Chick v Blackwell

[2013] NZHC 1525

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2010-419-707 [2013] NZHC 1525

BETWEEN  LEITH ROGER CHICK AND ROSEMARY CHICK Plaintiffs

ANDROSS WINSTON BLACKWELL First Defendant

EDMONDS JUDD
Second Defendant/Third Party

Hearing:                   25-28 February, 1, 4-8 and 11-15 March 2013

Counsel                   MD Branch, KA McDonald and JK Gilby-Todd for Plaintiffs

CT Gudsell QC assisted by R Southall for First Defendant
J Parker and LD Tidey for Second Defendant/Third Party

Judgment:                24 June 2013

JUDGMENT OF RODNEY HANSEN J

This judgment was delivered by me on 24 June 2013 at 4.00 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:          Gallie Miles, Te Awamutu and Harkness Henry, Hamilton

Brent Kelly & Associates, Te Awamutu

Morrison Kent, Wellington

CHICK AND CHICK v BLACKWELL & ANOR [2013] NZHC 1525 [24 June 2013]

TABLE OF CONTENTS

Introduction  [1] Background  [6] Lack of capacity

The test  [28] Context  [31] The medical evidence  [39] Anecdotal evidence  [48] Conclusion  [62]

The transactions

2004 lease  [68]
2005 variation  [82]

2007 renewal of lease  [88] Subsequent events  [92] Conclusion  [98]

Unconscionable bargain  [99]

Special disability  [103] Impropriety  [121] Independent advice  [130]

Plaintiffs’ claim against Ross Blackwell – conclusion  [146] Plaintiffs’ claim against Edmonds Judd  [147] Ross Blackwell’s claim against Edmonds Judd  [154] Causation [162]

Damages  [168] Limitation defence  [169] Result  [177]

Introduction

[1]      The plaintiffs (Leith and Rosemary Chick) and the first defendant (who I will refer to as Ross to distinguish him from other members of his family) own neighbouring farms at Arohena, a district 50 kilometres south east of Te Awamutu. After Ross was stricken with what was thought to be a terminal illness in 2000, he leased his farm to Mr and Mrs Chick for three years, giving them a right of first refusal if he decided to sell the farm.  Ross confounded medical prognosis, although he never recovered sufficiently to farm his property.  The lease was renewed in 2004, this time associated with an option to purchase.  The option and lease were extended in 2005 and 2007.

[2]      By 2010 Ross Blackwell’s physical and mental health had deteriorated to the point that his affairs were taken over by his brothers, Basil and Derek Blackwell, pursuant to an enduring power of attorney Ross had signed in 2000.  They declined to grant a renewal of the lease or to honour the option to purchase when Mr and Mrs Chick  sought  to  exercise  it.     They  believed  the  option  to  purchase  to  be unenforceable because at the time it was granted and extended Ross did not have sufficient capacity.

[3]      In this proceeding the Chicks seek specific performance of the option to purchase,  or  damages.    That  is  resisted  by  Basil  and  Derek  as  Ross’ litigation guardians, on the grounds that he either lacked capacity at the time the relevant instruments were executed or that the underlying agreements were unconscionable bargains.

[4]      Mr  and  Mrs  Chick  bring  an  alternative  claim  against  Edmonds  Judd, solicitors of Te Awamutu, who acted for them and Ross on all transactions relating to the lease and option to purchase.   They say Edmonds Judd failed to obtain their informed consent to act for both sides or to advise them of the risks of proceeding with the agreements with Ross and of the steps that should be taken to minimise or avoid such risks.  Edmonds Judd deny a breach of duty and also plead that the claims are statute barred.

[5]      Ross also claims against Edmonds Judd for indemnity for any loss arising by

virtue of Mr and Mrs Chick’s claim against him.

Background facts

[6]      Much of the essential narrative is not in dispute.   Mr and Mrs Chick have owned  the Arohena farm  since 1984.    It  is  a  dry stock  farm  of  approximately

207 hectares on which they run approximately 850 deer, 500 sheep and 50 breeding cows.

[7]      In  1979,  at  the age of  21,  Ross  bought  a neighbouring  farm,  known  as “Haupouri”.   In 1993 he bought additional adjacent land.  The farm is now a 324 hectare property, also operated as a dry stock farm.

[8]      Over the years the Chicks and Ross Blackwell became good friends.  They helped one another out.  Their houses were only a few hundred metres apart and they saw quite a lot of one another.  Mr and Mrs Chick had three children.  The eldest, Adam, had quite a lot to do with Ross as he was growing up.

[9]      In 1993, Ross married Rosemary Catchpole.  Unfortunately, she did not settle into country life and in 1996 they bought a house in Puniu Road in Te Awamutu. Ross then commuted daily from Te Awamutu to the farm on his motorbike.

[10]     In 1999, Ross hurt his back in a motorcycle accident.  He underwent surgery in mid-2000.  Over this period he employed Katy Ballard (now Smith) to help him out.

[11]     One misfortune was quickly followed by another.   In June 2000, Ross was diagnosed with a brain tumour and was told he had just six months to live.   He underwent an intensive course of radiotherapy.   At about this time he approached Leith Chick and asked him if he was interested in leasing Haupouri.  Ross arranged a valuation which placed a market rental on the farm, including the farmhouse, of

$65,900 per annum.   As the Chicks did not want to lease the house, a rental of

$63,000 was agreed.  The issue of affordability was discussed.  Mr Chick said that

Ross was concerned that the rental would still enable the farm to return a reasonable

profit.  Mr Chick’s calculations confirmed that the farm could stand the rental.  He also agreed to buy sheep from Ross at a valuation obtained from stock agents.

[12]     At Mr Chick’s suggestion, the lease contained a right of first refusal should the farm be sold.  He was aware that Ross could die at any time. As he was investing some $250,000 in extra stock, he wanted certainty that in the event of Ross’ death the farm would not be sold to his detriment.

[13]     A lease was entered into for a three year term commencing on 1 April 2001, with a right of renewal for a further three years and a right of first refusal should the farm  be  sold.    Richard  Gray  of  Edmonds  Judd  acted  for  Mr  and  Mrs  Chick. Mr Malcolm Brown of the same firm acted for Mr Blackwell.

[14]     While Mr and Mrs Chick took over management of the farm, Ross Blackwell continued to go to his farm every day.  Most days he would do some work and join Mr and Mrs Chick for lunch.

[15]     From August 2002, the house on the farm was occupied by Adam Chick and his partner, Jana Pokorna, who later married. At this time Adam resumed the fencing contracting business he had before he went overseas.  Jana worked for Mr Chick.

[16]     In early February 2004, Mr Chick spoke to Ross Blackwell about the renewal of the lease.   They agreed to a renewal for a further three  years with the rent increasing to $65,900, the rental recommended by the valuer for the farm including the house.   Mr Chick instructed Mr Gray to take the necessary steps to prepare a renewal of the lease.

[17]     In February 2004, while Mr and Mrs Chick were away in the South Island, Ross Blackwell suggested to Adam and Jana that they could buy his farm.  While having lunch with them, Ross had seen paperwork concerning a neighbouring farm that Adam and Jana had enquired about buying.  The following day he said to them that  he  had  a  better  offer.    They  could  buy  his  farm.    Adam  said  he  was “gobsmacked” as he had always assumed that Ross’ brothers would get the farm.  He asked Ross what his reasons were.  Ross said he did not want to talk about it but

would tell him one day.  He told Adam he wanted to talk to his father as soon as he returned.  (Adam said Ross told him the reasons many years later, in August 2007, when they were coming back from Auckland together.  Ross told him the reason was that his brothers and their families had been “horrible to Margaret” (Ross’ wife).)

[18]     Ross Blackwell and Mr Chick met after the Chicks returned from the South Island.  Mr Chick said Ross said to him, “I want you guys to have my farm.  I would really like to leave it to Adam in my will”.  Mr Chick said he told Ross he could not do that; he had Margaret to consider and his will could be challenged.   Ross then asked him, “How do we do it then?” After discussion, Mr Chick suggested an option to purchase.  Mr Chick said Ross made it clear to him that he wanted to continue owning the farm while he was still alive and that, in the end, he would like Adam to have it.  Mr Chick was to be “the caretaker”.

[19]     They discussed a purchase price.  At this time the government valuation was

$1,165,000.    Ross  told  Mr  Chick  that  he  had  spoken  to  the  valuer  who  had previously valued the lease.   He had estimated a value for the farm of $1.8m. Mr Chick said Ross was concerned that the farm should be affordable for Adam and suggested a price of $900,000 based on the productive worth of the land.  Mr Chick said he told him that was too low.  After some discussion, a price for the option of

$1.5m was agreed.   Ross Blackwell asked that nothing be said about the option, specifically saying that his brothers should not be told.

[20]     Mr Chick and Ross Blackwell each instructed their solicitor to include the option to purchase in the renewal of the lease.  Mr Chick again instructed Mr Gray of Edmonds Judd.  Malcolm Brown, who acted for Ross when the lease was entered into, had since retired.  Miranda (Mandy) Rasmussen, a staff solicitor, acted for Ross from then on.  In April 2004, the lease was renewed for a further three years with a right of renewal for a further three years.  The lease contained an option to purchase for $1.5m if settlement took place before 30 April 2007 or at an agreed price or at market value if settlement was after that date.

[21]     In 2005, Adam Chick and Jana Pokorna took over management of the farm. Early in 2005 Mandy Rasmussen was instructed by Ross that he wanted to vary the

term of the option by extending the date by which the farm could be purchased for

$1.5m, to 30 April 2010.  A variation of lease was prepared by Mandy Rasmussen and sent to Richard Gray on 21 February 2005.   Leith Chick said the variation of lease “came out of the blue”.   Ross had not discussed it with the Chicks.   They signed the variation which was executed on 5 April 2005 by Ross.  Mr Chick said that the next time he saw Ross he asked him why he had wanted to extend the lease. Ross said that it was to give them more time.

[22]     In February 2007, with the lease due for renewal on 1 May 2007, Mr Chick advised Richard Gray that he and his wife wished to exercise the right of renewal. He had a discussion with Ross Blackwell, advising him that he thought the rent should be increased.   He suggested basing the new rental on $20 per stock unit which would work out to $69,600 per annum.  Ross Blackwell agreed to this.  Mr Chick said that he discussed with Ross the premiums that dairy farmers were paying to lease land for grazing.  He said Ross was adamant that he was not interested in leasing for dairy grazing and wanted the lease to be affordable for Adam.   The renewal of lease was executed on 13 April 2007.

[23]     Early in January 2008, Ross had a party to celebrate his 50th birthday.  There were some 80 guests.  Ross spoke, as did Mr Chick and some other friends.

[24]     In the first half of 2008, Ross had two major strokes.   These affected him physically and mentally.  He was no longer able to visit the farm on his own.  His short  term  memory  was  affected.    From  July  2008,  he  has  required  fulltime residential hospital care.  He currently lives in a rest home.

