Perrot-Hunt v Johnston

[2017] NZHC 689

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2506 [2017] NZHC 689

IN THE MATTER OF

the Hunt Family Trust

BETWEEN

MATTHEW NEIL PERROT-HUNT First Plaintiff

HUNT FT LIMITED
and

DEBRA CECILIA HOLTOM Second Plaintiffs

AND

EDWARD ERROL JOHNSTON First Defendant

ED JOHNSTON & CO TRUSTEES LIMITED

Second Defendant

RONALD BRUCE JOHNSON JOHN KAHUKIWA and LAWRENCE PONNIAH trading as CORBAN REVELL

Third Defendants

RONALD BRUCE JOHNSON Fourth Defendant

ROSS JAMS FARRON and

JAMES ROBERT ARTHUR NASH Fifth Defendants

ROSS JAMES FARRON Sixth Defendant

Hearing:	5 April 2017
Counsel:	R S Pidgeon and G S C K Sidnam for the Plaintiffs P J Napier for the Fourth Defendant No appearances for other Defendants
Judgment:	11 April 2017

PERROT-HUNT v JOHNSTON [2017] NZHC 689 [11 April 2017]

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on  11 April 2017 at 11:00am

pursuant to Rule 11.5 of the High Court Rules

………………………………………………….

Registrar/Deputy Registrar

Solicitors:
Pidgeon Law (Joanna Pidgeon), Auckland, for Plaintiffs
Keegan Alexander (P Napier), Auckland, for Defendants

Copy for:

R S Pidgeon, Barrister, Mairangi Bay, Auckland, for Plaintiffs

[1]      The fourth defendant, Ronald Bruce Johnson, applies for summary judgment and to strike out the claim against him.  He is also one of the third defendants.  This decision concerns his alleged liability as fourth defendant.

[2]      Mr Johnson is a lawyer practising in West Auckland.  He was for a period a salaried partner in the firm Corban Revell, the third defendants.  In 2011 he left that firm and established his own practice, Central Park Legal Limited, an incorporated law firm.  As fourth defendant he is sued as principal of Central Park Legal Limited. Corban Revell, as third defendants, have separate representation.  The claims against him are for breaches of professional duty.   The basis for his applications is that any alleged wrongdoing by him occurred only why he was a partner of Corban Revell, but not after he left that firm and established his own practice.

Parties

[3]      The first plaintiff is the administrator of the estate of the late Mrs Vao Hunt, who died on 31 May 2016.  The second plaintiffs are the current trustees of the Hunt Family Trust.  The original trustees were Mrs Hunt, her daughter Debra Holtom, and Edward Johnston & Co Trustees Limited.

[4]      Mr Ed Johnston, the first defendant, is a former lawyer who practised on his own account in West Auckland.  He is now in disgrace.  He was struck off the rolls as a lawyer and was adjudicated bankrupt.  Edward Johnston & Co Trustees Limited, the second defendant, is a corporate trustee associated with Mr Ed Johnston’s former practice.

[5]      The third defendants are the partners of the firm Corban Revell at the times relevant to this proceeding.

[6]      Mr R Farron and Mr R Nash were businessmen who engaged in property development and investment.  They have been adjudicated bankrupt.

What the case is about

[7]       In 2009 Mrs Hunt was a widow living in a freehold family home at Grey Lynn.  She was unsophisticated in legal and commercial matters.  Mr Ed Johnston was the family lawyer.  On Mr Ed Johnston’s advice she established the Hunt Family Trust and transferred the family home to the family trust.  He encouraged the trustees to use the equity in the family home as security to raise funds to purchase other properties.  This venture into property investment has been disastrous for the Hunt family.  They lost money.  They were unable to service the mortgage on the Grey Lynn home.  It was sold up under a mortgagee’s sale.

[8]      The  Trust’s  investment  activity  involved  two  properties:  one  at  Edwin Freeman  Place,  West  Auckland,  and  the  other  at  Cedar  Drive,  Paraparaumu. Mr Ed Johnston owned 31 Edwin Freeman Place.  Mr Johnston did not act for the trustees on the purchase.  Instead he referred Mrs Hunt and Mrs Holtom to Mr Bruce Johnson  at  Corban  Revell,  and  he  arranged  for  another  law  firm  to  act  for Ed Johnston & Co Trustees Limited on the purchase.   The purchase took place in

2009.

[9]      Mr Ed Johnston persuaded the trustees to buy the property at Cedar Drive, Paraparaumu.  That belonged to the parents of Mr Ross Farron.  Other lawyers acted for the trustees on the purchase of the Cedar Drive property.  Mr Bruce Johnson and Corban Revel did not.

[10]     In 2011 the Hunt Family Trustees sold the Edwin Freeman Place property. Another law practice acted for the trustees on the sale.  Mr Bruce Johnson, still a partner of Corban Revell, acted for the purchaser, R J Ranui Limited, a company associated with Mr Ross Farron. The sale settled in early June 2011.

