Dominion Finance Group Limited (in receivership and in liquidation) v Cavell Leitch Pringle & Boyle

[2013] NZHC 2718

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2007-409-002671 [2013] NZHC 2718

BETWEEN  DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

Plaintiff

ANDCAVELL LEITCH PRINGLE & BOYLE Defendant

Hearing:                   29, 30 and 31 July 2013

Appearances:           C R Carruthers QC and P C Murray for Plaintiff

M G Ring QC and E Whiteside for Defendant

Judgment:                18 October 2013

JUDGMENT OF D GENDALL J

DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) v CAVELL LEITCH PRINGLE & BOYLE [2013] NZHC 2718 [18 October 2013]

Table of Contents

Para No Introduction and factual background  [1] Other related proceedings  [16] Overview of claims  [19] The assignment of the Marac Securities to Dominion Finance  [24] Is the Marac undertaking capable of assignment?  [26]

Dominion Finance’s chose in action argument  [29]

Dominion  Finance’s  argument  that  the  cause  of  action  for  breach  of undertaking was assigned to Dominion Finance

Cavell  Leitch’s argument  –  Marac  undertaking  was personal and  non- transferable

Cavell  Leitch’s  argument  –  to  substitute  Dominion  Finance  for  Marac would involve a re-writing of the undertaking

[37] [38]

[53]

Contractual Lien?  [57] Was the Cavell Leitch solicitor’s undertaking in fact assigned?  [60] Was notice given to Cavell Leitch of the assignment?  [74] Did Dominion Finance suffer any loss?  [77] Third party sale Agreements for Units 24, 25, 26 and 27  [80] Third party purchase Agreement for Unit 13  [99] No loss – third party purchasers ultimately entitled to the deposits  [109] Conclusion  [120] Costs  [121]

Introduction and factual background

[1]  The plaintiff, Dominion Finance Group Limited (in liquidation and in receivership) (Dominion Finance) was a specialist finance company.   It got into financial difficulty and was placed into receivership on 9 September 2008.

[2]      The defendant, Cavell Leitch Pringle & Boyle (Cavell Leitch) is a firm of solicitors practising in Christchurch.  At the relevant times in February and March

2005 it acted for a developer client, Warwick Mews Developments Limited (Warwick).   Warwick was engaged in a major residential unit development (the development) at Warwick Street, Christchurch (the property).

[3]      In  2004  and  2005,  Warwick  borrowed  funds  from  both  Marac  Finance Limited  (Marac)  and  Dominion  Finance  to  undertake  the  development.     In May 2004, Dominion Finance provided a loan to Warwick to purchase the property. On 7 May 2004, Warwick granted Dominion Finance an all obligations general security deed which was registered on the Personal Property Securities Register (PPSR) on 1 June 2004.  In November/December 2004, Dominion Finance provided an increased loan facility, in the form of a construction loan.   This was to assist Warwick with the development of 30 townhouses on the property.  Construction of the  30  townhouses  at  the  development  started  in  July 2004  and  was  originally scheduled to be completed by August 2005.

[4]      In February 2005, Marac provided additional finance to Warwick on the basis that ultimately it would be provided with a first ranking security over Warwick’s assets.  The security for that loan included an all obligations general security deed dated 25 February 2005.  This was registered on the PPSR on 15 March 2005.  As part of this arrangement, Cavell Leitch gave an undertaking to Marac that deposits the firm received from purchasers of units in the development would not be released to Warwick without Marac’s prior written consent (the Marac undertaking).

[5]      On 10 June 2005, Dominion Finance, Marac and Warwick entered into a

Deed of Subordination and Priority whereby Marac became the first ranking secured

creditor  over  all  Warwick’s  assets,  and  Dominion  Finance  became  the  second ranking secured creditor. Cavell Leitch acted for Warwick on all the relevant financing transactions.

[6]      A key issue here revolves around the interpretation of the Marac undertaking given by Cavell Leitch. The specific terms of that undertaking were:

We (Cavell Leitch) confirm that:

...

(3)       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  deposits,  will  not  be  released  without  the  prior written consent of Marac Finance Limited.

[7]      As I have noted, construction at the development began in July 2004.   A number of units in the development were pre-sold off the plans before the development  was  completed.     Some  of  those  sales  were  on  standard  terms. However, five were not.

[8]      In August and October 2005, Warwick undertook what was described as a “private finance arrangement”.    Under this  system,  in  exchange for receiving a significantly reduced purchase price for the unit in question, the purchasers agreed to pay to Warwick deposits that represented all, or close to all, of the purchase price.

[9]      Agreements for sale and purchase for the five units in question (units 13, 24,

25, 26 and 27) were entered into.   The five deposits (representing 100% of the respective purchase prices for units 24, 25, 26 and 27 and about 95.5% of the purchase price for unit 13) were paid by the purchasers into Cavell Leitch’s trust account.   The total amount of those deposits was $1,140,000.   Cavell Leitch immediately released the five deposits to Warwick without Marac’s consent, in clear breach of the Marac undertaking.

[10]     The development then ran into financial problems.  It was not completed as planned by August 2005 due to delays and cost overruns.   In 2006, construction stopped altogether.  Warwick defaulted under its loan arrangements with Marac.  In April  2007,  Dominion  Finance,  as  the  subsequent  security  holder,  decided  to

purchase and take an assignment of Marac’s Warwick securities and loans, no doubt to forestall enforcement action by Marac and to minimise its (Dominion Finance’s) potential  losses  under  its  outstanding  loans  to  Warwick.     This  occurred  and Dominion Finance argues now that the Marac undertaking was assigned to it as part of that transaction.

[11]     Warwick continued to experience problems and finally in July 2007 it was placed into liquidation.   Dominion Finance then appointed receivers to Warwick. The  receivers  completed  the  remaining  work  on  the  last  few  units  in  the development, and in February 2008 Dominion Finance sold the entire development through a High Court mortgagee sale process for $9 million.

[12]     The net proceeds of that mortgagee sale, following payment of the costs of sale and outstanding rates, was $8,052,000.   After applying that to the total loan balances owed to Dominion Finance, the amount that remained owing by Warwick was $1,955,509.35.

[13]     In the meantime, it was noticed, it seems for the first time, that deposits for the sale of a number of units had been released by Cavell Leitch to Warwick in breach of the Marac undertaking.

[14]   As a result, in November 2007 Dominion Finance brought the present proceeding  against  Cavell  Leitch  alleging breach  of  the Marac  undertaking  and seeking summary judgment for the amount of the deposits released.  On 2 May 2008, Associate  Judge  Christiansen  in  this  Court  granted  summary  judgment  on  that

application  for  $1.16  million  plus  interest  in  favour  of  Dominion  Finance.1

However, Cavell Leitch then appealed this decision to the Court of Appeal which upheld the appeal and ordered that summary judgment be vacated.2

[15]     The total deposit funds at issue in Dominion Finance’s amended statement of claim is stated at [16] as $1,247,500.   However, Dominion Finance is not now

1 Dominion Finance Group Ltd v Cavell Leitch Pringle Boyle HC Christchurch CIV-2007-409-2671,

2 May 2008 at [58] – [59].

2 Cavell Leitch Pringle Boyle v Dominion Finance Group Ltd [2009] NZCA 7.

pursuing claims for the deposits which were paid under standard terms.   Those deposits  were returned  to  purchasers on  cancellation  of their  sale and  purchase agreements.   The deposits that remain subject to the present claim therefore total

$1,140,000.   It is this amount plus interest and costs that is sought by Dominion

Finance in this proceeding.

Other related proceedings

[16]     In other proceedings, the original purchasers of units in the development (including, the purchasers of units 13, 24, 25, 26 and 27) had sought judgment against Cavell Leitch for the return of the deposits they had paid.  Those purchasers contended that Cavell Leitch held the deposits purely as stakeholders under their various  agreements  for  sale and  purchase (the  third party sale  agreements),  the agreements remained conditional, and Cavell Leitch had released the deposits in breach of their stakeholder obligations.  As I understand the position, in these other proceedings, Cavell Leitch pleaded first, that the monies paid by the  individual purchasers were not deposits, secondly, that Cavell Leitch did not hold the monies as stakeholders, and thirdly, either the third party sale agreements were unconditional immediately upon execution, or the parties had agreed that the payments could be released.

