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High Court of New Zealand Decisions |
Last Updated: 11 July 2012
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2012-488-97 [2012] NZHC 1639
BETWEEN PETER JAMES NORTHCOTT AND JILL HEATHER NORTHCOTT
Plaintiffs
AND BEAU FLETCHER DAVIDSON Defendant
Hearing: 1 May 2012
Appearances: M Singh for Plaintiffs
G Swanepoel for Defendant
Judgment: 7 June 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 7 June 2012 at ...4:30pm. pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Glaister Ennor (Mitch Singh) P O Box 63 Auckland 1140, for plaintiffs
Email: mitch.singh@glaisterennor.co.nz
SwanLaw (George Swanepoel) P O Box 1563 Whangarei 0140, for defendant
Email: George@swanlaw.co.nz
Case Officer:
Email: Paul.Lincoln@justice.govt.nz
NORTHCOTT AND NORTHCOTT V DAVIDSON HC WHA CIV-2012-488-97 [7 June 2012]
[1] The plaintiffs sue the defendant on a guarantee. The defendant opposes on the ground that any guarantee did not comply with s 27 of the Property Law Act
2007 because he did not sign. The plaintiffs have applied for summary judgment.
Facts
[2] In 2008 the plaintiffs made an investment of $500,000 through an investment broker, H D Finance Ltd. It has a nominee company for investments by contributory mortgages, H D Nominees Ltd. The defendant was a director of H D Finance Ltd and H D Nominees Ltd.
[3] Under normal lending by contributory mortgage, the broker arranges lending to a third party. But in this case, H D Nominees Ltd was the borrower. The security for the investment was said to be a first mortgage over land at 59 Watene Lane, Taupo, identifier 778310. No mortgage to protect the borrowers’ interest was registered. The plaintiffs initially invested the funds for 3 months but that was later extended. The interest rate payable was 15 per cent per annum but that was later reduced.
[4] The historical search copy of the register under the Land Transfer Act 1952 for identifier 778310 shows that Tui Grove Ltd became the registered proprietor in March 2007 and at the same time a mortgage in favour of H D Nominees Ltd was registered. The property was transferred to H D Nominees Ltd in May 2008 in the exercise of a power of sale. Mr Davidson explains that a contributory loan had been made to Tui Grove Ltd but it had defaulted. H D Nominees Ltd bought at a Registrar’s mortgagee sale. The plaintiffs’ investment of $500,000 helped finance the cost of buying the property. The property was in turn transferred to Watene Lane Ltd, an associated company, in September 2008. It was in turn transferred to third parties in September 2011. By that stage Watene Lane and H D Nominees Ltd had passed out of the defendant’s management and control. The plaintiffs have suffered losses of principal and interest.
[5] While Mr and Mrs Northcott’s investment was a loan to a company associated with a broker, the forms and procedures for contributory mortgage lending to a third party were followed. Their lending was recorded in a series of documents called “Instructions to Invest”. These were special authorities under Reg 6(5) of the Securities Act (Contributory Mortgage) Regulations 1988. Under Reg 18, contributions received by a broker must be held in a trust account of the broker’s nominee company. Under Reg 19, contributions held in the trust account cannot be paid out unless certain conditions are satisfied. One of those conditions is that the funds are paid to a mortgagor under a contributory mortgage in accordance with a special authority (Reg 19(b)).
[6] The Northcotts say that when they first discussed the investment with Mr Davidson, they asked him to give a guarantee to alleviate any concerns as to the strength or stability of their investment. They say that Mr Davidson assured them that that would be put in place. They relied on that assurance.
[7] Mr Davidson does not dispute that the Northcotts requested the guarantee. He says that he agreed to include the offer of a guarantee in their Instruction to Invest document. He also says that he suggested that the Northcotts instruct their own solicitor to prepare a guarantee document which he would sign, but that did not occur. He says that H D Finance Ltd was not requested to prepare any guarantee documents.
[8] The first instruction to invest was signed by the Northcotts on 3 April 2008. It records the amount advanced as $500,000, the term as three months, the borrower as H D Finance Ltd, the security as a first mortgage over the property at 59 Watene Lane, Taupo, the interest rate as 15 per cent, and the priority as a first mortgage. It does not contain any written guarantee by Mr Davidson. The Northcotts signed and returned the instruction to invest to H D Finance Ltd.
