IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV-2016-409-000139 [2016] NZHC 1469 BETWEEN AND HARMON L. WILFRED Appellant LEXINGTON LEGAL LIMITED Respondent Hearing: 21 June 2016 Appearances: D J Ballantyne for the Appellant D M Lester for the Respondent Judgment: 4 July 2016 JUDGMENT OF NATION J [1] This is an appeal against a judgment of Judge Neave in the District Court finding Mr Wilfred liable as a guarantor for legal costs incurred by a company of which he was a director with the law firm Lexington Legal Limited. 1 [2] Around 3 June 2011, the appellant, Harmon Wilfred (Mr Wilfred), had discussions with Paul Brown, a solicitor of Lexington Legal, in connection with employment-related issues concerning various legal entities Mr Wilfred was involved with. Soon afterwards, Mr Brown sent him a letter of engagement setting out in general terms the basis on which Lexington Legal would accept instructions. With the letter were its standard terms of engagement which were to apply. Those terms of engagement included a clause which said any person signing for a company would be personally guaranteeing payment of the account for that company. 1 Lexington Legal Limited v Wilfred DC Christchurch CIV-2014-009-1257, 9 February 2016. WILFRED v LEXINGTON LEGAL LTD [2016] NZHC 1469 [4 July 2016]
[3] On 4 June 2011, Mr Wilfred responded to Mr Brown accepting the terms and conditions for proceeding with the case on behalf of Wilfred Investments, La Famia No. 2 Limited (LF-2 trading as Wigram Manor) and La Famia Foundation NZ. [4] Lexington Legal provided legal services relating to employment issues involving several employees. An interim account for $5,750 was sent to Mr Wilfred on 5 April 2012 and a second interim account for $11,500 on 29 June 2012. These accounts were not paid. [5] The company LF-2 went into liquidation. The company La Famia No. 1 Limited (LF-1) was also the subject of liquidation proceedings. On 3 November 2013, Mr Brown and Lexington Legal sent Mr Wilfred three accounts for a total of $36,534.56. One invoice for $24,994.92 was made out to LF-1 and two accounts for a total of $11,539.64 were made out to LF-2 (in liquidation). Lexington Legal required Mr Wilfred to pay the costs referred to in those accounts as the guarantor of company obligations. [6] The accounts were not paid. On 15 May 2015, Lexington Legal filed a notice of claim in the District Court. Initially, judgment was entered on the basis the response from Mr Wilfred did not disclose any defence. By consent, that judgment was set aside. The proceedings continued on a defended basis without formal pleadings. There was a hearing on 10 September 2015. The Court had documents filed with the original notice of claim and the response by defendant and the earlier application for judgment. Evidence was given orally by Mr Brown and Mr Wilfred. On 9 February 2016, Judge Neave gave judgment for Lexington Legal in the sum of $38,310.20 with costs. The District Court judgment [7] Judge Neave said no issue had been taken with the reasonableness of any of the fees or the quality of the legal services provided. He said it had been accepted that Lexington Legal had received instructions to act and to perform the services which resulted in the fees in respect of which payment was sought. The Judge found that Mr Wilfred had personally guaranteed payment for the legal services rendered through the way he had confirmed acceptance of the terms and conditions in an
email. He held the communications met the requirements of s 27 of the Property Law Act 2007, there having been a signing in terms of the Electronic Transactions Act 2002. 2 [8] On 28 March 2014, Lexington Legal had sent a letter to solicitors then acting for Mr Wilfred attaching credits for the three invoices which had previously been supplied, at the same time advising that it was pursuing Mr Wilfred under the terms of the letter of engagement where he accepted personal liability for the debts of the companies. Judge Neave held those credit notes did not extinguish the liability which Mr Wilfred had as guarantor. Judge Neave held there was no evidence of the defendant making any mistake such as would provide a defence under the Contractual Mistakes Act 1977. He also held the plea of non est factum had not been made out. There was no evidence as to any mistake as to the terms of the contract and no evidence to suggest Mr Wilfred was misled as to the terms of the contract. He held that all arguments raised by the defence were unsuccessful, entitling Lexington Legal to judgment. 3 Approach on appeal [9] This is a general appeal by way of rehearing. 4 This Court must reach its own conclusions on the merits. It need not defer to the Judge at first instance. 5 Although the Court will recognise the advantage the Judge had in seeing witnesses and hearing evidence, that is not of major significance in this case given there was little contested evidence and no real issues of credibility. [10] I will deal with the underlying merits of each party s position against the evidential record through considering each ground of appeal as advanced by Mr Ballantyne for Mr Wilfred. 2 3 4 5 At [5], [23] and [25]. At [31]-[35]. District Courts Act 1947, ss 72 and 75. Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
