Radius Residential Care Limited v Krishna [2013] NZHC 2886 (31 October 2013)

Last Updated: 5 November 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-2135 [2013] NZHC 2886

BETWEEN RADIUS RESIDENTIAL CARE LIMITED

Appellant

AND KANTA WATI KRISHNA Respondent

Hearing: 12 September 2013

Counsel: S F Gazley for Appellant

J C Gwilliam for Respondent

Judgment: 31 October 2013

_{JUDGMENT OF THE HON JUSTICE KÓS}

[1] The appellant, Radius Residential Care Ltd, operates St Joan’s Hospital in Mt Wellington, Auckland. It sued the respondent, Mrs Rita Krishna, in the District Court at Auckland, claiming residential care fees for Mrs Krishna’s son, Nigel. Radius alleges that Mrs Krishna guaranteed payment of those fees. Judge Perkins dismissed Radius’s claim. This is an appeal against that judgment.

Background

[2] Mrs Krishna and her son Nigel had been living in Australia. Nigel suffered from Cornelia de Lange Syndrome. He was severely intellectually and physically disabled. He could not speak, and he could not move some of his limbs. In 2010

Nigel, then 24, was diagnosed with a terminal illness. Mrs Krishna brought him home to New Zealand to live out his final months. Nigel was admitted to St Joan’s Hospital on 23 April 2010. He resided there until 8 October 2010, when he was moved to a rest home in Wellington to be closer to Mrs Krishna. Nigel died on

_{4 May 2012.}

RADIUS RESIDENTIAL CARE LIMITED v KRISHNA [2013] NZHC 2886 [31 October 2013]

[3] Radius alleges that Mrs Krishna was guarantor of a resident admission agreement made between Radius and Nigel on 23 April 2010. It alleges that she signed that agreement as guarantor. In fact, it would appear that she was the only person to sign the agreement. Nigel could not do so, and Radius for some reason did not do so. For some reason Mrs Krishna signed in the space for Radius to sign in, and Radius itself did not execute the agreement at all. Mrs Krishna signed, secondly, as “power of attorney” (although she did not hold such a power, and did not sign the attached certificate of non-revocation of that non-existent power). Thirdly, she signed as guarantor. I will describe later in this judgment how all this occurred.

[4] The relevant clauses of the resident admission agreement form read as follows:

A1.2 The Resident agrees to pay the fees and charges as detailed in Schedule 2 and to pay the charges for any additional services requested or required by the Resident.

A1.6 The Guarantor guarantees payment of the fees and the payment of charges for any Additional Services incurred by the Resident on the terms and conditions set out in the annexed Schedule 5 ...

Schedule 1 provides also:

1.1 The Resident shall promptly pay to Radius Resident Care any and all fees and charges due from time to time in respect of the Resident’s accommodation and care under this agreement including for the provision of the Services (‘Charges’) as set out in Schedule 2.

Schedule 2 contains a table of empty fields apart from the “Private Hospital” daily rate field, beside which is written “119.22”. At the bottom of the page it is noted that all prices are charged per day and include GST. Schedule 5 states:

1. No release, delay or other indulgence given by Radius Residential Care to the Resident whereby the Guarantor would have been released had the Guarantor been merely a surety shall release, prejudice or affect the liability of the Guarantor or as indemnifier.

2. As between the Guarantor and Radius Residential Care the Guarantor may for all purposes be treated as the Resident and Radius Residential Care shall be under no obligation to take proceedings against the Resident before taking proceedings against the Guarantor.

3. The guarantee is for the benefit of and may be enforced by any person entitled for the time being to receive payment of charges or payment of Additional Charges (if any).

[5] This dispute arose out funding arrangements for Nigel’s care. Nigel received an invalid’s benefit which was applied towards his residential care fees. Nigel was also eligible for a government subsidy towards his residential care fees, but to qualify he had to be assessed by the Taikura Trust, the Needs Assessment and Service Coordination provider for Auckland. Nigel was not referred to the Taikura Trust for a needs assessment until 4 June 2010, and the assessment was not completed until 24 June 2010, two months after Nigel was admitted. The Taikura Trust will not make payments for costs incurred before an assessment is made and funding is approved. Nigel’s fees for the first two months have not been paid.

