FAAGUTU v DERHAMY [2020] NZHC 404

FAAGUTU v DERHAMY [2020] NZHC 404 [6 March 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-1071[2020] NZHC 404BETWEEN FAASOLO FAAGUTUFirst PlaintiffAND THE ESTATE OF HAMSAT ALISecond PlaintiffAND SEYED MOHAMMAD TAGHIDERHAMYFirst DefendantAND MT ALBERT ACCOUNTANTS LIMITEDSecond DefendantHearing: 1–3, 10 July 2019Appearances: A Kashyap, S Raju and S Yong for PlaintiffsB Murray for DefendantsJudgment: 6 March 2020JUDGMENT OF WALKER JThis judgment was delivered by me on 6 March 2020 at 10.00 amPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarTable of ContentsIntroduction [1]The claims in summary [9]Preliminary [11]Issues [20]Facts [21]Withdrawal of term deposit and meeting APS [43]The Mudharaba between APS and Mr Derhamy [50]Payment of Protronics Limited [56]Mudharaba Agreement between Mr Ali and Ms Fa'agutu and MAA [59]After signing the Ali Mudharaba [65]What happened to the balance not paid to APS/Protonic? [78]Conflicts in the Evidence [81]Issue One: A Mudharaba agreement under New Zealand law. [82]Issue Two: Was the Mudharaba brought about by the undue influence ofMr Derhamy? [85]Legal principles [87]Analysis [93]Issue Three: Did Mr Derhamy and/or MAA exercise an unfair advantagethrough an unconscientious use of power to such an extent that the Courtshould intervene in its equitable jurisdiction [113]Issue Four: Breach of fiduciary obligations [123]Equitable compensation for breach of fiduciary obligations and as a consequenceof undue influence and unconscionable transaction [140]Use of Money Interest [144]Disgorgement of profit dividends received from APS [145]General and exemplary damages [147]Issue Five: Breach of contract [152]Issues Six and Seven: Negligence and tort of deceit [153]Interest [155]Relief [157]Costs [158]Further directions and next steps [159]APPENDIX A [160]APPENDIX B [161]Introduction[1] Fa'asolo Fa'agutu is a widow and pensioner. In late 2014, she and her elderlyhusband, Hamsat Ali, invested the proceeds of sale of the home owned by their familytrust through a Mudharaba arrangement. This is a form of contract derived from, andwell known to, Islamic or Sharia law.1 The proceeds of just over $400,000 largelyrepresented the accumulation of their life savings. Mr Ali was in frail health at thematerial time. He depended for his physical needs on his wife who cared for him. Hedied within five weeks of entering the Mudharaba arrangement.[2] While Mr Ali was a practising Muslim in his lifetime, his interest in spiritualand religious matters unquestionably deepened at the end stage of his life. One of thefactual issues I must determine is how and why Mr Ali (and with him Ms Fa'agutu)came to enter the Mudharaba; whether his principal motivation was to abide theQuran's teachings to ease his passage to the after- life and, if so, what this may meanfor the remedies now sought by his widow.[3] The Mudharaba2 was arranged and facilitated by Mr Derhamy, the firstdefendant. Mr Derhamy had been a friend of Mr Ali for nearly 30 years. Mr Aliowned various small businesses during his lifetime. The businesses had been clientsof Mr Derhamy. Mr Derhamy had also been Mr Ali and Ms Fa'agutu's personal taxaccountant. His formal professional role ceased in late 2012 when the couple's needfor such services fell away. Mr Derhamy is himself Muslim, although a Shia muslim,while Mr Ali was of the Sunni denomination. It followed that they did not attend thesame mosque for prayers.[4] Mr Derhamy is an educated man, with a master's degree in science andcommerce. He has a scholarly interest in the tenets of his faith. He is the soleshareholder and director of the second defendant, Mt Albert Accounting Limited(MAA), through which he runs his compliance accounting business. MAA is the1 According to the expert evidence of Associate Professor Balli, Shariah, Sharia or Sharia'h is theEnglish translation of the Arabic word for Islamic law.2 Spelt variously Mudharabah or Mudharaba according to Islamic law.counter-party to the Mudharaba prepared by Mr Derhamy and signed by Ms Fa'agutuand Mr Ali.3[5] Although Mudharaba agreements are well known in Islamic or Sharia law,counsel tell me that this is the first time such an arrangement has come before the NewZealand courts. They represent a type of partnership with the aim of profit. Generally,one silent partner or investor (known as rab-al-mal) provides venture capital to anentrepreneur (known as al-mudharib) who provides expertise and labour in theexploitation of the capital. The parties to the venture share profit according to theterms and conditions agreed between the parties.[6] One of the fundamental characteristics of a Mudharaba contract is theallocation of risk. Losses arising from the venture are not borne by both parties. Ifthe venture is unsuccessful, the investor loses the capital but the entrepreneur's loss isonly their loss of effort and anticipated future profit. In short, unless otherwiseexpressly stated in the terms, the entrepreneur is not contractually obliged to repay anyloss of the investor's capital.[7] Mr Derhamy invested three-quarters of the capital passed to him by Mr Ali andMs Fa'agutu under a Mudharaba arrangement in Advanced Pipeline Services Limited(APS), ostensibly to provide working capital for the completion of existing pipelinecontracts. APS was a client of Mr Derhamy's accounting practice. Its principaldirector was well known to Mr Derhamy. Regrettably, it is unclear from the evidenceexactly how Mr Derhamy applied the balance of the capital, except that the sum of$4,000 was returned to Mr Ali and Ms Fa'agutu in December 2014 to tide them overfor the holiday period.[8] After her husband's death on 29 January 2015, Ms Fa'agutu received periodicpayments from Mr Derhamy. He described these as provisional dividend paymentsfrom the APS investment. She received a total of $12,000 in dividends between 7 Mayand 9 July 2015. The payments then dried up. By November 2015, APS was in3 Because of typographical error, the counter-party was named as Mt Albert Limited. There is noentity by that name. The parties accept that the counter-party is, and was understood to be, thesecond defendant.liquidation and its principal director had disappeared. None of the money has beenrecovered from APS. Mr Derhamy has repaid the balance of Mr Ali andMs Fa'agutu's funds (approximately $103,000 in total) to Ms Fa'agutu on a drip-feedbasis over a period of four years without 'use of money' compensation.4 With noaccess to the rest of the couple's savings, Ms Fa'agutu relies on family, friends and hersuperannuation in her retirement.The claims in summary[9] Ms Fa'agutu seeks to recover her losses from Mr Derhamy and his company.She does so in her own capacity, and in her capacity as executor of Mr Ali's will.5[10] Ms Fa'agutu seeks that the Mudharaba is set aside as an unconscionablebargain or for undue influence. In the alternative, she claims that Mr Derhamybreached his fiduciary obligations to the couple, behaved deceitfully in arranging theMudharaba, and breached his duty of care to them. She further claims that MAAbreached the Mudharaba. She seeks the return of the original sum invested, generaland exemplary damages, interest and indemnity costs.6Preliminary[11] The statement of claim was filed in May 2017 but not served untilJanuary 2018. It was amended in March 2018 to address a notice for further and betterparticulars. Discovery was made in August 2018. Through the discovery process, theplaintiff was disadvantaged due to the lack of information about the defendants'management of funds once invested. The parties engaged in correspondence on theadequacy of discovery over the course of some months, resulting in an application bythe plaintiff for further and better discovery. Additional material was discovered bythe defendants around 18 February 2019, including as to the application of the4 Of the balance of $103,000 the sum of $23,000 was paid by the first defendant to his solicitors'trust account and held as security for costs in this proceeding on behalf of the plaintiff under anagreement by the parties.5 Although there are two plaintiffs, for convenience I intend to refer to plaintiff (singular) in thisjudgment. The defendants responsibly conceded that the funds representing the sale of the Trustowned home, and withdrawn from the Trust's bank account, amounted to a distribution to thecouple as discretionary beneficiaries of the Trust.6 The plaintiff seeks to recover the full amount invested of $403,000 despite having received (atleast nominally) $103,000 from the defendants.plaintiff's funds. The plaintiff asserted there remained deficiencies and that thestatement of claim would need further amendment, potentially jeopardising the trialdate.[12] The plaintiff obtained a non-party discovery order against the liquidators ofAPS. The handover of documents was then delayed pending the plaintiff's paymentof the costs of collating those documents, necessitating an application for legal aid.This placed the plaintiff in a squeeze, partly attributable to delayed discovery by thedefendants. At a mention before Palmer J on 20 June 2019 (before receipt of thematerial from the liquidators) the Court was understandably reluctant to adjourn athree-day trial given its proximity. Ultimately, though the documents were onlyreceived by the plaintiff's solicitors in the week before trial, she elected not to pursueadjournment.[13] The documents discovered by the liquidators of APS are the financial recordsof APS and related companies. These potentially shed light on APS' use of funds fromthe point of the investment to the ultimate failure of the companies.[14] A relatively slim sub-set of this material was put by Mr Kashyap toMr Derhamy on cross examination. This included reference to the bank statements ofAPS and Protronics Limited, an associated company of APS and the initial recipientof the investment of $300,000.[15] Mr Murray objected to this line of cross-examination and production of thebank statements. I recorded the objection in my Minute dated 5 July 2019.7 Iprovisionally admitted these documents and the cross-examination. I invited theparties to address me on the evidential point as part of their closing, reserving myruling to be dealt with in my substantive judgment.8[16] Mr Murray submitted that the pleading, even as amended, did not allege thatthe defendants either acted negligently or failed to act during the course of theinvestment. Consequently, the defendants' actions or inaction throughout 2015 was7 Minute (No 1) dated 5 July 2019.8 Memorandum for defendants as to evidential issue dated 10 July 2019 and memorandum forplaintiffs dated 10 July 2019.not part of any brief of evidence, nor discovery. The transactions recorded in the bankstatements all occurred well after the investment was made. He added that theinvolvement of an APS related company, Protronics Limited, had been disclosed tothe plaintiffs in February 2019 so there had been ample opportunity for an amendmentto the pleadings. Had it been amended, Mr Derhamy could have addressed the issuesin his evidence.9[17] In response, Mr Kashyap contended that the plaintiff had laboured under asignificant disadvantage from the outset, and throughout the proceedings, due to a lackof information. He pointed to the opposition to further and better discovery pendingarrangements for security for costs and the relatively late discovery of further materialin February 2019. He contended there was no real prejudice to the defendant inconsidering the further limited material he sought to put to Mr Derhamy in cross-examination, and that disregarding the evidence would be unfair to the plaintiff in allthe circumstances. Implicitly, he submitted that Ms Fa'agutu's pursuit of redress washampered by her financial situation, in turn caused by the loss of capital, and that itwould be wrong to permit ongoing unfairness by excluding the material.