Laidlaw v Parsonage ( 1 NZLR 286) involved a sale and purchase of residential property. The Court of Appeal held that by virtue of the purchaser being described as 'X and/or nominee', the nominee (once named) became entitled to the benefit of the contract pursuant to Section 4 of the Contracts (Privity) Act 1982. The rationale for this decision was that the nominee was a person "designated by description" in terms of Section 4 (for further details please see "What is a nominee? Considering the Court of Appeal's answer").
The implications of the Court of Appeal's decision, which was subsequently upheld by the Supreme Court, are now becoming apparent to practitioners. In particular, the question is whether more thought is now required before describing a purchaser as 'X and/or nominee'. Clearly, if all that is intended is a bare nomination, being a transfer by direction without transfer of rights, then describing the purchaser as 'X and/or nominee' will be ineffective - according to Laidlaw v Parsonage, that description will automatically transfer the benefit of the contract to the nominee (once named). The corollary of this statutory transfer of rights to the nominee is that the purchaser's rights under the contract may no longer be exercised by the named purchaser. As this may not be the purchaser's intention, it is imperative in such cases that no reference be made to a nominee in the description of the purchaser; otherwise, according to the Court of Appeal and the Supreme Court, the named purchaser's rights will automatically vest in the nominee.
Even more crucial from the named purchaser's point of view is that although, according to the new rule, the benefit of the contract is automatically transferred to the nominee (once named), as a matter of law the burden of the contract will remain with the named purchaser. This raises a significant point. Although the named purchaser is customarily indemnified by the nominee for the purchaser's obligations (by the standard terms of a deed of nomination), a purchaser may in some circumstances be unable to compel the nominee to enter into such a deed, or may simply neglect to do so. Purchasers which allow themselves to be described as 'X and/or nominee' should be wary of making an informal nomination, which may put them in the position of having statutorily transferred the benefit of the contract, but having no means of imposing the burden on their nominee. In such cases the nominee would be entitled to have the property conveyed to it, with the purchaser remaining solely liable to pay the purchase price.
These considerations highlight the distortions introduced by the Court of Appeal's decision in Laidlaw v Parsonage, which has unfortunately been endorsed by New Zealand's highest court.
For further information on this topic please contact Michael Goodger at Meredith Connell by telephone (+64 9 336 7500), fax (+64 9 336 7629) or email ([email protected]).