WESTPAC NEW ZEALAND LIMITED V CHAHIL COA CA614/2011

WESTPAC NEW ZEALAND LIMITED V CHAHIL COA CA614/2011 [29 March 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA614/2011[2012] NZCA 123BETWEEN WESTPAC NEW ZEALAND LIMITEDAppellantAND JASWANT SINGH CHAHILRespondentHearing: 21 March 2012Court: Harrison, White and Asher JJCounsel: S C D A Gollin and M D Pascariu for AppellantM W Tolhurst for RespondentJudgment: 29 March 2012 at 3 pmJUDGMENT OF THE COURTA The appeal is allowed.B The order for costs and disbursements made in the High Court is set aside.C Summary judgment is entered for the appellant against the respondent in the sum of $14.985 million together with interest.D The respondent must pay the appellant costs for a standard appeal on a band A basis together with usual disbursements.E Costs and disbursements in the High Court are to be fixed by that Court if the parties are unable to agree.REASONS OF THE COURT(Given by Harrison J)Introduction[1] Westpac New Zealand Ltd appeals against a judgment delivered by Peters J in the High Court at Auckland dismissing its application for summary judgment against Jaswant Chahil.1[2] The issue on appeal is whether a provision contained in a deed of guarantee executed by Mr Chahil might arguably provide him with a substantive defence toWestpac's claim under that guarantee.Background[3] In May 2007 Westpac advanced funds to Rupinder and Jaswant Chahil as trustees of the CG Trust, the Chahil Family Trust, the Gurliem Family Trust (collectively the Chahil Family Trusts) and CG Investments Ltd. Jaswant Chahil and Rupinder Chahil are apparently related and jointly owned the shares in CG Investments as trustees of the family trusts. CG Investments undertook property developments in the Pukekohe area.[4] On 24 September 2007 Westpac offered CG Investments a wholesale term loan of $1.71 million and a wholesale term loan facility of $16.234 million for the purpose of refinancing existing banking facilities for entities within the Chahil group. Jaswant Chahil was not then a guarantor in his personal capacity of theexisting facilities. However, Westpac's offer required various new securities.Among them were "... an all obligations interlocking deed of guarantee and indemnity to be provided by ..." the three family trusts, companies and "Jaswant Singh Chahil". Jaswant Chahil countersigned his acceptance of the offer letter in his capacity as an existing guarantor as trustee of the Chahil Family Trusts.[5] Westpac's offer was formalised by a deed of guarantee and indemnity signedby Jaswant Chahil on 16 November 2007. The instrument identified three distinct categories of borrowers. First, Rupinder Chahil and Jaswant Chahil were named without qualification or limitation as the two guarantors and individual customers.1 Westpac New Zealand Ltd v Chahil HC Auckland CIV-2011-404-1612, 22 August 2011.Second, the Chahil Family Trusts were nominated, including both Rupinder Chahil and Jaswant Chahil in their capacities as trustees. Third, the various companies were identified.[6] In keeping with its terms, Rupinder and Jaswant Chahil each executed the deed in their nominated capacities as guarantors. They were the first signatories and their names were witnessed by Mr R V M Allen, an Auckland solicitor. Mr Allensigned a guarantor's solicitor's certificate confirming, among other things, that hehad explained to Jaswant Chahil the general nature and effect of the guarantee, which Mr Chahil understood, together with the obligations and risks involved. Rupinder and Jaswant Chahil then signed the deed separately in their capacities as trustees of Chahil Family Trusts. Again Mr Allen witnessed their signatures in those capacities and gave a solicitor's certificate.[7] Clause 34 of the guarantee, upon which Peters J found that Jaswant Chahilhad an arguable defence to Westpac's claim, provides as follows:This clause only applies if you are a trustee and sign this document as trustee of that trust.This document will bind you as trustee of that trust. It will also bind you personally unless you are an independent trustee.You confirm:the terms of the trust document give you the power to enter into this document;you have properly signed this document in accordance with the terms of the trust;you have and will retain a right of indemnity from the trust assets.The above are warranties, which means that the Secured Parties can sue you if any are incorrect.The Secured Parties may recover the Guaranteed Money and any other amounts owing under this document from the assets of the trust and for this purpose may exercise your rights to be reimbursed from those assets or from any other person (such as a beneficiary of the trust).The Secured Parties rights against you will be limited only if you are an independent trustee. In that case, the Secured Parties will only be entitled to recover Guaranteed Money and any other amounts owing under this document from any of your personal assets if they are not able to recover theGuaranteed Money and any other amounts owing under this document from the trust assets because the warranties you gave above were incorrect. The Secured Parties will only be entitled to recover from your personal assets the amount they would have recovered from the trust assets had those warranties been correct. ...You are an independent trustee for the purpose of this clause unless you have any right to or interest in any of the assets of the trust except in your capacity as a trustee of the Trust.For example, if you are a beneficiary of the trust then you are not an independent trustee.(Original emphasis.)[8] In February 2008 Westpac granted CG Investments an increase in the limit of its overdraft facility. All guarantors including Jaswant Chahil signed the relevant documents. He signed four times – three as a trustee of each of the Chahil Family Trusts and once in his personal capacity.