Siemer v Fardell, Executrix for Robert Fardell, Deceased

[2007] NZCA 530

IN THE COURT OF APPEAL OF NEW ZEALAND

CA171/07
[2007] NZCA 530

BETWEENVINCE AND JANE SIEMER

First Appellants

ANDPARAGON SERVICES LIMITED

Second Appellant

ANDKATE FARDELL, EXECUTRIX FOR ROBERT FARDELL, DECEASED

Respondent

Hearing:13 November 2007

Court:Arnold, Panckhurst and Keane JJ

Counsel:First Appellants in person

A A Lusk QC for Respondent

Judgment:22 November 2007 at 2.30 pm

JUDGMENT OF THE COURT

A        The appeal is dismissed.

BThe first appellants must pay the respondent costs of $3000 plus usual disbursements.

REASONS OF THE COURT

(Given by Arnold J)

Introduction

[1]       The appellants, Mr and Mrs Siemer and Paragon Services Limited (Paragon), are suing the estate of Robert Fardell QC.  They allege that Mr Fardell was negligent and in breach of fiduciary duty in certain actions he took and advice he gave when acting for them. 

[2]       They issued what has been treated as a jury notice under r 435 of the High Court Rules.  The respondent then applied under s 19A(5) of the Judicature Act 1908 for an order that the trial be held before a Judge alone.  John Hansen J granted the respondent’s application: HC AK CIV-2003-404-5782 3 April 2007.

[3]       The appellants now appeal against that decision.

Background

[4]       A company called Waterford Holdings Limited (Waterford) was developing an oil purification process to enable the recycling of oil from transformers.  The Siemers agreed to provide funding for the development of the process.  Paragon was formed as the vehicle for this.  Waterford held the majority shareholding in Paragon.  The Siemers had a substantial minority shareholding (around 40 per cent) and the two shareholders of Waterford, Ms McCaig and Mr Rutherford, had small shareholdings.  The intellectual property in the process was to be transferred from Waterford to Paragon.

[5]       The transaction was settled on 1 September 2000.  The Siemers made an initial payment of over $500,000.  Soon after, however, the Siemers became concerned that they were being excluded from Paragon’s operations by the other shareholders.  They consulted Paragon’s legal advisers, who recommended that they seek advice from Mr Fardell. 

[6]       Mr Fardell took a number of urgent steps on behalf of the Siemers.  On 22 November 2000 he commenced proceedings under s 174 of the Companies Act 1993 alleging oppression.  He advised the Siemers that they should apply to have Paragon placed into receivership.  They did so, and on 15 December 2000 the Court, by consent, placed Paragon into receivership and appointed Mr Stiassny of Ferrier Hodgson as receiver.  On 6 December 2000, Mr Fardell commenced misrepresentation proceedings against the other shareholders and other people associated with Waterford.  Subsequently, Waterford went into voluntary liquidation, and Mr Rutherford took his own life. 

[7]       Initially the receiver seems to have thought that Paragon might be able to continue operating, if additional funding could be found to enable the commissioning of a machine incorporating the technology to be completed.  The Siemers declined to provide further funding, however.  Accordingly, in his second report to the Court dated 12 March 2001, the receiver indicated that, in view of various issues that had arisen, the sole option seemed to be to close Paragon’s premises and await the Court’s determination of the oppression proceedings.  The receiver noted that the Waterford parties had not relinquished all of the relevant material in their possession and that he had not found in Paragon’s records the “formula” that was critical to the operation of the technology, ie, one of Paragon’s important assets was missing.

[8]       Having heard the s 174 application, Hammond J ordered (among other things) that the Paragon shares held by Waterford (then in liquidation) be transferred to the Siemers, along with the shares held by Ms McCaig and Mr Rutherford.  He also ordered that Ms McCaig return a computer and fax machine to Paragon: HC HAM CP80/00 19 July 2001.

[9]       It appears, however, that the issue of Paragon’s missing intellectual property and documentation remained unresolved. 

