100 Investments Ltd v Walker

[2023] NZHC 2227

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2019-404-1160

[2023] NZHC 2227

BETWEEN

100 INVESTMENTS LTD

First Plaintiff

Continued…

AND

ROBERT BRUCE WALKER

First Defendant

Continued…

Hearing:

Further submissions:

17 and 18 July 2023

21 and 25 July 2023

Appearances:

R Hucker for the first to fourth plaintiffs in 1160 and the first to fourth defendants in 0274

D Bigio KC and N R Frith for the third defendant in 1160 and the seventh defendant in 0274
W Hofer and R Reeves for the fourth defendant in 1160 and the eighth defendant in 0274

J Moss for the fifth to seventeenth defendants in 1160 and the first to thirteenth plaintiffs in 0274

Judgment:

17 August 2023

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 17 August 2023 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

100 INVESTMENTS LTD AND OTHERS v WALKER AND OTHERS [2023] NZHC 2227 [17 August 2023]

CIV 2019-404-1160

FTG SECURITIES LTD

Second Plaintiff

RFD FINANCE LTD
Third Plaintiff

TOMANOVICH HOLDINGS LTD
Fourth Plaintiff

AND

JOHN MARSHALL SCUTTER

Second Defendant

LPF GROUP LTD
Third Defendant

SPF NO 10 LTD (In Liquidation) Fourth Defendant

KEVIN JOHN WHITLEY as Liquidator of Property Ventures Ltd (In Liquidation)

Fifth Defendant

PROPERTY VENTURES LTD (In
Liquidation)
Sixth Defendant

CASHEL VENTURES LTD (In

Receivership and Liquidation) Seventh Defendant

TAY VENTURES LTD (In Receivership and Liquidation)

Eighth Defendant

LIVINGSPACE PROPERTIES LTD

(In Liquidation) Ninth Defendant

TUAM VENTURES LTD (In Liquidation) Tenth Defendant

CASTLE STREET VENTURES LTD (In
Liquidation)

Eleventh Defendant

Continued…

LICHFIELD VENTURES LTD (In

Liquidation)
Twelfth Defendant

ST ASAPH VENTURES LTD (In
Liquidation)
Thirteenth Defendant

BEECHNEST LTD (In Receivership and Liquidation)
Fourteenth Defendant

92 LICHFIELD LTD (In Receivership and Liquidation)
Fifteenth Defendant

MONTECRISTO CONSTRUCTION

COMPANY LTD (In Liquidation) Sixteenth Defendant

FIVE MILE HOLDINGS LTD (In

Liquidation) Seventeenth Defendant

CIV 2022-404-274

BETWEEN

KEVIN JOHN WHITLEY

First Plaintiff

PROPERTY VENTURES LTD (In

Liquidation) Second Plaintiff

FIVE MILE HOLDINGS LTD (In

Liquidation) Third Plaintiff

CASHEL VENTURES LTD (In Liquidation and Receivership)

Fourth Plaintiff

TAY VENTURES LTD (In Liquidation and Receivership)

Fifth Plaintiff

LIVINGSPACE PROPERTIES LTD

(In Liquidation) Sixth Plaintiff

Continued….

AND

BEECHNEST VENTURES LTD (In

Liquidation) Seventh Plaintiff

CASTLE STREET VENTURES LTD (In
Liquidation)
Eighth Plaintiff

LICHFIELD VENTURES LTD (In

Liquidation) Ninth Plaintiff

92 LICHFIELD LTD (In Liquidation) Tenth Plaintiff

ST ASAPH VENTURES LIMITED (In
Liquidation)
Eleventh Plaintiff

MONTECRISTO CONSTRUCTION

COMPANY LTD (In Liquidation) Twelfth Plaintiff

TUAM VENTURES LTD (In Liquidation) Thirteenth Plaintiff

100 INVESTMENTS LTD
First Defendant

FTG SECURITIES LTD
Second Defendant

RFD FINANCE LTD
Third Defendant

TOMANOVICH HOLDINGS LTD

Fourth Defendant

ROBERT BRUCE WALKER
Fifth Defendant

JOHN MARSHALL SCUTTER
Sixth Defendant

LPF GROUP LTD
Seventh Defendant

SPF NO 10 LTD (In Liquidation) Eighth Defendant

Introduction

[1]                  This judgment determines three interlocutory applications made in these two consolidated proceedings. Mr Whitley (a defendant in one proceeding and a plaintiff in the other) applies for an order restraining Minter Ellison Rudd Watts (Minters) from acting for two other parties, LPF Group Ltd (LPF) and SPF No 10 Ltd (SPF) (the restraint application). LPF and SPF apply to strike out the claims brought against them by Mr Whitley and his co-plaintiffs (the strike-out applications).

Background: Property Ventures Ltd, its collapse and successful proceedings

[2]                  The proceedings arise out of the liquidation of Property Ventures Ltd (PVL). PVL and some of its subsidiaries (the PVL subsidiaries) are defendants in one proceeding, CIV 2019-404-1160, and plaintiffs in the other, CIV 2022-404-274.

[3]                  PVL was placed into liquidation in July 2010. Robert Walker was appointed its liquidator. John Scutter was a joint liquidator with Mr Walker from 4 June 2013 until March 2018.

[4]                  On various dates between December 2010 and November 2012, the PVL subsidiaries were also placed into liquidation. Mr Walker was appointed sole liquidator of each.

[5]                  In November 2012, Mr Walker,  PVL and one of the PVL subsidiaries filed   a proceeding against PVL’s former directors, its auditors and its valuers. In April 2013, the rest of the PVL subsidiaries filed a separate proceeding. The two proceedings were consolidated in May 2014 (the PVL proceedings).

[6]                  The PVL proceedings alleged breaches of various duties said to have been owed to PVL and that the breaches contributed to its collapse, the collapse of the PVL group and the collapse of the PVL subsidiaries.

[7]                  To fund the PVL proceedings, Mr Walker, then the sole liquidator of PVL, entered into a litigation funding agreement with SPF. The litigation funding agreement was entered into between October 2012 and March 2013. SPF was a company

incorporated for the purpose of advancing the PVL proceedings. It was a wholly- owned subsidiary of LPF.

[8]                  Between December 2015 and December 2017, PVL and the PVL subsidiaries reached settlements with all the defendants in the PVL proceedings. The defendants agreed to pay sums totalling $38,980,286.

Background: the current consolidated proceedings

[9]                  The plaintiffs in each of the current consolidated proceedings allege that the settlement proceeds were paid out to SPF or LPF in the sum of about $33 million with the balance to Messrs Walker and Scutter on account of fees and expenses. Both sets of plaintiffs allege that nothing was paid to any creditor, secured or unsecured, of either PVL or the PVL subsidiaries. They allege that Messrs Walker and Scutter and SPF and LPF are required to repay some of the settlement proceeds for various reasons, including breach of fiduciary and statutory duties, knowing receipt, breach of the litigation funding agreement, and knowing (or dishonest) assistance.

[10]              The first of the consolidated proceedings, CIV 2019-404-1160, was commenced in 2019. The four plaintiffs allege they are secured creditors of the PVL subsidiaries, so I will refer to this as the secured creditors’ proceeding. Initially, there were only four defendants to the secured creditors’ proceeding: Mr Walker,   Mr Scutter, LPF and SPF.

[11]              When the secured creditors commenced their proceeding, Mr Walker was still the liquidator of PVL and the PVL subsidiaries. In 2021, Mr Walker ceased being the liquidator of those companies. At various dates in 2021 and 2022, Mr Whitley was appointed liquidator of each company.

[12]              Upon Mr Walker ceasing to  be,  and  Mr Whitley becoming,  the liquidator  of PVL and the PVL subsidiaries, some of the defendants in the secured creditors’ proceeding wished to join Mr Whitley, PVL and the PVL subsidiaries to that proceeding, to ensure they were bound by the outcome of any judgment. As a result, in February 2022, Mr Whitley, PVL and the PVL subsidiaries (together the Whitley

parties) were joined as the fifth to seventeenth defendants to the secured creditors’ proceeding.

[13]              At about the same time as they were joined to the secured creditors’ proceeding, the Whitley parties brought their own proceeding, CIV 2022-404-274,  in which they are the first to thirteenth plaintiffs. I will refer to this as the liquidator’s proceeding. There are eight defendants to that proceeding: the four secured creditors, Mr Walker, Mr Scutter, LPF and SPF.

[14]              The secured creditors and the Whitley parties both  allege that  Mr Walker, Mr Scutter, LPF and SPF are required to repay some of the settlement proceeds received from the PVL proceedings. The respective sets of plaintiffs differ as to who should receive any money repaid by those defendants. The secured creditors say any money (or most of it) should be paid to them as holders of securities over the assets of the PVL subsidiaries.  The  Whitley  parties  say  any  money  should  be  paid  to  Mr Whitley as liquidator of PVL and the PVL subsidiaries.

