Swift v Gray
[2022] NZHC 1794
•27 July 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1704
[2022] NZHC 1794
UNDER The Trusts Act 2019, section 19,
the Law Reform (Testamentary Promises)
Act 1949, and
the Family Protection Act 1955BETWEEN
DEBORAH ANN SWIFT
Plaintiff
AND
JOHN ANDREW GRAY
First Defendant
INSIGHT LEGAL LIMITED
Second Defendant
Hearing: 4 July 2022 Appearances:
Gary Judd QC for the Plaintiff
Antony Holmes and Helen Twomey for the Defendants
Judgment:
27 July 2022
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 27 July 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
K J Patterson,Tauranga, for the Plaintiff
Robertsons (Helen Twomey), Auckland, for the Defendants
Counsel:
Gary Judd QC, Auckland, for the PlaintiffAntony Holmes, Auckland, for the Defendants
SWIFT v GRAY [2022] NZHC 1794 [27 July 2022]
Introduction
[1] Deborah Swift applies for a declaration that Robertsons, the law firm acting in this proceeding for both Dr John Gray and Insight Legal Ltd (together, the respondents), has an unreconcilable conflict of interest. She also applies for an order that Robertsons cease to act for both respondents.
[2] The claim is brought in reliance of r 1.20(2) of the High Court Rules 2016, which states that a lawyer who acts for a party to a proceeding must not, without the Court’s leave, act for any other party to the proceeding who does not have the same interest in the proceeding’s subject matter.
Background
[3] Brian and Sally Swift, respectively Deborah’s father and mother,1 made wills in early 2012 providing that, on the death of the survivor, the whole of the estate less a small legacy would go to Deborah.
[4] Sally died on 15 November 2012. Brian thereafter made a new will dated 17 December 2012, leaving his entire estate to Deborah. He and Deborah also signed a deed of acknowledgement of debt that Insight Legal prepared. The deed expresses a loan of $50,000 from Brian to Deborah, which the latter could access only on Brian’s death. The sum was to be paid into Insight Legal’s trust account and used for the upkeep and outgoings of the family home until the finalisation of Brian’s estate. It was repayable on demand. Deborah says these arrangements were consistent with Brian declaring a trust in her favour in respect of the house and the $50,000.
[5] Deborah says Brian had a major drinking problem and deluded himself that Deborah had stolen Sally’s jewellery after she died. She says the truth is that Sally gave Deborah her jewellery, recording in a note her intentions as to its disposition. In any event, Brian, in 2015, made and executed a new will appointing Dr Gray sole
1 Given the commonality of surnames in this proceeding, and meaning no disrespect, I will refer to the Swifts throughout by their given names.
executor and trustee, and leaving one seventh of the estate to Deborah. Under this new will, Deborah would no longer receive the house.
[6] Deborah has claimed against Dr Gray and Insight Legal (a law firm at which Dr Gray is a consultant and was formerly a partner). Her first cause of action, against Dr Gray, alleges the events of December 2012 created a trust in respect of the house and the $50,000. Her second, alternative, cause of action is brought against Insight Legal. It alleges Insight Legal failed to exercise reasonable care to structure and document the transaction in a way that reflected Brian’s intended trust.
Preliminary matters
[7]Mr Antony Holmes, for the respondents, has raised two preliminary matters:
(a)In relation to the second affidavit filed by Mr Lupton, dated 22 June 2022 (the second Lupton affidavit), Mr Holmes states that this was filed in response to new allegations made by the plaintiff in the affidavit sworn by Deborah on 10 June 2022 in reply to the notice of opposition and affidavits filed in support. I confirm that the second Lupton affidavit is accepted by the Court.
(b)Certain submissions made by Mr Gary Judd QC, for Deborah, contain numerous new allegations which amount to an attempt to give evidence from the bar. Mr Homes cites [6], [8], [9], [10] and [16] of Mr Judd’s submissions. I confirm that the Court has disregarded any submissions, including those paragraphs identified by Mr Holmes, that attempt to make factual submissions.
Deborah’s application for declaration and orders on conflict
[8]Deborah seeks orders:2
a.declaring that the current solicitors for both defendants, Robertsons, have an un-reconcilable conflict of interest and cannot act for the defendants.
2 Application for declaration and orders on conflict dated 20 April 2022 at [1].
b.An order that Robertsons cease to act for both defendants.
c.awarding costs of this application
[9]The grounds on which the orders are sought are:3
(a)A lawyer who acts for a party to a proceeding must not, without the leave of the court, act for any other party to the proceeding who does not have the same interest in the subject matter of the proceeding.
