INTRODUCTION

[1] The plaintiff seeks judgment against the defendants for $200,000 plus interest from 12 April 2001 until the date of payment, at its customary unarranged overdraft interest rate of 21.75% per annum. It also seeks an order for solicitor/client costs pursuant to the terms of its security documentation.

[2] The sum of $200,000 was debited to the defendants' account with the plaintiff on 12 April 2001 after the plaintiff had received, and then met, a demand for payment of this amount from Westpac Banking Corporation (Westpac) pursuant to a standby letter of credit (SBLC) previously issued by the plaintiff on 3 August 2000. This had been issued by the plaintiff following application by the second defendant, ostensibly on behalf of the first defendants, they being the trustees of the Aquatic Trust (the Trust) which had been formed by a deed of trust dated 2 November 1987.

[3] The purpose of the SBLC was to provide security to Westpac for facilities granted by it to Leisure Corp Holdings Ltd (LHC) as set out in a Westpac Facility Agreement dated 28 July 2000. LHC was an importer and distributor of sporting goods. The Trust owned 25% of the shares. The second defendant was the managing director of LHC.

[4] After the plaintiff had met its liability under the SBLC it called upon the Trust and the second and third defendants, as guarantors, to meet all their liabilities to the plaintiff in accordance with security documents executed on or about 9 November 1999. The defendants have repaid all amounts due by them to the plaintiff except the $200,000 which was the subject of the SBLC. They deny any liability to repay this sum and also submit the plaintiff was under no obligation to meet the SBLC.

[5] The plaintiff accordingly, issued this proceeding. I should note that the numerical description of the causes of action is somewhat difficult to follow:

[a] First Cause of Action against the first defendants - breach of contract. The SBLC arranged by the second defendant was done as delegate of all first defendants and pursuant to a delegation by them, namely cl.3 of a Trustee Certificate signed by them on 9 November 1999.

The defendants deny any such delegation and the second and third named defendants deny any knowledge of the SBLC.

[b] Second Cause of Action against the first defendants - alternative breach of contract.

All defendants were aware of an earlier SBLC which had been arranged solely by the second defendant. Notwithstanding this knowledge they had failed, in breach of their contract with the plaintiff, to notify the plaintiff that the earlier SBLC had been arranged invalidly, i.e. without their consent. As a result of this failure the plaintiff issued two further credit facilities, including the SBLC in question.

The defendants, other than the second defendant, deny they had any knowledge of any of the SBLC's.

[c] Third and Fourth Causes of Action. These were discontinued at the hearing.

[d] Fifth Cause of Action - in the alternative - unjust enrichment. The Trust held 25% of the shares in LCH hence it was enriched by the provision by the plaintiff of the SBLC to Westpac in order to secure the obligations of LCH. The plaintiff is entitled to restitution of the $200,000 being the amount by which the Trust was unjustly enriched. Alternatively the defendants have been enriched to the extent of $50,000 being the amount by which their liability under a separate guarantee to Westpac was reduced by the plaintiff meeting the SBLC.

The defendants deny there was any unjust enrichment.

[e] First Cause of Action against second and third defendants - Guarantee

The second and third defendants are liable to pay the amount claimed pursuant to deeds of guarantee and indemnity executed by them in favour of the plaintiff on 9 November 1999 and relating to facilities provided by the plaintiff to the Trust, including future obligations.

The defendants deny liability submitting that the documents in question only related to term loans secured on 9 November 1999.

[f] Sixth Cause of Action - alternative - against the second defendant - Breach of contract.

The second defendant warranted in cl. 9.2(c) of the plaintiff's general terms and conditions signed by the defendants on 9 November 1999, that he had the power to enter into security obligations on behalf of the Trust. Further, he represented to the plaintiff at the time he arranged the SBLC that he was authorised to do so on behalf of the first defendant.

The second defendant denies knowledge at all relevant times of the plaintiff's general terms and conditions and says, in addition, he made it clear to the plaintiff that all three Trustees were required to consent to the SBLC.

[g] Seventh Cause of Action against second defendant - alternative - Misleading and deceptive conduct.

The second defendant represented he was authorised to arrange the SBLC on behalf of the first defendants. The representations were made in trade. They were misleading and deceptive or likely to mislead or deceive.

The second defendant denies these allegations.

CHRONOLOGY

[6] The events which I have described briefly above, relating to the SBLC to Westpac, occurred in the period 31 March 2000 to May 2001. They arose, however, in the context of an association between the plaintiff and the defendants which commenced on 1 June 1994, when the first defendants opened a bank account for the Trust. In order to understand the background leading up to the granting of the SBLC to Westpac on 3 August 2000 it is necessary to understand the chronological sequence of events prior to and after that date. I therefore set out below a chronology and references to the relevant documents in an agreed bundle supplied to the Court.

THE ESSENTIAL ISSUE

[7] The plaintiff's association with the Trust appears to have commenced on or about 1 June 1994. That association continued until April 2001 when the plaintiff called up its securities. From about mid 1999 Mr J.D. Cooper, one of the plaintiff's commercial managers, was the person who, in the main, dealt with the Aquatic Trust bank account for the plaintiff.

[8] The plaintiff also provided banking services to LCH until some point, which is not clear (but prior to November 1999), when LCH transferred its business to the Bank of New Zealand. That association was later terminated when LCH transferred its account to Westpac on or about 28 July 2000. That transfer is significant because Westpac had sought a second mortgage over the third defendant's home as part of its general securities to support the banking facilities being offered to LCH. Apparently this requirement was not acceptable to the third defendant and possibly the second defendant. To overcome this problem the second defendant arranged with Westpac to accept the SBLC from the plaintiff, as bankers to the Trust, to secure the facilities granted to LCH by Westpac as set out in a Westpac facility agreement dated 28 July 2000.

[9] At this point the plaintiff already had a first mortgage over the third defendant's home, supported by guarantees by the second and third defendants. It appears to have assumed that these securities were such that they also provided security for the SBLC issued by the plaintiff on 3 August 2000.

[10] The second named first defendant, Mr Alderslade, and the third named first defendant, Mrs Davidson, had no knowledge of the SBLC. This is confirmed by the first named defendant, Mr Davidson, who also admitted that he had not told them of it and indeed, had he done so they would not have agreed if there was any possibility of that liability ever affecting the home.

[11] The crux of this case is whether, in the final result, the plaintiff can enforce the mortgage and guarantees executed prior to the establishment of the SBLC in order to recover the monies paid out when Westpac called on that credit.

FIRST CAUSE OF ACTION Against First Defendants - Breach of Contract

[12] Reduced to its essentials what has happened in this case is that one Trustee, Mr Davidson, took it upon himself to make the trust liable for $200,000 for the benefit of LCH and without providing the trust with any security at all. He did so knowing that the other two Trustees (and in particular his wife) would not agree and also in the expectation that the plaintiff would be able to recover the debt through the securities previously agreed to by all three Trustees, and executed by them on 9 November 1999. He also anticipated that his wife's house would also be available as security. It is difficult to imagine a more graphic example of a breach of trust than this.

[13] It came about because Mr Davidson is yet another example of a person who, having arranged the formation of a family trust to protect family assets and gain income tax advantages, thereafter chose to ignore the legal implications of his trusteeship and simply regarded the assets of the trust as part of his overall assets which were available to him to do as he wished. He was able to do so because it is quite obvious that his co-trustees failed to exercise their responsibilities as Trustees. Having originally determined on 1 June 1994, when first opening the ASB account, that two Trustees were required to operate the account, at some point, possibly on 7 July 1994 they authorised any one to sign. Thereafter it appears to be clear that in practice Mr Davidson was the sole signatory. It is equally clear that the other Trustees did not choose to peruse bank statements forwarded to the trust.

[14] The plaintiff was aware that the particular customer was a trust. It held a copy of the trust deed. Clearly Mr Cooper had some concern that the other Trustees should be aware of their potential liability in relation to, certainly, the Westpac SBLC. He sought, but did not follow up, an undertaking by Mr Davidson that he would obtain an acknowledgement of that liability from Mrs Davidson as the mortgagor of the property, which the bank regarded as part of the security for the SBLC.