[9] The Northcotts say that they spoke to Mr Davidson about the absence of a guarantee on about 10 April 2008. They say that as a result of that discussion, Mr Davidson sent another instruction to invest. The second instruction to invest is on the same terms as the old one, except that these words were added: “The
company director B F Davidson gives his personal guaranty [sic] for this loan”. The
Northcotts signed the second instruction to invest, but Mr Davidson did not.
[10] H D Finance Ltd sent a third instruction to invest in April 2008. The Northcotts also signed and returned that one. It is in the same terms as the second one. Mr Davidson did not sign that instruction to invest.
[11] The initial investment was for three months only. It was not repaid. Instead, in September 2008 the Northcotts signed a fresh instruction to invest. The term of the loan was 12 months. The amount to be secured was $500,000. The interest rate was 15 per cent per annum. It had a first mortgage priority. However, this time the borrower was shown as Watene Lane Ltd. This instruction also contained the words “The company director B F Davidson gives his personal Guarantee for this loan”. Again Mr and Mrs Northcott signed the instruction to invest but Mr Davidson did not.
[12] In his letter of 19 September 2008 to the Northcotts inviting them to sign this instruction, Mr Davidson explained that the property in Watene Lane had been transferred from H D Nominees Ltd to Watene Lane Ltd to ensure that H D Nominees Ltd was not deemed to be a developer in the eyes of the Inland Revenue. H D Nominees Ltd would be the sole shareholder of Watene Lane Ltd. The letter also advised that H D Finance Ltd would repay $150,000 as a reduction of principal at the end of October 2008. The balance of $350,000 would be secured by first mortgage over the property. In fact, the promised reduction in principal was not made.
[13] In January 2009 Mr Davidson wrote to the Northcotts to advise that the business of H D Finance Ltd was being merged with the mortgage trust business of McKay Hill, Napier lawyers. In March 2009 the Northcotts signed a document consenting to the investment to be held by H D Finance Ltd through the nominee company, H D Nominees Ltd, being transferred to McKay Hill Solicitors Mortgage Trust. McKay Hill’s mortgage company, Central Mortgage Trust Ltd, took over management of the mortgage.
[14] In September 2009 Mr and Mrs Northcott signed the fifth instruction to invest. This was in the same terms as the fourth instruction, except that the interest rate was reduced from 15 per cent per annum to 9.5 per cent per annum. Mr Davidson sent the instruction to invest to them in May 2009. He signed the letter inviting them to sign the authority, but he did not sign the instruction to invest.
[15] In July 2010 Central Mortgage Trust Ltd went into liquidation.
[16] In October 2010 Mr Davidson wrote to the Northcotts under Reg 40 of the Securities Act (Contributory Mortgage) Regulations advising that he had breached Regs 12, 25, 31 and 36. The Securities Commission removed Mr Davidson and his wife as directors of H D Nominees Ltd and Mr Davidson as a director of Watene Lane Ltd. A chartered accountant was appointed director of those companies. The Commission’s notice records that regulations under the Securities Act 1978 had been breached and it was desirable in the public interest to make the orders under s 44B(2) of the Securities Act 1978.
[17] In later circulars to investors, the chartered accountant recorded his view that because H D Nominees Ltd acquired the property under a mortgagee sale in 2008, the Northcotts and other investors had shares in the property, rather than having shares in a mortgage. While the owner of the property was now Watene Lane Ltd, the shares in that company were held by H D Nominees Ltd on behalf of the investors.
[18] The chartered accountant later sold the Watene Lane property. The Northcotts received distributions amounting to $116,000. They have suffered a loss of principal of $384,000. They also claim unpaid interest from December 2009 to September 2010 amounting to $39,584.30.
[19] They sue Mr Davidson for their losses. They have three causes of action:
(a) The first cause of action is a claim under a guarantee. The guarantee is said to be the fifth letter of instruction plus the covering letter of
31 May 2009.
(b) Under the second cause of action they again claim under the covering letter of 31 May 2009 and the fifth letter of instruction, but invoke the “authenticated signature fiction”.
(c) The third cause of action is based on estoppel.
