Samuel v Annan Law
[2014] NZHC 128
•12 February 2014 at 1pm
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV2012-470-000404 [2014] NZHC 128
BETWEEN WILLIAM REESE SAMUEL AND JUNE
MARGARET SAMUEL (discontinued) First Plaintiffs
R PLUS J HOLDINGS LIMITED (discontinued)
Second Plaintiff
AND
ANNAN LAW Defendant
MACALISTER MAZENGARB Third Party
Hearing: 9 -11 December 2013 Appearances:
A Challis and K Harkess for Defendant
A Darroch and A Sheriff for Third PartyJudgment:
12 February 2014 at 1pm
(RESERVED) JUDGMENT OF ANDREWS J [Defendant's claim against third party]
This judgment is delivered by me on 12 February 2014 at 1pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors:
McElroys, Auckland
Duncan Cotterill, Wellington
SAMUEL AND SAMUEL (discontinued) v ANNAN LAW & ANOR [2014] NZHC 128 [12 February 2014]
Introduction
[1] In June 2006 Mr and Mrs Samuel entered into a “Blue Chip” joint venture investment, by entering into an unconditional agreement to purchase an apartment in Auckland. The investment failed when Blue Chip collapsed, and Mr and Mrs Samuel suffered a substantial financial loss.
[2] In the course of their entering into the investment, two law firms acted for Mr and Mrs Samuel: Macalister Mazengarb (Wellington) and Annan Law (Tauranga). Annan Law acted for Mr and Mrs Samuel when they settled the purchase agreement.
[3] Mr and Mrs Samuel brought proceedings against Annan Law for breach of the contract of retainer and in negligence, seeking special damages plus general damages, interest, and costs. Annan Law issued a third party proceeding against Macalister Mazengarb, seeking contribution under s 17 of the Law Reform Act 1936.
[4] Mr and Mrs Samuel’s claim against Annan Law was settled in October 2013, by a payment of $512,500. Annan Law now seeks contribution from Macalister Mazengarb up to that sum. The parties have agreed that $512,500 represents Mr and Mrs Samuel’s loss.
Factual background
[5] On 6 June 2006, Mr and Mrs Samuel signed an agreement for sale and purchase of the apartment, together with a joint venture addendum agreement and a disclosure acknowledgement letter. They did not seek any legal advice before signing the documents. In common with many other Blue Chip investors, Mr and Mrs Samuel were retired, and were “asset rich and cash poor”, in that they owned their own home, free of any mortgage, but their only income was a pension. They hoped (and were so advised by their Blue Chip agent) that the Blue Chip investment would enable them to obtain additional income by “releasing” the equity in their home.
[6] The Blue Chip agent directed them to Annan Law, as Annan Law had acted on earlier Blue Chip transactions. However, Mr Samuel told the agent he and Mrs
Samuel had their own lawyer in Wellington, Mr Buxton at Macalister Mazengarb. Notwithstanding that, the agent sent the signed documents to Annan Law. The result was that when Annan Law received the documents from Blue Chip on 9 June 2006, the firm did not have instructions from Mr and Mrs Samuel.
[7] Mr Samuel and Mr Buxton had known each other for a great many years, and Mr Buxton had acted for Mr and Mrs Samuel on several occasions in the past. After having signed the Blue Chip documents, Mr Samuel rang Mr Buxton and asked him to look at the transaction and advise whether it “stacked up”. Mr Samuel sent Mr Buxton some of the documents he had received from Blue Chip.
[8] In a letter dated 21 June 2006 to Mr and Mrs Samuel, Mr Buxton said that he was sceptical that “these type of deals” provided reasonable value, and that the information he had did not enable him to give any final conclusions. He noted that there was no assessment of the incomings and outgoings for the property; no information on how the Body Corporate would run, and nothing to indicate what the expected rent would be. Mr Buxton suggested seeking an analysis of the expected income and expenditure, and commented that it was extraordinary that that had been omitted. He suggested that there may be other documents that set that out.
