Dewaki v Kato
[2021] NZHC 1869
•23 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-204-
[2021] NZHC 1869
BETWEEN YUKARI DEWAKI
Plaintiff
AND
TAKESHI KATO
First Defendant
COSMIC MARKETING LIMITED
Second DefendantRESORTISTS LIMITED
Third Defendant
Hearing: 19 July 2021 Appearances:
N Malarao and J Yao for the Plaintiff
H M Z Lanham and J A R Barrow for the Defendants
Judgment:
23 July 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 23 July 2021 at 10:30am
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Meredith Connell (N Malarao/J Yao), Auckland, for the Plaintiff Greg Muller, Te Atatu Peninsula, Auckland, for the Defendant s
Copy for:
H M Z Lanham/J Barrow, Shortland Chambers, Auckland, for the Defendants
DEWAKI v KATO [2021] NZHC 1869 [23 July 2021]
[1] The defendants apply for particulars. The plaintiff opposes, saying that she should not be required to give particulars until after discovery.
[2] I do not require the plaintiff to give particulars now. The defendants are required to account to the plaintiff. They should first amend their statement of defence to show their account. The plaintiff will give particulars when she files a reply setting out which aspects of the account she does not accept. That will be after discovery.
What the case is about
[3] Mrs Yukari Dewaki, the plaintiff, a widow living in Yokohama, Japan, is suing in her personal capacity and as the representative of her late husband, Mr Kenji Dewaki. Mr Takeshi Kato, the first defendant, lives in Auckland. He is the director and shareholder of Cosmic Marketing Ltd and Resortists Ltd, the second and third defendants.
[4] As background, about twenty years ago Mr Kato promoted investment in property in New Zealand. The late Mr Dewaki attended a conference in Japan in 2002 when he was persuaded to invest in New Zealand properties. He signed a power of attorney in favour of Mr Kato. With funds provided by Mr Dewaki, Mr Kato purchased three properties in Auckland which were registered in Mr Dewaki’s name. He died in 2011. In 2014 Mrs Dewaki instructed Mr Kato to arrange for the sale of the properties. This case is about how Mr Kato acted as her agent on the sales of the properties and in investing the sale proceeds on her behalf. She says that he misrepresented how much the properties were sold for and has not properly accounted for the proceeds and investments made on her behalf. She sues in equity for breach of fiduciary duty and seeks an accounting, in restitution for unjust enrichment and in contract, for not handling the investments with care, diligence and skill. The first
cause of action is against Mr Kato only, the other two are against all the defendants. They deny any wrongdoing and say that they have properly accounted to her.
[5] Mr Kato arranged the sales of the properties, signing the agreements for sale and purchase using Mr Dewaki’s power of attorney. While that seems irregular, he says that he did so on Mrs Dewaki’s instructions. She declined to sign a power of attorney he had prepared for her. She was unwilling to obtain a New Zealand grant of administration for her late husband’s estate.
[6] The three properties sold for $340,000, $650,000 and $736,000. After paying mortgages and the expenses of sale, the net proceeds were $1,111,634.19. She says that he understated the sale prices of two of the properties to her and told her that the net proceeds were only $725,673.70. In response, he says that she was concerned about the Japanese inheritance tax she would have to pay and asked him to send her the letter understating the sales proceeds.
[7] The statement of claim says that the difference between the actual net sale proceeds and what Mr Kato represented is $385,960.49. Mrs Dewaki also says that Mr Kato or Cosmic Marketing Ltd charged fees of $59,771.25.
[8] The lawyers1 who acted on the sales transferred the proceeds of sale to Mr Kato and Cosmic Marketing Ltd, but Mrs Dewaki says that she was not aware of this and did not authorise it. She does however accept that she later authorised Mr Kato and his companies to make investments on her behalf and sent him further funds. For his side Mr Kato has put in evidence authorities signed by Mrs Dewaki for funds to be invested through Resortists Ltd.
[9] In April 2019 Mrs Dewaki instructed Mr Kato to withdraw her investments. She received payments in June 2019 and February 2020, in addition to interest she had been paid earlier.
