Hannay and Others v Mount and Others Coa

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 14 October 2011
• Neutral Citation: [2011] NZCA 530
• Docket Number: CA329/2011
• Court: Court of Appeal
• Date: 14 October 2011

BETWEEN

Eleanor Margaretta Hannay & Ors

Appellants

and

Anthony Paul Mount and Kaye Pamela Mount

First Respondents

and

Independent Financial Consultants Limited

Second Respondents

[2011] NZCA 530

Court:

Harrison, Stevens and Wild JJ

CA329/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Counsel:

F M Farr for Appellants

G M Downing for Respondents

JUDGMENT OF THE COURT

• A The applications by both the appellants and the respondents for leave to adduce further evidence are granted.

• B The appeal is allowed.

• C Subject to D below, there will be orders that:

  • (a) all or any assets of the respondents (or any of them) as prospective judgment debtors shall not be:

    • (i) removed from New Zealand or from a place inside or outside New Zealand; and

    • (ii) disposed of, dealt with, or diminished in value (whether the assets are inside or outside New Zealand).

  • (the “freezing order”).

  • (b) the freezing order shall apply to up to $1.8 million of the assets of the respondents and the respondents are, for the purposes of the formal order, to provide to the Registrar (with a copy to counsel for the appellants), by no later than 28 October 2011, a comprehensive list of assets with descriptions adequate to identify each asset and with estimated values of each, together with supporting evidence of such values.

• D The freezing order is not intended to prohibit the respondents from using such of the assets described in C(b) for the purpose of:

  • (a) paying ordinary living expenses; or

  • (b) paying legal expenses relating to the current criminal or civil litigation; or

  • (c) disposing of assets or making payments in the ordinary course of business including business expenses incurred in good faith.

• E Before dealing with any asset for any of the purposes referred to in D above, the respondents shall (absent agreement between the parties) apply to the High Court by memorandum served on counsel for the appellants seeking approval of the Court to use or deal with particular assets for one or more of the described purposes. Any such memorandum shall give not less than seven days notice of any hearing to the appellants;

• F Upon sealing of the formal orders by the Registrar, the interim freezing order made in the High Court dated 29 June 2011 will be discharged.

• G There will be orders:

  • (a) suppressing publication of the reasons for judgment in the news media or on the internet or other publicly available data bases; and

  • (b) prohibiting the search of the file in this Court except by leave of a Judge – in each case until final disposition of the criminal proceedings against the first-named respondent.

• H The respondents must pay the costs of the appellants for a standard appeal on a band A basis and usual disbursements. The liability of the respondents for costs is to be joint and several.

REASONS OF THE COURT

(Given by Stevens J)

Introduction

1 Ms Eleanor Hannay and nineteen other appellants (collectively “the investors”) all engaged the respondents, Anthony and Kaye Mount (collectively “the Mounts”), who traded under the name Independent Financial Consultants (IFC), as investment advisers between 1988 and 2010. 1 During this time, the investors advanced various sums of money to the Mounts for investment and sought investment advice from them. The investors have issued civil proceedings against the Mounts alleging that, when investing their funds and providing financial advice, the Mounts committed various breaches including breaches of contract. These civil claims also involved allegations that the Mounts acted dishonestly by misappropriating some of the investor's funds, thereby causing losses. The police have charged Mr Mount with some 137 indictable dishonesty offences involving 22 complainants, including many of the investors. Those charges are proceeding to a hearing.

2 Before the group of investors expanded to twenty, five of the investors successfully obtained a freezing order from this Court in respect of $350,000 of funds held on deposit by the ASB Bank in an account in the names of “Mr A P Mount and Mrs K P Mount”. 2

3 The larger investor group issued separate proceedings in December 2010. As these proceedings included the parties who had obtained a freezing order from this Court, it is likely that both sets of proceedings will be consolidated in due course.

4 The plaintiffs in the second proceedings applied for, and obtained, an interim freezing order on a without notice basis pending the hearing of their application on notice. 3 The application was heard by MacKenzie J who determined in a reserved judgment that the investors had not made out a good arguable case for continuation of the interim freezing order. 4 Pending an appeal to this Court, the position of the investors has been protected by further interim freezing orders. 5

5 The investors appeal on the basis that the Judge erred in concluding that they had not established a good arguable case on any of the proposed causes of action pleaded in the first amended statement of claim. The investors argue, first, that such a case has been made out on the evidence and, second, that there is a risk of dissipation of assets as found by this Court in the first appeal. Because of his conclusion on the first point, the Judge did not address the second issue.

