Alan Johnston Sawmilling Ltd v Sheehan HC Invercargill CP No 4/00 - [2001] NZHC 483

IN THE HIGH COURT OF NEW ZEALAND
INVERCARGILL REGISTRY CP NO 4/00

BETWEEN ALAN JOHNSTON SAWMILLING LTD
Plaintiff

AND BRENDAN JAMES SHEEHAN of Te Anau, civil engineer and MADELON SUBALDO GRANT of Wellington, accountant
Defendants

Dates of Hearing: 30 November 2000 and 2, 3 and 4 April 2001

Judgment Released: 12 June 2001

Counsel: C S Withnall QC for the Plaintiff
J C D Guest for the Defendants

RESERVED JUDGMENT OF YOUNG J

Index

Paragraph No
Introduction	[1]
Alan Johnston Sawmilling Ltd	[2]
James Ewart Caulfield	[10]
Initial contractual arrangements between Mr Caulfield and the plaintiff	[14]
The variation agreement	[18]
The settlement notice	[21]
Events subsequent to the issue of the settlement notice	[25]
The pleadings	[38]
My approach to the case	[41]
The validity of the settlement notice	[42]
The nature, extent and significance of the work carried out by the plaintiff on the farm property between March 1996 and June 1998	[63]
My conclusions as to the agreed arrangements between the plaintiff and Mr Caulfield October 1997/August 1998	[80]
Legal consequences of my conclusions as to the facts	[87]
Alternative claims	[101]
Disposition	[108]

Introduction

[1] This is a claim for specific performance by Alan Johnston Sawmilling Ltd against Brendan James Sheehan and Madelon Subaldo Grant as executors of the late James Ewart Caulfield arising out of unusual contractual arrangements between the plaintiff and the late Mr Caulfield relating to the acquisition by the plaintiff from Mr Caulfield of a farm property in the Tuatapere district.

Alan Johnston Sawmilling Ltd

[2] The plaintiff company was established in 1971. As its name suggests, its principal is Mr Alan Johnston and it carries on business as a sawmiller. This business is reasonably substantial and the company employs over fifty people. It is, however, very much run by its managing director, Mr Alan Johnston and he operates through very informal management structures. Also involved in the plaintiff are a number of members of Mr Alan Johnston’s wider family and some of these people bear the same surname. In light of this, I will generally refer to Mr Alan Johnston in this judgment by reference to both his first name and surname.

[3] The company’s primary focus for many years has been on the milling of timber logged from beech forests on lands granted under the South Island Landless Natives Act 1906. This land is exempt from the sustainable management requirements applying to indigenous timber which were introduced by the Forests Amendment Act 1993.

[4] The plaintiff’s business involves the production of high quality timber and articles made from such timber. But some of the beech which is milled by the plaintiff is of poor quality. This poor quality timber is chipped and exported to be used for paper production.

[5] During the 1990s, the Government sought to restrict unsustainable logging of timber on land covered by the South Island Landless Natives Act 1906; this despite this land being exempt from the restrictions imposed under the Forests Amendment Act 1993. But rather than impose restrictions directly on the logging of the beech forests by legislation, the Government instead sought to impose restrictions on the use to which wood which had been extracted unsustainably from those forests could be put. In particular, the Government introduced restrictions on the export of wood chips which had been unsustainably harvested. These restrictions came to bite with considerable severity on the operations of the plaintiff from late 1995.

[6] The plaintiff’s business was conducted pursuant to contractual arrangements with the owners of the land from which the timber was logged. Under these contractual arrangements, the logging had to continue and royalties were required to be paid despite the plaintiff’s problems with the Government.

[7] Restrictions on the export of its wood chips had two significant effects on the plaintiff. The first was that the plaintiff began to accumulate a very large stockpile of logs which were not suitable for anything other than chipping but which could not be chipped and exported. The second was that the plaintiff began to face major cashflow problems.

[8] The plaintiff challenged the restrictions. The history of its challenge is quite a story in itself. It is sufficient, for present purposes, to note that the plaintiff has had two major successes. The first was administrative - a grant of Ministerial approval on 14 October 1997 which, inter alia, enabled the then existing very large stockpile of timber to be chipped and exported. The second was a judgment of this Court delivered in July 1999 which set aside as ultra vires the regulations which purported to impose for the export ban.

[9] The plaintiff also conducts farming operations in the Tuatapere area which have, as their primary focus, the fattening of beef cattle. These farming operations are carried on, in part, not far from the plaintiff’s mill in Tuatapere and, in part, on land which was acquired, in 1996, from Mr James Ewart Caulfield.

James Ewart Caulfield

[10] The original defendant, James Ewart Caulfield, usually known as “Bill Caulfield”, had been a shearer for many years. Over time he had built up considerable land holdings in the Tuatapere district. For the purposes of this litigation, it is convenient to refer to these land holdings as comprising the farm property which is the subject of the present proceedings, section 14 which was sold to the plaintiff by Mr Caulfield in 1996 and section 5. By the mid 1990s, the land holdings which Mr Caulfield had built up were partly covered in bush and, as to the balance, in various stages of development ranging from cut over bush and scrub to recently cleared scrub and pasture. As well, on some areas of the land, exotic trees had been re-planted by way of replacement for the original native cover.

[11] At all material times, Mr Caulfield lived in Tuatapere and not on the farmland that he owned. My impression is that, by the mid 1990s, Mr Caulfield’s farming activities were winding down. His land was lightly stocked. The evidence points to a general interest on his part in liquidating his land holdings. But, as against that, he also had a continuing interest in his land and in farming it, albeit that there seems to have been a pottering about quality to his farming activities in the period which is under scrutiny in this case.

[12] Mr Caulfield was ill when these proceedings were commenced and he eventually died earlier this year. I heard his evidence late last year; this given his then poor health and prognosis.

[13] Mr Caulfield’s personal representatives are Brendan James Sheehan of Te Anau, civil engineer and Madelon Subaldo Grant of Wellington, accountant. At the commencement of the hearing I substituted them, for Mr Caulfield, as defendants.

Initial contractual arrangements between Mr Caulfield and the plaintiff

[14] On 5 February 1996, the plaintiff and Mr Caulfield entered into an agreement pursuant to which Mr Caulfield agreed to sell and the plaintiff agreed to buy the property to which I have referred as “section 14”. Settlement was to occur and eventually did occur on 30 June 1996. The purchase price was $95,000.00

[15] There was then a further agreement between Mr Caulfield and the plaintiff which is at the heart of this litigation. This agreement was entered into on 11 March 1996. The agreement was for the sale and purchase of approximately 290 hectares of land which is adjacent to section 14. This is the land to which I have referred in paragraph [10] above as “the farm property”. The purchase price was $320,000. Settlement was to occur on 28 June 1996.

[16] This second agreement was on the then current ADLS/REINZ form but was subject to a number of additional clauses which were partly typed and partly handwritten:-

“Clause 16.

The Vendor agrees to Advance to the Purchaser on [sic] amount of $100,000.00 (one hundred thousand dollars) for a Term of 3 years from possession date at an Interest Rate of 10% per annum and secured by way of a First Mortgage over the subject property. Security form to be that used by Solicitors operating in the Southland Area and to be signed prior to Possession date. The Vendor and Purchaser to comply with the provisions of the Credit Contracts Act.

Clause 17.

The Purchaser will allow the Vendor to Farm the property rent free for a period of up to 12 months from Possession date, and in agreeing this the Vendor will allow the Purchaser to enter on to the property from 1st April, 1996, for the purposes of Milling Timber.

Clause 18.

The Vendor agrees to allow the Purchaser to plant up to 200 acres (80 ha) to trees on the property during the first years tenancy.

Clause 19.
The Vendor agrees that as part of this contract all bush growing on an adjoining title 223/55 owned by the Vendor is available to the Purchaser for harvest for milling timber. Such right to be protected for the Purchaser by way of a caveat registered on the title.

