Peters v Peters no.2 [2013] NZHC 1061 (13 May 2013)

Last Updated: 25 June 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-6265 [2013] NZHC 1061

BETWEEN ANGELA MARY PETERS First Plaintiff

MARGARET ANN CHAMBERLAIN AND JONATHAN GEORGE NEWSON AND AMBERLY TRUSTEES LIMITED AS TRUSTEES OF THE IJ & MA CHAMBERLAIN NO. 3 FAMILY TRUST

Second Plaintiff

AND SCOTT GRAHAM PETERS First Defendant

GRAHAM TAYLOR PETERS Second Defendant

EDNA MAY PETERS Third Defendant

AND RUSSELL HYDE IBBOTSON AND RUSSELL ERIC WILSON MAWHINNEY PRACTISING AS A FIRM OF SOLICITORS KNOWN AS PRESTON RUSSELL LAW

Third Party

Hearing: 18, 19 and 20 March 2013

Counsel: M H L Morrison for Plaintiffs

C T Patterson and A Halloran for Defendants

M C Smith and Z A Fuhr for Third Party

Judgment: 13 May 2013

_{JUDGMENT (NO. 2) OF HEATH J}

This judgment was delivered by me on 13 May 2013 at 9.30am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

PETERS v PETERS [2013] NZHC 1061 [13 May 2013]

Contents

The proceeding [1] Background [6] The claim against Preston Russell [11] The alleged duty [15] The conveyancing transaction [23] Analysis

(a) The pleadings [46]

(b) The scope of the alleged duty [52] (c) Did Preston Russell breach their duties of care? [72] (d) Damages [84] Result [109]

The proceeding

[1] In May 2009, Scott and Angela Peters (Scott and Angela) agreed to buy a property in Montgomery Avenue, Belmont, on Auckland’s North Shore. The purchase was completed in June, with title being conveyed into the names of the trustees of the Peters Family Trust (the Peters Trust). The trustees were Scott and his parents, Mr Graham and Mrs Edna Peters.

[2] At the time of acquisition, Scott and Angela were married. About two years later, they separated. A dispute arose about their liability for a sum of $800,000 that had been advanced through Angela’s parents, Mr and Mrs Chamberlain. That sum was used to pay a substantial portion of the agreed purchase price.1

[3] Following separation, Angela, her mother2 and the trustees of the Chamberlain No 3 Family Trust (the Chamberlain Trust) commenced proceedings in this Court (the substantive proceeding), in which the main issue was the characterisation of the $800,000. Angela alleged that it was an advance from her parents to her, for which Scott was liable to pay one half on the basis that it was a relationship debt.3 Scott’s understanding was that the money was a gift to Angela, being an advance made by her parents on her expected inheritance to enable them to

_{purchase a family home in Auckland. Late last year, the substantive proceeding was}

1 _{See para [7] below.}

2 _{Sadly, Mr Chamberlain had passed away by this time.}

3 See the definition of “relationship debt” in s 20(1) of the Property (Relationships) Act 1976.

settled. Scott has acknowledged that the money is owed to Angela’s parents and that

it is a relationship debt.

[4] In the course of investigating the precise nature of the moneys advanced, Scott and his parents became concerned about the quality of the legal advice they had received from Preston Russell Law (Preston Russell) when the Montgomery Avenue property was first acquired. Scott’s parents’ concerns arose out of their positions as co-trustees of the Peters Trust.

[5] The substantive proceeding having been determined, there remain two issues for my determination:

(a) A claim for costs made in the substantive proceeding, in light of the settlement achieved. Mr Morrison, for Angela and the trustees of the Chamberlain Trust, and Mr Patterson, for Scott and his parents, invited me to resolve that issue on the papers. I agreed to do so. I reserved my decision. The question of costs will be resolved in a separate judgment that will be delivered at the same time as this.4

(b) A claim brought by Scott and his parents against Preston Russell.

That firm was joined as a third party to the substantive proceeding. It is alleged that they breached duties owed to their clients when carrying out instructions to settle the purchase of the Belmont property. This judgment addresses that third party claim.

Background

[6] In early 2009, Scott and Angela moved from Central Otago to Auckland. Initially, they rented a property in Devonport. Later, they decided to acquire their own home. Given the state of the Auckland property market, it became clear that the purchase price would likely be in excess of $800,000. Angela ascertained that she

_{could source that amount from family interests.}

4 Peters v Peters [2013] NZHC 1060.

[7] On 3 May 2009, Scott and Angela were the successful bidders at an auction of the Belmont property. They entered into an agreement for sale and purchase of the property, in their own names. The purchase price was $950,000. In addition to the $800,000 to be obtained from Angela’s family’s interests, the couple intended to borrow the sum of $150,000 from a bank. An initial deposit of $95,000 was paid out of Scott and Angela’s joint bank account. Settlement was to take place on 12 June

2009.

[8] Scott and Angela instructed Preston Russell to act for them on the purchase. The firm was also acting on the sale of Scott’s and Angela’s former family home in Arrowtown. That property was also owned by the trustees of the Peters Trust. Scott and Angela later nominated the trustees of the Peters Trust to take title to the

Montgomery Avenue property.5

[9] Settlement of the purchase of Montgomery Avenue was completed one day early, on 11 June 2009. The property was transferred into the names of the trustees of the Peters Trust. The sum of $150,000, borrowed by the trustees from ASB Bank, was secured by a mortgage over the property. The $800,000, received by Preston Russell from the solicitors for the Chamberlain family interests, was applied to the purchase.

[10] For a time after Scott and Angela agreed to separate on 1 May 2011, they continued to live in the Belmont property. Eventually, Angela moved out.

The claim against Preston Russell

[11] Following completion of the discovery process in the substantive proceeding, an agreement was reached between Angela and the trustees of the Chamberlain Family Trust (as plaintiffs) and Scott and the trustees of the Peters Trust (as defendants) that the $800,000 advance should be treated as a loan from the Chamberlain Trust to Angela. They agreed, as a matter of law, that it was a

_{“relationship debt”, payable out of Scott’s and Angela’s relationship property pool.}

5 In the substantive proceeding, Angela alleged that she was unaware that the property would be conveyed to the trustees of the Peters Trust. On the evidence before me (which did not include any from Angela) I am satisfied that she knew that would happen. Angela’s position is contrary to that taken by both Preston Russell and the trustees of the Peters Trust.

[12] By a Deed of Settlement signed in December 2012, the trustees of the Peters

Family Trust agreed to pay the sum of $800,000 to Angela on or before 26 April

2013, on the basis that that sum would be repaid immediately to the trustees of the Chamberlain Trust. That money is being paid out of the proceeds of sale of Scott’s parents’ home. They intend to live with their son at the Belmont property.

[13] Scott (personally) and the three trustees of the Peters Trust allege that Preston Russell owed a duty of care, in undertaking the conveyancing transaction, to Scott and Angela, and the trustees of the Peters Trust. They complain that the solicitors failed to advise adequately on the treatment of the $800,000. They assert that the solicitors’ failure to have the arrangement documented in a manner which brought clarity to the situation, before settlement of the purchase of the Montgomery Avenue property, has caused loss to them. The damages sought are the costs incurred in resolving the proceeding brought by Angela and the trustees of the Chamberlain Trust, together with general damages for anxiety and stress arising out of their involvement in the Court proceedings.

[14] Preston Russell admit that they owed duties of care to Scott and Angela and to the trustees of the Peters Trust. I am asked to rule on the scope of the duty of care, whether it was breached and whether any recoverable loss has been proved.

The alleged duty

[15] Mr Patterson was at pains, in opening, to emphasise that the characterisation of the $800,000 advance is not in issue. He told me that it was now accepted that the money represented a loan to Angela from her parents, which was to be treated as a relationship debt.

[16] Mr Patterson submitted that Preston Russell owed a duty of care to both Scott (personally) and the three trustees of the Peters Trust to document the advance from Mr and Mrs Chamberlain in a manner that brought clarity to the situation and enabled Scott and his parents to make an informed decision on whether to proceed with the transaction in its actual form.

[17] Mr Patterson contended that, if Preston Russell had complied with the asserted duty:

(a) There would have been no dispute between the Chamberlain and

Peters interests.

(b) Scott and his parents would not have been subjected to the substantive proceedings brought by Angela and the trustees of the Chamberlain Trust.

(c) Scott and his parents would not have incurred the legal costs associated with the substantive proceeding and the third party claim.

[18] At the heart of Mr Patterson’s submission is the proposition that a solicitor,

acting in these circumstances, has a duty to:

(a) Inform a client of material information relating to the structure of the intended conveyancing transaction; and

(b) Take further instructions and advise in relation to the transaction when circumstances so require; and

(c) Take proper steps, including recording advice and events relevant to material matters, before proceeding to complete the transaction on behalf of the clients.

[19] For Preston Russell, Mr Smith accepted that a duty of care was owed by Preston Russell to Scott and the trustees of the Peters Trust. His contention that the duty had not been breached turns on the nature and scope of work that the firm agreed to perform.

