Bosomworth v Pheasant HC Timaru CIV 2010-476-000250
[2011] NZHC 1505
•16 September 2011
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV 2010-476-000250
BETWEEN ROBERT HUBERT BOSOMWORTH AND DOREEN MARGARET BOSOMWORTH
Plaintiffs
ANDKEITH WALLACE PHEASANT First Defendant
ANDPHEASANT CONSULTANCY LIMITED Second Defendant
ANDDEAN & ASSOCIATES Third Defendant
CIV 2010-476-000381
AND BETWEEN ARTHUR CHARLES THOMPKINS AND ANGELA ROSEMARY TOMPKINS Plaintiffs
ANDKEITH WALLACE PHEASANT First Defendant
ANDANISA JANE PHEASANT Second Defendant
ANDPHEASANT CONSULTANCY LIMITED Third Defendant
ANDDEAN & ASSOCIATES Fourth Defendant
ANDDAVID ANTHONY WAYTE Fifth Defendant
Hearing: 8 September 2011
Appearances: S P Rennie and J E Bayley for the Plaintiffs [250] I M Gault and J Q Wilson for the Plaintiffs [381] S Rowe for the First and Second Defendants
M E Parker and A J Nash for Dean & Associates
ROBERT HUBERT BOSOMWORTH AND DOREEN MARGARET BOSOMWORTH V KEITH WALLACE PHEASANT HC TIM CIV 2010-476-000250 16 September 2011
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
16.09.11 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
S P Rennie/J E Bayley, Rhodes & Co Lawyers, Christchurch – [email protected] /
I Gault/J Wilson, Bell Gully, Auckland – [email protected] / [email protected]
S Rowe, Buddle Findlay, Christchurch – [email protected]
M E Parker, Barrister and Solicitor, Queenstown – [email protected]
CIV 2010-476-000381
AND BETWEEN ARTHUR CHARLES THOMPKINS AND ANGELA ROSEMARY TOMPKINS Plaintiffs
ANDKEITH WALLACE PHEASANT First Defendant
ANDANISA JANE PHEASANT Second Defendant
ANDPHEASANT CONSULTANCY LIMITED Third Defendant
ANDDEAN & ASSOCIATES Fourth Defendant
ANDDAVID ANTHONY WAYTE Fifth Defendant
These claims by the Bosomworths (CIV 250) and the Tompkins (CIV 381) concern investment funds in the sum of $1m and $1.5m respectively paid by them to Dean & Associates (Dean), solicitors for Mr and Mrs Pheasant and Pheasant Consultancy Limited (PCL) in conjunction with the formation of a company Waiareka Valley Dairy Farm Limited (WVD) which was formed to own and operate a dairy farm near Oamaru.
[1] The summary judgment claims of the Bosomworths and the Tompkins focus on the actions of Dean in receipting their investment funds and what was done with those funds subsequently. The plaintiffs claim Dean owed them duties and have assumed responsibility to them for the fact, they claim, that those funds should not have been released for the purpose of purchasing the farm. They say their funds should have been held to their account and were returnable to them in the event:
(a) They were not issued 10 per cent and 15 per cent respectively of the shares in WVD; and
(b)That the purchase proposal proceeded in accordance with representations contained in an Information Memorandum (IM) by which they were invited to invest in the purchase proposal.
[2] This judgment will review claims that the plaintiffs investment in WVD have been solicited by the IM given by Mr Pheasant to Mr Bosomworth. Mr Bosomworth in turn provided a copy to Mr Tompkins. The Bosomworths and the Tompkins are English nationals.
[3] The IM made representations about the equity investment sought by WVD, the proposed debt financing, and the issuance of shares after the total subscriptions had been receipted into Dean‟s trust account.
[4] This judgment will review correspondence and communications with the plaintiffs at about the time their funds were deposited into Dean‟s trust account.
