Steffensen v BGW Investments Limited (formerly Broadbase Otago Limited)
[2014] NZHC 1828
•5 August 2014
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV 2011-012-000519 [2014] NZHC 1828
BETWEEN RODNEY STEFFENSEN and ALYSON
KAY STEFFENSEN Plaintiffs
AND
BGW INVESTMENTS LIMITED (formerly Broadbase Otago Limited) (since struck off)
First Defendant
QBE INSURANCE (INTERNATIONAL) LIMITED
Second Defendant
Hearing: 23-26 June 2014 Counsel:
C S Withnall QC and M Hayes for Plaintiffs No appeance by First Defendant (struck off) N Till QC for Second Defendant
Judgment:
5 August 2014
JUDGMENT OF WHATA J
STEFFENSEN v BGW INVESTMENTS LIMITED [2014] NZHC 1828 [5 August 2014]
TABLE OF CONTENTS
Introduction [1]
Background
Meeting with Mr Wood [3]
Profile and draft PIP [4] Broadbase disclosure document [6] The AEGIS Agreements [8] The September PIP [12]
Pleadings [30] Argument [36] The evidence [43]
Messrs Gallagher and Maud [48]
Assessment of liability [51]
Summary [64]
Assessment of damages
The issue [66]
Guiding principles [69] Resolution [74] An opportunity lost [75] Change in value [84] General damages [89] Other claims [95]
Outcome [96]
[1] Mr and Mrs Steffensen claim that BGW Investments Limited (“BGW”) failed to implement instructions to sell their holdings in equity funds and reinvest them in fixed interest assets. They claim breach of contract and/or negligence, together with breach of the Consumer Guarantees Act 1993 and under the Fair Trading Act 1986. BGW has been struck off, but QBE Insurance (International) Limited (“QBE”) is named as second defendant having provided professional liability insurance to BGW.
[2] The central factual issue is whether the Steffensens issued instructions in November 2007 to sell the equity funds and/or to purchase fixed interest assets. If the answer to this question is yes (in whole or in part), then there is no dispute that BGW breached their contractual obligations and or acted negligently, by failing to give effect to those instructions. The remaining issue then, if I get this far, relates to the quantum of loss. QBE submits that the relevant date for assessment is 30 January
2008 when the Steffensens became aware of the alleged failure to give effect to the instructions. Alternatively, QBE says the relevant date is May 2008 when the relationship with BGW came to an end. In any event QBE contends that the uplift in the value of the equity funds over time must be taken into account. By contrast the Steffensens claim the relevant date for assessment is December 2008 when it became clear that BGW was not going to remedy the breach. They say subsequent gains in the value of the equities are irrelevant to the assessment of contractual damages in this case.
Background
Meeting with Mr Wood
[3] For many years Mr and Mrs Steffensen self managed investments in, among other things, BT and JBWere equity funds. In May 2007 they were looking for assistance with the sale of these funds and reinvestment of the sale proceeds. They met with Mr Wood of BGW. Mr Wood had previously secured income protection insurance for them which proved very helpful when Mr Steffensen suffered a stroke in 1994.
[4] Mr Wood had the Steffensens complete a risk profile with the result that they were assessed as “Balanced” investors. The Steffensens considered themselves better described as “Conservative” investors. In any event, Mr Wood produced a personal investment plan, or PIP, in July 2007 suggesting a balanced portfolio comprising about 40% equities, 35% fixed interest, 18% property and about 7% cash. The investment plan was to be funded by redeeming the BT and JBWere equity funds, together with a KiwiBank investment. The PIP also records:
To achieve your investment objective, it is vital that you taken action as soon as agreement is reached on recommendations
[5] The Steffensens were not satisfied with this draft PIP and met with Mr Wood again in August 2007 to discuss a revised PIP. The Steffensens say they told Mr Wood that they wanted to reduce their overall investment in equities and this is why they wanted to sell the BT and JBWere funds. This is not accepted by Mr Wood.
Broadbase disclosure document
[6] A disclosure document was also provided to the Steffensens. It refers to professional indemnity insurance with a limit of $2,000,000 per claim. The Fee schedule observes that:
All portfolios are actively managed with no additional fees incurred for repositioning of funds
[7] It also says:
All fees should be regarded as an investment as all services are designed to “add value” through reducing costs, giving additional peace of mind, and/or providing improved investment performance.
The AEGIS Agreements
[8] At a further meeting on 11 September 2007 the Steffensens signed a written agreement containing two documents, namely the AEGIS Client Adviser Agreement
and the AEGIS Custodian Appointment Deed. The relevant terms of the written agreement provided that BGW would provide the Steffensens’ financial planning and investment advisory services, including risk profiling, investment advice, preparation of investment opinions and the establishment and monitoring of their investment portfolio. Any investment strategy was to be implemented through the AEGIS Service and with the protocols including for proper instructions that were required for the purposes of that service.
[9] Key provisions of the AEGIS Client Adviser Agreement include:
(a) Transactions may be handled by a client adviser within the AEGIS system but only on “proper instructions”. Proper instructions are defined as:
… the transaction authorities necessary to invest and manage Securities held within the AEGIS Service in the form provided by the Custodian from time to time.
(b)The responsibilities of the client adviser are set out at cl 2.1 as follows:
2. Appointment and Responsibilities of the Client Adviser
2.1The Client appoints the Client Adviser, who agrees to act, as a financial services adviser to the Client using the AEGIS Service and the Client Adviser will undertake those responsibilities agreed to in writing with the Client including, without limitation:
(a) Provide the Client with an investment risk profile based on the investment objectives, financial position, degree and type of investment risk and other needs or objectives of the client as established between the Client and the Adviser;
(b) Provide a risk allocation and investment plan using
the Client’s risk profile;
(c) Recommend specific Securities;
(d) Monitor and report to the Client about the Client’s portfolio of Securities invested using the AEGIS Service as agreed with the Client and when doing so to make recommendations for changing any Investments so held; and
(e) Process Proper Instructions as agent on behalf of the Client through the Custodian using the AEGIS Service including without limitation;
accessing Wholesale Investments
liaising with promoters, issuers, brokers and other sales and purchase agents
instructing the Custodian
(f) Provide the Client with Investment Disclosure
Materials as necessary.
(c) Clauses 5.1 and 5.2 then state:
5.1All transactions within the AEGIS Service and with the Custodian must be done by Proper Instructions from the Client in a standard form provided by the Custodian from time to time.
5.2Proper Instructions will be given for each transaction using the AEGIS Service.
(d) Clauses 9.1 and 9.2 state:
9.1The Client Adviser will provide reports and recommendations to the Client about the Client’s portfolio of Investments and any changes recommended to them as specified in the Schedule of Details or at such other intervals as are agreed from time to time.
9.2The Client Adviser will forward to the Client any reports, statements or taxation Certificates available through the AEGIS Service or which are received by the Client Adviser or the Custodian and relate to the Client or the Client’s Investments.
(e) The liability of the client adviser is set out at cl 11 as follows:
11. Liability of the Client Adviser
11.1 The Client Adviser will use best endeavours and act in good faith under this agreement. The Client acknowledges that investment markets are volatile and subject to fluctuations which cannot be foreseen, so that no particular results can be guaranteed and Investments made under this agreement may lead to loss as well as profit.
