Shaw v Macalister Todd Phillips
[2014] NZHC 1948
•19 August 2014
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2014-425-000043 [2014] NZHC 1948
BETWEEN GRAEME DESMOND SHAW and
SUSAN LINDA SHAW Plaintiffs
AND
MACALISTER TODD PHILLIPS Defendant
Hearing: 29 July 2014 Appearances:
A D G Hitchcock for Plaintiffs/Respondents
H C Matthews for Defendant/ApplicantJudgment:
19 August 2014
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
upon defendant's summary judgment application
[1] The plaintiffs were responsible for establishing Matakauri Lodge near Queenstown. In 2001 they arranged the sale of the Lodge. In the written agreement for sale and purchase, the purchasers agreed that Mr and Mrs Shaw would be granted seven days full board at no charge per annum conditional upon availability at the time. This was stated to be a “privilege … personal to Mr and Mrs Shaw”.
[2] The 2001 purchasers of the Lodge are no longer the owners of the Lodge, there having been subsequent sales and transfers.
[3] The current owners of the Lodge will not provide free board to Mr and Mrs
Shaw.
The role of the defendant
[4] The defendant (Mactodd) is a firm of solicitors. Mactodd acted for Mr and
Mrs Shaw in relation to the agreement for the sale of the Lodge in 2001.
SHAW v MACALISTER TODD PHILLIPS [2014] NZHC 1948 [19 August 2014]
Mr and Mrs Shaw’s alleged damage
[5] In their statement of claim, filed in May 2014, Mr and Mrs Shaw refer to the personal right which they were to have under the agreement as “the contractual license [sic]”.
[6] They assert that the contractual licence could have been made binding and enforceable by inclusion of a requirement that a memorandum of encumbrance be registered against the title creating a defeasible rent-charge which was unenforceable so long as the contractual licence was observed. Mr and Mrs Shaw assert that Mactodd was negligent in failing to ensure that there was such a contractual provision.
[7] Mr and Mrs Shaw’s statement of claim attaches an actuarial calculation which leads to a pleading that Mr and Mrs Shaw suffered loss of $215,752, being the amount required to put them into the position they would have been in if the contractual licence had been protected by encumbrance.
[8] In addition, Mr and Mrs Shaw claim $60,000 general damages for distress, anxiety, inconvenience and loss of enjoyment as a result of Mactodd’s negligence.
Defendant’s summary judgment application – the principles
[9] The starting point for a defendant’s summary judgment application is r 12.2(2) High Court Rules, which requires that the defendant satisfy the Court that none of the causes of action in the statement of claim can succeed.
[10] I summarise the general principles which I adopt in relation to the application:
(a) The onus is on the defendant seeking summary judgment to show that none of the plaintiffs’ causes of action can succeed. The Court must be left without any real doubt or uncertainty on the matter;
(b)The Court will not hesitate to decide questions of law where appropriate;
(c) The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements and affidavits;
(d)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable;
(e) In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court;
(f) Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.
This application for summary judgment
[11] Mactodd says that Mr and Mrs Shaw’s application is precluded by s 4
Limitation Act 1950.1 They say that any loss suffered by Mr and Mrs Shaw was suffered more than six years prior to the commencement of this proceeding (the proceeding having been commenced on 15 May 2014).
[12] Mr and Mrs Shaw deny that the claim is precluded by the limitation period. They say that their loss as a consequence of Mactodd’s negligence was contingent.
1 Limitation Act 1950, s 4 (although now repealed) applies to the cause of action (for breach of a duty of care) in this case by reason of s 59 Limitation Act 2010.
[13] Mactodd’s summary judgment application also asserted grounds other than the limitation period. Mr Matthews did not pursue those grounds in his synopsis of submissions. He confirmed at the hearing that summary judgment was pursued on the limitation defence only.
[14] The Court is accordingly not called upon to determine whether Mr and Mrs Shaw’s claim is arguable on the facts – the Court is to take it that the claim is arguable other than in relation to the limitation defence.
Material facts
[15] In relation to the limitation defence, the arguable material facts are as follows:
(a) Mactodd acted as Mr and Mrs Shaw’s lawyers in relation to the sale of
the Lodge in 2001;
(b)Mactodd failed to advise Mr and Mrs Shaw of their ability to obtain an enforceable right in relation to the contractual licence by registration of a memorandum of encumbrance and failed to ensure that there was such a contractual provision;
(c) The value of the contractual licence to Mr and Mrs Shaw in present day terms is $215,752;
(d)The breaches of duty of Mactodd have caused a loss of that value and have caused general damages through distress, anxiety, inconvenience, and loss of enjoyment.
