AAA Development (Ormiston) Ltd v Ormiston Group Ltd HC Auckland CIV 2008-404-2616

[2010] NZHC 2096

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-2616

BETWEEN  AAA DEVELOPMENT (ORMISTON) LIMITED

Plaintiff

ANDORMISTON GROUP LIMITED Defendant

Hearing:         14 - 16 and 23 June 2010

Appearances: I Williams for the plaintiff

A Liew for the defendant

Judgment:      23 November 2010

JUDGMENT OF CLIFFORD J

Solicitors:

Kemps Weir Lawyers, P O Box 62566, Auckland for the plaintiff

(Counsel: I Williams: [email protected]) Forest Harrison, P O Box 828, Auckland for the defendant

(Counsel: A E Liew: [email protected])

AAA DEVELOPMENT (ORMISTON) LIMITED V ORMISTON GROUP LIMITED HC AK CIV-2008-404-

2616  23 November 2010

Contents

Introduction....................................................................................................... [1] Background ..................................................................................................... [10] The subdivision of land generally.................................................................. [18] The factual narrative

An overview of the evidence.................................................................. [21]

28 February 2006 – 10 March 2008..................................................... [38]

10 March 2008 – 24 July 2008 ............................................................. [54]

24 July 2008 – 21 January 2009........................................................... [63]

21 January 2009 onward ...................................................................... [70] The legal issues that arise ............................................................................... [74] Section 225 and the S&P Agreement

Section 225(1) – a vendor’s implied obligation to deposit

the survey plan ...................................................................................... [77]

Section 225(2) – a purchaser’s express rights of cancellation

and rescission ....................................................................................... [89] Clause 14 of the S&P Agreement ......................................................... [99] Overall relationship between s 225 and clause 14 ............................. [105] Can parties contract out of s 225? ..................................................... [115]

The efficacy of Ormiston’s 10 March 2008 notice of avoidance............... [133]

The efficacy of AAA’s 24 July 2008 notice of acceptance of repudiation/cancellation ............................................................................... [141]

Acceptance of repudiation? ................................................................ [143]

Cancellation for ongoing breach? ....................................................... [158] The efficacy of AAA’s 21 January 2009 notice of cancellation................. [165] Consequences of my findings ....................................................................... [172] Costs ............................................................................................................... [183]

Introduction

[1]     The plaintiff AAA Development (Ormiston) Limited (“AAA”) and the defendant, Ormiston Group Limited (“Ormiston”) are parties, as purchaser and vendor respectively, to  a written  agreement dated 28  February 2006  (“the S&P Agreement”) for the sale and purchase of certain land at Ormiston Road, Flatbush, Auckland (“the Land”).

[2]      In these proceedings, and as finally pleaded, AAA seeks:

a)        a declaration that it lawfully terminated the S&P Agreement either on

24 July 2008 or on 21 January 2009;

b)a direction  authorising  the release to  it  of  deposit  monies  it  paid pursuant to the S&P Agreement together with accrued interest;  and

c)        damages for wasted expenditure.

[3]      At trial, and although not the subject of any pleading prior to trial nor of any application  at  trial  to  amend  its  statement  of  claim,  AAA  in  effect  sought  a declaration that the S&P Agreement had in fact come to an end on the earlier date of

10 March 2008, when Ormiston had purported to cancel, or avoid, the S&P Agreement.    It  is  to  be  noted  immediately that,  at  the  time,  AAA  denied  that Ormiston was in a position to so cancel or void the S&P Agreement.  It did so on the basis that Ormiston was at that time in breach of its obligation under the S&P Agreement to obtain resource consent for the subdivision of the Land.  Consistent with that position, on 1 May 2008 AAA issued these proceedings seeking specific performance of the S&P Agreement, together with damages.

[4]      Ormiston, in addition to denying AAA’s claims, by way of counterclaim and also as finally pleaded, says that AAA failed in April 2009 to settle the purchase of the Land under the S&P Agreement when legally required to do so and is therefore in breach of the S&P Agreement.  On that basis Ormiston seeks a direction that the deposit monies be released to it and an order that AAA is liable to it for damages. Ormiston pleaded both wasted expenditure and the possible loss of value of the

Land.  It did not provide particulars of that loss of value, but stated that such loss would “be quantified after further inquiry and will be provided before trial”.

[5]      Two matters arise.

[6]      First, Ormiston cannot claim both for wasted expenditure and for the possible loss of value of the Land.  Ormiston’s claim was that AAA was required to settle the purchase of the Land under the terms of the S&P Agreement in April 2009.   If Ormiston is correct in that assertion, its claim must be in damages for loss, and not for wasted expenditure.

[7]      The second matter is an evidential one, relating to the evidence – or as matters transpired the absence thereof – as to the loss suffered by Ormiston.   The usual measure of damages for such a claim for breach of contract would be the difference between the price at which AAA was required to settle the purchase of the Land and the value of the Land (if lower) at the relevant date.  In his written brief of evidence,  Mr James  An,  an  Ormiston  director  and  shareholder,  referred  to  a valuation that Ormiston had obtained as at 7 January 2010, a copy of which was

included in the common bundle.  Mr Williams, as I consider he was entitled to do,[1]

[1] See Burrell Demolition Ltd v Wellington City Council HC Wellington CIV-2006-485-1274,

12 March 2008.

objected to that evidence on the basis that it was hearsay, as the valuer was not being called and Ormiston was not in a position to satisfy the conditions of the Evidence Act  2006  pursuant  to  which  such  hearsay evidence  might  otherwise  have  been admitted.  That evidence was, in my opinion, clearly hearsay (the valuation being of no relevance as a matter of fact, and only being of relevance if introduced for the truth of its context).  Ormiston had made no effort to satisfy the conditions contained in the Evidence Act.   I therefore ruled that evidence inadmissible.   On that basis, Ormiston was without evidence in support of its damages claim.  Mr Liew, with little option, at that point applied for the Court to hold a further hearing on the question of damages.  I return to that issue subsequently.

[8]      At the commencement of this hearing, Ormiston sought leave to amend its pleading by adding a claim for specific performance.  AAA opposed that application. In advancing Ormiston’s application, Mr Liew explained that Ormiston was of the view that AAA was insolvent, and considered that an order for specific performance against AAA would better enable Ormiston to take proceedings for insolvent trading under  the  Companies  Act  1984  against  AAA’s  director  and  sole  shareholder, Mr Steven  Wong.    During  discussion  of  Ormiston’s  application,  I  indicated  I considered that an award of damages, as already sought by Ormiston and if subsequently not satisfied, would provide an equally useful basis for such a proceeding.  After further consideration, Ormiston withdrew its application.

[9]      When these proceedings came for trial before me, therefore, the plaintiff purchaser AAA, which had originally sought specific performance of the S&P Agreement, argued that the S&P Agreement was at an end.  Ormiston, the defendant vendor, which had in March 2008 purported to bring that agreement to an end, argued that the S&P Agreement remained on foot and claimed damages from AAA for its failure to settle the purchase of the Land.  Each party asserted a right to the deposit monies.

Background

[10]     In December 2005, Griffin Property (2004) Limited (“Griffin”) – a related company of Ormiston  –  agreed  to  buy from  Victory  Investment  Properties  Ltd (“Victory”) some 1.6 hectares of land being part of a proposed larger subdivision of land at 125 Ormiston Road, Flatbush, Auckland.   That portion of land became known as Lot 73.  Griffin subsequently nominated Ormiston as purchaser of Lot 73. The settlement date was stipulated as 1 December 2007.  As I understand matters, Victory and Griffin are not related companies.

[11]     The proposed subdivision in effect called for Lot 73 to be subdivided into two lots, as an access road through Lot 73 to the larger subdivision would appear to have been a condition of the consent given by the relevant local authority, Manukau

City Council (“the Council”).  Those two lots were to become Lots 75 and 76, Lot

76 comprising the Land.

[12]     At the time the S&P Agreement was signed on 28 February 2006 neither the underlying Lot 73, to be sold by Victory to Ormiston, nor Lots 75 and 76, into which Lot 73 was to be subdivided, existed as separate titles.   Mirroring the terms of Victory’s agreement with Griffin, the settlement date for the sale from Ormiston to AAA was also stipulated to be 1 December 2007 “or 10 working days after the issue of title, whichever is the later”.

[13]     Clause 14 of the S&P Agreement provides express conditions relating to the subdivision of Lot 73 into Lots 75 and 76.  More particularly, pursuant to clause 14.2 the S&P Agreement was conditional upon Ormiston as vendor obtaining the necessary subdivision consent under the Resource Management Act 1991 (“the RMA”) on or before 31 October 2006, some eight months later, and some 13 months before the stipulated settlement date of 1 December 2007.  Given that the sale of the Land did constitute a subdivision and that the S&P Agreement was made before the appropriate survey plan had been approved, the conditions imposed by s 225 of the RMA also applied.   The relationship between the express terms of the S&P Agreement and those statutory conditions is an important issue in the interpretation of the S&P Agreement.

[14]     As matters transpired, title for Lot 73 was issued to Victory on 12 September

2006 and transferred to Ormiston on 3 December 2007.  However, resource consent for the subdivision of the Land was not issued until 8 July 2008, the relevant survey plan was not deposited until 19 March 2009 and title for the Land was not issued until 30 March 2009.

[15]     In the meantime:

a)       The original date by which the resource consent condition (14.2) was to have been satisfied (31 October 2006) was, by agreement, extended on three occasions, ultimately to 31 January 2008.

b)        By 1 June 2007 AAA as purchaser had, as required, paid a total of

$1,942,655.00 as deposit monies to Ormiston as vendor.   That sum totalled 32.5% of the original purchase price of $5,977,400.00.  It was paid pursuant to clause 15 of the S&P Agreement, which called for four “deposits”, comprising first 10 percent and thereafter 7.5 percent of that purchase price, to be paid on 31 March 2006, 1 June 2006,

1 January 2007 and 1 June 2007 respectively.   Victory’s agreement with Griffin contained a similar provision. The purchase price was subsequently varied by agreement to $935 per square metre, but that did not change the deposit terms.

c)       On 10 March 2008, Ormiston gave notice to AAA purporting to bring the S&P Agreement to an end pursuant to clause 14.2 of the S&P Agreement, on the basis that Ormiston had not obtained resource consent to the subdivision of the Land on or before 31 January 2008.

d)       On 17 March 2008, AAA rejected Ormiston’s right to give that notice.

e)       On 20 March 2008, and consistent with the notice of cancellation given by Ormiston on 10 March, Ormiston’s solicitors returned the deposit  monies  paid  by  AAA,  totalling  –  with  accrued  interest  –

$2,962.377.26, to AAA’s solicitors.  It was subsequently agreed those monies would be held by AAA’s solicitors as a stakeholder pending the outcome of the dispute between the parties.

f)        On 1 May 2008, AAA commenced these proceedings, suing Ormiston for specific performance of the S&P Agreement. Ormiston filed a statement of defence on 4 June 2008 in which it pleaded, amongst other things, that “it admits the plaintiff advised the defendant that it did  not  accept  the  right  to  cancel  and  sought  that  the  defendant perform the agreement and further says that it is entitled to cancel the agreement but will nevertheless perform the agreement”.

g)       On 24 July 2008 – and after resource consent for the subdivision of the Land had been obtained and AAA had been advised of that –

AAA “elected to accept” Ormiston’s earlier “repudiation”, and thereafter   asserted   that   it  was  no  longer  bound  by  the  S&P Agreement.   Ormiston applied to the Court to prevent AAA’s solicitors, Kemps Weir, from returning the deposit monies to AAA. On 31 July 2008 Mr Williams signed an undertaking on behalf of AAA that the deposit monies would be retained in Kemps Weir’s trust account.

h)On 21 January 2009, AAA gave written notice to Ormiston cancelling the S&P Agreement.  Mr Williams, counsel for AAA, explained that this notice had been given on a “belts and braces” basis, to make AAA’s position absolutely clear in face of Ormiston’s continued performance of the S&P Agreement.

i)On 30 March 2009,  and following the issue of title to the  Land, Ormiston declared the S&P Agreement unconditional and wrote to AAA  requiring  it  to  settle  the  purchase  of  the  Land  within  ten working days.  Ormiston subsequently required settlement on 15 April

2009.  AAA declined to perform, relying on the steps it had taken first in July 2008 and then in January 2009 to bring the S&P Agreement to an end.

j)         AAA, notwithstanding its 24 July 2008 election to accept Ormiston’s

10 March “notice of repudiation”, and its 21 January 2009 notice of cancellation:

i)from 1 May 2008 until 12 April 2009 (when it amended its pleadings to a claim for damages) pursued relief in these proceedings for specific performance, although it had in its

24 July   2008   election   letter   indicated   that   an   amended statement of claim would be filed shortly; and

ii)from 23 January 2007 until 26 November 2009, maintained registration of a caveat protecting its interests as purchaser of the Land.

