Horspool v Glaister Ennor
[2016] NZHC 1386
•24 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-741 [2016] NZHC 1386
BETWEEN KELVIN FREDERICK HORSPOOL
Plaintiff
AND
GLAISTER ENNOR Defendant
Hearing: 30 May 2016 Counsel:
P L Rice for the Applicant
B A Vautier for the RespondentJudgment:
24 June 2016
JUDGMENT OF DUFFY J
This judgment was delivered by me on 24 June 2016 at 12.00 pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Haigh Lyon, Auckland
Glaister Ennor, Auckland
Counsel:
P L Rice, Barrister, Auckland
HORSPOOL v GLAISTER ENNOR [2016] NZHC 1386 [24 June 2016]
[1] The intending plaintiff, Mr Horspool, seeks an order for pre-commencement discovery under r 8.20 of the High Court Rules. The intended defendants oppose the application.
[2] The intended defendants are a solicitor (Mr Jones) and the firm of solicitors of which he is a partner (Glaister Ennor). They acted for Mr Horspool on the conveyance of a property (Unit 1102) he purchased off the plans in an apartment block known as Scene 3.
[3] Mr Horspool contends that Mr Jones and Glaister Ennor were in a conflict of interest and therefore in breach of the fiduciary obligations which they owed to him as their client. There are two aspects to the alleged conflict of interest.
[4] The first aspect of the intended claim is based upon a belief that Glaister Ennor acted for the majority of purchasers of the apartments at Scene 3 in circumstances where it did so for a set fee of $700. Mr Horspool contends that, had insufficient numbers of persons purchased apartments off the plans, the development would not have proceeded and therefore Glaister Ennor would have stood to lose the fees it anticipated earning. He contends that Glaister Ennor had an interest in seeing the sales proceed that was at odds with his own interest.
[5] The second aspect of the intended claim arises from the fact that in 2006, only a few months after Mr Horspool made final settlement on Unit 1102, a company that was managed by Glaister Ennor purchased the head lease to Scene 3. Mr Horspool contends that Glaister Ennor must have known about the opportunity to purchase the head lease several months in advance and therefore had an interest in ensuring that Mr Horspool, and other purchasers in his position, proceeded through to final settlement. In this regard he argues that there was a conflict between Glaister Ennor’s interests and his own.
Intended claim regarding pre-purchase advice
[6] Sometime in mid-late 2003, Mr Horspool became interested in purchasing an apartment off the plans in Scene 3, a multi-storey apartment building near the waterfront in Auckland. The vendor/developer was Tony Gapes, who was associated
with the Redwood Group; and the marketing agent was Pacific East Coast Real
Estate Pty Ltd.
[7] Mr Horspool says that he had no connection with Glaister Ennor prior to the purchase of the apartment and that he:
… must have agreed to a recommendation from the marketing agent to use Glaister Ennor because in October 2003 I received a letter from Mr Jones enclosing a sale and purchase agreement for my signature[.]
[8] This suggests that Mr Horspool has no direct memory of how or why Glaister
Ennor came to be writing to him.
[9] The letter to which Mr Horspool refers is a letter that was couriered to him by Glaister Ennor on 24 October 2003. With the letter was apparently enclosed the following documentation:1
(a) Two copies of the agreement for sale and purchase (“ASP);
(b) An executive summary of the terms and conditions of the ASP; and
(c) A readdressed envelope for Mr Horspool to return “both the signed
agreements to our office via courier as set out below”.
[10] The letter went on to provide clear and explicit directions for signing the documents enclosed with it. It stated as follows:
It is imperative that you return to us both copies of the Agreement for Sale and Purchase signed by yourself and witnessed. All named purchasers need to execute the Agreement for Sale and Purchase where we have tagged on the page marked “execution”. You also need to have your signatures witnessed by a person who should sign his or her full name on the witness signature line and print his or her full name, address and occupation in the next three lines on the execution page.
[11] Further instructions were provided if Mr Horspool were to be signing on behalf of a company, trustee or nominee. The nature of these instructions suggests
1 Neither party has provided a copy of the executive summary that was apparently enclosed with the agreement for sale and purchase.
that Glaister Ennor anticipated that Mr Horspool might execute the ASP based upon the written material he had received from them.
[12] The letter gave two choices in relation to the payment of the deposit of NZ$5000. The first was payment in cash, the second payment by deposit access. Mr Horspool was advised that if he had not already made an election as to how the deposit was to be paid he needed to make the election by ticking the appropriate box and he was given instructions on how to complete either form of payment. Instructions were also given to him regarding contacting a specified courier who, upon being quoted Glaister Ennor’s DHL global account number, would collect the readdressed envelope with the relevant documents inside.