[9] Mr Buxton then set out a number of issues with the documents he had looked at: he identified that the figures for the value or cost of the property were contradictory, there was no basis for anticipating that property prices would double in the next ten years, there were fees with no explanation of what they were for (some of which seemed superfluous), among other issues. He ended his letter by commenting that far more detail would be required to make any significant assessment of the advisability of the transaction. At the very least, a detailed accounting of expected income and estimated expenditure would have been essential.
[10] On 11 July 2006, Blue Chip’s solicitors, Walters Law, wrote to Annan Law concerning settlement. Annan Law then wrote to Mr and Mrs Samuel, asking if they wanted Annan Law to act for them. On 13 July 2006 Mr Samuel instructed Annan Law to send the documentation for the transaction to Macalister Mazengarb.
Mr Annan sent the documents he had received from Blue Chip to Mr Buxton on 14
July 2006, noting that he understood that Mr Buxton was acting for Mr and Mrs
Samuel. Mr Buxton received this letter on 17 July 2006.
[11] The parties accepted that from that date, at least, Macalister Mazengarb had a retainer to act for Mr and Mrs Samuel on the transaction, and that there was no limitation on the retainer. In evidence, in answer to a question from the Court, Mr Buxton said that he “believed that [he] was acting for Mr Samuel from mid-June on aspects of the transaction”. In the light of the evidence, I find that Macalister Mazengarb acted for Mr and Mrs Samuel from about mid-June 2006.
[12] Mr Buxton attempted to raise issues with Blue Chip. A Blue Chip manager, Mr Hannan, called on Mr Buxton in Wellington on 19 July 2006, and then emailed various documents to him, including a Blue Chip “Joint Venture Training Pack” demonstrating the structure of the Blue Chip joint venture product.
[13] Mr Buxton accepted that by 19 July 2006 he had received:
(a) a letter from Blue Chip and a sample financial analysis;
(b) a valuation for the investment property to be purchased, dated March
2006;
(c) the Joint Venture Addendum Agreement; (d) the Agreement for Sale and Purchase;
(e) the Disclosure Acknowledgement letter; (f) a Property Management Agreement;
(g)additional documents sent by Blue Chip to Annan Law, which included a tax opinion, Blue Chip invoices for various fees, and a Lease Agreement;
(h)Walters Law’s letter of 11 July 2006, with attachments including a settlement statement, section 36 certificate, and settlement requirements;
(i) the Blue Chip Joint Venture Training Pack; and
(j) insurance information.
[14] On 21 July 2006, Walters Law wrote to Annan Law, saying that they were ready to settle. A settlement date of 26 July 2006 was suggested. Annan Law advised Walters Law that the firm was not acting on the transaction. Walters Law then wrote to Macalister Mazengarb on 24 July 2006, concerning settlement of the transaction.
[15] On 26 July 2006, Mr Buxton wrote to Mr Hannan of Blue Chip, asking several questions concerning the transaction. Mr Hannan replied on 31 July 2006, responding to Mr Buxton’s questions on a point by point basis. Mr Hannan’s response did not satisfy Mr Buxton, and he remained sceptical of the transaction.
[16] Mr Buxton then contacted Mr and Mrs Samuel. He told them he was not able to take his inquiries further, as he was about to leave for overseas travel. Mr Buxton acknowledged in his evidence at trial that he did not expressly advise Mr and Mrs Samuel against completing the Blue Chip transaction. However, Mr Buxton said that at the time his retainer ended, he personally felt that it would be unwise for Mr and Mrs Samuel to proceed.
[17] Mr Buxton was due to travel overseas during August. On 11 August 2006 he transferred Mr and Mrs Samuel’s file to Annan Law, and the transaction was settled on 22 September 2006.
Issues for determination
[18] The primary issue for determination in this case is whether during Macalister Mazengarb’s contract of retainer Mr Buxton breached duties owed to Mr and Mrs Samuel; and specifically whether he was required, and failed, to advise them against
the Blue Chip investment. Determination of the issue turns on whether a reasonable solicitor would have advised Mr and Mrs Samuel to cancel the agreement, based on the information Mr Buxton had available to him as from 19 July 2006.
