L.E.A.D Training Trust Limited v Evans HC Hamilton CIV 2010-419-832 [2011] NZHC 143 (16 February 2011)

Last Updated: 26 May 2011

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

_{CIV 2010-419-832}

BETWEEN L.E.A.D TRAINING TRUST LIMITED Appellant

AND LEAH MARIE EVANS Respondent

Hearing: 20 October 2010

Appearances: D A Wood, C Fletcher and D Delic for appellant

K E Cornege and A J Isles for respondent

Judgment: 16 February 2011

_{JUDGMENT OF ALLAN J}

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 12 pm on Wednesday 16 February 2011

Solicitors:

Fletcher Law, Hamilton [e-mail]

_{Tompkins Wake, Hamilton} [e-mail]

L.E.A.D TRAINING TRUST LIMITED V LEAH MARIE EVANS HC HAM CIV 2010-419-832 16 February

2011

[1] This is an appeal from a judgment of Judge Wolff,[1] given in the Hamilton District Court on 18 June 2010, in which he dismissed a claim brought by the appellant against the respondent, in reliance on a guarantee given by the respondent of obligations incurred by her company to the appellant under the terms of a licensing agreement. The learned Judge upheld affirmative defences of undue influence, pre-contractual misrepresentation and breach of the Fair Trading Act

1986. The appellant maintains that none of these defences were made out, and that the appellant ought to have succeeded in the District Court. The amount in issue is of the order of $120,000.

Background

[2] The respondent (Ms Evans) is a married woman with a young family. She is a co-owner of a business in Rotorua known as GB European, and had worked part time in that business in the accounting and administration area. But she was ambitious to better herself. In or about May 2006 she made a decision to embark upon a study programme. In June 2006 she enrolled in a diploma course in career coaching with the Leading Edge Foundation (LEF). In doing so she was influenced by the fact that LEF was accredited by the New Zealand Qualifications Authority. LEF is operated by Mr Ian and Mrs Margaret Wood, who are also directors and shareholders of the appellant.

[3] Study for the diploma was conducted primarily by correspondence, but there were several telephone conferences and a two hour block of time every fortnight spent at LEF’s premises in Hamilton in order to network with other students.

[4] By October 2006, the first module of the diploma course had been completed. Subsequently, Mrs Wood telephoned Ms Evans and suggested that it might be desirable for the latter to take on a life coaching diploma course, in addition to the diploma course in career coaching. The latter focuses on business and career goals, the former upon more personal aspects.

[5] At about the same time, Mrs Wood mentioned to Ms Evans that LEF had a business opportunity that was expected to be available only to the cream of LEF’s students, and that the completion of the life coaching diploma would help Ms Evans to qualify for this new opportunity. Ms Evans was ambitious to start her own coaching business once she had completed her diploma course, and accordingly, enrolled in the life coaching diploma course. The latter required students to submit material concerning their upbringing and personal experience.

[6] Having enrolled in that course, Ms Evans disclosed to Mr and Mrs Wood, as part of her course work, a good deal of personal and family information.

[7] During the course of reviewing and marking Ms Evans’ diploma work, Mr and Mrs Wood formed the form that there were obstacles to her becoming a successful coach, but that counselling sessions with Mr Wood would enable those obstacles to be “fixed”, to apply a word used by Ms Evans in her evidence. She says that was the word used from Mr and Mrs Wood.

[8] Ms Evans was distressed to find that Mr and Mrs Wood felt that she was at that time not fitted for coaching work. She was ambitious, but acknowledged that she may have lacked a degree of self-esteem by reason of certain events in her earlier family life. Accordingly, she took up the offer of counselling sessions, which were conducted on a one on one basis with Mr Wood on 10 April, 8 and 22 May and

5 June 2007.

[9] Ms Evans says that during these sessions she had to:

... bare my soul and my private life which obviously put me in a vulnerable position. I had to put a lot of trust in Mr Wood, I had to really make myself believe that Mr Wood was on my side and could help me fix the problems he and his wife had told me I had. Throughout these sessions Mr Wood reinforced the idea that if I was able to put certain issues behind me, that I could be a great success as a coach. I was encouraged to view succeeding as a coach as the way to really prove to myself that I had managed to overcome my ‘problems’.

[10] On 22 May 2007 (the day of the third counselling session with Mr Wood), Ms Evans met with Mrs Wood to discuss the business opportunity which had been

mentioned to her some months earlier. Ms Evans says she was told by Mrs Wood that she and her husband were proposing to establish a network of coaches throughout New Zealand, to operate under a business model created by them, using the name “Coachouse”. Coaches would enjoy geographical exclusivity. Ms Evans says Mrs Wood told her that the Woods believed she had made good progress and might be good enough to be a Coachouse coach. The meeting lasted one and a half hours. Ms Evans says she was charged $200 + GST for the consultation.

[11] She says also she was excited and flattered by the proposal, and impressed by the detail of what she had been told during the meeting. In particular, she says, licensees would have the benefit of participating in high value contracts (typically government contracts) for coaching services secured by LEF. In subsequent discussions she was offered the Rotorua territory.

[12] Early in June 2007, there was a meeting in Rotorua between Mr and Mrs Wood and Ms Evans, when she signed a confidentiality agreement as a precursor to the provision of a draft licensing agreement. Ms Evans says that the meeting was what the Woods called a “de-brief” and was held at a cafe in Rotorua. Ms Evans was charged $746.70 + GST for the Woods’ trip to Rotorua, although she had not been told earlier that she would be charged for their time. This meeting (probably on 1 June 2007) took place when she was still in the course of counselling with Mr Wood and preceded by four days the last of the four counselling sessions with him.