[13] The letter went on to state that it recommended Mr Horspool read the ASP and the executive summary. If he had any questions he was advised as to persons to contact and “we will endeavour to clarify it for you”. The letter then stated that once the two copies of the ASP were returned to Glaister Ennor and signed by the vendor, Mr Horspool would be provided with a copy of the ASP. At that stage Glaister Ennor would provide him with a full letter of report covering such issues as “timetables, conditional dates, Glaister Ennor’s role in the transaction, fees and disbursements that will be charged and any other services that our firm can offer you.”
[14] Mr Jones confirms that on 1 October 2003 Glaister Ennor received a sales advice notice from the marketing agent advising that Mr Horspool intended to purchase Unit 1102 in Scene 3. The sales advice notice identified Anne Needham, a senior registered legal executive of Glaister Ennor as Mr Horspool’s solicitor. Mr Jones also confirmed that on 24 October 2003 Glaister Ennor had couriered the aforementioned written material to Mr Horspool.
[15] Mr Horspool did not have an existing relationship with Glaister Ennor. However, he was satisfied that they appeared to be a reputable firm and had some knowledge regarding the development and contract documentation. He was therefore content to proceed with Glaister Ennor acting on his behalf. However, he did not execute the ASP. Instead, he made an appointment to see Mr Jones to discuss
the ASP with him. Mr Horspool was someone who wanted legal advice before he signed the ASP.
[16] However, Mr Horspool says that when he arrived for the meeting, he was informed that Mr Jones was unavailable and was instead directed to Ms Needham. Mr Horspool alleges that Ms Needham gave very basic and, in his view inadequate, advice about the content of the ASP. He says:
14.I left the meeting with Anne Needham thinking that there was nothing unusual about the agreement and that I was buying a normal unit titled apartment on leasehold land. Ns Needham gave me no reason to believe the agreement was any different from those regularly used to acquire other apartments within the Auckland CBD when buying off the plans.
[17] Mr Horspool signed the ASP on 6 November 2003, a few days after the meeting with Ms Needham. The purchase price was $340,000 and the ground rent was listed in the agreement as $1,200. Final settlement then took place on 2 June
2006.
[18] On 13 November 2003 Ms Needham wrote to Mr Horspool confirming receipt of the executed ASP and thanking him for his instructions. A copy of the ASP was returned to him. This letter provided additional information to the earlier letter of 24 October 2003. In this letter Glaister Ennor advised Mr Horspool:
The agreement is conditional upon:
1. The Vendor obtaining minimum amount of sales by 31 May 2004.
2. The Vendor obtaining consents by 30 June 2004.
[19] The letter went on to say that if the ASP became unconditional there was a formula for when the settlement date would be arrived at, it being anticipated to be by December 2005. The letter dealt separately with Glaister Ennor’s fees and services. It stated the fee was “estimated as $700 plus GST based on a standard fixed fee transaction. In addition please allow for purchase related disbursements of
$280.” The letter contained a caveat which stated:
Please note that if this transaction does not proceed for any reason, our account will be limited up to a maximum fee of $250 plus GST and disbursements which have been expended on your behalf.
[20] Final settlement took place in June 2006. Mr Horspool says that he attended his first AGM for apartment owners in May 2011, and it was only at that stage that he learned there was no body corporate; that he had no ownership rights in the common areas; and that as a result there was no obligation to produce accounts.
[21] Then in August 2011, following the first rent review, the annual ground rent for the apartment increased from $1,200 per year to $9,605.92 per year. The increase in ground rent was such as to render Mr Horspool’s apartment non-profitable. He sold the apartment in November 2015 for $189,000.
[22] Mr Horspool contends that, had he received proper advice when he attended Glaister Ennor’s offices expecting to see Mr Jones, he would not have executed the ASP, and so he would not have suffered the loss that flowed from his purchase of the apartment. He claims that he has suffered losses of $238,974 as a result of his purchase and subsequent sale of the apartment in Scene 3.
Evidence of the alleged arrangement
[23] When the pre-commencement discovery application was first called before me the intended defendants argued that there was no evidence to support Mr Horspool’s assertion that Glaister Ennor were acting as default solicitors for the entire development, and that they therefore had an interest in seeing it progress to completion. The hearing was adjourned to give Mr Horspool the opportunity to provide evidence to substantiate his belief. He was given two and a half days to find such evidence, and to provide it to the court and the intended defendants.
[24] Mr Horspool has subsequently provided further affidavit evidence which reveals that, at the time he settled the ASP on 2 June 2006, all but eight of the 164 units in Scene 3 had been sold. The unsold units were still owned by the developer. Mr Horspool attempted to contact most of the purchasers of the remaining 155 units to discover who had acted for them on the conveyance of their units. He had no success in contacting the owners of 53 units, but of the remaining 102 units he
established that Glaister Ennor acted on the purchase of 88 units. Other solicitors acted on the purchase of the remaining 14 units. So, of the purchasers he could contact, 88% of them had used the services of Glaister Ennor. Mr Horspool invites the court to infer that the fact Glaister Ennor acted for so many purchasers is down to more than coincidence.
