FISKEN V FIRTH HC DUN CIV-2012-412-222

FISKEN V FIRTH HC DUN CIV-2012-412-222 [26 July 2012]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2012-412-222[2012] NZHC 1838BETWEEN NEVILLE GRAHAM FISKENAppellantAND MARY FIRTHRespondentHearing: 18 July 2012Appearances: D A Wood for the AppellantA C Beck for the RespondentJudgment: 26 July 2012RESERVED JUDGMENT OF PRIESTLEY JThis judgment was delivered by me on 26 July 2012 at 11.00 ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate:.Counsel:D A Wood, Barrister, Timaru. Email: davidwood@xtra.co.nzA C Beck, Barrister, Wellington. Email: Andrew.beck@xtra.co.nzIntroduction[1] The late Mr J A Firth was a solicitor who practised in Timaru. Mr Firth died in June 2011 before the District Court proceeding involving him and the appellant came to trial. The respondent is thus the administratrix of his estate.[2] The appellant was Mr Firth's client in 1998/1999. Mr Fisken signed anagreement for sale and purchase to buy a farm and stock. He had insufficient funds to pay the entire deposit. Nor did he have any guaranteed source or offer of mortgage finance. Despite this, Mr Fisken instructed Mr Firth to declare the contract unconditional. From then on things went downhill for both men.[3] The agreement for the purchase of the farm was cancelled. Ill health bedevilled Mr Fisken throughout 1999 which led to him being admitted on occasions to Timaru Hospital. An investment residential property which had been mortgaged for $20,000 to assist him with payment of the deposit for the farm purchase and fees (Mr Firth arranged the mortgage and eventually achieved registration after a number of unsatisfactory delays), was sold by mortgagee sale in April 2002. Mr Firth, for his part, faced disciplinary proceedings brought by the Canterbury District Law Society over an unrelated matter which resulted in him being struck off in 2002. The Society subsequently bankrupted him.[4] There matters might have rested but for Mr Fisken encouraging interest in his plight by a Canterbury community newspaper, The Courier.1 Under a headline "Still Fighting Eight Years On" The Courier on its front page in a late July 2006 editionran a story (and subsequent stories in later editions) on Mr Fisken's situation. MrFirth launched defamation proceedings. Mr Fisken pleaded justification andcounterclaimed alleging fraud on Mr Firth's part and seeking damages.[5] During various case management conferences in the District Court it was agreed the central focus should be on the allegations contained in Mr Fisken'scounterclaim, which could well be determinative of the defamation proceedings. Mr1 The Courier is published by Allied Press Limited which was for a time a party in the District Court proceedings but is not involved in this appeal.Firth's death in June 2011 in any event brought the defamation proceedings to an end, defamation being a cause of action which cannot inure for the benefit of a plaintiff's estate.[6] There was a one day hearing in the Dunedin District Court before Judge Crosbie in December 2011. The Judge dismissed the counterclaim. This appeal challenges that outcome.District Court judgment[7] But for one issue, there is essentially little challenge by Mr Wood to theJudge's findings and analysis. The counterclaim pleaded three causes of action. Thecause of action alleging negligence against Mr Firth and a further cause of action claiming a breach of the Consumer Guarantees Act 1993 were abandoned. The surviving cause of action was unsatisfactorily pleaded. Fraudulent and dishonestconduct on the part of Mr Firth was alleged. Alternatively "civil dishonesty" waspleaded, which is not a known tort and was based on a misconception of the meaning of those words as they were used in the Commissioner of Inland Revenue v Bhanabhai.2[8] Mr Firth pleaded in his defence the Limitation Act 1950 and in particular s 28 which provides:28 Postponement of limitation period in case of fraud or mistakeWhere, in the case of any action for which a period of limitation is prescribed by this Act, either—(a) The action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or(b) The right of action is concealed by the fraud of any such person as aforesaid; or2 Commissioner of Inland Revenue v Bhanabhai [2006] 1 NZLR 797 (HC). This was a case involving a solicitor who breached an undertaking. The word "dishonesty" bore on a term in a professionalindemnity policy.(c) The action is for relief from the consequences of a mistake,—the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:...