[13] Ms Evans says she was encouraged by the Woods to view her ability to secure a Coachouse licence as the real test of whether her counselling sessions had been a success.

[14] At about this time Ms Evans says she was provided with a booklet containing information about the proposed Coachouse network, and a three page document listing what benefits would accrue under a licence. The booklet included a statement to the effect that the Coachouse concept involved a network of coaches throughout New Zealand, and that licensees would be able to draw on the years of experience, and the proven methods, of Mr and Mrs Wood. The three page document also

promised the provision of letterheads, business cards, e-mail templates, signage and website advertising.

[15] During this time, Ms Evans says she was assured by Mr and Mrs Wood that they were also negotiating with a number of other people who were interested in becoming Coachouse coaches, and that it would not be long before a New Zealand wide Coachouse network was up and running. She was given to understand that the network would provide referrals and also a support group. The existence of a network would also assist with brand recognition.

[16] On 12 June 2007 Mrs Wood went to Rotorua to look at potential business premises for Ms Evans. This time Ms Evans was charged $413.34 + GST.

[17] On 14 June 2007 she attended at the LEF office in Te Rapa, Hamilton, where Mr and Mrs Wood conducted a “brainstorming” (to use Ms Evans’ word) session for the purpose of endeavouring to identify Ms Evans’ potential client-base in the Rotorua region. A strategic plan was prepared by all three participants. This time Ms Evans was charged $1,022.24 + GST.

[18] The strategic plan identified potential earnings of $150,000 per year. Ms Evans says that figure was higher than the turnover she herself believed was achievable, given that she would be working only three-four days per week, that she had two young children and was working part time in the family business. She was also still studying for a diploma. Her evidence is that she nevertheless received assurances from the Woods to the effect that earnings at that level were possible. For their part, Mr and Mrs Wood say the figure was nominated by Ms Evans, and not them.

[19] During the afternoon of 14 June 2007, Ms Evans says she received training on two computer based coaching tools, and was also given a manual, for both of which she was subsequently charged $2,531.25.

[20] By 15 July 2007 she had completed seven course modules. In about mid-July she received for the first time a copy of the licensing agreement prepared by the

Woods’ solicitors. The agreement stipulated an annual fee of $25,000 + GST, payable annually in advance for three years. She considered that figure to be reasonable, having regard to the likely level of income earlier identified.

[21] Ms Evans says that she:

... showed the agreement to a lawyer in Rotorua. I was told that several of the clauses were drafted in favour of the licensor, but I was advised that that was to be expected and was usual in these types of contracts. I was not given any advice on the contract as a commercial proposition.

[22] At a meeting on 20 July, Ms Evans says Mr and Mrs Wood endeavoured to persuade her to take on the Tauranga and Taupo regions as well, but that would have increased her total commitment for Coachouse licences to $225,000 over a three year period. She says she told the Woods she would need to get Rotorua up and running before she could make any decision about additional licences. She says she was a little surprised that Taupo was to be the subject of a separate licence, because she had earlier been told that Taupo would be included in the Rotorua region.

[23] The licensing agreement was signed on 28 July 2007. Ms Evans paid the first year’s licence fee of $25,000 + GST and began trading on 1 August 2007. She had incorporated a company, Leah Evans Ltd (LEL), as the vehicle for her new business. LEL signed the agreement as licensor, and Ms Evans as guarantor.

[24] The business did not flourish. By January 2008 she had received only $500 worth of referrals from Mr and Mrs Wood and her total income was of the order of

$9000. There were no other Coachouse coaches, and no indication that a network had been established or was in the course of establishment. For the most part her entitlements under the licensing agreement, or in terms of the representations which she says had been made to her, had not materialised.

[25] A meeting between Ms Evans and the Woods on 22 February 2008 failed to produce a solution. Ms Evans accused the Woods of not fulfilling their promises. They accused her of not putting enough effort into the business.

[26] In March 2008, LEL terminated its agreement with the Woods. Ms Evans re- established her coaching business under the name “Topgear Coaching”. The appellant did not accept the cancellation. It served a statutory demand on LEL for unpaid licence fees and then caused that company to be placed in liquidation by order of the Court made on 23 June 2009. The present proceeding against Ms Evans then followed.

[27] The appellant applied for summary judgment, but that application was declined in a reserved judgment delivered by Judge Wolff on 11 November 2009.

The licensing agreement

[28] The licensing agreement (called in the document itself “the license agreement”) dated 28 July 2007, is a complex and indeed exhaustive document running to no fewer than 46 pages. It is expressed to inure for an initial term of three years from 1 August 2009, with further rights of renewal thereafter. The initial payment of $25,000 + GST (duly paid by the respondent) comprised the annual licence fee for the first year. Thereafter the respondent was obliged to pay $25,000 + GST annually in advance, in respect of each year for which the agreement remained in force.

[29] Clause 3.1 of the agreement provided that, in terms of the licence, the respondent was entitled to operate “ ... the Business in the Territory using the Intellectual Property from the Premises for the Term and using the System in accordance with this Agreement”. The expression “Business” was defined as meaning the “Coaching and Mentoring Business to be operated by the Licensee in accordance with the provisions of this Agreement”.

[30] The term “Intellectual Property” was defined as including:

... copyright, trade marks (including but not limited to any Trade Marks in the Schedule), trade, business and company names, domain names, design, trade secrets, know-how, confidential and other proprietary rights, get-up, logos, symbols, insignia, emblems and all other forms of intellectual property rights (and together with all rights to registration of such rights) whether created before or after the date of this Agreement whether registered

or unregistered, and whether existing in New Zealand or elsewhere which are designated now or at any time hereafter by the Licensor for use in connection with the System.

