New Zealand Guardian Trust v Ralph
[2018] NZHC 121
•13 February 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE
CIV-2016-485-742 [2018] NZHC 121
BETWEEN THE NEW ZEALAND GUARDIAN
TRUST COMPANY LIMITED Plaintiff
AND
TONY WILLIAM RALPH Defendant
Hearing: 5 December 2017 Appearances:
R D Butler and D M Netherclift for the Plaintiff
J K Mahuta-Coyle for the DefendantJudgment:
13 February 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (NZGT) applies for summary judgment against the defendant (Mr Ralph) for the sum of $407,883.09. Mr Ralph is the husband of Mrs Rebecca Ralph (Mrs Ralph), who misappropriated the sum of $360,808.30 over a period of
10 years while she was an employee of NZGT. The misappropriated funds were held on trust by NZGT for its clients, and NZGT paid out $407,883.09 to discharge its liabilities to its clients arising from Mrs Ralph’s defalcations. NZGT seeks to recover that sum from Mr Ralph, primarily on the basis that he knowingly received the misappropriated money, but it also pleads causes of action in conversion and
indemnity.
THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED v TONY WILLIAM RALPH [2018] NZHC 121 [13 February 2018]
Background
The proceeding against Mrs Ralph
[2] While she was an employee of NZGT, Mrs Ralph was responsible for managing client portfolios and accounts. Between 2004 and 2015, she systematically misappropriated $360,808.30 from 20 of her clients’ accounts, including those of elderly and intellectually disabled clients, as well as some for whom Mrs Ralph held enduring powers of attorney. On 9 April 2015, NZGT discovered Mrs Ralph’s misappropriations.
[3] NZGT filed a proceeding against Mrs Ralph in May 2016, seeking summary judgment. Mrs Ralph did not initially file a notice of opposition. Rather, she sought an adjournment pending the result of the related criminal proceeding she was facing.1
[4] In an affidavit filed in support of her adjournment application, Mrs Ralph made certain admissions, and on 26 July 2016 I entered judgment against her on liability, with quantum to be determined at a hearing set for 24 November 2016.2
[5] Mrs Ralph initially disputed the quantum of NZGT’s claim, but on the eve of the quantum hearing she abandoned this opposition. On 29 November 2016 judgment was entered against her by consent in the sum of $407,883.09.
[6] Mrs Ralph has not since made any payment to NZGT. NZGT has registered a charging order over Mrs Ralph’s share of the home she owns with Mr Ralph, but it has been impracticable to sell Mrs Ralph’s share of the property without Mr Ralph agreeing to a sale. However, the mortgagee of the property has issued a Property Law Act notice against Mr and Mrs Ralph, and I was told at the hearing that a mortgagee
sale was scheduled for 13 December 2017.
1 Mrs Ralph later pleaded guilty to criminal charges of obtaining by deception. At the time of the hearing of NZGT’s summary judgment application against Mr Ralph, she had not yet been sentenced. Her sentencing was scheduled for 13 December 2017.
2 New Zealand Guardian Trust Co Ltd v Ralph [2016] NZHC 1714.
The proceeding against Mr Ralph
[7] On 4 September 2017, NZGT brought this proceeding against Mr Ralph. It applied for summary judgment. The application for summary judgment was first called on 24 October 2017, but I adjourned the application until 21 November 2017 because Mr Ralph had only been served on 9 October 2017. I made directions for
Mr Ralph to file and serve any documents in opposition by 31 October 2017. No such documents were filed.
[8] At the second call, on 21 November 2017, Mr Mahuta-Coyle appeared for
Mr Ralph for the first time. Mr Mahuta-Coyle sought a further adjournment, informing me that the delay by Mr Ralph in taking steps to oppose the application had been caused by him “burying his head in the sand”. I granted the adjournment, substantially because of the nature of this claim, which called for a finding of dishonesty on the part of Mr Ralph in circumstances where it appeared that he may not have personally received the claimed money. There appeared to be at least the possibility of a miscarriage of justice if he were not permitted to oppose the application. Costs of $1000 were awarded against Mr Ralph.
