IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-2819
[2019] NZHC 2694	

BETWEEN	FRUIT SHIPPERS LIMITED
Plaintiff	
AND	ALISTAIR DOUGLAS PETRIE
First Defendant	
AND	LUISA NOBOA
Second Defendant	

Hearing:	3 October 2019	
Appearances:	D J Friar and B A Keown for Plaintiff
M D Arthur and J Marcetic for Defendants	
Judgment:	21 October 2019	

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 21 October 2019 at 3.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 21 October 2019

FRUIT SHIPPERS LIMITED v PETRIE [2019] NZHC 2694 [21 October 2019]

Application

[1]	The plaintiff applies for an order restraining Chapman Tripp from acting as solicitor for the defendants and for the company of which they were directors if it is joined to this proceeding.

Background

[2]	The plaintiff, Fruit Shippers Ltd (“Fruit Shippers”), alleges that the second defendant, Mr Noboa, received from Bartel Holdings Ltd (“Bartel”) between 2008 and 2017 a total of approximately $15 million to which he was not entitled. Mr Noboa was a director of Bartel from 16 January 2012 to 8 November 2017. The shareholders of Bartel are the trustees of the Dossor Trust (“the Trust”) and Fruit Shippers characterises itself as the sole discretionary beneficiary of the Trust.

[3]	The standing of Fruit Shippers as a beneficiary of the shareholder of Bartel to bring the present proceeding is the subject of a further application to be heard in December 2019. Counsel agreed that this application would proceed without regard to issues of standing. There is also an application by Fruit Shippers to join Bartel as  a third defendant, hence the prohibition on the firm acting is sought to extend to that company if joined.

[4]	The first defendant, Mr Petrie, is a director of Bartel and has been since       18 January 2016. Mr Petrie was the sole shareholder of Bartel from 18 January 2016 until 14 December 2017, as trustee of the Trust. (A Mr Carpenter was appointed second trustee of the Trust on 6 November 2017, an additional shareholder of Bartel on 14 December 2017, and a director  of  Bartel  on  8 November 2017  alongside  Mr Petrie). The causes of action against Mr Petrie are based on breach of fiduciary duty owed to Bartel in permitting the payments received by Mr Noboa to be made during Mr Petrie’s directorship. The claim against Mr Petrie is quantified at $7.149 million  being the  payments  alleged  to  be improperly made  while Mr Petrie was   a director.

[5]	From about April 2016, Chapman Tripp began acting for Bartel and Mr Noboa as director of Bartel. It is understood the firm also acted for Mr Petrie as director of Bartel.

[6]	The basic proposition behind the present application is that Fruit Shippers says that Chapman Tripp was so involved in events relating to the impugned payments to Mr Noboa and to an entity said to be associated with him, that Chapman Tripp should be disqualified from acting for the defendants. The “victim” of the conduct complained of in the statement of claim is Bartel. Chapman Tripp used to act for Bartel. While Bartel is not (yet) a party to this proceeding, Fruit Shippers says in substance Chapman Tripp is acting against the interests of its former client as it is Bartel that would receive the fruits of any recovery from the defendants. Bartel is not presently represented. Chapman Tripp has not acted for Bartel since November 2018 and accepts that it could not now act for Bartel.

Legal principles

[7]	Counsel by and large agreed on the applicable legal principles. The starting position is Black v Taylor.1 Whether or not it is relevant that the Conduct and Client Care Rules 2008 or other duties owed by a solicitor have been breached, or will be breached, by the solicitor sought to be prevented from acting, at the end of the day the test operates at a higher level. Cooke P put the test as follows:2

The jurisdiction extends  to  the  propriety of  a  representative  appearing in a particular case: it is not then a question of the right of practice generally, which is governed in New Zealand by statute, but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice. Obviously it is a jurisdiction to be exercised with circumspection.

[8]	Richardson J said:3

Another aspect of the inherent jurisdiction is the control of a particular proceeding in the Court. There the Court’s concern is with the administration of justice in a particular case and in the generality of cases and with the associated basic need to preserve confidence in the judicial system.

1	Black v Taylor [1993] 3 NZLR 403 (CA).
2	At 406.
3	At 408.

[9]	Richardson J also said:4

An associated consideration is the fundamental concern that justice should not only be done but should manifestly and undoubtedly be seen to be done.

The integrity of our system of justice depends on its meeting those standards. The assessment of the appearance of justice turns on how the conduct in question …would appear to those reasonable members of the community knowing of that background.

[10]	In a more recent decision, Deliu v Auckland Standards Committee, Woolford J said:5

[22] I am of the view that the public interest in the administration of justice requires an unqualified perception of its fairness in the eyes of the general  public.  As  noted  in   the   Canadian   case   of   Everingham v Ontario the issue is not whether any ethical rule has been breached, nor is the issue solely whether one of the parties has lost confidence in the process.6 The issue is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires the removal of the solicitor.

