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AMP General Insurance v Macalister Todd [2006] NZSCTrans 21 (20 October 2006)

Last Updated: 13 July 2012

_{IN THE SUPREME COURT OF NEW ZEALAND SC 13/2006}

_{IN THE MATTER of a Civil Appeal}

BETWEEN AMP GENERAL INSURANCE LIMITED

Appellant

AND MACALISTER TODD PHILLIPS BODKINS

_Respondents

Hearing 20 October 2006

Coram Elias CJ Blanchard J Tipping J McGrath J Anderson J

Counsel M A Gilbert, S M Hunter and N Till for Appellant

_{E D Wylie QC for Respondents}

_{CIVIL APPEAL}

10.02.am

Gilbert Yes may it please the Court, I appear with Mr Hunter and Mr Till for the appellant.

Elias CJ Yes thank you Mr Gilbert, Mr Hunter, Mr Till.

Wylie May it please the Court I appear for the respondents. Elias CJ Yes thank you Mr Wylie. Yes Mr Gilbert.

Gilbert The first approved ground of appeal is whether or not the loss was covered by the policy and I thought it might be helpful just to start by examining what the loss was and so make the first what I think are

uncontentious propositions. Firstly as a matter of law Mr Todd as a trustee of the Walker Family Trust was personally liable to pay Income Tax, GST, PAYE and ACC Levies in respect of the trading activities of the Trust and I think that’s common ground but authority for that is found in the provisions of the Goods and Services Tax Act, the Income Tax Act and of course the trustees were employers with obligations to account to the revenue for PAYE and ACC levies. So that’s the starting point. They have that personal liability

Blanchard J But it’s personal liability qua trustee?

Gilbert Yes but it is a liability that arises out of the trading activities of the

Trust for which they are personally liable.

Anderson J But in respect of which they had a right of indemnification from Trust assets.

Gilbert That’s correct.

Anderson J And it’s the opportunity to indemnify that they’ve lost.

Gilbert Yes, well perhaps it’s never the time. The first point is that that’s the nature of the liability.

McGrath J Is there any specific statutory provision to that effect that you’re –

sorry you’re coming to that.

Gilbert Well I can give that to you. It’s quoted in the materials that were put before the Court, s.57, ss.3

Blanchard J This is not in dispute though is it? Gilbert I don’t think it’s in dispute, no. McGrath J Section 57

Gilbert Subsection 3 of the Goods and Services Tax Act. McGrath J Thanks.

Gilbert And the Income Tax section is 227, ss.2 and 228, ss.1

Blanchard J Are we concerned with income tax?

Gilbert Well we are actually. I don’t think we are in terms of causation but my next point is to take you to examine what is the $72,000 that was paid and the answer is that it was a compromised payment in relation to liabilities no only for GST but also for Income Tax, PAYE, ACC Levies, and so I was wanting to take you to that if I may.

Elias CJ But the only negligence identified was in respect of the GST liability?

Gilbert Correct, yes. So that the thesis was if there had been advice about this personal liability to pay the GST then when the money was there following the sale of the Towne Place units it could have been taken, should have been taken, paid to the Inland Revenue Department; the Bank wouldn’t have got its money; the Trust’s position would be exactly the same but the thesis is the Trustees personally, and in this case Mr Todd, would be better off. Actually that doesn’t work but that’s the thesis. He wouldn’t be better off because he’s also liable to the BNZ but the thesis was he would have been better off because there was the opportunity to use the money that was paid to Bank to pay this other liability.

Blanchard J Would he have been liable to the BNZ except to the extent that monies coming from the property which was mortgaged were not paid over to it?

Gilbert Yes.

Elias CJ So that’s qua Solicitor? Under the undertaking he would have been liable, not qua Trustee?

Gilbert Well on this point, and this was a point that seemed to have emerged at the Court of Appeal stage, there was no evidence given by the respondents that Mr Todd was not personally liable in respect of the borrowing from the BNZ in relation to this property. There was evidence that there was a Trustee limitation of liability in relation to the separate borrowing in relation to another property but none in relation to this.

Blanchard J Did the mortgage document not contain a limitation of liability?

Gilbert Well the respondents did not put in evidence the mortgage document.

The respondents gave no evidence of any limitation of liability and so in my submission the Court of Appeal was correct to conclude, and I’m not even sure if this is contentious any longer, that the Trustees were themselves personally liable in relation to that relevant borrowing from the BNZ in relation to the Towne Place units.

Tipping J Well unless there was a limitation they would. Gilbert They would be, exactly, and they didn’t Tipping J They didn’t prove any limitation?

Gilbert Correct, and significantly what they did talk about was a limitation in relation to a separate borrowing but not this. So, I mean that’s jumping ahead a little bit because

Elias CJ But going back to this business of what was compromised given the other liabilities and how they are affected by the cover, it’s only the liability for GST in respect of which there’s even potential argument?

Gilbert Correct. Elias CJ Yes.

Gilbert And I think it would be helpful if I took you to just exactly how that

$72,000 figure is derived, to show you the other liabilities and when they accrued and what they were for and

McGrath J Mr Gilbert just before you do that, just to take the Chief Justice’s point a step further, what is the point you make of the tax being part and parcel of the settlement sum – the Income Tax being part and parcel of the settlement sum?

Gilbert The Income Tax.

McGrath J Yes, that’s what you’re saying isn’t it that the $72,000 was a payment that covered GST and Income Tax

Gilbert And PAYE McGrath J And PAYE Gilbert And ACC levies.

McGrath J Now what do you make of the fact that it included components other than GST? Now what’s the relevance of that to this case, just in a very general way?

Gilbert Ok, the relevance is there’s a total liability of $278,330. There is a settlement of that liability for $72,000. What component of the

$278,330 was GST on the sale of the Towne Place units? The answer’s actually $48,000, although the Court of Appeal said it was

$50,000. That’s the component. It’s actually 26% of the total liability. McGrath J Yes, yes.

Gilbert So if you say a liability of $278,000 for a whole range of taxes, a settlement at $72,000, you’ve paid 26% of all of those liabilities. The GST part of it according to the Court of Appeal was $50,000. I think I can demonstrate it’s actually $48,000.

McGrath J My concern, is the position quite apart from the GST Act provision you’ve referred to. It is the position is it that those other taxes are also the subject of personal liability for Mr Todd, so he had to compromise those and that’s

Gilbert That’s exactly right.

Elias CJ But you arrive at the figure of $48,000 or $50,000, whatever it is, on the basis of the percentage of GST liability to the total liability, is that right?

Gilbert No. Elias CJ No.

Gilbert No, the $48,000, the thesis was we’ve got Towne Place units, we don’t even know the dates they went unconditional which is actually the relevant date because that is the latest time when you have a supplier triggering an obligation to pay the GST.

Elias CJ But they were all in 1995 weren’t they, over a few months?

Gilbert Yes, we don’t know the dates of the agreements but what we are told is that they settled, the agreed facts were they settled in March - March, April, May was the period within which these sales settled so we can assume that the unconditional date triggering the obligation to account for GST occurred earlier because that’s the date of the supplier. And what the Court of Appeal said if you look at the assessment from the IRD, and I can show you this, as at 30 April the amount was $50,000 and the Court of Appeal said, and I thought it was common ground, and they expressed it in those terms, that was the amount on the respondent’s case that ought to have been plucked from the funds that would otherwise go to the BNZ and paid to the revenue to avoid this personal liability.

Blanchard J That personal liability was a joint and several liability of the Trustees? Gilbert Correct, that’s right, so can I take you to the $278,330 to show you

how that’s made up? It’s at 141

Blanchard J Is this necessary?

Gilbert Well it just demonstrates the point I’ve made, so only to that extent, but

Blanchard J Well is it in dispute that that $278 or whatever the figure was is a combination of GST plus the other taxes?

Gilbert I don’t imagine it is but it’s volume 2, if you wouldn’t mind, I’m sorry I don’t want to, if you wouldn’t mind just looking at it briefly with me. It’s volume 2, page 149 and that’s a schedule, the total and you’ll see at the bottom right is 205 and if you look over the page at 150 you see some hand written numbers at the foot of which is the figure $278,330, so that’s the figure, $278,330 that was compromised, that was a figure as at 15 March 2001.

Tipping J When you say that that was the figure that was comprised, do you mean that was the agreed figure of the total?

Gilbert Correct, correct, so if you go to page 249 of this volume in para.2 you’ll see a letter

Tipping J Sorry, page, I missed the page?

Gilbert Oh 249 I’m sorry, 249, para.2. This is a letter from counsel for the respondents to counsel then acting for AMP, advising of the settlement of the total liability and para.2 talks about it being $278,330 as of 15

March, that’s 2001, and that’s a reference to the figure on page 150 which had at an earlier time, that is at May 2000, the components that we see on page 149 and the point about it is that you’ll see that most of this tax, or a lot of it, was actually income tax. It was an amount of

$108,000 as at May 2000 – it was income tax – and it includes income tax for 1996 and 1997, so clearly there couldn’t have been any basis at all for using the BNZ’s money to pay income tax that hadn’t even yet arisen and similarly there are smaller amounts for PAYE and GST and ACC, and there are subsequent periods for GST and they are excluded from the count so the actual component of GST as at 30 April 1995 is the figure we see on page 150. It’s $48,336, it’s the fourth listed figure.

McGrath J It’s 30 April was it you said? Gilbert Ah $48,336.

McGrath J Yes but the date you gave in April 2001? Gilbert April 1995.

McGrath J Right, I’m sorry.

Gilbert Yes 30 April 1995, and if you look at 152 you will see that figure 30

April 1995.

McGrath J Looking at page 150 you said the figure $278,330 was the total amount owing at 15 March 2001?

Gilbert Correct.

McGrath J But the GST figure as at 30 April 1995 includes no penalties, is that what you’re saying?

Gilbert Yes, well, no sorry, as at 15 March 2001 the GST figure including penalties and taking into account credits for GST for 30 April 1995 is

$48,336.07 and we see that at page 160. I’m sorry to take you through all of this but you’ll see there that there is a summary printout 30 April

1995 and with tax referred to there as GST. Do you see that circle near the top – tax is GST period 30 April 1995 and you will see that the original assessment was the $50, 486.10, that’s the figure that the Court of Appeal refers to in it’s judgment. There were subsequent penalties of $52,774 and then credit transfers of $54,924 with a resulting balance as at 15 March 2001 of $48,336.07. So that’s

Tipping J This is shaping to be an extraordinarily complicated quantum issue. Gilbert Yes, well it actually would take you to an amount of approximately

$12,500 if you said there was an opportunity and indeed an obligation on the solicitors to advise ‘take that money, don’t give it to the BNZ, never mind your undertaking, never mind you’re personally liable for it, never mind that it’s their money, take that money and pay it to IRD’

Tipping J But when you were given leave I understood that it was the character of the loss that was the issue, not the quantum of it.

Gilbert I think that’s a fair point Your Honour, but the leave was given is this a loss coming within the policy? All I’m doing here is saying what is the loss and I’m just giving you this evidence to show you what the loss is.

Tipping J Well in part, in part it is a loss deriving from the fact that they didn’t pay it when they settled.

Gilbert That’s right.

Tipping J And we’re not concerned with how much are we, as long as some part of it is within the terms of the policy I don’t think you can now argue that it’s too much. You won’t get leave to do that. I can understand your point Mr Gilbert. I can see it as plain as a pike staff conceptually but I can’t see how you can raise it in those terms under the leave you’ve been granted.

Gilbert No, well I don’t want to take this any further but I thought it would be helpful for you to be able to see what is the loss, what is the respondents’ case in terms of what ought to have happened and you’ll see from the pleading that they talk about PAYE and income tax and so on and so I’m just demonstrating in context what is the $72,000 that is the loss

Tipping J You’re not saying that no part of it can be traced back to the relevant debt?

Gilbert No. Tipping J No.

Gilbert No, on my analysis $12,500 can be, yes.

Tipping J I take it this analysis wasn’t offered to the Court of Appeal or the High

Court. Gilbert No.

Tipping J No. Well if you’re paying about $60,000 too much that’s tough.

Gilbert It’s not the quantum that’s really the issue but it is important in my submission to understand what is the claim that we’re facing, what is the pleaded claim because it’s not actually pleaded in terms in the statement of claim?

Tipping J I for myself would see as a much more significant point, and it may be that I’m misleading myself, and I suppose this is causation which I’m anticipating, how on earth could they have paid it?

Gilbert Exactly.

Tipping J I’m sorry I can’t get it out of my head actually. Gilbert No, no, well I can’t either but

Blanchard J You’ve got a couple of other arguments that you want to try on with us before we get to causation?

Gilbert No, no, that’s it. I knew I would have trouble but I’m haven’t got any other arguments

Tipping J Well why

Blanchard J Well they got you leave anyway Mr Gilbert. Gilbert Yes that’s right.

Tipping J Why isn’t it for present purposes equivalent to a claim by a third party?

That’s the nub of it isn’t it?

Gilbert That’s the nub of the first question and the answer is, well clearly you can’t sue yourself so I don’t think there’s any dispute about that. My learned friend seems to accept that you cannot sue yourself so it seems to me

Blanchard J Well I’m not sure that’s right. Gilbert Well apart from s.33A.

Blanchard J Well there are provisions in the Property Law Act for example which make it possible for you to sue yourself in different capacities.

Gilbert Yes that’s right, there are statutories

Blanchard J But that’s by the by.

Gilbert By the by. There are some statutory exceptions to that

Blanchard J Well they’re very broad.

Gilbert Yes but none applicable here other than s.33A so it seems that the argument in this case narrows to the question as to whether this is a s.33A type claim or whether as we say it’s a personal loss, not a loss to the Trust. The Trust hasn’t suffered any loss. This is a personal loss that Mr Todd has suffered and in respect of which he cannot sue himself.

Elias CJ Well it depends on what basis the claim is put. If it was being contended that they’re liable for the GST, that Todd is liable for the GST not paid, that would be a trading loss but it’s been contended that the liability is in respect of failure to advise that they could avoid that trading liability and

Gilbert Satisfy it I think. They couldn’t avoid it Elias CJ Well they could avoid the liability for it. Gilbert Well they couldn’t, the law of it

Elias CJ Well that’s the issue really isn’t it?

Gilbert But the law imposes the liability on them. They can’t avoid the liability. The moment they unconditionally agree to sell the property they are liable as a matter of law. There’s not way of avoiding that.

Anderson J Under general Trust Law they had an immediate right to pay that out of the Trust assets.

Gilbert Correct, that’s right.

Anderson J This is not really a case of someone being his own neighbour and owing a duty of care to himself is it? It’s a question of whether Mr Todd was a client of the firm for the purposes of the Trust.

Gilbert Well I think our position on that is if this were a situation in respect of which, let’s suppose the situation was that the Trustees had instructed the firm to arrange insurance on these properties; there had been a negligent failure to do that, they had burned and so there was no cover; there is a loss to the Trust, in that circumstance s.33A can been invoked, the Trustees suing qua Trustee in respect of Trust property can sue the firm including Mr Todd, that is the reason that that section was enacted to get around this problem that generally you can’t sue yourself, because there the Trust itself has suffered a loss and it has to

pursue that claim through the Trustees and it does so, pursues that claim against the law firm. Section 33A permits that; there’s no problem with it. You have a third party claim; it would be covered by this policy – no problem. The difference here is that the Trust has not suffered any loss.

Blanchard J The Trustees have suffered a loss. What if the Trustees suffer that loss and collectively say to the firm ‘you caused it by your negligence’, forgetting about causation for a moment?

Gilbert Well

Blanchard J They’re jointly and severally liable.

Gilbert They’re jointly and severally liable not, forget about them. It is a liability that’s attracted on entering into the sale. The liability, the claim was a different one not that they should not have attracted that liability, that was unavoidable as a matter of law. You sell it you are liable. The question is was there some negligent failure to remind them of that liability and would that have resulted then in accessing funds that were passing through that would have enabled it to be discharged? That’s the charge.

Blanchard J Yes.

