Tauranga Law v John Appleton and Natalie Marie Ryan as Trustees of The Appleton Family Trust

• Jurisdiction: New Zealand
• Judge: Elias CJ
• Judgment Date: 01 July 2014
• Neutral Citation: [2015] NZSC 3
• Docket Number: SC 108/2013
• Court: Supreme Court
• Date: 01 July 2014

BETWEEN

Tauranga Law

Appellant

and

John Appleton and Natalie Marie Ryan as Trustees of the Appleton Family Trust

First Respondent

John Appleton

Second Respondent

[2015] NZSC 3

Elias CJ, McGrath, William Young, Glazebrook and Arnold JJ

SC 108/2013

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against a Court of Appeal (CA) decision that the respondent's loss had been linked to the appellant firm of solicitors' negligent advice — respondent had invested in an apartment in a Blue Chip Group development — paid a deposit of $90,000 under an agreement for sale and purchase which he signed without legal advice — Blue Chip broker sent agreement to appellants who agreed to act for respondent — appellants provided a letter of advice in which they noted risks in the transaction, including that deposit was not to be held by a stakeholder but was to be released immediately to the vendor — Blue Chip collapsed and respondent became unsecured creditor — the High Court found that while the advice given to the respondent had been inadequate, it would have given most investors pause and that the respondent would have proceeded with the transaction in any event, because of his confidence in Blue Chip — CA allowed an appeal — whether the firm's negligence caused the respondent's loss.

Counsel:

M G Ring QC and P J Napier for Appellant

D W Grove for First and Second Respondents

• A The appeal is allowed.

• B The respondents are to pay the appellant costs of $25,000 plus reasonable disbursements (to be set by the Registrar if necessary).

• C The costs order made in the Court of Appeal is set aside and any costs order in the High Court is reinstated. If costs cannot be agreed for the Court of Appeal, costs should be set by that Court in the light of this judgment.

JUDGMENT OF THE COURT

REASONS

(Given by Elias CJ)

1 It has been held in the High Court and the Court of Appeal that Tauranga Law, a firm of solicitors, breached duties of care owed to Mr Appleton and his family trust for whom it acted in the purchase of a residential investment property still to be developed from a company in the Blue Chip group. When the Blue Chip group collapsed, the deposit of $90,468.75 paid to Blue Chip was lost.

2 Despite finding that Tauranga Law was in breach of duties of care to advise Mr Appleton about the risks in the transaction, Allan J in the High Court found that the negligence was not causative of loss of the deposit because Mr Appleton would have proceeded with the transaction irrespective of proper advice. Important in that finding was the fact that Mr Appleton was content to proceed and for the deposit to be paid notwithstanding the advice he had received from Tauranga Law. Although the Judge held the advice given to be inadequate and in breach of duty, he considered that, despite its inadequacies, it “would have given most investors reason to pause”. 1

3 In the Court of Appeal the determination that the negligence had not caused loss of the deposit was overturned. 2 The Court of Appeal thought that the errors in the advice given were more serious than they had been treated in the High Court. Reassessing the evidence bearing on causation in that light, the Court considered that the High Court had been wrong to dismiss Mr Appleton's evidence that, had he understood that his deposit was not secured in a trust account, he would have done his best to extricate himself from the agreement. 3 The evidence suggested he could readily have obtained release from the agreement without payment of the deposit or penalty either through exercising a statutory right to withdraw available for two weeks after the agreement was entered into or by refusing to pay the deposit, a course Blue Chip was likely to have accepted. In the Court of Appeal, therefore, judgment was entered for the Appleton parties against Tauranga Law for the deposit together with interest.

4 Tauranga Law sought and was granted leave to appeal to this Court. Although the basis on which leave was sought raised “the proper approach to the issue of causation in a transaction case”, in the end no matter of general principle was raised by the appeal. Its outcome depends essentially on evaluation of generally uncontested findings of primary fact.

Background

5 The unconditional agreement for sale and purchase was entered into by Mr Appleton on 23 April 2004. He intended the purchase to be completed by his family trust. The agreement was concluded without Mr Appleton having obtained legal advice. The agreement for sale and purchase was in the standard form then current as approved by the Real Estate Institute of New Zealand and the Auckland District Law Society, with exclusions and amendments initialled by the parties. A Blue Chip broker, through whom Mr Appleton had earlier entered into a similar Blue Chip purchase (after attending a Blue Chip seminar), conducted the dealings with Mr Appleton and arranged the financing of the deposit.

