Watkins v Orix New Zealand Limited [2012] NZHC 992 (11 May 2012)

Last Updated: 21 May 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-006060 [2012] NZHC 992

BETWEEN NICOLA MAREE WATKINS Appellant

AND ORIX NEW ZEALAND LIMITED Respondent

Hearing: 10 May 2012

Appearances: I M Hutcheson for Appellant

No appearance for Respondent

Judgment: 11 May 2012

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 11 May 2012 at 11.00 a.m., pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors: Murdoch Price Limited, Auckland

Copy to: I M Hutcheson, Auckland

WATKINS V ORIX NEW ZEALAND LIMITED HC AK CIV-2011-404-006060 [11 May 2012]

[1] Following a defended hearing in the District Court at Auckland on 2

September 2011 Judge Harvey entered judgment against the appellant in favour of Orix New Zealand Limited (Orix). The Judge found the appellant liable as a guarantor under a Deed of Guarantee that she had entered in December 2005 pursuant to which she agreed to guarantee the borrowing of a number of business entities associated with her and her then husband’s business interests.

[2] The appellant appeals against the entry of judgment. The respondent has chosen not to take any part in the appeal. I understand the appellant and Orix have settled the terms of the appellant’s obligations to Orix. The appellant, however, pursues the appeal because she is concerned at the effect the judgment may have on her credit reference. She also considers the judgment to be wrong.

[3] The appeal turns on a short point. It is whether Orix was given sufficient notice that the appellant wished to be released from future obligations under the guarantee. The Judge found that such notice had not been given. The appellant challenges that finding.

Background

[4] In December 2005 the appellant entered the Deed of Guarantee. Relevantly the Guarantee provided:

5. CONTINUING GUARANTEE

The guarantee contained in this deed shall be a continuing guarantee:

5.1 Payment: irrespective of any sum or sums which may be paid to the credit of any account of the Borrower with ORIX;

5.2 Indebtedness: notwithstanding that at any time the borrower may not be indebted to ORIX; and

5.3 Settlement: notwithstanding any settlement of account or other matter or thing whatsoever;

and shall remain in full force and effect until ORIX has executed a full discharge of the obligations of the Guarantor under this deed.

[5] The appellant and her husband separated in July 2006. In April 2008 the appellant entered a relationship property agreement with Mr Watkins in which he agreed to accept personal responsibility for any personal guarantee she had signed on behalf of the companies and agreed to indemnify her in respect of any claims or demands made pursuant to such guarantee. That indemnity proved worthless when Mr Watkins was subsequently bankrupted.

[6] During June 2007, Auckland Steel 2000 Limited (Auckland Steel), one of the companies that the appellant had agreed to guarantee, lodged vehicle requests for operating leases with Orix pursuant to a Master Hire Agreement between Auckland Steel and Orix. In July and September two further requests were lodged.

[7] The claim in the District Court was for the balance of moneys owing under those leases after Auckland Steel failed.

[8] The appellant relies on the evidence of her husband, Mr Watkins, that he gave Orix notice that she would no longer be available as a guarantor as sufficient notice to Orix of the termination of her liability as a guarantor.

[9] The appellant’s case relies on the following evidence of Mr Watkins:

5) In December 2006 my company was looking to purchase a crane and we approached Orix for finance. I recall a meeting in my office with Andrew Griffith (sic) the Orix commercial sales manager at the time.

6) Andrew told me that his credit department had done a company search and observed that Nicola had resigned as a director of the company (she had actually been removed but the search recorded as a resignation).

7) I explained to Andrew that Nicola and I had separated and that she was no longer involved in the company. I told him that she would no longer be available as a guarantor for any further agreements or financing arrangements.

8) Andrew told me that he would need to check the position with his credit department and come back to me and confirm if Orix were prepared to proceed with the transaction on that basis.

9) Andrew did subsequently get back to me and he did confirm that Orix were prepared to proceed without Nicola being required or involved as a guarantor.

10) I remember being concerned as to whether the financial arrangements (for the new crane) would be held up because of the fact that Nicola and I had separated and that she was no longer available as a guarantor.

11) As it turned out Orix were quite happy and proceeded to document the further arrangements without requiring or involving Nicolas a guarantor.

[10] Mr Hutcheson suggested that there may have been a “not” missing from para

[9] of Mr Watkin’s evidence.

[11] Mr Griffin, Orix’s national commercial manager, said that the discussion regarding the appellant’s position was in July 2007, not December 2006 and specifically only in relation to the proposed purchase of a crane:

5. The discussions Timothy Watkins is referring to did not take place in December 2006 but instead occurred later in mid-2007. Furthermore, as a result of Timothy Watkins informing me that Nicola Watkins guarantee would not be available in relation to the financing of the new crane purchase, ORIX declined to provide financing and I understood from Timothy Watkins that Auckland Steel 2000 Limited was instead going to obtain financing from UDC for the crane. ORIX did not, as suggested by Timothy Watkins, end up financing the purchase of the new crane.

