REGAN & TUFFIN v BROUGHAM & ORS [2019] NZCA 401

REGAN & TUFFIN v BROUGHAM & ORS [2019] NZCA 401 [2 September 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA666/2017[2019] NZCA 401BETWEEN CHRISTINE ANNA ELIZABETH REGANAND MARK JEFFEREY TUFFINAppellantsAND BRYCE BROUGHAMFirst RespondentRACHAEL CHRISTINA DEYSecond RespondentHearing: 25 July 2019Court: French, Collins and Wild JJCounsel: F A King and M A Thomson for AppellantsJ K Mahuta-Coyle for First RespondentNo appearance for Second RespondentJudgment: 2 September 2019 at 11.30 amJUDGMENT OF THE COURTA The appeal is allowed.B Judgment is entered for the appellants against the first respondent for$50,000 together with interest on that sum from the date of demand(5 October 2012) to the date of payment at the applicable rate(s) stipulatedin the Term Loan Agreement.C The first respondent must indemnify the appellants for their reasonablecosts of this appeal and of the application for leave to appeal.D Costs in the District Court and High Court are reserved in terms of [36] ofthis judgment.____________________________________________________________________REASONS OF THE COURT(Given by Wild J)Introduction[1] This is a second appeal, by leave.1 It is against a judgment of Simon France Jdelivered in the High Court at Wanganui on 24 May 2017.2 The issue is whetherthe first respondent, Mr Brougham, guaranteed a loan. Agreeing with the judgment ofJudge Ross in the District Court,3 Simon France J held he had not.Facts[2] On 15 February 2010 the appellants entered into a Term Loan Agreement(the Agreement) whereby they lent $50,000 to B & R Enterprises Ltd (the Borrower).The Agreement was on the printed Auckland District Law Society form. The firstpage of the Agreement set out the parties to, and the guarantors of, the loan in thefollowing way:1 Regan v Brougham [2018] NZCA 157.2 Regan v Brougham [2017] NZHC 1091.3 Regan v Brougham [2016] NZDC 18553.[3] The second page of the Agreement contained the terms of the agreement torepay, essentially "You agree that you will repay all amounts that you borrow fromus ". Conditions precedent to advance and the signatures of the parties andthe guarantor followed in this format:[4] The first of those signatures is that of the second respondent, Ms Dey, as adirector of the Borrower. The next two signatures are those of Mr Brougham. It iscommon ground that Mr Brougham's first signature was in his capacity as the otherdirector of the Borrower (although it is on the wrong signature line), and his secondsignature is as guarantor (and is on the correct signature line).[5] At trial in the District Court there was some disagreement in evidence betweenMs Dey and Mr Brougham as to how Ms Dey came to be named in the Agreement asa guarantor, but did not sign as a guarantor. We deal with this in [15] and [16] below.[6] As might be expected, the later parts of the Agreement specified all the termsof the loan including: the principal sum lent ($50,000); the term expiry date and therepayment date (both upon written demand to the Borrower); interest commencementand payment dates (1 February 2010 and the first days of February and July ifdemanded in writing within six months of the due date commencing with a firstpayment on 1 July 2010) and the lower and higher interest rates (respectively 3 percent and 8 per cent above the BNZ floating rate for residential home loans current atthe time of demand). The Agreement contains other clauses but they are ancillary andnot in issue. Clause 12 stipulated the costs payable by the borrower. We revert to thatin [32] below.[7] The loan principal was advanced. The Borrower made a number of interestpayments before it failed and was put into liquidation. When the loan, interest andcosts proved irrecoverable from the Borrower, demand was made on Mr Brougham asguarantor. He refused to pay, maintaining that he had not given a guaranteeenforceable at law.The judgments in the Courts below[8] We need not make detailed reference to these. We intend no disrespect.The reason is simply that the argument advanced to us, which we intend upholding,was not put to the Courts below. The cases relied upon in this Court, which we findpersuasive, were not referred to the Courts below or, in one case, post-datedthe judgment under appeal. Conversely, the main argument rejected bySimon France J was not advanced to us. This was an argument that the word "you" inthe agreement to repay clause referred to in [3] above encompassed the guarantor.The Judge rightly rejected that misconceived argument. As the Judge held, "you" wasthe Borrower.4 As is fundamental to a guarantee, Mr Brougham did not directlyundertake the Borrower's obligations, but rather guaranteed them, his liabilityaccruing only if and when the Borrower defaulted on its obligations underthe Agreement.4 Regan v Brougham, above n 2, at [20]–[24].