ROHR V KENNEDY AND ANOR HC WN CIV-2008-442-196

ROHR V KENNEDY AND ANOR HC WN CIV-2008-442-196 27 May 2010IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY CIV-2008-442-196BETWEEN CHRISTINE MARIA ROHR AS LITIGATION GUARDIAN FOR ANNA- SOPHIE CHRISTINE ROHR PREVIOUSLY LOTZE Plaintiffs AND HAMISH KENNEDY First Defendant AND ERIC DAVID LOTZE AND BRITTA FORSTNER Second Defendants Hearing: On the papers Counsel: Mr Muir for the first defendant Judgment: 27 May 2010 at 4 pmJUDGMENT OF MALLON JIntroduction[1] Ms Anna-Sophie Rohr (Anna-Sophie) did not receive her inheritance under the will of her uncle, Fredriech Lotze (Fred). The executors of the will were Mr Eric David Lotze (David) (Anna-Sophie's father and the brother of Fred) and Ms Britta Forstner (Britta) (Fred's daughter or step-daughter from an earlier relationship). Anna-Sophie's inheritance was paid to David as executor but he did not pay the money to his daughter and he is now insolvent. [2] Ms Christine Rohr (the mother of Anna-Sophie and the ex-wife of David), acting as litigation guardian for Anna-Sophie (the plaintiffs), brought a claim againstMr Kennedy (the first defendant) who acted for the executors (the second defendants), in the administration of the estate. Mr Kennedy has settled the claim brought against him. He now seeks judgment against the two executors for the amount of that settlement. [3] David Lotze has taken no steps in the proceeding. Britta Forstner filed a statement of defence but subsequently instructed her solicitors and counsel to take no further steps. Although Mr Kennedy's claim against David and Britta proceeds on an undefended basis, it is still necessary for the claim to be proved before judgment can be entered.Background[4] The claim arises in respect of the estate of Fred Lotze. He died on 23 July 2004 in Motueka (near Nelson). Under his will he named his wife (Pamela), as well as David and Britta, as his executors. He bequeathed $150,000 to a charitable trust and the remainder was to be divided equally between Pamela, Britta and Anna- Sophie. [5] Mr Kennedy is a solicitor practising in Motueka. He had acted from time to time for Fred but he had not prepared Fred's will. He learned of Fred's death and the death of Pamela via a telephone call from David. He was told that Fred had murdered Pamela and then committed suicide (the Coroner subsequently found this to be so). [6] David and Britta lived in Germany but at some stage had moved to Austria. Anna-Sophie and her mother, Christine, were also living in Austria. It was necessary for the executors to instruct someone in New Zealand to attend to the administration of the estate. David instructed Mr Kennedy. Mr Kennedy advised David that it would be necessary to apply to the High Court to obtain probate and to do this he would need powers of attorney from the executors. He prepared powers of attorney for execution by David and Britta.[7] By 26 July 2004 Mr Kennedy had obtained a copy of Fred's will from the solicitors who were holding the original will. On that day Mr Kennedy emailed David and correctly recorded that after the $150,000 for charity, the residue was to be divided equally between Pamela's estate, Britta and Anna-Sophie. For some reason, the next day Mr Kennedy then erroneously said that the estate was to be divided between David, Britta and Pamela's estate. [8] That same day (27 July 2004) Mr Kennedy received written authorisation from David and Britta under which they say they "hereby authorise and instruct you [Mr Kennedy] to arrange for the cremation of Friedrich Lotze and also to take initial steps in the administration of the Estate". [9] David began requesting that Mr Kennedy make interim payments from Fred's estate to him and Britta, and provided bank account details for this purpose. Mr Kennedy explained that the first step was to obtain probate and in the meantime no payments could be made. [10] In responding to an email from Mr Kennedy as to the steps that needed to be taken (obtaining probate, selling property, establishing the charitable trust etc), David said, in an email dated 18 August 2004, "Britta and I authorise you to found the trust and take the trustee position irrevocable to fulfil Fred's will. You can handle these matter [sic] completely free". [11] Meanwhile Christine (David's ex-wife and the mother of Anna-Sophie) was making enquiries about whether Anna-Sophie was a beneficiary under the will. An affidavit from Christine confirms that she had understood from Fred's mother that Anna-Sophie was a beneficiary in Fred's will. Soon after Fred's death she was telephoned by David a number of times. He initially told her that Anna-Sophie was a beneficiary and then that she was not. Christine wrote letters to various New Zealand authorities but received no response. She then instructed someone in Germany (or perhaps Austria), a Mr Kreuzer, to find out whether Anna-Sophie had been named as a beneficiary.