5-9 the Rise Limited v Rental Space Limited
[2023] NZHC 2515
•8 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2286
[2023] NZHC 2515
UNDER the Contract and Commercial Law Act 2017 section 43(1) and (3) BETWEEN
5-9 THE RISE LIMITED
First Plaintiff
GEOFFREY CAWSON
Second PlaintiffAND
RENTAL SPACE LIMITED
Defendant
Hearing: 14 August 2023 Appearances:
Stephen J Mills KC / P C Crombie for the Plaintiffs
Zane G Kennedy / Mihai D Pascariu for the Defendant
Judgment:
8 September 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application for summary judgment]
This judgment was delivered by me on 8 September 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
CooneyLeesMorgan (Peter Crombie), Tauranga, for the Plaintiffs Hamilton Locke (Mihai Pascariu), Auckland, for the Defendant Copy for:
Stephen J Mills KC, Auckland, for the Plaintiffs
Zane G Kennedy, Barrister, Mills Lane Chambers, Auckland, for the Defendant
5-9 THE RISE LIMITED v RENTAL SPACE LIMITED [2023] NZHC 2515 [8 September 2023]
TABLE OF CONTENTS
Introduction [1]
Background [2]
The Rise’s application for summary judgment [7]
Affidavit of Geoffrey Cawson dated 2 December 2022 [9]
Supplementary affidavit of Geoffrey Cawson dated 6 December 2022 [20]
Rental Space’s opposition [21]
Affidavit of Peter Graham Hemming dated 14 March 2023 [22]
Reply affidavit of Geoffrey Cawson dated 11 April 2023 [30]
Further supplementary affidavit of Geoffrey Cawson dated 27 July 2023 [36]
Legal principles [39]
Analysis [42]
Approach taken in this judgment [42]
Was The Rise entitled to waive cl 23? [45]Was cl 23 for The Rise’s sole benefit? [53]
Was cl 23 severable? [61]
Conclusion in respect of waiver of cl 23 [64]
The rectification defence [65]
Conclusion in respect of rectification [72]
Repudiation [73]
Conclusion in respect of repudiation [78]
Result [82]
Orders [83]
Introduction
[1] The first plaintiff, 5–9 The Rise Limited (The Rise) seeks summary judgment as to liability only against Rental Space Limited (Rental Space) after it allegedly repudiated a sale and purchase agreement to sell two properties in Auckland’s Saint Heliers.
Background
[2] In a sale and purchase agreement dated 30 September 2019 (the Agreement), Rental Space agreed to sell the two properties located at 5 and 9 The Rise, Saint Heliers (the properties).
[3] This case revolves around an interpretive dispute in relation to one of the Agreement’s clauses, inserted via a deed of variation dated 31 January 2020 (the First Variation Deed). That clause, cl 23, reads:
23. Finance Condition
This Agreement is conditional for 10 working days after the date of satisfaction or waiver of the condition contained in clause 22 (as may be extended in accordance with clause 24) upon the Purchaser obtaining finance for the Purchaser’s purchase and development of the Property on terms and conditions satisfactory to the Purchaser in all respects and approved by the Vendor acting reasonably. This condition is inserted for the sole benefit of the purchaser.
[4]Of related importance are cls 10.8(6) and 26, which read:
Operation of Conditions
10.8 If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
…
(6) At any time before this agreement is avoided, the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
…
26. Vendor Finance
26.1.The Vendor agrees to provide vendor finance of $4,000,000.00 at an interest rate of 10% per annum (“Vendor Loan”). The Vendor Loan will satisfy part of the Purchase Price on the Settlement Date.
26.2.Repayment of the Vendor Loan will take place once the Purchaser's first ranked lender has been repaid in full and then repayment of the Vendor Loan will be concurrent with the settlement of the units.
26.3.The Vendor Loan will be secured by a second ranking mortgage on the Property (which will sit behind the Purchaser's first ranked lender). Once the Purchaser's first ranked lender has been repaid in full, the mortgage securing the Vendor Loan will become a first ranking mortgage.
26.4.Once this Agreement is unconditional, the Vendor will use all reasonable endeavours to execute the following documents, within ten
(10) working days of receiving agreed version of the same from the Vendor’s solicitor:
a. ADLS Term Loan Agreement;
b. Deed of Priority and Subordination (if requested by the Purchaser's first ranking lender);
c. Deed of Guarantee and Indemnity. together the "Documents”
26.5.The Documents will be prepared by the Vendor's solicitors at the cost of the Purchaser and provided to the Purchaser for approval (not to be unreasonably withheld). The Purchaser agrees to pay the Vendor's solicitors' reasonable legal costs and disbursements limited to no more than $2,500.00 plus GST in preparing the Documents."
[5] The Rise claims that it could and did unilaterally waive cl 23’s finance condition in accordance with cl 10.8(6) and then sought to settle. It further claims that Rental Space then avoided the Agreement stating cl 23 had not been met, which The Rise says was wrongful repudiation by Rental Space, and it elected to accept the repudiation and cancel the Agreement on 23 August 2022. It seeks summary judgment as to liability only on this basis.
[6] In contrast, Rental Space denies that cl 23 allowed for unilateral waiver and so the condition not being satisfied, it was lawfully entitled to cancel the Agreement in the way it did. Alternatively, Rental Space claims that if The Rise’s interpretation is
correct, cl 23 should be rectified as it did not reflect the parties’ common intention that Rental Space approve finance arrangements — it follows that cl 23 was only for The Rise’s sole benefit if Rental Space’s finance under cl 26 was not required. As a further alternative, Rental Space says that as The Rise failed to obtain finance in compliance with the mortgage priorities under cl 26, it had repudiated the Agreement further allowing Rental Space to elect to accept that repudiation and cancel the Agreement.
The Rise’s application for summary judgment
[7]The Rise seeks orders:1
(a) that summary judgment as to liability on the first cause of action, as detailed in the statement of claim dated 30 November 2022, in this proceeding be entered for the first plaintiff against the defendant; and
(b) costs on this application;
(c) any other relief as the Court deems just.
