr Macdonald  did  not  point  to  any  ground  for  the  Court  coming  to  a  different conclusion.  I apprehend that the matters that Mr Macdonald regarded as significant related to issues such as whether an equitable or legal lease was in issue and whether or not the lease was registerable.   I do not understand that that has any direct relevance to the present dispute, for two reasons.  First, this is not a case concerning priority of legal interests in the land which was the subject of the lease agreement. Second, there is no dispute about whether the tenant had the right to possession of the property.  Possession was given by the landlord and taken by the defendant.  The only dispute is about whether the rent is being paid and, if not, the obligation of the guarantor to make good the deficiency.  For those reasons I conclude that arguments about the formalities required under s 180 of the Companies Act 1993 and the Land Transfer Act 1952 are not on point.

Notice of Opposition ground 2: the defendant did not agree to or give a guarantee in terms relied on by the plaintiff

[35]     The amendments included the insertion of the term I have referred to in paragraph [14] above.

[36]     It is disputed that the guarantor by his attorney ever signed the document and thereby became bound.

[37]     The point that is taken by the defendant is made in a deposition from Mr Paul Collins a partner in the firm of Glaister Ennor who has reviewed that firm’s file relating to the transaction.

[38]     He deals with the fact that Ms Reddington produced as an exhibit to her affidavit a copy of a lease document which bears what purports to be a signature of Mr Narev signing as attorney for the guarantor, the defendant.  Whatever status the page with the signature of Mr Narev on it has, it is not disputed that the writing on that page actually is a copy of Mr Narev’s signature.

[39]     Mr Collins says that the copy of the lease which his firm has on the file differs from that which Ms Letita Reddington for the plaintiffs deposes is the one which was executed by the parties.  The difference concerns the version of the lease which Ms Reddington deposes had annexed to it a second page with a signature of the attorney, Mr Narev, appearing opposite the words “signed by the guarantor in the presence of ...”.  Mr Collins says that he has not seen that page “other than in Ms Redington’s affidavit”.

[40]     Mr Foley, the solicitor for the plaintiffs who acted on the transaction, has confirmed that the lease as varied which he received contained the page executed by Mr Narev.  He has not apparently retained the original of the lease.  Mr Foley in his reply to Mr Collins affidavit was explicit on this point saying:

5.There is no confusion or mistake over the fact that I negotiated the final terms of Mr Hieber’s guarantee and that the exact form of the guarantee is that which is contained in clause 48 of the lease of the

property and that the guarantor’s execution page was included in the lease.

[41]     The matter therefore comes down to this.  If the guarantee is only binding if it is established that Mr Narev signed the lease as attorney for the guarantor, a proposition I deal with below, then the defendant would seek to argue that there is doubt about whether Mr Narev did in fact sign.  The defendant’s case is that such doubt arises from the fact that Mr Collins (who did not act on the transaction) on reviewing  his firm’s file found that the copy of the lease held had omitted from it the page with Mr Narev’s signature on it.   He does not, and cannot aver that Mr Narev did not sign.  Mr Collins was not actually involved in this transaction which took place in 2004.  Mr Narev has not given a deposition that he did not sign.

[42]     The possibilities therefore are that the copy of the lease on Glaister Ennor’s file is a true copy of the lease actually executed by all relevant parties in 2004 or that the lease produced by Ms Reddington is a copy of the document in fact executed and that Glaister Ennor’s copy is not a complete one.

[43]     In my assessment, the following matters of background bear upon which side’s contentions are correct.  First, the arrangements that the solicitors negotiated called for Mr Narev to sign the guarantor as attorney for Mr Hieber.  The solicitor acting for the Hieber interests (including Mr Hieber) was Ms Quinn.  She  expressly affirmed that Mr Narev would be signing the document as attorney for Mr Hieber. Further, the solicitors for the plaintiffs have in their possession a copy of a document which appears to be signed by Mr Narev as attorney for the guarantor.

[44]     As well, if there is to be a reasonably arguable defence that Glaister Ennor’s copy of the lease is the correct one rather than the one that Ms Reddington has produced, some explanation has to be given as to how the plaintiffs came into possession of a copy of a document bearing the words “signed by the guarantor” and with the name stamp of a staff solicitor from Glaister Ennor impressed upon it.  If that document is not a copy of a document actually signed by Mr Narev, the inescapable conclusion is that someone has concocted the document and that it is a falsity.