[12] Mr Kreuzer contacted a Mr Wilson, a solicitor practising in Auckland to find out if Anna-Sophie was a beneficiary. In accordance with Christine's instructions to Mr Kreuzer, Mr Kreuzer informed Mr Wilson that David was in a serious financial problem, had "misused" the money of others previously and would take all necessary steps to deprive Anna-Sophie of any inheritance. Mr Wilson was instructed to be careful about making the enquiry because Mr Kreuzer's understanding was that Mr Kennedy was a friend of David's. [13] As a result of these instructions, on 24 August 2004 Mr Wilson wrote to Mr Kennedy. The letter was in these terms:We have received instructions to act for Mrs Christine Rohr (previously Christine Maria Lotze), the legal representative of Miss Anna-Sophie Christine Rohr (previously Lotze) in relation to the estate of Friedrich Artur Lotze. We understand that Anna-Sophie Christine Rohr has been named in the will. If this is true, could you please confirm this with us? We are unsure who is responsible for administrating the estate. If it is not you, could you please give us the contact information for the solicitor who is, in order that we can make the appropriate inquiries? Thank you for your assistance.[14] A telephone conversation took place between Mr Wilson and Mr Kennedy. Mr Wilson thinks Mr Kennedy said in that conversation that Anna-Sophie was not a beneficiary whereas Mr Kennedy cannot recall the telephone conversation but says that he does not believe he told Mr Wilson in a telephone conversation that Anna- Sophie was not a beneficiary. [15] On a date which appears to have been around 1 September 2004 Mr Kennedy sent an email to Britta and David. In this email he explained to Britta why he could not make any interim distribution and said:Distribution can be made earlier if the claimants agree to the distribution. Normally an estate can be distributed without any problem however we have now been advised of a possible claim by Pam's family and I also have received a letter from a solicitor on behalf of Anna-Sophie Rohr's mother. Without discussing the merits or otherwise of any claim there are a number of different laws in NZ under which people can make a claim against an estate. As a result this will delay matters further unless we can obtain agreement to an interim distribution of funds.[16] Mr Kennedy replied formally in a letter to Mr Wilson dated 6 September 2004 stating "we confirm that Anna-Sophie Christine Rohr has not been named in the Will". Mr Kennedy's letter went on to state (correctly) that the trustees under the will were Pamela, David and Britta. He advised that because the surviving trustees lived in Austria they had granted Mr Kennedy powers of attorney for the purpose of applying for probate. [17] On or about 6 September 2004 Mr Kennedy received an email from David advising that he (David) had a "general power" to represent Anna-Sophie. The email also told Mr Kennedy that David had talked to his ex-wife and she had not given any power of attorney to anyone and she had never heard of Mr Wilson. The email in evidence does not appear to be complete and so it is not clear precisely when this email was received by Mr Kennedy and in particular whether it was before or after Mr Kennedy's letter to Mr Wilson. Mr Kennedy advises that he no longer has a full copy and cannot recall whether he received this email before or after he replied to Mr Wilson's letter. [18] Looking at the documents there appears to have been a degree of confusion by Mr Kennedy about the letter from Mr Walker. In his email sent around 1 September 2004 he refers to a claim by the "Anna-Sophie Rohr's mother" when the letter makes it clear that the query is made in respect of Anna-Sophie. In the will Anna-Sophie was named as "Anna Sophie Lotze" which does raise the question as to whether Mr Kennedy realised the enquiry was about the same person. There is also the erroneous communication to David on 27 July 2004 that the estate was to be divided between "David, Britta and Pamela's estate" which raises the question as to whether Mr Kennedy understood that David (not Anna-Sophie) was the beneficiary although it seems more likely that he was viewing David as Anna-Sophie's representative. [19] Mr Kennedy says that at all times he was aware that "Anna-Sophie" was a beneficiary under the estate and "simply made a slip in my written correspondence" to Mr Walker. (This is consistent with his later communications – for example at [21], [25] and [28] below). He