[19] Evidence was given at the trial by a former Blue Chip employee that had an approach been made to Blue Chip, Mr and Mrs Samuel would have been able to cancel the transaction. That evidence was accepted by Macalister Mazengarb.
[20] If Macalister Mazengarb is found to have been in breach of its duties to Mr and Mrs Samuel, the further issue is whether that breach was causative of their loss. If that issue is determined against Macalister Mazengarb, the final issue is whether the firm should be ordered to make a contribution, and if so in what amount.
The statutory framework
[21] Section 17(1)(c) of the Law Reform Act 1936 provides:
17Proceedings against, and contribution between, joint and several tortfeasors
1. Where damage is suffered by any person as the result of a tort
(whether a crime or not)—
…
(c) Any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if
sued in time have been, liable in respect of the same damage,
whether as a joint tortfeasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought.
[22] Macalister Mazengarb may be held liable to make a contribution in respect of
Mr and Mrs Samuel’s loss if:
(a) it is a tortfeasor; that is, if it breached its duty to Mr and Mrs Samuel;
and
(b) it is liable for Mr and Mrs Samuel’s loss.
[23] Section 17(2) then provides as to the amount of contribution:
2.In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the Court to be just and equitable having regard to the extent of that person’s responsibility for the damage; and the Court shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
Did Macalister Mazengarb breach its duties to Mr and Mrs Samuel?
Outline of the duty
[24] As noted earlier, I have found that Macalister Mazengarb (Mr Buxton) acted for Mr and Mrs Samuel from mid-June up until 11 August 2006, when the file was sent to Annan Law. As solicitors for Mr and Mrs Samuel, Macalister Mazengarb’s primary duty was to protect Mr and Mrs Samuel’s interests, and to exercise reasonable skill and care.
[25] As to the general nature of solicitors’ duties, the Court of Appeal said in
Gilbert v Shanahan:1
Solicitors’ duties are governed by the scope of their retainer, but it would be unreasonable and artificial to define that scope by reference only to the client’s express instructions. Matters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within the scope of the retainer.
[26] Reference may also be made to Duncan Webb’s text Ethics, Professional
Responsibility and the Lawyer, in which he states:2
In the absence of clear indications that the contrary was intended, it is presumed that the parties intend a general retainer under which the lawyer is expected to advise on all legal aspects of the client’s affairs with which he or she is dealing. The extent of the duty to advise generally will be determined in part by the client’s knowledge and sophistication.
[27] In the context of Blue Chip transactions, the duties of a solicitor acting for an investor have been described as follows:
1 Gilbert v Shanahan [1998] 3 NZLR 528 at 537.
2 Duncan Webb Ethics, Professional Responsibility and the Lawyer (2nd ed, LexisNexis, Wellington, 2006) at [5.4.1].
(a) In Bartle v GE Custodians, Randerson J said:3
As to the scope of the duty, I am satisfied that Mr Mathias was under a duty of care to the Bartels in three key respects …:
To ensure [the Bartles] understood the effect and implications of the transaction.
To explain the risks associated with the transaction including the entering into of substantial mortgages; and
To give [the Bartles] independent advice as to the risks that they faced if the Blue Chip Group did not honour its obligations.
Randerson J also observed that the Blue Chip Joint Venture Investment was
“far from an ordinary conveyancing transaction”.4
(b) In MacLean v Annan & Co, Rodney Hansen J said:5
Mr Annan’s duty of care required him to explain the key terms and the implications of the principal documents and the way they inter- related. It was clearly important for Mr Annan to ensure that the MacLeans understood the overall scheme of the investment as well as its key provisions. Special mention should have been made of any deficiencies in the documentation which adversely affected the clients’ interests.
(c) In Appleton v Tauranga Law, the Court of Appeal said:6
… The purpose of getting legal advice is to ensure that the investor who is attracted by the superficial desirability of an investment is advised on the legal underpinning of the assumed features.
