Ipsofactoj.com: International Cases [2002] Part 11 Case 14 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Cashmere Enterprises Ltd

- vs -

Mathias

RICHARDSON P

GAULT J

TIPPING J

13 MARCH 2002


Judgment

Tipping

INTRODUCTION

  1. This is a case in which the ultimately simple facts have led to a multitude of causes of action. The appellant, Cashmere Enterprises Limited (Cashmere), entered into contracts of sale of properties at 25 and 27 Eltham Road, Kohimarama to Mrs. Jennifer Going, whose solicitor was the respondent, Mr. Mathias. In the course of the negotiations Mrs. Going gave Mr. Mathias an irrevocable written authority to pay to Cashmere, as vendor, a prospective GST refund when it came to hand. This document, which is at the heart of the case, was in these terms:

    J M Going

    94 Gowing Dr

    Meadowbank

    16.12.98

    Irrevocable Authority

    To: Jonathan B Mathias Solicitor, Auckland

    Re my purchase of 25-27 Eltham Road, Kohi from Cashmere Enterprises Ltd


    I intend to conclude an agreement for purchase of the above properties for $1.5 million with the vendor leaving in finance.

    I advise that immediately following settlement (anticipated prior to Xmas’ 98) I will apply for a GST refund of approx $166,666.00 from the I.R.D. and that I will authorise the GST Department to forward that refund to you and I irrevocably authorise you to use that refund to repay the vendor mortgage in respect of the above.

    I also advise that I intend to pay the vendor approx $50,000 – being the equity I will receive on the sale of my property at 94 Gowing Drive.

    J M Going 16/12/98

  2. Mr. Mathias sent a copy of the document to Cashmere under cover of a signed fax saying:

    Herewith my client’s irrevocable authority: please advise when contract signed so we can proceed to arrange for settlement before Xmas.

  3. After a series of events to which we will refer in more detail below, Mr. Mathias received the GST refund but did not pay it to Cashmere. Cashmere sued Mr. Mathias contending he was personally liable to pay it the GST refund monies. The causes of action pleaded included assignment, trust, liability of an agent who had assumed personal responsibility, negligent mis-statement, and breach of duty not to mislead under s 9 of the Fair Trading Act 1986. Other causes of action were originally mounted but are no longer in issue. Suggested variations of the extant causes of action included concepts of restitution, estoppel and assumption of responsibility.

  4. Potter J dismissed Cashmere’s claim in the High Court. She found against all the causes of action and held specifically that Mr. Mathias had not promised, either expressly or implicitly, to pay Cashmere the GST monies: in other words he had given no personal undertaking to do so. We will examine each ground of appeal after setting out the background in greater detail.

    BACKGROUND

  5. Cashmere, a property investor, decided in early 1998 to sell the two properties at 25 and 27 Eltham Road, Kohimarama. On 15 June 1998 it entered into an agreement to sell both properties to Mrs. Going for $1,168,000.00 plus GST, a total of $1,314,000.00. The agreement provided for settlement on 21 August 1998. Cashmere was to advance the GST component of the purchase price, namely $146,000.00 for a term of four weeks from the possession date against the security of a second mortgage. The transaction did not settle on 21 August and by letter of 10 September 1998 Ellis Gould, Cashmere’s solicitors, requested that the solicitors then acting for Mrs. Going give an undertaking that their firm, or Mrs. Going’s accountant, would be making the GST refund application and not Mrs. Going personally. In addition, Cashmere’s solicitors sought confirmation that the GST refund was to be paid either to Mrs. Going’s solicitors or to her accountants who were to hold the sum "as bare trustee" and would not disburse the monies to Mrs. Going but would forward them directly to Ellis Gould. No such undertaking or confirmation was given.

  6. Mrs. Going continued in her failure to settle. Summary judgment was entered against her by Cashmere and bankruptcy proceedings were threatened. Attempts were made to resurrect the transaction in October. These were unsuccessful and it was against this background that the negotiations resumed in December, this time at an increased price of $1.5m. On 8 December 1998 Cashmere expressed concern about the amount Mrs. Going was intending to contribute herself to the purchase and stated that it required a minimum equity input of $200,000.00. Cashmere also stated that if agreement could not be reached it would look to its remedies under its summary judgment which would include taking bankruptcy proceedings.

