in the high court of new zealand auckland registry … · mr a ross and h k wham for second and...
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REECE & Anor v HALSE & Ors [2016] NZHC 1438 [29 June 2016]
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2014-404-2038
[2016] NZHC 1438
IN THE MATTER
A claim in negligence and associated
causes of action
BETWEEN
ROBERT JAMES REECE of and JZE
Trustee Company (No 2) Limited as
trustees of the DOUBLE R TRUST
First Plaintiffs
RUDYARD HOLDINGS LIMITED
Second Plaintiff
AND
GRAHAM WILLIAM HALSE
First Defendant
GROVE DARLOW AND PARTNERS
Second Defendants
CHRIS ALLAN
Third Defendant
Hearing:
16 May 2016 and 1 March 2016
Appearances:
Mr E St John and J Ewart for Plaintiffs
Mr T Cooley for First Defendant
Mr A Ross and H K Wham for Second and Third Defendants
Judgment:
29 June 2016
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
29.06.16 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Introduction
[1] This judgment concerns an application by the defendants seeking further
particulars and security for costs against the plaintiffs. The main proceedings relate
to various claims in negligence and breach of trust against the three defendants in
relation to a loan transaction with Kiwibank in 2008.
[2] The first plaintiffs in this case are the trustees of the Double R Trust (DRT).
One of the trustees, Mr Reece, was personally involved in the loan transaction and is
a beneficiary of DRT. Mrs Reece, his estranged wife, was also involved in the loan
transaction and is also a beneficiary of DRT; however she is not taking part in these
proceedings. The second plaintiff is a company, Rudyard Holdings Ltd (RHL).
RHL is a shelf company which was formed to hold certain properties on behalf of
DRT. DRT owns 80 per cent of the shares in RHL. There were a number of other
entities involved in the Kiwibank loan transaction, including Mr and Mrs Reece’s
personal trusts (the Reece entities). However those entities are not party to the
present proceedings.
[3] The first defendant in this case is Mr Graeme Halse, a solicitor and previous
trustee of DRT. As part of the Kiwibank loan transaction, Mr Halse acquired 20 per
cent of the shares in RHL. The second and third defendants are Grove Darlow, a
commercial law firm based in Auckland, and Mr Chris Allan, a solicitor in that firm
(collectively referred to as the Grove Darlow defendants). The Grove Darlow
defendants were retained to provide independent advice to Mr and Mrs Reece
regarding the proposed loan.
Background
[4] It is beyond the scope of this judgment to provide a prolonged or detailed
examination of the background to these proceedings. However, some consideration
of the factual and legal context will be required in order to determine the application
for security for costs. Some understanding of the background is also necessary in
order to inform the court’s decision on the applications for particulars.
[5] A convenient starting point when discussing the background to the
proceeding is the summary of facts which is provided in Mr Cooley’s memorandum
of submissions for Mr Halse. Consideration of the balancing comments that
Mr St John made in his submissions for the plaintiffs will also be necessary.
1. These proceedings arise out of a refinance between Mr Reece’s
family trusts1 and Kiwibank in August 2008 and the alleged actions
of the defendants as trustees of the first plaintiff (‘Double R Trust’)
and solicitors for the Double R Trust and/or second plaintiff
(‘RHL’). The Double R Trust beneficially owns 80% of the shares
in RHL.
2. Prior to the refinance the trustees of the Double R Trust were Mr
Reece and [Mr Halse]. On or after completion of the refinance, the
trustees were [Mr Halse and Mr Allan]. The beneficiaries of the
Double R Trust were Mr Reece and his wife, parents, children, and
any grandchildren.
3. As at August 2008 the family trusts were indebted to Kiwibank in
the amount of $4.6 million (‘Reece debt’). The Reece debt was
guaranteed by Mr and Mrs Reece and was secured over residential
properties owned by the family trusts. The Reece debt was in arrears
and there was an expected shortfall of up to $2 million if the
securities were realised at that time. In addition, Mr Reece was
indebted to other financiers including Equitable Insurance,
Dominion Finance, and Westpac which had security over the homes
of his mother and mother-in-law.
4. The only asset available to Mr Reece for the purpose of securing
further finance was his beneficial interest in two undeveloped
properties; the Crestview sections (15 in total) and Naylors Drive
property (‘the Properties’). As at August 2008 the Properties were
mortgaged as security for short-term overdue funding of $700,000
provided by [Mr Halse’s] contributory mortgage practice, but were
not encumbered to Kiwibank. Mr Reece wanted to secure finance to
repay the short-term loans, obtain more time to achieve an orderly
sale of his residential properties, develop the Properties so as to
generate an income and protect his wife from bankruptcy. Without
that finance, Mr Reece and his family faced financial ruin.
5. Throughout 2008 Mr Reece sought to obtain finance from second-
tier lenders to develop the Crestview sections, but the only
indications of funding from these lenders was at high interest rates
with high fees and for short terms.
6. In August 2008 Mr Reece and [Mr Halse] agreed to a refinance
proposal with Kiwibank. The refinance rolled over the Reece debt on
the basis that interest was capitalised for a 12 month period
($420,000). The refinance also provided new funding of $1.56
million to enable Mr Reece to commence development of three of
1 The Robert Reece Family Trust and the Caroline Reece Family Trust. DRT was not a party to
the transaction.
the Crestview sections ($700,000), repay the short-term funding
secured against the Properties ($700,000), provide an income to Mr
Reece for six months ($60,000) and capitalise interest for this
additional funding ($100,000).
7. The total refinance was $1.98 million of which $1.56 million was
borrowed by RHL (‘RHL debt’), a shelf company that was utilised
by the Double R Trust to develop the Crestview sections. The
Properties were transferred to RHL to enable the refinance to
proceed. RHL also provided a guarantee for the Reece debt.
8. The Properties were mortgaged to Kiwibank as security for the
refinance. In addition, [Mr Halse] agreed to guarantee the RHL debt
and to underwrite the development of the three Crestview sections in
exchange for a 20% interest in RHL. The family trusts and Mr Reece
also agreed to guarantee the obligations of RHL.
9. Because [Mr Halse] was to obtain an interest in RHL and the
development of the Properties it was necessary that Mr and Mrs
Reece obtain independent legal advice in relation to the transaction
and refinance. Kiwibank also required the guarantors (which Mr and
Mrs Reece were) to obtain independent advice. This they obtained
from the [Grove Darlow] defendants.
10. The first tranche of three Crestview sections were developed and
sold in early 2009. Kiwibank then provided further funding for the
second tranche of three sections in mid 2009. They also were
developed and sold. In 2010 Kiwibank refused to provide funding to
RHL to develop any further sections. RHL was able to fund the
development of a further two sections but then went into default.
Kiwibank then enforced its security over the Properties and they
were sold at mortgagee sale.
11. Kiwibank then sought to enforce the guarantee against [Mr Halse] to
recover the shortfall of the RHL debt. By way of counterclaim, RHL
asserted that Kiwibank had agreed to provide funding for all 15
Crestview sections in August 2008. That counterclaim proceeded to
trial and RHL was unsuccessful. [Mr Halse] then settled the
outstanding RHL debt pursuant to his personal liability as guarantor.
12. Following the above judgment, the plaintiffs commenced these
proceedings alleging that they entered into the refinance with
Kiwibank as a result of the defendants breach of duty as solicitor
and/or trustee and this has caused them to lose their equity in the
Properties and the anticipated profit from the development of the
Properties.
[6] For the plaintiffs, Mr St John did not accept that the background was as
complicated as Mr Cooley would have it. His central submission was that the facts
of the matter were relatively simple.
[7] Mr St John pointed out that as at 1 August 2008, the DRT beneficially owned
$6 million in properties (the Crestview/Naylor properties). Secured against them
was a loan of $700k that had been set up by Mr Reece. It was hardly reasonable, Mr
St John pointed out, to assert that the Reeces faced financial ruin so long as they had
access to that asset. However, the point that is made for Mr Halse is that at the time
of the refinancing, steps needed to be taken to unlock the wealth latent in the sub-
divisible properties and finance was required to achieve that objective. Given that
the period that is under discussion was close to the global financial crisis, it may well
have been the case that selling blocks of land for subdivision would not have
encountered a ready market because of the problem of obtaining finance for such
purposes.
[8] Mr St John was not able to accept, either, Mr Halse’s claim that the Reeces
had been active in pursuing other sources of finance. However, this denial is
inconsistent with the factual context surrounding the Kiwibank loan offer. That
proposal was subject to a number of potentially disadvantageous conditions,
including the condition that the entirety of the Reece debt, including pre-existing
personal debts of Mr Reece and the family trusts, was to be secured over the
Crestview/Naylor properties.2 Given those fairly stringent terms, and having regard
to the amounts at stake, it would be reasonable to suppose that Mr Reece would in
fact have pursued other financing options, if he thought that there was some point in
doing so. In the end, the Reeces decided to go with the Kiwibank offer, with all of
its negative features. The fact that they did so gives rise to an inference that the
Reeces were bargaining from a difficult position.
[9] As at 1 September 2008, the Crestview/Naylor properties were mortgaged in
favour of Kiwibank. The bank later refused to lend funds for the development of a
further tranche and called in the loans. The properties were sold and the entire
equity was lost. The issue in this proceeding, Mr St John said, is how that came
about.
2 The plaintiffs did not appear to suggest that the Reeces did not understand this aspect of the
proposed loan package when it was put forward in 2008.
The security for costs applications
[10] The Grove Darlow defendants seek security for costs against the plaintiffs.
Mr Halse initially did as well but at the resumed hearing of the applications
withdrew this part of his claim.
