Winter 2008 Newsletter

Contracting with Young People – The Minors Contracts Act 1969

“Our aim is have you in better financial shape after you borrow from us – not poorer”. This statement appears on the website of Wine Country Credit Union (WCCU). It was certainly relevant in the case of two young people, R and T. According to the presiding Judge, during May 2003 R saw a car he liked and he “just had to have that car.” So R and T borrowed $15,612 from WCCU, and they bought the car. However, within weeks R was apprehended driving without a licence and the police impounded the car. It was subsequently repossessed by WCCU and resold, leaving a balance owing of $12,000.

As a result WCCU sued R and T for the balance. However, a District Court Judge held that R and T did not have to pay any of the $12,000. WCCU appealed, but the High Court agreed with the District Court that R and T did not have to repay their debt. This was essentially because they were minors when they borrowed the money; R was 17 years, 9 months and T was 17 years, 6 months.

The Law

The Minors Contract Act 1969 provides that a contract with someone under 18 years of age is presumed to be unenforceable against that person. There are several important qualifications to that rule. Firstly, certain contracts are excluded, such as some contracts for life insurance and some employment contracts. Secondly, a court may enforce the contract against the minor in whole or in part if it concludes that the contract was fair and reasonable in all the circumstances. In the present case, the Court found WCCU could not enforce the loan contract and recover any of its money because R and T had not deliberately misled WCCU about their ages. They had correctly recorded their dates of birth on the application form but an employee of WCCU had miscalculated their ages to be 18.

If WCCU had made reasonable inquiries of R and T it would, in addition to establishing their ages, have also easily discovered that
R and T:

  • had only known each other for three weeks
  • were employed in seasonal part-time work
  • had overstated their income, and
  • couldn’t afford the repayments.

Both Judges concluded that WCCU was careless and ought to have made more inquiries. In all the circumstances the contract was not fair and reasonable and the contract was unenforceable against R and T.

Conclusion

It was 20 years after the passing of the Minors Contract Act 1969 before there was a reported decision of the High Court concerning enforcement of a contract against a minor. A further 20 years has passed and the High Court has confirmed the basic principle, which is that generally contracts with minors under 18 are presumed to be unenforceable against the minor unless the other party can satisfy a court that, in all the circumstances, the contract is fair and reasonable and ought to be enforced.

The WCCU employee’s error in miscalculating R and T’s ages and failure to question them about fundamental aspects of their application led to WCCU losing $12,000 of a loan on top of incurring the costs of litigation. The case highlights the need to check the age of a young person you are contracting with and to be aware that if they are under 18 the contract may not be enforceable against them.

If you need advice about any type of contract or agreement call Graeme McLelland 09 407 0179 or Sue Wooldridge 09 407 0174

 

Estate Administration

“Estate” is the word used in both every day and legal language to describe the assets and liabilities of a person following his or her death. It includes “personal property” (chattels, debts owed by third parties, intellectual property and other rights) and “real property” (interests in land.)

An estate which does not exceed $11,000 in value at the date of death can be administered informally without the approval of the High Court. However, any estates exceeding $11,000 in value must be administered formally by a grant of probate or letters of administration from the Court.

At McLeods, our estates are managed by our qualified legal executive Lisa Baker. Lisa helps executors and administrators fulfil their duties to beneficiaries and liaises with accountants and other professionals. When required, she supports executors and administrators in steering their way through the paperwork and processes during what is often a bewildering and sad time. Because of the need to “get it right” in estate administration, professional advice is essential.

Call Lisa on 09 407 0175 if you have any queries about estates and their management.


New Disclosure Obligations for Investment Advisors and Brokers

Over the past 6 months, eighteen finance companies have either failed completely or run into trouble. So it should be comforting to know that the Government has indicated a willingness to legislate to protect the public by passing into law the Securities Markets (Investment Advisers and Brokers) Regulations 2007 (the “Regulations”).

The Regulations supplement and update existing law and are intended to oblige investment advisers and brokers to make certain disclosures to clients in a prescribed manner before giving investment advice or providing services as an investment adviser or broker.

What Must Be Disclosed?

An investment adviser must disclose in writing, in the manner prescribed, the following:

  • experience and qualifications
  • criminal convictions and adverse findings in any Court on their professional role
  • the nature and level of any fees charged
  • details of remuneration or rewards they received or will receive from anyone else
  • other interests and relationships that could affect the advice
  • types of securities they advise on

It is important to note that clients do not have to ask for this information: it must be provided up-front.

Who is an Investment Adviser or Broker?

An investment adviser gives recommendations, opinions or guidance relating to investment in securities to members of the public in the course of the adviser’s business or employment. Certain information will not constitute advice, such as opinions published in the media, assistance with acquiring and disposing of securities, and offer documents including a registered prospectus and authorised advertisements.

An investment broker receives investment money or property from members of the public in the ordinary course of business. The definition of an investment advisor or broker may include share brokers, financial planners, accountants, lawyers and others who give investment advice to the public.

Investment advisers and brokers must now disclose their commission structure and the amounts before advice is given. This includes all remuneration whether direct or indirect, which the adviser or broker may receive following the giving of advice.

Criticisms

The regulations have been criticised for not going far enough. Advisers and brokers are not required to give advice about the nature and quality of the investment, and the client is not required to sign any agreement or receive any warning about associated risks. The regulations do not provide for a declaration of any conflict of interest on the part of the broker or adviser and a consequent prohibition if a conflict does arise.

It has been suggested that a client agreement should be introduced that clearly sets out the risk associated with the investment being considered. It has also been argued that because an investor’s life savings may be at stake, the government should consider passing more comprehensive laws requiring advisers to fully inform unsuspecting investors of the risks being taken, assess the client’s situation and make a recommendation based on that. Legislation aimed at ensuring that the risk is understood could be the next step.

Remedies

An investment adviser or broker who fails to disclose in accordance with the Act commits an offence, and may be liable for a maximum fine of $100,000 for an individual and $300,000 for a body corporate. However, the investment adviser and broker has a potential defence if he or she believed on reasonable grounds that the disclosure given was not deceptive, misleading or confusing.

It is hoped that these changes go some way towards increasing transparency and reducing the types of losses we have seen recently. We have been asked for advice by clients who have lost savings due to the failure of finance company investments and/or bad advice. This is a specialist field and we refer clients to other lawyers who are able to advise on the relevant law.

For further advice please call Sue Wooldridge 09 407 0174 or Graeme McLelland 09 407 0179.

 

All information in this newsletter is to the best of the authors’ knowledge true and accurate.  No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.

 

 

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