Hole v Snedden

[2012] NZHC 1907

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-001699 [2012] NZHC 1907

BETWEEN  REGINALD ANTHONY HOLE First Plaintiff

ANDMARY-ANN BOYS Second Plaintiff

ANDDAVID WARWICK SNEDDEN First Defendant

ANDSNEDDEN SOLICITORS NOMINEE COMPANY LIMITED

Second Defendant

Hearing:         27 July 2012

Appearances: R Hindle for the Plaintiffs

M Armistead for the Defendants

Judgment:      1 August 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

01.08.12 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

Clendons North Shore (B Joyce), P O Box 305-349 North Shore Auckland 0757, for Plaintiffs. Email:             [email protected]

Kennedys (Mark Dennett/Megan Armistead) P O Box 3158 Auckland, for Defendants.

Email:   [email protected] /  [email protected]

Copy for:

Royden Hindle, Bankside Chambers, Lumley Centre, 88 Shortland Street, Auckland 1010

Email:     [email protected]

REGINALD ANTHONY HOLE V DAVID WARWICK SNEDDEN HC AK CIV 2012-404-001699 [1 August

2012]

Background

[1]      The case concerns an application for summary judgment by plaintiffs against their solicitor, Mr Snedden, and his nominee company, in connection with their investment of funds through the nominee company.

[2]      The claim focuses upon a registered valuer’s valuation prepared by Garton & Associates (Garton Valuation Report) dated 20 March 2006.  Mr Snedden acted for both plaintiffs at the time they agreed to invest in a subdivision development owned by Northcorp Developments Limited (Northcorp).  In or about April 2006 Mr Hole had  discussed  with  Mr  Snedden  a  proposed  investment  through  the  nominee company.   Subsequently Mr Snedden’s letter dated 5 April 2006 to Mr Hole confirmed his earlier advice that a loan of $250,000 had been arranged for his client Northcorp  with  mortgage  security  over  the  development  property.    A form  of Specific Authority For Investment was sent to Mr Hole with a request that he sign it where indicated and return it to Mr Snedden.  Mr Snedden also enclosed a copy of the  Garton  Valuation  Report  which  Mr  Snedden  stated  “values  the  property  at

$1,450,000 with a first mortgage recommendation of $725,000”.

[3]      On 2 August 2006 Mr Snedden wrote again to Mr Hole with advice that Northcorp wished its mortgage advance to be increased to $450,000 because it was purchasing another property.  Mr Hole was asked to sign another Specific Authority For Investment for that purpose.  The arrangement did not require Mr Hole to lend more, rather to recognise that the mortgage security over the property would be increased because of the sum of $200,000 being borrowed from another source.

[4]      Again, Mr Snedden enclosed a copy of the Garton Valuation Report (the

same one that had previously been sent), noting the report “values the property at

$1,450,000 with the first mortgage recommendation of $725,000”.

[5]      At the same time on 2 August 2006 Mr Snedden wrote to Ms Boys.   He referred to their recent telephone conversation in connection with Ms Boys investing through the nominee company.   The letter noted that Mr Snedden had arranged a

loan of $450,000 for his client Northcorp on the security of its development property. Mr Snedden enclosed a Specific Authority For Investment in respect of the investment of $200,000 with a request that it be signed where indicated and returned to him.   He also enclosed a copy of the Garton Valuation Report which he noted “values  the  property  at  $1,450,000  with  a  first  mortgage  recommendation  of

$750,000”.

[6]      On 6 November 2007 Mr Snedden wrote to Mr Hole and to Ms Boys with advice that their investment matured on 20 August 2007.   Mr Snedden wrote that Northcorp had asked if it could extend the term of the mortgage for a further year with the interest rate at 11.5 per cent gross.

[7]      Mr  Snedden  enclosed  “a  copy  of  the  valuation  for  the  property”  and particulars of the investment stating “if you are agreeable to extending the term of the investment for a further year, we would be pleased if you would sign and return the enclosed Specific Authority For Investment and Particulars of Investment to us in the envelope provided”.

[8]      The  valuation  enclosed  was  from  Northland  Valuers  and  was  dated  2

November 2007.  Its author was Mr Lucich, who previously was the author of the

Garton Valuation Report.

[9]      That report too noted the value of the development property at $1,450,000, with a first mortgage recommendation of $725,000.

[10]     On 30 November 2008 Mr Snedden wrote separately to Mr Hole and to Ms Boys he having earlier telephoned them.  He confirmed the Northcorp mortgage had been due for repayment on 20 August 2008.   He stated Northcorp had an unconditional agreement to sell the property for $1,400,000 but the purchaser could not complete on settlement date on 9 May and “so the settlement date was extended to 31 October 2008”.   Mr Snedden requested that Mr Hole and Ms Boys agree to extend the term of the mortgage by six months until 20 February 2009 “to give Northcorp sufficient time to negotiate a further sale of the property”. At that time Mr Snedden enclosed a further Specific Form of Authority in respect of the investments.

As well he enclosed a copy of a recently updated Garton Valuation Report which valued  the  property  at  $1,308,000  with  a  first  mortgage  recommendation  of

$645,000.

[11]     Throughout 2009 and 2010 Mr Snedden communicated with Mr Hole and Ms Boys  regarding  developments  with  the  property  sale.     Meanwhile  mortgage payments fell in arrears.

[12]     By  email  dated  8  March  2011  Mr  Snedden  informed  Ms  Boys  that  the nominee company was commencing mortgagee sale proceedings over the two security properties.   Mr Snedden said that proceedings would also issue against Northcorp’s principal, Mr Findlay and a Mr Ghaleh who had guaranteed the loans. Subsequently Mr Snedden advised Ms Boys that the nominee company was not optimistic of achieving a good price for a forced sale.  A real estate agent considered that the current market value of both properties was $180,000 and estimated the properties would sell at mortgagee auction for between $110,000 and $130,000.

