Renner v Renner

[2014] NZHC 352

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2013-470-569 [2014] NZHC 352

BETWEEN  IAN RODNEY RENNER Plaintiff

ANDCATHERINE MARY RENNER Defendant

Hearing:                   17 February 2014

Appearances:           D van Hout and G Elvin for Plaintiff

D P Weaver for Defendant

Judgment:                5 March 2014

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on  5 March 2014 at 10:00am

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

Solicitors:

MacKenzie Elvin, Tauranga, for Plaintiff

Lyon O’Neale Arnold Lawyers Ltd, Tauranga, for Defendant

RENNER v RENNER [2014] NZHC 352 [5 March 2014]

[1]      In this summary judgment application Mr Renner sues his former wife for

$470,000 to equalise the payments they made to FM Custodians Ltd as guarantors. FM Custodians Ltd is a custodial company of Trustees Executors Ltd acting as trustee of NZ Mortgage Income Trust Group Investment Fund.   It lent money to Heybridge Developments Ltd under a loan agreement of 25 July 2007.  As security for the loan, FM Custodians Ltd had a first registered mortgage over Heybridge’s property at 166 Lochhead Road, Te Puna and a guarantee given by Ian Dustin and Mr and Mrs Renner, Heybridge’s directors and three of its shareholders.   The guarantee contains terms typically used by financiers.

[2]      The property at Lochhead Road was a 44 hectare rural lot.  Heybridge had plans for its development, including subdividing into 14 lots, but these foundered in the resource consent process.

[3]      The loan agreement provided that the funds advanced were repayable upon demand and pending demand they were repayable by 3 August 2010.   Heybridge defaulted.   On 19 April 2011 FM Custodians Ltd made demand on Heybridge for

$3,039,355.58 as the amount outstanding under the loan.  It also made demand on the guarantors.   Interest continued to accrue on the loan. FM Custodians Ltd filed proceedings  in  the Tauranga  High  Court  against  Heybridge  and  the  guarantors, seeking payment of the amount that had fallen due under the loan agreement.  It also issued notices under ss 119, 121 and 122 of the Property Law Act against Heybridge and  the  guarantors.    It  is  common  ground  that  neither  the  company  nor  the guarantors complied with the notices.

[4]      There followed negotiations which resulted in Mr Renner and Mrs Renner entering into separate agreements with FM Custodians Ltd.  Mr Renner’s agreement was in October 2011, Mrs Renner’s in April 2012.   Each of them made payments under the guarantee.  Mr Renner’s case is that he paid $1,320,000, Mrs Renner paid

$380,000.  He claims $470,000 by way of contribution.  It is common ground that Mr Dustin is insolvent.  He is an undischarged bankrupt.  No one looks to him for contribution.

[5]      Mrs Renner raises three broad matters in opposition:

(a)       Mr Renner has not properly accounted for benefits he received from

FM Custodians Ltd;

(b)      Mr Renner has not made proper disclosure; and

(c)      Under equitable principles Mr Renner is disqualified from obtaining contribution.

In addition she wishes to join FM Custodians Ltd as a third party for a claim under s 176 of the Property Law Act 2007.

Mr Renner’s settlement with FM Custodians Ltd

[6]      On his account Mr Renner’s settlement with FM Custodians Ltd is involved. To set the scene - Mr Renner has a family trust, which owns a property at 36 Maleme Street, Tauranga.  Mr Renner had owned 36 Maleme Street but he had transferred that to the trustees and there was a debt back.

[7]      Under the settlement of 11 October 2011:

(a)       The  trustees  of  Mr  Renner’s  family  trust  took  out  a  loan  from

FM Custodians Ltd for $3,000,000.   The amount drawn down was

$2,920,619.33 with $79,380.67 held back by agreement.

(b)FM Custodians Ltd entered into an agreement with the trustees to sell the Lochhead Road property to the trustees for $1,600,000.  That sale was in the exercise of its powers as mortgagee.  The trustees’ funds for the purchase came from the loan proceeds.

(c)      In the event, the trustees did not take title to the Lochhead Road property.     Instead,  a  company,  LDL  Tauranga  Ltd,  took  title, apparently  by  novation.    Mr  Renner  is  the  sole  director  of  LDL

Tauranga Ltd.  Its shareholders are Mr Renner and a trustee company

of Mr Renner’s lawyers.

(d)FM Custodians Ltd discharged the mortgage given by Heybridge over the Lochhead Road property.

(e)      As security for the loan to the family trustees, FM Custodians Ltd took  a  mortgage  over  Maleme  Street  and  another  over  Lochhead Road.

(f)      With  $1,600,000  from  the  loan  funds  going  to  the  purchase  of Lochhead Road, the trustees paid the remaining funds, $1,320,000 to Mr Renner by way of partial repayment of the family trust’s debt to him for the sale of 36 Maleme Street.

(g)Mr Renner used the $1,320,000 to pay FM Custodians Ltd in part payment of his liabilities under the guarantee of Heybridge’s debt.

