Temarama (2004) Limited (in liquidation) v Richard Lockhart Associates Limtied [2013] NZHC 2380 (12 September 2013)

Last Updated: 16 October 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-002283 [2013] NZHC 2380

BETWEEN	TEMARAMA (2004) LIMITED (IN LIQUIDATION) First Plaintiff HENRY DAVID LEVIN and VIVIEN JUDITH MADSEN-RIES Second Plaintiffs
AND	RICHARD LOCKHART ASSOCIATES LIMITED First Defendant RICHARD GEORGE SIMON LOCKHART Second Defendant

Hearing:	31 July 2013
Appearances:	W N Fotherby for Plaintiffs M C Brugeyroux for Defendants
Judgment:	12 September 2013

_{JUDGMENT OF COURTNEY J}

This judgment was delivered by Justice Courtney on 12 September 2013 at 11.00 am

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

_{Date............................}

TEMARAMA (2004) LTD v RICHARD LOCKHART ASSOCIATES LTD [2013] NZHC 2380 [12 September

2013]

Introduction

[1] The plaintiffs are a company in liquidation and the liquidators of the company. The defendants are the company’s previous accountant and its director. The plaintiffs sue in respect of incorrect entries in the company’s 2004 accounts prepared by the defendants. These entries had the effect of reducing the current account debt owed by the company’s director, Duncan McRobie from $492,801.58 to $19,965. When the plaintiffs sought an explanation the defendants represented that the book entries reflected actual assets and funds transferred to Temarama by Mr McRobie or associated entities. By the time the liquidators ascertained the correct

position Mr McRobie was unable to repay the current account debt.1

[2] The plaintiffs allege deceit, negligence, breach of contract and breach of the Fair Trading Act 1986. They claim a total of $336,795 made up of the costs connected with ascertaining the true position, the costs of obtaining judgment against Mr McRobie and the extent to which Mr McRobie’s financial position deteriorated between the plaintiffs’ enquiry in September 2007 and the date on which the plaintiffs obtained judgment against him.

[3] The defence is essentially that the 2004 accounts were completed in accordance with information supplied to the defendants. However, the affirmative defence of contributory negligence is also pleaded, asserting that the 2004 accounts were compiled from information provided by the first plaintiff and in accordance with the first plaintiff’s instructions.

[4] The plaintiffs seek further and better particulars of the assertions in the statement of defence regarding the information said to have been provided by or on behalf of the company. In relation to each assertion by the defendants that they acted in accordance with information provided, the plaintiffs seek particulars of the information, how it was given, when it was given and by whom it was given. In addition, they seek further particulars of specific aspects of the accounts which are

_{the subject of positive assertions in the statement of defence such as references to}

1 The liquidators obtained judgment against Mr McRobie for $663,133.19 but Mr McRobie is bankrupt: Temarama 2004 Ltd (in Liq) v McRobie HC Auckland CIV 2010-404-1969, 9 November

2001

financing transactions or stock. Somewhat oddly, however, no particulars are sought of the assertions in the contributory negligence defence but it is clear that the particulars sought would, if required to be provided, inform the plaintiffs of the basis for that affirmative defence.

[5] The plaintiffs say that the particulars sought are needed to enable them to understand the defence. Without knowing what the information the defendants are referring to is, the plaintiffs say that they are unable to prepare evidence to rebut the allegation of contributory negligence; they say that without further particulars they cannot know how or when they are alleged to have been negligent, or who their negligent agent was.

[6] The defendants resist the application on the grounds that:

(a) Many of the particulars sought are in response to particulars pleaded by the plaintiffs and there is no obligation to plead to particulars;

(b) The statement of defence adequately responds to the allegations in the statement of claim and informs the defendants of the grounds of defence;

(c) The particulars sought are within the knowledge of the plaintiffs, including in files provided on discovery;

(d) Some of the particulars relate to the affairs of the company that are

outside the defendants’ knowledge.

[7] I can dispose of (c) immediately. It is well-settled that the fact that information sought by way of particulars is within the knowledge of the party seeking them does not preclude them being provided.2 The issue is not what the party seeking the information already knows but rather what the other party is

_alleging.

2 Greystoke Industries v Jones HC Auckland CP175/95, 6 May 1996; Public Trustee v Mahar HC Wellington CP818/88, 7 February 1990.

[8] As to (d), self-evidently, if the defendants do have the information being sought then they cannot provide it. They need simply say that that is the case.

The right to further and better particulars of a statement of defence

[9] The function of pleadings generally is to “give fair notice of the case which has to be met and to define the issues on which the Court will have to adjudicate in order to determine the matters in dispute between the parties”.3 To this end r 5.48 of the High Court Rules requires that a statement of defence either admit or deny allegations of fact and, where a matter is alleged with circumstances, sufficient detail must be given to enable the real issue to be identified rather than a bare denial:

...