[13]     The proceeding by the nominee company against Northcorp, Mr Findlay and Mr Ghaleh was determined by the judgment of Lang J on 8 November 2011. Judgment  was  entered  against  all  three  in  the  sum  of $739,695.06  inclusive of interest. The order for judgment was ordered to lie in Court until 2 December 2011.

[14]     Apparently the judgment has not since been sealed and there has not been any recovery on behalf of the plaintiffs.   Apparently the nominee company is still negotiating a payment from the guarantors.

The plaintiffs’ affidavit evidence

Mr Hole

[15]     Mr Snedden had been his solicitor since February 2001.   Mr Snedden had assisted with his home purchase and a later subdivision of the home property.   In

2002 and 2003 he again acted for Mr Hole and his partner when they bought other property.  Mr Hole estimates that at times he would have had in excess of $700,000

held either on deposit through Mr Snedden’s trust account, or invested through the nominee company.   He states that acting on Mr Snedden’s advice he contributed funds to several advances made by the nominee company at various times.  He said that apart from the Northcorp investment and one other all his contributions to the nominee company investments had been returned and interest was paid.  He deposes:

...the pattern of my discussions with Mr Snedden was very much the same. Mr Snedden would call me to introduce the investment opportunity. Then he would then follow that with a letter that enclosed the form of authority to invest, and a valuation.  In general terms I saw investing through his firm’s nominee company as an opportunity to achieve a good interest rate while contributing to low risk investments.  I was always happy to leave it to Mr Snedden to make sure that the details were attended to, and that the loans were appropriate for the nominee company to make.  [Para 11]

[16]     With respect to the Northcorp investment, Mr Hole deposes:

... He told me that there was a valuation on the properties that would be mortgaged to secure the investment, and that the properties had a value of around $1.4 million.    He explained that the valuation included a recommendation of a first mortgage of up to $700,000 or so...  Mr Snedden said nothing whatsoever about the conditions that I now know were attached to the valuation.  [Paras 13, 14]

...

I did see that the valuation referred to conditions of a resource consent, and that it (the valuation) was subject to the conditions of the resource consent conditions being met.  But I did not believe that Mr Snedden would lead me to invest in anything unwisely, and I assume that the conditions (whatever they might have been; I was not aware of the details) must already have been met.  After all, if the conditions had not been met, then the valuation would not apply and the properties would not have had the value that Mr Snedden had said that they did.   Mr Snedden had been so clear that the properties were worth over $1.4 million that it did not even occur to me to ask him about it.  I trusted Mr Snedden absolutely.  [Para 19]

...

However, as I have explained, I believe from what Mr Snedden had told me that the properties would provide ample security for the advance I was being asked to fund... [Para 21]

The only information that I received before my money was advanced to Northcorp was that which was given to me by Mr Snedden when I spoke to him on or before 5 April 2006, and his letter dated 5 April 2006 which was accompanied by the authority form and valuation.  There was nothing else. [Para 22]

[17]     Concerning the circumstances involving the increase in the first mortgage amount in August 2006, Mr Hole deposed that Mr Snedden had sent him a new form of authority to invest.   He said he was not advised by Mr Snedden, nor did he recognise for himself that he would have been within his rights to refuse to agree and to request that his contribution be repaid to him.  But, as he says, had he been aware of those things he would almost certainly have agreed in any event.

[18]     Mr Hole says he does not have all of the records about when interest was paid but his recollection is that payments were often late, sometimes by some weeks.  He recalls that when he was approached in early November 2007 and requested to extend his investment for a further year he was reluctant to agree.  He said he wanted to take his money out.  However when he told Mr Snedden this he said Mr Snedden became angry and frustrated with him.  He recalls Mr Snedden saying to him “in a very curt and impatient tone”:

For goodness sake Reg, it’s guaranteed!

[19]     In the event he says he reluctantly agreed to extend his investment.

[20]     Mr Hole decided not to extend his investment after it fell due in August 2008 but when it fell due it was not repaid.  Mr Snedden wrote to him explaining what had happened and asked him to sign “yet another investment authority”.  This time the valuation enclosed showed slightly lower values.  Mr Snedden had explained to him that the property was being sold.

[21]     Mr Hole said he did not sign papers to extend his investment but his money has remained in the investment regardless.  He says interest continued to be paid for a time.

[22]     When Mr Hole called into Mr Snedden’s office on or about 9 March 2009 he was led to believe that matters should soon be resolved because of an unconditional sale of the properties in question.  Mr Hole said he was so encouraged that he bought artworks to a value of $11,000 that he would not have bought otherwise.

[23]     In September 2010 Mr Hole contacted Ms Boys he having then recently learned she was the other contributor to the Northcorp investment.  To him Ms Boys “made it clear that she wanted Mr Snedden to start mortgagee sale proceedings”. Since, Ms Boys has been at the forefront of interactions with Mr Snedden.  Mr Hole recalls a “very heated” meeting with Mr Snedden, Ms Boys and others in Mr Snedden’s office on 29 April 2011.

[24]     Mr  Hole  is  aware  of  the  proceedings  brought  by  the  nominee  company against Northcorp and the guarantors.   He believes nothing has been paid since judgment was obtained.

[25]     Mr Hole’s position is that he has believed throughout that the properties his loan was invested in were worth over $1.4 million.  He now understands that is not the case; that the valuation provided shows that the value was conditional on the requirements of resource consent for a subdivision being met.  He is now aware that even before his first investment was made Northcorp had itself lodged an objection to the conditions of consent.   He now knows that Northcorp purchased the two properties concerned in early 2006 for $170,000.  He believes Northcorp has never made any serious effort to pursue any subdivision; to the contrary it appears Northcorp’s own objection to the conditions of consent was not pursued until the local authority threatened that the consent would lapse.