[5] In the case of the Tompkins, correspondence between them and their legal advisors on the one hand and Dean on the other focussed upon requests for the payment to be made. Ultimately their investment contribution of $1.5m was receipted on 20 June 2008. Before then Mr Coleman of Dean emailed Mr Tompkins on 11 June 2008 as follows:
We act for Waiareka Valley Dairy Farm Limited and its director, Keith
Pheasant.
We understand that you will be purchasing a 15 per cent shareholding in the company, equivalent to NZD$1.5m investment.
We attach deposit slip to our firm‟s trust account which will receipt your
funds before issuing you with a share certificate.
[6] The Bosomworths paid the sum of $1m to Dean on 17 June 2008 in response to receipt from Dean of a trust account deposit slip.
[7] The plaintiffs say Dean had knowledge of circumstances which alerted Dean, pre receipt of investment funds, to issues which significantly affected the proposal in particular because investor levels fell far short of expectation which impacted upon the plaintiffs‟ position as overseas investors. Further, by the terms of the IM and in the process by which they requested the plaintiffs‟ funds, it is claimed Dean assumed responsibilities to the plaintiff to retain their funds and not to have permitted them to be used by WVD into whose account the funds were receipted when received from the plaintiffs.
[8] In short, the plaintiffs‟ claim Dean assumed responsibilities to them as trustees of their funds.
[9] This judgment will focus upon factual circumstances arising pre investment giving rise to Dean‟s knowledge of the circumstances in which, it is claimed, trustee obligations arose. It will also focus upon some events post payment.
[10] The plaintiffs‟ position is that in the circumstances in which Dean received the investment funds a Quistclose trust arose and therefore Dean has a responsibility to repay the investment funds which the plaintiffs say are now lost.
[11] Dean says the plaintiffs‟ claims are being pursued as an afterthought and in an attempt to secure an advantage over other creditors of WVD. Draft accounts for the year ended 31 May 2009 indicate that WVD had negative equity of about $3.3m.
[12] The Bosomworths had made two previous investments in connection with dairy farm ownership proposals promoted by Mr Pheasant. In late 2007 or early
2008, Mr Pheasant spoke to Mr Bosomworth concerning the WVD proposal. In about February 2008, Mr Pheasant posted the IM to the Bosomworths.
The Information Memorandum
[13] The IM is a lengthy document. It contains an invitation to join as an investor in a 330 hectare North Otago dairy farm near Oamaru. It indicates the investment involved purchasing a shareholding in WVD.
[14] The proposal indicated that there was no prior significant history of dairy farming in the area.
[15] Other aspects of the proposal included:
The intention is to have equity of approximately 60 per cent in WVD
and borrowing of 40 per cent.
Investor equity capital of $10m is sought at the start of the project at
31 May 2008 and term debt of $7.5m will be raised from a trading bank. Seasonal funding will be included in the debt funding package.
There will be one share issue for each $10,000 invested making a total of 1000 issued.
Shareholder equity
The new investors are expected to contribute their capital in two parts: the initial 10 per cent when they agreed to become shareholders of WVD and the balance by 30 May 2008. The deposit will be available to the company to pay for development which will be undertaken before the settlement of the purchases of the farms. Interest of 10 per cent will be paid by the company for all monies invested into the company for investment.
Atotal of $10m of shareholder equity is being sought as a base for the company‟s financial position. The remainder of the company‟s funding will come from bank debt.
Bank loan
The company‟s bank will be the National Bank of New Zealand.
Investment structure
The investment in WVD will be through the ownership of shares.
The company will have 1000 shares... these will initially be allocated to investors at $100 per share.
Shareholders will also make shareholder advances to the company totalling 9,900 for each fully paid share held.
Fundswill be paid initially to the trust account of Messrs Dean & Associates, solicitors for WVD, and then used to settle all purchases and development expenditure. The funds will be receipted and the relevant share transfers and certificates issued once the total funds have been cleared.
