Home | Databases | WorldLII | Search | Feedback High Court of New Zealand

BCH Investments Limited v Nguy [2021] NZHC 2932 (1 November 2021)

Last Updated: 7 December 2021

JUDGMENT OF VENNING J

This judgment was delivered by me on 1 November 2021 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors: Glaister Ennor, Auckland Copy to: Defendant

BCH INVESTMENTS LIMITED v NGUY [2021] NZHC 2932 [1 November 2021]

Introduction

• [1] Jesse Nguy was formerly a solicitor in practice under the name of Jesse and Associates.

• [2] Mr Nguy’s firm acted for the plaintiff company in relation to a number of matters, including its incorporation and its subsequent purchase of a property at 79– 95 Gills Road, Albany, Auckland (Gills Road).

• [3] The director and principal shareholder of BCH Investments Limited (BCH) was a Ms Huang. Ms Huang is a Chinese citizen and was not a resident of New Zealand at the time BCH acquired Gills Road. Overseas Investment Office (OIO) consent to the purchase was required as BCH was an overseas person and Gills Road was sensitive land in terms of the Overseas Investment Act 2005 (OIA).¹

• [4] Mr Nguy did not advise Ms Huang or BCH of the need for OIO consent.

• [5] BCH sought but was unsuccessful in obtaining retrospective consent. The Chief Executive, Land Information New Zealand (LINZ), took civil proceedings against it for breach of the OIA. Ultimately BCH was ordered to pay a penalty of

$300,000 together with the costs of an account taker and legal costs. It was also required to sell the land.

• [6] BCH alleges Mr Nguy breached the obligation he owed BCH as a competent solicitor under a contract of retainer and was negligent. BCH seeks to recover the legal costs incurred in attempting to obtain retrospective OIA approval together with its own legal costs associated with the civil penalty proceeding. It also seeks to recover the civil penalty, the account taker’s costs, and the legal costs awarded against it in the civil penalty proceeding.

• [7] Mr Nguy opposes the claim. He had also issued a third-party claim against Wenbing (also known as Wilson) Zhu but took no steps to advance that claim.

¹ Overseas Investment Act 2005, ss 7, 12, Part 1, Sch 1.

Procedural matters

• [8] On a number of occasions prior to the hearing Mr Nguy sought to adjourn the fixture. This Court delivered two decisions in which it declined Mr Nguy’s formal applications for adjournment.² No application for leave to appeal either of them was made.

• [9] On the morning of the hearing, the Court was presented with a letter from a psychiatrist who has been treating Mr Nguy for a number of months.

• [10] Mr Nguy also repeated a point he had made in support of the earlier applications for adjournment. He said he did not have his files, which had been retained by his former solicitors. He said his position remained the same as it was in the previous applications, namely he was not in a position to proceed but said if he was forced to do so, he would do his best.

• [11] The psychiatrist’s letter provided detail of Mr Nguy’s medical condition. The letter concluded with a request that his “current impaired mental state” be considered with regard to the case scheduled to start on 18 October 2021. While the letter provided further detail of Mr Nguy’s medical condition, Mr Nguy had referred to his medical condition as a reason for the adjournments he had sought in the past. The conclusion to the letter was ambiguous. The psychiatrist did not provide an affidavit and was not available for questioning.

• [12] While Mr Nguy also complained that he did not have his file, the relevant documents from his file had been discovered during the proceedings and were contained in the bundles of documents prepared for the hearing which Mr Nguy had received and had access to.

• [13] Mr Nguy next noted the pleadings were not in the bundle. Mr Kim, Mr Vautier’s junior, forwarded copies of the pleadings to Mr Nguy by email.

² BCH Investments Ltd v Nguy [2021] NZHC 2360; and BCH Investments Ltd v Nguy [2021] NZHC 2730.

• [14] The Court noted Mr Nguy’s position but directed the hearing proceed. Both the substantive issues Mr Nguy raised had been raised as reasons to support the earlier adjournment applications which had been determined against Mr Nguy.

• [15] Mr Vautier then briefly opened the case for the plaintiff. Ms Huang and her son Junwai (Thomas) Tang were called and gave their evidence with the assistance of an interpreter. Ms Pidgeon was then called as an expert witness. Mr Nguy was able to cross-examine the witnesses.

• [16] The Court adjourned at approximately 3.30 pm on the first day to allow Mr Nguy time to prepare any evidence that he might want to give to support his defence. Mr Vautier noted that Mr Nguy had not exchanged a brief as directed by earlier timetable orders. Shortly before Court resumed at 10.00 am the next morning Mr Nguy provided a brief of evidence.