11.2 The Client Adviser will not be liable in any way for any consequence of an Investment under Proper Instructions made by the Client against the advice of the client Adviser but, subject to that limitation, the Client Adviser accepts
liability for any direct material loss incurred as result of the fraud, wilful default or negligence of the Client Adviser but nothing else.
[10] The AEGIS deed confirms at cl 3.1 that no transactions under the AEGIS Service will be carried out other than under proper instructions and in accordance with standard forms known as transaction authorisation forms, or “TAFs”.
[11] At the same time the Steffensens signed Australian Standard Transfer Forms and AEGIS Service Proper Instructions i.e. TAFs with the purpose of transferring the equity funds into BGW’s control.1
The September PIP
[12] Another meeting took place on 14 September 2007 at which Mr Wood provided a revised draft PIP (“September PIP”). Like the previous draft, this PIP included a mix of equities (45%), fixed interest (37%), property (12%), and cash (6%). No issue was raised about this mix with Mr Wood at the meeting. It also proposed investment in the Pengana and Fisher equity funds together with investment in the Origin Energy and Rabo Bank fixed interest securities.
[13] Relevant statements within the PIP include:
Your plan examines your present position, and develops a strategy to help you achieve your goals. It is not an accounting document, but a working document to be adjusted and changed should you wish to modify any of the recommendations. At our next meeting we will discuss any points that require clarification and reconsider any recommendations that you would like changed at this stage.
After your plan has been presented and discussed, an implementation appointment will be arranged for you. It is important that you implement
1 Namely:
Funds: Units:
BT AUD Investment Funds – Asian Share Fund 1817.2300
BT AUD Investment Funds – Property Securities
Fund 10884.6900
BT AUD Investment Funds – Technology Fund 25694.6600
BT Split Trust – Growth Fund 17617.1700
Goldman Sachs JBWere Diversified
Growth Fund 56142.7400
your plan as soon as is practically possible, to ensure that you obtain the maximum benefit from it.
This plan remains valid for three months. Should you be implementing recommendations after that time period, adjustments may be required.
[14] The PIP then records the financial position of the Steffensens as follows:
Your investments consist of Fixed Interest via Broadbase Otago $36,771, Swains Financial services $100,000, JBWere $70,000, BT Funds Management $90,000, Kiwi Bank $180,000 and Bridgecorp notes $15,000. In addition you have your private residence valued at around $400,000. You are seeking professional advice for investment for the funds currently self managed, BT funds, JBWere and Kiwibank, totaling [sic] $340,000.
[15] It then notes what it calls “Your Investment Attitudes” of the Steffensens:
1. You are not very confident when it comes to investments.
2.You have a limited knowledge of investment markets and are keen to learn more.
3.You generally invest for the long term but if your investment reduced by 20% and took longer than twelve months to recover you would be concerned.
4.You prefer a spread of investments in a balanced portfolio and could accept a negative return once in seven years.
[16] At cl 1.3 the PIP then describes the Steffensens as a “Conservative investor” with “limited knowledge of investment market behaviour”. It then notes that the “most appropriate investment strategy for you would be 48% income and 52% growth”. It also records that:
Following your meeting on the 11th September, your investment risk profile
has been revised to between ‘balanced’ and ‘conservative’.
[17] The PIP records:
We recommend redeeming your Kiwibank, JBWere and BT investments. It will be possible to transfer the JBWere and BT investments directly into AEGIS Portfolio Management and subsequently reallocations can be carried out at discounted brokerage rates through ASB Securities.
It is likely that fund redeemed from JBWere & BT together with $50,000
from Kiwibank will total close to $260,000. …
Compared to your original plan, we have increased your weighting to Australasian and International Equities, with reductions to the Property, Cash and Fixed Interest sectors.
[18] The PIP concludes:
To achieve your investment objective, it is vital that you take action as soon as agreement is reached on recommendations.
[19] The transfer of the BT and JBWere equities was discussed. The Steffensens say they made it clear that they wanted them transferred and sold as soon as possible and therefore undertook to effect sale themselves. When they tried to do so BT asked whether they wanted to redeem or repurchase. They say they were not clear about what this meant and reverted to BGW for assistance, who then assumed responsibility for the transfer of the BT and JBWere equities.
[20] The Steffensens then also transferred the sum of $50,000 NZD into BGW’s account on 19 September 2007, and BGW extracted their fee of $2,500 later that month.
[21] BGW did not achieve transfer of the BT and JBWere equity funds into its control until 7 November 2007, and the JBWere holding was recorded at an inflated value. Mr Steffensen met with a Mr Broad of BGW on 15 November 2007 and raised his concerns about the delay and the value of the JBWere holding. He also says that he provided clear instructions to sell these equity funds and to hold the proceeds of sale in the AEGIS cash account for the purpose of investment in fixed deposit securities. Mr Steffensen says that Mr Broad indicated he would do this on his return from holiday on 3 December. This is denied by Mr Broad. It is accepted that purchase of the Pengana and Fisher funds was discussed, but Mr Steffensen says he never agreed to it.
[22] A letter from Mr Broad dated 15 November 2007 enclosed TAFs for execution by the Steffensens authorising the purchase of the Pengana and Fisher Funds. It also notes that enquiries had been instigated regarding the issues for the delays of the transfers and the Goldman Sac’s [JBWere] fund holdings and would “advise the outcome on [his] return December 3rd”. The Steffensens executed the TAFs and the Pengana and Fisher equities were purchased by BGW.
[23] The equity funds were not sold on 3 December 2007 (or subsequently) and Mr Broad did not contact the Steffensens as he said he would do. It also transpires that the JBWere funds were incorrectly identified as retail instead of wholesale funds, inflating their apparent value. This error was not corrected until February
2008.
[24] In late January 2008 the Steffensens discovered that no progress had been made on the sale of their equity fund holdings. Mr Steffensen called Mr Wood to express his concern. Mr Wood’s file note of that discussion records, among other things: “Major screw up”.
[25] Mr Steffensen then wrote a detailed letter dated 4 February 2008 querying why BGW “has failed to carry out the proposed development in the manner agreed to in the Personal Investment Plan prepared mid September 2007”.
[26] Mr Broad, Mr Wood and the Steffensens met on 12 February 2008. Various allegations made by the Steffensens were not accepted, much to the chagrin of the Steffensens. The Steffensens left a sheet of questions for Mr Wood to consider. It included the following question:
Why did he [Mr Broad] not arrange the sales or contact us, as he said he would, on his return?
[27] Mr Wood responds in writing to each of the questions raised in Mr Steffensen’s letter. He says they were “literally run off our feet throughout November and December” and “[i]f you were concerned about the delay, you could have called me directly during [Mr Broad’s] absence or either of us after Don’s return.” He also records their recommendation:
15. Most of the issues raised in this question have been addressed in the answers to previous questions. We were not prepared to initiate any sales of your BT & GoldmanSachs JBWere investments until:
a.The correct value of your GoldmanSachs JBWere investment was recorded
b. Equity markets have stabilized to some degree.