[31] The expression “System” was defined as meaning:

... the distinctive business method and format licensed to and/or developed and implemented by or for the Licensor in connection with the operation of the Network Business using the Intellectual Property and the Image including or with certain standard operational procedures, plans, directions, specifications, methods, management and advertising techniques and identification schemes, details of parts of which are or may be contained in the Manual.

[32] As defined above, the “System” was cross-referenced to the “Manual” which was in turn defined as meaning:

... the written specification of the methods, processes, techniques, systems and schemes devised and compiled by or for the Licensor to be observed and implemented by the Licensee in operating the Business and any amendments or variations which the Licensor may from time to time notify in writing or electronically to the Licensee.

[33] In essence, the respondent was entitled, pursuant to the agreement, to carry on under the Coachouse name, a coaching business modelled upon the distinct methods (the system) developed by the licensor, details of which were to be found in the manual. The licensor was the present appellant, a company incorporated by Mr and Mrs Wood for the purpose of carrying into effect their vision for the creation and operation of a national network of licensed Coachouse coaches.

The District Court judgment

[34] Judge Wolff delivered an oral judgment late in the afternoon of Friday

18 June 2010, at the conclusion of a three day trial. The case was not without its factual and legal complexities. Of themselves, the separate affirmative defences gave rise to a variety of issues which required discrete judicial attention. The delivery of an oral judgment in such circumstances was a challenging exercise. It was perhaps inevitable that, although the Judge’s decision and the underlying reasons for it are perfectly clear, there are difficulties in places in determining precisely what His Honour intended to convey.

[35] The judgment commenced by noting that the licensing agreement was comprehensive and detailed, and that the appellant had been particularly well served by its lawyers, who prepared the document. Nevertheless, the Judge observed that provision had been made in the agreement for a cooling off period, whereby the respondent was entitled to terminate the agreement by giving notice in writing to the appellant within seven days of the date of the agreement itself. The Judge noted also that the respondent (and therefore of course Ms Evans) was permitted an opportunity to take separate advice.

[36] At the outset of his judgment, Judge Wolff recorded counsels’ agreement that there was no dispute as to:

a) The validity of the agreement;

b) The quantum of the appellant’s claim;

c) The meaning of the terms of the document;

4. The fact that Ms Evans had received independent legal advice before signing the licence and the guarantee;
   

e) The fact that she had had time for reflection;

6. The fact that she did not exercise her right to cancel during the cooling off period;
   
7. The terms of the personal guarantee which was expressed to be unconditional and irrevocable.
   

[37] The Judge said that the question for his determination was whether the guarantee was enforceable, that being not necessarily precisely the same question as whether the agreement itself was similarly unenforceable. Having referred to the pleaded affirmative defences of pre-contractual misrepresentation, breach of the Fair Trading Act and undue influence, he expressed the view that the undue influence

argument was pivotal. If it succeeded then the respondent was entitled to judgment;

if it did not then there might be difficulties with respect to the other defences.

[38] The Judge made no reference to a pleaded fourth affirmative defence, namely breach of contract. Ms Cornege advised this Court that she had pressed an argument to the effect that by reason of the appellant’s failure to abide by its obligations under the agreement, the respondent was entitled to cancel. That argument was not dealt with by the Judge, nor recorded in his judgment. It may be that by reason of the ultimate outcome he felt it unnecessary to turn to that alternative defence.

[39] Judge Wolff then considered certain legal principles associated with the law of undue influence. It is unnecessary to set out here the detail of that aspect of the judgment. Mr Wood accepts that the Judge correctly directed himself as to the burden and standard of proof, and as to the need to find actual undue influence, this not being a case in which the presumption arises by virtue of the class of relationship existing between Mr and Mrs Wood on the one hand and Ms Evans on the other.

[40] The Judge then canvassed the ingredients of the tests for breach of the Fair Trading Act, and for contractual misrepresentation. Again, nothing turns for present purposes on his analysis at that point of his judgment.

[41] As his judgment proceeded, Judge Wolff indicated that where there was a difference between the evidence of Mr and Mrs Wood and Ms Evans, he preferred Ms Evans’ account. It is convenient to set out the passage in the judgment where this preference is expressed:

[21] It is always unfortunate to have to make unfavourable factual findings about people who are ordinary, perhaps even good people. So far as Mr and Mrs Wood are concerned, I accept that they believed implicitly in their product. They were, and remain, totally committed to it. I do not believe that they have deliberately set out to malign the defendant, but their description of her at the time of the graduation and at the time of signing the contract is something of a caricature and is somewhat two dimensional.

[22] Mr and Mrs Wood are both powerful personalities and, as teachers and mentors I have no doubt that they were persuasive and charismatic. Mr Wood is a former minister, holds a doctor of divinity degree, and is a member of the Council of Christian Counsellors. I infer from that a man of sound, strong moral principle. I also have no reason to doubt Mrs Wood to be otherwise, in character.

[23] The only explanation that I can give, and the difference between their account of the events and the account given by Ms Evans, where I accept her evidence and reject theirs, is that time has meant that they see things in a way that justifies their position at the time. They are bitterly disappointed at the failure of their project, which they saw as important and beneficial. There is therefore reason for them to hold the view, rationally and acceptably, that if Ms Evans had been able to make a success of the business, then their entire network may have got off the ground and been successful.

[24] It also requires, and no-one ever finds this easy, making a character assessment of someone who is present in Court, namely, a consideration of Ms Evans. She has a veneer of sophistication and confidence that could lead to the view that she is confident, self possessed and successful. She continues to practise as a life coach so if she did not have those qualities then, now she should perhaps not be acting in that role.

