Appleton v Tauranga Law HC Tauranga CIV 2010-070-385 [2011] NZHC 1981 (12 December 2011)

Last Updated: 6 February 2012

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

_{CIV 2010-070-385}

BETWEEN JOHN APPLETON AND NATALIE MARIE RYAN AS TRUSTEES OF THE APPLETON FAMILY TRUST

First Plaintiff

AND JOHN APPLETON Second Plaintiff

AND TAURANGA LAW Defendant

AND ANDREW PAUL CLARK Third Party

Hearing: 5-8 September 2011

Appearances: D W Grove for plaintiffs

P J Napier and K Shanks for defendant

S Grant for third party

Judgment: 12 December 2011

_{JUDGMENT OF ALLAN J}

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm on Monday 12 December 2011.

Solicitors/counsel :

Ellis Law, Auckland [e-mail]

D Grove, Auckland [e-mail]

Keegan Alexander, Auckland [e-mail]

_{S A Grant, Auckland [e-mail]}

APPLETON AND RYAN AS TRUSTEES OF THE APPLETON FAMILY TRUST V TAURANGA LAW HC TAU CIV 2010-070-385 12 December 2011

Introduction

[1] This is yet another case arising out of the collapse of the Blue Chip Group of companies, albeit some of the worst features of certain Blue Chip schemes are absent here. In 2004, Mr Appleton entered into an agreement to purchase an apartment in Auckland from a company called Rockfort Ltd, which was part of the Blue Chip Group. The agreement was signed without legal advice.

[2] Subsequently, Mr Appleton instructed Mr K N Olivier, a Tauranga solicitor, practising under the name “Tauranga Law”. Mr Olivier provided a letter of advice. Mr Appleton paid the deposit, having raised money through his family trust for the purpose.

[3] Several years went by. The apartment was never constructed. The Blue Chip Group agreed to refund the deposit but nothing was actually paid. Ultimately the Blue Chip Group collapsed. Mr Appleton could not recover his deposit. He now sues Mr Olivier. He claims the advice he received was inadequate, and that had he received proper advice he would never have paid the deposit and would have cancelled the agreement.

[4] Mr Appleton claims from Mr Olivier $112,407.08 together with interest thereon, and general damages of $10,000.

Background

[5] This was not Mr Appleton’s first dealing with the Blue Chip Group. In 2002 he purchased an investment property which was rented to a tenant on a rent to buy basis. Mr Appleton experienced no difficulty with that transaction, and indeed was pleased with his investment.

[6] In 2003 he was contacted by a Mr John MacClure, the Blue Chip agent with whom he had dealt the previous year. Mr MacClure suggested it was time for a second investment. An apartment in a block to be constructed in Turner Street, Auckland, was identified as an appropriate vehicle. Mr MacClure recommended that

the defendant be instructed to act, because he was familiar with the Blue Chip investment portfolio. Mr Appleton was given to understand that Mr Olivier was regularly instructed in Blue Chip matters, given his familiarity with the Blue Chip documents.

[7] Mr Appleton signed an agreement for sale and purchase on 23 April 2004 in Mr MacClure’s presence (the agreement is dated 19 April 2004 which is probably a mistake, but nothing turns on that). Under the agreement Mr Appleton bought Apartment 506, 18-20 Turner Street, Auckland from Rockfort Ltd for $356,896. The deposit was to be $101,910. Mr Appleton intended that his family trust would ultimately be nominated as the purchaser of the apartment, and provision for that was made accordingly in the agreement. It was intended that the trust would be the borrower for the funds intended to finance the purchase.

[8] The last page of the agreement bears, under the heading “Vendor Solicitors”, a stamp which provides the names of Tauranga Law and Kevin Olivier. It is common ground that this stamp had been provided to the Blue Chip Group by Mr Olivier to assist administratively in providing details of the purchaser’s solicitor.

[9] Two days later, on 25 April 2004, Mr Olivier received notification of the agreement by e-mail from Blue Chip,. The e-mail contained full details of Mr Appleton’s contact information, brief details of the transaction, a reference to the fact that this was Mr Appleton’s second Blue Chip investment, and a concluding paragraph that read:

Kevin – thank you for attending my client --- or now our mutual client.

[10] Given that 25 April was Anzac Day, it is possible that Mr Olivier did not receive the e-mail until the following day, but again nothing turns on that.

[11] On 28 April 2004, Walters Law, acting for the Blue Chip Group, wrote to Tauranga Law. It is common ground that Mr Olivier received the letter on 29 April. In their letter, Walters Law advised:

... that we act for the vendor in the above transaction and note that you act

for the purchaser.

[12] The letter enclosed the original agreement for sale and purchase, together with a diagram to illustrate the transaction, a copy of a tax opinion, two invoices and a copy of a deed of lease. The letter was headed “Rockfort Ltd to John Appleton – Unit 506, 18-20 Turner Street, Auckland”. Accordingly, by 29 April 2004, Mr Olivier had received the preliminary e-mail of 25 April 2004 and then formal confirmation of the transaction from Walters Law.