[11] The plaintiffs admit that they will be unable to meet any order for costs that
might be made against them.
Legal principles and rules relating to security for costs applications
[12] Notwithstanding that his client withdrew his application, it will be helpful to
make reference to the submissions that Mr Cooley made concerning the issue of
security for costs. Those submissions cast light on the matters which need to be
dealt with and provide assistance in understanding the principles that are to be
applied.
[13] Mr Cooley summarised the legal principles applicable to the award of
security for costs as follows:
59. While the ability to order security for costs and to fix quantum is
highly discretionary, a number of factors are regularly considered by
the Court when determining whether security ought to be ordered.
These factors include:
(a) Merits of the case: As far as possible, the Court will
endeavour to assess the merits and prospects of success of a
claim. In some cases, any assessment will be no more than
impression and cannot be a definite indicator of the ultimate
outcome after trial: A S McLachlan Ltd v MEL Network
Ltd.[3]
(b) Balancing the rights of the parties: In A S McLachlan Ltd v
MEL Network Ltd, the Court noted that where an order for
substantial security may prevent the plaintiff from pursuing
its claim, an order ought only to be made after ‘careful
consideration and only in a case in which the claim has little
chance of success’.[4]
The Court further noted that a
plaintiff’s ability to access justice needed to be weighted
against the defendant’s right not to be drawn into unjustified
3 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [21].
4 At [15].
litigation, particularly where it is over-complicated and
unnecessarily protracted.[5]
(c) Whether a plaintiff’s impecuniosity has been caused by the
defendants: The Court may also consider whether there is
any reasonable probability that the impecuniosity of the
plaintiff has been caused by the very acts of the defendant on
which the action has been brought. As with the merits,
assessment of this factor, short of a full hearing, is regularly
acknowledged as being very difficult, if not impossible.6
[14] I accept that that is an accurate statement of some of the applicable principles
by which the court is to be guided when considering whether to exercise the
discretion to order security for costs.
[15] The authorities make it clear that the decision whether to grant security and,
if so, the quantum are discretionary matters. The discretion is not to be fettered by
constructing principles from the facts of previous cases.7
What is required is a broad
overall assessment, having regard to the situation of the parties and the nature of the
proceeding.8
[16] It is not the case that if a defendant is able to establish that the plaintiff will
be unable to pay costs, an order for security will necessarily be made. Wider
discretionary considerations must be taken into account. If a prima facie case can be
established that the plaintiff’s claim is unmeritorious, that will be a factor in favour
of ordering security. The less apparently meritorious, the more likely security is to
be ordered.9
[17] Where the court is satisfied that if costs are ordered, that will bring the
plaintiff’s claim to a halt, special considerations apply:10
Access to justice is an essential human right. The cost of exercising that right
is the payment of costs in the event of failure. The right of a successful
defendant to costs in that event is arguably subordinate to the plaintiff's right
to be heard. Strong social policy considerations favour the use of Courts as
an accessible forum for the resolution of disputes and grievances of almost
5 At [16].
6 Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR5.45.03(3)].
7 AS McLachlan Ltd v MEL Network Ltd, above n 3, at [13]–[14].
8 Hamilton v Papakura District Council (1997) 11 PRNZ 333 (HC) at 335.
9 Highgate on Broadway Ltd v Devine [2012] NZHC 2288 at [22(c)].
10 Highgate on Broadway Ltd v Devine, above n 9, at [23(b)] (footnotes omitted).
all kinds. Only where a clear impression can be formed that the plaintiff's
claim is altogether without merit — so that in the alternative it would be
amenable to being struck out — would it be right for security to be ordered
where to do so would bring the plaintiff's claim to dead halt. In cases where
the claim is being seriously misconducted (with undue complexity or
expense), security orders short of effective termination of the claim may be
appropriate. As the Court of Appeal said in McLachlan, ‘access to the Courts
for a genuine plaintiff is not lightly to be denied’.
[18] It may be that Kos J views would make it more difficult for an applicant for
security to succeed in circumstances where the making of an order would bring the
plaintiffs’ claim to a halt. His statements that the applicant has to show that the
claim was so lacking in merit that it would be amenable to being struck out would
seem to set the standard at a higher level than A S McLachlan did. If there is a
difference, I consider I am obliged to follow the Court of Appeal judgment in A S
McLachlan. That is, the issue is whether the plaintiffs claim can be described as
having little chance of success.
[19] It is therefore necessary for the court to attempt an assessment of the merits
of the plaintiffs’ claim.
The claim in negligence against Mr Halse
[20] In order to understand the wider disputes that are placed in issue by this
proceeding, it will be useful to make reference to the case that is brought against
each of the defendants, even though Mr Halse, has, as I have noted, withdrawn his
application for security for costs during the course of the hearing.
[21] The general complaint against Mr Halse is apparently that he was the
architect of the re-financing proposal. It is alleged that he should not have advised
the Reeces to accept a scheme of this kind because it resulted in property that had
previously been unsecured now being within the reach of Kiwibank. The plaintiffs
claim that Mr Halse ought to have advised Mr Reece to default on his existing
liabilities, even if it meant that he went bankrupt. At least in that way, the Reece
family would have retained the assets represented by the Crestview/Naylor
properties, which were worth in excess of $6 million.
[22] In the course of his submissions, Mr St John focused attention on a particular
aspect of the alleged negligence. It was, he says, essential to a successful outcome
that Kiwibank commit to providing funding for the entire Crestview/Naylor
development. Indeed, Mr and Mrs Reece claim that they accepted the Kiwibank
loan offer on the understanding that the offer included such a commitment.
However, the loan offer which was eventually produced offered finance of no more
than $700,000 for the purpose of constructing three residential dwellings. The
allegation is that Mr Halse negligently failed to notice this departure from the
expectation that he and the Reeces held about the extent of the funding.
[23] Another objectionable feature of the proposal from the perspective of the
plaintiffs was that as part of the scheme, the Crestview/Naylor properties would be
transferred to a new company in which Mr Halse would own the entire shareholding,
20 per cent of it for his own benefit and the remaining 80 per cent as a trustee of
DRT. The 20 per cent shareholding was apparently proposed by Mr Halse as an
underwriting fee that he would receive in return for guaranteeing the RHL debt.11
[24] As well, the plaintiffs claim that there was a breach of fiduciary obligation
on the part of Mr Halse because part of the refinancing funds which would be raised
through the overall proposal would be used to refinance $700,000 approximately
representing short-term borrowings that had been raised from clients of Mr Halse’s
practice.
Assessment of claims against the Grove Darlow defendants
[25] There are limits to the depth in which the court can assess the various
questions of fact and law which are raised in the negligence proceedings against the
Grove Darlow defendants. I am however required to attempt an assessment of the
plaintiffs’ prospects of success in bringing these claims.
[26] One of the conditions of the Kiwibank loan offer was that Mr and Mrs Reece,
and Mr Halse, should obtain independent legal advice regarding the transaction. The
Grove Darlow defendants were the firm and solicitor respectively to whom Mr and
11
The RHL debt was $1.56 million.
Mrs Reece were referred for independent advice. The solicitor, Mr Allan, is alleged
to have been negligent in discharging his responsibilities.
[27] I consider that the basis for the claim which the plaintiffs bring against the
Grove Darlow defendants was correctly summarised by Mr Ross, counsel for the
Grove Darlow defendants, in his submissions as follows:
28 The Double R Trust alleges that Grove Darlow:
28.1 owed it a duty of care to advise on the merits of the strategy
proposed by Mr Halse;
28.2 breached that duty by failing to advise:
(a) on the risks in assuming liability for the Reece debt;
(b) on the loss of value suffered as a result of the trust’s
transfer of its assets to Rudyard Holdings Limited,
20per cent beneficially owned by Mr Halse; and
(c) that the Kiwibank loan documents did not record Mr
Reece’s understanding that Kiwibank had to fund to
the entire development of the properties.
28.3 caused the Double R Trust to transfer the properties to RHL
and allow the properties to be mortgaged to Kiwibank.
29 The consequences of which were that the Double R Trust lost both
the value of the properties and the expected profits from selling
those properties.
[28] In overview, the case against those defendants is that Mr Allan ought to have
advised Mr and Mrs Reece that the proposed refinancing was not in their interests or
those of the various entities which they had established or controlled. The plaintiffs
further allege that Mr Allan was negligent when he failed to explain to Mr and Mrs
Reece that the refinancing loan would only compel Kiwibank to provide
development finance for three of the sections out of the entire 15 sections making up
the Crestview development, an issue that has been discussed above in relation to the
claim against Mr Halse. This was said to be particularly disadvantageous for Mr and
Mrs Reece.
[29] The position of the Grove Darlow defendants in response to those claims can
be summarised as follows:
(a) The Grove Darlow defendants were not instructed to advise the
trustees of the DRT. They were acting only for Mr and Mrs Reece in
their personal capacity and the requirements of Kiwibank were that
they should only so advise.
(b) Even if they were required to advise the trustees of DRT, they did not
give negligent advice as solicitors:
(i) Mr Allan properly explained the loan proposal from Kiwibank.
(ii) He was not aware of the misconception (if it was such) on the
part of the Reeces that Kiwibank under the loan offer was
agreeing to finance the proposed development at
Clearview/Naylor in its entirety, rather than limiting, as the
document said, funding to the completion of three properties
or $700,000.
(iii) The default position found in the authorities is that solicitors
explaining a transaction are not ordinarily required to advise
on the commercial merits of a transaction and Mr Allan was
not specifically instructed to do so.
(iv) Mr Allan satisfied himself that the Reeces understood the loan
agreement.
