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1. RAMA v McKAY
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 RAMA v McKAY — BC200260750
New Zealand Unreported Judgments · 47 Paragraphs

New Zealand Court of Appeal

CA253/01
11 June, 17 June 2002
Blanchard J, Doogue J, Fisher J

Headnotes

CIVIL APPEALS OBLIGATIONS UNDER TRUSTS BREACH INVESTORS BENEFICIAL OWNERSHIP

Doogue J.

Introduction

[1] The Rama brothers and Fortified Investments Ltd (“the Investors”) sought summary judgment against Messrs
McKay and Hill (“the Solicitors”) for $146,140.69, with interest at 8% per annum for a period to be agreed or
determined. The application was refused by a Master. This appeal follows.

[2] The Investors lodged $1.15 million in the trust account of the Solicitors in late November and early December
1997. The funds were placed in an account in the name of the Investors. The funds were lodged with the
Solicitors under a leveraged investment agreement dated 20 November 1997 (“the LIA”) between the Investors
and Trans Capital (Euro) Ltd (“TCE”).

[3] At issue is whether the Investors can establish that the Solicitors were in breach of trust to the Investors in
respect of the $1.15 million. The Investors claim that the Solicitors dissipated their funds in breach of the written
authorities in respect of them. The question is whether the Investors can establish that the Solicitors have no
defence in respect of the cause of action relied upon for such claim.

Background

[4] The proceeding out of which this appeal arises contains four causes of action. The first two causes of action
form part of the background to the present appeal but are otherwise irrelevant. They relate to a similar leveraged
investment agreement that the Rama brothers had entered into on 8 September 1997 with another company, Trans
Capital Ltd (“TCL”), subsequently placed in liquidation. Pursuant to that agreement the Rama brothers had lodged
$250,000 with the Solicitors. In respect of the first two causes of action, where summary judgment was not
pursued, the Rama brothers claim $157,000 for loss of profits.

[5] TCL and TCE were interrelated companies. A Mr Moyle was a director of both. TCE was incorporated
immediately prior to the LIA. Like TCL, it also went into liquidation.

[6] It is necessary to refer to the provisions of the LIA in some detail. It includes the following provisions:

Clause 1 includes a definition making clear the solicitors are the TCE solicitors referred to within the LIA.

7 Trans Capital (Euro) Limited will procure and provide such security as is issued by any one of the top 100 world
banks by way of Bank Guarantee, Certificate of Deposit, Bank Safe Keeping Receipt, Bank Payment Draft, or
Irrevocable Bank Payment authority for not less than the face value of the deposit sum together with interest on
the deposit and hold the same as security for the investors for their respective rights and interests.

9(a) The Investor covenants that it shall deposit the Investment Sum upon the written request of Trans Capital (Euro)
Limited which request shall be made on the date of execution of this Agreement, and upon receipt thereof the
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RAMA v McKAY

Investor shall within eight (8) banking hours of receipt of such notice, telegraphically transfer the Investment sum
to the NZ currency trust bank account of Trans Capital (Euro) Limited Solicitors.

(b) The Participants shall, with the delivery of the Investment Sum to Trans Capital (Euro) Limited Solicitors,
execute and deliver instructions to Trans Capital (Euro) Limited Solicitors in the form of the Third and Fourth
Schedules hereto (“Instructions to Account Signatory”). Trans Capital (Euro) Limited shall following delivery
of the Instructions to the Account Signatory direct its Solicitors to act in accordance with the same and
comply with the terms of thereof.
10(a) After Trans Capital (Euro) Limited Solicitors have complied with the Instructions to the Account Signatory,
Trans Capital (Euro) Limited is authorised to combine the Investors deposit sums held in the Trans Capital (Euro)
Limited Bank Account and shall undertake all acts and do all things necessary to implement the Leveraged
Investment Programme as set out in the Fourth Schedule.
(b) The Investor covenants that it acknowledges the Leveraged Investment Programme profit returns as set out in
the Fifth Schedule shall not create any binding obligation upon Trans Capital (Euro) Limited until such time as
the investment sum has been applied for the purpose of the Leveraged Investment Programme under the
terms of this Agreement as per schedule instructions being confirmed by Trans Capital (Euro) Limited. For
that purpose Trans Capital may at its sole option alter or defer the time for commencement of the programme
in accordance with prevailing bank and economic conditions with no claim for delay or variation being raised
by the Investor or any representative of the Investor.

