McVeagh Fleming v Garnett HC Auckland CIV-2010-404-7652

[2011] NZHC 607

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-7652

BETWEEN  MCVEAGH FLEMING Plaintiff

ANDEMMA JANE GARNETT Defendant

Hearing:         22 June 2011

Appearances: Mr G Wadsworth for plaintiff

Ms Murray granted leave to withdraw

Judgment:      28 June 2011 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

28 June 2011at 4 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Kennedys, P O Box 3158, Auckland : by email:  [email protected]

Ms Davina Murray – [email protected]

MCVEAGH FLEMING V GARNETT HC AK CIV-2010-404-7652 28 June 2011

[1]      This was an unopposed summary judgment application.  The approach that I intend to take is that, notwithstanding that it was unopposed, it is necessary for me to be satisfied that there is no arguable defence available to the defendant.

[2]      The defendant stole money while she was employed by the plaintiff.   It is alleged  that  the  defendant  stole  $188,673.80.    She  was  prosecuted,  tried  and sentenced on those charges.  No restitution was ever forthcoming.

[3]      The plaintiff has now sued the defendant to recover various losses.   The causes of action are breach of fiduciary duty, breach of contract and conversion.  The plaintiff also seeks to recover what might be termed some indirect losses. The first is the internal time costs of $71,080.44 which was the cost of the time that was lost and which the plaintiff could have charged out at professional rates had members of the firm not been involved in investigating the defalcation, dealing with the Police and the Law Society and also the clients.  $71,080.44 is claimed under this head.

[4]      As well, the plaintiff seeks to recover accountant’s costs of $8,325.  These were costs incurred by one of the clients, Rice Trusts Partnership, on their behalf and investigating their loss.   The plaintiff, commendably, agreed to pay this amount without legal steps being taken against the defendant to recover it.   Further, the plaintiff seeks amounts invoiced to it by a criminal barrister who it retained to observe the criminal proceedings, obtain name suppression and generally represents its interests in the sentencing process and on the matter of reparation.  The plaintiff also seeks interest under the Judicature Act.

[5]      There is no doubt that the defendant is subject to onerous obligations to meet the plaintiff’s losses.  In Bank of New Zealand v Guardian Trust Company Limited Tipping J, in his separate judgment said this:[1]

[1] Bank of New Zealand v Guardian Trust Company Limited, 1999 [1 NZLR 664].

The approach of the law to the linked questions of causation and remoteness is influenced by the nature of the wrong which the defendant has committed. If it is a wrong engaging in a conscience of the wrongdoer, what has sometimes been called fraud in equity, a strict approach is justified.   That corresponds with the position when there is fraud in the common law sense,

at least some of the more recent authorities are concerned.  In such cases the greater moral turpitude of the wrongdoer supports a restitutionary “but for” approach, at least on a prima facie basis.  But where the wrong amounts in substance to carelessness or breach of contract, the policy considerations underpinning the stricter approach are absent.   Hence, whatever the classification  of  the  relationship,  the  law  approaches  the  question  of causation and remoteness on a different and generally less onerous basis; namely whether there is a sufficient causal nexus and also foresee ability or reasonable contemplation of loss or damage of the kind in this suit.[2]

[2] Ibid, page 688.

[6]      The loss in the present case is in the former of the two categories referred to in the above judgment. Before I consider the individual items of claim further I will also make some mention of the grounds of opposition which were advanced by the defendant,  even  though  she  did  not  in  the  end  appear  on  the  hearing  of  the application in opposition to the plaintiff’s claim.

[7]      The defendant claimed that she had a defence to the proceedings because although she admits she stole the money held on trust by the plaintiff on behalf of three of the plaintiff’s clients, she did so under the influence of a “dissociative order”.  She says the misappropriations were involuntary.

