Montgomerie v Montgomerie

• Jurisdiction: New Zealand
• Judge: Brewer J
• Judgment Date: 28 January 2020
• Neutral Citation: [2020] NZCA 3
• Court: Court of Appeal
• Docket Number: CA245/2019
• Date: 28 January 2020

Between

Andrew Laurie Montgomerie

First Appellant

Mia Bella Trustee Limited

Second Appellant

and

James Lester Montgomerie

Respondent

[2020] NZCA 3

Court:

Goddard, Brewer and Gendall JJ

CA245/2019

IN THE HIGH COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Banking and Finance — loan agreement — time of the essence — frustration

Counsel:

W G C Templeton for First and Second Appellants

D J Neutze and A J Woodhouse for Respondent

• A The appeal is dismissed.

• B The first appellant must pay the respondent indemnity costs in accordance with cl 6 of the 2011 agreement.

• C The second appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Brewer J)

Introduction

1 The respondent (James) is the brother of the first appellant (Andrew). Andrew, a property developer, fell into financial difficulty as a result of the global financial crisis of 2008. James gave Andrew a loan to help him. Andrew has failed to repay the loan. Over the years, there were negotiations which resulted in varied or further agreements as to how the loan would be repaid. But it was not repaid (although Andrew did reduce it by $200,000 in March 2017). 1

2 Eventually James ran out of patience. In October 2018 his solicitors demanded that Andrew pay the outstanding amount of USD 865,123.72 plus interest. Andrew asked for an extension to May 2019.

3 James issued proceedings claiming the USD 865,123.72 plus interest as well as costs on a solicitor-client basis. He applied for summary judgment on his claim. Andrew defended the claim on the basis that the latest agreement between him and James, on his interpretation, means he does not yet have to repay the loan and, besides, the doctrine of frustration applies.

4 On 8 May 2019, Associate Judge Smith found that Andrew has no defence to James's claim and entered summary judgment against him. 2

5 Andrew now appeals Associate Judge Smith's decision. His case, broadly, is that his interpretation of his latest agreement with James is the correct one; so, he has no immediate obligation to repay the loan and thus Associate Judge Smith erred in entering summary judgment for James. 3 He also says the latest agreement is frustrated in whole or in part, with the result that he is not required to make any further payments under it.

The agreement

6 The agreement in question is dated 9 March 2017. It is intituled:

Agreement to renegotiate and repay debt from refinance of mortgaged property and from sale of that and other properties

7 Having recited the history of the various agreements between the brothers, the agreement provides that James can require immediate payment of all outstanding monies “in the event that the Capped Debt … is not repaid in accordance with clauses 2–5 below or if there is any material breach of the following clauses 2–4.”

8 Clause 2.1 requires Andrew to pay James $200,000 on or before 28 March 2017 (which he did).

9 Clause 2.2 requires Andrew to pay James the net proceeds of sale of a property at Neil Avenue and one at Hunterville Road. Andrew undertook to continue to market for sale the properties, but there is no time limit specified.

10 Clause 2.3 requires payment: 4

2.3 of the net proceeds of sale (up to an amount required to repay the Capped Debt in full) from settlement of the Units being developed by Alberton Lane Limited at Alberton Lane, Mt Albert, Auckland, which Andrew anticipates will be completed/settled by 30 April 2018, but with such payment of full net proceeds to (sic) made to James no later than 15 October [2018] (time being of the essence) …

11 The capped debt was a concession by James. Clause 3 provides:

3. James agrees that in consideration for Andrew procuring the assistance of Foy & Halse and committing his related entities to the payments promised in 2.2 and 2.3 above and strictly on the basis that James receives the payments referred to in 2.1 and 2.3 above (and in 2.2, if the Hunterville Road and/or Neil Avenue properties are sold before Alberton Lane), James (and Andrew) agrees that the amount to (sic) repaid by Andrew will be “capped” as at 15 February 2017 at NZ$1 million (the “Capped Debt”) …

12 Clause 4 is also significant:

4 James, and Andrew, agree and acknowledge that, if contrary to Andrew's estimate James is not repaid in full through payment to James from the proceeds of the Alberton Lane Development (or has otherwise paid the Capped Debt), but provided James has, by 15 October 2018 (time being of the essence) received the payment referred to in clause 2.1 (or from clause 5) plus a substantial payment from the proceeds of the Alberton Lane Development (and is satisfied on reasonable grounds that Andrew has accounted to him fully for the full net proceeds of those sales), then James and Andrew will negotiate in good faith for the payment by Andrew of the balance of the Capped Debt, either through the sale of the Hunterville Road and/or Neil Ave properties, if not sold prior, or otherwise.

