Appleton and Ryan v Tauranga Law HC Tauranga CIV 2010-070-385

[2010] NZHC 1977

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-070-385

BETWEEN  JOHN APPLETON AND NATALIE MARIE RYAN AS TRUSTEES OF THE APPLETON FAMILY TRUST

First Plaintiff

ANDJOHN APPLETON Second Plaintiff

ANDTAURANGA LAW Defendant

Hearing:         2 November 2010

Appearances: Mr D Grove for plaintiffs

Mr P Napier for defendant

Judgment:      3 November 2010 at 4 pm

JUDGMENT OF LANG J

[on application by defendant for summary judgment]

This judgment was delivered by me on 3 November 2010 at 4 pm, pursuant to Rule

11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel: Ellis Law, Auckland

Keegan Alexander, Auckland

Mr D Grove, Auckland

JOHN APPLETON AND ANOR V TAURANGA LAW HC TAU CIV-2010-070-385  3 November 2010

[1]      The  plaintiffs  in  this  proceeding  have,  like  many  others,  suffered  losses through an investment they made with the Blue Chip group of companies.   They seek to recover those losses from the firm of solicitors that acted for them in relation to the investment.

[2]      The solicitors contend that they have an absolute defence to the plaintiffs’ claim.    For  that  reason  they  have  applied  for  summary  judgment  against  the plaintiffs.

Relevant principles

[3]      There is no dispute regarding the principles that apply when a defendant applies for summary judgment against a plaintiff.  These have been well established through cases such as Pemberton v Chappell [1987] 1 NZLR 1 (CA) and Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).

[4]      In considering a defendant’s application for summary judgment, the Court is required to apply the following general principles:

a)       The defendant must establish that it has a complete answer to the whole of the plaintiff’s claim.   It is not possible to enter summary judgment in favour of the defendant in respect of part of the plaintiff’s claim, leaving the balance to proceed to trial.

b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise.  Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.

c)       Although  the  Court  should  adopt  a  robust  approach,  summary judgment may nevertheless be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.

Factual background

[5]      On  23  April  2004,  Mr  Appleton  signed  an  agreement  to  purchase  an apartment located in a complex that was to be built at 18-20 Turner Street, Auckland. The  vendor  was  a  company  called  Rockfort  Limited.    The  purchase  price  was

$356,896.   The agreement required the purchaser to pay a deposit in the sum of

$101,910.

[6]      Mr Appleton did not take legal advice prior to signing the agreement.  Rather, he dealt with an agent of Blue Chip.  This person recommended that he instruct Mr Kevin Olivier, a partner in the firm that practices under the name Tauranga Law, to act on his behalf in relation to the purchase.  He told Mr Appleton that Mr Olivier was familiar with the way in which Blue Chip investments operated, and that other firms of solicitors would probably not understand the way in which they worked.  Mr Appleton agreed that he would instruct Mr Olivier to act on his behalf in relation to the purchase.

[7]      Blue Chip’s solicitors sent the agreement for sale and purchase directly to Mr Olivier.   It appears that he received the agreement, along with a number of other documents relevant to the purchase of the apartment, on or about 29 April 2004.  Mr Olivier had never acted for Mr Appleton before this transaction, and he took no immediate steps to contact him to discuss the documents that he had received.  On or about 24 May, however, he received instructions from the Bank of New Zealand to prepare security documents for a loan to the Appleton Family Trust.   When Mr Olivier received these instructions, he contacted Mr Appleton, having obtained his contact details from Blue Chip.  Mr Appleton then confirmed directly that he wanted Mr Olivier to act on his behalf in relation to the purchase of the property.

[8]      On 31 May 2004 Mr Olivier wrote a lengthy letter to Mr Appleton outlining salient  details  of  the  proposed  purchase.    Included  within  this  letter  was  the following advice:

We note that the settlement of Unit 506, 18-20 Turner Street, Auckland has previously been set down for 31 August 2005 and that you have contracted to pay the deposit of $101,910.00 immediately.  In condition

16 the vendor states that 31 August 2005 is an estimated date and that the vendor will not be liable for any delays beyond that date whatsoever.

The usual deposit for a transaction of this nature is ten per centum (10%) or

$35,689.60 and you have contracted to pay a deposit of $101,910.00.

The major risk in this transaction prior to settlement (31 August 2005 or later if there are delays) is

•  If the vendor, Rockfort Limited, is liquidated or

•  If the developer is unable to complete the building and Rockfort

Limited is unable to take title

You/the LAQC would be a concurrent creditor and may then lose the entire deposit.

