Amende v Kennedy

[2017] NZHC 1593

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2017-404-396 [2017] NZHC 1593

BETWEEN

DAVID REINHARD AMENDE AND

RONDA LOUIS AMENDE Applicants

AND

SHARYN KENNEDY, DANIEL MARK KENNEDY AND CAMERON JAMES KENNEDY

Respondents

Hearing:	On the papers
Counsel:	H Fulton for Applicants
Judgment:	11 July 2017

JUDGMENT OF WHATA J

This judgment was delivered by me on 11 July 2017 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors            R S Wood, Auckland

AMENDE  v KENNEDY [2017] NZHC 1593 [11 July 2017]

[1]      I have an application for the following orders:

(a)       Releasing and discharging the undertaking given by Bradley Reuben

James Botting, of Auckland, a barrister and solicitor, on 21 February

2012, in favour of Sharyn Kennedy, Daniel Kennedy and Cameron

Kennedy (the respondents).

(b)Authorising payment of the funds, the subject of the undertaking, to the applicants on terms requiring the funds to be applied:

(i)For the purpose of obtaining from Auckland Council a code compliance certificate for the property at 21 Woodlands Crescent, Browns Bay, Auckland in respect of renovation work completed in June 2006.

(ii)For the costs of and incidental to this proceeding incurred by the applicants and Mr Botting.

(iii)In respect of any balance then remaining to pay the same to the applicants absolutely.

[2]      I have an affidavit of service in respect of this application, confirming that the respondents were served in the manner required by an order for substituted service.

The issues

[3]      There are two key issues in this matter, namely:

(a)     whether Mr Botting may be released from his undertaking, in circumstances where the persons taking the benefit of the undertaking have   not   performed   the   condition   necessary   to   enforce   the undertaking; and

(b)whether the discharge of the undertaking means that the cash sum subject to it reverts to the applicants.

Evidence

[4]      I  have  two  affidavits  in  support  of  the  application,  of  Mr  Botting,  the applicants’ solicitor, and David Reinhard Amende, one of the applicants.   Those affidavits, in short, attest to the background facts underlying the claim.

Background

[5]      The affidavits summarise the key background as follows.  The applicants and respondents are parties to an agreement for sale and purchase dated 9 February 2014 (the agreement). The applicants agreed to purchase the property owned by the respondents at 21 Woodlands Crescent, Browns Bay, Auckland.

[6]      Clause 6.2 of the agreement provides:

6.2      The vendor warrants and undertakes that at settlement:

…

(5)      Where the vendor has done or caused or permitted to be done on the property any works:

…

(c)      where appropriate, a code compliance certificate was issued for those works.

[7]      The respondents had completed renovation works in June 2006 in respect of which no local body code compliance certificate had been issued. As such, cl 18 of the agreement provides:

The vendor agrees to a retention of $50,000, being part of the purchase price, to be held by the purchasers’ solicitor until a code compliance certificate is issued in respect of the renovation work completed in June 2006.

[8]      By fax dated 21 February 2014 the respondents also agreed to the retention of a further $500.00, to be retained until further repairs on the property were completed.

[9]      For the purposes of settlement of the agreement, and to give effect to these arrangements, the applicants’ solicitor, Mr Botting, gave an undertaking to hold:

(a)      $50,000 on interest bearing deposit in his firm’s trust account and pay the  sum  plus  net  interest  to  the  vendors  on  receipt  of  a  code compliance certificate for the 2006 renovation works; and

(b)$500   in   the   firm’s   trust   account   pending   completion   by   the respondents of other repair works, following which the sum would be paid with deduction.

[10]     In breach of the agreement, the respondents have to date failed to carry out the works or obtain a code compliance certificate. By reason of the respondents’ breach, the applicants cancelled the agreement by letter dated 18 December 2015.

[11]     The funds continue to be retained by Mr Botting.

Procedural background

[12]     This matter came before Associate Judge Christiansen on the issue of service on 17 March 2017.  The Judge made orders for substituted service as sought by the applicants, in effect requiring that service of the application be made on the respondents’ solicitors.

[13]     There was then a further direction by Davison J at the first call of this matter on 4 May 2017 who, having reviewed the evidence and the unopposed nature of the situation, considered that the matter could be dealt with on the papers.  It was then adjourned for two weeks, and has now come before me.

Assessment

Is the undertaking discharged?

[14]     On the evidence before me, the vendors have not performed their part of the bargain in order to enable the undertaking by Mr Botting to be discharged in their favour.  It is not at all clear they have any intention of doing so, particularly given their failure to participate in these proceedings. In these circumstances, Mr Botting cannot be left in the invidious position of maintaining the undertaking ad infinitum. It is well established that this Court has inherent jurisdiction over law practitioners to

enforce undertakings.1    I am therefore prepared to discharge Mr Botting from the undertaking.  The remaining issue is whether the discharge means that Mr Botting may pay the sums subject to the undertaking to the applicants.