[11]	Recently in Mitchell v Mitchell, Powell J said:7

[29] The legal principles are well established having been reviewed and applied in a number of recent cases. The starting point  remains Black v Taylor, where the Court of Appeal confirmed that this Court has an inherent jurisdiction to disqualify a solicitor from acting against a former client where counsel’s representation of one party against the other may impair the integrity of the judicial process. The cases are clear that the integrity of the justice system will be impaired where counsel has a conflict of interest or there is an appearance of  a conflict of interest such that justice will not be seen to be done. In  a number of cases the test is couched in terms as to whether a fair minded, reasonably informed member of the public would conclude the proper administration of justice requires that a legal practitioner should be prevented from acting.

[12]	Accordingly, the Court will consider whether a lawyer being involved creates a risk that confidential information held by the lawyer about a former client may be disclosed. Also relevant is whether the lawyer in defending his or her client’s position is in reality defending advice they had previously given. These are examples where

4	At 408 (footnotes omitted).
5	Deliu v Auckland Standards Committee [2014] NZHC 2530, [2014] NZAR 1473.
6	Eveningham v Ontario (1992) 88 DLR (4th) 755.
7	Mitchell v Mitchell [2018] NZHC 2665, [2018] NZAR 1741 (footnotes omitted).

the wider interests of justice may mean it is necessary for the Court to disqualify       a lawyer from acting.8

[13]	However, in one respect, counsel differed in their approach to the test. Fruit Shippers accepted that the jurisdiction was one to be exercised with circumspection.

[14]	The defendants, relying on Clear Communications Ltd v Telecom Corporation of New Zealand Ltd, submitted that an applicant for removal had to establish “the most extraordinary of circumstances”.9

[15]	The     defendants’     counsel      also      relied      on      Accent   Management Ltd v Commissioner of Inland Revenue, where the Court of Appeal, summarising the applicable law, also referred to an application requiring something extraordinary, referring to the Clear Communications decision.10

[16]	With respect, I agree with the approach adopted by Woolford J in Deliu that the appropriate approach in a case such as this is one of circumspection as referred to in Black v Taylor.

[17]	Clear Communications was a different type of case from the present one. The removal of the solicitor that was sought in Clear Communications was as a sanction for what was submitted by the applicant to be a breach of duty by the solicitor in the course of discovery.

[18]	Fisher J’s reference to “extraordinary circumstances” was in the context of referring to the prima facie sanction for discovery inadequacy being an order for particular discovery or contempt for non-compliance. His Honour then said:11
The alternative of removing a party’s lawyer for discovery deficiencies could be contemplated in only the most extraordinary of circumstances.

8	Mitchell v Mitchell, above n 7 at [33].
9	Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1999) 14 PRNZ 477 (HC) at 483.
10	Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR 374 at [32].
11	Clear Communications Ltd v Telecom Corporation of New Zealand Ltd, above n 9, at 483.

[19]	Accordingly, His Honour was dealing not with a case where a solicitor’s prior connection to the matters in issue or a party met the tests I have set out above, but whether a solicitor’s conduct in the course of a proceeding was so egregious that the solicitor should be removed from the proceeding because of the risk that the solicitor’s conduct would infect the future of the proceeding.12

[20]	The type of case before His Honour where an application for removal was based on misconduct can be compared to the type of application considered  in  Black v Taylor where the Court was clear that misconduct is not a prerequisite for removal.13 It is not necessary for an applicant in a Black v Taylor type case to demonstrate actual misconduct because the jurisdiction is based on the need to ensure that justice will be seen to be done.

[21]	Accordingly, in approaching this application, I remind myself of the need to be circumspect, but do not accept something extraordinary is required.

The plaintiff’s allegations in more detail

[22]	The challenged payments are grouped by the plaintiff in the statement of claim into three broad classes as follows:

(a)	payments to Mr Noboa between 2008 and 2016;

(b)	payments  to  Mr Noboa  in  2017,  in  particular  those  made  after  19 February 2017 when Fruit Shippers says the defendants were instructed not to transfer any funds out of Bartel; and

(c)	what is referred to as the “Wasabi payment” which saw Wasabi Investments Inc (“Wasabi”), a company alleged to be a family company of Mr Noboa, receive a commission of $3.8 million on the sale of shares held by Bartel completed at the end of 2016. Of the $3.8 million, the sum of $2 million was eventually repaid by Wasabi as required by the terms of the agreement with Wasabi.

12	Above n 9 at 483.
13	Black v Taylor, above n 1.

[23]	Fruit Shippers says that Chapman Tripp was involved with events related to each of these categories of claim, such that in terms of the authorities its involvement means that “a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires” that Chapman Tripp not be permitted to act for the defendants.14

Payments 2008 – 2016

[24]	In 2007 Bartel declared a dividend in favour of the shareholding Trust in the sum of $12 million and a further dividend of just over $4.27 million in 2010. These dividends were not paid. The funds were apparently retained in Bartel.

[25]	The Trust recorded the dividend in its accounts as a current asset. As payments were made by Bartel to Mr Noboa year on year, the value of the dividend in the accounts of the Trust was reduced by the amount paid to Mr Noboa. For example, in the accounts to 31 December 2008 under the heading “Current Assets” there appeared the items Bartel Holdings Ltd $11,577,650 and L Noboa $422,350 – a total of
$12 million.

