Unkovich v Bilbe HC Auckland CIV 2010-404-5098

[2010] NZHC 2088

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-005098

BETWEEN  ZELJAN ALEXANDER UNKOVICH Appellant

ANDCARL ROBERT BILBE AND RACHEL ANNE BILBE

Respondents

Hearing:         16 November 2010

Counsel:         P J Napier for the Appellant

D Grove for the Respondents

Judgment:      16 November 2010

(ORAL) JUDGMENT OF WOOLFORD J

Solicitors/Counsel:

P Napier, Keegan Alexander, PO Box 999, Shortland Street, Auckland 1140. DX CP21504. Email:  [email protected]

D Grove, PO Box 130, Shortland Street, Auckland 1140. Email:  [email protected]

ZELJAN ALEXANDER UNKOVICH V CARL ROBERT BILBE AND RACHEL ANNE BILBE HC AK CIV-

2010-404-005098  16 November 2010

Introduction

[1]      The  appellant  is  a  solicitor.     He  received  instructions  to  act  for  the respondents in the purchase of a property described as Unit 15, 46 Carlos Drive, Flatbush, Auckland.  The vendor company was said to be a Blue Chip subsidiary. The respondents signed an unconditional agreement for sale and purchase of the property on 3 May 2007.   The appellant received the agreement under cover of a letter  dated  7  May 2007.    A  solicitor  employed  by  the  appellant  wrote  to  the respondents by email on 9 May 2007 acknowledging instructions to act.

[2]      The agreement had significant shortcomings and did not sufficiently protect the interests of the respondents.  The appellant did not bring the shortcomings to the attention of the respondents.   Nor did he advise the respondents of their statutory right to cancel the agreement under s 225 of the Resource Management Act 1991 within 14 days of the agreement.   The respondents subsequently lost their deposit when the Blue Chip group of companies collapsed.  They also incurred other losses.

[3]      The respondents sued the appellant for negligence.  In a reserved judgment dated 9 July 2010, the District Court held that the appellant had been negligent and ordered the appellant to pay the respondents $5,000 general damages and special damages of $150,113.   In a subsequent judgment as to interest and costs dated

20 August 2010, the District Court fixed costs at 30 percent above category 2B.

[4]      The appellant does not appeal against the primary finding of negligence.  He appeals against the District Court’s secondary finding that the respondents were not contributorily negligent, the quantum of special damages and the uplift of scale costs.

Contributory negligence

[5]      The appellant’s statement of defence specifically pleaded that if he was liable to the respondents then  the quantum of damages should be reduced due to the respondents’ own negligence.  It was alleged that the respondents were negligent in entering into the agreement without properly comprehending it and without seeking

professional advice as to the obligations, benefits and risks arising from the agreement.

[6]      The District Court dealt with the issue of contributory negligence at [79] of the substantive judgment.  It stated:

[79]      In my view the signing of the agreement was not causative of any loss.  The clear cause of loss was Mr Unkovich’s failure to advise Mr and Mrs  Bilbe  on  risk  elements  including  that  Parley  Ltd  did  not  own  the property, the deposit was excessive and that the Bilbes had the right to cancel the agreement under s 225 of the Resource Management Act.  I find that as Mrs Bilbe said, the advice would have indicated that they had been lied to by the Blue Chip agent.  I find that had the Bilbes received that advice their confidence in the transaction would have been shaken to the point that cancellation would have followed and there would have been no loss.

[7]      The appellant submits that the above paragraph is plainly wrong.  He states that but for the signing of the agreement no loss would have been suffered and accordingly it must be a cause of loss.  He submits that the real issue is whether there was a failure on the respondents’ part to take all reasonable care for themselves.

[8]      When a defendant asserts contributory negligence on the part of a plaintiff, the burden of proof is on the defendant.  The learned authors of The Law of Torts in New Zealand (5th ed) state at p 991:

Whether the conduct constitutes contributory negligence is a question of fact and is determined by whether the plaintiff acted reasonably in all the circumstances.   The defendant simply needs to show that the plaintiff did not, in his or her own interest, take reasonable care of himself or herself and contributed by this want of care to his or her own injury.  This is judged by the familiar test of reasonable foreseeability.   ‘A person is guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonable, prudent man, he might be hurt himself; and in his reckonings  he  must  take  into  account  the    possibility  of  others  being careless’.  The principle involved is that where a man is part author of his own injury, he cannot call on another to compensate him in full.

