Lynds v Fitzherbert Rowe HC Palmerston North CIV-2007-454-413 [2011] NZHC 28 (3 February 2011)

[1] The plaintiffs, Mr Jeffrey Lynds (“Mr Lynds”) and Newbury Racing and Breeding Ltd (“Newbury”), have brought these proceedings against the defendant, Fitzherbert Rowe, claiming breach of fiduciary obligations and equitable fraud.

(a) An application by the defendant for further and better particulars of the plaintiffs’ quantum claim; and

(b) An application by the plaintiffs to set aside privilege in respect of certain third-party documents. Two further applications by the defendant, relating to further and better discovery and security for costs, were dealt with by consent on the day of the hearing of these matters. Orders were made accordingly, these being outlined in a Minute I issued dated 25 January 2011.

[3] The defendant is a long-standing legal partnership practising in Palmerston North. Mr Lynds was a client of the defendant firm from 1998 to 1993. In 1989, Mr Lynds formed a partnership named Newbury Park Partnership (“the Partnership”) together with a Mr Robin Mitchell (“Mr Mitchell”) a dairy farmer and four other partners one of the purposes for which the Partnership was formed was to purchase and syndicate two stallions at stud. In April 1989, the Partnership applied to Pegasus Leasing Limited for finance in connection with the purchase and syndication of the stallions (“the Pegasus Facility”). The defendant provided legal services to the Partnership in relation to these matters.

[4] The Pegasus Facility totalled $1,346,000 and was secured by guarantees from Mr Lynds and Mr Mitchell, and by two security instruments over the stallions. It appears that, shortly before the security documents were executed, Mr Mitchell encountered problems with separate funding arrangements in respect of his dairy farming operations. The plaintiffs say Mr Mitchell instructed the defendant to act for

him in relation to those issues but the defendants dispute this. In 1992, the second plaintiff took over the assets and the business of the Partnership.

[5] The plaintiffs now allege that the defendant failed to disclose material information to Mr Lynds, that it concealed the financial position of Mr Mitchell and his interests from Mr Lynds, and/or that it failed to advise Mr Lynds to seek independent legal advice. In essence, the plaintiffs claim that Mr Lynds would not have entered into the Pegasus Facility if the defendant had properly and fully advised him of the true position, and that the defendant’s conduct caused a total loss to the plaintiffs of $3,814,000.

[6] The first application for consideration is the defendant’s application for further and better particulars. Under this, outlined in their third amended statement of claim the defendant seeks further particulars in relation to the plaintiffs’ quantum claim. Paragraph 25 of this amended statement of claim sets out the plaintiffs’ pleading on alleged losses in the following terms:

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1	Loan repayments from bank a/c	$ 768,000
2	Loan repayments from new loans	$ 444,000
3	Loan repayments from Trust accounts	$ 122,000
4	Total Loan repayments to Pegasus	$1,334,000
5	Loan repayment to Talking Point	$ 90,000
6	Interest payments to Pegasus	$ 313,000
7	Non-resident withholding tax	$ 23,000
8	Interest payments to National Bank	$ 77,000
9	Interest payments to B Meo/Capivich Holdings	$1,007,000
10	Total loan servicing costs	$1,490,000
11	Funds taken by Mitchell	$ 175,000
12	Stallion expenses	$ 660,000
13	Legal and financing costs	$ 65,000
	Total Loss	$3,814,000

[7] It seems that these damages claimed are alleged to represent amounts which the plaintiffs were required to repay under the Pegasus Facility as well as other

expenses incurred in the course of the overall project. The plaintiffs also seek exemplary damages of $50,000 and interest of $4,337,000.

[8] The defendant submits that the pleading is defective because it does not give sufficient particulars to inform the Court and the defendant of the plaintiffs’ actual losses. More specifically, the defendant seeks further particulars as to the bank accounts referred to; the loan repayments that were made, including the dates of these repayments and the names of the respective payer and payee; the “new loans” that were entered into by the plaintiffs; the interest payments; the funds allegedly taken by Mr Mitchell; and the claimed stallion expenses. The defendant also seeks schedules itemising all income and/or capital gains derived from the stallions, and a breakdown of the plaintiffs’ interest claim under the Judicature Act 1908.

