Lee v Lee

[2013] NZHC 1069

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2010-463-000430 [2013] NZHC 1069

BETWEEN  ROBERT LEE AND HELEN HEARD Applicants/Plaintiffs

ANDGREGORY LEE Respondent/Defendant

Hearing:         15 April 2013

Counsel:         A G W Webb for Applicants/Plaintiffs

M S McKechnie and J Bergseng for Respondent/Defendant

Judgment:      13 May 2013

In accordance with r 11.5 I direct the Registrar to endorse this judgment with the delivery time of 4.30 pm on the 13th day of May 2013.

RESERVED JUDGMENT OF COLLINS J

Introduction

[1]      The principal issue I have to resolve is whether Associate Judge Christiansen erred when he struck out the plaintiffs’ claim on the basis that it was barred by the time limits contained in s 4 of the Limitation Act 1950 (the Act).

Summary of case

[2]      The plaintiffs and defendant are siblings.   They also have another brother, Melvin Lee, who is not a party to this proceeding.  Their parents, Ray and Joyce Lee, owned a plastic manufacturing business in Rotorua called High Duty Plastics Ltd

(HDP).

LEE V LEE HC ROT CIV-2010-463-000430 [13 May 2013]

[3]      At the material time HDP had 1,000 shares.   On 6 October 1997 Ray and Joyce Lee signed a deed in which they agreed to transfer 900 “B” shares in HDP to Greg Lee.  Those shares had no voting rights attached to them under the deed.  The remaining A shares, which had full voting rights, were to be placed in trust until the death of Ray and Joyce Lee.  Greg Lee was the sole beneficiary of that trust.  At the same time Greg Lee:

(1)       acknowledged a debt of $200,724 to Ray and Joyce Lee.  That debt was to be forgiven on the death of Ray and Joyce Lee;  and

(2)       a further debt of $132,174 which would be repaid to the estate of Ray and Joyce Lee within seven years of their death.

[4]      On 4 August 2000 Ray and Joyce Lee executed another deed under which

Greg Lee immediately received the 100 A shares in HDP. At the same time: (1)      Ray and Joyce Lee forgave Greg Lee’s debt of $132,174;

(2)       Greg Lee paid Ray and Joyce Lee $200,000.

[5]      Ray Lee passed  away on 31 January 2003.   Joyce Lee passed away on

20 June 2004.  Robert Lee and Helen Heard are the executors of Joyce Lee’s estate.

[6]     On 29 September 2011 Robert Lee and Helen Heard commenced their proceeding in which they asked the High Court to set aside the transfer of the shares in HDP to Greg Lee. They allege that Greg Lee:

(1)       asserted undue influence over Ray and Joyce Lee; (2) gained an unconscionable bargain;  and/or

(3)       breached his duties as a fiduciary

when Ray and Joyce Lee executed both the 1997 and 2000 deeds.

[7]      Greg Lee filed a strike-out application in which he claims that the proceeding is frivolous, vexatious or is an abuse of the process of the Court because it is barred by s 4(3) of the Act.

[8]      Section 4(3) of the Act states that “an action upon a deed shall not be brought after the expiration of 12 years from the date on which the cause of action accrued”.

[9]      The essence of Greg Lee’s case is that the cause of action accrued when the deed of 6 October 1997 was executed and therefore the latest date the proceeding could be commenced was 6 October 2009.  It is an essential part of Greg Lee’s case that the deed executed on 4 August 2000 was merely a variation of the 6 October

1997 deed.

[10]     Robert Lee and Helen Heard say that the 12 year time limit in s 4(3) of the Act applied from 4 August 2000 and that accordingly, their proceeding could only be barred if it had been commenced after 4 August 2012.   As the proceeding was commenced on 29 September 2011 they say s 4(3) of the Act does not affect them.

[11]     Robert Lee and Helen Heard also say that the 12 year time limit in s 4(3) of the Act does not apply because they are seeking equitable relief.   They rely upon s 4(9) of the Act which says the 12 year time limit in s 4 does not apply to any claim for equitable relief.  However, under s 4(9) the time limits in s 4 of the Act can be applied “by analogy” to proceedings in which equitable relief is sought.

