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High Court of New Zealand Decisions |
Last Updated: 13 July 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-007472 [2012] NZHC 1429
BETWEEN SOVEREIGN SERVICES LIMITED Plaintiff
AND PHILIP MUNRO WILSON First Defendant
AND PMW FINANCE LIMITED Second Defendant
Hearing: 11 and 12 June 2012
Appearances: E C Gellert and T K Cunningham-Adams for the plaintiff
P D Sills for the defendants
Judgment: 21 June 2012
JUDGMENT OF GILBERT J
This judgment was delivered by me on 21 June 2012 at 5.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ......................
Counsel: P Sills, Auckland: paul.sills@paulsills.co.nz
Solicitors: Simpson Grierson, Auckland: james.caird@simpsongrierson.com
Hornabrook MacDonald, Auckland: msh@hmlaw.co.nz
SOVEREIGN SERVICES LTD V WILSON HC AK CIV 2010-404-007472 [21 June 2012]
Introduction
[1] The plaintiff, Sovereign Services Limited (Sovereign), claims monies allegedly due by the first defendant, Philip Wilson, pursuant to a financial adviser agreement it entered into with him in April 2006. The claim relates to claw-backs of commissions paid on policies that have lapsed or been cancelled.
[2] Mr Wilson denies that he has any liability under this agreement because he says that it was replaced by a new agreement entered into between Sovereign and his company PMW Finance Limited (PMW) some time after 18 May 2006. He says that all of the relevant commissions were paid to PMW and are only recoverable from it. Sovereign added PMW as a second defendant to this proceeding in response to this defence.
[3] Mr Wilson pleads an alternative defence that Sovereign represented that PMW was the financial adviser at all material times and is now estopped from denying this and asserting that he is personally liable for the debt.
Background
[4] Mr Wilson started working as an insurance broker for Apex Group in 2000. He worked there for six years selling life insurance and mortgage products for various providers including Sovereign.
[5] Mr Wilson left Apex Group in early 2006 to start up on his own. He applied to become a financial adviser with Sovereign on 28 March 2006. He intended to incorporate a company with the name PMW Finance Limited but this had not yet occurred. Accordingly he completed the application in his own name trading as “PMW Finance”.
[6] The standard form financial adviser agreement used by Sovereign at the time allowed for execution by financial advisers operating as sole traders, partnerships or limited liability companies. The signature page is in two sections. The first section is for companies and provides space for directors to sign. The second section is for
sole traders or partnerships and anticipates that each adviser will sign in his or her own name. The next page of the standard form agreement is the signature page of a deed of guarantee and indemnity. There is a notation on the form stating that the guarantee and indemnity is to be completed if the adviser is a limited liability company.
[7] Mr Wilson completed and signed this agreement in the sole trader section on
28 March 2006 with assistance from Jeremy Young from Sovereign who witnessed his signature. Mr Young was to be Mr Wilson’s business development manager. Mr Wilson told Mr Young that he intended to incorporate a company to operate the business. Mr Young advised that the brokerage could be transferred to the company once it had been incorporated.
[8] Sovereign’s practice is to sign financial adviser agreements only after they have been signed by the adviser. Administrative staff in the Agency Services division of Sovereign work through a standard checklist to ensure, amongst other things, that a credit check has been completed for the applicant adviser; all relevant information has been provided, including tax and bank account details; the agreement has been completed by the adviser; the date that Sovereign countersigned the agreement has been recorded; a copy of the agreement has been sent to the adviser with a covering letter; and that a copy of the agreement has been scanned into Sovereign’s electronic archive.
[9] On 3 April 2006, Mr Young sent an email to Mr Wilson advising that a problem had arisen while Sovereign was processing his application. The bank account supplied by Mr Wilson was held by the Valdez Trust whereas the agency was to be held by Mr Wilson trading as PMW Finance. Mr Young asked Mr Wilson if he had an account in his name or in the name of PMW Finance into which commission could be paid. Mr Wilson replied with details of his personal bank account.
[10] There were no other issues with Mr Wilson’s application and on 12 April
2006 Sovereign returned an original copy of the adviser agreement which it had signed. Mr Wilson immediately commenced selling Sovereign policies.