(b)Robertsons are acting for two defendants with conflicting interests without first obtaining the leave of the court.
In applying the High Court Rules, the court may (and in this case should) have regard to the obligations of the defendants’ lawyers under Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, rule 6.1 of which states;
A lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients.
In the present case there is more than a negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of its clients.
(c)Appearing by the memorandum of the plaintiff in reply for first case management conferenced dated 9 February 2022.
(d)The defendants’ pleadings have caused prejudice and delay and are likely to continue to do so.
Deborah’s affidavit
[10] Deborah has made an affidavit in support of her application. She deposes that Brian instructed Dr Gray to draft a will that left Deborah the family home and also left
$50,000 on trust for her so she could meet incidental costs and expenses until the grant of probate. She said she thought the documents prepared by Dr Gray would mean she inherited the entire estate and that she would have an additional $50,000 to keep her going while probate went through. She says she was made the sole beneficiary under Brian’s will dated 17 December 2012. She deposes that Dr Gray was acting for both she and Brian in preparing the documents. And she deposes she is now aware (though
3 At [2].
she was not at the time) that several years after she and Brian fell out, he drafted a further will that reduced her share in the estate to one seventh.4
[11] Deborah deposes that Brian died on 14 December 2020. She says that from the first days following Brian’s death, Dr Gray appeared to show a bias against her and some confusion as to whose interests he was serving. She says Dr Gray demanded she pay out of the $50,000 held on trust for her an amount to cover Brian’s funeral expenses and other expenses in the administration of the estate. She authorised the payments, but subsequently revoked her instructions after receiving legal advice. She says Dr Gray was not acting in her best interests, but instead in the interests of the estate and himself.5
[12] Deborah says Dr Gray has behaved antagonistically as the executor of Brian’s estate, rebuffing each of her attempts to reach agreement or settle the dispute as to the family home. She says Dr Gray instead advised that he would be selling the home, and that she would not be allowed to move into the house under any circumstances. She says this forced her to lodge a caveat to prevent the property’s sale. Dr Gray applied for the caveat to lapse, later saying he would withdraw the application provided Deborah confirmed he could take administration expenses out of the estate proceeds.6
[13] Deborah deposes she now understands that because there is a claim against Dr Gray’s law firm, Dr Gray has advised his professional indemnity insurers and they have appointed Robertsons to defend the case. She says she cannot understand how Robertsons can be said to be acting independently with respect to the best interests of the estate and all its beneficiaries and at the same time the executor’s law firm.7
[14] Concluding, Deborah says her greatest concern at this time is the dragging out of the estate’s administration. She says Dr Gray appears to have no motivation to
4 Affidavit of Deborah Anne Swift in support of application for orders regarding conflict of representation dated 25 May 2022 at [2]–[8].
5 At [9]–[16].
6 At [17]–[25].
7 At [26]–[29].
settle the matter and is simply protecting himself. She says she thinks he is just dragging things out so he can avoid liability for his firm.8
Respondents’ notice of opposition
[15]The respondents oppose Deborah’s application:9
aThe defendants do not consider there is any conflict of interest between the two defendants. To the contrary, the interests and instructions of both defendants are aligned:
The first defendant
iThe first defendant, as executor of the estate, has an obligation to:
Agive effect to the instructions contained in Brain Swift’s (Mr Swift’s) will signed 28 April 2015;
Bgather the assets of the estate; and
Cpreserve the estate assets for the benefit of all beneficiaries.
iiThe plaintiff’s claim against the first defendant seeks to deprive the estate of its assets and the first defendant has an obligation to defend the plaintiff’s claim for the benefit of the beneficiaries.
iiiThe plaintiff’s claim against the first defendant is brought on the basis that the first defendant owes duties to the plaintiff personally, not as a beneficiary, under the alleged trust and so needs to act in her best interests. The first defendant does not believe there is any such trust. He therefore denies the existence of the alleged trust. He is under no duty to the plaintiff not to do so.
