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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2003-404-2370
BETWEEN PETER GEORGE HEWITT AND JUDITH
NOELENE
HEWITT
Plaintiffs
AND BRIAN JOHN HILL AND
MARTIN
DAVID ROCHE T/A BOWEN ROCHE
AND
HILL
Defendants
Hearing: 8 August 2005
Appearances: C Y Simes and K Peebles
for Plaintiffs
M E Casey for Defendants
Judgment: 28 September 2005 at 11:00 a.m.
JUDGMENT OF SIMON FRANCE J
Counsel:
Mrs C Y Simes, Barrister, PO Box 4265, Hamilton (E-mail: info@kiwilaw.co.nz )
Mr M E Casey,
Barrister, PO Box 317, Shortland Street, Auckland (E-mail: matt@casey.co.nz )
Solicitors:
O'Sheas (K Peebles), Solicitors, PO Box
460, Hamilton (Fax: 07-838 3494)
HEWITT V HILL AND ROCHE T/A BOWEN ROCHE AND HILL HC AK CIV 2003-404-2370 28 September
2005
Introduction
[1] In 1999 Mr and Mrs Hewitt bought a motel in Taumarunui. The transaction
involved the purchase of the motel business, and
the lease of the land and buildings.
The Hewitts had no previous experience of the motel industry, or generally in
running a business.
The enterprise was not successful from their viewpoint. In
February 2000, by mutual agreement, the vendors re-entered the premises.
[2] In these proceedings the Hewitts sue their legal adviser in negligence, and in
contract for breach of retainer. The essential
premise is that there were discoverable
errors in the business information that accompanied the purchase and that, given the
inexperience
of the plaintiffs, Mr Roche (a partner in the defendant firm and the
solicitor acting) was under a duty to provide more and better
advice to the Hewitts
than he did.
[3] There are significant factual disputes over what information Mr Roche had,
and over
what advice he gave. The resolution of these conflicts will be significant in
determining the outcome of the proceedings, so the
factual overview will of
necessity be somewhat lengthy.
Facts
(a) The period leading up to the signing of the agreement
[4] Mr Roche was not involved until after the agreement was signed. The
evidence in this section is therefore largely
uncontested.
[5] Mr and Mrs Hewitt lived in Auckland. He was a guillotine operator and she
was not in employment due to a back
injury sustained a few years earlier. A change
in Mrs Hewitt's ACC situation encouraged them to look for a lifestyle alternative
that both could be involved in. They fastened upon the motel industry.
[6] Perusal of advertisements in the newspaper led the
Hewitts to contact a motel
broker, Charlie Andrews. Mr Andrews was to play a central role in the purchase of
the business and seemingly
in providing advice to the Hewitts along the way. (Mr
Andrews was not called to give evidence.) Following an initial meeting, many
possible purchases were discussed but were either not suitable, or too expensive for
the Hewitts. Eventually, the motel that was
ultimately purchased, Calverts' Spa
Motel in Taumarunui, emerged as an option.
[7] Mr Andrews brought the Hewitts a booklet
of information about the motel.
The booklet consisted of nine pages, and described itself on the front page as a
proposal for the
lease of the Spa Motel. The subsequent pages were an index, a list
of "features", a vendor's narrative description of the area and
the motel business, and
then two pages of figures. The first of these financial pages was a list of expenses
broken down into line
items, and described as actual for 1998 and budgeted for 1999.
The second financial page was a list of occupancy sales for 1996,
1997, and 1998.
The figures were broken down on a monthly basis; each year ran from January to
December. The last page of the brochure was a narrative overview
of the merits of
the purchase.
[8] The nine pages just described were spiral bound. There was a tenth page. Mr
and Mrs Hewitt
said this page was included with the nine, but was inserted loose.
The page is headed "Calverts' Spa Motel Cash Flow Forecast (ex
GST)". It covered
the years 1997-2000. It first sets out sales, again broken down on a monthly basis
for each year beginning with
January. The totals for each month for 1997 and 1998
match the totals on the financial sheets included in the nine-page bundle. After
the
monthly sales figures, and before they are totalled, there is a line item for occupancy
expressed as a percentage. The sales
figures are then totalled.
[9] The following line is expenses. Again, 1997 and 1998 repeat the figures
from the brochure. The
next line includes an item for rent from 1999 on. The next
line is total expenses, and the last line is "Nett Profit" forecasts for
1999 to 2002.
[10] The authorship of this document was in dispute prior to trial. At trial Mr
Calvert, the vendor of the motel,
was called by the plaintiffs. He detailed who had
prepared each page of the nine-page booklet. Concerning this loose "forecasts"
page, he said he had not prepared it, and that he had seen it for the first time in
November 1999, after settlement and possession
and once it become known to him
the turnover figures were not matching expectations. He "presumed" Mr Andrews
had prepared it. There
is no other evidence on the authorship of it.
[11] Returning to the sequence of events, the Hewitts visited the motel over Easter
weekend in 1999. They were shown such units as were unoccupied and so could be
viewed. When they first arrived at the motel only
Mrs Calvert was present. In
addition to giving them a tour, she provided the Hewitts with some further expense
sheets. The Hewitts
took these with them to the unit they were occupying. The
figures did not seem to them to match the figures provided by Mr Andrews
in the
real estate brochure.
[12] The Hewitts asked the Calverts about the figures. They testify that Mr
Calvert was agitated
and said they were the wrong sheets and that the Hewitts should
not have been given them. Mr Calvert is said to have stated that
the sheets contained
figures relating to the hotel they owned across the road.