[25] Mr Horspool has also managed to obtain a letter that Glaister Ennor sent to
Ms L Barnes-Brett, the purchaser of Unit 501. This letter is dated 18 November
2003. Like the letter sent to Mr Horspool it states that the sale is conditional upon the vendor obtaining the minimum amount of sales. The letter confirms that Glaister Ennor’s fee for the conveyance is estimated at $700 plus GST. It goes on to state that if the transaction does not proceed for any reason Glaister Ennor’s account will be based on the value of time and attendance plus GST and disbursements which have been expended on Ms L Barnes-Bretts’ behalf. Apart from missing the maximum fee of $250 if the transaction does not proceed, this letter is virtually identical to the letter dated 13 November 2003 sent to Mr Horspool.
[26] Mr Jones answered Mr Horspool’s evidence by denying that three of the identified purchasers were in fact purchasers. It later appeared that in at least two of those cases, their names were misspelled and that Glaister Ennor did act for them. Mr Horspool was not able to contact the third individual in time for the resumed hearing. Glaister Ennor will know who it acted for, and, therefore, if any of the 53 purchasers who Mr Horspool could not contact were its clients. The intended defendants’ evidence is silent on this topic. So, as matters stand there is no evidence to rebut the inference to be drawn from the available evidence that a significant number of purchasers appear to have instructed Glaister Ennor to act for them.
[27] Initially, Mr Horspool had contended that the developer/vendor of Scene 3, Tony Gapes and the Redwood Group, had directed potential purchasers to Glaister Ennor. However, Mr Jones refuted in evidence any suggestion that Mr Gapes or the Redwood Group had appointed Glaister Ennor to act for purchasers or that the law firm had acted for the developer/vendor or entered into any arrangement or understanding with the vendor causing it to refer purchasers to Glaister Ennor. This
has led Mr Horspool to look beyond the developer/vendor to the marketing agent as being the party responsible for referring potential purchasers to Glaister Ennor.
[28] The marketing agent’s involvement will need to be ascertained. Further, since the marketing agent was acting for the developer/vendor it would then be a matter of ascertaining to what extent its actions can be attributed to its principal. Mr Jones’ evidence does not address any contact of any sort that Glaister Ennor may have had with the marketing agent, or how it came to be that the marketing agent was referring purchasers to Glaister Ennor.
[29] Mr Horspool modified part of his intended claim to take account of this shift away from his initial position that the developer/vendor appointed Glaister Ennor to act as default solicitor for purchasers of Scene 3. His reformulated intended claim would be that Glaister Ennor was conflicted when acting for him on the purchase of Unit 1102 in November 2003 because the law firm or an individual or company associated with Glaister Ennor had a contract, arrangement or understanding with the developer and/or agent of the developer relating to the referral of purchasers of apartments in Scene 1, Scene 2 and Scene 3 to Glaister Ennor as their solicitor for the purchase of those apartments. Glaister Ennor, therefore, had an interest in ensuring that the development proceeded. This conflict inhibited Glaister Ennor in the advice it gave. The conflict and its ramifications were never explained to Mr Horspool. The result was that he proceeded with the purchase of a leasehold apartment without understanding the many disadvantages of doing so.
[30] Mr Horspool’s interest in Scene 1 and Scene 2 seems to me to form part of an evidential enquiry to support his own case, as he says that purchasers of apartments in Scene 1 and Scene 2 were treated in much the same way as the purchasers of apartments in Scene 3.
Intended claim regarding purchase of head lease
[31] The second aspect of Mr Horspool’s intended claim relates to events subsequent to his purchase of the apartment. He contends that in December 2006 he was notified that the lessee’s interest in the head lease had been sold to GEK
Property Nominees (Waterfront) Ltd (“Waterfront”). The letter stated that the new
owner was being managed by Glaister Ennor.
[32] Mr Jones’ evidence is as follows:
9Mr Jack Porus, a partner in Glaister Ennor, is instrumental in establishing syndicates for the purpose of purchasing investment properties and interests in properties for investors. In each case, a company is incorporated as a vehicle to manage the funds received from investors.
10In mid-September 2006, Mr Porus was approached by Redwood Group to see if he was interested in establishing a syndicate to purchase the management rights of the head lease of the Scene 3 building.
11 It was not until 6 November 2006 that Mr Porus incorporated the company known as GEK Property Nominees (Waterfront) Limited (“Waterfront”) and sought formal expressions of interest from potential investors. Glaister Ennor itself has no beneficial interest in Waterfront.
12Waterfront completed the purchase of the management rights and head lease in Scene 3 on 18 December 2006.
