1. THE ISSUES RAISED BY MR CALDWELL

3.1 Mr Caldwell has drawn the attention of the Commission to three anomalies in the operation of s10 of the Usury, Bills of Lading, and Written Memoranda Act 1902. He identifies these as follows:

1. The underlying purpose of the section appears to have been removed. The main purpose of section 6 was to prevent plaintiffs from overcoming the requirement of the Statute of Frauds that contracts of guarantee be in writing by suing the "guarantor" upon an oral representation as to the credit of the person guaranteed (Banbury v Bank of Montreal [1918] AC 626; Lyde v Barnard (1836) 1 M & W 101; 150 ER 363). In New South Wales, since the repeal of the Statute of Frauds by the Imperial Acts Application Act 1969, a guarantor may be sued upon an oral guarantee. Hence, the purpose of the enactment has disappeared and it is anomalous that, in contrast with a guarantor, the maker of an oral representation as to credit, subject to what appears below, will not be liable in respect of false statements made in it.
2. Section 10 does not afford any defence to an action based on negligence (Banbury v Bank of Montreal [1918] AC 626 at 640, 693 - 694, 708, 713). This was conceded by the defendant in Compafina v ANZ [(Unreported) 11 May 1981 Supreme Court of NSW, Common Law Div, transcript at 36]. It may be seen as extraordinary that a defendant will have a defence for statements fraudulently made, but if the same statements are made only negligently, then there will be no defence.
3. The words of the section "made in writing signed by the party to be charged therewith" have, until the decision of the English Court of Appeal in UBAF Ltd v European American Banking Corp [1984] 1 QB 713, led to anomalous difficulties in suing banks upon representations as to credit. Previously, it had been accepted that Hirst v West Riding Union Banking Co [1901] 2 KB 560 required the writing to be signed by a principal, not by an agent, even where the agent is a bank manager and has actual authority to write the particular letter. If the decision in UBAF is good law in New South Wales, then the problems will be to some extent alleviated. However, Hunt J in Compafina considered the arguments against the correctness of the decision in UBAF and found it unnecessary to resolve them (pp31-32).¹

3.2 The first issue raised by Mr Caldwell deals with the purpose of the section while the other two issues deal with substantive aspects of its operation.

II. REASONS FOR ENACTMENT

3.3 The preamble to the Statute of Frauds 1677 (Imp) states that it was enacted “[f]or prevention of many fraudulent practices which are commonly endeavoured to be upheld by perjury and subordination of perjury." Unsophisticated rules of procedure and evidence and the law of contract no doubt prompted the enactment of the statute. As Holdsworth states:

At the period when the Statute of Frauds was passed the institution of trial by jury was in a transition state. In the first place, the mediaeval method of controlling the jury by writ of attaint was obsolete, the sixteenth and early seventeenth century method of controlling it by fine or imprisonment had been decided by Bushell's Case [(1670) Vaughan's Rep 435; Vol i 344-347] to be illegal, and the modern device of getting an order for a new trial, when the verdict was clearly against the weight of evidence, was in its infancy. In the second place, the jury, though generally guided by the evidence, might still decide a case from its own knowledge of the facts - the fact that it had this power was assigned by Vaughan CJ, in Bushell's Case, as one of the main reasons why it could not be punished for finding a verdict contrary to the directions of the court. It was therefore a wise precaution to make certain kinds of evidence necessary for the proof of certain transactions, because it placed a limitation upon the uncontrolled discretion of the jury. There was also another reason for the adoption of this precaution ... Neither the parties to an action, nor their husbands or wives, nor any persons who had any interest in the result of the litigation, were competent witnesses.²

Most of these rules were still valid and current in 1828 when Lord Tenterden's Act was enacted.

3.4 As stated earlier Lord Tenterden's Act was enacted specifically to prevent the circumvention of the Statute of Frauds 1677 (Imp). Its preamble states:

... Whereas various Questions have arisen in Actions founded on Simple Contract, as to the Proof and effect of Acknowledgments and Promises offered in Evidence for the Purpose of taking Cases out of the Operation of the said Enactments; and it is expedient to prevent such Questions, and to make Provision for giving effect to the said Enactments, and to he Intention thereof.