Financial projections
Forecasts have been assembled and are presented with the understanding that they are intended for limited use, which implies that they will be used only by WVD and any third party with whom the company‟s negotiating with directly.
We have no responsibility to update this report for events and circumstances occurring after the date of this report.
Pre investment events
[16] It is correct as Mr Gault submits that the factual foundations of the Tompkins‟ claims are mostly uncontentious. That may also be said in the case of the Bosomworths‟ claim save with respect to how certain events and correspondence between the parties ought to be considered.
[17] The IM explicitly incorporates the use of Dean‟s trust account to receipt the investment funds. Mr Gault and Mr Rennie on their clients‟ behalf assert there was a degree of pressure brought by Dean for the purpose of obtaining the investment funds due from the plaintiffs. Each was urgently requested for the payment of funds upon the basis they would be used to acquire 15 and 10 per cent shareholding respectively in WVD. Each asserts it was upon the basis that shares in WVD would be issued once the funds were receipted. In the Tompkins case there is reliance upon
the IM and upon Dean‟s email dated 11 June 2008. In the Bosomworths‟ case
reliance is made upon the IM.
[18] The plaintiffs are now aware that earlier in May 2008 Dean had advised another prospective purchaser that WVD‟s subscription target had not been met. Ashburton solicitors on behalf of another company had written to Dean on 23 May
2008 on behalf of a potential investor. The solicitors requested advice about whether the shares on offer had been subscribed for. Dean responded on 26 May 2008 with advice that all shares on offer had not been subscribed to. Dean advised that WVD would issue shares directly to incoming shareholders; that when funds were receipted the company‟s accountant would attend to the issue of the requisite share parcel.
[19] In response to that letter, the Ashburton solicitors advised:
On the basis that the shares have not been fully subscribed for, our client company is reluctant to invest at this point in time.
[20] On 8 June 2008 Mr Pheasant sent an email to Mr Coleman advising that as at that time equity investor funds totalled no more than $4.3m. The plaintiffs argue it was clear that as at 8 June 2008 the investment payment due from the Bosomworths and the Tompkins would far exceed the percentage allocation they agreed to acquire and that could present Overseas Investment Act 2005 (OIA) issues. Regardless, the pending purchase of the Oamaru farm could not proceed unless further borrowings were obtained. This would present its own issues for profitability in due course.
[21] Ultimately the farm purchase proceeded on 23 June 2008 and not 30 May
2008 as had been planned. The delays occurred in part due to the fact that shareholder investment equity totalled about $5.5m or much less than originally anticipated. Also, additional debt funding was therefore required. The National Bank would no longer be prepared to provide for this but instead alternative and more expensive funding was obtained from elsewhere.
Considerations
[22] The plaintiffs claim is not made on the basis of any solicitor/client relationship. Clearly Dean did not act for the plaintiffs but rather for Mr and Mrs Pheasant, PCL and WVD. The obligations pleaded by the plaintiffs to exist arise, they allege, from the circumstances in which their investments were paid to Dean‟s trust account. The allegation rests upon claims that the funds were not to be used for the purpose of farm purchasers until shares in WVD had issued to the plaintiffs. As well, it is claimed that Dean had information which it knew would have prevented the plaintiffs from acquiring a shareholding to the level subscribed for, in the context of events whereby insufficient numbers of shareholders subscribed which meant additional borrowings would be required to complete the purchase of the farms. In that situation the plaintiffs say Dean should not have enabled WVD to use their investor funds to complete the purchase of the farm.
[23] As earlier noted, the plaintiffs summary judgment claim relies upon the authority of House of Lords in the Quistclose case [1]. In that case a company in financial difficulties was loaned funds by a bank for the specific purpose to pay a dividend to investors. Lord Wilberforce [pp 580 and 581] said in that situation:
... arrangements of this character for the payment of a person‟s creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in a series of cases over some 150 years.
[1] Barclays Bank v Quistclose Investments Ltd [1970] AC 576.
