Perrott-Hunt v Johnston
[2018] NZHC 2568
•24 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2506
[2018] NZHC 2568
BETWEEN MATTHEW NEIL PERROTT-HUNT
as Administrator of the Estate of VAO HUNT also known as FA’ATU HUNT also known as MARGARET HUNT
First Plaintiff
HUNT FAMILY TRUST LIMITED and
DEBRA CECILIA HOLTOM as Trustees of the HUNT FAMILY TRUST
Second Plaintiffs
AND
EDWARD ERROL JOHNSTON
First Defendant
EDWARD JOHNSTON & CO TRUSTEES LIMITED
Second DefendantRONALD BRUCE JOHNSON
JOHN KAHUKIWA and LAWRENCE
PONNIAH (sued as a firm of solicitors practising as CORBAN REVELL in Henderson)
Third Defendants
RONALD BRUCE JOHNSON (principal of CENTRAL PARK LEGAL LIMITED)
Fourth Defendant
ROSS JAMES FARRON and JAMES ROBERT ARTHUR NASH
Fifth DefendantsROSS JAMES FARRON
Sixth Defendant
Hearing: 24 September 2018 at 9:00am Appearances:
Grant S C K Sidnam for the Plaintiffs
M J Francis and Ms I R Shennan for the Fourth Defendant
PERROTT-HUNT v JOHNSTON [2018] NZHC 2568 [24 September 2018]
Judgment: 24 September 2018
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
[1] The plaintiffs apply under r 4.56 of the High Court Rules for Ronald Bruce Johnson to be re-joined as fourth defendant in the proceeding. They also apply under s 45 of the Limitation Act 2010 for an extension of the limitation period on account of incapacity of the late Mrs Vao Hunt. At the start of the hearing, the plaintiffs signalled another issue on extension of time. They had said that they would rely on an extension of the limitation period under s 48 of the Limitation Act 2010 but Mr Sidnam indicated that that ground was abandoned and in its place, very late, he substituted an argument for late knowledge under s 11(2) and (3) of the Limitation Act.
[2] I removed Mr Johnson as fourth defendant in my decision in April 2017 because I considered that the pleadings did not show a cause of action against him. The plaintiffs now say that they have a basis for suing Mr Johnson. For that, they rely on events in October 2011. That was the discharge of the second mortgage registered against the title to the property in Edwin Freeman Place, Ranui, West Auckland.
[3]As background, I set out parts of my decision of 11 April last year:1
[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
1 Perrott-Hunt v Johnston [2017] NZHC 689 at [2]–[14].
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.2 The lawyer who acted for Khyber on the purchase was
2 On some documents the company is referred to as Khyber Holdings Ltd.
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.3
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.
[4] As further background, Mrs Hunt has four children. Her son, Mathew (the first plaintiff) is executor of her estate; her daughter Debbie (Mrs Holtom) is one of the trustees of the Hunt family trust; her son Hans lives in Australia; and there is another son Maurice. Maurice has not been a party to the proceeding but he was involved in some of the transactions which have led to the litigation. He was for a period a director of R J Ranui Ltd after Mr Farron went bankrupt and, as such, had dealings with Mr Bruce Johnson when he acted for R J Ranui Ltd in respect of the Edwin Freeman Place property.
[5] Mrs Vao Hunt, an elderly lady, began to suffer dementia. In early 2013 she granted enduring powers of attorney to Matthew, with Debbie to take his place if required. Those are enduring powers of attorney as to property and as to personal care and welfare. There is evidence of Mrs Hunt having significant dementia from 2013 onwards: a report of February 2013 by a medical officer at the Selwyn Home where she was resident, and a report of August 2013 of a psychiatrist with the Auckland District Health Board.
3 This was to be a third mortgage but was changed by a variation to become secured under the second mortgage.
[6] The original statement of claim filed in October 2015 alleged that Bruce Johnson breached fiduciary duties to the plaintiffs, both as a partner of Corban Revell and as the principal of Central Park Legal Ltd, not only in the purchase of Edwin Freeman Place but also in acting for the purchasers of Edwin Freeman Place and Cedar Drive. That statement of claim was amended to include a cause of action for conspiracy by unlawful means. The conspiracy was said to involve Mr Ed Johnston, Mr Bruce Johnson, Mr Farron and Mr Nash. The alleged unlawful means were breaches of fiduciary duty.