Because s4 of the Statute of Frauds (1677) made a promise to answer for a debt, default or miscarriage of another unenforceable unless in writing, a custom grew up in the profession of alleging a fraudulent representation as to credit in order to circumvent the statute. Apparently juries, displaying their traditional anxiety to find verdicts in favour of plaintiffs, were easily induced to find fraud where no real fraud existed. To put an end to this practice, Lord Tenterden introduced the bill containing this section, and it was passed by Parliament.³

3.5 The New South Wales Parliament has already given effect to the view that, except in respect of contracts for the sale of land or any interest therein, s4 has no place today. The possibility of juries. circumventing its operation is no longer present. In any event the discretion of juries is no longer uncontrolled and parties to a contract are competent witnesses. The New South Wales Law Reform Commission considered specifically s4 of the Statute of Frauds 1677 (Imp) and the requirement of writing in relation to contracts of guarantee before recommending the repeal of the requirement.⁴ It is in this context that the continued operation of s6 of Lord Tenterden’s Act, which was enacted to supplement the provision relating to contracts of guarantee in s4 of the Statute of Frauds, is called in question.

3.6 As Mr Caldwell has stated, "the underlying purpose" for which Lord Tenterden's Act was enacted, namely to prevent the evasion of the Statute of Frauds, has been removed in New South Wales by the repeal of the latter in 1969. Normally this would be sufficient reason to recommend repeal of the provision. However, as a provision similar in effect was enacted in s136 of the Credit Act 1984, the question has to be asked whether that provision merely replaces s4 of the Statute of Frauds so far as contracts of guarantee are concerned.

3.7 After a period of time the reasons prompting the enactment of a statute may no longer be present or valid. Other reasons may appear in time to validate the continuing operation of the statute, and supplant the original basis. In the case of s6 of Lord Tenterden's Act the only justification for its continuation is the relevance and importance attaching to the formal requirement of writing contained in the section. It has been suggested this formal requirement has three important functions, the evidentiary, the cautionary and the channelling functions.⁵

3.8 The evidentiary function of the Statute of Frauds 1677 (Imp) was "the prevention of fraud and perjury" on the part of the plaintiff, by providing the court with ready and reliable evidence. In actuality, however, it could assist a dishonest person in escaping an obligation under a contract simply because it was not recorded with sufficient formality. While preventing fraud and perjury on the part of the plaintiff it merely encouraged the defendant to evade his or her obligations and to defeat just claims. The same criticism can be levelled at the evidentiary function of s6 of Lord Tenterden's Act. it has been observed that "the section assumes that either of the parties might be lying, and automatically resolves this evidentiary problem in favour of the defendant".⁶ The solution is quick but it may prove to be incorrect if all the facts are allowed to be admitted in evidence.

3.9 The cautionary function of a requirement for writing is to give a party time to pause and think before entering into an obligation. The second limb of s4 of the Statute of Frauds was retained in England because, as some members of the English Law Revision Committee stated:

there is a real danger of inexperienced people being led into undertaking obligations that they do not fully understand.⁷

However if the same reasoning is applied to s6 of Lord Tenterden's Act it would produce the strange result that a person should be cautioned before reducing an intentional misrepresentation to writing. The aim of the cautionary function is to help innocent parties, though this is not the result when applied to s6 of Lord Tenterden's Act.

3.10 The third function that a requirement of writing performs is the "channelling" function. The format of a written agreement is derived from the various requirements laid down by statute. Whether the document will be given effect will depend on its compliance with these statutory requirements. Examples of agreements "channelled" by statute are mortgages and negotiable instruments. The degree of "channelling" achieved by s6 of Lord Tenterden's Act, however, appears to be negligible. As one writer has observed:

the section has not given rise to any accepted form for credit references and representations, and a century of experience under it has failed even to indicate the classes of persons most affected by its operation.⁸

3.11 Thus the requirement of writing in s6 of Lord Tenterden's Act fails to achieve a sufficient evidentiary, cautionary or channelling role.

3.12 One other matter to be considered before deciding whether the purpose for enacting s6 of Lord Tenterden's Act continues to exist in New South Wales is the role played by s136 of the Credit Act 1984.

3.13 Though s4 of the Statute of Frauds was repealed in New South Wales a provision similar to that part of s4 dealing with contracts of guarantee has been enacted in s136 of the Credit Act 1984 which states:

A contract of guarantee between a guarantor and a credit provider in respect of the obligations of the debtor under a regulated contract is not enforceable against the guarantor unless

(i) it is in writing signed by the guarantor; or

(ii) it was made by the acceptance of an offer in writing signed by the guarantor to enter into the contract of guarantee

and any copy of the regulated contract, or of any offer to enter into the regulated contract, that is required pursuant to this Act to be given to the debtor has been given to the guarantor before he enters into the contract of guarantee.