The second defendant
ivThe plaintiff’s claim against the second defendant does not seek to deprive the estate of any assets, but is brought in the alternative to the first cause of action and seeks damages payable to the plaintiff.
vThe claim alleges that in 2012 the second defendant owes an obligation to the plaintiff (which is denied) and that it was instructed to prepare documents so that the plaintiff would have the family home and $50,000 to tide her over during the
8 At [30]–[35].
9 Notice of opposition to the plaintiff’s application for declaration and orders on conflicted dated 7 June 2022 at [2].
period after Mr Swift’s death when the plaintiff would not yet have access to Mr Swift’s estate.
viThe factual foundation of the first and second defendants’ defence to both cause of actions is the same: the second defendant prepared documents in accordance with Mr Swift’s instructions and was never asked to prepare documents that would give the Family Home to the plaintiff or gift $50,000 to the plaintiff.
bThere is no conflict of interest between the first and second defendants in defending the claims by the plaintiff against them. Nor is there any disqualifying conflict which would prevent counsel representing all of the defendants.
cThe defendants have a common interest in defending the claims by the plaintiff.
dThere is no actual or potential conflict which could prevent counsel continuing to act for the defendants.
Affidavit of Benjamin Lupton
[16] Mr Benjamin Lupton, a director of Insight Legal, has made an affidavit in support of the respondents’ notice of opposition. He deposes that Dr Gray has been employed as a consultant to Insight Legal since 1 April 2018 and previously was a partner of that firm. He says Dr Gray is the sole trustee and executor of Brian’s estate. He says Deborah’s primary claim is against Dr Gray in that capacity, and her claim against Insight Legal is brought in the alternative — alleging Insight Legal failed to take reasonable care in preparing Brian’s testamentary documents.10
[17] Mr Lupton says Robertsons had been instructed to act for both defendants by Insight Legal’s professional indemnity insurers. He says he is aware of lawyers’ ethical and fiduciary obligations and that he is not aware of any conflict of interest between Insight Legal and Brian’s estate. He says he is not aware of any conflict involving Dr Gray personally or in any other capacity. Further, he deposes he does not consider either of Deborah’s claims have any merit. In any event, he says, he cannot see any conflict between Brian’s estate and Insight Legal instructing the same counsel to defend the proceedings. The respondents have a common interest in defending the claims, the underlying facts are the same in both claims and the defence
10 Affidavit of Benjamin John Lupton in support of the notice of opposition to the plaintiff’s application for declaration and orders on conflict dated 7 June 2022 at [1]–[6].
is also the same: Brian did not create a trust and the estate is to be distributed in accordance with Brian’s later will.11
Dr Gray’s affidavit
[18] Dr Gray has also made an affidavit in support of the respondents’ notice of opposition. He says he is the sole trustee and executor of Brian’s estate. He says he was a partner of Insight Legal until 31 March 2018, and that Brian had been a client of the firm before he died. He says he has never acted for Deborah.12
[19] Dr Gray deposes that in late 2012, Insight Legal acted for Brian in preparing a will, which was executed on 17 December 2012, and a deed of acknowledgement of debt, which was executed on 13 December 2012. He says he was not acting for Deborah in doing so and that she was not a client of Insight Legal. He says that, pursuant to the deed, Brian deposited $50,000 into Insight Legal’s trust account. He says the deed provided for that sum to be paid to Deborah after Brian died, and that the sum was repayable on demand — meaning it could either be collected or taken into account as part of the final distribution of the estate’s assets.13
[20] Dr Gray deposes that in early 2015, Brian wished to change his will. He instructed Insight Legal to prepare a new will, which was executed on 8 April 2015. The following month, Brian also revoked powers of attorney that Deborah had held and made demand for repayment of the amount advanced under the deed. Deborah declined to repay the money.14
[21] Dr Gray says that Brian’s 2015 will revoked all former wills. It provided that Brian’s estate was to be divided seven ways and that any residential property owned by Brian should be sold by Bouge Real Estate Warkworth. He says that since Brian died, he has been administering the estate and collecting the assets. He says he is
11 At [7]–[12].
12 Affidavit of John Andrew Gray in support of the notice of opposition to the plaintiff’s application for declaration and orders on conflict dated 7 June 2022 at [1]–[6].
