Taylor v Bank of New Zealand [2006] NZCA 245 (8 September 2006)

Court of Appeal of New Zealand

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Taylor v Bank of New Zealand [2006] NZCA 245 (8 September 2006)

Last Updated: 13 September 2006

IN THE COURT OF APPEAL OF NEW ZEALAND

CA151/05

BETWEEN DAVID JOHN TAYLOR
Appellant

AND BANK OF NEW ZEALAND
Respondent

Hearing: 29 August 2006

Court: Glazebrook, Chambers and Arnold JJ

Counsel: P F Whiteside for Appellant
P L Rice for Respondent

Judgment: 8 September 2006 at 11am

JUDGMENT OF THE COURT

A The appeal is allowed but only to the extent that the judgment against Mr Taylor is reduced to $125,000, together with interest thereon of 7.5% per annum from 14 July 2003 until 17 June 2005.

B Costs of $6,000 plus usual disbursements are payable to the respondent.

____________________________________________________________________

REASONS OF THE COURT

(Given by Glazebrook J)

Table of Contents

Para No

Introduction [1]
Is Mr Taylor liable to the BNZ under the Deed of Settlement
for the remaining $150,000? [7]
Is the BNZ estopped from claiming the $150,000 owing under
the Deed? [16]
Result and costs [27]

Introduction

[1]	Mr Taylor was unable to repay a loan of $270,000 to the Bank of New Zealand (BNZ). The loan was secured by mortgages over his mother’s Akaroa property and a property owned by his family trust. Mrs Taylor senior and the trustees of the family trust challenged the validity of the mortgages and the underlying liabilities. That litigation was settled by a Deed of Settlement between them, Mr Taylor and the BNZ entered into on 22 August 1991. The Deed provided for the payment of $250,000 in full and final settlement of the debt.
[2]	Under the Deed, Mr Taylor was required to pay $100,000 the following April. He did so and, in accordance with the Deed, the mortgage over the trust property was discharged. It is common ground that, except in the event of an earlier sale of the Akaroa property, the remaining $150,000 was not payable until after Mrs Taylor senior’s death. The BNZ’s position is that, under the Deed, the remaining money became payable six months after Mrs Taylor senior’s death, whether or not the Akaroa property was sold. Mr Taylor’s position is that the $150,000 became payable only if the Akaroa property was sold within six months of his mother’s death.
[3]	Mrs Taylor senior died on 21 October 1999. On 8 December 1999, in response to a query by the solicitor acting for the executors of the mother’s estate, the BNZ, by facsimile, confirmed that, after a thorough search of its records, "no money is owed under the customer’s mortgage". The BNZ subsequently discharged the mortgage without requiring the balance of $150,000 to be repaid. When the BNZ discovered its mistake, it instituted recovery proceedings.
[4]	By judgment of 17 June 2005, John Hansen J held that Mr Taylor was liable under the Deed to pay the remaining $150,000 to the BNZ. Judgment was given for that sum plus interest of 11% from the date of the statement of claim until the date of judgment.
[5]	Mr Taylor appeals against that judgment on two grounds. His first argument is that, as the Akaroa property was not sold within the requisite timeframe, he is not liable to pay the $150,000 under the Deed at all – see at [2] above. His second argument is that, given the facsimile sent by the BNZ and the release of the mortgage over the Akaroa property, the BNZ is estopped from claiming the sum owing.
[6]	The issues that arise on this appeal are:

(a) Is Mr Taylor liable to the BNZ under the Deed of Settlement for the remaining $150,000?
(b) If so, is the BNZ estopped from claiming the $150,000 owing under the Deed?

Is Mr Taylor liable to the BNZ under the Deed of Settlement for the remaining $150,000?

[7]

Mr Taylor submits that his personal obligation to pay under the Deed was contingent upon the proceeds of the Akaroa property sale being insufficient to repay the debt. There was no sale of the Akaroa property within six months of his mother’s death and the BNZ discharged the mortgage over the property. There was thus, in his submission, no obligation under the Deed for him to pay the remaining $150,000, there being no sale and no shortfall.

[8]

Mr Taylor bases that submission on cl 1(c) and (d) and cl 2 of the Deed. Clause 4 is also relevant. Relevant parts of the Deed provide:

1. PROVIDED that payment is made in accordance with the terms of this deed the Bank agrees to accept in full and final settlement of its claim referred to in A above the sum of $250,000 to be paid in the following manner:
...

(c)

The balance owing of the sum of $250,000 namely, $150,000, is to be repaid upon settlement from the proceeds of sale of a parcel of land at Akaroa containing 926 square metres or thereabouts situated in Block IV of the Akaroa Survey District being Lot 10 on Deposited Plan 41742 and being all the land comprised and described in Certificate of Title 20A/284 (Canterbury Registry) ("the Akaroa property"); and

(d)

If, after the sale of the Akaroa property, any balance of the sum of $250,000 would remain unpaid, such shortfall is to be paid immediately upon settlement to the Bank by Mr Taylor and the Trustees and the estate of Mrs Taylor, for which they shall be jointly and severally liable, and the net proceeds of the sale of the Akaroa property are to be paid to the Bank immediately upon settlement in accordance with paragraph 1(c) above at which settlement the Bank will simultaneously provide to the purchaser a release of the security held by the Bank over the Akaroa property, and in any event such payments are to be made no later than 6 months after the death of Mrs Taylor.