[28] There were further attempts at resolving matters, but the relationship between the Steffensens and Messrs Broad and Wood had by this time broken down. Mr Wood notified QBE of the potential claim and the Steffensens complained to IFA (Institute of Financial Advisers) in May 2008. On 1 May 2008 Mr Wood advised the Steffensens to migrate to a more conservative portfolio as he considered it was the right time to do so. Instead, they did not follow this advice. The Steffensens initiated a process to take control of the Pengana, Fisher, BT and JBWere equities in July 2008, but they were not transferred into the Steffensens’ control until early October 2008. The IFA identified substantial delay, but did not otherwise sanction BGW. An offer of settlement of $1,000 by Mr Wood on 15 December 2008 was rejected and the Steffensens’ signalled that they were going to commence litigation for the recovery of their losses.
[29] The Steffensens have since sold a substantial part of their holdings in the Pengana. The JBWere funds have been dissolved and paid out, while the BT funds still remain part of the Steffensen portfolio. The value of the respective holdings over time is addressed below at [66]-[68].
Pleadings
[30] Four causes of action are pleaded in relation to the above facts, in particular:
(a) The failure to sell the BT and JBWere funds and the failure to follow proper instructions was a breach of the written agreement resulting in losses in the sum of $177,512.65.
(b)The failure to carry out the relevant instructions was negligent in that the first defendant failed to act promptly with an appropriate degree of care and skill in giving effect to the plaintiffs’ instructions.
(c) The conduct of the first defendant was in the course of trade pursuant to s 2 of the Consumer Guarantees Act 1993 and that the first defendant failed to comply with the relevant statutory guarantees, including by failing to provide services with reasonable skill and care and on time.
(d)The first defendant breached s 9 of the Fair Trading Act 1986 by representing that under the managed portfolio the plaintiffs’ equity funds and cash would be fully monitored and managed by the first defendant and that this was never in fact implemented.
[31] The relief sought included both compensation for the loss in the value of the equities and loss of benefit from realisation of the equities.2
[32] One cause of action is pleaded against the second defendant (though it relies on the satisfaction of the facts in relation to the first defendant) namely that the plaintiffs had valid claims against the first defendant, that the first defendant’s actions have resulted in loss and that this loss has been indemnified by the second defendant.
[33] The first defendant pleads in relation to the key allegations that:
(a) It did not agree to sell the BT and JBWere funds on or about
September 2007;
(b) It did not agree to place proceeds of sale of equities into the AEGIS
cash account;
(c) It denies that the cash would be used to purchase mainly New
Zealand bonds and securities;
2 The specific relief sought is pleaded as follows:
31.1 compensation for the change in value of the Equity Funds lost as result of the First
Defendant’s failure to sell the Equity Funds as agreed;
31.2 compensation for the loss suffered when the Steffensens did not have the benefit of the proceeds of sale of the Equity Funds to invest as they had intended;
31.3 Losses suffered as a result of the First Defendant’s failure to invest the Cash in the NZ
Fixed Interest Products as instructed;
31.4 Loss sustained on the unauthorised purchase of the Pengana and Fisher Funds;
31.5 reimbursement of fees paid by the Plaintiffs to the First Defendant for services not provided;
31.6 general damages;
31.7 legal costs on a solicitor and client basis pursuant to clause 11.2 of the AEGIS Client
Adviser Agreement entered into by the parties (BOD 8); and
31.8 Interest.
(d)It also says that the instruction to sell the equities was never given by the first plaintiff.
[34] It also says that in terms of advice to the plaintiffs:
(a) The first defendant was not prepared to initiate any sales of the plaintiffs’ BT and JBWere investments until the correct value of the JBWere investments were recorded and equity markets had stabilised to some degree;
(b)The first defendant’s belief that the market volatility may continue for some months and that based on various economic commentaries and investment research the first defendant believed the markets would be likely to rebound during the second half of the year; and
(c) The best strategy for the plaintiffs as long term diversified investors with a conservative risk portfolio was to hold their existing investments until at least later in the year when the equity markets were expected to stabilise.
[35] All relevant causes of action are denied. Those denials are adopted by the second defendant.
Argument
[36] Mr Withnall QC submits for the plaintiffs that by the end of 15 November
2007, it had been agreed that BGW would:
(a) Purchase the fixed interest products; and
(b)Arrange for the sale of the equity funds on 3 December 2007 with the proceeds to be placed in a cash account to then be reinvested in Australian Capital Assured Bonds or fixed interest products.
[37] He submits that BGW failed to comply with both of these instructions and in fact, contrary to the plaintiffs’ wishes, purchased more equities. This had the perverse result that the plaintiffs were exposed to 92% equities in their investment portfolio.
[38] Mr Withnall then identifies six issues3 which deal with a central issue, namely whether the Steffensens instructed Mr Broad to sell the BT and JBWere funds and to then place them into fixed interest products. Ancillary issues include whether the Steffensens agreed to purchase the Pengana and Fisher funds, whether BGW refused to sell the equity funds as instructed in February 2008 and whether BGW advised the Steffensens to hold onto the equity funds in 2008.
[39] In summary, Mr Withnall submits that the evidence is clear, that the Steffensens’ account of what was said as between him and Mr Broad is to be preferred, supported by, among other things, his notes of the meeting made on
15 November 2007 and the evidence of Mrs Steffensen. He also says that the evidence is equally clear that the Steffensens did not agree to purchase the Pengana and Fisher products but felt they were forced to do so given Mr Broad’s actions. Finally it is submitted that the plaintiffs, in short, found themselves in an invidious position where BGW first refused to sell the equity funds on discovery of the breach, and then advised the plaintiffs not to sell the equity funds in a volatile market.
[40] Mr Till QC responds for QBE that the evidence of Messrs Broad and Wood is to be preferred over the evidence of the Steffensens. He submits that the Steffensens
3 Namely:
Issue 1 : Did the Steffensens instruct the First Defendant on 15 November 2007 to sell the
Steffensens’ Equity Funds on 3 December 2007?
Issue 2 : Did Mr Steffensen instruct Mr Broad to place the proceeds of sale of the Equity Funds into an AEGIS cash account to then be reinvested in Australian capital assured bonds or fixed interest products?
Issue 3 : Did the Steffensens instruct the first Defendant to purchase specified Fixed Interest
Products with the Cash deposited into the First Defendant’s trust account on
19 September 2007?
Issue 4 : Did the Steffensens agree to purchase the Pengana and Fisher Funds?
Issue 5 : Did the First Defendant refuse to sell the Equity Funds as instructed on 12 February
2008 when it was discovered that the sale of the Equity Funds had not occurred on
3 December 2007?
Issue 6 : Did the First Defendant advise the Steffensens to hold onto their Equity Funds in 2008 and represent to the Steffensens that if they sold the Equity Funds the Second Defendant would not meet their claim for compensation?
only provided limited instructions at the 15 November 2007 meeting. Significantly he says that no “Proper instructions” were given to sell the BT and JBWere equity funds. By contrast, Mr Broad’s letter of 15 November, records what he was going to do, namely purchase the Pengana and Fisher Funds, and revert to the Steffensens for further instructions when he returned on or about 3 December. He submits it was agreed that the funds would not be sold until Mr Broad and the Steffensens had an opportunity to monitor the progress of the funds and to discuss the position on his return from a trip overseas on 3 December 2007. While Mr Broad did not make contact as he said he would do, there was no breach of a specific instruction to sell the BT and JBWere funds and if it was important to the plaintiffs then they could have sought out BGW to effect sale.
