MARTIN LEO COFFEY v FREDERICK HERBERT MORRIS & ANOR [2001] NZCA 114 (2 April 2001)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca 66/00

	between	martin leo coffey
		Appellant

	and	FREDERICK HERBERT MORRIS
		First Respondent

	AND	PETER MARTYN ROBERTS
		Second Respondent

Hearing:	22 March 2001
Coram:	Keith J Paterson J Fisher J
Appearances:	A R J Bowers and S K Fulford for the Appellant P F Whiteside for the Respondents
Judgment:	2 April 2001

judgment of the court delivered by fisher j

Introduction

[1] This appeal is about a claim to contribution between judgment debtors. One judgment debtor, the appellant Mr Coffey, claims contribution from two others, the respondents, Mr Morris and Mr Roberts. DFC Financial Services Ltd had obtained judgment against the three for about $14 million arising from guarantees they had provided for the debts of a failed company Brookstock No. 17 Ltd. Following the judgment Mr Coffey and his wife paid DFC $4,927,185. Mr Coffey's proceedings for a recovery of contribution of $1,453,204 from each of his co-debtors failed in the High Court. He now appeals.

Factual background

[2] Brookstock gave a debenture to DFC. It was guaranteed by Messrs Coffey, Morris and Roberts. It was also guaranteed by Kearns Corporation Ltd of which Mr Coffey was a director. Both Brookstock and Kearns financially collapsed. A series of claims and proceedings followed:

[a] In December 1988 Mr and Mrs Coffey applied to the Family Court for orders dividing their property under the Matrimonial Property Act 1976 the value of which exceeded $8 million. By orders of 22 December 1988 and 7 February 1989 Mrs Coffey finished up with half the matrimonial assets ("the Coffey matrimonial property proceedings").

[b] In October 1989 DFC obtained judgment against Messrs Coffey, Morris and Roberts for about $14 million including interest ("the guarantee proceedings CP 170/89"). By 1994 the judgment had attracted an additional $4 million in interest but DFC had been able to recover about $12 million from other parties leaving the three judgment debtors with a net joint liability of about $6 million.

[c] Kearns (in receivership) alleged that Mr Coffey was liable for unpaid calls of $2,308,341 on Kearns share subscriptions ("the Kearns share calls"). The liability was distributed between proceedings claiming $217,423 for unpaid calls of 40 cents per share (CP 419/89) issued in 1989, another claim to 80 cents per share in respect of the same shareholding and another claim to $1,656,072 in respect of a distinct share subscription. By clause 9 of a multi-party agreement of 5 April 1993 (the deed by which Mr Morris and his wife settled their own liability to DFC) Kearns assigned to DFC all claims which it had against Mr Coffey.

[d] In December 1999 DFC brought proceedings in the High Court ("the DFC matrimonial property proceedings M 650/89") challenging the validity of the matrimonial property orders in the Coffey matrimonial property proceedings which had purported to transfer half Mr Coffey's assets to Mrs Coffey.

[e] The Prudential Building and Investment Society of Canterbury (In Liquidation) brought proceedings for $255,489 against Mr Coffey ("the Prudential/Belvedere proceedings CP 390/91"). Prudential later assigned the claim to Brookstock whose assets were taken over by DFC pursuant to its debenture.

[3] The result was that by July 1993 Mr Coffey faced three sets of claims by DFC - the guarantee proceedings judgment for $6,062,330.52, the Kearns share calls totalling $2,308,341, and the Prudential/Belvedere claim of $255,489. In addition Mrs Coffey faced a claim for the return of the multi-million dollar matrimonial property assets.

[4] It was with that background that Mr and Mrs Coffey entered into a settlement with DFC recorded in a deed of 30 July 1993. The recitals include reference to the guarantee proceedings judgment against Messrs Coffey, Morris and Roberts, the DFC matrimonial property proceedings M 650/89, and the agreement to settle DFC's claims against Mr and Mrs Coffey. A definitions clause includes reference to the Kearns proceedings, the assignment to DFC of all rights and claims which Kearns had against Mr Coffey, DFC's challenge to the matrimonial property orders, and the Prudential/Belvedere proceedings CP 390/91. The operative part of the deed goes on to include the following:

2. Settlement Sum: The Coffeys shall pay to DFC the sum of $4,927,185 ("the settlement sum") in settlement of obligations owed to and/or claims made by DFC.