[16]     Those, relatively formal, legal steps taken by the parties are part of a broader series of interactions between them, and between Ormiston and the Council, relating to the subdivision of the Land.

[17]   I note one further contextual matter.   The chronology relating to these proceedings, that is from 28 February 2006 when the S&P Agreement was signed until March 2009 when title for the Land was finally issued and Ormiston subsequently required AAA to settle the purchase of the Land, is co-extensive with the  most  recent  boom  and  subsequent  collapse  of  the  property  market  in New Zealand associated with what is now known as the “Global Financial Crisis”. Both parties during the hearing in effect accepted that the value of the Land had declined materially from that reflected in the purchase price contained in the S&P Agreement.    Moreover,  during  the  course  of  the  hearing,  Mr Kemp  –  AAA’s solicitor – acknowledged that AAA was now “technically”, as he described it, insolvent.  I take that to mean that AAA is in fact now insolvent, absent substantial shareholder support which, as matters currently stand, it would appear it is unlikely to receive.  The clear inference from aspects of Ormiston’s case was that AAA had changed its mind by first denying Ormiston had validly terminated the S&P Agreement in March 2008, and then purporting to accept that “repudiation” in July

2008 due to those events and their commercial implications.  Although of interest as broad context, those matters are – in general terms – not of direct relevance to the issues raised by these proceedings.

The subdivision of land generally

[18]     This case, and the issues it raises, are best understood in the context of the law as it more generally relates to the subdivision of land.

[19]     The subdivision of land is principally controlled by a number of provisions of the RMA.  Very much in summary:

a)       The term “subdivision of land” is extensively defined in s 218(1), and includes the division of an allotment by the sale or offer of sale of the fee simple to part of the allotment.

b)Pursuant  to  s 11(1)  no  person  may  subdivide  land  unless  the subdivision is, as relevant here, expressly allowed by a resource consent and shown on a survey plan prepared in a form suitable for deposit  under  the  Land  Transfer  Act  1952,  and  “deposited  under Part 10 by the Registrar-General of Land”.[2]

[2] The reference in s 11(1) of the RMA to a plan “deposited under Part 10 by the Registrar-General of Land” would not appear to be strictly correct.   Part 10 clearly provides for plans to be deposited by persons other than the Registrar-General.

c)       Once an application for a resource consent for a subdivision under s 88 has been approved, subject to such conditions under s 220 as the relevant local authority may impose, a subdivision is effected by the issue of title for the subdivided land by the Registrar-General of Land following the deposit of a survey plan in the Land Registry Office under s 167 of the Land Transfer Act 1952.  Such a survey plan must:

i)pursuant to s 223, first be approved by the relevant territorial authority; and

ii)pursuant to s 224, be lodged together with a certificate from the Chief Executive or other authorised officer of the territorial authority (a “s 224(c) certificate”) stating that that territorial authority has approved the survey plan and that all conditions of the subdivision consent have been complied with, or are subject to ongoing conditions of consent (s 221) or a bond (s 222).

[20]     Within that overall scheme, s 225 allows for an agreement to sell land that is part of an allotment (which agreement is therefore deemed to be a subdivision) before the necessary survey plan has been approved and deposited.

The factual narrative

An overview of the evidence

[21]     Although this was a relatively brief trial, it involved a reasonably detailed factual narrative covering – in effect – the period from when Griffin contracted with

Victory in December 2005 through to 15 April 2009, the date on which Ormiston required settlement of the purchase of the Land by AAA.  Although, as matters have transpired, that factual narrative is not as determinative of the issues raised by these proceedings as the parties, and in particular AAA, contended, nevertheless it is important that it be recorded appropriately.

[22]     For the plaintiff, evidence of fact was provided by Mr Peter Kemps of Kemps

Weir Lawyers and Mr Steven Wong, the director and sole shareholder of AAA.

[23]     Mr Kemps   advised   AAA   throughout.      Mr Kemps’   evidence   related principally  to  the  interactions  between  AAA  and  Ormiston  as  to  progress  in obtaining resource consent and other approvals, the various legal steps taken by AAA after 10 March 2008 and associated dealings with Ormiston and its lawyers.

[24]     Mr Wong’s evidence added little to Mr Kemps’ view of the factual narrative of interactions between AAA and Ormiston, although he did give evidence as to dealings he had had directly with Mr An, who would appear to have represented Ormiston in its dealings with AAA.  Whilst most of the factual narrative recorded here was not disputed, Mr Wong and Mr An gave conflicting evidence as to what their discussions had involved and the information that had been passed between them.  Mr Wong also provided evidence as to AAA’s ability to settle at the time it sought specific performance, and at the dates of its two cancellation notices.  Mr An also gave evidence in support of AAA’s wasted expenditure claim.

[25]     AAA’s final witness was a Mr David Paetz, a planner, who gave evidence as an  expert  on  the  question  of  whether  or  not  Ormiston  had  diligently  pursued obtaining resource consent, including preparing the necessary subdivision plan.

[26]     In his evidence-in-chief Mr Paetz advanced the opinion that Ormiston, acting with all due diligence,  should have been  able  to prepare and lodge a complete subdivision application, including all necessary design work, within four months (at the very latest) of the S&P Agreement being concluded on 28 February 2006.  On that basis, he would have expected the subdivision consent application to have been processed and approved by December 2006.   That was in his view a worst case

scenario.   Approval by September 2006 would have been an entirely realistic expectation.

[27]     In cross-examination, Mr Paetz acknowledged that he was not aware that Ormiston could not lodge its subdivision application until Victory’s subdivision had been approved.  Moreover, Mr Paetz acknowledged that he did not have experience of lodging an application when the underlying title had not been issued.   He had spoken with Council officers about that, but could not comment on it from his own personal experience.

[28]     Mr Paetz also acknowledged – in cross-examination of the evidence he gave critical of the time taken to achieve the issue of title once subdivision consent had been obtained – that he had no direct experience of organising and implementing construction work.   He was a planner, and in that regard he was also relying on advice he had received from others.  Mr Paetz also acknowledged – in response to questions  from  me –  that  he was  not  able to  comment  on  how  the difficulties Ormiston  and  the  Council  had  had  on  agreeing  the  road  widening  matter  had impacted on the time taken for this whole process.

[29]     There were, obviously, a number of difficulties with Mr Paetz’s so-called expert evidence.

[30]     Nevertheless, Mr Paetz finally put his position in answers to questions from me as being that, on the basis that the head title for Lot 73 issued on 26 September

2006, a resource consent application could have been filed within approximately a month of that, and eight months would have been ample for the Council to process that.  Resource consent should, therefore, have been issued in or around July 2007 and title should have been available by, say, December 2007.

[31]     Therefore, and with reference to the actual date on which resource consent was obtained, namely 2 July 2008, title should have been available by the end of that year, as opposed to March 2009 when in fact it was available.

[32]     Ormiston’s   principal   witnesses   of   fact   were   Mr Alan   Blyde,   a   land development  engineer  and  principal  of  Harrison  Grierson  Consultants  Limited

(“Harrison Grierson”), and Mr Mark Kierney, a civil engineer and managing director of Kea Consultants Limited (“Kea”).   Harrison Grierson were retained by Griffin, early in March 2006, to attend to the proposed subdivision of Lot 73, including the road between the two lots which was to vest as a public road.   That retainer was terminated in August 2008, at which point Griffin contracted with Kea to carry out the engineering and survey works required for the subdivision of Lot 73.  There was little  if  any  challenge  to  the  factual  narratives  provided  by  Mr Blyde  and Mr Kierney.   Furthermore, it was accepted that Griffin was in effect Ormiston’s agent.  The performance or otherwise by Ormiston of its obligations under s 225 of the RMA or clause 14 of the S&P Agreement was generally assessed by reference to actions taken by Griffin on its behalf.

[33]     Mr An’s evidence principally related to the interactions he had had directly with Mr Wong, and his perspective on the dispute between Ormiston and AAA. Mr An  also  gave  evidence  as  to  costs  Ormiston  had  incurred.    Finally,  Mr An purported to introduce evidence of the valuation Ormiston had obtained.

[34]     Finally, evidence was provided by Ms Chan of solicitors Forest Harrison. Ormiston had originally been advised by the firm Phillip Wong & Ben Bong Law Office (Mr Wong).  Ormiston terminated its retainer with that firm in February 2008, and subsequently retained Ms Chan at Forest Harrison.  Ms Chan gave evidence of the events that occurred at the time Ormiston gave notice under clause 14.2 and subsequently.

[35]     The parties' oral evidence was supplemented by a range of documentary evidence provided in the form of the common bundle, and also a range of “supplementary” documents presented by the defendant – somewhat unorthodoxly – as its own bundle of documents.   As the trial progressed, both parties referred to various documents contained in that supplementary bundle.  At the end of the day, I do not propose to make any more of the unorthodox way in which those documents were submitted by the defendant.  I do, however, note one matter relating to those documents.

[36]     After Ormiston gave its notice of avoidance on 10 March 2008, Ormiston and

AAA  entered  into  a  without  prejudice  series  of  negotiations  which  could  be

construed either as involving a possible variation to the S&P Agreement or the replacement of that agreement with a new agreement.  The parties waived privilege to the exchange of correspondence between the solicitors which recorded those negotiations, enabling that correspondence to be referred to in evidence.  However, that waiver of privilege does not, in my view, alter the fact that at the time those negotiations were conducted on a without prejudice basis.  Therefore, they were not intended to, and could not, affect the status of the legal relationships between Ormiston and AAA unless and until Ormiston and AAA agreed that any outcome of those negotiations was to bind them.   That never happened.   As no outcome was reached that the parties agreed to bind themselves to, what may or may not have been said or occurred during the course of those without prejudice negotiations, and what that might say of the intentions of the parties at the time, could not affect the status of the S&P Agreement or in any other way affect the legal position between the parties.   That is, in my view, intrinsic to the nature of “without prejudice” negotiations.  At the same time, straightforward factual information – particularly as to steps being taken by Ormiston to perform the S&P Agreement – was communicated in that correspondence.  To the extent that such communications are relevant, that evidence is available to me.

[37]     Against that background, I think it is helpful to discuss the factual narrative in four parts:

a)       from the date the S&P Agreement was signed until 10 March 2008 when Ormiston gave notice;

b)from 10 March 2008 until 24 July 2008, when AAA gave notice “electing to accept Ormiston’s repudiation” of, or as it subsequently characterised it, the notice “cancelling”, the S&P Agreement;

c)       from 24 July 2008 until 21 January 2009, when AAA gave its second notice cancelling the S&P Agreement;  and

d)       from 21 January 2009 onwards.