Clause 20.

The Vendor agrees to allow the Purchaser “first right of refusal” to purchase title 223/55.”

Clauses 16, 17 and 18 were typed on the form. Clauses 19 and 20 were handwritten. The land referred to in special condition 19 is what I have already referred to as “section 5”, see paragraph [10] above.

[17] From the outset of their contractual relationship, Mr Caulfield allowed the plaintiff to have access to the farm property for purposes which went beyond those contemplated by special conditions 17 and 18. The plaintiff used the land for general farming purposes, grazing cattle and growing swedes for stock feed. As well, and very significantly, it carried out other work on the property which it claims was in anticipation of taking title. I will discuss in more detail later in this judgment the work which was carried out and its significance in terms of the case as a whole.

The variation agreement

[18] The plaintiff’s financial difficulties associated with the ban on the export of wood chips meant that it was not in a position to settle both property transactions in June 1996. The result was that there was an arrangement between the plaintiff and Mr Caulfield that settlement, in relation to the farm property, should be deferred for one year. This arrangement was discussed at a meeting attended by Messrs Caulfield and Johnston and their legal representatives. As a result, of this meeting a formal variation document was prepared recording what had been agreed.

[19] This document is to the following effect:-

“THE PARTIES have agreed to vary the Agreement for Sale and Purchase dated 11th day of March 1996 between them as follows:

1. THE possession date under the Contract shall now be 28 June 1997.

2. CLAUSE 16 shall be replaced with the following:

“16. The Vendor agrees to advance to the Purchaser the sum of $100,000.00 for a term of three years from possession date at an interest rate of 10% per annum and secured by way of a first Mortgage over the land which is the subject of this Agreement. The Mortgage shall be guaranteed by the shareholders of the Purchaser. The form of Mortgage shall be the Auckland District Law Society Mortgage No. 1995/4003 and shall be prepared by the Vendor’s Solicitor at the cost of the Purchaser”.

3. CLAUSE 17 and Clause 18 are deleted and replaced with the following;

“17. The Purchaser shall have access to the property rent free from 1 April 1996 for the purposes of removing millable timber and may plant up to 80 hectares of trees on the property. The Vendor shall be entitled to graze those parts of the property not being milled or used for growing of trees by the Purchaser”.

4. CLAUSE 19 is deleted and replaced with the following:

“18. From possession date, provided the Purchaser settles in full the amount required to be paid on possession date in accordance with this Agreement, the Vendor will grant to the Purchaser a Forestry Right under the Forestry Rights Registration Act 1983 over the bush area of Certificate of Title 223/55 owned by the Vendor, such Forestry Right to be prepared by the Vendor’s Solicitor at the cost of the Purchaser and on terms and conditions as agreed between the parties hereto. Any survey required to enable registration of the Forestry Right shall be at the cost of the Purchaser”.”

[20] The completion of the legal formalities associated with this variation was, to say the least, leisurely. A copy of the variation was sent by Mr Caulfield’s solicitors to the plaintiff’s solicitors on 6 June 1996. It had not then been signed by Mr Caulfield. The variation was, in the end, executed by the plaintiff and returned to Mr Caulfield’s solicitors by the plaintiff’s solicitors on 16 December 1996. This six monthly cycle of correspondence was maintained by Mr Caulfield’s solicitors who did not get around to returning the signed variation to the plaintiff’s solicitors until 23 June 1997.

The settlement notice

[21] The plaintiff’s cashflow position was no better in June 1997 than it had been in June 1996. So it was not able to settle the contract for the purchase of the farm property in accordance with the varied settlement date.

[22] The result was that a settlement notice (combined with a s 50, Property Law Act notice) was issued by Mr Caulfield’s solicitors on 10 July 1997 and served on the plaintiff (by its solicitors) on the same date.

[23] Mr Withnall QC, for the plaintiff, challenged the validity of the settlement notice. In part this challenge was based on Mr Alan Johnston’s contention in evidence that Mr Caulfield had told him that the settlement notice was just a technicality and insisted upon by his lawyers and that he (Mr Alan Johnston) was not to be troubled by it. But Mr Withnall also relied on two technical arguments:-

1. The settlement notice demanded more of the plaintiff than could lawfully be demanded under the contract; and

2. At the time the settlement notice was given, Mr Caulfield was not ready, willing and able to settle because a forestry right in accordance with the amended special condition 19 had not been prepared.

[24] The conflicting evidence as to whether Mr Caulfield did, indeed, tell Mr Alan Johnston that he was not to be troubled by the settlement notice can be regarded as a subset of a broader issue as to the basis upon which the plaintiff and Mr Caulfield dealt with each other between October 1997 and August 1998. This is the fundamental factual issue in the case which I must resolve. I will deal with it later in the judgment. The two technical arguments raised by Mr Withnall as to the settlement notice warrant separate consideration which they will also receive later in this judgment.

Events subsequent to the issue of the settlement notice

[25] On 29 August 1997 notice of cancellation was given by Mr Caulfield’s solicitors on behalf of Mr Caulfield.

[26] In his evidence Mr Alan Johnston said that Mr Caulfield had contacted him about the time the settlement notice was issued and again about the time the notice of cancellation was issued to tell him not to worry about these documents or to take any notice of them as he was only acting in this way because of the advice of his solicitors and, in particular, to protect his position over the deposit with “the bank” in the event that the plaintiff company was liquidated.

[27] In his evidence, Mr Caulfield denied that he ever told Mr Alan Johnston that he could ignore the settlement notice or the cancellation notice. On my appreciation of Mr Caulfield’s evidence which, on this point, was not entirely clear, he did, however, accept that there had been discussion between him and Mr Alan Johnston about one or other, or both, of these documents and that in the course of those discussions he had told Mr Alan Johnston that he was acting on legal advice to protect his position in relation to the deposit from the bank in the event that the plaintiff company went into liquidation.

[28] Why cancellation of the contract should be thought to be likely to improve Mr Caulfield’s position vis-a-vis the bank and the deposit which had been paid is something of a mystery. Mr Lawrence Wilkes, the solicitor who was acting for Mr Caulfield at the time, could shed no light on this issue. This leaves me with the feeling that what Mr Wilkes said to Mr Caulfield about this issue somehow became scrambled in Mr Caulfield’s mind. What is, however, clear is that at a time when Mr Wilkes was issuing and serving settlement and cancellation notices, Mr Caulfield was explaining to Mr Alan Johnston what he understood to be the legal advice which he was receiving from Mr Wilkes. This is an unusual feature of the case. It is also, I think, reasonably clear from the evidence of Mr Wilkes and the contemporaneous documents which came from his file, that Mr Caulfield was hesitant about cancellation and authorised the issuing of the appropriate notices at the urging of Mr Wilkes.

[29] This disagreement as to the nature of what was said between Mr Caulfield and Mr Alan Johnston in relation to the settlement and cancellation notices sets the scene for discussion of what is, in fact, the fundamental factual issue in this case. This is whether there was an oral agreement between Mr Caulfield and Mr Alan Johnston in or about mid-October 1997 in which it was agreed that the cancellation notice should be ignored and that the parties should continue to deal with each other in terms of the previous arrangements.

[30] The plaintiff’s evidence is that after the October 1997 decision to permit the export of wood chips produced from its existing stock pile of timber, there was a meeting between Mr Caulfield and Mr Alan Johnston in which Mr Caulfield said to Mr Johnston:-

“I wish I hadn’t listened to those buggers - lets you and I just carry on.”