[15] I note too, that when the first SBLC was arranged in favour of the BNZ for the benefit of LCH, there is a note by the person approving this facility which refers to the "all obligations guaranteed by KJM and AM Davidson in favour of the Aquatic Trust. Supported by RIM above". This note (Doc. 108) states:

"This was sent out when facilities 2 and 3 were documented but yet to be signed. Send out a new one with this."

This instruction was not apparently carried out, nor do I see the same instruction appearing in relation to the later credit arrangements. Nevertheless in my view it is a clear indication the Bank recognised the need for all Trustees to be advised and certainly the two involved in the guarantee.

[16] It is against this general background the plaintiff now claims as its first cause of action that the Trustees effectively delegated the right to operate the trust's bank account to Mr Davidson and that the creation of the SBLC's were part of the operation of the account. Accordingly, as a matter of contract, the trust is liable pursuant to the security documents executed by all of them on 9 November 1999 and the Trade Services Master Agreement signed by Mr Davidson on or about 26 October 1999. Specifically the plaintiff relies on the Trustee's Certificate dated 9 November 1999 signed by all three Trustees, (Doc. 124) in which they certified inter alia,

"3. Authority to Operate a Bank Account
The Trustees have the right (jointly and severally) to open and operate a bank account."

The plaintiff submits that this certificate amounts to a delegation by the three Trustees to Mr Davidson.

[17] The general rule is that Trustees must act unanimously and cannot delegate their duties or powers, even to a co-trustee, unless such delegation is:

[a] Specifically permitted by the trust instrument;

[b] Specifically permitted by statute; or

[c] Is practically unavoidable and is usual in the ordinary course of business and the particular agent is employed in the ordinary scope of his business.

[18] The Trust Certificate in this case is stated to be a "Trustee Certificate" and it is specifically directed to the "Operation of Accounts and other banking accommodation". It is, therefore, directed to two separate and quite distinct matters:

[a] Operation of accounts; and

[b] Other banking accommodation.

[19] The Trustees' powers in this case are set out in cl. 12 of the Trust Deed. This commences by saying (Doc. 13):

"12. THE Trustees shall have and may exercise either alone or together with any other person or persons the following powers, authorities and discretions, namely:…"

The defendants' counsel submitted, and I agree, that this clause refers to the Trustees either alone as a group, or as a group with others. There is nothing in this clause, by itself, to indicate the Trustees can act other than as a group.

[20] Clause 2 of the Trustee Certificate states:

"2. Power to Borrow/Guarantee/Transact
The Trust has the power to borrow, guarantee and enter into other facilities and securities."

In this case the trust does have power to borrow. This is set out in cl.12.6:

"12.6 To borrow:
To borrow moneys on mortgage bank overdraft or otherwise howsoever for such reasons from such persons upon such security by way of mortgage or otherwise on such terms and subject to such conditions as the Trustees think fit."

There is, however, no power to delegate for these purposes, hence the plaintiff required all three Trustees to acknowledge the fixed term and floating facilities.

[21] Clause 3 certifies that the Trustees have the right (jointly and severally) to open and operate a bank account. The trust does have power to delegate the operation of a bank account. Clause 12.16 of the Trust Deed states:

"12.16 Bank Accounts
To open an account or accounts at any time or times in any name or names and either on their own behalf or jointly with another or others at the Post Office Savings Bank or at any other Bank or Banks and to overdraw any such account with or without giving security and in addition to the powers conferred by section 81 of the Trustee Act to make arrangements with any bank for any one or more of the following namely the Trustees and/or any delegate or delegates named in writing by all the Trustees to operate upon any account from time to time opened or subsisting at that Bank."

This sub-clause has two separate and distinct elements. First it empowers the Trustees as a group to:

"… open an account or accounts at any time or times in any name or names and either on their own behalf or jointly with another or others at the Post Office Savings Bank or at any other bank or banks and to overdraw any such account with or without giving security."

The important point to note is that this part of the sub-clause does not provide any power to delegate. The second part of the sub-clause does contain a power to delegate, i.e.:

"… and in addition to the powers conferred by s81 of the Trustee Act to make arrangements with any bank for any one or more of the following namely the Trustees and/or any delegate or delegates named in writing by all the Trustees to operate upon any account from time to time opened or subsisting at that Bank."

Section 81 of the Trustee Act states:

"81. Operation on bank account of Trustees - (1) Where there are more Trustees than one, and the Trustees, by writing under their hands communicated to a bank at which their account is kept, arrange that the account may be operated upon by cheques or drafts signed by one or more of them, or by one of them and a delegate or delegates named in the writing of another or others of them, the bank shall be entitled to honour and pay the cheques or drafts as if they had been signed by all the Trustees, until the bank receives notice in writing of the revocation, by death or otherwise, of the arrangement.

(2) Nothing in this section or in any rule of law shall prevent Trustees from opening a bank account named as an imprest account and from authorising any one or more of their number or any other person or persons to operate upon the imprest account."

The effect of this section is to specify the extent to which a delegation to operate a bank account is effective, namely by cheques or drafts. In my view the section thereby limits the meaning of "operating a bank account" in the case of Trustees to drawing cheques and drafts. It would be quite contrary to the basic concepts of a Trustee's responsibility to fiduciaries to enable a delegation to only one Trustee or some other delegate to incur the Trust in liabilities without all Trustees agreeing.

[22] Sub-clause 12.16 above states in relation to the second part of the clause that it is

"… in addition to the powers conferred by s81 of the Trustee Act."

I do not see that the second part of the clause can be construed to provide any powers additional to those contained in s81. It merely goes on to provide a power to delegate "to operate upon any account from time to time opened or subsisting at the bank". As I have said, in my view in the case of Trustees the power to operate an account includes only the power to draw cheques and drafts.

[23] The plaintiff has also relied, on cl.4 of the Trust's Certificate, to argue that the actions by Mr Davidson were, or would be in the future, ratified by the Trustees. This clause states:

"4. Trustee Resolutions
All trustee resolutions and approvals required by law and necessary pursuant to the abovementioned Deed of Trust have been or will be passed or given to enable the Trust to borrow, guarantee and enter into the abovementioned facilities and other facilities and securities in the future ("transactions")."

This clause recognises that all Trustees are required to consent to any borrowing, guaranteeing and entering into other facilities and securities. This necessarily implies:

[a] The bank knew that unanimity was required; and

[b] All of the Trustees would have to be aware of the borrowing etc. before they could agree to it.

[24] So far as the question of the bank's knowledge of the need for unanimity is concerned, this is apparent from its requirement that all three Trustees be involved in the security documentation executed on 9 November 1999. I have already referred (in para [14]) to the requirement noted for the obtaining of fresh guarantees at the time when the first SBLC was approved.

[25] So far as the knowledge of the Trustees is concerned in relation to the SBLC to Westpac, it is clear to me they had no knowledge of it. Mr Davidson made this clear and indicated if their consent had been sought, it would not have been given.

[26] Having heard the evidence I am satisfied Mr Cooper failed to recognise the distinction between, on the one hand, Mr Davidson's apparently established authority to operate the bank account and, on the other, the requirement (recognised in the plaintiff's own documentation) that borrowing by the trust required the consent of all Trustees.

[27] For the above reasons I find:

[a] Clause 3 of the Trustee's Certificate did not, and could not, amount to a warranty that all the Trustees had delegated any power to Mr Davidson beyond that of operating the bank account within the limited meaning I have referred to;

[b] The Certificate clearly recognised the limitations imposed on Trustees in the case of borrowing etc., i.e. they had to act together; and

[c] The Certificate, in cl. 4, did no more than warrant that if the Trustees unanimously agreed to incur a liability to the bank, then or in the future, then all necessary resolutions and approvals would be attended to.

Accordingly I find the plaintiff's first cause of action must fail.

