|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 31 December 2018
|
IN THE HIGH COURT OF NEW ZEALAND
TAURANGA REGISTRY
|
|
CIV-2014-470-211
CIV-2015-470-63 [2015] NZHC 2560
|
|
BETWEEN
|
PETER ALAN MCCOLL
FAYE ELEANOR MCCOLL AND
JK HAMILTON TRUSTEE SERVICES LIMITED AS TRUSTEES OF THE MCCOLL FAMILY
TRUST
Plaintiffs
|
|
AND
|
MARK STEVEN TATTON
Defendant
|
|
Hearing:
|
22 July 2015 (IN CHAMBERS)
|
|
Appearances:
|
M Ward-Johnson for Plaintiffs M Matthews for Defendant
|
|
Judgment:
|
20 October 2015
|
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 20 October 2015 at 2:00pm
pursuant to Rule 11.5 of the High Court Rules
............................................................ Registrar/Deputy Registrar
Solicitors:
J K Hamilton (Max Hamilton) Tauranga, for Plaintiffs
Rennie Cox (Margaret Matthews) Auckland, for Defendant
Copy for:
Ward-Johnson Barristers Limited, Tauranga, for Plaintiffs
MCCOLL v TATTON [2015] NZHC 2560 [20 October 2015]
[1] On 23 March 2015 the plaintiffs obtained summary judgment against Mr Tatton for $170,000.00 plus interest of $63,009.21 and costs and disbursements of
$10,550.50, a total of $243,559.71. Mr Tatton did not appear and did not oppose the application. On 14 May 2015 the plaintiffs served a bankruptcy notice for the judgment sum on Mr Tatton. He has applied to set aside the judgment and the bankruptcy notice. I have heard the applications in chambers to ensure that there is a common appeal pathway for decisions on the applications.1 It is agreed that the application to set aside the bankruptcy notice stands or falls with the application to set aside the judgment.
Principles on applications to set aside summary judgments by default
[2] Mr Tatton applies under r 12.14 of the High Court Rules:
12.14 A judgment given against a party who does not appear at the hearing of an application for judgment under r 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.
[3] Applications under r 12.14 are decided in a similar way to setting-aside applications under cognate rules: r 10.9 (judgment at trial on non-appearance) and r 15.10 (judgment obtained by default). In Equiticorp Finance Group Ltd v Cheah the Court of Appeal said:2
The discretion so conferred is not arbitrary and is to be exercised as the justice of the case requires. That is the principle which applied to the similar R 265 of the former Code of Civil Procedure in the case of verdict or judgment regularly given where one party does not appear at the trial: see eg Russell v Cox [1983] NZLR 654. We think it was also applicable to cases under R 236 and the references in RR 486 and 469 of the High Court Rules (which replace RR 265 and 236) to setting aside or varying a judgment in such cases “if it appears to the court that there has, or may have been, a miscarriage of justice” express the same principle. It was ever the case that a defendant seeking to set aside a judgment regularly obtained needed to show an actual or possible miscarriage of justice. One, indeed a common way of doing so, is to show an actual or arguable defence.
In the case of a summary judgment regularly obtained, it will normally be necessary for the defendant seeking to set aside judgment to adduce material
CIV-2008-404-6062, 22 September 2009; Sharma v Wati [2012] NZCA 195, (2012) 21 PRNZ 161.
2 Equiticorp Finance Group Ltd v Cheah [1989] UKPC 25; [1989] 3 NZLR 1 (CA) at 8.
which leads the Court to the conclusion that the plaintiff has not satisfied the Court that there is a defence to the claim.
[4] In Russell v Cox the Court of Appeal made it clear that the rules allowing a judgment to be set aside confer a broad discretion, not to be fettered or confined to rigid considerations. The ultimate question is whether it would be just in all the circumstances to set aside the judgment. There are three considerations likely to be of special importance: whether the defendant’s failure to take steps is excusable, whether the defendant appears to have a substantial ground of defence and whether the plaintiffs would or might suffer irreparable injury if the judgment were to be set aside.
