Nathan v Dollars & Sense Ltd HC Auckland CIV 2002-404-2666

[2005] NZHC 1094

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2002-404-2666

BETWEEN  REREKOHU NATHAN Plaintiff

ANDDOLLARS & SENSE LIMITED Defendant

Hearing:         8, 9, 10, 11 March 2005

Appearances: J L Foster for Plaintiff

W G C Templeton for Defendant

Judgment:      25 August 2005

JUDGMENT OF WINKELMANN J

Solicitors

B Ellis, P.O. Box 4516, Auckland for Plaintiff

Blackwells, Level 5, 235 Broadway, Newmarket, Auckland for Defendant

REREKOHU NATHAN V DOLLARS & SENSE LIMITED HC AK CIV 2002-404-2666 [25 August 2005]

I         Introduction

[1]      The  plaintiff,  Mrs  Nathan,  is  the  registered  proprietor  of  a  property  in Kerikeri.   The defendant, Dollars & Sense Finance Limited, has a first registered mortgage over the property.  The mortgage is held as security for money lent to Mrs Nathan’s son, Mr Rodney Nathan, to assist him with purchasing an interest in a business. Dollars & Sense wishes to enforce its mortgage by selling the property to recover the money lent to Mr Nathan.  Mrs Nathan alleges that her signature to the mortgage documentation was forged by Mr Nathan, that Dollars & Sense obtained its interest in the property as mortgagee through fraud and seeks orders removing the mortgage from the register.

[2]      Mrs Nathan pleads three causes of action.   In the first cause of action she alleges that Mr Nathan was acting as Dollars & Sense’s agent for the purposes of obtaining his parents’ signature on the mortgage documentation and that Dollars & Sense knew of the forgery by reason of that agency.  She says that because he was acting as the agent of Dollars & Sense, Mr Nathan’s knowledge is to be imputed to Dollars & Sense. In the second cause of action she pleads that the circumstances of the loan, and the execution of documents were such that Dollars & Sense knew of, or wilfully turned a blind eye to the forgery.  The first and second cause of action make the same essential allegation, that by reason of its knowledge of Mr Nathan’s fraud, Dollars & Sense acted dishonestly. The mortgage is therefore not indefeasible by reason of registration.

[3]      In  the  third  cause  of  action  Mrs  Nathan  alleges  that  the  mortgage  was oppressive by reason of the forgery and by reason of the circumstances surrounding the loan and the execution of the mortgage.  She seeks an order that the mortgage be set aside pursuant to s14(1)(e) of the Credit Contracts Act 1981, and removed from the register.

[4]      The issues for determination are:

(a)       Was Mrs Nathan’s signature on the mortgage documentation forged?

(b)Who acted as the agent of Dollars & Sense in the loan transaction and in particular, was Mr Nathan acting as the agent of Dollars & Sense in obtaining execution of the mortgage documentation?

(c)Was knowledge of the forgery brought home to Dollars & Sense by reason of the knowledge of its agents or otherwise or were Dollars & Sense wilfully blind to the possibility of dishonesty of some sort surrounding the granting of the mortgage?

(d)      Is the contract oppressive for the purposes of the Credit Contracts

Act?

II       Factual background

[5]      Mrs  Nathan  together with  her  husband,  Mr Thomas  Nathan  (Mr  Nathan senior), purchased the Kerikeri property in 1963.  Mr Nathan senior was originally a plaintiff in these proceedings but died before the hearing.   The proceeding is now brought in the name of Mrs Nathan only.  In 1972 Mrs Nathan left Kerikeri, leaving her husband, Mr Nathan senior, in the family home.

[6]      Mrs Nathan gave evidence that she kept in close contact with her estranged husband  and  six  adult  children,  by visiting  them  and  talking  on  the  telephone. However, she seldom visited the property.  Between 1996 and 2000 she visited the property at most once.

[7]      Mr Nathan began working at the Settlers Tavern in Whangarei in 1990 or

1991 as Assistant Manager.  At that time he was employed by Lion Breweries.  In

1994, Accutext Group Limited bought the tavern from Lion Breweries.  Mr Bryant was the majority shareholder of Accutext.   Mr Nathan stayed on after the sale as manager.

[8]      In mid-1995 Accutext sold the business of Settlers Tavern to Setz Holdings Limited.  The shares in Setz were held as to 500 shares by Mr Bryant and as to 500 by Madison Furniture Limited.

[9]      On or about 28 August 1995, 100 shares in Setz were transferred to Mr Nathan.  The transferor was Madison.  Mr Nathan says that the shares were gifted to him.

[10]     The  directors  of  Setz  were  Mr  Bryant,  Mr  Harris  (as  the  appointee  of

Madison) and Mr Nathan.

[11]     Some time in late 1995 or early 1996, Mr Nathan met with Mr Bryant, Mr Harris and Mr Bowden.  Mr Bowden was and is a director of Dollars & Sense.  A discussion took place regarding the possible sale by Mr Bryant of his interest in the Settlers Tavern business held through Setz. Mr Nathan gave evidence that he understood  the  proposal  as  implemented  involved  him  joining  “Mr  Harris’ Company” and “Mr Bowden’s Company” in purchasing the business.

[12]     In the second amended statement of claim it is alleged that the proposal was that Mr Harris and Mr Bowden would each own 30% of the shares in Setz, and Mr Nathan would own 40%.

[13]     Mr Bowden denied that he or Dollars & Sense had any involvement in the purchase of the shares other than as a financier of the transaction. Documentation of the sale and surrounding correspondence is consistent with Mr Bowden’s evidence. I therefore find the allegation that Mr Bowden and/or Dollars & Sense were shareholders or were to be shareholders not proven. Mrs Nathan’s counsel did not, in any case, persist with that allegation in closing.

[14]     On  20  May  1996  as  director  of  a  company  called  General  Capital  & Commerce  Limited,  Mr  Harris  wrote  to  Mr Nathan  confirming  “our  discussion regarding Setz Holdings Limited”.  Mr Harris is the sole shareholder and director of General Capital.   The proposal outlined was that Mr Nathan would purchase 75% of Mr Bryant’s interests in Setz to bring his shareholding to 40% of the total shares in Setz.  The purchase price would be $250,000. General Capital would endeavour to arrange a loan to Mr Nathan of $250,000 on terms that included mortgages over Mr Nathan’s shares in Setz, his current account and “mortgage over house property”. The letter continues:

You will remain in your present position as Manager and on your present remuneration.

It is understood that profit shares will be paid out monthly, and your profit share will firstly be paid towards your monthly loan payment, of interest then principle.

Tax will need to be taken care of as appropriate.  We will build that into the payment program.

Profit  &  Loss  Accounts  will  be  prepared  and  available  for  directors monthly.

It is appropriate that you should become a director in view of the new level of your shareholding.

If this is to your understanding then could you please sign below and we will complete negotiations with Bruce Bryant.