[13] On returning to Auckland the Hewitts discussed
the motel purchase and
decided to proceed. They advised Mr Andrews of this and he brought around the
various agreements. There were
three:
a) agreement for sale and purchase of the business;
b) agreement for sale and purchase of a residence.
Part of the purchase
was to be funded by the Calverts buying the Hewitts' Auckland
property;
c) an agreement to lease.
[14] These were all signed.
(b) The documents
[15] Before moving on to the next phase
of the factual narrative it is convenient to
describe the documents that were signed.
(i) Agreement for sale and purchase of
the business
[16] This agreement was in the standard ADLS form. The purchase price was
$270,000, made up of $40,000 goodwill,
and $230,000 chattels. The turnover
warranty was $195,455, running from 1 April 1997 to 31 March 1998. The lease
details were "New Lease to be Completed" for term of 25 years with two-yearly rent
reviews. The agreement was conditional for 10
days on finance; the amount of
finance being sought was $100,000.
[17] In their evidence the Hewitts described the $100,000
as being to allow them
to pay off their existing mortgage of $67,000, provide $10,000 for the deposit, and
the balance to fall back
on when they got into the motel.
[18] The agreement contained 11 special conditions of sale. Only one is relevant
to these proceedings,
being clause 25 which provided:
This agreement is conditional upon the purchaser's solicitor approving this
contract in all respects within 10 working days of the
date of this agreement.
(ii) The agreement for sale and purchase of the house
[19] There is nothing to be noted concerning
this. The standard ADLS form was
used.
(iii) Agreement to lease
[20] Again, this is on the ADLS form. The rental was set
for 1999 as $65,000
plus GST. The term was 25 years with two-yearly rights of renewal, and two year
rent reviews. Default interest
was set at 12%. There were no other amendments to
the form.
[21] Clause 4 to the Second Schedule is an important plank of the
plaintiffs' case.
It provided:
The tenant shall enter into a formal lease with the Landlord to be prepared
by the
Landlord's solicitor at the cost of the Tenant, the lease covenants to
be no more onerous than those contained in the Auckland
District Law
Society Commercial Lease Form 3rd Edition 1993 ("ADLS Lease Form").
Any dispute as to the lease covenants
shall be determined by the nominee of
the President of the District Law Society of the district in which the premises
are situated, acting as an expert and not as an arbitrator.
[22] The agreed bundle of documents includes a letter by which
Mr Andrews'
firm forwarded the agreement for sale and purchase of the business, and the
Agreement to Lease to the solicitors for
the Calverts, and to Mr Roche as solicitor
for the Hewitts. By separate letter dated the same day, the house purchase agreement
was
also forwarded.
(c) Events between signing of agreements and agreement going unconditional
(i) Contact between the Hewitts
and Mr Roche
[23] The first point of dispute arises immediately. Mrs Hewitt testified that she
dropped the agreements into Mr
Roche shortly after they were signed. It is not clear
from the evidence but I take this to mean a day or two. At the same time she
dropped in a copy of the nine page promotional bundle, together with the extra
forecast page. She recalls the visit because she had
her grand-daughter with her. By
contrast Mr Roche recalls no such visit. He says that the only copy of the agreement
that he has
on his file is that which he received via the real estate firm. He denies
ever having received the nine page promotional document
or the loose tenth page.
Neither were on his file. He says he first saw them in November 1999.
[24] The next point of dispute
concerns whether Mr Roche then met with the
Hewitts in his office about a week after Mrs Hewitt says she dropped the agreements
in.
Mr and Mrs Hewitt say they did. Mr Roche says they did not; he has no
appointment record to that effect, and all contact was by telephone
until July 1999.
[25] The meeting, as recalled by the Hewitts, was uneventful. Mr Hewitt says that
Mr Roche did not say a lot
and really just wanted to say hello. He had the
agreements and the real estate booklet. Mrs Hewitt's recollection
was similar.
However, she thought that at the meeting Mr Roche might have asked whether they
had an accountant to which they replied
no, and that Mr Andrews had said they did
not need one. Mr Roche asked if they were sure about that, they said yes, and he
said
okay.
[26] Mrs Hewitt could not recall any further contact with Mr Roche until she rang
him to tell him they had the finance
and it could be made unconditional. This was
on 4 June.
[27] Mr Roche's evidence is that all contact was by telephone. He believes
he
spoke to one or other of the Hewitts a number of times, but cannot recall how many.
He did recall a conversation with Mr Hewitt
shortly after getting the agreements. He
said he asked Mr Hewitt why Taumarunui and what was there to attract people. The
response
was that the Hewitts had looked right into the business, and that there was a
regular clientele from both salespeople and outdoor
people. Mr Roche asked if they
were satisfied as to occupancy rates, cash flow, and that they could afford outgoings.
The answers suggested to him a thorough appraisal had been done.
Mr Roche also
suggested that the Hewitts should have the figures looked over by an accountant, but
was told that they had looked
into it themselves, both with the Calverts and the real
estate agent.
[28] Mr Roche says he also asked about a valuation and
was told that they had
been given one by the vendor or the agent and that it supported the figures. Mr
Roche says he told them they
should get their own valuation rather than rely on the
vendor's. He was told that the Hewitts were satisfied about the rental and
did not see
a need to obtain another one.
[29] Turning to what steps he took, Mr Roche says he checked the agreements
upon receipt.
He obtained title searches and prepared a LIM request. He discussed
this with the Hewitts and was told it was not needed as the vendors
already had one.
He asked about finance and was told the agent was looking after it and it was in
hand. When the date passed, he
did nothing because until finance was to hand no
obligations could arise.