[20] Mr Smith submitted that:

(a) Preston Russell’s clients were Scott and Angela, and the trustees of the Peters Trust.

(b) Preston Russell dealt exclusively with Angela, who had authority to bind Scott and the other trustees.

(c) Angela’s instructions were that:

(i) The trustees of the Peters Trust would take title to the

Montgomery Avenue property.

(ii) Angela’s parents had lent the sum of $800,000 to Angela, who was to advance it to the trustees of the Peters Trust, as a loan.

(iii) Preston Russell were to receive the money from Mr and Mrs Chamberlain and to use it to acquire the Montgomery Avenue property.

[21] Preston Russell contends that its retainer did not extend either to inquiry as to the source of the funds or documenting the arrangements between Angela and her parents. Nor, it says, did it owe any duty to its clients to record instructions in writing, or in any particular form.

[22] Preston Russell’s position is that any loss suffered by Scott and the trustees of the Peters Trust resulted from their own actions. Further, Mr Smith submitted that they could have chosen to settle the substantive proceeding much earlier, on substantially similar terms to those reached in December 2012.

The conveyancing transaction

[23] The agreement for sale and purchase of the Montgomery Avenue property was signed in early May 2009, without legal advice. It was provided to Preston Russell by the real estate agent after it had been signed by both Scott and Angela. There is no mention of the Peters Trust (or the trustees) on the agreement for sale and purchase.

[24] On 18 May 2009, Preston Russell (having recently received the agreement) wrote to Scott and Angela setting out their terms of engagement. Relevantly, they said:

Dear Scott and Angela

...

35 Montgomery Avenue, Belmont North Shore City

Thank you for choosing Preston Russell Law for your legal needs.

We have received the Agreement for Sale and Purchase in respect of the above transaction. The Agreement is dated 3 May 2009.

...

FINANCE

Please advise us of your financial arrangements as soon as possible. This is imperative so that we can complete your conveyance in the necessary timeframe and without costly delays.

If you are arranging finance with a New Zealand bank, the bank will forward the documents to us for execution by you. We can forward the documents to you by email.

...

TAX ISSUES

Please contact us to discuss both your intentions for the property and which entity (ie self, company, trust etc) will complete the purchase, as this may have a bearing on your tax position. Even though there is no capital gains tax or stamp duty payable, there are situations where GST is payable and where profits from land transactions are subject to income tax.

FEES

...

Our fees will be deducted and paid on settlement. We will advise the amount required to settle in due course, which will take into account all costs and any loan advance or contribution already made by you. In the event that this property transaction is not completed, up-front disbursement costs will still need to be paid by you.

TERMS OF ENGAGEMENT

Our Terms of Engagement and Information for Clients, which we are required by the New Zealand Law Society to provide are attached.

...

LIMITATIONS ON OUR LIABILITY

We do not provide any financial or taxation advice to you.

[25] Two people at Preston Russell were involved in the conveyancing transaction. One was Mr Russell Mawhinney, a partner. The other was Ms Cassie Brunt, a “legal assistant”. While Ms Brunt was legally qualified, she did not hold a practising certificate at the time. Ms Brunt acted under Mr Mawhinney’s supervision.

[26] Preston Russell’s time records show that Mr Mawhinney was involved on 18 and 19 May 2009, when the instructions were first received. Ms Brunt had primary responsibility for completing the transaction. She appears to have commenced the bulk of the conveyancing work, involving preparation of documentation required to complete the purchase, on 9 June 2009, two days before the intended settlement date.

[27] Mr Mawhinney also recorded an attendance on 10 June 2009, the day before settlement was effected. That was a telephone conversation with Angela.6 In total, Mr Mawhinney’s recorded time represented only $261.45 out of the fee rendered of

_{$1,181.25 (inclusive of GST),}7 _{I accept Mr Mawhinney’s evidence that he and Ms}

Brunt were located close to each other in the firm’s offices and are likely to have

spoken informally about the transaction on some occasions.

[28] In the absence of evidence from Angela, I accept the uncontradicted evidence of Scott, his parents and Mr Mawhinney that Angela was the only person who had contact with Preston Russell in relation to the conveyancing transaction. I accept Scott’s and his parents’ evidence that when Angela spoke to them about the moneys to come from her family interests, they understood that the $800,000 represented an advance against Angela’s likely inheritance, to be characterised as a gift, to be used

_{to purchase a family home in Auckland.}

6 _{See para [40] below.}

7 See para [43] below.

[29] Preston Russell sent a settlement statement to “Peters Family Trust”, on 9

June 2009. It set out the amount required for settlement.8 After referring to the purchase of the Belmont property, the settlement statement read:

_{Debit Credit}

To Amount paid on settlement as set

out in the attached settlement statement $855,149.16

By Amount advanced by ASB Bank Limited $150,000.00

To Our fees (incl GST) as per bill of costs

herewith $1,181.25

To Service charges – (incl agency and GST) Title Search fees 30.00

Registration Fee on Transfer 45.00

Registration Fee on Mortgage 45.00

Bank Transfer Fee 5.00

Tolls and faxes 45.00

Forms and Photocopies 35.00 $205.00

Balance due for settlement in cleared funds

before Thursday 11 June 2009 $706,535.41

_{$856,535.41 $856,535.41}

[30] The settlement statement makes it clear that the Peters Trust was taking title to the Montgomery Avenue property. Angela must have gained knowledge of that either when the settlement statement was received by her later that day or at an earlier time.9 The statement also suggests that the person from whom “cleared funds” of over $700,000 was to be paid had not yet been identified by Preston Russell.

[31] At 12.17pm on 9 June 2009, Ms Brunt sent various documents to Scott and Angela at their home email address. I am satisfied that this email was opened by Angela who then arranged for Scott and his parents to execute the documents at Scott’s father’s place of work. Relevantly, the email stated:

Dear Scott and Angela

As previously discussed, the loan documentation has been set up for the Peters Family Trust to purchase the property. If this is not to be the case ASB will need to be notified immediately in order to obtain new loan documents. In the meantime, in the absence of any change, I have enclosed the following documents to be signed by the Trustees (Graham, Scott and Edna) and returned by tomorrow in order to settle on Thursday (you will need an independent witness) ...

8 This was one of the documents that Ms Brunt sent to Mr and Mrs Peters by email on 9 June

_{2009. See para [31] below.}

9 See also paras [31] and [34] below.

(emphasis added)

[32] The documents included the Term Loan Agreement, the Trustee Certificate, the Trustee Resolution, an Authority Form and an Identity Form. Also attached were the Loan Standard Terms and Conditions, Mortgage Terms and a settlement statement.

[33] ASB sent a letter of instructions to Preston Russell on 3 June 2009, confirming the financial arrangements agreed. It is unclear who dealt with the bank in arranging the facility. The loan agreement was between ASB Bank Ltd and the trustees of the Peters Trust. Angela’s name did not appear on the documents, whether as a borrower or guarantor. The bank’s advance of $150,000 was to be made on the security of a first mortgage over the Montgomery Avenue property. The trustees signed a “Trustee Certificate” to the bank to confirm their authority to deal with the trust property and a resolution that dealt specifically with the ASB loan and mortgage. The resolution stated:

RESOLVED this 10th day of June 2009

1. THAT the Trustees adopt an agreement for sale and purchase (“Agreement for Sale and Purchase”) with Vicky Christine Arahovitis and Yianlos Constandinos Arahovitis for the purchase of the property legally described as Lot 37 Deposited Plan 43549 being all of the land comprised and described in Certificate of Title NZ1614/83 (“property”), for the sum of $950,000.00.

2. THAT the Trustees enter into and execute a loan agreement for

$150,000 for a term of 204 months at an interest rate of 7.5% fixed

for 60 months (“Loan”) with the Bank.

3. THAT in order to secure the loan the Trustees enter into and execute a mortgage over the property in favour of the ASB Bank Limited (“Bank”) to secure the borrowings from the Bank of the Peters Family Trust.

4. THAT the Deed of Covenant, Mortgage and Guarantee be entered into pursuant to the Trustees Powers contained in the Trust Deed dated 18 November 2002 on the basis that the Trustees are of the view that the giving of such securities is in the best interests of the Trust and its beneficiaries.

[34] At 7.24am on 10 June 2009, Angela sent an email to Ms Brunt. This appears to have been triggered by the information contained in the email sent by Ms Brunt at

12.17pm the previous day.10 There is no evidence to suggest that Scott, or his parents, had any knowledge of the content of the email before the transaction was settled. Angela said:

...

Sent: Wednesday, 10 June 2009 7:24a.m. To: Cassie Brunt

Subject: Re: Insurance

Hi Cassie,

The Trust, Scott, Edna and Graham is only buying $150,000 of the property and that is being lent by ASB, the other $800,000 is coming from my parents straight from their lawyers into the sellers account. We thought you were advised of this from the very beginning, sorry.

