COX AND COX v RICE CRAIG SOLICITORS NOMINEE COMPANY LIMITED [2016] NZHC 985

COX AND COX v RICE CRAIG SOLICITORS NOMINEE COMPANY LIMITED [2016] NZHC 985 [17 May 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-877[2016] NZHC 985BETWEEN GAYLE MARIE COX ANDSTUART NEVILLE COXPlaintiffsAND RICE CRAIG SOLICITORS NOMINEECOMPANY LIMITEDDefendantHearing: 2 May 2016Appearances: Gayle Marie Cox, first-named plaintiff, in personP Napier for DefendantJudgment: 17 May 2016JUDGMENT OF ASSOCIATE JUDGE R M BELLThis judgment was delivered by me on 17 May 2016 at 11:00ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Keegan Alexander, Auckland, for Defendant[1] Rice Craig Solicitors Nominee Company Ltd applies to strike out the statement of claim on the ground that there is an issue estoppel arising from my decision in an earlier proceeding.1 There is a common factual background to both proceedings.[2] Rice Craig is a solicitors nominee company. It made two loans. The first, made in March 2008, was a loan of $1,015,000 to Riverside Court Ltd. That company carried out a development at Red Hibiscus Road, Whangaparaoa. That isthe "Red Hibiscus" loan. Mr and Mrs Cox are directors of Riverside Court Ltd andguaranteed the loan.[3] The second, made in August 2009, was for $1,538,000 to the trustees of the Cox Family Trust, repayable after two years with security over a property inDuncansby Road, Whangaparaoa. That is the "Duncansby" loan. Mr and Mrs Coxwere two of the three trustees of the trust. They also guaranteed the loan.[4] The Riverside Court Ltd development was a subdivision to create 12 residential lots. The development was financed by Rice Craig Solicitors Nominee Company Ltd as first mortgagee and by Marac Finance Ltd as second mortgagee. During 2009, Marac Finance had the property revalued. That showed a substantial decline in value to the extent that Marac required the Coxes to put the Riverside Court development on the market.[5] That resulted in a Mr Lam entering into an agreement to buy the property for $1,168,000, with settlement on 16 December 2009. It was also agreed that following the sale the Coxes would continue to project-manage the development, for which they would be paid. The Coxes hoped that from that income they would be able to continue to pay the instalments on the Duncansby loan. The agreement for sale and purchase with Mr Lam required the Coxes to complete the construction of a retaining wall alongside a stream. Mr Lam was to hold back $250,000 pending completion of1 Rice Craig Solicitors Nominee Company Ltd v Cox HC Auckland CIV-2010-404-2802, 9 September 2011.the wall. Those funds were to be held in the trust account of his solicitors. With the $250,000 held back on settlement, there would not be enough money available to repay the Red Hibiscus loan in full. The Coxes conferred with Mr Parker, partner in the law firm, Rice Craig, as to how the transaction could be made to work. The Coxes say that they made an agreement with Mr Parker under which he agreed that the nominee company would give a discharge of the mortgage on settlement inreturn for the sum of $250,000 to be held in the purchaser's solicitors' trust account, to be released by the end of February 2010 or on completion of the work. Rice Craig does not accept that Mr Parker did make such an agreement.[6] The Coxes told Mr Parker about the agreement around 10 December 2009. Settlement was due on 16 December 2009. Mr Parker received a final version of the agreement for sale and purchase on 14 December 2009. On 15 December 2009 Mr Parker sent a letter to the Coxes' lawyer setting out a number of requirements forsettlement. In particular, two undertakings were required, one by the Coxes' lawyer and the other by Mr Lam's solicitors. They were to undertake as follows:that we are holding irrevocable instruction from the purchaser to hold the sum of $250,000 in our trust account pending satisfaction of the conditions of the agreement, we are holding the sum of $250,000 in that trust account and that on satisfaction of the terms clauses 16 and 17 of the contract we will pay the sum of $250,000 to George Bogiatto, solicitor, without deduction.[7] The undertaking of Mr Bogiatto, the Coxes' lawyer, required him to forwardthe funds immediately to Rice Craig upon receipt of payment by the purchaser.[8] The purchase did not settle on 16 December. The following day Mr Lam returned to China, leaving the matter in the hands of his Auckland lawyers. Theyserved a settlement notice on the Coxes' lawyer.[9] Mr Lam's lawyer sent an email to Mr Bogiatto with an amended undertaking.Of importance the amended undertaking said:We on having instructions from the purchaser to hold the sum of $250,000 in the trust account pending satisfaction of the conditions of agreement we are holding the sum of $250,000 in our trust account, and on satisfaction of the terms of clauses 16 and 17 of the contract will pay the sum of $250,000 to George Bogiatto, without deduction.Significantly, the requirement for the purchaser's instructions to be irrevocable hadbeen deleted.