[33] The relevant pages of the Companies Office website indicate that Waterfront is wholly owned by GEK Property Management Ltd, whose shareholders are partners of Glaister Ennor. Thus the partners of that firm in another capacity stood to gain from acquiring the lessee’s interest in the head lease. The second limb of Mr Horspool’s case is that this interest (via Waterfront) placed the intended defendants in breach of their fiduciary obligations to Mr Horspool.
[34] Mr Horspool has formulated this aspect of his intended claim as follows. Glaister Ennor was also conflicted at the time of settlement in June 2006. Scenes 1,
2 & 3 are situated on land owned by Ngati Whatua Orakei Whai Rawa Ltd (“Ngati Whatua”). The land was leased to one of the Redwood Group of companies on a long-term lease to enable the development to proceed. On settlement the apartment was sub-leased to Mr Horspool on a similar long-term lease, but at a premium above the rental charged by Ngati Whatua. In December 2006 a company owned or controlled by the partners of Glaister Ennor (Waterfront) acquired the head lease from the head lessee entitling it to receive the rental from the sub-lessees as well as other management rights. Mr Horspool contends that Glaister Ennor must have been
in negotiation for the purchase of the head lease for several months prior to December 2006, and may well have been interested in acquiring the head lease from an even earlier period that overlapped with the settlement of Mr Horspool’s purchase in June 2006. He says that he was not informed of Glaister Ennor’s interest in acquiring the head lease or the ramifications of this conflict. Again, he contends that this conflict inhibited the intended defendants in the advice that was given to him.
[35] Mr Jones’ evidence is that Mr Porus was not approached by the Redwood Group, as lessee of the head lease, until mid-September 2006 which shows that by the time the company associated with Glaister Ennor obtained the head lease Mr Horspool was already committed as a purchaser of Unit 1102.
[36] However, whether Mr Horspool would have suffered the same loss had he refused to settle or looked to re-sell before the ground rental increase is another question. The loss that Mr Horspool claims to have suffered here is really the loss of the chance of putting himself in a better position, had he received the advice he contends a non-conflicted and otherwise loyal solicitor would have provided to him.2
Application for pre-commencement discovery
[37] Mr Horspool seeks pre-commencement discovery in relation to:
a)Documents or correspondence evidencing any contract, arrangement or understanding between Glaister Ennor (“GE”) or an individual or company associated with Glaister Ennor and the developer or an agent of the developer relating to the referral of purchasers to Glaister Ennor for purchase of apartments in Scene 1, 2 & 3.
b)Documents or correspondence evidencing when GE first became aware that the head lease for Scene 1, 2 or 3 might be available for purchase and first expressed interest in purchasing the head lease for those developments.
[38] Glaister Ennor and Mr Jones oppose the application on the basis that:
(a) The intending plaintiff is not entitled to claim relief against the intended defendants;
2 The range of remedies open to a plaintiff when seeking relief for a breach of equitable obligations can include compensation on a loss of chance basis: see Chirnside v Fay [2007] 1
NZLR 433 at [100].
(b) The intending plaintiff’s proposed claims are time barred;3
(c) It is not impossible or impracticable for the intending plaintiff to formulate his proposed claims against the intended defendants;
(d) The intending plaintiff has no reasonable grounds for his belief that the documents in part 1 of the schedule may be in the possession of the intended defendants;
(e) The documents in part 2 of the schedule are not relevant to any actionable claim against the intended defendants.
Submissions for the intending plaintiff
[39] Mr Rice, who appears for Mr Horspool, submits that Mr Horspool potentially has a valid cause of action for breach of fiduciary duty. He identifies three elements that are necessary in order to prove such a claim. The first is that the intended defendants owed the intending plaintiff a fiduciary duty. Mr Rice submits that this element is clearly satisfied, given the solicitor-client relationship. The second element is that the intended defendants were in breach of that duty. Mr Rice submits that the evidence Mr Horspool has provided to the court is sufficient to show inferentially that Glaister Ennor and Mr Jones may have had a personal interest in the sale of the Scene 3 apartments. If that is so, he submits, Mr Jones was required to disclose that interest to Mr Horspool so as to enable the latter to determine whether he wished to proceed on that basis. No conflict of interest was disclosed in this case. The third element is that the intending plaintiff has suffered loss as a result of a transaction to which the breach of fiduciary duty was material. Mr Rice cites the judgment of Tipping J in Bank of New Zealand v New Zealand Guardian Trust Co Ltd as authority that once a plaintiff has established that he suffered loss as a result of an impugned transaction, the onus shifts to the fiduciary to demonstrate that
the plaintiff would have suffered the loss in any case.4 In this case, Mr Horspool
says that he would not have proceeded with the transaction, had he been properly advised.