[9] I also made an interim suppression order prohibiting publication of any details of this case, and preventing a search of the Court file, pending further orders of the Court. Similar orders had been made in the civil proceeding against Mrs Ralph, on the basis that publication might unfairly prejudice her position in the pending criminal proceeding against her. The civil claim against Mr Ralph traversed much of the same ground as the civil case against Mrs Ralph, and counsel were unable to tell me on
5 December 2017 that the need for the non-publication order no longer existed.
[10] Mr Ralph filed a notice of opposition and two affidavits in support on
24 November 2017.
The claims against Mr Ralph
[11] NZGT alleges that Mr Ralph knowingly received three different categories of funds misappropriated by Mrs Ralph:
(a) $270,137.81 paid into the joint bank account of Mr and Mrs Ralph (the
joint account payments);
(b) $10,000.00 paid into the trading account of Mr Ralph’s business (the
trading account payments); and
(c) $80,281.26 paid directly into the accounts of Mr Ralph’s creditors, comprising payments to two of his employees, and to his landlord (the creditor payments).
[12] NZGT alleges that Mr Ralph must have been aware of these payments, and that is sufficient for an inference of knowledge, or at least an inference of wilful blindness, with respect to Mrs Ralph’s misappropriations.
Mr Ralph’s opposition
Notice of opposition
[13] Mr Ralph says that he had no knowledge of his wife’s actions, and that he had no cause to make inquiries that would have given him such knowledge. He says that he gave over complete control of his finances to his wife, including both their joint account and his business account. He never saw any of the payments made into the bank accounts or to the creditors, and was not aware of them or their source.
Mr Ralph’s affidavit
[14] Mr Ralph is a 58-year-old builder. During the relevant period he was self- employed, trading as T Ralph Building. He had commenced a relationship with Mrs Ralph around 1994 or 1995, and they were married in 2002.
[15] Mr Ralph said that between 1995 and 2000 a lot of his work as a builder took him away from Wellington, and that it was during this time that Mrs Ralph took over the management of his business’ finances. Mr Ralph described his role in the relationship as “to go to work and to look after our property”, while Mrs Ralph “has always been responsible for managing our personal finances”. He said that he trusted
her completely, and never had any reason to think that she was not managing their finances properly or that they were receiving money that they had not earned.
[16] Mr Ralph said that he did not check his bank accounts, or review account transactions. Nor would he have any reason to. If he ever required something for the purposes of his business, he would ask Mrs Ralph and she would tell him if they could afford it. If he needed cash, he would withdraw it from an ATM, or use the business ATM card. Receipts he may have received disclosing account balances would not have meant much to him, whether the balance was negative or positive by several thousand dollars. He said that he would check with Mrs Ralph daily whether he needed to pay incidental expenses during the week.
[17] Mr Ralph stated that money always seemed tight, and that he never had cause to think that he and Mrs Ralph were living beyond their means. A house was purchased in 2008, which Mr Ralph knew cost around $320,000, and he acknowledged that he knew what the regular mortgage payments were going to be. However, he said that Mrs Ralph took care of ensuring they were paid. The only time Mr Ralph recalled that either of them travelled overseas was in 2015, when Mrs Ralph visited her sister in Sydney.
[18] Mr Ralph admitted that he negotiated the wage rates for his two employees, but he claims that Mrs Ralph always took care of the payroll during their employment.
[19] The main customer for T Ralph Building was Jennian Homes. Mr Ralph said that he negotiated rates for different stages of the building work he carried out for Jennian. Once a stage was complete he would get Mrs Ralph to issue an invoice.
[20] While Mr Ralph accepted that, in hindsight, it might seem that he was naïve not to know about his wife’s misappropriations, he said that until her confession in
2015 he had no reason to doubt her honesty.
Mrs Ralph’s affidavit
[21] Mrs Ralph provided an affidavit confirming that, since 2000, she was responsible for, and completely managed, the couple’s joint finances and the finances
of T Ralph Building. She said that at no point during the period of her offending did she let on to Mr Ralph what she had done. As she put it, her behaviour was something she “kept inside”. She said that Mr Ralph “had more than enough on his plate” dealing with a deteriorating knee and serious ongoing health problems of two of his children.