[10]     The Siemers became dissatisfied with the conduct of the receivership and with the fees that Ferrier Hodgson charged.  Ultimately, they agreed a settlement with the receiver, which was recorded in a letter dated 9 August 2001.  The settlement was subject to a confidentiality clause.

[11]     Despite the settlement agreement, the disputes between the Siemers and the receiver continued.  In January 2002 the Siemers purported to terminate the settlement agreement.

[12]     Then, in October 2003 the Siemers commenced the present proceedings against Mr Fardell, alleging negligence and breach of fiduciary duty.  On their application, Paragon was later joined as second plaintiff in the proceedings.

[13]     The essence of the negligence claim against Mr Fardell is that had Mr Siemer been properly advised, he could have procured Paragon to issue proceedings to restrain the disposal of its intellectual property and have sought Anton Piller order to recover stolen documentation.  It is alleged that Mr Fardell acted for the Siemers personally and that Paragon was entitled to the benefit of that retainer by virtue of the Contracts (Privity) Act 1982.

[14]     The essence of the breach of fiduciary duty claim is that Mr Fardell had an undisclosed conflict of interest and wrongfully advised the Siemers to enter into the settlement agreement with the receiver.

[15]     On 11 December 2005 Mr Fardell died.

Mode of trial

[16]     On 4 December 2006 the Siemers indicated that they wished to have their proceedings heard by a judge and jury.  The respondent then applied for an order under s 19A(5) that the trial take place before a judge alone.

[17]     Section 19A of the Judicature Act relevantly provides:

Certain civil proceedings may be tried by jury

(1)This section applies to civil proceedings in which the only relief claimed is payment of a debt or pecuniary damages or the recovery of chattels.

(2)If the debt or damages or the value of the chattels claimed in any civil proceedings to which this section applies exceeds $3,000, either party may have the civil proceedings tried before a Judge and a jury on giving notice to the Court and to the other party, within the time and in the manner prescribed by the High Court Rules, that he requires the civil proceedings to be tried before a jury.

…

(5)Notwithstanding anything to the contrary in the foregoing provisions of this section, in any case where notice is given as aforesaid requiring any civil proceedings to be tried before a jury, if it appears to a Judge before the trial –

(a)That the trial of the civil proceedings or any issue therein will involve mainly the consideration of difficult questions of law; or

(b)That the trial of the civil proceedings or any issue therein will require any prolonged examination of documents or accounts, or any investigation in which difficult questions in relation to scientific, technical, business or professional matters are likely to arise, being an examination or investigation which cannot conveniently be made with a jury, –

the Judge may, on the application of either party, order that the civil proceedings or issue be tried before a Judge without a jury.

…

[18]     As noted above, John Hansen J granted the respondent’s application and ordered that the proceedings be tried before a judge alone.  Having set out the factual background, the Judge identified the relevant legal principles.  He noted that s 19A(5) involves a two stage enquiry.  First, an applicant for an order under the subsection must satisfy the Court that one or other of the grounds in paragraphs (a) or (b) has been made out. Once that has been done the Court has a discretion as to whether it will make the order.

[19]     Section 19A(5)(a) refers to “the consideration of difficult questions of law”.  In Guardian Assurance Company Ltd v Lidgard [1961] NZLR 860 at 864 this Court held that that phrase refers to cases “where the questions of law are of such a nature that it becomes difficult to keep the respective functions of Judge and jury separate from one another.” The Court said that there were cases “where matters of law and matters of fact so merge into one another that the task of the jury becomes complicated in the application to the facts of questions of law which it is difficult for the Judge to explain in language they could be expected to appreciate and apply.” While the Court did not purport to describe in an exhaustive way the categories of case that might fall within paragraph (a), it said that “the principal matter for consideration under the paragraph must be the extent to which the exposition and application of matters of law may cause difficulty to the Judge and jury in the discharge of their respective functions.” This Court has confirmed this approach in McInroe v Leeks [2000] 2 NZLR 721 and more recently in Television New Zealand Ltd v Haines CA96/06 6 September 2006. 