Analysis of a defendant’s limitation defence on a defendant’s summary
judgment application
[16] For Mactodd as defendant/applicant, Mr Matthews relied upon what was said by Associate Judge Sargisson in Newlands v Sovereign Assurance Company
Limited.2 Mr Newlands had entered into a disability insurance policy in 2005 believing wrongly that the policy covered certain events. The limitation issue was whether the loss occurred on entry in 2005 or in July 2007 when the insurer advised Mr Newlands that his subsequent illness was not covered by the policy. Her Honour approached the limitations defence in this way:3
Limitations
[34] Where the issue on summary judgment is whether the plaintiff ’s claim is time barred, the onus is on the defendant to show that the plaintiff ’s cause of action is so clearly statute-barred that it can be regarded as frivolous, vexatious, or an abuse of process. In Nicholson v Maultsaid the Court stated that unless these requirements are met, limitation questions are best addressed at trial, in the context of all evidence.
[35] Sections 4 and 28 of the now repealed Limitation Act 1950 remain in force through s 59 of the Limitation Act 2010. Relevantly s 4 provides:
4 Limitation of actions of contract and tort, and certain other actions
(1) Except as otherwise provided in this Act ... the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,-
(a) Actions founded on simple contract or on tort
[36] A cause of action in negligence accrues when the plaintiff first sustains loss attributable to the breach of duty of the defendant.
[37] Actual loss may occur in two ways:
a)Immediately when the alleged negligence occurs. If one party receives a damaged asset as a result of another’s negligence, they will suffer an immediate loss; or
b)At a later point in time if the loss is contingent on another event occurring.
[38] If one party receives a damaged asset as a result of another party’s alleged negligence, then it will suffer an immediate loss.
(footnotes omitted)
[17] Mr Hitchcock, for Mactodd, accepted the approach in Newlands as applicable in this case and focussed his submissions on the central proposition that this was not
a “damaged asset” case but rather one involving contingent loss.
2 Newlands v Sovereign Assurance Company Limited [2014] NZHC 803.
3 At [34]–[38].
[18] I respectfully adopt Associate Judge Sargisson’s approach to analysing a defendant’s summary judgment application in these circumstances and to considering the dichotomy between damaged assets and contingent losses.
[19] I also endorse the summary of Professor Stephen Todd in The Law of Torts in
New Zealand, where the author states:4
We can summarise the position in this way. There is actual loss where a person incurs an existing liability or suffers an existing diminution in value of land or personal property or a chose in action. A cause of action accrues at that date even though there has been no demand on the liability, or the loss has not crystallised, or there has been no out-of-pocket expenditure. There is only a potential loss where a right or liability is subject to a contingency which may or may not occur. A cause of action accrues only when it does occur and actual damage is suffered.
Davys Burton v Thom5
[20] Mactodd’s case is that if it was negligent in relation to the 2001 agreement then Mr and Mrs Shaw received a damaged asset and the cause of action accrued at that time (in 2001).
[21] For present purposes, the key finding of the Supreme Court in Davys Burton v Thom is expressed in the judgment of Wilson J when his Honour said:6
A reduction in the value of an asset, whether tangible or intangible, constitutes actual damage and exists as soon as the asset becomes less valuable.
[22] That position is illustrated by the facts in Davys Burton v Thom. Mr Thom was represented by Davys Burton in relation to a matrimonial property agreement prepared for him when he got married. In the agreement Mr Thom’s house was to remain his separate property even if the couple moved into it as a matrimonial home. Davys Burton failed to advise on the correct execution of the agreement, which was subsequently found by the Family Court to be void for non-compliance with the
certification requirements under the Matrimonial Property Act 1976. Mr Thom
4 Stephen Todd The Law of Torts in New Zealand (6th ed, Brookers, Wellington, 2013) at p 1302.
5 Davys Burton v Thom [2008] NZSC 65, [2009] 1 NZLR 437.
6 At [46].
could no longer claim his house as his own separate property – his wife was entitled to a share.
[23] Counsel for Mr Thom asserted that he did not suffer loss upon execution of the agreement as any loss was contingent upon a number of factors which would have to arise before Mr Thom could sue. The “contingencies” included such events as the parties’ separation and the Family Court’s finding of invalidity.
