Gordon v Treadwell Stacey Smith CA217/95 [1996] NZCA 110; [1996] 3 NZLR 281; (1996) 3 NZ ConvC 192,462; (1997) ANZ ConvR 68 (8 July 1996)

Last Updated: 26 October 2012

_{IN THE COURT OF APPEAL OF NEW ZEALAND CA 217/95}

_{BETWEEN GAEL ANN GORDON}

_Appellant

_{AND TREADWELL STACEY SMITH}

_Respondent

Coram: Thomas J Blanchard J Doogue J

_{Hearing: 12 June 1996}

Counsel: W V Gazley for Appellant

T J Broadmore and R L Kitteridge for Respondent

_{Judgment: 8 July 1996}

_{JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J}

Factual Background

The litigation has its origin in a property swap contracted by two agreements to sale and purchase of 15 June 1990 on the standard Law Society form. The appellant Ms Gordon and her then husband R W Malcolmson were separating. They sold their home at Main Road, Kaitoke to Danny and Amanda Cancian for $339,000. The respondent firm acted throughout as solicitors for the Cancians. Part of the price was to be satisfied by the Cancians selling a cross-lease flat at 2a Burke Grove, Lower Hutt, for $204,000 to Ms Gordon. Settlement was not to take place for six months, but in the meantime possession of each property was given to the purchaser.

The agreement for the Kaitoke sale provided that the purchaser, Danny Cancian, was to build a house for Mr Malcolmson on a property at Wyndermere Close, Kelson to a value of $135,000. Mr Malcomson already owned this property. The house was to be built within the next year i.e by 15 June 1991. The value placed on the house to be erected was the difference between the two purchase prices. Ms Gordon had concluded a matrimonial property settlement with Mr Malcolmson and this provided for her to take 2a Burke Grove into her own name solely. Because of title problems settlement was delayed and did not finally occur until 15 April 1991. The house on the Kelson property had not then been built; indeed it never was.

It was necessary in order that settlement could take place for Mr Malcolmson to repay a mortgage on the Kaitoke property to the AMP Society. As between himself and Ms Gordon he had agreed to take responsibility for the mortgage. He was in difficulties in connection with settlement but made an arrangement with the Cancians for deduction of $2,500 from the amount which would otherwise have to be satisfied to them on settlement. The settlement statement prepared by Ms Gordon’s solicitor, Mr Black, showed a deduction of (inter alia) the $2,500. But earlier, on 2

April, the Cancians’ solicitor had written a letter to Mr Malcolmson’s solicitor (but not to Ms Gordon’s solicitor) reserving their right to “recover this amount after settlement”. Mr Malcolmson’s solicitor assumed that it would “come out in the wash” once the house was built. Until that event occurred the Cancians had a substantial outstanding obligation to Mr Malcolmson.

After settlement Ms Gordon’s solicitors took steps to register the transfer to her of the Burke Grove property. It was registered on 23 April.

On 16 August 1991 the Cancians, without warning to Ms Gordon, registered a caveat against the composite certificate of title to Burke Grove. This claimed for the Cancians an interest in the flat “as Vendor by virtue of an agreement for sale and purchase dated 15 June 1990 with Gael Ann Gordon of Wellington, kitchen designer and by virtue of losses suffered by the caveators as a result of the purchasers [sic] default in effecting settlement on the agreed date”. So the Cancians were claiming an interest in the property that they had sold to Ms Gordon notwithstanding settlement of

the sale and registration of Ms Gordon’s transfer and nothwithstanding Mr Cancian’s failure to build Mr Malcolmson’s home. The caveat was executed on behalf of the Cancians by an employee of the respondent firm. He stated in the attestation clause of the caveat that he was their “duly authorised solicitor & agent”.

Through her solicitor, Mr Black, Ms Gordon by letter of 4 November 1991 took strong objection to the lodging of the caveat and demanded its removal forthwith. Mr Black warned Treadwell Stacey Smith of its exposure to personal liability in respect of the caveat. Demand was also made for payment of $500 to reimburse Ms Gordon’s legal costs.

In a letter of 12 November 1991, responding to Mr Black, Treadwell Stacey Smith advised that the caveat was registered against the property at their clients’ instruction “as your client delayed settlement and refused to pay the penalty interest as a result of delayed settlement”. They also said that “many costs” had been incurred by their clients because of Ms Gordon’s alleged inability to settle the transaction and that their client was looking to Ms Gordon for reimbursement: “Upon her doing so we shall obviously meet any costs properly incurred by your client in respect of caveat”.

