Hickman and Others v Turn and Wave Ltd

• Jurisdiction: New Zealand
• Court: Court of Appeal
• Judge: Randerson J
• Judgment Date: 29 March 2011
• Neutral Citation: [2011] NZCA 100
• Docket Number: CA796/200 CA798/2009
• Date: 29 March 2011

BETWEEN

Hickman & ORS

Appellant

and

Turn And Wave Limited

Respondent

BETWEEN

Lester & Ors

ppellant

and

Greenstone Barclay Trustees Ltd

Respondent

BETWEEN

Collingwood & Ors

Appellant

and

Icon Central Ltd

Respondent

[2011] NZCA 100

Court:

O'Regan P, Hammond and Randerson JJ

CA796/200

CA797/2009

CA798/2009

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision dismissing the appellants' claim that they had validly cancelled sale and purchase agreements with Blue Chip — application to amend pleadings — appellants sought to cancel agreements based on breaches of the Securities Act 1978 and promissory estoppel — whether sales agents were agents of developers — whether sale and purchase agreements constituted securities offers and if yes, whether they were exempt under s5(1)(b) Securities Act 1978 (exemptions — interests in land).

Counsel:

P J Dale D W Grove and N R Campbell for Appellant

D J Chisholm and G P Blanchard for Respondent Turn & Wave Ltd

R B Stewart QC and D J Neutze for Respondent Greenstone Barclay Trustees Ltd

B O'Callahan and J Puah for Respondent Icon Central Ltd

• A The application by the appellants to amend the pleadings in each case is dismissed.

• B The appeals relating to the five appellants named at [19] are dismissed.

• C Counsel for the remaining appellants are to confer with counsel for the other parties and inform the Court by memorandum within one month from the date of this judgment how the appeals by the other appellants are proposed to be dealt with.

• D Costs are reserved. Counsel are to confer and file a memorandum within the same period on that subject.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

	Para No
Introduction	[1]
The parties	[5]
The proceedings	[8]
The Judge's findings	[13]
Issues on appeal	[14]
The Blue Chip companies	[23]
The Blue Chip investment products	[30]
The mainstream product	[32]
The joint venture product	[33]
Premium Income Product (PIP)	[40]
Put and Call agreement (PAC)	[49]
The Sale and Purchase Agreements (SPAs) and associated lease documents	[54]
Greenstone	[55]
TWL	[61]
Icon	[64]
The relationship between the developers and Blue Chip	[68]
The Barclay	[70]

The profit share agreement	[73]
The Westpac funding	[77]
The underwrite agreement	[81]
The Bianco	[90]
The Icon	[111]
The underwrite agreement	[117]
The Blue Chip marketing methods	[128]
The extent to which the developers were aware of the Blue Chip investment products and the ability of the purchasers to settle	[134]
Greenstone	[135]
TWL	[144]
Icon	[155]
The scope of the authority of the Blue Chip sales agents to act on behalf of the developers and the issue of imputed knowledge	[161]
The Judge's findings	[163]
The scope of agency — Greenstone and TWL	[171]
The scope of agency — Icon	[184]
Imputed knowledge	[192]
Imputed knowledge — Greenstone and TWL	[198]
Imputed knowledge — Icon	[206]
Summary on the issue of knowledge by the developers	[209]
The application to amend the pleadings	[210]
Promissory estoppel	[212]
The ability of the investors to settle without Blue Chip's support	[230]
Implied term	[234]
Interdependent agreements	[255]
The effect of the entire agreement clauses	[265]
Issues under the Securities Act
Introduction	[267]
The purpose and scheme of the Securities Act	[272]
The definitions of “security”, “debt security” and “equity security”	[279]
The Culverden case	[287]
Are the Blue Chip investment agreements debt securities?	[299]
The JVAs	[300]
The PIP agreement	[317]
The PAC agreement	[327]
Lease arrangements	[331]
Does the exemption under s 5(1)(b) of the Securities Act apply in respect of Blue Chip investment agreements?
The JVAs	[335]
The PIP agreements	[343]
The PAC agreements	[350]
The lease	[352]
The consequences of any illegality under the Act; severability and tainting issues	[353]
Were the SPAs tainted by any illegality in relation to the Blue Chip agreements?	[359]
Summary	[369]
Result	[370]

