Heslop v Cousins HC Christchurch CIV 2005-409-2833
[2007] NZHC 2132
•15 June 2007
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SUPPRESSION ORDER IN TERMS OF PARAGRAPHS [342], [344] AND [368] OF THIS JUDGMENT
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2005 409 2833
BETWEEN JOSEPH ROGER HESLOP AND JENNIFER ROBERTA HESLOP First Plaintiffs AND
JENNIFER ROBERTA HESLOP AND LINDSAY DONALD SMITH AS TRUSTEES OF THE ROGER HESLOP FAMILY TRUST Second Plaintiffs
AND
CLIVE JOHN COUSINS Defendant
Hearing:13, 14, 15, 16, 20, 21, 22, 23, 24 November 2006; 7, 8, 11, 12, 13, 14, 15
December 2006; 25, 26, 29, 30, 31 January 2007; 19, 20 March 2007
Appearances: DJS Parker and M Cooke for Plaintiffs A J Forbes QC, B J Barclay (and
G Slevin on 15, 16 and 20 November 2006) for Defendant
Judgment:
JUDGMENT OF CHISHOLM J
A. Subject to any adjustment that might be made to reflect the BNZ
settlement:
(i) Judgment for the first plaintiffs in the sum of $106,491, being wasted legal expenses of $6,491 plus general damages of $100,000.
(ii) Judgment for the second plaintiffs in the sum of $1,409,000 being damages for the loss of the option to purchase the orchard lot.
HESLOPand Anor V COUSINS HC CHCH CIV 2005 409 2833 []
B. Counsel are to file memoranda in relation to costs, interest, and any adjustment that might be necessary to reflect the BNZ settlement.
INDEX TO REASONS FOR DECISION
PART 1: INTRODUCTIONThis Claim [1]Background [4]Pleadings [35]
First Cause of Action – Breach Of Contract ofRetainer [36]Second Cause of Action – Negligence [38]Third Cause of Action – Breach Of Fiduciary Duty [40]Fourth Cause of Action – Breach Of Trust [42]Damages [43]Notice to Admit Facts [44]
Outline Of The Plaintiffs’ Evidence [45] The Plaintiffs [46] Others Involved With the Moir Agreement [50] Evidence From Creditors [56] Health Aspects [59] Bankruptcy [63] Expert Evidence [64]
Outline Of Defendant’s Evidence [70] The Defendant [71] Messrs Bailey and Still [73] Expert Evidence [75]
Some Observations About The Evidence Of Key Witnesses [79]
Mr Heslop Mrs Heslop Mr Cousins
PART II: LIABILITY Introduction The Moir Agreement The Retainer The Required
Standard Of Care The Possession IssueFirst Plaintiffs’ Evidence Defendant’s Evidence The Documentary Record Other
Evidence
[81] [85] [86]
Discussion [130]
[89] [90] [92] [101] [105] [106] [110] [113] [125]
Fees Issue [145] Background [148] Discussion [157]
Mortgage Issue [166] Background [167] Discussion [175]
Failure To Release Funds [181] Background [182] Liens/Set Off [188] Deduction OfCosts [193] Conclusions [197]
Remaining Issues [201] Background [202] Discussion [219]
Summary [227]
PART III: CAUSATIONIntroduction [228]Principles [230]Alleged Obstacles [235] Arrears Of Rates [238] Mortgage Issues [239] Option Time Limit [240] Breach Remedy Clause [242] Undertaking As To Rates [246] Cluster Deed [247] Rates Apportionment [248]
Impact Of These Matters [249] Failure To Obtain Undertakings Before Possession Was Given [250] Mr Cousins’ Refusal To Settle On 8 February 2001 Because Fees Had Not Been Paid [254] Breaches Arising From Post 8 February Delays [265]
Availability Of Funds To Pay Mr Cousins’ Account [269]Would Mr Heslop Have Been
Adjudicated Bankrupt Anyway? [275]Summary [282]
PART IV: DAMAGESIntroduction [285]Wasted Legal Expenses [286]General
Damages [293]Plaintiffs’ Claim [294] Defendant’s Response [299] Discussion [302]
Exemplary Damages [313] Second Plaintiffs’ Claim For Loss Of Option [316]
History Of Orchard Lot [317] Time At Which Damages Should Be Assessed [325] Value of Orchard Lot [333]
Conclusion [344] Implications Of Mr Heslop’s Bankruptcy [347] Settlement With BNZ
[358] Outcome [363]
PART I
This Claim
INTRODUCTION
[1] When they encountered financial difficulties the first plaintiffs entered into an agreement, which later became unconditional, to sell their home and an associated orchard block. The agreement included an option for the first plaintiffs or their nominee to purchase back the orchard block for $1, and the second plaintiffs were subsequently nominated to hold that option. The defendant, who is a solicitor, was engaged by the plaintiffs to complete the transaction.
[2] Unfortunately the transaction was not completed. Instead the first plaintiffs’ home and orchard block were sold by mortgagee’s sale and Mr Heslop was subsequently adjudicated bankrupt. It is alleged by the plaintiffs that the defendant was responsible for the failure to complete the transaction and the events that followed. Four causes of action
are pleaded:
Breach of the contract of retainer. Negligence.
Breach of fiduciary duty. Breach of trust.
Wasted legal expenses of $14,049.83, general damages of $200,000 and exemplary damages of $15,000 are sought by the first plaintiffs. The second plaintiffs seek damages of $2.5 million for the loss of the trust’s option.
[3] When this proceeding was issued the Bank of New Zealand (BNZ) was named as second defendant. Subsequently the bank joined its solicitors, Duncan Cotterill, as a third party. However, before this hearing commenced settlement was reached between the plaintiffs and those two parties and the plaintiffs discontinued against BNZ which in turn discontinued against Duncan Cotterill.
Background
[4] Mr Heslop, a builder, commenced building on his own account in 1976. Later he expanded into property development which included purchasing properties, designing and building units and houses, and selling them. He estimates that over the years he would have built and sold approximately 400 units or houses. At the time of the hearing Mr Heslop was 51 years of age. Mr and Mrs Heslop have four children.
[5] In 1988 Mr Heslop purchased land at 68 Johns Road, Belfast (the Devondale property), which he later transferred into the names of himself and his wife. The land comprised a lifestyle lot of 5,639 square metres (the lifestyle lot) and a nearby lot comprising 4.4290 hectares (the orchard lot) together with a one twelfth share in other land which provided access. Both lots were held in one title and were zoned Rural 3. Under that zoning only one dwelling per title was permitted.
[6] The lifestyle and orchard lots formed part of a rural/residential development within a neighbourhood known as the “Devondale Estate”. This estate, which is within Christchurch city, is adjacent to the Belfast urban area. After orcharding within the estate ceased in about 1997 the fruit trees were removed and 12 lifestyle lots, each with an associated orchard lot, were created. Over time houses were built on the lifestyle lots.
[7] Soon after purchasing the land Mr Heslop built a large house on the lifestyle lot. A granny flat for occupation by Mrs Heslop’s mother was also built on the basis that it would be removed if the property was sold or Mrs Heslop’s mother died. The obligation to remove the flat was supported by a caveat registered against the title by the Christchurch City Council.
[8] Mr Heslop’s bankers, the Bank of New Zealand (BNZ), held a first mortgage over the Devondale property. By the year 2000 Mr Heslop had encountered serious financial problems. Apart from a substantial indebtedness to BNZ Mr Heslop’s unsecured creditors were owed several hundred thousand dollars. After meeting with the bank in May 2000 Mr and Mrs Heslop accepted that they would have to sell the lifestyle lot. But they wanted to retain the orchard lot because they believed that it offered long term opportunities for residential development. The bank agreed to give them time to sell. A registered valuer valued the Devondale property at $880,000 as at 30 May 2000. Later
the valuer reported that if a separate title was available for the orchard lot it would be worth $385,000.
[9] On 6 August 2000 Mr and Mrs Heslop entered into a conditional agreement (the Moir agreement) for the sale of the Devondale property to the Moir family trust for $600,001, subject, however, to an option that enabled Mr and Mrs Heslop or their nominee to re- purchase the orchard lot for $1. It was anticipated that the option would be exercised once a separate title became available for the orchard lot. Thus the purchase price effectively represented the purchase price of the lifestyle lot. There was no time limit for the exercise of the option. Settlement under the Moir agreement was to be effected on 20
December 2000. Mr and Mrs Heslop’s usual solicitor, Bruce Taylor, acted for them when they entered into this agreement.
[10] When BNZ was told about the sale it adopted a hard line and indicated that it would not provide a release of its mortgage unless its total indebtedness was cleared. On the bank’s calculation, which was disputed by Mr Heslop, the indebtedness exceeded the anticipated net proceeds of sale by around $159,000. Mr Heslop hoped that he would be able to negotiate a settlement with the bank. He asked his brother, Warwick Heslop, who lives in Europe, for financial assistance.
[11] On 18 August 2000 the Moir agreement became unconditional and the Moirs paid the deposit of $60,000. After deduction of real estate commission and legal costs the balance of approximately $39,000 was paid to BNZ in reduction of the Heslops’ indebtedness to the bank. But the bank was still taking a hard line. Having made formal demand, it served a Property Law Act Notice claiming $675,849 on 11 October 2000. According to Mr Heslop the actual amount due was considerably less.
[12] In the meantime one of Mr Heslop’s trade creditors had obtained judgment against him and commenced bankruptcy proceedings. Mr Heslop responded by advancing a proposal under Part 15 of the Insolvency Act 1967 . After gaining the support of the majority of creditors at a meeting on 14 November 2000 he made application for the approval of this Court. The bankruptcy proceedings were adjourned to enable his application to be considered.
[13] The dispute between Mr Heslop and BNZ about the amount required to secure a
release of the mortgage persisted. On the recommendation of Wayne Bailey, a chartered accountant who was assisting Mr Heslop with the insolvency proposal, Clive Cousins, the defendant, was engaged by Mr and Mrs Heslop in November 2000 to negotiate with BNZ. Mr Cousins had been in practice for around 25 years and his primary field of practice involved conveyancing, including property development, investment and commercial work. He began negotiating with the bank in late November.
[14] In an effort to resolve the impasse with the bank, the Heslops, accompanied by Mr Bailey and Mr Cousins, met with bank representatives on 18 December 2000. Settlement was not achieved. However, after the meeting Mr Heslop told Mr Bailey and Mr Cousins that his brother was able to lend him $90,000 but that only $82,000 would be available to the bank because he needed $8,000 for Mr Bailey’s and Mr Cousins’ fees. Mr Heslop maintains that he was told by Mr Bailey and Mr Cousins not to worry about fees in the meantime. This is disputed.