Associate Judge’s decision

[12]     In his decision delivered on 6 December 2012 Associate Judge Christiansen held:

(1)      the plaintiff’s cause of action accrued from 6 October 1997 because in his assessment the deed executed on 4 August 2000 was merely a variation to the earlier deed;

(2)      for the purposes of s 4(9) of the Act, the proceeding was analogous to a claim based upon a breach of contract and therefore subject to the six year time limit in s 4(2) of the Act;  and

(3)       the proceeding was frivolous, vexatious and an abuse of process.

Grounds for review

[13]     Robert Lee and Helen Heard advance three grounds for reviewing Associate

Judge Christiansen’s decision, namely:

(1)      They contest the finding that the deed of 4 August 2000 was merely a variation of the 6 October 1997 deed.

(2)      Even if the cause of action accrued on 6 October 1997, equitable claims cannot be time barred;  and

(3)      Because the case involves competing equities it is necessary to test the allegations of both sides by allowing the case to proceed to trial.

Principles governing the review

[14]     Rule 2.3(4) of the High Court Rules provides that appeals of this nature are conducted as a “review” by way of “rehearing”.  Section 26P(1)(b) of the Judicature Act 1908 provides that on review I “may make such order as may be just”.

[15]     In this case:

(1)      Robert Lee and Helen Heard bear the burden of persuading me that Associate Judge Christiansen’s decision was wrong.   It is only if I consider that Associate Judge Christiansen’s decision was wrong that

I should interfere with it.1

1      Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

(2)      I  am  not  obliged  to  defer  to  the  decision  of  Associate  Judge Christiansen.  If I think the Associate Judge was wrong then I should allow the appeal.2

The correct approach to a limitation test

[16]     In Murray v Morel & Co Ltd,3 the Supreme Court explained the onus faced by  a  defendant  who  applies  to  strike  out  a  claim  on  the  basis  of  a  limitation provision.  Tipping J held that to succeed the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff ’s claim can properly be regarded as frivolous, vexatious or an abuse of process.4  If the defendant demonstrates that the proceeding was commenced after the period allowed for the particular cause of action, the plaintiff will need to show there is an arguable case for

relief from the limitation provisions.

Approach to assessing the appeal

[17]     In assessing the merits of this appeal I shall examine:

(1)       the events leading up to the execution of the 6 October 1997 deed;

and

(2)       the events leading up to the execution of the 4 August 2000 deed.

[18]     In taking this approach, I record that both parties were granted leave to file additional evidence.   I have carefully considered that evidence and  reached the following conclusions:

(1)       The affidavit from Robert Lee contains information that was in his possession or available to him prior to the hearing of the application

before Associate Judge Christiansen.  All of the information was in

2      At [3] and [16].

3      Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.

4 At [33].

fact available to Robert Lee and Helen Heard prior to their filing their statement of claim.

(2)       The affidavit from Helen Heard does not contain any “new evidence”.

It refers to matters which were within the knowledge of Robert Lee and Helen Heard including the documents referred to, prior to the hearing of the strike-out application and prior to the filing of their proceeding.

[19]     The affidavit of Janine Bright dated 8 March  2013 provides information about what she considers to have been the true value of HDP.  Her affidavit refers to a report that she was commissioned to write by Robert Lee.   The report is dated

22 February 2011 and was therefore completed some seven months before the filing of the proceeding.  It was therefore information available to the plaintiffs prior to the hearing of the strike-out application.

[20]     I have considered the information contained in these affidavits because I considered it in the overall interests of justice for me to carefully consider all aspects of the plaintiff’s case.   In doing so, I have given the plaintiffs latitude that goes beyond the limits of the principles that govern the admission of new evidence,5 which requires litigants to present all relevant and available evidence at the first hearing of the merits of a case, rather than through an iterative process when the case is appealed.  This concern is driven by the desire to bring finality to litigation.  In deciding to receive and consider the “new” evidence submitted by Robert Lee and

Helen Heard, I have borne in mind Lord Atkins aphorism that “finality is a good thing;  but justice is better”.6

The 6 October 1997 deed

[21]     HDP was incorporated in 1983.  Approximately two to three years after HDP

was incorporated, Greg Lee commenced working for his parents’ business.  Greg Lee was one of four children in Ray and Joyce Lee’s family.  Greg Lee has worked at

5      See Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA)

at 192.

