DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND LIQUIDATION) V SADE DEVELOPMENTS LIMITED HC AK CIV-2009-419-001556

DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND LIQUIDATION) V SADE DEVELOPMENTS LIMITED HC AK CIV-2009-419-001556 6 October 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2009-419-001556BETWEEN DOMINION FINANCE GROUPLIMITED (IN RECEIVERSHIP ANDLIQUIDATION)PlaintiffAND SADE DEVELOPMENTS LIMITEDFirst DefendantAND S A LE PROU & ANORSecond DefendantsAND TOREADOR SECURITIES LIMITEDThird DefendantAND SECURED LENDING LIMITEDFourth DefendantHearing: 26 May and 4 July 2011Appearances: G M Illingworth QC and M J Morris for Glaister EnnorK J Crossland for PlaintiffJudgment: 6 October 2011JUDGMENT OF WHATA JThis judgment was delivered by Justice Whata on6 October 2011 at 4.30 p.m., pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors:Glaister Ennor, PO Box 63, Auckland 1140Stace Hammond, PO Box 19 101, HamiltonCopy to:G M Illingworth QC, PO Box 7205, Wellesley Street, Auckland 1141[1] The receiver for Dominion Finance Group Ltd (in receivership and liquidation) ("DFG"), Mr Pardington, claims that counsel for Mr and Mrs Le Prou, Mr McKendrick, had no basis for making various allegations against him, including those of "equitable fraud", "conscious misuse of mortgagee power", "bad faith", and"ulterior motive". Following discontinuance of his clients‟ proceeding, wasted costs are sought against Mr McKendrick on the basis that he breached his duty to the Court.[2] Mr McKendrick contends that he had a proper basis for making the allegations, including a discernible pattern of obstructive conduct and acrimony between the receiver and the Le Prous. He says it was therefore available to him to argue that the decision to commence summary judgment proceedings was motivated by an improper purpose, including to "silence a critic".[3] The resolution of this dispute requires examination of the nature and scope of the wasted costs jurisdiction and whether Mr McKendrick‟s conduct triggered thatjurisdiction.Facts[4] The background facts are relatively straightforward.[5] On 23 April 2007 Sade Developments Ltd ("Sade") borrowed money from DFG. It borrowed the money for a property development. Mr and Mrs Le Prou were parties to the loan agreement and signed guarantees. Glaister Ennor, and in particular Mr McKendrick, acted as solicitors for Sade.[6] On 2 July 2010 DFG applied for summary judgment against the Le Prous, suing on the guarantee. Mr Levin, an insolvency specialist assisting the receivers, stated the following in his affidavit in support of the application:3.6 As matters transpired however, when the real estate agent instructed by the Receivers conducted the mortgagee sale by public auction in Taupo on Sunday 13 December 2009 the first named second defendant, Mr Shane Le Prou, attended that public auction. Just before the auctioneer started the auction Mr Le Prou publicly stated at the auction that the first defendant had sold the security to a thirdparty. This was an unexpected development. Due to the uncertainty this created the Receivers decided it would be prudent to cancel the auction and did so. Aside from whether Mr Le Prou was accurate in his claim about the sale of the security this development was also viewed as being not conducive to obtaining a good sale price from those prospective buyers present and not so in the short term thereafter. The current position is that the Receivers have deferred the disposal of the security under Dominion‟s mortgage on the basisof advice that the real estate security now needs to be remarketed and sold at a later date.[7] The Le Prous instructed Glaister Ennor to represent them to oppose the summary judgment application.[8] The notice of opposition, drafted by Mr McKendrick and filed on 9 August 2010, included the following contents:8 The plaintiff‟s application for leave is made in bad faith due toanimosity against the first named second defendant.9 The plaintiff‟s application is made for the ulterior motive of seeking leverage over the first named second defendant, in order to prevent his future involvement with the sale of the security property.17 In the alternative, the plaintiff has committed equitable fraud (conscious misuse of mortgage power) in failing to act in good faith and co-operate to ensure the timely completion of the development and settlement of the sales, to include without limitation, providing releases of mortgage to enable the settlement of any sale of a unit inthe development [9] The notice of opposition and Mr Le Prou‟s affidavit refers to various actionsby the receiver in support of these allegations, including (from the notice of opposition):18 The plaintiff has failed to discharge its contractual duties and/or duty of care and/or equitable duties, by:(a) Failing to provide partial releases of mortgage by the date and in the manner requested in respect of agreements for sale and purchase dated 24 August 2009, between the first defendant and Matoha Developments Limited ("Matoha")for the purchase of eighteen lots for $4.5m.