Swindle v Withers [2014] NZHC 578 (26 March 2014)

Last Updated: 7 April 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-001237 [2014] NZHC 578

BETWEEN BURVIE EDWARD SWINDLE, CAROLIE ANN TERPENING SWINDLE as trustees of the SWINDLE FAMILY TRUST

First Plaintiffs

AORANGI FORESTS LIMITED Second Plaintiff

AND M D WITHERS Defendant

ZURICH AUSTRALIAN INSURANCE LIMITED trading as ZURICH NEW ZEALAND

Third Party

Hearing: 25 February 2014

Appearances: P Robertson and A Ayton for Plaintiffs

S Maloney for Defendant

I J Law for Third Party

Judgment: 26 March 2014

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

26.03.14 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

SWINDLE & Ors v WITHERS & ANOR [2014] NZHC 578 [26 March 2014]

Background

[1] The third party (“Zurich”) has applied to strike out the third to tenth causes of action of the plaintiffs’ third amended statement of claim. The third party is the insurer of the defendant.

[2] For a number of years the first plaintiffs (“the Swindles”) advanced funds to a wine producer called Goldridge Estate which carried on business in the Matakana area. The advances were in the form of term loans for periods of two years. The purpose of the loans was to provide funding for the processing of grape juice and the manufacture of wine.

[3] The arrangements seems to have worked well for a number of years and in

2008 and 2009 the parties decided to repeat the funding operation. I understand that the nature of the funding took the form of the Swindles advancing money which would be repaid and then be lent again.

[4] In 2008 and 2009 the parties agreed terms for the provision of finance. The amount of $1,500,000 was to be made available for each of those years. The structure of the loans for those two years took a familiar form which I shall now describe, first in relation to 2008 and then 2009.

[5] The 2008 arrangements were first contained in Investor Facility Agreements between the Swindles and an intermediary company, the third plaintiff (“Orakei”), which was later struck off. It will shortly be reinstated. The third amended statement of claim filed on 19 February 2014 anticipates the last step being taken. However, no significance attaches to that aspect of the matter.

[6] The structure of the loans involved the third plaintiff entering into “Investor Facility Agreements” in respect of the advances which were to be made to two separate companies, Vintage 2008 (A) Limited and Vintage 2008 (B) Ltd, which I shall collectively refer to as the 2008 Vintage Companies. As the statement of claim recites:

Each company was dedicated to the production of varieties of wine discreet from the other.

Orakei in turn entered into borrower facility agreements which were the borrowing side of the structure with the 2008 Vintage Companies. Orakei used funds provided by the first plaintiffs to advance to the 2008 Vintage Companies.

[7] The two agreements were respectively entered into 7 April 2008 and 8 April

2008.

[8] Orakei also used funds provided by the second plaintiff (“Aorangi”) to advance money to Vintage 2009 (A) Ltd and Vintage 2009 (B) Ltd (“the 2009

Vintage Companies”).

[9] On 9 April 2008 Orakei assigned to the Swindles all of its interests in the monies lent to the 2008 Vintage Companies. Orakei assigned to Aorangi all its interests in the monies lent to the 2009 Vintage Companies. It is necessary to say something additional about the deeds of assignment. The position can be illustrated by referring to the deed of assignment entered into 9 April 2008 whereby Orakei secured its rights under the investment facility that it granted to Vintage 2008 (A) for the sum of $850,000.

[10] The deed of assignment provided:

A. The Investor has agreed to provide to Orakei a NZ$850,000 loan facility (“Investor Facility”) pursuant to a term loan facility agreement dated on or about the date of this deed (“Investor Facility Agreement”).

B. Orakei has agreed to apply the proceeds of the Investor Facility to provide Vintage 2008 (A) Limited (“Borrower”) a NZ$850,000 loan facility pursuant to a term loan facility agreement dated on or about 9 April 2008 (“Borrower Facility Agreement”) and as security for such facility the Borrower and the guarantor(s) have granted in favour of Orakei the securities set out in Schedule 2 (“Securities”).

[11] The deed further provided at clause 1.2:

1.2 In this deed “Assigned Property” means all of Orakei’s rights, title and interest, present or future, vested or contingent under the Borrower Facility Agreement and the Securities and all of the right, title and interest, present or future, vested or contingent, in and to all

sums due and to become due to Orakei under the Borrower Facility Agreement and the Securities and all other rights, powers and benefits of Orakei including, but not limited to, all rights to any cause of action or remedy which may have arisen or may in the future arise howsoever in connection with or under the Borrower Facility Agreement and the Securities.

