Does New Zealand recognise the Etridge principles?

Palitha de Silva, The New Zealand Law Journal, November 2005

In this article, Ms de Silva considers whether financial institutions must follow the principles laid down by the House of Lords in Etridge1 in order to avoid liability where there may be undue influence, and discusses the differences between the decision of the House of Lords in Etridge and the decision of New Zealand's Court of Appeal in Wilkinson2.

Ms de Silva comments that the legal position in Wilkinson, regarded in New Zealand as a good balance between the guarantor's interest in protection and the need to add certainty to a small business financing transaction, was disturbed by the position in Etridge. This led to uncertainty as to which direction trial judges would take in New Zealand.

The first decision was that of Damesh Holdings3 (reported in the Winter 2003 issue of Financial Services Quarterly), where Chisholm J decided to follow Wilkinson. However, the Court of Appeal allowed an appeal by Damesh Holdings, and the case was remitted to the High Court.

The opportunity to consider the conflicts between Etridge and Wilkinson subsequently arose in Hogan4, but the factual findings in this case rendered it unnecessary for the Court of Appeal to do so.

The key differences

• Wilkinson requires the guarantor to establish not only that there was an impropriety on the part of the principal debtor, but also that the financier was aware of the relationship of trust and confidence.
  
  
• The decision in Etridge states that the financier is put on enquiry every time the relationship between the principal debtor and the guarantor is not commercial.
  
  
• Wilkinson requires steps for the financier to be satisfied that the guarantor has understood the transaction, and the suggestion is that, in the absence of any particular reason for suspicion on the part of the financier, a solicitor's certificate as to the guarantor's understanding should suffice.
  
  
• Etridge sets out a set of specific steps to be taken by a financier in order to avoid liability where there is undue influence.

 

1 Royal Bank of Scotland v Etridge [2001] All ER 449

2 ASB v Wilkinson [1998] 1 NZLR 674

3 Lee v Damesh Holdings Limited (HC, Christchurch CP 75/02, 14 April 2003 )

4 Hogan v Commercial Factors Limited (CA 225/03, 10 November 2004, Glazebrook, William Young and Chambers JJ)

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