6. My recollection of the relevant events follows.

...

8. In or about May 2007 Timothy Watkins asked ORIX to provide a quote to finance Auckland Steel 2000 Limited’s acquisition of a new crane, a CNC heavy duty cutting machine and a structural beam fabrication line. The amounts involved were significant, totalling over $3,000,000 in financing. These were not routine financing requests. As Timothy Watkins explained it Auckland Steel 2000

Limited was looking to make a major expansion of its business. He also explained that one option he was looking at was splitting the financing between Orix, UDC and/or the ANZ Bank, with Orix financing the new crane and UDC or the ANZ Bank financing the rest. I let him know that this level of financing would need to be considered and approved by ORIX’s National Credit Committee, and that they would need to be convinced that the risks to ORIX were acceptable. There was no mention by Timothy Watkins of his split with Nicola Watkins, or that her guarantee would not be available to support the financing.

...

11. I did not hear back from Timothy Watkins in June regarding the quotes. However, on 19 June 2007 Timothy Watkins lodged eight “Vehicle Requests” for operating leases for replacement vans for

Auckland Steel 2000 Limited’s fleet, each of which (as stated on the

form) comprised an irrevocable order by Auckland Steel 2000

Limited’s for a vehicle. Those were processed upon receipt as routine transactions and as separate matters to the crane and plant financing. ...

12. I knew there could be some delay securing approval from the National Credit Committee for the new crane financing, and in the event Timothy Watkins confirmed we were successful with our quote I wanted to be in a position to proceed without delay. I therefore submitted a financing proposal to the National Credit Committee for review on or about 26 June 2007. It was structured on the basis that ORIX would only finance the new crane, with Auckland Steel 2000 Limited obtaining financing for the other plant elsewhere.

[12] Mr Griffin then referred to a copy of the credit proposal and went on to state:

In particular [the credit proposal] notes [the appellant’s] role as a

50% shareholder of Auckland Steel 2000 Limited. There is no mention of her having ever been a director of Auckland Steel 2000

Limited because I was not at that time aware that she had ever been

a director of Auckland Steel 2000 Limited. There is no mention of any split between her and Timothy Watkins, or of her no longer being involved with Auckland Steel 2000 Limited, because I was not aware of any of those matters. It also records:

...

(b) All facilities were supported by guarantees by Timothy

Watkins, Nicola Watkins, ...

13. It was the National Credit committee who noticed that Nicola

Watkins had been appointed as a Director to Auckland Steel 2000

Limited on 28 October 2005 and had subsequently resigned as a

Director on 2 September 2006. They queried me regarding this..

...

15. I subsequently managed to make contact with Timothy Watkins and he advised that the guarantee of Nicola Watkins would not be available for financing of the new Crane.

16. ORIX was not prepared to finance the new Crane without the support of Nicola Watkins’ guarantee or indeed an understanding of what effect any matrimonial settlement might have on the financial positions of all parties to the Master Guarantee in place and I informed Timothy Watkins of that. He advised that UDC was prepared to provide the financing to Auckland Steel 2000 Limited without Nicola Watkin’s guarantee, and that Auckland Steel 2000

Limited would go down that route. ...

[13] Mr Griffin then referred to an email he had sent to his colleagues dated 13

July 2007 confirming that discussion:

Subject: ACE Construction Limited (Akld Steel)

I spoke with Tim Watkins last week regarding our concern of Nicola’s on- going involvement as a shareholder, director, trustee and beneficiary of the various entities ORIX would be looking for guarantees from to support their request for $800k for a crane truck. He understood our concerns and confirmed that Nicola’s guarantee would not be available.

He ha re-checked the approval that UDC have put in place and confirmed with UDC that they will fund the $4m plant and equipment requirement including the crane truck for $800k without the guarantee of Nicola.

[14] In his judgment Judge Harvey concluded that:

[44] The suggestion that the notification by Mr Watkins of [the appellant’s] unwillingness to be bound in respect of the crane transaction meant that Orix was seized of knowledge that she was not prepared to be bound in respect of any other transaction simply is not available on the evidence. Mr Griffin was dealing with a discrete transaction. He was not dealing with every future financing arrangements entered into between the company and Orix.

[15] In support of the appeal Mr Hutcheson urged the Court to take a different interpretation of the evidence from that taken by Judge Harvey. He noted that the evidence was contained in affidavits and there was no cross-examination. He submitted that this Court could take a different view and interpret para 5 of Mr Griffin’s affidavit as accepting the evidence of Mr Watkins that he told Mr Griffin that the appellant would no longer be available as a guarantor for any further agreements or financial arrangements.