  7. On 16 December 1998 Cashmere again requested from Mr. Mathias an undertaking to pay to Cashmere the anticipated GST refund on the increased price of $1.5m, i.e. the sum of $166,666.00 once he had received it. It was anticipated at this stage that there would be a second mortgage to cover monies left in by Cashmere which was to be reduced by the GST refund. Cashmere emphasised that obtaining payment of the refund was a fundamental consideration because there was no other way it could be assured that a substantial part of the second mortgage would be repaid and the necessary equity thereby provided. Mr. Mathias did not, however, give any personal undertaking in the terms sought. He arranged for Mrs. Going to sign the irrevocable authority and a copy was supplied to Cashmere, as already mentioned. Mr. Begley of Cashmere, who had instigated the request for Mr. Mathias to give a personal undertaking, agreed in cross-examination that although he had sought it, it had not been forthcoming.

  8. On 24 December 1998 two agreements were entered into between Cashmere, as vendor, and Mrs. Going and her husband, as purchasers. One related to 25 Eltham Road at a purchase price of $835,000.00 and the other to 27 Eltham Road at a purchase price of $665,000.00, making up the total of $1.5m earlier mentioned. The agreements were expressed to be interdependent. They were unconditional and they provided for contemporaneous settlement on 31 December 1998, some seven days later. It was a term of these agreements that Cashmere, as vendor, would advance, on unregistered second mortgage, a total of $233,000.00. The agreement in its original form also provided that the Goings, as purchasers, would make what was described as a principal reduction of $233,000.00 on 28 January 2000, some 13 months hence. The unregistered mortgage was to be additionally secured over three properties owned by the Goings and was to be protected by caveats registered on their titles as well as on the titles to the two Eltham Road properties. On settlement Cashmere agreed to release its judgment against Mrs. Going.

  9. The transaction underwent restructuring so as to have the GST refund payable to the vendor on settlement. But as it transpired there was a further variation whereby the contract in relation to 25 Eltham Road was settled but that in relation to 27 was not. The parties reverted to a vendor mortgage which was taken over No. 25 for the intended amount. Prior to that, however, Ellis Gould for Cashmere had written to Mr. Mathias on 26 January 1999 setting out the basis on which they were prepared, without prejudice to Cashmere’s rights, to undertake the partial settlement in respect of 25 Eltham Road alone. The immediately relevant passage in their letter was a request to Mr. Mathias that he give Ellis Gould his written undertaking that his firm was:

    processing the GST refund application for both properties and that sum is to be paid to your trust account as stakeholder for the parties to be paid to the vendor [Cashmere] immediately it is received but no later than the date of settlement of 27 Eltham Road.

  10. Thus Ellis Gould repeated its earlier requests that Mr. Mathias give a personal undertaking to pay the GST refund to Cashmere immediately he received it. As before, Mr. Mathias gave no such express undertaking. In response to this aspect of Ellis Gould’s letter he said, in a reply of the same date:

    I am aware that my client has provided an irrevocable authority for that refund to be paid direct to my trust account and to the best of my knowledge that is the situation with respect to the refund application put in with the Accountant.

  11. It was of course a different irrevocable authority to which Mr. Mathias was referring. In spite of Mr. Black’s argument to the contrary, what Mr. Mathias wrote can only be regarded as a reference to an irrevocable authority which Mrs. Going had provided to the Inland Revenue Department for the refund to be paid direct to Mr. Mathias’ trust account. It is impossible to read into what Mr. Mathias wrote that he was giving the personal undertaking which Ellis Gould were seeking. It seems to us to be clear that he was doing no such thing and was carefully avoiding any suggestion of a personal commitment.

  12. The settlement in relation to 25 Eltham Road took place at the end of January. By 28 February 1999, which was the extended date for the settlement of 27 Eltham Road, that transaction had still not settled. Mr. Mathias received the GST refund, in the event for $163,978.12, on 4 March 1999 and confirmed receipt to Ellis Gould the following day. On 8 March they wrote with detailed requirements for settlement. Included was a settlement statement showing the two purchase prices, the amount paid by way of deposit, the amount of the vendor loan, and the amount paid on the partial settlement in respect of 25 Eltham Road. After apportionment of rates and a provision for interest on the vendor loan, the balance required to settle was shown as $656,215.61. On 15 March Mr. Mathias wrote to Ellis Gould saying that in spite of his having received the GST refund, his client was still $77,000 short and a request was made to increase the vendor’s second mortgage by that amount. The shortfall included Mr. Mathias’ costs then amounting to some $40,000.00. Cashmere did not accept the proposal to increase the vendor mortgage. A formal settlement notice was served and the agreement was ultimately cancelled by Cashmere on account of the Goings’ default. Cancellation took place on 24 June 1999.