[11] Chris Baker, an Agency Finance Manager at Sovereign, explained that when an agency is established, a broker code is issued. In this case, the broker code was the alpha-numeric code AKC693. A five digit number is also allocated to denote a particular agency reference. In Mr Wilson’s case, the agency reference was 27603. Within that agency, individual advisers are allocated separate numbers. Mr Wilson was allocated the number 27604.
[12] On 2 May 2006 Mr Wilson signed an application to become a “SovNet” member. SovNet members must meet minimum targets set by Sovereign but in return are eligible for various benefits. Mr Wilson cannot recall when he sent this application to Sovereign but he enclosed a certificate of incorporation of PMW. This company was not incorporated until 11 May 2006, so the letter and application must have been sent after that date.
[13] Sovereign accepted the application and confirmed this in a letter dated
15 May 2006 addressed to “Mr Phillip Wilson, PMW Finance Limited”.
[14] On 18 May 2006, Graeme Duncan of Agency Services at Sovereign, wrote to
Mr Wilson at PMW Finance Limited as follows:
Re: Change of Agency Name
Included with your application to join Sovnet was a certificate of corporation [sic] for PMW Finance Ltd. In order to change the name Sovereign requires new Agreements to be completed. I have therefore enclosed agency agreements to be completed in the new name of the company.
Please complete and sign both copies and return in the envelope provided. Please also advise whether the GST number is still the same.
Once I have received the agreements back, I will change the name of your agency. Due to the current structure of your agency, your agency number will remain the same.
If you have any further queries, please do not hesitate to contact me on ...
[15] Mr Baker explained in his evidence that if a new agreement had been entered into with PMW, the broker code ”AKC693” would not have changed but that new numbers would have been issued in place of the numbers “27603” and “27604”.
[16] Mr Wilson believes that he signed both copies of this agreement and sent them back to Sovereign in the envelope provided. Sovereign does not have the agreement and has no record of receiving it from Mr Wilson.
[17] Mr Wilson had been negotiating to purchase the business of Home Financial Solutions Limited (HFSL) since about March 2006. HFSL was a brokerage selling Sovereign mortgages and insurance policies. These negotiations concluded with an agreement signed on 23 May 2006. PMW was named as the purchaser and it agreed to pay $296,162 for the business being the client database and the right to receive all income relating to the period from 29 May 2006 including trail commissions on policies sold by HFSL.
[18] HFSL was required under the agreement to take all necessary steps to assign the existing business relationships and trail commissions to PMW. It notified Sovereign of this sale on 29 May 2006 and it appears that Sovereign approved the sale in early June 2006.
[19] A screen shot from Sovereign’s Home Loans database shows the following notation in relation to Mr Wilson’s agency: “all new deals. Ltd company 160606, no tax now”. There was no direct evidence as to what prompted this notation but counsel agreed that its timing indicates that it occurred in the context of Sovereign being advised that PMW had purchased Home Financial Solutions Limited’s book.
[20] Despite the formation of PMW and its purchase of the business of HFSL, there was no change in the way Sovereign dealt with payments due under the financial adviser agreement. All commissions and other payments continued to be paid to Mr Wilson’s personal bank account. Sovereign continued to deduct withholding tax on insurance commissions as it was obliged to do except where the adviser was a limited liability company.
[21] Mr Wilson did not initially open a bank account for PMW and was therefore content for Sovereign to continue to pay the commission into his personal bank account. In 2006 and 2007, the mortgage business was booming. Approximately
90% of the income came from that side of Mr Wilson’s business. There was no
withholding tax on mortgage commissions. Accordingly, withholding tax was not a significant issue and Mr Wilson did nothing to address it at the time. He says that he concentrated on selling and that “the administrative side of things was not my priority”.
[22] The property market in New Zealand slumped in early 2008 and the demand for mortgages declined markedly. As a result, Mr Wilson put most of his effort into selling insurance products. In July 2008, PMW sought to expand this side of the business by entering into new agency agreements with AIG and ING. PMW opened a bank account and obtained an IRD number at this time so that it could receive commissions from these insurers.
[23] Mr Wilson says that he spoke to an accountant about finances and the structure of PMW’s business at this time. He says that this prompted him to “tidy things up with Sovereign as well”.