We note that in terms of clause 14 of the agreement for sale and purchase the vendor is to pay you interest for immediate release of the deposit at 8.5% per annum fortnightly in advance.

[9]     Mr Olivier’s office arranged for Mr Appleton to complete the security documentation and then uplifted the advance from the Bank of New Zealand.  This was used to pay the deposit, as well as Blue  Chip’s fee and Mr Olivier’s fee. Unfortunately,  Rockfort  went  into  liquidation before it  was  able to  become the owner of the property.   For that reason the plaintiffs were unable to complete the purchase of the property from Rockfort.  The Blue Chip companies also ceased to operate, and ultimately went into liquidation.   As a result, the plaintiffs have lost their deposit.

[10]     They now seek judgment against Mr Olivier in the sum of $112,407.08, together with the interest that they will continue to incur to the Bank of New Zealand in terms of the loan agreement with the Bank.  They also seek general damages in the sum of $10,000.

The plaintiffs’ claims

[11]     The  plaintiffs  accept  that  Mr  Olivier  did  not  advise  them  regarding  the wisdom of entering into the transaction in the first place.  They also accept that they committed themselves to the purchase of the apartment without seeking legal advice. They allege, however, that Mr Olivier breached a duty of care that he owed to them in numerous respects.   It is not necessary for present purposes to detail all of the

claims that the plaintiffs make against Mr Olivier.   It is sufficient to record the following aspect of their claim:

21.      In  further breach of his duty the Defendant failed to advise the

Plaintiff that:

(a)     Rockfort Limited was not Blue Chip New Zealand Limited but rather an unlisted company which might not be able to meet its obligations if there was a default.

(b)Pursuant to s.225 of the Resource Management Act 1991 the Plaintiffs had the right to cancel the agreement within 14 days of the date of the agreement because the agreement related to the sale of part of the building that constituted a subdivision that was made before the appropriate survey plan had been approved under s.223 of the Act,.

(c)     The Plaintiff accordingly had the right to cancel the agreement up to and including 3 May 2004.

[12]     This pleading is not well worded, because it is not clear whether the alleged breach relates to the contract of retainer between Mr Appleton and Mr Olivier or to a duty of care in tort.  It comes within a section of the Amended Statement of Claim headed “Breach of duty of care”, but that does not assist in determining the precise nature of the cause of action.  For present purposes, I take the allegation to be that Mr Olivier breached a contractual and/or tortious duty of care to the plaintiffs when he failed to advise them that they had the ability to cancel the contract by virtue of s

225 of the Resource Management Act 1991.

[13]     The issue that I need to determine is whether that allegation is tenable in the circumstances of the present case.

Did a duty of care arguably arise when Mr Olivier received the documents from

Blue Chip’s solicitors?

[14]     Mr  Olivier  received  the  agreement  from  Blue  Chip  on  29  April  2004. Although the agreement was dated 19 April 2004, it appears to be common ground that Mr Appleton signed it on 23 April 2004.  Mr Appleton therefore had the right to cancel the agreement under s 225(2)(a) of the Resource Management  Act 1991 provided he did so on or before 7 May 2004.  That section applies in any case where the subject matter of an agreement for sale and purchase is part of a building.  That

type of sale will generally constitute a subdivision for the purposes of the Resource Management Act 1991, and the vendor is required to deposit a survey plan of the proposed subdivision with the relevant territorial authority for approval.   If an agreement for the sale and purchase of property that constitutes a subdivision is signed prior to the approval of the survey plan, the purchaser has the right under s

225(2)(a) of the Act to cancel the agreement provided that he or she does so within

14 days after the agreement is signed.

[15]     Mr Olivier would not have known when he received the agreement that Mr

Appleton had signed it on 23 April, because the date on the agreement was 19 April

2004.  However, even using that date, Mr Appleton still had the right to cancel the agreement up to and including 3 May 2004.

[16]     Affidavits have been filed in relation to the present application by Mr Robert Eades and Mr Peter Nolan, both of whom are very experienced conveyancing solicitors.  They have both given expert evidence on numerous occasions regarding the standard of care that might be expected of a reasonably competent solicitor acting on conveyancing transactions.  Mr Nolan’s evidence in relation to the s 225 issue is as follows:

7.     The Plaintiff signed the agreement for sale and purchase dated 23

April 2004 (“Agreement”) in front of his Blue Chip adviser.

