White v Allen
[2019] NZHC 2717
•24 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2478
[2019] NZHC 2717
BETWEEN CAROLINE RUTH WHITE
Plaintiff
AND
RICHARD VIVIAN MARSH ALLEN
Defendant
Hearing: 24-28 June 2019 Appearances:
L Herzog for the Plaintiff
H M Twomey and N Faulkner for the Defendant
Judgment:
24 October 2019
JUDGMENT OF GAULT J
This judgment was delivered by me on Thursday 24 October 2019 at 10:00 a.m. pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr L Herzog, Barrister, Auckland
Ms M Lu (plaintiff’s instructing solicitor), Churton Hart & Divers Ltd, Auckland Ms H M Twomey and Ms N Faulkner, Robertsons, Auckland
WHITE v ALLEN [2019] NZHC 2717 [24 October 2019]
[1] The plaintiff, Ms White, sues as trustee of the Grafton Road Trust (GRT).1 The claim alleges negligence by the defendant solicitor, Mr Allen, in relation to the GRT’s purchase of two unit titles (units 3A4 and 3B1) in an apartment development at 160 Grafton Road, Auckland, in 2011.
Factual background
[2] Ms White was interested in purchasing units in a building at 160 Grafton Road, which was being converted into 99 residential apartments. Ms White acknowledged she is a property investor and that her life partner, Mr Gray, and her financial adviser and accountant, Mr McCall, suggested the purchase to her, but the extent of her involvement with the redevelopment is contested, as is that of Mr Gray, and their association with Mr Kelly, a property developer.
[3] Mr Kelly had been involved with the building at 160 Grafton Road since 2004. Companies of which Mr Kelly was a director owned the building, formerly known as the Datacom building. Mr Kelly’s plans to convert part of the building to residential apartments were initially thwarted as refinancing required renewal of the lease to a large commercial tenant and the Datacom renewal did not allow mixed use. But after the global financial crisis in 2008 some owners wished to sell, and it was possible to convert units to residential use as the Datacom lease had not been renewed.
[4] In July 2008 Ms White signed sale and purchase agreements for four apartments at 160 Grafton Road as pre-sales, and her company, Mt Eden Shops Ltd, agreed to lease two of those apartments to the Body Corporate, commencing in July 2009. In 2009 she also entered into sale and purchase agreements as pre-sales of units at 160 Grafton Road, including for an apartment that was to be formed out of unit 3B1. That purchase did not go ahead because the apartment conversion had not taken place.
[5] The redevelopment did not proceed smoothly. For example, Mr Kelly was adjudicated bankrupt in November 2008. In October 2010 the High Court appointed a Body Corporate administrator. In February 2011 the local authority discovered the as-built walls of the 10 apartments on Level 3 did not match the building consent and
1 The defendant accepted that as a trustee Ms White could sue on behalf of the other trustees.
unit title plans and served a site instruction. In April 2011 the local authority served a notice to fix.
[6] On 18 May 2011 Ms White settled the GRT to purchase two unit titles in the building, 3A4 and 3B1, which were to be converted into three two-bedroom apartments.2 The original trustees were Ms White, Mr Stalker (an electrician working on the conversion and an associate of Mr Gray’s), and Crummer Trustees No. 82 Ltd, whose sole director was Mr Cleaver, a chartered accountant who was well known to Ms White and Mr Gray.3 Mr Cleaver said he understood Mr Gray was not a trustee because the GRT needed to raise finance and he was bankrupt at the time.
[7] A 30 May 2011 Prendos valuation report in relation to Level 3 of 160 Grafton Road, prepared for mortgage security purposes, indicated that at that date 10 apartments had been largely completed and were almost ready for occupation. The report also indicated that units 3A4 and 3B1 must be held together because the new apartments developed over those two titles were built across existing unit plan boundaries, and that existing new balconies and decks extended into common areas of the existing titles.
[8] In June 2011 Mr Cleaver suggested to Ms White that the GRT engage Mr Allen to act on the purchase of the two units, 3A4 and 3B1. Although there is some dispute about the timing of, attendees and discussions at an initial meeting with Mr Allen, he was instructed on or about 13 June 2011, and his letter of engagement and standard terms were accepted. Ms White’s company paid $500 of the $1,000 retainer.
[9] Mr Allen prepared a draft agreement for sale and purchase for units 3A4 and 3B1. The vendor was Progression Development Ltd (PDL). The purchase price was
$1.01 million. The settlement date was to be 30 July 2011. Attached to the agreement were two documents:
2 The titles reflected the two units until the pre-approved second stage unit title subdivision was completed.
3 The final beneficiary of the GRT was Victoria Jane McCall, related to the accountant Mr McCall who Ms White said had been adjudicated bankrupt on 12 May 2011. Ms White had power under the trust deed to appoint discretionary beneficiaries. Mr Allen understood that Mr Gray was a beneficiary.
(a)a letter from Hampson & Associates Ltd to Auckland City Council dated 22 October 2010 regarding a unit title application, which referred to a dispute with another owner about works carried out and that legal proceedings were likely if it could not be resolved amicably between the parties concerned; and
(b)a resource consent dated 25 January 2011, which stated that not all owners of the common areas had consented to the works carried out within the accessory unit and that Council would not provide final certification until this issue was resolved and evidence provided to Council.
[10] This agreement for sale and purchase was apparently signed on 28 July 2011, and Mr Allen then sent it to the GRT’s mortgage broker for the purpose of obtaining mortgage finance for the purchase. But that sale and purchase did not proceed. In September 2011 PDL went into liquidation.
