Carson v Lee
[2023] NZHC 323
•28 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-311
[2023] NZHC 323
UNDER the Property Law Act 2007, ss 339 and 343 BETWEEN
NICHOLAS FREDERICK CARSON and THE BLOMFIELD TRUSTEE COMPANY 616 LIMITED
Plaintiffs
AND
MATTHEW JOHN LEE and JOANNE LESLEY IRVING COMRIE
First Defendants
FARRY LAW LIMITED
Second Defendant
Hearing: 10 October 2022 Counsel:
N Tabb for the Plaintiff
RJ Hollyman KC, W Revell and V Hansen for the First Defendants
Judgment:
28 February 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 28 February 2023 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Farry Law, Auckland
N Tabb, Barrister, Auckland RJ Hollyman KC, Auckland
CARSON v LEE & ORS [2023] NZHC 323
Introduction
[1] The first defendants have applied for orders striking out the second defendant, Farry Law Limited, as a party to these proceedings.
[2] The first defendants are the trustees of a trust settled by Ms Jodi Irving and the plaintiffs are the trustees of a trust settled by her former de facto partner, Mr Phil Whiting. The two trusts owned a property together that has since been sold following Ms Irving’s and Mr Whiting’s separation. There is a dispute between the parties as to who is entitled to the proceeds of that sale resulting in this proceeding.
[3] To allow settlement of the sale to take place in advance of the dispute being resolved, it was agreed that Farry Law Limited, the solicitors for Ms Irving’s trust, would hold the proceeds of sale subject to undertakings including not to pay out the proceeds except in accordance with:
(a)a joint written instruction of the parties; or
(b)an order of the court.
[4]The defendants submit:
(a)Farry Law holds the funds by agreement between the parties and subject to undertakings;
(b)there is nothing unusual or remarkable about that;
(c)there can be no suggestion that Farry Law would not comply with the undertakings which it has given which require it to comply with the orders of the Court;
(d)Farry Law should never have been joined as a party and should be struck out.
[5] The defendants say that while the Court does not necessarily have to determine the point, the evidence provides a clear basis for the inference that Farry Law may have been named as a party to prevent them from acting for the first defendant.
[6] The defendants further submit that, from a practical perspective, remaining as a named party is problematic as it causes issues in relation to insurance cover.
Issue
[7] The issue for determination is whether Farry Law ought to be struck out as a party.
Relevant facts
[8] Mr Phil Whiting and Ms Jodi Irving were in a de facto relationship. Mr Whiting is the settlor of the Gingers Trust (GT), the trustees being the plaintiffs in this proceeding. Ms Irving is the settlor of the Big Dog Trust (BDT) with the trustees, the first defendants.
[9] During the relationship, BDT and GT acquired the property at 71 Clarence Street, Ponsonby (the Property).
[10] When the relationship between Ms Irving and Mr Whiting ended, BDT and GT agreed to list the Property for sale. Prior to the Property being listed, it became clear that there was a dispute as to the respective shares the two trusts would ultimately receive from the proceeds.
[11] BDT claims that it should receive all the proceeds of sale, based on contributions and, in addition, that money is owed by GT. GT claims that it is entitled to some portion of the proceeds and has now brought this claim asking the Court to assess its entitlement.
[12] To enable the sale to be completed, the parties discussed arrangements for holding the proceeds of sale secure, pending resolution of the substantive dispute. Following considerable correspondence, it was agreed that Farry Law would hold the proceeds on trust, subject to undertakings, pending resolution of the substantive dispute.