[24] On 23 July 2008, Mr Wilson sent an email to Agency Services at Sovereign as follows:
Re; AKC693; PMW Finance
Please cease to withhold 20% tax for the above Ltd Company. New IRD number is ... for PMW Finance Ltd.
[25] Judy Hamilton, an Agency Services Specialist at Sovereign, dealt with the matter. She was prepared to make this change but preferred to do so on the last working day of the month. Mr Wilson was keen for the change to be made as soon as possible. He advised:
At the moment cash flows are most important to me. I would rather have the full amount at the end of this month if possible.
I know the account is in slight debit.
Is there any way to turn the tax off & I can just pay separately what ever
[sic] is required to balance things out?
[26] Ms Hamilton obliged. She responded: “I will turn off tax”.
[27] As noted, Sovereign was obliged to deduct withholding tax on insurance commissions unless these were payable to a limited liability company. Ms Hamilton arranged for these deductions to cease but the insurance commissions continued to be paid to Mr Wilson’s personal bank account.
[28] On 23 October 2008, Mr Wilson sent an email to the “homeloan” section of Sovereign asking for all future home loan commissions and trails to be redirected to PMW’s bank account. He provided PMW’s bank account details and asked to be advised if anything more was required to effect this change. The change was approved on 23 October 2008 by Debbie Bell, a Senior Manager – Analysis & Systems at Sovereign. From November 2008, Sovereign started paying mortgage commission by direct credit to PMW’s bank account. Despite the redirection of mortgage commissions to PMW, insurance commissions continued to be paid to Mr Wilson’s bank account until March 2009.
[29] On 6 March 2009, Mr Wilson completed a fresh application to become a SovNet member. He had failed to meet the minimum targets set by Sovereign in earlier years and accordingly his membership of SovNet had lapsed. He recorded the “principal” on this application as being “PMW Finance Ltd”. He provided a copy of a certificate of insurance for the period from 1 October 2008 to 1 October
2009 which named the insured as “Philip Munro Wilson trading as PMW Finance
Ltd”.
[30] On 30 March 2009, Mr Wilson sent an email to Ms Bell at Sovereign asking:
Can you organize [sic] for all my Sovereign commissions to go into company acct; PMW Finance; [account details].
[31] Deborah Jackson, a Reporting Analyst in the Sovereign Home Loans division, replied on 31 March 2009:
...
We confirm that the bank account details below are loaded on our Sovereign Home Loans commission database. Please note this is different to the bank account loaded for Risk. If you require the Risk bank account to be changed also, please advise us and we will contact Agency Services to action.
...
[32] Mr Wilson replied that day:
Thanks Deborah
Please change Risk commission acct to the same one as Home Loans as which is same as listed below [sic].
[33] This request was also complied with. From April 2009, all commissions were paid by Sovereign direct to PMW’s bank account. Daily Commission Account Statements prepared by Sovereign were addressed to PMW. These statements attached Commission Transaction Statements that showed the broker reference as “AKC693-27603 PMW Finance Limited”. This is the same number that had been assigned to Mr Wilson in April 2006 when he became a Sovereign financial adviser. As noted, Sovereign’s normal practice is to allocate a new number for each new adviser, even where this is a related party.
[34] Mr Wilson says that GST and income tax returns were prepared and filed with the Inland Revenue Department on the basis that all income received from Sovereign had been earned by PMW rather than him. He said that this was how all income from Sovereign was treated throughout the entire period, including for the first financial year ended 31 March 2007. He produced GST returns which supported this position. However, it appears that these returns were not prepared or signed until mid 2009. For example, the GST return for PMW for the period 1 April
2007 until 30 September 2007 was not signed by Mr Wilson until 2 June 2009.
[35] In early 2009, PMW commenced selling life insurance to Guaranteed Finance Limited (GFL), a finance company in the business of providing personal loans. GFL took out life assurance policies on its borrowers to cover the risk of non-payment in the event of a borrower dying. GFL owned the policies and was responsible for paying the premiums. Mr Wilson arranged the cover with Sovereign, AIG or ING and split the commission with GFL which dealt with the borrowers and obtained all details required for the policies.
[36] Commissions on GFL policies became a significant part of PMW’s income. Unfortunately, GFL got into financial difficulty and started missing premium payments from about April 2010. As a result, a number of these policies were
cancelled and Sovereign became entitled to claw-back commissions that had been paid in respect of them. These are the claw-back commissions sought by Sovereign in this proceeding. There is no dispute that all such commissions were paid by Sovereign to PMW, not Mr Wilson, and all relate to the period from 1 April 2009.