Ground One - The Judge erred in principle by implicitly placing weight on findings that were not in evidence and which were irrelevant to the issues before the Court [11] It was submitted the Judge erred by placing weight on findings that were not in evidence and which were irrelevant to the issues before the Court. In an introduction to his decision, Judge Neave had recorded that Mr Wilfred was involved in a group of companies and trusts which became embroiled in disputes and litigation centring around the operation of a property at Wigram in Christchurch. 6 [12] The Judge was setting out, in only a general and imprecise way, the background to Lexington Legal s involvement and the work they had to do. [13] His summary was not unreasonable given that in the letter of engagement, following the initial discussions between Mr Brown and Mr Wilfred, Mr Brown had summarised the general nature of the services Lexington Legal anticipated providing as follows: Services to be Provided: The following is a summary of the legal services I expect to be providing to you: Advice on your best options to defend a personal grievance against Wigram Manor, including: Representing you at mediation at the Employment Relations Service. Representing you at the Employment Relations Authority, should there be an Investigation Representing you at the Employment Court, should there be an appeal. Assistance, if requested, with providing proof of the various losses, to assist the Police and to form the basis of a claim against the former Employees. Any other matter arising out of the personal grievances, if requested. [14] In confirming that Lexington Legal was to provide legal services on the terms outlined, Mr Wilfred stated that, in relation to those matters, the services were to be provided to Wilfred Investments Limited, LF-2 and La Famia Foundation NZ. 6 Lexington Legal Limited v Wilfred, above n 1, at [1].
[15] The disputes related more to employment issues rather than a property at Wigram. I was told Wigram Manor was the trading name for LF-2 but also the name given to the property at the former Wigram Airforce Base in Christchurch from which Mr Wilfred conducted the businesses with which he was associated. Any inaccuracy over that did not materially affect the correctness of the decision Judge Neave ultimately came to. The work which Lexington Legal required Mr Wilfred to pay for was work with which Mr Wilfred had been personally involved so he knew what the costs related to. It had been summarised in a general way in the invoices which had been issued. Judgment was given on the basis of the costs which had been incurred as outlined in those invoices. It is also on that basis I consider whether there was a liability for legal fees, which Mr Wilfred could be liable for as guarantor. [16] Mr Wilfred, through his counsel, also criticises the Judge for proceeding on the basis there was no dispute as to the reasonableness of the fees or the quality of the legal services provided. [17] In that regard, Mr Wilfred refers to a letter dated 25 October 2012 sent by a Ms Smalley on behalf of LF-1. That letter was sent after Lexington Legal had issued to Mr Wilfred the interim account dated 5 April 2012 and 29 June 2012, for $5,750 and $11,500 respectively. The letter suggested LF-1 needed more detail to determine how the invoice would be applied and that some of the billing would ultimately be to the Foundation, some to LF-2 (Wigram Manor) and some to Wilfred Investments. I did not read the letter as a complaint as to the reasonableness of the fees. [18] Correspondence between Mr Brown and Mr Wilfred in 2012, consistent with the later liquidation of certain companies, suggests that Mr Wilfred and the businesses faced cash flow problems which Mr Brown had recognised. On 29 June 2012, Mr Wilfred in an email said that, with certain financial pressures they were facing, it would not be wise to continue accumulating legal fees. Mr Brown recognised this in an email of 2 July 2012 providing advice as to steps which Mr Brown and his manager would need to take if they were to be personally responsible for the litigation. In that letter Mr Brown said that, if billing was brought up to date, there would be over $20,000 plus GST. Mr Wilfred s response on 2 July 2012 began as usual, you are very kind and generous. His email referred to the costs that had
been incurred to, as he put it, receive justice and went on, you have a family to feed and I understand that we must do what we can to compensate your good work and advice. [19] Mr Brown must have provided his files to Mr Wilfred or Ms Smalley. Following her letter of 25 October 2012, Mr Brown had to recover those files to bill the outstanding work. [20] The work done, the hours involved and the fees were detailed in the three invoices dated 3 or 4 November 2013. The invoice addressed to LF-1 was for 69.5 hours on all matters re Mokomoko, Glen, Harper. It was for $24,994.92. [21] There was no record of any complaint at the time as to the reasonableness of the fees. Evidence given at the hearing indicated Mr Wilfred s objection was to the invoice being addressed to LF-1. Mr Wilfred made no complaint as to the reasonableness of the fees in the other two invoices. [22] Significantly, Mr Wilfred personally filed a response to the claim against him in the District Court. On that form, he said he did not agree with the plaintiff s claim because: The defendant has