George v Sell Smart Biz Ltd [2019] NZHC 37

Introduction

Recently, the High Court decided that a claim for breach of fiduciary duty against a mortgage broker was barred under the Limitation Act 1950 (the Act). The Court applied by analogy the limitation period that applies to contractual/tortious claims. This decision is very important in clarifying the time limit which will apply to claims for breach of fiduciary duty, such as acting in a conflict of interest or failing to act honestly in the client’s interests.

Background

In February 2007, Ariana George entered into two agreements with Sell Smart Biz Limited (Sell Smart), a company owned by David Padfield. Under the first agreement, she purchased a licence to sell tourism advertising using touch screen electronic kiosks owned by Sell Smart. Under the second agreement (which was unconditional) she purchased the related TouchNZ franchise for $105,000. The purchase price was to be paid by way of a $50,000 deposit, with the balance to be paid by instalments to be agreed later.

Mr Padfield was aware that Ms George and her partner Rodney Holland were having trouble obtaining finance for the purchase, so he referred them to Paul Dilks, a mortgage broker. Mr Dilks assisted Ms George and Mr Holland in securing funding from TEA Custodians (Bluestone) Limited (Bluestone).

Unfortunately the franchise was not a success, and Ms George and Mr Holland were unable to repay their loan. Their home was sold under a mortgagee sale.

The current proceedings

In August 2014, Ms George and Mr Holland brought proceedings against five defendants including Bluestone, Sell Smart and Mr Padfield. They subsequently settled and/or discontinued against all defendants except Mr Dilks.

Four causes of action were brought against Mr Dilks which centred on the allegation that Mr Dilks made misrepresentations to the plaintiffs about the loan from Bluestone.

Three of the four causes of action brought against Mr Dilks were prima facie barred by the Act as they were tortious claims which accrued outside of the six-year statutory limitation period.

The fourth cause of action, however, was for breach of fiduciary duty – an equitable claim – which is not automatically subject to a limitation period under the Act. In these instances, the courts have discretion to time-bar equitable claims by analogy, under section 4(9) of the Act.

With reference to Johns v Johns, Katz J noted that “there will be a bar by analogy only when the fiduciary claim parallels the statutory barred claim so closely that it would be inequitable to allow the statutory bar to be outflanked by the fiduciary claim.”[1] If there is clearly a strong factual parallel between the claims, consideration must additionally be paid to policy matters and the purpose for the two separate causes of action.

In this case, the Court found that there was a strong factual concurrence between the equitable fiduciary claim and the three tortious causes of action. This is because all four causes of action rely on, in Katz J’s words, an “identical factual substratum” – that is, the allegation that Mr Dilks represented to the plaintiffs that he would apply to Bluestone for refinancing on the basis of the plaintiffs’ proposed purchase of the TouchNZ franchise, but actually applied on the basis of home improvements.

The plaintiffs attempted to postpone the limitation period by relying on the statutory exceptions under sections 25(4) and 28 of the Act, however, these both failed.

Comment (Philippa Fee)

Lawyers are frequently sued for breach of fiduciary duty when, in reality, the facts of the claim are more consistent with a negligent breach. One of the reasons why this is done is because a claim for breach of contract or tort is time-barred.

This decision highlights that where a claim for breach of fiduciary duty relies on the same facts, this stratagem will not save an out of time claim.

[1] Johns v Johns [2004] 3 NZLR 202 at [80].