[26]	In the previous year, the only item listed as a current asset was “Bartel Holdings Ltd $12 million”. The sum of $442,350 referred to in the accounts for the year ended 2008 is the first of the impugned payments in the statement of claim.

[27]	The pattern of payments to Mr Noboa reducing the Bartel entry and increasing the amount in the name of L Noboa continues for the years ended December 2009, 2010, 2011 and 2012.

[28]	From and including the year ended December 2013, the description of the amount paid to Mr Noboa was changed in Trust accounts to “L Noboa – overseas remittance”. The amounts received by Mr Noboa were treated as being owed by him to the Trust as the amount in the accounts up to the year ended 2016 recorded the sum under current assets.

14	Deliu v Auckland Standards Committee [2014] NZAR 1473 at [22].

[29]	In March 2017, Fruit Shippers commenced an investigation into Bartel’s accounts. Fruit Shippers instructed a London based solicitor, Ms Duncan, who had acted for it since 2004. The investigation was prompted by Fruit Shippers discovering that Bartel had sold in 2016 its majority shareholding in T & G Global Ltd (“T&G”) for $38.8 million, but none of the sale proceeds had been distributed to the Trust. It is this sale that involved Wasabi which I refer to below.

[30]	Ms Duncan’s evidence is that her investigation revealed the payments made to Mr Noboa between 2008 and 2016, which are the subject of this proceeding, are not recorded in Bartel’s accounts.

[31]	Ms Duncan met with Mr Noboa in Miami, Florida, USA twice in July 2017 to discuss the payments. Her account of the interviews is in summary that:

(a)	Mr Noboa claimed the payments he received were salary for work he did for Bartel and for Fruit Shippers’ Japanese business;

(b)	Mr Noboa had determined he needed to be paid, Bartel had the cash and him being paid from Bartel did not require input from Fruit Shippers;

(c)	Mr Noboa had not received salary from any other entity;

(d)	Mr Noboa was prepared to repay the money provided he was compensated for his contribution to the New Zealand business; and

(e)	it had been easier for Mr Noboa to take expenses from Bartel. Bartel was not subject to the same level of security as an expense claim direct from Fruit  Shippers  would  have  been,  with  Ms Duncan  saying  Mr Noboa:

… did not discuss his decision to run his salary or his expenses through Bartel with [Fruit Shippers], nor did he seek approval from [Fruit Shippers]. He acknowledged that he should have done so, and that what he had done was ‘incorrect and out of order’.

[32]	Mr Noboa has filed a short affidavit in this proceeding, the focus of which is his protest to jurisdiction as he is a citizen of the United States of America and lives in Florida.15 However, Mr Noboa’s affidavit does not contradict in any material way Ms Duncan’s evidence.

[33]	Mr Noboa’s account of these payments as a salary or reimbursement of expenses is of course inconsistent with the payment to him being recorded as an asset in the Trust accounts. For example, in the accounts for the year ended 2010, the total expenses recorded (including directors’ expenses)  was  $40,707.00.  In  that  year Mr Noboa received $1.13 million from Bartel.

[34]	The accounts for the Trust prepared by PricewaterhouseCoopers (“PwC”) were each year signed off by the trustee for the time being. The accounts do not record that the treatment of the current assets represented by the amount payable by Mr Noboa to the Trust was subject to a condition. There is no note or qualification in the accounts of the Trust of the amounts received by Mr Noboa as being an asset.

[35]	Nor is there in the accounts of Bartel, qualification of the expenses corresponding to the claims now made. For example, Ms Duncan produces the Bartel Annual Report for the year ended 31 December 2010. The accounts record:

There have been no events subsequent to the balance date which require disclosure in or adjustment to the financial statements (31 December 2009: none).

[36]	Following the July 2017 meeting in Miami, PwC was instructed by the defendants to re-draw the accounts for Bartel.

[37]	Mr Petrie in his affidavit filed in this proceeding says:

From about 2008, PwC (Bartel’s auditor)  accounted  for  such  payments [i.e. the amounts paid to Mr Noboa and challenged in this proceeding] on an interim basis by creating a suspense account recording those payments in the Dossor Trust financial statements. It did so while it waited for information about the nature and purpose of certain such payments. For example, in the Dossor Trust accounts for the year ended 31 December 2015 (the first Dossor Trust accounts I was involved in preparing), that suspense account was

15	His objection to the present application is agreed to be without prejudice to his appearance under protest to jurisdiction.

labelled  as  “L Noboa  –  Overseas  Remittance”,  in  the   amount   of   NZD $9,180,218.

It was intended that the payments forming the suspense account would ultimately be reclassified once further information about each payment was provided. However, at the time of my appointment as director of Bartel and trustee of the Dossor Trust, the payments had not yet been reclassified.  As   I explain later in this affidavit, that reclassification took place in late 2017 and early 2018.