[9] The plaintiffs oppose the defendant’s application on the ground that the particulars sought are in the nature of evidence. They submit that the application is premature and should be adjourned to await the outcome of further discovery that is about to be provided. They argue that “it is almost certain” that further discovery will give much of the information sought. It is also suggested that any outstanding matters as to quantum can be determined between the parties, and that answers will be provided in any event once briefs of evidence are exchanged.

[10] Rule 5.26 of the High Court Rules provides that a statement of claim must show the general nature of the plaintiff’s claim to the relief sought; and that it must give “sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances” to sufficiently inform the Court and the defendant of the plaintiff’s cause of action. In addition, r 5.32 specifies that a statement of claim that seeks the recovery of a sum of money “must state the amount as precisely as possible”. The effect of this rule is described by McGechan at HR5.32.02 in the following way:

The obligation is to state the amount sought “as precisely as possible”. This may vary from minute precision in an action to recover a loan plus interest, to pure intuition in a claim for general damages for defamation. Difficulties can arise where entitlement to particulars of damage can be alleged, but at the time the statement of claim is filed insufficient information is available for precise quantification. One option is to estimate the figures concerned, in the knowledge that such can later be amended when more information emerges. Others are to allege damage in “amounts to be notified

after discovery”, and to claim in the first instances “an inquiry as to damages”. Whether or not strictly permissible in terms of the rule, both the latter have been recognised in practice as acceptable stopgap measures.

[11] A helpful summary of the principles relating to the particularisation of pleadings can be found in Barker J’s judgment in Re Securitibank Limited (No 25) HC Auckland A355-81, 10 October 1983, where he said:

The function of particulars is to carry into operation the over-riding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, incidentally, to reduce cost. Their function has been stated inter alia:

(a) To inform the other party of the nature of the case he has to meet, as distinguished from the mode in which the case will be proved;

A certain amount of detail is necessary in order to ensure clearness. What particulars need to be stated depend on the facts of each case.

17, the Court of Appeal emphasised the importance of pleadings that are properly particularised, describing such pleadings as “an essential road map for the Court and the party”, and “an outline of the case advanced, sufficient to enable a reasonable degree of pre-trial briefing and preparation”. The Court noted that discovery and interrogatories could only be an adjunct, not a substitute for pleading, and that it was the pleading, not briefs of evidence, which established parameters of the case.

[13] Although the significance of properly particularised pleadings is self-evident, similarly it is important to confine pleadings to what is material. On this, the defendant refers to BNZ Investments v Commissioner of Inland Revenue HC Wellington CIV-2006-485-2084, 4 February 2008 at [45], where Miller J sounded a word of warning in respect of “over pleading”:

[45] The temptation to insist upon excessively refined pleadings is to be resisted as unnecessary and wasteful of costs and Court time. That is particularly so in complex cases, where over-pleading can obscure rather than clarify the issues. Case management should ensure that each side is fairly informed of the case that must be met. It can extend to requiring leading counsel to agree a list of issues. Evidence can be exchanged in good time before the trial. ...

[14] The defendant’s present application discloses two principal concerns in relation to the plaintiffs’ pleading of losses. The first of these concerns relates to the level of detail that has been provided of the alleged repayments and expenses. The defendant submits that para 25 provides a broad description of the plaintiffs’ losses without specifying any dates that the alleged repayments were made, the nature of these payments, and the details of the payer and the payee involved. In paras 25.2 and 25.3, for example, the plaintiffs plead that loan repayments were made from “new loans” and “Trust accounts”, without providing any particulars in relation to these “new loans” or “Trust accounts”, and without clarifying how the defendant is alleged to be liable for these payments. The defendant accordingly submits that the pleading does not comply with r 5.26 because it provides insufficient information to properly inform the defendant as to its alleged liability for the repayments, or the basis of the plaintiffs’ quantum calculations.

