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Court of Appeal of New Zealand |
Last Updated: 2 February 2018
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IN THE COURT OF APPEAL OF NEW
ZEALAND
BETWEEN CAVELL LEITCH PRINGLE & BOYLE
Appellant
AND THORNTON ESTATES LIMITED
Respondent
Hearing: 17 June 2008
Court: Glazebrook, Hammond and Baragwanath JJ
Counsel: C T Walker for Appellant
R A Osborne and S W Rollo for Respondent
Judgment: 27 June 2008 at
11am
|
JUDGMENT OF THE COURT
|
B Judgment is entered for the appellant.
____________________________________________________________________
REASONS OF THE COURT
(Given by Baragwanath J)
Table of Contents
Para No
Background [1]
The written
contract [4]
The
claim by the vendor [9]
The
pleadings [20]
The High
Court judgment [23]
The
submissions on appeal [30]
Discussion [31]
Decision [52]
Background
[1] The respondent Thornton Estates Limited (Thornton) instructed the appellant Cavell Leitch Pringle & Boyle (Cavell Leitch) to act as its solicitors on the purchase of a marina complex under construction at Magazine Bay, Lyttelton. Cavell Leitch drafted an agreement for sale and purchase between Thornton as purchaser and Lyttelton Marina Limited (the vendor) as vendor. On 1 September 2000 the parties executed the agreement which provided for settlement on 31 October 2000.
[2] The contract provided that property in the assets and responsibility for the liabilities should pass to Thornton on the settlement date. From that date Thornton would become the owner of the marina business.
[3] On 12 October 2000 the marina was substantially damaged in a storm and Thornton refused to settle. The vendor sued Thornton for specific performance and damages. Following mediation that claim was settled by agreement under which Thornton paid the vendor approximately $1.1m. Thornton then sued Cavell Leitch, alleging negligence, breach of fiduciary duty and estoppel. In the High Court Venning J gave judgment in favour of Thornton for the amount of its payment to the vendor, primarily on the ground that Cavell Leitch should have included in the contract a specific clause dealing with risk: HC AK CIV 2005-409-001452 24 August 2007. Cavell Leitch now appeals to this Court.
The written contract
[4] The contract began with Recitals:
- The Vendor has partially completed a development of the Lyttelton Marina at Magazine Bay, Lyttelton.
- The Purchaser wishes to purchase nominated assets and liabilities of the Vendor and associated companies in order to continue to develop the marina on the terms set out below.
- The parties have agreed to enter into this Agreement to evidence the sale and purchase of the said assets and liabilities at the price and on the terms and conditions set out below.
[5] There followed the principal operative clause:
- Purchase
The Vendor agrees to sell and the Purchaser agrees to purchase the Assets and assume the Liabilities at the price and upon the terms and conditions contained in this Agreement as at the Settlement Date.
[6] The assets to be purchased were listed in Schedule 1:
- The marina development including breakwater, berth, construction and materials associated with such development.
- The benefit of and interest in all resource consents granted for the marina development.
- Sundry plant and equipment as set out in the attached asset schedule.
- All interests in leases, licenses in the marina and adjacent land held by the vendor.
- Any right and title of the Vendor to the name and logo of “Lyttelton Marina”.
The liabilities included certain debts.
[7] The following clause is of pivotal importance:
8. Passing of title
Subject to the completion of settlement obligations due on Settlement Date, property in the Assets and responsibility for the Liabilities shall pass to the Purchaser on the Settlement Date and the Purchaser shall become the owner of the Business and entitled to carry on the Business from that date. The Purchaser must pay, satisfy, discharge and fulfil all costs, claims, expenses, liabilities, obligations and undertakings arising in relation to the Business and incurred after Settlement Date (in addition to any liabilities assumed for the period prior to that date). The Purchaser hereby indemnifies the Vendor against any claim, action, proceeding, demand, damage, expenses or liability arising out of or connected with any breach by the Purchaser of this Agreement.
(Emphasis added.)
