Manchester Securities Ltd v Auckland Council
[2016] NZHC 2441
•13 October 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-635 [2016] NZHC 2441
IN THE MATTER of an appeal under s 93 of the Weathertight
Homes Resolution Services Act 2006
BETWEEN
MANCHESTER SECURITIES LTD Appellant
AND
AUCKLAND COUNCIL Respondent
Hearing: 6 September 2016 Counsel:
C T Walker and M H A Ho for Appellant
N A Till QC for RespondentJudgment:
13 October 2016
JUDGMENT OF BREWER J
This judgment was delivered by me on 13 October 2016 at 2:00 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: Gilbert Walker (Auckland) for Appellant
Heaney & Partners (Auckland) for Respondent
MANCHESTER SECURITIES LTD v AUCKLAND COUNCIL [2016] NZHC 2441 [13 October 2016]
Introduction
[1] The decision of the Weathertight Homes Tribunal (Auckland) in Manchester Securities Ltd v Auckland Council1 was not greeted by either party with immediate acceptance. Manchester filed an appeal and the Council filed a cross-appeal. Then the Council advised that it would not oppose Manchester’s appeal. Manchester responded by applying for the Council’s cross-appeal to be transferred to the Court of Appeal. The Council opposes.
[2] This Judgment determines:
(a) Manchester’s application to have the Council’s cross-appeal transferred to the Court of Appeal; and
(b) Manchester’s appeal.
Manchester’s application
[3] The reason for Manchester’s application, and for the Council’s opposition to it, is that there is a Court of Appeal decision which is highly favourable to the Council’s case, and dead against Manchester’s case. The decision is Mountain Road (No 9) Ltd v Michael Edgley Corporation Pty Ltd.2 If the cross-appeal is heard in the High Court then Mountain Road will be decisive on the issue to which it relates. The Council will win on that issue. Since the law does not allow a second appeal
from a Weathertight Homes Tribunal determination, that will be the end of the matter. However, if the cross-appeal is transferred to the Court of Appeal then Manchester can invite the Court of Appeal to overrule Mountain Road. It will have a fighting chance.
[4] Manchester’s application must be determined by reference to s 64 of the
Judicature Act 1908. This provides, relevantly:
(1) If the circumstances of a civil proceeding pending before the High Court are exceptional, the High Court may order that the proceeding be transferred to the Court of Appeal.
1 Manchester Securities Ltd v Auckland Council [2016] NZWHT AUCKLAND 1.
2 Mountain Road (No 9) Ltd v Michael Edgley Corporation Pty Ltd [1999] 1 NZLR 335 (CA).
(2) Without limiting the generality of subsection (1), the circumstances of a proceeding may be exceptional if—
(a) a party to the proceeding intends to submit that a relevant decision of the Court of Appeal should be overruled by the Court of Appeal:
(b) the proceeding raises 1 or more issues of considerable public importance that need to be determined urgently, and those issues are unlikely to be determined urgently if the proceeding is heard and determined by both the High Court and the Court of Appeal:
(c) the proceeding does not raise any question of fact or any significant question of fact, but does raise 1 or more questions of law that are the subject of conflicting decisions of the High Court.
(3) In deciding whether to transfer a proceeding under subsection (1), a
Judge must have regard to the following matters:
(a) the primary purpose of the Court of Appeal as an appellate court:
(b) the desirability of obtaining a determination at first instance and a review of that determination on appeal:
(c) whether a full court of the High Court could effectively determine the question in issue:
(d) whether the proceeding raises any question of fact or any significant question of fact:
(e) whether the parties have agreed to the transfer of the proceeding to the Court of Appeal:
(f) any other matter that the Judge considers that he or she should have regard to in the public interest.
[5] Mr Till QC, for the Council, submits that merely stating an intention to submit to the Court of Appeal that one of its decisions should be overruled is not sufficient to establish exceptional circumstances. Section 64 gives the Court a discretion and s 64(2)(a) is clear that such an intention is a factor to be considered in the exercise of the discretion. So, there must be something more before exceptional circumstances can be identified. I agree.
[6] Mr Till points to s 64(3) as listing factors to which a Judge must have regard. None, in his submission, go to establishing exceptional circumstances in this case. I agree. Going through them:
(a) Primary purpose as an appellate court. This is not a factor against granting leave. The Court of Appeal would not be asked to depart from its role as an appellate court.
