IN THE Court of appeal OF new Zealand
	
CA275/2014
[2015] NZCA 411

BETWEEN	
ADRIAN HWEE KIAT NG AND ALICIA SOCK HOON GO
First Appellants

MATTHEW HSUN YEAN LIM
Second Appellant	

AND	
HARKNESS LAW LIMITED
First Respondent

JOHN RENWICK HARKNESS
Second Respondent	

Hearing:	
11 May 2015	

Court:	
Cooper, Mallon and Dobson JJ	

Counsel:	
S H Barter for Appellants
T Gee, S Shortall and G Verhaeghe for Respondents	

Judgment:	
4 September 2015 at 2.30 pm	

JUDGMENT OF THE COURT

A	Leave to adduce further evidence is granted to the appellants and the respondents.
B	The appeal is allowed.  The Associate Judge’s orders striking out the Fair Trading Act 1986 claim and declaring, on the summary judgment application, that it cannot succeed are set aside.
C	The Associate Judge’s award of costs to the extent it applies to the present proceeding is set aside and the appellants are entitled to costs in the High Court.  In the event of disagreement between the parties, any issues as to quantum are to be resolved by the Associate Judge.  
D	The respondents are to pay costs in this Court calculated for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________

REASONS OF THE COURT

(Given by Mallon J)