SECOND CAUSE OF ACTION - Breach of Contract by First Defendants
(Failure to advise of unauthorised operation)

[28] The plaintiff submits here that each of the three Trustees were under an obligation to advise it if a particular facility was not authorised by all of them, or perhaps that one of their members, namely Mr Davidson, was operating the Trust's account without authority. Originally this cause of action was pleaded on the basis either that the two remaining Trustees had actual knowledge of Mr Davidson's unauthorised dealings, or that such knowledge could be imputed to them. At the hearing on 13 February 2003 counsel for the plaintiff withdrew the second alternative. The claim under this head was, therefore, reliant on the plaintiff proving, on the balance of probabilities, that the remaining two Trustees, or either of them, were:

[a] Aware of the conduct of Mr Davidson;

[b] Had an obligation to disclose this to the plaintiff; and

[c] Failed to do so.

[29] The obligation was submitted to arise from the General Terms and Conditions included in the documentation completed by all three Trustees on 9 November 1999 on the following basis:

[a] Obligations to the plaintiff arose in respect of any document which was defined as meaning "these Terms, any Facility Agreement, any Security Document and any other agreement present or future, required by or relating to a Facility" which is, in turn, defined as:

[i] "Credit facility; or

[ii] Any other facility for financial accommodation which expressly incorporates these Terms,

which the Bank provides or has agreed to provide to the Customer."

[b] "Relevant party" is defined as "the Customer and each of the other parties to the Documents (other than the Bank).

[c] Pursuant to clause 3.1(a)

"[i] each Relevant Party has full power and authority to enter into and comply with its obligations under each Facility or Document to which it is expressed to be a party and has obtained all consents needed to enable it to do so;

[ii] each Document has been (or when executed will have been) duly authorised and entered into by each Relevant Party expressed to be party to it; and

[iii] the Documents are (or when executed will be) legal, valid, binding and enforceable against each Relevant Party;"

[d] Therefore, it was submitted, the first defendants jointly were in breach of the contractual obligation to advise the plaintiff of the unauthorised operation by Mr Davidson of the Trust's account.

[30] I have some difficulty in seeing how sub-clause 3.1 expresses such an obligation. It presupposes that "each Relevant Party" is aware of any particular document.

The plaintiff seems to have assumed that because the SBLCs were executed by Mr Davidson on behalf of "the Aquatic Trust" and then issued on behalf of this entity, this by itself is sufficient to involve the three individual Trustees as relevant parties.

[31] In my view such a construction is simply not possible. A private family trust, such as Aquatic, does not acquire any separate entity. It is simply a group of people each undertaking fiduciary duties in relation to property held in their joint names on stated terms.

[32] This is recognised by the General Terms and Conditions:

[a]

"9. TYPE OF BORROWER

9.1 Two or More Customers: If more than one person is named as the Customer, then:
(a) References to Customer: unless the context otherwise requires, each reference to the "Customer" will be a reference to each of them separately as well as to all of them together,
(b) Joint and Several: each of them is jointly and severally liable for all obligations of the Customer."

[b]

"9.2 Trustee Customer: If the Customer is described as trustee of a trust (such a Customer referred to as a "Trustee Customer"), then:
(a) Limited Liability: If a Trustee Customer is acknowledged on the first page of these Terms to be "liable only in trustee capacity", the Bank will have no recourse to assets of that Trustee Customer which are not assets of the trust, except in respect of any loss incurred by the Bank:
(i) by reason of a breach of trust by that Trustee Customer; or
(ii) by reason of any lack of capacity, power or authority of that Trustee Customer to enter into any Facility or Document; or
(iii) resulting from the wilful default or dishonesty of that Trustee Customer; or
(iv) resulting from a breach on that Trustee Customer's part of the statements or undertakings made by it in sub-paragraph (c) below.
Any other Trustee Customer will have full personal liability, so that the Bank may have recourse to its personal assets as well as to the assets of the trust.

(b) Recourse to Trust Assets: The Bank may have full recourse to all of the assets of the trust and will be subrogated to each Trustee Customer's right to be indemnified from those assets or to be indemnified by any other person (including any beneficiary of the trust).

(c) Trustee Warranties and Undertakings: Each Trustee Customer warrants and undertakes to the Bank that:
(i) it has the power to enter into each Document to which it is expressed to be party and to grant any security interest to be given over assets of the trust in its capacity as trustee, and in each case does so for the benefit of and the proper purposes of the trust; …"

[33] Reverting back to Condition 3.1, none of the separate Trustee customers were expressed to be a party to the documents in question, namely the application for the SBLC dated 1.8.00 (Doc. 304) nor the International Trade & Treasury Services General Terms and Conditions "prepared for Aquatic Trust" on 26.10.99 (Doc. 116).

[34] If one accepts, however, that a customer of a bank is under an obligation to act honestly in its dealings with the bank, then if a customer, including an individual Trustee customer, became aware that the bank was being misled and to the point of incurring some risk, I consider there would be an obligation to advise the Bank. This conclusion seems to follow if reference is made to the general undertaking

"4.1 General Undertakings: The Customer undertakes to the Bank that it will:

(a) Cancellation Events: notify the Bank of the occurrence of any Cancellation Event and any event or circumstance which may have a material adverse effect on any relevant party, immediately upon becoming aware of that Cancellation Event, event or circumstance; …"

Cancellation events referred to in cl. 5 which would be relevant are:

"5. CANCELLATION EVENTS
If at any time and for any reason, whether or not within the control of a party: …

(c) Statements Incorrect: any statement by the Customer made in, or in connection with, a Facility or a Document is not true, accurate and complied with when made or repeated; or …

(g) Material Adverse Change: in the opinion of the Bank, a material adverse change occurs in relation to the Customer; or …

(i) Avoidance or Repudiation: the enforceability of any Document is contested by any person or it becomes unlawful for the Customer to comply with any of its obligations under any Document; …"

[35] Assuming that this is the position, the question to be determined is whether either Mrs Davidson or Mr Alderslade were in fact aware of Mr Davidson's transgressions. The plaintiff referred to four matters.

[36] The first is a reference to discussions in the period 1- 16 April 2000 between Mr Cooper and Mr Alderslade in which the cancellation of the first SBLC to BNZ was discussed. Mr Cooper had no diary notes regarding the matter. Mr Alderslade had no recollection at all. Mr Cooper impressed me as a patently honest witness. He conceded he no longer had a clear recollection of the conversations. I have concluded that he did have a conversation or conversations regarding the cancellation of the SBLC after this matter had been raised by Mr Davidson in a fax dated 16 April 2000 (Doc. 260). This said inter alia:

"1) Attached please find a copy of a letter to Chapman Tripp from BNZ advising they have sent the original standby LC to them.

2) Could you please arrange from Monday 17th April to cancel the attached LC and take the liability away from Aquatic Trust's Facilities from yourself."

The letter in question (Doc. 262) was sent by the BNZ on 13 April 2000. It is, however, addressed to Alister Prew, Chapman Tripp. It states:

"Re: Leisure Corp Holdings Limited

Further to discussions yesterday we enclose the requested Standby Letter of credit p$120,000 from ASB.

Please acknowledge receipt of these documents on the enclosed copy of this letter."

Mr Prew was the person within Chapman Tripp who dealt with the legal affairs of LCH. Mr Alderslade, a partner in the same firm, supervised the provision of legal services to the Trust. On the evidence available to me I can see no reason why Mr Cooper would have needed to discuss the matter with Mr Alderslade. I can see, however, that he would have wished to speak to Mr Prew. My conclusion is that Mr Cooper was correct in every respect except one, namely that he spoke to Mr Prew and not Mr Alderslade. For these reasons I find that this incident cannot be relied on by the plaintiff.

[37] The second matter relates to the sending of an Import Letter of credit Establishment Debit Advice on 6 March 2000 to Aquatic Trust, C/o P.O. Box 67-116 Epsom, Auckland. I am satisfied on the evidence that the only person likely to have received this document was Mr Davidson.

[38] The third and fourth matters refer to the inclusion in the Trust's bank statements of entries which clearly indicate SBLCs had been established. Once again, on the evidence, I believe only Mr Davidson would have seen these statements. Whether or not the other two Trustees should have been content with this state of affairs is another matter. I am satisfied neither of them received this information.