(b)Desirability of obtaining a determination at first instance. This is not a factor against granting leave since there has been a determination at first instance.
(c) Full Court of the High Court. Given the issue, a Full Court would be no more empowered than a single Judge.
(d)Questions of fact. There are none. This is not a factor against granting leave.
(e) Agreement. The parties are not agreed. This is a neutral factor.
(f) Public interest. Here, Mr Till’s submission is that this case is of interest only to the parties. Mr Walker, however, submits that Mountain Road, relevantly, interpreted s 130 of the Property Law Act
1952. It applied to the equitable assignment of debts and things in action the same requirement for notice as the section imposed on legal assignments. Section 130 was repealed as at 1 January 2008, but it applies to the assignment at issue in the present case because it took place before that date. Mr Walker submits:
(i)Whether Mountain Road is correct will be of importance to any dispute over assignments which occurred before 1 January
2008.
(ii)Mountain Road lives on in its decision as to the requirement for notice of equitable assignments.
[7] For my part, I agree with Mr Till that the existence of parties interested because of disputes over assignments pre-dating 1 January 2008 is unlikely and insufficient to raise a real issue of public importance.
[8] I disagree with Mr Walker that Mountain Road continues to mandate notice in the case of an equitable assignment. Sections 50 and 51 of the Property Law Act
2007 clearly apply to the equitable assignments of choses in action.
[9] In my view, none of the matters of compulsory regard in s 64(3) go for or against exercising my discretion to transfer the cross-appeal to the Court of Appeal to any relevant extent. The issue remains whether there are exceptional circumstances arising from the intention of Manchester to ask the Court of Appeal to overrule Mountain Road.
Discussion
[10] The duty of any Court is to do justice between the parties. Here, Manchester submits that it will be denied justice in this Court because this Court is bound by Mountain Road. In my view, the cogency of this submission depends on an appraisal of the legal strength of Mountain Road.
[11] The point of principle considered in Mountain Road was whether an equitable assignment also requires notice to the parties liable before it becomes effective against those parties. The Court concluded:3
It is clear enough from the cases cited, and many other authorities, that in the case of an equitable assignment of a chose in action, notice to the person liable is not necessary to complete the equitable title of the assignee as between assignor and assignee. Whereas in such circumstances the legal title to the chose remains in the assignor until the requirements for a legal assignment have been satisfied, equitable title is vested in the assignee immediately. But notice to the person liable has consistently been regarded as necessary to give the assignee title to claim the benefit of the chose in action against that person.
[12] Importantly, for present purpose, the Court also said:4
The present is a case in which equity should follow the law. From the point of view of the third party, it matters little whether the assignment, as between assignor and assignee, is legal or equitable. What is material to the third party is that there has been an assignment of whichever kind and that there is now a new creditor or plaintiff. We can think of no convincing reason why
3 At 343.
4 At 343.
the requirement for notice to third parties should differ depending on whether the assignment is legal or equitable.
We accept Mr Worth’s submission that both authority and principle support the view that the notice requirements of legal and equitable assignments should be the same.
[13] Thus, Mountain Road is authority for the following propositions:
(a) An equitable assignment is not effective against the liable party until notice has been given to that party.
(b)That position is consistent with legal assignments (as they were under s 130 of the Property Law Act 1952).
(c) This is an area where equity should follow the law.
[14] In Thomas v National Bank Ltd the Queensland Court of Appeal considered the effect of Mountain Road to make little practical sense:5
[I]f the doctrine which we are invited to accept is correct the results makes little practical sense; it is a merely technical point, which should not be given effect to if the authorities in favour of it are less than compelling. The giving of notice of assignment a day before issue of the proceedings make them good whereas giving notice a day after the proceedings makes them (it is said) completely null.
The Court concluded:6
There are authorities tending both ways. But it appears, with respect, clear enough that the weight of authority on this point, at least so far as Australia is concerned, favours the appellant. The proper conclusion is that the view adopted in the New Zealand case, that the assignee’s title is not complete, so as to enable suit to be brought before notice is given to the person liable, should not be followed.
