Cavell Leitch Pringle Boyle v Dominion Finance Group Limited [2009] NZCA 7 (12 February 2009)

Last Updated: 18 February 2009

IN THE COURT OF APPEAL OF NEW ZEALAND

CA287/2008

[2009] NZCA 7

BETWEEN CAVELL LEITCH PRINGLE BOYLE
Appellant

AND DOMINION FINANCE GROUP LIMITED
Respondent

Hearing: 3 February 2009

Court: Glazebrook, Robertson and Arnold JJ

Counsel: M G Ring QC and G N Gallaway for Appellant
A C Sorrell for Respondent

Judgment: 12 February 2009 at 2 pm

JUDGMENT OF THE COURT

A The appeal is allowed.

B The order for summary judgment is vacated.

100. The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Robertson J)

Introduction

[1] In this appeal against the grant of summary judgment in favour of the respondent’s claim against the appellant, four issues were raised. Each concerned an undertaking given by the appellant, a firm of solicitors (“the firm”), to Marac Finance Limited (“Marac”) which the respondent (“Dominion”) claims was assigned to it and that it is therefore entitled to enforce.
[2] The firm acted for Warwick Mews Developments Limited (In Liquidation and Receivership) (“Warwick”). In February 2005, Warwick granted a charge and security to Marac. As part of this arrangement, the firm gave an undertaking that deposits it received from purchasers of units in a development being constructed by Warwick would not be released by the firm to Warwick without Marac’s prior written consent.
[3] It is accepted that there was a breach of this undertaking: the firm released some deposits to Warwick without Marac’s consent. Associate Judge Christiansen was satisfied that Dominion was entitled to summary judgment notwithstanding the firm’s argument that:

(a) the undertaking was a personal promise only enforceable by Marac and not able to be assigned;

(b) Marac had not, in any event, assigned the undertaking to Dominion;
(c) the firm had not received sufficient notice of an assignment; and
(d) Dominion had, in any event, suffered no loss.
[4] In a reserved judgment of 2 May 2008, Associate Judge Christiansen held that Dominion had no available defence, and accordingly entered judgment for $1.16 million together with interest and costs.
[5] This appeal is advanced by the firm on the basis that any one of the challenges made by it to Dominion’s summary judgment application is reasonably arguable, and therefore the matter should go to trial.

The factual circumstances

[6] In early 2005, Warwick entered into a financing transaction with Marac to fund a property development. The firm acted for Warwick as its solicitors. As part of the financing arrangement between Warwick and Marac, Warwick was required to obtain from its solicitors confirmation that they would not release deposits (that would be paid to Warwick by prospective purchasers) without Marac’s written consent. In what the parties agree was an undertaking, the firm, in a letter dated 10 March 2005 addressed to Marac, said:

We confirm that:

...

1. Those deposits which have been noted in the enclosed schedule as paid are held in our trust account pending settlement and, together with any future deposit, will not be released without the prior written consent of Marac Finance Limited. ...

[7] In August 2005, Warwick advised its solicitors that it had sold some units at a reduced price on the basis that the money received would be immediately released to enable the development to be completed. There were sale and purchase agreements, which were not subject to any express contractual conditions, in respect of five units. Monies, described as deposits, were received by the firm and paid out to Warwick between August and November 2005. Marac’s consent was not sought.
[8] In April 2007, the firm received from Marac’s solicitor an email and attached letter which referred to an enclosed deed of assignment of debt and securities involving Marac, Dominion, Warwick and Warwick’s principal, Mr Dougan. The correspondence noted that the documents were being sent to the firm as the solicitors for Warwick and for the purpose of arranging execution. There was no direct reference to the firm’s undertaking in the correspondence or documentation sent by Marac to Warwick, or in any other communication.
[9] The firm sent the documents on to Warwick and, after execution, Warwick returned them directly to Marac. The firm had no other involvement in the transaction, but on 2 May 2007, Marac assigned the loan agreement to Dominion.
[10] Clause 2.1 of the deed of assignment provided:

The assignor agrees to sell and the assignee agrees to purchase the Assigned Property on the Assignment Date for the Purchase Price upon the terms and conditions set out in this deed.

[11] The “Assigned property” was defined as:

Loan Agreement, the Debt, the GSA, the Guarantee, the Mortgage and any other securities held by the Assignor in respect of the Debt.

[12] In July 2007, Warwick was placed into receivership and liquidation. Its development was not completed and the receivers/liquidators cancelled the agreements for the sale of the units. Dominion, and now the individual purchasers, claim an exclusive entitlement to the funds which were paid out to Warwick by the firm from August to November 2005.
[13] We have no doubt that the appeal must be allowed. It is clearly at least arguable both that there was no loss sustained by Dominion as a result of the firm’s breach of its undertaking (or, if there was, it has not been properly quantified) and that the notice given to the firm of the assignment was inadequate. The matter before this Court is only whether Associate Judge Christiansen was correct to grant summary judgment in favour of Dominion, and on these two issues it has not been shown that the firm has no arguable defence.
[14] As the matter will go to trial, we refrain from any discussion of the other aspects that were raised, and with which Associate Judge Christiansen engaged. This is an area in which there is scant authority and it would be unhelpful for us to comment without full argument.