[22] Mrs Ralph’s evidence was that in 2015 she felt that she could not “bottle it all up inside” anymore. She said that she “walked away” from her employment with NZGT, and the same afternoon confessed to Mr Ralph what she had done. She stated that he was in “total disbelief and shock” when she told him - he could not believe that she “of all people would have done that”. Their relationship then become very strained. She asked him to leave her on numerous occasions, but he refused.
[23] Mrs Ralph concluded her affidavit by saying that: “Since leaving NZGT I have been open and upfront during both the civil and criminal proceedings, and I am being open and honest in this affidavit.”
Principles relating to plaintiffs’ summary judgment applications
[24] The Court may enter summary judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the plaintiff’s statement of claim, or to a particular part of any such cause of action.3 An application for summary judgment is made by interlocutory application, with supporting affidavits. There is not normally any cross-examination of deponents at the hearing of a summary judgment application — the issue is whether the plaintiff has produced sufficient evidence in the affidavits to show that the defendant has no reasonably arguable defence which should be allowed to go forward to trial.
[25] In Pram Enterprises Ltd (in liq) v Mansfield I summarised the relevant principles in the following terms:4
[31] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell, Grant v NZMC Ltd and Westpac Banking Corporation v M M Kembla New Zealand Ltd. The following broad principles are to be applied:
3 High Court Rules 2016, r 12.2(1).
4 Pram Enterprises Ltd (in liq) v Mansfield [2016] NZHC 230 (footnotes omitted).
(a) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim brought against it. The issue is whether there is a real question to be tried.
(b) It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
(c) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
[32] In Pemberton v Chappell, the Court of Appeal held:
Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident — that is to say satisfied — that the defendant’s statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yang v Letchumanan.
[33] In Eng Mee Yang, the Privy Council said:
Although in the normal way it is not appropriate for a Judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent, or inherently improbable in itself it may be.
Submissions
NZGT
[26] Mr Butler submits that the fact of the payments is itself sufficient for the Court to infer that Mr Ralph was either aware of Mrs Ralph’s misappropriations or that he was wilfully blind to them. Mr Ralph’s defence that he never saw any of the transactions because Mrs Ralph was controlling the finances is inherently improbable, and the evidence in support of that defence inherently lacks credibility. The Court should take a “robust approach” and reject this evidence.
[27] With respect to Mrs Ralph’s affidavit, Mr Butler notes that she is a convicted fraudster. He submits that her testimony cannot be given any weight. Mr Butler
highlights two aspects of her affidavit that he says illustrate that lack of credibility. First, Mrs Ralph claimed that she had taken an “honest and upfront” approach to the civil proceeding against her. In fact, she initially tried to adjourn the proceeding, then waited until the last moment before admitting the quantum of NZGT’s claim. Secondly, she said that she “walked out” of her employment with NZGT, apparently attempting to create the false impression that she made a confession to her employer due to a crisis of conscience. In fact, her misappropriations had been discovered by NZGT, and she only left her employment after she was confronted with the misappropriation allegations.
[28] Mr Butler submits that if the Court rejects Mrs Ralph’s evidence, that should be dispositive of the claim in NZGT’s favour. Because Mr Ralph’s evidence is materially similar, his evidence ought to be rejected as well.
[29] Mr Butler asks the Court to view Mr Ralph’s late engagement with this proceeding with scepticism. There is nothing in his affidavit that could not have been put forward initially. If Mr Ralph regarded the allegations against him as untrue, one would expect him to have been “incensed” by them, and to have responded at the first possible opportunity.
[30] Generally, Mr Butler submits that it defies probability that Mr Ralph would have abdicated all responsibility for the financial affairs of his own business, as well as his domestic financial affairs. This is especially the case given his admission that “[m]oney has always seemed tight”.
[31] Specifically with respect to the trading account payments, Mr Butler submits that the fact that all payments were made in a relatively tight cluster should have brought them to the attention of Mr Ralph. There were three payments into the trading account, two of $3,500 and one of $3,000, made in September, October and November
2008. The trading account was where all of Mr Ralph’s income went from the early
1990s until 2016, and Mr Ralph would surely have noticed the impact of an injection of $10,000 within a period of three months, particularly if money was tight.
