George v Dilks
[2015] NZHC 3060
•4 December 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2139 [2015] NZHC 3060
BETWEEN ARIANA CAILEEN GEORGE
First Plaintiff
AND
RODNEY LEE TE WAKA TOTO HOLLAND
Second Plaintiff
AND
PAUL DILKS Third Defendant
Hearing: 7 October 2015 Appearances:
P M Webb for Plaintiffs
No appearance for Third DefendantJudgment:
4 December 2015
JUDGMENT OF KEANE J
This judgment was delivered by me on 4 December 2015 at 11am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Denham Bramwell, Manukau, Auckland
GEORGE v DILKS [2015] NZHC 3060 [4 December 2015]
[1] On 13 February 2007 Ariana George, then a teacher, entered into two agreements with Sell Smart.Biz Limited. Under the first she purchased a licence to sell tourism advertising using touch screen electronic kiosks owned by Sell Smart and, under the second, she purchased the related Touch NZ franchise for $105,000: a
$50,000 deposit and $55,000 by instalments to be agreed later.
[2] ANZ, from which Ms George and her then partner, Rodney Holland, had recently borrowed to buy their Manukau home, was unwilling to assist them. They refinanced their mortgage with Tea Custodians (Bluestone) Limited; and to do that had also to buy out Mr Holland’s mother, with whom they owned their property jointly in shares.
[3] In this, Ms George contends, she relied on assurances from Sell Smart’s shareholder and director, David Padfield, and the mortgage broker he recommended, Paul Dilks. Mr Dilks assured her and her then partner, as he also confirms, that their franchise income (to be derived from an already existing site) would meet their liabilities to both Sell Smart and Bluestone and give them a viable income.
[4] On that assured basis, she contends, she stopped teaching in April 2007; and, because her partner’s tow truck contract had ended in March, the franchise then became their sole source of income. In the event, they derived no income from it. Sell Smart, they say, supplied them with the accounting software package to which they were entitled, but not the training package also essential.
[5] To meet their living expenses Ms George and her partner resorted to the Bluestone loan as to $35,000, and defaulted under their mortgage. In May 2009, in exercise of its power of sale, Bluestone sold their home, leaving a $227,179 shortfall for which it holds them liable.
[6] When they first fell into default in November 2007 and made contact with Bluestone themselves, they discovered that Mr Dilks had obtained their loan from Bluestone by holding out that they intended to renovate their home and that they would meet their mortgage payments out of their incomes as a teacher and tow truck operator. Had he disclosed that they wanted the loan to purchase the franchise on
which they were to be entirely dependent, they contend, Bluestone would not have refinanced them, and they would not have suffered the losses they have.
[7] In August 2014 Ms George and Mr Holland brought this case claiming damages from Sell Smart and Mr Padfield in deceit, and from Mr Padfield in negligence and for breach of fiduciary duty; from Mr Dilks in misrepresentation, deceit, negligence, and for breach of fiduciary duty; and from Bluestone and Prendos, the valuer on the refinancing, in negligence.
[8] On 17 June 2015, after initial discovery, Ms George and Mr Holland discontinued, by consent and with leave from Sargisson AJ, against all defendants except Mr Dilks, who had been served in February 2015 but had not responded. The Judge set down their case against him for formal proof.
[9] On 7 October 2015, at the fixture given, I reviewed with their counsel their four causes of action against Mr Dilks and, in a minute that day, invited them to amplify their evidence in answer to questions I then set out. I now have a further affidavit from Ms George and am able to give my decision.
Four causes of action
[10] All four of the causes of action Ms George and Mr Holland advance against Mr Dilks rely, directly or indirectly, on the proposition that he made two false intentional misrepresentations:
(a) Without their knowledge, he represented to Bluestone that the purpose for which they wanted the loan was to renovate their house;
(b)He represented to them, by contrast, that Bluestone had been invited to make the advance to enable them to acquire the franchise.
[11] In their first cause of action in misrepresentation, they contend, Mr Dilks held out to them that the loan he had obtained for them from Bluestone was ‘founded on’ their ‘plan to purchase a Touch NZ franchise’. This, they contend, induced them to
complete the purchase and take up the loan, because they then relied on Bluestone’s
‘judgment’ in advancing the loan to them for that purpose.
[12] In their second, in deceit, they again rely on that misrepresentation, and contend that Mr Dilks intentionally and without their knowledge altered their borrowing proposal to Bluestone with intent to induce them to take up the loan and to purchase the franchise.
[13] In their third, in negligence, they contend that Mr Dilks completed the Bluestone “documentation” in breach of his duty of care to them to complete it “accurately”.
[14] In their fourth, in breach of fiduciary duty, they contend that Mr Dilks caused them to repose trust and confidence in him to arrange finance for the franchise purchase and, knowing their vulnerability, made a deliberately false proposal to Bluestone.
[15] In all four ways they contend they suffered loss: the loss of their $50, 000 deposit, of their business and licence, of their property, and of their income. They incurred a liability to Bluestone for which they are also entitled to recompense.
