Lorenzen v Cullen HC Hamilton CIV 2011-419-301 [2011] NZHC 1685 (23 November 2011)

Last Updated: 28 November 2011

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

_{CIV 2011-419-301}

BETWEEN FRANCIS WALTER LORENZEN AND ALEXANDER HENRY LORENZEN Plaintiffs

AND BRENDAN THOMAS PAUL CULLEN, THOMAS NATHANAEL GIBBONS, JULIE MARGEURITE HARDAKER, PHILLIP GEORGE HARRIS,

AND PHILIP GEORGE HARRIS, JOHN GORDON NEVERMAN, GERARD JOHN RENNIE, DONALD MATTHEW SHIRLEY AND AIDAN HENRY CHARLES WARREN TRADING AS MCCAW LEWIS CHAPMAN

Defendants

Hearing: 22 November 2011

Counsel: DM O'Neill for plaintiffs

MJ Allan for defendants

Judgment: 23 November 2011 at 4:30 PM

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to strike out]

Solicitors: Jon Webb, PO Box 132, Hamilton 3240

Kennedys, PO Box 3158, Auckland 1140

LORENZEN V CULLEN HC HAM CIV 2011-419-301 23 November 2011

The application

[1] The defendants apply to strike out the plaintiffs’ amended statement of claim filed on 8 July 2011.

[2] The application is made in reliance on r 15.1 and s 4 of the Limitation Act

1950. The defendants allege that the three causes of action are frivolous, vexatious or an abuse of process because they are time-barred and cannot succeed. They allege that the third cause of action discloses no reasonably arguable cause of action.

[3] The defendants rely on s 4 of the Limitation Act 1950. Section 4 provides that actions founded on a simple contract or on a tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.

The causes of action

[4] The plaintiffs plead three causes of action:

(a) Breach of contract (failure to lodge a caveat on or before 2 August

2005);

(b) Negligence (failure to lodge a caveat on or before 2 August 2005);

and

(c) Negligence (failure to include a specific term into an agreement for sale and purchase).

The court’s approach to strike out applications involving limitation defences

[5] Rule 15.1 of the High Court Rules provides that:

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.

[6] In Matai Industries Ltd v Jensen,1 Tipping J referred to the decision of the

Court of Appeal in England in Ronex Properties Ltd v John Laing Construction Ltd.2

In summary he observed that:

a) 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;

b) A defendant who believes he has a good limitation defence may, however, either plead the defence and seek trial of the defence as a preliminary issue, or, in a clear case, apply to strike out the plaintiff’s claim on the grounds that it is frivolous, vexatious and an abuse of process;

c) The onus is on the defendant to show that the plaintiff’s claim is

statute-barred;

d) Evidence can be tendered by affidavit; and

e) The Court should be slow to strike out a claim or cause of action altogether in limine, but if the position is quite clear, the defendant should not be vexed by having to go to full trial when the answer is

_{obvious and inevitable.}

1 _{Matai Industries Ltd v Jensen [1989] 1 NZLR 525.}

2 Ronex Properties Ltd v John Laing Construction Ltd [1982] 3 All ER 961.

[7] This approach was approved by Tipping J in the Supreme Court in Murray v

Morel & Co Ltd where he said:3

[33] I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[34] In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the Court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the Court cannot say that the plaintiff’s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time. A plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s 28 applies. A pleading of fraud should, of course, be made only if it is responsible to do so.

Background

[8] The plaintiffs were the registered proprietors of an 8,000 square metre block of land situated on Lorenzen Bay Road, Raglan.

[9] On 28 October 2003 the plaintiffs entered into an agreement for sale and purchase of the property with Craig Rossiter (or nominee) for $270,000 plus GST.

[10] The sale and purchase contract contemplated that the purchaser would subdivide the property and transfer one of the subdivided sections back to the plaintiffs when the subdivision was completed. This was to be done at no cost to the

3 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33]–[34].

plaintiffs, as the value of the section had been taken into account when determining the sale price of the property.

[11] The relevant provision in the sale and purchase contract provided as follows:

18.0 Following completion of the purchasers subdivision of the land, the purchaser agrees to transfer back to the vendor at no cost to the Vendor, one section in the subdivision of the Vendors Choice. The transfer back of one section has been taken into account in the sale price. Despite this clause, the vendor must transfer the whole of the land on settlement.

