AWS LEGAL SOLICITORS (Hokonui Shearing Ltd) [2015] NZHC 2086

AWS LEGAL SOLICITORS (Hokonui Shearing Ltd) [2015] NZHC 2086 [31 August 2015]IN THE HIGH COURT OF NEW ZEALANDINVERCARGILL REGISTRYCIV-2015-425-60[2015] NZHC 2086IN THE MATTER of a Solicitor's UndertakingANDIN THE MATTER of Hokonui Shearing LimitedBETWEEN AWS LEGAL SOLICITORSApplicantHearing: On the papersJudgment: 31 August 2015JUDGMENT OF DUNNINGHAM J[1] This is an application by AWS Legal, a law firm, for an order releasing it from its undertaking given on 8 July 2008.[2] The application was commenced by way of originating application and, on 10 July 2015, Nation J granted leave for the application to proceed in this way.[3] He also directed that the application be served on Smith, Wood and Woods, solicitors of Gore, being the firm of solicitors who were then acting on behalf of Mr Terrence Pohatu, and to whom the relevant undertaking was given.[4] Nation J directed that service on Smith, Wood and Woods, would also be deemed to be service on Mr Pohatu and, if either Mr Pohatu or Smith, Wood andWoods wished to oppose the application, they were to file a notice of opposition within 30 days of the documents being delivered to Smith, Wood and Woods.[5] The Court has now received evidence that the application was served on Smith, Wood and Woods on 17 July 2015. A letter from Mr Gray, a partner of that firm, also confirms that he contacted Mr Pohatu, who agreed to accept service of the documents at his address at 32 Norfolk Street, Riversdale, Southland, by post, and the documents were forwarded to Mr Pohatu in that way.[6] Accordingly, the time for filing any opposition expired on 17 August 2015 but no steps have been taken by Mr Pohatu or his solicitors. The applicant now seeks that an order is made in terms of the draft filed with the application.Background[7] In 2008, AWS Legal was acting for Roger Kidd, a director of, and shareholder in, Hokonui Shearing Ltd (HSL). The firm of Smith, Wood and Woods of Gore, acted for the other director and shareholder of HSL, Mr Pohatu. The relationship between the two directors broke down and, in due course, it was agreed that the assets of HSL would be sold to a new company established by Mr Kidd, the debts of HSL paid off, and the remaining funds of HSL would be divided between the two shareholders.[8] There were disagreements between the shareholders concerning the current accounts, with Mr Pohatu claiming he was entitled to more from the net proceeds of sale than Mr Kidd because of what he claimed to be a smaller current account. As it was not possible to resolve this dispute before settlement of the sale and purchaseagreement of the assets of HSL to Mr Kidd's new company, it was agreed that Mr Kidd would deposit personal money into AWS Legal's trust account so that if, when the current accounts were finalised, there was any imbalance or additional money due to either HSL and/or Mr Pohatu, then that would be paid from the funds Mr Kidd had deposited.[9] In order to confirm this arrangement and to allow settlement to occur, Norman Elder, a partner in AWS Legal, provided the following undertaking to Smith, Wood and Woods in a letter dated 8 July 2008:"We undertake that we hold the $80,000.00 deposited into our trust accountby Mr Kidd, and will only distribute any moneys from this account to the company, when the current accounts have been finalised and agreed by thetwo shareholders".[10] Mr Kidd paid the $80,000.00 as agreed into AWS Legal's trust account on 10July 2008 and that sum has been held there, in an interest bearing deposit account, in the name of, and to the credit of Mr Kidd.[11] Settlement of the agreement to sell HSL's assets occurred on 16 July 2008 and, following settlement, HSL ceased trading. While Mr Elder is aware that over the next 12 – 18 months there were negotiations between Mr Kidd and Mr Pohatu, no agreement was reached over the current accounts. The matter then went dormant and has stayed that way ever since.[12] The current situation is that, on 15 June 2015, HSL was struck off the Companies Register for failing to file an annual return since 2010. It is now also more than six years from when the dispute arose and when the moneys were paidinto AWS Legal's trust account.[13] Mr Kidd has recently approached AWS Legal asking that firm to release the funds held pursuant to the undertaking, but the firm is reluctant to do so without theCourt's confirmation that the firm is released from the undertaking. That is thereason these proceedings have been filed.Is it appropriate to release AWS Legal from its undertaking?[14] The applicant points out that more than six years have now elapsed from the payment in, and AWS Legal is aware of no basis on which either Mr Pohatu, or HSL itself, could have any claim against the funds held in trust. As a result of the effluxion of time, both potential claimants are now statute barred from making a claim. Furthermore, HSL has now been struck off the Companies Register.[15] The applicant seeks the assistance of the Court because the Court has a supervisory and disciplinary role with respect to solicitors' undertakings.1[16] In this case, the undertaking was given to facilitate a commercial transaction, by providing an assurance to the other shareholder that there were funds to satisfy any required balancing of current accounts in HSL. The undertaking required the funds to be held and only be distributed to the company when the current accounts had been finalised and agreed by the two shareholders. The purpose of the undertaking was to give Mr Pohatu comfort that, should there be an imbalance in the current accounts, this would be equalised without the need for litigation against Mr Kidd to do so.[17] As was said by Fisher J in the AGC decision:"In construing the meaning of such an undertaking it will generally beassumed 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."[18] Here, the intended purpose for which the undertaking was given has been frustrated by the effluxion of time, as there has been no attempt to finalise the current accounts, nor to make a claim, within six years, for any adjustment. As a consequence, I accept that the stage has been reached where the intention of the undertaking has been frustrated and it would be unreasonable to require the firm of solicitors to still be bound by it. I also acknowledge that the situation appears to have arisen through no fault of Mr Kidd, and there is no reason why he should be kept out of these funds any longer because the firm remains bound by its undertaking.[19] Finally, of course, the fact that Mr Pohatu, having been notified of the proceedings, has taken no steps to oppose the making of an order discharging AWS Legal from its undertaking, satisfies me that it is appropriate that such an order be made.1 AGC v East Brewster Urquhart & Partners (1989) 4 PRNZ 245.[20] Accordingly, I order that the applicant, AWS Legal, be released from its undertaking given in the letter dated 8 July 2008, which is annexed as Exhibit "C" tothe Affidavit of Norman James Elder sworn on 25 June 2015.Dunningham JSolicitors:AWS Legal (Invercargill), for the Applicant