Expert evidence
[28] Evidence was given by three experienced conveyancing solicitors: Mr Robert
Eades, called by Ms Challis, and Mr Peter Nolan and Mr John Greenwood, called by
Mr Darroch.
3 Bartle v GE Custodians [2010] 1 NZLR 802 (HC) at [145]. The judgment of Randerson J was appealed to the Court of Appeal (Bartle v GE Custodians [2010] NZCA 174, [2010] 3 NZLR
601 (CA)) and to the Supreme Court (GE Custodians v Bartle [2010] NZSC 146, [2011] 2
NZLR 31 (SC)), on unrelated issues.
4 At [150].
5 MacLean v Annan & Co HC Tauranga CIV-2009-470-868, 18 November 2011 at [76].
6 Appleton v Tauranga Law [2013] NZCA 420, [2013] 3 NZLR 777 (CA) at 40.
(a) Mr Eades
[29] Mr Eades gave evidence that in his opinion Mr Buxton should have found out whether there was a contractual obligation to pay working capital (having identified that as a matter of concern), as opposed to only inquiring what the working capital was for. By not doing so he failed in his duty to the Samuels. He said, in answer to questions in cross-examination from Mr Darroch:
Q. And are you saying he’s negligent for not doing so?
A. I would have expected him to ask it, yes, I think that having established that there was an issue about working capital, a lawyer would go back to see where the obligation stemmed from.
Q. But Mr Buxton didn’t finish his work did he?
A. No but the contractual obligation is something that I believe that a lawyer should have asked far earlier.
Q. But at the stage Mr Buxton is involved, he hasn’t further [committed] the
Samuels in any way has he?
A. No but he’s had the matter before him for an appreciable time and a lawyer is bound I think to act in a reasonably positive way and an ongoing basis sought out the client’s obligations.
...
Q. Okay, but are you saying that if he failed to pick up the contractual entitlement to working capital, then he failed in his duty to the Samuels?
A. Yes.
[30] Later, when asked by Mr Darroch if he thought that Mr Buxton had breached his duty by not asking where the obligation to pay working capital came from, Mr Eades said:
A. I think that a competent lawyer would have acted reasonably promptly to peruse the documents and ask the necessary questions, if the lawyer ascertained that he didn’t have all the documents, he should have asked for them, if he didn’t have an explanation in this case where the contractual obligation for working capital came from, he should have asked that question.
...
Q. Well, Mr Eades, Mr Buxton didn’t manage to finish his assessment that’s what he’s saying in his letter.
A. He is saying that, yes. I believe that he should have had or should have progressed the matter much further than he did.
[31] Mr Eades’ evidence was that Mr Buxton should have got the relevant documents so that he could give the necessary advice. He further said, in answer to a question from Ms Challis in re-examination, that knowing the retainer would end, Mr Buxton should have conveyed his concerns about the transaction to Mr and Mrs Samuel:
A. I think that a lawyer in his position had an obligation to do so.
Q. Even though they knew that another solicitor may become involved at a later point?
A. Yes.
[32] In answer to questions from the Court, Mr Eades said that the retainer required a reasonable lawyer to obtain all the information he or she needed in order to properly advise the clients. He said that failure to obtain the necessary information on which to base advice was a failure.
b) Mr Nolan
[33] Mr Nolan said in answer to questions from Ms Challis in cross-examination that a solicitor could be expected to identify defects on the face of just the sale and purchase agreement. The agreement by itself “would cause serious concern.”
[34] When asked by Ms Challis at what point a solicitor could have been expected to appreciate that level of risk, Mr Nolan said:
A. I think the risks were clearly apparent at the time the first bundle of documents was – the whole bundle received by Annan Law and sent onto Macalister Mazengarb. There was enough there, without the joint venture agreement, to form that view.
Q. And that was on the face of the documents themselves and the concerns a prudent lawyer would’ve identified from those documents?
A. Yes. I mean, the joint venture agreement was needed to fully understand how the joint venture was intended to operate. But, in my opinion, there was enough ... already there to form a view that ... there was serious risks for the purchaser.
