Reece v Halse

[2016] NZHC 1438

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2038 [2016] NZHC 1438

IN THE MATTER

A claim in negligence and associated

causes of action

BETWEEN

ROBERT JAMES REECE of and JZE Trustee Company (No 2) Limited as trustees of the DOUBLE R TRUST First Plaintiffs

RUDYARD HOLDINGS LIMITED Second Plaintiff

AND

GRAHAM WILLIAM HALSE First Defendant

GROVE DARLOW AND PARTNERS Second Defendants

CHRIS ALLAN Third Defendant

Hearing:	16 May 2016  and 1 March 2016
Appearances:	Mr E St John and J Ewart for Plaintiffs Mr T Cooley for First Defendant Mr A Ross and H K Wham for Second and Third Defendants
Judgment:	29 June 2016

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

29.06.16 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

REECE & Anor v HALSE & Ors [2016] NZHC 1438 [29 June 2016]

Introduction

[1]      This judgment concerns an application by the defendants seeking further particulars and security for costs against the plaintiffs.  The main proceedings relate to various claims in negligence and breach of trust against the three defendants in relation to a loan transaction with Kiwibank in 2008.

[2]      The first plaintiffs in this case are the trustees of the Double R Trust (DRT). One of the trustees, Mr Reece, was personally involved in the loan transaction and is a beneficiary of DRT.   Mrs Reece, his estranged wife, was also involved in the loan transaction and is also a beneficiary of DRT; however she is not taking part in these proceedings.   The second plaintiff is a company, Rudyard Holdings Ltd (RHL). RHL is a shelf company which was formed to hold certain properties on behalf of DRT.  DRT owns 80 per cent of the shares in RHL.  There were a number of other entities involved in the Kiwibank loan transaction, including Mr and Mrs Reece’s personal trusts (the Reece entities).   However those entities are not party to the present proceedings.

[3]      The first defendant in this case is Mr Graeme Halse, a solicitor and previous trustee of DRT.  As part of the Kiwibank loan transaction, Mr Halse acquired 20 per cent of the shares in RHL.  The second and third defendants are Grove Darlow, a commercial law firm based in Auckland, and Mr Chris Allan, a solicitor in that firm (collectively referred  to  as  the  Grove  Darlow  defendants).    The  Grove  Darlow defendants were retained to provide independent advice to Mr and Mrs Reece regarding the proposed loan.

Background

[4]      It is beyond the scope of this judgment to provide a prolonged or detailed examination of the background to these proceedings.  However, some consideration of the factual and legal context will be required in order to determine the application for security for costs.  Some understanding of the background is also necessary in order to inform the court’s decision on the applications for particulars.

[5]      A  convenient   starting   point   when   discussing   the   background   to   the proceeding is the summary of facts which is provided in Mr Cooley’s memorandum of  submissions  for  Mr  Halse.    Consideration  of  the  balancing  comments  that Mr St John made in his submissions for the plaintiffs will also be necessary.

1.These  proceedings  arise  out  of  a  refinance  between  Mr  Reece’s family trusts1  and Kiwibank in August 2008 and the alleged actions of the defendants as trustees of the first plaintiff (‘Double R Trust’) and  solicitors  for  the  Double  R  Trust  and/or  second  plaintiff

(‘RHL’). The Double R Trust beneficially owns 80% of the shares in RHL.

2.Prior to the refinance the trustees of the Double R Trust were Mr Reece and [Mr Halse]. On or after completion of the refinance, the trustees were [Mr Halse and Mr Allan]. The beneficiaries of the Double R Trust were Mr Reece and his wife, parents, children, and any grandchildren.

3.As at August 2008 the family trusts were indebted to Kiwibank in the amount of $4.6 million (‘Reece debt’). The Reece debt was guaranteed by Mr and Mrs Reece and was secured over residential properties owned by the family trusts. The Reece debt was in arrears and  there  was  an  expected  shortfall  of  up  to  $2  million  if  the securities  were  realised  at that time.  In  addition, Mr  Reece  was indebted   to   other   financiers   including   Equitable   Insurance, Dominion Finance, and Westpac which had security over the homes of his mother and mother-in-law.

4.The only asset available to Mr Reece for the purpose of securing further finance was his beneficial interest in two undeveloped properties; the Crestview sections (15 in total) and Naylors Drive property (‘the Properties’). As at August 2008 the Properties were mortgaged as security for short-term overdue funding of $700,000 provided by [Mr Halse’s] contributory mortgage practice, but were not encumbered to Kiwibank. Mr Reece wanted to secure finance to repay the short-term loans, obtain more time to achieve an orderly sale of his residential properties, develop the Properties so as to generate an income and protect his wife from bankruptcy. Without that finance, Mr Reece and his family faced financial ruin.

5.Throughout 2008 Mr Reece sought to obtain finance from second- tier  lenders  to  develop  the  Crestview  sections,  but  the  only indications of funding from these lenders was at high interest rates with high fees and for short terms.

6.In August 2008 Mr Reece and [Mr Halse] agreed to a refinance proposal with Kiwibank. The refinance rolled over the Reece debt on the basis that interest was capitalised for a 12 month period ($420,000).  The  refinance  also  provided  new  funding  of  $1.56 million to enable Mr Reece to commence development of three of

1      The Robert Reece Family Trust and the Caroline Reece Family Trust.  DRT was not a party to the transaction.

the Crestview sections ($700,000), repay the short-term funding secured against the Properties ($700,000), provide an income to Mr Reece for six months ($60,000) and capitalise interest for this additional funding ($100,000).

7.The total refinance was $1.98 million of which $1.56 million was borrowed by RHL (‘RHL debt’), a shelf company that was utilised by the Double R Trust to develop the Crestview sections. The Properties  were  transferred  to  RHL  to  enable  the  refinance  to proceed. RHL also provided a guarantee for the Reece debt.

8.The  Properties  were  mortgaged  to  Kiwibank  as  security  for  the refinance. In addition, [Mr Halse] agreed to guarantee the RHL debt and to underwrite the development of the three Crestview sections in exchange for a 20% interest in RHL. The family trusts and Mr Reece also agreed to guarantee the obligations of RHL.

9.Because [Mr Halse] was to obtain an interest in RHL and the development of the Properties it was necessary that Mr and Mrs Reece obtain independent legal advice in relation to the transaction and refinance. Kiwibank also required the guarantors (which Mr and Mrs Reece were) to obtain independent advice. This they obtained from the [Grove Darlow] defendants.

10.The first tranche of three Crestview sections were developed and sold in early 2009. Kiwibank then provided further funding for the second tranche of three sections in mid 2009. They also were developed and sold. In 2010 Kiwibank refused to provide funding to RHL to develop any further sections. RHL was able to fund the development of a further two sections but then went into default. Kiwibank then enforced its security over the Properties and they were sold at mortgagee sale.

11.       Kiwibank then sought to enforce the guarantee against [Mr Halse] to recover the shortfall of the RHL debt. By way of counterclaim, RHL asserted that Kiwibank had agreed to provide funding for all 15

Crestview sections in August 2008. That counterclaim proceeded to trial and RHL was unsuccessful. [Mr Halse] then settled the outstanding RHL debt pursuant to his personal liability as guarantor.

12.Following the above judgment, the plaintiffs commenced these proceedings alleging that they entered into the refinance with Kiwibank as a result of the defendants breach of duty as solicitor and/or trustee and this has caused them to lose their equity in the Properties and the anticipated profit from the development of the Properties.

[6]      For the plaintiffs, Mr St John did not accept that the background was as complicated as Mr Cooley would have it.  His central submission was that the facts of the matter were relatively simple.

[7]      Mr St John pointed out that as at 1 August 2008, the DRT beneficially owned

$6 million in properties (the Crestview/Naylor properties).   Secured against them was a loan of $700k that had been set up by Mr Reece.  It was hardly reasonable, Mr St John pointed out, to assert that the Reeces faced financial ruin so long as they had access to that asset.  However, the point that is made for Mr Halse is that at the time of the refinancing, steps needed to be taken to unlock the wealth latent in the sub- divisible properties and finance was required to achieve that objective.  Given that the period that is under discussion was close to the global financial crisis, it may well have been the case that selling blocks of land for subdivision would not have encountered a ready market because of the problem of obtaining finance for such purposes.

[8]       Mr St John was not able to accept, either, Mr Halse’s claim that the Reeces had been active in pursuing other sources of finance.   However, this denial is inconsistent with the factual context surrounding the Kiwibank loan offer.   That proposal  was  subject  to  a  number  of  potentially  disadvantageous  conditions, including the condition that the entirety of the Reece debt, including pre-existing personal  debts  of  Mr  Reece  and  the  family trusts,  was  to  be  secured  over  the

Crestview/Naylor properties.2   Given those fairly stringent terms, and having regard

to the amounts at stake, it would be reasonable to suppose that Mr Reece would in fact have pursued other financing options, if he thought that there was some point in doing so.  In the end, the Reeces decided to go with the Kiwibank offer, with all of its negative features.   The fact that they did so gives rise to an inference that the Reeces were bargaining from a difficult position.

[9]      As at 1 September 2008, the Crestview/Naylor properties were mortgaged in favour of Kiwibank.  The bank later refused to lend funds for the development of a further tranche and called in the loans.   The properties were sold and the entire equity was lost.   The issue in this proceeding, Mr St John said, is how that came

about.

2      The plaintiffs did not appear to suggest that the Reeces did not understand this aspect of the proposed loan package when it was put forward in 2008.

The security for costs applications

[10]     The Grove Darlow defendants seek security for costs against the plaintiffs. Mr  Halse  initially  did  as  well  but  at  the  resumed  hearing  of  the  applications withdrew this part of his claim.

[11]     The plaintiffs admit that they will be unable to meet any order for costs that might be made against them.