The purchase will be subject to the arrangement of the finance, on the above terms.

[15]     General Capital arranged a loan from Dollars & Sense to Mr Nathan.    At some stage it was agreed  that  the  “mortgage  over  house  property”  would  be  a mortgage over the Kerikeri property owned by Mr Nathan’s parents. Mr Nathan provided to Mr Harris a valuation on his parents’ home he had previously obtained when he was considering participating in an earlier proposal to purchase the Tavern.

[16]     Mr Thomas was instructed to act for Dollars & Sense, although he was not its usual solicitor.   He had previously acted for General Capital and for Setz.   Mr Thomas did not act for Mr Nathan on the transaction.

[17]     Mr Thomas and Mr Harris both confirmed that they knew that Mr Nathan would not be obtaining legal advice, but that they advised him to do so.  Neither Mr Harris or Mr Thomas made any attempt to contact Mr Nathan’s parents to explain the transaction to them, or to recommend that they obtain independent advice.  There was no direct communication, or attempt at direct communication, with Mr Nathan’s parents by Dollars & Sense, Mr Thomas or Mr Harris.

[18]     Mr Thomas prepared the loan and mortgage documentation.  Some time in early or mid-July 1996 Mr Harris took the documentation to Whangarei to deliver it

to Mr Nathan for execution.  The package of documents Mr Harris delivered to Mr

Nathan included:

(a)       The mortgage documents for execution by Mr Nathan’s parents. (b)  Loan contract for signature by Mr Nathan’s parents.

(c)A document entitled “STATEMENT BY COVENANTORS (as to refusal to obtain independent advice)”, also to be signed by Mr Nathan’s parents.  That document recorded:

We choose not to be independently advised regarding the documents described in Schedule A below.   We know that Dollars & Sense Finance Limited expects that we should first receive independent legal advice on this matter and independently of Rodney Nathan and Dollars & Sense Finance Limited, but we have elected not to do so despite advice to the contrary.

The  Mortgage  and  the  Loan  Agreement  with  Dollars  &  Sense Finance Limited and Rodney Nathan is freely and voluntarily given with our informed consent, understanding of the contents of it, and of the circumstances under which the liabilities therein contained have been undertaken. We accept full responsibility for our election, even though confidentiality requirements and conflicts of interest may  mean  that  the  parties  to  the  transaction  may  be  unable  to disclose to us the full knowledge possessed by them regarding the borrowing transaction and our liability thereunder.

(d)      Initial disclosure under the Credit Contracts Act 1981, which Dollars

& Sense was obliged to make according to provisions of that Act.

[19]     When  the  documents  were  returned  to  Mr  Thomas  by  Mr  Nathan,  Mr Thomas  was  concerned  that  the  documents  had  been  signed  but  none  of  the signatures had been witnessed.   Nor had the title or the details of insurance been provided as requested.

[20]     Mr Thomas did not communicate these concerns to Mr Bowden of Dollars & Sense. Rather he sent a memo to Mr Harris, saying:

The documents have been returned but none of the signatures have been witnessed.   Nor was the title or the insurance policy for the property provided.

Given that neither Rod nor his parents have sought legal advice, and given that the parents are providing security for their son, I am concerned that this is settled properly and that nobody says at a later date that the securities were completed under duress or improperly or were otherwise deficient.

These documents really need to be fully and unequivocally enforceable.

[21]     At around this time Mr Harris was told by Mr Nathan that Mr Nathan’s mother was not at the Kerikeri address but was in Gisborne.

[22]     On 24 July 1996 Mr Thomas couriered the documents back to Mr Nathan at the Settlers Tavern.  In the enclosing letter he stated that the witnessing provisions needed to be completed in relation to Mr Nathan’s and his parents’ signatures.  He also requested the certificate of title to the property and the details of insurance.

[23]   Mr Nathan gave evidence that he forged his mother’s signature on the documentation but that his father, Mr Nathan senior had signed the documents. When the documents were returned to Mr Nathan for signature, he had a friend complete the witnessing sections of all documents.   The address she wrote on the documents as her own was also Mr Nathan’s home address.  Mr Nathan said that the friend had not witnessed the signatures of Mr Nathan’s parents.

[24]     The loan and security documents were received back by Mr Thomas on 8

August 1996. Mr Nathan also provided a signed authority for him to apply the loan of $245,000 towards the purchase by him of the shares in Setz.

[25]     All of the loan and mortgage documentation record that Dollars & Sense was lending $245,000 to Mr Nathan.     The documentation generated to commence recovery and enforcement proceedings in respect of the loan refers to a loan of

$245,000.   Mr Bowden, Mr Thomas and Mr Harris have all previously sworn affidavits in relation to an interlocutory application in this proceeding deposing that the  loan  was  $245,000.    However  at  hearing  Mr Bowden  and  Mr  Harris  gave evidence that Mr Harris had negotiated a reduction in the purchase price of the shares in Setz for Mr Nathan, so that Mr Nathan was only to pay $210,000 for them. Mr Harris said that $245,000 was advanced to Mr Nathan by Dollars & Sense, but

$35,000 was credited to Dollars & Sense trust account by Mr Thomas thus reducing

Mr Nathan’s indebtedness to Dollars & Sense.

[26]     There is no evidence that this reduction was ever documented in any way or that it was communicated to Mr Nathan.   By the time of hearing, Mr Thomas recalled the re-crediting of the money to Dollars & Sense’s account. However, he had no recollection at whose authority or direction he had done that.  Mr Nathan said he  was  not  aware  of  the  alleged  reduction  in  purchase  price  and  there  is  no suggestion  he  instructed  Mr  Thomas  to  repay the  $35,000  to  Dollars  &  Sense. Mr Harris denies that he instructed that the $35,000 be re-credited to Dollars & Sense.

[27]     In about October of 1996 Mr Bowden suffered a serious motorbike accident. His evidence was that he was very ill and in a great deal of pain for several years thereafter, and therefore did not concentrate on business matters until 1999. He said that he had no knowledge of what had happened on the loan transaction until then.

[28]     At some time after the purchase of shares by Mr Nathan, Settlers Tavern ceased to be profitable.  General Capital was in charge of the accounting records for Settlers Tavern, and was to attend to making repayments for Mr Nathan, out of any profit distributions.  It was the evidence of Mr Harris that there was no profit, so no repayment was made.

[29]     On 23 February 1998, Mr Nathan wrote to Mr Harris at General Capital making a payment proposal to him in respect of the Dollars & Sense loan.   He proposed monthly repayments of $1,133 but enclosed a cheque for $1,000 by way of repayment. The $1000 was the only repayment made on the loan.

[30]     Setz  was  placed  into  liquidation  in  August  1998.     On  3  April  2000

Mr Thomas wrote to Mrs Nathan at the Kerikeri property referring to the loan of

$245,000 and recording:

The payments due under the mortgage are substantially in arrears, and I have been instructed to start recovery proceedings.   A calculation of the amount in arrears is attached.