[45]     Quite apart from anything else, in the absence of any suggestion that the purported signature from Mr Narev was a forgery – and that suggestion has not been made – how else would Mr Foley’s firm have come to be in possession of such a document?  The inherent probability is that the document is what it purports to be. The defendant has not directly confronted this difficulty.   Through his legal representation  he  has  said  only  that  is  it  different  from  the  copy  which  the defendant’s solicitors have on their file.

[46]     Such force as Mr Collins’ evidence has depends upon inferences to be drawn from the fact that the copy of the lease which his firm has on file has not been executed by Mr Narev.  Clearly the defendant relies upon Mr Collins version of the document to establish the following steps of reasoning:

a)       The defendant’s solicitors have a copy of the document which does not have the attorneys signature on it whereas the plaintiff’s solicitors have one that does;

b)That therefore there must be doubt as to whether the document finally signed actually included the Narev signature.

[47]     The  alternative  explanation  is  that  because  of  the  way  in  which  the documents were built up (using the February draft and   then grafting further provisions on to it) that the document that Mr Collins has located is a draft that came into existence at an earlier stage in the dealings between the parties, that a further document based on the “platform” of the earlier draft also came into existence but has not been retained by Glaister Ennor.  It may be relevant that Mr Collins does not give any evidence about the integrity of the document-custody procedures followed at his firm.  Nor does he indicate whether any check has been made to see whether part or parts of the file were ever dispatched elsewhere.

[48]     Returning to the question of a reasonably arguable defence, my conclusion is that the inherent probabilities point in the following direction.   When Ms Quinn wrote the letter she did on 19 March the parties had concluded an agreement which was  going  to  require  the  signature  of  Mr  Narev  as  attorney  for  the  guarantor.

Whether the signature page was stapled into the lease or was a separate document does not matter for present purposes.  The significant point is that one would have expected that such a document would have been prepared so that it was available for execution.  Even if Mr Narev ultimately did not sign the document, one would have thought that the conveyancing file at Glaister Ennor would have included the document which it was then contemplated he would sign.  As we now know, there is no such document on Glaister Ennor’s file.  The copy of the deed of lease that Mr Collins produced actually has the provision for a guarantor struck out.  One would have expected that the document prepared in furtherance of the solicitors’ agreement would have included provision for the guarantee.  That observation is unaffected by any dispute about whether Mr Narev ultimately signed the agreement in the appropriate part.

[49]     Further, if the defendant’s contentions are correct, when it came time to settle the transaction (a few weeks after Ms Quinn’s email of 19 March 2004) if the vendor supplied documents for settlement which did not include a guarantee provision of any kind (which would be the case if the form of lease Mr Collins has produced was the document actually sent over to the purchaser’s solicitor, Mr Foley), it would be surprising that Mr Foley did not immediately raise this issue. This issue had been a central point of the negotiations in the period leading up to 19 March when Ms Quinn indicated that the vendors would provide the guarantee and would send it over.

[50]     I appreciate that it is not for the Court in a summary judgment application to resolve questions of fact where credibility of particular witnesses is in issue.  But it is open to the Court to consider the inherent probabilities that arise from the paper trail that was left behind from the negotiations between the parties.  This is not a case where the defendant as part of its defence will put forward personal recollections of the  players  who  were  involved.    Essentially  the  only  persons  who  could  give evidence on the point are Mr Foley and Mr Narev.  Mr Narev has not provided an affidavit. In those circumstances it is a case of the Court drawing such inferences as it can from undisputed primary facts and from the general circumstances of the case. The undisputed primary facts include the significant point that the solicitors for the plaintiffs have in their possession a copy of the document signed by Mr Narev which

exactly matches the description of the document that the solicitor acting for the defendant said she would be sending to Mr Foley’s firm in the next few days.  The only copy of the agreement on Glaister Ennor’s file seems to have been prepared for a transaction in a form that the parties never agreed upon but which was proposed at an earlier stage.

[51]     Given the inclusion of the clause which provided that the third schedule of the standard ADLS agreement was to apply[4] and my conclusion in paragraph [50], if it were the case that the standard form third schedule to the fourth addition of the Law Society lease had been deleted from the original lease agreement entered into in February, the clause I quoted restored it.  That is the clear meaning of the express words of the contract.