28 February 2006 – 10 March 2008

[38]     By 10 March 2008, when Ormiston gave notice in reliance on clause 14.2 avoiding the S&P Agreement, resource consent had yet to be obtained for the proposed subdivision creating the Land.   Two years had therefore elapsed during which Ormiston had been required to take all reasonable steps to obtain that consent and to deposit the relevant subdivision plan.  What had been happening?

[39]     In March 2006 Harrison Grierson first provided a timetable to Griffin that would have seen applications and design plans for the resource consent completed in four to five weeks’ time.  That, however, depended on Victory progressing its own subdivision, as a result of which Lot 73 was to be brought into legal existence, and providing   associated   information   (including   various   “as   built”   plans)   to Harrison Grierson.   Although   Victory’s   consultants   initially   advised   Harrison Grierson that they were expecting title for Lot 73 to issue in May 2006, that in fact did not occur until September 2006.   In the meantime, Harrison Grierson was not able to make significant progress as it did not receive the information it required from Victory’s consultants.

[40]     Further, the Council, in April 2006, raised directly with Harrison Grierson, and Griffin, a proposal to take land from Lot 73 for road widening purposes, distinct from the access road to be created.  Griffin considered that was an issue that should have been dealt with between the Council and Victory.  It was not, and this was to cause subsequent difficulties.  It would appear, and again this was not disputed, that the Council was not in a position to take that land and – in effect – relied on Griffin/Ormiston’s need to obtain resource consent to the subdivision to put pressure on Griffin/Ormiston to agree to sell the land involved to the Council.

[41]     That issue, and others, were discussed with the Council through June, August and September.   No agreement on compensation for the Council’s desired road widening was achieved.   On Ormiston’s instructions, an initial application for resource consent, not incorporating the details of the land the Council wished to acquire for additional road widening, was filed on 12 January 2007.  That application was declined.  By 2 March 2007, however, Harrison Grierson had been instructed to

file the resource consent application accompanied by plans which showed the Council’s proposed land take.  At that time, compensation issues had still not been agreed.

[42]     On 21 March 2007, and in response to that application, the Council sent Harrison Grierson the first of a number of requests under s 92 of the RMA for further information.  On the basis, no doubt, that the plans as submitted showed details of the Council’s proposed road widening, that was no longer an issue.  Rather, in that first s 92 notice, and in the further notices issued on 16 April 2007 and 19 April

2007, separate roading issues were raised, and issues were also raised relating to drainage, sewerage and storm water.   Those issues required Harrison Grierson to negotiate with Water Care Limited, an entity associated with the Council.   Whilst that process was underway, another division (at least as  I understand  it) of the Council, Manukau Water, raised issues relating to a water main.  Those issues were reflected in a further s 92 request issued by the Council on 29 June 2007.

[43]     It took some time for those issues to be resolved.  It would appear that during this period Harrison Grierson was put under some pressure by Griffin.  In a letter of

4 October 2007 to Griffin, Harrison Grierson observed:

We realise the initial expected time frames we provided you with have not been met and that we are still waiting on council approval, and understand that this is very frustrating for Griffin Property and your affected partners.

Please be assured that we are continuing to chase council and would hope that the above time frames can be reduced.  We also confirm that it is our understanding from speaking with Mike Pritchard at MCC that there is no reason that the consent will not be approved and that we are currently just awaiting on council to collect all the relevant information between their internal departments along with comment from WSL.

We trust the above is satisfactory.  Please call should you have any further queries.

[44]     By 30 November 2007, Harrison Grierson understood the issues relating to storm water and sewerage had been resolved, and they followed up with the Council seeking confirmation that consent would shortly issue.  However, on 13 December

2007 the Council issued yet another s 92 request.  Apparently, AAA had lodged a resource consent relating to the yet to be formed Lot 76.  That was for a significant apartment complex development.  The Council in effect asked Ormiston to amend

the location of public drains on what would become Lot 76.   Harrison Grierson sought Griffin’s instructions.  It would appear that Griffin/Ormiston were reluctant to change their plans because, in Mr Blyde’s words, they were confident that AAA’s proposal would not go ahead and they did not wish to change their designs in those circumstances.    There  were  also  references,  in  the  evidence,  to  Griffin  having opposed AAA’s resource management application.  I have to note, however, that that aspect of matters was not well explained.

[45]     At  10  March  2008,  therefore,  Ormiston  was  in  a  position  to  file  its application for resource consent, subject to one matter.  The outstanding issue at that time was whether it would agree to the Council’s request that it conform its plans to those of AAA.  As I understand matters, as a matter of law it was not required to do so.

[46]     Throughout this period, on various occasions Mr Kemps sought information from Ormiston’s solicitor, Phillip Wong, as to progress with obtaining resource consent and other  approvals.   Mr Kemps did  not receive any meaningful  reply. Mr Kemp’s evidence was that he wrote first in those terms on 3 August 2006.  He received no reply, but a first extension of the date for the satisfaction of the resource consent condition was agreed on 12 August 2006.   Mr Kemps wrote again on 22

December 2006 and 16 January 2007, without receiving any substantive reply.  On

26 February, the resource consent condition date was extended for the second time to

30 September 2007.  According to Mr Kemps, in evidence that was not challenged, that second extension had been requested by Ormiston’s land agents.

[47]     On 4 October, and therefore after that extension date, Mr Kemps wrote again raising issues of delay, and requested that the resource condition be extended to a “realistic” date.   The parties subsequently agreed on 12 October 2007 that the condition date would be extended to 31 January 2008.   Throughout, AAA clearly wanted to hold Ormiston to the S&P Agreement.   Reflecting this, AAA had, of course, by this time lodged its caveat.

[48]     Between October and December 2007 Mr Kemps wrote on several further occasions, again raising issues of delay and making enquiries as to progress.  Phillip Wong noted that he had passed these inquiries on to his client and had advised his

client that it should reply directly.  During this period AAA temporarily withdrew its caveat to enable Ormiston to settle the purchase of Lot 73.

[49]     On 20 December 2007 Mr Kemps wrote again to Phillip Wong.  In that letter he stated:

The resource consent condition has been extended to 31 January 2008 which will be 23 months from the date of the agreement was first signed.  In the absence of any information from you or your client regarding progress with the resource consent, our client has grave concerns that the consent may not be granted by 31 January 2008.   We expressed this concern in earlier correspondence when we requested information regarding the resource consent so that a realistic extension date could be agreed.

We now seek an amendment to clause 14.2 eliminating the words ‘on or before 31 October 2006’ and the words at the end of that clause ‘within the required period specified’ and substituting at the end the words ‘as soon as practicable’.   This would leave no time limit for the satisfaction of the resource consent and would simply require your client to continue to pursue the resource consent.

Please confirm that in the circumstances this amendment is agreed.

We reiterate our client’s request for information regarding progress.   We think, given the significant financial commitment our client has made to this contract, that our client is entitled to such information.

We have earlier indicated that given the fact that almost two years have passed since the original agreement, and by the end of January 15 months since the first date in clause 14, that it is apparent your client has not met the terms of clause 14 to ‘take all reasonable steps to obtain the approval or consent within the required period specified’.

[50]     Therefore, notwithstanding AAA’s concerns as to delays on Ormiston’s part, AAA wanted the S&P Agreement to remain on foot, and for the S&P Agreement to be amended so that there was no fixed time limit by which resource consent had to be obtained.

[51]     Mr Kemps followed up on that letter in the middle of January directly with Mr Wong.     Following  that  conversation,  on  21  January  Mr Kemps  wrote  to Mr Wong  seeking  details  of  the  matters  that  were  at  that  stage,  according  to Ormiston, standing in the way of their accepting various Council conditions, and by reference   to   which   AAA   had   at   that   time   indicated   it   might   cancel   the S&P Agreement.  When Mr Kemps received no reply to that letter, he wrote again on  1  February.     On  20 February  he  received  a  letter  from  Forest  Harrison

(Stella Chan), advising that she now acted for Ormiston and was taking instructions. On 28 February, Mr Kemps wrote to Forest Harrison.   Mr Kemps recorded that AAA  had  requested  an  extension  of  the  date  for  satisfaction  for  the  resource condition and that he had been advised by Mr Wong that an extension would be granted.   He sought Forest Harrison’s urgent confirmation of an extension which would allow sufficient time for the resource consent to be received, assessed and accepted.  He noted, further, that it seemed unlikely Ormiston could say it had acted in compliance with clause 14.

[52]     On 6 March 2008, Forest Harrison wrote to Kemps Weir, indicating that Ormiston intended to cancel the S&P Agreement because resource consent had not been obtained by 31 January.   A without prejudice meeting would appear to have subsequently been held.   On 10 March, however, Forest Harrison wrote again on behalf of Ormiston in the following terms:

Our client has instructed that special condition 14.2 of the agreement of sale and purchase dated 28 February 2006 has not been satisfied by the due date. The agreement is therefore at an end.

Please advise your trust account details for return of the deposit payment.

[53]     It is against that factual background, therefore, that the status of Ormiston’s notice of 10 March 2008 declaring the S&P Agreement to be at an end is to be assessed.

10 March 2008 – 24 July 2008

[54]     After  10  March,  Harrison  Grierson  continued  to  progress  the  grant  of resource consent with the Council.   In April, Griffin arranged for TSE Group to liaise with the Council on its behalf.   In late April, Harrison Grierson, acting on Griffin’s instructions, advised the Council to progress its resource consent without taking into account the AAA application.  One further issue, relating to the shared cost of a water main, was settled in May and on 23 May the Council provided a draft resource consent for comment.  As issued, the roading contributions were considered greater than had been anticipated.  That matter attracted attention in June.  On 1 July Harrison Grierson, on behalf of Griffin, instructed the Council to issue the resource consent, noting that further objection to conditions which were not acceptable might

be made later.   Resource consent was issued on 2 July, Forest Harrison advised Kemps Weir of that by letter dated 8 July and on 21 July AAA was provided with a copy of the resource consent.

[55]     AAA did not accept that Ormiston was lawfully entitled to bring the S&P Agreement to an end on 10 March 2008.  It made that clear when Mr Kemps wrote on 17 March 2008, recording its view in the following terms:

My client does not accept your client’s repudiation of the contract and does not believe your client had a lawful right to cancel.   Our client does not believe it is possible, given the passage of 2 years since the agreement was signed, that your client has complied with the requirements of clause 14.2 in particular  the  last  sentence  of  that  clause.    Following  signing  of  the agreement your client undertook that it would:

…forthwith   make   application   for   such   approval   or   consent supporting same with all necessary plans, specifications and details as may be required by the territorial authority.....

and it also undertook that it

....will take all reasonable steps to obtain the approval or consent within the required period specified.

As your client seeks to rely on the non satisfaction of clause 14.2, our client requires the vendor to provide information to prove that it has fulfilled clause 14.2.  The onus of proving that the conditions have been satisfied for the contract to be terminated lies on your client.

[56]     Mr Kemps sought a range of detailed information relating to the steps taken by Ormiston over time to obtain resource consent.   On 20 March Forest Harrison replied to that letter.   It recorded that Ormiston considered the contract validly cancelled and that there was no obligation to provide the information requested by Mr Kemps.  Forest Harrison included with its letter its trust account cheque for the deposit and accrued monies.  It stated “banking of the cheque shall be considered as acceptance of the cancellation of the agreement between the parties”.  AAA did not accept that, but it was agreed that the deposit monies would be held by Kemps Weir, as a stakeholder, pending the outcome of the dispute.

