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High Court of New Zealand Decisions |
Last Updated: 11 June 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-5197
BETWEEN DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)
Plaintiff
AND DYSON SMYTHE & GLADWELL Defendant
Hearing: 19 May 2010
Appearances: Mr G H J Brant for plaintiff
Mr G D Wadsworth and M J Ritchie for defendant
Judgment: 1 June 2010 at 3 p.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
01.06.10 at 3 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Counsel:
Stace Hammond, P O Box 19-101, Hamilton – by email: gilesB@shg.co.nz
Kennedys, P O Box 3158, Auckland – by email: g.wadsworth@kennedys-law.co.nz
DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) V DYSON SMYTHE & GLADWELL HC AK CIV-2009-404-5197 1 June 2010
Background
[1] In March 2009, two trusts (which I will refer to as the “Hadlow trusts”) entered into an agreement for the sale of a farm property near Warkworth. The purchaser was the Grey Cliffs Trust. The purchase price was $3,020,000, which sum included GST of $292,500. The property was subject to a second mortgage to the plaintiff. The plaintiff made it clear that it intended to require payment from the Hadlow trusts of the entire $3,020,000 plus GST before it would grant a discharge of its mortgage. The vendor made it clear to Dominion that if Dominion were to insist on payment of the full $3,020,000, the vendor, not being able to retain the advantage of the GST component of the price (the $292,500), would not be able to meet the GST. While Dominion was desirous of the sale proceeding on such a basis, it did not want to cause the transaction to be derailed.
[2] The purchaser for its part was able to borrow the full purchase price. If the transaction were to proceed, the purchaser would be able to claim a credit from the IRD for an amount equivalent to the GST component of the purchase price, and so the GST impact of the transaction on the purchaser would be neutral. However, the purchaser would have to meet finance costs during the period that it had to borrow the GST component from its bank. I understand, although it is not entirely clear, that the Grey Cliffs Trust relevant GST period into which the transaction would fall ended on 31 March 2009.
[3] Discussions took place about how this matter could be resolved. At one point it was proposed that the transaction would be suitable for “zero rating” but the purchaser’s solicitor, Mr Gladwell, did not accept that such an approach was appropriate because the property was not being sold as a going concern but rather the subject matter of the agreement was land, buildings and plant. In this he was supported by accounting advice.
[4] The vendor (the Hadlow trusts) and the purchaser (the Grey Cliffs Trust) instead agreed between themselves to an alternative solution which would mean that the purchaser did not have to borrow an amount equivalent to the GST component of the purchase price from the bank at all. They agreed to explore with the IRD a
proposal whereby the requirement for the vendor to account for the GST component would be offset against the purchaser’s entitlement to claim as a credit an amount equivalent to the GST that would have to be paid on the transaction.
[5] The vendors’ accountant, Mr Macnicol, wrote to the IRD on 17 March 2009 setting out this proposal. The relevant part of his letter was in the following terms:
The funds from the sale available to the second mortgagee are insufficient to clear all of the indebtedness to [Dominion] and therefore they have requested all funds (after the first mortgage is repaid) including GST is paid to them. This means that the Hadlow Trusts are left with no cash flow to meet the GST and have no security against which to borrow additional funds to meet that obligation.
[6] The letter continued:
We seek your agreement to the following:
IRD will internally offset the liability owing by the Hadlow trusts against the GST claim refundable to the purchaser. Thereby (sic) requiring no payment of GST to IRD by the vendor and no GST refund to be made by IRD to the purchaser.
The same effect of outcome and zero rating (sic).
Both vendor and purchaser have agreed to this treatment. Could you please reply on more before 25/3/2009.
[7] This arrangement, if accepted, would mean that no cash would pass between the purchaser and the vendor. This would have the negative effect, from Dominion’s point of view, that the amount of money that it would receive and which it would be able to apply towards reduction of the mortgage debt would be less by an amount equivalent to the GST component of the purchase price. Dominion however was prepared to go along with the proposal rather than see the transaction fail. Apparently, the purchasers were under financial pressure and this was no doubt a factor which contributed to Dominion taking the stance that it did in the matter.