[31]     It is about this time that Mrs Nathan says she first became aware of the existence of the mortgage over her property.   On 4 April 2000 Mr Thomas sent a

memo to Mr Harris recording that the “recovery” is under way, and requesting details of any repayments made to date.

[32]     On 1 May 2000, a solicitor for Mrs Nathan wrote to Mr Thomas stating that Mrs   Nathan   had   not   signed   any   mortgage   documentation,   and   requesting information.  On 3 May 2000, Mr Thomas responded saying:

The allegations that you make in your fax are new to me and to my client.

Mr Thomas requested any proposals Mrs Nathan wished to make, but said that summary proceedings against Mr Nathan would continue.

[33]     On 2 December 2001 a demand under ss 90 and 92 of the Property Law Act was served upon Mrs and Mr Nathan senior.   These were again later reissued in January 2002.   In January 2002 the present proceedings were commenced by Mrs Nathan, and an application for summary judgment was brought.   Although that application was unsuccessful Mrs Nathan relies upon the affidavits filed by Dollars

& Sense in opposition.

III      Legal principles

[34]     In the first and second causes of action it is alleged that because of the forgery of Mrs Nathan’s signature on the mortgage, the mortgage is void.   The plaintiff seeks to invoke the exception to the indefeasibility provisions of the Land Transfer Act by claiming that the registered mortgagee obtained its interest as mortgagee through fraud.

[35]     Section 62 of the Land Transfer Act provides:

62       Estate of registered proprietor paramount

Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority, [but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963], the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the

land,  but  absolutely  free  from all  other  encumbrances,  liens,  estates,  or interests whatsoever,—

(a)       Except the estate or interest of a proprietor claiming the same land under a prior certificate of title or under a prior grant registered under the provisions of this Act; and

(b)Except so far as regards the omission or misdescription of any right of way or other easement created in or existing upon any land; and

(c)Except so far as regards any portion of land that may be erroneously included in the grant, certificate of title, lease, or other instrument evidencing the title of the registered proprietor by wrong description of parcels or of boundaries.

[36]     As s 62 provides, fraud is an exception to indefeasibility of title. The relevant principles as to the application of the fraud exception to indefeasibility are not in dispute in this case.  Mr Templeton, for Dollars & Sense, referred me to the succinct statement in Land Law in New Zealand, Hind McMorland & Sim, para 9.018:

The kind of fraud which renders a registered title voidable under … Land

Transfer Act must:

(1)       involve dishonesty of some sort ie moral turpitude, and

(2)       be brought home to the registered proprietor or to the registered proprietor’s agent.

[37]     The requisite dishonesty may be the dishonesty of the agent (Assets Co Ltd v Mere Roihi [1905] AC 176, 210), even though the agent has not communicated its knowledge of the circumstances or information that give rise to the dishonesty.

[38]     As to the issue of knowledge sufficient to “bring home to the registered proprietor” the dishonesty, the following passage in the judgment of Salmond J in Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1923] 1 NZLR 1137, 1175 has been often affirmed or applied (see [1926] AC 101; Bunt v Hallinan [1985] 1

NZLR 450 at 458-460).

The true test of fraud is not whether the purchaser actually knew for a certainty of the existence of the adverse right, but whether he knew enough to make it his duty as an honest man to hold his hand, and either to make further inquiries before purchasing, or to abstain from the purchase, or to purchase subject to the claimant’s rights rather than in defiance of them. If, knowing as much as this, he proceeds without further inquiry or delay to purchase  an  unencumbered  title  with  intent  to  disregard  the  claimant’s rights,  if  they  exist,  he  is  guilty  of  that  wilful  blindness  or  voluntary

ignorance  which,  according  to  the  authorities,  is  equivalent  to  actual knowledge, and therefore amounts to fraud.

[39]     The crucial date to inquire as to whether the dishonesty was brought home to the mortgagee is the date of registration of the mortgage (NZ Meat Nominees Ltd v Sim (1990) 1 NZ Conv C 190, 478; 190, 481).

IV      Issues for determination

(a)      Was Mrs Nathan’s signature on the mortgage documentation forged?

[40]     The allegation of forgery was denied in the statement of defence, and Mrs Nathan was put to proof of the forgery.   In closing, counsel for Dollars & Sense confirmed that it was accepted that there had been a forgery of Mrs Nathan’s signature, and that there had therefore been a fraud.   However, Dollars & Sense contends that the fraud committed by Mr Nathan was not in any way brought home to it so as to affect the indefeasibility of its registered mortgage.

[41]     I am satisfied on the balance of probabilities that Mrs Nathan’s signature was forged on the mortgage documentation.  Mrs Nathan gave her evidence in a frank and consistent manner.   Although the document examiner, Linda Morrell, whose report was tendered in evidence, could not express a clear opinion as to whether there had been a forgery on the information she had, I accept Mrs Nathan’s evidence that she did not sign the mortgage and was not aware of its existence until some time in 2000.

(b)Who acted as the agent of Dollars & Sense in the loan transaction and in particular, was Mr Nathan acting as the agent of Dollars & Sense in obtaining execution of the mortgage documentation?

[42]     Mrs Nathan relies upon the knowledge of Dollars & Sense’s agents, and for that purpose alleges that all of Mr Thomas, Mr Harris and Mr Nathan were its agents.

Mr Thomas

[43]     It is conceded by Dollars & Sense that as its solicitor, Mr Thomas was the agent of Dollars & Sense.

Mr Harris

[44]     Mr Bowden and Mr Harris both denied in their evidence and under cross- examination, that Mr Harris acted as the agent of Dollars & Sense in relation to the loan to Mr Nathan and the taking of security over Mr Nathan’s parents’ house.  Mr Harris said that because he was a fellow director of Mr Nathan’s he was prepared to help him in obtaining a loan.  He therefore acted as Mr Nathan’s agent in obtaining the loan from Dollars & Sense, in taking responsibility for deducting repayments from  Mr  Nathan’s  profit  share,  and  in  dealing  with  Dollars  &  Sense  over  the payment proposal that Mr Nathan put forward in February 1998.  In relation to his delivery of the documents for execution to Mr Nathan, he says he was no more than a convenient method of getting the documents to Mr Nathan, and that he simply delivered a sealed envelope that Mr Thomas had given him.

[45]     I do not find Mr Harris’ explanation of his relationship with Dollars & Sense in relation to the loan to Mr Nathan credible.  The following matters contradict his evidence that he was acting as Mr Nathan’s agent, and that he was not Dollars & Sense’s agent:

(a)       There is little evidence of any involvement by Mr Bowden of Dollars & Sense providing instructions to Mr Thomas in relation to the loan and related security.   There  are more instances in which   Mr   Thomas   reports   to   Mr   Harris   in   respect   of documentation of the loan, or seeks information in relation to recovery.   Mr Thomas reported to Mr Harris over the defective execution of the documentation and when commencing recovery proceedings he sought instructions from Mr Harris in relation to the amount outstanding under the loan.