[57]     AAA  filed  its  first  statement  of  claim  on  1  May,  seeking  specific performance on the basis that Ormiston, being in breach of its obligation to obtain resource consent, could not cancel the S&P Agreement, in reliance on clause 14, on the basis that resource consent had not been obtained by 31 January 2008.  Ormiston

filed its statement of defence on 4 June 2008.  It denied that it was in breach of the S&P Agreement, and therefore affirmed its right to cancel.  It went on, however, to plead in the following terms:

It admits the plaintiff advised the defendant that it did not accept the right to cancel and sought that the defendant perform the agreement and further says that it is entitled to cancel the agreement but will nevertheless perform the agreement ...

[58]     On  5 June 2008,  AAA,  through  Mr Williams,  sought  clarification  of  that pleading.  That request would appear to have been overtaken by subsequent events.

[59]     Around this time, the parties entered into the series of without prejudice discussions already referred to aimed – it would appear – at either amending the S&P Agreement or substituting a new agreement in its place.  Various issues were raised, in particular the possibility that, and the basis upon which, the deposit monies might be released to Ormiston to assist it paying for works associated with the subdivision, and, as raised by Mr Kemps earlier, the amendment of the date by which resource consent was to be obtained.   Although some progress would appear to have been made around the possible release of the deposit (once resource consent was obtained) to assist funding completion of the subdivision works and on an open-ended date for the issue of the resource consent, by the time Ormiston provided a copy of the resource consent to AAA on 21 July no agreement had been reached.

[60]     On 24 July, and not without prejudice, Mr Kemps wrote to Forest Harrison as follows:

We refer to your letter of 21 July.

Our client is not prepared to take a second mortgage over the property behind a first mortgage of $10 million plus interest and costs in return for an agreement that the deposit be released to your client.   Our client does not believe that such a mortgage offers adequate security at the present time.

Our client has instructed us to discontinue negotiations for resurrection of the agreement for sale and purchase and to seek damages for loss.  Our client now accepts the unlawful termination as repudiation and the contract is therefore at an end subject to the right to seek damages for losses incurred. Ian Williams has been instructed accordingly and losses are being calculated and will be claimed in due course.

We are releasing the deposit to our client.  An amended statement of claim will be served shortly.

[61]    It is clear, therefore, that at the time AAA itself declared that the S&P Agreement was “at an end” it did so based on its acceptance of what it had always regarded as the repudiation of the S&P Agreement constituted by Ormiston’s unlawful  termination,  notwithstanding that  it  had  previously formally elected  to affirm and sue for specific performance.  As pleaded at the time of trial, however, AAA  also  asserted  that  Ormiston  remained  in  breach  of  clause 14.1  and  14.2 between  1  May  2008  and  24  July  2008  and  that  it  was  in  reliance  on  those continuing breaches that it had terminated the S&P Agreement.

[62]     Those, clearly differing, assertions are an important part of the context of assessing the efficacy of AAA’s letter of 24 July.

24 July 2008 – 21 January 2009

[63]     On 25 July 2008, Ormiston obtained ex parte injunctive relief to preserve the deposit monies.

[64]     In July and August, Harrison Grierson prepared tender documents for the physical  construction  works  required  to finalise  the  subdivision.    Drawings  and contract documents were put out for tender, with Griffin to undertake the contract negotiations.

[65]     In early September Griffin discontinued Harrison Grierson’s contract and retained  Kea.    It  was  Mr Kearney’s  evidence  that,  following  an  initial  project meeting on 4 September 2008 at which Griffin made it clear that it wanted the subdivision works completed as soon as possible, Kea moved quickly.  Construction works commenced on 24 September 2008 and practical completion was achieved on

30 November 2008.   Kea applied for the s 224(c) certificate on 9 December 2008 and  that  certificate  was  issued  by the  Council  on  18  February 2009.    Reserve contributions and the value at which the Council would acquire land from Ormiston continued to be issues.  Those issues had finally been resolved between the Council and Griffin directly on 11 February 2009.

[66]     Ms  Chan  kept  Mr Kemps  informed  of  progress,  writing  in  September, October,  November  and  December  of  2008.    Towards  the  end  of  September,

Ms Chan advised that Ormiston expected title to issue before the end of December

2008.  In late November, she updated that advice noting that the s 224(c) certificate was expected to be signed off by the Council in December 2008.  Late in December she  advised  that  that  certificate  was  expected  to  be  “signed  off  shortly”.    On

16 January Kemps Weir returned a signed consent by AAA as caveator, consenting to the deposit of the subdivision plan without prejudice to its rights under the caveat.

[67]     On 21 January 2009 Kemps Weir wrote again to Forest Harrison.  That letter stated:

It is now almost a month beyond the date you expected this transaction would be ready to settle.  In the context of the extraordinary delays in the vendor complying with the terms of the agreement since it was entered into, we must advise that AAA Development (Ormiston) Limited will now not be proceeding with this transaction.

Given the Court Order that relates to the monies held in our trust account, the future of those monies will either need to be negotiated and agreed and confirmed by Court Order or either party will have to make application to the Court.

[68]     As pleaded  at the time of trial, AAA argued  that Ormiston remained  in breach of clause 14.2 between 24 July 2008 and 21 January 2009, by reference to which substantial breaches, and reliance on s 7(3) of the Contractual Remedies Act

1979,  AAA  was  entitled  to,  and  had,  cancelled  the  S&P  Agreement.    Again, reflecting a slightly ambiguous legal position at the time, AAA also pleaded that it had “again” terminated the S&P Agreement for Ormiston’s non-performance.   As pleaded, AAA argued in the alternative that Ormiston had repudiated the S&P Agreement by making it clear it was not intending or able to perform or complete, although that was not an argument pursued in any material way at trial.

[69]     It is to be noted that there is, therefore, some tension between the terms of the notice given on 21 January 2009, and AAA’s assertion that it had validly brought that agreement to an end on 24 July 2008.  If nothing else, the statement that AAA “will not now be proceeding with this transaction” (emphasis added) is more than a little inconsistent with the argument that the S&P Agreement had, in fact, come to an end on 24 July 2008.

21 January 2009 onward

[70]     On 23 January 2009, Forest Harrison wrote indicating that Ormiston did not accept the 21 January 2009 cancellation.   On 23 March 2009, Forest Harrison informed  Kemps  Weir  that  the  s  224(c)  certificate  had  been  issued  and  that documents had been  submitted to the Land Registry for the issue of  new title. Forest Harrison requested, and subsequently received, a partial withdrawal of caveat. The caveat was not withdrawn over Lot 76.  On 30 March, Forest Harrison provided Kemps Weir with a copy of the title that had issued and, as noted already, gave notice that  the S&P  Agreement  had become  unconditional,  that  GST  would  be payable  within  five  working  days  and  that  settlement  would  be  required  in  10 working days from 30 March 2009.

[71]     Matters then proceeded, with settlement statements ultimately being sent by

Forest Harrison to Kemps Weir requiring settlement on 15 April 2009.

[72]     AAA filed an amended statement of claim on 2 April 2009, deleting its prayer for specific performance and substituting a claim for wasted expenditure. AAA finally withdrew its caveat on 26 November 2009.

[73]     Against that background, these proceedings came on for hearing.

The legal issues that arise

[74]     That detailed factual narrative is directly relevant to the question of which, if any, of the steps taken by the parties to bring the S&P Agreement to an end were effective and, ultimately, whether as Ormiston argues the S&P Agreement remained on foot and obliged AAA to settle with Ormiston in terms of the settlement notice issued.

[75]     Before that issue can be addressed, however, it is necessary, in my view, to resolve the question of the combined effect of the statutory terms found in s 225 of the RMA and the express provisions of the S&P Agreement, especially clause 14 relating to the subdivision of the Land.  That was not an issue which received great

attention at the trial.  Section 225 was not referred to by AAA at all, and was only mentioned by Ormiston in its closing address.  On 19 July, I therefore sought further submissions  from  counsel  in  writing  on  the  significance  of  s 225,  and  the relationship between the terms contained in s 225 and the express provisions of clause 14.  I received those submissions on 30 July and thank counsel for them.

[76]     As will become apparent, the relationship between the terms and conditions (express  and  implied)  which  derive  from  s 225,  and  differing  express  terms  of contracts for the sale and purchase of land to be subdivided, is not straightforward. The issue raised here is whether parties may bind themselves to express terms which differ  from  those  implied  by s 225.    As  will  be  seen,  that  issue  is  relevant  as Ormiston’s purported cancellation of the S&P Agreement on 10 March 2008 relied on the condition subsequent contained in clause 14.2, which gave Ormiston rights not provided by s 225.   In a brief article in 1990 commenting on the scope for contracting out of the then precursor of s 225, the author referred to the section as

“an accident waiting to happen”.[3]  That article highlights some of the difficulties of

[3] S Dukeson Section 307 of the Local Government Act 1974 (1990) 5 BCB 182.

reconciling the provisions of s 225 with explicit contractual terms.  It may well now be time for the provisions of the section to be revisited, if nothing else to clarify the extent  to  which,  and  in  what  circumstances,  parties  may  contract  out  of  its provisions.

Section 225 and the S&P Agreement

Section 225(1) – a vendor’s implied obligation to deposit the survey plan

[77]     Section 225(1) of the Act provides as follows:

Agreement to sell land or building before deposit of plan

(1)Any agreement to sell any land or any building or part of any building that  constitutes  a  subdivision[4]   and  is  made  before  the  appropriate survey plan is approved under section 223, shall be deemed to be made subject to a condition that the survey plan will be deposited

under the Land Transfer Act 1952 or in the Deeds Register Office, as the case may be; and no such agreement is illegal or void by reason that it was entered into before the survey plan was deposited.

[4] I note the difference in language between subsection (1) “any agreement to sell any land ... that constitutes a subdivision”, and that of subsection (2) “any agreement to sell any allotment in a proposed subdivision”.  I do not consider that difference in language to be significant for these purposes of this case.

[78]     The  Supreme  Court  has  now,  in  Steele  v  Serepisos,[5]    considered  the background to, and meaning of, this provision.

[5] Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1..

[79]     As Tipping J observed in Serepisos at [22], in Griffiths v Ellis[6]  the Court of Appeal by a majority held that s 332(1)(a) of the Municipal Corporations Act 1933 made illegal a sale of unsubdivided land, that is land to be subdivided.  The law was amended to overcome this ruling by the Municipal Corporation Amendment Act

1959 which introduced, as s 351 of the 1954 Act, the provision of which s 225(1) is the counterpart.

[6] Griffiths v Ellis [1958] NZLR 840.

[80]     In  Serepisos,  the  Supreme  Court  confirmed  the  earlier  Court  of  Appeal authority, W R Clough & Sons Ltd v Martyn,[7]  that s 225(1) did not, as its literal terms might suggest, create a statutory warranty by a vendor that it would deposit the plan, come what may.  The section’s purpose was essentially permissive, that is, it allowed contracts to be entered into prior to the deposit of the plan but necessarily subject to its deposit.

[7] W R Clough & Sons Ltd v Martyn [1978] 1 NZLR 313.

[81]     The obligation which rested on vendors as regards the deposit of the plan was not absolute. Rather, s 225(1) requires vendors to take all reasonable steps to deposit the plan and thus to take all reasonable steps to fulfil conditions that might be imposed   on   the   plan’s   approval,   provided   those   conditions   are   themselves reasonable.

[82]     The Court then considered two further aspects of the s 225(1) condition.

[83]     The Supreme Court first decided by a majority that the question of whether the reasonableness of the steps a vendor is obliged to take to complete and deposit a survey plan under the Land Transfer Act 1952 was to be assessed, not only by reference to the objective reasonableness of any condition imposed by a relevant

authority, but also by reference to the reasonableness of the steps required to be taken by a vendor to so comply, assessed by reference to the contemplation of the parties at the time as to what was likely to be involved.  That issue is of no direct relevance here.

