Greenmount Manufacturing Limited v Doughty HC Auckland CIV 2009-404-4951

[2010] NZHC 427

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2009-404-004951

BETWEEN  GREENMOUNT MANUFACTURING

LIMITED

First Plaintiff

AND  POLPROP LIMITED

Second Plaintiff

AND  JAMES ANDREW ROSS DOUGHTY

Defendant

Hearing:             9 March 2010

Appearances: P Dale/A Commons for the Plaintiffs R Scott for the Defendant

Judgment:         9 March 2010

ORAL JUDGMENT OF
ASSOCIATE JUDGE CHRISTIANSEN

Solicitors/Counsel:

A Commons, Hornabrook Macdonald Lawyers, Auckland – [email protected] P Dale, Barrister, Auckland - [email protected] – for plaintiffs

R Scott, McElroys, Auckland – [email protected] – for defendant

GREENMOUNT MANUFACTURING LIMITED AND ANOR V JAMES ANDREW ROSS DOUGHTY HC AK CIV 2009-404-004951 9 March 2010

[ 1 ]  The claim is quite straight forward. Upon its application Greenmount seeks

judgment summarily against Mr Doughty, its former solicitor, as to liability. Mr Doughty had a contract of retainer to assist Greenmount to exercise an Option to purchase the commercial premises that it leased. In one vital respect Greenmount says that Mr Doughty failed in the performance of his duties and says he was also negligent. When Mr Doughty gave notice of Greenmount’s intention to exercise its Option to purchase and sent with that an agreement for sale and purchase he included Greenmount’s personal cheque as the deposit. Greenmount was given an assurance by Mr Doughty that its personal cheque was appropriate. Five days later Mr Doughty received written advice from Mr Foley the solicitor acting for the owner, Southbourne, to the effect that the purported exercise of the Option was being looked into. Subsequently Mr Foley indicated his client’s legal concerns including a claim that the deposit was incorrectly paid.

1. Proceedings ensued with the filing of a summary judgment application by Greenmount seeking specific performance against Southbourne. A history of those proceedings in the High Court and on appeal to the Court of Appeal and to the Supreme Court has been detailed by the decisions given. Little more needs to be said by me in that respect.

2. In the High Court Judge Doogue refused summary judgment but on a matter not related to the matter before me. The Court of Appeal reversed the High Court judgment and granted summary judgment. It had reached a clear view on the facts that Southbourne was estopped from relying on the tender of a company cheque to maintain that the Option was invalidly exercised, because it failed to immediately advise Mr Doughty that it was unacceptable. The Supreme Court reversed that decision. It affirmed the position, here at the core of Greenmount’s current claim, that the payment of the personal cheque was not legal tender. It added and I am here referring to the case head note “that once a vendor knew that a purchaser had tendered a personal cheque the vendor had promptly to decide whether to accept it or to allow its agent to do so or to insist on a bank cheque or cleared funds. If the vendor decided to reject the personal cheque that choice had forthwith to be

conveyed to the purchaser or the vendor might be taken to have represented that it had accepted the personal cheque”.

1. Of importance it seems to me is what the Supreme Court had to say about the factual context of the circumstances concerning the events between the payment of the personal cheque and Southbourne’s objection to the option process. I am reading from paragraph 23 of the Supreme Court decision:

   “It is on this point that Southbourne’s appeal must succeed because there is simply not enough evidence presently before the Court in order for the matter to be determined either way. It would be surprising, even allowing for the serious illness of Mr Dickie’s father, if Mr Dickie [Southbourne’s principal] had not made enquiries of Mr Foley about the deposit on Friday, 28 October when he certainly knew that Greenmount had purported to exercise the option. In fact, it would also be surprising if, even in the absence of such an enquiry from Mr Dickie, Mr Foley had not been alert on that day to the significance of Greenmount’s use of its personal cheque and, in a context where it seems probable that he knew that his client wished to avoid a sale arising from the exercise of the option, had not mentioned it to Mr Dickie immediately. If Mr Dickie did not know about the cheque at the time, the conclusion that it was far too late to object to the mode of payment on 4 November, or even on 1 November, is inevitable. However we agree with Mr Miles QC that the Court cannot properly on the present state of the evidence draw the inference for the purposes of a summary judgment application that Mr Dickie must certainly have known about the cheque on the Friday.”

2. One could take from that account that there was evidence from which there was a reasonable inference of estoppel conduct. However there was a concern about the lack of evidence, albeit from Southbourne’s representatives, from which the Court could for summary judgment purposes safely conclude a claim of estoppel.

3. In my assessment there is a difference in the evidence of Mr Doughty and Mr Russell of Greenmount about the events leading up to the exercise of the Option. That difference is not insignificant in particular concerning Mr Russell’s claim of an offer to provide a bank cheque for the deposit. But I do not think those differences need concern us. Greenmount’s present position is that the failure of Mr Doughty to pay the deposit by way of legal tender is itself clear and conclusive evidence of breach of retainer and negligence.

4. As much is supported by the affidavit of Mr Nolan the plaintiff’s expert on matters concerning appropriate professional standards of care of commercial and property lawyers.