[15] I agree with the defendant that the plaintiffs’ pleading in para 25 is deficient. While the pleading specifies an overall amount of alleged losses, as required by r

5.32, little information is given as to the individual items making up that number. Proper particularisation often requires a finely balanced assessment as to the real nature of relevant information, and whether it amounts to a material fact for pleading purposes rather than evidence. This might be particularly so in the context of quantum claims. Nevertheless, it is quite clear here that the plaintiffs’ pleading falls well short of the required standard of particularisation to be expected in a case of this kind. No proper break-down is provided that would allow the defendant to reconstruct the plaintiffs’ general reasoning, or the alleged causal link between the damages sought and the defendant’s conduct. The references to “new loans” and “Trust accounts” are unnecessarily vague, for example, and there is a complete absence of any references to dates, names of parties involved and any other circumstances.

[16] Overall, therefore, I consider that the particulars provided are insufficient to provide a proper outline of the plaintiffs’ damages claim. It is the plaintiffs who are in possession of the relevant information. Given that this is not a case, therefore, where the pleadings depend on information to be discovered by the opposing party, there is simply no reason why the plaintiffs should not be required to plead necessary

particulars before discovery has been completed. For these reasons, I conclude that the defendant is entitled to the bulk of the further particulars set out at paras 5(a) to (j) of its application.

[17] I need to say, however, that not all of the particulars sought should be ordered. In particular, I see no need for the plaintiffs to be required to provide specific bank account numbers, as opposed to details of the holders of each bank account, and every individual date of repayment rather than, for example, repayment amounts over particular periods.

[18] Orders to give effect to these further particulars required are to follow at [37]

[19] The defendant’s second concern focuses on the plaintiffs’ failure to include in their pleadings any earnings or profits gained as a result of the acquisition of the stallions. The defendant submits that it is entitled to have any such earnings or profits deducted from the alleged outgoings in order to provide an overall measurement of the net losses, if any, suffered by the plaintiffs. If this is not done, the defendant argues, the plaintiffs would be asking the Court to provide them with “a windfall”. Reference is made here to Stevens v Premium Real Estate Ltd [2009] 2

The remedy of compensation for breach of fiduciary duty makes good losses resulting from the breach of duty. It must be causally connected with the breach and no more than is necessary to make good the loss, or its effect will be as penalty rather than compensation. ... The purpose of compensation is the same in law and equity.

[20] The defendant asks that the plaintiffs clearly particularise the figures relating to their earnings and gains, to enable the plaintiffs’ overall net losses to be calculated. The plaintiffs seem to think that this would amount to unnecessary particularisation and that discovery can remedy any uncertainties that there might be regarding their loss methodology. Before me, counsel for the plaintiffs gave no indication whether he agreed with the defendant’s argument that damages would have to be calculated on a net loss basis, but suggested that a different approach might possibly apply under the rules of equity.

[21] Although this is not a matter that can be resolved on an application for further particulars, I hold considerable doubts as to the appropriateness of the plaintiffs’ calculations as currently pleaded. It is evident that the plaintiffs’ failure to provide any explanation as to the underlying rationale of their arithmetic has caused some confusion on the part of the defendant. If the plaintiffs are in fact intending to claim damages on a net loss basis, then further particulars are necessary in order to make sense of the figures provided. Para 12 of clause 25 of the plaintiffs’ amended statement of claim makes a total claim for “Stallion expenses” of $660,000.00, but no allowance is provided for any earnings, stud fees, or gross returns from the stallions or their progeny.

[22] This needs to be rectified. An order amended somewhat from that sought in the defendant’s application is to follow at [37](i) and (j) below.