[39] The plaintiff nevertheless relies on cl. 12 of the Terms and Conditions which states:

"12.1 Addresses and References: Each notice or other communication is to be made in writing and sent by facsimile, personal delivery or by post to the addressee at the facsimile number or address, and marked for the attention of the person (if any), from time to time designated for that purpose.

12.2 Deemed Delivery: No communication will be effective until received. Communications to the Customer, however, will be deemed to be received:

(a) in the case of a letter, on the third business day after posting; and

(b) in the case of a facsimile, on the business day on which it is despatched or, if received after 5.00p.m. in the place of receipt, on the next business day after the date of despatch."

I do not consider this assists the plaintiff. All the communications relied on were sent to "Aquatic Trust". None of them were sent in the name of the three Trustees. They were the Customers, not Aquatic Trust.

[40] Finally, in regard to this cause of action, Mr Davidson said in evidence he specifically told Mr Cooper at some point that all three Trustees were required to sign the documentation for the SBLCs. Mr Cooper firmly denies this and for the very good reason that if he had been put on guard in this respect he would have looked into the position immediately. In relation to this conflict I have no hesitation in accepting his evidence and rejecting that of Mr Davidson. One matter which I have taken into account in this regard is a fax from Mr Davidson dated 16 May 2000 (Doc. 267) which contains the following:

"… could you please arrange for the $200,000 to be a standby Letter of credit in favour of Westpac Trust Bank. Could you have Barry Brown set it up for myself to sign on my return."

[41] For the above reasons I also find that the plaintiff's second alternative cause of action must fail.

FIFTH CAUSE OF ACTION - Alternative Against First Defendants - Unjust Enrichment

[42] The plaintiff in this case incurred a liability to Westpac when it confirmed the SBLC on 3 August 2000. It did so on the mistaken belief that its liability was supported by a contractual liability on the part of the Trust (i.e. the three Trustees), to indemnify the plaintiff if the plaintiff's liability to Westpac was called upon.

[43] The plaintiff's mistake was in thinking that it had a valid contract with the Trust. It did not; the contract was with only one of three Trustees, all of whom were required to sign. Even though the three Trustees brought this to the plaintiff's notice immediately before the plaintiff met its obligation to the plaintiff, the plaintiff was committed to its obligation to Westpac which had relied on that obligation.

[44] I have found that the plaintiff cannot rely on the contract to recover from the Trustees. The question is whether the plaintiff can claim by way of restitution all or any part of the $200,000 paid out by it to Westpac.

[45] The plaintiff claims, for a start, that despite the absence of any contract validly binding the Trust, the plaintiff did, in fact, pay $200,000 to Westpac ostensibly on behalf of the Trust and accordingly it is entitled to claim in restitution for the recovery of the full amount.

[46] I was referred to Goss v. Chilcott [1996] 3 NZLR 385 (PC) where a finance company was held to be entitled to recover monies lent to the appellant on mortgage, these monies then being on-lent to a third party who defaulted. The mortgage was amended in circumstances which effectively discharged the appellants from liability under it. The Judicial committee held, nevertheless, that the monies paid to the appellants were made in consideration of the appellants' promise to repay. They had not done so, hence there was a complete failure of that consideration. However, the monies had been received on behalf of the appellants and thus they were enriched by them. The fact they had chosen to on-lend the monies under a separate transaction to the third party was irrelevant. The finance company was entitled to restitution on the ground that the appellants had had and received the advance. If the appellants were released from repayment (in that case of a balance) then they would have obtained an unjust enrichment.

[47] In my view the circumstances of the present case are quite different. Here there never was any obligation entered into by the Trust, i.e. all three Trustees. There never was any promise to pay by the Trust. So far as the Trust was concerned there never was any consideration at all.

[a] The documents purporting to create a consideration to the plaintiff for accepting, and ultimately meeting, a liability to Westpac for the benefit of LCH, did not bind the Trust; and

[b] Importantly, nor was there any consideration provided by LCH to the Trust in return for the Trust incurring any liability to the plaintiff or Westpac.

The monies were paid to Westpac for the benefit of LCH. They were never had and received by the Trust. Accordingly there is, in my view, no basis at all for a claim in restitution by the plaintiff for the full amount of $200,000.

[48] Alternatively the plaintiff submitted that it was entitled to restitution on the ground that part of the payment made, ostensibly on behalf of the Trust, had, in fact, benefited the Trust and accordingly the plaintiff was entitled to recover that portion by way of restitution on the ground that otherwise the Trust would be unjustly enriched.

[49] It appears from the evidence that the overall shortfall due by LCH to Westpac amounts to $1,171,684. The Trust had a quite separate guarantee to Westpac for 25% of this sum, ($292,921) commensurate with its 25% holding in the capital of LCH.

[50] The effect of the payment by the plaintiff had been to reduce the shortfall by $200,000. Thus, if this payment had not been made the liability of the Trust would have been $50,000 more. The Trust's liability to indemnify Westpac arose, as I have said, as a result of guarantees agreed to directly between the Trustees and Westpac. It had nothing whatever to do with the Trustees' obligations or dealings with the plaintiff. Nevertheless the payment of $200,000 by the plaintiff has undoubtedly resulted in a benefit to the Trust by decreasing by $50,000 the amount it was called upon to pay under the guarantee to Westpac.

[51] The question as to whether or not the law in this country has reached a stage where a cause of action can be based on a pleading of unjust enrichment is, to say the least, an interesting one. In Rod Milner Motors Ltd v. Attorney General [1999] 2 NZLR 568 (CA), the appellant had originally pleaded unjust enrichment as a fourth cause of action. The Court said, at p 576:

"As to unjust enrichment, we agree with the observation of Smellie J. in Equiticorp Industries Group Ltd v. R [1996] 3 NZLR 586 at p 611 that the principle does not yet have the status of a cause of action: (Woolwich Equitable Building Society v. Inland Revenue Commissioners [1993] AC 70 at pp 196 - 197 per Lord Browne-Wilkinson). This is not the appropriate occasion to consider whether the time has come to give the principle such a status."

The appeal was ultimately determined on the basis of there having been a breach of an implied contractual condition for which there was an adequate remedy in damages.

[52] A quite different situation arose in National Bank of New Zealand Ltd v. Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA). In this case the appellant mistakenly paid monies to the respondent which initially denied any claim to them. Having finally accepted the monies they were invested then lost. At p 215 Henry J. said:

"The remaining cause of action was based on an allegation of unjust enrichment. It is unnecessary to embark upon a dissertation on the concept of unjust enrichment as a ground for restitution or restoration of benefit. The present claim clearly falls within accepted and well-established principles which allow recovery, whether it is to be classed as a claim in restitution (Goss v. Chilcott [1996] 3 NZLR 385 at p 390), a payment made by mistake, or a claim for money had and received does not matter. Gallen J's analysis of the elements required to be established by the bank to entitle it to recovery were correct: enrichment of Waitaki by the receipt of a benefit, which was at the expense of the bank, and circumstances rendering it unjust that the enrichment be retained."

Thomas J. agreed. He said at p 226:

"I agree with Henry J. that for the purposes of this appeal, it is unnecessary to embark upon a dissertation on the concept of unjust enrichment as a ground for restitution or restoration of a benefit. As my learned brother states, whether the present claim is to be classed as a claim in restitution as in Goss v. Chilcott [1996] 3 NZLR 385 at p390, a payment made by mistake, or a claim for money had and received does not matter. The elements which the bank must establish to entitle it to recover the money remain essentially the same."

Much of the argument in this case related not to the basis of the appellant's claim, but to the defences raised by the respondent.

[53] Dr Jeremy Finn, one of the learned authors of Burrows, Finn & Todd's Law of Contract in New Zealand, (2 ed., 2002) Has provided at para 2.3.4 a typically helpful summary relating to the subject of unjust enrichment under the heading of Restitution, namely:

"a series of rules enabling one person to recover money from another where the retention of money or some other benefit would unjustly enrich that other party at the expense of the first."

Dr Finn then refers to cases where relief will be provided, notwithstanding the absence of a contractual relationship and where, until recently, the Courts developed the notion of quasi-contract based on a notional or implied promise to pay.

