Singleton v Singleton
[2012] NZHC 3320
•10 December 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-001202 [2012] NZHC 3320
BETWEEN DIANE CLARE SINGLETON AND MICHAEL KIRKLAND TRUSTEE SERVICES LIMITED AS TRUSTEES OF THE ATM FINANCE TRUST
Plaintiffs
ANDLINDSAY NEIL SINGLETON Defendant
Hearing: 26 November 2012 (Heard at Christchurch)
Appearances: A D Marsh for Plaintiff
A W Johnson for Defendant
Judgment: 10 December 2012
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to summary judgment application]
[1] In 2004, Lester Singleton reached an agreement to lend his brother, Lindsay,
$300,000.
[2] The trustees of Lester’s trust now sue (and seek summary judgment) for repayment of the $300,000. Their proceeding also encompasses a loan of
$890,038.70 made to a company associated with Lindsay, repayment of which was guaranteed by Lindsay – that loan has been excluded from the summary judgment application.
[3] The trustees say that they were the lenders of the $300,000 to Lindsay. They seek to justify their claim to the money by what is called in the law of agency the
doctrine of the undisclosed principal.
SINGLETON V SINGLETON HC CHCH CIV-2012-409-001202 [10 December 2012]
[4] Lindsay asserts that no loan exists as between the trustees and him. He says that the loan is from Lester to him. He says the personal nature of the loan was important to him.
[5] Alternatively, he says that if the loan does exist (pursuant to the doctrine of the undisclosed principal) the loan is not due for payment.
[6] Finally, he challenges the authority of the trustees (assuming the loan belonged to them) to commence the proceeding.
Preliminary issue – the identity of the plaintiffs
[7] James Michael Kirkland is no longer a trustee of the trust, although he was previously. He has been replaced by his professional trustee company, Michael Kirkland Trustee Services Ltd.
[8] At the start of the hearing, Mr Marsh made an oral application, unopposed, for an order substituting Michael Kirkland Trustee Services Ltd for James Michael Kirkland as the second-named plaintiff. I then made an order pursuant to r 4.52
High Court Rules substituting Michael Kirkland Trustee Services Ltd into the proceeding, and dispensing with re-pleading and re-service. The parties are now as they appear in the heading to this judgment.
Authority of the plaintiffs
[9] After the grounds of opposition were filed, the plaintiffs filed additional evidence in relation to their authority to bring the proceeding. It satisfactorily proved authority. Responsibly, Mr Johnson accepted that he could no longer, on the evidence now adduced, challenge the plaintiffs’ authority.
The concept
[10] The concept that an undisclosed principal may sue on a contract is a doctrine of questionable parentage with some resulting issues as to its exact role in legal society. The authors of Chitty on Contracts introduce the doctrine thus:1
It has long been established that a principal who was at the time of contracting undisclosed can sue or be sued on the contract of his agent, though the juristic basis of this rule, and therefore the full scope of its application, is still uncertain. Indeed, many points as to its application have never been thought through.
(footnotes omitted)
[11] For the reasons that follow, I am satisfied that on at least one fundamental ingredient of the doctrine Lindsay Singleton has an arguable defence. Given that clear conclusion, this is not the place for any extensive discussion of the doctrine or its uncertain scope. That will be (if the case reaches trial) for the trial Judge in the light of the factual findings then made. I therefore largely limit my discussion of the applicable principles to those necessary for the determination of this interlocutory application.
The authority of the agent to act for the undisclosed principal
[12] By the term “undisclosed principal”, the law of agency means simply a principal who is not known by the third party to be connected with the particular transaction.2
[13] The authors of Chitty on Contracts recognise that there is potential for an enforceable agency to exist under the doctrine in two different situations –
(a) First, where the undisclosed principal is a person who has actually authorised the agent to bring the principal into contractual privity with
1 HG Beale (ed) Chitty on Contracts (31st ed, Sweet & Maxwell, London 2012) vol 2 at [31-064].
2 At [31-066].
the third party, but whose connection with the transaction is not disclosed; and
(b)Secondly, where the undisclosed principal is simply one who uses the services of another on an agency basis, vis the agent is remunerated by commission and undertakes only to use best endeavours, but nevertheless expects the agent to deal on his account (sometimes called by some civil lawyers “indirect representation”).3
[14] Cases (some very old) can be found to support both meanings. A more recent and clear identification of the requirement of actual authority is found in the judgment of Lord Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd where his Lordship said:4
An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority.
(emphasis added)
[15] In Stokes v Insight Legal Trustee Company Ltd,5 Siu Yin Kwan was recognised by this Court as the leading modern authority on undisclosed agency.
[16] In the present case, there is no suggestion that the second category of undisclosed principal is arguable. The application of the doctrine in this case turns on whether Lester Singleton had the actual authority of the trustees to enter the transaction.
[17] This, in turn, requires a consideration of two submissions made by Mr Marsh. Mr Marsh submitted:
(a) On the evidence, Lester Singleton was in fact authorised to act for the trustees who were undisclosed principals;
3 At [31-066].
4 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 (PC) at 207.
5 Stokes v Insight Legal Trustee Company Ltd [2012] NZHC 1822 at [11] per Ellis J.
(b)Even if the Court were to find that the loan was not authorised at the time it was entered into, Lester’s actions were subsequently ratified by the trustees and the loan thereby became the trust’s loan, enforceable by the trust.
Actual authorisation?
