IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2016-409-000983 [2019] NZHC 505

BETWEEN	BENEFICIAL FINANCE LIMITED
Plaintiff

AND	SUSAN CLARE BROWN
First Defendant

AND	AIDAN MCALISTER BARR
Second Defendant

Hearing:	30 & 31 October 2017
(further evidence and submissions hearing closed June 2018)

Appearances:	A W Johnson for Plaintiff
S C Brown – First Defendant (in person) No appearance for Second Defendant

Judgment:	20 March 2019

JUDGMENT OF NICHOLAS DAVIDSON J

BENEFICIAL FINANCE LTD v BROWN & ANOR [2019] NZHC 505 [20 March 2019].

A.	INTRODUCTION

[1]	This case is a cautionary tale of a guarantor caught in the wash of liquidation, facing the expansive power given a lender to vary the terms of the lending guaranteed, and the differential treatment of guarantors.

[2]	Judgment is delivered long after the trial proper but further evidence and submissions extended well beyond.  This was in part because the first defendant,   Ms Brown, was self-represented and had to address evidential and legal issues of complexity. The Court recognised her plight.

[3]	The plaintiff, Beneficial Finance Ltd (“Beneficial”) is a finance company which advanced money to NZ Clean Energy Systems (“Clean Energy”) under Invoice Financing Agreements of 30 May 2014 (“the 2014 IFA”) and 10 June 2015 (“the 2015 IFA”). Clean Energy did not pay its debt to Beneficial and was placed in liquidation on 9 June 2016. This action is against the defendants under the guarantee of Clean Energy’s debt. Each guarantor is liable as if the principal debtor, not merely a surety, and they are jointly and severally liable. Only Ms Brown defended Beneficial’s claim, saying as a first line of defence that it did not advance money to Clean Energy, but another company, Financial Holdings Ltd (“FHL”) did so.

The 2014/2015 Invoice Financing Agreements

[4]	Both IFAs recorded that the parties were Clean Energy as ‘borrower’, Beneficial as ‘lender’, with Aidan McAllister Barr, Ian Thomas McLaren, Antony Barry Rains, Peter John Summerfield, and Susan Clare Brown, as the ‘guarantors’.

[5]	The “Background” records that Clean Energy enters commercial contracts with customers to which the company sells its products and services and wished to borrow funds for the purposes of its working capital. The lender agreed to provide a facility to the borrower against the security of the trade debts, goods, trading trust account and General Security Agreement on the terms of the agreement (IFA).

[6]	Clause 4 recorded:

At the request of the borrower the guarantor has agreed to guarantee its obligations to the lender under this Agreement.

[7]	The 2015 IFA under “Background” further recorded:

5. This agreement replaces an invoicing finance agreement signed by the borrower, the lender and certain of the guarantors in 2014 as provided for in clause 24.

The guarantee

[8]	Under cl 23 of the 2015 IFA under “Guarantee and Indemnity” new subclauses
23.6 – 23.8 were introduced.

[9]	Clause 23.6 of the 2014 IFA provided that the guarantor must obtain independent legal advice on the guarantee and indemnity, separate from advice given to the borrower, Clean Energy, and provide a solicitor’s certificate to the lender certifying that such independent legal advice had been given and that the guarantee and indemnity had been correctly executed. The 2015 IFA provided to the same effect but added:

… but if any of the guarantors elect not to do, they acknowledge irrevocably to the lender that they have been advised to obtain such independent legal advice, but elected not to do so on the basis that they now irrevocably acknowledge to the lender that they are fully aware and understand the implications of giving the guarantee and indemnity, have correctly executed it, and will not challenge its effectiveness of any basis whatsoever.

[10]	Clause 23.6 of the 2015 IFA recorded that the guarantors remained bound by the guarantee and indemnity, even if any other guarantor did not sign the 2015 IFA, or had not signed the 2014 IFA, or was not bound by it, or was released from all or part of their obligations under it.

[11]	Clause 23.8 of the 2015 IFA recorded that notwithstanding that the guarantors’ liabilities are joint and several, the guarantors, the borrower and the lender agreed that the liability of Mr Summerfield was limited to a period of two years from the “effective date”, to the maximum sum of $50,000 including interest and costs owed by the borrower to the lender.

[12]	Ms Brown signed the 2014 IFA as a deed with her signature witnessed  by  Ms Shirtcliff-Scott, described as a “Customer Service Rep”. The “compliance certificate”, while initialled in the 2014 IFA, was incomplete as there was no name given for the “authorised officer of the borrower”, who certified the representations and variations of the borrower.

[13]	The 2015 IFA purports on the first page to be made (undated) in 2014, but on the frontispiece it is described as “Invoice Financing Agreement 2015”. Again, it was signed as a deed by Ms Brown, and by the compliance certificate Ms Brown certified as authorised officer of Clean Energy the various representations and warranties by Clean Energy.

Outline of case

[14]	The case for Beneficial was put by Mr Johnson as counsel. The sole witness for Beneficial at trial was Mr Oldham, a director of Beneficial and of FHL. He executed the IFAs on behalf of Beneficial and gave evidence of the calculation of Clean Energy’s debt. Beneficial says that it was the lender pursuant to the IFAs and used FHL as a conduit to make payments to Clean Energy and to take invoice security effectively as its trustee/agent. Mr Oldham and Beneficial say that Ms Brown knew FHL was a conduit for Beneficial as a bare trustee, and took an assignment of invoices with an immediate further assignment of rights in those invoices to Beneficial.

[15]	The evidence discussed in more detail below is that money was channelled from Beneficial to FHL, then to Clean Energy, and the process reversed when receiving payments from customers. Beneficial’s case is that there was a daily reconciliation between Beneficial  and  FHL  reflecting  these  arrangements,  and Ms Brown knew of and acknowledged the invoice financing debt owed by Clean Energy to Beneficial.

[16]	Otherwise, Beneficial says that there was no material variation of the arrangements entered between it, Clean Energy and the defendants, but if there was, then Ms Brown agreed to that, and otherwise the sweeping provisions of cl 23.1 of the IFAs mean that Ms Brown as guarantor is not released from liability. Ms Brown says there were material variations to the terms of the IFAs to which she did not consent,

so is released from any liability, but she faces the rigour of cl 23.1. She began working for Clean  Energy  in  September  2012  as  chief  executive  officer,  reporting  to  Mr McLaren. She says that any variation to the IFAs had to be in writing and was not. This was addressed in the summary judgment of Associate Judge Osborne (now Justice Osborne) referred to below.

[17]	Beneficial’s case is that Clean Energy at the date of the hearing owed it
$273,287.75, but this was well tested at trial, if Ms Brown is liable to Beneficial. There are a number of issues as to quantum including the principal outstanding, interest, loan fees and the application of retention monies. There are further issues as to whether invoices were associated with Clean Energy rather than Orange Technologies Ltd (“Orange”), whether recovered invoice monies were applied to Clean Energy involving a credit facility which was not guaranteed, and closing out of Orange invoices rather than those under the IFA. The application of money derived from settlement with another guarantor is relevant to quantum.

[18]	To support her defences Ms Brown gave evidence and called Ms Laura Kerr, who was a commission sales representative of Clean Energy based in Christchurch before she moved to Whangarei, working for Clean Energy from the Auckland office of   Orange   between   November   2015   and   March   2016.   She   also   called  Ms Alex Shirtcliff-Scott, whose work with Clean Energy included administration and reconciliation using Xero software for the accounts, based in Christchurch from January 2014 to March 2016. Ms Brown says these witnesses confirm the commercial and personal relationship between the founder of Clean Energy, Mr McLaren, and Beneficial, which negated her ability to influence decisions which should have been taken in the best interests of the company, but were not, and which adversely affected her by material variation to the IFAs to which she did not consent.