If you need to call me regarding this [telephone number deleted] Ange Peters

(emphasis added)

[35] Prior to receiving any response to her email, the documents were made available to Scott and his parents to sign later that morning. They were returned to Preston Russell, duly signed, by facsimile sent at about 11.55am on 10 June 2009 from the school at which Scott’s father worked. So, by midday on 10 June 2009, Preston Russell were in receipt of both Angela’s email11 and the signed documents.

[36] The Chamberlain family interests were represented by AWS Legal, a firm of solicitors in Invercargill. At 12.21pm on 10 June 2009, Ms Doherty of that firm sent an email to Mr Mawhinney:

Hi Russell,

Just checking that Angela and Scott’s purchase is settling on Friday. If we

can also please have your trust account details so that we can transfer the

$800k (being borrowed from Westpac by the Chamberlain F/T, and loaned to Angela by her parents) that would be great. We’re just waiting on the final signatures on the Westpac docs then will have them to the bank later this afternoon.

_{Thanks and regards,}

10 _{See para [31] above.}

11 See para [34] above.

[37] Taking Ms Doherty’s email literally, three transactions were involved:

(a) The trustees of the Chamberlain Trust were borrowing $800,000 from

Westpac Banking Corporation.

(b) The trustees of the Chamberlain Trust were advancing $800,000 to Mr and Mrs Chamberlain.

(c) Mr and Mrs Chamberlain were lending $800,000 to Angela.

[38] Mr Mawhinney forwarded Ms Doherty’s email to Ms Brunt at 1.14pm on 10

June 2009, without comment. At 1.28pm Ms Brunt sent an email to Ms Doherty confirming that the settlement had been brought forward to Thursday 11 June 2009 and asking whether the funds could be transferred by then.

[39] Mr Mawhinney, in evidence in chief, stated that Angela’s email was the first occasion on which his firm realised that $800,000 was coming from her parents to complete the purchase. He deposed that “Preston Russell was not instructed to attend to the matters between Angela and her parents. Our instructions were only in relation to the conveyancing of the property”.

[40] At some time on 10 June 2009, Mr Mawhinney telephoned Angela. Mr Mawhinney accepted that he had no specific recollection of what was said in that conversation, or of when time it took place. His recollection of those events is an honest reconstruction of what he believes occurred, having regard to his entry of a telephone attendance in the firm’s time recording system, the narration that he prepared and his usual practices. Those things suggest to him that the topics discussed were ownership of the property and the advance to be made by Angela’s parents. In his written evidence in chief, Mr Mawhinney deposed:

20. Preston Russell’s time records show that I had a telephone conversation with Angela that day. The time records note that we discussed ownership and the loan from Angela’s parents. I cannot recall the content of my conversation with Angela. However, I believe that the conversation must have been to confirm Angela’s instructions that the property was to be purchased in the name of the trustees of the Peters Family Trust and that because AWS Legal were acting for her parents, no steps were required by us to document the loan from her parents.

[41] It is likely that Mr Mawhinney did discuss with Angela the names of the persons into whose name the Belmont property would be conveyed and the nature of the advance from Angela’s parents. Whatever was said between Mr Mawhinney and Angela, the former believed the transaction could proceed to settlement at the conclusion of the conversation. Precisely what was said cannot be ascertained. Mr Mawhinney has no recollection. Angela was not called to give evidence. There is no file note recording the terms of the discussion.

[42] At about 3.15pm on 11 June 2009, AWS Legal confirmed to Preston Russell (by facsimile) that the sum of $800,000 had been deposited into their trust account, as required. Ms Brunt completed a receipt for that sum, as a direct credit. She wrote:

RECEIVED FROM: AWS LEGAL

CREDIT: THE PETERS FAMILY TRUST PARTICULARS: LOAN FROM ANGELA PETERS

[43] Preston Russell sent a second settlement statement, relating to the purchase of the Montgomery Avenue property, on 11 June 2009. Again, it was addressed to the “Peters Family Trust”. It stated:

...

PURCHASE OF 35 MONTGOMERY AVENUE, BELMONT, NORTH SHORE CITY

_{SETTLEMENT DATE – 12 JUNE 2009}

_{To Amount paid on settlement as set out in}

Debit Credit

the attached settlement statement $855,149.16

By Amount advanced by ASB Bank Limited $150,000.00

By Amount received from Angela Peters $800,000.00

To Our fees (incl GST) as per bill of

costs herewith 1,181.25

To Service charges – (Incl agency and GST)

...

Balance transferred to you $93,464.59

On this occasion,12 the settlement statement referred explicitly to monies being received by the Peters Trust from Angela.

12 Compare with para [29] above.

[44] Preston Russell were also acting on the sale of the Cardigan Street property in Arrowtown. On that transaction, the firm was acting for the registered proprietors, the trustees of the Peters Trust. That transaction settled on 19 June 2009, with a sum of $41,540.73 being paid to the trustees.

[45] A number of documents have been put in evidence to show what occurred on the “Chamberlain” side of the $800,000 transaction. I have not taken that evidence into account. At the relevant time, it was not known by either the trustees of the Peters Trust or Preston Russell.

Analysis

(a) The pleadings

[46] In their Amended Statement of Claim of 8 February 2013, Scott and the trustees of the Peters Trust set out discrete allegations against Preston Russell. Two of the causes of action are brought solely by Scott. Scott’s claim is grounded in contract, whereas the trustees base theirs in tort.

[47] In relation to the character of the $800,000, Scott alleges that Preston Russell breached its duty of care to him (personally) in the following respects:

Particulars

(i) Notwithstanding that the [Agreement for Sale and Purchase] was in the names of both Angela and Scott [Preston Russell] failed to ensure that there was a written record of the instruction by Angela and Scott as to their agreement that the defendants as trustees of the Peters Family Trust become the registered proprietor of the [Belmont property]; and

(ii) [Preston Russell] failed to ascertain and clearly record and confirm the status of the $800,000 contribution from Angela for the purchase (be it a loan or contribution or otherwise) prior to settlement;

(iii) [Preston Russell] failed to advise Scott of the wisdom to ascertain and clearly record the status of the $800,000 prior to settlement including the effect and implications of any relationship property and/or lending issues arising out of the same.

[48] The allegations of breach made in respect of the tortious action brought by the trustees are:

Particulars

(i) [Preston Russell] failed to ascertain and clearly record and confirm the status of the $800,000 used for the purchase (be it a loan or contribution or otherwise) prior to settlement;

(ii) [Preston Russell] failed to advise the defendants of the legal implications of the status of the $800,000 as proposed purchasers and mortgagors prior to settlement;

(iii) [Preston Russell] failed to advise the defendants of the effect and implications of their ownership of the [Belmont property] in the event of separation of Angela and Scott including the use of the

$800,000 for the purchase of the [Belmont property] and how that should be accounted for between Angela and Scott and the Peters

Family Trust.

(iv) [Preston Russell] failed to ensure that there was a written record of the instruction by Angela and Scott as to their nomination of the defendants as trustees of the Peters Family Trust as purchaser of the [Belmont property].

[49] The pleaded loss is the same in respect of each of the claims. A total of

$70,594.79 is claimed. That sum is said to represent wasted legal costs incurred in defending the substantive proceeding brought by Angela. In addition, each of the three trustees seeks an award of general damages of $20,000 to reflect the stress and inconvenience to which they have been put. An order for costs in relation to the claim against Preston Russell is also sought.

[50] While in opening, Mr Patterson emphasised the novel nature of a claim intended to recover only wasted costs, Mr Smith did not dispute the Court’s power to order that such costs be recovered as damages in a proceeding of this type. Notwithstanding the dearth of New Zealand authority on the topic, that appears to have been a responsible concession.13

[51] Mr Smith’s position was that, even if Preston Russell had breached any duty

owed to its clients, no claimable loss flowed from that breach. That raises the question whether the chain of causation had been broken.

13 See the authorities collected and analysed in Louise Merrett “Costs as Damages” (2009) 125

LQR 468.

(b) The scope of the alleged duty

[52] Mr Patterson submitted that, at its most basic level, the claim against Preston Russell rested upon “the very simple proposition that all it was required to do was [to] ensure that all the parties knew and agreed to the structure and funding arrangements related to the conveyance before proceeding to settle the purchase on their behalf”. As a minimum, he submitted, the scope of this duty extended to obtaining and documenting Angela’s consent to the nomination of the trustees of the Peters Trust as purchaser and taking instructions from her and those trustees about the way in which the sum of $800,000 was to be accounted for.

[53] Mr Smith submitted that the scope of Preston Russell’s duty was limited by the nature of the instructions it received. The firm was under no duty, he submitted, to advise those for whom it acted about the wisdom of the transaction or any complexities inherent in the financial arrangements. Those, he contended, were matters for the parties to arrange between themselves. In the absence of any specific instruction to advise on them, no duty was owed by Preston Russell to their clients.

