Renner v Renner

• Jurisdiction: New Zealand
• Judge: Brewer J
• Judgment Date: 11 June 2015
• Neutral Citation: [2015] NZHC 1315
• Docket Number: CIV-2013-470-569
• Court: High Court
• Date: 11 June 2015

Between

Ian Rodney Renner

Plaintiff

and

Catherine Mary Renner

First Defendant

Ian Luke Dustin

Second Defendant

[2015] NZHC 1315

CIV-2013-470-569

IN THE HIGH COURT OF NEW ZEALAND

TAURANGA REGISTRY

Claim by guarantor against co-guarantors for reimbursement of the amount paid to settle with a lender after the calling up of a guarantee — the plaintiff and the first and second guarantors had been involved in a property venture — due to problems with subdivision of the property, the development did not proceed and the lender called up its loan pf $3 million — the plaintiff negotiated to purchase the property at $1.6 million and paid a further $1,320,000 in full and final settlement of his obligations under the guarantee — first defendant paid the lender $380,000 in full and final settlement of her obligations under the guarantee — within months of his settlement, the plaintiff had managed to subdivide the property and made a considerable profit on the sale of the lots — whether the plaintiff had purchased the property at an undervalue so as to inflate the amount of his guarantee payment so as to gain greater contributions from the defendants, so that equity would hold the profit to be inequitable

Counsel:

C T Gudsell QC and C F Murphy for Plaintiff

W T Nabney and D P Weaver for First Defendant Second Defendant in person

JUDGMENT OF Brewer J

Introduction

1 Mr Renner, Mrs Renner and Mr Dustin were in a business venture together. The aim of the venture was to acquire, develop and sell for profit land at Te Puna, Tauranga (“the property”). The venture did not prosper. The financier, FM Custodians Ltd (“FMC”), called up its loan. It also called on Mr Renner, Mrs Renner and Mr Dustin to pay the money owed to it under the terms of a deed of guarantee and indemnity. Pursuant to this deed, the parties jointly and severally guaranteed the venture's debt to FMC.

2 At the beginning of the venture, Mr Renner and Mrs Renner were married. They had separated by the time they entered into the guarantee.

3 Mr Renner was the only one of the guarantors who could call on substantial assets to meet obligations under the guarantee. He negotiated an outcome with FMC whereby he bought the property for $1,600,000 and paid a further $1,320,000 to FMC in full and final settlement of his obligations under the guarantee.

4 FMC subsequently gained summary judgment against the venture company, Mrs Renner and Mr Dustin for $465,817. Mrs Renner eventually paid $380,000 in full and final settlement of her obligations under the guarantee. Mr Dustin became bankrupt, but the bankruptcy was annulled six months later. He has paid nothing. The venture company went into liquidation and paid nothing.

5 Mr Renner wants Mrs Renner and Mr Dustin (if he has the financial ability) to share equally with him the burden of paying out on the guarantee. That means that Mrs Renner and Mr Dustin would have to reimburse him for their shares of the $1,320,000 paid by him.

6 Mrs Renner and Mr Dustin do not think they should pay Mr Renner anything at all. Their case is that Mr Renner deliberately arranged his settlement with FMC to reduce the sum paid for the property below market value so as to inflate the sum paid on his guarantee, the purpose being to maximise the contributions he can seek from Mrs Renner and Mr Dustin.

The law

7 Where a number of people have guaranteed, jointly and severally, a debt then the person owed the debt can take action under the guarantee against any or all of the guarantors as seems most expedient for recovering the debt. 1 If this means that a guarantor ends up paying more than an equal share as between all the guarantors, then the overpaying guarantor can seek contribution from the other guarantors. 2 He can do so in the way which is most expedient. For example, if one co-guarantor has assets but the others do not, then the overpaying guarantor can focus on the guarantor with the assets. 3 The underlying principle is that, unless the parties have agreed otherwise, contributions by co-guarantors to the payment of their guaranteed sum should be equal. 4 Contribution is founded firmly upon equitable principles. 5

8 The law of equity does not, however, allow an overpaying guarantor to make an inequitable profit through seeking contributions from co-guarantors. 6 In this case, the legal arrangement between Mr Renner and FMC is clear. There has been a settlement involving Mr Renner purchasing the property for $1,600,000 and discharging his obligations under the guarantee for $1,320,000. But equity will not allow him to pursue Mrs Renner and Mr Dustin to reimburse him for the entirety of their equal shares of the $1,320,000 if he has, without reasonable care, inflated that figure by purchasing the property at an undervalue. Their liability to him will be reduced to the extent that the property was sold undervalue. 7 But if he has contrived

to purchase the property at an undervalue, equity will deny him the right to contribution altogether. 8

Issues

• (a) Did Mr Renner inflate the amount of his guarantee payment so as to gain greater contributions from Mrs Renner and Mr Dustin?