[18] Although Mr Kashyap's submission is sound, ultimately Mr Murray is correcton the pleading point. The narrowness of the particularised claim may be explainedby the chronology outlined and is not attributable to any fault of the plaintiff or hersolicitors. Despite this, there are two reasons why I reach the view that I will not relyon that part of the cross examination of Mr Derhamy which references the bankstatements. First, I accept that to do so would extend the case well beyond the casepleaded and defended by Mr Derhamy and his company. Secondly, without expertaccounting opinion to shed light on the context and import of this financial material,few if any conclusions can reliably be drawn.[19] In short, the risk of substantive unfairness to the defendants leads me to upholdMr Murray's objection. I have put that part of the cross examination and thosedocuments to one side.9 In my view, the fact that the investment was paid to Protronics Limited in the first instance is notnecessarily apparent from the documents disclosed in February 2018.Issues[20] Broadly, the issues are:(a) The relationship between the Mudharaba and New Zealand law;(b) Whether the Mudharaba was brought about by undue influence ofMr Derhamy;(c) Whether Mr Derhamy and/or MAA exercised an unfair advantage throughan unconscientious use of power to such an extent that the Court shouldintervene in its equitable jurisdiction;(d) Whether Mr Derhamy and/or MAA breached any fiduciary obligation owedto Mr Ali and Ms Fa'agutu;(e) If the answer to (b) and (c) is no, whether MAA breached the terms of theMudharaba; and(f) Whether Mr Derhamy and/or MAA breached a duty of care, were deceitfulin a tortious sense and, if so, what is the remedy?Facts[21] Mr Ali and Ms Fa'agutu met in 1979. At the time, Ms Fa'agutu was a 'firstcook' in the hospital kitchens of Auckland's public hospitals and Mr Ali was a drivinginstructor. They wed in 1993 in an Islamic ceremony. In 2008, they married underNew Zealand law. Ms Fa'agutu had been brought up in the Methodist church buteventually converted to Islam out of devotion to her husband. She retired in 2006 tolook after Mr Ali full-time. He was in poor health even then, having suffered a seriousstroke.[22] Before his health problems, Mr Ali ran various small businesses. Thesebusinesses were clients of Mr Derhamy since 1997. Mr Derhamy also prepared taxreturns for the couple from time to time.[23] Mr Ali also bought and sold houses. Between 2000 and 2014 Mr Ali boughtand sold somewhere in the region of 14 houses in Auckland. It was Mr Ali whoconducted all the property purchases and arranged finance from first-tier lenders suchas the ASB and Westpac, despite the relatively modest incomes of the couple.Although these transactions were driven and arranged by Mr Ali, the couple wereregistered on the title as joint owners to most of the homes. On at least two occasions,Ms Fa'agutu was the sole registered proprietor on the title.[24] This pattern of buying and selling attracted an Inland Revenue Departmentaudit in or around 2006. Mr Ali and Ms Fa'agutu disputed the IRD's assessment thatGST and income tax were payable. Mr Derhamy attended interviews between the IRDand Mr Ali and separately between Ms Fa'agutu and the IRD in late 2006. The IRDissued proceedings to recover tax, interest and penalties of around $266,289, alongwith costs. It obtained a judgment against the couple in 2010 and subsequently issuedbankruptcy notices.[25] Mr Derhamy assisted the couple in connection with the disputes and litigation.In September 2012 he played a part in achieving an ultimate settlement of the penaltiespayable to the IRD. According to Mr Derhamy, one of the reasons for settling the casewith the IRD on terms less advantageous than Mr Derhamy thought was achievablewas that he was conscious that Mr Ali's "physical situation, heart situation, is not goodenough for another excitement".[26] Aside from the professional relationship, Mr Ali and Mr Derhamy had alsobeen friends for nearly 30 years. Although they worshipped at different mosques, theydiscussed religious and other matters from time to time. They socialised, with others,at the home of Mr Ali and Ms Fa'agutu although Mr Derhamy and Ms Fa'agutu wereat odds over the number of visits over the years. Mr Derhamy's evidence on therelationship was inconsistent. At times, he downplayed the closeness of theirrelationship but agreed that he visited Mr Ali in hospital and at his home as Mr Ali'shealth deteriorated in 2014. He says it was always at the invitation of Mr Ali, and notoften.[27] In 2012, after selling a family home to discharge the liability to the IRD, Mr Aliand Ms Fa'agutu settled the Hamsat Ali Family Trust (the Trust). The Trust purchaseda home in Mangere in which they lived. The trustees of the Trust were Mr Ali andMs Fa'agutu. The ultimate beneficiaries were the children of Mr Ali and the childrenof Ms Fa'agutu, along with her sister.[28] In January 2014, the Trust sold the Mangere home but the couple stayed on astenants. The sale proceeds left the Trust with approximately $400,000 which thecouple placed on a one year fixed-term deposit with the Bank of New Zealand earninginterest of 4.6 percent per annum. The term deposit was to mature on 31 January 2015.Materially, Ms Fa'agutu states that her husband did not express any concern to herabout earning interest from the term deposit.[29] Mr Ali's health declined through 2014. He was hospitalised at least twicebetween August and December 2014. Ms Fa'agutu produced hospital medical reports.While no medical expert was called to explain the import of those reports, it is evidentthat Mr Ali was in poor physical health and there was little or no hope of improvement.He was unable to walk unaided and became breathless easily. However, there was noreliable medical evidence about cognitive decline or incapacity or the effect of thevarious prescription medications he was taking.[30] Caution is required before drawing any inferences about the impact of hisvarious medical conditions without the benefit of expert opinion. However,Ms Fa'agutu's evidence about her husband's physical weakness and deterioration,along with his dependence on her for his care needs is generally consistent with theinformation in the medical reports. For example, a report dated 12 November 2014from the attending doctor at Middlemore Hospital to Mr Ali's GP recorded as follows:Mr Ali has deteriorated symptomatically over the last three months. Althoughthere were no active signs of heart failure, I suspect he is now in his end stageheart disease I have discussed Mr Ali's case with [ ] who is currently onward 2 with regard to an elective admission to Middlemore Hospital forpossible titration of medications and potentially consideration for palliativecare referral.[31] I found Ms Fa'agutu to be an honest witness about the matters of which shehad direct knowledge. Understandably, given the passage of time and inordinate stressshe must have been under at the time of the material events, her recall on some matters,such as when the administration of morphine commenced was less reliable.[32] I accept Ms Fa'agutu's evidence that Mr Ali had, by November 2014, startedto struggle to remember his prayers. It stands to reason that this would be imprintedon her memory as this caused him special distress and she was aware of thesignificance of his request for her assistance with his prayers.[33] I also accept that Mr Ali had started to behave erratically or unpredictably attimes with her and refused to take some prescribed medications. She described boutsof confusion. Both the confusion and lack of compliance are consistent with hospitaladmission records.[34] Ms Fa'agutu gave evidence of administering morphine to Mr Ali at home inaccordance with a prescription from the hospital. The only documentary evidence ofa prescription for morphine produced (oral solution of morphine hydrochloride) is ina hospital report recording his admission to hospital on 16 December 2014 anddischarge on 17 December 2014, one day before the date of signing of the Mudharabaagreement.[35] Mr Derhamy's friendship with Mr Ali continued over this period. He visitedthe house on occasions. Ms Fa'agutu said the visits were often. Mr Derhamydescribed their frequency as "sometimes" although conceded that he and Mr Ali weregood friends.[36] Ms Fa'agutu took Mr Ali in the car to visit Mr Derhamy at his office on threeor four occasions. She would have to leave Mr Ali in the car and climb the stairs tothe office to bring Mr Derhamy down to the car. During those visits, Ms Fa'agutu satin the car but paid little attention to the conversations between the two men. Similarly,whenever Mr Derhamy visited the house, Ms Fa'agutu was present but was not usuallypart of the conversation.[37] Mr Derhamy was aware of Mr Ali's significant physical decline toward theend of 2014. He accepted that this explained Mr Ali's enhanced desire to discussspiritual and religious matters about which Mr Derhamy has "some knowledge andopinions". He maintains that Mr Ali was coherent and agile of mind; that it wasMr Ali who in about mid-November 2014 raised with him concerns about earninginterest contrary to the teachings of the Prophet and asked what he should do. Inevidence-in-chief, Mr Derhamy said that he tried to allay Mr Ali's concerns and putoff discussion about other options. It was only after Mr Ali persisted, he says, that heintroduced the option of a Mudharaba agreement consistent with Islamic principles.In my assessment, the most revealing explanation of his response to Mr Ali's concernswas as follows:Q. My question is what did you say to Mr Ali about a Mudharaba?A. Well, to the best of my recollection I explained it the way I tried toexplain it to you. I first of all tell that, okay, "Yes, I can't tell you, Itried, I tried to tell him that perhaps it's all right for you to haveit in the bank. I couldn't, I am not allowed to negate one of therules of Islam because of my liking for somebody or (inaudible).So I said that, "Yes, this alternative, this option is open if you want".And then after he said that he, yes he would like some tradition, thatI looked amongst my clients, I had a lot of clients, and the Pipelinebusiness came forward which I then presented to Hamsat andFa'asolo. (emphasis added)[38] Mr Ali and Mr Derhamy discussed the option of a Mudharaba arrangementover a period of weeks, both in person and by telephone. Ms Fa'agutu was usuallypresent in the house but in the background and not part of the discussion, until thepoint at which Mr Ali resolved to enter into a Mudharaba. At that stage, Ms Fa'agutuwas called into the discussion. She then learned, for the first time she says, of theproposal to withdraw money from the term deposit and invest it in a company. Shesays that her husband told her in front of Mr Derhamy that Mr Derhamy had found agood company to invest in where everything is done in the Islamic way, that thedirector was a good friend and "they [Mr Derhamy and her husband] both agree onthe company". She says that Mr Derhamy then told them they would get more moneythan the bank gives them "in an Islamic way" and that the investment would be "safe".