21(a) …

(b) It is hereby acknowledged and agreed that from the time the Investment Sum is paid out by Trans Capital
(Euro) Limited Solicitors in accordance with any authority forming part of or attached to this agreement, then
for all purposes the Investment Programme shall be deemed to have commenced notwithstanding that
drawdowns may or may not have taken place or thereafter do not take place on appointed dates for reasons
beyond the control of Trans Capital (Euro) Limited. Similarly any undertaking given to hold funds or refund
monies paid for expenses security deposits or Investment sums shall be deemed to have expired upon
application of the funds in terms of any instructions contained in this agreement and in the schedules
annexed. In this respect the terms of this agreement contain the entire authority given to Trans Capital (Euro)
Limited and its Solicitors and agent and no other form of authority assurance or undertaking given before or
after the execution of this agreement shall have the effect of amending or substituting this provision.
(c) …

[7] The Third Schedule to the LIA (“the Third Schedule”) is headed “Instructions to Account Signatory” and
directed to the Solicitors. It notes that a copy of the LIA was delivered to the Solicitors and that the LIA recorded
the Solicitors are the solicitors for TCE. It went on to record:

Pursuant to the terms and conditions of the abovementioned Agreement we jointly authorise you to undertake and perform
the following things to assist us in the performance of the Leveraged Investment Programme.
1. Receipt to your NZ currency New Zealand trust bank account of the Investment Sum specified in the Agreement
and to hold such Investment Sum pursuant to the terms of the Agreement.

2. Upon receipt of written instructions from Trans Capital (Euro) Limited (provided they are received no later than
seven (7) days after the receipt of the Investment Sum to your NZ currency New Zealand trust bank account) you
are to transfer the Investment Sum to the Bank to be nominated by Trans Capital (Euro) Limited to the credit of an
US currency account styled “Trans Capital (Euro) Limited NZ” the sole signatory of which is either of the partners
of your firm. We, the undersigned, confirm that we are the beneficial owners of the Investment Sum.
3. Moneys will be paid to the abovementioned account styled “Trans Capital (Euro) Limited NZ”, and from this
account you are hereby authorised and directed, as signatory of this account (at the end of each trading period)
to transfer an amount equal to twenty-five (25) per cent per month of the NZ Investment Sum calculated on the
basis of twelve (12) consecutive trading periods within a banking year to your NZ currency New Zealand trust
bank account and to pay this sum without deduction to the Investor. The moneys remaining in this account
 Page 3 of 9
RAMA v McKAY

(other than the Investment Sum following redemption which will be dealt with hereunder) shall be paid to or at the
direction of Trans Capital (Euro) Limited for its benefit absolutely.

4. Upon maturity of the Term being one (1) year and thirty one (31) days after receipt (or any earlier redemption
pursuant to the terms of the Leveraged Investment Programme) the Investment Sum will be paid to the account
styled “Trans Capital (Euro) Limited NZ” and you are authorised to procure the release of the receipt of the safe-
keeping of and transfer the Investment Sum to your NZ currency trust bank account in New Zealand and to pay
these moneys to the Investor without deduction.