Gilbert Now that is a claim for a personal loss by the Trustees. It’s not a claim

Blanchard J Well they’re clients of the firm in all their capacities when acting as Trustee and if they’re caused personal loss by the firm, avoidable loss, I don’t see why that isn’t claimable against the firm.

Gilbert Well

Blanchard J No this is not a very attractive argument for AMP to be running. It has big ramifications for law firms and I would have thought it’s simply not within the spirit of the policy and I don’t think it’s within the letter of the policy either.

Gilbert Well I’m not sure whether Your Honour is putting that to me in terms of s.33A or not because certainly as I understand my learned friend’s position he accepts that the only way this can be regarded as a third party claim that does fall within the terms of the policy is if this is a claim being pursued as Trustee of a Trust qua Trustee in terms of s.33A.

Anderson J One has to get away from the idea that the Trust has some antromorphic quality. A Trust is an obligation, is a personal obligation and the Trustees are clients of the firm to take advice in the performance of their Trust obligations, and I would have thought that in doing so they’re entitled to have advice given to them of how to

prove the Act. Nothing to protect the trust aspects but to protect themselves by virtue of their trust capacity.

Blanchard J I don’t think s.33A really got much to do with it.

Elias CJ Well it’s really hard to characterise the loss in respect of which the claim was made and that it seems to me inescapably takes you to causation. If it’s not loss, if the loss to the Trustees has arisen because of the negligence of the firm then it seems to me there’s cover.

Blanchard J What would the situation have been if the advice had been given by another partner in the firm? The Trustees would have said to the firm collectively ‘well you’ve caused us loss by this negligent advice’ and there’s no answer to that.

Gilbert Then what I would say is that if there is a, the liability that all of the partners in the firm jointly and severally have in dealings with some other party, and that’s what the Partnership Act imposes, so that whereas normally your claim would be against the wrongdoer, the person who gave you the advice

Blanchard J But the other party is the Trustees collectively.

Gilbert But here Mr Todd is suing in relation to his own loss.

Blanchard J Yes but it’s only a split of the collective liability and that seems to me an awfully fine distinction that you’re trying to draw. Had Mr Todd and Mr Walker, the two Trustees, come to the firm jointly and said we have the $72,000 joint and several liability which you’ve caused us, then the firm and their insurer would have coughed up in the same way as they did when Mr Walker came along and said ‘my separate portion because we’ve split it’.

Gilbert Walker’s clearly a third party.

Blanchard J It shouldn’t make a difference that they just happened to have settled with IRD separately. They could just have easily settled it collectively, and it was a collective debt.

Gilbert It was, but the loss fell on Mr Todd, he

Blanchard J It fell on Mr Todd because he and Mr Walker perhaps ill-advisedly split it up like that, but I’d be astonished if the intent behind the contract of insurance was that it would all depend on the way in which you split that kind of liability.

Gilbert Well we’re confronting an unusual situation. The unusual situation that we confront is that Mr Todd has personally suffered a loss. The Trust hasn’t, he has.

Blanchard J Mr Todd and Mr Walker were clients of the firm as Trustees and the firm had an obligation to protect them as Trustees for losses that might be caused to the beneficiaries and for losses which might fall on them personally.

Gilbert Yes, and here AMP treated as a legitimate third party claim falling within the terms of the policy the claim that Mr Walker was making, claiming he was a third party, he suffered a personal loss and he made a claim for it. Mr Todd also suffered a personal loss. Now those are the facts. He paid that money out of his own pocket

Blanchard J So you say it makes a difference that they elected to split? Gilbert Yes because you end up in a position that he has got a loss.

Blanchard J Well in that case they were very foolish splitting it. They should have gone to IRD together and said will you take $72,000 from us collectively and then I think you were saying AMP would have accepted the claim.

Gilbert It wouldn’t have succeeded, it would have been a claim within the operative clause but that’s as far as it would have progressed.

Blanchard J Well causation

Gilbert Causation and

Blanchard J But we’re putting causation to one side, yes. Gilbert Then I agree with Your Honour.

Blanchard J Though I can’t see that it can possibly make a difference because they decided to settle it by splitting it. That’s just a technicality and it’s not one that is worthy of AMP putting up.

Tipping J Could I perhaps

Blanchard J Well it’s got very big ramifications for law firms and I just don’t think it’s a responsible attitude of the insurer to take this point.

Gilbert But you have the difficulty don’t you Your Honour, and the difficulty that we have with this is that if Mr Todd has suffered a personal loss, nobody else has suffered the loss, and the loss arises in circumstances

Elias CJ Well Mr Walker has suffered it too. Gilbert No, no that’s been dealt with.

Elias CJ No but that’s the way they’d chosen to do it, but if Walker had gone and paid the whole lot AMP would have indemnified him. He would have been entitled also to contribution from Todd wouldn’t he?

Gilbert Yes, well yes, although in this case it’s the other way round because

Mr Todd paid the

Elias CJ But why should it matter?

Gilbert Well the reason it mattered – I understand the point Your Honour is making as a matter of pragmatism but what we are faced with is a claim for a personal loss suffered by Mr Todd in respect of which he complains about his own advice. He says ‘I was negligent and I caused myself loss’. That’s the situation we’re confronting.

Blanchard J What if another partner in the firm had given that advice but they did the same apportionment as between the Trustees of the liability?

Gilbert Well the authorities seemed to indicate that there is no. I mean the joint and several liability of partners arises under the Act because of provisions in the Act in dealings with third parties, so if there is a third party in Mr Walker’s case, Mr Todd’s negligent, all the partners are jointly and severally liable because of the Partnership Act. Were it not for the Partnership Act the position would be that the claim would be limited against the wrongdoer, so if it was Mr Macalister who gave the advice to Mr Walker, sorry, if Mr Todd, sorry if we take this example that we’re considering here, Mr Todd’s got a personal loss, he gets poor advice from Mr Macalister, a partner in the firm, he can pursue a claim against Mr Macalister but not against the other partners because he is not a third party, he doesn’t come within the provisions of the Partnership Act and here of course we’re in the even more improbable position where it’s

Blanchard J If he pursued the claim against Mr Macalister it would be covered under the policy. The policy indemnifies the firm and all the members of the firm and indeed I think it covers the past members.

Gilbert Yes present, past partners, employees carrying on professional services at the firm, it does, yes.

Blanchard J So if that’s right it’s going to make a difference then that Todd happened to be the partner who gave himself advice?

Gilbert Yes, because you can’t sue yourself in relation to your own negligent advice. Mr Todd gave himself negligent advice or failed to give himself advice, resulting in him suffering a loss. You can’t sue for that.

McGrath J Mr Gilbert if you can overcome this problem that I would describe as a problem of legal personality, if I could explore the Partnership Act

point you made, and I’m not hugely familiar with this provision of the Partnership Act to put it mildly. What’s wrong with saying though if you’d overcome the legal personality problem you simply have a contract between the Trustees and the firm which has been breached and there’s a liability for breach of contract never mind the Partnership Act, put it out of your mind because it brings in problems, surely there’s a right to sue for breach of contract.

Gilbert Yes certainly, so in the normal situation where the firm contracts with Trustees, one of whom is a partner in the firm, you have a third party, I mean if the Trustees or Trust suffers a loss or the other Trustee suffers a loss that’s a perfectly

McGrath J It is the only reason it doesn’t work here because of this rather formal position you take, formalist position you take on legal personality that you cannot say Mr Todd has a separate existence as a Trustee who’s lost money personally while acting as a Trustee in relation to Mr Todd as a partner in a firm which has not discharged its contractual obligations to exercise due care.

Gilbert Yes that’s right.

Blanchard J So you are just taking advantage of the fact that they happen to apportion the liability. If they hadn’t done that the claim couldn’t have been resisted because it would have been a collective claim by the Trustees.

Gilbert The taking advantage point I would resist but it’s an analysis in my submission, an appropriate analysis, of the facts that we’re confronted with which is Mr Todd has a personal loss; it is said to arise as a result of his negligence in failing to advise himself that is not a loss

Blanchard J It arose because he accepted personal responsibility for that part of the debt. If he hadn’t accepted responsibility for it, it would have remained with both himself and Mr Walker and they collectively would have been able to claim.

Gilbert Mr Todd couldn’t claim but Mr Walker could.

Blanchard J Alright but Mr Walker would have been responsible for the entire debt. Gilbert He would have been, I agree.

Blanchard J Sot it’s very technical.

Tipping J Mr Gilbert might I just at the risk of muddying the water tell you how I

see it and then it doesn’t really have any pejoraty of elements at all. Gilbert Okay.

Tipping J It’s really quite simple. The firm is covered for negligence committed in the course of professional activities by any person for whose negligence the firm’s responsible. It is the firm’s loss that should be focused on. The firm’s liability if you like. It is just incidental that the loss seems to have been suffered here by a member of the firm acting in two capacities. One the capacity as Trustee but the operative capacity is his capacity of being negligent and thus binding the firm to pay. Now it’s probably saying little more than what other members of the Court have said, but it’s the firm’s loss that they seek indemnity for. They being liable for the loss that Mr Todd has suffered personally because his negligence binds them.

Gilbert Well my response is that the provision that makes partners jointly and severally liable for the acts of any other partner who was negligent is the provision in the Partnership Act that is dealing with relationships between the partnership and third parties, so that’s the first point, so that if we were looking at Mr Walker we would have a third party. The third party is not

Blanchard J And if you were looking at the Trustees collectively you have a third party

Tipping J See this is the difference and this is why I introduced the subject by saying why is it not equivalent to a claim by a third party? I see Mr Todd as being relevantly a third party. It’s a third party loss for which the firm is liable. But we obviously have to part company. Forget all issues of whether you should or shouldn’t be taking the point, it just seems to me to be conceptually the correct analysis because although it’s a joint and several policy between the member of the firm, it is essentially the firm. I notice that both Macalister Todd Phillips, the firm and Mr Todd personally were plaintiffs. It would have been simpler in a way, and there may be some subtle reason why Mr Todd personally was a plaintiff, but really the firm were seeking indemnity under its policy.

Gilbert Yes it is. Yes but then that begs the question ‘it seeks indemnity in respect of what’?

Tipping J The loss the firm has suffered. Gilbert A claim

Elias But that’s the real point, what is the loss and it seems to me you’d be better to move on to that because

Gilbert I’ll move on to that

Tipping J I see the greater

Gilbert I’m not enjoying being on this point at all.

Tipping J Without causing you undue optimism I would have though your position is stronger with prejudice to whether it’s strong enough on the trading loss point rather than the not covered initially point.

Gilbert It was incredibly strong Your Honour

Tipping J That we will see. I think you have to fall at the first hurdle without prejudice to the second.

Gilbert Well all I can say before I leave on this because it does seem to me that it’s not a question of looking at the firm’s loss. The correct question is to say does this come within the operative clause of the policy. Your Honours have been talking about loss

Anderson J It’s a claim isn’t it?

Gilbert Claim, correct. If you look at the policy it says we will respond to claims. Now the question here is when Mr Todd, and insured person, suffers loss as a result of his own negligence, is that a claim?

Tipping J Yes, you’re absolutely right.

Gilbert Our point is it’s not a claim. A claim is a demand for compensation from a, necessarily from a third party so it is not a

Tipping J I understand. That is the correct

Blanchard J I think when he’s got his Trustee’s hat on he is a third party.

Gilbert He is I would agree if he is suing qua Trustee which is my learned friend’s point under s.33A go back to my

Blanchard J He is suing as a Trustee because it was as a Trustee that he incurred the personal liability.

Gilbert But the difference is, and I’m probably just repeating myself, but where you have the scenario that the firm negligently fails to insure causing loss to the caucus of the Trust, to the Trust assets, in that circumstance he is a third party. He is there only in a representative capacity. The Trust has suffered a loss and it can only enforce the claim in respect of that loss through the Trustees. Section 33A was enacted to say there’s no problem about you suing yourself. Where you are suing in relation to Trust property you can sue yourself, and that’s why it’s there. We’re not looking at that situation. This Trust has suffered no loss. We’re looking at his personal loss and we don’t have a claim for the purposes of the operative clause of the policy because Mr Todd can’t

Elias CJ Why do you say that the Trust has suffered no loss?

Gilbert Because

Elias CJ Because the Trust also suffered the loss. I accept that there is the additional imposition of personal liability but that’s only should the Trust be unable to pay so it ‘s really the same thing isn’t it?

Gilbert No, no, the Trust hasn’t suffered loss because the money went, all of the money was used for the benefit of discharging Trust liabilities.

Blanchard J This is the point that was made in Robert Mitchell.

Gilbert Exactly the same situation as in Robert Mitchell. Instead of paying that debt we paid that debt Trust position is exactly the same either way.

Elias CJ But the Trust was liable for the GST. Gilbert Sure.

Elias CJ Yes, so I mean if the Trust had brought the claim saying our liability for GST is caused by, or we could have minimised or managed the liability in a way advantageous to the Trust and therefore we have suffered loss.

Blanchard J You couldn’t do that. Elias CJ Couldn’t you?

Gilbert No, you can’t do that because the Trust had a liability here, had a liability there. The case

Blanchard J It didn’t increase its insolvency, it was merely a question of which creditor got paid.

Gilbert Correct, absolutely right, so the Trust position is completely neutral that’s why it’s not a loss to the Trust in respect of which you would expect Trustees, if there had been a loss to the Trust like in my insurance example with the Trust assets wasting because of non- insurance, then you would have Mr Todd and Mr Walker suing the firm no problem at all covered under the policy

Tipping J The essential point I think with respect the Chief Justice is averting to is their problem is that there were no assets at the Trust to which they could have recourse in order to compensate for personal liability.

Gilbert Absolutely.

Tipping J But that’s the essence

Elias CJ But the Trust was liable to GST, yes.

Gilbert Yes it was but it was equally liable to the BNZ.

Elias CJ Oh I understand that and then you’re right into that whole issue of causation in any event but if the Trust had been solvent it would have been liable for GST. If the firm had somehow been negligent in permitting to incur the liability for GST and you have to suspend disbelief for a moment in that because that’s effectively what’s being contended here, then the claim against the firm would be under the cover.

Gilbert Yes, if some how or other the Trust could have been better off as a result of some advice that the firm should have given

Elias CJ Yes but I think the Trustees are in exactly the same position. I think your much stronger point is how could the Trustees have been better off but I don’t see their position as being any different from the Trust and if the Trust was covered as I think it must have been in terms of the claim against the solicitors if they’d been negligent then so to must the Trustees and it’s irrelevant if one of the Trustees is a member of the firm.

Anderson J I believe the fundamental question was whether Mr Todd was entitled to sue the firm for deficiencies attributed to it arising entirely for himself.

Gilbert Correct, that’s right.

Anderson J And for his personal benefit not for the benefit of the Trust beneficiaries.

Gilbert Correct, correct, and that’s where we say in the rather peculiar situation that we’re confronting here the answer is no you can’t sue for your own loss.

Anderson J That’s an interesting analogy. An interesting point might be if there were a sole Trustee, sole practitioner, who neglected to advise himself to create an indemnity from the Trust assets at the earliest opportunity and could he then sue himself and claim under his professional indemnity policy.

Gilbert It could raise a few eyebrows. And then the insurers would then of course take over the conduct of the claim

Anderson J Against himself.

Gilbert Yes, requiring his co-operation.

Anderson J Take another case of a sole practitioner who purchases property and gets his legal executive to carry out the conveyancing and the legal executive is negligent. Can the practitioner claim on his professional

negligence policy the loss he’s suffered because he’s vicariously liable for his legal executive’s negligence?

Gilbert And I think coming back to the Chief Justice’s position, as I understand what Your Honour was saying, and I agree with Your Honour with respect that Trustees here are in no different position from the Trust, either way they were liable, but the thesis and if we can just stay with the thesis for the moment of the respondent’s case was, the Trust position was neutral, they accept that. The Trust didn’t suffer a loss but there, and it was a misconception in my submission, but

Elias CJ Well I really query whether that’s right because if the Trust was liable for GST notionally it suffered a loss. It didn’t have any assets so no one was going to, it didn’t suffer a loss in the sense of having to make payment, but it did suffer a loss. It was liable.