[9]      Similarly, Richardson J stated in Mouat v Clark Boyce:[1]

Whether or not a plaintiff has been contributorily negligent is a practical question to be decided on common sense principles. In essence, contributory negligence connotes failure on the part of the person suffering damage to take reasonable care of himself (or herself) in his (or her) own interests.

[1] Mouat v Clark Boyce [1992] 2 NZLR 559 at 572.

[10]   The appellant submits that the respondents were both persons who had undertaken higher education, held managerial positions and had previously bought and sold property.  They had received material from Blue Chip informing them that the agreement was legally binding and therefore before entering it they should both be completely comfortable with the risks and costs involved and take independent professional advice.

[11]     The appellant submits that without taking any advice, the respondents entered into a binding agreement or, if Mr Bilbe is to be believed, he signed a binding agreement without knowing whether he would be bound by it.   The appellant accordingly  submits  that  entering  into  this  binding  contract  at  the  centre  of  a complex deal without fully comprehending the risks or seeking any advice as to them is failing to act reasonably and prudently such that it constitutes contributory negligence.

[12]     On the other hand, the respondents submit that they entered into what they thought was a standard agreement for sale and purchase and then specifically instructed the appellant to act for them.  They submit they were not negligent and the cause of the loss was the failure by the appellant to advise them of their right to cancel the agreement pursuant to s 225 of the Resource Management Act.

[13]     As noted above, the District Court finding is a question of fact.  Accordingly, it should not be disturbed by an appellate Court unless the Court is reasonably satisfied that the decision was one that could not reasonably be supported on the whole of the evidence.

[14]     Although the respondents had undertaken higher education, held managerial positions and had previously bought and sold property they did not have any particular legal or financial experience.  Their previous property dealings all appear to be the sale and purchase of successive family homes.

[15]     In my view the respondents also could not be expected to appreciate the significance of the agreement they signed, in particular, the deletion of clause 2.4, the stakeholder clause.  Although the agreement was unconditional the respondents

had the statutory right to opt out of the agreement within 14 days of its signature. This seems to me to be a statutory recognition that sales “off the plans” carry an element of risk and that purchasers should have the opportunity to reconsider their decision upon reflection and/or receipt of competent independent advice.

[16]     Although the signature of an unconditional agreement was the first act in a series of acts or omission which led to the respondents’ loss, the question in reality is whether in signing the  agreement without seeking legal advice,  the respondents failed to act reasonably and prudently.

[17]     In  this  case  the  respondents  did  not  sign  the  agreement  without  having received any advice at all.   They made their own inquiries.   Representations were also made to them by Mr Shaikh, a Blue Chip investment advisor.  He told them it was a very low risk investment which required minimal input from themselves.  He said  Blue  Chip  had  a  valuation  of  the  property  and  that  they  were  buying  at valuation.  The respondents relied on Blue Chip and the fact that they thought it had expertise in property development.

[18]     The fact that there is a statutory right to opt out of the agreement is in my view of primary importance in this case.  Parliament has determined that purchasers who enter an unconditional agreement to purchase property off the plans are not to be immediately bound by the agreement.  It is a recognition that even reasonable and prudent persons can sign an unconditional agreement and then change their mind upon receipt of specialist legal advice.

[19]     The  finding  that  the  respondents  were  not  contributorily  negligent  was therefore a factual finding that the District Court was able to make.  It was solidly grounded in the evidence and reached only after a comprehensive and reasonable consideration of the essential facts.  There are no grounds to disturb it.

Special damages

[20]     In determining the quantum of special damages, the District Court stated that it had to decide the case on the evidence rather than the figures set out in the

amended statement of claim.  It also stated that Mr Bilbe’s evidence on quantum was not challenged.

[21]     In his written submissions the appellant submits the District Court erred in finding that the quantum of special damages to be awarded was to be ascertained on the evidence without reference to the pleadings.  He submits that r 11 of the District Court Rules 1992 (which relates to a power to amend defects and errors in pleadings) applies  and  no  application  was  made  to  amend  the  proceedings.    He  therefore submits that the District Court did not have power to award a quantum of special damages which did not match the pleadings.

[22]     It is also submitted by the appellant in his written submissions that he was prejudiced by making an award different from that pleaded and counsel would have cross-examined  witnesses  about  whether  all  of  the  monies  borrowed  were  put towards payments required by the agreement.  The appellant speculates that some of the monies borrowed may have been used for general living expenses or other costs.