[12] Finally, the deed provided as to the effect of the assignment as follows:

2.1 Assignment

In consideration of the Investor making the Investor Facility available to Orakei, Orakei as beneficial and legal owner hereby unconditionally and irrevocably absolutely assigns the Assigned Property to the Investor (and not by way of security), to be held in escrow by Orakei’s solicitors, Brown & Sargent Lawyers (together with a duly executed transfer in registrable form of the mortgage referred to in Schedule 2 and a signed notice of assignment substantially in the same form as that contained in Schedule 1), until such time as Orakei has performed its obligations to the Investor under the Investor Facility Agreement or the Investor is entitled under clause 4.3 of the Investor Facility Agreement to exercise its rights in relation to the Assigned Property (including its right to deliver notice of the Assignment to the Borrower and to take possession of the Assigned Property).

[13] The other financial arrangements, that is the assignment of Orakei’s rights under the advances to Vintage 2008 (B) and in respect of the 2009 advances to Vintage 2009 (A) and (B) followed the same form.

[14] Significantly, one of the events of default in the borrower facility agreements between Orakei and the Vintage companies was to the following effect:

13.16 Mark Withers:

Mark Withers ceases to be a mandatory joint signatory for the costs accounts;

[15] It was accepted that if an event of default occurred Orakei became entitled to accelerated repayment of loans and to exercise the various securities it had available to it.

[16] One further feature of the funding arrangements needs to be explained and that was that the Swindles did not have any recourse against Orakei in the event that the Vintage Companies defaulted. They had only the rights, such as they were, to

stand in the shoes of Orakei under the deed of assignment and exercise Orakei’s

rights.

[17] The security that was envisaged in the borrower facility agreements between Orakei and the Vintage Companies was that Orakei would receive, prior to the drawdown, a registered first general security deed over the assets and undertakings of the borrower and miscellaneous guarantees.

[18] The 2008 and 2009 Vintage Companies were placed in liquidation on 10

August 2011. Goldridge Estate was placed in liquidation on 21 November 2011.

The involvement of the defendant

[19] As part of the financing arrangement, the defendant, Mr Withers, who is a chartered accountant and who apparently acted for parties associated with Goldridge Estate, was required to give an undertaking for the protection of the Swindles. The arrangement involved Mr Withers becoming a co-signatory of the bank accounts which were maintained by the Vintage Companies and into which the money raised by the facility agreements was paid. It was common ground that the requirements of the facility agreements under which the Vintage Companies borrowed included the necessity for Mr Withers to be made a mandatory co-signatory of the Vintage bank accounts. This arrangement was designed to better secure the obligation of the Vintage Companies to only use the money which was paid into the account for the purposes of production of wine etc and for repayment of the loans. Further, the proceeds of sale of the wine by Goldridge Estate would flow back into those accounts and onward in repayment of the Swindle loan facilities. In order to better secure this arrangement, Mr Withers was not only required to function as a mandatory co-signatory of the accounts but was required to sign an undertaking, the form of which I will mention shortly. It is notable that Mr Withers was not himself a contracting party to these arrangements but presumably his cooperation was procured by the Goldridge Estate interests.

[20] The form of the undertaking that was required of Mr Withers was as follows:

I confirm that I have been irrevocably appointed until at least the time of repayment of each loan to [Orakei], by Vintage 2008 (A) Limited and

Vintage 2008 (B) Limited as a mandatory joint signatory to the costs account.

Further I confirm that the costs account will be utilised solely to meet the production costs specified in the costs scheduled.

[21] The words just quoted are an excerpt from an undertaking that Mr Withers gave in 27 March 2008. However, he was not, as he undertook to become, a mandatory joint signatory to the costs account. Similarly, when he had given similar undertakings in previous years, those too had been incorrect. It is this letter of 27

March 2008 that the plaintiffs rely on for the causes of action based upon negligent misstatement.

[22] Counsel for the third party provided helpful memorandum which set out a list of the causes of action. They accompanied that by an updated synopsis which made it clear that they are no longer proceeding with the original applications which sought strike out orders in respect of causes of action one and two being:

a) the Swindles’ claim under the Fair Trading Act 1986 (FTA);

b) Aorangi’s claim under the FTA;

Principles relating to strike out applications

[23] Rule 15.1 of the High Court Rules provides that:

15.1 Dismissing or staying all or part of proceeding

(1) The court may strike out all or part of a pleading if it—

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b) is likely to cause prejudice or delay; or

(c) is frivolous or vexatious; or

(d) is otherwise an abuse of the process of the court.