(h)Under Mr Renner’s deed of settlement FM Custodians Ltd accepted the sum of $1,320,000 in full and final settlement and discontinued its proceeding against Mr Renner.   The deed released and discharged Mr Renner  from  any  further  indebtedness  or  claims  under  the guarantee.    It  expressly  reserved  FM  Custodians  Ltd’s  rights  to proceed against other guarantors and Mr Renner’s rights to seek contribution from other guarantors.

(i)The various payments under the settlement were made by journal transfer of funds held in the trust account of the Dunedin lawyers for FM Custodians Ltd.

[8]      The  way Mr  Renner  presents  his  case  is  that  the  family trust  and  LDL Tauranga Ltd bought the Lochhead Road property for $1,600,000 and that reduced the amounts owing by the guarantors to $1,752,489.34 of which he paid $1,320,000.

[9]      The account above comes from Mr Renner’s evidence, but he has not put in

evidence all the documents relevant to the settlement.  Mr Renner has not disclosed:

(a)       the agreement under which he transferred the property at 36 Maleme

Street from himself to the trustees of his family trust;

(b)the evidence of its indebtedness to him;  and that it had been reduced by $1,320,000;

(c)      the  correspondence  with  FM  Custodians  Ltd  leading  up  to  the settlement FM Custodians Ltd; and

(d)      the term loan agreement between his family trust and FM Custodians

Ltd.

Mrs Renner’s payment to FM Custodians Ltd

[10]     Mrs  Renner’s  settlement  with  FM  Custodians  Ltd  was  simpler.     FM Custodians Ltd obtained judgment against her on 18 November 2011 for $465,817. It served her with a bankruptcy notice.   She negotiated a settlement with FM Custodians Ltd. Under that she agreed to pay $380,000 in full and final settlement of her liability under the guarantee.  She made the payment with borrowed funds.

Events since settlement

[11]     Since the settlement, Mrs Renner has made enquiries which show that LDL Tauranga Ltd has divided the Lochhead Road property into three lots and two have been on-sold. The new lots are:

(a)      Lot 1 DP 440015, identifier 546155, with an area of 8250m2, was transferred to the trustees of a second trust associated with Mr Renner in November 2013. It is being marketed for sale with an asking price of $795,000.

(b)Lot 2 DP 440015, identifier 546156, with an area of 1.1030ha.  It was sold to Scott Norman Cook, Angela Helen Cook and Holland Beckett Trustee No.12 Ltd for $225,000.

(c)      The remaining land, Lots 1-2 DP28844 and Lot 1 DP 12228, identifier

586238, with an area of 42.0486ha, was transferred to D155 Ltd for

$1,300,000.

[12]     Mr Renner has not given evidence as to the costs of obtaining subdivision consent, new titles and selling the new lots.

Mr and Mrs Renner’s co-ordinate liability

[13]     While  she  has  not  put  it  in  direct  terms,  there  is  a  general  complaint underlying Mrs Renner’s case.   She objects to being treated as a guarantor on the same footing as Mr Renner.  She would have herself seen as in the position of a sub- surety, that is, someone who has guaranteed the obligations of a guarantor, but does not have to share the burden with him.   In her eyes, the proposed development at Lochhead Road was Mr Renner’s business.   That has been borne out by his later acquisition of the Lochhead Road property through associated entities.  While she has  done  her  bit  by  paying  part  of  the  shortfall  left  after  the  settlement  with Mr Renner, he should not be entitled to look to her to equalise their payments as guarantors.

[14]     In Lennan v Lennan the Court of Appeal said:1

That decision2    emphasised the long established principle that once liability is shown to be truly co-ordinate, the rule is that contributions are to be equal. That that is a rule of equity and has its roots in the principle that equity is equality   does   not   mean   that   its   application   in   particular   cases   is discretionary.  Persons who have undertaken to be answerable equally will be required to contribute equally...   Any other approach would be to undermine certainty in an important area of commercial law and would open the way for variations in contributions on such grounds as ability to pay which have no role where liability is incurred on the same level as others without any express or implied exclusion of equal responsibility.

It is necessary then in a particular case to examine first what liability has been undertaken by the person from whom contribution is sought.  If that is a liability on the same level as that undertaken by others and no contrary agreement express or implied exists the contribution must be equal.  In that situation an order for equal contribution might still be resisted with all usual defences as on claim for money whether based in law or inequity.  However the right to recover is not to be denied merely on the discretion of the court.

[15]   In this case, Mr and Mrs Renner gave their guarantee of Heybridge’s indebtedness to FM Custodians Ltd at the same level.   Under their guarantee in a deed of 3 August 2007 they are jointly and severally liable. They were both directors of Heybridge Developments Ltd.  Their shareholdings were equal.  Mrs Renner had an equal stake in the venture with Mr Renner.  Just as she stood to benefit equally with Mr Renner from the development of the Lochhead Road property through her directorship and shareholding in Heybridge Developments Ltd, so she undertook an equal  liability  with  Mr  Renner  in  guaranteeing  Heybridge’s  loan  from  FM Custodians Ltd.  Liability under the guarantees is co-ordinate between Mr and Mrs Renner.   Mrs Renner is not a sub-surety.   The starting point is that she is equally liable with him as guarantor.