6 As appears by the front page of the agreement, the vendor was “Rockfort Limited”, although Mr Appleton in his evidence said he thought all along that the vendor was Blue Chip. The address of the property was given as “Unit 506 of the Fifth Floor of the Vendor's property at 18 – 20 Turner Street Auckland”. The purchase price was $356,896 with a deposit of $101,910.00 (later reduced) payable on execution of the agreement with the notation “refer clause 2”.

7 The standard clause 2.4 of the standard printed agreement, providing that the deposit is to be held by the payee as “stakeholder” pending completion, was excluded under the agreement. Instead, under the “Special Conditions of Sale” substituted, the purchaser under clause 14 “agrees to the immediate release of the deposit to the Vendor (“Release”)” and, in return, was to receive interest:

14. The Purchaser agrees to the immediate release of the deposit to the Vendor (“Release”). In consideration for the Release, the Vendor shall pay the Purchaser interest on the amount of the deposit at the rate of 8.5% per annum (“Interest Rate”) from the date of Release of the deposit up to the settlement date. Interest shall be paid to the Purchaser fortnightly in advance up to the settlement date and on the settlement date. If the New Zealand Official Cash Rate increases by more than 0.5% in the period between the date of Release and the settlement date then the Interest Rate shall be increased from the date of its increase by more than 0.5% by the amount of such increase over and above 0.5%.

Under the agreement, the balance of the purchase price was to be paid “[i]n cash in one lump sum on the possession date” and possession date was defined as “5 working days after the issue of new unit title or after practical completion whichever is the later”, with interest for late settlement set at 14%.

8 Rockfort Ltd was a company with capital of $100 which was member of the Blue Chip group. The land in Turner Street was owned not by it but by another company. The financing for the large deposit (30% of the purchase price) was arranged by Blue Chip. The interest paid under the agreement of 8.5% exceeded the interest of 6.9% Mr Appleton was paying to the Bank of New Zealand (BNZ) for the borrowing to raise the deposit sum. The arrangement between the parties was that the apartment, after settlement, would be subject to a lease between the purchaser and another Blue Chip company, Auckland Residential Tenancies Ltd, whose obligations were to be guaranteed by another Blue Chip Company.

9 The Blue Chip broker recommended that Mr Appleton engage Mr Olivier of Tauranga Law to act for him in the transaction, because of Mr Olivier's familiarity with the Blue Chip products. With Mr Appleton's acquiescence, the documents about the transaction were arranged for forwarding by Blue Chip to Tauranga Law by letter of 28 April. The agreement itself had already been stamped by the broker with Mr Olivier's name as solicitor for the purchaser, with a stamp provided to Blue Chip by Tauranga Law.

10 The documents were received by Tauranga Law on 29 April, before expiry on 7 May 2004 of a two week period provided by s 225 of the Resource Management Act 1991 within which a purchaser of property for which no subdivision plan has been deposited can withdraw from an agreement without penalty. Neither Mr Appleton nor Mr Olivier made contact with the other, however, until Mr Olivier telephoned Mr Appleton on 24 May, after receiving loan documentation for money to be advanced to the Appleton Family Trust by BNZ. At that point he obtained confirmation that he was to act for Mr Appleton and the trust and that the loan documentation could be executed in Auckland (where Mr Appleton lived) before Mr Kelly, the solicitor for Mr Appleton's co-trustee of the family trust.

11 On 31 May Tauranga Law sent two letters to Mr Appleton together with a copy of the letter Mr Olivier had sent to Mr Kelly about execution of the loan and associated securities documents and a draft “Statement/Tax Invoice”. The first letter of 31 May from Tauranga Law to Mr Appleton was a covering letter for the other letter of the same date and the other documents. The letter to Mr Kelly, copied under cover of the letter of 31 May to Mr Appleton, referred to the loan documents enclosed with the original to Mr Kelly and requested return of the completed documents by 3 June, if possible. The “Statement/Tax Invoice” included with the letter indicated that, from the funds received from BNZ, there was available after payment of the bank fees and legal fees an amount of $90,468.75 “to pay deposit for Unit 506, 18-20 Turner Street” (a reduction in the amount stipulated in the contract, to which Blue Chip had agreed when the Bank declined to advance the higher amount).

12 The second letter of 31 May, included under cover of the first, was a letter of advice on the transaction. It comprised the only advice given by Tauranga...