ANZ Bank Limited v Holt
[2013] NZHC 923
•30 April 2013
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2012-488-676 [2013] NZHC 923
BETWEEN ANZ BANK LIMITED Plaintiff
ANDSHAUN MURRAY HOLT First Defendant
ANDBRONWYN MAY HOLT Second Defendant
Hearing: 12 February 2013
Counsel: M D Pascariu/K J Verkerk for Plaintiff
D M Grindle for Defendants
Judgment: 30 April 2013
RESERVED JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 30 April 2013 at 5:00 pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
MinterEllisonRuddWatts (M D Pascariu/K J Verkerk) P O Box 3798 Auckland 1140 for PlaintiffEmail: [email protected] / [email protected]
Webb Ross McNab Kilpatrick (D M Grindle) Private Bag 9012 Whangarei 0148 for Defendants
Email: [email protected]
ANZ BANK LIMITED V HOLT HC WHA CIV-2012-488-676 [30 April 2013]
[1] ANZ Bank New Zealand Ltd sues Shaun Holt and his wife, Bronwyn, for
$1,667,818.43 as the amounts outstanding under a term loan and an overdraft facility. They say that they do not have to pay because they had an arrangement with the bank that it would not sue them after they sold up their farm, plant, equipment and livestock. The bank says that they did not comply with that arrangement. It applies for summary judgment.
[2] Mr and Mrs Holt are farmers who have fallen on hard times through over- committing themselves. Mr Holt worked his way up – from working on a dairy farm for wages, managing dairy farms, sharemilking – to the stage where he could buy his own farm in 2002. That was at Porter Road, near Paparoa. He and his wife borrowed the majority of the purchase price. They already had their own herd of cows. They also bought a beach property at Ruakaka, this time with 100 per cent finance from the bank. In 2006 they bought a run-off at Reid Road, again with
100 per cent finance. They also borrowed more money from the bank to fund development, build a new cowshed, and buy a further 49 hectares of land adjoining the Porter Road farm and to clear gorse from the run-off. Their borrowings got up over $4m.
[3] The Holts’ indebtedness to the bank arose under an overdraft facility (called a FreePlan agreement) and a term loan. The Holts had an operating company, Wyndies Ltd, which owned the livestock, plant and equipment. The bank’s security included mortgages over the Holts’ properties at Porter Road, Reid Road and at Ruakaka; a general security agreement by Wyndies Ltd giving a security interest including over all livestock, plant and equipment; and a guarantee given by Wyndies Ltd.
[4] Matters took a turn for the worse in 2008. The Holts’ properties dropped in value and that affected their debt-to-equity ratio. The bank became less supportive. They were also not meeting milk targets. Mr Holt says that given their debt ratio matters became untenable. The Holts hoped that they could keep on farming and trade their way out of their difficulties. They believed that because they were
farming organically their milk would attract a premium and they could make matters work.
[5] During 2011 there were negotiations with the bank on dealing with the debt problem. On 19 December 2011 there was a meeting between representatives of the bank and the Holts and their lawyers. Following that meeting, the Holts’ lawyers wrote to the bank with a proposal. The bank replied on 22 December 2011.
[6] The letter that the Holts’ lawyers wrote to the bank on 20 December 2011 says:
Thank you for meeting with Shaun and Bronwyn on Monday 19 December
2011.
Shaun and Bronwyn have considered their position and we can confirm that
it is our clients’ intention to:
1. Accept the tender in the sum of $865,000 received for the property at
95 Reid Road and instruct their agent to take whatever steps are required to secure that offer (this has already been done):
2. List the Porter Road property for sale with a real estate agent and enter into a marketing campaign. The cost of the campaign will be met through our clients’ overdraft account; and
3. Sell livestock and plant – the exact quantity to be subject to a schedule provided to the bank for approval.
The proceeds from the livestock and plant sales will be paid in reduction of bank lending.
The proceeds of the sale of the farm will, after real estate commission and legal fees, be paid in reduction of bank lending.
Prior to any sale of the Porter Road property being concluded, our clients will complete an affidavit of assets and liabilities and submit that to the bank with a view to entering a full and final settlement agreement in which our clients use every endeavour to repay National Bank borrowings and in which the National Bank undertakes not to pursue our clients for the balance.
Before our clients can commit to any plan they need some certainty around the potential guarantee obligations of JP and EA Holt. It is our position that there are no such obligations and we invite you to explain your position in this regard.
The terms outlined above reflect the conversation we had on 19 December
2011. We will be in contact with you with regards to the sale process, and
invite you to contact Shaun and/or Bronwyn directly if you have any concerns in this regard.
[7] The bank’s reply on 22 December 2011 said:
Thank you for your letter dated 20 December 2011.
The Bank confirms the proposal of Shaun and Bronwyn as presented in your letter and as detailed below are acceptable to the Bank.
1. To accept the tender in the sum of $865,000.00 (plus GST if any) received for the property at 95 Reid Road and they will instruct their agent to take whatever steps are required to secure that offer;
2. List the Porter Road property for sale with a real estate agent and enter into a marketing campaign with the costs associated with the campaign to be met through available working capital resources;
3. Sell all livestock and plant – the exact quantities to be subject to a schedule that is to be provided to the Bank for approval.