(b) Failing to provide a partial release of mortgage by the date and in the manner requested in respect of an agreement for sale and purchase dated 10 March 2010, between the firstdefendant and CSLP Holdings Limited for the purchase of lot 7 (the house lot) for $650,000.(c) Failing to provide a partial release of mortgage by the date and in the manner requested in respect of an agreement for sale and purchase entered into in early 2010, between the first defendant and Mr Mitchell for the purchase of lot 23 for $190,000.(d) Failing to provide a partial release of mortgage by the date and in the manner requested in respect of an agreement for sale and purchase entered in late 2009, between the first defendant and Mr Andrew and Ms Spencer for the purchase of lot 20 for $165,100.[10] Paragraph 19(a)(iii) of the notice alleged that DFG had breached "its obligation not to commit equitable fraud", while paragraphs 22 and 23 repeated the same allegations made at paragraphs 8 and 9.[11] The following statements were also included in Mr Le Prou‟s affidavit of4 August 2010, filed in support of the notice of opposition:16 The relationship which I have had with Mr Pardington, who is one of the receivers of the plaintiff, has been turbulent, to put it politely. This is a result of the frustration over not being able to get meetings with Mr Pardington, despite repeated requests, and his mishandling of the receivership file and failing to consent to partial discharges ofDFG‟s mortgage to allow sales to settle It [the summaryjudgment application] has been made in bad faith and for the ulteriormotive of seeking to "silence a critic". He [Mr Pardington] alsodoes not want his failure to agree to various agreements for sale and purchase being the subject of an examination at a full hearing. Given his various failures, that is understandable.71 The Receivers [sic] deliberate attempt to misrepresent my involvement in the auction on 13 December 2009 is concerning. The Receivers [sic] stated view will have been a strong reason for him to bring an application for summary judgment, as a vendetta action, as opposed to a genuine belief that there was no fairlyarguable defence. He wants me "silenced".[12] In his reply affidavit of 3 September 2010, Mr Levin provides detailed evidence on the alleged failures. Dealing with each of Mr Le Prou‟s complaints:(a) Failure to consent to Matoha transactions (para 18(a) of the notice of opposition).Sade was seeking consent from DFG to discharge DFG‟s mortgage inrespect of the lots being sold under this transaction. However, thatconsent was being sought on the basis that DFG‟s debt would not befully discharged as a consequence of the transaction. Mr Levin also deposes that any delays were explicable by the simple fact that the receivers were managing a very substantial receivership. In any event, some of the delay was caused by the Le Prous including the production of an erroneous settlement statement.1(b) Failure to grant partial release of mortgage for sale of lot 7 (para 18(b) of the notice of opposition).This sale was a sale to Mr Le Prou‟s son, Cole Le Prou. It was a related party sale. The receivers wanted to get a better price than the $650,000 on offer, namely $700,000.2(c) Failure to consent to release of mortgage for sale of lot 23 (para 18(c) of the notice of opposition).The receivers had a concern about a deposit of $40,000 that had been previously paid under an earlier agreement in relation to the same property. As no explanation was forthcoming about that deposit, the receivers were not prepared to grant consent.(d) Failure to consent to release of mortgage for sale of lot 20 (para 18(d) of the notice of opposition).The receivers considered that sale of this lot, being one of the best sections, should be undertaken by a contestable process. This is why consent was declined.31 Reply affidavit of H Levin at [2.28].2 Ibid at [3.1].3 Ibid at [5.4].[13] Mr Le Prou also complained that the receivers were negligent in the advertising campaign for lot 20. However, Mr Levin points out that the auction had been approved by the High Court.4[14] Mr Levin admits that he made a partial error in saying that Mr Le Prou had said at the auction that he had sold the security to a third party. However, the substantive concerns relating to Mr Le Prou‟s conduct were valid, and in particular,he says, Mr Le Prou had entered into sale and purchase agreements for two lots that were subject to the injunctive relief granted by the High Court.5[15] Some time after the lodgment of evidence in response, the Le Prous consulted other lawyers. On 5 November 2010 a joint memorandum of consent disposing of the applications was lodged. On 8 November 2010, Potter J made orders in accordance with a joint consent memorandum, which included judgment being entered against the Le Prous for an amount sought in the application.The plaintiff's view[16] Mr Crossland, for DFG, submits that Mr Pardington is an experienced insolvency practitioner. He is a principal of one of the leading accountancy firms in the world. DFG‟s receivership required a significant amount of work. Mr and Mrs Le Prou were just two of 83 debtors of DFG.