[10] She pleads that she trusted Mr Kato in relation to the New Zealand properties, the sale proceeds and investments. She says that a proper accounting is required given
1 The lawyers were joined as defendants, but the plaintiff discontinued her claim against them.
“the differences between the true sale proceeds and the false sale proceeds, the mingling of funds, opaqueness as to quantum and nature of investments made by Mr Kato with the Dewakis’ money, and generally a lack of clarity as to exactly what Mr Kato did with the Dewakis’ money”.
[11] In April 2021 Mr Kato’s lawyers wrote to her lawyers giving his account of how he dealt with her properties and investments. His calculations show that he has paid her fully. He has not however provided supporting documents. His lawyers have invited Mrs Dewaki’s lawyers to say what parts she does not accept. She has not answered that. So far he has not put his detailed account into a pleading.
[12] The defendants accept that they were Mrs Dewaki’s agents and that as their principal she can require them to account to her for how they have dealt with her property.2 Ultraframe (UK) Ltd v Fielding has a useful statement on taking accounts;3
The taking of an account is the means by which a beneficiary requires a trustee to justify his stewardship of trust property. The trustee must show what he has done with that property. If the beneficiary is dissatisfied with the way that a trustee has dealt with trust assets, he may surcharge or falsify the account. He surcharges the account when he alleges that the trustee has not obtained for the benefit of the trust all that he might have done, if he had exercised due care and diligence. If the allegation is approved, then the account is taken as if the trustee had received, for the benefit of the trust, what he would have received if he had exercised due care and diligence. The beneficiary falsifies the account when he alleges that the trustee has applied trust property in a way that he should not have done (e.g. by making an unauthorised investment). If the allegation is proved, then the account will be taken as if the expenditure had not been made; and as if the unauthorised investment had not formed part of the assets of the trust. Of course, if the unauthorised investment has appreciated in value, the beneficiary may choose not to falsify the account: in which case the asset will remain a trust asset and the expenditure on it will be allowed in taking the account.
While that deals with accounting between trustee and beneficiary, it also applies to other fiduciary relationships where an accounting is required, including agents and principals. In such an accounting, the onus is on the fiduciary to justify the account.4
2 See generally Peter Watts and FMB Reynolds (eds) Bowstead and Reynolds on Agency (22nd ed, Thomson Reuters, London, 2021) at [6–094]–[6–098].
3 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1513].
4 GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch) at [143]–[149].
[13] Mrs Dewaki’s first two causes of action, breach of fiduciary duty and unjust enrichment, require the defendants to account to her. They may raise matters of falsification for some of the defendants’ charges. The third cause of action, for breach of contract, seeks a surcharge on the ground that the defendants did not use due care, skill and diligence. But at present the defendants’ pleading does not set out an accounting. If the information in their lawyers’ letter of April 2021 were clearly pleaded, Mrs Dewaki would have to say in a reply which parts she accepts and which she rejects. If she does not, she will be held to have admitted the defendants’ account.5 That offers a way of focusing the issues.
Particulars
[14] The defendants served a notice on Mrs Dewaki requiring her to give particulars. Her lawyers answered most but not all. For this application, the defendants seek these particulars of the statement of claim:
Paragraphs 47, 51, 53–54 and 60
Provide particulars of:
(a)What amounts the plaintiff should have allegedly received on each of the investments;
(b)All amounts the plaintiff received from the first to third defendants, including when and the manner of payment.
[15] Paragraph 47 pleads the need for proper accounting; paragraph 51 in the breach of fiduciary duty cause of action pleads that the breaches caused loss without specifying any particular loss; paragraphs 53 and 54 in the unjust enrichment cause of action plead that the defendants have been enriched at Mrs Dewaki’s expense without saying in what respect; and paragraph 60 in the breach of contract cause of action pleads that the defendants’ acts and omissions caused her loss without stating any particular loss. During the hearing, the defendants withdrew their application for (b), particulars of payments received.
Paragraph 57
5 High Court Rules 2016, r 5.63(2).
Provide particulars of:
(a)What the terms of the investments were;
(b)It is alleged the first to third defendants agreed to manage the investments. Provide particulars of what the terms of the arrangement were in respect of each investment.
