Heaven v Webster Malcolm & Kilpatrick HC Auckland CIV 2004-404-2826

[2005] NZHC 1634

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2004-404-2826

BETWEENJOHN CHARLES HEAVEN AND MARY LOUISE HEAVEN

Plaintiffs

AND  WEBSTER MALCOLM & KILPATRICK

Defendant

Hearing:         24 January 2005 Appearances: T Darby for plaintiffs

A Sherlock for defendant Judgment:    3 February 2005 at 16:45

JUDGMENT OF ASSOCIATE JUDGE FAIRE

[on application to strike out claim]

Solicitors:           TJ Darby, PO Box 90 959, Auckland for plaintiffs

Hesketh Henry, Private Bag 92 093, Auckland for defendant

Heaven & Anor V Webster Malcolm & Kilpatrick HC AK CIV 2004-404-2826 3 February 2005

The application

[1]    The defendant applies to strike out the plaintiffs’ claim. Although the application specifically relies on r 186 of the High Court Rules Mr Sherlock invited me to consider it under r 477 as well.

Preliminary matters

[2]    Counsel agreed that I should read an affidavit of AG Stuart, dated 21 January 2005, and a reply to it filed by the plaintiffs on 24 January 2005.  In  addition, counsel produced, by consent, letters from Chapman Tripp dated 28 April 1998 and 7 May 1998 and invited me to consider them for the purpose of determining this application. In view of the agreement reached by counsel on these matters, I take the additional affidavits and correspondence into account.

The parties

[3]    The defendant is a firm of barristers and solicitors. The plaintiffs instructed the defendant to issue proceedings against their former solicitors, Tetley-Jones & Co, and a financier, AMP Finance NZ Limited. That claim arose from losses incurred by the plaintiffs in respect of a subdivision and development of a property which they owned at the time at Moores Bay, Bon Accord, Kawau Island.

The plaintiffs’ claim in this proceeding

[4]    The plaintiffs plead that the defendant was negligent and in breach of its fiduciary duty to the plaintiffs in the following respects:

a)The defendant failed to negotiate a moratorium on interest in respect of the loans made to the plaintiffs by Mr Crawford and others;

b)At a point prior to trial, the defendant withdrew the plaintiffs’ claim for breach of fiduciary duty and breach of duty of care against Tetley- Jones & Co;

c)The defendant was negligent in advising the plaintiffs to settle with Tetley-Jones & Co at the level in fact agreed (namely $250,000);

d)The defendant put forward evidence of the plaintiffs’ loss on a simple rather than a compounding basis;

e)The defendant did not actively pursue what the plaintiffs insist was a valid claim for loss of profit they would have made if the subdivision project had not failed due to want of financing;

f)The defendant took longer to have the original proceeding brought to trial than might reasonably have been the case, thereby causing the plaintiffs additional stress and anxiety over and above that which would necessarily have come about as a result of the events giving  rise to the proceeding and pursuit of the proceeding itself.

Mr Darby indicated that an additional ground might be added. In essence, that ground would allege that the defendant, without the plaintiffs’ authority, agreed to settle a proceeding which involved the plaintiffs abandoning an appeal from the Court of Appeal judgment given on that part of the proceeding involving AMP Finance NZ Limited.

[5]    I take from Mr Darby’s advice to the Court that if that matter is pursued it would be a case of an allegation of breach of warranty of authority.

Background

[6]    I record a summary so that the specific complaints which the plaintiffs have raised in the statement of claim are put into perspective. In the judgment of Morris J,

given in the proceedings which the defendant was instructed to take on the plaintiffs’ behalf, those facts are examined in much greater detail.

[7]    Prior to 1984 the plaintiffs ran a small farm in South Auckland. In 1984 they purchased a 19 hectare property in Moores Bay, Bon Accord Harbour,  Kawau Island. Their plan was to set up a camping ground.  Their solicitor at the time was  Mr Tetley-Jones, a principal in the law firm Tetley-Jones & Co. Kawau Island is within the Rodney County. The plaintiffs made application to the Rodney County Council for planning permission to develop the land as a picnic and camping ground with helicopter facilities. Without going into detail, there were apparently problems in financing the development in the way the plaintiffs envisaged. As with many islands in the Hauraki Gulf, access proved a problem. Moores Bay is at the head of Bon Accord Harbour. Access is, obviously, particularly  difficult  at  low  tide. Morris J records that the solution to that problem was a wharf. However, there was a funding problem in relation to the construction of a wharf.

[8]    The plaintiffs were apparently left with two options: either to sell  the property or to cut off some lots and sell them. Finance was obtained  from the ASB to enable the property to be put up for tender. A tender was received from Heritage Inns of New Zealand Limited. An agreement was entered into but the purchaser defaulted.