[24] Noting a line of apparent inconsistent authorities concerning payments for the purpose of obtaining an allotment of shares, Lord Wilberforce said of those cases:
I do not think is necessary to examine these cases in detail, nor to comment on them, for I am satisfied that they do not affect the principle on which this appeal should be decided. They are merely examples which show that, in the absence of some special arrangement creating a trust... payments of this kind are made upon the basis that they are to be included in the company‟s assets. They do not negative the proposition that a trust may exist where the mutual intention is that they should not.
[25] Lord Wilberforce referred to a special arrangement for the creation of a trust. He explained:
There is surely no difficulty in recognising the coexistence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose...: when the purpose has been carried out (i.e. the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (i.e. repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor‟s assets) then there is an appropriate remedy for recovery of the loan. I can appreciate no reason why the flexible interplay of law and equity cannot let in these practical arrangements, and other variations if desired: it would be to the discredit of both systems if they could not. In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it.
Although shares subscription cases do not fall into that kind of arrangement for which the creation of a trust is usually associated, there appears no reason why because it is a share subscription proposal that indeed such a trust could not be created. Largely it depends on the arrangement made, what words were used, what actions were taken.
[26] Mr Gault‟s case on behalf of the Tompkins is that once the Court is satisfied there has been a breach of trust then responsibility arises in circumstances akin to strict liability. As Mr Gault submits, correctly I consider, that if there is a breach of trust then the Court need not look to determine findings of intent or proper purpose. The Court need only be satisfied there has been a breach. But, of course whether or not there has been a breach depends upon whether or not the Court is satisfied there has at all been the creation of a trust of a kind the plaintiffs plead.
[27] Counsel referred the Court to the case of Twinsectra [2]. That case too involved a solicitor and an undertaking given by him. The solicitor acted for a client wishing to purchase land for which purpose the client needed to borrow funds. A lender was found but was only willing to loan funds if repayment was secured by the solicitor‟s personal undertaking. Ultimately the funds were loaned upon a solicitor‟s representation that the loan monies would be retained until such time as they had been applied in the acquisition of the property and that their monies would be
utilised for no other purpose.
[2] Twinsectra Ltd v Yardley [2002] ALL ER 377.
[28] The Court held that the undertaking made it clear that the money was not to be at the free disposal of the borrower and that the solicitor was not to part with the money except for the stated purpose; that a power to apply the money in “the acquisition of property” was sufficiently certain for the creation of a trust; that the lender had not intended to create a trust was irrelevant; and that, accordingly, the solicitor held the money on trust for the lender subject to a power to apply it by way of a loan in accordance with the undertaking with the result that the money remained the lender‟s money until such time as it was so applied.
[29] In that case the Court was persuaded by a specific undertaking demanded and informed which made it clear that funds were not to be at the free disposal of the client to who‟s account it was intended; rather that the money was not to be given over except for the stated purpose i.e. to purchase a property. The question was whether there was sufficient certainty to create a trust. It concerned an examination of the intention of the words conveyed by the transfer of the funds.
[30] In this case if the terms of payment are quite certain in that the funds were to be paid over only if shares were issued beforehand and only if a shareholding of 10 and 15 per cent respectively could issue in that result, and only if $10m of shares to subscribers were issued, then there was a trust and in breach of that the plaintiffs funds were made available for the purchase of the farm.
[31] The plaintiffs‟ position is that the money was to be held until it was applied for the purpose intended and that if it was applied for any other purpose then it should be returned to the plaintiffs.
[32] In my discussion with counsel concerning the plaintiffs‟ assertions of strict conditions applying in relation to the disbursements of funds from Dean‟s trust account, I enquired what value or importance could be ascribed to the issue of shares. The response of Mr Gault was the requirement for the issue of shares was not a matter of saying those would provide additional security for the advances because indeed those shares may not have assisted the plaintiffs in the event of WVD‟s insolvency. Rather he said, it was a case of the monies being applied for one purpose only and not being used for another. Counsel‟s submission was that if the
plaintiffs had understood the true position (concerning the less than expected investor uptake) then the plaintiffs would not have invested at all.
