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Court of Appeal of New Zealand |
Last Updated: 13 November 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellants |
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AND
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Respondent |
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Hearing: |
10 August 2015 |
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Court: |
Miller, Courtney and Clifford JJ |
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Counsel: |
Appellant Mr R Lee in person
M S McKechnie for Respondent |
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Judgment: |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Clifford J)
Introduction
[1] The appellants, Mr R Lee and Ms Heard, filed proceedings in the High Court in September 2011 (the High Court proceedings) challenging transactions pursuant to which their parents transferred shares in a family plastic manufacturing business, High Duty Plastics Ltd (HDP), to the respondent, their brother Mr G Lee.[1] In the High Court proceedings Mr R Lee and Ms Heard claim that Mr G Lee improperly benefited from those transactions, which he procured by exercising undue influence over their parents and in breach of fiduciary duties. In doing so, he gained an unconscionable bargain.
[2] Mr G Lee applied to strike out the High Court proceedings on the basis they were statute-barred under the Limitation Act 1950 (the 1950 Act) as they had been commenced out of time. Associate Judge Christiansen granted that application.[2]
Mr R Lee and Ms Heard challenged that decision in review proceedings.[3] Justice Collins dismissed that challenge,[4] and subsequently declined Mr R Lee and Ms Heard’s application for leave to appeal.[5]
[3] Mr R Lee and Ms Heard applied for and were granted special leave by this Court for a second appeal.[6] This is that appeal.
Background
A claim is made
[4] Mr R Lee and Ms Heard brought the High Court proceedings in their capacity as executors of the estate of their mother, Joyce Lee. Joyce Lee died on
20 June 2004. She was predeceased by their father, her husband, Raymond Lee. Raymond Lee died on 31 January 2003. Mr R Lee and Ms Heard are beneficiaries of their mother’s estate; Mr G Lee is not.
[5] The core of Mr R Lee and Ms Heard’s claim is pleaded in the following terms.
High Duty Plastics Limited
(a) Ceased to have any role in the day to day management of HDPL, other than in an administrative capacity;
(b) Became reliant on Greg to undertake the direction, management and control of HDPL; and
(c) Became reliant on HDPL for their income.
...
Ray and Joyce’s health
Particulars
(a) Ray and Joyce were both consuming excessive amounts of alcohol;
(b) Joyce suffered from a wide range of chronic and serious health ailments, including:
(i) Joyce was hospitalised at Lakeland Health on 5 December 1994 and diagnosed as having a hypomanic episode, bipolar mood disorder and alcohol abuse;
(ii) A mini stroke in 1998;
(iii) A heart attack in 1999;
(iv) Chronic Obstructive Pulmonary Disorder (Emphysema) diagnosed in 1998;
(v) 85% blockage of the blood to the brain in about 1998; and
(vi) Surgery in September 2000 to improve circulation through the right carotid artery.
(c) In early 2000 Ray was of such diminished capacity that he had his driver’s licence removed, and was taken into fulltime care at Cantabria (an old people’s home and hospital).
Sale of HDPL
17. Greg paid $200,000 for the shares in HDPL.
[6] Based on that alleged factual matrix, Mr R Lee and Ms Heard assert three causes of action:
(a) Undue influence: that Raymond and Joyce Lee relied on Mr G Lee to run HDP and, in that way, to provide for their financial security. Mr G Lee knew or should have known of their disabilities. Mr G Lee had the ability to and did assert undue influence over his parents. In particular, in early 2000 he used that influence to procure the transfer of the shares in HDP to himself at a significant undervalue. He paid $200,000 for those shares when their value was significantly higher than that.
(b) Unconscionable bargain: that Raymond and Joyce Lee were at a serious disadvantage to Mr G Lee with respect to the affairs of HDP. Mr G Lee exploited that disadvantage to procure the transfer of the shares in HDP to himself at a significant undervalue. This was an unconscionable bargain.
(c) Breach of fiduciary duty: that in all the circumstances, Mr G Lee breached the fiduciary duty he owed his parents.
[7] With respect to each of those separate causes of action, Mr R Lee and Ms Heard seek the following relief:
(a) A declaration that the transaction transferring the shares to Greg be set aside and orders that:
(i) There be an account of the profits from HDPL from the date of the transaction to the date when this matter is finally determined and payment of that amount to the Plaintiffs; and/or
(ii) There be an account of the value of the difference between the price paid for the shares and their true value at the date of the transaction and payment of that amount to the Plaintiffs;
(b) Interest; and
(c) Costs.