Q. And even to provide positive advice that they should try to extract themselves from the transaction?
A. Yes ... I do believe that.
[35] Mr Nolan then accepted that a prudent solicitor in Mr Buxton’s position
would have recommended that Mr and Mrs Samuel extract themselves:
Q. And a prudent solicitor in Mr Buxton’s position having formed very firm views about the transaction, that it wasn’t beneficial to his clients, a ... solicitor in that position, would in fact have recommended to their client to extract themselves. You’d accept that?
A. I accept that. In his case he was ... felt he wasn’t at that point and he was waiting. ... But I don’t resile from the fact that, in my opinion, there was already enough there to have come to that view.
[36] Mr Nolan further said, in answer to a question from the Court, that the fact that Mr and Mrs Samuel’s file was sent back to Annan Law did not remove any responsibility from Macalister Mazengarb: the duties of the two firms were co- existent.
(c) Mr Greenwood’s evidence
[37] Mr Greenwood’s evidence in chief was that Mr Buxton had acted with reasonable care up to the point of transfer of the file to Annan Law. On cross- examination, Mr Greenwood agreed with Mr Nolan’s evidence that immediately on reading the sale and purchase agreement, a solicitor would have identified the defects in it and should immediately raise those issues with his or her client. When asked if Mr Buxton already had enough information to identify risks from the position of the prudent practitioner, Mr Greenwood said:
A.Oh, I agree with that, yeah, there were reasonable risks already identified earlier on, yes.
Q. And to the extent that those risks were such that you would provide positive advice to your client that they should try and extract themselves from the transaction at that point?
A. I think that might be jumping ahead of ourselves here, but I think certainly some solicitors would do.
Q. But I’m asking about the prudent practitioner?
A. I know, I’m just trying to think of that.
Q. You’re probably high prudent, you said to clients to keep away from this.
A. I’m very conservative. Yes you could have raised a red flag about extricating yourself out but I got the impression from his incomplete file, shall we call it that, that he was still asking ... questions and trying to get answers before maybe assessing whether there was a possibility of can we exit here.
Q. That was Mr Buxton was doing again [sic]. What I’m trying to look at is what the prudent or competent practitioner objectively would have done once they ... reviewed those documents, even without the JV agreement.
A. Yes I think a prudent solicitor would have raised with them the possibility of do you want to proceed. ... And then you’d make an analysis of, you’d have to be fairly cautious ... because it was an unconditional contract and you get some analysis on the risk of cancel or trying to cancel.
[38] Mr Greenwood then accepted that “in a perfect world” a solicitor who shared the same level of concern as Mr Buxton would advise their client not to proceed. Mr Greenwood agreed that, if he were in a position personally where he thought a deal should not proceed, he had an obligation to his clients to tell them that and it would then be up to them whether to take that advice. When asked in re-examination whether Mr Buxton had made his concerns clear to Mr and Mrs Samuel, Mr Greenwood said that “he could’ve been more proactive.”
[39] Mr Greenwood further said, in answer to a question from the Court, that there would have been some knowledge in the legal market place, that clients could be extracted from Blue Chip investments with relative ease.
Submissions
[40] Ms Challis submitted for Annan Law that Macalister Mazengarb owed Mr and Mrs Samuel duties of care to advise them of the desirability of the transaction including its inherent risks and the wisdom of the transaction, the deficiencies in the Blue Chip documents, and that the risks were so great that they should not proceed. She submitted that Macalister Mazengarb’s retainer was more extensive than simply advising on the desirability of the transaction. She submitted that for the period Macalister Mazengarb was acting, Mr Buxton was required to act in the respects which a general retainer called for. That extended to advising on the possibility of cancelling the agreement, in Blue Chip cases.
[41] Ms Challis further submitted that Macalister Mazengarb’s retainer imposed on Mr Buxton a duty to warn Mr and Mrs Samuel of anything that was unusual and anything that might affect their obtaining the benefit of the contract, including warning of potential risks and issues of concern. She submitted that Mr Buxton had sufficient information to identify serious deficiencies with the documents, and did raise real and legitimate concerns, but did not go far enough. She submitted that Mr Buxton had reached a point where he believed Mr and Mrs Samuel should not proceed, but failed to communicate that in clear terms. She further submitted that if Mr Buxton had advised Mr and Mrs Samuel that they should not proceed, and that they should seek to cancel the agreement, Mr and Mrs Samuel would have accepted his advice.
