Wallace v Herron
[2017] NZCA 346
•14 August 2017 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA294/2016 CA570/2016 CA571/2016 CA2/2017 [2017] NZCA 346 |
| BETWEEN | WAYNE ANDREW WALLACE BELMONT LIFESTYLE VILLAGE LIMITED |
| AND | STUART WALTON HERRON |
| Hearing: | 23 February 2017 |
Court: | Kós P, Harrison and Winkelmann JJ |
Counsel: | M A Corlett QC, A I C Denton and E Armstrong for Appellants |
Judgment: | 14 August 2017 at 3.00 pm |
JUDGMENT OF THE COURT
AThe appellants’ application to adduce further evidence is granted.
BThe appeal is allowed in part, as stated at [61].
CThe cross-appeal is dismissed.
DThe respondent must pay the first appellant costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Kós P)
Mr Wallace and Mr Herron are property developers. They undertook a number of projects together. Difficulties developed between them in 2005 when it was discovered that Mr Wallace had diverted funds to assist one of his separate property developments and to settle a relationship property claim with his former partner. Thereafter they rearranged their business relationship. Mr Herron allowed some of his assets to be used to prop up a project of Mr Wallace’s. In consequence of that and his earlier misuse of joint funds, Mr Wallace acknowledged indebtedness to Mr Herron of almost $3.2 million.
Mr Herron sued Mr Wallace and his company Belmont Lifestyle Village Ltd (Belmont) in respect of debts he alleged Mr Wallace still owed and which Belmont had guaranteed. What lay at the heart of the parties’ litigation was a dispute over the interpretation and application of two related settlement deeds. The documents themselves are factually and structurally complex because they reflect the parties’ participation in a range of projects, undertaken either together or in conjunction with Mark Bryers of the Blue Chip Group of companies for the development of properties in Auckland and Queenstown. The primary issue is whether Mr Wallace has been discharged from his liability for some or all of the agreed indebtedness, either by complying with settlement conditions or as a consequence of Mr Herron’s conduct in preventing Mr Wallace’s performance.
Faire J entered judgment against Mr Wallace in the sum of $966,531.93. This was much less than Mr Herron had claimed. Mr Wallace and Belmont variously appeal and cross-appeal four decisions of Faire J. The most significant is the appeal against the substantive judgment.[1] Mr Herron cross-appeals that judgment also. The other appeals relate to a decision dismissing the Mr Wallace and Belmont’s application to recall the substantive judgment,[2] and two costs judgments (also cross‑appealed).[3]
Background
[1]Herron v Wallace [2016] NZHC 1129 [Substantive judgment].
[2]Herron v Wallace [2016] NZHC 2426 [Recall judgment]. That appeal was abandoned before us.
[3]Herron v Wallace [2016] NZHC 2427 [Interim costs decision]; and Herron v Wallace [2016] NZHC 2896 [Final costs decision].
Messrs Wallace and Herron met in 2003. Mr Wallace had a development company called Georgian Properties Ltd (Georgian). Georgian needed further funding. In March 2003 Mr Herron advanced a $250,000 interest free loan to Georgian in exchange for a 50 per cent shareholding in Georgian.[4]
[4]This was achieved through a company called Sidmouth Street Development Ltd.
Throughout 2003 and 2004, Mr Wallace and Mr Herron jointly sourced property development opportunities for other developers, including with Mr Bryers of the Blue Chip Group. Messrs Wallace and Herron would take rights in these developments rather than consultancy fees.
One such site was at Turner and Waverly Streets, Auckland. Another was in Queenstown. Georgian acquired rights to the land and then nominated two of Mr Bryers’ companies as the purchasers. Rockfort Ltd (Rockfort) was nominated to purchase the former property, and SLA Properties Ltd (SLA Properties) the latter. Half the shares in those companies were to be held on trust for Messrs Wallace and Herron.
In 2004 the two men decided to cash out their beneficial shareholdings in those companies in exchange for rights to take apartments in the developments if and when completed. They entered into a deed of agreement with Mr Bryers, Rockfort and Lombard Finance & Investment Ltd (Lombard). Lombard was registered proprietor of the Queenstown development site and the Turner Street part of the Turner and Waverley development; Rockfort held the remaining part of that development. The deed provided Messrs Wallace and Herron were each to receive three apartments in the Turner and Waverly development and one apartment (in equal shares) in the Queenstown development. Additionally, the pair would receive sundry other payments from Rockfort and Lombard.
Mr Wallace’s diversion of funds
In 2003, Mr Wallace purchased land through his company Belmont. In order to pay the $150,000 deposit, Mr Wallace siphoned funds from the facility Lombard had provided to Georgian, now co-owned by Mr Herron. He did not tell Mr Herron. Mr Wallace also used funds from the same facility to settle a relationship property claim by a former partner. Mr Herron did not know about that either. All of this was in breach of an earlier agreement between Mr Wallace and Mr Herron in relation to Mr Herron’s loan.
Mr Wallace subsequently obtained a new and separate facility from Lombard for Belmont’s development, and repaid Georgian the funds applied to the Belmont deposit and the relationship property settlement. Mr Herron became aware of the diversion of funds in 2005. He was very upset. He claimed to have suffered significant losses, although these were never quantified. He threatened to report Mr Wallace to the police. And he intimated that he had discussed the matter in a preliminary way with a Serious Fraud Office investigator.
Belmont defaults
In 2005 Belmont went into default under its facility with Lombard. Lombard moved to sell the land owned by Belmont. Mr Wallace then provided further security by assigning the sale and purchase contracts for his unbuilt Turner and Waverley and Queenstown apartments to Lombard. The rights to the apartments were held by Mr Wallace’s company, Shades of Autumn Ltd (Shades) Lombard also sought security over Mr Herron’s apartment rights.
Revised property arrangements
On 22 August 2005 a settlement deed was executed for each of the unbuilt apartments in the Turner and Waverley Development. The deeds provided Mr Herron and Mr Wallace (or their various interests) released any rights they may have had to shares in Mr Bryers’ companies held on trust. Rockfort and SLA Properties agreed to transfer the apartments to Messrs Wallace and Herron’s purchaser entities. Mr Bryers guaranteed the performance of the vendor entities.
Each deed was accompanied by a sale and purchase agreement. A Herron company, Central Auckland Properties Ltd (CAPL) was purchaser of Mr Herron’s three apartments. Shades was purchaser of Mr Wallace’s three apartments. The sale and purchase agreements included terms that the purchase price was deemed paid, and that the vendor would pay compensation to the purchaser if the vendor did not proceed with the development.