[17] The central complaint is that Mr McKendrick allowed statements that call into question the integrity, good faith and honesty of Mr Pardington without any evidence to support such allegations. In fact Mr Crossland says that Mr McKendrick was aware of information that directly contradicted the allegations, including theinformation detailed in Mr Levin‟s reply affidavit.[18] Mr Crossland notes that communications in the possession of Glaister Ennorshowed cooperation on the part of the receivers. He pointed to documents that hesays "are completely counterintuitive to what Mr Le Prou was asking4 Ibid at [6.2].5 Ibid at [6.4].Mr McKendrick to level against Mr Pardington". He says it is startling that a"lawyer with documentary evidence" explaining delay can still "proceed with allegations of the type that appeared".[19] The plaintiff also highlights apparently duplicitous conduct on the part of theLe Prous. It transpires that while DFG diligently worked on determining whetherconsent should be given to the Matoha purchase, Glaister Ennor had already advisedthe purchaser that the condition requiring receiver‟s consent was already satisfied.Mr Crossland then contends that material relating to these matters should have beenput to the Court to provide the proper balance. Failure to do so was misleading.[20] On that basis, the plaintiff submits that the allegations made under the guidance of Mr McKendrick were not only false, but were grossly false and inaccurate.The view of Glaister Ennor[21] Mr Illingworth QC contends for the defendant that there remained a proper and tenable basis for the allegations made. The allegations, and the notice of opposition, need to be seen within their proper context. Firstly, the opposition was triggered by a serious and erroneous allegation, namely that Mr Le Prou had publicly said that he had sold the security to a third party at the auction. Mr Illingworth notes:Despite not having personally witnessed the events of which he was purporting to give testimony and despite his evidence being in breach of both the High Court Rules and the Evidence Act 2006, Mr Levin was prepared to make a serious allegation against Mr Le Prou;He contended (again in paragraph 3.6 of his affidavit) that "just before theauctioneer started the auction Mr Le Prou publicly stated at the auction thatthe first defendant had sold the security to a third party".The clear inference was that Mr Le Prou had deliberately attempted to scuttle the auction by publicly telling a lie to the prospective purchasers who were present at the auction.[22] The summary judgment proceedings were therefore viewed by the Le Prous as an aggressive and improper act, designed to "silence a critic". That perceptionwas compounded by the fact that the receivers were not initially going to issue such proceedings.6[23] Mr Illingworth then says that the Le Prous‟ anxiety should be set within the further context of the repeated failures on the part of the receivers to agree to partial releases of mortgages in respect of various of the lots and/or for sale. There are then concerns about the poor marketing of the relevant properties for the purposes of auction.[24] The background is one of animosity exemplified, he says, in ex post facto descriptions of Mr Le Prou used by Mr Pardington in correspondence to a third party. While this correspondence was not available to Mr McKendrick at the time the notice of opposition was prepared, Mr Illingworth says it gives the flavour of the context that would have been understood by Mr McKendrick:7That lot is one of two preferred by most who attended the auction that Le Prou successfully sabotaged by misrepresentation. Where going to a contestable process again but, as you can imagine, there are a few things that we are going to address first. We would prefer to sell the lots via the contestable process. However, I will talk to our agents and revert.Your client announced to prospective purchasers at the auction that he had bought the lot we were attempting to auction and a solicitor had advice that he owned it. That presented us to all attending as cheats trying to sell a section twice. Neither helpful or correct. Le Prou has set the deal up after the second Court injunction in our favour days before the auction without notice to us and without knowledge that he could not sell and settle without our consent.[25] I understand Mr Illingworth to then be saying that apparently innocuous conduct on the part of the receivers, including otherwise explicable delay, was infected by what appeared to be aggressive and unmeritorious allegations levelled at Mr Le Prou. It is against this backdrop that the complaint of equitable fraud, among others, is made.