[42] For Macalister Mazengarb, Mr Darroch submitted that the authorities referred to earlier do not cover the present situation, where a solicitor’s retainer had been terminated by agreement. He submitted it was reasonable for Macalister Mazengarb to return the file to Annan Law, and assume they would take up Mr Buxton’s concerns.
[43] Mr Darroch further submitted that Mr Buxton conveyed his concerns to Mr and Mrs Samuel on more than one occasion. He acknowledged that Mr Buxton did not advise Mr and Mrs Samuel that they should take steps to cancel the agreement, but submitted that the tenor and content of Mr Buxton’s communications with Mr and Mrs Samuel was that this was not a good deal for them. He further submitted that Mr Buxton had cautioned Mr and Mrs Samuel about his concerns, and ensured that they were referred to someone who could assist them. Accordingly, Mr Darroch submitted, Macalister Mazengarb did not breach its retainer, and was not in breach of its duties to Mr and Mrs Samuel.
Discussion
[44] As there were no specific restrictions on the retainer here, it must be presumed that the retainer was a general one. Further, Mr Samuel’s request for advice as to whether the investment “stacked up”, was a request for advice on the wisdom of the transaction.
[45] I accept Ms Challis’ submission for Annan Law that the key issue is whether, on the information that he had, Mr Buxton should have advised Mr and Mrs Samuel to try and extract themselves from the transaction. Mr Darroch made submissions as to what Mr Buxton did do, and submitted that of all the lawyers involved in Blue Chip transactions, he was the only one to point out deficiencies. This may be true, but it does not answer the question of whether Mr Buxton went far enough. Just because he went further than other lawyers at the time does not mean that he went far enough, if all those lawyers were negligent, in not acting to the standard of a reasonable and competent lawyer.
[46] Whether Mr Buxton breached his retainer is a factual question. I accept Ms Challis’ submission that a prudent solicitor would at least have raised the question of whether his or her clients wanted to proceed, and that Mr Buxton had enough information to advise Mr and Mrs Samuel not to proceed. I conclude that a prudent solicitor in Mr Buxton’s position should have at least raised the prospect of cancellation. On the expert evidence before the Court, I am satisfied that it is established that Mr Buxton was negligent.
[47] Further, as noted above, I am satisfied that Macalister Mazengarb’s retainer expressly extended to advising Mr and Mrs Samuel as to cancellation, and that Mr Buxton had enough information before him to give that advice. Mr Buxton did not do so. I therefore conclude that there was a breach of Macalister Mazengarb’s retainer.
[48] The fact that Mr and Mrs Samuel were an older, commercially inexperienced couple, investing for their retirement, would have suggested that they needed to be given advice in clear terms. My impression from Mr Samuel’s evidence was that they were naively optimistic, but with understandable concerns about what they were doing. They sought to have these concerns allayed by Mr Buxton, whom Mr Samuel had known for a great many years, and who had acted for them in the past.
[49] Mr Buxton never gave clear advice that Mr and Mrs Samuel might consider cancellation and, accepting the expert evidence, he had enough information that a reasonable solicitor in his position would have done so. The “tenor and content” of
his communications may have been that it was not a good deal for Mr and Mrs Samuel, but his advice should have been tailored to their commercial understanding which he was well aware of – their lack of commercial knowledge required clear advice not to proceed. As Richardson J said in Provost Developments Ltd v Collingwood:7
The scope of a lawyer’s advisory role in relation to commercial and conveyancing transactions in today’s society cannot be stated with any precision. ... What advice will be expected by the client and given by the solicitor will depend on all the circumstances, including the nature and money value of the transaction and its legal and commercial ramifications and the relationship between the particular client and his lawyer.