[39] When this conversation was put to Mr Derhamy on cross-examination, heresponded as follows:Q. I put it to you, Mr Derhamy, you advised Ms Fa'agutu and Mr Ali thatthis was a good company, you knew the director and it was a safe bet?A. It was a good company. I knew the director, "safe" I do not remembersaying it, because being in the business takes you away from safety.There are different degrees of risk obviously, but it was a companythat I had known for, as I said, I started working with that companyfrom 2004 and this was 2014[40] On the one hand, Mr Derhamy says that he spoke to Mr Ali about the risksbecause that aspect was one which made it a "halal" investment, meaning one inaccordance with Islamic principles. He later qualified that statement:Q. You told Mr Ali of the risks, you say, of investing in a company?A. I don't remember dwelling too much on that issue of risk becauseissue of risk, we say when we, I used to lecture on financialmanagement, risk and reward, risk is a matter of perception, differentpeople see things differently, risk is not something you can measurelike that and say the risk is this much or that much.risk and rewardmust be proportionate. That's what I say.[41] Ms Fa'agutu readily accepts that she does not know what transpired in thediscussions the two men had, other than the one discussion when she was called tojoin the two men.[42] Ms Fa'agutu was terribly unhappy with the plan but did not make her feelingsknown to her husband in front of Mr Derhamy. She says that she later told her husbandthat she could not understand the distinction between interest forbidden under Islamiclaw, and profits or dividends, or why they would not wait until the term deposit cameto an end. On the occasions that she tried to talk her husband out of the proposal, shesays it led to conflict in which he became upset and cried. She feared that the stressof argument would only worsen his condition. She considered that she had no optionbut to capitulate for the sake of Mr Ali's health despite her firm opposition to the idea.Withdrawal of term deposit and meeting APS[43] On 11 December 2014, Ms Fa'agutu took Mr Ali to the BNZ bank to withdrawthe term deposit. Mr Derhamy arrived at the bank to meet them. His evidence is thatthey only went to the bank after a meeting with Mr Dilaimi, the director of APS, at thepremises of APS, and that Mr Ali had requested this meeting to make his ownassessment of Mr Dilaimi's business. Ms Fa'agutu's recall is different. Her evidenceis that the bank visit to withdraw the money was a few days before the visit to APS,meaning that the visit to APS was on a date between 13 and 15 December 2014.[44] Mr Derhamy produced his diary for the first time during the trial. It recordeda reference to APS on 11 December 2014 but recorded no specific time or commentary.It had not been discovered prior to trial however Mr Kashyap for the plaintiff did notprotest its production. I place no weight on the diary entry because in my view it isinconclusive. (I note that there was no diary entry for 18 December, the date on whichMr Derhamy met with Ms Fa'agutu and Mr Ali to sign the Mudharaba agreement).[45] Mr Derhamy clarified why he was so sure that the sequence of events was firstthe visit to APS, at the request of Mr Ali, and then the bank withdrawal. He said:I am not a newcomer into this, I am 74 years old and I have been accountantin New Zealand for many years. I have seen cases where people deposit somemoney or invest some money and a couple of days later, one day later, theychange their mind and they go berserk, they wanted money back, it's only afew days, they want their money back. I certainly would not have agreed withcollecting the money first and then letting them see Mr Dilaimi. What wasthe purpose of them seeing after two, three days, after the money has gone,after we cannot get it back.[46] Mr Derhamy's account is the more logical sequence. It is also possible thatMs Fa'agutu mistakenly telescoped two visits to the bank, the first on 9 December2014 to instruct the Bank to close the term deposit. This scenario fits the date stampedprintout from the bank summarising the current balance of the term deposit and nextinterest payment, and the transaction line on the bank transaction history which showsthe narration "Breakdeposit" on 10 December 2014. While this document was put toMs Fa'agutu in cross examination, this alternative scenario was not explored. In theend, I am unable to resolve the conflict about the precise sequence of events butconclude that it is not determinative of the legal position.[47] Whether the APS meeting took place before or after the withdrawal of fundsfrom the term deposit, neither Ms Fa'agutu nor Mr Derhamy recalled much of thedetail of the discussions with Mr Dilaimi. Mr Derhamy says that Mr Dilaimi did mostof the talking about his business and presented some financial material. Ms Fa'aguturemembers Mr Derhamy doing most of the talking. Mr Ali sat quietly withMs Fa'agutu. According to Ms Fa'agutu, Mr Ali had been nauseated on the way tothis meeting to such an extent that she had to stop the car on the motorway to allowhim to vomit on the side of the road; however, this was not made known toMr Derhamy.[48] Towards the end of the relatively short meeting, Mr Dilaimi and Mr Derhamywent to one corner of the meeting room where there was a computer and spoke to eachother. Then Mr Dilaimi returned to the couple and presented a form of MudharabaAgreement, which he had drafted. This was a Mudharaba between APS andMr Derhamy (APS Mudharaba). At some stage, Mr Derhamy requested one changeto the dividend payment dates which was inserted into the document. He alsodecreased the amount of the proposed investment from $400,000 to $300,000. Hesays this was to spread the risk.[49] Mr Ali read the APS Mudharaba document with Ms Fa'agutu at his side.There was no discussion about its terms. Mr Derhamy and Mr Dilaimi signed thedocument. Mr Derhamy asked Mr Ali and Ms Fa'agutu to also sign the documentwhich they duly did. Mr Derhamy's evidence is that they signed as witnesses to thearrangements between APS and himself to provide him with the comfort that Mr Aliwould invest in APS. Further, Mr Derhamy said that it had been Mr Ali who askedMr Derhamy to manage and monitor the investment in APS to save him the time andtrouble. Ms Fa'agutu understood very little about the agreement. For instance, shedid not understand that she was witnessing arrangements between Mr Derhamy andAPS.The Mudharaba between APS and Mr Derhamy[50] I annex in full, as Appendix A to this judgment, the APS Mudharaba betweenMr Derhamy and APS in view of its uncommon terms.[51] In the agreement, Mr Derhamy is described as "the business investor" and theparty providing $300,000 for the finance of certain described projects:... for a period to the end of June 2015, with an option to extend for anotherperiod by mutual consent.[52] The Mudharaba is described in its title as a "Partnership AgreementMudharaba". Clause 2.4 states that Mt Albert Accountant will act as financialcontroller but Advanced Pipeline Services is to provide all other resources and take allresponsibility to execute the projects. It states:In consideration of this agreement the first party (Mr Derhamy) will be paid20 per cent of the gross margin as his share of the profit.[53] Under a heading, "General", clause 3.1 states that:This agreement is governed by Islamic law and by New Zealand law.It further states that:This investment is secured by "personal guaranty (sic) of Mr Akram Dilaimi.[54] Two appendices are attached to the Mudharaba. The first is described as thelist of Pipeline projects referenced in the body of the Agreement. The second is a one-page cost analysis. There is no apparent relationship between the list of projects inAppendix A and the cost analysis in Appendix B. It appears that Appendix B is asample of the calculation of gross profit at the end of the term of the Mudharaba, ratherthan a profit projection.[55] This Mudharaba agreement is signed by Mr Derhamy as the first party and byMr Dilaimi as the second party. It is dated 11 December 2014. Materially, there arethe signatures of Ms Fa'agutu and Mr Ali as witnesses.Payment of Protronics Limited[56] Deposit interest of nearly $10,000 was forgone because of early termination ofthe term deposit. Mr Ali had however already raised this issue with Mr Derhamy who,in turn, passed on this information to Mr Dilaimi. Mr Dilaimi offered to reimburse thecouple for the lost interest. It is unclear whether this was intended to furtherincentivise Mr Ali and Ms Fa'agutu but such an arrangement is perplexing if Mr Aliwas motivated to enter into a Mudharaba to avoid earning interest. Mr Derhamydescribed this payment as a "voluntary gift" from Mr Dilaimi to cover the loss ofinterest.[57] At the bank the couple handed the cheque to Mr Derhamy who immediatelytook it to the ANZ to deposit it in his company account. On the same day, he arrangedthe issue of a bank cheque to Protronics Limited. He says he did so at the request ofMr Dilaimi who advised that, as APS was in overdraft, the Bank would "take themoney". He did not tell Mr Ali or Ms Fa'agutu that he had banked the cheque in theProtronics account.[58] Payment of $10,000 was duly made to the couple on the same day from theASB account of MAA with APS depositing $10,000 into MAA's account with thenarration "Acctg fee".Mudharaba Agreement between Mr Ali and Ms Fa'agutu and MAA[59] On 18 December 2014, Mr Derhamy came to the home of Ms Fa'agutu andMr Ali. He presented them with a Mudharaba Agreement between the couple on theone hand and his company on the other (Ali Mudharaba). He says that the termsrecorded in this document were those previously discussed with Mr Ali. The couplesigned the Ali Mudharaba. Again, I reproduce, in Schedule II to this judgment, the AliMudharaba in view of its uncommon terms.[60] Materially:(a) The words in Arabic are translated as "In the Name of Allah TheCompassionate The Merciful";(b) This document references the payment to the bank account of MAA on11 December 2014 but makes no mention of an investment in APS;(c) The purpose of paying MAA is expressed to be for the use of theoperator's business (notably "his business" rather than "its business")and/or for investment to the best of "his" abilities and prudence togenerate lawful profit;(d) The investors' ownership of the funds is such that in the case of thedemise of one, the surviving owner will own 100% of the sum;(e) Profit generated is to be shared on a ratio of 60% to the investor and40% to the operator.10[61] On the face of it then, this is a stand-alone agreement not expressly tied toinvestment in APS and giving the operator a wide discretion to invest funds on behalfof Mr Ali and Ms Fa'agutu.[62] Mr Ali had been discharged from hospital the day before signing the AliMudharaba after being admitted in a state of confusion. According to hospital records,an adjustment to his medication had ameliorated his confusion however the recordalso notes that a prescription for morphine was provided to Mr Ali on discharge.