6      Ras Behari Lal v King Empheror (1933) 50 TLR 1, (1933) 61 IA 354 (PC).

HDP since approximately 1985.   Robert Lee also worked for HDP from 1992 to

1995.  Helen Heard has also worked for HDP.

[22]     In November 1994 Ray and Joyce Lee started planning for their succession. This process took some time and involved them receiving advice from their lawyer and accountant. Their principal assets were:

(1)      Their residential home at 101 Springfield Road, Rotorua which was valued at $195,000 on 21 December 1996.

(2)       The factory property at 192 View Road, Rotorua which was valued at

$273,000 on 31 July 1995;

(3)       Their shares in HDP which were valued at $325,898 on 20 February

1996.

[23]     It  appears  that  Ray  and  Joyce  Lee  wanted  to  achieve  two  goals  when planning for their succession:

(1)      that Greg Lee would acquire HDP.  This desire reflected the fact that Greg Lee had been working continuously at HDP and appears to have played a significant role in the management of the company.

(2)      that their four children would inherit shares in Ray and Joyce Lee’s assets that were approximately equal in value.

Achieving these objectives proved to be challenging.   Ray and Joyce Lee had meetings with their solicitor and accountant on 25 June 1994 and 24 April 1997. The first steps in planning their succession involved Ray and Joyce Lee transferring their home and the factory property to the R B and J G Lee Family Trust.   Ultimately, Robert Lee, Helen Heard and Melvin Lee inherited these assets.

[24]     On 30 September 1997 the following steps were taken: (1)     HDP issued 900 new shares;

(2)       HDP acquired 29,360 of its own shares from Ray and Joyce Lee, leaving a balance of:

(a)     100 A shares;  and

(b)     900 B shares.

(3)      Greg Lee was appointed a director of HDP. [25]         On 1 October 1997:

(1)       Greg Lee executed an acknowledgement of debt to Ray and Joyce

Lee. That debt was $200,724;

(2)       HDP assigned an acknowledgement of debt to Ray and Joyce Lee.

That debt was $275,000. [26]   On 2 October 1997:

(1)       Greg Lee signed a term loan agreement in which he acknowledged that he owed Ray and Joyce Lee $132,174;

(2)       Ray and Joyce Lee executed a new will. [27]   On 6 October 1997:

(1)       Ray and Joyce Lee executed the “Bare Trust Deed” under which: (a) 900 B shares in HDP were to be transferred to Greg Lee;  and

(b)    100 A shares in HDP were to be held in trust by Ray and Joyce Lee’s accountant.  Greg Lee was to be the final beneficiary of that trust.

Only the A shares in HDP carried voting rights.

(2)      Ray and Joyce Lee executed a memorandum of wishes concerning their family trust.

[28]     The memorandum of wishes of 6 October 1997 clearly records that Ray and

Joyce Lee:

(1)      Wanted Robert Lee, Melvin Lee and Helen Heard to inherit the assets held by their family trust, so far as was possible, in equal shares.

(2)      Did not provide for Greg Lee to be a beneficiary of the R B and J G Lee Family Trust because although they “loved him dearly” Greg Lee would acquire the last of the shares in HDP and that through the share transfers Greg Lee had “received his inheritance much earlier than the other three children”.

[29]     On 3 April 1998 Ray and Joyce Lee executed share transfers in relation to the

900 “B” shares in HDP to Greg Lee.  However, there is no evidence that the A shares were actually transferred to Ray and Joyce Lee’s accountant for him to hold on trust for Greg Lee pending the death of Ray and Joyce Lee.

[30]     Robert Lee and Helen Heard say that:

(1)      The arrangements put in place by Ray and Joyce Lee in 1997 did not result in an equitable distribution of their parents’ assets between the four children.  They say if the total value of their parents’ assets in

1997 was $802,898, each child should have received approximately

$200,724.  Instead, Greg Lee received $332,898.