[13]The undertakings are comprehensive and relevantly include:
We hereby irrevocably undertake to hold the net proceeds of sale from settlement of 71 Clarence Street, Ponsonby (being $1,888,183.22) (the Retention) in Farry Law's trust account upon the following terms as stakeholder for:
(a)the current trustees of The Big Dog Trust, being Joanne Lesley Irving and Matthew John Lee; and
(b)the current trustees of The Gingers Trust, being Nicholas Frederick Carson and The Blomfield Trustee Company 616 Limited;
(together referred to as "the Trusts")
We further undertake:
…
2. We shall not disburse, deduct from or otherwise deal with such monies until the earlier of the following occurs (and then only in accordance with the following process):
(a)we receive a joint written instruction from Joanne Lesley Irving And Matthew John Lee and the Nicholas Frederick Carson and The Blomfield Trustee Company 616 Limited as to application of the Retention (or part thereof), and where received shall promptly comply with such joint instruction as to payment;
(b)
…
(i)An Order from a Court of Competent Jurisdiction is issued to the Trusts directing the specific release of the funds either in part or in whole to one or both of the parties in accordance with an allocation referenced in the Order; AND
(ii)Such Order has not been appealed and the period for filing an appeal in connection with the Order has expired, such that there is no further right of challenge to the Order as received, we shall promptly following the trigger events (b)(i) and (ii) make payment in accordance with the Order
Yours faithfully
Farry Law Limited
[signed by Paul Farry, Director]
Strike out of parties
[14]Rule 4.56 of the High Court Rules 2016 provides that:
4.56Striking out and adding parties
(1)A Judge may, at any stage of a proceeding, order that—
(a) the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b) the name of a person be added as a plaintiff or defendant because—
(i)the person ought to have been joined; or
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2)An order does not require an application and may be made on terms the court considers just.
(3)Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[15] As the authors of McGechan on Procedure note, the object of the Rules is to provide for the inclusion of necessary parties, rather than judgment being obtained in the absence of necessary parties.1 The Court must be able to perform complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit. The reasoning for this approach was explained in McKendrick Glass Manufacturing Company Ltd v Wilkinson, where Richmond J held:2
It is the constant aim of a Court of equity to do complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit, to make the performance of the order of the Court perfectly safe to those who are compelled to obey it, and to prevent future litigation. For this purpose all persons materially interested in the subject ought generally to be parties to the suit, plaintiffs or defendants, however numerous they may be, so that the Court may be enabled to do complete justice by deciding upon and settling the rights of all persons interested, and that the orders of the Court may be safely executed by those who are compelled to obey them, and future litigations may be prevented.
[16] Richmond J held that the approach to be adopted by the court in applications to strike out parties is identical to that in applications to strike out for no cause of action: the court must proceed on the basis that the pleadings are assumed to be capable of proof. 3
[17] In Business Associates Ltd v Telecom Corp of NZ Ltd Master Williams held that the jurisdiction to strike out parties should be exercised consistently with the rules for joinder, holding that if a party could be properly joined pursuant to those rules a
1 Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at HR4.56.04.
2 McKendrick Glass Manufacturing Company Ltd v Wilkinson [1965] NZLR 717 at 723.
3 At 718.
person cannot be said to have been “improperly joined” for the purposes of r 4.56.4 Associate Judge Osborne (as his Honour then was) held similarly in Smith v Noble Investments Ltd.5 I therefore consider the rules relating to parties.
[18]Rule 4.1 provides:
4.1 Limit on parties
The number of persons named or joined as parties to a proceeding must be limited, as far as practicable, to—
(a)persons whose presence before the court is necessary to justly determine the issues arising; and
(b)persons who ought to be bound by any judgment given.
[19] Rule 4.2 deals with plaintiffs and so is not relevant here. Rule 4.3 provides for defendants as follows:
4.3 Defendants
(1)Persons may be joined jointly, individually, or in the alternative as defendants against whom it is alleged there is a right to relief in respect of, or arising out of, the same transaction, matter, event, instrument, document, series of documents, enactment, or bylaw.
(2)It is not necessary for every defendant to be interested in all relief claimed or every cause of action.
(3)The court may make an order preventing a defendant from being embarrassed or put to expense by being required to attend part of a proceeding in which the defendant has no interest.
…
[20] In addition, these rules must be interpreted by reference to the overarching objective of the Rules: to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application.6
[21] On this basis, to determine whether Farry Law ought to be struck out, it is useful to examine the two-stage inquiry that applies on joinder. This will establish whether they would have been ordered to be joined if they had not been in the first place. The two-stage inquiry for joinder asks:
(a)first, is there jurisdiction to join the proposed party; and
4 Business Associates Ltd v Telecom Corporation of NZ Ltd (1990) 2 PRNZ 317 at 320.
5 Smith v Noble Investments Ltd [2017] NZHC 477 at [26].
6 High Court Rules 2016, r 1.2.
(b)secondly, if there is jurisdiction, should the Court exercise its discretion to order joinder.