• [17] At the completion of Mr Nguy’s evidence at approximately 10.20 am the Court adjourned to 2.15 pm to give Mr Nguy time to prepare his closing argument. Mr Nguy addressed the Court principally by reference to the pleadings which had been prepared by his former solicitors.

• [18] I record that Mr Nguy did not appear to have any difficulty in representing himself, certainly no more so than any other litigant representing him or herself. He obviously had personal knowledge of the issues. He conducted himself appropriately throughout.

The issues

• [19] Mr Nguy had been represented by solicitors and counsel until leave was granted to them to withdraw on 2 August 2021. The admissions in the amended defence to the second amended claim identified the matters in issue for the Court. The matters in issue are relatively confined.

• [20] The principal issues in this case are:

(a) the scope of Mr Nguy’s retainer;
(b) the duty of a competent solicitor in the circumstances;

(c) whether the damages sought are recoverable.

The background

• [21] The pleadings and evidence establish that Ms Huang was introduced to Mr Nguy by a real estate agent from Barfoot and Thompson, Allie Chen, in or about February 2013. Ms Huang as the intended director of a proposed company requested Mr Nguy act as her solicitor for the purpose of incorporating the company and to act as solicitor for the company in respect of matters relating to its involvement in the proposed development of the Gills Road property. Initially at least the Gills Road project also involved Ms Huang’s then husband, Mr Tang and Mr Bingyan Zhou and Ms Feng. Mr Nguy understood that Mr Zhou and Ms Feng were a couple like Mr Tang and Ms Huang. The original shareholders of BCH were to be Ms Huang as to 34 per cent and Mr Zhou and Ms Feng as to 33 per cent each. Ms Huang was to be the director.

• [22] On 26 February 2013 Mr Nguy sent a letter of engagement to Ms Huang, which confirmed he was to act in:

... all matters in relation to the registration of BCH Investments Limited and all incidental matters in respect of the development at 79–95 Gills Road, Albany.

• [23] The letter of engagement specified the following:

• 5.1 The Defendant had a professional commitment to act in his clients’ best interests at all times, in order to carry out the instructions given by his client;

• 5.2 The Defendant would provide the best legal advice within his ability, on the basis of the information he received from his client;

• 5.3 The Defendant would deal honestly with his client at all times;

• 5.4 The Defendant owed a duty of care to his client;

• 5.5 In providing legal services, the Defendant would:

(a) Act competently, in a timely way, and in accordance with instructions received from and arrangements made with his client;
(b) Protect and promote his client's interests and act for it free from any compromising influences or loyalties;

(c) Provide clear information and advice;

(d) Keep his client informed about the work being done and advise it when it was completed;

• [24] BCH was incorporated on 19 March 2013. By his pleading Mr Nguy accepted that, following its incorporation, BCH ratified the engagement of Mr Nguy as its solicitor. Mr Nguy accepted that either a contract of retainer was formed on the same terms as in the letter of engagement, or alternatively, that he and BCH had entered a new contract of retainer on the same terms so that he had a duty to act as a competent legal adviser in respect of all matters within the scope of the contract of retainer.

• [25] Before Ms Huang instructed Mr Nguy, M H Gill Limited (MHG) as vendor and G E P Limited (GEP) had, on 5 February 2013, entered an agreement for sale and purchase (ASP) of Gills Road. The purchase price was $9,250,000. The purchaser was GEP and/or nominee. Settlement was scheduled for 29 March 2013. The agreement recorded OIO consent was not required. No doubt the reason for that was that GEP was not an overseas person.

• [26] BCH was incorporated to be the vehicle Ms Huang and the others were to use to develop Gills Road. A heads of agreement dated 18 February 2013 between GEP and BCH recorded the key points of a proposed joint venture using a limited partnership structure. The objective was for the general partner to purchase Gill Road and complete a residential development on it. GEP and BCH were each to hold 50 per cent of the shares in the general partner and to have the right to appoint one director. Paul Bublitz and Chris Cooke represented GEP in relation to the heads of agreement. Mr Nguy had knowledge of the heads of agreement and witnessed Ms Huang’s signature to it as BCH’s director.

• [27] Mr Nguy said that he understood Mr Tang and Ms Huang did not trust Mr Bublitz or Mr Cooke, so they appointed Wilson Zhu to assist them with the development project. Wilson Zhu gave Mr Nguy a business card which stated he was the general manager of Greenland Investments Limited. That company was involved in the development of land at Flat Bush. Mr Nguy understood that Ms Huang’s family

also had some interest in the Flat Bush project. Mr Nguy said Mr Zhu told him he knew everything about property development in New Zealand.