[24] The majority in the Supreme Court rejected the argument that the case involved contingent liability. There was an existing liability through the regime of the Matrimonial Property Act. Wilson J stated:7
This is therefore a damaged asset case, not one of exposure to a contingent liability. The asset in question is the prenuptial agreement under which the plaintiff was supposed to obtain full protection against claims by his future wife for a share in the matrimonial home. The asset which the plaintiff acquired was, as a result of the combined negligence of his solicitors and himself, defective in that it did not give him the protection which it was his purpose to obtain. The product which he instructed his solicitors to procure for him was created with an inherent flaw. That flaw represented actual damage or harm which was suffered by the plaintiff from the moment the defective prenuptial agreement came into existence. The damage was quantifiable at that stage, either on the straightforward basis of what it would have cost the plaintiff to obtain or attempt to obtain a valid agreement or on the more difficult basis of the difference in value between a defective agreement and one which was not defective.
[25] In Davys Burton, the Judges variously discussed with approval a number of overseas authorities. These included the judgments of the High Court of Australia in Wardley Australia Limited v The State of Western Australia8 and the judgments in the House of Lords in Nykredit Mortgage Bank plc v Edward M Erdman Group Limited (No 2).9
[26] In Davys Burton, Wilson J cited, with approval, a passage in the judgment of
Brennan J in Wardley Australia Limited v The State of Western Australia which
7 At [49].
8 Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514; 109 ALR 247 (HCA).
9 Nykredit Mortgage Bank plc v Edward Erdman Group Limited (No 2) [1997] 1 WLR 1627; [1998] 1 All ER 305 (HL).
reinforces the conclusions in Davys Burton:10
A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff’s net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne – that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is “worse off than if he had not entered into the transaction”.
[27] The judgments in the leading cases in the various jurisdictions have established that the difficulties inherent in valuing losses in damaged asset cases cannot alter the primary conclusion that the relevant loss has nonetheless been suffered at the time of the initial transaction for which the damaged asset was received. In Nykredit Mortgage Bank plc v Edward Erdman Group (No. 2), Lord Nicholls explained the inherent difficulties of assessment of damage do not alter the fact that damage has occurred. Taking the example of a loan transaction, His
Lordship observed:11
It should be acknowledged at once that, to greater or lesser extent, quantification of the lender's loss is bound to be less certain, and therefore less satisfactory, if the quantification exercise is carried out before, rather than after, the security is ultimately sold. This consideration weighed heavily with the High Court of Australia in Wardley Australia Ltd v State of Western Australia (1992) 109 ALR 247. But the difficulties of assessment at the earlier stage do not seem to me to lead to the conclusion that at the earlier stage the lender has suffered no measurable loss and has no cause of action, and that it is only when the assessment becomes more straightforward or final that loss first arises and with it the cause of action.
10 Davys Burton v Thom, above n 5, at [41] citing Wardley Australia Limited v The State of Western
Australia, above n 8, at 536-637.
11 Nykredit Mortgage Bank plc v Edward Erdman Group (No. 2), above n 9 at 310.
[28] As Lord Nicholls subsequently in this judgment shows,12 the subsequent events (such as the realisation of the security in a loan contract) does not convert a potential loss into an actual loss. Rather the realisation crystallizes the amount of a present loss which hitherto had been open to be aggravated or diminished by movements in the property market.
Contingent liability cases
[29] The judgment of the Court of Appeal in Gilbert v Shanahan,13 delivered by Tipping J, and approved by the Supreme Court in Davys Burton, illustrates the distinction between an immediate loss and a contingent loss.14
[30] In Gilbert v Shanahan, a claim in negligence against a solicitor who had acted on the preparation of the lease and a guarantee was statute barred. Tipping J concluded:15
… Mr Gilbert’s obligations under the guarantee were not those of a guarantor simpliciter. They were those of a principal debtor/covenantor. He thereby incurred a present liability for the rent, albeit that liability was dischargable in the future on the days when rent fell due under the lease. He also assumed a present obligation to perform the other covenants under the lease. There was no contingency in those present obligations.
[31] In Davys Burton Wilson J noted that the observations in the speeches of the Law Lords in Law Society v Sephton & Co (a firm)16 provide helpful comment on as to when economic loss is suffered.17
[32] In Sephton, the Law Society sued accountants for negligently auditing the accounts of a lawyer who had misappropriated the client’s money. The Law Society’s Compensation Fund had reimbursed the client. The House of Lords held that the Law Society’s liability to the client did not arise until a claim was made on its Compensation Fund. Thus the time did not run on the claim against the
accountants until a claim was made on the Fund.