Mr Alan Johnston said in his evidence that the “buggers” referred to were Mr Caulfield’s solicitors and that, in context, Mr Caulfield was expressing regret about the notice of cancellation which had been issued very much at the insistence of his solicitors and was proposing that the March 1996 contract, as varied, continue in existence. Mr Johnston also contended that Mr Caulfield told him that he was then not in a hurry to settle and did not want to settle for another year, ie until June 1998. Mr Alan Johnston’s evidence as to this was broadly supported by his nephew, Mr Kevin Johnston, who said in evidence that he had overheard not this particular discussion but broadly similar discussions in which Mr Caulfield said to Mr Alan Johnston that the sale was on again after the cancellation but that he, Mr Caulfield, was not ready to settle.

[31] Mr Caulfield’s position in evidence was that there had been a meeting between him and Mr Alan Johnston around the time mentioned in which Mr Johnston indicated that he was still interested in buying but in which he told Mr Johnston that a new agreement would be necessary. Mr Caulfield said in his evidence that he would not have been interested in going back to the original agreement as amended because he no longer wished to leave in vendor finance although he conceded in his evidence that he did not raise the vendor finance problem with Mr Alan Johnston.

[32] At trial, both sides recognised that the resolution of this factual issue would depend very heavily on my approach to another and, in a sense, subsidiary area of factual controversy, namely as to work carried out by the plaintiff on the farm property between March 1996, but more particularly from October 1997, and June 1998. So I will deal with that issue as a discrete topic shortly. I should, however, refer briefly and in general terms to the events which occurred after October 1997.

[33] Despite the failure to settle in June 1997, the issue of the settlement notice and later the issue of the notice of cancellation, the plaintiff continued to use the farm property for the grazing of its stock. As I will indicate shortly, there was a period of some months between May and September 1997 where the plaintiff did not spend any money on the farm property. But from late September 1997, the plaintiff resumed spending significant sums of money on the property.

[34] In the spring and winter of 1998 the relationship between the plaintiff and Mr Caulfield broke down. This breakdown in relationships is exemplified by the following incidents:-

1. In the autumn of 1998, Mr Caulfield told Mr Johnston that he did not wish the sale of the farm property to be completed in June 1998. I have put this in a slightly clumsy way so that my description accords generally with the account of events given by both the plaintiff and Mr Caulfield. The plaintiff’s position is that Mr Caulfield indicated that he did not wish the existing sale to proceed. Mr Caulfield’s position was that he was only ever contemplating a sale if there was a further sale agreement negotiated with the plaintiff but he accepted that he made it clear, in the autumn of 1998, that he did not wish for a sale pursuant to such agreement to be completed or concluded in June 1998.

2. Also in the autumn of 1998, the plaintiff obtained a valuation of the farm property and also the adjoining section 5. When the valuation came through at $235,000 (as compared to the sale price under the contract of $320,000 for the farm property only), Mr Caulfield told Mr Alan Johnston that he would not sell for that price and was told by Mr Johnston that there was no requirement for him to do so because the plaintiff would be paying $320,000. Although there was disagreement as to whether Mr Caulfield required Mr Johnston to obtain this valuation, the key evidence of Mr Alan Johnston and Mr Caulfield as to this incident was otherwise broadly similar. This whole incident is puzzling. It is, however, certainly consistent with Mr Caulfield then having the view that he would only complete a sale of the farm property if there was a further agreement negotiated.

3. In or about August 1998, Mr Caulfield formed the view that the plaintiff had brought about the bankruptcy of a man who is Mr Alan Johnston’s nephew. Mr Johnston denies that his company did, in fact, bring about this man’s bankruptcy. He says that when the matter was raised with him by Mr Caulfield he showed him paid invoices to confirm that the allegation was untrue. Mr Caulfield, however, was not able to be mollified. The result is that Mr Caulfield eventually made it clear to Mr Johnston that there was no longer any question of him selling the farm property and that the plaintiff would have to pay grazing fees if it wished to continue to run its cattle on the farm property. Mr Alan Johnston was not prepared to do so with the result that the plaintiff’s stock were removed.

[35] Subsequently, in November 1998, the plaintiff made an offer of $360,000 to Mr Caulfield to acquire the farm property and also section 5. By mistake, the title to Mr Caulfield’s house in Tuatapere was also included in the offer. This mistake is of no moment as it was not detected by Mr Caulfield. Mr Caulfield, presumably still annoyed over the way in which he perceived Mr Alan Johnston had treated his nephew, instructed his solicitors to make no response to the offer.

[36] The plaintiff did not take any immediate action to enforce its rights. In February 1999, the plaintiff’s solicitor told Mr Wilkes that the plaintiff was thinking of issuing proceedings to recover the value of expenditure on the land. There matters rested (at least as far as Mr Caulfield and his solicitors were concerned) until May 2000 when the plaintiff, through its solicitors, contended that the agreement as varied was still on foot and sought settlement in June 2000.

[37] Mr Caulfield, by his solicitor, denied liability and these proceedings followed.

The pleadings

[38] The plaintiff, by its statement of claim, alleges:-

1. An entitlement to specific performance of the agreement as varied on the basis that the settlement notice issued on behalf of Mr Caulfield was invalid with the result that the notice of cancellation which was subsequently issued was also invalid. In the alternative, in respect of this cause of action, the plaintiff seeks damages in lieu of specific performance pursuant to s 16A, Judicature Act 1908 and the return of the deposit together with interest.

2. After notice of cancellation was given, the plaintiff (by Mr Alan Johnston) and Mr Caulfield agreed that the cancellation would be ineffective and that the contract should continue with the result that the plaintiff is entitled to specific performance of the agreement as varied or, alternatively, for damages in lieu of specific performance and the return of the deposit. In other words, in respect of this cause of action, the plaintiff’s allegation is that there was an agreement to cancel the cancellation. The pleading as to this seems to me to invoke concepts both of contract and waiver or estoppel although the latter words are not expressly used in this part of the statement of claim.

3. The alleged oral agreement between Mr Johnston and Mr Caulfield that the cancellation be ignored should be treated as a further agreement to sell the land on the terms set out in the agreement as varied and that there was part performance of that agreement thereby entitling the plaintiff to either specific performance or alternatively damages in lieu of specific performance and the return of the deposit.

4. The defendants are estopped from denying the existence of the contract by reason of the further work carried on the land after the agreement to cancel the cancellation.

5. Alternatively, the plaintiff has an equitable lien on the land for the monies expended on the land by the plaintiff of which the defendant has had the benefit.

[39] The statement of defence, in essence, alleges a valid settlement notice followed by a valid cancellation and a denial of any agreement to the effect that the cancellation could be ignored. Further, it is alleged that if the agreement was not validly cancelled as a result of the settlement notice/cancellation notice procedure, then it can be treated as having been cancelled by the plaintiff’s acquiescence in the purported cancellation and the delay in putting Mr Caulfield on notice that specific performance would be sought. As well, the defendants allege that the plaintiff has been guilty of inexcusable delay.

[40] In the course of the hearing, I granted the defendants leave to rely on the Contracts Enforcement Act in respect of the cause of action in which the plaintiff alleges that the October 1997 agreement was, in effect, a new agreement for the acquisition of the land.

My approach to the case

[41] I consider that the most appropriate way of addressing the issues raised by this case is by reference to the following headings:-

1. The validity of the settlement notice.

2. The nature, extent and significance of the work carried out by the plaintiff on the farm property between March 1996 and June 1998.

