Robinson v Arnott [2012] NZHC 1783 (20 July 2012)

Last Updated: 24 July 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5831 [2012] NZHC 1783

BETWEEN DARREN PAUL ROBINSON First Plaintiff

AND DARREN PAUL ROBINSON, FELICITY JANE ROBINSON AND STEVEN ALLAN FOWLER

Second Plaintiffs

AND GREGORY ALAN ARNOTT First Defendant

AND AUSTRALIAN SECURITIES (NZ) LIMITED

Second Defendant

AND ARNOTT TRUSTEE LIMITED Third Defendant

Hearing: 19 July 2012

Counsel: P J Davey for the Plaintiffs

R B Lange for the Defendants

Judgment: 20 July 2012

_{RESERVED JUDGMENT OF ELLIS J}

This judgment was delivered by me on 20 July 2012 at 4 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors: Howard-Smith & Co, PO Box 7066, Auckland 1141

Simpson Grierson, Private Bag 92518, Auckland 1141

Counsel: P J Davey, PO Box 1811, Auckland 1140

ROBINSON V ARNOTT HC AK CIV-2011-404-5831 [20 July 2012]

[1] Under an agreement dated 6 September 2006, the first plaintiff, Mr Robinson, authorised the second defendant (through its agent, the first defendant, Mr Arnott) “to trade any or all securities and exchange traded options listed on the Australian Stock Exchange, on a discretionary basis”. The plaintiffs have brought various claims against the first and second defendants in relation to their alleged actions under this agreement. The principal claims are brought under the Fair Trading Act, for breach of fiduciary duty, and in deceit and negligence. They essentially relate to the defendants’ alleged responsibility for the losses suffered by the plaintiffs as a result of the trading activity and to the fees charged under the agreement.

[2] Relevantly, the only cause of action relating to the third defendant, Arnott Trustee Ltd, seeks a declaration that it (the third defendant) holds a property located at 11 Holly Way, Pakuranga, under an institutional constructive trust for the benefit of the plaintiffs. Alternatively, they ask that a remedial constructive trust be imposed by the Court. The pleading in this regard can be summarised as follows:

(a) At all material times the first defendant was a director and 50 per cent shareholder of the third defendant;

(b) Between 31 October 2006 and 9 May 2009, Mr Arnott deducted fees

from Mr Robinson’s trading account totalling AUD637,111;

(c) In the circumstances otherwise pleaded (namely the various alleged breaches of fiduciary duty by the first and second defendants) the fees so deducted were held on constructive trust for the benefit of the plaintiffs’ funds;

(d) On 30 May 2008 the first defendant and his wife purchased the Holly

Way property;

(e) That purchase was funded directly or indirectly by some or all of the fees that had been deducted by the first and second defendants by that date;

(f) On 15 December 2009, the first defendant and his wife transferred the

Holly Way property to the third defendant;

(g) the third defendant, by its director (the first defendant) knew that the property had been acquired as a result of the breaches of fiduciary duties alleged;

(h) the third defendant therefore holds the Holly Way property as constructive trustee for the plaintiffs;

(i) alternatively it would be unconscionable for the third defendant to retain the benefit of the Holly Way property.

The Present Application

[3] An order for general discovery was made on 22 November 2011, prior to the commencement of the new discovery rules on 1 February 2012. In the course of the discovery process, the defendants have discovered documents relating to the purchase of the property by the first defendant in May 2008. However, the plaintiffs now say that the defendants should also discover documents relating to the transfer of the property to the third defendant. More particularly they seek:

All documentation (including solicitors’ files) relating to the sale and/or transfer of the property at 11 Holly Way, Pakuranga to Arnott Trustee Limited in or about December 2009 including any agreement for sale and purchase, settlement statements, debt or loan agreements/deeds, gifting documentation and trust deed.

[4] There is no dispute that such documents exist and are in the control of the defendants. But the defendants do not accept that these documents are relevant to the claims as pleaded. The plaintiffs therefore apply for an order for particular discovery.