(b)Although at hearing Mr Harris portrayed himself as no more than a convenient means of delivering a sealed envelope to Mr Nathan, in an affidavit dated 22 February 2002, he said:

The  mortgage  document  referred  to  in  these  proceedings  was prepared by the solicitor for [Dollars & Sense] and was provided to me for the purpose of obtaining the necessary signatures to the mortgage and to other documents relevant to the loan arrangements secured by the mortgage – the mortgage and other documents were handed by me to [Mrs Nathan’s] son Mr Rodney Nathan.  He was to obtain the signature.

(c)       By  letter  to  Mr  Nathan’s  solicitor  dated  26  March  1999  Mr Thomas invited any proposal Mr Nathan or his parents wished to make regarding repayment.   Mr Bowden gave evidence that he did not give instructions to Mr Thomas in relation to that letter and it was his general evidence that he was still unwell in 1999. When Mr Thomas was asked on what basis he had sent the letter, he replied:

I think I may have discussed that with Mr Harris or Mr Bowden, but I don’t recollect. … The letter does say the lender would appreciate receiving any proposal.  I anticipate I referred this to the client and had that sort of comment, but beyond that no.

(d)Mr Harris  swore  the  22  February 2002  affidavit  on  behalf  of Dollars & Sense (referred to as the Respondent in the affidavit) in opposition to an application for summary judgment. In it he purports to speak for Dollars & Sense and in particular deposes to Dollars & Sense’s belief as follows:

7.        The Respondent has acted on the belief that the mortgage and the other documents were signed by the parties to those documents.

8.        Save for the allegations now made by the Applicant, the Respondent  has  no reason to  believe  that the  mortgage  was  not signed by the Applicant, and believes that the mortgage was signed by the Applicant.

(e)       The initial disclosure documentation stipulated that repayments were to be made at the offices of General Capital, a company of which Mr Harris is the sole shareholder and director.

[46]     I am satisfied that Mr Harris was intimately involved in the setting up of the loan, in providing instructions to Mr Thomas, in obtaining execution of the loan documents, and in obtaining repayment of the loan.   In so doing he was acting to protect the interests of Dollars & Sense, not the interests of Mr Nathan.   I am therefore satisfied that Mr Harris acted as the agent for Dollars & Sense in relation to these aspects of the loan transaction.

Mr Nathan

[47]     Mrs Nathan alleges that Mr Nathan acted as the agent of Dollars & Sense in obtaining  execution  of  the  loan  documentation  by  his  parents,  including  the mortgage.   Dollars & Sense therefore knew of the forgery because it had been committed by its agent.

[48]     Dollars & Sense denies the existence of an agency relationship.  It argues that merely relying upon Mr Nathan to deliver the documents to his parents without more does not constitute him its agent. It says that Mr Nathan was acting for himself in obtaining the signatures. He was well motivated to do so because he knew he needed the mortgage to obtain the loan.

Relevant principles

[49]     There is a significant body of case law in which it has been held that where a lender delegates to a third party the task of obtaining signatures to loan or security documentation, that third party is the lender’s agent for that purpose.

[50]     One of the earliest cases in the line of authorities is Turnbull & Co v Duval [1902] AC 429. In that case the appellants (creditors of Duval) left it to Duval to obtain his wife’s signature of a document that created a charge over her share in her father’s estate. The Privy Council found that the creditors

... left everything to Duval, and must abide the consequences.

[51]     The basis of the Privy Council decision appears to have been that Duval pressed  his  wife  to  sign  the  document.  The  charge  was  unenforceable  by  the creditors.

[52]     In Chaplin & Co Ltd v Brammall [1908] 1 KB 233, the plaintiff company would not supply goods unless the purchaser obtained a guarantee of payment of the price from his wife. The plaintiff prepared a form of guarantee and asked the purchaser to obtain his wife’s signature. He did so but did not explain the document to her and she did not understand it. The Court found that the husband had been appointed the agent of the plaintiff for that purpose. The plaintiff was therefore affected by his actions and could not enforce the guarantee.

[53]     In Kings North Trust Ltd v Bell  [1986] WLR 119 the husband arranged to borrow on the security of business premises and a charge, by way of second mortgage, on the matrimonial home in which his wife had a beneficial interest. The plaintiff’s solicitors requested the husband's solicitors to arrange for the execution of the mortgage deeds and to act as their agents on completion. The husband's solicitors in turn entrusted the husband to obtain his wife's signature. The plaintiff had no knowledge of the arrangement for the husband to obtain the wife's signature. The wife executed the mortgage deed in the belief, induced by a fraudulent misrepresentation made by the husband, that the loan was sought by the husband for the benefit of his own business.

[54]     Dillon LJ (delivering the main judgment) referred to Duval and Chaplin as

“well established” and that they pronounced “clear law” and said (at 123-124):

… if the creditor entrusts to the husband himself the task of obtaining the execution of the relevant document by the wife, then the creditor can be in no better position than the husband himself…

….

On the general law of principal and agent, the principal (the creditor), however  personally  innocent,  who  instructs  an  agent  (the  husband)  to achieve a particular end (the signing of the document by the wife) is liable for any fraudulent misrepresentation made by the agent in achieving that end, including any continuing misrepresentation made earlier by the agent and not corrected.

[55]     In Coldunell Ltd v Gallon & Anor [1986] 1 QB 1184 it was held that the 3rd party was not an agent of the moneylender. In that case, the moneylender’s solicitors sent to the borrower’s parents by post, a legal charge to be signed by the father, a consent to the loan to be signed by the mother giving the plaintiff’s charge priority over her interest in the house, and a letter to each parent advising them to take independent legal advice before signing the documents. The letters never reached the parents but they did receive the charge documents. The parents’ signatures to those documents were procured by the borrower/son in the presence of his own solicitor, who merely explained the consent form to the mother and witnessed the signatures without advising the parents as to the nature and effect of the transaction.

[56]     In AGC (NZ) Ltd v Peri (1990) 1 NZ Conv C 190, 376 AGC lent money to a company in which both Peri and McSkimming had an interest. A condition of the loan was that Peri and McSkimming give a joint and several guarantee supported by mortgages over their two properties.

[57]     AGC’s solicitors sent the security documentation to McSkimming’s solicitor for execution. Peri signed the documents in the presence of McSkimming and McSkimming’s solicitor. Peri alleged that they had misled her as to the nature of the transaction and that in doing so they were acting as agents of AGC. She applied to injunct a mortgagee sale. There was an argument that McSkimming’s solicitor had asked him to arrange for the execution of the documents by Peri. The applicants relied upon Kings North Trust Ltd v Bell and Avon Finance Co Ltd v Bridger [1985]

2 All ER 281.

[58]     Wylie J decided that there was a serious question to be tried as to whether McSkimming and his solicitor, in procuring Peri’s signature, were acting as AGC’s agent and, further, whether their knowledge was thereby brought home to AGC. He granted an injunction forestalling a mortgagee sale. An appeal by AGC against the grant of the injunction was subsequently dismissed ((1991)1 NZ Conv C 191, 067).