[7] I struck out the claim against Mr Bruce Johnson as principal of Central Park Legal Ltd because the pleadings did not show any liability on his part for anything he did after he left Corban Revell and established Central Park Legal Ltd. There was evidence that he left Corban Revell on 5 August 2011 and that Central Park Legal Ltd opened for business on 1 September 2011. There was no pleaded case against him for anything he did after 1 September 2011.
[8] I made a strike-out decision, although Mr Johnson had applied for summary judgment. I did not grant summary judgment because that would dismiss all claims against Mr Johnson. Mr Johnson remained a party to the proceeding, as one of the partners of Corban Revell, sued as third defendants. In that respect he is jointly and severally liable for any wrongs by him while a partner of that firm. Instead, I made a strike-out order because the pleadings did not show the cause of action against him as principal of Central Park Legal Ltd. That was a procedural strike out and could not stand in the way of the plaintiffs showing that they have an arguable cause of action against him. Corban Revell as a firm has separate representation from Mr Johnson. I understand that that reflects their separate interests and separate insurance arrangements.
[9] The proceeding has continued against Corban Revell alone. None of the other defendants have taken an active part in the proceeding. Mr Ed Johnston, Mr Farron and Mr Nash were all adjudicated bankrupt. Presumably any claims against them have been discharged except of course for any liability for fraud.4 In March 2018, Associate
4 Insolvency Act 2006, s 304(2)(a).
Judge Johnston gave directions for the hearing between the plaintiffs and Corban Revell. The close of pleadings date is 21 November 2018. The case is set down to be heard for 10 days beginning 1 April 2019. Associate Judge Johnston’s directions did not envisage Mr Bruce Johnson taking any part in the proceeding.
[10] I note a loose end relating to Corban Revell’s involvement. They have applied for Mr Maurice Hunt to be joined as a third party. That matter has still to be resolved. Associate Judge Smith has noted that Mr Hunt was bankrupted on 10 October 2013 and was discharged on 20 October 2016. That raises a question whether Corban Revell can pursue any claim against him.
The new claim against Bruce Johnson
[11] The plaintiffs applied at the beginning of this year to have Mr Bruce Johnson reinstated as a defendant in his capacity as the principal of Central Park Legal Ltd. They filed an amended statement of claim in February 2018. The application to rejoin Mr Johnson was set down for hearing on 12 June 2018. Lang J was to hear it. He noted that the pleadings of Mr Johnson’s participation in an alleged conspiracy seemed to be largely a re-run of allegations in the earlier pleading which I had struck out. At a conference counsel then acting for the plaintiffs raised the matter of the discharge of a mortgage in October 2011 as a reason for joining Mr Bruce Johnson in the proceeding again. Lang J noted that that seemed to be statute-barred. That led to the plaintiffs filing a third amended statement of claim. My decision is concerned with the tenth cause of action in that statement of claim.
[12] In essence, that new cause of action against Mr Bruce Johnson alleges that he acted for the trustees of the Hunt Family Trust on the discharge of the registered second vendor mortgage over the Edwin Freeman Place property. It is pleaded that he arranged for Mrs Hunt and Mrs Holtom to come to his offices where they signed A&I forms as trustees authorising the discharge of the mortgage. They also signed waivers of independent legal advice, acknowledged that he was not their lawyer and that he had advised them to obtain other legal advice. The plaintiffs’ case is that notwithstanding those waivers, they placed trust and confidence in him, and looked to him as their legal adviser. It is also pleaded that Mrs Hunt was incapacitated and
suffering from increasing dementia. The discharge of the mortgage allowed the Edwin Freeman Place to be used a security for a loan from Ginger Corporation and there were losses arising from the loss of security.