[8] Against that background, the defendant firm (the solicitors of the Grey Cliffs Trust) was invited to provide an undertaking. Because there is apparently a difference of opinion between the parties as to the exact form that the undertaking took, I propose to set out the detail of the exchanges between the parties.
[9] On 17 March 2009, Macky Robertson, the solicitors acting for the vendor, wrote to the defendant solicitors. In his letter, which was for the attention of Mr Gladwell, Mr Mackie said:
I am instructed by my client, that my client’s accountant, Paul MacNicol, of Warkworth has applied to the IRD for a set-off of the GST which would otherwise be payable by your client, of $292,50.00 and for which my client will be required to account to the IRD. Of course your client will subsequently be able to claim the GST, following settlement.
[10] He then commented that the IRD were likely to look on the matter favourably and continued:
In the circumstances, please advise whether your client is prepared to settle the purchase, in anticipation of the application being approved and let me have your undertaking to hold the GST of $292,500.00 undisbursed in your trust account, pending formal receipt of the IRD’s advices. In the event that the application is approved, the GST can be released to your client. If not, it will be paid to the creditor of my trust account, for my client’s benefit.
[11] The defendant replied on 17 March 2009:
Thank you for your letter of 17th March 2009. Our client agrees to the proposal outlined in ... your letter, subject to IRD approval on or before 31st March 2009. Our client has a temporary advance from the Bank to cover the GST and there will need to be a time limit on the arrangement. We will either need to pay the GST to you and claim it from Inland Revenue Department or pay the funds we are holding to the bank. We accordingly give our undertaking in terms of the fourth paragraph of your letter but on the basis that if we do not have written advice of the approval of the set off on or before 31 March 2009 we will pay the GST to you. Please advise if that amendment to the arrangement is approved and if so we would be grateful if you could certify and sign the two discharges of mortgage and the transfer and let us have your undertaking over releasing the documents.
[12] In the meantime, the solicitors for Dominion had been informed of the proposed arrangement and they made comments about the form of the undertakings. It is not necessary to set out what Dominion wanted the other parties to agree to. The defendant replied on 19 March 2009:
The difficulty we have is that our client only has short term finance from its Bank for the GST and we will either have to pay it back to the Bank or pay it to you so that our client can claim it. Our client’s next GST period ends on
31 March 2009 which is why we wanted to sorted out by the end of the month. We could not agree to hold the funds on the basis that they would
not be released without the prior consent of Dominion Finance.
[13] On 20 March, the solicitors acting for Dominion wrote to the “in-house”
counsel for the vendor and to the vendors’ solicitor in the following terms:
We understand that in an attempt to deny [Dominion] the GST component of the sale price, you are seeking an offset of the GST between yourself and the purchaser. In an attempt to assist you in getting the sale completed, the receivers have agreed to allow that off-set to proceed (although they have absolutely no obligation to do so). The receivers however are not prepared to allow that situation to continue indefinitely.
As a result of your last e-mail, the receivers’ requirements are now that:-
1. The GST component be placed in the purchaser’s solicitors trust account on settlement;
2. The purchaser’s solicitor gives an undertaking to [Dominion] that if the IRD has not approved the off-set by 17 April, the GST amount is to be paid to vendors solicitors trust account (as required by the agreement for sale and purchase). In the event the purchaser’s solicitor has received the approval by 17 April then provided that they forward a copy of the same to [Dominion] on or before 17
April, then they are authorised to return the GST amount to the purchaser;
3. An irrevocable undertaking from the vendor’s solicitor that immediately on receipt of GST from the purchaser's solicitor the same will be paid to [Dominion];
4. The irrevocable authority of the Hadlow Trusts addressed to their solicitor to pay the GST amount to [Dominion], if received and immediately on receipt from the purchaser’s solicitors.
[14] The final document in the sequence of correspondence and e-mails was the defendant’s response dated 23 March 2009:
We are agreeable to the proposal set forth in your email of 20th March
2009, subject to the vendor settling with us in exchange for us giving the undertakings sought and subject also to the purchaser not being liable to the vendor for all penalty or interest on the GST. Subject to these qualifications, we give our undertaking in accordance with paragraph 2 of your email of
20th March 2009 to Jones Young and to Macky Roberton.