[10] There were no other developments before Christmas 2009. After Christmas, while Mr Parker was absent, another lawyer in Rice Craig dealt with the matter.That lawyer proposed an amended undertaking, under which Mr Lam's solicitorsthemselves would undertake to hold the funds in their trust account rather than holding irrevocable instructions. They demurred at giving that kind of personal undertaking themselves. They indicated a willingness to revert to the original undertaking proposed by Mr Parker in his letter of 15 December 2009.[11] By this stage the question of payment to Marac had been resolved. But Mr Lam had lost patience. In early February 2010 he cancelled the contract for non- performance. His settlement notice had long expired.[12] The Coxes' grievance is that what looked like a potential lifesaver for themhad disappeared. They could not sell the property in Red Hibiscus Road. Riverside Court Ltd went into liquidation. They were unable to maintain payments under the Duncansby loan. Both the Duncansby and the Red Hibiscus loans went into default.CIV-2010-404-2882 Rice Craig Solicitors Nominee Company Ltd v Cox[13] In this proceeding, Rice Craig sued the trustees of the Cox Family Trust and Mr and Mrs Cox as guarantors of the Duncansby loan. It had accelerated the loan after serving a notice under s 119 of the Property Law Act 2007 and the defaults under that notice had not been remedied. It claimed $1,606,659.57 plus interest.[14] In their statement of defence, the Coxes pleaded oppressiveness under Part 5 of the Credit Contracts and Consumer Finance Act 2003. They pleaded the facts relating to the abortive sale to Mr Lam and alleged that Rice Craig had wrongfully refused to provide a discharge of the mortgage, notwithstanding the undertakingoffered by Mr Lam's lawyers. That refusal prevented Riverside Court fromcompleting the sale with the result that the Coxes were unable to meet their obligations under the Duncansby loan.[15] Rice Craig applied to strike out the defence and sought judgment. In my judgment of 9 September 2011, I found for Rice Craig, struck out the statement of defence and entered judgment.This proceeding[16] In this proceeding, the Coxes rely on the same events in December 2009. They sue Rice Craig for failing to provide a partial discharge of mortgage. They claim damages at $660,000 for loss of income, legal fees and distress and anxiety. There are three causes of action:(a) oppressiveness under Part 5 of the Credit Contracts and Consumer Finance Act;(b) breach of duty of care; and(c) breach of contract.Rice Craig's issue estoppel argument[17] Rice Craig refers to the broad overlap of matters pleaded in the amended statement of claim of this proceeding and in the statement of defence in the 2010 proceeding. It submits that the only significant difference is that in this case the Coxes are plaintiffs whereas they were defendants in the earlier proceeding. Rice Craig relies on those parts of my September 2011 judgment where I rejected the merits of the defence under the Credit Contracts and Consumer Finance Act. It therefore submits that the Coxes are trying to re-litigate something that has been determined conclusively against them. As to the causes of action for breach of duty in tort and breach of contract, it submits that they cannot stand in the light of findings I made in the September 2011 judgment.[18] Rice Craig's strike-out application is based on an affirmative defence: the Coxes are barred from suing Rice Craig because of determinations I made in the earlier proceeding. Rice Craig accepts that the statement of claim is in proper form and that, but for the matters I decided in my earlier judgment, the statement of claimdiscloses arguable causes of action. Applications to strike-out based on anaffirmative defence are conventionally made under the "frivolous or vexatious" and "abuse of process" parts of r 15.1: Matai Industries Ltd v Jensen and Murray v Morel & Co Ltd.2 Although those cases were about limitation, the same principle applies to other affirmative defences.Issue estoppel[19] This case does not concern cause of action estoppel. The causes of action are different. In CIV-2010-404-2802 Rice Craig as plaintiff sued in debt. In this proceeding the Coxes are plaintiffs and sue under the Credit Contracts and Consumer Finance Act, breach of duty of care in tort and breach of contract.[20] The judgment of Diplock LJ in Thoday v Thoday is commonly cited as explaining issue estoppel: 3 'issue estoppel', is an extension of the same rule of public policy. Thereare many causes of action which can only be established by proving that two or more different conditions are fulfilled. Such causes of action involve as many separate issues between the parties as there are conditions to be fulfilled by the plaintiff in order to establish his cause of action; and there may be cases where the fulfilment of an identical condition is a requirement common to two or more different causes of action. If in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either upon evidence or upon admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon the fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was.