Rabobank New Zealand Limited v Cooper

[2012] NZHC 2239

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2012-442-000231 [2012] NZHC 2239

BETWEEN  RABOBANK NEW ZEALAND LIMITED Plaintiff

ANDGENE EDWARD COOPER First Defendant

ANDCOLIN HOWARD COOTE Second Defendant

Hearing:         21 August 2012

Appearances: G J Toebes for Plaintiff

D R Kalderimis for Second Defendant

Judgment:      31 August 2012

RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Introduction

[1]      In  this  proceeding  Rabobank  seeks  judgment  against  Mr  Cooper  and Mr Coote under their respective guarantees of the indebtedness of the Tetley Brook Joint Venture (TBJV) to Rabobank.  Rabobank seeks judgment on a summary basis, that is judgment without trial, because it says that neither Mr Cooper nor Mr Coote has a defence to its claim.

[2]      Mr Cooper has  not  yet  filed a defence to  Rabobank’s application.    The application against him is due to be called at a later date and does not feature in this judgment. Mr Coote has applied to stay Rabobank’s application for summary judgment  until  such  time  as  proceedings  that  Mr  Coote  has  brought  against  a Mr Royds, his former solicitor, and a number of other parties, have been finally determined by the High Court.  Mr Coote says that findings of fact which will be made at that trial in relation to the actions of Mr Royds are material to whether he

has liability to Rabobank under his guarantee.   He says, therefore, that this Court

RABOBANK NEW ZEALAND LIMITED V GENE EDWARD COOPER HC NEL CIV-2012-442-000231 [31

August 2012]

should exercise its discretion to postpone consideration of Rabobank’s application

for judgment on a summary basis until those findings of fact have been made at trial.

[3]      Mr Coote relies on r 10.12 of the High Court Rules:

10.12   When order may be made

The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one  immediately after  another,  or may order  any of  them to  be stayed until after the determination of any other of them, if the court is satisfied –

(a)   that some common question of law or fact arises in both or all of them; or

(b)   that the rights to relief claimed therein are in respect of or arise out of –

(i)   the same event; or

(ii)  the same transaction; or
(iii) the same event and the same transaction; or

(iv) the same series of events; or

(v)   the same series of transactions; or

(vi) the   same   series   of   events   and   the   same   series   of transactions; or

(c)   that for some other reason it is desirable to make an order under

this rule.

[4]      Counsel submits that the grounds for a stay are made out under each of paragraphs (a) to (c).

[5]      Discussing this rule in Regan v Gill,[1] the Court of Appeal said:

[1] Regan v Gill [2011] NZCA 607.

[10]   It is difficult to conceive of a wider procedural discretion.  As Rodney Hansen  J  observed  in  Medlab  Hamilton  Ltd  v  Waikato  District  Health Board, [(2007) 18 PRNZ 517 (HC) at [8]] “the discretion to make orders under r 382 [now r 10.12] is a wide one, to be exercised broadly in the interests of justice”.

We agree.

Background facts

[6]      There are two proceedings in the Nelson High Court involving Mr Coote arising from a failed business known as the Tetley Brook Joint Venture.  The venture

was formed to develop a vineyard in the Awatere Valley.  The details of the events

which led to the formation of the TBJV are relevant to this application only in part. That part concerns the roles and actions of Mr C Royds, a solicitor.  Mr Royds was instructed by Mr Coote and his wife to act for them shortly after they arrived in Nelson  in  2004.    Mr Coote  says  that  Mr  Royds  became  their  trusted  advisor, providing them with advice on a range of legal issues that arose as a result of their settling in New Zealand, including advice on immigration issues and applications for citizenship, drafting of wills, opportunities for purchase of land for personal and investment purposes, the establishment of a family trust (of which he was a trustee), the incorporation of a company to hold investments and provide corporate and tax advantages,  and  advice  on  investment  in  a  Christchurch  property  syndicate. Mr Royds  knew  their  financial  and  legal  position.     He  also  knew  of  their immigration status as investors and their consequent priority to invest conservatively so as not to jeopardise their investor visas.  One of the matters on which Mr Royds acted for Mr Coote and his wife was their investment in the TBJV.

[7]      That, however, was not the sole role of Mr Royds at that time.  The TBJV purchased the land on which it would develop a vineyard from a party called Blind River International Limited (BRIL).   Mr Royds acted for BRIL.   In addition, Mr Royds acted on setting up the TBJV.  He was himself a member of the TBJV, and a member of the management committee of the TBJV.  He obtained execution of the loan security documents by the TBJV.  Like Mr Coote, he was a guarantor of the loan  which  Rabobank  made  to  the  TBJV,  and  as  Mr  Coote’s  solicitor  he  was involved in Mr Coote’s execution of the guarantee documents in a way which is in sharp focus in this application.