[20]     As to s 19A(5)(b), John Hansen J said that the words “speak for themselves” (at [28]).

[21]     The Judge then referred to three cases where the question of trial by judge and jury or by judge alone had arisen in the context of claims against legal advisers.  They were Bearman v Dunn [1974] 2 NZLR 405 (trial by judge alone), Rawlinson v Purnell, Jenkison & Roscoe (1996) 10 PRNZ 177 (CA) (trial by judge and jury) and Williams v Beesley [1973] 1 WLR 1299 (HL) (trial by judge alone).

[22]     In relation to Williams, the Judge noted that the plaintiff in that case wished to have trial by judge and jury because he considered that judges as a class were likely to be biased in favour of the defendant. Lord Diplock, delivering the leading opinion, said (at 1299):

To allow the court’s decision as to the mode of trial to be swayed by the existence of such a belief by one of the parties, however sincerely it might be held, would be to acknowledge that there was some substance in it and that our system of justice lacks the firm foundation of an impartial judiciary.

Lord Diplock went on to say that any such suggestion should be repudiated (at 1300).

[23]     John Hansen J then considered the nature of the claims in the proceedings.  He concluded:

[49]     I consider that the [respondent] has satisfied the criteria of both sections 19A(5)(a) and (b).  The consideration of the amended statement of claim shows that a number of difficult and complex questions of law will need to be considered at trial.  While some may be considered relatively straight forward, others of them are particularly difficult.  It would not be easy for a jury to consider the appropriateness, or otherwise, of the s 174 Companies Act procedure that was recommended by, and followed by, Mr Fardell.  Nor will it be easy for a jury to grapple with, or understand, the pressures applying immediately before a hearing when the application was faced with an apparently meritorious defence.  A jury would have difficulty comprehending and understanding whether the consent agreement negotiated by Mr Fardell was the best course of action for the [appellants] in the circumstances.  Equally, the jury would face difficulties as to both the availability, and the appropriateness of any alternative procedures and remedies.  I consider they would also struggle to understand the likelihood of any alternative procedures being granted.

[50]     In relation to the second cause of action, difficult questions of the extent of fiduciary duty and its scope arise.  Is there a duty to [Paragon] who was not a party to the contract of retainer?  If, in fact, Mr Fardell did advise the [Siemers] to sign the compromise agreement can he be liable for losses sustained from them breaching that agreement?  Could Mr Fardell be liable for prospective losses?  Is the compromise agreement unenforceable against them, or did they terminate it?  These questions, individually and in combination, are complex.

[24]     The Judge noted that the Siemers had expressed concern about their ability to have a fair trial before a judge alone, because, they said, judges would either have known Mr Fardell or be concerned to protect the rank of Queen’s Counsel.   The Judge said that he did not share these concerns, but said that they would be met in any event if a judge from outside Auckland conducted the trial (at [53]).

The appeal

[25]     Mr Siemer for the appellants did not seek to persuade us that the Judge was wrong to find that both s 19A(5)(a) and (b) applied in this case.  Rather he argued that a judge sitting alone would not hear the action in a fair and impartial manner, out of a desire to protect Mr Fardell and the rank of Queen’s Counsel.  His written submissions simply rehearse at some length, and in extravagant terms, the Siemers’ views that the judges and courts which have dealt with the various sets of proceedings in which they are or have been involved to date have acted in a biased and corrupt fashion.

[26]     Mr Siemer said in his oral submissions that there is nothing complicated about a lawyer cheating his client.  He said that the case concerns the protection of powerful and corrupt people who have influence on the courts.  Juries, he said, are able to deal with complex frauds and with scientific issues.

[27]     Following the completion of the hearing, Mr Siemer filed what he described as a “Post Hearing Memorandum”.  We reproduce its text in full.

1.The appellants’ appeal yesterday concerned gross misconduct by the deceased Queen’s Club member respondent.  Hence, the appellants respectfully requested information from each member of the panel into potential conflicts of interest concerning this respondent with an acknowledged influence over the Court.  In doing so, they noted the patent injustice of certain members of the judiciary covering up misconduct of Queen’s Club members making this a reasonably sensitive topic for some judges to be forthright and impartial regarding.

