Mount v C & F Legal Limited
[2023] NZHC 653
•29 March 2023
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2022-442-000026
[2023] NZHC 653
BETWEEN ANTHONY PAUL MOUNT
Plaintiff
AND
C & F LEGAL LIMITED
First Defendant
AND
FREDERICK MALCOLM FARR
Second Defendant
AND
DAVID JOHN BALLANTYNE
Third Defendant
AND
THOMPSON, DALY & CO
Fourth Defendant
AND
WAYNE JOHN ANDERSON
Fifth Defendant
Hearing: 18 November 2022 Appearances:
Plaintiff in Person
R M Stewart and B A Alcorn for First, Second and Third Defendants
A B Darroch for Fourth and Fifth Defendants
Judgment:
29 March 2023
JUDGMENT OF GRICE J
MOUNT v C & F LEGAL LIMITED [2023] NZHC 653 [29 March 2023]
Contents
Introduction [1]
The parties [5]
The civil proceedings (summary judgment) [11]
The criminal proceedings [40]
The application for strike out [44]
Legal principles on strike out applications [47]
Claims [55]
Claim in deceit [60]
Legal principles — the tort of deceit [62]
Analysis [64]
Is the claim a collateral attack on the civil judgments? [69]
Claim in negligence [88]
Legal principles — negligence [89]
Analysis [92]
Claim of malicious prosecution [94]
Legal principles of malicious prosecution [100]
Analysis [101]
Limitation issues [105]
Conclusion on strike out application [115]
Security for costs [119]
Costs [130]
Introduction
[1] Mr Mount has filed proceedings against the law firm, lawyers, accounting firm and accountant who acted for a number of investor clients (the investor plaintiffs) of Mr Mount.1 He alleges they are liable to him in in deceit, negligence, and for abuse of legal process by undertaking malicious civil proceedings.
[2] The first, second and third defendants (the legal defendants) apply for an order that Mr Mount’s claims against them be struck out. In the alternative they seek orders for security for costs and that the proceedings be stayed until security is given.
[3] The fourth and fifth defendants (the accounting defendants) apply for an order that the statement of claim be struck out.
[4] The investor plaintiffs were successful in obtaining summary judgment against Mr Mount in December 2013.2 A list of the judgments in civil actions (including in relation to freezing orders) which relate to the events giving rise to the present proceedings is attached as Appendix 1. Also relevant and included in the list are the criminal judgments and sentencing notes following Mr Mount being found guilty on 75 dishonesty charges, together with the sentencing notes following Mr Mount’s guilty plea to a charge of fabricating evidence for the trial.
The parties
[5] Mr Mount was a financial consultant and investment adviser in Nelson. For various periods between 1998 and 2010, he and his wife, Mrs Kaye Mount, traded under the name Independent Financial Consultants (IFC) as investment advisers. Independent Financial Consultants Ltd (IFCL) was entirely owned by Mr and Mrs Mount and both were directors.3 In 2013, Mr and Mrs Mount and IFCL were successfully sued by the investor plaintiffs for damages arising from Mr Mount’s
1 The law firm is the first defendant, and the lawyers are the second and third defendants [the legal defendants]. The accounting firm is the fourth defendant, and the accounting expert is the fifth defendant [the accounting defendants].
2 Hannay v Mount [2013] NZHC 3497 [summary judgment].
3 At [1].
dealings with their money, which had been applied by Mr Mount and his interests (the Mount interests) for their own purposes.4
[6] The legal defendants are the law firm and lawyers who acted for the investor plaintiffs against Mr Mount in the civil proceedings.
[7] The accounting defendants are the firm of accountants and the accountant who were retained by the investor plaintiffs to investigate Mr Mount and his financial consultancy firm following concerns about the investments they had placed through Mr Mount and his firm.
[8] Mr Anderson, the accountant fifth defendant, had produced a number of reports which indicated that Mr Mount had dishonestly appropriated or failed to account to the investor plaintiffs for the monies they had invested through him. Interest which should have been paid on the investments was not accounted for and issues also arose about the level of fees charged by the plaintiffs.
[9] Mr Anderson constructed a number of schedules from various source documents in the absence of the production of client ledger records by the Mount interests. These schedules were used as the primary evidence supporting the summary judgment application. Schedule B set out Mr Anderson’s calculations of the sums that should have been held by the Mount interests for each investor client. Based on those schedules, following a hearing from 9–11 December 2013, summary judgment was entered on 19 December 2013 in a forum of 20 plaintiff investors.5 That judgment was largely upheld on appeal.6 Leave to appeal to the Supreme Court was refused.7
[10] Before judgment had been delivered, the investor plaintiffs had sought and obtained various freezing orders relating to assets owned or under the control of the Mount interests. Ultimately the Mount’s family home was sold following enforcement procedures by the investor plaintiffs to recover the judgment debt.
4 Summary judgment, above n 2.
5 Summary judgment, above n 2.
6 Mount v Hannay [2014] NZCA 600 [appeal against summary judgment (CA)].
7 Mount v Hannay [2015] NZSC 162 [leave to appeal summary judgment (SC)].
The civil proceedings (summary judgment)
[11] In the civil proceedings for summary judgment, Associate Judge Matthews noted evidence for the plaintiffs in that case was given by Mr Anderson, who is a chartered accountant.8 He was engaged to undertake an independent forensic investigation into the plaintiff investors’ investments through the Mount defendants by reconstructing a trust account ledger for each plaintiff, identifying whether those defendants misled or misrepresented to the plaintiffs the value of transactions through that account, quantifying portfolio management fees charged by the defendants, and quantifying the returns each plaintiff would have received on monies held by the defendants but not accounted for.9
[12] The actual losses of the investment plaintiffs were set out in schedules to Mr Anderson’s report. The Associate Judge described the content of the B and C schedules as follows:10
[17] … These are reconstructions by Mr Anderson of each plaintiff’s account with the defendants from prime records which he has examined. The assessment in schedule B for each plaintiff respectively starts with a sum of money initially made available or, in the case of some plaintiffs where that cannot be established as records do not date back to the commencement of the account, a sum of money equivalent to an early item of expenditure, on the assumption that there must have been at least that sum in the account or the expenditure would not have been incurred. These plaintiffs say that the account could not have held less money than that, or the purchase of securities would not have occurred, and if it held more the only effect would be to increase the claim against the defendants, which they do not seek to do. Thereafter each schedule shows actual purchases of securities and monies credited and debited to the account, arriving at a figure at the end which has not, in the case of any plaintiff, ever been paid to that plaintiff. The plaintiffs have all recovered from the defendants such securities as remain, so the figures shown for each plaintiff in the B schedules, respectively, are their stated substantive losses. Mr Ballantyne says the schedules are akin to a current account.
[18] The C schedules are different. In these schedules Mr Anderson has analysed instances where he says there has been misreporting or other elements of conduct in breach of the defendants’ fiduciary duties, and breach of the contracts with the plaintiffs, or in breach of the Fair Trading Act. The analysis in the C schedules for each plaintiff are said to be the foundation for the claims for general, aggravated and exemplary damages. It is said, also, that the C schedules tie in with the B schedules in that they record financial
8 Summary judgment, above n 2, at [41].
9 At [41].
10 At [17]–[19].
entries in the B schedules which are accurate, and compare them with statements made by the defendants at about the same time, which are inaccurate. In respect of damages, though, the C schedules are relevant only as a foundation for the claims of additional damages beyond actual losses, as I have said. The actual losses are detailed in the respective B schedule for each of the plaintiffs.