[15]The two proceedings were consolidated, by consent, in March 2022.

Mr Whitley’s restraint application

[16]              On 22 December 2022, Mr Whitley applied for an order restraining Minters from acting for LPF or SPF in these proceedings or in any related proceeding.       Mr Whitley filed an amended application on 23 February 2023.

[17]              Minters have acted for LPF throughout these consolidated proceedings. Minters have previously acted for SPF, but not in these proceedings.

[18]              Mr Whitley says Minters’ independence is compromised because they provided three separate pieces of advice that are in issue in the proceedings, and because that advice was split between separate parties with conflicting interests, namely Mr Walker on the one hand and LPF and SPF on the other. In these circumstances, Mr Whitley says the integrity of the Court process will be impaired if Minters represent LPF or SPF, because Minters would be defending their own advice and prosecuting issues on behalf of LPF or SPF arising from their advice to Mr Walker.

[19]              The three pieces of advice that Mr Whitley says were given by Minters and are in issue are:

(a)Advice from Minters  to  Mr Walker,  as  liquidator of PVL,  between 2 October 2012 and 19 December 2012 on the proposed litigation funding agreement between Mr Walker and SPF.

(b)Advice from Minters to SPF between September and December 2016 relating to a dispute between SPF and Dominion Finance Group (DFG). In order to protect its rights under the litigation funding agreement to any proceeds from the PVL proceedings, SPF acquired from Allied Finance a first-ranking security over the assets of PVL and its subsidiaries. In April 2016, the Allied Finance security was not renewed  on  the  Personal  Property  Security  Register.  This  led  to a priority dispute between SPF  and  DFG,  another secured  creditor of PVL and its subsidiaries. Mr Whitley says Minters were engaged by SPF to advise on the priority dispute. The dispute was resolved by SPF purchasing the DFG security for a price of up to $1,650,000 (depending on the outcome of the PVL proceedings). Mr Whitley alleges that SPF wrongly claimed that price as a “Project Cost” under the litigation funding agreement with Mr Walker.

(c)Advice from Minters to SPF in August 2017 about a dispute between SPF and the then liquidators (Mr Walker and Mr Scutter) under the litigation funding agreement. Mr Whitley says this dispute was settled by SPF and the liquidators entering into a distribution agreement in August 2017.

[20]              Mr Moss, counsel for the Whitley parties, submitted that, in terms of the Court’s jurisdiction to restrain a lawyer from acting in a proceeding, the starting point was r 1.20(2) of the High Court Rules 2016. Rule 1.20(2) provides:

A lawyer who acts for a party to a proceeding, or is a party to any proceeding, must not, without the leave of the court, act for any other party to the proceeding who does not have the same interest in the subject matter of the proceeding.

[21]              Mr Moss said that r 1.20(2) overlaps with rr 13.5 and 13.6 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Conduct and Client Care Rules). These rules provide:

13.5A lawyer engaged in litigation for a client must maintain his or her independence at all times.

13.5.1A lawyer must not act in a proceeding if the lawyer may be required to give evidence of a contentious nature (whether in person or by affidavit) in the matter.

13.5.2If, after a lawyer has commenced acting in a proceeding, it becomes apparent that the lawyer or a member of the lawyer’s practice is to give evidence of a contentious nature, the lawyer must immediately inform the court and, unless the court directs otherwise, cease acting.

13.5.3A lawyer must not act in a proceeding if the conduct or advice of the lawyer or of another member of the lawyer’s practice is in issue in the matter before the court. This rule does not apply where the lawyer is acting for himself or herself, or for the member of the practice whose actions are in issue.

13.5.4A lawyer must not make submissions or express views to a court on any material evidence or material issue in a case in terms that convey or appear to convey the lawyer’s personal opinion on the merits of that evidence or issue.

13.6A lawyer or lawyers who are members of the same practice must not act in a dispute for 2 or more parties whose interests are not the same or where the lawyer or practice will be unable to ensure the discharge of any duty owed to any party to the dispute.

13.6.1If, having commenced to act for more than 1 party to a dispute, it becomes apparent that the lawyer or lawyers who are members of the same practice will not be able to ensure the discharge of all duties owed to the respective parties, the lawyer or practice must cease acting for all parties immediately.

13.6.2A lawyer or lawyers who are members of the same practice may, however, continue to act for 1 client provided that the other party, after receiving independent advice, gives informed consent at the time the dispute arises to the lawyer or practice continuing to act for the other party and no duties to the consenting party have been or will be breached.

[22]              Mr Moss submitted that the starting position in the case law is the Court of Appeal’s decision in Black v Taylor,1 in which both Cooke P and Richardson J referred to the concern that justice should not only be done but appear to be done.2 Mr Moss submitted that the overriding issue is the obligation of the Court to maintain the integrity of the judicial process and to preserve public confidence in the judicial system.

[23]              Mr Moss placed considerable  reliance  on  Li  v  Liu,3  in  which  the  Court of Appeal noted two situations in which it may be necessary to protect the integrity of the judicial process. The first was where the lawyer acting for one of the parties had played a role in the issue in dispute. The other was where the lawyer might be required to give evidence of a contentious nature in the proceeding.  Accordingly,  Mr Moss submitted that two issues arose on the restraint application:

(a)Would Minters be defending their own conduct or advice to Mr Walker and SPF or LPF?

(b)Might lawyers from Minters be required to give contentious evidence?

[24]              In respect of the first piece of advice, Mr Moss submitted that the default rule in r 1.20 of the High Court Rules was engaged, as Minters had acted for two different parties, SPF and Mr Walker, whose interests were different. Further, he said the advice that Minters gave to Mr Walker on the litigation funding agreement would be in issue in these proceedings. Finally, Mr Moss submitted that lawyers from Minters would be required to give contentious evidence. Mr Moss said that Mr Whitley intended to call up to three lawyers from Minters to give evidence at the trial of the advice they had given (or not given) to Mr Walker.

[25]              In respect of Minters’ second piece of advice, on the DFG dispute, Mr Moss submitted that in the substantive proceedings three issues were related to this dispute. The first was whether it was necessary for SPF to purchase the DFG security at all. The second was whether Mr Walker and Mr Scutter agreed that the purchase price of

1      Black v Taylor [1993] 3 NZLR 403 (CA).

2      At 406 per Cooke P and at 408 per Richardson J.

3      Li v Liu [2018] NZCA 528, [2019] NZAR 259.

the DFG security would be a “Project Cost” under the litigation funding agreement. The third was whether, regardless of any such agreement with Mr Walker and Mr Scutter, the purchase price was a “Project Cost”. Mr Moss submitted that if Minters acted for LPF or SPF in these proceedings, they would be protecting, or be seen to be protecting, their advice to SPF.

[26]              Minters’ third piece of advice related to the distribution agreement entered into in August 2017. Mr Moss said the Whitley plaintiffs’ position is that the distribution agreement resulted in SPF receiving more of the PVL settlement proceeds than it was entitled to under the litigation funding agreement and in Mr Walker personally receiving $4,080,000 to which he was not entitled. He submitted that if Minters acted for LPF or SPF, they would again be protecting the advice they had given to SPF relating to the distribution agreement.

The response to Mr Whitley’s restraint application

LPF opposes

[27]              LPF opposes the restraint application. Mr Bigio KC, counsel for LPF, acknowledged that the court has the jurisdiction to order that counsel not appear in   a proceeding. He submitted that the test for the exercise of the jurisdiction is whether a fair-minded and reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer be prevented from acting.4

[28]              Mr  Bigio  said  the  court  should  exercise  its  jurisdiction  circumspectly   in deciding whether to restrain counsel from acting. He referred me to Kennedy v Body Corporate 82981, in  which Associate Judge Lester said  that  “A challenge to a firm acting based on speculation will not suffice.”5

[29]              Mr Bigio submitted that the Court of Appeal’s  decision  Li v Liu remained    a relevant touchstone.6 He said two situations assumed prominence, both of which

4      Mr Bigio relied on Black v Taylor [1993] 3 NZLR 403 (CA) at 408 per Richardson J.

5      Kennedy v Body Corporate 82981 [2022] NZHC 1927 at [51].

6      Li v Liu [2018] NZCA 528, [2019] NZAR 259.

also raised ethical issues under rr 13.5.1–3 of the Conduct and Client Care Rules. These situations were:

(a)Practitioners ought not act where they are, in effect, defending their own conduct or advice.

(b)Practitioners ought not act where they may be called as a witness and/or be required to give contentious evidence where they were involved in a transaction or other event relevant to the proceeding.

[30]              Mr Bigio said that neither situation arose here.  Looking at the advice that  Mr Whitley referred to in his application:

(a)Minters’ advice to Mr Walker on the litigation funding agreement was limited to reviewing the proposed agreement and providing high-level “red flag” comments. Minters were not engaged to negotiate or re-draft the agreement. Mr Walker already had another lawyer acting for him who was able to do that. The challenges to the litigation funding agreement in these proceedings were to do with the terms of the agreement and not with any advice in relation to it. Minters would not be defending their advice to Mr Walker on the agreement and there was no prospect of any lawyer from Minters having to give contentious evidence.