[54] The first question is whether the instructions given to Preston Russell constituted a general or specific retainer. In the absence of some clear indication to the contrary, it is usually presumed that parties engaging lawyers expect to be advised on all aspects of their affairs with which the lawyers are dealing. That is the nature of a general retainer.14 Both counsel accept that the appropriate approach to identifying the scope of a solicitor’s duty to a client is set out in the Court of Appeal’s judgment in Gilbert v Shanahan.15 Delivering the judgment of the Court of

Appeal, Tipping J said:16

Solicitors' duties are governed by the scope of their retainer, but it would be unreasonable and artificial to define that scope by reference only to the client's express instructions. Matters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within

14 Duncan Webb Ethics, Professional Responsibility and the Lawyer (2nd ed, LexisNexis NZ, Wellington, 2006) at para [5.4.1]. See also, Gilbert v Shanahan [1998] 3 NZLR 528 (CA), in which the Court of Appeal found that a lawyer’s duties extended beyond merely attending to the execution of documents. For that reason, the Court held that the lawyer had a duty to familiarise herself with certain preliminary agreements, to ascertain Mr Gilbert’s legal position and to advise him of that.

15 _{Gilbert v Shanahan [1998] 3 NZLR 528 (CA) at 536–537.}

16 Ibid, at 537.

the scope of the retainer. It was within the scope of Ms de Bernardo's retainer to act for Mr Gilbert personally in the transaction, to familiarise herself with any preliminary agreement there might be, to identify her client's legal position and to advise him accordingly. For these reasons, we cannot accept that Ms de Bernardo's failings fell outside the scope of her retainer. Her negligence constituted a breach of the duty of care she owed to Mr Gilbert.

[55] Gilbert v Shanahan confirms the need to conduct an analysis of the scope of a duty on a fact-specific basis. It is the combination of facts, in any given case, that will operate to determine what the parties agreed that the lawyers would do.

[56] In this case, Mr Patterson called Mr Peter Nolan, as an expert witness. He is an experienced lawyer who has been engaged in the area of property law for the whole of his legal career. That began in the mid 1970s. He has been a partner of various firms, or has practised on his own account, since January 1981. When commenting on the scope of the retainer, in the context of whether Preston Russell were obliged to advise on the status of the $800,000 funding, Mr Nolan said:

69. In my experience, it is most unusual for lawyers to limit the scope of their retainer in any conveyancing transaction. If there is no limitation, then the lawyer will have a general retainer, which includes an obligation to advise the client on all relevant issues relating to the matter at hand.

70. I can see nothing on [Preston Russell’s] conveyancing file, including their Terms of Engagement, which would serve to limit [their] retainer. If they had wanted to limit their retainer, then I believe they should have explained the limitations clearly and given the reasons for them and invited Scott and Angela and the trustees of the Peters Family Trust, for all of whom [Preston Russell] was acting, to seek independent advice before accepting the terms of the limited retainer.

71. It would be usual, in my experience, for the retainer in the case of a conveyancing transaction to extend to all matters relating to the structure of ownership of the property, and all of the ancillary funding arrangements, so that all the funds provided for the purchase of a property are recorded and accounted for. In the circumstances of this particular case, I believe that the retainer would extend to advice regarding the status of the sum of $800,000 provided by Angela’s parents, comprising both the funding of the initial deposit of $95,000 and the funding for the settlement of the purchase of $705,000.

(emphasis added)

[57] I am mindful that Mr Nolan’s evidence strays, on occasion, from explaining the standards to be exercised by a competent lawyer exercising skill and care into the ultimate issue, namely whether or not Preston Russell were, on the facts of this case, negligent. While I consider that the evidence on the ultimate issue point is admissible,17 Mr Nolan’s opinions need to be considered in light of the totality of the evidence before me, rather than the more limited information conveyed by the documentary evidence he was able to consider.

[58] On the facts of this case, I am satisfied that there was a general retainer. In this case, Scott and Angela (personally) recorded the terms of the lawyers’ engagement, in a letter from Preston Russell dated 18 May 2009.18 While the letter refers to more specific “Terms of Engagement and Information for Clients,” there is no evidence that any such document was attached to the letter sent to Scott and Angela. Nor was any specimen form produced in evidence. There was nothing in

the terms of engagement of Preston Russell by Scott and Angela that could limit Preston Russell’s obligation to alert their clients to any potential pitfalls that might arise as the transaction developed and, if appropriate, to ensure that affected persons were given an opportunity to seek independent legal advice before proceeding with the transaction. To use the phrase employed by Tipping J in Gilbert v Shanahan, they were matters “which fairly and reasonably [arose] in the course of carrying out [their] instructions” and must therefore be “regarded as coming within the scope of

the retainer”.19

[59] The next question is whether the general retainer extended to advising the trustees of the Peters Trust. The letter of engagement was not addressed to the trustees of the Peters Trust. That is not surprising. As at 18 May 2009, the trustees had no involvement in the acquisition of the Belmont property. It was only later, when the trustees were nominated as the persons to take title to the property (as opposed to Scott and Angela as “purchasers” under the agreement for sale and

_{purchase) that the interests of Scott’s parents, as trustees, came into focus.}

17 Evidence Act 2006, s 25(1) and (2)(a). See also Attorney-General v Equiticorp Industries Group

_{Ltd (in statutory management) [1995] 2 NZLR 135 (CA).}

18 _{See para [24] above.}

19 Ibid.

[60] While there is no express evidence of when that nomination was advised to Preston Russell, it must have been on or before 3 June 2009. A letter bearing that date was sent to Mr Mawhinney by ASB Bank Ltd enclosing documents for execution in relation to the provision of funding of $150,000 for purchase of the property in the trustees’ names.20

[61] Once a decision was taken to acquire the property in the names of the trustees of the Peters Trust, Scott’s parents became exposed personally to potential liabilities in respect of the $800,000 advance, on which they, in fact, received no legal advice. Scott’s parents worked on a false assumption that the money was a gift and that they had no liability, whether as trustees or personally, to repay it. By 3 June 2009, it must have been clear to Preston Russell that they were acting for the trustees as well as for Scott and Angela, in their personal capacities, and their obligation to advise extended to them. Once it became clear that a substantial part of the purchase price was being lent to Angela by her parents and then on to the purchasers of the Belmont

property, which was on 10 June 2009 at the latest,21 Preston Russell should have

advised Mr Graham and Mrs Edna Peters to take independent advice. Their interests were no longer coincidental with their son’s (whose family home the property was to be) or Angela’s, who was (ostensibly) lending money to the trustees.

[62] From the trustees’ perspective, advice about the nature of the $800,000 transaction was important as the money was being raised to assist in the purchase of a property. As ultimate recipients of that money for the purposes of settlement with the vendors, they may have been fixed with knowledge of the precise arrangements made by Mr and Mrs Chamberlain to advance the money to Angela. If there had been a sudden drop in the value of the Belmont property, they stood exposed to a claim by Mr and Mrs Chamberlain for recovery of that money.

[63] Accordingly, a duty to advise Scott, Mr Graham and Mrs Edna Peters about the nature of the $800,000 transaction has been established. The next question is

_{what the scope of that duty was. To shed light on this issue, Mr Nolan was asked to}

20 _{See para [33] above.}

21 See para [36] above, which is an email from AWS Legal, Invercargill that should have put

Preston Russell on notice that the $800,000 was a loan.

give evidence on what might be expected of a firm of lawyers in Preston Russell’s

position when acting on a transaction of this type.

[64] Mr Nolan, in his evidence in chief, deposed:

45. In my opinion, [the 10 June email] from Angela should have caused alarm bells to ring loudly for [Preston Russell]. It clearly indicated that the Peters Family Trust would not be funding the balance of the purchase money from its own resources, if that was not already known by [Preston Russell], and that, instead, this funding would be coming from Angela’s parents. It also indicated that Angela seemed to believe that the interest in the [Belmont property] of the Peters Family Trust should be restricted to the extent of the ASB loan of

$150,000.

46. Clearly, there were issues with the structuring of the ownership of the property that needed to be sorted out urgently by [Preston Russell]. It would have been obvious, too, that Angela did not have a proper understanding of the mechanics of the transaction, given that she believed that the sum of $800,000 would be paid by her parents’ lawyers directly to the seller.

47. It should also have been evident to [Preston Russell] that the sum of

$705,000 only was needed to complete settlement, and not $800,000. That should have raised the question as to who had paid the initial

deposit and, if it had been paid by Scott and Angela, whether it was intended that the extra $95,000 was to reimburse them.

48. In my opinion, a competent lawyer would have contacted Scott and Angela and her parents’ lawyers immediately to sort out exactly how the purchase of the [Belmont property] needed to be structured, both in terms of ownership and funding, to satisfy the requirements of the various parties.

49. In particular, it would have been clear to a competent lawyer that if Angela’s parents were providing $800,000, it was likely that this money would be provided by way of loan and that her parents’ lawyers would require loan documentation to be prepared and signed. Given the size of the loan, it was likely, too, that her parents’ lawyers would insist upon taking a second mortgage over the [Belmont property], which would necessitate urgent arrangements being made with the ASB Bank for the limitation of its priority as first mortgagee, especially as the priority amount specified in the ASB Bank’s first mortgage for the purposes of s 92 of the Property Law Act 2007 was $1,425,000 plus interest.