[8]The grounds on which the orders are sought are:2
(a) The defendant has no defence to the [first] plaintiff's claim in its first cause of action by virtue of it having repudiated the Agreement for the sale by it to the first plaintiff of two properties at 5-9 The Rise, Auckland ("Agreement") which led to the first plaintiff then cancelling the Agreement in accordance with s 36 of the Contract and Commercial Law Act 2017;
(b) The first plaintiff (as purchaser) was entitled to waive the finance condition (clause 23) in the Agreement and validly did so on 4 July 2022;
(c) The defendant then purported to wrongfully avoid and terminate the Agreement in reliance upon clause 23 not having been satisfied by the first plaintiff by the due date;
(d) The first plaintiff did not accept the defendant's termination of the Agreement and called upon the defendant to settle the transaction on the Settlement Date under the Agreement;
(e) The defendant then sought unilaterally to impose a new date of 11 August 2022 for satisfaction of the finance condition in clause 23 of the Agreement;
1 Interlocutory application by first plaintiff for summary judgment as to liability dated 6 December 2022 at [1].
2 At [2].
(f) The defendant then gave notice on 16 August 2022 that it had avoided the Agreement and terminated it because the first plaintiff had failed to satisfy the finance condition by 11 August 2022;
(g) The defendant's notice avoiding the Agreement and terminating it on 16 August 2022 was wrongful and was a repudiation of the Agreement;
(h) The first plaintiff elected to accept the defendant's repudiation of 16 August 2022 and cancelled the Agreement on 23 August 2022;
(i) The first plaintiff has suffered loss as a result of the defendant's repudiation and is entitled to compensation under s 43 of the Contract and Commercial Law Act 2017 and/or damages at common law in a sum to be determined at trial;
(j) The entitlement of the first plaintiff to waive the finance condition, the validity of the defendant's notice of termination of the Agreement, and whether its termination on 16 August 2022 was a repudiation are legal issues. There are no contentious factual issues that require findings before the legal issues can be determined;
(k) Upon the further grounds appearing in the affidavit of Geoffrey Cawson filed in support of this application.
Affidavit of Geoffrey Cawson dated 2 December 2022
[9] Mr Geoffrey Cawson (Mr Cawson), The Rise’s sole director, has made an affidavit in support of the summary judgment application.3
[10] On 30 September 2019, Mr Cawson deposes he entered the Agreement to buy the properties, his intention being to develop them into a ten-unit development. He says prior to the Agreement he discussed with Rental Space’s directors, Peter and Christine Hemming (Mr and Ms Hemming), about their possible role in the development. As Mr and Ms Hemming did not wish to be deemed developers, a joint venture was inappropriate. Instead, they discussed a vendor loan until the development was completed at which point Rental Space would receive interest or take a share of profits. Mr Cawson understood no party took legal advice prior to entry into the Agreement prepared by Rental Space’s real estate agent.
[11] On 31 January 2020, following legal advice and further discussions, Mr Cawson says the First Variation Deed was executed. He deposes the First Variation
3 Affidavit of Geoffrey Cawson in support of application for summary judgement dated 2 December 2022.
Deed required The Rise to obtain resource consent, a time consuming and costly process, alongside the management, finance, marketing, valuation, and legal fees that would be associated with pre-sales of units, obtaining finance and the resource consent. He says it was his ability to waive one or more of the conditions in cls 21 to 23 that gave him sufficient comfort to expend this time and these costs. Otherwise, he claims if there was some delay and he could not waive those conditions, Rental Space would be able to avoid the Agreement and maintain the benefit of all of Mr Cawson’s development progress, including any resource consent, to that point. Ultimately, the wording of the inserted clauses, including cl 23, was the subject of specific negotiations.
[12] On 17 April 2020, Mr Cawson entered a deed nominating The Rise as purchaser, having incorporated it in February 2020.
[13] On 14 October 2020, The Rise entered into a second deed of variation (the Second Variation Deed) which acknowledged The Rise as purchaser, extended the resource consent condition to 30 June 2021, increased the cl 26 vendor’s loan from
$2 million to $4 million, inserted a new cash-out clause (cl 28), and inserted a new profit share clause (cl 29).
[14] Mr Cawson says that following further amendments, the resource consent condition was notified as satisfied on 29 September 2021 and the pre-sale condition on 21 March 2022. On 30 March 2022, cl 23 was amended for satisfaction by 4 July 2022.
[15] Around 31 March 2023, Mr Cawson says he discussed with Mr Hemming about further increasing the vendor loan under cl 26 to $5 million with $1 million to be repaid once it received its post-purchase GST refund. The Rise’s solicitors drafted a further proposed deed of variation to that effect (the Proposed Variation Deed). After discussions on 1 June 2022, Rental Space’s solicitors confirmed they did not agree to the Proposed Variation Deed.
[16] On 4 July 2022, having requested a further extension of the cl 23 finance condition on 27 June 2022, Rental Space’s solicitors advised the extension was not
agreed and that unless The Rise declared the Agreement unconditional that day, the Agreement would be at an end. Rental Space further said that based on proposed finance under the Proposed Variation Deed, which The Rise had already accepted was not proceeding on 28 June, Rental Space did not approve the finance arrangements. Having obtained urgent temporary finance in order to proceed to settlement on 18 July 2022, later on 4 July Mr Cawson advised his solicitors to confirm The Rise waived the cl 23 condition and declared the Agreement unconditional.
[17] On 5 July 2022, Rental Space sought to treat the Agreement as at an end, to which The Rise maintained on 6 July it remained on foot for settlement on 18 July. Mr Cawson says his solicitors provided a draft loan agreement for the vendor’s loan under cl 26 on 8 July. He then says The Rise had sufficient funding available to settle on 18 July 2022, but Rental Space failed to take steps to settle.
[18] On 20 July 2022, Rental Space’s solicitors sought to impose a new date for the cl 23 finance condition of 11 August 2022, for settlement on 25 August. On 16 August, Rental Space gave notice it was terminating the Agreement for The Rise’s failure to comply with cl 23. Mr Cawson, considering this termination to be wrongful repudiation, elected on behalf of The Rise to accept the repudiation and cancel the Agreement. He chose to do so as the timeframe involved in seeking court-ordered specific performance would mean The Rise would be unable to complete the development within the project timetable set by The Rise’s private financier.
[19] Mr Cawson says that due to the wrongful repudiation and The Rise’s subsequent need to cancel the Agreement, it could not continue with its unit pre-sale agreements. All on-sale unit purchasers accepted mutual termination of their agreements. Further, Mr Cawson confirms that Rental Space now has the benefit of the resource consent The Rise obtained. He confirms that The Rise spent in excess of
$2 million to obtain that consent and pre-sales to proceed with the development, and to perform its obligations under the Agreement.