[16]     Nothing turns on the parties’ marital status.   Mr and Mrs Renner had been married but have long been separated.  Neither of them relies on the terms of their agreement dividing their relationship property.   Both accept that the general law applies, not rules for division of relationship property.

Has Mr Renner properly accounted for benefits he received from the creditor?

[17]     Mrs Renner takes issue with the price for which FM Custodians Ltd sold the Lochhead Road property.  Her case is that $1,600,000 is not necessarily the correct market value of the property.  In the light of the later division of the property into three smaller titles, their marketing and sales, she says that the value of the property is higher and therefore the amount of any contribution by her should be reduced.

[18]     Mr  Renner’s  claim  that  he  paid  $1,320,000  to  FM  Custodians  Ltd  in reduction of his liability under the guarantee recognises that the sale of the Lochhead Road property for $1,600,000 has reduced the amount that may be recovered from the guarantors. All the same, it is helpful to spell out why this is so.

[19]     If  a transaction  involves  payment  by a  guarantor  to  a creditor,  and  also involves a guarantor receiving some benefit in return from the creditor, the benefit the guarantor has received from the creditor is brought into account in calculating the guarantor’s contribution claim against a co-guarantor.   Because contribution is ordered to bring about an equitable (normally equal) sharing of obligations, that would not be achieved if the benefit were left out.  Ignoring any benefits the paying guarantor has received would allow that guarantor to recover more than is required to bring about an equitable sharing of the burden.   It is the net amount of the payment  made  by  the  guarantor  that  counts.    Any  countervailing  benefit  the guarantor receives from the creditor is also for the benefit of the co-guarantor.  This idea that benefits must be brought into account can be traced back to Dering v Earl

of Winchelsea3  and the principle laid down there as to the need for benefit and

burden to be shared among co-sureties.

[20]     Benefits  that  pass  from  a  creditor  to  a  guarantor  may  take  the  form  of securities for the payment of the debt by the principal debtor, but there is no reason why this principle should be restricted to securities.  Other benefits also count.  In Steel v Dixon Fry J said: 4

I  base  myself  on  the  general  principle  applicable  to  co-sureties,  as established by the well-known and often-cited case of Dering v Earl of Winchelsea, the short effect of which  I take  to  be that, as between co- sureties, there is to be equality of the burden and of the benefit.  When I say

‘equality’ I do not mean necessarily equality in the simplest form, what has

been sometimes called proportionable equality.  ...

And at 831:

... It follows that each surety must bring into hotch-pot every benefit which he has received and in respect of the suretyship which he undertook, and if he has received a benefit by way of indemnity from the principal debtor, it appears to me that he is bound, as between himself and his co-sureties, to bring that into hotch-pot in order that it may be ascertained what is the ultimate burden which the co-sureties have to bear, so that that ultimate burden may be distributed between them, equally or proportionably, as the case may require.

[21]     Benefits the creditor has conferred on persons associated with the guarantor are brought into account.  This means that a guarantor cannot engineer matters so that benefits received by an associate are left out of account in a contribution claim against a co-guarantor.  The authority for this is Re Arcedeckne.5   There, a guarantor had paid off the creditor with the assistance of his father.   The creditor assigned insurance policies on the life of the debtor to the guarantor’s father.   In a claim

against the estate of a co-guarantor for contribution, the guarantor was required to bring the policies into account.  It was held that the insurance policies were held for the benefit not only of the guarantor but also for the benefit of his co-guarantors.

[22]     In this case, the purchase of the Lochhead Road property by Mr Renner’s family  trust  and  the  transfer  to  LDL Tauranga  Ltd  can  be  properly  seen  as  a transaction under which FM Custodians transferred a benefit to interests associated with  one  of  the  guarantors.    For  Mrs  Renner,  it  does  not  matter  whether  the Lochhead Road property was transferred into Mr Renner’s name or to his family trust or to LDL Tauranga Ltd.  Whichever way the matter is set up, it is still a benefit to be taken into account in measuring her liability to make contribution.

[23]     It is necessary to put the matter that way, so as to put the question of the value of the Lochhead Road property into proper focus.  Mr Renner would have it that the sale of the Lochhead Road property was a standard sale by a mortgagee in the exercise of its powers so that the sale proceeds received by FM Custodians Ltd are taken into account to assess the guarantors’ residual liabilities and to measure co- guarantors’ respective liabilities for contribution.  On Mr Renner’s case, the price at which FM Custodians Ltd sold the Lochhead Road property cannot be reviewed in this proceeding.

[24]     But  when  the  sale  of  the  Lochhead  Road  property  is  seen  as  a  benefit received by Mr Renner or his associates, the question of the value of the benefit cannot be put to one side so easily.   The value that FM Custodians Ltd and the trustees of Mr Renner’s trust put on the value of the Lochhead Road property need

not necessarily represent a market value of the property at the time.  The point made

5      Re Arcedeckne (1883) 24 Ch D 709.

by Mrs Renner is that the Lochhead Road property may have been worth more than the $1.6 million used in the sale by FM Custodians Ltd.