...

[24] The relevant subparagraph is r 15.1(1)(a). To strike out a claim summarily, this Court must be certain that the plaintiffs’ causes of action are clearly untenable and cannot succeed.¹

Orakei’s claim under Fair Trading Act - third cause of action

[25] The first point that is made is that Orakei claims under the FTA in its own right and in the same statement of claim the first plaintiffs claim that they are the assignees of any cause of action which Orakei might have. The third party says that a pleading in this form is not permissible and that the only way that two pleadings can subsist is as true alternatives.

[26] I consider that it is obvious that the two actions are being pleaded alternatively and that there is no question of the first plaintiffs and Orakei both attempting simultaneously to seek relief for the same cause of action.

[27] Of more substance is the next point which is that the FTA claim is time- barred because the plaintiffs, including Orakei, allege that they discovered in December 2010 that the defendant had not been a mandatory joint signatory to the Vintage Companies’ costs accounts.

[28] The third party says that the cause of action is time-barred under s 43(5) of the FTA from the date when Orakei ought reasonably to have discovered its alleged loss, which was in December 2010.²

[29] The plaintiffs submitted that what the applicant must know to set time running in respect of past loss is that it is more probable than not that loss has occurred.³

[30] It would appear that there is no difference between the parties about when the cause of action accrued. The plaintiffs say that the cause of action was included in

_{the statement of claim within three years of that date, that is by 15 December 2013.}

¹ _{Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].}

² Fair trading Act 1986 s 43(5) has been replaced as from 18 December 2013 by s 32 Fair Trading

_{Amendment Act 2013 (2013 No 143). The equivalent section is s 43A.}

³ Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379..

[31] As I understand it, the contention of the third party is that the cause of action under the FTA was not introduced until the third amended statement of claim was filed 19 February 2014. Whilst there was an earlier pleading that the first plaintiffs brought under the FTA, the claim by Orakei was not introduced until the third amended statement of claim was filed on the date I have just mentioned.

[32] In its notice of opposition it is pleaded that:

... The loss or likelihood of loss was only reasonably discovered on or about

22 February 2011 following discussions between the receiver, David

Tallyforth and the defendant.

[33] The third party/defendant, though, contends that there are reasons for believing that the plaintiffs generally knew about the loss at an earlier point in time. First of all, the calculations of loss proceed on the basis that the Vintage 2008

Companies defaulted on or about September 2009. The third party/defendant also points to the fact that a deed of acknowledgement which was executed in 2009 and was signed by the third plaintiff gives rise to a reasonable inference that the third plaintiff raised the 2009 deferment of the third plaintiff’s payment obligations under the Facility Agreement at which date the Swindles ought reasonably to have discovered the loss.

[34] However, to state that time began running upon discovery of the fact that loss had probably been incurred may oversimplify the position. In Commerce Commission v Carter Holt Harvey Ltd the majority stated in their conclusions that:⁴

The foregoing discussion means that CHH must show that the Commission knew or ought reasonably to have known, on or before 26 October 2003, that some person or persons were likely to have suffered loss or damage as a result of probable contravention by CHH.

[35] The fact that the plaintiffs knew that the Vintage Companies had defaulted did not provide them with knowledge that there had been probable loss caused to them as result of breaches of the FTA. Arguably, they were not in that position until they knew the additional fact that Mr Withers had given a false certificate when he

_{certified that he was a co-signatory of the accounts.}

⁴ At [39] (emphasis added).

[36] Were the defendant/third party able to demonstrate that they knew what the correct position was in that regard earlier than 19 February 2011 then it may be successful in arguing the limitation point at trial. But that issue raises a disputed question of fact which is not appropriate for resolution on a strikeout application. This part of the application which the third party brings will be dismissed.

Swindles’ claim as assignees of Orakei’s FTA claim against Mr Withers – fourth cause of action

[37] In the synopsis of submissions which he filed, Mr Law summarises the cause of action as, first, being based upon the fact that Mr Withers engaged in misleading or deceptive conduct in giving undertakings to Orakei and that “Orakei and the Swindles through Orakei, relied on the undertakings in making the investments... Etc.”. He notes that the pleading continues by alleging that on 9 April 2008 Orakei had assigned to the Swindles all its rights in respect of advances to the Vintage Companies together with any cause of action it may have had and Orakei also assigned its loss to the Swindles.