[38]	I observe that in the Trust’s accounts there is no reference to the payments to Mr Noboa being a “suspense account” nor any note in the accounts to the year ended December 2013 as to why the words “overseas remittance” were added to Mr Noboa’s name under “current assets”. The payments to Mr Noboa are not listed as an expense at all in Bartel’s accounts, let alone under a general category awaiting later refinement. There is no note in the accounts for Bartel or the Trust relating to the payments to  Mr Noboa. If the payments to Mr Noboa were in fact an expense of Bartel and not an asset, why such now said to be an expense of Bartel, were recorded as an asset in the accounts of the Trust is not explained.

[39]	PwC wrote to the directors of Bartel on 25 October 2017 as follows:

Further to your instruction, we have compiled the attached summary of Bartel Holdings Limited’s financial statements for the 2008 to 2016 years.

The summary includes an adjustment to operating expenses based on additional information you provided to us. The information were [sic] not available at the time the financial statements were originally prepared.

[40]	The amounts paid to Mr Noboa had been included in Bartel’s reclassified accounts as part of Bartel’s operating expenses. Accordingly, the character of the payments changed fundamentally from being cash paid by Bartel to Mr Noboa being treated as if it were an advance to Mr Noboa by the Trust to an expense of Bartel and thus unrecoverable by Bartel or the Trust.

[41]	Fruit Shippers says Chapman Tripp’s involvement in how this change occurred means Chapman Tripp cannot now act.

Chapman Tripp’s involvement in re-classification of payments

[42]	Ms Duncan in  her  affidavit  says  she  met  with  Mr Petrie  in  London  on  8 November 2017. She says that Mr Petrie told her that in respect of the reclassified payments:

(i)	He did not understand why [Fruit Shippers] was not aware of the payments to Mr Noboa because Bartel’s accounts had been sent to [Fruit Shippers] and [Fruit Shippers’] auditor every year (although he acknowledged that the accounts were not fully audited); and

(ii)	The recent adjustment to Bartel’s account was based on legal advice from Chapman Tripp that the payments should be shown as an expense in the Bartel accounts rather than a receivable.

[43]	Counsel for Fruit Shippers says that the reference to Bartel’s accounts being provided to Fruit Shippers every year does not assist the defendants because the accounts provided for Bartel did not under “expenses” refer to payments to Mr Noboa.

[44]	Mr Petrie disputes Ms Duncan’s account of the meeting. Both counsel referred to Mr Petrie’s evidence and I set out the relevant passage:

64.	Ms Duncan says in her affidavit that I told her, during a meeting in November 2017, that the adjustments were “based on legal advice from Chapman Tripp that the payments should be shown as an expense in the Bartel accounts rather than a receivable”.

65.	I did not say that to Ms Duncan. And what she says is inaccurate in any event. Chapman Tripp did not provide advice on how any payments ought to be recorded in the accounts, or how the accounts should be adjusted. I had generally discussed the Bartel and Dossor Trust accounts with Roger Wallis which prompted me to have some further discussions with PwC. But PwC was responsible for preparing the accounts and making any adjustments.

66.	As I explained in my first affidavit, PwC made the adjustments after they received further information about the nature of the relevant payments made between 2008 and 2016. It had always been intended that the financial statements would be adjusted accordingly when such information was provided. The adjustments were not made to “retrospectively support” the legitimacy of any payments by Bartel, as Ms Duncan suggested in her affidavit.

[45]	Mr Wallis, referred to at para 65 of Mr Petrie’s evidence, is a commercial partner at Chapman Tripp. Fruit Shippers says even accepting Mr Petrie’s evidence,

it was his discussion with Mr Wallis that prompted Mr Petrie to have discussions with PwC resulting in the accounts being recast.

[46]	Fruit Shippers says the timing of the revision of the accounts was no coincidence, coming after the meeting in Miami in July earlier that year. The accounts had existed in their pre-revised form since 2008, apparently (on the defendants’ case) awaiting the provision of further information about each payment. Mr Petrie does not say what prompted the revision, other than the discussion with Mr Wallis and he does not expand on that discussion.

[47]	Mr Petrie’s evidence set out at [44] above, gives the impression that the reclassification of the Trust accounts was an administrative issue and only awaited the availability of further information. Why, if that was the case, reclassification required either the intervention, or at the very least on Mr Petrie’s own evidence, the prompting of Chapman Tripp is unexplained. In this regard, and indeed generally, Fruit Shippers relies on an absence of any affidavit from Chapman Tripp in respect of the firm’s involvement.

[48]	Mr Petrie says Chapman Tripp was instructed following the sale of shares that occurred at the end of 2016 to provide “general corporate and strategic advice” which Fruit Shippers says is wide enough to cover advice about the treatment of Bartel’s accounts.

[49]	Fruit Shippers also relies on events after it discovered the defendants’ revision of Bartel’s accounts.