[25]     Before going on, it is necessary to note that the Lochhead Road property will be valued at the date of the agreement for sale and purchase.   If the value of the property has declined since the date of the agreement for sale and purchase, Mrs Renner would be entitled to say that she should not be made to share that loss with Mr Renner.  That was a risk that he assumed, without her consent.  But equally, if the property has risen in value, either because of a change in market conditions, or if the value has increased as a result of Mr Renner’s efforts, she should not be able to claim the benefit of that change in value.   Assessing the value of the Lochhead Road property at the time of sale allows for the value to be determined at a fixed point in

time, without having to take into account subsequent changes in value.6

[26]     There are proper grounds to be wary of accepting without question the sale price of $1.6 million for the Lochhead Road property.  It was not an arm’s length sale on  the open  market  to  an  independent  third party.   When  the entire settlement between FM Custodians Ltd and Mr Renner is considered, FM Custodians Ltd was to receive $2,920,000 to be applied against the debt owed by Heybridge and in return transferred the Lochhead Road property.   The $2,920,000 satisfied most of the liability of Heybridge Developments Ltd.   It left a relatively small shortfall, for which it could have recourse to Mrs Renner as guarantor.  In these circumstances, it may not have mattered much to FM Custodians Ltd what value it placed on the property in exercising its power of sale.  FM Custodians Ltd would not have been under the same  constraints  to  obtain  the best  price reasonably available on  the market as on a sale on the open market to third parties.   Further the pressures on Mr Renner were different from those bearing on an open market purchaser.  An open market purchaser will offer an amount equal to or better than what he considers others in the market might offer.  Mr Renner had arranged finance for $2,920,000, which would be paid whatever the value of Lochhead Road.   While Mr Renner might be prepared to offer a higher amount so as to reduce his tax liability on any re-

sale of the property, he would also be motivated in the other direction, to lower the

6      Subject to one matter that might possibly be relevant as a matter of valuation – whether valuers can take into account subsequent events to fix the value at the time of sale.

price so  as  to  maximise his  claim  against  Mrs  Renner as  co-guarantor.   Those motives are different from those of a purchaser in the open market.  In this case there is no evidence of any marketing of the property by FM Custodians Ltd or of offers from competing bidders.

[27]     These concerns are more than theoretical.   Without objection, Mr Weaver tendered a copy of an email of 22 September 2011 from Mr Renner’s lawyers to FM Custodians Ltd:

... I thought it appropriate to update you as to progress in this matter.

There have been 2 meetings with Kathy Renner and Sharps in an effort to try and tidy things up in totality.  While there has been some progress we are not there.

I suspected that would be the case but it was important to try.

The  offer  from  Ian  is  still  in  totality  acceptable,  but  we  have  a  major problem.  It is our understanding that NZMHT require the offer for the land to be the settlement figure whereas we required the land purchase to be at

$1.6 with Ian personally meeting the balance.

It was our concern that if the purchase price for the land is the settlement amount  Ian  would  lose  his  right  of  contribution  from co-guarantors,  he cannot afford to do that.  We have since secured an opinion from ... and he confirms that view.

My understanding it may be a security issue from your clients perspective.

It would be unfortunate if this couldn’t be sorted out because in all other

respects there is not a problem in the balance of the arrangement. ....

[28]     In Mr Weaver’s submission this showed Mr Renner trying to manipulate the purchase price of the Lochhead Road property so as to enlarge his claim for contribution against Mrs Renner.  To rebut this criticism Mr Renner needs to show that the market value of the property at the date of sale is no higher than the price at which it was sold.  Mrs Renner could have no objection if the value were lower than

$1,600,000.

[29]     In August 2011 FM Custodians Ltd received two reports from registered valuers as to the value of the property.   One of the reports valued the property at

$3,110,000  (exclusive  of  GST)  as  a  current  market  value  and  at  $1,555,000 (exclusive of GST) on a forced sale basis.  The other report gave a current market

value  of $1,600,000  (exclusive of GST) and  a forced  sale value of  $1,350,000 (exclusive of GST).  A land agent has also given his opinion as to the value of the property,  but  I  have  disregarded  that  as  his  evidence  does  not  satisfy  the requirements of s 26 of the Evidence Act 2006 and the Code of Conduct for Expert Witnesses.7

[30]     The first report used a discounted cash flow basis.  It assessed the value on the basis that 14 separate lots would be able to be created.   The report sets out a calculation showing a gross realisation for the 14 lots of $12,075,000.  It brings into the calculation the costs of the subdivision in the order of $4,300,000 (excluding GST).  While the report does refer to comparable sales, the author does not appear to have relied on them in assessing the value of the property.  The forced sale value was assessed at $1,550,000 as one-half of the assessed current market value.  The author also noted in the report that there was an over-supply of sections in the Tauranga market.

[31]     The second report takes a more cautious view of the ability to complete the proposed subdivisions successfully.  In relation to one of the proposed subdivisions it says:

In our opinion, with the current slow real estate market and the fall of values for coastal property over the past 3 to 4 years, it is unlikely that it would be profitable for this subdivision will proceed.  The subdivision approval may however  be  able  to  be  extended.    Unfortunately  with  the  relationship between the owners and the surveyors who carried out the work, we have not confirmed the date at which the consent could be extended to.