[16] Paragraph 57 of the statement of claim in the breach of contract cause of action pleads that the defendants agreed to manage the Dewakis’ investments in New Zealand.
[17] Under r 5.26 (b) of the High Court Rules 2016, a statement of claim must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action. The defendants apply under r 5.21(3) of the High Court Rules 2016:
If the party on whom a notice is served neglects or refuses to comply with the notice within 5 working days after its service, the court may, if it considers that the pleading objected to is defective or does not give particulars properly required by the notice, order a more explicit pleading to be filed and served.
[18] There is no dispute as to the general principles on particulars. The Court of Appeal’s judgment in Price Waterhouse v Fortex Group Ltd remains authoritative:6
The principles are well enough known. Difficulties lie in application in marginal situations. This is one such situation.
The object of a Statement of Claim is to “state” the “claim”, so that the Court knows what it is to rule upon, and the Defendant knows the case which it must meet. As a matter of practicalities, this initial “statement” is not at the level of a full disclosure of all evidence and documentation. It is of course an abbreviated summary “statement” of the basic facts said to give rise to the claim, and of the relief which is sought.
It is the level at which such abbreviation is to be set which causes ongoing difficulties. There is, of course, an eternal tension between Plaintiffs who wish to keep the content as wide and general as possible, allowing maximum room to cover oversight and further developments, and Defendants who wish to narrow issues and impose restrictions to the maximum possible degree. Determinations, with respect, are not greatly assisted by very general labels such as pleading the “general” nature the matters claimed, or mantras such as “what not how”. While they grasp an idea, they afford little hard guidance.
6 Price Waterhouse v Fortex Group Ltd CA 179/98, 30 November 1998 at 18–19.
Nor, with respect, does it greatly help to talk in terms of “facts” (to be pleaded) and “evidence” (for trial) as if there were some bright‐line distinction between the two. There is not. “Facts” can merge into “evidence” without any clear dividing line.
In marginal cases, it is better to avoid generalities and rules of thumb, and to return to principle. The pleader and Court simply ask “in the circumstances of this claim, is that statement sufficiently detailed to state a clear issue and inform the opposite party of the case to be met?”. This is not, under modern practice, simply some minimum which a Defendant needs so as to be able to plead. It is intended to supply an outline of the case advanced, sufficient to enable a reasonable degree of pre‐trial briefing and preparation. Discovery and interrogatories are only an adjunct, not a substitute for pleading.
In the result, and particularly in complex cases, a rather more detailed factual narrative has come to be required than was the case in earlier and simpler times. That does not require the full detail which later will be contained in a brief of evidence. Nor does the modern requirement for pre‐trial exchange of briefs dilute the earlier and differently based requirement for sufficiently particular pleadings. What is required is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common‐sense and balanced judgment based on experience as to how cases are prepared and trials work is required. It is not an area for mechanical approaches or pedantry.
[19]In Platt v Porirua City Council Kós J said that particulars are important to:7
(a)inform defendants as to the case they have to meet;
(b)limit the scope of matters the plaintiff may put in issue at trial (or in pre-trial settlement discussion);
(c)enable the defendants to know what witnesses it will need to retain and enable them to start preparing evidence ahead of the formal exchange of evidence; and
(d)provide an opportunity for a defendant to seek summary determination on the basis that the claim as pleaded is untenable.
[20] In ANZ National Bank Ltd v Commissioner of Inland Revenue Associate Judge Gendall set out relevant factors on applications for particulars:8
(a)Has sufficient information been provided to inform the other party of the case they have to meet and to enable them to take steps to respond?
7 Platt v Porirua City Council [2012] NZHC 2445 at [19].
8 ANZ National Bank Ltd v Commissioner of Inland Revenue (2006) 22 NZTC 20,026 (HC) at [21]– [22].
(b)Is there a real risk that the other party may face a trial by ambush if the further particulars are not provided?
(c)Is the request an unreasonable burden or oppressive for the party concerned?
[21] The rule gives the court a discretion. The discretion should be exercised to achieve the object in r 1.2 of the High Court Rules: to secure the just, speedy and inexpensive determination of the proceeding. Particulars requests can add to delay and expense. Sometimes it is necessary to weigh the risk of prejudice to the defendant against the need to get to a just determination without undue expense or delay.
