Wallace v BBX Financial Solutions Ltd HC Auckland CIV 2010-404-208

[2010] NZHC 1312

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-208

BETWEEN  WAYNE ANDREW WALLACE Appellant

ANDBBX FINANCIAL SOLUTIONS LTD First Respondent

ANDBBX MANAGEMENT LTD Second Respondent

Hearing:         27 May 2010

Appearances: Johann Strauss for Appellant

Richard Swan for Respondents

Judgment:      19 July 2010

JUDGMENT OF HARRISON J

In accordance with R11.5 I direct that the Registrar endorse this judgment with the delivery time of

2:00 pm on 19 July 2010

SOLICITORS

Gary Pollak & Co (Auckland) for Appellant

McVeagh Fleming (Auckland) for Respondents

COUNSEL Johann Strauss

WALLACE V BBX FINANCIAL SOLUTIONS LTD AND ANOR HC AK CIV-2010-404-208  19 July 2010

Introduction

[1]      Mr Wayne Wallace appeals against a judgment delivered in the District Court at Auckland on 7 December 2009 for liability for $461,188.58 on a guarantee.  The original debt was $114,480.55.  But interest compounding at the rate of 25% since

2004 took its inexorable toll.

[2]      Mr Johann Strauss advanced Mr Wallace's appeal on a number of grounds. At an early stage of argument it became apparent that one ground was potentially decisive in Mr Wallace's favour.   Instead of delivering judgment orally, I granted leave to Mr Richard Swan, counsel for BBX Financial Solutions, to file further submissions because he had omitted to address the point in his otherwise comprehensive synopsis.

Background

[3]      Mr Michael Touma introduced and developed what is known as the BBX Exchange based in Australia.  He has apparently formed and registered in Australia a number of companies for the purpose of carrying out the Exchange's  activities. Almost  all  include  the  "BBX"  initials  or  the  words  "Barter  Exchange".    This corporate proliferation, and resulting confusion, is central to Mr Wallace's appeal.

[4]      Mr  Strauss  has  identified  these  BBX  entities  which  were  referred  to  in documents filed in the District Court:

•    BBX Ltd (Australian company)

•    BBX Ltd (New Zealand company)
•    BBX Management Ltd
•    BBX Business Barter Exchange Ltd
•    BBX NZ
•    BBX Holdings Ltd
•    Business Barter Exchange Ltd
•    Business Barter Exchange Management Ltd
•    BBX Distribution Pty Ltd
•    BBX NZ Ltd

[5]      The BBX Exchange is designed to facilitate the cashless trading of goods and services between its membership basis which is comprised by businesses.   It is founded on the principle of barter trading.  The Exchange creates a credit and debit card system, enabling its membership businesses to have access to a variety of goods and services.  It is said to offer financial benefits which are not typically found in the market or offered by other card payment systems.  The BBX Exchange currently has around 5,000 member businesses in Australasia representing over 8,000 individual cardholders.

[6]      The Exchange operates through the currency of what are known as BBX

trade dollars.  In Mr Touma's words, the Exchange allows:

Member businesses to increase sales, create cross-savings and improve the general financial performance of their businesses by taking advantage of spare or underutilised capacities that exist.

[7]      Members are entitled to apply for interest free trading loan credits of up to

$100,000.

[8]      Mr Wallace was the sole shareholder in and director of Ad-A-Cab (1998) Ltd.  The company carried on the business of taxi top advertising.  On 15 November

2001 he completed a membership application and acknowledgement statement with two parties described as "BBX Ltd and BBX Management Ltd".   The documents incorporated handwritten details within standard form boxes.   The company's approved credit limit was $10,000.

[9]      The document included a typewritten section as follows:

Directors Guarantee: In consideration of BBX Ltd at the request of the undersigned   entering   into   the   above   Membership   Agreement   (the Agreement) the undersigned hereby agrees to be jointly and severally liable for payment of all purchases and fees outlined in the Agreement and further hereby guarantees the payment of all debts and liabilities of the member arising from the Agreement.  This Guarantee shall always be a continuing Guarantee and shall continue in full force and effect until all liabilities of the member (including but not limited to the credit line) shall be fully paid and satisfied and each of the undersigned will at all times hereafter indemnify and keep indemnified BBX Ltd against all claims in respect of debts and liabilities that may be incurred by the member.  This indemnity shall extend against all actions, suits, proceedings, claims, demands, costs and expenses whatsoever which may be taken against BBX Ltd and BBX Management

Ltd or incurred or become payable by BBX Ltd or BBX Management Ltd in respect thereof.  I the applying member agree that at all times I will adhere to the  rules  of  the  BBX  Trading  Program  and  the  members  Information Booklet.