[13] Mr Olivier did nothing to contact Mr Appleton following receipt of the

25 April e-mail, or the 28 April letter with its enclosures.

[14] On 24 May 2004, the Bank of New Zealand sent loan documentation instructions direct to Tauranga Law. At this point Mr Olivier decided to contact Mr Appleton for the first time. Having received confirmation from Mr Appleton by telephone that he was to act, Mr Olivier wrote to Mr Appleton on 31 May 2004. The letter lies at the heart of this proceeding and it is necessary to reproduce it in full.

RE: Purchase by you from Rockfort Limited of Unit 506, 18-20 Turner

Street, Auckland

Bank of New Zealand loan to the Appleton Family Trust

Trustees: John Appleton and Andrew Paul Clark

Guarantor: John Appleton

We confirm having received from Walters Law instructions to attend to the above transaction on your behalf and take this opportunity of thanking you for the instruction.

We confirm that the agreement of sale was signed by J Appleton without legal advice from ourselves and that you may nominate a LAQC to take title.

We note that settlement of Unit 506, 18-20 Turner Street, Auckland has provisionally been set down for 31 August 2005 and that you have contracted to pay the deposit of $101,910.00 immediately. In condition 16 the vendor states that 31 August 2005 is an estimated date and that the vendor will not be liable for any delays beyond that date whatsoever.

The usual deposit for a transaction of this nature is ten per centum (10%) or

$35,689.60 and you have contracted to pay a deposit of $101,910.00.

The major risk in this transaction prior to settlement (31 August 2005 or later if there are delays) is

If the vendor, Rockfort Limited, is liquidated or

The developer is unable to complete the building and Rockfort

Limited is unable to take title.

You/the LAQC would be a concurrent creditor and may then lose the entire deposit.

We note that in terms of clause 14 of the agreement for sale and purchase, the vendor is to pay to you interest for immediate release of the deposit at 8.5% per annum fortnightly in advance.

We note further that you are obtaining funds to pay the deposit from a loan to The Appleton Family Trust by Bank of New Zealand which loan is secured by an existing mortgage over 5 Tolben Place, Howick, Auckland.

We confirm that once the purchase of Unit 506, 18-20 Turner Street, Auckland has been settled (31 August 2005 or later if there are delays) Bribanc Property Management Limited, a company within the Auckland Residential Property Trust group will manage the property for you. Auckland Residential Tenancies Limited, a company within the Auckland Residential Property Trust group, is the Lessee of Unit 506, 18-20 Turner Street, Auckland for four years.

In terms of clause three of the lease the tenant may by notice in writing to the lessor (you) at least three months before the termination date give written notice of the Lessee’s wish to renew the lease for a further period of four years, provided the Lessee has complied with all its obligations under the lease. There are four renewal periods of four years each and if they are all exercised then the total lease will be for a period of twenty years.

In terms of the fourth schedule of the lease the lessee has a right of first refusal to purchase the property. The lessee’s right of first refusal to purchase the property is also extended to the further terms of the lease.

If the lessee does not exercise its right of first refusal you will then be able to sell the property but such sale will be subject to the lease which then has a potential total term of 20 years if all the renewals are exercised by the lessee.

The rental from the property being acquired will be utilised to service the loan and mortgage that you/the LAQC obtain to finance the balance of the purchase price in addition to the existing loan by Bank of New Zealand for the deposit and any shortfall at any time will be made up by you.

We confirm our advice that

You should inspect the property once it has been constructed (31

August 2005 or later if there are delays) to confirm that the purchase price represents current market value.

Auckland Residential Property Trust advise that an exclusive insurance policy which protects you from tenant default and tenant

malicious damage will be arranged. Please ensure that you obtain a

copy of this policy from Auckland Residential Property Trust. Your managing agent, Bribanc Property Management Limited, will hold the original. The major risk in this transaction after settlement (31

August 2005 or later if there are delays) and once the title is

registered in the LAQC’s name is if the policy is not in place and

Auckland Residential Tenancies Limited (the tenant) is liquidated resulting in you personally having to make the mortgage repayments without the benefit of rental income.

We confirm that we have not advised you regarding your decision to invest in the Auckland property market and that you understand that the projected profit

from the investment will only materialise if Auckland property prices increase as projected.

After settlement (31 August 2005 or later if there are delays) and once we receive the original documentation from Walters Law, the solicitors for the vendor, we will instruct our land agents to register Unit 506, 18-20 Turner Street, Auckland in the LAQC’s name and mortgage in favour of the financial institution that you obtain a loan for the balance of the purchase price from in the North Auckland Registry.