[9] Section 4 bars proceedings founded on a tort after the expiration of six yearsfrom the date on which the cause of action accrued. Mr Fisken's counterclaim wasfiled on 18 July 2007. Thus, unless Mr Fisken was able to establish the fraud alleged against Mr Firth was only discovered by him, or could only have been discovered with reasonable diligence after 18 July 2001, the cause of action would have been barred by the statute. The focus of the counterclaim was Mr Firth's actions in1998/1999.[10] Because Mr Firth's statement of defence to the counterclaim raised theLimitation Act defence, (which prima facie on the pleaded dates was clearlyoperative), one might have expected Mr Fisken's reply to set out the matters on which, for s 28 purposes, he intended to rely, and in particular how and when he"discovered" the fraud of Mr Firth which was central to his cause of action. Therewas no such pleading. Nor initially before Judge Crosbie were there any submissions on s 28. Having heard the evidence the Judge directed further submissions should be filed on the point.[11] The Judge found the following critical facts from the evidence he heard which have not been challenged by this appeal and indeed are beyond dispute:Mr Fisken entered into the agreement to purchase the farm property on 24 August 1998, such agreement being conditional upon him obtaining suitable finance and making the agreement unconditional by 28 August.The agreement was declared unconditional by Mr Firth, on Mr Fisken'sinstructions, without the necessary finance being obtained.Despite Mr Fisken's allegation and evidence that Mr Firth persuaded him todeclare the agreement unconditional by his assurance that he would arrangefinance, Mr Fisken had signed a document dated 28 August 1998 which recorded his instructions to Mr Firth, and in particular noted that he was electing to confirm the agreement unconditional on his own judgment.No finance was obtained, with the result the agreement was eventually cancelled by the vendor and Mr Fisken forfeited the deposit.Money lent to Mr Fisken by a trust in respect of which Mr Firth and a Dunedin solicitor were trustees (the $20,000 referred to at [3]), was subsequently secured by a mortgage to the two trustees.Rather than Mr Fisken being the mortgagor, a property he owned at Timaru was transferred to a shell company, Fisken Land Developments Limited (FLDL), which became the mortgagor. The mortgage in question had been signed by Mr Fisken in blank. The mortgage was not registered for many months, a lapse which excited the attention of the Canterbury District Law Society auditor.Nor, it would seem, were prompt steps taken to ensure that Mr Fisken and his partner appeared as shareholders and directors of FLDL. There was also evidence (although the Judge did not make any findings in that regard) that Mr Firth somehow found himself in the situation where FLDL was being utilised by another of his clients.Between 1999 and 2006 two District Court proceedings were filed by Mr Fisken; various law firms were instructed by him; a complaint was made to the Canterbury District Law Society (February 2000) which apparently did not result in any disciplinary action; two complaints were made to the New Zealand Police; a document examiner was engaged to investigate whether MrFisken's signature had been forged on a document, no forgery being found;and an unsuccessful claim was lodged with the Solicitors' Fidelity Guarantee Fund.[12] The Judge correctly summarised Mr Fisken's claim in the District Court asfollows:[14] Mr Fisken's case can be summarised from Mr Wood's submissionsas follows:(a) False undertakings to Mr Fisken that finance was not a problem, both at the outset and continuing into subsequent delayed settlement dates.(b) False undertakings to the vendor's solicitor that finance hadbeen arranged, when nothing remotely resembling assistance had been arranged.(c) Repeated misrepresentations made to financial institutions from whom bridging finance was sought that permanent finance had been arranged, when clearly it had not.(d) Representing falsely that settlement was about to be effected without any of the normal preconditions of settlement being attempted, such as a failure to advise the vendor FLDL, being the intended purchaser, and failure to advise the vendor of GST arrangements.(e) The false use of documents (transfers and mortgages) for the wrong purposes and certifying those as correct to the Land Transfer Office.(f) Making false representations that FLDL would be disposed of, but subsequently using it again to register a transfer and mortgage without authority.