[11] Mr Allen was not substantively involved between late July and late October 2011 but on 27 October 2011 Mr Allen received from the National Bank a loan offer of $707,000 to the trustees of the GRT, and instructions to act for the bank on the purchase of the same two units.4
[12] On 1 November 2011 Mr Allen received a letter from Jesse & Associates advising they were acting for Pleasant Forest Trust Co Ltd (PFTCL) in respect of an agreement for sale and purchase of the two units dated 1 November 2011, with settlement set for the following day. In the executed agreement, the vendor had changed from PDL to PFTCL but the purchaser, price and settlement date remained the same as in the July agreement (i.e. settlement on 30 July 2011, which had already passed).
[13] There is a key factual dispute as to what happened in the next period but it is common ground that unit 3B1 was not owned by PFTCL and that this 1 November
4 The bank required mortgages over the two units albeit described by their proposed apartment numbers rather than the existing unit titles.
2011 agreement for sale and purchase of the two units was also superseded by separate agreements for the sale and purchase of each unit, which were both settled on 11 November 2011. The agreement for sale and purchase of unit 3A4 was between PFTCL and the GRT dated 10 November 2011, but the agreement for sale and purchase of unit 3B1 was between the trustees of the Madeg Family Trust (Madeg) and the GRT, and was undated. It is this agreement with Madeg for the sale and purchase of unit 3B1 that is at the centre of the dispute, but it is common ground that the two units needed to be purchased together because the three apartments were built across the two titles.
[14] Within four days of settlement, Mr Allen received an application for determination under the Building Act to lapse the building consent on the grounds that incorrect information was given to the Council. The Council issued a draft determination dated 18 November 2011.
[15] The GRT did not repay a Madeg vendor loan repayable in May 2012. Madeg issued proceedings in 2016 to recover the loan, and obtained judgment in 2018.5
[16] In the meantime, the bank served Property Law Act notices in 2015, and sold units 3A4 and 3B1 for $750,000.
Ms White’s case
[17] In summary, Ms White’s case is that the trustees of the GRT executed the agreement for sale and purchase of unit 3B1 on 3 November 2011. When they did so, the standard ADLS vendor’s warranties and undertakings clause (clause 6) was intact in the document. However, subsequently that clause was struck out without the approval of the GRT. It is struck out in the version of the agreement executed by Madeg. Accordingly, Ms White’s case is that the version signed by Madeg was a counter-offer, but Mr Allen did not draw this to the GRT’s attention and settled the purchase on 11 November 2011.
5 Brkic v White [2018] NZHC 1458. An appeal has been heard, with judgment pending.
[18] Ms White also says that Mr Allen failed to provide to the GRT certificates under s 147 of the Unit Titles Act 2010 (s 147 certificates) which he received before settlement. The s 147 certificates disclosed material problems with the units.
[19] Ms White’s case is that Mr Allen breached his duty of care, and the GRT would not have proceeded with the purchase of units 3B1 and 3A4 if he had advised of the deletion of clause 6 from the 3B1 agreement and provided the s 147 certificates.
[20]Other alleged breaches were not pursued.6
Mr Allen’s case
[21] Mr Allen’s case is that the trustees of the GRT did not execute the Madeg agreement on 3 November 2011. The change in vendor to Madeg, which necessitated a separate agreement for each unit, did not occur until 8 November 2011. Mr Allen first became aware of this change on 9 November 2011 when he received the Madeg agreement for the sale and purchase of unit 3B1, already executed by the GRT without his involvement and sent directly from PFTCL’s solicitors to Madeg’s solicitors for execution by Madeg. At the same time, Mr Allen received an executed loan agreement for vendor finance by Madeg to the GRT, which had already been signed by the GRT that day and witnessed by PFTCL’s solicitor, and authority and instruction (A&I) forms for both the 3A4 and 3B1 transactions.
[22] Mr Allen’s case is that the copy of the Madeg agreement he received had clause 6 deleted. The trustees of the GRT must have executed the Madeg agreement either on 8 November 2011 or on 9 November 2011 before it was sent to Mr Allen. Whenever the GRT signed it, clause 6 was deleted by the time the offer went to, and was accepted by, Madeg on 9 November 2011. Mr Allen says that he was advised that settlement was to take place that day and accordingly was presented with an urgent transaction that he was told to settle. He advised the trustees when he met with them that day that he was essentially being presented with a fait accompli and accordingly
6 Including failing to advise that the 3B1 agreement was signed by only two of the three Madeg trustees. Of the allegations in paragraph 14 of the statement of claim, only (c), (d), (e) and (k) were pursued.
could not give any advice on the Madeg documentation. That limit on his retainer was accepted.
[23] Mr Allen also says he recommended that the trustees delay settlement on account of not having the pre-settlement disclosure statements (that is the s 147 certificates) but was instructed to go ahead and prepare settlement in the absence of those s 147 certificates given that the trustees knew of the issues with the building.
[24] Settlement could not occur until the bank received the s 147 certificates. Mr Allen subsequently received them and provided them to the bank before settlement occurred.
[25] The agreement for sale and purchase of unit 3A4 was also provided to Mr Allen by PFTCL’s solicitors on 9 November 2011. It was subsequently signed, and dated 10 November 2011. It also settled on 11 November 2011. The agreement for sale and purchase showed a purchase price of $540,180 but Mr Allen was instructed by PFTCL’s solicitors that only $248,404.84 was required on settlement.