After registration we shall provide you with a copy of the Certificate of Title. The original mortgage and a search copy of the title will be forwarded to the financial institution that you obtain a loan for the balance of the purchase price from to be retained by them in safe custody.

We shall keep you advised. Yours faithfully

Tauranga Law

Kevin Olivier

Principal

(Original emphasis)

[15] Mr Olivier said that he sent this letter to Mr Appleton at his residential address, along with a letter instructing Mr Appleton to see an Auckland solicitor, Mr Kelly, who would witness his signature to the Bank of New Zealand loan documents. It was necessary also for Mr Clark, the third party, to accompany Mr Appleton. This was because the loan from the bank was raised by the Appleton family trust of which Mr Appleton and Mr Clark were trustees. The trust owned Mr Appleton’s residence in Howick, and was accordingly in a position to provide security for the loan.

[16] Mr Olivier prepared a form of resolution for execution by the trustees. The resolution read:

THE APPLETON FAMILY TRUST

MINUTE OF TRUSTEES’ RESOLUTIONS

Date: 4th June 2004

RESOLVED THAT:

1. The Trustees obtain a loan from Bank of New Zealand of $92,310.00 over 5 Tolben Place, Howick, Auckland and lend the proceeds to John Appleton who is the primary beneficiary of the trust to facilitate the purchase of Unit 506, 18-20 Turner Street, Auckland by John Appleton or nominee.

2. The Trustees execute the following bank of New Zealand loan documentation, in their capacity as Trustees of the Trust:

a. Letter of Advice Global Plus $92,310.00

3. The Trustees consider the above transactions to be in the best interests of and for the benefit of the beneficiaries.
   

“John Appleton” “Andrew Paul Clark”

[17] Mr Appleton and Mr Clark duly saw Mr Kelly, who witnessed their signatures to the loan documents and the trustees’ resolution. Mr Kelly was a solicitor with whom Mr Clark had previously dealt. Mr Kelly returned the executed documents to Mr Olivier. Of the loan of $92,310, the amount eventually paid to Blue Chip by way of deposit was $90,065.25. The balance was applied in payment of a bank establishment fee, and various other valuation and solicitors’ fees and disbursements. It is common ground that Mr MacClure of Blue Chip agreed to accept the sum of $90,065.25 as a deposit, in lieu of the figure of $101,910, that was stipulated in the agreement.

[18] It seems that the deposit was paid by Mr Olivier on Mr Appleton’s behalf. He used his firm trust cheque for that purpose. Curiously, the cheque was made payable to Blue Chip, rather than to Rockfort Ltd.

[19] Settlement for the purchase of the apartment was to be on 31 August 2005, although there was provision for deferment if construction was delayed. There were significant delays.

[20] Mr Appleton asked Tauranga Law to make inquiries on his behalf, with a view to cancelling the agreement and obtaining return of the deposit.

[21] On 5 February 2007, Mr Olivier wrote to the Auckland office of Blue Chip, pointing out that settlement was provisionally set down for 31 August 2005, inquiring as to likely settlement date, and asking for confirmation that if settlement was not available within 30 days, the transaction might be terminated and the deposit refunded. There was no reply from Blue Chip.

[22] Mr Olivier wrote again on 19 April 2007. This second letter, sent by e-mail, produced an immediate e-mail response, which advised that Blue Chip “was... currently organising documentation and authorisation to accede to Mr Appleton’s wishes”. A cancellation agreement was prepared by Blue Chip, signed by Mr Appleton, and returned to that company.

[23] Thereafter, various arrangements were made with Blue Chip for repayment, and various promises for repayment were conveyed to Mr Appleton. Attitudes within Blue Chip appear to have hardened later. Eventually, Mr Appleton obtained confirmation, from another solicitor instructed by him, that Blue Chip had cancelled the agreement, but a refund of the deposit was not forthcoming. Ultimately, companies in the Blue Chip Group went into liquidation and the deposit was effectively lost.

The issues

[24] Mr Appleton’s case is that Mr Olivier failed to discharge his professional obligations competently, with the result that the plaintiff continued with a transaction from which he would have withdrawn if properly advised. Mr Grove argues that, on the evidence, there would have been no difficulty in recovering the deposit from the Blue Chip Group had the decision to cancel been taken at a time when competent advice should have been given by Mr Olivier.

[25] The defence case is that Mr Olivier’s retainer commenced at a later point in time than is asserted by the plaintiff, that his advice was competent, and that, in any event, the plaintiff is unable to establish that anything done or omitted by Mr Olivier caused any loss. In short, the defendant contends that Mr Appleton was determined to proceed with the transaction, irrespective of any advice.