He goes on to say:

"Yet once the "quasi-contractual" explanation has been abandoned, there is a need to find a new means of unifying this branch of the law, and to link its various manifestations. Much work has been done by academic writers in attempting to draw out common principles and themes from the diverse legal sources. The subject of "Restitution", as it is now called, has become a popular and fruitful one. In recent years there has been much support for a concept of "unjust enrichment" as the basis of this branch of law."

In relation to unjust enrichment he concludes, noting both Rod Milner Motors Ltd and National Bank of New Zealand:

"The term is frequently used in judgments, although the New Zealand courts have not yet accorded it the status of a cause of action.

Much work remains to be done in this area of the law. It will take a long time for the judges, no doubt with appropriate prompting from the writings of academics and others, to mould the current complex mass of precedent into a new coherent whole. The challenge is to tease out of the apparently amorphous concept of "unjust enrichment" a set of consistent principles, without losing sight of the important fact that the various circumstances in which a plaintiff can recover from a defendant differ greatly. Some fear that too ready a use of unjust enrichment may cloud those very real distinctions."

[54] By reference to this material and the two decisions I have referred to, it seems to me that the following principles can be extracted:

[a] The full extent of, and legalistic rationale for, a doctrine of unjust enrichment has not yet been defined.

[b] There is, however, a class of cases where, despite the absence of an all-embracing rationale, such a doctrine does exist in order to provide relief by way of restitution. Included within that class are instances where money is paid under a mistake, or where money is had and received without consideration.

[c] Relief in such cases is, however, confined to those where there is proof of:

[i] Enrichment of the defendant by the plaintiff by the receipt of a benefit;

[ii] The benefit being at the expense of the plaintiff; and

[iii] Circumstances rendering it unjust that the enrichment be retained.

[55] The issue at this point, and as taken in this case, is whether, as a matter of pleading, it is acceptable to rely on unjust enrichment as a cause of action or whether such a pleading is only relevant as a basis for seeking relief based on a cause of action which pleads a payment by mistake or monies had and received.

[56] Based on my understanding of the views of Henry and Thomas JJ in National Bank of New Zealand my conclusion is that the point has been reached where realistically a cause of action said to be founded on unjust enrichment should be regarded as acceptable, providing it is related to an accepted cause of action and it meets the three criteria I have referred to.

[57] In other words a pleading based on unjust enrichment simpliciter which does not meet the conditions I have referred to, could not be regarded as an acceptable pleading on the basis of the law as it stands at present.

[58] I therefore find that this alternative cause of action, pleaded as it is on the ground of unjust enrichment, is open to consideration in this case. For a start I am satisfied that the evidence discloses both a case of monies had and received and a payment of monies made under a mistake.

[59] For the reasons which I have referred to, the monies paid by the plaintiff to Westpac were, to the extent of $50,000, had and received by the Trust in the sense that the receipt of those monies resulted in a decrease in the Trust's liability to Westpac. Also it can be said that the liability incurred by the plaintiff to Westpac, pursuant to the contract signed by Mr Davidson, was made as a result of a mistake by the plaintiff. The plaintiff was influenced in its decision to enter the contract with Mr Davidson, (whence the liability to Westpac arose) by a mistake material to it, namely that he was able to commit the other two Trustees when he was not. Mr Davidson was aware, according to his evidence, of that mistake. Stated in this way the mistake was such that given the inequality of the consideration consequent on the mistake, and the fact that there was nothing in the contract obliging the plaintiff to bear the burden of the mistake, the plaintiff would be entitled to seek relief pursuant to s9 of the Contractual Mistakes Act 1977 if relief was sought only against Mr Davidson. But this course of action seeks relief against all three Trustees, they being the Trustees of the Trust. The point is that the plaintiff incurred the liability by mistake and ultimately, even though there was no contractual nexus between it and the Trust, the Trust did benefit to the extent of $50,000.

[60] Having decided that the defendants did have and receive monies from the plaintiff without consideration, and that the plaintiff paid those monies and incurred a liability to do so under a mistake, it falls to be determined whether the three additional criteria have been met.

[a] For the reasons already noted I am satisfied there was an enrichment of the defendants by the plaintiff by the receipt of a benefit of $50,000;

[b] That benefit was clearly at the expense of the plaintiff; and

[c] The final issue is whether it would be unjust for the Trust to retain that enrichment.

[61] To describe a situation as being unjust, immediately imports the prospect of having to reconcile differing concepts of moral behaviour and equity. In the present case I consider that any possible dilemma in this regard does not arise. The payment to the bank has meant that the Trustees have been relieved, in part, of an entirely unrelated obligation to Westpac. I can see no basis upon which it could be argued that they should retain that benefit, nor was it suggested there was. I therefore find that it would be unjust for the defendants to retain that benefit and accordingly the plaintiff is entitled in restitution for judgment against the Trustees for $50,000.

[62] The defendant submitted that it would be inappropriate to make such a finding whilst there remains a possibility that future litigation between the Trust and Westpac could result in a finding that for some reason the Trust is not liable under its guarantee to Westpac and hence the Trust has not received a benefit from the plaintiff. If that situation did arise, and assuming that the Trust's liability to Westpac was reduced by at least $200,000, I do not see that the plaintiff would be able to resist having to account to the Trustees for the amount covered by the judgment against them for $50,000. In the meantime the plaintiff has paid this amount and more, and is entitled to recover this amount from the Trustees.

FOURTH CAUSE OF ACTION (First Cause of Action against Second & Third Defendants) - Guarantee

[63] The plaintiff seeks in this cause of action to enforce separate guarantees signed by Mr and Mrs Davidson on 9 November 1999 at the time when the bank was restructuring advances to the Trust. There were two specific facilities involved, each being the subject of a separate facility agreement as well as the plaintiff's General Terms and Conditions:

[a] A floating facility agreement for $35,000; and

[b] A fixed facility agreement for $175,000.

In addition to these securities Mrs Davidson also executed a first mortgage over the house in her name in favour of the plaintiff.

[64] The documentation relating to these two facilities was presented to the Court in the form of photostat reproductions (Doc. 124 to 164). After the hearing had been completed, I found myself unsure as to the exact composition of each document within this series. I therefore requested the original copies which I had assumed (incorrectly) were held with the Court file. I then requested my Associate to telephone counsel for the plaintiff to obtain from him the originals. I was then provided with the following information:

"Mr Kennedy phoned. Documents are in same order as they were signed. Not all pages are initialled. They go as follows:

Trustee Certificate Doc. 124 - 125
General Certificate Doc. 126 - 134
Floating Facility Agreement Doc 135 - 142
Fixed Facility Agreement Doc. 143 - 150
Guarantee & Indemnity of Alison Davidson Doc. 151 - 157
Guarantee & Indemnity of Ken Davidson Doc. 158 - 164

P. 158 is a specially prepared execution note printed out by the bank and attached to a standard form of guarantee and indemnity which is pp 159 - 164. That isn't signed because of the specially printed cover sheet at p 158.

There is no issue with Mr Dale over execution of documents."

I have taken it that the above reference to p 158 and pp 159 - 164 (which refer to Mr Davidson's guarantee) apply equally to Mrs Davidson's, i.e. p 151 and pp 152 - 157. I have also taken it that all parties accept that all the components of both documents are verified by the guarantors' signatures on pp 151 and 158 respectively. I also note that so far as I can see the compilation of the two guarantee documents is the same in each case. For the sake of convenience I will refer from now on to Mrs Davidson's guarantee (pp 151 - 157). The total document comprises:

[a] Doc. 151 Guarantee and Indemnity
[b] Doc. 152 Guarantee and Indemnity
[c] Doc. 153 Guarantor's acknowledgement
[d] Doc. 154 - 157 This has no general heading but obviously contains the terms of the contract of guarantee and indemnity.

[65] The specially prepared execution note (Doc. 151) refers to Mrs Davidson as the "Guarantor" and the plaintiff as the "Bank" and goes on to say:

"In respect of

Kenneth James McGregor Davidson
Alison Mary Davidson
Douglas Seymour Alderslade
As Trustees for the Aquatic Trust ("the customer").