[63] The Ali Mudharaba was not witnessed, nor did the couple seek legal advicebefore signing it. Mr Derhamy did not suggest to them that they take advice of anykind either at this stage or before they handed over the $400,000. He did not have anyindependent discussion with Ms Fa'agutu to confirm her understanding of thearrangements. He continued to principally deal with Mr Ali in the knowledge that itwas Mr Ali who normally dealt with matters of finance between the couple. In effect,he saw Ms Fa'agutu as passive or compliant with her husband's wishes.[64] Mr Derhamy gave evidence that he explained the risks of investing in APS toMr Ali in their various discussions. Ms Fa'agutu was a frank witness. She says thatshe does not know what was discussed between her husband and Mr Derhamy. Evenwhen present in the background, she took no notice of their conversations, beingunaware that they were discussing money.After signing the Ali Mudharaba[65] On 24 December 2014, Mr Derhamy returned $4,000 to the couple at theirrequest for the year-end holiday period.10 The Ali Mudharabah states that any disputes will be resolved by mediation. No point was takenby the defence that this is an operative dispute resolution clause.[66] On 21 January 2015, 8 days before he died, Mr Ali made a new will. It wasnot drafted by his usual solicitor. It was witnessed by Mr Derhamy and the newsolicitor. Among other things, Mr Ali:(a) appointed Ms Fa'agutu to be trustee and executrix, as in his previouswill;(b) directed that she pay from his estate, debts, funeral expenses and thefortieth day prayers and to make arrangement for his burial accordingto his Islamic faith;(c) expressed his wish that half of the capital and income of the Trust bepaid out to Ms Fa'agutu as soon as probate of the will is obtained andbequeathed small sums to his children from his share of the capital andincome from the Trust;(d) directed that the remaining half of the capital and income remain in theTrust and be used for organising and holding two religious gatheringsfor the celebration of the birthday of the Prophet (Maulud-un-Nabi) andfast-breaking gatherings (Iftari) in the month of Ramadan; and(e) named Mr Derhamy, among others, to guide Ms Fa'agutu in theorganising and holding of the annual religious functions stipulated inthe will.[67] After her husband died, Ms Fa'agutu did not receive any payments fromMr Derhamy until 7 May 2015, 3 months after the date stipulated in the Ali Mudharabafor provisional dividend payments. Yet Mr Derhamy had received a dividend paymentof $8,000 from APS on 31 March 2015. He was unable to explain the delay inforwarding payment to Ms Fa'agutu other than the pressure of year-end financialreporting for his clients. Between 7 May and 9 July 2015, payments were made toMs Fa'agutu totalling $12,000. This means that Mr Derhamy retained $8,000 fromAPS over the same period, in accordance with the proportionate 60/40 split.[68] By August 2015, APS had advised Mr Derhamy that no further dividends couldbe paid. He gave evidence that he informed Ms Fa'agutu at around the same time atwhich point she asked for the balance of the investment back, namely the $103,000not paid to APS. He explained to her that he would repay this sum as and when hiscompany cash-flow allowed. According to Mr Derhamy, those payments started inSeptember 2015 and continued over a four-year period.[69] Ms Fa'agutu's recall is different. Her evidence is that, on learning about thefailure of APS and the liquidation, she made it clear that she wanted all her moneyback and the balance of $103,000 to be returned immediately. She further says thatthis conversation only took place in late 2015 after she had called Mr Derhamy tomake sure that her money would be returned at year end. She says that Mr Derhamythen asked her to come to his office where he told her what had happened andexplained that he could not return the invested balance of $103,000 quickly but shewould still receive dividends in the meantime. Ms Fa'agutu thus understood that thepayments she received were not repayments of principal but dividend payments; whileMr Derhamy's evidence is that they were repayments of principal of the $103,000.11[70] On 10 October 2015, Mr Derhamy met with Sayed Dilaimi to agree on theconfirmation of expenses he considered that Mr Dilaimi was personally responsiblefor. Included in the list, apparently signed by Mr Dilaimi, was reference to "Hamzadividend" of $4,000 per month. There was no reference to the principal sum of$300,000 which should also have been the subject of Mr Dilaimi's personalundertaking as guarantor. This document suggests that, in the last quarter of 2015,before liquidation, Mr Derhamy was trying to secure on going payments of dividendsfor Ms Fa'agutu rather than recovering the principal. The document also refers to amonthly accounting fee of $1,000 which Mr Derhamy said was payable to him butnever received.[71] Ms Fa'agutu's recall that this information came late in 2015 is consistent withthe date of liquidation of APS in November 2015.11 By January 2018, $80,000 had been paid by Mr Derhamy to Ms Fa'agutu.[72] On 19 January 2016 Ms Fa'agutu's solicitors wrote to Mr Derhamy demandingthat he account for the investment.[73] Mr Derhamy responded on 3 February 2016 setting out the terms of the AliMudharaba and proposing a meeting. He received no response.[74] Ms Fa'agutu continued to struggle financially. Mr Derhamy attempted toassist Ms Fa'agutu with her claim to a benefit from Work and Income New Zealand.On 23 March 2016, he wrote "To whom it may concern" confirming that Ms Fa'agutuand Mr Ali had invested funds of $403,491.75 with MAA and MAA subsequentlyinvested in APS which had liquidated with no anticipated recovery. In terms of thebalance of $103,491.75, he wrote:The balancehas partly been returned back to Ms Fa'asolo (sic) ($24,800)and balance of $78,691.75 will be paid back to her during the next 10 months.This money was invested in another company, but now under instructionsfrom Fa'asolo it has been recalled and now is in the process of disengagement.Unfortunately there are (sic) no way I can hasten this process.[75] The statement of claim was filed on behalf of the plaintiff on 31 May 2017 butnot served.[76] In September and October 2017 events took another turn when the owners ofMs Fa'agutu's home put it on the market. Ms Fa'agutu advised Mr Derhamy. Therewas some inconclusive discussion about what Mr Derhamy could do to assist herpurchase of her home, with additional family support. The discussions came to noughtand in December 2017 Mr Derhamy and his wife bought Ms Fa'agutu's home withouther knowledge. They immediately increased Ms Fa'agutu's rent from $430 per weekto $500 per week. Mr Derhamy explained that this was necessary to service themortgage borrowings and that his motivation for the purchase was to ensure thatMs Fa'agutu had security of tenure in the property where she was comfortable and hadgood neighbours. He further says that had he known of the proceedings filed byMs Fa'agutu he would not have purchased the property.[77] In January 2018, this proceeding was served on the defendants. In response tothe increase in rent, and relying on a claim to set-off, Ms Fa'agutu stopped paying rent.This led to a claim by Mr Derhamy and his wife in the Tenancy Tribunal. The Tribunaldetermined that no set-off was available as there was no mutuality of parties. Facedwith a decision in Mr Derhamy and his wife's favour, Ms Fa'agutu ultimately settledthe rent liability through a payment arrangement.What happened to the balance not paid to APS/Protonic?[78] Mr Derhamy gave evidence that on 23 December 2014 he paid $20,000 of thefunds received from Mr Ali and Ms Fa'agutu into the MAA ANZ account to reducethe overdraft. On 13 January 2015, he lent $10,000 of the couple's funds to a thirdparty on an interest free basis with no expectation of profit to be earned. He assertsthis loan was repaid by the borrower by 31 October 2015. He used a further $50,000of the couple's funds to acquire a further shareholding in Pacificwind on19 January 2015, a company in which he already held shares to his own account. Thisshare purchase was subsequently unwound after Ms Fa'agutu required repayment.[79] In support of his contention that he has repaid $103,000 to Ms Fa'agutu,Mr Derhamy produced bank statements of MAA with the last payment shown on16 October 2017.[80] Notably, the transaction description for payments up to 23 March 2016 is"Mudharaba ADPS". After that date, the description is altered to refer to "Mudharabaprincipal".Conflicts in the Evidence[81] Ms Fa'agutu and Mr Derhamy's respective accounts in their evidence cannotbe reconciled in many areas. There are almost no contemporaneous documents whichshed light on the sequence of events or corroborate either version. AlthoughMr Derhamy's defence pleads that all his contact with Mr Ali was in his capacity asdirector of MAA, and file notes have been produced on discovery by Mr Derhamy inrespect of some professional matters, there are no file notes of his discussions witheither Mr Ali or Mr Dilaimi. I find the absence of such contemporaneous recordscurious given that Mr Derhamy himself acknowledges that there were many veryimportant conversations.Issue One: A Mudharaba agreement under New Zealand law.[82] This issue can be dealt with briefly. Although a Mudharaba agreement is basedon Islamic principles, Sharia law is not the proper law of the contract. The Mudharabaagreement I am primarily concerned with is the Ali Mudharaba document. Unlike theAPS Mudharaba, which states it is governed by Islamic and New Zealand law, thereis no express reference to Islamic law. While the context was, in part, a desire to enterinto an arrangement in accordance with Islamic principles, in this case the proscriptionon earning of interest, this is not the same as intending to enter into an agreementsubject to the principles of Sharia law. Although the nature and character of aMudharaba agreement is important in understanding the parties' motivations behindthe contract, they are not themselves determinative of the interests and obligations thecontract imposes.[83] I do not therefore have to decide whether a reference to two separate systemsis effective as the proper law of the contract. I observe only that a non-national systemof law such as Sharia law may not be recognisable as a system of law which can governa contract in New Zealand.12[84] In any event, the first fundamental question is whether the Ali Mudharabashould stand. This is squarely a question to be decided under New Zealand law.Issue Two: Was the Mudharaba brought about by the undue influence ofMr Derhamy?[85] The plaintiff claims that she lost $403,491.75 because of the first defendant'sunconscionable conduct and/or exercise of undue influence. The pleading is spare. Italleges that the first defendant cultivated a close personal relationship, moreparticularly with Mr Ali, being aware of the influence he exercised over Mr Ali andMs Fa'agutu's compliance with her late husband's decisions on these matters. It alsorelies on the pleaded contextual narrative in which the plaintiff asserts, among otherthings;(a) The parties shared similar Islamic beliefs and practices;12 Shamil Bank of Bahrain EC v Beximco [2004] 4 All ER 1072.