[25]     In March 2009, Basil and Derek Blackwell went to see Mandy Rasmussen and found out for the first time that the lease included an option to purchase.  Basil Blackwell said they were shocked.  They discussed it several times with Ross.  Basil Blackwell could not remember details of the conversations or why it was that they took no action to seek independent advice in relation to the option until March 2010.

[26]     Matters came to an end in March 2010.  Ross met with Leith Chick at the rest home.  They agreed on a variation of the lease to provide for two further rights of

renewal of three years and an extension of the option to purchase to 30 April 2016. The rental would be $72,000 which was based on 3,600 stock units at $20 per stock unit.  They also discussed the option price.  Mr Chick said Ross agreed that for the term of the renewal the price should remain at $1.5m.  Mr Chick instructed Richard Gray accordingly.

[27]     At this point, Basil and Derek Blackwell intervened.  They asserted that Ross had not had the capacity to enter into the lease or the option to purchase.  The parties were advised to seek independent legal advice.  When it became clear that the lease would not be renewed, Mr and Mrs Chick instructed Linda Miles of Gallie Miles to issue a notice exercising the option to  purchase.   This was  served on  Ross by Ms Miles personally on 26 March 2010.

Lack of capacity

The test

[28]     There is no challenge to the validity of the initial lease and the associated first right  of  refusal  to  buy  the  farm.     The  defences  of  lack  of  capacity  and unconscionable bargain concern the later transactions – the 2004 renewal of lease and option to purchase, the 2005 variation and the 2007 renewal.

[29]     The defence of lack of capacity requires proof of two elements:1

(a)       That Ross Blackwell lacked the capacity to understand the general nature of the transaction; and

(b)      Mr and Mrs Chick knew of his lack of capacity.

[30]     The first of the factual enquiries required, then, is as to Ross Blackwell’s

intellectual capacity at the relevant times and whether or not he understood the general nature of the transactions he entered into.

1      Scott v Wise [1986] 2 NZLR 484 (CA).

Context

[31]     Although there is no doubting that Ross had the requisite capacity to enter into the lease in 2001, it is necessary to consider his intellectual capacity then and prior to his diagnosis of and treatment for the brain tumour – his so-called pre- morbid intellectual capacity.   The way in which he functioned prior to becoming unwell provides a benchmark against which evidence of his subsequent decline can be evaluated.  It also has direct application to the medical evidence.  The effect of a brain tumour and radiotherapy on the cognitive functioning of a person of low intelligence is likely to be greater than on someone of greater intellectual capacity.

[32]     There was no objective evidence of Mr Blackwell’s pre-morbid intellectual capacity.  One witness, Mrs Joyce Catchpole - the stepmother of Ross Blackwell’s wife, and a retired teacher, lecturer and inspector of schools – expressed the view that intellectually Ross Blackwell functioned at a level of less than a 13-year-old. She assessed him as having a level of intelligence in the bottom 10 per cent of “normal people” (excluding those who have significant intellectual disabilities).  The only medical witness who was in a position to comment on Ross Blackwell’s pre- morbid  intellectual  capacity,  his  general  practitioner,  Dr  Richard  Ballantyne, described him as of “borderline intellect” prior to his brain tumour.  He said he was “a pleasant benign guy, but a simple soul”.

[33]     While both witnesses had expertise and great experience in their respective fields, neither was competent to express an authoritative opinion on the level of Mr Blackwell’s pre-morbid intellectual capacity.  That would have required clinical testing and specialist expertise to which neither laid claim.  I include their evidence in the pool of largely anecdotal evidence from which I am able to draw conclusions only in general and somewhat subjective terms.

[34]     Ross  Blackwell  was  plainly  not  academically  inclined.    He  struggled  at school and left at the beginning of the fourth form, as soon as he turned 15.  His third form school reports were produced.   There were the “could try harder” references familiar to many parents.  While in the bottom half of the class in most subjects, he

achieved well in subjects that interested him.  A first place in technical drawing in the first half of the year is testament to this.

[35]     The evidence of those who knew Ross Blackwell over the following 25 years tends to show that his school reports were quite a good reflection of his personality and potential.  He had a narrow range of interests but what he applied his mind to he did well.   He was passionate about farming and farm machinery, and  was also interested in cars.  He started going to church in around 1990 (which is where he met his wife) but appears to have engaged in few activities outside the farm.  He tended not to engage in conversations about topics which did not interest him.

[36]     There was agreement that he was a good farmer.   He proved to be quite capable of running the business side of his farming operation as well as doing the manual work, albeit that his workmanship and finish often left something to be desired.  As one of his neighbours, Jeffrey Bryant, said, “Ross knew how to shear and he knew how to fence, but it wasn’t pretty”.  Others described him as not “the sharpest tack in the box” and “a bit slow in the head”.  On the other hand, there were some who worked closely with him who did not subscribe to that view.  Katy Smith worked for him during the period immediately before and after his diagnosis.  She described  him  as  “a  clever  man  and  quite  a  deep  thinker”  who  always  gave everything a great deal of thought before making a decision.   An engineer, Paul Leyden, who had done engineering work for Ross since about 1983, described him as “a lot more intelligent than people gave him credit for”.  He said that Ross was aware of his lack of education and felt that others denigrated him for that reason.

[37]     My impression is that the judgments made by some as to Ross Blackwell’s limited intellect were attributable in part to the way in which he projected himself. He spoke slowly.  He was said by some to have an odd sense of humour.  He did not always  behave  and  dress  appropriately.    He  appears  to  have  been  somewhat eccentric, often socially inept, (rude, crude and embarrassing at times said his sister- in-law, Maria Blackwell), and a man with a limited range of interests and accomplishments.  However, in those areas that interested him, especially farming, he was highly competent.  He had what it took intellectually and psychologically to maintain an independent lifestyle, to foster and develop close relationships and to

meet the demands of developing and running a successful farming operation.  In my view, he did not fit the profile of a man of borderline intelligence or with the intellectual capacity of a 13-year-old.

[38]     The evidence I heard of what occurred after Ross Blackwell’s diagnosis and treatment does not cause me to alter that assessment of his pre-morbid intellectual capacity.

The medical evidence

[39]     Mr  Blackwell  was  found  to  have  a  brain  tumour  after  he  presented  to Dr Ballantyne in June 2000 complaining of dizzy spells which had been occurring about once a week for a period of six months.   He was referred to a specialist neurologist,  Dr  Paul  Timmings,  who  arranged  for  him  to  have  a electroencephalogram (EEG test) and MRI brain scan.  The MRI scan disclosed a tumour  measuring  5  cms  x  6.5  cms  in  the  right  frontal  and  temporal  lobe. Dr Timmings said it was about the size of a large mandarin.  There was a large cystic component.   A biopsy confirmed the existence of an anaplastic gemistocytic astrocytoma.  In lay terms, Mr Blackwell had a high grade brain tumour.

[40]     Mr Blackwell was referred for radiation therapy.  He and his wife were told that the purpose of radiotherapy was to control the tumour.  It was anticipated that a full cure would be impossible.  Dr Timmings said that it was apparent to him that Mr Blackwell was under the impression at the time that his life expectancy might be as short as a few months or as long as a couple of years.  He said that the medical literature suggests that the median survival rate with treatment is 2.5 years with a 5- year survival rate of 30 per cent.

[41]     Over  a  period  of  four  weeks,  from  16  October  to  24  November  2000, Mr Blackwell underwent a course of radiotherapy.  It was a conventional high dose of radiation used for aggressive tumours.  The radiation therapy was administered to the whole of the brain.  A specialist radiation oncologist, Dr Anthony Falkov, said whole brain radiotherapy has not been used for brain tumours since the 1980’s unless there is evidence of widespread involvement, due to risks of significant adverse

effects such as cognitive impairment.   It is not clear why Mr Blackwell received whole brain radiotherapy.

[42]     During 2001 and 2002, Mr Blackwell was on medication to control ongoing seizures.   These diminished in frequency and appear to have ceased altogether in May 2002.  Over that period he had regular MRI scans which showed a progressive shrinkage of the tumour and the cystic mass.  By November 2002, he was reported to be well, working on his farm and driving tractors, and had had no seizures.  Similar observations  were  recorded  in  May  2003  and  again  when  he  was  seen  by Dr Timmings in June 2004.   The only abnormality Ross reported over this period was on review in May 2003 when it was noted he had some minor memory difficulties.

[43]     On 14 February 2005, Dr Ballantyne reported that Ross had re-presented to him with bizarre behaviour changes and headaches.  He had told him that his head seemed  to  be  full  of  water.    He  was  more  garrulous  and  rambling  than  usual. Dr Ballantyne described Ross’ behaviour as bizarre.  He came to the surgery with a sack with string tied around each end.  During the appointment he sat fiddling with the  sack,  apparently  oblivious  to  his  surroundings  and  what  was  going  on. Dr Ballantyne referred Ross to Waikato Hospital where he underwent an MRI scan and was seen by a consultant radiation oncologist, Dr Hermann van der Vyver, on

9 March 2005.  Dr van der Vyver noted that Ross had been unsettled for the previous few weeks, with behavioural changes.  He thought that information had come from the person who had accompanied Ross.   There were no new symptoms or new behavioural changes when Ross had a follow-up examination on 6 July 2005.  When he saw him one year later, however,  on 5 July 2006, Mr Blackwell  reported a worsening of his coordination over the previous five months which necessitated his use of a walking stick.  Otherwise, Mr Blackwell reported that he had been “fine” with no worsening of his short-term memory deficit.

[44]     Dr van der Vyver saw Ross again for his annual follow-up examination on

9 July 2007.   He noted that Ross had had “a remarkable improvement” over the

previous year, with an improvement in his coordination.

[45]     Over this period, Dr Timmings also saw Ross.  His findings were broadly to the same effect.   In August 2006, he was described as being his normal self, with mild  cognitive  deficits  and  memory  impairment.    In  February  2008,  ongoing memory problems were also reported, although these did not seem to Dr Timmings to be a major concern.

[46]     MRI  scans  over  the  period  2001  –  2007  showed  that  Ross  developed radiation encephalopathy or softening of the brain. This is a known “late” side-effect of radiotherapy and involves the loss of normal brain cells to a significant degree. The consequences will vary for individual patients.  However, Dr Falkov said that it is almost inevitable, given time, that a patient treated with the dose of radiotherapy Ross   received   will   develop   significant   complications,   including   cognitive impairment.  He said some patients do not live long enough for such late side-effects to become manifest.   In his view, the records show that Ross developed radiation encephalopathy which would have produced irreversible cognitive decline and progressive impairment of memory and judgment.

[47]     In March 2008, Ross underwent a further brain scan which showed that he had had a small stroke.  An enhanced susceptibility to strokes is also a known late side-effect of radiotherapy.  His symptoms included difficulty with speech.  For the first time he underwent a mental state assessment and was found to have serious cognitive impairment.  In May 2008, he was assessed by Dr Timmings who noted a definite deterioration in Ross’ condition.  Although he did not carry out any tests, he said Ross appeared to be cognitively impaired.