[5] For this case, I will deal mainly with the question whether Mr Tatton has an arguable defence. Unless he succeeds on that point, it would be useless to set aside the judgment. He does not suggest that the plaintiffs obtained judgment against him irregularly.
[6] If Mr Tatton shows that the judgment should be set aside, it will follow that the plaintiffs will not be able to recover summary judgment against him because he will have an arguable defence. The summary judgment application will also be dismissed and the case will take the standard course for an opposed general proceeding. A rehearing of the summary judgment application would not serve any useful purpose.
The application to set aside the bankruptcy notice
[7] The application invokes the court’s inherent jurisdiction to control the abuse of its process.3 It relies on the application to set aside the judgment also succeeding. It also raises a challenge to the solicitor instructed by the plaintiffs. The plaintiffs have addressed that by changing solicitor. That aspect does not require consideration.
Facts
3 Re Wise HC Auckland B227/95, B228/95, 21 June 1995 per Master Kennedy-Grant.
The plaintiffs, the trustees of the McColl Family Trust, lent $500,000 to Quayside Trustee Ltd, a corporate trustee. It was undertaking a development of the Quayside apartment complex at Whakatane. The three men behind the development project were John McColl (son of two of the plaintiffs), Greg Robison and Mark Tatton. Mr Tatton says that the loan from the plaintiffs was a top-up for initial development funding. The advance was made on 31 January 2006 and was repayable on 31 July 2006. Interest was payable monthly in arrears at 15 per cent per annum with a default rate of 18 per cent per annum. Messrs McColl, Robison and Tatton guaranteed the loan. The guarantee provisions are incorporated in the written loan agreement of 12 May 2006. They say:
[8] Notwithstanding the reference to security documents in cl 9, there was no security for the loan.
[9] The loan was not repaid on 31 July 2006. Quayside paid interest on the loan. In March 2009 the plaintiffs and Quayside agreed to accept interest at 10 per cent per annum both before and after default.
[10] Quayside went into receivership on 8 September 2010 and into liquidation on 14 October 2010.
[11] By the end of July 2011, the amount owed under the loan was $566,575 made up of the principal sum of $500,000 plus interest at 10 per cent from 1 April 2010.
[12] In December 2011, the plaintiffs entered into a deed of compromise with Mr Robison, one of the guarantors. The other guarantors were not parties to the deed. The parties to the deed were the plaintiffs, Mr Robison, and JK Hamilton Trustee Company 2010 Ltd, the trustee of the Fantail Trust, which is associated with Mr Robison. Under the deed, the plaintiffs agreed to compromise and restate the debt owed by Mr Robison at $170,000. JK Hamilton Trustee Company 2010 Ltd promised to repay that debt by instalments of $1500 monthly, beginning in January 2012, with the balance to be repaid in one sum at the end of December 2016. Interest on the debt would run at five per cent per annum but in default at seven per cent per annum. Clause 5 said:
Greg acknowledges his liability or the payment of the restated debt and interest in the terms set out in clauses 2 and 3. Nothing in this deed exonerates Greg personally from payment of the restated debt for so long as any part of it remains unpaid.
[13] There is no provision in the deed reserving the plaintiffs’ rights against other
guarantors.
[14] The trustees made a similar arrangement with John McColl, the other guarantor. That arrangement has not, however, been put in writing. Peter McColl describes it:
John McColl has not been released from liability as Mark claims. There was no need to record that compromise as John is Fay’s and my son. We trust John will be in a position to repay his share of the debt set at $170,000 together with interest on the sale of the properties from the Seascape Development in Ohope. The trustees are not in a position financially to allow any of the guarantors to avoid liability. It was a significant sum that was loaned to Quayside Trustee Ltd and guaranteed by the three guarantors.
[15] Mr John McColl has confirmed that arrangement in an affidavit. He is liable for interest on the $170,000 owed by him under the arrangement. It appears that he has not made any payments yet.