[18] The agent’s actual authority must exist at the time the transaction is entered into. The point is clearly made in the judgment of Dillon LJ in Welsh Development Agency v Export Finance Co Ltd where his Lordship stated:6
Now it is clear law that the doctrine of subsequent ratification, in the law of agency, only applies where the contracting party has expressly made a contract as agent for another. It does not apply where the contracting party has ostensibly made a contract as principal, without any hint of agency. For the doctrine of undisclosed principal to apply, therefore, the authority of the agent to bind the undisclosed principal must exist at the time when the agent made the contract, ostensibly as principal. Only if that is so will the undisclosed principal be able to step in and enforce the contract against the other contracting party. So much is clear law.
[19] Accordingly, Mr Marsh’s alternative explanation (of subsequent ratification) is, as a matter of law, not capable of curing a lack of actual authority at the time of the transaction.
The trustees’ case as to authorisation
[20] Mr Marsh submitted that there was no dispute that at the time the agreement was entered into, Lester was a trustee of the trust. That much is indicated by the evidence - his lawyer, Mr Kirkland, took his place subsequently.
[21] It is the next step in Mr Marsh’s argument on which the summary judgment
application must fail.
[22] Mr Marsh proceeded with his argument in this way. First, he accepted that the authority of the agent to act for the undisclosed principal must have existed at the
time of the contract. But his argument then ran –
6 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 (CA) at 277.
Lester Singleton was a trustee of the trust [at the time] and therefore had authority to act for the principal.
Mr Marsh then invoked the concept of ratification in case the Court was to find that
there was a question over Lester’s authority.
[23] Mr Marsh did not cite any authority for his proposition that a trustee’s very status as a trustee authorises him to act for the trustees as a whole. That is clearly not the case and is contrary to fundamental principles of trusteeship: see Equity and Trusts in New Zealand as to the duty to act unanimously;7 Rodney Aero Club Inc v Moore.8
[24] To meet this difficulty, Mr Marsh in his oral submissions developed a further proposition. He submitted that, on the evidence, the way in which the trust entered into transactions meant that Lester had a general authority to make loans to Lindsay from the trust. Such, said Mr Marsh, could be inferred from the evidence.
[25] I have considered the evidence carefully in the light of that submission.
[26] My first observation is that the plaintiffs themselves gave no evidence of the trustees’ dealings, let alone any general pattern of dealings, prior to the 2006 loan. I infer that the evidence when filed was not directed to that past history as Mr Marsh’s written synopsis of submissions did not seek to take the Court to any past history or discuss the concept of a general authority which existed at the time of the 2006 loan. Mr Kirkland in a reply affidavit “accepted” that Lester had from time to time acted “unilaterally” but deposed that “subsequently such transactions were approved by the trustees”. He did not state that any such after-the-event approvals had occurred before the 2006 loan to Lindsay.
[27] Secondly, the evidence of Lester, filed in reply to Lindsay’s opposition
evidence, at least arguably contradicts the suggestion that Lester had some general authority to enter into loan arrangements on behalf of the trust. Lester responded to
7 Andrew Butler Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at
5.2.1(1).
8 Rodney Aero Club Inc v Moore [1998] 2 NZLR 192, at 195.
statements in Lindsay’s affidavit in which Lindsay suggested that their respective
wives were not to be involved in any dealings between them. Lester deposed:
On many occasions I advised Lindsay that I would not confirm any loan arrangement until I had discussed this with Diane. Diane was a trustee of the ATM Finance Trust and needed to be involved.
[28] This evidence suggests that Lester had a commendable understanding of the individual responsibilities of trustees. More importantly, in the present context it constitutes an arguable, if not definitive, basis for rejecting the suggestion that Lester had authority to unilaterally enter into transactions which the trust would thereafter honour.
Conclusion as to Lester’s authority
[29] Lindsay has an at least arguable case that the doctrine of the undisclosed principal does not apply. That finding is determinative of this summary judgment application. The debt may be owing to Lester personally rather than to the trust.
Credibility issues
[30] In relation to aspects of the parties’ subsequent dealings, Mr Marsh invited me to find that Lindsay’s evidence in places lacked credibility. Given my earlier findings, credibility is not a matter I need to resolve. I refrain from making any finding in that regard. All issues of credibility should now be left for any trial.
Costs
[31] Counsel were agreed that, in the event the summary judgment application
was dismissed, the Court’s usual approach pursuant to the decision in NZI Bank Ltd v
Philpott is appropriate.9 That is the course I will adopt.
9 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 405; see also High Court Rules, r 14.8(3).
Future course of this proceeding
[32] It is appropriate, having regard to the findings in this judgment, that the plaintiffs have an opportunity to review whether there should be a new parties order under r 4.52. That would allow for the possibility that at trial it is found that the debt belongs to Lester Singleton and not to the trust. The direction I now make as to the next case management conference provides time for the plaintiffs and their legal advisers to consider that matter. Leave is reserved to either party to request an earlier telephone conference if appropriate.
Orders
[33] I order:
(a) The plaintiffs’ interlocutory application dated 15 June 2012 is dismissed;
(b) The costs of the interlocutory application are reserved; and
(c) The proceeding is adjourned to a case management conference at
12.30 pm, 4 February 2013 by telephone (Associate Judge Osborne). Counsel are directed to file by 28 January 2013 memoranda which deal with all Schedule 5 issues.
Associate Judge Osborne
Solicitors:
Saunders Robinson Brown, PO Box 39, Christchurch
Martelli McKegg, PO Box 5745, Auckland 1141
0