Whether the payment of the undertaking sums may be made to the applicants

[15]     This issue has some complexity to it.   On its face, the undertaking, once discharged, means that the sums are released to the vendors.  This accords with the basic tenor of the sale and purchase agreement, namely, that the purchase price shall be paid to the vendors on the completion of all relevant conditions of sale. A similar

issue arose in Singh v New Zealand Home Bonds Ltd.2   In that case, a solicitor acting

for one party to a sale and purchase agreement undertook to hold a sum of money for the sole benefit of the respondent, New Zealand Home Bonds Limited (NZHBL). NZHBL requested payment and Mr Singh, the solicitor, refused.   Mr Singh had argued that the undertaking was premised on settlement of the agreement or default by the vendor or purchaser, and that the preconditions to payment had not been met, such that his undertaking was not engaged.  NZHBL sought summary judgment and Mr Singh counterclaimed seeking release from his undertaking, to the effect that the benefit of the undertaking, namely the cash held, should go to the party ultimately entitled to it.

[16]     The Court observed:3

The terms of the contract as a whole make it clear that dealings and disputes between  the  vendor  and  the  purchasers  are  not  relevant  to  the  issue  of whether or not NZHBL was right to pay out the $73,000 and whether Mr Singh in turn was obliged to pay the sum to NZBHL.  Either upon settlement of the agreement or upon valid service by the vendor of, and non-compliance by the purchasers with, a demand for settlement, NZHBL was entitled to demand the $73,000 from Mr Singh.

[17]     The Court also noted that even if Mr Singh was obliged to pay out the undertaking, the purchasers could still pursue NZHBL for paying the liquidator in

breach of contract (which triggered its claim).

1      Udall v Capri Lighting Ltd [1988] 1 QB 907 (CA).

2      Singh v New Zealand Home Bonds Ltd [2009] NZCA 103, (2009) 10 NZCPR 47.

3 At [41].

[18]     The Court of Appeal, however, did not directly address the issue that arises here: where the conditions for payment have not been satisfied.  However, Associate Judge Christiansen in the High Court did observe, in relation to this issue:4

[36]      In this case, it is plain that the undertaking was that the funds would be held on behalf of the plaintiff.   That is what it says.   But for the undertaking, clearly, the money would have been paid to the developer as a deposit.

[19]     I consider that to be the starting point in the present case.  The respondents, not the applicants, are prima facie entitled to the sums held by Mr Botting, they forming part of the purchase price payable to the respondents.

[20]     But to make an order requiring Mr Bottling to pay the undertaking sum without regard to the respondents’ failure to obtain the code compliance certificate and complete the other repair work would in effect reward them for their breach of an obligation to secure the certificate and complete the work. In short they would gain from their own wrongdoing, which is not something this Court is inclined to endorse.

[21]     It may be that a term could be implied to the agreement to the effect that the sum subject to the undertaking reverts to the applicants, particularly in circumstances where the respondents have effectively abandoned responsibility for the works necessary to complete the undertaking.5 As a minimum the applicants have a claim for breach of contract given the failure by the vendors to obtain a code compliance certificate. I am fortified in that view given they have taken no steps in this proceeding.

[22]     On that basis, I propose to make the following orders: (a)      Mr Botting is discharged from his undertaking.

(b)      The undertaking sum is to be paid into Court, to be held on interest-

bearing account pending the following steps:

4      New Zealand Home Bonds Ltd v Singh HC Christchurch CIV-2008-409-584, 4 September 2008, at [36].

5      Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48.

(i)A copy of my judgment is to be served on Young & Caulfield, solicitors for the respondents, in accordance with Associate Judge Christiansen’s earlier orders for substituted service.

(ii)The respondents shall be given ten working days within which to give notice of an interest in these sums.

(iii)If   the   respondents   do   not   indicate   an   interest   in   the proceedings, there shall be leave reserved to the applicants in this matter to seek judgment for damages to remedy the breach and to seek to enforce any judgment sum against the amount paid into Court.

[23]     I should indicate, for the benefit of the respondents in this case, that given their default in participation of these proceedings, it is most unlikely that any claim they may have in relation to the sums will be successful.  They plainly defaulted on their part of the bargain, at least on the facts available to me.  A costs order can also be expected.

Orders

[24]     There shall be orders as per [22], with leave granted to the applicants to seek further or amended orders if necessary.

Costs

[25]     Any submissions as to costs by the applicants are to be filed within ten working days.