[22] For Mrs Dewaki it was submitted that particulars should be provided only after the defendants have made discovery. The Sachs v Speilman line of cases was cited.9 They show that it may be unjust to force a plaintiff to give particulars when the plaintiff’s knowledge is limited and the defendant has the information already. The cases have recognised that the principle applies where a beneficiary is suing a fiduciary, although it is not limited to those cases. Sachs v Spielman illustrates the point. In that case the principal sued a stockbroker to re-open settled accounts and, amongst other things, alleged fraud. North J held that the matter should stand over until there had been discovery:10
But how can it be said that the Defendants are embarrassed by not knowing these details? The Plaintiff has told them in his statement of claim that he has not the means of giving these details. They, on the other hand, are the persons who carried through the transactions, and have in their possession the books containing the full accounts; therefore they have full knowledge and means of knowledge, and can shew precisely what the cases are, if any, in which they did do what the statement of claim alleges they did. I do not see how they can possibly be embarrassed by not obtaining from the Plaintiff the information they have in their own possession. Of course I can see well enough why they press for these particulars. If the Plaintiff were obliged to condescend upon particulars, and to specify the instances in which the Defendants have done what he charges them with, the result might be that from his imperfect knowledge he would not be able to point out in the particulars some cases in
9 Sachs v Speilman (1887) 37 Ch D 295 (Ch); Hickson v Scales (1900) 19 NZLR 2020 (SC); HM The King v Merchants’ Association of New Zealand Inc (No 1) (1913) 32 NZLR 170 (SC); Ross v Blakes Motors Ltd [1951] 2 All ER 689 (CA); Carter Holt Harvey v Paper Reclaim Ltd HC Auckland CIV-2004-404-005739, 23 May 2005; and Truck Master Ltd v Mastagard Waste Ltd [2014] NZHC 1676 at [15].
10 At 303.
which they had actually done what he says they have done; and inasmuch as, after particulars were given, their defence would be addressed only to those points, the ignorance of the Plaintiff might relieve the Defendants from being held responsible as to certain matters with respect to which they are open to the charge contained in the statement of claim.
[23] Some of the earlier cases involved settled accounts: Whyte v Ahrens and Leitch v Abbott.11 “Settled account” is a term of art:12
There must be mutual debts, since if all the accounting has to be done by one party, there cannot be a settling of accounts. Once the principal has approved the accounts, they are settled, and if the principal enters the account as agreed in his books and either pays the balance or recognises in some other way that the account is correct, there is also a settled account.
Once an account is settled, it can only be re-opened by proving fraud. But even in those cases, the plaintiff was not required to give particulars until after discovery. It is not suggested that this case involves a settled account.
[24] The defendants acknowledge the approach in these cases but say that it does not apply to the particulars they are seeking because they are within Mrs Dewaki’s knowledge. She does not need discovery to plead what she should have received under the investments, the terms of the investments and the terms on which she engaged the defendants for each investment. Her pleadings make only general allegations, for example as to loss. She should give the particulars to inform the defendants clearly of the facts for her claims.
[25] I suggested that issues could be appropriately narrowed if the defendants were to amend their pleadings to include the accounting which they had already given in their lawyers’ April letter. Mrs Dewaki would have to reply, stating which parts she accepted and which she rejected, and for those parts she rejected, giving particulars how the account was to be surcharged or falsified. She could not equivocate. In stating how the accounts should be adjusted, she would have to give appropriate particulars how the defendants had mismanaged matters and how they had wrongly charged the accounts. The defendants did not disagree but said that Mrs Dewaki should still give the particulars they sought.
11 Whyte v Ahrens (1884) 26 Ch D 717 (CA) and Leitch v Abbott (1886) 31 Ch D 374 (CA).
12 Peter Watts and FMB Reynolds (eds) Bowstead and Reynolds on Agency (22nd ed, Thomson Reuters, London, 2021) at [6-098].