Anecdotal evidence

[48]     The progressive decline in Ross Blackwell’s physical and mental health is confirmed by the evidence of lay witnesses, although there are sharp differences on issues  of  timing  and  the  extent  to  which  he was  incapacitated.    The  plaintiffs’ position is that Ross’ physical decline did not start until late 2007 and there was no significant mental decline until 2008.

[49]     After the Chicks took over the lease they continued to have regular contact with Ross.   During 2002 and 2003 he drove to the farm from his home in Te Awamutu most days.  He worked on the farm, charging $5 or $10 an hour.  Mr Chick said he had to remind Ross to give him invoices.  He would say in response, “I’m already getting paid for the lease”.

[50]     In 2007, Ross was still driving himself to the farm at least two or three times per week and continued to take a close interest in what was happening on the farm. In May 2007, he was present at a meeting of a farm discussion group, an informal group of farmers which met three times a year.  One of the members of the group, Mrs Michelle Miller, gave evidence.  She said her impression of Ross at the meeting was that he was coherent and was “with it”.   When Adam and Jana were talking about  what  they were  doing  on  the  farm,  he  contributed  to  the  discussion  and provided information about the property.  She described his contribution as valid and relevant to the farm.

[51]     The Chicks saw a deterioration in Ross’ physical health in late 2007-early

2008.  He found driving to the farm tiring and would ask Adam Chick to pick him up and take him to the farm.  However, they said he was in good spirits.  In January

2008, he had a party to celebrate his 50th birthday.  There were some 80 guests.  He

made  what  was  described  as  an  entertaining  speech,  “vintage  Ross”  said  Leith Chick, who also made a speech.  Marian Blackwell differed.  She described Ross’ speech as rambling and not always coherent.

[52]     The  Chicks  say  that  there  was  a  major  deterioration  in  Ross’  physical condition in 2008 after he had had the stroke or strokes which led to his being hospitalised.   That included further impairment to his speech.   They maintain, however, that he was thinking clearly, at least about farming matters, and able to be understood until their last contact with him in 2010.

[53]     Defence witnesses spoke of a steady decline in Ross’ mental and physical health after his treatment.  His speech was said to have become slower.  His short- term memory became erratic.   He became unsteady on his feet.   There was also

evidence of behavioural changes; his eccentricities became more pronounced and there were instances of what were seen by some as extreme and irrational conduct.

[54]     Much of the  evidence  relied  on  subjective impressions  and,  prior  to  the dramatic deterioration that took place after the first stroke in 2008, there are few objective measures  of  Mr Blackwell’s  state of  health  other than what  is  in  the medical records.

[55]     It seems clear, however, that once his seizures were brought under control, Ross enjoyed reasonable physical health until 2006 when he developed symptoms of poor balance and weakness which caused him to fall over in the street.  He needed a walking frame to get about.  Dr Timmings attributed this to a small stroke.  However, subsequently Ross’ mobility improved and he needed only a walking stick to get about.   It seems it was at about this time – 2006 – that Mr Blackwell’s ability to safely drive himself became compromised and from 2007 he relied on others to drive him to and from the farm.

[56]     There is clear evidence of bizarre behaviour as observed by Dr Ballantyne in February 2005.  That appears to have been an isolated episode which did not recur. Dr  Gary  Cheung,   an   old-age   psychiatrist   called   by  the  plaintiffs   said,   as Mr Blackwell’s condition had improved by the time he was seen by Dr Timmings three months later, it is  likely that he was  suffering from delirium  –  a clinical syndrome characterised by a reversible acute confusion state which usually has more than one medical and/or pharmacological cause.  Dr Ballantyne agreed that this was possible as did Dr Gil Newburn, a neuropsychiatrist called by the Blackwells albeit, he said, against a background of impaired brain function.

[57]     Until the first of his strokes in 2008, Mr Blackwell appears to have been competent to manage his personal affairs.  Generally, he is described as having been extremely careful with money.   His cheque books for the years 2000 – 2008 (excluding those for 2003 – 2005) were produced.   The writing is legible and the entries clear.   There is a discernible deterioration in the handwriting during the period  but  even  the  entries  for  early  2008,  immediately  before  Mr  Blackwell’s stroke,  are  easily  decipherable.    From  this  point  he  was  unable  to  manage  his

finances, although it is clear that he continued to take a keen interest in his financial affairs and, as late as 2010, responded appropriately when presented with an invoice for concrete laying on the farm.

[58]     Mr Blackwell’s management of his financial affairs included any transactions relating to the farm.   In July 2005 he sold a quantity of farm machinery to Leith Chick for $17,150.  There is no suggestion that there was anything unwise or unfair about this transaction.

[59]     Following his treatment, Ross continued to instruct his accountant who was among those to note a gradual deterioration in his mental and physical condition.  Ms Jennifer Miezenbeek met him every two months, bringing his cheque books, deposit books and other documentation.  The meetings continued until he went into hospital in 2008.  She noted a deterioration in his physical and mental condition.  She said he became more confused, had difficulty getting his books out of his bag and explaining things to her.  He also became forgetful.

[60]     Although in most respects Mr Blackwell maintained a frugal lifestyle, family members drew attention to a dramatic change in his spending habits after his treatment.  He bought a succession of new cars; previously he had made do with old cars and a motorbike.   He gave two of the new cars away.   He also bought gym equipment and a bike which he barely used.  He bought a sauna.  He was seen as having become something of a spendthrift.  Family members also pointed out that he became a devoted consumer of Guinness at a local bar before abruptly stopping drinking altogether.

[61]     I am disinclined to ascribe these changes to a deterioration in brain function. Mr Blackwell’s circumstances had changed radically.  He no longer had a farm to run.  He was financially secure.  He had a steady income stream that exceeded his and his wife’s basic needs.   He had almost a million dollars in the bank.   His prognosis was uncertain.  In the circumstances, I do not find it remarkable that he should  choose to  indulge his  love of  cars.   While his  generosity to  the family members to whom he gave near new vehicles was regarded as irrational by some, I view  them  as  thoughtful  gestures  to  relations  who  had  particular  needs.    He

committed himself to various regimes which could assist to combat his illness – physical exercise and diet (including Guinness) among them.   He fulfilled a long- held ambition when he and his wife went on a trip to Australia in 2006.

Conclusion

[62]     The overall picture I have formed is of a man who undoubtedly declined physically and mentally over the period 2001 – 2008 but who was able to maintain, for most of that period, a reasonable quality of life, to care for himself and his wife (who, I was told, was herself disabled to an unspecified extent) and, albeit with diminishing facility, to manage his affairs.

[63]     The medical experts who did not treat Mr Blackwell but were called  to comment on his history and treatment, agreed that his tumour and the radiotherapy led to significant brain damage which inevitably would have caused cognitive impairment.  The tumour affected large areas of the right frontal lobe, an area of the brain responsible for higher functions including planning, organising, problem solving, behaviour and emotions.  Dr Timmings said that a tumour in the frontal lobe would very likely compromise functions such as planning, judgment, problem solving, impulse control and abstract reasoning.  He said the gradual growth of the tumour could have led to progressive but initially subtle changes in these areas which would not necessarily have been noted even by those who saw him frequently. However, it seems clear that it was the radiation therapy which caused the major damage and the palpable deterioration in brain function from 2001.

[64]     The contentious issue – made more difficult by the absence of any cognitive or neuropsychological testing before 2008 – is the extent of the impairment at the material times.  The extent of damage to the brain is not itself an accurate indicator of cognitive impairment.   There is no direct correlation between abnormal neuroimaging  (the  deterioration  shown  in  MRI  scans)  and  cognitive  function. Patients with significant abnormalities on neuroimaging can have minimal decline in cognitive functioning.

[65]     That  said,  the significant  and  progressive loss  of brain  cells  suffered  by

Mr Blackwell  undoubtedly  produced  what  Dr  Falkov  described  as  irreversible

cognitive decline and progressive impairment of memory and judgment.  That would have, at the least, resulted in the mild cognitive deficits and memory impairment described by Dr Timmings when he saw Mr Blackwell on 2 August  2006.   In Dr Newburn’s opinion, it is probable that Mr Blackwell’s ability to understand the legal processes associated with the renewal of the lease in 2004 would have been impaired although to what extent he could not say.  The level of impairment would have been greater in 2005 and again in 2007 although, without a cognitive assessment, the extent of the disability is uncertain.

[66]     The extent to which the deficit in cognitive functioning would be apparent to a third party is also uncertain.  Dr Falkov said an intelligent person may be able to mask the late side-effects of radiotherapy.  They may only become obvious when the patient is subjected to situations calling for the application of some form of analysis or judgment.   Dr Newburn agreed that whether Mr Blackwell’s decline in mental capacity would be apparent to a third party would depend on the circumstances including what was being discussed.  If they were of a superficial nature or related to matters encoded in his memory (such as his farming knowledge), it may not be apparent.

[67]     Dr Newburn said that the question of whether a person with diminished cognitive functioning had an understanding of the general nature of a transaction would depend upon the nature and complexity of the transaction and any explanation that was given at the time.  Whether or not diminished cognitive functioning results in a lack of capacity must depend on the circumstances of each case.

The transactions

2004 lease

[68]     Against that background, I turn to consider whether Mr Blackwell understood the general nature of the transactions he entered into, beginning with the renewal of the lease and associated option to purchase in 2004.  The essential elements of that transaction were:

(a)       The lease was being extended for a further three years.

(b)The Chicks were given the right to renew the lease for a further three years from 2007.

(c)      The  Chicks  were  given  the  right  to  buy  the  farm  for  $1.5m  (if settlement took place before 30 April 2007) or at market value if settlement took place later.

[69]     I do not understand the Blackwells to contend that Ross did not understand that he was renewing the lease and giving the Chicks a right to renew it for a further three years in 2007.  The issue is whether he understood the general nature of the option to purchase.

[70]     I found Leith Chick, Adam Chick and Jana Pokorna to be truthful and careful witnesses.  I accept their accounts of the way in which the option to purchase came into being.  Basil Blackwell said in evidence that he believed the option was “slipped in” without Ross’ knowledge.  I do not accept that.  I believe Ross made a considered decision to give the Chicks the right to buy the farm if they wanted to.

[71]     The Chicks had been good neighbours of Ross Blackwell and had become good friends.  They had been and continued to be thoughtful and kind to him.  He obviously approved of the way they farmed his property.   They were happy to accommodate his wish to have a continuing involvement in the farm and to respect his wish that he should remain the owner until he died.

[72]     Ross plainly appreciated that his decision would probably mean that the farm would not remain with the Blackwell family.  That was contrary to expectations; I was told that the Blackwell family were buyers of land, not sellers.  But Ross had his reasons for preferring the Chicks.  In addition to the matters I have referred to, there was his concern about the way Margaret had been treated by family members.   I found it significant that he chose to mention this to Adam Chick some years later (in

2007).2    Apart  from  anything  else,  it  showed  that  he  well  remembered  the

conversation that had taken place four years earlier and underlined its importance to his decision.

2 See [17] above.

[73]     Whatever else may be said about him, Ross Blackwell was an independent thinker, very much his own man.  A number of witnesses commented on this aspect of his personality.