[23]     The respondents submit that the damages claimed were particularised in a statement of claim and that the quantum was specifically pleaded by way of the respondents’ response to a request to provide further and better particulars.

[24]     Finally, they submit that a witness statement was provided before trial setting out exactly the quantum sought and updating the claim in relation to the further interest accrued and the credit applied in relation to tax refunds which reduced the claim.  The claim was opened and closed on the basis of the quantum set out in the witness statement according to the respondents.

[25]     In his oral submissions, Mr Napier for the appellant changed tack somewhat and submitted that the real issue was whether it was proper to calculate quantum on the basis of money paid out or money borrowed.   He submitted that it should be calculated on the basis of money paid out, but accepted that in this case it may make very little difference.

[26]     Upon reviewing the documentation, it is evident that the statement of claim dated 25 July 2008 sought special damages of $136,500 on the basis that the respondents had incurred a net loss of $137,500 together with ongoing interest from which a reasonable allowance for the appellant’s legal fees was $1,000.   There followed a request for further and better particulars dated 25 February 2010 in which the specific question was asked:

How exactly is the $137,500 calculated?  Please stipulate the sum relating to each payment referred to at paragraph 27 [of the statement of claim] above.

[27]     The respondents replied to this request on 11 March 2010 and specified a loss of $152,026.63 plus ongoing interest.  I note that the sum specified in this reply in fact exceeds the award of special damages later made by the District Court.

[28]     The plaintiffs filed and served an amended reply to the request for further and better particulars two weeks later on 25 March 2010 which specified the interest rates paid by the respondents.   Finally, a witness statement of Mr Bilbe regarding quantum was filed and served immediately prior to the hearing.   It is this witness statement which set out the final figure sought of $150,113.

[29]     The appellant submits that there is no power to give an award which does not match the pleadings.  Even if this is the case, the statement of claim dated 25 July

2008 sought “Judgment in the sum of $136,500 together with further interest payable to ASB”.  In addition, there is a further claim for interest in the statement of claim which is not particularised.  In those circumstances, it seems to me that the appellant was well aware of the extent of the claim for special damages and had been put on notice by the statement of claim that the respondents sought interest which was unspecified at the time, but later specified in the respondents’ two replies to the request for further and better particulars, and in the witness statement regarding quantum.

[30]     In those circumstances an amendment to the pleadings was not required.  The appellant also had the opportunity to cross-examine witnesses on the exact quantum of loss and to question them whether some of the monies borrowed may have been used for general living expenses or other costs.  During the course of the proceedings

the damages sought were particularised on the basis of money paid out, but at trial the final calculations were made on the basis of money borrowed.   However, as Mr Grove  submitted  the  money borrowed  was  the  money paid  out.    There  are therefore no grounds to disturb the level of special damages awarded in this case. The quantum was not challenged at trial.

Uplift of scale costs

[31]     The District Court ordered an uplift on scale costs of 30 percent on the basis set out in [16] of its judgment as to interest and costs:

[16]      However, in my view there were two aspects about the way in which the defendant conducted his defence at trial which unnecessarily prolonged the hearing.  As I commented in the reserved judgment, the defence placed on the evidence of Mr Eades had been tried before and described in unfavourable terms by the Court of Appeal.   Further, there was no reason advanced as to why Mr Eades had been briefed to assume there was a limited retainer in this case.

[32]     The appellant submits that there was no proper basis for an uplift of costs and further that the bases upon which the District Court founded its decision to grant an uplift were wrong.  The appellant submits that the comments of Hammond J in the Court of Appeal case of Bartle v GE Custodians Ltd[2]  related to the pre-retainer representations that the solicitor acting for the Bartles made which influenced the decision of Mr and Mrs Bartle to enter the contract.  It is submitted that these are not relevant to the case against the appellant.

[2] Bartle v GE Custodians Ltd [2010] NZCA 174.

[33]     The appellant also submits that in the absence of Mr Eades’ evidence there could be no proper defence as to liability.  Essentially, it is submitted that the District Court granted an uplift in costs as a result of the appellant properly defending the claim.  The decision to do so was said to be based on the advice given by Mr Eades, an experienced and respected practitioner.

[34]     In  response,  the  respondents  submit  that  an  appellate  Court  should  not interfere with a costs decision unless satisfied that the Judge acted on a wrong

principle, failed to take into account some relevant matter, took into account some irrelevant  matter,  or  was  plainly  wrong:    Shirley  v  Wairarapa  District  Health Board.[3]

[3] Shirley v Wairarapa District Health Board [2006] 3 NZLR 523 at [15].