[26] The defendant also pleads contributory negligence on the part of the plaintiff, and takes issue with the quantification of the claim for damages which, the defendant

_{contends, includes an impermissible claim for interest upon interest.}1

1 Contrary to the Judicature Act 1908 s 87(1)(a).

[27] Finally, the defendant has joined as third party, the independent trustee of the Appleton family trust, as a third party. The contention is that Mr Clark breached his duty to the trust and its beneficiaries to consider carefully any disposition of trust property, including the raising of a mortgage in order to advance the proceeds to Mr Appleton for the purpose of enabling him to pay the deposit. The defendant argues that Mr Clark, having allegedly breached his duty to the beneficiaries, ought to share liability with Mr Olivier (if the latter is found liable) when both have contributed to the loss suffered.

[28] The issues arising for consideration are accordingly: (a) When did Mr Olivier’s retainer commence?

(b) Was Mr Olivier in breach of his contractual duty to the plaintiff?

(c) Was Mr Olivier in breach of a tortious duty of care to the plaintiff independent of his contractual duty?

(d) Did any breach of duty by Mr Olivier cause loss to the plaintiff? (e) Was the plaintiff guilty of contributory negligence?

(f) In the event that the defendant is liable to the plaintiff, is he entitled to contribution or indemnity from the third party?

The retainer

[29] A person who asserts a contact of retainer bears the onus of establishing both the existence and terms of that contract.2 There is no need for express words; the existence of a contract may be inferred from the circumstances.3 An implied retainer

_{will only arise where, on an objective consideration of all the circumstances, an}

2 _{Young v Hansen [2004] 1 NZLR 37 (CA) at [37].}

3 GE Dal Pont Lawyers’ Professional Responsibility (4th ed, Law Book Co. Sydney 2010) at [3.50].

intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties.4

[30] A useful summary of the factors relevant to the necessary inquiry is to be found in Bartle v GE Custodians,5 where Randerson J, dealing with the issue of when a retainer came into existence, said:

[129] It is common ground that the nature of the duty owed by a solicitor to a client is governed by the express or implied scope of the solicitor’s retainer (Gilbert v Shanahan [1998] 3 NZLR 528 (CA) at 537). When a relationship of solicitor and client exists, there may be concurrent duties in both contract and tort.

[130] The first question to determine is whether a contract of retainer existed between the Bartles and Mr Mathias at any time prior to the signing of the agreement for sale and purchase on 29 September 2006. A contract of retainer may arise either expressly or by implication. As Scott LJ observed in Groom v Crocker [1939] 1 KB 194 (CA) at 222:

The relationship is normally started by a retainer, but the retainer will be presumed if the conduct of the two parties shows that the relationship of solicitor and client has in fact been established between them.

[131] In Dean v Allin & Watts [2001] EWCA CIV 758, [2001] 2 Lloyd’s Rep

249 Lightman J (delivering the leading judgment) said:

[22] ... an implied retainer could only arise where on an objective consideration of all the circumstances an intention to enter into such a contractual relationship ought fairly and properly to be imputed to the parties.

[132] Consideration is not essential since a solicitor acting pro bono for a client also owes a duty of care to the client (Webb Ethics, Professional Responsibility and the Lawyer (2nd ed, 2006) at 5.4). Nevertheless, relevant factors include whether the party is liable for the solicitor’s fees and whether the solicitor has opened a file. Whether a contractual relationship between the parties has existed in the past may also be a relevant factor (Dean v Allin

& Watts at [22]). Of course, none of these factors are determinative.

[31] Mr Grove submits that a contract of retainer came into existence no later than

29 April 2004 when Mr Olivier received the letter from Walters Law of 28 April

2004. That letter advised Mr Olivier that Walters Law acted for the vendor and noted that he (Mr Olivier) acted for the purchaser. The letter had been preceded by

4 _{MacLean v Annan & Co HC Tauranga CIV-2009-470-868, 18 November 2011 at [35].}

5 Bartle v GE Custodians [2010] 1 NZLR 802 (HC).

the 25 April 2004 e-mail which provided Mr Olivier with preliminary advice that he was to be instructed by Mr Appleton.

[32] Mr Napier, on the other hand, submits that mere advice from a third party as to the likelihood of future instructions from a new client, cannot of itself create a contractual relationship between the solicitor and the prospective client. Mr Napier points out that Mr Olivier could not, as at late April, have insisted on being paid by Mr Appleton for any work undertaken without the plaintiff’s express instructions. Mr Napier says that the contract of retainer did not arise until about 24 May 2004, when Mr Olivier, having received loan instructions from the bank, contacted Mr Appleton using contact information supplied by Blue Chip in the first e-mail of

25 April 2004. Mr Napier points to the fact that Mr Olivier had not, even by 24 May

2004, opened a file, and that there had been no prior relationship between the parties.