Ms Boys

[26]     She said Mr Snedden had been her solicitor since 2002.   By 2006 she had

$400,000 in funds available for investment.  On Mr Snedden’s advice she decided to invest these through Mr Snedden’s solicitor’s nominee company.  She said she was open to Mr Snedden’s suggestion because he explained that any such funds would be secured by way of first mortgage, and that a solicitor’s nominee company investment was structurally set up to be safe and secure.

[27]     Ms Boys recalls Mr Snedden’s contact regarding an investment advance to

Northcorp.  She said:

He told me that there was a valuation of the security property at $1.45 million and that the borrowers had resource consent to develop the property. Mr Snedden did not, however, say anything about the conditions of the resource consent.  [Para 8]

As a result of what Mr Snedden said I believe that everything with the development was in order, and the valuation ‘stacked up’.   I particularly recall that Mr Snedden stressed the property in question had a then present value of $1.45 million.   There was no suggestion of any proviso or qualification to that.  [Para 9]

[28]     Ms Boys said that when she read the valuation sent to her along with the authority to invest, she “was uncertain what it all meant.  This was all new to me”. She said  that the value of the property and  the first  mortgage recommendation indicated to her that Mr Snedden had done his homework.

[29]     Ms Boys saw the sentence in the valuation about conditions of resource consent.  She said:

I thought that if Mr Snedden had sent it (the valuation) out to me, then the conditions must have been met already.  It was my understanding at that time that all of the items must have been attended to – whatever they were.  I did not ask about the details because I did not think it was important to do so. [Para 12]

Again, I relied on Mr Snedden’s advice that the properties in question were worth $1.45 million.  I therefore signed the authority to invest, and sent it back to Mr Snedden. [Para 13]

[30]     About two months later Ms Boys authorised the balance of her deposit with Mr Snedden (i.e. the remaining $200,000) for investment in a different nominee company advance.  She said the advance was to an entity called the Rosa Mystica Family Trust.  She understands now that the guarantor of the Northcorp mortgage, Mr Peter Findlay, was also involved in that trust.

[31]     On the occasion in November 2007 when she was requested to authorise an extension of her investment she said she spoke to Mr Snedden after she had received the papers and asked him if the investment was alright.  She said he replied that there were ’66 sections up there’ and so she was reassured that the subdivision was well underway if not completed.  He also pointed out to her that the borrowers had paid their interest on time.

[32]     Ms Boys said she did not then know that there was an objection to the resource consent, indeed filed by Northcorp itself; “and that in truth nothing whatsoever was being done to progress the subdivision”.  She said had she known those things then she would never have agreed to roll her investment over.

[33]     She recalls that her investment in the Rosa Mystica Family Trust was repaid in  March  2008  and  of  that  sum  she  invested $100,000  in  a  nominee company mortgage loan to Eastcorp Enterprises Limited.  She now knows that this is another company in which Mr Peter Findlay was a director and shareholder.

[34]     Ms Boys recalls in November 2008 Mr Snedden contacting her to explain that Northcorp was looking for an extension of six months to allow an agreement for sale and purchase to be completed.  He said the agreement was unconditional.  Later Ms Boys learned that the purchaser had been struck off the Companies Register in June 2008.

[35]     She informed Mr Snedden verbally she would agree to the extension but later did not sign the authority when it was sent to her, or send it back.  Also she learned that on 13 November 2008 Northcorp and Eastcorp Enterprises Limited defaulted on both of her then current investments through the nominee company.

[36]     Then about that time her contribution to the Eastcorp Enterprises’ advance was repaid with all interest, and on 20 November 2009 she received interest on the Northcorp advance for the period 20 August 2008 to 20 May 2009.

[37]     Eventually when she got hold of Mr Snedden in August 2010 she said she complained that he had only given her “false hopes, while in effect stretching out the investment to help the borrower”.  Later she asked that proceedings be started to help recover her investment.   In September 2010 Mr Snedden agreed to do this if Northcorp  did  not  respond  to  his  enquiries.    Later  in  September  Mr  Snedden informed her that there was an unconditional agreement for the sale of the security properties.  He said settlement was set for 28 January 2011.

[38]     The sale did not proceed at that time but on 3 February 2011 Ms Boys was paid interest owing for the period 20 May 2009 to 18 September 2009.

[39]     Ms Boys says it was about then that she began to lose faith in Mr Snedden. She deposes:

“I also felt there was a real conflict of interests:  Mr Snedden seemed to me

to be favouring the borrowers in these matters at every turn.

[40]     In  March  2011  Mr  Snedden  confirmed  with  her  that  mortgagee  sale proceedings would be commenced and as well proceedings would be commenced against the guarantors.

[41]     In April 2011 Ms Boys began making her own enquiries about the security properties.  She learned that less than two months after Northcorp had purchased the properties the nominee company had advanced $250,000 by way of first mortgage with funds from Mr Hole.

[42]     At about that time she received from Mr Snedden a report from real estate agents indicating that the security properties together might fetch only $110,000 to

$130,000 at a mortgagee sale.  Shortly after she and Mr Hole met with Mr Snedden. She said she told them that they would go to another lawyer, the Law Society and even to the television programme ’60 Minutes’ if the situation was not resolved. This meeting was followed up  by correspondence from Ms  Boys  in  which she alleged Mr Snedden was negligent.

[43]     In the course of her enquiries about Northcorp’s purchase of the development

property, Ms Boys has learned:

(a)       Resource consent for the subdivision was issued by the Far North

District Council on 22 December 2005.

(b)On  26  January  2006  Northcorp  filed  an  objection  to  consent conditions relating to the costs of upgrading the public road in the vicinity of the subdivision.