Supplementary affidavit of Geoffrey Cawson dated 6 December 2022
[20] Mr Cawson has made a further affidavit to comply with r 12.4(5)(b) of the High Court Rules 2016.4 Mr Cawson says he truly believes that Rental Space has no defence to summary judgment on liability for the following reasons:
(1)The Rise was entitled to waive cl 23 of the Agreement;
(2)The Rise waived cl 23 on 4 July 2022 and declared the Agreement unconditional;
(3)Rental Space wrongfully avoided the Agreement by claiming The Rise could not waive cl 23 and therefore did not satisfy cl 23 by 4 July 2022;
(4)The Rise did not accept the avoidance and sought to settle;
(5)Rental Space sought unilaterally to impose a new date to satisfy cl 23;
(6)Rental Space gave notice further avoiding the Agreement because The Rise had not satisfied cl 23 on the date it had unilaterally imposed;
(7)Rental Space’s 16 August 2022 notice terminating the Agreement was wrongful repudiation;
(8)The Rise elected to accept the repudiation and cancel the Agreement on 23 August 2022;
(9)The Rise has suffered loss and damage resulting from Rental Space’s repudiation;
(10)Rental Space is liable for this loss and damage; and
(11)For further reasons set out in his first affidavit and its exhibits.
4 Supplementary affidavit of Geoffrey Cawson in support of application for summary judgment dated 6 December 2022.
Rental Space’s opposition
[21]Rental Space opposes the application on the following grounds:5
(a) The agreement dated 30 September 2019 for the sale and purchase of the properties at 5-9 The Rise (Property), Auckland (the Agreement) between the defendant as vendor, and the first plaintiff as purchaser, included the following terms:
(i) the purchase price was $8,250,000;
(ii)the defendant would provide a loan of $4 million (Vendor Finance) to be secured as a second ranking mortgage over the Property (clause 26); and
(iii)the first plaintiff’s finance arrangements for the purchase and development of the Property were to be approved by the vendor acting reasonably (Vendor Approval) (clause 23).
(b) The first plaintiff submitted various draft finance arrangements to the defendant for approval on:
(i) 26 May 2022;
(ii)1 July 2022;
(iii)19 July 2022; and
(iv)4 August 2022.
(c) Each proposed finance arrangement:
(i) was a departure from the Agreement;
(ii)significantly increased the credit risk for the defendant; and
(iii)therefore, was not acceptable to the defendant.
(d) At all material times, the first plaintiff was unable to obtain finance on terms that were reasonably acceptable to the defendant.
(e) On or about 4 July 2022, the first plaintiff purported to satisfy the Vendor Approval condition by unilaterally waiving clause 23.
(f) The proper interpretation of clause 23 is that the first plaintiff was not entitled to waive the requirement for the Vendor Approval; and therefore, at all material times:
(i) the Vendor Approval condition remained unsatisfied; and
(ii)the Vendor Finance was not available.
5 Amended notice of opposition to application for summary judgment by the first plaintiff dated 20 July 2023 at [1]–[3].
(g) The first plaintiff repudiated the Agreement by purporting to unilaterally waive the Vendor Approval.
(h) If the proper interpretation of clause 23 is that the first plaintiff was entitled to waive the requirement for Vendor Approval (which is denied), then the wording of clause 23 did not reflect the parties' common Vendor Approval intention and should be rectified as pleaded in the statement of defence dated 15 March 2023.
(i) The date for satisfaction of the Vendor Approval condition was 5.00pm Thursday 11 August 2022 (the Due Date), time being of the essence.
(j) The Vendor Approval condition remained unsatisfied on the Due Date, and consequently the defendant validly terminated the Agreement on 23 August 2022 in accordance with clause 10.8(5) of the Agreement.
(k) Alternatively, if the first plaintiff was entitled to satisfy clause 23 by waiving that clause (which is denied):
(i) The Agreement became unconditional with a settlement date on 18 July 2022.
(ii)It was implicit in clause 26 that the first plaintiff had an obligation to procure a finance arrangement that would provide that the defendant's mortgage securing the Vendor Finance of $4 million would be second ranking.
(iii)On 8 July 2022, the first plaintiff proposed that the defendant provided the Vendor Finance under a third ranking mortgage.
(iv)The defendant rejected the proposal on the basis that it was inconsistent with the provisions of clause 26 of the Agreement.
(v)The purchaser failed to procure on or before 18 July 2022 a finance arrangement consistent with clause 26, therefore the Agreement did not settle on the Due Date.
(vi)Further finance proposals were put forward by the first plaintiff on 19 July and 4 August 2022. Both proposals were inconsistent with clause 26 in that:
(aa) the 19 July proposal provided for a bridging loan, which would render the defendant's mortgage third ranking;
(bb) the 4 August proposal provided for the defendant to provide a vendor loan of $5 million, $1 million in excess of the Vendor Finance [agreed] under clause 26.
(vii)The persistent refusal by the first plaintiff to complete the Agreement in accordance with the provisions of clause 26 amounted to repudiation and accordingly, the defendant was entitled to terminate the Agreement
(l) The defendant relies on the further grounds set out in the affidavit of Peter Hemming sworn 14 March 2023.
Affidavit of Peter Graham Hemming dated 14 March 2023
[22] Mr Hemming, a Rental Space director alongside his sister, has made an affidavit in support of Rental Space’s opposition to summary judgment.6 Mr Hemming generally sets out the background facts similarly to Mr Cawson but makes the following specific comments.
[23] On the initial pre-Agreement negotiations, Mr Hemming says without a vendor finance, cash-out or profit share clause and with the offer being conditional on resource consent and pre-sales, Rental Space carried the risk if the project did not proceed.
[24] On the First Variation Deed, Mr Hemming says the reason for the variation, particularly cl 26’s vendor finance, was that Mr Cawson had been unable to obtain sufficient finance so Rental Space would provide a $2 million loan as a second ranking mortgage. As Rental Space partly agreed to fund the purchase price, it required the ability to preapprove The Rise’s financial arrangements. He says further he and Ms Hemming did not understand The Rise could waive cl 23’s vendor approval and they would not have agreed to the clause having that effect, particularly given Rental Space was leaving significant funds in the development. Vendor approval under cl 23 was necessary for Rental Space to ensure the ultimate financial arrangement did not create an unreasonable risk their loan would not be repaid.