12 At 310 to 311.
13 Gilbert v Shanahan [1998] 3 NZLR 528 (CA).
14 Davys Burton v Thom, above n 5; see especially the judgment of Wilson J at [44].
15 Gilbert v Shanahan, above n 13, at 544.
16 Law Society v Sephton & Co (a firm) [2006] UKHL 22, [2006] 2 AC 542.
17 Davys Burton v Thom, above n 5, at [42] per Wilson J.
[33] Lord Hoffman’s judgment repeatedly refers to the concept “a purely contingent liability or obligation”,18 being the true character of the Law Society’s position in Sephton. Lord Mance gave a slightly different expression to the situation when His Lordship observed that on the facts in Sephton there had been:19
…no transaction changing the claimant’s legal position and no diminution in value of any particular asset.
[34] It was by applying such principles in Gilbert v Shanahan that the Court of Appeal concluded that Mr Gilbert’s claims were statute barred. This was because the guarantee obligations which came in the contract imposed personal obligations related to rent and other covenants in a lease, all of which were present and not merely contingent obligations. Mr Gilbert’s position therefore had to be distinguished from that of a guarantor against whom a contingent claim might or might not materialise.
[35] Citing the work of Professor Goode in Payment Obligations in Commercial and Financial Transactions Tipping J noted this passage:20
…from the creditor’s viewpoint an existing right to payment is one which is definite, even if maturing in the future – a debitum in praesenti, solvendum in future – whereas a contingent claim is one which may or may not materialise.
Flawed conveyancing transactions
[36] Before returning to the facts of this case, it is informative to consider two English decisions involving flawed conveyancing transactions. My use of the term “flawed” derives from the description of Elias CJ in Marlborough District Council v Altimarloch Joint Venture Limited21 where Her Honour referred to “the flawed
matrimonial property agreement in Davys Burton v Thom”.
18 See Law Society v Sephton & Co (a firm), above n 16, at [20] and [22] per Lord Hoffman.
19 At [78].
20 Gilbert v Shanahan, above n 13, at 544 citing Professor Goode Payment Obligations in
Commercial and Financial Transactions (United Kingdom, 1993) at 28.
21 Marlborough District Council v Altimarloch Joint Venture Limited [2012] NZSC 11, [2012] 2
NZLR 726 at [48].
Bell v Peter Browne & Co
[37] A pertinent discussion of Bell v Peter Browne & Co22 is found in the judgment of Wilson J in Davys Burton v Thom,23 where His Honour observed:24
On facts not dissimilar to the present, a husband sued his former solicitors in Bell v Peter Browne & Co, for transferring the former matrimonial home into his wife’s name in 1978 following a marriage breakdown without protecting his agreed interest. In 1986, the plaintiff was told by his former wife that she had sold the house and spent all the proceeds, thereby depriving the plaintiff of his interest. At issue was whether any cause of action in negligence arose in 1978. Nicholls LJ said when discussing the position as at 1978 if the wife subsequently disputed the interest of the husband:
The extent of that prejudice depended on the attitude adopted thereafter by his former wife. All we know is that, according to the pleadings and the plaintiff ’s affidavit evidence, when she sold the house she disposed of all the proceeds and did not account to her former husband for his agreed one- sixth share. But the uncertainty surrounding her future intentions goes only to the quantum of the loss the plaintiff sustained when the transfer was executed without him having the same degree of protection as would be provided by a formal document.
…
In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitors’ default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the solicitors the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.
(footnotes omitted)
[38] In her Honour’s separate judgment in Davys Burton v Thom, Elias CJ referred to the relevance of Bell v Peter Browne & Co and other cases in this way:25
The present case is therefore comparable to cases such as Iron Trades Mutual Insurance Co Ltd v J K Buckenham Ltd, Bell v Peter Browne & Co, D W Moore and Knapp v Ecclesiastical Insurance Group plc. They are cases where the plaintiff, through the negligence of the defendant, did not obtain the rights he should have obtained or had imposed on him liabilities or obligations that should not have been imposed.