[22] In considering the first stage, it is useful to go back to the words of Richmond J in McKendrick Glass referred to at [15] of this judgment: that “all persons materially interested” ought generally to be parties “so that the Court may be enabled to do complete justice by deciding upon and settling the rights of all persons interested, and that the orders of the Court may be safely executed by those who are compelled to obey them, and future litigations may be prevented.”
[23] I consider the details of the pleading against Farry Law to determine whether Farry Law can be described as “materially interested” or necessary so “the orders of the court can be safely executed.”
What is pleaded against the second defendant?
[24] The statement of claim describes Farry Law as the second defendant. Paragraph 15 then pleads:
15.The second defendant acted for the plaintiffs and first defendants on the sale of the Property. This was against the wishes of the plaintiffs who requested an independent solicitor act on the sale.
[25] The next reference to Farry Law is in the prayer for relief to the second cause of action which is brought against both the first and second defendants. The relief sought against the second defendant is:
B.An order requiring the second defendant to pay the plaintiffs’ and first defendants’ respective share of the net proceeds of sale to each of them as that party directs.
[26]The fourth cause of action is solely against Farry Law and pleads:
31.The plaintiffs repeat paragraphs 1 to 25 above and further say that the plaintiffs requested an independent third party solicitor act on the sale of the property including receiving and holding the sale proceeds. The first defendants would not agree to instruct an independent third party solicitor and insisted on instructing the second defendant.
32.The second defendant is not independent because it acts for Joanne Leslie Irving Comrie in relationship property matters against Philip Edward Whiting.
33.On 24 November 2021 the second defendant received the proceeds of sale of the property as stakeholder.
34.The terms on which the second defendant agreed to receive and hold the proceeds of sale were set out in an exchange of emails and were confirmed in a letter from the second defendant to Construct Legal dated 24 November 2021.
35.The plaintiffs seek orders directing the second defendant to distribute the funds held as a stakeholder as the Court considers just.
[27] Again, the relief sought in the fourth cause of action is “[a]n order requiring the second defendant to pay the plaintiffs’ and first defendants’ respective share of the net proceeds of sale to each of them as that party directs.”
[28] From the pleadings, it is clear Farry Law could not be said to be “materially interested” in the proceedings as no claim is made for relief other than an order for Farry Law to act in accordance with the order of the court to pay the parties’ respective shares to them.
[29] As set out at [13], the second defendant has already undertaken to pay the sale proceeds that it currently holds on trust in accordance with the order of the court following the expiry of the appeal period, or if appealed, in accordance with that order. The relief sought against the second defendant is therefore essentially what the second defendant has already undertaken to do.
[30] Counsel for the plaintiffs submits that the order sought is different because it seeks an order that the second defendant pay out the money to the parties “as that party directs”.
[31] However, the second defendant will not be able to pay out the money except in accordance with directions of the parties as far as necessary bank accounts and so forth, so I do not anticipate this adding anything to what Farry Law has already undertaken to do. Counsel suggested the plaintiffs may wish third parties to be paid first and then the proceeds divided following that. If there are terms that the plaintiffs wish to include then that ought to be the subject of the court order. The plaintiffs will be free to make submissions in the proceeding on the exact terms of that order, but these are not matters that require the second defendants’ involvement. Farry Law has undertaken to pay out the proceeds in accordance with the court’s orders. The orders
made will depend on the rights of the plaintiffs and the first defendants and do not involve Farry Law.
[32] The plaintiffs further submit that there does not need to be a pleaded claim against a party, relying on Newhaven Waldorf Management v Allen.7 I accept this but in terms of r 4.1 and the overriding objective of the High Court Rules, the parties are still required to be limited to those who are “necessary to justly determine the issues arising” or “who ought to be bound by any judgment given”. This aspect of the jurisdictional threshold is usefully addressed by asking whether “the orders of the Court will be able to be safely executed by those compelled to obey them”8 (as Richmond J put it in McKendrick Glass) in the absence of Farry Law being named as a party.
