Burmeister v O'Brien and others HC Tau CIV 2005-470-3396

[2009] NZHC 1575

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IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2005-470-3396

UNDERthe Land Transfer Act 1952, the Credit Contracts and Consumer Finance Act 2003 and the Fair Trading Act 1986

BETWEEN  KENNETH SIDNEY BURMEISTER AND VALERIE JOAN BURMEISTER Plaintiffs

AND  JOHN LESLIE O'BRIEN First Defendant

AND  GILLIAN SANDRA O'BRIEN Second Defendant

ANDGEOFFREY PETER CLAYTON Third Defendant

ANDJOHN FREDERICK CLAYTON Fourth Defendant

ANDMARK HENLEY-SMITH Fifth Defendant

Hearing:         23, 24, 25, 26, 27, 31 March, 1, 2, 3 April and 9, 10 June 2009 (Heard at HAMILTON)

Appearances: D Chesterman for Plaintiffs

J McDowell for First and Second Defendants
P Ross for Third Defendant
F Dennehy for Fourth Defendant
C R Pidgeon QC for Fifth Defendant

Judgment:      1 December 2009

JUDGMENT OF ASHER J

This judgment was delivered by me on 1 December 2009 at 4 pm pursuant to Rule 11.5 of the High Court Rules

………………………………………..

Registrar/Deputy Registrar

………………………………………..

Date

KENNETH SIDNEY BURMEISTER AND VALERIE JOAN BURMEISTER V JOHN LESLIE O'BRIEN And

Ors HC TAU CIV-2005-470-3396 [1 December 2009]

Table of Contents

Paragraph

Number

Preliminary  [1]

Events from the Burmeisters’ perspective  [4]

What  actually  happened  to  the  Burmeisters’  title  to  Lotus

Avenue?

[32]

The statement of claim  [48]

Deceit claim against Geoffrey Clayton  [52]

Approach to deceit  [53]

The contract between Geoffrey Clayton and the

Burmeisters?

[60]

Did  Geoffrey Clayton  say  that  Lotus  Avenue  would  be placed into a secure family trust?

[67]

The honesty of the statement  [69]

Conclusion on deceit  [88] Fair Trading Act 1986 claim against Geoffrey Clayton  [91] Accessory liability claim against Geoffrey Clayton  [92] Approach to accessory liability  [92]

Was there accessory liability?  [97] Relief against Geoffrey Clayton  [100] Deceit claim against John Clayton  [101] The Fair Trading Act claim against John Clayton  [118] Was John Clayton in trade?  [120]

Were there misrepresentations by John Clayton?  [122] The claims against the O’Briens  [127] Land Transfer Act fraud  [130] Conclusion on Land Transfer Act fraud  [173] Accessory liability  [176] Recovery of losses in addition to the return of the property  [180] The claims against Mr Henley-Smith  [182]

Paragraph

Number

Mr Henley-Smith’s involvement  [183]

Mr Henley-Smith  –  submission  in  support  of  negligence allegation

[203]

Approach to determining whether a duty of care exists  [205]

The effect of signing the solicitor’s certificates – to whom is the certification directed?

Did    Mr Henley-Smith    owe    a    duty    of    care    to    the

Burmeisters?

[206]

[214]

Accessory liability  [240]

Breach of fiduciary duty  [246]

Claim  under  the  Credit  Contracts  and  Consumer  Finance

Act 2003

[249]

Laches  [268] Limitation defences  [277] Clean hands  [288] Contributory negligence  [290] Conclusion  [291] Result  [296]

Preliminary

[1]      Kenneth   and   Valerie   Burmeister   are   a   retired   couple   who   live   in Mt Maunganui.   In 2001 they owned their own modest debt-free freehold home. Today, after having entered into a series of transactions that are the subject matter of these proceedings, they no longer own their home, and it is encumbered by debt of over half-a-million dollars.   They occupy their house because the mortgagee, the ASB Bank, has chosen not to take possession of it or sell it down to the present time. It is the Burmeisters’ perception that they have lost everything as a consequence of the wrongful and unlawful actions of the defendants and their associates.

[2]      These proceedings are directed against the trustees of the O’Brien Trust, who are now the owners of the Burmeisters’ former home, (the first and second defendants, the O’Briens), the person who promoted the scheme they signed up for (the third defendant, Geoffrey Clayton), the person who introduced them to Geoffrey Clayton (the fourth defendant, John Clayton, who is Geoffrey Clayton’s father), and a lawyer who acted for, amongst others, the O’Brien Trust, (the fifth defendant, Mark Henley-Smith).  The Burmeisters say that all these defendants wronged them in various ways, and they seek redress in these proceedings.  They want their home back, unencumbered.  They want things to be put back to the way they were.

[3]      There  are  two  different  stories  to  be  told  in  this  case  about  how  this unfortunate situation arose.  The first is what the Burmeisters say they were told and what they did in relation to their home.  The second is what actually happened to the title to their home.  I will set out these two narratives, and then consider the causes of action against the defendants.   In excess of 300 pages of submissions have been filed, and the claims against each defendant are different.  The result, regrettably, is a long judgment.

Events from the Burmeisters’ perspective

[4]      Mr Burmeister is now 67 years of age and Mrs Burmeister is 65.  They have been married for 45 years and have four adult children and five grandchildren.  They

acquired their present home at 1 Lotus Avenue, Mt Maunganui (“Lotus Avenue”), in

1990.    Mr Burmeister  had  worked  in  freight  transport,  and  prior  to  moving  to Mount Maunganui  had  been  the  northern  regional  manager  of  a  freight  firm  in Auckland.  Following the move to Mount Maunganui Mr Burmeister was employed by another freight company to manage its Tauranga branch.   He worked at that branch until July 2000 when it was closed and he was made redundant.

[5]      By  2001   the   Burmeisters   had   paid   off  their   original   borrowing   on Lotus Avenue to the BNZ, although the mortgage remained against the title, and no discharge had been sought or provided by the BNZ.  They had no major debts and owned their own car and the usual chattels.  However, Mr Burmeister was only able to find part-time work and was often unemployed.  In June 2001 he was receiving the community wage.   He and Mrs Burmeister were not eligible for government superannuation.  They were barely managing on this income.  They were susceptible to any proposals of ways to improve their financial lot.

[6]      When Mr Burmeister was working in Auckland in the 1980s his immediate boss was the fourth defendant, John Frederick Clayton (“John Clayton”).  They had an excellent working relationship and Mr Burmeister considered that John Clayton had treated him well.   Mr Burmeister regarded him to be a good colleague and a trusted friend.

[7]      After the Burmeisters moved to Mount Maunganui, close contact with John Clayton ceased.  However, John Clayton and his wife moved to the nearby suburb of Papamoa in 1995, and the Burmeisters would run into him on occasions and have a chat.   Mr Burmeister sought his advice on several occasions on matters that arose from his job managing the freight office.

[8]      In mid to late June 2001 John Clayton telephoned Mr Burmeister at home. He asked Mr Burmeister what he was doing and Mr Burmeister told him that he had been made redundant the previous year.  John Clayton asked him whether their home was owned freehold.  He explained that he was now involved with his son, the third defendant, Geoffrey Peter Clayton (“Geoffrey Clayton”).  He asked Mr Burmeister whether he remembered Geoffrey Clayton.  Mr Burmeister said that he did indeed

remember him as a teenager, and he had once given him a holiday job as a rating clerk.  He had heard that he had become a pastor in a church in Hawkes Bay.

[9]      John Clayton told Mr Burmeister that his son was promoting a scheme where homeowners like them could earn money over a three-year period without putting their home at risk.  There was to be a meeting at the Papamoa Sports Club in about four weeks, and John Clayton invited  the  Burmeisters  to  that  meeting.    At  the conclusion of the conversation the Burmeisters were left with the impression that John Clayton was genuinely concerned about their welfare, and had approached them for that reason.

[10]     The Burmeisters attended the meeting in mid to late July.   The meeting started at 7:30 pm.   Both John and Geoffrey Clayton were present, together with about 50 other persons.  Mr Burmeister set out a detailed account of the meeting in his evidence.   In summary, Geoffrey Clayton started the meeting by saying that a company called Toi Te Atatu Limited (“Toi Te Atatu”) had developed an exciting new housing and investment scheme.  An invested freehold home could be used to create an income without putting the property at risk.   Geoffrey Clayton said that New Zealanders who owned freehold homes were not getting any financial benefit, and that the scheme had been devised to turn such unencumbered properties into income generating investments.   Mr Burmeister stated that Geoffrey Clayton said that the freehold home would be placed in a company or secure family trust.  The owners would then receive a weekly income dependent upon the value of the property.  The owners would also be eligible for a lump sum in cash or a new car or both.  He said that Toi Te Atatu had lawyers and that participants in the scheme did not need to spend money on instructing their own solicitors.   He invited those present to go away and think about the scheme.

[11]     The meeting finished at around 9:00 pm.  The Burmeisters did not stay, but they met Geoffrey Clayton as they were leaving and received his business card. About a week after the meeting Mr Burmeister called John Clayton and said that they did not really understand the scheme and had some more questions.   John Clayton said he would call around to their home the next day.  He duly came around to their home.  He inquired as to the value of their property, which the Burmeisters

estimated at about $200,000.  He said that if the Burmeisters joined the scheme, with a property of that value they could expect a weekly income of about $200 per week for a minimum of three years.  All that had to be done was to put their property into a company or secure family trust.  The home would be returned to them at the end of three years with no legal costs.  John Clayton also said that the company would pay all rates and insurance on the property.

[12]     The Burmeisters were attracted to the idea of putting the home into a secure family trust.  Mrs Burmeister had some 40 years earlier worked in a law firm, and thought  she  was  familiar  with  the  concept  of  trusts.    After  the  meeting  they considered the matter further.  The additional income they were offered would allow them to regain the standard of living that they had lost when Mr Burmeister had been made redundant.   They liked the idea of using their home to generate an income without  putting  it  at  risk.     They  could  see  the  income  from  the  scheme supplementing them financially until they became eligible for government superannuation, and allowing them to make overseas trips to visit elderly family members.  Mr Burmeister said of their thoughts at this time:

We still had some doubts about the scheme because it simply sounded too good to be true.  However, we kept reminding ourselves that we really did not have anything to worry about because we had been assured by John Clayton and Geoff Clayton that Lotus Avenue would be placed in a secure family trust and never be put at risk.

The Burmeisters said in evidence that they understood that if they joined the scheme they would continue to have effective ownership of the home.

[13]     John Clayton called the Burmeisters a week later and recommended to them that they join the scheme.   He told them of another meeting to be held in early September, again at the Papamoa Sports Club.  The Burmeisters decided to attend that meeting, which took place in early September 2001.

[14]     On the night before the second meeting they decided to join the scheme. They went to the Sports Club at about 10:00 am.  Those involved in the Toi Te Atatu scheme were there for much of the day and were meeting individual potential investors.    When  they  arrived  they  were  approached  by  Geoffrey  Clayton  and

ushered to a table in the main area of the clubrooms where they all sat down. Geoffrey Clayton asked them whether they had a made a decision as to whether they were going to “sign up”.  The Burmeisters’ evidence is that they said that they would join the scheme as long as the house was placed in a secure family trust.  This was agreed to by Geoffrey Clayton.  He explained how the scheme would work, and that they would receive weekly payments of $200 per week once their home was in the trust.  He said that they would also receive a cash lump sum of $15,000, and $7,000 for an overseas trip.  He worked out the figures on a calculator that he had with him. They were told that the weekly payments of $200 per week would not jeopardise their community wage.  They were told in answer to their questions that the weekly payments would start as soon as Lotus Avenue was placed in trust.

[15]     The Burmeisters say that Geoffrey Clayton advised that they could leave the scheme at the end of three years or continue for a further term of three years.  If they withdrew at the end of three years then the title to Lotus Avenue would be returned to them.  The Burmeisters asked whether they needed independent legal advice and were told by Geoffrey Clayton that the company solicitor would look  after  the agreement on their behalf and that it would be a waste of money for them to go to lawyers.  Geoffrey Clayton then moved away and another person connected with Toi Te Atatu, Mr Ray Haua, sat down and continued talking to them.