[16] The plaintiffs made demand on Mr Tatton. They also tried to negotiate an arrangement with him. While Mr Tatton acknowledged his liability under the guarantee, he was not willing to enter into any fresh binding arrangement with the plaintiffs.
[17] While the plaintiffs did not have any firm arrangement with Mr Tatton to accept a reduced sum from him, they sued him for $170,000 on the basis that by claiming that sum they were treating him the same way as the other guarantors. In an email of 11 February 2013, Mr Peter McColl advised Mr Tatton that the plaintiffs had an agreement with Mr Robison for him to pay his share in full, but that John McColl was not paying anything at the moment, although the plaintiffs intended that he should.
[18] In correspondence with the plaintiffs, Mr Tatton did not contest his liability under the guarantees, but pointed out that he had no assets and his guarantee was worthless. The last communication was on 10 December 2014.
[19] Mr Tatton was served with the summary judgment application and related documents on 22 December 2014. The statement of claim made clear that the plaintiffs had entered into compromises with the other guarantors for each of them to pay a one-third share of the loan.
[20] The plaintiffs’ lawyer wrote to Mr Tatton inviting him to sign an admission of claim. The letter advised Mr Tatton of the hearing date for the summary judgment application, 23 March 2015. A process-server gave the letter to Mr Tatton on 27 January 2015.
[21] Mr Tatton did not take any steps in response to the summary judgment application. He did not appear at the summary judgment hearing. He did not instruct a lawyer until he had been served with the bankruptcy notice.
Does Mr Tatton have an arguable defence?
[22] By virtue of the guarantee in the loan agreement (as varied by the agreement of March 2009 to reduce the interest rate), Mr Tatton is liable to pay the plaintiffs
$500,000 plus interest in default at 10 per cent per annum from March 2010 until the date of judgment. Instead, the plaintiffs sued him for only $170,000 plus interest on that sum from 7 July 2011 until the date of judgment. The plaintiffs may not have been under any obligation to reduce the amount of their claim against him. They seem to have done so as to treat Mr Tatton the same as his co-guarantors. At first sight, it seems difficult for Mr Tatton to resist the plaintiffs’ claim.
[23] Mr Tatton accepts his initial liability as guarantor under the loan agreement, but he says that he is no longer liable because of the arrangements the plaintiffs made with the other guarantors. He did not consent to them. They give him defences because:
[a] There were material alterations to the loan agreement;
[b] Mr Robison was released and another obligor was substituted;
[c] Mr McColl was released; and
[d] alternatively, if he has not been discharged, the arrangements have aligned his obligations under his guarantee with the deed of compromise with Mr Robison.
[24] The plaintiffs’ response is that Mr Tatton has not been prejudiced and the arrangements made with the other guarantors do not release him because of the terms of the guarantee, especially cl 10. Mr Tatton rejects the reliance on cl 10.
Some preliminary comments
[25] The plaintiffs sued Mr Tatton for $170,000 plus interest rather than the full amount of the loan. That appears to be no more than a unilateral concession by them, perhaps out of a sense of fairness. But, subject to Mr Tatton’s defences, I am not aware of any rule limiting them to suing for $170,000 plus interest on that sum. Their case is to be assessed in the same way as if they had sued him for $500,000 plus interest. Any defence which Mr Tatton could raise in opposition to a claim against him for $500,000, he is also entitled to raise here. The plaintiffs’ concession does not take away any of Mr Tatton’s rights.
[26] I assume in favour of Mr Tatton that he did not consent to the arrangements between the plaintiffs and the other guarantors when they were made. On the evidence so far, the most the plaintiffs can argue is that in correspondence they told him that arrangements were being made with the other guarantors. But that knowledge does not count as consent. The plaintiffs’ response is that he gave his consent in advance when he signed the guarantee.