The litigation narrative

[19]	The history of the litigation was relatively straightforward until trial on 30 and
31 October 2017 where issues arose which meant further evidence had to be contemplated, and further submissions were necessary. Ms Brown was not represented, but had retained counsel in the summary judgment proceeding, and her

defence for the purposes of this judgment largely mirrors her successful defence at that stage, with her more extensive evidence at trial.

Summary judgment

[20]	Beneficial sought summary judgment against Ms Brown and Mr Barr before the (then) Associate Judge.1 The judgment is a thorough exposition of Ms Brown’s defence put by counsel. The judgment provides a clear pathway into issues for this judgment.

[21]	The IFAs between Clean Energy and Beneficial were standard in their purpose, to provide immediate working capital. The two IFAs were in material terms identical, and the Judge referred to the 2015 IFA as the basis of Beneficial’s claim.

[22]	The claim  against Ms Brown and  Mr Barr updated before the Court as  of  10 April 2017 was for $299,370.90. Under the 2015 IFA the liability of one guarantor, Mr Rains, was surrendered, and that of a Mr Summerfield limited to $50,000 for two years. Ms Brown and Mr Barr remained guarantors without limit.

[23]	I set out the terms of the second IFA, referred to in the summary judgment.

Parties

1.	NZ Clean Energy Systems Limited (Company No: 3900116)… (“the Borrower”), and

2.	Beneficial Finance Ltd (Company No: 85259)… (“the Lender”), and

3.	Aidan McAlister Barr…, Ian Thomas McLaren…, Peter John Summerfield… and Susan Clare Brown… (together “the Guarantor”).

…

1.	DEFINITIONS

1.1	In this Agreement:

…

“Applicable Rate” is 12.95% per annum calculated daily.

1	Beneficial Finance Ltd v Brown [2017] NZHC 964.

…

“Receivables” are all existing and later arising accounts receivable, chattel paper, contract rights, rights to payment and other obligations owed to Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision or services, along with all credit insurance, guarantees, letters of credits or other security associated therewith and all merchandise returned or reclaimed by Borrower relating to any of the foregoing and any proceeds therefrom.

…

“Reconciliation Period” is each calendar month.

…

2.	FINANCING OF RECEIVABLES

…

2.2. Acceptance of Receivables; Advances: … When Lender accepts a Receivable, within 5 days thereafter, Lender will lend to Borrower an amount equal to the Advance Rate times the face amount of the Receivable (the “Advance”)…

…

3.	COLLECTIONS,	FINANCE	CHARGES,	REMITTANCES AND FEES

The Obligations shall be subject to the following fees and Finance Charges. Fees and Finance Charges may, in Lender’s discretion, be charged as an Advance, and shall thereafter accrue fees and Finance Charges as described below. Lender may, in its discretion, charge fee and Finance Charges to Borrower’s deposit account maintained with Lender.

3.1.	Collections: Collections of each Financed Receivable will be credited by Lender within one business day of its receipt against the Advance made with respect to such Financed Receivable. As long as there is not an event of Default, or an event that with notice of lapse of time will be an Event of Default, within 3 business days of Lender’s receipt of any Collections, Lender will use its best efforts to remit to Borrower within 3 days after payment has been made to the Lender Trust Account in Section 3.9 the difference of (i) the amount of Collections in excess of the amount for which Lender has made an Advance to Borrower for such Financed Receivable, plus any amount received for Receivables other than Financed Receivables, minus (ii) any amount then due and owing to lender hereunder, such as outstanding fees, expenses or otherwise. This Section does not impose any affirmative duty on Lender to do any act other than to turn

over amounts. All Receivables and Collections are Collateral and if an Event of Default occurs, Lender need not remit Collections of Collateral and may apply them to the Obligations.

3.2.	Finance Charges: In computing Finance Charges on the Obligations, all Collections received by Lender shall be deemed applied by Lender on account of the Obligations within one business day after receipt of the Collections. Borrower will pay a finance charge (the “Finance Charge”, of
(i)	the Applicable Rate times (ii) the  number  of  days  in the Reconciliation Period divided by 360 days times (iii) the outstanding average daily Financed Receivable Balance for that Reconciliation Period. After an Event of Default, Obligations accrue interest at 5 percent above the Applicable Rate effective immediately before the Event of Default

3.3.	Commitment fee: [omitted deliberately].

3.4.	Collateral Handling Fee: On each Reconciliation Day under Section 3.9, Borrower will pay to lender a collateral handling fee, equal to 1% of the aggregate Financed Receivables immediately prior to the Reconciliation Day, any adjustment occurring in an amended direct debit for the following Reconciliation Period which (under Section 5) the Borrower authorises the Lender to make with the Borrower’s bank (the “Collateral Handling fee”).

3.5.	Early Termination fee: [omitted deliberately].

3.6.	Accounting: After each Reconciliation Period, Lender will provide an accounting of the transactions for that Reconciliation Period, including the amount of all Financed Receivables, all Collections, Adjustments, Finance Charges, and the Collateral Handling Fee. If Borrower does not object to the accounting in writing within 30 days it is considered correct. All Finance Charges and other interest and fees calculated on the basis of a 360 day year and actual days elapsed.

3.7.	Deductions: Lender may deduct fees, finance charges and other amounts due from any Advances made or Collections received by Lender.

…

4.	REPAYMENT OF OBLIGATIONS

…

4.2 Repayment on Event of Default: When there is an Event of Default, Borrower will, if Lender demands (or, in an Event of Default under Section 9(b), immediately without notice or demand from Lender) repay all of the Advances…

…

9.	EVENTS OF DEFAULT

Any one or more of the following is an event of default:

(a)	Borrower fails to satisfy or pay any Obligation to Lender when due:

(b)	Borrower files or has filed against it any Insolvency Proceedings or any assignment for the benefit of creditors, or appointment or a receiver, liquidator, assignee or custodian for any of its assets:

…

10.	REMEDIES

10.1 Remedies Upon Default: When an Event of Default occurs, (1)…; (2) at Lender’s option and on demand, all or a portion of the Obligations or, for an Event of Default described in Section 9(b), automatically and without demand, are due and payable in full…

…

10.3  Default  Rate:   If   any  obligation  is  not  paid  when  due, the amount of such unpaid Obligation bears interest at the Applicable Rate plus 5 percent until the earlier of (a) payment in cleared, non-reversible funds or (b) entry of a final judgment when the principal amount of any money judgement will accrue interest at the highest rate allowed by law.

11.	FEES, COSTS AND EXPENSES

The Borrower will pay on demand all fees, costs and expenses (including legal and professional fees with costs and expenses) that the Lender incurs from:

…

(c)   enforcing any rights against  Borrower  or any guarantor,  or  any Account Debtor,

…

16.	AMENDMENTS IN WRITING, ENTIRE AGREEMENT

All amendments to this Agreement must in [sic] in writing. This Agreement is the entire agreement about this subject matter and supersedes prior negotiations or agreements.