[15] Two days later, on 20 December 2000, which was also the settlement date under the Moir agreement, Mr Cousins wrote to the bank’s solicitors (Duncan Cotterill) proposing a settlement that would effectively mean that the bank would receive a further $630,000 on 22 January 2001 (which was to become the new settlement date under the Moir agreement). This payment was to come from settlement of the Moir agreement which would produce approximately $540,000 plus $90,000 from Warwick Heslop. The proposal was accepted by BNZ on 22 December 2000.
[16] Because settlement under the Moir agreement had not eventuated on 20 December
2000, the Moirs served a settlement notice requiring the Heslops to complete settlement within 12 working days. It is common ground that the settlement notice required settlement by 5pm on 23 January 2001. The Moirs stated in their settlement notice that they were “ready willing and able” to settle.
[17] Up to this time Mr Cousins’ retainer had been confined to negotiating with BNZ. However, after the settlement notice was received on 22 December 2000 the Heslops and Mr Cousins decided that it would “make sense” for Mr Cousins to complete the settlement of the Devondale property instead of Mr Taylor. From that time Mr Cousins’ retainer included the conveyancing and associated attendances necessary to complete settlement of the Moir agreement which, of course, included completing settlement with
BNZ.
[18] Things seemed to be on track for the Moir agreement to be settled on 22 January
2001 which was the day before the settlement notice would expire. The Moirs were ready, able and willing to settle and agreement had been reached with BNZ about the amount required to secure a release of its mortgage. Mr Heslop had also obtained confirmation from his brother that his brother’s $90,000 would be available by 22
January.
[19] But there was a hitch. Instead of being able to provide the promised $90,000, poor exchange rates meant that Warwick Heslop could only provide $79,000. He indicated that he would not be able to provide the balance of $11,000 until the first week of February 2001. After receiving this news from his brother on 17 January 2001 Mr Heslop made arrangements for Mrs Heslop’s brother and his wife (Mr and Mrs Smith) to provide the shortfall of $11,000 on a short term basis until the balance of Warwick Heslop’s funds came through.
[20] As a result of these complications the $90,000 required to complete the settlement was not in Mr Cousins’ trust account until 30 January 2001 and the proposal to settle on
22 January had to be abandoned. There was also a further problem. The Moirs had discovered that there were arrears of rates on the Devondale property amounting to
$8,909 and they required the arrears to be paid before settlement or a credit provided. Either way the Heslops had to find $8,909.
[21] When settlement could not be completed on 22 January arrangements were made for the Moirs to take possession on 26 January. No undertakings to ensure that the Moirs would complete settlement without deduction as soon as the Heslops were ready to settle were obtained from the Moirs. The Heslops maintain that they sought Mr Cousins’ advice about the wisdom of giving possession and hold him responsible for the events that followed. Mr Cousins maintains that arrangement for possession without settlement was made by the Heslops without his knowledge.
[22] The bank was growing impatient. On 31 January 2001 its solicitors wrote to Mr Cousins advising that its settlement offer would be withdrawn if the bank was not repaid by 4pm on 8 February 2001. So 8 February became the new date for settlement and the Heslops paid the outstanding rates at 12.16pm that day and sent a copy of the receipt to
Mr Cousins. But settlement did not take place. According to the plaintiffs this was because Mr Cousins refused to settle unless his fees of $6,057.88 were paid in full. By that time Mr Cousins had rendered three invoices totalling that amount, all of which remained unpaid.
[23] Mr Cousins contends that he was entitled to adopt the stance that he did. He also contends that regardless of the fees issue, other obstacles prevented settlement on 8
February or at any later time. In particular:
The second mortgage required by the Moir agreement to secure the option had not been finalised;
Issues about the time within which the option would have to be exercised (the option time limit) had not been resolved;
The undertaking required by the Moirs’ solicitors in relation to any outstanding rates had not been provided; and
No agreement had been reached about the remedy that would be available to the Moirs if the Heslops breached any of their obligations under the option (the breach remedy clause).
In other words, it is Mr Cousins’ case that the fees issue was not causative of any harm suffered by the Heslops. He also claims that over time other obstacles arose and that regardless of his actions it would not have been possible to settle the Moir agreement at any time before the BNZ cancelled its arrangement with the Heslops.
[24] Returning to events as they evolved, after the Heslops failed to pay his fees Mr Cousins wrote to them on 15 February 2001 advising that he was not prepared to undertake any further work until his fees were paid. The Heslops then consulted another solicitor, Markham Lee, who wrote to Mr Cousins on 16 February instructing Mr Cousins to forward the funds held in his trust account to Mr Lee’s firm (Geoff Saunders
& Associates). Mr Heslop countersigned the letter. By that time the funds in Mr Cousins’ trust account stood at $95,500 because a further payment of $5,500 had been received from Warwick Heslop. Three days later Mr Cousins wrote to Mr Lee stating, amongst other things, that he took Mr Lee’s letter as a repudiation of the contract of retainer “which is accepted”. He also advised that he would be retaining the amount of his fees by way of set off. The funds remained in his trust account.
[25] Following negotiations the Heslops and Mr Cousins reached a compromise about
Mr Cousins’ fees. On 26 February 2001 the Heslops agreed to an immediate payment of
$3,000 and Mr Cousins agreed to proceed with, and effect, settlement. But time was
passing and the bank was growing even more impatient. On 28 February its solicitors advised Mr Lee in writing that the bank was setting a final deadline for settlement of midday, 5 March 2001. Unfortunately that information was not passed on to Mr Cousins. Nevertheless on 2 March Mr Cousins was instructed by Mr Lee to settle the transaction immediately.
[26] The transaction did not settle. Again the plaintiffs hold Mr Cousins responsible while Mr Cousins maintains that there were obstacles preventing settlement including the Moirs insistence that there be a breach remedy clause and the Heslops refusal to accept such a clause. Thus Mr Cousins strenuously denies that his actions were causative of any harm suffered by the plaintiffs.
[27] When settlement was not effected on 5 March 2001 the bank had had enough and cancelled its agreement with the Heslops. This meant, of course, that the Heslops were no longer able to provide a release of the bank’s mortgage over the Devondale property. Although the Moirs had resisted earlier overtures from the bank, they finally accepted that it was not going to be possible to settle the Moir agreement and cancelled on 28
March 2001.
[28] BNZ exercised its power of sale and sold the Devondale property to Latimer Holdings Limited for $790,000. Because the agreement that had been reached between the Heslops and the bank on 22 December 2000 no longer applied, the amount paid to the bank following the mortgagee’s sale was $111,998 more than would have been the case if the agreement had still been in place.
[29] In the meantime Mr Heslop’s debtors’ proposal had been approved by this Court. But in April 2001 one of Mr Heslop’s creditors made application to the Court to cancel the approval on the basis that the orchard lot would no longer be available to the creditors. Later that month Mr Heslop suffered a heart attack and underwent major surgery. On 5 July 2001 this Court cancelled its earlier approval of Mr Heslop’s debtors’ proposal and adjudicated him bankrupt.
[30] In November 2001 Latimer Holdings Limited obtained a resource consent from the Council which enabled the lifestyle lot to be split off from the orchard lot, subject to several covenants. Latimer Holdings Limited then sold the lifestyle lot to the Moirs, with a new certificate of title issuing to them in early 2002.
[31] Upon bankruptcy Mr Heslop’s unsecured creditors amounted to $599,787. There were no secured creditors because BNZ had recovered its debt as a result of the mortgagee’s sale of the Devondale property. Ultimately in 2004 a dividend of
5.955 cents in the dollar ($35,717) was paid to creditors. Thus unsecured creditors were out of pocket to the extent of $564,070.
[32] During the administration of the estate there were ongoing discussions between the Official Assignee’s office, Mr Heslop, and the trustees of the trust, about the possibility of a claim against Mr Cousins and BNZ. On 2 February 2004 the Official Assignee accepted that any claim against Mr Cousins arising from the loss of the option would belong to the trustees.
[33] Mr Heslop was discharged from bankruptcy on 5 July 2004. On 13 December 2005 the Official Assignee assigned to Mr Heslop any causes of action against Mr Cousins and BNZ that might have vested in the Official Assignee by virtue of Mr Heslop’s bankruptcy.
[34] A letter of demand was sent by the plaintiffs’ former counsel to Mr Cousins on 7
March 2005. This proceeding was issued on 15 December 2005.
Pleadings
[35] The amended statement of claim against Mr Cousins and BNZ contains 139 paragraphs. Of those 121 paragraphs relate to the claim against Mr Cousins.
First Cause Of Action – Breach Of Contract Of Retainer
[36] Paragraph 90 alleges that at all material times Mr Cousins was retained by the plaintiffs to: negotiate the settlement of issues with BNZ so that the mortgage over the Devondale land could be discharged; undertake the work necessary to complete settlement of the Moir agreement; undertake the work necessary to complete settlement of the BNZ agreement; and act for the trustees upon preparation of the mortgage and other documentation required to secure the option for the trust. Those allegations are admitted.
[37] It is alleged that the defendant breached the contract of retainer in the following
ways:
“93. In breach of the express and implied terms of the retainer Mr Cousins:
(a) Insisted on the payment of outstanding fees in the absence of completion of settlement of the BNZ deed of settlement.
(b) Wrongfully claimed a lien over the trust account funds; and
(c) Refused to apply the funds advanced by Warwick Heslop and held by Mr Cousins in his trust account for the specific purpose for which they were lodged in his trust account – namely to facilitate settlement with the BNZ.
94. In breach of the implied term of the retainer:
(a) Mr Cousins failed to settle the Moir agreement notwithstanding that Mr and Mrs Heslop and the Moir Family Trust were both ready to settle and failed to complete matters required to settle with the BNZ.
(b) Mr Cousins failed to act with sufficient diligence and speed to complete matters necessary to effect settlement of the Moir agreement and the BNZ deed of settlement.
(c) Mr Cousins failed to charge a reasonable fee for the work done.
(d) Contrary to instructions from Mr and Mrs Heslop and the trustees, Mr Cousins refused to settle the Moir agreement unless paid contemporaneously with settlement of the Moir and BNZ agreement, and
(e) Without instructions from Mr and Mrs Heslop and the trustees, Mr Cousins sent the letters of 7 February 2001 and 9 February 2001 pleaded at paragraphs 49 and 57 above to the BNZ thus breaching his obligations of confidentiality.
(f) Mr Cousins insisted on payment of fees prior to settlement.
(g) Mr Cousins purported to terminate the contract of retainer on the basis his fees were not paid without giving the first and second plaintiffs reasonable notice of his intention to do so.