(2)      Greg Lee asserted undue influence over his parents and as a result gained an unconscionable bargain and breached his duties as a fiduciary.   The fact that Greg Lee was to repay his parents’ estate

$132,174 is discounted by Robert Lee and Helen Heard because they say that sum was to be repaid by Greg Lee seven years after the death of the last survivor of Ray and Joyce Lee.

(4)      The most plausible explanation for the failure to transfer the A shares to Ray and Joyce Lee’s accountant was because such a transfer would not in fact have reflected their true intention and wishes.  Robert Lee and Helen Heard say it was not in their parents’ best interests to transfer the shares in HDP for no consideration because HDP was their retirement fund.

The 4 August 2000 trust deed

[31]     The deed of 4 August 2000 provided for Greg Lee to immediately receive the

100 A shares that the 6 October 1997 deed said were to be held on trust for the benefit of Greg Lee.  At the same time Ray and Joyce Lee forgave Greg Lee’s debt of $132,174 and Greg Lee paid Ray and Joyce Lee directly $200,000.

[32]     As Robert Lee and Helen Heard place some weight on the apparent failure to perfect all the terms of the 6 October 1997 deed, it is important to look carefully at exactly what was said when the 4 August 2000 deed was executed.  The following portions of the deed of 4 August 2000 are significant:

(1)       Recital B of the 4 August 2000 deed says:

Pursuant to the terms set out in a deed of trust dated 6 October, 1997 (“the deed of trust”) the trustee holds in trust the 100 voting “A” shares (“the shares”) on behalf of the beneficiaries and the final beneficiary in High Duty Plastics Ltd (“the company”).  The capital of  the  company  comprises  one  thousand  (1000)  shares.    Nine hundred (900) of the shares in the company and non-voting “B” shares  and  100  of  which  are  voting  “A”  shares.     The  final beneficiary owns the B shares.

(2)      Recital C refers to the shares in HDP having been valued at $332,898 on 20 February 1996.

(3)      Recital E refers to Greg Lee owing Ray and Joyce Lee $132,174 pursuant to the term loan agreement dated 2 October 1997.

The shares were not formally transferred pursuant to the Deed of Trust and prior arrangement between the parties and it is intended that the appropriate share transfers be effected as at the settlement date to put into effect the provisions of the Deed of Trust and this Deed”.

(5)       Recital G of the 4 August 2000 deed records that Ray and Joyce Lee had agreed with the trustee to distribute the shares to Greg Lee.

(6)       Clause 3 of the 4 August 2000 deed records Greg Lee forewent any benefit from the estate of either of his parents.

[33]     It is also significant that under the terms of the 4 August 2000 deed Ray and

Joyce Lee received a benefit that they would not have received if all the terms of the

6 October 1997 deed had been given effect.  Under the 1997 arrangements Greg Lee was to acquire the A shares on the death of the last of his parents who died. The term loan of $133,724 acquired by Greg Lee was to be repaid seven years after the death of the last of the survivor between Ray and Joyce Lee.  This would have benefited their estate but not Ray or Joyce Lee personally.  Instead, under the 4 August 2000 arrangements, Greg Lee paid his parents $200,000 directly for them to be able to use in their lifetime.

Was the 4 August 2000 deed a variation of the 6 October 1997 deed?

[34]     Robert Lee and Helen Heard say that the 4 August 2000 deed created a new arrangement that was quite separate and materially different from the arrangements that were contemplated by the 6 October 1997 deed.   Specifically, they say the

4 August 2000 deed:

(1)       allowed Greg Lee to acquire all the remaining shares in HDP by way of a purchase, instead of by way of a gift;

(2)       Greg Lee obtained the voting A shares in HDP before the death of

Ray and Joyce Lee;

(3)       Greg Lee obtained control of HDP before the death of Ray and Joyce

Lee which was not consistent with their objectives in 1997;

(4)      the trustee became redundant and had no role to play in HDP under the 4 August 2000 arrangements.