This is a curious letter. It said nothing about any liability of Ms Gordon for the $2,500. Nonetheless, at the hearing before Heron J a member of the respondent firm gave evidence that the caveat was endeavouring to protect the “unpaid purchase price of $2,500” although there were several reasons for lodging it, including the alleged defaults by the Malcolmsons.

On the 24 February 1992 the respondents wrote to Ms Gordon threatening bankruptcy proceedings if the $2,500 were not paid. She spoke to Mr Treadwell a few days later telling him that she owed no moneys to the Cancians and that the dispute was a matter between them and her estranged husband. She then applied under s.143 of the Land Transfer Act 1952 for orders that the caveat be removed and compensation be awarded against the Cancians under s.146 for its lodgement without reasonable cause. In her accompanying affidavit she deposed that the caveat had

been lodged merely for the purpose of endeavouring to extort moneys to which the

Cancians were not entitled.

On 16 March 1992, after hearing Mr Gazley and there being no appearance for the Cancians, Master Williams QC (as the Judge then was) made an order for removal of the caveat. So it was got rid of without much difficulty. On the same day, but at a later hour, the respondents delivered a release of caveat to Mr Gazley and a cheque for $396 ($350 costs and $46 registration fees). That letter also enquired when Ms Gordon would pay the $2,500.

Mr Gazley returned both the release of caveat and the cheque telling the respondents that the application for compensation had been adjourned by the Master because of a concern about his jurisdiction and that counsel would be asking for solicitor and client costs and disbursements of $3,158. Mr Gazley’s letter also required the respondents to state the basis of the claim for $2,500 and warned them of “an action against your firm for damages for attempting to demand money by menaces.”

Mr Billington was then instructed as counsel on behalf of the Cancians. In a letter of 20 March 1992 to Mr Gazley, Mr Billington advised that a junior solicitor with the respondents was responsible for lodging the caveat and that it was lodged on instructions from the clients who had acted in good faith on this solicitor’s advice. Mr Billington invited a conciliatory approach saying that the solicitors accepted personal responsibility for some costs and offering $750 plus GST. That offer was roundly rejected.

On 23 March Ellis J gave an oral judgment in the course of which he commented that it was quite obvious that the Cancians had no caveatable interest. Mr Billington had taken the point that the claim for compensation ought to be by way of statement of claim and Ellis J directed that the matter proceed in that way. He concluded:

“Notwithstanding the above, it appears to me that this is a case where the plaintiff should pursue her application for costs before the Master where it would there be possible to claim solicitor and client costs. The defendants do not contend that they are not liable for proper costs, but do not accept that they are liable for solicitor and client costs, nor do they accept that the amount claimed is the appropriate amount.”

The respondents wrote to Mr Gazley the next day enclosing their firm’s cheque for $2,000 which they said was a payment “by this Firm to you for your costs in respect to the application for the withdrawal of Caveat.”

The letter went on:

“This cheque is not offered in full and final settlement, and may be applied in such manner as you deem appropriate. Any further claims should be made against Mr Cancian.”

That cheque was returned. The flavour of the response appears from the concluding portion of Mr Gazley’s letter:

“Rather than submit to payment of $3,185.00 you have adopted an aggressive and inflammatory course of conduct that has already increased the damages and heads of damage against (nominally) Cancian. If you wish proceedings to continue and escalate, you can be so accommodated. If, on the other hand, you are willing to proffer a figure to reflect Cancian’s nominal liability for damages, it will be considered. Already, Cancian is made liable for registration of the order ($55.00) a figure that I had been minded to overlook. Not now. There has been caused, through your activities, the expense of preparing a statement of claim and the agent’s disbursements for filing and serving it $121.50.

Battle or settle. The choice is yours, on behalf of Cancian”. [Emphasis in the original]

In due course the Cancians responded to Ms Gordon’s statement of claim with a statement of defence and also a counterclaim for $2,500 allegedly paid to the AMP Society on behalf of Ms Gordon and as a loan to her.

Eventually the proceedings between Ms Gordon and the Cancians were allocated a date of hearing (27 May 1993), but two days beforehand the Cancians’

counsel advised that they had filed in bankruptcy. As a result, the fixture was vacated and Ms Gordon and her advisors changed course, issuing the present proceedings against the respondent solicitors. An amended statement of claim of 4 August 1993 sought special damages of $12,409.88 plus further unspecified expenses which had been incurred. It also claimed sums of $20,000 and $12,500 respectively as general damages and aggravated compensatory damages and/or exemplary damages “for lodging a caveat without reasonable cause.” Furthermore, as a separate cause of action it was alleged that the counterclaim in the Cancian proceedings was “a proceeding disclosing no reasonable cause of action; one frivolous and vexatious; one in abuse of the process of the Court”, which was “brought contrary to the defendant’s duty to aid in promoting the course of justice.” It was also said to be brought contrary to an alleged duty to the plaintiff:

“to preserve her immune from a proceeding that the defendant knew, or reasonably should have known, was baseless, frivolous and vexatious, an abuse of the process of the Court, and pursuant to an improper purpose of defeating...the plaintiff’s legitimate claim to compensation under s.146.”