[9]    The plaintiffs were, by this time, in difficulty because the finance that they had arranged was now in default. Their solicitor, Mr Tetley-Jones, approached a finance broker. There was an attempt made to resurrect the earlier contract with Heritage Inns of New Zealand Limited but the solicitor, Mr Tetley-Jones, did not communicate that to the plaintiffs. The plaintiffs then received a letter offering finance from AMP Finance NZ Limited, dated 6 July 1987.

[10]   The claim, which was heard by Morris J, concerned the shortcomings in the advice given by Mr Tetley-Jones and alleged a breach of the Fair Trading Act 1986 in respect of the amount of finance offered on the part of AMP Finance  Limited.  The plaintiffs, having determined that they would need a wharf, arranged a purchase from a Mr Olsen of his property in 1987. Mr Tetley-Jones arranged finance.

However, because of the problems with the AMP finance, alternative finance had to be found. That purchase led ultimately to a mortgagee sale and a loss of the Olsen property and any equity which the plaintiffs had in it on 15 November 1988. The plaintiffs’ financial predicament clearly worsened because it was apparent that AMP obtained summary judgment against the plaintiffs in February 1989.

[11]   AMP then sold the property first acquired at Kawau Island by the plaintiffs pursuant to its mortgage on 30 May 1989. That meant that the plaintiffs had lost everything in relation to their investment in Kawau Island by May 1989.

[12]   The defendant was instructed on or about 14 May 1991. They issued proceedings against the plaintiffs' former solicitor, Mr Tetley-Jones, and AMP Finance NZ Limited and another party in October 1991.

[13]   On 1 July 1996 one of the mortgagees in respect of the Olsen property purchased issued a demand. A reply was given by the defendant on the plaintiffs’ behalf to that demand on 4 July 1996. This has significance for two reasons. First, it has a bearing on the first of the complaints which the plaintiffs plead against the defendant (that referred to in [4(a)] of this judgment). Second, the letter written by the defendant to the mortgagee, was the reason why instructions were terminated with the defendant at a later date.

[14]   The proceedings against Tetley-Jones & Co and AMP Finance NZ Limited came on for trial before Morris J on 16 June 1997. In the first week or so of that  trial, a settlement was reached with Tetley-Jones & Co, resulting in the claim against that party to the proceeding being withdrawn. That settlement is the subject of the complaints made, and to which I have made reference in [4(b)] and [4(c)] of this judgment. The trial continued against AMP Finance NZ Limited. Morris J gave judgment in favour of the plaintiffs on 8 July 1997. AMP Finance NZ Limited appealed to the Court of Appeal. The plaintiffs cross-appealed. The appeals were heard and the hearing commenced on 29 October 1997 and a decision was delivered on 11 December 1997. The result of the appeal was to reduce the judgment  in  favour of the plaintiffs from $755,349.48 by deductions of $62,400 in one respect and $97,000 plus interest in another respect.

[15]   The plaintiffs’ claim, as evidenced from the matters referred to in [4(d)] and [4(e)] of this judgment, is that the method of quantification of their claim did not properly represent the losses incurred and, in fact, understated them. Further, as evidenced from [4(f)] of this judgment, a complaint is made by the plaintiffs that the time between issue and trial was longer than it should have been, thus causing damage to the plaintiffs.

[16]   Both AMP Finance NZ Limited and the plaintiffs considered an appeal from the Court of Appeal decision to the Privy Council. This matter is not currently pleaded as a matter of complaint by the plaintiffs. I mention it, however, in view of the indication Mr Darby gave of a possible additional ground, to which I have made reference in the concluding part of [4] of this judgment.

[17]   On 23 April 1998 the plaintiffs wrote to the defendant. The letter was addressed by the plaintiffs to the partner of the defendant who had been handling the claim with senior counsel. The letter records:

Dear Alan,

We trust that A.M.P. have proceeded no further on going to the Privey Council as you say in your letter we received on the evening of 21-4-98.

We wish to inform you that we have decided that we will accept the judgement of the Court of Appeal against A.M.P. as awarded by the Court. (No conditions from A.M.P. accepted)

We instruct you to uplift the judgement sum plus interest. We instruct that the cheque be made out to JC & ML Heaven c/o your office out of which we will pay Dr Chambers and your accounts immediately. All other creditors will be negotiated with by us.

We thank you for all of your council over the years and we intend to stay with you and your firm as our solicitors.

Yours faithfully

[18]   Prior to that letter, the plaintiffs had had a meeting with their senior counsel, Dr Chambers QC as he then was. That meeting is the subject of a note made at the time. It certainly raised the possibility of a successful appeal from the Court of Appeal judgment. What later transpired, however, was receipt of the sum due as a result of the Court of Appeal decision. The sums received were accounted to the

plaintiffs by the defendant in a statement dated 1 May 1998 in respect of the AMP claim, and in respect of the Tetley-Jones claim in a statement dated 7 May 1998.

[19]   Following  the  conclusion  of  the  proceedings,   the   Olsen   mortgagee,  Mr Crawford, sought to enforce the sum he claimed as outstanding to him. An issue then arose as to the effect of a letter which the defendant had written on the plaintiffs’ behalf following Mr Crawford’s demand on 1 July 1996. The letter concerned was dated 4 July 1996.