[6] Radius claimed those fees for Mrs Krishna, expressly as a guarantor. It sought judgment for $33,192.47 in outstanding fees, legal costs of $19,459.28, and penalty interest of $12,328.02.

[7] To the extent further factual exposition is needed, it will be supplied in the analysis of each issue arising on appeal.

Issues on appeal

[8] The appeal gives rise to these issues:

(a) Was there a contract between Radius and Nigel?

(b) Could there instead be a contract between Radius and Mrs Krishna (as principal)?

(c) Does the defence of non est factum apply?

[9] There is a fourth issue, concerning quantum. It is what amount, if any, is owing under the guarantee? However counsel were agreed that this issue would be addressed between them in the first instance, if I were to find for Radius on its appeal on the other issues.

Approach on appeal

This is a general appeal by way of rehearing.¹ This Court must reach its own conclusions on the merits. It need not defer to the Judge at first instance. If the Court thinks he was wrong, it should say so forthrightly.² But it will recognise that the Judge has seen witnesses and heard evidence (including cross-examination). It will take heed of the advantage the Judge had in seeing the evidential process play out. That is especially so where issues of contested evidence and credibility arise.

Was there a contract between Radius and Nigel?

[10] The first question is whether there was an enforceable contract between

Radius and Nigel.

[11] Judge Perkins found that it was “debatable whether the contract itself had been validly executed”. Neither Nigel nor Radius had signed the agreement. Nigel suffered from such a severe mental disability that he would have been unable to execute a power of attorney, let alone agree to the contract. Mrs Krishna had never applied for a Court order to become Nigel’s property or welfare guardian (in order to sign on his behalf). Therefore on the balance of probabilities, the Judge could not find that there was a debt owing under the principal contract.

Discussion

[12] If there is no enforceable contract at all between Nigel as “Resident” and Radius, then there can be no liability on the part of Mrs Krishna as guarantor. The claim, it should be noted, was brought expressly in contract, Mrs Krishna as guarantor.

[13] Here the counterparty to Radius is said by it to be Nigel. But there is no suggestion that Nigel entered into anything purporting to be a contract. The

_{signature field for Nigel on the agreement form is blank. There is no evidence that}

¹ _{District Courts Act 1947, ss 72 and 75.}

² Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [3] and

[16]; B v F [2009] NZHC 1165; [2010] NZFLR 67 (HC) at [8]; WPH v ITP [2009] NZFLR 745 (HC) at [17].

Nigel did anything that resembled acceptance. When the communications and conduct of the parties are considered, a reasonable bystander would not consider Nigel to have assented to the terms proposed by the appellant.³

[14] Nor in my view can any issue of agency arise. And none was argued. The issue of capacity to clothe Mrs Krishna in that office would still arise.

[15] It is unnecessary to go on and consider matters of capacity, unconscionability and remedy. Radius could not demonstrate capacity on Nigel's part to contract. Mr Scott Gazley, for Radius, quite properly conceded that. Nigel was plainly incapable of entering a contractual commitment. Radius, a hospital operator, must have appreciated that. Again, Mr Gazley properly conceded that. Where a contract has been entered by a person lacking mental capacity, it will be voidable if (as here)

the counterparty was aware of that defect.⁴ But the facts in this case do not reach

that point of analysis. There was no acceptance at all by Nigel, and no contract with him at least.

[16] A guarantor’s liability is co-extensive with that of the principal. If no principal contract has been concluded, guarantor’s liability does not arise.⁵ A contract of guarantee is an undertaking that the principal debtor will perform. There is no guarantor's liability without a principal debtor.⁶

[17] Radius submits that the agreement meets all the requirements for a contract of guarantee in terms of s 27 of the Property Law Act 2007, and therefore the question of whether the principal agreement is enforceable is irrelevant. I disagree. Section 27 was not intended to set the general law on its head. Its focus is form, not substance. It requires that the contract of guarantee portion must be in writing and signed by Mrs Krishna. Those requirements are satisfied. But that does mean that is the end of the matter, and that the principal contract, the obligations under which are

_{being guaranteed, is irrelevant.}

³ Burrows, Finn & Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington) at

_[3.3.1].

