Mace v Strategic Planning Group Limited [2014] NZHC 1500 (1 July 2014)

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BETWEEN	NEVILLE HOWARD MACE, VALERIE GAY MACE AND DAVID GLOSTER DANIEL as trustees of the Mace Family Trust No 2 Plaintiffs
AND	STRATEGIC PLANNING GROUP LIMITED First Defendant ANDREW HROTHGAR ROBINSON Second Defendant SPG INVESTMENT COMPANY NO 1 LIMITED _{Third Defendant}

Hearing:	16 and 17 June 2014
Counsel:	E Grove and J Cole for Plaintiffs Second Defendant in person No appearances for First and Third Defendants
_Judgment:	_{1 July 2014}

This judgment was delivered by me on 1 July 2014 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

[1] These proceedings went to trial between the plaintiffs and second defendant. The first and third defendants have not filed a statement of defence. The plaintiffs have not sought to prove the causes of action against those two parties by way of formal proof. This judgment does not bind the first defendant or the third defendant.

[2] The plaintiffs sue as trustees of the Mace Family Trust No 2 (the Mace Trust). At all material times it was the trustee, Mr Neville Mace, who engaged with the second defendant (Mr Robinson). The latter was, at all material times, a director of the first defendant.

[3] The subject matter of the litigation are six disastrous investments by the trustees of the Mace Trust. All were made on the recommendation of Mr Robinson, as an investment advisor. One of the six is a cause of action against the third defendant only.

[4] The statement of claim pleads various sets of causes of action: (a) Breach of s 9 of the Fair Trading Act 1986;

[5] In November 2008, the trustees of the Mace Trust loaned $200,000 to a listed start-up company called Pulse Utilities New Zealand Limited (Pulse) for a term of one year, with interest to be paid quarterly at the rate of 12 per cent per annum, secured by convertible notes in Pulse and guaranteed by Allworthy Trust, the family trust of Mr James Martin, Pulse’s director. The investment was rolled over until

[6] On 2 April 2009 the trustees of the Mace Trust loaned $100,000 to Digi-Clik International Limited, a start-up company, for a term of one year, secured by convertible notes, interest to be paid quarterly at the rate of 10 per cent per annum. Two quarterly interest payments were made. The loan was not repaid on 2 April

Trust for $102,500, to be paid over three months commencing at the end of August

2011. He made two payments of $50,000 in August and $10,000 in December 2011. A balance of $49,000 and accrued interest is outstanding.

[8] Mr Martin was the CEO of Pulse until March 2009 but remained a director of Pulse, and was a large shareholder of Pulse through his other company, Pulse Utilities Limited.

[9] In July 2009 the trustees of the Mace Trust lent $50,000 to the trustees of the

Allworthy Trust, Mr Martin’s family trust, for a term of one year at an interest rate of

50 per cent per annum, the loan being guaranteed by Pulse Utilities Limited and secured by way of charge of 150,000 shares in Pulse. Mr Martin made two repayments, one of $25,000 in late 2010 and the other of $10,000 in late 2010. Two interest payments of $10,000 on 7 October 2010 on 21 October 2010 were received. The balance of capital and interest is unpaid.

[10] In September 2009, the trustees of the Mace Trust loaned $250,000 to Enviro Energy Limited (EEL) for a term of twelve months, at an interest rate of 10 per cent per annum.

[11] In June 2010, the trustees of the Mace Trust loaned a further $200,000 to EEL

[12] In November 2010, the trustees of the Mace Trust loaned a further $100,000 to EEL for a term of twelve months, at an interest rate of 10 per cent per annum. No interest payments have ever been received on any of the loans.

[13] Altogether $550,000 was advanced. In June 2012, a creditors’ compromise was agreed between the creditors of EEL and EEL under which all debts owed by the company were converted to shares at the rate of one share to ten cents of debt owed and all interest payments on debts were deferred. As a consequence of this, the loans of the Trust, comprising the $550,000 plus arrears of interest were converted into

[14] In December 2010, the trustees of the Mace Trust loaned $200,000 to Zeroshift Limited (ZSL), a start-up company, for a term expiring 30 June 2011, at an interest rate of 10 per cent per annum. The loan has not been repaid and no interest payments have been received.

[15] In March 2011, the Mace Trust loaned a further $300,000 to ZSL on the same terms as the earlier loan. That loan also has not been repaid and no interest payments have been received. ZSL was placed into administration in July 2012. The Trust suffered a loss of $500,000 plus accrued interest.

[16] In these proceedings the plaintiffs are seeking an award of damages against Mr Robinson, reflecting the net losses from these investments. The plaintiffs are also offering to accept any orders considered appropriate by the Court as to the extant securities, in the unlikely event that the securities should ever be worth anything.

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[18] The plaintiffs claim that four of these investments – Pulse, Digi-Clik, EEL and ZSL – were entered into by the trustees of the Mace Trust as a result of misleading and deceptive conduct by Mr Robinson.