[33] I gathered from that response that it was not the actual act of issuing shares but rather the fact that Dean should not, as a precursor to issuing shares, have received the plaintiffs‟ funds at all in circumstances knowing, as it is alleged they did, that the purchase could not proceed because investor share capital was less than forecast.
[34] Such an argument proceeds in reliance upon the statements contained in the
IM much more that was contained in Dean‟s email advice to the Tompkins on 11
June 2008, yet, it appears a cornerstone of the plaintiffs Quistclose case argument that because their investment did not proceed on the basis of the issue of shares they should be entitled to a repayment of the funds deposited in Dean‟s trust account.
[35] A second arm of the plaintiffs‟ claim is an allegation of deceptive/misleading conduct pursuant to the Fair Trading Act. In response to Dean‟s claim that it was merely a conduit for receipt of funds and transfer to WVD, Mr Gault submits the very words of Dean‟s email dated 11 June 2008 to the Tompkins conveys the contrary position.
[36] Contrary to the position of Dean which urges that the words “we understand” refers to a statement of the firm‟s understanding of the position, the plaintiffs submit it is an indication of a position independent from that of their clients.
[37] The plaintiffs do not allege it was a duty of Dean to advise the plaintiffs in any sense akin to which a solicitor has that responsibility to a client. But, when asserting that they would be provided a shareholding in a percentage of the whole then the plaintiffs say Dean had to be careful to ensure their client was advised that percentage share was available when the investment amount was requested. It is not, the plaintiffs say, a relationship which arises as between solicitor and client for such is not the basis of a Fair Trading Act claim. Rather because there has been a breach of trust there was a responsibility to make good the loss that arises because of the misrepresentation (albeit implied) of shares proportionate to investment and because
such a misrepresentation was an effective cause of the plaintiffs decisions to invest. Therefore the plaintiffs claim they are entitled to recover the total amount of their investment sums paid.
[38] The plaintiffs‟ position is that the relevant legal principles are not in dispute, nor are the facts. Also, the legal processes of discovery and interrogatories will produce no more than has been already, without those processes being engaged.
[39] The plaintiffs do appear to concede Mr Pheasant‟s claims that he informed the Bosomworths of changes in the debt/equity ratio. Mr Rennie warns that the context of this argument should not affect the overall position which the plaintiffs rely upon in particular the requirement for the issue of shares before funds were released for the purchase of the farm.
[40] After all, submits Mr Rennie, shares could not have issued to any greater level than were allowed by the OIA save by an exemption granted pursuant to the provisions of that Act. It follows, the Court is to infer that the plaintiffs would not have subscribed unless certain that OIA process would not have prevented their investments.
[41] Mr Rennie acknowledges that the only evidence proffered by Mr Pheasant in response to the Bosomworths‟ Fair Trading Act claim concerns Mr Pheasant‟s claims of pre investment discussions including advice of reduced investment subscriptions.
[42] Mr Rennie submits I should reject Mr Pheasant‟s claims because:
(a) If Mr Pheasant had changed the investment „recipe‟ then surely that would have been referred to in his solicitor‟s email dated 11 June
2008.
(b)The discussions between Mr Pheasant and Mr Bosomworth occurred prior to 11 June 2008.
(c) No document supports Mr Pheasant‟s claims.
(d) Why would the plaintiffs proceed if the „recipe‟ had been changed
because the plaintiffs were aware of OIA requirements?
Conclusions
[43] These will focus upon:
1. Summary judgment application principles.
2. The terms of the arrangement.
3. The role of Dean when the plaintiffs‟ investment funds were paid.
Summary judgment
[44] The plaintiffs‟ applications for summary judgment were not made at the time the claim was commenced. Accordingly, and as was required, the plaintiffs applied for leave to apply for summary judgment.