[37] On 1 June 2010, Sovereign sent a letter of demand to PMW as follows:
Mr P M Wilson
PMW Finance Limited
PO Box 91835
AUCKLAND MAIL CENTRE Dear Philip,
YOUR AGENCY ACCOUNT AKC693-27603 PMW FINANCE LIMITED
I note from our records there is a debit balance in the above commission account of $217,290.35. This is the result of commission reversals through this account since 1st February 2010.
With current levels of new business and renewals unlikely to clear this debt within a reasonable timeframe, we request repayment of the outstanding debt amount of $217,290.35 as soon as possible.
Can you please forward your payment by cheque within 14 days from the date of this letter, using the enclosed freepost envelope.
Alternatively, you could pay direct to Sovereign Bank account 12 3107
0009105 007 using reference number AKC693-27603.
If you have any queries, please do not hesitate to contact me on [telephone number].
Regards,
Isabella Chen
AGENCY SERVICES
[38] There was no reply from Mr Wilson. The matter was referred to Mr Baker.
He sent a “final demand” which he addressed to “Mr P Wilson, PMW Finance”.
[39] Mr Wilson wrote to Miss Chen on 17 June 2010 asking for a copy of the contract between Sovereign and PMW. Mr Baker replied to this letter on 22 June
2010 attaching a copy of the agreement and noting that it was in his name, not in the name of the company.
[40] Mr Wilson sent an email to Mr Baker on 28 June 2010 advising:
I should have a structure plan in place for you by end of this week. [sic]
It is taking some time due to three Insurance companies involved totaling claw backs of $780,000 [sic].
[41] Sovereign’s solicitors sent a further demand to Mr Wilson on 6 July 2010.
This was addressed to him care of PMW Finance Limited and required payment of
$329,393.18 by 13 July 2010. Mr Wilson’s counsel responded on 13 July 2010 asking for various information, including a copy of the agreement between PMW Finance Limited and Sovereign, and making a settlement proposal.
[42] On 5 August 2010, Mr Baker wrote to Mr Wilson care of PMW Finance Limited, giving notice cancelling the agreement pursuant to clause 36. This clause entitles Sovereign to cancel the agreement immediately by notice in writing in various circumstances, including where there has been a breach of the agreement that “cannot be remedied within 7 Business Days of notice by us of the breach”. The parties presumably intended that Sovereign would have this right if a breach had not been remedied after seven business days’ notice rather than “cannot be remedied” after such notice but nothing turns on this.
[43] Clause 37 of the agreement provides that cancellation of the agreement does not affect liability for any:
Commission Debits which arise in relation to your Commission Account after this Agreement has ended.
[44] Sovereign’s solicitors also wrote to Mr Wilson on 5 August 2010 advising that the current commission debt was now $389,660.86.
Pleadings
[45] Sovereign claims from Mr Wilson the amount due under the financial adviser agreement signed by Sovereign and returned to him on 12 April 2006. The amount due is reducing as further renewal commissions become payable. Accordingly, both counsel agreed that I should not fix the amount but merely make a declaration as to whether Mr Wilson is liable for such commissions under this agreement.
[46] Mr Wilson denies that he has any liability to repay these commissions under his agreement. He says that this agreement was replaced by an agreement with PMW some time after 18 May 2006 and that the commissions can only be claimed from PMW. Alternatively, Mr Wilson claims that Sovereign is estopped from denying that PMW was the financial adviser at all material times and asserting that he is personally liable. In any event, Mr Wilson claims that he is not liable for claw- backs in relation to the lapsed and cancelled policies because commissions in respect of those policies were all paid to PMW, not him.
[47] The representation relied on to support the estoppel is pleaded as follows:
18. The plaintiff represented to [Mr Wilson] that [PMW] was the financial adviser appointed by [Sovereign] at all material times (Representation).
Particulars
(a) In April 2006 [Sovereign] advised [Mr Wilson] that commission payments would only be paid to the agent appointed by [Sovereign].