Section 27 of the Property Law Act 2007
[20] The Property Law Act 2007 came into force on 1 January 2008. Section 27 enacts new provisions for formalities for contracts of guarantee:
27 Contracts of guarantee must be in writing
(1) This section applies to contracts of guarantee coming into operation on or after 1 January 2008.
(2) A contract of guarantee must be—
(a) in writing; and
(b) signed by the guarantor.
(3) Subsection (2) does not require the consideration for a contract of guarantee to be in writing or to appear by necessary implication from a writing.
(4) 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.
[21] Section 27(2) requires a contract of guarantee to be in writing and to be signed by the guarantor. The plaintiffs’ statement of claim attempts to plead around the difficulties of the absence of a signature by Mr Davidson.
[22] To understand the requirements of s 27, it is helpful to compare it with its predecessor,1 s 2 of the Contracts Enforcement Act 1956, as well as with ss 24 and
26 of the Property Law Act 2007.
[23] Section 2 of the Contracts Enforcement Act 1956 provides:
1 Under s 366 of the Property Law Act, the Contracts Enforcement Act 1956 was repealed.
2. Proof of contracts relating to land and to guarantees
(1) This section applies to—
(a) Every contract for the sale of land:
(b) Every contract to enter into any disposition of land, being a disposition that is required by any enactment to be made by deed or instrument or in writing or to be proved by writing:
(c) Every contract to enter into any mortgage or charge on land: (d) Every contract by any person to answer to another person for
the debt, default, or liability of a third person.
(2) No contract to which this section applies shall be enforceable by action unless the contract or some memorandum or note thereof is in writing and is signed by the party to be charged therewith or by some other person lawfully authorised by him.
(3) Nothing in this section shall—
(a) Apply to any sale of land by order of the [High Court] or through the Registrar of that Court:
(b) Apply to any alienation of Maori land by a Maori, being an alienation that is required by the Maori Affairs Act 1953 to be confirmed by the Maori Land Court, or to any sale of Maori land by order of that Court:
(c) Affect the operation of the law relating to part performance. (4) For the purposes of this section,—
Disposition includes any conveyance, transfer, grant, partition, exchange, lease, assignment, surrender, disclaimer, appointment, settlement, or other assurance; and any declaration or creation of a trust; and any devise, bequest, or appointment by a will:
Land means any estate or interest, whether freehold or chattel, in real property.
(5) The foregoing provisions of this section apply only to contracts made after the passing of this Act.
(6) This section is in substitution for section 4 of the Statute of Frauds
1677 of the Parliament of England, and that section shall cease to be in force in New Zealand, except in respect of contracts made before
the passing of this Act.
[24] Sections 24 and 26 of the Property Law Act 2007 provide:
(1) A contract for the disposition of land is not enforceable by action unless—
(a) the contract is in writing or its terms are recorded in writing;
and
(b) the contract or written record is signed by the party against whom the contract is sought to be enforced.
(2) In this section, disposition does not include—
(a) a short-term lease; or
(b) a sale of land by order of a court or through the Registrar.
...
26 Doctrine of part performance not affected
Sections 24 and 25 do not affect the operation of the law relating to part performance.
[25] I set out below certain matters arising under s 27. First I record the approach to interpreting s 27. In Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA2 Lord Hoffmann said of s 4 of the Statute of Frauds:
The terms of the Statute therefore show that Parliament, although obviously conscious that it would allow some people to break their promises, thought that this injustice was outweighed by the need to protect people from being held liable on the basis of oral utterances which were ill-considered, ambiguous or completely fictitious. This means that while normally one would approach the construction of a statute on the basis that Parliament was unlikely to have intended to cause injustice by allowing people to break promises which had been relied upon, no such assumption can be made about the Statute.
In my view s 27 should also be applied without the assumption described by Lord
Hoffmann for the same reasons.
[26] The requirements that a contract of guarantee must be in writing and must be signed by the guarantor are cumulative. The statute is not satisfied if only one of those requirements is met.
[27] Under the Contracts Enforcement Act 1956, an oral guarantee could be enforced if there was some memorandum or note of it in writing signed by the guarantor. Similarly, under s 24 of the Property Law Act 2007, a contract for the disposition of land may be enforced if there is a written record of the agreement, signed by the party the agreement is to be enforced against. However, under s 27, the guarantee itself must be in writing.3 An oral contract of guarantee is not enforceable, even if the guarantor has signed a written record of the guarantee.