[19] The plaintiffs claim that before each transaction Mr Robinson represented at the time that he had already personally invested in similar fashion but that Mr Robinson did not disclose that his investment was by way of acquiring the convertible notes in lieu of being paid commission. They further claim that Mr Robinson did not warn adequately of the risk inherent in the investments.

[20] Mr Robinson has two responses. His first, and principal, response is that, as a matter of law, he is not liable; because at all times he was acting merely as a director of the first defendant, Strategic Planning Group Limited (SPG). Any liability for any of these claims should be against SPG. Furthermore, he himself was not in trade.

[21] His second and factual defence is that any advice by SPG (which he accepted in evidence was in fact delivered by him) was in line with an aggressive investment risk profile which the trustees of the Mace Trust were pursuing at all material times. These investments failed. But there were other aggressive investment decisions by the Mace Trust which turned a good profit for the plaintiffs. He gave no detail of similar successful aggressive investments. As I will explain, he had a broad definition of “aggressive”.

[22] Thirdly, inasmuch as he said that he also was an investor, he was correctly disclosing his interest in the subject company as required by the Independent Financial Advisors’ (IFA) standard and in 2010 by the Financial Markets Authority’s (FMA) standards.

[23] Mr Robinson explained SPG’s relationship with its three directors as follows. SPG was the “owner of our client base”. The directors had no ownership of the clients. SPG would obtain the benefit of that ownership if the practice was sold. Where income was earned in cash, the receipts went through SPG’s bank account with the writer of the business receiving the benefit of that cash receipt, less expenses. However, if the writer of the business received remuneration by way of shares, the shares went directly to the writer.

[24] The Mace Family Trust was in the small minority of clients who did not pay a total portfolio fee. The trustees of the Mace Family Trust were always aware that SPG obtained commissions. Mr Mace agreed in his evidence that he was aware that SPG and/or Mr Robinson would be receiving some kind of commission on transactions entered into by the Mace Trust.

[25] In explaining the relationship of the financial rewards of the directors of SPG, Mr Robinson used the phrase “you eat what you kill” from which I inferred that SPG operated like a firm. The directors divided their rewards according to the business they respectively wrote.

[26] Between 2000 and early 2005, the Mace Trust had a portfolio of investments recommended and managed by an AMP advisory company, named Campain or Montage (Mr Mace was not sure), at which Mr Robinson was employed. It is during that period that Mr Mace, as trustee, developed a personal relationship of confidence in Mr Robinson.

[27] In early 2005, Mr Robinson left AMP and commenced business as a director of SPG. The Mace Trust business followed. From then onwards, Mr Robinson provided financial advice and management investments for the Trust. Though, as I

have noted, the Trust did not enter into an annual portfolio management contract with SPG.

[28] A full Court of five of the Court of Appeal in Body Corporate 202254 v Taylor¹considered the question of personal liability of employees or directors of limited liability companies under the Fair Trading Act and in negligence.

[29] They dismissed the notion of confining s 9 of the Fair Trading Act to corporate liability. It is sufficient to quote [19] of the judgment of William Young P and Arnold J:

[19] Section 52 appears in a Part of the Trade Practices Act which addresses consumer protection, and there can be no doubt that consumer protection considerations underpin both that section and s 9 of the Fair Trading Act. Unsurprisingly, therefore, the courts have not paid much heed to attempts by those in trade to distance themselves from liability to disappointed consumers. For instance, exclusion of liability clauses are not effective to limit liability under the Fair Trading Act. As well, there is nothing in the legislation which confines liability to cases where there is a contractual or quasi-contractual assumption of responsibility by the defendant to the plaintiff. Further, and at least to date, the courts have not regarded corporate form (and particularly the separate legal identity of companies) as precluding personal liability on the part of senior employees who engage in misleading and deceptive conduct.

[30] It is plain that there was a long history of doing business, and personal relationship of trust. There is no defence in law available to Mr Robinson against s 9 of the Fair Trading Act on the grounds that he was merely a director of SPG. For the same reasons, it is impossible for Mr Robinson to say that he was not in trade.

[31] I regard this as an important issue but preliminary in time to the investments which are the subject of this litigation. It is important because it is common practice for investment advisors to discuss with their clients the investment profile or policy to be followed. The advice that an investment advisor then gives is governed by the

[32] At the time the Trust moved its investment transactions to SPG, it was invested in “blue chip” shares. It had holdings in such companies as Telecom, Fisher

[33] It is common enough practice for some investors to hold a percentage of their

portfolio in “blue chip” shares and to risk some of their capital in start-up companies.

[34] Remarkably, in his evidence Mr Robinson endeavoured to collapse the distinction. He argued that any investment in equities was a risky investment. He drew the aggressive distinction between money in the bank and investments in equities. He used this as a platform for contending that “the plaintiffs had a history of taking aggressive investment decisions prior to the engagement of the first named defendant in early 2005”.

[35] The first named defendant is SPG. Mr Robinson’s brief was presented on the basis that all dealings were with SPG and only admitted in evidence that it was he who was engaging with Mr Mace when I pointed out to him that limited liability companies have to act through human persons. In the course of Mr Robinson’s evidence in chief I intervened to distinguish an investor, being experienced, from an investor adopting an aggressive profile, as his evidence in chief seemed to combine the two. He agreed that they are two different types of investors.