[50] Mr Buxton could have advised Mr and Mrs Samuel that whilst he did not feel he had enough information to give final advice, his interim advice was that they should consider cancelling the agreement. If he had done this, he may well not have been in breach. It would have then been up to Mr and Mrs Samuel whether they wanted to consider cancellation or seek out more information through Mr Annan. However, that is not what occurred.
Did the breach cause Mr and Mrs Samuel’s loss?
Submissions
[51] Ms Challis characterised the loss suffered by Mr and Mrs Samuel as the loss of the chance to extract themselves from the Blue Chip. On the basis of the evidence that investors were able to cancel agreements, she submitted that Macalister Mazengarb’s breach, in failing to give competent advice, led directly to their loss.
[52] Mr Darroch submitted that Mr and Mrs Samuel terminated Macalister Mazengarb’s retainer knowing that Mr Buxton had not been able to complete his advice, and knowing that he was sceptical of the Blue chip investment. He submitted that there was no evidence that Mr and Mrs Samuel relied on Mr Buxton’s advice, actions, or omissions, when they settled the transaction. Accordingly, he submitted, it could not be said that any breach on the part of Macalister Mazengarb
had caused their loss.
7 Provost Developments Ltd v Collingwood Towers [1980] 2 NZLR 205 (CA) at 213.
Discussion
[53] In Benton v Miller & Poulgrain, it was common ground that Miller & Poulgrain had been negligent with respect to Mr Benton’s entry into property transactions.8 The High Court awarded Mr Benton damages of $37,800. Both sides appealed to the Court of Appeal. The Court of Appeal held:9
In cases which turn on how a plaintiff would have acted in the absence of a breach of duty, the all or nothing approach is usually ... applicable. So if the plaintiff shows that it is more likely than not that he or she would have acted in a particular way, the Court acts on the assumption that this is the way the plaintiff would have acted. If this is not established as being more likely than not, then the Court acts on the basis that the plaintiff would not have acted in that particular way. This approach can be justified in various ways depending on the context. For instance:
1. A plaintiff who cannot show that he or she would have acted differently if the defendant had not been negligent might therefore not be able to establish relevant reliance on the defendant. ...
2. A plaintiff who cannot show that he or she would have acted differently in the absence of a breach of duty by the defendant has failed to show that the defendant has caused any loss ...
(references omitted)
[54] The Court of Appeal approved the following statement from Allied Maples
Group Ltd v Simmons and Simmons:10
In these circumstances, where the plaintiffs' loss depends upon the actions of an independent third party, it is necessary to consider as a matter of law what it is necessary to establish as a matter of causation, and where causation ends and quantification of damage begins.
(1) What has to be proved to establish a causal link between the negligence of the defendants and the loss sustained by the plaintiffs depends in the first instance on whether the negligence consists in some positive act or misfeasance, or an omission or non-feasance. ...
(2) If the defendant's negligence consists of an omission, for example ... to give proper instructions or advice, causation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the plaintiff have done if the ... advice [had been] given. This can only be a matter of inference to be determined from all the circumstances. …
Although the question is a hypothetical one, it is well established that the plaintiff must prove on the balance of probability that he would have taken
8 Benton v Miller & Poulgrain, [2005] 1 NZLR 66 (CA).
9 At [47].
10 At [48], citing Allied Maples Group Ltd v Simmons and Simmons [1995] 4 All ER 907 at 914.
action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour.
…
(3) In many cases the plaintiff's loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff, as in this case, or independently of it. In such a case does the plaintiff have to prove on the balance of probability, as Mr Jackson submits, that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff, or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages?
... the second alternative is correct.
[55] This means that it must be established on the balance of probabilities that Mr and Mrs Samuel would have sought to extract themselves from their agreement if Mr Buxton had given them the advice to do so. Because their loss depends on Blue Chip hypothetically allowing them to get out of the agreement, it must also be established that they had a “substantial chance rather than a speculative one” to get out of the agreement.