...

21.0 A late penalty fee of 12% will be charged on the section value of

$150,000 if title to the section being subdivided off lot 4 has not been uplifted and made available to the vendors being the Lorenzen Bro’s, within 12 calendar months after settlement and possession of lot 4 being the 29th April 2004.

[12] The plaintiffs instructed the defendants who are a firm of solicitors to act for the plaintiffs in respect of the sale.

[13] Mr Rossiter nominated WA and LM Mayall as trustees of the Mayall Family

Trust as the nominated purchaser.

[14] The transaction settled on 29 April 2004. A transfer to Mr and Mrs Mayall was registered on 6 May 2004. On the same day, a mortgage was registered against the title to the property in favour of the Bank of New Zealand.

[15] On 3 August 2005 Mr and Mrs Mayall settled a sale of the subject property to Bayview Raglan Ltd. The mortgage to the Bank of New Zealand was discharged and on the same date, a mortgage in favour of Lombard Finance and Investment Ltd was registered against the title.

[16] On 8 April 2005 Mr and Mrs Mayall entered into a deed of assignment with

Mr Richard Harold George. Mr George was a director of Bayview Raglan Ltd.

[17] On 14 October 2005 a mortgage in favour of Basecorp Finance Ltd was registered against the title.

[18] On 18 November 2005 the plaintiffs lodged a caveat against the title. However, that caveat lapsed on 30 October 2009, pursuant to s 145A of the Land Transfer Act 1952.

[19] On 29 April 2011 Lombard Finance and Investment Ltd exercised its right under the mortgage and sold the property. At that time, the subdivision was not completed prior to sale.

[20] On 8 March 2011 the plaintiffs filed this proceeding.

The notice of opposition

[21] In summary, the plaintiffs plead:

(a) The cause of action in contract accrued on 2 August 2005. Until that time, the breach of contract was able to be remedied. It was only when the Lombard Finance and Investment Ltd mortgage was registered against the title that the breach could to be remedied;

(b) The cause of action in negligence due to failure to lodge a caveat on or before 2 August 2005 only became apparent and was only reasonably discoverable by the plaintiffs when the Lombard Finance and Investment Ltd mortgage was registered and, therefore, the cause of action did not accrue until 2 August 2005;

(c) The second cause of action in negligence by failing to include a term in the assignment that Mr RH George and any mortgagee acknowledged that a caveat would be registered in priority to any other mortgagee protecting the lender’s interests, could only have been remedied up until the time when the Lombard Finance and Investment Ltd mortgage was registered, and therefore the cause of action did not accrue until 2 August 2005.

Analysis – the contract cause of action

[22] What is required is a determination of when this cause of action accrued. In order to find that date, it is necessary to ascertain the relevant terms of the contract, as well as the date on which the alleged breach occurred.4

[23] The plaintiffs plead that the defendants were retained to provide them with legal advice in relation to the sale of the land and to protect their interests in land pursuant to the agreement.5

[24] In essence, the pleading is that the defendants were required to take all of the steps that a reasonably careful solicitor would take in respect of the agreed terms for the transfer of the lands to Mr Rossiter’s nominee, WA and LM Mayall, and to protect the plaintiffs’ beneficial interest that they retained in a part of the land.

[25] The protection of the plaintiffs’ beneficial interest in part of the land needed to be provided for at the time the plaintiffs transferred title to the land to Mr and Mrs Mayall. The plaintiffs’ legal interest, as recorded on the land transfer title, ceased at that point in time. What is alleged, and what was required, was that a caveat was registered against the title when the transfer was registered.

[26] The defendants breached their agreement with the plaintiffs when they failed to register a caveat. That breach occurred on 6 May 2004 and at the time of registration of the transfer. That, then. is the date when the first cause of action accrued.