(b) Mr Derhamy had built a close personal relationship with Mr Ali andMs Fa'agutu;(c) Mr Derhamy and his company regularly assisted with their tax affairs overthe years;(d) Ms Fa'agutu and Mr Ali held Mr Derhamy in very high regard due to hisknowledge not only of the Quran but the knowledge that he espoused aboutIslamic philosophy, such as living by principles of trust, faith and devotion;(e) By the later months of 2014, it was evident to both Mr Ali and his lovedones that he would not have long to live;(f) Mr Derhamy was aware, through his numerous visits in 2014, of Mr Ali'spoor health and/or the expectation he did not have much longer to live;(g) Mr Derhamy pestered and harassed Mr Ali to invest with him during thosevisits in late 2004 and otherwise criticised the earning of interest from thebank;(h) Mr Derhamy knew that Mr Ali was a religious man and stressed to him thatinvesting with him was equivalent to leaving savings in the bank, but withgreater return and, more importantly, that it would be religiously acceptable(unlike bank interest).[86] Mr Derhamy admitted knowledge of Mr Ali's ill-health in later 2014, butdenied precise knowledge of his prognosis. He maintained that Mr Ali had fullcapacity at all material times, was not suffering from any adverse effects on his mentalcapacity and exercised his own judgment as an experienced businessman.Legal principles[87] The doctrines of unconscionable dealing and undue influence enable a court toset aside transactions where one party is operating under a particular disability orvulnerability that vitiates their consent to the transaction in such a manner that it wouldbe unconscionable to permit the transaction to stand. In some factual scenarios, thedoctrines overlap in material respects; however, there are also fundamental differencesrequiring separate analysis.[88] Briefly stated, an unconscionable dealing tends to require focus on the conductof the stronger party and requires that it has knowingly taken advantage of a specialdisability in the weaker party. A mere inequality of bargaining power will not suffice.[89] Undue influence on the other hand is concerned with transactions where oneparty has impaired judgment, irrespective of the conscience of the other party.13 Thefocus is therefore on the mind of the person consenting to the impugned transaction,rather than the motives of the person exerting the pressure or influence. The relevantprinciples are helpfully set out in Green v Green.14 In summary:(a) The overall burden of proof rests on the person seeking to establishundue influence;(b) The person asserting undue influence must show that the allegedinfluence led to the making of the impugned transaction, and that theinfluence was undue in the sense that the transaction was not the resultof the free exercise of an independent will on the part of the person atwhose expense the transaction was made;(c) The question of whether a transaction was brought about by undueinfluence is a question of fact. A party can succeed in establishing thiseither directly by proving "actual undue influence" or recourse to anevidential presumption which arises where it is established that:(i) the person said to have been subject to undue influence placedtrust and confidence in the other; and13 Burrows, Finn and Todd Law of Contract in New Zealand (6th ed) LexisNexis, Wellington, 2012)at 428.14 Green v Green [2015] NZHC 1218 at [100] approved by the Court of Appeal in Green v Green[2017] 2 NZLR 321 at [35].(ii) the transaction called for explanation;(d) Whether there is a relationship of trust and confidence can either beestablished factually or by reference to a class of specific relationshipssuch as lawyer/client; parent/child; doctor/patient. In the lattercategory the law presumes irrefutably that one party had influence overthe other. The presumption is only as to proof of influence. The personalleging undue influence will still need to establish a transaction callingfor an explanation;(e) Whether a transaction calls for an explanation depends on thecircumstances of the case. The question is simply whether "failingproof to the contrary, [the transaction] was explicable only on the basisthat undue influence had procured it";15(f) Once the person claiming undue influence has established both therelationship of trust and confidence and a transaction calling forexplanation, the evidential burden shifts to the person seeking to upholdthe transaction to show that the transaction was not the result of undueinfluence. This, however, should not obscure the position that theoverall burden of proof will always rest on the person alleging undueinfluence; and(g) The presence of independent advice is one of many factors that may betaken into account in determining whether undue influence is proved.[90] While there is a reluctance to describe too precisely the type of relationshipwhich will attract the presumption there is a class of relationship which automaticallymeets this criterion for reasons of public policy.16 This includes the parent/childrelationship and the relationship between solicitor and client. These tend to be akin toor share characteristics of fiduciary relationships. Historically, the presumption hasalso arisen automatically in relationships of spiritual influence although these have15 National Westminster Bank Plc v Morgan [1985] AC 686, 709 (HL) at 704, cited in Royal Bankof Scotland v Etridge (No 2) [2006] 3 NZLR 618 (HC) at 799 and 840.16 National Westminster Bank Plc v Morgan [1985] AC 686 (HL).tended to be formal relationships between, for example, confessor and penitent andspiritual advisor and follower.17[91] In the light of increasing secularisation in Western societies, it is preferable toexamine the nature of the particular relationship at issue rather than to rely on anautomatic presumption simply because religious belief is engaged. Thisnotwithstanding the spiritual influence said to have been exercised in this case isderived from the Islamic faith.[92] The case law in the spiritual sphere more often concerns gifts than transactionsbut the analysis is the same in respect of this first inquiry. Even where the gifts aremade with no personal benefit to the defendant, for instance passed on to third partiesfor charitable purposes and without any deliberate attempt to take advantage of theplaintiff, courts have been ready to set aside the gift.18 Where a defendant haspersonally gained, the suspicion of exploitation naturally increases. This approach canbest be described as prophylactic. As stated in the often cited judgment of Allcard vSkinner:19But the influence of one mind over another is very subtle and of all influences,religious influence is the most dangerous and the most powerful, and tocounteract it Courts of Equity have gone very far. They have not shrunk fromsetting aside gifts made to persons in a position to exercise undue influenceover the donors, although there has been no proof of the actual exercise ofsuch influence; and the Courts have done this on the avowed ground of thenecessity of going to this length in order to protect persons from the exerciseof such influence under circumstances which render proof of it impossible.Analysis[93] The first question then is whether the evidence establishes a sufficiently strongrelationship of trust and confidence in Mr Derhamy by Mr Ali and Ms Fa'agutu. Thesecond question is whether the transaction calls for an explanation.17 Pauline Ridge "The Equitable Doctrine of Undue Influence considered in the Context of SpiritualInfluence and Religious Faith: Allcard v Skinner revisited in Australia" (2003) 26(1)UNSWLJ 66.18 In this instance, a plaintiff's recovery might be limited to only that part of the gift still remainingin the donee's hands if it is inequitable to insist on full recovery; Quek v Beggs (1990) 5 BPR[97405] 11, 761; Allcard v Skinner (1887) LR 36 ChD 145, 183.19 Allcard v Skinner (1887) 36 ChD 145 at 159.[94] Trust and confidence may arise from a combination of all aspects of arelationship. In this case, Mr Ali and Ms Fa'agutu had known Mr Derhamy for a verylong time. In Mr Ali's case, it was for over 30 years. The relationship was bothprofessional and personal. I accept that Mr Derhamy had not been engaged by thecouple in his capacity as their accountant for at least 2 years before the events inquestion. The absence of ongoing formal engagement of his services does nothowever answer the issue of the level of trust and confidence reposed in him; it onlytakes the case out of the automatic class of presumed influence. His previousattendances for them, including as their tax agent in the IRD dispute which only cameto an end in 2012, sheds light on the nature of their relationship and the regard theyhad for him.[95] Overlaying the long-standing relationship between Mr Ali and Mr Derhamywas the profound spiritual aspect. It is evident that Mr Ali sought Mr Derhamy outto discuss religious ideas and teachings of the Quran and that Mr Derhamyreciprocated by sharing his thoughts and views. In his evidence Mr Derhamy gave theimpression of someone resolutely confident and firm in his belief system, highlyeducated and ready to share his philosophical and religious views. Although he wasnot Mr Ali's preacher, I have no doubt that Mr Derhamy's views on spiritual mattersas a man of learning would have carried a great deal of weight for Mr Ali.[96] As Mr Ali's health and vitality waned, his vulnerability and susceptibilitywould also have increased as his interest in the concept of the after-life deepened.While there is insufficient evidence of a lack of capacity in the legal sense, his terminalillness led to cognitive vulnerability in two ways. First, by elevating the power ofspiritual influence and secondly by contributing to a significantly diminished abilityto understand the full import of the transaction.[97] It strikes me as obvious and unsurprising that Mr Ali leaned on Mr Derhamyfor emotional and spiritual support. Even Mr Derhamy accepted that this was thereason for Mr Ali's special interest in the Quran's teachings in respect of the afterlife:Q: So it would be fair to say that it was quite common after your relationof that an accountant [sic] with Mr Ali and Fa'asolo, you were quiteinvolved in the sense you would advise on religious matters andmatters of the Quran generally when you spoke?A: I noticed that he enjoys my company and my discussions.he was sospecial for me that whenever he would ring and ask for me, I wouldgo. I would make time, I would take time and go. I would not gowithout invitation, I would not go without him calling me and thosetwo or three times or four times that he came to my office, there wasnothing really very important to be discussed but we would sit, wewould, he has though to of something, a verse of the Quran he hasbeen reading and he wants to know more about it, he would discuss itwith me, he would enjoy my explanation.[98] As described by McClelland J in Quek v Beggs20 the power of spiritualinfluence cannot be underestimated:... the ease and subtlety by which suggestions may be conveyed to, encouragedin, and absorbed by, those vulnerable to them as to what is the will of God inrelation to their actions in particular matters.[99] Standing back and looking at the relationship in the round, I consider thatMr Ali placed such a degree of trust and confidence in Mr Derhamy such that the firstcriterion for undue influence is satisfied.[100] Mr Murray submits that Ms Fa'agutu was in a different position to Mr Ali. Heasserts she decided to go ahead with the transaction despite her now stated concerns,which she accepts were not expressed to Mr Derhamy at the time. By doing so, sheceded her decision-making power to Mr Ali, without being influenced in any respectby Mr Derhamy.