[27] Clause 9 of the agreement is an indemnity clause. An indemnifier is under a primary liability, not dependent on liability being established against some other person. A guarantor on the other hand is under a secondary liability: he or she is liable only if another person, the debtor, becomes liable to the creditor. The general purpose of an indemnity clause in a guarantee is to ensure that the guarantor remains liable, even if the debtor is not liable to the creditor, for example because the transaction between the creditor and debtor is void. That issue does not arise here. Clause 9 has limited if any importance in this case.
[28] Clause 10 has a principal debtor provision: the guarantors are liable as principal debtors for money owing under the loan agreement, even if they are sureties as regards Quayside Trustee Ltd. Principal debtor clauses have various purposes. They may relieve the creditor from making demand for the debt.4 Relevantly, in this case they may keep the guarantor liable if there are events after the guarantee is given that put an end to the liability of the principal debtor or which might otherwise relieve
a guarantor of liability. Clause 10 goes on to provide that other matters which would release a surety will not release the guarantors. The principal debtor provision has a similar effect. It overlaps later parts of the clause.
[29] Clause 10 of the loan agreement includes these words: “or any other person or person”. There is an obvious clerical error. The second “person” should be in the plural. I will read the guarantee accordingly.
[30] Mr Tatton contended for a contra proferentem approach to interpreting the guarantee. The current approach is however to construe a guarantee in the same way as any other commercial contract.5
[31] He also contrasted the guarantee in this case with more comprehensive guarantees such as those used by banks. That was with a view to alleging shortcomings in this guarantee because it did not expressly provide for matters not addressed in other guarantees. These comments of Lord Hoffmann, discussing a release in a different context, are apposite:6
...I have seen American documents in which the release covers an entire page. But most people in this country would regard this as overkill. The modern English tradition, while still erring on the side of caution, is to avoid the grosser excesses of verbiage and trust to the judges to use common sense to get the message. I think that this tendency should be encouraged. So I think that anyone who was simply reading the document without preconceptions would accept that the draftsman was not leaving deliberate gaps. It does not however follow that the language was to be read completely literally. There may be limitations in scope to be inferred from the background, limitations from context which the draftsman may have thought too obvious to mention. But that is a different matter from saying that he did not use enough words.
The meaning of the guarantee is to be found by considering the words the parties used and reading them in context, not by referring to other guarantees in other terms used by other people in other circumstances.
Release because of variation of loan agreement
5 Black v ASB Bank Ltd HC Auckland CIV-2010-404-3252, 8 July 2011 at [60], upheld on appeal,
Black v ASB Bank Ltd [2012] NZCA 384 at [29]- [44].
6 Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [38].
[32] Mr Tatton says that he was released because of variations to the loan agreement. Cotton LJ stated the principle in Holme v Brunskill: 7
The true rule in my opinion, is that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than be beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court will not, in an action against the surety, go into an inquiry as to the effect of the alteration.
(Emphasis added)
[33] The only variations were to reduce the interest rate and to give time for repayment of the principal. The reduction in the interest rate cannot be prejudicial to Mr Tatton. Clause 10 expressly allows the plaintiffs to give time for repayment without jeopardising their rights under the guarantee. Clearly Mr Tatton cannot rely on these variations to let him off the guarantee.
[34] Instead, Mr Tatton claims that the arrangements the plaintiffs made with the other guarantors are variations of the loan agreement under the principle stated above. For that he relies on the principal debtor clause. His argument goes that the principal debtor clause applies to each of the guarantors; the variation of the guarantors’ obligations is a variation of the loan agreement under the principle stated in Holme v Brunskill; that on its true construction cl 10 cannot apply to those variations; and he is accordingly released.
[35] Here I deal only with the question whether the principal debtor clause allows Mr Tatton to say that the loan agreement was varied without his consent. The meaning of cl 10 comes later. I also make the point that a variation of the principal agreement between creditor and debtor is a different matter from a creditor releasing a co- guarantor. Different rules apply, even though both may relieve a guarantor of liability. A recurring aspect of Mr Tatton’s case is his attempts to blur the distinction. His defences based on release of other guarantors are addressed separately below. That is where cl 10 is considered.