…

23.	GUARANTEE AND INDEMNITY

23.1	In consideration of the Advance by the Lender to the Borrower, the Guarantor guarantees to the Lender, and indemnifies the Lender against loss incurred by the Lender from a breach in the due and punctual payment of the Advance and the observance and performance of the Borrower’s obligations under this Agreement and the security granted in favour of the Lender for the payment of the Advance. The Guarantor is liable under this guarantee and this Agreement as if it were the sole principal debtor and not merely a surety. The Guarantor agrees that no indulgence, granting of time, waiver or forbearance to sue or any other thing whereby the Guarantor would be released as a surety or otherwise shall in any way release the liability of the Guarantor under this Agreement. The guarantee under this clause 23 is in addition to and not in substitution for or in replacement of any guarantee and indemnity granted by the Guarantor as part of its security for the Advance and if given by more than one person is a joint and several guarantee with those other Guarantors. (emphasis added)

[24]	Mr Chand deposed that FHL was a bare trustee for Beneficial in lending to Clean Energy and produced letters of demand to Ms Brown and Mr Barr in the name of FHL. Ms Brown accepted that there were advances to Clean Energy but said that they were by FHL not Beneficial. She used as an example a factoring request to FHL, with an assignment of Clean Energy’s interest in invoices dated 5 June 2015.

[25]	Mr Oldham explained the calculation of the sum allegedly owing under the guarantee.  He anticipated the amount owing would reduce by $50,000 shortly after  8 September 2017 as a settlement offer had been received from Mr Summerfield’s lawyer, which Beneficial would accept.

[26]	His Honour summarised the three issues at the heart of Ms Brown’s defence; first that Beneficial was not the lender, rather FHL, and she provided no guarantee in favour of FHL.

[27]	As to variation, Ms Brown said that Mr McLaren retired as a director in November 2012 but remained involved in management and in reality controlled the company, so in that sense was a shadow director who made decisions without her knowledge or consent, including financing decisions which gave rise to the claim against her under the guarantee. She understood that he and Mr Oldham, as a director

and shareholder of Beneficial and FHL, had a close business relationship but she was kept in the dark about what went on. Part of her contention about a “variation” is that without her knowledge Mr McLaren and Mr Oldham varied cl 4.1 of the agreement by allowing Clean Energy to obtain receivables without paying them on to Beneficial as required, in effect retaining funds and capitalising them on top of Clean Energy’s debt to Beneficial. That increased the debt burden without her knowledge or consent, and she said she would not and did not provide a guarantee for such an arrangement, which allowed Clean Energy to incur significant liability. She could not quantify the effect of such variation. This variation to the IFA was otherwise said by Ms Brown’s counsel to be in breach of cl 16 of the IFA because it was not in writing.

[28]	As to quantum, His Honour held it would be inappropriate to read any part of Mr Oldham’s affidavit of 31 March 2017 for summary judgment other than specified paragraphs, because it went beyond legitimate updating information.

Issue One: ‘The correct plaintiff issue’

[29]	His Honour held the evidence was that Clean Energy produced invoices to Beneficial which met its obligations by providing funds on the security of those invoices. Beneficial used FHL to process payments and to act as the assignee of security. Ms Brown was aware of this trust relationship, as when the 2015 IFA was executed she received a letter from FHL which recorded that it would hold the assigned invoices as trustee for Beneficial. Further, on 27 June 2015 Ms Brown wrote a status report which recorded the obligation to Beneficial as a result of factoring. Ms Brown had in June 2015 received FHL’s correspondence which recorded that it was taking assignment of particular invoices as trustee for Beneficial. This ground of opposition, that the true lender was FHL and not Beneficial, was not made out.

Issue Two: The variation issue

[30]	His Honour identified two elements of this part of Ms Brown’s defence. The first was that under cl 16 of the IFA, all amendments to the IFAs must be in writing, and the second turned on the doctrine of discharge by a material variation to the terms of the underlying IFA. Mr Johnson as counsel for Beneficial did not address cl 16, but said that it was generally open to parties in a written contract to vary an agreement.

[31]	Ms Brown said Mr McLaren and Mr Oldham agreed that Clean Energy could for a time retain receivables paid to it and that allowed the underlying debt to compound.

[32]	His Honour addressed cl 16 of the 2015 IFA, and referred to Law of Contract in New Zealand where the learned authors state:2
19.3	Variation of contract and waiver

19.3.1	General

A contract once made can be varied by agreement between the parties. They can add terms, omit terms, or alter terms. There is authority that a clause of  a contract cannot validly provide that the terms of the contract cannot be varied: it must logically be open to the parties to revoke that clause. In other words, a contract cannot be entrenched for all time contrary to the mutual wishes of the parties.

(footnotes omitted).

[33]	His Honour then discussed this principle in a way which I find helpful to set out in full.

[71]	The authority referred to in the third sentence is a decision of the Court of Appeal of Ontario in Shelanu Inc v Print Three Franchising Corp.3

[72]	The topic of clauses prohibiting oral amendment is also addressed by Edwin Peel in the current edition of Treitel on the Law of Contract, in the following passage:4

A contract may contain a term stipulating that it cannot be modified or varied unless in writing. Such terms cannot entirely prevent an oral variation since “there is no reason why the contract, including the clause requiring variation to be in writing, could not have been varied orally.” It is, ultimately, a question of the intention of the parties.

(footnotes omitted).

[73]	The quotation included in the Treitel passage is taken from the judgment of the English Court of Appeal in Westbrook Resources Ltd v Globe

2	Burrows, Finn and Todd (eds) Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at 19.3.1.
3	Shelanu Inc v Print Three Franchising Corp (2003) 226 DLR (4th) 577 (Ontario CA).
4	Edwin Peel Treitel on The Law of Contract (14th ed, Sweet & Maxwell, London, 2015) at [5-036].

Metallurgical Inc.5 The authority cited as to the intention of the parties is the English decision in Virulite LLC v Virulite Distribution Ltd.6

[74]	There has been a significant consideration of clauses prohibiting oral amendment in a number of recent decisions of the English Courts. Several are footnoted in the Treitel passage to which I have referred. While I have not been referred by counsel to a similar body of discussion in New Zealand,      I regard the developing English approach as likely to be applied also in New Zealand. It is sufficient that I refer to but one of the recent English judgments, that of Stewart-Smith J in Virulite. His Lordship there dealt with a distribution and license agreement which (following an “entire agreement” provision) contained a clause, providing:7

This  Agreement  shall  not   be  modified  in  anyway  except  by     a subsequent written instrument signed by both parties.

[75]	Stewart-Smith   J   recognised,    by   reference   to   authority,    that a subsequent variation may have effect notwithstanding such a clause. His Lordship then referred to authorities which suggested either that there is an “evidential presumption” against variation being effective or that parties seeking to displace the effect of such a clause face a “very high evidential burden”. In particular His Lordship referred to the judgment of Judge Mackie QC in Globe Motors Inc v TRW Lucasvarity Electric Steering Limited, who had referred to “a requirement for strong evidence before reaching such a finding”.8

[76]	Stewart-Smith J then continued:

[58]	In McKay v Centurion Credit Resources LLC9 and Energy Venture Partners Ltd v Malabu Oil and Gas Ltd10 it was either conceded or agreed that Judge Mackie QC’s obiter dictum was correct. However, in Energy Venture Partners Gloster LJ went further in giving her view of the law (at [273]–[274]):

‘… as at present advised, I incline to the view that there can be an oral variation in such circumstances, notwithstanding a clause requiring written modifications, where the evidence on the balance of probabilities establishes such variation was indeed concluded. In many cases, such as United Bank Ltd v Asif [11 February 2000, unreported] (where the relationship between the parties was a formal banking relationship) the factual matrix of the contract and other circumstances may well preclude the raising of an alleged oral variation to defeat an entire agreement clause. In others, the evidence may establish on the balance of probabilities that the parties by their oral agreement and/or conduct have varied the basis of

5	Westbrook Resources Ltd v Globe Metallurgical Inc [2009] EWCA Civ 310; [2009] 2 Lloyd’s Rep 224 at [13].
6	Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366 (QB); [2015] 1 All ER (Comm) 204 at [60].
7	At [19].
8	Globe Motors Inc v TRW Lucasvarity Electric Steering Limited [2012] EWHC 3134 (QB); [2012] All ER (D) 138 (Nov) at [53].
9	McKay v Centurion Credit Resources LLC [2011] EWHC 3198 (QB), [2011] All ER (D) 88 (Dec).
10	Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2013] EWHC 2118 (Comm), [2013] All ER (D) 347 (Jul).

their contractual dealings, and have effectively overridden a written clause excluding any unwritten modification.’

