Turner v Sigglekow

[2013] NZHC 893

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2006-409-1172 [2013] NZHC 893

BETWEEN  NOELINE JANE TURNER Plaintiff

ANDCHRISTELLE JANE SIGGLEKOW First Defendant

ANDNAMEL LIMITED Second Defendant

ANDQBE INSURANCE (INTERNATIONAL) LIMITED

Third Defendant

Hearing:         15 March 2013

Counsel:         Plaintiff in person

AJ Davis for First Defendant
L Adams for Second and Third Defendants

Judgment:      26 April 2013

JUDGMENT OF PANCKHURST J

The claim

[1]      This proceeding was filed in May 2006.  It has a troubled history.  This need not be recounted, as it is set out in previous interlocutory judgments of the Court. The background to the claim is a townhouse development in Durham Street, Christchurch in the mid 1990’s.  Mrs Turner was the developer.  Ms Sigglekow was a real  estate  agent  retained  to  sell  the  four  townhouses.    She  worked  for  Namel Limited (then named Rolle Limited).  QBE is the insurer of Namel.

[2]      The gist of the claim is an allegation that Ms Sigglekow was instrumental in selling the townhouses at an undervalue with the result that Mrs Turner received

TURNER V SIGGLEKOW AND ORS HC CHCH CIV 2006-409-1172 [26 April 2013]

approximately $176,000 less than true market value for the properties.   In round figures this difference is claimed, together with general damages of $200,000, exemplary damages of $50,000 and interest.  The major cause of action is breach of fiduciary  duty  on  the  part  of  Ms  Sigglekow,  for  which  Namel  is  said  to  be vicariously liable.

[3]      The  matter  for  my  determination  is  the  review  of  a  decision  by  which Mrs Turner was ordered  to provide security for costs in the sum of $80,000 in relation  to  the  costs  of  Ms  Sigglekow  and  of  Namel/QBE.     Mrs  Turner  is impecunious having previously been bankrupt.   She contends that the order made against her is not just in all the circumstances.

Some further background

[4]      The background is complete.   In early 1994 Mrs Turner purchased land in

Durham Street for $122,500.  She borrowed this sum from a bank.  It also advanced

$400,000   to   fund   the   development   cost   of   four   townhouses.      Her   son, Roderick Turner, was to manage the project.

[5]      In mid 1995 the four townhouses were sold off the building plans for a total of $634,000, representing various prices between $155,000 and $160,000.  Actual construction  of  the  townhouses  was  completed  in  late  1996,  subject  to  some finishing work.   In February 1997, however, there were negotiations involving the bank,  which  resulted  in  a  global  settlement  whereby Mrs Turner  only  received

$570,000 for the four units from the purchasers.

[6]      This enabled trade creditors to be paid, but not a sum owing to the Inland Revenue Department for GST.  Later, Mrs Turner was bankrupted and her home was sold to meet this debt.

[7]      In 2001 Roderick Turner and his wife sued Ms Sigglekow and Rolle Limited in the District Court alleging similar breaches to those asserted in this proceeding. Following  an  eight  day  hearing  the  claim  was  dismissed  on  the  basis  that  the Durham  Street  development  belonged  to  Mrs  Turner  senior.     Hence,  Judge

Somerville concluded that Roderick Turner and his wife had no claim against the defendants.   Indeed, because certain documents had been forged to support their standing as claimants, the Judge referred the matter to the Police.  This resulted in a prosecution and Mr Turner’s imprisonment.

[8]      In  these  circumstances  it  was  not  appropriate  for  Judge  Somerville  to determine the merits of the claim.   However, in recounting the history of the development he observed:[1]

[1] Turner v Rolle Limited and Sigglekow DC Christchurch NP 2108/01, 10 November 2003, at [11].

The loss made by the development and Mrs N J Turner’s subsequent bankruptcy clearly resulted from the reduction in the sale price at the time of settlement.

The Judge also added a postscript to his decision which included this:[2]

...  the  principal  reason  for  [Mrs  Turner’s]  bankruptcy  was  [Roderick Turner’s] own ineptitude as a developer.   He embarked on a particularly risky venture in her name and with little or no capital involved.  At the end of  the  development,  there were  insufficient  funds  to  complete the  work needed before settlement of the flats could proceed.  It was a situation open to exploitation and [Mr Turner] must accept responsibility for having created it.

[2] At [35].

[9]      The Judge also awarded solicitor and client costs in favour of Rolle Limited given the fraudulent background to Mr Turner and his wife’s claim.   However, in relation to Ms Sigglekow no costs were awarded because he considered ‘she has not behaved honourably’ and her ‘hands are far from clean in these proceedings’.[3]  These observations were not couched as formal findings, but as factors relevant to the assessment of costs.

The decision of the Associate Judge

[3] At [38] and [40] respectively.