[41] Mr Till adds further that the retention of the equity funds, in December and subsequently, was consistent with standard financial advice and that any sale of the equities in November would have been contrary to such advice.
[42] Mr Till has also asked that I defer final consideration of the order for return of fees, the question of whether the final amount of such award is to be reduced by the amount of the excess or deductible payable and the question of costs. On this latter aspect Mr Withnall submits that the agreement reached records that all material losses will be indemnified. He submits that the costs incurred in the litigation are material losses that should be indemnified. Mr Till by contrast submits that the costs incurred are not material losses arising from an act of negligence (if one is proven).
The evidence
[43] I have essayed the key facts in detail, relying on the evidence of the main actors, namely Mr Steffensen, Mrs Steffensen and Messrs Wood and Broad in terms of the alleged facts. My summary of the facts speaks for itself and I elaborate on the evidence below. It is sufficient for present purposes for me to record the following.
[44] Mr Steffensen (the primary witness for the plaintiffs) presented as an honest witness, making valid concessions for example about the apparent inconsistency between his objective to sell down his holding in equities, the PIPs, and his decision to purchase the Pengana and Fisher funds. His evidence as to what transpired is
broadly consistent with contemporaneous notes and correspondence. While his notes were challenged under cross examination, I was left with the clear impression that they were not contrived. Mrs Steffensen supported Mr Steffensen’s version of the events and I have no reason to doubt her credibility. However, much of her understanding of key discussions was second hand, limiting the weight to be afforded to her account.
[45] Mr Wood also presented as a forthright and honest witness. He made various concessions adverse to his position which enhanced his credibility. Those concessions however were significant, including:
(a) That he was first approached by the Steffensens to sell down the equity funds and replace them with fixed interest deposits.
(b)He accepted that they approached him because they wanted someone else to do the worrying for them.
(c) He accepted that no steps were taken after 7 November 2007 to sell the equity funds and that they did not contact the Steffensens and that this was likely to be an oversight.
(d)He accepted that the JBWere value error was not corrected until February, contrary to the indication by Mr Broad that he would correct it following the 15 November 2007 meeting.
[46] One area of concern arising out of Mr Wood’s presentation is his explanation for the reference to the file note recording: “Major screw up”. In re-examination he was invited to explain that reference and Mr Wood appeared to be suggesting that it was simply a record of what Mr Steffensen said. For my part, his initial explanation that this part of the file was a record of his own thoughts is more plausible. Be that as it may, Mr Wood, as I say, appeared overall as a forthright and honest witness.
[47] The overall impression I gained from the evidence of Mr Broad is that he had simply forgotten to revert to Mr Steffensen on an undertaking to sell the equity funds
on his return from holiday in December 2007 and that his recollection of events on specific matters is not reliable insofar as concerned what was to happen on his return. I generally prefer therefore the evidence of Mr Steffensen who, unlike Mr Broad, was clearly focussed on his objectives and his expectations out of the September and November meetings.
Messrs Gallagher and Maud
[48] There is also expert evidence from Mr Gallagher and Mr Maud. Mr Gallagher identifies the losses claimed by the plaintiffs as at December 2008 as follows:
12Therefore the total claim value of NZ$144,377.39 is comprised as follows (Section C):
12.1 Loss in value of Equity Funds NZ$75,083.59
12.2 Earnings and capital gain forgone from
the Australian domiciled bond portfolio NZ$49,026.93
12.3 Loss caused by drop in value of Pengana
and Fisher investments NZ$17,082.57
12.4 Earnings and capital gain forgone from the
New Zealand domiciled bond portfolio $3,184.30
[49] Mr Maud does not dispute these figures, though he notes that adjustments have been made for currency fluctuations. He provides a broader analysis of the performance of the BT and JBWere equities as against investments from proceeds of sale of those funds in holdings in accordance with the PIP. Overall he suggests that the performance as between the equity portions of any investments were similar but that there would have been substantial losses in relation to any fixed interest
investments over the span of seven years.4
[50] Mr Maud’s tables recording the movements of the values are attached as
“Attachment A”.
4 Mr Maud’s brief of evidence at [57].
Assessment of Liability
[51] The central issue to resolve is whether Mr Steffensen instructed Mr Broad on
15 November 2007 to sell the BT and JBWere funds and/or to purchase fixed deposit securities with the proceeds of sale on Mr Broad’s return from Australia on
3 December 2007.
[52] I am satisfied on the balance of probabilities that Mr Steffensen instructed
Mr Broad to sell the BT and JBWere funds on his return from holiday in December
2007. This amounted to (among other things) a breach of cl 2.1 - including sub cls (d) (to make recommendations), (e) (to implement instructions) and cl 9.1 (to recommend changes as are agreed from time to time). It was also a negligent failure to carry out instructions. I am not however satisfied that Mr Steffensen made it clear that the proceeds of sale would be used to buy fixed deposit securities. I am also not satisfied that the Pengana and Fisher Fund purchases were unauthorised. My reasons follow.
[53] First, as I have said I generally prefer the evidence of Mr Steffensen over that of Mr Broad. He made a contemporaneous record of his discussion. It records the following:
... I went to see them as to why the transfers had not been done earlier and that it had experienced a significant drop while waiting. It showed up in the meeting that the funds had actually been transferred on the 1st and 2nd but not finalised until the 7th November. I was really pissed off as the funds had originally gone in at a value of about A$98-$99,000 and had been at market risk against our wishes to sell before transferring but luckily they had come out at a similar value but while stuffing around they had dropped A$10,000 from 1/11/07 to 15/11/07 when I confronted them. I was concerned that the recent drop was an anomaly and may recover over the next week as it had commonly done. I wanted them sold in a weeks’ [sic] time regardless as I was nervous that the predicted fall had begun. I asked Don to sell in one week’s time. Don then said he was away for two weeks so he wouldn’t be able to do it then but would 2 weeks be acceptable. It was a bit longer than I had wished but I took the risk and agreed to their sale upon his return (at that point I did not know that the 3/12/2007 was the actual date of his return so I did not have a firm specific date, it was immediately up on his return).
[54] Second, and by comparison, Mr Broad’s recollection was recorded in a note made some months later and in a context where he was so distracted by events that he completely forgot to contact Mr Steffensen as he had promised when he returned
from holiday. In reality, he simply neglected to implement Mr Steffensen’s
instruction to sell the equities because he was too busy.
[55] Third, a fundament of the PIPs produced by BGW is that the BT and JBWere funds would be redeemed. Indeed their sale was a pre-requisite to the implementation of either PIP. The suggestion by Mr Broad that Mr Steffensen was simply content to wait indefinitely contradicts their advice to redeem the equities to implement the plan as soon as possible. I also do not accept the explanation that the equities should not have been sold in a falling market, because as at 3 December, the values of the holdings had rallied as Mr Steffensen had predicted.