[59]	I do not understand Gloster LJ to mean that the existence of a particular form of agreement (as in Asif) will preclude the raising of the argument that an alleged oral variation should defeat an entire agreement clause. Rather, I understand her to be contrasting those cases where the facts are sufficient to establish that the parties have subsequently overridden the terms of the original contract and those where they are not. With that minor gloss I would respectfully adopt Gloster LJ’s formulation of the law.

[60]	Each case will be fact sensitive, depending upon the terms of the original contract and what has happened thereafter. To my mind, the fact that a clause was specifically negotiated or was insisted on by one party or the other(for a particular reason or no reason at all) may be a relevant factor; and the existence of a written clause excluding any unwritten modification will require the court to look closely both at whether the parties subsequently reached an agreement that would, if enforced, vary the effect of the original contract and also at whether in reaching that agreement the parties intended to enter into legal relations so as to vary the terms of their original contractual obligations. But it seems to me that, while all relevant facts should be given their due weight in assessing these questions and the burden of proof rests on the person who alleges that the original contractual obligations have changed, the standard of proof is and remains the balance of probabilities throughout. I would prefer not to adopt the use of ‘strong evidence’ or ‘a very high evidential burden’ since there is a danger that they may be treated as affecting the burden or standard of proof. Similarly, I would prefer not to adopt the phrase ‘evidential presumption’, though the intent behind it is clear. Rather, I adopt the approach that the court should give all relevant evidence its due weight when asked to find on the balance of probabilities that there has been a subsequent variation which has legal affect even though it does not comply with the formalities stipulated by the original contract. The terms of the original contract will always be material to that exercise; the circumstances in which those terms were negotiated and agreed may also be.

[77]	Virulite is accordingly authority for the proposition that whether an oral variation becomes operative turns on the intention of the parties. The burden of proof rests on the party alleging the variation. The standard of proof is the balance of probabilities. The Court will need to assess all relevant evidence relating to the parties’ contractual dealings. Finally, as recognised by Gloster LJ in Energy Venture Partners, there may be formal relationships (such as banking relationships) in which the factual matrix of the contract and other circumstances preclude the raising of an alleged oral variation to defeat an entire agreement clause.11

[34]	My own gloss on this exposition is that it is concerned with the obligations of parties to an agreement, and their express contractual intent that any variation be in

11	At [274].

writing. If they clearly intend to vary an agreement other than in writing, orally or perhaps by a course of conduct, that will be enforced by the Court under the principle that parties are free to contract and to further contract. One step removed, a guarantor is a principal too, so is entitled to expect variations to be in writing. That is a point to bear in mind for this judgment.

[35]	His Honour turned to Beneficial’s case and its reliance in part on cl 23.1 of the IFA. Ms Brown’s counsel said this did not apply because there was a material alteration, being a variation of both agreements without her consent, which released Ms Brown from liability. He relied on a passage from Laws of New Zealand – Guarantees and Indemnities as follows:12
202.  Material alteration of guarantee. An immaterial alteration, such as the correction of an innocent misdescription of the principal debtor, will not prevent a guarantee being enforceable, even if the alteration is made after signature and the guarantor does not consent to the alteration being made.

However, a material alteration, not approved by all the parties to the original document, will avoid the guarantee. A material alteration is one which has an effect on some contractual right contained in, or arising out of the instrument itself…

(footnotes omitted).

[36]	Two Court of Appeal judgments addressed the applicable principles, in
Gillespie v Algert Co Inc13 and Benchmark Building Supplies Ltd v Weatherby.14

[37]	Counsel for Ms Brown submitted that Mr McLaren and Mr Oldham made an agreement which significantly increased Clean Energy’s indebtedness because it allowed debts to compound, and to retain funds which should have been paid to Beneficial. His  Honour  repeated  the  conclusions  he  reached  in  Bushnell Builders Ltd v McGoverne:15
[17]	The general principles relating to the formation of contracts apply to the formation of contracts of guarantee. It is the parties to the contract of guarantee who determine the terms on which they contract. In the absence  of express terms, the common law provides a range of applicable principles.

12	Austin Forbes and Shuna Lennon Laws of New Zealand Guarantees and Indemnities (online ed).
13	Gillespie v Albert Co CA85/01, 11 October 2001 at [23].
14	Benchmark Building Supplies Ltd v Weatherby CA278/00, 19 July 2001 at [10] and [15] – [17].
15	Bushnell Builders Ltd v McGoverne HC Christchurch CIV-2008-409-1785, 16 December 2009.

[18]	I adopt as a summary of the general position the following passage in
Laws of New Zealand, Guarantees and Indemnities para 76:

76.	Terms of contract may modify usual incidents. The general principles governing the rights and obligations of the parties to a contract of guarantee may in many instances be modified or negatived by the express of implied terms of the particular contract. Standard form guarantees drafted for institutional lenders are typically drafted to ensure that many of the protections which would otherwise be afforded a guarantor are removed. Each contract of guarantee should be construed according to its own terms.

[19]	It follows that the court must give effect to the intention of the contracting parties as expressed in the guarantee document. I adopt as a correct summary of the  law  the  following  additional  passage  from  Laws  of  New Zealand Guarantees and Indemnities para 77:

77.	Principles of construction. …Wide clauses in the guarantee will be given full effect, even if they will negate defences which would otherwise be available to the guarantor. Nor will the Court strain for a meaning of the words of the guarantee so as to enable the guarantor to escape liability, for instance upon the principal debtor being adjudicated bankrupt or being wound up. It is purely a question of construction as to whether the guarantor’s right to treat the guarantee as discharged has been effectively excluded.

[38]	If His Honour had found it necessary, he would have held that circumstances which would otherwise lead to discharge of the guarantor would not have had that effect because of the broad wording of cl 23.1 particularly:

The Guarantor agrees that no indulgence, granting of time, waiver or forbearance to sue or any other thing whereby the Guarantor would be released as a surety or otherwise shall in any way release the liability of the Guarantor under this Agreement.

[39]	His Honour addressed cl 16 of the IFAs. Ms Brown’s case was that Clean Energy’s retention of receivables compounded the debt, and that raised the question whether the parties intended to bind themselves by an oral variation, when cl 16 said such had to be in writing. The factual matrix of the contract went beyond the limited evidence on the summary judgment application. In particular, the scope or effect of the variation could not be judged by the Court as Beneficial chose to argue the variation issue as one of law alone, and did not adduce evidence in that regard. There was thus an arguable defence based on variation to the IFAs, variations other than in writing, and the application of cl 23.1.

Issue Three: The quantification issue

[40]	Beneficial relied upon “loan trial balances” at 9 June 2016, 16 December 2016 and 10 April 2017. These set out debt and interest calculations and allowed for the settlement with Mr Summerfield of $50,000. He paid $35,000 of that sum but Beneficial credited the Clean Energy account by $50,000.