[28] Where a creditor relies on a signature of the guarantor, it is necessary to see whether the signature is on the written contract of guarantee. For that, it is necessary to distinguish between the text of the contract of guarantee and other writing that does not form part of the contract. That includes written material that would be excluded from consideration under the parol evidence rule or under an entire agreement clause.
[29] On the other hand, a contract may consist of a number of documents.4 So long as all the documents contain some contractual text there may be a contract of guarantee in more than one document. While it would be prudent to have a guarantor sign every document, s 27(2) does not require more than one signature by the guarantor, even though there may be more than one document in the contract of guarantee.
[30] The effects of non-compliance have changed. Under s 2 of the Contracts Enforcement Act 1956 and under s 24 of the Property Law Act 2007, contracts that lack the requisite formalities are not enforceable by action. They might still have some effect. The contract is simply unenforceable, not void. It might be subject to
rectification.5 It might provide a defence in certain cases, as in claims for repayment
3 Except that the consideration does not need to be in writing: s 27(3).
4 An example is the typical building contract comprising an agreement, specifications and plans.
5 Whiting v Diver Plumbing and Heating Ltd [1992] 1 NZLR 560 (HC).
of a deposit.6 The matter is otherwise under s 27. The requirement for the contract to be in writing, signed by the guarantor, goes to the validity of the contract. An oral guarantee is not just unenforceable. It is a nullity. The statute has made that clear by the word “must”. Section 26 of the Property Law Act 2007 saves the law relating to part performance for contracts for the disposition of land. However, if an oral or unsigned contract of guarantee is a nullity, the law relating to part performance cannot apply to it. Equity does not order specific performance of a void contract.
[31] In Welsh v Gatchell,7 Miller J considered the requirement for a signature under s 2 of the Contracts Enforcement Act 1956. After considering the authorities he said:
[51] ... Although the content of the document and the signature upon it may be written at the same time and by the same person, they serve different legal purposes. A signature is a distinct personal act that identifies the party to be charged and evidences his or her intention to be bound by the contents of the document. For that reason, a name may not be interpreted as a signature where it serves some other purpose, as in the case where it appears as part of the substantive content. A signature may appear in any position, but it must govern the whole. A name, initials, or other mark that identifies the party to be charged may suffice as a signature. It need not be handwritten; in particular, it may be stamped or typed.
[32] Miller J also considered the requirements for a signature under the Electronic
Transactions Act 2002. That aspect does not require consideration in this case.
[33] That judgment as to the requirements for a signature was made for a statute under which a signature on a memorandum or note of a contract would make the contract enforceable. In such cases it is necessary to have regard to the purpose for which a name was used in a document. That is why case law under the Statute of Frauds 1677 often discusses the need for a signature to authenticate a document.8
Under s 27 of the Property Law Act 2007, it is the written contract of guarantee that
must be signed, not any other document. It should therefore be less difficult to see whether the guarantor has signed the document in execution of the contract, rather
than for some other purpose.
6 Thomas v Brown (1876) 1 QBD 714 at 723–724.
7 Welsh v Gatchell [2009] 1 NZLR 241 (HC).
[34] Under the Statute of Frauds 1677 and the Contracts Enforcement Act 1956, the courts were prepared to give a more extensive meaning to “signature” than Miller J recognised in Welsh v Gatchell. Examples of such cases are Evans v Hoare and Leeman v Stocks.9 In Evans v Hoare, Cave J said:10
No doubt, in attempting to frame a principle, one is obliged to depart somewhat from the strict lines of the statute ...
[35] The question here is whether such extended meanings should be given to
“sign” under s 27 of the Property Law Act 2007.
[36] The English Court of Appeal addressed a similar issue in Firstpost Homes Ltd v Johnson.11 The question there was whether a contract had been duly signed under s 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The relevant parts of s 2 were:
1. A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.
2. The terms may be incorporated in a document either by being set out in it or by reference to some other document.
3. The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract ...
[37] The 1989 Act replaced earlier legislation under which a note or memorandum, signed by the party to be bound, was sufficient. The English Court of Appeal held that older case law giving an extended definition to “signed” was no longer applicable. Peter Gibson LJ said:12
The Act of 1989 seems to me to have a new and different philosophy from that which the Statute of Frauds 1677 and s 40 of the Act of 1925 had. Oral contracts are no longer permitted. To my mind it is clear that Parliament intended that questions as to whether there was a contract, and what were the terms of the contract, should be readily ascertained by looking at the single document said to constitute the contract. ...