3. My conclusions as to the agreed arrangements.

4. The legal consequences of my conclusions as to the facts.

5. Other claims.

6. Disposition of case.

The validity of the settlement notice

[42] It will be recalled that Mr Withnall challenged the validity of the settlement notice on two technical grounds:-

1. The settlement notice demanded more of the plaintiff than could lawfully be demanded under the contract; and

[43] To understand Mr Withnall’s first argument, it is necessary to set out the settlement notice in full:-

“SETTLEMENT NOTICE AND NOTICE UNDER SECTION 50 PROPERTY LAW ACT 1952 - PURCHASER IN DEFAULT

TO: ALLAN JOHNSTONE (sic) SAWMILLING LIMITED
C/- Tait Ward Adams & Murdoch, Solicitors, AMI building, 65 Don Street, Invercargill and at its registered office C/- Peter Sim, 5 Nith Street, Invercargill

FROM JAMES EWART CAULFIELD
C/- Macalisters, Solicitors, 2nd Floor, NZI House, Cnr Kelvin & Don Streets, Invercargill

THE Vendor gives notice to the Purchaser that:

A1. PURSUANT to an Agreement for Sale and Purchase dated 11 March 1996 as varied by a Variation of Agreement signed by the Vendor and the Purchaser (the Agreement) the Vendor agreed to sell to the Purchaser the following land:

(i) 140.8671 hectares being Lot 1 Deposited Plan 2939 - Certificate of Title 166/275 Southland Registry

(ii) 147.2019 hectares being Lots 2, 3 and 4 Deposited Plan 2939 - Certificate of Title 186/63 Southland Registry

(iii) 1.2627 hectares being Section 14, Block VI, Alton District - Certificate of Title 6A/932 Southland Registry

The purchase price for the land under the Agreement is $320,000.00 plus GST.

2. THE Agreement required settlement of the purchase on 27 June 1997 (the settlement date).

3. THE Vendor was in all material respects ready, able and willing to proceed to settle on the settlement date.

4. THE Purchaser has failed to settle on the settlement date.

5. PURSUANT to Clause 9.1 of the Agreement notice is hereby given that the Purchaser is required to settle within 12 working days after the date of service of this Notice (excluding the day of service) time being of the essence.

6. IF the Purchaser does not comply with the terms of this Settlement Notice the Vendor may exercise such of the Vendor’s remedies as the Vendor may decide pursuant to the Agreement, at law, or in equity.

B7. PURSUANT to the Agreement the Purchaser is in possession of the land referred to in Clause A1.

8. THE Purchaser is in breach of the Agreement by its failure to settle on the settlement date and by remaining in possession of the land after settlement date and keeping stock and chattels and possessions thereon after settlement date.

9. PURSUANT to Section 50 and Section 118 Property Law Act 1952 and Clause 9.1 of the Agreement notice is hereby given that the Purchaser is required to remedy the above breach of Agreement by complying with Clause A5 of this notice. If the Purchaser fails to remedy the breach of Agreement by failing to settle the Agreement as required, the Purchaser is required to also remedy the breach of Agreement by vacating the land and removing all its stock and chattels and possessions from the land to the satisfaction of the Vendor within one month after the date of the expiry of the period set out in Clause A5 - time being of the essence (this being a reasonable time for the Purchaser to remedy the breach of Agreement). To remedy the breach of Agreement the Purchaser may also be required by the Vendor to pay reasonable compensation or to pay any other costs to the Purchaser including the following (but without prejudice to the Vendors rights to claim for any other costs or compensation).

(a) Pay all amounts to the Vendor which the Vendor is entitled to claim under the Agreement (including penalty interest).

(b) Pay all costs incurred by the Vendor of feeding and grazing any stock of the Purchaser on the land including grazing fees.

(c) Pay the costs of repairing any damage caused to the land by the Purchaser or reimburse and indemnify the Vendor for any costs incurred by the Vendor in repairing damage to the land.

(d) Pay compensation to the Vendor for any loss of trees or timber removed from the land by the Purchaser.

(e) Indemnify and reimburse the Vendor for any outgoings paid by the Vendor in respect of the land since the Purchaser took possession of the land.

10. THIS notice is without prejudice to all and any other rights the Vendor may have against the Purchaser under the Agreement or at law or in equity.”

[44] It is reasonably clear that clauses A1-A6 are referable to the varied agreement for sale and purchase of the land whereas clauses B7-10 are referable to the statutory rights and obligations of the parties under ss 50 and 118 of the Property Law Act 1952. These were relevant because the plaintiff was in possession of the farm property.

[45] Mr Withnall’s argument is that the various demands listed in clause B9 were “terms of the settlement notice” for the purposes of clause A6 and that, therefore, the settlement notice should be construed as meaning that Mr Caulfield was requiring the plaintiff, as a condition of settlement, not only to pay the purchase price due under the agreement but also to pay for, inter alia, feeding and grazing of stock (clause B9 (b)) costs associated with “damage caused to the land” (clause B9 (c)), compensation for “loss of trees or timber” (clause B9 (d)), and reimbursement of outgoings paid by Mr Caulfield in respect of the land since the plaintiff took possession of it (clause B 9 (e)).

[46] A lawyer familiar with settlement notice procedures under the ADLS/REINZ standard real estate form of contract and the requirements under the Property Law Act in terms of dealing with a purchaser in possession who is in default, would be inclined to read clauses A1-6 as being the “settlement notice” and clauses B7-10 as
the Property Law Act notice. Such a lawyer would not read the stipulations in clause B9 as referable to what was required of the plaintiff if it was to settle the agreement.

[47] Given that this is a formal legal document which was drafted by solicitors and likely to be perused by solicitors (as the plaintiff at all material times was represented by solicitors) and dealt with what were technical issues, I think it is fair to construe it in the sense just referred to. As well, if I can be forgiven for considering the merits in relation to this very technical argument, there is not the slightest suggestion that Mr Alan Johnston was deceived or misled by the notice. I note that the authorities give little encouragement for arguments based on informalities or infelicities in settlement notices. I can, by way of example, refer to Robertson Enterprises Ltd v Cope [1989] 3 NZLR 391 and O’Connor v Sanders (unreported, CA 73/88, judgment delivered 19 April 1988).

[48] Accordingly, I am of the view that in the first respect relied on by Mr Withnall, the settlement notice was not defective.

[49] The second area of complaint, however, is rather more difficult from the point of view of the defendants.

[50] Mr Lawrence Wilkes, the solicitor acting for Mr Caulfield, had formed the view that the forestry right required under special condition 19 of the agreement as varied, could be completed after settlement. In other words, he did not see it as Mr Caulfield’s obligation to tender a forestry right as part of the documentation required on settlement. Accordingly, the forestry right documentation had not been completed at the time the settlement notice was given. Moreover, on the view taken by Mr Wilkes of the forestry right contemplated by the amended special condition 19, the details of the forestry right were still to be agreed.

[51] Mr Withnall contended that the forestry right required was one which reflected an agreement already reached between the parties. He referred to a file note of uncertain provenance but which was found on Mr Wilkes’ file which could be taken as indicating that the parties had agreed on arbitration to fix stumpage rates if agreement could not be reached. Mr Alan Johnston in his evidence indicated that there had been an underlying agreement that the forestry rights were to be on standard terms for the district and in the event of dispute to be settled by arbitration.

[52] I have reservations and doubts as to what was contemplated by clause 19. I certainly have reservations as to whether the file note could be taken as being included in the contract. On the other hand, Mr Guest, for the defendants, did not seek to argue that special condition 19 was just an agreement to agree and thus invalid (with possibly invalidating effects on the contract as a whole). Nor did he argue that if the phrase “as agreed” in amended condition 19 referred backwards rather than forwards, then there was a Contracts Enforcement Act problem.

[53] My provisional view of the contractual position in relation to the forestry right is that what was required was a forestry right which incorporated the entitlement originally conferred on the plaintiff pursuant to clause 19 of the special conditions as originally drafted. Because this condition, as originally drafted, made no provision for stumpage, my provisional view is that the plaintiff was contractually entitled to harvest all bush then growing on the adjoining land without payment. I recognise, however, that there may be scope for arguments as to implied terms or possibly rectification because the file note referred to by Mr Withnall clearly contemplated that stumpage would be paid, and, as well, there is Mr Alan Johnston’s evidence that it had been agreed that the forestry rights were to be on standard terms for the district and, in the event of dispute, to be settled by arbitration.