[15] In Alma Hill Construction Pty Ltd v Onal, the Victorian Supreme Court reached the conclusion that the Mountain Road decision was inconsistent with the
bulk of authority:7
5 Thomas v National Bank Ltd [1999] QCA 525 at [18].
6 At [25].
7 Alma Hill Construction Pty Ltd v Onal [2007] VSC 86.
[22] There is a strong body of authority for the proposition that it is not necessary that an assignee in equity is required to give notice of the assignment to the obligor, in order that his interest as assignee be complete, not only as against the assignor, but also against the [obligor]. Of course, the giving of such notice is important in a number of different contexts. For example, it may affect competing priorities of other assignees of the debt. Further, the provision of notice by the assignee to the obligor is important to ensure that the debt is paid to the assignee. In the absence of appropriate notice an assignee may be bound by payments made by the obligor in ignorance of the assignment.
…
[24] In Ward and anor v Duncombe and ors, the House of Lords was concerned with an issue of competing priorities between assignees of a fund which was vested in trustees. Lord Macnaughten referred to the rule in Dearle v Hall, and observed:
In defence of the rule in Dearle v Hall, it has been said that notice is
necessary in order to ‘perfect’ the title of the assignee – in order to
‘complete’ his title. Those expressions have frequently been used;
but they are, I venture to think, little more than mere phrases. Notice does not render the title perfect. Notice is not even a step in the title
until it was made so by the decision of Foster v Cockerell. Apart
from the rule in Dearle v Hall, an assignee of an equitable interest from a person capable of disposing of it has a perfect equitable title, although the title is no doubt subject to the infirmity which attaches to all equitable interests. That infirmity is not and cannot be cured or removed by notice to the trustees.
[16] After canvassing the relevant authorities, Kaye J concluded that the decision of the New Zealand Court of Appeal was “out of step with the weight of English and Australian authority”.8
[17] The case has also been criticised in Garrow and Fenton’s Law of Personal Property New Zealand.9 There the learned author, R T Fenton, undertakes a comprehensive review of the authorities and concludes that requiring an equitable assignee to give notice to an obligor is not required in Australia and England in order to give the assignee title to sue the obligor. Fenton convincingly argues that there is no legal or logical necessity that notice be given before proceedings can be issued by
an assignee against an obligor:10
8 At [26].
9 R T Fenton Garrow and Fenton’s Law of Personal Property New Zealand (6th ed, Butterworths, Wellington, 1998) at 12.051, pp 749-758.
10 At p 751.
While there can be a legal and an equitable title surely there cannot be one title as between assignor and assignee and another title as between assignee and third parties? It is suggested that the more accurate view is that an equitable assignee has the right to sue by virtue of the equitable title which passes from assignor and assignee, and that notice to the person liable protects that title against third parties. In the sense that the phrases “complete” or “perfect” the title suggest something more, they can be misleading. Provided they are understood in a limited, somewhat figurative, sense, they have utility, but this usage does not go so far as to mean that notice must necessarily be given before the right to sue is exercised. It is better, it is suggested, to compare the giving of notice in respect of a chose in action with the taking of physical possession of a chattel rather than acquisition of title. Under a sale of goods transfer of property transfers title, but in many instances that title is not protected until possession is taken.
[18] Interestingly, as Wylie J observes in Nathan v Smith,11 there is Court of Appeal authority which post-dates Mountain Road and seems to contradict it. That is the case of Hela Pharma AB v Hela Pharma Australasia Ltd where the Court said, without reference to Mountain Road:12
[54] It would be highly impractical to commercial life if contractual rights (such as were created by the distribution agreement in this case) could not be somehow transferred to a third party.
[55] In the usual run of cases, such a “transfer” is achieved by one of two transactions: a novation (the making of a separate new agreement); or assignment.
…
[58] In an assignment, on the other hand, the benefit of a contract is transferred to a third party. This is a transaction between the person entitled to the benefit of the contract (the assignor) and the third party (the assignee) which results in the assignee becoming entitled to sue the person liable under the contract (in many cases called the “debtor”). The “debtor” is not a party to the transaction and hence his or her consent is not necessary for its validity.
…
[60] In this instance, counsel were agreed that if there was an assignment it would have to have been an equitable assignment of a legal chose in action (here, the rights under the agreement). This would not require any particular form. What is critical is an intention to assign, although that may have been established by conduct. Notice is not an essential requirement. An assignment of this character may be perfectly valid in equity without any notice to the third party - although notice is usually said to be “desirable”, since, as with statutory assignments, until he or she receives it the third party is entitled to treat the assignor as his or her creditor and to discharge his or
11 Nathan v Smith HC Auckland CIV-2007-404-253, 16 November 2009.
12 Hela Pharma AB v Hela Pharma Australasia Ltd CA 165/03 and CA 206/03, 17 February 2005.
her debt by payment to that party. The giving of notice may prevent further equities attaching to a debt. It may also affect priorities.