[19] The remaining schedules itemise other heads of the claim as I have said.
[13] Later in the judgment the Associate Judge emphasised that the B schedules were constructed trust account ledgers for each plaintiff. If accepted, they would establish liability for breach of fiduciary duty and the sum in respect of which each plaintiff for the defendants must account. The C schedules went to establishing a factual basis upon which a court might decide to award general or punitive damages, but they were not relevant to either liability or quantum on the claim under the first cause of action for the monies the defendants are said not to have accounted for to the plaintiffs.11
[14] The Associate Judge noted that in an earlier judgment, Dobson J had referred to the B schedules as setting out the losses claimed by each of the plaintiffs.12 The details in the upper C schedules purported to provide a form of support for those items insofar as the third cause of action and claims for additional damages were concerned. The C schedules included “phantom transactions” which were relevant to ongoing misrepresentations by the defendants but did not “directly relate to losses being suffered by a particular plaintiff being reported to.” Dobson J said “[i]n that way, schedule B goes to quantum and schedule C goes to liability”.13
[15] Summary judgment was entered on the first cause of action (breach of fiduciary duty) in favour of the 20 plaintiffs for monies misappropriated from them to a total of
$2,090,663.49, for portfolio management fees of $492,751.25 and for accountancy charges totalling $318,688, a total of $2,902,102.74. There was to be a further hearing to deal with the calculation of interest on the claims.14 The decision set out the quantum for each of the separate judgments of the 20 plaintiffs.15
11 At [179].
12 At [180], referring to Hannay v Mount [2013] NZHC 2677 [Dobson J decision] at [46].
13 At [180], referring to the Dobson J decision, above n 12, at [46].
14 At [224]. It appears the matter did not go on to a trial.
15 At [220].
[16] Given the decision reached on the first cause of action the Associate Judge said it was unnecessary to go on to consider the second cause of action, breach of contract.
[17] The third cause of action, under s 9 of the Fair Trading Act 1986, did not succeed at summary judgment. The Associate Judge said that this claim failed as the conduct of the defendants which was alleged to be in breach of s 9, supported by the evidence and calculations in Mr Anderson’s C schedules, did not represent each claimants’ loss or damage for the purposes of a remedy under s 43 of that Act. On the evidence before the court, those losses were not caused by any misleading or deceptive conduct. Rather, they were caused by breaches of fiduciary duties, and breaches of contract by the Mount interests, or “in essence, unauthorised taking of the plaintiffs’ monies.”16
[18]The Associate Judge went on to note:
(a)Mr Anderson had reviewed the records held by the investor plaintiffs, including bank accounts and tax returns where available, documents discovered by the Mount defendants, documents from the criminal investigation and those located and obtained directly from third-party brokerage firms and registries, notably First NZ Capital Securities Ltd (FNZC) and Computershare Investor Services Ltd (Computershare).17
(b)The main source documents were those obtained from FNZC, although they only dated back to 1999. The FNZC transaction ledger statements:18
… provided Mr Anderson with an accurate and verifiable record of purchases of securities paid for by the defendants on behalf of the plaintiffs, sales of securities by the defendants on behalf of the plaintiffs, and the amounts paid out by FNZC to the defendants on behalf of the plaintiffs for the purchase and sale of securities, in instances where FNZC acted as broker for the plaintiffs’ transactions.
16 At [85].
17 At [42].
18 At [43].
(c)FNZC was the only broker used by the defendants for transactions undertaken by them for the plaintiffs.19
(d)Off-market transactions were captured through the records of Computershare or directly from the issuer’ s registry.20 These matched in every instance the information extracted from FNZC transaction ledger statements. The Computershare securities transaction statements “provided an accurate record of the quantity of securities purchased or sold by the defendants … where those securities were managed and tracked by Computershare.”21
(e)The third source of information was the Mount defendants’ account statements from their bank, the ASB, and the plaintiff investors’ bank statements. At that time not all the defendants’ bank account statements had been reviewed “as they ha[d] not all been made available.”22
(f)The fourth source of information was documents held by the investors such as dividend and interest advice statements, Portfolio Monitoring Review Reports (PMR reports), letters, IRD tax returns and related records, and correspondence from various accountants who acted for them.23
[19] The Associate Judge noted that Mr Anderson had found the Mount defendants’ records “unreliable and inaccurate.”24 As the Associate Judge noted, Mr Anderson said they “regularly misstated the value of purchases and sales of security and very rarely, if at all, did the defendants report on income earned from investments and paid to the defendants on behalf of the plaintiffs.”25 Mr Anderson said the defendants did not appear to keep any working ledgers or any record of the current balances of monies
19 At [44].
20 At [44].
21 At [46].
22 At [47].
23 At [48]
24 At [49].
25 At [49].
held by them for each plaintiff. Reports which were obtained appeared to have been altered and were not used in Mr Anderson’s reconstruction.26
[20] The Associate Judge said that, as a result of those difficulties, Mr Anderson reconstructed the defendants’ trust account ledgers for each of the plaintiffs “effectively from scratch”.27 He used the four sources of information the Associate Judge had described to ascertain the security movements resulting in the closing balances of the securities held by the plaintiffs being established.28
[21] The Associate Judge describes how Mr Anderson worked back through the reconstructed trust account ledgers to establish a balance held by the defendants on behalf of each of the plaintiffs as at around July 1999. By that process Mr Anderson arrived at the quantum of the money that should have been held by the defendants on trust for each of the plaintiffs. He then prepared schedule B, which is a recreated trust account ledgers for each of the 20 plaintiffs. That schedule is the basis of the claims for each plaintiff. The closing balances represent the sums which should still be held on trust by the defendants.29
[22] The C schedules, one for each plaintiff, were the result of Mr Anderson’s analysis of what Mr Anderson described as “instances of deliberate actions by the defendants to hide their wrongdoing.”30 The C schedules included 489 instances where, on that analysis, the defendants had misled the plaintiffs by providing false information. The falsehood was established when Mr Anderson compared what was said by the Mount interests with the true position recorded in documents from reputable sources including FNZC and Computershare.31 Some transactions, described as “Mount only transactions”, were described by Mr Anderson as purported transactions identified in reconstructing the plaintiffs’ trust account ledgers “that did not in fact take place at all.”32 These had been reported to the plaintiffs through regular PMR reports but Mr Anderson found no evidence that they occurred. They did not
26 At [49]–[52].
27 At [53].
28 At [53].
29 At [56].
30 At [57].
31 At [58].
32 At [59].
appear in the records of FNZC or Computershare. Their existence was not able to be verified by reference to the defendants’ bank statements.33 They were consistently reported as United Kingdom-based security holdings for which share register statements did not go directly to the plaintiffs.34 Other transactions recorded in the C schedules were instances where the defendants had represented to a plaintiff that the specified monies were invested when in fact different sums of money had been invested. This was described by the Court of Appeal as “skimming”.35
[23] In response to the allegations, Mr Mount said the FNZC records were inaccurate.
[24] Mr Mount had also instructed a chartered accountant at Deloitte as an expert. The expert, Ms Kelly, critiqued Mr Anderson’s methodology and said it was inappropriate. The Associate Judge went through her criticisms of the approach.