[45] As advised to counsel at the beginning of the hearing, I directed that leave be granted. Clearly the application was filed late for it could have been made earlier than it was even accepting, as I should, the plaintiffs claim that recourse to summary judgment was a decision made after discovery and the issue of interrogatories and in particular, the process thereof. The gathering of information concerning difficulties about raising sufficient share equity.
[46] Delay notwithstanding, I was persuaded by the fact that there could be no material detriment to Dean if leave was granted. The relevant facts in this case are well settled, even if, at times, the parties do not agree upon the interpretation of those.
[47] In support of their summary judgment application the plaintiffs rely upon Rule 12.2 which enables the Court to award judgment summarily when there is no defence or when no cause of action by the plaintiff can succeed. In this case the
plaintiffs must satisfy the Court that Dean has no fairly arguable defence to the claims. In assessing this, the Court may resolve complex questions of law.
[48] The Court is not required to uncritically accept statements made in an affidavit where they are equivocal, inconsistent with contemporary documents, or inherently improbable [3].
[3] Eng Mee Yong v Letchumanan [1980] AC 331, 341 per Lord Diplock.
[49] As the Court of Appeal observed in Bilbie Dymock Corporation Ltd v Patel [4], the need for judicial caution “has to be balanced, when considering a summary judgment application, with the appropriateness of a robust and realistic judicial attitude when that is called for in the particular facts of the case. In the end it can only be a matter of judgment on the particular facts.
The arrangement
[4] (1987) 1 PRNZ 84 at 85-86.
[50] The Bosomworths allege:
... that Dean would hold the investment monies for the benefit of the Bosomworths and at a minimum not preventing investment monies to be disbursed unless:
(a) The Bosomworths could lawfully receive shares in WVD at the time the funds were disbursed; and/or
(b) The representations in the IM were correct at the time the funds were disbursed.
[51] The Tompkins allege the trust as:
The Tompkins‟ funds were impressed with a trust the terms of which were that the Tompkins‟ funds be receipted, held and disbursed by Dean only for the purpose of transacting the Tompkins subscription of shares in WVD with the characteristics represented in the IM.
[52] The Bosomworths claim alleges two terms or conditions be met before the monies were disbursed, neither of which terms were ever expressed verbally nor in writing. As with the Tompkins, the Bosomworths claim was predicated upon representations made in the IM, provided to the Bosomworths by Mr Pheasant. The
claim is that those representations were still operative without change at the time the
investment monies were disbursed, that this was known to Dean, that any change was not known to the Bosomworths, and that it was not known by the Bosomworths that their investment monies were not going to be immediately invested in the purchase of the farm, and that the issue of shares would precede any disbursement for farm purchase.
[53] This claim needs to be measured against the evidence of Mr Coleman for Dean. Therein is reference to a claim of advice given by Mr Pheasant to the Bosomworths in or around April or May 2008 of problems with settlement with one of the properties comprised in the purchase block; that WVD was urgently seeking more share subscriptions as shares had not been fully subscribed; that WVD was having problems obtaining finance with its banker and was unlikely to confirm the finance required; and, as the shares have not been fully subscribed, increased funding was being sought to enable settlement of the properties to take place.
[54] Mr Bosomworth confirms these conversations took place. It follows Mr Coleman claims that in the result the Bosomworths were aware the funds were to be immediately applied to the purchase of the properties and that the representations in the IM had not been confirmed. Mr Coleman notes that the Bosomworths made no enquiry of Dean in relation to share issue in advance of their deposit into Dean‟s trust account. Further, and despite notification as to WVD‟s problems, the Bosomworths apparently and subsequently indicated to Mr Pheasant that their friends the Tompkins might be prepared to invest and in fact encouraged the Tompkins to do so. Mr Coleman concludes that it is clear that the Bosomworths were aware there had been some clear divergence from what is represented in the IM but nevertheless proceeded to invest their funds.