[30] Concerning a written record of these events, the
bundle includes the letter
from the real estate agent enclosing the agreements, and Mr Roche's letter seeking
title searches. The
unsent LIM request is also included. On 15 April there is a file
note recording that Mrs Hewitt phoned and said no LIM was required
as the vendors
had one. The note records that Mr Roche advised that would suffice as long as it
was recent and that Mrs Hewitt was
to obtain a copy. I pause in the narrative to note
that this conversation occurred on 15 April, which is only two days after Mr Roche
received the agreements from the real estate agent. It is a conversation initiated by
Mrs Hewitt and carries the inevitable inference
that there had been a prior discussion
about the purchase. This in turn casts some doubt on the Hewitts' recollection that
Mrs Hewitt
had taken the agreements to Mr Roche around that time and that they
had a meeting a week later.
[31] The written record next
shows Mr Roche following up the title search with a
request for a copy of an encumbrance noted on the title. This is on 21 April
1999.
[32] The next document in the sequence is a fax from the real estate agent, Mr
Andrews. It is dated 12 May and attaches
a Memorandum of Agreement signed by
the Calverts and the Hewitts. By this agreement:
a) the possession and settlement
date is changed from 21 May 1999 to
11 June 1999;
b) the unconditional date is changed to 14 May 1999;
c) a figure is set for stock-in-trade; and
d) the purchase price is unaltered but the breakdown between
chattels
and goodwill changes from $230,000/$40,000, to $170,000/$100,000.
[33] Before leaving this aspect of the
chronology, I note there was a dispute about
whether Mr Roche advised the Hewitts to get the figures checked by an accountant.
As
it transpires, both the Hewitts had sworn answers to interrogatories about one
year earlier. In response to a question about the
loose "forecast" sheet, both Mr and
Mrs Hewitt said at that time that they had given it to Mr Roche, and that he had
asked them
if they had taken the figures to an accountant. When they said no, Mr
Roche is said to have said nothing.
[34] I also note
Mrs Hewitt could not recall making the phone call about the LIM
report.
(ii) The financing of the purchase
[35] The
change to the agreement that was agreed to on 12 May was brought
about by an inability on the part of the Hewitts to obtain finance.
The new
agreement provides an appropriate point to discuss generally the financing of the
purchase. It is helpful to review
the financing from start to finish, which means this
section will extend beyond the date the agreement became unconditional.
[36]
As earlier noted, the Hewitts wanted to borrow $100,000. It is apparent that
they struggled to find the money. A finance manager from their bank, the ANZ,
visited them at home but declined
to lend them money. Mrs Hewitt recalls him
saying "there wasn't enough money" but feels he did not give them a proper
explanation.
Mr Hewitt recalls a broker coming, but suggesting a 25% interest rate.
[37] At some point before the finance date Mr Hewitt
contacted Mr Calvert and
explained the difficulty. Mr Calvert agreed to changes and the agreement sent to Mr
Roche on 12 May 1999
was signed. Mr Roche had not been consulted about it.
[38] Mr Hewitt notes that prior to the new agreement, Mr Andrews had
suggested
they get a valuer's report. In fact there are two valuations, one dated 1 April and one
dated 12 April. Both are by the
same valuer; the first is addressed to Mr Calvert, and
the second to the world at large "To whom it may concern". Mr
Hewitt's
recollection over when he obtained these valuations was somewhat hazy, but he
accepted in cross-examination that he had
both of them before signing the revised
agreement on 12 May 1999. That this is so is evident also from the content of the
valuations;
whilst supporting a purchase price of $270,000, they value the chattels
and goodwill in accordance with the new agreement, i.e. a
$170,000/$100,000 split.
[39] At some point the Hewitts identified a friend of theirs as a possible source of
finance. Apparently
he told them he could lend them $60,000. Mr Hewitt says that
his mother had also agreed to lend $20,000. By this time the Hewitts
had apparently
decided they could make do with just $70,000, so advised Mr Roche to declare the
agreement unconditional on the basis
of their friend's commitment.
[40] The phone call from Mrs Hewitt concerning the finance is the subject of a file
note. The file
note records an initial call from Mr Andrews, advising confirmation of
finance would come through that day. It was to be arranged
through the "Beer
Club". I am unsure as to the explanation for this label, but it is accepted it was the
entity through which their
friend would lend the money. Mr Andrews wanted Mr
Roche to confirm as soon as possible. A telephone message records Mrs Hewitt
saying
it would be going unconditional, and then at 4:15 a file note records a further
telephone conversation where Mrs Hewitt advises Mr
Roche that the agreement can
be made unconditional. The note records:
I advised I was still awaiting a fax confirming the
finance. She said that the
finance was definitely arranged and that they had written confirmation which
she would drop
off to me next week. In the meantime instructed me to
declare the contract unconditional. Settlement to be 9 July.
[41]
Mrs Hewitt generally confirmed this telephone call in her evidence but could
not remember saying she had written confirmation. What
is clear is that she in fact
never did have written confirmation. On that day Mr Roche, as instructed, declared
the agreement unconditional.
It is also accepted that Mrs Hewitt never advised Mr
Roche that the finance was only for $60,000.
[42] On 6 July Mr Roche faxed
Mr Williams advising the amount to settle was
$103,000. This was $93,000 to settle the purchase and $10,000 for the first month's
operating expenses. As it transpires that source of money fell through, and on 8 July
the money was still not available to settle.