[30] In any case, even if there was negligence, it did not cause loss to the Reeces:
(a) Mr Reece would have agreed to the lending transaction even if he
received the advice that he alleges Grove Darlow ought to have given
him, namely that it would not be in his interests to enter into the loan
agreement.
(b) Mr Reece needed the loan from Kiwibank in order to complete the
development, which was the only way that he could salvage his
position. Kiwibank was the only lender in prospect.
(c) Kiwibank imposed a number of pre-conditions on the loan offer,
including the cross-collateralisation which granted security over the
property owned by RHL.
(d) Mr Reece ultimately lost the properties because the development did
not return sufficient profit, probably because the development was
carried out at the beginning of the global financial crisis in 2009.
[31] There are two issues which must be discussed before the main claim can be
determined. The first of these requires me to determine whom the Grove Darlow
defendants agreed to represent. The second issue concerns the scope of the
defendants’ obligations in advising Mr and Mrs Reece. The conclusions on these
issues will determine whether the main claim against the Grove Darlow defendants
can proceed.
To whom was Mr Allan required to give advice?
[32] There is no explicit retainer agreement to assist the court in determining
precisely which parties Mr Allan was required to advise. However, it is possible to
draw conclusions about the relationship between the parties by considering the
contemporaneous circumstances, the actions and statements of the parties and such
documents as the defendants brought into existence as part of their retainer. The
evidence given by Mr Reece and Mr Allan and the general factual background will
also be important.
[33] In respect of this issue, the Grove Darlow defendants contend that advice was
sought by Mr and Mrs Reece in their personal capacities and not in their capacities
as trustees of the Reece Family Trusts. If this contention is correct, then the trustees
of the DRT cannot bring a claim in negligence on the basis of Mr Allan’s advice.
[34] In addition to the evidence that was provided on this point, there are a
number of contemporaneous documents which may throw some light on the subject.
The documents in question are:
(a) the statement of position which Mr Halse prepared in August 2008;
(b) the loan offer document from Kiwibank dated 20 August 2008;
(c) the terms of the certificate which Mr Allan was required to give which
referred to whom he was to advise and on what matters; and
(d) the memorandum which Mr Allan drew up on 1 September 2008
following the meeting that he had with the Reeces and the First
Defendant.
[35] The first of these documents does not discuss any of the pre-conditions to the
loan offer advanced by Kiwibank. It is therefore of neutral significance and does not
assist the court in determining whom the Grove Darlow defendants were retained to
advise.
[36] The second of the contemporaneous documents sets out certain documents
that the Reeces were required to execute as a pre-condition to the refinancing
arrangement. The family trusts12
were intended to be the borrowers and the Reeces
were required to personally guarantee the obligations of those trusts. They were also
required to guarantee the advances that were to be made to RHL. There was no
reference in the letter of offer dated 20 August 2008 to DRT.
[37] I next turn to the terms of the certificates which Mr Allan was required to
issue. As discussed above, the Grove Darlow defendants only came into the picture
because Kiwibank had put forward a written loan offer which was contingent upon
certificates proving that the Reeces had obtained independent advice from a solicitor.
[38] Documents were produced in evidence from Kiwibank which set out their
expectations of the solicitor providing independent advice, Mr Allan. The parties to
the proposed lending arrangements were described in those documents in the
following terms:
a) Borrower/s Rudyard Holdings Limited
12
That is the Robert Reece Family Trust and the Caroline Reece Family Trust (not DRT).
b) Guarantor/s Carolyn Reece family trust and Robert
Reece Family Trust, Mr Robert James Reece
and Mr Graham William Halse
c) ….
d) Loan purpose construction three residential dwelling in
Crestview Heights, Keri Vista Rise,
Papakura.
[39] Mr Allan was required to sign four certificates that he had provided
independent legal advice to all borrowers and guarantors. Each of the certificates
included the following text:
Before the guarantor named above (the guarantor) executed the guarantees
and indemnity (the guarantees) of the obligations of the customer (as
referred to in the guarantee) in favour of Kiwibank:
1. We, as prudent solicitor, provided independent legal advice before
signing the guarantees.
2. …
3. We reviewed the guarantee and explained to the guarantor the effect
of its provisions;
4. the guarantor confirmed to us that it (sic) understood the nature and
extent of its obligations under the guarantees (and in particular, the
amount of its liability as stated above) and would sign it voluntarily.
[40] The guarantors identified in each of the certificates were:
(a) Carolyn Dawn Reece in her capacity as trustee of The Carolyn Reece
Family Trust;
(b) Robert James Reece;
(c) Robert James Reece in his capacity as trustee of The Robert Reece
Family Trust.
[41] The securities that were required by Kiwibank to guarantee the obligations of
RHL were to be from the two Reece family trusts and Mr and Mrs Reece.
[42] If attention is confined to the loan transaction itself, then it would appear that
DRT was not one of the parties that was involved in the transaction and was not one
of the parties that was required, therefore, to obtain independent advice from Mr
Allan. There is nothing in the evidence which would alter that conclusion. It would
appear therefore that Mr Allan was not retained to advise DRT and accordingly there
would be difficulties in the way of establishing that he had breached a duty of care to
it.
[43] The fourth of the contemporaneous documents is a memorandum which
Mr Allan drew up on 1 September 2008 following the meeting that he had with the
Reeces and Mr Halse.
[44] In evidence, Mr Allan said that he came to act for Mr Reece in August 2008
“on narrow aspects of the matters this proceeding is now concerned with”. He said
that he was asked to provide independent legal advice to Mr Reece and his then wife
Carolyn, both in their personal capacities and as trustees of their family trusts.13
He
said that the request was urgent and was made at short notice. He said that he met
with the Reeces and Mr Halse on 21 August for approximately 90 minutes. He said
little else of significance about what was discussed at the meeting.
[45] However, the memorandum that Mr Allan drafted on 1 September 2008 sets
out the matters that were discussed in reasonable detail. The memorandum is
reproduced in full below:
Meeting
1 September 2008
On the 21st August 2008 Rob Reece, his wife Caroline and Graeme Halse
came and saw me in relation to a proposed restructure that Graeme Halse
had developed with Kiwibank with the sanction of Rob and with Caroline.
I was provided with a summary of position for Rob, Caroline, the family
trusts and the Double R Trust and we went through each of the relevant
paragraphs together.
13
The evidence of the defendants is that did not include the trust which held the beneficial interest
in RHL, namely DRT.
In effect both Rob and Caroline are exposed through existing borrowing with
Kiwibank over the properties at Polo Prince and their home at Paritai Drive.
There are mortgages behind Kiwibank to Dominion Finance.
In order to survive Graeme has advanced Rob and Caroline through the
Double R Trust, which wasn’t tied up to the Kiwibank loans, significant
sums of money approximately $700,000.00.
Rob’s core business is a builder and he has $6 million worth of land tied up
which he can’t develop because of his insolvent status.
Graeme has devised a strategy whereby a company which Rudyard Holdings
Limited (sic) which he is the director and shareholder and which as
shareholder he holds shares on trust for the Double R Trust acquired the land
as trustee for the Double R Trust and then undertake the development
employing Rob to build these houses. Graeme is to get a 20per cent profit of
the entire developments as well as receive a finance fee and the Double R
assets will collaterise the Kiwibank loans over Polo Price and Paritai.
Because this is the only way that Rob and Caroline can go forward and make
some money Caroline was fully understanding of the liability situation and
her legal position. During the course of the meeting Graeme left the room
for 20 minutes while I went through the transaction structure with Caroline
and Rob and I was satisfied that both and particularly Caroline was fully
conversant with what was being proposed. A loan offer was then signed.
On 22nd
of August 2008 Rob and Graeme and Caroline again attended with
Jane Boyce who is the senior associate and we then proceeded to sign and
witness all the documentation required for these purposes.
As part of this restructuring I suggested to Caroline, and Graeme was happy
with this, that the trust deed be varied so that Caroline had control over
appointment of trustees and what we ended up with was whereby each of
Rob and Caroline had the power to appoint one trustee each (in the variation
of trust deed).
[46] It will be seen that there is a reference in this memorandum to DRT where it
is stated that funds have been advanced from Mr Halse to the Reeces “through the
Double R Trust”. Reference is made to the fact that Mr Halse held shares in RHL as
a trustee for DRT. RHL was to be one of the borrowing parties under the restructure.
[47] There is also a reference to "the Double R assets" being used to
“collateralise” the Kiwibank loans over Polo Prince and Paratai Drive. I interpolate
that the reference to the Double R assets would actually seem to be an elliptical
reference to assets that were owned by RHL, but as noted above, the shares in that
company were held on trust for the Reeces.
[48] The account which Mr Allan gives in that memorandum does not suggest that
he was retained to advise the DRT. Furthermore, beyond the references in the
memorandum to the DRT, there is no other basis in the evidence for suggesting that
Mr Allan was instructed by the plaintiffs to act.
[49] My tentative conclusion is that these documents, too, present a difficulty for
the plaintiffs because they suggest that DRT never retained Mr Allan, with the result
that there could not be any liability on the Grove Darlow defendants.
What was the appropriate scope of Mr Allan’s advice?
[50] The trustees of DRT allege that Mr Allan “owed it a duty of care to advise on
the merits of the strategy proposed by Mr Halse”. It is therefore necessary to
determine the appropriate scope of Mr Allan’s advice.
[51] There are two key areas in which Mr Allan, it is claimed, was negligent. The
Reeces’ claim is that Mr Allan did not explain to them that the loan offer required
properties which were owned by DRT to be transferred to RHL, and that these
properties were to be made available for mortgaging in order to secure additional
lending to the Reeces personally. Mr Allan is also said to have been under an
obligation to explain that part of the transaction which would result in Mr Halse
taking 20 per cent of the property as part of the transaction.