Legal principles and rules relating to security for costs applications

[12]     Notwithstanding that his client withdrew his application, it will be helpful to make reference to the submissions that Mr Cooley made concerning the issue of security for costs.   Those submissions cast light on the matters which need to be dealt with and provide assistance in understanding the principles that are to be applied.

[13]     Mr  Cooley  summarised  the  legal  principles  applicable  to  the  award  of security for costs as follows:

59.While the ability to order security for costs and to fix quantum is highly discretionary, a number of factors are regularly considered by the Court when determining whether security ought to be ordered. These factors include:

(a)       Merits  of  the  case:  As  far  as  possible,  the  Court  will endeavour to assess the merits and prospects of success of a claim. In some cases, any assessment will be no more than impression and cannot be a definite indicator of the ultimate outcome  after trial:  A S McLachlan  Ltd  v MEL Network Ltd.[3]

(b)       Balancing the rights of the parties: In A S McLachlan Ltd v MEL Network Ltd, the Court noted that where an order for substantial security may prevent the plaintiff from pursuing its claim, an order ought only to be made after ‘careful consideration and only in a case in which the claim has little chance  of  success’.[4]    The  Court  further  noted  that  a plaintiff’s ability to access justice needed to be weighted against the defendant’s right not to be drawn into unjustified

3      McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [21].

4 At [15].

litigation,  particularly  where  it  is  over-complicated  and unnecessarily protracted.[5]

(c)       Whether a plaintiff ’s impecuniosity has been caused by the defendants: The Court may also consider whether there is any reasonable probability that the impecuniosity of the plaintiff has been caused by the very acts of the defendant on which  the  action  has  been  brought. As  with  the  merits, assessment of this factor, short of a full hearing, is regularly acknowledged as being very difficult, if not impossible.6

[14]     I accept that that is an accurate statement of some of the applicable principles by which the court is to be guided when considering whether to exercise the discretion to order security for costs.

[15]     The authorities make it clear that the decision whether to grant security and, if so, the quantum are discretionary matters.  The discretion is not to be fettered by constructing principles from the facts of previous cases.7  What is required is a broad overall assessment, having regard to the situation of the parties and the nature of the proceeding.8

[16]     It is not the case that if a defendant is able to establish that the plaintiff will be unable to pay costs,  an order for security will necessarily be made.   Wider discretionary considerations must be taken into account.  If a prima facie case can be established that the plaintiff’s claim is unmeritorious, that will be a factor in favour of ordering security.  The less apparently meritorious, the more likely security is to be ordered.9

[17]     Where the court is satisfied that if costs are ordered, that will bring the

plaintiff’s claim to a halt, special considerations apply:10

Access to justice is an essential human right. The cost of exercising that right is the payment of costs in the event of failure. The right of a successful defendant to costs in that event is arguably subordinate to the plaintiff's right to be heard. Strong social policy considerations favour the use of Courts as an accessible forum for the resolution of disputes and grievances of almost

5 At [16].

6      Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR5.45.03(3)].

7      AS McLachlan Ltd v MEL Network Ltd, above n 3, at [13]–[14].

8      Hamilton v Papakura District Council (1997) 11 PRNZ 333 (HC) at 335.

9      Highgate on Broadway Ltd v Devine [2012] NZHC 2288 at [22(c)].

10     Highgate on Broadway Ltd v Devine, above n 9, at [23(b)] (footnotes omitted).

all kinds. Only where a clear impression can be formed that the plaintiff's claim is altogether without merit — so that in the alternative it would be amenable to being struck out — would it be right for security to be ordered where to do so would bring the plaintiff's claim to dead halt. In cases where the claim is being seriously misconducted (with undue complexity or expense), security orders short of effective termination of the claim may be appropriate. As the Court of Appeal said in McLachlan, ‘access to the Courts for a genuine plaintiff is not lightly to be denied’.

[18]     It may be that Kos J views would make it more difficult for an applicant for security to succeed in circumstances where the making of an order would bring the plaintiffs’ claim to a halt.   His statements that the applicant has to show that the claim was so lacking in merit that it would be amenable to being struck out would seem to set the standard at a higher level than A S McLachlan did.   If there is a difference, I consider I am obliged to follow the Court of Appeal judgment in A S McLachlan.   That is, the issue is whether the plaintiffs claim can be described as having little chance of success.

[19]     It is therefore necessary for the court to attempt an assessment of the merits

of the plaintiffs’ claim.

The claim in negligence against Mr Halse

[20]     In order to understand the wider disputes that are placed in issue by this proceeding, it will be useful to make reference to the case that is brought against each of the defendants, even though Mr Halse, has, as I have noted, withdrawn his application for security for costs during the course of the hearing.

[21]     The  general  complaint  against  Mr  Halse  is  apparently  that  he  was  the architect of the re-financing proposal.  It is alleged that he should not have advised the Reeces to accept a scheme of this kind because it resulted in property that had previously been unsecured now being within the reach of Kiwibank.  The plaintiffs claim that Mr Halse ought to have advised Mr Reece to default on his existing liabilities, even if it meant that he went bankrupt.  At least in that way, the Reece family  would  have  retained  the  assets  represented  by  the  Crestview/Naylor properties, which were worth in excess of $6 million.

[22]     In the course of his submissions, Mr St John focused attention on a particular aspect of the alleged negligence.  It was, he says, essential to a successful outcome that Kiwibank commit to providing funding for the entire Crestview/Naylor development.   Indeed, Mr and Mrs Reece claim that they accepted the Kiwibank loan  offer  on  the  understanding  that  the  offer  included  such  a  commitment. However, the loan offer which was eventually produced offered finance of no more than $700,000  for the  purpose of  constructing  three residential  dwellings.   The allegation  is  that  Mr  Halse  negligently failed  to  notice  this  departure  from  the expectation that he and the Reeces held about the extent of the funding.

[23]     Another objectionable feature of the proposal from the perspective of the plaintiffs was that as part of the scheme, the Crestview/Naylor properties would be transferred to a new company in which Mr Halse would own the entire shareholding,

20 per cent of it for his own benefit and the remaining 80 per cent as a trustee of DRT.   The 20 per cent shareholding was apparently proposed by Mr Halse as an underwriting fee that he would receive in return for guaranteeing the RHL debt.11

[24]     As well, the plaintiffs claim that there was a breach of fiduciary obligation on the part of Mr Halse because part of the refinancing funds which would be raised through the overall proposal would be used to refinance $700,000 approximately representing short-term borrowings that had been raised from clients of Mr Halse’s practice.

Assessment of claims against the Grove Darlow defendants

[25]     There  are  limits  to  the  depth  in  which  the  court  can  assess  the  various questions of fact and law which are raised in the negligence proceedings against the Grove Darlow defendants.  I am however required to attempt an assessment of the plaintiffs’ prospects of success in bringing these claims.

[26]     One of the conditions of the Kiwibank loan offer was that Mr and Mrs Reece, and Mr Halse, should obtain independent legal advice regarding the transaction.  The

Grove Darlow defendants were the firm and solicitor respectively to whom Mr and

11     The RHL debt was $1.56 million.

Mrs Reece were referred for independent advice.  The solicitor, Mr Allan, is alleged to have been negligent in discharging his responsibilities.

[27]     I consider that the basis for the claim which the plaintiffs bring against the Grove Darlow defendants was correctly summarised by Mr Ross, counsel for the Grove Darlow defendants, in his submissions as follows:

28       The Double R Trust alleges that Grove Darlow:

28.1owed it a duty of care to advise on the merits of the strategy proposed by Mr Halse;

28.2     breached that duty by failing to advise:

(a)       on the risks in assuming liability for the Reece debt; (b)     on the loss of value suffered as a result of the trust’s

transfer of its assets to Rudyard Holdings Limited,

20per cent beneficially owned by Mr Halse; and

(c)       that the Kiwibank loan documents did not record Mr Reece’s understanding that Kiwibank had to fund to the entire development of the properties.

28.3     caused the Double R Trust to transfer the properties to RHL

and allow the properties to be mortgaged to Kiwibank.

29The consequences of which were that the Double R Trust lost both the value of the properties and the expected profits from selling those properties.

[28]     In overview, the case against those defendants is that Mr Allan ought to have advised Mr and Mrs Reece that the proposed refinancing was not in their interests or those of the various entities which they had established or controlled. The plaintiffs further allege that Mr Allan was negligent when he failed to explain to Mr and Mrs Reece   that   the   refinancing   loan   would   only   compel   Kiwibank   to   provide development finance for three of the sections out of the entire 15 sections making up the Crestview development, an issue that has been discussed above in relation to the claim against Mr Halse.  This was said to be particularly disadvantageous for Mr and Mrs Reece.

[29]     The position of the Grove Darlow defendants in response to those claims can be summarised as follows:

(a)      The  Grove  Darlow  defendants  were  not  instructed  to  advise  the trustees of the DRT.  They were acting only for Mr and Mrs Reece in their personal capacity and the requirements of Kiwibank were that they should only so advise.

(b)Even if they were required to advise the trustees of DRT, they did not give negligent advice as solicitors:

(i)       Mr Allan properly explained the loan proposal from Kiwibank.

(ii)He was not aware of the misconception (if it was such) on the part of the Reeces that Kiwibank under the loan offer was agreeing to finance the proposed development at Clearview/Naylor in its entirety, rather than limiting, as the document said, funding to the completion of three properties or $700,000.

(iii)The default position found in the authorities is that solicitors explaining a transaction are not ordinarily required to advise on the commercial merits of a transaction and Mr Allan was not specifically instructed to do so.

(iv)Mr Allan satisfied himself that the Reeces understood the loan agreement.