(g) Advancing money from the Rebecca Woods Trust without security being given and advancing it without authority to Mr Fisken and then re-advancing it without any authority aspart of Mr Fisken's deposit on the purchase.[13] The Judge recorded Mr Beck's submission, with reference to Mr Fisken'scounterclaim, that there was no tort of fraud or civil dishonesty and that the ingredients of the tort of deceit were not met.[14] The Judge then reviewed ss 4 and 28 of the Limitation Act. He noted MrBeck's submission that there was no evidence, and certainly none tested in cross- examination, on which Mr Fisken could properly advance an argument that the alleged fraud was not reasonably discoverable inside the six year Limitation Actperiod but at some subsequent date. No attempt was made by Mr Fisken's counselto amend the District Court pleadings in that regard.[15] The Judge concluded as follows:[32] The counter-claim was brought on 18 July 2007. It follows from the chronology above, and from the evidence to the Court, that the defendant alleged dishonesty significantly and well before 18 July 2001. The causes of action pleaded therefore accrued more than six years prior to the filing of the claim and are therefore barred by s 4 of the Act.[33] The defendant was legally represented by solicitors other than Mr Firth from at least 1999. There was no evidence from the defendant that he did not discover, and could not reasonably have discovered, the alleged fraud until July 2001. Indeed, as noted above, the evidence is to the contrary, i.e., allegations of dishonesty and fraud were made well prior to 18 July 2001.Result[34] The facts prevent the ability to rely on the provisions of s 28 of the Act. Accordingly, the counter-claim is dismissed.[16] Under the heading "Additional comments" the Judge observed there was noevidence before him which would justify a finding on the balance of probabilities that Mr Firth was engaged in fraudulent conduct towards Mr Fisken or had made amisrepresentation which had caused loss. He considered Mr Firth's conduct couldbe described as negligent but that, on the evidence of the two expert witnesses (both solicitors) he had heard, he could not safely make such a finding. In short the Judge considered that the counterclaim and the evidence led in support of it were misconceived.Discussion[17] Prior to the appeal hearing Mr Wood made attempts to neutralise the fatal obstacles the Judge considered faced the counterclaim. Mr Fisken swore and filed an affidavit designed to set out a chronology of the steps he had taken to obtain redress at various stages. During the course of argument, however, Mr Wood withdrew that affidavit. Mr Fisken also sought leave to file a third amended statement of defence and counterclaim. Mr Beck opposed leave being granted.[18] The leave application raised as a possible issue, whether amended pleadings could be filed in proceedings in a Court which was functus officio, the lower court'sjudgment being subject to an appeal. The relevant rule covering amended pleadings is Rule 7.77(1) of the High Court Rules which provides:7.77 Filing of amended pleading(1) A party may before trial file an amended pleading and serve a copy of it on the other party or parties.As a matter of interpretation, it is an interesting issue whether the words "before trial" can cover amended pleadings in a completed lower court proceeding for the purposes of an appeal. The "trial" is by then completed. Counsel were unable toassist on that point.[19] Rather than decide the point unnecessarily and without benefit of submissions, I instead decline leave to the appellant to file the document. The only material change to the pleadings is an additional paragraph which contests the affirmative Limitation Act defence pleaded by Mr Firth on the following grounds:[a] The proceedings commenced as a counterclaim to a defamation case.[b] By suing Mr Fisken for defamation Mr Firth had "waived allprotection privileges and rights conferred on him by the LimitationAct... arising out of alleged fraudulent activities...."[c] Both counsel and a District Court Judge at a management conference in April 2008 had decided that the hearing on the counterclaim should precede a hearing of the defamation claim.[20] It is abundantly clear from the wording of s 28 and on the authorities (which I do not need to cite) that the limitation period can only be postponed until the time a plaintiff discovers fraud or, with reasonable diligence, could have discovered it. The amended counterclaim contains no factual allegations on which to found a claim thatMr Fisken did not discover Mr Firth's alleged fraud until after July 2001, or that thefraud had in some way been concealed until after that date. The factual allegations on which Mr Fisken mounted his counterclaim remain unchanged. For these reasons, therefore, I decline leave.