[32] With respect to the creditor payments, Mr Butler invites the Court to infer that Mr Ralph directed that those payments be made for his benefit. Mr Butler submits that it would be absurd if Mr Ralph was not aware that his employees were being paid by a third party, and that any failure to investigate this would amount to wilful blindness.
[33] With respect to the joint account payments, Mr Butler notes that Mr Ralph was aware of the mortgage payments and the purchase price of the house. He submits that an inference should be drawn from those facts that Mr Ralph must have at least had some involvement in the couple’s domestic finances.
[34] Referring again to Mr Ralph’s statement that money was tight, Mr Butler submits that it is inherently improbable that Mr Ralph would not have discussed the couple’s finances with his wife for 16 years, or that he would not have noticed an increase in living standards.
Mr Ralph
[35] Mr Mahuta-Coyle submits that the Court cannot be sure that Mr Ralph had knowledge of, or was wilfully blind to, Mrs Ralph’s misappropriations. The affidavits of Mr and Mrs Ralph provide an evidential basis for a defence, and it is not possible to determine the credibility of that evidence without proceeding to trial. The claims made in the two affidavits are not so inherently improbable that they can dismissed outright.
[36] Mr Mahuta-Coyle draws the Court’s attention to two other cases involving knowing receipt between husband and wife.5 Both of these cases involved claims by the defendant that they were unaware of their spouse’s misappropriations, and in both cases the Court accepted those contentions. Both cases were decided after a trial, not on summary judgment applications. Mr Mahuta-Coyle submits that a claim that one partner was not involved in relationship finances is not the kind of claim that can properly be dismissed on a summary judgment application.
[37] Mr Mahuta-Coyle submits that no evidence has been provided of Mr Ralph’s actual knowledge of the payments or of Mrs Ralph’s misappropriations. NZGT’s case relies entirely on inference, but there is no evidence of any specific instance of suspicion by Mr Ralph, nor any evidence that Mr and Mrs Ralph were living beyond their means or that they had made any inexplicably large purchases.
[38] With respect to Mrs Ralph’s affidavit, Mr Mahuta-Coyle concedes that she has a credibility problem, but he submits that that does not mean her evidence can be dismissed outright. Given her acknowledged fraud on her employer there is nothing inherently improbable about her lying to her husband about her misappropriations until 2015.
[39] Finally, Mr Mahuta-Coyle submits that the cause of action in knowing receipt cannot apply to the creditor payments, as Mr Ralph never directly received those funds himself. Equally, there is no evidence of any involvement on his behalf which could form the basis of a claim of knowing assistance in the making of the creditor payments.
Discussion and conclusions
Principles relating to knowing receipt
[40] Liability for knowing receipt arises where there has been a transfer of property to a recipient in breach of fiduciary obligations owed by the transferor, and it would be unconscionable for the recipient to retain the property because of the recipient’s state of knowledge regarding the breach.6 A finding of knowing receipt ordinarily results in the recipient being required to account in equity to the beneficiaries, by restoring the property which has been lost.7
[41] In the recent case of McLennan v Livaja, the Court of Appeal clarified the forms of constructive knowledge that will be sufficient to establish knowing receipt.8
6 McLennan v Livaja [2017] NZCA 446 at [38].
7 McLennan, above n 6, at [40].
8 At [45]. An application for leave to appeal in McLennan v Livaja was dismissed by the
Supreme Court on 1 February 2018 ([2018] NZSC 1).
The Court adopted the test applicable in cases of dishonest assistance, as set out by the
Supreme Court in Westpac New Zealand Limited v MAP and Associates Limited:9
[27] The key ingredient in the cause of action for dishonest assistance is the need for a dishonest state of mind on the part of the person who assists in the breach of trust. We agree with the statement in Barlow Clowes that such a state of mind may consist in actual knowledge that the transaction is one in which the assistor cannot honestly participate. But it may also consist in what we would describe as a sufficiently strong suspicion of a breach of trust, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge. For the purpose of this alternative, it is necessary that the strength of the suspicion that a breach of trust is intended makes it dishonest to decide not to make inquiry. That state of mind, which equity equates with actual knowledge, is usually referred to as wilful blindness. It involves shutting one’s eyes to the obvious and can thus fairly be equated with the dishonesty involved when there is actual knowledge.