On 9 September 2005 Messrs Wallace, Herron and Bryers (along with their various corporate interests)[5] entered into a deed of consideration and settlement for the Queenstown apartment (the 403 Deed). This provided for a purchase price of $1,550,000 with a debt back to Rockfort, SLA Properties and Mr Bryers of $200,000.[6] A sale and purchase agreement was also prepared, largely on the same terms as for the Turner and Waverley Development apartments, with the vendor being SLA Properties except that, importantly for this appeal, it was conditional on “the vendor completing settlement of the property with the current registered proprietor on or about settlement date under this Agreement.”
Revised financing for Belmont
[5]Shades, CAPL, Rockfort, and SLA Properties.
[6]Calculated as the balance between the purchase price and an amount Messrs Wallace and Herron were owed for services.
At about the same time Lombard and Belmont agreed a financing arrangement to fund the retirement village the latter was building. Part of it involved security provided by Mr Herron — as Lombard had sought. CAPL, Mr Herron’s company, gave assignments by way of security over its interests in the three Turner and Waverley apartments, and its interest in the Queenstown apartment, on 12 October 2005. On 28 October 2005 a new revolving facility agreement for up to $13.683 million was entered by Belmont and Lombard. Guarantors of the facility included Mr Wallace and Mr Herron’s company, CAPL.
These arrangements were directly connected to the settlement agreements executed by Messrs Wallace and Herron contemporaneously.
October–November 2005 settlements
In October and November 2005 Messrs Wallace and Herron and their various business interests entered into a number of agreements to ‘wash-up’ the issues between Messrs Herron and Wallace. These included the alleged damages claim against Mr Wallace arising out of his unauthorised use of Georgian finance facility, and the agreed use of the apartments belonging to Mr Herron and his interests as security for Mr Wallace’s Belmont finance facility.
The principal settlement document is called SH8 (also referred to as “the Sidmouth Settlement Deed”) executed on 20 October 2005. It is the central document in these proceedings. In it Mr Wallace acknowledges he is indebted to Mr Herron in the sum of $3,160,950 to be payable, subject to deductions, within three years and six months of its execution.[7] The parties agree that that sum comprises two parts:
(a)$2,123,950 being the value given to the apartments;[8] and
(b)$1,037,000 being the remainder (although the parties disagree as to the basis for this figure).
[7]The parties acknowledge this debt was reduced by $600,000 to $2,555,537.50 as a result of a payment made by Lombard as part of a facility granted by Lombard to Belmont.
[8]This includes Mr Herron’s three Turner and Waverly apartments and his half interest in the Queenstown apartment less the debt back to Mr Bryers’ interests.
The deed outlines circumstances in which Mr Wallace is entitled to a reduction or credit towards the total sum. The two key provisions are cls 6(a), (e) and 11.
Clause 6(a) provides:
6. … The parties have agreed to settle the foreshadowed proceedings claiming such damages on the following basis:
(a) Wayne Wallace acknowledges that he is indebted to Stuart Herron in the amount of $3,160,950 (being $1,037,000 plus the value of the Turner and Waverley Street Apartments and Herron’s half share of the Queenstown Apartment detailed in clause 11 of this Agreement which are agreed to have a value of $2,123,950) which shall be payable in full without deduction as required by this Agreement provided that upon fulfilment of the obligations pursuant to clause 11 of this Agreement the total outstanding amount due to Stuart Herron shall be reduced by $2,123,950. In the event the Agreement for the Sale and Purchase for the Queenstown property referred to in clause 11(c) does not become unconditional the total outstanding amount due to Stuart Herron by Wayne Wallace shall reduce by $1,448,950 instead of $2,123,950 referred to in this clause upon the fulfilment of the obligations under clause 11(a) and (b) only of this Agreement.
…
(e)Wayne Wallace shall be entitled to a credit of $600,000 to be deducted from the amount owing by Wayne Wallace to Stuart Herron in terms of clause 6(a) of this Agreement upon and the payment by Lombard of $600,000 pursuant to that Agreement.
(Emphasis added.)
Clause 11 relevantly provides:
11. Subject to clause 9.1 of this Agreement and as a condition of this Agreement, Wayne Wallace will also procure the release of any security interests and/or mortgage secured against the properties listed below:
(a) Apartment 1107 at 17 – 19 Waverley Street, Auckland …
(b) Apartments 1201 and 1102 at 18 Turner Street, Auckland … ; and
(c) Apartment 403 as shown on the draft unit title plan attached to an Agreement for Sale and Purchase attached as Schedule C being an apartment in a proposed subdivision of Certificate of Title OT 234501, Otago Registry.
Wayne Wallace is to procure the release of such security interests and/or mortgagees and encumbrances at the same time he becomes liable to make payment of all amounts due from Wayne Wallace to Stuart Herron in accordance with clause 9.1 of this Agreement. In the event the releases are obtained the total indebtedness of Wayne Wallace to Stuart Herron shall be reduced by the sums set out in clause 6(a) of this Agreement to reflect the release of the securities over the properties owned by Central Auckland Properties Limited.
(Emphasis added.)
A further deed of acknowledgment of debt called “SH9” was signed at the same time recording a $600,000 debt due from Mr Wallace to Mr Herron. Whether this is additional to the credit provided for in cl 6(e) of SH8 is subject to cross-appeal by Mr Herron. Faire J held that it was not.
Mr Herron sues Mr Bryers
In September 2006 Mr Bryers advised Mr Herron he would not be able to develop the Turner and Waverley or Queenstown developments. On 24 October 2006 Mr Herron’s companies CAPL and Phoenix Project Management Ltd (Phoenix) commenced proceedings against Mr Bryers and Rockfort. That proceeding was discontinued following entry into a heads of agreement between Messrs Herron and Bryers on 20 December 2006.
Faire J found that settlement discharged all of Mr Bryers’ (and his interests’) contractual obligations to Mr Herron and CAPL regarding Mr Herron’s apartment agreements.[9] This had the effect that Mr Herron could no longer enforce the apartment contracts or the guarantee against Mr Bryers. Mr Wallace and his entities were not party to the litigation or the December 2006 litigation settlement agreement.
Mr Herron sues Mr Wallace
[9]Substantive judgment, above n 1, at [38].
On 9 April 2013, Mr Herron commenced this proceeding. In the High Court, Mr Herron claimed that Mr Wallace owed him (and that Belmont had guaranteed):
(a)$2,555,537.50 being the unpaid balance due under SH8, plus interest and costs on a solicitor/client basis; and
(b)$600,000 being the amount due under SH9, plus interest and costs on a solicitor/client basis.
Judgment appealed
We summarise the Judge’s findings on these claims at this point. We enlarge on the Judge’s precise reasoning when analysing the specific issues that emerge in this appeal.
On the first point Faire J held that the debt recorded above of $2,123,950 had reduced to $675,000.[10] In short he held that Mr Wallace was not entitled to credit for the value of the Queenstown apartment because the precondition for that credit had not been met. As to the balance sum of $1,037,000 also recorded above credits were due for the $600,000 payment by Lombard,[11] $125,000 for the Sexton Apartment,[12] and sundry solicitors’ costs. That left $291,531. In total, therefore, Mr Wallace owed Mr Herron $966,531.