also says that he did not receive specific instructions from David about responding to the letter or how to respond. He says that heregarded himself as having a general authority to act as agent for the executors (referring to [8] and [10] above) and that he regarded responding to Mr Wilson's letter as being within that authority. [20] In any case, Mr Wilson reported back to Mr Kreuzer on 6 September 2004. Mr Kreuzer had provided Mr Wilson with further information about the concerns about David, including that he had gone to prison for "cheating people". Mr Wilson said that unless Fred had made another valid will later in time there was nothing else he could do for Mr Kreuzer. [21] On 13 September 2004 Mr Kennedy applied for probate. The application was rejected because the powers of attorney from David and Britta had not been properly completed by the notary witnessing their signatures. There was also an issue with the supporting affidavit. Soon after this Mr Kennedy was advised by David that a Mr Beck, an attorney from Germany, was acting for David and Britta. On 12 November 2004 Mr Kennedy provided Mr Beck with documents relating to the administration of the will. The letter said that the will provided that if Pamela died then the residue estate was to be divided equally between Anna-Sophie and Britta. Mr Kennedy asked Mr Beck to confirm that Anna-Sophie was the daughter of David. Mr Kennedy also advised that a claim on the estate might be made by Pamela's estate. [22] On 13 December 2004 solicitors acting for Pamela's family advised Mr Kennedy that the family were making a claim on the estate on the basis of "equitable claims against the estate on public policy grounds, the potential for an exemplary damages claim and under the Property (Relationships) Act". A settlement was proposed. Mr Kennedy obtained instruction from David to obtain a legal opinion about this claim. [23] David and Britta took some time to have the powers of attorney for Mr Kennedy to obtain probate re-executed and witnessed. However by 2 February 2005 Mr Kennedy had received them. He made the probate application and it was granted on 16 February 2005. David continued to request that a distribution of the estate be made. By this stage Fred's estate had $750,000 in the bank. Mr Kennedyadvised Mr Beck of this, and that the solicitors for Pamela's family had put Mr Kennedy on notice that no distribution could be made unless it was agreed that half of the estate was to be distributed to Pamela's estate. [24] On 1 March 2005 Mr Kennedy sought confirmation from Pamela's family's solicitors that there would be no objection to an initial distribution to Britta of $300,000. It was noted that Fred's estate would/should have $1.2 million in the bank and so there would remain sufficient funds to cover any claim by Pamela's family. On that day Mr Kennedy also wrote Mr Beck referring to discussions about an initial distribution and saying:Under normal circumstances, if I give advice and the client chooses to ignore that advice then I would obtain an indemnity from them and act on their instructions. The difficulty I have however is that if, despite my advice to David and Britta, they still wish the funds to be paid then as the funds are being paid outside New Zealand and could not be recovered I would also be liable to any claim made and a Court would hold me accountable for clearly breaching the legislation.[25] Mr Kennedy followed this up with a letter to Mr Beck on 2 March 2005. In this letter he said it would be for Britta and Anna-Sophie to negotiate a settlement with the family. He said it was his role to complete administration of the estate and to advise the trustees, David and Britta. [26] David continued to apply pressure on Mr Kennedy to distribute funds. Mr Kennedy then instructed a barrister to advise him if he would be liable if he made an interim distribution of say $750,000. [27] On 4 March 2005 the barrister advising on the potential claims by Pamela's estate provided his advice. His "firm view" was that Pamela's estate could prosecute claims under the Property (Relationship) Act, equitable principles of constructive trust and on public policy grounds. He also noted that under the Administration Act Mr Kennedy could not distribute the estate proceeds when notice had been given of a claim, without the written consent of the claimants. On 31 March 2005 Mr Kennedy received advice from the barrister he had instructed about his liability, essentially advising that if notice of claim had been given properly then he could not make a distribution until after the notice had lapsed.