Table of contents

Para No

Introduction	[1]
Jurisdiction	[2]
Background	[11]
	The first appellants	[17]
	The second appellant	[42]
	Expert evidence	[47]
	Mr Harkness’ role	[48]
The pleading	[51]
The Associate Judge’s decision on the Fair Trading Act cause of action	[53]
Our assessment	[58]
	Principal liability	[58]
	Accessory liability	[69]
Result	[74]
Introduction
[1]	The question before us is whether Associate Judge Bell was correct to strike out a claim brought by the appellants against the respondents under s 9 of the Fair Trading Act 1986 and to declare, on the respondents’ summary judgment application, that the claim could not succeed.  The appellants are Singaporean residents who paid money to obtain interests in residential lots in a proposed development in Albany, Auckland.  The development did not proceed, the development companies are now insolvent, and the appellants have lost their money.  They brought a claim against the law practice (Harkness Law Ltd) and its principal (Mr Harkness) who acted for the developers.  The practice received the money into its trust account and paid it out to the developers in accordance with the developers’ instructions.  Allowing its trust account to be used in this way was alleged to have misled the investors to believe that their money would be safe.
Jurisdiction
[2]	We mention two preliminary issues of a jurisdictional nature which it is appropriate to address even though they were not the subject of submissions made by the parties.
[3]	First, the decision under appeal was a result of one hearing in the High Court in which the Judge dealt with both the strike-out application and the claim for summary judgment.  That was appropriate, given that the factual background and the bases upon which both applications were advanced, were the same.  
[4]	Dissatisfied with the outcome, the appellants appealed to this Court.  They did so even though, as the Supreme Court has confirmed, an order made by an Associate Judge striking out a claim is an exercise of the Associate Judge’s chambers jurisdiction.  It ought therefore to be the subject of an application to the High Court for review in accordance with s 26P(1) of the Judicature Act 1908, rather than an appeal to this Court.  
[5]	A similar situation to the present arose in New Zealand Defence Force v Berryman, in which an Associate Judge had dismissed applications by the Attorney-General for an order striking out the claim and summary judgment.  In that case, this Court held that “to the extent to which” the Associate Judge was exercising the powers of a judge in chambers there was no right of appeal.  This Court took the view that it did not have jurisdiction to address the refusal of the Associate Judge to strike out the claim, and dealt only with the appeal against the refusal of the application for summary judgment. 
[6]	We note however that in Vero Liability Insurance Ltd v Symphony Group Ltd this Court decided to deal with an appeal against a refusal to strike out the claim as well as an appeal against the dismissal of an application to enter summary judgment.  In that case, while recognising that “on the face of it” there was no jurisdiction in relation to the Associate Judge’s decision on the strike-out application, this Court nevertheless proceeded to deal with the appeal as a whole.  Its reasons for doing so were stated as follows:
[4]	However, as we have said, the underlying grounds of the summary judgment and strike out applications were identical and the Associate Judge dealt with them together.  We are properly seized of the appeal against his refusal to grant summary judgment.  On that appeal we “may give any judgment and make any order which ought to have been given or made, and may make any further or other orders that the case may require” (r 48(4) of the Court of Appeal (Civil) Rules 2005).  In these circumstances, and because no party has taken any issue about it, we propose to address the Associate Judge’s refusal to strike out as well.  … 
[7]	Here, as in that case, the underlying grounds of both applications are identical and the Associate Judge dealt with them together in one hearing.  In those circumstances, and in the absence of the matter being raised by the parties, we have proceeded on the same basis as commended itself to this Court in Vero.
[8]	The second preliminary issue concerns the way in which the Associate Judge dealt with the application for summary judgment.  As mentioned, he did not enter summary judgment for the respondents, rather, he made a declaration that the appellants’ claim could not proceed.  
[9]	The reason he proceeded in that way was because, shortly before the hearing, the appellants filed an amended statement of claim alleging a fresh cause of action based on dishonest assistance.  The Associate Judge took the view that the respondents could not properly address the new cause of action in the short time that had been available prior to the hearing and said consideration of the new cause of action would require a further hearing.  However, he decided that he would proceed, in the meantime, to consider the application in relation to the cause of action originally pleaded alleging misleading and deceptive conduct under the Fair Trading Act.
[10]	Rule 12.2(2) of the High Court Rules provides that the Court may give judgment against the plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.  The drafting indicates that a defendant’s application for summary judgment should be disposed of either by being declined, or by the entry of judgment for the defendant in the circumstances envisaged by the rule.  In the circumstances, it is not clear that the Associate Judge had power to deal with part only of the statement of claim and deliver a judgment making a declaration that part of the claim could not succeed.  Once again, however, this issue was not raised by the parties and we consider the practical course to follow is to deal with the issues on the merits.
Background
[11]	The proposal was for a “medium density housing development” on two lots at Gills Road, Albany.  The proposed development was to be undertaken by two companies, one in respect of each lot, incorporated for that purpose.  Those two companies were Hunter Gills Road Ltd (HGL) and Albany Heights Villas Ltd (AHVL).  Behind those companies were other companies and trusts.   