[23] The second application before me for consideration is the plaintiff’s application for an order setting aside a claim to privilege by Mr Michael Emile Lynds (“Mr Michael Lynds”) in his affidavit dated 8 October 2010. Mr Michael Lynds is the brother of Mr Lynds the first plaintiff and a former director of Newbury the second plaintiff. As detailed in his affidavit, Mr Michael Lynds has come into possession of various folders and documents belonging to Mr Robin Mitchell who has now died. He says that he had requested access to the documents from Mr Mitchell’s attorney, Mr Guy Ashton (“Mr Ashton”). In para 82 of the affidavit, he states:

I object to the production of the following documents on the grounds they comprise correspondence (including memoranda, file notes and statements of account) between Robin and/or Judith Mitchell and/or Guy Ashton and the Mitchells’ solicitors and/or counsel (Fitzherbert Rowe, C J Walshaw, Wadham Goodman, Sainsbury Logan & Williams, Buddle Findlay, DLA Phillips Fox, John Moroney, Martin John Hine & Associates, Duthie Whyte, Colin Carruthers QC and Rob Moodie) in connection with the provision of legal advice or assistance and recording, formulating or disseminating legal advice or instructions for the purpose of obtaining legal advice and/or made after the relevant proceeding was in contemplation and for the dominant purpose of enabling the Mitchells or their solicitors and/or counsel to advise or assist in the conduct of his, her or their claim or defence (as the case may be) ...

[24] It appears that Mr Ashton is the “executor in waiting” of Mr Mitchell’s estate, and that he was invited to support the claims to privilege but has declined to do so. For that reason, Mr Michael Lynds has not filed an opposition to the plaintiffs’ application and says that he will abide the decision of the Court.

[25] The application to set aside privilege is made on the grounds that the basis of the claims to privilege is insufficiently particularised; that there is no proper claim to litigation privilege; and that any claim to privilege was waived when the documents were provided to Mr Michael Lynds. This latter ground is at the centre of the plaintiffs’ submissions. The plaintiffs argue that Mr Ashton’s conduct in releasing the documents to Mr Michael Lynds, a third party, is not consistent with the documents being confidential.

[26] This is a slightly unusual situation, in that the person who is in possession of the documents, Mr Michael Lynds, is claiming privilege on behalf of the privilege holder. It is doubtful whether Mr Michael Lynds would qualify as an “interested person” under s 52(1)(c) Evidence Act 2006, which provides that a Judge may make orders as to privileged material “on the application of an interested person other than the person who has the privilege”. In any event, however, a Judge has the power to make such orders on his or her “own initiative”, as stated in s 52(1)(a) and s 53(4).

[27] The plaintiffs submit that the privilege holder in this case is Mr Ashton, as executor or executor in waiting of Mr Mitchell’s estate. They rely on an affidavit from Ms Greenhough, counsel for Mr Michael Lynds, which confirms that Mr Ashton claims to be the executor of Mr Mitchell’s estate. Section 66 Evidence Act

2006 deals with joint and successive interests in privileged materials, and in part provides as follows:

(2) If a person has a privilege conferred by any of sections 54 to 57 in respect of a communication, information, opinion, or document, the personal representative of the person or other successor in title to property of the person—

(b) is not restricted by any of sections 54 to 57 from having access or seeking access to the privileged matter.

(3) However, subsection (2) applies only to the extent that a Judge is satisfied that the personal representative or other successor in title to property has a justifiable interest in maintaining the privilege in respect of the communication, information, opinion, or document.

[28] The defendant raised some concerns whether Mr Ashton is in fact Mr Mitchell’s personal representative. There is no affidavit from Mr Ashton to confirm whether this is the true position. On the other hand, there is also no reason to doubt Mr Ashton’s claim that he is Mr Mitchell’s executor, as confirmed by Ms Greenhough’s affidavit. Although it appears that probate has not yet been granted, Mr Ashton’s conduct is consistent with acceptance of the office of executor: see

generally John Earles and others Dobbie’s Probate and Administration Practice (5th

ed, Butterworths, 2008) at para 25.1. I therefore proceed on the basis that Mr Ashton is the relevant privilege holder for the purposes of this application.