[25] On the Second Variation Deed, Mr Hemming says Rental Space agreed despite their discomfort as Mr Cawson still was unable to obtain sufficient finance and it was already one year into the project.
[26] On the proposed financing and vendor approval, Mr Hemming says that Rental Space’s 4 July 2022 “No” email made clear that Rental Space did not approve the proposed financing arrangement and so cl 23’s condition remained unsatisfied, and they would not agree to the Agreement being declared unconditional.
6 Affidavit in answer of Peter Graham Hemming dated 14 March 2023.
[27] On The Rise’s unilateral waiver of cl 23, Mr Hemming expresses surprise because at no point in their negotiations was it ever suggested by Mr Cawson that The Rise could waive cl 23’s vendor approval condition. He considered the Agreement was at an end.
[28] On settlement on 18 July 2022, Mr Hemming attached documents to rebut allegations that Rental Space failed to take steps to ensure it was in a position to settle on that date.
[29] On Rental Space’s new date for the cl 23 finance condition of 11 August 2022, Mr Hemming says Rental Space reviewed the proposed finance arrangements and again determined they unreasonably increased the credit risk, so he again refused to approve them leaving cl 23 unsatisfied. Consequently, the Agreement was terminated on 16 August 2022.
Reply affidavit of Geoffrey Cawson dated 11 April 2023
[30] Mr Cawson has made an affidavit in reply to Mr Hemming’s and disputing Rental Space’s rectification defence.7
[31] On Rental Space failing to take steps to settle, Mr Cawson clarifies that he was only intending steps to refer to those conveyancing steps that would have been necessary under the Agreement for Rental Space to have settled on 18 July.
[32] On Rental Space’s initial purported termination on 5 July 2022, Mr Cawson says The Rise elected not to accept that termination believing it to be wrongful and sought to hold Rental Space to the 18 July settlement date. He says once it became clear that Rental Space was not intending to settle, he decided the best commercial action was to attempt to convince Rental Space to settle, despite cl 23 being waived, by providing them financial information to come to a mutually agreeable outcome.
[33] On the reason for the vendor loan, Mr Cawson says it was not because he was unable to get finance but that the initial $2 million vendor loan would make it easier
7 Affidavit of Geoffrey Cawson in reply dated 11 April 2023.
for him to obtain finance when he sought it later in the development process. The increase to $4 million was said to be a result of the impact of COVID-19 and to make further financing more attractive.
[34] On vendor approval, Mr Cawson says he was never going to agree to Rental Space having a veto right over The Rise’s financial arrangement, given most of the risk sat with him. There were significant costs and risks involved in developing the site which is why Mr Cawson says he had to retain control over the cl 23 finance condition. He accepts that Rental Space had a right of approval for the first mortgagee’s finance under cl 23, but that was waivable if necessary to proceed with the project.
[35] On the common intention, Mr Cawson denied there was a common intent to give Rental Space complete control over The Rise’s financing arrangements. He denies that the rectified wording was ever intended and always understood that Rental Space was required to provide its finance under cl 26 regardless of whether cl 23 was satisfied or waived. He claims he would never have proceeded on the basis that he could expend more than $2 million for Rental Space to decline to approve the first mortgagee’s finance and walk away with the consent he had obtained.
Further supplementary affidavit of Geoffrey Cawson dated 27 July 2023
[36] Mr Cawson has made a further affidavit to update the court.8 There is a preliminary issue over whether this affidavit should be read. Subject to sections struck out at the hearing, I will allow the balance of the affidavit to be read as it is of relevance to this application. Counsel for The Rise submits the affidavit supports Mr Cawson’s contention that Rental Space has obtained the benefit of the resource consent obtained by The Rise in respect of the properties and is using the resource consent obtained in marketing the units in the proposed development. I accept the affidavit is relevant to that extent.
8 Supplementary affidavit of George Cawson in support of application for summary judgment dated 27 July 2023.
[37] Mr Cawson is now aware that Rental Space, and its related parties, have marketed the properties as a sub-division based upon The Rise’s resource consent. Additionally, Rental Space or its agents are using marketing materials commissioned and paid for by The Rise.
[38] Mr Cawson says The Rise commissioned exterior and interior renders in about December 2020 from Matter Visuals Limited (Matter Visuals). It further commissioned a website from Front Room Projects, which included these renders and was live until about September 2022. The estate agent engaged by Rental Space for the resale, Wall Real Estate, used materials from the website in its own website to market the properties. Further, another real estate agent, New Zealand Sotheby’s International Realty, on its website refers to the properties as already having a resource consent, refers to five of Matter Visuals’ renders and uses them in a promotional video.
Legal principles
[39]Rule 12.2(1) of the High Court Rules 2016 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[40] The relevant principles governing a summary judgment application are well established:9
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a
9 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (citations omitted).
robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel.
[41]The wording of r 12.2 “may give judgment” indicates a residual discretion.
Having regard to the various authorities, the position appears to be as follows:10
(1)The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is satisfied the defendant has no defence, there is no room for the exercise of discretion.
(2)The residual discretion may be invoked to avoid oppression or injustice to the defendant where:
(i)The proceeding involves the actions or possible liability of a third party which is not before the court;
(ii)The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;
(iii)The circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv)The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence.
(3)Even where the court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.
Analysis
Approach taken in this judgment
[42] The issue to be determined in this judgment is whether Rental Space has a reasonably arguable defence to The Rise’s application for summary judgment as to liability. The approach taken in this judgment is to examine each of the defences put forward by Rental Space to ascertain whether any of these are reasonably arguable and therefore disentitling The Rise to summary judgment as to liability.
10 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
[43] It is common ground that Rental Space sent a notice of termination of the Agreement to The Rise. The question is — is it reasonably arguable that Rental Space was entitled to do so and therefore the notice did not amount to repudiation of the Agreement entitling The Rise to accept that repudiation and cancel the Agreement? Rental Space puts forward the following bases on which it was arguably entitled to cancel the Agreement:
(1)that The Rise was not entitled to waive cl 23 of the Agreement on a proper construction of the clause. Even if it was able to be waived, cl 23 had to be severable from the rest of the Agreement, which it was not, being fundamentally linked to cls 26 and 29. By purporting to waive cl 23 when it was not entitled to do so, The Rise repudiated the Agreement, and Rental Space was entitled to accept that repudiation and cancel the Agreement;
(2)as an alternative to [43](a), Rental Space argues that cl 23 should be rectified at trial to reflect the parties’ common intention — namely, that if cl 23 was waived by The Rise, then that could only be on the basis the vendor financing was no longer required; and
(3)The Rise’s inability to settle the Agreement in a manner consistent with cl 26 amounted to a repudiation by The Rise, which Rental Space was entitled to accept and cancel the Agreement.
