CANCIAN v CARTERS, a division of Carter Holt Harvey Limited [2021] NZCA 397

CANCIAN v CARTERS, a division of Carter Holt Harvey Limited [2021] NZCA 397 [24 August 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA665/2020[2021] NZCA 397BETWEEN DANNY JOHN CANCIANAppellantAND CARTERS, a division of Carter Holt HarveyLimitedRespondentHearing: 15 June 2021Court: Courtney, Mander and Hinton JJCounsel: N W Coyle and L G Clarke for AppellantP J Morris and O J Ward for RespondentJudgment: 24 August 2021 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs for a standard appeal on a bandA basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Hinton J)[1] This appeal turns on whether Carters can enforce a personal guarantee byMr Cancian or whether there has been a material variation to the principal contractwhich entitles Mr Cancian to be discharged from his liability as guarantor.[2] On 29 October 2020 Wylie J found that Mr Cancian had no defence to Carters'claim and granted judgment in favour of Carters in the sum of $1,078,668.23 plusinterest.1 Mr Cancian appeals against this decision.Factual background[3] In October 2016 Bella Vista Homes Ltd (BVH), through its sole directorMr Cancian, entered into a "credit account application and terms of agreement forsupply" with Carters (the BVH agreement). The BVH agreement related to the supplyof building products by Carters to BVH on credit.[4] As indicated by the title of the BVH agreement, the process for entering into itinvolved BVH making an application for a credit account with Carters and acceptingCarters' standard terms of trade. In the application, BVH requested that an account beopened with a credit limit of $700,000 and stated that the anticipated value of itsmonthly purchases would be $400,000. The application listed Mr Cancian as the soledirector of the company. It also set out Carters' standard terms and conditions of sale.Mr Cancian signed the application on behalf of BVH on 12 October 2016.[5] At the same time as BVH made that application, it provided a deed of guaranteeand indemnity signed by Mr Cancian under which he unconditionally and irrevocablyguaranteed to Carters the due and punctual payment of all monies which are now, ormay in the future be, owing or remain unpaid by BVH to Carters.[6] Carters then granted the application, advising BVH of that in a letter dated21 October 2016. The letter stated that the credit limit on the account was to be$50,000. This was apparently standard practice as an opening figure for a largecustomer to get the account "up and running". On 31 October 2016, Carters made aninternal decision to set a credit limit of $800,000. It did not notify either BVH orMr Cancian about that decision.[7] The first supply of product by Carters to BVH under the credit account wascovered by an invoice dated 2 November 2016. Thereafter there were regular supplies1 Carters v Cancian [2020] NZHC 2838.and up until early June 2017 BVH made reasonably regular payments in reduction ofits account balance. As at 7 June 2017 the account balance was $46,732. Thereafter,supplies continued but credit payments by BVH largely dried up. By 30 June 2017BVH owed $213,415 to Carters; by 31 July 2017 the debit balance had risen to$532,777; by 31 August 2017 it was $816,441; by 30 September 2017 it was$1,025,906; and by 31 October 2017 it was $1,078,668.23.[8] On 1 November 2017, Carters' solicitors sent a letter of demand to Mr Cancianunder the guarantee. Later that month BVH was put into liquidation. No paymentsunder the guarantee were made by Mr Cancian, and Carters issued this proceeding.High Court judgment[9] There was and is no issue as to the quantum of the debt owed by BVH toCarters.[10] Mr Cancian defended the proceeding on the basis that:(a) Carters' agents had made pre-contractual representations to the effectthat the scope of Mr Cancian's guarantee would be limited to $50,000;and(b) When Carters altered the credit limit from $50,000 to $800,000 thatamounted to a variation of the agreement such as to dischargeMr Cancian from any liability under the guarantee in terms of the rulein Holme v Brunskill.2[11] The focus of the case in the High Court was on the alleged pre-contractualrepresentations. Wylie J did not accept Mr Cancian's evidence and preferred theevidence of Carters' witnesses that no such representations had been made.32 Holme v Brunskill (1878) 3 QBD 495 (CA).3 Carters v Cancian, above n 1, at [36].