Will the orders of the Court be able to be safely executed in the absence of Farry Law being named as a party?
[33] The Court can enforce a solicitor’s undertaking pursuant to its inherent supervisory jurisdiction in the absence of the solicitor being a party to the proceeding.
[34] In Harcus Sinclair LLP v Your Lawyers Ltd the UK Supreme Court examined in some detail the position as regards solicitor’s undertakings and the courts.9 The case concerned an undertaking not to accept instructions from potential claimants in a group action without another firm’s express permission. The UK Supreme Court held that the undertaking was not a solicitor’s undertaking as it was an undertaking given on a business rather than professional matter. However, the Supreme Court still set out its views on the enforceability of solicitors’ undertakings as it had heard full argument and because of the “general public importance” of the issue.10
[35]The Supreme Court described the Court’s supervisory jurisdiction as follows:
[94]The court’s supervisory jurisdiction to enforce solicitors’ undertakings is an aspect of its inherent jurisdiction over solicitors as officers of the court. This inherent jurisdiction has its origins in medieval times.
…
7 Newhaven Waldorf Management v Allen [2015] NZCA 204 at [46].
8 McKendrick Glass Manufacturing Company Ltd v Wilkinson, above n 2, at 723.
9 Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32.
10 At [124] – [125].
[98]The inherent supervisory jurisdiction in respect of solicitors has been preserved in successor statutes: see s 25 of the Supreme Court of Judicature (Consolidation) Act 1925, and s 50 of the Solicitors Act 1974. […]
[99]Although the Solicitors Disciplinary Tribunal established under the Solicitors Act 1974 is now the primary forum for the consideration of allegations of solicitor misconduct, the court’s inherent supervisory jurisdiction continues to play an important role in relation to solicitors’ undertakings due, in particular, to the court’s powers of summary enforcement. The court’s jurisdiction may be invoked on an application to the court and without the need to commence a separate action. Whilst the court has a discretion as to the procedure to be adopted, it has often been exercised without pleadings, disclosure or oral evidence – see Geoffrey Silver & Drake v Baines [1971] 1 QB 396 at 402F per Lord Denning MR; John Fox v Bannister King & Rigbeys [1988] QB 925 per Lord Donaldson MR at 931F-H; and, more generally in relation to the summary jurisdiction, the judgment of Balcombe LJ in Udall v Capri Lighting Ltd [1988] QB 907, pp 916H-918D.
[100]As explained by Nicholls LJ in the Fox case a p 928B-C the inherent jurisdiction “is exercised, not for the purpose of enforcing legal rights, but for the purpose of enforcing honourable conduct on the part of the court’s own officers”. As stated by Hamilton J in United Mining and Finance Corpn Ltd v Becher [1910] 2 KB 296, p 305:
“The conduct which is required of solicitors is to this extent perhaps raised to a higher standard than the conduct required of ordinary men, in that it is subject to the special control which a Court exercises over officers so that in certain cases they may be called upon summarily to perform their undertakings, even where the contention that they are not liable to perform them is entirely free from any taint of moral misconduct”.
[101]Solicitors are expected to abide by solicitors’ undertakings and may be called upon to do so summarily if they do not do so – see the Fox case at p 928C per Nichollas LJ. Failure to implement a solicitor’s undertaking is prima facie to be regarded as misconduct on the solicitor’s part – see the Udall case at p 917F per Balcombe LJ.
[36] It is not in dispute that this supervisory jurisdiction and associated power to enforce solicitors’ undertakings also applies in New Zealand. The principles are well settled and summarised by Fisher J in Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners.11
11 Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners [1990] 2 NZLR 167 at 171.