[33] Mr Olivier was, by April 2004, well aware of Blue Chip, its products and its clientele. He said in evidence that he had acted for between 250 and 300 Blue Chip purchaser clients in all, so he would have been well aware that Blue Chip habitually referred their clients to solicitors who knew the Blue Chip template and documentation, and were accustomed to acting for clients who were participating in Blue Chip related transactions. Mr Grove argues that Mr Olivier must have been also entitled to assume also that it was Mr Olivier’s task to contact him as was necessary. That would be consistent with the arrangement whereby Blue Chip held a stamp with Mr Olivier’s details on it. The stamp impression appeared on Mr Appleton’s agreement.

[34] In my opinion, a contract of retainer arose on 24 May, when Mr Appleton confirmed that he wanted Mr Olivier to act. But it does not follow that Mr Olivier owed no duty to Mr Appleton prior to that.

Duty of care

[35] A solicitor may owe a duty of care in tort even where there is no contract of retainer between the parties. The scope of the tortious duty was explained by Randerson J in Bartle:6

[136] Nevertheless, a duty of care in tort may arise irrespective of any contract of retainer between the parties. Such a duty is not limited to cases of negligent misstatement falling within the narrower cause of action established by the House of Lords in Hedley Byrne v Heller & Partners Ltd

8982 [1963] UKHL 4; [1964] AC 465, but extends more widely to cases where the

defendant’s conduct is such as to enable a court to conclude there has been

an assumption of responsibility for the performance of a task. In some cases this may be a voluntary assumption of responsibility and, in others, a deemed assumption of responsibility where the court finds the imposition of a duty of care is fair, just and reasonable (see the discussion by Tipping J in Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [22] – [32]). If the defendant negligently performs or omits to perform the task then, subject to issues of foreseeability and remoteness, he may be liable for losses flowing from the breach.

[137] Liability of this kind has long been established in the case of a

solicitor’s liability to third parties in cases such as White v Jones [1995] 2

AC 207; Allied Finance and Investments Ltd v Haddow & Co [1983] NZLR

22 (CA); Gartside v Sheffield, Young & Ellis [1983] NZCA 37; [1983] NZLR 37 (CA); and

Connell v Odlum [1993] 2 NZLR 257 (CA).

[138] Dean v Allin & Watts is a helpful decision of the English Court of Appeal elaborating on the circumstances in which a duty of care may be imposed in tort in third party cases. The Court held there was no contract of retainer between the plaintiff and the defendant firm but a duty of care was nevertheless owed by the defendant solicitors to the plaintiff. The solicitors were found to have assumed responsibility for putting in place an effective security for a series of loans which the plaintiff had agreed to make to clients of the defendant firm.

[36] Mr Grove submits that, in the circumstances of this case, Mr Olivier undertook a duty of care to Mr Appleton upon receipt of the e-mail of 25 April 2004. While I disagree that a duty arose at that point, I accept that Mr Olivier was under a duty as from 29 April 2004, when he received a letter from Walters Law to which all of the contractual documents were attached. By that time, Mr Olivier knew that he was being recommended by Blue Chip to investors, by reason of his experience and knowledge of the Blue Chip products and their documentation. He knew also from

_{his experience that it was common for Blue Chip agreements for sale and purchase}

6 Bartle fn 5 at 182-183.

to be signed by investor clients without legal advice. Further, he was aware that clients were being referred to him because of his expertise, and that the likelihood was that he would eventually be retained by persons such as Mr Appleton. Moreover, he was well aware of the highly unusual and risky features of the Blue Chip arrangements. Mr Olivier explained in evidence that his letter of 31 May 2004 was based on a template used by him for advice letters to clients who had purchased from the Blue Chip Group in similar circumstances. In other words, he had previously acted on a number of occasions for clients who had invested in a Blue Chip project carrying similar risks, and calling for detailed and specialised legal advice.

[37] Under cross-examination by Mr Grove, Mr Olivier readily accepted that Mr Appleton’s transaction was risky, and that the documentation was “shoddy”. In my view, quite apart from any question of a formal contract of retainer, Mr Olivier assumed responsibility to Mr Appleton when he received the documents from Walters Law on 29 April 2004, knowing that in all likelihood Mr Appleton would be instructing him, and that he would be expected to look after his interests in the meantime. In those circumstances I consider that a duty of care arose that was independent of the contractual duties associated with the later contract of retainer.

[38] The existence of the tortious duty is important in the context of the provisions of s 225 of the Resource Management Act 1991 (RMA). It is common ground that Mr Appleton’s agreement related to the sale of a lot in a proposed new subdivision that was made before the appropriate survey plan had been approved under s 223 of the RMA. Accordingly, by virtue of s 225, Mr Appleton had the right to cancel the agreement within 14 days. As the agreement was signed on 23 April, the right to cancel under s 225 expired on 7 May. By then, Mr Olivier had had the documents for more than a week, and he had all of Mr Appleton’s contact details.

