Montgomerie v Montgomerie

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeBrewer J
Judgment Date28 January 2020
Neutral Citation[2020] NZCA 3
Date28 January 2020
Docket NumberCA245/2019

[2020] NZCA 3

IN THE HIGH COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Court:

Goddard, Brewer and Gendall JJ

CA245/2019

Between
Andrew Laurie Montgomerie
First Appellant
Mia Bella Trustee Limited
Second Appellant
and
James Lester Montgomerie
Respondent
Counsel:

W G C Templeton for First and Second Appellants

D J Neutze and A J Woodhouse for Respondent

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

The Court held that James had agreed to accept a lesser amount than he was owed (the capped debt) from Andrew so long as it was paid by 15 October 2018, with time being of the essence. If by 15 October 2018 the capped debt was not repaid but it had been reduced, first by the $200,000 and second by a substantial payment from the proceedings of the development, then a good faith negotiation for the payment of the balance could take place. No payment other than the $200,000 was made. The agreement made clear that if the capped debt was not repaid pursuant to the agreement then James was entitled to demand the immediate repayment of the total debt. There was nothing in the capped sum which was inconsistent with the relevant operative parts of the agreement.

It was not arguable that the agreement was frustrated as a result of the difficulties encountered by Andrew in completing the property development. The possibility that the units would not be sold and no proceeds would be paid to James in reduction of the debt owed to him had been contemplated by the agreement. The agreement expressly provided that if payment of the proceeds of sale of the units had not occurred by 15 October 2018, time being of the essence, the cap on the amount payable would no longer apply and the full debt would be payable. The parties had contemplated the possibility of non-payment, for whatever reason, and made had provision for that scenario. Nor had the difficulties encountered in completing the development significantly changed the nature of the parties' contractual rights or obligations from what the parties could reasonably have contemplated at the time the agreement was entered into. Nor was it arguable that it was unjust to hold the parties to the agreement.

The argument that the agreement was frustrated in part failed for the same reasons. There was no provision or group of provisions in the agreement in respect of which the test for frustration was arguably met. Frustration operated in an all-or-nothing fashion. Section 68 Contract and Commercial Law Act 2017 (“CCLA”) (Court must treat performed part of contract that can be properly severed as separate contract) limited the operation of that common law principle to cases where a severable part had been performed before the frustrating event occurred. It was not arguable that the obligation to make a payment in reduction of the debt out of the proceeds of sale of the development by 15 October 2018 was, or had been included in, a severable part of the agreement.

The appeal was dismissed.

  • 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...

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