(b) Between 20 April 2009 and 14 January 2010, in respect of the lapsed and cancelled Products (particularised in Schedule 1 to the claim), [Sovereign]:
i. Issued commission statements to [PMW];
ii. Paid commission to [PMW]; and
iii. Did not withhold tax from the commission payments (as is required if payment is made to a natural person).
(c) All application forms for insurance submitted in respect of the lapsed and cancelled Products (particularised in Schedule 1 to the claim) were submitted in the name of [PMW], and accepted by [Sovereign] on that basis.
(d) On 1 June 2010 [Sovereign] demanded from [PMW] payment of the commission account for “YOUR AGENCY ACCOUNT AKC693-27603 PMW FINANCE LIMITED”.
[48] Mr Wilson pleads that as a result of this representation, he believed that
PMW was the financial adviser and accordingly he:
(a) Did not insist that [PMW] be recorded as the financial adviser appointed by [Sovereign] in all documentation or, alternatively cease selling products for which he might be personally liable to repay commission;
(b) Did not take into account commission payments received in respect of the lapsed and cancelled Products (particularised in Schedule 1 to
the claim) in relation to his personal income, and did not pay tax on those commission payments.
[49] Mr Wilson pleads that in the circumstances Sovereign is estopped from denying that PMW was the appointed financial adviser at all material times and from claiming commission reversals on the lapsed and cancelled products from him.
[50] Sovereign’s claim against PMW is made in case it is found that it had entered into a financial adviser agreement with Sovereign after 28 May 2006.
Did Sovereign enter into a financial adviser agreement with PMW?
[51] The evidence shows clearly that both parties intended that any financial adviser agreement would have to be signed by all relevant parties, including any guarantors, before it would be binding.
[52] In order to become a principal financial adviser, Mr Wilson had to complete a
10 page application form and supply various details including his GST number, bank account details, and proof of professional indemnity insurance in his own name. He also had to complete Sovereign’s standard form financial adviser agreement which is a 69 page document. He knew that this had to be submitted to Sovereign with his application and that Sovereign would then scrutinise the information before completing the agreement itself and returning a signed copy to him.
[53] Mr Wilson also knew that a similarly formal process and signed documentation was required before he could even become a SovNet member.
[54] The financial adviser agreement contained restrictions on alienation. Clause
30 of the agreement prohibited Mr Wilson from selling his portfolio to a buyer who was not party to a current financial adviser agreement with Sovereign and, in any event, without prior written approval from Sovereign. Clause 31 prohibited assignment of the agreement without Sovereign’s prior written consent.
[55] Mr Wilson enclosed a certificate of incorporation for PMW with his application to become a SovNet member. Mr Duncan responded by letter dated
18 May 2006 that in order to change the name, Sovereign required new agreements to be completed. Mr Duncan enclosed two copies of a financial adviser agreement and invited Mr Wilson to complete these in the name of the company and return them in the envelope provided. He also asked Mr Wilson to advise whether the GST number would remain the same.
[56] Mr Wilson believes that he signed both copies of the agreement and returned them to Sovereign in the envelope they had provided. He does not recall whether he signed the guarantee. However, he acknowledged that if the documentation had included a guarantee then he would have known that it was required. There is no dispute that the standard form of the financial adviser agreement that was sent to Mr Wilson contained a guarantee and a direction that this had to be completed if the adviser was a limited liability company.
[57] Mr Wilson’s belief that he signed the agreements and sent them back to Sovereign is supported by the fact that his file contains the letter from Mr Duncan but not the envelope or the agreements sent with it. Mr Wilson’s account is also consistent with his intention from the outset to operate as a limited liability company.
[58] Sovereign cannot locate the documents and has no record of ever receiving them back from Mr Wilson. No new agency number was established in Sovereign’s systems as would normally be required when a new agent is appointed. It appears that someone at Sovereign looked for the agreement on 28 August, presumably 2006, and noted that they had not been received from Mr Wilson. Clearly the agreements were not processed, signed or returned by Sovereign. Mr Wilson confirms that he did not receive a signed copy of the agreement from Sovereign although he had been expecting this. He did not follow this up with Sovereign. He said that he was busy selling and was paying little attention to administrative matters at this time.