(b)As to Minters’ advice to SPF on the dispute between SPF and DFG, the only relevant issue on the pleadings was whether the price that SPF paid to purchase the DFG security was a “Project Cost” under the litigation funding agreement. That raised a matter of contractual interpretation, to which Minters’ advice was irrelevant. Accordingly, Minters would not be defending their advice.

(c)LPF says Minters were not engaged to give any advice to SPF or LPF on the alleged dispute between Mr Walker and SPF that resulted in the August 2017 distribution agreement. Anyway, the only issues relating

to this matter were whether Mr Walker and/or Mr Scutter breached any duties by entering into the distribution agreement and whether SPF   or LPF knew about any such breaches and/or dishonestly assisted them. Mr Bigio submitted these issues have nothing to do with any advice that Minters may or may not have given to SPF. Minters would not be defending their advice.

SPF takes no steps

[31]              SPF took no steps to oppose the application. As I understood it, this was because, although Minters have in the past acted for SPF, they have not acted for SPF in these proceedings and there is no prospect they will do so.

The secured creditors support

[32]              The secured creditors made submissions broadly in support of the restraint application.

Should Minters be restrained from acting for LPF and SPF in these or related proceedings?

Relevant legal principles

[33]              As noted, Mr Moss submitted that r 1.20(2) was the starting point. I disagree. Rule 1.20(2) is engaged where a lawyer acts for two parties in the same proceeding and those parties do not have the same interest in the subject matter of the proceeding. Rule 13.6 of the Conduct and Client  Care Rules, to  which Mr Moss also  referred,  is directed at the same situation. That situation does not arise here. Minters are acting for only one party, LPF, in this proceeding.

[34]              The relevant principles were summarised in Li v Liu by Williams J, giving the reasons of the Court of Appeal:7

[23] … The court has inherent jurisdiction to disqualify counsel or solicitors from acting where to allow them to do so would impair the integrity of the judicial process. That said, the court should not lightly interfere in a party’s

7      Li v Liu [2018] NZCA 528, [2019] NZAR 259 (footnotes omitted).

fundamental right to counsel of their choice, particularly where considerations of delay in the application, inconvenience, or sunk cost favour the affected party. Further, the court should be vigilant in preventing objections whose purpose is only to disrupt or inconvenience the other side. To allow the judicial process to be played in this tactical fashion would itself be an unacceptable impairment.

[35]              The overarching question on a restraint application, therefore, is whether allowing a lawyer to act would impair the integrity of the judicial process. There are at least three situations in which that might happen.

[36]              One is  where the lawyer would, given the issues raised in  the proceeding,   in effect be defending their own conduct or advice. As Thomas J explained in Kooky Garments Ltd v Charlton:8

Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, “defending” its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands.

[37]              This is reflected in r 13.5.3 of the Conduct and Client Care Rules, which provides that a lawyer must not act in a proceeding if the conduct or advice of the lawyer (or of another member of the lawyer’s practice) “is in issue in the matter before the court”.

[38]              Another situation is where the lawyer “may be required to give relevant evidence of a contentious nature in the proceeding”.9 This is reflected in r 13.5.1 of the Conduct and Client Care Rules.

[39]              For either of these two situations to warrant disqualification, mere speculation that the lawyer’s advice or conduct will be in issue, or that the lawyer will be called

8      Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 589. To similar effect is the well-known concern expressed by Wilson J in Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [147] that if lawyers appear as counsel in litigation where they have been personally involved they are at risk of “losing objectivity”.

9      Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [25].

as a witness, will not suffice. There must be a reasonable likelihood of these things happening.10

[40]              These two situations were the focus of Mr Moss’s submissions, and accordingly of Mr Bigio’s submissions in response. This should be apparent from my summaries, above, of the restraint application and of LPF’s response to it.

[41]              There is a third situation, not  addressed by counsel’s  written submissions,  in which a lawyer’s acting might impair the integrity of the judicial process.   This   is where the lawyer acts for a party against a former client. There is no absolute prohibition against a lawyer acting for a client with an interest adverse to their former client.11 But there are some circumstances in which a lawyer in such a situation will be restrained from acting.

[42]              At the hearing, it appeared to me that this situation had arisen here but had not been addressed by counsel. Minters previously acted for Mr Walker in his capacity  as liquidator of PVL, when giving him advice on the litigation funding agreement. Minters now act  for  LPF  against  Mr  Whitley,  who  is  Mr  Walker’s  successor  as liquidator. I raised this matter with counsel at the hearing. Subsequently, I allowed Mr Bigio and Mr Moss to file brief written submissions on the point.

[43]              Those written submissions engaged solely with Black v Taylor.12 In that case a lawyer had acted for Mr Taylor (and the Taylor family) for over 30 years. The Court of Appeal upheld McGechan J’s order restraining the lawyer from acting for four defendants in an action brought by Mr Taylor against the estate of his late uncle. Richardson J and McKay J each referred to r 1.06 of the New Zealand Law Society’s then code of ethics.13 Rule 1.06 provided:

A practitioner must not act for a client against a former client of the practitioner when through prior knowledge of the former client or of his or her

10 Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [37] (dealing with the risk of the lawyer being called as a witness); 100 Investments Ltd v Walker [2020] NZHC 165 at [4] (dealing with the risk of the lawyer’s advice or conduct being in issue). The expression “real risk”, which I consider to be not materially different from “reasonable likelihood”, was used in Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR 374 at [32].

11     Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 (HL) at 234.

12     Black v Taylor [1993] 3 NZLR 403 (CA).

13     At 409 per Richardson and at 419 per McKay J.

affairs which may be relevant to the matter, to so act would be or would have the potential to be to the detriment of the former client or could reasonably be expected to be objectionable to the former client.

[44]              McKay J pointed out that the code of ethics provided that information acquired while acting for the former client is confidential. He considered r 1.06 addressed the situation before the Court.14 Richardson J preferred to rest his decision on the Court’s inherent jurisdiction rather than on the need to protect confidential information.15 Cooke P agreed with the reasons of both Richardson J and McKay J.16

[45]              There have been developments since Black v Taylor. In Russell McVeagh McKenzie  Bartleet  &  Co  v  Tower  Corporation,17  Tower  Corporation  (Tower),  a former client of Russell McVeagh, applied to restrain that firm from acting against Tower in a hostile takeover bid. The application was not made in the context of an extant proceeding, and so Tower’s application was not based on the inherent jurisdiction of the court to control its own processes. Tower’s primary argument was that Russell McVeagh had  obtained  confidential  information,  which  was  at  risk of being disclosed to Russell McVeagh’s new client.18

[46]              A majority of the Court  of Appeal  said  they  did  not  see  Black  v  Taylor as relevant to the case before it. The majority held that the rationale behind any intervention in the case before it lay, not in “some perception of disloyalty or impropriety” but in “the reasonable protection of confidential information”.19 The majority said three questions arose in such cases:20

(a)Is confidential information held which, if disclosed, is likely to affect the former client’s interests adversely?

(b)Viewed objectively, is there a real or appreciable risk that the confidential information will be disclosed?

14     At 419.

15     At 412.

16     At 405.

17     Russell McVeagh McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641 (CA).

18     At 649.

19     At 649.

20     At 651.

(c)If the first two questions were answered affirmatively, should the Court’s discretionary power to disqualify be exercised?

[47]              As to the second question, the majority observed that, where there is possession of relevant information, “in the absence of negating evidence of protection the Court will readily infer there is a risk of disclosure”.21

[48]              As to the third question, the Court said this involved a balancing exercise. The court had to recognise the significance and importance of the special fiduciary relationship which gives rise to the duty of protection of confidential information from disclosure.   But the court also had to take into account  the competing factors of      a person’s right to the services of a lawyer of choice, and the corresponding right of the lawyer to offer his or her services to the public generally.22

[49]              In Prince Jefri Bolkiah v KPMG, the House of Lords held that the jurisdiction to restrain a lawyer from acting against a former client was based on “the protection of confidential information”.23 Lord Millett’s reasons for this conclusion started by addressing the case where the court’s intervention was sought by an existing client. In such a case “a fiduciary cannot act at the same time both for and against the same client” and so the lawyer’s disqualification “has nothing to do with the confidentiality of client information” but is based on the “inescapable conflict of interest which is inherent in the situation”.24 However, where intervention is sought by a former client:25

… the position is entirely different. The court’s jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence.

21     At 652.

22     At 651.

23     Prince Jefri Bolkiah v KPMG [1993] 2 AC 222 (HL) at 234.

24     At 234–235.

25     At 235.

[50]              Lord Millett held that a former client who seeks to restrain his former lawyer from acting for another client has to establish two things, though the burden is not    a heavy one:26

Accordingly, it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff, it is not a heavy one. The former may readily be inferred; the latter will often be obvious.