[16]     The Burmeisters say that shortly after he had left, Geoffrey Clayton returned to the table and presented the Burmeisters with a piece of paper.  They deposed that Geoffrey Clayton said that they had to sign the document to get matters under way. The Burmeisters thought that they were just acknowledging that they wished to join the scheme.   Mr Burmeister states that the document placed in front of him by Geoffrey Clayton was a single sheet of normal paper about half A4 size.  He was certain that there were some typewritten words on  the  piece  of paper,  but  was equally certain that there was no handwriting on it apart from the signatures after it had been signed.   He did not read the document as he thought it was only an acknowledgement that they had entered the scheme.  Mr Burmeister signed the paper and passed it on to Mrs Burmeister, who also signed it without reading it or further comment.   Mrs Burmeister said in her evidence that she thought that their names

were on the paper.  Both Mr and Mrs Burmeister were clear that they did not see the words “Land Transfer” or “Land Transfer Act” anywhere on the document.

[17]     The Burmeisters say that when the meeting concluded at about 10:30 am, Geoffrey Clayton requested that the Burmeisters get the title to Lotus Avenue so that it could be placed in a secure family trust.  Mr Burmeister said to him that he would get the title as soon as possible.  After the meeting Mr Burmeister called their former mortgagee, the BNZ, and requested the title to Lotus Avenue and the discharge of mortgage.  The documents were to be sent from Auckland for collection at Tauranga. It was going to take several days for this to be done.  In due course the documents arrived in Tauranga and the Burmeisters collected them in early October 2001.

[18]     Geoffrey  Clayton  had  called  the  Burmeisters  about  the  documents  and arranged for one of his associates to call at their home to collect them.  At around this  time  Mr Burmeister  got  a  call  from  a  valuer  who  said  he  had  received instructions to do a registered valuation on the Lotus Avenue property.   The Burmeisters assumed that this had been arranged by Geoffrey Clayton.  The valuer visited Lotus Avenue in late September 2001 and inspected the house.

[19]     One or two days later, on a date now identified at about 3 October 2001, the first  defendant,  John Leslie O’Brien  (“Mr O’Brien”),  visited  Lotus  Avenue  on Geoffrey Clayton’s behalf and collected the documents.   On calling at the Burmeisters’ door, he introduced himself and came inside.  When he was inside he pulled the documents out of the envelope to check what they were.  The documents were the transfer and the discharge of mortgage.  Mr O’Brien said that he was not sure what he would need but he would take everything.  He had a glass of water and then left.

[20]     On 10 October 2001 the Burmeisters received their first weekly payment of

$220.00.  The payment was organised by Mr O’Brien.  Over the next two months he manually deposited further weekly payments of $220.00.   The payments were somewhat erratic, and the Burmeisters had to contact Mr O’Brien about them.  By late   November 2001   the   weekly   payments   had   become   so   unreliable   that Mr Burmeister  complained  to  Mr O’Brien  and  required  the  setting  up  of  an

automatic payment.   There was an email exchange with Mr O’Brien about this. However, the weekly payments stopped altogether at about that time.

[21]     Mr Burmeister rang Geoffrey Clayton who said that control of the payments would be transferred to Auckland and administered by a company called CH Finance Limited.   An automatic payment would be set up.   Weekly payments of $220.00 resumed on 9 January 2002, made by CH Finance Limited.

[22]     The Burmeisters had been concerned that they had not signed any documents recording  their  participation  in  the  scheme.    On  9 April 2002  the  Burmeisters received an email from Geoffrey Clayton stating that he had documents for them to sign, and that his local agent, Shaun Finn, would arrange for the execution of the documents.  The Burmeisters were visited shortly after by Mr Finn at Lotus Avenue. He got them to sign a deed of agreement and a deed of acknowledgement of debt. Those  documents  were  between  the  Burmeisters  and  a  company  called  Opol Limited.  The documents, although they are dated 18 October 2001, were signed at some stage between 9 and 25 April 2002.  The Burmeisters say they briefly read the documents but did not understand them to do anything more than record their participation in the scheme.  The documents in fact record a buy-back arrangement for Lotus Avenue with Opol Limited, and a deed of acknowledgement of debt by Opol Limited for $215,000.

[23]     On 25 April 2002 the Burmeisters went on a six-week trip to South Africa. They received $7,000.00 from Geoffrey Clayton’s group towards that trip.

[24]     By August or September 2002 problems with the weekly $220.00 payments had arisen again.   The CH Finance Limited payment had been cancelled and the payments  were  being  made  manually.    Mr Burmeister  complained  to  Geoffrey Clayton about the situation and there was an email exchange.  Mr Burmeister started to  think  that  something  was  seriously  wrong.    He  visited  the  LINZ  office  in Hamilton to obtain a search of the title for Lotus Avenue.  He discovered that the property had been transferred to a trust known as the O’Brien Trust.   The owners were shown as John Leslie O’Brien and his wife Gillian Sandra O’Brien.

[25]     Mr Burmeister  requested  a  meeting  with  Geoffrey  Clayton  and  others involved in the scheme.  This took place on 14 October 2002 at Lotus Avenue.  The Burmeisters were present, as was Geoffrey Clayton, Shaun Finn and a John Daniels and his wife.   At this time Geoffrey Clayton was dealing with the Burmeisters through a company called Independent Creative Management Group Limited (“ICMG”).  The Burmeisters say that the meeting became heated, but that they were assured that their house was safe and in a trust, which was secure.  The assurances led them to believe that the house was still theirs, although temporarily held in the O’Brien Trust, and that there would not be problems with payments in the future. They decided to accept the assurances at that point.

[26]     The Burmeisters received a letter on 15 October 2002 from Mr Daniels of ICMG  saying  that  it  was  ICMG’s  commitment  that  their  property  was  safe. However, problems with the weekly payments of $220.00 continued.   There was another email exchange.

[27]     On 14 April 2003 the Burmeisters read an article published in the Sunday Star Times on 13 April 2003 describing a scam “run by various members of ICMG”. Mr Daniels and Mr Geoffrey Clayton were mentioned.  They say that they were then aware for the first time that they had been the victims of a scam.  At that point they approached independent solicitors.  Weekly payments ceased on 19 June 2003.

[28]     Through   the   whole   period   of   their   participation   in   the   scheme   the Burmeisters received in total approximately $26,000.00, made up of a $7,000.00 payment towards their trip, plus $19,000.00 in weekly payments.   This is to be contrasted with the $57,000.00 they would have received over three years if the

$220.00 had been paid per week, and they had also been paid the two lump sums referred to at [14]. It seems that some rates and insurance premiums were paid by ICMG, but others were paid by the Burmeisters to avoid default.

[29]     In 2003 there was a Serious  Fraud  Office investigation of the affairs of ICMG.  A statutory manager was appointed for ICMG and its associated companies, including Toi Te Atatu and Opol Limited.

[30]     On 10 February 2004, the Burmeisters had served  on  them  a  s 92  notice under the Property Law Act 1952 by the Auckland Savings Bank Limited (“the ASB”), as mortgagee of Lotus Avenue.  This was in respect of a mortgage from the O’Brien Trust to the ASB.  Through 2004 there were proceedings between the ASB and the O’Brien Trust and Geoffrey Clayton.  The ASB obtained summary judgment against the O’Brien Trust.  The O’Briens placed a caveat against the property.

[31]     On 20 October 2005 the Burmeisters filed these proceedings.  The ASB was a party.  On 30 August 2006 the ASB was struck out of the proceedings, following a defended hearing.

What actually happened to the Burmeisters’ title to Lotus Avenue?

[32]     The blank document signed by the Burmeisters at the early September 2001 meeting was a Land Transfer Act transfer form.  I will refer to it hereafter as “the transfer”.  For reasons that I will set out later I am satisfied that they did not know it was a transfer.

[33]     After the meeting in early September 2001, when the Burmeisters had agreed that they would join the investment scheme and signed the transfer, a sale and purchase agreement for Lotus Avenue was drawn up without their knowledge.  No one has acknowledged drafting this document.  It is known that this document was drafted  because  a  photocopy  was  obtained  on  discovery,  from  the  accountant Ms Patterson of Harding & Associates, who was a co-trustee of the O’Brien Trust. The document shows the vendor as ICMG Property Limited and the purchaser as the O’Brien Trust and/or Nominee.  The purchase price was shown as $215,000.00, and the possession date was stated to be 5 September 2001.  There is no reference to the Burmeisters in the agreement.  However, curiously, the Burmeisters’ signatures are affixed to this agreement.

[34]     It is common ground that the affixed signatures of the Burmeisters must be a forgery, as the signatures are identical to the signatures on the transfer that the Burmeisters signed at the second meeting in Papamoa.   Copies of their signatures have been in some manner copied from the blank transfer onto the agreement.  The

original agreement has not been found or produced.  The signature of the purchaser is partly obscured but it appears to be a signature of a J Daniels.  Mr J Daniels was associated with Toi Te Atatu.  He does not appear to have had any direct connection with the stated purchaser, the O’Brien Trust.  The date of the agreement was shown as 25 September 2001.

[35]     The agreement for sale and purchase has on it a fax header containing the words “The Mortgage Centre”, and an incomplete date entry for 2001.   Mr and Mrs O’Brien ran a company in Napier called The Mortgage Centre.

[36]     Discovery from the statutory manager of CH Finance Limited revealed a photocopy of a blank form of transfer signed by the Burmeisters.  Its origins are in contention.  For reasons that I will set out later I am satisfied that this is a photocopy of the blank transfer signed unwittingly by the Burmeisters at the second Papamoa meeting.  It shows their signatures as witnessed by Geoffrey Clayton.  The transfer is otherwise blank, save for the receipt notation.  The receipt notation on the photocopy of the blank transfer reads:

Original received 26/9/01.

There is then an indecipherable signature, and beside it the words “Mark Henley- Smith, Solicitor, Auckland”.

[37]     In September 2001 Mr Henley-Smith was not acting for the Burmeisters and they did not know each other.  Mr Henley-Smith was acting for a group of persons including Toi Te Atatu, whom I will refer to as the ICMG group.   This group of persons, using various companies, was running a business whereby it was soliciting the public and obtaining the transfer of properties to entities associated with the ICMG group.  The properties were generally freehold and owned by members of the public, often retired.

[38]     The individuals who have been identified in these proceedings as involved in the ICMG group include:

a)       The first and second defendants,  John  Leslie  O’Brien  and  Gillian Sandra O’Brien.   As noted, they ran a business in Napier known as The Mortgage Centre.  Their role in the ICMG group is discussed at [135] to [138].   They controlled an associated entity, the O’Brien Trust.    The  O’Brien  Trust  in  2001  had  three  trustees,  Mr  and Mrs O’Brien  and  an  accountant  who  acted  for  them,  Ms Patricia Patterson, and was a discretionary family trust.

b)Geoffrey  Peter  Clayton,  who  promoted  the  group’s  investment schemes.

c)       Mark Henley-Smith, a solicitor practising in Auckland, who acted for the group in its transactions.

d)       John Daniels, who was one of the leaders of the group. e)      Selena Daniels, a relative of John Daniels.

f)        Shaun Finn, who appeared to do work for the group at the bidding of

Mr John Daniels.

There were quite a number of other persons also involved with the group, and the full picture of how it operated did not emerge at trial.

[39]     On 1 October 2001 Ms Patterson, as a trustee of the O’Brien Trust, through her firm Harding & Associates, filed a loan application with the ASB, forwarded on the basis that the O’Briens owned the Lotus Avenue property.  Harding & Associates forwarded an agreement for sale and purchase relating to Lotus Avenue.  There is nothing to indicate that Harding & Associates was aware that it was the forged agreement for sale and purchase.   For reasons that I set out at [141]-[146] I am satisfied that it was the forged agreement.  A valuation was also forwarded, which was the valuation referred to at [18], which the Burmeisters were aware of, showing a value for the property of $222,000.00.  The loan application was for $172,000.00.