[25] The issue though in the present case [is] whether Ms Evans had those qualities at the time she signed the contract, or whether she was in a position to be influenced by Mr and Mrs Wood. This, as counsel have rightly said, requires an objective assessment by the Court. Mr and Mrs Wood’s subjective assessment is that Ms Evans was then powerful and empowered and unable to be influenced by them. That contrasts with Ms Evans’ assessment of herself as weak and vulnerable and in fact influenced by them.

[42] Judge Wolff devoted special attention to Ms Evans’ evidence to the effect that she had been told by both Mr and Mrs Wood that before she could be considered for a licensed coaching position, there were personal issues that required to be “fixed”. Mr and Mrs Wood took issue with that evidence, complaining that Ms Evans has put a spin on what was, and was intended to be, a relatively bland and general observation.

[43] As to that, the Judge said:

[25](sic) There are a couple of factual issues that need to be addressed, that are more than just a misinterpretation or a different spin on the same event, and that relates to Ms Evans’ evidence that she was told by Mrs Wood and Mr Wood, both separately and collectively, that she had an issue that required to be fixed. If that word were not explicitly used then I am satisfied that the context and the nature of that discussion could have led a vulnerable person, such as Ms Evans, to interpret it that way. The clear impression I get from the way that these events occurred is that anyone in Ms Evans’ position, let alone someone with the special issues she had, would have felt that it was what was intended by that remark, even if it was intended to be more neutral.

[44] Ultimately Judge Wolff reached the clear view that Ms Evans had been influenced by Mr and Mrs Wood, by reason of her personal relationship with them and that, in the circumstances of this case, that influence was undue.

[45] In that regard, he expressed himself in this way:

[17] I am satisfied that the nature of the relationship was such that Mr and Mrs Wood ought to have realised that Ms Evans was too close to them. They ought to have sent her for business advice and counselling to someone else, and done more than rely on handing her a very well drafted legal document, which they could reasonably have expected that she might simply not give due weight because of the fact that she had become ‘a disciple’ of theirs. [...]

[26] Where a student is enrolled in a course of learning and sends in a project, and the tutor marks on the project that there are a couple of things raised in the project that suggests that counselling might be of benefit, who then engages as a paid counsellor for that student, not part of the educational or pastoral support that any good educational environment would require, is entering a new phase in a relationship with the student.

[27] Given the nature of the course being studied, the teachers would have had peculiar access to the personality profile of the student. This is not like someone studying geology from a distance. This is someone talking about or dealing with quite close personal relationships.

[28] As teachers and mentors, Mr and Mrs Wood ought not to have taken up the counselling role for personal issues, even for a short period. They ought not either to have become business advisors, particularly in relation to a business in which they stood to gain some profit.

[30] Being teachers, mentors, counsellors, and business advisers, Mr and Mrs Wood ought to have seen that Ms Evans was relying on them as friends. They should have seen she was forming a somewhat overwhelming fondness for them and dependence on them.[...]

[34] I do not apply what I consider to be an unduly harsh test to subject a teacher, personal counsellor, business adviser with the task of realising the vulnerability of a student, particularly given the personality profile that I observed in this case. I am satisfied and believe on the balance of probabilities that Mr and Mrs Wood must have known the influence that they had on Ms Evans. She was, for the reasons that I have just discussed, in a real sense, a ‘disciple’ of theirs, and they knew it, or objectively, they ought to have known it. As a result she entered as guarantor into a contract which exposed her to a business risk from which they stood to benefit.

[35] Without needing to delay counsel any further and extend what is already a lengthy judgment, I am satisfied that they have innocently somewhat oversold a business which they believed had the attributes that it had, but, in my view, objectively fell far short of the pre-contractual representations that they were making for it. It is not necessary to decide that further because it is sufficient, in my view, that they placed her at a risk

and that they stood to benefit. I am satisfied that this is one of those unusual cases where there is a proved reliance that Ms Evans was influenced and that influence, as objectively measured, was undue.

[46] It is perhaps a little difficult to follow some of the foregoing passages; there is a particular difficulty with [35] which appears to commence with a discussion about pre-contractual misrepresentations, but concludes with a reference to undue influence. However, for the reasons reproduced above, the Judge determined that the contract of guarantee ought not to be enforced, because the licensing agreement itself had been entered into by Ms Evans through her company, when she was the subject of undue influence by Mr and Mrs Wood.

[47] Thereafter, and very briefly, the Judge determined that the tests under the Fair Trading Act and the Contractual Remedies Act had also been satisfied by Ms Evans (a clause excluding liability for pre-contractual misrepresentation not being binding on the respondent or LEL in the circumstances), and that each of those affirmative defences also justified the decision to decline to enforce the guarantee.

[48] Finally, the Judge determined that:

a) His decision was not in any way affected by the terms of the liquidation judgment in respect of Ms Evans’ company, LEL. That finding is related to an estoppel point to which I will refer later;

b) Ms Evans was entitled to judgment, even though, had she applied “full effort to running this business, she might have made a profit from it”.

[49] Mr Fletcher is highly critical of the judgment in that there are few, if any, detailed findings of fact and in consequence little discussion of the application of relevant legal principle to the facts as found.

[50] For her part, Ms Cornege accepts that the judgment was perhaps a little less detailed than might have been expected, but nevertheless supported it on the basis that Judge Wolff was clearly right in his conclusion, and that accordingly, the judgment ought to be upheld.

[51] I discussed with counsel the possibility of remitting the case back to Judge Wolff for the making of rather more detailed findings of fact, in the event that I considered that to be appropriate. Neither counsel supported that approach. Each asked this Court to review the evidence, and to reach a conclusion on appeal on the basis of the record.