[8] The Fourth Schedule to the LIA (“the Fourth Schedule”) was headed “Instructions of Contract Procedures to the
Account Signatory”:

LEVERAGED INVESTMENT PROGRAMME

1 Upon acceptance of the Trans Capital (Euro) Limited Leveraged Investment Programme by the Investor and the
investment of funds to Trans Capital (Euro) Limited Solicitors trust deposit account it is agreed that the following
authorities will apply to the investment funds and will not be revoked prior to the due date for performance of any
term or condition.
2 The Investor hereby irrevocably authorises Trans Capital (Euro) Limited Solicitors in respect of the investment
funds:

(a) Upon receipt to pay over the cash Investment Sum to a US currency bank account opened by Trans Capital
(Euro) Limited whereby either partner of your firm is the sole signatory to that account. Trans Capital (Euro)
Limited bank will receive the nominated security for the exchange of Investment Sum from the Trans Capital
(Euro) Limited bank account, Trans Capital (Euro) Limited Solicitors act for the Investor as custodian
trustee only of the investment funds and securities received by Trans Capital (Euro) Limited bank for the
credit to Trans Capital (Euro) Limited bank account.

(b) Trans Capital (Euro) Limited authorises irrevocable instructions to Trans Capital (Euro) Limited Solicitors to
remain Trans Capital (Euro) Limited sole signatory of the bank account and such authority will not be
revoked during the term of the investment or securities held in Trans Capital (Euro) Limited bank account.
(c) Trans Capital (Euro) Limited bank is authorised to authenticate and accept the issue of the bank security
received into Trans Capital (Euro) Limited bank and permit such security to be renewed on the same terms
and conditions as applied to the previous investment deposit period. The term of any renewal of the bank
security will be in parallel with the terms of any extension of the cash investment.

3 The Investor hereby authorises the alternative procedures to clause (2) for the transfer of the Investment Sum
from Trans Capital (Euro) Limited Solicitors trust account to an offshore bank certified escrow account or
offshore solicitors trust account which account will be approved by Trans Capital (Euro) Limited Solicitors for
the purpose of holding the cash Investment Sum as stakeholder to Trans Capital (Euro) Limited. Trans Capital
(Euro) Limited will cause the release of the Investment Sum for exchange of securities as described in clause (2d)
subject to Trans Capital (Euro) Limited rights as set out above.
4 Trans Capital (Euro) Limited authorises Trans Capital (Euro) Limited Solicitors to certify to the Investor its ability
to meet its obligation due to the Investor, Trans Capital (Euro) Limited will authorise such evidence to be held by
Trans Capital (Euro) Limited Solicitors as and when supplied by Trans Capital (Euro) Limited bankers but
notwithstanding within thirty (30) banking days of release of the Investment Sum for the bank securities to be
received, they will then confirm to the investor they are holding in escrow, bank evidence of Trans Capital (Euro)
Limited ability to complete.
5 Upon maturity (or earlier redemption), Trans Capital (Euro) Limited shall cause the repayment of the Investment
Sum and the moneys shall be paid to the account styled Trans Capital (Euro) Limited NZ. Its Solicitors, as
signatory of the account, shall then cause the Investment Sum to be returned to its NZ currency trust account in
New Zealand and paid to the Investor without deduction.

…
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RAMA v McKAY

7 This authority shall be paramount over any prior undertaking authority or representations and Trans Capital (Euro)
Limited is authorized to combine the investors deposit sum with other deposit sums held in the Trans Capital
(Euro) Limited bank account for the purpose of facilitating the machinery of the Leveraged Investment
Programme to be carried out by Trans Capital (Euro) Limited with its bankers.

[9] The Fifth Schedule to the LIA recorded that the payment schedule in respect of the investment was to give a
return rate of 25% per trading period (30 days).