[39] In evidence, Mr Olivier accepted that he was aware of the provisions of s 225 of the RMA. But he considered it unnecessary to contact Mr Appleton in order to give him an opportunity to cancel the agreement under s 225 if he chose. Mr Olivier considered that, notwithstanding the numerous unsatisfactory features of the contract documents, there was no need for urgency because, in his experience, Blue Chip was

amenable to any request for cancellation by a purchaser, irrespective of the grounds advanced.

[40] Although that evidence might appear somewhat counter-intuitive, it is supported by the evidence of Mr K V Miles, formerly employed by the Blue Chip Group. He confirmed that Blue Chip was acutely sensitive to adverse publicity and that there were numerous instances in which it cancelled agreements and refunded deposits and fees upon request. Blue Chip’s products were in great demand for a significant period. It encountered little difficulty in finding replacement investors, and so took a pragmatic approach to cancellation requests.

[41] While that may be so at a practical level, it cannot in my view provide an adequate explanation for Mr Olivier’s failure to contact Mr Appleton prior to 7 May, in order to apprise him of the risks associated with the transaction, and so to give the plaintiff an opportunity to cancel the agreement under s 225 if he so wished.

[42] Expert evidence was given by three highly experienced property lawyers, each of whom has given evidence in Blue Chip cases on a number of occasions. They were Messrs P H Nolan (for the plaintiff), and R V Eades and I L Haynes (for the defendant). Messrs Nolan and Eades agreed that a competent solicitor would have contacted Mr Appleton prior to 7 May 2004, in order to provide advice as to the risks inherent in the transaction, in time to enable him to consider whether or not to cancel within the 14 day cooling off period.

[43] In my opinion, Mr Olivier’s failure to do that was negligent. I discuss below

whether that negligence was causative of any loss suffered by the plaintiff.

The letter of 31 May 2004

[44] There were some obvious deficiencies in Mr Olivier’s letter of 31 May 2004, which appears to have constituted the only advice given by him to Mr Appleton. Although certain risks were identified and advised upon, there is no, or insufficient, advice in respect of other risks. For example:

The vendor, Rockfort Ltd, was not the registered proprietor, but there is no advice of the difficulties arising in consequence. Moreover, there appears to have been no evidence of an agreement between

_{Rockfort and the registered proprietor;}

Rockfort Ltd was a company with a capital of $100 and no apparent independent substance but there was no advice concerning that aspect, although Mr Appleton’s attention was drawn to the fact that he

_{might lose his entire deposit if the vendor was liquidated;}

Although Mr Appleton’s attention was drawn to the fact that the deposit of $101,910 was almost three times higher than the conventional 10%, there is only a somewhat ambiguous reference to the “immediate release of the deposit” which tends to obscure the reality that the vendor was to be at liberty to utilise the deposit as

_{soon as it was paid;}

There were no plans and specifications and virtually no means of

_{identifying what was being purchased from the vendor; and}

The vendor was not the developer, but a purchaser from the developer. There were no provisions in the agreements which would have enabled a purchaser to compel the vendor or the developer

_{actually to undertake the subdivision and the development.}

[45] There is a dispute as to whether Mr Appleton was in receipt of the letter before he visited Mr Kelly on 4 June 2004 to sign the mortgage documents. Mr Appleton said he did not get it for some days after that visit.

[46] Mr Napier submits that, on the balance of probabilities, he did have the letter before the visit to Mr Kelly, but that in any event, the date of receipt of the letter makes very little difference.

[47] I accept both submissions. The following factors suggest that Mr Appleton did indeed have the letter by the time he visited Mr Kelly:

(a) In the normal course of events the letter would have been received on the following day, or perhaps the day after that. Mr Kelly had his copy by 4 June;

(b) Mr Clark said that prior to his visit to Mr Kelly with Mr Appleton, the latter told him that Tauranga Law was advising him. That suggests that Mr Appleton had received the letter by then; and

(c) The letter of 31 May 2004 was enclosed with a further letter bearing the same date, which also enclosed a copy of Mr Olivier’s letter to Mr Kelly, and a tax invoice. This letter also asked Mr Appleton to arrange with Mr Clark to attend at Mr Kelly’s office. It is, I consider, a logical inference that the arrangements to visit Mr Kelly were made in consequence of the receipt by Mr Appleton of the two letters of 31

May 2004.

[48] In the end, the precise date of receipt of the 31 May letter by Mr Appleton does not matter very much. The question is whether he got it in time to consider his position before paying the deposit. The evidence is that the deposit was paid by Mr Olivier into the Blue Chip bank account on 11 or 12 June. That is almost a fortnight after the letter was dispatched to him. On the evidence, I am satisfied that Mr Appleton had received the letter well before that date, and it was open to him, if he chose, to take further advice in the light of the contents of the letter.

[49] I accept the evidence of Messrs Eades and Haynes to the effect that it was for

Mr Appleton, and not Mr Olivier, to follow up the letter if he chose.

