Carran v The Druids Friendly Society [1999] NZCA 74; (1999) 13 PRNZ 286 (6 May 1999)

Last Updated: 5 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA132/98

	BETWEEN	BRUCE MILES MCROBBIE CARRAN
		Appellant

	AND	THE DRUIDS FRIENDLY SOCIETY (NORTH ISLAND) NEW ZEALAND
		Respondent

Hearing:	29 April 1999
Coram:	Richardson P Blanchard J Salmon J
Appearances:	K Johnston and M Morrison for Appellant G L Lang for Respondent
Judgment:	6 May 1999

JUDGMENT OF THE COURT DELIVERED BY SALMON J

[1] Mr Carran appeals against the entry of summary judgment against him by Master Thomson in the High Court. The Court ordered him to restore to the respondent Society a payment made to him in 1986 of $500,000 together with interest thereon.

Background

[2] At material times Mr Carran was a partner in the law firm, Hornblow, Carran Kurta and Co. He acted for the respondent Society over a number of years. The defence to these proceedings raises the question as to whether he was acting for the Society in relation to the transaction the subject of the proceeding but, there seems little doubt that his firm so acted, because the deed set out below was prepared by the firm.
[3] The $500,000 payment which is the subject of these proceedings was made pursuant to an agreement dated 17 March 1986 the provisions of which are as follows:

RECITALS

1. BY Agreement the Druids have previously retained the Solicitor.
2. THE Druids are anxious that the Solicitor does not act for other clients in areas in which the Druids are involved.

100. THE Solicitor has agreed to certain terms and not to act for another Friendly Society in consideration of the payment of the sum of FIVE HUNDRED THOUSAND DOLLARS $500,000).

NOW THEREFORE IN CONSIDERATION of a compensation as hereinafter provided THIS AGREEMENT WITNESSETH and the parties hereby covenant with one another as follows:

1. THE Druids shall pay the Solicitor as compensation a sum of $500,000.00.
2. THE Solicitor shall not carry on or be in any manner whatsoever either directly or indirectly concerned or interested as solicitor, manager, servant or agent for any other Friendly Society, person, company, Society or Corporation in the business presently carried on by the Druids involving, healthcare, health insurance, retirement villages or in any other business of a similar nature within New Zealand during the period of five (5) years from the 31st March 1985.

IN WITNESS WHEREOF there presents have been executed the day and year first hereinbefore written.

[4] The document was signed by Mr Mandahl, Mr Page and Mr Wade, who are described as trustees of the respondent, and by Mr Carran. The trustees signatures were witnessed by the Grand President of the Lodge.
[5] Although the agreement was not signed until 17 March 1986 it appears to have been prepared over a year earlier in February 1985. The evidence before us does not adequately explain the reasons for the delay between preparation and signing.
[6] The respondent Society encountered serious financial difficulties and was placed in liquidation around August 1993. The Official Assignee in Wellington was appointed as liquidator. However, it was not until 1997 that the liquidator first made a claim upon the appellant for the return of the $500,000, the subject of the above agreement.
[7] By decision dated 7 November 1997 the New Zealand Law Practitioners Disciplinary Tribunal found charges of negligence or incompetence and professional misconduct arising out of Mr Carran’s acting as solicitor for the respondent proved and in its decision of 18 December, as to penalty and costs, ordered that Mr Carran’s name be struck off the Roll of Barristers and Solicitors as by reason of his conduct, being not a fit and proper person to so practice. Some of the charges related to the $500,000 payment.
[8] In respect of matters arising from that payment the charges found proved by the Tribunal were:

That Mr Carran was guilty of misconduct in his professional capacity in relation to the $500,000 restraint of trade payment in the following respects.

(a) In breach of rule 1.1.2 abusing his relationship of confidence and trust with the Druids; and

(b) In breach of rule 1.1.2 in acting and continuing to act for the Druids where there was a conflict of interest between his own interests and those of the Druids.