Gilbert Well yes but that’s not the claim. The liability arises through selling.

It’s not suggested that there was negligence giving rise to a decision to sell this property so we’ve got a liability and everybody accepts, that’s not the lawyers fault. The thesis that the respondents advance in the case is that actually that was a special liability because Trustees have personal liability in relation to it whereas they didn’t in relation to this other debt. That was the thesis. Therefore if advice had been given the Trustees could have benefited themselves by taking that money and applying it to something that they were liable for, improving their own position but with no different outcome so far as the Trust is concerned which was liable for both, so it didn’t matter which got discharged.

Elias CJ Well that just seems to me to be right into was this a trading loss or was it a professional negligence induced loss, and that just seems to me to be what the case is about and I don’t know why we’re talking about legal personality and what capacity and all of those things.

Gilbert I don’t want to tire you any longer on the point unless anybody’s got any questions on that point should I move to

McGrath J You accept don’t you that the firm had a duty to the Trust itself but also a duty to Trustees for the skilful management if you like of the transaction in a way that would not cause them personal loss independently of Trust loss?

Gilbert Yes if we stayed with Mr Walker’s position for the moment, if there was a contract of retainer between the Trustees and the firm to give relevant advice to the Trustees, both in relation to their personal position and in relation to safeguarding the interest of the beneficiaries under the Trust then yes I absolutely accept that and if a third party, namely Mr Walker, suffers loss as a result of that he can bring a claim, he is a third party and because he’s a third party and because of the Partnership Act not only is the negligent person within the firm liable, the whole firm is liable, all the partners are liable.

Tipping J Could I just have some and I hope it will be final help on this point?

What is your position if another member of the firm or an employer of the firm - I think Justice Blanchard and you were exchanging some observations on this – and I wasn’t quite sure what your position was Mr Gilbert. Say it hadn’t been Mr Todd that negligently omitted to do whatever he was supposed to have done, that it had been someone else within the firm who was responsible

Gilbert Causing loss to Mr Todd.

Tipping J Causing loss in exactly the same case but someone else, not Mr Todd, wrongly failing to advise himself.

Gilbert Well Mr Todd would be entitled to sue the wrongdoer because the common law right to sue in relation to negligence applies but the Partnership Act wouldn’t apply. The Partnership Act is the one that said all the other partners are equally liable, that’s only where they’re dealing with third parties. So if we were talking about Mr Todd we’re confining our interest to his loss and to him then the answer is he can sue the wrongdoer but he can’t hold his other partners responsible.

Blanchard J But that his wrongdoer’s covered by the policy?

Gilbert Correct. Here it makes no, well we still get back into what is a claim?

Is it a claim by a third party against the insurer and he’s an insurer, so I think we still would run up against the difficulty in terms of the operative cause of the policy that we’re not confronted with that claim.

Tipping J But in that situation Todd would have a qualifying claim, a claim qualifying under the policy? Because I think you’re right, we focus not so much on loss but it’s a question of whether the claim is in

..10.56.43??

Gilbert Two points about that. The first point is leaving the policy to one side for the moment, can he claim, the answer is yes. He can sue the wrongdoer but because he’s not a third party in terms of the Partnership Act he can’t hold his other partners responsible. Then the.. That got a frown.

Tipping J It did get a frown Mr Gilbert, you’re very astute. I was frowning simply because I’m just trying to follow it through. Say it was Miss Smith, the legal executive, and Miss Smith fails to advise the Trust or any member to do what it’s supposed to do as strange as it seems in effect, the Trust then, and Mr Todd is a Trustee, if suffering loss consequent upon that advice sues Miss Smith. Are you saying Miss Smith is not entitled to indemnity under the policy because Mr Todd is not a third party?

Gilbert I was taking it in two steps, whereas your collapsing them into one.

The first question is can you sue at all, never mind the policy? Tipping J Yes, answer yes.

Gilbert Answer yes, you can see the wrong

Tipping J She having a duty of care?

Gilbert That’s right. The next question, who else is liable? Is anybody other than the wrongdoer liable? The Partnership Act would say if you’d been dealing with a third party all parties would be liable but because he’s not dealing with a third party actually only the wrongdoer is. That’s the only reason that the

Tipping J Well that’s where I start to frown.

Blanchard J Who is it in that that is not a third party? Are you saying that the

Trustees collectively are not a third party?

Gilbert Well I thought the example we were examining was Mr Todd himself. Blanchard J If he was a sole Trustee.

Gilbert Yes, so we had Mr Todd, sole Trustee, suffer the loss as a result of somebody in the firm negligently advising him, then as a matter of law he can sue the wrongdoer but he’s not in the situation of being a third party and therefore he doesn’t get the added advantage that is available under the Partnership Act for third parties dealing with the firm where everybody’s jointly severally liable whether they’re wrongdoers or not.

Tipping J But wouldn’t that mean that the device to get around this problem is to get another Trustee if there’s more than to sue for the whole lot and then shout out to the

Gilbert That’s Justice Blanchard’s

Tipping J Well it’s Justice Blanchard’s point with a twist on it. Gilbert I agree with you.

Tipping J Which it makes the whole thing very artificial doesn’t it? It’s just fortuitous that in this case it’s been subdivided.

Anderson J If the insurance is paid out to the other Trustee then they’d have rights of subrogation to claim contribution from Mr Todd.

Gilbert But he’d be entitled to get indemnity under the policy

Blanchard J So what AMP is doing is just taking advantage of the way in which this happened to play out.

Gilbert Well Your Honour says that, but it’s the taking advantage comment

Blanchard J Well it is.

Gilbert Well it’s actually analysing the position

Blanchard J Well I don’t think it’s in the spirit of the policy and if I was insured with AMP for my law firm I’d be pretty uncomfortable about it. Well it’s got wide ramifications for law firms generally and I imagine AMP insure quite a number of them.

McGrath J You would say wouldn’t you Mr Gilbert that your client pays a premium for a certain and when the risk stops there is nothing contrary

..11.01.00 ? refusing to pay a claim. Gilbert Yes that’s right.

McGrath J Well I understand that perfectly.

Anderson J Mr Gilbert is it the case that other members of the firm did work from time to time for the Trustees in their Trust activities?

Gilbert Yes but not relevant to this loss.

Anderson J But it’s not really as significant as whether the Trustees were looking to other members of the firm under a general retainer because that might impose obligations on other members of the firm to give them advice that Mr Todd neglected to give himself.

Gilbert Yes but here the case is put the claim is explained on the basis that Mr Todd negligently failed to advise himself, is what he says. Yes I mean at para.19 of the statement of claim the first plaintiff, that is the firm, through Mr Todd failed to require Mr Todd and Mr Walker to pay this money and the evidence was all about

Tipping J Well let’s move into trade.

Gilbert Perhaps we should have started here.

Tipping J Oh no Mr Gilbert it’s logically the first question. I applaud people who take things in logical order, it seldom happens in this Court.

Gilbert This point is picked up on page 15 of our submissions, exclusion 8, which we’ve set out there. The policy itself if you prefer to look at that starts at 140 and the relevant provision is on 141 of volume 2.

Tipping J Are we right to see this as a claim rather than a loss?

Gilbert Yes we are. If you go back to the operative clause you will see that, it’s actually probably not the most elegant provision, but the indemnity subject to the terms of the policy is in respect of claims first made, so this is a temporal description - claims first made or losses first discovered. So we’ve got two types of cover, one for claims, one for losses, but then it goes on under item 1 you’ve got claims made against the insures and that’s what we’re talking about and losses due to dishonesty of employee. So there is fidelity cover here as well as claims in relation to third party claims.

Tipping J Yes that’s where I misled myself before.

Gilbert Right. So we are relevantly talking about claims and the exclusions if you go through them you will see that it excludes pre-existing circumstances. Obviously losses and claims that were known about before or otherwise covered and so on. Under 8 we are looking at excluding claims arising from a trading loss or trading liability. Well we clearly are looking at that. This is a liability as a result of the trading of the Trust. That’s a business. It is managed by or carried on by the insured. The insured is defined to include at 142 not only the firm and its predecessors but partners and others in the conduct of the professional services of the firm so here we have the situation where Mr Todd says ‘I am a Trustee in the conduct of the professional services of the firm; I’ve set that appointment, it wasn’t uncommon; I’m an insured’ and we’ve posed the question under exclusion clause 8,

‘well is this trading liability incurred by that business, managed by you’, answer ‘yes’. And the point of this is that the policy does not indemnify in relation to these liabilities that partners are tracked through their training activities. And that’s a very common exclusion and it doesn’t really matter whether there’s some negligence in the way, the issue is what is the liability that you’re seeking indemnity in relation to it. If it’s a trading liability, it rises out of a trading liability that you yourself have through running some business, we won’t cover it under this policy.

Anderson J What if the true nature of the claim is the loss of opportunity to be indemnified out of Trust assets?

Gilbert So a negligent failure to advise as a result of which there might have been an indemnity, you still have to answer the question ‘is this a claim arising out of this liability, it does arise out of that liability’.

McGrath J Is the trading liability the imposition of GST in your view? Gilbert Yes it is.

McGrath J Well I would suggest that it’s not that as we’ve agreed during your earlier argument. The liability was a tax and was a fact of life once the

transaction had happened. It was rather a liability that arose from the way the firm managed the flow of funds in the course of conducting the conveyancing and paying off those who had to be paid off and that that doesn’t come within the terms of a trading loss because it if you like it was an intervening negligent event from which the loss arose, not the original event, so it doesn’t arise from the loss.

Gilbert Well then the answer to that in my submission is this that you don’t get into this policy to base 1 unless you come under the operative clause. You don’t get to base 1 unless you’ve got a claim for negligence arising out of the professional services of the firm, so you have to have that otherwise you don’t even get into the operative clause.

McGrath J Agreed.

Gilbert So you’re automatically looking at negligence on the part of a partner or an employee or somebody like that, somebody who’s insured, so we’ve already got negligence then we ask the next question despite that negligence that would otherwise fall to be covered what does this claim arise out of? The claim arises out of this liability, this trading liability and the insurers are clear and this is as I say a very standard exclusion.

McGrath J Don’t worry about the morality, I’ve got no problems of anything of that kind, but I’m not making my point very well perhaps Mr Gilbert. What I’m saying is that the words arising from denoted to degree of connection, now you’re saying it arises from the imposition of the tax by law on the sale. I’m suggesting to you that that may not be so. It may be that the loss arises from the manner in which the transaction was there, the sale transaction was there after administered and so it’s that that if you like generates the loss, not the fact that the tax was originally imposed. That’s in the background, but when you look at a rising from a trading loss you’re looking at the if you like the most direct connection to Court as the loss and that that was something other than the imposition of GST, it was the negligent manner in which professional services were performed.

Gilbert And my response is your negligence gets you to base 1 under the operative clause. You have to have that, so that can’t be enough to provide an answer to exclusion 8 because without that negligence you wouldn’t even be looking at exclusion 8, you wouldn’t have even got through the operative clause.

Tipping J You’ve got to be otherwise liable to indemnify before you need exclusion 8.

McGrath J Yes.

Gilbert Because you’ve been negligent the provision of professional services because that can’t be the answer, it can’t be the answer with respect to say well no this claim arises out of negligence therefore it doesn’t arise

out of a trading liability exclusion 8 has got no application. If that were right there would be no practical benefit or purpose to exclusion 8 because you’d simply be answering the question that’s posed under the operative clause.

McGrath J Well the practical benefit would apply in the sort of case that Justice Laurenson was dealing with that has been cited, where there was a direct trading loss caused by the solicitor undertaking a trading activity, not if you like a basic liability with a subsequent event and the negligent conduct of conveyancing transaction which caused the loss.

Gilbert But in that case there was a failure to adhere to a solicitor’s undertaking to pay that liability. That’s the intervening event here, the intervening event alleged as the negligent failure to do something about it when the opportunity was there to do so and my point is that in both cases to interpret that intervening event, whether it’s the negligence or the breach of undertaking, is something that removes the operation of exclusion that can’t be right because that intervening event is the only thing that gets you to look at exclusion 8 in the first place because it’s the only thing that gets you through their operative clause.

McGrath J Right, thank you.

Tipping J Is the point further illustrated Mr Gilbert as if one were to put the words, and I’ll tell you the words in a moment, arising from a trading loss or trading liability incurred by a third party being a business managed by or carried on by the insured? You know my insertion of the words ‘by a third party’ makes it perfectly plain that the liability, or the character of the liability or the loss which is excluded is what it is for the third party claimant. It’s got nothing to do with the conduct if you like of the solicitors. It’s characterising a certain type of claim or loss that would otherwise be covered but is not to be covered.

Gilbert Yes correct, I agree with that.

Tipping J I understand the force of the point and you’re saying that the character of this loss which promotes the claim has a trading connotation.

Gilbert Yes, yes exactly. Tipping J But

Gilbert Well it’s a trading liability. Importantly it’s not just that it’s a trading liability of course, it’s a trading liability of a business managed or conducted by the insurer, and that’s the critical thing.

Tipping J Well yes it is indeed, but I’m treating that as perhaps being less controversial for present purposes. It may prove to be more so than I’m allowing but

Elias CJ But that’s true of course if you characterise the claims arising out of the tax liability but that’s really not what is being suggested here. It’s the negligence of the firm and then you get into this question of whether the negligence of the firm was operative at all.

Gilbert Which is the third point. Tipping J That’s the causation point.

Elias CJ I know but I just can’t see that there’s any other point. Gilbert Okay.

Tipping J Well I’m sorry but I think there is. I didn’t originally but I now see that the loss is not the loss suffered by the solicitors, it’s the loss suffered, or the liability incurred by the third party

Gilbert Claimant, yes Tipping J Claimant. Gilbert Correct.

Tipping J It’s a type of claim

Gilbert Yes

Tipping J Which would otherwise be covered but is not actually covered. Gilbert Exactly.

Tipping J And I think it’s more difficult than perhaps I originally might have been inclined to think

Anderson J Of course the insurance is in respect of professional services, not running bus companies or farms or property development.

Gilbert That’s right.

Tipping J So it’s always going to be for negligence

Gilbert It has to be otherwise

Tipping It’s the character of the loss or liability for which the claim is made. Gilbert Yes that’s right, so there’s always going to have a claim by a third

party for loss arising out of negligence.

Tipping J And you’ve got to have the insurer involved in the trading operations.

Gilbert Correct. Tipping J Obviously. Gilbert Yes, exactly.

Tipping J So if a partner in a firm where a director of the company which the firm was advising

Gilbert Wouldn’t be covered under this policy.

Tipping J No, it wouldn’t would it, according to your client’s interpretation. Gilbert You’d need a different sort of policy for that type of cover. Tipping J Or you need an extension

Gilbert You would have a D&O policy.

Anderson J A business would have a business policy at risk.

Gilbert Yes well the director in Justice Tipping’s example would be covered under a Directors and Officers type of policy, not a PI policy.

Tipping J I’m not saying it’s a problem, I’m just thinking that you’d have to be alive to that. The firm wouldn’t be liable for a trading whilst made by this company unless the partner was directly covered qua director.

Gilbert Yes, that’s right.

Tipping J I’m just thinking through the ramifications of it.

Elias CJ What does, and this is perhaps just an idle thought, the definition of professional services includes when acting as Trustees, what does that mean?

Gilbert Well it makes it clear that for the purposes of this policy such activity is covered within the scope of professional services and therefore cover.

Elias CJ What activity?

Gilbert It goes back to the operative laws so there is an indemnity in respect of claims in the relevant period arising out of this type of conduct, so it’s descriptive of the conduct which falls to be covered or considered under this policy and this makes it clear that such activity or conduct includes when acting as a Trustee.

Tipping J But the counter-balance is that although you’re in as a Trustee, you’re out if it comes under exclusion 8.

Gilbert Absolutely.

Tipping J That’s the argument isn’t it? Gilbert Exactly.

Tipping J So if you’re involved in a trading operation qua Trustee as opposed to some other form of operation you’re not covered or the claim is excluded if you like vis a vis, the insurer’s liability.