[27] The facts are similar to those considered by the English Court of Appeal in Bell v Peter Browne & Co.6 Mr Bell transferred legal title to a property to his ex- wife on the basis that he would share in the proceeds of sale at some future time. His solicitors failed to register the equivalent to the New Zealand caveat to protect his

_{interest. The property was sold without his knowledge. Mr Bell was unable to}

4 _{Bell v Peter Browne & Co (a firm) [1990] 3 All ER 124 at 126.}

5 _{Amended statement of claim at [18].}

6 Bell v Peter Browne & Co (a firm), above n 4.

recover the proceeds of sale from his ex-wife. Mr Bell sued his solicitors for breach of contract and negligence.

[28] The Court of Appeal held that both causes of action, in contract and in negligence, accrued when the property was transferred to Mr Bell’s wife and when the solicitors failed to promptly register the equivalent to the New Zealand caveat.

[29] The Court of Appeal further held that the matter was not altered by the fact that Mr Bell had a continuing contract with the solicitors and that the breach remained remediable for many years. The court said the failure to make good an omission does not constitute a further breach. It said:

A remediable breach is just as much a breach of contract when it occurs as an irremediable breach, although the practical consequences are likely to be less serious if the breach comes to light in time to take remedial action. Were the law otherwise, in any of these instances, the effect would be to frustrate the purpose of the statutes of limitation, for it would mean that breaches of contract would never become statute-barred unless the innocent party chose to accept the defaulting party’s conduct as a repudiation or, perhaps, performance ceased to be possible.

[30] Ms Allan submitted that the breach was probably not remediable after 6 May

2004 because of the subsequent mortgages that were registered. Short of the subsequent mortgagees having notice of the plaintiffs’ interest in the land, that submission is sound.

[31] Accordingly I conclude that the cause of action in contract accrued on 6 May

2004, the date of transfer. This proceeding was not issued within six years of that date and the contract cause of action is therefore barred by s 4 of the Limitation Act

1950.

Negligence cause of action – failure to lodge caveat on or before 2 August 2005

[32] A cause of action in negligence does not exist until, first, there is an act or omission of the defendant that breaches a duty of care owed by the defendant to the plaintiff; and second, the plaintiff actually suffers the loss or injury caused by that

breach.7 The Supreme Court has emphasised that the cause of action does not exist without the existence of loss or injury. For that reason, for limitation purposes, the cause of action occurs when the loss or injury occurs.

[33] Ms Allan invited the court to proceed on the basis that a breach of duty can be assumed for the purpose of this application. Accordingly, it is necessary to determine when loss or injury was suffered by the plaintiffs.

[34] Here, the plaintiffs contracted to transfer their legal title in the property to Mr Rossiter, or his nominee, in exchange for an equitable interest in a part of the land and, on completion of the subdivision, a legal interest in one of the sections of the land. The equitable interest is clearly less secure without some form of registration than the previous legal title.

[35] In Bell v Peter Browne & Co (a firm) the court said:8

Due to the solicitors’ negligence, Mr Bell parted with his legal estate in the property conveyed to his wife in exchange for an equitable interest in the proceeds of sale. That equitable interest until secured by a charge or acknowledged by a deed of trust was clearly less valuable to Mr Bell. Unprotected against the interests of third parties by registration of a charge or of a caution, it was less valuable still.

[36] And:9

In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 Mr Bell had learnt of his solicitors'’ default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the solicitors the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.

[37] The approach was approved by the Supreme Court in Thom v Davys

_Burton.10 _{What is apparent is that an immediately quantifiable damage was present,}

7 _{Thom v Davys Burton [2008] NZSC 65; [2009] 1 NZLR 437 at [38].}

8 _{Bell v Peter Browne & Co (a firm), above n 4 at 134, Beldam LJ.}

9 _{Ibid at 128–129, Nicholls LJ.}

10 Thom v Davys Burton, above n 7.

even though further damage arising from the flawed transaction remained contingent.

[38] Here, the plaintiffs’ loss was suffered on the registration of the settlement of the original sale of the property. At that point, the plaintiffs got something less valuable than they should have obtained, ie an unprotected equitable interest rather than a protected equitable interest in the portion of the land that was to be transferred back.