The Pleadings

[9] The statement of claim contains two causes of action. The first is a claim for the return of moneys received and profits made in breach of fiduciary duty and the second is a claim for knowing receipt of trust funds.
[10] When filed, the application for summary judgment was supported by just one affidavit. That was the affidavit of Mr Crott, the Official Assignee, who purported to verify the allegations in the statement of claim, expressed the belief that the defendant had no defence to the allegations, and gave as the grounds for his belief the content of a letter prepared by his office solicitor and sent to the defendant, and the fact that Mr Carran had been struck off the Roll of Barristers and Solicitors. He annexed to his affidavit the deed, the contents of which are set out above, the cheque paid pursuant to the deed, an exchange of correspondence, the reasons for the decision of the Disciplinary Tribunal and the Tribunal’s decision as to penalty and costs.
[11] In response Mr Carran’s solicitor filed an affidavit raising certain issues more in the nature of submission than fact. The Official Assignee filed an affidavit in reply and affidavits in reply were also filed by Mr Underwood, a chartered accountant and Mr Sissons, a solicitor.
[12] Mr Underwood and Mr Sissons’ affidavits referred to and annexed evidence given before the Disciplinary Tribunal.
[13] A statement of defence was filed on behalf of Mr Carran. It is a brief document. Essentially it responds to the statement of claim by bare admissions or denials. It raises the defences of limitations and laches. The notice of opposition to the summary judgment application is equally terse. It pleads that the affidavit evidence filed in support of the application does not disclose any evidential foundation for it and it incorporates as grounds the material set out in the affidavit of Mr Leggett a solicitor with the firm representing Mr Carran.

The Master’s Judgment

[14] The Master recorded that the ability of the Court to determine the factual issues involved in the two causes of action in favour of the plaintiff would determine whether or not the plaintiff was entitled to summary judgment. He acknowledged the onus that is on a plaintiff to prove his claim and to satisfy the Court that the defendant has no defence to the claim before the entry of summary judgment is permitted – Rule 136 High Court Rules; Pemberton v Chappell [1987] 1 NZLR 1.
[15] In response to an argument alleging inadequacy of the affidavit filed in support of the application the Master said:

While I think that the plaintiff may have taken its responsibility somewhat too lightly in seeking to simply rely on the information provided by Mr Crotts’ first affidavit to obtain judgment I think affidavits of receivers and liquidators deposing to acquired knowledge as the result of investigation of a company's affairs are and should be admissible in summary judgment.

[16] He noted that the plaintiff relied upon the findings of the Disciplinary Tribunal to prove its case and the plaintiff’s argument that the decision determines the two causes of action in the proceedings conclusively against the defendant.
[17] As to those findings the Master said:

Clearly the whole background as to the entering into the deed, the acceptance of the extraordinary benefit bestowed on the defendant while he was acting as the Druid’s solicitor, and the nature of the conflict of interest situation it created were all thoroughly explored by the Tribunal. Those self same issues would simply be traversed again if this case went to a hearing. In such circumstances I find I am entitled to place great weight on the Tribunal’s order and I do.

[18] The Master then directed his attention to the first of the causes of action and referred to evidence given at the Disciplinary Tribunal hearing. He found the deed itself to be “intrinsically incredible”. He noted the absence of positive covenants on the part of Mr Carran and concluded that the deed made no commercial sense.
[19] Once again he found support for this conclusion in evidence given before the Tribunal. He recorded that in a transaction of this nature the law was clear that Mr Carran had an obligation to establish that the Druids were in a position to make an informed decision about the transaction and that they entered into it freely and without Mr Carran’s influence. He held that that obligation had not been discharged and that the cause of action had been proved.
[20] The second cause of action relies upon the pleading that the defendant knew or ought to have known that the payment made to him was a breach of trust by the plaintiff’s trustees. The Master held that the payment could only be justified as an exercise of the trustees’ powers of investment, that those powers were limited by legislation and that Mr Carran knew or ought to have known that the Druids had no power to make the payment to him.
[21] In respect of the Limitation Act defence he held that s21 of the Act applied and that being an action in respect of trust property the periods of limitation prescribed by the Act did not apply. He did not directly address the defence of laches and indeed recorded that neither of the defences were pursued before him by Mr Johnston. He entered judgment against Mr Carran for $500,000 and interest.

The Arguments in this Court

[22] Mr Johnston raised three issues.

1. Whether the Master was entitled to rely on the decision of the Disciplinary Tribunal; and
2. Whether in any event, critical components of the liquidator’s claim were established on the evidence; and
3. Whether the Master was justified in dismissing the defence of laches.