[15] Also on 23 March, the Hadlow trusts’ solicitors gave an undertaking in accordance with paragraph 3 of the 20 March letter. Therefore the parties agreed to the following arrangment:
the Hadlow trusts’ liability for tax against the credit owing to the purchaser.
b) If, on the other hand, the IRD did not approve the proposed set-off by
17 April 2009, the defendant solicitors undertook to transfer the GST amount to the Hadlow trusts. The Hadlow trusts’ solicitor in turn undertook to transfer that amount to the plaintiff.
March 2009.
[16] On 24 March the parties settled the transaction. The plaintiff could have insisted on not providing a discharge of its mortgage unless it received all of the sale price, including the GST component, less the amount required to pay off the first mortgage. But because of the arrangement the parties had entered into, it received the sale price less the GST element. Although that was the basis upon which the transaction settled, Dominion still had a chance of receiving a sum equivalent to the GST component on the transaction in the event that the IRD approval was not obtained by 17 April. Were that to happen, Dominion would receive that sum via the interlocking undertakings that the solicitors had given.
[17] On 16 April 2009, advice was received from the IRD in the following terms:
I confirm IR has now received the GST return period ended 31.03.09 for [Hadlow trust].
This has a GST liability of $290,513.92.
As per your advise (sic) GST offset from the purchases (sic) Grey Cliffs Trust, of $292,500 will settle this GST liability with the balance to be refunded to the Hadlows Partnership Trust.
Upon finalising the GST account for Grey Cliffs Trust & upon their request their resulting GST deduction can be transferred to the vendors (Hadlows Partnership Trust).
[18] On 17 April 2009, the plaintiff wrote to the defendant and the Hadlow trusts’
solicitors to advise that it did not consider that the IRD’s 16 April e-mail amounted
to the required approval under the agreement. The plaintiff’s position was (and is)
that the approval needed to be an “unconditional approval”, and that the IRD’s 16
April e-mail was “conditional” approval only of the GST set-off. That is because approval was expressed to be subject to finalisation of the purchaser’s GST account and the purchaser’s request for the transfer of the GST deduction to the vendors. The plaintiff therefore requested that the defendant transfer the GST amount to the Hadlow trusts, who would then transfer it to the plaintiff, per their respective undertakings.
[19] The defendant rejected the plaintiff’s interpretation. The defendant considered that approval of the proposed GST set-off was given by the IRD on 16
April 2009 and that therefore it was not required to transfer the GST amount to the
Hadlow trusts per its undertaking.
[20] Subsequently, the defendant did not transfer the GST amount to the Hadlow trusts. Instead, the defendant arranged for the set-off to be formalised by the IRD. This was completed on 30 April 2009.
[21] Notwithstanding that the set-off has now been finalised, the plaintiff brings this application on the basis that the defendant should have transferred to the Hadlow trusts the GST amount on 17 April 2009 per its undertaking dated 23 March 2009.
[22] Both counsel accepted that the statement reflected current IRD policy at the time when the undertaking was given.
Solicitors’ undertakings
[23] One further background matter to be noted is that both Mr Wadsworth for the defendant and Mr Brant for the plaintiff referred to an information document which the IRD issued on the subject of GST offsets. Included in that document is the following statement:
We’ve been asked whether the purchaser of a property can have the resulting GST input tax deduction transferred to the vendor’s GST account, to offset the vendor’s GST liability from the transaction. This is often referred to as a “GST offset” between GST-registered persons.
The Goods and Services Tax Act 1985 doesn’t provide specific authority to transfer input tax deductions relating to individual transactions. However, where a GST return period results in a credit of excess tax, customers may ask that all or any part of the excess tax, is transferred to another customer.
It’s possible for a GST registered purchaser to ask us to transfer any part of an excess GST credit that they may be entitled to have refunded to a GST registered vendor. However, the following points should be noted:
Any request for a GST offset must be made in writing by the purchaser (or their agent) and may be requested whether or not a “GST offset” clause is included in an agreement for sale and purchase.