[10] The Sixth Schedule to the LIA contained the following investment sum deposit instructions to TCE:
1. Upon receipt of the Investment Sum to Trans Capital (Euro) Ltd US Currency Bank Account as set out in
the Fourth Schedule, Trans Capital (Euro) Ltd will initiate prior to the release of the Investment Sum into
the Trading Programme Trans Capital (Euro) Ltd has entered into with its Contract Trading Programme
Sponsor, the following procedures which will apply—
(a) Verify and validate the Investment Sum is devoid of restriction and encumbrance and is legal tender.
(b) Trans Capital (Euro) Ltd will provide the necessary support to enable the Contract Trading Programme
Sponsor to comply with the Investment Sum deposit instructions.
(c) The Investment Sum deposit instructions commitment is an operative and callable instrument and is
held to the order of the Contract Trading Programme sponsor subject to these irrevocable deposit
instructions.
2. The Investment Sum is to be released upon Trans Capital (Euro) Ltd receipt and bank validation of an
acceptable bank pre-advice to deliver their 106% per annum Bank Guarantee against the Investment Sum
deposit as well as their Trading Programme profit (% per month) Bank Guarantee or monthly Bank
Endorsed Payment Orders Authority.
3. The Bank Guarantees/Bank Payment Authorities issued by an acceptable “A A” West European Bank, are
to be irrevocable and negotiable in accordance with current ICC/UPC Compliance.
4. The Bank Guarantee to issue for the Investment Sum is 106% of the Investment Sum, maturing in one (1)
year and one (1) day from date of issue.
5. The profit Guarantee to issue will be as per the nominated amount for distribution monthly as designated in
the Contract applicable to the Investor and Trans Capital (Euro) Ltd respectively.
6. In the event of Non-Compliance with any and all terms of this Investment Sum Deposit Instructions within
thirty (30) days of Investment Sum being validated and verified as held in the US Currency Account of
Trans Capital (Euro) Ltd, the company will cause return of the Investment Sum to the Investor without
deduction or fees to the Investor on call notice thereafter.
7. The Investor acknowledges the profit distribution is per monthly trading period only, no liability by Trans
Capital (Euro) Ltd is expressed or implied as to profit returns in excess of any given monthly trading period
so described. The Investor may exit the programme within any given notice to do so, such notice requires
thirty (30) days and the Investor may continue this investment if available for a maximum of twelve (12)
monthly trading period schedule by the Contract Trading Programme Sponsor under the procedures of this
Investment sum Deposit Instructions.

[11] The LIA and its Schedules were signed by the Investors and as necessary by TCE but not by the Solicitors.

[12] As already summarised, the Investors lodged $900,000 with the Solicitors on 24 November 1997 and a
further $250,000 on 3 and 4 December 1997. These funds, along with others from other investors, were placed in a
TCE New Zealand dollar account with the ASB on interest-bearing deposit (“the TCE NZ$ ASB account”). It is
claimed that this is the first breach of trust by the Solicitors as the funds were not dealt with in accord with the
Third and Fourth Schedules. It is accepted, with an exception about to be mentioned, that these funds were
converted into US dollars and with other funds remitted to English solicitors on 9 December 1997 under cl 3 of the
Fourth Schedule to be deposited into their trust account not for TCE but for TCL. This is a further breach of trust
alleged by the Investors.

[13] The exception was that on the preceding day, 8 December 1997, the solicitors had withdrawn $161,335.51
from the TCE NZ$ ASB account and had paid it into a New Zealand account known as a Distribution Drawdown
Account for TCL and not TCE. This is a further breach of trust alleged by the Investors.
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RAMA v McKAY

[14] In respect of the funds forwarded to the English solicitors they were paid on 23 December 1997 to an ASB
US dollar account in New York in the name of TCL as a result of actions by the Solicitors. They had learned that
the Law Society in England had appointed an intervener in respect of the affairs of the English solicitors. The full
amount of $US1 million was paid to the New York account for TCL and not TCE or the Investors. The Investors
allege this is a further breach of trust by the Solicitors.

[15] On the same day, 23 December 1997, the Solicitors, the sole signatories to TCL's US dollar account,
withdrew $US754,650.00 from the account and had it converted into $NZ1.3 million, with that sum being paid into
their solicitors' trust account in a ledger for TCL Distribution Drawdown Account. The Investors allege this is
another breach of trust by the Solicitors.

[16] Money was then disbursed by the Solicitors from the TCL Distribution Drawdown Account on the direction of
Mr Moyle for TCL, there being no evidence to the effect it was on the direction of TCE. The Investors claim this is a
breach of trust by the Solicitors.

[17] It is accepted that the balance of the money in TCL's ASB US account, $US245,000 or thereabouts, was
ultimately paid into a US dollar account for TCE on 30 January 1998. That sum was ultimately received by the
liquidators of TCL.