For this there was claimed against the defendants special damages (later quantified at $16,875 being costs incurred in the proceeding), general damages for distress and inconvenience ($7500), aggravated compensatory damages ($15000) and exemplary damages ($20000) “for the defendants frustrating the plaintiff’s claim against the Cancians and thereby rendering this proceeding necessary.” Mr Gazley told this Court that his client is looking for one global sum of general, aggravated and/or exemplary damages sufficient to do justice to her cause.

The respondents applied to the Master to strike out the amended statement of claim. That application was dismissed by Master Thomson. And so the matter came on before Heron J on 18/21 September 1995, his reserved judgment being delivered on 9 October 1995.

Judgment in the High Court

Heron J referred to the arrangements between the Cancians and Mr Malcolmson over the $2,500, saying that what was agreed had the effect that “the amount reserved for the Cancians to build Mr Malcolmson’s house was reduced by

$2,500.” He also found that “the adjustment of $2,500 seems to be related entirely to

Mr Malcolmson’s contractual arrangements with the Cancians.”

The Judge held against the appellants. He decided that there is no liability under s.146 on a solicitor “who plainly states in the caveat that they act as agents.” He continued:

“There is sufficient protection within the statute to prevent the maverick lodging of a caveat and undoubtedly if solicitors in their own name were to lodge a caveat where there was no entitlement to an estate or interest of a kind sufficient to justify a caveat, then the solicitors in their own right would be liable if they purported to claim an estate or interest which did not exist. There is no need to extend the section to the cases of agents who plainly indicate that they are acting as such and are not recording any estate or interest to which they may be entitled but rather their clients may be entitled. I believe the statute should be construed giving “any person” the same meaning in S.137 as in S.146. This protects the symmetry of the relevant sections and is a construction which will give adequate protection to registered proprietors. S.137 speaks of lodging with the Registrar a caveat in the form specified in the second schedule. In this case I do not think the defendant lodged anything but rather on behalf of a principal lodged a caveat, claiming the principal’s interest in the land. There was no independent lodgement of the caveat by the defendant solicitors nor is there any need to broaden the interpretation of the words “any person” beyond those claiming an estate or interest.”

But, lest he be wrong in that view, he went on to consider whether the solicitors had reasonable cause. He thought this depended on their instructions. Here they had been instructed to lodge the caveat and “in the absence of fraud or complete lack of good faith that must be the end of it.”

On his view of the evidence, the Judge thought that it was not clear that the Cancians had ever accepted that the $2,500 would be the liability of Mr Malcolmson alone. The funds were being made available to repay a mortgage which was a joint

responsibility of the appellant and Mr Malcolmson. Looking at the matter just to see if it gave rise to a reasonable cause for lodging a caveat, Heron J concluded that it did:

“The two transactions were sufficiently intertwined it seems to me to result in any shortfall in the overall payment to the Cancians constituting an unpaid amount of the purchase price in respect of the property they sold to the Plaintiff.”

He accepted a submission from Mr Broadmore that an unpaid vendor has a contingent equitable interest in the land which is the subject of the sale, referring to Whiteleigh Holdings NZ Ltd (in receivership) v Whiteleigh Pacific Resources Ltd (McGechan J, Wanganui, 6/86, 3 April 1987, reported in part at (1987) ANZ Conv R

480) and Bevin v Smith [1994] 3 NZLR 648, though “the view taken by the solicitors at the time was not a considered or sophisticated one” and the Judge acknowledged that “there are differing explanations both within the body of the caveat itself and given in evidence, as to the basis for lodging the caveat.” The precise words used in the caveat are not necessarily determinative, he said, citing In re Peycher’s Caveat [1954] NZLR 285, 286.

Nor did the Judge think that the counterclaim launched on behalf of the Cancians had been an abuse of process. In his view the allegations made by the appellant relating to the counterclaim lacked any basis in fact:

“It was sufficient of a dispute, despite a strong defence to the claim against the plaintiff, to enable proceedings of any kind to take their course. The Court will be reluctant as a matter of public policy to prevent the appropriate legal proceedings being tested. The remedy if claims are baseless is in costs.”