• [28] Mr Nguy dealt with Mr Bublitz and Mr Zhu as well as Ms Huang. Ms Huang’s son Thomas was also involved as he could speak and read English whereas Ms Huang could not.

• [29] In a letter to Mr Zhu of 13 March 2013 Mr Nguy noted that Mr Bublitz had raised the issue of overseas ownership of BCH:

3. In another matter, Paul Bublitz of GEP Ltd has advised us during his last meeting at our office that in order for a company to be fully recognized as a New Zealand company, the requirement is that at least 75% of the shareholders are New Zealand [residence].

4. As per our understanding, 50% of shareholders of 79 Gills Rd Ltd will be BCH Investments Ltd. Unfortunately, because all the shareholders of BCH Investments Ltd are not New Zealand resident it means that 79 Gills Rd Ltd will be treated as an overseas company.

This is not acceptable by GEP Ltd and required attention.

Accordingly, would you please advise us how you wish to proceed with the matters.

• [30] Although Mr Nguy intended to send a copy to Thomas Tang for Ms Huang, it was sent to the wrong email address. Thomas did not receive it. So, Ms Huang was not aware of that email.

• [31] On 14 March 2013, Mr Bublitz recorded his advice to Mr Nguy about the potential issues arising from overseas ownership of Gills Road and the possible application of the OIA. Mr Bublitz sent a memorandum to Mr Nguy which included the following:

With respect to the new company, namely 79 Gills Road Limited, we have expressed our concerns or desires that the director/shareholder be a New Zealand resident so as to avoid any potential issues which I indicated, namely either OIO or the requirements to file audited accounts at the Companies Office because of the overseas ownership being more than 25%.

• [32] On 19 March 2013 Mr Nguy sent Ms Huang a letter which noted, among other things, the parties to the heads of agreement had decided a limited partnership was the

preferred structure for the purchase of the land pursuant to the ASP and subsequent development. Mr Nguy’s letter went on to record:

We understand that the fact that BCH will be 50% shareholder of 79 Gills Rd will have major accounting implications on this business structure. Under New Zealand law, the requirement to file audited accounts at the Companies Office applies to an overseas company. A New Zealand company with 25% or more overseas ownership is deemed by relevant law to be an overseas company.

In our case, because all the shareholders of BCH are not New Zealand residents it means that 79 Gills Rd will be treated as an overseas company, and therefore, will be caught by that reporting requirement. We suggest this will bear additional legal compliance burdens on all parties concerned. Mr Paul Bublitz of GEP agrees that this position is not in the interests of both GEP and BCH.

We are also concerned about the potential application of New Zealand overseas investment regulation on this transaction given the current proposed business structure.

Accordingly, in order to address these concerns in relation to overseas ownership as identified above, we recommend amending the current business structure in the following way:

1. BCH’s 50% shares in 79 Gills Rd will be held on trust for BCH. BCH will have beneficial interest in these shares in 79 Gills Rd. ...

• [33] In the event neither the special partnership structure proposed in the heads of agreement nor Mr Nguy’s alternative trust structure were pursued.

• [34] A file note from a meeting on 27 March 2013 attended by Chris Cooke, Paul Bublitz, Mr Tang, Mr Zhou, Wilson Zhu, and Ms Chen recorded there was a discussion regarding a new formula/agreement.

• [35] A further file note from 2 April 2013 referred to a new agreement and recorded that major changes were to be made.

• [36] Consistent with that, on 4 April 2013 Mr Yang of Jesse & Associates forwarded a draft buyout agreement to Ms Chen and Paul Bublitz.

• [37] On 5 April 2013 there were two meetings. Files notes were made relating to each meeting. The first note relates to a meeting at 10.00 am. The attendees were

Paul Bublitz, Allie Chen, Mr Tang, Mrs Tang (Ms Huang) and Wilson Zhu. The agenda was noted to be:

(1) Negotiating Payment terms

(2) If agreed ... sign agreement.

• [38] Later the same day, at 12.30 pm, there was another meeting. The second file note records Mr Bublitz, Mr Cooke, Mr Tang, Mrs Tang (Ms Huang), Mr Zhou, Mr Zhu, and Ms Chen were all present. The buyout agreement was executed. Ms Huang executed it as director of BCH. GEP agreed to nominate BCH as purchaser of Gills Road. The buyout agreement made no reference to OIO consent.

• [39] Although undated, a special resolution by shareholders recording consent for the transfer of shares from Ms Feng and Bingyan Zhou to Ms Huang was also completed, likely at the same meeting. The resolution was executed by all three parties. Share transfers were also completed. Mr Nguy witnessed the signature of Ms Huang as the transferee.