Issues
[26]The key issues to be determined are:
(a)the scope of Mr Allen’s retainer;
(b)whether the agreement for sale and purchase of unit 3B1 was executed with clause 6 struck out;
(c)if not, whether Mr Allen breached his duty by failing to identify the change and proceeding with settlement;
(d)whether Mr Allen breached his duty by not providing the s 147 certificates to the trustees of the GRT;
(e)whether the trustees of the GRT would have settled the purchases in any event; and
(f)the measure of any loss.
Scope of Mr Allen’s retainer – June 2011
[27] The first issue is the scope of Mr Allen’s retainer. The only letter of engagement relating to purchase of units 3A4 and 3B1 was dated 13 June 2011. There is no dispute as to the written terms agreed in June 2011 although there is some difference between the parties as to their effect. There is a dispute as to whether the June 2011 retainer applied to Mr Allen’s services in October/November 2011 and the effect of the discussion he refers to on 9 November 2011. Ms White’s case is that Mr Allen’s retainer in October/November 2011 was unwritten and unlimited whereas Mr Allen relies on the terms of the June retainer and the discussion on 9 November 2011.
[28] It is therefore first necessary to consider briefly the effect of the June 2011 letter of engagement. It included the following terms:
Services to be Provided
The following is a summary of the legal services we expect to be providing to you:
Preparing an agreement for sale and purchase, drawing down funds and settling the purchase of three apartments at 160 Grafton Road.
…
Limitations on our Obligations or Liability
Our liability is limited to any loss suffered by our failing to provide professional services in completing settlement and registration of the documents as we are not providing any advice on the worthiness of the transactions…
[29] The summary of legal services in this retainer was expressed narrowly and, unlike another retainer of Mr Allen’s with Ms White relating to sale and purchase agreements for Grafton Road in July 2011, did not include the phrase “and advice”. However, I do not consider the omission of the word “advice” indicates that the scope of the June 2011 retainer was limited to completing the prescribed actions without giving legal advice or considering legal issues. The scope of a retainer may be limited
by the description of the relevant transaction but that of itself does not relieve a solicitor from his or her obligation to bring to the client’s attention risks which become apparent to the solicitor when performing his or her retainer as opposed to doing extra work outside the scope of the retainer,7 nor limit liability in relation to legal services within the scope of that transaction. I agree with Mr Peter Nolan, an experienced property lawyer who was called by Ms White to give expert evidence, that Mr Allen’s limitation of liability in the June 2011 retainer was effected by the separate limitation clause rather than by the summary of legal services. That limitation clause made clear that Mr Allen was not providing commercial advice on the worthiness of the transactions. But the preceding words of the clause did not have the effect of excluding liability for completing settlement if (as claimed) that involved a breach of a duty owed to the client.
[30] Subject to the discussion on 9 November 2011, I consider that the June 2011 retainer continued to apply to Mr Allen’s services in October/November 2011. I will defer considering whether the discussion on 9 November 2011 limited the scope of Mr Allen’s retainer or his liability under it until after I have addressed the chronologically prior issue of whether the agreement for sale and purchase of unit 3B1 was executed with clause 6 struck out.
Execution of the agreement for sale and purchase of unit 3B1
[31] I turn to whether the agreement for unit 3B1 was executed with clause 6 struck out. It was struck out in the only version signed by both parties, but Ms White’s case is that it was not struck out when the GRT signed – so that the deletion meant that the version with Madeg’s signatures was a counter-offer rather than formation of an agreement, with implications for Mr Allen’s role in November 2011.
[32] Ms White said that she attended Mr Allen’s office on 3 November 2011 to execute a substitute agreement for sale and purchase of unit 3B1 between the GRT and Madeg. Mr Allen told her the agreement for unit 3A4 had not been prepared. He presented her with the 3B1 agreement and advised her on it. She executed the agreement in duplicate with Mr Allen and Mr Kelly present. She also executed an
7 Lyons v Fox Williams LLP [2018] EWCA Civ 2347 at [41].
A&I authorising Mr Allen to register, transfer and mortgage unit 3B1. The agreement did not have clause 6 crossed out.
[33] Mr Allen said he has no recollection of Ms White signing the 3B1 agreement or A&I on 3 November 2011 in his presence, but he did not believe the document was on his file or given to him on or about 3 November 2011. He still understood the transaction was to be taking place for both units from one vendor for $1.01m, even at
5.55 pm on 3 November 2011 when he received a further fax from Jesse & Associates. He first became aware of the Madeg agreement on 9 November 2011 when he received it from Jesse & Associates already executed by the GRT without recourse to him. The original was sent by Jesse & Associates to St Mark Law for execution by Madeg and on-sending to Mr Allen once executed. The 3B1 agreement he received from St Mark Law already had clause 6 deleted.
[34] Mr Allen said that at the same time as Jesse & Associates sent him the Madeg agreement, they sent him an executed loan agreement signed by the GRT on 9 November 2011 and witnessed by Jesse & Associates, a signed A&I for unit 3B1 witnessed by Mr Kelly and an unsigned agreement for unit 3A4.
[35] Ms White’s evidence that the GRT executed the agreement on 3 November 2011 with clause 6 intact is a critical component of her case.
[36] As Ms Twomey submits this case calls for credibility findings, I note that New Zealand courts focus on a critical analysis of the evidence with an emphasis on consistency and how the evidence relates to other material.8 In Street v Fountaine the Court of Appeal stated:9
In assessing this evidence we have weighed, as we are bound to, the impact on memory of the passage of time and the circumstances in which memories are recalled. Any memory is malleable and can be affected by the context in which it is called to mind.