[40] Mr Rice counters the intended defendants’ argument that the claim is time
barred with the submission that the intended defendants have mistakenly cited s 11 of the Limitation Act 2010 when in fact the applicable legislation is the Limitation
3 The Notice of Opposition refers to s 11 of the Limitation Act 2010.
4 Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA).
Act 1950. He further submits that a claim for equitable compensation arising out of a fiduciary breach is a claim for “equitable relief” within the meaning of s 4(9) of the Limitation Act 1950, and therefore is not subject to any statutory limitation period.
[41] Mr Rice submits that the courts have adopted a liberal interpretation of the words “impossible or impracticable” in r 8.20(1)(a) which includes a wider notion of allowing the intending plaintiff the opportunity to consider its further course of action and possibly to limit the issues addressed in a claim. Mr Rice submits that in the present case it is impracticable to properly formulate the claims without discovery of the documents sought.
[42] Mr Rice submits that it cannot be an accident that Glaister Ennor received instructions to act for the majority of purchasers in relation to Scene 3. When the hearing was first called Mr Rice had little in the form of evidence to support this submission. The hearing was adjourned to give Mr Rice the opportunity to provide further evidence, and within a short time frame Mr Rice was able to obtain evidence that goes some way to proving that many of the purchasers of the apartments in Scene 3 were represented by Glaister Ennor. He submits that the court can infer from the number of purchasers that used Glaister Ennor’s services that the involvement of this law firm was other than coincidental. He submits that there is likely to be some communication or documentation that explains their appointment as solicitors for so many purchasers.
[43] Mr Rice further submits that Mr Horspool was not contractually bound to settle in 2006, and that if he had been aware that Glaister Ennor was seeking to purchase the head lease, then he would have cancelled the agreement. He further submits that any speculation about whether Mr Horspool would have proceeded irrespective of any disclosure of a conflict on the part of Glaister Ennor is inappropriate. If such a conclusion is to be drawn it should be a fair and reasonable inference based on the evidence tendered at trial.
Submissions for the intended defendants
[44] Mr Vautier,5 on behalf of Glaister Ennor and Mr Jones, initially addressed a number of the points made by Mr Rice. He initially submitted that there was no evidence as to how many purchasers in Scene 3 instructed Glaister Ennor to act in respect of their apartment purchase. He relied on Glaister Ennor’s denial that it was a “default solicitor”, and submitted that it is common practice for agents to refer potential purchasers in multi-unit buildings to the same solicitor. No evidence to support this submission was provided.
[45] The evidence gap identified by Mr Vautier was satisfied to some extent by the later evidence Mr Horspool provided. Mr Vautier was critical of this evidence for being hearsay. However I consider that the form of the evidence was acceptable and admissible given the context in which it was being used: namely, this was an interlocutory hearing where some use of hearsay evidence is admissible. Here there could be little real concern about the reliability of the evidence. Insofar as it suggests a significant number of purchasers were represented by Glaister Ennor, such that the firm’s involvement was more than coincidental, it would be open to Glaister Ennor to check its own records to ascertain if it did in fact act for so many purchasers. Further, Glaister Ennor must have some knowledge of how it came to be that it acted for a significant number of purchasers. So the usual reliability concerns that can arise with hearsay evidence do not apply here.
[46] Mr Vautier submits that Mr Horspool is not entitled to claim relief, as is required under r 8.20. Mr Vautier submits that Mr Horspool has not adduced any evidence upon which he might base a claim for breach of fiduciary duty, and he has failed to show how the actions of the intended defendants might have caused actionable damage. In this regard, however, Mr Vautier acknowledged that in principle a firm of solicitors who acted for a number of purchasers and so stood to gain from the fees generated by those conveyances might have a conflict of interest when it came to advising someone in Mr Horspool’s position. Mr Vautier argued that this is not how the intended claim was originally formulated, and he contended
that Mr Horspool should not be permitted to modify the claim during the course of
5 Mr Vautier is himself a partner in Glaister Ennor.
argument. However, I can see no reason why such modification should not be permitted if it ensures the court is focused on the real issue of the dispute.
[47] Mr Vautier submits that if Mr Horspool had any complaint in respect of the advice he received from Glaister Ennor then he was entitled to bring a claim in negligence, however such a claim would now be time barred. This submission misses the point. Mr Horspool seeks to bring a claim in equity for breach of fiduciary duty as a result of the intended defendants having a conflict of interest when they acted for him. Such a claim is entirely different from one in negligence. Furthermore equitable claims are, as Mr Rice pointed out, not subject to the
Limitation Act 1950.6
[48] Whilst the provisions of the Limitation Act 1950 can in some cases provide a guide for determining whether any delay will disqualify a claim in equity, this is generally limited to cases in which the remedy at equity is correspondent to the remedy at law.7 This will turn on the nature of the particular claim:8
[80] … The fiduciary claim will always prima facie survive the statutory barring of an allied common law or indeed equitable claim. There will be a bar by analogy only when the fiduciary claim parallels the statute barred claim so closely that it would be inequitable to allow the statutory bar to be outflanked by the fiduciary claim. In order to determine how close the parallel is the Court must examine not only the underlying facts but also the nature of the relationship between the parties and the policy and purpose of the different causes of action. If there is a sufficient difference in any material respect, the suggested parallel is unlikely to be close enough to make it appropriate in equity to apply an analogous bar.