The second report refers to ongoing litigation, including proceedings in the High Court. It relies more heavily on comparable sales and lists more comparable sales, some from further afield than the first report.

[32]     For me to find for Mr Renner on this issue I would need to be satisfied on a summary judgment basis that the second valuation report should be adopted and the first rejected.   That is, I would need to be satisfied that the first valuation report could not give Mrs Renner an arguable defence that the property was worth more

than $1,600,000 at the date of sale by FM Custodians Ltd.  While I have misgivings

7      High Court Rules, r 9.43 and sch 4.

as to the correctness of discounted cash flow basis used by the first valuer (the report acknowledges that the market for vacant sections in the Tauranga area is depressed), I bear in mind that there are conflicting reports from experts.   In the face of such differences,  a  court  should  be  wary of  preferring  one  expert  over  another  in  a summary judgment application.8   For Mrs Renner it remains a real possibility that at trial, after all witnesses giving valuation evidence have been heard, the value of the property may be found to be more than $1,600,000 at the date of sale.

[33]     In rebuttal Mr Renner says that Mrs Renner knew of the terms of sale and, by implication, approved them so that it is not open to her to contest the sales figure for the Lochhead Road property.  For that, Mr Renner relies on an email of 14 October

2011 Mrs Renner’s lawyers sent to FM Custodians Ltd:

This email is sent on an open basis.

1Please  confirm  whether  your  client  has  reached  the  following concluded agreement with Ian Renner:

(a)      Sale of the land at 166 Lochhead Road for $1.6m. (b)          Contribution to the guarantee of $1.32m

(c)      Total amount being $2.293m.

2If the above is true, our client reserves her position as to whether your client has complied with its duties, including but not limited to taking all reasonable steps to obtain the best possible price.

3        Please confirm urgently the balance of the debt due to your client as

at today’s date.  ...

[34]     That email was sent after the agreements of 11 October 2011.  There is no evidence that Mr Renner, his lawyers, or FM Custodians Ltd obtained the consent of Mrs Renner to the transaction.  The email shows her lawyer seeking confirmation as to the terms of the arrangement and a reservation of her rights.  If anything, it shows uncertainty on the part of her lawyers.  It falls short of Mrs Renner endorsing the transaction.    Another  email  by  her  lawyers  on  the  same  date  was  also  put  in

evidence, but that was sent on a without prejudice basis and I have not considered it.

8      MacLean v Stewart (1997) 11 PRNZ 66 (CA) at 69: “Nor do we consider that the learned Judge was entitled to reject the evidence of the appellant’s expert out of hand.”

[35]     For Mrs Renner it remains arguable that at trial the value of the Lochhead Road property may be found to be more than $1,600,000.  If so, that would reduce the amount of her liability to contribute.  She should have the opportunity of testing the value put on the land by FM Custodians Ltd and Mr Renner.  This aspect goes only to the amount of the claim against her, not to her liability.

Has Mr Renner made adequate disclosure?

[36]     The question here is whether Mr Renner has given enough evidence to show that Mrs Renner has no defence to his claim.  Mrs Renner also raises non-disclosure in another context – as a substantive ground disentitling him from obtaining contribution. That is considered later at [38] – [39].

[37] As noted at [9] above, Mr Renner has not put a number of documents in evidence. He would have the court accept that matters have run as he has outlined them without troubling the court with all the documents. It would not be safe to go on his say-so alone. The example of the email tendered by Mr Weaver shows the point. Mrs Renner did not send or receive that email and could not ordinarily be expected to know about it. Mr Renner’s negotiations with FM Custodians Ltd are relevant because they bear on how the price for the Lochhead Road property was fixed and whether it reflected actual market value. Mrs Renner cannot be expected to put that evidence in. The wider point is that there are matters within Mr Renner’s knowledge which may be relevant to this case but which may be unknown to Mrs Renner. As he has the burden of proof on this summary judgment application, Mr Renner has the job of showing that those matters cannot give Mrs Renner an arguable defence. As an example, Mr Renner would know whether he has received any additional benefits under the settlement with FM Custodians Ltd. While he has not put in evidence documents that would exclude that possibility, he has not met the

burden of showing that Mrs Renner does not have a defence on that aspect.9

[38]     For me to give him summary judgment, Mr Renner has to satisfy me that no useful purpose could be served by requiring the case to go through the usual course

9      See Symons v Wiltshire Investments Ltd [2012] NZSC 70, where I was held to have erred in giving summary judgment against guarantors when a settlement agreement negotiated by a

of  interlocutory  steps,  including  discovery,  and  a  defended  hearing  with  oral evidence.   While important relevant documents have not been put in evidence, I cannot be satisfied that Mrs Renner has no defence.

Is Mr Renner disqualified from seeking contribution?

[39]     Mrs Renner says that it is arguable that Mr Renner is disqualified  from claiming contribution.  She puts her argument these ways:

(a)       Mr Renner did not disclose the proposed settlement to her.

