Apia Quality Meats Ltd v Westfield Holdings Ltd [2007] WSCA 7; CA 01 of 2007 (14 September 2007)

IN THE COURT OF APPEAL OF SAMOA
HELD AT APIA

BETWEEN:

APIA QUALITY MEATS LIMITED
Appellant

AND:

WESTFIELD HOLDINGS LIMITED
Respondent

Coram: Honourable Justice Baragwanath
Honourable Justice Salmon
Honourable Justice Paterson

Hearing: 11 September 2007

Counsel: D Webb and G Lātu for Appellant
M Ring QC and P Rzepecky for Respondent

Judgment: 14 September 2007

JUDGMENT OF THE COURT

Introduction

[1] In the substantive hearing the appellant Apia Quality Meats Limited (AQM) seeks to obtain, either under the provisions of s.119 of the Property Law Act 1952 or under the principles of equitable estoppel, a 16 year lease of premises owned by the respondent Westfield Holdings Limited (Westfield). AQM applied to remove Drake & Co as solicitors on the record for Westfield in the proceeding and for third party discovery. In a judgment given on 30 November 2006, the written reasons for which were given on 15 December 2006, the learned Chief Justice denied both applications. AQM now appeals against this judgment.

Background

[2] It is only necessary to summarise the background facts. At all relevant times Westfield was, and still is, the owner of a commercial property at Saleufi. Throughout that time Drake & Co has acted as solicitor for Westfield on its dealings relating to the property. Mr Drake, a partner of that firm, has also acted as the authorized agent of Westfield in Samoa.

[3] Another client of Drake & Co, Mr Tapusoa, operated a company Anroco Ltd. He made an offer to Westfield to lease the Saleufi property. After Mr Tapusoa’s original written offer of 17 August 1998 there was an exchange of correspondence with Westfield accepting a counter offer by a letter of 25 February 1999. In its latest statement of defence Westfield admits that the acceptance of the offer on 25 February 1999 brought into existence an agreement to lease, but says a formal lease document was not signed. The term agreed was 20 years from 1 April 1999. In its original statement of defence Westfield denied that a head lease existed.

[4] Mr Tapusoa formed another company, Maja Holdings Limited (Maja), to be the tenant and grant subleases of the property. The intention was to develop the property and grant several subleases. Drake & Co acted on the incorporation of Maja and on some of the subleases. Mr Drake’s evidence is that he was neither instructed nor acted on the sublease to AQM referred to in the next paragraph.

[5] Negotiations to sublease part of the property by AQM, between Mr Wetzell, managing director of AQM, and Mr Tapusoa began in December 2000. These led to Maja providing AQM with a draft form of sublease in February 2001. The intent was that AQM would carry on business as a meat wholesaler and retailer from part of the premises. A coolstore was to be installed. The internal refit was to be at the expense of AQM, with Maja meeting certain external costs. AQM complains that Maja defaulted on its obligations and AQM has, at a considerable cost, undertaken works which Maja had contracted to do. Maja entered into possession of the area it was to sublease with the knowledge of Westfield. The proposed deed of sublease between Maja and AQM was never signed.

[6] AQM operated a business in the premises for several years. On 27 May 2002 all exterior work had not been completed. AQM was not paying the rent it was due to pay to Maja and was claiming the right to offset it against the considerable expenditure it says it incurred on behalf of Maja. Its position is that by May 2002 agreement had been reached with Maja that the duration of the sublease would be for four years with three further rights of renewal for terms of four years each making a total period available of 16 years. Westfield’s position is that AQM and Maja did not agree on the terms of the sublease and that AQM is therefore a periodic tenant. This is the most important issue in the substantive hearing.

[7] Between June 2001 and October 2001 AQM, according to its evidence, spent $1.8 million in outfitting the premises. It also claims that it spent a considerable sum to carry out necessary work which Maja had agreed to do.

[8] On 27 May 2002 Westfield terminated its agreement with Maja on the grounds of non payment of rent. There has been much posturing since. Much of what has happened is irrelevant to this appeal. Westfield, for a time, allowed AQM to remain in possession but has since purported to terminate AQM’s tenancy. The fundamental issue on the relief against forfeiture cause of action is whether AQM has a monthly tenancy, a potential 16 year term or a term of some intermediate period. If it is either of the latter, the next question is whether the Supreme Court will exercise its discretion and grant relief under s.119 Property Law Act 1952, and if so on what terms. At the date of termination of the head lease Maja was considerably in default in payment of its rent. There will be a question as to what proportion of these arrears, if any, AQM will be required to pay if it is granted relief. It is difficult to see a basis for AQM recovering from or securing set off against Westfield in respect of expenditure which AQM met on behalf of Maja. As pleaded, and having regard to the affidavit evidence, AQM appears to have difficulties under its estoppel cause of action. Westfield has counterclaimed for rent from May 2002 to the present, as AQM still occupies the premises. On this claim the issue appears to be quantum rather than liability.