[25] Mr Anderson had bolstered his opinion by exhibiting and referring to the actual source documents that he had identified or referred to in his first affidavit. Mr Anderson swore an affidavit in reply, referring to “three and a half lever-arch style files of exhibits” that he had sourced.36 Mr Anderson said that Ms Kelly’s report was unhelpful because the brief she had received was so restrictive. She had not been asked to address what Mr Anderson described as “the most fundamental elements of the claims of the plaintiffs and, in particular, the allegations and the evidence relating to the defendants’ misappropriations, defalcations and misleading conduct.”37 Ms Kelly did not receive instructions to review the documents which Mr Anderson had reviewed and so she had reached her conclusions “without regard to any documentary evidence, and without contacting him to discuss the process that he followed or for that matter which she might follow.”38 Mr Anderson said she had fundamentally misunderstood the evidential foundation for the reconciliations that he
33 At [59].
34 At [60].
35 At [61].
36 At [74].
37 At [75].
38 At [77].
undertook, apparently because she was not given a sufficiently wide brief and did not look at the documents.39
[26] The Associate Judge dealt with Mr Anderson’s explanations in some detail, emphasising that Mr Anderson had relied on the source documents.40
[27] Mr Anderson had also analysed documentation relating to a company called Biopaints Ltd, of which Mr Mount was the sole director and shareholder. Between 2003 and 2011 Mr Mount advanced $3,685,500 to that company.41
[28] The Associate Judge concluded there was no evidentiary foundation for a defence for the Mounts’ company, IFCL.42 On the evidence before the Court, due to the way the Mounts conducted their business, the actions of the various business entities were not kept separate and there was no sufficiently clear basis upon which he could separate the conduct under review into actions of separate entities.
[29]The Associate Judge noted:
(a)the defendants owed the plaintiffs a fiduciary duty to account to each of them accurately with information relating to funds they received or held on trust, and how those funds were applied. This duty extended to advice to clients, and was an integral part of the defendants’ business;43
(b)the defendants operated a bank account (the ASB account) which they had described as “a trust account”. Monies were placed in that account which had been received from the plaintiffs and other investors for whom the defendants acted. No separate ledger for each client was mentioned.44 The Associate Judge said nothing contradicted Mr Anderson’s assertion that the defendants did not have any working ledgers or any record of the current balance of monies held by the
39 At [76]–[77].
40 At [81(h)]–[81(j)].
41 At [106]. That is recorded in Biopaint Ltd’s financial position at 31 March 2011.
42 At [83].
43 At [91]–[92] and [94].
44 At [102]
defendants for each plaintiff, and the records that had been able to be obtained which resembled ledger reports had “been altered”;45
(c)the allegation by the Mount interests that the records relied on by Mr Anderson were unreliable had no evidentiary foundation;46
(d)the method that Mr Anderson had used to reconstruct the closing balances and opening balances for each plaintiff’s trust ledger account was as rigorous as possible given the records available and “sufficiently rigorously for the purposes of this application”;47
(e)transfers were made to Biopaints Ltd that exceeded the defendants’ income. The amounts of the transfers “closely equate[d] the sum” that Mr Anderson had calculated as owed to the plaintiffs as a result of the trust ledger reconstructions in schedule B;48
(f)Ms Kelly’s report and evidence did not “of themselves” lay a foundation that there was a tenable defence to the claims based on the evidence of Mr Anderson;49
(g)any possible errors identified by Ms Kelly were minor and did not cast “an element of doubt on the overall accuracy of the recreated trust account ledgers”;50
(h)Mr Mount was given the opportunity to file an affidavit in opposition and the chance to reconstruct the trust accounts from his own records and from the papers discovered from external sources as used by Mr Anderson, and he “failed entirely to do so;”51
45 At [103]–[104].
46 At [125].
47 At [139].
48 At [171].
49 At [173].
50 At [175].
51 At [177].
(i)apart from some background information about the operation of the business, Mr Mount devoted his “entire affidavit in reply to the C schedules, first by criticising certain source documentation … and secondly, by reference to specific information within the schedules”;52 and
(j)the evidence in relation to transactions in the C schedules was relevant to information in the B schedules, because certain transactions were referred to in both schedules and the same source of documentation was used to establish those transactions.53 This was accepted by the plaintiffs.
[30] The Associate Judge noted that the defendants had not produced a single contemporaneous document which established that the source documents used by Mr Anderson in reconstructing schedule B were “inaccurate or unreliable.”54
[31] In addition, the Associate Judge found that for the purposes of the summary judgment the FNZC statements were accurate.55 He noted that Mr Anderson used no fewer than 14 sources of information to create the B schedules. In every instance the source documents reconciled with each other precisely.56 He rejected Mr Mount’s evidence that the defendants operated a daily cash ledger and trust account ledger as part of their “accounting function”.57 He said there was no evidence that such records existed and if they did, they could have been produced by the defendants under discovery orders or provided in Mr Mount’s affidavits. The Associate Judge noted there was no evidence those records were produced to Ms Kelly nor were they referred to in her report.
[32] The Associate Judge noted there had been references by the High Court and the Court of Appeal to the defendants not giving “innocent explanations for the
52 At [182].
53 At [183].
54 At [185].
55 At [189].
56 At [191].
57 At [192].
allegations levelled against them” when there was a reasonable expectation that these documents would have been produced to lay the foundation for that.58
[33] The Associate Judge also rejected Mr Mount’s assertion that there were specific instances of information relevant to the C schedules not being captured. He noted the plaintiffs had analysed each of the instances given by Mr Mount, by reference not only to the evidence of Mr Anderson but also to the documents to which Mr Anderson had reference when calculating these entries.
[34] The Associate Judge found that Mr Mount’s allegation that information relevant to the C schedules had not been captured did not “lay an evidentiary foundation for a conclusion to be reached that the entries in the schedules which are referred to may be wrong.”59 The Associate Judge went on to say that it was not necessary to refer to every document that supported this conclusion. They were numerous but the overwhelming thrust of the evidence was that all relevant source documents had been considered, reconciled and all produced the same result.60
[35] In conclusion, in relation to a breach of fiduciary duty claim the Associate Judge said he was satisfied that:61
(a)the plaintiffs had produced compelling evidence of the accuracy of the reconstructed trust accounts for each of the 20 plaintiffs and that they showed a shortfall of funds on the figures calculated by Mr Anderson;
(b)the defendants had failed to lay a sufficient evidentiary foundation for defence based on the proposition that the B schedules and the shortfalls were inaccurate;
(c)at least $2.1 million had been moved out of the bank account inappropriately and into the control of the defendants;62
58 At [192].
59 At [193].
60 At [194].
61 At [195]–[199].
62 The defendants were given leave to reply to that particular evidence but did not undertake the tracing exercise which had been recommended by Ms Kelly in order to do this.
(d)while the B schedules had been corrected in relation to two issues identified, no inference could be drawn from this that the balance of the many entries in the B schedules were suspect, even combined with the assertions made about the methodology employed; and
(e)the defendants breached the fiduciary duty owed to each of the plaintiffs as follows: to exercise the due care, skill and diligence expected of a competent professional financial investment advisor and funds manager; not to use the plaintiffs’ monies or monies worth for the benefit of the defendants or third parties; to act honestly in their dealings with the plaintiffs; and not to misappropriate the plaintiffs’ monies. The losses were established as set out in the B schedules (as amended).