...

28. The Coffeys hereby waive, release and discharge forever each and every right or claim of any kind whatever which they have or may have:

(a) against DFC Group, Brookstock, the receiver of Brookstock, Kearns, or the receiver of Kearns;

(b) against Prudential or the liquidators of Prudential arising out of or in connection with the Prudential proceedings and/or the Prudential/Brookstock settlement.

29. Mr Coffey will as soon as practicable discontinue any counterclaims or other claims which he has filed in the Prudential proceedings or the Kearns proceedings.

30. DFC hereby waives, releases and discharges forever each and every right or claim of any kind whatever which it has or may have against the Coffeys, including without limitation its rights and claims in the guarantee proceedings and the matrimonial property proceedings.

31. DFC will as soon as practicable discontinue the matrimonial property proceedings.

32. DFC, as assignee, hereby waives, releases and discharges forever each and every right or claim of any kind whatever which Kearns has or may have against Mr Coffey and which Kearns has assigned to DFC pursuant to the Kearns settlement deed.

33. DFC will as soon as practicable discontinue or procure the discontinuance of the Kearns proceedings.

34. DFC will as soon as practicable procure the discontinuance of the Prudential/Belvedere proceedings as against Belvedere and Mr Coffey and the waiver by Brookstock, as assignee, of all rights or claims of any kind whatever which Brookstock has or may have against Belvedere or Mr Coffey in connection with the Prudential/Belvedere proceedings and which Prudential has assigned to Brookstock pursuant to the Prudential/Brookstock settlement.

[5] Over the next few months Mr Coffey paid DFC the $4,927,185 referred to in cl 2, for this purpose borrowing $3.4 million from his wife.

High Court proceedings

[6] In 1994 Mr Coffey issued the present proceedings claiming contribution from Mr Morris and Mr Roberts. Essentially his claim was that against a judgment debt of $6,062,330 shared by all three, his one-third share ought to have been only $2,020,776. As he had paid $4,927,185 he had made an overpayment of $2,906,408 to which each of the other two should make a contribution by refunding him $1,453,204.

[7] Shortly after the contribution proceedings were issued by Mr Coffey, Mr Roberts entered into a settlement with DFC under which he paid DFC $128,000. By that point all three had entered into settlements with DFC by which they respectively paid $4,927,185 (Coffey), $492,376 (Morris) and $128,000 (Roberts).

[8] In his reserved judgment Chisholm J found that the terms of the settlement between DFC and Mr Morris precluded any claim by Mr Coffey to contribution from Mr Morris. He found no such impediment as against Mr Roberts, given that the Roberts settlement came after the Coffey payments and issue of contribution proceedings. But the Judge found that the Coffey payments to DFC were not confined to settlement of the guarantee proceedings. At the time of the Coffey settlement they faced all the claims referred to earlier. After all those claims were included, there were no grounds for thinking that Mr Coffey had paid more than his third share of the judgment debt.

Grounds of appeal

[9] In this Court Mr Bowers renewed the submission that each of the respondents should make a one third contribution which he calculated in the following terms:

Balance payable by the three judgment debtors 6,062,330.52

____________

Therefore each should contribute one third $2,020,776.84

But Coffey paid 4,927,185.00

An overpayment of $2,906,408.16

____________

Therefore contribution from each of $1,453,204.08

____________

[10] The appellant's case was advanced on the basis that of the total judgment debt of $6,062,330.52 he accepted responsibility for one third or $2,020,776.84. His claim to contribution from the others was limited to the excess he had paid over and above that figure. As we pointed out in argument, there are other ways of calculating the required contributions if contributions are recoverable in principle. However Mr Bowers made it plain that for present purposes he regarded the method of calculating contribution as immaterial given the magnitude of the DFC matrimonial property claim in combination with other claims against the Coffeys. The sole grounds advanced in support of the appeal were (a) that the Judge was wrong in the way in which he sought to apply contribution principles to the Morris settlement deed; and (b) that the Judge was wrong in his interpretation of the Coffey settlement deed.