[20]   The plaintiffs sought independent advice. Mr Brian Henry, barrister, was instructed. Mr Bell-Booth was his instructing solicitor. It is at  this point  in time when the facts are not clear. Mr Stuart, the partner of the defendant who swore an affidavit, produced a letter written by an associate of his firm to the plaintiffs, dated 26 June 1998. It records that the plaintiffs wish the defendant to continue to act but indicates that they have referred the matter to their insurers. It  further records that,  in respect of the Crawford claim, it is appropriate that they do not act.

[21]   It is significant also to record, at this time, that one of the conditions of the settlement reached with AMP Finance NZ Limited required the return of a notice of discontinuance. The documents produced disclose that, as at 22 May 1998, the defendant had received instructions which required it not to return the notice of discontinuance.

[22]   The problem that caused the plaintiffs to seek advice from other solicitors and counsel does not now have any significance. Judgments have subsequently been issued  in  respect  of  other  proceedings,  more  particularly  those  pertaining  to  Mr Crawford. They are the judgments of Master Kennedy-Grant, as he then was, on 1 April 1999; Tompkins J, dealing with the review of that decision on 14 September 1999; and a judgment of Laurenson J on the claim on its merits, on 19 May 2000.  All those judgments make it plain that the letter of 4 July 1996 was not critical to the enforceability of Mr Crawford’s claim against the plaintiffs. For that reason, no liability arising from the authorship of that letter is now relied upon by the plaintiffs, and nor should it be.

[23]   It is apparent from the papers that the plaintiffs had in mind taking the money paid by AMP Finance NZ Limited but, nevertheless, pursuing their claim to the Privy Council with a view to getting an increased judgment. That approach specifically put in issue whether or not there had been a binding settlement of rights of appeal. The issue of whether there had been a settlement involving the AMP claim, however, was ruled upon by the Court of Appeal when it refused conditional leave to appeal to the Privy Council in a judgment delivered on 29 April 1999. The Court said at [10]:

We find that there has been a complete and final settlement of this proceeding and accordingly we refuse leave and dismiss the Heaven’s application.

It is appropriate to record that the plaintiffs represented themselves at the hearing before the Court of Appeal.

[24]   The plaintiffs next took their case directly to the Privy Council. They appeared in person. The document produced, dated 24 November 1999, records that the application was refused and the petition was dismissed.

[25]   The Court of Appeal judgment refusing special leave to appeal at [7] and [8] contains the following:

Whatever restrictions may have been privately placed by the Heavens upon their legal advisers’ ability to negotiate a settlement, from the perspective of AMP those legal advisers certainly had ostensible or apparent authority to conclude a settlement on the basis that the litigation would be at an end.

…

If the legal representatives in fact exceeded the authority actually given to them by the Heavens, that is now a matter which must be resolved between the Heavens and their former legal advisers. It does not affect AMP’s right  to rely upon the settlement. We add only that having seen  the correspondence between the Heavens and their legal advisers, as exhibited to their affidavit, we should not be taken to be expressing the view that there would be any basis for an assertion that the authority was exceeded.

[26]   The plaintiffs instructed yet further legal counsel. Unfortunately for them, judgment was obtained in respect of fees not paid and that led to the orders of adjudication in bankruptcy being made against both plaintiffs on 5 June 2001.

[27]   On 12 June 2002 the Official Assignee advised that he would not pursue claims against the former lawyers. I will return to this letter later in this judgment when analysing the specific grounds for and against a strike out. The plaintiffs say they received oral advice as to what action they could take from a Mr Khan who was the officer in the Official Assignee’s office in Auckland apparently handling their bankrupt estates. I will refer to that also.

[28]   The above summary, save for the complaint of failure to negotiate a moratorium on interest in respect of the Crawford loan, indicates that the actions of the defendant or the failure to act by the defendant, which are the subject of the plaintiffs’ complaint, all occurred before 2 June 1998. That is significant when the Limitation Act defence is analysed.

[29]   The complaint relating to an alleged failure to negotiate a moratorium on interest in respect of the Crawford loans cannot be dealt with in quite the  same precise manner. One of the particular problems with this allegation is that it lacks particularisation. I have absolutely no indication from the papers or from counsel’s submissions as to what practical course the defendant might have been expected to have taken, and when, in respect  of the Crawford loan.  All that  is  known is  that  Mr Crawford’s claim for interest was heard by Laurenson J. He granted  the plaintiffs relief under the Credit Contracts Act 1981, which had the effect of  reducing the amount of interest payable on Mr Crawford’s loan. It is difficult to see how this matter could be the subject of a claim. In any event, the Crawford proceedings were served on the plaintiffs on 4 July 1998. The defendant was, of course, not instructed by the plaintiffs in relation to those proceedings.