2.Justice Arnold purported to speak for the entire panel at the commencement of the appeal when His Honour stated, “We are all satisfied” there were no conflicts of interest on the part of each judge.

3.The appellants took the distinguished gentleman on his word of honour and accepted his assertion as true.

4.On this premise, the appellants did not press for a formal acknowledgement of conflicts of interests from the panel members as earlier requested.

5.They are content to await the decision of the Court in this matter but wish to record that any move to effectively deny the appellants their right to a fair trial by a judge determined subsequently to have a conflict of interest that should have precluded his involvement will be met with the appellants personally circulating a petition to launch a formal investigation into that judge’s action, including removal of the offending judge from the bench by Parliament.

[28]     This reads as a threat to take action against members of the Court if they give a judgment adverse to the appellants.  If so, it amounts to a contempt of court.  We propose to ignore it for the purposes of this decision.  However, we intend to refer the memorandum to the Solicitor-General for his information and consideration.

Discussion

[29]     If a case falls within either of s 19A(5)(a) or (b), a judge may order trial by judge alone.  The terms of s 19A(5) were, of course, fixed by Parliament, not the courts.  They thus represent Parliament’s assessment of the types of case which juries are unlikely to be well qualified to handle.  We accept that once a judge finds that either paragraph is met in a particular case, the judge still has a discretion whether or not to order trial by judge alone.  But this Court will not intervene at that point unless there is an error of the type that would justify interference with a judicial exercise of discretion.

[30]     Taking first the issue of jurisdiction, we agree with the Judge that in this case both ss 19A(5)(a) and (b) are met.  We do so for the reasons which he gave, which we will not repeat here. 

[31]     Further, we agree with Mr Lusk QC that there is an additional basis on which s 19A(5)(b) is met, namely that the trial of this action will involve technical or scientific issues concerning the nature and viability of the process that Paragon acquired from Waterford.  These issues will be relevant to accounting and similar evidence, particularly in the context of the calculation of any damages.  We consider that these issues are unsuitable for jury determination. 

[32]     Mr Siemer suggested in oral argument that the viability of the process had been established, but that does not accord with the material before us, including an affidavit sworn by Mr Siemer in support of the s 174 application.  That affidavit indicates that the purpose of the Siemers’ funding was to enable the development of the process to continue.  It suggests that what they were buying was the intellectual property in a process that appeared to have considerable promise but was not yet operational.  Mr Lusk said that it was very much part of the respondent’s case that the process was unproved.  He said that the respondent’s case would be that the Siemers had made a bad bargain – they had bought into a business that was not trading but was still in a development phase in an uncertain market.  The respondent would lead expert evidence that there was no magic in the Waterford formula and that equivalents were available on the internet.

[33]     Technical issues of this sort are, as Parliament has recognised in s 19A(5)(b), unlikely to be suitable for jury determination.  For this reason also, we consider that the Judge was right to conclude that he had jurisdiction under that paragraph to make the order sought.

[34]     We now turn to the second issue, namely the Judge’s exercise of his discretion to order trial by judge alone.  This is the issue to which Mr Siemer’s submissions were directed.  As we have said, his principal submission was that a judge alone would not hear the case in a fair and impartial manner out of a desire to protect Mr Fardell and the rank of Queen’s Counsel. 

[35]     We agree with John Hansen J that the Siemers’ views about the courts and the judiciary, no matter how strongly felt, are not a justification for refusing to order trial by judge alone where that would otherwise be justified.  The Siemers are simply wrong in concluding that the many Judges who have dealt with their matters to date were influenced by improper considerations.  The Siemers’ views are based on a profound misunderstanding of the nature of the judicial process, both generally and as it affects them, and the difficulties inherent in their claim against Mr Fardell. 

Decision

[36]     The appeal is dismissed.  The Siemers will pay the respondent costs of $3,000 in this Court, plus usual disbursements.

Solicitors:

Gilbert Walker, Auckland for respondent