Ipsofactoj.com: International Cases [2001] Part 2 Case 12 [NZCA]




- vs -





18 DECEMBER 2000


Blanchard J

(delivering judgment of the court)

  1. When Fortex Group Ltd collapsed in 1994 it was discovered that a number of deferred payment share schemes which it had operated to enable its employees to buy Fortex shares had not been the subject of a registered prospectus, nor were they exempt from the prospectus requirements of the Securities Act 1978.

  2. Section 37 of that Act provides as follows:


    Void irregular allotments


    No allotment of a security offered to the public for subscription shall be made unless at the time of the subscription for the security there was a registered prospectus relating to the security.




    Where subscriptions for securities are received by or on behalf of an issuer, but, by virtue of this section, the securities may not be allotted, or for any reason the securities are not allotted, the issuer shall ensure that—


    At all times while held by it, the subscriptions are kept in a trust account on behalf of the subscribers; and


    The subscriptions, together with such interest (if any) as has been earned thereon, are repaid to the subscribers as soon as reasonably practicable.


    If any subscriptions to which this section applies are not so repaid within 2 months after the date on which the subscriptions were received by or on behalf of the issuer (or, in any case to which subsection (2) of this section applies, within 5 months after the date of the date of the registered prospectus), the issuer and all the directors thereof shall be jointly and severally liable to repay the subscriptions, together with interest at a rate prescribed from time to time by regulations made under this Act from the date on which the subscriptions were received by or on behalf of the issuer:

    Provided that a director shall not be so liable if he proves that the default in the repayment of the subscriptions was not due to any misconduct or negligence on his part.

  3. The subscriptions paid by the employees, amounting to $1,668,467, had not been held in a trust account. They were not repaid to the subscribers within the two month period.

  4. In 1996 a group of employees, acting as representatives, issued proceedings against Fortex and the trustee of the scheme. At that time they did not sue the directors of Fortex. The present appellants are six of the directors.

  5. On 18 December 1996 the employees entered into a deed of settlement with Fortex and the trustee. Under that deed Fortex, through its receivers, agreed to set aside a settlement fund of $950,000 (about 57 percent of the unrefunded subscriptions) to be available to meet the claims of participating subscribers. Clause 4 of the deed provided for proportionate payment out of the fund for the claimants represented by the plaintiffs and there was provision for other affected employees to join in. Clause 9 provided:

    Upon completion of any payment contemplated by clause 4, the Claimant on whose behalf it is made shall be deemed to have waived and abandoned any claim which he or she may have against the Company or the Trustee in respect of any of the said share schemes and, without limitation to the foregoing, to have settled his or her claim in the Proceedings and to have agreed to their discontinuance.

  6. Subsequently the present respondents, who were amongst those who participated in the settlement, have brought this present representative proceeding against the directors of Fortex in reliance upon s 37(6), under which the directors are stated to be jointly and severally liable along with the issuer (Fortex) to repay the subscriptions together with interest thereon. They are seeking the remainder of the unpaid subscriptions. The amount claimed is $598,913.

  7. In the High Court the appellants sought summary judgment against the respondents. In so far as the respondents’ claim was based on negligence, that application succeeded and the claim was struck out. But Master Venning refused summary judgment for the appellant directors on the claim under s 37(6). Judgment was also refused on a limitation defence. The only matter now brought to this Court is the refusal of summary judgment on the s 37(6) claim.

  8. The argument for the directors has been that, because their liability under s 37(6) was joint as well as several, they have been released by the deed of settlement, and cl 9 in particular. The directors rely upon the common law rule that a release of one joint obligor discharges the entire obligation and so releases any other joint obligor (Duck v Mayeu [1892] 2 QB 511). The subject is discussed in this Court’s recent decision in Allison v KPMG Peat Marwick [2000] 1 NZLR 560 although that case was concerned with concurrent liability. In its earlier decision in Brooks v New Zealand Guardian Trust Co Ltd [1994] 2 NZLR 134 this Court held that the release rule still applies in New Zealand to joint tortfeasors notwithstanding s 17(1)(a) and (b) of the Law Reform Act 1936 which reads:


    Proceedings against, and contribution between, joint and several tortfeasors


    Where damage is suffered by any person as a result of a tort (whether a crime or not)—


    Judgment recovered against any tortfeasor liable in respect of that damage shall not be a bar to an action against any other person who would, if sued, have been liable as a joint tortfeasor in respect of the same damage:


    If more than one action is brought in respect of that damage by or on behalf of the person by whom it was suffered, or for the benefit of the estate, or of the wife, husband, parent, or child of that person, against tortfeasors liable in respect of the damage (whether as joint tortfeasors or otherwise), the sums recoverable under the judgments given in those actions by way of damages shall not in the aggregate exceed the amount of the damages awarded by the judgment first given; and in any of those actions, other than that in which judgment is first given, the plaintiff shall not be entitled to costs unless the Court is of opinion that there was reasonable ground for bringing the action:

  9. The Master, as he was obliged to do, approached the present case on the basis that the release rule could still govern it. He considered that all causes of action in the earlier proceedings against Fortex sought to fix it with a trust in relation to the share subscriptions in order to give them priority over other creditors and were not simply a claim for a payment under s 37(5) and (6). In the settlement, he said, no attempt was made "to identify which, if any, of the causes of action supported the settlement deed". The Master was of the view that the proceedings against Fortex had been different in nature to the current proceedings, saying that "the liability as pleaded in the separate set of proceedings is more in the nature of a concurrent liability than the joint and several liabilities created by s 37(6)".

  10. But the Master said that, if that were wrong, in the alternative, if it could be said that the liability was joint and several, the issue was then whether the settlement was in full satisfaction of the claim under s 37. He said that there was a qualification to the release rule, that if the compromise is not, on its true construction, in full settlement of the plaintiff’s claim, but is simply a release of the immediate defendant, then it will not discharge the co-obligors. The Master considered that the settlement against Fortex and the trustee was not a waiver and abandonment of all of the employees’ rights under the Securities Act but rather a waiver and abandonment of claims against Fortex.

  11. He summarised his view by saying that as the claims settled in the previous proceedings were equitable it was arguable that the common liability between Fortex in that case and the directors in this case is concurrent, not joint and several. The settlement of the earlier proceedings did not release the directors. Even if the liability could properly be categorised as joint and several, the settlement did not extinguish the employees’ rights under s 37(6) as against the directors.

  12. At the commencement of the hearing in this Court the members of the Bench inquired of counsel whether, if the Court found that the settlement deed constituted a release or satisfaction rather than merely an agreement not to sue Fortex, the Court was then to be asked to reconsider the position as stated in Brooks, at least so far as it might apply to obligors who are jointly and severally liable, as that was not apparent from the written submissions for the respondents. Mr. Miller, for the appellant directors, very responsibly referred the Court to the decision of the High Court of Australia in Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 which was delivered after Brooks but to which the Court’s attention was not drawn in Allison. In Thompson the High Court unanimously held that the common law rule had been abolished by a statutory reform in substantially the same terms as s 17, and that the release of one joint tortfeasor did not release the other joint tortfeasors. This was said to be because (p 584)

    .... it is no longer the case that the victim of a tort committed by joint tortfeasors has only one cause of action; the cause of action is no longer one and indivisible. The concept of a single wrong and a single cause of action having gone, the rule that a release given by one joint tortfeasor releases any others must have gone with it, for that rule is nothing more than another aspect of the same thing, namely, that there is only one cause of action against all joint tortfeasors in respect of the one tort. In other words, once the cause of action is by statute no longer one and indivisible, there is no conceptual basis for the rule that the release of one joint tortfeasor releases the others. The rule must therefore be taken to have been impliedly abolished by the statute.

  13. Mr. Laurenson, for the respondents, then indicated that, if we were to find that there has been a release of Fortex and not merely an agreement not to sue, he would wish the Court to rule upon whether the common law position concerning the effect of a release is to be taken to have been altered in New Zealand by s 17 in the same way as it has been found to have been altered in Australia. (In England, although the point has not, it appears, been directly raised as it was in Thompson, it seems to have been assumed that the statutory reform did not have the consequential effect on the common law attributed to it in Thompson. When Brooks went to the Privy Council, where it is reported as NZ Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96, the point did not require consideration.) Although Mr. Laurenson did not expressly address the question of the position of joint and several obligors, we took it that he intended to raise argument on their position also.

  14. We agreed with counsel that it was appropriate that if we reached these points the matter should be referred for decision to a Full Court. We have therefore proceeded to hear argument only upon the question of whether cl.9 constituted a release (or alternatively a satisfaction).

  15. There are some preliminary matters arising out of the reasoning of the Master. The first relates to the Master’s conclusion that the liability of the directors under s 37(6) was concurrent with any liability of the company. This was based on the view that the relief sought in the earlier proceedings was equitable, whereas the relief now sought was for breach of statutory duty.

  16. It is true that the earlier proceedings were primarily equitable in nature and directed at establishing priority under the statutory trust but the settlement was not so confined. It encompassed "any claim" which a claimant might have against Fortex. The expressed settlement of the claim in the proceedings was "without limitation" to the general waiver and abandonment.