[40]     The ASB agreed to advance the loan to the O’Brien Trust by a letter of

3 October 2001,  sent  to  Mr Henley-Smith  as  solicitor  for  the  mortgagor.    The agreement for sale and purchase had clearly been a matter of importance to the ASB, as it recorded in its letter that “the purchase price recorded on the agreement for sale and purchase is the actual price paid on settlement”.  It is stated that if there are any differences in the price that the bank should immediately be contacted.   The ASB does not appear to have noted that the signatures shown on the agreement are those of  the  Burmeisters  and  Mr Daniels  and  not  a  representative  of  ICMG  and  the O’Briens.

[41]     On  or  about  3 October 2001  Mr Henley-Smith  certified  the  Burmeisters’

discharge of mortgage correct as “solicitor for the mortgagors”.  On 4 October 2001

Mr Henley-Smith wrote to the O’Briens enclosing for their signature a term loan agreement,  a  trustee  certificate  and  the  ASB  mortgage.     On  5 October 2001

Mr Henley-Smith obtained a guaranteed title search for Lotus Avenue, and on that day he witnessed the signatures of the O’Briens on the ASB mortgage document.  He certified the ASB mortgage as correct on that day.

[42]     On that day also, Mr Henley-Smith signed as  correct as solicitor for the transferee (shown as the O’Brien Trust trustees) the now filled in transfer form, signed  by  the   Burmeisters.     That   filled   in   transfer  showed   both   Mr   and Mrs Burmeister as the transferor, and Mr O’Brien, Mrs O’Brien and Ms Patterson as the transferees.   It was dated 5 October 2001.   The consideration was shown as

$215,000.00.

[43]     On 8 October 2001 Mr Henley-Smith sent a solicitor’s certificate, together with other relevant documents, to the ASB, confirming that he had complied with their instructions.   On  that  same  day ASB advanced  $172,000.00  into  his  trust account.  Mr Henley-Smith then paid that money to ICMG Holdings Limited.  He wrote to the O’Briens advising them of completion of the purchase, and sent out his statement of account to the O’Brien Trust.  On 16 October 2001 Mr Henley-Smith registered the O’Brien transfer, the discharge of mortgage and the ASB mortgage.

[44]     Thus,  within  the  space  of  approximately  a  month  from  the  Burmeisters signing the blank document at the Papamoa Sports Club in early September, their property had been transferred to the O’Brien Trust, mortgaged to the ASB, and

$172,000.00 had been advanced on the security of that mortgage and paid to the ICMG group.   As will be set out later, this was entirely without the Burmeisters’ knowledge.

[45]     Through 2002 the O’Briens attempted to transfer Lotus Avenue to another entity in the ICMG group.   On 1 February 2002 another agreement for sale and purchase of Lotus Avenue was drawn up, this time showing the O’Brien Trust as vendor and ICMG Property Management Limited and/or Nominee as purchaser.  The price was $178,000.00, with settlement on 20 March 2002 or sooner if mutually agreed.  This agreement did not proceed.

[46]     On 23 July 2002 another agreement for sale and purchase was signed, this time  between  the  O’Brien  Trust  and  CH  Finance  Limited,  another  company associated with Mr Daniels and Mr O’Brien.   On this occasion the purchase price was left blank.  The settlement date was 13 September 2002.  This agreement also did not proceed.   The Burmeisters were not informed about either of these agreements.

[47]     The property is still in the name of the O’Brien Trust, and mortgaged to the

ASB, which is now, with interest and legal costs, owed in excess of $500,000.

The statement of claim

[48]     Three causes of action are directed against the O’Briens, who are the first and second defendants.  The first cause of action relates to the transfer of Lotus Avenue into the O’Brien Trust.   It is asserted that in effecting the transfer the O’Briens committed fraud within the meaning of that word in s 62 of the Land Transfer Act 1952, and that as a consequence the first and second defendants hold Lotus Avenue on a constructive trust for the Burmeisters.   The third cause of action is against both the O’Briens and both of the Claytons.   The allegation is that the investment scheme was a “buy-back transaction” for the purposes of s 8 of the Credit

Contracts and Consumer Finance Act 2003 (“CCCF Act”), and that the terms of that transaction were oppressive.   An order is sought under  the CCCF Act  that  the O’Briens transfer Lotus Avenue to the plaintiffs and that the first, second, third and fourth defendants pay to the Burmeisters such sums as the Court thinks fit under its discretion in s 127(2)(c) of the CCCF Act.    The fourth  cause of action  alleges knowing receipt of Lotus Avenue by the O’Briens, and unjust enrichment.   A declaration is sought that they hold  Lotus  Avenue  on  constructive  trust  for  the Burmeisters or, alternatively, an order for the transfer of Lotus Avenue by them to the Burmeisters, and the payment to the Burmeisters of damages in a sum sufficient to discharge the ASB mortgage.

[49]     The fifth cause of action is against John Clayton and  Geoffrey Clayton, alleging deceit in the representations made concerning the transaction.   The sixth cause of action makes similar allegations against the Claytons under the Fair Trading Act 1986.   The eighth cause of action is against both John Clayton and Geoffrey Clayton, based on accessory liability in relation to the transfer of Lotus Avenue.

[50]     There  are  three  causes  of   action  against  Mr Henley-Smith,  the  fifth defendant.  The second cause of action is in negligence for his role in facilitating the transfer to the O’Briens.   The seventh cause of  action is  accessory liability,  in dishonestly assisting the O’Briens and the Claytons in the transactions.  The ninth cause of action against Mr Henley-Smith is based on breach of fiduciary duty, and conflict of interest between the Burmeisters’ interests and those of the O’Briens and ICMG.

[51]     I begin by considering the causes of action against Geoffrey Clayton.  I do so because  considering  the  causes  of  action  against  Geoffrey Clayton  requires  the making of findings as to what the Burmeisters were told and what they understood when they signed the transfer document and took the other steps that led to the O’Brien Trust becoming the owner of Lotus Avenue.

Deceit claim against Geoffrey Clayton

[52]     Deceit is pleaded against both the Claytons in the third amended statement of claim.  It is alleged that they represented that Lotus Avenue would be placed in a

“safe family trust” for the Burmeisters’ “benefit”, and be returned to their ownership unencumbered at the end of three years.  It is pleaded that in fact they knew that the property would be transferred to the O’Brien Trust for its benefit and the benefit of the ICMG group.

Approach to deceit

[53]     The tort of deceit is summarised in Clerk & Lindsell on Torts (18th ed,

2000), para [15-01], quoted in Amaltal Corporation Limited v Maruha Corporation

[2007] 1 NZLR 608 at [46]:

The tort involves a false representation made by the defendant, who knows it to be untrue, or who has no belief in its truth, or who is reckless as to its truth. If the defendant intended that the claimant should act in reliance on such a representation and the claimant in fact does so, the defendant will be liable in deceit for the damage caused.

[54]     The leading authority in relation to the defendant’s state of mind is still Derry v Peek (1889) 14 App Cas 337 at 374, where Lord Herschell stated:

First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false … To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth.

[55]     As commented in Amaltal Corporation Limited v Maruha Corporation at [50], the critical feature of the tort is that the representor must have lacked an honest belief in the truth of his statement. The question is not whether the defendant could have believed the representation to be true on an objective consideration by the Court of its truth or falsity, but whether the defendant could have believed the representation to be true in the sense in which he or she understood it, albeit erroneously, when it was made. A statement made honestly believing it to be true, even if wrong and implausible, is not capable of amounting to fraud.

[56]     However, the fact that a party may not intend to actually injure the person to whom  the  false  statement  was  made,  and  intended  that  that  person  would  be

reimbursed, does not exonerate.   As stated in Bradford Third Equitable Benefit

Building Society v Borders [1941] 2 All ER 205 at 211, per Viscount Maugham:

If, however, fraud be established, it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made.

[57]     Mere silence is not normally a misrepresentation.  However, a failure to tell the whole truth may distort the truth of what a party has said, and can constitute deceit: Amaltal Corporation Limited v Maruha Corporation at [47].

[58]     The statement pleaded against Geoffrey Clayton was a statement about his understanding of what would happen to the Burmeisters’ property if they signed up. It  was  not  a  representation  about  what  had  happened  in  the  past  or  a  present situation, but what would happen in the future.  The statement was, therefore, about what he believed. However, in the much quoted words of Bowen LJ in Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483 (CA):

There must be a misstatement of an existing fact: but the state of a man’s mind is as much a fact as the state of his digestion.  It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else.

Thus, company directors who stated in a company prospectus that a loan secured by debentures would be used for the purpose of building up the assets of the company, when the intention was to use it for paying off debts, may be liable in deceit: Edgington v Fitzmaurice at 483. Similarly the vendor of a hairdressing business falsely stating that he would not be working in another salon in the same area may be liable in deceit: East v Maurer [1991] 1 WLR 461 (CA).

[59]     In  approaching  the  issue  of  fraud  it  must  be  recognised  that  while  the standard of proof is not the criminal standard of beyond reasonable doubt, there must be clear and cogent evidence before such a finding will be made, given the practical consequences and opprobrium that follow.

The contact between Geoffrey Clayton and the Burmeisters

[60]     The Burmeisters’ initial direct contact with Geoffrey Clayton was limited to the first and second meetings at Papamoa.  The Burmeisters both say that at those

meetings Geoffrey Clayton, in describing the scheme, said that a freehold home could be used to create an income without putting the property at risk.  He told them that the property would be placed in a “company or secure family trust”.  After the first meeting, as they thought about the idea, they liked the idea of a secure family trust where their property would be protected.  They understood that if an asset was in trust no one could touch it.  They liked the idea of using their home to generate an income without putting it at risk, although they did not understand fully what a trust was.

[61]     At   the   second   meeting   the   Burmeisters   say   that   they   indicated   to Geoffrey Clayton that they would join the scheme so long as the house was placed in a secure family trust.   They say that Geoffrey Clayton told them that they would receive weekly payments of $200 and that Lotus Avenue would be placed in a secure family trust.  In addition, they would receive cash lump sums.  They were told that this would not jeopardise their community wage.  They could choose to withdraw at the end of three years and the title to Lotus Avenue would be returned to them unencumbered.

[62]     Geoffrey Clayton in his evidence denied that he ever said that the property would be “secure”.  He said he would have told them what he told all persons at such meetings, which was:

What we are going to do is to transfer your property into another entity, either a family trust or another entity.   This is a property transfer we are signing here today and what this means is that we transfer the property out of your name into another entity’s.   The entity will raise funds against the property and from those secured funds we will give you what you want and the balance will go [to] the entity to make money on your behalf.  That is how we are paying for all of this, and at the expiry of the agreement you can choose whether to do it all again or have your property back.

[63]     Geoffrey  Clayton  accepted  that  he  would  ask  people  to  sign  blank memoranda of transfer at the meetings he attended, and that he would witness the signatures of those who signed up.  He cannot recall this specific occasion, but says that he is confident that the transfer document which was ultimately registered is the document that the Burmeisters signed in front of him at the Papamoa meeting in

September 2001.    He  says  that  the  impetus  for  moving  quickly came  from  the

Burmeisters.

[64]     Thus, on the one hand the Burmeisters are saying that they did not think they were signing a transfer or transferring their property into another entity when they signed the document.   They thought, rather, that they were just signing up to a scheme where their property would be held for them in a secure trust.  Mr Geoffrey Clayton is saying that they understood very well that when they signed, they were transferring the property to another entity.

[65]     In  support  of  their  case  on  what  they  thought  they  were  signing,  the Burmeisters called Mr Tutoorangi Tibble and Mrs Romari Tibble.  The Tibbles went to a meeting run by Geoffrey Clayton where investors were sought.   They were regular churchgoers, and were impressed when they were told that Geoffrey Clayton, the presenter, had been a minister or pastor of a church.  They were told that what they were being asked to do was to put their properties into an investment scheme developed by Toi Te Atatu, which later changed its name to ICMG.  Their title deeds would be used to help other people, and they would receive income.  They stated that they had no idea that they would actually be transferring the property out of their names.  They were cross-examined as to where they thought the income would come from and it was clear that they did not really understand how it would all work. They had not invested before.