[52] Mr Reece said in his affidavit that Mr Allan gave advice and endorsed “the
scheme devised by Mr Halse”. Furthermore, Mr Reece says that the meeting of 21
August 2008 with Mr Allan was:
… so that Graeme Halse could explain the scheme to him. This necessarily
required a discussion of the purpose of the scheme. Mr Halse has previously
explained, particularly in the Kiwibank trial, that it was essential to the
scheme that Kiwibank had to fund to the end of the development of the
Crestview and Naylor Drive properties. I consider that to provide the advice
on the scheme in a competent way, Mr Allan would have needed to:
(a) understand that; and
(b) ensure that this feature was accurately recorded in the loan
documents before they were signed on 22 August 2008[.]
[53] Mr Allan denies that he gave such advice. He said he did not endorse any
scheme:
I was not instructed to give business advice on the overall strategy that the
Reeces were pursuing. I was in no position to do so having had almost no
background in the details of their financial affairs. I simply advised Robert
Reece and Carolyn Reece to ensure that they understood their legal liabilities
under the loan and guarantee documents.
[54] Mr Allan’s memorandum (as set out above) suggests that the meeting fell into
two distinct phases. The first was while Mr Halse was present and then Mr Allan
continued the meeting with Mr and Mrs Reece alone.
[55] The following points seem to me to be significant. Mr Allan refers to a
proposed restructure that Mr Halse had developed with Kiwibank with the sanction
of the Reeces. He further speaks of Mrs Reece being fully understanding of the
liability situation and her legal position. This would seem to be a reference to the
fact that Mrs Reece was exposed through existing borrowing with Kiwibank over the
properties at Polo Prince and Paratai Drive. The memorandum noted that when Mr
Halse left the meeting, Mr Allan went through the transaction structure with Mr and
Mrs Reece and was satisfied that both, and particularly Mrs Reece, was “fully
conversant” with what was being proposed.
[56] If the memorandum is an accurate summary of what was discussed at the
meeting, the flavour of it suggests that there was no discussion about the merits of
the proposed transaction. Mr Allan plainly states that he was not asked and he did
not give such advice. Given that the terms of a retainer essentially depend upon
what the client asks for, it might be said that if Mr and Mrs Reece had come to
Mr Allan seeking a discussion of the merits of the restructure, then they would have
insisted on having that conversation.
[57] As the argument developed, it became clear, though, that the real thrust of the
claim which the plaintiffs are making is that Mr Allan did not advise on the extent of
the finance that would be forthcoming from Kiwibank. This is a separate point from
the general desirability of the proposal however it needs to be considered.
[58] Kiwibank was protecting itself by imposing a requirement about independent
advice. Their own managers would identify any concerns about the commercial
realism of the scheme that the Reeces sought to finance. The bank’s central concern
was that the Reeces should receive independent advice to make sure that the loan
transaction was enforceable and that the securities were in place. Legal advice
would, amongst other things, provide protection against later arguments that the
bank might have pressured Mr and Mrs Reece into borrowing more money. The
commercial desirability of the proposal would be for the customers, that is the
Reeces, to decide. Certainly there is no evidence that the bank required Mr Allan to
review that aspect of the transaction.
[59] No doubt the advice would on this occasion, as it usually is, have to be
tailored to the particular needs of the clients and their circumstances. Included in the
circumstances was whether the clients already appeared to have an adequate
understanding of some of the more obvious aspects of the transaction being entered
into. It might not seem to be necessary for a lawyer to give them advice about
matters of business when they obviously had considerable business acumen, as
demonstrated by their commercial background and circumstances. As well, advice
concerned with the commercial desirability of the proposal would not necessarily
have had to have been received from a solicitor.
[60] On the other hand, if parties were referred to an independent solicitor for
advice and it became apparent to that person that the parties had little or no idea
about what they were agreeing to, or that they had a substantial misconception of the
risks that they were exposing themselves to, or that the transaction could be seen
even on a cursory scrutiny to be very disadvantageous to them, then it would be
expected that the solicitor would advise the parties accordingly. That would be the
case even if the referring institution such as a bank did not stipulate that the clients
were to be given advice about the commercial desirability of the transaction, or
might even have been opposed to such advice being given, had they known that it
would be forthcoming.
[61] In this case, the very fact that Mr Halse had prepared a strategy document for
the Reeces may have reasonably suggested to the Grove Darlow defendants that
there had already been a discussion which identified the main components of the
transaction and which had made it clear to the Reeces what it was that was being
recommended. Having taken such matters into account, the Grove Darlow
defendants may have seen no necessity for discussing self-evident aspects of the
transaction.
[62] In any case, the evidence which has been provided to this point does not
disclose any explicit instruction to Mr Allan from Kiwibank or from any other
quarter to advice on the commercial merits of the transaction.
[63] It was Mr Ross’s submission that:
35.3 It is axiomatic that solicitors do not usually have a duty to advice on
the merits of a transaction. As such, Grove Darlow simply did not
have a duty to advice on the merits, so it could not be in breach of
this duty. Mr Allan certainly did not “endorse” the transaction as
Mr Reece alleges.
[64] Mr Ross referred to the authority supporting that contention.14
[65] The case which the plaintiffs bring seems to rest on the proposition that it was
axiomatic that a lawyer in Mr Allan’s position would give advice on that aspect of
the matter. If that is the basis for the plaintiffs’ case, then in my view it is a weak
one, so far as the Grove Darlow defendants are concerned. If that proposition is not
axiomatic, then the evidence of the surrounding circumstances, including the
circumstances in which the referral was made to the independent solicitor, do not
appear to provide support for an argument that the actual or implied terms of the
retainer involved such advice.
The claim in negligence against Mr Allan
[66] Having examined the question of the retainer so as to understand the scope of
the advice that Mr and Mrs Reece were seeking from Mr Allan, the next step is to
14
Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC) at 649. See also Tauranga Law v Appleton
[2015] NZSC 3, [2015] 1 NZLR 814 at [28] citing Appleton v Tauranga Law HC Tauranga CIV-
2010-070-385, 12 December 2011 at [52].
analyse whether he was negligent in the discharge of the duties that his retainer
required him to carry out.
[67] The central allegation of the negligence alleged against Mr Allan is that he
did not draw the attention of Mr and Mrs Reece to the fact that the finance which the
bank was prepared to offer was limited to financing three residential properties. But
as Mr Ross pointed out, this claim must confront the difficulty that Mr Allan may not
have done so because “[t]he papers in front of Mr Allan contradicted that view.”
[68] The position that is taken by the Grove Darlow defendants, as I understand it,
is that Mr Allan might reasonably have expected these parties to understand the
amount of finance that was available, given that it was plainly stated in the loan
agreement. It seems fair to expect that the parties would have read through the main
points of an agreement that they were about to sign.
[69] On the other hand, even commercially experienced people can labour under
misconceptions about aspects of the transaction that they are entering into. A failure
to give such advice could conceivably cause loss where a client ended up with a
greater borrowing than he had understood that he was undertaking by signing the
loan agreement. The situation here is the reverse of that, of course. The complaint
which the Reeces make is that the contract that they entered into did not provide
them with sufficient finance and that negligence on the part of Mr Allan was a
contributing cause to them entering into that contract.
[70] At most it could be said that such a claim is arguable but it must confront the
fact that the Kiwibank loan offer was plain on what it said. It was not difficult to
read and understand what the bank was offering. In those circumstances it may be
that a solicitor has no obligation to point out the obvious.
[71] One of the contemporaneous documents that was in existence before the
meeting with Mr Allan was Mr Halse’s statement of position. It seems likely that
Mr Reece would have seen that document before he met with Mr Allan. That
document was considered by Mr Allan and the Reeces at the meeting. Mr Allan’s
memorandum of 1 September 2008 said “We [i.e. Mr Allan, the Reeces and Mr
Halse] went through each of the relevant paragraphs together”.
[72] The Halse “summary of position” contained reference to the extent of the
Kiwibank lending. Paragraph 11(c) stated that:
(c) Kiwibank will make the following advances (iii) A construction
facility of $700k to enable three homes to be built at a time”.
When that document is considered in conjunction with the plain term of the
Kiwibank loan which spoke of an advance of $700,000 it becomes difficult to accept
that Mr Reece actually considered that he was to be approved considerably more
finance.
[73] These considerations add to the doubt that Mr Reece did not know the true
position before he executed the agreement. Even if Mr Allan failed to expressly state
the loan amount, it made no difference: Mr Reece is likely to have already had a
correct understanding that the loan was only $700,000.15
[74] Further, the summary of what occurred at the meetings, if correct makes it
likely that Mr Allan noted in the Reece’s presence the statement in the Halse
background paper that $700,000 only would be available for construction. Further it
is inherently improbable that Mr Allan would not have made reference to the amount
the clients were borrowing. It was a central issue that they needed to understand.
The claim that he negligently failed to point out the loan amount is weak.
Causation
[75] The issue of causation can be dealt with briefly. Even assuming that
Mr Allan had provided advice regarding the commercial wisdom of signing the
Kiwibank loan offer, it seems unlikely that it would have made any difference. It is
artificial to divide the Reece interests up into various compartments and assume that
each would act independently of the others. The truth of the matter is that if
Mr Reece’s financial survival depended upon it, there can be little doubt that the
15
This relates to whether Mr Allan caused loss.
entities which he and his wife controlled would have taken whatever steps were
necessary to obtain funding for the Crestview/Naylor development.