[44]I deal with each of these grounds in turn.
Was The Rise entitled to waive cl 23?
[45] Mr Mills KC, for The Rise, began his submissions by referring to Bathhurst Resources Ltd v Allan M Cole Holdings Ltd,11 which he submits established the principle in relation to contractual interpretation that primacy be given to the text in determining the meaning, and a conclusion that an ordinary natural meaning of contractual language produces a commercially absurd result “should be reached only
11 Bathhurst Resources Ltd v Allan M Cole Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
in the most obvious and extreme cases”.12 He submits that on application of these interpretative principles to the undisputed facts, The Rise’s interpretation must be upheld, namely that as purchaser it was entitled to unilaterally waive the condition in cl 23.
[46] Mr Mills then analysed the specific provisions to the Agreement relating to cl 23 as follows:
(1)Clause 1.4(3) of the General Terms of Sale provided “[i]f any inserted term (including any Further Terms of Sale) conflicts with the General Terms of Sale the inserted term shall prevail”.
(2)There is no conflict between the operation of cl 23, the finance condition, and any of the General Terms of Sale;
(3)Clause 10.8(6) of the General Terms of Sale provided:
Operation of Conditions:
10.8 If this Agreement is expressed to be subject either to the above or to other condition(s), then in relation to each such condition the following shall apply, unless otherwise expressly provided:
…
(6) At any time before the Agreement is avoided, the purchaser may waive any finance condition and either party may waive any other condition for the sole benefit of that party. Any waiver shall be by notice.
[Emphasis added by counsel]
(4)Clause 23 is a finance condition and there is nothing in that clause which expressly negates the purchaser’s unilateral right to waive any finance condition as provided in cl 10.8(6) of the Agreement. Clause 23 also expressly states that it was for the sole benefit of the purchaser.
12 Above n 11, at [44] and [45].
(5)Other Further Terms of Sale (cl 21 being the resource consent condition, cl 22 being the pre-sales condition, cl 24 being the right to extend the conditions, and cl 25 being the settlement date) when read as a whole supports the interpretation that The Rise was entitled to waive cl 23. Clauses 21 and 22 mirror the text of cl 23 in saying that they are for the sole benefit of the purchaser. Clauses 24 and 25 expressly state that each of cls 21, 22 and 23 can be satisfied or “waived” by the purchaser.
(6)The question of whether a condition is for a party’s sole benefit is one of construction of the Agreement, turning on whether the condition is in its terms, or by necessary implication, for the exclusive benefit of that party. Mr Mills submits that here there is no need for any “necessary implication” as the text is clear and unambiguous.
[47] Mr Mills also submits the wording of cl 23 was subject to careful consideration by the respective lawyers for the parties, and he submits it is clear that lawyers on both sides of the negotiations were well aware that cl 23 was for the sole benefit of The Rise and that The Rise had the right waive it.
[48] Mr Mills refers to Rental Space’s complaint that The Rise’s interpretation of cl 23 deprives it of a “substantial interest” in being able to approve The Rise’s financial arrangements, and as a result, Rental Space contends that The Rise was not entitled to unilaterally waive the condition. Mr Mills submits that whether a substantial interest of the kind contended by Rental Space amounts to “a benefit” which prevents unilateral waiver by The Rise was considered by the Court of Appeal in Future Sustainable Development Ltd v Liu.13 He summarises the decision as follows:
(1) in that decision the agreement provided that it was conditional on the purchaser or its nominee obtaining consent to purchase the land under the Overseas Investment Act. The purchaser sought to unilaterally waive the condition and the issue was whether the condition was for the sole benefit
13 Future Sustainable Development Ltd v Liu [2022] NZCA 249.
of the purchaser. The vendor claimed the condition also provided a benefit to it and could not be unilaterally waived by the purchaser;
(2) that in considering the OIA consent condition, and whether it could be unilaterally waived by the purchaser, the Court referred by analogy to the position of the vendor whose purchaser has waived a finance condition. The Court observed that the fulfilment of a finance condition reduced the risks associated with the purchaser subsequently defaulting, because it cannot arrange finance, and the Court recognised that the need for the vendor’s consent offers an advantage to the vendor by reducing the risks associated with any default by the purchaser, but the loss of that advantage was not a “benefit” for the purposes of determining whether the purchaser has the right to waive the condition.
[49]Mr Mills refers to a passage from the judgment as follows:14
That brings us to the question whether cl 20.3 was for the sole benefit of FSD. The question is one of construction of the agreement, as we have explained. The fact the condition confers an advantage on the other party is not conclusive. The parties may assign risk as they see fit.
[50] Building on this statement by the Court, Mr Mills submits that the fact The Rise had a unilateral right to waive the finance condition significantly impacts the allocation of risk under the Agreement in two ways:
(1) The first of these is the risk The Rise had in incurring up-front costs in satisfying conditions in the Agreement, including cls 21 and 22 (obtaining resource consent and pre-sales). Mr Cawson’s evidence is that there would be substantial sunk costs incurred in obtaining the resource consent for the subdivision for construction of the 10-unit apartment building. Further, as the resource consent runs with the land it would be expected to add significant value to it, which created a potential incentive for the vendor to cancel the Agreement and re-sell the property if that increased value could be realised by the vendor by way of sale at a higher price.
14 At [54].
Mr Cawson’s evidence is that it was his ability to waive one or more of the conditions in cls 21 to 23 that gave him the comfort needed to commit the substantial time and costs that would be incurred in seeking to obtain resource consent, the number of pre-sales needed to obtain finance, and then finance.