The alleged loss by Dominion

[15] The case is distinguished by the sparse evidence produced, by both sides. In support of Dominion’s application, its Commercial Lending Manager exhibited a variety of documents in a first affidavit, among which were the General Security Deed between Marac and Warwick and the Deed of Assignment. In a second affidavit, Dominion’s Lending Manager asserted his belief that Cavell Leitch had been aware of the assignment to Dominion, and annexed to the affidavit copies of the agreements for sale and purchase for the properties for which deposits had been released and copies of cheque authorisations issued by the firm for the deposit sums.
[16] The Associate Judge was satisfied that the undertaking given by the firm to Marac was capable of assignment and that it had in fact been assigned to Dominion. He found that the firm had received notice of the assignment and that Dominion (as a secured lender) had priority, once Warwick went into receivership and liquidation, over the purchasers who had forfeited deposits. He was satisfied that the total value of the deposits paid out in breach of undertaking was a loss suffered by Dominion, and accepted (without assessment) that Dominion had supplied to the firm evidence of that loss.
[17] The Commercial Lending Manager for Marac said that it had not authorised release of the deposits, but provided no other evidence. The evidence offered by the firm is similarly economical.
[18] Dominion’s position in the High Court was that the firm had breached its undertaking, and therefore that compensation for the losses consequently sustained by Dominion was the appropriate remedy for the Court to apply, in its supervisory and disciplinary oversight of solicitors’ undertakings. Before us, Mr Sorrell suggested that Dominion may also have a claim against the firm in contract, but conceded that it was (at least) arguable that such a claim would not be sustainable.
[19] We are not satisfied that the correct response to the firm’s breach of its undertaking is to order it to pay out in full the party that has taken over the financing obligations of the original beneficiary of the undertaking, as was submitted by Dominion and accepted by the Associate Judge.
[20] Although any breach of a solicitor’s undertaking is serious, it is at least arguable that the amount ordered to be paid must bear some relationship to any actual loss suffered.
[21] As we have noted, the funds were released between August and November 2005, without Marac’s consent. The assignment to Dominion took place in May 2007. There has been no evidence as to how Marac would have reacted during the period August to November 2005 if there had been a request for consent to the release of funds to Warwick for development of the project to continue. It is clearly at least arguable that the manner in which Marac would have reacted to such a request is relevant to Dominion’s alleged loss. Counter-factually, Marac may have consented to the release of the deposits, perhaps subject to conditions or requirements as to how Warwick were to use the money. It is asserted by the firm that Marac may have given its consent to release of the deposits because further capitalisation by Warwick of the property development would have increased the value of Marac’s security. That contention is denied by Dominion, but since it is at least arguable it cannot be disposed of at a summary judgment stage. Neither is it clear whether Marac knew that the deposits had been released in breach of undertaking. If it did, then it is arguable that it acquiesced in their release, by making no complaint for some 18 months.
[22] We accept Mr Ring QC’s argument that Dominion’s new approach that they were denied the opportunity to take steps to assess, restructure, protect or exercise their securities is unhelpful as the funds were released by the firm between August and November 2005 and the assignment from Marac to Dominion did not take place until May 2007. Further, even if Dominion did suffer some loss, the evidence as it stands does not establish that it is the $1.16 million accepted by the Associate Judge. As Mr Ring submitted, the breach may actually have had the effect of significantly enhancing the value of the security. In any event, in a case like this more is needed by way of proof of loss than a statement showing that what is due on Warwick’s loan account exceeds the sum sought to be recovered. All this needs to be explored more fully.
[23] On the pleadings and the minimal evidence presented, summary judgment is inappropriate. Issues pertaining to Dominion’s loss were not addressed by the Associate Judge.

The nature of the notice which was given

[24] If the firm’s undertaking was part of the bundle of rights and interests assigned to Dominion (a contention on which we make no comment), the firm was entitled to proper notice of the undertaking’s assignment. Section 130(1) of the Property Law Act 1952 provided, in respect of the assignment of things in action:

130. Assignment of debts and things in action
     

(1) Any absolute assignment... of any debt or other legal or equitable thing in action, of which express notice in writing has been given to the... person from whom the assignor would have been entitled to receive or claim that... thing in action, shall be and be deemed to have been effectual in law... to pass and transfer the legal or equitable right to that debt or thing in action from the date of the notice, and all legal or equitable and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor.

[25] In the absence of direct notice to the firm (which, it is accepted, was not given), it is arguable that the assignment of the undertaking, even if valid as between Marac and Dominion, was not binding on the firm (see Mainzeal Property and Construction Ltd v Beale HC AK AP 60-SW01 24 September 2001 at [7], [8] and [22]). Further, even if something less than express notice was sufficient for the assignment to be effective as against the firm, it is not necessarily the case that, because the firm was used as a conduit to get documents to Warwick, it was deemed or presumed to have received notice of the assignment.
[26] The fact that the firm was put on notice when demand was made upon it after liquidation is, again, a debatable proposition. Mr Sorrell argued that Dominion’s letter of demand dated 22 August 2007 (after Warwick had been placed in liquidation) was a sufficient notice. While that is arguable, it is not self-evident.

Conclusion

[27] We are satisfied that in this case there must be a full trial of all outstanding issues. In respect of those matters upon which we have not directly commented, it should not be assumed either that we accept the findings of the Associate Judge or that we disagree with them. They are matters which do not require attention in this case and upon which we have specifically refrained from making any comment.

Result

[28] The appeal is allowed. The order for summary judgment is vacated. The matter should proceed to trial in the normal manner.
[29] The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Duncan Cotterill, Christchurch, for Appellant
Jones Young, Auckland, for Respondent