The Tribunal’s Decision

[23] Mr Johnston argued, by reference to s23 of the Evidence Amendment Act (No.2) 1980, that in New Zealand the only type of proceedings the outcome of which could be admitted as evidence in subsequent proceedings, were criminal convictions. He submitted that s23 has supplanted the reasoning in Jorgensen v News Media (Auckland) Ltd [1969] NZLR 961 and that even if the Jorgensen principle survived it could only apply where there is a coincidence of the issues to be determined in the two proceedings and that it was only available by way of defence.
[24] In our view Mr Johnston goes too far with these submissions. Jorgensen itself relies upon English decisions including that of the Privy Council in Harvey v Rex [1901] AC 601 where an order of a Master in Lunacy was held to be admissible in subsequent civil proceedings. Mr Johnston conceded that the findings of the Tribunal constituted a judgment in rem. We are satisfied that following the judgment of this Court in Jorgensen the findings are admissible as evidence that Mr Carran was found guilty of misconduct in his professional capacity in breach of Rule 1.1.2 of the New Zealand Law Society Code of Ethics. That Rule provides:

A practitioner shall not act or as the case may be continue to act for any person in respect of any matter in which the practitioner has a personal interest if that personal interest is directly or indirectly in conflict with, or comes into conflict with, the interest of that person.

[25] In this Court counsel for the respondent conceded that the evidence given before the Tribunal should not have been taken into account. It is clearly hearsay evidence. The fact of the convictions before the Disciplinary Tribunal, although admissible, is not on its own sufficient to justify the entry of summary judgment. It is an inexplicable feature of this case that the respondent did not procure affidavits from those who gave evidence before the Tribunal in support of the application for summary judgment.
[26] As will become apparent, the reliance by the respondent on evidence given before the Tribunal and not sworn to in these proceedings, is fatal to the summary judgment application.

The First Cause of Action

[27] As already noted, in argument in this Court, Mr Lang for the respondent conceded that the evidence presented before the Disciplinary Tribunal and referred to in affidavits filed in these proceedings should not be taken into consideration. He submitted that the first cause of action could be established just on the basis of the content of the deed. He submitted that the deed on its own established the formal elements of the first cause of action.

1. It was signed by Mr Carran.

2. There was a payment to him otherwise than for costs.

3. Mr Carran acknowledged receipt of the money.

[28] Mr Lang referred to the decision of this Court in Witten-Hannah v Davis [1995] 2 NZLR 141. He referred in particular to the following passage at p.147:

The relationship existing between solicitor and client is recognised in equity as a fiduciary one imposing on the solicitor special obligations: in dealing with the client the solicitor must exercise the utmost good faith and in any financial transaction with the client (save as to costs for work done) there is a presumption that such a transaction should not be upheld unless the solicitor can establish that it was effected by the free exercise of the client’s will and without any influence on the part of the solicitor. If the client is to be in a position to make an informed decision about the proposed transaction he or she must be fully informed by the solicitor of the transaction and of all the implications for the client of entering into it (Sims v Craig Bell and Bond [1991] 3 NZLR 535, 543 and 544).

[29] Mr Lang submitted that the deed established the transaction with the client and the solicitor’s financial interest. It was clear that the payment was not costs for work done and that it was for the appellant then to establish that the transaction was effected by the free exercise of the client’s will and without any influence on the part of the solicitor.
[30] This argument has an attractive simplicity but overlooks the requirement that on a summary judgment application the onus is on the plaintiff to establish that there is no defence to the claim. In our view that would require at least some evidence of the circumstances surrounding the entering into of the transaction. It is not enough to leave the Court to draw conclusions from the bare terms of the deed. At the very least there should have been evidence from a Druid participant concerning the absence of any independent legal advice (if that were so). There is no such admissible evidence and that is fatal to the summary judgment application.

The Second Cause of Action

[31] Counsel for the respondent conceded that in the absence of a complete set of the Rules of the Society he could not sustain the summary judgment on the basis of the second cause of action.