[50] I return to the question of the adequacy of the advice itself. While all three expert witnesses were agreed that the defendant was under no obligation to advise as to the wisdom of the transaction, or to give general investment advice, they do agree that Mr Olivier was obliged to advise on legal risks and deficiencies in the

documents. Mr Nolan said that Mr Olivier was obliged to point out each and every materially adverse feature of the documents. He says further that Mr Olivier ought to have advised the plaintiff not only of his right to cancellation, but also that he should actually exercise that right, unless the agreement could be amended to protect the plaintiff’s interests.

[51] On the other hand, Messrs Eades and Haynes said that the letter was sufficiently strong in its terms, and wide in its scope, to alert the plaintiff to material problems with the agreement and that the advice provided was sufficient to trigger a response from Mr Appleton if he wanted further legal advice.

[52] While I accept the evidence of Messrs Eades and Haynes that a competent solicitor would not feel it necessary to advise on each and every aspect of the contract documents, there were fundamental problems here. They included major issues such as the ultimate availability of title, proper identification of the subject matter of the contract, the lack of deposit security and the absence of any apparent obligation on the vendor to actually carry the development through. In my view, these were material legal issues that ought to have been the subject of detailed advice by Mr Olivier. They were not matters going to the wisdom of the investment from a commercial point of view, which will ordinarily fall outside the purview of a

solicitor’s obligations.7

[53] I consider Mr Olivier to have been negligent in the discharge of his professional obligations pursuant to an implied term in his contract of retainer to exercise reasonable care and skill. So to the extent that Mr Appleton relied on Mr Olivier’s advice (or the absence of it), he is entitled to recover his consequential losses. I turn therefore to the question of causation.

Causation

[54] The plaintiff can succeed only if he can establish, on the balance of probabilities, that he would have acted on competent advice, if proffered. In other

_{words, he must show that the defendant’s failure to give competent advice has led}

7 Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC), at 649.

directly to his loss. He now says in evidence that he would not have proceeded with this transaction had he known that the vendor did not own the property, and that the deposit was being released, rather than held in trust. The reliability of that contention may be tested by reference to his reaction to the 31 May letter, both at the time and at trial.

[55] It is to be remembered that in 2004, when these events were unfolding, the general view of the Blue Chip Group was very different from that which prevails these days. The former enthusiasm for Blue Chip products was described by Mr Olivier in his evidence:8

So you were aware that Blue Chip was making these recommendations and therefore investors would be relying upon you to give advice about the contracts? ... Not necessarily, because in many instances the investors were swept along by the Blue Chip concept. You must remember that at this stage Blue Chip was coming into its pomp, they were about to sponsor the New Zealand gold, they were just about to start sponsoring the Bay of Plenty Rugby, they were listed on the Stock Exchange, they had Jock Irvine and Wyatt Creech jumping onto their board, they were audited by Deloittes or one of those lot, and they had pass marks from McQuarrie Bank. They were

– you know, they were a big company at that stage. They looked like a nice attractive picture, so in many cases the clients coming to us were not

particularly wanting us to advise them specifically on the merits of their transaction, um, to the extent that they were in a position where they

understood that they were taking a risk in the transaction, and that the risk was going to be satisfied if Blue Chip maintained its position and the Blue Chip was at – able to deliver the product they were buying into that stage.

So we didn’t – we had some people who came to us and received a similar letter of advice to what Mr Appleton received and were horrified and

cancelled, and walked away from the transaction. But we had others who came along and said gee, so this is a bit risky. And so yes, this is a bit risky.

It’s basically as strong as what Blue Chip is, and if Blue Chip pop over and go belly up you’re going to lose your money, and then on that basis decided to still continue, because they are facing Blue Chip as the entity at that

particular stage.

[56] Of course, public enthusiasm for the complex and problematic investment opportunities offered by the Blue Chip Group meant that competent legal advice for investors was particularly important. On the other hand, there was the possibility that investment opportunities may have appeared so attractive to some investors that

_{they were determined to proceed whatever that legal advice.}

8 Notes of Evidence, at 64.

[57] This was not Mr Appleton’s first Blue Chip investment. He agreed in evidence that his earlier investment was “going along smoothly”. He also knew that the Blue Chip Group had a solid reputation. He had entered into the present agreement without seeking any prior legal advice.

[58] Mr Appleton accepted that he received Mr Olivier’s letter of 31 May 2004. I have held earlier that, on the balance of probabilities, he would have received it prior to his meeting with Mr Kelly, when the mortgage documents were signed. At that meeting he was accompanied by Mr Clark. Mr Appleton had discussed with Mr Clark his second investment with Blue Chip. Mr Clark said that Mr Appleton was of the view that the investment was sound, and he understood that Mr Appleton had “fully researched the scheme ... John was dead certain he was doing the right thing

...” by proceeding with the purchase, and Mr Appleton was confident that he had “

...done all his homework ...”