[9] Simon France J did, however, go on to say this:5 The Agreement clearly contemplates that any guarantee will be found in aseparate contract. Consistent with this, and unlike for both the borrower andany covenantor, there are no operative clauses within the document imposingany obligation at all on a guarantor. Nowhere is it said what the guarantor isagreeing to, nor when that obligation might arise. I acknowledge that with asimple term loan arrangement the nature and extent of a guarantor'sobligations may be easy to infer, but one would still expect clarity aroundmatters such as when the guarantee will be triggered and what notice isrequired. Further, I do not accept that a consumer protection requirement suchas s 27 of the Property Law Act 2007, which requires that a guarantee contractbe in writing, is met by a document which merely describes a person as aguarantor, and which is then signed by the guarantor. The essential terms of aguarantee contract must be in writing and here they are not.For the reasons that follow, we respectfully disagree with that conclusion.The opposing arguments in this Court and our analysis[10] In its leave judgment this Court noted there was previous authority, not citedto Simon France J, dealing with a guarantee in a comparable fact situation.6 The Courtreferred to Bradley West Solicitors Nominee Co Ltd v Keeman.7[11] Before us the appellant submitted the Agreement in and of itself constitutes anenforceable guarantee. It sets out clearly and completely the terms of the loan, andthe borrower's obligations. It contains writing sufficient to bind the first respondentas guarantor. And the first respondent signed the Agreement as guarantor.So the Agreement complied with s 27(2) of the Property Law Act 2007 whichprovides:27 Contracts of guarantee must be in writing(2) A contract of guarantee must be—(a) in writing; and(b) signed by the guarantor.5 At [25].6 Regan v Brougham, above n 1, at [4].7 Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 (HC).[12] Mr Mahuta-Coyle, for Mr Brougham, responded with several arguments. First,addressing the situation referred to in [5] above, he referred to the evidence at trial thatMs Dey, shortly before the Agreement was signed, told Mr Brougham she was notgoing to sign as guarantor but he should. At the time the two were in a domesticrelationship. Mr Mahuta-Coyle submitted the consequence was that the appellantswere now contending for an oral variation of the Agreement: a change from twoguarantors to one guarantor. This oral variation did not comply with s 27(2).[13] Mr Mahuta-Coyle's second argument was closely related. Becausethe Agreement contemplated two guarantors, the guarantee was not enforceable unlessand until both guarantors signed it. In support, counsel relied on the decision ofthe English Court of Appeal in Harvey v Dunbar Assets plc.8[14] Third, Mr Mahuta-Coyle argued that the separate deed of guaranteecontemplated by condition precedent (c) had not been executed. Completion of thatdeed was necessary because there was insufficient detail in the Agreement itself toconstitute an enforceable guarantee. In particular, Mr Mahuta-Coyle submitted therewere no words of guarantee binding Mr Brougham as guarantor.[15] We do not accept any of these three arguments. As to the first, we do notconsider evidence as to what Ms Dey and Mr Brougham, as the proposed guarantors,did or did not discuss or intend prior to signing the Agreement is admissible. In ourview this evidence is covered by the third principle of contractual interpretation speltout by Lord Hoffmann in Investors Compensation Scheme Ltd v West BromwichBuilding Society:9The law excludes from the admissible background the previous negotiationsof the parties and their declarations of subjective intent.The task of the Courts below was — and our task is — to construe the Agreement asit was signed, in accordance with the now well-established principles.8 Harvey v Dunbar Assets plc [2013] EWCA Civ 952, [2013] BPIR 722 at 735.9 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL)at 912–913.