never contracted for legal services with Lexington Legal. As a Trustee/Director of the La Famia Foundation NZ and related companies, services were approved to be rendered by Lexington Legal. All of these entities are now in Liquidation. The e-mail acceptance on 4 June, 2011 for services to these entities was on behalf of these specific entities as identified in the e-mail of that date. In any case, the agreement in Para 7 states that the person signing these terms personally guarantees payment. No agreement was ever signed personally. He referred to a delay in the making of this claim and suggested a claim was being made against him vexatiously. He did not suggest in any way that the fees for which he was being pursued were unreasonable or for work that had not been done or that had been done poorly. In cross-examination of Mr Brown at the hearing there was no suggestion that the costs which Lexington Legal was pursuing were unreasonable. [23] Judge Neave was entitled to proceed on the basis there was no dispute as to the reasonableness of the fees. The work involved was summarised in a general way
in the invoices which were rendered. They summarised the time involved. Mr Wilfred had been advised in the initial letter of engagement as to the hourly rate on which the fees would be based. I proceed on the basis, as did Judge Neave, that the fees which Lexington Legal seek to recover were reasonable fees and costs for the work that Lexington Legal did. [24] Counsel also criticised Judge Neave for proceeding on the basis that it seemed to have been accepted by all parties that fee notes rendered to LF-1 were in error and that such invoices should have been rendered to LF-2. [25] On 4 November 2013, Lexington Legal had rendered to LF-1 the invoice referred to earlier for $24,994.92. On the invoice there was the statement that it was an historic invoice dating back to 14 December 2012 and to please pay immediately. At the same time, the two further invoices for $11,539.64 were issued to LF-2 (in liquidation). Each of the documents was headed Tax Invoice. The same documents were sent to the then solicitors for Mr Wilfred on 28 March 2014 but with the heading altered to Credit Note. As mentioned, that happened in conjunction with a letter advising that Lexington Legal would then be pursuing Mr Wilfred personally for these costs. [26] In giving evidence at the hearing, Mr Brown referred to a proof of debt having been accepted from the liquidator of LF-1 in the sum of $20,125. Mr Brown said that the claim before the Court was being pursued on the basis of the three invoices, including the first invoice to LF-1. Mr Brown said the 69.5 hours of work included in the invoice addressed to LF-1 involved three employees who worked for a variety of companies, including LF-1. He said there had been allegations of serious misconduct, detailed evidence in relation to that and what he believed was a four day hearing before the Employment Relations Authority. He also said there was only one letter of engagement (the letter of engagement had not referred to the companies by name. Mr Wilfred s acceptance of the terms of engagement had, however, expressly been on behalf of LF-2, Wilfred Investments Limited and the La Famia Foundation NZ, with no reference to LF-1).
[27] Judge Neave queried Mr Brown as to why LF-1 had been invoiced. Mr Brown had said technically that would be incorrect, that there had been a range of companies that employed the three employees in different capacities over different times and it had been difficult to work out which company the work was for. He said he had invoiced LF-1 because it had been the main employer. On further questioning by the Judge, Mr Brown said the case which was the subject of the letter of engagement (to which the guarantee related) was the same case that had been the subject of the invoices to LF-1. Mr Brown said that was so and there had been a misunderstanding. [28] When Mr Wilfred gave evidence, in response to questions from the Judge, he said LF-1 had not been involved in any of the proceedings before the Employment Relations Authority, that it was a completely separate limited company which was not doing business at Wigram Manor at the time and did not have any employees at the time. Mr Wilfred said the invoice had been issued to LF-1 at the time that company was facing liquidation proceedings and he had his lawyer send Mr Brown a letter saying You have never done any work for LF-1. If you do not back off we will take action. In his evidence he confirmed that Mr Brown did back off because he knew he hadn t done any work for La Famia No. 1. There was then this further exchange with the Judge: Q. Who should have received the bill in relation to the Mokomoko matter? A. That would have been La Famia No. 2. Q. So he s carried out work on behalf of La Famia No. 2? A. That s correct which was, by the way, Wigram Manor. [29] Judge Neave could reasonably have concluded on the basis of that evidence that LF-1 had been invoiced in error and the costs of $24,994.92 as summarised in the account of 4 November 2013 for LF-1, should have been invoiced to LF-2. Judge Neave was entitled to proceed on the basis that La Famia had incurred a liability for those costs. The record however shows it had not been invoiced for them. I consider whether or not this is material later on.
