Feeney v Gulley [2016] NZHC 2062 (5 September 2016)

Last Updated: 26 September 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2729 [2016] NZHC 2062

BETWEEN	SUSAN PAULA FEENEY Plaintiff
AND	STEPHEN GULLEY Defendant

Hearing:	5 September 2016
Appearances:	M J McCartney QC for the Plaintiff I J Law for the Defendant
Judgment:	5 September 2016

_{ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL}

Solicitors:

Rob Webber & Associates, Grey Lyn, Auckland, for Plaintiff

DLA Piper (Ian Law), Auckland, for Defendant

Copy for:

M Jan McCartney QC, Auckland, for Plaintiff

FEENEY v GULLEY [2016] NZHC 2062 [5 September 2016]

[1] On 4 December 2009 Ms Feeney entered into an agreement to buy a property in Grey Lynn, Auckland, for $641,000. Mr Gulley is the lawyer she engaged to act for her on the purchase. The agreement was subject to a number of conditions. One of them was that she was to obtain finance by 15 December 2009. Ms Feeney sues Mr Gulley in negligence for not giving notice to the vendor on or before 15

December 2009 that the finance condition was satisfied. Mr Gulley contests liability. He also takes issue with the damages Ms Feeney has claimed. He has applied to strike out all her damages claims apart from a claim for general damages for inconvenience, stress, anxiety and loss of quality of life.

[2] Mr Gulley applies under r 15.1 of the High Court Rules. While he is attacking only parts of the relief sought by Ms Feeney, I apply the same approach as if he were claiming that she did not have a reasonably arguable cause of action. The principles are well established:

(a) Pleaded facts, whether or not admitted, are assumed to be true. That does not extend to pleaded allegations which are entirely speculative and without foundation.

(b) The cause of action, or in this case the damages claimed, must be clearly untenable. The court has to be certain that a cause of action cannot succeed. In other words, it is not sufficient if the claim simply appears weak.

(c) The jurisdiction is to be exercised sparingly and only in clear cases because the court is reluctant to terminate a claim short of a trial.

(d) The jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.

(e) The court is slow to strike out a claim in a developing area of law, for example, where a duty of care is alleged in a new situation.

[3] Because these applications are decided on the pleadings, they are not the appropriate procedure to determine contested issues of fact. That is relevant here because questions of damages ordinarily raise mixed questions of fact and law.

[4] Mr Law acknowledged that the courts are cautious over partial strike-out applications.¹ He also cited Sew Hoy & Sons Ltd v Coopers & Lybrand² for the statement of E Thomas J that the court exercises great caution, if not reluctance, when invited to strike out a pleading on the grounds of causation. The judge acknowledged that a claim may still be clearly untenable on the pleadings if a factual determination of issues is not required before trial.

[5] According to her current statement of claim, Ms Feeney’s circumstances at

the end of 2009 were known to Mr Gulley. He had known her for more than

12 years. Those circumstances included that she had separated from her husband some two years before, and there were two daughters of the marriage aged 13 and

10. Following her separation, Mr Gulley had prepared a will for her. Before she signed the agreement to buy the Grey Lynn property she had sent the agreement to him in draft and explained the circumstances to him. She says that Mr Gulley was aware of the following:

(a) she had negotiated a division of relationship property with her husband; she was to receive $350,000; $35,000 was to be paid by

15 December 2009, $205,000 by 23 December 2009 and the balance of $110,000 was to be paid by weekly amounts until 23 December

2011;

(b) she was in a financial position to purchase a home for herself and her two daughters;

(c) she needed the home to be in the Grey Lynn/Westmere area because

_{that was close to her husband’s home in Grey Lynn and it was close to}

¹ _{Whitman v Airways Corporation of New Zealand (1994) 8 PRNZ 155 (HC).}

² Sew Hoy & Sons Ltd v Coopers & Lybrand [1996] 1 NZLR 392 (CA) at 407.

the daughters’ schools which would provide stability and security for

the daughters;

(d) she had been looking for a home in the Grey Lynn/Westmere area for an extended period but, until then, had not been able to find one that met her needs and came within her budget;

(e) the price for houses in the Grey Lynn/Westmere area was going up at a rapid rate;

(f) the house she had agreed to buy on 4 December 2009 met the needs of herself and her daughters, came within her budget, and was the only suitable property she had found;

(g) she would pay for the property by $240,000 from the division of relationship property and put another $1,000 in herself, and the rest would be financed with a mortgage over the property;

(h) she intended to use the payments of $110,000 to be made up until

2011 to make principal reductions in the mortgage; and

(i) in the coming year she intended to go to university to obtain qualifications so that she could start teaching at a secondary school in

2011.