[43] Mr Hewitt rang Mr Calvert to advise him. Mr Calvert said to leave it with
him, and then rang back to say that the Hewitts
should contact someone at a named
mortgage broker. Details were given. A loan was arranged that day on the basis of a
guarantee by
the Calverts. The guarantee would come into effect if the Hewitts fell
behind in their payments for a period more than three months.
The Calverts also left
in $10,000 as an unsecured loan.
[44] The loan was for $75,000, discounted to $70,000, at a rate of 18%.
The
finance rate was 39%. When it came time to sign the documentation, Mr Roche
queried with the Hewitts whether they wanted to proceed given the terms of the
finance and
in particular the interest rate. He was advised they did.
[45] There are no other matters prior to the agreement going unconditional
that
require comment.
(d) The period between the agreement going unconditional and the taking of
possession
[46] Once the
agreement went unconditional on 4 June 1999, little of the initial
activity involved Mr Roche. It was primarily focussed on the obtaining
of finance
which has been described.
[47] However, it was during this period that the Hewitts met Ms Voerman, who is
a financial
adviser. The documentation shows that on 8 June 1999 Mr Andrews
contacted Ms Voerman by fax. The content of the fax suggests there
had been some
prior communication between them. It advised Ms Voerman that her new clients
were the Hewitts and gave contact details.
A handwritten notation then suggests that
Ms Voerman telephoned the Hewitts' daughter, Katrina, on 17 June. Ms Voerman's
evidence
is that the first meeting then took place on 30 June.
[48] Ms Voerman's role was to provide financial and book-keeping support
once
the Hewitt's took possession. The meeting therefore focussed on the information she
would require from the Hewitts. It did not
concern the transaction. In cross-
examination Ms Voerman confirmed the Hewitts did not ask her for advice on the
transaction.
[49] Between the agreement going unconditional and settlement, the main legal
task was the approval of the lease. On 9 June the
solicitors for Mr Calvert wrote
advising a lease would soon be sent. It was to be based on the Agreement to Lease
but incorporate
the arrangements agreed orally between the parties as to rent review
and exterior maintenance.
[50] The lease was sent on 24
June. Mr Roche testified that some clauses caused
him concern. He copied the lease to the Hewitts with a series of "post-it" notes
attached to it. The notes had questions written on them. The Hewitts thought there
were four of these. Mr Roche could not recall
how many. It was arranged for the
Hewitts to come in and discuss these points. When that occurred Mr Roche was
unable to attend the
meeting due to a personal family matter arising. His partner
attended the meeting. (There was initially some uncertainty on the Hewitts'
part as
to who they saw but there is no doubt it was Mr Roche's partner, Mr Hill.)
[51] As a result of the meeting, amendments
to the lease were made. The most
significant deletion was the "ratchet clause". The ratchet clause in issue provided
that, in relation
to the rent reviews, the new annual rent was never to be less than the
preceding year's rent. The rent otherwise was to be 30% of
gross sales, net of GST,
achieved in the preceding two years. Mr Roche had noted this clause when sending
the lease to the Hewitts.
Mr Hewitt said it was unacceptable to him and he would
not proceed with it there. He said he had himself advised Mr Calvert of this
and that
Mr Calvert was agreeable to taking it out. Mr Hewitt says he then rang Mr Roche
and told him this.
[52] At the meeting
with Mr Hill the lease was executed as amended. Mr Roche
then returned it to the Calverts' solicitors. Settlement did not occur on
9 July
because of the finance issues. It eventually occurred on 23 July 1999. On 19 July
the parties had attended Mr Roche's offices
to sign the various documents.
[53] One important point remains to be noted. The Hewitts, by agreement, still
took possession
on 9 July, the original settlement date. On 9 July a fax was sent
from the Calverts' Spa Motel to the Calverts' lawyers. It included
some amended
pages of the lease document. Most significantly a new "soft" ratchet clause had been
included. This clause provided
the rent was never to drop below the initial rent of
$65,000. The amendment re-inserting the clause was initialled by the Hewitts.
[54] It is a quite remarkable feature of the case that neither of the Hewitts can
remember this happening. It is remarkable, not just because it was a change to
the
lease, but because the ratchet clause was Mr Hewitt's sticking point. He was
vehement both in his opposition to it and
in his initial insistence that it be removed.
It is difficult to understand how neither of the Hewitts can recall reinserting a
modified
version of the clause, although both accept the initials on the various
amendments are theirs. Concerning this amendment, Mr Roche
cannot recall if he
noted it when the lease was returned to him by the Calverts' lawyers for execution.
(e) Events following
possession
[55] The events following possession are described by the Hewitts, their daughter
who worked with them at the motel,
and Ms Voerman. Katrina Hewitt testified that
the occupancy rate was lower than forecast. She describes efforts made to make the
business venture a success.
[56] Mr Hewitt describes maintenance that needed doing. He asked Mr Calvert
for money from the maintenance
fund but says he was told it was only for exterior
maintenance. In his evidence-in-chief he said they were obtaining the forecast
occupancy rate but not the forecast profits. He said after about two months of
receiving information Ms Voerman rang expressing concern.
Various alleged
defects with the motel are described.
[57] Mr Hewitt said the Calverts were away but he contacted
them when they
returned from an overseas holiday. Mr Hewitt's concern was that the expenses were
running higher than anticipated.
Katrina said that she was concerned right through,
and had discussions with Ms Voerman as to what might be the problem. It was
plainly
a very stressful time for the Hewitts until they vacated in February 2000.
Much more detail is given of the stress they experienced.
If it becomes relevant to
damages, I will expand upon it.