[8] The business was defined as meaning the marina development as carried out by the vendor prior to settlement and by the purchaser, after settlement. Other clauses of relevance are:
- Conduct pending completion
Until Settlement Date the Vendor shall conduct its business or deal with the Assets and Liabilities that are subject to this Agreement in accordance with normal and prudent business practice and will not without the prior consent of the Purchaser enter into any material contract or commitment affecting its business or the assets or liabilities which would have the affect of prejudicing the Agreement.
15.1 On the Settlement Date the Vendor shall assign the benefit of and the Purchaser will assume the burden of:
- (a) The BPDC [Banks Peninsula District Council] Lease
- (b) The LPCL [Lyttelton Port Company Limited] Lease
- (c) The Construction Contract
- (d) The Magazine Bay Licences
- (e) The Leased Plant
- (f) The Navy Agreement;
- (g) The Business Contracts listed in Schedule 4
...
The BPDC and LPCL leases were of land on which the marina was erected. It is unnecessary to detail the other contracts.
The claim by the vendor
[9] Although the storm almost completely destroyed the floating breakwater and substantially destroyed the floating berths, the vendor claimed that it was still able to settle. Cavell Leitch retained Mr Davidson QC who on 27 October 2000 provided a draft opinion. Mr Davidson advised:
- risk in the assets had not passed by the time of the storm;
- a design and build agreement with Saltwater Marinas (NZ) Ltd, with which the vendor had contracted, was the subject of a novation whereby Thornton was to assume the obligations of the vendor. If the insurance permitted Saltwater Marinas to reinstate the marina, Thornton might be obliged to settle.
He summarised his opinion:
On one view of it, relying on a simple expression in the agreement for sale and purchaser [sic], the risk has not passed to the purchaser, and the assets cannot be transferred at settlement because they no longer exist.
The second, more complex question, is whether in the totality of all the contractual arrangements the substratum has been so destroyed that the agreement has been frustrated.
I am not yet sufficiently clear about the insurance arrangements, the subject of comment by the consultants prior to confirmation, and in the design and build contract. If for example the vendor or the purchaser has in place an insurance policy for reinstatement, directly or through Saltwater Marinas, then subject to resource consents being available it is arguable that the purchaser can take the benefit of the monies for rebuild, or that Saltwater Marinas has a policy which allows it to rebuild to the point envisaged at the date of settlement.
[10] Cavell Leitch wrote on 30 October 2000 to the solicitors for the vendor, asserting:
The agreement specifically provided that property did not pass on confirmation of the contract, and by the events associated with the storm, the vendor is quite unable to convey certain Assets on the settlement date as stipulated.
[11] On 14 December 2000 the vendor issued its specific performance proceedings asserting ability to perform its obligations under the agreement. Thornton pleaded in defence:
- THE property in the Assets was held by the vendor until settlement pursuant to clause 8 of the agreement for sale and purchase. The Plaintiff as vendor could not on settlement date and cannot now settle as stipulated, so that no relief sought should be ordered.
[12] For the first 14 months of the litigation both sides proceeded on the basis that the risk of loss to the assets had not passed to Thornton by the time of the storm. The vendor’s argument was that either Thornton was obliged to accept the damaged marina because a marina under construction is always subject to damage which would be rectified by the builder under the construction contract, or Thornton was obliged to accept the damaged marina and the proceeds of the vendor’s insurance.
[13] In September and October 2001 Mr Davidson was advised by the solicitor for the vendor of a contention that the contract had been wrongly drafted, although not, at that stage, on the basis that there should have been a specific clause dealing with risk. It was summarised in a letter from Mr Davidson to Cavell Leitch of 17 October 2001:
Mr Stock has made the point ... that the contract should have been drawn and effected in such a way as to protect your clients. He has not elaborated on that, but says that in essence the contract should have provided that should the vendor not have been able to provide all that was contracted for on the settlement date, then the contract would be at an end. That in effect is what we have said in defence, and the plaintiff says that is not sound in law because it is able to perform the contract in a rather different way but effectively can do so through the provision of insurance proceedings. That remains to be seen.