He thought also that Ms Gordon’s apparent willingness to settle the case provided Mr Gazley’s fees and disbursements were paid on the removal of the caveat was inconsistent with the claim now made for “extensive damages for stress and the like” and that there was “a touch of unreality” about the inconvenience allegedly suffered by her. Ms Gordon had impressed the Judge as a person not easily intimidated. The solicitors’ letter claiming the $2,500 and the caveat itself were

undoubtedly annoying but were “quickly explained by her solicitors as to the nature of them which should have put her mind at rest.” She was in no danger of anything occurring other than a disputed debt having to be resolved and her solicitors had promptly taken successful proceedings to get the caveat removed.

Mr Gazley presented a comprehensive argument on all questions and one which was certainly not lacking in forcefulness. In this judgment we traverse only those matters which are germane to disposition of the case.

Section 146: are solicitors liable?

The first issue is the extent (if any) to which solicitors and other agents may be rendered liable for payment of compensation under s.146 where they have played a part in lodging a caveat which proves to have been lodged without reasonable cause.

Section 146 reads:

Person entering caveat without due cause liable for damages - (1) Any person lodging any caveat without reasonable cause is liable to make to any person who may have sustained damage thereby such compensation as may be just.

(2) Such compensation as aforesaid shall be recoverable in an action at law by the person who has sustained damage from the person who lodged the caveat.

The respondents supported the position adopted by the Judge, who looked for consistency with s.137. They argued that it would be strange if a solicitor’s clerk or a registration agent who physically attended to the lodging of the document should face liability where that person in all probability would have had no knowledge of the circumstances giving rise to the claimed interest in the land. It was submitted that on ordinary agency principles an attorney or agent acting for a principal should not be directly liable to a third party for something done on the instructions of the principal. A third party complaining of acts done by an agent should claim against the principal; if it then proved that the agent had acted without instructions, the issue should be resolved between the principal and the agent. This submission seemed to be based on the assumption that the act of lodging the caveat, although done without instructions,

would be treated for the purposes of a claim by the caveatee as something done within the scope of the general agency of the solicitor.

Mr Gazley pointed to the ordinary meaning of “any person”. We agree with him that there is a pattern in the use of language in ss.136-148 dealing with caveats, although there is not complete consistency. Having, in ss.135 and 137, given any person claiming a caveatable interest the right to lodge a caveat either in Form M (against the bringing of land under the Act) or Form N (against a dealing), the statute from then onwards generally calls a person who has taken advantage of that right a “caveator”: see ss.138, 140, 141, 143, 145 and 147. (In s.144 which deals with the lapsing of a Form M caveat that is not done, but the word “person” is qualified by words describing a caveator (“person by whom or on whose behalf the caveat was lodged”). Section 143 (2) speaks of “the caveator or the person on whose behalf the caveat has been lodged.” It is difficult to think whom the latter person could be but this uncertainty does not detract from Mr Gazley’s argument. Section 147, dealing with withdrawal of a caveat, refers both to the caveator and the caveator’s attorney or agent.

Section 146 is the only place in which “person” is not accompanied by a direct reference to the caveator or use of words which can refer only to the caveator. The second time the word “person” appears in the section, referring to someone affected by the caveat, it is not limited to the registered proprietor but extends to anyone who has sustained damage. The section is in both these ways wider in its application than the other caveat sections. We agree with Mr Gazley that “any person lodging a caveat” in s.146 is not restricted to the caveator. This was also the view of Master Thomson who considered the question when the strike out application was before him. If Parliament had intended otherwise, s.146 would surely have referred to a “caveator” like the other sections of which mention has been made. We conclude, then, that both client and solicitor and indeed any other person responsible for lodging a caveat may be liable to pay compensation under s.146. Nor, as will be seen from the following portion of this judgment, does any matter of policy or practical difficulty require otherwise.

Section 146: Reasonable Cause

It does not follow that solicitors, their employees and registration agents are exposed to liability under the section where they have acted reasonably and in good faith. The statute contains its own test, one of absence of reasonable cause. What is reasonable will depend upon the information available to the person whose conduct is challenged under s.146. The position is best demonstrated by an illustration. Suppose a client seeks advice from a solicitor about whether an interest exists in land sufficient to support a caveat but deliberately or inadvertently conceals from the solicitor a crucial fact (e.g. that the client previously had an interest but has already assigned it absolutely to someone else). If the solicitor then advises that an interest may exist and that a caveat should be lodged and proceeds to undertake that task, the solicitor will not share the client’s liability under s.146. The client had no reasonable cause; the solicitor, on the information available, did. The agent is not rendered liable under s.146 merely because the client principal has acted improperly. The liability of each person who participates in the lodgment of a caveat as an agent (solicitor, solicitor’s clerk or registration agent) is to be examined separately and will depend upon what they knew or ought to have known of the facts and whether from their viewpoint the lodgment was done honestly and with reasonable cause. In the case of a registration agent or other person whose function is mechanical, liability is most unlikely to arise. Where the solicitor acts on the basis of incomplete information and it cannot be said that in the circumstances the solicitor ought to have taken enquiries further, there will be no liability.