[12] As to the second point, Wylie J, apparently assuming that there had been avariation, held that as the guarantee contained a clause which gave Carters the powerto make variations to the BVH agreement, the rule in Holme v Brunskill did not apply.4Argument on appeal[13] Mr Cancian's argument as to alleged pre-contractual representations is notpursued on appeal. His second point in the Court below is pursued, namely that theincreased credit limit is a material variation of the terms of the BVH agreement, whichdischarges him as surety. In written submissions Mr Cancian also advanced anargument under s 27 of the Property Law Act 2007 which Mr Coyle, for the appellant,advised us was abandoned.[14] Carters say:(a) There has been no material variation of the principal contract.(b) Even if the increased credit limit is a variation, the guarantee isunaffected because the guarantee gives the creditor power to vary theBVH agreement and expressly provides the guarantor is not to bedischarged as a result.[15] Carters also raised additional arguments that Mr Cancian is liable in any eventas a principal debtor under the guarantee and a further argument based on estoppel.We do not see the need to traverse these further points.Discussion[16] The principle emanating from Holme v Brunskill, which has been applied inNew Zealand in Dunlop New Zealand Ltd v Dumbleton, is that a material variation ofthe terms of a contract between a creditor and a principal debtor will discharge a surety.The Court in Dunlop put it as follows:54 At [40], citing Pogoni v R & W H Symington & Co (NZ) Ltd [1991] 1 NZLR 82 (CA).5 Dunlop New Zealand Ltd v Dumbleton [1968] NZLR 1092 at 1096 (emphasis in original).It is trite law that (unless there is an express reservation in the instrumentpreserving the creditor's rights against the surety in such event) a materialvariation of the terms of the contract between the creditor and the principaldebtor will discharge the surety. It is immaterial that the variation may be tothe advantage of the surety; unless it is clearly so or obviously does not affecthim materially, he is discharged.[17] The rationale as stated in Dunlop is that the party benefitting from a guaranteecannot keep a surety bound, and transact what is in effect their affairs, withoutconsulting them as to a material or substantial alteration in the agreement.No variation[18] In this case we consider that the rule in Holme v Brunskill does not come intoplay. We agree with the primary submission for Carters that there was no variation tothe BVH agreement. While Carters' letter dated 21 October 2016 referred to a creditlimit of $50,000, cl 2.2 of the BVH agreement states:CARTERS may impose a credit limit on the Customer's account and alter thecredit limit without notice. Where the credit limit is exceeded, CARTERSmay refuse to supply Goods to the Customer.[19] It is clear that cl 2.2 prevails over any particular credit limit set at any time. Atbest for Mr Cancian the letter and cl 2.2 can be read together, providing in effect for acredit limit of $50,000 or such other limit as imposed by Carters without notice fromtime to time. In this context, any subsequent change to the credit limit does notconstitute a variation to the BVH agreement but is rather simply effected pursuant tothe agreement.[20] It is also clear that the parties did not view a change in credit limit as a variationas, quite differently to cl 2.2, the preamble to the standard terms and conditions of theBVH agreement provides for variation "by signed agreement in writing between [theparties]."[21] The position here can be distinguished from this Court's decision inBenchmark Building Supplies Ltd v Weatherby.6 A subsequent agreement between acreditor and principal debtor (again for building supplies) increasing a credit limit6 Benchmark Building Supplies Ltd v Weatherby CA278/00, 19 July 2001.under the principal agreement had been held by the High Court to constitute a materialvariation of the terms of the principal agreement.7 This conclusion was upheld onappeal. The clause relating to the alteration of the credit limit, unlike cl 2.2 in thiscase, required an application to be made in writing by the customer for the credit limitto be increased. Such an application was made and agreed. The consequence was avaried agreement. Here the agreement is unchanged. Clause 2.2 does not require orenable the customer to do anything. We note further that the decision in Benchmarkwas on a summary judgment application and on appeal this Court said only that thefinding "seems correct".8Anti-discharge provision[22] We also agree with Carters' second submission which is the point on whichWylie J relied. Even if the alteration to the credit limit were a variation to the BVHagreement, an exception to the principle in Holme v Brunskill and in Dunlop (asconfirmed by this Court in Pogoni v R & W H Symington & Co (NZ)) applies wherethe guarantee contains a clause which gives the creditor power to make variations tothe contract with the debtor.9 Such clauses are known as "anti-discharge" provisions.