[30]   The plaintiffs claim that, apart from the issue relating to the defendant’s letter of 4 July 1996 concerning the Crawford loan, they were unaware that there was any shortcoming in the actions taken on their behalf by the defendant until they received a draft letter prepared by Mr Bell-Booth. The draft is dated 21 October 1998. It was never sent to the defendant. It does raise a number of issues relating to the Tetley- Jones and AMP Finance NZ Limited proceeding.

[31]   The plaintiffs further say that it was not until they had appeared before the Privy Council and were told, to use their words:

to go home and pursue former solicitors

that they say it was clear:

that we really would suffer a loss arising from the failures of the lawyers.

[32]   One further piece of documentary evidence should be mentioned. It relates to a letter and statement dated 31 July 1998 from the defendant to the plaintiffs. It contained the final wash-up in terms of moneys received and payment of final accounts. It marks, as far as I can see, the actual closing of the defendant’s file held on the plaintiffs’ behalf.

The grounds for the strike out application

[33]   Two independent grounds are advanced in support of the application to strike out the proceeding.

[34]   The first ground alleges that, with the exception of the plaintiffs’ claim for anxiety and stress, each pleaded claim is the property of the Official Assignee as the trustee in bankruptcy of the bankrupt estate of each plaintiff and therefore not theirs to pursue. In respect of the claims made seeking damages for anxiety and stress, it was submitted that although such claims would not vest in the Official Assignee, they, nevertheless, cannot be sustained unless they are an adjunct to a claim for special damages for physical damage or financial loss based upon a recognisable psychological disorder.

[35]   The second ground alleges that all the claims are time-barred and unenforceable by virtue of s 4 of the Limitation Act 1950 in respect of the claim based on negligence. In respect of the claim alleging breach of fiduciary duty, it is alleged that that claim, although of an equitable nature, corresponds with a common law right of action and therefore the limitation period will, by analogy, apply to that claim.

Plaintiffs’ opposition to the strike out application

[36]   Two grounds are advanced in respect of the first ground for striking out the statement of claim. They are:

a)That the claims made by the plaintiffs did not become the property of the Official Assignee but remained the property of the plaintiffs;

b)If the claims, or some part thereof, became the property of the Official Assignee then such claims were assigned to or abandoned in favour of the plaintiffs by the Official Assignee.

[37]   Two grounds in respect of the second ground for striking out the statement of claim are advanced. They are:

a)The claims pleaded are not time-barred by virtue of the Limitation Act 1950;

b)In the circumstances, the provisions of the Limitation Act imposing limitation periods should not be applied by analogy to the plaintiffs’ claim in equity.

The Court’s approach to strike out applications

[38]   The general principles to be applied in a strike out application are well known. They were confirmed by the Court of Appeal in Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267 where the Court said:

A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed. (R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978] 2 NZLR 289 at pp 294-295; Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR 314 at pp 316-317); the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is

satisfied it has the requisite material (Gartside v Sheffield, Young & Ellis [1983] NZLR 37 at p 45; Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641); but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction (Gartside v Sheffield, Young & Ellis).

[39]   For the purposes of this case further matters should be added. Strike out applications are usually based on the pleadings alone. However, it is permissible to refer to affidavit evidence where the evidence is undisputed and is not inconsistent with the pleadings: Attorney-General v McVeagh [1995] 1 NZLR 558 at 566.

[40]   The Court takes a different approach where a strike out application is made based on a limitation defence.

[41]   In Matai Industries Ltd v Jensen [1989] 1 NZLR 525 at 531 Tipping J referred to the decision of the Court of Appeal in England in Ronex Properties Ltd v John Laing Construction Ltd & Ors [1982] 3 All ER 961. In summary he observed:

a)That a defendant could never apply to strike out a claim against him as disclosing no reasonable cause of action merely because he might have a good limitation defence;

b)A defendant who believes he has a good limitation defence may, however, either plead the defence and seek trial of the defence as a preliminary issue, or, in a clear case, apply to strike out the plaintiff’s claim on the grounds that it is frivolous, vexatious and an abuse of process;

c)The onus is on the defendant to show that the plaintiff’s claim is statute-barred;

d)Evidence can be tendered by affidavit;

e)The Court should be slow to strike out a claim, or cause of action altogether in limine, but against that, if the position is quite clear, then

the defendant should not be vexed by having to go to full trial when the answer is obvious and inevitable.

The first ground in support of the strike out application – the effect of the plaintiffs’ bankruptcies

[42]   The causes of action pleaded arose prior to the plaintiffs’ adjudication in bankruptcy. Indeed, the plaintiffs do not suggest that they were in any doubt as to what claims they wished to pursue once they had received the Privy Council decision on or about 24 November 1999.