[10]     Significantly,  the  guarantee  incorporates  the  rules  of  the  BBX  Trading Program and the members information booklet.  It is common ground that these rules governed the underlying relationship.  I will return to the rules, which I shall refer to as the agreement, shortly.

[11]     Ad-A-Cab's credit limit was extended in late 2001 from BBX$10,000 to BBX$100,000.  The company later failed and was struck off the Companies Register in November 2003.  By 21 February 2005 its indebtedness was NZ$114,480 made up of BBX$104,577 and NZ$9,902.

District Court

[12]     This proceeding commenced life in the District Court as an application for summary judgment in 2005.  That application was withdrawn and the litigation then endured a tortuous history until trial in 2009.

[13]     It is appropriate to focus on the plaintiff's identity.   BBX Management Ltd was originally nominated as the sole plaintiff.   That company was registered in New Zealand.    However,  two  Australian  registered  companies,  BBX  Financial Solutions Ltd (described in the intituling as formerly Business Barter Exchange Ltd) and BBX Management Ltd (described as formerly Business Barter Exchange Management Ltd) were joined as second and third plaintiffs in 2007.  The result was confusion, as Judge Cadenhead noted.  Among other things, two companies with the name  BBX  Management  Ltd  -  one  registered  in  New Zealand  and  the  other  in Australia - became the first and third plaintiffs.

[14]     Mr Touma  explained  this  change  as  being  the  result  of  issues  raised  by Mr Strauss about the actual legal entity which was entitled to receive the benefit of the guarantee.  He said that after reviewing the evidence the plaintiff's solicitors were satisfied that the second and third plaintiffs, BBX Financial Solutions Ltd and BBX

Management Ltd, were the parties entitled to that benefit.  He disclaimed the rights of the first plaintiff - the New Zealand BBX Management Ltd - on the basis that it was never a party to the guarantee or the agreement.  He said that it was only ever an agent for the Australian companies, as a wholly owned subsidiary of another Australian company, BBX Holdings Ltd, which owned the shares in the second and third plaintiffs.

[15]     The plaintiffs filed a second amended statement of claim on 11 June 2007. Despite Mr Touma's disclaimer, the New Zealand BBX Management Ltd remained as first plaintiff.  The pleading was plainly deficient in failing to identify the factual or legal basis upon which any of the three plaintiffs was entitled to sue.  It did not differentiate between their rights.   They were nominated compositely without particular reference to the contractual status of each.

[16]     Mr Wallace's statement of defence dated 17 August 2007 was carefully and comprehensively pleaded.  It gave full particulars to support a denial that any of the plaintiffs had standing.  Mr Strauss placed squarely in issue a defence that none of the nominated plaintiffs was a party to the agreement at the time of execution.

[17]     Judge  Cadenhead  dismissed  this  line  of  defence  in  economical  terms  as follows:

[33]      The defendant is liable to the second and third plaintiffs:

[a]Ad-A-Cab applied to enter and trade on the second plaintiff's trading programme which is managed by the third plaintiff;

[b]If a trading balance is a negative balance, the third plaintiff sues in the second plaintiff's name for payment of the outstanding balance;

[c]       The defendant guaranteed the repayment of all debts and liabilities of Ad-A-Cab.

[34]     In my view the guarantee was entered into with BBX Ltd and that company changed its name afterwards to BBX Financial Solutions Ltd, the second plaintiff in these proceedings.  It seems to me that BBX Management Ltd  was  formerly  Business  Barter  Exchange  Management  Ltd.     That company merely had the powers to enforce the dealings that had been made with BBX Financial Solutions Ltd.

[35]      I have considered the arguments put forward by the defendant at some length, but I think they are dissolved by the simple change of name of the company.