Application of principles in this case
[42] There is no question in this case that Mrs Ralph breached her fiduciary obligations. Nor is there any question that Mr Ralph received, either alone or jointly with Mrs Ralph, the proceeds of those breaches (except in the case of the creditor payments, which I address below). The sole question to be determined is whether
Mr Ralph acted dishonestly, either because he had sufficient knowledge, or because he was wilfully blind.
[43] The burden is on NZGT to show that Mr Ralph has no reasonable prospect of successfully making out his defence on that point. I do not consider that it has been able to do so.
[44] I do not consider it inherently implausible that Mr Ralph, a builder by trade, would have given responsibility for his domestic finances/business financial affairs to his wife. First, Mrs Ralph managed the financial affairs of others for a living. Secondly, it is a relatively common state of affairs in New Zealand for self-employed tradesmen to leave the business “book work” to their spouses or partners, and tradesmen who do that will show varying levels of interest in the financial details. Those who show little or no interest may be careless or negligent, but without more I
do not think they could be fixed with the dishonest state of mind required to make out a case of knowing receipt.
[45] If Mr Ralph’s evidence that he had no involvement in the business or domestic finances during the relevant period were accepted, I do not think it could be said with any degree of certainty that he was aware of the relevant payments (and/or of circumstances putting him on enquiry as to their source). It follows that, on the limited evidence presently available, no inference of dishonest knowledge can safely be drawn from the fact of the payments alone. Beyond the question of knowledge of the payments, there is no evidence that Mr and Mrs Ralph were enjoying a lavish lifestyle or even that Mr Ralph knew what Mrs Ralph’s salary was. There was no evidence of who filed the tax returns for T Ralph Building. Mr Ralph did say that he negotiated wages with his employees, but it was Mrs Ralph who looked after the payroll.
[46] The concept of wilful blindness does not take the position any further for NZGT. If Mr Ralph was unaware of the payments, he would have had no reason to be suspicious.
[47] Mr Butler submitted that the credibility of Mr Ralph’s denial of knowledge should be considered against his late engagement with these proceedings, and in particular the fact that he did not deny knowledge of Mrs Ralph’s wrongdoing until he signed his affidavit. I accept that may raise a credibility issue, but I note that the minutes of a meeting held on 28 April 2015 between employees of NZGT and Mrs and Mr Ralph recorded Mr Ralph’s statements that he was “in shock”, and that he could not “believe that it is [Mrs Ralph] who has done this.” The same minutes record Mrs Ralph’s denial that Mr Ralph was in any way to blame for her actions. In those circumstances, I do not consider that any delay by Mr Ralph in putting forward a denial of involvement in his wife’s activities justifies the outright rejection of his evidence. It is no more than a factor to be considered in assessing the credibility of the evidence he will give at trial.
[48] I accept Mr Butler’s submission that Mrs Ralph’s evidence should be viewed with considerable caution given her fraudulent actions, and what I accept are statements within her affidavit which appear to be designed to put her in a better light
than the circumstances may justify. However, that does not mean that everything Mrs Ralph says must be false. There is nothing inherently improbable in her essential claim that she concealed her fraudulent activity not only from her employer but also from her husband.
[49] And even if aspects of Mrs Ralph’s evidence may be unreliable, the Court would not be compelled to reject Mr Ralph’s evidence on the essential issue of what he knew (or should have known if he had made the enquiries an honest person would have made). All that I think can be said at this stage is that the corroborative value of Mrs Ralph’s evidence is diminished by her actions, making it less likely that the Court would find her evidence helpful in considering whether to accept Mr Ralph’s evidence.