[84]     The Supreme Court then went on to consider the issue of whether or not a vendor must give notice to a purchaser when, having taken all reasonable steps, the vendor  considers  that  it  has  satisfied  those  obligations  and  that  the  necessary resource management consent has not been obtained.   That issue arose because in that case the Court of Appeal had held that a vendor in those circumstances needed to give notice to the purchaser.  The Chief Justice, who joined with the majority in this part of the Supreme Court’s judgment, put the position concisely as follows:

Notice in accordance with the principles discussed in Hunt v Wilson [1978]

2 NZLR 261 (CA) is notice to a party in continuing default, given to bring matters to a head and stop time drifting on. It does not arise where a condition has proved to be impossible of reasonable fulfilment and the contractual obligations can properly be regarded as discharged. Whether that stage has been reached may be a difficult question, but it does not turn on whether reasonable notice of intention to treat the obligations as discharged has been given.

[85]     In the course of reaching that conclusion the Supreme Court also discussed in what circumstances a party giving notice cancelling a contract is required, prior to the effective notice of cancellation, to give notice of its intention to issue such a notice  –  thereby  making  time  of  the  essence.    I  will  discuss  those  aspects  of Serepisos when considering the efficacy of the various notices of purported cancellation (however described) given by the parties here.

[86]     Therefore, based on Clough v Martyn and Serepisos, pursuant to the s 225(1)

condition:

a)        a vendor must take all steps reasonably available to it (including the obtaining of resource consent) to deposit the survey plan and – hence

– obtain the issue of title; and

b)a vendor may (at any time) cancel a contract where the vendor has satisfied its s 225(1) obligations, without obtaining approval of the

relevant  survey  plan,  and  need  not  give  notice  to  the  purchaser making time of the essence before doing so.

[87]     In terms of that authority, I think it goes without saying that a vendor may not cancel a contract because it fails to obtain approval of the survey plan, where the vendor has not discharged its obligations implicit in s 225(1) to take all reasonable steps to obtain that approval.  In Hay v Laurent Construction Ltd,[8] Smellie J reached the same conclusion.

[8] Hay v Laurent Construction Ltd [1990] 1 NZConvC 190,387.

[88]     As so interpreted, the s 225(1) condition can be seen as being principally for the benefit of a purchaser by imposing the obligation on a vendor as regards deposit of the survey plan.  At the same time it is of some benefit to a vendor by, in effect, entitling  a  vendor  to  terminate  the  contract  where  it  has  satisfied  its  s 225(1) obligation without obtaining approval of the survey plan.

Section 225(2) – a purchaser’s express rights of cancellation and rescission

[89] What is now s 225(2) was enacted in 1978 as s 307 of the Local Government Act 1974 pursuant to the Local Government Amendment Act 1978. That provision was in essentially the same form as s 255(2), which now provides::

(2)Subject to subsection (1), any agreement to sell any allotment in a proposed subdivision made before the appropriate survey plan is approved under section 223 shall be deemed to be made subject to the following conditions:

(a)   That the purchaser may, by notice in writing to the vendor, cancel the agreement at any time before the end of 14 days after the date of the making of the agreement:

(b)   That the purchaser may, at any time after the expiration of 2 years after the date of granting of the resource consent or one year after the date of the agreement, whichever is the later, by notice in writing to the vendor, rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan to the territorial  authority  for  its  approval  or  has  not  deposited  the survey  plan  within  a  reasonable  time  after  the  date  of  its approval.

[90]     That subsection was not considered by the Supreme Court in Serepisos nor by the Court of Appeal in Clough.   The effect of s 225(2)(b) was considered in DBCL Developments Ltd v New Zealand Investments Ltd.[9]   In that case the purchaser attempted to rely on the common law rule that where no time limit is imposed by the contract a reasonable time limit will be inferred.  The purchaser then gave notice that it was making time of the essence.   The Court held that s 225(2) prohibited the purchaser  from  giving  notice  making  time  of  the  essence  simply  because  a reasonable time had passed before the expiry of the time limit in that section.   This

supports the proposition that parties to a contract are unable to contract out of s 225, as will be discussed further below.  The subsection was also considered in Gladstone

2005 Trustees Ltd, Auckland v Hallenstein Projects Ltd.[10]   There it was held that the

reference to “the resource consent” must be to a subdivision consent, and not some other kind of resource consent.  That point is not relevant in this case.

[9] DBCL Developments Ltd v New Zealand Investments Ltd HC Auckland CIV 2008-404-006058, 24 June 2009. 

[10] Gladstone 2005 Trustees Ltd, Auckland v Hallenstein Projects Ltd HC Tauranga CIV 2009-470-322, 16 October 2009. 

[91]     Neither is the legislative history especially helpful, Hansard only recording the following comment: [11]

The proposed new section 307 deals with the cancellation of agreements to purchase.    Here  again  the select  committee  made  amendments,  which  I believe  will  largely  meet  the  objections  raised  during the  course  of  the hearings.  The 1-month cooling-off period has been reduced to 14 days, and the withdrawal from the agreement will only be permitted 2 years after the approval of the scheme plan or 1 year after the agreement to purchase, whichever is the later.

[11] (26 September 1978) 421 NZPD 3756.

[92]     Having said that, the terms of s 225(2)(a) are clear.  The sub-section clearly provides a right for a purchaser in effect to change its mind within 14 days of execution.  No “cause” would appear to be necessary for such a notice to be given.

[93]     The  terms  of  s 225(2)(b)  are  –  at  least  to  me  –  a  little  less  clear.    By reference, however, to the phrase “whichever is the later”, it would appear that if the resource consent is granted more than one year before the agreement, the purchaser may rescind one year after the agreement if “reasonable progress” has not been

made.   If not, a purchaser may rescind two years after the grant of the resource consent.   In either case, therefore, at least two years must pass once the resource consent is issued before a purchaser may rescind under the subsection.

[94]     The  prior  conditions  to  such  rescission  by  a  purchaser  are,  therefore, objective ones, namely that a vendor:

a)        has not made reasonable progress towards submitting a survey plan for approval; or

b)having  obtained  that  approval,  has  not  deposited  the  survey  plan within a reasonable period of time of its approval,

irrespective – in my view - of whether or not the vendor has taken reasonable steps to achieve that progress.

[95]     This can also be seen as including a “no fault” right of cancellation for the purchaser.   That is, the right arises by reference to an objective assessment as to whether or not “reasonable progress” has been made towards submitting the survey plan, irrespective of whether or not the vendor has taken the necessary reasonable steps.  Put very simply, a vendor may have taken such steps but, for example due to the inefficiency of the local council, reasonable progress may not have been made. At the same time, the lack of reasonable progress may be attributable to the fault of the vendor.

[96]     A vendor has no right of rescission under s 225(2)(b).  A vendor may only cancel when it has taken all steps reasonably available to it to deposit the survey plan.

[97]     Seen in that light, the statutory right of rescission provided by s 225(2)(b) is to be seen as being for the benefit of a purchaser.

[98]     In  addition  to  those  statutory rights  of  cancellation  and  rescission  under s 225(2)(b), in my judgment a purchaser must also have a right of cancellation as regards the performance by a vendor of the obligations implicit in s 225(1).   A

purchaser could give notice to a vendor cancelling the contract where the vendor has failed to comply with its Clough v Martyn obligation to take all reasonable steps.  In other words, if, prior to the crystallisation of the “no fault” termination right under s 225(2)(b), a vendor had failed to take all reasonable steps, then in terms of normal contractual principles a purchaser would be entitled to cancel.  A purchaser would, in those circumstances, need to establish that a fundamental breach of obligation was involved.   In light of the two year “no fault” right of rescission exercisable where objectively speaking reasonable progress has not been made, establishing such a breach might be difficult.

Clause 14 of the S&P Agreement

[99]     I turn now to the express provisions in the S&P Agreement relating to the subdivision of Lot 73 into Lots 75 and 76.  Clause 14 provides as follows:

14.0     VENDOR’S SUBDIVISION

14.1The Vendor undertakes with all due diligence, and at the Vendor’s expense, to prepare a plan of subdivision in the form attached (“the subdivision plan”), obtain a subdivision and any other necessary consents from Manukau City Council and Auckland Regional Council, comply with Provisions of the Resource Management Act

1991  and  lodge  the  subdivision  plan  for  deposit  with  Land

Information New Zealand to enable the Vendor to give the purchaser title to the property.

14.2     RESOURCE CONSENT CONDITION

This agreement is conditional upon the Vendor at the Vendor’s expense obtaining from Manukau City Council and any other Body having authority (“territorial authority”) on or before 31 October

2006  any  approval  or  consent  necessary  under  the  Resource

Management Act 1991 or other statutory or territorial approval necessary for the subdivision of the land upon terms and conditions reasonably satisfactory to the Vendor.   The Vendor may not disapprove conditions unless they are unusual and unduly onerous. The Vendor shall forthwith make application for such approval or consent supporting same with all necessary plans, specifications and details as may be required by the territorial authority and will take all reasonable steps to obtain the approval of consent within the required period specified.

[100]   At the same time, clause 8.6 of the S&P Agreement provides that “if this agreement relates to a transaction to which s 225 of the Resource Management Act

applies then this agreement is subject to the appropriate condition(s) imposed by that section”.

[101]   Finally, clause 8.7 of the S&P Agreement provides as follows:

Operation of conditions

8.7  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:

(1)      The condition shall be a condition subsequent.

(2)The party or parties for whose benefit the condition has been inserted must do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.

(3)Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.

(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.

(5)       If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other.   Upon avoidance of this agreement the purchaser shall be entitled to the return of the deposit and any other monies paid by the purchaser and neither party shall have any right or claim against the other.

(6)At any time before this agreement is avoided the purchaser may waive any financial condition and either party may waive any condition inserted for the sole benefit of that party.  Any waiver must be by notice.

[102]   As can be seen, the provisions of cls 14.1 and 14.2 overlap, as preparation of a survey plan is a pre-condition to obtaining RMA consent and both clauses in any event deal with the need to obtain RMA consent.  Be that as it may, taken together, and as affected by clause 8.7 and in particular subclause (5) thereof, – and putting the effect of clause 8.6 to one side for the moment - their combined effect would appear to be as follows:

a)        Ormiston undertook at its expense to take “with all due diligence” all steps required to give AAA title (clause 14.1).

b)In terms of clause 14.2, Ormiston was to “forthwith” make application for resource consent and all other statutory or territorial approvals necessary for the subdivision of the Land.

c)      The terms and conditions of subdivision were to be reasonably satisfactory to Ormiston, but – at the same time – it could not disapprove of such conditions unless they were unusual or unduly onerous.

d)It was a condition subsequent to the agreement that Ormiston obtain those approvals by 31 October 2006, extended to 31 January 2008.

e)       Time was of the essence for the fulfilment of that condition.   As extended to fixed dates, time was also of the essence.

f)        If that condition was not fulfilled by the date for fulfilment, either party might at any time before that condition was fulfilled or waived avoid the S&P Agreement by giving notice to the other.   Upon avoidance, AAA would be entitled to the return of the deposit and any other monies paid by it and neither party would have any further right or claim against the other.

[103]   Furthermore,  and  consistently  with  the  conclusion  reached  at  [87],  if Ormiston was in breach of its obligations, it could not avoid after 31 January 2008 if that breach had caused the non-fulfilment of the condition.

[104]   The obligations in clauses 14.1 and 14.2 on Ormiston as vendor to take all steps required to give AAA title, including obtaining all necessary approvals, is an obligation for the benefit of AAA as purchaser.  The condition subsequent provided by clause 14.2 can be seen as being for the mutual benefit of both Ormiston and AAA,  as  either  party  may  exercise  the  related  right  of  avoidance  provided  by clause 8.7(5).