(h) Mr Cousins wrongfully claimed a lien over funds held by him on trust for the purpose of settlement with BNZ, and refused to release those funds when instructed to do so by the Heslops and the
trustees.
(i) Mr Cousins provided to the plaintiffs negligent advice in respect of allowing the Moirs into possession prior to settlement without appropriate undertakings and protection.
(j) By wrongfully claiming a lien, and by the letter of 9 February 2001 pleaded at paragraph 57 above, Mr Cousins put his own interests ahead of those of Mr and Mrs Heslop and the
trustees.”
All of these allegations are denied by the defendant.
Second Cause Of Action - Negligence
[38] It is alleged in paragraph 100 of the amended statement of claim that Mr
Cousins owed the plaintiffs duties of care to:
“(a)Exercise the care and skill to be expected of a reasonably competent solicitor in advising the plaintiffs and completing the work necessary to settle the Moir agreement and settlement of the BNZ agreement.
(b) Charge a reasonable fee for work done.
(c) Properly follow the instructions of Mr and Mrs Heslop and the trustees. (d) Accept payment of his fees within a reasonable time.
(e) Not terminate the retainer without first giving reasonable notice. (f) Not wrongfully claim a lien over funds held by him on trust.
(g) Not breach obligations of confidentiality.
(h) Act upon the instructions of Mr and Mrs Heslop and the trustees.
(i) Not act without reference to or instructions from Mr and Mrs Heslop and the trustees. (j) Not place his own interests above those of his clients.
(k) Advise about important matters that came to his attention.
(l) Warn Mr and Mrs Heslop and the trustees about risks that the client may not appreciate but which had come to his notice.
With the exception of the allegation that there was a duty of care to accept payment of fees within a reasonable time ((d) above), these duties are admitted.
[39] The plaintiffs allege that the defendant breached his duties of care. These allegations are contained in paragraph 102:
“102. Mr Cousins breached the duties of care pleaded in paragraph 100 above.
Particulars
(a) Mr Cousins failed to settle the Moir agreement notwithstanding that Mr and Mrs Heslop and the Moir Family Trust were both ready to settle and failed to complete matters required to settle with the BNZ.
(b) Mr Cousins failed to act with sufficient diligence and speed to complete matters necessary to effect settlement of the Moir agreement and the BNZ deed of settlement.
(c) Mr Cousins failed to charge a reasonable fee for the work done.
(d) Contrary to instructions from Mr and Mrs Heslop and the trustees, Mr Cousins refused to settle the Moir agreement unless paid contemporaneously with settlement of the Moir and BNZ agreements.
(e) Without instructions from Mr and Mrs Heslop and the trustees, Mr Cousins sent the letters of 7 February 2001 and 9 February 2001 pleaded at paragraphs 49 and 57 above to the BNZ and thus breached his obligations of confidentiality.
(f) Mr Cousins insisted on payment of fees prior to settlement.
(g) Mr Cousins purported to terminate the contract of retainer/refused to act on the instructions of Mr and Mrs Heslop and the trustees without giving reasonable notice.
(h) Between 16 February 2001 and 26 February 2001, Mr Cousins wrongfully claimed a lien over funds held by him on trust for the purpose of settlement with BNZ, and refused to pay out those funds when instructed to do so by the Heslops and the trustees.
(i) Mr Cousins provided to the plaintiffs negligent advice in respect of allowing the Moirs
into possession prior to settlement without appropriate undertakings and protection.
(j) By wrongfully claiming a lien, and by the letter of 9 February 2001 pleaded at paragraph 57 above, Mr Cousins put his own interests ahead of those of Mr and Mrs Heslop and the trustees.”
All of these allegations are denied by the defendant.
Third Cause Of Action – Breach Of Fiduciary Duty
[40] At paragraph 107 of the amended statement of claim the plaintiffs allege that the relationship between the plaintiffs and the defendant was one of trust and confidence giving rise to fiduciary obligations on the part of Mr Cousins. The defendant admits that fiduciary obligations were owed.
[41] It is pleaded by the plaintiffs that the defendant breached his fiduciary duties in the following respects:
“109 …
(a) refused to settle the Moir agreement unless paid contemporaneously with settlement of the Moir agreement and the BNZ deed of settlement.
(b) refused to release funds held on trust for the purpose of settlement with BNZ and wrongfully claimed a lien over those funds.
(c) failed to complete matters required to settle with the Moirs and BNZ.
(d) failed to inform the Heslops and the trust that it was his intention to forward to the BNZ the letter pleaded at paragraph 57 above requesting further indulgence from the BNZ to enable payment of his fees.
(e) acted without instructions in forwarding to the BNZ the letter pleaded at paragraph 57 above and requesting further indulgence from the BNZ to enable payment of his fees.”
All of these allegations are denied by the defendant.
Fourth Cause Of Action – Breach Of Trust
[42] To a large extent the allegations of breach of trust duplicate the allegations of breach of fiduciary duty. The essence of the breach of trust allegations is contained in the following paragraphs:
“114.Mr Cousins, as trustee of the trust account funds, was under an obligation to administer the funds in accordance with instructions from Mr and Mrs Heslop and the trustees.
1 The clear instructions from Mr and Mrs Heslop and the trustees were that the trust account funds were to be applied for the purposes of completing settlement of the BNZ deed of settlement and for no
other purpose.
2 There was no authorisation from Mr and Mrs Heslop for Mr Cousins to use the trust account funds for any purpose other than completing settlement of the BNZ deed of settlement.
3 By letter dated 16 February 2001, Mr and Mrs Heslop and the trustees, through Geoff Saunders, instructed Mr Cousins to release the trust account funds for the express purpose of facilitating the
completion of settlement of the BNZ agreement.
118. By letter dated 19 February 2001, Mr Cousins refused to release the trust account funds indicating that he was:
“retaining by way of set-off the amount of my outstanding fees from the funds”.
4 Mr Cousins’ failure to release the trust account funds for the purposes for which they were lodged with him was a breach of trust (“the breach of trust”).
The defendant denies that there was a breach of trust in any of the respects alleged.
Damages
[43] During his opening Mr Parker signalled that it would probably be necessary for him to amend some of the amounts claimed by the plaintiffs. A formal application to amend was made during his closing address. I am satisfied that the defendant will not be prejudiced by the amendments sought by counsel for the plaintiffs and Mr Forbes QC did not seek to argue to the contrary. The amounts claimed are amended accordingly. Paragraph [2] of this judgment sets out the amounts claimed following amendment.
Notice To Admit Facts
[44] A notice to admit facts was filed and served by the plaintiffs. That notice and the defendant’s response are before the Court. It is unnecessary to traverse those matters. Naturally they have been taken into account in arriving at the conclusions contained in this judgment.
Outline Of The Plaintiffs’ Evidence
[45] Twenty-four witnesses presented evidence on behalf of the plaintiffs (the briefs of some witnesses were accepted into evidence by consent without the witness appearing). In many cases the witnesses supplemented their evidence by reference to the agreed bundle of documents and other exhibits which ran into several thousand pages. The following is only intended to provide the briefest of outlines because more detailed discussion of the evidence will appear later in this judgment with reference to particular issues.
The Plaintiffs
[46] Roger Heslop gave very extensive evidence. His first brief ran to 447 paragraphs. In addition he provided a supplementary brief as well as a brief in reply to the defendant’s evidence. He was extensively cross-examined.
[47] After providing information about his background, Mr Heslop gave detailed evidence on numerous topics: the purchase of the Devondale property; investigations regarding rezoning; factors underlying his financial problems; his financial situation when the decision was made to sell the Devondale property; the Moir agreement; issues surrounding the release of the BNZ mortgage and subsequent developments; events giving rise to the proposal under the Insolvency Act and subsequent developments in relation to that proposal; engagement of Mr Cousins; events surrounding the Moirs taking possession on 26 January 2001; the bank’s requirement for settlement on 8
February 2001 and events surrounding the failure to settle on that date or on later dates; cancellation by the bank and the Moir trust; cancellation of the debtors’ proposal under the Insolvency Act; bankruptcy and subsequent events; settlement of the claim with BNZ; and health and other issues.
[48] Apart from having been associated with her husband’s building business for more than 25 years, Jennifer Heslop is also a trustee of the Roger Heslop Family Trust. Her
evidence covered the purchase of the Devondale property and subsequent events during
2000 and 2001. She also traversed events following Mr Heslop’s bankruptcy and the impact of those events on her husband, herself and their family. After the defendant’s evidence had been presented Mrs Heslop was recalled to respond to the defendant’s allegation that funds in her savings account could have been used to pay Mr Cousins’ account on 8 February 2001.
[49] Lindsay Smith is Mrs Heslop’s brother and a trustee of the Roger Heslop Family Trust. His evidence traversed the temporary loan of $11,000, subsequent instructions to Mr Cousins about those funds, and the reasons why the trust was not in a position to issue proceedings until December 2005.
Others Involved With The Moir Agreement
[50] Warwick Heslop’s brief related to his loan to Mr and Mrs Heslop which he said was to be used for the purpose of settlement with the BNZ. His brief was accepted into evidence.
[51] Benjamin Moir appeared under subpoena. His evidence covered events from the signing of the agreement, discussions about possession, his attitude towards various issues including the breach remedy clause, and events leading to the ultimate cancellation of the Moir agreement.
[52] Stephen Rennie, a litigation partner in Rhodes & Co, also appeared under subpoena. He was instructed by the Moirs after they had become concerned about the progress of the Moir agreement in November 2000. Mr Rennie was assisted by Mr Schmidt, a conveyancing staff solicitor in his firm. Mr Rennie traversed his involvement in the transaction, particularly with reference to the correspondence. He produced and explained two file notes (exhibits 4 and 5) arising from telephone discussions between himself and Mr Cousins and confirmed that no undertakings were provided when his clients took possession on 26 January 2001.
[53] Stephen Bensberg is employed by the Christchurch City Council. Because his evidence relating to the withdrawal of the Council’s caveat was not contentious his brief was admitted by consent.
[54] Initially Markham Lee, a solicitor, was involved in this matter in his capacity as a director of Sky Hi Roofing (Christchurch) Limited, one of Mr Heslop’s creditors. Subsequently he acted for Mr Heslop in relation to the bankruptcy proceedings and later (after Mr Cousins said that he was not prepared to undertake any further work unless his fees were paid) Mr Lee acted for the Heslops in relation to their issues with Mr Cousins. Mr Lee discussed Mr Heslop’s proposal under the Insolvency Act, exchanges with Mr Cousins about the release of funds held in Mr Cousins’ trust account, and his dealings with the Official Assignee.
[55] Richard Smith, a partner in Duncan Cotterill, acted for the BNZ in relation to the Heslops’ indebtedness to the bank. His evidence covered the history of the matter, particularly with reference to correspondence between his firm and others involved in the transaction.
