MacDonald v Somerset Smith Partners - [2015] NZHC 1839

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2013-441-356 [2015] NZHC 1839

BETWEEN
DONALD OWEN MACDONALD,

JUDITH MARY MACDONALD, JOHN LAURENCE ARMSTRONG AND WAYNE HENRY HANNA

Plaintiffs

AND

SOMERSET SMITH PARTNERS Defendant

Hearing: 24 February 2015

Counsel:

J Long and S L Jackson for the plaintiffs
M MacFarlane for the defendant

Judgment:

5 August 2015

JUDGMENT OF ASSOCIATE JUDGE SMITH

Background........................................................................................................................................ [2] The plaintiffs’ claims ....................................................................................................................... [17] The amended statement of defence ................................................................................................ [21] The plaintiffs’ reply ......................................................................................................................... [23] The strike-out application .............................................................................................................. [25] The evidence .................................................................................................................................... [27] The issues for determination .......................................................................................................... [52]
Issue 1: Is it reasonably arguable for the plaintiffs that their negligence causes of action, to the extent that they depend on alleged breaches of duty by the defendants before 19 July 2007, did not accrue until after that date (because no damage was caused by the alleged breaches until after that date)? ............................................................................................................................... [54]

Legal principles ............................................................................................................................ [54] The defendants’ submissions......................................................................................................... [70] The plaintiffs’ submissions............................................................................................................ [72] Discussion and conclusions on issue 1 ......................................................................................... [77]

Issue 2: If and to the extent that the answer to issue 1 is no, and in respect of each of the
contract causes of action and the claims under the Consumer Guarantees Act where breaches of

DONALD OWEN MACDONALD, JUDITH MARY MACDONALD, JOHN LAURENCE ARMSTRONG AND WAYNE HENRY HANNA v SOMERSET SMITH PARTNERS [2015] NZHC 1839 [5 August 2015]

duty are alleged to have occurred before 19 July 2007, have the dates of accrual of the
impugned causes of action been postponed by fraud on the defendants’ part, so that the time for
the plaintiffs to bring their claims was extended by s 28(b) of the Act? ..................................... [82] Legal principles ............................................................................................................................ [82] The plaintiffs’ s 28(b) pleading in this case .................................................................................. [91] The plaintiffs’ submissions............................................................................................................ [92] The defendants’ submissions....................................................................................................... [100]

Discussion and conclusion on issue 2 ........................................................................................... [104] Result .............................................................................................................................................. [130]

[1] The defendants apply to strike out parts of the plaintiffs’ amended

statement of claim. They say that the relevant claims were filed out of time.

Background

[2] The plaintiffs are the trustees of the Donald MacDonald trust. Mr and Mrs MacDonald have a background in farming. Mr Armstrong is a solicitor, and Mr Hanna is a chartered accountant.

[3] The defendants are investment advisors. Between July and August 2006 the plaintiffs consulted them about how they might invest $4 million which they had available for investment.

[4] The plaintiffs say that their main concern was to keep the capital intact, and that they instructed the defendants that their acceptable level of risk was “low/conservative”.

[5] The defendants made certain investment recommendations which the plaintiffs accepted, and between August 2006 and 31 March 2007 the defendants made the investments on the plaintiffs’ behalf. Three quarters of the investments were in interest-bearing securities.

[6] By 2009 the values of the investments had fallen significantly. The plaintiffs began selling their portfolio, and that process was completed in January 2012. By then, the plaintiffs say they had suffered capital losses…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] NZHC 1839
Decision Date: 5 August 2015

CaseChat Overview and Summary

The plaintiffs, Donald and Judith MacDonald, along with John Armstrong and Wayne Hanna as trustees of the Donald MacDonald trust, brought claims against Somerset Smith Partners for alleged breaches of contract, negligence, and breaches of the Consumer Guarantees Act 1993. The defendants sought to strike out parts of the plaintiffs' amended statement of claim as being filed out of time. The court was required to determine whether the plaintiffs' negligence claims, to the extent they relied on alleged breaches of duty before 19 July 2007, accrued after that date and whether the dates of accrual of the causes of action were postponed by fraud on the part of the defendants. The court found that material loss was suffered by the plaintiffs as soon as the relevant investments were made, and that the negligence claims, to the extent they relied on alleged breaches of duty occurring before 19 July 2007, would be struck out unless the plaintiffs could demonstrate an arguable case for an extension of time under s 28(b) of the Act. The court also found that it was reasonably arguable that a fiduciary or other "special relationship" existed between the plaintiffs and the defendants, but that the plaintiffs had not produced enough to persuade the court that their allegations of knowledge of breach by the defendants, and decision not to disclose, had a sufficient "air of reality" to survive the strike-out application. Consequently, the plaintiffs' first cause of action, alleging negligence in the construction of the portfolio, was struck out, as were the plaintiffs' second, third, and fifth causes of action to the extent they alleged breaches of contract or breaches of the Consumer Guarantees Act occurring before 19 July 2007. The plaintiffs' fourth cause of action, alleging negligence by the defendants in the conduct of portfolio reviews, was struck out to the extent that it alleged any breach or breaches of duty giving rise to loss occurring before 19 July 2007. An amended statement of claim was to be filed and served within 21 days of the date of this judgment, limited to those parts of the plaintiffs' claims which had not been struck out by the foregoing orders. The defendants' application was successful, and they were entitled to costs, which were fixed on a 2B basis, plus disbursements as fixed by the Registrar.

Orders