[43]   By s 42(1) of the Insolvency Act 1967, all the property and powers of the bankrupt specified in s 42(2) of that Act are vested, upon adjudication, in the Official Assignee. That includes choses in action: in re Ingram [1933] NZLR 219. Accordingly, when Mr and Mrs Heaven were adjudicated bankrupt in 2001, the right to bring the present proceeding passed, by operation of s 42 of the Insolvency Act 1967, to the Official Assignee. Mr Darby advanced no submission contrary to the proposition I have just stated. Indeed, he advanced no specific submission in support of the ground, which I have referred to in [9(a)] of this judgment, which is pleaded by way of opposition to the strike out application. Accordingly, I reject this basis for opposing the strike out application, which asserts that the current claim at no time became the property of the Official Assignee but remained the property of the plaintiffs.

[44]   I next deal with the issue I have referred to in paragraph [9(b)] of this judgment. The question is whether the Official Assignee has either assigned the cause of action to the plaintiffs or abandoned the cause of action in favour of the plaintiffs.

[45]   I deal first with the allegation of a possible abandonment by the Official Assignee of the cause of action.

[46]   In Edmonds Judd v Official Assignee [2000] 2 NZLR 135, the Court of Appeal considered at [22]-[28] whether a non-statutory broad abandonment process

existed alongside the statutory disclaimer provisions. Although the Court made it clear that it was refraining from expressing any concluded views, it said at [26]:

The better view may be that the effect of abandonment is to relinquish or to surrender the right of action which thereafter has no further existence.

[47]   Subsequently in Robinson v Tait CA 70-00 18 December 2000 the Court of Appeal affirmed its dicta in Edmonds as the effect of abandonment in more certain terms. At [23] the Court said:

Once there was an abandonment the claimants no longer had any title to the chose in action which they had given up. If you abandon a right you no longer possess it; there is nothing left which you can sue upon or meaningfully agree not to sue upon.

[48]   If there has been an abandonment in this case, then the chose in action, the causes of action concerned, no longer exist and cannot be sued upon. In short, there can be no abandonment “in the plaintiffs' favour”. I conclude, therefore, that the plaintiffs’ submission alleging an abandonment by the Official Assignee in their favour simply cannot now succeed as a matter of law.

[49]   I next deal with the alternative proposition advanced, namely that the Official Assignee has assigned the cause of action to the plaintiffs. The evidential foundation for such a position is two-fold. First, it is said to arise from a letter from the Official Assignee’s office dated 12 June 2002. Second, it is said to arise by virtue by certain statements made by a representative of the Official Assignee.

[50]The relevant parts of the letter of 12 June 2002 provide as follows:

This letter addresses the various claims you have referred to the Official Assignee arising from the Kawau Island development and from your dealings with Pastor Henry Hinn.

The claims have been considered at some length both within this office and by the Official Assignee’s legal advisors following your meeting with David Johnston of Meredith Connell and with Azam Khan on 6 May 2002. We apologise for the delay in providing this advise to you, but as you will appreciate, proper consideration has required the examination of a relatively complicated and extensive course of litigation.

We regret to advise that the Official Assignee has determined not to pursue any of your claims. To summarise the reasoning behind this decision:

1. The claims arising from the Kawau Island development and the resulting litigation, including your claims relating to your former lawyers and valuer, are not worth pursuing because of legal or practical bars to success arising by virtue of previous Court decisions, delays in appellate action or simple lack of merit and monetary damage.

2. …

Please let us know if we can assist with any other matter related to the

Official Assignee’s administration of your estate.

[51]   The second aspect is referred to in the plaintiffs’ affidavit in the following specific way:

And:

Mr Khan, at the Official Assignee’s office, told us on several occasions that we were free to take legal action against Webster Malcolm & Kilpatrick once we were out of bankruptcy

Mr Khan assured us on a number of occasions that we were free to pursue our claims once we were out of bankruptcy. He left us in no doubt that the Official Assignee had decided to leave the matter to us to pursue and even told us that we should uplift our file from Russell McVeagh and try to engage a lawyer to act for us in bringing the claim against Webster Malcolm and Kilpatrick. Although no formal written assignment of the chose in  action has been made by the Official Assignee we say that the property (ie the interest in the litigation) is ours, either because the Official Assignee never acquired it, or he abandoned it in our favour, or he informally assigned it to us. We say this because of Mr Khan’s advice to us and also because the Official Assignee did not take sufficient steps to consider the merits of our claim.

[52]   It  is  clear  that  no  statutory or  legal  assignment has occurred.    Nor is one alleged. The requirements of s 130 of the Property Law Act 1952 have not been met.

[53]   Accordingly, it is necessary to consider whether there has been an equitable assignment of a legal chose in action.

[54]   The general requirements for an equitable assignment of a legal chose in action are:

a)There must be a clear intention to assign, although no particular form is required for equitable assignment: Colonial Mutual General

Insurance Co Ltd v ANZ Banking Group (NZ) Ltd [1994] 3 NZLR 136;

b)An equitable assignment of a chose in action must amount to an immediate, irrevocable disposition and not be a mere revocable mandate: White v Ensor (1892) 11 NZLR 586 (CA);

c)The chose in action must be identified with certainty or else the assignment will fail: Attwood and Reid Ltd v Stephens [1932] NZLR 1332;

d)The assignor and any assignees should be joined as nominal co- plaintiffs to proceedings enforcing the equitable assignment of a legal chose in action: Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724 at 733–735.