[59] Mr Appleton was closely cross-examined by Mr Napier about his reaction to the 31 May letter of advice, and as to his general approach to the transaction. He said that he had not read in full the agreement for sale and purchase signed by him on 23 April 2004; he had merely seen the first page. Similarly, he took little interest in the 31 May letter. Mr Napier reached the heart of the matter with Mr Appleton during cross-examination:9

You didn’t take much notice of the Tauranga Law letter dated 31 May 2004, did you? ... I didn’t feel any undue concerns with it, no.

Slightly it’s not an answer to my question. I’m asking if you took much notice of it... ...No.

No... I felt confident with what I had.

Yes, you didn’t read it carefully did you? ... I didn’t feel that it was pertinent. I felt that my deposit was in the solicitor’s trust account and that I was secure.

[60] In my view, Mr Appleton regarded this second investment with the Blue Chip Group as attractive and secure from the outset. He was influenced by the contemporary reputation of the Blue Chip Group and by his “good experience” with

_{his first investment. He did not feel the need for legal advice before signing the}

9 Notes of Evidence, at 15.

agreement of 23 April 2004. When he received the 31 May letter from Mr Olivier he

took little notice of it because he “ ...didn’t feel it was pertinent”.

[61] But of course it was pertinent. With all its deficiencies, it nevertheless drew Mr Appleton’s attention in stark terms to certain fundamental problems with the transaction. Despite that, Mr Appleton gave the letter little attention because he was confident that this was a good, secure investment. In short, he was enthusiastic about the Blue Chip products, to the point of recommending to Mr Clark that he likewise invest with the group.

[62] I accept Mr Napier’s submission that Mr Appleton had clearly made up his mind to proceed with this transaction, and that he was extremely unlikely to be put off by anything Mr Olivier said or wrote. He was certainly not put off by the 31 May letter, which would have given most investors reason to pause.

[63] Likewise, had Mr Olivier advised Mr Appleton prior to 7 May of his cancellation rights pursuant to s 225 of the RMA, Mr Appleton would nevertheless have proceeded.

[64] Mr Appleton lost his deposit because the Blue Chip Group and Rockfort Ltd ultimately failed. Long before that point, Blue Chip had cancelled the agreement and had agreed to refund the deposit. The mechanics of the refund seemed to have received only desultory attention, the collapse of the Group eventually putting the deposit beyond Mr Appleton’s reach.

[65] The deposit was lost because the Blue Chip Group collapsed. That was the very risk highlighted by Mr Olivier in his 31 May letter. But Mr Appleton chose to proceed anyway, without asking Mr Olivier to elaborate on the advice in the letter.

[66] In my opinion, the plaintiff has not established that the shortcomings in Mr Olivier’s advice caused the loss claimed. I consider that Mr Appleton was determined to proceed with this transaction, come what may, and irrespective of his legal advice. Accordingly, his claim must fail.

Other matters

[67] By reason of my conclusion as to liability, it is unnecessary to consider the questions of contributory negligence and of third party liability to any significant extent. I do however, need to say something about the third party claim because it is relevant to costs.

[68] The defendant joined Mr Clark as third party, on the basis that, as trustee of Mr Appleton’s family trust, Mr Clark was in breach of his duty as trustee by participating in the loan transaction which produced the funds with which Mr Appleton paid the deposit. The defendant asserted that Mr Clark was in breach of his duty as a trustee by failing to give independent consideration to the soundness of the Blue Chip investment scheme. The defendant also claimed that Mr Clark owed a duty of care to the trust and/or its beneficiaries, with the result that, by reason of the existence of concurrent tortious liability, Mr Clark was jointly liable with the defendant to the plaintiff for the losses claimed.

[69] In Fletcher v National Mutual Life Nominees Ltd,10 Henry J held that National Mutual, admittedly a trustee pursuant to a deed of trust, owed a duty of due diligence which, if breached, constituted a breach of trust, but not a tortious breach of statutory duty. Accordingly, National Mutual could not invoke s 17(1) of the Law Reform Act 1936, nor claim contribution at common law, because it was not a tortfeasor.

[70] Mr Napier nevertheless submits that there is no conceptual bar to the existence of concurrent duties in trust and in tort. No authority is cited, and no detailed argument is advanced in support of that proposition. I reject the argument that, in the circumstances of this case, Mr Clark owed a duty of care to the beneficiaries of the trust.

[71] In my view, the claim by the defendant against the third party for contribution could not have succeeded. The third party is therefore entitled to costs against the

_defendant.

10 Fletcher v National Mutual Life Nominees Ltd [1990] 1 NZLR 97 (HC) at 105.

Result

[72] The plaintiff’s claim against the third party is dismissed.

[73] The defendant is entitled to an order for costs against the plaintiff. The third party is entitled to an order for costs against the defendant. Counsel may file memoranda if they are unable to agree.

C J Allan J