Evidence From Creditors
[56] Reference has already been made to Mr Lee, a director of one of the creditors, who gave evidence in that capacity (as well as his capacity as a solicitor). Evidence was also given on behalf of other creditors by Kenneth Jones of Placemakers, Christopher Miller of Precut Construction Limited, John Morris of Anthony Shearer Limited, and Lyall Simpson of Steel & Tube Roofing Products. In terms of value these companies comprised a large proportion of the creditors.
[57] All of these witnesses were supportive of Mr Heslop and the companies they represented had supported the debtor’s proposal. They considered that Mr Heslop was open and honest and that he had kept creditors informed. Although they were unaware at the time of the debtors’ meeting of some matters concerning Mr Heslop that emerged as a result of this litigation, they all confirmed that knowledge of those matters would not have made any difference to the way in which they voted at the creditors’ meeting.
[58] Dr William Olds is a friend of Mr Heslop. Some months before the debtor’s proposal he lent Mr Heslop a substantial sum of money. He considered that Mr Heslop was open about his financial problems and remained supportive of him. Dr Olds also made brief reference to depression suffered by Mr Heslop.
Health Aspects
[59] Dr Bridget Williams, a general practitioner, provided Mr Heslop with medical attention from May 2000. Her clinical notes are included in the agreed bundle. Dr Williams referred to the stress and low mood suffered by Mr Heslop at end of May 2000, his heart attack, and his referral to hospital. She also made brief reference to subsequent events.
[60] Dr Harvey Williams, psychiatrist, first saw Mr Heslop in September 2000 when Mr Heslop was referred for an insurance income protection assessment. The psychiatrist said that his diagnosis was that Mr Heslop was suffering from a major depressive disorder. Thereafter he saw Mr Heslop regularly until he suffered a heart attack. Dr Williams said that he did not see Mr Heslop again until after he had been adjudicated bankrupt.
[61] Mrs Heslop has been a patient of Dr Andrew Manning’s practice since 1995. Dr Manning said that he was consulted by Mrs Heslop in June 2000 in relation to stress and again in June 2002 and more recently about stress related concerns. Dr Manning referred her to John Dugdale, a clinical psychologist.
[62] John Dugdale gave evidence about his treatment of Mrs Heslop between August
2002 and December 2002. His evidence was that Mrs Heslop made good use of therapy.
Bankruptcy
[63] David Parke is a senior insolvency officer in the Official Assignee’s office. He personally conducted the administration of Mr Heslop’s bankruptcy from April 2003. With reference to the Official Assignee’s records before he became involved, and from his own knowledge thereafter, Mr Park traversed the administration of Mr Heslop’s estate through to discharge. He also discussed the Official Assignee’s investigation of possible claims against Mr Cousins and the BNZ.
Expert Evidence
[64] Gregory Dewe is a resource management planner with Connell Wagner Limited. Currently he is providing expert advice to one of the parties involved in the Apple Fields Limited application for 93 hectares (which includes the orchard lots within the Devondale estate) to be rezoned for urban purposes. His evidence covered the history of
the AFL application and the likelihood of rezoning.
[65] Alan Stewart is a registered valuer. During 2000 he provided valuation reports for the Heslops and BNZ (see [8] above). As a result of this litigation he has carried out further valuations which will be discussed in detail later.
[66] Roger Taylor is a chartered accountant and economist. Using a different method to Mr Stewart he arrived at values which are reasonably close to those arrived at by Mr Stewart. Mr Taylor’s evidence will also be discussed in greater detail later. In addition, Mr Taylor gave evidence about Mr Heslop’s ability to meet the obligations proposed in his debtor’s proposal.
[67] Two very experienced solicitors also gave expert evidence: John Greenwood and
Terence Nowland.
[68] John Greenwood discussed the practice of solicitors with reference to fees, the circumstances where they can refuse to act for non-payment, their ability to obtain a lien, steps that should be taken when possession is granted to a purchaser without settlement, and various issues concerning the option and mortgage. He also gave his opinion about what Mr Cousins should have done in this case.
[69] Terence Nowland addressed situations where it would be appropriate to refuse to settle a transaction because fees remain unpaid, when a lien can be asserted, drafting of the mortgage document in this case, and the advice and action that could be expected in situations where a purchaser takes possession prior to payment of the purchase price.
Outline Of Defendant’s Evidence
[70] Again this is only a very brief outline and more detailed discussion will appear later in this judgment with reference to specific issues. Mr Cousins and seven other witnesses gave evidence for the defendant and, like many of the plaintiffs’ witnesses, they made extensive reference to the agreed bundle and other exhibits.
The Defendant
[71] Clive Cousins’ brief ran to 315 paragraphs. He also gave supplementary evidence and was cross-examined at length.
[72] The topics traversed by Mr Cousins can be summarised: his fields of practice and experience; his retainer by the Heslop entities; the Moir agreement; actions that he took to implement settlement with the Moirs and the BNZ; obstacles standing in the way of settlement at various stages; and notification of claims against him. He also provided a detailed response to the evidence of Mr and Mrs Heslop and other witnesses for the
plaintiffs.
Messrs Bailey and Still
[73] Wayne Bailey, chartered accountant, gave evidence about his initial involvement with the Heslops in connection with the bankruptcy petition, his recommendation to refer the Heslops to Mr Cousins, the debtor’s proposal (in respect of which he was to be trustee for the creditors), the meeting on 18 December 2000, and matters concerning the issue of his and Mr Cousins’ fees.
[74] Gary Still is a former employee of Mr Heslop and also a creditor. He described Mr Heslop as a poor, slow and inconsistent payer of accounts. Mr Still was critical of the way Mr Heslop conducted his business and believed that Mr Heslop had downplayed the severity of his financial problems. He also discussed the creditors meeting at which Mr Heslop’s proposal under the Insolvency Act was considered by creditors.
Expert Evidence
[75] Between 1991 and 2002 Robert Nixon, a resource management planner, was team leader of a Christchurch City Council team preparing a new district plan for Christchurch. Since that time he has been a planning consultant with Planit-R W Batty
& Associates Limited. Mr Nixon traversed the AFL rezoning proposals and expressed views as to the likelihood of ultimate rezoning.
[76] John Hardie, a barrister, represented the Christchurch City Council in relation to the AFL rezoning proposals. On 21 December 2000 he swore an affidavit in connection with Mr Heslop’s debtors’ proposal. Amongst other things the affidavit addressed the prospects of the land covered by the AFL proposals being rezoned for urban purposes. In his evidence Mr Hardie updated developments since his affidavit was sworn and discussed the current prospects of the land being rezoned.
[77] Christopher Barraclough is registered valuer. He carried out valuations of the
orchard lot at three various points in time (time of alleged breach, time by which the defendant maintained proceedings should have been issued, and September 2006). These valuations will be discussed in greater detail later.
[78] Robert Eades, a very experienced solicitor, gave expert evidence from a legal perspective. He analysed the various phases of the Moir sale and discussed the practices that might have been expected in relation to fees, liens, possession, and various other matters. Generally his evidence was supportive of Mr Cousins.
Some Observations About The Evidence Of Key Witnesses
[79] For the purposes of these observations I regard Mr and Mrs Heslop and Mr Cousins as the key witnesses. Given that there are significant conflicts between the evidence of the Heslops, on the one hand, and the evidence of Mr Cousins, on the other, their credibility as witnesses is one of the factors that I will have to take into account.
[80] Naturally I accept that it is difficult for any witness to accurately recall events that occurred several years previously. Some errors in recollection are to be expected. I also accept that with the benefit of hindsight some matters may appear much more straightforward than was actually the case at the time. However, despite those complications I cannot avoid resolving a number of significant conflicts of evidence in this case. When undertaking that task I will, wherever possible, endeavour to test the conflicting evidence against the documentary record and against the evidence of other witnesses.
Mr Heslop
[81] Mr Heslop was in the witness box for around three days. For much of that time he was subjected to a searching cross-examination by Mr Forbes. Thus I had a good deal of time to form an overall impression of him as a witness.
[82] Despite the searching cross-examination, it was rare for Mr Heslop to be forced into a position where he was obliged to recant. This probably reflects that significant parts of his evidence in chief were derived from a case history he had prepared from notes that he had taken at the time the events had occurred in 2000 and 2001. He collated those notes on his computer. This computer record, which covers the period from 3 November 2000 to 18 August 2002, runs into 88 pages.
[83] Under cross-examination Mr Heslop was challenged about his notes and the computer record. The suggestion seemed to be that the notes/computer record had not been compiled at the times alleged and that at least to some extent they had been concocted. During the trial I was called upon to address issues arising from a defence request for Mr Heslop’s hard drive to be examined by a computer expert appointed by the defendant. Indications were that the expert might be called to give evidence on behalf of the defendant. That did not eventuate. In the end I was not left with any concerns about the accuracy of Mr Heslop’s notes, which are before the Court. I accept his evidence about the method and timing of their compilation.
[84] Overall I found Mr Heslop to be a reasonably straightforward and reliable witness. That does not mean, of course, that I accept all of his evidence. For example, I do not accept that he was told by Mr Cousins on 18 December 2000 that there was no need for him to worry about paying the fees. Nor do I accept his assertion that he had not given instructions to Mr Lee about delaying settlement until the debtors’ proposal had been approved by this Court. Both those matters will be mentioned again later.
Mrs Heslop
[85] Although Mrs Heslop was only in the witness box for about one day in November
2006 and for a much shorter time when she was recalled in January 2007, she was nevertheless skilfully cross-examined and I was able to gain some impressions about her as a witness. I was not conscious of any significant retreats from her evidence in chief and she generally impressed me as a sincere and reliable witness.
Mr Cousins
[86] Mr Cousins was in the witness box for around the same time as Mr Heslop and was also subjected to searching cross-examination. Again I had a good opportunity to assess him as a witness.
[87] I did not find Mr Cousins to be as impressive as Mr and Mrs Heslop. On occasions he was forced to retreat from his brief. Two examples will suffice. In his brief he said: “I have checked and I was in Auckland on clients’ business” on 26 and 27 February
2001. However, by the time he gave evidence Mr Cousins accepted that his brief was incorrect and that he was in fact in Christchurch on those days. The second example
involves the breach remedy clause which is of particular importance in the context of causation. Mr Cousins’ initial stance was that this clause was a live issue and a barrier to settlement on 8 February 2001. But under cross-examination he expressly accepted that it was not being put forward as an issue as at 8 February and that if it had been an issue it would have been referred to in the correspondence. Later, however, he returned to his original stance that it was a live issue, yet denied that he had changed his evidence despite the fact that this was patently the case.