Overall relationship between s 225 and clause 14

[105]   The s 225(1) obligation is, in effect, to take all reasonable steps to deposit the survey plan.  Similarly, reasonable steps must be taken to fulfil conditions that are themselves reasonable.  Some concept of a reasonable time must also be implied, in terms of the period for which a vendor will be required to seek to achieve the deposit of the survey plan.  The explicit obligations imposed by clause 14 are that Ormiston should “with all due diligence” and “forthwith” make application for all necessary territorial authority approvals and consents.   At  the same time, similarly to the s 225(1) implied obligation, the terms and conditions of subdivision by reference to clause 14.1 were to be reasonably satisfactory to Ormiston.   At the same time, however,  Ormiston  could  not  disapprove  of  such  conditions  unless  they  were unusual or unduly onerous.

[106]   Does clause 14 impose a different obligation on Ormiston than is imposed by s 225(1)?

[107]   It was Mr Williams’ submission for AAA, that – especially by reference to the phrases “with all due diligence”, “forthwith” and that Ormiston could not disapprove conditions unless they were unusual or unduly onerous – that that was indeed the position.  He likened the phrase “with all due diligence” to an obligation to use best endeavours.  He said the restriction on Ormiston’s ability to disapprove of conditions by reference to the phrase “unusual or unduly onerous” was a more restrictive  provision  than  that  implied  by s 225(1).    On  that  basis,  it  would  be correspondingly more difficult for Ormiston to establish that it was in a position to rescind, cancel or avoid the S&P Agreement.  To use his phrase, the parties had by contract imposed a more “stringent burden” on Ormiston than in comparison to that imposed by s 225(1).

[108]   For Ormiston, Mr Liew’s submission was – in effect – that the clause 14 obligation imposed on Ormiston was to be construed in the context of s 225(1) and that, therefore, the provisions were to be seen as co-extensive.  Mr Liew also relied

on authority that the phrase “with all due diligence” means all diligence called for in the circumstances.[12]

[12] Ansley v Prospectors Nominees Ltd (2004) 5 NZCPR 330 at [49].

[109]   As a matter of interpretation, in my view there is no material difference between  the  obligations  imposed  on  a  vendor  by  s 225(1)  and  those  explicitly provided by clause 14.   I do not think the words “forthwith” and “with all due diligence” imposed a greater obligation on Ormiston than would have been the case in any event.  In my view, and as submitted by Mr Liew, the phrase “with all due diligence” is best interpreted by reference to the diligence called for in the circumstances, and here I think that is encapsulated within the implied obligation created by s 225(1), as construed by the Supreme Court in Serepisos. Similarly I do not think that the reference to Ormiston not being entitled to reject conditions imposed by a territorial authority “unless they were unusual or unduly onerous” makes any material difference to such conditions having to be “reasonably satisfactory” to Ormiston.  In my judgment, a vendor acting reasonably would not disapprove of a condition unless it was unusual or unduly onerous.  In that context, what is unreasonable, unusual or unduly onerous also has now to be construed in light of the Supreme Court’s interpretation of s 225(1) in Serepisos.   Therefore, I conclude there is no material difference between the s 225(1) obligation and the obligations imposed on Ormiston by clause 14.

[110]   By contrast, it is reasonably clear that in clause 14, and in particular clause

14.2, the parties have contracted for a different outcome than that which is provided by s 225(2).

[111]   In terms of s 225(2) as it applies here, AAA as purchaser could not have rescinded the S&P Agreement for lack of reasonable progress until 8 July 2010. Further, and as noted, Ormiston as vendor had no equivalent right of rescission.

[112]   By contrast, in terms of clause 14.2 as extended, Ormiston as vendor could give notice cancelling the S&P Agreement on or after 31 January 2008 if, having taken the steps reasonably available up until that time, the resource consent or other approvals  had  not  been  obtained,  even  if  there  were  –  objectively  speaking  –

reasonable steps (and therefore, implicitly, within a reasonable time) that could be taken after that time to obtain those consents or approvals.  From the point of view of AAA as purchaser, the key difference would also appear to be that it could, on or after the earlier[13]  date of 31 January 2008, cancel the S&P Agreement even if up until that time Ormiston had discharged its obligations and reasonable progress had been made – provided that the resource consent, or other approvals, had not been

obtained by that time.

[13] ie, earlier than 10 July 2010.

[113]   As can be seen, therefore, the parties have in effect contracted out of the s 225(2)(b) condition by agreeing that:

a)       Ormiston has a lesser obligation than that contained in s 225(1) – by dint of the finite period during which it had to take “reasonable steps” to obtain territorial authority approvals, which are obtained before a survey plan is deposited.  I consider that the critical difference is that finite  period  as,  by  definition,  if  a  vendor  is  unable  to  obtain  a resource consent on terms and conditions reasonably satisfactory to it, it would not go on an attempt to deposit a survey plan.   Moreover, Ormiston under clause 14.2 is given a right of cancellation for which there is no equivalent under s 225(2)(b).

b)Correspondingly – by reference to the same finite period – AAA has an earlier right of cancellation than would otherwise have been the case.  That is also a greater right, as the exercise of that right is no longer subject to the objective test of “no reasonable progress having been made”.  AAA may exercise that right simply by reference to the fact that, as at the relevant date, the resource consent had not been obtained.  At the same time, AAA has given up some of the benefits of s 225(2)(b) by agreeing that Ormiston was also to have an express right of cancellation.

[114]   When Ormiston gave notice on 10 March 2008 it did so in express reliance on its rights under clause 14.2.  As was shown by Ormiston’s response to AAA on

10 March, Ormiston cancelled because the fixed date for obtaining resource consent had passed without that consent having been obtained.  Ormiston was not saying that there were no further steps available to it, nor that it had – at that point in time – encountered conditions that, within its rights, it did not find acceptable.  In my view, it is clear therefore that Ormiston did not seek to exercise the right of cancellation that may have been available to it under s 225(1), but rather the right of avoidance dependent upon the condition subsequent created by clause 14.2 (the contingent condition) not having been satisfied by 31 January 2008.   It therefore becomes of importance whether or not, by contract, the parties could provide that right and – to that extent – contract out of s 225.

Can parties contract out of s 225?

[115]   The question of the possible waiver of the statutory conditions imposed by s 225 was considered the High Court in Vahora v Tse.[14]  As Paterson J observed:[15]

[14] Vahora v Tse (1999) 4 NZ ConvC 192,925.

[15] At 192,928.

The  accepted  rule  as  to  the  waiver  of  statutory  provisions  is  stated  in

Maxwell on the Interpretation of Statutes (12th ed, 1969) at p 328:

“Everyone has the right to waive and to agree to waive the advantage of a law made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy.”   Citing Great Eastern Railway Co v Goldsmid (1884) 9 App Cas 927. See also Reckitt and Colman (New Zealand) Ltd v Taxation Board of Review [1966] NZLR 1032 (CA) at p

1042 per Turner J.

This is an application of the principle quilibet potest renuntiare juri pro se introducto (a person may renounce a right introduced for this benefit).

[116]   I adopt that statement of the relevant principles.

[117]   Paterson J went on to comment:[16]

I accept that the public policy behind s 225 of the Resource Management Act is that survey plans should be deposited prior to the entry [sic] into sale and  purchase  agreements  in  order  to  avoid  the  litigation  that  would inevitably ensue where such agreements are frustrated by delays and other risks in the deposit process.  Referring to DAR Williams, Environmental & Resource Management Law (2nd ed), paragraph 4.3.

[16] At 192,929.

[118]   I am unable to adopt that view, unless it is to be construed as a reference to the mere fact of the existence of s 225, and its associated uncertainties, acting as an incentive for parties not to enter into sale and purchase agreements for subdivided land.  I do not think, however, that that is the sense in which Paterson J intended that remark.

[119]   I note further that whilst Williams, at the passage referred to, suggests that s 225 was introduced to try and avoid litigation, he does not suggest that the policy behind s 225 is that survey plans should be deposited prior to the entry into of sale and purchase agreements.

[120]   In my view, that is not the policy of s 225.

[121]   Rather, and as Griffiths v Ellis and Clough make clear, the first purpose of s 225 of the RMA is to save from illegality contracts for the sale of land to be subdivided.  Nor can it be said that the public policy is that survey plans should be deposited prior to the entry into such sale and purchase agreements.  As the Court of Appeal in Clough held, the obligation implicit in s 225(1) is, in fact, that a vendor take all steps reasonably available to it after the contract has been signed to procure the deposit of the survey plan.

[122]   Beyond that, the “public policy” purpose of s 225(2) is, in my view, best seen as creating a statutory framework for the legal consequences of that implied term. That  is,  the  period  of time  for  which  a  vendor  may,  whilst  taking  “reasonable efforts”, hold a purchaser to the bargain of an agreement for the sale of land to be subdivided, is subject to the objective limits set out in subsection (2) and explained at [10] and following above.

[123]   Here, and as already analysed, the parties contracted for a regime which imposed a lesser obligation on Ormiston as vendor and correspondingly gave AAA an earlier “objective” date by which it might cancel the S&P Agreement.   Is it contrary to public policy that they be allowed to so contract?

[124]   In Vahora v Tse, Paterson J came to the view that “the words of s 225 of the

Resource Management Act and its policy are not susceptible to unilateral waiver by

the purchaser”.  Paterson J held, and I agree, that the policy of s 225 shows that the condition imposed by the section is not for the sole benefit of either party.  On that basis, and as Paterson J found, it could not be waived by one party as was the position there.

[125]   The  issue  here  is  not,  however,  with  unilateral  waiver  but  with  mutual waiver.

[126]   More generally, a number of commentators have suggested that s 225 cannot be contracted out of.

[127]   In an article Cross-lease allotment sales under the Resource Management Act

1991,[17]  Professor Palmer expresses the view that the statutory cancellation rights afforded to the purchaser could not be negated or qualified, although he accepted that a vendor could reserve the right to cancel for conditions stated to be not acceptable, provided  the  vendor  acted  bona  fide  on  grounds  considered  to  be  reasonable, referring to North Shore Demolitions v McKay.[18]     At other points in that article Professor Palmer appears to acknowledge that vendors may improve their rights of cancellation, provided – I think it is given – they do not cut across the statutory rights given to purchasers by s 225(2)(b).

[17] Palmer Cross-lease allotment sales under the Resource Management Act 1991 (1992) 6 BCB 41 at 42.

[18] North Shore Demolitions v McKay [1978] 1 NZLR 454.

[128]   Dukeson, in the article already referred to,[19] expressed equivocal views as to whether one of s 225’s precursors, s 307 of the Local Government Act 1974, could be contracted out of.  He went on to comment:[20]

If a contract entered into in contravention of s 307 would be illegal, a further question arises whether a court should give relief under s 7 of the Illegal Contracts Act.  There would no question of relief being given if the policy behind s 307 would be frustrated.   However, it is difficult to see how the policy of  s 307  would  be frustrated if an “experienced” purchaser, or a purchaser who has consulted a lawyer before signing an agreement, has freely entered into an agreement.  One would hope that the courts would take a sensible approach and validate such a contract.

[19] S Dukeson Section 307 of the Local Government Act 1974 (1990) 5 BCB 182.

[20] At 183-184.

[129]   More recently, in the materials drawn to my attention by Mr Liew in the further submissions he made in response to my minute of 25 June, the view has been expressed that it is not possible to contract out of s 225.   In a New Zealand Law Society publication, Subdivisions, getting it right, the authors T Jones and P Stephen comment as follows at 99:

Contracting out of section 225

Finally it is common practice for developers to insert in the agreement a special term endeavouring to contract out of s 225.  The general view is that it is not possible to contract out of a section of this nature.  This section is inserted for public policy reasons and it would be against public policy to permit developers to simply contract out of this section.

[130]   The authors refer to similar views expressed by D Dorrington in a paper given to the Property Law Conference July 2002 in Auckland entitled Agreements for Sale and Purchase of Multi Unit Developments.