[51]              If the former client established those two elements, Lord Millett held that the court should intervene unless satisfied there was no risk of disclosure, though such risk must be real, and not “fanciful or theoretical”.27 This is not dissimilar to the Court of Appeal’s requirement in Russell McVeagh that there be a real or appreciable risk of disclosure.

[52]              Lord Millet also said that, if the former client established the two elements, an evidential burden passed to the lawyer to show there was no risk of disclosure. The court should restrain the lawyer from acting unless satisfied on the basis of clear and convincing evidence that effective measures had been taken to ensure no disclosure would occur.28 This is similar to the Court of Appeal’s observation in Russell McVeagh that in the absence of evidence of protection the court will infer a risk of disclosure.

[53]              However, Lord Millett rejected the balancing exercise involved in the third question that the Court of Appeal posed in Russell McVeagh.29

[54]              The approaches taken in  Russell McVeagh  and Bolkiah are now reflected in  r 8.7 of the Conduct and Client Care Rules. Rule 8.7 provides:

8.7A lawyer must not use information that is confidential to a client (including a former client) for the benefit of any other person or of the lawyer.

26     At 235.

27     At 237.

28     At 237–238.

29     At 237.

8.7.1A lawyer must not act for a client against a former client of the lawyer or of any other member of the lawyer’s practice where—

(a)the practice or a lawyer in the practice holds information confidential to the former client; and

(b)disclosure of the confidential information would be likely to affect the interests of the former client adversely; and

(c)there is a more than negligible risk of disclosure of the confidential information; and

(d)the fiduciary obligation owed to the former client would be undermined.

8.7.2Rule 8.7.1 is not breached where there is an effective information barrier between the lawyer who holds the confidential information of the former client and the lawyer who proposes to act for the new client.

8.7.3An information barrier is effective when, in all the circumstances, there is a negligible risk that the confidential information in respect of the former client will be or has been disclosed to the new client or to any lawyer acting for the new client.

…

[55]In Torchlight Fund No 1 LP v NZ Credit Fund (GP) 1 Ltd, Gilbert J reviewed

Black v Taylor, Bolkiah and rule 8.7.30 His Honour said:

[19] The fiduciary relationship between a solicitor and a client comes to an end when the retainer is terminated. However, the solicitor has a continuing obligation to protect the former client’s confidential information. This obligation is of fundamental importance and must be strictly observed.

[56]              In light of these authorities, I consider that the circumstances in which a lawyer will be restrained from acting against a former client are limited to those where restraint is necessary to protect confidential information. This approach is consistent with the reasons given by McKay J in Black v Taylor, reasons with which Cooke P agreed. I am bound to apply the balancing exercise directed by the Court of Appeal in Russell McVeagh.

30     Torchlight Fund No 1 LP v NZ Credit Fund (GP) 1 Ltd [2014] NZHC 2552.

[57]              I now turn to examine, by applying the above principles, whether Minters should be disqualified. I do so by reference to each of the three pieces of advice from Minters on which the restraint application was based.

Minters’ advice on the proposed litigation funding agreement late 2012

[58]              Minters’ first piece of advice was to Mr Walker, as the liquidator of PVL, in late 2012. The scope of Minters’ work was set out in a letter dated 2 October 2012. This recorded that Mr Walker had asked Minters to review the proposed litigation funding agreement between PVL and SPF and to  provide high-level  “red-flag”  comments to enable Mr Walker to provide the certification contemplated by cl 3.7(c) of that agreement. Clause 3.7(c) required PVL to deliver to SPF a certification that it had received independent legal advice on the agreement.

[59]              Minters provided advice to Mr Walker in a letter dated 29 October 2012. This said Minters had reviewed the funding agreement on the basis that:

(a)Mr Walker had read the agreement and was comfortable with its commercial terms.

(b)Minters commented only on the provisions of the agreement that warranted discussion at a high level and did not explain the agreement in detail.

(c)Minters had not been engaged to negotiate the agreement with SPF or to undertake a re-draft of the agreement following any such negotiation.

[60]              Some context is needed to explain the third of Minters’ caveats. At the time, Mr Walker already had another barrister acting for him in relation to the proposed litigation that the agreement was intended to fund. That other barrister was also acting on Mr Walker’s behalf in negotiating the terms of the funding agreement. Because that other barrister had an interest in the litigation going ahead, a view was taken that Mr Walker should obtain advice, independent of that barrister, on the terms of the proposed agreement (a view reflected in cl 3.7(c) of the proposed funding agreement).

That is why Mr Walker approached Minters. But Mr Walker did not ask Minters to duplicate the negotiation work his other barrister was already doing.

[61]              Minters’ advice of 29 October 2012 ran to six pages. It is appropriately described as high-level advice on the proposed agreement. Minters identified some “red flags” (including that the Services Fee to which SPF would be entitled seemed “very high”), some important matters to note and some minor drafting comments.

[62]              As well as that written advice, there were a small number of meetings and emails between Minters and Mr Walker from early October to mid-December 2012, and it appears a Minters lawyer met with Mr Woodhams, of LPF, on one occasion. There are no file notes of any of these meetings.

Would Minters be defending their advice to Mr Walker?

[63]              Mr Moss submitted that if Minters were allowed to represent LPF or SPF, they would in effect be defending their advice to Mr Walker, given the issues raised in these proceedings. He said there were two relevant issues. Both related to SPF’s acquisition from Allied Finance of a first-ranking security over the assets of PVL and its subsidiaries. That acquisition was necessary to protect SPF’s rights under the litigation funding agreement to any proceeds from the PVL proceedings, as the proceeds would otherwise likely have gone to Allied Finance under that security.

[64]              Mr Moss said two issues were raised in these proceedings about SPF’s acquisition of the Allied Finance security:

(a)Mr Whitley contends that SPF had agreed that it would exercise its security rights under the Allied Finance security only to the extent of its rights under the litigation funding agreement, with the balance to be available to Mr Walker and unsecured creditors (the Allied priority agreement). The Allied priority agreement is alleged to have arisen from correspondence and oral discussions between Mr Walker and LPF over the period 29 August 2012 to 19 February 2013. Mr Moss suggested that LPF and SPF would dispute that there was any such agreement.

(b)SPF claimed that its payment to Allied Finance to acquire the security was  a  Project  Cost   under   the   litigation   funding   agreement.   Mr Whitley’s position is that it was not a Project Cost. This dispute had implications for the Services Fee to which SPF was entitled, as the Services Fee was calculated (in part) as a multiple of Project Costs.

[65]              Assuming that the first issue is actually an issue in these proceedings,31 I do not see how Minters would be defending their advice to Mr Walker if they were to represent LPF or SPF. The Allied priority agreement is alleged to have arisen outside the litigation funding agreement (which had no terms providing for such priority).32 Minters’ advice of 29 October 2012 was solely on the proposed litigation funding agreement. There is no suggestion in that advice that Minters were asked to advise Mr Walker on a proposed Allied priority agreement.

[66]              Mr Moss submitted there was evidence of other meetings or phone calls between Minters and Mr Walker after the advice of 29 October 2012. The implication was that there might have been advice on this issue at those meetings. I consider this is mere speculation. No file notes  were kept  of these attendances.  This  suggests  no additional advice of any moment was provided. The only emails between Minters and Mr Walker in  November  and  December  2012  were  concerned  with  delays in finalising the litigation funding agreement. Those emails do not suggest that Minters were asked to advise, or did advise, on whether there was an Allied priority agreement. Further,  the  last  such  email  was  on  19  December  2012,  whereas  Mr Whitley alleges the Allied priority agreement arose from discussions that continued until February 2013.

[67]              As to the second issue, Minters’ 29 October 2012 advice did not address whether the cost of acquiring the Allied Finance security would be a Project Cost.

31 Mr Moss did not take me to the pleadings in this respect. From my review, Mr Whitley’s  contention that there was such an agreement or representation was first made in [18] of his first amended statement of claim dated 3 July 2023. At the time of the hearing, the defendants had not yet filed statements of defence to that amended claim.

32 The litigation funding agreement, including the draft version on which Minters advised Mr Walker, contained a term making SPF’s funding obligations conditional on SPF acquiring the Allied Finance security. But this term (which Minters drew to Mr Walker’s attention) did not have any mechanism limiting SPF’s exercise of its rights under the Allied Finance security.

That is hardly surprising.  There is no  evidence Minters  were  asked to  advise on   a specific issue such as that. Minters were engaged only to review the litigation funding agreement and provide high-level comments.

[68]              Mr Hucker, counsel for the secured creditors (who broadly supported the restraint application), submitted that Minters’ advice to Mr Walker was relevant to any exculpatory defence Mr Walker may wish to raise based on that advice. Even if that were the case (and that will be a matter for trial), the extent to which the advice might assist Mr Walker in an exculpatory defence is likely to turn on the content of the advice and the scope of Minters’ engagement.  These  matters are apparent from the letter  of advice. Minters would not be defending their advice if they were acting for LPF  or SPF.