[50]	Mr Noboa resigned as a director on 8 November 2017 leaving Mr Petrie as the sole director. Mr John Walker was subsequently appointed as a director of Bartel. Fruit Shippers wanted the 2017 revision of the accounts to be reversed. Mr Walker advised that he did not feel able to agree to that step.   Mr Walker  resigned on        26 November 2018 as a director and his resignation email confirmed that he had no knowledge of the history of the transactions subject to the revision of the accounts saying:

I have been put into a position where I have been asked to consider changing the historical Bartel Accounts. Before I could consider this I have studied very carefully information received from Jorge Guerrero, reviewed historical memos – emails and information from earlier years – met and discussed with Bartel Lawyers – PwC and Bartel Directors. [Emphasis added]

[51]	Mr Walker continued that as far as he was concerned, the transactions were approved by the directors of Bartel at the time.  He referred  to the  objection that  the transactions were not approved by the ultimate beneficiary of the Trust and said: “The legal opinion I and we received was that approval must come from the Directors and no one else”.

[52]	Fruit Shippers says that the reference to this legal opinion must be from Chapman Tripp and that was not disputed.

[53]	Mr Walker continued:

I understand that my above conclusion will disappoint the ultimate beneficiary
– but as a New Zealand Director – I cannot and will not support the reclassification of accounts that all advisors strongly advise against. [Emphasis added].

[54]	Again, in context, Fruit Shippers says the reference to “all advisors” includes Chapman Tripp. Again, counsel for the defendants did not suggest the email should not be read in that way.

[55]	The statement of claim pleads that the amount included in Bartel’s accounts as “operating expenses” following the 2017 PwC revision is not a legitimate operating expense. That pleading is denied.

[56]	Accordingly, Fruit Shippers’ position is that its pleading puts in issue the revision of the accounts and the true character of the payments to Mr Noboa. It says in the circumstances outlined that Chapman Tripp had a role in what Fruit Shippers says is the improper reclassification of the payments to Mr Noboa.

[57]	Fruit Shippers says that it follows that Chapman Tripp’s advice to reclassify the transactions (as per Ms Duncan’s evidence at [42](ii) above) will be in issue in the proceeding. It says that the defendants will be taxed on whether there was a proper

reason for the reclassification and that they may well rely on having been advised by Chapman Tripp to take that step.

[58]	Fruit Shippers emphasises that even on Mr Petrie’s evidence, his discussions with PwC were prompted by Mr Wallis. Why this should be the case is not explained by Mr Petrie. On Mr Petrie’s case, the reclassification was something that had been planned for some time and was a matter of collating necessary information and providing that to PwC.

[59]	While counsel for the defendants did not put it this way, the defendants’ position must be that it was simply a coincidence that the reclassification deferred for so many years occurred after Ms Duncan commenced her inquiries.

[60]	The defendants’ position, however, is that Fruit Shippers’ causes of action were complete at the time the improper payments were made. Mr Arthur, counsel for the defendants, said that the loss said to have occurred was represented by the improper payments, so the loss was complete at the time each payment was made. The submission was that in terms of the essence of Fruit Shippers’ cause of action, everything that came after each improper payment, including the reclassification of the payments in the accounts, is not material or relevant to the plaintiff’s claim.

[61]	In short, the focus of the proceeding was on the wrongfulness of the payments and whether those payments were wrongful or not did not depend on anything done by Chapman Tripp or PwC after each payment was made. The money was not originally paid out on the strength of advice from Chapman Tripp or PwC and thus its advice was not in issue.

[62]	Mr Arthur put it colloquially saying that Chapman Tripp had “no skin in the game” in respect of the fundamental issue as to whether the payments were proper.

[63]	I am unable to accept this argument. Mr Petrie meets the pleading that the operating expenses recorded following the PwC reclassification of Bartel’s accounts were invalid by pleading that the payments were always going to be subject to reclassification once further necessary information about payments was provided, that

being the position set out in Mr Petrie’s affidavit as set out  at [44]  above.  Thus,  Mr Petrie defends the proceeding by maintaining the reclassification was correct.

[64]	Accordingly, fundamental to Mr Petrie’s defence is that Fruit Shippers is in error in basing its claim on the accounts as originally drawn being correct. Whether the accounts were redrawn for “tactical” reasons at the prompting of Chapman Tripp (at least in part) as Fruit Shippers would assert, or whether the classification was “genuine and proper” as Mr Petrie would have it, is fundamental to the case.

[65]	There is therefore a very real risk that Chapman Tripp’s role in the reclassification will have to be examined.

The Wasabi payment

[66]	One of Bartel’s main assets was an 11.71 per cent shareholding in T&G. Bartel sold almost all of its shareholding in September 2016 to Golden Wing Mau Agricultural Produce  Corporation  (“Golden Wing”)  with  Bartel  having  to  retain a small percentage as the buyer could not acquire all of the shares for regulatory reasons.

[67]	Fruit Shippers does not criticise the merits of the sale price achieved for the shares or put in issue Chapman Tripp’s handling of the sale. What is in issue is that Mr Noboa had Bartel enter into a one page agreement with Wasabi under which Bartel engaged Wasabi:

…. to provide commercial advice and services in connection with the Potential Transaction, [defined as the sale of the T&G shares] as requested by [Bartel] from time to time. [Wasabi] may also provide and identified [sic] future [strategic] assets to be acquire [sic] by [Bartel].

[68]	The consideration that Bartel committed to pay Wasabi was 10 per cent of the aggregate sale price of the T&G shares. Wasabi agreed to pay to Bartel $2 million by February 2017 if the sale was not of 100 per cent of the shares in T&G.