[59]     The leading authority in New Zealand is Contractors Bonding v Snee [1992]

2 NZLR 157. Mr Savage was Mrs Snee’s son, and owned shares in a travel agency

Marco Polo Travel Ltd.   As part of a refinancing of its loans to Marco Polo, the

lender, Contractors Bonding Ltd required a guarantee of Mrs Snee, supported by a mortgage over her home.

[60]     Two key documents were signed by Mrs Snee.   The first was a deed of guarantee and the second was the mortgage document.   Mr Savage took the documents to his mother to sign them.   One of the main issues in the case was whether Mr Savage himself was an agent for Contractors Bonding in obtaining his mother’s signature of the deed of Guarantee and the Mortgage.

[61]     The Court found that there was no evidence that Contractors Bonding or its solicitors, Buddle Findlay, had at any time entrusted Mr Savage with obtaining the signatures.

[62]     Richardson J said at 172:

As far as they [Contractors Bonding and Buddle Findlay] were concerned the documents simply passed between solicitors as they had intended when they set the execution process in train.

[63]     Richardson J then went on to say at 172:

There is no justification in principle and no warrant on the facts for inferring that in some way Buddle Findlay must be taken by their conduct to have authorised Mr Savage to act for them.   On any objective assessment by someone in Mrs Snee’s shoes, Contractors Bonding were assuming and were entitled to assume that her solicitors, whether McVeagh Fleming or anyone else   instructed   for   that   purpose,   would   give   proper   advice   either. Contractors Bonding did not entrust Mr Savage to do anything.  There is no factual basis for a finding that they held out Mr Savage as their agent to procure execution of the mortgage by Mrs Snee.

[64]     McKay J said of Duvall and Chaplin at 180:

In both of these cases the creditor had actually arranged for the execution of the documents to be obtained by the person who was guilty of the deception. That person had been appointed the agent of the creditor for the purpose, and the creditor was affected with the consequences of his action.

[65]     He contrasted that situation with the facts as found in Contractors Bonding, and (at 179) said:

Mr  Savage’s  involvement  in  the  execution  of  the  document  was  not something requested or arranged by the appellant.   So far as the appellant

was  concerned,  it  dealt  with  Marco  Polo  Travel  Ltd  and  left  it  to  that company to arrange for execution of the documents.  The deed was returned to the appellant by the company’s solicitors duly executed by the company and by the respondent.

[66]     Before 1993 the issue of whether a third party was acting as the lender’s agent in obtaining sureties arose most frequently in cases concerning allegations of undue influence. The authorities were clear that a lender would be affected by the undue influence or other deception of a third party, if the third party was appointed to act as its agent.  That much was clear from the Turnbull v Duvall line of cases. The case law, however, was much less clear as to what sort of notice, short of agency, would suffice to bring home to the lender a third party’s wrongful actions. There was therefore a tendency to find the existence of an agency, even where such a construction of events was strained. The confusion in the law that resulted is described in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB

923, and in Barclays Bank Plc v O’Brien [1994] 1 AC 180. In Barclays Bank the House of Lords undertook a review of the various analyses applied by Courts to justify  the  grant  of  relief  in  cases  involving  undue  influence.    Lord  Browne Wilkinson identified that much of the difficulty in the law sprang from the uncertain basis of the decision in Turnbull v Duvall. He said of the agency theory (at 193-194):

Quite apart from the difficulty of identifying what was the breach of duty committed by Mr Duval, the concept of Mr Duval having acted as agent for Turnbulls to procure his wife to become surety for the debt was artificial in Turnbull v Duval itself and in some of the later cases becomes even more artificial.  As the Court of Appeal in this case point out, in the majority of cases the reality of the relationship is that, the creditor having required of the principal debtor that there must be a surety, the principal debtor on his own account in order to raise the necessary finance seeks to procure the support of the surety.   In so doing he is acting for himself not for the creditor.

[67]     It is undoubtedly correct that in some cases it is difficult to see how the borrower  could  properly  be  characterised  as  the  lender’s  agent,  there  being  no request by the lender for the borrower to act, and no knowledge on the part of the lender of the role played by the borrower (for example, Kings North).  However, in Barclays Bank Lord Browne-Wilkinson did not doubt that in certain circumstances it may be correct to characterise the borrower as acting for some purposes as the lender’s agent. Speaking of the husband/wife undue influence category of case he said (at 191):

Of course, if the wrongdoing husband is acting as agent for the creditor bank in obtaining the surety from the wife, the creditor will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as against the creditor.

This case

[68]     I  am  satisfied  that  the  present  case  is  distinguishable  from  Contractors Bonding and Coldunell.  In both Contractors Bonding and in Coldunell it was clearly key to the Court’s refusal to find an agency, that the lender did not give the documents directly to the son for execution by the parents or request that he obtain the parents’ signature.  Nor did the lender request that the son perform any task in relation to obtaining an enforceable security over the parents’ house.  This case is also distinguishable from Kings North. In Kings North it was the borrower’s own solicitor who gave him the documents to see to execution, not the lender’s.

[69]     In this case, the following matters are relevant to determining whether an agency relationship was created:

(a)Dollars & Sense through its agents Mr Thomas and Mr Harris, asked Mr Nathan to obtain his parents’ signatures to the loan and mortgage documentation. The documents were dispatched to him on two occasions to obtain  execution.

(b)Dollars & Sense provided Mr Nathan with documents to complete initial disclosure under the Credit Contracts Act 1981 on its behalf.

(c)      Dollars & Sense asked Mr Nathan to obtain for it the title documents and the insurance details.

(d)Dollars & Sense provided Mr Nathan with the “Statement by Covenantor” form for Mr and Mrs Nathan to sign which recorded acknowledgements by the parents for the benefit of Dollars & Sense.

[70]     As to the latter form, Mr Thomas, Mr Harris and Mr Bowden had made no effort to communicate directly with Mr Nathan’s parents. Dollars & Sense must

therefore either have intended Mr Nathan to explain the nature of the transaction and to tell his parents that Dollars & Sense expected them to receive full independent legal advice, or Dollars  &  Sense was  indifferent  as  to  the truth  of  the matters recorded there.

[71]     Mr Nathan was therefore undertaking significant tasks for the lender, and those tasks were undertaken at Dollars & Sense’s request.   These tasks went well beyond obtaining his parents’ signature. The tasks he was asked to perform were directed at perfecting the lender’s security (obtaining the title and policy document), fulfilling statutory duties of the lender (initial disclosure), and forestalling potential later challenges to enforceability (by obtaining the Statement by Covenantor).  I am therefore satisfied that Mr Nathan was acting as the lender’s agent in relation to these matters.