(2) A denial of an allegation of fact in the statement of claim must not be evasive. Points must be answered in substance. If for example, it is alleged the defendant received a sum of money, it is not sufficient to deny receipt of the particular amount. Rather, the defendant must deny receipt of that sum of money or any part of it, or set out how much was received. When a matter is alleged with circumstances it is not sufficient to deny it as alleged with those circumstances. In all cases a fair and substantial answer must be given.

...

(5) The statement of defence must give particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances sufficient to inform the Court, the plaintiff, and any other parties of defendants’ defence.

[10] Where the pleadings do not provide a response of the kind required, r 5.21(4) empowers the Court to order further particulars even in the absence of any notice being served by the opposing party.

[11] In the present case the defendants resist providing the particulars, in part, on the ground that the allegations in question are merely particulars. It is correct that a defendant is not required to plead to allegations that are offered not as material facts but as particulars.4 Ms Brugeyroux, for the defendants, relied heavily on the

_{decision in Walker v Bennett in which Miller J observed that:}

3 _{Commerce Commission v Qantas Airways Ltd (1992) 5 PRNZ 227 (HC).}

4 Walker v Bennett (2009) 19 PRNZ 350 (HC).

[22] ... the Rules maintained the longstanding distinction between material facts and particulars, which recognises that pleadings serve two distinct purposes; to state facts that establish a cause of action leading to the relief sought, and to inform the Court and the other parties of the nature of the claim. Particulars serve only the second purpose ...

[23] Rule 108 did not speak of material facts but that is what was meant by the requirement of Rule 108(a) that the claims show the general nature of the claim to the relief sought. In Bruce v Odhams Press Ltd (above) at p712; p294, Scott LJ held that: “[t]he word ‘material’ means necessary for the purpose of formulating a complete cause of action; and if any one ‘material’ fact is omitted, the statement of claim is bad ...”

... Rules 108 and 185 together distinguished the nature of the claim to relief for particulars, which might be “reasonably required” to give fair notice of the cause of action.

[24] Rule 130(1) and (3) provided that the defence should admit or deny the allegations of fact and that every allegation not denied was deemed admitted. Having regard to the clear distinction in R 108 between matters necessary to show the nature of the claim and particulars, the maintenance of that distinction in rr 130(5) and 185 and the origins of the Rules in the Code of Civil Procedure, I consider that the allegations of fact referred to in r

130(1) and (3) were those required under r 108(a); that is, facts necessary to show the cause of action and not particulars pleaded under r 108(b).

[12] However, where a defendant has elected to respond to particulars, it may be required to provide further information so as to ensure that the response is correct, as was the case in Re Burgee Investments Ltd.5

The particulars sought

[13] Particulars of the kind that I have already outlined are sought in relation to paragraphs 3(a) and (b); 4(b); 5(b); 10; 21(a), (h)(i)(ii)(iii), (j), (n) (q), (dd), (gg);

22(c) and (e); 25(b) and (d); 31(b); 33(b) and 41(b).6

[14] The particulars sought in relation to paragraphs 3, 4, 10, 22, 31 and 41 are not responses to particulars. They are responses to material facts pleaded by the plaintiffs. There is no general denial but, instead, a response which, plainly, is insufficient in some respects. For example, paragraph 3(a) of the statement of

_{defence responds to paragraph 12 which asserts:}

5 _{Re Burgee Investments Ltd (1994) 18 TRNZ 786 (HC).}

6 The particulars sought in paragraphs 5(a), 5(r), 5(y), 5(aa) and 5(bb) of Henry Levin’s affidavit have been provided. However, while the acknowledgement has been provided, its date and name of who signed it has not.

The first plaintiff engaged the first defendant, through the personal service of the second defendant, to prepare its annual financial statements for the year ending 31 March 2004 (the 2004 accounts).

[15] The defendants’ response is to deny paragraph 12 and say further that:

(a) The first plaintiff engaged the first defendant to compile its 2004 accounts;

(b) The 2004 accounts were compiled from information provided to the first defendant;

(c) The first plaintiff and its director (Duncan McRobie) were responsible for the accuracy and completeness of the information supplied to the first defendant.

[16] Given the defendants’ admission of the earlier allegation that the second defendant is the director, shareholder and founder of the first defendant, and its admission at paragraph 3(a) of the statement of defence that the first defendant was engaged to compile the 2004 accounts, the lack of any substantive response in relation to the second defendant is unacceptable. Further, having made the assertion that the 2004 accounts were compiled from (unspecified) information provided to the first defendant, proper particulars are required to inform the plaintiffs as to what that information is said to have been.