[37] In Dominion Finance Group Ltd (in rec and in liq) v Dyson Smythe & Gladwell Associate Judge Doogue summarily enforced an undertaking where the solicitor undertook to hold proceeds in relation to matrimonial property and maintenance “until an order [was] made by the Court”.12 Discussing the Court’s summary enforcement of such promises (the defendant in that case taking issue with summary enforcement on the basis that it wished to join third parties to the proceeding), Associate Judge Doogue held:13
To permit that course to be taken would cause considerable delay in disposing of the present application. It is a proposal that is at variance with the desirability of solicitors’ undertakings being enforceable by means of summary processes: see for example Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners. The Courts proceed summarily in order to maintain confidence in solicitors’ undertakings and the central part that they play in commercial affairs. Prompt action to enforce them must be forthcoming when needed.
[38] In addition, in Westpac New Zealand Ltd v Neumegen & Co, Associate Judge Sargisson noted the comments of Lord Esher MR in Re Grey that:14
… the Court has a punitive and disciplinary jurisdiction over solicitors, as being officers of the Court, which is exercised, not for the purpose of enforcing legal rights, but for the purpose of enforcing honourable conduct on the part of the Crown's own officers. That power of the Court is quite distinct from any legal rights or remedies of the parties, and cannot, therefore, be affected by anything which affects the strict legal rights of the parties.
[39] The legislative context in New Zealand includes s 4 of the Lawyers and Conveyancers Act 2008 which provides that lawyers have an overriding duty as officers of the High Court. In addition, s 107 of that Act makes the practice rules binding on all lawyers and former lawyers, whether or not they are members of the New Zealand Law Society (NZLS), and on all incorporated and former incorporated law firms. The practice rules are set out in the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. Rule 3 requires every lawyer to comply with the Rules of Conduct and Client Care set out in the Schedule.
12 Dominion Finance Group Ltd (in rec and in liq) v Dyson Smythe & Gladwell (2010) 11 NZCPR 703 at [24], citing Re C (a solicitor) [1982] 1 NZLR 137 (HC) at 138–139.
13 At [49].
14 Re Grey [1892] 2 QB 440 at 443; as cited in Westpac New Zealand Ltd v Neumegen & Co [2009] BCL 145 at [22].
[40]The Schedule expressly provides for undertakings in r 10.5 as follows:
10.5A lawyer must honour all undertakings, whether written or oral, that the lawyer gives to any person in the course of practice.
10.5.1 This rule applies whether the undertaking is given by the lawyer personally or by any other member of the lawyer’s law practice. This rule applies unless the lawyer giving the undertaking makes it clear that the undertaking is given on behalf of a client and that the lawyer is not personally responsible for its performance.
10.5.2 A lawyer who receives funds on terms requiring the lawyer to hold the funds in a trust account as a stakeholder must adhere strictly to those terms and disburse the funds only in accordance with them.
[41] In addition to the court having an inherent supervisory jurisdiction to enforce solicitor’s undertakings, a failure to act in accordance with an undertaking would be misconduct or unsatisfactory conduct as defined in the Lawyers and Conveyancers Act 2006 and would attract censure in that way as well.15
Should Farry Law be struck out as a party based on the current pleadings?
[42] As at [28], from the pleadings, Farry Law cannot be described as a party “materially interested” in the proceedings. In addition, from the above statutory scheme and inherent supervisory jurisdiction, it does not appear that Farry Law is necessary for “deciding upon and settling the rights of all persons interested, [so] that the orders of the Court may be safely executed by those who are compelled to obey them.”
[43] The undertaking here was given by Farry Law Limited, with Mr Paul Farry signing as Director. In Harcus Sinclair LLP v Your Lawyers Ltd the UK Supreme Court discussed whether the court’s inherent supervisory jurisdiction could apply in respect of an incorporated body. The Supreme Court reluctantly did not decide the point partly because its comments would be obiter dicta as the undertaking in question was not a solicitor’s undertaking but also because it was such an important point and they had not heard from the UK Law Society or other relevant regulatory bodies. The Court considered that potentially the inherent supervisory jurisdiction would extend to incorporated bodies (in that case a limited liability partnership) but that difficulties
15 See definition of “misconduct” in s 7 and “unsatisfactory conduct” in s 12 of the Lawyers and Conveyancers Act 2006.
arose in relation to enforcing that jurisdiction in respect of the individual lawyer concerned as the undertaking was not given by the lawyer in his personal capacity but only on behalf of Harcus Sinclair.