[17]     By consent, all the different parties sought orders that the present proceeding and those other related proceedings be consolidated and heard together.  This was to avoid inconsistent judgments.  The proceedings were consolidated, but at the time, only one purchaser in the related proceedings  remained as a plaintiff, the other purchasers having discontinued.   That one remaining purchaser then reached a settlement with Cavell Leitch so all claims from the third party purchasers have been resolved now.

[18]     Therefore,  it  is  only Dominion  Finance’s  claim  in  relation  to  the  Marac undertaking that is the subject of the current proceeding.

Overview of claims

[19]     On Dominion Finance’s claim, which relates solely to the enforcement of the Marac undertaking, its counsel, Mr Carruthers QC, noted that such solicitor’s undertakings can be enforced in three ways.  First, by use of the inherent jurisdiction of the High Court, secondly, by an action in law, particularly contract, and thirdly, by making a complaint to the New Zealand Law Society.  This case concerned the first two enforcement options.

[20]     The first cause of action relating to the inherent jurisdiction of this Court allows  the  Court  to  discipline  solicitors  who  breach  undertakings.    Dominion Finance submitted that in this case, the Court could require Cavell Leitch, the solicitors involved, to pay damages for the loss suffered.   It was noted that Cavell Leitch has admitted, first, giving the Marac undertaking in the course of their professional duties and, secondly, breaching the undertaking.   Dominion Finance sought damages for the loss it says it suffered as a result of the breach of the Marac undertaking i.e. the loss of the deposits Cavell Leitch was required to hold pursuant to the undertaking.

[21]     The second cause of action advanced by Dominion Finance is in contract. Dominion Finance argues the Marac undertaking was a contract, it could be enforced as such and Dominion Finance has suffered loss as a result of Cavell Leitch’s breach of the contract.

[22]   Dominion Finance is therefore seeking orders either that Cavell Leitch reimburse their trust account with the amount of the relevant deposits for the credit of Warwick, or for damages being the amount of the relevant deposits which Cavell Leitch was required to hold under the terms of the Marac undertaking.  In addition, Dominion Finance seeks interest.

[23]     As I have noted above, Cavell Leitch accepts that it breached its undertaking to Marac when it released the deposits.   Both counsel before me agreed that a solicitors’ undertaking could be enforced by the High Court as part of its general disciplinary powers.   Mr Ring QC, counsel for Cavell Leitch, contended however that this was not the time or place to consider explanations or any consequences of

the undertaking breach, except for compensation.  The issues, according to Cavell Leitch,  are  first,  whether  the  Marac  undertaking  was  capable  of  assignment, secondly, if so, was it properly assigned to Dominion Finance and thirdly, if this had occurred, whether Dominion Finance incurred a resulting loss of the $1,140,000 claimed plus interest.

The assignment of the Marac Securities to Dominion Finance

[24] As I have noted at [10] above in April 2007, Dominion Finance took an assignment of all Marac’s securities and loans held for the Warwick financing. The particular assignment document which related to these Warwick debts and securities purports to be dated 19 April 2007. Clause 2.1 provided that:

The Assignor (Marac) agrees to sell and the Assignee (Dominion Finance) agrees to purchase the Assigned Property on the Assignment Date for the Purchase Price upon the terms and conditions set out in this deed.

“Assigned Property” was defined as including:

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

This provision does not specifically refer to, or exclude the Marac undertaking.

[25]     The terms and conditions of the original loan agreement with Marac required Warwick to procure the Marac undertaking.  Once this was achieved Cavell Leitch was to issue a solicitor’s certificate to include this Marac undertaking.  As I have noted,  that  was  obtained  and  again  it  confirmed  that  deposits  under  certain agreements for sale and purchase had been paid, would be held in trust pending settlement, and together with any future deposits, would not be released without the prior written consent of Marac.

Is the Marac undertaking capable of assignment?

[26]     A central question in this case is whether the Marac undertaking can be assigned and whether it was in fact assigned.   Dominion Finance argued that the undertaking was assignable.  It relied on s 130 Property Law Act 1952 to argue that the undertaking was a legal or equitable thing in action, a chose in action that was

capable of assignment.  Alternatively, Dominion Finance maintained that if the undertaking itself could not be assigned, the cause of action for breach of the undertaking was assigned to Dominion Finance.

[27]     Cavell Leitch’s response was simply that the undertaking was not assignable. Several lines of argument were pursued.  The first was that a solicitor’s undertaking is personal  and non-transferable,  i.e. it was personal to Marac to whom it was addressed.  The same argument was applied in relation to Dominion’s second cause of action in contract.  On this, Cavell Leitch endeavoured to argue that the law has recognised certain “personal” contracts, which are not assignable either in law or in equity.

[28]     Cavell Leitch also contended that Dominion could not simply be substituted for Marac in the Marac undertaking, because that would involve rewriting of the undertaking.  They suggested also that an undertaking was not a chose in action, nor was it a contractual lien.  And, finally, they maintained that the undertaking could only have been assigned if both parties intended it to be assigned.

Dominion Finance’s chose in action argument

[29]     As noted above, in arguing that the Marac undertaking was assigned to it as part of the purchase of Marac’s debt and securities pursuant to the Deed of Assignment, Dominion Finance relied in particular on s 130 of the Property Law Act

1952 which provides:

130     Assignment of debts and things in action

(1)       Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal or equitable thing in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim that debt or thing in action, shall be and be deemed to have been effectual in law (subject to all equities that would have been entitled to priority over the right of the assignee if this Act had not been passed) 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.

(2)       Where the debtor, trustee, or other person liable in respect of any such debt or thing in action has had notice that the assignment is disputed by the assignor or any one claiming under him, or that there are other opposing or conflicting claims to that debt or thing in action, he shall be entitled, if he thinks fit, to call upon the several persons making claim thereto to interplead concerning the same; or he may, if he thinks fit, pay the same into the Court, under and in conformity with the provisions of the Acts for the relief of trustees.

(The Property Law Act 1952 – rather than the Property Law Act 2007 applies here –

as the Marac undertaking is dated 10 March 2005, and the Deed of Assignment

19 April 2007, both before the 1 January 2008 commencement date for the 2007

Act.)

[30]     Before me, both parties accepted that a chose in action is a personal property right which can only be claimed or enforced by action, rather than by taking physical possession.   Dominion Finance argued that the Marac undertaking was a chose in action, because it created enforceable legal rights.   And it suggested that the “undertaking essentially created the lock box in which the economic value of the security would be held”.

[31]     Dominion Finance also contended that a breach of the undertaking gave rise to enforceable legal rights and proprietary remedies.  It claimed that a breach of the Marac undertaking was a repudiation of a “Relevant Document” in terms of Warwick’s Loan Agreement with Marac.  “Relevant Document” was defined as:

...this Agreement, the Securities and each other agreement, present or future, required or contemplated by or relating to this Agreement or the Securities.

1.1      Construction of certain references

In this Agreement, unless the context otherwise requires, references to:

an agreement also includes a contract, deed, license, franchise, undertaking and other document (in each case whether oral or written) and includes that document as modified, supplemented, novated or substituted from time to time.

[32]     In addition, in the Loan Agreement with Warwick an event of “Default” was defined in clause 8.1(f) to include the situation if:

A person (other than the Lender) repudiates or does or causes to be done any act, omission, matter or thing evidencing an intention to repudiate a Relevant Document.

[33]     Dominion  Finance  then  went  on  to  argue  that  a  breach  of  the  Marac undertaking was defined as an “Event of Default” under clause 7.1(b)(ii) of the Marac General Security Deed which provided for the situation where:

an undertaking given to the Secured Party or its solicitors by the Debtor or another person in connection with a Relevant Document is not complied with.

[34]     Dominion Finance contended that the Marac undertaking did not need to create a property right in the deposit funds themselves as the chose was a property right in itself, being a right owned by Marac. Therefore, the undertaking was a chose in action and that undertaking could be assigned.  It also noted that the issue should be approached broadly, by looking at the purpose of the Marac undertaking, which was to facilitate the successful completion of a commercial dealing.   Dominion Finance  concluded  by  suggesting   there  was  no  principled  reason   why  the undertaking could not be assigned.