  13. Various steps were taken by Cashmere to recover outstanding monies from the Goings. It is not necessary to detail them. They included the possibility of the Goings selling a property in Taupo to Cashmere. Nothing ultimately came of that. The significance is that no demand was made of Mr. Mathias personally for payment of the GST refund monies and there was no suggestion of his being personally liable until the present proceedings were filed following Mrs. Going’s bankruptcy which occurred on 25 September 2000.

  14. Mr. Mathias paid either to Mrs. Going or at her direction sums of money from his trust account reducing the amount held to a balance of $242.09. The amounts paid included a sum totalling $55,000.00 in respect of Mr. Mathias’ costs. There is in the agreed bundle a statement rendered by Mr. Mathias to Mr. and Mrs. Going dated 26 April 1999 demonstrating how the balance of $242.09 was reached and the GST refund thereby virtually exhausted. There is no direct evidence demonstrating that Mr. and Mrs. Going authorised the various payments involved but the Judge was entitled to infer such authority in the absence of any evidence to the contrary and, in any event, whether the payments evidenced by the statement were authorised has no bearing on whether Mr. Mathias is personally liable to Cashmere. Against that background we turn to the various grounds on which Mr. Black submitted, contrary to the conclusions of Potter J, that such personal liability ought to be found.

    THE AGENCY CAUSE OF ACTION

  15. It is convenient to start with what counsel described as the Bowstead Agency point. This point was considered by Potter J but rejected on the facts. Article 114 of Bowstead and Reynolds on Agency (16th ed, 1996) is in these terms:

    114.

    Money Held to Use of Third Parties

    (1)

    Except as is provided in this Article, an agent is not liable or accountable to any third party in respect of money in his hands which he has been directed or authorised by his principal to pay to any third party.

    (2)

    Where a specific fund existing or accruing in the hands of an agent to the use of his principal is assigned or charged by the principal to or in favour of a third party, the agent is bound, upon receiving notice of the assignment or charge, to hold the fund, or so much thereof as is necessary to satisfy the charge, to the use of such third party.

    (3)

    Where an agent is directed or authorised by his principal to pay to a third party money out of a fund existing or accruing in his hands to the use of the principal, and he expressly or impliedly promises such third party to pay him, or to receive or hold such money on his behalf or for his use, he is personally liable to pay such third party, or to receive or hold such money on his behalf or for his use, as the case may be, even if he has had fresh instructions from the principal not to pay such third party.

  16. The Judge held that Mr. Mathias had neither expressly nor impliedly promised Cashmere that he would pay it the GST refund monies when received by him. We have considered all the points which Mr. Black advanced but find ourselves in agreement with the Judge’s conclusion. The irrevocable authority of itself makes no promise on the part of Mr. Mathias. It represents no more than Mrs. Going’s authority to make the payment. Its expressed irrevocability does not implicitly involve Mr. Mathias in making any personal commitment. The covering fax with which Mr. Mathias supplied to Cashmere a copy of the authority cannot be regarded as involving any implied promise by Mr. Mathias that he would pay the GST refund to Cashmere even if Mrs. Going no longer wanted him to do so. None of the other material to which Mr. Black referred approaches the level of a personal commitment by Mr. Mathias to pay the money to Cashmere on receipt, irrespective of the current state of his client’s instructions.

  17. While such a personal commitment would be a possibility, it would be an unlikely step for a practitioner to take, simply on the basis of an authority expressed as irrevocable. The fact that in late January Ellis Gould again sought a personal commitment from Mr. Mathias suggests that those advising Cashmere did not regard the earlier material, and the irrevocable authority in particular, as giving rise to any personal liability on the part of Mr. Mathias. So too does the first restructuring of the transaction; albeit there was the further restructuring represented by the partial settlement. Under the first restructuring the GST money was to be obtained in advance and paid over on settlement, thereby avoiding any need on Cashmere’s part to seek to secure its subsequent payment.

  18. Mr. Black also cited paragraph 145 of the title Agency in the Laws of New Zealand. The first part of this paragraph reads (omitting footnotes):

    145.

    Direction from principal to pay to third party.

    Where an agent is directed by the principal to pay to a third party any money that has been or is about to be received by the agent on the principal’s behalf, the agent is not generally responsible to the third party for failing to do so. That is so notwithstanding that the money is received by the agent from the principal for the express purpose of paying it to the third party, or that the agent’s failure to comply with the direction is a breach of duty towards the principal. The agent becomes personally liable, however, if he or she assents to the direction and the assent is communicated to the third party, or if he or she enters into an unconditional undertaking to pay the money to the third party or to hold it on the third party’s behalf.