[30] Mr Ballantyne criticised Judge Neave for saying that counsel had acknowledged that Mr Brown was unlikely to have agreed to accept instructions in the absence of a personal guarantee. Mr Ballantyne said this had been the Judge s contention, not necessarily accepted by counsel. I do not need to make any determination over this. As Mr Ballantyne pointed out, the issue is whether or not there was a guarantee. The question is not what would have happened if there had been no guarantee. Ground Two The Judge erred by failing to identify the parties to the contract [31] In submissions, Mr Ballantyne submitted that Judge Neave had failed to identify that the terms of engagement had been accepted, not by LF-1 but by Wilfred Investments Limited, LF-2 and La Famia Foundation New Zealand. On that basis, he submitted the only liabilities which Mr Wilfred could potentially have guaranteed were those as invoiced to LF-2 on 3 November 2013 for $11,539.64. He submitted there was no debt in relation to LF-1 which could be covered by the guarantee. [32] Judge Neave was clearly aware that, for Mr Wilfred to be liable on a guarantee, a debt had to have been incurred by a principal debtor to which any guarantee would relate. He carefully addressed that in the questions of the witnesses which I have already referred to. He clarified just what companies and trust were covered by any guarantee through Mr Wilfred s letter of acceptance of the terms and conditions. Judge Neave made no error in that regard. He proceeded on the basis the invoice issued to LF-1 was for services that had been provided to LF-2 and the costs as recorded in that invoice were costs for which LF-2 was liable. It was on that basis he held those costs were covered by the guarantee. [33] On the evidence, I too would conclude that the invoice incorrectly sent to LF- 1 set out legal costs for which LF-2 was liable. If there was a guarantee from Mr Wilfred it was for those costs. Liability on the guarantee was not conditional upon LF-2 having been invoiced for the costs. LF-2 contracted with Lexington Legal to do that work. It agreed to pay Lexington Legal s costs for that work. That liability accrued when the work was done. It was not dependent on an invoice being issued for that work. LF-2 was thus the principal debtor for those costs. If Mr Wilfred had
guaranteed payment of those costs, Lexington Legal was entitled to sue him for those costs, even if no invoice had been issued for them. Ground Three - The Judge erred in fact and law by finding that Mr Wilfred entered into a contract of guarantee and that, under that contract of guarantee, Mr Wilfred agreed to answer the debt of LF1 and LF2 [34] The Judge had identified that any guarantee did not relate to a liability for legal costs incurred by LF1. He was correct to do so. His judgment was on the basis the guarantee related to liabilities incurred by LF-2. Mr Ballantyne presented his submissions on the basis that they were relevant only to potential liability as to costs of $11,539.64 as invoiced to LF2. His submissions are however relevant to the claim for all costs, including those originally invoiced to LF1. [35] After an initial discussion with Mr Wilfred, Mr Brown of Lexington Legal, at 9.53 pm on 3 June 2011, emailed Mr Wilfred a letter of engagement attaching what was described as a client agreement. The email was addressed to Harmon Wilfred, Trustee, Wigram Manor at the email address harmon@lafamia.com. It read: Hi Harmon, Attached is a draft agreement for you to consider, and if you accept those terms and conditions, I need you confirm [sic] that to happen. Presuming that will happen, I will see you Tuesday morning. [36] The letter of engagement referred to the basis on which work would be costed. It included the summary of the legal services Mr Brown expected to provide to Mr Wilfred, as referred to earlier. It included this section: Acceptance of the terms and conditions If you agree with and accept the information in this letter and the accompanying material, please sign below where indicated and return to me. If you let me know some other way (eg: by phone or email) that you want me to act for you, you will be bound by these Terms. [37] With the letter was a two-page document setting out the terms of engagement. At the head of the document, there was the highlighted statement