[30]     In any case, even if there was negligence, it did not cause loss to the Reeces:

(a)      Mr Reece would have agreed to the lending transaction even if he received the advice that he alleges Grove Darlow ought to have given him, namely that it would not be in his interests to enter into the loan agreement.

(b)Mr Reece needed the loan from Kiwibank in order to complete the development, which was the only way that he could salvage his position. Kiwibank was the only lender in prospect.

(c)      Kiwibank  imposed  a  number  of  pre-conditions  on  the  loan  offer, including the cross-collateralisation which granted security over the property owned by RHL.

(d)Mr Reece ultimately lost the properties because the development did not return sufficient profit, probably because the development was carried out at the beginning of the global financial crisis in 2009.

[31]     There are two issues which must be discussed before the main claim can be determined.  The first of these requires me to determine whom the Grove Darlow defendants agreed to represent.   The second issue concerns the scope of the defendants’ obligations in advising Mr and Mrs Reece.   The conclusions on these issues will determine whether the main claim against the Grove Darlow defendants can proceed.

To whom was Mr Allan required to give advice?

[32]     There is no explicit retainer agreement to assist the court in determining precisely which parties Mr Allan was required to advise.  However, it is possible to draw conclusions about the relationship between the parties by considering the contemporaneous circumstances, the actions and statements of the parties and such documents as the defendants brought into existence as part of their retainer. The evidence given by Mr Reece and Mr Allan and the general factual background will also be important.

[33]     In respect of this issue, the Grove Darlow defendants contend that advice was sought by Mr and Mrs Reece in their personal capacities and not in their capacities as trustees of the Reece Family Trusts.   If this contention is correct, then the trustees of the DRT cannot bring a claim in negligence on the basis of Mr Allan’s advice.

[34]     In  addition  to  the evidence that  was  provided  on  this  point,  there are a number of contemporaneous documents which may throw some light on the subject. The documents in question are:

(a)       the statement of position which Mr Halse prepared in August 2008;

(b)      the loan offer document from Kiwibank dated 20 August 2008;

(c)      the terms of the certificate which Mr Allan was required to give which referred to whom he was to advise and on what matters; and

(d)the memorandum which Mr Allan drew up on 1 September 2008 following the meeting that he had with the Reeces and the First Defendant.

[35]     The first of these documents does not discuss any of the pre-conditions to the loan offer advanced by Kiwibank.  It is therefore of neutral significance and does not assist the court in determining whom the Grove Darlow defendants were retained to advise.

[36]     The second of the contemporaneous documents sets out certain documents that the Reeces were required to execute as a pre-condition to the refinancing arrangement.  The family trusts12 were intended to be the borrowers and the Reeces were required to personally guarantee the obligations of those trusts.  They were also required to guarantee the advances that were to be made to RHL.   There was no reference in the letter of offer dated 20 August 2008 to DRT.

[37]     I next turn to the terms of the certificates which Mr Allan was required to issue.  As discussed above, the Grove Darlow defendants only came into the picture because Kiwibank had put forward a written loan offer which was contingent upon certificates proving that the Reeces had obtained independent advice from a solicitor.

[38]     Documents were produced in evidence from Kiwibank which set out their expectations of the solicitor providing independent advice, Mr Allan.  The parties to the proposed lending arrangements were described in those documents in the following terms:

a)        Borrower/s                Rudyard Holdings Limited

12     That is the Robert Reece Family Trust and the Caroline Reece Family Trust (not DRT).

b)Guarantor/s                 Carolyn   Reece   family   trust   and   Robert Reece Family Trust, Mr Robert James Reece and Mr Graham William Halse

c)         ….

d)Loan purpose              construction  three  residential  dwelling  in Crestview  Heights,  Keri  Vista  Rise, Papakura.

[39]     Mr  Allan  was  required  to  sign  four  certificates  that  he  had  provided independent legal advice to all borrowers and guarantors.   Each of the certificates included the following text:

Before the guarantor named above (the guarantor) executed the guarantees and  indemnity  (the  guarantees)  of  the  obligations  of  the  customer  (as referred to in the guarantee) in favour of Kiwibank:

1.We, as prudent solicitor, provided independent legal advice before signing the guarantees.

2.   …

3.We reviewed the guarantee and explained to the guarantor the effect of its provisions;

4.the guarantor confirmed to us that it (sic) understood the nature and extent of its obligations under the guarantees (and in particular, the amount of its liability as stated above) and would sign it voluntarily.

[40]     The guarantors identified in each of the certificates were:

(a)      Carolyn Dawn Reece in her capacity as trustee of The Carolyn Reece

Family Trust;

(b)      Robert James Reece;

(c)      Robert James Reece in his capacity as trustee of The Robert Reece

Family Trust.

[41]     The securities that were required by Kiwibank to guarantee the obligations of

RHL were to be from the two Reece family trusts and Mr and Mrs Reece.

[42]      If attention is confined to the loan transaction itself, then it would appear that DRT was not one of the parties that was involved in the transaction and was not one of the parties that was required, therefore, to obtain independent advice from Mr Allan.  There is nothing in the evidence which would alter that conclusion.  It would appear therefore that Mr Allan was not retained to advise DRT and accordingly there would be difficulties in the way of establishing that he had breached a duty of care to it.

[43]     The  fourth  of  the  contemporaneous  documents  is  a  memorandum  which Mr Allan drew up on 1 September 2008 following the meeting that he had with the Reeces and Mr Halse.

[44]     In evidence, Mr Allan said that he came to act for Mr Reece in August 2008 “on narrow aspects of the matters this proceeding is now concerned with”.  He said that he was asked to provide independent legal advice to Mr Reece and his then wife Carolyn, both in their personal capacities and as trustees of their family trusts.13   He said that the request was urgent and was made at short notice. He said that he met with the Reeces and Mr Halse on 21 August for approximately 90 minutes.  He said

little else of significance about what was discussed at the meeting.

[45]     However, the memorandum that Mr Allan drafted on 1 September 2008 sets out the matters that were discussed in reasonable detail.   The memorandum is reproduced in full below:

Meeting

1 September 2008

On the 21st  August 2008 Rob Reece, his wife Caroline and Graeme Halse came and saw me in relation to a proposed restructure that Graeme Halse had developed with Kiwibank with the sanction of Rob and with Caroline.

I was provided with a summary of position for Rob, Caroline, the family trusts and the Double R Trust and we went through each of the relevant paragraphs together.

13     The evidence of the defendants is that did not include the trust which held the beneficial interest in RHL, namely DRT.

In effect both Rob and Caroline are exposed through existing borrowing with Kiwibank over the properties at Polo Prince and their home at Paritai Drive. There are mortgages behind Kiwibank to Dominion Finance.

In order to survive Graeme has advanced Rob and Caroline through the Double R Trust, which wasn’t tied up to the Kiwibank loans, significant sums of money approximately $700,000.00.

Rob’s core business is a builder and he has $6 million worth of land tied up which he can’t develop because of his insolvent status.

Graeme has devised a strategy whereby a company which Rudyard Holdings Limited   (sic) which he is the director and shareholder and which as shareholder he holds shares on trust for the Double R Trust acquired the land as trustee for the Double R Trust and then undertake the development employing Rob to build these houses.  Graeme is to get a 20per cent profit of the entire developments as well as receive a finance fee and the Double R assets will collaterise the Kiwibank loans over Polo Price and Paritai.

Because this is the only way that Rob and Caroline can go forward and make some money Caroline was fully understanding of the liability situation and her legal position.  During the course of the meeting Graeme left the room for 20 minutes while I went through the transaction structure with Caroline and Rob and I was satisfied that both and particularly Caroline was fully conversant with what was being proposed. A loan offer was then signed.

On 22nd  of August 2008 Rob and Graeme and Caroline again attended with Jane Boyce who is the senior associate and we then proceeded to sign and witness all the documentation required for these purposes.

As part of this restructuring I suggested to Caroline, and Graeme was happy with this, that the trust deed be varied so that Caroline had control over appointment of trustees and what we ended up with was whereby each of Rob and Caroline had the power to appoint one trustee each (in the variation of trust deed).

[46]     It will be seen that there is a reference in this memorandum to DRT where it is stated that funds have been advanced from Mr Halse to the Reeces “through the Double R Trust”.  Reference is made to the fact that Mr Halse held shares in RHL as a trustee for DRT.  RHL was to be one of the borrowing parties under the restructure.

[47]     There  is  also  a  reference  to  "the  Double  R  assets"  being  used  to “collateralise” the Kiwibank loans over Polo Prince and Paratai Drive.  I interpolate that the reference to the Double R assets would actually seem to be an elliptical reference to assets that were owned by RHL, but as noted above, the shares in that company were held on trust for the Reeces.

[48]     The account which Mr Allan gives in that memorandum does not suggest that he was retained to advise the DRT. Furthermore, beyond the references in the memorandum to the DRT, there is no other basis in the evidence for suggesting that Mr Allan was instructed by the plaintiffs to act.

[49]     My tentative conclusion is that these documents, too, present a difficulty for the plaintiffs because they suggest that DRT never retained Mr Allan, with the result that there could not be any liability on the Grove Darlow defendants.

What was the appropriate scope of Mr Allan’s advice?

[50]     The trustees of DRT allege that Mr Allan “owed it a duty of care to advise on the merits of the strategy proposed by Mr Halse”.   It is therefore necessary to determine the appropriate scope of Mr Allan’s advice.

[51]     There are two key areas in which Mr Allan, it is claimed, was negligent.  The Reeces’ claim is that Mr Allan did not explain to them that the loan offer required properties which were owned by DRT to be transferred to RHL, and that these properties were to be made available for mortgaging in order to secure additional lending to the Reeces personally.   Mr Allan is also said to have been under an obligation to explain that part of the transaction which would result in Mr Halse taking 20 per cent of the property as part of the transaction.