  19. The reference to the agent becoming personally liable if he or she assents to the direction or enters into an unconditional undertaking to pay, is perhaps a little misleading. As Bowstead and Reynolds indicates, there is no personal liability in the absence of an express or implied promise by the agent to pay. It would be wrong to construe the reference to assent or unconditional undertaking as representing two entirely separate concepts. The assent must amount to an express or implied promise to pay which is then to be regarded as an undertaking: see the leading case of Griffin v Weatherby (1868) LR 3 QB 753 where at 758 Blackburn J spoke in terms of promise to pay. To the same effect is Shamia v Joory [1958] 1 QB 448; [1958] 1 All ER 111. If the promise is conditional, liability does not of course arise, unless and until the condition is fulfilled. We do not think the Judge can be faulted, either in law or in her findings of fact. This cause of action was rightly rejected.

    BREACH OF TRUST

  20. Mr. Black tended in argument to conflate the cause of action based on concepts of trust with that based on the suggestion that there had been an assignment of the GST refund money. Although there is some potential for overlap, it is best to keep the analysis distinct. When Mr. Mathias received the money he undoubtedly received it as trustee. The question is who was his beneficiary. Prima facie the beneficiary was Mrs. Going. Unless she had validly disposed of her beneficial interest in the refund money, it undoubtedly belonged to her. In order to find that the beneficial interest in the money had become vested in Cashmere, it is necessary to identify the process by which it is said that occurred.

  21. Mr. Black did not suggest there had been any change of beneficial interest by operation of law. His argument was based on the proposition that Mrs. Going had declared a trust in favour of Cashmere and Mr. Mathias had assented to hold the money on that basis. According to this argument Mrs. Going was in the position of settlor of the trust, Mr. Mathias was the trustee, and Cashmere was the beneficiary. The only conduct on Mrs. Going’s part, which could possibly be regarded as constituting a declaration of trust in the terms suggested, was her execution of the irrevocable authority. But that document, according to its terms, neither purports to be a declaration of trust nor has that effect in law. Neither in express terms nor as a matter of reasonable implication does the document evidence an intent to alter the beneficial interest in future property. The transaction evidenced by the document is no more and no less than an authority to pay, expressed as being irrevocable.

  22. In the commentary to Article 120 at paragraph 10-001 Bowstead and Reynolds discuss the circumstances in which an authority expressed to be irrevocable will be held to be truly irrevocable in law. The mere statement that an authority is irrevocable does not of itself make it so, even if that statement is incorporated in a deed. There is no need to explore this issue any further. In the present case it is impossible to find the necessary certainty of intent on Mrs. Going’s part to establish a trust in relation to the relevant monies. There being no trust Mr. Mathias cannot be in breach. The Judge was right to reject this cause of action.

    ASSIGNMENT

  23. Mr. Black also argued that Mrs. Going had assigned the GST refund monies. There was some ambivalence in counsel’s submissions as to whether the assignee was Mr. Mathias or Cashmere. The idea that Mrs. Going had assigned the money to Mr. Mathias could only be viable if the assignment was on trust for Cashmere. But that is simply another way of expressing the declaration of trust argument, which fails for the reasons already given. Hence the contention must be that the assignment was to Cashmere. There are insuperable difficulties with such a proposition. At their heart is the distinction drawn by Bowstead and Reynolds in the commentary to Article 114 to which Mr. Black himself referred. An assignment, as the authors rightly say, should be sharply distinguished from a mere authority to pay money out of a fund, which ordinarily gives no right to the intended payee. Whether what purports simply to be an authority to pay, even if expressed to be irrevocable, in truth amounts to an assignment is primarily a question of intent on the part of the giver of the authority.

  24. As with the question of trust, there is no evidence from which it can reasonably be inferred that Mrs. Going intended to do more than the document she signed was apt to achieve according to its terms. The document commences with a statement of Mrs. Going’s intention to buy the two properties for $1.5m with the vendor, Cashmere, leaving in finance. She says she will, "immediately following settlement", apply for the GST refund. The operative words are words of authority not disposition, and the authority was itself contingent and designed to come into force at a future time. While there was a vendor mortgage, it was not the mortgage envisaged by the document, in that it was not taken over both properties but only over No. 25. It is quite impossible in these circumstances to view the authority document as amounting to an unconditional present assignment, albeit of future property. Nothing which happened subsequently makes any difference. We have considered Mr. Black’s intricate argument and the authorities to which he referred but are satisfied that Potter J was correct in rejecting this cause of action.

