Alexander Road Developments Limited v Thompson HC Wellington CIV-2009-485-1810

[2011] NZHC 418

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2009-485-1810

BETWEEN  ALEXANDER ROAD DEVELOPMENTS LIMITED

Plaintiff

AND  ERIC THOMPSON

Defendant (formerly First Defendant)

Hearing:          30 March 2011

(Heard at Wellington)

Counsel:          C. Heaton - Counsel for Plaintiff

H. Rennie QC - Counsel for Defendant

Judgment:      11 April 2011 at 3:30 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 11 April 2011 at 3.30 pm under r 11.5 of the High Court Rules.

Solicitors:           Morrison Kent, Lawyers, PO Box 10-035, Wellington

ARL Lawyers, PO Box 30430, Lower Hutt

ALEXANDER ROAD DEVELOPMENTS LIMITED V E THOMPSON HC WN CIV-2009-485-1810 11 April

2011

Introduction

[1]       The defendant, Mr Eric Thompson, applies to this Court for orders either that the proceedings brought against him by the plaintiff, Alexander Road Developments Limited, be struck out or for summary judgment against the plaintiff, or that the proceedings be permanently stayed or finally, for ―such other order in the inherent jurisdiction of this Court as shall be to the like effect and bring finality to the proceedings between the parties‖.

[2]       These proceedings concern an Agreement for Sale and Purchase dated 30 April 2007 (the Sale Agreement) entered into between the plaintiff as vendor and the defendant as purchaser of two lots in an industrial subdivision at Trentham.    Settlement under the Sale Agreement, which was said to be due on 28 April 2009, did not take place.    The plaintiff brought an action seeking specific performance on the part of the defendant in a situation where the defendant had purported to cancel the Sale Agreement pursuant to s 225 of the Resource Management Act 1991.  The plaintiff disputed that cancellation was valid.

[3]       On 8 June 2010 the matter was set down in this Court for a Judicial Settlement Conference (―JSC‖) on 8 July 2010 before Associate Judge Faire.  At the JSC, a settlement (said to be conditional) was reached between the parties in the form of a signed Agreement (the Settlement Agreement).   That settlement, as recorded at recital C of the Settlement Agreement, varied the terms of the original Sale Agreement between the parties.

[4]       The  Settlement  Agreement,  in  summary,  altered  the  price  to  be  paid  by  the defendant for the two lots and a number of other terms of the Sale Agreement.  The new price agreed in the Settlement Agreement was to be the current market value of the land (as determined by appointed valuers).  This was a variation of the agreed price in the earlier Sale Agreement which was specified at $557,140.00 plus GST.   The defendant was then to pay the plaintiff 50% of the new assessed purchase price plus GST less any deposit paid, on the new settlement date which was to be two weeks after the price was determined.  The balance

50% was due on the earlier occurrence of either a Code of Compliance Certificate being issued by the Upper Hutt City Council for a new building the defendant intended to erect on the land, or 18 months after the settlement date.  In order to secure that outstanding 50% of the new purchase price, the Settlement Agreement entitled the plaintiff or its bankers, Westpac, to take a second mortgage over the land.   That second mortgage was to bear interest at 8% p.a. (penalty rate 14% p.a.) and to rank in priority after a first mortgage securing not more than 50% of the new purchase price for the land.

[5]       On its face, the Settlement Agreement appeared to be conditional in clause 10, which provided:

10        The terms of this agreement are conditional on the consent and approval of Westpac  New  Zealand  Limited  within  ten  working  days  of  Westpac obtaining a copy of the agreed market valuation for the land.

[6]       Westpac is the plaintiff’s banker and it holds a first mortgage over the land.  Matters progressed following the JSC and  two  widely varying valuations of the property were obtained.  The plaintiff obtained a current market valuation through Colliers of $510,000.00 (plus  GST)  and  the  defendant  obtained  a  current  market  valuation  from  Jenkins  of

$419,000.00 (plus GST).  Then, on 9 September 2010 Mr Hughes of Westpac wrote to the plaintiff advising that he was unable to support a request for Westpac’s consent to the Settlement Agreement and that Westpac was ―firmly of the view that sale and purchase agreements entered into should be honoured in terms of the original contract…‖.