[35]     The respondents also submit that if Mr Eades had not maintained the position that the scope of the appellant’s retainer was limited, the only issue to be dealt with at trial would have been quantum.  This would have significantly reduced the time for the trial and costs, particularly in relation to the need to call the expert evidence of Mr Nolan and Mr Eades and the majority of the respondents’ evidence.

[36]     As to the first of the two aspects relied upon by the District Court to uplift scale  costs by 30  percent, being the  comments of Hammond J  in Bartle v GE Custodians Ltd, the District Court did acknowledge there were factual differences between the Bartle case and the present case.   However, the significance of those factual differences was not identified.

[37]     It seems to me that there were significant factual differences which make it difficult to place much if any weight on the comments of Hammond J.  At [91]–[93] of the Court of Appeal judgment, Hammond J was referring to a duty of care found by Randerson J in High Court to be owed by the Bartles solicitor prior to a contract of retainer.  In that case, a contract of retainer did not exist between the Bartles and their solicitor until he received formal instructions to act on their behalf after the agreement for sale and purchase was executed.  There is no suggestion here that the appellant owed a duty of care to the respondents prior to the contract of retainer.

[38]     Furthermore, the limited scope of the appeal in the Bartle case was noted by

Hammond J when he stated at [6]:

It is as well to be clear at the outset that all that this Court is asked to decide on this appeal is whether the credit transaction is susceptible to being re- opened under the CCCF Act.

[39]     The second aspect of the case relied upon by the District Court to uplift scale costs by 30 percent was that there was no reason advanced as to why Mr Eades had been briefed to assume that there was a limited retainer in this case.   There was,

however, no direct evidence that Mr Eades had been briefed to assume that there was a limited retainer.   An inference was drawn by the District Court at [51] of the substantive judgment that he must have been briefed on that basis.

[40]     In his affidavit sworn 4 September 2008, Mr Eades stated at paragraph 22 that he was not sure what was contended to be the extent of the appellant’s retainer. He noted that the appellant was not consulted before the respondents entered into the contract.  His office proceeded with the conveyancing upon the basis that that was what was required.  There was nothing to indicate that the respondents specifically sought advice on the transaction as a whole, or specifically required advice on the downside or risks of the transaction, or had any qualms about proceeding, far less inquired whether they could escape the contract.

[41]     In giving his evidence, Mr Eades also made it plain that it was a factual matter for the Court to decide what the retainer was (notes of evidence page 73, line 14).

[42]     At paragraph 26 of his affidavit sworn 4 September 2008, Mr Eades stated that he did not believe that the majority of lawyers exercising reasonable care and skill would have volunteered advice on the effect of s 225 of the Resource Management Act.  It seems, therefore, that it was from what Mr Eades perceived to be common practice that he assumed that the retainer must be limited.

[43]     However, in determining that it was appropriate to uplift scale costs by 30 percent, the District Court does not appear to have regard to the failed summary judgment application and appeal by the respondents.

[44]     The respondents initially sought summary judgment.   This was declined at first instance by Judge Cunningham on the basis that the appellant had an arguable defence and that in order to reconcile the divergence of expert opinion the Court was required to hear viva voce evidence from the experts engaged to determine the scope of the retainer.  She also noted that the appellant was entitled to explore issues of causation, which would include discovery and cross-examination of the respondents.

[45]     The respondents appealed against the decision of Judge Cunningham.   On appeal Andrews J concluded that the District Court Judge was not in error in concluding that the plaintiffs’ application for summary judgment should be declined.

[46]     It seems to me, with respect to the careful and well reasoned judgment of the District  Court,  that  the  District  Court  failed  to  take  into  account  the  fact  that summary judgment had been declined when assessing the quantum of costs.   The District Court had, on the summary judgment application, thought that it was appropriate that the scope of the retainer be decided by a Court which had the benefit of hearing viva voce evidence from both experts.  I have therefore reluctantly come to the view that the District Court was wrong to find that an uplift of costs was required to recognise the untenability of Mr Eades’ evidence.

[47]     In  those  circumstances  the  appeal  is  allowed  but  only  to  the  extent  of quashing the order for an uplift of 30 percent above scale costs.

Costs

[48]     Costs are to lie where they fall.

Woolford J