[9] In November 2009 CG Investments defaulted under its wholesale facility by failing to pay the principal then owing and outstanding. In January 2010 Westpac made demand on the Chahils to pay $19.624 million. The bank has since realised about $5.329 million from sale and enforcement of its securities.High Court[10] In early 2011 Westpac issued its proceeding in the High Court against the Chahils personally on their guarantees and as trustees of the Chahil Family Trusts. A total amount of $14.985 million was then owing and was claimed. Contemporaneously the bank applied for summary judgment. It appears that only Jaswant Chahil in his personal capacity opposed.[11] In opposition to Westpac's application for summary judgment, Mr Tolhurstfor Jaswant Chahil raised two primary defences. One was that Westpac's actions inobtaining and enforcing the guarantee were unconscionable. Peters J dismissed this defence because it was without an evidential foundation and was unarguable.2 Mr Chahil has not cross-appealed against that finding.2 At [32]–[34].[12] However, Peters J found that Mr Chahil had an arguable defence on the ground that cl 34 of the guarantee may be construed as limiting his liability to theassets of the trusts. The Judge's reasoning is as follows:[36] [Jaswant Chahil] has executed the guarantee as a trustee and so on its face clause 34 applies, subject to the issue of whether [Jaswant Chahil] is a discretionary beneficiary of the Chahil Family Trust. Counsel for Westpac submits that clause 34 applies, or is intended to apply, only if the trustee concerned has executed the guarantee solely in that capacity. Counsel submits that clause 34 does not concern itself with the position which arises if a guarantor is a party in two or more different capacities. I see the force inWestpac's submission but I am not satisfied that [Jaswant Chahil] has no defence to the claim. In my view, it is arguable that the wording of clause 34 has the effect in this case of limiting [Jaswant Chahil's] liability to the assetsof the trusts.Decision[13] We respectfully disagree with Peters J's conclusion. We can state our reasonsbriefly.[14] The meaning of cl 34 is clear and unambiguous. Its purpose is to limit to the value of the assets of a trust the personal liability of a party who borrows and covenants to repay in his capacity as an independent trustee. As Mr Gollin points out, cl 34 reverses the common law rule that a trustee signing a contract is personally liable without limit for the contractual obligation thereby assumed. So, in his capacity as guarantor as an independent trustee of the Chahil Family Trusts, Jaswant Chahil's liability to Westpac is limited to the total value of their assets.[15] However, Mr Chahil also executed the guarantee in his separate capacity as apersonal guarantor. Clause 34 does not apply to limit Mr Chahil's liability in thatcapacity; its opening words expressly provide that it only "applies if you are a trustee and sign this document as trustee of that trust". The balance of the provision isdirected towards that contingency, referring to the trust assets and Mr Chahil's rightto be reimbursed from them. By this means, the trustee's liability is expresslylimited. But cl 34 could not arguably operate to limit Mr Chahil's liability and affordhim a defence where Westpac sues separately on his personal guarantee, unrelated to his status as trustee of the Chahil Family Trusts. It follows that we disagree withPeters J that, where a party signs a guarantee both as an independent trustee and personally, cl 34 might apply to limit that party's liability in both capacities.[16] This conclusion, based on our interpretation of the ordinary meaning of cl 34 within the context of the deed of guarantee, does not require us to consider separately any of the formal principles of construction raised by Mr Gollins.[17] In support of the judgment, Mr Tolhurst points to what he says are Jaswant Chahil's straitened financial circumstances. He refers to Mr Chahil'sstatement in his affidavit in opposition that he was never asked by Westpac for a statement of personal means of wealth. Mr Chahil says this fact supports his own view that the bank did not regard him as a personal guarantor; that at no stage did he intend to give a personal guarantee; and that he never held shares beneficially in CG Investments and other corporate entities but only as trustee for the three family trusts.[18] In effect, Mr Tolhurst is seeking to uphold Peters J's judgment on othergrounds. He did not give a cross notice to this effect but Mr Gollin has not objected.Mr Tolhurst's argument cannot succeed. It is irrelevant that Mr Chahil did not believe that he was signing the guarantee in his personal capacity. The deed must be construed objectively. The instrument is unambiguous on its face: Mr Chahil accepted an unlimited personal liability to Westpac to repay all funds advanced under CG Investments facility. Critically, Mr Chahil's signature was witnessed by asolicitor who certified his explanation and Mr Chahil's understanding of the generalnature and effect of the guarantee in both capacities in which he signed. Thus it would have been necessary for Mr Chahil to adduce evidence from the solicitor if hewished to challenge the efficacy of the solicitor's certificates. He did not take thatstep.Result[19] The appeal is allowed. The order for costs and disbursements made in the High Court is set aside. Summary judgment is entered for Westpac against Jaswant Chahil for the sum of $14.985 million together with interest.[20] Mr Chahil must pay Westpac's costs for a standard appeal on a band A basistogether with usual disbursements. Costs and disbursements in the High Court are to be fixed by that Court if the parties are unable to agree.Solicitors:Minter Ellison Rudd Watts, Auckland for AppellantCity Law, Auckland for Respondent