[88] There was also another contrast with Mr Heslop. Whereas Mr Heslop had kept meticulous notes, Mr Cousins’ file, which is before the Court, contains very few notes about meetings or telephone calls. While in some cases those meetings and telephone calls are covered by subsequent correspondence or documentation, that is often not the case. Had file notes existed Mr Cousins would have been able to refresh his memory
from them rather than attempting to rely on his memory several years later.
PART II
Introduction
LIABILITY
[89] Issues involving liability will be addressed in chronological sequence. I will begin by considering the issue of possession following which I will consider the fees issue, the mortgage, failure to release funds and, finally, any remaining issues arising during the period from 8 February 2001 to cancellation. However, before considering those issues I need to briefly traverse three background matters: the Moir agreement, the retainer, and the standard of care required of Mr Cousins.
The Moir Agreement
[90] The Moir agreement has already been outlined at [9]. This litigation focuses on the provision granting the vendors (Heslops) or their nominee an option to repurchase the orchard lot for $1, such option to be secured by a second mortgage.
[91] After specifying the purchase price of $600,001 and providing for a deposit of
$60,000 to be paid, the agreement makes provision for the payment of the balance of the purchase price. This is to be by way of a payment of $540,000 and by the purchaser executing a second mortgage in terms of clause 17. That clause provides:
“17.0 SECOND MORTGAGE
The second mortgage from the Purchaser to the Vendor shall secure the sum of $1-00 (One dollar) repayable on demand at any time and with nil interest. The provision of subclause 8.3 shall apply to the mortgagor as if it were arranged pursuant to a financial condition. Such mortgage will be prepared by the Vendor’s solicitor at the Vendor’s expense and shall be in the standard form published by the Auckland District Law Society. The Purchaser shall have the right to renew or extend the first mortgage or to arrange a new first mortgage provided that the total of the first mortgage and second mortgage shall not exceed 70.00% of the purchase price or registered valuation of the property (The house lot only), by a registered valuer approved by the vendor, whichever is the lesser. The following shall be incorporated within the second mortgage :
17.1 The purchaser accepts that the purchase price is the agreed value of the following lots: comprising part of the land in Certificate of Title 30F/277 (Canterbury Registry), (the house lot)
2
(a) 5639 m Lot 23 DP 51887
th
(b) an undivided 1/12 share in 2.5611 hectares being part Lot 20 DP 51346 (but excluding
the hatched area shown on the attached diagram)
th
(c) an undivided 1/12
2
share in 1544 m being Lot 33 DP 51887 (the house lot)
17.2 The purchase price excludes the value of (The orchard lot):
th
(a) an undivided 1/12
2
share in 4985 m being lot 13 DP 51346
(b) 4.4290 hectares being Lot 3 DP 51346
th
(c) an undivided 1/12
only) (the orchard lot)
share in 2.5611 hectares being part Lot DP 51346 (the hatched area
17.3 In consideration of the vendor accepting the purchaser’s offer and executing this agreement, the purchaser grants to the vendor or their nominee an option to purchase the orchard lot upon the following terms: (a)
the option will be exercised when the vendor demands repayment of the second mortgage
(b) the purchase price shall be $1.00 (c) pending the exercise by the vendor or their nominee of the option, the purchaser shall: (i) sign any documents required by the vendor to apply for a resource consent and obtain a separate title(s) for the orchard lot and
(d) pending the exercise of the option by the vendor or their nominee the vendor shall:
(i) pay the rates for the orchard lot recorded in the Christchurch City Council’s records as
68a Johns Road, Christchurch and;
(ii) maintain the orchard lot and may use it or let it for grazing or other agricultural, horticultural or viticultural purposes
(e) When the vendor or their nominee has exercised the option to purchase the orchard lot the purchaser is to be given the first option to purchase it at current market value should the vendor decide
to offer it for sale.
17.4 In the event of the purchaser transferring or ceasing to be the registered proprietor of the land in Certificate of Title 30F/277 the purchaser will obtain the agreement of the transferee to the continued existence of the vendor’s option to purchase and second mortgage and will hand the vendors a deed of covenant in a form approved of by the vendor’s solicitor providing for such option and second mortgage and binding that transferee and covenanting to obtain similar agreements and deeds of covenant for all subsequent transferees.”
Although there are other special conditions, they are of no immediate relevance. In other respects the agreement contains standard provisions.
The Retainer
[92] It is common ground that the first meeting between the parties was at Mr Cousins’
office on 24 November 2000 and that at that stage Mr Cousins was only instructed to negotiate with BNZ with a view to obtaining a release of the bank’s mortgage. Mr Taylor was still acting for the Heslops on the conveyancing.
[93] There is a conflict of evidence about whether fees were discussed at the first meeting. According to Mr and Mrs Heslop there was no discussion on that topic. On the other hand, Mr Cousins maintains that he raised the issue of fees by telling the Heslops that he was unable to give any estimates, his hourly rate was $220 plus GST and that he would invoice them monthly. His notes of that meeting do not make any reference to fees, but I do not think that that is of particular significance because it is not the sort of matter that one would expect to be recorded.
[94] Given that one of the critical issues in this litigation is whether Mr Cousins told the Heslops that he would require payment of all his accounts that had been rendered before he would settle, the conflict of evidence referred to in the previous paragraph is of little moment and does not need to be resolved. The important point is that there is absolutely no suggestion that Mr Cousins told the Heslops at the first meeting that he would require immediate payment of invoices. Nor was there any promise by the Heslops to do so.
[95] It became common ground that Mr Cousins’ retainer was expanded to include the Moir agreement conveyancing on 22 December 2000 because the Heslops and Mr Cousins believed that it would make sense for Mr Cousins to handle that aspect as well as the negotiations with BNZ. By that time Mr Cousins had rendered one invoice for
$1,411 which remained unpaid. There is no suggestion that there was any mention of this unpaid account when the retainer was expanded.
[96] During cross-examination Mr Parker put it to Mr Cousins that Mr Cousins had not any stage verbally indicated to Mr Heslop that full payment of his fees would be required before he would settle. Mr Cousins’ response was that there had in fact been discussions aimed at making arrangements for the payment of outstanding accounts and that those discussions had been in late January or early February. This evidence came out of the blue. Up to that time there had been no suggestion in Mr Cousins evidence that any such discussions had taken place. Moreover, this proposition had not been put to Mr Heslop when he was cross-examined by Mr Forbes and there is no reference to such discussions in the correspondence or in any other documentary evidence.
[97] I do not accept Mr Cousins’ evidence. If there had been any such discussions it might be expected that they would have been included in Mr Cousins’ brief, especially given that he is a solicitor and would have recognised the significance of such discussions. It might also be expected that his contention would have been put to Mr Heslop when he was cross-examined. I therefore find that the retainer did not include any term (express or implied) requiring outstanding fees to be paid prior to settlement on
8 February 2001.
[98] One further matter needs to be mentioned. In his evidence Mr Heslop claimed that after the meeting with BNZ representatives on 18 December 2000 Mr Bailey told him, in the presence of Mr Cousins, to forget about their fees in the meantime and that if settlement with BNZ was not completed no one would be paid. He claims that Mr Cousins agreed with Mr Bailey.
[99] In his evidence in chief Mr Bailey said that neither Mr Cousins nor himself said anything to the effect that their fees did not need to be paid before settlement of the Moir agreement. However, under cross-examination he acknowledged that he might have said something to the effect that there was no need to worry about paying fees right now. He also agreed that it would have been in his nature to say that the issue of fees could be worked out later. For his part Mr Cousins was adamant that nothing was said about his fees being “forgotten about” in the meantime or that they did not need to be paid before settlement of the Moir transaction.
[100] Given Mr Cousins’ attitude towards fees, as reflected by later events and also by his evidence from the witness box, I do not think for a moment that he would have agreed to leave his fees outstanding until after settlement. Even if Mr Bailey said something that could have been construed as an indication that his fees could be left in the meantime and Mr Heslop took that indication as also applying to Mr Cousins’ fees, it could not bind Mr Cousins unless Mr Cousins agreed. I accept that he did not agree.
The Required Standard Of Care
[101] There is no dispute about the required standard of care. Mr Cousins was obliged to exercise the care and skill required of a reasonably competent solicitor. However, as Mr Forbes and Ms Barclay pointed out, that is not a guarantee against all mistakes or
omissions. A solicitor is not guilty of negligence because he has committed an error of
judgment, unless that error is gross, and peer professional opinion will be relevant in this
rd
regard: see Dal Pont, Lawyers’ Professional Responsibility (3
edition, 2006) at 5.95.
[102] I also accept that lawyers are often faced with finely balanced problems and the fact that a decision turns out to be wrong does not necessarily mean that there has been a failure to exercise the required standard of care. The standard of care expected of a professional who works in an environment where judgment calls have to be made within time constraints and under difficult circumstances must not be set at a level that is unrealistic and must be assessed in context: Chamberlains v Lai [2006] NZSC 70 (SC) per Elias CJ at [77] and [78]. Moreover, the actions of the lawyer should not be judged with the benefit of hindsight.
[103] Part of the context of this case is that Mr Cousins inherited an agreement for sale and purchase that had been entered into by the Heslops while another solicitor was acting for them. That agreement included provision for an option to purchase back the orchard lot and an associated second mortgage to secure that option. Moreover, when Mr Cousins inherited the agreement he was, as Mr Eades noted, faced with a mortgagee (BNZ) in a strong position and purchasers who were also anxious to preserve their negotiating position. As Mr Eades said, Mr Cousins was negotiating, if not from a position of weakness, at least from a position that was not particularly strong. However, by the time Mr Cousins took over the conveyancing role from Mr Taylor agreement had been, or was
about to be, reached with BNZ.
[104] With the benefit of the foregoing I now turn to the alleged breaches.
The Possession Issue
[105] The most contentious aspect of the possession issue is the Heslops’ allegation that Mr Cousins knew the Moirs were going to take possession on 26 January 2001 (without completing settlement) because that possibility had been discussed with him the previous day. On this matter the Heslops and Mr Cousins are diametrically opposed. Determination of this conflict will go a long way towards resolving the possession issue one way or other.
First Plaintiffs’ Evidence
[106] Mr Heslop claims that he and Mrs Heslop discussed the issue of possession with Mr Cousins in Mr Cousins’ office on 25 January 2001. It is important to place his evidence about that meeting in the context of earlier events, as described by Mr Heslop.
