NZ Supreme Court delivers judgment in solicitor negligence case

The NZ Supreme Court has delivered its judgment in Tauranga Law v Appleton [2015] NZSC 3.

This was a case of solicitor negligence in the context of the Bluechip investor scheme. It was accepted that a duty existed and that the duty was breached. The contentious issue was whether the breach of duty caused the loss in question. Lawyers and professional indemnity insurers are always interested in causation because in the eyes of the common law you can be as negligent as you like so long as you do not cause any loss or damage for which a remedy is available.

The High Court and the Court of Appeal determined that Tauranga Law breached duties of care owed to Mr Appleton/ his trust in relation to the purchase of an off-plans residential investment property from a company in the Blue Chip group. When the Blue Chip group collapsed, the deposit of approximately $90,000 paid to Blue Chip was lost.

The High Court found that the negligence was not causative of loss of the deposit because Mr Appleton would have proceeded with the transaction even if he had received appropriate advice.  Mr Appleton was content to proceed and for the deposit to be paid notwithstanding the advice he had received from Tauranga Law.  While the Judge held the advice given to be inadequate and in breach of duty, he considered that, despite its inadequacies, it “would have given most investors reason to pause”.

The Court of Appeal overturned the High Court’s determination of the causation issue. The Court of Appeal considered that the errors in the advice were more serious than they had been treated in the High Court.  Reevaluating the evidence bearing on causation in that light, the Court considered that the High Court had been wrong to dismiss Mr Appleton’s evidence that, had he understood that his deposit was not secured in a trust account, he would have done his best to extricate himself from the agreement. The evidence suggested he could have obtained release from the agreement without payment of the deposit or penalty either through exercising a statutory right to withdraw available for two weeks after the agreement was entered into or by refusing to pay the deposit, a course of action Blue Chip was likely to have accepted. In the Court of Appeal, therefore, judgment was entered for Appleton against Tauranga Law.

The Supreme Court disagreed with the Court of Appeal’s approach. The Supreme Court was of the view that the terms of the letter of 31 May (containing the advice in question), the context provided by the agreement and dealings between Mr Appleton and the broker, and the absence of reaction by Mr Appleton (either to the letter or to the advice that the deposit had been paid to Blue Chip) all supported the conclusion reached by the High Court that the legal advice he received was immaterial to Mr Appleton because of his confidence in the investment.

The Supreme Court noted that the letter of 31 May clearly advised that the deposit under the contract entered into was to be paid “immediately”. Mr Appleton was advised in bold type and large font that if the vendor failed or the developer did not complete, he would “be a concurrent creditor and may then lose the entire deposit”.  This conveyed the information that the money was being advanced for the use of the vendor and that, in the event of liquidation, Mr Appleton would simply be a creditor who could lose the deposit.  This was not information that could reasonably have been reconciled with the deposit being held in a solicitor’s trust account as Mr Appleton had said he believed.

Regarding causation, the High Court considered “the heart of the matter” was reached with Mr Appleton’s evidence that he did not take much notice of the letter from Tauranga Law because he “felt confident with what I had”.  The Supreme Court agreed.  It agreed with the assessment of the High Court that the breach of duty was not causative of the loss suffered by Mr Appleton and his family trust. It therefore set aside the decision of the Court of Appeal.

Litigants who have already settled similar Blue Chip claims must be scratching their heads wondering about whether any settlement was at the correct level. However, Appleton is probably best thought of as a case on its own facts because of the Mr Appleton’s evidence that he did not take much notice of the letter of advice from the solicitors. The compass of the case was focussed on causation, and moreover very specific evidence about causation. Other cases are unlikely to have fallen into this category.

Steve Keall
Park Chambers
7 March 2015



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