[17] As a further example, paragraph 10 of the statement of defence responds to paragraph 19 of the second amended statement of claim in which the plaintiffs allege:

As a result of this investigation the plaintiffs determined that the defendants had inaccurately prepared the 2004 accounts and the stated current account therein was false.

[18] The response to that in paragraph 10 is that the defendants:

Deny paragraph 19 and say the first defendant compiled the 2004 accounts in accordance with the information provided to the first defendant.

[19] Going beyond a general denial to add positive assertions creates confusion in relation to this response. Again, there is uncertainty as to the position of the second defendant. There is uncertainty as to whether the denial is directed towards the quality of the defendants’ work in preparing the 2004 accounts or the accuracy of the stated current account debt, or both.

[20] As a final example in relation to this aspect of the pleading, paragraph 22 of the statement of defence responds to paragraph 34 of the second amended statement of claim which alleges that:

The defendants knew of the falsity of these statements [in the 2004 accounts].

[21] The defendants’ response in paragraph 22 is that they:

Deny paragraph 34 and say:

(a) The statements were based on information and documents provided to the first defendant;

(b) The first plaintiff and its director were responsible for the accuracy and completeness of the information supplied to the first defendant;

(c) The first plaintiff acknowledged to the first defendant in writing that: (i) It accepted responsibility for the accuracy and completeness

of the information supplied and to be used in the preparation

of the 2004 accounts; and

(ii) The first defendant’s work could not be relied on to detect error and fraud.

(d) The defendants had no reason to suspect that the information and/or documents provided to it was false.

(e) The 2004 accounts (including statements made therein) and statements made to the second plaintiffs in relation to those accounts were consistent with the information and documents provided to the first defendant.

[22] The plaintiffs, in relation to paragraph 22, are seeking particulars of who on behalf of the first plaintiff provided the acknowledgement, the date of the acknowledgement and the wording of it, the information that was provided and by

_{whom it was provided.}7 _{I do not see any reason that the defendants should not}

7 While the defendants have provided the exact wording of the acknowledgement.

provide that further information. It is insufficient for the defendants to make positive assertions as to its reliance on information said to have been supplied to it without identifying what that is, particularly given that it is information said to have emanated from the plaintiff.

[23] I turn now to paragraph 25(b) and (d), which does involve a response to particulars. Paragraph 25 of the statement of defence responds to paragraph 37 of the second amended statement of claim in which the plaintiffs assert:

The plaintiffs relied on these statements [2004 accounts] to their detriment. Particulars

1. By relying on the accuracy of the 2004 accounts the plaintiffs lost the ability to recover funds quickly and efficiently from Mr McRobie.
   

b. Instead, the process of recovery was long, expensive and largely

fruitless due to Mr McRobie’s deteriorated financial position.

100. Moreover, in order to mitigate the loss they would otherwise suffer because of the inaccuracy of the 2004 accounts, the plaintiffs expended significant time and costs in reconstructing the 2004 accounts so that they could determine the true financial position of the first plaintiff and the amount owed to it by Mr McRobie.
     

4. At all times the plaintiffs proceeded on the basis that the current account was owed jointly by Mr and Mrs McRobie, as the 2004 accounts showed.
   
5. However, the High Court found that Mrs McRobie was not liable for the current account debt.
   

[24] In paragraph 25 of the statement of defence the defendants:

Deny paragraph 37 and say:

a. Mr McRobie was insolvent at the time of the first plaintiff’s

liquidation and the second plaintiff’s appointment.

2. The 2004 accounts were compiled in accordance with information provided to the first defendant.
   

100. At all material times the plaintiffs knew or ought to have known that the defendants did not accept responsibility and/or liability:
     

(i) For the accuracy of the material from which the financial statements were prepared; and

(ii) To any third party.

4. The first plaintiff acknowledged to the first defendant in writing that it accepted responsibility for the accuracy and completeness of the information supplied and to be used in the preparation of the 2004 accounts.
   

[25] In relation to paragraph 25(b) the plaintiffs are seeking particulars of the information provided, by whom it was provided, when and in what form. In relation to paragraph 25(d) particulars are sought of who on behalf of the first plaintiff gave the acknowledgement, the date and the wording of the acknowledgement. I consider that, although the defendants were not obliged to respond to the particulars, they have elected to do so and ought not be able to make positive assertions without sufficient information to enable the plaintiffs to know what is being alleged. I do not accept that the information being sought is evidence rather than particulars. Ultimately, evidence may be adduced which includes the information being provided such as when the information was provided. However, that does not mean that that information ought not be provided to enable the plaintiffs to properly identify the issues between the parties.

Result

[26] The plaintiffs’ application is granted. The defendants are to provide further particulars in relation to each paragraph of their statement of defence which the plaintiffs have sought particulars for, except where those particulars have already been provided.

_{[27] There will be costs on a 2B basis to the plaintiffs.}

P Courtney J