The Lease and Sub-Lease

[9] The present applications owe their origin, at least in part, to actions of Mr Drake relating to the head lease. Prior to the termination of the head lease Mr Drake in certain communications with other organisations referred to the Westfiled/Maja arrangement as a lease. In Westfield’s notice of termination of the arrangement of 27 May 2002, given on Drake & Co letterhead it referred to "the forfeiture of the head lease arrangement". Yet after that forfeiture Westfield denied that a lease existed. In its first statement of defence in these proceedings filed in September 2004 it denied the existence of a lease between Westfield and Maja.

[10] In November 2004 Westfield filed and served its verified list of documents. It failed to discover four letters beginning with an offer to lease dated 17 August 1998 from Mr Tapusoa to Westfield and concluding with a letter of acceptance from Westfield to Anroco dated 25 February 1999 which, it now accepts, when taken together constitute an agreement to lease for 20 years. Even if Mr Drake honestly believed in November 2004 that the arrangement fell short of a binding lease arrangement it is surprising that the letters were not discovered.

[11] In an affidavit dated 5 May 2006 Mr Drake stated that "based on legal advice now received, WHL is filing and serving with this affidavit and the accompanying application an amended statement of defence...admitting an agreement to head lease by the correspondence..." The correspondence referred to in paragraph 10 was first made available to AQM’s solicitor by Drake & Co on 14 February 2006, after AQM had secured copies by third party discovery against a bank and less than a week before the substantive hearing of the relief against forfeiture claim was due to begin. The consequence was an inevitable adjournment of the substantive hearing caused by Westfield’s failure to discover crucial documents.

[12] We have noted that the crucial issue on AQM’s application for relief against forfeiture is the contractual effect of the arrangement between Maja and AQM. AQM’s position is that with rights of renewal it had rights to a total period of 16 years with an initial term of 8 years. Westfield’s contention is that a binding sub-lease agreement was not entered into and that when Westfield terminated the head lease AQM was merely a periodic or monthly subtenant. The issue is whether having regard to the parties conduct including the correspondence which passed between Maja and AQM, among which was a draft sublease, the parties reached a concluded agreement.

The Judgment

[13] AQM sought the removal of Drake & Co on the grounds of conflict of interest. Apart from acting for Westfield, the firm has also acted for Maja and AQM. AQM also argued that the removal of Drake & Co would enable the Court to make an order for particular discovery against Drake & Co in its capacity as solicitors for Westfield, Maja and AQM. The Chief Justice found that there was no reason why the firm should be removed from acting for Westfield. He also concluded that the primary purpose of the application was to facilitate particular discovery against Drake & Co.

The Issues in the Substantive Proceeding

[14] There are two causes of action. The first seeks relief against forfeiture (s119 application). Westfield now admits the existence of the head lease. As noted the fundamental issue is the terms and particularly the duration, of the sub-lease. If Westfield is correct relief can only confer a periodic tenancy at the most. If AQM is correct there is the potential to get a lease, with rights of renewal, which may extend to 30 September 2017. The other issues in this cause of action concerns the conditions on which relief, if any, may be granted.

[15] The second cause of action is headed "Equitable Estoppel". As pleaded it is difficult to see that it adds to the first cause of action. The representations alleged, namely that Westfield had leased the property to Maja and knew and authorised Maja to sub-lease the premises, are not in dispute. The adverse action taken by AQM is said to be outfitting the premises at considerable cost. Presumably that was a business decision taken by AQM, but it was always potentially at risk if Maja failed financially. The cause of its loss appears to be the failure of Maja, not any representations given by Mr Drake on behalf of Westfield. It is difficult to see how a representation as to the existence of a head lease entitles the sub-lessee to relief for a period beyond the duration of the sub-lease, when the sub-lessor defaults and the head lease is terminated.

Grounds of appeal

[16] In this Court AQM sought to relitigate the matter rather than raise issues arising from the Chief Justices’ judgment. Mr Webb submitted that Drake & Co should be disqualified from acting because:

(a) Drake & Co have acted for all partners in this matter and hold confidential information, the confidence of which will be placed at risk should the firm act further;

(b) Drake & Co have acted for AQM and for a director of AQM when the current dispute was extant and did not obtain the informed consent of any party to so act;

(c) Mr Drake is involved in this matter personally and not as a solicitor and accordingly the actions of members of the firm of Drake & Co are in issue in this proceeding; and

(d) That as a consequence discovery obligations and obligations to plead in accordance with known facts were not complied with by Drake & Co.