8.      Mr Olivier received the Agreement on 29 April 2004.

9.The date of receipt of the documents was within the 14 day “cooling off” period allowed under section 225 of the Resource Management Act  1991.    Accordingly,  I  believe  that  Mr  Olivier  should  have contacted the Plaintiff as a matter of urgency, not only to discuss the Agreement but also to advise the Plaintiff of his right of cancellation under this legislation.

10.I also believe that it should have been immediately apparent to Mr Olivier that there were serious issues that should have been brought to the Plaintiff’s attention, particularly as he was already familiar with the Blue Chip documents.

11.Because the adverse features of the Agreement were so serious, I consider that Mr Olivier should have advised the Plaintiff not only of his right of cancellation, but also that he should actually exercise that right.  I do not believe that this would have been tantamount to giving advice on the wisdom of the transaction in its broader sense.  It would have been advice on the legal issues arising from the Agreement.

That advice would have been that these issues were so serious in themselves that no matter how keen the Plaintiff might have been to purchase the unit, it was entirely inappropriate for him to proceed with the transaction on those terms and conditions.

12.In conclusion, I believe that Tauranga Law failed to discharge their duty of care to the Plaintiff by failing to advise the Plaintiff within 14 days of the date of the Agreement:

a.      that there were serious issues arising from the Agreement;

b.      that the Plaintiff had the right to cancel the Agreement under section 225 of the Resource Management Act within 14 days of the date of the Agreement; and

c.      that the Plaintiff should exercise that right of cancellation unless the Agreement could be amended to protect the Plaintiff’s interest.

[17]     Mr  Eades  responds  to  many of  the  allegations  contained  in  Mr  Nolan’s affidavit.  He does not, however, respond to this particular allegation.  As a result, Mr Nolan’s evidence on this point is currently unchallenged.

[18]     Mr Nolan’s opinion regarding this issue could obviously never be conclusive. The Court retains the ability to conclude that the general practice of a particular profession falls below the standard required by law independently of the views of members of that profession:  McLaren Maycroft & Co v Fletcher Development Co Ltd [1973] 2 NZLR 100 (CA) at 108. It is for the Court to assess the duty of care on the whole of the evidence.

[19]     Mr Nolan’s evidence may also go beyond the scope of that which is normally permitted, because he expresses his own opinion about the scope of Mr Olivier’s duty, when that is a matter of law for the Court to determine.   An expert in this context  is  usually  restricted  to  giving  evidence  about  what  the  majority  of experienced practitioners exercising reasonable care and skill would do in particular circumstances.  Nevertheless, the pleading and Mr Nolan’s evidence squarely allege that Mr Olivier was subject to a duty to contact Mr Appleton before the 14 day period under s 225(2)(a) expired and to advise him of his right to cancel the agreement.

[20]     Normally the nature of any duty of care that a solicitor owes to a client is governed by the express or implied scope of the solicitor’s retainer: Gilbert v Shanahan [1998] 3 NZLR 528 (CA) at 537. It is probable that the contract of retainer did not come into existence in the present case until on or about 24 May

2004, when Mr Olivier spoke to Mr Appleton for the first time and obtained express confirmation from him that he wanted Mr Olivier to act on his behalf in relation to the purchase of the property.  It is difficult to see how a contract of retainer could have come into existence before that point.

[21]     A duty of care in tort can arise, however, independently of any contract of retainer.  In Bartle v GE Custodians [2010] 1 NZLR 802 (HC) Randerson J observed at [136]:

Nevertheless, a duty of care in tort may arise irrespective of any contract of retainer between the parties.  Such a duty is not limited to cases of negligent misstatement falling within the narrower cause of action established by the House of Lords in Hedley Byrne v Heller & Partners Ltd [1964] AC 465, but extends more widely to cases where the defendant’s conduct is such as to enable a court to conclude there has been an assumption of responsibility for the performance of a task. In some cases this may be a voluntary assumption of responsibility and, in others, a deemed assumption of responsibility where the court finds the imposition of a duty of care is fair, just and reasonable: (See the discussion by Tipping J in Attorney-General v Carter [2003] 2

NZLR 160 (CA) at [22] to [33]).  If the defendant negligently performs or omits  to  perform  the  task  then,  subject  to  issues  of  forseeability  and

remoteness, he may be liable for losses flowing from the breach.

[22]    Randerson J observed at [137] that liability of this kind has long been established in the case of a solicitor’s liability to third parties: White v Jones [1995] 2

AC 207; Gartside v Sheffield Young and Ellis [1983] NZLR 37 (CA). This led him to conclude (at [141]) that a solicitor owed a duty of care when giving advice to prospective clients notwithstanding the fact that no contract of retainer was then in existence.