• [40] While other parties may have attended meetings at Mr Nguy’s office from time to time, the client was BCH and Ms Huang was its sole director. Mr Nguy’s obligation was to BCH. He had an obligation to deal with its director and give advice to the company through its director or its duly authorised agents. It may well have been that initially BCH was to be used by Mr Tang and Ms Huang and Mr Zhou and Ms Feng as an investment vehicle for their two families, but it is apparent that by 5 April BCH was controlled by Ms Huang. She was the sole director and sole shareholder of BCH. Mr Zhou and Ms Feng were no longer involved as shareholders.

• [41] Consistent with that, Ms Huang completed a client authority on behalf of BCH to enable Mr Nguy’s firm to complete the purchase electronically. Mr Nguy again witnessed Ms Huang’s signature.

• [42] On 17 April 2013 the deed of nomination was completed. It was not conditional on BCH obtaining OIO consent.
• [43] On 19 April 2013, BCH completed the purchase of the Gills Road land from MHG pursuant to the ASP. Mr Nguy acted on the conveyance. Indeed, Mr Nguy accepts that he acted as solicitor for BCH in relation to the purchase of Gills Road and all related matters, including:

(a) the buyout agreement;

(b) the deed of nomination;

(c) BCH’s purchase of the land from MHG pursuant to the ASP;

(d) the registration of the land in the name of BCH; and

(e) various financing arrangements, including mortgage registration.

• [44] BCH’s purchase of Gills Road subsequently came to the attention of LINZ (which administers the OIA). On 27 February 2014 an investigator wrote to Mr Nguy’s firm asking for an explanation.

• [45] BCH subsequently instructed a number of different law firms in an attempt to obtain retrospective consent. When that was unsuccessful and the Chief Executive of Land Information New Zealand (LINZ) took civil penalty proceedings against it, BCH took further advice and did not oppose the imposition of a penalty (and associated costs).

Mr Nguy’s defence

• [46] The statement of defence filed on behalf of Mr Nguy raised positive and alternative defences which Mr Nguy repeated in his evidence and closing submissions.

• [47] First, it is pleaded that Mr Nguy had a limited retainer with BCH. Mr Nguy alleged that he had been instructed not to worry about issues under the OIA.

• [48] Next, Mr Nguy made the point that he alerted and warned BCH in relation to the OIA in his letter of 19 March 2013.
• [49] In relation to BCH’s claim to recover the civil penalty Mr Nguy pleaded the doctrine of ex turpi causa. He submitted it would be against public policy for BCH to obtain an indemnity or contribution for the penalty and associated costs.

• [50] Further, and in the alternative, Mr Nguy pleaded contributory negligence on behalf of BCH, noting that its directors and/or its agents were experienced property developers. Mr Nguy submitted they should have been aware of the potential issues under the OIA. He sought a reduction in the amount of damages otherwise payable.

The retainer

• [51] The scope of a solicitor’s retainer will depend upon the terms the parties have expressly agreed, any terms which may be inferred or implied by law, and any statutory provisions as may be applicable.³ Where the contract of retainer is in writing, its terms are a matter of construction.⁴

• [52] The starting point is that the retainer in the client engagement letter was in general terms. It was said to apply to all “incidental matters in respect of the development at 79–95 Gills Road, Albany”. That encompassed the purchase of Gills Road.

• [53] The OIO consent was integral to BCH’s purchase of Gills Road. As a matter of construction of the retainer, when BCH purchased Gills Road for the purpose of the development, advice about any consents that might be relevant to the purchase falls within the reference to “incidental matters in respect of the development”. The purchase was a necessary pre-condition to the development.

• [54] While in theory it might have been possible for Mr Nguy to have limited the scope of his obligations under the retainer to exclude any obligation in relation to OIO consent, that would have required clear communication of that fact to Ms Huang and BCH. There was no express limitation of the retainer in relation to OIO consent matters.

³ For instance, the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

⁴ Bell Gully Buddle Weir v Findlay CA124/92, 24 February 1993; Frost & Sutcliffe (a firm) v Tuiara

[2003] NZCA 277; [2004] 1 NZLR 782 (CA).

• [55] I say in theory because in Frost & Sutcliffe (a firm) v Tuiara, the Court observed that, while solicitors are entitled to limit the scope of the retainer,⁵ a retainer which purported to exclude responsibility for giving advice or for the accuracy of that advice might be thought antithetical to the professional relationship between solicitor and client.⁶ That will be so where the advice is legal advice (as opposed to the wisdom of the transaction generally) and is directly related to, or is an integral part of, the transaction the solicitor has been engaged to act on. In the present case the OIO consent issue was so connected to the purchase of Gills Road it is unrealistic to suggest that aspect of the transaction could be severed off, at least without giving clear advice about the issue and the need to take further advice about it.