[21] The parties in this case were also parties in the earlier proceeding. Although Rice Craig obtained judgment on a strike-out application, it was final under theCourt of Appeal's decision in Joseph Lynch Land Co Ltd v Lynch:4In our judgment the ultimate question is concerned not so much with the character of the earlier decision, i.e. whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is2 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC), approved in Murray v Morel & Co Ltd[2007] NZSC 27, [2007] 3 NZLR 721 at [33]-[34].3 Thoday v Thoday [1964] P 181 (CA) at 198.4 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 43.reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise.[22] In the 2011 decision, I struck out the defence under the Credit Contracts & Consumer Finance Act. In this proceeding, the Coxes plead the same events, the same facts, and rely on the same statutory provisions in their claim against Rice Craig. On the face of it, there is an overlap of subject matter.[23] There is, however, an additional requirement. Not every finding creates an issue estoppel. Only those findings that are fundamental or necessary to the decision give rise to issue estoppel. In Barrs v Jackson, Knight Bruce VC said:5 the rule against re-agitating matter adjudicated is subject generally to this restriction, that, however essential the establishment of particular facts may be to the soundness of a judicial decision, however it may proceed on them as established, and however binding and conclusive the decision may as to its immediate and direct object be, those facts are not all necessarily established conclusively between the parties, and that either may again litigate them for any other purpose as to which they may come in question, provided the immediate subject of the decision be not attempted to be withdrawn from its operation so as to defeat its direct object.In Hoystead v Federal Taxation Commissioner, Lord Shaw said:6It was not merely coincidental or collateral to the question so decided, that the appellants were joint owners. It was fundamental to it. Unless it hadbeen decided that Mr Campbell's children had a beneficiary interest in land or income "in such a way that they are taxable as joint owners", theycould not have been taxed at all.In Blair v Curran, Dixon J said:7In the phraseology of Lord Shaw, "a fact fundamental to the decision arrived at", in the former proceedings and "the legal quality of that fact", must be taken as finally and conclusively established. But matters of law or fact which are subsidiary or collateral, are not covered by the estoppel. Findings, however deliberate and forma, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation.5 Barrs v Jackson (1842) Y & C Ch Cas 585 at 597-8, 62 ER 1028 at 1033; reversed on other grounds, (1845) 1 Ph 582, 41 ER 754.6 Hoystead v Federal Taxation Commissioner [1926] AC 155 (PC) at 171-172.7 Blair v Curran (1939) 62 CLR 464 at 532.The New Zealand Court of Appeal applied this in Talyancich v Index Developments Ltd.8[24] In the earlier proceeding, I rejected the Coxes' defence on two grounds. Thefirst was that the actions of Rice Craig in relation to the Red Hibiscus loan could not give the Coxes a defence to Rice Craig's debt recovery claim under the Duncansbyloan. I said:9[30] Only the exercise of a power or right in relation to the Duncansby loan can be relevant. The fact that the Coxes, as guarantors of the Red Hibiscus loan, face liability under that loan does not mean that the exercise of power for the Red Hibiscus loan can be relevantly raised as an exercise of power when Rice Craig is suing only on the Duncansby loan. In other words, there has not been a relevant exercise of power here arising out of what was done on the arrangements for the discharge of the Red Hibiscus mortgage. Instead, the powers being exercised here are simply to enforce overdue interest instalments and overdue principal. Those are conventional steps which do not of themselves amount to oppression in terms of s 118 of the Credit Contracts and Consumer Finance Act.[25] The second ground was that, on their pleadings, the Coxes had not shown an arguable case for oppression under s 118 of the Credit Contracts and Consumer Finance Act.10 The second ground was additional and alternative to the first. Only the first was fundamental to the decision for issue estoppel. The second ground was not required. I could have completed the reasons after the first ground. The additional ground did not give a stand-alone basis for appeal. If the Coxes had challenged my decision on only the second ground, saying that I could not judge the oppressiveness allegations on a strike-out application, that would have got them nowhere.[26] In Talyancich, the Court of Appeal considered whether an issue estoppel arose out of a judgment of Tompkins J. Parties to earlier proceedings had enteredinto a settlement under a document headed "Consent orders". An order had beenmade staying the earlier proceedings, but no orders were made in terms of the document recording the settlement. In the later application before Tompkins J, orders were sought against accountants, not previously parties to the earlier8 Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38-39.9 Rice Craig Solicitors Nominee Company Ltd v Cox, above n 1.10 Above, at [31]-[36].proceedings. Tompkins J declined to make any orders, pointing out that the settlement document was just that, and not a court order. In addition, he went on to find that under a deed the accountants had been fully released so as to bar any claim against them under the application before the court.