(c)       Northcorp settled the purchase of its two properties on 20 February

2006.

(d)On  7  August  2007  the  Far  North  District  Council  wrote  to  the surveyors for Northcorp noting the objection to the resource consent had been inactive for over a year.   In response to counsel’s request whether the objection was to be treated as withdrawn, Northcorp’s surveyor replied on 21 August 2007 to say the objection should continue to be treated as ‘suspended’.

(e)      On 13 April 2010 the Far North District Council wrote to Northcorp again asking whether the objection should be treated as withdrawn.  In response Northcorp detailed its concern over the objection.

(f)      By decision dated 22 July 2010 the Council noted that Northcorp’s objection  related  to  a  suggested  cost  of  $300,000  which  sum Northcorp claimed represented 30 per cent of the developments’ values.

[44]     Ms Boys assumes that even before she invested any money with the nominee company Northcorp must have known there was a possibility the subdivision might never proceed.

[45]     Ms Boys has also learned that there was second mortgage registered over the security properties which was repaid in part when another property owned by Northcorp was sold.  Ms Boys considers that the action to repay the second mortgage “was to prefer the interests of the contributors to the second mortgage over those of the contributors to the first mortgage”.

[46]     Ms Boys says that although judgment has been obtained against Northcorp and the guarantors, she believes the judgment remains unsealed.  She is not aware of any enforcement action having been taken.  She accepts that a mortgage sale of the security properties is unlikely to yield much at all.

[47]     Her position is that Mr Snedden owed her fiduciary duties as her lawyer including a duty to take care in his dealings on her behalf and any advice he gave.

Mr Snedden

[48]     From 1996 until recently he has been the solicitor for Peter Findlay, the director of Northcorp.  Since, he has acted for Mr Findlay in his own right on about

40 property transactions and on about 30 properties for Mr Findlay, his wife and related  entities.    He  has  never  had  any  concern  about  Mr  Findlay’s  ability  to complete any of these transactions.  Since February 2005 he has acted for Northcorp and by April 2006 had acted for it on about 30 property related transactions.

[49]     In early March 2006 he said Mr Findlay contacted him to obtain a loan through the nominee company to fund the purchase and subdivision of the two security properties in question.  On 24 March Mr Findlay provided Mr Snedden with the Garton Valuation Report completed by Mr Lucich four days earlier.  The report valued the properties at market value of $1.45 million and with a first mortgage recommendation of $725,000.  Mr Snedden notes the report stated it was based on a hypothetical subdivision approach and was subject to all resource consent conditions being met.

[50]     Mr Snedden says he recalls a telephone conversation with Mr Lucich on or about 28 March 2006 in which he was informed that the block value of the properties was $1.45 million “as is”.  He said Mr Lucich also confirmed that Mr Snedden could rely on the Valuation Report for advising clients in respect of a nominee company mortgage.

[51]     Mr Snedden had no reason to believe the report was not reliable.  He was not aware  that  Northcorp  had  lodged  an  objection  to  one  of  the  conditions  on  the resource consent before it purchased the properties.  It was not until after Northcorp defaulted on interest payments that Mr Findlay told him that Northcorp had lodged an objection to the condition regarding the cost of upgrading a road.   He said Mr Findlay advised him this was done in order to extend the resource consent period in order to  give  Northcorp  more time to  find  a  purchaser for  the properties.   Mr

Snedden said Northcorp was aware that once the objection was determined by the Council the resource consent period would be extended for a further five years – as in fact happened.

[52]     In March 2006 he contacted Mr Hole and advised him of an opportunity to contribute to a nominee company mortgage over the properties.   He said that Northcorp wished to obtain a loan of $250,000.  Subsequently this was confirmed by his letter enclosing a Specific Authority For Investment and a copy of the Garton Valuation Report.

[53]     He said he relied on the contents of the Valuation Report when advising Mr Hole on the value of the properties and the security recommendations.  He said he had every reason to consider the loan was appropriate as the property was valued at

$1.45 million and the security recommendation was $725,000. Also, Mr Findlay and Mr Ghaleh had provided personal guarantees of the mortgage.  He had no reason to doubt Mr Findlay’s ability to repay the mortgage given his history of involvement in acting for him on other property transactions.

[54]     Mr Snedden says he informed Mr Hole that Mr Findlay was a longstanding client.  He said he was a good client.  He said that Mr Hole did not ask any further questions about the investment.

[55]     On 28 July Mr Findlay requested an increase in Northcorp’s mortgage by

$200,000 to fund the purchase of another property in Rotorua.  On 1 August 2006 Mr Lucich updated the Valuation Report previously provided and confirmed the properties were still valued at $1.45 million with the same first mortgage advance recommendation.  Mr Snedden said he had no reason to question the valuation or the recommendations.

[56]     On 2 August 2006 Mr Snedden contacted Ms Boys and informed her of his long association with Mr Findlay and Northcorp.   He advised that the mortgage Northcorp sought was to be guaranteed by Mr Findlay and another.

[57]     Mr Snedden forwarded the documentation to Ms Boys.  He said she did not ask any further questions or raise any concerns about the investment.

[58]     On 11 July 2007 Mr Snedden wrote to Mr Findlay advising him that the nominee company loan fell due for repayment on 20 August 2007.   He enquired whether Northcorp wished to extend the term of the loan, or intended to repay it.

[59]     Mr Findlay responded requesting an extension of time and on 2 November

2007 the valuation from Northland valuers completed by Mr Lucich provided for a current market value of $1.45 million and subject to resource consent conditions being met, a mortgage recommendation of $725,000.   Mr Snedden relied on that valuation when advising Mr Hole and Ms Boys of Northcorp’s request to extend the loan for a further year.   He said he had no reason to question the updated market value of the properties, or Northcorp’s ability to repay the loan given that all interest payments had until then been met.