[69]	Accordingly, with the T&G shares being sold for over $38 million, Bartel was committed to and did pay to Wasabi $3.8 million but as Bartel had to retain a small

percentage of its shares for the reasons given above, Wasabi eventually refunded
$2 million of the amount paid.

[70]	Mr Petrie says:

I understand that [Fruit Shippers] has alleged that [Wasabi], a broker engaged by Luis Noboa on Bartel’s behalf in relation to the sale of the shares, is in some way connected with members of Luis Noboa’s family.   I was not, and  I am not now, aware of any personal connection that Luis Noboa may have had in connection with that sale or with Wasabi. I was not involved in retaining Wasabi but as I saw it, Wasabi assisted Bartel with what was ultimately a successful deal for Bartel, and received a payment for its services under the agreement it had signed with Bartel.

[71]	Fruit Shippers submits that this evidence from Mr Petrie shows he was aware of the services provided by Wasabi and on that basis, he considered it was appropriate that Wasabi be paid.

[72]	Fruit Shippers characterises the one page agency agreement as being a sham and little more than a device to allow Mr Noboa to extract value from Bartel. Fruit Shippers has provided evidence that shows that Wasabi is a company associated with Mr Noboa’s family.

[73]	Fruit Shippers then refers to Mr Petrie’s reply affidavit where he says:

I first became aware of Wasabi’s involvement with the sale and the details of the contract after the completion of the sale in September 2016. Luis Noboa had forwarded to me Wasabi’s invoice for payment, and explained that he had engaged Wasabi to find a buyer for the T&G Global shares. As I explained in my first affidavit, I considered that Wasabi had assisted Bartel with what was ultimately a successful deal for Bartel, and it was entitled to receive payment under the agreement signed with Bartel.

[74]	There was no evidence that Wasabi in fact found the buyer for the shares and no evidence as to what in fact Wasabi did to earn its fee.

[75]	Fruit Shippers says Mr Petrie’s first affidavit suggests he was aware of the services provided by Wasabi whereas his reply at [73] above suggests he relied on what Mr Noboa told him.

[76]	Mr Petrie confirms that Bartel, having instructed Chapman Tripp in around April 2016 to act on a transaction which did not go ahead, then instructed Chapman Tripp to act on the sale of the shares in T&G.

[77]	Chapman Tripp was closely involved in the sale. It prepared the sale agreement and acted on the settlement. It was involved in the transaction over some months.

[78]	Fruit Shippers’ case is that based on the nature of the transaction and Chapman Tripp’s involvement, that the firm would have been aware of the activities of other advisers to the transaction such as Wasabi.

[79]	Mr Petrie does not accept this position. He says that he had no knowledge of Wasabi’s involvement until after completion of the sale and says:

Even after I learned of Wasabi’s involvement, at no stage did I discuss Wasabi’s involvement with Chapman Tripp.

[80]	Mr Noboa’s evidence is to a similar effect. He says:

… I instructed Chapman Tripp to help with the sale of Bartel’s shareholding in T&G Global. Chapman Tripp were not involved or in contact with Wasabi during this process. I was the only … director of Bartel in contact with Wasabi representative [sic].

[81]	Fruit Shippers’ position is in effect that it is inherently unlikely that Chapman Tripp would not have been aware of Wasabi’s involvement. In that regard it relies on a resolution of the board of directors of Bartel prepared by Chapman Tripp. The resolution is dated 1 July 2016. It firstly records a resolution of the board to:

… ratify, confirm and approve entry into the Transaction [the sale of the T&G shares] and all steps taken to negotiate the Transaction, it being in the best interests of [Bartel].

[82]	The resolution goes on to record:

That any director or Roger Wallis is authorised to sign the letter agreement and any notices and to take any action as may be reasonably required to give full effect to the Transaction.

[83]	It will be recalled that Mr Wallis is the commercial partner at Chapman Tripp acting for Bartel.

[84]	Fruit Shippers submits that given Chapman Tripp’s apparently in-depth involvement with the transaction, if it is Chapman Tripp’s position that it had no awareness of Wasabi, the firm’s position in that regard in fact undermines the evidence of the defendants that Wasabi added value to the transaction.

[85]	The difficulty in assessing this issue is that just what Wasabi is said to have done to earn its fee is unspecified.

[86]	Fruit Shippers says that Chapman Tripp was involved in the sale of the T&G shares over a four month period. If Chapman Tripp knew nothing of Wasabi’s involvement, then Fruit Shippers says that begs the question of why that is the case and the submission is that Chapman Tripp would have to explain its involvement in the transaction.

[87]	Fruit Shippers also refers to an invoice issued to Bartel by Chapman Tripp dated 28 September 2017. The invoice is headed “2017 corporate and strategic advice” and is expressed to be Chapman Tripp’s fee for professional services provided to 28 September 2017. Under the heading “Invoice Details” one of the items included in the fee is:

meeting with you to discuss further correspondence with Noboa family and advisers.

