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Regan v Brougham

Regan v Brougham

Case [2017] NZHC 1091 24 May 2017

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IN THE HIGH COURT OF NEW ZEALAND WHANGANUI REGISTRY

CIV 2016-483-40 [2017] NZHC 1091

BETWEEN
CHRISTINE ANNA ELIZABETH

REGAN AND MARK JEFFEREY TUFFIN AS TRUSTEES OF THE WINCHESTER TRUST

Appellants

AND

BRYCE BROUGHAM First Respondent

AND

RACHAEL CHRISTINA DEY Second Respondent

Hearing: 26 April 2017

Counsel:

F A King for Appellants
J K Mahuta-Coyle for First Respondent
S A McKenna for Second Respondent

Judgment:

24 May 2017

JUDGMENT OF SIMON FRANCE J

Introduction

[1] Mr Brougham and Ms Dey were in a de facto relationship. They decided to purchase a business together and arranged a loan of $50,000 from a family trust associated with the Winchester Trust (the Trust). The loan was to the company the couple formed for the purposes of the venture – B and R Enterprises Ltd. The couple were the directors of the company.

[2] The loan was to be personally guaranteed either by Mr Brougham only, or by both Mr Brougham and Ms Dey. The loan was recorded on a standard form term loan agreement (the Agreement), which was the only documentation. The venture
and the company failed, as did the relationship. The Trust brought proceedings

REGAN AND TUFFIN AS TRUSTEES OF THE WINCHESTER TRUST v BROUGHAM [2017] NZHC 1091 [24 May 2017]

against Mr Brougham seeking to enforce the guarantee. He denied liability but joined Ms Dey as a party on the basis that if he was a guarantor, so was she as to half of the loan.

[3] Mr Brougham also counterclaimed against the Trust in relation to work he had done on a Trust property. The claim alleged either a constructive trust or sought a quantum merit award for work done.

[4] In the District Court everyone was unsuccessful:1

(a) it was held there was no enforceable contract of guarantee with

Mr Brougham;

(b)that meant his claim against Ms Dey was no longer needed, but had it been a live issue, the Court rejected the claim that Ms Dey was also a guarantor; and

(c) the constructive trust claim failed because Ms Dey, as only one of two trustees, did not have control of the Trust. Accordingly, the other trustee could not reasonably be expected to yield an interest in the Trust property to Mr Brougham.

[5] The Trust appeals the decision rejecting its claim of an enforceable guarantee against Mr Brougham. Mr Brougham appeals the decisions that Ms Dey was not a co-guarantor (if he was one) and the rejection of the constructive trust claim. All parties defended the appeals that affected them.

[6] The essence of the guarantee dispute is that the Agreement between the Trust and the start-up company contemplated that the guarantors would sign a separate guarantee document which would set out all the terms and obligations of the guarantee. That never happened. Indeed, Mr Brougham was never asked to sign such a document and so he says he is not liable as a guarantor. There was never a contract
that set out any of the essential terms.

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Regan v Brougham

Details

AGLC: Regan v Brougham [2017] NZHC 1091
Case: [2017] NZHC 1091
Decision Date: 24 May 2017

CaseChat Overview and Summary

This appeal concerns a failed business venture that went sour in multiple ways. The parties were in a de facto relationship and had formed a company to purchase a business. They arranged a loan of $50,000 from the Winchester Trust. The loan was to be personally guaranteed by either the first respondent alone or both respondents. The loan was documented by a standard form term loan agreement which was the only documentation. The venture and the relationship both failed and the Trust brought proceedings against the first respondent seeking to enforce the guarantee. He denied liability but joined the second respondent as a party on the basis that if he was a guarantor, so was she as to half of the loan. The first respondent also counterclaimed against the Trust in relation to work he had done on a Trust property. The claim alleged either a constructive trust or sought a quantum meruit award for work done. In the District Court everyone was unsuccessful. The Trust appeals the decision rejecting its claim of an enforceable guarantee against the first respondent. The first respondent appeals the decisions that the second respondent was not a co-guarantor (if he was one) and the rejection of the constructive trust claim. The essence of the guarantee dispute is that the agreement between the Trust and the start-up company contemplated that the guarantors would sign a separate guarantee document which would set out all the terms and obligations of the guarantee. That never happened. Indeed, the first respondent was never asked to sign such a document and so he says he is not liable as a guarantor. There was never a contract that set out any of the terms and obligations. The Trust relies first on the agreement which the first respondent signed as “guarantor”, and says that document has enough in it to amount to a contract of guarantee. To succeed on that the Trust must establish compliance with s 27 of the Property Law Act 2007, which says that guarantee contracts must be in writing and signed by the guarantor. Obviously the agreement is in writing and the first respondent has signed it. But if it contains none of the terms and obligations of the guarantee contract, can the guarantee contract really be said to be in writing? If the Trust fails on this then it submits that equity should intervene to prevent the first respondent from avoiding his agreed responsibilities. It could do this by requiring him to sign the deed of guarantee, or alternatively saying he is estopped from relying on non-compliance with s 27. The Trust relies on a series of cases where it says similar relief has been given. The court considered the effect of the definition of “you”. Looking only at the definition, it appeared to make everyone signing the contract a principal party. However, that interpretation was at odds with the rest of the document. A guarantor was classically a secondary debtor who promised to pay if the principal debtor did not meet the borrower’s obligations under the contract. A guarantee was to be distinguished from an indemnity which was an unconditional promise that the obligation of the third party will be met. Unlike with a guarantor, the indemnifier’s obligation persisted even if, for example, the principal debtor had a defence that negated liability. The indemnifier’s obligation was independent of the liability of the principal debtor. The traditional analysis of a guarantee was typically modified by lending institutions in their standard form contracts. A variety of clauses were used to improve the quality of the lender’s position as regards the guarantor. One of those clauses was a principal debtor clause. Generally, modern guarantee forms provided for the guarantor’s liability to be both as principal debtor or primary obligor and as surety. The intention of such ‘principal debtor clauses’ was to preserve the liability of the guarantor in the event that the principal debtor’s obligation was for some reason unenforceable or discharged. However their inclusion in a guarantee would not usually have the effect, without more, of converting the guarantee into a contract of indemnity. It could be seen, therefore, that it was possible to shape the liability of a guarantor in ways that ran counter to the orthodox understanding of a guarantor. However, the court could not accept that was achieved, or intended, merely by defining “you” in these terms. If that were the intended effect, the document would be completely misleading in that it would induce the person signing as guarantor to believe there would be a separate Deed of Guarantee they could see before signing, and which would contain the terms of the guarantee, since they were not in the document. The court was not satisfied specific performance of the alleged covenant in the agreement to enter into a deed of guarantee would be ordered. The terms of any guarantee here were not settled as they were in similar cases relied upon by the Trust. In that regard, the cases were less clear than the agreement to lease documents in Inglis and Chambers, as to the terms of the guarantee to be signed so as to allow it to be enforced. The Trust’s appeal was accordingly dismissed. The appeal concerning the guarantee was by far the main issue in the appeal and the appellants should pay costs. However, any award should be reduced to reflect the unsuccessful cross appeal. The first respondent was awarded 70 per cent of scale costs for a 2B appeal together with reasonable disbursements. The second respondent was entitled to an award of scale costs together with reasonable disbursements. The costs should be borne by the appellant. The appellant was directly liable for the costs.

Orders