[60]     Mr Snedden recalls talking to Ms Boys after she received the 6 November

2007 letter regarding investment.  He says at no point during the discussion or at any other time did he tell Ms Boys or Mr Hole that the subdivision of the properties was well under way or completed.   Mr Findlay had informed him that it had resource consent  for  a  subdivision  of  up  to  66  sections  and  that  it  was  preparing  for subdivision by making enquiries as to preliminary matters like roading.   That Mr Snedden said is all he knew.

[61]     Mr Snedden said that in February 2008 Northcorp entered into an agreement to  sell  the  properties  for  $1.4  million  and  while  the  agreement  was  in  place Northcorp requested an extension of the term of the mortgage for six months from

20 August  2008.    To  this  time  Northcorp  had  continued  to  meet  their  interest payments on due dates or within a week of the due dates, except on one occasion when the payment was two weeks later.  He said that Northcorp had informed him it was able to continue to meet the interest payments.

[62]     On 13 November 2008 he wrote to Mr Hole and Ms Boys informing them of

Northcorp’s request to extend the term of the loan.   He also provided a further

updated valuation which provided the current market value of $1.308 million and the mortgage recommendation of $654,000.

[63]     Mr Snedden said he had no reason to believe that Northcorp would be unable to repay the loan in full nor to continue to meet its interest payments as it had been doing.

[64]     During 2009 the first quarter payment of interest was late but was paid at the default interest rate.  However, on 20 May 2009 Northcorp defaulted on its interest payments and in November 2008 paid default interest for the period ending 20 May

2009.

[65]     In May 2010 Northcorp informed Mr Snedden that it had entered into an agreement to sell the properties for $900,000 with settlement due on 28 January

2011.   He said he was advised in May 2010 that the finance condition had been satisfied but was later informed that the deposit could not be paid until June 2010 as payment was linked to the sale of another property owned by the purchaser.

[66]     Mr Snedden says that having received this information he advised Northcorp that he could no longer act for it and that the nominee company was obliged to take steps to recover the mortgage arrears.  He says on 9 September 2010 and acting on instructions from Mr Hole and Ms Boys the nominee company issued and served Property Law Act notices.  In response Northcorp made a payment of $10,000 to the nominee company on 27 and 28 September 2010.  On 26 October Northcorp’s new solicitor confirmed that the agreement was unconditional and that settlement was due on 28 January 2011.  However there was no confirmation that the mortgages would be  repaid  in  full.    Accordingly  Mr  Snedden  instructed  counsel  to  prepare  a proceeding against Northcorp and the guarantors.  It also instructed real estate agents to commence a mortgagee sale.   Those agents subsequently reported that the properties would likely achieve sale prices of around $110,000 to $130,000 in total. Mr Snedden says he continued to keep Mr Hole and Ms Boys informed of these events.

[67]     When judgment was entered in favour of the nominee company the High Court directed that judgment could not be sealed until 2 December 2011 to enable Northcorp to continue to negotiate a settlement of the properties’ sale.  At that time Mr Snedden was informed by Northcorp that it had obtained an order for specific performance to enforce the sale it had earlier entered into.  He says Northcorp has now presented the nominee company with a settlement offer of $550,000.   On 4

April 2012 Mr Snedden wrote to Northcorp’s solicitors requesting confirmation that they held in trust the sum of $250,000 representing the deposit on account of the proposed settlement, and as well a detailed list of the Northcorp’s and the guarantors’ assets and liabilities. To-date there has been no substantive response.

[68]     Mr Snedden is continuing to take advice as to the appropriate steps to take to recover the amounts owing under the mortgages.

Summary judgment principles

[69]     These are not in dispute.

[70]     The Court must be satisfied that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[71]     To succeed the applicant must show there is no bona fide defence or no reasonable ground of defence or no fairly arguable defence.

[72]     A Court will usually refuse summary judgment when the affidavit evidence discloses material conflicts of evidence; where it is best to assess the credibility of affidavit deponents by cross examination at trial.

[73]     A Court will usually be cautious before granting summary judgment on a negligence case and especially in professional negligence cases. [1]

[1] Economy Services v Smith & Hughes Limited (1989) 2 PRNZ 657.

[74]     As Master Gambrill stated in Togen Investments (NZ) Limited and Ors v

Durney Construction Limited & Ors [2]:

[2] 29 July 1988, CP 337 – 88.

Prima face there are very few cases in which claims for negligence can be entertained without a full trial.

Considerations

[75]     In the present case the plaintiffs allege that Mr Snedden erred in interpreting and  relying  on  a  valuation  which  was  prepared  for  Mr  Snedden  to  enable  Mr Snedden to advise clients on investing in a mortgage with his nominee company.

[76]     The plaintiffs’ application is for judgment in respect of liability only.  As Mr Hindle concedes it is too soon to quantify the losses the plaintiffs are facing as a result of the failure of their investment in the nominee company advance to Northcorp.

[77]     Likewise, Mr Hindle accepts that cases about professional negligence (and breach of the Fair Trading Act 1986) will often have too many factual issues to be appropriate for determination by summary judgment process.  But, and as he notes there is no rule that cases of the present kind cannot be dealt with on a summary judgment application.  He cites the Economy Services case (supra) as an example.  In that case there were no material factual disputes, rather the Court held the lawyer was clearly negligent in his calculation of a limitation period.

[78]     Mr Hindle submits there are no issues of fact that will make any difference to the outcome of the summary judgment application here.  He submits, subject to two “immaterial exceptions” that Mr Snedden’s affidavit served to confirm the plaintiffs account of events.  As to the exceptions Mr Hindle submits that Mr Snedden denies telling Mr Hole that there was a provision in the mortgage for the amount to be increased.  Further that Mr Snedden denies telling Ms Boys that the subdivision was well under way or completed.

