Palmerston
North lawyers Fitzherbert Rowe breached its duty to client Jeffrey Lynds by not indicating that local farming identity Robin Mitchell was in financial
difficulty when helping both clients set up a bloodstock partnership. Damages require further calculation but are
estimated at about $1.3 million.
The High Court was told
well established horse trainer Mr Lynds believed Mr Mitchell was a man of
financial substance when invited in 1988 to jointly set up a stud. Mr Mitchell had farming interests at Kairanga
near Palmerston North, Dannevirke and Culverden. The two had a common interest in the racing
industry. Mr Mitchell was a Nuffield
scholar, was on the NZ Beef Council, chairman of the NZ Town Milk Federation
and on the board of the local dairy co-operative.
Unbeknown to Mr Lynds,
his erstwhile business partner was on his uppers. Repayment of loans secured over Mr Mitchell’s
farming operations were overdue.
Attempts to restructure farming operations with a sale and leaseback of
farmland were not proceeding smoothly. Finance
could not be arranged. Mr Mitchell was
told in early June 1989 continued Co-op financing was at risk. Payments for milk supplied were subsequently
withheld and applied in reduction of Co-op debt.
Meanwhile, Mr Mitchell
was not holding back on plans for a bloodstock partnership. Prior to the June 1989 meeting, arrangements
were in place for the purchase of stallions and Mr Mitchell arranged a $200,000
bank overdraft for the Lynds/Mitchell partnership. Within one month, $175,000 of this partnership
overdraft was used by Mr Mitchell to meet pressing personal farming debts. Purchase of two stallions was completed in
early June.
Justice Mallon ruled
Fitzherbert Rowe knew by late May/early June that Mr Mitchell was in financial
difficulty and the law firm should have advised Mr Lynds to get independent
legal advice before signing bloodstock loan documents. The firm could not act at the same time for
both Mr Mitchell and Mr Lynds. The
interests of the two clients were in conflict.
Taking out a partnership loan for bloodstock put Mr Lynds’ personal
finances at risk. He could be forced to
pay Mr Mitchell’s share of partnership debts if his business partner defaulted. Ultimately the partnership failed. Syndication of the stallions: Le Belverdere
and Epidaurus, was not successful. Out
of 48 shares on offer, only 21 sold.
Mr Lynds became aware
of Mr Mitchell’s financial difficulties and subsequently Fitzherbert Rowe’s
knowledge of them only after searching court files in 2006. Mr Mitchell died four years later.
Lynds
v. Fitzherbert Rowe – High Court (13.06.17)
17.066