A solicitor cannot, however, hide behind the existence of an instruction from the client to lodge a caveat if to do so was otherwise to act without reasonable cause in the circumstances confronting the solicitor. In our view s.146 makes solicitors or other agents responsible for their actions in lodging a caveat where they act dishonestly or without reasonable cause notwithstanding that on the basis of their advice to their client they have received instructions to caveat the title. If this were not so the client might be protected by taking advice from the solicitor, however wrong the advice proved to be, and the solicitor would be protected by acting in accordance with the instruction which was given because of the incorrect advice. It

would be unsatisfactory if in this circular way a person affected by the lodging of a caveat could be deprived of any claim under s.146.

It is unnecessary to explore the interesting question just now touched upon and discussed by the Full Court of the Supreme Court of Western Australia in Bolton v Excell (1993) ANZ Conv R. 562, of whether a client who relies upon a solicitor’s advice, and instructs the solicitor on the basis of that advice to lodge a caveat, can be liable under the section. The Full Court suggested that even negligent advice could provide the client with reasonable grounds for an honest belief that there was a caveatable interest if the client had not contributed to the problem by failing to place all the facts before the solicitor. If that is so, the party affected by the caveat might have no remedy unless the solicitor were, as we have held, directly liable under s.146.

The Courts have been cautious in imposing liability on caveators. The onus of proof is on the person seeking compensation. By way of defence it is not necessary to show that the caveator actually had a valid claim to an interest. This Court said recently in Taylor v Couchman (CA 172/95, 29 April 1996):

“The exercise of that power [to lodge a caveat] is not conditional on the caveator actually having the entitlement or interest. Rather the caveator must claim such an entitlement or interest.” [Emphasis in original]

All that ss.136 and 137 require, when read in conjunction with s.146, is that there shall be an honest belief based on reasonable grounds that the caveator has an interest.

In examining the position of a solicitor called upon to advise whether a caveat should be lodged - and this will often occur in circumstances of some urgency - the Court will first look at the honesty of the solicitor’s belief. When examining reasonableness it will be aware that it is not uncommon for solicitors to be sued for professional negligence where they fail to advise a client to lodge a caveat first and argue for its validity afterwards: for a recent example in this Court see Simperingham v Martin (CA 5/95, 2 June 1995).

The matter will be judged by the standards of a reasonable conveyancing practitioner possessed of the factual material available to the solicitor whose action in lodging a caveat is under scrutiny and advising and acting in the same circumstances. Would such a practitioner have thought in those circumstances that there was a proper basis upon which a claim could be asserted by the client? We do not consider that the approach we have taken to s.146 will create a problem where a solicitor is instructed to lodge a caveat but has a concern about whether this can properly be done. The client can be advised of the doubt and, if still instructed to lodge a caveat, the solicitor can record the advice in writing and seek an indemnity. If that is not thought appropriate and the client wants to proceed, the solicitor can always prepare the document for personal signature and personal lodgment by the client. A solicitor who does so could not be described as a person lodging the caveat.

Reasonable Grounds in Present Case?

In the present case there was no reasonable basis supporting a claim on the part of the Cancians to an interest in Burke Grove. The transfer in Ms Gordon’s favour had long since been registered and, pursuant to s.41 of the Land Transfer Act, the legal estate had passed to her. It was not arguable that any equitable interest remained behind with the Cancians as might have been the case if, for instance, they had been persuaded to part with the land by a fraud and consequently the transferee took it subject to a constructive trust in favour of the vendor. To the knowledge of their solicitors, the Cancians had elected to complete the sale without requiring payment in full of the purchase price due by Ms Gordon of $204,000. The solicitors may have been given to understand that Ms Gordon accepted a continuing liability for the disputed $2,500. They could properly regard this obligation, if it existed, as one in respect of unpaid purchase moneys but, once registration of the transfer had occurred, it was obviously an unsecured debt. It would be quite foreign to the understanding of a reasonable conveyancing practitioner that a continuing interest in the property on the part of the Cancians could exist in such circumstances.