3.14 An examination of s136 reveals that it does not apply to contracts of guarantee generally but to a class of contracts regulated by the Credit Act 1984. There are other differences as well. For example, s4 of the Statute of Frauds could be satisfied by a sufficient memorandum of the promise signed by the party to be charged. Section 136 does not fill the vacuum created by the repeal of the second limb of s4 of the Statute of Frauds which applied to contracts of guarantee generally.

3.15 The original reason for the enactment of s6 of Lord Tenterden's Act disappeared in New South Wales with the repeal of s4 of the Statute of Frauds in 1969. As no alternative justification has emerged for its retention the provision should be repealed.

III. FRAUDULENT AND NEGLIGENT MISREPRESENTATION

3.16 The second issue raised by Mr Caldwell deals with the substantive application of the section. Though the words of the section refer to "any representation or assurance" the courts have interpreted the section to apply only to cases of fraudulent misrepresentation.

3.17 In Banbury v Bank of Montreal,⁹ the leading case on misrepresentation under s6 of Lord Tenterden's Act, the plaintiff brought an action against the defendant bank claiming damages for negligence and breach of duty while acting as his bankers and advisers. The cause of action was based upon the oral representations as to the credit of a company, made honestly by a branch manager of the bank as its agent, which induced the plaintiff to invest a sum of $Can125,000 in the company. The company failed shortly thereafter, resulting in the loss of the plaintiff's investment. One of the defences raised by the bank was that the representation made to the plaintiff came within the ambit of s6 of Lord Tenterden's Act and as the representation was not in writing the plaintiff's action should be dismissed. The Court of Appeal¹⁰ agreed with this submission and held that s6 applied to representations made negligently.

3.18 The House of Lords reversed the decision of the Court of Appeal on this point and held that the section applies only to fraudulent misrepresentations. In arriving at this conclusion the House of Lords gave two reasons. First, the intention of the Legislature at the time of enacting the provision was that it should apply only to fraudulent misrepresentations. As Lord Atkinson stated:

The question then is, does this section of Lord Tenterden's Act apply to innocent representation? No doubt the words of the section are general. On its face it applies to every representation, innocent or fraudulent; but one cannot construe these words, general in character though they be, without having regard to the circumstances in reference to which they were used, and to the object appearing from the statute which the Legislature had in view in using them. Lord Coke in the well-known passage in Heydon's Case (1584) 3 Rep 7b lays it down that to get at the scope and object of an Act one should consider (1) what the law was before it was passed; (2) what was the mischief or defect for which the law had not provided; (3) what remedy Parliament has appointed; (4) the reason for the remedy.¹¹

This statute was, I think, designed to deal with false and fraudulent representations and those alone, and, being of that opinion, I think that, despite the generality of the words "Any representation or assurance", I am, acting on the principle of interpretation of statutes laid down in Stradling v Morgan (1560) Plowd 199, bound to construe the Act so as to carry out the intention of the Legislature which passed it, and to hold that it applies to representations and assurances of this latter character and to those alone.¹²

3.19 The second reason adduced by the House of Lords was that the section had since its enactment been applied by courts only to cases of fraudulent misrepresentation. As Lord Finlay LC stated:

[t]he most significant feature in the long list of authorities cited to your Lordships in this case is that the section is uniformly treated as applying to actions for fraudulent misrepresentations only ... The new departure made by the decision of the Court of Appeal in the present case as to the construction of the law of s6 of Lord Tenterden' s Act would lead to results of a somewhat startling nature. A merchant may employ at a salary a traveller to make inquiries about the standing and credit of possible customers and to report to him thereon. The traveller negligently, without inquiry or on insufficient inquiry, reports orally that a particular. person may safely be trusted, and his employer acts upon his information and sustains loss thereby. In the view of the Court of Appeal the employer would have no remedy because the report falls within the terms of s6 of Lord Tenterden's Act. The same thing might apply in the case of an action against a solicitor for negligence in the discharge of his duty as such. Such a construction of the Act is a complete novelty. During the ninety years which have elapsed since it was passed it has always been applied only to actions upon representations as such, not to actions in which the gist of the action is breach of duty. This action appears to me not to fall within s6 at all, and in my opinion the judgment of the Court of Appeal on this point is erroneous.¹³