...
2. MR TAYLOR and the Trustees and the estate of Mrs Taylor do hereby guarantee to the Bank the due and punctual payment and fulfilment to the Bank of all sums owed to the Bank in the event that the proceeds of sale of the Akaroa property are insufficient to pay the balance of funds owing to the Bank under this agreement.
...
4. MR TAYLOR and the Trustees will be regarded as, and deemed to be at all times, principal debtors in respect of all the liabilities and obligations to the Bank referred to in this deed whether as principal or surety or otherwise hereinbefore referred to and that such liability shall not be affected by any variation in this agreement whatsoever, including any other agreement reached between the Bank and any of the other parties to this agreement, any indulgence or time granted by the Bank under this agreement, the bankruptcy of any of the parties other than the Bank, the acceptance of any security by the Bank from the other parties to this Deed, or for any other reason whatsoever.

[9]	Mr Taylor argues that, under cl 1(c) of the Deed, it is quite clear that there must be a sale of the Akaroa property before the balance of the sum of $250,000, namely $150,000, becomes payable. Mr Taylor accepts that under cl 1(d) he is liable for any shortfall that might arise if the proceeds of sale do not reach $150,000 but, as indicated above, submits that there can be no shortfall without a sale. He argues that it is implicit in cl 1(d) that the BNZ, if it wants to be paid, must require the property to be sold. It is also implicit that the BNZ can require the property to be sold, but only after Mrs Taylor senior’s death. He submits that the last two lines of cl 1(d) provide that any sale must happen no later than six months after Mrs Taylor senior’s death.
[10]	In Mr Taylor’s submission, the position is made even clearer by cl 2 of the Deed whereby he, the trustees and Mrs Taylor senior’s estate guarantee the payment of all sums in the event that the proceeds of sale of the Akaroa property are insufficient to meet the balance. He further argues that cl 4 has to be read down by reference to the obligations in cl 2. Mr Taylor thus submits that he is deemed to be a principal debtor only as regards the shortfall (and a shortfall only arises upon sale).
[11]	We reject Mr Taylor’s submissions. We are unable to read cl 1(d) in the manner contended for by him. Mr Taylor’s interpretation requires words to be read into cl 1(d) to allow the BNZ to insist on a sale of the Akaroa property. It would also have to be read into that clause that the BNZ’s right to insist on a sale was deferred until after the death of Mrs Taylor senior. Mr Taylor’s interpretation also requires the wording to be read into the last part of cl 1(d) to provide that any sale must take place no later than six months after the death of Mrs Taylor senior.
[12]	The more logical interpretation of the Deed is that the $150,000 is payable six months after the death of Mrs Taylor senior unless the Akaroa property is sold earlier. If an earlier sale of the property takes place, the proceeds of that sale are payable to the BNZ. Any shortfall must be made up immediately by Mr Taylor, the trustees and Mrs Taylor senior’s estate. If a sale does not take place within six months of Mrs Taylor senior’s death then the whole of the $150,000 becomes the shortfall to be paid at that time by Mr Taylor, the trustees and Mrs Taylor senior’s estate.
[13]	This interpretation requires no violence to be done to the wording of the Deed. It requires no words to be read in or changed and it accords with commercial common sense. Under Mr Taylor’s interpretation, the BNZ can force a sale, regardless of the wishes of the family. This was very unlikely to have been the parties’ intention. His interpretation also means that, if the Akaroa property is not able to be sold within the required timeframe, Mr Taylor would then not be required to pay back what was after all his debt to the BNZ. This would be an absurd result in commercial terms.
[14]	We also reject Mr Taylor’s interpretation of cl 4. There is nothing to suggest that it is limited by cl 2 of the Deed. Under cl 4, Mr Taylor is said to be a principal debtor, liable for all of the liabilities and obligations referred to in the Deed. This must logically include liability for the payment of the full amount of $250,000 referred to at the beginning of cl 1. The clause also provides that his liability is not affected by any variation to the agreement or any indulgence or time granted "or for any other reason whatsoever".
[15]	It follows that this ground of appeal fails.

Is the BNZ estopped from claiming the $150,000 owing under the Deed?

[16]	Mr Taylor’s second submission is that the BNZ is estopped from claiming the shortfall from him because, in reliance on BNZ’s statement that there was no money owing under the mortgage, he relinquished any claim he had under the Family Protection Act 1955.
[17]	For present purposes it is sufficient to set out the elements of the doctrine of estoppel as set out in Burrows, Finn & Todd Law of Contract in New Zealand (2ed 2002) at [4.7.4]. The authors say that the following are the elements of estoppel:

(a) There must be a clear unambiguous representation or promise by one party to the other.
(b) The party to whom the representation or promise was made must have relied on it to such an extent that it would be inequitable (or "unconscionable") to allow the promisor to go back on his or her word.