[52]      Mr Reece said in his affidavit that Mr Allan gave advice and endorsed “the scheme devised by Mr Halse”.  Furthermore, Mr Reece says that the meeting of 21

August 2008 with Mr Allan was:

… so that Graeme Halse  could explain the scheme to him.  This necessarily required a discussion of the purpose of the scheme.  Mr Halse has previously explained, particularly in the Kiwibank trial, that it was essential to the scheme that Kiwibank had to fund to the end of the development of the Crestview and Naylor Drive properties.  I consider that to provide the advice on the scheme in a competent way, Mr Allan would have needed to:

(a)       understand that; and

(b)      ensure  that  this  feature  was  accurately  recorded  in  the  loan documents before they were signed on 22 August 2008[.]

[53]     Mr Allan denies that he gave such advice.  He said he did not endorse any scheme:

I was not instructed to give business advice on the overall strategy that the Reeces were pursuing.  I was in no position to do so having had almost no background in the details of their financial affairs.  I simply advised Robert Reece and Carolyn Reece to ensure that they understood their legal liabilities under the loan and guarantee documents.

[54]     Mr Allan’s memorandum (as set out above) suggests that the meeting fell into two distinct phases.  The first was while Mr Halse was present and then Mr Allan continued the meeting with Mr and Mrs Reece alone.

[55]     The following points seem to me to be significant.   Mr Allan refers to a proposed restructure that Mr Halse had developed with Kiwibank with the sanction of the Reeces.   He further speaks of Mrs Reece being fully understanding of the liability situation and her legal position.  This would seem to be a reference to the fact that Mrs Reece was exposed through existing borrowing with Kiwibank over the properties at Polo Prince and Paratai Drive.  The memorandum noted that when Mr Halse left the meeting, Mr Allan went through the transaction structure with Mr and Mrs  Reece  and  was  satisfied  that  both,  and  particularly Mrs  Reece,  was  “fully conversant” with what was being proposed.

[56]     If the memorandum is an accurate summary of what was discussed at the meeting, the flavour of it suggests that there was no discussion about the merits of the proposed transaction.  Mr Allan plainly states that he was not asked and he did not give such advice.   Given that the terms of a retainer essentially depend upon what the client asks for, it might be said that if Mr and Mrs Reece had come to Mr Allan seeking a discussion of the merits of the restructure, then they would have insisted on having that conversation.

[57]     As the argument developed, it became clear, though, that the real thrust of the claim which the plaintiffs are making is that Mr Allan did not advise on the extent of the finance that would be forthcoming from Kiwibank.  This is a separate point from the general desirability of the proposal however it needs to be considered.

[58]     Kiwibank was protecting itself by imposing a requirement about independent advice.   Their own managers would identify any concerns about the commercial realism of the scheme that the Reeces sought to finance.  The bank’s central concern was that the Reeces should receive independent advice to make sure that the loan transaction was enforceable and that the securities were in place.   Legal advice would, amongst other things, provide protection against later arguments that the bank might have pressured Mr and Mrs Reece into borrowing more money.   The commercial desirability of the proposal would  be for the customers, that is the Reeces, to decide.  Certainly there is no evidence that the bank required Mr Allan to review that aspect of the transaction.

[59]     No doubt the advice would on this occasion, as it usually is,   have to be tailored to the particular needs of the clients and their circumstances.  Included in the circumstances was whether the clients already appeared to have an adequate understanding of some of the more obvious aspects of the transaction being entered into.   It might not seem to be necessary for a lawyer to give them advice about matters  of  business  when  they obviously had  considerable  business  acumen,  as demonstrated by their commercial background and circumstances.  As well, advice concerned with the commercial desirability of the proposal would not necessarily have had to have been received from a solicitor.

[60]     On the other hand, if parties were referred to an independent solicitor for advice and it became apparent to that person that the parties had little or no idea about what they were agreeing to, or that they had a substantial misconception of the risks that they were exposing themselves to, or that the transaction could be seen even on a cursory scrutiny to be very disadvantageous to them, then it would be expected that the solicitor would advise the parties accordingly.  That would be the case even if the referring institution such as a bank did not stipulate that the clients were to be given advice about the commercial desirability of the transaction, or might even have been opposed to such advice being given, had they known that it would be forthcoming.

[61]     In this case, the very fact that Mr Halse had prepared a strategy document for the Reeces may have reasonably suggested to the Grove Darlow defendants that

there had already been a discussion which identified the main components of the transaction and which had made it clear to the Reeces what it was that was being recommended.     Having  taken  such  matters  into  account,  the  Grove  Darlow defendants may have seen no necessity for discussing self-evident aspects of the transaction.

[62]     In any case, the evidence which has been provided to this point does not disclose any explicit instruction to Mr Allan from Kiwibank or from any other quarter to advice on the commercial merits of the transaction.

[63]     It was Mr Ross’s submission that:

35.3It is axiomatic that solicitors do not usually have a duty to advice on the merits of a transaction.   As such, Grove Darlow simply did not have a duty to advice on the merits, so it could not be in breach of this duty.   Mr Allan certainly did not “endorse” the transaction as Mr Reece alleges.

[64]     Mr Ross referred to the authority supporting that contention.14

[65]     The case which the plaintiffs bring seems to rest on the proposition that it was axiomatic that a lawyer in Mr Allan’s position would give advice on that aspect of the matter.  If that is the basis for the plaintiffs’ case, then in my view it is a weak one, so far as the Grove Darlow defendants are concerned.  If that proposition is not axiomatic, then the evidence of the surrounding circumstances, including the circumstances in which the referral was made to the independent solicitor, do not appear to provide support for an argument that the actual or implied terms of the retainer involved such advice.

The claim in negligence against Mr Allan

[66]     Having examined the question of the retainer so as to understand the scope of the advice that Mr and Mrs Reece were seeking from Mr Allan, the next step is to

14     Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC) at 649. See also Tauranga Law v Appleton

[2015] NZSC 3, [2015] 1 NZLR 814 at [28] citing Appleton v Tauranga Law HC Tauranga CIV-
2010-070-385, 12 December 2011 at [52].

analyse whether he was negligent in the discharge of the duties that his retainer required him to carry out.

[67]     The central allegation of the negligence alleged against Mr Allan is that he did not draw the attention of Mr and Mrs Reece to the fact that the finance which the bank was prepared to offer was limited to financing three residential properties.  But as Mr Ross pointed out, this claim must confront the difficulty that Mr Allan may not have done so because “[t]he papers in front of Mr Allan contradicted that view.”

[68]     The position that is taken by the Grove Darlow defendants, as I understand it, is that Mr Allan might reasonably have expected these parties to understand the amount of finance that was available, given that it was plainly stated in the loan agreement.  It seems fair to expect that the parties would have read through the main points of an agreement that they were about to sign.

[69]     On the other hand, even commercially experienced people can labour under misconceptions about aspects of the transaction that they are entering into.  A failure to give such advice could conceivably cause loss where a client ended up with a greater borrowing than he had understood that he was undertaking by signing the loan agreement.   The situation here is the reverse of that, of course.  The complaint which the Reeces make is that the contract that they entered into did not provide them with sufficient finance and that negligence on the part of Mr Allan was a contributing cause to them entering into that contract.

[70]     At most it could be said that such a claim is arguable but it must confront the fact that the Kiwibank loan offer was plain on what it said.  It was not difficult to read and understand what the bank was offering.  In those circumstances it may be that a solicitor has no obligation to point out the obvious.

[71]     One of the contemporaneous documents that was in existence before the meeting with Mr Allan was Mr Halse’s statement of position.  It seems likely that Mr Reece would have seen that document before he met with Mr Allan.   That document was considered by Mr Allan and the Reeces at the meeting.  Mr Allan’s

memorandum of 1 September 2008 said “We [i.e. Mr Allan, the Reeces and Mr

Halse] went through each of the relevant paragraphs together”.

[72]     The Halse “summary of position” contained reference to the extent of the

Kiwibank lending.  Paragraph 11(c) stated that:

(c)       Kiwibank  will  make  the  following  advances  (iii) A construction

facility of $700k to enable three homes to be built at a time”.

When  that  document  is  considered  in  conjunction  with  the  plain  term  of  the Kiwibank loan which spoke of an advance of $700,000 it becomes difficult to accept that Mr Reece actually considered that he was to be approved considerably more finance.

[73]     These considerations add to the doubt that Mr Reece did not know the true position before he executed the agreement.  Even if Mr Allan failed to expressly state the loan amount, it made no difference:  Mr Reece is likely to have already had a correct understanding that the loan was only $700,000.15

[74]     Further, the summary of what occurred at the meetings, if correct makes it likely that  Mr Allan  noted  in  the  Reece’s  presence  the  statement  in  the  Halse background paper that $700,000 only would be available for construction.  Further it is inherently improbable that Mr Allan would not have made reference to the amount the clients were borrowing.   It was a central issue that they needed to understand. The claim that he negligently failed to point out the loan amount is weak.

Causation

[75]     The  issue  of  causation  can  be  dealt  with  briefly.    Even  assuming  that Mr Allan had provided advice regarding the commercial wisdom of signing the Kiwibank loan offer, it seems unlikely that it would have made any difference.  It is artificial to divide the Reece interests up into various compartments and assume that each  would  act  independently of the others.   The truth  of the matter is  that if

Mr Reece’s financial survival depended upon it, there can be little doubt that the

15     This relates to whether Mr Allan caused loss.

entities which he and his wife controlled would have taken whatever steps were necessary to obtain funding for the Crestview/Naylor development.