these terms of engagement apply in respect of all work carried out by Lexington Legal for you, unless we agree otherwise in writing. [38] Clause 7 of the terms of engagement stated: If the client is a company or body corporate then the person signing these terms personally guarantees payment of the account. If the client is a trust then each of the trustees (jointly and severally) are personally liable to pay our invoices. This guarantee will be a continuing guarantee and shall not be discharged by the settlement of account. [39] Mr Ballantyne acknowledged that clause 7 attempts to bind a director/trustee to a contract of guarantee in parallel to the primary obligations of the parties to the contract. That is clearly what was intended and required by clause 7. Clause 7 put Mr Wilfred on notice that, if he signed the acceptance of those terms and conditions on behalf of a company, he would be personally guaranteeing the liability of that company for costs it incurred in obtaining the legal services which it sought from Lexington Legal. That was consistent with the way in which Mr Wilfred and Mr Brown dealt with each other over the initial engagement and the problems that arose over costs in 2012. [40] Mr Brown s email that accompanied the letter of engagement and terms of engagement was reproduced earlier. His initial letter of engagement and associated terms of engagement were addressed to Harmon Wilfred. The letter was headed to Harmon Wilfred, Trustee, Wigram Manor but was written as if it was Mr Wilfred personally who had sought Mr Brown s assistance, who would be charged for the work done and who would have the relationship with Mr Brown. [41] Mr Wilfred responded in similar terms. His full email of 4 June 2011 is reproduced:
[42] As mentioned, the initial interim accounts were sent to Mr Wilfred personally. Mr Wilfred responded personally when non-payment of costs became a concern.
[43] It was understandable the solicitors required the security of Mr Wilfred being legally responsible for the costs given the apparent urgency with which they were having to act and uncertainty as to just which of Mr Wilfred s legal entities would be directly involved. [44] For Mr Wilfred to be liable on a guarantee, he had to sign a document accepting that obligation. That was required, firstly, in terms of clause 7 itself because it stated if the client is a company or body corporate then the person signing these terms personally guarantees payment of the account. [45] The signing was also required by s 27 of the Property Law Act. Section 27(2) states: (2) A contract of guarantee must be (a) in writing; and (b) signed by the guarantor. [46] In this case, the guarantee was recorded in writing in clause 7 of the terms of engagement. Lexington Legal says those terms were accepted in writing and signed through the email which Mr Wilfred sent on 4 June 2011 at 7.20 am. [47] Mr Ballantyne submitted that Lexington Legal s offer, as set out in the letter of engagement and terms of engagement, constituted an offer but the email of 4 June 2011 involved a qualified acceptance because acceptance was on behalf of just Wilfred Investments Limited, LF-2 and La Famia Foundation NZ. [48] I am satisfied there was a written contract in place when Mr Wilfred accepted the terms of engagement as set out in Lexington Legal s initial letter and associated terms of engagement. Lexington Legal s letter did not specify by name the particular legal entities it might be acting for in accepting instructions from Mr Wilfred. Mr Wilfred confirmed acceptance of the terms and conditions and specified the legal entities who would be the clients but, through his email, accepted the terms and conditions on which they would be the principal debtors. Those terms included clause 7 by which Mr Wilfred would be required to personally guarantee the liability of any company that had, through his signature, instructed Lexington Legal to act. If
his response of 4 June 2011 amounted to a signed acceptance of the terms and conditions, then pursuant to clause 7 he would be personally liable for costs incurred with this engagement. [49] If Mr Wilfred s email of 4 June 2011 was just a counter-offer, then it was a counter-offer that incorporated the terms of engagement which he had accepted. Those terms of engagement and his email of 4 June 2011 recorded in writing the terms of the guarantee. That counter-offer was accepted through Lexington Legal continuing to do the legal work Mr Wilfred required from it. [50] Apart from the email of 4 June 2011, there was no original handwritten signature from Mr Wilfred accepting the terms and conditions. Judge Neave found there was acceptance, as contended for by Lexington Legal, through applying the Electronic Transactions Act 2002. [51] Section 22 provides: 22 Legal requirement for signature (1) Subject to subsection (2), a legal requirement for a signature other than a witness signature is met by means of an electronic signature if the electronic signature (a) adequately identifies the signatory and adequately indicates the signatory s approval of the information to which the signature relates; and (b) is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required. (2) A legal requirement for a signature that relates to information legally required to be given to a person is met by means of an electronic signature only if that person consents to receiving the electronic signature. [52] Judge Neave noted that most email communications do not contain a replica signature and that one is normally left with the name at the foot of the communication typed in, in a way which indicates the identity of the sender and also that they are effectively accepting or acknowledging the contents of what appeared