[36] The defendants appealed to the Court of Appeal against the summary judgment.63 During that hearing Mr Mount handed up a number of documents that were not provided in the case on appeal. The purpose was to identify errors in Mr Anderson’s calculations in addition to errors that were established in the High Court hearing. The appellate Court allowed those documents to be adduced, noting that the plaintiffs’ counsel was able to address documents on their merits without having to take instructions, with the exception of one case.64
[37] Some arithmetical errors were identified by Mr Mount, but the Court of Appeal noted they were few and the amounts were relatively modest. The Court stated the errors “d[id] not detract from the cogency of Mr Anderson’s evidence” and was of the view Mr Mount’s criticisms were “without substance.”65
[38] With some adjustment to the judgment amounts, the Court of Appeal upheld the summary judgment and dismissed the appeal. It noted the potential error identified in relation to the larger adjustment of $47,387 did not undermine Mr Anderson’s evidence for that plaintiff.66
63 Appeal against summary judgment (CA), above n 6.
64 At [34].
65 At [99].
66 At [88].
[39] Leave to appeal to the Supreme Court was dismissed, the Supreme Court noting that the Mount interests’ arguments largely involved attempts to relitigate the merits and that at least $600,000 had been released to the defendants to fund the defence of the civil and associated criminal proceedings.67
The criminal proceedings
[40] Relevant criminal charges were laid against Mr Mount. None of the defendants participated in that trial. On 10 December 2014, following a Judge-alone trial, Mr Mount was convicted of 75 charges, including failing to account, theft by a person a special relationship, reproducing a document with intent to deceive, and obtaining by a false pretence and deception.68
[41] The Judge found Mr Mount had altered the IMS database he had installed on his computer. He then tried to pass the amended records off to police and the Crown (and, through them, to the Court) as “original client records that could and should be relied upon”.69
[42] The Judge found that Mr Mount did so intending that the altered IMS database:70
… would be used to bolster the heralded defence of computer error as the explanation for the discrepancies, and to substantiate his account, for example as given in outline form to police and his recorded interview … of inadvertent transposition of fields within IMS, not involving his intervention, so as to negate any fraudulent or dishonest activity or intention on his part.
[43] This discovery had led to the first trial being adjourned, as the hard copy documents provided by Mr Mount during the trial were false and intended to further that heralded defence.71 Mr Mount later pleaded guilty to a charge of fabricating evidence and was sentenced on that charge on 17 February 2017.72
67 Leave to appeal summary judgment (SC), above n 7, at [3].
68 R v Mount DC Whakatū | Nelson, CRI-2011-042-968, 10 Tīhema | December 2014 [criminal judgment].
69 At [211].
70 At [212].
71 At [213].
72 R v Mount [2017] NZDC 3175.
The application for strike out
[44]The defendants in this proceeding seek to strike out the claims on the grounds:
(a)they are a collateral attack on the civil judgment upheld on appeal obtained by the plaintiff investors; and
(b)they are barred by virtue of the effluxion of time in terms of the Limitation Act 2010, as the events giving rise to the proceedings occurred before 11 December 2013 (the statutory limitation period). Though the plaintiff had all material information necessary to bring a claim relating to alleged acts or omissions occurring before 11 December 2013 (or alternatively 30 October 2015), the plaintiff only filed his claim on 14 May 2022.
[45] The legal defendants in addition say that no duty is owed by them to Mr Mount. They say their duties are to their clients and to the court, not to a defendant in a civil action.
[46] Mr Mount denies that this proceeding is a collateral attack on the civil judgments obtained by the investors. He says the claim is against the defendants for their actions in advancing the civil claim on behalf of the investors based on the reconstructions (contained in the schedules) prepared by Mr Anderson when these were intentionally both wrong and misleading. Mr Mount also argues that the limitation defences do not apply as during the period when time was running, he was incarcerated.
Legal principles on strike out applications
[47] The principles relating to strike out applications are well-established. Rule 15.1 of the High Court Rules 2016 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
The threshold for a claim to be struck out is high. The following criteria apply:
(a)pleaded facts are assumed to be true unless the pleaded allegations are entirely speculative;
(b)the cause or causes of action must be clearly untenable;
(c)the jurisdiction is to be exercised sparingly and only in clear cases; and
(d)the jurisdiction is not excluded by the need to decide difficult questions of law.
[49]The abuse of process ground includes proceedings that:73
(a)deceive the court, are fictitious or a mere sham;
(b)use the process of the court in an unfair or dishonest way, or for some ulterior or improper purpose or in an improper way;
(c)are manifestly groundless, without foundation or serve no useful purpose; and
(d)are vexatious or oppressive.
73 PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [56].
[50] What constitutes an abuse of process requires “a broad, merits-based” judgment in context.74 A collateral attack on a final judgment given in civil or criminal proceedings may be an abuse of process. If the purpose of the proceedings is different and involves an element that was not necessarily resolved in the final judgment, the existence of a final decision based on the same facts as the proceeding under consideration will not, in principle, give rise to an abuse of process.75
[51] In Nottingham v Real Estate Agents Authority the High Court held that charges laid before the Real Estate Agents Disciplinary Tribunal based on facts which had been the subject of findings in a criminal trial did not give rise to an abuse of process.76 The disciplinary inquiry would examine an element of the criminal charge that was not necessarily resolved in the criminal proceedings. The purpose of the criminal proceedings was to ascertain if the defendant had committed a crime and to impose due punishment. However, the purpose of the disciplinary proceedings was to ascertain whether the regulated person had met appropriate standards of conduct in the occupation concerned, the protection of the public being the central focus. The disciplinary proceedings before the tribunal could cover much wider ground than covered a criminal trial.77 The disciplinary charge was determined on the balance of probabilities, although “[i]f fraud or dishonesty is charged, the Tribunal would likely require strong evidence of such serious allegations, before it would be prepared to find that the complaints were proved to its reasonable satisfaction.”78
[52] The High Court in Nottingham noted that there could be situations where it would be an abuse of the discretionary power to charge if the scope of any disciplinary inquiry would simply replicate the exercise the criminal court had already undertaken, and where that process had resulted in an acquittal.79 In that case, allowing disciplinary proceedings to go ahead could “undermine the integrity of the criminal
74 Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [2], [63] and [127], citing Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL) at 31; and see Nottingham v Real Estate Agents Authority [2020] NZHC 1561 at [58].
75 Nottingham v Real Estate Agents Authority, above n 74, at [60].
76 Nottingham v Real Estate Agents Authority, above n 74.
77 At [61].78 At [63], citing Z v Dental Complaints Assessment Committee, above n 74, at [4], [49], [50], [55], [102], [105], [116] and [145].
79 At [64].
justice system.”80 As the Court stated, “[f]inality is integral to justice, because justice is concerned with the determination of rights.”81
[53] The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the Court is satisfied that the claim or defence should have been raised in the earlier proceedings. The onus is on the party alleging abuse. Where the claim alleges fraud and it is based on allegations concerning facts discovered since the judgment concluding the litigation, the plaintiff must show the facts were not discoverable with reasonable diligence at the time of the previous proceeding. If evidence was available at the time of the trial and could then have been adduced it will only be considered in special circumstances.82
[54] I now turn to consider the pleadings and various heads of claim set out in the plaintiff’s statement of claim.
