TROTTER V AVONMORE HOLDINGS LTD CA CA162/04

TROTTER V AVONMORE HOLDINGS LTD CA CA162/04 1 August 2005IN THE COURT OF APPEAL OF NEW ZEALAND CA162/04BETWEEN ELIZABETH ANNE TROTTER Appellant AND AVONMORE HOLDINGS LIMITED Respondent AND JAMES RICHARD WILLIAM WEBB Cross Appeal Respondent Hearing: 7 July 2005 Court: Glazebrook, Chambers and O'Regan JJ Counsel: M E J Macfarlane for Appellant and Cross-Appeal Respondent S R Maling for Respondent Judgment: 1 August 2005JUDGMENT OF THE COURT A The appeal is allowed and the cross-appeal dismissed. B Costs of $6,000 plus usual disbursements are awarded to the appellant and the cross-appeal respondent. REASONS(Given by Glazebrook J)Table of ContentsPara NoIntroduction [1]Background facts [4]The licence agreement [8]Judgment of Gendall J [14]Submissions of the parties [21]Submissions of Ms Trotter and Mr Webb [21]Submissions of Avonmore [23]Discussion [27]Result and costs [36]Introduction[1] This appeal concerns the liability of Ms Trotter and Mr Webb under a licence agreement entered into by the respondent, Avonmore Holdings Limited, as Licensor and a company that was then known as ACP Computer Solutions Limited as Licensee. Ms Trotter and Mr Webb were, at all relevant times, directors and shareholders of ACP. Avonmore contends that Ms Trotter and Mr Webb signed the licence agreement in their dual capacity as directors and shareholders of ACP. It contends that, as a consequence, in terms of the licence agreement, they, as shareholders, guaranteed ACP's obligations under the licence agreement and also provided an indemnity to Avonmore. [2] On 13 July 2004, Gendall J, in a judgment dealing also with a number of other matters that are not under appeal, held that Ms Trotter signed the licence agreement in her dual capacity as director and shareholder and was therefore liable as an indemnifier and guarantor under the licence agreement. He also held that it was not established that Mr Webb signed the licence agreement in his dual capacity and accordingly the claim against him was dismissed. [3] Ms Trotter appeals against the finding that she signed the licence agreement in her dual capacity and thus that she is liable as an indemnifier and guarantor underthat agreement. Avonmore cross appeals with respect to the finding that Mr Webb was not liable as an indemnifier and guarantor.Background facts[4] Avonmore and its related companies have been in business since 1988 offering training courses over a wide range of industries. Avonmore has developed a system whereby it licenses other private training establishments to offer and conduct courses. One of those licensees was ACP. [5] Before entering into the licence agreement, there were discussions between Avonmore and ACP, represented largely by Ms Trotter. Ms Trotter had taken advice from her solicitor and some changes were made to Avonmore's draft agreement as a result of his advice. A letter of 24 November 1999 from Avonmore to Ms Trotter enclosed a copy of the redrafted agreement, indicating a number of changes that had been made to the agreement at the request of ACP and other potential licensees. The letter said, however:"[T]here are some points we cannot move on as reflected in the revised agreement. We are not prepared to make further changes".[6] Two copies of the licence agreement, which had already been executed by Avonmore, were sent to Ms Trotter on 10 December 1999 for execution, with a covering letter requesting that Ms Trotter fill in the front page of the agreement and initial each page. Ms Trotter and Mr Webb signed the agreement in the place designated for directors of ACP, but they did not sign beside the third attestation clause, presumably included for shareholders' signatures. One copy of the licence agreement was initialled on each page by Ms Trotter but not by Mr Webb and that copy was returned to Avonmore. Ms Yates also initialled that copy of the agreement on each page. The other copy of the licence agreement was retained by Ms Trotter but that was not initialled on each page and, when it was produced, the page on which the shareholders' attestation clause was typed was missing. Nothing was, however, made of this by Avonmore in its submissions.