[50] No evidence was produced showing that Mr Ralph had actual knowledge of Mrs Ralph’s misappropriations. NZGT’s strongest arguments relate to the three payments made into the trading account, which was a personal account of Mr Ralph’s. I accept that, without more, those payments might have been sufficient to create a prima facie case of knowing receipt by Mr Ralph, but he has now denied knowledge of them. And there is no evidence that these payments resulted in any suspicious purchases, or that Mr Ralph ever discussed them with Mrs Ralph. I was also informed at the hearing that Mr Ralph’s trading account had an overdraft limit of $13,000. The balance would have fluctuated, as with any trading account from which bills are paid, and the three payments (the largest of which was only $3,500) may not have attracted much attention if Mr Ralph only glanced at the bank statements, and their effect was merely to reduce a modest overdraft. That appears to have been the case with the two payments of $3,500; at the times these payments were made the trading account was overdrawn by more than $13,000.
[51] The same can be said of the joint account payments. Mr Butler relied on
Mr Ralph’s admission that money appeared to be tight, but there is no evidence that Mr Ralph experienced any improvement in living standards, or anything else that might have caused him to wonder where the money was coming from. His case is simply that he was unaware of the misappropriated funds coming into the joint account, and I do not think NZGT has produced sufficient to prove that that contention is so clearly false that Mr Ralph should be denied the opportunity to go to trial on it.
[52] With respect to the creditor payments, the fact that Mr Ralph’s employees were being paid by a third party might not have been picked up by Mr Ralph – it was Mrs Ralph who ran the business’ payroll. Similarly, the payments to the landlord might not have come to his attention if Mrs Ralph was the person who made or set up the payments. These are matters for consideration at trial, where the Court will have the benefit of seeing the witnesses under cross-examination and all of the relevant documents will be before the Court.
[53] To summarise, NZGT relies heavily on inference to support its case against
Mr Ralph, and it presents little in the way of evidence to demonstrate dishonest knowledge on his part. Now that he has sworn an affidavit denying any knowledge of the payments, summary judgment is inappropriate. I also note in that regard Woolford J’s comment in Torbay that a finding of knowing receipt should not be made without strong evidence, as it is essentially criminal conduct.10
Creditor payments
[54] In view of my findings above on the extent of Mr Ralph’s (arguable) knowledge, it is not strictly necessary to address Mr Mahuta-Coyle’s argument that, even if Mr Ralph was aware of them, the creditor payments were never received by him. However, I will deal with the argument briefly.
[55] In response to Mr Mahuta-Coyle’s argument, Mr Butler submitted that a
‘payment by direction’ would suffice, and that the existence of such a direction should be inferred in this case. Mr Butler relied on the Court of Appeal decision in Torbay, referring to Asher J’s use of the phrase “Mr Napier and his associates” when discussing the destination of the relevant payments (the relevant payments were made not only into Mr Napier’s bank account, but also into Mrs Napier’s account and into the Napiers’ family trust account).11 Further, Mr Butler argued that there has been considerable alignment of restitutionary causes of action, and that the unjust enrichment here was the same as if Mr Ralph had received the money himself.
[56] I am not aware of any other case where a claim in knowing receipt has been made out with respect to property received directly by a third party but which benefits the defendant. While it is not necessary to decide the point, I think it is arguable for Mr Ralph that the defendant must have actually received the property for a claim in knowing receipt to lie. (Although other causes of action such as knowing assistance, and possibly conversion, might be available in those circumstances.) The unjust enrichment may be the same regardless of whether the defendant receives the money himself or herself or whether the money is received by some third party in satisfaction of an obligation owed by the defendant to the third party, but the Court of Appeal held in McLennan that it is the unconscionability of the receipt, not the fact of unjust enrichment, that is the basis of a claim in knowing receipt.12
[57] I do not think Torbay supports Mr Butler’s argument on this point. In that case, Mrs Napier was also a defendant. She and Mr Napier were both beneficiaries of their family trust, and so they could be considered to have beneficially received payments made to that account. Importantly, the Court of Appeal stated that it did not consider Mrs Napier or the Family Trust to be third parties with respect to the misappropriation.13 In this case the landlord and the employees who received the misappropriated funds presumably were “third parties”, in the sense that expression was used by the Court of Appeal in Torbay.