The High Court decision

13 Associate Judge Smith held there were two issues for him to decide: 5

(1) Have the defendants breached their obligations under the March 2017 Agreement, so that the plaintiff became entitled to demand payment of the Total Debt,7 minus the $200,000 paid on 28 March 2017, plus further interest to the date of judgment?

(2) Is it reasonably arguable for the defendants that the “events of frustration” referred to at paragraph [47] of this judgment made it impossible for the defendants to perform, or otherwise frustrated, the March 2017 Agreement, so that the defendants were discharged from further performance of the March 2017 Agreement?

7 As at 15 February 2017, US$921,264.31, plus agreed costs of NZ$4,750 and further costs of NZ$12,119.09, all as defined in cl I of the Background section of the March 2017 Agreement.

14 On the first issue the Associate Judge decided that reading the agreement in context provides a clear conclusion that Andrew had an obligation to pay James the capped amount by 15 October 2018, time being of the essence. 6 This obligation was subject only to cl 4. 7

15 Associate Judge Smith summarised his view of the agreement:

[70] In my view the essential purpose of the March 2017 Agreement was to define a particular set of circumstances in which the plaintiff would be prepared to accept in full satisfaction a sum that was much lower than the debt that was owed to him. Part of that definition was full payment of the capped

debt by 15 October 2018, but how that would be achieved was the defendants' concern, not the plaintiff's. The defendants would lose the benefit of having the debt capped at the lower amount if it was not paid by 15 October 2018.

16 On the second issue, frustration, the Associate Judge reviewed the law and held (in broad summary) that the agreement defined particular circumstances in which the debt Andrew owed James could be capped at a much lower figure and repaid at that figure. 8 The cut-off date for paying the capped sum was 15 October 2018. Although the agreement imposed obligations on Andrew to apply three potential sources of money towards payment of the debt, including the net proceeds of sale of the Alberton Lane development, completion of that development was not a principal purpose of the agreement. 9 Accordingly, the inability of Andrew to complete the Alberton Lane development in time to apply the proceeds to the capped debt was not a basis for frustration of the agreement. 10

17 Associate Judge Smith found for James on both issues and entered summary judgment accordingly. 11

The appeal

The first issue: was Andrew in breach of the agreement?

18 Mr Templeton for Andrew submits the Associate Judge erred in three ways:

• (a) The Associate Judge was wrong to hold that the principal purpose of the agreement was to “define particular circumstances in which the debt … would be capped at the significantly lower figure of NZ$1 million”. 12 In Mr Templeton's submission the agreement's principal purpose was the satisfaction of the capped debt by clearly

  defined property sales and raised finance. The vast majority of the capped debt was to come from the Alberton Lane development. 13

• (b) The Associate Judge was in error when he held: 14

  [65] In my view, the Background section of the March 2017 Agreement, and in particular cl H, provides the key to the essential question, which is whether the plaintiff could demand payment of the full debt in circumstances where none of the townhouses had been sold before 15 October 2018.

  [66] Clause H first recorded the first defendant's offer to settle for the capped amount, by making or procuring payments to the plaintiff from three named sources. The clause then recorded the plaintiff's willingness to accept the capped amount in full settlement, provided payment was made “by the above means”. However, if payment was not made “by the above means”, the plaintiff would become entitled to enforce payment of the original debt, plus interest and costs.

  Mr Templeton submits that cl H was merely to provide information about the background and purpose of the agreement, rather than to form a part of it. He notes that cl J follows it and refers to “the following agreement”, which he says clearly excludes cl H itself from constituting part of the agreement. He says there would be conflicts with other parts of the agreement if cl H were to have a legal effect. 15

• (c) The Associate Judge erred in holding that the date of 15 October 2018 was a deadline for the payment of the capped debt. Mr Templeton submits that date related only to the receipt of “sale proceeds” from the Alberton Lane development. However, even for that purpose the date was not a deadline. It was to be extended if by that date part-payment had been made, namely the $200,000 plus a substantial payment...