[88]	Given Wasabi is a Noboa family company, the plaintiff suggests (but has put it no higher than that) that this entry could concern issues with Wasabi. It will be recalled that $2 million of the commission paid, had to be repaid.

[89]	Chapman Tripp’s position is that the evidence of both defendants is that the firm had no  knowledge  of  Wasabi.  Given  that  Chapman  Tripp’s  handling  of  the transaction is not in issue, the hearing would not be considering Chapman Tripp’s advice around the transaction, nor could any advice about Wasabi be in issue given the position of the defendants that the firm was not advised of Wasabi’s involvement.

[90]	Fruit Shippers’ complaint in respect of the Wasabi transaction does not represent Chapman Tripp protecting any advice that it gave or its role in the transaction.

[91]	The high point for Fruit Shippers’ argument on this issue is the point already identified that the firm’s position that it had no involvement with Wasabi undermines the evidence of Mr Petrie that Wasabi had an active part in the transaction. Given both defendants state that Chapman Tripp did not have involvement with Wasabi, I do not accept that this point has merit.

[92]	The defendants’ position is that Chapman Tripp had nothing to do with Wasabi so if Chapman Tripp shares that view that is consistent with the defendants’ position.

[93]	The position adopted by the defendants means that Wasabi’s involvement must pre-date Chapman Tripp’s involvement or be such that Wasabi’s involvement would not have intersected with the role that Chapman Tripp had in structuring and settling a major commercial transaction.

[94]	I do not consider that Chapman Tripp’s absence of involvement with or knowledge of Wasabi disqualifies Chapman Tripp from acting.

The 2017 payments

[95]	It will be recalled that at the beginning of 2017, Fruit Shippers instructed the defendants that Bartel was not to make any further payments. Again, I am not concerned with whether Fruit Shippers had the ability to give a binding direction to the  directors  of  Bartel  in  that  regard.  On  19 March 2017,  an  email  was  sent  to Mr Noboa and to Mr Petrie directing in summary that no moneys whatsoever was to be paid from Bartel.

[96]	Mr Petrie confirmed receipt of the email and advised:

As you are aware we have just started a program re introducing Bonita bananas back into NZ. There will be some minor operational expenses that will be required to ensure we fulfil our obligations with the customer and ensure we perform. Apart from this I fully understand your instruction. [Emphasis added]

[97]	The reply was unequivocal:

Do not pay anything from these funds. There is no exception to my instruction.

[98]	There was then a request for detail of the minor operational expenses that were anticipated.

[99]	Despite Mr Petrie saying that he understood the instruction, something like    a further $1.8 million was paid by Bartel, with Mr Petrie’s approval, to Mr Noboa in 2017. There was a payment on 24 January 2017 for just over NZ$58,000 but the balance was paid out after the above email exchange.

[100]	Some light is cast onto Mr Petrie’s position in respect of these payments in an email exchange with  Mr Carpenter  who  was  appointed  a  director  of  Bartel  on  8 November 2017.

[101]	Mr Carpenter wrote to Mr Petrie in an email of 10 March 2018 which included the following:

PWC should be clear with regard to the 2017 accounts that [Noboa] accounts are receivables and not expenses. This is unchangeable.

[102]	Mr Petrie replied:

It will be worth you familiarising yourself again with the advice [Chapman Tripp] have given regarding the 2017 accounts. We as directors have fiduciary duty to act within the NZ law. The draft PWC special purposes accounts reflect the transactions that occurred during that year that were approved by the directors of the time. [Emphasis added].

[103]	Accordingly, Mr Petrie, having advised Fruit Shippers that he understood the instruction not to have Bartel pay out any money, holds the view that as the 2017 payments were approved by the directors in effect the issue is closed. In his evidence, Mr Petrie says he did not consider he was bound by the instruction.

[104]	Mr Petrie’s affidavit in reply does not engage with this issue. Fruit Shippers relies on this silence and also in respect of an unexplained item in a Chapman Tripp invoice already referred to at [87]. As already noted, Mr Petrie confirms that following the sale of the T&G shares, Chapman Tripp continued to act for Bartel in providing general corporate and strategic advice and gave advice “regarding the 2017 accounts”.

[105]	The invoice is dated 28 September 2001 and the first bullet point of the invoice details:

meeting with you to discuss further correspondence with Noboa family and advisers.

[106]	Fruit Shippers suggests that this bullet point could cover discussions concerning the instruction not to pay out further funds. Mr Petrie explained the other bullet points of the narration in the invoice but not this one. This submission relies on Mr Petrie’s failure to explain why he agreed to further payments to Mr Noboa in the face of having confirmed that he fully understood the instruction not to. Fruit Shippers says that an inference can be drawn from Mr Petrie’s failure to reply on this issue and his failure to deal with one of the items in the invoice is consistent with him having discussed with Chapman Tripp how he should deal with the direction not to pay.

[107]	Fruit Shippers says these inferences are also consistent with Mr Petrie’s advice in his email of 10 March 2019 that Mr Carpenter familiarise himself  with  the  advice that Chapman Tripp gave regarding the 2017 accounts.