above their name. The Judge referred to Miller J s discussion as to what was required in Welsh v Gatchell. 7 There, Miller J had noted: A signature may appear in any position, but it must govern the whole. A name, initials, or other mark that identifies the party to be charged may suffice as a signature. It need not be handwritten; in particular, it may be stamped or typed. [53] The email of 4 June 2011 was in the first person with the sender saying I agree with your terms and conditions and I look forward to working with you. It concluded best regards Harmon. He was further identified below as Harmon L Wilfred, Trustee La Famia Foundation NZ. I am quite satisfied that, with that email, Harmon Wilfred had identified himself as the signatory and had signed his acceptance of the terms and conditions, including clause 7, for the companies and trust he had namee, including LF-2. [54] As Mr Lester submits, there is no suggestion that either Mr Wilfred s name or parting address were automatically generated and thus incapable of being read as an objective index of consent. 8 Rather, they were a sign-off, appended with the intention of being bound by marking the document with this electronic signature. Positioned as it is, following Mr Wilfred s explicit agreement with Lexington Legal s terms and conditions, the signature is intended to (and does indeed) govern the document as a whole. 9 The email objectively indicates Mr Wilfred s acceptance of Lexington Legal s terms and conditions. [55] I am thus satisfied, as was Judge Neave, that the legal requirement for his signature, required by the Property Law Act and clause 7 itself, was met with an electronic signature which adequately identified Harmon Wilfred as the signatory and adequately indicated his approval of the information to which the signature related, namely, the acceptance of the terms and conditions on which Lexington Legal was prepared to act. I am also satisfied, as was Judge Neave, the signature was as reliable as is appropriate for the purpose for which it was required. 7 8 9 Lexington Legal Limited v Wilfred, above n 1, at [22], citing Welsh v Gatchell [2009] 1 NZLR 241 (HC) at [51]. Miharo Farm Ltd v Allan [2015] NZHC 1987 at [82], citing Welsh v Gatchell, above n 7, at [51]- [55]. Welsh v Gatchell, above n 7, at [51].
[56] It would be unrealistic to come to any other conclusion given Mr Wilfred s acceptance that he did accept the terms and conditions and had proceeded on the basis he had accepted the terms and conditions. [57] Mr Ballantyne also submitted that it was apparent from the email that Mr Wilfred had signed only in his capacity as a trustee of La Famia New Zealand because on the signature block he had been identified as Harmon L Wilfred, Trustee LFF NZ. Mr Ballantyne referred to a statement from Chambers J in the Court of Appeal in Vuletic v Contributory Mortgage Nominees Limited where he said: 10 there is a presumption that, if the signer purports to sign on behalf of a company or another, he or she is signing only in that capacity. Such presumption may be displaced by clear words within the contract or by extrinsic evidence from which may be inferred the signer s intention when affixing his or her signature. [58] He submitted this presumption should also apply to electronic signatures. It is quite clear in the circumstances of this case that any presumption that Mr Wilfred was signing just on behalf of that particular trust is displaced by the wording of the email itself, the letter of engagement and the terms of engagement to which it referred and the whole context in which Mr Wilfred engaged Lexington Legal. The email was from Mr Wilfred personally. He was authorising Lexington Legal to act and accepting the terms of engagement on behalf of the trust and the two other companies specifically mentioned in his email. In accepting the terms and conditions on behalf of LF-2, in accordance with clause 7, he was accepting that he personally guaranteed payment of the account. [59] The evidence thus established, as Judge Neave found, that Mr Wilfred had guaranteed payment of the costs for which LF-2 was liable. Ground Four The Judge erred in deciding the credit notes did not discharge the liabilities of the principal creditors [60] Judge Neave said the creditor is entitled to pursue the guarantor on the underlying liability without a debtor having necessarily been invoiced for that liability. He said a credit note did not destroy the underlying obligation to pay the 10 Vuletic v Contributory Mortgage Nominees Limited (2006) 7 NZCPR 552 (CA).