[56] Mr Samuel’s evidence was that if he had been told that the Blue Chip investment was a bad deal and there was a chance to pull out, he would have taken that advice and sought to extract himself from it. I accept that evidence. It is supported by evidence that Mr and Mrs Samuel asked Mr Annan if the investment was a good deal. This confirms that they were apprehensive and would have been open to the advice to cancel had Mr Buxton given it or raised the possibility of cancellation combined with his view of the transaction. Accordingly, I am satisfied that, had they been advised to do so, Mr and Mrs Samuel would have instructed Macalister Mazengarb to extract them from the investment.
[57] I am also satisfied that the transfer of the file to Annan Law did not result in a break in the chain of causation, as was submitted for Macalister Mazengarb. The authors of Todd on Torts say “...intervening conduct which is part of the risk engendered by the initial wrongful conduct is also a foreseeable consequence of that
conduct.”11 I consider that this covers the present situation – engaging Annan Law
11 Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Thomson Reuters, Wellington,
2013) at 1090.
to continue with the transaction was part of the risk caused by Mr Buxton not discussing the option of cancelling the agreement with Mr and Mrs Samuel.
[58] Had Mr Buxton withdrawn, and Mr and Mrs Samuel then completed the rest of the transaction without a lawyer, Macalister Mazengarb would still be liable. The fact of the second tortfeasor’s negligence does not absolve the first. I note that this was the evidence given by Mr Nolan.12
[59] In the light of the unchallenged evidence that, had they been approached, Blue Chip would have been amenable to Mr and Mrs Samuel cancelling the contract, and Mr Greenwood’s evidence that it was known in the legal market that Blue Chip allowed parties to cancel, I am satisfied that Mr and Mrs Samuel did have a substantial chance of extracting themselves from the Blue Chip investment, had they been advised to do so. I therefore accept that as a result of Macalister Mazengarb’s breach, they lost the chance to do so.
[60] Accordingly, I find that Macalister Mazengarb’s breach was a direct cause of
Mr and Mrs Samuel’s loss.
Apportionment as between Macalister Mazengarb and Annan Law
[61] The final issue is as to the apportionment of liability as between Macalister
Mazengarb and Annan Law.
[62] I accept Ms Challis’ submission that the value of Mr and Mrs Samuel’s lost chance to extract themselves from the Blue Chip investment was the same both when Macalister Mazengarb was acting for them and when Annan Law was acting for them. They had an equal chance to extract themselves from the investment when represented by each of the firms. I also accept her submission that if Mr Buxton had raised the possibility of cancellation with Mr and Mrs Samuel then, accepting that they would have been able to cancel the agreement, Annan Law would have never
been instructed, or their instructions would have been to cancel.
12 See [36], above.
[63] However, I do not accept that Macalister Mazengarb is, therefore, more blameworthy, and should bear a greater portion of Mr and Mrs Samuels’ loss. Ms Challis first submitted that Macalister Mazengarb should bear a greater portion of the loss for the reason that Mr Buxton knew of Mr and Mrs Samuel’s personal circumstances. However, Mr Annan of Annan Law would also have appreciated that they were commercially unaware and were investing their only significant asset.
[64] Ms Challis also submitted that Macalister Mazengarb should bear a greater portion of the loss because Mr Buxton had serious concerns about the investment, yet breached his duty by not advising them on the possibility of cancellation. I do not accept that this makes him more blameworthy than Mr Annan, who should have had serious concerns but did not.
[65] I have concluded that the only proper basis on which to apportion liability for Mr and Mrs Samuel’s loss is to do so on the basis that each firm bears an equal share of the loss. I find, therefore, that Macalister Mazengarb is liable to contribute to the extent of 50 per cent of the loss.
Result
[66] I give judgment for Annan Law and order that Macalister Mazengarb is to contribute to the loss suffered by Mr and Mrs Samuel to the extent of 50 per cent of that loss, together with interest.
[67] On the issue of costs, in the event that the parties are not able to agree on costs, then memoranda may be filed: that for Annan Law within 20 working days of the date of this judgment, and that for Mazalister Mazengarb within a further ten working days. Counsel should indicate in their memoranda whether the matter may
be determined on the papers, or whether a hearing is sought.
Andrews J
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