9 Evans v Hoare (1892) 1 QB 593; Leeman v Stocks [1951] Ch 941.
10 At 597.
11 Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 (CA).
12 At 1576.
For my part, I do not see why it is right to encumber the new Act with so much ancient baggage, particularly when it does not leave the “signed” meaning which the ordinary man would understand it to have.
[38] That approach can also be applied to s 27 of the Property Law Act 2007. Parliament has provided that a contract of guarantee must be in writing and it must be signed by the guarantor. It is no longer sufficient to rely on a written record of the contract signed by the guarantor. Parliament clearly changed the test so as to provide more certainty whether a person had entered into a binding guarantee. It would run contrary to that legislative purpose for artificial definitions of signature, such as were recognised under the older legislation, to be accepted for s 27.
[39] There is one caveat. In Firstpost Homes v Johnson, Peter Gibson LJ referred to a signature in terms that suggested that it was confined to a handwritten signature.13 For the purpose of s 27 I prefer the formulation by Miller J in Welsh v Gatchell. His recognition that a signature need not be handwritten but may be stamped or typed is consistent with current, everyday usage.
[40] In Elpis Maritime Co Ltd v Marti Chartering Co Inc,14 a guarantor contended that it was not liable, because it had signed the contract in question only as agent of the debtor. Enforceability of the guarantee was governed by s 4 of the Statute of Frauds 1677.15 The House of Lords held that the capacity under which the document was signed was irrelevant because the contract still constituted a sufficient memorandum or note of the guarantee signed by the person to be charged under s 4.16 That approach is not available under s 27, now that it is no longer possible to rely on a note or memorandum of the guarantee. Under s 27, a signature will not count, if the guarantor has signed the document not as a guarantor but in some other capacity, for example as agent of another party to the contract. At the same time, it is
helpful to bear in mind cases such as Young v Schuler,17 where extrinsic evidence
13 At 1575.
14 Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21 (HC).
15 Statute of Frauds 1677, s 4: “No action shall be brought ... whereby to charge the defendant
upon any special promise to answer for the debt, default or miscarriages of another person ... unless the agreement upon which such action shall be brought, or some memorandum or note thereof , shall be in writing and signed by the party to be charged therewith, or some other person thereunto, by him lawfully authorised.”
16 At 33.
17 Young v Schuler (1883) 11 QBD 651 (CA).
was admitted to show that an agent had signed both for the principal and in his own right as a guarantor.
[41] It may also be useful to note that the Statute of Frauds Amendment Act 1828, s 6 has been repealed: s 365(3)(b) of the Property Law Act 2007. This statute is commonly known as Lord Tenterden’s Act. Section 6 said:
No action shall be brought whereby to charge any person upon or by reason of any representation, assurance made or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods upon, unless such representation or assurance be made in writing, signed by the party to be charged therewith.
[42] The purpose of the provision was to prevent creditors circumventing the Statute of Frauds 1677 by suing oral guarantors in deceit. The repeal of this provision suggests that if they are otherwise actionable, claims on representations as to character, conduct, credit, ability, trade or dealings that are not set out in writing and signed, may be pursued notwithstanding s 27 of the Property Law Act 2007.
The first cause of action
[43] The plaintiffs rely on the fifth letter of instruction and the covering letter of
31 May 2009. The plaintiffs accept that Mr Davidson did not sign the fifth letter of instruction, but they say that he signed the covering letter of 31 May 2009. They say that the two documents can be read together to amount to a contract of guarantee. The plaintiffs’ submissions rely on the joinder of documents under the test set out in
Burrows, Finn and Todd:18
1. The existence of a document signed by the defendant;
2. A sufficient reference, express or implied, in that document to a second document; and
3. A sufficiently complete memorandum formed by the two when read together.
[44] Reference was made to the judgment of Jenkins LJ in Timmins v Moreland
Street Properties Ltd.19
[45] That test for joinder of documents was applied to ascertain whether there was a sufficient note or memorandum under s 2 of the Contracts Enforcement Act 1956, s 4 of the Statute of Frauds 1677 and similar legislation.