fees. He said the credit note did not represent that there was no longer any liability and that there had been no suggestion of estoppel providing a defence in this case. Judge Neave compared the issuing of a credit note to the provision in s 306(d) of the Insolvency Act 2006 which indicated that a release from bankruptcy did not discharge a guarantor from liability in respect of the bankrupt s debt. [61] A guarantor is discharged if the creditor unconditionally releases the principal debtor without the guarantor's consent. 11 In this case, there has been no unconditional release of the principal debtors (the companies and trust) by Lexington Legal. The credit notes do not extinguish the underlying obligation to pay fees; they are merely cancellations of invoices. Accordingly, none of the rationales underpinning this rule of discharge apply to prejudice Mr Wilfred and he remains personally liable. Mr Wilfred s obligation to meet Lexington Legal s costs arises whether an invoice exists or not. [62] Nor was this a situation of implicit release, discharging the guarantor where the release of the principal debtor is not explicit, but a legal consequence of a transaction. 12 [63] Further, a mere covenant not to sue the principal debtor does not discharge a guarantor, especially if subject to the express reservation of remedies against the guarantor. 13 While appending credits for the invoices of 3 and 4 November 2011, Mr Brown s letter of 28 March 2014 explicitly stated Lexington Legal s intention to pursue Mr Wilfred for the debts of the debtor companies. Even if these credits were viewed as a covenant not to sue the La Famia companies and trust, Mr Wilfred is not discharged from his personal liability. [64] In this instance, credit notes were issued on the two invoices addressed to LF- 2 (in liquidation) and on the other addressed to LF-1. That was done in conjunction with a letter to the solicitors for Mr Wilfred advising that he was being held personally liable for those debts and payment would be required from him 11 12 13 Laws of New Zealand Guarantees and Indemnities (online ed) at [207]; Commercial Bank of Tasmania v Jones [1893] AC 313 (PC); Orchiston v Schlaepfer [1924] NZLR 1170 (SC). At [210]. At [211], citing Price v Barker (1855) 4 E & B 760, (1855) 119 ER 281. See also Black v ASB Bank Ltd HC Auckland CIV-2010-404-3252, 8 July 2011 at [33].
personally. In those circumstances, there was no representation that the underlying liability for legal costs arising from the work that had been done and set out in those three invoices was being cancelled or that Mr Wilfred was being released from his liability as guarantor in respect of the liability for those costs. Judge Neave was correct to describe it as an exercise in bookkeeping which did not invalidate the underlying obligation. He was correct to hold that no estoppel had arisen. [65] In summary, nothing of Lexington Law s conduct as creditor warrants the release of Mr Wilfred as guarantor. Ground Five The Judge erred in finding there was no evidence that Mr Wilfred and Lexington Legal had made a mistake such that the Contractual Mistakes Act 1977 would apply [66] Mr Ballantyne argued that it was open for the Court to accept that Mr Wilfred had made a mistake in that he had not intended to be personally bound by guarantee, had not intended or thought that, in accepting the terms and conditions, he was signing the contract for his personal guarantee. Mr Ballantyne argued that Mr Brown and Lexington Legal knew that Mr Wilfred was acting under such a mistake. [67] There was no evidence from Mr Wilfred as to his making such a mistake or proceeding on that basis. It was not suggested in cross-examination of Mr Brown that he knew Mr Wilfred had engaged Lexington Legal on the basis of such a mistake. [68] Mr Wilfred had no defence under the Contractual Mistakes Act. There is no evidence of any qualifying mistake by Mr Wilfred or Mr Brown which was known by the other party, whether unilateral, mutual, or different mistakes about the same subject matter. 14 Even if there were such a mistake, there is no evidence that this influenced Mr Wilfred to enter the contract. [69] Section 6(2) excludes relief under s 7 where the mistake is as to the interpretation of the terms of the agreement in respect of which relief is sought. It is, 14 Contractual Mistakes Act 1977, s 6(1).