[59] There appear to be three possibilities. The first is that Mr Wilson is mistaken in his recollection that he signed both copies of the agreement and posted them to Sovereign. The second is that the documents went missing in the mail and never reached Sovereign. The third possibility is that Sovereign misplaced the documents before they could be processed.
[60] Given that Mr Wilson retained Mr Duncan’s letter but not the envelope or the agreements and given that he always intended to conduct his business as a limited liability company, I consider that it is likely that he did sign and return both copies of the agreement. I also consider that he is likely to have signed the agreements in the manner required, including the guarantee. The agreements were probably returned to Sovereign within one to two weeks of Mr Duncan’s letter of 18 May 2006.
[61] Although Mr Wilson returned both copies of the agreements, including the signed guarantee, they were not processed by Sovereign. There is no record of the agreements being signed. Had that occurred, a signed copy of the agreement would have been sent to Mr Wilson and scanned into Sovereign’s electronic archive system. This did not happen. I find that Sovereign did not sign or return the agreement to Mr Wilson or PMW.
[62] The formal documentation anticipated that both parties would sign and that their signatures would be witnessed. Mr Wilson knew that the agreements would have to be countersigned by Sovereign and he expected that a fully signed copy would be sent back to him. That was the manner of acceptance he always contemplated.
[63] Not only did this not occur but there were no other changes at this time indicating acceptance by Sovereign of PMW’s offer to become a financial adviser. Commission statements continued to be addressed to PMW Finance and all commission continued to be paid to Mr Wilson’s personal bank account.
[64] For these reasons, I reject Mr Wilson’s contention that a financial adviser agreement was entered into between Sovereign and PMW. PMW made an offer to Sovereign which was supported by a guarantee from Mr Wilson but this was never accepted by Sovereign. The underlying contractual arrangement never changed and was always between Mr Wilson and Sovereign. It follows that the first ground of Mr Wilson’s defence fails.
Is Sovereign entitled to recover from Mr Wilson commission paid to PMW?
[65] Clause 16 of the agreement provides for the repayment of any debit balance in the Commission Account, which is an accounting record of the state of account between the parties rather than a bank account. It provides as follows:
YOU AGREE:
...
16. Commission
...
...
...
we can debit your Commission Account in accordance with the Schedules of Commission Debits and with any other amounts you owe us (whether under this Agreement or otherwise);
to immediately pay to us any debit balance in your
Commission
Account if we request you to do so in
writing;
You is Mr Wilson and us and we is Sovereign.
[66] The Schedule of Commission Debits sets out the rules for recovering insurance commission “paid to you by Sovereign under your Financial Adviser Agreement ...”. It provides:
Where BIC or RC is paid to you at the beginning of the policy year based on the full year’s premium, and the policy is cancelled, discontinued or has a premium reduction, where the full years premium is not received by us, we will make pro rata recovery of BIC or RC paid to you for that year. This will be calculated based on the ratio of premiums paid for the year divided by the annual premium due for the year on which the BIC or RC was paid.
BIC is Basic Initial Commission and RC is Renewal Commission, both as defined in the agreement.
[67] Mr Wilson argues that because none of the relevant commissions were paid to him, the claw-back provisions in the agreement do not apply. I cannot accept this. In my view, commission payments made to PMW’s account at Mr Wilson’s direction are to be regarded as payments made to Mr Wilson for the purposes of the agreement. Sovereign fulfilled its obligation to pay commission to Mr Wilson by making payment to PMW’s account at his direction. Having made such payments in
accordance with Mr Wilson’s request, he could not contend that his commission entitlement had not been paid and sue Sovereign for it. In my view there is nothing in this aspect of Mr Wilson’s defence.
Is Sovereign estopped from denying that PMW was the financial adviser at all material times?
[68] The elements of estoppel are well established. The party alleging estoppel must show:
(a) A belief or expectation created or encouraged through action, representation, or omission by the party against whom the estoppel is alleged;
(b) The belief or expectation has been reasonably relied on by the party alleging the estoppel;
(c) Detriment will be suffered if the belief or expectation is departed from; and
(d) It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[69] As noted, Mr Wilson alleges that Sovereign represented to him that PMW was at all material times the appointed financial adviser. He alleges that he relied on this representation in various ways including by continuing to sell Sovereign products for which he might be personally liable to pay commission and by not paying tax. He says that, as a result, Sovereign is estopped from claiming commission from him in respect of lapsed and cancelled products.