[11]     In 2011 the Hunt Family Trustees also sold the Cedar Drive property.  The law firm that acted on the sale of the Edwin Freeman Place property also acted for the trustees on the sale of the Cedar Drive property.   The purchaser of the Cedar Drive property was Khyber Investments 2010 Limited.   Mr Ed Johnston was the

director and shareholder of Khyber Investments 2010 Limited.1  The lawyer who acted for Khyber on the purchase was Bruce Johnson, while he was still a partner of Corban Revell.  This sale also settled in early June 2011.

[12]      On the sale of the Edwin Freeman Place property, the trustees as vendors left money in by way of a registered second mortgage.  The advance was never repaid. While Mr Farron guaranteed the payment, he was insolvent.   The guarantee was worthless.  Similarly, on the sale of the Cedar Rise property the trustees as vendors left money in by way of a registered mortgage over Edwin Freeman Place, which was not repaid.2

This proceeding

[13]     This proceeding started in October 2015.  The statement of claim alleged that both as partner of Corban Revell and as principal of Central Park Legal Limited, Bruce Johnson breached fiduciary duties to the plaintiffs, not only in the purchase of the Edwin Freeman Place property, but also when acting for the purchasers of Edwin Freeman Place and Cedar Drive.  The claim is unusual as it involves allegations that when he acted for the purchasers Mr Johnson acted contrary to the interests of the plaintiffs when they had independent lawyers acting for them.

[14]     The  plaintiffs  amended  their  pleading  to  include  a  cause  of  action  for conspiracy by unlawful means.  The conspiracy is said to involve Mr Ed Johnston, Mr Bruce Johnson, Mr Farron and Mr Nash.   The alleged  unlawful  means are breaches of fiduciary duty.

[15]     Both Corban Revell and Mr Bruce Johnson applied for summary judgment. The applications were given a fixture for 30 August 2016, but I vacated that because Mrs Hunt had died and an administrator for her estate not been appointed.   New trustees also had to be appointed for the family trust.   Mr Bruce Johnson was not

responsible for the delays in his application being heard.

1      On some documents the company is referred to as Khyber Holdings Ltd.

2      This was to be a third mortgage but was changed by a variation to become secured under the second mortgage.

[16]     On 27 March 2017 Corban Revell withdrew their application.  Costs were reserved.  I infer from Corban Revell’s withdrawal of their application that they are no longer confident that they can satisfy the Court that the plaintiffs’ claims against them cannot succeed.

Mr Bruce Johnson’s summary judgment application

[17]     Mr Bruce Johnson applied under r 12(2) of the High Court Rules:

The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiffs’ statement of claim can succeed.

[18]     In this proceeding there are causes of action against Mr Bruce Johnson as a partner of Corban Revell, and also as principal of Central Park Legal Limited.  His application for summary judgment is on the sole ground that none of the matters alleged against him occurred while he was a principal of Central Park Legal Limited. While that might get rid of the causes of action against him as fourth defendant, it is no answer to the allegations against him as a partner of Corban Revell.   When I pointed this out, Mr Napier submitted that Bruce Johnson as a principal of Central Park Legal Limited is a different person from Bruce Johnson as a partner of Corban Revell.   He modified that submission to say that Mr Bruce Johnson was sued in different capacities.

[19]     In  my  judgment,  this  alleged  difference  in  capacity  is  irrelevant  for  a summary judgment application under r 12.2.  If I were to grant summary judgment to Mr Bruce Johnson on the present application, that would also be for his benefit insofar as he is sued as a partner of Corban Revell.   Rule 12.2 does not allow defendants to apply for summary judgment for only some causes of action against them.    That  is  because  a  successful  summary  judgment  application  results  in judgment in favour of the defendant on all the causes of action in the statement of claim.  In this case that would mean that the plaintiffs’ failure against Mr Johnson would apply to him equally as principal of Central Park Legal Limited and as partner of Corban Revell.   Similarly, his former partners in Corban Revell, sued for his actions (but not their own), could rely on the summary judgment decision to have themselves removed from the proceeding as well.  That result would be incongruous

given their concession that they cannot succeed on their own summary judgment application.

[20]     A statement of claim may include causes of action against a defendant for entirely unrelated matters.3     A claim for a debt incurred in Dargaville may be combined with a claim for a defamation published in Ashburton.  A claim for a debt for which the defendant is solely liable may be pleaded with another against that debtor and others for which they are jointly and severally liable.   A cause of action against a single tortfeasor may be pleaded with a separate claim in tort against the

same defendant for actions in which he shares responsibility with others (whether as joint tortfeasor or as concurrent tortfeasor).  In all these cases, a defendant seeking summary judgment must be able to satisfy the Court that none of the causes of action can succeed, even if the causes of action are unrelated.   What is common to the causes  of  action  against  Mr  Bruce  Johnson  in  this  case  is  that  they  involve allegations of professional misconduct.   The fact that for some of the causes of action he may share liability with others (his former partners in Corban Revell) is immaterial.    Accordingly,  because Mr Johnson’s summary judgment  application does not satisfy me that there are no tenable causes of action for his actions while a partner of Corban Revell, his summary judgment application fails.