[74]     In evaluating Ross’ thinking on the issue, it should also be borne in mind that the eventual sale of the farm to the Chicks would not affect Ross’ intention that the Blackwell family should ultimately be the major beneficiaries of his  estate and receive a substantial benefit on his death.   He made a will on 14 July 2000.   His brothers were appointed executors of his estate.  In simple terms, it gave his wife a life interest in the estate, on her death the residue was to be divided equally between his brothers.  Even on the favourable terms on which the Chicks could buy the farm, the estate would be a substantial one.   Ross had no debts and had achieved his ambition of accumulating close to $1m in cash investments.

[75]     The option price, discounted by $300,000, conferred a significant benefit on the Chicks but one which could readily be understood and justified.  Mr Blackwell was concerned that the farm should be affordable for Adam, that he and Jana should not be saddled with a debt burden that would make it uneconomic.  The concession would have a relatively minor effect on his asset position.  His wife’s position would be secure and ultimately the Blackwell family would receive a substantial capital benefit.

[76]    The way in which the renewal of lease and option was progressed and documented leaves me with no cause for concern that Ross Blackwell did not understand the general nature of the transaction.  The instruction to Edmonds Judd to prepare a renewal of the lease had come from the Chicks before they went to the South Island.  Subsequently, after the discussions which took place after their return, Ross met Ms Rasmussen at the offices of Edmond Judd and instructed her that he wanted the lease to provide for an option to purchase at a price of $1.5m.   She drafted the deed and sent it to Mr Gray, acting for Mr and Mrs Chick, and to Mr Blackwell.   Her covering letter to Mr Blackwell summarised the effect of the option in the following way:

We enclose a draft of the proposed Renewal of Lease to Mr and Mrs Chick. The effect of the document will be as follows:

1         The lease is renewed for a further term of three years from 1 May

2004;

2         The rental continues at the same rate of $65,900.00 per annum plus

GST;

3         The Chick’s have a further right of renewal for three years from 30th

April 2007;

4         The lease is varied to include the dwelling and surrounds which we understand are occupied by the Chicks, but at present are excluded from the lease;

5         The lease is also varied to provide that the Chick’s have a right to purchase the property (including the house) at the price of $1,500,000.00 plus GST if settlement takes place on or before 30th  April 2007, or at the current market value (to be determined by valuers) if settlement takes place after that date.

If you have any queries or alterations that you wish to make, please advise.

A copy of this draft has also been sent to the Chick’s for their comments.

[77]     Ms  Rasmussen  was  obliged  to  rely  on  her  unaided  memory  in  giving evidence about the meetings she had with Ross.  Her file note of his instructions is cryptic and there is no record of the meeting at which he executed the deed.  She said at the first meeting Ross explained to her that he had a special relationship with the Chicks.  He conveyed to her that he regard them as family.  He was aware that Adam would benefit from the arrangement and was happy with this outcome.  He was clear that he did not want to obtain another valuation.  Ms Rasmussen said that, although at  times  Ross’ speech  might  be  stilted  or  simple,  she  was  comfortable  that  he understood the legal concepts explained to him.

[78]     I  have  reservations  about  Ms  Rasmussen’s  recall  of  the  detail  of  her discussions with Mr Blackwell but I have no reason to question her confidence that he understood the essential nature of the transaction and that it gave effect to the agreement he had reached with Leith Chick.

[79]     Mr Gudsell QC submitted that if Ross had understood the general nature of the option to purchase, he would not have signed the document because it failed to make provision for a number of conditions associated with the option.   These included the stipulation that the farm would not be sold until Mr Blackwell died and for the purchase price to be affordable for Adam.  Mr Gudsell also pointed to the fact

that the documentation made no provision for Mr Blackwell to be able to access the farm; that it was not to be used for dairy farming; and that the farm would be operated by Adam Chick and Jana Pokorna.

[80]     In my view, the failure to give contractual effect to these matters reflects and is consistent with the peculiarly personal nature of the arrangement overall, as well as the level of trust that existed between the parties.  Ross’ ability to visit the farm whenever he pleased relied on the goodwill of the parties.  By 2004, the arrangement had worked happily for three years.   The Chicks fully understood Mr Blackwell’s wish to retain ownership of the farm.   It gave effect to an emotional attachment which they respected and honoured.   Indeed, they would not have exercised the option in 2010 if the Blackwells had been prepared to extend the lease.  There was an expectation that Adam and Jana would farm the land and use it for dry stock farming (and they did).   It would have been quite contrary to the nature of the arrangement overall to convert such expectations into contractual commitments.

[81]     The medical evidence, the anecdotal evidence and the evidence of how the

2004 deed came to be executed, satisfies me that Ross Blackwell understood the general nature of the option to purchase.  In my view, the option gave effect to his considered intention and he was well enough to appreciate its purpose and effect.

2005 variation

[82]     The 2005 variation, which extended the date by which the option could be exercised at the fixed price of $1.5m, was initiated by Ross.   There was no prior discussion with the Chicks.  As earlier mentioned, Mr Chick said it came “out of the blue”.  Ms Rasmussen said Ross came to her office without warning.  She cannot recall what was said at the meeting.  Her undated file note simply states broadly “do variation of lease so price of $1.5m goes on to 30/4/2010”.  She said Mr Blackwell told her he wanted to give the Chicks more time.   He appreciated but was unconcerned about the possibility that the value of the farm could go up.

[83]     The date of that meeting cannot be precisely ascertained.   It was before

10 February 2005 as, on that date, Ms Rasmussen sent Mr Gray an email in which

she said Ross Blackwell had come to see her “a while ago” regarding the lease to the

Chicks and wanted to vary the lease to extend the option date at the price of $1.5m to

30 April 2010.  There is no record of a response but on 21 February Ms Rasmussen sent a draft variation of lease to Mr Gray for submission to Mr and Mrs Chick.  The deed simply provided for the deletion of “2007” from the relevant clause of the deed of renewal and for the insertion of “2010”.

[84]     The variation was signed by Mr and Mrs Chick and forwarded by Mr Gray to Ms Rasmussen on 31 March.  She wrote to Ross on 1 April advising him that they had signed the variation and asking for him to arrange a time to sign it.  He did so on

5 April.

[85]     The likely timing of Ross’ initial instruction raises concerns about his state of mind, as it was on 14 February 2005, that he presented to Dr Ballantyne reporting that his head seemed to be full of water and behaving in a bizarre fashion.  There has to be a concern that Ross instructed Ms Rasmussen at a time when his judgment was impaired.   However, by the time he signed the variation, almost two months had passed and the symptoms of delirium (if that is what it was) appeared to have gone. Dr van der Vyver had seen him on 9 March and, while noting that he had been unsettled for the previous few weeks, did not note anything in his presentation which might have been cause for particular concern.  By 25 May 2005 when he was seen by Dr Timmings, he was described as being seizure-free, driving, and fully mobile.

[86]     The reasoning behind  Ross’ unilateral  decision  to  extend the fixed  price option is difficult to fathom.  Certainly it makes no sense in commercial terms.  The explanation he gave to Ms Rasmussen is not much help.  The timing seems strange. An extension could have been given at any time before 30 April 2007 and the option made provision for the parties to agree on a price (as an alternative to market price) after that date.  I infer that Ross thought it would assist the Chicks to know that their right to purchase at the fixed price would continue until 2010.  It is also conceivable that he saw that an extension would remove an incentive to exercise the option before 30 April 2007.

[87]     There is nothing to show that Ross did not understand what he was doing. The variation could not have been more simple.   On the basis that symptoms of delirium had passed, as appears to have been the case, I conclude that Mr Blackwell knew what he was doing when he signed the deed of variation.

2007 renewal of lease

[88]     If the 2004 and 2005 deeds are valid, the Chicks had an option which they could exercise by notice of their intention to do so given by 31 March 2010.  They do not need to rely on the 2007 renewal of lease.  It is necessary, nevertheless, to consider the circumstances surrounding that variation as, if the lease survives, Ross seeks to hold Edmonds Judd responsible for losses arising out of the concessionary rental agreed.

[89]     Mr Chick initiated the renewal of the lease in 2007.  He telephoned Mr Gray and spoke to Ross Blackwell.   He told Ross that he thought the rent should be increased.   He said Ross told him he did not want any more rent but Mr Chick wanted to pay more.  He proposed an increased rental of $69,600 per annum based on $20 per stock unit to which Ross agreed.  Mr Chick said they spoke about the increased rentals which could be obtained leasing to dairy farmers.  Ross said he was not interested in earning more from the farm.  He wanted the lease to be affordable for Adam.

[90]     Ms Rasmussen has no independent recollection of receiving instructions from Ross Blackwell.   She made a file note recording the existing and proposed new rental which closely corresponds to a note written out by Mr Chick found amongst Ross Blackwell’s possessions.   It seems likely that Ross relied on the note when instructing Ms Rasmussen. At all events she prepared a draft renewal of lease which was executed first by Mr and Mrs Chick and then by Mr Blackwell.

[91]     Ms Rasmussen has no record or memory of how Mr Blackwell presented at that time.  I have no reason to doubt, however, that he understood the general nature of the transaction.   It  was a straightforward renewal at a slightly higher rental. Although Mr Blackwell’s physical and mental health was steadily declining, and

plainly his brain function was becoming increasingly impaired, there are clear indications  that  he  had  no  difficulty engaging  with  matters  with  which  he  was familiar and, generally, managing his affairs.  I have in mind in particular, the way in which he conducted himself at the farm committee meeting which took place shortly afterwards and the evidence, confirmed by the entries in his cheque books, that until he was incapacitated by the strokes in 2008, he was able to manage his financial affairs.

Subsequent events

[92]     In March 2009, Basil and Derek Blackwell (who were looking after Ross’ affairs pursuant to the enduring power of attorney he signed in 2000) met with Ms Rasmussen.   They wanted to know when the lease was to be renewed.   Basil Blackwell said at that time they were told that the Chicks had an option to buy the farm for $1.5m.  Basil said he and Derek were shocked.  They believed the price to be considerably lower than what the farm was worth.   They were also “stunned” because Ross had said he would never sell his farm.  In his evidence in chief, Basil Blackwell said they did not question Ms Rasmussen further as they were in shock and believed there was nothing they could do until the lease came up for renewal in

2010.

[93]     Maria Blackwell, Derek’s wife, was also adamant that Ross never wanted to sell the farm.   She said that Ross was incredulous when he was told in 2010 that there was an option to purchase associated with the lease.  Mrs Blackwell said that after seeing Ms Rasmussen, her husband mentioned something about the option but said they could not do anything about it until 2010.  She did not know whether they had talked to Ross about it.

[94]     I do not find it at all surprising that Ross did not tell family members about the option to purchase.  He had asked the Chicks not to mention it.  I assume that he anticipated family members would object to the farm being sold outside the family. He told his brother-in-law, Cameron Henwood (his wife’s sister’s husband), that the lease had a right of purchase.  Mr Henwood could not put a date on this comment, which was made in passing, but said it was “well into his illness”.