7 Holme v Brunskill (1873) 3 QBD 495 (CA) at 505.
[36] Mr Tatton’s argument runs that as he was a principal debtor the other guarantors were as well. As the plaintiffs agreed with them to vary their obligations under the loan agreement, that was a variation of the debt that he had promised to pay as a principal debtor. That cannot be right. Mr Tatton took responsibility as principal debtor for the debt payable by Quayside Trustee Ltd, but not for the obligations of the other guarantors. Of course the plaintiffs could have recourse against Mr Tatton under his guarantee if the other guarantors did not meet their obligations under their guarantees, but that is a different matter. Under cl 11 the guarantors’ obligations are joint and several. Because he is severally liable, the plaintiffs can enforce Mr Tatton’s promise independently of enforcing those given by the other guarantors. Any variations of the other guarantors’ obligations do not alter either Quayside’s obligations under the loan contract or Mr Tatton’s obligations as a principal debtor. The fact that the other guarantors are also primary debtors does not change that position.
Release because of deed of compromise with Mr Robison
[37] A guarantor may be discharged by reason of arrangements the creditor makes with other guarantors. The discharge may take effect even if the principal agreement between creditor and debtor remains in force and is not varied. There are at least three bases in legal doctrine for such arrangements to relieve a guarantor.8 First, in the case of a joint guarantee, the release of one guarantor is a release of all. That is not a special feature of guarantor law, but the application of general principles of joint liability under contract law.9 Perhaps curiously this rule also applies to a joint and several guarantee. Second, in the case of a joint and several guarantee, there may be a discharge on the basis that the creditor contracted that all the guarantors would be bound. The Privy Council put it this way in Ward v National Bank of New Zealand Ltd:10
On the same principle it has been held that when the creditor releases one of two or more sureties who have contracted jointly and severally, the others are
8 If there are others, they are immaterial for this case.
10 Ward v National Bank of New Zealand Ltd (1883) 7 App Cas 755 (PC) at 764.
discharged, the joint suretyship of the others being part of the consideration of the contract of each.
The release of one guarantor is treated as the breach of an essential term relieving other guarantors. For these two cases the guarantor does not need to show any disadvantage arising from the release.
[38] Third, in cases of independent guarantees, no questions of joint liability or breach of contract arise. Instead there may be a discharge because the release of another guarantor adversely affects a claim for contribution in equity. In Ward v National Bank of New Zealand Ltd, the Privy Council said:11
The claim of a several surety to be released upon the creditor releasing another surety, arises not from the creditor having broken his contract, but from his having deprived the surety of his remedy for contribution in equity. The surety, therefore, in order to support his claim, must shew that he had a right to contribution, and that that right has been taken away or injuriously affected.
[39] In this case the deed of compromise with Mr Robison involves a partial release. It is more than an agreement not to sue (which by itself would not amount to a release).12 The deed restates the debt payable under Mr Robison’s guarantee. Under it, some of the amount otherwise payable is no longer due, not just at the suit of the plaintiffs but also under a contribution claim by Mr Tatton. Moreover, time is given for payment.
[40] Mr Tatton also submitted that the deed of compromise substituted JK Hamilton Trustee Ltd, trustee of the Fantail Trust, for Mr Robison as the liable party. I disagree. Mr Robison’s liability was expressly saved under cl 5 of the deed.