[29] Section 66(2)(a) Evidence Act 2006 provides that “the personal representative ... (of the privilege holder) or other successor in title to property” is “entitled to assert the privilege against third parties”. This confirms the common law position that privilege does not die with the client, but that “[i]t passes to the client’s personal representative or, as to the interest in specific property, to the client’s successor in title”: Gartside v Sheffield, Young and Ellis [1983] NZCA 37; [1983] NZLR 37 at 44. However, this is subject to a new requirement in s 66(3), which requires the Judge to be satisfied that the personal representative “has a justifiable interest in maintaining the privilege...”. There is no indication in the section of what would amount to a “justifiable interest”. As noted in Adams on Criminal Law, however, the Law Commission has provided some guidance on this issue:

Unlike the operation of a joint interest privilege, s 66(3) limits the rights of a personal representative or successor in title of a privilege holder. The representative or successor will only be entitled to the rights set forth in s 66(2) if a Judge determines that he or she “has a justifiable interest” in maintaining the privilege.

Earlier discussions by the Law Commission provide some assistance in understanding when a “justifiable interest” does or does not exist. Preliminary Paper 23, para 180 gave one example when a personal representative of a deceased person may not be entitled to assert privilege against a third party (in terms of s 66(2)(a)), namely when the Court is hearing a claim under the Family Protection Act 1955. In the

Commission’s view, the personal representative should have to disclose communications between the deceased and his or her lawyer. This is because of the personal representative’s duty to use the otherwise privileged information for the benefit of all persons interested in the estate.

[30] The plaintiffs have not made submissions on s 66 Evidence Act 2006. It is not clear whether s 66 applies here, or whether the matter ought to be dealt with under common law principles: see generally A v Attorney-General [2009] NZCA

2009 at [28]-[35]. Mr Michael Lynds’ affidavit does not specify when the documents in question came into existence, and there is no information before me as to the date of Mr Mitchell’s death (and hence the subsequent conferral of privilege on Mr Ashton).

[31] Mr Ashton is not asserting any privilege here. Although the Court can make orders regarding privileged material on its own initiative, there is no evidence but Mr Michael Lynds’ affidavit that the documents are in fact privileged. The basis for Mr Michael Lynds’ belief that the documents are privileged is not made particularly clear. Moreover, if s 66(3) Evidence Act 2006 is applicable, the documents will not be privileged unless a justifiable interest can be shown. In the circumstances prevailing in this case, I cannot be satisfied that the documents are protected by privilege, and I consider that the plaintiffs’ application should succeed on that basis.

[32] That effectively disposes of the plaintiffs’ application before me which is to succeed. Despite this, my reasoning in reaching this conclusion differs from the way in which the plaintiffs suggested I should approach the matter. According to the plaintiffs, the relevant issue is that, assuming the documents were privileged, any such privilege was waived when Mr Ashton gave the documents to Mr Michael Lynds. Section 65 Evidence Act 2006 provides as follows:

(1) A person who has a privilege conferred by any of sections 54 to 60 and 64 may waive that privilege either expressly or impliedly.

(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.

(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or

(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.

(4) A person who has a privilege in respect of a communication, information, opinion, or document that has been disclosed to another person does not waive the privilege if the disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.

... it is the Court’s objective judgment as to the consistency of the conduct with maintaining the privilege which must be assessed in all the circumstances. That requires close analysis of the particular context: what is the issue in relation to the privilege; how does the evidence relate to that issue; and is there inconsistency that could lead to injustice if the privilege is upheld. The weight to be given to fairness in the Court’s exercise of judgment will differ according to the circumstances including the character of the privilege it is said has been waived which, as in this case it is litigation privilege.