[10]See above at [17](a).
[11]See above at [17](b).
[12]See below at [62].
On the second point, Faire J held that nothing was due under SH9. It was a mere acknowledgment of debt. It did not create a debt but referenced one created elsewhere, presumably the debt for that sum created in SH8. Mr Herron had not established to the Judge’s satisfaction that the intention underlying SH9 was to create a separate and independent debt.
Issues on appeal
Eight issues emerge in this appeal. The first six concern what sums if any are payable under SH8 and SH9. The first three are raised by Mr Wallace; the fourth to sixth arise on Mr Herron’s cross-appeal:
(a)Issue 1: Is Mr Wallace entitled to a reduction in debt under SH8 of $675,000 in respect of the Queenstown sale and purchase agreement (which never became unconditional)?
(b)Issue 2: Is Mr Wallace entitled to a deduction of $175,000 in relation to the Sexton apartment?
(c)Issue 3: If the answer to Issues 1 or 2 is “no”, should SH8 be reopened and the outstanding obligations of Mr Wallace and Belmont extinguished under the Credit Contracts and Consumer Finance Act 2003 (CCCFA)?
(d)Issue 4: Was Mr Wallace entitled to a deduction under SH8 for the value of the Turner and Waverly apartments?
(e)Issue 5: Did SH9 record a debt of $600,000 distinct from the $600,000 recorded in cl 8 of SH8?
(f)Issue 6: Was interest payable on those sums under SH8 and SH9?
The remaining issues concern costs:
(a)Issue 7: Do public policy reasons exist for denying Mr Herron indemnity costs, or, alternatively, should reductions be made to Mr Herron’s award for those parts of the claim he failed to prove?
(b)Issue 8: Should an uplift be applied to any award of costs made to Mr Herron pursuant to an indemnity right?
A summary of answers to these issues is given at [121] below.
Appellants’ application to adduce further evidence
Mr Wallace and Belmont filed an application to adduce further evidence in relation to the appeal against the Substantive judgment. That evidence related the appeal against the Recall judgment, sundry documents omitted from the case on appeal and a Companies Office search record. Mr Herron did not oppose that application. The appellants’ application to adduce further evidence is granted.
Issue 1: Is Mr Wallace entitled to a reduction in debt under SH8 of $675,000 in respect of the Queenstown sale and purchase agreement (which never became unconditional)?
Mr Wallace argues he is not liable to pay $675,000 in relation to the Queenstown apartment for two reasons. First, as a matter of construction of SH8. Secondly, because Mr Herron was himself responsible for the relevant condition not being met or because such an outcome would enable Mr Herron to take advantage of his own wrong.
It will be recalled that:[13]
(a)in October 2006 Mr Herron’s companies CAPL and Phoenix sued Mr Bryers and Rockfort;
(b)that proceeding was discontinued after entry into a heads of agreement in December 2006;
(c)Faire J found that settlement discharged all of Mr Bryers’ (and his interests’) contractual obligations to Mr Herron and CAPL regarding Mr Herron’s apartment agreements; and
(d)that also had the effect Mr Herron could no longer enforce the apartment contracts or the guarantee against Mr Bryers.
[13]See above at [22]–[23].
It is convenient to consider Mr Wallace’s arguments in reverse order
Judgment appealed
The “own wrong” argument was not made before Faire J. It was not pleaded explicitly. However Mr Herron had only given documentary disclosure of the 2006 settlement arrangements with Mr Bryers very late in the trial process. This is touched on under Issue 7 regarding Faire J’s refusal to recall his substantive judgment. Understandably in those circumstances no objection to the argument being advanced before us was made. The point was taken explicitly (and in some detail) in the notice of appeal.
Submissions
Mr Wallace contends SH8 contained an implied term, first, not to prevent fulfilment of a condition under the agreement and, secondly, that Mr Herron was not to take advantage of his own wrong.[14]
[14]Mr Wallace says this latter point is supported by Stirling Pastoral Company Ltd (in rec) v Downsview Nominees Ltd CA313/90, 6 July 1992 at 25.
The first of these implied terms arises by virtue of cl 6(a) in which the parties agreed that Mr Wallace would be entitled to the $675,000 deduction on the Queenstown apartment sale and purchase agreement becoming unconditional, and that the parties contracted in SH8 on the expectation that the condition would be fulfilled through the acts of third parties (Lombard, Mr Bryers and his companies). The second term is implied because, under SH8, Mr Herron and CAPL granted Mr Wallace the rights to assign Mr Herron’s apartment sale and purchase agreements to Lombard by way of security for Belmont’s borrowing from Lombard, and an option to purchase their interests in the CAPL properties at any time within three and a half years. It is, they say, necessary for the business efficacy of SH8 that Mr Herron and CAPL not do anything to prevent Mr Wallace or Belmont from obtaining the benefit of the rights granted to them by Mr Herron and CAPL under SH8.
Mr Herron contends that the December 2006 heads of agreement did not have the effect of settling his claims against Mr Bryers or his company SLA Properties in respect of the Queenstown apartment. In particular, SLA Properties was not a party to the December 2006 heads of agreement or the litigation. In an affidavit sworn in the substantive proceeding Mr Herron said he took the view discontinuance of the proceeding did not preclude his pursuing the apartments and that the heads of agreement did not end his right to sue Mr Bryers and SLA Properties “under the deeds and sale and purchase agreements relating to the apartments”.
Further, Mr Herron claimed in evidence that the settlement did not in fact become unconditional and was never actually carried into effect.
Analysis
We consider, first, exactly what occurred in the December 2006 heads of agreement between Messrs Herron and Bryers.
The October 2006 proceedings alleged that Mr Bryers’ advice that he was unable to develop the apartments “constituted a cancellation and/or failure to develop” the apartments. And that as a result cl 35 of the sale agreement between CAPL and SLA Properties was triggered, resulting in an obligation to pay CAPL the sum of $800,000 by way of compensation in the case of the Queenstown apartment.[15] This allegation is consistent only with the Herron interests asserting repudiation by the Bryers interests, acceptance thereof by Herron, cancellation of the proprietary obligation in the purchase agreement and the triggering instead of the compensation obligation. From the point of that election SLA Properties’ obligation became compensatory rather than proprietary.[16] Liability asserted in the prayer for relief is confined to payment of compensation.
[15]See [13] above. The apartment was described as “401” in the proceedings, but it is common ground that it is “403”, the Queenstown apartment referred to earlier.
[16]Meng Leon Developments Pte Ltd v Jip Hong Trading Co Pty Ltd [1985] AC 511 (PC); and Jansen v Whangamata Homes Ltd [2006] 2 NZLR 300 (CA).