[44] There is no mention of an equivalent rule to New Zealand’s practice rule in relation to undertakings, r 10.5, which says all lawyers in a law practice must honour undertakings unless the lawyer giving the undertaking makes it clear that the undertaking is given on behalf of a client and that the lawyer is not personally responsible for its performance. The equivalent practice rule in the UK appears to simply state:16
You perform all undertakings given by you, and do so within an agreed timescale or if no timescale has been agreed then within a reasonable amount of time.
[45] In my view the inherent supervisory jurisdiction would extend to Farry Law because, as an incorporated law firm, Farry Law is required to comply with the practice rules and because of the vital importance of lawyers complying with undertakings. As it states in “Professional Responsibility in New Zealand”:17
A lawyer cannot be compelled to give an undertaking, not even by the courts. But if one is given then it is regarded as being of vital importance to the profession, and to society as a whole, that anyone who receives a lawyer’s undertaking can rely on its being scrupulously adhered to. Any failure to do so is not only a disciplinary matter, but is also something that can be raised directly with the courts. Indeed, as is explored below, lawyers are expected to be reliable in all things that they say in their professional capacity, not just undertakings.
This rule lies at the heart of the profession. The reputation of each lawyer, and consequently the profession as a whole, requires others to view him or her as dependable. It is by being dependable that lawyers are able to facilitate the smooth operation of justice and commerce. A significant feature of the worth of a lawyer is that other people know that having received a promise from a lawyer they can rely on it absolutely.
[46] In that case, there is no need for Farry Law to remain a party for the purposes of obtaining the relief currently sought or so the orders made can be safely executed.
16 Solicitors Regulation Authority “SRA Code of Conduct for Solicitors, RELs and RFLs” (30 May 2018) Solicitors Regulation Authority.
17 M Palmer (ed) Professional Responsibility in New Zealand (LexisNexis NZ Limited, 2020) at [15.4].
[47] Therefore, in terms of the first stage of the joinder inquiry, I consider that it is unlikely there would have been jurisdiction to join Farry Law if they had not been named as a party at the outset.
[48] At the second stage, even if there is jurisdiction, I consider that it would not have been appropriate for the Court to exercise its discretion to order joinder if Farry Law had not already been named. Their inclusion as a party adds very little except preventing (or at least making it difficult) for Farry Law to represent the first defendants. This denies the first defendants their choice of legal representative and is likely to increase costs and cause delays for the first defendants. This would be inconsistent with the overriding objective of the High Court Rules to secure just, speedy and inexpensive determinations.
[49] In addition, it would undermine the value of solicitors’ undertakings to pay out money in accordance with any order made by the court if those solicitors were required to be joined to the proceeding to ensure that this occurred. In Harcus Sinclair LLP v Your Lawyers Ltd the UK Supreme Court referred to:18
… the significant structural role played by solicitors’ undertakings in the smooth and efficient transaction of legal business by legal services providers, both in connection with litigation before the courts and in purely transactional matters such as conveyancing.
[50]The Supreme Court went on to explain:19
There can be no doubt that the underpinning of those undertakings by the availability of rapid summary enforcement under the court’s supervisory jurisdiction has been a significant buttress for their reliability, and for the propriety of accepting them as part of the every- day machinery for modern conveyancing. This is not because there is a history of frequent non-compliance followed by court enforcement. Rather, the mere existence of that ready and swift means of enforcement made it inherently unlikely that a solicitor would fail to comply.
18 Harcus Sinclair LLP v Your Lawyers Ltd, above n 9 at [125].
19 Harcus Sinclair LLP v Your Lawyers Ltd, above n 9 at [127].
[51] The plaintiffs have pointed to Worldwide NZ LLC v Quay Park Arena Management Ltd20 as an example of a case where a party failed in arguing that the existence of an undertaking meant that it was not necessary for the party giving the undertaking to be joined.
[52] However, the undertakings in Worldwide NZ LLC were made by Australian companies: not a solicitor in New Zealand subject to the inherent supervisory jurisdiction of the courts and the provisions of the Lawyers and Conveyancers Act and the Rules made under that Act.