[95]     Basil Blackwell equivocated in evidence about discussions with Ross after he found out about the option.   I am bound to say I found his evidence on the issue unconvincing.  He maintained that Ross had always said he would like to keep the farm in the family and that he was “stunned” and “beside himself with worry” to find that he was committed to selling it for substantially less than its true value.  In cross- examination he initially said he could not recall whether he had talked to Ross about it.  He then said he and his brother did talk to Ross.  They asked him if he had sold his farm and he said “no”.  Basil rejected the suggestion that Ross told them he was happy with the arrangement and that was why they did not do anything.   He said there was a discussion about the value of the farm in which Ross agreed that it was worth  a  great  deal  more  than  $1.5m  but  continued  to  maintain  there  was  no discussion about the option.  He was at a loss to explain why, when there was such a large sum of money at stake, he and his brother did nothing about it until almost a year later.

[96]     I consider it inconceivable that Basil and Derek Blackwell would not have spoken to Ross after finding out about the option even if, as Basil Blackwell maintained, they were misinformed about the date by which the option could be exercised.3   They had been confronted with the reality that, contrary to their settled expectations, the farm could be sold outside the family for less than half its true value.  I believe they spoke to Ross and did nothing more because he confirmed to

them that he knew of the option and was happy with it, provided that the farm was not sold in his lifetime.  He did not become resistant to what was going on until 2010 when, faced with the choice of exercising the option (contrary to their understanding with Ross) or losing the right to purchase, the Chicks exercised the option.

[97]     In February 2010, knowing that the lease was coming up for renewal, Derek Blackwell contacted Ms Rasmussen.  She advised that nothing could be done until it was known what the Chicks were going to do.  Basil Blackwell said she also advised

the brothers at that time that the Chicks had a right to purchase the farm for $1.5m.

3      Basil  claimed  that  he  and  Derek  understood  from  Ms  Rasmussen  that  the  option  had expired/lapsed in 2009.  While Ms Rasmussen was unable to contradict this evidence, having no independent recollection of the discussion, I can see no possible basis for her advising them that the option would expire a year before the lease was due for renewal.  I consider this aspect of Basil’s evidence to have been introduced in order to help him to explain why he and his brother did nothing during 2009.

Ms Rasmussen confirmed the discussion with Derek which included his advice that the rent should be substantially increased.   Following a further meeting with the brothers and Ross Blackwell himself, she advised them to seek independent legal advice.

Conclusion

[98]     I am satisfied that Ross had the capacity to understand the general nature of all three transactions.  The question of whether the Blackwells have shown (as they would have been required to) that the Chicks were aware of a lack of capacity does not therefore arise for consideration.

Unconscionable bargain

[99]     The jurisdiction to set aside a transaction as unconscionable is summarised as follows in the judgment of the Supreme Court in Gustav & Co Ltd v Macfield Ltd:4

... Equity will intervene, when one party in entering into a transaction, unconscientiously takes advantage of the other.   That will be so when the stronger party knows or ought to be aware that the weaker party is unable adequately to look after his own interests and is acting to his detriment. Equity will not allow the stronger party to procure or accept a transaction in these circumstances.   The remedy is conscience-based and, in qualifying cases, the court intervenes and says that the stronger party may not take advantage of the rights acquired under the transaction because it would be contrary to good conscience to do so.  The conscience of the stronger party must be so affected that equity will restrain that party from exercising its rights at law. ...

[100]   A non-exhaustive list of the relevant principles derived from the authorities was set out in the Court of Appeal’s judgment5 which was said by the Supreme Court to have dealt fully and accurately with the authorities.6   The principles set out by the Court of Appeal are:

1Equity  will  intervene  to  relieve  a  party  from  the  rigours  of  the common law in respect of an unconscionable bargain.

2This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness.  Rather, the jurisdiction operates to protect those who enter into bargains

4      Gustav & Co Ltd v Macfield Ltd [2008] NZSC 47, [2008] 2 NZLR 735 at 741.

5      Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30].

6      Gustav & Co Ltd v Macfield Ltd, above n 4, at [6].

when they are under a significant disability or disadvantage from exploitation.

3A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic  which  significantly  diminishes  a  party’s  ability  to assess his or her best interests. It is an open-ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.

4If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.

5Before a finding of unconscionability will be made, the stronger party must know of the weaker party’s disability or disadvantage and must “take advantage of” that disability or disadvantage.

6The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.

7“Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:

… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience  accept  the  benefit  of  this transaction  in these circumstances   either   at   all   or   unless   you   have   full independent advice.

8If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.

[101]   It is relevant also to add that, as held by the Supreme Court, the correct approach is to examine whether the transaction is unconscionable at the date it is

entered into.7   If, at a later date, the transaction is varied to the detriment of the party claiming the contract is unconscionable, the Court must assess whether the variation makes the contract unconscionable as at the date the variation is agreed.  Subject to that  reservation,  the  focus  should  be  on  the  date  when  the  contract  or  other transaction becomes binding.

[102]   There are accordingly two major questions to consider in relation to each of the three transactions: whether Ross Blackwell was under a qualifying disability or disadvantage and, if he was, whether the conduct of Mr and Mrs Chick was such that it would be unconscionable for them to take the benefit of the bargain.8    If Ross Blackwell was under a special disadvantage, the onus will be on the Chicks to show that the transaction was fair, just and reasonable.9

Special disability

[103]   The facts and circumstances which are alleged to have placed Ross Blackwell under a significant disability or special advantage are pleaded as follows:

(a)       Prior to June 2000 he was a person of limited intellectual capacity;

(b)In June 2000 he was diagnosed with a brain tumour and was told that he only had a short time to live;

(c)      Following   the   diagnosis,   he   underwent   a   radical   course   of radiotherapy which impacted on his cognitive abilities.   He also suffered from seizures for which he was taking medication;

(d)The combined effect of the brain tumour, the radiotherapy treatment he received, and the medication he was required to take on his already limited intellectual capacity was such that, at the time he signed the disputed  contracts,  his  ability  to  assess  his  best  interests  was

significantly diminished;

7      Gustav & Co Ltd v Macfield Ltd, above n 4, at [5].

8      As discussed by the Court of Appeal in Gustav vMacfield. See above paras 4 and 5 at [100].

9      Bowkett v Action Finance Ltd [1992] 1 NZLR 449 (HC) at 459.

(e)      He did not  understand  that the legal effect of  the purported  First Renewal was to grant the Plaintiffs an option to purchase the property at a fixed price of $1,500,000.00 plus GST, if settlement took place any time between 1 May 2004 and 30 April 2007, and that he had relinquished the right to determine whether the property was sold to the Plaintiff during that time; and

(f)      He did not understand that the legal effect of the purported Second Variation, replacing “2007” with “2010” in the option clause in the purported First Renewal, entitled the Plaintiff to purchase the property at a fixed price of $1,500,000.00 at any time during the period 2005 to

30 April 2010, and that he had relinquished the right to determine whether the property was sold to the Plaintiff during that time.

[104]   The key allegation is that, by virtue of the brain tumour and the treatment received for it, together with his pre-morbid intellectual disability, Ross’ ability to assess what was in his best interests was significantly diminished.   Among other things, it is said that he did not understand the legal effects of the 2004 and 2005 agreement.

[105]   I have already concluded that Ross Blackwell’s reduced intellectual capacity did not prevent him from understanding the legal effects of the agreements.  That is not, however, conclusive of whether his illness and treatment (combined with any pre-morbid disability) might have diminished his ability to assess his best interests.

[106]   In  addition  to  his  compromised  intellectual  functioning, Mr Gudsell  also relies on Ross Blackwell’s ignorance of legal matters and the valuation of the farm and his consequential reliance on professional advisers; the nature of his relationship with the Chicks including Mr Chick’s dominant role; the stress associated with a terminal illness; Ross Blackwell’s emotional attachment to Haupouri; and the attraction of an arrangement which allowed him continuing access to the property.

[107]   It will be apparent from my earlier finding that I do not think Ross was disadvantaged  by  virtue  of  his  ignorance  of  legal  matters.    I  consider  he  well

understood what the three transactions achieved in practical terms.  Nor do I think he was under a material misapprehension as to the capital and rental values of the farm at the relevant times.

[108]   At the time the option to purchase was granted in 2004, Ross had been advised the value of the farm was $1.8m.  The parties agree that market value at that time was actually $2.07m and market rental was $82,500.   I do not find the differences to be material.  Ross knew he was giving the Chicks the opportunity to buy at an undervalue.  The price was ultimately determined by reference to what was “affordable” for a dry stock operation.  In my view, Ross would not have acted any differently in 2004 or 2005 if he had known the true value of the farm.

[109]   By 2007, the capital value and market rental of the farm had rocketed.  They were, respectively, $3.2m and $106,000 per annum.   Only the market rental had relevance to the renewal in 2007.  There is nothing to show Ross knew what it was but I accept Mr Chick’s evidence that Ross was well aware that much higher returns were available if the land was leased for dairy grazing.  He knew that the agreed net rental was well under market.

[110]   Ross understood the salient features of the three transactions.  He knew that he could have done better if he had leased the farm on the open market.  He knew that the option price was advantageous and was likely to become more so.   Any special disadvantage must arise from other factors which prevented him from appreciating what was in his best interests.

[111]   Plainly “best interests” does not necessarily equate to financial best interests, although it will often do so.  In this case, other factors were very much to the fore and need to be weighed in considering whether objectively unfavourable transactions were attributable to “a disabling condition or circumstance”10 or were the result of a fairly informed exercise of judgment.

[112]   It is easy to understand why financial considerations were not paramount for

Ross.  I have already mentioned this.  He was well-off and financially secure.  He

10     Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462.

had significant cash funds.  Generally, he and his wife lived frugally.  The purchase of new cars was a rare indulgence.   The farm rental was sufficient to meet their needs.

[113]   Ross  would  have  appreciated  that  on  his  death  his  wife  would  be  well provided for.  The residue of his estate – likely to be well in excess of $2m – would go to his brothers.  I was given no reason to think they were in need.  Both owned farms themselves.  Ross was in a position to make concessions to the Chicks without in any way failing in his moral duty to his wife or family members.

[114]   The Blackwell family say that Ross’ ability to act in his own best interests was compromised by his subservience to Leith Chick and his vulnerability to the special concessions offered by the Chick family.  Mr Chick is said to have “driven” the transactions and Ross to have acquiesced to his proposals.  Mr Gudsell argued that his emotional attachment to the farm meant that the arrangement which enabled him  to visit whenever  he liked  was  a further and  significant  component  of his disadvantage.  He relied in particular on the reasoning of the majority of the High

Court of Australia in Bridgewater v Leahy11  which held that a special disadvantage

arose because of an old man’s emotional attachment to his nephew.

[115]   Mr Chick was considerably older than Ross.  He impressed as an intelligent and  articulate man,  comfortable in  business  dealings.    He was  in  a  position  to suggest the means by which the parties could give effect to their intentions but I do not see him as “driving” the transactions at all.