[58] Ms Voerman's evidence was that she met with Katrina Hewitt on
25 August
1999. She recalled that Katrina expressed concern at that point, and that Ms
Veorman advised what information was needed
for her to do an analysis. At that
point, and again subsequently, she advised Katrina to contact their lawyer. During
January and
February 2000 she compiled various analyses of the business for the
Hewitts.
[59] In February Ms Voerman wrote to Mr Calvert
enclosing the analyses, and
seeking suggestions as to how matters might be improved. She also sought a rent
reduction. She ventured
the opinion in that letter that the Hewitts were naïve and
had not had the advice they needed from the professionals. Further correspondence
was exchanged between Mr Calvert and her. The outcome was that payment of a
part of the rent was to be deferred.
[60] On 17
February the Hewitts vacated on the basis that there was no further
rights of action between the parties.
(f) Some conclusions
on the facts
[61] The pleadings require an evaluation of what took place between the Hewitts
and Mr Roche, and also an evaluation
of the relationship between them what sort
of reliance were the Hewitts placing on their legal adviser?
[62] Where there
is a conflict as to what occurred, I prefer the evidence of Mr
Roche. I was impressed by him as a witness. By contrast,
there were many
occasions where Mr and Mrs Hewitt could not remember events that one would
expect them to. I have previously adverted
to the most notable of these, which is the
amendment to the lease reinserting the ratchet clause. Other examples are the
conflict in the evidence about Mr Roche suggesting that the figures be taken to an
accountant. What they said before me differed
from affidavits sworn a year earlier.
Also to be noted are events such as Mrs Hewitt being unable to recall phoning Mr
Roche to cancel
the LIM report. I do not for a moment suggest there is anything
contrived about their lack of memory the reality is that this whole
enterprise was
plainly a traumatic time for the Hewitts. As a consequence, however, I am of the
view their recollection of events is hazy and at times
confused.
[63] A crucial issue for the plaintiffs' case is whether Mr Roche was ever given
the real estate brochure containing
the loose forecasts sheet. The plaintiffs contend
that the conflict between the brochure, and the loose sheet, and the turnover warranty
on the agreement, should have put Mr Roche on notice. I accept Mr Roche's
evidence that he did not receive it. I accept that the
Hewitts genuinely believe he
did, but several indicia point the other way:
a) it was not on Mr Roche's file. There
is no reason it would not have
been if he had received it;
b) Mrs Hewitt also thought that she had given
Mr Roche copies of the
agreements but his only copies of those agreements clearly came to
him through
the orthodox route of the land agent;
c) Mr Roche had no entry in his appointment book recording the meeting
the Hewitts believed they had attended. I am satisfied a record would
have been there if the meeting had
occurred;
d) the LIM telephone call by Mrs Hewitt suggests both a prior telephone
conversation, and
that events had been discussed that would make the
meeting with Mr Roche of little obvious utility. The Hewitts cannot
really recall anything of what happened at the meeting and this is
because there was no meeting.
[64] When these specific factors are combined with the general reliability findings
I have made, the conclusion must be that Mr
Roche never received the package. For
completeness I note that my credibility findings extend to acceptance that Mr Roche
had the
telephone conversations he said he did, and particularly the initial call with
Mr Hewitt. In the course of that conversation I accept
he raised, inter alia, the issue
of having the figures checked with an accountant. I am satisfied that at some point
he also suggested
an independent valuation be obtained.
[65] Finally, as regards resolving the various conflicts, I accept Mr Roche's
evidence
that the Hewitts gave him an impression of people who had researched the
purchase and had committed themselves only after first
looking into matters. This
conclusion is consistent with my impression of the relationship between the parties,
and with my view
of the impression the Hewitts wished to convey. I am satisfied
that the Hewitts only saw Mr Roche as doing the necessary legal conveyancing
and
did not want, or expect, him to exercise a greater role.
[66] The actions of Mr and Mrs Hewitt throughout displayed a commitment
to
buying the motel that was not to be deterred. In my view they were not interested in
having impediments pointed out. Mrs Hewitt
in her evidence observed that she
wished she had been firmer. Her husband, who sometimes could be "impulsive and
impatient" was "
so keen to buy the motel and get started". There are several factors
that reflect this approach:
a) when they visited
the motel at Easter prior to buying, the Hewitts
were given expense sheets that caused them to have doubts about the
validity of the figures in the real estate brochure. Despite this, there is
no evidence that they mentioned
these doubts, or these other expense
sheets, to anyone but the vendors, at least until things started to go
wrong some months after taking possession;
b) the first person they approached for finance was their bank's
financial
officer. The bank declined to lend because the figures were not right.
Mrs Hewitt says they
did not get an adequate explanation but neither,
obviously, did they seek one, or go to anyone else at that point
for
advice. Rather they tried to get the money through a friend, and
ultimately accepted finance at what was a high rate of interest;
c)
the Hewitts received advice from Mr Roche to get an accountant and
an independent valuation. Both were rejected
in a manner that led Mr
Roche to believe they had done the necessary investigations;
d) opportunities
to inspect the motel, more than the brief visit possible at
Easter, were not taken up;
e) prior to taking
possession, and prior to having secured their ultimate
finance, they met with Ms Voerman who was to be their financial
adviser and book-keeper. They did not seek assistance from her
either.
[67] I do not consider
these matters can be explained only by naivety. The reason
goes deeper, and it is that having made the commitment to a new life,
Mr and Mrs
Hewitt were determined to press ahead come what may. There was undoubtedly a
belief and hope that it would all work out.
To the extent that they wanted advice, the
Hewitts committed to accepting what Mr Andrews, their first point of contact, is said
to have told them.