[53] In addition, the plaintiffs rely on the decisions in Ludlow v Minter Ellison21 and on appeal, Denarau Investments v Ludlow.22 In that case Minter Ellison held the deposits paid for the construction of villas in Fiji as stakeholder. Minter Ellison advised the court that it did not wish to take an active part in the proceeding and would abide the decision of the Court. There is no reference however to undertakings being given by Minter Ellison or an objection being raised to being named as a party. The decisions do not therefore assist with this case.
[54] The plaintiffs further refer to the fact that Farry Law ought to have filed interpleader proceedings because Farry Law did not file an interpleader that the plaintiffs were required to bring this proceeding. The plaintiffs submit that if interpleader proceedings had been brought, Farry Law would have been a party and so it is appropriate for them to remain a party to these proceedings.
[55] The Court’s powers when an interpleader proceeding is filed are broad and include ordering that one of the parties claiming rights to the funds held commence a proceeding against any other or others, without requiring that the applicant also be a party to those proceedings.23 This does not therefore assist in resolving whether Farry Law ought to eb a party to this proceeding. In addition, from a practical perspective,
20 Worldwide NZ LLC v Quay Park Arena Management Ltd [2008] 1 NZLR 106 at [41]. In that case, undertakings were provided by all the Jacobsen interests (the companies sought to be joined as defendants) during the Court of Appeal hearing that they would not dispose of shares and would pay $4.125 million into a trust account to be held as security
21 Ludlow v Minter Ellison (2007) 8 NZCPR 864.
22 Denarau Investments v Ludlow [2008] NZCA 158.
23 High Court Rules 2016, r 4.63.
the terms of the undertakings require Farry Law to pay out the money either in accordance with an agreement reached between the parties or an order of the court. It is likely to be inappropriate for Farry Law to file an interpleader when the parties may be trying to resolve matters between themselves.
[56] Considering all of the above factors, in my view Farry Law has been improperly joined. Their presence is not necessary to determine rights in the proceedings, and their undertaking already achieves the same purpose as the relief sought. In the unlikely event that Farry Law do not comply with their undertaking, the Court may make summary orders enforcing the undertaking so the plaintiffs will have a remedy without the firm being a party to the proceeding (in addition to the professional consequences that would follow under the Lawyers and Conveyancers Act).
Should strike out be declined on the basis that the pleadings could be amended?
[57] Finally, I have considered whether it is a case where the pleadings could be amended to seek relief against the second defendant in addition to what the second defendant is already required to do pursuant to the undertaking. The matters pleaded against the second defendant and the evidence filed for the purposes of this application do not however suggest that there is a basis for such amendment.
[58] While paragraph 15 of the statement of claim alleges that Farry Law acted for the plaintiffs and BDT on the sale of the property and Mr Blomfield has said in his evidence that Farry Law acted for the two trusts, that is not borne out by the contemporaneous correspondence.
[59] I am conscious that the evidence has not been tested but it appears to show as follows.
[60] When the two trusts listed the Property for sale, GT did not have lawyers acting for them, with Mr Blomfield representing GT in correspondence with Farry Law about conveyancing arrangements.
[61] Mr Blomfield wanted an independent firm to act on the sale and hold the proceeds. Farry Law, acting on behalf of BDT, did not agree because of the extra costs involved for BDT. GT appears to have then agreed that, when the time for settlement came, Farry Law could implement the mechanical aspects of conveyancing on behalf of both trusts but on the basis that the proceeds of sale would be held by an independent solicitor.
[62] BDT agreed to this but on the basis that Mr Blomfield would make the necessary arrangements for the independent solicitor. Farry Law’s correspondence at the time however says Mr Blomfield simply emailed the details of the proposed independent solicitor and suggested that Farry Law and the independent solicitor take care of arrangements between them. BDT was not prepared to incur that cost. It appears that Mr Blomfield then raised the issue of conflict and refused to consent to Farry Law acting even on the mechanical aspects of settlement.