[18] In the third cause of action in the proceedings, which is the only cause of action in respect of which the
summary judgment application is pursued on this appeal, it is alleged that the various payments by the solicitors
were not authorised by the Investors and were not otherwise justified by the LIA. The Investors allege that the
duties of the Solicitors in respect of the $1.15 million included:
(a) A duty to ensure that the Investors' funds were exchanged for a bank security under cl 7 of the LIA and the
Fourth Schedule;
(b) A duty to hold the Investors' funds for the sole benefit of the Investors at all times, unless the funds were
exchanged for such a bank security; and
(c) A duty to return the Investors' funds to them when they knew that the whole of the investment of those
funds could no longer be invested in accordance with the LIA.

[19] The Investors go on to allege in their statement of claim that the Solicitors in breach of their duties:
(a) Applied part of the Investors' funds otherwise than in exchange for a security conforming with cl 7 of the
LIA or otherwise in accord with the provisions of the LIA;
(b) Failed to keep the Investors' funds of $1.15 million intact; and
(c) Paid part of the Investors' funds to persons who were not entitled to them.

[20] In the course of argument it became clear that the Investors were relying on breaches of trust, express,
implied or resulting, by the Solicitors as causative of the loss for which judgment is now sought. No issue was
taken with the case being dealt with in this way. Although the existence of trust obligations by the Solicitors to the
Investors was not pleaded in those terms it is clear from the factual allegations that this was in reality being
asserted, as were the various breaches of such obligations.

[21] The application for summary judgment relied not only on the cause of action just summarised but also upon
other aspects of the third cause of action and a fourth cause of action which do not require to be discussed here.
However, this resulted in the matter being put before the Master in a very different way from the way in which it has
been presented in this court. In particular, the Solicitors relied upon a clause in the Third Schedule to the LIA
before the Master. That clause in the view of the Master entitled him to refuse summary judgment. The clause does
not form part of the Solicitors' case before this court.

[22] Thus the judgment of the Master under appeal both addressed issues and relied upon material not now in
issue between the parties and the substance of his judgment is effectively irrelevant in respect of the present
appeal.

[23] The argument as presented to us isolated three issues, namely, first, whether the solicitors were in breach of
trust in respect of the $US1 million forwarded to the English solicitors; secondly, whether the Solicitors were in
breach of trust in respect of the $NZ161,335.00 first paid by the Solicitors into the TCE NZ$ ASB account and
 Page 6 of 9
RAMA v McKAY

then into the TCL Distribution Drawdown Account. The third issue is one of quantum in the event of it being
established there was any breach of trust by the Solicitors in respect of the funds of the Investors just identified
and that it was causative of loss.

First Issue: Was there a breach of trust by the solicitors in respect of the $US1 million forwarded to the
English solicitors and, if so, was it causative of loss?

[24] There are certain matters relating to the LIA and the Third and Fourth Schedules in particular that are common
to both this issue and the next issue. Subject to the discussion of the argument that is to follow, it was generally
agreed that the Solicitors received the funds of the Investors into their trust account upon trust for the Investors on
the trusts set out in the Third and Fourth Schedules and arguably the LIA. The Investors' funds were first to be
lodged in the Solicitors' trust account (cl 1 of Third and Fourth Schedules). Thereafter the Solicitors were to pay
the Investors' funds either into a TCE US currency account, of which the sole signatory was to be was one of the
partners of the Solicitors (cl 2, Third Schedule, and cl 2(a) and (b) Fourth Schedule) or transmit the funds to an
offshore account approved of by the Solicitors for the purpose of holding the funds as stakeholder to TCE (cl 3,
Fourth Schedule). The thrust of the Third and Fourth Schedules was that the Solicitors were to control the
Investors' funds in this way until there was an exchange of the funds for securities provided by TCE in accordance
with cl 7 LIA and cl 2(d), 3 and 4 of the Fourth Schedule.