[116]   Ross suggested the lease in the first place.  Mr Chick’s request for a right of first  refusal  was  no  more  than  sensible  business  practice.    Ross  initiated  the discussion which led to the grant of the option.  I accept Mr Chick’s evidence that the extension of the option in 2005 was also Ross’ initiative.  He also insisted on a three-year term for the lease when Mr Chick had originally asked for five years. There is no doubt that Ross liked and trusted Leith Chick, but there is no evidence to show that his will was overborne as a result.  The facts of Bridgewater are plainly

distinguishable.   The close bond between the old man and his nephew led to a

11     Bridgewater v Leahy (1998) 194 CLR 457.

transaction, initiated by the nephew, which enabled him to acquire an asset worth

$700,000 for $150,000.   There was no particular emotional attachment to Leith

Chick or any member of his family.

[117]   I see the lease and the arrangements associated with it as very much an extension  of  the  close  and  mutually  supportive  relationship  which  had  grown between Ross and the Chicks over the years that they had farmed as neighbours. Allowing Ross to continue to have free access to the farm was an act of friendship. It was not the sort of arrangement that could exist in a normal arms-length commercial relationship.  It could not be easily documented.  I find nothing in the failure to do so.

[118]   It may well be that the fact that the Chicks made Ross welcome at the farm predisposed him to act generously towards them but that is an enabling rather than disabling circumstance.   He was able to enjoy the farm to the extent his health permitted.  He shared in the pleasures of ownership without the burdens.  He was able to observe first-hand how the Chicks ran the farm.  He liked what he saw.  He would say that they “farm it as if it’s their own”.

[119]   Remaining the owner of the farm was very important to Ross.  It is why he repeatedly said he would never sell.  The understanding that the option would not be exercised while he was alive secured that objective.  For the Blackwells it is argued that, in this sense, the legal arrangements were directly contrary to Ross Blackwell’s wishes.

[120]   I  do  not  accept  that.    The  understanding  that  the  option  would  not  be exercised during Ross Blackwell’s lifetime complemented the agreement to give him unrestricted access to the farm.   These informal arrangements allowed a happy, though unorthodox, working relationship to continue within a conventional legal framework. This worked to Ross’ advantage.

Impropriety

[121] My finding that Ross Blackwell was not at a special disadvantage notwithstanding, I propose to examine the facts and matters relied on by the Blackwells as establishing some impropriety in the conduct of the Chicks.

[122]   It was first submitted that impropriety could be inferred from the nature of the bargain itself.  The inadequacy of consideration may be so startling as to justify a presumption of procedural impropriety.12   It is said that there was a gross disparity in consideration – the disparity for this purpose being the difference between the option price and the market value of the farm and between the lease rental and the market rental.

[123]   It is something of an over-simplification to measure the consideration in these terms. The option was a term of the lease.  The benefit of the option when granted in

2004 must be seen in that context.  At that time Adam Chick and Jana Pakorna were actively seeking to buy their own farm.   The commitment to lease Haupouri effectively took them out of the market.  A fixed price option gave them a hedge against increasing farm prices.  The 2005 variation extended that protection and, if prices continue to escalate, removed the incentive to exercise the option before

30 April 2007.

[124]   The option price and the rental were fixed by reference to what was regarded as “affordable”.  Affordability was measured by reference to the borrowings that the farm could support and rental by expected incomes.  For the Blackwells it was said that Ross had no idea of what was affordable for the Chicks in terms of either rent or purchase price.  Mr Gudsell said Ross relied on his knowledge of what he had been able to make from the farm before February 2001.  However, I believe Ross to have been well placed to make a judgment in general terms of the financial constraints facing the Chicks.  He well understood the economics of farming, including the fact

that the market was being driven by the returns available from dairy grazing.   He

12     Bowkett v Action Finance Ltd, above n 9.  In some circumstances inadequacy of consideration or transactional  imbalance  may  also  be  relevant  to  a  consideration  of  whether  a  special disadvantage existed.   See Nelson Enochong Duress, Undue Influence and Unconscionable Dealing (Sweet and Maxwell, London, 2006) at 18-007.

wanted the farm to continue as a dry stock operation, knowing that would not optimise returns.

[125]   The 2004 and 2005 transactions conferred significant benefits on the Chick family, but not as significant as a simple comparison of the option price and the current  value  of  the  farm  would  suggest.    There  was  much  made  of  the  huge disparity between the current value of the farm (and its value in 2007) and the option price.   But that is not a relevant consideration.   The presence or otherwise of the elements  of  unconscionable  dealing  are  to  be  assessed  at  the  time  when  the

transaction was entered into.13   The fact that subsequent events make a contract more

advantageous to the stronger party does not affect an assessment of unconscionablity.14

[126]   The advantage the Chicks obtained in 2004 was the right to purchase the farm during the next three years for $500,000 less than its then value (although at the time the parties believed the discount to be $300,000.)  The advantage given in 2005 was to extend that right for a further three years.   With values rising steeply over the years that followed, the value of the option increased threefold.   While there is a general expectation of rising prices, increases of that order were not anticipated.  A decline in values was at least a theoretical possibility.  Farm values are very much a function  of  unpredictable  influences  such  as  commodity prices.    There  was  no evidence of the value in 2005 when the extension was granted.

[127]   By the time the Chicks were effectively obliged to exercise the option, they had worked the farm for ten years.   They had, as I have said, forgone the capital appreciation that would have inured from the purchase of their own farm.  Adam Chick and Jana Pakorna had worked the farm on the basis that it would be theirs one day.   They had spent $12,680 on races; $25,000 on pipes, troughs and a tank;

$71,370 on new fencing.

[128]   It is significant that the option component of the 2004 transaction grew out of an initiative by Ross, as did the extension of the option in 2005.  Passive acceptance

13     Contractors Bonding v Snee [1992] 2 NZLR 157 (CA) at 174; Gustav & Co Ltd v Macfield Ltd, above n 4, at [5]

14     Strydon v Vendside Ltd [2009] EWHC 2130 (QB).

of a benefit in unconscionable circumstances may found an impropriety.15    But in cases where the offer originated from the disadvantaged party, and in the absence of any improper conduct on the part of the stronger party, the Court is unlikely to find actual impropriety.16

[129]   In  2004  the Chicks  did  not  simply accept a benefit.    Indeed,  Mr Chick insisted  on  a  much  higher  price  for  the  option  than  Ross  Blackwell  initially proposed.   In 2005 the Chicks learned of the proposed extension through Ross’ solicitor.  In 2007 the rental was increased at Mr Chick’s insistence to a level which reflected the economies of dry stock farming rather than the market values which reflected dairy grazing incomes.

Independent advice

[130]   I have found that the legal advice Ross Blackwell was given ensured that he understood the legal effect of the transactions he was entering into.  Whether it was a sufficient discharge of the solicitor’s obligations is a separate issue which I consider later.  What is relevant for present purposes, however, is that the provision of independent legal advice to the weaker party will normally absolve the stronger party of a charge of impropriety, even if the relevant disability remains, as may be the  case  where  the  independent  advice  is  inadequate.    The  reason  for  this  is

explained as follows in  Enonchong:17

... where the weaker party is represented by a solicitor in the transaction, the stronger  party,  in  the  ordinary  case,  will  be  entitled  to  assume  that  the weaker party received appropriate advice18  so that further advice was not required.  A party is not normally in a position to investigate the quality of advice which the other has received before concluding the agreement.

[131] Enonchong goes on to explain why a plea that a transaction is an unconscionable bargain will normally not be upheld where the weaker party received

independent advice.  He says:19

15     Hart v O’Connor [1985] 1 NZLR 159 (PC), Bowkett v Action Finance Ltd, above n 9, at 437.

16     See discussion in Enonchong, above n 12, at 17-024.

17     At 19-006.

18     Jones v Morgan [2001] EWCA Civ 995; [2001] Lloyd’s Rep Bank 323.

19     At 19-010.

Where the disadvantaged party received independent advice, the court is unlikely to uphold a plea that the transaction is an unconscionable bargain. The reason is because in such a case it is assumed that the independent advice had freed the weaker party from the effect of the special disadvantage so that he came to the transaction without the disadvantage.   But another, and indeed stronger, reason for the view that there is normally no unconscionable conduct where competent advice was received is that in such a case the stronger party cannot be said to have taken unfair advantage of the special disability,  since he  is  entitled to assume  that the intervention  of independent advice would cure the special disability.  A party who proceeds with the transaction on the basis of this assumption cannot be said to have acted unconscientiously. (Footnotes omitted.)

[132]   I have found that the advice given to Mr Blackwell was adequate to enable him  to  understand  the  general  nature  of  each  of  the  impugned  transactions. However, (leaving to one side issues arising out of the potential conflict of interest faced by Edmonds Judd) Ms Rasmussen’s obligations as a solicitor went much further than that.

[133]   Robert Victor Eades, an experienced solicitor called by the Blackwells, said that a lawyer acting for Ross should have ensured that he was aware of market rentals and prices and, if he were not, should have advised him that a valuer should be consulted.  He said particular advice should have been given about the option to purchase at the fixed figure, the extension of the option and the 2007 renewal.  He said a competent independent lawyer would have explored with Ross the basis of and reasons for the option to purchase at a fixed sum and would have questioned the extension of the option at the original price given the likelihood that the value of the farm would increase over the intervening years.  Mr Eades said a note should have been made that these matters were discussed and a letter written to Mr Blackwell recording the advice.

[134]   Ian Leslie Haynes, also a senior and highly experienced solicitor, agreed with the general tenor of Mr Eade’s evidence.

[135]   I have no confidence that Ms Rasmussen’s advice to Mr Blackwell met the required standards in relation to any of the three transactions.   I consider she was entitled to proceed on the basis that Ross had the requisite capacity to enter into the

transactions20    but  she  was  in  dereliction  of  duty  in  failing  to  explore  with Mr Blackwell the full implications of both transactions, to have made record of the discussion and to have confirmed her advice in writing.

[136]   It is common ground that Edmonds Judd should not have acted for both parties.  They were in breach of r 1.04 of the New Zealand Law Society, Rules of Professional Conduct for Barristers and Solicitors which provides that a practitioner shall not act for more than one party in the same transaction or matter without the prior informed consent of both parties.  There was also a conflict of interest involved in each of the impugned transactions.  Mr Haynes and Mr Eades agreed that at least from 2004 Edmonds Judd should have declined to act and the parties should have been independently advised.

[137]   However, the advice given to Ross Blackwell by Ms Rasmussen will qualify as independent if the Chicks had no reason to think that her independence had been compromised.  That was the position in Hart v O’Connor where the same law firm acted for both parties.21

[138]   For  the  Blackwells,  it  is  submitted  that  the  Chicks  had  every reason  to suspect that Ross Blackwell had not received adequate independent legal advice. That  suspicion  is  said  to  arise  from  the  fact  that  the  option  as  drafted  by Ms Rasmussen  failed  to  reflect  the  full  terms  of  the  agreement  reached  by the parties.  Those terms included the stipulation that the option would not be exercised while Ross was alive; that it was intended that Adam Chick would be the purchaser; that the purchase price should be fixed by reference to what was affordable; and the agreement  that  Ross  should  have  a  continuing  right  of  access  to  the  farm. Mr Gudsell submitted that the failure to document these aspects of the agreement indicated that Ross had not adequately instructed his solicitor or that he had not been adequately advised.