[55]   I examine the evidence. The letter of 12 June 2002 does not disclose any intention on the part of the Official Assignee to assign the relevant causes of action. Assignment of a chose in action means the immediate transfer of an existing proprietary right from the assignor to the assignee: Williams v Commissioner of Inland Revenue [1965] NZLR 395 at 399 (CA). At most, the Official Assignee is acknowledging that claims could be pursued (but would not be worth doing so). There is nothing to the effect that these are to be assigned to the plaintiffs.

[56]   The oral allegations, however, which I have referred to in [51] cannot be so dismissed.

[57]   In Moynihan v Berkett HC TAU CP3-94 27 July 1998 the Official Assignee had advised the plaintiffs by way of a letter that:

“If you wish to pursue the claims yourselves, there is now no legal impediment to you doing so.”

[58]   In that case, the requirements of a legal assignment of a chose in action under s 130 of the Property Law Act 1952 were not fulfilled. Paterson J turned to consider (at 8-9) whether an equitable assignment of the chose in action had occurred. He

held that the letter was prima facie an equitable chose in action subject to two considerations.

[59]   First, the assignment was without consideration, but since the letter was in effect a gift of the chose in action, that gift could be enforced against the Official Assignee in equity. He further held that effective notice to the person against whom the claim is to be made was given on the first day of the hearing of the case. He treated the equitable assignment as having been converted into a statutory assignment.

[60]   Second, it was necessary for the assignor to be joined as a party to the proceedings, but the Official Assignee had not been joined. Paterson J cited McMahon v Gilberd & Co Ltd [1955] NZLR 1206 at 1219 for the proposition that the need for joinder was not “an absolute invariable requirement”. He held that it would be inequitable and wrong in principle to determine that the plaintiffs were precluded from bringing their action. I observe that, in McMahon, the requirement for joinder was dispensed with because it had been specifically waived by the respondent at the hearing of the appeal.

[61]   In Laws of New Zealand, Choses in Action at [31] the position is described as follows:

31.      Joinder of assignor.

There is a general rule, which was recognised both at common law and Chancery prior to 1873, that all parties should be joined to proceedings enforcing the equitable assignment of a legal chose in action. That rule continues to this day. The assignor and any assignees should be joined as nominal co-plaintiffs to such proceedings. If the assignor does not consent to being joined as a plaintiff, he should be joined as a defendant.

It has recently been held that a failure to join the assignor does not render an action brought by an assignee a nullity. However, the Court will not enter judgment for damages, nor issue a perpetual injunction, without having all parties before it.

[62]   The English and New Zealand cases cited seem to support the proposition that failure to join does not render an action brought by an assignee a nullity.

[63]   In William Brandt’s Sons and Co v Dunlop Rubber Co Ltd [1905] AC 454, Lord Macnaghten held at 464 that no action is now dismissed for want of parties, and in the circumstances of that case where the respondents had disclaimed any wish to have the trustee in bankruptcy present, an action by an equitable assignee was allowed to proceed without the assignor being joined.

[64]   In Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 (HL) Viscount Cave LC at 14 said:

That an equitable owner may commence proceedings alone, and may obtain interim protection in the form of an interlocutory injunction, is not in doubt; but it was always the rule of the Court of Chancery, and is, I think, the rule of the Supreme Court, that, in general, when a plaintiff has only an equitable right in the thing demanded, the person having the legal right to demand it must in due course be made a party to the action … If this were not so, a defendant after defeating the claim of an equitable claimant might have to resist like proceedings by the legal owner, or by persons claiming under him as assignees for value without notice of any prior equity, and proceedings might be indefinitely and oppressively multiplied.

[65]Viscount Finlay expressed the view at 19 that

Except under very special circumstances the ordinary rule should be observed, that the legal owner should be a party to the proceedings.

[66]   Lord Sumner said at 30-31 that Lord Macnaghten in William Brandt’s accepted the rule of joinder but simply pointed out that William Brandt’s was an exception to it.

[67]In Schneideman v Barnett [1951] NZLR 301 FB Adams J said at 307:

…as indicated by Lord Macnaghten in William Brandt’s Sons and Co v Dunlop Rubber Co Ltd ([1905] AC 454, 462), the absence of the assignor would be easily remedied, and would not be allowed to lead to the failure of the plaintiff’s claim.

[68]   Consistent with this is McMahon, where the Court of Appeal at 1119 appeared to approve the dictum of Lord Macnaghten in William Brandt’s.