[8]      After the TBJV failed Mr Coote issued proceedings, which I will call the 122 proceeding, in which he claims damages against a number of parties.  The only one of relevance, on this application, is the claim against Mr Royds.  That claim is based on alleged breach by Mr Royds of his fiduciary duty to Mr and Mrs Coote as their solicitor because of all the roles which he held.  Mr and Mrs Coote seek equitable compensation for their losses and indemnity for any liability Mr Coote may have to Rabobank under the guarantee which he signed.

[9]      In this proceeding Mr Coote, in his defence to Rabobank’s application for summary judgment under its guarantee, relies on establishing the breach of fiduciary duty by Mr Royds, as a foundation for the proposition that he signed the guarantee under the undue influence of Mr Royds.  Thus counsel for Mr Coote submits that the same facts, namely those relating to Mr Royds’ actions, give rise to different consequences in the two proceedings in which they arise.  In the 122 proceeding it is said they entitle Mr and Mrs Coote to an indemnity from Mr Royds for any liability Mr Coote may have to Rabobank, and in this proceeding it is said that they amount to a defence to liability to Rabobank.  It is accepted, however, that this can only be the case if Rabobank must bear responsibility for Mr Royds’ actions.  This in turn depends on the facts surrounding the execution of the guarantee in favour of Rabobank by Mr Coote.

[10]     Rabobank instructed Lundons, solicitors in Blenheim, to act for it in relation to the advances it intended to make to the TBJV.   On 9 May 2005 it wrote to Mr Stephen Riley of that firm and stated:

We would appreciate you acting on our behalf in the preparation, execution and registration of pertinent documents as per our General Instructions attached.

[11]     Part of the loan terms was a requirement that Mr Coote give a guarantee.  In the general instructions to Lundons, Mr Coote was within the definition of a Security Provider.  Instruction K stated:

Where it is apparent that any Security Provider may not receive any benefit from the transaction or otherwise may be at a disadvantage in relation to the borrower, Rabobank as a matter of policy requires that Security Provider to obtain independent financial and legal advice.  As Rabobank’s solicitor you should ensure that a certificate to that effect is obtained.  The provider of the independent advice should certify:

their qualifications to give the advice;

that the Security Provider was properly identified;

that the borrower was not present;

that the Security Provider indicated that they were freely entering into the transaction; and

the nature of the advice given.

As  Rabobank’s  solicitor  you  should  ensure  that  the  certificate  given  is

adequate.

[12]     Once the documentation had been fully executed, Mr Riley of Lundons sent it back to Rabobank.  The documents included a guarantee and indemnity executed by Mr Coote.

[13]     However, Mr Riley did not attend on the execution of Mr Coote’s guarantee. Rather, he forwarded it to Mr Royds.   According to Mr Coote he collected the guarantee document from Mr Royds’ office, took it to Westpac Bank where he saw a Ms Brown, executed the document there and had his execution witnessed by Ms Brown, and then returned the document to Mr Royds’ office.   Mr Coote says Mr Royds did not advise him to take independent legal advice about the guarantee, though  did  tell  Mr  Coote  that  as  a  fellow  guarantor  he  could  not  witness  his execution of the document.  According to Mr Royds, however, he did tell Mr Coote to get independent advice and understood that Mr Coote was taking the document to another solicitor to obtain independent advice.  Resolution of that issue of fact awaits resolution at trial on the 122 proceeding.

[14]     On 30 May 2005 Mr Royds sent a fax to Mr Riley:

RABOBANK LOAN DOCUMENTS

We confirm that disclosure has been made, that is, copies of all loan and security documents were provided to both borrower companies and the guarantors.

We also confirm that we advise [sic] the guarantors who form part of the Westport Collective Limited to obtain independent legal advice in respect of the  guarantees  and  also  the  guarantors  in  respect  of  Nelson  Collective Limited to do so.  Of those parties, only Paul Salvador obtained independent legal advice regarding his guarantee.

The collectives referred to are the two principal partners of the TBJV, of whom various individuals, including Mr Coote, are members.

[15]     Mr Riley then sent the documents to Rabobank.

The case for Rabobank

[16]     Mr  Toebes  submits  first  that  on  the  facts  it  would  be  very difficult  for Mr Coote to demonstrate, in response to the application for summary judgment, that he had executed the guarantee under the effect of undue influence by Mr Royds, given that he took the document from Mr Royds’ office, signed it elsewhere and returned it.  He also submits that even if there were undue influence by Mr Royds, the guarantee was later affirmed when Mr Coote signed a variation, with the effect that the document could no longer be rescinded by reason of any initial undue influence.   On that basis the question of whether Rabobank must bear part of the consequences of initial undue influence by Mr Royds (if any) falls away.