[25] The Solicitors have submitted that TCE could obtain control of the funds after the Solicitors had paid them
into the TCE NZ$ ASB account or some other account under the control of TCE. This argument is in part in
reliance upon cl 10(a) of the LIA. However, there is nothing in the Third and Fourth Schedules which on their face
entitle the Solicitors to handle the Investors' funds other than in the way already outlined. There was certainly no
authority from the Investors to the Solicitors for them to act in any other way. Unless the Solicitors have acted in
accordance with the Third and Fourth Schedules, the Solicitors would not have complied with the “instructions to
the accounts signatory” for the purposes of cl 10(a) LIA. We are not attracted to the circular argument in reliance
upon the provisions of cl 1 of the Third Schedule that the funds can be combined in the way that occurred in a New
Zealand account not authorised by the Third or Fourth Schedules. Clause 10(a) LIA is specifically conditional upon
compliance with these Schedules.

[26] The Solicitors say that, having regard to the absence of any instructions from TCE to pay the funds to a US
dollar account under cl 2 of the Third Schedule or cl 2(a) of the Fourth Schedule, they must be entitled to make
payment into a New Zealand dollar account to achieve the purposes of cl 10(a) of the LIA and that cl 1 of the Third
Schedule is supportive of that argument. However, this is the circular argument that we have already noted and we
do not need to discuss it further. We are satisfied that cl 10(a) of the LIA merely highlights the submissions for the
Investors that the Investors' funds had to be dealt with in terms of either the Third or Fourth Schedule by placing
them in either a US dollar account or an overseas solicitors' account approved in terms of cl 3 of the Fourth
Schedule, or otherwise in accordance with those Schedules. That was not done. In transferring funds to the TCE
NZ$ ASB account the Solicitors acted in breach of their authority and their express trust to the Investors.

[27] We would make it clear that as the documentation is that of TCE and the Solicitors any ambiguity, whether it
be between the LIA and the Third and Fourth Schedules, or between the Third and Fourth Schedules in
themselves, must necessarily be resolved in favour of the Investors. The plain effect of the LIA and its schedules is
that the Investors were able to rely on their funds being under the control of the Solicitors rather than TCE at least
until they were exchanged, as already noted, for the securities provided for under the provisions of cl 7 of the LIA
and cll 2(b) and (c) and 3 of the Fourth Schedule.

[28] It is unnecessary to refer to any other obligations of the Solicitors under the Third and Fourth Schedules as
the circumstances provided for never arose.

[29] In respect of the $NZ1.676 million, converted into $US1 million, remitted to the English solicitors on 9
December 1997, there is no question that there was a breach by the Solicitors of the terms of cl 3 of the Fourth
Schedule. The funds were transmitted to the English solicitors' trust account for the purpose not of holding the
cash investment sum as stakeholder to TCE but on behalf of TCL. The English solicitors were quite unaware of
the existence of TCE. It is difficult, if not impossible, to see how they could be a stakeholder for an entity whose
participation in the particular transactions they were unaware of and for whom they had not agreed to hold the
moneys. The funds forwarded by the Solicitors were impressed with the trust in favour of the Investors at least until
the stakeholding for TCE existed. That never occurred. The payment to the English solicitors was in clear breach
of trust by the Solicitors in respect of the Investors.
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RAMA v McKAY

[30] The argument for the Solicitors is that, while the payment to the English solicitors may have been in breach
of cl 3 of the Fourth Schedule, no loss arose from that. It is submitted that the funds were always impressed with
the trust in favour of TCE and that any loss which resulted to the Investors in respect of the subsequent movements
of those funds was not a result of any breach of trust by the Solicitors. It is said that any responsibility they had
under the Third Schedule was spent when the funds were transmitted to the English solicitors. The Solicitors rely
in part on cl 21(b) LIA.