[41]	His Honour considered Ms Brown’s case that the figures provided by Beneficial did not reflect the record of invoice factoring, but this was not particularised. Beneficial provided an accounting record of advances and interest charged but there was no equivalent accounting by Ms Brown. Quantum was for Beneficial to prove and its evidence lacked identification of charges and fees which were levied. It was entitled under cl 3 of the IFA to impose finance charges and collateral handling fees.

[42]	Ms Brown’s evidence as to quantum was put in the context that she executed the 2015 IFA as a Clean Energy director, completed the compliance certificate as CEO, and made representations to stakeholders before the June 2015 agreement was executed. She received FHL correspondence for Clean Energy. Ms Brown’s position in contesting quantum was described by Mr Johnson as “cryptic”.

[43]	However, the loan trial balance which accompanied the demand and further loan trial balances exhibited by Beneficial did not record the calculation of charges and fees which were imposed.   Beneficial did not assert Ms Brown had received      a comprehensive statement of all charges imposed in addition to principal, interest and recoveries, and in essence Beneficial came up short of the calculations which were sought for Ms Brown by her then counsel. His Honour would not have been satisfied that the full sum alleged by Beneficial was owing.

[44]	In short, Beneficial had not discharged the onus of showing that Ms Brown and Mr Barr had no defence as to liability or the quantum of the claim. The application for summary judgment was dismissed with costs.

B.	EVIDENCE AND SUBMISSIONS

[45]	At  trial  Mr  Johnson  described  Beneficial’s  case   as  “straightforward”. Mr Oldham’s evidence went into more detail about the calculation of debt. After closing submissions on 31 October 2017, the Court was provided with further material, reflected in  supplementary evidence  of  Mr Oldham  of 6 April  2018 and a memorandum from Ms Brown of 31 May 2018. Earlier, counsel for Beneficial addressed the collateral handling fee by memorandum dated 15 November 2017, and a memorandum was filed in response by Ms Brown on 12 March 2018. I will review this material under the Issues for judgment.

[46]	At trial, Ms Brown sought to employ further defences. She says Beneficial did not take steps to ensure she understood her position, a solicitor’s certificate was not completed for the 2014 IFA, nor was there any effort made to tell her of variations between the two IFAs. She says decisions were made between Clean Energy and Beneficial which she should have been told about, and Beneficial did not act in good faith when it took “instructions” from Mr McLaren, who was not an officer of the company, and it had not “considered all guarantors under the agreement”. She also says another company, New Standard Ltd, was incorporated with Mr McLaren as the sole director and Mr Barr as sole shareholder, and there must be some conflict of interest for Beneficial, given these relationships. In the end, she says that Mr McLaren was not acting in the best interests of the company, so she felt she had to resign as a director.

ISSUE ONE: BENEFICIAL OR FHL?

[47]	Mr Oldham’s evidence is that all funding of Clean Energy through the IFAs came from Beneficial. It flowed out from Beneficial and came back in reverse. There is evidence before the Court of four  examples as to  how this worked in practice.  Mr Oldham summarised the working relationship between Beneficial and FHL in this way:

In summary, the position is that BFL enters into the contract, it forwards monies to FHL (as its effective agent) who then advances the money to the borrower. FHL then receives the signed invoices (recording that it does so as trustee for BFL). Payments are received by way of direct debit taken by FHL

but then on the same day transferred to BFL. It is BFL’s position that these transactions do not contradict the terms of the Financing Agreement.

[48]	There was a daily reconciliation between Beneficial and FHL. The process was longstanding, since about 1996.

[49]	Ms Brown retained her defence that advances were made by FHL to Clean Energy so they did not fall within the scope of the 2014 or 2015 agreements. This defence is based entirely on her case that the substance of the advances was by FHL not Beneficial. The argument was developed by her saying there had been strict adherence by Beneficial in the use of company names, and all money in and out of Clean Energy’s account was in the name of FHL, as were the factoring schedule requests, and all loan trial balances received by Ms Brown (bar one). The demands made of the guarantors were in the name of FHL, and debts were recorded with the liquidators in the name of FHL, until Beneficial asked that this be changed.

[50]	Ms Brown recognised in evidence that the assignment letters from FHL referred to Beneficial, which she says she had not noticed before, but she says these were not regular, and the internal arrangements with regard to the “channelling of moneys between FHL and Beneficial” were not disclosed to her. Ms Brown wrote to Clean Energy on 25 January 2016 to say that she would write to Beneficial to inform them she would not be liable under her personal guarantee for further advances under the IFA. She is submitted to have been aware of the substance of the transactions, and understood that Beneficial was the lender, as invoices were assigned to it and the payments were channelled to it.

Discussion

[51]	Ms Brown says the first demand made of her was in the name of FHL and all her dealings with Mr Oldham or his staff at Beneficial were in relation to the FHL factoring agreement. She says she knew she had guaranteed the obligations of Beneficial but the factoring by FHL meant she was not incurring any personal liability, as she understood it. She denies she understood or was advised of the legal relationship between FHL and Beneficial and the asserted bare trusteeship of FHL.

[52]	Ms Brown on my review of all the evidence, did understand the assignment of the invoices.   On all of them FHL took an assignment as trustee for Beneficial.        It recorded the assignment of the vendor’s rights to Beneficial. When asked by Beneficial’s auditors for confirmation of the amount owing by Clean Energy to Beneficial, Ms Brown confirmed that her records accorded with the loan trial balance in the  sum  of  $170,314.64.  Ms Brown  prepared  the  company  status  report  of 27 June 2015, which referred expressly to monies owed to Beneficial “… for factoring that we have been paid for but that we have not repaid to them”. She wrote to Clean Energy on 25 January 2016 to say that she intended to write to Beneficial saying that she would not be liable under her personal guarantee for further advances under the invoice financing agreement.

[53]	There is nothing out of the ordinary about the guarantees and indemnities given by Ms Brown other than the potentially very harsh effect of cl 23.1, part of the second Issue for this judgment. The guarantee plainly related to Beneficial’s advances to Clean Energy of monies which in turn related to invoices issued by Clean Energy. The 2015 IFA was largely a replacement of the 2014 IFA with the same provisions, other than release of Mr Rains from his liability as a guarantor, and Mr Summerfield’s liability becoming limited.

[54]	Between April 2014 and December 2015 Beneficial provided financing for 186 invoices/purchase orders, and Mr Oldham produced evidence of those loans and copies of all factoring schedules and invoices/orders that he had been able to locate. On 31 separate occasions factoring took  place on dates between 30 April 2014 and  7 December 2015.

[55]	On breach of the second IFA by Clean Energy, Beneficial says the guarantors were liable. It seems there will be no dividend to creditors of Clean Energy following its liquidation on 9 June 2016. I find that Beneficial’s position is established as the lender of finance under the IFAs, by the process described in evidence, so that FHL was a bare trustee for Beneficial and a conduit with Clean Energy. I find having heard her evidence and that of Mr Oldham that Ms Brown knew of and acknowledged the invoice financing debt owed by Clean Energy to Beneficial. She has no defence to Beneficial’s claim on the basis that somehow FHL was a party independent of

Beneficial so that she has ended up being sued for the debt owing to it, as opposed to Beneficial.

[56]	Ms Brown refers to the evidence of Ms Kerr and Ms Shirtcliff-Scott, that before she left the company,  decisions were taken outside her control, including       a virtual consolidation of Clean Energy and Orange from October 2015, and this put a much greater burden on Clean Energy and increased its indebtedness. This is addressed under Issues Two and Three.