(2) The second is the risk associated with the cash-out clause that was introduced into the Agreement through the Second Variation Deed, which gave Rental Space the right to give notice to The Rise requiring it to confirm within 30 days whether all the conditions for their benefit had been satisfied or waived, and if it did not declare the Agreement unconditional within that time-frame, Rental Space could immediately cancel the Agreement — and if that occurred, The Rise received only 50 per cent of its sunk costs. Mr Cawson’s evidence is that if The Rise was not entitled to unilaterally waive the finance condition in cl 23, effective control over whether or not the Agreement was terminated under the cash-out would rest with Rental Space. If Rental Space obtained another offer on more favourable terms, and as a result gave notice under the cash-out clause, there would be an incentive for Rental Space to withhold its approval of any financing proposals submitted by The Rise during the 30-working day notice period. Mr Cawson in his evidence says he took comfort from the right to waive the finance conditions as a means of mitigating this risk.
[51] Mr Mills submits that as The Rise had the unilateral right to waive cl 23, which it did on 4 July 2022, Rental Space’s subsequent cancellation of the Agreement on 16 August 2022 was a repudiation and The Rise was entitled to accept that repudiation and then cancel the Agreement.
[52] Mr Kennedy, for Rental Space, began his submissions by referring to the authority of Hawker v Vickers where the Court stated two conditions for a party to be able to waive a condition:15
15 Hawker v Vickers [1991] 1 NZLR 399 (CA) at 402.
A party may waive a condition or provision in a contract which is solely for that party’s own benefit and is severable.
[Emphasis added by counsel]
Was cl 23 for The Rise’s sole benefit?
[53] Mr Kennedy submits that the question of whether a condition is for a party’s sole benefit is one of construction of the Agreement, turning on whether the stipulation is in terms, or by necessary implication, for the exclusive benefit of that party.
[54] As to the law regarding interpretation of the Agreement, Mr Kennedy refers to Bathhurst Resources Ltd in which he submits the Supreme Court rejected the exclusionary rule and held that prior negotiations and subsequent conduct may be admissible background relevant to the search for the objective shared meaning.16
[55] As to The Rise’s contention that cl 23 was a finance condition expressed to be for its sole benefit and therefore it was entitled, under cl 10.8(6) of the Agreement, to unilaterally waive it, Mr Kennedy submits that this would have been the case but for the addition of the expressly negotiated words “and approved by the vendor acting reasonably”. He submits that the vendor’s approval, when added to the clause at Rental Space’s request, reflected the parties’ acknowledgment that Rental Space had a legitimate interest in approving the terms of the purchaser’s first ranking secured funding, given Rental Space’s subordinated vendor funding of (then) $2 million. He submits that Rental Space’s interest was not an “advantage” of the kind discussed in Future Sustainable Development Ltd v Liu, but a financial stake in the development left largely unprotected if cl 23 could be unilaterally waived by The Rise.
[56] Mr Kennedy submits that both parties had a financial interest in the proposed development and the common objective that the development be profitable. Accordingly, they both needed to be satisfied with the third party lender’s proposed finance terms and conditions and the resulting wording of cl 23 reflects that common interest. He submits that the difficulty with The Rise’s interpretation of cl 23 is that it deprives Rental Space of the protection that both parties plainly intended it should
16 Bathhurst Resources Ltd v Allan M Cole Holdings Ltd, above n 11, at [44], [48], [70] and [76].
have, arising out of the vendor’s approval requirement. That protection would be rendered entirely illusory if, at any point prior to the date of satisfaction of cl 23, The Rise could waive the clause irrespective of the terms of its first-ranking secured lending.
[57]Mr Kennedy submits:
(1)it cannot reasonably be suggested that the parties intended that The Rise could dispense with the need to obtain Rental Space’s approval of its development finance arrangements and at the same time force Rental Space to leave a $4 million loan in the development;
(2)the proposition that Rental Space would agree to provide a $4 million loan without any ability to assess the credit risk associated with that loan is not a proposition that could sensibly have been intended by the parties.
[58] Mr Kennedy refutes The Rise’s contention that the lack of a right to unilaterally waive cl 23 would wrongly increase their contractual risks in two respects — (a) sunk costs in obtaining resource consent and achieving the number of pre-sales needed to obtain finance, and then finance; and (b) the cash-out clause. Mr Kennedy submits that the resource consent and pre-sale conditions were present in cl 21 of the Agreement at the outset and while cl 22 provided that cl 21 would be superseded by the development agreement entered into by the parties as an intended joint venture arrangement, that did not proceed and cl 21 was not expressed to be for the sole benefit of the purchaser. He submits that this was either because the conditions would have been for the benefit of both intended joint venture parties or Mr Cawson was prepared to assume the risks associated with the costs of the resource consent and pre-sale conditions.
[59] As to the cash-out clause, Mr Kennedy submits that it is important to note this clause was introduced in October 2020, by which time the Agreement had been on foot for a year or more, and it was apparent that The Rise was unable to secure funding for the purchase and development of the property. As its terms made clear, while
mitigating Mr Cawson’s risk in respect of 50 per cent of its sunk costs, the cash-out clause also enabled Rental Space to terminate the Agreement if another party made a more attractive offer.
[60] Finally, Mr Kennedy submits that The Rise controlled the risk associated with Rental Space’s approval of the new fund arrangement by requiring that Rental Space had “to act reasonably” in giving its approval which was an objective and enforceable standard.
Was cl 23 severable?
[61] On severability, Mr Kennedy submits that cl 23 was not severable as it was a pre-requisite to the performance of cl 26 of the Agreement. He submits cl 26 set out the salient terms for a vendor loan of $4 million secured by a second-ranking mortgage, and Rental Space needed to be satisfied that The Rise’s proposed prior financial arrangements did not undermine the requirements of that clause. Mr Kennedy submits that if cl 23 were waived, then cl 26 becomes unworkable and in particular it would not be possible to have finalised the terms of the term loan agreement referred to in cl 26.4(a) and the deed of priority and subordination referred to in cl 26.4(b). He submits that if cl 23 could be unilaterally waived by The Rise without Rental Space being able to approve the terms of the first ranking lending, cl 26 becomes an “agreement to agree” in relation to these documents and therefore would not be workable.
[62]Mr Kennedy submits that the proposition that Rental Space would leave
$4 million in the development irrespective of The Rise’s other finance and security arrangements, and their direct impact on its lending risk, makes no commercial sense. Accordingly, he contends the approval of The Rise’s first ranking funding arrangements were inextricably linked to the ability of the parties to complete the documentation required under cl 26.4.
[63] In opposition, Mr Mills submits that cls 23 and 26 are not linked in any way. He submits if the parties had a common intention that the vendor’s obligation to
provide vendor finance was conditional on Rental Space’s approval of The Rise’s first ranking lender finance, cl 26 would have said so.