[35]     In response, Cavell Leitch said that the undertaking is not a chose in action, because it is not an enforceable property right.  They suggested any enforcement was discretionary, but also noted, by its express terms, the undertaking did not create any property right in the funds themselves.   Cavell Leitch argued that the undertaking had little to do with Marac’s ownership of or right to take possession of the funds and did not give Marac any legal entitlement to insist that the firm release any funds to it.  Cavell Leitch say, at best “it gave Marac a right to veto any proposed release by the firm of the funds to anyone else.”  Cavell Leitch noted that Marac would still be required to take some further enforcement action or rely on something other than the undertaking to legally compel the firm to transfer funds to it.

[36]     On this first question as to whether the Marac undertaking was a chose in action or not, little case law was cited by either party.   In my view, there is some merit in Dominion Finance’s argument that the undertaking was part of an overall commercial dealing here and thus created a “right” that was enforceable and assignable.    Cavell  Leitch’s  argument  in  response  however,  that  the  solicitor’s

undertaking  was  not  assignable  as  a  chose  in  action,  because  it  was  not  an enforceable property right, also in my view is arguable.  As noted above, this is on the basis that it was simply a right to veto any proposed release of funds from Cavell Leitch to anyone other than Marac in this case and thus Marac would still need to take further action to compel the firm to transfer the funds to it.   But, for present purposes I am prepared to accept that the solicitor’s undertaking was a chose in action that was capable of assignment, and I now do so.  For reasons that will follow, this does not affect the overall outcome here.

Dominion Finance’s argument that the cause of action for breach of undertaking was assigned to Dominion Finance argument

[37] Dominion Finance’s alternative argument is that if the undertaking itself could not be assigned, the cause of action for breach of the undertaking was assigned to it. Dominion Finance maintains that the cause of action was ancillary to the assignment of the debts and securities and that, as the assignee it had a genuine commercial interest in the cause of action. Cavell Leitch replies here that this cause of action had not been pleaded and that in any event it was time-barred. I agree, but in any event, given the conclusion outlined at [36] above, I do not need to consider this alternative argument here.

Cavell Leitch’s argument – Marac undertaking was personal and non-transferable

[38]     Before me, Cavell Leitch raised another argument that the Marac undertaking was not capable of being assigned, because it was personal to Marac.  They noted that the personal nature of a solicitor’s undertaking has been recognised for more than a century.  In Re A Solicitor, ex parte Hales, a decision of the English Court of Appeal, it was held that:3

...the personal undertaking of the solicitor is sufficient to enable the Court to exercise its summary jurisdiction to compel him to carry out the undertaking on the application of the person to whom it is given, although it is not a personal guarantee in the sense that the solicitor guarantees the payment of the money out of his (the solicitor’s) own pocket.

3 In Re A Solicitor, ex parte Hales [1907] 2 KB 539 at 539.

[39]     Darling J was of the opinion that while it was not technically speaking a personal guarantee by the solicitor:4

...it is a personal guarantee in the sense that it is a statement that, Fournet having put funds into the respondent’s hands for the purpose of paying the appellant upon a certain event happening, upon the happening of that event he (the respondent) will pay the money.  His position is very much that of a stakeholder.   I am of opinion that a personal undertaking in that sense is quite sufficient to enable us to exercise the jurisdiction of the Court.

And Lawrence J also agreed, stating that the letter there was not a personal undertaking in the sense that it would come out of the solicitor’s own pocket, but that it was personal in the sense that the solicitors had a fund from which they would pay the appellant if the appellant could establish their right.5

[40]     In addition, Cavell Leitch responded here to Dominion Finance’s allegation that the Marac undertaking was also a contract.  On this, they argued that the law has recognised the existence of a category of contracts which are “personal” contracts which are not assignable in law or in equity.  Counsel referred to CB Peacocke Land

Co Ltd v Hamilton Milk Producers Co Ltd6 for this principle and to Vector Gas Ltd v

Bay of Plenty Energy Ltd7 for issues as to the need to focus on common intention.  In

Peacocke it was said that:8

...those are contracts where the obligations are so obviously personal in character that it must be concluded that the common intention of the parties was that the obligations could be discharged only by the specific individuals between whom the contract was made.... Where there are no express terms in the contract covering assignability, the Court will examine the obligations  created  to  see  whether they  are  so  closely  linked  to  the personal qualifications of one or both of the parties that it should imply an intention that performance must come from the original party and not from another substituted in his place.   But, where assignment is expressly dealt with, there can be no occasion, as a general rule, to examine the contract for the purpose of implying terms, because the parties have expressed their intention.  That, we believe, is the answer to the question of assignability in this case.  (Emphasis added)

[41]     In referring to the Vector Gas case, counsel noted the principle that the proper approach to contractual interpretation is to look to common intention and to give

4      At 543.

5      At 545 – 547.

6      CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 (CA).

7      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5.

8      CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd, above n 6, at 581 – 582.

effect  to  the  presumed  will  of  the  parties  as  objectively  ascertained  from  the language that they have used.9

[42]     Another English case  was cited to illustrate the approach to determining whether a solicitor’s undertaking was transferable:   Sheers v Thimbleby & Son. Chitty LJ in referring to the undertaking there stated:10

On its true construction it was a guarantee to Sergeant personally against loss, and only he or his legal personal representatives could sue on it, and only for loss sustained by Sergeant, or his estate after his death.   Such a guarantee cannot be transferred at law or in equity, and in the present action Sergeant cannot obtain damages for anything beyond his own personal loss, and Sheers cannot recover anything.

In that case, the Court found the letter of guarantee from the solicitor’s firm of monies loaned to a client secured by mortgage was personal to the lender and not transferable.

[43]     On all of this, Cavell Leitch suggests that there was nothing in the letter containing the Marac undertaking in support of a common intention that the promise would be transferable.  The undertaking was specifically addressed to Marac.  The actual terms of the undertaking were simply that the firm promised not to release the deposits without the prior written consent of Marac.  Cavell Leitch also contended that if the undertaking had said “without the prior consent of  the Lender”, then that would be a clear example of a common intention of treating the undertaking as assignable, but it did not.

[44]     In  response,  Dominion  Finance  argued  against  all  of  these  propositions. First, it argued the undertaking was not personal.   It noted that the  Hales case distinguished between an undertaking where a solicitor was personally liable for the obligation of the client and the case where the solicitor has a fund which has been appropriated for the purpose and from which payment will be made.   Dominion Finance had also referred to Sheers and stated that the benefit of the mortgage had been transferred, but not the guarantee – the argument was that this case had now been  overtaken  by  s  130  of  the  Property  Law  Act  1952.    Dominion  Finance

maintained that neither of these cases assists on the issue of whether an undertaking of the kind in Hales would be assignable.  It suggested that the present case was in a different category to the cases relied on by Cavell Leitch, noting that at the time this was a commercial transaction between two reputable finance companies.  Dominion Finance argued that there was no basis for suggesting that Cavell  Leitch could distinguish between them for the purpose of giving the undertaking or resisting an assignment of the undertaking.

[45]     Dominion  Finance  also   disputed  Cavell   Leitch’s  submission  that  the undertaking was analogous to a personal contract that would prevent its assignment. It was suggested that, even if that analogy was correct, the undertaking in this case does not have the character of a personal contract.  Counsel referred to a decision in Tolhurst v Associated Portland Cement Manufacturers Ltd which provides that the benefit of a contract is assignable in:11

...cases  where  it  can  make  no  difference  to  the  person  on  whom  the obligation lies to which of two persons he is to discharge it.

[46]     Mr Carruthers QC suggested that whether an assignment makes a difference should be decided on objective grounds.   He also referred to the case of HEB Contractors Ltd v Verrissimo and these comments:12

In arriving at my conclusions about these matters, I have been mindful of the strength of the submission made by counsel for the defendant that a person is entitled to choose who they contract with and in general terms to require performance from that person.  In this case the defendant did choose who he contracted with.  The defendant bargained to obtain particular industrial sites in November 1988 and now those sites are available to him.   As I have indicated, in my view, he has not been asked to accept anything different to that which he wished and agreed to buy.

[47]     It makes no difference to Cavell Leitch it is said whether the undertaking was in favour of Marac or Dominion Finance.  It is said that the terms of the undertaking did not prohibit assignment and the ability to assign the undertaking was arguably supported by the terms of the Marac Loan Agreement and the Marac GSD which expressly allowed  assignment.      Dominion Finance  also argued that there was nothing personal about the benefit of the undertaking which was to hold funds in a

trust account with respect to outstanding finance company loans made on a purely commercial basis.  It was submitted that whether the benefit of that undertaking was held by Marac or Dominion Finance was immaterial.  It was the true lender of the funds from time to time who should have the benefit of the undertaking.