The heads of agreement signed 20 December 2006 is between Messrs Herron and Bryers only. But it purports also to settle the dispute involving “their entities”, CAPL,[17] Phoenix and Rockfort. And it purports to resolve the litigation described in the preceding paragraph, such litigation to be discontinued once the agreement becomes unconditional. A note in Mr Herron’s handwriting on the exhibited copy of the agreement records it became unconditional the day after execution, on 21 December 2006. The proceeding was discontinued in February 2017.
[17]Misdescribed in the heads of agreement as “Auckland Central Properties Ltd”.
Curiously perhaps the focus of the agreement is not the litigation, but Belmont, Mr Wallace’s company. Neither Mr Wallace nor Belmont were parties to the agreement. The agreement records that Mr Herron had an interest in the development of the Belmont retirement village in his capacity as guarantor of a loan from Lombard to Belmont. The recitals continue:
Herron has an option under the Lombard Loan to acquire the Belmont Development in the event of a default by the Developer (“Option”) and intends to exercise the Option as set out in this Agreement.
The recitals conclude:
Herron and Bryers have agreed to enter into this heads of agreement to resolve the Dispute, discontinue the Proceedings and for Herron to acquire, complete and sell down the Belmont Development.
In short the settlement recorded a new deal: Mr Herron would exercise the right he had as guarantor of Lombard’s loan to Belmont to take over that development from Mr Wallace, and Mr Bryers would help him do so by buying units for the price equivalent to the Lombard loan to Belmont. Such payments would include $4.5 million said to be “fees/debts currently owed to Herron”. The litigation, and the Queenstown apartment, was effectively abandoned in the swell created by this new venture. The fact that the heads of agreement did not, if Mr Herron is to be believed, become unconditional does not alter the reality that having accepted SLA Properties’ repudiation in favour of the compensation entitlement, SLA was thereafter no longer obliged to settle the Queenstown apartment (or indeed develop it at all).
In these circumstances Faire J’s conclusion that the December 2006 heads of agreement discharged all of Rockfort, SLA Properties and Mr Bryers’ contractual obligations to CAPL and Mr Herron regarding the four apartments cannot seriously be contested.[18]
[18]Substantive judgment, n 1 above, at [37].
As we have concluded, from the moment of the acceptance of its repudiation, SLA Properties was discharged from the obligation to sell the Queenstown apartment to CAPL.
Where does that leave Mr Wallace’s entitlement to a credit of $675,000 “[i]n the event the Agreement for Sale and Purchase of the Queenstown property … [becomes] unconditional”, under cl 6(a)? Or, more relevantly, Mr Herron’s capacity to now claim that amount as part of the cl 6(a) debt?
The implied terms Mr Wallace contends for are founded on decisions of this Court in Singh v Potters Park Property Limited,[19] Vickery v Waitaki International Limited,[20] and Rod Milner Motors Limited v Attorney-General.[21]
[19]Singh v Potters Park Property Ltd [2015] NZCA 146.
[20]Vickery v Waitaki International Ltd [1992] 2 NZLR 58 (CA).
[21]Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568 (CA).
Singh is a recent decision of this Court that affirms the existence of a generally implied obligation by a contracting party not to impede another from achieving a condition on which depends some contractually provided-for outcome or benefit. The expression of that obligation in the decision is doctrinally ambivalent: it is not clear if the Court is referring to the obligation being implied as a term, or simply as an expression of a rule that the common law will not permit a contracting party to benefit from its own wrong. In the latter respect it is to be noted that the Court cited New Zealand Shipping Co Limited v Société des Ateliers et Chantiers de France.[22]
[22]New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1 (HL).
Vickery concerned a contract for the provision of catering and cleaning services to a freezing works for up to eight years. Midway through the contractual term the freezing works were closed. This Court held that as a matter of construction of the express terms of the contract, it was implicit that the freezing works remain open. In reaching that conclusion this Court relied on the dictum of Coburn CJ in Stirling v Maitland:[23]
… if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.
As Richardson J made clear, the conclusion in Vickery did not depend on the implication of a further term to give business efficacy. The obligation to maintain the business (or pay damages for its cessation) arose “as a matter of the true construction of the express terms of the contract”.[24]
[23]Stirling v Maitland (1864) 5 B & S 840 at 852.
[24]Vickery v Waitaki International Ltd, above n 20, at 65.
In Rod Milner Motors this Court approached the task in the alternative: either the term as to continuity (in that case of import licence tendering) was implied on the basis that it was implicit in the express agreement or it could be implied in order to give business efficacy to that agreement.
An alternative analysis of the rule is that it is simply remedial. That is, it is a rule that bars a claimant (in the broadest sense) from asserting and taking advantage of its own wrong. That approach commended itself to Lord Ellenborough in Rede v Farr, there describing a “universal principle of law, that a party shall never take advantage of his own wrong”.[25] The same approach appealed to Lords Finlay LC and Shaw in New Zealand Shipping Co Ltd, although Lords Atkinson and Wrenbury appeared to reach the same result by a process of construction.[26] Similarly, Lord Atkin in Southern Foundries (1926) Ltd v Shirlaw expressed the principle as a positive rule of law of contract that conduct which amounts to bringing about the impossibility of performance is itself a breach.[27] There is a philosophical linkage also to the rule against self-induced frustration. That is, the rule that a contracting party may not rely on frustration for which it is responsible.[28]
[25]Rede v Farr (1817) 6 M & S 121, 105 ER 1188 at 1189.
[26]New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France, above n 22.
[27]Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 (HL) at 717.
[28]New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France, above n 22, at 6; and Bank Line Ltd v Arthur Capel & Co [1919] AC 435 (HL) at 452.
Whatever jurisprudential underpinning applies, we consider the application of the broad principle in this case to be clear. By the arrangements in October 2005:
(a)Mr Herron and CAPL lent credit (but not funds) by way of security to Lombard for the performance of Belmont’s obligations — under the Belmont facility. That included an assignment by way of security of the Queenstown apartment sale and purchase agreement.
(b)Clause 11 of SH8 required Mr Wallace to procure the release of those securities (presumably by ensuring Belmont met its obligations to Lombard).
(c)Conditional on doing (b) above and the agreement for sale and purchase for the Queenstown apartment becoming unconditional, Mr Wallace would gain a further credit of $675,000 thereby qualifying for the maximum credit of $2,123,950.
(d)By his actions in October, November and December 2006 Mr Herron (directly and through his various corporate entities) released SLA Properties from its obligation under that sale and purchase agreement.