[38] It was submitted that:

a) As at 9 April 2008 which was the date of the assignment of Orakei’s rights it had not suffered loss as a result of misleading and deceptive conduct and therefore did not have a cause of action under the FTA;

b) Orakei was not under any liability to the Swindles even in the event that the Vintage companies defaulted and failed to repay the funds which, had Orakei received them, it would have had to pay on to the first plaintiffs.

c) Because Orakei could not have suffered any loss from the defaults which were allegedly caused by breaches of the FTA, it did not have any cause of action under the FTA which could be assigned to the Swindles.

d) Alternatively to “c)”, any cause of action was personal to Orakei and

could not be assigned to the plaintiffs as a matter of law.

5. Alternatively to the above, on its proper interpretation the assignment was not effective to assign any FTA cause of action to the Swindles.

[39] In his submission, Mr Law for the third party noted that the Swindles plead⁵

_that:

9.1 Mr Withers engaged in misleading or deceptive conduct in giving the undertakings to Orakei; in failing to advise the Swindles that he had never been a mandatory joint signatory to the accounts; and in failing to act in accordance with the undertakings.

9.2 Orakei, and the Swindles through Orakei, relied on the undertakings in making the investments and, save for Mr Withers' subsequent conduct, would have subsequently taken steps to protect their positions.

9.3 Mr Withers' conduct was directly causative of loss to Orakei, because

Orakei was not repaid by the Vintage companies and in turn did not repay the Swindles.

9.4 On 9 April 2008, Orakei assigned to the Swindles all its rights in respect

of advances to the Vintage companies together with any cause of action it may have had and Orakei also assigned its loss to the Swindles.

[40] Mr Law further noted that the Swindles seek by way of relief orders under s 43(2)(d) FTA that Mr Withers pay them the amount of their loss or damage, being the unpaid balances of the Vintage 2008 (A) and (B) loans plus the contractual interest under the Investor Facility Agreements. He further said that the assignments were made after 1 January 2008 and are therefore subject to the Property Law Act

2007. The assignments are absolute on their face and are subject to s 50 of the Act.

Was there a cause of action to assign at date of assignment?

[41] The first issue that arose from the argument concerns whether the Swindles as assignees from Orakei are able to recover for loss which resulted to them when the Vintage 2008 and 2009 Companies defaulted under their obligations.

[42] The point that is made for the third party is that the assignments were made to the Swindles in April 2008 and March 2009 respectively and the defaults occurred in

_{September 2009 which is after the date of both sets of assignments.}

⁵ Statement of claim as summarised in the submissions of counsel for third-party, paragraph 9

[43] Before I make further reference to the issues, brief mention needs to be made of some of the effects of assignments which were not disputed. In the first place, the plaintiffs did not dispute that the effect of an assignment, as stated by Roger Fenton in his text Law of Personal Property in New Zealand is a correct statement of the position: ⁶

The effect of a statutory assignment of a chose in action is to transfer all rights of ownership to the assignee. If a legal chose in action is assigned, then the assignee becomes the legal owner ... The assignee can issue proceedings or take any other legal steps that the assignor might have taken

...

Discussion of point that no assignment possible because no cause of action existed at point of assignment

[44] The contentions put forward by the third party are that to succeed as assignees the Swindles will have to establish that at the 9th of April 2008, the date of the assignments, Orakei had a claim against Mr Withers under the FTA and that that claim was assignable and was assigned to the Swindles who are therefore entitled to the relief under the FTA to which Orakei would have been entitled if Orakei had not assigned its rights.

[45] It is then submitted that the actual losses which the Swindles seek to recover as assignees, the unpaid balances of the Vintage 2008 (A) and (B) loans, were caused by the Vintage Companies’ defaults in September 2009, some 18 months after the date of the assignments and “unarguably were not losses suffered by Orakei at the date of the assignments”.

[46] I agree with the observations from the following passage from Halsbury’s

Laws of England that:⁷

It is impossible, even in equity, to assign a chose or thing in action which is not yet in existence.

⁶ Roger Fenton Garrow & Fenton’s Law of Personal Property in New Zealand Volume 1: Personal

_{Property (7th ed, LexisNexis, Wellington, 2010) at [9.37] (footnotes omitted).}

⁷ Halsbury’s Laws of England (5^th ed, 2009, online ed) vol 13 Choses in Action at [30].