[5] Mr Davey for the plaintiffs submitted that the documents sought are relevant to their claim because they “should” disclose that:

The property was sold to the third defendant as would seem to be indicated by the gross sale price of $1.3 million recorded on the Terranet search;

Whether there was any additional funds paid by the third defendant to purchase the property and, if so, the source of those funds or whether it was simply a sale with a debt/gifting arrangement to the first defendant and his wife;

Whether there was any valuation to support the recorded sale price of

$1.3 million which would have been $700,000 more than the first defendant and his wife had paid for the property 18 months earlier;

Whether the third defendant holds the property as a trustee for the first defendant and/or his wife.

[6] Mr Davey contended that the value for which the property was transferred would be relevant to whether a claim will be made for a proportionate share of that property, or a lien over it for the amount of the fees deducted by the first defendant. He said that, in addition, whether there was any money paid by the third defendant from its own funds could be relevant to the proportionate share of the property that can be claimed.

[7] Mr Davey also sought to justify the application by reference to the alternative remedial constructive trust pleading and, more particularly, to the allegation that it would be unconscionable for the third defendant to “retain the benefit of the Holly Way property.”

[8] Mr Lange, however, recorded in his submissions that (without conceding relevance) it is accepted by the defendants that:

(a) the Holly Way property was transferred by the first defendant to the third defendant for $1.3 million in December 2009;

(b) the third defendant’s acquisition of the Holly Way property was funded by a debt in favour of the first defendant and his wife for the full purchase price and subject to a gifting programme.

[9] He also accepted that any relevant knowledge possessed by the first defendant as to the circumstances leading to his acquisition of the property in May

2008 can be imputed to the third defendant, and said that this had previously been made clear to the plaintiffs. He further advised that there are no third party interests in the Holly Way property.

[10] It is also relevant to record that, in a letter addressed to the plaintiffs’ solicitors on 7 May 2012 (after the present application had been filed), Mr Lange said:

It is apparent from the documents provided with our letter of 21 March 2012 that the maximum sum that could have been applied from fees deducted from Mr Robinson’s CMT account towards the purchase of the Holly Way property in May 2008 was AUD517,530.[1]

As you are aware, our clients’ position is that:

(a) None of the fees deducted from Mr Robinson’s CMT account at any time were inappropriately deducted and held by Mr Arnott and/or ASNZL as constructive trustees;

(b) None of the fees deducted from Mr Robinson’s CMT account in the period prior to the May 2008 purchase of the Holly Way property can be identified as having been applied to that purchase; and

(c) The Holly Way property was not held on constructive trust for the plaintiffs to any extent following its May 2008 purchase.

However, if your client is somehow successful in establishing to the contrary in respect of the above matters (which of course my clients strenuously deny), then ATL accepts that the consequence will be a finding that it holds the Holly Way property on constructive trust for the plaintiffs up to the sum of AUD517,530 depending upon the extent to which the plaintiffs might succeed in respect of fees deducted prior to May 2008.

In other words, the defence to the claim of constructive trust against ATL is limited to the defendants’ arguments in relation to the period up to and including the purchase of the Holly Way property in May 2008.

_{(Emphasis added)}

[11] In light of the pleadings and Mr Lange’s advice that I have recorded above, there can in my view be no tenable argument that the documents sought are relevant to the plaintiffs’ claim.[2]

[12] On the claim as pleaded, I consider that whether or not the third defendant holds the Holly Way property on some form of constructive trust for the plaintiffs is entirely dependent on the circumstances leading to its acquisition by the first defendant in May 2008. Other than the fact of its subsequent transfer to the third defendant (which is admitted), nothing more is alleged in that respect. Nor would such further pleading appear to be required. As Mr Lange’s letter advised, if the plaintiffs succeed in establishing that the first and second defendants’ actions gave rise to a constructive trust over the fees paid, and that those fees are traceable to the funds used by Mr and Mrs Arnott to purchase the Holly Way property, then it necessarily follows that the third defendant will also be liable. The documents sought (which relate to events after the matters relevant to determining whether the relevant constructive trust exists or should be created) are not capable of influencing that outcome one way or another.

[13] For completeness, however, I address the matters that were said by Mr Davey specifically to go to relevance and which I have set out at [5] – [7] above.