[69]              In short, on both issues there was no relevant advice from Minters to Mr Walker that Minters would, in any sense, be defending if they were to act for LPF or SPF.

Could Minters lawyers be required to give contentious evidence?

[70]              Mr Moss also submitted that Minters could be required to give contentious evidence in respect of this first piece of advice. He said that, given there were no file notes and Mr Walker’s recollection of events is unknown, Mr Whitley intended to call up to three witnesses at trial who were past or current lawyers at Minters. In one of his affidavits in support of the application, Mr Whitley deposed that he anticipated asking the Minters lawyers a range of questions. These included:

(a)What instructions did Mr Walker give to Minters on 2 October 2012?

(b)What was discussed at a meeting on 9 October 2012 between one of the Minters lawyers and Mr Woodhams?

(c)What advice did Minters give to Mr Walker on the PVL subsidiaries not being parties to the litigation funding agreement, in relation to the Allied Finance security, and in respect of Mr Walker seeking directions from the High Court on the funding agreement?

[71]              I am not satisfied that any of the questions Mr Whitley intends to pose could be relevant to any of the issues in these proceedings. The issues (so far as they relate to the first piece of advice) are concerned with what the parties did or did not do and the legal consequences of the same. Resolution of those issues will not, subject to one exception, be informed by examining the content or scope of the advice that Minters gave to Mr Walker. For example, determining whether Mr Walker and SPF entered into the Allied priority agreement does not depend on what advice (if any) Minters gave to Mr Walker on that matter. Likewise, it is readily apparent that the PVL subsidiaries are not named as parties to the litigation funding agreement. The legal consequences of this do not depend on whether Minters gave Mr Walker any advice in respect of that matter.

[72]              The exception is the possibility, referred to by Mr Hucker, that Mr Walker may raise an exculpatory defence to the effect that he acted in accordance with the advice from Minters. However, at present I consider this to be mere speculation. Mr Walker is aware of Mr Whitley’s restraint application. He is represented by senior counsel. Mr Walker has given no indication he intends to raise a defence based on Minters’ advice or to call any lawyers from Minters.   I  am, therefore, not satisfied there is     a reasonable likelihood of the Minters lawyers having to give contentious evidence.33

Should Minters be restrained from acting for LPF and SPF in order to protect information confidential to Mr Whitley?

[73]              Under this head, the first question is whether Minters hold information that is confidential to Mr Whitley. In this respect, I accept that Mr Whitley is entitled to the same duty of confidence as his predecessor, Mr Walker.

[74]              The burden is on Mr Whitley to establish that Minters holds confidential information. However, in Bolkiah Lord Millett said that it may readily be inferred that a lawyer holds information that is confidential to their former client.34 I respectfully agree that is an inference that can be drawn from the nature of a lawyer-client relationship.

33     Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [37].

34     Prince Jefri Bolkiah v KPMG [1993] 2 AC 222 (HL) at 235.

[75]              Here, however, there is an unusual combination of circumstances. First, Minters’ engagement was limited to reviewing the proposed funding agreement and providing high-level comments on it. Mr Walker had other lawyers looking after his interests and negotiating the terms of the funding agreement. There appears to have been only  one  meeting  and  two  telephone  discussions  between  Mr  Walker  and a Minters lawyer, and only a handful of emails. All this means there would have been limited scope for Minters to obtain relevant information about Mr Walker. Secondly, to the extent any information was obtained, much was treated in such a way that it was not confidential, or any confidentiality was lost. Emails between Mr Walker and Minters were sometimes copied to Mr Woodhams. The day after receiving Minters’ letter of advice  dated  29  October  2012,  Mr  Walker  forwarded  the  advice  to  Mr Woodhams. Thirdly, although there were some emails between Mr Walker and Minters that were not copied to Mr Woodhams, Mr Whitley disclosed those emails in an affidavit filed in support of his restraint application. Any confidentiality in those emails has been lost.

[76]              This combination of circumstances means that the only information that Minters might hold that is confidential to Mr Whitley is information which (i) was obtained from the one meeting and two telephone discussions between Mr Walker and the Minters lawyer and (ii) was not recorded in any form at the time. The meeting and discussions occurred almost eleven years ago.   In my view,  a lawyer  who was on   a limited retainer would be most unlikely to recall information from events eleven years ago that he or she did not consider significant enough at the time to record.

[77]              In these circumstances, I am not satisfied that Minters hold information that is confidential to Mr Whitley.

[78]              Even if I had found otherwise, Mr Whitley would have had the burden of showing that disclosure of the information was likely to affect his interests adversely. Given that any information obtained in the meeting and discussions appears to have been so insignificant as to not warrant recording, Mr Whitley would have failed to discharge this burden.

Minters’ advice to SPF on the DFG dispute in September–December 2016

[79]              SPF engaged Minters in 2016 to advise on its priority dispute with DFG. SPF has not waived any privilege in the advice it received from Minters. Mr Woodhams did, however, depose that SPF’s instructions to Minters did not have any implications with respect to the terms of the litigation funding agreement, its effect, or any potential variations to it. He deposed that Minters did not, at any time, advise SPF or LPF on the terms or effect of that agreement or any variations to it.

[80]              In due course SPF purchased the DFG security and SPF claimed the purchase price as a Project Cost. I cannot draw any inference from these events as to the content of Minters’ advice to SPF.

Would Minters be defending their advice to SPF on the DFG dispute?

[81]              Mr Moss submitted that three issues arose in relation to the purchase of the DFG security and that,  if Minters were to represent SPF,  it would be defending     its advice to SPF on these issues. The three issues that Mr Moss identified were:

(a)Was it necessary for  SPF  to  purchase  the  DFG  security  in  order to protect its priority over proceeds from the PVL proceedings?

(b)Did Mr Walker and Mr Scutter agree, in advance of the purchase, that the purchase price would be a Project Cost?

(c)Regardless of any agreement from Mr Walker and Mr Scutter, was the purchase price a valid Project Cost?

[82]              The first of these issues does not arise on the pleadings. Even if it did become an issue, I am not satisfied there is a reasonable likelihood that Minters would be defending their advice if they were to represent SPF. It is not known whether Minters gave any advice on this issue, let alone what that advice may have been. Further, resolution of this issue would depend on whether SPF had a secure priority position before acquiring the DFG security. Answering that issue would not depend in any way on any advice Minters may have given to SPF.

[83]              The second issue is one of fact. It depends on what Mr Walker and Mr Scutter said and did. The third issue is one of interpretation of the litigation funding agreement. Minters could represent SPF in respect of these issues without in any way having to defend their (unknown) advice.

[84]              Mr  Hucker  made  two  additional  points.   He  said   that  Minters   acted   as stakeholder in the agreement between SPF and DFG for the purchase of the DFG security. That does not advance matters, as there is no relevant advice that Minters would be defending. Mr Hucker said there was also an issue as to whether the fees that Minters charged SPF for their work on the DFG dispute were claimable Project Costs. He submitted that that issue could be resolved only by understanding the nature of Minters’ advice or other attendances. That may or may not be so, but it does not mean that Minters would have to defend their advice to SPF.

Could Minters lawyers be required to give contentious evidence?

[85]              It should be clear from what I have outlined above that Minters’ advice to SPF on the DFG dispute is irrelevant to the determination of any issues that might arise from that dispute. I am, therefore, not satisfied there is a reasonable likelihood of the Minters lawyers having to give contentious evidence on these matters.35

Minters’ advice to SPF in August 2017

[86]              In 2017, a dispute arose between SPF and the then liquidators (Mr Walker and Mr Scutter) under the litigation funding agreement. Mr Whitley says this dispute was settled by SPF and the liquidators entering into a distribution agreement in August 2017. Mr Whitley’s position is that the distribution agreement resulted in SPF receiving more of the PVL settlement proceeds than it was entitled to under the litigation funding agreement and  in  Mr  Walker  personally  receiving  $4,080,000 to which he was not entitled.

[87]              SPF received advice from Minters in August 2017, at the time that the distribution agreement was entered into.

35     Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [37].

Would Minters be defending their advice to SPF in August 2017?

[88]              Mr Moss submitted that Minters’ August 2017 advice was “almost certainly” on the distribution agreement and that the advice will have been relevant to SPF’s decision to execute the agreement. He submitted that if Minters were to act for SPF, they would be seen to be protecting their advice on this dispute.

[89]              There is, however, no evidence that the advice Minters gave to SPF in August 2017 related to the distribution agreement. Nor is there any evidence as to the content of the advice Minters gave SPF at that time. Mr Whitley speculated in an affidavit that the advice would have included advice on the effect of the litigation funding agreement and of the distribution agreement. Mr Woodhams deposed that Minters did not advise SPF or LPF on those matters. SPF has not waived any privilege in the advice it received. Mr Moss submitted that SPF’s refusal to waive privilege “does not help and makes the issue opaque”. But SPF is not to be criticised for refusing to waive privilege, and no inference against SPF arises from that refusal.36

[90]              In these circumstances, there is no basis on which I could find it likely that,  if Minters acted for SPF (or LPF), they would be defending their own advice to SPF in August 2017.