[7] When Avonmore received its signed copy of the agreement, that copy was completed by Ms Yates entering by hand onto the cover page of the document that the licensee was ACP Computer Solutions Limited. The shareholders were described as "Liddy Trotter". Ms Yates also dated the agreement as 12 December 1999. Other evidence would suggest that Ms Yates received the agreement somewhat later than 12 December but nothing turns on this.The licence agreement[8] We now set out the relevant terms of the agreement. Where square brackets are used this signifies handwritten additions to the document. The cover page of the agreement read as follows:DATED [December 12th] 1999 _____________________________________________________________ PARTIESAVONMORE HOLDINGS LIMITED("the Licensor") [ACP Computer Solutions Ltd] ("the Licensee") [Liddy Trotter] ("the Shareholders") _____________________________________________________________LICENCE AGREEMENT_____________________________________________________________Trademark"AVONMORE Tertiary Academy"[9] The first page of the agreement reads, in relevant part, as follows:LICENCE AGREEMENTTHIS AGREEMENT made the day of 1999PARTIES(1) AVONMORE HOLDINGS LIMITED being a duly incorporated company at Christchurch ("the Licensor") (2) [ ] being a duly incorporated company at [ ] ("the Licensee") (3) [ ] and [ ] both being shareholders of [ ] ("the Shareholders").BACKGROUNDA. The Licensor is a related company to Avonmore Tertiary Academy Limited ("Avonmore") which is a well known private training establishment registered and accredited by the NZQA under the provisions of the Education Act 1989. B. Avonmore has substantial goodwill behind its name and has developed certain intellectual property rights in relation to courses, manuals, procedures and a quality management system. C. Avonmore now wishes to licence its name and intellectual property through the Licensor (which has a licence of Avonmore's intellectual property) and the Licensee wishes to take a licence of that name and intellectual property on the terms and conditions set out below.[10] In summary, the body of the licence agreement provides as follows: (a) ACP was granted a licence to use the Avonmore name and to operate its systems on payment of a licence fee of $20,000 plus GST. (b) ACP had an exclusive licence in the "Licensed territory" (Hawke's Bay/East Cape generally) in respect of accredited industries which were detailed as Computing levels 1 to 4, Computing levels 5 to 7 and Hospitality. The licence envisaged expansion into other industries by agreement and on payment of a further fee. (c) Avonmore was to be entitled to a management fee of 5% of gross income, being all income received by ACP but not certain vocationdriven courses, being Level 1 and 2 courses within the National Qualification framework. (d) The term of the agreement was for 10 years with the right of renewal (at ACP's option) for a further 10 years, although with the licence fee to be re-negotiated. (e) ACP was licensed to use products and software of the Avonmore system, get up, name and logo and compliance manuals. Obligations of the parties included matters of consultation, advice on the operation of the system, establishment training, audit and accounting records. Obligations of ACP included using its best endeavours to operate the Avonmore system, to promote and develop the services for the benefit of both parties, to ensure that the goodwill of Avonmore was maintained and to uphold the reputation and trade name of Avonmore. [11] The licence agreement also includes a shareholders' covenant clause which provides for joint and several covenants from shareholders of any corporate licensee. That clause provides:Shareholders Covenants38.1 The Shareholders jointly and severally: a) guarantee to the Licensor the due and punctual payment by the Licensee to the Licensor of all moneys from time to time payable by the Licensee to the Licensor and all due and punctual performance by the Licensee of all the obligations, duties, liabilities and covenants of the Licensee under this agreement. b) agree to indemnify and hold harmless the Licensor from any default by the Licensee in making such due and punctual payment or in such due and punctual performance. 38.2 The Shareholders will themselves observe and perform all the obligations duties, liabilities, restrictions and covenants set forth in this Agreement as matters to be observed and performed by the Licensee as fully and to the same extent as would bind the Shareholders if all those matters were set out in full in this clause. 38.3 The obligations of the Shareholders under the foregoing provisions are as principal debtor and principal contracting party and shall be acontinuing guarantee indemnity and covenant of the Shareholders until all matters under this Agreement have been fully discharged and notwithstanding any intermediate settlement of account. No waiver granting of time or other indulgence variation of obligations or the doing or omission to do anything which would release one liable as a surety only, shall release the Shareholders from liability hereunder.