[36] I also intervened to clarify Mr Robinson’s use of “aggressive”. The initial stance on aggressive profile or not that Mr Robinson took can be summed up in the following exchange between him and me:

Q Well, this is where I’m not sure whether my understanding of aggressive is the same as your understanding of aggressive, because wouldn’t AMP, Sky City, Fisher and Paykel, the Port of Tauranga and Telecom all be blue chip shares not normally described as aggressive investment?

A If they were equity, equities, Your Honour, are deemed to be an aggressive investment.

Q And so an investment in equities plus or an investment in a foreign treasury bonds such as US bonds are by definition aggressive?

Q And, so an investment in equities plus or an investment in a foreign treasury bonds, such as US bonds are by definition aggressive –

Q Okay because what we really doing here is trying to define the meaning of aggressive because that, I am telling [you] as a Judge that was not my understanding of the meaning of aggressive.

[37] Later in our exchange he agreed on five categories in the range from conservative to aggressive:

Q Well, my experience is you usually have a choice of about four different scales –

Q - and you are that is where I am trying to work out because what are, you tell me in your mind what the divisions are?

A No, no, no, no, they, they’d be, I’d say there’s conservative, moderately, there’s probably five. There’s conservative, moderately conservative, balanced, growth and high growth.

A Fitted in with, they had a managed kind of portfolio of 300,000 which was high growth plus then adding in the direct investments, that would bring them up to the aggressive line.

Q But it depends doesn’t it on what the equities are. I mean if you invest in the ANZ Bank [that] for example is one type of shareholding investment. If you invest in some penny gold mining

[38] I was satisfied from this exchange, which is only part of it, that Mr Robinson knew perfectly well that there were at least five categories of investment profile.

[39] On 31 March 2005, the Mace Family Trust had a portfolio of a current value of approximately $623,000. 48 per cent was in international equities; 15 per cent in New Zealand equities, 12 per cent in New Zealand fixed interest, 5 per cent in New Zealand property, 5 per cent in Australian property, 8 per cent in Australian equities,

4 per cent in international fixed interests and 4 per cent in New Zealand cash. It had a New Zealand fixed interest investment of about $24,000 in a company called Instant Finance Limited. It had approximately $43,000 in New Zealand equities, the shareholdings being “blue chip” shares including Fisher & Paykel, GPG, NGC Holdings and Port of Tauranga. It had about $33,000 in Australian equities, being again “blue chip” shares such as ANZ, BHP, Macquarie Bank, News Corp and Telstra. It had one investment in Australia, Computer Share Limited, and it had US Treasury bonds.

[40] The international equity holdings were via funds. These funds were in “blue chip” shares. For example, the Vanguard fund held interest in Exxon, General Electric, Microsoft, HSBC Holdings. The PM Capital fund held interest in News Corp, JP Morgan Inc and the Platinum fund in News Corp, Simmonds, Credit Agricole.

[41] This was in no way an aggressive investment portfolio. The opening premise of Mr Robinson’s argument that he was dealing with a client who took an aggressive investment policy dating right back to AMP days is false. I agree with Mr Mace’s assessment:

I always understood from AMP that the portfolio was conservative. I simply signed off on the investments as AMP recommended and AMP managed the investments completely for the Trust.

[42] I also accept Mr Mace’s evidence that when he moved his business from AMP to SPG (the directors of which were Mr Robinson and Mr Turnock), he did not intend to change his investment profile. Mr Mace’s evidence was:

I made it very clear to Mr Robinson that while we obviously wanted as high a return as possible, we were only interested in investments which he regarded as being very safe. I told him we were approaching retirement and could not replace any money that was lost.

[43] Mr and Mrs Mace had a landscape business operating out of two companies. Although neither favoured the Court with their age, they are clearly at least in their sixties. They naturally wanted to protect their savings for retirement.

[44] Mr Mace said he had no particular issue with the investment advice provided by Mr Robinson up until 2007. It was from then on that he started advising the Trust to make large investments to individual companies. All of these investments have now failed.

[46] In August 2007, Mr Mace agreed to the Trust investing $150,000 in SPGI, the third defendant. He received documents saying that the money would be used to invest in shareholding in other companies. The documents also informed him that SPGI would be managed by two other companies, Inca Consultants Limited (Inca) and Chime Limited (Chime). He later found out that Inca is Mr Robinson’s company and Chime is Mr Turnock’s company. Mr Robinson was Inca’s sole director from 8 December 2004 until 1 April 2013 when he was replaced by Mrs Caroline Hansen. Mrs Caroline Hansen has been Mr Robinson’s partner. They have shared the same residential address. She is no longer his partner. Mr Turnock was the sole director of Chime and held 99 of its 100 shares. Mr Robinson and Mr Turnock were the two directors of SPGI. The Trust received one dividend of

$7,198.21 in August 2008. No other payments have been received. The plaintiffs sue SPGI in contract. That cause is not part of this trial.