[76]     The Kiwibank loan offer was the only offer of finance which offered any prospect of Mr Reece’s financial survival.  In those circumstances, there can be little doubt that the trustees would have agreed with whatever was necessary to secure the advances offered, no matter what advice was given by Mr Allan.16    That is another ground for supporting the conclusion that a claim in negligence against the Grove Darlow defendants is not strong.

[77]     I have set out above a possible basis upon which Mr Allan might have been negligent in that he did not expressly point out to Mr and Mrs Reece what the extent of the finance that was being obtained was.

[78]     There may be further difficulties in the path of the plaintiffs in that the document which Mr and Mrs Reece were signing was specific about the amount of finance which was to be provided.  Were the matter to proceed to trial, no doubt the evidence of Mr Reece would be closely scrutinised on this point.   It would be a requirement for the plaintiffs to establish that, notwithstanding the plain words of the contract, Mr and Mrs Reece say that they did not appreciate that the finance was limited to $700,000 approximately; and that had Mr Allan pointed this out to them, they would have adopted another course which would have meant that they would not  have  suffered  the  loss  that  they  did.    That  would  seem  to  mean  that  the alternative course was that they would not have entered into a financing arrangement at all.  They may well have difficulty in establishing that matters would have turned out in that way.

The claim for breach of duty against Mr Allan as a trustee of DRT

[79]     Mr Allan became a trustee of the DRT and it is alleged that he breached his duties as trustee to the DRT.

16     That does not mean that they would actually have to do anything themselves because they did not have the authority to execute security documents. That was the prerogative of Mr Halse who was the director of RHL, the company over whose property security was to be given.

[80]     This claim is difficult to assess because of the lack of particulars that have been given as to the nature of the duty that Mr Allan was said to have been under and how he breached it.  It is also difficult to understand how any such breach of duty could have led to loss on the part of the plaintiffs as trustees of DRT.

[81]     Mr Allan was, indeed, appointed as a trustee of DRT by Mrs Reece on 22

August 2008.  On the same day, Mr and Mrs Reece executed the loan offer in their various capacities, which did not include that of trustee of DRT.  On the same day, Mr Halse as director passed the necessary resolution of RHL, resolving to accept the further loan offer from Kiwibank and executing the necessary security documents.

[82]     Apart from the contemporaneous nature of these events, it is difficult to see what other link there is between them.

[83]     It is possible to imagine cases where a solicitor advising parties gives advice that they should take a step which will be to the solicitor’s advantage.  It is trite law that in general, the solicitor cannot retain such an advantage unless the clients have been independently advised.

[84]     The only way in which  these requirements could conceivably have been breached in the present case would seem to be if in explaining the transaction, Mr Allan persuaded the clients that they ought to proceed with it in order that he might obtain some advantage from the transaction himself.   The only change of circumstances    that    the    plaintiffs    might    be    able    to    suggest    was    to Mr Allan’s  advantage  was  that  he  was  to  become  a  trustee  of  the  trust.    No particulars are provided as to whether that is indeed the way in which the alleged breach of duty occurred and, if so, how Mr Allan was advantaged by it.  As matters stand, it would have to be said that this claim has no prospects of success.

Quantum of damages

[85]     I have not made any mention of the controversy between the parties about quantum.   In broad terms, that is because the question of whether any costs order will be made in favour of the defendants ultimately will be principally influenced by the decision the court comes to at trial as to liability of the parties, rather than the

quantum of the claim.17    For that reason, too, I have not considered the question of whether the plaintiffs might have damages reduced because of contributory negligence on  their part.   An instance of  this,  I understand,  is  alleged  to  have occurred through their signing the loan agreement which on its face committed Kiwibank to advance significantly less funding to them than they had hoped for.

Discretion to order security for costs

[86]     The plaintiffs have stated that they will not be in a position to pay costs if their claims against the defendants do not succeed.   They do not provide any significant information about their present financial circumstances.  Mr Reece was adjudicated bankrupt in February 2009 and was discharged on 25 March 2012.   I understand that he and Mrs Reece are now estranged.  Nothing seems to be known about her financial circumstances.

[87]     While there is no explicit evidence concerning the fact, that Mr Reece was adjudicated bankrupt on 4 February 2009 and was not discharged until 25 March

2012, provides some support for his statement that if security for costs is ordered the proceedings will not be able to continue.  I accept that that is a fact.

[88]     It is necessary to bear in mind that the making of an order for security for costs does not necessarily follow from the fact that the impecuniosity threshold has been established.18

[89]     I accept that it is likely that if any substantial order for security for costs is made, that will prevent the plaintiffs from bringing their claim against either set of defendants.

[90]     In the end, one of the questions to be asked is whether there is an appreciable and realistic risk that the defendants will be left with an unsatisfied costs order.

While that outcome may have to be accepted as the price of bona fide plaintiffs

17     High Court Rules, r 14.2(a).

18     Highgate on Broadway Ltd v Devine, above n 9, at [21].

being able to bring genuinely arguable claims before the courts, it is not an outcome that is to be countenanced where the claim has little chance of success.19

[91]     I am left with real doubts about the merits of the plaintiffs’ case against the Grove Darlow defendants.  The essence of the case is that Mr and Mrs Reece were referred to Mr Allan for legal advice concerning the Kiwibank loan offer and he seems to have properly explained that document to them.   There is no substantial basis for a claim that Mr Allan was also obliged to advise on the commercial wisdom of entering into the Kiwibank transaction.  In any case, the additional advice that he was allegedly required to give is, in any case, unlikely to have made any difference. I have already expressed the view that on the basis of the material now before the court, the claim against the Grove Darlow defendants is not a strong one.

[92]     It is not likely that the actual amount of finance for construction was not discussed at the meeting with Mr Allan.  It is likely that when he certified he had explained the transaction to them he was certifying correctly and that his explanation included the amount of borrowing.   If to the contrary, he said nothing about the amount, Mr Reece would have known anyway what it actually was and elected to proceed in that knowledge.  Either way, Mr Allan did not cause loss in this regard.

[93]     The next point that is taken on behalf of the plaintiffs is that the Court ought to exercise its discretion against ordering security for costs in this case because it was the very actions of the second and third defendants which caused the inpecuniosity of the plaintiffs.  It is necessary to briefly analyse that proposition.

[94]     The claim by the plaintiffs is as trustees of the Double R Trust which owned

80 percent of the shares in RHL.   The plaintiffs’ position can only be assessed therefore by seeing how their position which derives from the wealth or otherwise of RHL would have been affected by the advice that the second and third defendants provided.   The claim therefore of inpecuniosity caused by the second and third defendants must involve the proposition that had the second and third defendants not failed in their duty by omitting to point out that funding was limited to $700,000.00,

RHL would have been able to obtain essentially the same level of funding from

19     McLachlan v MEL Network Ltd, above n 3, at [15].

another financial institution.  That is funding would have been made available which would take out Kiwibank’s existing exposure, provide for capitalisation of interests (RHL presumably not having the current assets from which it could meet servicing charges) and as well provide for an unspecified amount of additional funding for development of the Crestview/Naylor properties.   There is no evidence which addresses just how much would have been required to complete the development of the Crestview/Naylor project in its entirety would have been.  The $770,000 that was actually lent was not enough, though, according to the plaintiffs.  Therefore a figure that  was  substantially  greater  would  have  been  required  from  the  alternative financier.  Further, on the plaintiffs’ analysis of the case, such funding would have been available.  That is notwithstanding that other financiers did not have the added incentive to enter into a funding arrangement in the form of the fact that they were already holding substantial debt from the Reece interests, recovery of which would only be possible if further funding was provided to open the way to  profitable trading in regard to the undeveloped sections.  Had all of this happened, according to the plaintiffs, RHL would have successfully carried out the development and earned substantial profits which have yet to be quantified.   It is to the extent that the plaintiffs were deprived of that profit that the second and third defendants are said to have relevantly caused RHL’s inpecuniosity, and therefore by derivation, the same inpecuniosity on the part of the shareholders in RHL, the plaintiffs.

[95]     I do not regard all of these contentions as being seriously arguable.   Quite apart from anything else the global financial crises was beginning to have a major impact on property developers.20     This development on its own had a seriously depressing effect on the property development sector.   Even if the plaintiffs had managed to obtain finance the GFC therefore posed an independent risk that the proposed development of Crestview/Naylor would have failed in any case.  For all of these reasons, I am not prepared to accept that there is a seriously arguable link between the alleged failings of the second and third defendants when providing advice  to  the  Reece  interests  and  the  fact  that  today  the  plaintiff  trustees  find

themselves in the position where they frankly concede that they would not be able to

meet the costs of this litigation if they failed.

20The GFC may be taken as having commenced at the time of the Lehman brothers insolvency which emerged 15 September 2008.

[96]     In the case of the Grove Darlow defendants, unless an order is made, they will have to shoulder the costs of a trial that is estimated as being of approximately five days’ duration.  It is not known what their total legal costs will be, however they will be substantial even if consideration is restricted to the preparation for trial and appearance at trial.

[97]     Having regard to the overall circumstances of the case, I do not consider that the Grove Darlow defendants ought to be left with the risk of unpaid costs, which

will be the virtually inevitable outcome if the plaintiffs fail and costs orders are made in favour of the Grove Darlow defendants.

[98]     The remaining matter is to assess the quantum of any order.  The second and third defendants asserted that the amount of security while at the discretion of the Court would be affected by the following matters:

[49]     The amount of security is of course at the discretion of the court, having  regard  to  what  the  court  considers  fit  in  all  the  circumstances. Relevant considerations are:

49.1     amount or nature of the relief claimed;

49.2     nature of the proceeding including complexity of the issues;

49.3     estimated duration of trial; and

49.4     probable costs payable if the plaintiff is unsuccessful.