[8] In his statement of defence and counterclaim of 3 November 2011 Mr G Lee admitted that his parents transferred the shares in HDP to him. He did so in the following terms:
Sale of HDPL
16. In answer to paragraph 16:
16.1 the Defendant admits the shares were transferred to him on or about 10 August 2000.
16.2 the defendant further says that pursuant to a Deed of Trust dated 6 October 1997 the shares in HDPL would be transferred as follows:
i) 900 non-voting B shares to the defendant;
ii) 100 voting A shares to the trustee Clive Gregory Leicester Smith;
iii) by way of a deed dated 4 August 2000 effect was given to the Deed of Trust dated 6 October 1997.
[9] He otherwise denied his siblings’ claims. He pleaded an affirmative defence of limitation in the following terms:
And by way of an Affirmative Defence
The defendant repeats paragraph 1 to 33 and says:
i) 900 non-voting B shares to the defendant; and
ii) 100 voting A shares to the trustee Clive Geoffrey Leicester Smith;
accordingly pursuant to s 22 of the Limitation Act 1950 the plaintiff’s claim is statute-barred.
A strike-out application
[10] In April 2012 Mr G Lee applied to strike out the High Court proceedings on the basis those proceedings were frivolous or vexatious and an abuse of the process of the Court, as they were statute-barred by s 4(3) of the 1950 Act.[7]
[11] Affidavits in support were provided by Mr Clive Smith and
Mr Adrian Willemsen, who had been partners in an accounting firm together.
[12] Mr Smith had been Raymond and Joyce Lee’s personal accountant from 1961 until his retirement in December 1997. He was also HDP’s accountant until 1988. Mr Smith provided a brief statement outlining his involvement with the Lees’ transfer of shares in HDP to their son Mr G Lee:
- During the mid 1990’s I had a number of discussions and meetings with the Lee’s in relation to succession planning for their business, High Duty Plastics Ltd (“the company”). The Lee’s solicitor, John Battersby was also involved. The end result was that a decision was made by the Lee’s to transfer 900 B shares to their son Gregory Lee and the remaining 100 A shares (“the A shares”) to myself as trustee of a bare trust (“the trust deed”) (exhibit “S” in the affidavit of Adrian Willemsen).
- From 6 October 1997 I held the A shares pursuant to the trust deed.
- In 2000 I was approached by the Lee’s regarding the transfer of the A shares to the final beneficiary, Gregory Lee. I considered the provisions of the trust deed and took legal advice. In the circumstances I agreed that on payment of the sum of $200,000 by Gregory Lee to transfer the A shares to him (documented by the Deed of Agreement exhibit “Z” and the share transfer from exhibit “AA” in the affidavit of Adrian Willemsen).
[13] Mr Willemsen had been HDP’s principal accountant since approximately 1988. He was not Raymond and Joyce Lee’s accountant. Mr Willemsen’s affidavit exhibited a large number of documents from the firm’s files relating to the transaction. In addition to exhibiting the documents, Mr Willemsen made the following statements:
- In the past I had some dealings with the Lee’s but most of my dealings have been with Gregory Lee and his wife Jane Lee. I have on occasions obtained background information from Clive Smith.
- My firm has retained key documents in respect of the advice we gave to the Lee’s throughout 1995 – 1997 regarding a means of transferring ownership of the company to Gregory Lee that was fair between as him and his siblings. I am aware that the Lee’s held other assets through a trust that went to Gregory’s siblings. Throughout this process we worked closely with the Lee’s solicitor, John Battersby of Rotorua. The first recorded reference on our file to the proposed arrangement is by way of a letter dated 5 May 1995 from Clive Smith to the Lee’s...
...
[14] Mr R Lee responded with an affidavit in May 2012. He annexed to his affidavit various Companies Office documents from 1997 to 2001, the point of which we infer was to challenge the narrative of events presented by the affidavits of Messrs Smith and Willemsen, and the documents annexed thereto.
[15] On 14 June 2012, Mr G Lee withdrew that first strike-out application. In a memorandum his counsel, Mr Bergseng, said that:
In the course of preparing this application it has become clear that further documents are required to be located to support the defendant’s application. These are documents dating back to 1997.
In the circumstances and given the threshold required to be met when making such an application the defendant has elected to withdraw this application.