Evidence
[16] According to Ms George, in early 2006 they were attracted by an advertisement placed by the franchisor, Sell Smart. They contacted David Padfield, Sell Smart’s shareholder and director. He told them that the purchase price for a franchise was $105,000. They thought that beyond their ability.
[17] ANZ, from which they had borrowed in May 2006 to purchase a two-third share in Mr Holland’s mother’s Manukau property, and to which they then owed about $260,000, refused to advance to them a further $100,000. They had bought their home just the year before and their equity was insufficient. ANZ also refused to lend them $50,000 for the deposit.
[18] Mr Padfield then said he would have an independent mortgage broker, Paul Dilks, assist them. Ms George said that she did not see how Mr Dilks could help them if their bank was unable to, but Mr Dilks telephoned her and arrived at their home, unannounced, to explore their options with them.
[19] He asked them whether they owned their home and, when they told him that they did but that Mr Holland’s mother held a one-third share, and she was on the title, he assured them that would not be a problem; a loan could be obtained in their names only.
[20] They also explained to him that ANZ had refused them any further advance and what ANZ’s reasons were; that Mr Holland’s tow truck contract was about to end; that Ms George wanted to stop teaching so that she and Mr Holland could run the franchise together; and that the franchise would be their sole source of income.
[21] Mr Dilks again assured them, they say, that he could get them finance. Mr Padfield, he said, had shown him the monthly projections for the franchise, which was of an existing site. Their earnings would cover their liabilities and give them a viable income.
[22] Later he telephoned them to say that, although they had yet to sign any application, their loan had been pre-approved, and that after he had sorted out with the lender’s business development manager the documents required he would be in contact. They understood that to mean, they say, that their funding was assured. The documents were a formality.
[23] On 13 February 2007, when Ms George entered into the two agreements, they had still not completed a loan application. That did not happen until some weeks later. The application itself is undated, but they must have signed after 4 April 2007, when Prendos valued their property A fax transmission from Bluestone to Mr Dilks is dated 12 April 2007.
[24] The application they signed, Ms George says, was not complete and the copy produced does not disclose why they wanted the loan. In a covering letter to
Bluestone, however, Mr Dilks said that they wanted a $385,000 loan, to be secured against their property, to refinance their $273,000 ANZ loan, and to obtain further funding.
[25] Under the heading “Stability” Mr Dilks said, “they have a beautiful home in Weymouth which needs enhancing throughout”. According to the accompanying Prendos valuation their property was worth as at 4 April 2007 $445,000 (a value standing in contrast to that given by another valuer on 12 April 2006 for the ANZ loan, $375,000). They had solid incomes.
[26] When the loan was not immediately forthcoming, and that prevented Ms George completing the purchase, Mr Dilks reassured them that it would not be long. When Ms George asked whether she should remain teaching until the advance was made he was again reassuring. With that assurance she ceased teaching and told him she had done so.
[27] On 7 May 2007 Mr Dilks sent to Bluestone a declaration of income made by Mr Holland. At that date Mr Holland had no income. The income he declared was that anticipated from the franchise, even though that was to go to Ms George as franchisee. She entered that income in Mr Holland’s declaration, she said, because Mr Dilks assured her that it did not matter in whose name the form was.
[28] By then Ms George had begun to question whether Mr Dilks and Mr Padfield were actually independent of each other. Mr Padfield had asked them to provide their photograph identification to Mr Dilks. She was even more concerned about the extent to which Mr Padfield and Mr Dilks had discussed together their financial situation.
[29] In May 2007 Mr Dilks finally told them by telephone the terms on which Bluestone was prepared to offer them finance. They were concerned the interest rate, 13.05 per cent, was higher than their ANZ rate, and that monthly payments were to be $3,913.
[30] Mr Dilks again reassured them that their franchise income would suffice. He had reviewed the financial accounts for the franchise and they were “great”. They were buying the most lucrative of the franchises on offer. They relied on his advice then as before.
[31] By that stage, furthermore, their situation had become difficult. Neither was working and their ANZ mortgage was in arrears. They considered that they had no choice but to accept Bluestone’s terms and on 30 May 2007 signed all the documents called for before a lawyer. (Ms George apparently re-signed those she had signed earlier.)
[32] Then Mr Holland’s mother’s one-third interest in the property became complicating. Bluestone required his mother to relinquish her interest before making the advance. Mr Dilks said that could be simply achieved. She could transfer her interest to them. She did not need independent advice. She obtained advice, which was not to relinquish her interest. She chose to do so nonetheless.
[33] On 7 June 2007 Ms George and Mr Holland entered into an agreement with Mr Holland’s mother under which she relinquished her one-third share for $150,000, to be secured by a second mortgage over the property; and that, it seems, was acceptable to Bluestone.
[34] The advance Bluestone made was $360,000. Of that $258,628 was to repay the National Bank, $14,417 to repay a further loan to the bank, $1,000 to repay Ms George’s student loan, and $2,480 was to meet Bluestone’s fees. Out of the balance,
$83,473, $50,000 was paid to Sell Smart, leaving $33,473.
[35] Ms George and her partner proved incapable of giving effect to the franchise she had finally acquired. They did not receive the training package to which they were entitled, and Mr Padfield appears not to have assisted them. Then or later Sell Smart settled with them by repaying them $20,000.