[21] I turn now to Mr Wood's submissions. He did not resile from the centralthrust of the counterclaim that between August 1998 (the date of the agreement for the purchase of the farm) and January 1999 (when the agreement was cancelled), andsubsequently up to May 2000 when the transfer of Mr Fisken's Timaru property andthe mortgage over it were registered, Mr Firth had acted in a fraudulent manner. There could be no prejudice to Mr Firth so far as the counterclaim was concernedsince, by alleging that Mr Fisken's comments in The Courier that he had been fraudulent in his capacity as a solicitor were defamatory, Mr Firth must have contemplated the whole issue would be ventilated.[22] In any event, Mr Fisken did not "truly discover" the correct elements of frauduntil 2007 when he instructed Mr Wood, who was able to analyse the evidence and documents surrounding the agreement. No issue of fraud or deceit had been raisedduring the six years from the agreement's cancellation. They were not uncovered ordiscovered until Mr Wood gathered together all the evidence in preparation to defendMr Firth's defamation claim.[23] Mr Wood endeavoured to draw an analogy with the well-known authority ofHamlin.3 In that case property owners, despite unsatisfactory aspects of their residences, were unaware of an actual structural defect for many years. So too with Mr Fisken, who did not really understand what had gone wrong with this transaction until Mr Wood analysed it for him in 2007, or arguably when the Timaru property was lost through a mortgagee sale.[24] Turning to the tort of deceit, Mr Wood submitted that Mr Firth could never have held an honest belief that the agreement for sale and purchase would proceed. He falsely represented to Mr Fisken that mortgage finance would be obtained. Essentially he lulled Mr Fisken into a sense of false security.[25] Startlingly, Mr Wood submitted that by declaring the agreement for sale andpurchase unconditional, which Mr Firth did by letter to the vendor's solicitor on 28 August 1998, Mr Firth was in effect undertaking to the vendor's solicitors that thenow unconditional transaction would settle. When pushed by the Bench on the3 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC).soundness of this submission, Mr Wood went on to submit that when the money was not found, because Mr Firth had given an undertaking, he would have been obliged himself to settle. This submission was based on the obligations which attach to solicitors who make undertakings, exemplified in part by Bhanabhai.4[26] This submission is untenable. In the routine letter declaring the agreementunconditional (for which Mr Firth had Mr Fisken's written instructions) the word"undertake" is not used. There is absolutely no basis to submit that Mr Firth orindeed any solicitor in his situation, has personally undertaken that an agreement declared unconditional will in fact proceed to settlement.[27] Counsel's written submissions attempted to avoid the problem of Mr Fisken signing the document of instruction to Mr Firth to declare the agreement unconditional to which I have referred.5 Counsel submitted that this document hadnot been "properly disclosed" to Mr Fisken. Referring to the lack of any written guarantee or undertaking from Mr Firth that mortgage finance would be arranged,Mr Wood submitted that it was only a "small step" to find that Mr Firth had givensuch a promise, because he had written to two financial institutions on 26 November 1998 that finance had been arranged, but bridging finance was still required.[28] I accept that Mr Firth made a misrepresentation to the financial institutions from whom he was seeking bridging finance when he asserted mortgage finance had been arranged. Mr Firth had received a verbal assurance from a Christchurch broker that there would be no problem in arranging mortgage finance and that the necessary documentation was being sent out. But there was nothing in writing which would justify Mr Firth in asserting that mortgage finance had been arranged. The mortgage broker proved to be a man of straw.[29] Despite Mr Firth's misrepresentation, there is absolutely no basis on which any court could find that Mr Fisken's written instructions to declare the agreement unconditional, when not only had he secured no mortgage finance, but also he was4 Above n 2.5 Supra at [2] and [11].unable from his own resources to meet the entire deposit, were the product of fraud or gave rise to deceit.