[56] Fourth, the broader chronology of events also supports Mr Steffensen’s strong desire to sell the BT and JBWere Funds as soon as possible. The premise for Mr Steffensen approaching Mr Wood in the first place (admitted by Mr Wood) was to sell the equities as soon as possible so that they could reposition themselves on a more secure footing. The PIPs confirm that intention. Mr Steffensen’s apparently irate attitude when attending the offices of BGW on 15 November about the time taken to transfer the funds further supports the inference that he wanted them sold as soon as possible. His reaction on discovering that nothing had been done by late January is consistent with the views expressed by him prior to 15 November that his expectation was that they would be sold as soon as possible. This is not a case of an ex post facto desire to sell suddenly emerging after discovery that they had dropped in value.
[57] Fifth, the frank record in Mr Wood’s file note of his telephone conversation with Mr Steffensen is an apt reflection of what occurred: “Major screw up”. While Mr Wood said in reply he was recording Mr Steffensen’s view, I think his initial response that this part of the note was his interpretation of events is more likely.
[58] Sixth, the performance of BGW overall does not engender confidence in the account given by Mr Broad. There was inordinate delay in migrating the Steffensens’ investment portfolio to BGW. The first defendant also entered the wrong description of the JBWere holding so that it was overvalued. It also appears that they were not entirely transparent about their mistakes, for example their mistake in relation to the
overvaluation of the JBWere holding. The communication with the Steffensens was also poor overall, and Mr Broad’s failure to follow up on 3 December as he said he would was incompetent. Furthermore they never in fact implemented the PIP at any stage, except for the purchase of the Pengana and Fisher funds (and even then in quantities well in excess of those envisaged by the September PIP).
[59] In fairness to Mr Wood and Mr Broad, these were particularly trying times for financial advisors. The mistakes made were perhaps understandable. But I am confident that Mr Steffensen told them to sell the BT and JBWere funds and that he was left with the expectation that it would be done on Mr Broad’s return from his travel.
[60] Seventh, I reject the contention that no instructions were given because no “Proper Instructions” in the form of TAFs were executed. I accept the evidence of Mr Steffensen that he assumed all necessary paper work for the sale of the BT and JBWere equity funds were executed at about the same time the AEGIS Agreements were completed. While this may have been an erroneous assumption, it was nevertheless a formality that could have been easily attended to on Mr Broad’s return, but he simply forgot to put the verbal instructions into effect.
[61] Turning to the second issue, namely whether Mr Steffensen instructed Mr Broad to invest the proceeds of sale in fixed interest securities. Problematically for Mr Steffensen, the available documentary record largely contradicts rather than supports his account of the specific instruction to purchase only fixed interest securities. First, both versions of the PIP record a mix of investments, including a significant percentage devoted to equities. Second, the Pengana and Fisher fund equities purchased by the first defendant appear to give partial effect to the revised PIP. Third, the TAFs, executed by the plaintiffs provide written approval for the purchase of those equities, in accordance with the process set out in the AEGIS agreements. This is not consistent with an overt desire to purchase only fixed interest securities. Fourth, a letter enclosing the TAFs from Mr Broad makes no mention of purchasing only fixed interest securities. Fifth, the contemporaneous notes of the 15 November meeting do not record the instruction to purchase only
fixed interest deposits. Sixth, the letters written by Mr Steffensen in late January and early February do not refer to this issue. In fact the first of the letters notes:
Now if you have infact sold off all the BT/JBWere funds at or round mid November and fashioned a portfolio for us as agreed, then the [sic] is no issue, and we will accept that the recent equity crash relating to the equity portion of the portfolio, as just market realities But if this is not the case, then I believe we and you have some very serious issues that you need to address.
[62] The subsequent letter included the list of questions. There is no mention of a specific instruction to reduce the overall commitment to equities.
[63] Accordingly, while I am prepared to accept that Mr Steffensen assumed that his intentions were made clear to Mr Broad, I am unable to find on the balance of probabilities that Mr Broad understood that he was to purchase fixed deposit securities with the proceeds of the sale of the BT and JBWere equity funds or to sell the Pengana and Fisher funds.
Summary
[64] In summary my view therefore is:
(a) I accept the evidence of the Steffensens that they had instructed BGW to sell the BT and JBWere holdings as soon as possible and in particular in early December 2007;
(b)I do not accept that Mr Steffensen made it sufficiently clear to Mr Broad and/or Mr Wood that exposure to equities should be further reduced and that he sought that the proceeds of sale be immediately placed in fixed interest deposits on the sale of those funds;
(c) I do not accept that the purchase of the Pengana and Fisher funds were not properly authorised;
(d)I consider that Mr Wood and Mr Broad would have understood their instructions to be to apply the proceeds of sale of the BT and JBWere
funds toward the implementation of the PIP or an agreed PIP at some time shortly after the sale;
(e) Mr Broad failed to carry out the instructions to sell the BT and JBWere funds and simply forgot to revert to the Steffensens as he was asked to do on his return;
(e) Accordingly, BGW was negligent and breached composite contractual duties to diligently and reasonably manage the Steffensens’ investment portfolio and then to accept liability for its negligence.
[65] I turn then to examine the issue of the quantum of damages.
Assessment of Damages
The issue
[66] The key issue is whether the date for fixing the quantum of damages is January 2008, May 2008 or December 2008 and whether subsequent gains in the value of the equities retained by the Steffensens should be offset against the loss.5 In
January 2008 the loss of value on the BT and JBWere equities was about A$13,350,6
the May loss was about A$13,591 and the December loss was (in New Zealand dollars) about $75,000. By May 2014, all equities identified in the PIP were worth
9.5% more than their value in December 2007. In contrast, according to Mr Maud, the value of the portfolio identified in the September PIP in May 2008 would have been about A$20,000 less than actual, and by May 2014, the value of fixed interest
assets would have been about 31% worse off.
5 Mr Till also acknowledged in closing that fixing quantum at the date of breach is not reasonable, bearing in mind that there was no loss as at that date.
6 This figure takes into account my finding that there was no clear instruction to sell the Pengana and Fisher funds so that the loss in that value is not included. I only have the relevant values in Australian dollars, except for the December 2008 loss. This value is also not directly comparable because it is based on a different methodology for currency adjustments. For detail of changes in the BT and JBWere equities see Table A attached.
[67] Mr Withnall submits that the date to calculate damages is able to be moved to the benefit of the innocent party.7 He says that 15 December 2008 is appropriate because BGW refused to sell the equity funds earlier in 2008. The Steffensens held onto the funds in furtherance of BGW’s advice, but on receipt of a letter of offer dated 15 December 2008 from Mr Wood it became clear that neither the first defendant nor the second defendant was going to remedy the Steffensens’ losses. At
this point the Steffensens considered they had no option but to pursue their losses in litigation. Mr Withnall then maintains that the performance loss on the breach of contract was unaffected by subsequent gains in the value of the equities, citing AKAS Jamal v Moolla Dawood.8 In that case their Lordships observed:9
When the buyer committed this breach the seller remained entitled to the shares, and became entitled to damages such as the law allows. The first of these two properties, namely, the shares, he kept for a time and subsequently sold them in a rising market. His pocket received benefit, but his loss at the date of the breach remained unaffected.