This is a Guarantee and Indemnity for all obligations of the Customer to the Bank from time to time. The Guarantor must make its own arrangements with the Customer to keep itself informed as to all matters relevant to this Guarantee and Indemnity."

This page is signed by Mrs Davidson and witnessed by her solicitor.

[66] The second "Guarantee and Indemnity" (Doc. 152) is unsigned but initialled at the foot of the page.

[67] The Guarantor's Acknowledgement (Doc. 153) has none of the blank spaces filled in, including the attestation clause. I regard this document as being particularly significant and reproduce it below as follows:

"GUARANTOR'S ACKNOWLEDGEMENT
to ASB Bank Limited
relating to a Guarantee and Indemnity
in respect of
…………………………………………………………
(the "Customer")

I/We refer to the Guarantee and Indemnity to be entered into by me/us and acknowledge that:

(a) I/we have been advised by the Bank to obtain independent legal advice before signing the Guarantee and Indemnity;

(b) I/we understand that the Guarantee and Indemnity makes me/us liable for all present and future amounts owing to the Bank by the Customer, including future advances, amounts owing under guarantees given by the Customer, and amounts owing by the Customer together with any other person.

(c) The Bank has no duty to keep me informed of the financial condition of the Customer, and I/we must keep myself/ourselves informed as to all matters relevant to the Guarantee and Indemnity.

(d) Unless a maximum amount is inserted in clause 3.2 of the Guarantee and Indemnity, my/our liability to the Bank will be unlimited.

I/WE have read and understood this acknowledgement carefully, before signing the Guarantee and Indemnity, a disclosure copy of this Guarantee has been given to me and I/we understand its contents.

Dated: 199

Signed by:

_________________________

_________________________
(Print Full Name)

The Guarantor:

___________________________

___________________________
(Print Full Name)"

The remaining pages 154 - 157 are also unsigned. As already noted these set out the detail of the guarantee and indemnity.

[68] The plaintiff submitted that the terms of the two documents are such that the guarantors' obligations in each case extend to protect the plaintiff in respect of the payment made by it to Westpac, ostensibly on behalf of the Trust, either as a guarantee or indemnity. It relies on the following:

[a] The definition of Guaranteed Indebtedness. (Doc. .154)

"1.1 Guaranteed Indebtedness" means all indebtedness of the Customer to the Bank or incurred by the Bank on behalf of the Customer (including all interest, costs, taxes, stamp or similar duties or taxes, commissions, charges and expenses (including legal fees and expenses) incurred or sustained in any way by the Bank in connection with that indebtedness or the enforcement or attempted enforcement of that indebtedness) and:

(a) If more than one person is named as the Customer, the indebtedness of each person named separately, as well as any two or more of them together;

(b) if the Customer is (or is described as a member or partner of) a partnership or firm, the indebtedness incurred on behalf of that partnership or firm by any former, present or future partner or member of that partnership or firm;

(c) if the Customer is an unincorporated body, the indebtedness incurred on behalf of that unincorporated body by each person who is now or later authorised or purporting to operate on account of the Customer;

(d) if the Customer is described as the trustee of a trust, the indebtedness incurred on behalf of that trust by any former, present or future trustee;

(e) if the Customer is a company, the indebtedness of any new company arising from its amalgamation, reconstruction, or merger with or takeover by another company; and

(f) includes the indebtedness of the Customer either jointly or in common with any other person."

[b] The definition of Indebtedness (Doc. 154)

"1.2 indebtedness includes an obligation (whether present or future, actual or contingent, secured or unsecured, joint or several, as principal, surety or otherwise) relating to the payment of money;"

[c] The Guarantee (Doc. 154)

"2.1 Guarantee: The Guarantor unconditionally and irrevocably guarantees to the Bank:

(a) The due payment by the Customer of the Guaranteed Indebtedness; and

(b) the due performance of and compliance by the Customer with the Guaranteed Obligations."

[d] Payment (Doc. 154)

"2.2 Payment: The Guarantor undertakes that if, for any reason, the Customer does not pay when due (whether by acceleration or otherwise) any Guaranteed Indebtedness it will pay the relevant amount immediately on demand by the Bank."

[e] The indemnity (Doc. 154)

(i) Unenforceability of Obligations (Doc. .154)

"2.3 Unenforceability of Obligations: As a separate and continuing undertaking, the Guarantor unconditionally and irrevocably undertakes to the Bank that, should the Guaranteed Indebtedness not be recoverable from the Guarantor under this Deed for any reason, including a provision of this Deed or an obligation (or purported obligation) of the Customer to pay Guaranteed Indebtedness or to perform or comply with a Guaranteed Obligation being or becoming void, voidable, unenforceable or otherwise invalid, whether or not that reason is or was known to the Bank and whether or not that reason is:
(a) a defect in or lack of powers of the Customer or the Guarantor or the irregular exercise of those powers; or
(b) a defect in or lack of authority by a person purporting to act on behalf of the Customer or the Guarantor; or
(c) …
(d) …
the Guarantor will, as a sole and independent obligation, pay to the Bank on demand the amount which the Bank would otherwise have been able to recover (on a full indemnity basis). In this clause, the expressions "Guaranteed Indebtedness" and "Guaranteed Obligation" include any indebtedness or obligation which would have been included in those expressions but for anything referred to in this clause."

(ii) Liability as a Sole Principal Customer (Doc. 155)

"3.1 Liability as Sole Principal Customer: As between the Guarantor and the Bank (but without affecting the obligations of the Customer) the Guarantor is liable under this Deed as a sole and principal debtor and not as a surety."

[69] Relying on these provisions, the plaintiff submits that the SBLC in question was a future obligation relating to the payment of money and as such was a guaranteed indebtedness of the customer to the plaintiff. Accordingly the guarantors each, unconditionally and unequivocally, guaranteed to the plaintiff the due payment by the customer (the Trust) of the guaranteed indebtedness and failing payment by the customer, payment by the guarantor.

[70] The second and third defendants submitted that the guarantee provisions do not assist the plaintiff because there never was a guaranteed indebtedness of the customer in respect to the future indebtedness claimed in relation to the SBLC. They referred to the definition of customer which is defined as:

"each person so named in the schedule".

No customer is named in the schedule (Doc. 159), but the "customer" is clearly defined in the first page of each guarantee (Doc. 151 and 158) as the three individually named Trustees "as Trustees for the Aquatic Trust".

[71] As I have already noted those three Trustees never incurred that liability. No liability could be incurred by the Trust unless all three concurred - see Niak v. MacDonald (CA97/00, 5 April 2001).

[72] I therefore agree with the defendants' submission.

[73] The plaintiff then submitted that if the guarantors were not obligated to meet payment under the guarantee, then notwithstanding there was no guaranteed indebtedness, the terms of cl. 3.1 clearly extended the guarantors' obligations to those of indemnifiers. The distinction between a guarantee and indemnity is well established, namely that an obligation to meet the default of a principal debtor requires, in the case of a guarantee, a pre-existing valid debt by the principal party, whereas in the case of an indemnity there is no such requirement. An indemnifier has an obligation directly to the lender (see Yeoman Credit Ltd v. Lattar [1961] 1 WLR 828 (EWCA)).

[74] I am satisfied that the provisions I have referred to, namely 2.3 (Unenforceability of Obligations) and 3.1 (Liability as Sole Principal Customer), do create a relationship as an indemnifier between the plaintiff and the second and third defendants. Whether or not the indemnity assists the plaintiff in this case is another matter.

[75] The defendants referred to a decision of the New South Wales Court of Appeal Citicorp Australia Ltd v. Hendry & Ors [1985] 4 NSWLR 1, which is summarised very succinctly in the following extract from The Modern Contract of Guarantee (3rd ed. 1996) 275 by Dr James O'Donovan and Dr John Phillips:

"The precise drafting of the indemnity will, however, be decisive, and it is often a difficult question of construction as to whether the agreement is in reality an indemnity against any loss regardless of the status of the principal transaction. For example, in Citicorp Australia Ltd v. Hendry, an indemnity clause, which was embodied in the instrument, was (as in the case of the guarantee in the same case) construed as being applicable if the indemnifier came under an initial liability, which was then affected by some "supervening irrecoverability". As has been seen, on the facts no initial liability was ever incurred because the plaintiff's claim was in respect of moneys which were held to be in the nature of a penalty. No recovery pursuant to the indemnity was therefore possible."