The forgery allegation
[13] While that is the pleaded cause of action, the plaintiffs have signalled an alternative pleading which they wish to raise. That is an allegation that their signatures on the documents signed in October 2011 are not their own, but are forgeries. The allegation is that Mr Johnson, or someone associated with him, was involved in forging their signatures on A&I forms and gave false certificates and undertakings to allow the discharge of the mortgage to be registered against the title to the Edwin Freeman Place property. The basis given for these allegations is an assertion by Mrs Holtom that she had met Mr Bruce Johnson only once and that she never went to the offices of Central Park Legal Ltd. She has also looked at the documents and has made assertions as to the way she signs her signature. For my part, having compared various documents in the agreed bundle of documents showing Mrs Holtom’s signature, I cannot, with my untrained eye, usefully distinguish between signatures alleged to be genuine and those alleged not to be hers.
[14] Mr Sidnam advised that the plaintiffs, who are on legal aid, wish to retain a document examiner with a view to having the signatures compared to establish whether Mrs Hunt’s and Mrs Holtom’s signatures have been forged. So far, that document examiner has not given any report. In the absence of anything persuasive such as a report from an expert document examiner, I am unable to take seriously the suggestion that the documents bearing the signatures of Mrs Hunt and Mrs Holtom, apparently signed on or about 20 October 2011, were forged. I say that because the allegation of forgery is a very serious one. It is akin to an allegation of fraud, if not worse. The requirements for pleading fraud, dishonesty and other reprehensible conduct are well known. In Ng v Harkness Law Ltd5I referred to the Court of Appeal’s
5 Ng v Harkness Law Ltd [2014] NZHC 850 at [41]–[42].
decision in Schmidt v Pepper New Zealand (Custodians) Ltd6 and to the Supreme Court’s decision in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd:7
[41] Where a cause of action involves fraud, dishonesty or other reprehensible conduct as one of the matters to be proved, plaintiffs are required to make sure that they have a proper basis for alleging fraud, to plead it clearly and to give adequate particulars. The Court of Appeal stated the standard approach in Schmidt v Pepper New Zealand (Custodians) Ltd:
[15] Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings emphasise, counsel must not draft any originating process or pleading containing any allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts – fraudulent conduct must be distinctly alleged and as distinctly proved. General allegations, however strong the words may appear to be, are insufficient to amount to a proper allegation of fraud.
[42] In a different context (a proceeding to set aside a judgment on the grounds that it was fraudulently obtained), the Supreme Court has taken a similar position on allegations of fraud, saying that “the plaintiff’s claim of fraud must be one that is fully and precisely pleaded and particularised and of sufficient apparent cogency that it should go to trial.” It also indicated that the adequacy and cogency of the pleadings could be tested by a strike-out application under r 15.1 of the High Court Rules:
So where a defendant in a proceeding involving the fraud exception applies to strike it out, the plaintiff is required to discharge the onus of showing it has a case with an evidential foundation amounting to a prima facie case of fraud.
[15] In particular, I take note that in the Supreme Court, McGrath J emphasised the need for claims of fraud to be fully and concisely pleaded and particularised and of sufficient apparent cogency that it should go to trial. He indicated that fraud allegations could be tested by a strike-out application where the plaintiff would have the onus of showing an evidential foundation amounting to a prima facie case of fraud.8
6 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15]. For the responsibility of counsel in alleging fraud or other reprehensible conduct, see X v Y [2000] 2 NZLR 748 (HC) at [58] and the Lawyers and Conveyancers (Lawyers: Conduct and Client Care) Rules 2008, r 13.8.
7 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94; [2013] 1 NZLR 804.
8 At [33].
[16] The plaintiffs’ case falls well short of showing that the signatures of the trustees of the Hunt family trust were forged in October 2011. There is an inherent improbability that a lawyer would forge documents when he has a professional responsibility to certify as to the accuracy of the documents. He is required to obtain A&I forms to establish the identity of the people from whom he takes authority to carry out transactions under the Land Transfer Act.9 The documents show that a driver’s licence was produced as evidence of identity. The fraud allegations go not only to the signatures but also to the production of a false driver’s licence.
[17] The forgery allegations are simply an assertion by the plaintiffs, without anything else to show that the allegations need to be taken seriously. For this decision, I consider the matter with regard to the pleaded tenth cause of action in the statement of claim of June 2018, not the cause of action in the draft pleading set out in Mrs Holtom’s affidavit.