[37] I also have regard to the approach of testing oral evidence by reference to documents. As Nugee J stated recently in Glenn v Watson:10
8 Burden v Debonaire Furniture Ltd [2017] NZHC 1553 at [49] per Thomas J.
9 Street v Fountaine [2018] NZCA 55, (2018) 19 NZCPR 236 at [128].
10 Glenn v Watson [2018] EWHC 2016 (Ch) at [58].
… Despite the primacy which our trial system has long given to oral evidence, it is by now a commonplace that the memory even of witnesses who are doing their honest best is often unreliable (see Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) at [15]-[23] per Leggatt J); and in cases of fraud when the credibility of witnesses is in issue, it has long been recognised to be essential to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities (The Ocean Frost [1985] 1 Ll Rep 1, 57 per Robert Goff LJ).
[38] I consider that approach is appropriate in this case as credibility of witnesses is in issue – even though it is not a fraud case.
[39] I consider that Ms White has not proved that she signed the 3B1 agreement in the presence of Mr Allen and Mr Kelly on 3 November 2011 with clause 6 intact. I consider it more likely that the 3B1 agreement with Madeg as vendor was not in existence on 3 November 2011, and therefore Mr Allen did not have it to present to Ms White for signing on 3 November, and she did not sign it, as she claimed, for the following reasons:
(a)Mr Faltaus of St Marks Law (acting for Madeg) faxed Ms Roberts of Jesse & Associates (acting for PFTCL) on 2 November 2011 regarding unit 3B1 stating that the sale and purchase agreement was to be between Madeg and GRT with a purchase price of $469,800.00 made up of
$360,000.00 on settlement and $109,800.00 by a vendor’s loan. However, Ms Roberts replied the same day stating the sale and purchase agreement was to be between Madeg and PFTCL with a purchase price of $469,842.00 made up of $360,000.00 on settlement and $109,842.00 by a vendor’s loan. She also indicated the proposed guarantee by the GRT was to be limited to the assets of the trust. Mr Faltaus confirmed this in evidence. He also said that Jesse & Associates at that stage appeared to be acting for both PFTCL and the GRT.
(b)The next day, 3 November 2011, in the afternoon Ms Roberts wrote again to Mr Faltaus referring to their email correspondence and telephone conversation that day and recording her instructions that their respective clients had met earlier that afternoon and agreed that on
settlement PFTCL was to pay $360,000.00 and the balance of
$109,842.00 was to be secured by way of a term loan contract and second mortgage. Therefore, in the afternoon of 3 November 2011, the 3B1 sale and purchase agreement was still intended to be between Madeg and PFTCL. The letter also referred to limiting the extent of the guarantees in respect of two trustees of the GRT and that PFTCL was seeking a copy of the GRT trust deed to forward to Mr Faltaus, noting it was not PFTCL’s obligation to do so. This suggests Jesse & Associates were not acting for the GRT but had input from them at least via PFTCL.
(c)Mr Allen received a fax from Jesse & Associates at 5.55 pm on 3 November 2011 referring to e-dealing numbers, indicating that their client PFTCL was still intending to transfer units 3A4 and 3B1 to the GRT.
(d)Mr Faltaus’ email to Mr Jesse Nguy of Jesse & Associates on 4 November refers to the 3B1 transaction as being Madeg to PFTCL.
(e)A file note by Ms Roberts dated 8 November 2011 explains that the change in vendor was required for unit 3B1 as St Marks Law would not allow the sale and purchase agreement to be between Madeg and PFTCL if the loan agreement was between Madeg and the GRT. The parties must be the same. Therefore, the only option was a sale and purchase agreement between Madeg and the GRT. If so, they needed to discuss what the purchase price would be ($469,820.00 as per drafted loan agreement or $469,800.00?) It also states: “We will need to advise Richard Allen of the situation.” Ms White did not accept this file note was accurate, but there is no other reason to doubt it records the position on that date. It is consistent with the earlier correspondence.
(f)On 9 November 2011 Jesse & Associates wrote to St Marks Law stating that they were facilitating the transaction and working with both his
firm and Richard Allen Law to see that the transaction settled that day. They asked Mr Faltaus to amend his settlement statement to be addressed to the GRT, care of Richard Allen Law. The letter enclosed for Madeg’s execution a deed of acknowledgement of loan (the vendor loan agreement) “already signed by the Borrower and Guarantor” (the GRT) and agreement for sale and purchase in duplicate “already signed by the Purchaser” (the GRT). Jesse & Associates asked St Marks Law to arrange signing by Madeg and have one copy of the sale and agreement and one certified copy of the deed of acknowledgement of loan couriered to Richard Allen Law as soon as they had been duly executed. The executed vendor loan deed dated 9 November 2011 recorded the addresses for service of the Borrower and Grantor (sic) as the offices of Jesse & Associates, indicating their role at least until that stage.
(g)Consistent with that 9 November 2011 letter to St Marks Law, Jesse & Associates also wrote to Richard Allen Law that same day stating that, with regard to unit 3B1, they were facilitating the transaction and working with both his firm and St Marks Law to see that the transaction settled that day. The letter enclosed A&I forms for transfer and mortgage “already signed by your client” (and purportedly witnessed by Mr Kelly), a copy of agreement for sale and purchase “already signed by your client” and a copy of deed of acknowledgement of loan “already signed by your client”. The letter stated that Jesse & Associates had received these documents from Mr Kelly, and suggested Richard Allen see to the witnessing of the A&Is. It also explained that Jesse & Associates had sent the original sale and purchase agreement (in duplicate) and deed of acknowledgement of loan to St Marks Law for their client’s execution, and had requested GRT’s copy be couriered to Richard Allen Law. With regard to unit 3A4, the letter enclosed a new agreement for sale and purchase amended in light of the latest developments that the transaction of unit 3B1 was now directly between the GRT and Madeg. The original agreement for sale of both properties was therefore obsolete.