[76] Relying on this authority the defendants submitted that essentially the same reasoning applied in this case. They submitted that before an indemnifier could be found to be independently liable for an obligation incurred by a third party there had to be an obligation which could, in any event, be enforceable.

[77] In Citicorp the law decreed that neither the third party nor the independent indemnifier were liable to pay something which was forbidden at law, i.e. the enforcement of a penalty. In that sense there never was a debt.

[78] In the present case it was not a case of the law intervening to say there was no debt, rather it was a case where there never was any debt. The customer, the trust, knew nothing about the arrangement of the SBCL, let alone authorising it or receiving any consideration for it. More particularly nor was it a case of there being an obligation (or purported obligation) of the customer (the trust) to pay a debt being or becoming void, voidable, unenforceable or otherwise invalid for any reason. There never was any debt from the outset.

[79] The plaintiff argued, relying on Yeoman, that in the case of an independent indemnity imposing a pecuniary liability on an indemnifier, it does not matter if the transaction in respect of which the indemnity is given is void and hence unenforceable. In Yeoman an indemnifier was found liable to a finance company for the debt of a minor who had not met his promises under a loan agreement entered into by him when he purchased a car. The agreement with the minor was void from the outset. It could not, as a matter of law, be enforced against him. There is, however, no law which prevents the finance company entering into a separate contract with an indemnifier to indemnify it in the event that the minor fails to meet his unenforceable promise. In New Zealand the position is specifically covered by s.10 of the Minors Contracts Act 1969 which states:

"10 Guarantees and indemnities - Every contract of guarantee or indemnity whereby any person (other than a minor) undertakes to accept liability in the event of the failure of a minor to carry out his obligations under a contract shall be enforceable against that person (in this section hereinafter referred to as "the surety") to the extent that it would be if the minor had been at all material times a person of full age, and that liability shall not be affected by any other provision of this Act or by any order made pursuant to any other provision of this Act; but the liability of the minor to the surety and the surety's right of subrogation against the minor may be affected by the other provisions of this Act or by any order made under subsection (2) of section 5 or subsection (2) of section 6 or pursuant to section 7 of this Act."

[80] In this situation the absence of an enforceable contract with the minor is irrelevant. What is relevant is the existence of a separate contract which is enforceable. In Citicorp the separate contract of indemnity was not enforceable, not because the principal obligation was unenforceable, but because the obligation sought to be enforced by the indemnity was itself unenforceable.

[81] In the present case it is not a case of either an indemnity to enforce something prohibited by the law as in Citicorp, or a valid contract to indemnify in respect of an unenforceable contract as in Yeoman. Rather it is a case where the plaintiff never had any obligation to enforce either against the trust or the indemnifiers.

[82] In the present case the plaintiff was simply not entitled, as a matter of law, to enter into a commitment with another bank for the benefit of a third party which involved the use of the Trust's funds without the consent of all three trustees. The plaintiff knew it could not do so, but failed to observe it. The plaintiff, in effect, opted to undertake an obligation on behalf of the Trust when it had no legal right to do so. It now seeks to enforce, by means of the indemnity, an obligation of the trustees which never existed. The situation is, to this extent in my view, comparable to that in Citicorp. In both cases there never was an obligation which the plaintiff was legally able to enforce.

[83] The plaintiff submitted that the decision in Citicorp could be distinguished because of the terms of the provision relating to "Unenforceability of Obligation" (see para [68][e](i)). In particular the plaintiff relied on cl. 2.3(b) "a defect in or lack of authority by a person purporting to act on behalf of the Customer or the guarantor". In other words the indemnity continued to apply notwithstanding that Mr Davidson, when purporting to act on behalf of the customer (the Trust) lacked authority to do so.

[84] For this submission to be correct it involves an acceptance that an indemnifier incurs a liability arising on the failure of a bank customer to repay a sum of money which it never agreed to, and of which it was not aware, for which it obtained no consideration and in respect of which it had no legal obligation at all. When stated in these terms I consider the plaintiff's submission becomes quite untenable. In my view the words in cl. 2.3(b) "a defect in or lack of authority by a person purporting to act on behalf of the Customer …" do not extend to providing a carte blanche indemnity to a bank in every case where it incurs a debt having accepted the purported authority of an agent of a customer to do so. There must be a pre-existing authority by the customer authorising the bank to accept the authority of the agent.

[85] In this case Mr Davidson seems to have had a pre-existing authority by the trustees to operate the Trust's bank account. For the reasons which I have referred to it had no pre-existing authority to go beyond this and to incur liabilities under, for example, SBLCs.

[86] The wording in the clause relied on by the plaintiff is only relevant if there was such a pre-existing authority from the trustees. Thus, if they had authorised the plaintiff to accept Mr Davidson's signature alone for the purposes of arranging SBLCs generally, and if he, in a particular case, had gone ahead and done so without the authority of all the trustees, then the indemnity would apply. In other words "a defect in or lack of authority by the person purporting to act on behalf of the customer" in the particular case would, providing the bank was unaware of the defect or lack of authority, not prevent the bank enforcing the indemnity. Similarly if it was later found, for example, that the particular trustee had not been properly appointed. This is not such a case. The plaintiff never had an authority in the first place to accept the authority of Mr Davidson to arrange SBLCs on behalf of the Trust.

[87] To find otherwise, and to accept the plaintiff's interpretation of the clause in question, would mean that a bank could accept the authority of any single trustee at any time without enquiry and with the knowledge that the approval of all three trustees was required. That cannot, in my view, be the law.

[88] It was submitted on behalf of the plaintiff that the provision in question was applicable because in the present case the plaintiff had been led to believe, on the basis of Mr Davidson's previous dealings, he did in fact have power to commit his co-Trustees. I do not accept this submission. As I have already noted previously, the plaintiff in this case was not entitled to make this assumption. Furthermore, I also consider that the making of that assumption in the present case was not in accord with normal banking practice. I have already referred to the requirement (Doc.108) that a further express guarantee had been anticipated in relation to the first SBLC to BNZ. I also note in this regard the Westpac offer to make further facilities available to LCH (Doc. 10 - 19 of the Supplementary Bundle of Documents). At Doc. 14 there is provision for an existing guarantor's consent in these terms:

"We confirm that our guarantee extends to the obligations of the Borrower contained in the letter of offer." (my emphasis)

In my view if the plaintiff in this case had adopted normal banking practice by ensuring that all three Trustees, including the guarantors, were aware of and agreed to the proposed SBLC facility, then this matter would never have arisen.

[89] Essentially I have concluded that the provisions of cl.2.3 do not assist the bank in this case and that the guarantors are not liable to the plaintiff either as guarantors or indemnifiers, and for the simple reason the customer (the Trust) was never liable to the plaintiff. That could only have been achieved by obtaining specific agreement from all three Trustees.

[90] There is a further matter which encourages me to reach this conclusion. Clause (b) of the Guarantor's Acknowledgement (p.160) states:

"(b) I/we understand that the Guarantee and Indemnity makes me/us liable for all present and future amounts owing to the Bank by the Customer, including future advances, amounts owing under guarantees given by the Customer, and amounts owing by the Customer together with any other person."

The plaintiff is specifically notifying the guarantor of the extent of the guarantor's liability in this document. The matter which stands out to me is that the guarantee is expressly directed to liabilities incurred by the customer (the Trust). Reading this document alone, and despite the fact it refers to an indemnity, I would find it very difficult to conclude that it went beyond a guarantee into the realm of an indemnity.

[91] For the above reasons I find that the plaintiff must fail in relation to this cause of action.

SIXTH CAUSE OF ACTION - Alternative Claim Against Second Defendant - Breach of Contract

[92] The plaintiff submits that even if it is not entitled to recover from the Trust, it is nevertheless entitled to recover the amount of its loss from Mr Davidson, he being the person who negotiated and signed the documentation for the credit arrangements, and including in particular the SBLC in favour of Westpac.