[107] In summary Mr Heslop’s version of events was: he and Mrs Heslop vacated the Devondale property on 19 January and spent the next couple of days cleaning up; initially they believed that it would be possible to settle on 22 January; however, by that date they were aware, as was Mr Cousins, that it would be impossible to settle on that date because Warwick Heslop could only come up with $79,000 and the balance required to make up the $90,000 would not come through until the first week in February; consequently $11,000 had to be found elsewhere; apart from that they were still hunting for $8,909 to enable the rates to be paid; when they met with the Moirs on 23 January to show them how things worked the Moirs said that they would like to take possession on
26 January and Mr Heslop informed them that settlement could only take place once the balance of his brother’s funds were available; nevertheless they were willing to accommodate the Moirs provided it was prudent to do so; on 24 January Mr Heslop spoke to Mr Cousins by telephone and told him the Moirs wished to take possession on
26 January; Mr Cousins said they would need to meet the next day to sign the transfer
and BNZ settlement deed.
[108] Mr Heslop’s description of the meeting in Mr Cousins’ office at 11.30 am on
25 January 2001 was:
th
“… We once again told Mr Cousins that the Moirs wished to take possession on the 26 of
January 2001. I asked him would this be wise. I was well aware from previous property dealings that possession was nine-tenth’s of the law and that possession should not be given before payment. I was aware and told Mr Cousins that the $79,000 from my brother would not be credited to Mr Cousins’ account for probably one week due to delays in international transfers. Clive said everything had been put in place and that we should let the Moirs take possession as they have been messed around with enough, with settlement being delayed from 20 December
2000 and that they had to settle as per the sale and purchase agreement. The Moirs were not in possession at that time. Mr Cousins did not advise us of the need to obtain appropriate undertakings from the Moirs before letting them into possession prior to settlement. He said that it would show our good intentions to the Moirs and the bank to give possession.”
Although Mr Heslop was cross-examined about the issue of possession generally he was not specifically cross-examined about this meeting.
[109] In broad terms Mrs Heslop supported her husband’s evidence about events leading up to the meeting and about the meeting itself. With reference to the meeting on 25 January Mrs Heslop said:
“… I specifically remember the discussion with Mr Cousins about the Moirs’ desire to take possession of the property the next day. We asked Clive Cousins whether giving possession to the Moirs would be wise. We were very wary about letting the Moirs have possession before settlement. Handing over the property went against everything we had learned in business. Mr Cousins advised us that we could give the Moirs possession of the property before settlement. I remember him making comments to the effect that the Moirs had been mucked around enough with the delays in settling the matter and that by giving possession it would show our good intent to the bank and the Moirs which would be to our favour. I do not remember Mr Cousins ever giving us advice of the need for undertakings or measures to protect us when giving possession before settlement. On the advice of Mr Cousins we agreed to let the Moirs into possession of the property on 26 January 2001.”
Mrs Heslop was cross-examined at some length on this matter, but she did not resile from her evidence in chief.
Defendant’s Evidence
[110] Mr Cousins denies that the issue of possession was discussed with Mr Heslop by telephone on 24 January or at the meeting with Mr and Mrs Heslop on 25
January. He said:
“The same day Mr and Mrs Heslop signed the deed of settlement with the BNZ at my office. Nothing was said at this meeting about the Moirs being let into possession without settlement having taken place. I recall we discussed the granny flat, as well as the BNZ deed.”
According to Mr Cousins the first he knew about the Moirs taking possession was when he received a faxed letter from Rhodes & Co (the Moirs’ solicitors) on 26 January advising that their respective clients had agreed directly that the Moirs could take possession that day.
[111] It was Mr Cousins’ evidence that if he had been aware of the proposal for the Moirs to take possession he would have required specific undertakings from the Moirs and their solicitors. He said:
“These undertakings would have included an undertaking to settle in full without deduction. My invariable practice is to require this undertaking to be given by the purchaser’s solicitors, which means that they need to ensure that they are in funds for the purpose of fulfilling the undertaking. I do not advise clients to accept an undertaking from the purchasers, rather from their solicitors. If, as is usually the case, this involved funds advanced under a mortgage, then the solicitors need to draw down on the mortgage before giving the undertaking or be in a position where they could do so.”
He also detailed the other steps that he would have taken. He said that he has never advised a client to allow a purchaser to take possession without appropriate undertakings.
[112] Mr Cousins was extensively cross-examined about this topic. He said that from 23
January until he received Rhodes & Co faxed letter on 26 January he was proceeding in
the expectation that settlement would take place on 26 January and that it would have only been on that morning that a member of his staff (Ms Fleck) would have reported to him that Warwick Heslop’s funds had not arrived. He said that after becoming aware that the Moirs had taken possession he contacted both his clients and Rhodes & Co “and advised them of his reservations in relation to this” (possession without settlement). He also said that he attempted to extract undertakings from Rhodes & Co after the event, but without success.
The Documentary Record
[113] It is clear from the correspondence that the proposed settlement date of 22 January
2001 had to be abandoned for two reasons: first, because Warwick Heslop could only provide $79,000 with the balance required to make up the $90,000 not being available until the first week in February (recorded in an email to Mr Heslop on 17 January 2001); and, second, because there were rates arrears (recorded in Rhodes & Co’s letter to Mr Cousins of 19 January 2001). In his letter to Mr Heslop on 22 January Mr Cousins acknowledged that he was aware of these two problems.
[114] We know from the documentary record that while the $11,000 from Mr and Mrs
Smith was paid into Mr Cousins’ trust account on 24 January, Warwick Heslop’s
$79,000 did not arrive into the trust account until 30 January 2001. We also know that the rates arrears were not paid until 8 February 2001. Thus it was never going to be possible to settle on 26 January 2001. However, that does not necessarily mean that Mr Cousins did not genuinely believe right up to 26 January that settlement would be possible on that date. I will return to that matter.
[115] Two file notes on the file of the Moirs' solicitors, Rhodes & Co, are of particular significance. Both file notes were recorded by Mr Rennie. As I understand it, these file notes only came to light following belated third party discovery. Initially it appeared that privilege issues would be raised, but in the end the Moirs waived privilege (assuming that they were actually entitled to claim privilege).
[116] The first file note is dated 22 January 2001. After listing five matters requiring attention, which Mr Rennie described as a “batting list” of matters he needed to discuss with Mr Cousins, the file note records a telephone call to Mr
Cousins: “TO1.Cousins 22/01/01 3.40pm W.P.2 Difficulty - all funds needed to make up shortfall not available until 1st week in February (rates etc) - Heslop has shifted out - Hunting around trying to find rates shortfall - Granny Flat – caveat can lift provided agreement from M. - Suggest access for purpose until 1/4. - No $ to pay interest/costs.”
Mr Rennie said that his file note indicated to him that “I rang Mr Cousins at 3.40pm and
I have made notes of what Mr Cousins told me on a without prejudice basis. I
1 2
Mr Rennie said this means telephone call out.
Mr Rennie said this stood for without prejudice.
can’t think it can be anything else”. At the bottom of the file note a telephone call from one of Mr Rennie’s clients (he does not know whether it was Mr Moir, Mrs
Moir or Mr Moir’s brother) is recorded for the same date. It states “We are rolling
th
on 26 ”. This was interpreted by Mr Rennie as an indication that the Moirs were
moving into the Devondale property on 26 January.
[117] The other file note is undated. However, given the matters recorded in the file note it is likely that the telephone conversation covered by the file note took place on 23 January 2001. The file note records:
terms:
“TO Clive Cousins W.P.We will take possession on Friday on following
(1) WP to right to cancel.CCC officer isStephen Bensberg (2) Caveat position with CCC
4
sorted out.372-2466 -Suitable agr to Moir.
-H to have right of access to remove/regrassing upon 48 hours notification
--If not removed by 1/4/00 remove M’s property. -
No rent – entitled (3) Rent free: on a/c costs/interest.to possession -Either side 21 days to terminate possession.
Bank may not be (4) Options:happy if we take -Over orchard block only.possession - To be exercised by time certain or lapses.
-To be expressed as only securing the option.
3
Estimated Set (5) Rates:
Date:
st
= 1 week fromFeb.= Have to find$90K
TT Cousins Solved shortfall apart from rates.
Mr Rennie said that the top of the page indicated to him that he had had a without prejudice discussion with Mr Cousins, but he was not sure that the body of the note iterated (1) to (5) is a record of a discussion he actually had with Mr Cousins. He thought it was possible that those items were a “batting list” of things he wanted to
talk about. Leaving aside whether it was he or Mr Cousins who had stated the
3
Mr Rennie confirmed that this stood for settlement.
matters recorded in the left hand column under the arrow, Mr Rennie agreed that the file note indicated that the issue of possession had been discussed.
[118] These file notes tie in with events that had occurred and are corroborative of Mr Heslop’s detailed account of events which was, of course, prepared without any knowledge that the file notes existed. In the case of the first file note: Warwick Heslop had advised that the whole $90,000 would not be available until the first week in February; Mr and Mrs Heslop had shifted out on 19 January; the Heslops were hunting around trying to find the rates shortfall; and Mr Rennie had written to Mr Cousins on 17
January claiming interest for late settlement.
[119] Initially I wondered whether there was an incompatibility between the fact that Mr
th
Rennie’s note “we are rolling on 26 ” is dated 22 January whereas Mr Heslop said that
the discussion with the Moirs about possession took place the following day. However, having thought about the matter and having checked back to Mr Heslop’s original notes, it seems to be clear that it was the Moirs, not the Heslops, who decided that possession should be taken on 26 January. I infer that the Moirs decided on 22 January that they wanted to move on 26 January and told Mr Rennie, but did not tell Mr Heslop until the following day. So I am satisfied that there is no incompatibility between the file note taken by Mr Rennie and the evidence given by Mr Heslop.
[120] In the case of the second file note: Stephen Bensberg was the City Council officer handling the release of the caveat; reference to the estimated settlement date and having to find $90,000 is consistent with the fact that Warwick Heslop was not able to provide the full amount required to settle until the first week in February; and the reference at the bottom of the page to having solved the shortfall apart from the rates ties in with the fact that Mr and Mrs Smith had stepped into the breach and agreed to make a temporary advance of $11,000 until the balance of Warwick Heslop’s money came through.
[121] Several documents created on 25 January warrant mention. First, there is a letter
from Mr Schmidt (the staff solicitor working with Mr Rennie) to Mr Cousins
4
Mr Rennie confirmed that this meant agreement.
recording advice from Mr Cousins that he was meeting with his client (the Heslops) that day, which again confirms that there was a meeting on that date. Second, there is a letter from Ms Fleck (Mr Cousins’ legal executive) to the Council enclosing a withdrawal of caveat and recording that settlement “is to be completed tomorrow”. Third, a settlement statement dated 25 January had been prepared on the basis that
settlement would be effected on 26 January. Indications are, however, that it was not sent to the Moirs’ solicitors. I will return to that matter.