Conclusion

[57]	I conclude there can be no argument about this first Issue. The evidence is indisputable that  Beneficial  was  the  lender,  Clean  Energy  the  borrower,  and  Ms Brown’s guarantee related to that relationship. Ms Brown’s defence under Issue One that FHL was the lender therefore fails.

ISSUE TWO: MATERIAL VARIATION AND CLAUSE 23.1

[58]	Issue Two overlaps with Issue Three. Issue Three addresses cl 16 and variations to the IFAs other than in writing, where cl 16 of the contract provides for written variation only. If parties are proved to intend an oral variation, then the Courts will recognise that as the (then) Associate Judge discussed. However, whether that extends to a guarantor who does not agree in writing or otherwise is a discrete issue to be discussed under Issue Three.

[59]	Mr Johnson accepts that under the law applicable to guarantees, a material variation in an obligation not agreed by the guarantor releases the guarantor from liability for all that arises after the variation, subject to the wording of the guarantee. Two parties to a contract cannot unilaterally impose obligations on a third party with which that party has not agreed unless there is an express provision to that effect.

[60]	Ms Brown’s defence is that Beneficial without her consent or knowledge varied the IFAs so as to materially increase the debt burden of Clean Energy. She refers to the argument by her counsel in the summary judgment proceedings, that an immaterial alteration such as the correction of an innocent misdescription of a debtor

will not make a guarantee enforceable, even if the alteration is made after signature and the guarantor does not consent to the alteration made. However, a material alteration not approved by all the parties to the agreement will avoid the guarantee, that being an alteration which has an effect on a contractual right contained in or arising out of the instrument itself.

The three month extension to one year

[61]	Ms Brown says that Clean Energy and Beneficial agreed to material variation of the IFAs without consulting or informing the guarantors. Mr Oldham acknowledged a variation by extending the three-month period for repayment to one year. Ms Brown does not recall being party to that extension, but she understood that three months would not be long enough for most repayments.

[62]	Mr Oldham acknowledges this variation by repayment being extended from three months to one year, which he says took place after discussion with Mr McLaren, with Ms Brown present. This agreement was made in early 2015, before the 2015 IFA, when it became apparent invoices would not be repaid in three months.

Collateral handling fee

[63]	On each reconciliation day the buyer would pay to the lender a collateral handling fee equal to one per cent of the aggregate financed receivables prior to that day, being the last calendar day of each month. This derives from cl 3.4 of the IFA. Ms Brown says she did not agree to this and there was no such variation in writing, and she did not realise that loan trial balance statements for November and December 2014 reflected this variation.

[64]	The one per cent collateral handling fee was direct debited out of Clean Energy’s account monthly by FHL up to October 2014, and after that FHL began accruing the fee. Ms Brown says this was a material variation as it increased the debt burden of  Clean  Energy and she puts  that  ‘conservatively’ between  $100,000  and
$150,000, calculated on the principal  amount lent between November 2014 and  June 2016.  No evidence was provided by Beneficial to show this variation was made

in writing other than a note that “our financial software recorded a 12-month maturity date”, something of which she was unaware.

Financing fee

[1]	Mr Johnson says a reduction of the financing fee from one per cent to
0.5 per cent was never intended by Clean Energy nor Ms Brown to discharge the guarantors and was not otherwise a material variation.

‘Swap out’

[2]	Otherwise Ms Brown says that Beneficial has failed to properly quantify and particularise its claim to the principal sum, interest and fees. From Mr Oldham’s brief of evidence a “swap out” system was used in December 2015, of which Ms Brown says she was not aware, and which appeared to her to be another variation to the agreement.

Clause 23.1

[3]	Material variation or not, Mr Johnson recognises the distinction between that and waiver or default, exemplified in the judgment  of  Wild  CJ  in  Nelson  Fisheries Ltd v Boese.16 The Chief Justice held that a clause in a guarantee which precluded discharge of a guarantor from liability by waiver or default would not extend to a clause which recorded that there should be no release as a result of any variation in the provisions of a deed or agreement made between its parties. That blanket ability of the primary parties to a debt or trading instrument to increase the liability of another party has the potential for very serious impost on a guarantor, potentially far beyond the scope of that understood  at  the time that a  guarantee is  entered, in  respect  of  a trading relationship over which the guarantor may have no control. Thus, Beneficial’s case is that no matter the extent of variation of the agreement between it and Clean Energy, the guarantors effectively have to “lump it” under the provisions of cl 23.1 (both IFAs). Mr Johnson submits the obligation of the guarantor remains alive where a clause such as this expressly provides that there should be no release of

16	Nelson Fisheries Ltd v Boese [1975] 2 NZLR 233.

a guarantor or surety by any variation in the provisions of a deed or agreement made between the parties, and Mr Johnson says cl 23.1 is to this effect.

Discussion

[4]	Beneficial acknowledges there were variations to the IFAs, but says Ms Brown agreed to them. Issue Three is discrete and addresses cl 16 of the IFA which provides:

All amendments to this Agreement must be in writing. The Agreement is the entire agreement about the subject matter and supersedes prior negotiations or agreements.

[5]	The Associate Judge held that it was arguable whether “the parties” to the contract  intended  to  bind  themselves  by  an   oral   variation,   notwithstanding the contractual requirement that any variation be in writing. Mr Oldham says that if there was any alteration to the lending and payment process stipulated by the IFAs, it was intended by Clean Energy and Ms Brown that such alteration would not impact on the financial obligations of the guarantors.

[6]	Ms Brown relies first on the variation in the maturity date from three months referred to in the 2014 and 2015 IFAs to 12 months, and I find this was not something to which Ms Brown agreed, even if she was present as Mr Oldham alleges. The variation reflected the reality that invoices would not be repaid in three months, especially for new builds. Mr Oldham says the variation was known by and agreed to by Ms Brown, but I do not accept that she did agree, relevant to her position as guarantor, and reach that finding on the evidence, preferring that of Ms Brown.

[7]	Ms Brown says the first factoring agreement was executed on 30 May 2014 after the first invoices were factored on 30 April 2014, and from the William Woods invoice (solicitors) it seems that the advice given to Beneficial about the IFA was in relation to that  “partially executed in 2014”, to  do with variation as  the result of     a reconstruction of the  borrower.  The  2015  IFA  added  clauses  which  released Mr Rains from liability as a guarantor and limited Mr Summerfield’s liability, by way of alterations to cl 23.1 with three additional clauses (23.7, 23.8 and 23.9). Ms Brown says it would have been reasonable for Beneficial to have alerted her to these

alterations as well when she was asked to re-sign the updating IFA, but it did not do so. However, she signed the 2015 IFA which made these changes.

[8]	Ms Brown says the relationship between Mr Oldham and Mr McLaren resulted in an increase in the factoring liability of Clean Energy, as Mr Oldham requested all factoring  be  placed  through  Clean  Energy,  with  a  controlled  wind  down  of  Mr McLaren’s other company, Orange. Ms Brown did not agree to these requests, but the result was that many more invoices were factored on Clean Energy’s account in the latter part of 2015 after she left the company. She does not know who requested that these orders be factored. One of those factoring requests related to an order written two years prior, for one Weir, so Ms Brown says there was a high risk of the order not proceeding after the length of this time. Another for Brackenfield was a year old. She says that Beneficial should have been more vigilant in checking the validity of these orders before agreeing to factor them, and they should have considered the guarantors in doing so. This is not relevant to her position as guarantor.