[26] As to Mr Crossland concerns about the Matoha communications, he says thatGlaister Ennor simply waived the requirement to obtain the receiver‟s consent as a6 Refer [3.5] - [3.6] of the Levin affidavit.7 Exhibit R to the affidavit of Henry David Levin in reply.condition of sale. This is, he says, irrelevant to the underlying concern of delay and refusal to consent to various transactions.The issues[27] There are subtle though important differences between the parties as to the proper threshold tests to be applied to the conduct of solicitors in this context.[28] The plaintiff submits that jurisdiction to award wasted costs against a solicitor arises on a serious dereliction of the solicitor‟s duty to the Court.8 The content of that duty in this context is informed by both the common law and the rules from the Lawyers and Conveyances Act (Lawyers Conduct and Client Care) Rules 2008 ("the Rules"). The plaintiff then submits that wasted costs may be ordered against counsel for breach of the following duties (among others):(a) A solicitor must have before him material which as it stands, establishes a prima facie case of fraud.9(b) A lawyer engaged in litigation must not attack a person‟s reputationwithout good cause in Court or in documents filed in Court proceedings.10(c) A lawyer must not be a party to the filing of any document in Court alleging fraud, dishonesty, undue influence, duress, or other reprehensible conduct, unless the lawyer has taken appropriate steps to ensure that reasonable grounds for making the allegation exist.11[29] Glaister Ennor say that the wasted cost jurisdiction focuses solely on the conduct of counsel in proceedings before the Court and is concerned to avoid "grossnegligence [or] gross neglect or inaccuracy in a matter which it was a solicitor‟s duty8 Harley v McDonald [2002] 1 NZLR 1 at [48].9 Relying on X v Y [2000] 2 NZLR 748 at [58]-[61], relying on W Boulton, Conduct and Etiquette atthe Bar (2nd ed, 1957) at 20. See also Boulton, at 26. Detailed at paragraph 3.1 of submissions.10 The Rules, r 13.8.11 Ibid, r 13.8.1.to ascertain with accuracy".12 It has nothing to do with breaches of other duties, for example under the Rules.[30] More specifically, the defendant says that the jurisdiction relates to the following duty:13Their Lordships agree with the Court of Appeal‟s conclusion in [1999] 3NZLR 545 at para [59] that a duty rests on officers of the Court to achieve and maintain appropriate levels of competence and care and that, if he is in serious dereliction of such duty, the officer is properly amenable to the cost jurisdiction of the Court. But care must be taken not to assume that just because it appears to the Court that the case was hopeless there was a failure by the barrister or solicitor to achieve the appropriate level of competence and care.The essential point is that it is not errors of judgment that attract the exercise of the jurisdiction, but errors of a duty owed to the Court.Nature and scope of the wasted costs jurisdiction[31] A wasted costs order is sourced in the inherent supervisory jurisdiction of a Court to punish an offending solicitor for failure to perform his or her duty to the Court.14 The jurisdiction is also compensatory, that is to compensate costs wastedbecause of counsel‟s misconduct.15[32] At its core, the jurisdiction is directed to ensuring that a solicitor displays a basic level of competence in the handling of a case and does not abuse the Court‟sprocess.16 A solicitor must not mislead the Court.17 As the parties agree, there must be a serious dereliction of duty akin to gross negligence or gross inaccuracy on a12 Refer [2.7] of defendant‟s submissions dated 11 May 2010 and Harley supra at [55].13 Harley supra at [57].14 Harley supra at [49], Myers v Elman [1939] 4 All ER 484 (HL) at 508 and I H Jacob „The InherentJurisdiction of the Court‟ (1970) CLP 23 at 47.15 Harley supra at [49].16 Harley at [45] and [57]; Myers v Elman at 508.17 R v Huang [2009] NZCA 527 at [47]-[50]. These are overriding duties, sourced in the solicitors‟oath, common law and professional standards (Huang, at [47], refers also to Rondel v Worsley [1969]1 AC 191 at 227). There are various sanctions for their breach, including censure, (Huang, WestpacNew Zealand Ltd v Fonua [2010] NZCA 471); disciplinary proceedings (Gazley v Wellington DistrictLaw Society [1976] 1 NZLR 452) and, wasted cost orders (Harley supra). They are not mutuallyexclusive (Refer Huang, Westpac, s 268 Lawyers and Conveyancing Act 2006).matter that was within the solicitor‟s duty to ascertain.18 An allegation of serious breach must be capable of summary disposal.19 The facts relating to the impugned conduct must be easily verifiable.20 A hopeless case is not proof by itself of serious misconduct or incompetence.21 Finally, an erroneous assertion in pleadings with some evidential foundation is not the type of misconduct that attracts a wasted costs order.22[33] Specific examples