Laches

[32] Mr Lang’s argument on this point was that the appellant had not raised any matters which could give rise to the application of the doctrine of laches. He referred to the summary of the doctrine in Snell’s Principles of Equity, (29th ed. 1990) at p.35:

Laches essentially consists of a substantial lapse of time coupled with the existence of circumstances which make it inequitable to enforce the claim. Delay will accordingly be fatal to a claim for equitable relief if it is evidence of an agreement by the plaintiff to abandon or release his right, or if it has resulted in the destruction or loss of evidence by which the claim might have been rebutted, or if the claim is to a business (for the plaintiff should not be allowed to wait and see if it prospers), or if the plaintiff has so acted as to induce the defendant to alter his position on the reasonable faith that the claim has been released or abandoned. But apart from such circumstances delay will be immaterial. There can be no abandonment of a right without full knowledge, legal capacity and free will, so that ignorance or disability or undue influence will be a satisfactory explanation of delay. Moreover, unlike estoppel, laches is a personal disqualification and will not bind successors in title.

[33] Mr Johnston submitted that the Master had been wrong to say that the defence was not pursued before him, and we accept that that is so. He submitted that where laches is an issue, what is required is a balancing exercise between the plaintiff’s interest in prosecuting the claim and the defendant’s interest in not being obliged to defend a stale claim. Key issues are: when the cause of action arose; when the plaintiff knew or ought to have known of the possible right of action; what steps the plaintiff has or has not taken; any excuse for the plaintiff’s inaction; and whether the defendant’s position has changed.
[34] He submitted that delay on its own was sufficient to raise the defence and so on a summary judgment application it was not necessary for the defendant to put forward any of the positive factors that might lead to that defence being accepted.
[35] It has been held in this Court that as a matter of law a defendant is not required to prove specific detriment to establish a defence of laches – Wellington City Council v New Zealand Law Society [1990] 2 NZLR 22. In Neylon v Dickens [1987] NZCA 55; [1987] NZLR 402 this Court said:

Whether hard-and-fast requirements for a successful defence of laches in any context can be identified is very doubtful. There is a useful discussion in Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (2nd ed, 1984) chapter 36, where the authors say “in view of the confused state of the later authorities, certainty on the point is not possible” but give the opinion that mere delay does not constitute laches. The only opinion that we would venture is that it may be unwise to depart from the classic exposition of the doctrine by Sir Barnes Peacock, delivering the judgment of the Privy Council in Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221,239-241, which treats the length of the delay and the nature of the acts done during the interval as always important in arriving at a balance of justice or injustice between the parties, but stops short of laying down that detriment is always essential. It is understandable that textbook writers often find the ostensible certainty of abstract propositions more attractive than do those whose task it is to try to decide actual cases in accordance with law.

What is undoubted, and was fully accepted by Hardie Boys J and counsel for the vendors before him and on appeal, is that the onus of showing that on balance it would be inequitable to allow the claim to proceed is on the defendant: see O’Connor v Hart [1983] NZLR 280, 292, per McMullin J delivering the judgment of this Court. The Privy Council judgment in that case, [1985] UKPC 1; [1985] AC 1000, does not affect that proposition as far as onus is concerned.

[36] Although the above passage indicates that the onus is on the defendant to show that on balance it would be inequitable to allow the claim to proceed we are here concerned with the summary judgment rules and the requirement that the plaintiff must satisfy us that no defence is available.
[37] Delay on its own may in an appropriate case be sufficient to establish the defence. In this case almost 12 years elapsed between the time of the signing of the agreement and the date when proceedings were issued. The proceedings were issued over four years after the discovery of the transaction by the liquidator. The appellant adduced no evidence to explain the delay. In those circumstances we consider that the defence of laches cannot be excluded in the absence of evidence.

Conclusion

[38] Both the first cause of action and the defence of laches require a consideration of evidence which is not at this stage before the Court. That being so the respondent did not discharge the onus upon it in relation to the grant of summary judgment. Accordingly, the appeal against the Master’s decision is allowed. The matter is remitted to the High Court for timetabling so that interlocutory matters may be determined with dispatch and the substantive proceedings tried.
[39] Costs in the High Court and in this Court are reserved for determination in the light of the resolution of the substantive proceedings.

Solicitors:
Rudd Watts & Stone, Wellington for Appellant
Elvidge & Partners, Napier for Respondent