[55] In his response affidavit Mr Bosomworth does not challenge these claims. He merely says that he had discussions with Mr Pheasant as telephone records indicate, on 7, 14 and 17 May 2008, and that throughout the course of those Mr Pheasant said he was still seeking investors.
[56] That should be compared with Mr Bosomworth‟s interrogatory answer given on 27 May 2011 wherein he says: “During our final discussions, Mr Pheasant
indicated he had verbal confirmation from potential investors that they would be investing and was therefore satisfied that all of the shares would be subscribed for. My impression was that all of the shares would be subscribed for”.
[57] As Mr Parker observes, no confirmatory enquiry was made by Mr Bosomworth or Mr Tompkins, nor anyone on their behalf, to Mr Pheasant to ensure the requisite number of investors had been obtained; nor about the impact that any failure to do so would have upon the percentage of equity in WVD that the plaintiffs wanted to take.
[58] Mr Tompkins states he was given the IM in May or June of 2008. He said he asked Mr Bosomworth further questions about the investment. However, his questions focussed on aspects of farming and milk production and did not relate to the structure of the business, and he said he considered the investment to be low risk.
[59] Although the plaintiffs place reliance upon the IM that document is no more than what it is described as namely an Information Memorandum. It was not a contract. It alerted prospective investors to the fact that their investments would largely comprise a shareholder advance; it referred to funds being initially paid to Dean‟s trust account for WVD for use to settle purchases and development expenditure.
[60] The plaintiffs claim a Quistclose type trust was created in this case. Mr Parker submits that for Quistclose to succeed in the Quistclose case, there had to be positive answers on two questions:
1.Whether as between the lender and the borrower, the terms upon which the loan was made were such as to impress upon the sum a trust in the lender‟s favour in the event of a dividend not being paid from the funds advanced; and
2.Whether, in that event, the payer of those funds had such notice of the trust as to make the trust binding upon it.
[61] That that case Lord Wilberforce held that the mutual intention of the lender and borrower and the essence of the bargain was that the sum advanced should not become part of the assets of the borrower but should be used exclusively for a payment to those entitled to the dividend.
[62] In this case, arguably, there is no such intention manifested in any document or communication. What happened to the plaintiffs funds was as contemplated by the IM, for the purchase of the farm properties. Only a minor part of the monies paid were consideration for the shares. Mr Parker submits there was no express statement, term or condition precluding disbursement of funds pending the issue of the shares. Dean was not involved in any negotiation with the plaintiffs at all. To the contrary the evidence suggests the plaintiffs confirmed all communications about their investment were between them and Mr Pheasant.
[63] The plaintiffs submit that the issue of shares was a precursor to the use of the funds but arguably the IM makes it clear that the issue of shares was to follow the purchase. Certainly no other communications from the plaintiffs prior to or at the time of their investment or subsequently, disclose an unequivocal requirement for the use of those funds for the sole and exclusive purpose of obtaining the issue of shares. Rather it appears the purchase of farm properties was a primary purpose of paying the funds at the time they were paid. The evidence does not disclose any intention that the plaintiffs‟ funds were not to be included in the company‟s assets.
[64] The plaintiffs‟ position is that their investment never became part of WVD‟s assets. If that is correct then the plaintiffs have had a right to trace those funds into the purchased farms; action could have been taken to recover those funds and to be paid out ahead of all other creditors. No such action was taken by the plaintiffs.
[65] At the heart of the trust argument is a claim for a breach of duty by a fiduciary and that has caused loss over which compensation is available. However it is clear that upon such claims matters of causation, foresee ability and remoteness come into play and these matters can only properly be assessed upon an examination at trial. They are not usually appropriate for resolution in a summary judgment context.