[17]     Secondly,  Mr  Toebes  argues  that  the  wording  of  the  guarantee  which Mr Coote signed included an express waiver by him of the consequences of failing to take independent legal advice as advised by Rabobank.

[18]     Thirdly,  Mr  Toebes  argues  that  Mr  Riley’s  role  was  split;  he  acted  for Rabobank as the lender and was acting for the TBJV in arranging execution of the documents.  He submits that he was acting in the latter capacity when he arranged for Mr Royds to attend to the execution by Mr Coote of his guarantee, and thus he argues that Rabobank was not affected by any breach of fiduciary duty by Mr Royds, even if established.   It is unnecessary to delay the summary judgment pending a determination of the fiduciary allegations by Mr Coote against Mr Royds.

[19]     Fourthly, Mr Toebes points to what he described as antithetical positions by Mr Coote: first, his claim in the 122 proceeding that he should be indemnified for any  liability  he  has  under  the  guarantee  by  certain  other  persons,  including Mr Royds, but on the other hand, his claim in this proceeding that he is not liable under the guarantee because it was procured by the undue influence of Mr Royds.

[20]     Fifthly, contrary to the assertion of Mr Coote, all documents necessary for the Court to determine the application for summary judgment are before the Court on this proceeding as are all relevant facts.

[21]     Sixthly, Mr Toebes submits that Mr Coote does not allege that there would be a substantial injustice if the summary judgment application were allowed to proceed at this point, but establishing a substantial injustice is, he submits, a threshold for a stay.

The case for Mr Coote

[22]     First, Mr Kalderimis says that at the trial of the 122 proceeding it will be shown that Mr Royds breached his fiduciary duties to Mr Coote, and that the circumstances by which Mr Royds let Mr Coote take the guarantee away to sign, without (as Mr Coote maintains) advising him to take independent legal advice, show that his influence over Mr Coote was instrumental in Mr Coote giving the guarantee.  As Mr Riley knew that Mr Royds was himself a guarantor and acted for TBJV, the principal borrower, Rabobank, was on notice through its appointed solicitor of the facts said to give rise to the breach of fiduciary duty, and also to the claim of undue influence.   This, it is said, is a defence to the claims under the guarantee.

[23]     Mr Kalderimis submits that it will therefore be necessary, when considering the application for summary judgment, to consider whether Mr Royds’ actions amounted to a breach of his fiduciary duty to Mr Coote (with the result Mr Coote was under the undue influence of Mr Royds).  As this essential issue of fact falls for determination  at  trial  on  the  122  proceeding,  it  should  not  be determined  on  a summary basis because of the risk of the Court coming to different conclusions on the same issue and possibly making inconsistent factual or legal findings in the course of analysis.

[24]     Secondly, Mr Kalderimis describes as a fine distinction the twin roles of Mr Riley  that  Mr  Toebes  identified.    He  says  that  it  is  plain  that  the  written instructions from Rabobank required Mr Riley’s firm to act for the bank to obtain execution of the documents and therefore Mr Riley was acting for Rabobank in relation to execution of the guarantee.  It was in that capacity that he chose to pass this task on to Mr Royds.  Mr Kalderimis refers to the instructions, set out above at [10] - [11].

[25]     Thirdly, Mr Kalderimis submits that Mr Royds should have the benefit of access to the relevant documentation discovered in the 122 proceeding to fully equip himself for his defence in this proceeding, but does not have that access.  He says that he should also have the benefit of cross-examination on the evidence, given that findings of fact will be necessary in relation to exactly what occurred over signing of the guarantee (Mr Royds maintains that he told Mr Coote to take independent legal advice but Mr Coote says that he did not).

[26]     Mr Kalderimis argues that holding a summary hearing of factual matters relevant  to  both  proceedings  is,  as  he put  it,  putting the cart  before  the horse. Directing discovery in  this  proceeding  to  overcome the difficulty in  relation  to documentation would involve a significant duplication of time, effort and cost, yet conversely there is no sensible reason to require Rabobank to be joined to the 122 proceeding even though its substantive rights may be affected by the outcome.

[27]     Fourthly, the indemnity sought against Mr Royds in the 122 proceeding is for any  amount  payable  to  Rabobank  under  the  guarantee,  which  does  not  require liability to Rabobank to be established first, or if established, for quantum to be determined; nor are the propositions mutually exclusive.  Mr Kalderimis accepts that if on the 122 proceeding it is not established that Mr Royds acted in breach of his fiduciary duty to Mr Coote, after all the relevant evidence is tested at trial, the defence to this proceeding would be adversely impacted.