• [56] Mr Nguy’s evidence about his obligations was unconvincing. He said his instructions were to initially attend to the joint venture agreement. Later his instructions were extended to help prepare the buyout agreement. He said that he was very clear that the instructions did not include any issue to do with OIO consent. His firm did not practise in that area of the law and never provided advice requiring OIO consent matters. He asserted that Mr Zhu had told him the parties were fully aware of the OIO issues and implications as they had been informed by Ms Chen, Mr Bublitz and Mr Zhu and they had other lawyers who would take care of OIO consent. He said Mr Zhu asked him to just attend to the conveyancing matters.

• [57] I do not accept Mr Nguy’s evidence on this issue. It is very general in nature and not supported by any documentary record. It is also inherently improbable. As noted, it would be very unusual and impractical for a separate lawyer to deal with OIO consent when Mr Nguy was to act on the conveyance of the land in issue. Further, Mr Nguy’s involvement was much more than just as a conveyancer. Mr Nguy’s firm prepared the buy-out agreement, and he was aware of the deed of nomination, and the terms of the ASP. Mr Nguy then attended to all the other steps necessary to complete BCH’s purchase of Gills Road.

⁵ Frost & Sutcliffe (a firm) v Tuiara, above n 4, citing Clark Boyce v Mouat [1993] 3 NZLR 641 (CA).

⁶ Frost & Sutcliffe v Tuiara, above n 4, at [24].

• [58] While Mr Nguy’s notes of meetings record the attendance of Mr Tang, Mr Zhu and Ms Chen as well as Ms Huang, the notes do not record in any of them a limit to his retainer in the way he alleges. Accepting for present argument that Mr Zhu had authority to act as an agent on behalf of BCH, and as Mr Nguy suggested in his evidence, he had discussed the issues of OIO consent with Mr Zhu, and had been told that another lawyer would attend to the OIO consent issue, that would have been an important matter to document either in a note of the meeting at which the instruction was given or, more appropriately in a letter or email to BCH confirm it. There is no record of any such instruction or limitation of Mr Nguy’s responsibility to BCH.

• [59] The absence of any such communication can be contrasted with Mr Nguy’s emails of 13 March (to Mr Nguy) and 19 March in which he expressly referred to the issue caused by the overseas ownership and control of BCH and the OIO. Further, in the email of 19 March he purported to give advice as to how the OIO issue could be addressed. There was no suggestion in either of those communications that his firm did not practise in that area of the law.

• [60] As noted, Mr Nguy has taken no steps to advance his third-party claim against Mr Nguy or to call him as a witness.

• [61] Next, Mr Nguy’s attempt to read down the general nature of the obligations he had accepted by his letter of engagement on the basis it was a standard document issued by his secretary was not at all convincing.

• [62] Also, Mr Nguy’s evidence on this point was also contrary to Ms Huang’s and Mr Tang’s evidence which I prefer. I accept that Ms Huang would have relied on Mr Nguy as BCH’s lawyer to provide it with advice about all necessary consents and approvals

• [63] I reject Mr Nguy’s defence that he had a limited retainer which excluded the need to advise BCH about the OIA and OIO consent.

The obligations in relation to OIO

• [64] BCH called Ms Pidgeon, an experienced conveyancing practitioner, to give expert evidence regarding a solicitor’s obligations in relation to the OIO consent issue. Her evidence was largely unchallenged by Mr Nguy.

• [65] In summary, Ms Pidgeon’s evidence, which was uncontroversial, was that a competent solicitor should have ascertained whether Gills Road was sensitive land under the OIO and advised BCH accordingly.

• [66] Ms Pidgeon noted that non-urban land over five hectares and land exceeding

0.4 ha that adjoins a scenic reserve has consistently been sensitive land for the purposes of the OIA since 2005.

• [67] Further, since the seventh edition of the ADLS/REINZ standard form agreement was published in 1999, an OIO consent condition is a standard condition on the front page of each agreement. All lawyers acting in property transactions need to know and understand the OIO consent requirements to ensure their clients have made the correct election and to advise them on the issue.