[81] … The judgments in Matai Industries and S v G should not be read as suggesting that the issue can be concluded solely by reference to the degree of concurrence of the factual allegations. That of course must be the first focus because, if there is no sufficient degree of concurrence in that respect, the suggested analogy is likely to fail at that point. If, however, there is a factual concurrence in the sense that the different causes of action are simply different ways of putting the same factual complaint, and there are no policy or other reasons militating against it, the case for an analogous bar is likely to have been made out.
6 The former legislation was in force at the relevant time.
7 Johns v Johns [2004] 3 NZLR 202 (CA) at [80].
8 At [80]–[81].
[49] In this case I consider that the claim which Mr Horspool intends to bring, being a claim for breach of fiduciary duty, is sufficiently unique that the analogous bar may not apply.
[50] I acknowledge that Glaister Ennor may have an equitable defence of laches, which is preserved by s 31 of the 1950 Act. However at this stage of proceedings it is not possible to say definitively whether the defence of laches would apply to Mr Horspool’s claim. The defence of laches is inherently discretionary and can turn on the particular facts of the case. Relevant factors include the nature of the remedy sought, the position of the plaintiff, any prejudice to the defendant or a third party as a result of the delay, any evidential difficulties created by the delay, the nature of the transaction involved and the length of the delay.
[51] Mr Vautier further submits that it would be neither impossible nor impracticable to formulate a statement of claim without the documents sought. He argues that it is not enough for it to be merely inconvenient for Mr Horspool to formulate his claim.
[52] Finally, Mr Vautier submits that there is no evidence to suggest that the documents he seeks actually exist or are/were in the possession of the intended defendants.
Analysis
[53] Rule 8.20 of the High Court Rules provides:
8.20 Order for particular discovery before proceeding commenced
(1) This rule applies if it appears to a Judge that—
(a) a person (the intending plaintiff) is or may be entitled to claim in the court relief against another person (the intended defendant) but that it is impossible or impracticable for the intending plaintiff to formulate the intending plaintiff’s claim without reference to 1 or more documents or a group of documents; and
(b) there are grounds to believe that the document may be or may have been in the control of a person (the person) who may or may not be the intended defendant.
(2) The Judge may, on the application of the intending plaintiff before any proceeding is brought, order the person—
(a) to file an affidavit stating—
(i) whether the documents are or have been in the
person’s control; and
(ii) if they have been but are no longer in the person’s control, the person’s best knowledge and belief as to when the documents ceased to be in the person’s control and who now has control of them; and
(b) to serve the affidavit on the intending plaintiff; and
(c) if the documents are in the person’s control, to make those
documents available for inspection, in accordance with rule
8.27, to the intending plaintiff.
(3) An application under subclause (2) must be by interlocutory application made on notice—
(a) to the person; and
(b) to the intended defendant.
(4) The Judge may not make an order under this rule unless satisfied that the order is necessary at the time when the order is made.
[54] It appears to be common ground between the parties that there are three requirements which must be satisfied in order to obtain an order under r 8.20:9
(a) The intending plaintiff is or may be entitled to claim relief against another person;
(b)It is impossible or impracticable for the plaintiff to formulate the claim without the documents sought; and
(c) There are grounds for belief that the documents may be or have been in the possession of the person concerned.
9 Welgas Holdings Ltd v Petroleum Corp of NZ Ltd (1991) 3 PRNZ 33 (HC) at 40, per
McGechan J.
Is the intending plaintiff entitled to claim relief?
[55] A key point in respect of this issue is that the intending plaintiff is not required to establish a probability of success, but merely that he or she would have a real (rather than a speculative) claim against the intended defendants. McGechan J described this as a “‘sufficient substratum of fact’ … which takes matters beyond mere fishing; mere trawling or speculation”.10 In Exchange Commerce Corporation
Ltd v New Zealand News Ltd, the Court of Appeal held:11
Not much difficulty can arise in the case of an intending plaintiff who makes it appear to the Court that he is entitled to claim relief against another but cannot formulate his claim without reference to a particular document or class of document. This must we think embrace circumstances where the actual defendant is not known as well as cases where some date figures or other fact or circumstance is necessary in order to plead the claim as the rules require. This part of the rule postulates that the plaintiff has a claim but cannot adequately formulate it or name the defendant.