(footnotes omitted)
22 Bell v Peter Browne & Co [1990] 2 QB 495 (CA).
23 Davys Burton v Thom, above n 5.
24 At [39].
25 At [20]. See also the discussion of Bell at [21].
Baker – Ollard & Bentley (a firm)
[39] In the earlier case of Baker v Ollard & Bentley (a firm)26 the facts were conveniently summarised by Rimer LJ in Pegasus Management Holdings SCA v Ernst & Young (a firm) where His Lordship said:27
The plaintiff and Mr and Mrs Bodman retained the solicitors to act for them on their purchase of a house. The solicitors knew that the plaintiff and the Bodmans intended to occupy separate parts of it: the first floor was appropriated to the plaintiff and the ground floor to the Bodmans. The solicitors’ duty was to ensure that the plaintiff had security of tenure in respect of her floor and could dispose of it without requiring the Bodmans’ co-operation. This could have been achieved by the purchase of the house by all three as joint tenants, followed by grants of a long lease of the first floor to the plaintiff and a long lease of the ground floor to the Bodmans. The solicitors did not advise that this should be done, nor was it. They instead negligently advised a conveyance of the house to the plaintiff and the Bodmans as joint tenants on trust for sale to themselves as tenants in common in shares of 49% to the plaintiff and 51% to the Bodmans.
[40] The judgment of the Court of Appeal, holding that action was time-barred was delivered by Templeman LJ who explained:28
The plaintiff did not receive that which the solicitors ought to have obtained for her. She received something different. Therefore she suffered damage. The quantum of damage depends, and would in any event depend, on the attitude of the Bodmans. If the Bodmans were willing to concur in the grant of long leases, there would have been no significant damage.
…
But the fact that the quantum of damages suffered by the plaintiff on 12th April 1973 could immediately thereafter, or at any time thereafter, only be established by ascertaining the attitude and intentions of the Bodmans only goes to quantum of damages and does not affect that fact that the damages were suffered on 12th April 1973. Damages were suffered on that date because the plaintiff did not receive the long lease and joint tenancy which the solicitors should have secured for her.
[41] In Davys Burton v Thom, Elias CJ referred to Bell and Baker and other
English cases in which plaintiffs, through the negligence of a defendant, had not obtained the rights they should have obtained. Her Honour noted that in all those
26 Baker v Ollard & Bentley (a firm) 126 SJ 593, summarised by Rimer LJ in Pegasus
Management Holdings SCA v Ernst & Young (a firm) [2010] EWCA Civ 181, [2010] 3 All ER
297 at [34]–[39].
27 Pegasus Management Holdings SCA v Ernst & Young (a firm), above n 26, at [35].
28 Pegasus Management Holdings SCA v Ernst & Young (a firm), above n 26, at [38] citing Baker v
Ollard & Bentley (a firm) 126 SJ 593.
cases immediate quantifiable damage arose notwithstanding that further damage arising from the flawed transactions remained contingent. Adopting the words of Templeman LJ in Baker, Her Honour concluded that:29
Such further contingencies “only [go] to quantum…and [do] not affect the fact that [the] damages were suffered on [the date of the breach of duty]…because [the plaintiff] did not get what she should have got.”
Discussion – the nature of what occurred
Mactodd’s case
[42] Mr Matthews for Mactodd submits that the plaintiffs cannot arguably succeed on their claim because it is clearly statute barred.
[43] Mr Matthews characterises the present case as a “damaged asset” case or, adopting the other epithet used in the cases I have discussed, a “flawed transaction” case. Adopting the terminology of Professor Todd,30 Mr Mathews says that this is not a case where there is only a potential loss because a right or liability is subject to a contingency which may or may not occur.
The plaintiffs’ case
[44] By their notice of opposition, the plaintiffs asserted that what they suffered was “a contingent loss as a consequence of alleged negligence on the part of the defendants”.
[45] Mr Hitchcock in his written synopsis put the contingency argument in various ways. Three passages illustrate the argument –
The lack of a memorandum of encumbrance was at best a possible future loss wholly contingent on a number of events which might or might not ever occur. The Shaws suffered no immediate loss. There was no guarantee of future loss; and
The Shaws had a perfectly good contractual license and even though they didn’t have a memorandum of encumbrance there was no guarantee they would ever suffer any loss; and
29 Davys Burton v Thom, above n 5, at [21].
30 See above at [19] of my judgment.
An unenforceable agreement…creates immediate loss. If however there is
only a contingent possibility of loss, the loss isn’t immediate.