[69]   On the above authorities, it can be said there is at least doubt as to the current stringency of the joinder requirement. That an exception to the general rule of joinder may be made out in this case cannot be ruled out at this stage. Although my

finding on this ground is not necessary to the final decision because of the conclusions reached on the other strike out grounds, I would not be prepared to rule that the claim based on an alleged assignment cannot possibly succeed and therefore should be struck out. Bearing in mind the conclusion reached by Paterson J in Moynihan v Berkett, that would be inappropriate.

Claims for anxiety and stress

[70]   In view of the defendant’s acknowledgement that these claims would not pass to the Official Assignee in bankruptcy if they can exist independently, it is appropriate that I make at least a brief comment in relation to them.

[71]   Mr Sherlock submitted that the plaintiffs’ claims in respect of anxiety and stress must fail because the plaintiffs have not alleged they have suffered any recognisable psychological disorder as a result of any of the breaches of duty alleged to have been committed by the defendant.

[72]   In van Soest v Residual Health Management Unit [2000] 1 NZLR 179 at [65], the Court of Appeal held that a plaintiff could not recover damages for mental suffering caused by awareness of death or injury in the absence of the causing to the plaintiffs of a recognisable psychiatric disorder or illness.

[73]   In Manning v Body Corporate 126411 HC AKL CP89-SD01 29 November 2001, I concluded at [43] that the principles forming the rule in van Soest, which were expressed in relation to secondary victims, apply equally to primary victims of negligence. This was because the policy rationale for limiting claims to recognisable psychological illness applied equally to both types of victims. The reason the Court in van Soest limited recovery in this way was to prevent a flood of claims from persons who had suffered distress but not psychiatric injury and to provide a clear rule that would provide at least some certainty as to what is recoverable. Further, the English authorities (such as Page v Smith [1996] AC 155) set out the principles applicable to all claims in negligence for personal injury.

[74]   I have no reason to alter that view. The plaintiffs as primary victims are required to allege a recognisable psychological disorder suffered as a result of the alleged breaches of duty. Since they have not done so, the relevant part of their statement of claim would have to be struck out if the primary causes of action are also struck out. It would, of course, not be struck out, if the only ground for attack was the assignment ground. However, for reasons which I have already examined and will examine in relation to the limitation defence, that is not the case.

Limitation defence and equitable barring by analogy

[75]   I deal with the alternative ground advanced in support of the strike out application. The defendant pleads that the claim is barred by s 4  of the Limitation Act 1950 in respect of the claim pleaded based on the tort of negligence.  In respect of the claim for breach of fiduciary duty, the defendant relies on the principle of equitable barring by analogy.

[76]   The Court file discloses that this proceeding was filed on 2 June 2005. Accordingly, to avoid the consequences of s 4 of the Limitation Act 1950, any cause of action must have occurred on or after 2 June 1998.

[77]   I propose to record some general propositions which apply to the application of limitation defences. In summary they are as follows:

a)A cause of action accrues for Limitation Act purposes when all the facts necessary to establish the cause of action are in existence: Stratford v Phillips Shayle-George (2001) 15 PRNZ 573 (CA);

b)A cause of action in contract arises from the date of the breach regardless of whether there is any damage at that time: Rabadan v Gale [1996] 3 NZLR 220 at 222;

c)In the case of a solicitor who is engaged to undertake work to protect  a client’s interest pursuant to a contract of retainer, the breach will occur when the solicitor fails to do the work within a reasonable time,

or, as sometimes expressed, as soon as is practicable: Bell v Peter Browne & Co [1990] 3 All ER 124 at 133 (CA). Time for limitation purposes will therefore run from the expiry of that reasonable time;

d)The facts necessary to establish the cause of action in negligence require proof of duty, breach and loss consequent on the breach of duty: Stratford v Phillips Shayle-George;

e)A cause of action in negligence accrues at the time the plaintiff suffers loss (which is more than minimal loss) as a result of the breach, which loss is capable of quantification in terms of money: Forster v Outred & Co [1982] 2 All ER 753 at 765 (CA);

f)When damage is an essential element of the cause of action, the suffering of some damage, in circumstances where the other elements of the cause of action have already accrued, will, in general, start time running for Limitation Act purposes even though the damage continues to grow. Time is not suspended until all damage which will be suffered has ceased to flow: Jobbins v Capel Court Corporation Ltd (1989) 91 ALR 314 at 317 and Khan v Falvey [2002] 1 Lloyds Professional Negligence Reports 369 at 371;

g)Loss or damage does not have to be quantified at the point of accrual of a cause of action for time to commence to run: Stratford v Phillips Shayle-George, 578;

h)If a breach of fiduciary duty is, in reality, a tortious one or closely analogous to those in tort, for example, a duty to take reasonable care, the limitation period will, nevertheless be applied by analogy by  virtue of s 4(9) of the Limitation Act 1950: Matai Industries Ltd v Jensen [1989] 1 NZLR 525, Stratford v Phillips Shayle-George at [15], [17] and [23].