[19] In my view, the criticisms of Mountain Road are cogent. The decision is discordant with Australian and English authority, makes little practical sense and has the result that there is one title as between assignor and assignee and another title as between assignee and third parties.
[20] I need also to consider the decision of the Court of Appeal in Smith v Nathan.13 In that case, the Court of Appeal dismissed an application for leave to appeal. One of the points which was in contention related to Mountain Road. The Court of Appeal commented:14
Mountain Road is a controversial decision which has been distinctly not followed in Australia and is not in accord with current authority in the United Kingdom. If Mr and Mrs Smith were to obtain leave to appeal, it is quite likely that either this Court or perhaps the Supreme Court, would be invited to review Mountain Road.
[21] The Court of Appeal refused leave to appeal on a number of grounds, one of which was the desire of the Court of Appeal not to compromise the trial of the substantive action. The Court commented:15
As well, and importantly, a favourable result from the point of view of Mr and Mrs Smith on the Mountain Road argument would not exclude them from the action and they will continue to face claims in both tort and contract.
[22] Accordingly, I do not find the refusal of the Court of Appeal to grant leave to appeal in that case to constrain my discretion in this case. I find the position to be this:
(a) If I refuse leave to transfer the cross-appeal to the Court of Appeal, then the outcome of the cross-appeal in this Court will be on the
application of Mountain Road to the facts of the case.
13 Smith v Nathan [2010] NZCA 265.
14 At [9].
15 At [10].
(b)A decision adverse to Manchester cannot be the subject of an application to the Court of Appeal for leave to bring a second appeal. The particular jurisdiction from which the appeal arises statutorily bars a second appeal.
(c) Mountain Road has been substantively criticised by senior Australian Courts and it is inconsistent with English authority. This was recognised by the Court of Appeal in Smith v Nathan.
(d)There is another decision of the Court of Appeal, as Wylie J observes, which both post-dates Mountain Road and seems to take a different view.16
(e) The Court of Appeal in Mountain Road decided that equity should follow the law as enunciated by s 130 of the Property Law Act 1952. That section has been repealed and its replacement is to the opposite effect.
[23] While I accept Mr Till’s submission that the legal validity of Mountain Road is not now a matter of general public interest, it is of great significance to the issues between the parties in the present case. My view is that given the factors set out above, it would be unjust to deny Manchester the opportunity to persuade the Court of Appeal to overrule Mountain Road. I find that, taken together, the factors amount to exceptional circumstances and I will grant the application to transfer the cross- appeal.
Manchester’s appeal
[24] In the absence of opposition from the Council, I have to consider the grounds of appeal against the reasoning in the determination.
[25] The Tribunal had to consider a situation where Manchester bought units in a development and, while the contract for the purchase was conditional as to finance,
took an assignment of the vendor’s claims against the Council. The Tribunal held
16 Hela Pharma AB v Hela Pharma Australasia Ltd, above n 12.
that the sale by the vendor to Manchester extinguished its claim against the Council. The reasoning is set out in Mr Walker’s submissions:17
a.Claims for negligent construction are claims for economic loss. The loss occurs when the market value of a dwelling is depreciated by reason of defects.
b.Such loss “had not arisen”. Sage had entered into a sale and purchase agreement for “full value”. The agreement was only conditional on finance and there was no evidence that Manchester had any difficulty in satisfying the finance condition.
c.The assignment was an “afterthought and not part of the sale and purchase agreement”.
[26] In my view, the Tribunal erred in holding that the conditional agreement to purchase at a price extinguished the vendor’s right to claim against the Council in negligence. Here, all that happened was that, while conditional as to finance, and, no doubt, to assist with satisfying that condition, the agreement to purchase was varied to include an assignment of the vendor’s rights to claim against the Council. Because the conditional agreement did not reflect the bargain ultimately concluded by the parties, it cannot be said that the price conditionally agreed upon was curative of any loss suffered by the vendor.
[27] Accordingly, I will allow the appeal.
Decisions
[28] Manchester’s appeal is allowed.
[29] I direct that the cross-appeal is to be transferred to the Court of Appeal.
[30] Costs on the application to transfer the cross-appeal and on Manchester’s
appeal are reserved.
Brewer J
17 Appellant’s submissions in respect of the appeal, dated 9 August 2016, at para 10.
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