[46] The body of the letter of 31 May 2009 on which the plaintiffs rely says:
Time has been ticking by and we are making progress with Watene Lane though like all things that is taking longer than expected.
To that extent in line with the general reduction of interest rates I enclose for your consideration a new authority with the interest rate reflecting more closely the current market return.
In anticipation of your agreement to this, I thank you for your continued investment.
Mr Davidson signed the letter on behalf of H D Finance Ltd.
[47] The plaintiffs say that Mr Davidson has signed the covering letter, that letter expressly refers to the letter of instruction, and the two can be read together to form one document.
[48] For documents to be joined together under s 27, they must constitute a contract. The covering letter does not contain any contractual provision. It does not form part of the written contract. Mr Davidson’s signature on the covering letter is not a signature executing a guarantee on a separate document, the instruction to invest. Mr Davidson has an arguable defence to the first cause of action that he did
not sign the guarantee, but only a non-contractual document.
19 Timmins v Moreland Street Properties Ltd [1958] Ch 110 (CA) at 120.
The second cause of action
[49] For their second cause of action, the plaintiffs rely on the authenticated signature fiction.20
[50] In Tait-Jamieson v Cardrona Ski Resort Ltd, French J said:21
That doctrine provides that if certain requirements are met, the written, printed or typed name of a party appearing in the writing as some part of its substance (for example, in the space for the name of the party) can be held to be the signature of that party. The fiction is that the party has authenticated that expression of the name as their signature for the purpose of further authenticating the writing of which it forms part.
Following earlier authority, she identified the three essential features of the authenticated signature fiction as being:22
(a) The contract or memorandum must have been prepared by the party sought to be charged or by an authorised agent and have the party’s name printed or written on it;
(b) It must be handed or sent by that party or the agent to the other party for signature; and
(c) It must be shown, either from the form of the agreement or the surrounding circumstances, that it is not intended to be signed by anyone other than the party to whom it is sent and, when signed by that party, it is to constitute a complete and binding contract between the parties.
[51] The plaintiffs say that the authenticated signature fiction applies because the fifth instruction was prepared by the defendant and his name was put on it, the letter of instruction was sent to the plaintiffs for their agreement and for them to sign and, once they had signed and returned it, it was not intended to be signed by anyone else and it was expected to constitute a complete and binding contract between the parties. The plaintiffs submit that even if Mr Davidson’s name has not been used in
execution of the contract of guarantee, under the fiction that is not required.
1 NZLR 729 where Wilson J formulated the doctrine by reference to English cases.
21 Tait-Jamieson v Cardrona Ski Resort Ltd [2012] 1 NZLR 105 (HC) at [27].
22 At [28].
[52] The use of a person’s name on a document under the fiction, that is, not in execution of a contract, is not a signature in the ordinary sense of the term or in the meaning given by Miller J in Welsh v Gatchell.
[53] Mr Davidson’s name has been used in the letter of instruction:
The company director B F Davidson gives his personal guarantee for this loan.
While that is writing sufficient to identify him as the guarantor, it is not his signature. Under s 27, “signed” is not to have the extended meaning as under the authenticated signature fiction. It is part of Peter Gibson LJ’s “so much ancient baggage” which has been discarded under s 27. The defendant has an arguable defence to the second cause of action.
The third cause of action
[54] The plaintiffs plead that the defendant is estopped from relying on s 27 of the Property Law Act 2007. Their case is that they were led to believe that the guarantee was enforceable against the defendant, their assumption went beyond the primary and general assumption that the defendant would honour his promise, the defendant encouraged them in that assumption and they relied on that assumption, there is a written record created by the defendant, the defendant benefited from the investment which was made possible by his written but unsigned guarantee, the defendant personally affirmed his intention to be bound by the guarantee, and the plaintiffs have suffered as a result.
[55] The relief the plaintiffs seek is the same as for their first and second causes of action. They seek repayment of the balance of the principal sum invested, plus interest payable under the agreement with Watene Lane Ltd.