[47] However, it is possible for the parties to contract that if a non-existent chose comes into existence subsequently, it will be assigned to the party which is treated as the “assignee” in terms of the contract between the parties.⁸ From the moment when the “assignor” receives the property the effect of an enforceable contract to assign the property is that if he afterwards becomes possessed of the property a court of equity would compel him to perform the contract and then immediately on the acquisition of the property described hold it in trust for the purchaser according to the terms of the contract.⁹

[48] It is arguable that Orakei occupied a position of the kind described in paragraph [47]. However, a complicating feature of the present case is that it may be the case that the agreement between the parties attempts to achieve the impossible. That is to say, the arrangements between the parties could ultimately be construed as meaning that from the point where Orakei assigned the interest that it held in the debt and the accompanying rights of enforcement etc which the assignment provided for, then it was incapable of suffering any financial loss which would be a necessary constituent of a cause of action in tort or under the FTA.

[49] I consider that the complexities of the position are such that this issue is not one which ought to be decided on a strikeout application and in circumstances divorced from the factual position which will be clarified at trial. I would not be prepared to strike out the claim on the basis that the cause of action is defeated because of the possibility that no cause of action had accrued to the assignor by the date of assignment. However, it is necessary to consider the third party’s further argument that this cause of action should be struck out because it submits that a cause of action under the FTA is not assignable.

Assignability of the cause of action under the FTA- Statutory intention

[50] It is alleged in the statement of claim that on 9 April 2008, Orakei assigned all rights to any cause of action or remedy which may have arisen or may in the

_{future arise howsoever in connection with or under the borrower facility agreement}

⁸ _{Tailby v Official Receiver (1888) 13 App Cas 523 (HL) at 533.}

⁹ Holroyd v Marshall (1862)11 ER 999 (HL)

and the securities to the first plaintiffs. The terms on which the claim is couched reflect the terms of the assignment from Orakei to the Swindles or their companies.

[51] Mr Law submitted: that the text of the statute itself makes it clear that there is no cause of action available to the Swindles or their companies as assignees. It was his submission that the plaintiffs could not bring themselves within s 43 FTA.

[52] Mr Law submitted that the section has been amended since its original enactment and that it is the amended form which it has taken since 2013 that is applicable. The section as amended provides:

43 Other orders

(1) This section applies if, in proceedings under this Part or on the application of any person, a court or a Disputes Tribunal finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute any of the following:

(a) a contravention of a provision of Parts 1 to 4A (a relevant provision):

(b) aiding, abetting, counselling, or procuring a contravention of a relevant provision:

(c) inducing by threats, promises, or otherwise a contravention of a relevant provision:

(d) being in any way directly or indirectly knowingly concerned in, or party to, a contravention of a relevant provision:

(e) conspiring with any other person in the contravention of a relevant provision

[53] If those matters are established then the court may make “an order directing person B to pay to person A the amount of the loss or damage” under s 43(3)(f).

[54] I accept the argument for the third party that in the absence of a transitional provision to the contrary, the amended Act should apply to the present proceedings. It may not in the end be a critical question anyway because the thrust of the provisions whether before or after amendment is substantially the same.

[55] Mr Law submitted that The Law of Torts in New Zealand supports the argument that a cause of action under the FTA is not assignable. The learned authors cite the view taken in Australia and state that:¹⁰

Whether a claim under a statute is assignable may depend on the provisions of the statute in question. Seemingly a cause of action under the Fair Trading Act 1986 is not assignable, for a claimant can be only “[a person] who suffered loss or damage” caused by the relevant conduct.

[56] Mr Law further submitted that the Australian authorities are of importance having regard to the express legislative intention that the New Zealand legislation should be construed harmoniously with the Australian version of the FTA. He drew my attention to the fact that the Australian authorities to which I turn to next, had not accepted the proposition that causes of action under the relevant legislation could be assigned.

[57] In the first place, it does not seem likely from the way that s 43 is drafted, which requires a payment to be made to the person who suffered loss, that the section is apt to cover the case of an assignee from a person who has suffered loss. There is no ground for concluding that extending rights of recovery to third parties such as assignees can be inferred as being one of the statutory objectives that the legislature had in mind when enacting the statute.

[58] Australian cases such as Park v Allied Mortgage Corp Ltd have favoured an interpretation that does not extend the remedies under the equivalent Act to assignees.¹¹

[59] Mr Robertson for the plaintiffs suggested that there were differences in the wording of the Australian legislation which meant that Australian cases are distinguishable.

[60] Section 82(1) from the Australian Trade Practices Act 1974 to which the

_{Judge in Park v Allied Mortgage Corp Ltd referred to reads as follows:}

¹⁰ Stephen Todd (ed) The Law of Torts in New Zealand (5th ed, Brookers, Wellington, 2009) at

_[23.12].