[28] Following further instructions from David and Mr Beck, Mr Kennedy obtained consent from the solicitors acting for Pamela's estate to make three transfers: $300,000 to the solicitors for Pamela's estate; "$300,000 to Mr Beck in Germany on behalf of Sophia and $300,000 to Mr Beck on behalf of Britta Forstner". In accordance with this, Mr Kennedy transferred $600,000 to Mr Beck's trust account. [29] The claim by Pamela's estate was formally pursued. A barrister was instructed to advise the beneficiaries of Fred's estate. Following further negotiations (Mr Kennedy's instructions coming from Mr Beck) a Deed of Family Arrangement was entered into on 27 July 2005. Under this Deed $150,000 was to go to the charitable trust to be established, $100,000 was to be paid to Fred's mother, $50,000 was to be paid to Britta and $50,000 was to be paid to Anna-Sophie. Thereafter Pamela's estate was entitled to 50% of Fred's estate and Britta and Anna-Sophie were entitled to 25% each. In accordance with this arrangement Mr Kennedy transmitted the estate funds to Mr Beck of $470,000 on 28 July 2005 and a further $25,175 on 5 May 2006. [30] On 12 June 2007 Mr Kennedy received a letter from Auckland solicitors acting for a Ms Paeckner who had been appointed to administer the insolvent estate of David. Mr Kennedy's evidence is that this was the first he had heard that David was insolvent. On 22 June 2007 he received a further letter from the Auckland solicitors and from that, and a discussion with the Auckland solicitors and a letter from the solicitors acting for Christine Rohr (as legal representative of Anna-Sophie) dated 18 June 2007, he became aware that there may have been a problem in the distribution to Anna-Sophie. [31] On 18 September 2007 Mr Kennedy was advised that David was formally accused of embezzling the funds that were due to Anna-Sophie. He attempted to find out from Mr Beck and David what had happened. Mr Beck replied that the money had been paid to the trustees and it was not his job to decide if the instructions from the trustees were in accordance with the Deed of Arrangement. David's responses were evasive. A communication from Britta advised Mr Kennedy only that she had received her share.[32] The evidence from Christine is that Anna-Sophie never received her share of the money sent to the executors (via Mr Beck). She says that if she had been told that Anna-Sophie had been named as a beneficiary she would have taken action to stop David having access to the money Anna-Sophie was entitled to and she would have instructed Mr Wilson to take the appropriate steps. She says that this was the whole point of contacting Mr Kreuzer. Mr Wilson also says that he would have sought instructions to take steps to ensure that Anna-Sophie's interests were protected.The proceedings[33] Christine, as litigation guardian for Anna-Sophie, filed High Court proceedings against Mr Kennedy, David and Britta. The claim against Mr Kennedy alleged that Mr Kennedy: a) owed the plaintiff a duty of care to accurately answer the enquiry that had been made on behalf of Anna-Sophie; to ensure, in any further dealings with the estate which may affect Anna-Sophie's interests, that Christine/Anna-Sophie were notified; and to ensure that the interests of Christine/Anna-Sophie were at all times adequately protected or separately represented; and b) breached the duty of care by negligently misstating that Anna-Sophie was not named in the will; and by entering into the Deed of Family Arrangement and distributing funds without notifying Christine/Anna- Sophie and ensuring their interests were protected. [34] An alternative cause of action alleged that: a) pursuant to s 41 of the Administration Act 1969, as administrator Mr Kennedy had the same liabilities and was accountable in a like manner as if he were the executor of the deceased;b) Mr Kennedy was under a duty of care to administer the will in accordance with its provisions; and c) Mr Kennedy breached that duty by distributing the funds to persons other than Anna-Sophie. [35] The proceeding claimed against David and Britta that they had breached "a duty of trust to Anna-Sophie" and also that they were vicariously liable for Mr Kennedy's acts and omissions. [36] Mr Kennedy brought a cross claim against David and Britta for indemnity or contribution on various grounds. These grounds included an indemnity on the basis that Mr Kennedy acted as David and Britta's agent, in accordance with their instructions and within the scope of his authority. Another ground was that David and Britta were negligent in their administration of the estate and that Mr Kennedy was entitled to a contribution under s 17(1)(c) of the Law Reform Act 1936.Settlement of claim[37] Shortly before the trial of the proceeding was to take place Mr Kennedy entered into a settlement