[101] I agree that the relationship between Ms Fa'agutu and Mr Derhamy wasdifferent. She did not rely on him for spiritual support for herself. However, thedistinction Mr Murray seeks to make is artificial. It must have been clear thatMs Fa'agutu would acquiesce to whatever Mr Ali did out of concern to avoid stressfor him. I infer from Mr Derhamy's long experience with the couple that he himselfwould have been well aware of the relationship dynamic; that it was Mr Ali who madefinancial decisions while Ms Fa'agutu devoted herself to his care.[102] Mr Derhamy's evidence was that it was he who suggested drawingMs Fa'agutu into the last discussion on the proposal to invest in APS "because shewas half owner of the money". Mr Derhamy gave unchallenged evidence that if he20 Quek v Beggs (1990) 5 BPR 11,761.had something contrary from her, he would not have gone ahead with the transaction.Yet, at no stage did he directly ask Ms Fa'agutu for her approval. At no stage did hespeak with her on her own, despite the fact that on Mr Ali's death, she would becomethe sole owner of the funds in question, something he was aware of since hespecifically referenced it in the Ali Mudharaba.[103] I find that Ms Fa'agutu's will was also overborne, in the legal sense, when sheentered this transaction. First, derivatively in that the undue influence operating onMr Ali captured Ms Fa'agutu because of the dynamic in their relationship. Secondly,in a standalone sense by virtue of the untenable situation she found herself in, unableto hold fast to her views on the transaction for fear of hastening her husband's death.[104] It follows that I am also satisfied that the first criterion is satisfied in respect ofMs Fa'agutu.[105] The second criterion is whether the transaction called for an explanation. Thiscan be shortly addressed. The answer is yes. The transfer of almost all the couple'ssavings at the end of Mr Ali's life to an investment that obviously attractedsignificantly more risk than a term deposit was improvident on any objective common-sense view. The manner in which the transaction came about – the inadequateinformation provided, the transfer of funds without a binding agreement withMr Derhamy or MAA , the vague parameters of investment in APS as recorded in theAPS Mudharaba, and the haste after the meeting with APS and MAA's benefit througha 40% share of the dividends – all point to one conclusion.[106] The key issue then becomes whether Mr Derhamy and MAA are able to rebutthe presumption of undue influence. Did Mr Ali's religious motivation explain thetransaction, rather than any influence of the relationship? As Mr Murray crisply putit, did Mr Ali make a "faith-based decision"?[107] The consideration of whether and to what extent a faith-based decisionexplains an otherwise inexplicable transaction for the purposes of a claim of rescissionis, at first blush, troubling. The benchmark for a transaction calling for explanation,is generally whether the transaction is one "reasonably accounted for on the ground offriendship, relationship, charity or other ordinary motives on which ordinary [people]act".21 This is an inherently secular viewpoint.[108] But, in my judgement, this unease can be put to one side because any religiousmotivation was influenced by Mr Derhamy's own conviction that what Mr Ali wasseeking to do was a righteous path:Q: The whole purpose for my client entering in to a Mudharabaagreement with you was so that they could get a return, correct?A: That's right, yes. No sole purpose but one of the major purposes wasthat, yes.Q: What was the other purpose?A: To act according to Islam, that was the other purpose, was to actaccording to what is allowed – trade according to Islamic buying andselling transactions, Islamic transactions. That was other purpose.And it was a very noble purpose.This is, this is the whole beauty of this, the whole beauty of this, isthat Ali, my friend, when he was passing away from this world to theother world he had complied with the command of his lord, hiscreator, he had stopped getting the interest and taken it upon himselfto risk the money. At the same time he emphasised how much hevalues looking after Fa'asolo to me[109] The influence of Mr Derhamy's views need not have amounted to pestering orharassment in the circumstances and I am not prepared to draw any inference that thisoccurred. It is enough in the circumstances that Mr Derhamy was actively arrangingthis transaction (which would not have taken place without his intervention) andpersonally benefiting from it.[110] The most compelling factor, however, is the absence of independent legal orother advice. Mr Derhamy agrees that he never suggested that the couple take advice.He says that it never occurred to him. Mr Murray counters that the couple had everyopportunity to get advice over the course of the discussions and there is no evidenceas to how that would have altered the position. I find it unnecessary to speculate onthis and, in any event, there were critical junctures when they were subject to timepressure by Mr Derhamy's own account. For example, after visiting APS,21 Allard v Skinner (1887) 36 ChD 145 at 100.Mr Derhamy's evidence is that he met them at the bank to receive the bank chequewhich he hastily banked and then passed the proceeds to a company affiliated withAPS.[111] In my judgement, whether or not Mr Ali and Ms Fa'agutu would havedisregarded independent legal advice is irrelevant. Mr Derhamy himself said that itwas a feature of a Mudharaba agreement that the parties must know and understandwhat they are doing. It is abundantly clear that in the light of Mr Ali's physical frailtyMr Derhamy was or ought to have been alert to the possibility of impaired consent.This is all the more so when he stood to gain from the intended transaction.[112] I determine therefore that the Ali Mudharaba was entered into under undueinfluence and ought, in conscience be set aside. I turn to the consequences later.Issue Three: Did Mr Derhamy and/or MAA exercise an unfair advantagethrough an unconscientious use of power to such an extent that the Court shouldintervene in its equitable jurisdiction[113] As outlined briefly in [87]–[89], the doctrine of unconscionable dealings has aseparate and distinct focus from undue influence in that centre and front isconsideration of whether a defendant has unconscionably taken advantage of a party'sspecial disadvantage.22 There remain parallels with the doctrine of undue influence.Both impact consent. Intervention by the court is justified in the former where consentis a result of taking advantage and therefore not true consent. In the latter, consent isvitiated because the will is overborne.[114] The factors relevant to such an inquiry are those set out by the Court of Appealin Gustav & Co v Macfield Ltd:23(a) Equity will intervene to relieve a party from the rigours of the commonlaw in respect of an unconscionable bargain;22 Gustav & Co v Macfield Ltd [2007] NZCA 205. The Supreme Court endorsed these principleson appeal in Gustav & Co v Macfield [2008] NZSC 47, [2008] NZLR 735.23 At [30].(b) This equitable jurisdiction is not intended to relieve parties from "hard"bargains or relieve the foolish from their foolishness. The jurisdictionis to protect those under a significant disability or disadvantage fromexploitation;(c) It is not simply an inequality of bargaining power. It will arise wherethere is a conditional characteristic which significantly diminishes aparty's ability to assess what is in his or her best interests. These mayinclude ignorance, lack of education, illness, age, mental or physicalinfirmity, stress or anxiety;(d) If one party is under a disqualifying disability or disadvantage (theweaker party) the focus shifts to the conduct of the other party (thestronger party). The central question is whether, in the particularcircumstances, it is conscionable to permit the stronger party to take thebenefit of the bargain;(e) Before unconscionability will be found the stronger party must knowof the weaker party's disability or disadvantage and must takeadvantage of that disability or disadvantage;(f) The requisite knowledge may be actual or constructive. Factors suchas marked imbalance in consideration or the way in which thetransaction was concluded, for example without independent advice,may lead to a finding that the stronger party had constructiveknowledge. So in the particular circumstances the stronger party maybe put on inquiry and in the absence of such inquiry may be treated asif he or she knew of the disability or disadvantage;(g) The "taking advantage of" encompasses both active extraction andpassive acceptance of a benefit; and(h) If these conditions are met the burden falls on the stronger party to showthe transaction was a fair and reasonable one and should therefore beupheld.[115] I am satisfied that Mr Ali was under a special disadvantage by virtue of acombination of his terminal illness and physical frailty. Although the medicalevidence was slim and second hand, the hospital reports reliably establish that Mr Alisuffered from fatigue, breathlessness, physical infirmity and pain. He was alsomedicated; however, I place no weight on that in the absence of direct medicalevidence as to the impact of the medication on his cognition. Mr Murray realisticallyagrees that administration of morphine is an obvious medical reason why someonemay not be thinking clearly. I accept, however, that based on the material before me,the prescription for oral morphine administered by Ms Fa'agutu likely came after thetransfer of funds to Mr Derhamy and investment in APS, albeit before the signing ofthe Ali Mudharaba. It is possible that had Mr Ali been thinking clearly at that point,he may have had some insight into the disadvantageous terms in the Ali Mudharaba.However, in my assessment, he was still operating under the influence of Mr Derhamyat this stage.[116] Mr Murray is understandably critical about the absence of medical evidencefrom a doctor who examined Mr Ali. (I record that there was no explanation of thelack of evidence from Mr Ali's GP.) He also points to medical records which suggestthat Mr Ali was normal or oriented as at late November 2014. As I read the hospitalreports, and as Mr Murray acknowledged, those records are specifically limited to anassessment as to risk of falling. They do not provide any information about Mr Ali'sstate of mind or capability to make an informed decision about financial investment.As such, I place no weight on them in my assessment. Nonetheless, based on thetotality of the evidence, I am satisfied he was labouring under a special disadvantage.[117] The second factor is whether Mr Derhamy unconscionably took advantage ofMr Ali's weakened state. This requires that Mr Derhamy knew of Mr Ali's particularvulnerability (and the related disadvantage of Ms Fa'agutu). Knowledge can be actualor constructive. I find the assertions by Mr Derhamy that he did not know of Mr Ali'sdisability or weakness, and that Mr Ali's desire to cease earning interest was a sign ofwell-being, to be untenable:you are trying to picture a downtrodden person. To me he was upright. Hewas high with the way he was asking to be away from whatever God doesn'tlike, such as this – it's a sign of wellbeing. Not sign of ill-health.[118] He conceded that he knew Mr Ali was very sick. He knew before thetransaction that the funds were the proceeds from the sale of the family home in whichthe couple lived. He knew that Mr Ali was dying, and it was for that reason there wasdiscussion about religion and afterlife. He accepts that he advised Mr Ali to enter intoa Mudharaba agreement and it is apparent that the transaction would not have occurredwithout his intervention.