⁴ _{O'Connor v Hart [1985] 1 NZLR 159 (PC).}

⁵ O’Donovan & Phillips The Modern Contract of Guarantee (2nd ed, Thomson Reuters, London,

_{2010) at [5-152]; Robinson’s Motor Vehicles Ltd v Graham [1956] NZLR 545 (SC) at 549-550.}

⁶ Lakeman v Mountstephen (1874) LR 7 HL 17 at 24-25 (HL).

Conclusion

[18] The answer to this issue is "No". There was no agreement between Radius and Nigel. It follows that Mrs Krishna cannot be liable as a guarantor of Nigel’s obligations, there being none.

Could there instead be a contract between Radius and Mrs Krishna (as principal)?

[19] The fact that the alleged agreement with Nigel is unenforceable does not mean Mrs Krishna is free of liability. That is because the form of agreement contains a clause providing that "the Guarantor [i.e. Ms Krishna] may for all purposes be treated as the Resident [i.e. Nigel]". In full cl 2 of sch 5 provides:

As between the Guarantor and Radius Residential Care the Guarantor may for all purposes be treated as the Resident and Radius Residential Care shall be under no obligation to take proceedings against the Resident before taking proceedings against the Guarantor.

[20] Although Mrs Krishna was sued as guarantor, her counsel Mr John Gwilliam rightly takes no point that the pleadings preclude an argument that his client is liable instead as a principal. The notice of claim filed in the District Court expressly refers to cl 2 above. There is no injustice to Mrs Krishna in considering liability on this alternative basis. Indeed, that is how the argument proceeded in both Courts.

[21] The effect of an ordinary principal debtor clause – constituting the guarantor a principal debtor also – as McMullin J observed in Orme v De Boyette,⁷ is to make the guarantor a principal debtor as against the creditor, albeit she remains a surety as against the person whose debt she guarantees. However the usual view is that that does not of itself create indemnity rather than surety, so that the guarantor would remain liable if the principal obligation (as here) is void or unenforceable.⁸

_{However, it is all a matter of contract. If the clause, for instance, purports to keep}

⁷ Orme v De Boyette [1981] 1 NZLR 576 (CA) at 580-582; see also Bank of New Zealand v Baker

_{[1926] NZLR 462 (CA) at 477-488.}

⁸ Heald v O’Connor [1971] 1 WLR 497 (QB).

the guarantor liable regardless of deficiency in the principal contract, the guarantor may remain liable as principal.⁹

[22] In my view cl 2 takes matters a step further again. I see no reason to limit its plain effect: that for all purposes Mrs Krishna may be treated as the “Resident”. That is, she may be treated as if party to the agreement in her own right. On that basis, the lack of acceptance by Nigel would not be fatal to Radius. Mrs Krishna may be treated for all purposes as counterparty to the alleged agreement.

[23] I received no argument addressing this point. Rather, the parties proceeded on the common assumption that that was the case. Had this issue been important to the end result I would have sought further submissions on it. As it happens, however, it is not.

Conclusion

[24] The answer to this issue appears to be “Yes”. I proceed for present purposes on the basis that Mrs Krishna may be liable as principal on the agreement, and that it is not necessarily void altogether for lack of acceptance by Nigel.

Does the defence of non est factum apply?

[25] The primary conclusion by the Judge below acquitting Mrs Krishna of liability was on the basis of non est factum. Mr Gazley attacked that conclusion on a number of bases. His primary attack was on two findings. First, that Radius had not discharged its onus of proof. Secondly, that it was more likely than not that Mrs Krishna had not intended to enter a contract to pay fees, whether as surety or principal.