[66]     The  crucial  difference  between  the  parties,  given  the  way  in  which  the allegation of deceit has been pleaded, is whether Geoffrey Clayton indicated to the Burmeisters that Lotus Avenue would be placed into a secure family trust, and whether that statement was made fraudulently.

Did Geoffrey Clayton say that Lotus Avenue would be placed into a secure family trust?

[67]     The Burmeisters were credible witnesses.   I believe their account of what Geoffrey Clayton said to them.  The security of their home was a vital concern to them.  I am satisfied that they would never have agreed to participate in the scheme if they had not been told that Lotus Avenue would be placed in a secure family trust;

that  is,  secure  from  their  point  of  view.    I  am  satisfied  that  Geoffrey Clayton represented to them at both the first and second meetings that their property would be conveyed to a secure family trust. Even on his own evidence Geoffrey Clayton accepted that he referred to a family trust and that he used the word “secured” in relation to the funds, and “family trust” in relation to the property.  The Burmeisters legitimately interpreted his statements as having the meaning that the trust would be secure for their benefit, and not from the point of view of some third party.  That could be the only available meaning of “secure”.

[68]     The statement related to what would happen in the future to Lotus Avenue, when the Burmeisters actually joined the scheme.  In context it was a statement that the ICMG group’s intention was to transfer Lotus Avenue into a secure family trust for the Burmeisters’ benefit.  It was a statement of the state of Geoffrey Clayton’s intention and belief of what would happen, of the type referred to in Edgington v Fitzmaurice.  In analysing whether the statement was false it is necessary to consider Geoffrey Clayton’s state of mind, and whether he made the statement honestly or dishonestly at the time.

The honesty of the statement

[69]     Lotus Avenue, of course, was not transferred into a Burmeister family trust where it was secure from their point of view.  It was transferred to persons they had never heard of and who obtained absolute control: the O’Brien Trust.  Subsequently there was a mortgage to the ASB, with the funds going out of the Burmeisters’ control.  That was a situation that was the opposite to secure.  Thus, the statement did not prove to be true.

[70]     The question is whether Geoffrey Clayton persuaded the Burmeisters to sign away their property by promising that it would be placed in a secure family trust, knowing that it would not be placed in such a secure family trust.  Did he knowingly mislead   them?      The   first   matter   to   be   noted   in   assessing   honesty   is Geoffrey Clayton’s behaviour at the second meeting, and in particular the way in which the Burmeisters’ signatures were elicited. This is significant, as if Geoffrey Clayton  tricked  them  into  signing,  this  would  indicate  a  dishonest  intent.  The

Burmeisters say they signed a blank document that was put in front of them, and were told that this was necessary by Geoffrey Clayton, who said that by signing the document they were acknowledging that they wanted to join up to the scheme. Geoffrey Clayton admits that they signed the blank document, but says that they did so knowing they were signing a transfer.  He admits he witnessed it.

[71]     I have no doubt that the Burmeisters did sign the blank transfer form at the September Papamoa meeting and, indeed, Geoffrey Clayton expressly confirmed this in his evidence.   An expert document examiner was called, Patricia James,  and although she did not give a definitive opinion, she concluded that there were indications that the signatures on the photocopy of the blank transfer were those of Ken and Valerie Burmeister.  That document was not filled in.  For reasons that I refer to at [192]-[199], I conclude that that photocopy was an authentic copy of the transfer as signed by the Burmeisters.

[72]     However, I am equally satisfied that the Burmeisters are telling the truth when they say that they were not told and did not realise that they were signing a document that was a transfer of Lotus Avenue, or a transfer of any type. Their naive attitude was the same as Mr and Mrs Tibble.  The Tibbles gave evidence that they “signed up” at Geoffrey Clayton’s request, and that when they signed they did not realise that they were transferring their property to third parties.

[73]     In  cross-examination  Mrs Burmeister  said  she  thought  that  the  transfer document  had  the  Burmeisters’  names  on  it.    In  this  respect  I  consider  her recollection to be faulty.  The blank signed transfer receipted by Mr Henley-Smith did not have their names on it.  Geoffrey Clayton acknowledged that he arranged for blank transfers to be signed.   As stated at [195]-[199], I am satisfied that the document he receipted was in fact the blank transfer signed by the Burmeisters. Mrs Burmeister  is  mistaken  in  her  recollection  that  their  names  were  on  this document.

[74]     A tension in the Burmeisters’ evidence must be recognised.  On the one hand they say that they were told they would be placing Lotus Avenue in a secure family trust.  On the other hand they deny that they understood they were being asked to

sign the transfer.  The two propositions are, however, reconcilable.  The Burmeisters might   indeed   have   contemplated   some   sort   of   transfer,   and   in   the   end Mrs Burmeister under cross-examination conceded as much.  That would have been a transfer to the promised secure family trust, where they received benefits and would not lose their home.  Nevertheless, I consider that they would not have signed a blank transfer, or any document naming an unknown third party, where it was not apparent that the promised secure trust for their benefit was in place.

[75]     It is easy, in hindsight, to say that the Burmeisters must have realised that money could not have been created out of nothing.  The fact is that people without a lot  of  commercial  experience  can  sincerely  believe  that  people  with  more commercial knowledge than themselves are able to make money by manipulating commercial and taxation transactions in ways that they do not understand.  While a commercially wise person might have queried how money could have been made by the Burmeisters just handing over their title deeds, I accept that the Burmeisters believed this was possible.

[76]     I am satisfied that the Burmeisters did not knowingly transfer their property to the O’Briens or any third party.  Geoffrey Clayton did not explain that they were signing a transfer but, rather, told them they were “signing up”.   Any transfer of the property based on the transfer document that they signed in blank was a fraud on them.    They  had  been  tricked  into  signing  the  transfer.    I  find  that  when  the document was placed in front of them by Mr Geoffrey Clayton, steps were taken to conceal the top of it, which contained references to it being a formal transfer document.   The Burmeisters may have been gullible and foolish to have accepted what he said and to have signed without examining the document, but that does not ameliorate deceit if the deceived person believes the deceiver.

[77]     The trickery that was used by Geoffrey Clayton to get the transfer signed indicates that he was deliberately deceiving the Burmeisters when he told them that their property would be placed in a secure family trust.  He knew very well that they would never  agree  to  what  was  actually intended,  which  was  a  transfer  of  the property to third parties whom they did not know, and which patently would not be

secure.   It was necessary to deceive them to get them to sign, and that is what

Geoffrey Clayton did.

[78]     The fact that he was acting fraudulently at the time of the meetings is also indicated by his conduct after the second meeting.  The tenor of his evidence was that he did not really understand what happened to the Burmeisters’ title after they signed up at the second meeting.  He said he did not know to whom the property was transferred.    However,  shortly  after  that  meeting  he  initiated  the  instruction  of Mr Henley-Smith.      A   file   note   from   Mr Henley-Smith’s   file,   which   is   in Geoffrey Clayton’s  handwriting  and  addressed  to  “Mark/Helen”  (being  Mark Henley-Smith and his legal executive Helen Viesnik), shows that it was he that gave the initial instructions to Mr Henley-Smith in relation to the Burmeister transfer. This undated handwritten note, which must have been created in late September, is largely in Geoffrey Clayton’s handwriting.   It contains not only a reference to the Burmeisters and the sale price, but a reference also to “O’Brien Family Trust”. Geoffrey Clayton clearly knew, therefore, of the transfer to the O’Brien Trust, a trust that had nothing to do with the Burmeisters, which took the property out of their control, and into the control of the ICMG group.   The instruction to Mr Henley- Smith was part of the broader instruction that the O’Briens were to raise money from the ASB on the property.  There was an express reference in the handwritten note to the ASB, which is not in Geoffrey Clayton’s writing, but is in the handwriting of Mr Henley-Smith’s legal executive.  Nevertheless, Geoffrey Clayton must have been aware that funds were being sourced from the ASB, and that they would be going to the ICMG group.  This was the whole point of the transfer, and this must have been communicated to Mr Henley-Smith’s office by Geoffrey Clayton.

[79]     It was Geoffrey Clayton that followed up with the Burmeisters, to make an arrangement to have someone go to their house to uplift the title and the discharge of mortgage.   This again shows his hands-on involvement with  what  was  actually happening.

[80]     These  actions  following  the  two  meetings,  facilitating  a  transfer  to  the O’Brien Trust, were entirely inconsistent with what he had said to the Burmeisters would happen, which was that the Lotus Avenue would be placed in a trust that was

secure from the Burmeisters’ point of view.  Geoffrey Clayton was involved in the meetings.  He did not protest, or go back to the Burmeisters and reveal what was happening to their title, as an honest person would have done.

[81]     It is also clear from the correspondence that Geoffrey Clayton was involved in the drafting and signing of the Opol buy-back agreement and deed of acknowledgement of debt from the Burmeisters in April 2002.  He denied having a significant role in drafting the acknowledgement of debt documents, but in a letter he sent to the Burmeisters he stated that he was “completing the documentation”.  The buy-back agreement and deed of acknowledgement of debt did not in any way reflect the terms of the transaction in September 2001, either as the Burmeisters understood it or as Geoffrey Clayton says he represented it to them.   The terms of the Opol documents show an orthodox buy-back transaction, with the transfer of the property to a purchaser, with the purchaser having the ability to arrange finance, and the purchaser owing the purchase price as a debt.

[82]     When Geoffrey Clayton initiated the arrangement to obtain the signature for the deed of acknowledgement of debt in April 2002, he knew that the property had already been transferred to the O’Briens, and the mortgage money obtained on the Burmeisters’ property had already been utilised by the ICMG group.   The Opol documents were meaningless.   They were a way to appease the Burmeisters’ concerns, and put them off further inquiries.  They were a further trick played on the Burmeisters, to mislead them that everything was alright, and Geoffrey Clayton must have known this.

[83]     Geoffrey Clayton was a signatory of the ICMG bank account.   He and his company, Millennium Financial Planning, received a considerable number of payments from ICMG through 2001 and 2002.

[84]     These events show that, as a promoter of ICMG’s schemes and as one of the persons who persuaded the Burmeisters to participate in the scheme, he was aware of what would happen to the Burmeisters’ title if they signed up.  He knew that he was giving them false information.

[85]     I find that in the later meeting on 14 October 2002, when Geoffrey Clayton met with the Burmeisters after they became concerned, he misled them when he said that their house was safe and in a trust which was secure.  He knew that was false, having taken steps himself to implement the transaction which took the property away from them and placed it in the O’Briens’ name.  This had resulted in the ASB mortgage which was for ICMG group’s benefit.   Lotus Avenue, at that point in October 2002, was lost to the Burmeisters.  An honest person would have told them of the mortgage.  The fact that he lied to them then is further evidence of the general deceitfulness of his position throughout.

[86]     I found that when Mr Geoffrey Clayton was cross-examined on hard issues such as his role in preparing the Opol deed of acknowledgement of debt, his answers had little relation to commonsense or the reality of what happened.   All his later actions indicate an awareness of the fraud on the Burmeisters, and go to confirm the inference that I draw that the statement he made at the second meeting about the property going to a secure family trust was a deliberate lie.

[87]     I do not find it proven that he was involved in preparing the false agreement for sale and purchase.  This emanated from The Mortgage Centre at Napier and it was sent to the O’Briens’ accountant.   There is insufficient evidence for me to conclude that Mr Geoffrey Clayton was involved in the forgery.

Conclusion on deceit

[88]     I found Geoffrey Clayton’s answers to difficult questions to be evasive and unsatisfactory.  I do not consider him to have been a truthful witness, and I do not accept his attempts to explain his actions.  He deliberately misled the Burmeisters about their property going into a secure family trust.  The key falsity was in the word “secure”.  He knew that, from the Burmeisters’ perspective, the transfer would be to an entity which would deprive them of their asset.   The truth was the opposite of what he represented.  The property was going into an utterly insecure entity, and he was aware of this at the time.