[36]      In addition if I am wrong in this regard I think that the principles set out in Vodafone Ltd v GNT Holdings (UK) Ltd [2004] 1 All ER 194 apply in this case. This case followed the principles of construction contained in the dicta of Lord Hoffman in the case of Mannai Ltd v Eagle Star Assurance Ltd [1997] AC 749 at 774, 775 and 778:

… But apart from these exceptions commercial contracts are construed  in  the  light  of   all  the  background  which  could reasonably  have  been  expected  to  have  been  available  to  the parties in order to ascertain what would objectively have been understood to be their intention.

[37]      The objective facts in this case favour the construction placed by the plaintiff  and  I  accordingly  dismiss  the  contentions  concerning  identity argued by the defendant.

Decision

[18]     The guarantee is a confusing document.  The identity of the party entitled to enforce the guarantor's obligations is unclear.   The names BBX Ltd and BBX Management Ltd are used interchangeably.  The document is headed "Membership Application and Acknowledgement Statement Between BBX Ltd and BBX Management Ltd and the Member".

[19]   As noted, the plaintiffs' pleadings are unenlightening.   They lack any particularity on this critical point.   Judge Cadenhead found that BBX Ltd was the contracting party.  The Judge limited the right to sue to the second plaintiff, BBX Financial  Solutions  Ltd,  which  was  formerly  Business  Barter  Exchange  Ltd. Mr Swan  does  not  argue  otherwise.     I  shall  proceed  on  that  same  premise, disregarding the first and third plaintiffs, the New Zealand and Australian BBX Management Ltd.

[20]     Thus the question is whether BBX Financial Solutions Ltd has proved that Ad-A-Cab's account (and thus Mr Wallace's liability) was indebted in the amount of NZ$114,480.55.    The  operative  part  of  the  guarantee  provided  that  Mr Wallace signed the guarantee "in consideration of BBX Ltd at [Mr Wallace's] request …

entering into the agreement", that is, the rules.  He guaranteed repayment of all Ad- A-Cab's debts and liabilities arising from the agreement.

[21]     However, BBX Ltd did not "enter into the agreement".   The parties to the agreement were Business Barter Exchange Ltd, which operated the trading programme, and Business Barter Exchange Management Ltd, which managed Business Barter Exchange Ltd.   Neither of those companies was a party to the guarantee.

[22]     The agreement provided that a member, such as Ad-A-Cab, whose trade account had a debit balance, was liable to pay Business Barter Exchange Ltd an amount in cash dollars equivalent to the amount in trade dollars of the debt balance. Business Barter Exchange Management Ltd was, as Judge Cadenhead noted, entitled to pursue in Business Barter Exchange Ltd's name recovery of debit balances.

[23]     The evidence is unequivocal.  Despite its nomination as a contracting party, Business Barter Exchange Ltd did not exist on 15 November 2001 when Ad-A-Cab entered into the agreement and Mr Wallace signed the guarantee.  Business Barter Exchange Ltd had ceased to exist on 5 October 2000.   The company changed its name to BBX Ltd on that date.  However, BBX Ltd was not a party to the agreement. It was only a party to the guarantee and there was no evidence that Ad-A-Cab ever incurred any indebtedness to it.  Moreover, BBX Ltd, the Australian company, has never been a party to this proceeding.

[24]     Any right of recovery was vested in Business Barter Exchange Ltd, which did not exist, not BBX Ltd, which later changed its name to BBX Financial Solutions Ltd.  There is no evidence that BBX Ltd was either a party to the agreement or ever made any advances to Ad-A-Cab.

[25]     The claim suffers from an additional fatal flaw.   BBX Financial Solutions Ltd, the nominated second plaintiff, has itself ceased to exist.  Its name was changed to BBX Financial Solutions Pty Ltd on 29 September 2008.   No application was made to add or substitute the new company as a party before the hearing in the

District Court on 20 April 2009.  Judgment was given on 7 December 2009 in favour of a non-existent legal entity.

[26]     I am satisfied that Judge Cadenhead erred on this narrow but decisive point. Mr Wallace's appeal is allowed.   He is entitled to costs and disbursements against BBX Financial Solutions Ltd according to category 2B, but that right is likely to be

nominal only given that the company no longer exists.

Rhys Harrison J