(b)The doctrine of benefit and burden means that Mr Renner has no claim for contribution.

(c)      Mr Renner did not discharge the debt to the creditor in full, yet still took the security held by the creditor.

(d)Mr Renner has forfeited any claim for contribution because he lost, impaired or caused a loss to a security to be held for the benefit of sureties.

(e)      There has been inequitable conduct by Mr Renner causing security for the loan, the  Lochhead  Road  property,  to  be  diverted to  his  own company.

(f)      Mr  Renner  will  be  unjustly  enriched  if  he  is  able  to  recover contribution.

(g)There has been inequitable conduct by Mr Renner causing security for the loan, the  Lochhead  Road  property,  to  be  diverted to  his  own company.

I consider these provisionally on the basis of the current evidence while noting that what I say now may be reviewed in the light of further matters that may come to light.

[40]     As a substantive defence, Mrs Renner says that Mr Renner was required to advise her of the proposed settlement with FM Custodians Ltd and to obtain her consent to it. But that is to misunderstand the function of giving notice of a proposed settlement  to  a  co-guarantor.    A  guarantor  who  advises  his  co-guarantor  of  a proposed settlement and allows a co-guarantor to agree or otherwise, may prevent a co-guarantor raising objections to the terms of a settlement entered into.  The basis

for this lies in the judgment of Lord Tenterden CJ in Smith v Compton:10

The only effect of want of notice in such a case as this, is to let in the party who is called upon for an indemnity to shew that the plaintiff has no claim in respect of the alleged loss, or not to the amount alleged; that he made an improvident bargain; and that the defendant might have obtained better terms if the opportunity had been given him.

[41]     In this case Mr Renner raised a notice argument in rebuttal – see [33]-[34] above.  I have found that that did not deprive Mrs Renner of her arguable defence as to the value of the Lochhead Road property, but it does not go further and give her an independent defence.

Benefit and burden

[42]     Mrs Renner says that the maxim that the one who receives the whole benefit must bear the whole burden (qui sentit commodum sentire debet et onus) displaces the prima facie rule of equal sharing. So far I have treated the benefit and burden principle differently.  Mr Renner is required to bring into account all benefits he has received, to be set off against the burden to be shared by both Mr and Mrs Renner. On that approach, the benefits Mr Renner has received may be less than the burden he assumed.   He is entitled to look to Mrs Renner to share that burden after the benefit is taken into account.

[43]     Mrs Renner’s benefit and burden argument is different.  She does not suggest that the values of benefits and burdens should be measured against each other.  Her

10     Smith v Compton 110 ER 146 at 147, as cited in Phillips and O’Donovan The Modern Contract of Guarantee at 12.1880.

argument is that the mere receipt of any benefit by Mr Renner ousts his claim for contribution.  She bases her argument on a decision of the Supreme Court of Canada, Bater v Kare.11     In that case, Bater and Kare carried on business together in a company.   They guaranteed advances made to the company by a bank.   Kare withdrew from the company, transferred his shares to Bater and retired.  Bater paid Kare out.   Kare could have but did not give notice to the bank terminating his liability under the guarantee.   Some years later after the death of Bater, Bater’s executors cleared the company’s debt to the bank and then sought contribution from

Kare.   The Supreme Court of Canada held in respect of one part of the claim by Bater’s  executors,  that  after  Kare had  withdrawn from  the  company,  the whole benefit resulting from the suretyship was Bater’s.  The contribution claim failed.  In Lennan v Lennan, the Court of Appeal regarded the Canadian decision as explicable on the grounds of waiver or estoppel.12

[44]     It is understandable that in a company run as a quasi-partnership, when one partner has withdrawn and the other has carried on the business on his own account, the one taking over the business does so on the basis that he will have both the gains and the losses and should not look to the departing one to make good on liabilities incurred after the takeover.  But that is not this case.  Mrs Renner remained director and shareholder up to and after Heybridge defaulted under the FM Custodians Ltd loan.  Throughout she was jointly and severally liable as guarantor.  She would have it that the purchase of Lochhead Road by associates of Mr Renner means that she is off the hook under his contribution claim.  That cannot be right.  In his settlement with FM Custodians Ltd Mr Renner expressly reserved his right to recover contribution from her.  There is no basis to claim waiver or estoppel.  To dismiss Mr Renner’s contribution claim because of the purchase of Lochhead Road is disproportionate.  Instead equity can be done by allowing the value of the benefit to

be brought into account.

11     Bater v Kare [1964] SCR 206.

12     Lennan v Lennan, above n 1, at 6.

[45]     Mrs Renner submits that because Mr Renner did not pay off the debt to FM Custodians Ltd in full, he was not entitled to an assignment of the securities held by FM Custodians Ltd.  She says that Mr Renner did not qualify for the statutory right of assignment under ss 84 and 85 of the Judicature Act 1908.  Because Mr Renner was not entitled to an assignment of securities under s 84 of the Judicature Act, he was not entitled to take the land at Lochhead Road by having it transferred into LDL Tauranga Ltd.  Her argument runs that as a consequence, as guarantor, she has lost the benefit of that asset being available to meet the debt to FM Custodians Ltd.