[12] Clause 38 was the last clause in the agreement. The attestation clauses for the licensor and licensee then followed on a separate page:EXECUTED as an Agreement EXECUTED by ) AVONMORE HOLDINGS LIMITED ) (under seal if required by Constitution ) By:_____[Signature of Ms Yates]_____ Director And by: __________________________Director/Authorised Person Witnessed by (if signed other than by two Directors) Witness's Signature _____[Signature of witness]___ Full Name _____[Witness name]________ Address _____[Witness signature]_____ Occupation _____[Witness occupation]____Note: If two directors sign, no witness is necessary. If a director and authorised signatory sign, or a sole or governing director, then a witness is required.EXECUTED by (Licensee) ) ) (under seal if required by Constitution ) by: ____[Signature of Ms Trotter]____Director and by: ____[Signature of Mr Webb]_____ Director/Authorised Person Witnessed by (if signed other than by two Directors) Witness's Signature ________________________ Full Name ________________________ Address ________________________ Occupation ________________________Note: If two directors sign, no witness is necessary. If a director and authorised signatory sign, or a sole or governing director, then a witness is required.[13] On the following page there was a further attestation clause (which was left totally blank) as follows:SIGNED by ) ) in the presence of ) _______________________ Witness's Signature ________________________ Full Name ________________________ Address ________________________ Occupation ________________________Judgment of Gendall J[14] Avonmore's position in the High Court was the same as in this Court, namely that, on an objective interpretation of the licence agreement which provides for the joint and several covenant and guarantee in clause 38 of "both shareholders", Ms Trotter and Mr Webb must be taken to have signed the agreement in their dual capacity as directors of the company as well as in their personal capacity. Avonmore relied upon the authority of Chiswick Investments v Pevats [1990] 1 NZLR 169, contending it had very similar facts. [15] The position of Ms Trotter and Mr Webb was that they did not intend to sign the licence agreement in their personal capacity as guarantors. They contended that the approach adopted by Gallen J in Chiswick ought not to be followed. They also contended that extrinsic evidence of their intention should be taken into account when determining the status of signatures in the document, referring to the case ofYoung v Schuler (1883) 11 QBD 651 where extrinsic evidence of contemporaneous statements made by the signatory to the document was admitted to show that a person intended to be bound as a guarantor. [16] Counsel for Ms Trotter and Mr Webb relied on the evidence of Mr Peach, ACP's solicitor, as evidence of Ms Trotter and Mr Webb's intentions. Mr Peach's evidence was that he went through the agreement, clause by clause, with Ms Trotter and discussed changes to the agreement with her. He said that Ms Trotter was wellconversant with guarantees and their implications from previous commercial experience but that he would have informed Ms Trotter that she should not sign a shareholders' covenant if it could be avoided. He would have asked her whether or not that had been requested. He said that it was common with agreements, such as franchise agreements or similar, for shareholders' covenants to be included in a standard document as a matter of routine, with it being a matter of negotiation whether or not such covenants are given in any particular case. He was not aware in this case that Avonmore had indicated a requirement for such a covenant. [17] With regard to Mr Peach's evidence, the Judge commented that the intention with which a particular document is signed is generally irrelevant – seeDoughty-Pratt Group Ltd v Perry Castle [1995] 2 NZLR 398 (CA). The Court said that the understanding of the signatory to the document as to its meaning and what he had signed was irrelevant, as the meaning was to be determined objectively. The intention with which a signature was affixed to the page on which the guarantee was typed was irrelevant. Young v Schuler, in the Judge's view, was not applicable as that case related to evidence being admitted not to contradict the terms of the document but to support it. [18] In this case the Judge considered it significant that, whatever Mr Peach's belief may have been, the shareholders' covenant was not deleted from the licence agreement. He noted that Ms Trotter never raised any objection to it with Avonmore and that she initialled the page on which the covenant appeared