[131]   In general agreement with the commentators, by my assessment the better view is that s 225(2) cannot be contracted out of, as the parties purported to do here. I conclude that s 225(2), in particular, is akin to a statutory code by reference to which purchasers – but not vendors – are given certain rights of cancellation.  Given the clear words of s 225, it would in my view cut across that statutory scheme were purchasers and vendors able to contract out – particularly as here where they would appear to have done so without knowledge of, or at least any reference to, the statutory provision.

[132]   In terms of the issues raised by Dukeson as to the possible relevance of the Illegal Contracts Act, I think the better view of the S&P Agreement is that clause 14 did not vary the obligation imposed by s 225(1), and was simply not effective to vary the statutory scheme of rescission provided by s 225(2).

The efficacy of Ormiston’s 10 March 2008 notice of cancellation

[133]   As  noted,  when  Forest  Harrison  (Ms  Chan)  gave  preliminary  notice  on

6 March, it did so by specific reference to clause 14.2 not having been satisfied by

31 January 2008.  It stated:

We note that the agreement is conditional on clause 14.2 being satisfied by

31 January 2008.

We are instructed that our client has not obtained the resource consent from the Manukau City Council on 31 January 2008.  We have had discussions with our client’s surveyors.  It appears that Council was not able to complete the application because your client has lodged a resource consent application for  Lot  76.    Certain  aspect  of  your  client’s  consent  application did  not complement our client’s consent and thus Council needs more time to consider the issues.  Our client has further instructed that your client did not contact them at any time regarding its resource consent application before the application was lodged.

Our client considers that it has taken all reasonable steps to apply for the resource  consent.    Clause  14.2  of  the  agreement  clearly  has  not  been satisfied.  The writer has advised you during our discussions that our client is not waiving the condition. Our client intends to cancel the agreement.

[134]   On 10 March Forest Harrison wrote, stating that as special condition 14.2 of the  S&P  Agreement  had  not  been  satisfied  by  the  due  date  “the  agreement  is therefore at an end”.   In my view, it consciously adopted the “right of avoidance” approach  provided  by  clause 8.7(5)  of  the  S&P  Agreement.    Furthermore,  in response to a letter from Kemps Weir in effect asking that Ormiston provide particulars of the way in which it had taken reasonable steps up until 31 January to apply for the resource consent, Forest Harrison simply wrote back recording that its client considered the contract validly cancelled and that there was no obligation to provide any such information.

[135]   Clearly, therefore, for the 10 March notice to be effective clause 14(2) had to bind the parties on its terms.   But, as I have found, the parties were not able to contract out of s 225(2) and, therefore, clause 14(2) had not been effective to vary the statutory scheme of rescission provided by s 225(2).

[136]   On  that  basis,  the notice  given  by Ormiston  on  10  March  could  not  be effective.  As asserted by AAA at the time, the S&P Agreement continued on foot. Further,  the  performance  of  the  obligations  of  Ormiston  to  obtain  necessary approvals and consents was, as argued by Mr Williams at trial, at large in terms of time.  It was therefore as if the parties had agreed that there was thereafter to be no fixed time by which Ormiston was obliged to obtain resource consent and other formal approval.

[137]   Even if I had reached the view that it was possible for the parties to contract out of s 225(2), it would have been difficult – given the way the case was argued – to nevertheless  conclude  that  Ormiston  was  entitled  to  give  the  notice  it  did  on

10 March.

[138]   As noted, at the time AAA had rejected that notice and in fact sued Ormiston for specific performance.  AAA’s expert evidence, through Mr Paetz, supported that point of view.  Although I have expressed considerable reservations about aspects of Mr Paetz’s  evidence,  I  nevertheless  think  it  was  more  than  a  little  optimistic, therefore, that Mr Williams invited me to conclude that that was not the position.

[139]   At the same time, Ormiston argued its case on the basis that although it had been entitled to give its notice of cancellation, its subsequent acceptance of AAA’s rejection of that notice and its clear performance of the S&P Agreement in response to AAA’s suit for specific performance, meant that the contract constituted by the S&P Agreement remained on foot.   In particular, it did not analyse Mr Blyde’s evidence to submit that, after all, its notice had been effective.  Quite obviously, if that was the position then AAA would have been entitled to the return of the deposit monies and that would have been the end of Ormiston’s counterclaim.   Without expert evidence to contradict that of Mr Paetz, and in the absence of any articulated argument from either party on the point, I would – as  I have said – have had considerable difficulty reaching the view that Ormiston was entitled to avoid the S&P Agreement on 10 March 2008.

[140]   The question therefore becomes whether either of the notices given by AAA in July 2008 and January 2009 were effective.  If they were not, the S&P Agreement remained on foot and Ormiston was entitled, as it did, to require AAA to settle.

The  efficacy  of  AAA’s  24  July  2008  notice  of  acceptance  of  repudiation/

cancellation

[141]   When Mr Kemps wrote to Ms Chan on 24 July 2008, he had just received, under cover of a letter from Ms Chan of 21 July, a copy of the resource consent as issued by the Council.   As set out at [60], and with reference to elements of the

without prejudice negotiations, he then purported to accepted Ormiston’s earlier repudiation.

[142]   The   first   issue   which   arises,   therefore,   is   whether   AAA   could, notwithstanding its earlier actions – including suing for specific performance – subsequently accept what it regarded as Ormiston’s repudiation and so bring the S&P Agreement to an end.   The second issue is whether, as AAA alternatively characterised its actions in its pleadings, it could cancel the S&P Agreement by reference to what it regarded as ongoing breaches by Ormiston in the period from

10 March to 24 July 2008.

Acceptance of repudiation?

[143]   On the basis that Ormiston could not rely on  clause 14.2, its actions  in purporting to declare the S&P Agreement at an end could be regarded as repudiation giving AAA, as the innocent party, the option of either affirming the contract by treating it as though it was still in force or cancelling it.

[144]   The first question becomes whether, on the basis that it could not rely on clause 14.2, Ormiston’s action did constitute such a repudiation.

[145]   Repudiation  is  discussed  in  s  7(2)  of  the  Contractual  Remedies  Act  as follows:

Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.

[146]   Burrows observes that:[21]

[21] John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, Lexis Nexis, Wellington, 2007) at [18.2.1(a)], citing Lord Selborne in Mersey Steel and Iron Co v Naylor Benzon & Co (1884) 9 App Cas 434 at 438-439).

Whether a breach of contract amounts to a repudiation is “a serious matter not to be lightly found or inferred”.  What has to be established is that the defaulting party has made clear beyond reasonable doubt the intention no longer to perform his or her side of the bargain.  Proof of such an intention requires an investigation inter alia of the nature of the conduct, the attendant

circumstances and the motives which prompted the conduct.  In the words of

Lord Selborne:

...

You must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its further performance by the conduct of the other; you must examine what that conduct is so as to see whether it amounts to renunciation, to an absolute refusal to perform the contract

A refusal to proceed with the contract must not be regarded in isolation, for it may be that the party bona fide, albeit erroneously, concluded that he or she was justified in staying his or her hand.    “A mere honest misapprehension, especially if open to correction, will not justify a charge of repudiation”.[22]     If, for instance, the refusal to proceed is based on a misconstruction of the agreement, it does not represent an absolute refusal to fulfil  that party’s  obligations,  provided that  he  or she  shows  his  or her readiness to perform the contract according to its true tenor.  He or she had merely put its true tenor in issue.

[22] Ross Smyth & Co Ltd v Bailey, Son & Co [1940] 3 All ER 60 at 72.

[147]   That Ormiston acted in reliance on a clause that has now been held to be of no legal effect, and that it subsequently indicated a willingness to perform, may give rise to a doubt as to whether or not its notice on 10 March 2008 did constitute repudiation.

[148]   Be that as it may, if there has been repudiation, then s 7(2) of the Contractual Remedies Act allows the innocent party to cancel the agreement.  However, s 7(5) of that Act goes on to provide:

A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.

[149]   Therefore, following repudiation an innocent party has two options:  to affirm the contract by treating it as though it was still in force, or to cancel it.   Burrows provides at [18.3.1] that:

If the innocent party chooses the first option [affirmation] and keeps the contract on foot, the status quo is preserved intact.  The contract “remains in being for the future on both sides”.  Thus, for instance, a seller who refuses to treat a fundamental breach as a discharge of the contract remains liable for delivery of possession to the defaulting buyer, while the latter remains correspondingly liable to accept delivery and to pay the contractual price.

[150]   The question then becomes:  what amounts to affirmation?  Randerson J has said:[23]

It must be shown that the electing party made a firm and settled choice and does not intend to go back on it.  Putting it another way, the electing party must be shown to have committed irrevocably to one of two inconsistent courses of action.

[23] Jansen v Whangamata Homes Ltd HC Hamilton CIV 2003-419-1511, 29 November 2004.

[151]   Section 7(5) and the concept of affirmation have their origins in equity and rest on the underlying notion that an aggrieved person must elect between fundamentally inconsistent rights.  Here, in the period between 10 March and 24 July

2008, AAA explicitly rejected Ormiston’s right to cancel the S&P Agreement.   It required Ormiston to perform and confirmed that requirement by issuing proceedings against Ormiston for specific performance.   In its statement of defence, Ormiston advised that it would perform and did so by uplifting the resource consent (which involved expenditure on its part) and providing a copy to AAA.   AAA also maintained its caveat, protecting its rights as a purchaser, for some considerable time.

[152]   Although there can be a question of whether bringing an action for specific performance alone amounts to an affirmation, here I think the overall conduct of AAA did constitute affirmation.   This was more than a party suing for specific performance to, as it were, maintain its options.  Rather I think that taken overall it is clear that, objectively assessed, AAA had elected to affirm the S&P Agreement notwithstanding any repudiation that Ormiston’s notice of cancellation might have constituted.  It could not, therefore, cancel by reference to that repudiation, unless – by reference to s 7(5) of the Contractual Remedies Act – it had affirmed without full knowledge of that repudiation.

[153]   Mr Williams argued that s 7(5) did not preclude AAA from cancelling on

24 July 2008 because AAA, at the time of affirmation, had not had full knowledge of the repudiation.  In making that submission, Mr Williams pointed to evidence that in March 2008 AAA was not fully aware of the detail of what had transpired between Ormiston and the Council and, in particular, of what AAA subsequently – in reliance on Mr Paetz’s report to it in May 2008 – pointed to as being Ormiston’s failure to

comply with its obligation to obtain resource consent and other approvals in a timely manner.

[154]   In my judgment the “full knowledge” requirement of s 7(5) does not assist AAA here.  AAA had full knowledge of the repudiation it was relying on, namely that Ormiston had purported to bring the S&P Agreement to an end when it was not entitled to do so.  That AAA may have not been aware, as its letter of 17 May 2008 indicates, of the precise details of what had happened between Ormiston and the Council does not, in my view, affect that position.   AAA was relying on the fact Ormiston was in breach and therefore could not cancel.  It is, in my view, that fact that AAA has to have full knowledge of, not the underlying detail of the breaches by Ormiston of its obligation.

[155]   AAA was not, after all, purporting to accept the repudiation which those breaches, if established, might represent.

[156]   Rather,  it  was  purporting  to  accept  the  repudiation  constituted  by  the unlawful cancellation itself.   In my view this was confirmed when it issued proceedings for specific performance, notwithstanding that it had received no reply to its letter of 17 March 2008.  Moreover, and with reference to that letter, even if AAA could argue that the “full knowledge” referred in s 7(5) of the Contractual Remedies Act is here to be assessed by AAA’s knowledge of Ormiston’s alleged failures, it is difficult to see how AAA could rely on that argument when, having obtained no satisfactory reply to its letter on that point, it nevertheless proceeded to affirm.