[14] Because of the suggestion of negligence on their part Cavell Leitch met to discuss the matter with Mr Davidson and the directors of Thornton. The directors, Messrs Lyall and Sisson, said that they wished the firm to continue to act. Mr Paulsen, the litigation partner at Cavell Leitch representing Thornton, gave evidence that he considered the reported comments unjustified and a tactic on the part of the vendor’s solicitors to try to create a wedge between the firm and their client. Cavell Leitch notified their insurers and, on the advice of the insurer’s solicitors, wrote to Thornton advising of a conflict of interest between Cavell Leitch and Thornton. The letter stated:
- ... The conflict arises because of the possibility that Cavell Leitch Pringle & Boyle could be seen to be favouring its own interests over those of Thornton Estates Limited when arguing issues relating to the interpretation of the Agreement for Sale and Purchase in the Court proceedings. In addition, if the High Court was to find in favour of Lyttelton Marina Limited in the current litigation, Thornton Estates Limited may have a potential claim against Cavell Leitch Pringle & Boyle arising from its advice given in relation to the Agreement for Sale and Purchase.
[15] The directors of Thornton took independent advice and signed an acknowledgement dated 11 February 2002:
- The companies have been advised that there may possibly exist a conflict of interest between Cavell Leitch Pringle & Boyle and themselves as a result of the fact that Cavell Leitch Pringle & Boyle drafted the contract which is at issue in the proceedings.
- The conflict arises because of the possibility that Cavell Leitch Pringle & Boyle may favour its interests over the interests of the companies when arguing the interpretation of the Agreement in the Court proceedings.
- If the court finds in favour of the Plaintiff in the current litigation, the companies may have a potential claim for negligence against Cavell Leitch Pringle & Boyle arising from its advice given to the companies in relation to the drafting of the Agreement for Sale and Purchase of the marina.
- The companies have obtained independent legal advice from S J Shamy, Barrister & Solicitor, which clearly, fully and frankly sets out the matters above.
- Despite the conflict of interest, [the] companies wish Cavell Leitch Pringle & Boyle to continue to act as solicitors for them in the litigation.
[16] The vendor’s insurer declined indemnity under its policy. The vendor then changed its argument, asserting for the first time that risk had passed when the sale agreement became unconditional prior to the storm. Accordingly the vendor could settle without providing proceeds of insurance to Thornton. Mr Davidson reported to Cavell Leitch the events of a judicial conference on 15 February 2002:
The rather startling fact that emerged is that the insurer has declined the cover (which was sought in the name of Saltwater Marinas Ltd but the plaintiff is named as an insured party), and this is the subject of proceedings now issued. Mr Stock seemed optimistic that the insurer would pay up, and Mr Gilbert [a litigation practitioner now also advising the vendor] has not dismissed that possibility. But it seems to me there must be relevance in this material relating to the reasons for declinature, and the question of design and construction which may have been addressed by the insurer.
...
The plaintiff’s argument
The plaintiff’s argument was developed by Mr Gilbert, and, leaving aside the insurance issue (which Mr Stock had raised), he contends that this is a case where as a matter of construction of the contract, your clients assumed the risk from the time of confirmation. It is his argument, which the Judge analogized to the sale and purchase of property, that the confirmation was made after a due diligence period and therefore the risk was assumed by the purchaser, that they would be handed over the assets described.
(Emphasis in original.)
[17] At Mr Davidson’s suggestion Cavell Leitch sought an opinion from Mr Weston QC. Mr Weston’s initial assessment was that cl 8 left the risk with the vendor until settlement. In a note for discussion with Mr Davidson he recorded:
- The Plaintiffs argue that this was the transfer of a business and the risk passed at the time of confirmation. Do cases support this? This seems to be contrary to clause 8 of the agreement which specifically deals with the risk passing.