Gilbert Yes, depending on the nature of the claim. Tipping J Quite.

Gilbert Yes.

Tipping J I understand the point.

Gilbert So for example to go back to my example of the, let’s supposing the example that I posed earlier of the negligent failure to ensure trust assets. If the Trustee had negligently failed to ensure Trust assets rather than the firm, the Trustee had done that and the Trust therefore suffered a loss which had to be pursued in the name of the Trustees, then that would be a third party claim, s.33A would apply. You’ve got a claim for loss to the Trust has to be enforced through, somebody who’s an insured, you’re in the operative clause, you come to clause 8, it doesn’t apply and the insurer wouldn’t turn around and say ‘I’m sorry I’m not covering that’ because you were acting as a Trustee not as a solicitor. It doesn’t matter we’ve said that is covered under this policy. That’s part of the professional services that you are performing and under this policy you have secured cover for that sort of activity.

Tipping J A pretty key word then under this exclusion 8 is the word ‘trading’.

It’s all about commercial activity.

Gilbert Commercial activity in the management of a business and incurring those sorts of liabilities.

Tipping J And this Trust was in the business of what - buying and selling properties?

Gilbert Yes, it bought these properties at Lake Hayes, Queenstown and Frankton Road (I think that is near Queenstown as well). So there were two separate property developers and there was no question it was in business as a property developer incurring these sorts of liabilities the Trustee was managing that business and he was an insurer so he’s not covered for that sort of claim in relation to that sort of liability.

Tipping J The Court of Appeal tipped you out on this one didn’t they. They really didn’t get into at all.

Gilbert They went as far as to say that this had been argued. I’ve said no more about it at all.

Tipping J I see, we aren’t engaged in examining their reasoning because there isn’t any.

Gilbert There aren’t any. Tipping J No.

McGrath J Just listening to you exchange with Justice Tipping Mr Gilbert, I’ll just come back because I’m still not quite sure about your answer. If Mr Todd had said my goodness one day I’d never heard of this provision for personal liability, and I think he did say something like that in the course of the evidence, I’d be hit by it, however I can recover this from under the policy and he made a claim, I can well understand it being said that ‘no that’s the result of a trading situation, you chose to be Trustee even though you’re a solicitor selling property?? but this still does seem to me that there’s something different when he doesn’t say that and he’s relying on the subsequent conduct of the transaction. I suppose what I’m putting to you is that the first situation does give the policy some operative force. I had put to you a situation which the theory I’m advancing the policy would work, you know, it would exclude a claim, but I’m suggesting that once you’ve got into the immediate cause, the proximate cause, that which is really what is arising from the company is concerned with, you’re right into the area of negligence and that is what is covered by the policy.

Gilbert Well you have to be, you have to be in the area of negligence to get past your

McGrath J Yes, so what is the element that is not satisfied contrasting the two situations, because it’s not enough to say ‘well you have no, the exclusion never operates”.

Gilbert Right, let’s go back to my insurance example if that’s alright. So let us suppose the Trustee carrying on professional services of the firm negligently fails to ensure Trust assets and is pursued by the co- Trustees, you are liable for that, that’s absolutely your error and Mr Todd doesn’t require proceedings which he acknowledges that was his error and makes good the loss.

McGrath J Yes.

Gilbert Okay, and then pursues cover under the policy, actually it’s probably not a good example using Mr Todd again but if he pursued cover under the policy this trading liability wouldn’t be the issue, it’s the loss

arising out of the negligence. So this is really carving out of claims that would otherwise be covered because they arise from negligence in the performance of professional services. It’s saying there’s a subset of such claims that’s not covered because of exclusion 8. ‘What’s that’. It’s a claim for, or actually it’s less than that, it’s arising out of its more tenuous connection, arising out of this training liability. That’s precisely what this is. There’s a trading liability incurred by business, carried on or managed by him as an insured, that sort of a claim. A claim to be paid for that sort of liability that’s carved out of the superset of negligent, claims for negligence that is covered by that operative clause.

McGrath J Okay, thanks.

Elias CJ I have absolutely no difficulty with that at all but I would like you to explain where I’m going wrong. Effectively the Trustees here were carrying on business as property developers. Their liability for GST in respect of that is not covered by the policy even though one happens to be a partner in the firm that’s covered, but what’s being said here is that the firm was negligent in some respect which would have allowed the Trustees to not be liable. I mean it seems to me it’s the causation question. If there was some respect to which the firm was negligent in its advice to these trading Trustees so that they have incurred a liability that wouldn’t have incurred, then that is, it seems to be subject to the cover.

McGrath J Or they continue to have a liability that otherwise would have been met. That’s what seems to me the situation.

Gilbert I’m not sure that I can do better than giving the same answer because you still have to start with a claim for professional negligence.

Elias CJ Yes.

Gilbert So it’s not incurring of the liability that gives rise to the claim. You don’t just get there because you’ve got a liability.

Elias CJ No, no well I totally accept that.

Gilbert So right back at the operative clause we’re examining the question that we got. We say a third party pursuing a claim for compensation against the insured. First question, and it will only arise if confined by professional services and it’s confined by its negligence claim. We’re not covering you for theft and things like that unless it’s the fidelity cover under your employees which is relevant here. So we’ve got a claim for negligence. We say all that’s covered, so far so good. One type of claim however is not covered of that type and it’s the claim for negligence arising out of professional services performed by the firm giving rise to, no not giving rise to it, for the trading liability. The claim is for that training liability. We want to be restored for that

trading liability that they’ve incurred while they managed the business. They say they want to be restored and they say they’re entitled to be restored because of negligence. They had to say that before we got there. They had to say that didn’t walk pass the operative clause and we’re saying no that type of claim that does come within the operative clause is out here. What are you asking for? Your asking to be restored in relation to this trading liability

Elias CJ Again I totally accept that. I accepted that when we walked into Court. Gilbert I don’t want to dissuade you from it then. Well I’m sorry I’m

obviously

Elias CJ No, no, it’s obviously me that’s sort of a vent or two off.

Tipping J It’s as if it said arising from a trading loss or trading liability caused by the insurer’s negligence but incurred by business.

Gilbert Yes, that’s right. That’s a good way of saying it. Elias CJ Say that again.

Tipping J It’s as if the clause said ‘arising from a trading loss or trading liability caused by the insurer’s negligence but incurred by business managed by or carried out by the insured.

Elias CJ Well it is

Tipping J It’s only those sort of claims that would otherwise be covered. Gilbert Exactly.

Elias CJ They may be quite distinct claims though for different losses, irrespective of different losses or different liabilities. That’s the point and really that’s for the respondent to make out that it is not a trading liability, because if that is what’s been claimed for then clause 8 clearly extends it.

Gilbert Yes that’s right and that is what’s being claimed for. Mr Todd had that liability, had to pay for the revenue and he wants cover for it under this policy and it’s not covered.

Tipping J He’s making a claim against the insurer? Gilbert That’s right, in respect of

Tipping J In respect of that loss? Gilbert Yes that’s right.

Elias CJ It has to be dealt with on a conceptual basis though. It is conceptually possibly that people could incur a trading loss which had they been properly advised they wouldn’t have incurred. It’s not the trading loss they complain about, it’s the negligence which caused them to incur a loss.

Tipping J That’s why they’re claiming, but the character of what they’re claiming for is what excludes them.

Gilbert That’s right.

Tipping J I think is the argument. I’m not necessarily forecasting a concluded view Mr Gilbert.

Gilbert No, no, I can’t put it any better than that Your Honour.

Tipping J You can’t make a claim unless it’s covered by this policy unless you’re asserting negligence, I mean you’re not indemnified for any other sort of claim.

Elias CJ Well that’s obvious isn’t it?

Tipping J I’m sorry but I must have the misfortune of seeing the distinction that

Mr Gilbert’s endeavouring to make. Gilbert I’m not enjoying today.

Tipping J No, no I didn’t mean it quite in that sense Mr Gilbert.

Gilbert Well now I don’t know unless further discussion on this point is going to

Elias CJ Oh yes, we’ll take morning tea. Thank you.

11.30am Court adjourned

11.47am Court resumed

Elias CJ Yes Mr Gilbert.

Gilbert Can we then turn to this issue of causation? Now the claim here, we actually see the notified claim in volume 2 at 223 that the notified claim which is picked up in the pleading at para.19 of the amended statement of claim is that the negligent failure was failing to advise that the money that was paid to the BNZ ought to have been instead to the Revenue in relation to GST. In our submission the Trustees had no right to deduct from the proceeds of sale of the Towne Place units the amount payable in respect of GST or any other taxes. As a matter of

law BNZ was entitled to those monies and for that we rely on the Rob

Mitchell decision which Court of Appeal

Tipping J Sorry what page are you reading from Mr Gilbert? Gilbert In my submissions.

Tipping J Oh in your submissions. I’m sorry I thought this was a remarkably splendid letter if it contained that passage.

Gilbert Oh thank you Your Honour. No, no I’d moved really just from there just to say what was the pleaded claim and it’s that point that

Blanchard J The BNZ was entitled to the lot under its mortgage Robert Mitchell. Tipping J That’s not in dispute anymore at all is it?

Gilbert Well the Court of Appeal certainly reached that conclusion and I don’t understand how there could be any dispute with it. Not only was that the position, not only was the BNZ entitled to it, they had an undertaking from the firm to receive these proceeds and we see that at

175 of volume 2, that’s the letter from the Bank on the 23 March 1995 forwarding the mortgage against the firm’s undertaking to provide the Bank with the balance sale proceeds. And then we add to that the further point that it appears that the Trustees did not limit their own personal liability in relation to the Bank borrowing. So there are three reasons why there was only one place for that money to go, namely the BNZ.

McGrath J It doesn’t really come down though to the undertaking at page 175 because if within the terms of that letter the money could have been taken off, siphoned paid for the tax,

Gilbert If the Bank

McGrath J The Bank did all the right things.

Gilbert Yes, if the Bank had authorised that but that would have enabled them to get around the undertaking it would get around the Rob Mitchell point, but it wouldn’t get around the fact that the Trustees were in any of that personally liable for that debt as well as

McGrath J Under the mortgage?

Gilbert Yes, correct, as well as the tax.

McGrath J I understand what you’re saying but just to come back to the letter at page 175, now the undertaking is to pay the balance sale proceeds, so obviously something is to be taken out of the sale proceeds before the Bank gets what is due in terms of this letter. Now can I just explore

with you what could be taken out? I presume to state the obvious any costs associated with leasing the mortgage so a clear title could be given would have to come out?

Gilbert Yes I agree with that, in fact the sorts of things that could come out were discussed in the Rob Mitchell case and it might be helpful.

McGrath J Oh okay, thank you.

Tipping J There’s no real argument, sorry I don’t wish to cut across my brother’s point, but there’s no real argument that the Trustees could have withheld money. It’s common ground isn’t it that all the funds have to go to the Bank? The real issue on this causation is is to what that actually meant, vis a vis, the effect of the so-called negligence. I mean no one’s suggesting are they that more could have been held back from the Bank.

Gilbert I think that was the notified

Blanchard J How would you know what to hold back, because you don’t pay GST just as a percentage of the amount of the price, your obligation to pay GST is an accounting obligation at the end of the period when you do a balancing of output and input.

Gilbert Exactly.

McGrath J Well that’s a point that hadn’t occurred. You want to go to the Mitchell case and whether that’s actually going to help with what the phrase ‘part of the sale proceeds’ cover I’m not sure.

Blanchard J No I think that’s all in Mitchell, yes.

Gilbert I think on the point that Your Honour is raising

McGrath J Yes

Gilbert I think very much the pleaded claim is that the negligence was in not holding it back and diverting it somewhere else.

McGrath J I’m sorry, just say that again, the negligence was not

Gilbert Was not taking the money, holding the money back from the BNZ and applying it to the Revenue

McGrath J To pay off the tax liability whenever Gilbert Out of the BNZ’s money, yes. McGrath J Yes, yes.

Gilbert And what we say is well you’re not entitled to that. 175 doesn’t entitle you to do that

McGrath J But that does bring me back to what, if I can go back to where I was just a few minutes ago. Please go to the Mitchell case if that’s going to help but I’d just conceptually like to explore what can be paid and what can’t be paid and where the dividing line comes.

Gilbert Right it’s at para.25 of the Mitchell case. It’s not in the authorities I

don’t think but I do have copies of it here if that would help. Elias CJ Yes Please.

Gilbert Para.25, about the middle of that paragraph.

McGrath J Rates, agent’s commission, solicitors’ fees and disbursements. Gilbert Yes, but not GST.

McGrath J That qualification reference to liens and rights what does that extend to, the solicitors’ fees and expenses

Blanchard J There the means of protection of the agent’s commission and the solicitors fees and disbursements.

McGrath J The agent’s commission as well?

Blanchard J Yes, because what happened as typically happens is that the agent had deducted the commission in accounting to the solicitors for the deposit.

McGrath J I understand the reality of that. So why is it that the tax liability that is created by the sale transaction is not included in this phrase ‘the balance sale proceeds’?

Gilbert Well just as His Honour Justice Blanchard pointed out there’s the practical difficulty that here you’ve got trading

McGrath J I understand the timing point.

Gilbert Well it’s not as if, the obligation on the part of the Trustee is to account to the revenue for GST is dependent not only on GST it has collected, but also in relation to input credit for tax that its paid, so that that’s the obligation and it is only ever able to be assessed at the end of the relevant accounting period.

McGrath J But wouldn’t it answer that point to say simply that a sum would be retained on the basis that there was no input credit available to net off and at the end of the month if it turned out that there was a further sum would be paid to the Bank?

Blanchard J Well no such arrangement was ever made.

Gilbert If they’d gone to the Bank and said look we don’t know what our GST liability is going to be but an aspect of it will include the GST that we’re collecting from the purchaser on the sale. Do you mind if we hold that aside because we all have a personal liability to pay any taxes that are overdue and the Bank had said yes to that, that would be fine. But there’s no evidence of that.

McGrath J Of course Mr Gilbert, and I do understand I think the point in relation to when the liability would accrue and it will be a net liability at the end of the GST period, but I just want to get from your point of view why the character of that payment is different to the sorts of payments that are discussed in the MitchelI case at para.25. What is it which

Blanchard J It could be because those payments rank ahead of the mortgage as a matter of law. GST doesn’t.

Anderson J Commission is a preferred creditor not a secured creditor. Blanchard J A preferred creditor is an unsecured creditor, yes.

Gilbert It’s actually all explained in the Rob Mitchell judgment.

McGrath J So one answer to the question might be picking up Justice Blanchard’s points that monies which have some form of protection are paid off?

Gilbert Yes.

McGrath J But isn’t it arguable at least and I’m not putting it any higher than that, that a payment to discharge a liability that was generated by the sale transaction is also covered?

Gilbert It’s not a cost of effecting the sale, it’s a tax payable in respect of it, yes.

McGrath J Are you saying it’s too remote from the sale transaction?

Gilbert I’m saying it’s not covered by what the BNZ permitted. When they refer to balance that just cover it and there’s no evidence from the BNZ saying we were happy for that deduction to be made and that as a matter of law the Bank otherwise, subject to any agreement that it might enter into, was entitled to that money ahead of the GST.

Tipping J Balance must mean subject to elaboration that to which we are entitled. Gilbert Yes.

Anderson J Some of these disbursements have to be met so you can effect settlement.

Gilbert Yes.

Anderson J You could never settle if you didn’t make allowance for rates one way or the other for example.

Gilbert Yes, and the position of the firm was put beyond doubt anyway in their own correspondence if you look at 239 in the case. We have a letter there from the firm to the Inland Revenue Department.

McGrath J Ah I couldn’t find this earlier.

Gilbert 239 is where the letter starts. It’s a letter dated 14 November 2000 and it’s a letter to the Inland Revenue at the time when they were endeavouring to settle the outstanding tax liabilities including GST, and if you see at the first new paragraph starting on page 240, you will see the acknowledgement that the Trustees were required to pay all of that money to the Bank of New Zealand.