[39] Mr O’Neill submitted that the loss was not reasonably discoverable and therefore that time did not begin to run at that point. I reject that submission. The Supreme Court has held that there is no general principle of reasonable discoverability for limitation purposes outside certain recognised exceptions.11

[40] I conclude that the negligence cause of action, pleaded as the second cause of action, accrued on 6 May 2004. This proceeding, which was filed on 8 March 2011, is accordingly barred by the operation of s 4 of the Limitation Act 1950.

Negligence – failure to include a specific term into an agreement for sale and purchase

[41] Paragraph 28 of the amended statement of claim pleads:

The Defendants at the time of the agreement should have included a specific term in the agreement that if there was an assignment of the agreement to a third party then that third party and any mortgagee acknowledge that a caveat would be registered in priority to any other mortgage protecting a lender’s interest.

[42] By definition, the default is alleged to have occurred when the agreement itself was entered into on 28 October 2003. The loss, however, also flows from the time of registration of the transfer and the fact that without a caveat, the value of the equitable interest to be retained by the purchaser was reduced. Ms Allan submitted that the cause of action accrued as of the date of the agreement itself. I need not

_{necessarily find that, because:}

11 Murray v Morel & Co Ltd, above n 3 at [38].

(a) by the time the transfer was registered the loss in value of the equitable interest was clear; and

(b) the loss for the purposes of the negligence cause of action had arisen.

Therefore, as with the second cause of action, this cause of action is statute-barred by the operation of s 4 of the Limitation Act 1950.

Alternative attack on third cause of action

[43] Ms Allan submitted that the first cause of action disclosed no reasonably arguable cause of action.

[44] The applicable principles where a court is required to analyse whether there is a reasonably arguable cause of action were summarised in Attorney-General v Prince and Gardner12 and endorsed by the Supreme Court in Couch v Attorney-

General.13 Ms Allan submitted that the relevant clause would not have prevented the

assignee purchaser from granting a mortgage over the property immediately on settlement in priority of the plaintiffs’ interests in the property. If that occurred, there would be no protection all.

[45] There is no need to analyse this alternative ground. It seems to me that were it not for limitation issues, it would be possible to plead a specific cause of action in negligence alleging that there had been a breach of duty of care in the failure to lodge a caveat to protect the retained equitable interest. In view of the fact that amendment is possible, it would not be appropriate to strike out the cause of action.14

[46] The conclusion that I have reached on the papers and the oral submissions is that the three causes of action, as currently pleaded, are all barred by s 4 of the Limitation Act 1950. Mr O’Neill, however, raised a matter that is not referred to in

_{the documents. He advised that the defendants had continued to act for the plaintiffs}

12 _{Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267.}

13 Couch v Attorney-General [2008] NZSC 45; [2008] 3 NZLR 725.

throughout and, in fact, up to and including the time of the breach of the Lombard Finance and Investment Ltd mortgage. He submitted that it might be possible to amend the statement of claim to allege breach of a contract of retainer. I canvassed the possibility of a short adjournment being granted with a view to his providing me with the proposed amendment. He indicated that he did not feel confident about completing this on the day of the hearing.

[47] The possibility of a problem being cured by an amendment was referred to in Marshall Futures Ltd (in liq) v Marshall.15 Some caution, however, is required. If the amendment is, in effect, a new cause of action, care would have to be taken that it is not barred by a limitation defence and by the operation of r 7.77(4) of the High Court Rules. Particular care would need to be taken to ensure that the new pleading did not involve something essentially different from that which had been pleaded earlier.16

Conclusion and directions

[48] Accordingly, I order:

(a) The causes of action as presently pleaded in the amended statement of claim are barred by s 4 of the Limitation Act 1950;

(b) Out of an abundance of caution and in case any of the causes of action can be amended so that all, or some, are saved from the limitation bar, I provide the plaintiffs with the opportunity of giving the court such amendments, by memorandum which must be filed and served within

10 working days of the issue of this judgment;

(c) The defendants shall file and serve a memorandum that advises the court whether the amendment is opposed and, in particular, the

_{grounds for opposition and whether, in the event that the amendment}

15 _Ibid.

16 Chilcott v Goss [1995] 1 NZLR 263.

is granted, that the defendants still seek an order striking out the statement of claim based on the limitation defence within 28 working

_{days of the date of this judgment.}

Costs

[49] In view of the position I have reached I reserve costs.