[8]      As Mr Wadsworth for the plaintiff pointed out, apart from the defendant’s affidavit she has not served any other sworn affidavit evidence to support the existence or the effect of the alleged disorder.  Mr Wadsworth says that, in effect, the defendant has raised an affirmative defence.  He submitted that the combination of the affidavit evidence and the defendant’s admissions is more than sufficient to demonstrate the factual basis for the plaintiff’s claim to succeed and that consequently,  the  defendant  must  demonstrate  that  she  has  a  tangible  defence:

Auckett v Falvey[3].  Because there is a bare assertion by the defendant that she has

been diagnosed with suffering from such a condition does not amount to a defence and the absence of supporting evidence of an appropriate kind, such as psychiatric evidence, means that she cannot rely on this ground to establish any credible or arguable defence.  I agree with that submission.

[3] Auckett v Falvey, CP 296/86, HC Wellington, 20 August 1986.

[9]      In her notice of opposition the defendant also denies that she is liable to pay the costs of the criminal barrister retained to observe the criminal proceedings and

that she is not liable to pay the plaintiff ’s internal legal costs or accountancy fees.  I

will deal with each of these in turn.

[10]   Having regard to the approach that is taken to issues of causation and remoteness as stated in the dictum of Tipping J, the position of the defendant must be that she is liable to any loss that would not have resulted to the plaintiff “but for” her dishonest conduct.  Therefore the internal costs caused to the plaintiff through loss of its staff time, payment of the accounting invoice rendered to the Rice Trusts Partnership and the cost of the criminal barrister are all liabilities that the plaintiff would not have incurred were it not for her misappropriations.  They are recoverable in principle.  However, I do not consider that the internal costs incurred by the firm have been  adequately proved  as  to  quantum  to entitle the plaintiff to summary judgment in respect of them.  They would, otherwise have been recoverable.  On the other hand, the claim for the accountant’s invoices and the criminal barrister’s invoices are each recoverable.

[11]     I questioned Mr Wadsworth about the reason for retaining the barrister.  He said that the plaintiff’s essential interests were engaged by the trial (I précis what he said) and that it was vital that counsel be present to protect the plaintiff’s interests.

[12]     I  have  no  doubt  that  the  plaintiff  firm  genuinely  believed  that  it  was necessary to take such a step.  Clearly they would not have laid out any more money than they considered they needed to in order to manage the problem that the defendant’s actions caused.  While there may have been other ways that they could have gone about securing their position short of retaining a barrister to attend at the trial, on balance,  I consider that it was not unreasonable for them to adopt the approach that they did.  I therefore allow that head of claim.  Likewise the invoices from the accountant for assessing their clients which the plaintiff voluntarily paid, was a loss caused by the breaches of her obligation to the firm.   No doubt if the plaintiff had not voluntarily paid this amount it could have been recovered anyway as damages compensating the clients for breach of obligation by the firm through its employee.

[13]     The remaining matter is that of interest, the defendant disputes her obligation to  pay  interest.    I  do  not  consider  that  her  opposition  can  be  sustained.    Mr Wadsworth said the claim for interest was made under the Judicature Act 1908 and he said that the rate of interest was 8.5 percent.[4]   I accept that this is an appropriate and sustainable claim for the plaintiff to bring.

[4] Section 4 Judicature Act 1908 (prescribed rate of interest) order 2008.

[14]     Taking all these matters into account I allow all the items claimed and grant summary judgment for all of them except for the internal time costs of $71,080.44 which are contained in the memorandum filed by counsel for the plaintiff at the hearing before me.  I allow the interest as calculated and the costs and disbursements on a 2B basis together with the disbursements claimed.   There will therefore be judgment for the plaintiff for the relevant amounts.

[15]     The proceeding is to be adjourned for mention in my Chambers list at 2:15 pm 15 July 2011 at which time the plaintiff can advise what its intentions are with respect to the claim for loss of time in regard to which I have disallowed the claim for summary judgment. Alternatively, counsel is invited to file a memorandum ahead

of that mention so that his appearance can be excused.

J P Doogue

Associate Judge