[93] I have found that the plaintiff cannot recover from the Trust because the plaintiff was in a position where it should have known that one Trustee could not, as a matter of law and, in the circumstances of this case, rely on the signature of only one Trustee. The plaintiff submits that this does not amount to a bar against it recovering from an individual Trustee who purported to act on behalf of the Trust. It relies primarily on cl. 9.2 of the General Terms and Conditions: (Doc. 133)

"9.2 Trustee Customer: If the Customer is described as trustee of a trust (such a Customer referred to as a "Trustee Customer"), then:

(a) Limited Liability: If a Trustee Customer is acknowledged on the first page of these Terms to be "liable only in trustee capacity", the Bank will have no recourse to assets of that Trustee Customer which are not assets of the trust, except in respect of any loss incurred by the Bank:
(i) by reason of a breach of trust by that Trustee Customer; or
(ii) by reason of any lack of capacity, power or authority of that Trustee Customer to enter into any Facility or Document; or
(iii) resulting from the wilful default or dishonesty of that Trustee Customer; or
(iv) resulting from a breach on that Trustee Customer's part of the statements or undertakings made by it in sub-paragraph (c) below.
Any other Trustee Customer will have full personal liability, so that the Bank may have recourse to its personal assets as well as to the assets of the trust.

(b) …

(c) Trustee Warranties and Undertakings: Each Trustee Customer warrants and undertakes to the Bank that:
(i) it has the power to enter into each Document to which it is expressed to be party and to grant any security interest to be given over assets of the trust in its capacity as trustee, and in each case does so for the benefit and the proper purposes of the trust;"

In this case the three Trustees were described as Trustees and accordingly the plaintiff submits that it is entitled to rely on the warranty in sub-clause 9(2)(c)(i) above. The issue as I see it is whether the plaintiff is entitled to rely on that warranty, even if it should have known Mr Davidson could not, by himself, bind the Trust. Counsel for the defendants argued that not only should the plaintiff have known this, it was warned by him that three signatures were required and at no stage did he ever represent that his signature alone was sufficient.

[94] Mr Cooper's reaction to the first proposition was quite clear, namely that if he had been put on guard by any such mention by Mr Davidson he would have gone no further without checking on the position. Having seen and heard both witnesses I have no hesitation in accepting Mr Cooper's evidence on this point.

[95] I also reject the second submission. Mr Davidson had, from at least the time when the first SBLC was negotiated in favour of the BNZ, held himself out as being the person entitled to make arrangements on behalf of the Trust. The plaintiff had regarded the Trust as an "associated entity", i.e. to LCH, from an early stage (Doc. 37) and that "these two accounts are connected" (Doc. 39). The borrowings by the Trust in the form of the credit arrangements were, in each case, solely for the benefit of LCH. I have already mentioned that in my view Mr Davidson regarded the Trust as simply part of his overall financial structure. Clearly, so did the plaintiff. Both failed to pay proper regard to the fact that the Trust was a quite separate legal entity. I have found that Mr Davidson did not warn the plaintiff that three signatures were required, but there is, in addition, evidence to show that he positively indicated that he alone was able to commit the Trust. On 16 May 2000 (Doc. 267) he sent a fax message to Mr Cooper regarding the SBLC to Westpac. This included:

"(3) For the case of of (sic) overseas T.T.'s could you please arrange for the $200,000.00 to be a Standby LC in favour of Westpac Trust Bank. Could you have Barry Brown set it up for myself to sign on my return."

[96] I also believe that Mr Davidson's appreciation of the situation in this regard is well demonstrated by reference to a further fax to Mr Cooper on 4 September 2000 (Doc. 318) which included the following in relation to the credit arrangement in favour of Benneton:

"I appreciate that this has taken longer than anticipated, however, security should be no problem for the bank, as they have The Aquatic Trust assets, Back Up on Pencarrow Ave, plus LCH as an unsecured creditor to pay.

However, I do need to operate the Trust's cheque book again for my needs to (1) repay the ASB LCH 04 Account and to pay my day to day needs. However, the balance will not go over the Ski Equipment principal balance…"

[97] For the above reasons I have concluded that the plaintiff, despite its own failures, is entitled to rely on the warranty. Quite apart from its terms which are quite clear, I am satisfied that Mr Davidson not only held himself out as having the necessary authority by a course of conduct extending over much of the period in question, he also positively reinforced that position to the plaintiff. Accordingly I find that the plaintiff is entitled to judgment against Mr Davidson for the sum of $200,000 as claimed, plus interest as claimed and costs on a solicitor/client basis plus disbursements and witness expenses also as claimed.

SEVENTH CAUSE OF ACTION - Alternative Claim Against Second Defendant - Misleading and Deceptive Conduct

[98] This cause of action is, as noted, pleaded in the alternative to the sixth cause of action. For the sake of completeness and for the reasons referred to in connection with the previous cause of action, I find that alternatively the plaintiff is entitled to the same relief under this head. Mr Davidson, on his own evidence, has said he knew all three Trustees were required to commit the Trust. He says he made this clear to Mr Cooper (which I do not accept). Nevertheless he purported to act on behalf of the Trust and to positively reinforce his authority to do so with the plaintiff. He was clearly acting "in trade" for the purposes of s 9 of the Fair Trading Act 1986 at the time when the SBLC was arranged in favour of Westpac. That arrangement was solely for the purpose of providing a credit facility for LCH in connection with its commercial activities.

[99] For the reasons which I have already noted, his conduct in leading the plaintiff to accept he was entitled to commit the Trust, when he was not, was both misleading and deceptive.

FURTHER MATTERS

[100] The defendants have submitted that quite apart from anything else, they, or any of them, should not be found to be liable in relation to the SBLC in favour of Westpac because:

[a] LCH had repaid Westpac the monies which were intended to be secured by that SBLC.

[b] This fact was made known to the plaintiff immediately before the plaintiff met its obligation to Westpac.

More particularly, Mr Davidson said that the SBLC was only arranged to secure excesses arising at a particular point and owed by LCH to Westpac. This point does not appear to have been pursued with any enthusiasm by the defendants. In my view there is no basis for excluding liability on this point.

[101] The SBLC (Doc. 307) was issued "in connection with facilities granted to Leisure Corp Holdings Ltd as set out in Westpac Trust, Auckland, Facility Agreement dated 28 July 2000. Expiry date 01 August 2001". There is no mention of any limitation at all. Nor was there any limitation referred to in -

[a] Mr Davidson's fax (Doc. 267);

[b] The Westpac facility agreement (Doc. 295) which included the SBLC as a new security described in these terms:

"… to be in an appropriate format as determined by Westpac Trust and include an evergreen clause".

[c] The application signed by Mr Davidson on 1 August 2000 (Doc. 304).

[102] I am satisfied that when Westpac called on the plaintiff to honour the SBLC on 10 April 2001 the plaintiff had no option but to do so. It was entirely committed to reacting to the Westpac demand in terms of the SBLC already negotiated and in accordance with the dictates of the Uniform Customs and Practice for Documentary Credits (1993 Revision Publication No. 500 of the International Chamber of Commerce, Paris, France).

[103] The last matter relates to the nature of the judgments to be entered in this case. I have found that the plaintiff is entitled to enter judgment against the first defendants as Trustees for $50,000 because otherwise the first defendants would be unjustly enriched to the extent of this amount. That judgment should carry interest at 7.5% being the currently prescribed rate now provided by s.87(3) of the Judicature Act 1908. In addition the plaintiff is entitled to costs which I direct are to be assessed on the 2B formula, plus reasonable disbursements and witness expenses to be fixed, if necessary, by the Registrar.

[104] I have also found that the plaintiff is entitled to judgment against the second defendant for $200,000 as claimed, plus interest as claimed and costs on a solicitor/client basis plus disbursements and witness expenses also as claimed. Quite obviously the plaintiff is not entitled to enforce both judgments in their entirety. If the plaintiff chooses to enforce the judgment against the first defendants then credit for this and any costs, disbursements and witness expenses recovered will have to be credited against any amount to be enforced against the second defendant.

Delivered at ______ am/pm on _______ April 2003