[17] It was submitted that each of the above grounds was in itself a sufficient basis upon which to make the order sought. However, as a further ground, it was submitted that when the grounds are considered together there is a substantial risk in Drake & Co continuing to act, and that to protect the confidences of former clients of Drake & Co, and to protect the administration of justice, the firm should be disqualified from acting further.

Confidential Information

[18] Mr Drake acts as agent and attorney for Westfield, his firm acts as Westfield’s solicitor. Mr Webb submitted that such relationships with Westfield together with various retainers the firm had had from Maja and AQM means that Drake & Co hold confidential information belonging to Maja and AQM and there is a risk that this confidential information will be used for the benefit of Westfield without the consent of the owners of such confidential information. Particularly in respect of the Maja confidential information there is a real risk that the confidences will be broken and used to the disadvantage of AQM. This information may include Maja’s views on the status and terms of the sub-lease with AQM.

[19] Drake & Co incorporated Maja; the registered office of the company is at Drake & Co’s offices; Drake & Co acted on some of Maja’s sub-leases (although it is Mr Drake’s evidence that he was not instructed on the AQM sub-lease); and on at least two occasions Drake & Co provided prospective or actual financiers of Maja with details of completed sub-leases (but not the AQM sub-lease). Against this background it was submitted that Drake & Co possessed confidential information of Maja which may be wrongly used by Westfield to assist it in the defence of AQM’s claims. Mr Webb was unable to identify what that confidential information might be.

[20] AQM in October 2002 instructed Drake & Co to act for it in a dispute with an electrical supplier. On another occasion Mr Drake, at the request of a bank, advised a director of AQM on a guarantee of an AQM liability which she intended to give. It was submitted that these events provided AQM’s confidential information to Drake & Co which might wrongly be used for the benefit of Westfield.

[21] Mr Ring QC for Westfield submitted that AQM had not been able to identify or categorise confidential information arising from either the Maja or AQM retainers which, even if held and misused by Drake & Co, would assist Westfield in AQM’s claim against it. Further, in respect of Maja confidential information, AQM has no standing to prevent its misuse. Only Maja can take such action.

[22] In considering the risk of the misuse of confidential information it is necessary to determine on the basis of the perception of a reasonable member of the community, whether the transactions on which Drake & Co were retained would have been likely to provide the lawyers with confidential information to which they were not entitled of the type relevant to the issues in the substantive issue. In particular in this case the relevance is to be assessed against the fundamental issue in the proceedings, namely, whether a sub-lease for a period of potentially 16 years came into existence.

[23] We cannot see how the two AQM retainers provided Drake & Co with any confidential information which could possibly bear on the Supreme Court’s determination on an objective basis whether both Maja and AQM had reached a binding agreement as to the terms of the sub-lease. While the information received in acting for Maja would have been of a different character we are also unconvinced that the Maja information would be relevant to the issues in the litigation. Providing a registered office, incorporating the company, providing information to a financier where the information does not include any reference to the AQM sub-lease, and engrossing other sub-leases negotiated by Maja would not, in the view of the reasonable bystander, provide information that would assist in determining the fundamental issue of whether negotiations proceeded to the stage of a concluded sub-lease agreement between Maja and AQM.

[24] Because of the view which we have formed it is unnecessary to determine whether AQM has standing to complain about the possible misuse of Maja information. There is however force in the submission that any action to restrain the use of such information would need to be initiated by Maja or by those claiming through Maja. However, if an officer of the Court were misusing confidential information, there may be a good reason to remove the solicitor to protect the administration of justice.

[25] Finally we do not see Mr Drake’s multiple roles as relevant to the confidential information issue. He has averred that he has no ownership interest in Westfield. While he may be the face of Westfield in Samoa, he is acting in his various roles in a professional capacity. Any knowledge he gains in acting for Westfield can properly be used to Westfield’s advantage. In the context of this case that knowledge is not relevant to the issues in the case.

No informed consent to act for AQM

[26] Drake & Co were retained by AQM in October 2002 in relation to a dispute with a New Zealand electrical supplier. Mr Drake’s evidence was that he only wrote one letter and did not open a file for AQM. This was at a time when Westfield, having terminated Maja’s lease, was in discussion with AQM over its tenancy. AQM clearly knew that Mr Drake was acting for Westfield. As such it impliedly consented to Mr Drake continuing to act for Westfield while acting for AQM on a one off matter. AQM can not raise absence of informed comment: see Prince Jefri Bolkiah v KPMG [1998] UKHL 52; [1999] 2 AC 222. Further, so acting could not disbar Drake & Co from continuing to act for Westfield on its lease dispute with AQM. There was no conflict of interest, nor did it obtain relevant confidential information.