[47] Pulse Utilities New Zealand Limited is a publicly listed company. It sells technology for more efficient use of electricity. Previously, in 2005, the Trust had lent $100,000 to Pulse on the recommendation of Mr Robinson, which had been repaid in full with interest.

[48] In November 2008, Mr Robinson recommended that the Trust loan $200,000 to Pulse for a term of one year with interest to be paid quarterly at the rate of 12 per cent per annum. He advised that the loan would be secured over the company and would be guaranteed by one of Pulse’s directors, Mr James Martin. At the time Mr Robinson told Mr Mace he had already investigated Pulse and had personally invested more than $200,000 in Pulse. Mr Robinson agrees he said that. He has explained in Court that the investment was in shares in Pulse, obtained by receiving shares instead of cash for services and that one of his family trusts, known as the Charma Trust, had also invested $100,000 with the company. That was in fact a loan.

[49] Mr Robinson did not tell Mr Mace that half of that $200,000 were shares taken for services.

financial year recorded that (for the second year in a row) it had made a loss of over

$2m and that its only material asset was its “intellectual property”. Nor did he disclose that Pulse was already issuing shares to creditors to settle liabilities on convertible notes because it did not have the ability to repay the loans in cash. On the expiry of the initial term loan and on successive expiry dates, Mr Robinson advised Mr Mace to roll over the loans even though, throughout this period, Pulse’s financial position was worsening. During this period Pulse continued to issue shares to Mr Robinson and/or Inca for “consulting” and “debt raising” services. None of these facts were disclosed by Mr Robinson to Mr Mace. Mr Robinson did not disclose in the period 2009 onwards that SPGI, which the plaintiff had also invested into, had itself also invested $75,000 in Pulse.

[51] In 2011 Pulse was effectively acquired by Buller Electricity. Pulse proposed to the holders of convertible notes to convert 60 per cent of the value of the loans into shares in Pulse with the remaining 40 per cent of the loan to convert to an interest-free loan that would not be due for repayment until 20 July 2016, as the only alternative was that Pulse would be liquidated.

[52] Mr Robinson agreed, in the course of the trial, that in all cases of making the recommendations for these challenged investments, he did say that there was a risk with the investments, but that he never said anything more than that. For example, he did not say they were far more risky than investing in an established company such as Telecom New Zealand. He never highlighted the risks of investing in a start- up company, which was incurring losses, with no positive cashflow, dependent entirely upon an invention acquiring commercial value in the future.

[53] This absence of risk advice explains the importance of the distinction Mr Robinson endeavoured to maintain from the outset that any investment in equities is aggressive without distinguishing between investment in a proven performing “blue chip” company and a listed start-up.

[54] Mr Robinson also consistently accompanied his recommendation with advice that he had already invested or was “in” for the same amount of money as he was recommending Mr Mace invest. He did not explain his investment was by way of allocated shares in return for his services. In the course of his closing submissions, it was apparent that he did not understand that conduct could be deceptive and misleading by reason of leaving out facts which would adversely affect the merit of his recommendation to invest.

[55] I am satisfied in this transaction and in all subsequent transactions his statements led Mr Mace to believe that he, Mr Robinson, was investing capital at the same level that he was recommending his client, the Mace Trust, to invest. Mr Robinson was deliberately sending a signal: “you can be confident with this investment. I am in at the same level too”.

[56] The difference was significant. He was not committing existing assets, existing capital, to a new investment as he was recommending the Mace Trust to do so but, rather, taking shares in lieu of his services raising cash for the start-ups by selling their paper. There was one exception, the loan of $100,000 referred to in this first Pulse transaction. But that was 50 per cent of what he said was his investment.

$100,000 to Digi-Clik, for a term of one year, secured by convertible notes, with interest to be paid quarterly at the rate of 10 per cent per annum. Mr Robinson told Mr Mace he had personally investigated Digi-Clik, that he believed it was a sound investment and he personally had invested over $100,000 in Digi-Clik. Mr Robinson does not dispute this is what he said. His comment on this part of the evidence is as follows:

With reference to paragraph 67 of the plaintiffs’ brief of evidence, the decision for the Charma Trust to receive shares which were valued at around

30 cents instead of cash was an investment decision. The investment was made into Digi-Clik via a trust not a personal name. The plaintiff was fully aware of how the first named defendant was remunerated.

[58] In his defence Mr Robinson argued that there had been a previous dealing by the Trust investing in Digi-Clik on the advice of Mr Turnock. This is denied by Mr Mace. There is no documentation in support of Mr Robinson’s evidence.

[59] Mr Robinson’s recommendation to invest in Digi-Clik in March 2009 came on the back of an investment memorandum by that company in December 2008.

Digi-Clik International Ltd (Digi-Clik) is a New Zealand owned company founded in 2005 and is a world leader in the design, manufacture and distribution of a new generation of computer mice designed for an increasing browser base computer experience.

[61] At that time the company had not sold any of these mice. This document disclosed a share valuation, provided on 20 December 2007 by O’Hallaron HTM, stating:

It is our opinion that the fair market value of Digi-Click International Ltd based on present value calculated over the three-year period is approximately $5,100,000.