That action comprehensively contravenes the obligation on Mr Herron’s part not to impede Mr Wallace from fulfilling the condition on which the $675,000 credit depended. For reasons given under Issue 4, we find Mr Wallace had done everything else required to meet that condition. In those circumstances we consider it is enough to say that the consequence is that Mr Herron cannot claim that part of the debt provided in clause 6(a), having precluded performance by Mr Wallace of the very condition which would have excused payment.
Alternative argument rejected
In the alternative, Mr Wallace contends the proper construction of cl 6(a) should recognise that from time to time one or more assets would be removed from the pool of assets over which a charge remained, and the “total outstanding amount” would reduce accordingly. He says SH8 is a security arrangement. The scheme of the security arrangement was that the indebtedness created by these charges would be reduced when the security was discharged, or where the charge ceased to exist. If the Queenstown apartment did not become unconditional, its value was not part of the security that could be called upon by Lombard. Where Mr Herron’s assets were no longer at risk of being called in by Lombard to pay down the Belmont facility, the value ascribed to those assets was to be deducted from Mr Wallace’s outstanding indebtedness.
Faire J rejected a similar argument. He concluded that the meaning of “total outstanding amount” was plain: the Queenstown apartment sale and purchase agreement had not gone unconditional because the development was never completed, and therefore Mr Wallace was not entitled to receive a credit for the half‑share of the Queenstown apartment, being $675,000.[29] That is, the “total amount due” would only ever be capable of reducing by $1,448,950 instead of the $2,123,950 referred to at the start of cl 6(a).
[29]Substantive judgment, above n 1, at [66]. Mr Herron and Mr Wallace were to have equal shares in the Queenstown apartment valued at $1.55 million, with a debt back to the vendor of $200,000. This sum is, therefore, the remaining value in the unbuilt apartment ($1.35 million) divided between Mr Herron and Mr Wallace. This sum is therefore Mr Herron’s interest in the Queenstown apartment which was subject to Lombard’s charge.
We reject the argument also. Because of the conclusion reached already on the “own wrong” argument, we address the alternative argument only briefly.
We agree with Faire J that the meaning of cl 6(a) is plain. It creates an obligation on Mr Wallace’s part to pay the sums in cl 6(a), without deduction, subject to a proviso that the $3,160,950 sum due is reduced to $1,037,000 if the obligations in cl 11 are met. These obligations are the release of all securities held in respect of Mr Herron’s CAPL’s interests in the Turner and Waverley and Queenstown development apartments, as the concluding words of cl 11 make clear. Those securities, it will be recalled, were given by CAPL to assist Mr Wallace gain the revised Belmont finance facility.[30] But if the agreement for sale and purchase of the Queenstown apartment does not become unconditional, the sum remaining due is $1,712,000 — a difference of $675,000.
[30]See above at [14].
Mr Wallace has to pay the $3,160,950. And he also has to release the securities given by CAPL to assist him finance Belmont. If he does the latter a credit of $2,123,950 is given against his indebtedness. If the securities are discharged, CAPL and Mr Herron are then free once more to deal with those properties as they see fit. But if the agreement for sale and purchase of the Queenstown apartment does not become unconditional, the credit given is only $1,448,950. Absent that agreement becoming unconditional there is nothing of value to give credit for.
We do not accept Mr Wallace’s argument that, on a purposive construction, the words “the total amount outstanding” in cl 6(a) is a fluctuating figure depending on the level of secured assets charged — so that if the Queenstown apartment did not become unconditional “its value was not part of the security that could be called up”. This is a strained and unnatural interpretation of the words. This was a settlement agreement. The context or purpose of settlement agreements, generally, is the drawing to an end of a dispute or potential dispute, and a desire to avoid further litigation. The parties had agreed a level of indebtedness. That sum, $3,160,950, was “the total outstanding amount due”. And it was that sum that was payable in full in three years and six months unless the credits provided for in cls 6(a) and 11 applied. The proposition that “the total amount outstanding” excluded that part of the debt notionally attributed to the Queenstown apartment makes no sense in a context in which the credit allowed expressly depends on the proprietary fate of that property. Had the parties intended otherwise, they would have said otherwise. What in fact they said was perfectly clear.
Conclusion
We answer Issue 1 “yes”. Mr Wallace is entitled to a reduction in debt under SH8 of $675,000 in respect of the Queenstown sale and purchase agreement.
Issue 2: Is Mr Wallace entitled to a deduction of $175,000 in relation to the Sexton apartment?
Mr Wallace and Mr Herron were involved in a development called the Sexton Apartments. It was another transaction where they had helped other developers and taken rights to prospective apartments on completion. Mr Wallace claims that Faire J erred in concluding Mr Wallace was not entitled to a further $175,000 credit under cl 7. That clause relevantly provides:
7. In partial satisfaction of the monies acknowledged by Wayne Wallace to be due to Stuart Herron and/or in payment of damages or as security for outstanding debt and in consideration of Stuart Herron forbearing from pursuing damages claims he has against Wayne Wallace in relation to Wayne Wallace’s conduct with Lombard it is agreed by Wayne Wallace and/or Shades of Autumn Limited that
…
(b) On receipt, Wayne Wallace shall pay to Stuart Herron $175,000 from the Sexton Apartment’s [sic] project (being Wayne’s 50% share of the deposit and Wayne’s 50% share of the payments due to him from the Sexton Apartment’s [sic] project as distinct from the 50% share of Stuart Herron) which shall be deducted from the amount owing to Stuart Herron by Wayne Wallace under clause 6(a).
(c) Wayne transfers his interest in the Sexton Apartment (which the parties agree has a value of $125,000) to Stuart Herron or his nominee and this amount is deducted from the amount owing to Stuart Herron by Wayne Wallace under clause 6(a).
In the High Court, Faire J determined that Mr Wallace was entitled to the credit of $125,000 under sub-cl 7(c), but that Mr Wallace was not entitled to the $175,000 under sub-cl 7(b) because Mr Wallace had neither received nor paid $175,000 to Mr Herron.[31]
Submissions
[31]Substantive judgment, above n 1, at [106]–[107].
Mr Wallace accepts he neither received, nor paid, the $175,000 referred to in cl 7(c). But he says he should be entitled to the deduction on the basis that the obligation in cl 7(c) has been met by accord and satisfaction. That is, by permitting Mr Herron to take over complete control of the development. He claims Mr Herron took over his entire interest in the Sexton development following entry into SH8. And that any obligation by Mr Wallace to pay Mr Herron the $175,000 was satisfied by the transfer of that interest.
Alternatively, Mr Wallace contends sub-cls 7(b) and (c) together necessitate an implied term that once Mr Herron had taken over Mr Wallace’s interest in the Sexton development, Mr Herron would ensure Mr Wallace would receive payment due to him under cl 7(b) such that he could then repay it to Mr Herron.
Analysis
We do not accept Mr Wallace’s submission.
The submission that accord and satisfaction occurred (or that an implied term is necessitated) once Mr Herron took over the whole development fails on the evidence.