[99]     The second and third defendants have estimated costs on a 2B basis for a ten day trial at $68,174; or for a five day trial $51,449.  That provides some guidance to the extent of any costs orders that might be made against the plaintiffs.  To provide a substantial level of protection against the hardship resulting from unmet costs orders, it would be necessary in my view to make provision by way of security for costs for not less than $40,000.  There will be an order that that sum is to be paid into Court as to $20,000 within 40 working days and the balance to be paid at the date eventually fixed  as  the  close  of  pleadings  date  (if  any).   There  will  be  an  order  that  the proceeding is stayed until the first payment of $20,000 set out above has been received.

Application for particulars by Mr Halse

[100]   All of the defendants have made application for particulars.  I will deal first with the position of Mr Halse.

[101]   Mr Halse sought leave to amend his application for particulars to request an order that the plaintiffs provide particulars of the denial that Mr Halse was protected by the trust deed so long as he acted without personal actual fraud.

[102]   Mr St John sensibly did not oppose the amendment of the application, nor did he oppose the making of orders on the amended application.  The particulars are to be provided within the same limits as I have fixed for the other particulars to be provided below in this judgment.

[103]   After the application for particulars had been filed, the plaintiffs filed an amended statement of claim.   Mr Halse has not filed an amended application for particulars to reflect the reformatted claim.

Particulars sought

[104]   In his submissions, Mr Cooley stated:

46.Rule 5.26 of the High Court Rules requires a statement of claim to show the general nature of the plaintiff’s claim to the relief sought and to give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party against whom relief is sought of the plaintiff’s cause of action.

47.Rule  5.33  requires  a  statement  of  claim  to  state  the  nature, particulars and amount of special damages. In the context of r5.33

‘special damages’ includes identificable loss already incurred which

can  be  calculated  and  proved  in  terms  of  such  calculation. The particulars of the special damages should contain sufficient detail for the defendant to be able to check and confirm prior to trial.21  This requires more than simply pleading final figures which are the result of extensive calculations; the basis for the calculation must be supplied.22

21     McGechan on Procedure, above n 6, at [HR5.33.03].

22     Ayers v LexisNexis NZ Ltd [2014] NZHC 2998 at [62].

48.The  purpose  of  pleadings  is  to  define  the  issues  and  thereby to inform the parties in advance of the case they have to meet and so enable them to take steps to deal with it.

Particulars are of pleadings but they are not themselves pleadings. The function of particulars is to ensure that the pleading states a clear issue and informs the opposite party of the case to be met or defence to be argued.

49.Particulars of negligence are required. The plaintiff needs to state with specificity and clarity how a defendant is alleged to have fallen below the requisite standard of care and particularise the causal link between the act or omission and the loss. In practice, this means that a plaintiff needs to state what a defendant allegedly did or omitted. This  will  require  particulars  as  to  times,  persons,  dates  and amounts.23

50.Particulars are also required where allegations of breach of trust or bad faith are pleaded.24

51.In Platt v Porirua City Council25  the Court noted that particulars of pleadings are important to:

(i)       Inform a defendant as to the case it has to meet; and

(ii)      Limit the scope of matters the plaintiff may put in issue at trial.

[105]   I accept that those submissions provide an accurate statement of the approach that ought to be taken when the court is considering an application for an order for further and better particulars.

Paragraph 22(a) of ASOC

[106]   Mr Halse applies for an order directing the plaintiffs to provide the following particulars:

62.This alleges that [Mr Halse] provided advice to the Double R Trust, but does not provide particulars of time, place, names of persons and other circumstances to inform the court and [Mr Halse] of the plaintiff’s cause of action. For example, is it alleged that [Mr Halse] provided this advice in his capacity as trustee or solicitor of the Double R Trust.

63.The further particulars that have been provided are inadequate. The first and second particular repeat that [Mr Halse] was a trustee and solicitor for the trust. The third particular states that the trustees

23     McGechan on Procedure, above n 6, at [HR5.21.12(4)].

24     McGechan on Procedure, above n 6, at [HR5.21.12(2)] and [HR5.21.12(3)].

25     Platt v Porirua City Council [2012] NZHC 2445 at [19].

acted in reliance on this advice- which is a separate allegation- but does not particularise the allegation that advice was provided.

[107]   In response, Mr St John for the plaintiffs submitted:

(62)     These are matters entirely within the knowledge of Mr Halse.  The effect of the allegations is that Mr Halse advised himself wearing many different hats.  The plaintiffs cannot add anything to this.  But more to the point, there is no impediment to Mr Halse answering the allegation.

[108]   I agree that further particulars are required.  In order to enable Mr Halse to meet the case against him he has to know in broad outline when the acts alleged occurred. Those remarks apply to the particulars sought of time place etc.

[109]   As to the question of the capacity in which Mr Halse is alleged to have given the advice, it may be implicit in the amended statement of claim that Mr Halse is being sued as a solicitor but I consider that because of the dual roles that he played in the narrative of events that occurred, it would be conducive to clarity if the plaintiffs were required to specifically state what character he was acting in when he was alleged to have given the advice.  Of course, quite different repercussions may flow from a statement made by a person who, although he happens to be a solicitor, is in the circumstances under discussion actually participating as  a trustee in a trust. While it may be necessary for a detailed examination of the facts that emerge at trial to be carried out to try and assess in what capacity any statements were made, that does not dispense with the need for the claiming party in the first place to give a forthright statement of what it says was the position. However at this point where the pleadings are in dispute, it is reasonably clear that the plaintiffs must make it plain as to what capacity liability is alleged to arise from.  As matters stand, because of the statements in the amended statement of claim at para 22(a)(i) and (ii), it is not clear upon what basis the plaintiffs claim that Mr Halse made the various statements that are complained of. Clarification of this issue is necessary.

[110]   I cannot agree with the contention that the pleading is concerned with matters that are “entirely within the knowledge of Mr Halse”, as Mr St John contends.  The events that the plaintiffs sue for include the provision of advice.   The activity of giving advice involves the making of statements.  The advice will no doubt reflect

opinions and the like which the maker of the statement holds.  It may be that some of the matters that influenced the statement involve matters entirely within the knowledge of the person giving advice.  But the starting point when a claim is made is to identify acts and words which amount to the advice that was given.  Questions about whether the advice is reflective of matters that are within the knowledge of the person making the statement are beside the point at this stage.

Paragraph 22(g) of ASOC

[111]   The paragraph in question alleges that Mr Halse:

(g)       Advised  RHL  that  the  terms  of  the  loan  and  the  proposed transactions were on its best interests;

[112]   Mr Cooley submitted:

64.There  are  similar  concerns  with  the  allegation  that  [Mr  Halse] provided advice to RHL. The particulars that have been provided note that [Mr Halse] signed a director’s resolution and solicitor’s certificate, but do not particularise the allegation that advice was provided.

[113]   The response from the plaintiffs is:

(64)     How can the plaintiffs answer this particular?  Obviously, Mr Halse acting as solicitor for RHL must have advised RHL (albeit they are same person in this respect) but the details of that are entirely within the knowledge of Mr Halse.  There is nothing in this particular what would prevent Mr Halse from answering the claim brought against him.

[114]   I shall not repeat what is said above to the effect that the receipt of that advice was hardly something that the plaintiffs were unaware of and which Mr Halse had exclusive knowledge of.

[115]   On the face of it, para 22 of the ASOC could suggest that the plaintiffs may be saying that they drew an inference from the actions of Mr Halse in signing a director’s resolution and solicitor’s certificate, to the effect that given that Mr Halse was a solicitor, it was reasonable to conclude that from the standpoint of a solicitor, he considered that the transactions were satisfactory.   In other words, the representation would be one implied from conduct.  If that is indeed the position that

the plaintiffs are taking, then they ought to say so explicitly so that the court is provided with a clearly articulated issue which it can answer.  One answer would be that a solicitor cannot be saddled with liability in such circumstances where there is no proved agreement of retainer; and that if the plaintiffs wished to draw inferences of this kind, they alone were responsible for the consequences.  On the other hand, it may be concluded that where a solicitor is so closely involved in the execution of transactions which he is advising on, it is impossible to view him as moving in and out of different roles of adviser and trustee.   Whatever the outcome is, clarity of pleading can only assist in resolution of this aspect of the dispute.

[116]   Again, the plaintiffs are not suing Mr Halse because of his knowledge or opinions.   They are suing him because of what he communicated to them by the usual means of express statements of advice and, possibly, on the further basis that his responsibility extends to advice or recommendations that he appeared to be endorsing or supporting even though they were not the subject of express statements.

[117]   While his utterances or statements made in writing may be reflective of what Mr Halse believed, it is because he manifested his views in the statements that he allegedly  caused  loss  to  the  plaintiffs.    There  is  therefore  no  exclusivity  of knowledge of the relevant circumstances which give rise to the cause of action.  It is incumbent upon the plaintiffs to particularise what they were told and when etc. There will therefore be an order that the particulars which are sought as described in para 62 of Mr Cooley’s submissions are to be provided.  That is to say particulars of time, place, names of persons and other circumstances to inform the court and Mr Halse of the plaintiffs’ cause of action must be provided.

Paragraph 34(c) of amended statement of claim

[118]   The submission made in support of this part of the application for particulars stated the following:

65.      This alleges that [Mr Halse] provided advice to the Double R Trust.

The plaintiffs have provided further particulars of this allegation.

66.The first particular refers to a ‘position paper’ but without further particulars. [Mr  Halse]  seeks  confirmation that  this refers to the Summary of Position dated 21 August 2008.

67.The  second  particular  refers  to  a  discussion  with  Mr  Reece  but without further particulars of time.

[119]   The response of Mr St John was as follows:

(66)     Mr Halse wants confirmation that the “position paper” is the same document described as the “summary of position.”  Mr Halse knows that it does. There is no other document in that class.