• (b) To what, if any, contributions from Mrs Renner and Mr Dustin is Mr Renner entitled?

Did Mr Renner inflate the amount of his guarantee payment so as to gain greater contributions from Mrs Renner and Mr Dustin?

9 The evidence is that Mr Renner, through his solicitors, negotiated the agreement resulting in him purchasing the property and discharging his guarantee. Initially, FMC wanted a settlement figure of $2,920,000 to be paid as the purchase price for the property. Mr Renner's lawyers made it clear that Mr Renner wanted to retain the ability to seek contribution from his co-guarantors. Accordingly, the settlement was to be structured around a payment for the property and a separate payment on the guarantee.

10 FMC commissioned two valuations of the property:

• (a) One of the valuations was by Mr Middleton. It valued the property as a whole at $1,600,000 (plus GST, if any), with a forced sale value of $1,350,000 (plus GST, if any).

• (b) The second valuation was by a Mr Haden. The valuation was $3,110,000 (excluding GST), with a forced sale value of $1,555,000 (excluding GST).

11 The reason for the difference between the valuations was that Mr Haden first valued the property as though it had been fully subdivided. That was never going to happen. The reason the business venture failed in the first place was the enormous resource management difficulties in gaining subdivision and related planning approvals. Therefore, it was the forced sale value which was relevant.

12 The main reason that Mrs Renner and Mr Dustin cry foul is that within a matter of months of settling the deal with FMC, Mr Renner subdivided the property into three lots and sold them at a considerable profit. The settlement of the deal with FMC took place on 11 October 2011. On 17 January 2012, Mr Renner sold one of the three lots for $275,000. On 8 May 2012, Mr Renner sold an option to purchase the largest lot to Mr Donne for $175,000. The sale price pursuant to the option was $2,000,000. On 6 November 2013, Mr Renner transferred the third lot (which had a house on it) to a trust established by him and his new partner, for $675,000. The total value of the sales was, therefore, $3,125,000 plus GST. On these figures, Mr Renner made a profit of $1,525,000. If his guarantee payment is deducted, the overall profit is $215,000.9

The negotiation with FMC

13 FMC issued its letters of demand on 19 April 2011. These were followed later that month by notices under the Property Law Act 2007. FMC intended to sell the property as mortgagee. The venture company had no ability to repay FMC. Neither did Mrs Renner nor Mr Dustin. Meetings were held, and it was clear that only Mr Renner had a chance of negotiating a resolution of his position as guarantor because his Trust owned a commercial property with equity which could be made available.

14 All the guarantors wanted to avoid a forced sale. Mrs Renner and Mr Dustin had authorised a real estate firm to market the property during 2010 and 2011, both as a whole and as proposed sections. No sales resulted. On 24 February 2011, the same firm, funded by FMC, attempted to auction the part of the property comprising

the two smaller lots. 10 No bids were received. A forced sale was likely to result in a low price which would directly affect the guarantors' liability under their guarantee

15 In May 2011, FMC commenced summary judgment proceedings in reliance on the guarantee against the parties. The amount claimed was $3,039,355.58.

16 On 12 July 2011, Mr Renner's solicitor made a proposal to FMC. The details do not matter since they bear little resemblance to the final agreement. What is relevant is that the solicitors stipulated that Mr Renner's “subrogation rights against co-guarantors [be] preserved …”. 11 In his evidence, Mr Renner said it was important to him that if he had to use his personal assets, or assets owned by his Trust, to settle his guarantee then he needed to preserve his ability to seek contribution from Mrs Renner and Mr Dustin.

17 Further correspondence occurred between the lawyers representing FMC and Mr Renner. A meeting was held in Taupo on 23 July 2011. On 29 July 2011, Mr Renner's lawyer wrote to FMC offering to settle Mr Renner's obligation as follows: 12

• 3. We confirm the following offer to settle this matter on our client's behalf is $2.92 million. Our clients' preferred structuring is as follows:

  • (a) Ian Renner Trust purchases the Lochhead Road property. The property will need to be purchased at a valuation to be acceptably determined by both parties. The valuation would need to reflect the current value of the...