[30] Counsel finally submitted that Mr Firth had been dishonest and reckless. He had not acted as a prudent solicitor should have acted, and therefore Mr Fisken should have a remedy, particularly since he did not personally understand the fullextent of Mr Firth's delinquency for many years.Conclusion[31] The obstacles Mr Fisken faces in this appeal are identical to the obstacles he failed to surmount before Judge Crosbie. First, he must frame a coherent cause of action. I accept there were aspects of Mr Firth's conveyancing conduct between1998 and 2000 which were questionable. Arranging to advance trust funds to a client to make good a short fall in a required deposit, even though the sum was secured and the transaction had the approval of a co-trustee, inevitably runs the risk of a conflict of interest. To arrange for a client to sign security documents, part of which are blank, is not sound practice, even though from time to time there arepragmatic reasons so to do and the risk may be low. More serious was Mr Firth'sfailure to register a mortgage document in a timely fashion, to give required notices under the then operative Credit Contracts Act 1981, and to ensure that the vehicle for the mortgage transaction, FLDL, were properly constituted.[32] But those failures of Mr Firth, if that is what they were, fall far short of establishing the tort of deceit. The ingredients of deceit were well settled long before the Court of Appeal revisited them in Amaltal Corporation Ltd v Maruha Corporation.6 As stated by the Court of Appeal in that case:[46] The tort of deceit is summarised in Clerk & Lindsell on Torts(18th ed, 2000), para [15-01] in these terms:"The tort involves a false representation made by the defendant, who knows it to beuntrue, or who has no belief in its truth, or who is reckless as to its truth. If the defendant intended that the claimant should act in reliance on such a representation and the claimant in fact does so, the defendant will be liable in deceit for thedamage caused."6 Amaltal Corporation Ltd v Maruha Corporation [2007] 1 NZLR 608 (CA).[47] The misrepresentation which is relied on to found an action of deceit must be a representation as to a past or existing fact. It may be either express or implied from conduct. In most instances, non-disclosure of thetruth does not ground the tort; "mere silence, however morally wrong, willnot support an action for deceit" (Bradford Third Equitable Benefit Society v Borders [1941] 2 All ER 205 at p 211 per Viscount Maugham). Exceptions to this most often arise where the failure to speak may distort the truth of previous statements (see generally, Todd (ed), The Law of Torts in New Zealand (4th ed, 2005), p 630), or where there is active concealment (Schneider v Heath (1813) 170 ER 1462), or where a true representation is rendered false by a subsequent and known change of circumstances (Brownlie v Campbell (1880) 5 App Cas 925 at p 950 per Lord Blackburn).[48] As to the state of the defendant's mind, the leading authority is stillDerry v Peek (1889) 14 App Cas 337 at p 374 per Lord Herschell:"First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false . . . To prevent a false statementbeing fraudulent, there must, I think, always be an honest belief in its truth."[49] It follows that a statement honestly believed to be true – even if implausible – is not capable of amounting to fraud. But if the defendant knows the statement to be untrue that defendant will be responsible,irrespective of his or her motives. "If fraud be established it is immaterialthat there was no intention to cheat or injure the person to whom the falsestatement was made" (Bradford v Borders at p 211 per Viscount Maugham; and see generally Carty, An Analysis of the Economic Torts (2000), ch 6).[50] The critical features of the tort are therefore that the representor must have lacked an honest belief in the truth of his statement;"carelessness" is not to be equated with "dishonesty"; and even recklessnessin the sense of gross negligence will not suffice, unless there is a conscious indifference to the truth.[33] There is no evidence here of any misrepresentation by Mr Firth to Mr Fisken of a past or existing fact without belief in the truth, or recklessly as to whether or not the misrepresentation was true.[34] Judge Crosbie had before him conflicting evidence in some areas from the brief of the deceased Mr Firth and from Mr Fisken. There was no basis, on the evidence, to find that Mr Firth ever misrepresented to Mr Fisken that he would arrange the required mortgage finance, or that the unconditional transaction would settle. In the absence of any such representation, the other elements of the tort, being a misrepresentation without belief in its truth, or a misrepresentation made recklessly as to whether it is true or false, simply fall away.