Wire by Design Ltd ((in Receivership) and (in Liquidation)) v Commercial Factors Ltd
| Jurisdiction | New Zealand |
| Judge | French J |
| Judgment Date | 16 December 2015 |
| Neutral Citation | [2015] NZCA 630 |
| Docket Number | CA531/2015 |
| Court | Court of Appeal |
| Date | 16 December 2015 |
[2015] NZCA 630
Randerson, French and Kos JJ
CA531/2015
IN THE COURT OF APPEAL OF NEW ZEALAND
Application for leave to appeal against a High Court (HC) decision on appeal that the parties had entered into a contract that was binding on the parties and subsequent assignees — the parties had into a written debt factoring agreement — however the respondent argued that the applicant was in fact bound by an earlier agreement entered into with other entities in its group prior to the applicant's incorporation — the earlier agreement contained terms that were not mentioned in the written agreement, including payment of a break fee for early termination — the HC agreed that there had been an earlier agreement but found that it had been reached at a different date to that pleaded by the respondent — the HC held that the written agreement could not be interpreted as releasing the applicant from its obligations under earlier agreement because to do so would be to construe the agreement in a way contrary to the clear intention of the parties — whether there had been a breach of natural justice as the HC decision was based on matters that were not pleaded, not argued and not raised with counsel during the hearing — whether the HC had erred by failing to take into account that the terms of the subsequent written agreement were inconsistent with the earlier agreement.
K J Crossland for Applicants
P J Dale for Respondents
A The application for leave to appeal is declined.
B The applicants are jointly and severally liable to pay costs to the respondents Commercial Factors Ltd and Commercial Finance and Securities Ltd of $26,700 together with disbursements subject to:
(a) the liability of David Schnauer being limited to the assets of the Hadley Wright Family Trust; and
(b) the liability of the first applicant being limited to the amount payable for costs for a standard application on a band A basis together with usual disbursements.
JUDGMENT OF THE COURT
REASONS OF THE COURT
(Given by French J)
Wire by Design Ltd (Wire) and associated parties wish to appeal a decision of the High Court given by Moore J. 1 Leave is required under s 67 of the Judicature Act 1908 because this would be a second appeal, Moore J's decision being itself an appeal from the District Court. 2
Leave is sought from this Court because, in a separate leave decision, Moore J declined to grant leave to appeal. 3
The respondents, Commercial Factors Ltd, Commercial Factors and Finance Ltd and Commercial Finance and Securities Ltd (Commercial Factors), 4 are in the business of debt factoring. In 2008 Commercial Factors began providing debt factoring services to a group of companies called the Tawil Group, owned and operated by Mr Wright, the second applicant, and his interests.
The applicant Wire is one of the companies in the Tawil Group.
On 23 November 2010 Commercial Factors and Wire entered into a written debt factoring agreement. Commercial Factors claimed Wire was bound by an earlier agreement Commercial Factors had entered into with other Tawil entities before Wire was incorporated. The agreement was said to be recorded in an email of 27 July 2010 sent by Commercial Factors to Mr Wright. One of the terms of the alleged agreement was that the Tawil entities would remain factoring with Commercial Factors for a further minimum period of two years and pay a break fee of $100,000 should the factoring be discontinued before the two years expired.
On Commercial Factors' version of events, the obligation to pay the break fee was part of a deal designed to ensure that a valuable leasehold interest held by another Tawil company facing liquidation was preserved by assigning it to a different entity in the group. The leasehold interest was particularly valuable because the lessor, Transit New Zealand, wanted to use the land for the construction of a highway and, accordingly, significant compensation would be payable to the lessee under the Public Works Act 1981 for the loss of its leasehold interest.
Although it was originally intended the entity that would take over the lease and enter into factoring arrangements with Commercial Factors would be a Tawil company called Eagle Wire Products Ltd (Eagle), it ended up being Wire. Other terms in the agreement Commercial Factors alleged had come into existence included an obligation on the part of Commercial Factors to pay the rent arrears owing under the lease so that the lessor would consent to the assignment of the lease to a different Tawil entity.