McGrath J I think this is the letter that Mr Wylie says ‘if you’re going to make anything of it counsel at the hearing you should have put it to Mr Todd’.

Gilbert Yes I submit that that’s not a fair criticism in that what we had was Mr Todd giving evidence about what is meant by a disbursement. Now in my submission his evidence about what is meant by a disbursement is not admissible anyway and the word ‘disbursement’ in any event is not contained within the BNZ’s letter and so in my submission, I wasn’t counsel of course, but it was an appropriate response of counsel not to take issue with that because it’s irrelevant

Tipping J Look be all this as it may, it was never suggested that the negligence lay in saying you can get away with paying the BNZ a bit less if you want to be cute. Was there any such allegation?

Gilbert They were really saying don’t pay the BNZ with this money, give it to the IRD.

Tipping J Yes, well that was it, it wasn’t a question of you should have paid them a bit less, it was simply they were entitled, and indeed Justice Chisholm took the view didn’t he that they were entitled ahead of the Bank, but that of course is not consistent with the case you handed in, so I can’t understand there being any more arguments about it.

Gilbert And the matter’s put even further beyond doubt if we look at the next letter in this bundle which is at 242.

Tipping J For my purposes anyway you don’t need, it seems to me the point is extraordinarily simple. They didn’t have any money left.

Gilbert No that’s right.

Tipping J Therefore what possible difference could the negligence have made unless it can be shown that that’s not a point open to you or that the evidence is actually to the contrary.

Gilbert I agree.

Tipping J Isn’t it as simple as that Mr Gilbert?

Gilbert It is as simple as that. The point referring to this is that even the firm itself recognised that it was as simple as that and 242 is the other example of it. They say

Tipping J In what part of 242?

Gilbert Oh it’s the third paragraph where it starts ‘the long and the short of it was that the BNZ had mortgages against a number of properties for cross-secured and it was a condition of the discharge and release that all of the proceeds were to be paid. The result of this was that of course the GST on the sale transaction was not provided for or paid.

McGrath J Well I suppose what they say to Mr Everard is a bit different to what they might say to the Department which could be motivated by a variety of factors.

Gilbert They said the same thing to the Department.

McGrath J You’d say that’s really an admission, well yes they did but for my part it seems to be what they say to Mr Everard has more of a character of an admission if you liked than what you say to the Department. Some tolerance in how people deal with the Department’s are reasonable.

Gilbert Well our point is that they were correct when they were talking to the

Department and to Mr Everard.

Tipping J Alright to prove causation didn’t they have to show the plaintiff that there was some other money or asset to which they could have had resort and thus the negligence caused them some actual harm?

Gilbert Yes that’s right and on the contrary when the Revenue wrote to them on the 13 October 1995, just a few months after, they did in the agreed statement, it’s described that they did everything in their power to resolve that outstanding liability. They realised all the assets; they did what they could and ultimately there was no money to meet it. That’s the position. That’s the cause of the loss.

Tipping J That’s in an agreed statement is it? Gilbert It’s in the agreed statement

Anderson J And they hadn’t given assets away in the meantime. Gilbert No, no, exactly

Blanchard J Where is that agreed statement? Gilbert The agreed statement is

Blanchard J Page 60, is that the one we’re talking about? Gilbert Yes.

Blanchard J And which paragraph are you referring to?

Gilbert I’m referring to para.55. I perhaps should take you first to para.40 on page 10, or at page 69. So this was the 13 October 1995, Mr Todd getting the wake-up call from the IRD in relation to these GST arrears, so it’s very shortly after the transaction has settled and then on page 71, at para.55 right at the foot of the page it tracks through what has happened and then he advised, that is Mr Todd advised that the Trustees were doing everything in their power to try and get matters resolved. That’s precisely what they did. The agreed facts show that the Trustees did do everything in their power to try and get this liability resolved. They moved as swiftly as they could to complete the other two developments to get those sold but ultimately there were insufficient assets to meet the liability.

Tipping J Well they would have plenty of incentives.

Gilbert They certainly did. They did quite well in the settlement. Tipping J Yes very well.

Gilbert Those are my submission unless you have any questions Your

Honours.

Elias CJ No, thank you. Yes Mr Wylie.

Wylie Thank you Your Honour. Your Honours from the respondents perspective this is a claim under an insurance policy of Professional Indemnity Insurance Policy. They take the point that the policy is a contractual document and to the extent that there is any ambiguity or doubt about its terms that they are entitled to the benefit of that doubt. Now my friend Mr Gilbert started his submissions with some observations about the loss and how it was or wasn’t made up. He was rather cut off in those submissions by His Honour Justice Tipping on the basis that it was outside the grounds of appeal. I do not wish to traverse that unless Your Honours would like me to do so.

Tipping J I mean quantum

Wylie The quantum Sir, yes. Tipping J I certainly don’t.

Elias CJ No.

Wylie Thank you Your Honours.

Anderson J We don’t want to worry about the $2,000 difference.

Wylie Thank you. The first point in respect of which leave was given was whether or not the loss was covered by the policy. My learned friend Mr Gilbert relied essentially upon s.13 of the Partnership Act and suggested that that precluded proceedings being brought against the firm by a Trustee who was also a partner. In my submission that argument is misconceived and individual Trusteeships which a partner may undertake are not undertaken ‘in the ordinary course of business of the firm’ which is the wording used in s.13, and I’ve set up the authorities in respect of which I rely in para.12 of my submissions and in my submission Mr Todd, qua Trustee, was entitled to sue the firm of which he was a member, and I rely in that regard upon s.33A of the Trustee Act 1956. As I’ve related in my submissions there appears to be little authority directly in point but in my argument the provision is very widely drafted, in fact it’s difficult to see that it could have been more widely drafted. Mr Todd as solicitor was the adviser. Mr Todd and his co-Trustee Mr Lindsay Walker were the decision-makers and Mr Todd in his capacity as a solicitor and the ordinary course of his business as a solicitor in the firm rendered his partners liable for his negligent conduct as a solicitor. My friend then went on to argue that a claim by a third party is required and as I’ve submitted in my written submissions the short answer to the point is that there was a claim by a third party; there was a claim by Mr Todd in his capacity as a Trustee.

Anderson J For whose benefit? Wylie Benefiting Mr Todd.

Anderson J Not for the benefit of the beneficiaries of the Trust obviously?

Wylie Ultimately Sir the answer is ‘no’ because this Trust was wound up. It had no assets.

Anderson J Yes but it’s obvious that there was no question of benefit to beneficiaries, or loss to beneficiaries

Wylie No Sir.

Anderson J It was a personal loss which he incurred by virtue of having been a

Trustee involved in the trading transaction.

Wylie Yes Sir but with respect that begs the question, why did he incur the personal loss? He incurred the personal loss because of negligent advice or failure to advise

Anderson J He was always liable by virtue of the Goods and Services Tax Act. Wylie Yes Sir but for the negligent advice he received that personal liability

would not have come home to roost colloquially.

Anderson J So that although he had a personal liability under the Act he had under General Trust Order right of immediate indemnification on recourse to Trust assets to discharge it?

Wylie Yes Sir, yes Sir. And I have set out in my submissions in para.27 in particular, page 13 through to page 15 some practical arguments in the way of my friend’s submission that what is required is a claim by a third party.

Anderson J Unless he were a sole practitioner could he still claim on a policy like this?

Wylie Your Honour posed that question to my friend Mr Gilbert and in my respectful submission Sir yes he could in the correct circumstances.

Tipping J You're saying there’s no conceptual bar there may be factual issues, but there’s no conceptual one.

Wylie Yes Sir that’s correct.

Anderson J The reason why you can see yourself in a different capacity is for the benefit of beneficiaries. In circumstances where you may be liable in a way that it is adverse to the beneficiary’s interest. That’s the rationale on it but it would be an odd proposition of general law that you’ve got a duty of care to yourself and you can sue yourself.

Wylie Sir if you distinguish between your capacity as a solicitor and your capacity as a Trustee, a failing by you in your capacity as a solicitor has consequences for you in your capacity as a Trustee conceptually in my submission and in terms of 33A qua Trustee you are entitled to see yourself qua solicitor.

Anderson J But a duty in my capacity as Trustee to advise myself in my duty as a solicitor, sorry, other way around. A rather odd concept isn’t it?

Wylie Yes Sir it is but I suppose we’re essentially lucky we don’t face that here because of course there was a co-Trustee and there were other partners.

Anderson J Because if in the solicitor’s capacity being a negligent failure to give advice to the detriment of the beneficiaries then you could sue yourself because the duty of care is really to the beneficiaries.

Wylie Yes, and here in a sense Sir, if I could interrupt, there was in a sense a duty to attend to the payment of GST or to sort it out because of course the penalties ultimately became a charge on the Trust

Anderson J But the penalties aren’t an issue here though. They’re not part of the loss.

Wylie No Sir but if we are looking at what would have happened, if the GST hadn’t been paid, it was a charge on the assets of Trust, any penalties incurred for non-payment would equally have been a charge on the assets of the Trust

Anderson J But that would be a

Wylie And that would have depreciated the Trust for the benefit of beneficiaries.

Anderson J I see that but that’s a different type of negligence. It’s a different default. It’s a default in payment to the detriment, but not necessarily to the detriment of the Trust because the Trust is not an entity. If you didn’t pay on time the penalty would be incurred by the Trustee under the GST Act.

Wylie Yes Sir

Anderson J As a personal liability.

Wylie But they had a right to indemnify out of the assets of the Trust

Anderson J But he couldn’t, he couldn’t then claim an indemnity from the Trust assets by virtue of his own fault. He’d be stuck with it. Say $50,000 plus $10,000 penalty, yes he could get the $50,000 out of Trust assets but he couldn’t debit the Trust assets with the consequences of his own negligence.

Wylie It would depend upon the terms of Trust, but the general proposition I

accept.

Tipping J He could apply for relief. Wylie Yes.

Anderson J Yes.

Wylie Yes, Your Honour’s correct.

Anderson J But that would be a discretionary relief. It’s not something he’s entitled to.

Wylie Returning to my submission Your Honours as to whether or not a claim by a third party is required, I take Your Honours to the definition of the words ‘professional services’ contained in the policy. I think they are at page 141 of volume 2, sorry 143. There’s the express extension created by the words which I’ve also included ‘when acting as Trustees’ in the second line of the definition.

Anderson J But it has to be in the conduct of the profession and you’ve already submitted that it’s not a normal part of professional duties to be a Trustee.

Wylie In the context of the Partnership Act Sir yes that’s what the authorities suggest.

Anderson J But which also include when acting as a Trustee is coloured by the previous clause isn’t it, performed in the conduct of the profession?

Wylie Yes.

Anderson J So professional services of the Trustee.

Wylie The fact that the words have been added into the definition must suggest that both the appellant insurer and the firm contemplated that there’ll be circumstances with the firm or members of the firm that act as Trustees.

Anderson J I think Mr Gilbert got to the stage where he was saying ‘but for the exception’ this

Wylie We’ll come to that in a moment Sir. And indeed Sir I suspect it’s probably common ground that the practice of solicitors acting as Trustees of estates and inter vivos trusts is common place in New Zealand. Probably not quite as common as it was but certainly has been common place over the years.

Anderson J Well speaking for myself if exclusion 8 is not invoked you can rely on this.

Wylie Thank you Sir. Perhaps just to try and finalise the point, the suggestion that there needs to be a third party claimant which I understood my friend Mr Gilbert to make would cut across the definition of the words

‘professional services’ and I also note that the definition of the words

‘professional services’ extends to situations where the firm gives advice in its capacities as solicitors to persons who may be partners that were trading as a separate entity either as a director or officer of a company.

Tipping J Are you taking two points here? Wylie Yes, my apologies.

Tipping J No, no I just wanted to make sure you were making both.

Wylie My second point is if liability extends to the situation where a person is a director of a company why as a matter of principle should it be different with a partner as a Trustee of a Trust? And perhaps the final point to make in this regard is that here of course there were two Trustees, Mr Todd and his co-Trustee, Mr Walker. The point I think Your Honours discussed with my friend Mr Gilbert, why should one Trustee be able to recover against the firm that has in fact occurred here, but not the other?

Anderson J The answer is because they’re not a composite entity. Each is personally a Trustee.

Wylie Yes and they are jointly and separately liable for the Inland Revenue

Department debt.

Tipping J It they’re jointly liable it seems a terrible anomaly that when you sever the joint in this you can have one who can claim and not the other.

Wylie I agree Sir but that’s a consequence of the argument my friend has suggested to the Court.

Tipping J It’s Justice Blanchard’s point essentially. It does seem extraordinarily arid because you can so easily avoid the consequence.

Wylie Of course, and here in a sense the insurer is reaping the benefit of the fact that Mr Todd with the assistance of the firm was able to pay part of the IRD’s demand.

Anderson J If the firm had been involved in a more structured way the issue would be less difficult. For example Mr Todd said ‘I’m not going to be responsible for anything in terms of solicitors’ advice. We will consult my firm and we’ll nominate Mr Macalister or whoever, and that’s where the advice comes from and then Mr Todd would be as plainly a firm party in relation to the firm as Mr Walker, but that’s not how it’s structured.

Wylie I accept that point Sir, yes the gap between the entities could have been larger but in my respectful submission that doesn’t detract from the point that conceptually Mr Todd qua Trustee

Tipping J It would have been better if they’d been natural twins rather than

Siamese twins.

Wylie Absolutely, but that doesn’t detract from conceptual argument. Mr Todd qua Trustee can sue Mr Todd and the firm as solicitors. Now in the event as Your Honours know, no separate proceedings were brought against the firm by Mr Todd. Rather Mr Todd demanded from the firm, or requested from the firm might be a better way to put it, that they meet the liability he had been required to, or he had managed to settle with the Inland Revenue Department and the firm agreed to that, borrowed the money and made the payment on his behalf. Now in my respectful submission they can’t be criticised for having done that. The policy in its terms does not require the formal issue of legal proceedings.

Anderson J Well it seems I suppose unmitigating loss.

Wylie Yes, quite Sir. His Honour Justice Chisholm found that the policy didn’t require the proceedings be issued and I don’t understand my friends to have challenged that.

Anderson J Well the majority of professional negligence claims are resolved without proceedings.

Wylie Indeed Sir. Now unless Your Honours have any issues in regard to that first point of appeal I’ll move on to exclusion clause 8. It’s my submission that the claims or losses the subject of these proceedings don’t arise either out of a trading loss or a trading liability incurred by a business managed or carried on by Mr Todd as the insured. Rather the claim or loss in respect of which the firm and Mr Todd as a solicitor sued is the loss the firm and Mr Todd have incurred consequent on their negligence as solicitors.

Elias CJ That loss being? Wylie $72,000.

Elias CJ No, that loss being what sort of loss? I know the $72,000 but if it’s not the trading loss or liability but the consequences of the negligence of the firm, what do you say were the consequences of the firm’s negligence?

Wylie Your Honour if I can endeavour to answer the question this way. The Trust was managed and administered by Mr Todd and Mr Lindsay Walker as Trustees. They are Trustees were advised by the firm. The firm failed to give them the appropriate advice.

Elias CJ What advice should the firm have given them?

Wylie It should have given them advice to sort out the GST issue at the time the GST payments became due. We’ll come to that in terms of causation shortly. If the GST had been paid and if they hadn’t permitted Mr Basil Walker, who was effectively the settlor of the

Trust, albeit not legally the settlor , and if they hadn’t permitted him to inter-meddle and run the Trust’s affairs the situation would not have arisen. They did

Tipping J But that’s not part of the claim. The claim is simply that they failed to alert the Trustees to the GST.

Wylie No Sir it’s not and that was the point I was going to come to in the context of causation. That’s not the way the case was pleaded nor is it the way

Tipping J Am I wrong in what I just said?

Anderson J There was a lot of pleading about Mr Basil Walker’s

Tipping J Okay, well leave it to when it’s convenient.