More difficulty arises when the intending plaintiff seeks to make it appear to the Court that he or she may be entitled to relief against another but cannot formulate a claim without reference to such document or class of documents. The words “may be entitled” cannot be read as enabling any disgruntled person to obtain a discovery in the hope that it may provide material to mount a claim. Apart from the fact that it is inherently unlikely that such a thing would ever be intended it seems clear from the rule itself. What must be shown is an inability to refer to a particular document or class of documents which inability inhibits formulation of the applicant's claim. It follows that the words “may be entitled” contemplate evidence of circumstances showing at least the real probability of the existence of a claim against someone.
[56] Solicitors undoubtedly owe fiduciary obligations to their clients, and they are obliged to ensure their own interests are not in conflict with those of their client. In many cases, a solicitor will stand to receive a greater sum in fees if a transaction proceeds. This is unavoidable, since in such cases the solicitor will undertake more work if the transaction proceeds than if it should fail. That is the nature of a solicitor’s work and is not generally considered to generate a conflict of interest for the purposes of fiduciary duties. However, the intended claim appears to me to go
further than those circumstances.
10 Welgas Holdings Ltd, above n Error! Bookmark not defined., at 43; affirmed in Hetherington v Carpenter [1997] 1 NZLR 699 (CA).
11 Exchange Commerce Corp Ltd v NZ News Ltd [1987] 2 NZLR 160 (CA) at 164.
[57] Mr Horspool submits that it cannot be a coincidence that Glaister Ennor acted for a significant number of the purchasers in Scene 3, and that Glaister Ennor must have looked into purchasing the lessee’s interest in the head lease several months before the final purchase. The evidence he has supplied so far shows the claim to be more than fanciful or speculative.
[58] If the intended defendants were acting for Mr Horspool in circumstances where they expected or understood that they would be acting for a significant number of the purchasers of the Scene 3 apartments on much the same terms as those set out in the letters to Mr Horspool of 24 October 2003 and 13 November 2003, they would have stood to gain a significant fee from those purchasers. This circumstance might well give rise to a conflict of interest which, in the absence of appropriate safeguards, could amount to a breach of fiduciary duty – particularly if Mr Horspool can establish that another solicitor would have advised him against the purchase of Unit 1102.
[59] It will be a matter at trial for Mr Horspool to establish that the terms of the purchase were not favourable, and that a solicitor who was acting in accordance with his or her fiduciary obligations would have better identified the disadvantages attached to the purchase. If he can obtain expert evidence to support his case he will no doubt be inviting the court to infer that insofar as Glaister Ennor’s advice may have fallen short, this was due to the law firm disloyally putting its own interests before his own.
[60] For the purposes of pre-commencement discovery, it is only necessary for Mr Horspool to demonstrate that he may be entitled to claim relief. I am satisfied that he has done so.
Is it impossible or impracticable to formulate the claim without those documents?
[61] The Court of Appeal has defined “impossible or impracticable” to mean “an inability to plead the claim in accordance with the requirements of the rules”.12 In a
later case Hetherington Ltd v Carpenter, the Court of Appeal reaffirmed that
12 Exchange Commerce Corp Ltd, above n 11, at 164.
definition and noted that “[t]he focus is on pleading, not proof. Further and more general discovery can be sought once the pleadings have been completed.”13
However in the same case, the Court also accepted that:14
… one of the purposes of the rule is to enable the intending plaintiff to consider prior to issue whether the proposed proceedings should indeed be issued, and if so whether their scope should be narrower than originally contemplated.
[62] In British Markitex Ltd v Johnston Wylie J held:15
The word [impracticable] must be read and interpreted in its context. Here there can be no hard and fast lines as to the practicability or otherwise of formulating a claim on known facts. It may well be practicable in one sense to formulate a claim, but only in such a way that it is done badly or inadequately. When the rule speaks of impracticability I think it must be assumed that the ultimate objective is to ensure that pleadings are properly drawn to ensure justice for the parties. It cannot be intended, nor is it in the interests of anyone, that the time and money of the parties and the Courts should be taken up unnecessarily by adopting an over strict interpretation of a word of imprecise meaning in the rule, and so creating the necessity for further pleadings as a result of discovery obtained under r 301, when prior discovery might just as well have been obtained under r 299 in advance of the proceedings to ensure that the proceedings were adequately commenced in the first place. For those reasons and because of its juxtaposition, and therefore, contrast with impossibility I do not think that the concept of impracticability should be interpreted in a strict and restrictive sense.
[63] In respect of this criterion, it seems relevant to consider the documents which Mr Horspool is seeking to access. Mr Vautier argued that with the evidence Mr Horspool provided he already has enough information to begin proceedings. However, the documents which Mr Horspool seeks would provide a solid factual basis for the claim rather than the present inferential basis, as they would go to show whether there was a relationship between the intended defendants and the developer/vendor/marketing agent, as well as establishing when Glaister Ennor first expressed interest/commenced negotiations to purchase the lessee’s interest in the head lease. The documents would also assist Mr Horspool to ensure that his initial claim was pleaded with sufficient particularity, and so avoid the need for any
amendment of the pleadings after discovery.