Conclusion in respect of waiver of cl 23
[64] I am of the view that it is reasonably arguable that The Rise was not entitled to unilaterally waive cl 23 and therefore its purported waiver amounted to a repudiation of the Agreement, entitling Rental Space to accept that repudiation and cancel the Agreement. The reasons for this view are:
(1)in respect of the first step in the analysis arising from the Bathhurst decision, that the text should be given primacy (as submitted by Mr Mills), the text does not deal with the interpretation of cl 23 definitively because the wording “and approved by the vendor acting reasonably” introduces an uncertainty into the meaning of the text. It is therefore necessary to engage the second part of the analysis referred to in Bathhurst of looking at the prior negotiations and conduct of the parties to ascertain the objective shared meaning. In my view, the course of negotiations discloses that, as a matter of commercial reality, once the vendor finance provision was inserted in the Agreement by the First Variation Deed, the wording requiring Rental Space’s approval of The Rise’s first ranking funding was inextricably linked to the provision of the vendor finance.
(2)As to Mr Mills’ argument that the clause was a finance condition and therefore capable of waiver under cl 10.8(6), I accept Mr Kennedy’s submission that upon insertion of the words “and approved by the vendor acting reasonably”, cl 23 ceased to be a finance condition for the purposes of cl 10.8(6), and therefore the provisions in cl 10.8(6) relating to waiver of a finance condition ceased to apply to it.
(3)I accept Mr Kennedy’s argument that Rental Space, as the provider of
$4 million of vendor finance, had a significant interest in the terms of the first ranking funding arrangements, as clearly they would impact
significantly on the risk profile of Rental Space’s vendor loan. I agree with Mr Kennedy’s submission that it seems unlikely from a commercial commonsense point of view that the intention of the parties that the protection afforded by the requirement for Rental Space to approve the terms of the first ranking funding could be waived unilaterally by The Rise while still retaining the commitment of Rental Space to advance the $4 million.
(4)I also accept Mr Kennedy’s submission that Rental Space’s right to approve The Rise’s first ranking funding is more than “an advantage” to Rental Space, as discussed in Future Sustainable Development Ltd v Liu.17 It was an important part of Rental Space’s agreement to lend what amounted to approximately half of the purchase price of the property.
(5)Based on the decision of Hawker v Vickers,18 it is arguable that for The Rise to be able to waive cl 23 unilaterally it must be both for the sole benefit of The Rise and severable. I agree with Mr Kennedy’s submission that it is arguable that cl 23 is not severable and it was intrinsically liked to cl 26. In my view, Mr Kennedy is correct that cl 26.4 and completion of the documentation relating to the vendor loan is unworkable without the ability of Rental Space to approve the first ranking lender’s funding terms, from which approval the completion of the documentation contemplated by cl 26.4 would naturally flow. Without the prior approval of the terms of the first ranked lender, cl 26.4 effectively becomes an agreement to agree.
The rectification defence
[65] Mr Kennedy submits that cl 23 should be rectified by adding the words “if vendor finance is not required” so that the last sentence in cl 23 would read:
17 Future Sustainable Development Ltd v Liu, above n 13.
18 Hawker v Vickers, above n 15.
This clause is inserted for the sole benefit of the purchaser if the vendor finance is not required.
[66] Mr Kennedy sets out the criteria for rectification from the decision of Westland Savings Bank v Hancock as follows:19
(1)That, whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question.
(2)That such intention continued to exist in the mind of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.
(3)That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparently from the words or the actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.
(4)That the documents sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.
[67] Mr Kennedy submits that both parties were interested in the profitability of the intended development and this supports a common intention they both needed to be satisfied with the finance arrangements relating to the purchase and development of the property. He submits it is objectively apparent that this intention continued to exist up to the moment of execution, and continued up to the point of cancellation, of the Agreement. Accordingly, if the Agreement drafted on the parties’ behalf did not reflect that intention then it would do so if rectified in the manner requested by Rental Space.
[68] On the other hand, Mr Mills submits that the evidence of Mr Cawson for The Rise and Mr Hemming for Rental Space, and the documentary evidence of the exhibits to their affidavits, establishes that there was no common intention of the kind asserted by The Rise. He submits the defence is “inherently lacking in credibility, as, for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable”.20
19 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 30.
20 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[69] Mr Mills reviews the correspondence between the parties through July and August 2022, making the point that no consistent position has been adopted by Rental Space as to the effect of cl 23. He also points to Mr Cawson’s evidence denying there was any common intention of the kind asserted by Rental Space, and Mr Cawson’s understanding that Rental Space was required to provide the vendor finance irrespective of whether cl 23 was satisfied or waived, provided it was granted second-ranking security.
[70] Mr Mills also relies on the decision in Watson v Whitehead where Wylie J referred to the significance of the involvement of lawyers in negotiations leading to the agreement, and rejected a plea of rectification because the plaintiffs failed to establish a common continuing contention, due to negotiation by the parties’ legal advisers.21 Mr Mills submits the Court regarded the involvement of lawyers for the parties as fatal to any claim for rectification.
[71] In answer to the submission by Mr Mills in relation to Watson v Whitehead, Mr Kennedy submits that that decision was not decided in a summary judgment context and Wylie J had the benefit of hearing oral evidence from the parties, including the lawyers involved, before making a final determination of the issue. Accordingly, he asserts that the decision is irrelevant for present purposes. Mr Kennedy also asserts that the intention and understanding of the parties cannot be tested in a summary judgment context, but only by evidential findings after a trial.
Conclusion in respect of rectification
[72] As it is not necessary for me to reach a view on whether the rectification defence is arguable or not to dispose of The Rise’s summary judgment application, I do not express a view on this. I agree with Mr Kennedy’s submission that a common intention will need to be sufficiently evidenced at trial to support a rectification argument. I also note that the rectification proposed by Rental Space is a logical extension of Mr Kennedy’s first argument that cl 23 could not be waived because of the requirement for the vendor to approve the The Rise’s first ranking security as part of the assessment of the credit risk related to the vendor finance. So logically if vendor
21 Watson v Whitehead [2014] NZHC 2992 at [137].
finance was no longer required, The Rise was free to waive the clause and undertake whatever financial arrangements it wished with the first ranked lender.