[16] A fresh strike-out application was filed in September 2012. As before, the basis of the application was that the claim was frivolous or vexatious and an abuse of the process of the Court, because it was statute-barred. Reliance would again be placed on the affidavits of Messrs Willemsen and Smith already filed, and on an additional affidavit from Mr G Lee. In that affidavit Mr G Lee deposed:
- In the early to mid-1990’s discussions were held within our family, at the request of our parents, as to what would happen to the company when my parents had passed away. This was not an easy issue for them to resolve. I am aware that my parents were taking legal advice from their solicitor, John Battersby and accounting advice from Clive Smith. I have only ever known my parents to have 2 accountants, namely Clive Smith up until the time he retired, and then Adrian Willemsen, his successor. John Battersby has never been my solicitor.
[17] Mr G Lee then annexed to his affidavit documents he had obtained from Mr Battersby’s legal file. These documents were dated between November 1994 and November 1997. Mr G Lee also attached a letter from a Dr A McLean, dated
8 July 1996.
[18] In a very helpful chronology prepared for the hearing of this appeal Mr McKechnie, counsel for Mr G Lee, categorised that affidavit in the following terms:
Demonstrates very extended and detailed advice to Raymond Lee and Joyce Lee between November 1994 and November 1997. See exhibit “U”. Doctor’s advice 8 July 1996 that Joyce Lee had mental capacity to make a Will.
[19] Mr R Lee then filed a further affidavit. It annexed four documents, three of which had already been annexed to affidavits filed by or in support of Mr G Lee. The fourth was a copy of a legal opinion addressed to Joyce Lee in 2000 which, we infer, was seen as supporting the allegations of undue influence and unconscionable bargain.
The factual narrative
[20] As we note in more detail later in this judgment, strike-out applications generally proceed on the assumption the facts as pleaded are true and, to the extent that there are disputed questions of fact, the court dealing with a strike-out does not decide evidential issues. There is, in other words, a relatively limited role for affidavit evidence in a strike-out application. By the time we heard this appeal, a total of 19 affidavits had been filed by the parties, some 10 on behalf of Mr R Lee and Ms Heard and some nine on behalf of Mr G Lee. Given the principles upon which strike-out applications are to be decided, the necessity for that amount of evidence was not clear to us. Nor, given that the central plank of Mr G Lee’s strike-out application was that the High Court proceedings were statute-barred as they were out of time, was the relevance for us of the narrative of events reflected in great detail in those affidavits. Furthermore, for our part, we had considerable difficulty in producing, based on the documentary evidence attached to the numerous affidavits that had been filed, a narrative of matters as they occurred. The relationship between the arrangements that would appear to have been agreed in 1997, the arrangements agreed in 2000 and what has actually transpired remains uncertain. Therefore it is with some hesitation that we summarise below our understanding, or lack thereof, of these matters. We do so on the basis that if we are confused, others (and Mr R Lee and Ms Heard in particular) may be as well.
[21] As we have read the material produced, there would appear to be three phases to the factual narrative that underlie the challenged transactions.
[22] First, in the mid-1990s Ray and Joyce Lee, the parents of the parties, approached the question of their inheritance by reference to three principal assets:[8]
(a) the family home at Springfield Road, valued at $195,000;
(b) the View Road factory, then owned and occupied by HDP, valued at $275,000; and
(c) the shares in HDP (excluding the value of the View Road factory), valued at $332,898.
[23] Ray and Joyce Lee’s “estate” totalled, therefore, $802,898. They recorded that their four children should each receive a share of that estate of equal value: four equal shares would be valued at $200,724 each. If, as the documents on their face record, it was also proposed that Mr G Lee was to inherit the shares in HDP, he would be required in some way to make to his siblings an equalisation payment of $132,174.
[24] Second, a series of transactions are said to have taken place between 30 September and 6 October 1997.
[25] A reporting letter of 5 November 1997 records:
(a) The Springfield Road family home had been transferred to the family trust; and
(i) the family trust had recognised a debt back to
Ray and Joyce Lee;
and
(ii) Ray and Joyce Lee were to forgive that debt over time.
(b) The View Road factory had:
(i) been leased by HDP to Ray and Joyce Lee, then sold to the family trust, with the family trust acknowledging a debt back to HDP of $275,000; and
(ii) Ray and Joyce Lee had then assigned the lease to HDP and HDP had assigned the family trust debt of $275,000 to Ray and Joyce Lee.
(c) As for the shares in HDP:
(i) HDP’s original share capital of 29,460 ordinary shares had been reconstituted as 100 (voting) A shares and 900 (nonvoting) B shares;
(ii) Ray and Joyce Lee lent Mr G Lee $200,724 to buy the 900 B shares, which shares would be transferred to Mr G Lee in the next financial year;
(iii) the 100 A shares were to be transferred to their solicitor to be held on (a bare) trust for Roy and Joyce Lee during their lives and, on their death, to be transferred to Mr G Lee; and
(iv) Mr G Lee acknowledged a debt to the family trust of $132,174, payable seven years after the death of the later of his parents to die.