with Christine (as litigation guardian for Anna-Sophie). Under this agreement Mr Kennedy agreed to pay to Anna-Sophie the sum that she ought to have received from the money sent to David ($422,587), together with costs calculated in accordance with category 2B under the High Court Rules ($28,640), plus interest and disbursements. Together these sums totalled $516,546.Claim by Mr Kennedy against David and Britta[38] It is submitted by counsel for Mr Kennedy that there cannot be any doubt that Mr Kennedy would have been liable to Christine/Anna-Sophie and that the settlement was a reasonable figure. It is submitted that the executors were in breach of trust and that Mr Kennedy's payment to Anna-Sophie discharged their liability to her. It is submitted that Mr Kennedy is entitled to an indemnity from the defendants.The indemnity is claimed on the basis that, as the agent of the administrator (the executors), Mr Kennedy's sole obligation was to account to the administrator (the executors) which he has done, and that a principal must indemnify his or her agency against all liabilities incurred in the reasonable performance of the agency. [39] The powers of attorney from David and Britta appointed Mr Kennedy "to be my attorney to obtain a grant or probate" of the estate of Fred Lotze. The appointment was obtained because the two surviving executors lived in Austria. By s 42 of the Administration Act:"[n]o person appointed an administrator upon an application made by him as the attorney or agent for an administrator absent from New Zealand shall be liable to account or pay money, or transfer property, to anyone in respect of his administratorship excepting only to the administrator whose attorney or agent he was".[40] So, Mr Kennedy was the agent of David and Britta and his responsibility was to pay the money from the estate to them. In acting for David and Britta, Mr Kennedy incurred a liability to Anna-Sophie. Mr Kennedy is entitled to an indemnity from them providing the liability was incurred in the reasonable performance of the agency and that an indemnity for that liability is not excluded by the express terms of the agency agreement. 1 Where the liability arises because of the agent's negligence in relation to a third party the indemnity remains providing the agent was not acting in bad faith or in a way which to the agent's knowledge was not manifestly unlawful, tortious, or outside their authority. 2[41] In this case I accept that it was within the scope of the agency to reply to Mr Wilson's letter. Mr Kennedy was instructed "to take initial steps in the administration of the Estate" and "to take the trustee position irrevocable to fulfil Fred's will" and to "handle these matters completely free". As well, it is apparent from Mr Kennedy's correspondence with Britta and David that he was advising them1 Halsbury's Laws of England (5 th ed, 2008) vol 1 Agency (Halsbury's) at [111]; The Laws of New Zealand Agency (online ed) at [99]; FMB Reynolds Bowstead and Reynolds on Agency (18 th ed, Sweet & Maxwell, London, 2006) (Bowstead on Agency) at [7-056].2 Halsbury's at 113; The Laws of New Zealand Agency (online ed) at [100]; Bowstead on Agency at [7-062]; Linklaters v HSBC Bank Plc [2003] 2 CLC 162 at 174-175; Dugdale v Loverling (1875) LR 10 CP 196 at 397.on claims being made on the estate. Responding to the query from Mr Wilson was part and parcel of Mr Kennedy's agency. [42] There is no evidence to suggest that Mr Kennedy was acting in bad faith, or manifestly unlawfully or outside his authority. Mr Kennedy incurred the liability to Anna-Sophie because he was acting for David and Britta. In acting for them he made a mistake, through his "slip". Furthermore, no liability would have been incurred from this slip had David accounted to Anna-Sophie as he was required to do under the will. [43] Apart from an indemnity as an agent, an alternative basis on which judgment could be granted is that Mr Kennedy and the executors are tortfeasors liable to Anna- Sophie for the same damage and that a contribution of 100% should be awarded against the defendants under s 17 of the Law Reform Act 1936. However, it is unnecessary to say anything more on this because I am satisfied that Mr Kennedy is entitled to judgment against the defendants pursuant to the indemnity arising from his agency.Result[44] Accordingly judgment against the second defendants is granted in favour of the first defendant in the sum of $516,546. I also make an order for costs on a 2B basis, and for payment of all reasonable disbursements, against the second defendants and in favour of the first defendant. Mallon JSolicitors: K A Muir, Morgan Coakle, PO Box 114, Auckland (ph: 09 379 9077, fax: 09 379 9155)