CALVERT V SMITH HC WN CIV-2006-485-2639

CALVERT V SMITH HC WN CIV-2006-485-2639 6 March 2008IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-2639BETWEEN GEORGE CALVERT AND JANET EUNICE CALVERT Plaintiffs AND TREADWELL STACEY SMITH Defendant Hearing: 29 February 2008 Appearances: R.A. Smith - Plaintiff I. Atkinson - Defendant Judgment: 6 March 2008 at 3.30 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by Associate Judge Gendall on 6 March 2008 at 3.30 p.m. pursuant to r 540(4) of the High Court Rules 1985.Solicitors: Hesketh Henry, Lawyers, Private Bag 92093, Auckland R A Smith, Barrister, PO Box 911109, Auckland Mail Centre Jones Fee, Solicitors, PO Box 1801, AucklandIntroduction[1] The plaintiffs seek leave to file an amended statement of claim to include a further cause of action against the defendant based on breach of fiduciary duty. [2] Since it was first filed the plaintiff's statement of claim has pleaded only one cause of action against the defendant in negligence. [3] The substantive trial of this matter is imminent. It is set down for five days commencing 21 April 2008. [4] The plaintiffs' application seeking leave to introduce this new cause of action is opposed by the defendant primarily on two grounds: a) It will compromise the substantive hearing set for 21 April 2008 which will need to be postponed. b) The defendant will be prejudiced and the interests of justice do not require the amendment to the Statement of Claim.Background Facts[5] The defendant is a firm of solicitors in Wellington. The nature of the claim against them is that they had a conflict of interest when they acted for the plaintiffs some time ago. The defendants had previously acted for a Mr Neil Shaw ("Mr Shaw") in providing advice over his involvement in the "Space Table Scheme", which I understand was an aggressive tax loss scheme promoted by Mr Shaw's then employer, PricewaterhouseCoopers ("PWC"). [6] Subsequently the plaintiffs invested heavily in the "Space Table Scheme" and suffered significant losses when the Commissioner of Inland Revenue disallowed their tax losses under the scheme. [7] The defendants then represented the plaintiffs in proceedings against PWC unsuccessfully. As I understand the position subsequently and belatedly the defendants advised the plaintiffs to bring proceedings against Mr Shaw but giventhat Mr Shaw would inevitably bring PWC into any such proceedings, the action against Mr Shaw was likely to have been struck out as an abuse of process. In short it seems that any proceedings against Mr Shaw should have been brought together with the proceeding against PWC but it was not. [8] The plaintiffs allege that the defendants had a clear conflict of interest in this case, but at no time did the defendants advise them of their conflict or take any steps to resolve it. [9] The plaintiffs' present statement of claim seeks damages consequent upon the alleged negligence of the defendant totalling $1,022,748.59 together with interest and costs. The amended statement of claim proposed by the plaintiffs seeks to include a further cause of action against the defendants based on breach of fiduciary duty. [10] The present application by the plaintiffs is opposed by the defendants pursuant to rules 187 and 438AA High Court Rules.Counsel's Arguments and My Decision[11] Rule 187(2) High Court Rules states:"After the setting down date for a proceeding, an amended pleading may be filed only with the leave of the Court."[12] Rule 438AA(1) provides:"No statement of defence or amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, in the proceeding after the setting down date without the leave of the Court."[13] The setting down date in this proceeding was 28 January 2008. Leave is accordingly required for the plaintiffs to file the amended statement of claim.[14] The learned authors of McGechan on Procedure refer to the Supreme Court case of Papps v Mahon [1966] NZLR 288 as authority for the principles relevant to the application of these rules. This case was decided in 1966 on a previous but similar version of Rules 187(2) and 438AA(1). However, McGechan notes that similar principles apply to the current rules. [15] In Papps v Mahon, Wilson J identified the principles to be guided by as:• Whether the probable effect of allowing the amended pleading would be the postponement of the trial; and• If so, the amendment should be disallowed unless the amended pleading was necessary in order to do justice between the parties. [16] In Fordham v Xcentrix Communications Ltd (1996) 9 PRNZ 682, Fisher J considered the overall justice of the case when considering whether to allow a defendant to file a statement of defence after the setting down date. There Fisher J considered the following factors relevant to the exercise of his discretion:• The magnitude of the delay;• The explanation for the delay; and• The lack of a substantial defence – in other words, the merits of the pleading that the applicant sought to file. [17] Similar factors were considered relevant by Smellie J in Grey v Elders Pastoral Holdings Limited 1/5/97, HC Auckland CP417/95. On an application to amend a statement of claim after the setting down date, Smellie J considered the following matters to be relevant:• The extent of the lateness.• That further interlocutory applications would be required.• The view His Honour Justice Smellie took of the amended pleading that the applicant sought to file which he expressed in this way in his judgment at p.4:"Even more important than that [the need for further interlocutory applications] is the view that I have formed on the pleadings and on what I now know of the case, that it is doubtful that there is the necessary causal connection between any breaches of contract, statute or tortious duty that would enable these extra 'consequential losses' to be tacked on and recovered in the way Mr Hicks envisages."