[12]	Behind these arrangements were four individuals: Roderick Nielsen, Peter Chevin, Paul Bublitz and Christopher Cook.  As acknowledged in their partnership agreement, between them they had significant “baggage”.  Mr Neilsen was a director of a failed finance company.  Mr Chevin and Mr Bublitz were undischarged bankrupts, with Mr Chevin being on his third bankruptcy.  Only Mr Cook was recorded as a director of the two development companies.  
[13]	The development was marketed to investors in New Zealand and Singapore.  In Singapore, it was marketed by two companies, Hunter Sterling & Company Pte Ltd (Hunter Sterling) and SQFT Global Properties Pte Ltd (SQFT).  Hunter Sterling did so as the “developer”.  It was a company incorporated in Singapore with its sole director and shareholder listed as Mr Cook.  Hunter Sterling engaged SQFT to market and sell the interests in the development.
[14]	The marketing to investors was “off the plans” because neither HGL nor AHVL had title to the two lots at that time.  Those interested in purchasing a property were not required to enter immediately into an agreement for sale and purchase.  Instead they entered into an “Option Agreement” (as it was called in respect of the HGL development) or a “First Right of Refusal” agreement (as it was called in respect of the AHVL development).  Although they were named differently, they were to the same effect.  
[15]	These agreements provided an interested purchaser with an option to purchase a unit (or units) in the development.  To secure the option two payments were required.  The option holder could then exercise the option during the option period, in which case two further payments were required to purchase the unit.  Alternatively the option holder could waive the option, in which case their two payments would be refunded along with a fee.
[16]	If the option to purchase were exercised, the next step would be to enter into an agreement for sale and purchase.  
The first appellants
[17]	Mr Ng and Ms Go (the first appellants) were contemplating migrating to New Zealand.  They carried out internet research about purchasing property here.  On or about 6 January 2011 they received by email a marketing brochure for the HGL development from SQFT.  This replaced an earlier version of the brochure.
[18]	The marketing brochure set out what was called an Option Program.  It explained a three-step process:
(a)	The first step in the process was for an option holder to select their preferred property in the development, to fill in the booking form and return it to the agent with a “fee” of $5,000.
(b)	The second step was to await confirmation that the selected property was available, in which case the contract would be signed by the developers and returned to the option holder.  If the selected property was not available, the option holder could select a different unit or their “booking fee” would be returned.
(c)	The third step was to make a “final payment” of $60,000, which was to be made 10 days after acceptance of the Option Agreement.
[19]	The option period was for 18 months with rights of renewal.  The marketing brochure explained that on or before that option period expired, the option holder could choose either to “purchase the property at a deep discount (the option purchase price)” (Option A) or “waive” the option to purchase (Option B). 
[20]	The marketing brochure explained that if the option holder chose Option A they were required to pay a 10 per cent deposit.  They were also required to settle the unit on completion at a “discounted price”.  The discounted purchase price was explained as follows:
Property valuation 	$ 420,000
Minus option fee 	$ (65,000)
Minus discount 	$ (50,000)
Purchase price 	$ 305,000
[21]	If the option holder chose Option B, the option fee of $65,000 was repaid together with “an option participation fee” of $25,000.  If the option programme was extended beyond 18 months, then there was an additional option participation fee payable to the option holder of $1,365 per month.  All these payments (the original $65,000, the option participation fee, and the additional option participation fee) were to be made “10 days after the issuance of the Completion Certificate”.  
[22]	The marketing brochure explained that there was no obligation for the option holder to purchase and that the option could be called anytime during the 18 months after the agreement was signed.  The option programme was promoted as providing the option holder with “the opportunity to share in the high margins that are being made by purchasing property off the plans without the risk of having to settle.”
[23]	The second page of the brochure set out the “project team”.  Listed under “legal” were Harkness Law for New Zealand.  Lawyers were also listed for Singapore, Kuala Lumpur, China and Thailand.  Likewise, in respect of banking, ANZ was listed for New Zealand with other banks listed for Singapore and Malaysia.  The rest of the marketing brochure set out further details about Mr Cook and Hunter Sterling, as well as details about the development, including floor plans for the units.
[24]	Mr Ng and Ms Go attended a presentation at the Four Seasons hotel in Singapore on 8 January 2011.  The promoters at this presentation were Mr Cook and an SQFT agent (Paleenia Wong).  Mr Ng’s evidence is that at this presentation he was assured by Ms Wong and Mr Cook that “all money paid by us would be safe because it was being paid to a solicitors trust account, that of [Harkness Law], and not to the Developer.”  Ms Wong told them that she had herself purchased two units.  Mr Ng said that they relied on this in committing to two options.  They paid $5,000 for each lot and entered into an Option Agreement in identical terms for each of the lots. 
[25]	Mr Ng, Ms Go, Hunter Sterling and SQFT signed what appears to be the SQFT booking form (also referred to later as the reservation agreement) referred to in the marketing brochure on 8 January 2011.  The form set out the property details, a payment schedule and terms and conditions.  The payment schedule indicated that the option price was comprised of an “Initial Deposit” of $5,000 and a “Second Deposit” of $59,737.  The latter was said to be payable to “Harkness Law Trust Account (The Solicitor).”  The form set out wire transfer details for that payment.