[4] Supra, paragraph [14].

[52]     For all of these reasons, I conclude that the defendant is not able to point to a defence of substance on the question of whether the documents giving rise to a binding guarantee was actually signed on Mr Hieber’s behalf.

Mistake

[53]     In the notice of opposition which the defendant filed one of the grounds of opposition is stated in the following terms:

c)If  the  defendant  is  found  to  have  executed  a  guarantee  of  an enforceable lease (all of which is denied) then the guarantee does not reflect the terms agreed between the plaintiffs and the defendant and was given by mistake known to the plaintiffs.

[54]     The type of mistake is one that is described in s 6(1)(a) of the Contractual Mistakes Act 1977.  A reading of the evidence in this case leaves the impression that Mr Hieber was reluctant to give a guarantee but recognised that he might have to do that in order to conclude the deal. Consistent with that, the initial form of guarantee which he was prepared to offer was a very limited one.   In the first place the guarantee offered would have been limited in its effect in that it would only apply so long as he was a director of the company.  As Mr Hieber himself noted in an email to his solicitor on 14 March 2004:

Actually your clause was a very good one in my favour, as to get out of it, all

I needed to do was resign as director, thank you for trying for me!!!

[55]     As the negotiations progressed, his position was that he did not want to be responsible for the rent after the business was sold, that being a likely consequence given that Mr Hieber wished to withdraw from the business.   The negotiations disclosed in the communications between the two lawyers were concerned with that issue. It seems Mr Hieber hoped that he would be able to negotiate for a guarantee which was limited to the period for so long as he owned the business or until the

lease was assigned by RMS to another tenant.[5]   That is what he eventually obtained.

[5] See his email to Glaister Ennor 16 March 2004.

[56]     In any case, the communications between Mr Hieber and his solicitors were obviously  not  disclosed  to  the  plaintiffs  or  their  lawyer  as  the  negotiations progressed.     There can be no factual foundation put forward as the basis for an arguable defence that the plaintiffs were aware of any mistake that Mr Hieber might have made.

[57]    If Mr Hieber was mistaken as to how the personal guarantee would be formulated in the contract, the plaintiffs do not accept that they were aware of his mistake.  Not surprisingly, the defendant does not have any evidence to contradict the plaintiffs in that regard.   If an arguable defence is to be found, it must be apparent from the inherent circumstances of the case, and in particular, the sequence of events leading up to the casting of the agreement in its final form as negotiated between the lawyers.   Mr Macdonald submitted that because of the different time zone where Mr Hieber was located (in Italy) it would not have been possible for him to have known about the changes that were made to clause 48 through the addition of the words “if as provided for in this lease”.   If that is so then there could be no mistake on Mr Hieber’s part.  He would not have averted to the matter.

[58]     As I conclude elsewhere in this judgment Mr Hieber entrusted Glaister Ennor with representing him in the negotiations.   In those circumstances it does not seem likely that  the  plaintiffs  would  have  been  put on enquiry as  to  whether  at  any particular stage of the negotiations Ms Quinn had acquainted Mr Hieber with the details of what was being discussed in New Zealand and obtained his consent to the

next stage in those negotiations. I mention this because in the absence of any express evidence as to the supposed knowledge on the part of the plaintiffs that Mr Hieber had made a mistake, the issue can only arise if an objective consideration of the factual context suggests that the defendant has a reasonably arguable defence based upon mistake.  To succeed the defendant needs to demonstrate that one inference that a fair-minded person could draw from the factual background is that the plaintiffs understood that Mr Hieber was mistaken concerning the form of the guarantee that his lawyer was putting forward on his behalf.  I cannot agree that such is the case.

The effect on the guarantee of the transfer of shares in August 2008

[59]     The  next  point  that  is  taken  is  that  notwithstanding  the  insertion  of  the additional terms at the behest of the purchasers, the form of guarantee that the purchasers’ solicitor suggested was in any event ineffective to survive a transfer of shares in RMS away from the Hiebers which occurred 19 August 2008.

