Murray v Crowther

[2012] NZHC 2254

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-1526 [2012] NZHC 2254

BETWEEN  CHRISTINE CONSTANCE MURRAY AS A TRUSTEE OF THE TAHI TAHI NO 2

TRUST Applicant

ANDROLY CROWTHER (JNR) AND KAREN LAND AS TRUSTEES OF THE ESTATE OF THE LATE ROLAND BENDISHEE CROWTHER

First Respondent

Hearing:         30 August 2012

Counsel:         D B Beard for the Applicant

M D Lloyd for the First Respondent

Judgment:      3 September 2012

RESERVED JUDGMENT OF ELLIS J

This judgment was delivered by me on 3 September 2012 at 3.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:      Legal Street Limited, PO Box 1325, Auckland 1141

Chambers Craig Jarvis, Auckland

Counsel:       M D Lloyd, William Martin Chambers, 152 Anzac Avenue, Auckland 1010

MURRAY V CROWTHER HC AK CIV-2011-404-1526 [3 September 2012]

[1]      Christine Murray, as trustee for the Tahi Tahi No 2 Trust (the TTT) has applied for a freezing order in relation to monies held in a solicitor’s trust account by the respondents, who are the trustees of the estate of Mr Roland Crowther.   The monies presently held on behalf of the respondents in the account are in excess of

$1 million.

[2]      The respondents are not opposed to a freezing order being made in relation to

$700,000 of that money.   The appropriate quantum is, therefore, the only issue before me.

[3]      Before  turning  to  that  issue,  however,  it  is  necessary  to  set  out  the background in a little more detail.

[4]      The TTT wished to start a commercial truck washing business on its Great South Road premises.   To that end, the trustees (Ms Murray and Ms Robertson) entered into an agreement with Lotus Wash Systems International Limited (“Lotus”) for a brushless truck washing machine.  The purchase price was initially $400,000 but this was subsequently increased to $510,000.  That sum was paid.  The directors of Lotus were the late Mr Crowther and a Mr Reiher.  Lotus and Messrs Crowther and Reiher became the defendants in the underlying proceedings brought by TTT.

[5]      TTT says that the truck washer was not ready on time or by the scheduled opening date of TTT’s business in about April 2009.   The trustees claim that the machine that was eventually supplied did not comply with the written specifications and was never fit for its purpose.   They say that the machine regularly caused significant damage to the trucks being washed by it, which in turn caused TTT’s customers to leave the business and damaged its reputation beyond remedy.

[6]      The defendants, for their part, have accepted that the machine did not work properly but say that its deficiencies were wholly or largely caused by the actions or inactions of TTT.

[7]      On 15 March 2011, TTT commenced proceedings against the defendants.  In the present, amended, version of the statement of claim, there are claims in contract

and under the Contractual Remedies Act 1979 (CRA) against Lotus and a breach of the Fair Trading Act 1986 (FTA) claim against Lotus and both the directors.   For present purposes, it is relevant particularly to note that the TTT’s trustees allege that they were induced to enter the contract by a number of material misrepresentations made by Mr Crowther.

[8]      The total amount of damages sought across all claims against all defendants is approximately $2.2 million.  The difference between the base contractual amount paid by TTT for the truck washer and the total amount of the claim principally comprises damages claimed for alleged reputational losses (valued at $800,000), damages claimed for alleged loss of profits of $500,000, and other lesser sums relating to the alleged losses flowing from the costs of operating the machine, wages and the like.

[9]      On  4  August  2011,  Mr  Crowther  died.     The  respondents,  who  are Mr Crowther’s son and daughter, were appointed as executors of his estate.  TTT’s claim was continued against the respondents under Part 1 of the Law Reform Act

1936.

[10]     Probate of Mr Crowther’s estate was granted less than 12 months ago.  TTT says that in about April 2012, the respondents sold Mr Crowther’s family home in Epsom for $1.4 million.  On or about 13 July 2012, settlement occurred and at about that time the deposit on the sale was divided between the respondents and their mother, as beneficiaries of the estate.

[11]     On 16 July 2012 there was a case management conference before Associate Judge Bell.  During that conference Mr Beard, who had recently been instructed by TTT, expressed concerns about apparent dissipation of the estate’s assets.   This is recorded in Judge Bell’s minute which also flagged the possibility of the plaintiff seeking injunctive relief if the matter was not able to be resolved between the parties. In a further minute dated 25 July 2012, Judge Bell noted that dissipation issue had in fact been resolved.  This was because on 18 July counsel for the respondents had sent an email stating:

Mr Jarvis advises that there was a small interim distribution to the beneficiaries of the deposit paid on Mr Crowther’s property.  However, the balance of the purchase price (in excess of $1 million) will be retained on interest bearing deposit and not distributed until the conclusion of the case.[1]

[1] Although Mr Beard sought to make considerable play of both the alleged “undertaking” and its (partial) retraction on 31 July its only relevance, in my view, to this application is by way of background.