[7]       The  defendant  now  treats  any  further  failed  performance  of  the  Settlement Agreement as an act of repudiation of the Settlement Agreement which, by virtue of s 7 of the Contractual Remedies Act 1979, entitles the defendant to cancel.

Summary Judgment Principles

[8]       Rule 12.2(2) of the High Court Rules provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(2)      The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[9]       An application for summary judgment by a defendant such as the application here is similar to an application for striking out, in that the defendant must show that all of the plaintiff’s causes of action will fail:  Ferrymead Tavern Ltd v Christchurch Press Ltd (1999)

13 PRNZ 616.  The summary judgment procedure should only be used where the defendant has a clear and complete answer to the plaintiff’s claim which cannot be contradicted: Westpac Banking Corp v M M Kembla NZ Ltd [2001] 2 NZLR 298, paras 62-64 (Companies Act 1993). The Courts have noted the difficulty in succeeding in a r 12.2(2) application where there are material disputes of fact – AG v Jones (2003) 16 PRNZ 715 (PC).

Strike Out and Stay Principles

[10]     As provided for under r 15.1 of the High Court Rules, the court may strike out proceedings if those proceedings disclose no reasonably arguable cause of action.   By r

15.1(6) this Court may, instead of striking out all or part of a pleading under sub-clause (1), stay all or part of the proceeding on such conditions as are considered just.  On a strike out application  the  Court  may  receive  affidavit  evidence  but  will  not  attempt  to  resolve genuinely disputed issues of fact.[1]

[1] Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566, Pharmacy Care Systems Ltd v

Attorney-General (2001) 15 PRNZ 465 (CA) at p 472.

[11]      The principles to be applied on a strike-out application are set out in McGechan on

Procedure at HR15.1.02 as follows:

HR15.1.02          No reasonably arguable cause of action or defence

(1)         Principles

The established criteria for striking out was summarised by the Court of Appeal in A-G v Prince [1998] 1 NZLR 262; (1997) 16 FRNZ 258; [1998] NZFLR 145 (CA), at p 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45, at para 33, per Elias CJ and Anderson J:

(a)        Pleaded facts, whether or not admitted, are assumed to be true.

This does not extend to pleaded allegations which are entirely speculative and without foundation.

(b)       The cause of action for defence must be clearly untenable. In Couch   Elias CJ and Anderson J, at para 33, said: ―It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.‖

(c)        The jurisdiction is to be exercised sparingly, and only in clear cases. This reflects the Court’s reluctance to terminate a claim or defence short of trial.

(d)        The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.

(e)        The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation. In Couch, at para 33, Elias CJ and Anderson J said: ―Particular care is required in areas where the law is confused or developing.‖ There is considerable authority that developments in negligence need to be based on proved rather than hypothetical facts.

The Inherent Jurisdiction of this Court

[12]      As for the use of the inherent jurisdiction of this Court, the Court of Appeal noted that applications to strike out or stay should be made in terms of r 15.1 whenever they apply, reserving  resort  to  the  Court’s  inherent  jurisdiction  for  cases  beyond  the  rule:  CED

Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ 35.

The Evidence

[13]      As a preliminary point, the defendant takes issue with the inclusion of exhibits and a statement contained in an 18 March 2011 affidavit filed on behalf of the plaintiff of Mr Christopher John Mason (Mr Mason), sole director of the plaintiff.   Concerns are raised initially over an exhibited letter sent by the defendant’s solicitor to the plaintiff’s solicitor on a ―without  prejudice‖ basis.   It is clear, and nor was this contested by the plaintiff, that prejudice with regard to this letter had not been waived.  On that basis, I place no weight on that communication and have disregarded it and reference to it in paragraph 4  of that affidavit in their entirety.   Further, the defendant takes issue with the inclusion  in the affidavit of a Memorandum of plaintiff’s counsel for the JSC.   Rule 7.79(6) of the High Court Rules is clear.  No statement made during a Judicial Settlement Conference in court or otherwise may be disclosed.   However, that Memorandum was prepared prior to the JSC being held here. Therefore, I do not consider that it falls under the rule.  Nevertheless, in my view, nothing turns on that Memorandum in any event.  Further, as I see it, the remainder of this affidavit contains relevant, admissible material, and therefore I do not consider it necessary to disregard the affidavit in its entirety.