This valuation was based on future cashflows completed in November 2007 which were more conservative than those we now predict and shown above.

[62] An experienced consultant like Mr Robinson would know the difference between valuations based on actual cashflows and valuations based on the prediction that although there is no cashflow at the present time, there will be because the invention will have commercial appeal.

[63] There is not one line in this December 2008 document recording any cashflows, let alone profit. The Court was shown another document indicating a small immaterial cashflow for another related product.

[64] Mr Robinson did not disclose that he and/or his trust, the Charma Trust, were being issued shares by Digi-Clik in return for raising funding for Digi-Clik. On

24 February 2009, 388,145 shares were transferred to the Charma Trust by Digi- Clik’s director, Bruce Bryant. On the same date another 399,145 shares were transferred to Mr Robinson’s co-director, Mr Turnock by Mr Bryant.

[65] Mr Robinson did not advise the plaintiffs that the security being offered, namely the convertible notes, would (given the lack of any assets) have no value until if and when Digi-Clik became profitable. Mr Robinson did not disclose that the plaintiffs were already exposed to risk in relation to Digi-Clik because SPGI had already invested in Digi-Clik.

[66] In June 2009, Mr Robinson recommended to Mr Mace the Trust loan $50,000 to Mr Martin for a term of one year secured at an interest rate of 50 per cent per annum.

[67] Mr Robinson advised Mr Mace that Mr Martin was asset rich and cash poor and just needed the short term loan and, because it would be secured, have little risk. He did not disclose that James Martin was, at all material times, a director of Pulse.

The paperwork for the loan turned out to provide that the loan was actually to Mr Martin’s trust, the Allworthy Trust, rather than to Mr Martin personally. The security provided for a loan agreement was a security of shares in Pulse (which was already insolvent) and a guarantee provided by Pulse. It will be recalled that Pulse was already issuing shares to creditors because it was unable to pay its debts.

[68] Not much is known about EEL. In 2012 it presented a creditors’ compromise

Enviro Energy Limited (EEL) has been unable to meet its creditor obligation for a considerable period of time as was advised for all stakeholders at the meeting held on 9 August 2012. At that meeting we advised that the resignation for personal health reasons of Mr Evan Cherry, Managing Director. By July 2012 EEL was left with a single Director, Mr Rob Arblaster, following the resignation of Mr James Martin (then the EEL Chairman).

[69] These events followed the resignation of Mr James Martin as EEL Chairman. It will be recalled that Mr Robinson’s recommendations for investment in EEL were made as late as November 2010. The other connections between Mr Robinson and Mr James Martin should also be recalled. EEL is a start-up company with a green product it called STERM which is described as a green technology which could be used to eliminate bio-solids, such as sewage sludge.

$250,000 to EEL for a term of one year secured by convertible notes in EEL and by a guarantee from EEL. Mr Robinson told Mr Mace he had already personally invested more than $250,000 in EEL and the company simply needed some further development capital short-term to get its products to the market. In his pleadings, Mr Robinson’s statement of defence says, rather, that he told Mr Mace that his family trust intended to invest in EEL but did not inform him of the amount invested. This is confirmed in Mr Robinson’s evidence. So essentially Mr Robinson is agreeing that he did say that his family trust would be investing in EEL but claims he did not disclose the amount.

[71] I prefer Mr Mace’s evidence on the probabilities. In all the other transactions, Mr Robinson gave the number of the investment. On each occasion it is the same sum as he was recommending the Trust to invest.

[72] Mr Robinson did not disclose that Mr James Martin was also a director of EEL. This was relevant as Mr Mace had just lent Mr Martin money at 50 per cent interest. EEL was a private company. And, as we have seen, Mr Martin was a director of Pulse. The Trust was now heavily at risk in relation to a number of entities associated with one individual – James Martin.

[73] In his evidence, Mr Robinson does not defend his recommendation based on any analysis of the financial position of EEL at the time.

[74] In respect of this first transaction, Mr Robinson obtained the signature of Mr Mace to quite an extraordinary agreement of guarantee. Essentially, EEL guaranteed that it would repay the loan it received. The guarantee added nothing. It was a superfluous legal and commercial nonsense except that visually it looked legal and impressive, all typed up, over several pages. Mr Robinson did not point out that it added nothing by way of security.

[75] In June 2010, Mr Robinson recommended to Mr Mace the Trust loan a further $200,000 to EEL. Mr Robinson does not dispute this and his only evidence in reply are these two lines:

Any approach and/or recommendation to the plaintiff, as plead, [sic] would have been made by the first named defendant.

[76] In oral evidence he confirmed that it was himself who delivered that recommendation.

[77] In November 2010, Mr Robinson recommended to Mr Mace that the Trust should loan a further $100,000 on the same terms. In responding to that and subsequent paragraphs as to the absence of any receipts, Mr Robinson’s two-line reply in his written brief is:

With reference to paragraphs 97 – 103 of the plaintiff’s brief of evidence, I

[78] In short, Mr Robinson offers no justification at all for recommending these loans be made to EEL. As exemplified by the extraordinary guarantee agreement, this was an extraordinary recommendation to have made. I cannot see what justification could have been advanced. It throws into sharp focus the importance of the initial advice Mr Robinson gave to Mr Mace that he had already personally invested more than $250,000 in EEL.