[6] Her case is that while she arranged finance and told Mr Gulley, he did not give notice to the vendor’s lawyer so as to make the purchase agreement unconditional. On 16 December 2009 the vendor terminated the agreement for non- satisfaction of the finance clause. Ms Feeney says that she could not find a substitute property in the Grey Lynn/Westmere area. Instead, on 22 February 2010, she bought a property in Arch Hill for $540,000. This is alleged to have been in a rundown condition. She had to incur expenses to make it habitable. She undertook repairs and renovations and attended to the project management herself. This took from March to October 2010. Further work was required in 2014 to obtain a code

compliance certificate. She puts the costs of this work at $231,883.17 but includes in it $30,000 for her own project management. She says that she moved to her parents’ home in Henderson and paid rent of $100 per week. She had to commute six times a week between Henderson and Arch Hill while she carried out the renovation work. She also incurred storage costs for furniture and effects. Because the costs of making the Arch Hill property habitable increased the amount that she had to borrow, she incurred extra interest charges of $30,640.94. Because of the instability and insecurity caused by the loss of the Grey Lynn property, her elder daughter developed a severe depressive illness and that required Ms Feeney to devote time to her care and pay extra medical and pharmaceutical expenses of

$2,199.88. Her plans to obtain further qualifications were disrupted and she was unable to attend university during 2010. As a result she suffered a loss of income. She puts her loss of salary for the following four years at $213,160 and brings into account her earnings of $46,221 to give a net loss of $166,939.00. She also says that the $110,000 (being the final payments under the relationship property division with her husband) could not be applied to reduce the mortgage, so there were yet further interest costs which she puts at $32,882.61. On top of that, she suffered inconvenience, stress, anxiety and loss of qualify of life.

[7] In her prayer for relief, she seeks nine heads of damages:

(a) $130,883.17 being the increased costs on the purchase of the Arch Hill property, taking into account the repair costs, above the costs of buying the Grey Lynn property.

(b) $3,020 for rent while she lived at Henderson.

(c) $9,648.71 for the costs of commuting between Henderson and

Arch Hill.

(d) $2,987.46 for storage costs.

(e) $30,640.94 for extra interest because of the increased borrowing.

(f) $2,199.88 for medical and pharmaceutical expenses for the daughter.

(g) $166,939 for loss of income.

(h) $32,882.61 for added interest because the $110,000 could not be applied to reduce the principal on the mortgage.

(i) $100,000 for stress, anxiety and loss of qualify of life.

[8] Mr Gulley applies to strike out the first eight heads of those damages. He accepts that there is an arguable case for damages for stress, anxiety and loss of quality of life, but he contends that the amount claimed is excessive. He does not ask the court to make a finding as to the extent of the excess.

[9] I am required to assess whether the first eight damages claims are tenable on the assumption that Mr Gulley was in breach of contract in not giving notice of satisfaction of the finance condition to the vendor’s lawyer. I stress that that is only an assumption because liability is contested. Nothing I say in this decision is to be taken as suggesting that Mr Gulley is in fact liable. That can only be decided after evidence has been heard.

[10] In support of the strike-out application, Mr Law set out a number of principles relating to claims for damages for breach of contract, especially as they apply to damages said to arise from professional negligence. By and large, Ms McCartney QC for Ms Feeney did not take issue with those principles. They are:

(a) Damages for breach of contract will be compensation under three alternative heads:

(i) a restitution interest, which returns benefits conferred to prevent unjust enrichment;

(ii) a reliance interest, which is compensation for loss owing to steps taken in reliance on the existence of the contract; and

(iii) an expectation interest, which is compensation for the plaintiff’s loss of the bargain which she expected to obtain through the performance of the contract.

(b) A claim for damages for reliance loss cannot be combined with a claim for damages for loss of expectation.³

(c) A cause of action for breach of contract accrues when the breach occurs even though the plaintiff might not suffer damage until some time after the breach.