[18] But the next day Mr Weston delivered a draft opinion, confirmed in similar terms on 12 April 2002, which acknowledged risk of an opposite conclusion. He analysed the question of when risk passed as depending on whether the assets being sold were real or personal property. He advised:
- It is arguable, but by no means certain, that the key marina assets (breakwater and berths) subject to the agreement would amount to personal property. The risk in this property had not passed to the purchaser by 12 October 2000. ...
- If, contrary to the above, the marina does not amount to personal property, but is real property, then it is likely that the risk had passed to the purchaser by 12 October 2000.
He advised that settlement at anything up to $1m would be justifiable. Mr Davidson agreed with Mr Weston that there was risk that title had passed. Cavell Leitch accepted the advice to settle and told Mr Sisson that if Cavell Leitch was at fault they would “tidy it up.”
[19] At a mediation on 13 November 2002 Mr Weston and Mr Paulsen of Cavell Leitch represented Thornton. The mediation resulted in a settlement under which Thornton paid the vendor $1.1m plus interest in stages, representing just over 20 per cent of the amount then claimed. It is uncertain, and unnecessary to assess, to what extent doubt about the date of risk passing contributed to that decision by Thornton; the prospect of making a substantial settlement offer for other reasons had been in contemplation prior to Mr Weston’s involvement and may well have contributed significantly to the decision.
The pleadings
[20] Thornton alleged that Cavell Leitch breached a duty of care in that:
- (b) It failed expressly to provide for the transfer of risk in the Marina Contract
(c) It failed to advise the plaintiff ... properly or at all in relation to the transfer of risk in the Marina.
and that as a result Thornton suffered loss of the amount paid in settlement. Mr Osborne for Thornton acknowledged that the pleading in (c) was treated at trial as referable to the time of contracting and not to the later stage of mediation and settlement.
[21] It pleaded in the alternative breach of fiduciary duty alleging:
- At all material times from the latest October 2001 there was a conflict between the defendant’s duty to the plaintiff and its own interests as a prospective defendant to a negligence claim.
...
Particulars
(e) Neither the defendant nor Mr Paulsen reserved the defendant the position or put the plaintiff on notice either–
(i) That by settling with the vendor the plaintiff was thereby precluded from pursuing compensation or indemnity against the defendant in relation to the settlement sum; and/or
(ii) That the defendant in any indemnity claim brought against him by the plaintiff would argue that the claim could not succeed by reason of the fact that the plaintiff had settled with Lyttelton Marina Limited rather than incurring a liability through a Court judgment.
[22] In the further alternative Thornton pleaded:
- The only reasonable inference for the plaintiff to draw from the conduct of the defendant as pleaded in paragraph 23 was that the defendant was at all material times representing to the plaintiff that if the plaintiff committed itself to a monetary settlement at the mediation on 23 November 2002, the defendant would not subsequently assert that by reason of the circumstances in which the plaintiff came to make the monetary settlement the plaintiff could no longer pursue the defendant for compensation or indemnity in relation to any proven negligence.
The High Court judgment
[23] On the first cause of action, Venning J took the view that Cavell Leitch was retained to draft the marina contract and advise on legal issues relating to the purchase of the marina. The passing of risk was a legal issue that related to the purchase, so Cavell Leitch should have specifically advised Thornton on that point. The Judge referred to the principle that a solicitor has a duty to advise on the potential legal pitfalls of a transaction: Pickersgill v Riley [2004] UKPC 14, Clark Boyce v Mouat [1993] 3 NZLR 641 (PC).
[24] Venning J also dismissed Mr Walker’s argument that Cavell Leitch had provided for transfer of risk on the basis that cl 8, when considered in the context of the contract as a whole and established common law principles about risk passing with property. In the Judge’s view the position on risk was not clear because of the different nature of the assets and liabilities that made up the subject matter of the contract, each potentially attracting the application of different common law rules (at [17] – [18]). A reasonably competent solicitor would, in his view, include an express clause dealing with risk and the consequences of the destruction or damage of the subject matter prior to settlement (at [19]).