[41] The plaintiffs accept that the discharge rule in the case of a joint and several guarantee comes into play, but they say they have an effective answer. This concession means that it is not necessary to consider whether Mr Tatton was
11 At 766.
“...it is manifest that the payment was not made in discharge of the plaintiff’s rights against all other parties; and the result of the whole is, that it does not operate as a release, or matter which could have been pleaded as an accord and satisfaction, but amounts merely to an engagement not to sue Hunter, which can only be pleaded by himself”.
injuriously affected or lost his right of contribution. The plaintiffs’ answer is that under cl 10 Mr Tatton agreed that he would continue to be bound under his guarantee, notwithstanding the deed of compromise. They rely on:
[a] the principal debtor provision, which prevents Mr Tatton from relying on defences otherwise available to a guarantor;
[b] the words: “... the giving of time or any indulgence by the Lender to the Borrower or the Guarantors or any other person or persons or any other dealing whatsoever by the Lender with the Borrower or the Guarantors or any other person or persons shall not exonerate or release the Guarantors ”; and
[c] the words: “...nor shall the Guarantors be released by any other omission act or thing whatsoever whereby the Guarantors as a surety only would have been so released.”
[42] Mr Tatton’s rejoinder is that on its true construction cl 10 does not apply. Some of his argument turns on a submission that the principal contract was varied, but for the reasons given above at paragraphs [32]-[36] above, that does not assist him. The question here is whether there was release by the dealings with the other guarantors, not by a variation of the principal contract. In addition he submits:
[a] Nelson Fisheries Ltd v Boese supports a discharge in this case;13
[b] the text of cl 10, “shall be liable as principal debtor for all principal, interest and other moneys expressed to be owing hereunder,” does not extend to liability when other guarantors have been partially released;
[c] the text of cl 11, “all things, acts and deeds to be done carried out or performed by the Guarantors herein”, also does not extend to liability when other guarantors have been partially released;
13 Nelson Fisheries Ltd v Boese [1975] 2 NZLR 233 (SC).
[d] under the loan agreement, the plaintiffs did not reserve the right to vary the principal agreement;
[e] the arrangements the plaintiffs made with Mr Robison went beyond
“the giving of time or any indulgence by the Lender” in cl 10;
[f] the catch-all words, “...nor shall the Guarantors be released by any other omission act or thing whatsoever whereby the Guarantors as a surety only would have been so released.” do not cover the circumstances in this case as they do not expressly refer to them; and
[g] “Guarantors” in cls 9-11 is used only in the plural and does not apply to a single guarantor. Accordingly cl 10 does not apply to the release of only some of the guarantors by the plaintiffs.
[43] The submissions in [a]-[d] are linked. They are all based on the idea that the arrangement made with Mr Robison was a variation of the principal agreement. Nelson Fisheries Ltd v Boese14 was about a variation of a principal agreement, not the release of another guarantor. Mr Tatton may be right that the words in [b] and [c] do not apply to a variation of the principal agreement, but that is beside the point. They do apply to releases of other guarantors. Similarly the absence of any reservation to vary the principal agreement does not matter in this context.
[44] As to [e] and [f], Mr Tatton’s argument is that the arrangement with Mr Robison is not caught by specific words (“the giving of time and or any indulgence”) and it is not permissible to rely on general words (the principal debtor provision and the concluding words of cl 10). On that approach, to ensure that the ordinary release rules do not apply, the draftsman would have to list comprehensively every conceivable situation in which a guarantor might be released and provide that there would be no release. That would require very careful drafting and considerable foresight. Would a draftsman anticipate an arrangement under which the trustee of a trust associated with another guarantor undertook to pay a restated sum? The result would be the American style of document that Lord Hoffmann deprecated in Bank of
14 At n 13.
Credit and Commerce International SA v Ali.15 It was acceptable to use general words in cl 10. The Court of Appeal endorsed such an approach in a case where “any other matter or thing” followed “indulgence, granting of time waiver or forbearance to sue”:16
We do not think those words are to be read ejusdem generis with the preceding words "indulgence, granting of time waiver or forbearance to sue". The clause is drawn widely. Its purpose is to ensure that the creditor does not lose the benefit of the guarantees by subsequent dealings with the debtor that would otherwise by operation of the general law result in the discharge of the guarantees, and there is no cause to construe the words narrowly and not to give them their ordinary meaning.