50. If the money was to be provided as a loan, there was also the issue of the personal liability of the borrowers that would need to be resolved. Scott’s parents would no doubt want their liability limited to the assets of the Trust, and Scott might expect the same.

51. It would also have been clear that the appropriate vehicle for ownership of the [Belmont property] needed to be decided upon.

Even though the family homes occupied previously by Scott and Angela had apparently been owned by the Peters Family Trust, it was unlikely that the Trust would be considered an appropriate vehicle for ownership if Angela or her parents were providing a large majority of the purchase monies, because the Trust was settled by Scott, he and his parents were the trustees, he was the principal beneficiary, he had the sole power of appointment and Angela was nothing more than a discretionary beneficiary. It was questionable whether the Peters Family Trust was an appropriate vehicle for ownership of Scott and Angela’s family home, in any event, given Angela’s complete lack of influence or control over the Trust.

52. [Preston Russell] was aware, or ought to have been aware, of the terms of the Peters Family Trust – it held a copy of the Deed.

...

[65] Mr Smith put to Mr Nolan evidence that he intended to adduce from Mr Mawhinney about his conversation with Angela sometime after receipt of her email of 10 June 2009.22 Mr Nolan had previously expressed the opinion that that should have sounded “alarm bells”.23 The exchange between Mr Smith and Mr Nolan commenced by reference to Ms Brunt’s email of 9 June 2009, that enclosed documents for signing.24 It continued:

Q. So the email there records, as you’ve said, that the documents have

been set up for the Peters Family Trust to purchase the property?

A. That’s right.

Q. And then invites Scott and Angela to respond if that is not the correct position?

A. Yes.

Q. And that well to be fair to you, you have then referred to a further email on the 9th June a couple of minutes later, which is over at page

87 of the bundle.

A. Yes.

Q. Which relates to the insurance position of the property and then over on page 92 an email from Angela which you have described as the email which should have triggered alarm bells?

A. Yes. On reflection I mean it’s possible that Angela just tagged onto that email to respond, it could have been her intention to respond to the first email or the letter, sorry, or the email letter enclosing the

22 _{Set out at para [34] above.}

23 _{See para 45 of his written evidence, set out at para [64] above.}

24 Relevant parts of which are set out at para [31] above.

documents and asking them to confirm whether or not, if it was not the Peters Family Trust rather than being a direct response to the insurance point.

Q. Okay. So your evidence was that or is that having received this email a competent lawyer would have contacted Scott and Angela and her parents’ lawyers immediately to sort out how the purchase was to be structured –

A. Yes.

Q. - in terms of ownership and funding? Logically of those two steps, contacting Scott and Angela and contacting Angela’s parents’ lawyers, contacting Scott and Angela would be the first step?

A. Yes.

Q. Because the instructions the lawyer obtained from them would affect

whether an approach to the parents’ lawyers was necessary?

A. No, they would, definitely it needed to contact the lawyers as well to resolve what documentation and possibly what security would be required, I mean this was a large loan of $800,000, so they needed to contact AWS Legal as well in my opinion, to find out what was required, because there was only a day before settlement.

Q. So your opinion is that regardless of the content of the conversation with the clients, and regardless of the instructions given in that conversation, a competent lawyer would have needed to contact Angela’s parents’ lawyers?

A. I’m not certain that need is the right word, but to be proactive as one should I think it would have been a natural step to take, to find out what was going to be required because the time was urgent here, you had a day before settlement to resolve things and get documentation prepared, agreed and signed and so I think the lawyer would have been on the phone to AWS Legal straightaway.

Q. Having contacted the client?

A. Or having contacted the client first, or whoever you got hold of first.

Q. And just to be clear, do you say that the contact with AWS Legal was prudent or are you saying that it was a requirement of what you would expect a competent lawyer?

A. I think it would have been a requirement because there was no other way of knowing how to advise Angela and the Peters Family Trust, if they were going to be the vehicle for ownership, as to the funding between Angela and the Peters Family Trust without knowing all of the terms of the loan to Angela, because if that loan had to be paid on certain terms then Angela needed to be able to exercise rights to call up or whatever, to enable her to perform that obligation to repay.

(emphasis added)

[66] Mr Smith was critical of any suggestion that Preston Russell was obliged to document particular aspects of the transaction or to ensure that appropriate file notes were retained to explain why they acted as they did. Mr Smith’s submission, which I accept, is that the absence of documentary evidence is simply a factor that goes into the mix in determining the factual foundation from which the scope of the duty (or whether any duty has been breached) will be determined.

[67] In Birch v Weston Ward & Lascelles,25 Blanchard J, giving the judgment of the Court of Appeal, put the point in this way:

We are satisfied that the Judge applied the correct test. His reference to the need for clear, adequate and convincing evidence was in the context of remarks about the difficulty of determining the scope of the solicitors’ retainer where it was not recorded in writing and there was a “factual situation where there are many and frequent discussions between solicitor and clients” and “the retainer or instructions may vary from time to time”. As the Judge said, the very flexibility of the situation “may ultimately be to a client’s advantage but in subsequent litigation it may heighten the problems of proof”. We are not persuaded that the Judge did fall into error concerning the standard of proof required of the appellants.

In general terms, in drawing inferences, all evidence must be weighed according to the proof which it was within the power of one side to have produced and in the power of the other to have contradicted.26

[68] I do not accept Mr Smith’s submission that the scope of the duty of care did not extend to making further inquiry about the nature and form of the loan to be advanced by Chamberlain family interests. On Preston Russell’s state of institutional knowledge as at the time at which Angela’s email of 10 June 2009 was received, the following questions arose that were relevant to their clients’ respective interests:

(a) From, and to, whom was the $800,000 initially being advanced?

_{(b) Was the loan to be secured or unsecured?}

25 _{Birch v West Ward & Lascelles CA54/96, 17 March 1998 at 6.}

26. Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63 at 65, Snell v Farrell [1990] 2 SCR 311 at 328 and Fairchild v Glenhaven Funeral Services Ltd (t/a GH Dovener & Son) [2003] 1 AC 32 (HL) at para [13].

(c) From whom were the trustees of the Peters Trust to receive the

$800,000?

(d) On what terms (for example, secured or unsecured, on demand or not)

were the trustees of the Peters Trust to receive the $800,000?

(e) Was there any conflict between the interests of Angela (borrower from the Chamberlain interests and lender to the Peters interests) and the trustees of the Peters Trust?

(f) If a conflict of interest did arise, should any or all of the clients be given the opportunity to take independent legal advice before completing settlement of the transaction?

(g) From whom could instructions safely be taken to ensure that all parties were aware of their differing interests and responsibilities prior to settlement being implemented, assuming no opportunity for independent legal advice was given?

[69] Since the Privy Council’s decision in Clark Boyce v Mouat,27 it is clear that a lawyer may act for all parties in a transaction where their interests might conflict, provided he or she has obtained the informed consent of each. The concept of informed consent was explained by Lord Jauncey of Tullichettle, delivering the advice of the Privy Council in that case:28

Informed consent means consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other. If the parties are content to proceed upon this basis the solicitor may properly act.

[70] In determining whether a lawyer has obtained informed consent, it is essential to determine the services required of that person by the parties. In that particular case, Mrs Mouat had instructed her solicitor to do no more than to carry

out the necessary conveyancing on her behalf and to explain to her the legal ramifications of the transaction. The lawyer explained the transaction and advised her to take independent advice, but she elected to proceed regardless. In that situation, there was no duty on the lawyer to refuse to act for her.29 Further, there is no general duty on a lawyer to advise a client on the wisdom of entering into a particular transaction.30

[71] In my view:

(a) Preston Russell owed a duty to Scott (personally) and the trustees of the Peters Trust to clarify the financing arrangements with them before settling the purchase of the Belmont property. Whether that was done in writing (which would have been preferable) or orally did not matter. Ultimately, the duty was to ascertain the true position so that they could decide whether any further advice was required to be given to any or all of their clients.

(b) Having been put on notice by Angela’s email of 10 June 2009, Preston Russell owed a duty of care to Scott (personally) and to the trustees of the Peters Trust to ascertain the character of the $800,000 and to draw to their attention any conflicts in their respective positions arising out of their inquiries into that and allied facts, including the parties who were to take title to the Belmont property.

(c) Preston Russell owed a duty to Scott (personally) and the trustees of the Peters Trust to provide them with an opportunity to seek independent advice before proceeding to settle the transaction. They could only continue to act if there were informed consent from all conflicted parties.

(c) Did Preston Russell breach their duties of care?

[72] To meet its duty of care, Preston Russell needed to do what a reasonably competent solicitor would have done in the circumstances, having regard to the accepted standards pertaining within the legal profession.31

[73] Mr Nolan opined that Preston Russell had failed to observe the standards expected of a competent lawyer in the way in which they dealt with the ownership structure for the Belmont property and the funds of $800,000 provided by Mr and Mrs Chamberlain. Mr Nolan was particularly critical of Preston Russell’s actions

from the time it received the email from Angela, timed at 7.24am on 10 June 2009.32

[74] Mr Patterson sought Mr Nolan’s response to the specific terms of the written brief of evidence of Mr Mawhinney that had been exchanged prior to trial.33 At this stage of the trial, Mr Mawhinney had not given evidence. That exchange proceeded as follows:

Q. And paragraph 20 provides an outline of a telephone conversation that took place and what Russell Mawhinney recalls of that conversation. Have you got any comments arising out of that intended evidence?