(d) Ray and Joyce Lee’s wills provided for the forgiveness of any amount outstanding on their loan of $200,724 to Mr G Lee and of the balance of the family trust’s debt to them with respect to the transfer of Springfield Road.
[26] As best as we can tell, Ray and Joyce Lee’s asset represented by the debt owing to them from the family trust was not explicitly mentioned. One aspect of those transactions, that relating to the shares in HDP, was recorded in the deed of trust, dated 6 October 1997, referred to by Mr G Lee in his statement of defence (the 1997 Deed).
[27] Third, in July 2000, Mr Willemsen wrote to Ray and Joyce Lee advising them that “Greg Lee wishes to purchase High Duty Plastics Limited now and is willing to pay $200,000.00 towards the cost of the business”.
[28] The deed dated 4 August 2000 referred to by Mr R Lee and Ms Heard in their statement of claim (the 2000 Deed) purports to record the transactions that were subsequently entered into. As relevant, the recitals to the 2000 Deed provide:
(e) The Final Beneficiary [Mr G Lee] owes the Beneficiaries [Ray and Joyce Lee] an amount of $132,174.00 pursuant to a Term Loan Contract dated 2nd October 1997 (“the Debt”). The Debt represents the value of the Shares, which the Final Beneficiary was to receive pursuant to the Deed of Trust [the 1997 Deed] and taking into account his anticipated inheritance of $200,724.00 calculated in accordance with the schedule attached hereto.
(f) The Shares were not formally transferred pursuant to the Deed of Trust and prior arrangement between the parties and it is intended that the appropriate share transfers be effected as at the settlement date to put into effect the provisions of the Deed of Trust and this Deed.
[29] The 2000 Deed goes on to record the agreement that Mr G Lee pay Ray and Joyce Lee $200,000, that he thereupon become the owner of HDP, that Ray and Joyce Lee were to sign a deed of acknowledgement of debt “in the form attached hereto”, and that those transactions would extinguish his liability for the debt of $132,174 to Ray and Joyce Lee.
[30] As can be seen, that transaction is a different transaction to that reflected in the 1997 Deed. For example, Mr G Lee did not owe a debt of $132,174 to Ray and Joyce Lee, which, at least as matters would appear to have been documented in 1997, he otherwise would have. Rather, he owed it to the family trust.
[31] At the same time, Mr Willemsen’s letter recorded:
High Duty Plastics Limited shows a balance owed to the company by the family trust of $283,399.96 as at 31st of March 2000. This relates to the sale of the company’s commercial building to the family trust plus other transactions since the transfer of the property. This debt is to be transferred to Mr & Mrs Lee Senior. The trust will now owe Mr & Mrs Lee Senior directly. Mr & Mrs Lee’s current account will therefore be overdrawn [implying that Mr and Mrs Lee were to “buy” that debt from HDP], but the company has made a substantial profit for the year.
[32] The letter goes on to record how that debt would be satisfied out of salary and dividends.
[33] That basis of proceeding is, again, different to that agreed in 1997, whereby HDP was recorded as having assigned the family trust debt of $275,000 to Ray and Joyce Lee in consideration, we infer, for the assignment of the lease of the factory by them to HDP.
[34] Those arrangements were premised on what Mr Willemsen referred to as a “schedule of assets” that he enclosed with his letter, and which were attached to the 2000 Deed. We reproduce that schedule, as best as we can, below:[9]
R B & J G LEE
Schedule of Assets
Schedule
Company $ 332,898.00
House $ 195,000.00
Factory $ 275,000.00
$ 802,898.00 Divide by 4 = $200,724.50
Three children get $ 195,000.00
$ 275,000.00
$ 470,000.00 Divide by 3 = $156,660.00
Greg Lee is therefore getting additional gift as follows
Value of Company $ 332,898.00
Estate Share $ 156,666.00
$ 176,232.00
Greg pays $ 200,000.00
Equity $ 176,232.00
Loan Greg Lee $ 23,768.00
$ 200,000.00
* The loan from Greg Lee to be repaid out of their estate on their death with the balance of the funds of Mr & Mrs Lee’s personal estate being divided in accordance with their wishes
[35] We emphasise that we are not saying the transactions in 1997 and 2000 cannot be reconciled, nor that on their face they show equitable fraud. Rather, we simply record what appear to be the central elements of the narrative as we best understand them.