[9]	While more relevant to quantum, Ms Brown says that she did not guarantee any factoring for Orange. Mr McLaren was a shadow director, and Mr Barr a director. Two Orange orders were factored by Beneficial and one remains unpaid. Lending on 7 December 2015 included closing out two Orange loans for $29,581.76 and partial payment to a separate Clean Energy facility that was not guaranteed by Ms Brown. That sum of $15,000.00 and the $29,581.75 therefore cannot be recovered against Ms Brown.

[10]	Ms Brown refers to other occasions when money was used from factored orders to settle the revolving credit facility not guaranteed by Ms Brown, and she uses Mr Oldham’s email of 21 October to demonstrate this. She refers to Mr Oldham’s brief of evidence of 6 October that any departure from a strict legal position was agreed with Clean Energy and was  known  to  Mr McLaren  and  Ms Brown,  but Ms Brown refutes that, saying that she was not advised of variations made, they were not discussed with her, nor communicated after the fact. She became aware of this after reconciliation of accounts. Ms Brown also refers to the circumstances of an email of 10 February 2015 when Mr Oldham said that there were some loans paid down about 80 per cent, still sitting on the books with no interest paid, so it was better to

close them out and the net effect on Clean Energy should have been negligible.     Ms Brown said the variation to the agreement in the way in which interest was calculated and charged was made without her knowledge and agreement and placed a further burden on Clean Energy and the guarantors.

[11]	Ms Brown says that the collateral handling fee increased the amount of interest that was charged, but Mr Johnson refuted that when he said the interest calculations in the software are based on contractual repayment set at the outset and not affected by the handling fee. Therefore when Clean Energy defaulted there was no material effect on interest, which was not charged on any outstanding handling fee. Ms Brown refers to the evidence provided by Beneficial and her own evidence of interest being charged on the outstanding balance to compare that with the collateral handling fee being direct debited monthly as the agreement contemplated. The interest rates were set at the outset on the balance upon which interest was applied, clearly greater than it would have been if the collateral handling fee had continued to be debited monthly. I accept Ms Brown’s evidence.

[12]	Ms Brown also responded to the supplementary evidence that monthly documentation received by the accountant for Clean Energy, including a raw data dump, was designed to be imported into the customer’s data system to assist in reconciliation and this included all principal, interest and cash handling fees. This was said to make it clear to Clean Energy that the handling fee had not been deducted on a monthly basis because the  two  sets  of  numbers  would  not  have  reconciled.  Ms Brown says she did not receive any notification of this variation and she would not have agreed to accrue the collateral handling fee. I accept her evidence and her argument. This does not void Beneficial’s claim, but to the extent that it has any impact on Ms Brown, I find she did not agree to such.

[13]	The loan trial balance of  31  March  2015  reflected  such  maturity  dates. Ms Brown wrote on 14 and 15 September 2015 seeking further extensions in relation to two loans, six months beyond the 12-month period. Mr Johnson says that given this, Ms Brown knew of this variation and did not oppose it, and sought to extend it further. It is trite that consent to a variation of contract may be implied by conduct, so Mr Johnson adopts that proposition and he adds that in January 2016 Ms Brown wrote

to Beneficial advising she would not be liable for future advances, not to reject her liability for advances before that time. That states her position but of itself does not mean she agreed to the effect of variations prior to then.

Conclusion

[14]	Consent to a variation may be implied by conduct. That is a trite proposition. It is clear on the evidence that Ms Brown was aware of amendments and she acted on them. That does not mean she agreed to them in the context of the guarantee and I so find. I go on under Issue Three to consider whether Ms Brown was entitled as guarantor to be party to an agreement in writing which varied (amended) the terms of the IFAs, not to simply ‘take’ the consequence of the variation.

[15]	I find the variations to the IFAs implemented between Beneficial and Clean Energy were not ‘agreed’ by Ms Brown. They were imposed on her. They would be ‘saved’ from Beneficial’s standpoint by cl 23.1 which has sweeping effect, but for Issue Three. These were undoubtedly material variations. I find these were without Ms Brown’s express or implied consent. But for my answer to Issue Three, cl 23.1 would apply to preserve Ms Brown’s guarantee of Clean Energy’s liability, so varied.

ISSUE THREE: AMENDMENTS TO THE AGREEMENT NEED TO BE IN WRITING (CLAUSE 16)

[16]	Associated with Issue Two, Ms Brown’s position is that any amendment to the IFAs was not in writing, and she did not agree to oral amendments between Beneficial and Clean Energy, so her liability as guarantor was extinguished when such took effect.

[17]	Beneficial says that although cl 16 provided that any variation or amendment needed to be in writing, the parties could orally agree to amend terms. Mr Johnson cites Law of Contract in New Zealand at para 19.3.1.17
A contract once made can be varied by agreement between the parties. They can add terms, omit terms or alter terms. There is authority that a clause of a contract cannot validly provide that the terms of the contract cannot be varied: it must logically be open to the parties to revoke that clause. In other words,

17	Burrows, Finn and Todd, above n 2.

a contract cannot be entrenched for all time contrary to the mutual wishes of the parties.

[18]	Mr Johnson also referred to the judgment of Stewart-Smith J in Virulite:18

Each case will be fact sensitive, depending upon the terms of the original contract and what has happened thereafter. To my mind, the fact that a clause was  specifically negotiated  or was insisted  by one party or the other (for    a particular reason or no reason at all) may be a relevant factor; and the existence of a written clause excluding any unwritten modification will require the court to look closely both at whether the parties subsequently reached an agreement that would, if enforced, vary the effect of the original contract and also at whether in reaching that agreement the parties intended to enter into legal relations so as to vary the terms of their original contractual obligations. But it seems to me that, while all relevant facts should be given their due weight in assessing these questions and the burden of proof rests on the person who alleges that the original contractual obligations have changed, the standard of proof is and remains the balance of probabilities throughout.  I would prefer not to adopt the use of ‘strong evidence’ or a ‘very high evidential burden’ since there is a danger that they may be treated as affecting the burden or standard of proof. Similarly, I would prefer not to adopt the phrase ‘evidential presumption’, though the intent behind it is clear.  Rather, I adopt the approach that the court should give all relevant evidence its due weight when asked to find on the balance of probabilities that there has been a subsequent variation which has legal affect even though it does not comply with the formalities stipulated by the original contract. The terms of the original contract will always be material to that exercise; the circumstances in which those terms were negotiated and agreed may also be.

[19]	Mr Johnson says that Beneficial and Clean Energy orally agreed to amend the contract to extend the maturity date to one year, and that it is implicit that they agreed to vary cl 16 in this way. Ms Brown was a director and ‘intimately involved’, so she knew of these agreements and “went along with them at least”. He submits that it was intended by Clean Energy and Ms Brown that any oral variation of cl 16 would be binding upon Clean Energy and Ms Brown, so that she should be held to have agreed to vary the payment period.

[20]	Ms Brown’s defence is that any amendment to the IFA, and thus the guarantee, needed to be in writing. With reference to the authority referred to above, Mr Oldham says that he and Mr McLaren agreed to a variation in maturity date and Beneficial relies on the fact that Ms Brown was a director of Clean Energy until she resigned on 13 October 2015, so it can be “assumed” she knew what was going on and was satisfied in that regard. I do not accept this. I have found that Ms Brown probably

18	Virulite LLC v Virulite Distribution Ltd, above n 6 at [60].

knew of the commercial arrangement, but not that she agreed it necessarily affected her as guarantor. The month end report showed the maturity date for the loans but it is a self-fulfilling argument to say that means she agreed to it. The loan trial balances reflected the extension of the maturity dates and Ms Brown herself sought further extensions in relation to two loans. I find Ms Brown knew of and did not oppose the variation and she sought to extend the maturity date on one occasion, but that again does not mean that she agreed to it.