[26]	The Option Agreements signed by Mr Ng and Ms Go at that time were also dated 8 January 2011.  The terms of each Option Agreement were consistent with the marketing brochure.  In particular, the two option payments were provided for as follows:
2.	OPTION
2.1	In consideration of the payment of the Option Price by the Purchaser to the Vendor, the Vendor hereby grants to the Purchaser an option to purchase the Unit at the Property Purchase Price.
2.2	The Option Price shall be paid by the Purchaser to the Vendor in the following manner:
(a)	$5,000 on execution of this Agreement.
(b)	$60,000 within ten (10) days of execution of this Agreement.
2.3	The Option Price shall be paid to the Vendor in cleared funds to a bank account nominated by the Vendor.
[27]	If the option to purchase was exercised, the option payments were to be applied as follows:
3.	EXERCISE OF OPTION
…
3.2	On exercise of the option the Purchaser shall execute a Sale Agreement for the Unit and pay to the Vendor an additional deposit equal to 10% of the difference between the Property Purchase Price and the Option Price, and the Option Price shall also not be refunded to the Purchaser but shall be applied as part payment of the Property Purchase Price.
...
[28]	Waiving the option to purchase was provided for as follows:
4.	OPTION REFUND
4.1	In the event that the Purchaser shall fail to exercise the option … this Option Agreement shall be at an end and the Vendor will refund to the Purchaser the Option Refund amount which will comprise:
(a)	the Option Price $65,000 plus
(b)	50% of the Discount $50,000 [this sum was crossed out and $56,000 was handwritten]
4.2	The Option Refund shall be paid by the Vendor to the Purchaser on a date being no later than 14 days after the date of issue of a code compliance certificate for that part of the Development in which the Unit is contained provided that if such code compliance certificate has not issued by a date being 18 months from the date of this Agreement then the Option Refund shall increase by the sum of $1,354 for every month after that date until full payment of the Option Refund is effected.
4.3	The Vendor has an absolute obligation and guarantee to the Purchaser to effect payment of the Option Refund in the manner set out in clauses 4.1 and 4.2 and at the times detailed for payment of the Option Refund.  In the event that the Vendor shall fail to pay the Option Refund to the Purchaser in accordance with this agreement the Purchaser may immediately make demand for payment of the Option Refund and commence proceedings against the Vendor for payment of the Option Refund.
[29]	HGL was named as the Vendor.  In accordance with cl 2.3, the Option Agreement also included a “Purchasing Procedure” and “Account Wiring Details”.  The copies provided to us in the Case on Appeal are almost illegible, but apparently provide for payment of the $5,000 “refundable deposit by either cheque payable to [Hunter Sterling] or … to Harkness Law Trust Account …”.  Once the Option Agreement was returned back from “Hunter Gills Road and Guarantees” then the purchaser was to “Make Final Payment” of $60,000 to the “Harkness Law Trust Account” within 10 days.  Wiring details for that account were provided. 
[30]	Mr Ng’s evidence is that after signing these Option Agreements he searched Mr Cook’s name on the internet.  He found nothing negative.  He and Ms Go returned to the presentation at the Four Seasons the next day (9 January 2011) and signed up for another three options.  They negotiated a participation fee of $56,000 (rather than the standard $50,000 provided for in cl 4.1(b) of the Option Agreement).
[31]	The next day, Mr Ng logged onto the Hunter Sterling website using a username and password he had been given to access it.  He then sent an email requesting further details.  In reply to that request he received a number of documents including a draft sale and purchase agreement.  At the foot of each page of this draft agreement, Harkness Law’s name appeared in a manner indicating that they had drafted the document.  The draft also named Mr Harkness of Harkness Law as the Vendor’s solicitor.  The Vendor’s solicitor was defined as “the Stakeholder.”  
[32]	The draft provided that its terms were subject to the Option Agreement.  It stated:
2.1	The Purchaser will pay the Deposit to the Stakeholder in the amounts and on the dates set out in the particulars of sale (time being of the essence).  The Deposit will be held by the Stakeholder in an interest bearing trust account with a trading bank registered in New Zealand, provided however that the Stakeholder will not be required to place the Deposit or any part of it in an interest bearing trust account until payment of the Second Deposit.  Net interest will follow the destination of the Deposit.
[33]	It further provided:
2.5	The parties acknowledge that the Stakeholder will hold the Deposit as Stakeholder for the benefit of both parties.  The Stakeholder is irrevocably authorised to make payment of any withholding tax payable on interest earned on the Deposit to the Inland Revenue Department and to charge and deduct an amount up to five percent of any interest earned by way of commission for handling costs.
[34]	It also provided that the Stakeholder was not liable for any delay in investing the Deposit, providing that it used reasonable endeavours to place the Deposit on interest bearing deposit at the nominated bank.  It also provided that the Stakeholder’s obligations under cl 2.5 did not apply “until payment of the Second Deposit.”
[35]	The draft defined “Deposit” as “the sum of the First Deposit, Second Deposit and Third Deposit”.  There was no further definition of these terms.  However the particulars of sale which were included as part of the draft listed the “Deposit” as “$65,000”.  It appears, therefore, that the Deposit referred to in cls 2.1 and 2.5 was intended to include the two sums payable to obtain the option (being the First and Second Deposit) although some tidying up in the drafting would have made this more clear.
[36]	On 25 January 2011 Mr Ng remitted $296,086.29 to Harkness Law’s trust account.  We understand that this was payment of the second option payment of $60,000 for the five units in respect of which Mr Ng and Ms Go had entered into Option Agreements.  They received a receipt from Harkness Law dated 27 January 2011.  This receipt had a stamp with the words “Official Receipt Form For Trust Moneys”.  Further information was provided by Hunter Sterling and HGL.  This included a Guarantee dated 4 March 2011 under which HGL guaranteed to the purchaser “the performance of the Vendor’s obligations under the Agreement.”