We may occasionally be asked to confirm in advance that a GST offset will be made. We can confirm that such transfers can be made. We can confirm that such transfers can be made but we can’t give any assurances in advance that a particular transfer will be made.
There are a number of reasons for this. For example, the purchaser may have outstanding returns or debt with Inland Revenue, so any credit may not be available for offset. In addition the purchaser may have made or received other taxable supplies in the same GST return period, so the full amount of the credit may not be available for offset.
[24] Mr Brant referred me to Re C (a solicitor) [1982] 1 NZLR 137, where Vautier J considered the nature of the Court’s jurisdiction to enforce the undertaking of a solicitor (at 138–139):
The jurisdiction of this Court to make such an order as is here sought is in my view well established and I agree that a clear statement of the nature of this jurisdiction and the manner in which it should be exercised is to be found in the judgment of Denning MR in Geoffrey Silver & Drake v Baines [1971] 1 All ER 473; [1971] 1 QB 396:
"This court has from time immemorial exercised a summary jurisdiction over solicitors. They are officers of the court and are answerable to the court for anything that goes wrong in the execution of their office. Even if the solicitor has been guilty of no fault personally, but it is the fault of his clerk, he is accountable for it: see Myers v Elman [1939] 4 All ER 484, [1940] AC
282. This jurisdiction extends so far that, if a solicitor gives an undertaking in his capacity as a solicitor, the court may order him straightaway to
perform his undertaking. It need not be an undertaking to the court. Nor need
it be given in connection with legal proceedings. It may be a simple undertaking to pay money, provided always that it is given ‘in his capacity as a solicitor’: see United Mining and Finance Corpn Ltd v Becher [1910] 2
KB 296 at 306, [1908-10] All ER Rep 876 at 881, per Hamilton J. If such an undertaking is given, the court may summarily make an order on the solicitor
to fulfil his undertaking (see Re a Solicitor [1966] 3 All ER 52, [1966] 1
WLR 1604) and, if he then fails to do so, the court may commit him to prison. Alternatively, if it is an order to pay money, execution may be levied
against his property. This summary jurisdiction means, however, that the solicitor is deprived of the advantages which ordinarily avail a defendant on
a trial. There are no pleadings; no discovery; and no oral evidence save by
leave. The jurisdiction should, therefore, only be exercised in a clear case" (ibid, 475; 402).
In my view this is such a clear case. The terms of the undertaking are in no way open to doubt as to their meaning. The solicitor undertook that these proceeds would be held by him "until an order is made by the Court" in relation to both matrimonial property and maintenance. Such an order of course was made on 4 November 1981. The only reason advanced by the solicitor for failing to honour the undertaking is the lodging of the appeal and the unsuccessful attempt to obtain a stay of proceedings.
[25] In Australian Guarantee Corporation (NZ) Ltd v Brewster [1990] 2 NZLR
167, Fisher J, after reviewing the authorities, said (at 171):
Based on those authorities my understanding of the principles applicable to a case such as the present one can be summarised as follows:
(a) As part of the general disciplinary powers of the High Court over the conduct of its officers, the Court can require that a solicitor who has defaulted on an undertaking to a third party with respect to his client's affairs pay:
(i) damages for the loss suffered by the third party in consequence and/or
(ii) the third party's costs on a solicitor and client basis.
(b) If such payment is ordered the solicitor normally has a right of indemnity against his client.
(c) The jurisdiction is a discretionary punitive and disciplinary one and does not exist for the purpose of enforcing legal rights.
(d) Such cases can be dealt with by summary judgment, although of course that is by no means the only appropriate procedural vehicle.
(e) An undertaking for this purpose must be a personal undertaking given by the solicitor in his professional capacity. It is not sufficient if the undertaking is merely given on behalf of a client or if it is given by a solicitor in some capacity other than as solicitor.
(f) Before such an undertaking can be enforced it must be clear in its terms.