Decision

[16] Where, as in this case, the guarantee is a continuing guarantee and the consideration for the guarantee is divisible, the guarantee is revocable in respect of liability to accrue in the future:[1] The guarantee is [in those circumstances] simply a binding agreement which contains an implied equitable right to revoke. Mr

_{Hutcheson properly referred to two authorities where the point of revocation was}

considered. The first is Commercial Bank of Australia Ltd v Cavanaugh.[2] In the Supreme Court of the Northern Territory Gallop J referred to a guarantee which provided:

... this guarantee shall remain in force until it shall be determined as to future advances by notice in writing given by the guarantors to and received by the Manager for the time being of the Branch where the account of the customer is kept and the guarantors shall have paid to the Bank the full amount for which the guarantors are liable hereunder.

[17] The Judge held:

The only effective way to determine the guarantee under the terms of cl 9, so far as future advances are concerned, is by the two-fold step of notice in writing and payment of any existing liability.

[18] The second authority is W H Jones & Co (London) Limited v J W Millar & Others.[3] This Court considered a guarantee providing for revocation as follows:

6. This Guarantee shall be revocable at any time by 3 months’ notice in writing given by (all) the Guarantor(s) to you but only in respect of sums that shall accrue due after the date of the determination of such notice as a consequence of any liability incurred after that date.

Henry J rejected a submission on behalf of the guarantor that notice operated to discharge the guarantor from liability for current advances made but not due for payment, noting:[4]

... I am of the view that the express words of cl 6 in this contract of guarantee must override any general equitable rule as to revocation and its clear intention must be given effect.

[19] I accept that Mr Hutcheson has correctly identified the relevant legal principles. The guarantee in the present case is a continuing guarantee. At equity it must be revocable in relation to future borrowing by the principal, provided the guarantor gives proper notice to Orix. The reference in cl 5 of the guarantee to it remaining in full force and effect until Orix has executed a full discharge of the

_{obligations would be effective to bind the guarantor in respect of all obligations}

incurred up to the date of notice but could not prevent the guarantor giving notice pursuant to which the guarantee for future obligations would be determined.

[20] The issue is whether there was such proper notice given in this case. The high point for the appellant, (indeed the only point) is the evidence of her husband Mr Watkins. Despite Mr Hutcheson’s careful submissions to support his argument the Judge misinterpreted Mr Watkins’ evidence, I am unable to agree. When Mr Griffin’s evidence is read as a whole, I do not consider that he accepted Mr Watkins’ evidence that he told him the appellant would not be available as a guarantor for any further arrangements or borrowing.

[21] I agree with the assessment of the District Court Judge that the discussion between Mr Watkins and Mr Griffin about the appellant’s guarantee in the future was in the context of the $800,000 borrowing for the crane. Significantly it post-dated the initial request in relation to eight of the 10 transactions.

[22] As the Judge noted, the applications for vehicle finance were unrelated to the crane transaction. The Judge was entitled to prefer, as I do, Mr Griffin’s evidence about that matter given the sequence of events he clearly set out in his evidence which is supported by the email of 13 July.

[23] Next, I note that in The Law of Guarantee the author says:[5]

A surety is not required to use any particular form of wording to exercise a right of cancellation. Absent some contractual requirement, it is doubtful that such a notice must be in writing, although it is certainly wise for the notice to be given in writing. Commercial rights are not normally exercised by the mere expression of wish or preference. For this reason, if a guarantor intends to cancel a continuing guarantee, he should make that intention clear to the creditor. Thus it has been held that a notice of cancellation was too equivocal to have the effect of cancelling further liability, where the guarantor wrote to a creditor stating only that he had firm wish that no additional funds be advanced to the principal and asking that all efforts should be made to retire the obligation. The termination of the guarantee must be straightforward and to the point.

[24] The guarantee is a formal document executed by deed. If the appellant was to be released from that guarantee for the future the obligation was on her to make

her position clear to Orix. The conversation between Mr Watkins and Mr Griffin is just not sufficient to have made the position clear. Mr Watkins’ general statements are insufficient for the Court to be satisfied that Orix was given proper and formal notice that the appellant would not be liable under the guarantee.

Result

[25] It follows that I agree with the analysis of the District Court Judge. The appeal is dismissed.

_{[26] There is no issue as to costs.}

Venning J

---

[1] James O'Donovan and John Phillips The Modern Contract of Guarantee (3rd ed, LBC Information Services, Sydney, 1996) at 436.
[2] _{Commercial Bank of Australia Ltd v Cavanaugh (1980) 7 NTR 12.}
[3] W H Jones & Co (London) Limited v J W Millar & Others HC Auckland CP.1666/89, 26 _{November 1990 at 4.}

[4] At 14.

[5] Kevin Patrick McGuinness The Law of Guarantee (2nd ed, Carswell Thomson Professional

Publishing) at 6.60.