[48]     Dominion Finance argued also against Mr Ring QC’s contention that there was no common intention to assign the Marac undertaking here . It maintained that the   common   intention   allegation   had   not   been   pleaded.      In   any   event Dominion Finance said it seemed to involve an assertion on the part of Mr Ring QC that, as the Marac undertaking was not referred to in the documentary assignment material, there was no intention to assign.   Dominion Finance disputes this and suggests that there was evidence from both Messrs Barnes and Adams before the Court to make clear that there was in fact an intention to assign the undertaking.

[49] I am satisfied it is clear that a solicitor’s undertaking can be assigned in certain circumstances – for example, if the undertaking here had expressly stated “Lender” instead of “Marac” as noted at [43] above, or there was a clause to the effect that “the solicitor’s undertaking can be assigned”, there would be little doubt that the undertaking could have been assigned. Also, as I see it, there are comments in the cases to this effect in relation to contracts, but not specifically in relation to undertakings.

[50]     In general terms however, there is also a reasonable argument in my view that the nature of a solicitor’s undertaking might well be “personal”.  As such, in certain cases it might seem unsatisfactory if a solicitor could give a specific  undertaking to one party and it could be assigned to another party without the involvement of that solicitor.

[51]     Common intention, in my view, however, does become relevant.  The actual content of an assignment and the associated documentation need to be considered in each case.  Basically, this becomes an exercise in contractual interpretation and what the objective intention of the parties may have been.

[52] In my judgment, as I have said above, generally a solicitor’s undertaking can be assigned in certain circumstances (as where both parties expressly agree). Although in the circumstances of the present case it is not entirely clear whether the Marac undertaking may have been “personal” and unable to be assigned, for present purposes as I note at [36] above, I am prepared to accept that it was assignable. Again as will become apparent later in this judgment, this makes no difference to the ultimate outcome.

Cavell Leitch’s argument – to substitute Dominion Finance for Marac would involve a rewriting of the undertaking

[53]     Cavell Leitch also advanced several other arguments on this aspect which for completeness  I now address.    One of these was  that  Dominion  Finance cannot simply be substituted for Marac here as this would amount to a rewriting of the undertaking.   It is submitted this would raise multiple questions regarding  who would  need  to  consent  to  this  “re-writing”.    Cavell Leitch  suggests  that  such uncertainties  must  mean  that  the  parties  regarded  Marac  as  the  only  intended recipient and beneficiary of the promise.

[54]     Cavell Leitch also contended that it was commercially sensible for the firm, when holding the deposits in trust for Warwick, to be selective about the identity of the financial institution to which it gave a right to veto the firm’s decision to release those deposits.  In other words, an undertaking given to Marac as an established and responsible financial institution and Warwick’s lender was seen as acceptable, but an undertaking to some “lesser lender” may not be.

[55]     They also referred to a number of the “flow-on” effects or consequences if the undertaking here was assignable.  First, it was noted Cavell Leitch could become embroiled  in  an  argument  with  several  parties  claiming the deposits  that  might include a third-tier lender assignee of the undertaking, and that it is said could put Cavell Leitch’s commercial relationships, clients and reputation at risk.  If Marac as the financier, without the consent of the firm, assigned the undertaking to a disreputable assignee, that might put the firm in a difficult situation.  Counsel noted that this highlighted the importance to the firm of the identity of the party who had the benefit of the undertaking.  And the argument by Dominion Finance relating to

the irreconcilable inconsistency between the firm’s case that it was a stakeholder and the undertaking given by the firm, was misconceived according to counsel for Cavell Leitch.   On this he noted that Mr Barnes acknowledged in his evidence that an undertaking of this kind was a standard commercial practice.

[56]     On balance, I am of the view that, although it would always be commercially sensible for the firm to know to whom it was giving an undertaking of this kind, for present purposes as I have noted above, I should proceed here on the basis the undertaking is generally assignable and thus no re-writing is required.  Issues over whether in fact the undertaking was assigned, and whether notice was provided to Cavell Leitch as to the identity of the assignee, are separate matters I address later.

Contractual Lien?

[57]     A further argument was advanced before me in relation to contractual lien issues  and  the  Marac  undertaking.   A lien  is  the  right  of  one  person  to  retain possession of property belonging to another, or to have a charge over it, pending satisfaction of the lien-holder’s claim against the other person.  A contractual lien obviously is created by a contract between the relevant parties.  And it depends on the lien-holder having rightful and continuous possession of the property – Stockco

Limited v Walker.13

[58]     Here, the fundamental difference between a contractual lien and a solicitor’s undertaking of the kind in this case is that the roles are essentially reversed.  Cavell Leitch who should have been in possession of the deposit funds, is not asserting a lien.   Nor is Dominion Finance asserting a possessory lien.   In any event, no lien could have arisen in this case in favour of Dominion Finance, because the firm held the deposits as stakeholder and/or on trust.  And it is claimed that Marac knew from the outset that the funds were of this character.   The relevant terms of the Marac undertaking expressly stated that the funds were held in trust.   Dominion Finance

therefore must be fixed with this knowledge.

13     Stockco Limited v Walker HC Napier CIV-2011-441-110, 26 June 2011.

[59]     There  is  nothing  in  this  contractual  lien  argument  that  might  assist

Dominion Finance here.

Was the Cavell Leitch solicitor’s undertaking in fact assigned?

[60]     This is essentially an exercise in interpretation of the contemporary written documents of the parties.   Dominion Finance notes that the Deed of Assignment entered into between the parties was “an absolute assignment of all Marac’s debts and securities to Dominion Finance” and this included the Marac undertaking.  The Deed of Assignment itself specifically provided:

“Assigned  Property”  means  the  Loan Agreement,  the  Debt,  the  General Security Agreement, the Guarantee, the Mortgage and any other securities held by the Assignor in respect of the Debt;

...

“GSA” means the general security agreement granted by the Borrower in

favour of the Assignor dated 25 February 2005;

...

“Loan Agreement”  means  the  loan  agreement  entered  into  between  the Assignor, the Borrower and the Guarantor dated 25 February 2005 as varied by the variations thereof dated 17 May 2006, 25 May 2006, and 21 August

2006.

...

[61]     And clause 2.1 of the Deed of Assignment said:

Clause 2.1 Agreement: 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.

[62]     Dominion Finance looked first to the Marac Loan Agreement.  It argued the Marac undertaking formed part of this and was expressly capable of assignment. The relevant clauses in the Loan Agreement are set out below:

Relevant Document means this Agreement, the Securities and each other agreement, present or future, required or contemplated by or relating to this Agreement or the Securities.

1.1 Construction of certain references

In this Agreement, unless the context otherwise requires, references to:

an agreement also includes a contract, deed, license, franchise, undertaking, and other document (in each case whether oral or written) and includes that document as modified, supplemented, novated or substituted from time to time.  (Emphasis in italics added)

13 Miscellaneous

13.4 The Lender may at any time assign or transfer all or part of its rights or obligations under this Agreement or any Relevant Document.  Any transfer of obligations may be effected by means of a notice from the Lender and the transferee concerned to the Borrower, substituting that transferee for the Lender as may be appropriate.  References to the Lender in this Agreement shall include its assigns and transferees.  (Emphasis in italics added)

[63]     These specific provisions in my view would tend to provide a reasonably strong argument for Dominion Finance that the undertaking was assigned here – that is, the undertaking is related to this specific Agreement and the Securities.   The undertaking does seem to relate to Marac’s “rights” under the loan even though it provides a simple right to veto which requires some further action to enforce it.

[64]     Dominion Finance also argues that the undertaking formed part of the Marac General Security Deed (GSD) assigned to Dominion Finance.  The relevant extracts of the GSD are:

1.1      Definitions

Collateral Security means each security agreement, guarantee or other agreement (present or future) expressed or intended to be security for any Secured Indebtedness.

Relevant Documents means this Deed, each Collateral Security and each other agreement (present or future) evidencing or relating to Secured Indebtedness.

1.2      Construction of certain references

In this Deed, unless the context otherwise requires:

an agreement includes a contract, deed licence, undertaking and other document or legally enforceable arrangement (in each case, whether or not in  writing,  present  and future)  and includes  that  document  as  amended, assigned, novated or substituted from time to time;  (Emphasis in italics added)

16.2     The Secured Party

The Secured Party may assign or transfer any of its rights or obligations under this Deed without the consent of the Debtor.  Each assignee or transfer

is to have the same rights against the Debtor under this Deed as if named in this Deed as the Secured Party.