(c)      Was knowledge of the forgery brought  home to  Dollars  &  Sense  by reason of the knowledge of its agents or otherwise or were Dollars & Sense wilfully blind to the possibility of dishonesty of some sort surrounding the granting of the mortgage?

[72]     Mrs Nathan argues in the alternative  that  knowledge  of  the  forgery was brought home to Dollars & Sense because:

(a)the knowledge of its agent Mr Nathan is to  be  imputed  to  it,  or because

(b)Dollars & Sense knew or was wilfully blind to the fraud associated with obtaining the mortgage from Mr Nathan’s parents.

Knowledge of Agent

[73]     Dollars & Sense say that even if Mr Nathan was acting as its agent, it did not authorise Mr Thomas, Mr Harris or Mr Nathan to obtain the execution of the mortgage by a forgery. Any such action was outside the terms of any agency relationship it may have had. Alternatively, even were Mr Nathan acting as its agent, Dollars & Sense says that knowledge of the circumstances of a fraud of an agent against his or her principal is not to be imputed to the principal. Dollars & Sense

says that this rule of non-imputation extends to a case where an innocent third party is also a victim of the fraud, and the Court is asked to choose between the principal and third party as to which should bear the loss. Dollars & Sense’s counsel referred me to Cricklewood Holdings Ltd v CV Quigley & Sons Nominees Ltd [1992] 1

NZLR 463, 482 and Duncan v McDonald [1997] 3 NZLR 669 (CA) as support for this latter proposition.

[74]     In Duncan v McDonald, relied upon by Dollars & Sense, a group of New Zealanders were tricked into investing money in a fraudulent scheme which offered them the hope of receiving large amounts of money to flow to them from Nigeria. A solicitor and trustee of an estate (the appellant), without knowledge of his trustee or the beneficiaries, advanced trust funds to the group for investment in that scheme.

[75]     The  McDonalds  were  members  of  the  group  investing  in  the  fraudulent scheme. They provided a mortgage over their property to secure the advance. When the estate attempted to enforce the mortgage the McDonalds argued that the estate could not enforce the mortgage because the  appellant’s knowledge of the  fraud should be imputed to the trust. The trial Judge found that both the appellant and the McDonalds  knew   that   in   participating   in   the   Nigerian   scheme,   they   were participating in a dishonest scheme. The trial Judge held that the mortgage was illegal and void. He however granted some relief to the estate to the extent of

$75,000.

[76]     There were appeals and cross-appeals. The McDonalds contended that relief should not have been awarded to the estate on the grounds that the estate claimed through the appellant and his guilty knowledge was to be imputed to the estate.

[77]     Dollars & Sense relies upon the following excerpt from the judgment of the

Court delivered by Blanchard J (at 679):

It can also be accepted that knowledge of the circumstances of a fraud of an agent against his or her principal is not to be imputed to the principal.

[78]     The appeal was not however decided on that basis. The Court held that the appellant was not acting as an agent of the trust, because a trustee acts as a principal

of the trust. Therefore his role in the making of the advance and taking of a security for a shared illegal purpose with the McDonalds rendered the mortgage illegal and void.

[79]     In Duncan there were relevantly two fraudulent transactions involved. The first was a fraudulent Nigerian scheme. The second was the unauthorised and fraudulent use of the funds of the trust secured by the mortgage over the McDonalds’ property.

[80]     In relation to the second transaction, the fraud was only upon the trust. The McDonalds were not in any sense the victims of the fraud. I read the comments of Blanchard J in that context. It would indeed be remarkable should a third party recipient of a loan fraudulently obtained from a principal, be able to impute to the principal the agent’s knowledge of the fraud, and thus avoid recovery. In any case, because the trustee was a principal the issue did not arise. I am satisfied that Duncan is therefore not authority for the proposition advanced by Dollars & Sense.

[81]     In Cricklewood Quigley was a director and solicitor of Cricklewood. Acting on his own, and without the authority of his co-directors, Quigley arranged that his firm’s nominee company should make a loan to Cricklewood secured by a mortgage over land. The contributors to the mortgage were unaware of the advance and did not consent to it. Quigley then fraudulently misappropriated the funds in question. The mortgage was registered. It was registered ahead of another mortgage in favour of the Bank of New Zealand, over the same land. The BNZ mortgage was to have been first ranking security but Quigley had failed to register it.

[82]     The mortgage in favour of the nominee mortgage company was fraudulently obtained by Quigley. It was however indefeasible and therefore had priority over the BNZ mortgage, unless it could be shown that the nominee company had knowledge of the fraud through Quigley. The issue came before the Court as a contest between two innocent parties, BNZ and the nominee mortgage company.  Holland J said: (at

481-482)

Although  there  appeared,  on  first  consideration,  to  be  some  ground  for considering   that   a   solicitor   registering   a   mortgage   obtained   on   the

instructions of his client was acting at least within the apparent authority of his client I have respectfully reached the conclusion that Street J was correct. There was clearly no express authority or implied authority to register a forged mortgage against an innocent mortgagor and the mortgagee had not given any word or conducted herself in any way so as to appear to represent that such authority existed.

…

The special principle that knowledge of the agent of fraud should not be imputed to the principal when the fraud is a fraud by the agent on his principal  or in  general terms  is his own  fraud for  his  own  benefit  was formulated by Vaughan Williams J in Re Hampshire Land Co Ltd [1896] 2

Ch 743 …

Holland J described a twofold rationale for the refusal to impute the knowledge of Quigley to the nominee mortgage company. The first rationale was that the agent could have had no express or implied authority to register a fraudulently obtained mortgage. However, I do not accept that in Cricklewood, or in this case, that is a valid basis for non-imputation. It is difficult to see how a principal can argue consistently that it should be able to take the benefit of the security fraudulently obtained by its agent, but should not have the knowledge of the fraud imputed to it. The adoption of the transaction is an adoption or ratification of the agent’s actions. As expressed by Lord McNaghten in Lloyd v Grace, Smith & Co [1912] AC 716,

738, the principal should not be able to escape liability for the actions of his agent, because:

by taking the benefit he has adopted the act of the agent, he cannot approbate and reprobate.

[83]     The second rationale for the fraud exception articulated by Holland J was the improbability that Quigley would have notified his principals of the fraud. It must be acknowledged that there are a significant number of cases in which the improbability of communication has been the basis for non-imputation of an agent’s fraud (see for example Kennedy v Green (1834) 3 My & K 699; Re Hampshire Land Co [1896] 2

Ch 743; Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537).

[84]    In an article ‘Imputed Knowledge in Agency Law: Excising The Fraud Exception’ (2001) 117 LQR 300 Professor Peter Watts argues compellingly that these cases are inconsistent with both the founding cases on agency, and with the

cases concerning vicarious liability  of employers for the fraud of the employees. He comments further (at 305):

As a matter of policy too, a perverse incentive to conduct business through agents rather than personally would be created were principals permitted to hide behind their agents’ failure to communicate.