and every other page of the document. He also remarked that the shareholders' covenant clause, clause 38, comes immediately before the attestation clauses. He said further that Ms Trotter's professed intention now as to the capacity in which she signed was not communicated to Avonmore. Nor did it form any part of negotiations between the parties. He referred to Gallen J's comments in Chiswick at 174-175:Whatever the intention of the respondent may have been, on the evidence it was certainly not communicated to the appellant nor did it form any part of the negotiations between the parties. From the approach adopted in the cases to which reference has already been made then it would not be admissible for the purpose of construing the document itself.[19] The Judge held that the licence agreement contemplates that the shareholders of ACP will be guarantors and Ms Trotter, apart from signing as a director of the company, initialled each page including the shareholders' covenant page. Objectively viewed, the Judge was satisfied that, when the document is viewed as a whole, Ms Trotter did sign in a dual capacity as shareholder and director. In the Judge's view, the document as a whole could be given meaning, with no part being mere surplusage, by reason of that interpretation. He held that she therefore was bound by the covenant. [20] Turning to the position of Mr Webb, the Judge considered the evidence was that Mr Webb did not receive any advice as to the document when it was presented to him by his partner Ms Trotter, and that she simply asked him to sign it as a director of ACP. His evidence was that he did not even read the document, nor know or understand what it contained. The Judge said that this was of no avail to him, as mistake or non est factum were not pleaded on his behalf. The Judge held, however, that there was a relevant distinguishing feature between Mr Webb's signature and that plus the initials of Ms Trotter in relation to execution of the document. Mr Webb had not initialled any of the other pages to the document, including the shareholders' covenant page. Although the preamble envisages "both" shareholders being parties to the agreement, as does clause 38, the Judge said that, on balance, he was left with just sufficient doubt as to how, objectively assessed, Mr Webb executed the document. Accordingly, Gendall J judged him not to be liable pursuant to the shareholders' covenant.Submissions of the partiesSubmissions of Ms Trotter and Mr Webb[21] Mr Macfarlane submitted that Ms Trotter was not a party to the licence agreement, being neither named in it nor signing in the place left over for a guarantor to sign. Instead she signed where expected for ACP as a director of ACP. He also submitted that there was nothing in the negotiations or written communications precedent to execution to indicate that ACP's shareholders were required to beparties to the agreement, or to sign it, in order for it to come into force as between the licensor and licensee companies. In consequence, he submitted that there was no consensus ad idem between Ms Trotter and Avonmore and her execution as a director cannot be converted into execution as a shareholder. Mr Macfarlane also submitted that Gendall J wrongly excluded evidence given of intention in respect of the execution of the agreement which he should have admitted for the purpose of the consideration of the agreement and determining who the parties to it were. [22] Insofar as Mr Webb was concerned, Mr Macfarlane submitted that the same factors applied to him as to Ms Trotter and that he was, as a consequence, not bound by clause 38. In the event this submission was not accepted, Mr Macfarlane supported Gendall J's decision that the distinguishing feature of Mr Webb not having initialled the document meant that he should have no liability. However, Mr Macfarlane pointed out that Ms Trotter had initialled the pages only because she had been told to do so by Avonmore's covering letter and that she had done so, in his submission, in her capacity of director of ACP.Submissions of Avonmore[23] For Avonmore, Mr Maling submitted that there was nothing in the negotiations or written communications or the document itself to suggest that the shareholders were not required to commit to the shareholder guarantee covenants which were clearly an integral part of the arrangement under contemplation. The document as a whole, in his submission, contemplated that the shareholders would be guarantors and this was a matter that was clearly able to be taken into account when forming a view as to the capacity in which the document was signed. [24] In answer to the proposition