[31] As already noted, the Solicitors' responsibilities under cl 3 of the Fourth Schedule were never met. They
acted in direct breach of those responsibilities. If they had acted in accordance with their responsibilities, the
argument now put forward by the Solicitors might have had some merit, but they did not. Indeed, the position is
even less meritorious as at no time were the monies out of the Solicitors' control. As events established, they
retained control (ie their ability to give lawful directions) of the funds and had them re-transmitted to a New York US
dollar account nominated by them not in the name of TCE or the Investors but again in the name of TCL. This was
not done by direction of TCE as there was none. It was a unilateral act by the Solicitors. At the very least when the
Solicitors required the $US1 million to be transmitted from the English solicitors' account to the New York TCL
ASB account the funds had to be held under a resulting trust for the Investors as TCL had no right or interest in the
funds and they were not being used for any purpose that TCE was entitled to require under the provisions of the LIA
and the Third and Fourth Schedules.

[32] The Solicitors exacerbated matters further when they accepted instructions from Mr Moyle on behalf of TCL
to transfer these monies by placing them in the TCL Distribution Drawdown account to the extent of
$US754,650.00 and then distributing that account in accordance with TCL's instructions. How TCE could have
authorised the distribution of funds from the TCL account is not clear. It was argued for the Solicitors that Mr
Moyle could have been acting on behalf of TCE and not TCL in respect of these instructions, but there is no
evidence to that effect and on their face the instructions were clearly from TCL. Any suggestion by the Solicitors
that they were acting on the instruction of TCE and not TCL has no substance.

[33] We are accordingly satisfied that to the extent that any loss resulted from the Solicitors' breach of trust in
transmitting the Investors' funds to the English solicitors' account not for TCE but for TCL, and for subsequently
breaching the trust to the Investors in having the funds redirected to a TCL account with part distributed in
accordance with the directions of TCL, the Solicitors must be liable to the Investors.

[34] In reaching that result we reject all the arguments to the contrary presented on behalf of the Solicitors. The
Solicitors attempted to argue that no trust was created in favour of the Investors vis-à-vis them under the Third
Schedule and that to the extent that the Fourth Schedule could give rise to them being trustees they could only
have been acting as a custodian trustee under cl 2(a). As already noted, they contend that they had no trustee
obligations in relation to the money after it reached the English solicitors' trust account upon the basis that it was
TCE that was then responsible for exchanging the investment sum for securities and causing the repayment of the
money back to TCE's US dollar account. However, the money was paid to TCL's account and no directions from
TCE were received.

[35] Much of the argument for the Solicitors was devoted to apparent ambiguities and conflicts between the
substantial provisions of the LIA and the provisions of the Third and Fourth Schedules. It is true that there are minor
differences between the documents, but they are capable of being read together in a manner consistent with what
we have already held. With all respect to the Solicitors' ingenious arguments, they rely upon an overly minute
analysis of the documentation in relation to factual situations which do not exist.

[36] The essential breach of trust by the Solicitors in respect of the Investors' funds was forwarding them to an
account with the English solicitors in direct conflict with their obligations under the authorities to them under the
Third and Fourth Schedules. Every step taken by them thereafter in respect of the funds was either upon their own
initiative or upon the initiative of TCL, which had no interest in the funds. To relieve themselves of the trust in favour
of the Investors, the Solicitors had to have dealt with the funds in terms of the Third and Fourth Schedules. That
they did not do. When they failed to deal with the funds in accordance with those schedules, they had to be aware
that the funds remained the property of the Investors and were impressed with a trust in favour of the Investors and
they needed to protect the interest of the Investors. That they did not do.

[37] It is undisputed that loss occurred as a result of the treatment by the Solicitors of the Investors' funds. Such
loss flowed from the actions of the Solicitors already traversed. Quantum will be discussed under the third issue.
 Page 8 of 9
RAMA v McKAY

Second Issue: Was there any breach of trust by the Solicitors in respect of the transfer of $161,335.51 to
the TCE NZ$ ASB account on 8 December 1997 and, if so, did it result in loss to the Investors?

[38] It may be recalled that the sum of $161,335.51 was first transmitted by the Solicitors from their trust account
to the TCE NZ$ ASB account and then paid it into a Distribution Drawdown Account for TCL and not TCE.