Wylie Certainly Sir. The point is that because the firm failed to give the appropriate advice

Elias CJ Sorry, it’s just that when you say appropriate advice I really need to know what advice they should have given. To pay GST and not to let Mr Basil Walker meddle? Is there anything else they should have been advised?

Wylie Yes they should have advised the Trustees of the personal liability that they were under. They didn’t do that. The evidence makes it clear that Mr Todd didn’t appreciate that there was any potential personal liability attaching to him or to Mr Lindsay Walker until as late as June

2000. He was cross-examined in relation to that by my friend Mr Till at trial but he remained adamant that that was when he became aware, when they first became aware that they were personally liable and he actually went on to say, and in the evidence we will come to this shortly as well, ‘had I realised we were personally liable I would have taken a much stronger position and sorted this out back in 1995’.

Anderson J But wouldn’t he have realised that he would be personally liable for any debt that was incurred unless he excluded it, limited it to Trustee assets, to Trust assets?

Wylie Well Sir obviously he should have been but it’s his evidence that he wasn’t.

Tipping J There’s something rather unsatisfactory in a solicitor coming along and saying I should have advised myself that I was personally liable for the Trust debt parche the exclusion or limitation.

Wylie We’ll come to that shortly Sir but that’s the evidence. I can do no more than point to the evidence.

Tipping J Well what did the Judge find?

Wylie The Judge didn’t make any express finding in relation to it Sir. Tipping J Well perhaps he was being kind to Mr Todd.

Blanchard J Well what do you say was the nature of the loss? Wylie I’m sorry.

Blanchard J What do you say was the nature of the loss? Wylie The nature of the loss suffered by Mr Todd? Blanchard J If it wasn’t a trading loss.

Wylie The loss arose out of trading by the Trustees of the Trust, but the loss in respect to which the claim is made is the loss the firm suffered as a result of being liable to the Trustees.

McGrath J So the loss the firm suffered from?

Wylie As a result of its liability to the Trustees.

Tipping J That’s not the loss which the exclusion is directed to. The loss is directed to the loss suffered by the third party not by the insurer. I think you have to make that point which I’m just putting Mr Gilbert’s point perhaps rather pepperly.

Blanchard J AMP shall not indemnify the insured against a claim or loss, so it’s not talking about the firm’s claim or loss it’s talking about the third party’s claim or loss, which you a few moments ago described as being a trading loss.

Wylie In my submission Sir the claim or loss which is subject to the first (inaudible) against a claim or loss. What is the claim or loss here in issue? The firm’s liability to the Trustees arising out of the trading loss or trading liability incurred by a business managed or carried on by the insured.

Tipping J No it’s the loss suffered by the claimant. Anderson J What’s the claim is the issue?

Blanchard J There are two claims or losses referred to

Wylie Can I come at this from a slightly different angle Your Honours? In my submission the business of property development undertaken by the Trust wasn’t managed or carried on by the insured. The insured were the solicitors, including Mr Todd, the business

Blanchard J Oh now wait a minute. The insured includes each individual partner.

Wylie Yes Your Honours but here this was carried out by two Trustees. It’s the point His Honour Justice Tipping took up with Mr Gilbert where you have a director of a company, is the company itself precluded from recovering because one director is also a partner in the firm?

Tipping J What page is this exclusion 8 on, I’m sorry I just find this

Wylie Page 141 Sir, volume 2.

Tipping J Sorry, I just didn’t have it here, thank you.

Wylie In my respectful submission the argument being taken by AMP would rob the policy of a large part of its effect and it would cut across the extension to Trustees and the extension towards partners who are also directors in companies contained in the definition of the words

‘professional services’.

Anderson J What if a partner as a Trustee carries on business as a dairy owner? Tipping J On behalf of an Estate for example until it’s wound up? A loss

suffered qua dairy owner would be a classic thing that’s excluded here. Wylie Well it depends upon the capacity and in my submission

Elias CJ The insured is defined by reference to professional services. Wylie The word ‘insured’ is defined at page 142 Ma’am.

Elias CJ Yes, 142.

Wylie Insured means in the conduct of the professional services of the firm and property development or running a dairy isn’t part of the professional services of the firm.

Elias CJ Yes.

Tipping J Isn’t it helpful that the wording at the start of the series of exclusions

‘AMP shall not indemnify the insured, that’s the firm, or any individual member, against the claim made against it is the implication or a loss etc arising’, so the claim made against it, if it arises from a trading loss suffered by the claimant is out. I mean I can’t see how you could read it any other way Mr Wylie, I mean

Wylie The difficulty I have Sir is that Your Honour is reading words into the policy which aren’t there.

Tipping J Well I’m only reading in what’s clearly implicit.

Wylie I come back to my base submission. Here the professional services of the firm were acting as solicitors. Here the firm wasn’t engaged, nor was Mr Todd engaged in property development qua solicitor.

Tipping J But what other possible sort of claim could the policy be talking about other than a claim made against the insurer?

Wylie For example where the partners in the firm also owned a Vineyard or was itself involved in property development

Blanchard J But that wouldn’t be in the conduct of professional services.

Tipping J It’s a claim for negligence against the firm. It’s covered but if the nature of the loss suffered by the claimant is within 8 it’s not covered. I sound dogmatic Mr Wylie, you know me well, I’m always able to be persuaded, but how does he get out of that?

Wylie Because the loss suffered by the Trustees arose from Mr Todd’s negligence as a solicitor and the firm became liable as a consequence. It was liable for the Trustees not to the Inland Revenue Department and it didn’t arise directly from the liability of the Trustees to the Inland Revenue Department.

Blanchard J But can I put that

Wylie It wasn’t a trading loss if I can put it that way Your Honour.

Blanchard J Can I put that another way and I don’t know whether this is helpful or not. Could you argue that yes there was originally a trading loss or a trading liability but that’s not what the claim made against the firm was about. The claim made against the firm related to the failure to give advice which would have enabled recoupment.

Wylie Yes Your Honour, sorry, I endeavoured to open my argument in that way I had thought and I apologise if it wasn’t as clear as that.

Elias CJ Yes, you did.

Wylie I agree with that Your Honour, yes. Tipping J It’s a loss of opportunity claim. Wylie Yes.

McGrath J Mr Wylie can you come back to the Chief Justice’s sort of first point which was to try to invite you to characterise that loss so we can look at what you say the character is which presumably will not be character of a trading loss.

Wylie The loss is the amount the firm was required to pay to settle its liability to the Trustees. The firm by its negligence denied the Trustees the opportunity to repair the position and to avoid the personal liability they ended up under.

Tipping J It’s the value of that lost opportunity that is the key point which is not a trading loss, it’s the loss of an opportunity to recoup a trading loss.

Wylie Yes Your Honour.

Elias CJ You don’t need to have clause 8 for trading opportunities of the Trust because that’s not covered by the policy which covers professional services

Wylie Yes I understand that.

Elias CJ It’s the fact that you’re not seeking, you’d accept that the trading loss incurred in the GST by the Trustees is not itself able to be covered by this policy. Yes, which again

Tipping J Comes back to causation.

Elias CJ Yes it all goes back to causation.

Wylie If Your Honours are happy shall I move on to that topic?

Anderson J I just want to refer just briefly to your comment about letting Mr Basil

Walker intervene too much. Wylie Yes, sure.

Anderson J How does that effect GST liability? Wylie Well it doesn’t.

Anderson J So what’s its relevance in the present context

Wylie Well it does in a sense. The evidence was that the Trustees

Anderson J It’s causation isn’t it?

Wylie Yes. The evidence was that for better or for worse the Trustees effectively delegated to Mr Basil Walker the obligation to attend to the GST payments, attend to the payments of Income Tax, sort out any PAYE, ACC Levies and the like. He was supposed to liase with the Trust’s Accountants and ensure that all of that was put in place. Mr Todd had acted for Mr Basil Walker for a number of years, had come to know him and to trust him and took it at face value that that was occurring. Mr Todd failed to appreciate that he had no right, that the Trustees had no right to delegate those duties to Mr Basil Walker.

Secondly having delegated them they failed to keep an eye on them. They assumed it was happening and it wasn’t until rather later in the day that they found that he wasn’t doing it.

Elias CJ Over what period are you saying this occurred, the failure to supervise etc, because you have from April, May to October when the Trustees are told ‘come on pay up GST’. Are you saying that it’s a period after that that they sat on their hands and let Mr Walker deal with it?

Wylie No, no Ma’am, I think it was basically for the whole period the Trust was in existence until the end when the Trustees suddenly realised there were difficulties and they tried to wrest back control themselves and sort matters out.

Elias CJ Is that loss then a result of the solicitors failing to give advice as to liability to GST?

Wylie No Ma’am, it’s the solicitors failing to advise the Trustees properly regarding delegation and their responsibilities in that regard. If I take you to the pleading in volume 1

Elias CJ Yes.

Wylie My friend has already referred Your Honours to para.19 which is at page 10, you will see there are two aspects to that pleading, firstly a failure to require the Trustee

Blanchard J Sorry where are we?

Wylie Para.19 Sir, page 10 of volume 1. Tipping J This is the amended statement of claim.

Wylie This is the amended statement of claim. There’s the assertion that the firm and Mr Todd failed to acquire Mr Todd and Mr Walker as Trustees to account to the IRD or provide for and set aside the GST and then the second aspect, or to advise them of the consequences if they do so or of their duties owed to the beneficiaries of the Walker Family Trust which duties are detailed in para.18. Now that pleading was essentially admitted by AMP.

Tipping J But those duties relate to GST and other taxation issues, they don’t relate to non-delegation

Wylie If I could just take you across. That’s the first aspect. We then go down to para.20 that between 1975 and 1997 BW (that’s Basil Walker) purporting to act on behalf of the Trust incurred liability for ACC, Income Tax and PAYE. Absolution of failure to supervise – particulars given in para.21 – and then para.23 that the first plaintiff through the second plaintiff failed to advise the second plaintiff of Mr

L Walker in the capacity of Trustees of the Walker Family Trust in regard to their duties as Trustees to supervise the activities of BW Walker in relation to this Walker Family Trust.

Anderson J How did this cause the loss that’s now complained of?

Wylie Because once again it meant the Trustees weren’t alive to the opportunity to take the appropriate actions and get the indemnity from the Trust’s assets.

Blanchard J Well it comes back to the same question, could this have been salvaged if appropriate action had been taken? Were there assets there from which there could have been recoupment?

Wylie Indeed Sir and

Elias CJ What was the opportunity? Tipping J Yes, the value of the opportunity?

Wylie Well the first opportunity in my submission was to pay the GST Anderson J From what?

Wylie From the proceeds of sale of the Towne Place units. Blanchard J How could you do that?

Wylie If I can take you there Your Honours. First we have the letter from the

BNZ which my friend has already referred you to in the case on appeal. Tipping J So this is the first opportunity that we’ve lost?

Wylie Yes.

Anderson J And what’s that letter, I’m sorry Mr Wylie?

Wylie That was page 175, volume 2. That was the letter in reasonably mutual terms with the balance sale proceeds of each unit on completion of settlement.

Anderson J I couldn’t find a copy of the undertaking in the documents. Wylie I’m sorry Sir.

Anderson J I couldn’t find a copy of the undertaking in the documents.

Wylie I don’t think it was there Sir. The matter wasn’t really an issue in the

High Court. The undertaking isn’t before the Court.

Anderson J It’s pretty crucial now. We undertake to pay etc etc, save for usual conveyancing disbursement or whatever.

Wylie Well it’s not before the Courts or for the benefit of hindsight

McGrath J But surely isn’t this letter the undertaking, that’s what I gathered?

Wylie It’s a recording undertaking. It may have been oral it may have been in writing, I’m sorry I can’t help you.

McGrath J Or it may be an undertaking that’s given just simply by acting on the letter.

Blnchard J What is this to suggest that this means anything different from the kind of arrangement which was being envisaged in that quotation from Robert Mitchell?

Wylie Well Sir that’s where I wanted to take you next. If I can take you first to Mr Todd’s evidence, para.11, page 97, he says ‘in my view the firm and I in my capacity as a solicitor were required to ensure that the Trustees were aware of the disbursements and other monies which were payable as a consequence of the sale and to ensure that all such monies, including GST, were either paid or provided for and prior to applying the net proceeds for sale to the credit of the Trust.

Blanchard J Well that’s what he thought, but he’s wrong as a matter of law.

Wylie Well unless the BNZ were aware of that Sir, and I’ll come to that in a moment.

McGrath J It’s over the page.

Wylie He then comes in para.12, page 98, and says what he considers to be his duty to do as a solicitor and then he goes on to set up his view of what disbursements include and then when he was giving evidence orally

Tipping J I just don’t understand quite how far this gets you. I would have thought that so far it gets you nowhere because it’s just his view which seems to be contrary to the law.

Wylie We then get to page 107 Sir

McGrath J You’re leaving 98 at this stage?

Wylie I was thank you Sir, yes unless Your Honour wishes to

McGrath J His position is though that any liability triggered by a sale is fixed within the terms of what is provided for in the undertaking as recorded in the letter.

Wylie Yes, that was his understanding in his position, and he said he didn’t give any advice for the Trustees in that regard.

McGrath J That’s his understanding but you’ve got to then go on to persuade us don’t you it’s the correct interpretation of what the letter says.

Tipping J And his is pretty self-serving sort of evidence, I mean crumbs. Wylie Well he is an expert Sir.

Anderson J It exemplifies one’s concern about some briefs really.

Wylie We then get to page 107 when he’s given evidence he’s asked at line

34, he’s asked by His Honour Justice Chisholm ‘if you had turned your mind to it would GST be taken out to arrive at the net proceeds of sale or not’? ‘Yes, given that the Trust was registered for GST and the Bank would have been aware of that, I would have anticipated that would have been a payment which would have been accepted as part of the gross proceeds of sale for disbursement to the Bank of the net proceeds of sale’.

Elias CJ Why would the Bank

Anderson J But allowing them to pay GST to unsecured preferential creditor when they had a preference and they were owed more.

Wylie Your Honour all I can do is point to the evidence but what I can do is say that the two letters to which my friend has referred the Court this morning were not put to Mr Todd.

Blanchard J He’s giving an opinion which is clearly erroneous about what he thinks the Bank would have agreed to.

Wylie Well he’s giving an opinion as to what he thought was the position between himself and the Bank Sir, I accept that.

Tipping J Well it seems extraordinary if that was his opinion he didn’t do it, or at least tried.

Blanchard J He’s suggesting that the Bank would have held the same erroneous view as he did.

Wylie No Sir, he’s suggesting that that was the understanding he had with the

Bank and what he suggests is he unintentionally made the payment. Blanchard J Where does he say that he had an understanding with the Bank?

Wylie He says he anticipated that there would have been a payment which would have been accepted.

Blanchard J Well that’s not evidence of an actual understanding

Wylie I’m sorry Sir, I must have put it too highly.

Blanchard J It’s just of his belief that the Bank would have gone along with the deduction of the GST. There’s no evidence from the Bank.

Wylie I accept that Sir.

McGrath J I suppose you might be able to argue that it’s a statement of what a

Bank in practice expects when it requires an undertaking of this kind. Blanchard J Was there any evidence of practice, general practice?

Wylie No Sir.

Anderson J But it’s what one would have done in a hypothetical situation isn’t it, it’s not as if it’s worth much, it’s like all the questions they used to ask you when you were voted for if there was an election last week, which was how they used to frame them.

Wylie All I can say Sir it is the best evidence that there is here. He wasn’t cross-examined in relation to it and the letters which my friend’s are relying on, on which the Court of Appeal referred, were not put to Mr Todd

Blanchard J Just in terms of something that might be admissible what were the textbooks on GST saying at the relevant time?

Wylie I can’t assist you in that regard at the spur of the moment Sir.

Tipping J What did the trial Judge make of all this Mr Wylie? I mean did he say well he completely believed Mr Todd and this is what he believed. It makes it all the more extraordinary that he didn’t do it or at least try.