[37]	In May 2011 Mr Ng remitted a further $54,898 to Harkness Law’s Trust account.  The first amended statement of claim describes this as the option for right of first refusal price and deposit in respect of lot 58.  
[38]	In November 2011 Mr Ng and Ms Go signed an agreement for sale and purchase for lot 50.  They had calculated that the settlement price to proceed with this purchase was less than the refund they would receive under the other four options.  The agreement was largely the same as the draft that Mr Ng and Ms Go had previously received, although the Vendor’s solicitor was now Mr Hornabrook of Hornabrook Macdonald Lawyers.  The definition of “Deposit” and “Stakeholder” remained the same, as did cls 2.1, 2.5 and the clause concerning Stakeholder liability.
[39]	By this time Mr Ng and Ms Go had been advised that the terms under the option agreements had been extended from 18 to 24 months and that the anticipated date for the development was January 2013 not July 2012.  Subsequently, Mr Ng received a letter from Mr Harkness dated 9 January 2013.  This letter advised that Harkness Law acted for AHVL and not Mr Ng or any other purchasers, that payment was made to its trust account for the credit of AHVL, that “[a]ll funds received were then paid to [AHVL] as requested by them” and that Harkness Law was not holding any funds in its trust account in respect of this transaction.  
[40]	The liquidators of HGL were appointed on 27 March 2013.  Mr Ng and Ms Go have lodged a creditor’s claim in the liquidation.
[41]	Mr Ng’s evidence is that based on the representations made by Ms Wong and Mr Cook, which were backed up by the agreements they signed, he and Ms Go believed that the trust account of Harkness Law was “separate from the accounts of the Developer/Vendor and not controlled by the Developer/Vendor”.  He says that if he and Ms Go had known the vendor’s representations were false, they would not have invested money in the development.
The second appellant
[42]	Mr Lim (the second appellant) is also a resident of Singapore.  His interest in the developments was sparked by an advertisement in a local newspaper offering an investment with very high returns.  As a result he attended a presentation hosted by SQFT at the Four Seasons hotel in Singapore on 15 May 2011.  This was for stage 2 of the development, Albany Village Heights.  From the presentation and the materials provided at that time, he understood that Harkness Law were the solicitors for the development and SQFT were the agents.
[43]	Mr Lim says that he mainly dealt with Louisa Yap from SQFT.  He says that he quizzed her about Harkness Law’s trust account because he wanted to know how it would deal with his money.  He says that he was told that the money could only be used to buy materials to construct the units in the development.
[44]	Mr Lim selected three units.  He negotiated a $2,000 discount on what he describes as the purchase price of each unit (but apparently meaning the second of the two option payments).  He signed the SQFT booking form, which was in similar terms to that signed by Mr Ng and Ms Go (referring to the two option payments as “initial deposit” and “second deposit” respectively).  He also signed a First Right of Refusal Agreement for each of these units on 15 May 2011.  These agreements were in materially the same terms as Mr Ng and Ms Go’s Option Agreements.  The payment instructions varied slightly but still specified that the second payment of $60,000 was to be made to the Harkness Law Trust Account.
[45]	Mr Lim made the second payment for the three units to the Harkness Law trust account in two tranches, on 26 and 27 May 2011.  These payments were for $97,344 and $76,350 respectively.  He received receipts for these payments from Harkness Law which included the “Official Receipt For Trust Moneys” stamp.  Mr Lim received a “welcome pack” of documents from Hunter Sterling by letter dated 15 September 2011.  Amongst these documents was a Deed of Guarantee from Hunter Sterling.  Under this deed Hunter Sterling agreed to be jointly and severally liable with AHVL (the Vendor) to Mr Lim for any payments due to him under the First Right of Refusal Agreement. 
[46]	Mr Lim is now a creditor in the liquidation of AHVL.
Expert evidence
[47]	In support of their opposition to the respondents’ strike-out and summary judgment applications, the appellants filed evidence from Peter Nolan, a solicitor with extensive experience in property law.  His evidence is that the arrangements were “most unusual”.  Usually a purchaser of residential units “off the plans” would enter into an agreement for sale and purchase in a form similar to the draft agreement for sale and purchase referred to above, without first entering into any form of option or reservation agreement.  Moreover the two payments required under the Option Agreement were a substantial percentage of the purchase price for the unit, when usually the required deposit would be no more than 15 per cent.  Mr Nolan also said that it was usual for deposits to be held in trust by a stakeholder and that no store could be placed on the Hunter Sterling guarantee.  
Mr Harkness’ role
[48]	Mr Harkness filed evidence as to his role.  He said that he reviewed and provided advice on the Option Agreements on behalf of HGL and AHVL on instructions from Mr Bublitz, whom he had known for 15 years or so.  He was also engaged by HGL and AHVL to receive and process the option payments into the Harkness Law trust account and to pay out those monies in accordance with their instructions.  His evidence was that he typically received distribution instructions in advance, or within one to two days of receipt of the funds.
[49]	Mr Harkness was also instructed from time to time to assist with other matters, such as drafting guarantees to complement the Option Agreements or responding to queries from investors who were seeking additional information before doing so.  His evidence was that the template sale and purchase agreement, to be signed on exercising the option to purchase, was prepared by Hornabrook Macdonald.  He “reviewed this agreement, but was specifically asked not to redraft it as it was in a settled and agreed form.”