They also say that the purchase price paid by Greg Lee for the shares was grossly undervalued.

[35]     I disagree with Robert Lee and Helen Heard.  After careful reflection I have reached the same conclusion as Associate Judge Christiansen.  In my judgement, the

4 August 2000 deed was a variation of the 6 October 1997 deed.

[36]     My reasons for concluding that the 6 October 1997 deed was varied by the

4 August 2000 deed can be summarised in the following way:

(1)      It is significant that the 4 October 2000 deed specifically recites the essential provisions of the 6 October 1997 deed of trust, and the arrangements put in place at the time that deed was executed.

(2)       The 4 August 2000 deed does not purport to revoke the 6 October

1997 deed.  Instead, it:

(a)     advances the date Greg Lee would acquire the A shares in

HDP; and

(b)    provided for Ray and Joyce Lee to have the benefit of the consideration which Greg Lee would pay for the A shares during their lifetime.

Whilst  these  were  important  changes,  they  are  changes  that  can  be  fairly  and accurately described as variations to the 6 October 1997 deed.

[37]     For these reasons I conclude that the 12 year limitation period prescribed by s 4(3) of the Act commenced on 6 October 1997.

Does s 4(9) of the Act assist Robert Lee and Helen Heard?

[38]     Section 4(9) of the Act excludes claims for equitable relief from the time limits set out in s 4 of that Act.  However, the time limits in s 4 of the Act can be applied “by analogy” to claims for equitable relief.   The analogous method of determining time limits for claims in equity in s 9(4) of the Act reflects the historical bifurcation between proceedings in equity and at common law under which the courts  of  equity  would  apply  the  common   law  limitation  rules  in  certain

circumstances  by analogy.7      This  was  explained  in  the  following  way  by Lord

Westbury LC in Knox v Gye:8

For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation ...

[39]     In the present case, Robert Lee and Helen Heard say that Greg Lee acquired his shares in HDP by:

(1)      creating an unconscionable bargain;  and/or

(2)      through asserting undue influence over his parents;  and/or

(3)      by breaching his fiduciary duty.

They say that all these causes of action were based in equity and seek equitable relief. Accordingly, they say the requirements contained in s 4 of the Act can only be applied by analogy.

[40]     However,  the  challenge  which  Robert  Lee  and  Helen  Heard  have  not overcome is that plaintiffs who wish to bring proceedings in equity have a duty to prosecute their claims without undue delay.   Courts of Equity never aid plaintiffs

who “sleep on their rights”.  This principle is reflected in the equitable doctrine of

7      See Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC) at 542.

8      Knox v Gye (1872) LR 2 HL 656 at 674-675.

laches which will provide a defendant with a defence if the equities of the case favour the defendant rather than the plaintiff.9

[41]     In the present case Robert Lee and Helen Heard have been in a position to commence  their  proceeding  at  least  since  they  became  the  executors  of  their mother’s estate soon after she passed away on 30 June 2003.

[42]     They have filed affidavits in which they have sought to explain and minimise the effect of their delay.  Their explanations include what they say was a mistaken belief that they were subject to a six year time limit from the date of the 4 August

2000 deed and that it was not until 2010 that they became aware of the 12 year time limit in s 4(3) of the Act.  However, the difficulty with this argument is that the time limits in s 4 of the Act only apply by analogy to a claim in equity.  More importantly, there has been a seven year delay between the date of Joyce Lee’s death and the commencement  of  this  proceeding.    During  that  lengthy  delay  Greg  Lee  has continued to grow and develop HDP while his siblings have failed to prosecute their questionable grievances.