    NEGLIGENT MISSTATEMENT

  25. For this cause of action to succeed, there must have been a duty of care owed by Mr. Mathias to Cashmere of which he was in breach by reason of some erroneous statement negligently made. The necessary duty of care would have to be owed to someone who was not Mr. Mathias’ client. While it is possible that such a duty may be owed, for example in relation to wills and certificates, it is always necessary to remember that ordinarily solicitors owe duties of care only to their own clients. Obviously when deceptive or misleading conduct is in issue, the ambit of solicitors’ duties may be wider, but the present inquiry is whether Mr. Mathias owed a duty to Cashmere to take care. We do not consider he did. While it may be possible to ascribe to the parties a sufficiently proximate relationship, it would not be appropriate or just to cast on Mr. Mathias a duty of care to Cashmere in view of his primary duties to his own client. In any event, there are further problems with this cause of action.

  26. It is difficult to identify an erroneous statement made by Mr. Mathias and equally difficult to see that any such statement was made negligently. Furthermore, if it were possible to see some erroneous representation made by Mr. Mathias in relation to what he was prepared to do with the money, it seems clear that Cashmere did not rely on that representation because it subsequently sought Mr. Mathias’ personal undertaking and, when this was not forthcoming, resolved to defer settlement until the money became available. It thereby demonstrated that it was not relying on any perceived earlier representation that he was undertaking personal responsibility to pay Cashmere the GST refund. For all these reasons it is hard to envisage a less promising claim in tort for negligent mis-statement. This cause of action was rightly rejected in the High Court.

    FAIR TRADING ACT

  27. Cashmere’s contention is that Mr. Mathias was guilty of misleading or deceptive conduct in breach of s9. The essence of this argument was that he misled Cashmere into thinking that he was undertaking personal liability. In view of the further request for a personal undertaking made by Cashmere in late January 1999, it is a fair conclusion, on the balance of probabilities, that Cashmere was not in any event misled at all. But leaving that point aside, we do not consider that Mr. Mathias’ words and conduct were capable of being misleading. That is the first step in an inquiry such as the present: see AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144. When objectively considered, there is nothing in Mr. Mathias’ correspondence or conduct which could reasonably have led Cashmere to the view that he was accepting personal liability. Indeed, both before and after his neutral supply to Cashmere of a copy of the irrevocable authority, he made it clear that he was not willing to accept personal liability and this indeed is how Cashmere’s solicitors understood the matter. Mr. Begley of Cashmere also appears to have been of the same view. It is therefore impossible to hold that Mr. Mathias committed a breach of s9. This cause of action was rightly rejected.

    MISCELLANEOUS

  28. There was a suggestion in Mr. Black’s submissions in relation to the tort cause of action that Mr. Mathias had assumed some responsibility to Cashmere. It is inherent in what we have already said that we cannot accept he assumed any personal liability. This indicator of a possible duty of care is therefore not present. Founding himself on a statement in Bowstead and Reynolds in the commentary to Article 114 at paragraph 9-107, Mr. Black also suggested that Cashmere had a claim in restitution in respect of the amount Mr. Mathias received for his fees. There was a suggestion of unjust enrichment. While Mr. Mathias was in a sense enriched by receipt of his fees from the GST refund money, there can be no question of that enrichment being unjust in any juridical sense. In the absence of a personal obligation to Cashmere, Mr. Mathias was entitled to receive his fees from the GST refund money with Mrs. Going’s consent. How that affected Mrs. Going’s duties to Cashmere is beside the present issue.

  29. There was some mention of estoppel. As there was no representation by Mr. Mathias that he was undertaking personal liability, or was otherwise promising to pay, there can be no basis for holding Mr. Mathias to such a representation by means of an estoppel. What is more there was no reliance on any such representation.

    CONCLUSION

  30. This case turns essentially on its facts. Once the Judge correctly found that Mr. Mathias had neither expressly nor impliedly promised to pay it the refund money, Cashmere was always going to be in difficulty in establishing any other viable cause of action. The various causes of action it did raise cannot, for the reasons given, overcome its inability to establish any personal commitment on Mr. Mathias’ part. The appeal is dismissed. Cashmere is ordered to pay Mr. Mathias costs in the sum of $5000.00 plus disbursements, including the reasonable travel and accommodation expenses of one counsel, to be fixed if necessary by the Registrar.


Cases

Griffin v Weatherby (1868) LR 3 QB 753; Shamia v Joory [1958] 1 QB 448; [1958] 1 All ER 111; AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144

Legislations

Fair Trading Act 1986: s.9

Authors and other references

Bowstead and Reynolds on Agency (16th ed, 1996)

Laws of New Zealand

Representations

M C Black for Appellant (instructed by A R Thomas, Auckland)
M A Gilbert and M D Arthur for Respondent (instructed by Chapman Tripp Sheffield Young, Auckland)


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