[10]     Associate Judge Matthews recognised that were an order for security made the likely result would be that Mrs Turner could not pursue her claim.  He therefore proceeded  on  the  basis  that  security  should  only  be  ordered  if  after  careful

consideration he was of the view the claim had little chance of success, while also

bearing in mind the interests of the defendants.[4]     He then noted there was clear evidence that Ms Sigglekow had acted in breach of her duties as a real estate agent, was therefore in breach of her fiduciary obligations and possibly in breach of the Real Estate Agents Act 1976 as well. These observations require a little explanation.

[4] Turner v Sigglekow and Others [2012] NZHC 2101 at [19].

[11]     Two  of  the  townhouses  were  sold  in  1995  for  $160,000  to  ‘Mrs  J  S’. Evidence at the District Court hearing indicated that Mrs J S was likely a front for Ms Sigglekow and her then spouse.  After these two townhouses were each acquired for $142,500 in February 1997, one of them was immediately on-sold for $186,500 to an independent buyer.  This on-sale became the lynchpin of the claim by Roderick Turner and his wife in the District Court.

[12]     In light of these aspects the Associate Judge assumed that liability may be established and focused upon the damages claim.  He identified various matters of concern. These were:

(a)      There was no valuation evidence to show that the market value of the townhouses in 1995 was in fact greater than the sums for which they were sold.

(b)There was no evidence to suggest that the on-sale price achieved for townhouse one in February 1997, $186,500, represented its market value in 1995.

(c)      Even if $186,500 was the market value of townhouse one in 1995, it could not be safely inferred that this was the market value of the other three townhouses.

(d)There was no evidence to indicate why Mrs Turner accepted a global sale figure of $570,000 in 1997, nor evidence to support the pleaded

allegation that Ms Sigglekow ‘induced’ Mrs Turner to do so.

(e)      Had Mrs Turner not accepted the $570,000 global figure, she would have received an additional $60,000 (or at least $46,500), sufficient to cover (or almost cover) the GST liability, and avoid bankruptcy and her present financial situation.

(f)      There was “no readily apparent basis” to support the general damages claim of $200,000.

(g)The exemplary damages claim of $50,000 was “well outside the established range” for such awards.

These factors prompted the concern that there were ‘major causation and quantification difficulties’ in relation to the damages claim.   However, the Judge accepted there was more strength in the claim for a refund of the commission paid to Ms Sigglekow, an amount of $23,197.

[13]     In light of the principle that it may be unjust for defendants to be ordered security for costs if their actions had caused the plaintiff ’s impecuniosity, the Judge considered whether there was evidence to suggest a nexus between Ms Sigglekow’s actions and Mrs Turner’s precarious financial situation.   He rightly noted that the assertion  of a nexus  is insufficient;  there must  be some  persuasive  evidence to indicate the reasonable probability of one.

[14]     As to this there was no evidence of Mrs Turner’s financial position prior to the development project, the funding needed to acquire the land and build the townhouses  was  borrowed,  and  the  indications  were  that  the  reduced  global settlement figure was necessary to induce the purchasers to settle, while $570,000 was less than the sum owed to the bank, but sufficient to secure a release of its mortgage.  Further, as Judge Somerville had observed, the townhouse venture was risky and Roderick Turner’s ineptitude probably caused the difficulties encountered at settlement in early 1997.

[15]     In light of these various factors the Associate Judge found that there was no adequate evidential basis to establish a nexus between Ms Sigglekow’s actions and Mrs Turner’s impecuniosity, rather a mere assertion to that effect.

[16]     Finally, the Judge noted that the defendants (save for QBE) had already been embroiled in an eight day hearing in the District Court, at which Mrs Turner gave evidence in support of her son and daughter-in-law’s claim.  However, he considered that security was ‘not ordered to admonish’, and therefore put Mrs Turner’s participation in the earlier hearing aside.  Given his assessment of the merits, and the absence of a nexus between the agent’s conduct and Mrs Turner’s financial situation, he concluded that security for costs should be ordered.

[17]     In  relation  to  quantum  the  hearing  time  estimate  was  two  weeks  which indicated that scale costs in favour of Ms Sigglekow and Namel/QBE would be of the order of $50,000 each, if the defendants were successful.

[18]     A previous offer of settlement was then considered. As at May 2012 the case was scheduled to be heard commencing on 2 July 2012.  Mrs Turner’s solicitor and counsel sought leave to withdraw from their respective roles, largely because legal aid had been withdrawn.  This followed an offer of settlement in the sum of $70,000 which was declined by Mrs Turner, a decision that prompted a withdrawal of legal aid.   The legal representatives were granted leave to withdraw, Mrs Turner was unrepresented and the hearing was vacated.