[39] We have already expressed the view that the Solicitors had no power to transmit the Investors' funds from
their trust account into any New Zealand dollar account. The Solicitors held the Investors' funds on trust for the
purposes of transmitting them either to a TCE US dollar account or to an offshore solicitors' account as already
discussed.

[40] The consequence is that, in making payment of the sum of $161,335.51 to the TCE NZ$ ASB account, the
Solicitors were in direct breach of their trust responsibilities to the Investors. Once again they made their breach
worse by not only permitting the funds to be dealt with other than in accordance with the Third and Fourth
Schedules but in then making payment of them to the TCL Distribution Drawdown Account and disbursing them.

[41] As in respect of their actions in relation to the funds forwarded to the English solicitors, the Solicitors did not
ensure that the Investors' funds were used for the purpose intended under the LIA and the Fourth Schedule,
namely the obtaining by TCE of the requisite bank securities envisaged by the provisions of the LIA and the Fourth
Schedule already discussed.

[42] In this area, as in respect of the funds transmitted to the English solicitors, it was argued that any fault on the
part of the Solicitors could only be if they had knowingly assisted TCE to act contrary to the provisions of the LIA.
With all respect to that argument, it does not fit with what occurred. In respect of the handling of this part of the
Investors' funds, as in respect of the funds transmitted to the English solicitors, it was the Solicitors who acted in
clear breach of the provisions of the Third and Fourth Schedules and their subsequent actions merely compounded
those breaches. As already noted, it is not a case of the Solicitors acting in accordance with the trusts impressed
upon them and subsequently acting in furtherance of improper actions by TCE. In neither instance has TCE ever
been placed in control of the funds in a manner envisaged by the LIA and its Schedules. The Solicitors could not
have responded to the directions of TCL in respect of these monies if they had not handled the Investors' funds
contrary to the terms of their authority.

[43] We are again satisfied, therefore, that a breach of trust on the part of the Solicitors has been made out and
that loss has resulted.

Third Issue: Quantum

[44] The parties have co-operated in respect of quantum. Thus it was that before the Master summary judgment
had been sought in respect of an agreed sum of $146,140.69 together with interest at 8% per annum for a period to
be agreed or determined. It was only in oral argument before us that the Solicitors sought to suggest that a lesser
sum might be payable. The Investors and their counsel had had no opportunity to consider the Solicitors' new
workings of the appropriate sum. The Solicitors accept that if liability is made out as we have found it to be then
the Investors are entitled to judgment in a minimum sum of $96,209 with interest at 8% for a period to be agreed or
determined as previously. Given the history of the matter, it seems likely that the parties will co-operate in
determining the precise sum payable. However, in the event of disagreement it is preferable, particularly in respect
of a dispute that did not even surface before the Master, that there should first be a determination within the High
Court of the quantum over and above $96,209 in the event of any further dispute.

Result

[45] The appeal is allowed. There will be judgment that the Solicitors are liable to the Investors on the third cause
of action in the statement of claim. Judgment is entered for the Investors in the sum of $96,209.00 without prejudice
to the Investors' rights to claim a greater amount. In addition, the Investors are entitled to interest at the rate of 8%
for such period as is agreed. In the event of there being no agreement as to either quantum or the period of interest,
the issue is to be determined in the High Court. To that extent the application by the Investors for summary
judgment remains extant.

[46] The Investors are entitled to costs and their reasonable disbursements in the High Court, with the costs to be
on a Category 2 Second Schedule and Column B Third Schedule High Court Rules basis. In the event of the costs
and disbursements not being agreed, they are to be determined by the Registrar of the High Court at Wellington.
 Page 9 of 9
RAMA v McKAY

[47] In this court the Investors are entitled to their costs in the sum of $5,000 together with their reasonable
disbursements. In the event of dispute, such disbursements are to be fixed by the Registrar of this court.

Counsel for the appellant: J C Corry

Counsel for the respondent: P Courtney and C Chilwell

Solicitors for the appellants: P A Rama, Wellington

Solicitors for the respondents: Mcelroys, Auckland

End of Document