Wylie The trial Judge dealt with the matter at page 40, volume 1, especially paragraphs 42 and 43 ‘in his capacity of solicitor Mr Todd failed to exercise proper care and skill when acting in the sale of the units. Failure to make provision for GST speaks for itself. Mr Todd accepts he was negligent. Expert evidence from Mr McIntosh supports that conclusion and no serious argument to the contrary was advanced on behalf of the defendant. The firm was of course responsible for Mr Todd’s negligence. Failure to pay GST from the sale proceeds of each Towne Place unit carried the direct, although not immediate consequence, that the tax could not be met from the assets of the Trust.

Tipping J But this business about speaking for itself, and I’m sorry, which paragraph is that in?

Wylie 42 Sir.

Tipping J 42. That seems to suggest that the Judge thought that he could have got away withholding GST, which is wrong.

Wylie Well the Rob Mitchell case, that line of authority was when put to the trial Judge by AMP

Tipping J Well may be so but, I mean it seems extraordinary Mr Wylie that he can come along to the Court when it suits him and say ‘this was my belief’ but his actions didn’t speak in accordance with his words.

Wylie Well his evidence Sir was unintentional. He simply overlooked it, forgot about it.

Anderson J Well didn’t he say he wasn’t aware that he would be personally liable for GST until 2001 anyway?

Wylie Indeed Sir. Rob Mitchell wasn’t decided until 2004 and this all happened back in 1995.

Blanchard J Yes well but Rob Mitchell isn’t the authority for the personal liability.

That’s in the Act.

Wylie Indeed Sir. Mr Todd didn’t appreciate that either. Anderson J But he knew that the business was GST registered? Wylie Yes Sir.

Anderson J And he must have been aware that GST was payable in accordance with the Goods and Services Tax Act.

Wylie Yes.

Anderson J So he didn’t turn his mind to paying? Wylie Indeed Sir, that was his evidence.

Anderson J He just overlooked the fact that GST was payable on a GST registered business that he was running.

Wylie Yes.

Tipping J So this whole business about thinking that he could not have to pay the

Bank is really an after construction if he didn’t turn his mind to it at all. Wylie In a sense Sir, yes that’s correct.

Tipping J Unfortunately that seems to be so but you’re doing the best you can Mr Wylie with the evidence you’ve got. Anyway I understand the point you’re making.

McGrath J You’ve referred us to para.42 of Justice Chisholm’s judgment. Now is there anywhere where the Judge actually comes to grips with what the letter at page 175 required?

Wylie No Sir.

McGrath J No. And I take it Mr McIntosh was your witness?

Wylie Not that I can think of. Mr McIntosh Sir was an independent solicitor who gave evidence as to the practice followed by solicitors in relation to GST.

McGrath J But for you? Wylie Yes.

Blanchard J And Mr McIntosh wasn’t asked about this question of what financiers customarily demanded in relation to what I’ll inaccurately call the GST component?

Wylie No Sir, not in so far as I can recollect. As I say it wasn’t an issue at that point of time. Mr McIntosh gave evidence as to the practice which solicitors adopt in advising clients in relation to GST. You will find his evidence in volume 2, it starts at page 90.

Tipping J Is the key dimension here, what chance was there that the Bank would have accepted the lesser amount. That really is it, the only fact isn’t it?

Wylie The only evidence we have

Tipping J And we don’t have any findings of any Court below us on that. Wylie No Sir.

Blanchard J And it would amount to a Bank giving away its rights.

Wylie As they’re now found to be in Rob Mitchell, yes this goes back to 1995

Anderson J Or more importantly giving away money.

Wylie It’s important to appreciate the BNZ were in fact fully paid out at the end of the day. In fact they were paid out earlier than that. It’s at para.72 of the Agreed Statement of Facts.

McGrath J And you point to the picture being somewhat more rosy than ultimately it turned out to be anyway at this time.

Wylie Yes, if Your Honours look at page 75 of volume 2, when Franklin

Road was settled in October 1996 the BNZ were fully paid out

McGrath J Sorry, where’s that at? Wylie It’s in para.72, page 75. McGrath J Oh yes I see.

Elias CJ Sorry, what are we to take from that?

Wylie In a sense my friend’s argument about whether or not the Trustees were or weren’t liable to the BNZ is irrelevant because the BNZ were paid out in full anyway.

Tipping J But surely it’s relevant to the question of whether or not there was ever any opportunity that your clients have lost to recoup themselves. That’s the crunch isn’t it Mr Wylie? I mean here’s the first opportunity that you’re addressing which with great respect I’m not terribly enthusiastic about. Are there more opportunities that you can point to?

Wylie Yes Sir because there was a considerable subsequent dealing by the Trust as Your Honours would have seen from the agreed statement of facts.

Anderson J It doesn’t mean they were solvent though does it? I mean lots of people trade when they’re insolvent and manage to buy and sell properties.

Wylie I’m sorry perhaps before I lead us on Justice Tipping’s point

Tipping J Well I’d just like to have a note of the various occasions or opportunities that you say they would have taken if they’d been properly advised and we’ve got the first one firmly. Is it possible for you to articulate them in that sort of sharp way?

Wylie Can I come back to that in a moment Sir. If I can take Your Honours to page 112 of volume 2, line 5, this is Mr Todd being cross-examined by my friend Mr Till ‘but I can say that I honestly was not aware of liability to the Revenue for tax or GST liability at that time and if I had been I would have taken probably stronger action back in 1995 when I was first contacted by the IRD to say that there were GST arrears’.

Anderson J Does he say what he might have been able to do?

Wylie I don’t think he does Sir but presumably what he would have done was call a halt on trading by the Trust and realised some of its assets.

McGrath J What I think you might also be able to say he would have done as a pragmatic solicitor, he would have simply made the deduction for what he thought he was at risk for, paid the rest to the Bank to see what happened and that back on page 107 he’s saying he would have anticipated that the Bank would have accepted that.

Wylie Yes.

McGrath J And maybe it wouldn’t have but we’re talking about a loss of opportunity here than the pragmatic view of the conveyancer on the ground as opposed to the rather esoteric way this thing gets discussed in the Court subsequently is that it might well have happened and it might well have been accepted and that’s his views that it would have been and no-one contradicted him through cross-examination. Now I’m not saying that I’m accepting all of that but that’s really one way of putting an argument.

Wylie I agree. Now perhaps to come back to His Honour’s Justice Tipping’s point, what did the Trustees do after April/May 1995 where they might have taken the opportunity to do other things had they appreciated the position.

Elias CJ At this time of course the liability’s in existence.

Wylie Yes, Mr Todd was unaware of it until October 1995. Yes Your Honour that’s correct.

Elias CJ And he is liable under the Statute.

Wylie Yes, he didn’t realise that, but yes he is. Elias CJ So what, could he have saved himself?

Tipping J He could have tried to find some more money or some other assets Elias CJ By deferring himself instead of some other creditor effectively? Anderson J It would have to be free assets wouldn’t it?

Tipping J Yes.

Wylie Yes he would have endeavoured to borrow further funds to attend to the payment of GST and there was in fact a lot of subsequent borrowing.

Elias CJ If there was borrowing for that effect, then surely all he would ultimately saved himself is some penalty.

Wylie Yes.

Blanchard J And the penalty is not an issue.

Wylie Well with respect Sir that can’t quite be said. All we know is the total debt at the end of the day when negotiations were taking place with the Inland Revenue Department was in the vicinity of $278,000 and we reached a composite payment.

Blanchard J Effectively the Revenue didn’t get any of the penalty.

Wylie The Revenue got $72,000 from Mr Todd and $30,000 from Mr Lindsay

Walker. How it apportioned that

Anderson J It mightn’t have any in it.

Tipping J But there’s evidence that the settlement figure was reached by simply adding up the base tax. There’s something in here, I’ve read it. I’ve forgotten where it is, but

Wylie I don’t think that’s quite the case Sir

Tipping J Is that alright?

Wylie Well the total amount received by the both Trustees was $102,000 now quite how that figure was arranged I think was a rather more pragmatic how much can we extract from these individuals

Tipping J But the total that the Revenue accepted as I understood the evidence was the base tax and no penalties. That’s how they settled. Now how it’s made up between the individuals is not part of my

Wylie There is a reference I think in the correspondence for $72,000 being the base tax

Tipping J Yes that’s the point.

Wylie That was in the correspondence from the firm to Mr Everard which my friend Mr Gilbert referred the Court to.

Elias CJ The base tax? Wylie Yes.

Elias CJ That’s the base liability in respect of all taxes. Wylie All taxes, not just GST. I think that’s right Ma’am.

Blanchard J There was income tax of $53,000, there was GST of $74, nearly

$75,000 and there were small amounts of PAYE and ACC coming to a total of $128,000. Now the Inland Revenue didn’t get $128,000.

Wylie No it didn’t Your Honour, that’s why I’m reluctant to accept the proposition that what was paid was the base tax. Putting it pragmatically what happened was that the Inland Revenue extracted as much as it reasonably could from the Trustees without bankrupting them.

Blanchard J So you reckon that they would have credited that to the penalty and left the assessment to be written off?

Wylie I can’t answer that Sir. Blanchard J It’s highly unlikely.

Anderson J But there’s no attribution of any part of the settlement funds for any particularly category of tax liability.

Wylie That’s right Sir.

Anderson J So it may not have included any GST. We don’t know.

Wylie No but the liability of the Trustees was not just for the GST, it was for all the taxes.

Anderson J That’s true.

Wylie And the Court of Appeal plucked out the GST aspect in my submission curiously.

Tipping J Are you, I know it’s just about lunch time, but frankly after lunch I will be very interested whether you can point to any evidence to suggest that had the negligence not taken place they would and could have acted differently to their advantage, and I’m not asking you

Wylie Sir what I can point to is evidence showing that subsequent to the GST transactions in 1995 they undertook further borrowing and undertook fresh developments when they could have sold the asset.

Blanchard J Well that’s what you’ll have to demonstrate that they could have sold assets and produced equity from which the GST arrears could have been paid.

Wylie Sir I’ve endeavoured to summarise that material in my written submissions, para.53, starting at page 23.

Blanchard J Well you’ll take us to that after lunch. Wylie Certainly Your Honour.

Elias CJ Alright we’ll take the lunch adjournment now thank you.

1.01 pm Court adjourned

2.15 pm Court resumed

Elias CJ Thank you. Yes Mr Wylie.

Wylie Thank you Ma’am. Before the lunch adjournment Your Honours invited me to refer to whether I could in the evidence where the Trustees might have retrieved the position. If I can take Your Honours to volume 2, page 75 and perhaps just before I do this I should explain or just reiterate what’s in the agreed statement of facts. There were essentially three properties which the Trustees purchased. There was the property in Towne Place which was the subject of the GST which is part of the problem. There was another property in Frankton Road and there was a property at Lake Hayes and all of them appear to have had borrowing to a greater or lesser extent to enable them to be purchased. We know that the Towne Place units were sold. Para.33 at page 67 gives the sale prices for each of those units and by my calculation total sum was about $959,000 which seems to have been paid to the BNZ in reduction of BNZ borrowings so it doesn’t look as though there is any surplus there available to the Trustees. The Frankton Road property had some kind of future development rights and there appear to have been various difficulties in relation to those but there were 13 future development rights, ten of them were ultimately sold and settled in October 1996 which is para.72 on page 75. At that stage the BNZ debt was repaid in full. GST was paid to the Revenue on those sales and some $20,600 was repaid to Mr and Mrs Walker - that’s Mr and Mrs Basil Walker -they had advanced $100,000 to assist with the purchase of the Lake Hayes property, so in my submission that’s one point where the Trustees might have sought to recover the position albeit I accept not for the total sum.

Anderson J Well it’s interesting that they didn’t because they were saying in January of 1996 ‘we’re doing everything in our power to pay this amount’.

Wylie It is interesting that they didn’t Sir, I can’t advance anything in relation to that.

Blanchard J Do we know anything about Mr and Mrs Walker’s attitude? I see that they had a mortgage.

Wylie Yes Sir they did. The Lake Hayes property was purchased with borrowing from the Southland Building Society and also $100,000 advance from Mr and Mrs Basil Walker.

Blanchard J How do we know that they would have agreed to their priority being

Wylie We don’t. All we can point to is the fact that it was Mr Basil Walker who had failed to address matters with the Inland Revenue Department,

despite promises to do so. That’s Mr Todd’s evidence is in the agreed statement of facts.

Tipping J Is it your point that the $20,600-odd was free money that didn’t have to be used to pay down the Lake Hayes mortgage?

Wylie Yes Sir. To say it was free money overstates it. It was monies which the Trustees didn’t discuss with Mr Basil Walker with an endeavour to

Tipping J We just don’t what the know the circumstances were

Wylie I accept that.

Blanchard J By October 1996 did Mr Todd knew about his personal liability?

Wylie No Sir he didn’t. Mr Todd didn’t appreciate his personal liability until June 2000. I accept that that sounds inherently unlikely but it was his clear evidence at trial and he was cross-examined in relation to the point. We then go to the Lake Hayes property.

Tipping J Well who did he think the liability was? Wylie I can’t answer that Sir.

Tipping J I mean it’s almost unbelievable with greatest respect. Wylie It was his evidence Sir.

Tipping J Yes I know. We don’t have to accept it just because he gave it.

Anyway you can’t take it any further can you?

Wylie It appears Sir that he thought there was a liability but that he wasn’t liable. That appears to be the situation.

Tipping J Yes alright.

Wylie We then have the Lake Hayes property. Now initially the Trustees borrowed $210,000 from the Southland Building Society to enable them to construct units on what was left of the Frankton Road property which the Trustees still owned. That’s para.76 on page 76. They then resolved not to do that and with the Southland Building Society’s consent they applied that money towards the development of a house on the Lake Hayes, that’s para.79 on page 76.

Anderson J Just going back a minutes to para.72 Mr Wylie, the Trustees couldn’t have claimed the priority of indemnification in the case of the mortgage could they?

Wylie No Sir they couldn’t but they may well have had a right of action against Mr Basil Walker. They then employed Mr Basil Walker to

build the house on the Lake Hayes property and it seems that it gets substantially built. Coming across to 1999 we have in para.100, page

80

Blanchard J Just pausing there what do we know about the Lake Hayes property before this money was borrowed?

Wylie It was bought in October 1994 Sir for $185,000. Blanchard J For how much?

Wylie $185,000.

Blanchard J And what mortgage was there on that?

Wylie There was a first mortgage to the Southland Building Society and a second mortgage to Mr and Mrs Basil Walker. The mortgage to Mr and Mrs Basil Walker initially secured the sum of $100,000 but that was partially reduced by the sale of part of the Frankton Road property.

Blanchard J So, I’m just jotting this down, so Lake Hayes is acquired for $185,000

Wylie I can refer you to the passage which sets that out Sir. It’s

Anderson J 25

Wylie Para.25, page 66.

Blanchard J And that first mortgage advance, is that the same mortgage advance as was referred to a moment ago or is it a different mortgage advance?

Wylie I don’t know Sir.

Blanchard J It looks as though it’s a different one. Wylie I can’t answer that Sir

Blanchard J So do we not know how much was owed to Southland Building

Society on Lake Hayes?

Wylie Yes Sir we do and that’s the very point I was about to take you to. If we go to page 80, para.103, 103(a), at the bottom of the page, ‘at that stage the only debts the Trustees were aware of were the monies owing to the Southland Building Investment Society, then approximately

$302,000 and monies owing to the IRD, approximately $140,000’.

Tipping J Well on that footing Lake Hayes was carrying a secured debt about twice its cost price.

Wylie Yes Sir but also by that stage a house had been built on it and if you go back to para.100, on page 80, there was apparently a registered valuation for property at $500,000 and Harcourts had considered that the property would sell for about $530,000. That’s para.102.

Blanchard J What had happened to the other $80,000 of the money owing to the

Walkers?

Wylie I can’t answer that Sir I’m sorry.

Blanchard J Well how reliable then is the statement that the only monies owing were the $302,000 to the Southland Building Society and the tax monies?