A. Well the point that arises out of this paragraph is that Mr Mawhinney confirmed with Angela that the property was in the personal name of the Peters Family Trust, that there was to be a loan from Angela’s parents to Angela, but he didn’t seem to address or doesn’t mention how the money was going to get from Angela to the Peters Family Trust and that was obviously a critical issue that needed to be resolved and it’s not mentioned in his brief at all.

Q. One of the other critical issues which you’ve given evidence on is the recording of her consent to the assignment of the sale and purchase to the Peters Family Trust, does anything arise out of that conversation that that assists in that regard?

A. It reinforces, I think, that there needed to be a written record at the very least, that Angela had consented to the nomination, that would normally be dealt with by way of Deed of Nomination, a Deed of Nomination is not strictly necessary but at the very least I would have thought there’d need to be a written record that that was, that had been agreed.

31 _{Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 at 402–403.}

32 See para [34] above.

...

Q. ... there are the time records for Preston Russell that have been provided on discovery and you’ll see, if you look at the date column to the left and you go down to the first entry for the 10th of June

2009, this is the date for settlement, there is the user REWM which is Russell Mawhinney and there’s a telephone Ange Peters re ownership parents’ loan, three units shown, it’s approximately 18 minutes. In your experience would that be enough time to attempt to resolve all of these issues?

A. I don’t believe it would have been because there was a lot to resolve, if the loan was coming from her parents there was the issue of what were the terms of that loan, would it require documentation, were they to – were Preston Russell to act for Angela in the matter and AWS Legal for the parents, there was then the issue – and what security might be required for that loan, what the terms of the loan were and so on, and then there was the issue assuming that – well they had to discuss the ownership issue with the Peters Family Trust and what that meant for Angela given the issue that she was nothing but a discretionary beneficiary of that trust. Then there was the issue of how the money was going to be contributed to the Peters Family Trust by her, whether it was by way of loan, presumably it would have to be because she had an obligation to pay it back if it was a loan from her parents, and the terms of repayment would need to be mirrored at the very least so that if the loan was called up by her parents she could call it up from the Peters Family Trust. So there was a lot to discuss and a lot of issues and I wouldn’t have thought effectively what three units of time, which could be less than

18 minutes, was sufficient.

Q. And the last question is if we were to accept Mr Mawhinney’s account as set out in paragraph 20, has he, in your opinion, discharged his obligations as a competent solicitor?

A. I don’t think that’s my duty as an expert to determine, but certainly it doesn’t accord with what I’d expect the practice of a competent lawyer to have followed, to have left that loan completely hanging.

(emphasis added)

[75] Mr Smith also explored Mr Nolan’s previous evidence in relation to the

conversation to which Mr Mawhinney had referred in his brief of evidence:34

Q. So if His Honour accepts that Mr Mawhinney had a conversation in these terms, that will be Mr Mawhinney’s evidence, if His Honour accepts that evidence is it your position that Mr Mawhinney nonetheless did not fulfil the duties of a competent solicitor?

A. That is correct and as I said in my evidence he needed to also deal with the loan, how the money was going to get from Angela to the

Peters Family Trust and that involve another party, the Peters Family Trust, who were apparently going to be borrowing this money, and he didn’t need to just contact Angela and resolve things with Angela as to what terms she was willing and found acceptable to lend the money to the Peters Family Trust, he needed to contact the trustees of the Peters Family Trust to confirm that they were happy with the terms of the loan and issues about limitation liability that I mentioned in my brief, you know, there were two parties that he was acting for and that he needed to contact them as well, he couldn’t just go on what instructions he received from Angela.

Q. So just to break that proposition down a bit. You say that the matter that was not addressed, if Mr Mawhinney’s evidence is accepted, was the status of the advan – the status of the payment of the

$800,000 from Angela to the Peters Family Trust?

A. Yes.

Q. There has been evidence already given by two of the three trustees of the Peters Family Trust that Angela was dealing with Preston Russell on their behalf. You’ll have to take that from me obviously.

A. Mmm.

Q. So if Angela was dealing on behalf of both the trust and herself personally there wouldn’t have been any need to contact the trust separately, would there?

A. No I disagree with that. I mean the extent to which she was dealing with the trust would not – could not extend to agreeing the terms of the loan by which the trustees would be liable, they might be personally – would be personally liable if their liability was not limited and issues like that, which could only be dealt with by talking directly to the trustees and there was a conflict of [interest] in there any way because Angela is the lender, they’re the borrower, she couldn’t represent both parties.

(emphasis added)

[76] No expert witnesses were called by Preston Russell. Its evidence was limited to that provided by Mr Mawhinney. In his oral evidence in chief, Mr Mawhinney was asked to explain the basis for his belief that, in his telephone conversation with Angela on 10 June 2009, she had confirmed that the property had been purchased in the name of the trustees of the Peters Trust and no steps were required to document

the loan from Mr and Mrs Chamberlain, for whom AWS Legal were acting.35 Mr

Mawhinney responded:

A. Well I think the basis for the last sentence of [para 20 of his written statement],36 I think once [the email from Angela of 10 June 2009] came in obviously it needed to be clarified and um, the phone call that I made to Angela Peters was later that day to clarify this here, to clarify this because obviously there’s some confusion in this email that’s come from Angela and so it was essentially to establish who was going to own the property, which was the Trust and record the arrangements with the loan, which at that stage that we, well obviously we were aware that AWS Legal were acting for the lender, who was providing that $800,000, so um, it would have been their role to record that loan.

[77] In cross-examination, Mr Patterson explored Mr Mawhinney’s response to

Angela’s email, in the context of Mr Nolan’s evidence about “alarm bells” ringing:

Q. ... earlier today Peter Nolan gave evidence and he said that upon receipt of an email that contained these statements, alarm bells would ring for a conveyancer, that’s what he said?

A. Correct. Yes I’d agree with that and that’s –

Q. And you’d agree with that, wouldn’t you?

A. Well I would and that would’ve been why I phoned Angela that day,

to clarify the contents of that email.

Q. And in your evidence in chief that’s effectively what you said to supplement your brief, you were asked by your counsel what the basis of your belief of what was discussed was concerned.

A. Mmm.

Q. But before he did that he took you to this email, didn’t he?

A. Mhm.

Q. And he got you to look at it and then he asked you, he said, “Well why do you believe this is why you had this conversation and what you discussed?” Correct?

A. I probably know myself better than any one else in this room and when I look at the time records and I see what I’ve recorded as the narration for the time, it was clear to me that what I would’ve been thinking was that I needed to clarify based on that email the ownership and the status of the $800,000 as a loan, and I’m confident that that’s what I would’ve done with that phone call.

Q. And you’d accept that you could’ve explained that, or at least put

that in your brief of evidence? A. Well I think we did.

...

Q. When would you have done that?

A. No, no, my problem was that it would’ve been best practice to have taken a file note for my own edification of that telephone discussion and unfortunately for some reason I didn’t do that this time, um, I don’t know why, I think possibly because we were rushing at that stage, um, that would’ve been best practice for my own edification just so that it was on the file, but I don’t think that takes away from the understanding that obviously came out of that telephone discussion which was a continuation of what we had previously been talking about.

Q. You were rushing because it was a busy day, wasn’t it?

A. No, I’m rushing because the instructions came in at a late stage and

settlement had been brought forward.

...

Q. ... you’ve used the words you were rushing, which tends to suggest a sense of urgency and not having enough time to complete –

A. No, I don’t think, I don’t – I’m not suggesting that at all, I’m saying I’m rushing because this here did ring alarm bells with me when it came in. Because it was clear to me from that that Angela didn’t have quite an understanding of the situation, you can’t have a mortgagor that’s a trust and a different party buying the property, so we had to clarify that.

[78] Three conclusions can safely, in my view, be drawn from the points that ought to have been raised with Scott and his parents after Preston Russell received Angela’s email of 10 June 2009.37

[79] The first is that it ought to have been clear to Preston Russell that there were conflicts between the interests of Angela and the trustees of the Peters Trust, particularly (but not exclusively) Scott’s parents. On the basis of their state of knowledge, Angela was borrowing $800,000 from her parents. Was the money payable on demand? Was it to be secured or unsecured? These issues needed clarification.

[80] Angela was then to lend on that money so that the Belmont property could be acquired. Questions arising included: To whom was she lending the money? On what terms was the money being advanced? Given the position of Scott’s parents,

was it repayable on demand or in some other way? Should Scott’s parents’ liability

under the loan have been limited to the extent of the assets of the Peters Trust?