by now, clear that a party who has mistakenly concluded or assumed that the written agreement did not mean what it said has made a mistake as to interpretation. 15 [70] In his initial response to the claim, Mr Wilfred did assert that he had not signed an acceptance of the terms and conditions in ways that constituted his accepting he was a guarantor. That is not the same as putting forward evidence that, when he signed those documents, he was mistaken as to the effect of what he was doing. The requirement for a personal guarantee from him as the person signing on behalf of LF-2 was clearly set out in the terms and conditions. He signed an acceptance of those conditions on behalf of LF-2. In evidence, Mr Wilfred acknowledged that he had read the terms and conditions. He was an experienced businessman, involved with what seems a rather complex web of companies and a trust. He understood the terms and conditions and was sophisticated enough to suggest in his email of 4 June 2011 that, while he was accepting of the obligation to pay Lexington Legal s costs, it might consider gifting a portion of its costs to his trust La Famia Foundation NZ. Ground Six The Judge erred in his finding that Mr Wilfred had not made out a defence of non-est factum [71] To make out this defence, Mr Wilfred had to establish that: 16 1. he signed the document accepting the terms and conditions believing he had not agreed to personally guarantee the liabilities of the instructing companies and trust; 2. his acceptance of the terms and conditions had a radically different character or effect, thus creating a wholly different result from that which he had understood; 15 16 Shotter v Westpac Banking Corp [1988] 2 NZLR 316 (HC) at 331, Wylie J noting that his reasoning verged on an aspect of the non est factum doctrine (the apparent discrediting of the former distinction between the character and the contents of a document), but did not confuse the two issues; approved obiter in Paulger v Butland Industries Ltd [1989] 3 NZLR 549 (CA) at 554 and Mechenex Pacific Services Ltd v TCA Airconditioning (NZ) Ltd [1991] 2 NZLR 393 (CA) at 398. Bradley West Solicitors Nominee Company Ltd v Keeman [1994] 2 NZLR 111(HC) at 120-121, per Tipping J, referred to by Kós J in Radius Residential Care Ltd v Krishna [2013] NZHC 2886 at [32].
3. his mistaken belief must have resulted from an erroneous explanation or description of the document given to him by someone else; and 4. notwithstanding his error, Mr Wilfred could show he acted with all reasonable care in the circumstances. [72] The requirements of a successful non est factum plea are strict. 17 In Chiswick Investments v Pevats, Gallen J held that signatories must make it clear that the document is being signed only on behalf of the company, and not in a personal capacity. 18 Gallen J held that the capacity in which the person has signed is to be derived from the document itself and not from the intention of the parties. The intention of the guarantor in signing is irrelevant. The scheme of the document as a whole and the place where it is signed or witnessed may mean that a signatory is to be held to have signed in a dual capacity. [73] The present case is not one of those comparatively unusual cases, like Chiswick v Pevats, where a plea of non est factum is entitled to succeed. 19 Mr Pevats had witnessed the placing of the company seal on a loan, and succeeded in his defence because he showed that there was never an intention to sign a guarantee, but only a belief that the company s seal was being attested. Further, the document was not signed in the appropriate place for a guarantor and there was no relevant negligence. 20 [74] Again, this potential defence fails because there was no evidence that Mr Wilfred was acting under any mistaken belief. There was no evidence that he was misled as to what clause 7 required. There is no evidence that he had any mistaken belief resulting from any explanation or description of the document that had been given to him by someone else. There was no evidence that, if he did make a mistake, he had nevertheless taken all reasonable care in reading and understanding the terms of engagement and in providing his response. He had the knowledge and understanding sufficient to specify the companies and trust which would be bound 17 18 19 20 Bank of New Zealand v Maas-Geesteranus (1991) 4 PRNZ 689 (CA) at 693, citing Saunders v Anglia Building Society [1971] AC 1004, [1970] 3 All ER 961 (HL). Chiswick Investments v Pevats [1990] 1 NZLR 169 (HC). At 176. At 176.
by the terms of engagement. It was plain from clause 7 that, in indicating their acceptance, he would be personally guaranteeing their liabilities. He made no issue then as to the guarantee which Lexington Legal required. Lexington Legal then did the work required of it assuming, justifiably, that Mr Wilfred had guaranteed the liability that any of those entities had for legal costs relating to that work. [75] Judge Neave was right to reject the non est factum defence, it cannot vitiate Mr Wilfred s guarantee. Result [76] Judge Neave made no material error in giving judgment for Lexington Legal against Mr Wilfred. The appeal is accordingly dismissed. [77] It was agreed these proceedings would be category 2 proceedings for the purposes of r 14.3. Lexington Legal is entitled to costs for the appeal on that basis. Memoranda can be filed if there is no agreement. Solicitors: Canterbury Legal, Christchurch D M Lester, Barrister, Christchurch.