[85]     I would add to this that it is not possible to reconcile the analysis applied in Cricklewood to the analysis consistently applied in those cases referred to above, at paras [49] – [58], that the deception or undue influence of an agent connected with execution of documents is to be imputed to the principal.

[86]     The  approach  taken  in  Cricklewood  to  imputation  is  further  difficult  to reconcile with Ex parte Batham (1888) 6 NZLR 342 (CA), a case in which the fraud exception to imputation was argued but not applied. In Batham the defendant McKeown took an assignment of a land transfer mortgage. His land broker agent was  dishonest,  had  gained  registration  of  the  mortgage  through  forgery  and deception. The agent registered the transfer into the defendant’s name but made off with the money the defendant had given him to buy the mortgage. The Court held (at

346-347):

It is difficult to see how McKeown can now claim to be entitled to the benefit of a registration so obtained. The case does not depend upon the principle of constructive notice, but upon the principle that a man cannot take any benefit under a false and fraudulent misrepresentation made by  his agent even although he may have been no party to the representations and may not have distinctly authorised them. Here Hall was McKeown’s agent to prepare a transfer and to procure its due execution and registration. If Hall, while so acting, procured the registration to the transfer in favour of his client by fraud it seems clear that the Registrar under the terms of section

69 can now call upon McKeown to deliver up the instrument to have the registration cancelled. There will be an order in terms of the summons.

[87]     In this case Dollars & Sense is not the only victim of the fraud of its agent. Mrs  Nathan is  also  a  victim.  Further,  Dollars  &  Sense  cannot  take  the  benefit deriving from Mr Nathan’s fraudulent actions (the mortgage), whilst disclaiming his actions for other purposes. In these circumstances I am satisfied that Mr Nathan’s knowledge of the fraud should be imputed to Dollars & Sense.  This is by any measure a just outcome. As I have held, Dollars & Sense dispatched Mr Nathan to undertake significant tasks for them. It had ample opportunity to ensure that the

signatures were not fraudulently obtained. A simple phonecall by Mr Thomas to the parents  would  have sufficed.  In  contrast  Mrs  Nathan  had  no  knowledge  of  the transaction and no ability to protect herself from the fraud.

[88]     Accordingly, I am satisfied that the knowledge of Mr Nathan’s fraudulent conduct is the knowledge of Dollars & Sense for the purposes of the Land Transfer Act.

Knowledge or Wilful blindness

[89]     It is alleged that even if Mr Nathan was not the agent of Dollars & Sense, Dollars & Sense knew or ought to have known that the property was being put at risk without Mrs Nathan’s knowledge or understanding and for the benefit of Peter Harris and/or Brian Bowden and/or Dollars & Sense.  The principal matters relied upon as establishing knowledge on the part of Dollars & Sense are as follows:

(a)       Dollars & Sense had no dealings with Mr Nathan’s parents.

(b)       Dollars & Sense knew that Mrs Nathan and Mr Nathan (Senior) were

Mr Nathan’s parents.

(c)      Dollars & Sense knew that $35,000 of the advance to Mr Nathan was returned to Dollars & Sense. The explanations for this are said to be unsatisfactory.

(c)Dollars & Sense knew that Mrs Nathan did not live on, or at least was not then staying at the property, in Kerikeri with Mr Nathan (Senior).

(d)      Dollars & Sense knew that Mrs Nathan lived in or was at that time in

Gisborne.

(e)       The mortgage was initially returned unwitnessed.

(f)The mortgage was subsequently returned with the same witness purporting to have witnessed the signatures of both parents.

(g)Dollars & Sense was aware that there was insufficient time for the mortgage to be signed in Kerikeri by Mr Nathan (Senior) and in Gisborne by Mrs Nathan.

(h)Dollars & Sense knew that in the time available, the same witness could not have witnessed the signature of Mr  Nathan  (Senior) in Kerikeri and Mrs Nathan in Gisborne.

(i)Dollars  &  Sense  knew  that  Mr  Rodney  Nathan  and  the  alleged witness lived at the same address.

(j)       Dollars & Sense knew that the first plaintiff was not receiving any benefit from the transaction.

(k)Dollars & Sense knew that neither of the plaintiffs received legal advice in relation to the transaction.

(l)The waiver of legal advice document records a refusal of legal advice where no recommendation was ever made to Mr Nathan’s parents that legal advice should be taken.

[90]     Mrs Nathan also says that Dollars & Sense knew, through its agents Mr

Harris and Mr Bowden that:

(a)      Mr Nathan was paying an excessive price for the shares.

(b)      Mr Nathan understood there was to be a three way partnership with

Messrs Harris and Bowden, but this was not the case.

(c)      The business was unlikely to produce sufficient income to secure the borrowings.

(d)      Mr Nathan had no other means to service the borrowings.

[91]     In all of these circumstances Mrs Nathan alleges that Dollars & Sense knew or was wilfully blind to the fraud.

[92]     Mrs  Nathan  has  failed  to  prove  that  there  was  insufficient  time  for  the mortgage  to  be  signed  by  both  Mr  Nathan  Senior,  and  Mrs  Nathan,  or  to  be witnessed by the same witness. Execution of the documents occurred over many days.

[93]     In relation to the $35,000 payment back to Dollars & Sense, it is argued for Mrs Nathan that the belated explanations for this are unsatisfactory. I accept that the evidence  in  relation  to  the  payment  is  confused,  and  at  times  contradictory. However, Mrs Nathan’s counsel was unable to articulate a link between this matter, and the issue for the Court, namely whether the fraud of Mr  Nathan had been brought home to Dollars & Sense. I therefore place no weight on this point. I also can see no relevance and attach no weight to Mr Nathan’s alleged confusion as to who the co-owners of the Tavern business would be.

[94]     In relation to the improvidence of the transaction for Mr Nathan, Mrs Nathan contends that Mr Nathan paid an excessive price for the shares, and was unlikely, to the knowledge of Dollars & Sense, to be able to afford the repayments on the associated borrowings. Counsel for Mrs Nathan submits that Dollars & Sense would therefore have been well motivated to see the transaction proceed. I am not satisfied on the evidence that the price was excessive, or that Dollars & Sense would have known of the inevitability of default. Again, I have therefore attached no weight to this evidence.

[95]     Dollars & Sense was however aware, through Mr Thomas and Mr Harris, of the fact that Mr Nathan’s parents were elderly and were not receiving legal advice. Dollars & Sense were aware that the documents were initially irregularly executed, and that when they were returned, the same person was shown as witnessing all signatures. At no stage did Dollars & Sense attempt to communicate with Mr Nathan’s parents to check if they were aware of the transaction, or to recommend that  they  obtain  legal  advice.  When  the  documents  were  returned  irregularly executed, Mr Thomas should have made rudimentary inquiries to satisfy himself that

the parents were willing mortgagors. He did not do so. Dollars & Sense delegated all dealings with the parents to Mr Nathan.