(h)It follows that the version of the 3B1 agreement Ms White says she signed on 3 November 2011 – with Madeg as vendor, a purchase price of $469,820.00 and a clause providing for $360,000.00 to be paid on settlement and $109,820.00 to be paid in accordance with the term loan contract agreed between the parties – would not likely have been in existence on 3 November 2011. Mr Allen’s handwritten note of the price breakdown on the title obtained on 2 November 2011 would have been written subsequently. I do not accept Ms White’s argument that the wording of the vendor finance clause in the 3B1 agreement indicates the loan agreement had not been prepared at that point thus dating the version she signed prior to preparation of the loan agreement, which had occurred by 4 November 2011. The wording of the vendor finance clause in the 3B1 agreement did not change after the loan agreement had been prepared and signed.
(i)It also follows that Mr Allen would not likely have advised Ms White on 3 November 2011 what the quantum of the vendor loan would be, as she claimed. Mr Allen would not likely have known the quantum of any vendor finance on 3 November 2011 for the same reasons.
(j)Mr Allen’s time and attendance records do not show that he met with Ms White, or any attendance, on 3 November 2011. Mr Allen said there was no other indication on his file of such a meeting.
(k)Mr Kelly did not refer to Ms White signing the 3B1 agreement in his presence on 3 November 2011. He said that around 9 November 2011 he and Mr Gray prepared a new agreement for 3B1 as between Madeg and the GRT and that Mr Allen was not aware of these documents at the time. His evidence was consistent with the correspondence.
(l)Mr Cleaver recalled when he saw the Jesse & Associates letter to Richard Allen Law of 9 November 2011 that he signed the 3B1 agreement at Jesse & Associates’ office with Mr Kelly. 11
(m)It is also unlikely Ms White signed an A&I for 3B1 witnessed by Mr Allen on 3 November 2011 as she claimed, for the same reasons.12
[40] My conclusion that Ms White has not proved that she signed the 3B1 agreement on 3 November 2011 in the presence of Mr Allen leaves open the questions when she and the other trustees did sign the 3B1 agreement and when clause 6 was struck out.
[41] It is common ground that the GRT signed the 3B1 agreement before Madeg signed. That is clear from the Jesse & Associates letters of 9 November 2011. Therefore, nothing further turns on exactly when the GRT signed. But whether clause 6 was intact when Ms White signed remains important to her case.
[42] I consider that Ms White has also not proved that clause 6 was intact when she signed the 3B1 agreement, for the following reasons:
(a)The undated version of the agreement Ms White relies on with clause 6 intact was only signed by her for the GRT,13 not by the other trustees nor Madeg. A further version, with clause 6 deleted, was also signed by Mr Cleaver, but not by Mr Stalker nor Madeg.
(b)Mr Faltaus gave unchallenged evidence that the sale and purchase agreement he received from Jesse & Associates on 9 November 2011 signed by the GRT had clause 6 deleted with crossed lines. He then
11 Mr Stalker did not give evidence. I do not draw any adverse inference from this. Mr Stalker was subpoenaed by Mr Allen and could also have been called by him.
12 There was an A&I relating to unit 3B1 signed by Ms White dated 3 November 2011 but it was witnessed by Mr Gray. Mr Allen witnessed A&Is for unit 3B1 signed by Mr Stalker and Mr Cleaver on 4 November 2011 (with the name of the other party blank).
13 It has Mr Kelly’s initials alongside her signature.
arranged for Madeg to sign and sent it to Richard Allen Law.14 This effectively contradicted Ms White’s evidence on a significant matter, which should have been put to Mr Faltaus in cross-examination. Ms Twomey submitted that I should either exclude Ms White’s contradictory evidence or admit it on the basis that its weight is affected by the failure to cross-examine.15 I consider the just course is not to exclude Ms White’s evidence but to assess its weight taking this into account.
(c)There was no correspondence from Madeg’s lawyers indicating that Madeg had deleted clause 6 after the GRT had signed the agreement and that the version signed by Madeg was a counter-offer. On the contrary, St Mark Law’s letter to Mr Allen on 9 November 2011 made no reference at all to the terms of the sale and purchase agreement – it proceeded to deal with the mechanics of settlement and required a copy of the loan agreement duly executed by the GRT.16 If Madeg had counter-offered by changing the terms of the sale and purchase agreement, that letter would be quite misleading. That was also not suggested to Mr Faltaus.
(d)Mr Faltaus gave evidence that (after Madeg had signed and he had sent the agreement to Richard Allen law) Mr Allen telephoned him to ask why clause 6 had been deleted, and Mr Faltaus explained to him that was the agreement that had been reached between the two parties directly and that Jesse & Associates had drafted the agreement and had deleted the clause before sending it to Mr Faltaus to be signed by
14 The fax header indicates it was faxed from St Marks Law to Richard Allen Law on 9 November 2011 at 1.29pm; the fax footer indicates it was received at 2.30pm. The difference is likely to be simply due to daylight savings.
15 Evidence Act 2006, s 92.
16 Mr Faltaus’ letter referred to a letter he had sent Mr Allen on 7 November 2011 but this was likely an error as the GRT had already signed the loan agreement – the 9 November letter was likely prepared originally to send to Jesse & Associates.