[19]      The Associate  Judge  reasoned  that  even  if  Mrs  Turner  enjoyed  partial success at trial ‘she would need to recover more than $70,000 before any costs will be awarded ...’ in her favour.  Hence the Associate Judge understood that the $70,000 settlement proposal remained extant and would remain in place at trial.   In fixing security in the sum of $40,000 in favour of Ms Sigglekow and Namel/QBE the Judge

observed:[5]

[5] At [42].

... This represents a substantial proportion, but not all, of the costs which on realistic assessments the defendants are likely to be awarded.

Analysis

[20]     There are three broad issues to be considered in reviewing the Associate Judge’s decision.  These are whether his assessments that the claim had little chance of success and that there was no evidence of a link between the defendants’ actions and Mrs Turner’s impecuniosity are soundly based; and whether the  amount of security is appropriate.

Does the claim have little chance of success?

[21]     An order for security for costs is discretionary in nature, and accordingly Mrs Turner must  establish  that  the Associate Judge’s  exercise  of  discretion  was flawed because he failed to take into account some relevant matter, took account of an irrelevant matter, or wrongly applied a legal principle.  Unfortunately, the review was not advanced by Mrs Turner with regard to these requirements.   Instead, the argument comprised assertions that the claim is meritorious, Mrs Turner has no means to pay security, her impecuniosity was caused by the actions of Ms Sigglekow and in applying for security the defendants ‘oppressively seek to prevent the plaintiff’s case from coming before this Court’.   With regard to the merits of the claim, for example, Mrs Turner’s submission states that the Associate Judge’s portrayal of weaknesses in the claim ‘were surely matters for trial and not matters to be referred to or utilised in any attempt to diminish or destroy the plaintiff ’s case ...’.

[22]     Accordingly, in reviewing the decision I am reliant upon the materials on the Court file and such oral submissions as were made at the hearing in response to my questioning.  A matter was also raised by me subsequent to the hearing by a minute dated 15 April 2013.  The minute asked the defendants to confirm whether the offer of settlement made in mid 2012 was still extant since it was apparent from the Associate  Judge’s  decision  he  proceeded  on  this  basis.     He  considered  that Mrs Turner would have to receive damages in excess of $70,000 in order to succeed at trial.  Counsel for the defendants confirmed in writing that the offer is extant.

[23]     Hence,   the  Associate   Judge’s   approach   to   assessing   the   merits   was

appropriate.  Where a sale is tainted by a breach of fiduciary duty on the part of a

real estate agent the normal measure of damages is the difference between the sale price and the then market value of the property:   Stevens v Premium Real Estate Limited.[6]   The seller is also ordinarily entitled to recover the commission paid, as a breach of fiduciary duty disentitles an agent to reward.[7]

[6] Stevens v Premium Real Estate Limited [2009] 2 NZLR 384 (SC).

[7] At [90].

[24]     The difficulty in this case lies in predicting the likely outcome at trial.  I agree it was appropriate to focus upon the quantum of damages, reflecting an assumption that Mrs Turner would establish a breach of fiduciary duty.   But, what level of damages may result? Two aspects require consideration.

[25]     The four units were presold (before construction) for a total of $634,000. Post construction, about 18 months later, the global selling price was reduced to

$570,000 following negotiations involving the bank, Roderick Turner and the purchasers.  The statement of claim alleges that Ms Sigglekow ‘through her actions and breaches of fiduciary duty induced and/or caused (Mrs Turner) to enter into (the) global settlement’, but the basis for this assertion is unclear.   Such indications as there are show that as at late 1996 Mrs Turner’s financial situation was difficult, the bank was pressing for repayment of its advances, the units required some finishing work and the buyers paid reduced prices because of the required finishing work. While full evidence of Ms Sigglekow’s actions is not required, some concrete indication of why it is alleged she manipulated the price reduction was needed.  This was not provided.   In this situation I think it appropriate to pay some regard to Judge Somerville’s reasons for the development’s failure (see [8]).

[26]     The second aspect concerns the immediate on-sale of townhouse one for

$186,500 in February 1997 soon after the global settlement had occurred.  The on- sale realised a profit of $26,500 by reference to the originally agreed sale price of

$160,000, or $44,000 by reference to the reduced sale price paid in early 1997. Either way, this was a significant gain apparently to the benefit of Ms Sigglekow and her  then  spouse.    But,  as  Stevens  confirms  damages  flowing  from  a  breach  of

fiduciary duty are assessed by reference to market value, not the on-sale price.  Here,

there is the further complication that the four units were presold in mid 1995 and the on-sale was over 18 months later.

[27]     The Associate Judge also noted that an advantageous on-sale of one unit did not establish a pattern applicable to all four units.  I agree.  Yet this is the basis upon which Mrs Turner’s claim is advanced.

