Crown Asset Management Limited v Cameron [2015] NZHC 98

Michael Lenihan


A company sues a husband and wife under a guarantee secured under a mortgage over land. The guarantee on its face secures the lending. In this all too familiar scenario, the guarantors are almost always held liable. However, in Crown Asset Management Limited v Cameron [2015] NZHC 98, the High Court was confronted with this scenario, yet decided in favour of the guarantors.

The case is worthy of consideration as it reminds us that a guarantee is a secondary obligation. In order for it to be enforceable there must be proof of a valid primary obligation that has been breached. This is where the plaintiff in Cameron came to grief.


The fact situation is complex and will be significantly simplified here.

The Camerons were farmers who had also engaged in property development since (at least) the late 1990s. They did so with the aid of lending from South Canterbury Finance (SCF).

The plaintiff purchased certain loans and securities from SCF after SCF was placed into receivership. The security sued upon in this case was a mortgage dated 1 March 2009 (2009 Mortgage). The principal sum owing under the 2009 Mortgage was $550,000. The mortgagor was Twin Oaks Enterprises Limited (TOEL). The Camerons personally guaranteed TOEL’s performance of the secured lending (as that term was defined in the 2009 Mortgage).

This should have been a straightforward enforcement of a guarantee. However, the plaintiff faced difficulties in proving its case because of the shambolic state of SCF’s records. The plaintiff was unable to prove that the guaranteed sum of $550,000 was in fact advanced to TOEL.

The plaintiff attempted to argue that there were earlier advances made to TOEL that were covered by the guarantee. The Hon Justice Duffy noted that the complexity of the records made this hard to follow and so this allegation failed.

Where the plaintiff got some traction was in arguing the following:

1. The 2009 Mortgage contained a term in an Annexure Schedule that stated “This mortgage is in substitution for and secures the same monies as were secured under Mortgage No. B501871.2 and B668717.2”.

2. Her Honour held that mortgage B501871.2 could not be relied on by the plaintiff because of the doctrine of merger.

3. Mortgage B668717.2 listed TOEL as the principal debtor. There was no evidence showing that TOEL continued to owe money under this mortgage. However, mortgage B668717.2 extended the security of that instrument to an earlier mortgage 638239.5 in Memorandum of Variation 652586.1. The Camerons were named as principal debtors and mortgagors in this document.

The plaintiff accordingly argued that the Camerons were liable under that mortgage.

Her Honour said that for the plaintiff to succeed it had to show:

1. the Annexure Schedule in the 2009 Mortgage had the effect of extending the benefit of the guarantee to cover the indebtedness in mortgage 638239.5; and

2. the payment of the money owing under that mortgage was still outstanding.

The plaintiffs argued that the personal covenant to pay the loan automatically ran with the charge that was contained in each mortgage. Duffy J did not accept this based on the wording of each of the mortgages.

Duffy J set out an alternative ground as to why the personal covenant in mortgage 638239.5 was not covered by the 2009 Mortgage. This was that mortgage 638239.5 was two steps removed from the 2009 Mortgage. Her Honour said, at [32]: “The law of guarantees requires that the document creating the guarantee ‘evidences with sufficient clarity an intention’ on the part of the guarantors to guarantee the debt in issue.” Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 at 116 was cited as authority for this.

In this case, there was not a sufficient incorporation by reference to mortgage 638239.5 in respect of the guarantee given in the 2009 Mortgage. The reference to mortgage B668717.2 in the Annexure Schedule may have been enough to incorporate that mortgage, but it was insufficient to incorporate mortgage 638239.5 as well.

There was nothing that the plaintiff could point to as coming within the scope of the guarantee. The plaintiff’s claim accordingly failed.

The plaintiff also argued that the Camerons owed money as principal debtors. This claim again foundered on the morass that were the records of SCF. The plaintiff presented evidence from one of its officers who had reconstructed what had happened at SCF. The officer did not have personal knowledge of the events though. His evidence represented essentially his best guess as to what occurred. He was not an expert, and so her Honour disregarded his evidence. There was no loan documentation or other evidence to support the amount claimed. The claim failed.


The decision is, with respect, difficult to support on the issue of intention to create legal relations. This is a well-known doctrine, but one which has very seldom been successfully invoked by a guarantor. There is a heavy presumption of an intention to create legal relations in business transactions: see The Laws of New Zealand: Contract at [88]. There could be no argument that this transaction did not generally occur in a business context. On the specific ground of the intent to include mortgage 638239.5, had the Camerons carefully read the documents, as her Honour did, they would have seen that this could have been included in the 2009 Mortgage. A person signing a document is taken to know its terms. The issue does not appear to be one of intent.

Her Honour was, however, on much firmer ground in holding at [35] that the plaintiff could not prove the debt and so the claim must therefore fail for want of proof.

The plaintiff failed to satisfy a fundamental requirement of a guarantee claim set out in the two principles below (that overlap to a large degree):

1. First, section 27(4) of the Property Law Act, which states that “in this section, contract of guarantee means a contract under which a person agrees to answer to another person for the debt, default, or liability of a third person” (emphasis added).

2. Secondly, the principle of co-extensiveness (see O’Donovan and Phillips, The Modern Contract of Guarantee, at 5-152). A guarantor cannot be liable to a greater degree than the principal debtor.

In short, on the principles above, if there is no principal debt, there cannot be any liability on the part of the guarantor.

The plaintiff was in fact unable to prove its claim on three key issues: (1) debt owed; (2) default; and (3) quantum. Looked at in this way, the correct result was undoubtedly arrived at in Cameron. 

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