3.20 Analysing the judgment in Banbury Cairns J in W B Anderson and Sons v Rhodes (Liverpool) Ltd stated:

It appears to me that the effect of [the decision in Banbury] as a whole is this. An action for fraudulent misrepresentation as to credit is an action on the representation and is barred by Lord Tenterden's Act unless in writing. An action in respect of a negligent misrepresentation is not an action on the representation and is an action for breach of a duty of care ... The conclusion is that an action for breach of a duty of care in making a representation is not barred by the Act of 1828.¹⁴

3.21 The decision in Banbury v Bank of Montreal¹⁵ settled the law on the question of the scope of applicability of s6. The High Court of Australia held in 1968 in the case of Mutual Life and Citizens' Assurance Company Ltd v Evatt¹⁶ that the House of Lords was correct in its decision that s6 is applicable only to a case of fraudulent misrepresentation and not to negligent misrepresentation. In that case the defendant had given the plaintiff incorrect information and advice as to the security of his investments in a third company. The plaintiff sued for damages, alleging negligence on the part of the defendant who, it was claimed, was under a duty of care to give correct information. The defendant sought to rely on the New South Wales' equivalent of s6 of Lord Tenterden's Act, s10 of the Usury, Bills of Lading, and Written Memoranda Act 1902. Menzies J, applying the decision in Banbury to s10, stated:

I have found no reason for distinguishing the decisions in Banbury v Bank of Montreal that Lord Tenterden's Act has no application to an action, not for fraud, but for negligence. That powerful fifty-year-old decision of the House of Lords reversing the decision of the Court of Appeal is not, I think, open to question.¹⁷

3.22 The restrictive judicial interpretation of s10 of the Usury, Bills of Lading, and Written Memoranda Act 1902 makes that section inapplicable to instances of negligent misrepresentation as to credit or for misrepresentation as to credit in breach of a contractual, fiduciary or other duties. The result is anomalous. Section 10 is a defence to fraudulent misrepresentation but not to negligent misrepresentation.

IV. SIGNATURES AND THE AGENT'S ROLE

3.23 The third issue raised by Mr Caldwell concerns the interpretation given by courts to the words "made in writing signed by the party to be charged therewith" appearing in s10, in relation to a corporation.

3.24 The term "person" appearing at the beginning of the section is synonymous with the term "party" appearing at the end of the section. Unless the context otherwise requires the term "person" is generally construed to include corporations.¹⁸

3. 25 The Commission has considered the case where a duly authorised agent makes a representation falling within s10 on behalf of a corporation, reduces such representation to writing and signs it. The question to be asked is whether the corporation could deny liability on the basis that the agent's signature was not its signature so that the representation was not "made in writing signed by the party to be charged therewith".

3.26 In contrast with some statutes, s10 does not require the party charged to sign the writing personally. For example s13 of the Lending of Money Act 1915 (Tas) requires that the writing be "made and signed personally by the borrower". Interpreting these words the High Court held in Motel Marine Pty Ltd v IAC (Finance) Pty Ltd¹⁹ that the addition of the word "personally" excluded signature by an agent and, therefore, by a corporation which can act only through an agent. The context of the section therefore excluded corporations from the meaning of the term "person".

3.27 In the case of s6 of Lord Tenterden's Act, however, it has been held in Hirst v West Riding Union Banking Company Ltd²⁰ that the term "person" in the section includes a corporation. In Hirst's case the defendant was a banking company incorporated under the Companies Acts. The action sought to recover damages for a statement alleged to be a misrepresentation made by one of the defendant's branch managers. The statement concerned the credit and position of a certain trading company, a customer of the defendant, and it was made in the scope of the manager's employment and in the defendant's interests. The plaintiff, acting on the faith of the representation contained in a letter signed by the branch manager, incurred loss. On the facts in Hirst, the court held that the written representation signed by the manager was not “made in writing signed by the party to be charged therewith” and that the bank was not liable for the agent's representation. The court, however, did not specify the circumstances in which a corporation would be liable for a written representation made on its behalf.

3.28 Hirst's case was decided by the English Court of Appeal on the authority of the earlier decision in Swift v Jewsbury.²¹ Swift v Jewsbury did not deal with a company, having a separate legal personality, but with a partnership, and the case turned upon the individual liability of the person who signed the representation on behalf of the partnership. Thus Swift v Jewsbury cannot be regarded as authority for the proposition that an authorised agent's written representation signed by the agent on behalf of a corporation is not "made in writing signed by the party to be charged therewith".