[122] The next document is a letter sent by fax from Rhodes & Co to Mr Cousins at
10.55am on 26 January 2001:
“We refer to recent discussions and correspondence. Apparently our respective clients have agreed directly that our clients can take possession of the property on Friday 26 January 2001 notwithstanding that settlement of the transaction will not be completed on that date.
Possession is on the basis that our clients do not pay any rental pending settlement. Our clients are entering possession without prejudice to their rights under the Agreement for Sale and Purchase.
In relation to other outstanding issues and with a view to achieving settlement of the transaction:
1 Our clients will not require withdrawal of the Christchurch City Council caveat prior to settlement but will require your clients to obtain the Council’s consent (in registerable form) to the transfer and mortgages.
2 Your clients shall have the right to enter upon the property for the sole purpose of removing the granny flat and your clients shall, at their cost in all matters, be required to make good any damage caused to the property from removal of the granny flat. Your clients are also required to sow a lawn once
the granny flat is removed as per the Agreement for Sale and Purchase.
3 If the granny flat has not been removed by 1 April 2001 (time being strictly of the essence), property in the granny flat passes to our clients as if it were a chattel situated on the property and included in the sale under the original Agreement for Sale and Purchase. Your clients’ rights to access to the property will of course terminate.
4 Upon removal of the granny flat by your clients, your clients will take all steps that may be necessary to enable the withdrawal of the Christchurch City Council caveat.
5 In relation to rates, our clients will be given a credit for the amount of rates arrears (and penalties) owing in respect of the entire property as at the actual date of settlement and our clients will
arrange payment of the same.
6 You need to prepare the second mortgage in terms of the Agreement for Sale and Purchase and let us have same for approval and execution.
7 The option granted by clause 17.3 of the Agreement for Sale and Purchase is amended such that if the option has not been exercised within a certain time (say two years) the option lapses.
8 If your clients default in observing the terms of the option (including payment of rates and maintenance) our clients may give fourteen (14) days written notice to your clients c/- your office requiring
the breach to be remedied. If the breach is not remedied in that time (time being strictly of the essence)
our clients may terminate that option.
9 We note that your clients are solely responsible for all subdivision costs and reserve contributions if they exercise the option to purchase the orchard lot.
Would you kindly consider the above matters with your clients as a matter of urgency and confirm they record the correct position.”
A copy of this letter was faxed by Mr Cousins to Mr Heslop on 26 January 2001 with a message on the cover sheet: “Please find attached a copy of correspondence received from Rhodes & Co dated today for your info”. No alarm or concern by Mr Cousins about the granting of possession is apparent.
[123] Also on 26 January Mr Cousins sent the following reply to Mr Schmidt:
“Further to your letter of 25 January 2001 I advise as follows:
1 My client has been unable to progress the rates matter. The Bank of New Zealand’s solicitor has been acquainted with the problem.
2 I am in the process of preparing an option and will arrange for it to be couriered to you.
3 The Council have agreed to consent to the registration of the transfer of the property to your clients and we are awaiting execution of the appropriate documentation.
I am in receipt of your letter of 26 January 2001 which has been faxed to my client. I anticipate that some of the points will be unacceptable and will contact you further as soon as instructions are received.”
Again, no alarm or concern about possession is expressed by Mr Cousins. Nor is there any request for undertakings after the event or indication that such undertakings had been requested verbally.
[124] The final letter of significance was sent by Mr Cousins to Mr Rennie on 29
January 2001:
“Thank you for your letter of 26 January 2001. I have now received instructions from my client. I understand that your clients have entered into possession.
In relation to the outstanding issues raised I advise as follows:
1 Items 1, 2, 3, 4 and 9 are acceptable.
2 In relation to item 5 the position is still as previously related to you. My client does not have the funds to pay the rates and will not be in a position to give a credit for that amount unless an arrangement can be reached with BNZ or your client.
“It would be fair to say that, throughout the bankruptcy, there was a significant amount of confusion as to causes of action, possible defendants and possible remedies … it took approximately two and a half years with the OA engaged in the process to gain any clarity as to the position.
With the benefit of hindsight that might seem to be a long time and Mr Heslop was clearly frustrated by the slow progress. But I accept that the plaintiffs were doing their best to progress the matter and that in all the circumstances it was not realistic for the trust to proceed with a claim until the Official Assignee had reached his decision.
[330] In their closing submissions counsel for the defendant submitted:
“If the justice of the situation is to be assessed by reference to both the plaintiff and the defendant, it does not matter that it may be that part or even or a good part of this delay can be said to be able to be laid at the door of the Official Assignee, insofar as the Heslops are concerned.”
I cannot accept that submission. Mr Heslop’s bankruptcy only arose because of Mr Cousins’ breaches. If justice is to be achieved, Mr Cousins should carry responsibility for the consequences of the situation that he created.
[331] Once the Official Assignee’s decision had been made it was not until April 2004 that the Official Assignee’s files were released to Mr Heslop. Given the complexity of the matter it was inevitable that after that there would be a lapse of time before proceedings could be issued. In my view a fair and reasonable period for the issue of proceedings would have been six months. Thus proceedings should have been issued by October 2004. Counsel for the defendant accepted that a period of around 12 months from the issue of proceedings to trial would be reasonable and this is in line with the actual delay between the issue of proceedings and trial. On that basis the trial should have been commencing by October 2005.
[332] I therefore conclude that the appropriate time for assessing damages is October
2005.
Value of Orchard Lot
[333] Expert evidence as to the value of the orchard lot at various points in time was given by Mr Stewart and Mr Taylor, for the plaintiffs, and Mr Barraclough for the
defendant. The following table summarises their valuations:
VALUER AT TIME OF BREACH JULY 2004 JUNE/SEPTEMBER
2006
IF LAND REZONED Stewart
Taylor
Barraclough$385,0005 -
$240,000
$1,250,000
$1,356,000
$ 600,000$1,679,000
$1,815,000
$1,665,000$3,358,000
$4,197,500
$2,400,000
A valuation as at the date of breach was also provided to the Official Assignee by Fright Aubrey on 17 April 2003. Fright Aubrey valued the orchard lot at $305,000. However, I do not need to make any further reference to that valuation.
[334] Different methods were used by the three valuers. Mr Stewart assessed market evidence and undertook a hypothetical subdivision as well as a discounted cash flow
analysis. Mr Taylor adopted the approach that he would use to value an investment that would be realised sometime in the future. For the purposes of the hypothetical subdivision he adopted Mr Stewart’s sale price for sections. Mr Barraclough adopted a sales comparison approach. In his view the uncertainty about the ultimate zoning outcome (both in respect of timing and the nature of development controls) ruled out any other approach. Each valuer commented on the other valuations. At the end of the day all the valuers stood by their own valuations.
[335] Given that the value of the orchard lot needs to be assessed as at October 2005, it is necessary to focus on the valuations as at July 2004 and June/September 2006. With the exception of Mr Barraclough’s $600,000 as at July 2004, there is a consistency between the valuations at those points in time. Mr Barraclough explained that as at July 2004 he
thought that the probability of a zoning change to
5
On the basis that a separate title was available for the orchard lot.
residential was subject to a moderate to high level of risk and for that reason he had applied a probability of 50%. However, he considered that the probability was higher by September 2006 and applied a probability of 75% at that time. Mr Stewart considered Mr Barraclough’s 50% probability as at July 2004 was too low and that a more appropriate percentage at that time would have been 70%.
[336] As at July 2004 the only indicators of a rezoning were the two decisions of the Environment Court. Nevertheless they provided a relatively strong signal to the market place about the possibility of rezoning in the future.
[337] In its interim decision of 27 June 2002 the Court quoted Mr Nixon’s evidence:
“There is a very strong case for ultimate urbanisation of the land at Belfast subject to the Apple Fields reference, when regard is had to the agreed objectives and policies of the Proposed Plan. Indeed, I believe that it has an even stronger case for urbanisation in policy terms than the Northwood development already rezoned by the City Council further to the south, and for that matter some land at Masham already zoned by the City Council, which the CRC has opposed. There is not currently sewer capacity to service urban development of the subject land, but this is a timing issue associated with the planned northern relief sewer.”
The Court then went on to discuss specific factors applying to the AFL land including the stop bank at the north western edge (which represented a potential urban boundary) the strip of houses already adjacent to the AFL land, the fact that protection of the land for agricultural use was a very minor issue overall, and that part of the AFL land was
only one row of houses from the major transport corridor comprising the Main North
Road.
[338] After hearing submissions about the application of s293, the Court said in its decision of 11 October 2002 that it was satisfied that in terms of that section “a reasonable case has been presented” for the Court to consider a Living rezoning of the AFL land. Significantly Judge Jackson said:
“In summary, I consider the jurisdictional test in s293 is simply whether the proposed remedy outside the scope is, objectively, potentially the best option for achieving the purpose of the Act which is open to the Court on the evidence it has read and heard.”
He was satisfied that as a matter of jurisdiction the Court was entitled to invoke s293 in this case. And when it came to exercising the Court’s discretion Judge Jackson said he had particularly taken into account that the expert witnesses for all three parties considered that the AFL land should sooner or later probably be zoned Living and that questions of unfairness caused by delay had been an issue in all the urban growth references.
[339] As I have said, these decisions gave a relatively strong signal about the future rezoning of the AFL land (including the orchard lot). In probability terms I believe that Mr Stewart’s 70% is closer to the mark as at July 2004 than Mr Barraclough’s 50%. Although the values arrived at by Mr Stewart and Mr Taylor as at July 2004 might be a little high, I believe they are much closer than Mr Barraclough’s $600,000 to the actual value of the orchard lot at that time.
[340] By September 2006 Mr Barraclough had lifted his figure to $1,665,000 which was very close to Mr Stewart’s figure. In his valuation report of 26 September 2006 Mr Barraclough explained:
“I consider as at September 2006, given the knowledge in the public domain in relation to an application for zoning change to a more intensive residential use, that $1,665,000 is a fair reflection of the market value.”
This reflects that AFL had lodged its rezoning application with the Environment Court, the application had been publicly notified, and submissions had closed.
[341] Almost a year earlier there had been an article in The Press on 18 October 2004
about premium prices being paid for rural land on the outskirts of Christchurch. This article discussed “land banking” arising from a predicted shortage of land available for residential, industrial and business development due to an unprecedented consumption of zoned land. There was also reference to investors trying to predict where rezoning might occur which was lifting values.