¹¹ Park v Allied Mortgage Corp Ltd (1993) ATPR 53,468 (FCA).

(1) a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

[61] Immediately after referring to that part of the Act, the Judge stated:¹²

The section does not allow for the award of damages in respect of a loss which was not suffered by any party to the proceedings. Both the terms of the statutory provision and the principle as enunciated in cases such as [authority omitted] preclude Mrs Regan from suing for damages in respect of any loss suffered by Mr and Mrs Park.

[62] This authority was followed in the decision of Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd. This case involved the applicant, Boston Commerical Services Pty Ltd claiming to be the assignee of the business of a predecessor corporation of the same name. The predecessor corporation entered into a contract with the respondent. The new Boston company brought proceedings against the respondent for misleading and deceptive conduct in contravention of the

Australian FTA. ¹³

[63] The Federal Court of Australia held that:¹⁴

[I]t is not reasonably arguable ... that new Boston could succeed in the enforcement of any assignment under the sale agreement of causes of action under s 82 of the Act to recover loss or damage suffered by old Boston. Only a person who suffers loss or damage by the conduct done in contravention of a relevant provision of the Act can recover under s 82.

It follows that the “cause of action [under s 82(1)] is not capable of

assignment to the new Boston.”

[64] I accept the third party’s submission that New Zealand should follow the Australian approach in this regard. The FTA was enacted following the Australia- New Zealand Closer Economic Relations Treaty of 1982 which was part of an overall plan to harmonise consumer protection law between the two countries.¹⁵ In light of this policy background, it would not make sense if New Zealand were to

_{adopt a different approach to the assignment of FTA causes of action.}

¹² _{At 53,469.}

¹³ Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352, (2006) 236 ALR 720.

¹⁴ _{At [53] and [57].}

¹⁵ Law of Torts in New Zealand, above n 15, at [5.8.08].

[65] The plaintiffs’ counsel referred to the decision of the New Zealand High Court in Grain Processors Ltd v Bluebird Foods Ltd¹⁶ where Salmon J expressed doubt that in the light of the wording of s 43 FTA there is any constraint on who can bring a claim. I do not read that decision as authority for a view that favours the assignability of causes of action under the FTA. The Court noted that it could make an order for redress in favour of a person even though that person was not a party to

the proceedings. Salmon J referred to Burrows and others, Law of Contract in New

Zealand where it was noted that: ¹⁷

This is a new concept in New Zealand law, and envisages the possibility of actions being brought by a public spirited individual or organisations on behalf of one or more consumers.

[66] Mr Law submitted to me that the reason for permitting a person other than one who had suffered loss or damage to bring proceedings was to enable organisations such as the Commerce Commission to bring actions on behalf of those who had suffered loss. I accept that that is a correct view of the purpose of the statutory provision.

[67] The text of the Act therefore suggests that the award of compensation must be to the person who actually suffered the loss. Further, while other persons may bring the claim, they do so on behalf of the loss sufferer and not on the basis that they themselves have some beneficial entitlement arising under the claim which has been transferred to them.

[68] In my view, the third party is correct when it contends that rights of action under ss 9 and 43 of the FTA are not assignable. It is reasonable to conclude that this cause of action cannot succeed. Despite my finding that I would not strike out the fourth cause of action on the ground that the cause of action had not accrued to the assignor by the date of assignment, an order is justified on this ground. The

_{application striking out this part of the statement of claim is granted.}

¹⁶ _{Grain Processors Ltd v Bluebird Foods Limited (1996) 6 NZBLC, 102,879 (HC).}

¹⁷ J F Burrows, J N Finn, Stephen Todd and G C Chesire Law of Contract in New Zealand (1^st ed, Butterworths, Wellington, 1997) at page 331.

Aorangi’s claim as assignee of Orakei’s cause of action under the FTA – fifth cause of action

[69] The conclusions that I have reached in regard to the assignability of Orakei’s cause of action under the FTA must apply in similar terms to the cause of action brought by Aorangi, purportedly as the assignee of a cause of action under the FTA.

[70] There will be an order striking out that claim as well.

Swindles’ claim in negligent misrepresentation – sixth cause of action

[71] The grounds upon which the defendant seeks to strike out this cause of action

is set out in the defendant’s notice of application:

15. The first plaintiffs’cause of action in their own right in negligence against the defendant is founded on alleged negligent misstatements by the defendants to a third party, reliance by the first plaintiffs and financial loss suffered by the first plaintiffs.

16. The first plaintiffs’ cause of action, if any, on the pleaded facts is properly a cause of action in the tort of negligent misstatement which has not been pleaded.