[28]     Fifthly, Mr Kalderimis submits that Rabobank would not be prejudiced by a stay as the 122 proceeding has been set down for hearing and interest continues to run on the sum claimed in the meantime.

[29]     Sixthly, in relation to Mr Toebes’ argument that the execution by Mr Coote of a variation of the guarantee meant that even if there were undue influence at the time of its initial execution, that influence was spent, Mr Kalderimis says that Mr Coote’s evidence will be that Mr Royds’ dominance over him and his affairs grew from 2005 onwards and he continued to influence Mr Coote in his decision-making throughout.

Discussion

[30]     In the 122 proceeding the Court will be required to consider the facts, both testimony and documents, on which Mr Coote relies to establish the proposition that Mr Royds acted in breach of his fiduciary duty to him.  In this proceeding Mr Coote also maintains that Mr Royds acted in breach of his fiduciary duty to him, and that Rabobank, by the actions of its appointed solicitor Mr Riley, is bound by a presumption of undue influence by Mr Royds to get the guarantee signed.   The actions of Mr Royds in relation to the signing of the guarantee must be examined in both sets of proceedings.   Thus, there are common questions of fact, leading to a common question of law in both proceedings.   I am satisfied that the ground for staying this application for summary judgment set out in paragraph (a) of r 10.12 is satisfied.

[31]     Secondly, it is also clear that the rights to relief claimed in each of the proceedings, though different, arise from the events which took place in relation to the signing of the guarantee.  Although this is another way of looking at the same issue, this case comes within the terms of paragraph (b) of r 10.12.

[32] However, deciding to stay a proceeding is a matter for my discretion, as noted at [5]. I take the following factors into account:

(a)     There is no question that Mr Coote signed a guarantee in favour of Rabobank (as did other members of the TBJV), Rabobank advanced the monies, and were it not for the proceeding brought by Mr Coote against Mr  Royds  and  others,  Rabobank  would  be  entitled  to  have  its application for summary judgment dealt with expeditiously.

(b)The  allegations  of  breach  of  fiduciary  duty  against  Mr  Royds  are serious.  Arguably it is in the interests of both Mr Coote and Mr Royds that those should be determined at trial after consideration of oral testimony and cross-examination; they should not be determined, even on a summary basis, in a proceeding to which Mr Royds is not a party.

(c)     There is a real prospect of inconsistent findings on that issue if, on the one hand, those issues are aired on a summary basis and on the other hand they are aired at trial.  It is preferable that they are aired at trial first.

(d)I accept the submission that the seriousness of the allegations and the complexity of the issues is such that there should be findings on the facts with all relevant documents available for consideration.

(e)     On the material before me I do not see any substance in the argument that Mr Riley had a dual role, and that he was acting only for the TBJV when  he  arranged  for  Mr  Royds  to  have  Mr  Coote’s  guarantee executed, not for Rabobank.  Whilst that distinction might be open it is fine and if it is to be pursued it should be after a thorough investigation of the facts at trial.

(f)     There is a dispute on the evidence between Mr Royds and Mr Coote on whether the former advised Mr Coote to take independent legal advice before Mr Coote uplifted  the guarantee document from  Mr Royds’ office.    Given  the  warning  on  the  Rabobank  document,  and  the potential legal effect of Mr Coote not having taken legal advice, establishment of the facts on this point is potentially highly material to Mr Royds’ liability to Mr Coote in relation to Mr Coote’s liability under the guarantee.  If it is shown at trial that Rabobank is bound by Mr Royds’ actions, that is potentially a defence to Rabobank’s claim but it requires findings of fact which should be made at trial.

[33]     Although there is a delay of some months before the trial of Mr Coote’s proceeding  against  Mr  Royds  and  others  which  is  generally  unfortunate  in  the context of an application for summary judgment, it is acceptable in this case in the circumstances  I  have  outlined,  and  I  note  that  interest  continues  to  run  so  if ultimately it is found that Mr Coote is liable to Rabobank, the bank has a measure of protection.

[34]     I find that the factors set out in paragraphs (b) to (f) direct the exercise of my discretion in favour of the second defendant.

Outcome

[35]     I am satisfied that grounds are made out under r 10.12 to stay the application for summary judgment by Rabobank until the 122 proceeding is determined by the High Court.  I so direct.

[36]     Mr Coote has been successful in this application.  I direct that Rabobank pay him costs on a 2B basis with disbursements to be fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

JT Law, PO Box 25443, Wellington 6146. [email protected]

Chapman Tripp, PO Box 993, Wellington 6140. [email protected]