[65]     A summary of Dominion Finance’s argument here is to the effect that the letter from Cavell Leitch to Marac dated 10 March 2005 included the Marac undertaking and it was a “Relevant Document” under both the Marac Loan Agreement and the GSD.   The Marac Loan Agreement provided then that “Relevant Documents” could be assigned by Marac and the GSD stated that Marac could assign its rights and obligations under the Deed.  According to Dominion Finance, the 10 March 2005 letter from Cavell Leitch formed part of the Marac Loan Agreement and the GSD.  Thus, it was argued that the Marac Loan Agreement and the GSD clearly formed part of the “Assigned Property” under the Deed of Assignment.

[66]     In response, Cavell Leitch maintained that the undertaking could only have been assigned if both parties intended it to be assigned.  Their argument was that this depended on whether the undertaking fell within the definition of “other securities” in the definition of “Assigned Property” in the 2007 Deed of Assignment.  Cavell Leitch contended that a “security” was a right to, or a right to participate in, a property interest and thus it would be a strained use of language to describe as a “security” an undertaking by the borrower’s solicitor to the lender to give the lender an opportunity to veto the release of funds held by the solicitor as a stakeholder or in trust. This would include release to the person lawfully entitled, which may not even be the borrower.

[67]     The only reasonable conclusion according to Cavell Leitch was that in April

2007, Marac intended to assign to Dominion Finance and it intended to take by assignment all Marac’s “securities”, which simply means anything classified as a “security” in Marac’s own documentation.  It followed that the Marac undertaking could not be considered as one of Marac’s “securities” as it was not included in the category of “securities” but instead was listed as part of the “Conditions Precedent” category.  In the 25 February 2005 Loan Agreement, “securities” are defined as the securities set out in paragraph (vi) of the Loan Terms. These are found in Schedule 1 and include the mortgage, the mortgage priority instrument, the general security agreement and the deed of subordination and priority.  There is no mention of the

Marac undertaking.   Cavell Leitch argued also that Clause 7 of the Marac Loan Agreement  contained  various  “undertakings”  including  one  that Warwick  would comply with any special terms contained in Schedule 3.  As noted above, one of the conditions was that Warwick as borrower would procure Cavell Leitch to issue a solicitor’s certificate to Marac as lender including the Marac undertaking.

[68]     Schedule 2 of the loan document titled “Conditions Precedent” also required that the Marac undertaking had to be dated not earlier than two business days prior to settlement and delivered on or before settlement.  Cavell Leitch emphasised that this was separate to the requirement to deliver in the same time scale “the securities duly executed by the parties thereto”.   Dominion Finance, it is said, must through due diligence have been aware of the terms of Marac’s loan agreement and must have known that Marac did not consider the undertaking to be a “security”.

[69]     Cavell Leitch also argued that the conduct of the parties leading up to the assignment supported the conclusion that the undertaking was not considered to be assigned.   They focussed on the fact Dominion Finance could not point to a communication between Marac and Dominion Finance (or their solicitors) in the timeframe between March 2005 and April 2007 that refers to the undertaking.

[70]     Cavell Leitch referred also to the April 2007 Deed of Assignment.   There, “Assigned Property” was defined to mean the Loan Agreement, the Debt, the GSA, the Guarantee, the Mortgage and any other securities held by the Assignor in respect of the Debt.   It was noted that “other securities” was not defined.   Cavell Leitch argued that this expression “other securities” was meant to cover only documents between Warwick and Marac, signed by both parties.   They maintained an undertaking in a solicitor’s letter was “of a completely different character” to the securities listed as “Assigned Property” in the Deed of Assignment.

[71]     It  was  also  suggested  that  Dominion  Finance’s  own  conduct  was  not consistent with an awareness of the undertaking.  To support this argument, Cavell Leitch noted  first,  that  there was  no  internal  Dominion  Finance communication referring to the undertaking; secondly, that Mr Adams (commercial lending manager at Dominion Finance at the relevant times) eventually conceded that he had received

and considered the pre-sales schedule for July 2006 which expressly stated that the deposits had been released; thirdly, that Mr Adams was unaware of the undertaking in February 2007 as he was questioning what deposits had been paid and where they were held; and finally, contemporary documents indicated that Mr Adams became aware of the undertaking sometime in early August 2007 when he reviewed records after being contacted by Mr Gower who informed Mr Adams that the firm had released the deposits.

[72]     Cavell  Leitch  maintained  that,  based  on  all  of  the  above,  the  Marac undertaking had not in fact been assigned to Dominion.

[73]     Although in my view, Cavell Leitch have some reasonable arguments which may support to an extent their contention that the Marac undertaking in this case was not actually assigned, for present purposes I accept first, that the undertaking could be assigned and secondly, in the circumstances prevailing here, it has been assigned. As I have noted earlier, this makes no difference to the ultimate outcome here.

Was notice given to Cavell Leitch of the assignment?

[74]     Given my tentative conclusion above that the Marac undertaking had in fact been assigned, I need to go on to consider whether notice was given to Cavell Leitch of the assignment.  Cavell Leitch, in its capacity as the party which had given the undertaking, plead that they did not receive valid notice of the assignment by Marac to Dominion Finance of the benefit of the undertaking.   In response, Dominion Finance argued that Cavell Leitch did receive such notice.

[75]     On  this  aspect,  Dominion  Finance  cites  several  instances  when  it  says Cavell Leitch  received  notice.    Dominion  Finance  states  that  Cavell  Leitch  had notice:

(a)      On receipt of the Deed of Assignment executed by all the parties which was emailed by Mr Mooar of Cavell Leitch to the solicitors for the other parties, Bell Gully and Jones Young on 20 April 2007;

(b)On receipt of a letter from Jones Young dated 9 August 2007 and during the subsequent exchange of correspondence in relation to the release of the deposits;

(c)      By the statement of claim dated 2 November 2007 and affidavits filed in   support   of   the   application   for   summary   judgment   in   this proceeding; and

(d)      By the letter issued by the receivers of Dominion Finance to Cavell

Leitch dated 15 October 2010.

It is clear, however, that no direct and specific notice of the assignment was given to Cavell Leitch here.  As the Court of Appeal noted, when it overturned the earlier summary judgment order in this proceeding in Cavell Leitch v Dominion Finance Group Limited,14 it might be arguable in this case that, even if the assignment of the Marac undertaking was valid as between Marac and Dominion Finance, it may not have been binding on Cavell Leitch – see Mainzeal Property and Construction Ltd v Beale.15

[76]     Nevertheless, for present purposes, I am prepared to accept that the facts before the Court are sufficient to show that Cavell Leitch was put on notice of the assignment of the undertaking, and that this is sufficient here.

Did Dominion Finance suffer any loss?

[77]     As I have noted earlier, the alternative to any order to enforce an undertaking is  an  order  compensating  a  plaintiff  in  damages  for  loss  caused  by its  breach, particularly in  a  situation  where  the  undertaking  is  no  longer  capable  of  being performed.  Essentially it is that compensation for Dominion Finance’s alleged loss said to be caused by the breach which is sought here.  It is self evident, however, that this jurisdiction will depend upon loss being proven directly caused by the breach of the undertaking.  This is clearly also the case if the undertaking in question gives rise

to a parallel cause of action in breach of contract.  Dominion Finance here is only

14     Cavell Leitch v Dominion Finance Group Limited, above n 2, at [25].

15     Mainzeal Property and Construction Ltd v Beale HC Auckland AP 60-SW01, 24 September

2001 at [7], [8] and [22].

seeking to recover what it says is an actual loss allegedly caused by the breach of the

solicitor’s undertaking.

[78]     Even  if,  for  present  purposes,  as  I  have  found  above,  the  solicitor’s undertaking was both assignable and properly assigned to Dominion Finance, the question  arises  as  to  whether  Dominion  Finance  has  lost  anything  by  the unauthorised release of the $1,140,000 deposits.  Even if the firm had retained the deposits, is it the case Dominion Finance would not ultimately have become entitled to receive them?  In particular on this aspect, Cavell Leitch’s position is that:

(a)      The firm held the deposits first, with respect to the third party sale agreements for each of Units 24, 25, 26 and 27 merely as stakeholders and  secondly,  with  respect  to  the  third  party  sale  agreement  for Unit 13, as bare trustee under a trust, until each of the agreements respectively became unconditional, which they never did – because the statutory conditions imposed by s 225 Resource Management Act

1991 were not satisfied before Dominion Finance “engineered” the purchasers to cancel.