(g) In construing the meaning of such an undertaking it will generally be assumed that the undertaking was intended to facilitate the successful completion of an essentially commercial dealing. It should not normally be construed in any technical or legalistic fashion but rather by reference to the evident substance and intention.
Issues for determination
[26] This summary judgment application raises three issues for determination:
a) What was the agreement between the parties?
[27] I note that no issue has been raised as to whether time was of the essence for the performance of the obligation to obtain GST approval by 17 April.
What was the agreement between the parties?
[28] What the solicitors had to do depended upon the meaning of the agreement that the parties had come to. Therefore it is necessary to construe the parties’ agreement.
[29] The plaintiff’s position is that the defendant gave an undertaking that it would hold the GST due on the sale of the farm pending the IRD’s unconditional approval by 17 April 2009, of the set-off of the vendor’s GST obligations against the purchaser’s GST claim. If the required approval had not been given by 17 April
2009 the defendant was obliged to pay the GST to the vendor’s solicitor for immediate on-payment to Dominion in partial repayment of mortgage sums the vendor owed Dominion. Further, the plaintiff submits, while on 16 April 2009 the IRD provided conditional approval of the GST set-off proposed, the approval was expressed to be subject to finalisation of the purchaser’s GST account and the purchaser’s request for the transfer of a GST deduction to the vendors (the Hadlow trusts). The requirement as to GST approval not having been fulfilled by 17 April, from that point, the defendant was bound to honour its undertaking.
[30] Some confusion arose from the fact that Mr Macnicol, the vendor’s accountant, seems to have considered that the advice from the IRD on 16 April 2009
constituted the necessary “approval”. As is clear from the following authorities, the question of what the parties intended by their contract is to be approached as an objective question. In that regard, what any particular party or its legal advisers thought about the matter is not determinative of the issue.
[31] A helpful starting point to ascertainment of the parties’ contractual intentions is to be found in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101:
[14] There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that “we do not easily accept that people have made linguistic mistakes, particularly in formal documents” (similar statements will be found in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, 269; Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667, 681-682 and Jumbo King Ltd v Faithful Properties Ltd [1999] HKCFA 38; (1999) 2 HKCFAR 279, 296) but said that in some cases the context and background drove a court to the conclusion that “something must have gone wrong with the language”. In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had.
[32] Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5 at
[19] stated:
[19] The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds. Evidence is not relevant if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean, or what their negotiating stance was at any particular time.
[33] Tipping J went on to say:
[22] Nor does the objective approach require there to be an embargo on going outside the terms of the written instrument when the words in issue appear to have a plain and unambiguous meaning. This is because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean. An example of that situation is when plain words, read
contextually, lead to a result which does not make sense, whether commercially or otherwise: a meaning that flouts business commonsense must yield to one that accords with business commonsense. The appropriate contextual meaning, if disputed, will, almost invariably, involve consideration of facts and circumstances not apparent solely from the written contract. While displacement of an apparently plain and unambiguous meaning may well be difficult as a matter of proof, an absolute rule precluding any attempt would not be consistent either with principle or with modern authority.
(Footnotes omitted).
[34] In light of the above authorities I will now give an attempt to analyse the apparent meaning of the parties’ contract.
[35] At a practical level, the objective the parties had in mind when making the arrangements as to GST, was to provide certainty over whether Grey Cliffs would need to pay the GST by way of a transfer of funds to the vendor, or whether it could satisfy the GST by way of set-off, which would involve it not having to raise finance to enable a payment to be made to the vendor on account of GST. Depending upon the answer to that question, the plaintiff might receive $292,500 or it might receive nothing. The plaintiff was prepared to take that risk rather than see the transaction fail entirely. The parties would have the required degree of certainty, obviously, if the IRD had actually permitted such a set-off to be carried out or it gave a commitment that it would do so. In each case the parties decided that they needed to know by 17 April.
[36] If the second outcome occurred, the parties must have required a reasonably high degree of certainty that the IRD would act as it indicated that it would; otherwise the parties might find themselves in the position where they had acted on such an expectation only to find that the IRD later declined to proceed as indicated.