Facts

[26] I turn to the facts: primarily the Judge’s factual findings, and other findings

_{which must flow from them.}

⁹ Andrews & Millett Law of Guarantees (6th ed, Sweet & Maxwell, London, 2011) at [6-028].

[27] First, and importantly, the Judge found Mrs Krishna to be a truthful witness. That conclusion is repeated in a number of places in his judgment. A finding of credibility is peculiarly one for the trial Judge to make. It will be respected on appeal.

[28] Secondly, no one at Radius directly involved in the transaction gave evidence. There was evidence from Mrs Krishna that the lady she dealt with when she signed the form was of African ethnicity. She was not called to give evidence, however.

[29] Thirdly, the Judge accepted Mrs Krishna’s evidence that the agreement form was backdated to 23 April 2010 – Nigel’s admission date. But in fact it was signed by her in June. At around the time application was being made to the Taikura Trust for funding.

[30] Fourthly, the Judge found that Mrs Krishna had simply signed the form when presented to her at the hospital reception, as she was leaving to catch a plane back to Wellington. Mrs Krishna’s evidence was that it was simply put in front of her, and she was told it was Nigel’s “admission”. She did not initial any other pages of the document, although she saw other pages and looked briefly at them. Her evidence, which the Judge found uncontradicted, was that the other pages were not the agreement Radius now sues on, but other pages.

[31] In evidence Mrs Krishna said it was a “few papers”: a list of clothing and some admission details, such as Nigel’s needs and contact information. She said she signed the document believing it to be Nigel’s “admission” document. That, she said, was the terminology used by receptionist who handed it to the respondent. She thought it was an acknowledgement that Nigel had been admitted on 23 April 2010. She only received the first page of the agreement (not the fourteen pages following containing the substantive clauses), in amongst a small number of other documents such as a list of Nigel’s clothing. Mrs Krishna acknowledged that she understood the term “guarantor”. She thought signing as guarantor had the effect of guaranteeing to pay for Nigel’s personal luxuries such as toiletries and snacks, over and above what was covered by Taikura Trust funding.

Law

[32] In Bradley West Solicitors Nominee Co Ltd v Keeman Tipping J set out a useful summary of the requisite elements of non est factum:¹⁰

1. The person raising the plea (the proponent) must have signed the document believing it to have a particular character or effect.

2. The document must in reality have a radically different character or effect thus creating a wholly different result from that which was understood by the proponent.

3. The proponent's mistaken belief must have resulted from an erroneous explanation or description of the document given to him by someone else.

4. The proponent must be able to show that, notwithstanding his error, he acted with all reasonable care in the circumstances.

5. If the proponent's mistaken belief arises because, acting in reliance upon a trusted advisor such as a solicitor, he did not take steps to read and understand the document prior to signing it, the plea is not available.

[33] Both counsel were content to adopt this formulation. It was not suggested that I should take any different view of the requisite legal elements. Only the first four are relevant here.

[34] I note that the onus of establishing this defence lay firmly with Mrs Krishna.

Application of law to facts

[35] In my clear view the Judge was entitled to find the first element proven on the evidence. Mrs Krishna thought she was signing an admission form, which at most would make her liable for a few personal items needed by Nigel. That was not an improbable state of affairs at all, given her experience in Australia and expectation that Nigel’s care in New Zealand would also be fully funded.

[36] Three things are critical here. First, the Judge’s acceptance of Mrs Krishna’s

evidence as truthful. In short, her credibility on this issue was not deflected or diminished by cross-examination. Nor, in fairness, has Mr Gazley laid a foundation

¹⁰ Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 (HC) at 120-121.

for a different view to be taken. Secondly, the absence of competing evidence challenging Mrs Krishna’s account from witnesses with direct knowledge on Radius’s side. Thirdly, the absence of initialling meant that her account of what was attached to the page she signed could not be contested. Indeed the entire execution process was an utter shambles. Mrs Krishna certainly cannot be criticised for that, but Radius can. The agreement presented was entirely unsuitable in the case of a resident such as Nigel. Plainly he was not fit to sign on his own account. So that part was just left blank. Mrs Krishna, in what seems to have been a state of common confusion, signed on behalf of Radius. Then as attorney, when she was not. Radius’s normal practice, according to its witness Ms Cohen, was then to take a copy of the power, and have the attorney complete the certificate of non-revocation. Neither was done. Then she signed as guarantor, when in my view it should have been made clear to her that she was really signing as principal obligee. Had that been done, the misunderstanding as to the extent of the guarantee would have been detected.