[81] Second, it was neither safe to obtain answers to all of those questions solely from Angela, nor to expect any of the people involved to have been able to understand the legal ramifications of what was being done and to give clear instructions within the relatively short period of any telephone conversation that took place between Mr Mawhinney and Angela. My best estimate is that the conversation between Mr Mawhinney and Angela took no more than 15–20 minutes. In that time it would have been necessary for Mr Mawhinney to explore all of the issues to which

I have referred,38 to ascertain whether any conflicts of interest arose, and to ensure

that Angela understood the true nature of the transactions and the legal obligations that were being cast on her and others involved. All of that required discussion in the context of a transaction that the lawyers knew was to involve the trustees of the Peters Trust taking title to the new family home and entering into a mortgage with ASB for $150,000, for which Angela had no legal liability to repay the bank. Another important feature was that, taken at face value, Angela’s email to Ms Brunt sent at 7.25am on 10 June 2009 evidenced a complete lack of understanding of the transaction that the parties were entering into. Those comments accord with the

evidence given by Mr Nolan, which I accept.39

[82] Third, Angela could not give informed consent to the transaction proceeding on behalf of the conflicted parties. She was the lender and had no responsibility as borrower for the ASB loan. Her position was vastly different to both Scott and the trustees of the Peters Trust. So, it was necessary for Preston Russell either to advise the conflicted parties to get independent legal advice or to obtain informed consent to them continuing to act.

[83] Had Preston Russell inquired into and ascertained the true character of the

$800,000 advance, considered the impact of the arrangements on each of their clients and advised Scott (personally) and the trustees of the Peters Trust to take

_{independent advice, they would have complied with the duty of care cast upon them.}

38 Summarised in para [68] above.

From the evidence and the conclusions I have drawn, I find that they did not do so. Accordingly, they breached their duties to their clients.

(d) Damages

[84] Two issues arise in relation to damages. They are linked. The first is whether the breach of duty I have found to have occurred caused any recoverable loss on the part of either Scott or the trustees of the Peters Trust. The second is the quantification of any loss suffered.

[85] Mr Smith submitted that it was not sufficient to apply a “but for” test in determining whether loss might have been suffered by Scott and the trustees. He contended for a more subtle approach, based on whether the scope and purpose of the duty found to exist was designed to protect the client from the loss alleged. That approach was based on Bank of New Zealand v New Zealand Guardian Trust Co

Ltd,40 a case involving a claim by a bank against a debenture trustee.

[86] Further, Mr Smith submitted that the client must establish more than the mere creation of an opportunity to incur loss.41 Rather, the act or omission of the lawyer must constitute a “material and substantial cause of the loss”, as opposed to “merely a de minimis or trivial contribution to the occurrence”.42 In Price Waterhouse v Kwan, Tipping J, delivering the judgment of the Court of Appeal, said:

[28] There is a material, indeed a crucial difference between causing a loss and providing the opportunity for its occurrence. The line between these concepts can often be difficult to draw but the distinction is vital. The point was addressed in the judgments delivered in this Court in Sew Hoy & Sons Ltd (In Receivership and in Liquidation) v Coopers & Lybrand [1996] 1

NZLR 392. Plaintiffs in this field must show that the defendant's act or omission constituted a material and substantial cause of their loss. It is not

enough that such act or omission simply provided the opportunity for the

occurrence of the loss. The concept of materiality denotes that the act or omission must have had a real influence on the occurrence of the loss. The concept of substantiality denotes that the act or omission must have made a more than de minimis or trivial contribution to the occurrence of the loss. Looking at the question in this dual way is both a reminder of the difference

40 Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA) at 681 and 683 (joint judgment of Richardson P, Gault, Henry and Blanchard JJ), delivered by Gault J, with whom, on this point, Tipping J agreed: see 686–688.

41 Sew Hoy & Sons Ltd (in rec and in liq) v Coopers & Lybrand [1996] 1 NZLR 392 (CA) at 399 (McKay J), 403 (Henry J) and 408 (Thomas J).

42 Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA).

between opportunity and cause, and a touchstone for distinguishing between them. In some instances the words used have been material or (as opposed to and) substantial. It is preferable, for the reasons just mentioned, to focus on both concepts for they are each relevant to causation issues. No form of words will ultimately provide an automatic answer to what is essentially a question of commonsense judgment.

(emphasis added)

[87] Mr Smith also referred me to Mallesons Stephen Jaques v Trenorth Ltd,43 a decision of the Court of Appeal of Victoria. Mr Smith submitted that Mallesons stood for the proposition that the act or omission on the part of the solicitor merely “set the scene” for a decision by the client on what to do next, as opposed to causing any loss flowing from that bad decision.

[88] The authorities to which Mr Smith referred may be seen as in conflict with a “loss of chance” case, Benton v Miller & Poulgrain (A Firm).44 In that case, the Court of Appeal considered a claim against a firm of solicitors who had failed to advise a client adequately on matters relating to the execution of an agreement under s 21 of (what was then) the Matrimonial Property Act 1976. The substantive point with which the Court of Appeal was concerned was the basis for assessment of damages. In particular, were damages based on loss of chance principles applicable in a negligence case of that type? In addressing that point, the Court of Appeal did

not consider the observations made in earlier decisions of that Court, to which Mr Smith had drawn attention.45 Mr Patterson submitted that this was the proper approach to take in this case.

[89] Delivering the judgment of himself and Glazebrook J, William Young J pointed out what he termed “two key areas of uncertainty” in relation to the specific facts of the case. The first was the application of Matrimonial Property Act entitlements at the time of a transaction in 1985. The second concerned the way in

_{which events would have “panned out” if Mr and Mrs Benton had each received}

43 Mallesons Stephen Jaques v Trenorth Ltd [1999] 1 VR 727 at paras [17], [24] and [25] (Kenny

_{JA), with whom Callaway and Buchanan JJA agreed.}

44 _{Benton v Miller & Poulgrain (a firm) [2005] 1 NZLR 66 (CA).}

45 Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA), Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA) and Sew Hoy & Sons Ltd (in rec and in liq) v Coopers & Lybrand [1996] 1 NZLR 392 (CA).

appropriate legal advice from the one lawyer.46 In considering those two aspects of

“uncertainty”, William Young J said:

[44] Uncertainty can be addressed in two ways; either on what is often described as an “all or nothing” basis by reference to the balance of probabilities standard of proof, or, alternatively, on a proportionate (or loss of a chance) basis according to the Judge's assessment of the probabilities. The law as to when Judges should take “all or nothing” or a “loss of chance” approaches to causation and damages is, to say the least, difficult. The cases are not easy to reconcile. Where reconciliation is attempted the distinctions drawn are often artificial. The whole topic is discussed usefully in David Hamer's article “ ‘Chance Would Be A Fine Thing’: Proof Of Causation And Quantum In An Unpredictable World” (1999) Melbourne University Law Review 557. The relevant New Zealand cases are collected in Ben Smith, “Loss Of A Chance” (1999) 29 VUWLR 225. The point is also discussed in Todd, Law of Torts in New Zealand (3rd ed, 2001) p 996.

[45] The true status in 1985 of the Mt Albert and Pauanui properties (which we will discuss shortly in a little more detail) is uncertain but, to use a phrase often deployed in this context, their status is a matter of historical fact and can and must be determined in accordance with the balance of probabilities standard of proof. Loss of a chance principles have no role to play in this part of the exercise. Authorities which support this approach are Davies v Taylor [1974] AC 207 especially at pp 212 – 213 per Lord Reid and Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 at p 639 per Brennan and Dawson JJ and pp 642 – 643 per Deane, Gaudron and McHugh JJ.

[46] In contradistinction, what would have happened if Mr Poulgrain had given appropriate advice to Mr and Mrs Benton is not a matter of historical fact (given that such advice was not given). Rather it involves counter- factual analysis – that is, the asking and answering of the hypothetical question.

[47] In cases which turn on how a plaintiff would have acted in the absence of a breach of duty, the all or nothing approach is usually (although not always: see Davies v Taylor) applicable. So if the plaintiff shows that it is more likely than not that he or she would have acted in a particular way, the Court acts on the assumption that this is the way the plaintiff would have acted. If this is not established as being more likely than not, then the Court acts on the basis that the plaintiff would not have acted in that particular way. This approach can be justified in various ways depending on the context. For instance:

(1) A plaintiff who cannot show that he or she would have acted differently if the defendant had not been negligent might therefore not be able to establish relevant reliance on the defendant. Authority for this approach can be found in Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113 and to some extent in the judgments delivered in Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

(2) A plaintiff who cannot show that he or she would have acted differently in the absence of a breach of duty by the defendant has failed to show that

46 Benton v Miller & Poulgrain (a firm) [2005] 1 NZLR 66 (CA) at para [43].

the defendant has caused any loss: see for instance the judgment of Brennan J in Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149 at pp 171 – 172 and Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332.

