Anz Bank Nz Ltd v Frost & Sutcliffe
| Jurisdiction | New Zealand |
| Judge | Asher J |
| Judgment Date | 14 July 2014 |
| Neutral Citation | [2014] NZHC 1640 |
| Docket Number | CIV-2013-404-001380 |
| Court | High Court |
| Date | 14 July 2014 |
[2014] NZHC 1640
Asher J
CIV-2013-404-001380
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Application to review a decision of an Associate Judge which (1) struck out the defendant solicitor's affirmative defence of contributory negligence against the plaintiff and (2) dismissed an application by the plaintiff for further particulars of the defendant's defence based on lack of causation — plaintiff had forwarded a discharge of mortgage to the defendant solicitors on the basis they would not release it until the defendant's client had executed a replacement security and a solicitor's certificate was available — had referred in an accompanying letter to the obligation as “being an undertaking” — defendant released the discharge without obtaining an executed replacement security and without making available a solicitor's certificate — defendant argued that a defence of contributory negligence was available as a the retainer did not impose a strict obligation, but rather a contractual duty to exercise the care of a prudent and competent solicitor — pleaded that plaintiff would have suffered loss anyway as a result of the global economic crisis — whether a defence under s3 Contributory Negligence Act 1947 (apportionment of liability in case of contributory negligence) was available — whether defendant was required to provide further particulars of its defence of causation
MJ Tingey and NFD Moffatt for Plaintiff
P Hunt and D Turnbull for Defendant
JUDGMENT OF Asher J
On 2 March 2006 the National Bank of New Zealand (now the plaintiff, the ANZ Bank) forwarded a discharge of mortgage to Frost & Sutcliffe solicitors on the basis that they would not release it until Frost & Sutcliffe's client had executed a replacement security and Frost & Sutcliffe's solicitor's certificate was available. Frost & Sutcliffe, however, released the discharge without obtaining an executed replacement security and without making available a solicitor's certificate.
In this proceeding the ANZ Bank claims against Frost & Sutcliffe on the basis of breach of undertaking and breach of contract. There was also a claim based on negligence which the ANZ Bank says will not be pursued if this application is successful. In an interlocutory judgment of 21 February 2014, at the request of the ANZ Bank, Associate Judge Abbott struck out Frost & Sutcliffe's affirmative defence of contributory negligence against the ANZ Bank. The Associate Judge, however, dismissed ANZ's application for further particulars of Frost & Sutcliffe's defence based on lack of causation.
Both Frost & Sutcliffe and the ANZ Bank have applied to review the judgment, each challenging the decisions that were determined adversely against them.
In November 2005 the National Bank of New Zealand (now the ANZ Bank) had advanced $976,000 on a first registered mortgage over a property at 10 Middlemore Road, Otahuhu. The mortgagor, Twenty-First Century Ltd, was a client of Frost & Sutcliffe. The sole director of Twenty-First Century was Duong Hai Ha who guaranteed the mortgage.
It was then agreed between the ANZ Bank, Twenty-First Century and Mr Ha that the terms of the loan would be varied to enable the sale of the Middlemore Road property, and this would include substitution of a property in Alfriston Road for the Middlemore Road property as security for the loan.
On 24 February 2006, Frost & Sutcliffe wrote to the ANZ Bank seeking a discharge of the mortgage on the basis that they undertook not to deal with the documents until they had accounted to the ANZ Bank for all monies it required to be paid under the mortgage.
On 2 March 2006, the ANZ Bank responded in a letter I will consider in detail. The ANZ Bank agreed to discharge the mortgage provided that Frost & Sutcliffe did not release the discharge documents until the replacement security had been executed and its solicitor's certificate was available.
At the same time a general letter of instructions to Frost & Sutcliffe was sent by the ANZ Bank. That letter has not been found by either the ANZ Bank or Frost & Sutcliffe. For the purposes of the application it has been accepted that the letter would have been sent in the form of a standard template letter of instructions on similar terms to letters of instructions given at the time.
Despite the express instruction of 2 March 2006 Frost & Sutcliffe released the discharge of mortgage with a transfer of Middlemore Road to the purchaser of that property, and the sale of Middlemore Road proceeded. No replacement mortgage was executed over the Alfriston Road property. Frost & Sutcliffe did not have available or provide to the ANZ Bank a solicitor's certificate. Frost & Sutcliffe then released the net proceeds of sale to Twenty-First Century. The effect of this was to leave the ANZ Bank unsecured.