(b)Dominion Finance did this because it was more commercially advantageous for it to sell the entire development project as one block by mortgagee sale, at an average unit price of $300,000 (which it did), than to adopt the third party pre-sale agreements (including the five agreements here) at original contract prices of $230,000 each.

(c)       As  a  result,  it  was  the  third  party purchasers,  and  not  Dominion

Finance, who were entitled to the deposits.

[79] The conclusion Cavell Leitch reaches for the first group of third party sale agreements at [77](a) above was based upon the express terms of the effectively identical agreements for Units 24, 25, 26 and 27 which were principally on the standard ADLS form (7th Edition, July 1999). This differed slightly from the third party sale agreement used for Unit 13. It had deleted from it certain standard

conditions of this ADLS agreement form.   It is important to consider these two groups of agreements here separately which I now do.

Third party sale Agreements for Units 24, 25, 26 and 27

[80]     Turning to consider these sale agreements and their specified conditions, each included at clause 8.6 a provision that if the agreement was for the sale of a lot in a subdivision and was entered into before the survey plan had been approved (which was the case here) it was subject to the statutory conditions imposed by s 225

Resource Management Act 1991.  (And, as a specific contractual condition, despite the attempts by Mr Carruthers QC before me to raise issues over whether these were conditions precedent or conditions subsequent and the distinctions that might necessarily arise, para 8.7(1) of each sale agreement disposes of this when it makes clear that all these were conditions subsequent.)

[81]     Returning now to s 225 Resource Management Act 1991, this provides:

225     Agreement to sell land or building before deposit of plan

(1)       Any  agreement  to  sell  any land  or  any  building  or  part  of  any building that constitutes a subdivision and is made before the appropriate survey plan is approved under section 223, shall be deemed to be made subject to a condition that the survey plan will be deposited under the Land Transfer Act 1952 or in the Deeds Register Office, as the case may be; and no such agreement is illegal or void by reason that it was entered into before the survey plan was deposited.

(2)       Subject to subsection (1), any agreement to sell any allotment in a proposed subdivision made before the appropriate survey plan is approved under section 223 shall be deemed to be made subject to the following conditions:

(a)       That the purchaser may, by notice in writing to the vendor, cancel the agreement at any time before the end of 14 days after the date of the making of the agreement:

(b)      That the purchaser may, at any time after the expiration of

2 years after the date of granting of the resource consent or one year after the date of the agreement, whichever is the later, by notice in writing to the vendor, rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan to the territorial authority for its approval or has not deposited the survey plan within a reasonable time after the date of its approval.

(3)     An  agreement  may  be  rescinded  under  subsection  (2) notwithstanding that the parties cannot be restored to the position that they were in immediately before the agreement was made, and in any such case the rights and obligations of each party shall, in the absence of agreement between the parties, be as determined by a Court of competent jurisdiction.

[82]     In  summary,  these  s  225  statutory conditions  essentially require  that  the survey  plan  for  the  subdivision  will  be  deposited,  and  the  purchaser  has  an immediate right of cancellation within 14 days of entering into the purchase agreement.  The purchaser has a further right of cancellation after two years from the date of the resource consent or one year after the date of the purchase agreement (whichever is the later) if the vendor has not made reasonable progress in submitting the survey plan for approval or depositing it following approval.

[83]     In each of those third party sale agreements for Units 24, 25, 26 and 27, the purchase price of $230,000 was specified, as were the deposits, which in each case were 100% of the price, and were paid to Cavell Leitch’s firm trust account.

[84]     As to those deposits, Clause 2.4 of that standard ADLS agreement applied and provided specifically that where the agreement was subject to a condition “expressed in this agreement” the person to whom the deposit was paid was to hold it as a stakeholder until the agreement became unconditional or was avoided for failure of the condition.  And as I have noted above, as a result of clause 8.6, the statutory conditions imposed by s 225 Resource Management Act 1991 were expressed to be part of these agreements.

[85]     It is also indisputable here that the statutory conditions in s 225 were not satisfied in this case which caused these purchasers ultimately to cancel their respective agreements.  This, it is said, was a result engineered by Dominion Finance who had taken over the development at the time and refused as mortgagee to consent to the registration of the necessary land registry documents required to have the plan deposited and separate titles issued.

[86]     According  to  Cavell  Leitch,  it  must  follow  that  in  the  case  of  these Agreements for Units 24, 25, 26 and 27, as the firm were holding the deposits merely as stakeholders for the parties, those deposits should have been refunded to

the individual purchasers when the agreements in terms of the s 225 statutory condition failed to become unconditional, and were cancelled.  Neither Warwick nor, through it Dominion Finance, were entitled to the deposits and as such it is said Dominion Finance has suffered no loss here by their early release.

[87]     On all of this, Dominion Finance endeavours to argue to the contrary.   It maintains first, that all these third party Agreements were unconditional virtually from the outset, but secondly, even if they were still conditional the parties agreed that  the deposits  could be released  immediately to Warwick.    In  my view,  this argument is quickly disposed of.  If it was to be accepted, at a level of principle it would require this Court to ignore or contradict the authorities on the express terms of the third party ADLS form Agreements for Sale and Purchase.  This would also specifically ignore the purpose and effect of the statutory conditions imposed by s

225 Resource Management Act 1991.  These are conditions which are designed to protect purchasers in the position of the individual purchasers in this case from the very harm that, if Dominion Finance’s argument is accepted, the purchasers actually suffered here.

[88]     In  addition,  for  Dominion  Finance’s  first  position  outlined  above  to  be accepted,  this  Court  would  need  to  accept  that,  despite  the  express  statutorily imposed conditions pursuant to s 225, these third party sale agreements for some reason were unconditional from the outset and thus Cavell Leitch as stakeholder was holding the deposits solely for their client, Warwick.  It must follow therefore, that Dominion Finance became entitled to them.  For the reasons I outlined below, I find that this simply cannot be the case.

[89]     In dealing with the position of parties who are stakeholders for deposits paid under Agreements for Sale and Purchase of land, D W McMorland: Sale of Land (2nd Edition 2000) notes:16

The rights and duties of a stakeholder

A stakeholder is usually a third party independent of either of the claimants to the money held, or must act as such for the purpose of holding the stake. Where a stakeholder is involved, there are normally two separate contracts to

16     DW McMorland Sale of Land (3rd Ed, Cathcart Trust, Auckland 2011) at [7.05](b).

be considered:   the first is the bilateral contract between the two principal contracting parties, here the vendor and the purchaser, and by which the parties agree to pay a sum of money to a stakeholder to abide the happening of one or other of the events terminating that stakeholder status and determining to which party the fund should be paid; and the second is the tripartite contract creating the stakeholding relationship, on terms that the stakeholder is to keep the sum until one or other of the relevant events happens and then to pay it to the appropriate party accordingly.

The relationship between the stakeholder and the other two parties is purely contractual and it is the contract that determines the rights and obligations of the stakeholder vis a vis the vendor and the purchaser; the relationship is not fiduciary, nor that of trustee, and beneficiary, nor that of agency...The prime duty of the stakeholder is to hold the stake, in this case the deposit, until the person rightfully entitled to it becomes known.

[90]     All this as I see it is entirely consistent with the concurrent undertaking given by Cavell Leitch as stakeholder here not to release the deposits without the consent of the named financier, in this case, Marac.

[91]     In the present case, there can be no question in my judgment that Cavell Leitch was holding the deposits in each case as stakeholder pursuant to the standard terms of these third party sale agreements.

[92]     And turning now to the statutory condition for deposit of the survey plan in s 225 Resource Management Act 1991 included in the contracts in terms of cl 8.6, I am of the clear view that this was not satisfied prior to the agreements for Units 24,

25, 26 and 27 being cancelled.  On this aspect, the general approach required to s

225 Resource Management Act 1991 was considered in Cyndicate Property Group

Limited v Jun.17

Approach to s 225

[19]      As we have foreshadowed, s 225 makes provision for agreements for the sale and purchase of land made before the appropriate survey plan is approved under s 223 of the Act.