[119] I am satisfied by some margin that Mr Derhamy had actual knowledge ofdisability.[120] The law is clear that one can be held to have taken advantage of a disabilityeven if there is only passive acceptance rather than active extraction of a benefit.24 Ihave concluded, for all the reasons set out above, that Mr Derhamy actively extractedthe transaction from the couple. Even if the original concern about earning interesthad been Mr Ali's, Mr Derhamy proceeded to introduce the concept of the Mudharabaand APS, negotiate its terms with Mr Dilaimi, and facilitate the receipt and transfer offunds. He was not merely an intermediary or conduit. Rather, he stood in theory tobenefit from the investment by receipt of 40 percent of the profits to be derived fromAPS.[121] Even without active extraction, Mr Derhamy's knowledge was such that hehad an obligation not to proceed with the transaction without being satisfied thatMs Fa'agutu was truly consenting and the couple had taken legal or other independentadvice. The asymmetry of information alone supports this conclusion. Thetransaction at issue was manifestly detrimental in an objective sense, being very highrisk, and entered into by Mr Ali and Ms Fa'agutu when they were labouring under a24 O'Connor v Hart [1985] 1 NZLR 159 at 171.significant disability. I am not persuaded that the transaction was fair, just orreasonable.[122] It follows that the cause of action in unconscionable bargain is also made out,with the consequence that there is a further basis to:(a) Set aside the Mudharaba transaction; and(b) Restore the plaintiff to the position before entry in December 2014 byan award of equitable compensation.Issue Four: Breach of fiduciary obligations[123] The plaintiff pleads that the relationship between the parties was such thateither or both defendants owed a fiduciary duty to the plaintiff. The pleading offiduciary relationship and attendant duties is also spare and merely refers back to theearlier pleaded narrative.25 From this, I glean that the plaintiff relies on the sameelements of the relationship which also found the cause of action for undue influenceand unconscionable dealings.[124] The plaintiff contends that the defendants breached their fiduciary obligationsby failing to:(a) Act at all times in the best interests of the plaintiff and with fidelity,utmost good faith and integrity;(b) Fully and fairly disclose to the plaintiff the real risks of investing moneyand the likelihood of failures;(c) Fully and fairly disclose any conflict of interest; and25 This includes the amended statement of claim dated 13 March 2008 and the further and betterparticulars of the amended statement of claim dated 23 May 2018.(d) Advise the plaintiff not to part with any money until they had receivedproper independent legal advice and not to act at all until they hadreceived proper independent legal advice.[125] By the closing submissions, the plaintiff's focus was squarely on the assertionthat the transactions at issue were unconscionable bargains or brought about by undueinfluence with the claims for fiduciary breach assuming secondary importance.Mr Kashyap submitted that the very nature of a Mudharaba transaction is "akin to afiduciary relationship" for two principal reasons. First, the unfettered discretion to the"entrepreneur" to manage the funds of the 'investor' and the position of trust andconfidence placed by Mr Ali and Ms Fa'agutu in Mr Derhamy which was fundamentalin the arrangements.[126] The defendants admit that the relationship under the Ali Mudharaba had anelement of trust but asserted that the scope was defined or limited by the terms. MrMurray submitted that no fiduciary relationship had arisen at the time of entry, orpayment of funds to Mr Derhamy's company and the scope of the pleaded caseprecluded reliance on alleged duties arising thereafter.[127] In circumstances where a transaction is set aside due to undue influence and/orunconscionability it can be a small step to hold the more powerful party exercising theinfluence to be a fiduciary. Common to both analyses is that one party reposes trustand confidence in the stronger party. 26 The vulnerability of the beneficiary and thenature of the power held by the fiduciary are relevant factors. In Liggett v KensingtonGault J stated that in a fiduciary relationship there are: 27elements of reliance, confidence or trust between them often arising out ofan imbalance in strength or vulnerability in relation to the exercise of rights,powers or the use of information affecting their interests. Telling indicationsmay be that persons having taken, or been entrusted with, opportunity toprotect or benefit others stand in a position also to prefer their own interests.[128] While it may not always be that in cases of undue influence the stronger partyowes duties to act out of single-minded loyalty to the weaker party, in the fiduciary26 See Day v Mead [1987] 2 NZLR 443 (CA) at 458; Chirnside v Fay [2006] NZSC 68, [2007]1 NZLR 433 at [80].27 Liggett v Kensington [1993] 1 NZLR 257 (CA) at 281-281.sense, in my judgment Mr Derhamy clearly did so in the circumstances of this case.A Mudharaba arrangement is itself a type of partnership according to the defendants'expert witness. A partnership relationship traditionally engages fiduciaryobligations.28 By analogy, a joint venture can be inherently fiduciary. As stated inChirnside v Fay, a pre-contractual joint venture where the parties are working towardsa common objective is highly likely to be fiduciary.29[129] Mr Derhamy's actions amounted to, at the very least, an implicitacknowledgement of the trust and confidence reposed in him when he entered into theAPS Mudharaba as agent for Mr Ali and Ms Fa'agutu. According to his evidence,Mr Ali requested that he do so in order that Mr Ali did not have to monitor the paymentof profit dividends. Relationships of agent and principal where the agent is ostensiblyrepresenting the interests of the principal in a transaction are orthodox fiduciaryrelationships. There are other material indicia. First, Mr Derhamy had scope tounilaterally exercise discretionary power once Mr Ali and Ms Fa'agutu transferredfunds to him. Secondly, they were vulnerable not only for the reasons canvassed underthe heading of undue influence but also from being at a distinct informationdisadvantage. (Mr Derhamy had the capability of providing full and completeinformation to the couple about APS but provided no reliable information to them).The transaction they entered into had no arms-length flavour at all and was distinctlyuncommercial.[130] In my judgment, for all these reasons, the relationship between the plaintiff andMr Derhamy was fiduciary, being wholly based on trust and confidence. Theobligations Mr Derhamy owed to the couple were to act honestly, openly and fairly(encompassing an obligation to render full information to the couple as to the risks ofthe investment and to faithfully disclose how it was invested); to avoid putting himselfin a position of conflicting loyalties and to act in the best interests of Mr Ali andMs Fa'agutu.28 Andrew Butler Equity and Trusts in New Zealand (2nd edition, Thomson Reuters, Wellington,2009) at 17.3.6 citing Rama v Millar [1996] 1 NZLR 257 (PC) at 259.28 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].[131] I find that the express terms of the Ali Mudharaba cannot circumscribe thescope of those duties owed where I have determined that consent to the agreement(and the transaction more widely) was vitiated by unconscionability and undueinfluence.[132] The plaintiff must establish a breach of an obligation or duty that is fiduciary.Not every duty owed by a person in a fiduciary position is fiduciary in nature. That is,a fiduciary who is negligent in his or her duty and causes loss to the beneficiary doesnot necessarily breach a fiduciary duty. On the other hand, a subordination of theinterests of a beneficiary to the interests of the fiduciary through even a careless lackof attention to the affairs of the beneficiary can be a basis on which to claim fiduciarybreach.30[133] I have concluded that Mr Derhamy breached his fiduciary obligations inmultiple respects. He patently failed to fully and frankly disclose material facts aboutAPS before accepting the couple's money, facts which were well within his knowledgecompass. He had, for instance, certainly been aware of the precarious debt situation ofAPS and IRD arrears before receiving the couple's funds. This information was notdisclosed to the couple. It is incomprehensible that he would have been unaware ofthe various security interests held by the bank, if not other creditors.[134] He paid the couple's funds into an associated company rather than APS at therequest of Mr Dilaimi so that the "bank would not take the money" to satisfy itsoverdraft. This was another red flag given the attendant risk that there would be nooversight or transparency as to proper application of the investment towards pipelinecontracts as had been represented.[135] He may have told Mr Ali that he had a long professional relationship with APSbut there is no suggestion that he also disclosed that APS owed him accounting feesincurred over several years. He did not carry out any due diligence on APS beyond hisown knowledge of the business or search the credit worthiness of Mr Dilaimi who30 Andrew Butler Equity and Trusts in New Zealand (2nd edition, Thomson Reuters, Wellington,2009) at 17.2.5 citing Gallagher v Schultz (1988) 2 NZBLC 103,196 at 103.purported to provide a personal guarantee to the indebtedness. As Mr Derhamyexplained, "My due diligence has been my co-operation with [APS] for many years."[136] In short, the information Mr Derhamy gave Mr Ali and Ms Fa'agutu aboutAPS was seriously incomplete at best and, at worst, misleading.[137] Mr Derhamy mixed the balance of the couple's investment money with thesecond defendant's funds, reducing the company overdraft to the benefit of bothdefendants. He lent money to third parties with no prospect of a return or benefit andmade undisclosed "investments" to third parties, the full extent of which is unclear onthe evidence. On Ms Fa'agutu requesting repayment, Mr Derhamy drip-fed the returnof the principal of $103,000 over a four-year period without accounting for his use ofthe money in the interim.31[138] Far from being transparent with Ms Fa'agutu after her husband's death, hetreated her cavalierly, failing to disclose his own use of the funds invested, and failingto account more generally.