13 At [7]–[8].
14 At [9]–[13].
unable to take steps to sell the house as Deborah has lodged a caveat and brought the present proceedings.15
[22] Of Deborah’s various grievances relating to his administration of Brian’s estate, Dr Gray says that it is consistent with Brian’s 2015 will that Deborah was not allowed to move into the house. He says the $50,000 advanced under the deed was a loan repayable on demand, and such demand was first made in 2015. He says he does not believe that depriving the estate of the house would be in the interests of the beneficiaries. He says any delays in finalising the estate are entirely of Deborah’s own making, as the estate cannot be finalised while her proceeding remains on foot. He denies he is biased against Deborah, saying that he is simply acting in accordance with his obligations to the estate’s beneficiaries.16
[23] Dr Gray disagrees that there is any conflict between the interests of the estate and those of Insight Legal. He says the first cause of action alleges that in 2012, Brian intended to create a trust for Deborah’s benefit, and he then held his home and $50,000 on trust for her. She claims neither asset forms part of Brian’s estate, and seeks declarations and orders requiring they be transferred to her. In that sense, Dr Gray says, the claims are brought for her own benefit, not for the benefit of the estate or the beneficiaries. He says it is in the interests of the beneficiaries for Deborah’s claim to fail, as it is a claim that seeks to deprive the estate of assets.17
[24] Dr Gray says his obligations as trustee and executor of the estate require him to protect estate assets for the beneficiaries and to act reasonably in progressing and defending the estate’s interests. He says he believes he is required to represent the estate and defend the claim. He says he sees Deborah’s claims as without merit, and that there is no evidence Brian intended, after executing the 2015 will, to leave the house or the $50,000 on trust for Deborah.18
[25] Moving to Deborah’s second cause of action, Dr Gray deposes that it is not a claim made against Brian’s estate, or for the benefit of the estate. He says Deborah is
15 At [14]–[18].
16 At [19]–[21].
17 At [22]–[24].
18 At [25]–[31].
therefore wrong to suggest that it would be in the beneficiaries’ interests for the first cause of action to fail but the second cause of action to succeed. He says the factual allegations Deborah makes against the estate and Insight Legal are essentially the same.19
[26] For completeness, Dr Gray also addresses Deborah’s third and fourth causes of action. He says the third cause of action concerns alleged testamentary promises Brian made in respect of care Deborah claims to have given him and his wife between 2011 and 2014. He says this is a claim against the estate and he intends to defend it. As to the fourth cause of action, under the Family Protection Act 1955, Dr Gray says it is not a claim against the estate. He says he will take a neutral role as to its resolution.20
[27] Finally, Dr Gray addresses the issue of Robertsons’ joint representation of him and Insight Legal. He says he is aware of lawyers’ ethical obligations and does not consider there is any conflict of interest. He says Insight Legal shares this view, and he knows of no reason Robertsons could not act for both respondents. He says the respondents’ interests are aligned.21
Deborah’s affidavit in reply
[28] Deborah has made an affidavit in reply. She says she believes Dr Gray has been very selective in what he has said. She gives some additional background to the initial instructions surrounding the deed of acknowledgement of debt. She says that in late 2012, Brian was experiencing mobility issues and was in poor health, preventing him from going to Insight Legal’s offices. She says Brian told her that he had asked Insight Legal to come to him so that it could prepare a new will and associated documentation that would leave his entire estate to her.22
[29] Deborah deposes she was at Brian’s house when Insight Legal’s legal executive, Flora Burns, came to the house. Deborah says Brian explained that the
19 At [32]–[35].
20 At [36]–[38].
21 At [39]–[43].
22 Affidavit of Deborah Anne Swift in reply dated 10 June 2022 at [3]–[6].
arrangement was for her to have everything, and, in particular, the house. She says Brian stated a clear expectation that she would live in the house immediately after his death, and that $50,000 would be held on trust for her to meet day-to-day expenses and operation of the house until the execution of the will was completed. She says Flora then advised she would go away and prepare the relevant documentation.
Deborah says she thought Flora was acting for both her and Brian at this time.23
[30] Deborah says Flora returned to the house about a week later, presenting the deed of acknowledgement of debt to Brian and her. She says there was no further discussion or explanation at that time, with Flora simply asking Brian and Deborah to sign the document in her presence. She says Flora never suggested that Deborah should seek independent legal advice. She reiterates that she believed Flora was acting for her in respect of Brian’s testamentary arrangements.24
[31] Deborah deposes she never met or spoke personally to Dr Gray at this time and does not recall ever meeting him since. She says she is unable to understand how Dr Gray can make statements about what happened with the testamentary documentation when he was not involved in its preparation.25
[32] Moving to Dr Gray’s alleged demand for repayment of the $50,000 loan, Deborah says Dr Gray’s narrative is “completely disingenuous”. She says Dr Gray never made demand for repayment of the loan. Instead, he told her that she had to authorise the use of the $50,000 or she would have to pay the estate accounts personally. She says Dr Gray knew, or ought to have known, that the sum was not held on trust for payment of estate expenses. She says Dr Gray should instead have used the $200,000 in Brian’s bank account for that purpose.26
[33] Deborah says Dr Gray’s characterisation of her lodging of the caveat is also disingenuous. She says she thought her parents’ house was to be hers in its entirety, and that it came as a huge shock to learn that Brian had changed his will. She says Dr Gray’s resistance to her moving into the house was hurtful and she could not