An attempt was made on behalf of the respondent firm to rely upon the

Whiteleigh case as providing reasonable cause. With respect to Heron J, we cannot

find in it any support for the notion that there was a possible caveatable interest lingering in favour of the Cancians. The contingent interest of a vendor in the purchaser’s equitable estate, which McGechan J discerned in Whiteleigh, existed because the vendor remained the registered proprietor and the purchaser might in certain circumstances, including its default, be denied specific performance of the contract for sale. If that happened the equitable estate would revert to the vendor. That doctrine can have no application where the legal estate has already vested in the purchaser, who can no longer have any need for specific performance. Ex post facto reliance on Whiteleigh is misplaced.

Indeed, before any thought was given to Whiteleigh, the solicitors themselves, through their counsel Mr Billington, admitted on behalf of their clients, the Cancians, that the caveat should not have been lodged and that their clients had an exposure under s.146. The only contested question was the amount of the compensation which the Cancians should pay.

It follows from the determination that liability under s.146 is not restricted to the caveator, that in the circumstances of this case the respondents were rendered liable for payment of compensation under s.146 by reason of their signature of the caveat as agent for the Cancians and their act of lodging it in the Land Registry Office.

Ulterior Motive

Before leaving the subject of reasonable cause we mention also the allegation that the caveat was lodged for an ulterior purpose. There is Australian authority, notably Young v Rydalmere Credits Ltd [1964-5] NSWR 1001, that even if a caveatable interest actually exists there is no reasonable cause if the caveat is not lodged bona fide for the purpose of protecting it. It is unnecessary in the circumstances to consider this question. The point did not arise in Taylor v

Couchman because the “other possible reasons or motives” of the caveator were apparently not regarded as inappropriate. However, in Holt v Anchorage Management Ltd [1987] 1 NZLR 108, 114 McMullin J contemplated s.146 as a sanction against improper use of a caveat by a purchaser with a caveatable interest under an agreement for sale and purchase.

Measure of Compensation

There are claims for general, aggravated and exemplary damages. Compensation can be awarded under s.146 for expenditure for loss actually incurred and is not restricted to the expense of obtaining removal of the caveat (e.g it extends to interest paid to a mortgagee during a period of delay caused by the lodging of the caveat). In some circumstances an award may include some element of general (even aggravated) damages. But exemplary damages, which are non-compensatory, are plainly not claimable under the section.

We accept Heron J’s assessment of the relatively small level of stress likely to have been suffered by Ms Gordon over the caveat. It proved easy enough to remove. It was not much more than an annoyance, claiming as it did quite a small sum. This is not an appropriate case for compensation going beyond reimbursement of removal expenses. No claim is made for any such expenditure other than legal fees and disbursements.

The Court is anxious to avoid prolonging the agony of this case any further, especially in view of the relatively small amounts which are involved. Therefore, rather than sending it back to the High Court for the fixing of solicitor and client costs there, we should make our own assessment. At the time when Mr Billington was endeavouring to negotiate a settlement Mr Gazley was seeking $3,185. The respondent firm was willing to pay $2,000 and accepted that the final figure might be higher than that sum. Mr Gazley’s claim at that time does not seem to have been manifestly excessive and we would fix compensation at $3,185.

Abuse of Process

This claim relates to the action of the respondent in issuing the counterclaim for the $2,500 based upon an allegation that it was owing by Ms Gordon (presumably jointly and severally with Mr Malcolmson) as having been paid to the AMP Society by the Cancians. Undoubtedly the counterclaim did not depict the true position. As Heron J found, there had been no payment by the Cancians to the AMP. Nor did Ms Gordon ever make herself a party to the arrangements between the Cancians and Mr Malcolmson about that sum. However, despite Mr Gazley’s strenuous efforts to persuade us otherwise, we are not of the view there was any default on the part of the respondent in the filing and service of the counterclaim, though it can fairly be said that it was carelessly done. If the solicitors had taken the trouble to look at their own records they would have appreciated that, rather than paid to the AMP, the $2,500 had been a deduction allowed by the Cancians on settlement of the purchase by Ms Gordon of Burke Grove. But they would also have seen that, indirectly, the $2,500 appeared to have been the source of Mr Malcolmson’s ability to discharge his part of the bargain, namely paying off the AMP mortgage. Subject to the question of whether Ms Gordon, as opposed to her estranged husband, had undertaken any commitment to pay the $2,500, there was a proper basis upon which a counterclaim could be framed: that a $2,500 deduction had been allowed upon settlement on the basis that it would subsequently be repaid to the Cancians.

Heron J referred in his judgment to affidavits sworn by Mr Cancian and a friend and business partner, Mr de Martin, in the caveat proceedings. They had not formally been placed before the Judge in the present proceedings. However, there was obvious difficulty in determining the case without reference to the affidavits. In his written submissions Mr Gazley urged that this Court should also take account of them and arranged for copies to be made available.