Claims
[55] The statement of claim makes a number of allegations. Variously, the plaintiff claims that the defendants were “consciously aware” they were being dishonest which was fraudulent behaviour, and were deceitful throughout the prosecution of their claim. This included by limiting their discovery and failing to disclose their evidence. The plaintiff says the defendants had a duty to disclose difficulties they had in “constructing major components needed to support the claims” and their silence and omission in this regard “constituted misleading and deceptive conduct”. The plaintiff says there was a “deliberate misrepresentation of the character of the source documentation used to construct the schedules”, the value of which was “significantly overstated and used to add credence to the processes used in construction”.
[56] The plaintiff asserts that due to the defendants’ alleged dishonesty and deceit, the reconstructed schedules used (which he describes as the “foundation” for the defendants’ transactions and assertions, and the “central pillar” of the defendants’ case)
80 At [64].
81 At [64].
82 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [33].
are “in all probability false”. The plaintiff says that at trial he would “present evidential support” proving this is so. The plaintiff says “as a result, the Court was deceived by the deliberate presentation of a false case which involved false evidence, suppression of material evidence and the creation of false documents”, which was “done knowingly … as a pathway to succeed in their claim”.
[57] The plaintiff says that in order to challenge the decision on the basis that the defendants having obtained the summary judgment in this way makes that finding a nullity, it is necessary to bring a fresh action in the Court of first instance, hence his bringing this action.
[58] The plaintiff claims an amount of damages to put him in the position in which he would have been had the misleading or deceptive conduct not occurred and for the “immediate and ongoing emotional effects” caused by the conduct.
[59] The plaintiff also pleads that the defendants actively encouraged media attention, despite a suppression order in place at the time, contacted a family member of the plaintiff to try and coerce him into releasing other assets, and seized assets held in an estate for the benefit of another individual before they were eventually returned.
Claim in deceit
[60] The first cause of action is in deceit. Mr Mount seeks to set aside the summary judgment on the basis that the summary judgment was based on fraudulent misrepresentation. He says the evidence in the affidavits was dishonest, leading to the Court making erroneous determinations of fact, and the defendants presented information, knowing it was false, and material parts of the information in evidence were deliberately suppressed, with the intention to deceive and procure the judgment.
[61] The plaintiff says the misrepresentation caused him loss and seeks to have the summary judgment set aside as a result of the defendants’ dishonesty. The plaintiff also seeks the repayment of assets (including a valuation of the family home), legal costs of $600,000, interest at five per cent per annum (which would be a minimum of
$725,000), and general damages, aggravated damages and exemplary damages totalling $1 million each.
Legal principles — the tort of deceit
[62]The tort of deceit has the following elements:83
(a)the defendants must make a representation of fact;
(b)the representation must be made in the knowledge that it is false;
(c)the representation must be made with the intention that it be relied upon by the plaintiff;
(d)the plaintiff must in fact rely upon the representation; and
(e)the plaintiff must suffer damage as a result of relying on the representation.
[63] The seriousness of the allegations requires that the claim must be strictly pleaded and distinctly proved. The burden of proof applied in proving the requisite dishonest intent for deceit is very high. Authority indicates that the requisite standard of proof is “little less than proof beyond reasonable doubt.”84
Analysis
[64] There are a number of legal difficulties with the claim. First the pleading seeks to set aside the summary judgment. Mr Mount, his wife and their company were defendants in the summary judgment proceeding. The investors were the plaintiffs. None of the defendants in this action were parties to the summary judgment proceeding. This means Mr Mount is seeking to set aside the summary judgment without all the relevant parties being parties in this proceeding.
[65] The usual process for seeking a judgment be set aside is by way of appeal. All appeal rights in relation to the summary judgment have been exhausted. An appeal
83 ASB Securities Ltd v Geurts [2005] 1 NZLR 484 (HC) at [75]; and see Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 at [44]–[56].
84 Felton v Johnson HC Tāmaki Makaurau | Auckland CP 6/97, 21 Tīhema | December 1999 at 3, citing Gate v Sun Alliance Insurance Ltd HC Tāmaki Makaurau | Auckland, CP1218/92, 19 Hanuere | January 1994 per Fisher J.
against the High Court’s summary judgment was dismissed in the Court of Appeal. The Court of Appeal reduced the judgment sum by an amount of $47,387 (in relation to the plaintiff investors Mr and Mrs McEntyre) and made two other adjustments totalling some $7,500. The adjustment in relation to Mr and Mrs McEntyre was made because the Court of Appeal found that on the face of it there was a discrepancy in the documentation that was not possible to be resolved in a summary judgment context. Therefore, the Court concluded that the just course of action was to reduce the amount of the judgment. The Court of Appeal relied on the schedules prepared by Mr Anderson, as the High Court had. In relation to the claim by the McEntyres, the Court of Appeal noted that despite the adjustment, the potential error “d[id] not taint the rest of Mr Anderson’s analysis”.85
[66] The schedules and the evidence of Mr Anderson could amount to representations of fact and satisfy the first element of the tort.
[67] Turning to the second element, Mr Mount makes bare assertions that the representations were made in the knowledge they were false. The pleading alleges fraud and dishonesty. Accordingly, the pleading requires more than mere allegations but clear pleading of the particulars relied on to support the allegations. The particulars are not clearly pleaded here. The defendants have written to Mr Mount seeking particulars in relation to a number of matters pleaded, including in relation to this element. Mr Mount has not responded. The second element is therefore not made out.
[68] The third element of the tort of deceit is that the plaintiff in fact relied upon the representation. This is clearly not the case here. The fourth element also falls away for this reason.
Is the claim a collateral attack on the civil judgments?
[69] To succeed in the claim based on deceit Mr Mount expressly challenges the finality of the summary judgment. He says the summary judgment should be set aside “due to dishonesty in the evidence given.” He pleads that this deceived the Court into
85 Appeal against summary judgment (CA), above n 6, at [88].
making erroneous determinations of fact. The relief sought includes the setting aside of the summary judgment.
[70] In order for a judgment to be set aside on the grounds of fraud, there must be evidence newly discovered since trial which, with reasonable diligence, could not have been found by the time of trial.86
[71] The new evidence relied on should be put before the Court at the strike out stage. The onus is on the party alleging fraud to show that the claim is not frivolous or vexatious or an abuse of process. The evidence must be clear. The ultimate test is whether it is in the interests of justice to allow the case to continue. There needs to be a convincing explanation as to why the evidence was not previously available.87
[72] Mr Mount says he only recently became aware of the evidence which brings the judgment into question, namely a Crown submission in March 2013 opposing a s 347 application which referred to the Crown’s inability to reconstruct and reconcile client funds entering and leaving the IFCL trust account with ASB. As I noted earlier, the ASB bank accounts were general accounts and were not individual trust accounts for each client. They were merely bank accounts into which monies were deposited and taken out for client investments and payments as well as others related to Mr Mount’s business and personal affairs. There were a number of ASB accounts including a general deposit account and a cheque account.
[73] By the time of the summary judgment, Mr Mount was aware of the information that he now points to as being “new” and which he says recently has alerted him to the problems with Mr Anderson’s reconstructions.