23 At [7]–[8].
24 At [10]–[15].
25 At [17]–[21].
26 At [22]–[30].
understand why he was pushing to sell it. She says her lawyer advised her the only way to prevent Dr Gray selling the property was to lodge the caveat.27
[34] Deborah deposes that she sees Dr Gray’s interests as being to ensure that his and/or Insight Legal’s litigation costs are paid from the estate’s assets. She says this alone shows he has a conflict of interest. She says Dr Gray has been delaying the whole administration of the estate with the obvious interest of protecting himself and his firm.28
[35] Deborah then turns to address the dispute over which Brian and Deborah fell out: the disposition of Sally’s jewellery. She refers to a note said to have been written by Sally showing that her last wishes were that Deborah inherit the jewellery — a note Brian contended was forged. Deborah says Brian had significant memory loss issues at the relevant time, and that an Insight Legal letter dated 22 September 2015 effectively confirms the note was not forged. Deborah says it is clear that Sally left all her jewellery to her, that Brian’s allegations were wrong and baseless, and that Dr Gray was well aware of all of this. She says she cannot understand why Dr Gray allowed Brian’s 2015 will to be made in all these circumstances.29
Mr Lupton’s further affidavit
[36] Mr Lupton has made a further affidavit in response to Deborah’s reply affidavit. He deposes that he considers several of Deborah’s statements are incorrect. He says any suggestion that Brian lacked mental capacity to sign the 2015 will is unfounded. He says Insight Legal sought, and received, confirmation of capacity from Brian’s doctor at the relevant time.30
Applicant’s submissions
[37] Mr Judd, for Deborah, submits it is appropriate to apply a “unity of interest” test in determining whether parties can permissibly be represented by the same counsel
27 At [31]–[39].
28 At [40]–[51].
29 At [52]–[62].
30 Affidavit of Benjamin John Lupton in response to the plaintiff’s affidavit of reply dated 10 June 2022 at [1]–[4].
in the same proceeding. He says Robertsons must show that the interest of Dr Gray and the interest of Insight Legal in the subject matter of the proceeding is the same.31
[38] Mr Judd says the essence of the opposition in this case is that because there is a common factual foundation to the respondents’ respective defences, there is no conflict of interest and Robertsons can act for both. He says this premise is incorrect
— even if the factual foundation of the defences is the same, it does not follow the respondents have the same interest in the proceeding’s subject matter. He says that because the second cause of action is brought in the alternative and will not proceed if the first cause of action succeeds, there can be no community of interest between Dr Gray and Insight Legal. He says it is in Dr Gray’s interest for the first cause of action to fail, and in Insight Legal’s interest for it to succeed.32
[39] Mr Judd says the respondents’ approach to the application is falsely founded as they have not addressed the requirements of r 1.20. He says the merits of the claims are beside the point: what is relevant is that there is a clear and irreconcilable conflict between the respondents’ interests. The parties’ agreement as to their desired outcome does not mean they have the same interest. He stresses that the parties’ consent to joint representation is not enough; the Court’s leave is required.33
Respondents’ submissions
[40] Mr Holmes, for the respondents, submits that there is a commonality of interest in the respondents’ defence to the claims. He says both claims are founded on an allegation that Brian intended to create a trust, not a will, in 2012. He says both respondents deny there is any evidence of such intention, and the factual foundation of that defence is identical. He says there is an extraordinarily high threshold to clear for an order that counsel cease acting, and that threshold has not been reached here. He further submits that the plaintiff has not identified a conflicting interest — given
31 Submissions in support of application for declarations and orders on conflict dated 20 June 2022 at [28]–[42], principally citing Landmark Property Holdings Ltd v Shen Empire Ltd [2020] NZHC 893.