[91]              Further, even if Minters did advise SPF in relation to the distribution agreement, it is difficult to see how Minters would, by acting for SPF or LPF, be seen to be protecting their own advice.   The only way in which this might happen is if,   in response to an allegation of dishonest assistance, LPF or SPF said they had entered into a transaction on the advice of Minters. But, consistently with Mr Woodham’s evidence that Minters did not advise SPF or LPF on the distribution agreement,     Mr Bigio told me that it was not SPF’s or LPF’s case that they entered into the distribution agreement or received funds under it in reliance on advice from Minters.

36     ANZ Bank New Zealand Ltd v Bushline Trustees Ltd [2020] NZSC 71, [2020] 1 NZLR 145 at [113].

Could Minters lawyers be required to give contentious evidence?

[92]              For the reasons I have just  given, Minters’ advice to  SPF  in August 2017   is irrelevant to the determination of any issues that might arise in relation to the distribution agreement. I am, therefore, not satisfied there is a reasonable likelihood of the Minters lawyers having to give contentious evidence on these issues.

Conclusion

[93]              Mr Whitley has not satisfied me that there is any basis upon which Minters should be restrained from acting for LPF or SPF. It is therefore not necessary for me to consider discretionary matters such as delay.

LPF’s and SPF’s strike-out applications

[94]              I will deal with these applications together, as they cover much the same ground.

[95]              On 22 December 2022, LPF applied to strike out the claims made against LPF by the Whitley parties in the liquidator’s proceeding (CIV 2022-404-274). At that point the Whitley parties’ claims were in a statement of claim dated 9 March 2022.

[96]              Two  weeks before the hearing, on 3 July  2023, the Whitley parties filed     an amended statement of claim. This made significant amendments and introduced two new causes of action. LPF responded with an amended strike-out application dated 10 July 2023. The hearing proceeded on the basis of the amended  statement  of claim and the amended application.

[97]              The amended statement of claim pleads six causes of action, five of which are pleaded against LPF. LPF applies to strike out all five of those causes of action, on the ground that none discloses a reasonably arguable cause of action against LPF.

[98]              The Whitley parties acknowledge that their third cause of  action does  not,  as presently pleaded, disclose a reasonably arguable cause of action against LPF. They accept they will have to replead it. Otherwise, while accepting that some parts of their

claim need to be re-drafted, the Whitley parties say their other causes of action disclose reasonably arguable cases.

Strike-out principles

[99]              Rule 15.1(1) of the High Court Rules 2016 provides that the court may strike out all or part of a pleading if it “discloses no reasonably arguable cause of action”.

[100]          An application under r 15.1(1) proceeds on the assumption that the pleaded facts are true, whether they are admitted or not.37 A cause of action will be struck out only if it is so clearly untenable that it cannot possibly succeed.38 In Couch v Attorney- General, Elias CJ and Anderson J said that a claim should not be struck out summarily “unless the court can be certain it cannot succeed”.39

[101]          The strike-out jurisdiction is, therefore, to be exercised sparingly, and only   in a clear case where the court is satisfied it has the requisite material.  The fact that  a strike-out application raises difficult questions of law and requires extensive argument does not exclude jurisdiction.40    But the court will be slow to strike out     a claim in an area where the law is confused or developing.41

[102]          If a defective pleading can be cured by amendment, the court will usually permit amendment, unless the pleading is so deficient as to require a  fresh start.42     A party seeking to save a pleading by amendment should have the proposed amendment formulated for the court to consider at the hearing,43 though this does not appear to be an absolute rule.

[103]          A court is entitled to receive affidavit evidence on a strike-out application. However, because the court will not attempt to resolve disputed facts, such affidavit evidence should be limited to that which is undisputed. The court will not consider

37     Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.

38     Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.

39     Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

40     Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.

41     Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33]; and Scott v ANZ Bank New Zealand Ltd [2020] 3 NZLR 145 at [13].

42     Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 at 324.

43     CED Distributors (1988) Ltd v Computer Logic Ltd (1991) 4 PRNZ 35 (CA).

evidence inconsistent with the pleading (since the application proceeds on the basis that the pleaded facts are true) unless essential factual allegations are demonstrably contrary to indisputable fact.44

Should any causes of action against LPF or SPF be struck out?

First cause of action: proceeds from voidable preference claims

[104]          The first cause of action concerns proceeds of about $700,000 that Mr Walker is alleged to have obtained from voidable preference claims that he made as liquidator of PVL. The Whitley parties plead that:

(a)As a matter of law, Mr Walker held those proceeds on trust for the benefit of PVL’s unsecured creditors, subject only to  being  entitled  to deduct the costs incurred in pursuing the voidable preference claims.

(b)In breach of that law:

(i)SPF made it a condition of the litigation funding agreement that the proceeds of the voidable preference claims be used to fund the PVL liquidations and subsequently varied that agreement to require Mr Walker to apply the proceeds in reduction of the Project Costs incurred and paid by SPF; and

(ii)Mr Walker applied the proceeds to fund the PVL liquidation and the PVL proceedings.

(c)No sums were paid to unsecured creditors.

(d)“It is unclear … whether SPF have received the benefit of the voidable preference sums applied to the PVL proceeding in their Projects Costs, and therefore their Services Fee, claimed under the [litigation funding agreement].”

44     Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.

[105]As against LPF and SPF, the Whitley parties claim:

In the event that SPF/LPF have received the benefit of any of the voidable preference claims either by direct payment or by claiming sums as Project Costs, an order that the sum received or claimed be repaid to PVL and/or its subsidiaries.

[106]          Mr Bigio effectively advanced submissions for both LPF and SPF on this cause of action (and most of the others).45 He said there were three reasons that this cause of action was untenable. First, he said that as a matter of law a liquidator does not hold voidable transaction recoveries on trust for unsecured creditors (or any other creditors). He relied on the discussion of this point in Heath and Whale on Insolvency.46  However,  the  learned  authors  of  that  text  begin  their  discussion by stating that the “general position” is that where a liquidator successfully sets aside a preferential transaction the recovery “is held in trust by the liquidator for the general body of creditors and not for the benefit of secured creditors”. The authors cite numerous authorities. The authors then refer to recent Australian cases arguing that recoveries are not held on trust, and to one New Zealand authority that did not consider the point but which is consistent with there being no trust.47     I consider the law      is uncertain on this point and that this first reason does not provide a sound basis for striking out this cause of action.

[107]          Secondly, Mr Bigio said the factual allegations regarding receipt by SPF were equivocal and insufficient to establish a claim. I accept this. At present, the Whitley parties merely plead that it is “unclear” whether SPF received any benefit and make no equivalent pleading at all against LPF. However, I consider the defect to be repairable. The Whitley plaintiffs simply have to plead that LPF and SPF did receive a benefit, even if that benefit cannot yet be quantified.

[108]          Thirdly, with respect to the allegation that the litigation funding agreement had been varied to require Mr Walker to apply the proceeds in reduction of the Project Costs, Mr Bigio referred me to affidavit evidence from Mr Woodhams that there had

45     Mr Hofer, counsel for SPF, adopted LPF’s submissions on these causes of action.

46     Paul Heath (ed) Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [24.72].

47     Pharmacy Wholesalers (Wellington) Ltd v Graham HC Auckland CIV 2003-404-3312, 5 February 2004 at [38]–[40].

been  no  such  variation.     This raises a factual dispute that is not suitable for determination on this application.

[109] I therefore decline to strike out the first cause of action, provided the Whitley parties amend their claim to address the defect identified at [107].

Second cause of action: declarations as to litigation funding agreement and distribution agreement

[110]          In the second cause of action, the Whitley parties claim a variety of declarations and orders: that the litigation funding agreement and the distribution agreement should be set aside or declared illegal; that the litigation funding agreement should be declared as not binding on the PVL subsidiaries; that the decision of the liquidators to pay Mr Walker $4,080,000 should be reversed; and that “LPF/SPF” should be ordered to repay money they received under the litigation funding agreement or the distribution agreement in such sums as are determined by the court.

[111]In seeking those orders and declarations, the Whitley parties plead:

(a)Mr Walker breached his duty as liquidator by entering into the litigation funding agreement for his own personal gain and not in the best interests of all the PVL companies.

(b)Mr Walker breached his duty as liquidator by entering into the distribution agreement for his own personal gain and not in the best interests of all the PVL companies.

(c)The distribution agreement was entered into by Mr Walker without the consent of Mr Scutter.

(d)Mr Walker entered into the distribution agreement under duress and diminished capacity.