[20]     Section 225 is one of a group of sections, ss 223 – 228, which deal with the approval and deposit of survey plans. In terms of s 223(1), an owner of land may submit a survey plan to the consent authority for its approval. A certificate signed by the consent authority is a prerequisite for the deposit of a survey plan. Section 225(1) deems agreements made before the plan is approved to be subject to a condition that the survey plan will be deposited. As Associate Judge Abbott observed in DBCL Developments Ltd v New

17     Cyndicate Property Group Limited v Jun [2011] NZCA 502 at [19] – [31].

Season Investments Ltd, these provisions provide a “general context” for the

time frames for cancelling in s 225(2)(b).

[21]     Section 225(1) also makes it plain that agreements are not illegal or void by reason that they were entered into before the survey plan was deposited. In terms of s 225(2), any agreement to sell any allotment in a proposed subdivision made before the appropriate survey plan is approved is deemed to be made subject to two conditions.

[22]     The  first  of  these  conditions  is  a  “cooling  off  provision”.  In particular, s 225(2)(a) provides that the purchaser may, by notice in writing to the vendor, cancel the agreement at any time before the end of 14 days after the date of the making of the agreement.

[23]      The second condition is found in s 225(2)(b). This is the condition in issue in the present case. Under subs (2)(b), the purchaser has the right to rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan for approval or has not deposited the plan within a reasonable time after the date of its approval. Section 225(2)(b) provides:

... that the purchaser may, at any time after the expiration of 2 years after the date of granting of resource consent or 1 year after the date of the agreement, whichever is the later, by notice in writing to the vendor, rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan to the territorial authority for its approval or has not deposited the survey plan within a reasonable time after the date of its approval.

[24]     Finally, s 225(3) makes it clear that an agreement may be rescinded under s 225(2) even though the parties cannot be “restored to the position that they were in immediately before the agreement was made”. In any such case the parties’ rights and obligations, in the absence of agreement between them, shall be as determined by a court of competent jurisdiction.

[25]      From these provisions, it can be seen, first, that s 225 is enabling in that it removes the possibility of an illegality argument. Tipping J put it in this way in Steele v Serepisos when he said:

The purpose of s 225(1) is essentially permissive, that is, it allows contracts to be entered into  prior to the deposit  of the plan  but necessarily subject to its deposit.

[26]      Tipping J referred to Griffiths v Ellis in which this Court had held that s 332(1)(a) of the Municipal Corporations Act 1933 made a sale of unsubdivided land illegal. The law was amended to overcome this decision by the Municipal Corporations Amendment Act 1959 which introduced the predecessor to s 225. Tipping J went on to note that s 225(1) does not create a statutory warranty by a vendor that the vendor would deposit a plan, come what may. Rather, giving the section a necessary “judicial gloss”, the obligation on the vendor as regards the deposit of the plan is to “take all reasonable steps” to deposit and to take “all reasonable steps to fulfil conditions that might be imposed on the plan’s approval, provided those conditions were themselves reasonable”.

[27]     The second point that can be made about s 225 is that it creates an element of protection for a purchaser. For example, there is material in the legislative history of the counterpart to s 225 in the Local Government Act

1974 which suggests that the “mischief” to which the section was directed

was situations where purchasers were left unable to obtain a title.

[28]      Finally, we note that in Vahora v Tse Paterson J said that the public policy behind s 225 is that survey plans should be deposited prior to entry into sale and purchase agreements to try and avoid the otherwise inevitable litigation which would follow from delays in completing agreements.

[29]      In terms of s 225(2)(b), in particular, the points which follow can also be made.

[30]      First, the question is whether reasonable progress has been made in all the circumstances towards submitting a survey plan. An objective assessment is required.  It is important to note that the section only requires reasonable progress towards submission rather than actual deposit. There must be some flexibility to take account of the particular subdivision in issue.

[31]     Secondly, the reference to the later of the two timeframes suggests that the time at which the reasonable progress assessment is to be made may vary. While it will always be no less than two years after the granting of the resource consent, where the agreement to sell is entered into during the second year of the two year period, the relevant date will be one year after the  date  of  the  agreement.  This  suggests  that  there  may  be  different outcomes for different purchasers depending on when they entered into agreements to purchase. This is consistent with the notion that s 225(2) is intended to protect purchasers. Clifford J in AAA Development (Ormiston) Ltd v Ormiston Group Ltd analysed s 225(2) in a similar way. (Footnotes omitted)

[93]     In addition, there was a suggestion advanced here by counsel for Dominion Finance that the parties agreed or initiated some attempt to contract out of this condition imposed by s 225.  I am satisfied that this did not occur here, but even if it was attempted, it was not possible or appropriate to contract out of s 225.

[94]     On this aspect, in AAA Development (Ormiston) Limited v Ormiston Group Limited18  Clifford J expressed the view that s 225 cannot be contracted out of.   I agree.  In addition, DW McMorland, states:19

It is considered that, for public policy reasons, the terms of s 225(2) cannot be negated by an express contrary provision in the contract; in other words, contracting out is not possible.  Also for public policy reasons, and because the conditions relating to the deposit of the plans are for the benefit of both

18     AAA Development (Ormiston) Limited v Ormiston Group Limited [2010] 12 NZCPR 329 at

[115] – [132].

19     McMorland, above n 16, at [5.04].

parties, the conditions imposed by s 225 are not capable of unilateral waiver even by the purchaser.  Indeed, the REI-ADLS form, cl 9.6 provides that, if the agreement relates to a transaction to which s 225 applies, the agreement is subject to the appropriate conditions imposed by that section.  This merely makes the conditions express in the terms of the contract, a point relevant to the application of cl 2.4 defining the period for which the deposit is held by a stakeholder, the deletion of cl 9.6 would not cause the conditions in s225 not to apply to the contract in question.

[95]     And, as I have noted earlier, there can be no question here in my view that the statutory conditions imposed by s 225 were not satisfied here and the agreements did not become unconditional prior to them being cancelled by the individual third party purchasers.

[96]     Notwithstanding   this,    the   next    position   which    Dominion    Finance endeavoured to argue was that despite the express provisions in the third party purchase agreements to the contrary, the parties to those agreements intended to provide for a non-returnable deposit if the contracts for any reason failed.   It has been noted already that the deposits in question were substantial and in most cases all of the purchase price for the units in question.  Further, the authorities are clear that, for the Court to be persuaded that the parties intended to provide for a non- returnable  deposit  if  an  agreement  failed,  “an  extremely  precise  and  clear  and

express agreement to that effect” was required – Robinson v Lane.20    This must be

even more so where the amount of the deposit in question is all of the total purchase price.

[97]     In my view, this test simply has not been met here.  The terms of the third party purchase agreements for these units 24, 25, 26 and 27, adopting as they do the standard ADLS form, are clear and express the parties’ agreement which is to the contrary effect.   I reject any attempt on the part of Dominion Finance to suggest otherwise.  It is simply not justifiable on the basis of the facts prevailing here.

[98]     As a matter of law, therefore, I conclude with respect to the third party purchase agreements for Units 24, 25, 26 and 27 that, irrespective of what any party

may have said at the time or subsequently:

20     Robinson v Lane [2001] EWCA Civ 384 at [14] – [16].

(a)       These third party purchase agreements were conditional until s 225

Resource Management Act 1991 was satisfied.

(b)In terms of the agreements, Cavell Leitch was to hold the deposits paid in its trust account as stakeholder until the conditions in s 225 were satisfied.

(c)      Cavell Leitch was only entitled to pay the deposits to Warwick if and when the conditions in s 225 were satisfied.

(d)At no time were the conditions in s 225 satisfied and Cavell Leitch accordingly was obliged to refund the deposits to the third party purchasers.

(e)      Thus  Warwick,  and  through  them  Dominion  Finance,  at  no  time became entitled to the deposits as it was the individual third party purchasers who were ultimately entitled to a refund of the deposits they had paid.

Third party purchase Agreement for Unit 13

[99]     The third party purchase agreement for Unit 13, as I have noted above, took a different form from that for Units 24, 25, 26 and 27.

[100]   The agreement for Unit 13 was a two page document which attached the general terms of sale from the ADLS standard form (7th  Edition July 1999).   The purchase price was specified as $230,000 with a deposit of $220,000 said to be “payable in clear funds to Cavell Leitch Pringle and Boyle Trust Account on this Agreement becoming unconditional in cash or bank cheque”.