(67)     The fact that a time has not been specified is not wanting of a pleading.   The issue is whether this prevents hales [sic]   from answering the allegation.  There is no evidence as to how that might be so.

(68)     Actually,  the  real  issue  here  is  asking  Mr  Halse  this  particular question.   The plaintiffs cannot answer this particular.   They have alleged that he did give advice but the specifics of that are entirely within the knowledge of [Halse].

[120]   In essence, the first part of Mr St John’s response suggests that the request is unnecessary because there is only one position paper.   In any case, Mr St John’s submission confirms the apprehension of Mr Cooley set out at paragraph 66 of his memorandum and no further discussion of the point is called for in this judgment.

[121]   In order to deal with the second particular sought it is necessary to record that the allegation against Mr Halse is that he advised the trust that the loan documents would enable the full development of the Crestview/Naylor properties.   That is to say, the allegation is that Mr Halse advised that by signing the loan agreement and other contractual documents, Kiwibank was committing itself to providing funding for all 15 of the sections, not just the three which are referred to in the loan agreements.  Mr Halse, it is alleged:

[T]old Rob Reece that that was the effect[.]

[122]   The precise wording of the pleading would suggest that there was an oral communication (it refers to Mr Halse having “told” Mr Reece what the effect of the loan arrangements was).   In my judgment, there is no reason why the particulars sought ought not to be given.   In order for Mr Halse to prepare for trial it is necessary for him to know when and where the alleged statement was made, if nothing else.  It will be obvious that that particularisation would enable counsel to narrow down the occasion when any discussion took place in the course of which a

statement was made.   Mr Halse, in possession of that information, would then be enabled to consider, amongst other things, what other persons might have been present and whether there were any documents created around about the time of the alleged statement which by their consistency or otherwise might enable Mr Halse to advance his defence.

[123]   Particulars of this statement must be provided.

[124]   It is not clear to me whether the particulars which are sought in regard to the remaining paragraphs specified at p 13 of Mr Cooley’s submissions are still required. My uncertainty stems from the fact that Mr St John has not dealt with these paragraphs explicitly.   Out of an abundance of caution I will briefly set out my views.

Paragraph 46(b) of ASOC

[125]   In relation to this matter, Mr Cooley submitted:

68.      This alleges that [Mr Halse] provided advice to RHL. [Mr Halse]

seeks clarification of the first and second particulars as noted above.

[126]   For  the  same  reasons  that  I  have  given  earlier  about  the  necessity  for particulars regarding the claim that Mr Halse advised DRT, particulars will be necessary in respect of this allegation.

Paragraph 26 of ASOC

[127]   The submission that was made on behalf of Mr Halse in relation to this particular was as follows:

69.This alleges the plaintiffs’ loss. The plaintiffs have provided further particulars. The plaintiffs’ claim for lost equity in the Properties and anticipated profit from the development of the Properties are special damages within the context of r 5.33.

70.      The further particulars of the lost equity are sufficient.

71.The further particulars of the anticipated profit are inadequate. It is clear that a precise calculation has been completed by the plaintiffs to estimate its anticipated profit. Rule 5.33 requires more than a description  of  the  nature and  amount  of  the  special  damages;  it

requires particulars of the special damages. The precise calculation should also be supplied.26

[128]   The  loss  which  the  plaintiffs  claim  arises  from  two  broad  categories  of causative event.  The first was that Mr Halse as the solicitor for the various entities ought  to  have  advised  Mr  and  Mrs  Reece  that  the  proposed  borrowing  from Kiwibank was disadvantageous and imprudent.   That would seem to be a fair summary of this aspect of the claim.  There are subsidiary points included.  It is said that before the overall rearrangement necessitated by the Kiwibank proposal was undertaken, the plaintiffs or some of them had an unencumbered interest in the Crestview/Naylor properties.  It was bad advice, the plaintiffs allege, for Mr Halse to propose that the Reeces enter into the arrangement because as a result, what unencumbered wealth they had was lost.

[129]   The  second  cause  of  loss  was  that,  having  resolved  to  enter  into  a rearrangement of their affairs, the parties determined to borrow additional money from Kiwibank which would enable Mr Reece to carry out developments of the Crestview/Naylor properties.   In that regard, Mr Halse was said to be negligent in recommending acceptance of the Kiwibank loan offer because it was restricted to three  sections  and  there  was  no  obligation  on  the  part  of  Kiwibank  to  offer continuing finance so that the balance of the sections in the development, 12 in number, could be brought to market.  Even though the loan offer said on its face that it was restricted to three sections, it is alleged that Mr Halse gave assurances that it was not actually restricted in that way because of collateral agreements entered into or something of that nature.

[130]   Calculation of loss on the first approach to causation would be relatively straightforward  in  that  it  would  compare  the positions  of the  plaintiffs  had  the Reeces not been given the negligent advice to enter into the financial restructuring, in which case they would have, presumably, defaulted on the existing securities and lost all the secured properties and as well exposed their family relations to loss of

their secured properties.  However, the Crestview/Naylor properties would have been

26 Ayers v LexisNexis NZ Ltd, above n 22, at [62].

retained and would have been out of reach of the creditors.  This would have been obviously to the advantage of the plaintiffs.

[131]   Calculation of loss on the second approach to causation could on one view of it reflect a particular aspect of the loss that has been discussed to this point which arose from the determination to enter into a financial restructuring.  Entering into the Kiwibank loan on the terms offered was futile, would be the argument that the plaintiffs would put forward.   It exposed the plaintiffs to loss of the sections as already mentioned but without providing them with a chance to trade out of their difficulties.

[132]   However it appears that further losses are being put forward representing loss of the expected profits from the development of the Crestview sites (approximately

$2.8   million)   and   the   Naylor   sites   (approximately   $840,000),   for   a   total approximately of $3.6 million.  Such an approach to damages must assume that it would have been possible for the plaintiffs, had they appreciated that finance under the Kiwibank facility was limited to three sections, to either renegotiate that restriction so that finance was available for all 15 sections or alternatively for the plaintiffs to approach an alternative lender who would have been prepared to provide funding on acceptable terms.

[133]   I assume it is to be argued that Mr Halse would be liable for this last head of losses because it was reasonably foreseeable that if he gave wrong advice about the finance, then the plaintiffs would lose an opportunity that they might otherwise have taken to change the terms of the finance so that they would make a profit, or to obtain alternative sources of finance having the same effect.

[134]   Of  course,  had  finance  been  available  on  these  alternative  bases,  the properties would inevitably had to have been secured to the lender.  If however, the venture was successful as a result of more ample finance being available:

a)        the plaintiffs would have earned gross profits that would have enabled them to pay back the loans;

b)        there would have been a margin left over for themselves.

[135]   This last type of claim essentially alleges that the negligence of Mr Halse was the cause of the plaintiffs not only losing expected profits but suffering an overall loss.  The critical part of the reasoning though is that the plaintiffs’ proposal, like most  property  development  proposals,  would  not  have  resulted  in  them  both retaining all the properties and at the same time deriving the expected profits.

[136]   A further aspect of the methodology for claiming the loss would have to reflect the fact that the plaintiffs would not both earn the profit and recover all the development money required to be spent in generating the profit.  That money would include all the financial liabilities incurred as part of the development.

[137]   It is my view that whether particulars of the loss calculation are included in the court pleadings or are provided by way of disclosure of the financial calculations that will no doubt be prepared by a relevant expert, disclosure of the methodology must  be  made.    I  agree  that  a  balance  has  to  be  struck  between  meeting  that obligation and, on the other hand, having to provide information to a very detailed level  about  how  the  claimed  loss  was  arrived  at.    The  only  possible  area  of contention is when that should take place.  It would seem that a case of this kind is one in which a conference of experts would be called for in any event pursuant to r

9.44 of the High Court Rules.  But in any event, before that point is reached there must be something available for experts on the other side to respond to.  I consider that  it  should  be  possible  for  the  plaintiffs’ financial  loss  expert  to  provide  a summary including calculations to show how the loss is calculated.   Whether that summary  is  provided  by  way of  an  amendment  to  the  statement  of  claim,  the schedule to it or by some other means is not important.  The significant need is to provide the information.

Application for particulars by the Grove Darlow defendants

[138] The claim against the Grove Darlow defendants has been succinctly summarised in the submissions that Mr Ross filed in the following form:

28.      The Double R Trust alleges that Grove Darlow:

28.1Owed it a duty of care to advise on the merits of the strategy proposed by Mr Halse;

28.2     Breached that duty by failing to advise:

(a)       on the risks in assuming liability for the Reece debt; (b)     on the loss of value suffered as a result of the trust’s

transfer of its assets to Rudyard Holdings Limited,

20% beneficially owned by Mr Halse; and

(c)       that the Kiwibank loan documents did not record Mr Reece’s understanding that Kiwibank had to fund to the entire development of the properties.

28.3     Caused the Double R Trust to transfer the properties to RHL

and allow the properties to be mortgaged to Kiwibank.

29.The consequences of which were that the Double R Trust lost both the value of the properties and the expected profits from selling those properties.

Breach of trust

30.      Double R Trust alleges that Chris Allan:

30.1Owed it duties to act in its beneficiaries best interests, invest prudently and act as a prudent professional trustee; and

30.2Breached those duties by causing Double R Trust to give effect to the strategy.

30.3     Caused the Double R Trust to transfer the properties to RHL

and allow the properties to be mortgaged to Kiwibank.

[139]   The  Grove  Darlow  defendants  seek  particulars  of  these  various  claims. Mr Ross also submitted that the relevant test for ordering particulars is:27

Has sufficient information been provided to inform the other party of the case they have to meet and enable them to take steps to respond?

[140]   This test is not materially different from that which Mr Cooley submitted the court ought to apply.