[50]	Mr Harkness was of the view that there was no obligation under the Option Agreements to hold the Option Fees on trust.  He said he was concerned to ensure that the arrangements made it clear that the Option Fee was not a deposit of any kind, but rather a fee.  Mr Harkness noted that, although the agreement contained provisions concerning the holding of the purchase price deposit by a stakeholder (the vendor’s solicitor), that agreement did not come into effect unless and until an option was exercised.  He also said that it related “only to the subsequent purchase price deposit payable under the sale and purchase agreement, rather than to the preliminary Option Fee.”
The pleading
[51]	The claim as first pleaded alleged, inter alia, the following:
(a)	The appellants made their investments in reliance on several representations, including that the money paid under the Option Agreements to the Harkness Law trust account would be treated as deposit money, would be safe, and would not be disbursed to the developer until the property was completed.
(b)	Because the respondents allowed their name and trust account to be used by the developers in the promotional materials:
(i)	they assumed responsibility for the correctness of statements made in those materials, and to hold payments in their trust account on a stakeholder basis; and
(ii)	they accepted that purchasers such as the appellants would rely on them to act as stakeholders, and that SQFT was likely to promote and market the Option Agreements making the above representations.
(c)	The conduct of the respondents in:
(i)	lending Harkness Law’s name for use by the developers in association with the development of the 125 Gills Road land (and the further development land); and
(ii)	allowing HGL and AHVL to use Harkness Law’s trust account to receive deposits when they did not (at the material times) own the land to be developed; and
(iii)	in receipting deposits from the appellants identified to specific lots/units when no such lots/units existed; and
(iv)	in paying the deposit moneys out of Harkness Law’s trust account without the authority of the appellants –
was conduct that was misleading and deceptive in terms of section 9 of the Fair Trading Act.
[52]	As noted earlier, shortly before the hearing of the respondents’ strike-out and summary judgment applications, the appellants filed an amended statement of claim alleging an alternative claim for dishonest assistance.  The Associate Judge determined to proceed with the respondents’ application in respect of the claim as originally pleaded, and to adjourn consideration of the dishonest assistance claim for hearing on a later date. 
The Associate Judge’s decision on the Fair Trading Act cause of action
[53]	The Associate Judge noted that in a typical s 9 case proof of some communication by the defendant is required.  The only direct communication by the respondents to the appellants was the issue of receipts for payments made into the trust account, but it was not alleged that the receipts were misleading or deceptive.  The Associate Judge considered that the claim was not so much that the respondents misled or deceived the appellants, but that they became involved in misleading and deceptive conduct by other people.  It was therefore more in the nature of a claim based on accessory liability, although that had not been pleaded.
[54]	Referring to Tipping J’s test in Megavitamin Laboratories (NZ) Ltd v Commerce Commission, the Associate Judge said that for accessory liability it would be necessary to show that the respondents knew of the essential features of the misleading or deceptive conduct by the developers and their marketing agents and that they intended their conduct to assist the developers in their breaches of the Fair Trading Act.  He said that “[i]n short, the [appellants] have to prove fraud and dishonesty on the part of the [respondent].”  He noted that as Harkness Law was a company, it would be sufficient to show that Mr Harkness had that knowledge.  He noted that the appellants were required to make sure that they have a proper basis for alleging fraud, to plead it clearly, and to give adequate particulars.
[55]	The Associate Judge then considered the strike-out application. He considered that, in giving their trust account details, the respondents’ conduct was consistent with honesty.  He said that knowledge of the Option Agreements and the template agreement for sale and purchase was also consistent with honesty, given Mr Harkness’ explanation that the stakeholder provisions of the agreement for sale and purchase did not apply until the parties entered into such an agreement and there was no stakeholder provision in the Option Agreement.  The Associate Judge concluded that the allegations in the statement of claim did not plead that the respondents knew the essential features of the developers’ deception, nor that they intended to assist the developers in their deception.  He considered that the pleading did not disclose a reasonably arguable cause of action.
[56]	The Associate Judge considered whether he should exercise his discretion not to strike out the statement of claim.  He considered that the appellants had had their opportunity “to show what their case was about” but that they had not “showed a basis for believing that the [respondents] had acted dishonestly … or had been knowing parties to deception by the developers.”  He concluded that the appellants did not have a prima facie case of accessory liability and that there was no point in giving them time to amend their statement of claim because it could not be repaired.
[57]	The Associate Judge then referred to the summary judgment application.  He referred to Mr Harkness’ evidence that he did not know of the marketing in Singapore and that he dealt with the funds paid into his trust account as client funds.  The Associate Judge considered that Mr Harkness had given an account consistent with acting honestly.  He considered that this was enough to put an evidential onus on the appellants to show that the respondents were knowing participants in the developers’ deception.  He concluded that the appellants had not shown grounds for such a case.  He concluded that the Fair Trading Act causes of action could not succeed.  He therefore struck out the cause of action and as we earlier explained further made a declaration that it could not succeed.