Counsel’s Submissions and My Decision

[14]      The defendant’s primary submission here is that the Settlement Agreement itself was not conditional on Westpac’s approval.  Rather, Westpac only had authority, under clause 10 of the Settlement Agreement, to approve the sale price.  In support of that interpretation, the defendant relies on the affidavit of his solicitor, Mr Paul Gregory Logan (Mr Logan) as to the meaning that was intended at the time.

[15]      Of course, such evidence is admissible in order to assist the court in determining the interpretation of a contract.  The general approach to the proper interpretation of a contract was most recently summarised by Tipping J in Vector Gas Ltd v Bay of Plenty Energy Limited as:[2]

The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.

[2] [2010] NZSC 5, [2010] 2 NZLR 444 at [19].

[16]      Tipping J went on to note in that decision at [30]-[31] that:

In Gibbons Holdings Ltd v Wholesale Distributors Ltd I expressed the view that evidence  of  subsequent  conduct  should  be  admissible,  if  capable  of  providing

objective guidance as to intended meaning. I suggested that, in order to be admissible, post-contract conduct should be shared or mutual. I saw that as a way of emphasising the need to exclude evidence which demonstrated only a party’s subjective intention or understanding as to meaning. I now consider that the approach I am taking in these present reasons is a simpler and clearer articulation of the appropriate principle, but one which still preserves the essential line between subjectivity and objectivity of approach.

There is no logical reason why the same approach should not be taken to both post - contract and pre-contract evidence. The key point is that extrinsic evidence is admissible if it tends to establish a fact or circumstance capable of demonstrating objectively what meaning both or all parties intended their words to bear. Extrinsic evidence is also admissible if it tends to establish an estoppel or an agreement as to meaning. Such an agreement can demonstrate a special (private dictionary) meaning or an accepted meaning of words which would otherwise be ambiguous. I should expand a little on the latter proposition.

[17]      However, in the case of an agreement reached in the course of a Judicial Settlement Conference, care must be taken in using such pre contractual negotiations so that the specific prohibition contained in r 7.79(6) of the High Court Rules is not infringed.

[18]      Rule 7.79 relevantly provides:

7.79     Court may assist in negotiating for settlement

(1)       A Judge may, at any time before the hearing of a proceeding, convene a conference of the parties in chambers for the purpose of negotiating for a settlement of the  proceeding or  of any issue, and  may  assist in  those negotiations.

.....

(6)      The parties, and a Judge or Associate Judge who presides at a conference or assists in negotiations under this rule, must not disclose any statement made during a conference, either—

(a)        in court; or

(b)       otherwise.

........

[19]     I accept that one possible interpretation of clause 10 of the Settlement Agreement might be that Westpac only has the right to reject the sale price to be paid if it believes that the valuers’ estimate is not the market price.  The effect of that interpretation, if Westpac were to exercise that power, is likely to be that the valuers would be required to re-evaluate the price.  However, equally possible, and indeed more likely and commercially sensible as I see the position, is the plaintiff’s interpretation advanced before me.  This is that the entire Settlement Agreement is conditional upon Westpac’s approval as the plaintiff’s financer and current mortgagee of the property.  And, after all, that in my view is likely to follow from an interpretation of the plain words of clause 10 of the Settlement Agreement which refer to

―the  terms  of  this  Agreement‖  (emphasis  added) being conditional on  the consent and approval of Westpac, to be given within 10 days of any agreed market valuation being obtained.

[20]      The  Settlement  Agreement  if  approved  would  have  required  Westpac  to  forgo several benefits it would otherwise have enjoyed as First Mortgagee of the property if settlement had proceeded under the original Sale Agreement.  The first, obviously, would be the amended (presumably reduced) purchase price payable, which might or might nor be sufficient to totally clear the Westpac mortgage.  A second is that only 50 per cent of the purchase price was to be paid by the defendant now, the remaining 50 per cent being withheld for up to 18 months.    And as security in the meantime, Westpac would only be entitled to a second mortgage over the property for that remaining money, with a first mortgage of up to 50 per cent of the purchase price taking priority.  This would be instead of Westpac’s present first mortgage security over the property for its entire advances, with all the attendant rights such a First Mortgagee would have.