[56] The plaintiffs are relying on a form of promissory estoppel. It is now widely recognised that the scope of estoppels has broadened considerably: see the judgment
of Oliver J in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd23 and the
23 Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 (Ch).
decision of the English Court of Appeal in Amalgamated Investments and Property
Co Ltd v Texas Commerce International Bank Ltd.24
[57] In Attorney-General of Hong Kong v Humphrey’s Estate (Queen’s Gardens)
Ltd,25 the Privy Council said that the requirements were:
(a) the creation or encouragement of a belief or expectation; (b) reliance on that belief or expectation; or
(c) detriment making it unfair or unjust to allow a resiling from the assumption.
[58] It has frequently been stated that unconscionability is a key element. In
National Westminster Finance NZ Ltd v National Bank of NZ Ltd 26, Tipping J said:27
The decisions of the court in Wham-O Manufacturing Co v Lincoln Industries [1984] 1 NZLR 641 and Gillies v Keogh [1989] 2 NZLR 327 have emphasised the element of unconscionability which runs through all manifestations of estoppels. The broad rationale of estoppel, and this is not a test in itself, is to prevent a party from going back on its word (whether express or implied) when it would be unconscionable to do so.
[59] The courts have also recognised that there may be promissory estoppel when there is no contract between the parties. Thus, Cooke P said in Burbery Mortgage Finance and Savings Ltd v Hindsbank Holdings Ltd:28
The principle of promissory estoppel does not seem to me to be limited to dealings between parties who have had prior contractual rights inter se.
24 Amalgamated Investments and Property Co Ltd v Texas Commerce International Bank Ltd
[1982] QB 84 (CA), especially at 122.
26 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA).
27 At 549.
28 Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA)
at 359.
[60] Similarly, in Krukziener v Hanover Finance Ltd,29 the Court of Appeal held that promissory estoppel was no longer confined to promises affecting pre-existing rights.
[61] In Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA,30 the plaintiff was unsuccessful in invoking estoppel to sue on a guarantee. The House of Lords held that the requirements of s 4 of the Statute of Frauds could not be circumvented and the giving of an oral guarantee could not found an estoppel. At the same time, some of the Lords recognised that there may be cases where a party may be estopped from relying on the statute. Lord Clyde said:31
The only assurance given to Actionstrength was the promise itself. In order to be estopped from invoking the Statute there must be something more, such as additional encouragement, inducement or assurance.
[62] Lord Walker said:32
[Counsel for the defendant] was willing to concede ... that an explicit assurance that St-Gobain would not plead the Statute of Frauds (like an explicit assurance not to take a limitation point) could found an estoppel. But it would wholly frustrate the continued operation of s 4 in relation to contracts of guarantee if an oral promise were to be treated, without more, as somehow carrying in itself a representation that the promise would be treated as enforceable.
...
To treat the very same facts as creating an unenforceable oral contract and as amounting to a representation (enforceable as soon as relied upon) that the contract would be enforceable, despite s 4—and to do so while disavowing any reliance on the doctrine of part performance—would be to subvert the whole force of the section as it remains in operation, by Parliament’s considered choice, in relation to contracts of guarantee.
[63] Tipping J made a similar point in T A Dellaca Ltd v PDL Industries Ltd:33
At no stage however has it been held that equity will relieve against the consequences of the statute on general principles of estoppel. The doctrine of part performance has been much more tightly framed and controlled than that. This must be right because equity has never claimed any general power
29 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
30 Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17, [2003] 2
AC 541.
31 At [35].
32 At [52]–[53].
33 T A Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 (HC) at 108.
to dispense with the observance of statutes on the basis that a party is estopped from relying upon a right which Parliament has for better or worse given.
[64] In Tait-Jamieson v Cardrona Ski Resort Ltd,34 French J allowed a claim on an unsigned guarantee on the basis of estoppel, notwithstanding s 2 of the Contracts Enforcement Act 1956, because she found that the guarantor had represented that his unsigned commitment could be relied on. The High Court of Australia’s decision in Waltons Stores (Interstate) Ltd v Maher,35 is also authority that promissory estoppel may operate where the absence of a signed note or memorandum makes a promise unenforceable.