Mr Johnson’s strike-out application

[21]      Faced with this difficulty, Mr Napier applied orally to strike out the causes of action against Mr Bruce Johnson as principal of Central Park Legal Limited.   The plaintiffs agreed to the hearing proceeding on that basis.

[22]     There is no dispute as to the principles the Court applies on applications to strike out where it is alleged that the pleading discloses no reasonable cause of action:4

(a)       Pleaded facts, whether or not admitted, are assumed to be true (unless they are entirely speculative and without foundation);

3      High Court Rules, rule 5.28(1).

4      Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267-268; Couch v Attorney-General

[2008] NZSC 45, [2008] 3 NZLR 725 at [33].

(b)       The cause of action must be clearly untenable;

(c)       The jurisdiction is to be exercised sparingly and only in clear cases;

(d)The  jurisdiction  is  not  excluded  by  the  need  to  decide  difficult questions of law, requiring extensive argument; and

(e)       The Court should be particularly slow to strike out a claim in any developing area of law.

[23]     All of the alleged wrongful actions by Mr Bruce Johnson occurred while he was a partner of Corban Revell and before he started his own practice, Central Park Legal Ltd.   The plaintiffs’ pleadings do not allege any wrongdoing by Mr Bruce Johnson while a principal of Central Park Legal Ltd.

[24]     A proposed amended statement of claim prepared for the hearing alleged that Mr Johnson left Corban Revell in or about mid-2012.   I was concerned that the plaintiffs may have pleaded that out of surmise without direct knowledge.  I directed Mr Johnson to file and serve an affidavit, given his first-hand knowledge of the matter.   He says that his final day at Corban Revell was 5 August 2011 and that Central Park Legal Ltd opened for business on 1 September 2011.   The company was incorporated on 11 July 2011.  A bank account for the company was opened on

5 August 2011.   He has attached corroborating exhibits to his affidavit.   I see no prejudice to the plaintiffs in accepting his affidavit.  It puts the date of his setting up his own practice earlier than their pleaded date.

[25]     The Hunt children filed an affidavit that exhibited copies of documents taken from the files of the lawyers who acted on the sales of Edwin Freeman Place and Cedar Rise.    These show that these sales settled on 2 and 3 June 2011 and that Corban Revell acted for the purchasers.

[26]     The children’s affidavit also includes documents that show that Mr Bruce Johnson  acted  for  the  Hunt  Family Trustees  on  a  term  loan  by the  trustees  to Millbrook  Developments  Ltd  in  October  2011.    Millbrook  Developments  Ltd

appears to be connected to a member of the Hunt family.  The guarantor is Mr M P Hunt.   By this stage Mr Johnson had established his own practice, Central Park Legal Ltd.  This transaction is not referred to in the statement of claim and does not appear to be the basis of any claim against Mr Bruce Johnson after he left Corban Revell.

[27]       Mr Pidgeon accepted that there could not be any claim against Mr Johnson for breach of fiduciary duty once he became a principal of Central Park Legal Limited, but he contended that a claim for conspiracy using unlawful means may still be available.

[28]     A claim in tort based on conspiracy using unlawful means requires that action carried out in the course of the conspiracy must cause damage to the plaintiff.  The damage-causing conduct alleged against the defendants covers the sale of the Edwin Freeman  and  Cedar  Rise  properties  on  the  assumption  that  Mr  Ed  Johnston, Mr Bruce  Johnson,  Mr  Nash  and  Mr  Farron  were  involved  in  some  joint arrangement under which the Hunts were cheated out of their property.  The actions carried out under any such joint arrangement were completed on the sales of Edwin Freeman Place and Cedar Drive.  It may have taken time for the effects to become apparent, for example, when the vendor loans were not repaid.  But what counts is when Mr Bruce Johnson took action under the alleged conspiracy.   The pleading does not show that any of his actions after he left Corban Revell could count as part of the alleged conspiracy or could have caused any harm to the plaintiffs.

Outcome

[29]     In short, there is nothing in the current statement of claim or the amended statement of claim tendered at the hearing, that shows any tenable cause of action against Mr Bruce Johnson as principal of Central Park Legal Limited.

[30]     I invite the parties remaining in the proceeding and the Judge case-managing this proceeding to consider an issues conference under r 7.5 of the High Court Rules. Such a conference may assist in refining issues before this case goes to hearing.

[31]     I make these orders:

(a)       The application for summary judgment is dismissed.

(b)       The pleadings against Mr Bruce Johnson as principal of Central Park

Legal Limited are struck out.

(c)      The plaintiffs will pay the fourth defendants costs on the application under category 2.  If the parties cannot agree costs, memoranda may be filed.

(d)I direct the plaintiffs to file and serve an amended statement of claim excluding any claim against Bruce Johnson as principal of Central Park Legal Limited.

(e)       I direct a case management conference for further directions.

……………………………….

Associate Judge R M Bell