[23] Mr Cancian's guarantee contains an anti-discharge provision in cl 5(b) whichprovides as relevant:b) the Guarantor is not to be discharged nor are its obligations to be affectedby any matter or thing whatsoever which, but for this clause, would ormight have discharged the Guarantor or affected its obligations,including:i) the giving of time, credit or any indulgence or other concession tothe Customer or to the Guarantor or any other person;ii) anything done or omitted or neglected to be done by CARTERS inthe exercise or non-exercise of its authorities, powers anddiscretions;iii) any variation or alteration in the terms of any contract betweenCARTERS and the Customer, or in the terms of any other security,guarantee, indemnity or other agreement (whether or not this mightincrease the liability of the Guarantor);7 Benchmark Building Supplies Ltd v Weatherby HC Auckland CP248/00, 7 December 2000.8 Benchmark Building Supplies Ltd v Weatherby, above n 6, at [12].9 Pogoni v R & W H Symington & Co (NZ) Ltd, above n 4....it being the intent of the parties that the guarantee and obligations of theGuarantor are to be absolute and unconditional in any and all circumstances;and CARTERS shall be under no liability to the Guarantor in respect of theforegoing, even though the Guarantor's rights in subrogation or otherwise maybe prejudiced as a result;...[24] Mr Coyle submitted that the Judge erred in treating the principle in Pogoni asa "blanket rule". He relies on the "purview" doctrine discussed in UK authorities. Thepurview doctrine says that where a variation is so fundamental that it could notproperly be described as a variation at all, it will fall outside the general purview ofthe guarantee and will not be covered by an anti-discharge provision, or, put at its bestfor the guarantor, that any variation still has to be within the general purview (in thesense of reasonable contemplation) of the guarantee.10 Mr Coyle submits that areasonable person in Mr Cancian's position would not have contemplated at the timethe credit application was concluded and the credit limit of $50,000 notified, that itwas likely the limit would be extended to $800,000 without notification to either BVHor Mr Cancian.[25] We see no error in the Judge's application of Pogoni. As this Court held, andas Wylie J acknowledged, in each case it is a matter of construction as to whether theparticular clause operates to prevent the guarantor from being discharged.11 The Judgewent on to analyse the effect of the anti-discharge provision on the guarantee, and wassatisfied that it did not discharge Mr Cancian.12 It cannot therefore be said that theJudge simply applied a "blanket rule".[26] There is debate as to the extent and nature of the purview doctrine, but it is adebate we do not need to enter into in this case. We are satisfied in any event that asignificant increase in the credit limit was well within the purview of this guarantee.The fact the BVH agreement provided expressly that Carters could unilaterally andwithout notice set another credit limit, and that the anti-discharge clause in the10 Trade Indemnity Co Ltd v Workington Harbour and Dock Board [1937] AC 1 (HL) at 21.11 Pogoni v R & W H Symington & Co (NZ) Ltd, above n 4, at 85. See also Carters v Cancian, aboven 1, at [40].12 At [41]–[45].guarantee specifically included giving of credit, is sufficient to bring the "variation"clearly within Mr Cancian's purview. While we consider it unnecessary to go further,this was clearly going to be a large account that would likely require a high creditlimit. BVH had itself requested a credit limit of $700,000. It had stated the anticipatedvalue of its monthly purchases would be $400,000 and Mr Cancian had said BVH hada minimum of 30 houses under construction at any one time.[27] Mr Cancian was the sole director of BVH and directly involved in operation ofthe company. He had attended the meeting with Carters to set up the credit accountand signed both documents.[28] We are quite satisfied that a very substantial increase in the credit limit, withoutnotification to either BVH or Mr Cancian, was within the general purview of theguarantee. Therefore, even if there was a variation of the BVH agreement, cl 5(b)would operate to prevent Mr Cancian being discharged from his obligations under theguarantee.[29] On each of the two grounds we have considered, the guarantee remained onfoot and Mr Cancian has no defence to Carters' claim.Conclusion[30] The appeal is dismissed.[31] The appellant must pay the respondent costs for a standard appeal on a band Abasis and usual disbursements.Solicitors:Keegan Alexander, Auckland for AppellantStace Hammond, Auckland for Respondent