[89]     While the representation is pleaded as being that the property would be in a “safe” rather than “secure” family trust, I do not consider the variance between the pleading and what was proven material.  The Burmeisters were given to understand the family trust was safe.  The words “safe” and “secure” have the same meaning in this context.  His actions directly led to them unwittingly signing the blank transfer, and to the loss of their property to the O’Brien Trust and the mortgage to the ASB.

[90]     The fifth cause of action is therefore established against Geoffrey Clayton.

Fair Trading Act 1986 claim against Geoffrey Clayton

[91]     There is no doubt that Geoffrey Clayton was in trade.  He was carrying on a commercial activity in promoting the ICMG scheme.   It follows from my finding that Geoffrey Clayton deceitfully made false representations about the scheme to the Burmeisters, that he was also guilty of engaging in misleading and deceptive conduct under s 9 of the Fair Trading Act 1986 by falsely representing to them that Lotus Avenue would be held in a secure investment for their benefit. The three aspects of misleading or deceptive conduct referred to in AMP Finance NZ Limited v Heaven (1997) 8 TCLR 144 at 152, being that the conduct was capable of misleading, that the Burmeisters were in fact mislead, and that it was reasonable for the Burmeisters to be misled, have been proven. Thus, the sixth cause of action against Geoffrey Clayton is established.   I will consider limitation issues later in this judgment at [268]-[287].

Accessory liability claim against Geoffrey Clayton

Approach to accessory liability

[92]     The approach to accessory liability (or, as it is sometimes called, dishonest assistance) established by the Privy Council in Royal Brunei Airlines v Tan [1995] 2

AC 378, applies in New Zealand (see US International Marketing Limited v National Bank of New Zealand Limited [2004] 1 NZLR 589 at [7], [60]). In Royal Brunei Lord Nicholls traced the evolution of the doctrine, and, amongst the cases referred to, considered a number of New Zealand cases.  He noted that the rationale is that

beneficiaries are entitled to expect that those who become trustees will fulfil their obligations: at 387.   The five different mental states referred to by Gibson J in Baden v Societe Generale pour Favoriser le Developpement du Commerce at de l’Industrie en France SA [1993] 1 WLR 509, were not applied.   The central conclusion was that the defining ingredient was dishonesty: at 392.  It was noted that the words “unconscionable” or “knowingly” are imprecise and do not help: at 392. The essence of accessory liability is that the wrongdoer dishonestly assists a breach of trust.

[93]     The Royal Brunei approach has been applied frequently in New Zealand.  I respectfully accept the summary of the legal position of Smellie J in Equiticorp Industries Group v R [1998] 2 NZLR 481 at 540:

In respect of the dishonest assistance claims (as the accessory liability claims are more properly described) the requirements are first (as in the recipient causes of action) that the plaintiffs have lost their money as a result of breaches of fiduciary duty or unauthorised acts.   Secondly, that the [defendant] participated, by helping or assisting in those breaches.  Thirdly, dishonesty (objectively assessed) on the part of the [defendant].

The levels of proof for knowledge on the one hand and dishonesty on the other differ and because recipient liability is restitution-based and accessory liability is fault-based, the remedies available are different also.

[94]     Lord Nicholls in Royal Brunei made it clear that in considering whether there was the requisite dishonesty, the test was objective.  At 339:

Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg v Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards

of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because  he sees  nothing wrong in such behaviour.

In  most  situations  there  is  little  difficulty  in  identifying  how  an  honest person would behave. Honest people do not intentionally deceive others to their  detriment.  Honest  people  do  not  knowingly  take  others’  property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and cars, or deliberately not ask questions,  lest  he  learn  something  he  would  rather  not  know,  and  then proceed regardless.

[95]     The later House of Lords decision of Twinsectra Limited v Yardley [2002] 2

AC 164 Lord Hoffman at [20] can be interpreted as contemplating the necessity for an actual dishonest state of mind, and therefore diluting the objective approach to the assessment of dishonesty.  Lord Millet in his dissent in Twinsectra emphasised the need for an objective approach.  The Court of Appeal had the opportunity to consider Twinsectra in US International Marketing Limited v National Bank of New Zealand Limited.   It had reservations about the practical implications of the different Twinsectra approach to dishonesty: at [8], [61].  Anderson J quoted Lord Nicholls from Royal Brunei at [60] to [61], and the approach adopted by Tipping J was “objective”: [9].  I adopt that approach.

[96]     Accessory liability applies to persons dealing with trustees.   The issue of whether it can apply to the dishonest assistance of breaches of fiduciary duty generally as distinct from breaches of an express trust has been flagged in England, in  Brown  v  Bennett  [1998] 2 BCLC 97 at 105, and in Australia, in Farah Construction Pty Ltd v Say-Dee Pty Ltd (2007) 81 ALJR 1107 [113]. In Equiticorp, at 540, Smellie J assumed that it was necessary to show a breach of fiduciary duty. Given that the underlying rationale is to ensure that trustees fulfil their obligations, I consider that approach to be correct.  It is not necessary for there to be assistance of a breach of an express trust for the claim to be established.  It is sufficient if the breach is of  fiduciary duty arising out of a constructive trust.

Was there accessory liability?

[97]     There is a specific pleading against Geoffrey Clayton of accessory liability. There is no direct pleading of fiduciary duty by Geoffrey Clayton in the accessory liability cause of action directed against him.   However, in the cause of action directed  against  the  O’Briens  based  on  knowing  receipt,  it  is  alleged  that Geoffrey Clayton owed  a fiduciary duty to the  Burmeisters.   There is  a  certain degree of artificiality on the facts of this case in considering Mr Clayton’s actions in the context of assistance.   I have found that he was the party who was initially fraudulent.   He engendered the transfer to the O’Briens.   The Burmeisters trusted him.   He was in breach of the fiduciary duty that arose when he was given the transfer and later obtained the certificate of title and discharge of mortgage. Nevertheless, he also assisted the transfer to the O’Brien Trust, which in itself I find later was a breach of fiduciary duty by the O’Briens.  I have no doubt that he did owe a fiduciary duty in relation to the transfer and the title documents with which he was  entrusted  by  the  Burmeisters,  and,  for  the  reasons  already  given,  that  he breached that duty.  I also have no doubt that on the facts he can be seen as having knowingly assisted the O’Briens’ breach of their constructive trust in relation to the raising of the mortgage from the ASB and the transfer to them.

[98] The test for dishonesty for accessory liability is different from that in relation to deceit. For deceit the plaintiff must ultimately prove subjective dishonesty: [53]- [55]. In accessory liability the test is objective: [94]-[95]. It is not necessary to consider the issue in great detail in relation to Geoffrey Clayton. I have already found that viewed subjectively, his actions were deceitful, and that he dishonestly obtained the Burmeisters’ signatures on the blank transfer. His subsequent conduct, in particular the provision of the handwritten note to Mr Henley-Smith, shows his active involvement in assisting the O’Brien Trust to fraudulently obtain title. I find later at [173]-[175] that the O’Briens were acting fraudulently against the Burmeisters, when they took title to Lotus Avenue, and should be seen as constructive trustees of Lotus Avenue, and the Burmeisters as beneficiaries. Geoffrey Clayton, therefore, dishonestly assisted the O’Briens to obtain the Burmeisters’ property, by getting the blank transfer, instructing Mr Henley-Smith to obtain the mortgage, and arranging the uplift of the title and discharge of mortgage.

From  a  broader  perspective  Mr Geoffrey Clayton  can  be  seen  as  assisting  in  a dishonest scheme whereby naive persons like the Burmeisters were tricked into handing over control of their properties to the ICMG group.  On an objective test, he acted dishonestly.

[99]     The cause of action of accessory liability is therefore established against Geoffrey Clayton.  There is no specific cause of action against him based on breach of fiduciary duty, although such  a breach is pleaded in the cause of  action for knowing  receipt  against  the  O’Briens.    Given  the  conclusions  on  deceit  and accessory liability, it is not necessary to consider amending the pleadings to allow a specific cause of action against him based on breach of fiduciary duty.

Relief against Geoffrey Clayton

[100]   Relief for deceit is the tortious measure, and should restore the Burmeisters to the position they were in before they were defrauded out of their property: Amaltal Corporation v Maruha Corporation  at [56].  Relief for accessory liability, given the fault basis of that cause of action, is equitable compensation: Equiticorp Industries Group v R at 644; Target Holdings Limited v Redferns (A firm) [1996] AC 421 at

434-439.  The Burmeisters’ losses that have been caused by the breach must be made good by Geoffrey Clayton.  For reasons that I set out later it will be necessary for there to be a separate hearing in relation to damages.

Deceit claim against John Clayton

[101]   John Clayton initiated the Burmeisters’ involvement with Geoffrey Clayton and the ICMG group.

[102]   In 2001 John Clayton was 68 years old, and his wife 69.   He had been a managing   director   of   Charles   Freighters   Limited   and   had   worked   with Mr Burmeister for approximately 15 years.   For most of his career he had been involved in the licensed road transport industry.  In 2001 he was retired and living in Tauranga.

[103]   He was approached in 2001 by his son, Geoffrey Clayton, who told him that he had fallen on his feet at last and that he was working with a Mr John Daniels.  His son  talked  about  a  scheme  which  used  the  equity  of  existing  homeowners  to purchase other properties for first time home-buyers.  Geoffrey Clayton had worked with the Guardian Trust for 21 years, half of that time as a trust manager.  He had been a minister.  His father trusted him and had confidence in him.  John Clayton was convinced by his son that it was a workable scheme.  He was attracted by the notion that, in making the investment, he would be giving assistance to renters so that they would be in a position to purchase the home they were renting.

[104]   The assets of John Clayton and his wife were modest.  Their only significant asset appears to have been their home in Tauranga.  In addition to their home they had some savings.   They had limited means to increase their income or arrange borrowing.  They gave evidence that they absolutely trusted their son.  Persuaded by him they placed their home (which was in a family trust) into the scheme.   The property at the time had a registered valuation of $265,000.  They were told that they would be lending their title for a three year period for a return of approximately

8.2 percent,  and  in  doing  so  would  assist  others  to  become  homeowners.    Toi Te Atatu  was  running  the  scheme  and  was  a  credible  company  with  solicitors, bankers and accountants.   Toi Te Atatu’s lawyers were to do all the legal work. They would continue to have control over their home.   They were advised not to seek solicitors’ advice.

[105]   The new trust document was prepared for them by Geoffrey Clayton.  Given his work for the Guardian Trust over the years John Clayton and his wife did not consider that there was any need to check the deed, because they assumed it would be prepared properly.  The trust deed which they signed was dated 17 April 2001. They signed it without legal advice.

[106]   Ultimately  their  property  was  transferred  into  the  names  of  Dean  and Georgina Tinning.  At the same time a mortgage was executed whereby the National Bank of New Zealand Limited advanced $192,500.   John Clayton did not know about the mortgage and had no idea that funds were advanced, and taken by persons associated with Toi Te Atatu.   Mr Henley-Smith was involved in the transaction,

although it also seems that John Clayton’s own lawyers had a role in relation to the transfer.

[107]   As a consequence of the transaction John Clayton and his wife received

$32,000 into their bank account and began receiving $200 on a weekly basis, which continued  until  October  2002.    At  the  request  of  Toi  Te Atatu,  they  agreed  to reinvest $32,000.   They topped that amount up with their own funds of $9,000, placing a total of $41,000 with the scheme.  They have not recovered that money and they have no idea where it went.  Throughout, they were unaware that ICMG group had heavily mortgaged their property, depriving them of most of its value.

[108]   John Clayton approached Mr Burmeister in June 2001, some months after he had  joined  the  scheme,  when  he  had  received  the  lump  sum  in  cash  and  was receiving the $200 a week payment.   From his perspective at that point, his own involvement with ICMG group was a great success.   Mr Burmeister was one of about eight families whom he contacted.

