One brother failed in his claim that repayment of a million dollar loan from his brother was frustrated because of difficulties in completing a property development.
James Montgomerie resorted to the courts after running out of patience with brother Andrew. Property developer Andrew Montgomerie ran into financial difficulty in 2008. He was rescued by brother James, a businessman based in Florida. Initially, James refinanced Andrew’s Waiheke family home on the basis Andrew and family would continue living there but meet outgoings. Later, Andrew secured a bank loan over Waiheke. He did not keep up mortgage payments. Interest due on the loan from his brother was also accruing.
Evidence was given of multiple re-negotiations between Andrew and his brother over terms of his financial assistance. When push came to shove, the High Court was asked to enforce a March 2017 agreement requiring Andrew to make final payment by October 2018 of all money owed. James agreed a concession: if payment was made by that date, Andrew’s liability was capped at one million dollars. No final payment was made.
When sued, Andrew said performance of the March 2017 agreement had been ‘frustrated.’ No payment was due. In contract law, the doctrine of frustration applies where performance of a contract is no longer possible through no fault of either party because of an external intervening event; a force majeure event.
Andrew said final payment was predicated on the sale of eight townhouses under construction at Alberton Lane in Mt Albert, Auckland. Payment was frustrated by delays in completion. The builder had gone bust; there were delays in getting construction restarted. Holding costs escalated dramatically.
The Court of Appeal said the March 2017 agreement was not dependent on completion of Alberton Lane. The agreement specified a ‘drop dead’ date for final payment, identifying properties, including Alberton Lane, which could be sold to fund repayment. How repayment was to be funded was Andrew’s concern, not his brother’s.
Failure to complete Alberton Lane was not a frustrating event. Their loan agreement was enforced. Andrew was ordered to pay $US865,120 still outstanding, plus interest and his brother’s full legal expenses.
Montgomerie v. Montgomerie – High Court (8.05.19) & Court of Appeal (28.01.20)
20.023