[65] The plaintiffs accept that they cannot sue on the oral guarantee given by Mr Davidson in the discussions in March 2008, because they come within the scope of the House of Lords decision in Actionstrength. However, they say that there were continued representations by Mr Davidson that encouraged them in the belief that he would not take the point that he had not given a signed guarantee. They say that those representations consist of the last four letters of instruction that were issued, containing words of guarantee, which led them to believe that he had given them a binding guarantee.
[66] There are difficulties for the plaintiffs relying on that argument.
[67] For Mr Davidson it is arguable that the unsigned statements containing words of guarantee in the letters of instruction are not assurances that he will not rely on the absence of a signature, but are simply ineffective words of guarantee.
[68] Further, it is not clear that, even if he gave assurances that he would not take the point about the absence of signature, and even if the plaintiffs relied on his assurances, there was any relevant detriment. There is no evidence as to when the plaintiffs paid H D Finance Ltd for their initial investment, and in particular in relation to their signing the particular letters of instruction. It is unknown whether they paid after the first instruction to invest, which did not contain any words of
guarantee, or the second, which did. They cannot and do not rely on Mr Davidson’s
34 Tait-Jamieson v Cardrona Ski Resort Ltd [2012] 1 NZLR 105 (HC).
35 Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 (HCA).
original oral statement that he would give a guarantee because that is not relevant reliance under the decision in Actionstrength.
[69] There is also no evidence that they would have got their money back if they had not renewed their investment by signing fresh instructions to invest. For the defendant, it is arguable that the plaintiffs suffered their detriment at the outset when they first made their investment. The investment may have been doomed from the start. In that event, any continued assurances as to the enforceability of an unsigned guarantee were not the source of detriment, because the plaintiffs had already suffered their loss at the outset. There was a depressed property market. When the properties were sold, the Northcotts and other investors were unable to be paid in full. There is no evidence that the property market was in a stronger state in 2008 than it was in 2010-2011.
[70] If there is a claim for estoppel in this case, equity will assist only to the extent of allowing the Northcotts to recover to the extent of their detriment. That is, they will be entitled to have their money back but cannot not recover for any expectation loss. That is in line with the approach taken by the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher. Equity would not intervene to the extent of enforcing the promise, that is, putting the Northcotts in the position they would have been in if Mr Davidson had given a valid guarantee. The Northcotts have not shown their reliance loss, which might have to take into account interest payments they received.
[71] I find that the defendant has arguable defences to the claim based on estoppel.
Additional matters
[72] As the defendant has arguable defences to each cause of action in the statement of claim, the application for summary judgment cannot succeed. Although not strictly necessary for the decision, I note some additional submissions by the parties.
[73] The plaintiffs contended that Mr Davidson signed the covering letter of
31 May 2009 in a double capacity, as director of H D Finance Ltd and in his own right as guarantor. While I have held that that letter is not a contractual document, if it were, it is not clear that this is a case like Schuler v Young where the defendant signed in a double capacity. At the least, more evidence may throw more light on the issue. On the current state of the evidence, it is arguable that Mr Davidson signed the letter solely as director of H D Finance Ltd.
[74] Each instruction to invest has this term:
The Company, H D Finance Ltd and the directors and employees thereto shall be entitled to indemnity from the contributors proportionately to their contributions in respect of all costs, claims and other liabilities in relation to the mortgage and the principal sum secured.
The defendant argued that he was entitled to indemnity under this term. The term is provided in the form in Schedule 5 of the Securities Act (Contributory Mortgage) Regulations 1988. The form provides that the provision may be excluded. If the defendant had given a valid guarantee in the instructions to invest, that special provision inserted for the transactions between these parties would prevail over the general provision for indemnity.
[75] Mr Davidson contends that he expected the plaintiffs to arrange for their lawyer to prepare a guarantee that he would sign. By itself that is not enough for him to escape liability. If he had signed the instruction to invest containing the words of guarantee, he would be effectively bound by the guarantee. His liability would not be deferred until a more formal guarantee was signed.
Disposition
[76] I make these orders:
(a) I dismiss the application for summary judgment;
(b) I reserve costs, following normal practice on a plaintiff’s unsuccessful
summary judgment application; and
(c) I direct a case management conference for directions to be given for the ongoing management of the proceeding.
...........................................
R M Bell
Associate Judge
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URL: http://www.nzlii.org/nz/cases/NZHC/2012/1639.html