[25] The Judge’s conclusion was based on evidence that was called as to what could be expected of a reasonable commercial solicitor in these circumstances. An expert witness for the plaintiff gave evidence that the transfer of risk in these circumstances was so important that any reasonably competent solicitor would have provided for it expressly. He rejected Mr Walker’s suggestion that if common law principles covered the position it would be reasonable not to include an express provision.
[26] Finally, Venning J declined to enter into an analysis of whether the contract in fact provided for the passing of risk at settlement, as Mr Walker argued it did. In the Judge’s view the breach of duty occurred at the point when Cavell Leitch failed to include an express provision to deal with risk and it was therefore unnecessary to consider whether risk was dealt with in another manner (at [24] – [25]).
[27] On the claim for breach of fiduciary duty, Venning J held that Cavell Leitch owed such duty to Thornton to advise it that, if Thornton settled without testing the legal position, then in any subsequent claim Cavell Leitch would take the point that the contract was correctly drafted. The Judge said that Mr Sisson stated in evidence that had he been aware of the point he would have taken advice on it and that, had the directors known that settling might deprive them of the right to look to Cavell Leitch for indemnity, he had no doubt they would have insisted on a way of preserving their rights against Cavell Leitch before concluding a settlement (at [64]). The Judge interpreted this to mean that “Thornton would not have settled had it been fully informed” (at [66]).
[28] Venning J rejected Mr Walker’s submission that this point should be decided on the basis that Thornton was not precluded from bringing a claim. He thought this stated the issue too narrowly, and that the focus should be on the nature of the defence to the claim. Because Cavell Leitch was actively encouraging the settlement, it had a duty to make clear to Thornton the possibility that a defence of correct drafting could be maintained in any claim against it, not to do so was a breach of fiduciary duty (at [65]).
[29] On the third cause of action, Venning J held that Cavell Leitch acted inconsistently in encouraging Thornton to settle, and then defending itself on the basis that the contract did in fact protect Thornton’s interests. In the Judge’s view raising that defence was “tantamount to saying the settlement was unreasonable” (at [70]). He thought that by encouraging a settlement and also saying that if they were wrong they would “tidy it up”, the solicitors represented that the reasonableness of the settlement would not be raised as a defence to any subsequent claim. By running the defence Cavell Leitch was now effectively saying that there was no need for Thornton to have settled because any legal challenge would have been settled in its favour (at [71]).
The submissions on appeal
[30] Mr Osborne sought to uphold the judgment for the reasons given by the Judge. We are satisfied that the appeal must be allowed, essentially for the reasons advanced by Mr Walker.
Discussion
[31] The standard of care required of a solicitor was stated by Sir Alfred North P in Bannerman Brydone Folster & Company v Murray [1972] NZLR 411 (CA) at 421 quoting 36 Halsbury’s Laws of England 3ed 99:
A solicitor holds himself out to his clients as possessing adequate skill, knowledge, and learning for the purpose of properly conducting all business that he undertakes, whether contentious or non-contentious. If, therefore, he causes loss or damage to his client owing to want of such knowledge as he ought to possess or the want of such care as he ought to exercise, he is guilty of negligence giving rise to an action for damages by his client. Where an action is brought by the client against his solicitor for negligence, the client must prove that there was such a want of skill or care on the part of the solicitor as to amount to a breach of contract.
[32] The primary question on this appeal is whether, by not including a specific stipulation as to when risk passed, Cavell Leitch exposed Thornton to risk of suit founded upon an argument that risk passed prior to the settlement date, in which event Thornton would have to accept settlement including payment for the gravely damaged marina.
[33] We have noted that Venning J did not determine the true construction of the contract. His conclusion that there was a duty to include an express clause dealing with risk relied primarily on the evidence of Thornton’s expert Mr North, which assumed that the incidence of risk under the contract was unclear. Both Mr North and Venning J accepted that a solicitor is not obliged to relate expressly what was already clear by implication.