[74] The criminal case and civil case files were presumably held by Mr Mount’s lawyers and so were available to him at all times. In addition, the report of Ms Kelly (the expert who gave evidence on Mr Mount’s behalf in relation to the summary judgment) dated June 2013 refers to the Crowns’ submissions in opposition to the s 347 application dated 1 March 2013. Ms Kelly quotes the submissions as saying the
86 Shannon v Shannon (2005) 17 PRNZ 587 at [104], [119] and [125].
87 At [125].
lack of documentation meant that the forensic accountants had not been able to determine an opening balance in the IFCL trust account so the position of each client could not be reconstructed. She agreed with that comment. In addition, the Associate Judge in the summary judgment dated 19 December 2013 refers to Miss Kelly’s comments that there was no reference of source documents to individual transactions in the reconstruction and, as a consequence, she was unable to verify any transactions.88 It is the Crown submissions to which Ms Kelly specifically referred that Mr Mount now claims is “new” evidence that justifies that the judgment should be set aside.
[75] It is apparent that the information Mr Mount refers to as being only recently made available to him was in the June 2013 report that he had commissioned and in addition, a reference to that information was made by the Associate Judge in December 2013 based on evidence adduced on behalf of Mr Mount.
[76] The information that Mr Mount now relies on to carry out new calculations to show that Mr Anderson’s methodology and calculations were wrong has been available to Mr Mount since before the hearing of the summary judgment in December 2013.
[77] Mr Mount also referred to a letter from the police to him dated 6 November 2021, in which Mr Paul Heathcote said that he could not identify specific account numbers. This was a year before the summary judgment and completion of disclosure.
[78] Mr Mount prepared reconciliations for six of his clients during the early part of the litigation.89 In his current affidavit he prepared new reconstructions for three of those same clients. Mr Mount, as the investment adviser, should have kept the client records, including individual ledger records for each client. The two Court of Appeal decisions on the freezing orders were critical of the decision by Mr Mount not to provide an innocent explanation at an early stage.
88 Summary judgment, above n 2, at [121].
89 At [64].
[79] Mr Mount is now seeking an opportunity to complete reconstructions of the accounts based on some requirements which he wishes to impose. In his submissions he said he wished to reconstruct the C schedules and that these must be reconciled to his ASB accounts. However, none of the information for this exercise is new and he had the opportunity of doing that at the time of the summary judgment hearing and on appeal.
[80] In any event, the summary judgment cannot be set aside in Mr Mount’s present claim. In order to set aside the summary judgment the same parties to that proceeding must be parties to the application to set aside. There are no apparent grounds to set aside the judgment, all appeal rights have been exhausted, and the appeals were unsuccessful.
[81] Mr Mount also says that s 50(1) of the Evidence Act 2006 applies. This section provides that evidence of a judgment or a finding of a fact in a civil proceeding is not admissible in another civil proceeding to prove the existence of a fact that was in issue in the proceeding in which the judgment was given.
[82] In this case it is the fact of the judgment itself which is relevant. Findings and judgments which are not offered to prove the existence of a fact in issue may be admissible where relevant under s 7 and if not excluded under s 8 of the Evidence Act.90 The judgment is both relevant and not excluded.
[83] Mr Mount argued that the claim was “fresh”, with different interests, parties and issues involved. However, the fact that the parties are not the same and different claims are pleaded is beside the point, as it is the finality of the judgment which is being put in question.
[84] To allow this claim to proceed would call into question the finality of the earlier judgment and so undermine the integrity of the civil justice system. Therefore, the claim is an abuse of process and the claim in deceit must be struck out on that basis alone.
90 Elisabeth McDonald and Scott Optican (gen eds) Mahoney on Evidence: Act and Analysis (4th ed, Thomson Reuters, Wellington, 2018) at [EV50.01].
[85] In addition, the elements of the tort cannot be made out, as Mr Mount did not rely on any representations made by the defendants. Mr Mount’s reliance is not specifically pleaded and, if it were, it would be untenable, as Mr Mount’s defence throughout all the litigation in this matter, including the criminal matter, has been that Mr Anderson’s analysis and the calculations he carried out are incorrect.
[86] A further difficulty with the pleading is the lack of particulars in relation to the serious allegations of dishonesty and fraud. While I do not need to consider whether this particular issue could have been remedied by requiring an amendment to the pleadings or further particulars to be given, in the circumstances of this case, including the fact that particulars have already been requested, I would likely not have allowed time to amend the claim.
[87]Accordingly, the claim in deceit is struck out.
Claim in negligence
[88] The plaintiff claims under this head that the defendants failed to take reasonable care in respect of all the parties to whom they owed a duty of care to avoid acts or omissions which they were reasonably able to expect would cause harm. The plaintiff says there was a sufficient link between the plaintiff and the defendants that a duty of care existed, and the defendants were negligent in their failure to conduct themselves honestly in their deliberate omissions and false statements. The plaintiff says the damage caused was not remote from the defendants’ failure to take reasonable care, and that given the relevant skills and experience of Mr Anderson and the other defendants, carelessness is no excuse. The plaintiff claims general damages, aggravated damages and exemplary damages in the sum of $1 million for each.
Legal principles — negligence
[89] Those who carry on a profession owe a duty to exercise reasonable care in the carrying on of their professional obligations so as to avoid foreseeable loss to those reasonably likely to suffer loss or damage as a result of their negligence. This may
arise out of a relationship of proximity.91 A lawyer owes a duty of care to their client, and in certain circumstances to third parties such as those relying on the lawyer’s certification,92 or to a beneficiary to ensure a will prepared for the lawyer’s client is duly prepared and executed.93 In general terms, however, no duty is owed by a lawyer advising or acting for a client to the party on the other side of litigation.94
[90] It is well established that a lawyer’s duty is generally owed to their client alone.95 The reason is that the solicitor/client relationship requires the solicitor to act with undivided loyalty in the client’s best interests. Generally, there is no assumption of responsibility by a solicitor to the opposite party to a transaction who is represented by their own legal advisor.96
[91] The law in relation to the duty of expert witnesses is less settled. It is likely the courts will no longer recognise any “blanket” immunity for expert witnesses.97 For this reason, the Court of Appeal concluded in EBR Holdings Ltd (In Liq) v McLaren Guise Associates Ltd that the law in this area was a “work in progress” and was ill-suited for development by resort to the strike out jurisdiction.98 However, it seems highly unlikely that a witness may be held to have owed a duty to a person other than their client.99
Analysis
[92] The pleading does not suggest any basis for extending the duty of care of the legal defendants in this case to Mr Mount. The facts are clear in this case in that regard for the purposes of the strike out application. Mr Mount was legally represented throughout the relevant civil litigation and was also represented during the summary judgment in the High Court where he filed evidence from an expert witness. Any
91 Colin Withnall Laws of New Zealand Negligence (online ed) at [53].
92 Allied Finance and Investments Ltd v Haddow [1983] NZLR 22 (CA).
93 Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA).
94 Radisich v Templeton [2009] 3 NZLR 276 (HC).
95 At [19].
96 At [20].
97 Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [6.7.03].
98 EBR Holdings Ltd (In Liq) v McLaren Guise Associates Ltd [2016] NZCA 622, [2017] 3 NZLR 589 at [38].
99 Todd (ed), above n 97, at [6.7.03].
claim against the legal advisers or the law firm acting for the plaintiff investors in the civil proceedings is untenable. There is no duty of care.