[16] But, even if the evidence comes in, we do not think it assists Mr Brougham.Having listened to both Ms Dey and Mr Brougham give evidence, particularly undercross-examination, Judge Ross said this:10I think it more likely than not that the issue of whether or not [Ms Dey] wascontinuing to be a guarantor of the Trust loan to B & R was raised by herbefore the document was placed before [Mr Brougham] for signature.[Mr Brougham] has acknowledged that he paid [the] matter little real attentionat the time that he signed them, and that they were signed in a hurry. Ms Dey'sreasons for standing aside as a guarantor were plausible and understandable.Ms Regan's evidence was that she believed that only the guarantee from[Mr Brougham] would be required from the company for the Trust loan.So, if [Mr Brougham] had been found liable on the guarantee, this defenceand claim that Ms Dey was jointly and severally liable with him would havebeen unsuccessful.That is a finding that Mr Brougham's evidence that he signed the Agreement believingthat Ms Dey was also going to sign as guarantor is not credible.[17] Turning to the second argument, Harvey does not assist Mr Brougham. It wasa different type of case. It involved a single composite document which the Court heldimposed joint and several liability on four individuals together defined as "theguarantor" and which envisaged that it would be signed by all four individuals.Accordingly, on the assumed basis that one of the individual's signatures was forged,the Court allowed the appeal of another of the four individuals comprising"the guarantor". The guarantee provisions in the Agreement before us cannot beconstrued in that way. There was provision for one or more guarantors:"Guarantor(s)". Two were named. The words in condition precedent (c) "If anyperson is named in this agreement as a guarantor, the guarantor must have signed "are consistent only with liability resting on each guarantor who signs. Finally — andreally a neutral point — there is a signature line for each guarantor. Mr Mahuta-Coyleaccepted that each guarantor who signed would have joint and several liability.[18] That brings us to Mr Brougham's third argument. We accept that a separatedeed of guarantee was contemplated. Indeed, the lender could insist upon one beforeadvancing the loan moneys: condition precedent (c). The appellants say they waivedthat condition because they considered a separate deed of guarantee was unnecessary.10 Regan v Brougham, above n 3, at [60]–[61].As they did that by advancing the loan moneys without requiring the execution of aseparate deed of guarantee, that waiver was implicit rather than express.[19] We do not regard the absence of the separate deed of guarantee that the lenderscould have, but did not, insist upon as fatal. As Tipping J pointed out inBradley West:11A guarantee does not have to be in any particular form, nor does it have to useany particular words. What has to be clear is that the alleged guarantors havebound themselves to answer for the default of the principal debtor.[20] The question then is whether the Agreement itself constituted an enforceableguarantee. In our view it does. Unsurprisingly, since this was the Term LoanAgreement, all the terms of that loan are in the document. So are the full names anddetails of the two proposed guarantors, entered in the "Guarantor(s)" box.And Mr Brougham has signed the document as guarantor. The legal consequenceswere explained by Tipping J in Bradley West. Because we adopt the Judge's reasoning,and cannot improve upon his concise expression, we set it out at some length:12Although the document in question is economical in the extreme — skeletalwas Mr Squire's apt description of it — I am of the view that it constitutes asufficient guarantee. The purchasers have signed "as guarantors". That canonly mean that they, by their signatures have agreed to guarantee something.The vital question is whether it is sufficiently clear from the document as awhole what they have agreed to guarantee? If, as here, it is clear objectivelythat the parties intended to enter into a legally binding obligation the Courtshould and will do its best to give effect to that intention: seeAttorney-General v Barker Bros Ltd [1976] 2 NZLR 495 and Marxen v Smith[1990] 3 NZLR 585, 596.Although the document contains no express covenants of a conventional kindfor a guarantee it would, in my judgment, be commercially unrealistic to takethe view that, what on its face is clearly intended to be an instrumentconstituting the four purchasers as guarantors, should have no legal effectfrom the point of view of construction. It is clearly apparent fromthe document that the persons named as guarantors, and who have signed assuch, have undertaken a liability to guarantee to the mortgagee the dueperformance by the mortgagor of the mortgage referred to. All the parties arefully identified. The instrument creating the principal obligation is clearlyidentified. The maximum principal sum is apparent on the face ofthe document. There is therefore no want of particularity. It is untenable, in11 Bradley West Solicitors Nominee Co Ltd v Keeman, above n 7, at 116.12 At 116–117.my view, as a point of construction for parties who have signed as guarantorsin those circumstances to say that although they have signed a formal legalinstrument it fails to constitute an enforceable obligation.