[101]   This deposit provision in the agreement went on to state:

These funds are to be released immediately to Warwick Mews Developments

Limited once this contract is unconditional.

[102]   All the usual ADLS conditions in its standard form were to apply apart from cl 8.0 relating to conditions and mortgage terms which had been deleted in its entirety.   This included deletion of the standard cl 8.6 which, as noted above, provided:

8.6If  this  agreement  relates to  a  transaction  to  which s  225  of the Resource  Management Act  1991  applies  then  this Agreement  is subject to the appropriate condition(s) imposed by that section.

[103]   The standard “stakeholder” provision in paragraph 2.4 of the ADLS terms was not deleted. As noted above this provides:

2.4      Where this agreement is entered into subject to a  condition expressed in this agreement, the person to whom the deposit is paid shall hold it as a stakeholder until this Agreement becomes unconditional or is avoided for non-fulfilment of any condition under cl 8.7(5).  (Emphasis added)

[104]   What is clear at the outset here is that, regardless of any intention the parties under this third party purchase agreement may have had, they could not validly contract out of or waive the statutory conditions imposed by s 225 Resource Management Act 1991, for the reasons outlined above.  Purchasers could not waive these conditions because they were not for their exclusive benefit – see AAA Development (Ormiston) Limited v Ormiston Group Limited.  The underlying public policy reasons relating to s 225 remain. Despite this and the fact therefore that this third party sale agreement for Unit 13 remained conditional throughout, before me Mr Ring QC for Cavell Leitch accepted the position here differed from that relating to the third party sale agreements for Units 24, 25, 26 and 27. In the case of Unit 13, the conditions imposed by s 225 were not “expressed in this Agreement” as provided for in cl 2.4 noted at [103] above. As a result, Mr Ring QC accepted that it could not be said unequivocally with respect to this Unit 13 sale that Cavell Leitch held the deposit “as a stakeholder”. The typed provisions on page 1 of this agreement relating to the deposit however, as noted at [101] above included the direction that the $220,000 deposit funds:

...are to be released immediately to Warwick Mews Developments Limited

once this contract is unconditional.  (Emphasis added)

[105]   A reasonable argument exists therefore that, this Unit 13 agreement did not become unconditional as s 225 was never satisfied.  The parties specifically agreed

that the funds were to be retained in the Cavell Leitch Trust account and not be released.  As such, they were held for the benefit of the ultimate party entitled, until that condition was satisfied which never occurred.  It was in breach of that obligation that  Cavell  Leitch  released  the  $220,000  deposit  to  Warwick  immediately  the contract was signed.

[106]   Thus it follows that the unmistakable intention of the parties as expressed in this deposit clause was to the effect that the deposit would be held on trust for the specific purpose of paying it to Warwick only when “this Agreement is unconditional.”  If that did not occur as the agreement never became unconditional, a resulting trust would be imposed on Cavell Leitch to refund this deposit to the purchaser – Stumore v Campbell.21

[107]   There seems little argument that Dominion Finance ensured that the statutory s 225 conditions would not be satisfied as the requirements to deposit the plan were not able to be met, thus causing the purchaser of Lot 13 to cancel this agreement.

[108]   I find therefore that with respect to the deposit for this Unit 13, although Cavell Leitch may not have been considered to be a “stakeholder” in terms of the agreement, it was a trustee and was only entitled to pay the deposit to Warwick if and when  the  conditions  in  s  225  were  satisfied.    As  those  conditions  were  never satisfied, it must follow that Cavell Leitch was obliged to refund this deposit to the third party purchaser and Warwick, and through it Dominion Finance, were never entitled to receive this deposit.

No loss – third party purchasers ultimately entitled to the deposits

[109]   On 26 July 2007 Dominion Finance put Warwick into receivership, it is suggested before it discovered that the firm had released the deposits for these five units in question.

[110]   Dominion Finance, as I understand it, had carried out some additional work to complete several of the units in the development which were not finished at the

21     Stumore v Campbell [1892] QB 314 (CA) at 316 and 317.

time, and then made a decision to sell the 30 units as a single block by way of a mortgagee sale.  In doing so it rejected the option of completing settlement under the pre-sale agreements for the individual units (including) under the third party sale Agreements for Lots 13, 24, 25, 26 and 27 at issue here.  It did this as I have noted simply by refusing as mortgagee to consent to the separate titles being issued and registration of the various easements to enable the subdivision plan to deposit.  This left the purchasers with no option but to cancel their agreements pursuant to s 225 which they did. This entitled them to a refund of their deposits.

[111]   If, on the other hand, Dominion Finance had decided to settle the pre-sale agreements for the separate units, it would have been entitled to the deposits (representing  all  or  almost  all  of  the  purchase  prices  in  individual  cases)  but obviously would have been bound to complete those third party sale agreements at the prices and on the terms outlined in each contract.  A number of purchasers had lodged caveats against the title to protect their interests under their respective agreements.

[112]   In deciding to sell the units by mortgagee sale as a single block, Dominion Finance produced a sale price for the entire development of 30 units of $9m plus GST, this amounting to $300,000 per unit.   This was significantly more than Dominion Finance as receiver would have received for the sale of each of Lots 13,

24, 25, 26 and 27 had it honoured the original third party sale agreements.

[113]   As a result of this, the individual purchasers all cancelled their third party purchase agreements and withdrew their caveats.  In doing so, for the reasons I have outlined above, they each became entitled to a refund of the deposits they had paid under these agreements.   Of course, refunds did not occur as Cavell Leitch had earlier chosen to pay those deposits to Warwick in what was acknowledged to be a breach of their obligations under the contracts.

[114]   In my judgment, there is no scenario in which Dominion Finance would have been entitled to these deposits as, through no fault of the individual third party purchasers, Dominion Finance caused their units to be sold as part of the mortgagee sale to another party and at a higher price than the purchasers had agreed to pay.  It is

clear in my view that, even if Cavell Leitch had still been holding the five deposits in question here, they would have needed to be refunded to the individual purchasers upon cancellation of each of these contracts.

[115]   Here, Dominion Finance received $9m from its mortgagee sale of the 30 units at an average of $300,000 per unit.  The third party sale Agreements for Lots

13, 24, 25, 26 and 27 would only have achieved $230,000 for each of those units and thus Dominion Finance chose to proceed with its mortgagee sale process.

[116]   As I see the position, Dominion Finance simply cannot argue that it was entitled to receive each of the deposits on Units 13, 24, 25, 26 and 27 under the third party sale Agreements for those units when through its own actions it sold these units at higher prices to another third party, thus making performance under the original agreements impossible.   Having already received $300,000 for each of these five units, if Dominion Finance’s claim for compensation here was to succeed it would realise another $230,000 for four units and $220,000 for the fifth unit which as I see the position can only be described as double dipping.

[117]   By choosing to sell Units 13, 24, 25, 26 and 27 at sale prices of $300,000 plus GST for each unit, and having received payment of this $1,500,000, Dominion Finance has effectively suffered no loss as a result of Cavell Leitch’s acknowledged breach of its undertaking to hold the deposits in question.

[118]   In conclusion and for the reasons outlined above, in my view the deposits in question here ultimately belonged to the third party purchasers and not Warwick. Each of these third party sale agreements was conditional throughout in terms of s 225  Resource  Management  Act  1991,  and  the  protection  for  the  purchasers provided by this provision clearly applied in this case.

[119]   I find that Dominion Finance has suffered no loss here in that it had no right to the deposits at any time.  With its actions in conducting a mortgagee sale of the entire development, it effectively blocked the individual third party purchasers from obtaining title to their respective units.  In addition, if it had been successful in its

claim here, Dominion Finance effectively would be seen as entitled to keep the proceeds of selling Units 13, 24, 25, 26 and 27 twice. This cannot be the case.

Conclusion

[120]   For all the reasons outlined above, Dominion Finance’s claim here must fail. It is dismissed.

Costs

[121]   At the hearing of this matter before me, no submissions were advanced on the question of costs.  Counsel for both parties requested that issues over costs should be deferred until the final outcome of the plaintiff’s claim was known.

[122]   Costs here are therefore reserved.

[123]   Counsel may file memoranda (sequentially) on the issue of costs and in the absence of either party indicating they wish to be heard on the matter, I will decide the question of costs based on the material which is before the Court including the memoranda filed.

...................................................

D Gendall J

Solicitors:

Colin Carruthers QC, Wellington

Michael Ring QC, Auckland