[45] In this case the scope of “the giving of time or any indulgence” is not reduced because it is expressed in general language. The text makes that very clear. Besides I regard the specific words “the giving of time and or any indulgence” as covering the deed of compromise with Mr Robison.
[46] As to [g], Mr Tatton accepts that the guarantors’ liability is joint and several under cl 11. But he points out that under cl 11 “Guarantors” includes executors, administrators and assigns (all plural) and that the singular includes the plural. There is however no provision that plural includes the singular. Clause 10 uses “guarantors” only in the plural. While cl 10 refers to the giving of time or any indulgence to guarantors, there is no provision that the giving of time or indulgence to just one guarantor will not release the guarantors. Accordingly, the argument goes, the partial release of Mr Robison is not addressed and is outside cl 10, so that Mr Tatton is relieved from his guarantee.
[47] That argument also relies on an alleged failure to address a specific circumstance. For that argument to work, it needs to show that the general wording in cl 10 does not apply. To the contrary, it does apply. Under the principal debtor provision, Mr Tatton is jointly and severally liable, as if he had not given a guarantee but was primarily liable. That excludes the part of guarantee law that Mr Tatton relies on. That is reinforced by the general concluding words of cl 10. Mr Tatton’s several liability is not released by any omission act or thing that would release him as a surety.
15 At n 6.
16 Madden v UDC Finance Ltd [1996] 1 NZLR 542 (CA) at 547.
That covers the partial release of another guarantor. Further, if “guarantors” does not apply to just one guarantor, the reference to “any other person or persons” does.
[48] Mr Tatton has a further argument based on “guarantors”, relating to another defence. He argues that he is also bound by the deed of compromise. I deal with that in discussing his final defence.
[49] In summary, the deed of compromise with Mr Robison does not release Mr Tatton because cl 10 excludes that defence.
Release because of compromise with Mr McColl
[50] The arrangements with Mr McColl have not been put in writing. They might be vulnerable to the objection that they are so uncertain as not to be enforceable. I assume in favour of Mr Tatton that the arrangements the plaintiffs made with Mr McColl are legally effective. If they were not, Mr Tatton could not complain about Mr McColl being released from liability. Mr Tatton would have nothing on which he could base a release argument.
[51] For this defence the analysis is the same as for his defence relying on the deed of compromise with Mr Robison. The only differences in the arrangements are:
[a] there is no arrangement that any trust associated with Mr McColl will pay towards the settlement;
[b] Mr McColl is not required to make any interim payments; and
[c] it is expected that Mr McColl will pay out of the proceeds of sale of property at Ohope.
Those differences are not relevant.
[52] Mr Tatton is however suspicious that Mr McColl has made some secret arrangement with the plaintiffs so that he will not have to pay anything. There is no evidence to support that suspicion. But even if there were such an arrangement, which
might arguably go beyond “giving time or indulgence”, cl 10 is still effective because
of its general provisions.
[53] In short any partial or complete release of Mr McColl does not relieve Mr Tatton under his guarantee.
Mr Tatton bound by the Robison deed of compromise
[54] This submission is in the alternative, in case the others fail. The idea behind it is Mr Tatton’s wish to be treated the same as the other guarantors. The plaintiffs have agreed to give time to the other guarantors to pay, and Mr Robison may pay by instalments. However, under the judgment Mr Tatton is required to pay in full now. The submission does not ask the court to take into account Mr Tatton’s refusal to negotiate a comparable arrangement with the plaintiffs.
[55] Mr Tatton says that the effect of cl 11 is “all for one and one for all”. If the plaintiffs have agreed to a variation with one guarantor, it must apply to and bind the other guarantors. He relies on the words “where there are more Guarantors than one all things, acts and deeds to be done carried out or performed by the Guarantors shall bind the Guarantors both jointly and severally.” He contends that if the plaintiffs negotiate a variation with one guarantor, that varies the guarantees given by the others.