32 At [43]–[47].
33 At [49]–[63].
both causes of actions share a factual foundation, failure on the first cause of action necessarily entails failure on the second.34
[41] Mr Holmes submits there is a relevant common feature to Deborah’s first and second causes of action, in that while Deborah is a beneficiary of Brian’s estate, neither of those claims are brought in her capacity as beneficiary. He also says it is apparent that Deborah’s claims are not truly brought in the alternative, although they are pleaded that way. He says both claims rely on Deborah proving Brian intended to settle a trust in her favour in 2012. If that intention is not proven, both causes of action will fail.35
[42] Mr Holmes also submits that the respondents consider they have the same interest in the proceeding’s subject matter, and a community of interest in the determination of a substantial issue of fact: whether Brian intended to settle the contended trust in 2012. He says there is therefore no reason the respondents cannot be represented by a single lawyer in defending the claims. He says it is not the case that if one of the two causes of action fails, the other must succeed. Indeed, both may, and should, fail.36
Legal principles
High Court Rules
[43]Rule 1.20 of the High Court Rules provides:
1.20 Lawyers’ duties
(1)The duties imposed by these rules on lawyers do not limit a lawyer’s obligations to a client or another lawyer or the court under the rules of conduct and client care for lawyers in New Zealand or other applicable ethical rules or guidelines.
(2)A lawyer who acts for a party to a proceeding, or is a party to any proceeding, must not, without the leave of the court, act for any other party to the proceeding who does not have the same interest in the subject matter of the proceeding.
34 Synopsis of submissions dated 27 June 2022 at [1]–[4].
35 At [30]–[32].
36 At [33]–[36].
(3)In this rule, lawyer includes the partner of a solicitor to whom subclause (1) applies.
(4)In applying these rules, the court may have regard to the obligations referred to in subclause (1).
[44] The rule expresses the common law position that a solicitor occupies a fiduciary position and must not act in conflict of interest.37 The Court has inherent powers to determine who appears before it. It may disqualify solicitors and counsel from acting where necessary for justice to be done or seen to be done, or where allowing them to act would undermine the integrity of the judicial process.38 But the right of a litigant to his or her chosen representation is important, and not lightly to be disturbed.39 The threshold for removal is high.40 Of overriding importance is that solicitors and counsel maintain their professional independence.41
Lawyers and Conveyancers (Conduct and Client Care) Rules 2008
[45]Rule 6.1 of the Conduct and Client Care Rules provides, relevantly:
Conflicting duties
6.1A lawyer must not act for more than 1 client on a matter in any circumstances where there is a more than negligible risk that the lawyer may be unable to discharge the obligations owed to 1 or more of the clients.
6.1.1Subject to the above, a lawyer may act for more than 1 party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.
…
Analysis
[46] There is really only one question to be determined in this proceeding: Do Dr Gray and Insight Legal “have the same interest in the subject matter of the proceeding” for the purposes of r 1.20(2) of the High Court Rules? If so, then
37 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR1.20.01].
38 Black v Taylor [1993] 3 NZLR 403 (CA); Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155 at [32]; and Li v Liu [2018] NZCA 528 at [23].
39 Russell McVeagh McKenzie Bartleet v Tower Corp [1998] 3 NZLR 641 (CA); and Solicitor- General v Alice [2007] 1 NZLR 655 (CA); and Li v Liu, above n 38, at [23].
40 Accent Management Ltd v Commissioner of Inland Revenue, above n 38, at [16].
41 Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 (HC) at 590.
Robertsons can continue to act for both respondents in the proceedings without obtaining leave of the Court.
[47] Mr Judd submitted that r 1.20(2) was wider than just dealing with conflict of interest situations. The correct test is whether the parties for whom the same lawyer seeks to act have a “community of interest” in the outcome of the proceeding. He refers to the decision of Associate Judge Sargisson in Stickland v Drummond,42 which is arguably authority for the proposition that r 1.20(2) is limited to situations where the parties do not have adverse interests to each other. Mr Judd then proceeded to analyse the decisions relied on by Associate Judge Sargisson in reaching her decision. Mr Judd submitted that on proper analysis the decisions of Cottam v Gus Properties Ltd and Re Bishop Family Trust: Bishop v Bishop43 relied on by Associate Judge Sargisson in the Stickland case do not support the position that the rule is limited to dealing with parties who do not have interests adverse to each other.