[139] Although Mr Derhamy accepted that his role was to "take care of the money"he did not require the return of the investment from APS in June 2015 when that wasopen to him; this at a time when it must have been obvious to him that APS' forecastwas poor, and he knew that APS was struggling. On cross-examination in respect ofthe APS investment expiry according to the terms of the APS Mudharaba, he said:Q: It says, "Monthly payments are provisional and [an] actual calculatedamount will be done similar to the attached sample by the end of June2015 when final dividends and principal will be paid"A Yes, again that one I missed.Q. So nothing, okay.A. I missed it so I did not try to enforce it;Q. So we agree that contract expired on 30 of June 2015, correct?A. I did not get any notice.31 At trial, Mr Derhamy expressed a willingness through his counsel to account for the use of suchmoney if directed and suggested there was no need for an order to this effect.Q. Oh no, no.A. No, but that contract is with me and Advanced Pipeline.Q. Yes.A. So how about I didn't get it, we assume that, we both of us wanted toextend it, so there's nobody [who] can stop us can they?Equitable compensation for breach of fiduciary obligations and as a consequence ofundue influence and unconscionable transaction[140] As a consequence of the fiduciary breaches, the plaintiff has suffered loss. MrMurray submits that there is no clear evidence of causation and the defendants oughtto not be held responsible for the intervening event of the liquidation of APS. Hesubmits that this was the primary reason for the loss of the investment. In thealternative, he submits that some apportionment of responsibility is warranted.[141] I disagree with this submission for two reasons. First, the Ali Mudharaba wouldnever have been entered into but for the undue influence of Mr Derhamy and theextraction of an unconscionable benefit. I accept that courts in New Zealand havemoved away from the strict rule that when a fiduciary breach is committed by, forinstance, non-disclosure of material facts, the fiduciary cannot avoid liability byspeculating about what decision the beneficiary might have taken if there had beendisclosure. As stated in a passage in Bank of New Zealand v NZ Guardian Trustapproved by the Supreme Court in Almaltal Corporation Limited v MaruhaCorporation:32[O]nce the plaintiff has shown a loss arising out of a transaction to which thebreach was material, the plaintiff is entitled to recover unless the defendantfiduciary, upon whom is the onus, shows that the loss or damage would haveoccurred in any event, i.e without any breach on the fiduciary's partPolicydictates that fiduciaries be allowed only a narrow escape route from liabilitybased on proof that the loss or damage would have occurred even if there hadbeen no breach.[142] Had there been any doubt in this case, I would have resolved it againstMr Derhamy for the same policy reasons. However, I am satisfied that the defendantshave not remotely established on the facts that they can escape liability on their32 Almaltal Corporation Limited v Maruha Corporation [2007] NZSC 40, [2007] 3 NZLR 192 at[3], citing Bank of New Zealand v NZ Guardian Trust [1999] 1 NZLR 664 (CA) at 687.argument that the loss would have occurred even if there had been no breach. Theplaintiff is entitled to recover her loss against Mr Derhamy for breach of fiduciaryduty. The second defendant, MAA, is also jointly and severally liable to compensatethe plaintiff as an accessory to the fiduciary relationship.[143] I acknowledge that some funds have already been restored to the plaintiff,including the $103,000 which was not paid out to APS. It would be inequitable forthe plaintiff to recover the full amount without also considering value received. Inaddition, having set aside the Ali Mudharaba agreement, the plaintiff is not entitled totreat the "dividends" received under it as anything other than the recovery of principal,otherwise she would be unjustly enriched. The plaintiff is entitled to judgment in thesum of $288,000 comprising the $300,000 "invested" in APS less $12,000, being the"dividends" received.Use of Money Interest[144] Ms Fa'agutu must however also be compensated for the loss of use of the$103,000 retained by Mr Derhamy over an extended period.33 At trial, the defendantsoffered to account for any use of these funds where they were applied to reduce thesecond defendant's overdraft but suggested no formal direction was needed to do so.I would go further than that. I hold that interest is payable on the balance outstandingfrom time to time in respect of the reimbursed funds. The appropriate interest rate andmechanics of calculation are matters to which I return in my directions below.Disgorgement of profit dividends received from APS[145] The second defendant retained $8,000 from APS after accounting to theplaintiff in the sum of $12,000. The plaintiff did not seek relief in the form of anaccounting. The question is whether the second defendant should also forfeit its rightto retain this sum by reason of being an accessory to the breach of fiduciary duty. InStevens v Premium Real Estate, the fiduciary agent was required to disgorgecommission on the property transaction though the plaintiff was already made whole33 The plaintiff paid $103,000 but $4,000 was repaid shortly thereafter. The balance of $99,000 hasbeen repaid over a 4-year period although $23,000 is held as security for costs in this proceeding.by an award of damages.34 The double sanction of damages and forfeiture of moneysreceived by way of remuneration was justified because it had not been earned by goodfaith performance in respect of the transaction. 35[146] I see analogies with the case at hand; however, this aspect of potential recoverywas not pleaded nor addressed by counsel in submissions. As a matter of fairness, theparties must be permitted the opportunity to address this issue at the same time asdealing with the unresolved issue of interest on the compensation payable.General and exemplary damages[147] The plaintiff seeks general damages of $25,000 for stress, anxiety andinconvenience.[148] Emotional distress is a non-pecuniary loss. I consider that it is within myjurisdiction to award general damages for emotional distress in equity. My jurisdictionto do so stems from Mouat v Clark Boyce (No 2)36 and Bloxham v Robinson.37[149] There is no doubt that Ms Fa'agutu has suffered through the defendants'actions. The likelihood of great inconvenience and stress in the event of loss ofaccumulated life savings on the part of an elderly widow was reasonably foreseeableat the time of entering into the Ali Mudharaba agreement. I hold that an award of$10,000 against the first and second defendants jointly and severally is appropriate.[150] Exemplary damages are also available for breaches of equitable duties, but thebar for exemplary damages is set very high. It requires the defendant's conduct to beoutrageous and involve a "contumelious disregard of another's rights" to such anextent that other remedies would fall short of an adequate punishment.38 There areonly a few instances where claims for exemplary damages have been successful.34 Stevens v Premium Real Estate [2009] NZSC 15, [2009] 2 NZLR 384.35 At [50] and [90].36 Mouat v Clark Boyce [1992] 2 NZLR 559 at 569.37 Bloxham v Robinson CA 198/94, 18 June 1996.38 Cook v Evatt (No 2) [1992] 1 NZLR 676 at 706.[151] I decline to make an award of exemplary damages in this instance. AlthoughMr Derhamy treated the plaintiff cavalierly, I am not satisfied on the evidence that itmeets the high threshold for exemplary damages nor that the other compensationawarded is an insufficient response. At least to some extent, I do considerMr Derhamy's conduct was motivated in part at least by his own fervently heldreligious conviction that the transaction would benefit Mr Ali's passage to the after-life.Issue Five: Breach of contract[152] The claim for breach of contract is pleaded as an alternative cause of action. Itis unsustainable where the Ali Mudharaba has been set aside for undue influenceand/or as an unconscionable transaction. I decline to assess what the position wouldbe had the plaintiff not succeeded in her primary claim since this would entail a rangeof findings at odds with my primary conclusions. I dismiss this claim.Issues Six and Seven: Negligence and tort of deceit[153] Again, both of these causes of action were expressed as alternative claims.They received little attention, either in the pleadings or in the plaintiff counsel'ssubmissions. This is not surprising since, in substance, despite being put in severaldifferent ways, this proceeding is really about the circumstances in which Mr Ali andMs Fa'agutu entered into the Ali Mudharaba.[154] I apprehend that the pleadings in respect of these two causes of action are alsolimited to the time of entry into the Ali Mudharaba. I am satisfied that neither offersthe plaintiff any further or additional relief. They are dismissed.Interest[155] This proceeding was commenced before 1 January 2018 when the Interest onMoney Claims Act 2016 came into force. Proceedings before this date are governedby the Judicature Act 1908. There are generally two options as to when interest startsto accrue. The first is the day on which the cause of action arose. The second is thedate on which the amount was quantified. In this instance, the passage of time betweenthe events at issue and the hearing of the claims means that the point of commencementof the period when interest is to run has a material bearing on the sum ultimatelyawarded. In the circumstances of setting aside a transaction as an unconscionablebargain, there are issues as to precisely when the cause of action arises. I have not hadthe benefit of submissions on these matters.[156] I resolve therefore that, in so far as quantum is concerned, this is an interimjudgment only in that the issue of the appropriate interest payable remains to bedetermined, along with the matters set out in [145]–[146].Relief[157] I make the following orders:(a) Setting aside the Ali Mudharaba;(b) Judgment for the plaintiff against the defendants jointly and severallyas follows:(i) Damages in the sum of $288,000 (comprising $300,000 paid tothe second defendant less the dividend payments received) plusinterest. The rate of interest, and the period from which interestis to run, is to be determined in accordance with my directionsset out below; and(ii) General damages in the sum of $10,000.(c) Directing the second defendant to account to the plaintiff for:(i) Use of money interest in respect of the balance of $99,000repaid by the second defendant to the plaintiff betweenDecember 2014 and 15 January 2018, calculated by referenceto interest payable on the outstanding balance on a monthlybasis at a rate to be determined in accordance with my directionsbelow.Costs[158] The plaintiff has succeeded in the claim and is entitled to costs. The plaintiff isto file any memorandum on costs within 28 days. The defendants have 14 days afterreceipt of that memorandum to respond on costs. The respective memoranda are to belimited to five (5) pages only.Further directions and next steps[159] I make the following directions:(a) The plaintiff is to file and serve a synopsis as to the quantum issues stillto be determined, including the appropriate rate of interest and datefrom which interest is to be calculated on the sums ordered by way ofcompensation and in respect of use of money interest, within 28 daysof this judgment;(b) The defendants are to file and serve a synopsis of submissions inresponse, to include a schedule setting out the dates of repayment of thebalance of the invested funds utilised by the second defendant andcalculation of interest, within 14 days thereafter;(c) The plaintiff will have a further 14 days to file and serve replysubmissions;(d) The sum held by way of security for costs in the trust account of thedefendants' solicitors is to be released to the plaintiff within 7 (seven)days of this judgment; and(e) Leave to apply further.[160] If the parties are unable to reach agreement on these unresolved matters, I willrequest the Registry to convene a short hearing.....................................................Walker JAPPENDIX AAPPENDIX B