(d) There is a general rule that damages are calculated at the date of breach, but that rule is not universal. In his submission it should be departed from only when necessary to achieve justice.

(e) A contract-breaker is not an indemnifier but is liable only for damage that is not too remote from the breach of duty. He referred to familiar cases on remoteness – Hadley v Baxendale, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd and, out of completeness, also

included McElroy Milne v Commercial Electronics Ltd.⁴

(f) There is a causation requirement. The defendant’s act or omission must constitute a material and substantial cause of loss. Absent materiality and substantiality, a defendant may be able to say that they simply provided the opportunity for the occurrence of the loss but did not cause it.⁵

_{[11] Mr Law also referred relevantly to the scope of solicitors’ retainers.}

³ _{Herbison v Papakura Video Ltd [1987] 2 NZLR 527 (HC).}

⁴ Hadley v Baxendale [1854] EngR 296; (1854) 9 Exch 341, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA) per Asquith LJ at 537, and McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (CA).

⁵ Price Waterhouse v Kwan [1999] NZCA 311; [2000] 3 NZLR 39 (CA) at [46].

[12] In general, I do not take any issue with the way that Mr Law set out those principles. But there is another aspect to the claims for damages: that is the question of mitigation.

[13] There are three general principles on mitigation. The first principle is that the plaintiff must take all reasonable steps to mitigate the loss consequent upon the breach of contract, and cannot recover damages for any loss which the plaintiff could have avoided but has failed, through action or inaction, to avoid.

[14] The third principle is that if the plaintiff does take steps to mitigate the loss, and those steps are successful, then the defendant is entitled to the benefit accruing from the action that the plaintiff has taken. That is, the plaintiff cannot recover for avoided loss.

[15] McGregor on Damages sets out the second principle as follows:⁶

The second rule is the corollary of the first and is that, where the claimant does take reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong, he can recover for loss incurred in so doing; this is so even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss.

[16] In elaboration of the second rule, the text cites Lord Atkinson in Wilson v

United Counties Bank Ltd:⁷

If one man inflicts an injury upon another the resort by the sufferer to reasonable expedients for the bona fide purpose of counteracting, curing or lessening the evil effects of the injury done him, does not necessarily absolve the wrongdoer, even though the sufferer’s efforts should, in the result, undesignedly aggravate the result of injury.

And Winn LJ in The World Beauty:⁸

[I]t is implicit in the principle, that if mitigating steps are reasonably taken and additional loss or damage results notwithstanding the reasonable decision to take those steps, then that will be in addition to the recoverable damage and not a set-off against the amount of it.

⁶ Harvey McGregor McGregor on Damages (19th ed, Sweet & Maxwell, London. 2014) at

_[9-005].

⁷ _{Wilson v United Counties Bank Ltd [1920] AC 102 (HL) at 125.}

⁸ Andros Springs v The World Beauty [1970] P 144, [1969] 3 WLR 110 (CA).

[17] McGregor on Damages goes on to illustrate how that principle has developed and how it has been accepted that expenses incurred in mitigation that are greater than the initial loss may still be recoverable even if the plaintiff has taken those steps without any reference to the defendant.⁹

[18] It is sometimes thought that the cost of cure of damage is directly caused by the breach. The cost of cure is in fact mitigation and is recoverable as such. Costs of cure are always incurred after breach so that costs of cure are not always necessarily measured as at the date of breach.

[19] A plaintiff cannot recover for unreasonable steps taken after breach. It is necessary to bear in mind that the law does not judge the conduct of the plaintiff with undue severity. Lord Macmillan put it this way in Banco de Portugal v Waterlow & Sons Ltd:¹⁰

Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.

[20] In this area it is a useful rule of thumb to ask whether the victim of the breach of contract would have taken those steps in mitigation if the contract had failed for some reason other than the defendant’s breach.

[21] I have referred to the mitigation principles because it is arguable for Ms Feeney that the steps she took following the failure of the agreement to buy the Grey Lynn property were to put herself in a position as close as she could to what

_{she would have been in if the Grey Lynn purchase had gone ahead.}

⁹ _{McGregor on Damages, above n 6, at [9-096] —[9-102].}

¹⁰ Banco de Portugal v Waterlow and Sons Ltd [1932] UKHL 1; [1932] AC 452 (HL) at 506.

