WESTON WARD & LASCELLES V PRIMOSSO HOLDINGS LIMITED AND CAPITAL ACCEPTANCE LIMITED AND ORS CA CA152/04

WESTON WARD & LASCELLES V PRIMOSSO HOLDINGS LIMITED AND CAPITAL ACCEPTANCE LIMITED AND ORS CA CA152/04 26 July 2005IN THE COURT OF APPEAL OF NEW ZEALAND CA152/04BETWEEN WESTON WARD & LASCELLES Appellants AND PRIMOSSO HOLDINGS LIMITED AND CAPITAL ACCEPTANCE LIMITED First Respondents AND COLTAR CORPORATION LIMITED AND ALLFUND MORTGAGE CORPORATION LIMITED Second Respondent AND ALLFUND FINANCIAL CORPORATION OF CANADA, ALLFUND MORTGAGE CORPORATION, BEECH HOLDINGS LIMITED, COLTAR CORPORATION LIMITED, A YUEN, A NIBLOCK, S CHEN MING YIH AND P TAI ING YIH Third Respondents AND PRIMOSSO HOLDINGS LIMITED, CAPITAL ACCEPTANCE LIMITED AND BEECH HOLDINGS LIMITED Fourth Respondents Hearing: 6 July 2005 Court: Anderson P, Glazebrook and Chambers JJ Counsel: T C Weston QC and R S Cunliffe for Appellants S W Hughes for Respondents Judgment: 26 July 2005JUDGMENT OF THE COURTA The appeal is allowed. B The amended statement of claim of the respondents dated 2 July 2003 will be struck out on 16 August 2005. C The appellants shall have costs from the respondents in the sum of $6,000. We certify for two counsel, together with usual disbursements. REASONS(Given by Anderson P)Nature of the appeal[1] This is an appeal against a judgment of Chisholm J in the High Court in respect of an application by the appellants to strike out the respondents' amended statement of claim. The judgment under appeal is reported as Primosso Holdings Limited v Alpers [2004] 3 NZLR 521. [2] The litigation has its genesis in the borrowing of money from the respondents, who conduct the business of financing and fund investment, by various members of a family with the surname Anderson, in their capacity as trustees, and by various companies owned and controlled by members of the Anderson family. The appellants, a firm of barristers and solicitors, acted as such for the various Anderson interests, including in connection with the borrowings. [3] The amended statement of claim alleges that in late 1996 the various Anderson interests collapsed due to non-payment of mortgages, repossession of stock, entry of judgments and failure to meet other contractual obligations. Subsequent to the collapse, three members of the Anderson family, along with a registered valuer whose valuations of Anderson properties had induced loan offers by various respondents, were prosecuted by the Serious Fraud Office and convicted of various crimes of dishonesty. It seems that civil proceedings founded on deceitand breach of contract could have been brought by the respondents against members of the Anderson family but would have produced barren judgments. The respondents have therefore turned toward the appellants on the basis that they are jointly and severally liable for the acts and omissions of Mr M J Ambler, a member of the firm. [4] Although the amended statement of claim is 29 pages in length, an analysis of the essential nature of the cause or causes of action presents some difficulty. As Chisholm J noted, in some respects the pleading is unorthodox and at times confusing. The respondents allege that Mr Ambler knew or ought to have known that the Anderson interests did not have the means to service borrowings and that he was negligent in that he owed to the respondents a duty of care not to allow the firm to facilitate borrowings which would result in losses. The duty of care was allegedly breached because he facilitated borrowings in circumstances where he knew or ought reasonably to have known of various specified matters bearing on the financial soundness of his clients. Chisholm J held that such a duty of care was arguable and that accordingly the statement of claim should not be struck out. [5] In respect of some of the loans, members of the Anderson family executed directors certificates, which included a certification that the borrowing company was able to satisfy the solvency test as defined by s 4 of the Companies Act 1993. The respondents allege that Mr Ambler prepared the certificates and that he did so negligently and in circumstances where he knew or ought reasonably to have known that the certificates were false or likely to be false and that the interests of the respondents would be defeated. In the High Court counsel for the respondents accepted that Mr Ambler did not prepare the certificates but that rather they were provided by or on behalf of the lenders. [6] When Mr Weston QC, for the appellants, rose to present his submissions on this appeal, it quickly became obvious that all three members of the bench had considerable difficulty with the concept of a duty of care of the kind accepted as arguable by Chisholm J. If in fact what the respondents wished to allege was that Mr Ambler knew of the falsity of the directors' certificates, it would be distinctly arguable that he was a party to the directors' fraudulent representations. But thatwould be a claim against him in deceit, not negligence. To characterise dishonest complicity in the tort of deceit as a breach of a duty of care not to give dishonest assistance to a deceiver is convoluted and unnecessary. [7] If what the respondents wished to allege was that honest but careless assistance to a deceiver is capable of founding an action in negligence, then this would be a radical extension of the law of negligence. We remark that, in a solicitor- client context, the proposition would have to be as follows: a solicitor acting for a client in a transaction has a duty of care to another party, for whom the solicitor does not act, to take reasonable steps to be satisfied that the client is not using the solicitor to facilitate the deceit of such other party. Such a rule would require every solicitor, when receiving instructions to act in any transaction, to assume that the client might be acting deceitfully and to take reasonable steps to ascertain whether or not that was the case. And, of course, the duty would not just apply to solicitors, but also to any person acting as an agent for any other person in any transaction – accountants, bankers, insurers, stock brokers or any other manifestation of an agent. Such an extension has, in our preliminary view, considerable conceptual and practical difficulties. But we did not hear any argument in respect of such a radical extension of the law of negligence and we make no further comment upon it. [8] Mr Weston indicated that he had been at pains in the two earlier hearings to make the point that either the respondents had to allege actual knowledge of the fraud and bring the claim in deceit or they had to abandon the claim. We indicated to Mr Weston that it might be preferable in the circumstances for Ms Hughes, for the respondents, to address first. He could then reply. [9] When we called on Ms Hughes she advised that, in light of the preliminary exchange between us and Mr Weston, she would consent to the appeal being allowed and the statement of claim being struck out, provided that she could replead in deceit. Although she had previously disclaimed the possibility of fraud on Mr Ambler's part, she now considered that she did have sufficient evidence on the basis of which she could assert that he did have knowledge that the directors' certificates were false.[10] As a consequence, we allow the appeal and strike out the amended statement of claim. We are deferring the effect of that latter order for 21 days so that Ms Hughes has the opportunity in the meantime to file a fresh statement of claim, presumably including causes of action in deceit. Any new statement of claim should not include causes of action in negligence. We express no view as to whether such new causes of action may run into difficulties under r 187(3)(a) of the High Court Rules. [11] The appellants are entitled to costs of $6,000, together with usual disbursements.Solicitors: Buddle Findlay, Christchurch for Appellants Govett Quilliam, New Plymouth for Respondents