[93] The claim in negligence against the legal defendants must therefore be struck out for lack of a tenable duty of care.
Claim of malicious prosecution
[94] Under the third cause of action, pleading malicious civil proceedings, Mr Mount says there are four categories of abuse in this context. He says the abuse here involved a “deception on the court” in proceedings where the process of the court “was not being fairly or honestly used but was employed in a dishonest way.” He says in particular that the third-party litigation funding put in place by the defendants was a “malicious abuse of the court process.” He further pleads that the defendants’ initial abuse was the failure to disclose the third-party funding agreement to the plaintiff or the Court until 14 October 2013. It was signed in April 2012 and the summary judgment hearing began on 9 December 2013.
[95] Mr Mount says the defendants, knowing they had litigation funding in place, then adopted a “scorched earth strategy” designed to deprive the plaintiff of the funding that was required to adequately progress his case. Further, he says, they persuaded the court to instigate “onerous and expensive discovery requirements covering in excess of 24 years of personal and business data.”
[96] Mr Mount also claims the defendants used ex parte freezing orders in a cynical and onerous way, and that despite numerous urgent requests for the release of funds for the plaintiff to pursue his case, the defendants routinely denied any direct requests for funds to be released.
[97] The plaintiff says this approach was deliberately onerous and oppressive and was a malicious abuse of process. The plaintiff says the ex parte orders were unnecessary as they were “ostensibly used to prevent dissipation of assets by the plaintiff despite evidence that the plaintiff had liquidated assets and placed the proceeds into accounts within the knowledge of the defendants and influence of the
Court.” The plaintiff says this was an actionable wrong by the defendants as it was done without reasonable and probable cause.
[98] The plaintiff says the malicious behaviour continued after the delivery of the summary judgment on 19 December 2013, in the lodging of an appeal and a final charging order and issuing sheriff warrants and sale orders to seize the plaintiff’s assets during the period that the plaintiff’s lawyer’s offices were closed. A stay pending the outcome of the appeal was granted by the Court on 31 January 2014. However, the funds removed from the plaintiff’s bank account had a 10-day holding period and were therefore retained by the defendants. The plaintiff says this removed the plaintiff’s ability to finance the upcoming appeal, and the cumulative effect of the defendants’ actions was “cynical, intentional, wrong and a malicious use of civil procedures”.
[99] The plaintiff asks the Court to “recognise the malicious nature of the defendants’ actions and to act to dissuade the defendants from repeating it” and seeks general damages, aggravated damages and exemplary damages in the sum of
$1 million each.
Legal principles of malicious prosecution
[100]The elements of the tort of malicious prosecution were summarised in
Rawlinson v Purnell Jenkinson & Roscoe as follows:100
(a)the defendant must have advanced a civil cause against the plaintiff;
(b)the application must have been ultimately resolved in the plaintiff’s favour;
(c)the defendant must have had no reasonable and probable cause for bringing the civil proceeding;
(d)the defendant must have acted maliciously in instituting or continuing the proceeding; and
100 Rawlinson v Purnell Jenkison & Roscoe [1999] 1 NZLR 479 (HC) at 484–485.
(e)damage of a kind for which the law would allow recompense must have been caused to the plaintiff.
Analysis
[101] This cause of action must fail. While the defendants did advance a civil cause of action against the plaintiff, the proceeding was not resolved in the plaintiff’s favour. The appeal from the judgment against the Mount interests was largely unsuccessful in the Court of Appeal and leave to appeal to the Supreme Court was refused. The judgment against the plaintiff remains extant. The claim under this head must fail for that reason alone.
[102] In addition, the basis of the claim for malicious prosecution is said to be the existence of the funding agreement and the conduct of the proceedings insofar as they related to interlocutory matters, including discovery, as well as interlocutory applications relating to freezing orders and enforcement of the judgment debt. Those matters were all matters relating to the conduct of the proceedings in the High Court and appellate courts. The existence of the funding agreement was made known to the court as soon as the defendants became aware of an unrelated judgment which required them to do so.
[103] All of those matters related to the conduct of the civil proceedings. They were matters properly raised in those proceedings and for consideration by the relevant court at that time. It is not appropriate for this Court in different proceedings to consider the effect of those alleged actions by the defendants lawfully performed in the course of the original civil proceedings which resulted in the plaintiff investors obtaining judgment against the Mount interests. To do so would amount to an abuse of process.
[104] It is not possible to amend the claim in the circumstances. Therefore, as the pleadings plead matters which were matters for the court in the earlier proceedings, the claim must be struck out as an abuse of process.
Limitation issues
[105] A limitation defence provides a ground to strike out a proceeding on the basis that it is frivolous, vexatious and an abuse of process on the ground that it is statute-barred.101 The primary period of limitation for claims in fraud, negligence and malicious civil proceedings, prevents claims being brought more than six years after the date of the act or omission on which the claim is based.102
[106] Mr Mount accepted in his oral submissions that time ran from the date of the summary judgment hearing in December 2013. That is an appropriate concession, given that the allegation is that the defendants deliberately misled the High Court into granting the summary judgment in early December 2013. Therefore, all the specific facts, acts and omissions that induced that decision must have occurred at the latest 19 December 2013. In the ordinary course the claim would have been barred after December 2019. The claim was filed on 14 May 2022.
[107] There is an exception to the primary period where the claimant has “late knowledge of the claim”.103
[108] Similarly, there is an exception to the longstop period for bringing a claim if the claimant proves that their lack of knowledge of the relevant act or omission on which the claim is based is due to fraud by or on behalf of the defendant.104 However, it is for the plaintiff to provide some evidence to establish a factual basis for the allegation of fraud if the plaintiff wishes to rely on the fraud exception. As will be apparent from the above, no such factual basis has been provided to the court. Recourse to the fraud exception is therefore untenable.
[109] Mr Mount also relies on ss 45 and 46 of the Limitation Act, which provide for time to stop running for the purposes of the limitation calculation on the basis of “incapacity”. Mr Mount says he was in jail between December 2014 and October 2017 and accordingly for the purposes of the limitation calculation he was
101 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC) at 532, citing Ronex Properties Ltd v John Laing Construction Ltd [1982] 3 All ER 961 (CA) at 968.
102 Limitation Act 2010, s 11(1).
103 Section 11(2).
104 Section 48.
“incapacitated” for the period he was detained in jail, effectively extending the limitation period for an additional 35 months.
[110]The relevant provisions of the Limitation Act provide:
45Incapacity
(1)This section applies to a claimant who proves either or both of the following:
(a)that the claimant was incapacitated at the close of the start date of a claim’s primary period, longstop period, or Part 3 period:
(b)that the claimant became incapacitated during a claim’s primary period, longstop period, or Part 3 period.
(2)If this section applies to a claimant, the specified court or tribunal may, if it thinks it just to do so on an application made to it (before or after the end of the period) for the purpose, order that a claim’s primary period, longstop period, or Part 3 period is extended to the close of a date stated in the order.