[76] The Kiwibank loan offer was the only offer of finance which offered any
prospect of Mr Reece’s financial survival. In those circumstances, there can be little
doubt that the trustees would have agreed with whatever was necessary to secure the
advances offered, no matter what advice was given by Mr Allan.16
That is another
ground for supporting the conclusion that a claim in negligence against the Grove
Darlow defendants is not strong.
[77] I have set out above a possible basis upon which Mr Allan might have been
negligent in that he did not expressly point out to Mr and Mrs Reece what the extent
of the finance that was being obtained was.
[78] There may be further difficulties in the path of the plaintiffs in that the
document which Mr and Mrs Reece were signing was specific about the amount of
finance which was to be provided. Were the matter to proceed to trial, no doubt the
evidence of Mr Reece would be closely scrutinised on this point. It would be a
requirement for the plaintiffs to establish that, notwithstanding the plain words of the
contract, Mr and Mrs Reece say that they did not appreciate that the finance was
limited to $700,000 approximately; and that had Mr Allan pointed this out to them,
they would have adopted another course which would have meant that they would
not have suffered the loss that they did. That would seem to mean that the
alternative course was that they would not have entered into a financing arrangement
at all. They may well have difficulty in establishing that matters would have turned
out in that way.
The claim for breach of duty against Mr Allan as a trustee of DRT
[79] Mr Allan became a trustee of the DRT and it is alleged that he breached his
duties as trustee to the DRT.
16
That does not mean that they would actually have to do anything themselves because they did
not have the authority to execute security documents. That was the prerogative of Mr Halse who
was the director of RHL, the company over whose property security was to be given.
[80] This claim is difficult to assess because of the lack of particulars that have
been given as to the nature of the duty that Mr Allan was said to have been under and
how he breached it. It is also difficult to understand how any such breach of duty
could have led to loss on the part of the plaintiffs as trustees of DRT.
[81] Mr Allan was, indeed, appointed as a trustee of DRT by Mrs Reece on 22
August 2008. On the same day, Mr and Mrs Reece executed the loan offer in their
various capacities, which did not include that of trustee of DRT. On the same day,
Mr Halse as director passed the necessary resolution of RHL, resolving to accept the
further loan offer from Kiwibank and executing the necessary security documents.
[82] Apart from the contemporaneous nature of these events, it is difficult to see
what other link there is between them.
[83] It is possible to imagine cases where a solicitor advising parties gives advice
that they should take a step which will be to the solicitor’s advantage. It is trite law
that in general, the solicitor cannot retain such an advantage unless the clients have
been independently advised.
[84] The only way in which these requirements could conceivably have been
breached in the present case would seem to be if in explaining the transaction,
Mr Allan persuaded the clients that they ought to proceed with it in order that he
might obtain some advantage from the transaction himself. The only change of
circumstances that the plaintiffs might be able to suggest was to
Mr Allan’s advantage was that he was to become a trustee of the trust. No
particulars are provided as to whether that is indeed the way in which the alleged
breach of duty occurred and, if so, how Mr Allan was advantaged by it. As matters
stand, it would have to be said that this claim has no prospects of success.
Quantum of damages
[85] I have not made any mention of the controversy between the parties about
quantum. In broad terms, that is because the question of whether any costs order
will be made in favour of the defendants ultimately will be principally influenced by
the decision the court comes to at trial as to liability of the parties, rather than the
quantum of the claim.17
For that reason, too, I have not considered the question of
whether the plaintiffs might have damages reduced because of contributory
negligence on their part. An instance of this, I understand, is alleged to have
occurred through their signing the loan agreement which on its face committed
Kiwibank to advance significantly less funding to them than they had hoped for.
Discretion to order security for costs
[86] The plaintiffs have stated that they will not be in a position to pay costs if
their claims against the defendants do not succeed. They do not provide any
significant information about their present financial circumstances. Mr Reece was
adjudicated bankrupt in February 2009 and was discharged on 25 March 2012. I
understand that he and Mrs Reece are now estranged. Nothing seems to be known
about her financial circumstances.
[87] While there is no explicit evidence concerning the fact, that Mr Reece was
adjudicated bankrupt on 4 February 2009 and was not discharged until 25 March
2012, provides some support for his statement that if security for costs is ordered the
proceedings will not be able to continue. I accept that that is a fact.
[88] It is necessary to bear in mind that the making of an order for security for
costs does not necessarily follow from the fact that the impecuniosity threshold has
been established.18
[89] I accept that it is likely that if any substantial order for security for costs is
made, that will prevent the plaintiffs from bringing their claim against either set of
defendants.
[90] In the end, one of the questions to be asked is whether there is an appreciable
and realistic risk that the defendants will be left with an unsatisfied costs order.
While that outcome may have to be accepted as the price of bona fide plaintiffs
17
High Court Rules, r 14.2(a). 18
Highgate on Broadway Ltd v Devine, above n 9, at [21].
being able to bring genuinely arguable claims before the courts, it is not an outcome
that is to be countenanced where the claim has little chance of success.19
[91] I am left with real doubts about the merits of the plaintiffs’ case against the
Grove Darlow defendants. The essence of the case is that Mr and Mrs Reece were
referred to Mr Allan for legal advice concerning the Kiwibank loan offer and he
seems to have properly explained that document to them. There is no substantial
basis for a claim that Mr Allan was also obliged to advise on the commercial wisdom
of entering into the Kiwibank transaction. In any case, the additional advice that he
was allegedly required to give is, in any case, unlikely to have made any difference.
I have already expressed the view that on the basis of the material now before the
court, the claim against the Grove Darlow defendants is not a strong one.
[92] It is not likely that the actual amount of finance for construction was not
discussed at the meeting with Mr Allan. It is likely that when he certified he had
explained the transaction to them he was certifying correctly and that his explanation
included the amount of borrowing. If to the contrary, he said nothing about the
amount, Mr Reece would have known anyway what it actually was and elected to
proceed in that knowledge. Either way, Mr Allan did not cause loss in this regard.
[93] The next point that is taken on behalf of the plaintiffs is that the Court ought
to exercise its discretion against ordering security for costs in this case because it
was the very actions of the second and third defendants which caused the
inpecuniosity of the plaintiffs. It is necessary to briefly analyse that proposition.
[94] The claim by the plaintiffs is as trustees of the Double R Trust which owned
80 percent of the shares in RHL. The plaintiffs’ position can only be assessed
therefore by seeing how their position which derives from the wealth or otherwise of
RHL would have been affected by the advice that the second and third defendants
provided. The claim therefore of inpecuniosity caused by the second and third
defendants must involve the proposition that had the second and third defendants not
failed in their duty by omitting to point out that funding was limited to $700,000.00,
RHL would have been able to obtain essentially the same level of funding from
19
McLachlan v MEL Network Ltd, above n 3, at [15].
another financial institution. That is funding would have been made available which
would take out Kiwibank’s existing exposure, provide for capitalisation of interests
(RHL presumably not having the current assets from which it could meet servicing
charges) and as well provide for an unspecified amount of additional funding for
development of the Crestview/Naylor properties. There is no evidence which
addresses just how much would have been required to complete the development of
the Crestview/Naylor project in its entirety would have been. The $770,000 that was
actually lent was not enough, though, according to the plaintiffs. Therefore a figure
that was substantially greater would have been required from the alternative
financier. Further, on the plaintiffs’ analysis of the case, such funding would have
been available. That is notwithstanding that other financiers did not have the added
incentive to enter into a funding arrangement in the form of the fact that they were
already holding substantial debt from the Reece interests, recovery of which would
only be possible if further funding was provided to open the way to profitable
trading in regard to the undeveloped sections. Had all of this happened, according to
the plaintiffs, RHL would have successfully carried out the development and earned
substantial profits which have yet to be quantified. It is to the extent that the
plaintiffs were deprived of that profit that the second and third defendants are said to
have relevantly caused RHL’s inpecuniosity, and therefore by derivation, the same
inpecuniosity on the part of the shareholders in RHL, the plaintiffs.
[95] I do not regard all of these contentions as being seriously arguable. Quite
apart from anything else the global financial crises was beginning to have a major
impact on property developers.20
This development on its own had a seriously
depressing effect on the property development sector. Even if the plaintiffs had
managed to obtain finance the GFC therefore posed an independent risk that the
proposed development of Crestview/Naylor would have failed in any case. For all of
these reasons, I am not prepared to accept that there is a seriously arguable link
between the alleged failings of the second and third defendants when providing
advice to the Reece interests and the fact that today the plaintiff trustees find
themselves in the position where they frankly concede that they would not be able to
meet the costs of this litigation if they failed.
20
The GFC may be taken as having commenced at the time of the Lehman brothers insolvency
which emerged 15 September 2008.
[96] In the case of the Grove Darlow defendants, unless an order is made, they
will have to shoulder the costs of a trial that is estimated as being of approximately
five days’ duration. It is not known what their total legal costs will be, however they
will be substantial even if consideration is restricted to the preparation for trial and
appearance at trial.
[97] Having regard to the overall circumstances of the case, I do not consider that
the Grove Darlow defendants ought to be left with the risk of unpaid costs, which
will be the virtually inevitable outcome if the plaintiffs fail and costs orders are made
in favour of the Grove Darlow defendants.
[98] The remaining matter is to assess the quantum of any order. The second and
third defendants asserted that the amount of security while at the discretion of the
Court would be affected by the following matters:
[49] The amount of security is of course at the discretion of the court,
having regard to what the court considers fit in all the circumstances.
Relevant considerations are:
49.1 amount or nature of the relief claimed;
49.2 nature of the proceeding including complexity of the issues;
49.3 estimated duration of trial; and
49.4 probable costs payable if the plaintiff is unsuccessful.