[79]     The plaintiffs submit Mr Snedden breached r 8 of the Solicitors Nominee

Company Rules 1996. That rule provides:

8.        Development Mortgages

8.1A Responsible Practitioner must not permit a Solicitors Nominee Company to advance money on the security of a Development Mortgage where:

(a)      Either

(i)        The mortgagor is required to apply the whole or part of the principal sum secured, or to be secured by the mortgage towards the costs of subdividing or improving the land, or erecting, or altering, or developing any buildings or other improvements on the land, as the case may be; or

(ii)      The  mortgagee  retains  the  whole  or  part  of  the principal sum pending the mortgagor effecting the subdivision or improvement of the land or the erection, alteration or development of any buildings or other improvements on the land as the case may be;

and

(b)       The amount of the principal sum secured or to be secured by the mortgage, or the aggregate amount of the principal sum secured or intended to be secured by the mortgage and any other mortgages ranking or intended to rank prior to or equally therewith, exceeds two-thirds of the Modified Land Value of the land as set forth in a Valuation Report; and

(c)       The cost of subdividing or improving the land, or erecting or altering, or developing any buildings or other improvements on the land, as the case may be, exceeds 5% of the Capital Value of the land after completion of the developments as stated in a Valuation Report.

[80]     The plaintiffs Fair Trading Act claim proceeds on a similar basis.  It claims that notwithstanding the valuation documents stated that the value put forward was conditional, there is no evidence that when Mr Snedden spoke and later wrote to the plaintiffs that he said anything at all about the condition.  It is argued that by failing to draw the plaintiffs’ attention to the fact that the valuations were conditional, Mr Snedden misled them into thinking that the valuations represented the present value of the properties, when they did not.  It follows that by his omission to any reference to the conditional nature of the valuations Mr Snedden engaged in conduct that was misleading or likely to mislead pursuant to section 9 of the Fair Trading Act 1986.

[81]     The application for summary judgment is opposed on the grounds:

1.        There are disputed issues of material fact.

2.        Independent expert evidence is required to determine the

extent of duties owed by Mr Snedden in the circumstances and whether any of his alleged conduct amounted to a breach of his duties.

3.Mr Snedden was entitled to rely on the Valuation Reports and there is no evidence to establish that the Valuation Reports were unreliable.

4.There was no expert evidence about the alleged correct interpretation of the Valuation Reports.

5.The affidavit evidence does not establish a breach of fiduciary duties and a claim of a breach is based upon the plaintiffs’ assumption about Mr Snedden’s knowledge of certain facts when he advised the plaintiffs.

6.The proceeding essentially involves an issue of valuation, and whether the third party valuer caused the plaintiffs’ alleged loss. This issue ought to be examined at trial and otherwise it would be oppressive or unjust to award judgment against the defendants.

[82]     The defendants claim that the following facts are in dispute and are material in determining the causes of action against the defendants:

1.Mr Snedden did not know the purchase price of the properties until being informed by the plaintiffs on April 2011.

2.Mr Snedden did not know that Northcorp had lodged an objection to one of the conditions of the resource consent until after it had defaulted on the interest payments due under the first mortgage.

3.Up until 20 February 2009 Northcorp’s interest payments were made within 7 days of their due date, except one payment which was made 14 days after its due date.

4.Mr Snedden did not advise Ms Boys that the subdivision was near completion.

5.The defendants acted in the plaintiffs’ interests at all times and continued to do so in taking all reasonable steps to recover the money owed to them under the mortgage over the properties.

[83]     Ms Armistead for the defendants submits:

(a)      Mr  Snedden  did  not  breach  his  duties  in  advising  the  plaintiffs because he was entitled to rely on current market valuations which clearly stated the security was sufficient for the amount of the mortgage.

(b)There is no evidence before the Court to establish that the Valuation Reports were unreliable and that Mr Snedden ought not to have relied on them in advising the plaintiffs.

(c)      Mr Snedden’s alleged representations to the plaintiffs were not false and were based on information given to him that he was entitled to rely on.

(d)      There  was  no  evidence  that  Mr  Snedden’s  alleged  representations

were misleading or deceptive.

(e)      There  is  no  evidence  that  Mr  Snedden  acted  in  a  way to  breach fiduciary duties owed.

(f)      The   claim   for   breach   of   fiduciary   duties   relies   on   incorrect assumptions  about  Mr  Snedden’s  knowledge  of  certain  facts  he advised to the plaintiffs.

[84]     It is clear that Mr Snedden relied upon the valuations obtained by Northcorp when inviting the plaintiffs to invest.   In assessing the claims of the plaintiffs the Court needs to review the contents of those reports to assess what information was indeed given to Mr Snedden – there being no claim on his behalf that he ought not to have known of their contents for the purpose of advising his investor clients.

[85]     The Valuation Reports referred to in this judgment each adopted the valuation format of the initial Valuation Report dated 20 March 2006.

[86]     What then did the initial Valuation Report provide?  It noted:

1.The valuer inspected the property on 20 March 2006 in order to assess the current market value for mortgage/security purposes.

2.        The valuation was prepared for use by intending lenders.

3.The purpose of the report was to provide a Security Value for the property comprising land and buildings excluding all chattels, machinery, plant and stock.

4.The property comprised 5.729 ha.  It was a vacant, and residentially zoned block of land in an area which had experienced strong demand for residential properties with some property values increasing up to 70 per cent in the past two years.  “We consider the highest and best use of the property is for subdivision into residential lots with the market now ripe for development”.

5.The Far North District Council had granted consent to develop the property into 66 residential sections subject to conditions

1-8 and the valuation assumed all those conditions would be complied with: that a copy of the consent was attached to the Valuation Report.