[46] Mr Hitchcock invited the Court to follow part of the judgment in Chick v Blackwell31 in which Rodney Hansen J distinguished Davys Burton v Thom. The point of distinction was that three transactions in relation to which Mr Blackwell was suing his solicitors were valid transactions whereas the transaction in Davys Burton was “an invalid transaction”.32 Rodney Hansen J found that Mr Blackwell had incurred a contingent liability as explained in Gilbert v Shanahan.33 His Honour concluded that Mr Blackwell suffered loss or damage only when the Chicks exercised their right to purchase Mr Blackwell’s property.34
[47] In Chick v Blackwell, the Chicks were successful in obtaining an order for specific performance against Mr Blackwell pursuant to a right of first refusal in relation to a farm property. Mr Blackwell had in turn claimed against his lawyers, Edmonds Judd, for a breach of fiduciary duty (in acting for both parties in transactions in 2004, 2005 and 2007 without informed consent) and for negligent failures of advice. The main damages flowed from the “freezing” of an option price with the result that Mr Blackwell did not receive market value at the date of sale.
Edmonds Judd conceded the breach of fiduciary duty.35 Rodney Hansen J found
established negligent advice,36 causation37 and the incurring of damages of
$1,831,700.00.38
[48] Turning to Edmonds Judd’s limitation defence, Rodney Hansen J noted that the defence could apply, if at all, only to the 2004 transaction (the Blackwell claims on the 2005 and 2007 transactions having been filed within six years thereafter). In
the event, his Honour found that there was a “merely contingent liability” case. To
31 Chick v Blackwell [2013] NZHC 1525.
32 At [174].
33 At [174] citing Gilbert v Shanahan at 542–543.
34 Chick v Blackwell, above n 31, at [175].
35 At [156].
36 At [158]–[161].
37 At [167].
38 At [168].
reach that finding his Honour said:
[174] Thom v Davys Burton is readily distinguishable as the claim against Edmonds Judd by both Mr and Mrs Chick and Ross Blackwell does not arise from an invalid transaction. I have found that all three transactions are valid. The loss claimed by the Chicks arose because it was necessary for them to sue to enforce their rights, a step that they say would not have been required if Edmonds Judd had done their job properly. Ross Blackwell’s loss was not suffered until the Chicks exercised the option in 2010. He had merely incurred a contingent liability, as explained in Gilbert v Shanahan …
[175] I agree with Mr Gudsell that no loss or damage occurred as a result of Edmonds Judd’s negligence in 2004 until, as the last of a series of intervening events, the Chicks exercised their right to purchase. Until they did so, Ross Blackwell suffered no loss.
[49] I respectfully decline to follow this aspect of the judgment in Chick v Blackwell. The fact that the Chick v Blackwell transaction was ultimately found by the High Court to involve a legally enforceable right of first refusal and was therefore valid does not alter the flawed character of the transaction from the perspective of Mr Blackwell as a vendor faced with a less-than-market realisation. From Mr Blackwell’s perspective it was a flawed transaction from the day he entered into it. It was precisely because it was a valid (binding) transaction that he suffered loss. His damage was immediate, albeit difficult at that point to quantify – it became crystallised when the Chicks subsequently insisted on their right to purchase at the “frozen” price.
[50] Mr Hitchcock’s use, in his submissions, on a more or less interchangeable basis of the concepts of “contingency” and “no guarantee” exemplifies the difficulties of terminology which can bedevil the analysis required to determine when damage occurred.
[51] It is helpful in this case to identify that what the plaintiffs complain of is a flawed transaction. The flaws, as the plaintiffs pleaded them, lay in Mactodd’s failure to advise the plaintiffs of their ability to obtain an enforceable right in relation to the contractual licence by registration of the memorandum of encumbrance and in the failure to ensure that there was such a provision included in the 2001 contract. The transaction as effected in 2001 was flawed.
[52] While it is the case that in Davys Burton v Thom the solicitors’ flaw was in creating circumstances which brought about an invalid contracting-out agreement, it was not a distinction between valid and invalid contracts which drove the outcome of the litigation. Rather it was the analysis that what had been created was a damaged asset (or flawed transaction). Mr Thom “did not get what he should have got”.39 His
assets were diminished by an existing, not contingent, liability.40
[53] Mr Hitchcock’s focus on the validity of the contractual licence – at one point in his submissions he referred to his clients as having “a perfectly good contractual license” – is apt to derail the correct analysis. So, too, is his use of the “guarantee” terminology when he made his submission that there was no guarantee that his clients would ever suffer any loss. Their own case as pleaded is that they ought to have been advised to obtain a memorandum of encumbrance registered against the Lodge land. What they received was a less enforceable and, by its nature, less valuable outcome.