of conduct attracting wasted costs orders against solicitors include:(a) Allegations of moral turpitude without any evidence to support them.23(b) Permitting a client to make an inadequate or false (discovery) affidavit.24(c) The statement of claim was incomprehensible and the causes of action were plainly unarguable and the proceedings were brought without an order for a litigation guardian.25(d) The solicitor swore an affidavit in support of a petition asserting facts which any competent solicitor must have appreciated could not be established on the evidence available.26(e) Where a clerk, standing near the place where the jury assembled, discussed the case with the defendant and a re-trial was necessary.27(f) Where the lawyers failed to turn up to a hearing.2818 Harley supra at [48] and [55]; Westpac supra at [32]-[33].19 Westpac supra at 33.20 Harley supra at 52.21 Ibid, at [57], [66] and [67].22 Huang at [66]; Westpac at[ 40]-[41], see also by analogy Metcalf v Mardell [2002] 3 All ER 721(HL) at [22].23 X v Y [2000] 2 NZLR 748 at [58].24 Myers supra at 491, 511.25 L v Chief Executive of the Ministry of Social Development (2008) 19 PRNZ 116.26 In Re A Company [1996] 1 WLR 491.27 In Re Sternberg Reed Taylor & Gill (A Firm) [1999] EWCA Crim 1870.[34] Wasted costs orders were not granted in cases where:(a) The practitioner was precluded from giving a full answer to the application because of legal professional privilege.29(b) Affidavit evidence clarified an otherwise misleading pleading.30(c) A mistake by a law clerk in a legal aid application.31(d) There were a combination of alleged errors, including proceeding in a certain way based on a misunderstanding of law, failing to ascertain that there was an error in a crucial fact, erroneous assumption that a defendant had been served, and misuse of the statutory demand procedure (in a context where there were time pressures and significant other difficulties for the solicitor in presenting the case).32[35] The practical constraints on jurisdiction were highlighted by Lord Bingham in this way:33Save in the clearest case, applications against the lawyers acting for an opposing party are unlikely to be apt for summary determination, since any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming. The desirability of compensating litigating parties who have been put to unnecessary expense by the unjustified conduct of their opponents' lawyers is, without doubt, an important public interest, but it is, as the Court of Appeal pointed out in Ridehalgh's case [1994] 3 All ER 848 at 856, [1994] Ch 205 at 226, only one of the public interests which have to be considered.[36] Given the foregoing, while a solicitor‟s duties under the Rules provide standards by which to measure conduct, I do not consider that the wasted costs jurisdiction applies to all breaches of a solicitor‟s duty under those Rules or for that matter to the Court. It applies only to a serious dereliction of duty in the conduct of proceedings, usually in a way that is obvious to the Court that the conduct has28 R v Rodney [1997] PNLR 489 (CA) and R v Secretary of State for the Home Department, ex pMahmood [1999] COD 119.29 Medcalf v Mardell [2002] 3 All ER 721.30 Westpac supra at [40].31 R & T Thew Ltd v Reeves (No.2) [1982] 3 All ER 1086.32 Ridehalgh v Horsefield [1994] 3 WLR 462.33 Medcalf v Mardell supra at 734-735.wasted the resources of the parties. It is not applied in cases where the facts relating to the conduct are disputable or where there is a plausible basis in law and/or fact for the conduct. Their Lordships in Harley34 were adamant that a hopeless case is not evidence of misconduct – as their Lordships accepted, a lawyer is there to advocate not to judge.[37] Unsurprisingly, there are no bright line thresholds to be applied in this context. However, given the themes set out in the authorities, I must be satisfied that the impugned conduct was obviously and grossly wrong, improper, negligent or misleading.Does Mr McKendrick's conduct attract a wasted costs order?The conduct[38] The impugned conduct is described at paragraphs [6] – [11]. I will deal with linked allegations in turn and then examine the conduct as a whole to determine whether Mr McKendrick‟s duty to the Court has been obviously and grossly breached.Bad faith/ulterior motive/silence a critic[39] The Le Prous alleged "bad faith", "animosity" and a desire to "silence a critic". They form the basis for the opposition for leave to issue proceedings, and relate specifically to the conduct of the plaintiff in commencing the proceedings. They are allegations, in effect, of abuse of process. These allegations were erroneousand very weak. But the alleged bad faith was directly linked to Mr Levin‟serroneous statement and the evidence of acrimony between Mr Le Prou and thereceivers. This context provided a basis for then alleging a desire to "silence acritic". It was then for DFG to produce evidence to contradict those allegations,which it did through Mr Levin. There is obvious hyperbole in Mr Le Prou‟s affidavitfor example the reference to a vendetta action, and that should have been culled. But34 Harley supra at [57], citing Sir Thomas Bingham MR (as he then was) in Ridehalgh v Horsefield[1994] Ch 205 at 234.the gravamen of the complaint involved disputable matters and I am satisfied that Mr McKendrick had a basis (if weak) to raise a concern on behalf of his client, as he was obliged to do.