Clause 35

[60]     This submission brings into focus the meaning of clause 35 of the agreement to lease which I summarised in paragraph [12] above.  In my view that meaning is that Mr Hieber’s liability under the guarantee will inure until such time as there has been a change of shareholding in RMS or an assignment of the lease to another party “as is provided for in this lease”.  A change of shareholding or an assignment which does not comply with the other provisions of the lease, if carried out, would not be such an event as would lead to the extinction of Mr Hieber’s liability under the guarantee.   The provisions of the lease which obviously would apply to either of these two events were those contained in clause 35.1 of the lease.   This gave the tenant the right to assign only if it first obtained the written consent of the landlord. The landlord, the plaintiffs, would be required to give consent in the event that certain conditions were fulfilled.   These include the proposed new tenant being a person with the financial resources to meet the commitments under the lease, inter alia, that all rent was up to date.  A relevant change in the ownership of the shares would trigger the same provisions.  A change of shareholding would have the same

effect as an assignment to a limited liability.   The landlord could, if it wished, decline  to  approve  or  insist  on  a  personal  guarantee  being  obtained  from  the principal shareholders of such a company.  The tenant and the guarantor could not free the guarantor from his/her obligations without complying with the consent process.    Absent compliance, any share transfer which occurred would not be one that took place “as is provided for in this lease”.

[61]     How the provisions would, in detail, apply to the circumstance where the assignment was not a true assignment but a deemed assignment on a change of shareholding, would require some working through.  It would seem that in order to give effect to the provision in the circumstance of the deemed assignment, what would be required was a guarantee from the new principal shareholders in the event that there was a change of shareholding.   I reach that conclusion based upon the commercial background to the inclusion of covenants relating to the need for the lessor’s consent.  What the parties would have contemplated was that a change of shareholding in the tenant company would place the control of the business which the company operated and as part of which it rented the premises, beyond the control of the outgoing shareholders and that was a circumstance which meant it was unreasonable that the departing shareholders should continue to give a guarantee for a liability incurred in a business which they no longer controlled.   In such circumstances  it  would  be  reasonable  that  providing  a  replacement  personal guarantee from the new shareholders was available, the old shareholders would be released from their obligation on the guarantee and the new shareholders substituted for them.

The effect of the Voluntary Administrationof RMS

[62]     On 5 May 2008 at a watershed meeting of RMS, the creditors resolved that RMS enter into a DOCA.   The defendant alleges that as a result of the voluntary administration the guarantee was, in effect, terminated.  The defendant claims that by virtue of ss 239ACS and 239ACT of the Companies Act 1993 the company is released from the debt if the DOCA so provides.

[63]     As part of the arrangements entered into under the DOCA, I understand, the shares in the company previously owned by the defendant (and perhaps other family

members) were transferred to RVB Investments Limited (“RVB”).  The issue arises as  to  what  effect  that  has,  if  any,  on  the  liability  of  the  defendant  under  the guarantee.

[64]     Mr Templeton said that the lessor in this case did not vote in favour of the DOCA at the watershed meeting.   Mr Templeton submitted that the position was therefore covered by s 239ACT of the Act which provides as follows:

239     ACT     Extent to which deed binds creditors

(1)A deed of company arrangement binds all creditors in respect of claims   that   arise   on   or  before  the   cut-off   day  (see   section

239ACN(2)(i)) specified in the deed.

(2)      This section does not prevent a secured creditor from enforcing or otherwise dealing with the charge, except so far as—

(a)the deed provides otherwise in relation to a secured creditor who at the watershed meeting voted in favour of the resolution as a result of which the company executed the deed; or

(b)      the Court orders otherwise under section 239ACV(1)(a).

[65]     It will also be necessary to refer to s 239ACW:

239     ACW   Effect of deed on company's debts

(1)A deed of company arrangement releases the company from a debt only in so far as—

(a)      the deed provides for the release; and

(b)      the creditor concerned is bound by the deed.

(2)The release of the company from a debt under subsection (1) does not discharge or otherwise affect the liability of—

(a)      a guarantor of the debt; or

(b)a person who has indemnified the creditor concerned against default by the company in relation to the debt.

[66]     I consider that Mr Templeton is correct in submitting that s 239ACW governs the position here.   That section provides that the release of the company from the debt under the subsection does not discharge the liability of the guarantor of the debt. So even if the defendant’s intentions were correct that the DOCA had the effect of

releasing the plaintiffs’ claim for unpaid rent, that would not avail the guarantor, who is the defendant in this case.