that there was no consensus ad idem between Avonmore and Ms Trotter in her capacity as shareholder, it was submitted that this was a matter for the Judge to decide on the facts and that the facts as found were directly consistent with the notion that Ms Trotter knew that Avonmore was insisting on the guarantee and would not resile from that position - see the letter of 24 November 1999 referred to at [5] above. Against that background, executing thedocument containing that guarantee without raising an objection must, in Mr Maling's submission, signify an intention to give that guarantee. [25] On the proposition that the Judge should have taken into account the evidence from Ms Trotter and Mr Webb, supported by Mr Peach, that they intended only to sign as directors of ACP and not as shareholders, it was submitted that this evidence of subjective intent was not admissible and that, in any event, the evidence was not consistent with the fact that the guarantee clause had not been deleted from the document. In Mr Maling's submission, subjective evidence of intention not communicated to Avonmore at the time should not have been taken into account. Mr Maling also submitted that it was clear, in any event, from the judgment that the Judge was not convinced that this evidence was credible. [26] As to the position of Mr Webb, Mr Maling submitted that the fact that Mr Webb did not initial the pages was irrelevant. He should, in Mr Maling's submission, nevertheless be liable as he too signed the agreement in his dual capacity.Discussion[27] It is certainly possible for a document to be signed by a person in a dual capacity. The question for the appeal and cross-appeal is whether Ms Trotter and Mr Webb did so. We note that, although clause 38, requiring the covenant from the shareholders, had been in the licence agreement from the time it was sent to Ms Trotter and there had been no request for its removal, it is common ground that there was no preceding oral agreement of guarantee. If there was a guarantee and indemnity on the part of Mr Webb and Ms Trotter it must, therefore, have arisen from the execution of the licence agreement itself. [28] On the face of the document, it is clear that Mr Webb and Ms Trotter signed the licence agreement in their capacity as directors of ACP in order to bind the company. Their status as directors was clearly identified in the document beside their signatures. The shareholder attestation clause was left entirely blank. In our view, there is nothing in the document to suggest they signed it in a dual capacity.Mr Webb and Ms Trotter were not identified anywhere in the document as the shareholders of ACP. Indeed, it appears that Avonmore did not even know who the shareholders of ACP were. Ms Trotter and Mr Webb did not, as they had been instructed to do in Avonmore's covering letter, fill in the first page of the document. Indeed, the first page was never completed, although Ms Yates subsequently filled in the cover page. Even on the cover page there was no reference to Mr Webb, as it is common ground that Ms Yates was not then aware of Mr Webb's identity as a shareholder. Ms Trotter's inclusion as a shareholder on the cover page was not the consequence of any representation to that effect; it was simply Ms Yates' assumption that Ms Trotter was a shareholder of her company, an assumption which turned out to be correct. Ms Yates never sent the completed cover page back to Ms Trotter. [29] In addition, it has never been suggested that Ms Trotter or Mr Webb represented to Avonmore in any way that they had signed the documents in a dual capacity. The fact that the shareholder guarantee clause had not been deleted, in our view, cannot be taken as a representation of signing in a dual capacity. There was no need to delete it insofar as ACP was concerned. It had no operative effect on the company and it had no operative effect on the shareholders if they did not sign the agreement. Mr Trotter and Mr Webb did not sign the agreement, apart from in their clearly identified capacity as directors of ACP. [30] With respect to the Judge, we cannot see that the initialling of each page of the document by Ms Trotter changes the position. Documents are initialled merely as a verification of the document that has been executed. Execution is by signature at the end of the agreement. Even without any initialling, that signature relates to the whole agreement. There is nothing to suggest that Ms Trotter was initialling in any other capacity than that in which she signed the document and the fact that the pages are initialled cannot convert Ms Trotter's signature at the end of the document into other