[40] I also consider that there is some irony in the receiver‟s complaint about thispart of the pleading when Mr Levin made an erroneous allegation about Mr Le Prou. The allegation that Mr Le Prou had stated publically at an auction that the security had been sold was very serious. It cast Mr Le Prou in a very unfavourable light. It did not have a proper foundation. Mr Levin was not even at the auction so could not give direct evidence on it. While it does not directly bear on the question of whether Mr McKendrick breached his duty to the Court, the allegation was wrong and invited trouble.Equitable fraud (conscious misuse of mortgagee power)[41] Allegations as to equitable fraud and conscious misuse of mortgagee power require closer scrutiny to ensure that there is at least a plausible basis for each element of the fraud. These terms have a technical meaning and it is incumbent on counsel to use them correctly. They are raised in opposition to the summary judgment. They are serious allegations to make about a receiver. Indeed, Mr Crossland is highly critical of Mr McKendrick. He says Mr McKendrick was alleging that Mr Pardington had acted dishonestly and without probity. Mr McKendrick avers, however, that he did not intend to use those concepts to mean or encompass a dishonest design to cheat Mr Le Prou for financial motives.[42] It must be said at the outset that the pleadings are awkwardly framed by referring to alleged equitable duties. It is debatable whether receivers are bound in equity, rather than just statute, to observe the interests of mortgagors.35 But as the case for wasted costs was not driven by this starting point, the recourse to the law of equity, by itself, would not in my view give rise to a wasted costs order.35 See, e.g., McCreanor Estate Nominees Ltd v Trustees Executors & Agency Company of NewZealand HC Wellington CP150/99, 8 July 1999; Elders Pastoral Ltd v BNZ [1989] 2 NZLR 180(CA) at 192.[43] It is necessary nevertheless to carefully examine the relevant pleading to first determine whether Mr Crossland‟s complaint is justified and/or whether the pleading has a proper basis. The relevant pleading states:17 In the alternative, the plaintiff has committed equitable fraud (conscious misuse of mortgage power) in failing to act in good faith and co- operate to ensure the timely completion of the development and settlement of the sales, to include without limitation, providing releases of mortgage to enable the settlement of any sale of a unit in the development [44] Turning then to then use of the phrase "equitable fraud". Equitable fraud is defined by The Laws of New Zealand, Equity, as follows (footnotes omitted,emphasis added):132. IntroductionIn Chancery the term "fraud" came to be used to describe what fell short ofdeceit, but imported breach of a duty to which equity had attached itssanction. Sometimes the label of "equitable fraud" or "constructive fraud"has been attached to people who acted merely in ignorance of their duties or, to put it differently, in the mistaken belief that they were acting properly.When fraud is referred to in the wider sense in Chancery in describing cases within its exclusive jurisdiction, no actual intention to cheat needs to be proved. [45] Equitable or constructive fraud therefore does not require proof of a subjective intent or design to cheat or dishonesty. In fact, an allegation of equitable fraud in this context is simply that the receiver failed to ensure, in good faith, the timely completion of the development and settlement of sales. It is then particularised in the notice of opposition by reference to the alleged failures to consent to various sales that might have avoided the summary judgment (referred to at paragraph [9] above). There is at least some authority in this context that a failure to act in good faith can be shown if a receiver does not act reasonably to secure a proper price with reckless disregard of a mortgagor‟s interests.36 That is significant, because the allegation of equitable fraud therefore does not necessarily imply the type of dishonesty of most concern to Mr Pardington.[46] In contrast, an unqualified assertion of "conscious misuse" of mortgagee powers appears to elevate the alleged impropriety squarely into the realm of36 Moritzson Properties Ltd v McLachlan (2001) 9 NZCLC 262, 448.dishonesty for a financial motive. That phrase is commonly linked to a subjective intent to dishonestly cheat a mortgagor.37[47] One can readily see why Mr Pardington has complained so vigorously at this combination of allegations. There was no evidence pointing a subjective intent to cheat Mr Le Prou. The bracketed allegation of conscious misuse of mortgage power is however, as I have said, immediately explained and particularised by the rather more mundane allegation of failing to complete the development and sales in a timely fashion.