[22] Mr Law submitted that the mitigation principle could not apply because Ms Feeney could have no claim for loss of expectation. He accepted that she might be out of pocket - for example, for the costs of entering into the agreement where those costs have been wasted - but she had not claimed that. He said that she had not suffered any financial loss through not having obtained title to the Grey Lynn property because that loss has to be measured at the date of purchase. There was evidence showing that the vendor re-sold the Grey Lynn property in 2010 for less than the purchase price of $641,000 that Ms Feeney was to pay under the agreement of 4 December 2009.

[23] Ms Feeney’s loss of expectation is not to be measured in those purely monetary terms. She was buying a house for herself with the aim of providing a freehold home in which she and her daughters could live with some security and stability. That was the purpose of the contract. She had engaged Mr Gulley to achieve that object for her, by ensuring that he helped her discharge her obligations under the agreement for sale and purchase and at the same time obtain title for her. When she could not obtain title to the Grey Lynn property, she sought a substitute property. That is arguably a reasonable step for a purchaser to take if one agreement to purchase has fallen through, even without any breach of contract on the part of either the vendor or the lawyer acting for the purchaser. Accordingly, it is arguable for Ms Feeney that she was entitled to find a substitute property once the purchase of the Grey Lynn property fell through.

[24] It then becomes a question of fact whether the particular purchase was reasonable, and whether it was reasonable for her to incur the costs in carrying out the renovation. That cannot be decided pre-trial. Those questions are factual matters which can only be determined at trial after hearing all the evidence. I cannot on the pleadings find that it was not reasonable mitigation for Ms Feeney to buy the Arch Hill property. For all I know, she may be able to establish at trial that that was the least bad option for her. Once it is arguable for Ms Feeney that the purchase of the property was reasonable mitigation, it is possible to assess whether her damages claims are untenable.

[25] Mr Law argued that his client had not caused the losses claimed by Ms Feeney. As to that, in Bacciottini v Gotelee and Goldsmith (a firm) Davis LJ relevantly said:¹¹

For myself I would take the view that, in dealing with principles of mitigation and avoidance of loss, perhaps it is not particularly enlightening to talk in terms of whether the original breach “caused” the mitigating or avoiding act. One comprehensible way of formulating the position perhaps is that enunciated by Mance J in Famosa Shipping Co Ltd v Armada Bulk Carriers Ltd (The Fanis) [1994] 1 Lloyds’s.Rep. 633: by asking whether the asserted act of mitigation generating the benefit “arose out of or was sufficiently connected with a breach to require to be brought into account in assessing damages.”

That was said in the context of benefits generated, but it seems to me equally applicable to the case of further losses caused.

[26] As to the costs of the purchase of the Arch Hill property and the costs of making that property habitable exceeding the total purchase price of the Grey Lynn property, those excess costs are, under the mitigation principle, recoverable subject to adequate proof as to reasonableness. Ms Feeney has included in the costs of repair a claim for $30,000 for her work as project manager. That may be open to challenge. That might be more appropriately regarded as falling within the ninth head of damages, the general damages for extra effort she was put to. It is not standard for parties who attend to remedial work themselves (rather than engaging others) to recover a charge for their own labour costs. See, for example, the absence of any such claims by building owners in leaky building cases where they project manage the repairs themselves.

[27] Other parts of Ms Feeney’s claims are consequential upon her decision, arguably reasonable, to buy the Arch Hill property. It took time before she and her daughters were able to move into the property and accordingly relocation costs, costs of temporary accommodation with her parents, commuting costs while repairs were carried out, storage of furniture and effects may all arguably be part of the greater costs incurred as a result of her decision to buy the substitute property. It is also arguable that the added interest cost arising from the purchase of the Arch Hill property is recoverable. At least for strike-out purposes, I am unable to find that

these claims are untenable. Ms Feeney will still need to prove them at the hearing but, ahead of that, I cannot say that they will not succeed.

[28] The claim for medical expenses for the daughter does not fall within the mitigation head. It is pleaded as arising directly out of the failure to obtain title to the Grey Lynn property. There is obviously a causation question here. No doubt at trial Mr Gulley will test the causation aspects as to how the daughter came to have the depressive illness. It is certainly feasible that other causes operated – for example, past health history and the effect of her parents’ marriage failing may explain her illness. Unusual as that claim is, I am not able to say that it is not recoverable as a head of damage. That is a factual question which can only be resolved at trial.