Applying limitation principles by analogy

[43]     Like Associate Judge Christiansen, I believe that for the purposes of s 9(4) of the Act, analogies can be drawn between Robert Lee and Helen Heard’s claims and common law claims based upon breach of contract.   The task of the Court when determining limitation by analogy is to determine whether the equitable 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”.10    In order to do so, I 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 courses of action”.11

[44]     The plaintiffs have based their claims on the fiduciary relationship between

Greg  Lee  as  the  key employee  of  HDP and  Ray and  Joyce  Lee’s  positions  as employers (by virtue of being directors and shareholders of HDP).   They say that

9      Nwakobi v Nzekwu [1964] 1 WLR 1019 at 1026.

10     Johns v Johns [2004] 3 NZLR 202 (CA) at [80].

11 At [80].

Greg Lee’s role as an employee of HDP “was such that he could determine the success or otherwise of the business and hence, the economic wellbeing of Ray and Joyce [Lee]”.  The essence of all three causes of action pleaded by Robert Lee and Helen Heard is that they say Greg Lee breached his fiduciary obligations because he took advantage of his position to acquire shares in HDP for less than market rates. They allege that he did this by threatening to set up in competition with HDP. Alternatively they say that he breached his obligations by taking advantage of Ray and Joyce Lee’s alleged diminished capacity.

[45]     It  is  convenient  to  first  examine  the  claim  that  Greg  Lee  breached  his fiduciary duty to Ray and Joyce Lee and then briefly consider the plaintiffs’ claims based upon the equitable doctrines of undue influence and unconscionable bargain.

Fiduciary duty

[46]   A claim for breach of fiduciary duty based on an employee-employer relationship  closely  parallels  a  claim  for  breach  of  implied  contractual  duties. Dr Andrew Butler notes that both causes of action draw on the same principles:12

...  courts  have  preferred  to  use  the  language  of  implied  contractual obligations rather than that of fiduciary law ... fiduciary obligations can and do exist between an employee and his or her employer.

[47]     Dr Butler also notes that the contractual duty of fidelity overlaps fiduciary duties, but is narrower in scope:13

In the author’s view the better position is that an employment relationship gives rise to both an employment law-based “duty of fidelity” and to an equitable  “fiduciary  relationship”,  but  to  acknowledge  that  the  duty  of fidelity is more easily triggered than the fiduciary duties of loyalty and confidentiality ...

[48]     The contract-based duty of fidelity14 requires an employee “... not [to] solicit

the customers of his or her employer to transfer their custom to him or her”.15

The

12     Andrew Butler “Fiduciary Law” in Andrew Butler (ed) Equity and Trusts in New Zealand

(2nd ed, Thomson Reuters, Wellington, 2009) 471 at 545.

13     At 545, footnote 513.

14     See Schilling v Kidd Garrett Ltd [1977] 1 NZLR 243.

15     HG Beale (ed) Chitty on Contracts (31st ed, Sweet & Maxwell, London, 2012) vol 2 at [39-

058].

allegation that Greg Lee solicited or threatened to solicit HDP’s customers in order to acquire shares could easily be cast as an allegation that he breached an implied contractual duty.

[49]     In  assessing  the  scope  of  Greg  Lee’s  fiduciary  duties  as  pleaded,  I  am mindful of the caution expressed in Nottingham University v Fishel by Elias J:16

It is true that in Attorney-General v Blake [1998] Ch 439 Lord Woolf MR, giving judgment for the Court of Appeal, said that the employer-employee relationship is a fiduciary one. But plainly the court was not thereby intending to indicate that the whole range of fiduciary obligations was engaged in every employment relationship.

[50]     The Judge went on to say:17

In analysing the employment cases in this field, care must be taken not automatically to equate the [contractual] duties of good faith and loyalty, or trust  and  confidence,  with  fiduciary  obligations  ...    [I]t  is  necessary  to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer.

[51]     In the circumstances as pleaded, Greg Lee would have owed a fiduciary duty of  loyalty that  closely  paralleled  his  contractual  duty of  fidelity.    By  allegedly threatening to solicit HDP’s customers in order to obtain shares and intending to profit from his vital position in the company, Greg Lee would be in breach of at least two components of the duty of loyalty as described by Lord Woolf MR in Attorney- General v Blake:18

The employer is entitled to the single-minded loyalty of his employee.  The employee must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict ...