[12]     On 31 July 2012, however, the respondents’ counsel emailed TTT’s solicitor advising that he had been instructed, and intended, to distribute a further $637,346 to the beneficiaries (ie to the respondents and their mother).  That email prompted the filing of the present application.  On 31 July, Toogood J granted that application on a without notice basis.

[13]     Mr Beard, for TTT, sought to advance the matter on an interim injunction basis rather than as a Mareva/freezing order application.  But in my view it is the principles governing Mareva orders that should apply as it is really a freezing order that is sought.  Those principles are well known; in brief an applicant must satisfy the Court that it has a good arguable case and that there is a risk of dissipation and the Court must endeavour to determine where the balance of convenience lies, taking into account the various interests potentially affected.

[14]     In the present case, there is, of course, no issue as to the risk of dissipation. The defendants quite frankly accept that they wish and intend to distribute over

$600,000. As Mr Lloyd pointed out, the proceedings are unusual, not only because it is overt rather than covert activity that has given rise to the application and because there is no doubt that the risk will eventuate if the application is not granted.

[15]     The principal issue that requires consideration is, therefore, the merits of the

plaintiff’s claim against Mr Crowther’s estate.

[16]     Before  turning  to  consider  that  issue,  however,  I  record  that  Mr  Beard advised that (again due to his recent instruction) he intended to file an amended statement of claim and, indeed, that timetable directions have been made in that respect.   He signalled that TTT would plead new tortious claims against all the

defendants (including Mr Crowther’s estate) in both negligence and deceit.   As I

understood it, these claims would relate to alleged acts or omissions that occurred after the contract was entered into.   Essentially it will be contended that the defendants knew or should have known that the machine would cause damage to the trucks and should have taken steps to prevent that.  I do not propose to say anything more about the merits of such potential claims here.  For reasons that will become evident, the fact that they are in prospect makes no difference to the conclusion I have reached.

[17]     Mr  Lloyd  submitted that  the  respondents’ willingness  to  retain  $700,000 while distributing the remainder of Mr Crowther’s estate was based on a fair and reasonable assessment of the “best case” outcome for the plaintiffs in the litigation, while taking account of the legitimate interests of the beneficiaries.  He said that the merits of either the existing or the proposed claim did not favour orders being made in relation to any more than that amount.   That submission was advanced on the basis of the following propositions:

(a)      The contract claims were legally the most straightforward and (in the event they succeeded) could easily be quantified;

(b)While the contract claims could properly include damages for consequential losses (such as lost profits) the contract claims did not, and could not, lie against Mr Crowther (or his estate) because he was not a party to the contract;

(c)      Although consequential damages are also sought in the Fair Trading Act claim against Mr Crowther, such damages are inconsistent with (and cannot succeed as well as) a claim for damages that is based on the contract price; and

(d)Similarly, any tortious claim for consequential damages is inconsistent with (and cannot succeed as well as) a tortious claim for damages that is based on the contract price.

[18]     On these last two, critical, points Mr Lloyd referred me in particular to the decision of Cox & Coxon Ltd v Leipst in which the Court of Appeal held that FTA damages were analogous to damages in tort.[2]   Thus just as a successful claimant in tort is entitled to be put back in the position in which he would have been had the tort not been committed, a successful claimant under the FTA is entitled to be put back in the position in which he would have been had the misleading or deceptive conduct not occurred.  In their judgment (with which Gault J separately concurred) Henry and Blanchard JJ said:[3]

[2] Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA).

[3] At 26.

To hold that misrepresentation inducing contract can give rise to a claim for expectation losses under s 43(2)(d) is to turn on its head the whole rationale of the measure of damages for a civil wrong. ... The wrong here was making a misleading statement.  Failing to make good a misleading statement does not constitute a breach of the Act.  It is fundamental that the remedy must be directed to the consequences of the breach of the imposed duty and not consequences which are attributable to some other cause which is not the subject of an actionable duty.

In short, there is no justifiable basis for construing s 43(1) in such a way as to  give  a  representee  a  right  to  enforce  a  representation  which  was misleading.

[19]     The  Court  of Appeal  reiterated  the  point  in  Harvey  Corporation  Ltd  v

Barker:[4]

[4] Harvey Corporation Ltd v Barker [2002] 2 NZLR 213 (CA).

[13]     Unfortunately the majority decision of this Court in Cox & Coxon appears not to have dispelled misapprehension concerning what damages are and are not claimable under s 43. The majority opinion, which now has the apparent endorsement of the High Court of Australia (in Henville v Walker (2001) 75 ALJR 1410 at para [132]), was that a representation cannot give rise to a claim for a lost benefit or a loss of expectation where the defendant is under no obligation to perform the representation. Section 43 is directed against the making of a false representation, as opposed to the failure to perform it. Gault J has pointed out in Cox & Coxon at p 22 that:

… loss of bargain or of expected future returns flows not from the conduct  that  is  wrongful,  but  from  the  failure  to  implement  a promise. Where no contract exists between the person who engaged in the conduct and the person who suffered the loss there is no promise which failure to implement deprives the other party of expected benefits.