[58] In the event, I am not satisfied that there is sufficient evidence to draw the inference that Mr Ralph must have directed that the creditor payments be made, or at least participated in the making of such a direction. Such a finding would be necessary to make out NZGT’s claim, whether it is based in knowing receipt or in conversion (see [61] below). The argument based on “payment by direction” fails for that reason.
The conversion and indemnity causes of action
[59] Mr Butler did not place any significant reliance on the pleaded “indemnity” cause of action at the hearing, and I note that a liability to indemnify is pleaded as part of the knowing receipt cause of action in NZGT’s statement of claim. There is also a
stand-alone “indemnity” cause of action pleaded, but there was no contract of indemnity between Mr Ralph and NZGT and Mr Butler did not articulate in his submissions any clear basis on which “indemnity” might provide a separate ground on which summary judgment could be entered.14 It appears to be no more than an “accessory” pleading to the knowing receipt and conversion causes of action.
[60] NZGT’s conversion cause of action includes a pleading that Mr Ralph was aware of his wife’s conversion of the funds, and I have already found that whether or not that is so is an arguable matter which should be determined at trial. The involuntary receipt of the property without knowledge is not by itself conversion,15 and the conversion cause of action in the statement of claim alleges only “accessory liability” against Mr Ralph, citing Mrs Ralph’s dishonest misappropriation of the funds and (at paras 11 and 12) Mr Ralph’s actual or constructive knowledge of them. There is no allegation (for example) of conversion by Mr Ralph by using the money paid into the trading account.
[61] Quite apart from NZGT’s pleading, it appears that the conversion cause of action might also face difficulties in that the tort of conversion is generally restricted to goods, and does not apply to currency. As Asher J stated in Auto Sounds and Alarms Ltd (in receivership and in liquidation) v Crone:16
Moreover the receipt of an electronic transfer of cash, as distinct from interferring with goods, is not conversion.
[62] While it appears that the cases have recognised an exception to that principle where the defendant has converted specific identifiable sums,17 it is not clear if that exception would apply in this case where, at least in respect of the three amounts paid into Mr Ralph’s business trading account, the payments appear to have been made
electronically by direct credit.
14 There was no separate pleading of a money had and received cause of action, or an unjust enrichment cause of action, and Mr Butler did not put the case for NZGT on either of those bases at the hearing.
15 Todd, Burrows and Atkin (eds) The Law of Torts in New Zealand (online loose-leaf ed, Westlaw
NZ) at [12.3.02(5)].
16 Auto Sounds and Alarms Ltd (in receivership and in liquidation) v Crone [2013] NZHC 1227 at [173], citing Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 (HL) at 559. See also McKay v Johnston [2016] NZHC 1691 at [45].
17 See for example the decision of the Māori Appellate Court in Adlam v Savage [2015] NZAR 746 at [138].
[63] As to the possibility of “conversion by direction”, at the very least, the cause of action would clearly require proof that there was some direction by Mr Ralph (or at least a direction of which he was aware and in which he participated in some way), and I have found that it is arguable on the evidence produced so far that Mr Ralph was not aware of the misappropriations and did not participate in any such direction. I do not think the conversion cause of action provides NZGT with any better basis for its summary judgment application than the knowing receipt cause of action. In those circumstances, the summary judgment application must be dismissed.
Discharge of interim suppression order
[64] Since the hearing, I have received memoranda from counsel confirming that Mrs Ralph has now been sentenced, and that no suppression orders were made in the criminal proceeding against her which might reasonably require that any details of this case should remain suppressed. In those circumstances, there will be an order discharging the interim suppression order and the order preventing any search of the Court file that I made in this proceeding on 21 November 2017.
Result
[65] The plaintiff’s application for summary judgment is refused.
[66] The costs of the application are reserved.
[67] The interim orders made on 21 November 2017 suppressing publication of any details of this case, and preventing any search of the Court file, are discharged.
Associate Judge Smith
Solicitors:
Richard Broad, The New Zealand Guardian Trust Co Ltd, for the Plaintiff
Breaden McCardle Lawyers Ltd, Paraparaumu, for the Defendant
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