Our assessment
Principal liability
[58]	The appellants contend that the Judge was wrong to find that the claim based on principal liability could not succeed.  They submit that s 9 is sufficiently broad to capture indirect communications.  Here the appellants allowed their trust account to be named as the repository for funds in a highly unusual and patently risky promotion.  In doing so an indirect communication was made to and received by investors.  
[59]	The respondents contend that the appellants have taken out of context the Judge’s comment that in a typical case a direct communication is required.  They submit that the Judge went on to consider the pleaded conduct in terms of both principal and accessory liability.  They submit that he was correct to find that there was no basis for a claim that the respondents made any representations to the appellants that could amount to misleading and deceptive conduct. 
[60]	As the respondents’ submissions set out, there are two approaches for determining whether there has been a breach of s 9.  The first is in AMP Finance NZ Ltd v Heaven, which sets out three steps to consider, and the second is in Red Eagle Corp Ltd v Ellis, which is the approach that the Associate Judge adopted.  On that approach:
(a)	the question under s 9 is whether a reasonable person in the appellants’ position – that is, with the characteristics known to the respondents or of which the respondents ought to have been aware – would likely have been misled or deceived; and
(b)	if that is established, then the question under s 43 is whether the appellants have suffered loss or damage “by” the respondents’ conduct, which requires the court to consider whether the appellants were actually misled by the respondents’ conduct and whether that conduct was an operating cause of the appellants’ loss. 
[61]	We accept that the conduct as pleaded in the Fair Trading Act claim may face difficulty:
(a)	The first two allegations (lending the Harkness Law name “for use by the developers” and “allowing [the developers] to use Harkness Law’s trust account”) did not clearly allege how that was conduct by the defendants that was likely to have misled or deceived the appellants.
(b)	Receipting deposits for specified lots/units and paying out the deposit money without the authority of the appellants was conduct that occurred after the option payments were made, so was not conduct that could have actually misled or deceived the appellants to make the payments in the first place. 
(c)	The claim seeks to impose liability on solicitors in respect of third parties who are dealing with their clients, and the possibly more orthodox potential grounds for liability in such circumstances are breach of a tortious duty of care and/or a breach of a fiduciary duty (if the grounds for either of those causes of action can be made out). 
[62]	That said, it is usually premature to strike out a pleading or to grant a defendant’s summary judgment application where a pleading is capable of amendment and an opportunity has not been provided to the plaintiff to do so.  On the evidence before the Associate Judge, we consider that the pleading was capable of amendment.  We are reinforced in that view by the further evidence of Mr Harkness’s involvement that became available after the hearing before the Associate Judge.  That additional evidence is discussed further below.
[63]	On the question of breach, the evidence included the following:
(a)	Mr Harkness knew how the investment was structured, having provided advice on the Option Agreements and reviewed (on his evidence) the draft sale and purchase agreement.  
(b)	He therefore knew that the two option payments were either refundable or to be applied to the purchase depending on whether the option was exercised. 
(c)	He also knew that if the option to purchase was exercised, pursuant to the proposed agreement for sale and purchase “the first deposit, the second deposit and the third deposit” were to be held by Harkness Law as stakeholder.
(d)	He also knew that he was not holding the two option payments on trust for the investors, but was to pay out the funds at his client’s direction.  He was concerned to ensure that the Option Agreements described the payments as “fees” rather than “deposits”.  
[64]	In these circumstances it is reasonably arguable that the respondents’ conduct, in putting forward to investors their trust account as the recipient of the option payments, was likely to mislead or deceive a reasonable person in the appellants’ position.  It is reasonably arguable that use of a solicitors’ trust account, which is to receive monies that are to be either refunded or applied towards a purchase in respect of a development yet to be carried out, was likely to convey to a reasonable Singaporean investor that the money would be held on trust although the Option Agreement did not expressly say so.  It is reasonably arguable that any such impression was likely to be reinforced by the terms of the draft agreement for sale and purchase, where it required three deposits (and therefore included the first and second option payments) to be held by the vendors’ solicitors as stakeholders and by the stamp “Official Receipt Form For Trust Moneys” on the receipt that Mr Ng received.  The pleading could therefore be amended to plead a breach of s 9. 
[65]	On the question of whether any such breach was causative of the first appellants’ loss, the evidence before the Judge was that they understood their payments would be safe based on the representations made at the presentations backed up by the agreements they signed.  The evidence is that they signed the SQFT booking form (which referred to “deposits” and to the Harkness Law Trust account) and the Option Agreements (which contained the directions to make payment to the Harkness Law Trust account) contemporaneously.  They also say that they made the second payments after obtaining a copy of the draft agreement for sale and purchase.