[21] In terms of the required "particularity" (to adopt Tipping J's word), the Courtinquired of Mr Mahuta-Coyle what was not clear in the Agreement in terms of whatMr Brougham had agreed to guarantee. He said his best answer was that twoguarantors were contemplated and Mr Brougham was entitled to know who wasguaranteeing the loan. We have already accepted that two guarantors werecontemplated. But the fact is that only Mr Brougham signed. He is fixed with thatposition. And the evidence — if admissible — is that Mr Brougham probably knewhe alone was signing as guarantor.[22] Bradley West was decided before s 27(2) of the Property Law Act came intoforce. When Bradley West was decided, the comparable law was s 2 of the ContractsEnforcement Act 1956. That provided that no contract of guarantee was enforceableunless "the contract or some memorandum or note thereof is in writing and is signedby the party to be charged therewith or by some other person lawfully authorised byhim".[23] Section 27(2) sets a more exacting requirement for enforceability than did s 2of the Contracts Enforcement Act. The requirement that a contract of guarantee mustbe in writing dispensed "with the possibility of the enforcement of an oral guaranteeby reason of the existence of a signed memorandum of its terms".13 That is clear froma comparison of the two provisions and is confirmed by the Law Commission's paperwhich was the genesis of the change in the law.[24] So does the approach in Bradley West survive s 27(2)? In our view it does.The Agreement (and thus the obligations being guaranteed) is in writing, as is the fullname and details of the guarantor and the words below his signature "signed by theguarantor". And Mr Brougham has signed the Agreement as guarantor. So there iscompliance with each of the two requirements set out in s 27(2). We do not see thats 27(2) renders the reasoning in Bradley West no longer appropriate.13 Law Commission A New Property Law Act (NZLC R92, 1994) at [42].[25] There is support for that view in the judgment of Associate Judge Matthews inKung v DVD Advance Ltd.14 Kung involved an Agreement to Lease on the approvedADLS/REINZ form. As in this case, the printed form contained spaces for the namesof the parties (the Landlord and Tenant) and for their signatures. These had been dulycompleted and the parties had signed. But, unlike this case, the printed form did notcontain a space for the name of, nor for the signature of, a guarantor. The seconddefendant, Mr Ferguson, had signed as the sole director of the lessor. He had alsosigned the document next to the handwritten added words "[Guaranteed] by DANIELFERGUSON". The Agreement to Lease contained all the essential terms of the lease.It also contained a provision requiring the tenant to enter into a formal lease thecovenants in which were to be "no more onerous than those contained in the AucklandDistrict Law Society commercial lease form 3rd Edition 1993". There was also thisclause:6. Where the Tenant is a company and if the Landlord so requires,the Tenant shall arrange for its shareholders to guarantee theobligations of the Tenant.[26] The contemplated formal Deed of Lease was prepared but never signed.It provided for Mr Ferguson to be a guarantor and set out the terms of his guarantee.[27] Adopting the reasoning of Tipping J in Bradley West, the Associate Judge heldthere was an enforceable guarantee by Mr Ferguson.15 The fact that all the necessaryterms were in the agreement to lease which Mr Ferguson had signed as guarantormeant there was compliance with s 27(2) of the Property Law Act.