Strike-out application granted: the decisions below
[36] Associate Judge Christiansen heard Mr G Lee’s strike-out application on 23 November 2012.[10] He framed the principal issue before him in the following terms:
[11] Greg’s strike out action claims the plaintiffs’ proceeding is frivolous, vexatious or is an abuse of the process of the Court because it is statute barred. Greg’s position is that the cause of action arose on 6 October 1997 when the bare trust deed was entered into and that the plaintiffs claim for a declaration setting aside the transfer of shares discloses no proper cause of action that could succeed, Joyce having disposed of her shares in HDP effective from that date.
[12] The plaintiffs’ position is that whilst s 4(3) of the Limitation Act 1950 (the Act) states that “an action upon a deed shall not be brought after the expiration of [12] years from the date on which the cause of action accrued”, their claim is based upon the 2000 Deed dated 4 August 2000 and they say that the claim is statute-barred only after 4 August 2012 whereas in their proceeding the statement of claim was filed on 29 September 2011.
[13] Greg asserts the right of claim arose in relation to the 1997 Deed. The plaintiffs’ position is that any right of action arose in connection with the 2000 Deed.
[37] In the context of s 4(3) of the 1950 Act, both parties accepted that Mr R Lee and Ms Heard’s claim was one “on a deed”. Therefore the 12 year limitation period applied. The question in that context was which of the two deeds gave rise to that claim, the 1997 Deed or the 2000 Deed. The Associate Judge concluded that no new cause of action arose in 2000. What occurred in 2000 was just a variation of what had occurred in 1997.[11] It was therefore at that time that Mr R Lee and Ms Heard’s right of action accrued: that right of action was statute-barred accordingly.
[38] It seems Mr G Lee also argued that, even if his siblings’ claim was based on the 2000 Deed or was an application for equitable relief and therefore not subject to a statutory time-bar:
(a) the doctrine of laches, or delay, applied and his siblings were too late; or
(b) that claim was, in terms of s 4(9) of the 1950 Act, analogous to one in contract, and accordingly was out of time by reference to the six year limitation period found in s 4(1) of that Act.[12]
[39] The Associate Judge indicated he would have upheld the first of those arguments.[13] He did not indicate a view on the second.
[40] On review Collins J reached similar conclusions, albeit by a different route.[14]
[41] The Judge reasoned that Mr R Lee and Ms Heard’s claim was one “on a deed”. Therefore, the 12 year limitation period prescribed by s 4(3) of the 1950 Act applied.[15] Because the 2000 Deed was a variation of the 1997 Deed, that period had commenced on 6 October 1997 — the date on which the 1997 Deed was executed. The High Court proceedings were, therefore, statute-barred.
[42] The Judge then considered two alternative arguments. He did so by reference to the exception in s 4(9) of the 1950 Act, whereby the courts will apply the limitation periods provided by s 4 for claims in law to analogous equitable claims.
[43] The Judge reasoned that Mr R Lee and Ms Heard’s claims of undue influence, unconscionable bargain and breach of fiduciary duty closely paralleled claims for breach of the implied contractual duty of fidelity owed by employees to employers. On that basis the six year limit on contractual claims found in s 4(1)(a) of the 1950 Act applied, and even if they were a claim for equitable relief, the (High Court) proceedings were statute-barred accordingly.[16]
[44] The Judge went on to consider whether, issues of limitation aside, Mr R Lee and Ms Heard’s claims disclosed a “reasonably arguable cause of action”.[17] Justice Collins found no such cause of action disclosed.[18] He reached that conclusion based on a consideration of the evidential basis for those claims provided by the numerous applications filed and, accordingly, of the merits of those claims.[19]
[45] Justice Collins concluded that the claims for breach of fiduciary duty and undue influence were “eliminated” by the detailed advice Ray and Joyce Lee had received over a considerable period of time.[20] There was no evidence of a transfer at an undervalue.[21] Moreover, Mr R Lee did not come to equity with clean hands, and both he and his sister faced the problem of the doctrine of laches, that is, of delay.[22]
Appeal
Limitation and strike-out: the law
[46] The law here is clear. High Court Rule 15.1 provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
...
[47] The general criteria for strike-out applications were recently summarised by this Court in the following way:[23]
[28] The Court will strike out a claim only where it is so clearly untenable that it cannot possibly succeed. A strike-out application proceeds on the assumption the facts as pleaded are true. To the extent that there are disputed questions of fact, a Court dealing with a strike-out will not decide evidential issues. It may strike out a proceeding where there is essentially a factual allegation where it is demonstrably contrary to indisputable fact. Even where the case turns largely on the interpretation of contractual provisions, some evidence may be necessary to inform the context and elaborate on the factual matrix.