No new party to be added under r 4.56
[18] To bring their claim against Mr Johnson as a principal of Central Park Legal Ltd, the plaintiffs have applied for him to be rejoined as a fourth defendant and seek an order under r 4.56 of the High Court Rules. That rule allows the court to add the name of a person as a defendant:
4.56 Striking out and adding parties
(1)A Judge may, at any stage of a proceeding, order that—
(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b)the name of a person be added as a plaintiff or defendant because—
(i)the person ought to have been joined; or
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2)An order does not require an application and may be made on terms the court considers just.
9 Land Transfer Act 1952, s 164A(3)(b).
[19] An order under r 4.56 adding a person as a party is only required if that person is not already a party. But Mr Johnson is already named as one of the third defendants. It is only a matter of tidy drafting that he is shown separately as a fourth defendant, to distinguish between him being sued as a partner of Corban Revell and in his own right. The distinction goes to the fact that if he is liable as a former partner of Corban Revell he shares that liability with his former partners and is jointly and severally liable with them for his actions while in partnership with them, whereas with Central Park Legal Ltd he stands alone and will not be able to claim contribution from his former partners. In wishing to plead the matter of the discharge of the mortgage in October 2011, the plaintiffs are not adding Mr Johnson as a party to the proceeding. They are adding a further cause of action against him. The difference is that it is a cause of action for which he may be solely liable rather than shared liability with others. Accordingly, I am not going to consider the matter under r 4.56.
[20] Instead, the question really arises under r 7.77 of the High Court Rules. That allows a party to add further causes of action so long as they are not statute-barred:10
(1) A party may before trial file an amended pleading and serve a copy of it on the other party or parties:
(2) An amended pleading may introduce, as an alternative or otherwise-
(a) Relief in respect of a fresh cause of action, which is not statute- barred; or
(b) A fresh ground of defence.
A party may not begin a proceeding that is statute-barred and that cannot be circumvented by amending pleadings to add causes of action that are out of time. That is the purpose of r 7.77(2). As to whether an amendment adds a fresh cause of action, I refer to the test stated by the Court of Appeal in Transpower New Zealand Ltd v Todd Energy Ltd,11 repeated in Commerce Commission v Visy Board Pty Ltd:12
The relevant principles as to when a cause of action is fresh are summarised in the Ophthalmological case at [22]-[24] as follows:
(a)A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another
10 High Court Rules 2016, r 7.77(2).
11 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61]–[62].
12 Commerce Commission v Visy Board Pty Ltd [2012] NZCA 383 at [141].
(Letang v Cooper [1965] 1 QB 232 at 242 – 243 (CA) per Diplock LJ);
(b)Only material facts are taken into account and the selection of those facts “is made at the highest level of abstraction” (Paragon Finance plc v D B Thakerar & Co (a firm) [1999] 1 All ER 400 at 405 (CA) per Millett LJ);
(c)The test of whether an amended pleading is “fresh” is whether it is something “essentially different” (Chilcott v Goss [1995] 1 NZLR 263 at 273 (CA) citing Smith v Wilkins & Davies Construction Co Ltd [1958] NZLR 958 at 961 (SC) per McCarthy J). Whether there is such a change is a question of degree. The change in character could be brought about by alterations in matters of law, or of fact, or both; and
(d)A plaintiff will not be permitted, after the period of limitations has run, to set up a new case “varying so substantially” from the previous pleadings that it would involve investigation of factual or legal matters, or both, “different from what have already been raised and of which no fair warning has been given” (Chilcott at 273 noting that this test from Harris v Raggatt [1965] VR 779 at 785 (SC) per Sholl J was adopted in Gabites v Australasian T & G Mutual Life Assurance Society Ltd [1968] NZLR 1145 at 1151 (CA)).
Transpower also relies on Attorney-General v Carter where the Court observed:13
[48] The circumstance that the underlying facts may be the same or similar does not save a cause of action from being fresh if the plaintiff seeks to derive a materially different legal consequence from those facts.
[21] Under this test, the allegations against Mr Johnson in the tenth cause of action are clearly fresh and distinct from the causes of action in the earlier pleadings. Mr Johnson is sued as a principal of Central Park Legal Ltd, whereas earlier pleadings alleged liability for his conduct before he left Corban Revell. The earlier pleadings said nothing about the discharge of the second mortgage over the Edwin Freeman Place property or the events of October 2011. In short then, the new cause of action is essentially different from the earlier pleadings and is a fresh cause of action unrelated to the earlier claims against Mr Johnson.