[342] Another event having particular relevance to the matter under consideration was the announcement by Trans Tasman Properties Limited on 13 July 2005 that it had purchased 27.2 hectares (which included the orchard lot) from Latimer Holdings Limited for $9.52 million. Mr Barraclough said that that purchase, by reason of the identical location and zoning characteristics, was “our best evidence of market value”. The Trans Tasman purchase represented $350,000 per hectare. There was, however, provision in the purchase agreement for [Suppressed Text Deleted] (I have been asked to suppress this information about [Suppressed Text Deleted]).
[343] Given that I am endeavouring to arrive at a value as at October 2005, the Trans Tasman transaction must be highly relevant. It was transacted only three months earlier and I accept Mr Barraclough’s view that it provides the best evidence of market value. Furthermore all the events that Mr Barraclough saw as important in lifting his probability to 75% had taken place by October 2005. Consequently I believe that the value of the orchard lot as at October 2005 must have been close to the value indicated by the Trans Tasman transaction. Logically it should also fall somewhere between the value arrived at by Mr Stewart/Mr Taylor in July 2004 and the value arrived at by all three valuers in June/September 2006.
Conclusion
[344] Having reflected on the matter I have decided that the second plaintiffs will be properly compensated if damages are awarded on the basis that the orchard lot was worth
$1,457,000 as at October 2005. [Suppressed Text Deleted] I have approached the matter on this basis to reflect the uncertainty about whether rezoning will actually occur by the middle of this year. In my view that approach will be fair to both the second plaintiffs and the defendant.
[345] The second plaintiffs accept that there should be a deduction of $48,000 being the
amount received after the mortgagee’s sale. That brings the amount that the second plaintiffs are entitled to recover down to $1,409,000.
[346] Initially it was the defendant’s case that there should also be a credit of $250,000 to reflect the notional value of the orchard lot that was included in the mortgagee’s sale. However, Mr Forbes ultimately accepted that there were problems with this argument. I agree with the plaintiffs that the notional amount paid by Latimer Holdings Limited for the orchard block is irrelevant. Except for the sum of $48,000 already taken into account, the trust did not receive any benefit from that transaction.
Implications Of Mr Heslop’s Bankruptcy
[347] The defendant argued that there should be a credit of $564,070 on the basis that the plaintiffs would have had to pay creditors that amount if there had been no bankruptcy. It is claimed that if there is no deduction the plaintiffs will receive a windfall benefit. It is also noted that the plaintiffs’ claim was originally formulated along those lines. The defendant was not specific about whether the amount should be deducted from the amount recovered by the first plaintiffs, the second plaintiffs, or both.
[348] The plaintiffs deny that there should be any such deduction. They maintain that Mr Heslop’s bankruptcy and its consequential effects cannot be undone and that the income he lost during a boom period, which he would have applied towards creditors, cannot be replaced. In any event, they note that Mr Heslop has given evidence that he hopes to be able to make some voluntary payments to his creditors. The plaintiffs’ position is that any deduction would represent a windfall to Mr Cousins which would be unjust. They claim that the plaintiffs should be fully compensated for their losses and that it is important to take into account that apart from providing the orchard lot as security the trustees were under no obligation to the creditors.
[349] It is convenient to begin by examining Mr Heslop’s proposal to his creditors dated
24 October 2000. In summary Mr Heslop proposed that he would pay a dividend of 25% of his gross income for the next five years with those payments to be overseen and administered by the trustee (Mr Bailey). Mr and Mrs Heslops’ interest in the orchard lot was to be transferred or assigned to the trustee. Upon the land being rezoned all efforts were to be made to borrow sufficient money against the land so that any creditors who
remained unpaid could be paid in full.
Notwithstanding the above, Mr Heslop was to remain free to negotiate with any creditor so that a full and final settlement of that creditor’s debt could be achieved.
[350] There was considerable debate about whether this proposal was realistic. Obviously this Court thought it was when the proposal was approved on 12 March 2001. Mr Taylor also gave expert evidence on this topic. He noted that tax credits of $378,900 would result in Mr Heslop’s after tax income being equal to his gross income for the five year period under consideration. Thus Mr Heslop would have been in a position to commit a higher proportion of income to his creditors than would have otherwise been the case. Moreover, repayment of the BNZ debt would have removed a substantial outgoing.
[351] It is worth recording the profits earned by Mr Heslop between 1992 and 1999 and his loss for the year 2000:
1992 $ 124,800 1993
$ 103,100
1994
$ 97,200
1995
$ 68,800
1996
$ 329,900
1997
$ 218,645
1998
$ 341,300
1999
$ 585,400
2000
$(487,300)
Mr Taylor averaged the profits and loss over those years and deduced that Mr Heslop could have paid $192,000 to his creditors over the five year period. There was no serious challenge to that evidence.
[352] I accept that if the Moir agreement had been settled and Mr Heslop had not been adjudicated bankrupt he would have been able to pay at least $200,000 to his creditors
during the five years following the Court’s approval of his proposal, possibly considerably more. It seems to me that by averaging Mr Heslop’s earnings over a period of nine years and including the year 2000 loss, Mr Taylor has taken a relatively conservative approach. I accept Mr Heslop’s evidence that he had received approaches from people who were interested in participating in land development projects once the Court approval was obtained. For reasons already given I also accept that Mr Heslop’s health would have improved once the disastrous 2000/2001 period was behind him. Finally, I note that Mr Heslop demonstrated a capacity to rebound by his performance after his discharge from bankruptcy.
[353] In my view, it is perfectly plausible that the amount owing to creditors could have been reduced to $300,000 or less by March 2006 (five years after the approval by the Court). That figure assumes that unsecured creditors would have totalled around
$500,000 when the proposal was implemented. Amongst other things, this reflects that, in contrast to the bankruptcy situation, there would have been a continuing business and an ability to maximise Bartercard credits. Indeed, the figure of $500,000 is probably too high.
[354] Given Mr Heslop’s ability to generate substantial income there should not have been any difficulty in raising a mortgage over the orchard lot in or about March 2006 to repay creditors in full, or at least those unpaid creditors who wished to be paid out. A separate certificate of title would have been available and the valuation evidence discussed earlier suggests that the orchard lot would have offered an ample security margin even without having to wait for the rezoning.
[355] Put another way, if Mr Cousins’ breaches had not caused the loss of the Moir agreement and the setting aside of the debtor’s proposal, the trust would ultimately have enjoyed beneficial ownership of an unencumbered orchard lot. Although the orchard lot would have been made available to the creditors in terms of the proposal and would probably have been ultimately used as security for a mortgage to pay off creditors, the trust would not have been required to make any payments towards creditors. That responsibility would have rested with Mr Heslop and I am satisfied that over time he would have discharged that responsibility.
[356] Under those circumstances I cannot accept that there should be any further
deduction from the damages awarded to the trust. Apart from the $48,000 already taken into account, the trust has received absolutely no benefit or advantage from the setting aside of the debtor’s proposal or from Mr Heslop’s bankruptcy. Nor is there any justification for somehow treating the trust as the alter ego of Mr and Mrs Heslop. At all relevant times it was an independent and legitimate entity in its own right, no argument to the contrary having been advanced.
[357] Finally, I cannot see any reason to reduce the damages awarded to the first plaintiffs by virtue of the fact that Mr Heslop’s bankruptcy released him from any legal obligation to pay the debts owed to creditors. There are several reasons. First, once loss of income and Mr Heslop’s intention to make some payment to creditors is taken into account, it is be debatable whether there has been any advantage or benefit to Mr Heslop. Second, given that Mrs Heslop was not under any legal obligation towards creditors and was not working, it is even more difficult to see how any advantage or benefit could have accrued to her. Third, if it is a matter of conferring a windfall benefit on either the first plaintiffs or the defendant, I have no hesitation in conferring that benefit on the first plaintiffs. The defendant was entirely responsible for the bankruptcy and its consequences. Fourth, I cannot conceive that it would be either logical or just for the first plaintiffs to be deprived of proper compensation, which I have placed at $100,000, for their immense pain, suffering and humiliation.
Settlement With BNZ
[358] Although the parties to that settlement agreed that the terms of the settlement should remain confidential, it became apparent towards the end of the hearing that the Court would have to be informed about the terms of the settlement and the deed of settlement was made available accordingly. However, the hope was expressed that the Court would honour the confidentiality accorded by the parties to the deed.
[359] Unfortunately it is unrealistic to accede to the request for confidentiality. Any impact of the settlement on the awards made in this judgment cannot be discussed in any meaningful way without disclosing the amount paid. I also keep in mind that all the parties to the settlement were initially parties to this litigation. There is no sound justification for suppressing this information.
[360] The plaintiffs received $100,000, with liability being denied by the bank and the
third party. The defendant maintains that there will be double recovery unless there is a credit for the amount paid.
[361] While the plaintiffs acknowledge that they should not be entitled to double compensation, they deny that the settlement with the bank gives rise to that situation. Mr Parker also noted that once fees attributable to the claim against the bank (around
$53,000) are taken into account the amount actually received by the plaintiffs was only around $47,000.
[362] During closing submissions I realised that it was difficult for either party to effectively address the implications of the BNZ settlement without knowing the outcome of the claims against Mr Cousins and the underlying reasoning. I therefore indicated to counsel that they would be provided with a further opportunity to present submissions after the substantive decision was released. Those submissions will need to address whether there should be a credit and, if so, the amount, and the award/s against which the credit should be levied.
Outcome
[363] Subject to any reduction that might be made to reflect the BNZ settlement there will be judgment for:
(a) the first plaintiffs in the sum of $106,491, being wasted legal expenses of
$6,491 plus $100,000 by way of general damages; and
(b) the second plaintiffs in the sum of $1,409,000 being damages for the loss of the option to purchase the orchard lot.
[364] I am prepared to receive memoranda on the question of interest in relation to either or both of the above awards. In terms of wasted legal expenses there might be an entitlement to interest from the date of the expenditure to the date of judgment. And in the case of the award in favour of the second plaintiffs there might be an entitlement to interest from October 2005 to the date of judgment. Any memoranda that are submitted should also address the rate of interest that should apply if interest is awarded.
[365] The plaintiffs are entitled to costs, disbursements and witnesses expenses. If agreement cannot be reached on those matters counsel will need to submit memorada so that the matter can be determined by the Court.
[366] Finally, counsel will need to submit memoranda as to the implications, if any, of the BNZ settlement. Their memoranda will need to address the matters referred to in [362].
[367] Any memoranda that the plaintiff wishes to submit in relation to the above matters is to be filed and served by 15 July 2007 and the defendant’s response is to be filed and served by 27 July 2007. Any reply is to be filed and served by 31 July 2007.
[368] There are suppression orders in terms of paragraphs [342] and [344] of this judgment. Leave is reserved to any party to apply further should the need arise.
Solicitors: Parker & Associates, Wellington, for Plaintiffs Grant Cameron Associates, Christchurch for
Defendant
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