[99] The second and third defendants have estimated costs on a 2B basis for a ten
day trial at $68,174; or for a five day trial $51,449. That provides some guidance to
the extent of any costs orders that might be made against the plaintiffs. To provide a
substantial level of protection against the hardship resulting from unmet costs orders,
it would be necessary in my view to make provision by way of security for costs for
not less than $40,000. There will be an order that that sum is to be paid into Court as
to $20,000 within 40 working days and the balance to be paid at the date eventually
fixed as the close of pleadings date (if any). There will be an order that the
proceeding is stayed until the first payment of $20,000 set out above has been
received.
Application for particulars by Mr Halse
[100] All of the defendants have made application for particulars. I will deal first
with the position of Mr Halse.
[101] Mr Halse sought leave to amend his application for particulars to request an
order that the plaintiffs provide particulars of the denial that Mr Halse was protected
by the trust deed so long as he acted without personal actual fraud.
[102] Mr St John sensibly did not oppose the amendment of the application, nor did
he oppose the making of orders on the amended application. The particulars are to
be provided within the same limits as I have fixed for the other particulars to be
provided below in this judgment.
[103] After the application for particulars had been filed, the plaintiffs filed an
amended statement of claim. Mr Halse has not filed an amended application for
particulars to reflect the reformatted claim.
Particulars sought
[104] In his submissions, Mr Cooley stated:
46. Rule 5.26 of the High Court Rules requires a statement of claim to
show the general nature of the plaintiff’s claim to the relief sought
and to give sufficient particulars of time, place, amounts, names of
persons, nature and dates of instruments, and other circumstances to
inform the court and the party against whom relief is sought of the
plaintiff’s cause of action.
47. Rule 5.33 requires a statement of claim to state the nature,
particulars and amount of special damages. In the context of r5.33
‘special damages’ includes identificable loss already incurred which
can be calculated and proved in terms of such calculation. The
particulars of the special damages should contain sufficient detail for
the defendant to be able to check and confirm prior to trial.21
This
requires more than simply pleading final figures which are the result
of extensive calculations; the basis for the calculation must be
supplied.22
21
McGechan on Procedure, above n 6, at [HR5.33.03]. 22
Ayers v LexisNexis NZ Ltd [2014] NZHC 2998 at [62].
48. The purpose of pleadings is to define the issues and thereby to
inform the parties in advance of the case they have to meet and so
enable them to take steps to deal with it.
Particulars are of pleadings but they are not themselves pleadings.
The function of particulars is to ensure that the pleading states a
clear issue and informs the opposite party of the case to be met or
defence to be argued.
49. Particulars of negligence are required. The plaintiff needs to state
with specificity and clarity how a defendant is alleged to have fallen
below the requisite standard of care and particularise the causal link
between the act or omission and the loss. In practice, this means that
a plaintiff needs to state what a defendant allegedly did or omitted.
This will require particulars as to times, persons, dates and
amounts.23
50. Particulars are also required where allegations of breach of trust or
bad faith are pleaded.24
51. In Platt v Porirua City Council25
the Court noted that particulars of
pleadings are important to:
(i) Inform a defendant as to the case it has to meet; and
(ii) Limit the scope of matters the plaintiff may put in
issue at trial.
[105] I accept that those submissions provide an accurate statement of the approach
that ought to be taken when the court is considering an application for an order for
further and better particulars.
Paragraph 22(a) of ASOC
[106] Mr Halse applies for an order directing the plaintiffs to provide the following
particulars:
62. This alleges that [Mr Halse] provided advice to the Double R Trust,
but does not provide particulars of time, place, names of persons and
other circumstances to inform the court and [Mr Halse] of the
plaintiff’s cause of action. For example, is it alleged that [Mr Halse]
provided this advice in his capacity as trustee or solicitor of the
Double R Trust.
63. The further particulars that have been provided are inadequate. The
first and second particular repeat that [Mr Halse] was a trustee and
solicitor for the trust. The third particular states that the trustees
23
McGechan on Procedure, above n 6, at [HR5.21.12(4)]. 24
McGechan on Procedure, above n 6, at [HR5.21.12(2)] and [HR5.21.12(3)]. 25
Platt v Porirua City Council [2012] NZHC 2445 at [19].
acted in reliance on this advice- which is a separate allegation- but
does not particularise the allegation that advice was provided.
[107] In response, Mr St John for the plaintiffs submitted:
(62) These are matters entirely within the knowledge of Mr Halse. The
effect of the allegations is that Mr Halse advised himself wearing
many different hats. The plaintiffs cannot add anything to this. But
more to the point, there is no impediment to Mr Halse answering the
allegation.
[108] I agree that further particulars are required. In order to enable Mr Halse to
meet the case against him he has to know in broad outline when the acts alleged
occurred. Those remarks apply to the particulars sought of time place etc.
[109] As to the question of the capacity in which Mr Halse is alleged to have given
the advice, it may be implicit in the amended statement of claim that Mr Halse is
being sued as a solicitor but I consider that because of the dual roles that he played in
the narrative of events that occurred, it would be conducive to clarity if the plaintiffs
were required to specifically state what character he was acting in when he was
alleged to have given the advice. Of course, quite different repercussions may flow
from a statement made by a person who, although he happens to be a solicitor, is in
the circumstances under discussion actually participating as a trustee in a trust.
While it may be necessary for a detailed examination of the facts that emerge at trial
to be carried out to try and assess in what capacity any statements were made, that
does not dispense with the need for the claiming party in the first place to give a
forthright statement of what it says was the position. However at this point where the
pleadings are in dispute, it is reasonably clear that the plaintiffs must make it plain as
to what capacity liability is alleged to arise from. As matters stand, because of the
statements in the amended statement of claim at para 22(a)(i) and (ii), it is not clear
upon what basis the plaintiffs claim that Mr Halse made the various statements that
are complained of. Clarification of this issue is necessary.
[110] I cannot agree with the contention that the pleading is concerned with matters
that are “entirely within the knowledge of Mr Halse”, as Mr St John contends. The
events that the plaintiffs sue for include the provision of advice. The activity of
giving advice involves the making of statements. The advice will no doubt reflect
opinions and the like which the maker of the statement holds. It may be that some of
the matters that influenced the statement involve matters entirely within the
knowledge of the person giving advice. But the starting point when a claim is made
is to identify acts and words which amount to the advice that was given. Questions
about whether the advice is reflective of matters that are within the knowledge of the
person making the statement are beside the point at this stage.
Paragraph 22(g) of ASOC
[111] The paragraph in question alleges that Mr Halse:
(g) Advised RHL that the terms of the loan and the proposed
transactions were on its best interests;
[112] Mr Cooley submitted:
64. There are similar concerns with the allegation that [Mr Halse]
provided advice to RHL. The particulars that have been provided
note that [Mr Halse] signed a director’s resolution and solicitor’s
certificate, but do not particularise the allegation that advice was
provided.
[113] The response from the plaintiffs is:
(64) How can the plaintiffs answer this particular? Obviously, Mr Halse
acting as solicitor for RHL must have advised RHL (albeit they are
same person in this respect) but the details of that are entirely within
the knowledge of Mr Halse. There is nothing in this particular what
would prevent Mr Halse from answering the claim brought against
him.
[114] I shall not repeat what is said above to the effect that the receipt of that advice
was hardly something that the plaintiffs were unaware of and which Mr Halse had
exclusive knowledge of.
[115] On the face of it, para 22 of the ASOC could suggest that the plaintiffs may
be saying that they drew an inference from the actions of Mr Halse in signing a
director’s resolution and solicitor’s certificate, to the effect that given that Mr Halse
was a solicitor, it was reasonable to conclude that from the standpoint of a solicitor,
he considered that the transactions were satisfactory. In other words, the
representation would be one implied from conduct. If that is indeed the position that
the plaintiffs are taking, then they ought to say so explicitly so that the court is
provided with a clearly articulated issue which it can answer. One answer would be
that a solicitor cannot be saddled with liability in such circumstances where there is
no proved agreement of retainer; and that if the plaintiffs wished to draw inferences
of this kind, they alone were responsible for the consequences. On the other hand, it
may be concluded that where a solicitor is so closely involved in the execution of
transactions which he is advising on, it is impossible to view him as moving in and
out of different roles of adviser and trustee. Whatever the outcome is, clarity of
pleading can only assist in resolution of this aspect of the dispute.
[116] Again, the plaintiffs are not suing Mr Halse because of his knowledge or
opinions. They are suing him because of what he communicated to them by the
usual means of express statements of advice and, possibly, on the further basis that
his responsibility extends to advice or recommendations that he appeared to be
endorsing or supporting even though they were not the subject of express statements.
[117] While his utterances or statements made in writing may be reflective of what
Mr Halse believed, it is because he manifested his views in the statements that he
allegedly caused loss to the plaintiffs. There is therefore no exclusivity of
knowledge of the relevant circumstances which give rise to the cause of action. It is
incumbent upon the plaintiffs to particularise what they were told and when etc.
There will therefore be an order that the particulars which are sought as described in
para 62 of Mr Cooley’s submissions are to be provided. That is to say particulars of
time, place, names of persons and other circumstances to inform the court and Mr
Halse of the plaintiffs’ cause of action must be provided.
Paragraph 34(c) of amended statement of claim
[118] The submission made in support of this part of the application for particulars
stated the following:
65. This alleges that [Mr Halse] provided advice to the Double R Trust.
The plaintiffs have provided further particulars of this allegation.
66. The first particular refers to a ‘position paper’ but without further
particulars. [Mr Halse] seeks confirmation that this refers to the
Summary of Position dated 21 August 2008.