• [68] It was clear Ms Huang and BCH would meet the definition of an overseas person. An overseas person as defined in s 7 of the OIA includes a person who was neither ordinarily resident in nor a citizen of New Zealand. The definition also includes a body corporate where more than 25 per cent of securities are held by an overseas person or where the right to exercise or control the exercise of more than 25 per cent of the body corporate’s voting power is held by an overseas person. The current NZLS Property Law Section Guidelines state a solicitor should ensure the OIA has been complied with if the client is an overseas person.

• [69] Ms Pidgeon noted that the land was just under five hectares and the purchase price of $9.25 million was significant. Those factors, together with the scope of the development proposed, would have put a reasonably competent solicitor on notice that the OIA could apply to the transaction and that consent may be required. Investigation into whether it was sensitive land would need to be considered. Further, in this case, Mr Nguy had had the OIA drawn to his attention by the memo from Mr Bublitz.
• [70] In Ms Pidgeon’s opinion, in the circumstances a reasonably competent solicitor would have checked the definition of sensitive land under Part 1 of Schedule 1 to the OIA and ascertained whether the land being purchased was in fact sensitive land. That could be done using a number of tools readily available on the Land Information New Zealand website. If Mr Nguy had taken those steps, it would have been clear the land was sensitive land and that OIO consent was required.

• [71] Ms Pidgeon’s opinion was that Mr Nguy was required to go further than just raise the OIA issue in the general terms he did in his letter of 19 March. He was required to give express advice on the issue of whether OIO consent was needed or not.

• [72] Ms Pidgeon also considered a competent solicitor would have warned BCH of the potential serious consequences of failing to obtain OIO consent and should have taken steps to protect its interests by ensuring the heads of agreement between GEP and BCH was conditional on obtaining OIO consent. Further, he should have ensured the buyout agreement was conditional on that issue and/or he should have ensured the deed of nomination was conditional on it too.

• [73] Finally, Ms Pidgeon considered that it was not reasonable for Mr Nguy to have expected BCH to have made inquiries or relied on others in relation to the OIO consent, such as a real estate agent or property developers.

• [74] Ms Pidgeon did accept a proposition put by Mr Nguy in cross-examination that if a client has no experience in OIA issues, she would expect there to be more detailed advice provided by his or her lawyer than would be given to a client who did have such experience.

• [75] In dealing with Mr Nguy’s obligations in relation to OIO consent, the starting point is that Mr Nguy was aware BCH was an overseas person for the purposes of the OIA. He also knew Ms Huang was an overseas person under the OIA. He witnessed Ms Huang’s signature on the transfers of the shares from the other shareholders to her giving her a majority shareholding and was aware that she initially had a 34 per cent

shareholding in BCH. Following the buy-out agreement, and by the time Gills Road was purchased, she was the only shareholder.

• [76] Mr Nguy had a duty under his contract with BCH to consider whether the OIA applied to the transaction and whether OIO consent was required. Further, he was expressly put on notice by Mr Bublitz that it was an issue with the involvement of Mrs Huang.

• [77] As noted, in his letter of 19 March 2013 Mr Nguy had proposed a way to avoid the requirement for OIO consent by suggesting a trust vehicle. In Ms Pidgeon’s opinion, that was incorrect legal advice. I agree. It amounted to an attempt to evade the obligations under the OIA. It would not have been successful.

• [78] I find that Mr Nguy was in breach of his obligation under the terms of the contract of retainer and was in breach of the co-existent duty of care he owed to BCH in relation to OIO consent.

Damages

• [79] By the time BCH received the letter from the LINZ investigator in February 2014, it was involved in the practical development of Gills Road. It took advice from Minter Ellison Rudd Watts (MERW) with a view to obtaining respective OIO consent for the purchase. Between March 2014 and January 2015, MERW prepared a draft application for retrospective OIO consent. In late January 2015, the OIO recommended that BCH stop preparing such retrospective consent because if BCH was prosecuted it would be required to divest Gills Road. BCH claims solicitors’ costs of $86,003.87 for those attendances.

• [80] In February 2015, BCH instructed Prestige Lawyers Limited to represent it in relation to the ongoing OIO investigation and to try to obtain retrospective OIO consent. They represented Ms Huang and Mr Tang, her son, in interviews with the OIO solicitors. BCH claims $40,725.50 for those attendances.
• [81] In December 2015, BCH engaged Kensington Swan to further negotiate with the OIO. It was unsuccessful. It issued BCH invoices for $34,807.73 and a further disbursement from a property valuer for $7,820.00.