[48] Mr Judd then submitted that a better analysis of the rule is set out in the decision of Landmark Property Holdings Ltd v Shen Empire Ltd.44 Briefly, the facts of that case were that there was a claim against individual members of the body corporate to seek to enforce a covenant between unit holders which would adjust the proportion of levies otherwise available, as well as an alternative claim against the body corporate itself that certain levies must only be raised as against the other defendants. The Court found that the body corporate did not share the same interest in defending the proceedings as the other defendants, in effect because it would be preferring some unit holders over others, in breach of its obligations to deal with the unit holders with an even hand.
[49] Mr Judd submits that the Landmark decision makes it clear that the test is whether the parties in question have “community of interest” and it is not sufficient that the parties have no conflict of interest. He refers to passages in the judgment of Jagose J as follows:45
42 Stickland v Drummond [2008] NZCCLR 12 (HC).
43 Cottam v Gus Properties Ltd HC Christchurch CP349/92, 27 April 1994; and Bishop v Bishop
HC Auckland CIV-2002-404-3634, 28 July 2006.
44 Landmark Property Holdings Ltd v Shen Empire Ltd, above n 31.
45 At [13].
Such considerations are not immediate when the issue is a lawyer acting for more than one party in proceedings. As noted, Rule 1.20 forbids it unless the respective parties have the same interest in the subject matter of the proceedings; if, together, they have a “community of interest”. That characterisation of the foundation for the representative proceedings has obvious resonance in the present context.
And further:46
Without the requisite community of interest, and acting for the body corporate in this proceeding, the lawyers required leave to act for any other party in the proceeding. Leave was not sought. The lawyers therefore “must not” act for any other party in the proceeding.
[50] Mr Judd also noted that in the Landmark decision, the wording “the same interest in the subject matter of the proceeding” in r 1.20 was equated with the same words in r 4.24, which relates to representative proceedings.
[51] Mr Judd then sought to apply the Landmark case to the present facts. His argument can be summarised as follows:
(a)The fact that the factual foundation of the defences by each respondent is the same does not mean that the first and second respondents have the same interests in the subject matter of the proceeding.
(b)Dr Gray’s duties are owed to the beneficiaries of the estate (compare the body corporate’s duty to all unit holders in the Landmark decision). The duty is to preserve the perceived assets of the estate. His interest is to defeat Deborah’s first cause of action. Robertsons is therefore required to use its professional skill and expertise to achieve that outcome, with undivided loyalty to Dr Gray’s interests.
(c)The second cause of action seeks damages from Insight Legal. If it is successful, Insight Legal and its indemnifiers will be required to pay damages to Deborah. It is an alternative. If the first cause of action succeeds, the second cause of action will fall away. Robertsons is required to use its professional skill and expertise to achieve that
46 At [17].
outcome, with undivided loyalty to Insight Legal’s interests (and also the interests of their indemnifier client).
(d)There can be no community of interest between Dr Gray and Insight Legal when the interests of Dr Gray is for the first cause of action to fail, and the interests of Insight Legal and its indemnifiers is for the first cause of action to succeed.
[52] Mr Judd continued on to discuss the decision of Credit Suisse Private Equity LLC v Houghton.47 That decision concerns the same wording as appears in r 1.20 and r 4.24. The Court held that r 4.24 allows one person to represent many if they have a substantial issue of law or fact in common. Elias CJ said:48
What constitutes “the same interest in the subject matter of a proceeding” under r 4.24 is assessed purposively to allow the representative proceeding to be “a flexible tool of convenience in the administration of justice”. It is sufficient if the party and those represented “have a community of interest in the determination of some substantial issue of law or fact”.
[53] On this point, Mr Judd concluded by submitting that if Dr Gray and Insight Legal desire the same outcome (that Deborah fails on both the first and second causes of action), that does not mean that they have the same interest. He submits that the possibility of two parties with different interests desiring the same outcome may be one of the reasons that r 1.20 is expressed as it is. These are circumstances where separate representation and the need for separate advice is required in the interests of the administration of justice.
[54] Mr Judd then spent some time in his submissions dealing with the particular circumstances around the alleged creation of the trust by Brian in favour of Deborah in 2012. He referred to the decision in Paul v Constance49 to make the point that no specific words are necessary to create a declaration of trust. In my view this submission is more relevant to a substantive hearing as to whether the declaration of trust was in fact made by Brian in favour of Deborah and it is not necessary, or appropriate, for me to deal with it in this judgment.
47 Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541.