67. The second particular refers to a discussion with Mr Reece but
without further particulars of time.
[119] The response of Mr St John was as follows:
(66) Mr Halse wants confirmation that the “position paper” is the same
document described as the “summary of position.” Mr Halse knows
that it does. There is no other document in that class.
(67) The fact that a time has not been specified is not wanting of a
pleading. The issue is whether this prevents hales [sic] from
answering the allegation. There is no evidence as to how that might
be so.
(68) Actually, the real issue here is asking Mr Halse this particular
question. The plaintiffs cannot answer this particular. They have
alleged that he did give advice but the specifics of that are entirely
within the knowledge of [Halse].
[120] In essence, the first part of Mr St John’s response suggests that the request is
unnecessary because there is only one position paper. In any case, Mr St John’s
submission confirms the apprehension of Mr Cooley set out at paragraph 66 of his
memorandum and no further discussion of the point is called for in this judgment.
[121] In order to deal with the second particular sought it is necessary to record that
the allegation against Mr Halse is that he advised the trust that the loan documents
would enable the full development of the Crestview/Naylor properties. That is to
say, the allegation is that Mr Halse advised that by signing the loan agreement and
other contractual documents, Kiwibank was committing itself to providing funding
for all 15 of the sections, not just the three which are referred to in the loan
agreements. Mr Halse, it is alleged:
[T]old Rob Reece that that was the effect[.]
[122] The precise wording of the pleading would suggest that there was an oral
communication (it refers to Mr Halse having “told” Mr Reece what the effect of the
loan arrangements was). In my judgment, there is no reason why the particulars
sought ought not to be given. In order for Mr Halse to prepare for trial it is
necessary for him to know when and where the alleged statement was made, if
nothing else. It will be obvious that that particularisation would enable counsel to
narrow down the occasion when any discussion took place in the course of which a
statement was made. Mr Halse, in possession of that information, would then be
enabled to consider, amongst other things, what other persons might have been
present and whether there were any documents created around about the time of the
alleged statement which by their consistency or otherwise might enable Mr Halse to
advance his defence.
[123] Particulars of this statement must be provided.
[124] It is not clear to me whether the particulars which are sought in regard to the
remaining paragraphs specified at p 13 of Mr Cooley’s submissions are still required.
My uncertainty stems from the fact that Mr St John has not dealt with these
paragraphs explicitly. Out of an abundance of caution I will briefly set out my
views.
Paragraph 46(b) of ASOC
[125] In relation to this matter, Mr Cooley submitted:
68. This alleges that [Mr Halse] provided advice to RHL. [Mr Halse]
seeks clarification of the first and second particulars as noted above.
[126] For the same reasons that I have given earlier about the necessity for
particulars regarding the claim that Mr Halse advised DRT, particulars will be
necessary in respect of this allegation.
Paragraph 26 of ASOC
[127] The submission that was made on behalf of Mr Halse in relation to this
particular was as follows:
69. This alleges the plaintiffs’ loss. The plaintiffs have provided further
particulars. The plaintiffs’ claim for lost equity in the Properties and
anticipated profit from the development of the Properties are special
damages within the context of r 5.33.
70. The further particulars of the lost equity are sufficient.
71. The further particulars of the anticipated profit are inadequate. It is
clear that a precise calculation has been completed by the plaintiffs
to estimate its anticipated profit. Rule 5.33 requires more than a
description of the nature and amount of the special damages; it
requires particulars of the special damages. The precise calculation
should also be supplied.26
[128] The loss which the plaintiffs claim arises from two broad categories of
causative event. The first was that Mr Halse as the solicitor for the various entities
ought to have advised Mr and Mrs Reece that the proposed borrowing from
Kiwibank was disadvantageous and imprudent. That would seem to be a fair
summary of this aspect of the claim. There are subsidiary points included. It is said
that before the overall rearrangement necessitated by the Kiwibank proposal was
undertaken, the plaintiffs or some of them had an unencumbered interest in the
Crestview/Naylor properties. It was bad advice, the plaintiffs allege, for Mr Halse to
propose that the Reeces enter into the arrangement because as a result, what
unencumbered wealth they had was lost.
[129] The second cause of loss was that, having resolved to enter into a
rearrangement of their affairs, the parties determined to borrow additional money
from Kiwibank which would enable Mr Reece to carry out developments of the
Crestview/Naylor properties. In that regard, Mr Halse was said to be negligent in
recommending acceptance of the Kiwibank loan offer because it was restricted to
three sections and there was no obligation on the part of Kiwibank to offer
continuing finance so that the balance of the sections in the development, 12 in
number, could be brought to market. Even though the loan offer said on its face that
it was restricted to three sections, it is alleged that Mr Halse gave assurances that it
was not actually restricted in that way because of collateral agreements entered into
or something of that nature.
[130] Calculation of loss on the first approach to causation would be relatively
straightforward in that it would compare the positions of the plaintiffs had the
Reeces not been given the negligent advice to enter into the financial restructuring,
in which case they would have, presumably, defaulted on the existing securities and
lost all the secured properties and as well exposed their family relations to loss of
their secured properties. However, the Crestview/Naylor properties would have been
26
Ayers v LexisNexis NZ Ltd, above n 22, at [62].
retained and would have been out of reach of the creditors. This would have been
obviously to the advantage of the plaintiffs.
[131] Calculation of loss on the second approach to causation could on one view of
it reflect a particular aspect of the loss that has been discussed to this point which
arose from the determination to enter into a financial restructuring. Entering into the
Kiwibank loan on the terms offered was futile, would be the argument that the
plaintiffs would put forward. It exposed the plaintiffs to loss of the sections as
already mentioned but without providing them with a chance to trade out of their
difficulties.
[132] However it appears that further losses are being put forward representing loss
of the expected profits from the development of the Crestview sites (approximately
$2.8 million) and the Naylor sites (approximately $840,000), for a total
approximately of $3.6 million. Such an approach to damages must assume that it
would have been possible for the plaintiffs, had they appreciated that finance under
the Kiwibank facility was limited to three sections, to either renegotiate that
restriction so that finance was available for all 15 sections or alternatively for the
plaintiffs to approach an alternative lender who would have been prepared to provide
funding on acceptable terms.
[133] I assume it is to be argued that Mr Halse would be liable for this last head of
losses because it was reasonably foreseeable that if he gave wrong advice about the
finance, then the plaintiffs would lose an opportunity that they might otherwise have
taken to change the terms of the finance so that they would make a profit, or to
obtain alternative sources of finance having the same effect.
[134] Of course, had finance been available on these alternative bases, the
properties would inevitably had to have been secured to the lender. If however, the
venture was successful as a result of more ample finance being available:
a) the plaintiffs would have earned gross profits that would have enabled
them to pay back the loans;
b) there would have been a margin left over for themselves.
[135] This last type of claim essentially alleges that the negligence of Mr Halse was
the cause of the plaintiffs not only losing expected profits but suffering an overall
loss. The critical part of the reasoning though is that the plaintiffs’ proposal, like
most property development proposals, would not have resulted in them both
retaining all the properties and at the same time deriving the expected profits.
[136] A further aspect of the methodology for claiming the loss would have to
reflect the fact that the plaintiffs would not both earn the profit and recover all the
development money required to be spent in generating the profit. That money would
include all the financial liabilities incurred as part of the development.
[137] It is my view that whether particulars of the loss calculation are included in
the court pleadings or are provided by way of disclosure of the financial calculations
that will no doubt be prepared by a relevant expert, disclosure of the methodology
must be made. I agree that a balance has to be struck between meeting that
obligation and, on the other hand, having to provide information to a very detailed
level about how the claimed loss was arrived at. The only possible area of
contention is when that should take place. It would seem that a case of this kind is
one in which a conference of experts would be called for in any event pursuant to r
9.44 of the High Court Rules. But in any event, before that point is reached there
must be something available for experts on the other side to respond to. I consider
that it should be possible for the plaintiffs’ financial loss expert to provide a
summary including calculations to show how the loss is calculated. Whether that
summary is provided by way of an amendment to the statement of claim, the
schedule to it or by some other means is not important. The significant need is to
provide the information.
Application for particulars by the Grove Darlow defendants
[138] The claim against the Grove Darlow defendants has been succinctly
summarised in the submissions that Mr Ross filed in the following form:
28. The Double R Trust alleges that Grove Darlow:
28.1 Owed it a duty of care to advise on the merits of the strategy
proposed by Mr Halse;
28.2 Breached that duty by failing to advise:
(a) on the risks in assuming liability for the Reece debt;
(b) on the loss of value suffered as a result of the trust’s
transfer of its assets to Rudyard Holdings Limited,
20% beneficially owned by Mr Halse; and
(c) that the Kiwibank loan documents did not record Mr
Reece’s understanding that Kiwibank had to fund to
the entire development of the properties.
28.3 Caused the Double R Trust to transfer the properties to RHL
and allow the properties to be mortgaged to Kiwibank.
29. The consequences of which were that the Double R Trust lost both
the value of the properties and the expected profits from selling
those properties.
Breach of trust
30. Double R Trust alleges that Chris Allan:
30.1 Owed it duties to act in its beneficiaries best interests, invest
prudently and act as a prudent professional trustee; and
30.2 Breached those duties by causing Double R Trust to give
effect to the strategy.
30.3 Caused the Double R Trust to transfer the properties to RHL
and allow the properties to be mortgaged to Kiwibank.
[139] The Grove Darlow defendants seek particulars of these various claims.
Mr Ross also submitted that the relevant test for ordering particulars is:27
Has sufficient information been provided to inform the other party of the
case they have to meet and enable them to take steps to respond?
[140] This test is not materially different from that which Mr Cooley submitted the
court ought to apply.