Madeg.17 Whether or not Mr Faltaus was correct,18 it indicates that Mr Allen checked with him about clause 6. Given Mr Faltaus recalled that Mr Allen said he would take instructions, it is likely this conversation occurred before Mr Allen met with the trustees on 9 November 2011.
(e)Mr Kelly’s initials appear alongside the deletion of clause 6. Why he initialled is unclear, but this also indicates the deletion occurred before the document was sent to Mr Faltaus.
(f)Even though Mr Cleaver acknowledged that it would be unusual for him not to initial a deletion, the lack of correct initialling alongside the deletion was explicable given there were other changes that had not been correctly initialled. There were initials at the bottom of the pages, including Ms White’s and Mr Cleaver’s.
(g)Despite Ms White’s evidence about the importance of the vendor warranties in clause 6, I consider it is more likely that the parties agreed that vendor warranties should be excluded given the issues with the building. Mr Faltaus said he was specifically instructed that there were to be no vendor’s warranties included in the agreement because unit 3B1 was being sold on an ‘as is where is’ basis. Mr Cleaver was aware of the issues with the building. While he could not recollect whether clause 6 was deleted when he signed, he would not have been surprised if clause 6 was deleted because there were wires hanging out everywhere. Mr Stalker was the project electrician. Ms White acknowledged that unit 3B1 did not have code compliance and that if clause 6 stayed in Madeg would be in breach of the agreement immediately upon settlement. Ms White was likely also aware of the issues with the building given the combination of the following:
17 Ms White now accepts this conversation occurred (and relies on it to say Mr Allen failed to get further instructions) whereas in the Madeg proceeding she had accused Mr Faltaus of making it up.
18 Although there was no hearsay objection, I give no weight to this statement in relation to whether that was the agreement.
(i)her own experience including with other units in the building,19
(ii)her life partner Mr Gray’s involvement with the building,20
(iii)Mr Kelly’s ongoing involvement in the redevelopment,
(iv)the Prendos report which identified the title boundary issue,21
Mr Kelly or Mr Gray told Mr Allen when they first came to see him about the GRT purchase on 13 June 2011, that Mr Kelly was involved in a massive mortgagee sale and there were many pre-existing issues,
(v)the documents attached to the earlier version of the agreement,22 and
(vi)Mr Kelly said he and Mr Gray were working there every day and knew the issues with the Council coming and serving notices. He also indicated they discussed things socially with Ms White there. He said the issues with the building were pretty apparent.
(h)Also, Ms White’s approach to Madeg rather than Mr Allen soon after settlement when she encountered issues and received the draft determination is also more consistent with an agreement excluding the
19 Including unit 3B5 across the corridor from 3B1, which she leased in 2008 anticipating it would be ready by 2009.
20 Even though Ms White in evidence described Mr Gray as site supervisor or construction manager, he was described as project manager including in a letter he signed addressed to the Department of Building & Housing and in a letter from Ms White, which she said meant he was a project manager but not on this project. Even if correct, nothing turns on the distinction. Mr Kelly referred to a partnership with Mr Gray to redevelop Level 3. Mr Allen understood Mr Gray was a partner of Mr Kelly’s in the redevelopment – they had explained when they first came to see Mr Allen about the GRT purchase on 13 June 2011 that they were both bankrupt but were in a partnership together to redevelop 160 Grafton Road. Ms White and Mr Gray shared an email address. Mr Gray did not give evidence. Although I could have (Ithaca (Custodians) Ltd v Perry Corp [2004] 1 NZLR 731 (CA) at [153]-[154]), I do not draw any adverse inference from this.
21 Above at [7]. This report indicates it was commissioned by Mr Kelly and Mr Gray. A copy was on Mr Allen’s file.
22 Above at [9].
vendor warranties than a situation where she did not realise they had been excluded. I expect that if she thought clause 6 was intact and important, she would have raised it with Mr Allen.
(i)For these reasons and my earlier reasons for also not accepting Ms White’s evidence in relation to signing the 3B1 agreement with Mr Allen on 3 November, and given the failure to cross-examine Mr Faltaus, I did not find Ms White’s evidence reliable. There were also other instances where her evidence was inconsistent with the contemporaneous documents. I reach my conclusions independently of the findings of Moore J in the proceeding against Madeg, where he rejected Ms White’s evidence that Madeg had fraudulently deleted clause 6 after the GRT had signed the agreement.23
[43] Given these conclusions, Ms White’s complaints relating to clause 6 fall away.24 Mr Allen did not breach his duty. Madeg executed the agreement; it did not counter-offer with clause 6 deleted.
[44] Ms White’s other complaint, that Mr Allen failed to provide to the GRT the s 147 certificates which he received before settlement, means it remains necessary to return to consider Mr Allen’s dealings with the GRT on 9 November 2011 and whether they limited the scope of Mr Allen’s retainer or his liability under it.
The s 147 certificates – Mr Allen’s dealings with the GRT on 9 November 2011
[45] Mr Allen said that, having received the documentation from Jesse & Associates on 9 November 2011 advising that settlement was to take place that same day, he met Ms White and Mr Stalker (with Mr Gray and Mr Kelly) that morning. He told them that he had only just received these new documents via Jesse & Associates and was not aware of the critical new details of the transaction, namely vendor, price, and the vendor loan related to unit 3B1, all of which had occurred since he had drafted the
23 Brkic v White [2018] NZHC 1458 at [66]. Although in substantial part Ms White’s case repeats that rejected in the Madeg proceeding, no estoppel arose given the different parties.