[46]     Sections 84 and 85 say:

84A surety who discharges the liability to be entitled to assignment of all securities held by the creditor

Every person who, being surety for the debt or duty of another, or being liable with another for any debt or duty, pays or satisfies such debt or performs such duty shall be entitled to have assigned to him, or a trustee for him, every judgment, specialty, or other security held by  the  creditor  in  respect  of  such  debt  or  duty,  whether  such judgment, specialty, or other security is or is not deemed at law to be satisfied by the payment of the debt or performance of the duty.

85       Rights of surety in such case

(1)        Every such person shall be entitled to stand in the place of the creditor, and to use all the remedies, and if need be, and upon a proper indemnity, to use the name of the creditor in any civil proceedings in order to obtain from the principal debtor or any co- surety, co-contractor, or co-debtor, as the case may be, indemnification for the advances made and loss sustained by the person paying or satisfying such debt or performing such duty.

(2)       Such payment, satisfaction, or performance made by such surety shall not be pleadable in bar of any such action or other proceeding by him.

[47]     These sections cannot apply in this case.  Section 84 gives a surety who pays off the entire debt the right to require the creditor to assign all securities to him.  Of course, if the guarantor does not pay off the debt in full, the creditor can resist any demand by the guarantor to assign securities to him.  To the extent that the debt has not been paid, the creditor is entitled to retain the securities and enforce them against assets of the debtor.

[48]     In this case Mr Renner did not take an assignment of any securities held by FM Custodians Ltd.  Instead, FM Custodians Ltd sold the Lochhead Road property in the exercise of its powers as mortgagee.   The agreement for sale and purchase between FM Custodians Ltd and the trustees of the Ian Renner trust is clearly a sale by a mortgagee.  Clause 23 of the agreement for sale and purchase expressly says so. The agreement also contains other terms which mortgagees typically insert into their agreements to sell land under mortgages.

[49]     There are differences between a mortgagee assigning a mortgage over land and a mortgagee exercising the power of sale over land.   In the first case, the mortgagee’s rights under the mortgage, including the charge over the land and the benefit of any personal covenants, pass to the assignee.   The assignee takes the mortgage subject to the same rights and duties as those of the original mortgagee. The assignee has a power of sale in the event of default and non-compliance with notices under s 119 of the Property Law Act, but is under a duty, under s 176 of the Property Law Act, to obtain the best price reasonably obtainable at the time of sale. The mortgagor retains his original interest in the land, still subject to the mortgage. On the other hand when a mortgagee exercises its power of sale, the purchaser takes the interest in the land formerly held by the mortgagor, but free of the mortgage. The purchaser is not under any duties under s 176 of the Property Law Act.

[50]     Mrs Renner’s argument relying on s 84 of the Judicature Act does not apply, because in this case there was a consensual transfer of the Lochhead Road property by FM Custodians Ltd exercising its power of sale. While Mr Renner did not pay off the debt in full, he retains a right to claim contribution from Mrs Renner to the extent that he has paid more under the guarantee than she did, while of course bringing the Lochhead Road property into account.

Impairment of security

[51]     Mrs Renner says that a guarantor who alters, impairs or causes a loss of the security forfeits any claim of contribution from a guarantor.  She cites the Laws of

New Zealand – Guarantees and Indemnities in support.13    Her argument is that if a

13     Laws of New Zealand – Guarantees and Indemnities (on-line ed) at [169].

guarantor impairs a security after receiving it on assignment from the creditor, other guarantors will be discharged.   Again, this submission misses the point that FM Custodians Ltd did not assign the mortgage to Mr Renner or his family trust or LDL Tauranga Ltd, but sold the Lochhead Road property in the exercise of its power of sale under the mortgage.   As purchaser of the property, LDL Tauranga Ltd was entitled to do with the Lochhead Road property what it wished.  As purchaser of the security, it did not have to account to Mrs Renner for what it did with the property. Mr Renner is required to account only to the extent that it was sold at an undervalue.

Inequitable conduct on the part of Mr Renner

[52]     For Mrs Renner it is submitted that there had been inequitable conduct on the part of Mr Renner in that he had diverted asserts that would otherwise be available for guarantors, so as to prejudice her right of indemnity from the principal debtor. Brooks v Marshall14 was cited in support.  In that case assets of the debtor company had been transferred to a new business associated with only one of the guarantors. Those assets were not available to meet the debtor company’s liability to the creditor. The New South Wales Court of Appeal held that on the facts in that case, it was inappropriate and impractical to attempt an assessment of the value of the assets that had been diverted.  It held that the guarantor had no claim against the co-guarantor.15

[53]     That case does not assist Mrs Renner.   Here, the creditor has realised its security by way of the sale to LDL Tauranga Ltd.  It remains open to Mrs Renner to contest the value put on the asset at the time of sale.   Equity can be satisfied by ensuring that the Lochhead Road property is brought into account at its true value, so that there is no detriment to Mrs Renner.