[68] Mr Till responds that the relevant date for assessment of damages is
30 January 2008 when the plaintiffs first discovered their instructions had not been followed. Alternatively he submits that May 2008 is an appropriate date, as this is when the relationship between BGW and the Steffensens came to an end. He says that if any subsequent date is adopted, then the plaintiffs will need to show that they made reasonable attempts to mitigate their losses. He submits further that if the plaintiffs took steps to mitigate and reduce the damages payable, the defendant is entitled to the benefit resulting from the plaintiffs’ actions. He also submits that Mr Wood’s letter of offer dated 15 December 2008 was not a rational nor reasonable basis for termination of mitigation attempts and that the equities were not then sold. He thus submits that any subsequent improvements on the equities should be taken
into account when assessing the damages.
7 Referring Arren Civil Ltd v Dallan Enterprises No 50 Ltd CA109/00, 20 September 2001 at [19];
and Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 424.
8 AKAS Jamal v Moolla Dawood, Sons & Co [1916] 1 AC 175 (PC).
9 At 180.
Guiding principles
[69] It appears common ground that the proper measure for damages in this case should be the contractual measure,10 namely that the plaintiffs should be put into the position they would have been had the contract been performed.11
[70] As stated by Cooke P in McElroy Milne v Commercial Electronics Ltd:12
... the ultimate question as to compensatory damages is whether the particular damage claimed is sufficiently linked to the breach of the particular duty to merit recovery in all of the circumstances.
[71] The reasonable expectations (and sometimes the assumptions) of the contracting parties provide the frame for assessing the strength of the linkage between the breach and the loss.13
[72] Plainly also, any remedy should not overcompensate a plaintiff. As
Professor McLauchlan opined:14
Given that the court seeks to ensure that the plaintiff is not put in a better position that if the contract had been performed, the touchstone should always be whether it can fairly be said that all or part of the loss in respect of which damages are claimed has either not been suffered or has been avoided or is offset by a gain made.
[73] Ordinarily the date for the assessment of damages is that date of breach, but this is not a fixed rule.15 The driving principle is to fairly and justly achieve:16
10 The pleadings also seek relief in tort, and under the Fair Trading Act 1986 and Consumer
Guarantees Act 1993 – I address these claims briefly below at [95].
11 Robinson v Harman (1848) 1 Ex 850 at 855, per Parke B.
12 McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (CA) at 41.
13 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, [2009] 1 AC
61 – as to reasonable expectations see Lord Roger at [47]-[52] and as to reasonable assumption see especially Lord Hoffman at [12]-[13], [16] and [23]. Discussed also in P Blanchard Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at 67-68. See also the discussion in “Contract, Ruxley, and the Performance Interest” particularly 159-163 in Brian Coote Contract as Assumption: Essays on a Theme (Hart Publishing, Oxford 2010).
14 D McLauchlan “Some Issues in the Assessment of Expectation Damages” [2007] NZ Law
Review 563 at 628, referred to in Jones v WHK Sherwin Chan & Walshe (2011) 25 NZTC 20-
065 (HC) at [173]. This article was not cited to me by counsel – but it is, in my view, an orthodox statement of principle.
15 Stirling v Poulgrain, above n 7, at 424.
16 New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC) at 463 per Tipping J, and quoted in Blanchard, above n 13, at 48.
… the objective of contractual damages, i.e. to compensate the innocent party for the loss of the value of the promised performance.
Resolution
[74] I have come to the view that the Steffensens should be awarded A$13,350 in New Zealand dollar equivalent terms as at January 2008 plus interest to the date of judgment. But, as I will explain, I reject approaching the quantum of loss by reference to a change in the value of the equities value per se. Rather I arrive at the quantum of damages based on my assessment on the available evidence of the value of the opportunity lost by the Steffensens when BGW failed to sell the equities in December 2007.
An opportunity lost
[75] The starting point for the analysis is to identify the performance interest lost by the Steffensens. The following obligations are in focus, namely the obligation to diligently and reasonably manage the investment portfolio, to sell the equities as instructed and the contractual assumption of liability at cl 11.2 for negligence. In the result, objectively assessed:
(a) The Steffensens reasonably expected to have the benefit of the proceeds of sale of the equities from December 2007.
(b)In light of the broader contractual and factual matrix, it is equally clear that the Steffensens reasonably expected to be able to use the funds for the purpose of making other investments.
(c) In addition, the Steffensens reasonably expected that BGW would assume responsibility for managing their investment portfolio and that they would be compensated for any material loss directly arising from BGW’s negligence without undue delay.
(d)Balanced against this, BGW did not provide surety for the value of their investment portfolio (including the equities).
[76] In light of these combined obligations and expectations, BGW was (and is)
liable to restore the Steffensens to the position they would have been in December
2007 had the equities been sold and the proper measure of their loss is the value of the lost opportunity to use the proceeds of sale.
[77] While the Steffensens pleaded counterfactual losses,17 counsel focused their energies on quantifying damages by reference to the falling or, in Mr Till’s case, the appreciating value of the equities over time. But some care is needed here, because the Steffensens wanted to be rid of the equities and have their sale proceeds instead. To then measure their loss by the subsequent performance of the equities per se does not restore them to the position they wanted or expected to be in. Quite the opposite, it puts them in the position of carrying the risk of the equities they did not want.
[78] In fairness to counsel, there is authority for quantifying contractual damages by reference to the change in value of the assets affected by the breach. In McElroy Milne,18 McKay J rejected a strict “with and without” contractual performance comparison to assess the damages. In that case the solicitors failed to record a promised guarantee of a future tenancy in the sale and purchase agreement. McKay J said it was unrealistic to use the difference in the value of the property with and without the guarantee at the date of breach.19 But I think that the underlying principle remains constant – the Court will remedy the performance loss as best it can in the circumstances. Here the entire object of the instructions in this case was to sell the equities to obtain the sale proceeds for alternative investment. This is the proper focal point for the remedy, not the subsequent performance of the equities per se.
[79] Returning to the facts, the measure of the lost opportunity is relatively clear as at 30 January 2008. This is also the date when the negligence was discovered and
the first opportunity for BGW to accept liability as promised at cl 11.2. The market
17 The Steffensens sought counterfactual losses on the failure to purchase fixed interest assets with the proceeds of sale. Note as I did not find that the instructions to purchase those types of holdings were clearly given I do not use them as a specific reference point to quantify the Steffensens’ loss.
18 McElroy Milne v Commercial Electronics Ltd, above n 12.
19 At 52 per McKay J.
value of the equities had by this date fallen by about A$13,350.20 From this it can be reasonably assumed that the value of the Steffensens’ portfolio would have been A$13,350 better off by this time had the equities been sold in December. There was also no real prospect of significant share purchase activity before the end of January especially given (a) my finding that the instruction to purchase fixed interest assets was not clear and (b) the rather glacial operation of the AEGIS system. Therefore I find that the value of the lost opportunity can be fairly quantified at the cash sum of A$13,350 as at January and BGW should have accepted liability for this sum at this time pursuant to cl 11.2.21
[80] Quantifying the value of the opportunity lost subsequently in May and December 2008 and then to the hearing engages in varying degrees of unacceptable speculation. In reality, the market was extremely volatile through 2008 and 2009. Mr Maud refers to two recessional22 waves in February and September 2008, so that by October of that year the Dow Jones and the S&P500 lost up to 20% of their respective values in a week. By December 2008 the Dow was almost 43% below its previous all time high.