13 Hetherington Ltd, above n 10, at 705.
14 At 705.
15 British Markitex Ltd v Johnston (1987) 2 PRNZ 535 at 541.
[64] I also consider it to be impracticable to formulate the claim responsibly without access to the documents sought, which is a relevant consideration here. Mr Vautier was critical of the basis for bringing the claim against the intended defendants, which he contended implied dishonesty or improper purpose on the part of the intended defendants. Mr Rice rejected this view, contending that breach of fiduciary duty is based on absence of loyalty not dishonesty. I agree with Mr Rice’s description. Nonetheless, to suggest a law firm has acted in breach of fiduciary duty by permitting a conflict of interest between its own interests and those of its clients is a serious allegation to make. I consider that to seek pre-trial discovery in such circumstances allows Mr Horspool and his legal advisers the opportunity to ascertain whether they should proceed with the intended claim without causing the intended defendants the attention and impact that can flow from filing legal proceedings in this court.
Are there grounds to believe that the intended defendants hold the documents in question?
[65] The relevant belief is that of the court, not the deponent.16 However, in Baker-Marriott v Krukziener, the High Court held that the persistent denials by the intended defendants that they held the relevant documents, combined with the absence of any independent evidence that the intended defendants held the relevant documents, meant that the application for pre-commencement discovery should fail.17
[66] In the present case, the intended defendants have consistently denied – before the Law Society, to Mr Rice, in Mr Jones’ affidavit and in the submissions in relation to the present matter – that there are any documents relating to a “default solicitor” arrangement in relation to the sale and purchase of apartments in Scene 3. However this was when the focus of this allegation was on the developer/vendor responsible for appointing Glaister Ennor to act for purchasers. The allegation has since
broadened and it is now more subtle in its application.
16 McGechan on Procedure at [HR8.20.03(3)].
17 Baker-Marriott v Krukziener HC Auckland M1397/93, 5 November 1993.
[67] Glaister Ennor acted for a significant number of purchasers of the apartments. It is difficult to see how this could occur by coincidence. There has to be a reason why so many purchasers went to Glaister Ennor. The letter Mr Horspool received dated 24 October 2003 resembles a pro-forma letter that was sent to other purchasers. This too suggests that someone was responsible for directing purchasers to Glaister Ennor. If it was the marketing agent the next question is whether the agent did this of its own volition, or at the direction of its principal, the developer/vendor. Whatever the answer to that question is, the other relevant question is when and how did Glaister Ennor learn it would be acting for a significant number of purchasers of Scene 3? If it expected or understood that it would be acting for a significant number of those purchasers, how did that expectation or understanding come about? Some relevant documentation on those topics is likely to exist. Once the intended defendants expected or understood they would be acting for a significant number of the purchasers of Scene 3 apartments this might be enough in itself to place the intended defendants in a conflict of interest with Mr Horspool such that they could not discharge the fiduciary obligation they owed to him.
[68] Regarding the second limb of Mr Horspool’s case, the intended defendants have never denied that there would be documentation indicating the events surrounding Waterfront’s purchase of the head lease to Scene 3.
Conclusion
[69] For the above reasons I am satisfied that the application for pre-trial discovery should be allowed.
[70] I order:
(a) That the intended defendants file an affidavit stating:
(i)Whether the documents set out at [71] below are in their control; and
(ii)If the documents have been but are no longer in the intended defendants’ control, their best knowledge and belief as to when the documents ceased to be in their control and who now has control of them; and
(b) To serve the affidavit on the intending plaintiff; and
(c) To make the documents available for inspection to the intending plaintiff in accordance with r 8.27 of the High Court Rules.
[71] The documents in question are:
(a) Any documents or correspondence evidencing any contract, arrangement or understanding between Glaister Ennor (or an individual or company associated with Glaister Ennor) and the developer or an agent of the developer relating to the referral of purchasers to Glaister Ennor for purchases of apartments in Scene 1, Scene 2 or Scene 3;
(b) Any documents or correspondence evidencing when Glaister Ennor
(or an individual or company associated with Glaister Ennor):
(i) First became aware that the head lease for Scene 1, Scene 2 or
Scene 3 might be available for purchase;
(ii) First expressed interest in purchasing the head lease for Scene
1, Scene 2 or Scene 3;
(iii) Commenced negotiations for the purchase of the head lease for
Scene 1, Scene 2 or Scene 3;
(iv) Agreed to purchase the head lease for Scene 1, Scene 2 or
Scene 3.
[72] The parties have leave to file memoranda on costs.
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