6.        It assessed the current market value of the properties as at 20

March 2006 to be $1.450 million.

7.The properties are suitable to provide adequate security for a maximum first mortgage advance totalling $725,000.

8.        The quotable value rating valuations of both properties totalled

$119,000 as at 1 September 2003 and that the rating values now bore no relation to market value.

9.        The valuer considered the ‘Hypothetical Subdivision

Approach’ appropriate to derive the block value.

10.      The valuer considered that of the 66 sections, 44 would sell for

$55,000 each, 3 at $65,000, and 19 at $70,000 providing a gross realization of say $3,950,000.

11.That after gross realisation deductions for GST and selling expenses there would be a net realisation of $3,397,000 and from that an allowance for profit and risk and direct subdivision costs (including fees to the Far North District Council and to LINZ Telecom cabling and power to the sections erected, roading and sundry works, sewer reticulation, the cost of surveying, engineering, capital contributions to

footpaths and roading, and payment of a Reserve Contribution)

would yield an indicated block value of $1,450,000 exclusive of GST.

12.In light of the Hypothetical Subdivision Approach, the Sales Evidence and the Current State of the Market, the valuers affirmed their assessment of the current market value.

Conclusions

[87]     The Court’s review of the affidavit evidence has not been exhaustive but it has been extensive.  The Court’s purpose has been to review the relationship of the parties in detail in order to assess the inevitable claims and counterclaims of material conflicts in the respective accounts.  In paragraph [82] herein I have summarised the claims of material conflict highlighted on behalf of the defendants. The Court’s view is that a number of those factors mentioned were indeed not material enough to warrant consideration.   One of those concerned whether or not Northcorp paid its interest payments promptly.   Another concern claims that the defendants had not acted in the plaintiffs’ interests at all times in order to recover the debt which was due.   These matters are of minor importance because they do not relate to the circumstances from which the relevant claims of negligence or misleading conduct arise.  In this case the focus must be upon those occasions relevant to advice given in reliance had upon the Valuation Reports.  For the purpose of assessing the materiality of any factual dispute the Court has adopted the approach of accepting the account of Mr Snedden where it is in dispute with the accounts of the plaintiffs.

[88]     Therefore the Court should, for the purposes of this exercise, accept that Mr

Snedden did not advise Ms Boys that the subdivision was near completion.

[89]     Perhaps the Court should also at this time accept the submission of counsel for Mr Snedden that Mr Snedden did know the purchase price of the properties in question until being given that information by the plaintiffs on April 2011.  In fact the plaintiffs have not stated Mr Snedden did know the purchase price of the properties Northcorp settled the purchase of in February 2006.   If it appears the plaintiffs  assumed  Mr  Snedden  would  know  that  information  then  the  Court considers it was a reasonable inference to adopt.   Although Mr Snedden has not given evidence that he did not know of the purchase price, he did give evidence that he had acted for Northcorp and for Mr Findlay in a large number of transactions including over the period when the subject properties were purchased.   Also it is clear from the evidence that Mr Snedden’s firm was involved with the registration of related land transaction documents.   Regardless, the Court draws no support from

inferences that Mr Snedden may have known what price Northcorp paid for the subject properties.

[90]     Mr Snedden did say that he did not know that Northcorp had lodged an objection to one of the conditions of the resource consent at any time before Northcorp had defaulted on the interest payments due under its mortgage.  The Court accepts that claim without hesitation but, in the context of the Court’s focus at this time upon the valuation reports, the matter of Northcorp’s objection to a resource consent condition, is of minor significance.

[91]     It seems the balance of the claims of disputed fact focus  upon what the Valuation Reports noted and, concerning them, what Mr Snedden did or did not say about them.

[92]     It seems to the Court that despite claims on behalf of Mr Snedden of material differences  in this connection, the Court considers indeed there are  no material differences at all.

[93]     What there is no dispute about is that:

1.Mr Snedden was at all material times the solicitor for each of the plaintiffs and that he owed each all of the duties that are owed by any solicitor to a client.

2.When Mr Snedden invited the plaintiffs to invest he relied on the Garton Valuation Report dated 20 March 2006.

3.When Mr Snedden invited the plaintiffs to agree to an extension of the term of the advance to Northcorp in early November 2007 he relied on an update to the 20 March 2006 valuation that was dated 2 November 2007.

4.Each of the plaintiffs contributed to the nominee company advance to Northcorp because Mr Snedden invited them to do

so.  Mr Snedden believed there would be no risk for the plaintiffs’ investment.

5.Had the plaintiffs not accepted Mr Snedden’s recommendation for investment then they would not have faced the losses they have incurred.

[94]     For Mr Snedden it is submitted there is no evidence before the Court to establish that the valuation reports were unreliable and that Mr Snedden ought not to have relied on them in advising the plaintiffs; likewise, that Mr Snedden’s alleged representations to the plaintiffs were not false but were based on information given to him that he was entitled to rely upon.  It is claimed therefore there is no evidence available at this stage to show that Mr Snedden acted in a way in breach of any duties he may have owed, much less to show that any representations by him were misleading or deceptive.

[95]     Fundamental  to  any  response  to  these  submissions  is  the  claim  on  Mr

Snedden’s behalf that the Valuation Reports reliably asserted that as at 20 March

2007 the subject properties had a current market value of $1.45 million for mortgage/security purposes.

[96]     If that is the claim which underlies Mr Snedden’s position in this proceeding, then it is incorrect for it assumes the Valuation Report provides no covenant at all to that value.

[97]     Notwithstanding the relationship of a solicitor and client is akin to that of a contract of service, clearly concurrent duties of care are also owed.   As noted in Webb [3]  where a lawyer fails to carry out the work with a reasonable degree of care and skill the client will have a tort claim in damages for any loss suffered.