[34] Mr Walker’s simple submission is that, in the absence of provision to the contrary, the general rule is that the owner of an asset bears the risk of its loss. And so there is no possible lack of clarity.
[35] The point is, on reflection, self-evident. Indeed Mr Osborne was unable to suggest any rational argument against it. Why then did distinguished senior counsel advise that there was such risk on the point that it should weigh in the decision as to what sum to offer at mediation to settle the vendor’s claim? Why did Mr North not appreciate the point? And why did it not commend itself to the experienced High Court Judge?
[36] The answer may lie in familiarity with and focus upon the general principle of law that an unconditional contract for the sale of real property passes the equitable interest to the purchaser at a point earlier than settlement: Budhia v Wellington City Corporation [1976] 1 NZLR 766 at 768 (SC) per Wild CJ. If in the interim the property is damaged the purchaser carries the loss. As Lord Eldon LC put it in Paine v Meller (1801) 6 Ves Jun 350 at 352; [1801] EngR 400; 31 ER 1088 at 1089 (Ch):
... if the [purchaser] has by the contract become in equity the owner of the premises, they are his to all intents and purposes.
[37] The point is not, however, that losses to real property are at the risk of the vendor. They are at the risk of the owner, who before settlement may be the vendor or may be the purchaser. Who is the owner may be determined by the general law, including the principles of equity, which provide the default rules if the contract has not stated otherwise. The principle was stated by Blackburn J in Martineau v Kitching (1872) LR 7 QB 436 at 454:
As a general rule res perit domino, the old civil law maxim, is a maxim of our law; and when you can show that the property has passed, the risk of the loss prima facie is in the person in whom the property is.
[38] It was further stated by Lord Normand in Comptoir d’Achat et de Vente du Boerenbond Belge S/A v Luis de Ridder Limitada (The Julia) [1949] AC 293 at 319 (HL):
I have also difficulty in attaching any intelligible meaning in this case to the proposition that the marine risk passed though the property did not pass. “The rule res perit domino is generally an unbending rule of law, arising from the very nature of property.” I quote from a judgment Lord President Inglis (then Lord Justice-Clerk) delivered in a case in which he had to consider the civil law (Hansen v Craig and Rose (1859) 21 D 432, 438). ... In the law of England, though these difficulties were avoided, it has been found necessary to provide for the passing of the risk to the buyer before the property passes to him if the parties so agree. It may be conceded that the parties can agree to some purely artificial allocation of the risk and if they express that agreement in suitable language in the contract it must somehow be given effect.
[39] It is true that provision for transfer of risk is sometimes made. The seventh edition of the REINZ/ADLS form of agreement for sale and purchase of real estate states that the property and chattels shall remain at the risk of the vendor until possession is given and taken (cl 4.0). It makes express provision for the contingency that prior to passing of possession the property is destroyed or damaged. Similar provisions are contained in the second edition of the equivalent agreement for sale and purchase of a business (cl 4.0). It may be noted that while these contracts provide as to risk they do not specifically deal with ownership, but leave that to be inferred as a necessary inference of law.
[40] Likewise, in the case of chattels s 22(1) of the Sale of Goods Act 1908 states that, unless otherwise agreed, the goods remain at the seller’s risk until property in them is transferred to the buyer, but when property is transferred to the buyer the goods are at the buyer’s risk whether delivery is made or not.
[41] But it does not follow from the absence of a specific risk clause that the incidence of risk is therefore excluded. Clarity may derive from necessary implication, hence the maxim id certum est quod certum reddi potest: certainty exists if certainty can be arrived at (cf Broom’s Legal Maxims (10ed) at 422). Here the decisive factor is the terms of the agreement and its legal effect.
[42] Clause 8 of the present contract ([7] above) makes specific provision as to the passing of property: that would not occur until settlement. In the absence of legislation or agreement to the contrary, risk accompanies property; and when property passes so does risk. Clause 3 gives general effect to cl 8. As Mr Walker submitted, the contract was an agreement to sell and purchase assets which could only be ascertained at settlement, namely “the assets of the Business on the Settlement Date”. Property, and therefore risk, could not pass until these future assets had been ascertained and purchased, which would only happen at settlement.