[21]	When Ms Brown wrote in January 2016 to say that she would not be liable for future advances, there is no suggestion that she did not accept liability for her advances up until that stage, but equally,  she did not indicate she accepted her liability as        a guarantor. The judgment of Mahon J in Winstone Ltd v Bourne can be distinguished because I do not think Ms Brown in any way consented to a variation to her own liability, even  if  she did  have knowledge of the  variation  in  the  maturity dates.19 I reject the submission that Clean Energy and Ms Brown intended that the oral variation of cl 16 would bind Clean Energy and Ms Brown. That is for Beneficial to prove. I reject the suggestion that Ms Brown agreed to vary cl 16 for the following reasons.

Conclusion

[22]	Mr Johnson for Beneficial recognises that Ms Brown’s case is that variations to the IFAs were not in writing, as contemplated and indeed contracted. She says she did not agree to an oral variation and therefore her liability was extinguished from the time the variations took effect. I have found that she did not agree.

[23]	I conclude that Ms Brown did not agree to vary cl 16, as Mr Johnson put it, for Beneficial to rely on an oral agreement to vary the payment time period or any other amendment. In my view,  she was entitled to be treated exactly as the IFAs contemplated, as the guarantor, with the liability of a principal, and each material variation in the terms of the IFAs which affected her position was something which should have been put in writing and expressly agreed to by her. If she did not agree to it, as with any guarantor, the principal parties would have been entitled to proceed

19	Winstone Ltd v Bourne [1978] 1 NZLR 94 at 96.

in that knowledge, or to potentially make some other arrangement. It follows that determination of quantum must bring to account this conclusion.

[24]	I accept that authority makes it clear that while there may be a provision such as cl 23.1 which provides that any amendment or variation should be in writing, the parties are free to vary their agreement, although that of course raises an issue of proof which will be set aside by written variations.

[25]	While cl 23.1 may  seem  antithetical  to  this  conclusion,  I regard  cl 16  as a primary protection for guarantors. To the extent it is inconsistent in its application with cl 23, that is Beneficial’s problem. It seeks to take advantage of cl 23.1 but that will not avail it to circumvent cl 16.

ISSUE FOUR: QUANTUM

[26]	Mr Oldham provided three alternative calculations for the Court to consider which Ms Brown found difficult to understand. She attached a spreadsheet to her submissions listing each of the 186 loans and the principal amounts associated with each of the orders and she says that Clean Energy was paid $1,860,411.71 against principal loan amounts of $1,505.154.15, even though 20% of the order value was retained by FHL. Ms Brown says this means there was a positive balance of
$355,257.56.

[27]	Ms Brown refers to the judgment of (then) Associate Judge Osborne (paras [119]-[122]) which tracked enquiries by Ms Brown’s solicitors as to the quantum claimed, with His Honour expressing reservations about the way in which information was provided by Beneficial. Ms Brown says that she has had trouble trying to understand the quantum of the claim in part because of the relationship between Beneficial and the founder of Clean Energy, Mr McLaren.

[28]	Ms Brown suggests the handling fee  increased  the  interest  charged,  but  Mr Oldham refutes that by saying the interest calculations in the software are based on a contractual repayment, not affected by the handling fee. When Clean Energy defaulted, there was no material effect on interest which was not charged on an outstanding handling fee.

[29]	Ms Brown said that was not consistent with what Beneficial said previously. She gave an example by memorandum of 12 March 2018 as to what took place in terms of the collateral handling fee and the interest being charged on the outstanding balance and compared that to what should have happened if the fee was direct debited monthly as the IFA required. The interest rate was set at the outset but the balance upon which interest was applied was greater than it would have otherwise been if the collateral handling fee had continued to be debited monthly. I accept her evidence.

Conclusion

[30]	It is highly unsatisfactory that Ms Brown should at trial have faced a claim of
$273,287.82 which reflected principal, interest on outstanding loans, fees on the outstanding loans, adjustments for settlement with Mr Summerfield, payments from Mr McLaren, and retention monies applied to outstanding debts.  The  claim as of  10 April 2017 was for $299,370.79. By the time of trial and the closing submission, Beneficial’s position had changed, at least to the extent of recognising some anomalies which had to be brought to account. Mr Johnson’s closing submissions set these out in the following way:

33.	In preparing for trial, it has become apparent that there are some anomalies in the accounts that the Court may wish to take into account in settling upon quantum. In particular, there are:

33.1	Orange Technology loans for $29,581.75 that were paid out with the final factoring transactions of 7 December 2015;

33.2	At the same time, $15,000 was applied to NZCES’ revolving credit debt;

33.3	There had also been two  previous  $5,000  payments  (on  22 October 2015 and 19 November 2015) to the revolving credit facility rather than applied to the invoice financing debt (paragraphs 55-59 of Mr Oldham’s brief and paragraph 9.5 of Mr Oldham’s reply brief). If those sums are deducted from the total debt, together with related interest, Mr Oldham has calculated the debt as being $194,934.59.

34.		As a further alternative, if invoice financing fees were deducted, the total debt would reduce to $164,785.08. this represents total fees on the outstanding debts of $30,149.51.

35.	Finally, if the Court considered that all interest should also be removed on the outstanding loans, the bottom line debt would be $121,844.80 (reflecting interest of $42,940.28).

36.	It is accepted that the Orange Technology loan sum of $29,581.75 should have been applied to the revolving credit debt. It is also accepted that the total payments of $25,000 applied to the revolving credit facility disadvantages Mrs Brown (because she did not guarantee that debt). BFL accordingly seeks judgment for the sum of
$194,934.59.

[31]	The evidence does not allow the Court to calculate with precision Ms Brown’s liability under her guarantee, given the finding that she had to agree in writing those arrangements between Beneficial and Clean Energy which affected the calculation of the Clean Energy liability to Beneficial. This means that based on the verbatim record of Mr Johnson’s closing submissions above and the need for proof of the quantum  of Ms Brown’s liability under the guarantee, I conclude that the bottom line debt for the purposes of this judgment should be $121,844.80.

C.	CONCLUSION AND DISPOSITION

[32]	Ms Brown is liable as guarantor for the liability of Clean Energy to Beneficial, but not as claimed. She was entitled to have variations to those arrangements put in writing for her consent, rather than having them effectively foisted on her. She is entitled to an accurate calculation of liability and my finding is that is only established in Mr Johnson’s closing submissions as set out above. Ms Brown’s core liability remains, but as Mr Johnson’s submissions recognise, the finding that there had to be agreement in writing for Ms Brown to be liable for an adjustment in invoice financing fees and interest means that the only effective judgment I can reach is that her liability is $121,844.80.

[33]	Disposition by this judgment is that as of 31 October 2017 Ms Brown is liable to Beneficial in the sum of $121,844.80, with interest and costs reserved to be determined, if settlement is not reached. This judgment does not address Mr Barr’s position. That affects Ms Brown if there is recovery against him. I therefore reserve Mr Barr’s position for further submissions, if necessary.

[34]	As an observation, indemnity costs sought do not sit well with Beneficial’s failure to establish quantum as it sought. Ms Brown has had substantial success.

…………………………………….
Nicholas Davidson J

Solicitors:
Martelli McKegg, Auckland Sue Brown, Christchurch