[3] Ethics, Professional Responsibility in the Lawyer (At para 5.3.1).

[98]     Mr Hindle submits and the Court agrees there can be no dispute in this case that the assessment of lack of care depends on a reading of a document that the High

Court is quite as capable of reading as anyone.   The Court accepts Mr Hindle’s

submission further that from the moment the advance was made and if Northcorp had failed to pay that there should be adequate value in the secured properties from which the debt could be recovered.  Also, that the assessment of the value of the security in this context had nothing to do with any perceived value in the personal covenant of the borrower and/or any guarantors.

[99]     That is the whole point of the Nominee Company Lending Rules.  It was up to Mr Snedden to ensure that the valuation reflected a real value of the land in its actual state at the time of the advance – but he did not.  Arguably it was unwise to advise (and in this context an invitation from a lawyer to his client to invest with the lawyer’s nominee company must amount to the lawyer having given those clients

‘advice’) his clients when the valuation provided no more than a hypothetical value of the land at some future time.

[100]   Mr Snedden relies on a telephone call he had with the valuer on or about 28

March.  Mr Snedden says at that time he was informed that the block value of the properties was $1.45 million “as is” and that Mr Snedden could rely on the Valuation Report for advising clients in respect of a nominee company mortgage.   But, a reading of the Valuation Report does not support that interpretation.   Nor, in the Court’s view was Mr Snedden relieved of any obligation to read the valuation he had received.

[101]   For Mr Snedden it is argued that the Court should not be prepared to draw any conclusions about Mr Snedden’s conduct without also hearing evidence of the role that the valuer has played in these events.  However, it seems quite clear from the valuations that the values given were both conditional and hypothetical.  I agree with Mr Hindle’s submission that considerations of possible fault or negligence of another need not be entertained in circumstances where an attribution of contribution by that other person appears largely speculative.

[102]   The plaintiffs’ case includes a claim that Mr Snedden breached r 8 of the Solicitors  Nominee  Company  Rules  1996.    Ms  Armistead’s  submission  is  that because the requirements of that rule are cumulative, a failure to prove any one of the three elements concerned meant that a breach of r 8 could not be proved.  Rule

8.1(b) requires that a solicitor must not permit the amount of any principal sum secured to exceed two-thirds of the modified land value as set out in the Valuation Report.   Ms Armistead submits it has not been proved that the plaintiffs’ loans exceeded two-thirds of the modified land value in this case.

[103] In the definition provisions of the Solicitors Nominee Company Rules “Modified Land Value” means an amount equal to the Land Value of any land after deduction of the costs of removal or demolition of any building or improvements on the land.

[104]   Therefore, Modified Land Value means the value of the bare land after it had been cleared but before any development works had been carried out upon it.  If the Valuation Report did not provide any information about the Modified Land Value then  it  would  have  been  the  solicitor’s  obligation  to  investigate  that  value. Regardless there is sufficient information available to the Court from which it can conclude that the undeveloped value of the land was much less than the value of the plaintiffs’ loans – and certainly much less than 50 per cent more than the value of those loans, as it should have been.

[105]   There appears no contrary argument to claims that rr 8.1(a) and 8.1(c) have not been complied with by Mr Snedden.  The loans were not permitted to be used for development works or in any sum which exceeds 5 per cent of the capital value of land after completion of developments.  The plaintiffs’ loan sums clearly exceeded the limits imposed.

[106]   I agree with Mr Hindle’s observation that the Valuation Report makes it clear that the land would not have a value of $1.45 million until the resource consent conditions were met; and until the subdivision was complete, the value given was exactly what it was described to be i.e. conditional.  Therefore until the subdivision was completed the land did not have that value ascribed to it in the Valuation Report. That much appears quite clear in the terms of the Report.

[107]   Although it is not necessary for me to make a finding in relation to the

plaintiffs’ Fair Trading Act claim, I consider there is sufficient evidence in this case

to prove that claim also.   Even accepting Mr Snedden’s account of his telephone conversation with the valuer on 28 March 2006 it was misleading of Mr Snedden not to tell his clients that the valuation was prepared on a hypothetical basis and was dependent on conditions being met – even though Mr Snedden may have believed that the property had a then present value of $1.45 million.  The plaintiffs acted as they did to invest their funds because of Mr Snedden’s conduct but Mr Snedden cannot claim that he did not intend that consequence when in the circumstances of the case he should have ensured that mistake could not have been made.

Summary

[108]  This case devolves to a consideration of the information contained in a registered valuer’s report provided to a solicitor for the purpose of advising his clients about a nominee company investment.   The report was clear.   The market value and mortgage recommendations assessed by the valuer were subject to conditions, including subdivision works, which clearly were yet to be undertaken.

[109]   Mr Snedden was at fault in believing that the property was then worth what he  informed  his  clients  was  the  case.    What  is  more  he  was  in  breach  of  the solicitor’s nominee company rules by advising his clients to invest in his nominee company advance to another client when there was not sufficient security available to protect their investments.

[110]   Mr Snedden was negligent in not advising his clients about the conditions which attached to the valuer’s assessment of market value and mortgage recommendation.

[111]   No purpose would be served by the calling of expert evidence or in providing time to pursue a claim against the valuer to pursue an outcome that was highly speculative.

Judgment

[112]   Judgment will be entered in favour of the plaintiffs against the defendants, as to liability only.

[113]   The proceeding will be adjourned to a chambers list call on 17 August 2012 at 2:15pm for the purpose of scheduling a trial to deal with the plaintiffs’ quantum claims.

[114]   Costs are ordered to be payable to the plaintiffs’ calculated on a category 2B

basis together with disbursements as approved by the Registrar.

Associate Judge Christiansen