Wylie Well it’s in the agreed statement of facts Sir, that’s the highest I can put it, signed by both counsel. It was also confirmed in the letter to the Inland Revenue Department, which your Honours will find at page 219 of the bundle. The figures are confirmed at $140,000 in respect of tax and the $300,00 in respect of mortgages. The point I’m endeavouring to make to Your Honours is at that stage it would appear that assets exceeded liabilities had the property been sold then.

Tipping J Depending on how realistic the valuation was.

Wylie Yes Sir I accept that. Now what happened is that the matters were rather delayed and messed around and eventually the property sold at mortgagee sale in April 2000, and sold for $450,000.

Blanchard J Sold for $450,000 when?

Wylie $450,000 in April 2000. There were various subsequent valuations.

It’s all set out in paras.126 at page 84, 127 and 131. The rating valuation was $660,000 of Lake Hayes but eventually it sold for

$450,000 at mortgagee sale. The point I’m making is that even assuming that the figures of $500,000 and $530,000 in February 1999 were generous, it would still appear that there was a balance of assets over liabilities but the property ultimately sold for over a year later.

Anderson J They tried to sell it and couldn’t, isn’t that what para.104 says? Wylie I’m sorry Sir.

Anderson J Para.104 indicates they tried to sell it between 26 February and 3

March. Nothing much happened.

Wylie Well they received various offers and made various counter-offers. Anderson J Then why did the heat come off the possibility of selling?

Wylie I don’t think it did Sir.

Anderson J It just couldn’t sell?

Wylie No I don’t think it goes that far. If you go through to para.118, they received a conditional offer of $500,00 - the offer was accepted but in the event it wasn’t declared conditional and then talks about the sale of Frankton properties but that doesn’t assist matters. And then we go through to the issue of the Property Law Act Notice by the Southland Building Society and the mortgagee sale.

Anderson J If it was priced right it would sell wouldn’t it? Wylie Sorry Sir?

Anderson J If it was priced right it would sell.

Wylie Yes but if the Trustees had appreciated the situation they were under in their personal liability they could have effectively sold at a fire sale price to clear the debt.

Anderson J But could they? So that they could give themselves a preference?

Wylie Well the Trustees were between the devil and the deep blue sea in a sense that had Mr Walker being difficult and hanging out for as much as he could possibly get.

Anderson J They had an obligation to sell the property for the best reasonably available price.

Wylie Yes, yes, and he didn’t suggest there was sufficient at that point of time to clear the debt, but the Trustees didn’t realise the predicament they were in.

Blanchard J It’s apparent from para.132 that the residue of the Walker mortgage was still there.

Wylie Yes Sir that would appear to be the case.

Blanchard J Because on the basis of a sale of $450,000 there was a credit balance after paying Southland Building Society, GST on that sale, Land Agents commissions, rates and costs of $16,000, say $17,000.

Wylie Which was paid to the Walkers. Blanchard J And it went to the Walkers? Wylie Yes.

Tipping J In part repayment?

Wylie Yes.

Elias CJ Doesn’t the ‘Bob the Builder’ case apply?

Blanchard J Well probably what had happened was that they paid off Southland and then they were free to pay the GST.

Elias CJ Yes.

Anderson J So there’s GST on that and that means that means at that stage that they were still $60,000 shy. They paid $20,000, then they paid another

$16,000. Wylie Yes.

Anderson J But they were over $60,000 shy, so even if they’d got $510,000 they still wouldn’t have had enough to reimburse themselves.

Wylie No but they could have put pressure on the Walkers.

Tipping J Is it a reasonable inference that throughout this whole period they were unable to pay their debts as they fell due?

Wylie In my submission Sir, no, as at February 1999 the evidence suggests that there was sufficient to pay the Inland Revenue Department.

Tipping J Sorry, as at, say that again.

Wylie As at February 1999 the evidence suggests there was sufficient to pay the Inland Revenue Department I accept that that’s putting aside the interest of Mr and Mrs Walker pursuant to the mortgage

Blanchard J Have you got any calculations to show how you arrive at that conclusion?

Wylie Only those contained in the evidence Sir, para.103(a) at page 80 to 81, and the valuations referred to in paras.100 and 102.

Tipping J But the valuations are a balance sheet connotation, they’re not a solvency in the

Wylie I accept that Sir but I’m reinforced in my submission by the fact that ultimately the property sold at mortgagee sale for $450,000.

Anderson J But it never sold anything like $530,000, and they had to get over

$512,000 for there to be anything left for them to have recourse to and there’s nothing to suggest they even got an offer within a bulls roar of that.

Wylie The highest offer they received was a conditional offer of $500,000.

Tipping J Well that wouldn’t have been enough would it? Anderson J It wouldn’t have been, no.

Wylie No Sir. Your Honours I can take the matter not further. There was just one final matter I wish to canvas, Your Honour Justice Tipping asked me whether there was any judicial consideration of the letter from the BNZ and I think I answered that ‘no, there wasn’t’. There is in fact the Court of Appeal’s decision in relation to what that letter meant.

Tipping J I see, thank you.

Wylie And I should properly refer Your Honour to that. Tipping J This is the balance proceeds point?

Wylie Yes Sir it is. It’s at para.32, page 56 of volume 1. Now those are my submissions Your Honours unless I can assist?

Tipping J You’re not wishing to say anything orally beyond what you’ve got in the written submissions about the way the Court of Appeal, leaving aside factual issues about solvency, about the way the Court of Appeal came at this solvency, and I’m not inviting it I just wanted to make dead sure that we weren’t overlooking something you

Wylie Well in my submission the Court of Appeal’s judgment is in this, it is curious in that it dismissed Mr Todd’s evidence in relation to payment of GST at the time because it relied on correspondence which wasn’t put to Mr Todd in cross-examination in breach of the rule in Brown and Dunn.

Tipping J But it wasn’t quite that that I was thinking of Mr Wylie, it was the question of the Court of Appeal’s judgment, putting it very bluntly, seemed to me to be saying one thing on the causation issue in one place and about three paragraphs further on, and I’m sorry I’m not able to refer you precisely, but I think you probably know what I’m referring to and I’ll be more specific if you don’t. And it seemed to almost reverse what they’d said a couple of paragraphs, three paragraphs earlier, well perhaps we’d better precisely look at it, otherwise I’m not making sense. It’s called

Wylie Is this para.40, page 58 Your Honour?

Tipping J Probably. On what page is that? You’re ahead of me Mr Wylie? Wylie Page 58, followed by para.41(c).

Tipping J Yes, it’s this whole approach to the solvency question and this on the premise that the Trust was solvent and I don’t know what gave them

the ability to act on that premise because that was something that had to be established. They couldn’t sort of just assume it could they?

Wylie Your Honour there are two ways past that problem. The first is to accept that the letter from the BNZ means what Mr Todd says it means and that he was entitled to pay the GST to the BNZ, sorry, to the Inland Revenue Department at the appropriate time

Tipping J Oh yes I see, yes

Wylie That gets past the problem because clearly the Trust was then solvent.

The second way to solve it from my perspective as I’ve endeavoured to set out in my submissions, is to go through the agreed statement of facts and suggests that there was a sufficiency of assets to enable the debt to be repaid at various points of time.

Tipping J Yes, yes I just wanted to make sure there was nothing in there that I was missing, but I’m not, I understand what you’re relying on, thank you.

McGrath J Wasn’t there a third aspect where you complained I think that solvency had only been raised in the Court of Appeal and as I understood it correctly you were raising an argument as to whether the issue had been adequately raised by the pleadings.

Wylie Yes your right

McGrath J Are you going to say something about that?

Wylie I wasn’t expressly but I’m happy to do so if you would like me to do so. Yes, solvency was only raised before the Court of Appeal, it wasn’t put in issue by any of the parties

McGrath J Was it not referred to you by Justice Chisholm? Wylie No Sir.

McGrath J Alright, well I just would like to know what your submission is on that?

Wylie As I said in my written submissions, para.51(a), page 21, the issue of causation was pleaded by the AMP but not in the way in which it was advanced in the Court of Appeal.

McGrath J And you’re referring to an affirmative, well a particular pleading? Wylie Yes, yes.

Blanchard J Sorry, where are you reading from?

Wylie Paragraph 51(a) of my submission Sir, at page 21. The hearing in the High Court proceeded on the assumption essentially that Mr Todd should have paid the GST to the IRD at the time.

McGrath J No one commented on the lack of proof of solvency and no one raised the issue against you and the matter then went to the Court of Appeal where Justice Baragwanath raised it orally.

Wylie Raised it for the first time orally Sir and it was confirmed from recollection by both counsel that it hadn’t been put before the trial Judge.

Tipping J But if para.44 of Justice Chisholm’s judgment, and I think I’m right, I think it says on page 40 of the case the Judge says ‘initially the Trustees were hopeful that it would be possible retrieve the situation by selling Trust assets, in fact however despite their best efforts, the Trustees were unable, the Trust was insolvent’.

Wylie Well it proved to be insolvent Sir when the final assets were ultimately sold, that was the evidence.

Tipping J Well I have difficulty understanding how it can be said that the solvency issue wasn’t out on the table. The Judge may have got it wrong but there it was. He in effect made a finding.

Wylie Sir it was positively pleaded by the plaintiff that ultimately the Trust proved to be insolvent.

Anderson J Did it arrive that it ceased to be an issue or not become an issue in the High Court because the plaintiff’s case was ‘look it could have been paid at the time the property was sold’? It was the whole case and there were obvious difficulties with that because if the GST had been paid and the Bank not,

Tipping J It would have been personally liable to the Bank. It’s the dog chasing its tail a bit isn’t it?

Wylie Ultimately the Bank was paid Sir and I accept we don’t know the extent of any shortfall there might have been had the IRD been paid the GST in the first place.

Tipping J Well there wasn’t enough money to pay them both. Whichever one gets paid leaves the personal liability to the other. I just don’t quite understand how this gets any traction Mr Wylie but

Anderson J The Bank was secured and the commissioner was preferred. They were both ahead of Mr Todd.

Wylie Yes they were.

Tipping J Anyway you’re doing your best with the facts as we find them but I have difficulty with this idea that this insolvency thing sort of came out of left field at you in the Court of Appeal.

Anderson J It doesn’t look as though it was a contested issue. Wylie It wasn’t a contested issue Sir.

Tipping J But didn’t everyone accept that they were insolvent?

Wylie The case proceeded before the High Court on the basis that the GST should have been paid to the Inland Revenue Department at the appropriate time.

McGrath J Mr Wylie can you help me with this? At para.44, when the Judge says the Trust was insolvent, of what time implicitly is he speaking?

Wylie Well I am guessing Sir but I suspect he’s saying it proved to be insolvent in April 2000 when ultimately the last asset was sold and there was a shortfall.

Tipping J Well then I have to say that that’s probably right.

McGrath J Yes. So no question of insolvency then at least in the High Court judgment as at the date in which the liability was incurred arises? It only comes up in the Court of Appeal?

Wylie Yes.

McGrath J Now I just really want to know what it is you seem to be saying that this was not fairly an issue on the pleadings and it was one of those issues that came from the bench and are you saying though that you’ve been disadvantaged in some way in the evidence you could have led, or is there anything of that kind you’re saying that if say we might have to go a bit further into why you say it was unfair in the pleadings?

Wylie Well Sir, yes I could have addressed specifically evidence towards the solvency of the Trust. I could have endeavoured to put in for example the Trusts accounts.

Tipping J But if a plaintiff presumes the claim in the High Court on a basis that can’t run, and then has to regroup in the Court of Appeal, surely the plaintiff still has to cover all the bases of the agreed route and it’s for the plaintiff to prove causation. I may be being a bit harsh but isn’t that the reality?

Wylie Sorry I understand precisely what you’re saying and in my submission the plaintiff did that.

Tipping J Yes, that what you have to say.

Wylie Yes.

Tipping J Yes, but you can’t complain about what happened that you weren’t given a fair go if you like. You were given the opportunity if you like for coming at it at a different way. The Court of Appeal could have simply said to you ‘look

Wylie What I can fairly say Sir, it was never flagged by AMP. The plaintiff didn’t appreciate that was an issue.

Tipping J But the Court of Appeal could have said to you look there’s no way it could have been paid ahead of the Bank, go away, but they allowed you to run, or ran for you, or somehow or other it emerged that you were going to come at it, that okay if that’s so we’ve got a case. But you’ve got to prove the ingredients of that substituted case.

Wylie Yes Sir in my submission I can and I have. Tipping J Fair enough and understood.

Anderston J I just wonder whether they were ever solvent quite frankly. I mean they were never in a position to pay all their debts as they fell due. They were always in debt to the Inland Revenue and they were always in debt to the Walkers, year in and year out, and even when it came to a wash up they were still in debt, both to the Inland Revenue and to the Walkers.

Wylie Essentially Sir because the asset sold for less than they thought it was going to sell for and in part because the Walkers refused to co-operate and frustrated the sale.

Blanchard J Why did the Walkers want to delay things?

Wylie I can’t answer that Sir. Clearly the parties at that stage had well and truly fallen out. I imagine the Walkers were living in the Lake Hayes property and it was obviously a matter of some sentimental value and attachment to them.

Anderson J And they were in hoc as well weren’t they? Wylie Yes, presumably.

Anderson J I mean their view would possibly be look you’ve got to get $512,000 out of this clear of costs before we are any better off. But as you say tensions were running a bit high.

Wylie I can imagine they were.

Blanchard J Was there any suggestion that Mr Walker who was a Trustee was frustrating things along with his brother?

Wylie No Sir not that I’m aware of.

Blanchard J So they could have simply gone in, the two Trustees, and sold the place?

Wylie Yes, and in my submission the evidence suggests that had they done that and dealt with Basil Walker as the party responsible for this, there was a surplus of assets to enable the IRD debt to be paid.

Anderson J The best offer they got was $500,000 and that was conditional.

Wylie Yes Sir but I preface that by saying had they taken the appropriate action against Mr Basil Walker as the party responsible for the day-to- day dealings which saw them in the difficulty they were in. Mr Basil Walker was the one supposed to be attending to the payment of GST and the other taxes.

Elias CJ The only advice from the firm then on your argument which would be operative is the fact that the Trustees didn’t appreciate that they were personally liable would it?

Wylie No Ma’am the other advice is permitting Mr Basil Walker to effectively deal with matters in the way he did without any adequate supervision by the Trustees in delegating for Mr Basil Walker the responsibility for dealing with the Inland Revenue Department.

Elias CJ And not moving in and selling it up, realising the assets?

Wylie In not ensuring that Mr Basil Walker was doing what he was saying he was going to do with the Inland Revenue Department, attend to the payment of GST, attend to the payment if Tax, filing returns and the rest of it.

Elias CJ But it sounds as if they left it to him because they didn’t appreciate that they were personally liable.

Wylie I’m not sure I can put it that high. I think they left it to him because they trusted him.

Anderson J They might have left it to him because they had no money in the Trust to pay it.

Wylie Well the evidence of Mr Todd is that he knew Mr Basil Walker well, he trusted him and therefore didn’t supervise him as carefully as he should have.

Anderson J I can understand all that. I mean he expected Mr Walker to pay it but that might have been the only option they had because they didn’t have any Trust funds to pay and looking at it in a personal level it was basically for his benefit wasn’t it?

Wylie There’s no evidence of that Sir.

Blanchard J Did Mr Todd expect Mr Walker to pay the money out of his pocket rather than having recourse to Trust assets which he’d organised the sale of?

Wylie Not that I’m aware of Sir, I don’t think there’s any evidence as to that either.

Elias CJ Yes thank you Mr Wylie. Yes Mr Gilbert do you want to be heard in reply?

Gilbert Perhaps just one point unless Your Honours have got other questions of me arising but Justice Tipping I think said at one point in the exchange with my learned friend that he’d thought he’d read somewhere that we were talking about base tax not penalties and I can give you the reference to that. It’s 249 in volume 2, it’s actually a letter from my learned friend to Mr Everard on the 11 April 2001 and this is the document we looked at before and it’s in para.3 second line. Unless Your Honours have got any questions?

Elias CJ No, thank you Mr Gilbert. Well we’ll take time to consider our decision in this matter. Thank you counsel for your help.

2.48pm Court adjourned