[63] Following further correspondence in which Mr Blomfield continues to say that Farry Law is conflicted and that BDT should instruct “independent” lawyers together with GT, Mr Blomfield made a complaint to the NZLS that Farry Law was acting in a conflict of interest.
[64] The property had been sold by this stage. As the date for settlement was approaching and in advance of a decision from the NZLS, Farry Law re-engaged with Mr Blomfield. Farry Law made it clear in correspondence at this stage that it would no longer conduct the mechanical conveyancing for both trusts. Mr Blomfield continued to insist that independent solicitors act on the conveyance, hold the proceeds of sale post settlement and that Farry Law was conflicted.
[65] After several emails with no reply from Mr Blomfield, Farry Law said that it would need to seek an order from the court if GT did not confirm the solicitors that were acting and would seek costs against GT. Shortly following that email, GT advised Construct Legal would act for GT in the multi-party dealing.
[66] Construct Legal then agreed on behalf of GT to the proceeds of sale being held by Farry Law subject to the undertakings set out above.
[67] Shortly after the sale settled, Mr Blomfield sought to withdraw the complaint to the NZLS. The NZLS Standards Committee nevertheless still considered whether any professional issues had been identified requiring further inquiry or action. It issued a decision on 10 February 2022 dismissing the complaint.
[68] The complaint is described by the Committee as being that Farry Law was conflicted and should not act for the vendors on the conveyancing of the Property and that the proceeds ought to be held in an independent solicitor’s trust account. Mr Blomfield also alleged that rude remarks had been made insinuating that Mr Blomfield didn’t know what he was talking about.
[69] In its decision, the Committee explained that Farry Law’s actions were consistent with the NZLS Property Law Section Guidelines and that it does not give rise to a conflict for one firm, which is representing one of the co-owners of property in conflict with the other, to hold the proceeds of sale subject to suitable undertakings.
[70]In addition, the Committee held:
A lawyer must, when acting in a professional capacity, treat all persons with respect and courtesy. … On the evidence before it, the Committee finds that the allegation of rudeness does not reach the threshold of requiring a disciplinary response. Robust exchanges advancing the position of a client where a less desirable or less cost- effective approach to matters are being suggested does not amount to discourtesy or disrespect.
[71] Following the Committee’s decision, it appears Mr Blomfield pursued settlement of the substantive dispute in correspondence with Farry Law, taking no issue with dealing with Farry Law.
[72] When the dispute could not be resolved, GT filed these proceedings on 25 February 2022. On the same day, Farry Law responded to Mr Blomfield’s email attaching a copy of the statement of claim to say that Farry Law could receive the documents by way of service on BDT. Mr Blomfield replied saying that Farry Law was a party “so I suspect that you are conflicted” and to let him know who would be acting once they had contacted their insurers.
[73] From the above chronology there does not appear to be any basis for amending the pleadings to add a substantive claim against Farry Law. The possibility of amendment is not therefore a basis for declining strike out.
Filing of Statement of Defence
[74] The first defendant seeks a direction in respect of the filing of a statement of defence, allowing it a further 25 working days from the date of this judgment.
[75] The First Defendants say that they have effectively been in limbo while the current application to strike out the second defendant has been pending as they did not wish to incur the costs of filing a s statement of defence while there was a risk that they may have to instruct new lawyers.
[76]The direction sought appears appropriate in the circumstances.
Result
[77]I order:
(a)The second defendant is to be struck out as a party to these proceedings.
(b)The first defendants are to file and serve their statement of defence by
4 April 2023.
(c)The parties are to file and serve memoranda (preferably joint) for case management review in accordance with r 7.3 of the High Court Rules by 28 April 2022.
Costs
[78] The first defendants have succeeded and so are entitled to costs. Counsel for the first defendants asked to be heard further on costs following my decision. I ask the parties to confer and try to agree costs so that matters may progress as efficiently as possible. To assist in this, I record that my preliminary view is that I do not consider that I have sufficient evidence to make findings of improper purpose. If agreement cannot be reached, memoranda may be filed on behalf of the first defendants within
25 working days and the plaintiffs within 35 working days. I have allowed slightly longer than is usual in case that assists in reaching a global settlement.
Associate Judge Sussock
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