[68] Against these factors, and that basic approach to the enterprise, one can
observe there are several specific
events that tell against any suggestion of reliance
on Mr Roche. First in time, but the least significant, is that the agreements
were
signed without seeking advice. Next, at a point when Mr Roche was acting for them,
the Hewitts discussed and signed a new agreement
which changed not only the dates
of the original agreement, but also the breakdown between goodwill and chattels.
This was not discussed
with Mr Roche nor was he told about it until the agreement
was sent to him by the real estate agent. Then, when it came to the agreement
going
unconditional, Mrs Hewitt misled Mr Roche by saying she had written confirmation
of finance when she did not. Generally, also,
through all the difficulties in obtaining
finance, no advice was at any point sought from Mr Roche. Finally, even as regards
something
as important to Mr Hewitt as the ratchet clause, the Hewitts plainly agreed
with Mr Calvert to reinsert it notwithstanding Mr Hewitt's
initial disquiet and the
instructions to Mr Hill to delete it. This was again done without reference to Mr
Roche and without telling
him about it.
[69] This last event illustrates both the determination to make the purchase, come
what may, and the limited role
Mr and Mrs Hewitt wished Mr Roche to play. The
prior event concerning the agreement going unconditional and written confirmation
of finance suggests that far from a trusted adviser, Mr Roche was seen as a potential
obstacle. Hence, in order to ensure the agreement
went unconditional, Mr Roche
was told written confirmation was to hand, when in fact none existed.
Legal issues
[70] For the
plaintiffs, Mrs Simes focussed on two areas that were said to be
causative of loss. First, it is said that because of the inexperience
of the Hewitts, Mr
Roche's contract of retainer expressly or impliedly included an obligation to give
better and/or stronger advice
on the wisdom of the transaction. If not doing the
financial analysis himself, he should have done more to ensure the Hewitts followed
a sound business approach to the transaction. The solicitor's approval clause is said
to be tied into and strengthen this general
obligation that lay on Mr Roche.
[71] In terms of this omission being causative of loss, it is said that had the
documents been
analysed prior to the sale it would have been obvious that there were
problems with the motel business figures on which the sale
and purchase were based.
Armed with this information the Hewitts would not have proceeded with the sale.
[72] The second area
of focus was the provision in clause 4 of the Second
Schedule of the Agreement to Lease that states that the lease ultimately signed
shall
be no more onerous than the standard ADLS lease. It was pleaded that the lease
signed was more onerous, and that therefore the Hewitts could
have pulled out of the
deal. It is said Mr Roche was negligent and/or in breach of his contract of retainer in
not advising the Hewitts
of this. I deal with this first.
(a) The lease issue
[73] The plaintiffs' case in this regard was that the lease ultimately
signed was
more onerous. It was said that, accordingly, there was a breach of clause 4 of the
Agreement to Lease and that the breach
entitled the Hewitts to cancel the contract.
Mr Roche was said to be negligent in that he:
failed to advise the plaintiffs
that, even after declaring the agreement
unconditional on 4 June 1999, they could still cancel the agreement if the
provisions of the lease breached the provisions of the agreement to lease;
failed to advise the plaintiffs that the provisions
of the lease were more
onerous than the provisions of the ADLS lease and therefore breached the
agreement to lease;
failed to advise the plaintiffs that the repair and maintenance obligations of
the parties in respect of the premises
were not the same as in the ADLS lease
and therefore breached the agreement to lease.
[74] As a matter of fact I find that
if the lease was more onerous in the manner
contended for by the plaintiffs, it would have made no difference at all to the
Hewitts.
I have no doubt they would have proceeded with the lease in the form
proposed by the Calverts. I have, generally, already discussed
my reasons for this.
However, to illustrate I refer again to the variation to the ratchet clause that was
effected at the motel when
the Hewitts took possession. If the Hewitts were willing,
without advice, to re-insert that clause given their earlier opposition,
it is not credible
to suggest that they would have been influenced at all by advice that some provisions
may be more onerous than
those contained in some other lease document.
[75] The statement of claim alleges that in no less than 24 different respects
the
lease actually signed is more onerous than the standard ADLS lease. However, the
plaintiffs called no evidence to substantiate
these allegations. Rather, each
proposition was put to Mr Roche for his opinion on whether the actual provision was
more
onerous. I have to observe that the impact of this exercise was to demonstrate
Mr Roche's very sound familiarity with the ADLS form
and its provisions. In
relation to most of the provisions where Mr Roche would accept the actual lease was
more onerous, he says
it was these provisions that were noted on the post-its to be
discussed with the Hewitts. This was not so of all the provisions he
accepted were
more onerous, but it was so of most of them.
[76] The only other evidence touching at all on the topic was given
by Mr Ian
Haynes, who was called by the defendant. Mr Haynes is an experienced specialist in
property transactions who has given
evidence on other occasions. He was a member
of, and then convened, the Law Society's Property and Business Law Committee.
He has
presented seminars in the area and is a member of the Executive of the
Property Law Section of the New Zealand Law Society. He is
also a recognised
expert in the area of ethics and professional standards.