[36] On 1 November 2007, in an attempt to agree a means to meet their mounting debt, they made contact with Bluestone for the first time. Only then did they
discover that Bluestone had advanced them the loan not, as they had understood, to purchase the franchise, but for “home improvements”.
[37] Shortly afterwards Bluestone served on them two Property Law Act notices, one on 10 December 2007, when arrears stood at $7,500, and one on 26 February
2008 requiring $7,068.1 On 10 March 2008 Mr Holland’s mother paid $7,500. They
themselves were incapable of making any further payments.
[38] By then they had complained about Mr Dilks to the New Zealand Mortgage Brokers Association. After a hearing, which he attended, the Association issued a report, dated 28 April 2008, finding him in breach of its rules, code of ethics and standards. It suspended him for six months, fined him $4,000 and required him to meet the hearing costs.
[39] In the report it issued the Association found that Mr Dilks had transgressed as a mortgage broker in four ways:
(a) He had misrepresented to Bluestone the purpose of the loan (and Bluestone would likely not have made the loan had it been aware of the true purpose).
(b)He had given advice to Ms George and her then partner as to the likely viability of the franchise, beyond his role as a mortgage broker.
(c) He appeared to have had a close undisclosed connection with Mr
Padfield, Sell Smart’s principal.
(d)He had not disclosed to Bluestone that Ms George was leaving work to run the franchise.
[40] This report was of no comfort to Ms George and her partner. They remained unable to meet their debt and on 6 May 2009 Bluestone sold their property for a
1 Property Law Act 2007, ss 119, 120.
price never disclosed to them. On 6 July 2010 it served notices of demand on them for the shortfall on the sale, $227,179.
[41] Ms George and her partner separated in 2009, as a result of their mounting liabilities. They had not just lost their home. They had lost their equity before they refinanced, $116,371. They had a liability to Bluestone for the shortfall,
$227,179.68.
Conclusions
[42] I am satisfied, on the evidence, Mr Dilks did make the two material reciprocal intentional false representations on which Ms George and her partner rely.
[43] Mr Dilks misrepresented to Bluestone the purpose for which they wanted the loan, by holding out that it was to renovate their property. He misrepresented to them the purpose for which he had applied for the loan on their behalf, to purchase the franchise. But for those two reciprocal misrepresentations the loan would never have been granted.
[44] If Mr Dilks had told them that Bluestone, like ANZ, would refuse them finance to purchase the franchise, and that to obtain the loan they would have to hold out that their purpose was to renovate, they would never have persisted. If Bluestone had known their actual purpose, it would never have granted the loan.
[45] I am also satisfied that this logic holds, despite the fact that by the time the application was made, Ms George had already entered into the two agreements to purchase. She did so only as a result of Mr Dilks’ earlier assurance that she could rely on already approved finance. Also, on the evidence, Sell Smart was not prepared to complete the transaction until finance was secure.
[46] The two necessarily reciprocal misrepresentations on which Ms George and her partner are entitled to rely are not, however, compatible with their cause of action in negligence. Neither, on the evidence, resulted from any want of care. As the pleadings say they are false representations and could only have been deliberate.
[47] Their cause of action in misrepresentation, which relies on that reality, then involves this difficulty. It relies only on one of the two misrepresentations; that made to them as to the purpose for which Bluestone was willing to make the loan. I also question, on the evidence, whether they can rely on the assurance they say they understood Bluestone gave them as to the viability of the franchise.
[48] Their cause of action in deceit, in which they assert that Mr Dilks made a false proposal to Bluestone without their knowledge, and misstated the purpose of the loan, comes closer. He must certainly have intended to induce them to take up the loan once offered. But he must equally have intended to induce Bluestone to make the loan. That too should have been captured.
[49] Their final cause of action, in which they contend that in breach of a fiduciary duty to them to arrange finance for them to purchase the franchise, Mr Dilks knowingly made a deliberately false proposal to Bluestone, as a result of which they suffered loss, is to my mind their most complete cause of action. It seems also to me to be open to them as a matter of law.
[50] In obtaining finance for them and completing documents on their behalf, Mr Dilks was their agent in whom they reposed trust and confidence. He and they were in a fiduciary relationship. As a fiduciary, Mr Dilks owed them duties to act with openness, fairness and in good faith.2 He was obliged to avoid any undisclosed conflict of interest.3 In completing the documents called for inaccurately, indeed
falsely, he breached his duties to them and caused them loss.
[51] On the basis of that final cause of action I am satisfied that they are entitled to damages they claim under the following heads:
(a) Loss of deposit $50,000 (b) Loss of equity in home $116,371
(c) Present debt to Bluestone $227,179
2 See Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 (CA) at 89.
3 See Boardman v Phipps [1966] UKHL 2, [1967] 2 AC 46.
[52] I do not consider that they are entitled to damages on account of loss of income. They have not made out that loss affirmatively. I note also that they lived off their Bluestone loan for a period and that too would have been complicating had I
considered them entitled to such damages. They will have costs at scale 2B.
P.J. Keane J
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