Repudiation
[73] The last defence advanced by Mr Kennedy is that The Rise repudiated the Agreement by breach of cl 26. Mr Kennedy submits that on the authority of Kumar v Station Properties Ltd (In Liq and In Rec) the Supreme Court noted the common law rule that where a party cancelled a contract for an insufficient reason, cancellation might nevertheless be justified if there was a sufficient reason at the time of the cancellation event even though the party cancelling it was not aware of it.22 Mr Kennedy submits that the Court held the rule continued to apply under the Contractual Remedies Act 1979 and as the relevant provisions have not changed, the rule must also continue to apply under the Contract and Commercial Law Act 2017.
[74]Mr Kennedy submits that Rental Space was only obliged to provide a
$4 million vendor loan on the terms recorded in cl 26. He submits that none of the financial proposals circulated by The Rise would have enabled settlement to proceed in accordance with cl 26. He expands this submission as follows:
(1)The finance proposal circulated by The Rise on 26 May 2020 provided for a mezzanine facility of $3.6, million which would render Rental Space’s security third ranking;
(2)the term loan agreement The Rise sent to Rental Space on 8 July 2022 was in the form of the ADLS agreement, but The Rise had included further terms which were unacceptable to Rental Space including provisions that:
(i)The Rise would, in its complete sole and objective discretion, refinance the first ranked lender (being the lender providing the bridging loan and the lender refinancing the bridging loan) at any time during the term (cl 22.1);
22 Kumar v Station Properties Ltd (In Liq and In Rec) [2015] NZSC 34, [2016] 1 NZLR 99 at [65].
(ii)Rental Space would:
A. sign a deed of priority and subordination as required by the first ranked lender within five (5) working days from receiving such deed (cl 22.2); and
B. grant a power of attorney to The Rise to execute the deed of priority and subordination on its behalf (cl 24.);
(3)the proposed bridging loan significantly increased the risk of Rental Space not being able to recover its loans in full from The Rise, and the bridging loan had not been discussed or agreed previously by the parties. The bridging loan was inconsistent with cl 26 and an unacceptable change in the risk allocation under the Agreement and therefore Rental Space rejected it;
(4)on 19 July 2022, The Rise circulated a further proposal which provided for a two-stage financing arrangement that included the proposed bridging loan from DBR Limited to be secured by a first ranking mortgage. The proposed second stage included a progressive loan facility from MaxCap which would be used in part to refinance the DBR bridging loan. As the proposal retained the bridging loan it was therefore unacceptable to Rental Space;
(5)on 4 August 2022, The Rise circulated a further proposal, under which the DBR bridging loan was replaced by a separate facility provided by the MaxCap (Facility B) together with a development finance facility (Facility A). The effect was the Rental Space’s loan would be repaid only after Facilities A and B were repaid and the deed of priority and subordination required a vendor loan of $5 million, a proposal which Rental Space had previously rejected.
[75] In summary, Mr Kennedy submits that none of the finance proposals would have enabled settlement to occur in accordance with the provisions of cl 26, i.e. part-
payment of the purchase price by a $4 million vendor loan on standard ADLS terms, secured by a second ranking security. Accordingly, The Rise failed to secure a finance arrangement which would have enabled settlement of the Agreement in accordance with cl 26.
[76] Mr Kennedy submits that the Supreme Court in Kumar held that if a party persistently refuses to perform unless the other party accepts the additional onerous terms inconsistent with the contract, the stance adopted amounts to a repudiation of the contract. Therefore, in reliance on the principles set out in Kumar, even if The Rise was able to waive cl 23, Rental Space’s cancellation was nevertheless justified as The Rise’s repudiatory breach of cl 26 was a valid reason for cancellation.
[77] In response to the repudiation defence, Mr Mills accepts the principles in Kumar as valid, but submits that what was proposed by The Rise did comply with cl 26. Mr Mills submits that the only requirements under cl 26 were that the loan was secured by a second ranking mortgage and the proposal put forward by The Rise on 8 July 2022 did provide for the loan to be secured by a second ranking security. He points to the terms in table C of the Term Loan Agreement forwarded by The Rise to Rental Space in July 2022 which stated the security was a second ranking mortgage. Mr Mills submits there are no other requirements in cl 26, and consequently the first ranking lender proposals did not constitute a repudiation of the Agreement by The Rise, and Rental Space were not entitled to cancel the Agreement by accepting that purported repudiation.
Conclusion in respect of repudiation
[78] In my view, it is reasonably arguable by Rental Space that The Rise was not in a position to settle in relation to the vendor loan in a manner which complied with the terms of cl 26. While Mr Mills made the point that cl 26.4(a) simply refers to an ADLS Term Loan Agreement, rather than a “standard ADLS Term Loan Agreement”, my view is there is a reasonable argument that it was implied that the terms would be on the terms of the standard ADLS agreement, as otherwise the clause creates an agreement to agree, and is prima facie unenforceable.
[79] Consequently, I am of the view that the terms inserted in the draft term loan agreement sent to Rental Space in July 2022 which were onerous to Rental Space, meant that The Rise was not in a position to settle in compliance with cl 26.
[80] Also, in my view the difficulty which arises in deciding what could be inserted by The Rise in the ADLS term loan agreement links back to the issue raised by Mr Kennedy earlier, namely that cl 23 and cl 26 are linked. To make cl 26 workable, if the terms of the first ranked lender had been approved by Rental Space, this would then flow through into an agreed set of documents relating to the term loan agreement and the deed of priority and subordination.
[81] I am therefore of the view that it is reasonably arguable by Rental Space that The Rise’s failure to present documents relating to the vendor loan which complied with cl 26 amounted to a repudiation of the Agreement under Kumar, and Rental Space was entitled to accept that repudiation and cancel the Agreement.
Result
[82] As a result of the conclusions I have reached at [64], [78] and [81], I am of the view that The Rise’s application for summary judgment should be dismissed.
Orders
[83]I make the following orders:
(1)The Rise’s application for summary judgment as to liability on the first cause of action as detailed in the statement of claim dated 30 November 2023 is dismissed.
(2)Counsel are directed to endeavour to agree costs and failing agreement within 20 working days of the date of this judgment, counsel for Rental Space will file a memorandum as to costs (not to exceed 5 pages) within
5 days of the expiry of the 20 working day period, and counsel for The Rise will file a memorandum in reply (not to exceed 5 pages) within 5 working days of receipt of counsel for Rental Space’s memorandum. A decision on costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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