[141] So far as the negligence claim is concerned, Mr Ross submitted that the
following particulars are required in order to satisfy the obligation which the
plaintiffs have to inform the Grove Darlow defendants:
27
Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(h)]. See
also Platt v Porirua City Council, above n 25, at [19].
54. The plaintiffs have also failed to particularise causation, specifically,
what the correct advice would have been, and what consequences
would have followed if they had been correctly advised.28
[142] It is alleged also that the pleading is defective in that it does not inform Grove
Darlow of:
(a) who instructed Grove Darlow, how that instruction was given,
what the scope of those instructions were and whether those
instructions were given orally or in writing;
(b) if Grove Darlow gave negligent advice, what should the
“correct” advice have been and what would the Double R Trust
have done differently had they received that correct advice;
(c) a proper pleading of loss. Currently, the plaintiffs’ claimed loss
does not follow from the plaintiffs’ implied counterfactual that
had the plaintiffs received proper advice they would not have
transferred the properties to RHL or caused them to be
mortgaged.
[143] As well, Mr Allan claims that the breach of trust allegations made against
him have not been properly particularised in that they fail to add any particulars
setting out the act or omission which the plaintiffs say amounted to a breach of trust,
and particularly, breach to the standard of personal conscious fraudulent bad faith
that is required in a claim of this kind.
[144] The plaintiffs do not accept that they are under any obligation to provide the
particulars which are reproduced in [141] above.
[145] One of the grounds that Mr St John puts forward for resisting provision of
particulars is that the plaintiffs cannot give the particulars because they were not
responsible for the instructions. That would seem to be a submission, in substance,
that the actual communication asking Grove Darlow to give advice to Mr and Mrs
Reece did not come from them but from some other person, presumably Mr Halse.
[146] A claimant in the position of the plaintiffs must be able to establish that
certain acts or communications occurred which constituted the transaction between
the plaintiffs and the Grove Darlow defendants pursuant to which the Grove Darlow
defendants were instructed to advise. Unless the basis for that transaction is set out
28
McGechan on Procedure, above n 6, at [HR5.21.12(4)].
and unless there is evidence to support it, the plaintiffs will fail. It does not matter
that the communications which gave rise to the mandate to advise did not emanate
from the plaintiffs personally. They may have come from some other person, such as
Mr Halse. If that is what occurred, the plaintiffs must plead that was so. There will
be a direction that the plaintiffs are to provide the particulars set out in para 55.1 of
the submissions of Mr Ross.
[147] In answer to the request for particulars at para 55.2, Mr St John stated that the
particulars had been provided (I presume in the amended statement of claim.)
[148] In the amended statement of claim at para 53, the following particulars of
negligence are provided:
a) Grove Darlow failed to advise the Double R Trust of the risks in
assuming liability for the Reece debt with or without a commitment
of all necessary funding for the developments of the Crest View and
Naylor’s Drive;
b) Grove Darlow failed to advise the Double R Trust regarding the loss
of value that would be suffered as a result of the trust’s transfer of its
assets to Rudyard Holdings Limited, a company 20% beneficially
owned by Mr Halse.
[149] It is possible to infer what the plaintiffs are seeking to allege, particularly in
regard to subpara a). The allegation involves the propositions that giving security
over the Crestview/Naylor’s Drive properties in return for finance sufficient to
develop only three of the properties did not represent a satisfactory bargain for the
plaintiffs because they did not receive in return what they wanted to obtain, namely
sufficient funding from Kiwibank to enable development of all of the properties.
Because of that feature, a reasonably competent lawyer would have advised, and Mr
Allan ought to so have advised, that the plaintiffs ought not to enter into the
borrowing transaction.
[150] I consider that additional particulars are required of the negligence claim
because as it stands, it does not deal with some of the above elements.
[151] A reasonably full particularisation ought also to answer the queries which
counsel for the Grove Darlow defendants seeks at para 55.2 of his submission. The
choices were that Mr Allan would either agree that the parties ought to enter into the
funding transaction or disagree. If the advice was objectionable because it contained
an agreement that the proposed Kiwi bank transaction was suitable for the plaintiffs
to enter into, then conversely, it follows that the correct advice would have been that
the plaintiff should not enter into it. Therefore I do not consider that it is necessary,
on the assumption that proper particulars are given of the negligence, for the
plaintiffs to set out what the “correct” advice would have been.
[152] The second element of para 55.2 claims that the plaintiffs ought to
particularise what they would have done differently had they received that correct
advice. I consider that these particulars are required because they provide a linkage
between the allegation of negligent advice and the consequences of that advice. The
particulars would make explicit what consequences there were to the plaintiffs as a
result of Mr Allan giving them the allegedly defective advice. Further, in order to
understand how the plaintiffs measure their loss, the defendants need to know what
course they would have taken had the advice not been given. It is not enough to say
that they would not have signed the Kiwibank loan. Had matters come to rest there
and had they not signed the Kiwibank loan, plainly there would have been an
immediate default and financial loss to the parties associated with Mr and Mrs
Reece. But the plaintiffs are not apparently contending that that would have been the
outcome. They are claiming that another course was open to them which would
have avoided a default and, further, it would have resulted in a profitable
development of the Crestview/Naylor properties.
[153] To some extent this merges with the particulars that are sought in Mr Ross’s
para 55.3 which seeks what he describes as “a proper pleading of loss”. If the
statement of claim is amended to provide particulars as already ordered in the
preceding paragraph and, in addition, to provide a summary of the basis upon which
the plaintiffs calculate their loss, then it should become sufficiently clear to the
defendants how the allegedly negligent advice caused the plaintiffs to act to their
financial detriment and should provide a proper quantification of the loss.
[154] I consider that there should also be an order that the plaintiffs provide the
particulars sought in para 55.3 of counsel’s submissions.
Paragraphs 57 and 58 of ASOC
[155] The trustees of DRT alleges that Mr Allan:
(a) owed it duties to act in its beneficiaries best interests, invest
prudently and act as a prudent professional trustee; and
(b) breached those duties by causing Double R Trust to give effect to the
strategy.
[156] The submissions that Mr Ross made in regard to the breach of trust
allegations included the following:
40 Aside from the question of whether Mr Allan is in breach of trust,
which is denied, Mr Allan has several affirmative defences that are
likely to succeed. Foremost among them is the limitation of liability
in the trust deed itself.
41 The trust deed for the Double R Trust limits a trustee’s liability to
breaches that “have been committed made or omitted in personal
conscious fraudulent bad faith”. The exemption clause is
enforceable. Nothing is pleaded that would meet that threshold. If
such a pleading were made, the nature of the required allegation (i.e.
committed made or omitted in personal conscious fraudulent bad
faith) would amplify Mr Allan’s claim to security.
42 Further, defences are available under ss 73 and 74 of the Trustee Act
1956.
[157] It was Mr Ross’s submission that:
56 Allegations of bad faith must be properly particularised. No
particulars have been provided for the breach of trust claim against
Mr Allan. The amended statement of claim deletes the open ended
pleading that existed previously, but fails to add any particulars
setting out the act or omission the plaintiffs say amounted to a
breach of trust, and particularly, breach to the standard of personal
conscious fraudulent bad faith.
[158] Mr St John submitted:
49. (56) The plaintiffs do not plead bad faith. What the plaintiffs
anticipate is the positive denial and the response to that. But that is
not a particular described in the application and is irrelevant to the
applications before the Court.
[159] I consider that the submission which Mr St John has made is correct. If and
when the plaintiffs file an answer to the statement of defence (which denies breach
of trust) and asserting bad faith, then at that stage particulars may be required.
Because neither of those steps have been taken to this point, no particulars should be
ordered in my view.
[160] I reserve leave for all of the defendants to seek further directions in regard to
the particularisation of the plaintiffs’ statement of claim.
Particulars of allegations of breach of trust
[161] Mr Allan has put forward that if he was in breach of his obligations as a
trustee of DRT then he is entitled to relief under s 73 of the Trustee Act 1956.
[162] The relevant background is that Mr Allan, who gave legal advice to the
Reeces, also became, as a result of a recommendation that he made to that effect, a
trustee of DRT. It is alleged that he breached his duties to DRT through failing to
exercise care diligence and skill in its affairs. These allegations are denied and as
well Mr Allan pleads an affirmative defence that he is entitled to relief under s 73 of
the Trustee Act, having acted honestly and reasonably. In the answer to the
statement of defence which the plaintiffs filed, they deny that Mr Allan is entitled to
relief and deny that he acted in good faith. No particulars are provided of the
respects on which his conduct was other than in good faith. The plaintiffs accept that
in due course they will be required to file particulars of lack of good faith. Even had
they not, the court would have directed them to do so. There will be an order
requiring the particulars sought to be provided.
Costs
[163] All of the parties accepted that costs should follow the event and that they
should be on a 2B basis.
[164] In regard to Mr Halse, he commenced two applications, one of them seeking
a security for costs order and the other particulars of the plaintiffs’ claims. At the
resumed hearing which took place on 16 May 2016 his counsel, Mr Cooley, advised
the court that Mr Halse was no longer proceeding with the former application.
[165] Having regard to the fact that Mr Halse has in effect discontinued the security
application but has succeeded on the particulars application, it seems reasonable that
as between himself and the plaintiffs, costs should lie where they fall.
[166] The Grove Darlow defendants have succeeded on both of their applications,
that for security for costs and the application for particulars. Given that that is so,
they are entitled to costs orders in relation to the hearing overall against the
plaintiffs. Costs are to be on a 2B basis together with disbursements fixed by the
Registrar.
_____________
J.P. Doogue
Associate Judge