[52] In defence of Judge Wolff, it needs to be said that he plainly regarded the undue influence defence as determinative. His judgment concentrated on that aspect of the case, and there is sufficient in the judgment to indicate how and why he believed the defence to have been made out. There are no express findings at all in respect of the other defences, and indeed, there is little discussion of the separate legal principles applicable to those defences. No doubt that is partly because this was an oral judgment delivered late on a Friday afternoon, and also because he had already determined the case in the respondent’s favour.

[53] I therefore approach the case in the light of conventional appellate principles, as recently confirmed in Austin Nichols & Co Inc v Stichting Lodestar.[2]. In doing so, however, I am obliged to attach a degree of weight to Judge Wolff’s assessment of the witnesses, and in particular to his preference for the evidence of Ms Evans over that of Mr and Mrs Wood. This is a case in which the personalities of those witnesses, to be gauged as they gave their evidence in the witness box, are of vital significance to the overall outcome. In that respect Judge Wolff enjoyed an overwhelming advantage over this Court.

Undue influence: legal principle

[54] The law of undue influence is relatively settled. Counsel agree that a convenient and accurate statement of the current law appears in Law of Contract in New Zealand:[3]

(i) In certain special cases, where there is a fiduciary or similar relationship between the parties, there is a legal and irrebuttable

presumption of trust and confidence. There is no legal presumption that any influence was undue.

(ii) Presumed undue influence is in essence the same as actual undue influence. The difference lies in how undue influence is proved. There is no difference in what needs to be proved. Sometimes undue influence is proved directly, by evidence of the actual exertion of wrongful influence. But sometimes a claimant proves circumstances which justify the drawing of an evidential inference that undue influence has occurred.

(iii) An evidential presumption of undue influence arises where there is a relationship involving elements such as trust, confidence, reliance and dependency by one party towards the other, and the circumstances of the transaction are such as to call for an explanation. The relationship may be recognised by law, without proof of actual trust and confidence, or may simply be proved on the facts of the case. Factors which bear upon any need for an explanation include the size of the transaction and disadvantage to the weaker party. An element of disadvantage is relevant but is not a necessary condition before a presumption can arise.

(iv) In every case the question is whether undue influence has been established on the facts that have been proved. The legal burden is on the plaintiff. An evidential presumption can assist in reaching the conclusion that there was undue influence in fact. It can be rebutted by evidence showing that the weaker party was free from any improper influence.

[55] Accordingly, it is for a plaintiff to prove that there was a relationship of trust and confidence between the parties. Proof may be furnished by showing that the relationship was characterised by actual reliance, dependence and vulnerability on the one part, and ascendancy, domination and control on the other. Alternatively, it may be shown that the particular relationship gives rise to a legal presumption of trust and confidence, there being an established range of special relationships which give rise to such a presumption.

[56] Then a plaintiff must establish that the influence was undue, either by showing that there was actual undue influence, or by pointing to the presumption, in which case it is open to a defendant to rebut the presumption. The relationship between the burden of proof and the legal presumption was explained by Lord Nicholls of Birkenhead in the leading case of Royal Bank of Scotland Plc v Etridge

(No.2):[4]

Burden of proof and presumptions

13 Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.

14 Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.

[57] Where there is no presumption of undue influence a plaintiff will fail if unable to show that he or she did not enter into the transaction of his or her own volition.[5] Even where a presumption of undue influence exists, it may be rebutted where it can be shown by a defendant that a plaintiff in fact exercised an independent will.[6]

[58] It is necessary also to refer to certain further considerations. The first is the so-called “emancipating effect” of the provision of independent legal or other advice. As explained by Lord Nicholls in Etridge:[7]

20 Proof that the complainant received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or importance, to be attached to such advice depends on all the circumstances. In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a complainant a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the

subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case.

[59] A plaintiff may also become disentitled to relief if it can be shown that he or she, once free of the defendant’s influence, took overt steps to affirm the transaction.[8]

[60] A further factor is the character of the transaction at issue. There is authority for the proposition that undue influence will be more difficult to establish where the transaction concerned is wholly commercial in nature, particularly where made between commercial parties. In Hogan v Commercial Factors Ltd[9] the Court of Appeal was concerned with ordinary commercial loan transactions supported by guarantees. A guarantor sought to avoid liability on the basis that he was the subject

of undue influence on the part of his son and, through his son, the lender. The Court of Appeal dismissed the appeal, noting that the appellant had wide business experience in management and that he had provided financial accommodation to the company in the past, either directly or as guarantor. Moreover, he had been instrumental in arranging the financing and guarantees on behalf of the company with the lender. In those circumstances, the Court of Appeal held that, given the orthodox commercial character of the transaction, a claim of undue influence could not be made out.

[61] It is to be noted that the precise issue for the Court in Hogan was whether the lender was put on inquiry by the circumstances of the case, the Court holding that the commerciality of the transaction was a factor suggesting that the lender was not placed on inquiry.

[62] In Etridge, Lord Nicholls observed that:

88 Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same

group. Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees.

[63] Lord Nicholls’ example is of a conventional commercial relationship involving transactions between experienced commercial entities.

[64] I accept that where a transaction is truly commercial, there may be limited scope for an undue influence argument. But where, as here, there is a claim of undue influence at a truly personal level, the fact that the transaction in issue is commercial in character would not, of itself, disqualify Ms Evans from resorting to undue influence principles. Where it is shown that there is in fact a relationship of trust and confidence, and that there has been actual undue influence, it will be a rare case in which a plaintiff will be disqualified from relief simply because the transaction has a commercial flavour.

[65] There are two further important considerations. The first concerns cases of presumed undue influence. As is pointed out by Lord Hobhouse in Etridge,[10] the expression “presumed undue influence” relates simply to a presumption arising from a relationship of trust and confidence. It does not denote a finding that an abuse of that relationship has occurred.