[23]   Counsel for the defendant submits that Mr Olivier did not assume any responsibility to Mr Appleton when he received the agreement on 29 April 2004.  He points out that Mr Olivier did not do anything at all until he received the documents from the bank on 24 May 2004.   He contends that it is impossible to say that he

assumed any responsibility by merely sitting on the documents and doing nothing with them.

[24]     The fact that Mr Olivier did nothing when he received the documents goes some   way   towards   establishing   that   he   may   not   have   assumed   voluntary responsibility to Mr Appleton in relation to the transaction.  It may not be possible, however, to deal with the issue of assumption of responsibility on such a narrow basis.

[25]     The evidence suggests that Mr Olivier had a close relationship with the Blue Chip agent.  This is demonstrated by the fact that the Blue Chip agent recommended that Mr Appleton should seek advice from Mr Oliver because he was familiar with the manner in which Blue Chip investments worked when other solicitors would not be.  The fact that Mr Olivier had earlier provided the Blue Chip agent with a stamp containing his firm’s contact details also suggests that he had indicated a firm willingness to accept instructions from clients referred to him by Blue Chip.

[26]     Mr Olivier must also have known that Mr Appleton had nominated him as his solicitor as soon as he received the agreement for sale and purchase on 29 April

2004.  He would also have known that Mr Appleton would be relying upon him for general advice regarding the risks inherent in the transaction.

[27]     Through his familiarity with Blue Chip transactions, Mr Olivier must also have  been  aware  that  they contained  some  unusual  features.    These  included  a requirement that the purchaser pay a deposit that was significantly larger than would usually be the case.  In addition, the standard form condition under which a deposit was to be held by a stakeholder pending settlement had been deleted.  Thirdly, the vendor named in the agreement was not the owner of the land at the time the agreement was signed.

[28]     I consider that the unusual nature of the Blue Chip transactions, Mr Olivier’s familiarity with them, his close association with the Blue Chip agent and his expressed preparedness to act on behalf of persons referred to him by Blue Chip are highly relevant in this particular context.  Purchasers in the position of Mr Appleton

were reliant upon Mr Olivier because of his particular knowledge of, and previous experience with, Blue Chip transactions.  They were also in close proximity to Mr Olivier, and it could reasonably be expected that they would suffer loss if he did not act with due care.  Mr Olivier’s conduct in expressing his willingness to act for Blue Chip clients in these particular circumstances is, in my view, such that the Court might consider it fair, just and reasonable to impose a duty of care upon him in relation to those persons.  That duty arguably arose in the present case as soon as Mr Olivier received the agreement for sale and purchase and associated documents from Blue Chip’s solicitors.  At that point he ought to have known that Mr Appleton was relying upon him to protect his interests.

[29]     The  letter  that  Mr  Oliver  wrote  to  Mr  Appleton  on  31  May  2005 demonstrates that he was alert to at least some of the issues that the agreement raised.  The use of bold font in parts of the letter also suggests that Mr Olivier knew that aspects of the agreement carried significant risks for Mr Appleton.  The issue therefore arises as to whether, as Mr Nolan suggests, the scope of the duty included an obligation to contact Mr Appleton urgently to discuss those risks (and ways in which they might be eliminated) as soon as Mr Olivier received the documents.  Had he been able to make contact with Mr Appleton prior to 7 May 2004, it would still have been possible to cancel the agreement under s 225(2)(a) of the Resource Management Act 1991.   If such a duty existed, Mr Olivier would arguably have breached it by failing to take any steps to contact Mr Appleton until after he received the documents from the bank on 24 May 2004.  By that stage, the opportunity to use s 225 to cancel the agreement had been lost.

[30]     In another Blue Chip case, Bilbe v Unkovich DC Auckland CIV 2008-004-

1809, 9 July 2010, Judge D M Wilson QC recorded at [17] that it was “common ground that any reasonably competent solicitor would be familiar with [ss 223 and

225 of the Resource Management Act 1991]”.  Significantly, both Mr Eades and Mr

Nolan gave evidence in that case.  He also said:

[70]      I draw the inference that Mr Unkovich was aware that Blue Chip was referring purchasers to him because of his specialist knowledge of the Blue Chip set up.  He displayed an insider’s knowledge of the pit falls of the transaction when he told the Bilbes in February 2008 that the deposit was

lost into the subsidiary shelf companies of Blue Chip of no value, and that the stakeholder clause had been deleted.