First, Mr Wallace’s evidence goes nowhere near establishing Mr Herron in fact took over the development. He asserts in evidence in chief that Mr Herron took over “responsibilities”, but then goes on to say that he did not know whether he received an apartment at Sexton or not. Receipt of title to one or two apartments was the intended consideration, reflected in the provision for payment. Later he simply says that Mr Herron took over and dealt with the Sexton people “personally” and that was the last he (Mr Wallace) had to do with the matter.
Secondly, Mr Herron was barely cross-examined on the point. It was not put to him that he had taken over the development. Instead he was asked:
Q: Did you receive the benefit of that apartment?
A: No.
Q: Did Mr Wallace?
A: No — not as far as I know.
Thirdly, we are not satisfied that the factual substratum exists from which an inference that Mr Herron took over the particular development can safely be drawn. We do not therefore draw it.
Fourthly, while the point is not conclusive, we note that the effect of the alleged accord and satisfaction is in effect a variation to SH8. Clause 14 of that agreement provides that no variation or departure from the agreement is of any force or effect unless confirmed in writing signed by the parties. That is, at least, an expression of intent that a casual variation of the sort here asserted is not to be countenanced.
Conclusion
We answer Issue 2 “no”.
Issue 3: If the answer to Issues 1 or 2 is “no”, should SH8 be reopened and the outstanding obligations of Mr Wallace and Belmont extinguished under the CCCFA?
As we have found for Mr Wallace on Issue 1 we confine our attention to his argument that enforcement of payment of the $175,000 sum under cl 7(b) of SH8 would be oppressive. This was very much on the periphery of Mr Wallace’s CCCFA argument.
Judgment appealed
It was accepted by the parties before Faire J that SH8 was a credit contract and subject to the CCCFA.[32]
[32]Substantive judgment, above n 1, at [141].
Faire J held that none of Mr Wallace’s grounds under the CCCFA were made out. First, given the unusual context and benefits of SH8, which defied valuation, Mr Wallace had not proved that the terms of SH8 were oppressive.[33]
[33]At [157]–[159].
Secondly, the Judge found oppressive conduct had not been proved either. Inducing entry into SH8 was not oppressive conduct. Nor was oppressive his seeking to enforce SH8 without giving the contested credits in cls 6(a) and 7 and failing to notify Mr Wallace that he was in default.[34]
Submissions
[34]At [160]–[166].
We address only the argument made regarding cl 7(b). Mr Wallace contends enforcement of that clause would be oppressive because Mr Herron had already received the benefit of the obligation being secured. That is, the transfer of Mr Wallace’s half share of the deposit and payments due under the Sexton development.
Analysis
This argument too fails on the facts. Clause 7(b) provided for a credit if Mr Wallace made a payment to Mr Herron, being payments due to him from the Sexton development. It is accepted the payment was not made. We have found that Mr Wallace failed to prove in evidence that Mr Herron had assumed control of that development.[35] But that is immaterial to the present issue. The credit-for-payment obligation in cl 7(b) is not inherently “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”.[36] And nor is refusal to allow the credit where the payment on which it depends is not made.
[35]See above at [66]–[71].
[36]Credit Contracts and Consumer Finance Act 2003, s 120.
Beyond that point we have nothing to add to the reasons of Faire J on the issue, which we adopt.
Conclusion
We answer Issue 3 “no”.
Issue 4: Was Mr Wallace entitled to a deduction under SH8 for the value of the Turner and Waverly apartments?
This is a cross-appeal issue brought by Mr Herron. It concerns whether Faire J was correct to credit the value of the three Waverly and Turner apartments (an aggregate of $1,457,950) to the “total outstanding amount” in cl 6(a) of SH8, and in particular whether Mr Wallace and Belmont procured the release of the securities provided for in cl 11.[37] While the underlying loan was repaid by Mr Wallace in November 2007, Mr Herron says that did not procure release of the securities provided for in sub-cls 11(a) and (b). As a result Mr Wallace was not entitled to the credit for those apartments provided in cls 6 and 11.
Judgment appealed
[37]Based on the reduction by Faire J from $2,123,950 to $675,000 with the remaining value attributable to the Queenstown apartment: Substantive judgment, above n 1, at [91].
Faire J rejected Mr Herron’s contention that assignments of the sale and purchase agreements to Lombard, as security for the Belmont facility, were absolute. This was “entirely undermined by the evidence”.[38] SH8 did not demonstrate an intention to assign absolutely because Mr Herron and CAPL retained rights in the apartments. It granted Mr Wallace an option to purchase the apartments from Mr Herron. Therefore, the assignments to Lombard were not absolute, and “there can be no presumption that a formal reassignment was required to ‘procure the release of the securities’ as required by [SH8].”[39]
Submissions
[38]Substantive judgment, above n 1, at [89].
[39]At [90].
Mr Herron says repayment of the Belmont facility did not thereby discharge the securities. The date the loan was repaid was other than on the contractual expiry. He says questions of “liability for costs, liabilities and expenses that might have been incurred by Lombard” remained open, thus requiring a formal release by Lombard.
Secondly, and alternatively, Mr Herron says the assignment of the sale and purchase agreements to Lombard was absolute (albeit by way of security) such that a formal release by Lombard was required notwithstanding repayment of the debt to Lombard by Belmont.
Thirdly, and also alternatively, Mr Herron says CAPL remained under a contingent or potential liability to Lombard by virtue of the Lombard facility agreement notwithstanding repayment by Belmont of the facility debt unless and until the security provided by CAPL was formally released by Lombard.
Analysis
We do not accept Mr Herron’s cross-appeal argument. We conclude, as Faire J did, that the assignments were by way of security only, not absolute, and that Mr Wallace had met the requirements of cl 11.
Whether an assignment is absolute or not is determined by inspection of the instrument itself, construed in its commercial context. In this case we are not assisted by the absence of the assignment instruments. They were not produced in evidence. They cannot be inspected. The analysis in this case is therefore essentially a contextual one. The burden of proof however lay on Mr Herron as plaintiff.
We make six points.
First, the Belmont facility agreement provided for assignment of the sale and purchase agreements both as a security and as an assignment “by way of security”. That is not determinative, but it is strongly indicative of the nature of the assignments (which had been given earlier in time). Similarly, a notice of assignment given by CAPL and Shades and addressed to SLA Properties, vendor of the Queenstown apartment, refers repeatedly to the assignment being “by way of security”.[40]
[40]See above at [14].
Secondly, there is nothing in the record that suggests to us that Lombard required an absolute assignment. Nor that Mr Herron would have willingly agreed to such an arrangement. On the contrary, such assignment was unnecessary to Lombard and would have been commercially unpalatable to Mr Herron, restricting trading flexibility. That, as the next point establishes, remained important to him.