[67]     In my view Mr Templeton is right in submitting that the share transfer amounted to a deemed assignment under clause 35.4 of the lease.  It is not contested that no consent was sought to that transfer.   It could not be the case that the defendant’s position would be improved by a transfer of shares which had not been approved by the plaintiffs as the agreement to lease expressly contemplated.   Such a conclusion would be at variance with the objects of clause 35.     I have already looked at the purpose of the approval of assignment mechanism contained in clause

35.4 of the contract.  Rather than repeating everything I said then I will note only that it was the company’s right to exact as a price for the transfer or assignment of the shares a replacement guarantee and if such was not forthcoming to continue to rely on the unchanged arrangements which included a guarantee from Mr Hieber.

[68]     The purported share transfer – although it may have been efficacious as between the tenant and the new shareholder – did not in any way affect the rights and liabilities  of  the  tenant  vis-a-viz  the  landlord.    On  this  ground,  therefore,  the guarantor  cannot  escape  liability  and  the  defendant  does  not  have  an  arguable defence to the g claim.

Other matters and conclusion

[69]     I record that some other miscellaneous matters were referred to in argument but do not need to be determined.   Submissions were made on the question of whether there was a sufficient memorandum evidencing the lease arrangement.  This was not gone into by Mr Macdonald in his submissions and is not part of the notice of opposition so I will say nothing further about it.

[70]     I have found that a binding guarantee was given.  There is no argument that the defendant has failed to meet the terms of the guarantee which the late Mr Hieber provided.    The  defendant  does  not  have  any reasonably arguable defence.  That leaves for discussion matters of damages.   The claim for damages is in parts straightforward.   The plaintiffs seek to recover unpaid rent, outgoings including insurance, the cost of reinstating the premises after their surrender, interest and legal

costs.  However the plaintiffs also claim to be entitled to further damages which call for a brief explanation.  It is the plaintiffs’ case that as a result of the non-payment of rent they were obliged to sell the property.  The plaintiffs say that they were heavily mortgaged and that the bank required the property to be sold.  Eventually they sold the property for $2,400,000.  They claim for the loss on the re-sale of the property. In their statement of claim they say that they were obliged to sell the premises at a time of major economic decline following the collapse of the US Prime Mortgage market in late September 2008.   They further assert that had RMS continued as tenant  then  as  at  May  2009  the  value  of  the  property would  have  been  worth

$2,950,000 rather than the $2,400,000 which they received for it and which was fair market value at the time and in the circumstances in which they sold it.   But the plaintiffs also claim that at another date, 1 April 2008, the value of the property would have been even higher than the $2,959,000.  Specifically, they claim that as at

1 April 2008 the value of the premises with the lease in place was $3,500,000.  They seek the difference between that figure and the $2,400,000 that is $1,100,000, as a component of their damages claim.

[71]   The claim for what might conveniently be termed capital loss is not straightforward.  It is not obvious to me on what basis the plaintiffs’ claim for capital loss at all and secondly, why they choose the date of 1 April 2008 and what they say was the value of the property on that occasion as one of the values that needs to be taken into account when calculating their loss.

[72]     The result is that in the words of Greig J in Attorney General v Rakiura

Holdings Limited:[6]

Liability is plain and ought not to be litigated further.  Quantum is not plain and ought to be canvassed at a hearing if it cannot be settled.

[6] Attorney General v Rakiura Holdings Limited (1986) 1 PRNZ 12.

[73]     I therefore consider that this is a proper case where judgment on liability should be entered under r 12.3 and a trial directed as to the issue of amount.  While I am satisfied there has been some loss to the plaintiff which would justify the entry of judgment I am not clear as to what the amount of that loss is.  As a result there will

be judgment for the plaintiffs on liability in terms of r 12.3.  I direct that the issue of quantum is to be tried separately.

[74]     The parties are to file memoranda not later than 21 January 2011 setting out what they consider to be appropriate further directions for the progress of this matter including estimate of duration of hearing time, what if any further interlocutory steps need to be taken and other matters.  The proceeding is to be listed in my summary judgment list at 2.15 p.m. on 27 January 2011.   If consent orders are possible, counsel should file a memorandum specifying what those are and appearances will be excused.

[75]     Costs for the summary judgment application are reserved.

J.P. Doogue

Associate Judge