[96]     When  these  matters  are  taken  together  I  am  satisfied  that  this  conduct amounted to more than recklessness. Dollars & Sense was wilfully blind to the possibility of fraud connected with the obtaining of the security from Mr Nathan’s parents. In this sense the dishonesty associated with the transaction was brought home to Dollars & Sense, and is sufficient to bring it within the fraud exception to indefeasibility for the purposes of the Land Transfer Act.

(d)     Is the contract oppressive for the purposes of the Credit Contracts Act?

[97]     Mrs Nathan seeks to invoke s 10 of the Credit Contracts Act 1981 (in force during the relevant period) which provides:

10    Re-opening of credit contracts

(1)Where,  in  any  proceedings  (whether  or  not  instituted pursuant to this Act), the Court considers that—

(a)       A credit contract, or any term thereof, is oppressive;

or

(b)A  party  under  a  credit  contract  has  exercised,  or intends to exercise, a right or power conferred by the contract in an oppressive manner; or

(c)A party under a credit contract has induced another party  to  enter  into  the  contract  by  oppressive means—

the Court may re-open the contract.

(2)Where a party under a credit contract refuses to agree to the early termination of the contract, or to vary or waive any term  of   the   contract,   or  imposes   conditions   on   such agreement he shall, for the purposes of this Act, be deemed to be exercising a right or power under the contract.

(3)Where, with the knowledge of the creditor under a re-opened credit contract,—

(a)The  credit  provided  pursuant  to  the  contract  was used (whether in whole or in part) to pay amounts owing under another credit contract or other credit contracts; or

(b)Amounts owing under the contract were paid from credit provided pursuant to another credit contract or other credit contracts—

and the creditors under the contracts are either the same person or related bodies corporate, the Court may re-open all or any of those other contracts (whether or not it considers that any of paragraphs (a) to (c) of subsection (1) of this section apply in respect thereof).

[98]     As to the relief sought, she contends that the Court has jurisdiction to set the mortgage aside and order its removal from the Register under s 14 of the Act which provides:

14       Power of Court on re-opening contract

(1)If the Court re-opens a credit contract, it may at any time make  such  orders  as  it  thinks  necessary  to  remedy  the matters that caused the Court to re-open the contract; and, without limiting the foregoing provisions of this section, may—

(a)Order that  an  account  be  taken,  and  re-open  any account already taken, in respect of any transaction between the parties to the contract; or

(b)Vest in any party to the contract, or direct any such party to transfer or assign to any other such party or to deliver to him the possession of, the whole or any part of any property that is the subject of the contract or is the whole or part of the consideration for it; or

(c)Direct any party to the contract to pay to any other such party such sum as the Court thinks fit; or

(d)Order  that  any  obligation  outstanding  under  the contract be extinguished, revised, altered, complied with, or performed; or

(e)Order that the contract or any term thereof, or any security in respect of the contract, shall be set aside, either wholly or in part, or revised or altered and, if a party has parted with the security, order him to indemnify the other party or parties to the contract; or

(f)Direct any party to the contract to do or refrain from doing in relation to any other party any act or thing.

(2)Without  limiting  subsection  (1)  of  this  section,  where  it appears to the Court that any person has shared in the profits of, or has any beneficial interest in (whether prospective or otherwise) a re-opened credit contract (whether or not the

person is a party to the contract) the Court may make such orders in respect of that person as it thinks fit.

(3)Any order under this section may be made on such terms and conditions as the Court thinks fit.

(4)The  powers  of  the  Court  under  this  section  may  be exercised—

(a)       Whether or not the time for performance of any term of the contract has arrived; and

(b)       Whether  or  not  any  statement  or  settlement  of account relating to the contract has been given, or any agreement purporting to end the contract has been made; and

(c)       Whether  or  not  any  party  to  the  contract  has assigned his rights thereunder or any of them.

[99]     Oppression is defined in s 9 as follows:

9     Meaning of “oppressive”

In this Act, the term oppressive means oppressive, harsh, unjustly burdensome, unconscionable, or in contravention of reasonable standards of commercial practice.

[100]   It is not clear from the pleading or counsel’s submission which provision of s 10 is relied upon, but I infer from discussion with counsel that it is s 10(1)(a) and s 10(1)(c).

[101]   Section  10(1)(a)  is  not  apposite  as  it  has  not  been  contended  that  the mortgage or any term of it is oppressive. Rather, what is contended is that Mrs Nathan never became a party to the contract.

[102]   Similarly, s 10(1)(c) does not apply to this circumstance. Mrs Nathan did not enter into the contract, and so could not have been induced to enter into it by oppressive means.

[103]   It is well established that relief pursuant to the Credit Contracts Act is not available to a plaintiff who was not a party to the credit contract: National Bank of New Zealand Ltd v Caldesia Promotions Ltd and Jenkins Roberts & Associates Ltd [1996] 3 NZLR 467.

[104]   Accordingly, I am not prepared to grant relief to Mrs Nathan under the Credit

Contracts Act 1981.

V       Relief

Removal of mortgage

[105]   I declare that the mortgage (Memorandum of Mortgage D.066912.1) is void ab initio having been fraudulently obtained. I therefore direct pursuant to s 85 Land Transfer Act that the District Land Registrar remove the mortgage from the Register.

Emotional stress and damage

[106]   Mrs Nathan seeks an award of damages for emotional stress and damage. This claim was not the subject of submission by either party.

[107]   In Hopman v Peka & Anor (HC Auckland, CP132/94, 4 November 1998) Cartwright J awarded $10,000 for anguish, distress and emotional trauma where a fraudulent land transfer transaction had taken place. Her Honour noted the distress went beyond that normally experienced by parties to a matrimonial property dispute. Indeed, the successful plaintiff in that case was willing to accept a bargain which was prima facie unfair to her in return for the security of a home. The bargain was never fulfilled and the stress was “serious and persistent” resulting in the need for medical advice. Her Honour said: (at 15)

Damages under this head are rarely granted and when awarded are modest in quantum.

[108]   Here, there is no evidence before the Court regarding the emotional stress and damage allegedly suffered by Mrs Nathan. There is nothing to suggest serious or persistent stress beyond that inevitably experienced in proceedings of this nature.

[109]   I therefore decline to award damages under this head.

Costs

[110]   As to the relief sought for travel and toll calls in relation to seeking legal advice and instructing counsel, I am satisfied that those are matters properly dealt with within the context of a costs application.

[111]   If the parties are unable to agree costs, they may file memoranda as follows:

(a)       Mrs Nathan is to file and serve her memorandum by 23 September

2005.

(b)       Dollars & Sense is to file and serve its memorandum by 14 October

2005.

H D Winkelmann  J