24 This is so even if, as Mr Herzog suggested in closing, the meeting on 9 November 2011 may have discussed the version signed by the GRT before Madeg had also signed. I doubt that suggestion is correct given the likely sequence referred to in paragraph [42](d) above.
agreement in June 2011. He noted that the trustees of the GRT had already signed all of the documents relating to unit 3B1. He asked them whether these were their signatures and whether they understood what they had signed. They confirmed this to him. He advised them that in his view he was being presented with a fait accompli. He asked the trustees if they were happy with what they had signed and explained that if they wanted to settle urgently, he would not be able to advise them fully because he did not have the requisite background knowledge nor the time to do so. They had given him only limited and last-minute instructions about these crucial changes. He said that he could witness their signature on any bank documents, complete the A&I and draw down the funds.
[46] Mr Allen also said he told them that he could not proceed to draw down the funds and settle without first obtaining insurance details and s 147 certificates from the Body Corporate and that because they did not have those, they could delay settlement for up to five days. He advised that the bank would need these. His evidence was that they said they did not want to delay because settlement was urgent as it was a mortgagee sale of unit 3A4. Also, they had no interest in seeing the s 147 certificates because they already knew what the issues in the building were. They said that they wanted to proceed and did not require him to advise on the purchases. He said he was instructed to settle the matter urgently, as soon as possible, which was due that day.
[47] Mr Allen said he was content to act because his retainer had been limited from the outset, and the trustees understood the limited retainer and acknowledged their awareness of the issues with the building but nevertheless wish to proceed under urgency. Further, it was clear to him that all parties were intimately involved with the building and dealing directly with each other.
[48] Mr Allen said he then went to meet with Mr Cleaver at his office and relayed to him the conversation he had had with Ms White and Mr Stalker. He explained to Mr Cleaver that Mr Cleaver needed to sign the documentation, and that they could delay settlement by a further five days if it was required, but that Ms White and Mr Stalker had told him they did not want any delay and that he was to proceed to
settlement as soon as he could, saying “no, don’t worry about it”. Mr Cleaver told him “Good, get it done, it is urgent as I understand it”.
[49] Ms White denies she had this conversation with Mr Allen. She says that Mr Allen did not limit his retainer at the meeting on 9 November 2011, did not discuss obtaining pre-settlement disclosure certificates and did not suggest the trustees delay settlement. Ms White also said that she signed the loan agreement on 9 November before Mr Allen.
[50] Mr Kelly was subpoenaed by Mr Allen. He said that at the meeting Mr Allen said that he could not give any legal advice as he did not have all the necessary documentation and had not been given enough time. Mr Kelly said Mr Allen also spoke about not having certificates. He recalled Ms White advising that Mr Allen did not need to delay settlement because she already knew what the issues with the building were.
[51] Mr Cleaver was also subpoenaed by Mr Allen. His evidence was that he cannot now recall exactly what Mr Allen said but that Mr Allen rushed to his office with at least one of the two sale and purchase agreements last minute for his signature so that finance could go through. He recalled there was time pressure from the other trustees. Mr Cleaver was happy to sign the agreement because any concerns about the properties were clear enough. This must have been signing the 3A4 agreement.
[52] While it is unfortunate there is no record available, I consider it more likely than not that there was a conversation as Mr Allen recalled, for the following reasons:
(a)I found Mr Allen a straightforward witness. For example, he said he had no recollection of meeting Ms White on 3 November 2011 rather than categorically denying it and he acknowledged that he did not get instructions about the deletion of clause 6 nor inform the GRT of the contents of the s 147 certificates.
(b)Mr Kelly, giving evidence under subpoena, also recalled the conversation in broadly similar terms. While Mr Cleaver could not
recall exactly what Mr Allen said to him when they subsequently met, his evidence was consistent with Mr Allen’s and Mr Kelly’s. He was also happy to proceed.
(c)It seems inherently likely that Mr Allen would describe the situation as a fait accompli and that he could not give advice on the documentation in the circumstances as I have found them. The agreement had already been executed by his clients and sent to Madeg for execution before he received it, with settlement set for that same day.
(d)In this regard, it is relevant that Ms White had some experience as a property investor. She had previously purchased units in the building, and between July 2008 and July 2011 she had entered into a number of agreements in relation to the property without taking legal advice before entering them, from Mr Allen or otherwise.
(e)It is also inherently likely the s 147 certificates would have been discussed because settlement, due that day, could not occur until Mr Allen had provided them to the bank. Mr Allen emailed Mr Faltaus at 2.57pm on 9 November 2011 stating “I doubt I can settle today now, but will organise for tomorrow provided you let me have a pre settlement disclosure certificate, which I need to drawdown funds”.
(f)Conversely, it seems inherently unlikely that Mr Allen would have settled the purchases without instructions. Ms White denies the conversation took place but did not provide a reliable alternative explanation. It is possible that she cannot remember the conversation.
(g)Ms White’s evidence that she signed the loan agreement on 9 November 2011 before Mr Allen is also likely to be incorrect. She likely also signed the loan agreement prior to Mr Allen receiving it given that Jesse & Associates’ letters of 9 November indicated it was already signed by the trustees, Mr Cleaver said he signed it with
Mr Kelly at Jesse & Associates’ offices and the three trustees’ signatures were all witnessed by Mr Kelly.
(h)Ms White’s inaction when she received the s 147 certificates in July 2012 is consistent with such a discussion pre-settlement. Otherwise, I expect she would have raised the matter with Mr Allen then.