17. The first plaintiffs’ cause of action against the defendant in their own right in negligence is not reasonably arguable and is likely to cause prejudice or delay and should be struck out.

[72] In the defendant’s memorandum dated 28 February 2014, it stated:

16. Zurich seeks to strike out this cause of action on the grounds that the pleading fails to plead the essential elements of a cause of action in negligent misstatement and unacceptably relies on elements of a cause of action in negligence simpliciter.

[73] There is no doubt that there are distinct elements which need to be proved in a claim based upon negligent misstatement when compared with the tort of negligence simpliciter.

[74] I intend to be guided by the judgment of the Court of Appeal in North Shore City Council v Body Corporate 207624 to which Mr Law referred me to.¹⁸ Harrison J considered the difference between the tort of negligent misstatement and negligence simpliciter and noted that:¹⁹

[T]he discrete tort of negligent misstatement requires proof of both actual reliance and its reasonableness. The latter is designed to limit the scope of potential liability, consistent with the underlying policy touchstone of what is fair, just and reasonable.

[75] I understand that Harrison J was also of the view that the requirement of reasonableness is controlled by considerations of foreseeability of loss. One of the matters which is relevant is the purpose for which the statement sued on was prepared. This influences the question of whether it was reasonable for the other party to rely on it. He went on to say that:²⁰

[D]irect dealing between the parties or their representatives is normally required to satisfy the separate proximity component of actual reliance if a Court is to find a special relationship of the type justifying liability on one party to another for want of care in making a statement. Then the maker may be said to have assumed a responsibility to the recipient for the statement’s accuracy, truth or reliability.

[76] Therefore, the tort of negligent misstatement can be proved where there is: (a) reliance by the plaintiff on what the defendant has said; and

(b) an assumption of responsibility for the statement by the defendant.

[77] The certificate which Mr Withers was required to provide was a condition precedent of the drawdown of funds which were to be provided by Orakei. It may be assumed for purposes of strike out proceedings that Mr Withers must have known that this was the case. If the Swindles can establish that they would not have entered

_{into the contract had it not been for their belief that matters were as Mr Withers}

¹⁸ North Shore City Council v Body Corporate 207624 [2011] NZCA 164, [2011] 2 NZLR 744;

reversed by Body Corporate 207625 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR

297. However, Harrison J’s statement is accurate with reference to paragraph [199] and [220] of the

Supreme Court judgment.

¹⁹ At [71].

²⁰ At [71].

represented them to be, then they are partly on the way to establishing that Mr Withers is liable for loss that they incurred through entering into the contracts. But they also need to prove that there was a closeness of dealings between themselves and Mr Withers and overall that the circumstances were such that Mr Withers must have understood that the Swindles were relying upon him to make only accurate statements concerning the state of the signing authorities on the account. It also has to be proved that Mr Withers should have understood that the Swindles expected that that would be the case and that they would be relying upon the certificate being correct and that it would be reasonable for them to do so in all the circumstances.

[78] I accept that the Swindles ought to put forward a statement of the essential reasons why all of the above were the case. To comply with r 5.26 of the High Court Rules, a statement of claim “must give sufficient particulars ... to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.

[79] It is a matter of degree in every case whether the level of particularisation is sufficient to meet this test. However, in my view, while there could be some improvement in the particularisation of the pleading of this cause of action, the radical step of striking it out at this stage would not be justified.

[80] It may be that there are background matters which can and ought to be particularised, such as the apparent professional relationship that the Swindles had with Mr Withers, both in their individual capacities and in respect of the companies that they owned. Whether there were any discussions that they had about how the funds that they were personally going to advance could be adequately secured and a broad indication of when those discussions took place, is another example of how they could provide particulars of the background. These additional details would properly inform the third party and the Court of what the cause of action involved.

[81] I considered whether this part of the application should be adjourned so that the Swindles can consider their position. Time did not permit me to investigate the notice of particulars which the third party has apparently served on the Swindles and

nor was I referred to any response that they might have made to that notice. However, given that the setting down date in this proceeding has now passed and that any amendment to the pleading can only be carried out with the consent of this Court, the Swindles would be well advised to take a cooperative approach to providing particulars. If the third party considers that any additional particulars that are forthcoming are still inadequate, then a renewed application to strike out would no doubt be entertained by the Court if the necessary leave be given to commence such an application.

[82] However as matters stand I do not consider that an order striking out this cause of action ought to be granted.