[79] In December 2010 Mr Robinson recommended to Mr Mace that the Trust loan $500,000 to a UK company, Zeroshift, for a term of six months with an interest rate of 10 per cent, with interest to be paid only at the expiry of the loan period. He told Mr Mace that he had already investigated Zeroshift, thought the investment was low to no risk and “could not fail” and had personally invested more than $250,000 in Zeroshift.

[80] In his statement of defence, Mr Robinson admitted he had no investment in Zeroshift. He also admitted in his statement of defence that SPG was paid “commissions” by Zeroshift in the form of shares. Zeroshift was another start-up company. Here is Mr Robinson’s reply in his filed brief of evidence which he read to the Court:

With reference to paragraph 106 of the plaintiffs’ brief of evidence, any approach and recommendation was made by the first named defendant in its capacity of the plaintiffs’ investment advisor.

With reference to paragraph 107 of the plaintiffs’ brief of evidence, I have never used the words “cannot fail” in describing an investment. This is another untrue statement. Investment in Zeroshift was made by way of converting a proportion of cash commission into shares, these had a value that exceeded $250,000.

[81] Following Mr Robinson’s recommendation, in December 2010 the Trust loaned $200,000 to Zeroshift for a term expiring 30 June 2011, with an interest rate of 10 per cent per annum, with no interest to be paid until the expiration of the loan term. Mr Robinson continued to press Mr Mace to have the Trust loan a further

$300,000, to take the total up to $500,000, being the sum he originally suggested. He told Mr Mace that everything was going great, that Zeroshift was signing up contracts with big manufacturers and really sold him on more investment.

[82] In response to that further pressing, Mr Robinson’s evidence in reply is as

With reference to paragraph 10 of the plaintiffs’ brief of evidence, the cheque was delivered by the first named defendant.

[84] Zeroshift was placed in administration in the UK in 2012, what assets it had were gobbled up by the debentureholders. Mr Robinson’s essential and only defence for this investment was as follows:

With reference to paragraph 112 of the plaintiffs’ brief of evidence, at all material times I did not have knowledge of the first debentureholders. Mr McPhail did not disclose to the first named defendant that it was his clients who held these when he approached the first named defendant with the opportunity. At all material times I could not have known in the light of the materials and communications the trading situation of the company.

With reference to paragraph 113 of the plaintiffs’ brief of evidence, the plaintiffs acknowledge the risk [check] the investments was potentially high rewards and were fully comfortable with the investment decisions they made to place the monies into Zeroshift.

[85] The Court has scant knowledge of Zeroshift. No Zeroshift documentation was produced by either party. As the name suggests, it was apparently some technology to be used in motor vehicles. More potently, there is no evidence at all that there was any serious examination of the merit of this investment by Mr Robinson or, for that matter, by his partner, Mr Turnock, either for themselves or on behalf of SPGI.

[86] Mr Robinson’s essential defence to the Zeroshift loan was that all the liability falls on the limited liability company, SPG, not himself as he is entitled to the shield of that corporate identity.

[87] In his closing submissions, Mr Robinson also fell back on what he presented as the financial advisor’s obligation to disclose an interest in these entities when making recommendations. That submission is utterly devoid of merit. The context shows that he was not making a disclosure against his interests but was, rather, saying “you can be confident because of my confidence. I have already invested to the same level that I am recommending to you”. Mr Mace believed Mr Robinson was a friend, as well as his financial advisor.

[88] All of these sales pitches were recollected by Mr Mace, except one in which the sales pitch is made by email. It is consistent with the oral evidence of Mr Mace. On 8 December 2010 Mr Robinson sent the following email to Mr Mace:

Attached is copy of the presentation on Zeroshift I attended by Deloittes who are managing the IPO on ASX for them. Have a read of it, very impressed with them and as per presentation working with a number of car and motorcycle companies already.

The deal is as follows (I am taking $500,000 so $700,000 left): Investment structured as a convertible loan note.

I have the option to convert the capital and compounded interest to shares (or part of) at a 10% discount to pre-IPO capital raising (happening through institutions in March 2011 – Deloittes doing another valuation at this point). The pre-IPO price will definitely be lower than the actual IPO pricing of the shares so plenty of gain to be made if you do not want to take cash and interest back.

As usual time against us as there are others interested – let me know ASAP if you want to come in.

Mr Robinson was being remunerated. His evidence was that the phrase “I am taking

$500,000” was that he was entitled to $500,000 in fees but he took those rather in shares. $500,000 is a large fee. I questioned him as to what his rate was and he could not recall but, ultimately, indicated it was likely to be in the region of 5 per cent of the value of transactions which would reflect transactions of a dollar value of

$10m which seems, therefore, to be way beyond Zeroshift’s requirements as set out

[90] I should note that the plaintiffs’ counsel in the Court had no way of checking many of Mr Robinson’s statements as to the transactions he entered into because he had not complied at all with the order for discovery.