[109]   There is little difference between John Clayton and Mr Burmeister’s account of discussions between them.  John Clayton told Mr Burmeister about the scheme, and that they could earn a return over a three-year period.  John Clayton stated that it would involve them handing over their title, which would be returned at the conclusion of the period.  Mr Burmeister emphasises that he was told that they could earn the money without putting their property at risk.   In cross-examination John Clayton  denied  saying  specifically  that  the  investment  was  safe  and  secure. However, I have no doubt that John Clayton gave the Burmeisters the impression that any investment would be safe, because that is what he thought of his own investment.  He had put all his property in the scheme.  I have no doubt that John Clayton visited the Burmeisters and promoted his son’s proposals as an attractive option for them.  I am sure that John Clayton recommended to the Burmeisters that they enter the scheme.

[110] John Clayton’s recommendation and enthusiasm for the scheme would undoubtedly have been influential with the Burmeisters.   John Clayton had been Mr Burmeister’s boss for many years.  Mr Burmeister trusted him.

[111]   Although John Clayton had had considerable business experience, he did not appear, when he gave his evidence, to be particularly experienced or astute in financial matters.  He had modest assets, and was not an experienced investor. Like the Burmeisters, he was a victim of the scheme run by his son and others.  He did not really understand the scheme and what was involved.  All he could see was that there were immediate benefits being received, which appeared to confirm that it was a very clever scheme that would work.

[112]   Although  he  did  effectively promote  the  scheme  to  the  Burmeisters  and others, I accept his evidence that he did so because he strongly believed at the time that it was a wonderful scheme that offered great benefits to people in his position, and because of his loyalty to and trust for his son.  I do not believe that he received any financial benefit or commission for telling others about the investment scheme. John Clayton had dealt almost entirely with his son, and had few dealings with John Daniels or the O’Briens.   I consider John Clayton to be an honest witness.   He believed what he had been told by his son.   This is evidenced by the fact that he transferred all his property to the scheme in  the same way as  the  Burmeisters. Indeed, he went further than the Burmeisters by putting his savings into the scheme as well.   John Clayton and his wife, like the Burmeisters, were not told of the mortgage that was taken out over the property.   They were also kept in the dark about what appears to have been the misappropriation of the mortgage moneys by those who ran the scheme.

[113]   Thus, I find that John Clayton, when he made the representations about the scheme to the Burmeisters, was doing so truthfully.  He contacted them because of enthusiasm for his son’s scheme, and because he wished them well and thought they would benefit.  He believed what he said. He was receiving an extra $200 a week and had received a lump sum in cash.  What his son had promised was happening, as far as he was aware.  He was not being reckless in making the representations.  He had some tangible evidence that the scheme worked, in that he was getting a return on  his  investment,  which  to  him  at  the time would  have seemed  to  be  a  very significant benefit.

[114]   John Clayton continued to have faith in the scheme right through 2001.  In September 2001 he invested a further sum of $26,000.  This was the time that he was encouraging the Burmeisters to invest.   On 13 October 2001 he invested a further

$15,000.   On 29 August 2002 he advanced a further $10,000 to a trust associated with the ICMG group.  These actions show the genuineness of his belief.

[115]   By   October 2002,   despite   John   Clayton’s   further   investment,   it   was becoming obvious that there were problems with the scheme.   The Burmeisters contacted John Clayton with their concerns in late 2002 or early 2003.  By then John Clayton was himself very concerned.  He had lent a total of $51,000 in connection with the scheme, as well as transferring his house to the ICMG group.  At that point, at Mr John Daniels’ request, John Clayton wrote an occupational safety and health policy for the ICMG group of companies.  He was paid approximately $2,000 for this work.  On 3 January 2003 John Clayton advanced a further $8,000 to a company associated with the ICMG group.

[116]   Through early 2003 the defaults got worse for John and Colleen Clayton. Then  they  read  the  newspaper  article  published  in  the  Sunday  Star  Times  on

13 April 2003, which disclosed that John Daniels was bankrupt and disclosed major problems with ICMG.  With this and the following publicity they became aware of the true situation.   By then the mortgage on their home was up to approximately

$190,000-$195,000.  John and Colleen Clayton decided that all they could do was sell their property and realise what equity there was left.  They sold the property for

$303,000 and realised in the end a net equity of $92,000.  They lost the $41,000 they had paid in as cash, and the substantial equity in their home.   Moreover, their daughter and son-in-law had put their home into the scheme.  They lost their home and both went bankrupt.  John Clayton’s sister also put her home into the scheme and it was lost.

[117]   I  conclude  that  John Clayton  acted  honestly  in  his  dealings  with  the Burmeisters.   It is necessary now to consider the allegations against John Clayton against the backdrop of my finding that he acted honestly throughout.  John Clayton had no idea that the Burmeisters, if they put their property into the scheme, would have it transferred out of their hands into those of a third party, mortgaged, and the

mortgage proceeds dissipated.  To the contrary, I find he thought that in entering into the scheme they were going to improve their financial position, just as he indicated. It follows that the allegation that John Clayton made representations about Lotus Avenue in the knowledge that it would not be returned unencumbered to the Burmeisters at the end of the three-year term must fail.   The allegation that John Clayton knew that the property would be transferred to the O’Briens also fails.  John Clayton did not make any representation in the knowledge that it was false.  John Clayton made the statements about the scheme believing them to be true.  There was no deceit on his part.

Fair Trading Act claim against John Clayton

[118]   The allegation against John Clayton is that he misrepresented the “real nature and legal consequences of the investment scheme that [ICMG] was promoting and in particular the Lotus Avenue buy-back transaction”.  No particular section of the Fair Trading Act 1986 is relied on in the pleading of the sixth cause of action.

[119]   Undoubtedly what John Clayton said to the Burmeisters has been proven to be incorrect.   The investment was not secure.   The Burmeisters did not get their property back after three years.   They lost it.   It was transferred and mortgaged without their knowledge.

Was John Clayton in trade?

[120]   The first matter that must be considered is whether John Clayton was in “trade”.  Mr Chesterman submitted that John Clayton was in trade as defined in s 2 of the Fair Trading Act.  “Trade” is defined in s 2(1) as:

trade means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.

Business is defined as including:

business means any undertaking—

was to register the documents to perfect their legal ownership, and arrange and settle their ASB mortgage advance.  There was no action like the certification in Connell v Odlum, which was for the benefit of another party, other than the O’Brien Trust and the ASB.

[238]   Mr Henley-Smith was not in the classic duty of care situation.  He was giving no certificate at all to the Burmeisters.   They were not in his contemplation as persons who might rely on any actions on his part.  To impose a duty on solicitors involved in registering a transfer for a purchaser to look out for the interests of the other party to the conveyancing transaction runs the risk of placing solicitors in a possible conflict position.  There are good policy reasons why no duty of care should be extended to such a situation.

[239]   I conclude that there was no duty of care owed by Mr Henley-Smith to the

Burmeisters, and that the negligence cause of action fails.

Accessory liability

[240]   I have already reviewed the principles to be applied at [92]-[96] and made findings as to Mr Henley-Smith’s actions ([183]-[201]).  He should not have filled in the blank transfer even though it was signed by the Burmeisters.  His actions in this regard may be seen as reprehensible in a professional context.  However, there is no evidence at all that he was informed by Geoffrey Clayton or Mr O’Brien that the Burmeisters had been deceived into signing the transfer and providing the discharge of mortgage, or had good reason to suspect that this was so.  To the contrary, the evidence indicates that documents were presented to him on the basis that this was a routine transaction and part of the general buy-back type schemes being conducted by the ICMG group.  He had already received other signed blank transfers, and there was nothing in the evidence to indicate that he was aware that these were fraudulent. Further, there is no evidence that he had any awareness that it was the practice of the ICMG group to deceive participants.  A breach of professional standards, even if its scale approaches recklessness, does not of itself constitute statutory fraud: Waller v Davies [2005] 3 NZLR 814 at [92], (successfully appealed but not on this point).

[241]   The question arises, was there anything in the material he received that would have put an honest person on guard that there was some fraud being practised on the Burmeisters?   The transfer he received was, on its face, signed by people called Burmeister, and witnessed by a person whom Mr Henley-Smith knew, Geoffrey Clayton.    There  is  nothing  to  indicate  that  at  this  stage  he  was  aware  that Geoffrey Clayton was a dishonest person.   Geoffrey Clayton had a background in working in a senior position for a reputable trust company and as a minister of religion.  There is nothing to indicate that Mr Henley-Smith should have been aware that he might be dishonest, or was committing any fraud.

[242]   The fact that the transfer was blank should have put Mr Henley-Smith on guard to the extent that he should have refused to act, or sought independent verification   of   the   Burmeisters’   position.      However,   his   acceptance   of Geoffrey Clayton  and  Mr O’Brien’s  instructions  to  fill  the  transfer  in,  and  his compliance with those instructions, do not alone indicate that he was aware that his actions would be contrary to the Burmeisters’ wishes.  The check would have been precautionary.

[243]   There is no evidence from Mr Henley-Smith as to his state of mind when the transfer was filled in, because he has denied that he filled it in.   I have found, however, that it must have been filled in and that at the time he would have been aware of it.  However, it has certainly not been established that he did so intending to defraud the Burmeisters.  He did what he was told in accordance with his practice of filling in transfers signed in blank.  The Burmeisters’ signatures were legible, and he could assume that they were aware that they had signed a transfer.   He had no reasons to suspect a forgery of their signatures, and indeed, although they were tricked into signing, those were their signatures.

[244]   Applying an objective standard, I cannot find that Mr Henley-Smith acted dishonestly.  He was not aware that there was a misapplication of the Burmeisters’ assets in train.  It was not a matter of him deliberately closing his eyes and ears or deliberately not asking questions, lest he learn something that he would rather not know.    He  assumed  that  everything  was  all  right.    This  may  have  been  slack

behaviour on his part that is unacceptable in terms of professional standards, but it is not deliberate fraud or wilful blindness.

[245]   I therefore conclude that the cause of action based on accessory liability is not made out.

Breach of fiduciary duty

[246]   A relationship between a solicitor and client always gives rise to a fiduciary duty: Sims v Craig Bell & Bond [1991] 3 NZLR 535 (CA) at 543. Mr Chesterman submits that such a fiduciary relationship existed between Mr Henley-Smith and the Burmeisters. He submitted that this arose from Mr Henley-Smith filling in the blank transfer and signing the discharge of mortgage in his capacity as the Burmeisters’ solicitor. He submitted that, given his wide knowledge of the workings of the scheme and his knowledge that the Burmeisters were unrepresented, a duty arose.

[247]   However, these actions by Mr Henley-Smith, even if reprehensible, did not create a fiduciary relationship any more than they created a duty of care.   The foundation  of  a  fiduciary  duty  is  different  from  that  of  a  duty  of  care.    A consideration of whether there is a tortious duty of care starts with proximity, turning on issues of vulnerability, reliance and foreseeability.  The existence of a fiduciary duty is evaluated by considering the trust and confidence that exists between the parties.  The relationship is considered from a different perspective.  There was no relationship   of   trust   and   confidence   existing   between   the   Burmeisters   and Mr Henley-Smith, and, indeed, no relationship at all.

[248]   I  conclude  that  Mr Henley-Smith  did  not  owe  fiduciary  duties  to  the

Burmeisters.

Claim under the Credit Contracts and Consumer Finance Act 2003

[249]   The Burmeisters claim that the transaction was a buy-back transaction as defined by s 8 of the Credit Contracts and Consumer Finance Act 2003 (“the CCCF

Act”), and that, therefore, they are entitled to relief under that Act against all the defendants except Mr Henley-Smith.