[81] I am nevertheless prepared to find on the balance of probabilities that the Steffensens would have weathered the global financial storm, as they in fact did, but with A$13,350 more in their portfolio for the following reasons:
(a) I am confident that the Steffensens would have prudently invested the proceeds of sale, based on proper advice. Notably the Steffensens acted on advice in November 2007 to purchase the Pengana and
Fisher Funds. Understandably they did not act on Mr Wood’s advice
20 The foreseeability of this loss was not disputed, but for completeness, BGW plainly understood the volatility of the market as evidenced by cl 11.2 – refer para [9](e) above.
21 Notably, s 51(3) Sale of Goods Act provides the following similar measure for loss:
51 Damages for non-acceptance
…
(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. (emphasis added)
…
Compare with John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand
(4th ed, LexisNexis, Wellington 2012) at [21.2.2].
22 One unofficial in February 2008 and one official in September 2008.
in May 2008, given the broken nature of their relationship. But there is evidence that they acted on the advice of another investment adviser through the relevant period.
(b)I cannot be sure on balance that they would have invested solely in the types of holdings (eg fixed interest assets) that proved most profitable through 2008 or other more profitable assets subsequently.
(c) Equally however I cannot say they would have invested poorly and lost substantially on their investments in that period and beyond. Plainly the investment strategies agreed with BGW in 2007 would have needed revision in 2008 and beyond, so Mr Maud’s counterfactual analysis is flawed.
[82] I also consider that this is a case for an award of interest in order to properly compensate the Steffensens for their loss. While I cannot be sure that the Steffensens would have adopted a particular strategy yielding a definable uplift in value, I am satisfied that over the full span of the intervening period, they would have had the advantage of a stronger portfolio (including a much larger proportion in cash at least initially) and invested in such a way as to obtain the equivalent of interest at a conservative to moderate rate for the period.
[83] Accordingly, I consider that the fair measure for the Steffensens’ loss is A$13,350 in New Zealand dollar equivalent terms as at January 2008 (plus interest pursuant to s 87 of the Judicature Act 1908), being the cash sum that the Steffensens should have had to their use for the purpose of further investment from at least
30 January 2008. This was the sum that BGW was obliged to pay when it was first notified of the failure to sell the equities and what was necessary to put the Steffensens in the position they should have been in had the instruction been carried out. The nature and scale of this loss must have also been within the reasonable contemplation of Messrs Broad and Wood.
Change in value
[84] I have also examined the quantum of the loss on a change in value basis through to December 2008 given the emphasis placed on it by Mr Withnall. First, I am satisfied that the loss in the value of the equities to December 2008 is causally linked to the breach of contract and BGW’s negligence. BGW must have understood the general volatility of the market (as recorded at cl 11.1) in November 2007 and the specific volatility of equities throughout 2008 (when it could have remedied the breach as it was obliged to do). Furthermore it was not unreasonable for the Steffensens to hold onto the equities in a volatile market having lost the opportunity to sell them, given BGW’s advice to do so in the first half of that year, and then in light of BGW’s ongoing refusal to accept the liability (contrary to cl 11.2) associated with crystallising the losses by selling the equities.
[85] But I agree with Mr Till that if the future value of the equities is the measure of loss per se, any proven gains made by the Steffensens as a consequence of the breach and or probable counterfactual gains or losses are, in principle, relevant to the assessment of loss.23 The key authorities relied upon by Mr Withnall24 involve a disappointed vendor or purchaser seeking losses fixed by reference to the difference between a contract price and the market value for the subject property at the date of
breach. In such cases, objectively assessed, the performance interest or expectation losses crystallised at the date of breach so that subsequent gains on the later sold property became irrelevant.25 In contrast, if the Steffensens are seeking damages based on a notional loss in share value at a future date 12 months after the breach, they open up the prospect of future gains, because the loss is not attached to
achieving the performance interest but to the effect of the breach per se. Notably, the
23 McLauchlan, above n 14; Burrows, Finn and Todd, above n 21, at 856-857; British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (No 2) [1912] AC 673 (HL); Benton v Miller & Poulgrain (a firm) [2005] 1 NZLR
66 (CA); and in negligence see South Australia Asset Management Corp v York Montague Ltd (also known as Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 (HL).
24 AKAS Jamal v Moolla Dawood, above n 8; Turner v Superannuation and Mutual Savings [1987]
1 NZLR 218 (HC); Mr Withnall also relies on Arren Civil Ltd v Dallan Enterprises No 50 Ltd, above n 7, but see my comment below.
25 AKAS Jamal v Moolla Dawood, above n 8; Turner v Superannuation and Mutual Savings above n 24.
Court in Arren,26 cited by Mr Withnall, included post breach improvements in the value of the affected units when quantifying the loss on a failed sale.
[86] It also seems to me that to fix the date for assessment at December 2008 is arbitrary and potentially unfair if subsequent gains are to be excluded. Neither the Steffensens nor Messrs Wood or Broad could have reasonably expected future liability for the breach and negligence to be fixed by reference to the downward movement of the equities only. On the contrary, they would have expected there to
be gains and losses in the value of those equities over time. 27
[87] Accordingly, had I approached the measure of loss based purely on the change in value of the equities as at December 2008, I would have offset the subsequent gains made on them through to the hearing. All of this however highlights in my view a problem with using the effect of the breach per se as a measure for contract damages in this case. Any loss or gain in value of the equities could only be reasonably described as a loss or gain to the Steffensens if similar losses or gains could not have been obtained by them had the contract been properly performed. Relevantly, Mr Maud’s evidence makes it plain that prudent investment strategies over the longer term would have achieved similar gains, and in my view more so had the Steffensens had available to them the full value of the proceeds of the equities from December 2007.
[88] In any event, as I have said:
(a) I prefer to approach the issue of quantification on the basis of the opportunity lost by the Steffensens in light of solid evidence of the quantum of sale proceeds that would have been obtained had the
equities been sold in December 2007 and the money been available
26 Arren Civil Ltd, above n 7 at [14]-[15]. Note the High Court quantified the loss taking into account the improved value of the units. The Court of Appeal approved the High Court’s approach.
27 Compare with Steffensen v BGL Investments Ltd (formerly Broadbase Otago Ltd) [2013] NZHC
3310 at [15]- [22], where Associate Judge Osborne came to a different conclusion in dealing with a discovery application. He found that gains and losses after December 2008 were too remote. Unlike the Judge I have had the benefit of hearing the evidence dealing specifically with the nature of the liability and quantification of loss. While I accept remoteness is an issue in terms of the forseeable scale of effect, if future notional losses are relevant, then future gains must also be relevant.
for their use as at January 2008; and
(b)I am satisfied that the Steffensens would have enjoyed gains at least commensurate with or moderately superior to the gains that were in fact made on the equities to the date of hearing but with A$13,350 more in their portfolio.
General Damages
[89] Understandably, the Steffensens suffered considerable stress and anxiety as a consequence of the failure to implement their instructions and then the refusal to accept liability. They watched the value of their long term savings plummet through no fault of their own, having in fact anticipated the need to sell their equity holdings in 2007. While this would have been a difficult period for most investors, BGW’s negligence and recalcitrance would have materially aggravated their stress and anxiety.