[28]     Like  the Associate  Judge,  my  impression  is  that  Mrs  Turner’s  claim  is

overstated.   That Ms Sigglekow took an undisclosed interest in two units in mid

1995 for $320,000 suggests that she anticipated there was a profit to be made when the sales were settled following construction.  But in my view Mrs Turner will need to establish that the agreed sale prices in mid 1995 were below then market value, or perhaps below anticipated market value at the completion date.  How this is to be achieved, and at this distance, is unexplained.

[29]     For these reasons, which broadly mirror those of the Associate Judge, I agree that the claim appears to have little chance of success.  I do not overlook the claims for general and exemplary damages, but the amounts claimed are excessive and the basis unstated and uncertain.   The claim for a refund of commission must be considered on a unit by unit basis.  It cannot be assumed that the total commission may be recoverable, if as I apprehend any breach of fiduciary duty is confined to two of the units.

Did Ms Sigglekow’s actions cause Mrs Turner’s present impecuniosity?

[30]     A similar problem exists in relation to this aspect.  While it is fairly apparent that the Durham Street development caused Mrs Turner’s financial downfall in the late 1990’s, and eventually her bankruptcy, there is only scant material concerning her financial position at that time, let alone now.

[31]     Discovered documents on file confirm that Mrs Turner owned a residential

home in Christchurch which appears to have been subject to an ‘existing loan’ of

$100,000 when finance for construction of the units was sought.   It is not clear whether the existing loan related to purchase of the Durham Street land, or predated

this.  The bank mortgage secured a maximum amount of $390,000.  A March 1999 valuation indicated that Mrs Turner’s home had a market value of $290,000, but otherwise no financial details are provided.  Mrs Turner is a superannuant, aged 88 years, and she faces a bankruptcy proceeding based on unpaid costs orders in this proceeding.

[32]     Mrs Turner’s present financial situation appears to be dire, but whether this can be attributed to Ms Sigglekow’s actions about 15 years ago is not established.  In the result there is no basis to find that the Associate Judge erred in fact or law in concluding that there was no adequate material to show a nexus between a breach of fiduciary duty and Mrs Turner’s impecuniosity.

The amount of security fixed - $80,000

[33]     The amount of security ordered is at the Court’s discretion.  The amount is to be ‘a sum that the Judge considers sufficient’:  r 5.45(3)(a) of the High Court Rules. Orders made in other cases are of no or little assistance.  An individual discretionary evaluation is required.

[34]     Had the decision been mine I doubt that I would have ordered security in the sum of $40,000 to both the first defendant and the second/third defendants, rather a somewhat lesser sum.   But, in this highly discretionary area I cannot say that the Associate Judge erred in his approach to this aspect.  He reasoned that trial costs if the defendants were successful would be of the order of $100,000, and that the greater part of this figure should be provided as security.   This was a principled approach to this question.

[35]     For these reasons the review of the Associate Judge’s decision is dismissed.

A matter of concern

[36]     Arising from the hearing of this review I am greatly concerned as to Mrs Turner’s present predicament.  She is an elderly lady, and although in command of her faculties was quite unable to speak in support of her review of the Associate

Judge’s decision.  Her son, Roderick Turner, sat beside her to provide support, but within minutes she asked whether he could assist her.   Once permitted to speak Mr Turner was unstoppable.   He is articulate, confident and obviously entertains strong views concerning this proceeding.

[37]     Given  the  circumstances  discussed  earlier,  including  the  observations  of Judge Somerville, I am of the view that Mr Turner is in effective control of the proceeding, not his mother.  I am also concerned as to the basis on which Mrs Turner rejected the offer of settlement in May 2012.  She had legal advice at that time, but whether the decision to reject the offer was truly hers, I am doubtful.

[38]     In any event, matters have moved on, including the making of the order to pay security for costs.  I consider it is appropriate to appoint amicus curiae (a legal adviser) to independently provide advice to Mrs Turner in light of this judgment.  It is  necessary  that  this  is  done  as  a  matter  of  urgency,  in  part  because  of  the bankruptcy proceeding in this Court.

[39]     Ms Karen Feltham has agreed to accept appointment to advise Mrs Turner. She will be provided with a copy of this judgment and written advice from the registry.

Further directions

[40]     I make the following directions:

(a)       Ms Feltham is appointed to provide urgent advice to Mrs Turner in relation to the offer of settlement,

(b)payment of the sum of $80,000 as security for costs, or the provision of security for that sum to the satisfaction of the Registrar, is to occur within 15 working days of Ms Feltham providing a confidential report to the Court concerning the result of her attendances upon Mrs Turner,

(c)       in the meantime, the proceeding is stayed,

(d)leave is reserved to the defendants to revert to the Court for further directions, both generally and should the settlement offer not be accepted and security not paid, and

(e)       costs are reserved.

Solicitors:

AJ Davis: [email protected]

L Adams:  [email protected]