[18] In the present case before me counsel for both parties readily accepted that if leave is granted for the amended pleading this will result in the postponement of the trial scheduled for 21 April 2008. Only about seven working weeks remain before the date scheduled for the trial to begin. Accordingly, from the authorities it seems clear that as a postponement of the trial is likely, leave should not be granted here unless the amendment to the statement of claim is necessary in order to do justice between the parties. [19] On this, counsel for the plaintiff contended that the matters which weigh in favour of allowing the amended claim are: a) The parties are unchanged. b) The central issue over the "Space Table Scheme" and the ability of the plaintiffs to show that a successful claim based on breach of fiduciary duty by PWC remains the same. Mr Shaw arguably owed the same duty to the plaintiffs as to PWC. c) It is expedient to have the two causes of action heard together rather than duplicating hearings and resources. d) There is little if any prejudice to the defendant. [20] In response counsel for the defendants maintained that the proposed amendment presents a substantial change to the claim against the defendant. Previously the only claim against the defendant was that it had been negligent by failing to advise the plaintiffs to plead a cause of action against PWC of breach of fiduciary duty. As I understand it this involved consideration of a discrete number of issues: a) Whether PWC had breached fiduciary duties owed to the plaintiffs. b) Whether the alleged breach had caused a loss.c) Whether it was reasonable for the defendants to rely upon the advice of senior counsel in this matter. [21] Here, the new cause of action proposed by the plaintiff alleges breach of fiduciary duty by the defendants because they had previously given advice to Mr Shaw. This, it is said, would require consideration of a completely different set of isses: a) What involvement did the defendants have with Mr Shaw? b) Was there a conflict of interest? c) If so, did the conflict affect the advice given to the plaintiffs regarding the claim against PWC? d) If the conflict did affect the advice given, then did the breach of fiduciary duty cause the plaintiffs to suffer a loss? e) If so what is the quantum of that loss. [22] It is the contention from counsel for the defendants that none of these issues overlap the issues that arise from the previous negligence pleading. This is disputed by the plaintiffs however. Further, the defendants argue that a range of further interlocutory steps will need to be taken if amendment is allowed. These it is said will include further discovery, issues concerning legal professional privilege with regard to the defendant's file relating to Mr Shaw, the possible need for non-party discovery from Mr Shaw and the need for further particulars of the proposed new cause of action. [23] On this last point, whilst I accept the possibility that a need for these further interlocutory steps is likely to arise here, and this would delay the 21 April 2008 trial date, in my view that factor does not unduly affect the interests of justice in this case. On the contrary what appears important from the authorities is to consider whether the trial of this matter on the amended pleadings, when it ultimately proceeds does deal with all relevant and necessary issues. [24] On this, Bisson J in Thornton Hall Manufacturing Ltd v Shanton Apparell Ltd(1989) 3 TCLR 249 in the Court of Appeal stated:"The parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceedings."[25] In the present case there is no doubt that the plaintiffs have delayed in seeking to amend their pleadings. As I understand the position the plaintiffs first indicated to the defendants that they might amend their pleadings to include a cause of action for breach of fiduciary duty on 19 August 2007. Subsequently this Court set two dates for filing that amended claim before the setting down date was reached, but both were missed. The plaintiff took no action to do so until 18 February 2008 only two months before trial. Further, apart from a period when counsel for the plaintiff was ill, there has been no adequate explanation for this delay, a fact that the plaintiffs freely acknowledge. These delays and the failure on the part of the plaintiffs to comply with Court directions to file their amended claim, must count against them here. [26] I turn now to consider briefly the merits of the proposed additional cause of action. Before me counsel for the defendant contended that this additional cause of action in breach of fiduciary duty was not adequately particularised and the exact nature of the claim against the defendant was quite unclear. [27] On this, counsel referred to the decision in Gibson v Minter Ellison (2007) NZCA 595 in support of a contention that if the defendants had not adequately performed their duties with regard to the claim against PWC then this was a claim for breach of contract or negligence and not for breach of fiduciary duty. In response, Mr Smith for the plaintiff contended that the Gibson v Minter Ellison case differed considerably from the present situation in particular in that the solicitors,Minter Ellison, in the Gibson case had also specifically acted for and had a previous solicitor/client relationship with the accountants involved there, Arthur Anderson. [28] The plaintiffs' contention is that the proposed amendment, although late, is necessary here to do justice between the plaintiffs and the defendants. They note that clearly it is desirable to have the two causes of action heard together rather than duplicating hearings and resources, especially as they each relate to matterssurrounding the "Space Table Scheme" and no additional parties to this proceeding are required. [29] Finally, Mr Smith for the plaintiffs acknowledged that if leave to amend the pleading is granted, then the 21 April 2008 trial date would need to be postponed and that this will allow the defendants time to pursue any interlocutory application for further particulars and any potential strike out application which counsel has signalled. [30] Weighing up all these matters on balance I am satisfied here that in considering the overall interests of justice between the parties in this case, and notwithstanding the considerable delay on the part of the plaintiff in filing the amended claim (which may well sound in costs ultimately), leave should be granted to the plaintiffs to file their amended statement of claim. It is expedient to have the two causes of action heard together and as I see it, little, if any prejudice (which cannot be the subject of appropriate costs orders and given also that there can be little surprise at the amendment suggested) is likely to the defendants. [31] An order is now made granting leave to the plaintiffs to file their amended statement of claim. This statement of claim is to be filed and served within 5 working days of the date of this judgment. The defendants are to file and serve their statement of defence to this amended statement of claim within a further 15 working days of that date. [32] A further direction is made that the 5 day trial of this matter scheduled for 21 April 2008 is vacated. The Registrar is to liase with counsel for both parties to set a new 5 day trial for this proceeding. [33] Costs on these matters are reserved. As a next event the Registrar is directed to list this matter for call in the Chambers List on 14 April 2008.'Associate Judge D.I. Gendall'