[54] Conduct of the Lodge purchaser’s successors in title in either recognising or refusing to recognise the contractual licence represents one of the “contingencies” in the sense of later events which crystallise the extent of loss. As Templeman LJ recognised in Baker v Ollard & Bentley (a firm),41 (in which the action was found to be time-barred), the case did not become one of contingent damage by reason of the fact that the quantum of damage would depend on the attitude of the Bodmans as co- tenants. Equally, in Bell v Peter Browne & Co,42 Nicholls LJ recognised that the uncertainty of the wife’s eventual attitude to the proceeds of sale of the matrimonial home would go not to whether damage had been suffered, but simply to the quantum of loss.
[55] This case belongs in the same group of cases as brought together by Elias CJ
in Davys Burton v Thom (and including Bell v Peter Browne & Co and Baker v
Ollard & Bentley (a firm).43 They are all cases, as her Honour observed, where the
39 Davys Burton v Thom, above n 5, at [25].
40 See the analysis of Elias CJ at [25].
41 Baker v Ollard & Bentley (a firm), above n 26.
42 Bell v Peter Browne & Co, above n 22.
43 Davys Burton v Thom, above n 5, at [20]–[21].
plaintiff through the negligence of the defendant does not obtain the rights the plaintiff should have obtained or has imposed on him or her liabilities or obligations which should not have been imposed.
[56] As Elias CJ recognised in Davys Burton v Thom, the correctness of this conclusion can be usefully tested (as done by Nicholls LJ in Bell) by considering whether these plaintiffs could immediately (in 2001) have recovered the cost of addressing Mactodd’s failure to discuss and procure a memorandum of encumbrance.44 Nicholls LJ in Bell held (as approved by Elias CJ in Davys Burton v Thom) that the plaintiff in Bell could have recovered the “modest, but not negligible” costs of going to other solicitors for advice.45 In this case, the new solicitors could also have sought to procure a memorandum of encumbrance. The costs of such work would have been recoverable.
[57] In his reply submissions, Mr Hitchcock referred me to a passage in the judgment of Rimer LJ in Pegasus Management v Ernst & Young. Rimer LJ, dealing with counsel’s submissions, said:46
I agree also that there is no presumption that the non-delivery by the defendant of what the claimant ought to have received means that the relevant damage has been suffered.
[58] But that passage occurs as part of a broader discussion in which Rimer LJ recognised that, in each of the “wrong transaction” cases he had discussed (including Baker and Bell), the Court had found that damage had been suffered.47 His Lordship referred to the observation of Lord Hoffman in Sephton that in such cases it may be relatively easy to infer that such damage had been suffered. His Lordship added:48
… in all the cases to which we referred, the Court did draw such an inference … We were not referred to any reported “wrong transaction” case in which the court declined to find that damage had been suffered.
[59] Mr Hitchcock’s understandable submission, in the context of a defendant’s
summary judgment application, amounted to an invitation to conclude that in this
44 At [22].
45 Bell v Peter Browne & Co, above n 22, at 503.
46 Pegasus Management Holdings SCA v Ernst & Young (a firm), above n 26 at [83].
47 At [83].
48 At [83].
case a trial Court might arguably decide that no damage was suffered when Mactodd delivered purely a contractual licence when it ought to have delivered a registered memorandum of encumbrance which would have protected the contractual licence. But the inference of immediate damage in the present case is irresistible. As it was in the various English cases (including Baker and Bell) reviewed by Rimer LJ in Pegasus Management v Ernst & Young and by the Chief Justice in Davys Burton v Thom.
Outcome
[60] I am satisfied that, because it has been commenced outside the limitation period, the plaintiffs’ claim cannot succeed.
[61] Counsel agreed, in the event I reached this conclusion, that costs should be reserved.
Order
[62] I order:
(a) There is summary judgment for the defendants on the plaintiffs’
claim;
(b) Costs and disbursements are reserved;
(c) In the event counsel are unable to agree on the incidence and amount of costs, memoranda (limited to four pages) are to be filed (applicant filing within 10 working days and respondent filing within five working days) thereafter.
Associate Judge Osborne
Solicitors:
AWS Legal, Invercargill
White Fox & Jones, Christchurch
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