[78]   Mr Darby submitted, without reference to authority, that time in respect of the plaintiffs’ current claim would not start to run until the material facts on which the cause of action is based had been discovered, or ought to have been discovered, by the plaintiffs by the exercise of reasonable diligence. Unfortunately, neither counsel examined this proposition in depth, nor did they refer to relevant authority.

[79]   My research has led me to the view that the current state of the law is that, where damage is an ingredient of the cause of action, time begins to run when that damage is actually sustained. That is the case regardless of whether the plaintiffs are aware of the damage, except in limited exceptions of latent defects in buildings and bodily injury cases.

[80]   The starting point is that there is no New Zealand appellate authority that applies reasonable discoverability of the material facts by the plaintiffs as the point when time begins to run for limitation purposes in respect of contract claims. The only cases where the reasonable discoverability of the material facts has been held to be the point when time runs for limitation purposes are the building latent defect cases and the personal injury cases: Saunders & Co v Bank of New Zealand [2002] 2 NZLR 270 at 279-280. In that case, O’Regan J reviewed the authorities and reached the conclusion that I have referred to. In so holding, he was reflecting the view expressed by the Court of Appeal in Invercargill City Council v Hamlin [1994] 3 NZLR 513, S v G [1995] 3 NZLR 681 at 687 and GD Searle & Co v Gunn [1996] 2 NZLR 129.

[81]   Mr Sherlock was correct, in my view, when he submitted (I quote from his written submissions):

By 23 April 1998 the plaintiffs’ knew:

a.    the full history of events giving rise to their claims against Tetley-Jones & Co and AMP;

b.   their instruction of the defendant to pursue such claims on their behalf;

c.    the course the proceedings had followed, including the timing of each step in the proceeding;

d.   such anxiety and stress as they had experienced during the course of the proceeding;

e.    the precise basis on which the plaintiffs’ claims were ultimately put forward against Tetley-Jones & Co (by the time of the settlement with that firm) and against AMP (by the conclusion of the trial);

f.    the terms of the settlement agreed with Tetley-Jones & Co;

g.   the advice given by both the defendant and Dr Chambers regarding all aspects of the case, plus the detailed reasoning and evidence leading to that advice;

h.   the actual rulings made by the High Court and Court of Appeal in respect of the claim against AMP (including the fact that no award in respect of loss of profits had been sought or granted and the fact that interest had been calculated on a simple rather than a compounding basis);

i.     the terms of the settlement agreed with AMP.

[82]   He also added that the plaintiffs knew that no moratorium in respect of interest had been agreed by Mr Crawford or other creditors of the plaintiffs by 23 April 1998.

[83]   What is now apparent is that there is no contest that the elements  of the causes of action, assuming that each of the complaints is a separate cause of action, were all in existence prior to 2 June 1998 and, therefore, more than six years before this proceeding was issued. Further, allegations that are made against the defendant, when analysed, involve no more than a failure to take reasonable care. They do not, and indeed, cannot, demonstrate any want of fidelity or loyalty, ie a breach of fiduciary duty. For that reason I conclude that the limitation position is, in reality, covered by the statement of principle made by the Court of Appeal in Stratford v Phillips Shayle-George at [17] where the Court said:

if the breach established against a fiduciary is simply a breach of a duty of care by a person who happens to stand in a fiduciary relationship with the plaintiff, the claim is in reality tortious and limitation issues are dealt with on that basis rather than in equity.

For these reasons, then, I conclude this is one of those cases where the undisputed facts are clear and disclose that any potential cause of action in the areas pleaded by the statement of claim, and including the potential additional area relating to  the issue of breach of warranty of authority, all occurred more than six years before the proceeding was issued. They are, therefore, barred by s 4 of the Limitation Act 1950

or on the basis that equity follows the law and applies by analogy the limitation period applicable at law to the causes of action pleaded.

Conclusions and result

[84]   I conclude that the statement of claim must be struck out in its entirety. I reach that conclusion based on the second ground advanced by the defendant, ie that the claims are barred by virtue of the Limitation Act 1950 or based on the principle of equitable barring by analogy. Although not strictly necessary for this decision, I conclude that if there had been an abandonment of the causes of action by the Official Assignee, the result would be that the claims do  not survive  for the benefit of the plaintiffs and therefore cannot be pursued by the plaintiffs. I would not, however, strike out the statement of claim in this application if the matter were simply limited to an examination of whether or not an assignment occurred. If the matter was limited to that inquiry, the issue would require further and more detailed evidence and examination before a conclusion was finally reached on the issue.

Orders

[85]I order that the statement of claim be struck out.

Costs

[86]   The defendant has been successful and is entitled to an order for costs. As, however, the order I have made concludes not only the interlocutory application seeking an order striking out the proceeding but also the proceeding proper, I reserve costs. In the event that agreement on the appropriate award of costs cannot be reached, I invite counsel to file memoranda at seven day intervals, that is in support,

opposition and reply.

JA Faire Associate Judge