Thirdly, Mr Herron remained at large able to deal with the properties, subject to the security, and he did so. We have seen already his dealings with Mr Bryers which concerned all four apartments. Furthermore, SH8 itself provided, in cl 9.2 for the granting to Mr Wallace of an option to purchase CAPL and Mr Herron’s interests in the four apartments, while recording the right of Mr Herron and CAPL to sell the apartments after three and a half years from the date of SH8. We agree with the Judge’s observation that Mr Herron proceeded on the basis that the assignment did not bar him from dealing with the apartment contracts.[41] Such presumption is more consistent with a limited form of assignment. Furthermore, as a matter of fact, Mr Herron’s own actions in discharging by agreement CAPL’s rights to the apartment are fundamentally inconsistent with his argument before us that an absolute assignment to Lombard had occurred and that Mr Wallace had not complied with the requirements of cl 11.
[41]Substantive judgment, above n 1, at [83].
Fourthly, the lender’s conduct is consistent with an assignment by way of security only. The former chief executive and principal shareholder of Lombard, Mr Michael Reeves, gave evidence. He thought that Lombard had obtained an assignment by way of security only. Furthermore, he said that once the loan was repaid (which occurred in November 2007) nothing was done (or needed to be done) to release Lombard’s securities. Thereafter Lombard had no ongoing interest in the apartments.
Fifthly, we are unimpressed by the argument that the possibility of late payment claims may not have meant the securities were discharged. Lombard treated the November 2007 payment as sufficient and final. It issued a statement confirming repayment and the existence of a nil balance. No claims by Lombard for additional sums, notwithstanding that statement, were presented in evidence.
Sixthly and ultimately, we simply do not think that the construction of cl 11 proposed by Mr Herron makes any sense from a commercial perspective. Mr Herron had assisted Mr Wallace by providing Lombard with rights to the apartments by way of security only, pursuant to the facility agreement. He did not go unrewarded under SH8. Mr Wallace had procured repayment of the Belmont facility agreement, in full. The lender, Lombard, had no continuing interest in the apartments. SH8 permitted Mr Herron to continue to deal with those properties once the security interests were released. In those circumstances a robust construction of cl 11 and in assessing performance thereunder is called for. Faire J gave the clause such a construction. So do we.
Conclusion
We answer Issue 4 “yes”.
Issue 5: Did SH9 record a debt of $600,000 distinct from the $600,000 recorded in cl 8 of SH8?
This also is a cross-appeal point taken by Mr Herron. On the same day SH8 was signed (20 October 2005), another deed of acknowledgment of debt was signed called SH9. This recorded a debt by Mr Wallace to Mr Herron of $600,000. SH8 also recorded a payment of $600,000 to be made by Mr Wallace to Mr Herron by funds sourced from Lombard. It is undisputed that a payment of that sum was made by Lombard on 3 or 4 November 2005.[42] The question is whether the debt recorded in SH9 is distinct from the same sum recorded in SH8, and therefore still outstanding.
Judgment appealed
[42]At [109].
Faire J concluded SH9 did not record a separate debt. The pivotal consideration was that SH9 was an “acknowledgment of debt” only. It did not purport to create any debt and instead refers to that debt being created as part of other arrangements.[43] Mr Herron had failed to show on the balance of probabilities that the intention of the parties was to create a separate, further debt.
Submissions
[43]At [128].
Mr Herron contends there are material differences between the two deeds that point to the existence of separate debts. The debt in SH9 was a fee required by him for posting security for the Belmont facility by allowing Lombard to register securities against the CAPL apartments and CAPL giving a guarantee of the Belmont facility. Distinctively, SH9 has a five year 11 month interest free term, whereas the payments in SH8 were due and payable within three years and six months (with interest accruing after two years and six months). SH9 had a default interest rate of 15 per cent and a penalty interest rate of 20 per cent per annum whereas under SH8 the interest rate is 5 per cent with a penalty rate of 15 per cent. Furthermore, of course, the $600,000 credit provided in SH8 was plainly intended to occur early in the arrangement in any case — as soon as payment was made by Lombard to Belmont, from it to Georgian and Mr Wallace, and from them to Sidmouth and Mr Herron. On the other hand cl 3 of SH9 provides that two years after execution Mr Wallace is to direct Belmont to pay Mr Herron 25 per cent of its post-tax (but pre-directors’ fees) operating surplus in reduction of the SH9 debt. He points also to oral evidence given by each protagonist supportive of that analysis.
Mr Wallace essentially adopts the conclusions reached by Faire J. He contends that the Judge’s analysis of the “morass of conflicting evidence”, and preference for reaching his conclusions on the terms of the documents themselves, cannot be faulted.
Analysis
We are not persuaded the Judge erred. In the end it comes down to a matter of proof. We are no more satisfied than Faire J was that Mr Heron has discharged the burden of proof of establishing the existence of a second, separate debt for the same amount of $600,000.
We make six points.
First, the agreements are poorly drafted and their interrelationship uncertain. That, along with the inconsistent oral evidence, is the “morass of conflicting evidence” the Judge had to deal with. We are not satisfied that he erred in his evaluation of it.
Secondly, as to the oral evidence, Faire J gave particular weight to Mr Reeves’ evidence that Mr Herron told him specifically the Lombard payment of $600,000 was final and that no other payments were due from Mr Wallace. Lombard made the $600,000 payment within about two weeks of SH9’s execution on 20 October 2005. The Judge accepted that evidence, and rejected Mr Herron’s denial of it. He found there was no reason for Mr Reeves to have been untruthful on that detail. We agree.
Thirdly, the Judge emphasised two subsequent actions (or inactions) by Mr Herron inconsistent with his argument as to there being a further debt for $600,000. First there was his failure to demand 25 per cent of Belmont’s operating profit or request to see its accounts — contrary to the entitlement he asserts under cl 3 of SH9.[44] Secondly there is the further failure in his 2012 letter of demand to mention the $600,000. We think it inconceivable on the evidence that Mr Herron would have overlooked a distinct entitlement to the further sum of $600,000 had it indeed existed. These are also powerful points in the direction of Mr Wallace’s account.
[44]See above at [98].
Fourthly, Mr Herron’s explanation for the debt was that the $600,000 was “payment for the risk I was taking in allowing Lombard to register securities against the CAP apartments and CAP giving its guarantee under the second Lombard loan”. We think Mr Herron’s explanation lacks inherent plausibility. SH9 is unequivocal in reciting that the arrangements leading to SH8 include Mr Wallace’s acknowledgement of indebtedness to Mr Herron “of $600,000 due and payable on the terms and conditions set out in this deed”. In other words, the $600,000 referred to in SH9 is part of the indebtedness of $3,160,950 in SH8. The whole purpose of SH9 appears to be of a contingent nature, to reinforce Mr Wallace’s personal liability in the event that Belmont did not advance the $600,000. CAPL, it may be noted, is not itself a party to SH9 despite the fact that Mr Herron records that it is the party providing the consideration for the debt by Mr Wallace.