Dean’s actions – Fair Trading Act allegations
[66] The plaintiffs state that Dean engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986. Section 2 of the Act makes it clear that an omission to do an act, as Tompkins alleges, can constitute engaging in conduct as per s 9. In AMP Finance New Zealand Ltd v Heaven [5] the Court of Appeal identified the following three questions for consideration in cases where a breach of s 9 of the Fair Trading Act was alleged:
[5] (1997) 8 TCLR 144 at p 152.
(a) Was the conduct capable of misleading?
(b) Was the person to whom the conduct was directed in fact misled? (c) Was it reasonable for him or her to be misled?
[67] The Tompkins rely upon the email dated 11 June 2008, and as well allege an omission to alert them that the circumstances represented in the IM had changed.
[68] In my assessment it is arguable on the facts that the email would not have persuaded the Tompkins to make the investment as they had already agreed to do so. Rather and as Mr Parker suggests the email serves an administrative purpose, the provision of trust account details, and it relayed Dean‟s understanding of the situation regarding the Tompkins‟ investment. Also arguably it was clear that the author of that email was not the source of the information.
[69] In the circumstances there could have been no reasonable expectation of disclosure by Dean to Tompkins or that Dean should have volunteered matters of importance to the Tompkins. Arguably Dean was just a conduit for the receipt of funds and was not retained to provide advice regarding the value of the investment in WVD; that the Tompkins did not make any enquiry of Dean as to any of the matters contained in the IM. All of the Tompkins dealings in terms of their investment were with Mr Pheasant. Also the Tompkins engaged their own advisors for the purposes
of the transaction.
[70] Mr Gault submits that the words in the email “we understand” connote a degree of independence and responsibility with respect to receipt of the Tompkins funds. An opposite view of the use of those words is equally arguable. The fact is that those words were immediately preceded by the words “We act for WVD and its director Keith Pheasant”. Such might indicate that Dean was merely relaying information as conveyed to it by its clients.
[71] The Bosomworths‟ case of an FTA breach relies on allegations that Dean omitted to advise them that the circumstances as outlined in the IM had changed. Contrary to that claim are the apparent clear and unambiguous communications in the series of telephone calls earlier referred to which would have alerted the Bosomworths to changes in the circumstances as represented in the IM. As earlier noted the sole communication from Dean to the Bosomworths regarding the investment was a facsimile dated 10 June 2008 enclosing a copy of a trust account deposit slip.
[72] As in the case of the Tompkins so too did the Bosomworths engage the services of New Zealand solicitors for advice in connection with the investment.
[73] In the course of their submissions plaintiffs‟ counsel placed much significance upon OIA considerations. It was submitted the plaintiffs may end up with more shares than they bargained for because fewer persons had subscribed than were expected. The plaintiffs say that could have caused them to be in breach of the OIA.
[74] In my assessment the OIA issue did not appear to become a factor of significance until about the time these proceedings were issued. Indeed until then correspondence between solicitors appeared to be focussed on ways of managing the OIA issues to the mutual advantage of the parties.
Summary
[75] The summary judgment procedure is not usually appropriate for disposing of a case in which a fiduciary relationship is alleged, particularly where the parties
appear to be at variance on factual matters describing that relationship. It is difficult in that situation to make findings as to the fiduciary nature of the relationship and everything that that entails. Although basic facts may be agreed, inferences to be drawn from those may not so easily be obtained. Also and in this case Dean has pleaded contributory negligence in relation to the Bosomworths and as well against WVD, a party not before the Court. There is, it seems, a fuller picture to be examined.
[76] The matter cannot be disposed of as readily as plaintiffs‟ counsel submits. A Quistclose trust may be created in circumstances as pleaded by the plaintiffs but only where the terms of the payment arrangement are clear and unequivocal and arguably here there is no such clarity or certainty.
Result
[77] The applications for summary judgment are dismissed.
[78] This is an appropriate case for the fixing of costs once the merits of the
parties‟ respective positions is examined at trial. Accordingly costs shall be reserved.
Associate Judge Christiansen
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