[54] This brief discussion shows that the issue of the forestry right was not necessarily just a matter of documentation. Indeed, there was ample scope for argument about what was required and such argument would not be able to be easily addressed within the 12 working days timeframe provided for in the settlement notice.

[55] The defendants’ primary position is that Mr Wilkes is right and that the issue of the forestry right could properly be deferred until after settlement. On this footing, the fact that Mr Caulfield was not in a position to tender a signed forestry right when the settlement notice was given did not mean that he was not ready, willing and able to settle at that time. I disagree with this primary argument. In my view, on the true construction of the contract as varied, it was the responsibility of Mr Caulfield to provide a forestry right in accordance with the contract which would take effect from settlement and this meant, in practical terms, that the forestry right had to be available as at settlement date.

[56] The defendants’ other arguments on this score are more open-textured. The fundamental problem in June and July 1997 was not the forestry right; rather it was the plaintiff’s inability to settle. Given that the plaintiff did not have the cash resources which would permit settlement to occur, it would be unreasonable to expect Mr Caulfield and his solicitors to go through the empty ritual of negotiating and/or formalising the forestry right required under the agreement when everyone knew that, whatever the upshot of that process might be, the plaintiff would not be in a position to settle. Although Mr Guest, for the defendants, did not rely on the doctrine of waiver explicitly, his broad contention very much came down to an argument that the plaintiff, by its apparently professed inability to settle, thereby waived the necessity for Mr Caulfield to be in a position to tender, if required, a forestry right. Associated with this contention was a further argument focusing on the period of time which elapsed between the giving of the settlement notice (July 1997) and the first complaint about the form of the settlement notice (May 2000). On the defendants’ argument, this delay means that it is now far too late to allow technical arguments associated with the settlement notice to be allowed to prevail.

[57] There is no evidence of repudiation of the contract by the plaintiff during June/July 1997. It seems likely enough that Mr Alan Johnston told Mr Caulfield that the plaintiff would not be in a position to settle as at settlement date. But it is clear that he did not wish to abandon the contract. So I do not see that there was any repudiation by Alan Johnston Sawmilling Ltd of the contract. Given that Mr Johnston was hoping that he would soon be able to resolve his wood chip problem with the Government (as he did, at least on an interim basis, in October 1997) it seems likely enough that he would primarily have been seeking more time to settle. The existence of scope for argument as to the nature of the requirements on the parties over the forestry right may well have provided, in a de facto way, the sort of time which he was seeking. Having regard to the overall context to which I have referred, I do not think that it is realistic to regard Mr Johnston as having waived the preparation of a registrable forestry right.

[58] Of more concern to me is the effluxion of time.

[59] Mr Caulfield purported to cancel the contract in late August 1997. As I have indicated, however, the first formal contention on the part of the plaintiff that it was entitled to call for settlement of the contract did not occur until May 2000. If it was the case between September 1997 and May 2000 that the plaintiff and Mr Caulfield had acted on the basis that the agreement had been cancelled, then it would plainly be inequitable for the plaintiff to be permitted to challenge the validity of the settlement notice. If a label is necessary, the case could, on those facts, be described as involving estoppel by convention. On the other hand, if it is the case that Mr Caulfield and the plaintiff agreed in or about October 1997 that the contract, as varied, should continue, then there is probably no need for the plaintiff to rely on technical arguments as to the settlement notice. Likewise, however, there would be no inequity in allowing such arguments to be developed.

[60] So with that general analysis of the position completed, I now turn to address the specific issue raised by this part of the case, namely whether the settlement notice issued on behalf of Mr Caulfield was ineffective because Mr Caulfield, at the time it was issued, was not ready, willing and able to settle? As to this I see the salient features of the case as being:-

1. Clause 9.1 of the agreement for sale and purchase provided:-

“If the sale is not settled on the settlement date either party may at any time thereafter . . . serve on the other party notice in writing (hereinafter called a settlement notice) to settle in accordance with this clause; but the notice shall be effective only if the party serving it is at the time of service either in all material respects ready able and willing to proceed to settle in accordance with the notice or is not so ready able and willing to settle only by reason of the default or omission of the other party to the contract.”

So the settlement notice was only effective if Mr Caulfield, at the time of service, was “in all material respects ready able and willing . . . to settle”.

It is not contended that if Mr Caulfield was not so ready, able and willing to settle, this arose out of any breach by the plaintiff.

2. I accept that the requirement under the contract to be “ready able and willing” to settle, did not entail Mr Wilkes having, at that time, completed all necessary paper work which would be associated with settlement, if it occurred. As to this, I refer to Bidmead v District Land Registrar and Others (unreported, CP287/89, High Court, Hamilton Registry, judgment of Fisher J, delivered 20 July 1990) at p 32:-

“In that regard I do not think that the second defendant had to go to the lengths of obtaining actual releases of mortgage and attending to all the paper work required in terms of the District Land Registrar’s requisition of 7 June 1988. All she had to do is to demonstrate that it was within her power to complete all of those steps in time for a settlement once readiness to settle was demonstrated by the Plaintiff.”

3. The problem from the point of view of the defendants goes beyond the mere fact that the paper work associated with the creation of the forestry right had not been completed. This is because it was the position of Mr Wilkes (and thus, I think, of Mr Caulfield as well) that it was not obligatory for Mr Caulfield to provide a forestry right on settlement. Looking at the situation in what, I accept, could be thought to be a very literal way, this may be thought to indicate that Mr Caulfield, at the time of the settlement notice being served, was not “willing” to settle.

4. As I have indicated, in this case the preparation of a forestry right carried with it complexities which might not have been easily resolved within the 12 day working period provided for settlement. I have referred to these difficulties already.

5. Had Alan Johnston Sawmilling Ltd sent along its solicitor to Mr Wilkes’ office during the 12 day period permitted for settlement with sufficient funds to settle, Mr Wilkes would not have been in a position to provide a forestry right and would, therefore, not have been in a position to settle.

[61] Although I have no particular liking for technical points of this nature raised, as Mr Guest says, in an ex post facto way, I am left with the view that the failure by Mr Caulfield and Mr Wilkes to address the forestry rights issue prior to the issue of the settlement notice with the result that no forestry right conforming to the contract had been prepared meant, in the circumstances of this case, that at the time of the settlement notice, Mr Caulfield was not ready and able to settle and, further, because it was the view of Mr Wilkes that no forestry right was required to be provided on settlement, Mr Caulfield was also not “willing” to settle.

[62] I can conclude this section of my judgment by summarising my views as follows:-

1. The settlement notice was ineffective when given as Mr Caulfield was not then ready, willing and able to settle; and

2. The significance of this conclusion depends upon my findings of fact as to what, if anything, was agreed following the cancellation of the contract by Mr Caulfield because, if Mr Caulfield and Mr Johnston then acted on the basis that the contract had, indeed, been cancelled, it is now far too late to permit the plaintiff to renege on that understanding.

The nature, extent and significance of the work carried out by the plaintiff on the farm property between March 1996 and June 1998

[63] At a high level of generality anyway, there is a reasonable measure of agreement as to what happened between March 1996 and June 1998.

[64] Throughout this period, Mr Caulfield continued to use the farm property for general farming purposes, in particular, maintaining on it a herd of cattle and some sheep. As well, the plaintiff also conducted farming activities on the same property, in particular, grazing its own cattle on the property. The two herds of cattle were, in fact, grazed together and it seems reasonably clear that the primary responsibility for stock management rested with the plaintiff. Crops of swedes were sown by the plaintiff on the farm property and were used for stock feed over the winters of 1997 and 1998. The plaintiff’s own stock rotation policy was extended to include Mr Caulfield’s cattle which at times were grazed on property belonging to the plaintiff.

[65] The plaintiff applied fertiliser to the farm property. It also either completed or paid for fencing. There was extensive land preparation involving the removal of scrub which was placed in windrows. Existing farm tracks were metalled and new farm tracks were created. Culverts were built. Extensive drainage work was carried out. As well, a gully in a paddock was filled with sawdust to a point that, eventually, the gully was completely eliminated. Dead trees (referred to in the locality as “kegs”) were knocked over by the plaintiff’s men using the plaintiff’s machinery.