Undue influence and unconscionable bargain

[52]     Having  a  fiduciary  duty  is  not  a  necessary  prerequisite  to  finding  a

“relationship of influence” for the purposes of an undue influence claim, but a “large proportion of [undue influence] cases” are based upon on a breach of fiduciary

16     Nottingham University v Fishel [2000] ICR 1462 (QB) at 1490.

17     At 1493.

18     Attorney-General v Blake [1998] 1 All ER 883 (CA) at 842.

duty.19   In the current case the facts demonstrating reposal of trust and confidence in

Greg by his parents, along with a transaction that “calls for explanation”,20  are the same as those relied upon for proving a breach of fiduciary duty.  The plaintiffs

acknowledge as much in their statement of claim.21

The purpose of undue influence

is to ensure consent to transactions is not coerced by trusted advisors, which overlaps considerably with the purpose of the contractual duty of fidelity which aims to

discourage exploitation of the trust required in a working relationship.

[53]     As  far  as  unconscionable  bargains  are  concerned,  it  is  again  the  same allegations that are advanced to show Ray and Joyce Lee suffered from a “special disadvantage” that was unconscionably exploited by Greg Lee. The plaintiffs seek to employ the doctrine of unconscionable bargain to impugn the substantive fairness of the deed of trust transactions by claiming that Greg Lee knew and exploited Ray and Joyce Lee’s alleged disadvantages of being ill and financially reliant upon Greg Lee’s continued commitment to HDP.  Again, the parallels with the purpose of the

contractual duty of fidelity are very clear.

Limitation by analogy

[54]     I am satisfied that the plaintiffs’ claims of undue influence, unconscionable bargain,  and  breach  of  fiduciary duty,  closely  parallel  claims  for  breach  of  the implied contractual duty of fidelity.   In this case, they all rely on analogous facts proving breach of duties imposed for similar purposes.   Therefore, for present purposes, s 4(9) of the Act applies to limit the plaintiffs’ claims to the six year period imposed on their analogues in simple contract or tort by s 4(2).  To decide otherwise would be inequitable.

[55]     The  same  analysis  applies  to  the  plaintiffs’  alternative  submission  that Greg Lee breached his fiduciary duty by taking advantage of Ray and Joyce Lee’s alleged diminished capacity.  Robert Lee and Helen Heard face the additional hurdle

of an analogous claim in contract to avoid the contracts associated with the Deed of

19     J Stephen Kós “Undue Influence” in Andrew Butler (ed) Equity and Trusts in New Zealand

(2nd ed, Thomson Reuters, Wellington, 2009) 679 at 701-702.

20     Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 (HL).

21 Statement of Claim, Sept 2011 at [32].

Trust for lack of capacity on the part of Ray and Joyce Lee because they were “persons of unsound mind”.  I am satisfied that the facts and purposes of the claim related to capacity are sufficiently similar in equity and in contract that they provide an alternative reason for imposing a six year limit on that claim by analogy, pursuant to s 4(2).

[56]     Because this proceeding was commenced seven years and three months after Robert Lee and Helen Heard became executors of their mother’s estate, the proceeding was not brought within the time limits contemplated by s 4 of the Act.

Should the proceeding have been allowed to proceed to trial?

[57]     Robert Lee and Helen Heard submit that their claim involves a complicated factual matrix that focuses upon Greg Lee’s conduct.  In particular, they allege that their parents were suffering from a disability and that because Greg Lee has acquired a valuable asset through “unconscionable” conduct, their proceeding should not be struck out summarily.

[58]     I disagree.   The plaintiffs’ case discloses no “reasonably arguable cause of

action”.22

Robert Lee and Helen Heard’s case turns on proving:

(1)       that  the  shares  in  HDP  were  transferred  at  below  market  value,

making the bargain unconscionable;  or

(2)      they must show Ray and Joyce Lee reposed trust and confidence in Greg Lee in relation to the transactions, and that the transaction could not  “reasonably  be  accounted  for  by  ordinary  motives  such  as

friendship or charity”23 to prove undue influence;  or

(3)       they must show that Greg Lee actually did solicit HDP’s customers, in breach of his fiduciary duty, and that caused Ray and Joyce Lee to

enter into the Deeds of Trust.