(3)In determining whether to make an order under this section, the specified court or tribunal must take into account—
(a)whether, while the claimant was incapacitated, a litigation guardian or other authorised representative managed the claimant’s affairs with respect to the act or omission on which the claim is based; and
(b)any steps taken by the litigation guardian or other authorised representative to manage those affairs; and
(c)any effects or likely effects of the delay on—
(i)the defendant’s ability to defend the claim; and
(ii)the cogency of the evidence offered, or likely to be offered, by the claimant or the defendant; and
(d)the defendant’s conduct on and after the date of the act or omission on which the claim is based, including the extent to which the defendant responded to requests for information or inspection that were reasonably made by or on behalf of the claimant in order to discover facts that were, or might be, relevant to the claim; and
(e)the extent to which prompt and reasonable steps were taken by or on behalf of the claimant to make the claim after the claimant became aware that the claimant was entitled to do so; and
(f)any steps taken by or on behalf of the claimant to obtain relevant medical, legal, or other expert advice, and the nature of any relevant expert advice received by or on behalf of the claimant; and
(g)any other matters it considers relevant.
46Incapacitated and related terms defined
In section 45 and this section,—
incapacitated means that a claimant or a personal representative is not capable of understanding the issues on which his or her decision would be required as a litigant conducting proceedings with respect to the act or omission on which the claim is based, or is unable to give sufficient instructions to issue, defend, or compromise proceedings of that kind, because of all or any of the following:
(a)temporary or permanent physical, intellectual, or mental impairment:
(b)lawful or unlawful detention:
(c)a situation that is, or circumstances that arise from, war, another similar emergency, or a state of emergency declared under the Civil Defence Emergency Management Act 2002
….
[111]In Driver v Radio New Zealand Ltd, Ellis J noted that Te Aka Matua o te Ture
| Law Commission in its 1988 report Limitation Defences in Civil Proceedings had indicated that its proposal to include “incapacity by reason of lawful or unlawful detention” (which was ultimately enacted) was “not intended to provide an automatic extension of a limitation period for persons in penal institutions.”105 As the Commission had stated:106
… The onus is to be on a claimant that the relevant circumstances actually impeded management of his or her affairs. Ordinarily, where communication with those outside the institution is possible, this would be a difficult onus to discharge; but there might be extraordinary circumstances – perhaps some form of solitary confinement – where the onus would be able to be discharged. When such an issue arises, it will have to be decided as a question of fact by the court.
105 Driver v Radio New Zealand [2017] NZHC 3188 at [15], citing Te Aka Matua o te Ture | Law Commission Limitation Defences in Civil Proceedings (NZLC R6, 1988) at [260].
106 At [15], quoting Te Aka Matua o te Ture | Law Commission, above n 105, at [260].
[112] Prisoners routinely have access to facilities which enable them to undertake litigation while in jail. Incarceration per se does not establish incapacity in terms of the Limitation Act. There must be evidence supporting the fact that the incarceration for some reason prevented Mr Mount from pursuing the claim.
[113] Mr Mount pointed to the fact that he was incarcerated, but did not provide any evidence in relation to how this affected his ability to lodge a claim. No evidence was produced of early notice being given by Mr Mount of the claim. Neither was there any evidence of reasonable steps he took to make the claim. I have found that there was no evidence that could be described as new or fresh and that Mr Mount would have been aware of the basis of the claim from, at the latest, 13 December 2013. He pursued appeals. On his evidence he was not incarcerated until December 2014. In the absence of any evidence in relation to the matters of relevance I conclude that Mr Mount cannot rely on his period of incarceration as constituting incapacity such that the limitation period stopped running for the period of his incarceration.
[114] Accordingly, the limitation period expired before the claims were filed in May 2022. The statement of claim is struck out on that basis.
Conclusion on strike out application
[115] I have concluded that the claims against the legal defendants (the first, second and third defendants) are struck out on the grounds that they are a collateral attack on a final judgment, there was no duty of care owed to the plaintiff and the plaintiff would be unable to establish an element of the tort of malicious prosecution. In addition, the claims are barred by the effluxion of time in terms of the Limitation Act.
[116] I have concluded that the claims against the accounting defendants (the fourth and fifth defendants) are struck out on the grounds that they are a collateral attack on a final judgment and the plaintiff would be unable to establish the tort of malicious prosecution. In addition, the claims are barred by the effluxion of time in terms of the Limitation Act.
[117] I struck out the claim against the accounting defendants in relation to the negligence claim on the basis of a lack of duty of care. However, had that claim not
been struck out on other grounds, I would have decided that time should be given to enable that claim be repleaded and particulars provided for the basis of the duty claimed.
[118] In these circumstances it is not necessary to consider the applications for security for costs. However, in case I am wrong in granting the application striking out of the claims, I briefly consider the issue.
Security for costs
[119] Both defendants in their submissions seek orders for security for costs against the plaintiff.
[120] Where a court is satisfied there is reason to believe a plaintiff would be unable to pay the costs of the defendant if unsuccessful in its claim, the Judge may, if it is “just in all the circumstances”, order security for costs pursuant to r 5.45 of the High Court Rules. The Court must make a threshold finding as to the plaintiff’s impecuniousness, before assessing the discretionary questions of justice, quantification and whether a stay is appropriate.107
[121] In this case the plaintiff was adjudicated bankrupt on 16 April 2019 and was discharged on 7 May 2022. Mr Mount in his oral submissions accepted he was impecunious. He had no assets. Mr Mount provided no evidence of his financial position.
[122] The Court must balance the interests of the defendants to be protected from unjustified litigation and the effect of a costs order on the plaintiff’s right of access to the court.108
[123] The merits of the claim may be taken into account when making this assessment, particularly in a case such as this where there are serious allegations of
107 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
108 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [15]–[16].
fraud against the defendants. The court requires clear logical and convincing proof in relation to those claims.109
[124] In this case I have ample material before me on which to make an assessment of the merits of the claim. As will be apparent from the above, I consider the merits are low. In my view the claims are weak.
[125] Mr Mount said his impecuniousness came about because Te Tari Taake | Inland Revenue Department bankrupted him, that he failed in his defence of the investor proceedings and criminal convictions were entered against him. There is no reasonably probable link between the plaintiff’s impecuniousness and the defendants which would weigh in favour of not granting security of costs in this case.
[126] In my view the interests of justice require the granting of security. The claim is weak, the allegations have been the subject of litigation on a number of previous occasions, and they are serious allegations made against professionals without a properly pleaded basis. The plaintiff claims damages in excess of $5 million. If the defendants are required to defend these proceedings the cost is likely to be significant given the amount of evidence and the material which will need to be put before the court. In addition, there is a likelihood further expert evidence will need to be adduced in support of the defence.
[127] Any trial is also likely to be lengthy given the nature of the evidence and the allegations made against the defendants.
[128] I consider it would be appropriate to take a staged approach to security for costs. Security for costs in the first instance would be set for the period up to the completion of discovery. Given the number of documents, which the defendants say number over 70,000, the amount suggested by the defendants of $30,000 for the first stage is appropriate.
[129] Therefore, I would have awarded a total sum of $30,000 as security for costs up to the completion of discovery. I would have called for further submissions on the
109 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].
manner in which security would be provided, including as to apportionment. Those issues would be determined following further submissions.
Costs
[130] I have struck out all claims and indicated I would have ordered security for costs. Costs would normally be awarded on the applications to follow the event and it appears a 2B basis would be appropriate.
[131] If the parties are unable to agree on costs any application and submissions should be made within 10 days of the date of this judgment, any response by submissions within a further 10 days and any reply within a further three days.
Grice J
Solicitors:
Fee Langston, Auckland
Darroch Forrest Lawyers, Wellington
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