Fifthly, Mr Herron draws distinctions about the dates of due payment for the $600,000 under SH8 which was due immediately and the $600,000 due under SH9 in five years and 11 months’ time interest free. But we do not find the inconsistency in potential term persuasive such that entirely separate debts were incurred. Given the other deficiencies of drafting, we are disinclined to draw an inference from timing as to separate obligations. The payment under SH8 might be made by one date, under SH9 by another. In fact in cl 2.1 of the Lombard agreement, Mr Wallace assumed an obligation to pay the $600,000 once the funds were cleared to Sidmouth and Mr Herron, which everyone knew would be a third and much earlier date. SH9 sits compatibly with SH8.
Sixthly, it is simply too much of a coincidence that, against this background, Mr Wallace should be indebted to Mr Herron for an additional and identical amount of $600,000. The Judge had the benefit of seeing and hearing the witnesses, including both protagonists and Mr Reeves. Due regard must be had to that. He found, considering the evidence, including the matters raised on appeal that Mr Herron had failed to discharge the burden of proof of showing separate debts were created. Mr Herron’s own subsequent conduct was fundamental in that conclusion. We agree with Faire J in the conclusion he reached upon the evidence.
Conclusion
We answer Issue 5 “no”.
Issue 6: Was interest payable on those sums under SH8 and SH9?
This is a further cross-appeal issue brought by Mr Herron.
Judgment appealed
Clause 9.4 of SH8 provides:
9.4 Upon the issue of title and transfer of the Turner, Waverley Street and Queenstown properties (more particularly described in clauses 11(a), (b) and (c)) of this Agreement or 2.5 years whichever is the later of the two events Wayne shall pay interest at the rate of 5% per annum if demanded on all moneys due to Stuart Herron. Nothing in this clause shall enable Wayne to defer the payments to be made in terms of clause 9.1 of this Agreement. Wayne agrees to pay interest in the event of Wayne failing to fulfil the obligations set out in clause 9.1 and/or in the event he is in breach of any obligations set out in this Deed at the rate of 15% per annum if demanded on all moneys outstanding at any time to Stuart Herron and such amounts shall be secured by all securities granted by Wayne Wallace.
Faire J ruled no interest was payable on the debt owed under SH8.[45] Interest had not begun to accrue at the rate of five per cent as the apartments had not been transferred. Furthermore, interest had not begun to accrue at the 15 per cent default rate because Mr Herron made no demand for that interest.[46]
[45]Faire J concluded the total debt owed was $966,531.50.
[46]Substantive judgment, above n 1, at [135].
Faire J did not determine the position under SH9, having held it created no independent debt.
Submissions
Mr Herron says while no title or transfer occurred, the Judge failed to expressly consider the second alternative (the passing of two and a half years). Under this alternative, Mr Herron submits interest began accruing at a rate of five per cent per annum from 21 April 2007. That deed also provides penalty interest at 15 per cent from the date when repayment was due (20 April 2009) or if Mr Wallace otherwise breached the agreement (cl 9.4). Mr Herron says “at the very latest” interest at both rates began to accrue when the proceedings were issued on 9 April 2013.
Mr Wallace supports Faire J’s analysis and conclusions.
Analysis
We reach the same conclusions as did Faire J in relation to SH8. Clause 9.4 states interest is payable on the happening of the later of two events: the issue of title and transfer of the apartments or two and a half years. Because the titles were never issued, the later of the two events has not occurred. The earlier event is irrelevant. No interest is payable at the five per cent rate. Interest will of course be payable on the revised judgment sum, in the ordinary way. It is unnecessary therefore to determine the “demand” aspect of this issue.
No debt being due under SH9, interest thereunder does not arise.
Conclusion
We answer Issue 6 “no”.
Issue 7: Do public policy reasons exist for denying Mr Herron indemnity costs, or, alternatively, should reductions be made to Mr Herron’s award for those parts of the claim he failed to prove?
Issue 8: Should an uplift be applied to any award of costs made to Mr Herron pursuant to an indemnity right?
We deal, briefly, with these issues together.
We will determine costs in this Court, but costs in the High Court will need to be set by that Court in the light of this decision. In doing so parties will be at liberty to advance the arguments they made before us on costs.
Likewise the High Court is at liberty to reconsider the conclusions it reached below in the light of the revised fortunes of the parties after this decision. We would merely observe that we rather doubt the conclusion in the final costs decision, to the effect that conditional fee arrangements were unenforceable in October 2005, for public policy reasons.[47] The authority cited for that proposition, Kain v Wynn Williams, a decision of the Supreme Court refusing leave to appeal, does not support it.[48] The decision of this Court in the same proceeding positively refutes it.[49] Indeed it observed:[50]
[W]e are satisfied that unlike the English common law New Zealand does not recognise an absolute prohibition on conditional fee agreements. Instead, a practical and flexible approach is required. Each case must be considered on its merits.
Conclusions
[47]Costs decision, above n 3, at [14].
[48]Kain v Wynn Williams [2013] NZSC 26.
[49]Kain v Wynn Williams [2012] NZCA 563, [2013] NZLR 498 at [24]–[31].
[50]At [31].
We have answered the issues posed in these appeals as follows:
(a)Issue 1: Is Mr Wallace entitled to a reduction in debt under SH8 of $675,000 in respect of the Queenstown sale and purchase agreement (which never became unconditional)?
Yes.
(b)Issue 2: Is Mr Wallace entitled to a deduction of $175,000 in relation to the Sexton apartment?
No.
(c)Issue 3: If the answer to Issues 1 or 2 is “no”, should SH8 be reopened and the outstanding obligations of Mr Wallace and Belmont extinguished under the CCCFA?
No.
(d)Issue 4: Was Mr Wallace entitled to a deduction under SH8 for the value of the Turner and Waverly apartments?
Yes.
(e)Issue 5: Did SH9 record a debt of $600,000 distinct from the $600,000 recorded in cl 8 of SH8?
No.
(f)Issue 6: Was interest payable on those sums under SH8 and SH9?
No .
(g)Issue 7: Do public policy reasons exist for denying Mr Herron indemnity costs, or, alternatively, should reductions be made to Mr Herron’s award for those parts of the claim he failed to show?
Not answered.
(h)Issue 8: Should an uplift be applied to any award of costs made to Mr Herron pursuant to an indemnity right?
Not answered.
Result
The appeal is allowed in part, as stated at [61].
The cross-appeal is dismissed.
The respondent must pay the first appellant costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
Solicitors:
Wilson Harle, Auckland for Appellants
Skeates Law Ltd, Auckland for Respondent
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