[66] The second point is that a claimant who proves actual undue influence is not under the further burden of proving that the transaction induced by undue influence was manifestly disadvantageous. Such a claimant is entitled, as of right, to have the transaction set aside,[11] although evidence as to the benefits and burdens arising under the contract will be relevant to a determination of whether actual undue influence is established.

Undue influence: discussion

[67] Mr Wood accepted in evidence that there existed at one and the same time relationships of teacher and student on the one hand, and counsellor and patient on

the other. Indeed, he was sufficiently aware of the potential for influence in the particular circumstances of the case that he took advice from a third party.

[68] Moreover both Mr and Mrs Wood well knew that Ms Evans had enthusiastically embraced the life coaching course offered by LEF and that she considered that the course was enabling her to bring about positive changes in her own life. Judge Wolff characterised her enthusiasm as akin to that of a “disciple”. In my view that was an accurate description.

[69] It is unnecessary here to consider whether the relationships between the parties fell within the character of relationships in which trust and confidence can be presumed because it is plain from Ms Evans evidence that she placed actual trust and confidence in Mr Wood, and that he was aware of that trust and confidence.

[70] From that point it is necessary to consider whether the circumstances of the transaction (and in particular for present purposes the guarantee) were such as to call for an explanation, to use the phrase appearing in the authorities (notably Etridge). In a case such as the present, where the degree of actual trust and confidence on Ms Evans’ part was so high at a personal level, the inquiry cannot be limited to a consideration of how “commercial” the transaction was. Rather, the investigation must be as to the whole of the circumstances of the transaction, including its character, the importance of the transaction to the parties, and in particular any disadvantage to the weaker party.

[71] Where an explanation is called for in that way, then the burden of proof is reversed. When that occurs, the greater the disadvantage to the vulnerable person the more cogent must be the explanation, before the presumption of undue influence will be regarded as rebutted.[12] It is to be noted that cases of undue influence are not limited to instances in which the stronger party has consciously “stood over” the weaker party. It will be sufficient if the stronger party in fact used his or her

advantage, albeit unconsciously.

[72] It is necessary to consider several aspects of the relationship and the transaction. In the first place there is Mr Wood’s detailed knowledge of Ms Evans as a person, gained first through her completion of course work, in the context of the initial diploma modules, but then by reason of his role as a counsellor, during which she disclosed a great deal about her personal life and history, her ambitions, weaknesses and attitudes. So Mr Wood was peculiarly well placed to understand what made Ms Evans tick. Of particular relevance is the understanding she had from Mr and Mrs Wood to the effect that before she could make any significant progress as a coach in her own right her personal problems needed to be “fixed”. And she was given to understand also that the grant of a licence would mark in a practical fashion her success in conquering her personal difficulties.

[73] Judge Wolff preferred Ms Evans’ account of the circumstances in which she gained that understanding; so do I. The counselling sessions were aimed at clearing away issues arising from Ms Evans’ low self-esteem, and they were suggested by reason of information coming into the hands of Mr and Mrs Wood during Ms Evans’ course work.

[74] Ms Evans considered there was a direct link between the counselling sessions, the completion of her diploma and her being deemed good enough by Mr and Mrs Wood to qualify for the grant of a coaching licence under the “Coachouse” brand.

[75] While Mr Wood denied the existence of any such link in fact, he accepted that Ms Evans perceived there was such a link. In my view that is a key consideration. It is to be borne in mind that the course of study, the counselling sessions and the negotiations leading up to the execution of the licensing agreement, all took place over the same period of time.

[76] It is also necessary to take into account the obvious similarity of the business opportunity created by the licensing agreement on the one hand, and the course of study in which Ms Evans was engaged on the other. In other words, the licensing agreement dealt with issues that were intertwined with her course of study and counselling sessions.

[77] Relevant also are the respective advantages obtained by the parties to the licensing agreement. The plaintiff, and therefore Mr and Mrs Wood, gained a significant financial advantage, in that they became entitled to a total of $75,000, payable in three equal annual instalments. Ms Cornege submits that Ms Evans and LEL received only very limited value from the transaction. I accept that submission. The licensing agreement itself required the plaintiff to deliver to LEL a “System” as defined in the agreement. The definition of the expression “System” referred to a “Manual”, a term also defined.

[78] The evidence discloses that LEL was not provided with a System that involved a “distinctive business method”, as promised. Moreover, no “Manual” was provided to LEL or Ms Evans until about 28 February 2008, by which time she had given notice of her intention to cancel the agreement. When eventually provided, the manual proved to contain little that was of any value to a licensee. Rather, as Ms Cornege submits, it simply provides advice of a commonplace nature.

[79] In reality, the licensing agreement provided not much more than an entitlement to use the “Coachouse” name, and the materials which had formed part of her diploma course. As things turned out, the “Coachouse” brand was of little utility because the national coaching network which Mr and Mrs Wood had envisaged, and which was used by them as an inducement to Ms Evans, did not come into existence.

[80] In her evidence, Mrs Wood was inclined to blame Ms Evans for the fact that no network had been established (there being evidence that Mr and Mrs Wood were still endeavouring to establish it at the time of the trial several years later). But it is difficult to understand how Ms Evans’ actions over a period of about six months could possibly have presented a significant obstacle to Mr and Mrs Wood in their endeavours to establish the planned chain of coaching franchises.