The affidavit of Mr de Martin, sworn on 7 April 1992, was to the effect that he acted as a mediator when difficulties arose concerning the settlement of Burke Grove and the Kaitoke property. He deposed that he had spoken with the appellant suggesting as a compromise that Mr Cancian could “pay the $2,500 so settlement

could take place” but that Mr Cancian would want it back. “I said it would be a loan. She accepted this deal, she said she would repay it...”.

Mr Cancian’s affidavit is generally to the same effect but he says that he relied upon what he was told by Mr de Martin.

If this was what the Cancians gave the respondent to believe the situation to be as between themselves and Ms Gordon concerning the $2,500, then it is understandable that the respondent and counsel, Mr Billington, thought it appropriate to file a counterclaim seeking return of the disputed sum. There was, admittedly, an obvious line of defence, namely that the Cancians were seriously in default to Mr Malcolmson in the matter of the unbuilt house. But it is not in law improper for solicitors to issue proceedings knowing of a probable, and possibly successful, line of defence.

Mr Gazley directed attention to file notes made at the time when instructions were taken from the Cancians. The notes apparently form the basis upon which the affidavits were prepared. Counsel suggested in the strongest terms that because of prior knowledge of what had occurred when arrangements were being made for settlement of the property transactions, coupled with what appears in the notes, the respondent firm could not possibly have believed that the counterclaim had any proper basis. It is true that there are material differences between the file notes and what is to be found in the affidavits. In the notes of the interview with Mr de Martin he makes no reference to a need to repay the AMP Society. He appears to have said that he had been told by Ms Gordon that “someone had to pay her legals on her purchase” and that he had then told her that if Mr Cancian paid the $2,500 he would expect to get it back. On the other hand, notes which apparently relate to information given by Mr Cancian refer to a payment of $2,500 “to enable settlement”.

The problem could well have been that Ms Gordon’s solicitor was insisting on having moneys for legal fees and disbursements in hand before proceeding to settle with the AMP. Whatever the true explanation, Mr de Martin was content to sign the affidavit in the form now before the Court and there is no proper basis for suggesting

that the solicitors have prepared it knowing that it was in material respects a false document, as Mr Gazley has been suggesting. The stories told by Mr Cancian and Mr de Martin, when taken together, provided a basis for a claim that on settlement the Cancians had made $2,500 available, expecting it to be paid back, and that Ms Gordon had accepted an obligation in respect of it. The counterclaim was carelessly put together but was not so devoid of backing from the instructions and other knowledge of the solicitors that they can be said to have acted contrary to the law in issuing it.

The tort of abuse of process is rarely encountered although there has been an upsurge of cases in recent years. It had its beginnings in Grainger v Hill (1838) 4

Bing NC 212, [1838] EngR 365; 132 ER 769 where the defendant mortgagees had called on the plaintiff mortgagor under a ship’s mortgage to pay the mortgage debt well before it fell due. Their motive was to obtain the ship’s register without which the ship (their security) could not sail away. They issued legal proceedings in debt and sent sheriff’s officers to the plaintiff with a writ of capias, thereby causing him to hand over the register. He claimed damages for the loss of voyages which could not be undertaken without the register. The claim was successful. The abuse of process was not the commencement of proceedings for a debt which the defendant knew was not owing, but the extortion of the register by use of the writ of capias, an object not within the scope of that process and wholly collateral: Speed Seal Products Ltd v Paddington [1985] 1 WLR 1327.

The tort is not committed merely by the issuance of proceedings on a false basis or for an improper purpose:

“The action will not lie where the claim is that a party has instituted proceedings, whether principal or ancillary, in order to effect an object within the scope of the proceedings. This is so even if the proceedings have been irregularly or maliciously instituted.”(Hanrahan v Ainsworth (1990) 22

NSWLR 73, 112 per Clarke J.A.)

The accounts of the tort given in Clarke JA’s judgment at pp 107-122 and by Priestley JA in Spautz v Gibbs (1990) 21 NSWLR 230, 270-280 are of particular value, as is the judgment of the English Court of Appeal in Metall und Rohstoff A.G

v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 469-473. At p.470 that

Court said:

“Relief in tort under the principle of Granger v Hill is not, in our judgment, available against a party who, however dishonestly, presents a false case for the purpose of advancing or sustaining his claim or defence in civil proceedings.”

In this case the Cancians sought by their counterclaim only payment of the

$2,500 to which it related. Whether or not that sum was truly owing by Ms Gordon or her husband (which is most doubtful), it cannot be said that the purpose of the counterclaim was collateral - aimed at obtaining an advantage not claimed in the proceeding. It therefore does not seem that the tort of abuse of process was being committed by the Cancians. For the reasons given above, it certainly was not committed by their solicitors.