[27] The Court of Appeal found that in the first part of the decision Tompkins J correctly held that the court had no jurisdiction to make an order against persons who were not parties. But as to the second part of the decision, the court said:11It was, therefore, unnecessary for Tompkins J to go on to deal with the alternative objection raised by Coopers & Lybrand based on the deed of release and indemnity. His conclusion as to the effect of the deed was not a determination on a matter which it was necessary for him to decide. The finding as to the effect of the deed was not separately appealable. An appeal could have been dismissed on the jurisdiction point without any need to deal with the question of the effect of the deed. There is, therefore, no issue estoppel as to the effect of the deed.[28] In this case, my finding that the oppressiveness defence could not apply to a claim under the Duncansby loan was fundamental. The finding that the defence was not arguable on its merits was not. Rice Craig is relying only on the second ground, not on the first. The second ground was not necessary to my decision but only collateral.[29] In opposition to the claim on the Duncansby loan, the Coxes tried to raise a defence that was not available to them in law. Although they could not raise that in a defence to the claim under the Duncansby loan, it could be raised in proceedings relating to the Red Hibiscus loan – either by way of a defence to a claim by Rice Craig, or in their own claim against Rice Craig. The fact that I ruled that they could not raise that defence in a claim under the Duncansby loan does not bar them from raising it in their own proceeding against Rice Craig based on the Red Hibiscus loan. Accordingly, the issue estoppel argument fails with regard to the cause of action based on the Credit Contracts and Consumer Finance Act.[30] Rice Craig also submitted that the claims for breach of contract and breach of duty of care in tort must fail, given my finding in paragraph [34] of my judgment:11 Talyancich v Index Developments, above n 8, at 39.Rice Craig was properly protecting the interests of its contributors byrequiring that the purchaser's solicitors give irrevocable instructions.[31] That sentence has to be read in context. It is directed only at the question of oppressiveness under s 119 of the Credit Contracts and Consumer Finance Act,whether Rice Craig's conduct was in breach of reasonable standards of commercialpractice. It does not address questions of breach of contract or breach of duty of care.[32] Moreover, paragraph [34] falls in that part of my judgment where I deal with the merits of the oppressiveness defence. As I have explained, that part was not fundamental to my decision.[33] In conclusion, while the Coxes were not able to run an oppressiveness defence in opposition to the claim on the Duncansby loan, in this proceeding they are relying on the Red Hibiscus loan. Findings I made in my earlier decision do not bar them from suing on their causes of action in the current statement of claim. There is no issue estoppel barring them from suing. Nothing I have said in this decision should be taken as an indication one way or the other as to the substantive merits of their claim.[34] At the end of the hearing I discussed case management directions.Outcome[35] I make these orders:(a) The defendant's strike-out application is dismissed.(b) I extend the time for applying for a review of the decision to 10 working days after the decision.1212 High Court Rules, r 2.3(2).(c) Rice Craig is to file and serve a statement of defence to the statement of claim within 20 working days of this decision. It should make initial disclosure at the same time.(d) Rice Craig is to file and serve an affidavit of documents, making standard discovery and following the protocol in pt 2 of sch 9 of the High Court Rules by 29 July 2016.(e) The Registrar is to allocate a case management conference on the first available date in August 2016. As Mrs Cox lives in Queensland, she will take part by telephone (unless she has sooner appointed a New Zealand lawyer). The Registrar should take account of her Queensland residence in fixing the time for the conference.[36] Ahead of the next conference I encourage the parties to confer as to discovery to be made by Mr and Mrs Cox. The next conference will consider what further directions are required and whether the Coxes should file and serve a reply. Directions for hearing may be given.Costs[37] As Mrs Cox does not have a lawyer, she is not entitled to costs, but she is entitled to disbursements. She travelled from Australia for the hearing, and presumably incurred travel and accommodation costs. If the parties cannot resolve disbursements payable to Mrs Cox, I will deal with the question at the next case management conference.[38] In case this matter goes any further, I record that the application took a quarter of a day to hear.............Associate Judge R M Bell