[81] For Ms Evans, the position was exacerbated by virtue of what subsequently transpired with respect to identified coaching opportunities. There was evidence that from time to time Mr and Mrs Wood procured opportunities for group coaching, often involving government entities. As part of their pre-contractual negotiations,

Ms Evans was given to understand that where appropriate, certain of these opportunities would be made available to her within her Rotorua region. No such opportunities were in fact offered during the early months but in the early part of

2008, when Ms Evans was on the point of cancelling the agreement, a particular opportunity was mentioned. On investigation she found that similar offers had been or were being made to other students who had not signed licensing agreements. So similar opportunities were being made available to those who had not paid any licence fee at all. Ms Evans was naturally enough chagrined to find that she had achieved no particular advantage by reason of her company status as a licensee.

[82] The possibility of access to coaching opportunities (and in particular government contracts) was mentioned during the course of negotiations, and specifically during the strategic planning session. Ms Evans considered these opportunities to be an important attractive element of the appellants’ franchise offer.

[83] In evidence Mrs Wood described these business opportunities as simply “an added grace”. She used the same expression with respect to Ms Evans’ complaint that there had been no referrals at all of existing clients of Mr and Mrs Wood in the Rotorua area. Ms Evans says that she had been promised that there would be such referrals.

[84] Mrs Wood agreed that the topic had been discussed, although she denied that the possibility of client referral amounted to a promise on the part of the plaintiff or the Woods.

[85] Stepping back, it is difficult to identify any significant benefit achieved by the respondent or Ms Evans under the contract. The entitlement to use the “Coachouse” brand conferred no real business advantage by reason of the failure of the appellant or the Woods to develop a network in the manner envisaged. The “System” and the “Manual” which constitute the subject matter of the licence, appear to confer largely illusory advantages. As Ms Cornege submits, the System was ill-defined and appeared to rely upon the contents of the Manual, which in turn contained nothing which could be regarded as unique or of significant benefit.

[86] In my view, the licensing transaction, both in its constitution and in its implementation, was significantly disadvantageous to both LEL and Ms Evans. The business opportunity which the licensing agreement provided was both risky and uncertain. In fact, Ms Evans and LEL gained little practical benefit from it. On the other hand, the plaintiff and Mr and Mrs Wood stood to obtain a major financial advantage. They were in a position of significant influence over Ms Evans which they used to persuade her to enter into a transaction which was plainly contrary to her business interests.

[87] In those circumstances, Judge Wolff was in my view correct to find that Mr and Mrs Wood had used their influence to persuade Ms Evans to execute the licensing agreement, and that such influence was undue.

[88] Having reached that conclusion, it is necessary to consider three separate arguments advanced by Mr Wood, any one of which, if accepted, would constitute a bar to Ms Evans’ claim of undue influence.

[89] First, Mr Wood points out that Ms Evans concedes that she referred the licensing agreement to a lawyer in Rotorua, and argues that the appellant is thereby absolved from any responsibility for undue influence which it might otherwise have to Ms Evans or the respondent.

[90] In the particular circumstances of this case, I do not consider the taking of legal advice by Ms Evans to have cured the effect of the undue influence. As Ms Cornege submits, both the referral and the advice appear to have been somewhat cursory. Ms Evans says she “showed” the agreement to a Rotorua lawyer who pointed out several clauses in it that tended to favour the licensor, but no more detailed advice appears to have been given. In particular, there was no evidence that the meaning and effect of the agreement as a whole was considered and advised upon. Nor is there any evidence that the agreement was placed in a proper commercial context for Ms Evans, as might be expected where a lawyer is asked to advise generally. The evidence suggests that the agreement was submitted almost in passing to a lawyer for limited scrutiny.

[91] Mr Wood’s second argument is concerned with what he maintains was an affirmation of the contract. It is common ground that where a party affirms a contract after the effect of any undue influence has dissipated, that party can no longer claim to have been subjected to undue influence. Here, Mr Wood refers to two separate circumstances. First he points out that, following the execution of the licensing agreement and the guarantee on 28 July 2007, Ms Evans immediately paid the first annual instalment of the licensing fee, and then went into business. She did not take advantage of the seven day cooling off period. Only in late February 2008 did she notify the appellant that she was disenchanted with the contract. In those circumstances Mr Wood submits Ms Evans must be taken to have affirmed the contract.

[92] The failure to cancel within the seven day period cannot possibly be regarded as an affirmation. Any undue influence must still have been operative at that point. There is no evidence to suggest that the position changed at all until early 2008. At the meeting on 22 February 2008, Ms Evans complained to Mr and Mrs Wood about the state of her business and their alleged failure to provide what was required. Only after that meeting did she receive the Manual. She became further disillusioned upon finding that it provided little that was of advantage to her. She then sent an e- mail to the Woods advising that she no longer wished to continue with the agreement.

[93] The logical inference is that until early in 2008 Ms Evans was still to some extent under the influence of Mr and Mrs Wood, but that such influence dissipated over a period of some weeks early in 2008.

[94] Mr Wood argues in the alternative, that following the notification by Ms Evans that she wished to withdraw from the agreement, she agreed to tender for another contract in the following month. But I have not been able to find any evidence of that. It is true that there was an offer of an opportunity to take up a coaching contract involving the Ministry of Social Development early in the year, but by then Ms Evans had decided to cancel the agreement. Rather than agreeing to tender for that work, she found that other students who had not signed licensing

agreements and paid the fee, were also offered contract opportunities, and so she became further disenchanted.

[95] There is nothing in the evidence to support the argument that there has been a disqualifying affirmation of the contract on the part of Ms Evans.

[96] Finally, Mr Wood submits that the Judge was wrong to have regard to the underlying licensing agreement during the course of his consideration of the undue influence argument. He points out that the contract upon which the appellant sues is not that agreement, but simply Ms Evans’ personal guarantee. There is nothing in that guarantee or in the circumstances in which it was executed (as distinct from the circumstances surrounding the licensing agreement) which calls for investigation or scrutiny, he maintains. Moreover, even if the licensing agreement is to be taken into account, Ms Evans was not the licensee. The doctrine of undue influence does not extend to the provision of relief to limited liability companies. So runs Mr Wood’s argument.