Did the IRD e-mail amount to the required approval under the agreement?
[37] The evidence makes clear that there could be no such thing as a prospective “approval” as an alternative to actual implementation of a set-off. It was the case that the IRD had a policy of allowing offsetting even though there was no explicit statutory basis for doing so. No doubt the IRD came to this view because the practice of offsetting was a sensible and practical one which would assist taxpayers
in appropriate cases. I consider that it can be safely concluded that the parties knew of the existence of the IRD’s general policy at the time that they entered into the agreement. This consideration gives rise to an inference that the parties must have had something more in mind than a simple reiteration of departmental policy when they spoke of “approval”. What seems likely is what they had in mind was specific approval of the set-off arrangement actually proposed in this case. But given the standard approach that the IRD adopted to offsetting proposals, it would appear that Mr Macnicol was on a pointless errand when he asked for approval from the IRD in advance, and that he was mistaken when he thought that a reply from the IRD – which really amounted to saying nothing more than “it all depends” – constituted the approval that the parties’ contract envisaged. Of course, what Mr Macnicol thought is not the same thing as the parties’ contract meant. The same can be said of Mr Gladwell’s understanding of the position.
[38] It seems to me that on the basis of the material before the Court, the parties by their contract agreed that a certain outcome was required. That result could not have been achieved until the necessary GST returns had been filed by the vendor and purchaser and approved by the IRD. Because the contract called for approval by 17
April, and because approval in the sense that I have mentioned above had not been obtained by that date, the contract required that the GST component of the sale price should be handed over from the defendant to the purchaser’s solicitors.
[39] The parties and their advisors apear not to have consulted the IRD policy on set-offs before agreeing to variation to the usual contractual arrangements about payment of the GST component of the purchase price. I record though that no submissions were made to me on the possible application of the doctrines of contractual mistake or frustration – no doubt for good reason. Further, the argument proceeded upon the assumption that when the contract referred to 17 April, that was the date by which the necessary approval had to be obtained.
[40] I conclude that no requisite approval had been obtained from the IRD by 17
April as the contract required.
[41] The next issue is whether the undertaking ought to be enforced. I have already dealt with the point that counsel for the defendant, Mr Wadsworth, made, that undertakings will only be enforced where their terms are clear.
[42] One justification for imposing a requirement of clarity is that a solicitor can be summarily ordered to perform the undertaking. There are procedural limits on the scope of the enquiry that the Courts can make when determining what the undertaking required the solicitor to do. There are no pleadings and no discovery, for example. The traditional procedural vehicle for enforcing solicitors’ undertakings in the United Kingdom was by way of originating summons, which is not a suitable vehicle for resolution of factual issues: Geoffrey Silver & Drake (a firm) v Baines (trading as Wetherfield Baines and Baines, a firm) [1971] 1 QB 346,
404.
[43] Therefore the Courts can only proceed with confidence to enforce undertakings (if need be by a commitment to prison if the solicitor does not obey a Court order) where there is no room for doubt about what the solicitor had to do and, generally, the question of where the point had been reached where he/she was required to comply with the undertaking.
[44] It is necessary to bear these cautions in mind when proceeding by way of summary judgment. If the Court addresses the question of whether the defendant has a reasonably arguable defence to the application to enforce the undertaking, the defendant’s position will be protected. It is then a question of determining whether the Court is able properly to construe the agreement between the parties which underscored, and provided the backdrop to, the defendant giving the undertaking. My assessment is that it is, in fact, possible for the Court to interpret the contract at summary judgment stage.
[45] The next issue is that of form of relief. Mr Wadsworth submitted that it would not be possible for the Court to order enforcement of the undertaking because before any order could be made, the Court was essentially required to carry out an enquiry to ascertain what loss the plaintiff had suffered. Mr Wadsworth said the plaintiff had other securities for enforcing the primary obligation which was owed to it. Until all those securities had been released, it would not be possible to assess the extent of the plaintiff’s loss. I do not accept this submission.
[46] The contract between the parties envisaged two possible outcomes. One of those was that a sum of money would have to pass from the purchasers to the vendors. The vendors had an interest in receiving the amount of GST because they would have to account for GST in the event that an offsetting arrangement was not agreed to.