[28] In the course of his judgment Associate Judge Matthews referred to severalother cases. Two of these are relevant. The first in time was this Court's decision inInglis v Clarence Holdings Ltd, decided in 1996.16 Inglis does not refer toBradley West. This Court upheld liability on two guarantors where there was aguarantee clause in an agreement to lease, but neither a deed of lease nor the proposedform of guarantee had been signed. Liability was upheld by application of the14 Kung v DVD Advance Ltd [2018] NZHC 3319.15 At [55].16 Inglis v Clarence Holdings Ltd [1997] 1 NZLR 268 (CA).principles in Walsh v Lonsdale that equitable obligations should be enforceable.17Thus, although the route taken to liability on the guarantors was different, the outcomewas the same.[29] The second case is the High Court's decision in Chambers v Chatfield.18That case concerned the enforceability of a covenant to guarantee in an agreement tolease. Edwards J held that specific performance of the covenant should be orderedbecause there was no uncertainty as to the terms of the guarantee and requiring theguarantor to sign the deed containing the contract of guarantee would meet therequirements of s 27.19 This Court's approach in Inglis was discussed, but BradleyWest was, again, not referred to. Again, in a comparable situation, liability wasimposed on the guarantors but by a different route.[30] Our conclusion is that the Agreement here contains everything necessary toconstitute a guarantee enforceable against Mr Brougham. All the details and termsnecessary to determine with certainty what Mr Brougham guaranteed are in theAgreement. And, by signing the Agreement as "guarantor", Mr Brougham acceptedthose guarantee obligations. In those circumstances, we agree with Tipping J that it is"untenable" for Mr Brougham to say that "although [he has] signed a formal legalinstrument it fails to constitute an enforceable obligation".20[31] This conclusion renders it unnecessary to consider the other two grounds ofappeal. For the record, these were:(a) An equitable estoppel operates against Mr Brougham: he cannot beheard to say that he did not guarantee the loan.(b) The High Court erred in not ordering specific performance of the Deedof Guarantee contemplated by condition precedent (c) inthe Agreement. The Court ought to have directed Mr Brougham to signthat Deed once it was tendered to him.17 Walsh v Lonsdale (1882) 21 Ch D 9.18 Chambers v Chatfield [2016] NZHC 1871, (2016) 18 NZCPR 1.19 At [51].20 Bradley West Solicitors Nominee Co Ltd v Keeman, above n 7, at 117.Costs[32] If successful, the appellants sought indemnity costs of this appeal againstMr Brougham. They invoke cl 12 of the Agreement which provides:12. COSTS(a) Costs payable by you: You must pay to the lender upon demand,the lender's legal costs (as between solicitor and client) for:(ii) costs on default: legal services arising from or relating to anydefault under this contract or the enforcement or exercise orattempted enforcement or exercise of any of the lender'srights, remedies and powers under this contract [33] Mr Mahuta-Coyle advised us he could not resist such costs if the appealsucceeded, subject only to the reasonableness of their quantum. Accordingly, we orderMr Brougham to indemnify the appellants for their reasonable costs of this appeal.Leave is reserved to revert to the Court if these costs cannot be agreed.[34] Mr Brougham must, likewise, indemnify the appellants for their reasonablecosts of the application for leave to appeal. Those costs were reserved in the judgmentgranting leave. Again, leave is reserved to revert failing agreement.[35] Costs in the District Court were reserved, the parties to file memoranda if costscould not be resolved. Counsel informed us that costs were neither resolved nor fixed.Unfortunately, Judge Ross has died. In the High Court, Simon France J allowedMr Brougham 70 per cent of 2B scale costs together with reasonable disbursements.21[36] Before us, after some discussion, counsel requested that we deal with costs inthe two Courts below after receiving memoranda. Accordingly, if these costs cannotbe resolved, memoranda are to be filed and served:(a) for the appellants, by 13 September 2019; and(b) for Mr Brougham, by 27 September 2019.21 Regan v Brougham, above n 2, at [57].Result[37] The appeal is allowed.[38] Judgment is entered for the appellants against the first respondent,Mr Brougham, for $50,000 together with interest on that sum from the date of demand(5 October 2012) to the date of payment at the applicable rate(s) stipulated in the TermLoan Agreement.[39] The first respondent must indemnify the appellants for their reasonable costsof this appeal and of the application for leave to appeal.[40] Costs in the District Court and High Court are reserved in terms of [36] of thisjudgment.Solicitors:Macalister Mazengarb, Wellington for First Respondent