13 Attorney-General v Carter [2003] 2 NZLR 160 (CA).
Is the new cause of action statute-barred?
[22] Now for the test to be applied in deciding whether this fresh cause of action is statute-barred. In Murray v Morell Co Ltd Tipping J stated the test for when a defendant applies to strike out a pleading because of a limitation defence:14
[33] I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for by the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action, unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.
[34] In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the court cannot say that the plaintiff’s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time. A plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s 28 applies. A pleading of fraud should, of course, be made only if it is responsible to do so.
[23] I follow that approach here. The pleading with the new cause of action was filed on 12 June 2018. The question here is whether it is statute-barred and therefore not permissible under r 7.7(2) of the High Court Rules. The party opposing the pleading has the initial burden of persuasion, to show that the cause of action is statute- barred in just the same way as if there were a strike out application. Once it is shown that the initial time limit for the cause of action has passed, the onus shifts to the plaintiff to show that there is an arguable case for the extension or postponement, to bring the claim back within time.
[24] At the outset, the plaintiffs said that they could succeed by alleging fraud under s 48 of the Limitation Act 2010. They accepted, however, that s 48 has limited
14 Murray v Morell & Co Ltd [2007] NZSC 27; [2007] 3 NZLR 721 at [33]–[34].
application. It applies only when a claimant wants to get past the longstop period under s 11 of the Limitation Act, or the Part 3 period applies to the claim. In this case, the plaintiffs’ claim is a money claim under Part 2 of the Limitation Act 2010, and the longstop clause does not come into play. Mr Sidnam withdrew the claim of fraud under s 48, but he maintained the application under s 45 for extension of time on the ground of incapacity. As a replacement for his fraud allegation under s 48, he substituted a late knowledge claim under s 11. That did catch the fourth defendant a little by surprise because it had not been signalled in the pleadings or submissions. I have enough material on which to decide the late knowledge question.
[25] The discharge of the second mortgage was registered on 24 October 2011. That is the relevant act or omission on which the claim is based. The time under s 11(1) of the Limitation Act for bringing a claim based on that accordingly runs for six years from 25 October 2011 to 24 October 2017. As six years had expired before the cause of action was pleaded on 12 June 2018, the claim is out of time under the primary period.
[26] The next question is whether time can be extended because of the late knowledge period. Here is s 11(2) and (3) of the Limitation Act 2010:
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a)3 years after the late knowledge date (the claim’s late knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).
Section 14 of the Limitation Act says:
14 Late knowledge date (when claimant has late knowledge) defined
(1) A claim’s late knowledge date is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:
(a)the fact that the act or omission on which the claim is based had occurred:
(b)the fact that the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant:
(c)if the defendant’s liability or alleged liability is dependent on the claimant suffering damage or loss, the fact that the claimant had suffered damage or loss:
(d)if the defendant’s liability or alleged liability is dependent on the claimant not having consented to the act or omission on which the claim is based, the fact that the claimant did not consent to that act or omission:
(e)if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.
(2) A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).
(3) The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).
[27] Under the test of Tipping J in Murray v Morell & Co Ltd there must be an air of reality to the assertion that plaintiffs’ late knowledge is arguable.
[28] Mr Johnson acted for R J Ranui Ltd on the purchase of the Edwin Freeman Place property from the Hunt family trust. The trustees of the Hunt Family Trust had instructed another law firm to act for them on the settlement of the sale on or about 3 June 2011. On settlement, a second mortgage in favour of the Hunt trustees was registered against the title to the Edwin Freeman Place property. There are associated documents made about the same time that show that the lawyer acting for the trustees
was concerned to see that they had a registered security and rejected suggestions that their interests would be adequately protected by a caveat. That lawyer had reiterated his concern about the Hunt trustees being left unsecured in an email of 3 October 2011 which was sent to Maurice Hunt, Bruce Johnson, Mrs Holtom and Mr Farron. It was a matter of weeks afterwards that the mortgage over the Edwin Freeman Place property was discharged. There is no question at all that Mr Bruce Johnson acted on that. He registered a discharge of mortgage and gave the standard certificates required for an e-dealing under the Land Transfer Act.