[70] Mr Sills, for the defendants, acknowledged that the critical issue is not simply whether Sovereign represented that PMW was the financial adviser. For Mr Wilson to succeed on this aspect of his defence, he needs to establish that Sovereign represented that PMW was the financial adviser and that he was not personally liable for the repayment of commission on lapsed and cancelled policies. In other words,
Mr Wilson would need to establish that Sovereign represented that it had appointed PMW as the financial adviser without requiring any personal guarantee from Mr Wilson and, having relied to his detriment on that representation, it would be unconscionable for Sovereign to depart from it and now contend that he is personally liable.
[71] It is quite clear that Sovereign would not have been prepared, in PMW’s case, to dispense with its normal requirement for a personal guarantee whenever the principal adviser is a limited liability company. Sovereign never suggested otherwise to Mr Wilson.
[72] On the contrary, Mr Wilson would have seen from his own agreement with Sovereign and from the agreements sent by Mr Duncan on 28 May 2006 that a deed of guarantee and indemnity was required by Sovereign in any case where the principal adviser was a limited liability company. Mr Wilson acknowledged that he would have understood that such a guarantee was required if it had been included in the documents sent to him. The guarantee forms part of the agreement sent to him and he therefore must have understood that it was required. I have found that Mr Wilson signed the guarantee and returned it to Sovereign.
[73] Sovereign’s requirement for a guarantee was consistent with the practice of other insurers. Mr Wilson was required to sign a personal guarantee when he arranged for PMW to enter into comparable agreements with AIG and ING in July
2008.
[74] Absent a representation from Sovereign that Mr Wilson would have no personal liability and detrimental reliance by Mr Wilson on that representation, there can be no relevant retreat by Sovereign, let alone an unconscionable retreat. I find that Sovereign and Mr Wilson both expected that Mr Wilson would always be personally liable for any claw-back commission, irrespective of whether the financial adviser agreement he signed was replaced by an agreement with PMW. He was personally liable as the principal under the original agreement and he knew that he was required to give a personal guarantee under any agreement with PMW. In these
circumstances, Sovereign is not retreating from any earlier position in seeking recovery from Mr Wilson personally.
[75] For the reasons given, it is not sufficient for Mr Wilson to establish a representation by Sovereign that PMW was the financial adviser. The critical issue is whether Sovereign represented that Mr Wilson was not personally liable. There was no such representation and this is sufficient to dispose of Mr Wilson’s estoppel defence. However, in case I am wrong in this analysis, I now consider each of the particulars of estoppel relied on by Mr Wilson in his amended statement of defence. I start with the particulars of the alleged representation that PMW was the financial adviser at all material times.
In April 2006 the plaintiff advised the first defendant that commission payments would only be paid to the agent appointed by the plaintiff
[76] This allegation rests on the email sent by Mr Young to Mr Wilson on 3 April
2006 which reads as follows:
Hi Phil
Thanks for this
I have run into a stumbling block regarding the bank account for you
The agency is held by Phil Wilson TA PMW Finance
The account is held by ‘The Valdez Trust’
Do you have an account in your name (or PMW Finance) that we can pay commission to?
Thanks
Jeremy Young
[77] This email cannot support the weight Mr Wilson seeks to place on it. Mr Wilson was not entitled to rely on this email as a representation binding Sovereign that if commission payments were made at some future time to another account at Mr Wilson’s request, this would relieve him of personal liability for any claw-backs in respect of those commissions. Commission payments in respect of mortgages were paid to PMW at Mr Wilson’s request from November 2008 and in respect of insurance commissions from April 2009. In my view, Mr Wilson was not entitled to rely on Mr Duncan’s email in April 2006 in reasonably believing that one
or other of these changes, made more than two and a half years later, meant that
PMW was now the appointed agent and his personal liability had ceased.
From April 2009, Sovereign issued commission statements and paid commission to
PMW and did not deduct withholding tax
[78] It is true that Sovereign issued all commission statements to PMW and paid commissions to PMW’s bank account from April 2009 being the period in respect of which the commissions claimed in this proceeding were paid. All of this was done at the request of Mr Wilson who was the financial adviser under the agreement. Mr Baker said that these requests ought not to have been acceded to and that they were implemented as a result of administrative errors by Sovereign staff. That may be so but the critical issue is whether Mr Wilson was entitled to rely on the fact that Sovereign made these changes as constituting a representation by Sovereign that he was no longer liable for claw-backs in relation to these commissions.