[92] It is of no utility for Mr Robinson to point out now that this and his earlier advice as to his investment reflected his taking his fees in convertible notes or shares rather than in cash. For it is the representation’s effect on his client which is the critical fact.

[93] I have no doubt at all that Mr Mace had, over a period of years, developed confidence in Mr Robinson and so was, in a material way, induced into entering into these transactions with start-up companies, with no history of earnings, with no advice as to their financial encumbrance, because Mr Robinson was signalling that he had the confidence to invest at the same level that he was proposing his client invest at. Had he said, “I am taking a similar position in the company but by way of swapping fees for my services in providing business, including yours and taking shares”, that would have been quite a different message.

[94] I have found Mr Mace to be a credible witness who has not overstated his position and, by contrast, Mr Robinson to be unreliable. Mr Robinson has substantially agreed to two important propositions advanced by Mr Mace. Firstly, that these investments were proposed by Mr Robinson without any significant

warning of risk and, second, that Mr Robinson, on each occasion that he was making an investment in a start-up company, advised that he was investing or planning to invest at a similar level. Mr Robinson never disclosed that he was doing this by reason of having been allocated script in return for his services in finding investors who were paying the start-up company cash for these notes. The Trust loan to Mr Martin was deceptive in that Mr Robinson did not disclose the role of Mr Martin in Digi-Clik and in Pulse.

[95] The plaintiffs succeed in all the Fair Trading causes of action pleaded in these proceedings. In each one, the plaintiffs were induced to enter extremely high risk investments by reason of Mr Robinson, in trade, engaging in conduct that was misleading and deceptive and was likely to, and did, mislead or deceive Mr Mace in having a wholly inappropriate confidence in the merit of the investment. Accordingly, the plaintiff have proved that all their losses suffered from these investments were caused by the misleading and deceptive conduct of Mr Robinson in trade.

[96] Section 43(3)(f) of the Fair Trading Act grants a statutory jurisdiction to order

Mr Robinson to pay to the plaintiffs the amount of the loss suffered by the plaintiffs.

[97] In respect of the Pulse investment, the plaintiffs also plead breach of fiduciary duty. They plead that Mr Robinson did not act in the Trust’s best interest when recommending to Mr Mace that the Trust loan monies to Pulse. Instead he was motivated by the shares Pulse would provide to his company, Inca Consultants, in return for obtaining such loans for Pulse and by the prospect of increasing the worth of shares by improving Pulse’s equity position.

[98] A fiduciary is a person. It is a concept deployed in the law of equity. It has its home in the trust relationship. Where a person A legally owns assets but holds them for the benefit of B, A is a fiduciary. The term “trust” is the term we use to describe this core fiduciary relationship. Extending the term “fiduciary” to other relationships is problematic and needs to be done with great care. The argument is usually mounted when a party is seeking a remedy by way of an interest in property

or an account of profits.²Essentially, the plaintiff is seeking some kind of relief in property.

[99] There is no property right acquired here by either SPG or by Mr Robinson which is worth pursuing as an alternative to an award of damages against Mr Robinson.

[100] Cope points out that the application of fiduciary duties in the financial sector is still undergoing development and the facts of each case require to be examined meticulously.³

[101] Equity follows the law. I do not think the assistance of equity is required in this case. There has been no proof that the money advanced directly passed by an indirect route back in some form to Mr Robinson. Even if that could be deemed by way of the shares he acquired, the plaintiffs in this case are not interested in the penny value of the securities that they now hold by the hundred thousand. Justice can be done by an award of damages against Mr Robinson without the need for the intervention of equity. For these reasons, the cause of action for fiduciary obligation fails.

[102] The plaintiffs plead that Mr Robinson is liable in negligence for the advice he gave for the investments in Pulse, Digi-Clik, EEL, Zeroshift, and the loan to Mr Martin’s trust, the investments in EEL and in Zeroshift.

[103] It flows from the fact of Mr Robinson’s directorship of SPG and from the history of the relationship between Mr Robinson and Mr Mace that there was a clear personal relationship of confidence between Mr Mace and Mr Robinson. It was a relationship of confidence which Mr Robinson took advantage of. He relied on the personal confidence that Mr Mace had in him when making these recommendations

[104] Mr Robinson’s denial of liability on the grounds that all liability rests with SPG is relevant here. The law has recently been reconsidered by the Court of Appeal in Body Corporate 202254 v Taylor⁴by a full Court of five.

[105] This is not a case of a financial advisor acting solely on behalf of a corporate entity. Mr Robinson relied upon his personal relationship with Mr Mace. Mr Robinson was rewarded directly for the business he wrote. Mr Robinson gave personal assurances to the quality of the investments, basing them on claims of his own investments in the same companies and of similar amounts. He thereby had a duty of care. This set of facts is a far cry from McGechan J’s characterisation of the

facts in the Court of Appeal in Trevor Ivory Ltd v Anderson⁵as summarised by the

[106] I have no doubt that the law imputes an assumption of responsibility on the part of Mr Robinson to take care when giving financial advice to Mr Mace, particularly in the case of investment and start-up companies.