APPENDIX

The Barclay development
Mr and Mrs Lester	[1]
Ms Janes	[11]
Mr and Mrs Hickman	[18]
Mrs Dick	[20]
Ms Andrews	[27]
Mrs Whyte	[36]
Mrs Crockett	[39]
Mr van Beek	[50]
Mr and Mrs Johnson	[59]
Mr and Mrs Bogardus	[68]
Mr Crawford-Greene	[77]
Mr Stewart	[87]
The Bianco Development
Mrs Hunt and Mr Dwight	[90]
Mr and Mrs Hickman	[98]
Mr and Mrs Britton	[107]
Mrs Bruerton	[116]
Mr and Mrs Busch	[118]
Mr Houkamau	[122]
Mr Hutchinson	[127]
Mr and Mrs Jacobsen	[134]
Mr Leach and Ms Holder	[146]
Mr Stewart	[150]
Mrs Whyte	[159]
The Icon Development
Mr and Mrs McFarlane	[167]
Mr Collingwood and Ms Scanlen	[174]
Mr and Mrs Ashby	[180]
Mr and Mrs Bagley	[187]
Mr and Mrs Cosgrove	[197]
Mr and Mrs Dragicevich	[203]
Mr and Mrs Herrick	[209]
Mr and Mrs Moore	[215]
Mr Stewart	[225]
Mr and Mrs Webber	[229]
Ms Aitkenhead	[243]

Introduction

1 When the Blue Chip group of companies collapsed in February 2008, hundreds of investors suffered substantial losses. Many also found they were facing liabilities they had not counted upon having to meet. These appeals are concerned with investors who, as part of their investments with Blue Chip, signed agreements to buy apartments in three separate developments in Auckland City.

2 They bought “off the plans” on the basis that the apartments would be constructed with settlement to take place usually 18 to 24 months later. The respondent developers were not part of the Blue Chip group and when the construction of the apartments was complete they called upon the investors to settle the purchases. The investors declined to do so and purported to cancel the sale and purchase agreements (which we will refer to as “SPAs”).

3 Selected investors then sought declarations to the effect that they were entitled to cancel the agreements on a variety of grounds we discuss below. The High Court ordered under r 10.15 of the High Court Rules that it would determine, prior to trial, whether the selected investors were obliged to settle or whether they had validly cancelled their agreements.

4 In three judgments issued on the same day, Venning J found that the investors had not validly cancelled the SPAs. 1 The investors now appeal against those decisions.

The parties

5 It is convenient to refer first to the respondent developers and to the developments for which they were responsible:

• (a) Greenstone Barclay Trustees Limited (Greenstone) undertook a development known as the Barclay.

• (b) Turn and Wave Limited (TWL) was responsible for a development known as the Bianco.

• (c) Icon Central Limited (Icon) undertook a development known as the Icon.

6 We will refer to the three separate sets of proceedings as the Greenstone, TWL and Icon proceedings respectively.

7 In the Greenstone proceeding there were more than 90 plaintiffs of whom 12 were selected for the purpose of determining the preliminary question. In the TWL

proceeding, there were more than 50 plaintiffs from whom 12 investors were selected. And in the Icon proceeding 11 were selected from some 30 investors. The investors were plaintiffs in the Greenstone and TWL proceedings but were defendants in the Icon proceeding. The cancellation issue was raised as part of their defence in that proceeding

The proceedings

8 Venning J was careful to clarify the limited nature of the proceedings:

• •The judgment could only formally bind the parties selected as plaintiffs who participated in the hearing.

• •Separate causes of action against lenders, mortgage brokers, valuers, Blue Chip entities and solicitors were left for another day.

• •The judgments were concerned solely with the cancellation issue; they did not address whether the court should order specific performance of the SPAs against the individual plaintiffs.

9 The grounds on which the investors asserted they were not obliged to settle were:

• •Actionable misrepresentation giving rise to a right to cancel under the Contractual Remedies Act 1979.

• •Misleading and deceptive conduct under the Fair Trading Act 1986.

• •Breach of the Securities Act 1978 through failure to provide a prospectus.

10 The causes of action for misrepresentation and breach of the Fair Trading Act relied on misrepresentations made by Blue Chip sales agents. In order to give rise to the claimed right of cancellation, it was essential for the investors to establish that, in making the alleged misrepresentations, the Blue Chip agents were also acting as agents for the developers such that their statements should be attributed to the developers as principals.

11 Strictly speaking, a breach of the Securities Act is not a ground entitling the investors to cancel the SPAs. However, if the separate arrangements between Blue Chip and the investors could be shown to have breached the Act, they would be invalid and of no effect. 2 The next step would be to attempt to establish that the SPAs were tainted by that illegality and were also invalid and of no effect.

12 In order to establish this ground, it was necessary for the investors to show that:

• •The separate arrangements made between Blue Chip and the investors were “debt securities” or “equity securities” under the Securities Act.

• •The SPAs had as...