(e)The payments made under the litigation funding agreement and the distribution agreement constituted an expense of the liquidations and

therefore required the approval of the court under the Companies Act 1993.

(f)The payments made under the litigation funding agreement and the distribution agreement did not represent reasonable expenses in the liquidations and should be set aside.

(g)For all or some of these reasons, the litigation funding agreement and the distribution agreement should be set aside or varied as being illegal contracts.

(h)Mr Whitley, as current liquidator, is not bound by the full and final settlement purported  to  be  reached  in  the  distribution  agreement in circumstances where that was entered into in breach of Mr Walker’s and Mr Scutter’s duties, in which LPF and SPF knowingly participated.48

(i)The court has powers under s 284 of the Companies Act and its inherent jurisdiction to enquire into the lawfulness and validity of the litigation funding agreement and the distribution agreement.

[112]          Mr Bigio’s primary submission was that this cause of action could not succeed because entry into the litigation funding agreement and the distribution agreement was not unlawful (because it was within Mr Walker’s powers as liquidator) and was not in breach of any statutory obligation or common law principle.

[113]          I accept it was within Mr Walker’s powers, as such, to enter into the litigation funding agreement and the distribution agreement. But that is no answer to a pleading that Mr Walker misused that power by entering into these agreements for his own personal gain and not in the best interests of the companies of which he was liquidator. Nor is it an answer to a pleading that Mr Walker entered into the distribution agreement under duress.

48     Although not pleaded under this cause of action, the Whitley parties plead under other causes    of action that LPF and SPF knew of and participated in Mr Walker’s  alleged breach of duty    in entering into the litigation funding agreement and distribution agreement.

[114]          Mr Bigio may well be correct that entry into the agreements was not in breach of any statutory obligation or common law principle (leaving aside the allegations   of breach of fiduciary duty and duress). He referred me to the Supreme Court’s observations, in Waterhouse v Contractors Bonding Ltd, that it is not the role of the courts to give prior approval to litigation funding arrangements or to assess the fairness of any bargain between funder and plaintiff.49 But the Whitley parties are not pleading that the entry into the agreements was in breach of a statutory obligation or common law principle. They are pleading that, because of the liquidation context, the payments under the agreements required approval from the court or can be retrospectively reviewed by the court for reasonableness.

[115]          Mr Bigio submitted that, as a matter of law, there was no requirement to seek prior approval of payments and no ability for the court to retrospectively review them for reasonableness. He relied on Waterhouse and on a decision of the Full Court of the Federal Court of Australia, IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd.50 Waterhouse does not address the issue in a liquidation context. The IMF case appears to provide some support for the proposition that the court does have jurisdiction to review such payments for reasonableness. I was not referred to any other authorities on point.   The issue appears to be largely novel in New Zealand.     I consider it would be unsafe to strike out in the absence of actual facts following     a trial.

[116]          Mr Bigio also made a subsidiary submission. He said that the terms of the litigation funding agreement had been disclosed in the PVL proceedings. In those proceedings there was a challenge to the interface between the litigation funding agreement and the Allied Finance and  DFG securities that SPF had acquired, but   no challenge to the agreement in isolation. The litigation funding agreement was not the subject of any finding of invalidity by the Supreme Court on that challenge. At no point in the course of those proceedings had the Whitley parties or the secured creditors challenged the validity of the litigation funding agreement or the distribution agreement. Those agreements had since been fully performed. Mr Bigio submitted

49     Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91 at [28] and [48].

50     IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd [2009] FCAFC 9, (2009) 253 ALR 240.

that in these circumstances the challenge made by the Whitley parties was an abuse of process.

[117]          I do not accept that submission. Any abuse of process could only be of the Henderson v Henderson type.51 I consider it would be a Henderson v Henderson abuse only if the challenge now made was one that the Whitley parties should have made  in the PVL proceedings. There is no reason that the current challenge should have been made in those proceedings, as they were not concerned with the validity of the agreements or of any payments that might be made in them.

[118]I therefore decline to strike out the second cause of action.

Third cause of action: breach of litigation funding agreement and distribution agreement

[119]          In this cause of action, which is an alternative to the second cause, the Whitley parties allege that SPF is in breach of the litigation funding agreement and the distribution agreement.

[120]          Although the PVL parties seek relief under this cause of action against both SPF and LPF, the Whitley parties do not make any allegation that LPF breached the agreements. Mr Bigio submitted that the pleading ignored the fact that LPF was not  a party to either agreement.   In response, Mr  Moss said the plaintiffs were taken   by surprise that LPF relied on it being a separate corporate entity from SPF. That surprise is itself surprising. In any case, Mr Moss accepted that the Whitley parties needed to better plead their claim against LPF. He outlined the nature of that repleading in his written submissions.

[121] Given Mr Moss’s acceptance, I will not strike out the third cause of action as against LPF, provided the Whitley parties amend their claim to address the defect identified at [120].

[122]          Mr Hofer, counsel for SPF, addressed me on SPF’s application to strike out this cause of action. He took me through each of the eight alleged breaches by SPF:

51     Henderson v Henderson (1843) 3 Hare 100, 67 ER 313.

(a)At [91] of the amended statement of claim, the Whitley parties plead that SPF agreed to purchase the Allied Finance security on the terms pleaded at [18] of the claim, and then breached that agreement by “reneging on the agreement”. Mr Hofer submitted that this claim was untenable, as the Whitley parties had earlier pleaded that SPF had performed the agreement to purchase the Allied Finance security. That submission involved a strained reading of the pleading, and I reject it. However, Mr Hofer is on stronger ground in complaining that there are no particulars of how SPF is alleged to have “reneged” on the alleged agreement. I understood Mr Moss to accept that the pleading needed to be, and would be, better particularised in this respect.

(b)At [92], it is alleged that SPF, in breach of cl 2.2(a) of the litigation funding agreement, did not  provide  confirmation  of  Project  Costs in writing. Mr Hofer submitted that this pleading proceeded on a misinterpretation of cl 2.2(a). I consider the interpretation advanced by Mr Hofer is contestable. I decline to strike out this part of the pleading.

(c)At [93], it is alleged that cl 2.2 of the distribution agreement required SPF to provide all calculations of the Project Costs to the liquidators for review, and that SPF did not provide any calculations for review and instead “unilaterally” executed payment directions in August 2017. Mr Hofer submitted there were no particulars as to the alleged failure to provide calculations and so it was not possible to identify the specific details of this allegation. I do not accept that any further particulars are required of an allegation that SPF failed to do something. Mr Hofer also submitted that any breach by SPF would only matter if SPF received more Project Costs than it was entitled to receive. That may be  correct,  but  whether  SPF  received  more  than  its  entitlement  is a matter for trial.

(d)At [94], the Whitley parties refer to the requirement in the distribution agreement that the liquidators provide a certificate to SPF of all fees and expenses charged by the liquidators to PVL and the PVL

subsidiaries. The Whitley parties allege that no certificate was provided by the liquidators. I agree with Mr Hofer that that allegation does not implicate SPF in any breach of the agreement, and I strike    it out. However, at [94] it is also alleged that SPF paid PVL only

$900,000, rather than the $5,380,000 it is alleged it was liable to pay PVL under the distribution agreement. That part of [94] is not struck out.

(e)At [95], it is alleged that in breach of cl 1.1 of the distribution agreement, Mr Walker and Mr Woodhams for SPF agreed to vary the payments  under the agreement  without  the  consent  of Mr Scutter.   I accept Mr Hofer’s submission that cl 1.1 did not oblige SPF to obtain Mr  Scutter’s  consent  to  any  variation.  The  allegation  of  breach  is clearly untenable, and I strike it out. The balance of [95] can remain.

(f)At [96], it is alleged that the distribution agreement required SPF to assist Mr Walker in resolving all disputes with Mr Henderson, which it is alleged SPF did not do. Mr Hofer correctly submits that the relevant clause in the agreement required SPF to co-operate with the liquidators to negotiate and attempt to achieve a settlement with Mr Henderson. Co-operation and assistance are different. I strike out [96].

(g)At [97], the Whitley parties allege that the sum of approximately

$33,000,000 paid to SPF under the litigation funding agreement and distribution agreement did not reflect the terms of the litigation funding agreement (the terms of which they allege overrode the terms of the distribution agreement in the event of a dispute). Mr Hofer submitted that it could not be a breach of the litigation funding agreement for SPF to receive a sum of money – the breach, if any, would be by the payer. That may be so in some contracts, but it is not untenable that in the subject agreements SPF was obliged to refrain from participating in the payment to it of a  sum  in  excess  of  its  contractual  entitlement.  Mr Hofer also submitted that on the current pleading it was not possible for SPF to identify how the payment breached the terms of the litigation

funding agreement. That is a complaint about particulars. I accept the complaint is well made. Presumably the Whitley parties have a position as to what sum would have reflected the terms of the litigation funding agreement.  This should be pleaded.   I decline to  strike out [97], but  I direct the Whitley parties to particularise how the payment breached the terms of the agreement.