[29] On 28 May 2012 the lawyer who had acted for the Hunt Family Trust on the sale of Edwin Freeman Place lodged a caveat over Edwin Freeman Place on behalf of the trustees. The interest claimed under the caveat is:
Pursuant to an agreement to mortgage dated the 3rd day of June 2011 in respect of the land contained in the above certificate of title and made between the registered proprietors, RJ Ranui Limited, as mortgagor, and the abovenamed caveator as mortgagee.
The trustees of the Hunt Family Trust were named as caveators. Clearly that lawyer appreciated that the Hunt family trustees no longer had a registered interest in the Edwin Freeman Place property. The caveat was lodged to protect their position.
[30] On 27 July 2012, Mr Maurice Hunt wrote to Mr Bruce Johnson. His email includes a complaint as to the discharge of the mortgage, having “sent the Hunt Trust into mortgagee sale.” I understand that could be a reference to the fact that the Hunt family home owned by the trustees was sold by mortgagee’s sale.
[31] In a reply of 30 July 2012, Mr Bruce Johnson noted that he had acted in the interests of RJ Ranui Ltd and that Mr Maurice Hunt had brought the trustees to his office to sign the documents to discharge the family trust’s mortgage. He also recorded Mr Maurice Hunt had made the request to the trustees to discharge the mortgage. At least one member of the Hunt family was aware of the matters going to the discharge of the mortgage by July 2012.
[32] The Edwin Freeman Place property was sold in 2013 by mortgagee’s sale. There was apparently nothing from the proceeds of sale available for the Hunt family
trustees. The Hunt family trustees uplifted the files from the solicitors who had acted on the sale of Edwin Freeman Place. Initially, barristers in one set of chambers were approached but they identified a conflict of interest. The files then went to the barrister who acted for the Hunt family trustees at the start of this proceeding.
[33] On 2 March 2015, Mr Perrott-Hunt made a complaint about Mr Johnson to the New Zealand Law Society. An inspector made a report on 20 January 2016, which addressed Mr Johnson’s actions on the discharge of the mortgage over Edwin Freeman Place (and other matters).
[34] On this question of late knowledge, I am deciding the matter on the pleadings and on uncontested facts. I also accept that the Hunt family – and in this I include not only Mrs Holtom and Mrs Hunt but also Maurice – were relatively unsophisticated people who went into property investment with little knowledge or experience. They would have limited ability to recognise that what happened gave them a right to sue. They would not have the skills to recognise that certain facts gave them a legal claim. But they did have people who were well versed in the law: they got legal advice. They uplifted files from their former lawyers after the mortgagee’s sale, and they instructed new lawyers. That was a sensible step to take given that there might be questions whether the lawyers who had represented them before had adequately protected their interests (there has been no complaint at all about the actions of the lawyers who acted for them on the sale of Edwin Freeman Place). A lawyer considering the files would have seen the vendor mortgage registered on the settlement in June 2011, and would also have noted that a caveat was lodged later. Any experienced lawyer would work out that a caveat could only have been lodged to protect an unregistered interest, and that a caveat is unnecessary to protect an interest which is already registered against the title. The matter called out for any lawyer invited to enquire into the position to consider remedies available to the trustees. They would have recognised that the discharge of the mortgage in 2011 – at least potentially – put the trustees in a more vulnerable position than if their mortgage had continued to remain registered against the title. Other interests could be registered that would take priority over their position as unregistered mortgagees.
[35] In my view, the Hunt trustees have been shown to have known (actually or constructively) all the matters required under s 14(1) of the Limitation Act. A lawyer acting on their behalf ought to have found out about those matters. As to s 14(1)(a), the act or omission on which the claim would be based was the discharge of the mortgage. That was known. Proof of the knowledge is shown through the lodging of the caveat.
[36] Next (b), the fact that the act or omission on which the claim is based is attributable to the defendant. A search of LINZ reports would have shown that Mr Bruce Johnson was the lawyer who arranged for the discharge of the mortgage.
[37] For (c), the question of damage or loss, up until the time of the mortgagee’s sale, may have been theoretical only but it was a certainty after the sale of Edwin Freeman Place and the Hunt trustees got nothing.