  17. Secondly, the Master thought that the effect of the proviso to s 37(6) was that a director could avoid the joint and several obligation and consequential liability by proving that he or she was not negligent and was not guilty of misconduct. The director could effectively sever the joint and several liability.

  18. However, the fact that a particular defendant may succeed in a separate defence, in terms of the proviso, which may not be able to be established on the facts by other defendants, would not in my view operate as a severance of the joint aspect of the liability as imposed by the legislation. The Court would simply then have held that because of the factual defence that defendant was not one of those who were jointly and severally liable.

  19. Mr. Miller submitted that the words of cl 9 must be given their plain meaning. The clause amounted to a clear and unequivocal release. The employee claimants were abandoning any claim to the rest of the share subscriptions. At common law abandonment is a recognised mode of losing title to property (Edmonds Judd v Official Assignee [2000] 2 NZLR 135 at 142). Once title was gone there was no room for any claim to the same sum against the directors. And the deed settled all their claims to that sum. There was no longer any outstanding chose. This was not simply an agreement not to sue for a debt which remained owing. There was no reservation of rights against the directors. An express reservation was required.

  20. Mr. Laurenson accepted that no claim of any kind could now be brought against Fortex. It no longer had any liability. There had been a release of Fortex, but only of Fortex. The fact that cl 9 referred to a waiver and abandonment "against the Company or the Trustee" meant that there was no release of anyone else. The right to claim against the directors had implicitly been reserved.

  21. Alternatively, if the Court did not accept this argument, Mr. Laurenson submitted that cl 9 should be construed as a release only of the claim made in the earlier proceeding and as no more than a covenant not to sue as far as any other claims against Fortex or the trustee were concerned. It was an agreement to desist from pursuing them. The clause should be read down in order to avoid any operation of the release rule.

  22. We find it unnecessary to refer to the arguments also addressed to us on whether cl 9 recorded an accord and satisfaction, for it is plain that it did operate as a release unqualified by any reservation of the right to bring a claim against the directors. A release destroys the cause of action; an agreement not to sue merely renders it unenforceable against the tortfeasor with whom the agreement was made (Allison at para [114]). At para [128] in Allison Thomas J also said that a document is to be read as a covenant not to sue, and not as a release, if it is worded as such or if, though worded as a release, it expressly reserves the rights against the other parties who are liable, citing Glanville Williams Joint Torts and Contributory Negligence (1951) p 45.

  23. The claimants, upon completion of payment, "abandoned any claim" against Fortex or the trustee in respect of the share schemes. In other words, they gave up their rights; they did not merely agree not to enforce them. (In this context waive has the same meaning as abandon. It means a giving up.) Once there was an abandonment the claimants no longer had any title to the chose in action which they had given up. If you abandon a right you no longer possess it; there is nothing left which you can sue upon or meaningfully agree not to sue upon. This effect of the first part of cl.9 was not in our view qualified by what followed in the latter part of the clause, which merely confirmed that the particular proceedings had been settled and agreed to their discontinuance.

  24. There was no express reservation of the right to sue the directors. The reference to Fortex and the trustee as the persons against whom the claim was being abandoned is an insufficient basis for any implication that those parties were agreeing that the claimants should continue to enjoy the right to sue the directors, with the adverse consequence for Fortex and the trustee that the directors, if found liable, might then seek indemnity or contribution from them. It is because of this possibility if a claim is subsequently brought against another joint obligor that a reservation is not to be discerned merely by implication and a clear indication of the claimant’s intention to pursue joint obligors is required.

  25. We hold that the deed of settlement operated as a release of Fortex so that, if the common law rule survives in New Zealand, and if it applies to joint and several liability and not merely to joint liability (a question left unresolved in Allison), the appellant directors are no longer liable to the respondents and those they represent. These remaining questions are to be re-argued before a Court of five at a date to be fixed by the Registrar. Further written submissions will be required in accordance with the Practice Note.


Duck v Mayeu [1892] 2 QB 511; Allison v KPMG Peat Marwick [2000] 1 NZLR 560; Brooks v New Zealand Guardian Trust Co Ltd [1994] 2 NZLR 134; Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574; NZ Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96; Edmonds Judd v Official Assignee [2000] 2 NZLR 135


Securities Act 1978: s.37

Law Reform Act 1936: s.17

Authors and other references

Glanville Williams Joint Torts and Contributory Negligence (1951)


F Miller and L Theron for Appellants (instructed by Chapman Tripp Sheffield Young, Wellington)
R C Laurenson and S J Peacock for Respondents (instructed by Gilbert Swan, Wellington)

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