[48] Strike-out applications based on a claim of statutory limitation under the 1950 Act involve the application of those general principles in a particular context.
[49] In Johns v Johns this Court articulated those principles in that context in the following terms:[24]
[2] As the case is one involving strike out, the facts upon which the Court must act are those alleged in the plaintiff’s pleadings, which must for present purposes be taken as capable of proof. Causes of action or aspects thereof should only be struck out before trial on the basis that they are statute or otherwise barred, if the defendant can establish that proposition conclusively. If there is any real doubt about the matter, the case should be allowed to go to trial where all issues of fact and law can be fully explored. This is no more than the ordinary strike out principle applied in the context of a strike out application which is based on limitation grounds.
[50] In Matai Industries Ltd v Jensen Tipping J had occasion to consider that context in some detail.[25] He did so by reference to the decision of the English Court of Appeal in Ronex Properties Ltd v John Laing Construction Ltd.[26] That case is authority for the following general proposition: because statutes of limitation merely bar the remedy and not the cause of action, and because a limitation defence when pleaded might be subject to exceptions, a defendant could never apply to strike out a claim against him as disclosing no reasonable cause of action merely because he might have a good limitation defence.[27] The Court went on to consider the appropriate procedure where a defendant considers that he has a good limitation defence. Tipping J commented:[28]
Their Lordships expressed the view that in such a case the proper course for a defendant to adopt is either to plead the defence and to seek trial of the defence as a preliminary issue or in a clear case to apply to strike out the plaintiff’s claim on the grounds that it is frivolous, vexatious and an abuse of process. As was said by Donaldson LJ at page 966:
Where it is thought to be clear that there is a defence under the Limitation Act, the defendant can either plead that defence and seek the trial of a preliminary issue or, in a very clear case, he can seek to strike out the claim on the grounds that it is frivolous, vexatious and an abuse of the process of the court and support his application with evidence. But in no circumstances can he seek to strike out on the ground that no cause of action is disclosed.
Stephenson, LJ put the matter thus at p 968:
There are many cases in which the expiry of the limitation period makes it a waste of time and money to let a plaintiff go on with his action. But in those cases it may be impossible to say that he has no reasonable cause of action. The right course is therefore for a defendant to apply to strike out his claim as frivolous and vexatious and an abuse of the process of the court, on the ground that it is statute-barred. Then the plaintiff and the court know that the statute of limitation will be pleaded, the defendant can, if necessary, file evidence to that effect, the plaintiff can file evidence of an acknowledgement or concealed fraud or any matter which may show the court that his claim is not vexatious or an abuse of process and the court will be able to do in, I suspect, most cases what was done in Riches v DPP [1973] 2 All ER 935, [1973] 1 WLR 1019, strike out the claim and dismiss the action.
Issues on appeal
[51] Leave to appeal to this Court was granted on the questions of whether the High Court was correct that:
(a) the claim was statute-barred; and
(b) the claim should be struck out.
[52] In granting leave, this Court observed:[29]
These issues will require particular consideration by the parties:
(a) when the cause or causes of action arose;
(b) whether the claim is founded upon one or more of the deeds or on some other legal basis; and
(c) whether the claim is equitable in nature with the result that it was not subject to a statutory time limit.
Analysis
[53] The way the issues on appeal were formulated reflects the way the issues were developed in argument during the leave hearing and, in particular, in discussions between this Court and Mr R Lee (who represented himself, as he did again before us) and Mr McKechnie, counsel for Mr G Lee. On that basis, we heard first from Mr McKechnie on the question, which had been the focus of the leave hearing, of whether the claims of Mr R Lee and Ms Heard were in fact — as had been accepted in the Courts below — claims “upon a deed”. We asked Mr McKechnie to then address the implications of those claims not being on a deed, but rather being equitable in nature. Finally we heard from Mr R Lee on the question of costs only.
[54] As relevant, s 4 of the 1950 Act provides:
- Limitation of actions of contract and tort, and certain other actions
(1) Except as otherwise provided in this Act or in subpart 3 of Part 2 of the Prisoners' and Victims' Claims Act 2005, the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,—
(a) actions founded on simple contract or on tort:
(b) actions to enforce a recognisance:
(c) actions to enforce an award, where the submission is not by a deed:
(d) actions to recover any sum recoverable by virtue of any enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture.
...
(3) An action upon a deed shall not be brought after the expiration of 12 years from the date on which the cause of action accrued:
Provided that this subsection shall not affect any action for which a shorter period of limitation is prescribed by any other provision of this Act.
...
(9) This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, has heretofore been applied.