[27] The other transaction, relating to AQM, on which Drake & Co acted was advising a guarantor of AQM (see paragraph 20 above). Drake & Co were not retained by AQM and there could be no question of a conflict of interest or access to confidential information.

Mr Drake’s Personal Involvement

[28] We cannot see how Mr Drake’s roles as lawyer for, agent of and attorney for Westfield can give rise to a ground for removing Drake & Co. It is not unusual for a solicitor to act in other roles for a client. Such a position does not give rise to a conflict of interest or misuse of confidential information.

[29] We accept that if Mr Drake’s actions on behalf of Westfield come under scrutiny in the substantive hearing the position may be different. The present pleadings raise no issue in this respect. If at a later date the actions of the solicitors do come under review in a meaningful way then the position can be revisited. Mr Ring submitted that if such a position arose Drake & Co would voluntarily step down.

Discovery and Pleading

[30] The Chief Justice noted that one of the grounds upon which AQM sought to remove Drake & Co was:

"The removal of Drake & Co as solicitors on the record for Westfield will enable the Court to make an order for particular discovery against Drake & Co to ensure that relevant documentation which has been received by Drake & Co in its capacity as solicitors for each of Westfield, Maja and AQM is before the Court...."

[31] This ground misconceives the discovery obligation. Any documents a solicitor holds or has held for a party, and which are relevant to the proceeding must be discovered by the party. The same principle applies to third party discovery.

[32] More will be said about Drake & Co’s errors in pleading and discovery later. A court does have power to remove a solicitor for misconduct. However this power is exercised to safeguard the future integrity of the proceeding and not to punish: see Clear Communications Ltd v Telecom Corporation High Court Auckland CL 51/96 5 August 1999 Fisher J. In this Court’s view the failures in this case when considered in isolation are not sufficient to justify removal of Drake & Co.

The Administration of Justice

[33] Mr Webb submitted that the matters referred to in the previous four sections would lead a reasonable member of the community, knowledgeable as regards the circumstances of the case, not to be satisfied that justice was properly done in all the circumstances: see Black v Taylor [1993] 3NZLR 403 (CA).

[34] While the Court does not accept this submission the administration of justice requirement has troubled us. In this case AQM sees Mr Drake as the alter ego of Westfield. Although his evidence is that he does not have an ownership interest he acts as its agent and there are apparently no other visible agents of the company in Samoa. The person who is seen as the embodiment of Westfield has not only overseen a pleading which was plainly wrong on a fundamental issue, but also has been responsible for a serious breach of the company’s discovery obligations. AQM was entitled to ask whether a reasonable member of the community would be satisfied, in such circumstances, that justice will be done. If the solicitor/company can deny the existence of a lease after previously admitting its existence, and then fail to discover fundamental and vital documents until a few days before the hearing, and then only because of pressure from AQM’s counsel, who had learnt of the documents from another source, can the solicitor be trusted to fulfil his future litigation obligations?

[35] We recognise that Westfield’s instruction of two experienced counsel, resulted in immediate compliance with its discovery obligations. They will ensure that Westfield honours its obligations in this litigation. For this reason we have determined on balance that this ground is not sufficient to order the removal of Drake & Co. The breaches while serious are not in the circumstances sufficient to take the extreme step of removal.

Removal Result

[36] For the reasons given above the appeal against the Chief Justice’s refusal to remove Drake & Co is dismissed.

The Discovery Appeal

[37] It is not necessary to consider this appeal, as during the hearing, the parties agreed to a consent order that Drake & Co was ordered to file an affidavit stating what documents relevant to issues in the proceeding are held by it on behalf of Maja.

[38] The Court sympathises with AQM’s discovery problem. It may not be able to achieve discovery against Maja because it has failed financially and Mr Tapusoa is thought to be bankrupt. Surprisingly it has not sought discovery against Maja. Nevertheless this Court encouraged the consent order as this may facilitate an early hearing of the case. The case should be disposed of as soon as possible.

Costs

[39] Both parties sought costs above the normal rate. AQM sought these costs on the basis that the problems which have arisen were caused by Drake & Co’s inadequacies in pleading and discovering. Westfield sought higher costs on the basis that AQM brought their applications for tactical reasons.

[40] The Court can understand AQM’s suspicions as to whether discovery was complete. While we are not satisfied that AQM is using this appeal for tactical reasons, it has failed on its main appeal but has achieved a discovery order against Mr Drake. In the circumstances we order that costs lie where they fall.

Honourable Justice Baragwanath

Honourable Justice Salmon

Honourable Justice Paterson