[250]   A buy-back transaction is defined in the Act as follows:

8        Meaning of buy-back transaction

(1)In  this  Act,   unless  the   context  otherwise  requires,   buy-back transaction means a transaction under which—

(a)a person (the occupier) transfers, or agrees to transfer, an estate in land to another person (the transferee); and

(b)the land is the principal place of residence of the occupier at the time that the occupier enters into the transaction; and

(c)the occupier, or a person designated by the occupier, has, after the transfer, a right to occupy the whole or any part of the land; and

(d)      1 or more of the following applies:

(i)the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part:

(ii)      there is an understanding between the occupier and the transferee that the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part:

(iii)      there is an understanding between the occupier and any buy-back promoter that the occupier, or a person designated by the occupier, has a right to repurchase the estate in the land in whole or in part; and

(e)the  occupier  is  a  natural  person  who  enters  into  the transaction primarily for personal, domestic, household, or investment purposes.

(2)If, by virtue of any contract or contracts (none of which by itself constitutes a buy-back transaction) or any arrangement, there is a transaction that is in substance or effect a buy-back transaction, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a buy-back transaction made at the time when the contract,  or  the  last  of  those  contracts,  or  the  arrangement,  was made, as the case may be.

[251]   The application of s 8 can be considered from three different perspectives; from the perspective of what the Burmeisters thought would happen, from the perspective of what actually happened, and from the perspective of the deed of

agreement with Opol Limited.  Mr Chesterman appeared to wish to take advantage of all three possible approaches.   However, s 8 states that a buy-back transaction means a transaction “under which” certain things happen.  The use of those words, relating as they do to the transaction itself, indicates that it is the actual transaction that is considered when deciding whether there is a buy-back transaction.  Further, sub-section (2) provides that a transaction that “is in substance or effect a buy-back transaction” must be treated as a buy-back transaction under the Act.   The plain intention is for the evaluation of whether there was a buy-back transaction under the section to relate to the proven events, rather than what the parties thought was happening, or any construction of documents created after the transaction has happened.

[252]   The  intention  is  clearly  to  ensure  that  a  technical  interpretation  of  sub- section 8(1) does not lead to a transaction that has the substantive effect of being a buy-back transaction falling outside the Act because a technical requirement is not complied with.   It can be said that the essence of a buy-back transaction is that a vendor forgoes title and legal ownership to a property on the basis that he or she has the right to repurchase the property in due course on certain terms.   I turn to the substance of what happened.

[253]   I have found that what in fact happened was that the Burmeisters transferred their property to another person, the O’Brien Trust.  They were deceived into doing so by false statements as to the implications of what they were doing.  The land was their principal place of residence.  Therefore, the requirements of s 8(1)(a) and (b) applied.

[254]   They did not in fact have any legal “right” to occupy the whole or any part of the land once it had been transferred to the O’Briens, in a sense of there being any document providing for that right or agreement that they should have that right. They stayed on because they assumed wrongly that they still owned the property, subject to their new family trust.  The O’Briens allowed them to stay on because they were encouraging the Burmeisters to believe themselves to still be the owners of the property, subject to there being the secure family trust in place.  Therefore, it could be said that the requirement of s 8(1)(c) was not met, at least in any formal way.

[255]   There is a clear difficulty in finding that in terms of s 8(1)(d) the Burmeisters had a right to repurchase the land.   There was no understanding that they could repurchase the land.  They did not consider that they had any right to repurchase the land, because they believed that they continued to own it, save for the presence of the secure trust.  The O’Briens never articulated the basis on which they permitted the Burmeisters to stay in the property, but presumably it was because they hoped in due course to unravel the transaction, having used the mortgage money to good effect.  However, there was no right to repurchase as such, and so s 8(1)(d) does not apply.

[256]   In essence, then, this was not a buy-back transaction.   This was a transfer from the Burmeisters to the O’Brien Trust, without any legal right of occupation or re-purchase.  The Burmeisters’ entitlement to get the property back will arise from the fraud practised on them and the constructive trust on which the property is held, not from any buy-back arrangement.

[257]   As to the deed of agreement with Opol Limited of 18 October 2001, it was on its face a buy-back agreement for a three year period and its terms did meet the requirements of s 8(1).    However,  at  the time of the execution  of  this  deed  of agreement the property at Lotus Avenue had, unbeknownst to the Burmeisters, already been transferred to the O’Brien Trust.  The Burmeisters had no legal ability at that time to transfer the property to any person.  Opol Limited was a company of which the shareholder was a Ms Frances Daniels, and it was part of the ICMG group. Its   sole   director   was   Robert   Daniels.      Although   the   document   is   dated

18 October 2001, it was not in fact signed until 9 April 2002.  The Burmeisters do not appear to have any understanding of what they were signing, or to have read the document, and nothing happened after the document was signed.

[258]   Given the fact that neither the Burmeisters nor Opol Limited had any legal interest  in  the  property,  the  deed  of  agreement  could  have  no  legal  effect  in substance.  While on its face it is a binding contract, it could not alter the rights of the parties.   Indeed it was never treated by the parties as having any effect at all. Certainly Opol Limited has never claimed any interest in the property as purchaser. Any right the Burmeisters now have to the land has nothing to do with the Opol

documents.   The deed of agreement with Opol must be put to one side for the purposes of considering whether there was a buy-back transaction.

[259]   I therefore conclude that there was no buy-back transaction and that the provisions of the CCCF Act do not apply.   This is a natural consequence of my finding that there has been a fraud perpetrated on the Burmeisters by the O’Briens and   Mr Geoffrey   Clayton,   and   there   was   a   straight   fraudulent   transfer   in September/October 2001 without any of the form of a buy-back transaction.

[260]   There was no claim under the CCCF Act against Mr Henley-Smith.   The Burmeisters have succeeded on the basis of deceit and accessory liability against Geoffrey Clayton, and fraud and knowing receipt against the O’Briens, so the CCCF Act claim against them is not  critical  to  establishing liability in  relation  to  the transaction.  However, given the fact that I have already found that the other causes of action against Mr John Clayton have failed, it is appropriate that I consider his particular position under the CCCF Act, on the assumption that, contrary to my decision, there was a buy-back transaction; and, if so, whether there was oppression. If  there  was,  the  question  arises  as  to  whether  relief  could  be  ordered  against Mr John Clayton under s 127(2) of the CCCF Act.  The Court has various powers under s 127(2), which include directing any “party” to pay to any other party any sum that the Court thinks fit.

[261]   The word “party” is not defined in the CCCF Act.  Mr Chesterman submits that a buy-back promoter is likely to be regarded as a “party” under the Act, as there would have been little point in a buy-back promoter being defined if he or she did not thereby attract liability under the Act.  However, a buy-back promoter can attract liability under other sections of the Act: for example s 88.

[262]   A buy-back promoter is defined under s 5 of the CCCF Act:

buy-back promoter means a person who introduces the parties to a buy- back transaction to each other if—

(a)the person receives a fee in connection with the buy-back transaction from the occupier, the transferee, or any other person; or

(b)an associated person of that person receives a fee in connection with the buy-back transaction from the occupier, the transferee, or any other person

Thus a buy-back promoter “introduces the parties to a buy-back transaction”.  This indicates that the buy-back promoter himself or herself is not a party.   “Parties” appears to be used in the contractual sense of parties to the transaction.  Under s 129 of the CCCF Act the Court can make orders against persons who have shared in profits or have a beneficial interest in a reopened credit contract.   Relief could usually be obtained against a buy-back promoter under s 129 without recourse to s

127.  I therefore do not consider that a buy-back promoter is a party for the purposes of s 127.  However, because of the other findings I make on this cause of action, and the lack of full argument on the topic, I do not finally determine the issue.  I will go on to consider the implications for John Clayton if a buy-back promoter is a “party” for the purposes of s 127(2).

[263]   There is simply no evidence that Mr John Clayton received any fee in relation to the Lotus Avenue transaction.  He did receive certain funds from the ICMG group on occasions, but nothing has been shown to relate to this particular transaction. Therefore (a) does not apply.

[264]   The   question   then   arises   as   to   whether   an   “associated   person”   of John Clayton received a fee in connection with the buy-back transaction.  It is likely that Geoffrey Clayton received a fee in connection with the buy-back transaction, although this has not been formally established on the evidence, and was not the subject  of  submission.    Assuming  that  Geoffrey Clayton  did  receive  a  fee,  the question then arises whether Geoffrey Clayton was an “associated person” in relation to John Clayton.  Section 8A sets out the meanings of “associated” and “associated person”:

8A      Meanings of associated and associated person

(1)For the purposes of this Act, 1 person (A) is associated with another person (B),—

(a)if A is connected to B by blood relationship, marriage, or adoption or where A is a trustee for B, and for the purposes of this paragraph—

(i)persons are connected by blood relationship if they are within the fourth degree of relationship:

(ii)      persons are connected by marriage if 1 person is married to the other person or to a person who is connected by blood relationship to the other person, or if 1 person has a relationship in the nature of marriage with the other person or with a person who is  connected  by  blood  relationship  to  the  other person (whether or not the parties to the relationship are of the same or different sex):

(iii)      persons are connected by adoption if 1 person has been adopted as the child of the other person or as a child of a person who is within the third degree of relationship to the other person:

…

[265]   John Clayton  and  Geoffrey Clayton  are  clearly  connected  by  a  blood relationship  to  the  sufficient  degree.     Thus,  if  it  could  be  established  that Geoffrey Clayton received a fee in connection with the Lotus Avenue transaction (assuming it was a buy-back transaction for the purposes of this exercise) then John Clayton  becomes  a  buy-back  promoter.     This  means  that  anyone  who introduces the parties to a buy-back transaction to each other and is related by blood to a sufficient degree to a person who receives a fee in connection with the buy-back transaction, is a buy-back promoter.

[266]   It is not necessary to form a final conclusion on this issue, given my finding that  there  is  no  buy-back  transaction.    However,  in  case  this  is  wrong,  and John Clayton was construed to be a buy-back promoter, and on the assumption that if that was so he could be regarded as a “party”, I record that I would not in any event have been minded in the Court’s discretion to have granted any relief against him under s 127 of the Act.   I have already set out my reasons for concluding that his involvement was innocent.  His involvement in relation to the Burmeisters was not driven by a wish to make money.  He was as much duped by his son as were the Burmeisters.   I have already found that he has not benefited in any way from the Lotus Avenue transaction.

[267]   Given that John Clayton did not make any money out of the transaction, and I do not consider that there was any moral culpability on his part, I would not have made any order against him.

Laches

[268]   The defendants raised the doctrine of laches as an affirmative defence in relation to the claims.   It is submitted that the plaintiffs have, by their delay, aggravated the position of the defendants.   To consider this and the Limitation Act 1950 defences, it is necessary to traverse the events that led up to the issuing of the proceedings.

[269]   As I set out earlier, from the outset the Burmeisters had problems obtaining the payments that they understood they were due from the arrangement.  They had spasmodic contact with ICMG over this.   The presentation to them of the Opol documents in April 2002 was a placatory step taken by the ICMG group.   This delayed the development of the Burmeisters’ concerns.  Mr Burmeister stated in his evidence  that  in  around  October 2002  he  started  to  think  that  something  was seriously wrong.  He and his wife had checked with the LINZ office in Hamilton and discovered, in October 2002, that the property was in the name of the O’Brien Trust. They prepared a written note of their concerns.   They requested a meeting with ICMG, and on 14 October they met at Lotus Avenue with Mr Geoffrey Clayton, Shaun Finn, and John Daniels and his wife, representing ICMG.

[270]   At that meeting, although it became heated for a while, they were assured that their house was safe and had been placed in a trust as had been agreed, and that it was perfectly secure.  They were given a document that stated that “your property is safe” and the qualification “(ie always under the management of the group)” would have been glossed over.  It said that the relationship was based on partnership. Geoffrey Clayton and Mr Daniels’ assurances led the Burmeisters to believe that the house was still theirs, but temporarily held in a trust called the O’Brien Trust.  They were persuaded to accept the position, which they continued  to  do  through  the months that followed.  It was not until 14 April 2003 when their attention was drawn to an article published in the Sunday Star Times on 13 April 2003, that they realised

that they had been, as Mr Burmeister described it, the “victims of a scam”.   This newspaper article outlined how ICMG had caused families to lose their homes, and how ICMG was being investigated.  Mr Geoffrey Clayton was mentioned by name as one of those responsible.  Lawyers then became involved, and in June 2003 there was a meeting with the O’Briens to endeavour to reach some arrangement for the O’Brien Trust to transfer the title to Lotus Avenue back to the Burmeisters.   The meeting was unsuccessful.