[139]   I  have  previously  addressed  much  the  same  point  in  the  context  of  a submission  that  Ross  did  not  understand  the  general  nature  of  the  option  to

20     See later at [158] – [160].

21     See also the comments of Tipping J in Bradley West Solicitors Nominee Co Ltd v Keeman [1994]

2 NZLR 111 (HC) at 126-127.

purchase.22     In my view, there was no reason for Mr Chick to expect that these arrangements would find their way into the terms of the lease.   He did not tell Mr Gray about the understanding that the option would not be exercised while Ross was alive until 2010 when an extension for a further six years was proposed.  The possibility of Adam and Jana being the purchasers was mentioned in February 2004 but  there  was  no  reason  for  that  eventuality to  be  provided  for.    The  issue  of “affordability” set the scene for fixing the purchase price and rental but there was no reason why these discussions should be documented. Access to the farm had been an informal arrangement which had been in place since the lease was first entered into.

[140]   I do not see why the omission of these matters from the documentation should have given rise to a concern that Ross was not receiving adequate legal advice.  It is to be borne in mind that Ross had initiated the proposal which led to the option and to its extension in 2005, both of which, objectively, were unfavourable to him.  The agreements gave effect to intentions that he had articulated to Mr Chick in the clearest possible terms.   The Chicks were satisfied that at no stage was Ross acting under a disability.   Mr Chick was never told that there was a conflict of interest which required the parties to be advised by separate firms of lawyers.

[141]   Leith Chick freely conceded that the Chick family were advantaged by the option.  He said in evidence that “it looks terrible”.  But he genuinely believed – on good grounds in my view – that the arrangements were what Ross wanted.  He also believed – also justifiably – that there were countervailing equities, including the fact that, without the option, the Chicks’ commitment to farm Haupouri would have been highly disadvantageous.   He put their position eloquently in the course of cross- examination:

...  we took ourselves out of the  market and disqualified ourselves from buying a farm and so we also missed out on any lift in the market so we’re, we’re sitting there out of the market sitting on this but further to that, on the face of it, it looks terrible and I’ll agree with that, it looks terrible but you must remember what Ross’ wishes were and his wish that we would have the right to purchase that farm at 1.5 million.  He never, ever wavered from that.

22     At [79] – [81] above.

[142]   The point that Ross “never wavered” is important.  Dealings between Ross and the Chicks over the farm spanned ten years.  It was a process that began with a largely conventional leasing arrangement entered into at a time when Ross was not expected to live.  The parties effectively worked together for the next three years. By 2004 Ross, though confounding the initial prognosis, knew he would never farm again.   He was clear that he wanted the Chicks to continue running the farm and ultimately for it to become theirs.  The arrangements he proposed would secure that outcome.  His dealings with the Chicks and others and the steps he took from 2004 onwards were consistently directed to that end.

[143]   Ross  was  well  aware  of  the  financial  benefits  that  would  result  for  the Chicks.     I  accept  Mr  Chick’s  evidence  that  Ross  kept  himself  abreast  of developments in the property market.  But he never deviated from the course he set in 2004, even in 2009 when his brothers intervened who, I believe, would have challenged the option had it been his wish.

[144]   In my view, this is not a case of a stronger party exploiting a disadvantaged weaker party in a morally reprehensible way.  To adopt the words of Tipping J in Bradley West Solicitors Nominee Co Ltd v Keeman:23

There are no overtones of victimisation in this case.   There has been no active extortion of the bargain, nor passive acceptance of it where it would be contrary to conscience to do so.

[145]   On the face of it, there is an imbalance in financial terms but that resulted from a series of deliberate, rational decisions which, seen in a wider context, sought to achieve and brought about a fair and morally defensible outcome.

Plaintiffs’ claim against Ross Blackwell - conclusion

[146]   I have concluded that Ross Blackwell had the requisite capacity when he entered into the three transactions and that none were unconscionable.  On the face of it, the plaintiffs are entitled to an order for specific performance of the option.  I do not understand the Blackwells to argue that, if the defences of incapacity and

unconscionability are not upheld, there is any reason to deny the plaintiffs an order.

23     Bradley West Solicitors Nominee Co Ltd v Keeman, above n 23, at 127.

Plaintiffs’ claim against Edmonds Judd

[147]   In the event that they are successful in their claim against the Blackwells, Mr and Mrs Chick seek to recover their legal costs from Edmonds Judd on an indemnity basis, subject to any recovery by way of a costs award from the Blackwells. They do so on the basis that, had they been competently advised, issues surrounding Ross Blackwell’s  capacity  would  have  been  resolved  and,  if  the  transactions  had proceeded, they would not have been subject to later challenge.

[148]   The plaintiffs say Edmonds Judd was in breach of contractual, tortious and fiduciary duties in failing to recognise the conflict of interest and to either obtain the informed consent of the parties to act or to refer the parties to independent solicitors. They also say that Edmonds Judd failed to take appropriate steps to advise the Chicks of the need to address concerns about Ross Blackwell’s capacity.  There was no challenge to Mr Haynes’ evidence that in circumstances where there is doubt concerning the capacity of the other party, a competent lawyer would seek medical evidence to establish that the party had the necessary capacity.

[149]   I accept that had Edmonds Judd properly discharged their legal and ethical duties, then either the transactions would not have proceeded or, if they had, they would have done so on a basis which left little room for challenge at a later time. For reasons which I discuss more fully later, I am satisfied that, had Edmonds Judd ensured that the parties were independently advised, the three transactions in issue would not have been entered into on the terms then agreed and, undoubtedly, this litigation would not have ensued.

[150]   Mr  Parker   accepted  that   both   parties  should   have   been   referred   to independent solicitors but submitted that the failure to do so was not causative of loss.  He said independent solicitors would have faced exactly the same difficulties as confronted Edmonds Judd.  Litigation would have been avoided only if the parties had received competent advice.  Thus, said Mr Parker, the costs now incurred arose, not because of Edmonds Judd’s breach of duty, but because of Ms Rasmussen’s negligence.

[151]   This  submission  does  not  survive  analysis.     The  Chicks  can  readily demonstrate that  the acts  and  omissions  of Edmonds Judd were a material and substantial cause of loss.24  As I have said, this litigation would have been avoided if they had ensured that the parties were independently advised.

[152]   There is, however, a more substantial obstacle to the Chicks’ claim to recover litigation costs.  It is only in exceptional circumstances that costs may be recovered as damages.  The general rule is that litigation costs cannot be claimed as damages.25

The policy justification is, first, that the rules of assessment of costs encourage parties to exercise restraint and, secondly, it would undermine the costs rules and the policy behind those rules if the party claiming costs in an assessment could recover any unrecovered costs as damages.26

[153]   There  are  two  exceptions  to  the  rule  that  costs  cannot  be  recovered  as damages.  The first is where the costs were incurred in proceedings involving a third party.  The second is where the claimant is relying on a separate and independent cause  of  action.27    Neither  exception  applies.    The  exception  for  proceedings involving third parties which may arise when litigation has arisen as a result of the negligent advice of a solicitor, does not apply because there have not been separate proceedings between the parties.   The circumstances are analogous to those in Simpson v Walker28  where the Court held that a claim to recover legal and experts’ costs  arising  out  of  breaches  of  duty  by  solicitors  who  were  parties  to  the proceedings  would  not  fit  readily into  the  classes  of  case  where  costs  may  be claimed as damages.29   This may be compared with Peters v Peters30 where a claim for  costs  incurred  in  earlier  separate  proceedings  was  held  to  come  within  the

exception.

24     Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA); Everist v McEvedy [1996] 3 NZLR 348 (HC), affirmed in Gilbert v Shanahan [1998] 3 NZLR 528 (CA).

25     See Louise Merrett “Costs as Damages” (2009) 125 LQR 468.

26     Louise Merrett, above n 25, at 474, 475.

27     Peters v Peters [2013] NZHC 1061 at [95].

28     Simpson v Walker [2012] NZCA 191.

29 At [75].

30     Peters v Peters [2013] NZHC 1061.

Ross Blackwell’s claim against Edmonds Judd

[154]   For Ross Blackwell it is claimed that Edmonds Judd was negligent and in breach of contract on each of the occasions it acted for him in 2004, 2005 and 2007. The breaches of duty are said to arise as a result of:

(a)      The failure to obtain informed consent to act for both parties and/or ensure that Ross obtained advice from an independent solicitor;

(b)The failure to identify that Ross Blackwell lacked the mental capacity to understand the transactions and/or to take appropriate steps to protect his interest by advising him of the implications of proceeding and/or to advise him to obtain a medical opinion.

(c)      In each case, failing to adequately advise Ross Blackwell in relation to the transaction, including the desirability of obtaining a valuation of the market value and market rental of the property and of the implications of proceeding with the transactions.

[155]   The losses arising from the breaches are: (a)    In relation to the 2004 transaction:

(i)$49,800 being the difference between the agreed rental and the market rental for the period 1 May 2004 to 30 April 2007; and

(ii)$1.7m being the difference between the option price and the market value of the property at 30 April 2007.

(b)In  relation  to  the  2005  variation,  $1,722,500  being  the  difference between the option price and the market value of the property at

30 April 2010.

(c)      In  relation  to  the  2007  renewal,  the  sum  of  $109,200  being  the difference between the rental and the lease and the market rental for the period 1 May 2007 to 30 April 2010.

Legal costs arising from the proceeding are also sought in relation to each cause of action.

[156]   It is conceded that Edmonds Judd was in breach of duty on each occasion in failing to obtain informed consent to act and ensuring that both parties were referred to independent solicitors.

[157]   I am not persuaded that Ms Rasmussen should have taken steps to establish that  Ross  had  capacity  by  arranging  for  a  medical  examination  or  otherwise. Leaving to one side the episode of bizarre behaviour witnessed by Dr Ballantyne in February 2005, the evidence shows that the way in which Ross presented himself would not have given any particular cause for concern.  The fact that he had suffered from a brain tumour would not of itself have provided sufficient grounds to enquire into his medical condition if outward indications were that he had recovered sufficiently to give instructions and receive and understand advice.

[158]   However, as I have already said, the evidence does not satisfy me that the advice Ms Rasmussen gave to Ross Blackwell in relation to each of the transactions met the standard to be expected of a reasonably competent solicitor in the circumstances.  I have already mentioned that Ms Rasmussen’s record of the initial discussion with Ross Blackwell in 2004 simply notes the bare terms of the option. She recalls  being told  something of the background,  although  there is  merit  in Mr Gudsell’s  contention  that,  having  read  all  of  the  briefs  of  evidence,  Ms Rasmussen may be hard-pressed to distinguish between what she knew and what she learned subsequently.   She said she advised Ross that he should get an up-to-date valuation and was sure she canvassed other options with him. There is no record and Ms Rasmussen  has  no  recollection  of  the  meeting  at  which  Ross  signed  the document.