Wire did cease using Commercial Factor's services before the expiry of the two year period and a dispute arose as to whether a break fee was payable.
Commercial Factors issued proceedings in the District Court against Wire for recovery of the $100,000. It also sought recovery from Eagle, Mr Wright and his family trust on the basis they had entered into “all obligations” guarantees under which they guaranteed Wire's obligations to Commercial Factors. Those deeds of guarantee were signed on 23 November 2010. 5
We pause here to note that Eagle, which was in receivership and liquidation, was not represented in the District Court and has taken no part in the appeal process.
The claim in the District Court was heard by Judge Mathers.
Judge Mathers rejected Wire's argument that the email of 27 July 2010 was only a conditional offer that was never accepted. 6 She held the email recorded an oral contract that had been concluded the previous day at a meeting. In response to another argument raised by Wire, Judge Mathers found the contract had endured and, although Wire was not an original party to the agreement, it had become a party by assignment in November 2010. 7 The Judge recorded that no issue had been taken with the validity of the guarantees, 8 and entered judgment in favour of Commercial Factors against all the parties sued.
The Judge's finding of a concluded oral contract on the terms alleged by Commercial Factors was also sufficient to dispose of a counter-claim Wire had filed. This primarily related to the deduction of monies from Wire's account by Commercial Factors for a success fee of $20,000 due under the oral contract.
In a later costs decision, Judge Mathers dismissed an application by Commercial Factors for indemnity costs but awarded costs on a 2B scale basis. 9
Dissatisfied with this outcome, Wire, Mr Wright and his family trust appealed to the High Court. Commercial Factors cross-appealed the Judge's refusal to award it indemnity costs.
In the High Court, Moore J disagreed with Judge Mathers' analysis of the 27 July 2010 email. In his view, the email was inconclusive and in itself insufficient evidence on which to conclude the parties had reached agreement on all the necessary terms and conditions. 10 Correctly construed, it was an offer that required only Mr Wright's agreement to make it binding. Justice Moore further found that in a subsequent email of 2 August 2010, Mr Wright did agree to all the terms contained in the 27 July email (including the break and success fees), except for one term. The one term was a provision that Commercial Factors would be assigned the benefit of any future rental subsidy or differential payable by the lessor as a result of the lessee having to relocate to more expensive premises.
In his email, Mr Wright explained why he could not agree to this and asked Commercial Factors to abandon its demand for an assignment of the rent differential. In the Judge's assessment, because Mr Wright's email of 2 August 2010 did not agree to all terms, it amounted to a counter-offer, which Moore J went on to find was accepted by Commercial Factors in a letter dated 3 August 2010. 11
Justice Moore therefore concluded that on 3 August 2010 a binding contract on the terms and conditions contained in the 27 July email (excluding the provision in the email relating to the rent differential) came into existence.
The Judge went on to find the agreement was intended to bind not only the existing Tawil lessee but also any other Tawil entity that might later be assigned the lease, with novation to occur on assignment of the lease. 12 It followed that novation must have occurred on 22 or 23 November 2010 when the assignment of the lease to Wire was signed.
The Judge's finding that the agreement came into existence on 3 August 2010 meant it was unnecessary for him to consider another argument that had been raised in the District Court and rejected by Judge Mathers.
The argument in question was founded on repeated references in the correspondence between the parties to the need for haste and the requirement that the lease be assigned by 3 August 2010. The significance of that date was that on 4 August 2010 the liquidation proceedings against the existing lessee were due for mention in the High Court. As it transpired, the liquidation proceedings did not proceed on 4 August but were adjourned. Wire, however, argued that time was of the essence and that any agreement was conditional on the lease being assigned by 3 August 2010. The non-fulfilment of that condition meant the contract came to an end.
In rejecting that argument, Judge Mathers ruled the contract was not conditional. 13 In the High Court, having found the agreement only became binding on 3 August, Moore J held it was “clear that any condition that the lease be assigned by that date had been waived”. 14
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