[18]	We look first at the terms of the alleged representation in the facsimile of 8 December 1999 (see at [3] above). It seems to us that this is, at most, a representation that the BNZ’s records showed that any moneys owing under the loan that the mortgage secured had been repaid. It would be straining the language considerably to understand the facsimile as representing that any moneys owing had been forgiven by the BNZ. This is particularly the case as the letter does not mention the Deed at all.
[19]	The next issue is whether Mr Taylor relied on any representation made – see at [17](b) above. In our view, it is clear that he did not. Mr Taylor had been intimately involved in the circumstances of the debt (in his personal capacity, as trustee and as executor of Mrs Taylor senior’s estate). He had no basis to believe that the debt had been repaid. Indeed, his evidence in Court was that he knew that it had not been repaid. He said that he knew there was money owing, he knew the amount was $150,000, he knew that it was owed to the BNZ or the National Australia Bank and he knew that it was secured by a mortgage over his mother’s Akaroa property.
[20]	Mr Taylor’s evidence was, however, that he understood the BNZ facsimile as a representation that the debt had been written off. John Hansen J did not accept this evidence. Mr Taylor submits that the Judge was wrong on this point. He submits that his assumption that the debt had been written off was reasonable, given the passage of time and the mergers and acquisitions that had taken place (the loan had originally been from Broadbank Corporation).
[21]	We cannot see why mergers and acquisitions could have led Mr Taylor to consider the loan had been written off in the absence of any notification to that effect at the time of those mergers and acquisitions. Mr Taylor’s reliance on the passage of time is also misconceived. The Deed itself deferred the payment of the debt until after Mrs Taylor senior’s death. It was the very essence of the deal that there would be a passage of time before the remaining amount fell due. It is inconceivable that Mr Taylor would have forgotten this, given that it was his debt in the first place and that the Deed had been entered into in order to save his mother’s home.
[22]	Indeed, Mr Taylor’s evidence was that he remembered all of the circumstances of the Deed very well. He even said that he had appraised the estate’s solicitor of the full facts, albeit after the solicitor had inquired whether there was any money due on the mortgage – see at [3] above. John Hansen J did not believe this evidence either and this clearly (and legitimately) influenced him in not accepting Mr Taylor’s assertion that he thought that the loan had been written off.
[23]	The Judge inferred from the fact that the estate’s solicitor was not called to give evidence that the solicitor’s evidence would not have been helpful to Mr Taylor on the question of whether the solicitor had been told about the Deed. We agree. Any competent solicitor (and we have no reason to doubt the solicitor’s competence) would have made further inquiries of the BNZ, had he been told of the existence of the Deed as Mr Taylor maintained. No such inquiries were made.
[24]	It follows that we reject Mr Taylor’s submission that the Judge was not entitled to make the finding that Mr Taylor did not believe the debt had been written off. As this is the case, there cannot have been any reliance by Mr Taylor on the alleged representation by the BNZ. A person cannot rely on a statement they know to be untrue and Mr Taylor knew the loan had not been repaid or forgiven. In any event, as indicated above at [18], we do not consider that, on any reasonable reading of the BNZ facsimile, it was possible to read it as indicating a forgiveness of debt. There was thus no clear unambiguous representation from the BNZ to Mr Taylor to found an estoppel on that point.
[25]	Even had there been a representation that the loan had been forgiven and Mr Taylor had believed that representation, the final issue is whether it would be unconscionable to allow the BNZ to withdraw the representation – see at [17](b) above. In our view, Mr Taylor has not shown any detriment. He claims that he relied on the BNZ’s representation when he did not bring a claim against his mother’s estate under the Family Protection Act. We accept the BNZ’s submission that the evidence suggests that Mrs Taylor senior treated her sons approximately equally under her will and that any such claim would likely have failed. This was also the conclusion reached by John Hansen J.
[26]	In our view, the true position is that Mr Taylor knew that the BNZ had made a mistake in saying there was no money owing under the mortgage. He made no attempt to correct the BNZ’s mistake. In these circumstances, it cannot be unconscionable for the BNZ to enforce Mr Taylor’s obligations under the Deed. Rather, it would be unconscionable for Mr Taylor not to be liable for the money he owes (where a major indulgence had already been given to him under the Deed).

Result and costs

[27]	Both Mr Taylor’s grounds of appeal have failed.
[28]	The parties, however, agree that judgment was wrongly entered by John Hansen J for $150,000. Judgment should have been entered for $125,000 to take into account the $25,000 paid by Mr Taylor’s brother and sister-in-law in settlement of the BNZ’s claim against them. The parties also agree that the appropriate rate of interest is 7.5% and not the 11% awarded. The appeal must therefore be allowed to that extent.
[29]	The appeal is otherwise dismissed.
[30]	Mr Taylor having failed in his two main grounds of appeal, costs of $6,000 plus usual disbursements are payable to the respondent.

Solicitors:
Wynn Williams & Co, Christchurch for Appellant
Grove Darlow & Partners, Auckland for Respondent