[141]   So far as the negligence claim is concerned, Mr Ross submitted that the following  particulars  are  required  in  order  to  satisfy  the  obligation  which  the

plaintiffs have to inform the Grove Darlow defendants:

27     Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(h)]. See also Platt v Porirua City Council, above n 25, at [19].

54.The plaintiffs have also failed to particularise causation, specifically, what the correct advice would have been, and what consequences would have followed if they had been correctly advised.28

[142]   It is alleged also that the pleading is defective in that it does not inform Grove

Darlow of:

(a)  who instructed Grove Darlow, how that instruction was given, what the scope of those instructions were and whether those instructions were given orally or in writing;

(b) if  Grove  Darlow  gave  negligent  advice,  what  should  the “correct” advice have been and what would the Double R Trust have done differently had they received that correct advice;

(c)  a proper pleading of loss.  Currently, the plaintiffs’ claimed loss does not follow from the plaintiffs’ implied counterfactual that had the plaintiffs received proper advice they would not have transferred the properties to RHL or caused them to be mortgaged.

[143]   As well, Mr Allan claims that the breach of trust allegations made against him have not been properly particularised in that they fail to add any particulars setting out the act or omission which the plaintiffs say amounted to a breach of trust, and particularly, breach to the standard of personal conscious fraudulent bad faith that is required in a claim of this kind.

[144]   The plaintiffs do not accept that they are under any obligation to provide the particulars which are reproduced in [141] above.

[145]   One of the grounds that Mr St John puts forward for resisting provision of particulars is that the plaintiffs cannot give the particulars because they were not responsible for the instructions.  That would seem to be a submission, in substance, that the actual communication asking Grove Darlow to give advice to Mr and Mrs Reece did not come from them but from some other person, presumably Mr Halse.

[146]   A claimant in the position of the plaintiffs must be able to establish that certain acts or communications occurred which constituted the transaction between the plaintiffs and the Grove Darlow defendants pursuant to which the Grove Darlow

defendants were instructed to advise.  Unless the basis for that transaction is set out

28     McGechan on Procedure, above n 6, at [HR5.21.12(4)].

and unless there is evidence to support it, the plaintiffs will fail.  It does not matter that the communications which gave rise to the mandate to advise did not emanate from the plaintiffs personally.  They may have come from some other person, such as Mr Halse.  If that is what occurred, the plaintiffs must plead that was so.  There will be a direction that the plaintiffs are to provide the particulars set out in para 55.1 of the submissions of Mr Ross.

[147]   In answer to the request for particulars at para 55.2, Mr St John stated that the particulars had been provided (I presume in the amended statement of claim.)

[148]   In the amended statement of claim at para 53, the following particulars of negligence are provided:

a)Grove Darlow failed to advise the Double R Trust of the risks in assuming liability for the Reece debt with or without a commitment of all necessary funding for the developments of the Crest View and Naylor’s Drive;

b)Grove Darlow failed to advise the Double R Trust regarding the loss of value that would be suffered as a result of the trust’s transfer of its assets to Rudyard Holdings Limited, a company 20% beneficially owned by Mr Halse.

[149]   It is possible to infer what the plaintiffs are seeking to allege, particularly in regard to subpara a).  The allegation involves the propositions that giving security over the Crestview/Naylor’s Drive properties in return for finance sufficient to develop only three of the properties did not represent a satisfactory bargain for the plaintiffs because they did not receive in return what they wanted to obtain, namely sufficient funding from Kiwibank to enable development of all of the properties. Because of that feature, a reasonably competent lawyer would have advised, and Mr Allan ought to so have advised, that the plaintiffs ought not to enter into the borrowing transaction.

[150]   I consider that additional particulars are required of the negligence claim because as it stands, it does not deal with some of the above elements.

[151]   A reasonably full particularisation ought also to answer the queries which counsel for the Grove Darlow defendants seeks at para 55.2 of his submission.  The

choices were that Mr Allan would either agree that the parties ought to enter into the funding transaction or disagree.  If the advice was objectionable because it contained an agreement that the proposed Kiwi bank transaction was suitable for the plaintiffs to enter into, then conversely, it follows that the correct advice would have been that the plaintiff should not enter into it.  Therefore I do not consider that it is necessary, on  the  assumption  that  proper  particulars  are  given  of  the  negligence,  for  the plaintiffs to set out what the “correct” advice would have been.

[152]   The  second  element  of  para  55.2  claims  that  the  plaintiffs  ought  to particularise what they would have done differently had they received that correct advice.  I consider that these particulars are required because they provide a linkage between the allegation of negligent advice and the consequences of that advice.  The particulars would make explicit what consequences there were to the plaintiffs as a result of Mr Allan giving them the allegedly defective advice.  Further, in order to understand how the plaintiffs measure their loss, the defendants need to know what course they would have taken had the advice not been given.  It is not enough to say that they would not have signed the Kiwibank loan.  Had matters come to rest there and  had  they not  signed  the Kiwibank  loan,  plainly there would  have  been  an immediate default and financial loss to the parties associated with Mr and Mrs Reece.  But the plaintiffs are not apparently contending that that would have been the outcome.   They are claiming that another course was open to them which would have  avoided  a  default  and,  further,  it  would  have  resulted  in  a  profitable development of the Crestview/Naylor properties.

[153]   To some extent this merges with the particulars that are sought in Mr Ross’s para 55.3 which seeks what he describes as “a proper pleading of loss”.   If the statement  of  claim  is  amended  to  provide  particulars  as  already ordered  in  the preceding paragraph and, in addition, to provide a summary of the basis upon which the plaintiffs calculate their loss, then it should become sufficiently clear to the defendants how the allegedly negligent advice caused the plaintiffs to act to their financial detriment and should provide a proper quantification of the loss.

[154]   I consider that there should also be an order that the plaintiffs provide the particulars sought in para 55.3 of counsel’s submissions.

Paragraphs 57 and 58 of ASOC

[155]   The trustees of DRT alleges that Mr Allan:

(a)       owed  it  duties  to  act  in  its  beneficiaries  best  interests,  invest prudently and act as a prudent professional trustee; and

(b)       breached those duties by causing Double R Trust to give effect to the strategy.

[156]   The  submissions  that  Mr  Ross  made  in  regard  to  the  breach  of  trust allegations included the following:

40Aside from the question of whether Mr Allan is in breach of trust, which is denied, Mr Allan has several affirmative defences that are likely to succeed.  Foremost among them is the limitation of liability in the trust deed itself.

41The trust deed for the Double R Trust limits a trustee’s liability to breaches that “have been committed made or omitted in personal conscious fraudulent bad faith”.    The exemption clause is enforceable.   Nothing is pleaded that would meet that threshold.  If such a pleading were made, the nature of the required allegation (i.e. committed made or omitted in personal conscious fraudulent bad faith) would amplify Mr Allan’s claim to security.

42       Further, defences are available under ss 73 and 74 of the Trustee Act

1956.

[157]   It was Mr Ross’s submission that:

56Allegations  of  bad  faith  must  be  properly  particularised.      No particulars have been provided for the breach of trust claim against Mr Allan.  The amended statement of claim deletes the open ended pleading that existed previously, but fails to add any particulars setting  out  the  act  or  omission  the  plaintiffs  say  amounted  to  a breach of trust, and particularly, breach to the standard of personal conscious fraudulent bad faith.

[158]   Mr St John submitted:

49.(56)  The  plaintiffs  do  not  plead  bad  faith.    What  the  plaintiffs anticipate is the positive denial and the response to that.  But that is not a particular described in the application and is irrelevant to the applications before the Court.

[159]   I consider that the submission which Mr St John has made is correct.  If and when the plaintiffs file an answer to the statement of defence (which denies breach

of trust) and asserting bad faith, then at that stage particulars may be required. Because neither of those steps have been taken to this point, no particulars should be ordered in my view.

[160]   I reserve leave for all of the defendants to seek further directions in regard to

the particularisation of the plaintiffs’ statement of claim.

Particulars of allegations of breach of trust

[161]   Mr Allan has put forward that if he was in breach of his obligations as a trustee of DRT then he is entitled to relief under s 73 of the Trustee Act 1956.

[162]   The relevant background is that Mr Allan, who gave legal advice to the Reeces, also became, as a result of a recommendation that he made to that effect, a trustee of DRT.  It is alleged that he breached his duties to DRT through failing to exercise care diligence and skill in its affairs.  These allegations are denied and as well Mr Allan pleads an affirmative defence that he is entitled to relief under s 73 of the  Trustee  Act,  having  acted  honestly  and  reasonably.    In  the  answer  to  the statement of defence which the plaintiffs filed, they deny that Mr Allan is entitled to relief and deny that he acted in good faith.   No particulars are provided of the respects on which his conduct was other than in good faith. The plaintiffs accept that in due course they will be required to file particulars of lack of good faith.  Even had they not, the court would have directed them to do so.   There will be an order requiring the particulars sought to be provided.

Costs

[163]   All of the parties accepted that costs should follow the event and that they should be on a 2B basis.

[164]   In regard to Mr Halse, he commenced two applications, one of them seeking a security for costs order and the other particulars of the plaintiffs’ claims.  At the resumed hearing which took place on 16 May 2016 his counsel, Mr Cooley, advised the court that Mr Halse was no longer proceeding with the former application.

[165]   Having regard to the fact that Mr Halse has in effect discontinued the security application but has succeeded on the particulars application, it seems reasonable that as between himself and the plaintiffs, costs should lie where they fall.

[166]   The Grove Darlow defendants have succeeded on both of their applications, that for security for costs and the application for particulars.  Given that that is so, they  are  entitled  to  costs  orders  in  relation  to  the  hearing  overall  against  the plaintiffs.  Costs are to be on a 2B basis together with disbursements fixed by the

Registrar.

J.P. Doogue

Associate Judge