(h)At [98], the Whitley parties allege that SPF received a further amount from settlement of the claims against the directors, and that this was in breach of the litigation funding agreement and distribution agreement. Mr Hofer said this did not identify the sum which it is alleged SPF received. That is correct. Although the sum is identifiable from [33] of the claim, it should be alleged in [98]. Mr Hofer also said the pleading did not contain sufficient particulars to identify how the payment breached the terms of the agreements. I disagree. The pleading is that SPF was not entitled to anything further under the agreements. I decline to strike out [98], but I direct the Whitley parties to particularise in [98] the sum that they allege SPF received.

Fifth cause of action:52 knowing receipt by LPF and SPF

[123]          The Whitley parties plead that SPF and LPF “knew of, and participated in” breaches by Mr Walker and Mr Scutter of fiduciary and statutory duties. They plead that, as a consequence of SPF and LPF’s “knowledge of and/or dishonest participation in” the breaches of duties, it is unconscionable for SPF and LPF to retain all of the

$33,000,000 received under the litigation funding agreement and/or distribution agreement. The Whitley parties claim damages in an amount to be determined by the court.

[124]          These pleadings are an amalgam of allegations of knowing receipt and dishonest participation (or assistance). However, Mr Moss’s submissions clearly described the claim as one of knowing receipt. I proceed on that basis.

52     The fourth cause of action is only against Mr Walker and Mr Scutter, and so is not subject to the strike-out applications.

[125]          Mr Bigio submitted this claim was untenable. First, several of the alleged breaches by Mr Walker and Mr Scutter were concerned only with “internal” matters, such as their duties to treat PVL and the PVL subsidiaries fairly as between themselves. Mr Bigio said those duties were engaged only in respect of the settlement proceeds left after SPF had received what it was lawfully entitled to under the litigation funding agreement and distribution agreement. SPF and LPF therefore could not have received funds as a result of any breaches of those duties. I agree (and I understood Mr Moss to have accepted the point). I strike out, from [107] of the amended statement of claim, any reliance on the breaches alleged at [103](f), (g) and (i).

[126]          Secondly, Mr Bigio submitted that some of the  alleged breaches were not    of fiduciary duties but rather were of administrative steps that Mr Walker is alleged to have taken or omitted to take. These were in two sets:

(a)Mr Walker is alleged to have failed to review the litigation funding agreement before signing it, to have failed to take independent legal advice on that agreement before entering into it and to have signed the agreement for the primary purpose of securing payment of his fees rather than for the benefit of PVL creditors.

(b)Mr Walker is alleged to have failed to ensure that the terms of the litigation funding agreement were varied to protect the interests of the creditors of PVL and instead entered into the distribution agreement (and varied it) for the purpose of securing his own fees and a further payment of $4,080,000.

[127]          Both sets of allegations are directed at Mr Walker’s entry into the agreements, allegedly for his personal benefit rather than for the benefit of PVL creditors. These were not mere administrative steps. I do not accept Mr Bigio’s submission.

[128]          Thirdly, Mr Bigio submitted that some of the alleged breaches by Mr Walker and Mr Scutter were simply of them meeting their contractual obligations to SPF under the litigation funding agreement and distribution agreement. Mr Bigio said the payments under these agreements were valid expenses in the liquidations. If

Mr Walker or Mr Scutter had made an error in calculating what they owed to SPF under the agreements, resulting in SPF receiving more than its entitlement (which SPF denies), that was at most an administrative error in the nature of an innocent or negligent mistake. With respect, this submission does not address the pleaded case. The Whitley parties allege that Mr Walker entered into the distribution agreement (which in the end determined how much was paid to SPF) for the purpose of securing payments to himself.

[129]          Mr Bigio also submitted that the Whitley parties had not identified any trust property that was transferred to or received by SPF or LPF. I disagree. The pleadings are plainly referring to the funds received by Mr Walker and Mr Scutter as liquidators (primarily  proceeds  from  the  settlement  of  the  PVL  proceedings).    There  is,    I acknowledge, a dispute as to whether the liquidators held those funds as trustees or in some capacity analogous to trustees, such that the law of knowing receipt was engaged. I referred to that dispute in relation to the first cause of action. I was not referred to further authorities on the point in relation to the fifth cause of action. I consider determination of this point should await trial.

Sixth cause of action: knowing assistance by LPF and SPF

[130]          In their sixth cause of action, the Whitley parties plead that SPF and LPF knew of and participated in the same breaches by Mr Walker and Mr Scutter of fiduciary and statutory duties as were relied on in the fifth cause of action. The Whitley parties then plead that SPF and LPF knowingly assisted and participated in the dishonest receipt by Mr Walker  of $4,080,000 in circumstances where they knew  or ought    to have known that he was not entitled to that sum. They say LPF and SPF should be held jointly and severally liable with Mr Walker for the repayment of that sum.

[131]          Mr Bigio’s first attack on this cause of action is that the Whitley parties have not pleaded any breach of trust. He relied on his submissions, on the knowing receipt cause of action, that I have addressed in [125]–[128] above. My findings in those paragraphs apply equally here. Accordingly, I strike out, from [109] of the amended statement of claim, any reliance on the breaches alleged at [103](f), (g) and (i).

[132]          Next, Mr Bigio submitted that the amended statement of claim did not identify the facts upon which LPF’s and SPF’s alleged knowledge is based. Mr Moss accepted that the cause of action needed to be tidied up in this regard. Indeed it does. A cause of action in knowing assistance (more properly dishonest assistance) involves serious allegations. They need to be properly particularised. I decline to strike out the cause of action, but direct the Whitley parties to properly particularise the basis on which  it is alleged LPF and SPF knowingly or dishonestly assisted the alleged breaches of trust.

[133]          Mr Bigio also submitted that the loss said to have flowed from the alleged breaches of trust had not been pleaded. I consider the pleaded loss is plain from the allegations that Mr Walker was not entitled to the $4,080,000 and that LPF and SPF should be jointly and severally liable with Mr Walker to repay that sum. In any event, Mr Moss said he would plead this more clearly.

A further amended statement of claim

[134]          Although the strike-out applications have been largely unsuccessful, I have directed the Whitley parties to amend their claim to address some defects or to provide particulars. Given that Mr Moss recognised the need for most, if not all, of these amendments at the hearing, I direct the Whitley parties to file and serve a further amended statement of claim addressing the defects and providing the particulars by 4 September 2023.

Costs

[135]          LPF is entitled to costs on the application by the Whitley parties to restrain Minters.

[136]          LPF and SPF have been largely unsuccessful in their strike-out applications. The Whitley parties are entitled to costs.   My preliminary view,  however, is that     a modest reduction is warranted to reflect the modest success enjoyed on the applications.

[137]          If counsel are unable to agree quantum, brief memoranda (not exceeding four pages each) may be filed: LPF and SPF by 4 September 2023, the Whitley parties by 18 September 2023.

Result

[138]          I decline the application by the Whitley parties to restrain Minters from acting for LPF or SPF.

[139]On LPF’s and SPF’s strike-out applications:

(a)I decline to strike out the first cause of action, provided the Whitley parties amend their claim to address the defect identified at [107].

(b)I decline to strike out the second cause of action.

(c)On the third cause of action:

(i)I decline to strike out this cause of action as against LPF, provided the Whitley parties amend their claim to address the defect identified at [120] above.

(ii)I decline to strike out [91] of the amended statement of claim, but direct the Whitley parties to particularise how SPF is alleged to have “reneged” on the alleged agreement to purchase the Allied Finance security.

(iii)I strike out the part of [94] of the amended statement of claim that alleges that no certificate was provided by the liquidators.

(iv)I strike out the part of [95] of the amended statement of claim that alleges that the alleged variation of the payments under the distribution agreement was a breach of cl 1.1 of that agreement.

(v)I strike out [96] of the amended statement of claim.

(vi)I decline to strike out [97] of the amended statement of claim, but direct the Whitley parties to particularise how the payment breached the terms of the agreement.

(vii)I decline to strike out [98] of the amended statement of claim, but direct the Whitley parties to particularise in [98] the sum that they allege SPF received.

(d)I decline to strike out the fifth cause of action, other than striking out, from [107] of the amended statement of claim, any reliance on the breaches alleged at [103](f), (g) and (i).

(e)I decline to strike out the sixth cause of action, other than striking out, from [109] of the amended statement of claim, any reliance on the breaches alleged at [103](f), (g) and (i). I direct the Whitley parties to properly particularise the basis on which it is alleged LPF and SPF knowingly or dishonestly assisted the alleged breaches of trust.

[140]          I direct the Whitley parties to file and serve a further amended statement of claim addressing the defects and providing the particulars by 4 September 2023.

[141]          LPF is entitled to costs on the application by the Whitley parties to restrain Minters. The Whitley parties are entitled to costs on the strike-out applications. Memoranda may be filed as set out in [137] above.

Campbell J