[48] In this regard I note that the Court of Appeal in Westpac New Zealand Ltd v Fonua38 relied on affidavit evidence to clarify an otherwise misleading pleading. In that case the Court observed (footnotes omitted):[36] We consider that the respondent, knowing that Nga Uri as a statutory incorporation did not exist, could have protected himself by ascertaining precisely who were the persons involved in the unincorporated entity and then taking appropriate steps once their true identities and details were known. But as noted above, we were not informed what occurred once therespondent was aware of the "problem".[40] We consider that the circumstances of this case required the respondent as solicitor in the litigation to make known the nature of the argument to be advanced in opposition, so that the other party could react appropriately and also so that the Court was informed as to the nature of the argument and the status of the group he was representing. Had the matter rested solely on the notice of opposition, we consider the respondent would have been at serious risk of a costs order on Harley principles. But we are satisfied that the position is saved by the content of the two affidavits from Messrs Sadiq and Wright.[41] Once the appellant received those affidavits, it learned that Nga Uri was viewing itself as a Maori body, whose status, if any, derived from tikanga Maori. So far as New Zealand law was concerned, they were clearly no more than an unincorporated group of people. What Westpac also learned, however, was that two of the principals were:(a) Mr Sadiq, who asserted he was a member of Nga Uri, the manager of its construction arm, and authorised to make theaffidavit on the group‟s behalf.37 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1966] ALR 775.38 Westpac New Zealand Ltd v Fonua [2010] NZCA 471.(b) Mr Wright, who was chairman of Nga Uri, "a Maori tribal entity based in Katikati". He too was authorised to make theaffidavit.[43] Therefore viewing the conduct of the respondent and in the light of the facts summarised above, we consider that the conduct was far from satisfactory. It undoubtedly involved more than a simple mistake or oversight. But on balance we cannot conclude that it reached the level of seriousness required to justify a costs order against the respondent. In summary, we consider that the appellant has not established that the conduct of the respondent involved gross neglect or the type of incompetence necessary to warrant a personal costs order. The appellant has failed, by a narrow margin, to establish a serious breach of the respondent‟s duty to theCourt.[49] By analogy, the reference to "conscious misuse of mortgagee power" isclarified by its immediate context to imply something less than a dishonest motive. If it had appeared without that context, then like the Court of Appeal in Westpac, I would have had little option but to find a breach of the Harley principles. It would be a statement without a proper foundation. But the context clarifies what is meant by the pleading. Indeed, as I have explained above, if the evidence and notice are read together, the complaints are essentially about inordinate delay and failure to provide for Mr Le Prou‟s interests. There is no overt suggestion of dishonesty for financial gain other than the inapt use of the technical descriptor "conscious misuse ofmortgagee power".[50] The plaintiff, however, says that Mr McKendrick must have known that thesales were refused on a proper basis and therefore should have refused to make theallegations. I do not accept this. He may have had knowledge of their explanationsfor their conduct. He may have considered them to be reasonable explanations. Butit was not for Mr McKendrick to judge his client‟s concerns about the receiver‟sconduct. He simply had to satisfy himself that there was a basis for raising concernswith the Court and that he was not misleading the Court.[51] As to Glaister Ennor‟s correspondence files holding information showing thatthe allegations were spurious, I consider that there is an important differencebetween:(a) A scenario where an allegation is directly contradicted by verifiablefacts known to counsel; and(b) A scenario where an inference might be drawn from informationavailable to counsel that the allegation is wrong.[52] Scenario (a) is amenable to the summary jurisdiction on the twin basis thatthe allegation is obviously flawed and failure to produce the information ismisleading. The "existence" or not of a document or a communication not disclosedmight demonstrate misleading conduct on the part of counsel, as it did in Myers.39Scenario (b) is not readily amenable to summary jurisdiction as it requires an inquiryinto disputed facts and available inferences from information. I consider this part ofthe case falls into the latter category. I will use the Matoha transaction to illustratemy point (notice of opposition, para 18 (a), above at [9]).