• [82] Then in January 2017, BCH engaged its current solicitors, Glaister Ennor, and Mr Illingworth QC. In February 2017 the Chief Executive of LINZ filed proceedings against BCH for its failure to obtain OIO consent. Glaister Ennor acted for BCH during those proceedings. On advice BCH admitted liability. On 12 July 2019, Powell J delivered a judgment requiring BCH to pay LINZ a civil penalty of $300,000, the account taker’s costs of $260,282.68 and the costs of the proceeding of

$27,763.50.⁷

• [83] The account taker was appointed to assist the determination of the level of penalty under s 48 of the OIA. Under s 48(2) the penalty is not to exceed the higher of $300,000 or a quantifiable gain in relation to the property.

• [84] In addition, BCH incurred costs with Glaister Ennor and Mr Illingworth QC of

$111,773.27. There was a further property valuation by Opteon which cost $4,485.00.

• [85] In total BCH seeks to recover $873,661.55 in damages made up of:

• MERW $86,003.87

• Prestige Lawyers $40,725.50

• Kensington Swan $34,807.73

• Valuer $7,820.00

• Glaister Ennor and G Illingworth QC $111,773.27

• Valuation $4,485.00

⁷ The Chief Executive of Land Information New Zealand v BCH Investments Limited [2019] NZHC 1630.

• Penalty $300,000.00

• Account Taker’s costs $260,282.68

• LINZ solicitor’s costs awarded by Court $27,763.50

• [86] Mr Nguy did not seriously challenge the costs claimed by BCH other than to put in issue the damages claimed in relation to the civil penalty proceedings.

• [87] The legal costs associated with its attempt to obtain retrospective approval can properly be seen as an attempt by BCH to mitigate its loss. Obviously, if retrospective approval had been obtained, then BCH would not have been subject to a penalty, and it would not have been at risk of having to divest itself of the Gills Road property with the potential for subsequent costs and damages associated with that.

• [88] The reasonableness of BCH’s actions in pursuing the retrospective consent must be considered in light of the circumstances in the case. The ordinary course of business is the general standard of reasonableness applied in these circumstances. That requires a plaintiff to do no more than what a reasonable and prudent person would ordinarily do in the course of their business and in the circumstances as they appeared at the time.⁸

• [89] Where, as here, BCH took advice from solicitors and acted on the advice of those solicitors to pursue the retrospective consent issue (even after LINZ suggested they should not), I am satisfied they acted reasonably. There is no suggestion in the material before the Court that they received legal advice they should not have continued to do so. Indeed, it is implicit in the material before the Court that they were advised they should pursue the issue of retrospective consent, which is what the various solicitors sought to do. For those reasons, solicitors’ costs associated with seeking the retrospective consent and responding to the civil penalty proceedings are properly recoverable.

⁸ Hooker v Stewart [1989] NZCA 407; [1989] 3 NZLR 543 (CA).

The ex turpi causa point

• [90] Ex turpi causa is shorthand for the phrase “ex turpi causa non oritur actio”, namely a plaintiff will be unable to pursue legal relief and damages if the loss or damages arise from their own misconduct.

• [91] The application of the doctrine was considered by the Court of Appeal in Leason v Attorney-General.⁹ The Court noted the most important judgment on the subject was Lord Mansfield CJ’s judgment in 1775 in Holman v Johnson:¹⁰

No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. ...

• [92] The Court then noted the application of the doctrine in recent United Kingdom cases.¹¹

• [93] In particular, in Gray v Thames Trains Lord Hoffman had preferred to base the defence on causation, noting:¹²

[The] distinction, between causing something and merely providing the occasion for someone else to cause something, is one with which we are very familiar in the law of torts. It is the same principle by which the law normally holds that even though damage would not have occurred but for a tortious act, the defendant is not liable if the immediate cause was the deliberate act of another individual. ... It might be better to avoid metaphors like “inextricably linked” or “integral part” and to treat the question as simply one of causation.

• [94] In conclusion the Court of Appeal noted that while no single formulation for the defence had emerged, the different expressions of, and reasons for it, are as follows:

(a) a reliance test;

⁹ Leason v Attorney-General [2013] NZCA 509.

¹⁰ Leason v Attorney-General, above n 9, citing Holman v Johnson [1775] EngR 58; (1775) 1 Cowp 341 at 343.

¹¹ Leason v Attorney-General, above n 9, citing Euro-Diam Ltd v Bathurst [1990] 1 QB 1 (CA); Tinsley v Milligan [1993] UKHL 3; [1994] 1 AC 340 (HL); Gray v Thames Trains [2009] UKHL 33, [2009] 1 AC 1339; Stone & Rolls Ltd (in liq) v Moore Stephens (a firm) [2009] UKHL 39, [2009] 1 AC 1391.

¹² Leason v Attorney-General, above n 9, at [101], citing Gray v Thames Trains, above n 11.