[56] The flaws with that argument are that it confuses variation of the principal agreement with variation of obligations of a guarantor and it does not recognise that a guarantor’s obligations under the agreement are joint and several. A variation of the principal agreement would affect all the guarantors. It goes to the debt that they have to pay. That is the reason for the discharge rule discussed above at [32]-[36]. A variation of a guarantor’s obligation does not extend so widely. If there is only one guarantor, the principal debt is not changed, only the debt payable by the guarantor. If there are two guarantors, but they are jointly liable (for example, they have contracted as trustees of a trust), the variation of the joint obligation binds them both. But when guarantors are severally liable (whether under separate guarantees or jointly and severally as under this agreement) the ability of the creditor to enforce a guarantee against only one of several guarantors means that the creditor is entitled to deal with
them separately. Leaving questions of release aside (I have dealt with that above), a
variation of one guarantor’s obligation does not change another’s.
[57] Because the guarantors are severally liable, the deed of compromise Mr Robison negotiated with the plaintiffs is for his benefit alone. The deed does not confer any benefits on Mr Tatton under the Contracts (Privity) Act 1982. He remains liable under the loan agreement.
Summary on arguable defence
[58] None of the defences raised by Mr Tatton are reasonably arguable. The only variations of the loan agreement were not adverse to him. While the plaintiffs have partially released Mr Robison and Mr McColl, the terms of the guarantee, especially cl 10, override Mr Tatton’s common law defence of discharge. As he is severally liable and was not a party to the arrangements made with the other guarantors, he cannot say that those arrangements adjusted his liability under his guarantee.
Is there a reasonable explanation for his delay in taking steps?
[59] To repeat, the plaintiffs served the proceeding on Mr Tatton on 22 December 2014. Judgment was given on 23 March 2015. The bankruptcy notice was served on 14 May. He filed these applications on 28 May. Mr Tatton had ample time before judgment in which to take steps. While he does not put it exactly this way, it appears that his failure to take steps may have come from stress. He says that he had been in a dispute with a liquidator of a company with which he had traded. He had also been trying to resolve relationship property differences with his wife (although the plaintiffs point out that that dispute had been running since 2012). He claims that service of this proceeding just before Christmas “was the last straw for me”. He believed that he could resolve matters with the plaintiffs through ongoing communications with their lawyer, but his evidence does not show any such contact. The letter of the plaintiffs’ lawyer in January 2015, which again advised him of the hearing date, was an appropriate prompt, even if service before Christmas was “the last straw”.
[60] No explanation given for not taking steps to oppose a summary judgment application can be entirely satisfactory. I do not regard Mr Tatton’s attempted explanation as very convincing. All the same, if he did have an arguable defence, I would not count the delay against him. He did take prompt steps once he received the bankruptcy notice (as he had to if he wanted to prevent an act of bankruptcy). While his failure before judgment is inexcusable, it is not enough to deny him an opportunity to be heard, if there were some substance in his opposition to the plaintiffs’ claim.
Irreparable damage to plaintiffs if judgment set aside?
[61] I do not find that the plaintiffs would suffer irreparable injury. The plaintiffs did not suggest that they would.
Outcome
[62] The absence of any arguable defence counts against Mr Tatton. There would be no sense in setting the judgment aside when there is no defence. There has not been a miscarriage of justice. Accordingly the application to set aside judgment fails.
[63] The application to set aside the bankruptcy notice likewise fails. As the judgment continues in force, there is no reason why the notice should not be used to set up an act of bankruptcy under s 17 of the Insolvency Act 2006. The time for complying with the notice expires on the delivery of this decision.17
[64] I make these orders:
[a] The application to set aside the summary judgment is dismissed.
[b] The application to set aside the bankruptcy notice is dismissed.
[c] Mr Tatton shall pay the trustees of the McColl Family Trust costs on both applications. If the parties cannot agree costs, memoranda may be filed.
17 High Court Rules, r 24.10.
...............................................
Associate Judge R M Bell
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2015/2560.html