Unjust enrichment

[54]     Mrs Renner complains of unjust enrichment by Mr Renner.  Although LDL Tauranga Ltd bought the Lochhead Road property for $1.6m, the property has been

sub-divided into three titles and two of them have been sold for $1.575m.   The

14     Brooks v Marshall [1996] NSWCA 67.

15     At 19-20

balance has been transferred to Mr Renner’s family trust and is now on the market at an asking price of $795,000.  On these figures, she says that there is a potential gain of up to $770,000.

[55]     A claim  in  contribution  by  one  guarantor  against  another  is  a  form  of restitution or unjust enrichment.   The basis for the claim is that the guarantor has paid more than his due share and claims that the other guarantor has been enriched at his expense.16   On such a claim the court does not exercise some loose discretion to do what the judge considers to be fair and just.17  Mrs Renner’s unjust enrichment

objection does not get rid of Mr Renner’s claim altogether.

[56]     Mrs Renner’s unjust enrichment objection can be addressed by assessing the

Lochhead Road property at the time of the agreement to sell the property – October

2011. Any gains made by LDL Tauranga Ltd arising from the purchase of the property are not by themselves matters which Mr Renner can be required to bring into account: see paragraph [25].

[57]     I repeat that what I have said about these defences is based only on the evidence given so far.  With discovery, more evidence may become available. But if there is no further relevant evidence on these defences, then Mrs Renner is on notice that she will be in difficulties running these arguments at trial.

Joinder of third party

[58]     Mrs Renner signalled a desire to join FM Custodians Ltd as a third party in the proceeding.   Her claim against FM Custodians Ltd would be for breach of its duty to her under s 176 of the Property Law Act.   While a summary judgment application is pending, leave is required to join a third party: r 4.4(3).  The purpose of the rule is to ensure that where a plaintiff has a clear case to obtain judgment the defendant will not be allowed to join a third party as a way of putting off the time

when he will be required to meet his obligations to the plaintiff.18

16     See generally Goff and Jones The Law of Unjust Enrichment (8th ed Sweet & Maxwell, 2011) at ch 20.

17     Lennan v Lennan above at n 1.

18     Druids Friendly Society v Westpac Merchant Finance Ltd (1996) 9 PRNZ 644 (HC) at 647.

[59]     If I had found that Mr Renner had shown that Mrs Renner does not have an arguable defence, I would not have declined to enter judgment solely on the ground that she had a possible third party claim against FM Custodians Ltd.   Instead, as I found that Mr Renner has not satisfied me that Mrs Renner does not have an arguable defence, the summary judgment application will be dismissed and the case will  run  as  an  ordinary  proceeding.  I  will  be  adjourning  this  case  for  further directions to be given.  Any question of joinder of a third party can be considered then.

[60]     I record some preliminary thoughts. At present, it is not clear to me that there will be any advantage to Mrs Renner in pursuing any claim against FM Custodians Ltd as third party.   If at a final hearing it is found that Mrs Renner is under no liability to Mr Renner at all, then she will have suffered no loss and she will have no reason to pursue FM Custodians Ltd.

[61]     If instead it is found that Mrs Renner is liable to make a contribution to Mr Renner but the amount of Mr Renner’s claim has to be adjusted, because the court finds that the property at Lochhead Road is worth more than the $1.6m used by Mr Renner and FM Custodians Ltd, the sale by FM Custodians Ltd to Mr Renner’s family trust at an under-value will not have caused any harm to Mrs Renner, because that will have been addressed in fixing the amount of any judgment in favour of Mr Renner.   Finally, if Mr Renner’s contribution claim is valid and there is no alteration to the quantum of his claim, that  will mean that the  Lochhead Road property  has  been  properly  brought  into  account  at  a  value  of  $1.6m,  and Mrs Renner will not be able to claim that FM Custodians Ltd has breached any duty under s 176 of the Property Law Act because the steps it took did achieve a sale at an appropriate value.

[62]     These are only provisional considerations, but I invite Mrs Renner and her advisers to see whether anything useful can be obtained by joining FM Custodians Ltd to this proceeding.

Outcome

[63]     Mr Renner has not succeeded on his summary judgment application, because it is arguable for Mrs Renner that FM Custodians Ltd sold the Lochhead Road property at an undervalue.   The effect of Mr Renner’s non-disclosure of relevant documents is that he has not excluded the possibilities that he received collateral benefits from FM Custodians Ltd and that he negotiated the price of Lochhead Road so as to increase his contribution claim against Mrs Renner.  On the other hand, on the evidence so far Mrs Renner does not have an argument that Mr Renner is not entitled to claim contribution from her.

[64]     I make these orders:

(a)       I dismiss the application for summary judgment;

(b)      I reserve costs, following NZI Bank Ltd v Philpott;19 and

(c)      I direct the case officer to arrange a case management conference for further case management directions, including amending pleadings, joining third parties, discovery and setting down directions.   The plaintiff is to file and serve a memorandum five working days before

the conference, the defendant two working days.

Associate Judge R M Bell

19     NZI Bank Ltd v Philpott [1990] 2 NZLR 403.