[66] During this time there was a good deal of accommodation by the plaintiff of Mr Caulfield’s wishes. To some extent anyway, the plaintiff’s men would carry out tasks associated with the farm as directed by Mr Caulfield. The knocking over of kegs is an example. Mr Caulfield was given free petrol and the use of a company vehicle. Timber which belonged to him was milled by the plaintiff and he was also given some other timber.

[67] The plaintiff relies on these arrangements and the work which it carried out as being supportive of its contention that the contract for the sale and purchase of the farmland was revived in October 1997.

[68] The defendants’ response is three-fold: first that the work carried out prior to the August 1997 cancellation is, logically, irrelevant; secondly, that the work carried out after October 1997 was less than the plaintiff contends; and, thirdly that work carried out by the plaintiff and benefits otherwise conferred by the plaintiff on Mr Caulfield after August 1997 were either referable to the grazing arrangements or, alternatively, were a function of the plaintiff’s expectation that it would eventually be able to secure a contract with Mr Caulfield.

[69] There was vagueness in the evidence as to the detail and particularly the timing of much of the work which was carried out. This is because, on the whole, the plaintiff’s men did not keep written records of the work which they carried out.

[70] In those circumstances, the plaintiff relied very substantially on invoices which were produced by third parties and which the plaintiff associated with work carried on the farm property. A spreadsheet was prepared in which all these invoices are listed in chronological sequence. The invoices themselves were also produced. The plaintiff’s evidence as to the invoices was challenged generally by the defendants. This challenge, however, never really became detailed. So the plaintiff’s contentions as to the invoices were not shown, in any tangible way, to be wrong. I accept that evidence of this sort when assembled and produced by one party to litigation is often difficult for the other party to challenge, at least in the absence of investigations and inquiries which can only be conducted at a cost which might be thought to be excessive given what is involved in the litigation as a whole. But accepting that this was a problem for the defendants, the fact remains that I have been left with evidence which was not subject to detailed and rigorous challenge.

[71] It is fair to say that having regard to the evidence in the case as a whole, and in particular to the evidence given by Mr Caulfield when much of the detail of the work which was said to have been carried out was put to him, I was left with the impression that the plaintiff’s claims as to the work which was carried out were, on the whole, soundly based. I certainly accept the possibility that amongst the invoices produced there is the odd invoice which is not necessarily referable to the farm property. Indeed, I am of the view that there is at least one invoice in this category (see paragraph [73.1] below). I also accept the possibility that there may be other invoices which were truly referable to the farm property but which were not listed. But overall I was left with the view that the invoice evidence is basically accurate.

[72] On the basis that the invoice evidence is substantially accurate, it is reasonable to assume that there was a broad correlation between the times when work was carried out on the farm property and the times when goods and services referred to in the various invoices which have been produced were supplied.

[73] On that assumption, the pattern of the invoices is revealing:-

1. The plaintiff has produced invoices for the months of February (which I think must be a mistake), April, May and June 1996 associated with fertiliser and cartage, land preparation and fencing.

2. There is then a gap until September 1996.

3. There are invoices in the months of September, October, November and December 1996 and January, February, April and May 1997 which are referable to land preparation, sowing, fencing, drainage, fertilisers and animal health.

4. There is then a gap until September 1997.

5. There are invoices of 30 September for fertiliser application ($1,200) followed by invoices of October, November and December 1997 and January, February, March, May and June 1998 in respect of fertiliser, weed control and spraying, drainage, seeds, land preparation, cartage and fencing.

6. The invoices starting from September 1997 and concluding in July 1998 amount to $37,650.89 in value.

[74] This evidence is broadly consistent with what the plaintiff says. There was substantial expenditure which stopped in May 1997 (at which time it must have been apparent that the plaintiff would not be settling under the varied agreement). Expenditure resumed in a substantial way in the spring. Save for certain expenses associated with a problem under the Resource Management Act (which I am about to mention), the expenditure then stopped in June or July 1998. In saying that, I am conscious of the 30 September 1997 invoice for fertiliser application. However, as I have indicated, the plaintiff’s evidence of events associated with the settlement notice and the notice of cancellation did suggest some difference between the position ostensibly being taken by Mr Caulfield via his solicitors and what he was telling Mr Johnston. So I do not see this invoice as detracting substantially from the weight which can be placed on the overall pattern of the invoices.

[75] The most significant work, in terms of cost and, perhaps, value, which was carried out in this period involved the filling in of a gully on the property. The work on the gully involved removal of top soil from the gully itself, ditching the gully to provide an even fall, the provision of drains within the gully and then the filling of the gully with sawdust from the plaintiff’s mill. Cartage costs of nearly $17,000 were incurred. The drainage work carried out during this period (which included drainage work associated with the gully) has resulted in invoices totalling $3,131.77. Further, a substantial amount of this work was carried out by the plaintiff’s own men and machinery, work which if charged out at normal commercial rates would have involved tens of thousands of dollars.

[76] I note in passing that the filling of the gully with sawdust resulted in difficulties under the Resource Management Act which, in turn, were remedied by the plaintiff obtaining a retrospective resource consent and carrying out further remedial work. This work was, in fact, completed after the plaintiff left the property and involved costs of $6,053.91. This sum of $6,053.91 is not included in the $37,660.89 to which I have referred above (see paragraph [73.6]).

[77] Mr Caulfield took the position when he gave evidence that the filling of the gully was very much a matter of Mr Johnston’s convenience and was of little or no practical significance as far as the farm was concerned. I have no doubt that the plaintiff was very long on sawdust which had to be disposed of. But Mr Johnston’s evidence that he had other available areas in which he could dispose of sawdust was convincing. I think it is inescapable that the filling of the gully was in the nature of land improvement and was carried out at a cost to the plaintiff which far exceeds the invoices to which I have referred.

[78] I accept that Alan Johnston Sawmilling Ltd was farming the property and, associated with this, it was necessary for it to spend some money on the property. I accept, as well, that if it were the case that Alan Johnston Sawmilling Ltd was, in effect, a tenant at will of Mr Caulfield and not paying any rent or grazing fees, it would not be surprising if some form of indirect recompense were provided by the company to Mr Caulfield in the form of maintenance and other work around the property. Moreover, with the exception of the filling of the gully, most, and conceivably all, of the work carried out by the plaintiff during this period was broadly referable to its own ongoing farming operations. On the other hand, it must be recognised that the invoices do not tell the full story because they do not allow for the work carried out by the plaintiff’s own men and the use of the plaintiffs own machinery. Overall, I am satisfied that the nature and the scale of the work carried out between the spring of 1997 and the winter of 1998 is inconsistent with it being simply a quid pro quo for grazing or associated with the plaintiff’s own fanning activities.

[79] Mr Guest also made a supplementary submission to the effect that the work carried out by the plaintiff may also have been in anticipation of being able to conclude an agreement with Mr Caulfield. That is one way of looking at the situation. But I prefer the view that the evidence as to the work which was carried out provides tangible support for the view that Mr Alan Johnston and Mr Caulfield over the spring, summer and autumn of 1997 and 1998 were acting on the shared assumption that the plaintiff had an entitlement to the land.

My conclusions as to the agreed arrangements between the plaintiff and Mr Caulfield October 1997/August 1998

[80] I can now revert to the factual dispute in the case, that is as to the nature of the agreed arrangements between the plaintiff and Mr Caulfield relating to the land between October 1997 and August 1998.