[43] The subject matter of the present contract was complex. It included ([6] above) the marina development, still under construction, which may be taken to include real property, resource consents (which by s 122 of the Resource Management Act 1991 are property which is neither real nor personal property), leasehold interests in land, chattels and intellectual property. It was sensible for the drafter of the contract to stipulate by cl 8 that there should be a single date for the passing of property.
[44] There is simply no room for doubt that risk would pass with the transfer of title of the assets at risk. That was the necessary implication of cl 8. As Mr Osborne responsibly acknowledged, no other date for passing of risk is arguable. Nor is it conceivable. Mr Osborne argued that nevertheless the absence of a specific provision infringed the duty of care and resulted in foreseeable litigation.
[45] Once the conclusion in [44] is reached it must follow that there was no breach of duty and thus no liability in negligence. It is true, as is pleaded ([20] above), that the contract did not provide expressly for the transfer of risk. But by providing expressly for transfer of property, on proper analysis the inference was inevitable that it provided concurrently for transfer of risk. While res perit domino may not be immediately intelligible to non-lawyers, its translation “if you own it you lose it” is.
[46] Nor was there negligence by reason of “fail[ure] to advise the plaintiff ... in relation to the transfer of risk” as further pleaded ([20] above). It was no function of Cavell Leitch either to include in the contract, or to explain to Thornton at the time of the contract, that risk passed with property. That is a self-evident matter of law resulting from the common sense of “if you own it you lose it”. When drafting contracts a lawyer’s task is to take due care to ensure that the client’s rights are protected; not to give the client lessons in law.
[47] The contract was unambiguous in its legal effect and properly safeguarded Thornton’s interests. There was no reason for Cavell Leitch to expect that it would be misinterpreted. The negligence claim fails.
[48] So too do the second and third causes of action. Mr Osborne confirmed in oral argument the meaning of the pleading of the second cause of action ([21] above). It is that, when the case went to mediation, Cavell Leitch as Thornton’s solicitors knew that the vendor had no chance of success if its High Court claim proceeded and yet acquiesced in Thornton’s committing itself to payment to the vendor without disclosing the fact of Cavell Leitch’s knowledge.
[49] The argument is not sustained by the evidence. Cavell Leitch had originally been of the opinion that cl 8 dealt with risk as well as property. They said so in their letter of 30 October 2000 ([10] above) to the vendors’ solicitor, no doubt sustained by Mr Davidson’s advice to that effect ([9] above). That had likewise been the vendor’s position for 14 months ([12] above). But following a different challenge by the vendor to the drafting of the contract ([13] above) and requiring Thornton to take independent advice as to possible conflict of interest ([15] above), they were advised by Mr Weston QC of the prospect that risk had passed to Thornton before the storm ([18] above). Their advice to Thornton that they would “tidy it up” did not constitute an undertaking that even if their drafting were sustained as appropriate they would bear the costs of any litigation. It could only have meant that they would accept responsibility if they were negligent.
[50] There can be no question of Cavell Leitch’s withholding information from Thornton. They had been at particular pains to ensure that Thornton was properly advised. They withheld nothing from Thornton, including the apprehension that they were in conflict of interest on which they ensured that Thornton was independently advised. They selected to advise Thornton on the construction of the contract two respected and able Queen’s Counsel. They acted on the advice counsel gave. There was simply nothing of the underhand conduct that may lead equity to intervene to remedy breach of fiduciary duty.
[51] Equally there is no estoppel against Cavell Leitch arising out of the conduct referred to at [50].
Decision
[52] It follows that the appeal is allowed and judgment entered for Cavell Leitch with costs to Cavell Leitch of $6000 and usual disbursements.
Solicitors:
Gilbert Walker, Auckland for Appellant
Lane Neave, Christchurch for
Respondent
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