[79] I do not consider that he was. Sovereign was merely acting on Mr Wilson’s instructions, as the person entitled to the commissions, to pay them to someone else’s account. He was not entitled to take from Sovereign’s preparedness to accommodate this request that his obligations under the agreement no longer applied and had shifted to PMW. Mr Wilson knew that the operative agreement was always going to be recorded in a formal document signed by all relevant parties, including any guarantors. He knew or should have known that there was no such agreement between Sovereign and PMW and that his agreement remained the operative agreement.
Application forms for the relevant policies were submitted in PMW’s name
[80] The relevant application forms make provision for the name of the adviser’s company and the adviser’s name to be completed. Mr Wilson completed all of these applications and wrote his own name in the “Adviser name” box and “PMW Finance” in the “Adviser’s company” box. No space was provided for any trading name. It is difficult to see how the manner in which Mr Wilson completed these forms can be construed as a representation by Sovereign upon which he was entitled
to rely in believing that he had no personal liability for claw-back commissions if any policy lapsed or was cancelled. I reject Mr Wilson’s contention that he was able to rely on these forms as giving rise to an estoppel preventing Sovereign from recovering the commissions from him.
Sovereign’s demand dated 1 June 2010
[81] The fact that Sovereign addressed its initial demand to PMW cannot assist Mr Wilson. By then, there was nothing he could do to avoid any liability he already had. There could be no detrimental reliance. He did not alter his position in any relevant way following receipt of this letter.
Detrimental reliance
[82] Mr Wilson alleges that he detrimentally relied on Sovereign’s representation by not insisting that PMW be recorded as the financial adviser appointed by Sovereign in all documentation. Had he insisted on this, Sovereign would have signed the agreement appointing PMW as the financial adviser. In that event, Mr Wilson would have become personally liable for the commissions pursuant to the guarantee. Mr Wilson is no worse off as a result of not insisting on this. He would be personally liable either way.
[83] Mr Wilson also claims that he would have ceased selling products for which he might be personally liable to repay commission. He would be worse off if he had done so because neither he nor his company would have received any commission in the first place. Again, I cannot see that Mr Wilson has suffered any detriment, even if he was entitled to rely on the alleged representation from Sovereign.
[84] Finally, Mr Wilson alleges that he relied on the representation to his detriment by not taking the commissions into account in his personal income and by not paying tax. Profit and loss statements were produced for PMW for the years ended 31 March 2008, 2009 and 2010. These statements showed that PMW made no profit in any of these years. A profit and loss statement was also produced showing that Mr Wilson made no profit in the relevant year, being the year ended 31 March
2010. Given that PMW made no profit, Mr Wilson’s income would not have
changed and there would have been no change to Mr Wilson’s income tax position.
Conclusion
[85] I conclude that at all material times Mr Wilson was the only appointed financial adviser. Sovereign never represented to Mr Wilson that he would not be personally liable for any claw-back commission relating to lapsed or cancelled policies. Mr Wilson always understood that he would be personally liable for such commissions. There is nothing unconscionable about Sovereign seeking to recover these commissions from Mr Wilson. On the contrary, Mr Wilson is seeking to exploit administrative errors on Sovereign’s part in attempting to avoid personal liability and thereby secure an advantage he knew Sovereign would never agree to. Mr Wilson’s defences all fail. He is accordingly personally liable for all amounts due on the Commission Account.
Result
[86] The plaintiff is entitled to judgment against the first defendant for the amount due in respect of the lapsed and cancelled policies the subject of this proceeding. This amount includes interest at the fringe benefit rate prescribed by the agreement. If the parties are unable to agree the correct amount, the matter should be referred back to me for determination.
[87] Judgment is entered for the second defendant on the plaintiff’s claim.
[88] If the parties cannot agree costs, memoranda should be filed. Any party seeking costs should file and serve a memorandum within 14 days and any
memorandum in response should be filed and served within seven days thereafter.
M A Gilbert J
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URL: http://www.nzlii.org/nz/cases/NZHC/2012/1429.html