Factual background

6 The facts relevant to this appeal fall within a relatively narrow compass. Most of the investors live in the Nelson/Richmond/Mapua area, although two are from Blenheim and two from Tauranga. Many are retired. The investors all used the Mounts' financial advisory, investment planning and funds management services when investing their savings. The first amended statement of claim is 185 paragraphs long. Counsel for the appellants accepts that it will require further amendment, in that it needs, among other things, to be refocused, shortened and have added further particulars of loss. It pleads four causes of action in contract, breach of fiduciary duty, breach of the Fair Trading Act 1986 and unjust enrichment.

7 The investors make common allegations against the Mounts. They say that the Mounts misrepresented the amounts invested on their behalf by overstating the

sums actually invested; that certain of the funds invested are missing; that the values of investments were overstated resulting in the claiming of fees to which the Mounts were not entitled; and that in some cases the investments were sold without authorisation and the proceeds retained by the Mounts.

8 The central claim against the Mounts is one in contract. The current pleading of this cause of action gives a flavour of the alleged contractual relationship between the parties as follows:

• 172. The contracts between the [investors] and the [Mounts] included the following terms:

  • 172.1 The [Mounts] would prepare a financial planning and investment strategy for the [investors];

  • 172.2 The [Mounts] would prepare specific investment options and product recommendations for the [investors];

  • 172.3 The [Mounts] would review the [investors'] investment portfolios on a three monthly basis, with a written review every 6 months;

  • 172.4 The fees to be charged to the [investors] by the [Mounts] for the management of their portfolios would be calculated at:

    • (a) 2.00% of the total value of their portfolio up to and including $40,000.00;

    • (b) 1.50% of the total value of their portfolio between $40,001.00 and $120,000.00;

    • ( c) 1.25% of the total value of their portfolio between $120,001.00 to $200,000.00; and

    • (d) 0.75% of the total value of their portfolios above $200,001.00.

  • 172.5 There would be no commission taken by the [Mounts] and all commissions would be rebated to the [investors];

  • 172.6 Monies provided by the [investors] to the [Mounts] for investment would be deposited into the trust accounts maintained by either [Mr or Mrs Mount] with such monies to be held on trust until the [investors] authorised its release or disbursement;

  • 172.7 Receipts would be issued to the [investors] for all monies received by the [Mounts] from the [investors];

  • 172.8 The [Mounts] would record all transactions from their trust accounts relating to the [investors'] monies in separate ledgers to their own accounting systems and the [Mounts] would provide such information to the [investors] on written request within 5 working days;

  • 172.9 The [Mounts] would not in any circumstances use the [investors'] money or property for the benefit of themselves or any other person;

  • 172.10 The [Mounts] would at all material times act in the best interest of the [investors];

  • 172.11 The [Mounts] would at all material times exercise the due care, skill and diligence expected of a competent and professional financial investment advisor and funds manager;

  • 172.12 There was an implied term in each of the contracts between the [investors] and the [Mounts] that the [Mounts] would:

    • (a) Act honestly in their dealings with the [investors] and would not take monies belonging to the [investors]; and

    • (b) Report accurately on the earnings on the [investors'] investments.

9 In terms of the alleged breaches of contract, the current pleading states:

• 172. The [Mounts] breached the terms of their contracts with the [investors] in that the [Mounts]:

  • 172.1 Misled the [investors] as to the amounts invested by the [Mounts] on behalf of the [investors];

  • 172.2 Failed to provide reports to the [investors] showing the amounts of the [investors'] monies flowing through the [Mounts'] trust accounts;

  • 172.3 Failed to report to the [investors] on investment earnings;

  • 172.4 Retained, transferred, sold and purchased investments on behalf of the [investors] without authority from the [investors];

  • 172.5 Significantly overstated the value of the [investors'] respective investment portfolios and charged fees in excess of the charges agreed to in terms of the...