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

JurisdictionNew Zealand
CourtSupreme Court
JudgeElias CJ
Judgment Date01 July 2014
Neutral Citation[2015] NZSC 3
Docket NumberSC 108/2013
Date01 July 2014

[2015] NZSC 3

IN THE SUPREME COURT OF NEW ZEALAND

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

SC 108/2013

BETWEEN
Tauranga Law
Appellant
and
John Appleton and Natalie Marie Ryan as Trustees of the Appleton Family Trust
First Respondent
John Appleton
Second Respondent
Counsel:

M G Ring QC and P J Napier for Appellant

D W Grove for First and Second Respondents

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.

The issue was whether the firm's negligence caused the respondent's loss.

Held: The CA did not question the HC's finding on the basis of the expert evidence that it was for the respondent to follow up on the advice from Tauranga Law, rather than for the firm to take further steps. The advice given in the letter was inextricably linked to the question of causation in respect of the claim. The difference between the HC and CA turned on whether the letter sufficiently brought home to the respondent the fact that his deposit was at risk.

The CA had reassessed the HC's finding of fact on the question of causation because it thought the terms of the transaction and the deficiencies in the advice were more serious than the Judge had treated them. However the HC had not minimised the problems with the transaction. Nor did the judge fail to identify shortcomings in the letter sent to the respondent. The judge was correct to treat the sufficiency of the advice about the security of the deposit as the only matter material to the actual loss which ensued.

The CA was not entitled to take a different view from on the evidence from that taken by the Judge without further justification. The terms of the letter, the contest of the agreement and dealings between the respondent and Blue Chip, together with the absence of reaction by the respondent to either the letter or notification that the deposit had been paid to blue chip all supported the conclusion that the legal advice received had been immaterial to the respondent because of his confidence in the investment.

The respondent had not provided credible explanations as to his understanding of the meaning of what “release” entailed. It was understandable that the judge chose to assess the probabilities for the purpose of causation on the basis of the contemporary dealings and the written record rather than the respondent's assertions years after the event. The judge was correct in the conclusion he came to on the basis of these dealings and the written record.

The ambiguities in the letter did not affect its central message of risk of loss of deposit on liquidation; it referred to the respondent being a creditor in a liquidation. This could not be reconciled with a belief that the deposit was secure in a trust account. Any ambiguity was therefore not material to an assessment of causation which depended on the respondent's belief that the deposit was to be held in a trust account.

Appeal allowed.

JUDGMENT OF THE COURT
  • 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.

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...

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