[66]	The evidence does not establish whether Mr Harkness had seen the SQFT booking form, nor whether he was aware of the payment instructions that were with the Option Agreements.  However, on a defendant’s strike-out and summary judgment applications, it should not be assumed that the state of the evidence is complete.  As matters transpired, further evidence was obtained after the hearing.  Mr Harkness’ files were handed over to the liquidator and he has now been questioned by the liquidators.  The respondents contend that all the evidence has now been made available to the appellants.  We accept that there may be more information available to the appellants than is ordinarily the case at this stage of proceedings.  We consider, however, that the processes by which this information has been obtained are not necessarily an exact substitute for how the facts will emerge at trial through the usual litigation procedures.  
[67]	On the question of whether any such breach was causative of the second appellant’s loss, the evidence is that he was told by SQFT that the money could only be used to buy materials to construct the units in the development.  On the face of that statement, his claim that he was misled by the respondents appears weaker.  However, like Mr Ng and Ms Go, he signed the booking form and the Option Agreements contemporaneously.  These had features that could be reasonably argued to be misleading.  He also received a receipt which included the “Official Receipt for Trust Moneys” stamp.  We consider that the question of whether the respondents’ conduct in putting forward their trust account misled the second appellant is better assessed at trial when all evidence will be available.
[68]	We therefore conclude that the Judge was wrong to strike out the claims and to grant a declaration in the respondents’ favour in respect of their summary judgment application.  
Accessory liability
[69]	We also consider that the pleading was capable of amendment in respect of accessory liability.  The Judge rejected this because he considered that the appellants had had the opportunity to put forward all the relevant evidence.  He considered that they had failed to put forward evidence to support a prima facie case that the respondents were aware of, or “in on”, the developers’ deception of the investors.  
[70]	In our view the Associate Judge placed too high an onus on the appellants at this stage of the proceeding.  A pleading of accessory liability had not been made.  Rather, the Associate Judge considered this to be the proper basis on which the pleaded conduct should be considered.  As it happens, subsequent information has become available to the appellants.  It is the subject of the application for leave to adduce evidence on the appeal.  That includes:
(a)	Evidence that Mr Harkness reviewed the guarantee and considered it to be “totally redundant” since it did nothing more than have HGL agree to guarantee its own performance, yet advised HGL that “if it assists with marketing or sales then there is no harm done”.
(b)	Evidence that Mr Harkness issued a letter dated 12 November 2010 “To Whom it May Concern” stating that Harkness Law was familiar with the Gills Road project and that the “Corporate Guarantees are put in place to protect the option purchaser and to offer further comfort that their investment is secure”.
(c)	Evidence that that Mr Harkness responded to queries from some potential investors (not the appellants) about the basis on which the option payments would be held in January 2011, and replied that they would be “utilised only for the payment of specific accounts and invoices that relate directly to the Hunter Gills Road project”.
[71]	As matters transpire, it seems that the Associate Judge also became concerned about the respondents’ involvement in light of the further evidence, when considering the adjourned dishonest assistance claim.  The claim was that the respondents gave dishonest assistance to the directors and de facto directors of HGL and AHVL in breaching fiduciary duties which those directors owed to their companies.  The Associate Judge concluded that the appellants did not have standing to bring the claim.  He went on to comment that he would not have ruled against the appellants on the cogency of the case.  The appellants had “sufficient circumstantial evidence to found a case for suspicion” that the respondents had knowledge that this was a scheme that was likely to cause loss to those who dealt with it, and he set out his reasons for that view.
[72]	Given our views that the appeal should be allowed it is not necessary for us to consider the appellants’ submission that the Judge applied the wrong test for accessory liability under s 43.  We consider that this issue, including whether wilful blindness could suffice, is better addressed in the context of the evidence at trial.  Nor is it necessary to consider the draft second amended statement of claim.  It may well need more work, as counsel for the appellants acknowledged, including, for example, whether other causes of action are available or more appropriate as matters proceed.
[73]	Lastly, we note that the respondents contended that permitting this claim to proceed would circumvent a claim by the liquidators for dishonest assistance, which they were actively considering.  We do not agree.  The claim the investors seek to make is against the lawyers for the companies in liquidation.  The liquidators’ claim, as we understand it, would be against the directors and on behalf of the companies.  Any such claim would therefore be complementary.
Result
[74]	The applications for leave to adduce fresh evidence from both the appellants and the respondents are allowed.  The appeal is allowed.  The Associate Judge’s orders striking out the claim and granting a declaration in the respondents’ favour are set aside.  
[75]	Associate Judge Bell reserved costs pending the outcome of the knowing assistance cause of action.  In a minute dated 29 August 2014, the Associate Judge awarded costs to the respondents in respect of both hearings.  To the extent that award applies to the decision subject to this appeal, it is set aside and the appellants are entitled to costs in the High Court.  In the event of disagreement between the parties, any issues as to quantum are to be resolved by the Associate Judge.  
[76]	We order costs in this Court in the appellants’ favour calculated for a standard appeal on a band A basis and usual disbursements.

Solicitors: 
Barter & Co, Auckland for Appellants
Minter Ellison Rudd Watts, Wellington for Respondents