Section 9 of the Act prohibits conduct, it does not render representations binding.

[14]      The agent, Harveys,  of course had no obligation to  perform the contract and to fulfil the bargain made by the vendors. The proper question in a claim against Harveys under s 43 is whether the Barkers are worse off as a result of the making of the representation – by changing their position in reliance on it  – not whether they have been unable to realise a benefit because of the failure of the vendors to convey a property without the defect complained of. The Barkers accordingly had to prove that the misrepresentation of the property had caused them to act in a way which resulted in a loss. Normal measures of such a loss are whether what has been acquired is worth less than what was paid and/or whether there has been wasted expenditure. For example, say the Barkers had expended additional money developing an area within the entrance gates, only to find that, contrary to the representation, the development was on the Council’s land. Such an expenditure, to the extent that it was wasted – that the Barkers did not get value for it - would be claimable under the Act. Another example would be proven over expenditure in purchasing the land in reliance upon the gates and driveway being within the title. To the extent that the Barkers might by reason of the misrepresentation have paid too much for the land – and so did not get full value for their expenditure – the “lost” additional money would be recoverable under s 43. But, in order to sustain such a claim, it was necessary for them to show that they paid more than the market value of the property as it actually was, ie with the title defect. In fact, however, the evidence was that they bought slightly below market value. Their failure to obtain title to the gates and the driveway disappointed their expectation, but it did not produce a loss of the requisite character to sustain a s 43 claim.

[20]     In the present case, the wrong presently alleged to have been committed by Mr Crowther involves misleading conduct or misrepresentations that induced the TTT to enter into the contract.   If that conduct had not occurred or those representations had not been made then the contract would not have been entered into.  In other words absent the conduct/representations the truck washer would not have been purchased.  But if the truck washer had never been purchased, no profits could have been made from it.

[21]     Conversely, if it will later be alleged that profits would have been made were it not for some form of post-contractual deceit or negligence, then the contract price is necessarily removed from the damages equation.  In order for such profit to have been made the machine had to have been purchased.  The contract price, or cost of purchase, cannot then be claimed as an FTA loss in addition to the loss of profits.

[22]     Precisely the same arguments can be made in relation to the other FTA heads of damages claimed against Mr Crowther, such as the reputational losses, the operating expenditure, interest on borrowings to purchase the machine and wages

paid.  Those losses and the primary claim for the purchase price of the machine itself are, necessarily, mutually exclusive.  If the machine had never been purchased, these costs would never have been incurred and they cannot now be claimed under the FTA.  On the other hand, if the starting point is that the machine was purchased and the costs therefore incurred, then there could be no claim for the cost of purchase of the machine.

[23]     Mr Lloyd also submitted that the very significant reputational losses claimed will be very difficult to establish given that truck washing was a start-up venture and TTT had no pre-existing reputation capable of damage.  In my view that serves to underscore  the  point  made  at  [17](a)  above,  which  is  that  the  plaintiff’s  most arguable case for damages is likely to be contract-based.  But as I have said, there is no possibility of a contract-based claim against Mr Crowther’s estate.  Mr Beard’s submission that Mr Crowther was “jointly and severally” liable for all the damages claimed is simply not correct.

[24]     Notwithstanding Mr Beard’s valiant submissions he was not able to dissuade me of the logic of Mr Lloyd’s submissions in the above respects. Accordingly on my view, Mr Lloyd’s assessment of a best case for the plaintiffs involving an award of some   $700,000   worth   of   damages   is   entirely   fair   and   reasonable   in   the circumstances.

[25]    Moreover, and in terms of any balance of convenience, Mr Crowther’s beneficiaries have valid and independent interests in his estate.   I do not accept Mr Beard’s submission that their interests are too contingent to be considered or taken into account.   The exigencies of their respective financial positions and in particular their admitted need for access to some of the funds from the estate is in my view irrelevant.  The point really is that the possibility that the plaintiff will entirely succeed in its claim for $2.2 million against Mr Crowther’s estate is extremely remote.  In the absence of a good arguable case in that respect it cannot be said that the balance of convenience favours an order freezing the entirety of his estate.

[26]     The interim orders made by Toogood J on 31 July 2012 are accordingly revoked. There will be, instead, an order that the respondents are to hold (and are

restrained from distributing) $700,000 of the funds presently held on trust by them as executors of the estate of the late Roland Bendishee Crowther, pending the final resolution of these proceedings or further order of this Court.

[27]     If the parties are unable to agree on the issue of costs memoranda may be submitted.

Rebecca Ellis J