Hickman and Others v Turn and Wave Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeRanderson J,Re
Judgment Date29 Mar 2011
Neutral Citation[2011] NZCA 100
Docket NumberCA796/200 CA798/2009

[2011] NZCA 100

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

O'Regan P, Hammond and Randerson JJ

CA796/200

CA797/2009

CA798/2009

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
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

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).

The issues on appeal were: whether the investors could introduce new causes of action based on promissory estoppel and interdependent agreements; whether the Blue Chip sales agents were agents of the developers; whether the Blue Chip agreements were debt securities and if so whether they were exempted under s5(1)(b) SA.

Held: The three new causes of action based on promissory estoppel, implied term and interdependent agreements had no proper foundation in fact or in law. The developers had not had any dealings with the Blue Chip sales agents and were unaware of the detail of the investment products marketed and sold by the sales agents and there was nothing to put them on inquiry. There was no evidence that the developers had any reason to assume that the purchasers would be unable to settle nor was there any evidence that the developers knew of any of the alleged misrepresentations of Blue Chip sales agents about the investors' settlement obligations.

The representations made by the sales agents about Blue Chip fell outside the scope of the agency granted by the developers. Any knowledge of the Blue Chip investment products held by the sales agents could not be imputed to the developers. The knowledge had been acquired by the sales agents as agents of Blue Chip and they owed no duty to inform the developers of details of the various investment products. Blue Chip had acted as a principal in its own right and was not acting for the developers. Promissory estoppel would fail on the facts; there was no evidence that the relevant promises had been made and even if made, could not be attributed to the developers at law.

None of the new causes of action could succeed. An amendment at such a late stage would have seriously prejudiced the developers since factual issues relating to the proposed new causes of action were not explored at trial.

The agreements were not debt securities in terms of the SA. The appellants faced the difficulty that under the JVAs there was no offer to the public. The JVAs provided that the investor was entitled to all the shares in the company to be incorporated and to appoint the directors of the company. The shares were not purchased from Blue Chip or issued by a company that was offering them to the public for subscription. They were issued to the investor by a company incorporated by the investor himself or herself. The payment of the deposit under the sale agreement was the only payment made by the investor and that sum was paid to or for the benefit of the developer as vendor. No other funds were paid by the investors to any Blue Chip entity. There had been no offer to the public for subscription in terms of s33 SA (restrictions on offer of securities to the public).

Under s2 SA (interpretation) the term “debt security” was defined as any interest in or right to be paid money that is, or is to be, deposited with, lent to, or otherwise owing by, any person. Academic criticism of the decision in Culverden Retirement Village v Registrar of Companies contended that the phrase “the right to be paid money” should be construed ejusdem generis with the references to deposits and loans and the other forms of security mentioned in the definition of debt security. A broad approach to the expression “or otherwise owing by” could expand the scope of the Act well beyond Parliament's true intention.

The starting point was to read the Act as a whole in light of its text and purpose, which was the protection of the investing public against the risk that the issuer of a security may not be able to fulfil the contractual obligations it assumes under the security. The interpretation and application of the Act was to be approached from the investor's viewpoint. While, as Culverden attested, the definitions of security and debt security are widely expressed, Parliament did not intend the definition of debt security to embrace commercial transactions that do not involve some element of repayment of money subscribed by investors. Culverden should be regarded as an unusual application of the Act but, even there, the element of the transaction found to bring the transaction within the concept of debt security in the Act was essentially a repayment obligation.

The JVAs did not constitute debt securities for the purposes of the Act. In the absence of any repayment obligation binding on Blue Chip, the assumption on each side of particular contractual obligations under the JVAs was not sufficient to bring them within the purview of the Act.

If the Blue Chip agreements were securities within the meaning of the Securities Act, the obligation on Blue Chip to pay the procurement fee under joint venture agreements was not exempted by s5(1)(b) of the Act. The obligation to pay an option fee under the PIP and PAC agreements was subject to the exemption but the obligation to pay reasonable settlement costs and to reimburse an amount equivalent to the deposits paid were not exempted

The sale and purchase agreements with the developers and the investors were independent contracts and were not tainted by any illegality in relation to the Blue Chip agreements since the sale agreements had not been entered into for the purpose of assisting or promoting any illegal transactions and because the developers had not had any knowledge of any illegality in respect of those transactions.

Appeal dismissed.

  • 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]

...

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