3.29 If , as suggested in Hirst's case, the agent's signature is not sufficient to render the corporation liable, what manner of signature would satisfy the requirements of s6? Scrutton U thought the seal of the company would suffice. He said in the Court of Appeal decision of Banbury:

... it has been held in Swift v Jewsbury that where the defendant is a company, as a banking company, the signature of an agent such as a branch manager will not suffice; there must be the seal of the company.²²

It is, of course, common ground that Swift v Jewsbury and Goddard ... decided no such thing. Indeed, the seal itself is not a signature. In addition to the seal there are, of course accompanying signatures, but their function is, generally speaking, merely to authenticate the seal.²⁴

3.30 The English Court of Appeal in UBAF Ltd v European American Banking Corp reviewed the decisions in Swift v Jewsbury and Hirst v West Riding Union Banking Co Ltd and came to the conclusion that those cases did not purport to decide that a company cannot sign by a properly authorised officer or employee acting in the course of his or her duties in the business of the corporation.

3.31 One issue confronting the Court in UBAF was whether the signature of the agent could, as a matter of law, constitute the signature of the party to be charged within the meaning of s6 of Lord Tenterden's Act. The Court held, in what it termed its "short answer", that evidence was required to determine this issue.²⁵ In its "long answer" the Court went on to say "that the signature on behalf of a company of its duly authorised agent acting within the scope of his authority is, for the purpose of s6 of the 1828 Act, the signature of the company".²⁶

3.32 This “long answer” seems soundly based. For the Court to have decided otherwise would have led “... to the absurd conclusion that, although a company being a 'person' is entitled to claim the protection of the Act, it is never capable of losing that protection because, as a legal abstraction, it cannot literally and physically ‘sign’ anything".²⁷

3.33 In Compafina Bank v Australia & New Zealand Banking Group Limited²⁸ Hunt J regarded the "long answer" of the Court of Appeal in UBAF as mere obiter and of no more than persuasive authority. ²⁹ His Honour found it unnecessary to resolve the issue, as on the facts the agent did not have the requisite actual, as opposed to ostensible, authority to sign the document in question. Thus the uncertainty relating to this issue continues.

3.34 The issues raised by Mr Caldwell highlight the anomalies present in the current operation of s10. There is no doubt the provision needs reform. The question is should it be amended or repealed?

3.35 Under s52 of the Trade Practices Act 1974 (Cth) a representor may be liable for an oral representation as to credit where this constitutes conduct that is misleading or deceptive. Similar provisions exist under state legislation in some jurisdictions. In New South Wales, for example, s42 of the Fair Trading Act 1987 states:

A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

These provisions provide further justification for the repeal of s 10.

FOOTNOTES

1. Letter dated 29 April 1986 to the Chairman, NSW Law Reform Commission.

2. Sir William Holdsworth, A History of English Law Vol VI (2nd ed 1937) at 388.

3. [1967] 2 All ER 850 at 862.

4. New South Wales Law Reform Commission, Report on the Application of Imperial Acts (1967 LRC 4) at 99. See also Second Report on the Sale of Goods (1987 LRC 51) at Chapter 4.

5. Lon Fuller, "Consideration and Form" (1941) 41 Columbia Law Review 799.

6. Clarence B Taylor, "Research study - The Statute of Frauds and Misrepresentations as to the credit of third persons: should California repeal its Lord Tenterden's Act?" (1969) 9 California Law Reform Commission Reports 711 at 728.

7. England Law Revision Committee, Statute of Frauds and the Doctrine of Consideration (1937 Interim Report 6) at 33.

8. Note 6 at 728. The writer was commenting on the equivalent section in California. The comment equally applies to England and Australia.

9. [1918] AC 626.

10. [1917] 1 KB 409.

11. Note 9 at 691.

12. Note 9 at 693-694.

13. Note 9 at 640-641.

14. [1967] 2 All ER 850 at 865.

15. [1918] AC 626.

16. (1968) 122 CLR 556.

17. Id at 618.

18. Interpretation Act 1987 s21(1).

19. (1964) 110 CLR 9.

20. [1901] 2 KB 560.

21. (1874) LR 9 QB 301.

22. [1917] 1 KB 409 at 431.

23. [1984] 1 QB 713.

24. Id at 722-723.

25. Id at 720.

26. Id at 724.

27. Id at 719.

28. (Unreported) 11 May 1984, Supreme Court of New South Wales, Common Law Division.

29. Id, transcript at 30-31.