[81] Broadly, I accept the plaintiff’s contentions as to what was agreed. In particular, I am of the view that:-

1. Mr Caulfield was, in July and August 1997, ambivalent about the issue of the settlement notice and the cancellation notice and he shared that ambivalence with Mr Alan Johnston. On this point I think that it is significant that Mr Johnston and Mr Caulfield both agreed that Mr Caulfield told Mr Johnston, around the time that the settlement and cancellation notices were issued, that he was acting in this way because of advice from his solicitor that these steps had to be taken if he was to protect himself against a claim in relation to the deposit by the plaintiffs bank. As I have said, I think that this message must somehow or other have become scrambled (because I cannot see why cancellation would have the relevance Mr Caulfield ascribed to it). But it is significant that both Mr Johnston and Mr Caulfield’s evidence on this point was, in substance, the same. Further, the contemporaneous correspondence from Mr Caulfield’s solicitors to Mr Caulfield (which was produced without argument as to privilege) points to hesitation, at least, on the part of Mr Caulfield about termination of the contract. All of this is consistent with what Mr Johnston claims to have been the attitude which Mr Caulfield was displaying to him at the time, an attitude to him which was, at worst, ambivalent.

2. As a result of the plaintiff’s inability to settle and the uncertainty as to whether the contract would be cancelled, the plaintiff stopped spending money on the property. I have already noted that the 30 September 1997 invoice for fertiliser pre-dates any discussion which could have taken place following the 14 October 1997 Ministerial decision to permit the export of wood chips. However, this invoice is consistent with the relationship between Mr Caulfield and Mr Alan Johnston, in the immediate wake of the cancellation notice, being rather more relaxed than the defendants now maintain.

3. There was an agreement between Mr Caulfield and Mr Johnston in October 1997 which was broadly as alleged by Mr Johnston. Once Mr Caulfield was satisfied that the plaintiff’s financial difficulties were resolved (as they were in substance by the 14 October 1997 Ministerial decision) he was content for the contract to remain in place. This means that I reject Mr Caulfield’s evidence and the contention of the defendants that all Mr Caulfield said to Mr Johnston was that he would be prepared to sell to the plaintiff but this would have to be pursuant to a new contract and on terms which would then have to be further agreed. As I have said, I accept Mr Alan Johnston’s evidence as to what was said, namely that Mr Caulfield proposed that he and Mr Johnston “just carry on” and that in context this meant an agreement to revert to the terms of the existing contract but with settlement in June 1998.

[82] My primary reason for rejecting Mr Caulfield’s evidence on this last point is that I think it highly unlikely that Mr Johnston would, in the months following 14 October 1997, have committed his company to substantial expenditure on the property (as he did) on the basis that Mr Caulfield might, in the future, be prepared to sell the property to his company.

[83] There are other contextual factors which either support or are at least consistent with my conclusions. The first is that the value of the farm property had almost certainly substantially reduced by October 1997 so that it was, by then, appreciably less than the contract price. This would have made a reversion to the contract more attractive to Mr Caulfield. Further, Mr Caulfield, I am sure, enjoyed the arrangement with the plaintiff. The plaintiff, with its resources in terms of men and machines, was able to carry out work on the property which was beyond his own physical and financial resources. Much of the burden of farming the land was taken over by the plaintiff leaving him with the ability to potter about on the land as he chose. Finally, when Mr Caulfield gave his evidence, some of what he said was not far removed from the words which Mr Johnston attributed to him. For instance, when asked about the filling of the gully Mr Caulfield said:-

“It was of no use to me. The place was for sale. He had the right to buy it. It was for his benefit.”

When it was pointed out to Mr Caulfield that this occurred after the cancellation of the contract, he went on to say:-

“It was cancelled but he had the right to buy it on the new whats its name - a new agreement when it came through.”

A “right to buy it”, the phrase used by Mr Caulfield twice, is a reasonable (if not exact) fit for what Mr Johnston claims to have been the position when this work was carried out, that is a contractual agreement under which he had a right to acquire the property upon settlement. But the phrase “right to buy it” is a very poor fit for what Mr Caulfield claims to have been the position, namely that Alan Johnston Sawmilling Ltd had absolutely no rights at all as to the acquisition of the property and had at most a hope that Mr Caulfield might, in due course, be prepared to enter into a further contract with it. In saying this, I am conscious that Mr Alan Johnston, at times during his evidence, used language which was not, itself, a perfect fit for what he contended was the agreed position between him and Mr Caulfield. However, in my view, the phrase “right to buy it” is important because, at least on my appreciation of the evidence, the work carried out by the plaintiff on the property with the acquiescence at least of Mr Caulfield is really only consistent with a shared assumption, common to Mr Caulfield and Mr Alan Johnston, that the plaintiff did, indeed, have a right to buy the property.

[84] Making all allowances for Mr Caulfield’s state of health at the time he gave evidence, I was left with reservations as to what he was saying. He was quicker to blame than to praise. He significantly minimised the extent and value of the work carried out on his property by the plaintiff. As well, his reasons for refusing to deal with Mr Johnston after August 1998 strike me as bizarre. In all of this there was an element of the curmudgeonly. Overall, I was not profoundly impressed by Mr Caulfield’s evidence.

[85] On the other hand, Mr Johnston was a convincing witness whose evidence seemed to me to be given in a balanced and restrained way and not to have been subject to exaggeration. As well, it was supported by his nephew, Mr Kevin Johnston.

[86] It follows that I reject a number of the factual arguments urged on me by Mr Guest. In particular:-

1. I do not attach much significance to the failure by Mr Alan Johnston to object from autumn 1998 on when Mr Caulfield began to indicate that he did not consider himself bound by the contract. The inability of the plaintiff to settle in June 1996 and again in June 1997 meant that his bargaining position vis-à-vis Mr Caulfield was weak in October 1997. Then, on the basis of only an oral commitment from Mr Caulfield to adhere to the March 1996 contract as varied, further money was expended by the plaintiff. By the autumn and winter of 1998, Mr Johnston’s bargaining position vis-à-vis Mr Caulfield remained weak. So it was understandable, therefore, that during this period he would seek to mollify Mr Caulfield and avoid any confrontation with him.

2. Very much the same considerations apply to the offer to purchase the farm property and section 5 made in November 1998. Mr Guest suggested the plaintiff’s willingness to make this offer and the absence of any reference in the offer or accompanying letter to the plaintiff reserving its rights under the original contract should be taken as indicating that the plaintiff did not then consider that there had been a breach of contract. The plaintiff’s bargaining position (in the absence of written evidence as to the revival of the March 1996 agreement as varied) was weak. It is understandable that Mr Johnston would seek to compromise with Mr Caulfield if possible.

3. The same reasons, broadly, provide a context for the substantial period of time which elapsed before any formal claim was notified to Mr Caulfield. In view of the absence of anything in writing, it is quite possible that Mr Johnston was not aware that his company did have a credible claim for specific performance. There is also the other significant factor that Mr Johnston was heavily involved in his challenge to the Government over the restrictions of export of wood chips and, even after that case was won, with re-establishing arrangements with purchasers. In February 1999 his solicitors did give notice to Mr Caulfield’s solicitors of the likelihood of a claim to recover wasted expenditure. Although that claim is different from the claim to be entitled to specific performance of a contract for the sale of the property, it is not necessarily inconsistent with such a claim (and, indeed, is pleaded in the alternative in the current statement of claim).

Legal consequences of my conclusions as to the facts

[87] For reasons already indicated, I am of the view that the settlement notice was not effective. For reasons unrelated to what I consider to be the invalidity in the settlement notice, the parties, in October 1997, agreed that the contract should continue in place. There is therefore no pattern of delay which would make it inequitable for me to act on the basis that the settlement notice was ineffective and I am, therefore, of the view that the contract of March 1996, as varied has, at all times, continued in full force and can be specifically performed.