[90] Ordinarily stress and anxiety are considered an inevitable part of commercial dealings and do not attract general damages.28 But this rule is not absolute, as Bingham LJ (as he then was) stated in Watts v Morrow:29
But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not caster for this exceptional category of case it would be defective.
[91] Lord Steyn in Farley v Skinner elaborated that:30
It is sufficient if a major or important object of the contract is to give pleasure, relaxation or peace of mind.
[92] Significantly, Mr Woods was aware of Mr Steffensen’s vulnerability,
including his impaired physical health, the impending cessation of his insurance cover and retirement. He was aware that the Steffensens wanted to shift the burden
28 Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC); Crump v Wala [1994] 2 NZLR 331 (HC).
29 Watts v Morrow [1991] 1 WLR 1421 (CA) at 1445.
30 Farley v Skinner (No 2) [2001] UKHL 49 at 24, [2002] 2 AC 732 at [24].
of the management of the investment portfolio to BGW, which he readily accepted. His disclosure document promised:
All fees should be regarded as an investment as all services are designed to “add value” through reducing costs, giving additional peace of mind, and or providing improved investment performance.
[93] BGW’s commitment was then overtly reinforced by the contractual assumption of liability for negligence at cl 11.2 (an otherwise largely superfluous gesture) and professional liability insurance.
[94] In these circumstances, the failure to carry out instructions and the refusal to accept liability defeated a major objective of the contract and the peace of mind afforded by it.31 The nature of this loss cannot be addressed by the award for pecuniary loss. An award of $15,000 to each of them is therefore appropriate.32 I have moderated the award to reflect that these were difficult times for most
investors, and while BGW provided surety in terms of the diligent management of the portfolio, they did not provide surety as to value of the portfolio over time, so some anxiety is to be expected in this context.
Other claims
[95] It is unnecessary for me to address the alternative claims given my findings on contractual breach and the quantum of damages. Plainly the claim in negligence has been made out. But as the negligence relates to the performance of a contractual duty, I consider that the contractual remedy is appropriate. The claims based on the Fair Trading Act and the Consumer Guarantees Act were not argued (though the plaintiffs written submissions addressed them) so I do not proffer a concluded view about them, except to say that had I found a specific breach of their provisions, the
result would have been the same.
31 See Farley v Skinner (No 2) [2001] UKHL 49, [2002] 2 AC 732.
32 As a guide I have used the awards given in Body Corporate 191608 v North Shore City Council
HC Auckland CIV 2008-404-2358, 19 February 2009 ($15,000-$25,000). Refer also commentary in Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Brookers, Wellington, 2013) at [25.2.09(2)]. Compare Heslop v Cousins [2007] 3 NZLR 679 (HC), where a solicitor’s breach of duty and negligence lead to bankruptcy and an award of $50,000 each was granted. I do not consider that the stress caused by the refusal to accept liability as comparable to this scale of effect.
Outcome
[96] I am satisfied that the QBE must pay the Steffensens the following sums:
(a) A$13,350 in equivalent New Zealand dollars for the loss of opportunity to use the proceeds of sale of the BT & JBWere equities as at January 2008 together with interest at a rate to be determined to the date of judgment;
(b) NZ$15,000 to each of the plaintiffs for general damages.
[97] The claims concerning the Pengana and Fisher funds, and the alleged failure to purchase fixed interest assets are dismissed.
[98] As requested by Mr Till I reserve the position in terms of the return of fees, the excess or deductible payable and the question of costs. I simply note where the parties have contracted for the payment of costs on an indemnity basis, and the costs are reasonable, then the Court has limited if any jurisdiction to depart from an award
on an indemnity basis.33 My tentative view is that cl 11.2 contemplates all losses
arising, including the costs of litigation.
[99] I also seek submissions on (a) the currency effect in terms of measuring the New Zealand equivalent value of the loss as at January 2008 and (b) the issue of the interest rate to be paid on the A$13,350 to the extent that it cannot be agreed. I am minded to commence the date for interest at 1 January 2008 because, by then the instructions to sell should have been completed via the AEGIS system. I also consider that the interest rate should reflect the fact that the monies were not available to the Steffensens use, but still conscious of the vagaries of the then market. It seems to me that an average 90 day bank bill rate over this time provides
a fair proxy. But I leave it to the parties to submit on this if that proves necessary.
33 Watson & Sons Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35]; Maydanoz
NZ Ltd v Poppelwell [2012] NZHC 2223.
[100] If the parties cannot agree on these matters they are to file submissions within
15 working days, no longer than 10 pages in length, and unless there is a request for a hearing, I will resolve these final aspects on the papers.
Addendum
[101] Shortly prior to the release of this judgment I received submissions from Mr Withnall on the issue of costs. I have put those submissions to one side in light of my direction at [100].
Solicitors:
Webb Farry, Dunedin
Darroch Forrest, Lawyers, Wellington
ATTACHMENT A Value of Equities
Dec 2007
Jan 2008
May 2008
May 2014
BT Asia
$13,386
$11,801
$11,439
$13,081
BT Technology
$ 8,261
$7,220
$ 7,428
$11,827
BT Split
Growth
$52,758
$48,056
$47,542
$54,231
Goldman
Sachs
$78,308
$72,286
$72,713
$79,885
Pengana
$12,554
$10,053
$ 9,244
$12,557
Total AUD
$165,267
$149,416
$148,186
$171,581
NZD Value at 03/12/07
X Rate
$190,290
$172,039
$170,623
$195,560
Fisher (NZD)
$14,294
$11,273
$11,218
$14,604
TOTAL
$204,584
$183,312
$181,841
$210,210
Movement from Dec07
-10%
-11%
+3%
Comparison with Proposed Plan
Dec 2007 May 2008
May 2014
Australian
EquitiesFisher 11,000
8,858
11,531
Mint
6,000
5,408
9,596
Pengana
(AUS)8,000
5,891
8,065
AFI (Aus)
14,000
12,818
13,502
39,000
32,975
42,694
International
Equities
RIT Capital
(UK)
12,000
13,202
14,505
Bankers IT NZ
10,000
9,680
10,089
TR European
(UK)10,000
9,978
12,241
Templeton
(UK)10,000
9,409
13,144
Hunter Hall
(AUS)
11,000
9,363
9,814
PM Capital
(AUS)
10,000
8,300
10,477
Liontamer 3*
14,000
14,000
14,000
77,000
73,932
84,270
TOTAL EQUITIES
116,000
106,907
126,964
Movement
-
-7.755
+9.55
Value of Fixed Interest
Assets Amount Dec 2007 May 2008 May 2014 LM Australian
Mortgage Trust
18,000 18,000 2,225 NZ Mortgage
Income Trust
15,000 15,000 9,705 Canterbury
Mortgage Trust
15,000 15,000 12,450 Auckland
Mortgage Trust
15,000 15,000 12,000 Origin Energy
Perpetual Prefs,
16,000 16,000 12,032 Rabo Capital
Securities
16,000 16,000 17,500 TOTAL: 95,000 95,000 65,912 Movement - -31%
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