These rationales are applicable in cases where the plaintiff has not established on the balance of probabilities that he would have acted differently in the absence of the defendant's breach of duty. They are not of such obvious cogency in cases in which the plaintiff has shown, but only by a narrow margin, that he or she would have acted differently but then seeks full damages on an all or nothing basis. There is no doubt, however, that the all or nothing approach is usually applied in both situations: see for instance the example given by Sir John Donaldson MR in Hotson v East Berkshire Health Authority [1987] 1 AC 750 at p 762:

“Take the case of a solicitor who fails to advise his client that the property which he is about to purchase is subject to a right of way. If the client had been told, he would or would not have gone ahead with the transaction. That would have been his choice, not the choice of fate. Ascertaining what his choice would have been is possible whereas the prospects for a cure of a particular patient are sometimes not. The damages recoverable by the solicitor's client would therefore be all or nothing depending on whether he could prove, on the balance of probabilities that he would have abandoned the transaction.”

[90] In this case, the area of uncertainty is the way in which Scott and his parents may have reacted to proper disclosure being made of the loan from Mr and Mrs Chamberlain, having regard to their distinct interests. That analysis is of the type to which William Young J referred in Benton v Miller & Poulgrain (A Firm), as one involving a “counter-factual analysis – that is, the asking and answering of” hypothetical questions.47 William Young J said that in this type of case, normally an “all-or-nothing” approach is appropriate, so that where plaintiffs can prove on the balance of probabilities that if they had been properly advised they would have

reacted in a particular way, the causation element is met. I see no reason to depart from his reasoning.48

[91] Had Scott been independently advised on the transaction, from his own personal perspective, it is likely that he and his wife would have agreed terms with her parents to enable the property to be purchased. His position is unlikely to have been any different from that which ultimately pertained. Leaving the interests of the Peters Trust to one side, there was no likelihood, in June 2009, that Scott and Angela

would separate. It is difficult to see any reason why they would not have completed the transaction once the terms of the advance had been settled with Mr and Mrs Chamberlain.

[92] On the other hand, the trustees of the Peters Trust would have required independent advice. That advice should have made it clear to Scott that his position was different to that of his co-trustees.49 He would have been advised (as a trustee) either to adopt the stance to be taken by his parents or to resign, so that they could make all trustee decisions on their own.

[93] Unless Mr Graham and Mrs Edna Peters’ liability were limited to the assets of the Trust, there was no real point in them proceeding with the transaction. Their likely legal advice would have been to extricate themselves from the transaction unless their personal liability for any shortfall on repayment of the loan was excluded. That conclusion accords with evidence given by both Mr Graham and Mrs Edna Peters. Each said that if they had been informed that the $800,000 represented a loan for which they would have a liability to repay, they would not have committed to borrowing those moneys. I accept their evidence on that issue. Accordingly, I find that they have proved that Preston Russell’s negligence has caused loss to them.

[94] As to the quantification of damages in this case, Scott and his parents are not seeking damages beyond those involved in ascertaining the actual position with regard to the character of the $800,000 advanced. They seek to recover what they see as wasted costs arising out of the lack of clarity as to whether it was necessary to repay $800,000 to Mr and Mrs Chamberlain.

[95] Generally, there are two exceptions to the rule that costs cannot be recovered as damages.50 The first is where costs were incurred in proceedings involving a third party. That is the case here, as Scott and his parents were sued by Angela and the trustees of the Chamberlain Trust. Second, even where the claim is between the same parties, where the claimant is relying on an independent cause of action, costs as damages may also be recovered. That aspect is also present because the

substantive proceeding rested on proof of the character of the $800,000 advance, whereas the third party claim is based on breaches of contractual or tortious duties of care owed by a solicitor to a client.

[96] In closing, Mr Patterson identified two sets of costs that ought to be awarded as damages against Preston Russell. They were:

(a) Costs incurred in defending the substantive proceeding.

(b) Costs ordered to be paid by Scott and/or the trustees of the Peters

Trust to Angela and the Chamberlain Trust.

[97] Mr Patterson referred to Mirams v Buddle Findlay51 as the only decision of which he was aware in which costs had been ordered as damages against a negligent solicitor. In making that award in the District Court, Judge Unwin followed the principle articulated by the Court of Appeal in Fleming v Securities Commission,52 in which Cooke P said he subscribed to the view that “within the broadest of conceptual frameworks, whether damage and fault are sufficiently connected for liability is a question of fact and degree”. I proceed on the same footing.

[98] Uncontested evidence was given by an administrator and law clerk employed by Mr Patterson of the breakdown of costs rendered in relation to the substantive proceeding. The identified costs total $65.860.98. They are made up of fees totalling $57,270.42, GST of $8,590.56 and disbursements of $1,069.61.

[99] Of those costs $1,109.75 were incurred in relationship property proceedings in the Family Court. Such proceedings would have followed Scott’s and Angela’s separation, in any event. I do not consider they are claimable against the solicitors.

[100] On quantum, Preston Russell accept that $45,868.70 related solely to attendances for the High Court proceedings. Mr Smith submitted that there was no evidence to establish a breakdown of time within the attendances coded as relating to

both the High Court proceedings and other issues. No point was taken as to who paid the costs that were incurred for the benefit of both Scott and the trustees.

[101] The costs arose out of legal proceedings that were settled at a late stage. Adopting what Cooke P said in Fleming v Securities Commission,53 I consider that a broad assessment is required. In my view, adopting a conservative approach, Scott and the trustees of the Peters Trust ought to be able to recover a total sum of $55,000 (inclusive of GST and disbursements) as damages. I make no distinction between Scott and the Peters Trust, as only one set of costs was incurred in relation to all

parties.

[102] The circumstances in which general damages for distress might be awarded were considered, in the context of a negligence action against a firm of solicitors, by the Court of Appeal in Mouat v Clark Boyce.54 I have already referred to the

successful appeal on liability in that case.55 However, I regard myself as bound to

follow the Court of Appeal’s pronouncements on the distress damages issue.

[103] The leading judgment in the Court of Appeal on this point was given by

Cooke P. The President said:56

... In my opinion, when the plaintiff has a cause of action for negligence, damages for distress, vexation, inconvenience and the like are recoverable in both tort and contract, at least if reasonably foreseeable consequences of the breach of duty.

Both Richardson and Gault JJ agreed with those observations.

[104] All three Judges declined to disturb an award of $25,000, made in favour of Mrs Mouat by the trial Judge, even though Cooke P described it as “on the high side”. In particular, the President accepted that Mrs Mouat had suffered great stress through being confronted by the threat of losing her home, with the consequence that

_{her enjoyment of life had been “most seriously impaired”.}57

53 _Ibid.

54 _{Mouat v Clark Boyce [1992] 2 NZLR 559 (CA).}

55 _{Clark Boyce v Mouat [1993] 3 NZLR 641 (PC).}

56 Mouat v Clark Boyce [1992] 2 NZLR 559 (CA) at 568.

[105] In this case, I do not consider that distress damages should be awarded in favour of Scott, personally. He and his wife should have ascertained the true position. The likelihood is that the money would have been advanced in any event and on the terms proposed. The property was to be their family home and it is unlikely that its acquisition would have been put in jeopardy by a disagreement with Mr and Mrs Chamberlain.

[106] The position is very different with regard to Scott’s parents. As a result of the lawyers’ failure to advise them to seek independent advice they entered into a contract which had the effect of rendering them personally liable for a debt of

$800,000. They sold their home, in order to provide funds to meet the debt, doing so out of a sense of loyalty and love for their son and grandchildren. They now face retirement with much diminished capital and in a home which they do not own. In general, they are likely to be substantially reliant on their son to assist them financially in retirement.

[107] In my view, an award of general damages in favour of each of Scott’s parents in a sum equivalent to that awarded in favour of Mrs Mouat is appropriate. While Cooke P did regard an award of that level as “on the high side”, my view is that the stress and inconvenience caused to them was severe. In any event, I consider that an award in favour of each in the sum of $25,000 (in 2013 dollars) is much less, in real terms, than a similar award made by the trial Judge in Mouat, in September 1991.

[108] In a separate judgment given today, I have awarded costs on a 2B basis, together with reasonable disbursements, in favour of Angela, Mrs Chamberlain and the Chamberlain Trust in the substantive proceeding. I consider those costs are sufficiently linked to the claim against Preston Russell as to be recoverable as damages.

Result

[109] For those reasons, judgment is entered in favour of Scott and the trustees of the Peters Trust against Preston Russell in the sum of $55,000 and the amount to be fixed by the Registrar for costs and disbursements awarded against Scott and his parents in the substantive proceeding. In addition, judgment is entered against

Preston Russell in favour of each of Mr Graham and Mrs Edna Peters in the sum of

$25,000 (a total of $50,000), as general damages.

[110] So far as costs in the third party proceeding are concerned, I was informed that there is additional information relevant to costs which was not before me at the substantive hearing. In those circumstances, I reserve costs. The Registrar shall convene a telephone conference before me on the first available date after 17 June

2013 for timetabling orders to be made for the exchange of submissions on that issue.

_{[111] I thank counsel for their assistance.}

_{P R Heath J}

Delivered at 9.30am on 13 May 2013

Solicitors:

Lowndes Jordan, Auckland Graeme Skeates Law, Auckland Gilbert Walker, Auckland Counsel:

C T Patterson, Auckland