[38] As to (d) the question of consent to the act or omission, in this case the pleaded cause of action shows a flawed consent in that Mr Johnson is alleged to have advised the trustees to enter into a transaction, when he ought not to have done so because he also owed duties to other clients. It was known from the outset that Mr Johnson was acting for RJ Ranui Ltd and he had drawn that fact to the attention of the trustees when he got them to sign the waiver of independent advice. The nature of the consent was ascertainable from the time when new lawyers had the opportunity to consider the file.
[39] Section 14(1)(e) deals with fraud. That may be relevant to the forgery allegations, but as I have already indicated, I do not need to consider that.
[40] I take the end of 2013 as a date by which a lawyer, who had received the files in mid-2013, would have been able to ascertain all the matters required under s 14(1) of the Limitation Act. In my judgment the suggestion that that knowledge did not become available until later does not have the required “air of reality” required under the test of Tipping J in Murray v Morell & Co Ltd. Taking the end of 2013 as the period when late knowledge was obtained, the three years ran out at the end of 2016. The late knowledge does not help the plaintiffs in extending time to plead the discharge of the mortgage.
Extension of time for incapacity
[41] That leads to the application to extend time for incapacity. Here are ss 45 and 46 of the Limitation Act:
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.
intellectual or mental impairment means a clinically recognisable intellectual or mental impairment, whether or not it is or includes—
(a)an intellectual disability as defined in section 7 of the Intellectual Disability (Compulsory Care and Rehabilitation)
Act 2003; or
(b)a mental disorder as defined in section 2(1) of the Mental Health (Compulsory Assessment and Treatment) Act 1992
personal representative means an executor, administrator, or trustee of the estate of an individual who has died.
[42] I find that Mrs Vao Hunt was subject to intellectual or mental impairment (as defined in s 46) at least from early 2013 onwards. That is shown by the letter of the Chief Medical Officer at Selwyn Village Medical Centre of 14 February 2013. He says that she has “significant dementia” and is no longer capable to make decisions regarding her property. I regard a doctor associated with a facility that cares for aged people as having the expertise required to make such assessments. That is supported by a report by a psychiatrist with the Auckland District Health Board dated 4 August 2014. Her recommendation as to residential care is that Mrs Hunt requires care in a secure dementia unit. That recommendation was made in the light of various incidents
where Mrs Hunt had gone wandering away from home. On one occasion she ended up on the Auckland Harbour Bridge and the Police were called to rescue her. She had intended to walk to the North Shore to see her son.
[43] While there is medical evidence as to incapacity from February 2013 onwards, there is no clear evidence as to her incapacity earlier than that date. The onus is on the plaintiffs to show incapacity. If there were no question as to Mrs Hunt’s incapacity throughout, she would still not have had knowledge until the end of 2013. She could not have issued proceedings before then.
[44] Mr Francis submitted that from 2013 onwards Mrs Hunt was not incapacitated as defined, because from the time that Mrs Hunt signed the enduring powers of attorney she had personal representatives. The powers of attorney were signed on 24 January 2013. For that, Mr Francis relies on the definition of “incapacitated” as meaning that a claimant or a personal representative is not capable of understanding the issues in which his or her decision would be required as a litigant conducting proceedings. That, however, overlooks the definition of “personal representative” which means an executor, administrator, trustee of the estate of an individual who has died. Mrs Hunt was still alive up until the start of this proceeding. She had no personal representative. A person holding a power of attorney is not a personal representative under the definition of “incapacitated”.
[45] Accordingly, it is necessary to consider the matters under s 45(3) of the Limitation Act. The underlying concern, first, is to establish whether a claimant’s incapacity has prevented them from bringing a proceeding, although a court can also take other matters into account including contributory factors by the alleged defendant and the defendant’s ability to defend the proceeding.