[53] Therefore, Mr Allen was instructed to settle as soon as possible and not to delay settlement on the basis of the s 147 certificates because Ms White knew of the issues with the building and did not want to see the s 147 certificates. Mr Nolan accepted that on that basis a reasonable solicitor could settle. It does not appear that Mr Allen specifically advised about cancellation as well as postponement but on the facts I have found that would have made no difference. It follows that Ms White’s complaint about the s 147 certificates also fails. Mr Allen may have avoided argument that Ms White knew of the issues if he had forwarded the s 147 certificates when he received them and sent them to the bank, but he did not breach his duty by not providing them to the GRT or advising on them before settlement.
[54]I should nevertheless deal briefly with causation and loss.
Whether the trustees of the GRT would have settled the purchases in any event – causation
[55] Given my factual findings, this issue does not arise. I add only that even if I had found a breach of duty, I would have nevertheless concluded that the GRT would still have settled the purchases and the breach did not cause loss given Ms White’s knowledge of the issues with the building referred to in paragraph [42](g) above. Given that knowledge, in relation to clause 6, if Madeg’s signed version of the 3B1 agreement was a counter-offer, I consider it is likely the GRT would have accepted it and proceeded to settle. In relation to the s 147 certificates, if the 9 November 2011 conversation regarding settlement had not occurred, I consider the s 147 certificates did not disclose issues with the building beyond those known to Ms White.
Measure of loss
[56] Ms White claims $714,462 plus interest, being all the costs said to flow from the purchase of the two units. This includes the claimed loss on sale of $260,000.25 Ms Twomey submitted that even if Mr Allen breached his duty, Ms White had failed to prove loss on the correct basis – that Ms White’s claimed loss was based on a flawed “no transaction” measure which does not apply in a case such as this.
[57] Even if Ms White had established a breach of duty and that the GRT would not have settled in any event, I accept Ms Twomey’s submission that the measure of loss would not be calculated as Ms White claims. The alleged breaches of duty concern the provision of “information”. In such cases, the person under the duty is generally only responsible for the consequences of the information being wrong.26 It is therefore necessary to ascertain what the position would have been if Mr Allen had provided the correct information.
[58] In relation to the s 147 certificates, that would mean the information contained in the certificates. They identified unauthorised works including changes to common property to which the Body Corporate had not consented and said, if not reinstated, the Body Corporate would take action and seek recovery of costs, and also that the Body Corporate had received notice from another proprietor in relation to issuing proceedings against the Body Corporate for unauthorised development works and compliance matters. Even if I had found that Ms White was unaware of these issues, losses that would have occurred irrespective of these issues are not recoverable as they are outside the scope of the duty.
[59] In relation to clause 6, if Ms White had established that clause 6 was intact when the GRT signed the agreement, the relevant information would be that the version signed by Madeg was a counter-offer. Again, losses that would have been suffered even if clause 6 was in the agreement are not recoverable. This scenario is
25 $1.01m – $750,000.
26 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 (also cited as South Australia Asset Management Corp v York Montague Ltd, United Bank of Kuwait plc v Prudential Property Services Ltd, Nykredit Mortgage Bank plc v Edward Erdman Group Ltd) (HL) at 214 per Lord Hoffmann, recently restated in Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2018] AC 599 at [20]–[42] per Lord Sumption. See also Manchester Building Society v Grant Thornton UK LLP [2019] EWCA Civ 40, [2019] 4 All ER 90 at [48].
intensely hypothetical, as I have found that the GRT would have proceeded even if they knew clause 6 was struck out.
[60] The difficulty for Ms White is that the loss was not calculated on this basis. Ms Twomey submitted the evidence required to calculate loss on the correct basis was not before the Court. Ms Twomey also submitted that Ms White failed to prove the claimed loss on sale of the units.27 Even if Ms White had proved breach and that the GRT would not have settled anyway, applying the correct measure of loss some of the costs claimed would clearly be irrecoverable. But I do not conclude that Ms White would have failed to prove any loss. I decline to go beyond these general observations as seeking to calculate the correct measure of loss in the event that either breach were made out would require me to work through various hypothetical alternative factual findings in an unsatisfactory way.
[61] For the same reason, I do not address Mr Allen’s contributory negligence defence.28
Costs
[62] Mr Allen is entitled to costs. Ms Twomey indicated that if successful, Mr Allen wished to be heard on costs. Unless costs can be agreed, a brief memorandum seeking costs is to be filed and served within 20 working days and a brief memorandum in response within a further 10 working days. I will then deal with costs on the papers.
[63] I should observe that, absent explanation, it appears quite unsatisfactory to have re-litigated in this proceeding key issues that arose in the Madeg proceeding (including that Ms White signed the agreement on 3 November 2011, clause 6 was deleted after the GRT had signed, and Ms White was not aware of the issues with the building) given that Moore J recorded that the trial of the Madeg proceeding scheduled to commence on 2 October 2017 was adjourned by Downs J on 29 September 2017
27 Ms Twomey submitted that Ms White failed to prove the purchase price for unit 3A4 was $540,180 given the settlement statement indicated that only $248,404.84 was required to settle that unit. Ms White said the difference between these figures was made up of credits by PFTCL. Mr Kelly’s evidence did not support this.
28 By consent, I granted leave at the beginning of trial for the defence to be amended to add particulars to this affirmative defence of contributory negligence.
because the GRT indicated they intended to join Mr Allen. He considered it would be undesirable for the same set of facts to be dealt with in separate trials, particularly when the provenance of clause 6 assumed such significance in both. Despite that stated intention to join Mr Allen, no such steps were taken.29
Gault J
29 Brkic v White [2018] NZHC 1458 at [50]-[51].
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