22     High Court Rules, r 15.1(a).

23     J Stephen Kós “Undue Influence” in Andrew Butler (ed) Equity and Trusts in New Zealand

(2nd ed, Thomson Reuters, Wellington, 2009) 679 at 696.

[59]     I see no evidence capable of supporting a reasonable argument in relation to any of those claims.  The obvious roadblock is in all of the transactions, Ray and Joyce Lee solicited a considerable amount of professional advice.   As Associate Judge Christiansen put it:24

“[t]he structure and process by which the events in the 1997 [Deed] were marshalled indicate a careful and deliberate outcome for all four children of Ray and Joyce [Lee]”.

That eliminates the claim for undue influence, because the transaction was based on Ray   and   Joyce   Lee’s   “ordinary   motives”   of   providing   for   their   children. Furthermore they received comprehensive advice before doing so.

[60]     I do not consider the evidence relied upon by Robert Lee and Helen Heard supports their argument that Greg Lee solicited HDP’s clients.   The so-called “evidence” is a legal opinion from Olphert and Sandford dated May 2000.   That opinion clearly states that there was no evidence that Greg Lee solicited HDP clients before the execution of the 6 October 1997 deed.  The legal opinion in question was procured at the behest of Robert Lee and was based on his assertions.  In addition, because of the intervening substantial and sustained volume of professional advice, I do not think it could be proved that any breach of fiduciary duty actually caused Ray and Joyce Lee to enter into the 2000 variation agreement, let alone the 1997 transaction, for which an account of profits is sought.

[61]     There is no cogent evidence that at the date the deed was executed in 1997, the shares in HDP were transferred at less than market value.  In fact all the evidence indicates that they were carefully and independently valued.   Greg Lee assumed a debt for $132,174 for the shares.  The remainder of the shares represented an early distribution of a quarter share in his parents’ estate:  Ray and Joyce Lee stated this intention explicitly.  The $200,000 he paid represented the time value of early repayment of his debt to his parents.   Greg Lee repaid at least seven years, but probably more like 10 years earlier than he would have been required to.  (It is no coincidence that $132,174 at 4 per cent interest compounded over 10 years works

out around $200,000).

24     Lee v Lee [2012] NZHC 3283 at [89].

[62]     Moreover  when  faced  with  competing  equities,  Robert  Lee  in  particular stands little chance of success.   He says that his mother was taken advantage of because of her mental illness, yet the 1994 doctor’s notes he tenders as evidence of a manic episode record that it had probably been brought on by Robert Lee’s demands to gain a role in HDP, despite Joyce Lee feeling he “was not suitable”.  Those who wish to benefit from the principles of equity must come with “clean hands”.  Robert Lee does not.  Both plaintiffs also run into the problem of laches.

[63]     Even  if  I  am  wrong,  and  the  plaintiffs’ pleadings  disclose  a  reasonably arguable cause of action, I am satisfied that the proceeding is so clearly time barred that their claim can be properly regarded as vexatious and an abuse of process.25

Their claims are clearly time barred by analogy.  There is no fairly arguable claim for extension or postponement.   To borrow the words of Tipping J, “the case for an

analogous  equitable  bar  is  so  compelling  as  to  leave  no  room  for  any  rational

opposition to that course”.26

The plaintiffs have also had ample time to obtain

evidence and bring their claim even since they became executors of Joyce’s estate. To bring a claim seven years and three months after that date and nearly 13 years after the deed  that transferred the business was signed  amounts to an  abuse of

process.

Conclusion

[64]     Associate Judge Christiansen did not err when he struck out the plaintiffs’ claim on the basis that it was barred by the time limits in s 4 of the Act, and/or because it was frivolous, vexatious or an abuse of process.

[65]     Accordingly, the appeal is dismissed.

[66]     Gregory Lee is entitled to costs against Robert Lee and Helen Heard  in person.

25     Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].

26 At [87].

[67]     If the parties are unable to reach agreement on costs then they may file memoranda explaining their respective positions within ten working days of the date

of this judgment.

D B Collins J

Solicitors:

Stewart Underwood, Rotorua for Applicants/Plaintiffs
Bergseng & Co, Auckland for Respondent/Defendant