[46] The plaintiffs are the executors of Mrs Hunt’s estate and the trustees of the Hunt Family Trust. As far as the tenth cause of action is concerned, the plaintiffs with standing to sue are the trustees of the Hunt Family Trust. They owned the Edwin Freeman Place property, sold it and took a mortgage back. Their mortgage was the discharged in October 2011. The trustees comprised the second defendant, Mrs Holtom and Mrs Hunt. Given her dementia I accept that Mrs Hunt was not able
to play any effective role as a trustee. But Mrs Holtom clearly was. My overall impression of the children of Mrs Hunt is that they cared deeply for their mother, were concerned for her welfare, were deeply upset at the loss of her permanent home in Grey Lynn and wanted to see what they could do. They showed true care and concern for their mother and for the loss of the family home. They acted in their mother’s interests in consulting lawyers to see what could be done. While Mrs Hunt may not have been capable of exercising the functions of a trustee, actions were taken in the name of the trust and on behalf of the trust to protect her interests. In particular, Mrs Holtom was able to give instructions. There is no suggestion that she suffered any incapacity. In short while Mrs Hunt was incapacitated, it has not disabled the trustees from giving instructions, receiving advice, and authorising proceedings in her name. In other words, the matters in s 45(3)(a) and (b) do not count for an extension of time.
[47] Under s 45(3)(c), Mr Johnson refers to the effects of delay and concedes to fading memory for events in October 2011. It is some seven years ago. It is understandable that a lawyer who has only records to go on would have difficulty now clearly recalling any discussions seven years ago. I do not put a lot of weight on the delay factor because I consider that Mr Johnson would be under a similar disability if the trustees had acted in time to bring the proceeding earlier. For example, if they had recognised in 2016 that there was a basis for suing Mr Johnson on the discharge of the mortgage, Mr Johnson would suffer the same difficulties in recalling events as he asserts now.
[48] As to s 45(3)(d), Mr Johnson’s conduct was neutral. There appears to have been no relevant contact with him after October 2011. There is no evidence of any request for information, and of any refusal by him to provide the information or to allow documents to be inspected.
[49] For s 45(3)(e), my finding on late knowledge means that I do not accept that prompt and reasonable steps were taken on behalf of Mrs Hunt to bring a claim after her attorneys became aware that they were entitled to do so. The knowledge is shown by the trustees consulting lawyers in 2013. They recognised earlier that steps should be taken.
[50] As to s 45(3)(f), there was medical advice as to Mrs Hunt’s incapacity. Arrangements were made for her care in the Selwyn home. Equally, during 2013, steps were taken to obtain legal advice as to the family’s position including that of the trustees. Given that those steps were taken promptly, the matter differs little from what would have happened if Mrs Hunt had retained full capacity throughout.
[51] Mr Sidnam made the point that the trustees were still under difficulty because they could not obtain instructions from Mrs Hunt and her evidence would be required to bring a proceeding. That is a defect in the claim – it goes to weakness in evidence. It does not mean that there is an inability to bring proceedings on account of Mrs Hunt’s incapacity. Her incapacity was already known. The family did take steps to obtain legal advice. Overall, I am not satisfied that a basis for an extension of time because of incapacity has been shown. I dismiss the application under s 45.
Result
[52] No basis has been shown for an extension of time beyond the primary period under s 11(1) of the Limitation Act. Any suggestions of late knowledge and incapacity do not have the required air of reality to warrant extensions of time. Accordingly, I strike out the tenth cause of action in the third amended statement of claim and I dismiss the application under s 45 of the Limitation Act 2010. The references to the “fourth defendant” in other parts of the statement of claim are also deleted.
Costs
[53] In the normal way, costs would follow the event, but there are legal aid questions. I direct Mr Francis to file and serve a memorandum as to costs which should address legal aid questions. Mr Sidnam is to file a response within five working days of Mr Francis’ memorandum as to costs. I will consider costs on the papers.
Any amended pleadings
[54] The plaintiffs may amend the statement of claim up to 1 November 2018. That is to give time to the defendant to file and serve a statement of defence.
[55] I direct the Registrar to arrange a telephone case management conference between the plaintiffs and counsel for the third defendants, to give any directions for the proposed joinder of Mr Maurice Hunt as third party. A copy of this judgment is to go to the lawyers for the third defendants.
……………………………….
Associate Judge R M Bell
Solicitors:
Grant S C K Sidnam, Epsom, Auckland, for the Plaintiffs
Wotton & Kearney (M Francis/Ines R Shennan), Auckland, for the Fourth Defendant McElroys (A Challis/D Turnbull), Auckland, for the Third Party
Copy for:
R S Pidgeon, Mairangi Bay, Auckland, for the Plaintiffs
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