[47] The plaintiff had an interest in ensuring the payment was made because it would be the recipient of that payment – again assuming no set-off was agreed to. Had the plaintiff not agreed to the contractual arrangements of which the undertaking was part, the plaintiff would have had certainty of receiving the GST amount because it held a mortgage over the property which had to be cleared in order to settle the transaction for sale. But in order to allow the vendor and purchaser the opportunity to obtain the advantages of set-off, the plaintiff bargained away its right to insist on payment as the price for discharging the mortgage. In its place, it sought a mechanism which would provide an assurance that in the event that it became entitled to the GST component it would receive payment and receive it promptly.
[48] Just as the original legal arrangement between the plaintiff and the vendor did not require the plaintiff to establish loss in order to receive the money secured by the mortgage, there was no requirement that in order to receive the additional amount of
$292,500, the plaintiff should have to prove loss. This was not a contract that involved anyone indemnifying the plaintiff for loss suffered. It was a contract to pay it $292,500. For the better observance of that agreement, the defendant solicitors agreed that they would hand over the sum of $292,500 if set-off were not achieved.
They did not undertake that they would pay an indeterminate amount representing damages which would then have to be calculated. The point has now been reached where the solicitor must honour the undertaking. To do that he must pay over the amount he undertook to pay and not some other amount.
Other points raised by the defendant
[49] A further ground of opposition which the defendant advanced was that allowing the plaintiff summary judgment will work an injustice to the defendant who may wish to join third parties to the proceeding. This aspect of the defence was not developed in submissions before me. But in case it remains a live issue I will express my views. The Court has a discretion whether or not to decline summary judgment in circumstances where a defendant wishes to add a third party to the proceeding: Sudfeldt v UDC Finance Ltd [1987] NZCA 138; (1987) 1 PRNZ 205. To permit that course to be taken would cause considerable delay in disposing of the present application. It is a proposal that is at variance with the desirability of solicitors’ undertakings being enforceable by means of summary processes: see for example Australian Guarantee Corporation (NZ) Ltd v Brewster [1990] 2 NZLR 167. The Courts proceed summarily in order to maintain confidence in solicitors’ undertakings and the central part that they play in commercial affairs. Prompt action to enforce them must be forthcoming when needed. It would be an inappropriate exercise of the discretion in my view for the Court to decline to enter summary judgment in order to enable the defendant to join third parties.
[50] Mr Wadswoth also said that, as part of my general jurisdiction to avoid injustice, I had a discretion to decline to enter summary judgment. Much the same discretionary considerations as those that I have referred to when discussing the third party joinder point have relevance in response to this submission as well. In any event I do not consider that this is one of those exceptional cases where the Court should exercise its jurisdiction to withhold summary judgment because there is a risk of injustice to the defendant. The defendant is in the same position as any other solicitor who gives an undertaking. There are no circumstances of extreme hardship or other matters which would justify withholding summary judgment in this case. I adopt the observation of Casey J in Pemberton v Chappell [1987] 1 NZLR 1 at 5:
“once the plaintiff has complied with the requisite formalities and has satisfied the Court there is no defence, ‘it is very difficult indeed to conceive of circumstances where the Court should not give judgment for the plaintiff ... it can only be a discretion of the most residual kind” (quoting Robert Goff LJ in European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508 at 515).
Conclusion
[51] A solicitor’s undertaking will generally be enforced even in circumstances where there has been no impropriety or misconduct on the part of the solicitor. That is the case here. Although in some ways the case is a hard one for the solicitors, it is necessary – if the Courts are to maintain confidence in the sanctity of solicitors’ undertakings – to make an order for enforcement in this case.
[52] I make the order that the plaintiff seeks. If the parties are unable to agree on the detailed terms of the order I reserve leave to them to apply within 21 days for further directions on that point.
[53] The parties should confer on the matter of costs. If they are unable to agree costs then I will hear counsel at 9 a.m. on a convenient date.
J.P. Doogue
Associate Judge
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