[37] Moving then to the second element, in my view that follows from the first finding. Mrs Krishna’s evidence, accepted by the Judge, was that the only part of the agreement she saw was the execution page. The balance of what is now presented as the agreement was not there. Instead some other, different pages were. Obviously, if her mind was not directed in any way (even if just by inclusion of the correct pages) to the contract now sued on, the second element is likely to be established. Here the complete document had the effect of rendering her liable for the payment of Nigel’s residential care fees either as a guarantor or principal party. A commitment to pay residential care fees in excess of $70,000 per year is radically different in effect to a commitment to pay for small personal luxuries. Mrs Krishna said in evidence if she had known the agreement’s effect was to make her liable for residential care fees, she would not have signed and simply have admitted Nigel to Auckland Hospital, as he was terminally ill at the time. The Judge accepted that evidence.

[38] The third requisite element is that Mrs Krishna’s belief arose from someone else’s erroneous explanation. I am satisfied that that element was met by Mrs Krishna’s evidence. That was that she was told that the form was Nigel’s “admission”. This, of course, was two months after he had been admitted. In the

circumstances it did not appear to be a very important document, or one from which serious consequences might flow. If it was concerned with matters as central as liability for fees, it would have been dealt with at the outset.

[39] The fourth requirement is that the respondent must show she acted with reasonable care in the circumstances. A person of full age and competence who fails to make some personal effort to determine the effect of a document signed will normally have failed to display the requisite care.¹¹ In the unusual circumstances of this case, I agree with Mr Gwilliam that his client did take requisite care. The signature sheet appears to have been presented in the absence of the rest of the agreement. It gives no clue as to the existence of broader terms of the contract, apart from some very small text at the bottom of the page: a page number that says “2”

and the line “Resident Admission Agreement November 09”. It was presented with a number of other minor administrative documents. She was told it was all to do with “admission”. It was presented in an informal manner, two months after admission actually occurred. It had the details of the hospital filled out and Nigel’s details. It simply required Mrs Krishna’s name, address, phone number and signature in two fields. It was pre-dated “23.4.10” in four places, despite being signed in June. She knew it involved a guarantee, but thought it must be to cover payment for small luxuries, the kind of thing she might have requested for Nigel while visiting, just as she was on the day that she signed. There was nothing in front of her to suggest otherwise. She was asked (or permitted) to sign it haphazardly. In these circumstances it hardly lies in Radius’s mouth to say Mrs Krishna lacked care.

[40] The fifth requirement, as I have said, does not apply.

Conclusion

[41] The answer to this issue is “Yes”. The Judge was entitled to find the defence of non est factum, in these circumstances, to be established.

[42] Those circumstances were most unusual. In short, a poorly drafted agreement, the major part of which appears to have been missing, was presented to

¹¹ Saunders v Anglia Building Society [1970] UKHL 5; [1971] AC 1004 (HL) at 1027.

Mrs Krishna to sign as she was leaving the hospital to catch a plane. It was presented, doubtless innocently, as an “admission” document. The receptionist had Mrs Krishna sign it as the hospital (which plainly she was not), attorney (which also she was not) and guarantor (for her 24 year old son, who was incapable of contracting in his own right anyway). None of this suggests that anyone that evening had much of a grasp on what they were actually doing.

Result

[43] Despite the able submissions made by Mr Gazley, Judge Perkins has not erred.

[44] Appeal dismissed.

[45] If costs are in issue, memoranda may be filed.

Stephen Kós J

Solicitors:

Steindle Williams Legal, Auckland for Appellant

Main Street Legal Ltd, Upper Hutt for Respondent