[35] It is possible that, had it been framed with care, Mr Fisken might have been able to sustain a claim of negligence against Mr Firth, particularly in relation to the mortgage transaction. But the obstacle still remains that any civil claim which Mr Fisken might have wanted to bring against Mr Firth, in either contract (arising out of the solicitor/client relationship) or in tort, would have to be brought inside the six year limitation period. By July 2001 the solicitor/client relationship had not been operative for some time, the agreement to purchase the farm had been cancelled, and the relevant mortgage had been executed. All the information which Mr Fisken and his advisers (and there were many before Mr Wood), needed, was available. None of it had been hidden. There was nothing more to come to light.[36] The situation in which Mr Fisken and his advisers found themselves is totally different from the situation confronting the claimant in Maruha Corporation v Amaltal Corporation Ltd7 where critical information relating to its taxation position had never been disclosed. At both High Court and Court of Appeal level this failure to disclose or concealment was captured by the provision in s 28 of the Limitation Act that the limitation period would not begin to run until the fraud had been discovered. Similar considerations applied to Maruha's discovery of Amaltal'sbreach of fiduciary relationship which both the High Court and the Supreme Court were satisfied had been established.[37] Again the law relating to "reasonable diligence" for s 28 purposes was tolerably clear. The concept involves a party not being able to discover fraud without taking measures which the party could not reasonably have been expected to take. What reasonable diligence must discover are all the facts which constitute a cause of action.8[38] There is no proper or evidential basis for s 28 purposes to hold the limitation period did not begin to run until some time after July 2001. The fact that Mr Wood's2007 analysis was the first opportunity to construct a claim on fraud or deceit is,7 Maruha Corporation v Amaltal Corporation Ltd HC Auckland CIV-2003-404-001773, 19 October2004 Priestley J.8 UCB Home Loans Corp v Carr [2000] Lloyd's Rep PN 754; Official Assignee of Collier vCreighton [1993] 2 NZLR 534 (CA); Amaltal Corporation Ltd v Maruha Corporation at [151] –[161].with respect, a faulty argument. The "analysis" could only have been of documentsand other evidence (including file notes and Mr Fisken's written instructions) whichhad been in existence and available since 1999. In any event, in my judgment the"analysis" is flawed. Mr Fisken's written instructions to Mr Firth to declare the agreement unconditional went a long way towards protecting Mr Firth from any civil liability.[39] Nor is there any evidence, other than from Mr Fisken, that Mr Firth assured him mortgage finance would be found. Even if such an assurance had been given and Mr Firth were in breach, this would give rise to a cause of action inside the relevant limitation period to mitigate loss which, on the basis of Mr Firth's brief of evidence, Mr Fisken conspicuously failed to do.[40] Although Mr Fisken's plight 10 years ago merits sympathy, and although arguably he was not well served by the late Mr Firth, his counterclaim in the District Court and his position on this appeal are essentially hopeless. The policy behind s 4 of the Limitation Act is very clear. Postponement of the six year period under s 28 cannot extend to the facts of this case.Result[41] For the reasons I have stated I am satisfied that Judge Crosbie's 2 March2012 judgment in the Dunedin District Court was correct.[42] The appeal is dismissed.Costs[43] Counsel submitted that costs should be reserved. I doubt whether this Court needs to become involved in the issue of costs. The hearing occupied half a day.Whata J's minute of 26 April 2012 records that the parties are agreed the appropriate costs category is 2B.[44] Without ordering it, I see no reason why the respondent is not entitled to 2B costs. If counsel are unable to agree on costs the matter should be dealt with by me in chambers on the basis of written submissions. Should such submissions be necessary, the respondent must file hers within 20 working days and the appellant 10 working days thereafter. Submissions are not to exceed three A4 pages in standard font size........................................Priestley J