[77] Mr Haynes testified that a competent lawyer would
not see differences
between the two leases as a basis for cancellation. It was only if the affected party
sought amendment, and
this was denied, that issues of cancellation might arise. A
further matter that arose was the apparent conflict between clause 4
of the Second
Schedule and clause 9.1 of the Agreement for Sale and Purchase of a Business. The
latter would appear to suggest that
dissatisfaction with the lease gives an absolute
right to cancel. The former says disputes over onerous covenants in the lease are
to
be referred to a third party. Mr Haynes testified that in his view the conflict would
be resolved by limiting clause 9.1 to situations where the vendor is not the lessor and
often
where an existing lease was to be assigned. Where a new lease was created,
such as here, clause 4 of the Second Schedule was the
operative provision. I accept
that clause 9.1 of the Agreement for Sale and Purchase, on its face, most naturally
applies to a situation
where the vendor is not the lessor. It gives the purchaser the
right to pull out if a satisfactory lease arrangement with the lessor
cannot be
achieved. Clause 4 to the Second Schedule of the ADLS Agreement to Lease
therefore governed the present issue, and at best
gave a right to seek appointment of
an arbiter.
[78] In relation to the lease I am satisfied that Mr Roche identified for himself
the
provisions of the lease that would seem unduly adverse to a competent conveyancer.
I am not clear how many of these were flagged
by post-it notes, but I am satisfied the
most significant ones were. It is unfortunate Mr Roche was unable to attend the
lease discussion
meeting with the Hewitts. However, the evidence of the Hewitts
has not satisfied me that meeting was inadequate. Changes resulted
from it to the
lease.
[79] The evidence of Mr Haynes, which I accept, is that any differences would be
a basis for negotiation.
I do not consider that any matters that should have been the
basis for negotiation were overlooked. As noted, I have no doubt that,
apart from the
changes that were made, the Hewitts would not have been concerned about other
comparisons with the ADLS standard lease.
Finally, I note that there has been no
evidence to suggest that any of the differences between the two leases were in any
way causative
of the Hewitt's business difficulties.
[80] The essential allegation is that the Hewitts could have cancelled, and should
have
been told that. I hold that the evidence fails to satisfy me that the actual lease
infringed clause 4. In any event, if told there
was a basis either to further negotiate
or cancel, the Hewitts would have declined that opportunity. I also do not consider
that
the legal position was that the Hewitts could simply cancel if a covenant were
more onerous.
(b) The scope of retainer
[81]
Mr Haynes testified that the competent lawyer would normally restrict herself
to conveyancing and would not give financial and
business advice. When a client
who is inexperienced in business is contemplating entering into a business
transaction, the competent
lawyer might well suggest the client sought business and
accountancy advice. However, the lawyer would not press if the client made
it plain
that they wished to rely on their own judgment.
[82] In Mr Haynes' view, the solicitor's approval clause reflected these
principles
and so related generally to legal matters and did not of itself extend the retainer to
the wisdom of the transaction from
an economic or business viewpoint.
[83] Mr Haynes' testimony as to what the competent lawyer would do reflects the
thrust of
the authorities to which I was referred by both counsel. The scope of the
retainer is generally settled and confined to legal matters.
It can, however, vary
according to the circumstances, the wishes of the clients, and the needs of the clients.
A broader scope, even
though not made express by the clients, can be inferred from
the circumstances. In the area of how much advice on a topic a lawyer
should give,
a recent discussion can be found in Frost and Sutcliffe v Tuiara [2004] 1 NZLR 782.
[84] It is not, in my view, necessary to explore these principles and authorities in
any depth Frost and Sutcliffe v Tuiora
is an illustration that these considerations
are fact specific. My earlier findings make it plain that I do not consider that the
Hewitts expressly asked Mr Roche for wider assistance. In my view, the high point
for the present plaintiffs would be that the circumstances
implied an obligation on
Mr Roche to give firm advice that the Hewitts should seek financial advice. I do not
consider there can
be any suggestion that Mr Roche should himself have given
financial advice or that he held himself out as able and willing to give
such advice.
[85] In terms of giving firm advice, in cross-examination Mr Haynes accepted the
following propositions:
a) a competent lawyer would recommend an inexperienced purchaser to
take accounting or business advice;
b) if advised by the client that their source of advice is from the vendor
or vendor's agent, the solicitor
should reinforce the need to take
financial advice;
c) the competent lawyer would explain the meaning
of the turnover
warranty.
[86] Matching these principles against the present facts, Mr Roche accepted he did
not
explain the turnover warranty. He certainly told the Hewitts to take financial
advice but the issue is perhaps whether that was pressed
firmly enough.
[87] It is trite to observe that these obligations are very much influenced by their
context. On an objective
level, there is much about Mr and Mrs Hewitt, and the
transaction itself, to suggest that they needed advice, and needed to be told
this in
clear terms. But it also needs to be considered how they actually presented to Mr
Roche, and I have discussed this already.
If a client wishes to present themselves as
in control and as having done the necessary investigation, it cannot be that a solicitor
is required to pierce through that façade and ensure financial advice is taken.
[88] In my view Mr Roche's actions were appropriate
to the facts of the case. He
queried why they were buying the motel in Taumarunui; he asked if Mr Hewitt had
checked occupancy rates,
cashflow and outgoings; he advised them to get advice
from an accountant about the figures, and when told it was not needed, queried
that
again. He told the Hewitts to get an independent valuation.
[89] The issue is not whether more could have been said, but
whether Mr Roche's
actions were inadequate to the point of being negligent, or in breach of his contract
of retainer. I find they
were neither. I have earlier held that the conduct of Mr and
Mrs Hewitt pointed away from the idea that they were relying on Mr
Roche; the
whole course of events suggested they wished his role to be minimal and in those
circumstances, the plaintiffs have not
proved that Mr Roche failed in his oblgiations
to them.