5. In essence Greenmount says ‘a personal cheque was paid because Mr Doughty assured them thereby the exercise of the Option was secure’. Yet six months earlier the Supreme Court decision in Otago Station Estates Limited v Parker [2005] NZSC 16 – [2005] 2 NZLR 734, 743 confirmed the long standing proposition that the payment of a deposit, albeit in different circumstances than in this case, ought to be made by legal tender - which term did not include a personal cheque. The caveat to that position, referred to in paragraph 27 of that judgment, was that legal tender was required unless the payee by words or conduct indicates a preparedness to accept a personal cheque.

6. The plaintiffs’ case indicates concern with matters raised by Mr Doughty’s affidavit and by the affidavit of Mr Jones the defendant’s expert. I accept the careful analysis undertaken by Mr Dale in relation to that whilst not necessarily agreeing with his conclusions. It is not in any event clear to me that Mr Nolan is necessarily right and Mr Jones is necessarily wrong. Nor am I able to make any conclusions in that respect at this time. But, I do take from Mr Jones’ evidence that in the particular circumstances of the case there is a need to consider the factual context provided by the terms of the Option and also of the agreement for sale and purchase prepared for the purpose of exercising that Option.

[ 10] As is apparent from the various Court decisions in Greenmount v Southborne that the range of issues covered are complex. Indeed the Court of Appeal and Supreme Court reached different conclusions over the issue of estoppel.

[ 11 ] As for the expert evidence I do not think I need to examine it in depth except to say the experts reach contrary conclusions regarding appropriate prudent practice. I think it is important to remember that they will be focussing on the situation as at October 2005, and not with the value of hindsight provided by the observations of Appeal Courts in this case.

[ 12] Even accepting for present purposes that a bank cheque was required it is arguable that Southbourne was estopped from relying on a tender of Greenmount’s personal cheque to maintain its claim of invalid exercise of the Option.

[13] The real issue from the plaintiff’s viewpoint is that a personal cheque was never, in the face of Otago Station Estates, going to be sufficient payment.

[ 14] I think in the particular circumstances of this case that does not correctly state the position. I think the position is that legal tender would always have been a sufficient payment but payment by personal cheque might in the particular circumstances prove to be sufficient. Obviously the first option carries certainty and the second does not. But the dividing line does not clearly demonstrate negligence in the situation of the second option.

1. Mr Dale has forcefully urged upon me that Mr Doughty was not aware of the Otago Station Estates decision; that if Mr Doughty had been a prudent lawyer he would have been aware of it and would have advised Greenmount of the risk of paying anything short of legal tender. But, it cannot be as plain as that for Mr Doughty’s actions need to be tested by a full account of the circumstances then prevailing as measured by the opposing expert’s views.

2. Quite simply it is my judgment that it is arguable in the circumstances of this case that the payment of a personal cheque was not in breach of Mr Doughty’s professional duties and was not negligent. The issue of a personal cheque when there is no stipulation as to the form of payment is not always wrong.

3. The summary judgment principles are well understood. The plaintiff must show the Court on the basis of the affidavit evidence available that the defendant has no fairly arguable defence to its claim. Of course the Court should act robustly but the existence of evidence that can assure the Court of the existence or at least the need to consider a reasonably arguable defence, is a proper reason for refusing summary judgment.

[ 18] I am concerned in the present case that even if Mr Doughty should have insisted a bank cheque be tendered for the deposit there remains an issue about whether Southbourne was estopped from asserting that the mode of payment made did not adequately comply.

1. The primary evidence of these events comes from Mr Doughty. In the circumstances he outlines there may be an arguable defence. Even if he fell below the standard of a competent solicitor in failing to insist a bank cheque be tendered, from a causation point of view I think it is arguable any failure by Mr Doughty did not cause any loss to Greenmount because Southbourne was estopped from denying that there was ever a validly exercised option based on this. According to Mr Doughty, Southbourne, by its manager, specifically authorised its solicitor, Mr Foley to accept the documents as its agent. Mr Doughty states that Mr Foley confirmed to him that Greenmount had done everything required and did not state that a company cheque was not acceptable as he immediately should have done if that had not been the case. Certainly the Supreme Court in Greenmount focused on whether the vendor itself, that is Southbourne and not Mr Foley, had to have knowledge that the cheque was a company cheque. I can only assume that the Supreme Court did not have before it those particulars of the communications between Mr Doughty and Southbourne’s manager that I have just referred to. Regardless it must be arguable that Southbourne knew of the tendering of a company cheque, and failed to act promptly to advise Greenmount that it was unacceptable as it was required to do.

2. Ms Scott reminds me appropriately I think, that findings made in the Greenmount v Southbourne litigation are not binding in determining whether Mr Doughty has been negligent. It is inappropriate therefore to rely on the findings of the Supreme Court for this purpose. It is appropriate to focus on the actions of Mr Doughty as at October 2005.

3. The application for summary judgment is dismissed.

4. Costs are reserved to be determined in the outcome of this proceeding.

Associate Judge Christiansen