Mr Gazley’s argument did, with respect, also take cases in which solicitors have been required to pay the costs of an opposing party because of misconduct on the part of the solicitors (e.g. Myers v Elman [1940] AC 282; Davy-Chiesman v Davy-Chiesman [1984] Fam 48 and Orchard v South Eastern Electricity Board [1987] QB 565) and attempted to apply them in support of a damages claim by the opponent against the solicitors. Such an argument flies in the face of the decision of this Court in New Zealand Social Credit Political League Inc v O’Brien [1984] 1

NZLR 84 where a cause of action against a solicitor for drawing a statement of claim in breach of public duty, without a sufficient basis and without reasonable cause, was struck out. Cooke J, as he then was, thought that it was misconceived, expressing the view that, except where the solicitor acted with malice (which is not pleaded in the present case), as well as without reasonable and probable cause,

“a legal practitioner’s responsibilities are owed only to his own client and to the Court and professional bodies with disciplinary authority.”(p.88).

At p.96 Somers J concluded:

“In Gazley v Wellington District Law Society [1976] 1 NZLR 452 a Full Court reiterated with reference to Rondel v Worsley [1969] 1 AC 191 and Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186 that as officers of the Court counsel and solicitors have duties not only to the client but to the Court and the public and that in some circumstances the latter duties may override the wishes of client. Special reference was made to the duty, described as “public”, not to make allegations without reasonable grounds of sufficient basis when drawing pleadings or when conducting litigation in Court.

In the instant case Mr Gazley supports a pleading that there has been a breach of this public duty by Mr Riddoch which has caused particular and actionable damage to Mr O’Brien. This is to misunderstand the case relied on. Barristers and solicitors have a duty to their client, to the Court and to the public. To enable them to perform it they have certain privileges. One is against suit in respect of the conduct of a case in Court and in respect of work so intimately connected thereto that it warrants the like protection. Gazley’s case was concerned with the breach of one of those duties - the drawing of a statement of claim containing baseless charges - to which the privilege attaches. The only remedy available in such a case is professional disciplinary proceedings. A solicitor is not a public or statutory officer of the type referred to in cases about abuse of power and the pleaded cause of action is not of malicious abuse of process.”

Casey J discussed the possibility of an action for negligence in the conduct of litigation against a solicitor by an opposing party. He said at p.97-8:

“Where he is engaged in litigation, the nature of the duty a practitioner owes his own client is such that it will usually be quite inconsistent with the recognition of the other party to the proceedings as a “neighbour”. This is reflected in the traditional privilege and immunity accorded to barristers and solicitors in litigation, and leads me to the view that there are valid policy reasons for negativing the existence of a common law duty of care owed by them to opposite parties in the way proceedings are instituted or conducted.”

We see no reason to re-evaluate this view in the light of what is now the leading judgment of this Court on the law of negligence, South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282.

There is no duty of care on the part of a solicitor to keep someone who is not that solicitor’s client free of baseless proceedings, but it is as well to confirm the existence of a duty to the Court on the part of both counsel and instructing solicitors not to lend assistance to a litigant if satisfied that the initiation or further prosecution of a claim is mala fide or for an ulterior purpose so as to be an abuse or unjustifiably oppressive: Orchard v South Eastern Electricity Board at p.572. New Zealand Courts have in recent years declared that legal advisers who misconduct litigation may be ordered personally to pay costs incurred by an opposing party: for examples see Kooky Garments Ltd v Charlton [1994] 1 NZLR 587, 590, Y v M [1994] 3 NZLR

581, and Poa v Cornwell (1995) 8 PRNZ 588. On some occasions it may be appropriate to require them to pay costs on a solicitor and client basis. For the reasons given, however, this is not a case of misconduct justifying any award in relation to the counterclaim.

Result

In relation to the claim for compensation under s.146 we allow the appeal and award Ms Gordon $3,185 in compensation for the lodging of the caveat by the respondent firm without reasonable cause. In all other respects we dismiss the appeal.

The appellant is awarded $4,500 to cover costs in both Courts together with reasonable disbursements as fixed by the High Court Registrar. This award takes into account (a) the appellant’s limited success after her decision not to take the $2,000 unconditionally offered by the respondent and adopt Ellis J’s suggestion that any further claim for costs be taken to the Master; and (b) the respondent’s decision to deny any liability despite having apparently conceded it in the correspondence between Mr Billington and Mr Gazley.

Solicitors:

WV Gazley Wellington for Appellant

Chapman Tripp Sheffield Young Wellington for Respondent