48 At [2] (citations omitted).
49 Paul v Constance [1977] 1 WLR 527 (CA).
[55] Mr Holmes submitted, first, that the common feature of both the first and second causes of action of Deborah is that neither of those claims are brought by her in her capacity as a beneficiary of the estate:
(a)The first cause of action is brought against the estate but falls into the category of a “third party” dispute. Deborah seeks to deprive the estate of assets, seeking a declaration that the house and $50,000 do not form part of the estate. There is a clear obligation on the trustee and executor of the estate to defend against that claim. Mr Holmes cited the decision of Alsop Wilkinson (a firm) v Neary,50 where the duty was described as “a duty to protect and preserve the trust’s estate for the benefit of the beneficiaries and accordingly to represent the trust in a third party dispute”.
(b)The second cause of action is neither brought against the estate, nor on behalf of the estate. It is pursued by Deborah for her own benefit and she seeks damages, not from the estate but from Insight Legal.
[56] Next, Mr Holmes submitted that while the claims are pleaded as alternatives, they are not truly alternative claims. Both rely upon the plaintiff proving that Brian held an intention to settle a trust in 2012 so that he would hold the family home and
$50,000 on trust for Deborah, to be distributed upon his death. He submitted that if the intention to settle the trust in 2012 is not proven, then not only will the first cause of action fail, but so will the second. He submitted that if it is established that Brian’s intention in 2012 was to create a will to leave the family home to the plaintiff, then both causes of action must fail.
[57] Mr Holmes submitted that Dr Gray and Insight Legal have the same interest in the subject matter of this proceeding and a community of interest in the determination of a substantial issue of fact for the following reasons:
(a)the core factual issue which underlies both the first and second causes of action is exactly the same: the plaintiff must prove that in 2012 Brian
50 Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 (Ch) at 1222.
intended to settle a trust in favour of Deborah and from that time he then held the family home as trustee for her benefit;
(b)Dr Gray and Insight Legal’s position regarding this core issue is identical: they deny Brian expressed any such intention in 2012;
(c)although Deborah is a beneficiary of the estate, she is not pursuing a claim as a beneficiary, and Dr Gray’s obligation is to defend the estate against her claims; and
(d)if the Court accepts Dr Gray and Insight Legal’s account of the facts, Deborah’s first two causes of action both fail: they are not truly in the alternative although pleaded as such.
[58] Mr Holmes submitted that the submissions on behalf of Deborah distil down to a single submission (at [47] of Mr Judd’s submissions) that there can be no community of interest between Dr Gray and Insight Legal when it is in the interests of Dr Gray for the first cause of action to fail, and in the interests of Insight Legal and its indemnifiers for the first cause of action to succeed. Mr Holmes submitted this is wrong and for that to have happened Deborah would have needed to establish that in 2012 Brian did not intend to execute a will in which he would leave his property to Deborah. Were that established, then the facts required for the second cause of action would also be made out (as the documents drafted were a will, not a trust deed).
[59] In response to Mr Judd’s submissions regarding Paul v Constance and what may constitute a valid declaration of trust, Mr Holmes made reference to Jin v Knox Property Investment Ltd51 and Re Stallon,52 each dealing with an intention to create a trust. As I have commented at [54] above, these submissions are more appropriate for issues to be determined at the substantive trial and it is not necessary, or appropriate, for me to deal with these issues in this judgment.
51 Jin v Knox Property Investment Ltd [2016] NZCA 565, (2016) 18 NZCPR 280.
52 Re Stallon (1907) 51 Sol Jo 626.
[60] Mr Holmes also sought to distinguish the Landmark case from the present case. He submitted that in the present case Deborah is not bringing any claim as beneficiary of the estate (as discussed at [55] above). Consequently, there is no issue in the present case of treating beneficiaries of the estate differently (analogous to the issue of the body corporate treating the unit holders differently in the Landmark decision).
Conclusion
[61] I am of the view that Mr Holmes’ submissions are correct. Deborah’s first and second causes of action are not truly alternatives, and either both will succeed or both will fail. Consequently, I am of the view that Dr Gray and Insight Legal have the same interest in relation to the proceedings.
[62] Accordingly, in my view, r 1.20 is not engaged and Robertsons can continue to represent both Dr Gray and Insight Legal in these proceedings without leave of the Court.
Result
[63]I make the following orders:
(a)the application by Deborah is dismissed; and
(b)costs are awarded to Dr Gray and Insight Legal on a 2B basis.
…………………………….. Associate Judge Taylor
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