[271]   A Serious Fraud Office investigation began in 2003.  In July 2003 the ICMG group of companies was placed under statutory management.   In 2004 the ASB issued a s 92 Property Law Act Notice on the Burmeisters, and sought summary judgment against the first, second and third defendants.   These proceedings were filed on 10 June 2005.  The crucial allegations of deceit against Mr Geoffrey Clayton and Land Transfer Act fraud against the O’Briens, which have been successful in this claim, were pleaded at that point.  It is necessary to consider the claim of laches against this background.

[272]   The Supreme Court, quoting Nwakobi v Nzekwu [1964] 1 WLR 1019 (PC), in

Eastern Services Limited v No. 68 Limited [2006] 3 NZLR 335 stated at [13]:

Laches  is  an  equitable  defence,  and  to  maintain  it  and  obtain  relief  a defendant must have an equity which on balance outweighs the plaintiff’s right.

[273]   The  Burmeisters  were  duped,  and  the  reason  that  they  went  along  with ICMG’s wishes until mid-2003 was because they were so deceived.   There was a delay of some two years between them discovering the true situation and issuing these proceedings, but during that time there were proceedings on foot in the District Court at Napier in relation to the ASB’s claims against the O’Briens, and efforts were being made to deal with the ASB and its endeavours to sell the property.

[274]   At all times after they discovered the true situation, the Burmeisters’ position that they considered that they owned the property and had had it wrongly taken from them, was clearly expressed.  While in hindsight these proceedings might have been filed more promptly, and taken a different course to ensure a quicker hearing, these circumstances do not amount to unreasonable delay on their part.  Given that they

had been defrauded by those against whom they will succeed, the O’Briens and Mr Geoffrey Clayton, it would be most unfair for them to be deprived of a remedy. They did not take steps earlier because of Geoffrey Clayton’s fraudulent assurances.

[275]   While the amount owing to the ASB has increased at an alarming rate, given the penalty interest rates that have been charged, this cannot be regarded as prejudice in the orthodox sense, given the fact that it was the fraudulent actions of those who were liable that led to the situation.  As the Supreme Court noted in Eastern Services Limited v No. 68 Limited, equity has been most reluctant to accept that an equitable interest in land could be lost or destroyed by mere inaction: at [39].

[276]   Equity does not require that the Burmeisters be deprived of their remedies because of the time it has taken to get this matter to trial.  The delays until 2003 were because of the fraudulent assurances of Geoffrey Clayton and others.  The O’Briens were not party to the later assurances, but they were involved for a period from October 2001 in implementing the fraud that lead to the Burmeisters believing that their property was safe.  Neither of the unsuccessful defendants is in a position to invoke equity.

Limitation defences

[277]   The defendants seek to rely on the six year limitation period for actions based on tort under s 4(1) of the Limitation Act 1950. It is stated under s 21(1):

21       Limitation of actions in respect of trust property

(1)No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a)In respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b)       To recover from the trustee trust property or the proceeds thereof  in  the  possession  of  the  trustee,  or  previously received by the trustee and converted to his use.

[278]      The accessory liability action against Geoffrey Clayton is based on him being privy to a fraudulent breach of a constructive trust and s 21(1)(a) applies.

[279]   Section 21 does not apply to the deceit claim against Geoffrey Clayton.  The standard limitation period of six years applies.  Section 28(a) provides that where an action is based on the fraud of the defendant or his agent, or any person through whom he claims or his agent, the period of limitation “shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it.”

[280]   Deceit was pleaded in the original statement of claim filed on 10 June 2005, well within the six year limitation period.  The pleading was slightly different from the latest pleading in  the third  amended  statement  of  claim.    It  referred  to  the property being placed in a “trust” rather than a “fake family trust”.  However, I do not consider that change as sufficiently material to amount to a change to the basic cause of action.  Thus, no limitation issue can arise in relation to the deceit claim that has been successfully established against Geoffrey Clayton.

[281]   The Fair Trading Act claim against Geoffrey Clayton was pleaded in the statement of claim filed on 10 June 2005 in much the same words as ultimately pleaded   in   the   third   amended   statement   of   claim   filed   on   Wednesday,

25 March 2009.  It was, therefore, filed approximately three years and nine months after the misrepresentations.  Section 43(5) of the Fair Trading Act 1986 provides:

43       Other orders

…

[(5)      An application under subsection (1) may be made at any time within

3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been

discovered.]

[282]   The concept of discovery of loss or damage was considered by the Supreme

Court in The Commerce Commission v Carter Holt Harvey Ltd SC 25/2009 27

November 2009.  Tipping J stated at [29]:

Furthermore, if there is any doubt about whether the applicant was actually aware  of  the  loss  or  damage,  the  enquiry  then  moves  to  whether  the applicant ought reasonably to be aware of it. The Court will then have to consider whether a reasonable person, situated as the applicant was, ought to have known that loss had occurred.   No further refinement is required on either of these aspects of the matter.

The Court held that the question was, “When did the person become aware (or when ought the person have reasonably become aware) that it was more probable than not that loss had been suffered?”

[283]   A defendant cannot invoke s 43(5) and assert that loss or damage ought reasonably to have been discovered, when it is that defendant’s actions that have prevented the discovery.  Geoffrey Clayton cannot assert that the Burmeisters ought reasonably to have discovered that they had lost their legal ownership of their home when it was his deliberate actions that deceived them into believing that they still owned the property.

[284]   The   Burmeisters   relied   upon   Geoffrey Clayton’s   assurances   and   the assurances of other persons in ICMG through 2001 and most of 2002.  The first clear indication they had that all was not right was when Mr Burmeister discovered, when he visited the LINZ office in Hamilton in about September 2002 and obtained a search of the title for Lotus Avenue, that it was in the name of the O’Brien Trust. That was the earliest point when the Burmeisters discovered or ought reasonably to have  discovered  their  loss.    They issued  proceedings  some  two  years  and  nine months later on 10 June 2005.  This was, therefore, within the three period referred to in s 43(5).  It is also arguable that the time was even later when the Sunday Star Times article was published in April 2003.

[285]   The  Fair  Trading  Act  claim  is,  therefore,  within  time  and  there  is  no limitation defence available to Geoffrey Clayton.

[286]   The successful causes of action against the O’Briens are Land Transfer Act fraud and knowing receipt.   They are based on fraud, and are actions seeking to recover property held on a constructive trust, so s 21(1)(a) and (b) apply.

[287]   It is not necessary to  consider other  limitation  issues,  given  the liability findings.

Clean hands

[288]   It was suggested by the defendants that the Burmeisters could not succeed because they did not have ‘clean hands’.   The Burmeisters were criticised on the basis that they must have realised that something was happening, possibly a fraud on the Inland Revenue Department, if they were to get the promised payments.  Money could not be engendered from thin air.  This submission has to be seen in the context that the Burmeisters were, in a commercial sense, quite naive.   They had never enjoyed  any particular  financial  success,  and  lacked  any significant  commercial experience, and they assumed that there were others more astute in the commercial world who were able to make money in ways that they did not comprehend.  They were prepared to put their trust in Mr Geoffrey Clayton and those with whom he was associated, in the expectation that they would be sufficiently clever to make money without risk to them.  Probably there was some vague expectation that there might have been some tax manipulation involved in the process and that this would give the advantage to Geoffrey Clayton and his associates, which would enable him to pay them the income.  However, having heard Mr and Mr Burmeister give evidence I conclude that they were not conscious in any specific way that any illegal scheme was being pursued by Geoffrey Clayton.

[289] Moreover, in assessing ‘clean hands’, there must be an element of proportionality.    As  against  the  deliberate  fraud  of  Geoffrey Clayton  and  the O’Briens, any moral wrongdoing on the part of the Burmeisters in being prepared to acquiesce in a scheme that might involve some tax avoidance, pales into insignificance.   There is nothing which the Burmeisters did which should, in conscience, stay their hand in requiring the return of their property and damages from those who defrauded them.

Contributory negligence

[290] The defendants sought to rely on contributory negligence.   Given the conclusions I have reached on the various causes of action, contributory negligence

remains relevant only in relation to the claim against Geoffrey Clayton under the Fair Trading Act. The partial defence of contributory negligence is available for claims under the Fair Trading Act: Goldsbro v Walker [1993] 1 NZLR 394 (CA) at

399 per Cooke P; Gilrose Finance Ltd v Ellis Gould HC AK CP498/96 16 October

1997, Paterson J; Lawton v Norcross (2000) 9 TCLR 338. However, contributory negligence is not available to a defendant in relation to claims based on fraud: Maruha Corporation v Amaltal Corporation Ltd [2007] 3 NZLR 192 (SC) at [23]. The claim against Geoffrey Clayton under the Fair Trading Act stems from his fraudulent and deceitful conduct towards the Burmeisters. Thus, I consider that contributory negligence is not available to Geoffrey Clayton.

Conclusion

[291]   I find that the first cause of action, Land Transfer Act fraud against the first and second defendants, Mr and Mrs O’Brien, is proven.  I also find the fourth cause of action, knowing receipt, proven against them.

[292]   The usual order that would follow from this would be a declaration that the O’Briens hold  Lotus Avenue on  a constructive trust for the  Burmeisters,  and a direction to the District Land Registrar at South Auckland to take such steps as are necessary to set aside the registration in the name of the O’Briens and to restore the Burmeisters as the registered proprietors of Lotus Avenue.  Consideration must be given to the Burmeisters’ entitlement to damages against the O’Briens for their losses arising from the fraudulent transaction and accessory liability.

[293]   It is not possible to make orders at this point.   Further submissions and possibly further evidence is required.  Critical to the issue will be the amount that is owed to the ASB, and the ASB’s position in relation to the Burmeisters.   The particular issue to be addressed will be whether, if the Burmeisters are not able to recover  Lotus  Avenue,  their  damages  should  be  limited  to  the  value  of  Lotus Avenue, and not be the full amount owed to the ASB.  More minor issues are who paid the rates, the amount paid, and the amount received by the Burmeisters from ICMG.

[294]   I  find  that  the  third  defendant,  Geoffrey Clayton,  has  committed  deceit against the Burmeisters as alleged, has breached the Fair Trading Act, and has also dishonestly assisted the O’Brien Trust to obtain title to the Burmeisters’ property. The Burmeisters are entitled to damages against him.   Again, however, it is not possible to fix the quantum of damages without further submissions and possibly further evidence, in particular evidence as to the position of the ASB.

[295]   The Burmeisters’ claims against John Clayton and Mr Henley-Smith do not succeed.

Result

[296]   The first cause of action of Land Transfer Act fraud and the fourth cause of action of knowing receipt are proven against the first and second defendants.

[297]   The fifth cause of action in deceit, the sixth cause of action of breach of the Fair Trading Act, and the eighth cause of action of dishonest assistance (accessory liability) are proven against the third defendant.

[298]   The causes of action against the fourth and fifth defendants do not succeed.

[299]   This is an interim judgment.   The issue of relief will be considered at a further hearing.

[300]   It is necessary to determine the procedure to be followed in relation to the second hearing, given the findings of this judgment.   I seek submissions from the plaintiffs  as  to  the  procedure  forward  and  as  to  costs  within  21 days.    I  seek submissions from the defendants as to the procedure forward and costs within a further  21  days.    Alternatively,  if  the  parties  consider  that  the  procedural  way forward is best considered in a telephone  conference with  counsel,  they should contact the Registrar in this regard and arrange such a conference at 9:00 am on a suitable morning.

……………………………….

Asher J

Solicitors:

Sharp Tudhope, Tauranga John McDowell, Napier Wadsworth Ray, Auckland Fenton McFadden, Te Puke Henley-Smith Law, Auckland Counsel:

Mr D Chesterman, Auckland

Mr P Ross, Napier

Mr C R Pidgeon QC, Auckland