Frost & Sutcliffe accepts that it did not have authority from the ANZ to release the discharge before it held the executed replacement security. It accepts that it was in breach of contract in failing to do so.
Twenty-First Century was put into liquidation in October 2011. Mr Ha has been adjudicated bankrupt. Because the mortgage had not been executed, the ANZ Bank was an unsecured creditor and sought to prove in the liquidation for $922,388.78. There is no prospect of any recovery from the liquidation. To compound the ANZ Bank's difficulties the liquidators have sought the recovery of payments totalling $248,252.95 made to the ANZ Bank by Twenty-First Century, alleged to be a voidable transaction.
Frost & Sutcliffe pleaded that any loss that flows from its breach of contract is subject to a deduction for contributory negligence by the ANZ Bank. The ANZ Bank says that this defence cannot be raised in answer to claim for breach of a strict contractual obligation, and that the letter of 2 March 2006 imposed such an obligation on Frost & Sutcliffe. Frost & Sutcliffe say in answer that the retainer did not impose a strict obligation, but rather a contractual duty to exercise the care of a prudent and competent solicitor, and that as a consequence the defence must be available.
The Associate Judge accepted the ANZ Bank's argument. After traversing the relevant statutory authority and case law, he accepted that a Court should be slow to pass the whole risk of breach over to a solicitor in the absence of clear language. However, he determined that there was clear language in the letter which imposed strict liability. It being one of those &rare cases& imposing strict liability, the affirmative defence of contributory negligence was not available.
Like the Associate Judge I apply the statement of principles applying to strike out set out in Attorney-General v Prince: 1
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(a) The Court proceeds on the basis that the facts pleaded in the statement of defence are true.
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(b) The defence will be struck out where it is clearly so untenable that it cannot succeed.
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(c) The jurisdiction is one to be exercised sparingly.
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(d) The Court can exercise this power even where it requires determination of difficult questions of law, requiring extensive argument.
I add that it has become clear from recent decisions that if the area of law is developing, and there is a possibility that a claim or defence could succeed, then the proceedings should not be struck out. 2
Frost & Sutcliffe have the burden of persuading the Court that the Associate Judge's decision was wrong in that it rested on unsupportable findings of fact or applied the wrong principles of law. 3 The Court's will apply the approach of Austin, Nichols & Co Inc v Stichting Lodestar and will make its own assessment on the material before it. 4
In a carefully reasoned judgment, the Associate Judge analysed the commentary and case law in New Zealand and England relating to the availability of a plea of contributory negligence. He noted that the ANZ Bank undertook not to pursue its claim in negligence if the defence of contributory negligence was struck out in relation to the claim in contract. He observed: 5
Commentators have summarised the outcome of these cases as follows:
(a) Professional retainers do not normally impose strict duties to achieve a specified result. Instead, a strict duty will be imposed only where justified by an express undertaking or by necessary implication from the facts. Otherwise the retainer will be construed as imposing a duty of care.
(b) An instruction to a professional will normally be construed as defining scope of the duty of care rather than imposing a strict duty unless it is clear that the instruction is intended to create an independent strict duty.
(c) Most cases have concluded that the duties imposed on solicitors by express instructions from lending institutions and the undertakings that
the institutions require are qualified (by a duty to use reasonable care and skill) rather than absolute obligations, and it is likely to be a rare case where a court will impose an absolute obligation.(d) Notwithstanding that it is likely to be in rare cases only, the court will find that a solicitor's obligation is strict (and regardless of whether the solicitors were at fault) where that is the proper construction of the retainer.
(footnotes omitted)
He found that the case was one of the “rare cases” for imposing strict liability 6. He considered that the instruction from the bank was unqualified and imposed a strict obligation upon Frost & Sutcliffe to observe its terms. He concluded that the affirmative defence of...
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Anz Bank NZ Ltd v Frost & Sutcliffe
...HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2013-404-001380 [2014] NZHC 1640 BETWEEN ANZ BANK NEW ZEALAND LIMITED Plaintiff AND FROST & SUTCLIFFE Defendant Hearing: 19 June 2014 Counsel: MJ Tingey and NFD Moffatt for Plaintiff P Hunt and D Turnbull for Defendant Judgment: 14 July 2014 J......