Black v Lagoon Lodges Properties Limited - [2014] NZHC 3336

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2013-409-000759 [2014] NZHC 3336

BETWEEN
LESLIE ALLAN BLACK and LESLEY

ANN BLACK and ORS First to Thirteenth Plaintiffs

AND

LAGOON LODGES PROPERTIES LIMITED

First Defendant

NEVILLE IAN CANT Second Defendant

DOYLE FINANCIAL SERVICES LIMITED

Third Defendant

STEPHEN MURRAY DOYLE Fourth Defendant

MDS LAW Fifth Defendant

Hearing: 25 November 2014

Counsel:

F B Barton, A M Cunninghame and S L McNeill for Plaintiffs
C R Carruthers QC and D M lester for Defendants

Judgment:

19 December 2014

JUDGMENT OF WHATA J

[1] The plaintiffs in three proceedings claim MDS Law (MDS) acted as solicitors for Lagoon Lodges Properties Limited (Lagoon 1), Lagoon Lodges Properties 2
Limited (Lagoon 2) and Castaway Properties (NZ) Limited (Castaway) in the subscription for and the allotment of securities in relation to a development in the Cook Islands. They also claim that MDS was under a duty, in contract by virtue of
the Contracts (Privity) Act 1982 (CP Act) and/or at common law, to ensure that the

BLACK and ORS v LAGOON LODGES PROPERTIES LIMITED [2014] NZHC 3336 [19 December 2014]

plaintiffs were not deprived of the protection of the relevant provisions of the Securities Act 1978 (Securities Act). In breach of that duty, MDS is then said to have permitted the Plaintiffs to subscribe for the securities and or permitted the securities to be allotted to them when there was no registered prospectus relating to them.

[2] MDS applied to strike out these pleadings.1 MDS submits that MDS could not owe a duty of care to the plaintiffs who are non clients and between whom there was never any form of contract.

[3] MDS also submits that the Lagoon 1 claim should be struck out as it is barred by operation of the Limitation Act 2010.

Background

The pleaded facts

[4] The present application for strike out concerns three proceedings but they all relate to essentially the same background facts.

[5] In response to an offer to the public by way of an information memoranda dated 17 April 2007 and issued by Lagoon 1, Lagoon 2 and Castaway, the plaintiffs subscribed in New Zealand for interests in a development in the Cook Islands known as Lagoon Lodges Stage 2.

[6] The interests for which they subscribed were equity securities for the purposes of the Securities Act and the subscription for and allotment of those securities (“the securities”) were therefore governed by the provisions of the Act. The securities were allotted by the companies to the plaintiffs on a date which is not known to the plaintiffs but in any event after 17 April 2007. At the time the plaintiffs subscribed for the securities there was no registered prospectus relating to them. The allotment of the securities without a prospectus was a contravention of s 37(1) of the Securities Act. By virtue of s 37(4) of the Securities Act the allotment was therefore
invalid and of no effect. Under s 37(5) of the Securities Act the subscriptions…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] NZHC 3336
Decision Date: 19 December 2014

CaseChat Overview and Summary

In the High Court of New Zealand, Leslie Allan Black and Lesley Ann Black, along with others, brought a case against Lagoon Lodges Properties Limited and others, seeking compensation for securities investments that allegedly contravened the Securities Act 1978. The plaintiffs claimed that MDS Law, acting as solicitors for Lagoon Lodges Properties Limited, Lagoon Lodges Properties 2 Limited, and Castaway Properties (NZ) Limited, failed to ensure that the plaintiffs were not deprived of the protection of the Securities Act, resulting in the allotment of securities without a registered prospectus. MDS Law applied to have the proceedings struck out on the basis that it did not owe a duty of care to the plaintiffs. The court considered whether MDS Law had assumed responsibility for the plaintiffs' eligibility, leading to a potential duty of care, and whether the claims were time-barred. The court found that there was a sufficient basis to argue that MDS Law had assumed responsibility for the plaintiffs' eligibility and that the claims were not time-barred for securities transferred after 13 April 2007. The application to strike out proceedings related to Lagoon 2 and Castaway was dismissed, while the claim in the Lagoon 1 proceeding was time-barred for funds transferred before 13 April 2007. The court ordered the plaintiffs to amend their pleadings without expanding the causes of action.

Orders