[90] Before leaving Mr Roche's actions, I should comment on the turnover
warranty. There was an error in the warranty as expressed on the face of the
agreement for sale and purchase. The agreement described
the warranty's figures as
relating to the tax year April 1998 to March 1999. In fact the warranty figure was
the turnover amount
for the calendar year 1998. There was, however, no evidence
that this error was of any significance. More generally, neither Mr or
Mrs Hewitt
testified that they were under any misapprehension as to what a turnover warranty
was, or that they needed assistance
to understand it. Accordingly, I hold that the
omission of Mr Roche to explain the turnover warranty was of no effect.
[91]
For completeness I need to comment upon the proposition underlying this
claim, namely that any pre-settlement inquiry into the documentation
would have
shown significant problems with the figures. I record that the evidence leaves me far
from satisfied that this is the
case.
[92] There were argued by the plaintiffs to be two sets of figures those contained
in the real estate brochure, and those found in Mr Calvert's records. During
the trial
these latter records, which were included in the agreed bundle but under objection,
were put to Mr Calvert for him to confirm
what they were.
[93] In general, the records were Mr Calvert's GST returns, and GST calculations
over the time periods dealt
with in the real estate brochure. There were also various
other financial sheets. The plaintiffs wished to show from these documents
that
there was a variation between the two that in effect meant the real estate brochure
figures on which the Hewitts were basing
their purchase were incorrect.
[94] Mr Calvert was called by the plaintiffs. He explained that the other figures
and records
included information about other businesses as well as the Spa Motel. I
saw no reason to doubt this evidence.
[95] The plaintiffs
called Ms Voerman, both to explain her dealing with Mr
Calvert on behalf of the plaintiffs, and to give expert evidence. Mr Casey
objected
to the latter on the basis that Ms Voerman was neither an expert nor had sufficient
independence. I allowed the evidence
to be given on the basis that the objections
would be considered in relation to the weight to be given. With hindsight I am of the
view that the objection was well taken and I should have excluded that part of her
evidence from the outset, but in the end nothing
turns on this.
[96] Ms Voerman is an experienced financial adviser and book-keeper. I do not
use that latter term in a pejorative
sense, but to reflect that she has not completed her
university qualifications, and is not a registered accountant. She has no publications
to her name, nor does she hold professional memberships or appointments. She has
had no teaching or presenter roles in any seminars
or like events. She had, as noted,
acted for the Hewitts, had sought rent variations, and had expressed opinions in the
course of
that on the adequacy of the professional advice the Hewitts received.
[97] Ms Voerman's opinion evidence related first to the
steps that should be taken
on the purchase of a property it was partly because I felt her experience allowed
her to comment on
this in any event that I did not prevent her from giving expert
evidence. To the extent that the evidence showed the course of conduct
followed by
the Hewitts was not best practice, I do not consider there would be any dispute.
[98] Ms Voerman also testified as
to the validity of the valuations on which the
Hewitts relied. Having re-read her evidence, and in particular her experience, I am
satisfied she was not qualified to give this evidence and it cannot be accorded any
real probative value. Ms Voerman has no qualifications
in valuation, and the sources
she provided for her evidence were articles freely available on the internet and not in
themselves
suggesting, or purporting to have, particular standing or authority.
[99] The thrust of her evidence was that there are three
different methods by
which one could value a business. These methods produced extremely varied
outcomes, some of which would
suggest the valuation which the Hewitts had was
not correct. Ms Voerman's point was that one should get a purchaser's valuation,
which would use a different method from the vendor and would produce a lower
valuation. This would in turn give one a better bargaining
position.
[100] Again, it can be observed that it would have been wise for the Hewitts to get
their own valuation. However, they
chose not to and the valuation they relied upon
was by an academically well-qualified registered valuer. It was a valuation
expressly done on an open basis. In other words, on its face it purported to be a
valuation to whoever wished to rely on it. The
evidence given by Ms Voerman did
not lead me to conclude the valuation was not reliable. Accordingly, on the
evidence, it
appeared to me the Hewitts had a valid valuation which supported the
purchase price. I was also not satisfied that the financial figures they had been given
were incorrect.
[101] The approach by the plaintiff to this whole issue was, in my view,
unorthodox. For the record I note that during closing
I was invited by Mrs Simes to
receive from her an analysis of the various documents that Mr Calvert had been
referred to. It was
said that because he had confirmed what the documents were, it
was open to the Court to peruse them for itself and determine that
they illustrated
that the turnover warranty, and the figures in the real estate brochure, were
inaccurate. I declined to do so, and
advised Mrs Simes I would record this refusal,
together with reasons, in the judgment.
[102] In my view, any such analysis must
be the subject of evidence. It is only by
that route that the other party may have an opportunity to test the analysis. It is not
for the Court to purport to analyse what the figures mean. Such analysis could not
be tested by the defendant and could be flawed.
It was, with respect, evidence that
Ms Voerman should have given, rather than the valuation evidence she did give.
Conclusion
[103] Both causes of action fail. I find that Mr Roche was not negligent. I accept
that the scope of his retainer included the obligation
to advise his clients to seek
assistance from other people in relation to their purchase. However, I find that on
the facts what
he did was sufficient to meet his obligations. I also record that I was
not satisfied on the evidence that Mr and Mrs Hewitt were
seeking anything from Mr
Roche other than what might be termed a basic conveyancing job. I also consider
that they acted in a manner
which was intended to, and did, discourage him from
assuming any obligation beyond that, and to convey the impression they were in
control of matters. Finally, although not essential to the resolution of the case, I
record I was not satisfied on the evidence that
the information on which the purchase
was made was flawed. It is not necessary for me to otherwise make any assessment
of why the
enterprise failed.
[104] At the request of the parties costs were reserved.
______________________________
Simon France J
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