than what it is identified to be – a signature as director of ACP. [31] The fact that Ms Trotter's initials appear on the page containing clause 38 is, in our view, of no moment. That page also contained in any event the remainder of clause 37, which clearly applied to ACP. We note too that there is no initial on thepage containing the shareholders attestation clause, although even this would have been unlikely in our view to have suggested Ms Trotter was signing in a dual capacity when the capacity in which she signed the document was so clearly identified. [32] Mr Maling relied heavily on Chiswick as supporting the view that Ms Trotter and Mr Webb signed the agreement as shareholders as well as directors of ACP. The question in Chiswick was whether a loan agreement was signed in a dual capacity. The documentation in that case dealt with the terms upon which the loan was made to a company, with provision in the documentation for a shareholder guarantee. The attestation section of the document had provision for the company seal to be affixed in the presence of two witnesses. It also made provision for signatures of "the abovenamed shareholders" and for the witnessing of those signatures. Mr Pevats, who was the company secretary with one share, signed the document as a witness to the affixing of the seal. He did not sign in the place reserved for shareholders' signatures (and indeed there were no shareholder signatures in that space). The document had, however, been witnessed and the witness details filled in in the space reserved for the witnessing of the shareholders' signatures. Gallen J held that Mr Pevats was prima facie bound by the guarantee, having signed the documentation in his dual capacity as shareholder and as witness to the affixing of the seal. [33] We have some doubts as to whether Chiswick was correctly decided on this point but, even if it were correctly decided, it was very dependent on the particular combination of circumstances. Mr Pevats signed the document as a witness to the affixing of the seal and was not specifically identified as company secretary. His signature was witnessed in the place reserved for the witnessing of shareholders' signatures and the attestation clause referred to the "abovementioned shareholders", which could have been read as a reference to Mr Pevats' signature as witness to the affixing of the seal. The transaction was also one where, in the normal course, a guarantee would be an expected part of the transaction. [34] In this case, the signatures of Mr Webb and Ms Trotter were specifically identified as being those of the directors of ACP. Their signatures in that capacity were also necessary to bind the company (rather than merely being witnesses to theaffixing of the seal). There were no signatures in the attestation clause clearly designed for shareholders' signatures and no witness to those signatures in the place reserved for the signature and details of the witness to those signatures. There was no reference to "the abovementioned shareholders" in the shareholder attestation clause. In addition, the names of the shareholders were not included in the document at the time it was signed by Mr Webb and Ms Trotter (and Mr Webb's name was never included in the document). Further, while the shareholder guarantee was clearly in the document (and had been from the first draft sent to Ms Trotter), that guarantee was not so obviously integral to the transaction as it was in Chiswick. [35] There is one final point. Even had we considered the matter uncertain on the face of the document, we would not have taken into account the evidence of Ms Trotter's and Mr Webb's subjective intent in signing the agreement or Ms Trotter's discussions with her solicitor (which were not in the presence of representatives of Avonmore). We agree with Gendall J that this evidence is not relevant as the capacity in which the agreement was signed is determined objectively.Result and costs[36] The appeal is allowed and the cross-appeal dismissed. This means that neither Mr Webb nor Ms Trotter is liable under clause 38 of the licence agreement. Accordingly, the order of Gendall J that Avonmore is entitled to judgment against Ms Trotter in the sum of $86,968 together with interest of 7.5% per annum from 26 April 2001 to 13 July 2004 is set aside. The orders against ACP of course remain intact. [37] Costs of $6,000 plus usual disbursements are awarded to Ms Trotter and Mr Webb (to be shared between them). Costs in the High Court can be determined in that Court in the light of this judgment.Solicitors: Sainsbury Logan & Williams, Napier for Appellant Lane Neave, Christchurch for Respondent