[97] I am unable to accept it. In my view it would be wholly artificial to distinguish the guarantee on the one hand from the licensing agreement on the other. The guarantee would never have been given but for the licensing agreement which I have found to have been entered into by reason of undue influence on the part of the appellant and Mr and Mrs Wood. Likewise, I do not accept that relief for undue influence can never be available where the party entering into the transaction concerned happens to be a limited liability company. To adopt such a narrow approach would be at odds with the genesis of the doctrine and its objectives. It

would also be contrary to authority.[13]

Undue influence – conclusion

[98] For the foregoing reasons, I agree with Judge Wolff’s finding that there was a relationship of trust and confidence between Ms Evans on the one hand and Mr and Mrs Wood on the other, and that Ms Evans was influenced by them to enter into the

licensing agreement. The nature of that agreement called for an explanation. It was significantly disadvantageous to Ms Evans, and correspondingly, markedly advantageous to the Woods and the appellant, which in return for an annual licence fee of $25,000 +GST, provided very little in the way of identifiable commercial benefits.

[99] In all the circumstances the influence of Mr Wood, in particular, was undue. At one and the same time he was the teacher and counsellor of Ms Evans and the vendor to her company of the business opportunity (the licensing agreement). His role as vendor was inextricably interwoven with his other roles as teacher and counsellor.

[100] The legal advice obtained by Ms Evans was insufficient to overcome the effect of the influence exerted over her by Mr and Mrs Wood. Further, nothing she did during the currency of the agreement could be said to amount to affirmation for the purposes of law of undue influence.

[101] Mr Wood asks rhetorically what more the Woods could have done to ensure the transaction was safe from attack on undue influence grounds. That was a point expressly dealt with by Judge Wolff. I agree with the answer he gave, namely that Mr and Mrs Wood, having identified the position of influence in which they stood, ought to have ensured that Ms Evans sought and obtained detailed and comprehensive legal and business advice, not only as to the terms of the licensing agreement itself, but also as to the commercial and financial implications of the transaction. They failed to do that.

[102] Whilst ordinarily a licensor is not responsible for overseeing the quality of the legal advice obtained by a potential licensee, the position here was completely different, in that the Woods were not just licensors, they were also teachers, confidantes, counsellors and mentors, in respect of issues which flowed over into the subject-matter of the licensing agreement.

[103] I am satisfied that Ms Evans and the respondent were each entitled to advance an affirmative defence of undue influence, and that Judge Wolff was right

(although it is perhaps possible to cavil at the limited reasoning appearing in the judgment) when he determined that the appropriate relief was to decline to enforce the guarantee, which he accordingly set aside.

Other arguments

[104] In the District Court, counsel for Ms Evans argued that LEL had been entitled to cancel the agreement by reason of pre-contractual misrepresentations and, further, that the Court ought to cancel the guarantee pursuant to the provisions of the Fair Trading Act 1986. Each of these arguments was accepted by Judge Wolff, albeit without analysis.

[105] A further argument, supporting the lawfulness of Ms Evans’ cancellation of the underlying contract by reference to ordinary contractual principles and the provisions of the Contractual Remedies Act 1979, received no attention at all in the judgment.

[106] On appeal, Ms Cornege advanced the same arguments afresh and at length. Mr Wood responded to each argument, save that based upon contractual breach, which he chose not to address simply because the District Court Judge had not done so. But both counsel placed the undue influence point at the forefront of their arguments. Given my conclusions in respect of undue influence, I do not propose to address the alternative arguments because it would serve no useful purpose to do so.

[107] Mr Wood also referred in passing to a contention that Ms Evans was stopped from running her affirmative defences because they could and should have been raised in the liquidation proceedings concerning LEL. But the estoppel point was not sufficiently pleaded in the District Court. Nor was any significant attention paid to it in argument there. In my opinion, it is too late to raise it now.

Result

[108] I have concluded that Judge Wolff was correct to hold that Ms Evans’ guarantee of the obligations of LEL to the appellant was unenforceable by reason of undue influence. The appeal is accordingly dismissed.

[109] The respondent is entitled to costs. Counsel may file memoranda if they are unable to agree.

C J Allan J

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[1] L.E.A.D Training Trust Ltd v Evans DC Hamilton CIV-2009-019-1149, 18 June 2010.
[2] _{Austin Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC).}

[3] J F Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at [12.3.4].

[4] Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773 (HL) at [13]-[14].
[5] ASB Bank Ltd v Harlick [1996] 1 NZLR 655 (CA); Attorney-General for England and Wales v R _{[2004] 2 NZLR 577 (PC).}
[6] _{Allcard v Skinner (1887) 36 ChD 145.}
[7] Etridge (fn 4) at [20].
[8] Allcard, Haines v Skinner [2001] 2 NZLR 167 (CA), Public Trust v Ottow [2009] NZHC 2904; (2009) 10 NZCPR 879 (HC) at [57].
[9] Hogan v Commercial Factors Ltd [2006] 3 NZLR 618 (CA) where the judgment of Lord Nicholls in
Etridge was discussed and applied.
[10] _{Etridge (fn 4) at [104].}
[11] CIBC Mortgages Plc v Pitt [1993] 4 All ER 433 (HL) at 439 per Lord Browne-Wilkinson.

[12] Etridge (fn 4)at [24].

[13] Mutual Finance Ltd v John Wetton & Sons Ltd [1937] 2 KB 389; Commonwealth Bank of

Australia v Ridout Nominees Pty Ltd [2000] WASC 37.