[71]      By the time Mr Unkovich gave that advice in February 2008, it was too late to access the statutory escape route.   I draw the inference that he knew the stakeholder clause had been deleted from the time he saw the Agreement on 7 May 2007 and understood its significance in relation to at least the title issues (which both expert solicitors recognised as critical) and the high deposit.  Mr Unkovich should have got the Bilbes into his office so he could advise them of the effect of the Agreement they had signed, the exposed position it left them in, and the escape route available.

[31]     Bilbe  is  currently  subject  to  appeal.    At  present,  however,  it  stands  as authority for the proposition that a solicitor has a duty to advise his clients of the availability of the escape route provided by s 225 in situations where they have committed themselves as purchasers under an agreement that carries serious risks for the purchaser.

[32]     In Bilbe, the duty arose during the period in which the solicitor was retained to act for the purchasers.   To that extent, it is obviously distinguishable from the situation in the present case.   For the reasons I have already given, however, it is arguable that the same duty arose prior to the point at which the contract of retainer came into existence.

[33]     Counsel for the defendant submitted that the cases establish that the scope of a solicitor’s duty is restricted to giving advice about the risks associated with a transaction.   The solicitor is not required to go further and to provide unsolicited advice about the overall wisdom of the transaction: Clark Boyce v Mouat [1993] 3

NZLR 641 (PC) at 649.  He pointed out that Mr Nolan’s evidence was to the effect that Mr Olivier was under a positive duty to advise Mr Appleton that he should cancel the agreement.  He contended that such a duty would impose a requirement going well beyond the scope of any duty that has been recognised to date, and would effectively require the solicitor to provide advice about the overall wisdom of the transaction.

[34]     I accept that the duty may not be as wide as Mr Nolan suggests.  If a solicitor is  under  a  duty  to  warn  a  client  about  the  risks  associated  with  a  transaction, however, it is at least arguable that he or she may also be under an associated duty to

advise the client of the means by which the client may address those risks.  That is a different matter to giving advice about the overall wisdom of the transaction.

[35]     In the present case, the plaintiffs were exposed to two principal risks, both of which came to fruition and resulted in loss.   The first flowed from the fact that Rockfort was not the owner of the property when Mr Appleton signed the agreement. This led to the risk that, if Rockfort never took title to the property, the plaintiffs would never be able to complete the purchase.    The second risk resulted from the fact that the agreement did not require the plaintiffs’ deposit to be held by a stakeholder pending settlement.   The created the risk that, if the plaintiffs were unable to complete the purchase, they might not be able to recover their deposit.

[36]     It was ultimately a matter for the plaintiffs to determine whether they were prepared to continue to assume the risks that the agreement posed for them without objection.   If they wished to address those risks, however, the only way in which they could do so was by cancelling the agreement.   They could only do that by utilising the right of cancellation contained in s 225.

[37]   It seems likely, given Judge Wilson’s observation in Bilbe, that as an experienced conveyancing solicitor, Mr Olivier was (or should have been) aware of the existence and utility of the right to cancel under s 225.  It is therefore arguable that the duty included, within its scope, an obligation to advise the plaintiffs in a timely way that they could only address the risks that the agreement created by cancelling it under s 225.  Timeliness here required Mr Olivier to recognise that s

225 required the purchaser to act within 14 days after the agreement had been signed.   The fact that Mr Olivier waited until 24 May before taking any steps to contact Mr Appleton meant that the opportunity to cancel the agreement had been lost.  It also meant that he arguably breached the duty of care that he owed to Mr Appleton.

[38]     That being the case, summary judgment cannot be granted in favour of the defendant.  The plaintiffs’ claim must proceed to trial, where the Court will have the ability to substantively determine whether and to what extent Mr Olivier owed a duty of care to Mr Appleton.

Result

[39]     The application for summary judgment is dismissed.

Costs

[40]     Costs on the application for summary judgment are reserved.

Timetable directions

[41]     I now direct:

(a)     Affidavits of documents are to be filed and served no later than 2

December 2010.

(b)     Inspection is to be completed no later than 31 January 2010.

Next event

[42]    The next event in this proceeding will be the second case management conference.  This will proceed by way of telephone conference before the Associate Judge in Tauranga on 2 February 2011 at 9.40 am.

[43]     Issues to be discussed at that conference include:

a)        Compliance with the above directions.

b)        Whether any further interlocutory issues are likely to arise.

c)        Settlement initiatives including the allocation of a judicial settlement conference or referral to commercial mediation.

d)       The allocation of a trial date.

Lang J