[107] All of the conduct that I have described falls well short of the quality of advice required in the circumstances by an investment advisor.

[108] But it is an incomplete description of Mr Robinson’s conduct to describe it as a lack of proper care and attention or carelessness. It was deliberately misleading. Negligence is not an intentional tort. To be sure, the deceptive and misleading conduct carried with it the consequence that Mr Robinson did not take reasonable care to avoid advice which would likely cause financial harm to the Mace Trust.

[109] Mr Robinson’s conduct can be shoehorned into the remedy of negligence, but at the cost of eliminating the intentional aspect of it. Inasmuch as the remedy of negligence drives off damage caused by conduct falling below the duty of care, it can be held that the plaintiffs are entitled to judgment in tort and the cause of action

_{in negligence in addition to judgment under the Fair Trading Act for
deceptive and}

misleading conduct. As a precaution, I enter judgment for the plaintiffs in the causes of action in negligence.

[110] This is a cause of action solely in negligence. It is claimed that it was negligent for Mr Robinson to recommend to Mr Mace to lend any money to Mr Martin. As I have already recorded, Mr Robinson told Mr Mace that Mr Martin was asset rich and cash poor. That is self-evident by the terms of the proposal - a loan of

$50,000 for one year with an interest rate of 50 per cent! Such a proposition advanced by anybody needs to come with a warning. Patently, Mr Martin was unable to borrow from just about anybody, let alone a trading bank.

[111] Mr Robinson provided no real answer to the claim of negligence. He first responded in his evidence to make the point that the recommendation was made by “the first named defendant”. In other words, he tried to hide behind the corporate identity. He did confirm, however, that it was his recommendation.

[112] He said that the investment carried little or no risk but that he did advise that the investment was secured by way of 150,000 shares in Pulse. He discussed Allworthy Trust’s other assets without spelling out what they were and said the plaintiffs must have understood that the loan was to the Trust, not directly to Mr Martin.

[113] He then said that “the first named defendant” was not aware that the Trust

I have never told the plaintiff about Mr Martin’s or the Allworthy’s Trust position as I was not aware of them. Aside from the house that the Trust owned that Mr Martin indicated would be sold and the investors would be repaid from the proceeds. I do not know why this has occurred.

[114] None of this smacks of anything like the degree of care that an investment advisor would take before recommending an investment which called for a 50 per cent interest rate. This cause of action succeeds.

[115] On paper the plaintiffs have assets, being the various script and/or shares in these entities, together with the acknowledgements of debts in the loan advances to the Allworthy Trust. I am satisfied by the multiple defaults and lengths of defaults that, on the probabilities, these obligations owed by these entities to the plaintiffs are worthless, with the possible exception of the shares in Pulse, a listed company which apparently is trading at six cents and might have a cash value of about $12,000 if buyers could be found.

[116] There was no challenge at trial to the quantum and claim for interest as pleaded in the statement of claim. Nor, indeed, was there any argument that the current script had any value. The fact that the Pulse shares are trading at a few cents per share was not advanced in the context that the plaintiffs had not suffered loss. The trial really was defending the question of liability on these claims, not quantum.

[117] For these reasons, the damages and interest sought as a consequence of liability are awarded. These are as follows:

(a) First cause of action, breach of s 9 of the Fair Trading Act, and second cause of action, negligence: judgment in the sum of $200,000.

(b) Interest on the sum of $200,000 from 25 August 2011 onwards at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act.

(d) Fourth cause of action, breach of s 9 of the Fair Trading Act, and the fifth cause of action, negligence: judgment in the sum of $40,000.

(g) Interest on the sum of $40,000 from 14 December 2011 to date of judgment at the rate of $5,000 per annum pursuant to s 87 of the Judicature Act 1908.

(j) Interest on the sum of $15,000 from 21 October 2010 to date of judgment at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act.

(l) Seventh cause of action, negligence, and eighth cause of action, breach of s 9 of the Fair Trading Act: judgment in the sum of

(m) Interest on the sum of $250,000 from 22 September 2009 to date of judgment at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act 1908.

(o) Interest on the sum of $100,000 from 4 November 2010 to date of judgment at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act 1908.

(q) Ninth cause of action, negligence, and tenth cause of action, breach of s 9 of the Fair Trading Act: judgment in the sum of $500,000.

(r) Interest on the sum of $200,000 from 14 December 2010 to date of judgment at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act 1908.

(s) Interest on the sum of $300,000 from 14 March 2011 to date of judgment at the rate of 5 per cent per annum pursuant to s 87 of the Judicature Act.

[118] Leave is reserved to the plaintiffs and to the second defendant, Mr Robinson, to apply for further relief. These proceedings have been brought to recover loss and damages have been awarded accordingly. Although improbable, there is the remote prospect that the securities currently held by the plaintiffs might acquire some value in the future.

[119] If they are realised and, to the extent that they produce value, their net value is to be credited against the judgment. If the judgment in damages is wholly paid

High Court of New Zealand Decisions

Mace v Strategic Planning Group Limited [2014] NZHC 1500 (1 July 2014)