[11] The second ground turned on the purpose of the Coffeys' payment of the $4,927,185 to DFC. The appellant argued that on a proper interpretation of the deed the $4,927,185 was attributable solely to the judgment debt in the guarantee proceedings. The Judge found that it was a payment made in settlement of all claims then outstanding against the Coffeys of which the guarantee proceedings judgment debt was only one. It was not disputed that if the Judge's interpretation were correct the appeal could not succeed. We therefore turn to that ground first.

Interpretation of the Coffey settlement deed

[12] For present purposes the critical provision in the Coffey settlement deed is cl 2 which provides that

The Coffeys shall pay to DFC the sum of $4,927,185 ("the settlement sum") in settlement of obligations owed to and/or claims made by DFC.

[13] Mr Bowers submitted that the expression "obligations owed to and/or claims made by DFC" was confined to rights originally created in favour of DFC, as distinct from those later acquired by DFC by way of assignment (the Kearns share calls) or pursuant to its debenture security (the Prudential/Belvedere proceedings). The DFC matrimonial property proceedings did not qualify even as "a claim" because they sought merely the return of property as distinct from money. Therefore, the only obligation or claim settled by cl 2 was the judgment debt in the guarantee proceedings.

[14] Mr Bowers submitted that his interpretation was reinforced by the fact that of the various claims outstanding against Mr and Mrs Coffey, only the guarantee proceedings and DFC matrimonial property proceedings were expressly referred to in the recitals. Both the Kearns proceedings and the Prudential proceedings were issued by parties other than DFC, albeit subsequently taken over by DFC. In cl 30 the guarantee proceedings and the matrimonial property proceedings had been separately dealt with. Given that it was a deed, no consideration was necessary for the releases in respect of other claims referred to in cls 32 and 34. In any event the consideration for those releases was the releases which the Coffeys in turn gave DFC in cl 28.

[15] We cannot accept any of those arguments. The plain meaning of cl 2 is that Mr and Mrs Coffey were to pay $4,927,185 in settlement of all claims which DFC then had against them. We see no warrant for straining the language of "obligations owed to and/or claims made by" in the manner suggested by Mr Bowers. The fact that certain proceedings are expressly referred to in the recitals can not diminish the general language in the operative provisions of cl 2, particularly when recital E refers to "claims against Mr and Mrs Coffey" in general terms.

[16] There is no warrant for excluding the DFC matrimonial property proceedings from the operation of cl 2. Those proceedings represented another potential liability for the Coffeys. The fact that if DFC succeeded it would recover property rather than money is immaterial. The issue can be resolved without going outside cl 2 but we think the Judge's interpretation is reinforced by a consideration of clss 32 and 34. Clearly something induced DFC to give the releases referred to in those provisions. No case was mounted to suggest that the release given in cl 28 had significant value, certainly not a value equivalent to a release of all claims other than the guarantee proceedings judgment debt.

[17] We are satisfied that the Judge's interpretation of the Coffey settlement deed was correct. For contribution purposes, therefore, the $4,927,185 payment by Mr and Mrs Coffey had to be regarded as a settlement of a number of claims of which the guarantee proceedings judgment debt was only one. The appeal, and indeed the statement of claim, were advanced on the basis that in those circumstances the contribution claim could not succeed.

Result

[18] The appeal is dismissed. The appellant must pay costs to the respondents in the sum of $5000 plus disbursements including the travel and accommodation expenses of counsel in terms to be approved by the Registrar.

Solicitors:

Lane Neave Ronaldson, Christchurch for the Appellant

Wynn Williams & Co, Christchurch for the Respondents