Aorangi’s claim in negligent misstatement - seventh cause of action

[83] For the same reasons that are applicable to the direct claim in negligence which the Swindles have made and which I considered in the previous section of this judgment, I do not consider that a strike out order ought to be made for this cause of action. The same general comments that I made above are applicable to this cause of action as well. I do not consider that an order for striking out is justified.

Orakei’s claim in negligent misstatement - eighth cause of action

[84] The third party applies on the following grounds to strike out this cause of action. The memorandum dated 28 February 2014 states:

19. Orakei pleads the assignment of its rights to the first and second plaintiffs, but at the same time seeks to recover the first and second plaintiffs' losses in its own right. Orakei cannot both approbate and reprobate the assignments;

20. Orakei's cause of action in negligent misstatement if any should have been pleaded as an alternative to the Swindles’ and Aorangi's causes of action in negligent misstatement.

21. Orakei's pleading also fails to plead the essential elements of the cause of action in negligent misstatement and unacceptably relies on elemetns of a cause of action in negligence simpliciter.

[85] In my view these contentions raise the same issue that has been raised previously, which is to the effect that it was obviously intended that the causes of action between Orakei on the one hand, and the Swindles and Aorangi on the other

are intended to be alternatives. I would accept that if there was an attempt to plead both types of cause of action simultaneously, that is if they were not truly alternatives, it would amount to an abuse of process. The plaintiffs would be attempting to advance a pleading that involved a legal state of affairs that would be an impossibility. However, these objections do not in my view justify the striking out of the Orakei cause of action because it is reasonably understood as an alternative argument.

[86] I have also dealt with the question of whether the pleadings adequately provide sufficient particulars of the elements of negligent misstatement under the sixth cause of action. I will not repeat what I have said.

[87] I do not perceive any ground upon which this cause of action should be struck out.

Swindles’ claim as assignees of Orakei’s cause of action in negligent

misstatement (alternative to the sixth cause of action) - ninth cause of action

[88] The essence of the ground for striking out this cause of action was

summarised in the defendant’s memorandum dated 28 February 2014:

At the date of the assignments, Orakei had not suffered actual and quantifiable loss as a result of the defendant's actions and accordingly at that date Orakei did not have an accrued cause of action which it could assign to the Swindles.

[89] This application raises similar contentions to those that I dealt with when considering the assignability of the cause of action under the FTA.

[90] The point that is made for the third party is that the assignments were made to the Swindles in April 2008 and March 2009 respectively and the defaults occurred in September 2009 which is after the date of both sets of assignments.

[91] Because the cause of action in negligence does not accrue until damages being suffered, it followed that at the date when the assignment took place a cause of action had yet to accrue.

[92] I do not consider that the cause of action ought to be struck out on this basis. In the first place, it is arguable that the contention which Mr Robertson put forward for the plaintiffs is correct and that the third plaintiff had suffered loss as a result of negligence on the part of the defendant prior to the date when the assignment took place. The argument is based upon the approach which the Supreme Court took in

Thom v Davys Burton²¹ in that as a result of the alleged negligence on the part of the

defendant, the debt and supporting securities which the third plaintiff acquired on making the advances to the Vintage Companies were rendered of less value than they would have been had the defendant not breached his duty of care to the third plaintiff.

[93] Against that, though, it could be contended that whilst there was a potential for loss right from the time when the third plaintiff made the advances, as it says it made them in reliance upon the assumption that the defendant had ensured that he had the status of a co-signatory on the expenditure accounts, measurable lost did not actually occur until a default took place. Defaults did not occur until after the assignment had been completed.

[94] The issues that this raises are not straightforward. I am not confident that they can be satisfactorily resolved in the context of a strikeout application. I therefore decline to make an order striking out the cause of action.

Result

[95] I dismiss the application to strike out the third cause of action. It is clear that it is pleaded in the alternative and when the parties became aware of loss is a disputed fact and it is not appropriate to resolve this dispute on strike out. There will be an order striking out the fourth cause of action, that is the claim by the Swindles as assignees of Orakei’s cause of action under the Fair Trading Act as it is not reasonably arguable that a cause of action under the FTA is assignable. The fifth cause of action is struck out for the same reason. I dismiss the application to strike

_{out the sixth, seventh and eighth causes of action.}

²¹ Thom v Davys Burton [2008] NZSC 65, [2009] 1 NZLR 437.

[96] The parties should confer on the matter of costs and if they are unable to resolve the issue each is to provide a memorandum not exceeding five pages within

_{10 working days of the date on which this judgment is delivered.}

J.P. Doogue

Associate Judge