[55] We have concluded, as we indicated at the hearing was our preliminary view, that the claims in the High Court proceeding are not claims “upon a deed”. For the purpose of that conclusion it does not matter whether it is the transactions and documentation in 1997 that is the focus, or those from the 2000s. Mr R Lee and Ms Heard do not seek to enforce either of the 1997 or the 2000 Deeds, or claim damages for their breach. Rather they challenge those deeds, and the substantive transactions they reflect. Their challenge is essentially equitable in nature: they argue that those transactions reflected an unconscionable bargain, one obtained by Mr G Lee through the exercise of undue influence over his parents and in breach of fiduciary duties owed by him in some way.
[56] In our view, therefore, in terms of s 4(9) of the 1950 Act, the time limits provided for by s 4(1) or (3) do not apply “except in so far as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, as heretofore been applied”.
[57] In Johns v Johns, this Court discussed the application of that exception:[30]
[68] The principal issue in relation to this cause of action was whether the plaintiff’s equitable claim for breach of fiduciary duty was barred by analogy with s 21(2) of the Act. As it is an equitable claim, the Act does not apply directly to the claim for breach of fiduciary duty. But s 4(9) of the Act preserves the ability of the Courts to apply to any claim for equitable relief an analogous time bar corresponding to one provided for in the Act. Broadly speaking the basis for doing so is that the equitable claim is sufficiently analogous to the statute-barred claim to make it inequitable to allow it to proceed.
[69] The leading case on the doctrine of limitation by analogy is Knox v Gye (1872) LR 5 HL 656. Lord Westbury said at p 674:
[W]here the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point in time by the Statute of Limitations, the Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation.
The doctrine only applies, of course, if there is no specific statutory limitation on the equitable cause of action. It is generally referred to as an example of equity following the law.
[58] Having reviewed a number of New Zealand cases, and the helpful commentary of the authors of Equity and Trusts in New Zealand,[31] the Court there concluded:[32]
The equitable bar by analogy depends on a corresponding claim being statute-barred rather than on the historical origin of the allegedly corresponding claim. What matters is that the corresponding claim, whatever its origin, is statute-barred. The analogy is with the statute, rather than with the common law as such. It is the statute not the common law which creates the bar; albeit most statute-barred claims are of common law origin ... There will be a bar by analogy only when the fiduciary [equitable] claim parallels the statute-barred claim so closely that it would be inequitable to allow the statutory bar to be outflanked by the fiduciary claim. In order to determine how close the parallel is the Court must examine not only the underlying facts but also the nature of the relationship between the parties and the policy and purpose of the different causes of action. If there is a sufficient difference in any material respect, the suggested parallel is unlikely to be close enough to make it appropriate in equity to apply an analogous bar.
[59] Justice Collins reasoned that Mr R Lee and Ms Heard based their claims on the fiduciary relationship between Mr G Lee as the key employee of HDP and Ray and Joyce Lee’s positions as employers (by virtue of being directors and shareholders of HDP).[33] The Judge considered that a claim of breach of fiduciary duty based on an employee/employer relationship closely paralleled a claim for breach of implied contractual duties owed by an employee to an employer.
[60] The essential proposition Collins J advanced was that, because he was an employee of HDP, Mr G Lee owed that company a contractual duty of fidelity. He could be said to have breached that duty when, in early 2000, he threatened to leave HDP and to set up in opposition, taking HDP’s employees and clients with him. Were the company HDP to seek to enforce that duty, it would face a contractual time bar. The claim Mr R Lee and Ms Heard bring, as executors of their mother’s estate, was sufficiently analogous to the claim that HDP might have brought as to make it inequitable for Joyce Lee’s estate to bring that claim.
[61] We are unable to agree with that reasoning.
[62] The essence of the claim brought by Mr R Lee and Ms Heard as executors of their mother’s estate is based on the family context, that is the relationship between elderly and weakening parents and the son who was (it is alleged) by himself running the family business in the last years of his parents’ lives. That is an essentially equitable claim. It is far removed from the arm’s length employer/employee relationship which, for certain but reasonably limited purposes, gives rise to duties of good faith being owed by an employee to his or her employer. On that basis, we are of the view that the claims brought by Mr R Lee and Ms Heard, being essentially equitable in nature and not being subject to limitation by analogy as provided for in s 4(9) of the 1950 Act, are not statute-barred.