[108]	It is clear from Mr Petrie’s email that Chapman Tripp gave some advice regarding Bartel’s 2017 accounts. Whether those accounts correctly treat payments to Mr Noboa is one of the principal issues in this case. Mr Petrie in the 10 March 2019 email is relying on Chapman Tripp’s advice in respect of his position about the account in response to Mr Carpenter saying that the payments to Mr Noboa in 2017 should be receivables and not expenses. The payments in 2017 are those Mr Petrie was directed not to make.

[109]	Again, consideration of whether Chapman Tripp should not act in respect of this issue starts from the position that I am not considering whether Fruit Shippers could give a binding instruction to the directors of Bartel that the company was not to pay out further funds. There is the appearance that Mr Petrie disregarded the instruction that he said he understood based on the advice of Chapman Tripp or that at least he relied on the former advice to resist Mr Carpenter’s call that the 2017 accounts be changed.

[110]	Accordingly, there is a real likelihood that Mr Petrie’s defence of this issue may call into question advice given to him by Chapman Tripp.

Further ground of challenge

[111]	Fruit Shippers raised as a further ground for Chapman Tripp not being able to act, that the two defendants did not have the same interest in the litigation, meaning  r 13.6 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 prohibits Chapman Tripp from acting.

[112]	The basis of the proposition that the two defendants did not have the same interest is that Mr Petrie did not receive any of what Fruit Shippers characterises as “improper payments”. Thus, Mr Petrie would have a right to seek to be indemnified from Mr Noboa by way of cross-claim. In support of that proposition, Fruit Shippers refers  to  a  letter  written  by  Chapman  Tripp   to   Fruit   Shippers’  solicitors   on 5 March 2019 saying:

The true dispute in this proceeding lies between your client and Luis Noboa.
Mr Petrie has no role to play in that dispute …

[113]	While this ground was not abandoned, Mr Friar for Fruit Shippers acknowledged that material produced by the defendants in the course of this proceeding supported the submission that Chapman Tripp had started out acting for Mr Petrie. When Mr Noboa approached Chapman Tripp to also act for him, it advised him that it could not do so without him receiving independent advice. It has been confirmed that Mr Noboa did receive independent advice and that the defendants have entered into arrangements acceptable to themselves in respect of any issues between them. Given that in evidence Fruit Shippers acknowledged that this additional point was a subsidiary one, however, submissions on this point highlighted that it was only this point that the defendants characterised as amounting to a tactical challenge to Chapman Tripp acting and that the other grounds raised by the plaintiff are not challenged as being motivated by tactical considerations.

[114]	Accordingly, I accept the defendants’ submissions that issues that may have existed between them prior to Mr Noboa taking independent advice and the defendants

entering arrangements resolving any conflict between them, do not justify a direction that Chapman Tripp not act for the defendants.

Determination

[115]	Given the conclusion I have reached that Chapman Tripp’s involvement in the reclassification of the 2008 – 2016 payments involves a very real risk that Chapman Tripp’s role will have to be examined and my conclusion that Chapman Tripp’s advice regarding Bartel’s 2017 accounts may also need to be examined, I have reached the view that the unqualified perception of fairness that justice requires means that there should be an order preventing Chapman Tripp from acting for the defendants in this proceeding. Chapman Tripp has already acknowledged that it could not act for Bartel if it became a party.

[116]	It is significant that Chapman Tripp recognises that the two grounds that I have found established are not advanced by Fruit Shippers for tactical reasons. The application has been brought early in the piece and Fruit Shippers foreshadowed early on in the dispute an objection to Chapman Tripp acting.

[117]	There is a more than negligible risk that the advice given by Chapman Tripp that prompted the reclassification of the 2008 – 2016 payments and the treatment of the 2017 accounts will be put into issue. The reference to a “more than negligible risk” comes from Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd.16 While the comment there was in relation to there being a more than negligible risk of confidential information being disclosed, I consider that threshold to be the appropriate one to adopt in considering whether the test is met.

[118]	The Court of Appeal in Li v Liu said:17

A reasonable likelihood that [the solicitor] will be called as a witness will be sufficient to make the possibility more than mere speculation and the threat to integrity real.

16	Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd [2014] NZHC 2552, [2014] NZAR 1486 at [20].
17	Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [37].

[119]	An applicant which delays in bringing an application such as this, until the role a solicitor’s involvement may play becomes clearer, will be criticised for creating costs and disruption to a proceeding. However, the earlier on an application is brought, the harder it may be to formulate objections with exact precision.  There is in  my view  a reasonable likelihood that Chapman Tripp’s advice will have to be examined. That possibility is “more than mere speculation”.

Order

[120]	Accordingly, there is an order that Chapman Tripp be restrained from acting as solicitors for the first defendant, the second defendant, and the proposed new defendant, Bartel, in his proceeding.

Costs

[121]	Counsel did not address costs. There would be no reason why costs should not follow the event. If costs cannot be agreed then Fruit Shippers is to file a memorandum in respect of costs of no more than three pages within five working days of the date of this Judgment, and the defendants to respond (again no more than three pages) within a further five working days.

Associate Judge Lester

Solicitors:
Chapman Tripp, Auckland Bell Gully, Auckland