[29] As a matter of impression, Ms Feeney’s claim for loss of income seems a stretch. It may be understandable that Ms Feeney was unable to work while she attended to the repairs during 2010. But claims for loss of earnings after that year may be much more difficult to prove. Again, that is a matter of proof which can only be determined at trial after all the evidence had been given. On a strike-out application I cannot say that a claim for at least some loss of earnings is implausible.

[30] The claim for additional interest costs because the relationship property money was not applied to mortgage reductions may again be something of a stretch. But again I cannot say at this stage, on a strike-out basis, that the claim is not tenable.

[31] In preparing for this hearing I came across a reference to Buckley v Lane Herman & Co.¹² I have been able to find only a brief reference to that case. I am advised that it is reported only in the Current Law Yearbook series and that that will provide no more than a summary of the decision. The case is relevant as involving a claim for damages against a solicitor for negligence in a conveyancing transaction. The plaintiffs were vendors. They had expected their lawyer to arrange the conveyancing so that the date of settlement of their sale would coincide with the date of settlement of the purchase of another property. That did not happen and the

lawyer was found to be in breach of his retainer. The plaintiffs were sued by the purchaser for specific performance which required them to leave their home. They bought another property but that was said to be unsuitable for their needs and in a noisy and less pleasant environment. They succeeded in their claim. They obtained awards of damages which included these items: out-of-pocket expenses for petrol and telephone incurred in searching for a new house, hiring a removal van, lost earnings, costs incurred in the specific performance proceeding brought by the purchasers, costs incurred in buying materials to make the replacement house habitable and up to the same standard they expected, and damages for distress, anguish and inconvenience. It can be seen that some of the heads of damage granted to the plaintiffs in that case are similar to the damages Ms Feeney is claiming in this case. In particular, the costs incurred in buying a substitute property were taken into account. That provides support for declining to strike out any of the heads of damage claimed by Ms Feeney in her statement of claim.

[32] I own to some scepticism as to some of the heads of damage claimed by Ms Feeney. I would be very surprised if at trial she were to succeed in full on all her heads of claim. But whether she succeeds or not will turn on the evidence produced at trial. I reiterate that on a strike-out application I cannot say that any of the heads of damage she has claimed are untenable.

[33] There is one additional aspect which did not form the basis for the strike-out application. Mr Gulley put in evidence showing that Ms Feeney sold her Arch Hill property in November 2014 for $950,000. That seems to reflect the escalation in property values in Auckland since 2010. There may be a possible argument that this capital gain has covered the losses sustained by Ms Feeney and would come within the mitigation principle under British Westinghouse Electric and Manufacturing

Company Ltd v Underground Electric Railways Company of London Ltd.¹³ To

counter that, Ms Feeney has put in evidence showing that there has been comparable escalation in the value of properties in the Grey Lynn area as well. In short, Ms Feeney’s case may still be plausible on the basis that she is simply claiming for

_{the added expenses she incurred in trying to obtain a home for herself.}

¹³ British Westinghouse Electric and Manufacturing Company Ltd v Underground Electric

Railways Company of London Ltd [1912] AC 673 (HL).

[34] For the above reasons I dismiss the strike-out application. Ms Feeney will have costs on the application. I trust that counsel will be able to discuss and agree costs but if they cannot memoranda may be filed.

[35] At the hearing I also enquired as to any case management directions. This case has a fixture for 20 February 2017. Mr Law says that he will wish to raise with Ms McCartney the possible disclosure of further documents on discovery and he will wish to interrogate on the damages aspects.

[36] I direct the defendant to deliver interrogatories no later than 19 September

2016. I direct Ms Feeney to answer those interrogatories 3 October 2016.

[37] I expect the parties to confer promptly as to any outstanding discovery questions. If there are any outstanding discovery questions and further directions are required, the parties should contact the court and ask for a conference at short notice. If need be, they may refer to this judgment and ask that any discovery questions be referred to me for a conference at short notice.

[38] I reserve leave to apply for further directions if required.

...........................................

Associate Judge R M Bell