[63] That conclusion is sufficient to dispose of this appeal. The alternative grounds on which Associate Judge Christiansen (delay) and Collins J (no arguable cause of action) indicated they would have upheld Mr G Lee’s strike-out application were not pursued with any force before us. Nor, we note, were they reflected in the questions for which leave was granted. Those alternative grounds were not, as best as we can tell from the record, ever a formal basis for Mr G Lee’s application: rather they would appear to have been arguments that were developed in submissions.
[64] In any event, we have not been able to reach the same clear view as Collins J did. By our assessment, the underlying facts are not clear. That lack of clarity alone would prevent us from achieving the degree of certainty that is required to strike out a claim on the basis that the pleadings disclose no arguable cause of action. In making that observation, we note the well-settled approach to strike-out applications where it is argued the pleadings disclose no arguable claim: that question is generally determined by reference to the pleadings themselves rather than, as would appear to have happened here, extensive but untested affidavit evidence.
Conclusion
[65] This appeal is therefore allowed, and the decision of the High Court striking out the High Court proceedings is quashed. The High Court proceedings remain on foot and are subject to the case management procedures found in the High Court Rules, so that a first case management conference should now be convened.
[66] Having said that, we comment that we think the disputes that underlie the High Court proceedings are eminently suitable for an alternative dispute resolution process. An important first step in that process would be to bring some clarity to the facts. If a document akin to the cross-referenced chronology required by r 9.9 of the High Court Rules was to be prepared, the parties may be in a better position to attempt, with assistance, to resolve this dispute.
Solicitors:
Holland Beckett, Rotorua for
Respondent
[1] Mr R Lee, Ms Heard and Mr G Lee have a fourth sibling, Melvyn Lee, who is not involved in the High Court proceedings.
[2] Lee v Lee [2012] NZHC 3283 [strike-out judgment].
[3] Under s 26P of the Judicature Act 1908.
[4] Lee v Lee [2013] NZHC 1069 [High Court review].
[5] Lee v Lee [2013] NZHC 1820.
[6] Lee v Lee [2014] NZCA 403 [Court of Appeal leave judgment].
[7] The 1950 Act has been repealed by the Limitation Act 2010. It continues to apply, however, to claims based on acts or omissions before 1 January 2011. Therefore, the 1950 Act applies to the High Court proceedings.
[8] Independent valuations are recorded as having been obtained around this time for each of the family home at Springfield Road, the View Road factory and HDP (excluding the value of the View Road factory) itself. We acknowledge that those valuations, and in particular that relating to the value of the shares in HDP, are challenged in the High Court proceedings. We express no view on the merits of that challenge. Our intention is simply to try and clarify the record.
[9] The original as it appeared in the bundle was difficult to read.
[10] Strike-out judgment, above n 2.
[11] At [100].
[12] At [59] of the strike-out judgment, above n 2, the Associate Judge refers in this context to Mr Bergseng, counsel for Mr G Lee, referring to a 12 year limitation period applying to claims in contract under s 4(3) of the 1950 Act. That is clearly an error.
[13] At [95].
[14] High Court review, above n 4.
[15] At [37].
[16] At [38]–[56].
[17] High Court Rules, r 15.1(a).
[18] High Court review, above n 4, at [58]–[59].
[19] By the time the matter came to be heard by Collins J, a further six affidavits had, with leave, been filed:
(a) two from a Jean Bright, a chartered accountant, giving valuation evidence as regards HDP at relevant times;
(b) one from Ms Heard, asserting that her mother had told her in April 2000 that Mr G Lee had approached her parents with an offer to purchase HDP for $200,000, an offer they considered ludicrous and declined;
(c) a further affidavit from Mr R Lee recording various concerns he had had relating to the affairs of his parents and legal advice he had taken over time in effect, it would appear, to explain the delay associated with the issuing of the High Court proceedings; and
(d) an affidavit from each of Mr G Lee and Mr A Willemsen, effectively in response.
[20] At [59]–[60].
[21] At [61].
[22] At [62].
[23] TTAH Ltd v Koninklijke Ten Cate NV [2015] NZCA 348 footnotes omitted.
[24] Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA).
[25] Matai Industries Ltd v Jensen [1988] NZHC 205; [1989] 1 NZLR 525 (HC).
[26] Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398.
[27] Matai Industries Ltd v Jensen, above n 25, at 531, citing Ronex Properties Ltd v John Laing Construction Ltd, above n 26, at 404.
[28] Matai Industries Ltd v Jensen at 531–532.
[29] Court of Appeal leave judgment, above n 6.
[30] Johns v Johns, above n 24.
[31] Andrew Butler (ed) Equity and Trusts in New Zealand (Thomson Reuters, Wellington, 2003) at [35.1.3].
[32] At [78], [80].
[33] High Court review, above n 4, at [44].
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