[159]   The option associated with the lease was highly advantageous to the Chicks and disadvantageous to Mr Blackwell.  The option price and rent were unsupported by current valuation.  Ms Rasmussen may well have been assured that this is what Ross wanted.  It was nevertheless incumbent on her to spell out the full implications of the proposed deal and the further steps that should be taken before he committed to it.  In the circumstances, her advice should have been confirmed in writing.  In the absence of a contemporary record, I am unable to rely on her unaided memory to

establish that adequate advice was given.31

[160]   Again,  in  February  2005,  Ms  Rasmussen’s  record  of  instructions  simply records the proposal.  It is not dated.  All that can be said is that the attendance took place “some time” before 10 February when she advised Mr Gray of her instructions. There is no record of what was said when Ross attended to execute the variation. While this variation was simple, it was highly advantageous to the Chicks.   The reason for it is not obvious and should have been fully explored by Ms Rasmussen. Again, her advice should have been recorded and confirmed in writing.   I cannot assume that the full implications of the variation were adequately canvassed with Mr Blackwell.

[161]   Much the same can be said of the 2007 renewal.   As earlier mentioned, Ms Rasmussen  recorded  instructions  which  appear  to  be  based  on  a  note  in Mr Chick’s handwriting found amongst Ross’ possessions.   But she conceded that she did not know who instructed her, how she was instructed or when she was instructed.  She witnessed Ross Blackwell’s signature but, again, there is no record of the meeting.  Ms Rasmussen has no recollection of advising Ross Blackwell that a valuation should be obtained in order to establish the current market rental.   I am bound to conclude that Ms Rasmussen failed to ensure that Ross understood the full implications of the transaction.

Causation

[162]   I  pass  to  consider  whether  the  breaches  caused  loss.    That  requires  the

Blackwells to show that the acts and omissions of Edmonds Judd were a material

31     See Griffiths v Evans [1953] 1 WLR 1424 (CA).

and substantial cause of loss.32    As a first step in that enquiry, it is helpful to ask whether  Ross  would  have  suffered  the  losses  claimed  without  (“but  for”)  the breaches.  If he would not, their wrongful conduct was a cause of the loss.  If the loss would  have  arisen  even  without  their  defective  advice,  liability  is  unlikely  to follow.33

[163]   In cases which turn on how a plaintiff would have acted in the absence of a breach of duty, the so-called “all or nothing” approach as distinct from the “loss of a chance” approach is applicable.34    It is for the plaintiff to show on the balance of probabilities that he would have acted differently in the absence of a breach of duty.

[164]   In my view, if Ross Blackwell had had the benefit of competent independent advice in 2004, it is unlikely that he would have entered into the lease on the terms then agreed.  I doubt that the rental would have been higher and it may be that an option price of $1.5m would have been provided for.   But, if Ross Blackwell had been competently advised, I consider the terms of the option would have contained some sort of mechanism to enable the option price to be adjusted to reflect changes in  market  value.   Had  his  objectives  been  properly explored  and  the means  of achieving them canvassed, I have little doubt the option would have been granted on terms which would at least have given Ross the ability to adjust the option price if he had wanted to.  By this means his concern to achieve “affordability” for the Chicks would have been recognised, while protecting him against a sudden and unexpected spike in market values or other unforeseen change of circumstances.

[165]   In the hands of independent lawyers, and with a lease on different terms, it becomes difficult to foresee how subsequent events might have unravelled.  It seems most unlikely that the 2005 variation would have occurred.   It was a unilateral initiative by Ross.  It was a gratuitous act which conferred a valuable advantage on the Chicks for no apparent reason.  It was unnecessary.  If Ross Blackwell had been

properly advised,  I consider it  unlikely that  he  would  have proceeded  with  the

32     Price Waterhouse v Kwan, above n 26. See also Accident Corporation v Ambros [2008] 1 NZLR

340 (CA).

33     See the discussion in Kuwait Airways Corporation v Iraqi Airways Co (No 3) [2002] 3 All ER

209 (HL) at [72].

34     Benton v Miller and Poulgrain (a firm) [2005] 1 NZLR 66 (CA) at [43] – [48].

initiative.  He would have appreciated that the prudent and sensible course would be to do nothing until 2007.  That would keep his options open without foreclosing his proposed course of action.

[166]   Although I believe Ross was content to continue leasing the farm at below market rates, I consider it unlikely, if properly advised, that he would have entered into a lease at a rental so far below market rates in 2007.  The advice he received from Ms Rasmussen on this aspect of the transaction appears to have been seriously deficient.  There is nothing to show she discussed obtaining an up-to-date valuation. The rental appears to have been settled, without discussion, on the basis of the note written by Mr Chick.  Since the original lease was signed at a rental close to market, the market had moved significantly.   Even having regard to Ross Blackwell’s concerns that the rental should remain affordable, I consider, had he been properly advised, a rental much closer to market levels would have been negotiated.

[167]   I am satisfied that, were it not for Edmonds Judd’s failure to properly advise Ross Blackwell, he would not have granted and extended the option on terms which effectively gave the Chicks the right to buy at  a fixed price at a time of their choosing.  It is impossible to predict the course of events had Ross been competently advised.  It is conceivable that in 2004 the parties may not have been able to come to an agreement that represented an acceptable outcome for both sides when properly advised.  What can be said with confidence, however, is that it is unlikely that Mr Blackwell would have ended up under an obligation to sell his farm for half its market value.   The losses arising from that outcome must be laid at the door of Edmonds Judd.

Damages

[168]   As a result of Edmonds Judd’s   breaches, Ross is required to sell the farm pursuant to the option at a price which, it is agreed, is $1,722,500 below market value.  He has lost rental for the period 1 May 2007 – 1 May 2010 of $109,200 being the difference between the agreed rental of $69,600 per annum and market rental of

$106,000 per annum over the three-year period.   He is accordingly entitled to damages in the sum of $1,831,700.

Limitation defence

[169]   The  proceeding  was  filed  on  10  June  2010.    Ross  Blackwell  was  the defendant.   Edmonds Judd was joined as a third party by Ross Blackwell on 4

October 2010.   The Chicks’ claim against Edmonds Judd was made by way of a

statement of claim filed on 19 March 2012.

[170]   The transactions in question were completed on 8 April 2004, 5 April 2005 and 13 April 2007.  By virtue of the six-year limitation period applicable to claims in contract  and  tort  and,  say  Edmonds  Judd  by  analogy,  the  claim  for  breach  of fiduciary duty,35 the Chicks’ claim in respect of the 2004 and 2005 transactions and those of Ross Blackwell in relation to the 2004 transaction are statute-barred.

[171]   For Edmonds Judd it is submitted that the six-year limitation period applies to the actions founded on contract and tort pursuant to s 4(1)(a) of the Limitation Act

1950.  It is argued that the same limitation period applies to the claims for breach of duty, an analogy pursuant to s 4(9) of the Limitation Act.

[172]   There  are  a  number  of  obstacles  to  Edmonds  Judd  being  able  to  take advantage of a Limitation Act defence.  The Limitation Act can operate as a bar to Ross Blackwell’s claim only to the extent that he is required to rely on a breach of duty in relation to the 2004 transaction.  He does not have to do so in relation to the claim for rental which arises out of the 2007 renewal.  It is also arguable that he does not have to rely on the initial advice given in 2004 to recover damages for the option. That option would have expired in 2007 had it not been extended in 2005.  Ross can rely on the breaches of duty at that time.

[173]   The second was anticipated by Mr Parker’s contention that damage occurred

– as it must before the causes of action in tort can accrue36  – when the transaction was entered into.   He relied on Thom v Davys Burton37  where it was held that

“measurable economic loss” was suffered when Mr Thom, relying on the negligent

35     Limitation Act 1950, s 4(9).

36     Robadan v Gale [1996] 3 NZLR 220 (HC) at 222.

37     Thom v Davys Burton [2008] NZSC 65.

advice of Davys Burton, entered into a non-complying matrimonial property agreement.

[174]   Thom  v  Davys  Burton  is  readily  distinguishable  as,  the  claim  against Edmonds Judd by both Mr and Mrs Chick and Ross Blackwell does not arise from an invalid transaction.  I have found that all three transactions are valid.  The loss claimed by the Chicks arose because it was necessary for them to sue to enforce their rights, a step that they say would not have been required if Edmonds Judd had done their job properly.  Ross Blackwell’s loss was not suffered until the Chicks exercised the option in 2010.  He had merely incurred a contingent liability, as explained in

Gilbert v Shanahan38 where it was said that:

The crucial issue is whether a person who incurs a contingent liability thereupon immediately suffers loss or damage for limitation purposes.  If a liability is subject to a condition or contingency which may or may not be fulfilled, it appears more satisfactory for limitation purposes to say that the debtor has suffered no loss or damage, unless and until an event occurs which converts the liability from a potential to an actual liability.  Until then, all one can say is that the person subject to the liability may, with a greater or lesser degree of probability, suffer loss or damage.

When a liability is said to be the loss or damage which the plaintiff has suffered, it is necessary on this approach to determine whether that liability is present or contingent.   If it is a present liability, there will be loss or damage when it is incurred, notwithstanding it may not be dischargeable in whole or in part until a future date.  If the liability is contingent, it will not amount to loss or damage unless and until the contingency is fulfilled.

[175]   I agree with Mr Gudsell that no loss or damage occurred as a result of Edmonds Judd’s negligence in 2004 until, as the last of a series of intervening events,   the   Chicks   exercised   their   right   to   purchase.      Until   they  did   so, Ross Blackwell suffered no loss.

[176]   As I have found that Mr and Mrs Chick are unable to maintain a claim for costs as damages, it is unnecessary to address the further arguments advanced by Mr Branch in response to the Limitation Act defence.   I will confine myself to commenting that, in addition to the matters already discussed, I am of the view that, contrary to the argument advanced by Mr Parker, the Limitation Act will not apply

by analogy to the causes of action based on breach of fiduciary duty.   I echo the

38     Gilbert v Shanahan [1998] 3 NZLR 528 (CA) at 542 – 543.

observations of the Court of Appeal in Simpson v Walker39 that a breach of fiduciary duty arising out of a breach of the duty of loyalty, such as occurs when a solicitor cannot properly serve the conflicting interests of clients, is not essentially the same as a claim in negligence.

Result

[177]   The plaintiffs succeed in their claim against the first defendant.   I make an order for specific performance requiring the first defendant to settle the purchase of the farm property “Haupouri” on the terms and conditions contained in the option.

[178]   The plaintiffs’ claim against the second defendant/third party fails. [179]   I give judgment for the first defendant for $1,831,700.

[180]   I reserve leave to the parties to apply for further order or directions arising out of this judgment.

[181] Costs are reserved.   If the parties are unable to agree, I will consider memoranda.

39     Simpson v Walker, above n 29, at [68] – [69].