[53] The Le Prous secured a sale of some of the Te Kowhai properties to Matoha in August 2008. It was for $4.5 million, with $1.8 million owing to Westpac and $3.8 million owing to DFG. In addition there were a further four developed lots, a house lot and four undeveloped lots still to be sold. Mr Le Prou says these would have covered the balance of any debt. Glaister Ennor sent notice of the sale of DFG on 11 September. It received Westpac‟s consent on 16 September. Discharges for the mortgages from DFG were not however received until 20 January 2009, fivemonths later. By February, Matoha could not "fathom why [the Le Prous] believethis agreement could be resuscitated".[54] Mr Le Prou blames the receiver for the five month delay, citing several requests for urgency and lack of action. He failed to refer to potentially relevant correspondence, including an e-mail in late October showing some co-operation and stating that the receiver was awaiting an agent‟s appraisal. He also did not highlightthe error made by Glaister Ennor that caused some delay. But none of this incontrovertibly shows that the allegation of bad faith is manifestly wrong or that Mr McKendrick was misleading the Court or grossly derelict. An available inference on the facts is that the delay was unreasonable. In addition,39 Myers supra.Mr McKendrick must have also known that the omitted material could and would likely be produced by the receivers. So any possible misleading conduct was going to be short-lived and in the knowledge that the allegation would be hotly debated.[55] Accordingly, in my view, the asserted reasons for equitable fraud and conscious misuse of mortgage were essentially allegations of a failure to discharge alleged duties of a receiver to a mortgagor. They were not allegations of dishonesty. They were weakly based, but they had a basis. To the extent that Mr McKendrick left out information adverse to his position, it was not such a gross omission as to trigger the wasted costs jurisdiction.[56] In those circumstances, the pleadings, while flawed and not happily constructed, were not grossly inappropriate, misleading or negligent.Overall view[57] Stepping back from the finer grain, were the allegations grossly wrong, inappropriate or negligent? As I have said, Mr Pardington‟s reaction isunderstandable. Mr Pardington acted honestly and with appropriate caution in handling the assets under his management. Glaistor Ennor plainly accept this. But when the allegations are stripped away to their bare essentials they are allegations that the receiver seriously breached his duty to exercise his powers with reasonable regard to Mr Le Prou‟s interests.40 They do not imply dishonesty when set in their full context. Mr Levin‟s evidence also unhelpfully inflamed the sense of distrust. It was not Mr McKendrick‟s role to deny Mr Le Prou access to the Court because the allegations were weakly based and may affect Mr Pardington‟s reputation. Quite thereverse, it was his role to represent his client. In this regard I am usefully reminded by Boulton:41So also, when it comes to his speech, he must put every fair argument which appears to him to help his client towards winning his case. The reason is because he is not the judge of the credibility of the witnesses or of the validity of the arguments. He is only the advocate employed by the client to40 Consider for example the receivers duties under ss 18 and 19 of the Receivership Act 1993.41 W Boulton, A guide to conduct and etiquette at the bar of England and Wales (6th ed, Butterworths, London, 1975) at 69.speak for him and present his case, and he must do it to the best of his ability, without making himself the judge of its correctness, but only of its honesty. Cicero makes the distinction that it is the duty of the Judge to pursue the truth, but it is permitted to an advocate to urge what has only the semblance of it.[58] I agree with Mr Crossland that the combination of allegations, including conscious misuse of mortgagee power was one step too far. That technical allegation may imply dishonest intent to cheat Mr Le Prou. There was no evidence of this. Mr McKendrick erred in pleading that aspect. But when it is set within the full context, it was an honest mistake and not sufficient to attract a wasted costs order.Costs on this application[59] The parties may file memoranda on this application within 10 days. While I am persuaded that a wasted costs order was not warranted, I am inclined to the view that this application was justified by the erroneous pleadings. I will leave it to the parties to determine whether they need to litigate this aspect._________________________Whata J