[14] First, the sale price of the Holly Way property to the third defendant is not put in issue by the pleadings. But, in any event, the defendants accept that the property was sold by the first defendant and his wife to the third defendant for a gross price of

_{$1.3 million.}

[15] Secondly, whether or not the third defendant applied any additional funds to purchase the Holly Way property (and the source of any such funds) is also not in issue on the pleadings.[3] More particularly, the third defendant does not contend that it paid “any additional funds” to purchase the property in December 2009. As I have already made clear, its defence to the claim is not based on the circumstances of its

2009 acquisition purchase but rather on the first defendant’s position that no basis for a constructive trust arises at the time of their purchase in 2008. If that position is not upheld then the third defendant’s defence will fail.[4]

[16] Thirdly, I am unable to see how the issue of whether there was any valuation to support the $1.3 million sale price could have any bearing on the plaintiffs’ choice between claiming for a proportionate share of that property or a lien over it for the amount of fees. The value relevant to that choice would be the value at the time the choice is made (or the value at the time of judgment). That value will be for the plaintiffs to assess by the usual means. As well, the third defendant has recorded that it does not seek to argue that it has paid any money from its own funds that could be relevant to the proportionate share of the property that can be claimed by the plaintiffs.

[17] Fourthly, I am similarly unable to see the relevance of whether or not the third defendant holds the property as a trustee for the first defendant and/or his wife. I accept Mr Lange’s submission that if the plaintiffs succeed in their allegation that third defendant holds the Holly Way property on constructive trustee for them, then whether the third defendant holds the property as a trustee for Mr and Mrs Arnott would not affect that conclusion.

[18] As I understood the last (unconscionability) point, Mr Davey accepted that, in

the first instance, the scope of the Court’s inquiry would be limited by the factual

_{foundation for that allegation that had been pleaded by the plaintiffs, namely events}

prior to the May 2008 purchase, and the fact of transfer. But he said that the pleading by the defendants in their counterclaim that “it would not be unconscionable for ATL to retain the benefit of Holly Way”, put the issue of unconscionability more generally at large. In reliance on the decision of Glazebrook J in Commonwealth Reserves I v Chodar he said that there were a range of matters that the Court would be required to consider including, in particular, why other forms of relief were inadequate, the interests of third parties and the other

circumstances of the case.[5]

[19] Again, however, I am unable to accept that submission. I do not consider that the scope of the unconscionability inquiry has been widened by the defendants’ pleading. It is plainly and directly responsive to the plaintiffs’ pleading; it is no more than a reiteration of the denial in the statement of defence of para 103 of the statement of claim. The counterclaim simply seeks removal of the caveat that has been placed by the plaintiffs over the Holly Way property. It does not form the basis for some independent claim that requires the third defendant to prove that it would not be unconscionable for it to retain the benefit of Holly Way. If the third defendant succeeds in defending this aspect of the plaintiffs’ claim, it will also succeed in establishing the proposition pleaded in the counterclaim. The pleading does not invite a wider inquiry.

[20] As regards the matters referred to by Glazebrook J in Chodar, I have already noted Mr Lange’s advice that there are no relevant third party interests. The adequacy of other forms of relief would likely be a matter for submission. No other potentially relevant circumstances were identified by Mr Davey. To the extent they exist they should, in any event, be pleaded.

Conclusion

[21] For the reasons I have given, I consider that the documents sought by the plaintiffs are not relevant to this proceeding. The application for particular discovery

_{is dismissed.}

Rebecca Ellis J

---

[1] The plaintiffs say that fees in a somewhat higher amount were deducted but the difference is immaterial for present purposes.

[2] Whether the traditional, Peruvian Guano, test of relevance is adopted or some narrower approach makes no difference to my conclusion.

[3] I have in any event already recorded Mr Lange’s advice that the third defendant’s acquisition of the Holly Way property was funded by a debt in favour of Mr and Mrs Arnott for the full purchase price and subject to a gifting programme.

[4] As I have said, it is accepted that Mr Arnott’s knowledge of any wrongdoing that may be

established can properly be imputed to the third defendant.

[5] Commonwealth Reserves I v Chodar [2001] 2 NZLR 374 (HC).