(b) the conscience approach was rejected by the House of Lords in Tinsley v Milligan;¹³

(c) a causation approach was preferred by Lord Hoffmann in Gray v Thames Trains.¹⁴

• [95] The Court of Appeal in Leason noted that other jurisdictions such as Canada and Australia had adopted different policy reasons for the defence, such as need for consistency, coherence of the law and integrity of the legal system.¹⁵

• [96] Against that rather unpromising background, the Court concluded that it saw merit in Lord Hoffman’s observation that the basis for an application of the defence will depend on the particular situations in which it is sought to be applied.¹⁶

• [97] The issue is whether, in the circumstances of this case, it would be against public policy for the plaintiff to obtain an indemnity from its court ordered penalty and associated costs from Mr Nguy.

• [98] While BCH was in breach of the OIA by purchasing the property, it did not deliberately or knowingly breach the Act. There is no suggestion that BCH was aware of its obligation to obtain OIO consent but deliberately sought to avoid the requirement for it.

• [99] Further, the penalty was incurred because of Mr Nguy’s breach of contract and negligence in failing to properly advise the plaintiff. Applying Lord Hoffman’s causation approach, it cannot be said the immediate cause of the loss BCH seeks to recover under this head was the deliberate act of BCH to purchase the property without consent. On the evidence it was not aware of that requirement. There is no suggestion in the civil penalty judgment of Powell J that BCH deliberately infringed the Act.¹⁷

¹³ Leason v Attorney-General, above n 9, citing Tinsley v Milligan, above n 11.

¹⁴ Leason v Attorney-General, above n 9, citing Gray v Thames Trains, above n 11.

¹⁵ Leason v Attorney-General, above n 9, citing Hall v Herbert [1993] 2 SCR 159 at 176; and Miller v Miller [2011] HCA 9, (2011) 242 CLR 446.

¹⁶ Leason v Attorney-General, above n 9, at [116].

¹⁷ The Chief Executive of Land Information New Zealand v BCH Investments Limited, above n 7.

• [100] Rather, on one view of it, the loss was caused by Mr Nguy’s failure to do the very thing he was instructed to do. The case of Stone & Rolls illustrates the principle.¹⁸

• [101] In Stone & Rolls the liquidators of a company sued auditors alleging professional negligence. The auditors had negligently failed to detect that the company’s revenues were derived from a director’s frauds against third parties. The claim failed. To allow it would have been to say that what was recoverable from the company in the action against it for fraud was damage to it for the purposes of its claim against the auditor. However, the director had acted fraudulently or illegally and deliberately so. His guilty knowledge was imputed to the company. In the present case there is no evidence to suggest that Ms Huang acted deliberately to contravene the law when directing the actions of BCH. In Stone & Rolls Walker LJ discussed the “very thing” principle:¹⁹

Checking for fraud is part of an auditor’s task, but it is not his sole or primary task (for a reputable auditor to discover that the client company's business is wholly fraudulent, and criminal must be quite unusual). But suppose for the sake of argument that a trader engages an accountant for the primary and express purpose of preparing financial statements that comply with all the requirements of company law and tax law, so that the lawfulness of the financial statements is the very thing that the accountant undertakes to do; and suppose that the accountant negligently fails to perform this task, and the trader is in consequence liable to some penalty or criminal sanction. Could the accountant meet a claim for professional negligence by pleading the ex turpi causa defence? It is obviously impossible to answer that question without knowing more about the facts. If the trader had honestly supplied information which he believed to be correct and complete, and the accountant had negligently failed to notice that the information could not be correct and complete, it seems unlikely that such a regulatory breach, not involving dishonesty, would bring the ex turpi causa principle into play.

• [102] Similar reasoning applies to the position of BCH’s claim in relation to the civil penalty in the present case. There is no evidence BCH acted dishonestly or in deliberate breach of its obligations under the OIA. Rather, Mr Nguy negligently failed to do the very thing he was obliged to do which was to advise BCH of its obligations under the OIA. The principle of ex turpi causa does not apply to defeat BCH’s claim for the losses flowing from the civil penalty hearing.

¹⁸ Stone & Rolls Ltd (in liq) v Moore Stephens (a firm), above n 11.

¹⁹ Stone & Rolls Ltd (in liq) v Moore Stephens (a firm), above n 11, at [179]. (Emphasis added).

Result

• [103] BCH is to have judgment against the defendant Mr Nguy in the sum of

$873,661.55.

Costs

• [104] BCH is to have costs on a 2B basis plus disbursements as fixed by the Registrar.

Venning J