[88] Delay, however, is of some significance primarily because, during the period of delay, Mr Caulfield entered into a forestry right arrangement with other people in respect of a small portion of the property. I doubt if the grant of this forestry right, in fact, affects the value of the property. It would, however, not be equitable to permit the plaintiff to seek any abatement of the price in relation to this grant of the forestry right given that it occurred during a period which can fairly be described, from the point of view of the defendants, as involving dilatoriness and delay on the part of the plaintiff.

[89] The agreement which I have found to have been entered into between Mr Caulfield and Mr Alan Johnston in October 1997 was that the existing contractual position should be maintained. Messrs Caulfield and Johnston did not address whether penalty interest should continue to run. They did, however, agree that the contract should be settled the following June.

[90] This raises an issue as to penalty interest. The contract provides for penalty interest in these terms:-

“If from any cause whatever save the default of the Vendor any portion of the purchase price is not paid upon the due date for payment the Purchaser shall pay to the Vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid from the due date for payment until payment.”

[91] Although I have expressed the view already that Mr Caulfield was not ready, willing and able to settle at the time he issued the settlement notice, the fact remains that the primary cause for late settlement was the default of the plaintiff.

[92] Accordingly, I am satisfied that penalty interest started to run on the contract from 28 June 1997.

[93] Applied literally, the contract might be thought to dictate that once penalty interest starts to run, it continues until payment is actually made. However, it is perfectly clear that Mr Caulfield, being in default from 30 June 1998, the defendants could not seek penalty interest from 30 June 1998 on.

[94] The real issue is whether penalty interest is payable for the period mid-October 1997 through until 30 June 1998. Mr Withnall claimed that the effect of the arrangement was that settlement as from October 1997 was at large and that the plaintiff could no longer be regarded as being in default.

[95] I regard the issue as to penalty interest as closely balanced. In the end, however, I have come to the view that penalty interest does apply until 30 June 1998. In a situation where a contract is running on unsettled because of the purchaser’s default, with the result that penalty interest is accruing, an understanding between vendor and purchaser that the contract be settled at a particular date in the future seems to me to result in penalty interest continuing to accrue. It would, of course, have been open, on my findings, and in particular my conclusion that the settlement notice was ineffective, for the plaintiff to have tendered settlement and to have stopped penalty interest running.

[96] It will be appreciated that I am of the view that the arguments on each side as to the validity of the settlement notice are closely balanced. It is appropriate therefore that I record that if I had been of the view that the settlement notice was effective and that the contract had been lawfully and effectively cancelled in August 1997, I would nonetheless have held that the plaintiff was entitled to a decree of specific performance.

[97] On the basis of my findings of fact but accepting, for the moment, the settlement notice and thus the cancellation notice were valid, the resulting situation was as follows - the contract for the sale and purchase had been validly cancelled but the vendor then said that the cancellation notice could be ignored and the purchaser, on the faith of the assertion, spent substantial sums of money on the property. In my view, on these assumptions, the vendor is estopped from denying that there is a valid contract in place. It follows that, if it were not for my conclusion as to the invalidity of the settlement notice, I would have decided the case on this basis.

[98] I note that estoppel is pleaded both implicitly, in the plaintiff’s second cause of action, and, explicitly in the fourth cause of action.

[99] On my findings of fact, what was said by Mr Caulfield to Mr Alan Johnston was an unequivocal assertion by Mr Caulfield to Mr Alan Johnston that the cancellation notice could be ignored. This was then followed by a period of nine or ten months during which substantial work was carried out by the plaintiff on the property with the acquiescence of Mr Caulfield on what I have held to be the shared assumption that the plaintiff had a right to buy the property on the terms provided for in the original agreement as varied. In those circumstances, I see no reason why I should not hold that Mr Caulfield’s estate is estopped from relying on the notice of cancellation.

[100] I do not see a recognition of an estoppel in this case as involving any sidestepping of the approach taken by Tipping J in T A Dellaca Ltd v PDL IndustriesLtd [1992] 3 NZLR 88 to the effect that conduct which might, in other circumstances, constitute an estoppel does not necessarily come within the scope of the doctrine of part performance in a case where the Contracts Enforcement Act is relevant. My conclusion that there is an estoppel here is based on an unequivocal assertion which I find Mr Caulfield made to Mr Johnston to the effect that the cancellation notice would not be relied upon followed by substantial expenditure of money by Mr Johnston’s company made on the faith of that assertion. I do not see that that has anything to do with the doctrine of part performance.

Other claims

[101] My conclusions make unnecessary a determination by me of the other causes of action pleaded. I should, however, briefly deal with them.

[102] If the arrangement as between Mr Caulfield and the plaintiff in October 1997 as to the “revival” of the contract must be treated as being the entering into of a new contract on the same terms as the old, then the position is rather more difficult. The “new contract” is not relevantly in writing with the result that the Contracts Enforcement Act is potentially applicable. The defendants did not, in fact, initially plead the Contracts Enforcement Act. When I pointed this out to Mr Guest in his closing submissions he belatedly sought leave to amend. I granted leave because there was no prejudice to the plaintiff. The plaintiff’s statement of claim, in fact, invoked the doctrine of part performance in its pleadings and, therefore, addressed the Contracts Enforcement Act defence.

[103] In respect of this claim, the Dellaca judgment is of direct relevance. Dellaca is undoubted authority for the view that acts performed in reliance on an oral contract which are not, in themselves, acts in part performance of it, do not permit a plaintiff to avoid the effect of the Contracts Enforcement Act. The difficulty the plaintiff might be thought to face is that if the “new contract” was merely in terms of the existing written contract as varied, then the actions upon which it relies are best regarded as being in reliance on the contract rather than in performance of the contract. This is because the written contract, as varied, did not provide for the plaintiff to go into possession of the land and farm and improve it.

[104] On the other hand, the actual words attributed by Mr Johnston to Mr Caulfield in October 1997, involved continuation of the situation as it had been prior to cancellation. This might be thought to bring into the oral contract an entitlement on the part of Alan Johnston Sawmilling Ltd to farm and improve the farm property along the lines of its pre-cancellation activities. If so, the continuation of those activities could probably be regarded as being acts of part performance and thus available to be relied on by the plaintiff notwithstanding the Dellaca approach.

[105] I am reluctant to address in any detail a claim for an equitable lien in relation to the expenditure. In part this is because there is limited evidence addressed to the quantum of the claim. As well, I am reluctant to engage in an exercise which could only be relevant on an assessment of the facts which, in fact, differs from the one which I have reached. Nonetheless, I will say something briefly about the claim.

[106] If it is the case that Mr Caulfield stood by and allowed the plaintiff to spend money on the property on the shared understanding that the plaintiff had a “right to buy it” then I think that there is scope for the imposition of an equitable lien based on principles discussed generally in Re Whitehead [1948] NZLR 1066 and Chalmers vPardoe [1963] 3 All ER 552. For myself, I do not believe that the five probanda taken from Willmott v Barber (1880) 15 Ch D 96 are now of decisive importance in a case of this sort, see for instance the discussion in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 32 et seq. To put it another way, I would not place the weight on the five probanda which they appear to have received in Wijnstock v Hey (unreported, CP 23/99, High Court, Whangarei Registry, judgment of Williams J, delivered 11 August 2000 (at paragraphs [12] and [13]).

[107] As to quantum, the plaintiff would face some difficulties. Largely this is because there is no evidence proving the extent to which Mr Caulfield benefited from the plaintiff’s expenditure. There is no necessary correlation between cost and value. Further, there can be no doubt that, to some extent anyway, the plaintiff did derive an economic gain from its access to and use of the farm property. It is difficult to see how a claim based on an equitable lien could realistically be thought to exceed $20,000 or $30,000.

Disposition

[108] In accordance with my conclusions, I order that the defendants specifically perform the contract of March 1996 between the late Mr Caulfield and the plaintiff as varied by the written variation agreement. The plaintiff is to pay interest at penalty rates from 28 June 1997 until 30 June 1998. Leave is reserved to apply to this Court for any other necessary orders. I reserve costs.