[157] I therefore conclude that, considered as a purported acceptance of the repudiation  constituted  by  Ormiston’s  notice  of  cancellation,  AAA’s  letter  of

24 July 2008 was not effective due to its earlier affirmation.

Cancellation for ongoing breach?

[158]   As noted at [84], the Supreme Court in Serepisos has recently discussed the circumstances in which a party wishing to cancel a contract, by reason of the non-

fulfilment of another party’s obligations, must first give notice to that other party, in effect fixing a time for the performance of that obligation and in that way making time of the essence.

[159]   Blanchard J outlined the principle thus:

…  I accept that where a party has an obligation to take reasonable steps to achieve compliance with a condition which has no condition date (or where time for fulfilment has been set at large) the other party must give a warning notice making time of the essence for fulfilment of the condition before cancelling for that reason. That is what Cooke J was addressing in Hunt v Wilson..

[160]   Tipping J commented as follows:

I indicated what I regarded as the correct principle emerging from Cooke J’s remarks in the course of my judgment in Mt Pleasant Estates Co Ltd v Withell:

A party faced with delay on the other side cannot normally hold the other party in repudiation or claim that a stipulation has been broken unless and until an appropriate notice has been given making time of the essence and requiring performance by a stated date. Provided the notice is valid (ie not premature) and allows a sufficient period for fulfilment, non-performance by the stipulated date can then be regarded as repudiation or, as appropriate, breach of a stipulation. There is little doubt that an appropriate notice is necessary if the issue is performance of the contract as a whole. The question in the present case is whether such a notice is required where the issue is not performance of the contract as a whole but performance of a condition requiring satisfaction prior to settlement.

The key New Zealand case on the point is Hunt v Wilson mentioned  earlier.     There  Cooke  J  proposed  what  he described as an ordinary rule that where no time is specified for fulfilment of a condition, a reasonable time is allowed and in the event of delay a notice is required to bring the matter to a head.

And a little later on the same page:

It  is  inequitable  to  have  the  axe  falling without  warning except perhaps in an extreme case. Certainty and fairness to both parties will be promoted if the law requires the party contemplating cancellation for delay to give a notice expressly warning the party said to be in default that in the absence of performance within the time stated by the notice, which itself must be a reasonable time, the party serving the notice will regard itself as entitled to cancel.  Of course the notice must not itself be premature.

[161]   In Hunt v Wilson, Cooke P expressed the position in the following way:[24]

...Where a contract fixes no date and everything is governed simply by the implication of reasonableness, it makes for clarity and justice to adopt the equitable approach ... Solicitors and others concerned would have little difficulty in working with an ordinary rule that where no time is specified for fulfilment of a condition, a reasonable time is allowed and in the event of delay a notice is required to bring the matter to a head.

[24] Hunt v Wilson [1978] 2 NZLR 261 at 273.

[162]   Here, following AAA’s affirmation of the S&P Agreement and on the basis that clause 14.2 was not effective to vary the party’s obligations under s 225 by crystallising an obligation to obtain resource consent on a fixed date, time for the performance   of   Ormiston’s   obligation   to   obtain   the   resource   consent   was, effectively, at large.  Further, by the time AAA gave its notice of 24 July, Ormiston had in any event obtained resource consent.  What remained, therefore, was for it to complete the subdivisional works, lodge its application for title and procure the grant of title.

[163]   Therefore the rule in Hunt v Wilson, as confirmed by the Supreme Court in Serepisos, applied.   Accordingly, the efficacy of any notice of cancellation AAA might subsequently give for breach required it to first give notice to Ormiston setting a (reasonable) fixed time by which Ormiston was to comply with its remaining obligations.

[164]   AAA  did  not  do  that  on  24 July 2008.    The  position  is  therefore  that construed as a notice of cancellation for continuing breach after 10 March, that notice was not effective.

The efficacy of AAA’s 21 January notice of cancellation

[165]   It  follows  therefore  that  the  notice  of  cancellation  given  by  AAA  on

21 January 2009 was not effective either as, once again, AAA failed to give notice to Ormiston that it considered Ormiston to be in breach and requiring that breach to be rectified.

[166]   By reference to the decision in Angus v Kingray, Mr Williams suggested that AAA was not required to give such a notice.[25]    I note first that Angus v Kingray involved, as here, a dispute between a vendor and a defaulting purchaser.   In the course of his decision, which dealt with the then applicable clauses of the standard form  agreement  for  sale and  purchase  of  land  which  dealt  with  settlement  and settlement notices, Hardie-Boys J observed that it was not necessary for time to be

made of the essence in every case of delay.  Delay may be so gross and protracted that the inference that the defaulting party has indeed repudiated is inescapable.  In that, he referred to Woods v McKenzie Hill Limited.[26]   He made those comments in the context of a factual situation where settlement notices had been given under an agreement for sale and purchase of land and some four months later settlement had not occurred.  I do not think, given the very clear authority of Serepisos on this point, that Mr Williams was therefore correct to say that Kingray was authority that notices

– as required by Serepisos – were not required from AAA to make its July 2008 and

January 2009 notices of cancellation effective.

[25] Angus v Kingray (1988) ANZ CONVR 192 (HC).

[26] Woods v McKenzie Hill Limited [1975] 2 All ER 170 at [174].

[167]   Therefore,  the  position  overall  is  that  Ormiston  was  entitled  to  issue settlement notices as it did and to require AAA to settle.  AAA is in breach of the S&P Agreement for failing to do so.

[168]   I note further that – even if AAA had given the required notices – it is unlikely  in  my  view  that  AAA  could  establish  Ormiston  was,  either  after

24 July 2008 or after 21 January, in breach of the S&P Agreement so as to entitle

AAA to cancel.

[169]   By  my  assessment,   whatever  delays   there   may  have  been   up   until

10 March 2008,  after  that  time  the  matter  proceeded  with  reasonable  alacrity, particularly once the resource consent was actually issued by the Council in July.  In particular, once Kea was brought on board matters proceeded satisfactorily in terms of the time involved.  Mr Paetz’s expert evidence to the contrary was severely dented by his acknowledgement that, as regards the time taken to organise and undertake the physical works of subdivision, he himself was not an expert, he could not advance

any opinion of his own and he had in fact relied on advice he had received from others in advancing the views he did.

[170]   I also  note  that  even  by Mr Paetz’s  assessment,  if resource  consent  was obtained in July of 2007 – as he said it ought to have been - his position was that titles should have issued by December of that year.  As it was, resource consent was obtained in July 2008 and titles were issued by March 2009.  In the overall scheme of things I do not consider that to be a material delay.

[171]   In raising issues of delay, Mr Williams referred to the authority of Sticknee v Kilball,[27]  and the more recent Australian authority of Michael Realty Pty Ltd v Carr,[28] to the effect that where a party has defaulted by delay they may subsequently be required to complete their obligation in a shorter timeframe than might otherwise be the case.  Not having established any relevant delay, that authority does not help

AAA.

Consequences of my findings

[27] Sticknee v Kilball [1915] AC 386 (HL), at [398].

[28] Michael Realty Pty Ltd v Carr [1997] 1 NSW LR 553.

[172]   What, then, are the consequences of my findings?

[173]   Clause 9.4(1) of the S&P Agreement provides that if the purchaser does not comply with the terms of the settlement notice served by the vendor then:

(1)Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:

(a)   sue the purchaser for specific performance; or

(b)   cancel this Agreement by notice and pursue either or both of the following remedies, namely:

(i)forfeit and retain for the vendor’s own benefit the deposit paid  by  the  purchaser,  but  not  exceeding  ten  per cent (emphasis added) of the purchase price;  and/or

(ii)  sue the purchaser for damages.

[174]   Mr Liew’s submission was, at the end of the day, that judgment should be given for Ormiston on its counterclaim in terms of the prayers for relief set out

therein.  In its counter-claim, and as noted, Ormiston sought a direction authorising the release of the deposit monies and interest accrued thereon to the defendant and an inquiry into an award of damages.  Mr Liew did not address at all the significance of clause 9.4 of the S&P Agreement.

[175]   Were AAA to succeed on its counterclaim, Mr Williams submitted – as to relief:

a)      first, and as I have accepted, AAA could not – as it purported to do – sue for breach and damages and at the same time claim damages for wasted  expenditure.    Ormiston  eventually  accepted  that  position  in what Mr Liew described as his “election” to proceed to seek relief by way of  damages.    I do  not  think  Mr  Liew  had  any choice  but  to acknowledge  that  that  was  the  course  of  action  that  Ormiston’s damages suit for AAA’s failure to settle required.  It was at that point that Mr Liew applied for, and I accepted reluctantly the inevitability of, a further inquiry into that question of damages albeit, in the circumstances, at Ormiston’s cost.

b)Mr Williams submitted that the total sums paid by AAA exceeded the deposit, and amounted to part-payments.  The proposition was, I took it, that by reference to that submission not all of the “part-payment” was liable to be forfeited as a deposit.

c)      By reference to clause 9.4(1)(b)(ii) Mr Williams further submitted that only ten per cent of the purchase price was forfeitable.

[176]   By my assessment, the S&P Agreement clearly provides for a deposit equal to the sum of the four payments provided for by clause 15.   I do not see, on that basis, how Mr Williams can argue that this Agreement provided for a deposit of ten per cent of the purchase price.  At the same time, however, Mr Williams is correct in submitting that clause 9.4(1)(b)(i) clearly limits the extent to which a vendor may forfeit and retain a deposit paid.

[177]   The  position  is,  therefore,  that  as  a  result  of  this  judgment  Ormiston  is entitled to payment now of that part of the monies held by Kemps Weir which represent ten per cent of the purchase price and accrued interest.   In terms of the accrued interest, I consider the correct – and sensible – approach to be that the ten per cent should be taken as having been paid, to the extent that it was not paid in the first deposit, from the earlier or earliest relevant deposit instalments.

[178]   A further question now arises, on which I heard no submissions.  On the basis that Ormiston is only entitled to a forfeit of ten per cent of the purchase price, what is the immediate entitlement – if any – of the parties to the balance of the deposit monies held by Kemps Weir.   Ormiston returned those monies to Kemps Weir in March 2008 on the basis that it had brought the S&P Agreement to an end.  Those monies  are  now  held  by  Kemps  Weir  pursuant  to  the  undertaking  signed  by Mr Williams as counsel for AAA on 31 July 2008 referred to at [15]g).  The terms of that undertaking acknowledge that the deposit monies are to be held by Kemps Weir pending “agreement of the parties for its disbursement or the further direction of this court”.

[179]   I consider that there are therefore two further substantive matters that require resolution.  The first is the fate of the balance of deposit monies currently held by Kemps Weir and the second is the quantification of damages to which Ormiston may be entitled for AAA’s failure to settle.

[180]   Absent agreement between the parties, a further hearing seems inevitable.

[181]   On that matter, I offer the following comments.   As this case reveals, the relevant legal principles are complex and the outcome of their application difficult to predict.  It would appear that both Ormiston and AAA have suffered commercially from the collapse of the property market.   That collapse provided the context for their legal dispute.  A measure of commercial pragmatism may enable them to reach a compromise, as to the fate of the balance of the deposit monies still held by Kemps Weir, that will avoid the necessity for further proceedings and provide each of them with some compensation for losses which, irrespective of whether or not the S&P Agreement had been performed, may have been inevitable.

[182]   I will not set a time by which the parties are to respond to this judgment.  It would be in their interest, and mine, if that is done reasonably promptly.

Costs

[183]   Ormiston  has  succeeded  on  its counter-claim.    The  question  of  damages remains to be assessed.   In accordance with normal principles, Ormiston would appear to be entitled to costs on a 2B basis.  I hope the parties will be able to reach agreement on that matter.  If not, I will of course accept further submissions.

“Clifford J”