[21]     The defendant further argues, in the alternative, that under either interpretation, Westpac’s  authority  under  clause  10  of  the  Settlement  Agreement  only  arises  after completion of the agreed valuation procedure (ie that each side’s valuer was to meet with the other  in  order  to  attempt  to  reach  an  agreed  valuation  for  the  lots  in  question).    The defendant contends that the plaintiff did not comply with that procedure, even after an order of this Court on 6 September 2010 to that effect.  In response, the plaintiff notes that clause

10 is the penultimate clause in the Settlement Agreement, coming only before the costs paragraph.  According to the plaintiff, its placement supports the interpretation that Westpac, as a key third party not present or represented at the JSC, was to have the final say in respect of the terms as a whole.  The plaintiff goes on to submit that, given the importance of the purchase price to both the parties and Westpac whose mortgage here was substantial, it is a reasonable  possibility  that  the  parties  would  at  least  have  to  obtain  their  respective valuations before finding out whether Westpac was going to approve.  However the plaintiff contends there is no reasonable implication that the parties necessarily had to wait until all the valuer’s processes in clauses 2 and 3 of the Settlement Agreement had been completed before finding out whether the condition was fulfilled.

[22]     In some of his submissions before me, counsel for the defendant appeared to argue that what was cancelled was the (varied) Sale Agreement for the land, and that that part of the Settlement Agreement was severable and therefore the underlying settlement of the proceeding at the JSC remains.

[23]      However  in submissions elsewhere, it is said that the defendant  “cancelled the Settlement Agreement ...”.   And a letter before the Court of 29 September 2010 from the defendant’s solicitor states that the defendant “cancels the settlement agreement”.

[24]     The plaintiff goes on to argue that, the Settlement Agreement either having been cancelled or failed on the condition, there is no extant settlement and the issues in the original proceeding remain.  And further, he suggests the Settlement Agreement did not fail because of anything the plaintiff did, and thus he is not profiting from any wrongdoing.  In all the circumstances, especially on the present interlocutory applications for strike out or summary judgment, the plaintiff contends the Settlement Agreement cannot be said to have discharged the previous Sale Agreement or brought the present proceeding to an end.

[25]     In  determining  which  interpretation  of  the  critical  clauses  of  the  Settlement Agreement may be a reasonable one, there are fundamental issues of fact that must be resolved.   I remind myself that the applications before me are for strike-out, summary judgment or stay by the defendant, where the onus is on him to show effectively that the plaintiff’s claim cannot succeed.   On summary judgment applications the Court requires affidavit evidence but will not attempt to resolve genuinely disputed issues of fact.[3]    The affidavit evidence before the Court in this case illustrates that there are clear disputes of fact as to what occurred at the JSC and elsewhere.  Therefore, I do not consider this case to be one where summary judgment in favour of the defendant is appropriate.  Nor, in my view, can it be said that the plaintiff has no reasonably arguable cause of action here such that these proceedings should be struck out or stayed.  Nor am I prepared, in this case, to invoke the inherent jurisdiction of this Court.  There are, as I have said, clear issues of fact to be resolved.  And finally, as I see the position, it certainly cannot be said that these proceedings are an abuse of process or otherwise vexatious.

Conclusion

[3] Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566, Pharmacy Care Systems Ltd v

Attorney-General (2001) 15 PRNZ 465 (CA) at p 472.

[26]      For the reasons outlined above, the defendant’s applications for strike-out, summary judgment or stay must fail.

[27]      As to costs, the plaintiff having succeeded in opposing the present applications, I see no reason why it should not be entitled to an award of costs in the usual way.  Costs are therefore awarded to the plaintiff on these applications on a Category 2B basis together with disbursements as fixed by the Registrar.

[28]      The present proceeding including the defendant’s counter-claim is to remain on foot and requires some consideration of what time tabling directions are now required to move the matter forward.

[29]      Accordingly, this matter is now listed for a directions call in the Chambers List at

10.00 am on 24 May 2011.

‘Associate Judge D.I. Gendall’