[26] That has to be assessed against what the defendants already know. Mr Kato’s affidavit sets out in outline his dealings with her. He had meetings with her in Japan. He was also in touch with her from New Zealand and he had a representative in Japan, Ms Ichikawa, contact her. He has shown some of the communications with Mrs Dewaki and authorities for investments signed by her. He has also provided the accounting in his lawyers’ April letter, which presumably he will say can be supported with records.13 In short, the defendants already have a good understanding of the case against them and have information and documents to answer Mrs Dewaki. They are unlikely to be inconvenienced if her challenge to their accounts comes in her reply instead of now.
[27] The particulars sought for paragraph 57 of the statement of claim require Mrs Dewaki to state the terms of all the investments and the terms of her instructions to the defendants for all the investments, even if she does not challenge what was done for all the investments. On the other hand, if she gives a reply she will need to give particulars only for those matters she challenges. That will be more focussed.
[28] Mrs Dewaki’s position should also be considered. She is litigating in a foreign jurisdiction, which is more arduous and expensive than bringing a case in a home court. The proceeding is being run in English, which she does not understand. It will be decided under foreign procedural rules and substantive laws she is not familiar with. She is unlikely to have the resources of enterprises that may bring cross-border proceedings in the usual course of business. She has appropriately sued in New Zealand but her access to the court has been made more difficult through having to put up security. In these circumstances defendants’ interlocutory applications may impose more of a drag on a foreign plaintiff than a local. The court needs to be wary of allowing interlocutory requisitions to stall a case.
[29] In another proceeding and in other circumstances the defendants may be on good ground in asking a plaintiff to provide particulars of the kind sought here. But in this case, where the fiduciaries have the burden of proof and have the materials and information to show that they have met their responsibilities, and the plaintiff is at a
13 They have not made formal discovery yet. That has been put on hold to await the decision on the particulars application.
significant procedural disadvantage, the better course is not to require her to give the particulars now. Instead the defendants should amend their statement of defence to give an account along the lines of their lawyers’ April letter and also discover their relevant documents. Once that is done, Mrs Dewaki should file a reply stating which parts of the defendants’ accounting she rejects and giving appropriate particulars. They may include the matters for which the defendants have asked for particulars but will be more focused.
Incidental matters
[30] The defendants also sought security for costs but that has been resolved, at least for the time being. The question of further security may come back later.
[31] The defendants criticised Mrs Dewaki for alleging fraud while not meeting the pleading requirements for such an allegation.14 Those requirements apply when it is alleged that the defendant has acted dishonestly or with equivalent reprehensible intent. Mrs Dewaki’s causes of action do not depend on proving that the defendants acted dishonestly. For example, at equity an agent can be required to account to their principal for missing money, even if they acted honestly and in good faith. Similarly, the claims in restitution and for breach of contract do not require proof of dishonesty. Moreover, in the Sachs v Speilman line of cases, where a settled account has been challenged on the ground of fraud, the courts have not required the plaintiff to plead the fraud precisely before the defendants have made discovery.
[32] Some of Mrs Dewaki’s investment authorities show KNJ Ltd as one of the investors. That is a New Zealand company of which Mrs Dewaki is the sole shareholder. She is one of two directors. The other is a local accountant. I asked whether it should be joined as a party. Mr Malarao said that that was under consideration, but he was not seeking an order just now.
Outcome
[33]I make these orders:
14 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].
(a)Within 15 working days of this decision the defendants are to file and serve an amended statement of defence giving their account of their handling of the Dewakis’ property and investments along the lines of their lawyers’ April letter.
(b)Within 25 working days of this decision, the defendants are to file and serve their affidavit of documents, which must include all documents on which they rely to support their account.
(c)Within 45 working days of this decision, the plaintiff should aim to file and serve a reply in which she must plead which parts of the defendants’ account she accepts and which she rejects. Where she rejects, she must give full particulars of her claims for surcharge or falsification. The date for the reply is a target, not a deadline.
(d)The registrar is to allocate a further case management conference on a date after the plaintiff has filed her reply.
(e)Leave is reserved to apply for further directions.
[34] I ask counsel to confer as to costs. If they cannot agree, memoranda may be filed and I will decide costs on the papers. The party replying should file their memorandum within five working days of the party seeking costs.
…………………………………….
Associate Judge R M Bell
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