[34] It is clear that the purpose and the circumstances of disclosure are relevant in determining whether privilege has been waived. In C C Bottlers Ltd v Lion Nathan Ltd [1993] 2 NZLR 445 at 448, Henry J stated:

In my judgment the fact of disclosure of a document when confined to a particular non-party does not necessarily constitute a waiver of privilege available to a party seeking production. In principle, it seems to me that disclosure, for example by a plaintiff to an associate or confidant unconnected with the proceeding of written legal advice on a claim against a defendant, in ordinary circumstances would not and should not constitute a waiver as against the defendant.

[35] The plaintiffs submit here that privilege was waived because release of the documents to Mr Michael Lynds was not “mistaken”, and because there does not appear to be a case of common interest privilege. The plaintiffs also submit that the requirement of “unfairness” referred to in Ophthalmological Society of NZ Inc v Commerce Commission would seem to apply more in the case of litigation privilege and that, in the case of solicitor/client privilege, the point must simply be that the policy of the privilege rule is no longer engaged where the privileged material has been shared with third parties.

[36] There is really no evidence to allow any definite conclusion to be reached on the issue of waiver. Mr Ashton’s purpose in disclosing the documents to Mr Michael Lynds is unclear and might well have no connection to this proceeding. There is also no obvious injustice that would flow from upholding privilege. Mr Michael Lynds’ affidavit purports to rely on both litigation and solicitor/client privilege. There is no indication that the plaintiffs were prejudiced by the disclosure to Mr Michael Lynds, and it is also unclear whether the disclosure was so extensive as to destroy any confidentiality in the documents. It is quite possible, therefore, that Mr Ashton’s conduct is not inconsistent with a claim to privilege. However, this question largely remains a matter of speculation.

[37] The defendant’s application for further particulars is largely successful. An order is now made that the plaintiffs within 10 working days of the date of this judgment are to provide further particulars of their quantum claim, including:

(a) Details of what bank accounts the plaintiffs are referring to at paragraph 25.1 of the third Amended Statement of Claim, to include:

(b) Details of what “new loans” the plaintiffs are referring to at paragraph

(c) Details of which particular loans the plaintiffs are referring to at paragraph 25.3 of the third Amended Statement of Claim, to include:

(d) Details of the loan repayment to “Talking Point” the plaintiffs refer to at paragraph 25.5 of the third Amended Statement of Claim, to include:

(e) A break-down of the interest payments to Pegasus the plaintiffs refer to at paragraph 25.6 of the third Amended Statement of Claim to include:

(f) Details of what interest payments were made to the National Bank as claimed at paragraph 25.8 of the third Amended Statement of Claim, to include:

(g) A break-down of what interest repayments to B Meo/Capivich Holdings the plaintiffs claim they made at paragraph 25.9 of the third Amended Statement of Claim, to include:

(h) Details of what funds the plaintiffs allege were taken by Mitchell at paragraph 25.11 of the third Amended Statement of Claim, to include:

(i) Schedules generally itemising what particular stallion expenses are being referred to a paragraph 25.12 of the third Amended Statement of Claim, and over what broad periods these were incurred.

(j) Schedules generally itemising through to the present time all income and/or capital gains derived from the stallions Le Belvedere and Epidaurus, including but not limited to, income derived from service fees, the capital value of their progeny (including their progeny’s progeny, etc) and income derived from that progeny, including any income derived from the progeny’s service fees, sales or winnings or otherwise.

(k) At paragraph 27, a breakdown of what date this interest has been calculated from and on what particular principal sum or sums.

[38] For the reasons I have outlined above the plaintiffs’ application to set-aside the claims to privilege by Mr Michael Lynds made at para 82 of his affidavit of documents dated 8 October 2010 also succeeds. An order is now made setting-aside those claims to privilege.

[39] As to costs, each party has been generally successful here on their individual applications. If counsel are unable to agree between them any issue of costs that may arise they may file memoranda on costs (sequentially) and I will decide the question based upon the material then before the Court.

High Court of New Zealand Decisions

Lynds v Fitzherbert Rowe HC Palmerston North CIV-2007-454-413 [2011] NZHC 28 (3 February 2011)