With regard to the process for sale of assets, The National Bank confirms the following expectations:
a. At least two Real Estate Agencies are to be introduced to the Porter Road property with regards to assessment of value and advice with regards to a time bound marketing strategy. In consultation with the Bank the most appropriate listing agent and marketing strategy is to be adopted. A copy of the listing agreement (once a real estate agent is selected) is to be submitted to the Bank by 31 January 2012;
b. Two Livestock Agents to be introduced to the property as regards assessment of value and listing of livestock. A copy of the listing agreement is to be submitted to the Bank by
31 January 2012.
c. All plant and machinery with a book value (as at June 2011) of greater than $5,000.00 to have an independent market value assessment. A copy of the assessment is to be submitted to the Bank by 31 January 2012;
d. All assets are to be under contract for a sale by 31 March 2012 with settlement dates of no later than 31 May 2012.
e. A signed copy of the sale and purchase agreement over the Reid
Road property is to be submitted to the Bank by 20 January
2012;
f. Mr & Mrs Holt are to cooperate fully with the Bank in respect of the asset sale process; and
g. Mr & Mrs Holt are to provide any information requested by the
Bank in a timely manner.
The National Bank confirms in principle that in return for the above expectations being met the following will occur:
i. On confirmation of the sale of all assets, a comprehensive statement of assets and liabilities of Mr & Mrs Holt, personally related entities and any entities in which they have an investment is to be provided to the Bank.
ii. Providing the statement(s) does/do not disclose any assets the Bank considers should be realised to further reduce National Bank debt, The Bank will not pursue Shaun and Bronwyn Holt in respect of any residual National Bank debt.
iii. The Bank will not pursue in respect of recovery of any residual National Bank debt by way of the Guarantee from JP and EA Holt;
iv. Shaun and Bronwyn Holt will forego any claim against the Bank;
v. Any arrangement with regard to any residual
National Bank debt will remain confidential; and
vi. A Deed of Settlement and Acknowledgment of debt
on the Bank’s form is to be executed.
A copy of this letter has been sent to Shaun and Bronwyn Holt.
We trust that this letter satisfactorily explains The National Bank’s actions and requirements. However, should you have any queries with regard to this matter please do not hesitate to telephone me.
[8] Mr Holt says that following the exchange of correspondence in December
2011, the property at Reid Road was sold for $865,000 and the proceeds of sale were paid to the bank. The property at Ruakaka was sold for $279,000 and the proceeds of sale were paid to the bank. The farm at Porter Road was sold for $1,800,427.12 and the proceeds were paid to the bank. They sold their plant and machinery and the proceeds of sale were paid to the bank. They sold their livestock. He says that some of the livestock was sold to the purchaser of the Porter Road property. Other livestock was sold at a sale in Wellsford and the remaining stock was sold privately by PGG Wrightson. He says that they sold every animal they owned.
[9] The Holts had not sold one tractor by the end of the season. The bank took the tractor and sold it. The proceeds of sale of the tractor have been brought into account.
[10] The Holts are now working as lower order sharemilkers on a farm at Ruawai. Mr Holt says that they have a car worth $3,000, a utility worth $6,000, household effects, a quad bike given by his mother-in-law and a second-hand farm bike valued at $500. He has also explained that at the end of the 2012 dairy season he and his wife opened a new account with the BNZ, into which they have apparently paid the proceeds of the last animals to be sold. He says that the ANZ Bank had closed their trading accounts and automatic payments were no longer being paid. When there was a credit balance in their account the bank would claim it. He says that the bank had taken money out of his daughter’s bank account and applied it towards their debt. A child support payment of about $10,000 had been paid into their account, which the bank took to repay debt. They needed to establish a new account with a new bank so that they would have funds in hand to meet tax liabilities. They use yet another bank for their current occupation.
[11] The bank is not satisfied with that state of affairs. It says that the Holts have not complied with the arrangements set out in the bank’s letter of 22 December 2011. In particular, it says that the Holts have not supplied a schedule of all livestock. It made repeated requests for livestock details to be supplied but the information was not forthcoming. It says that there are discrepancies in the Holts’ livestock numbers which have not been explained. It does not accept the Holts’ assurances that all livestock have been sold and accounted for. On 27 June 2012 the bank wrote saying that it had little alternative. The bank would now make demand and obtain judgment. On 22 July 2012, the bank’s lawyers made demand for the outstanding balances. In a further letter of 24 August 2012 the bank’s lawyers said that no settlement agreement existed between the parties. The bank had withdrawn the proposal in its letter of 22 December 2012 because the Holts had not complied with the terms of the proposal.
[12] These questions arise:
(a) What rights to sue does the bank have independently of the arrangement in the letter of 22 December 2011?
(b) What is the effect of the exchange of letters of 20 December 2011 and
22 December 2011?
(c)
Did the Holts comply with the arrangements made?
(d)
If the Holts did not comply, what remedies did the bank have?
(e)
Were the terms breached by the Holts essential terms of the contract?
(f)
Was time of the essence?
(g)
Did the bank effectively make time of the essence?
(h)
What should be done about the sum of $33,203 held in the Holts’
BNZ account?
[13]
The
principles applied in a plaintiff’s summary judgment application are not
in dispute. It is only necessary to refer to the Court of Appeal’s decision in Krukziener v Hanover Finance Ltd.1 In this decision, where I have found for the bank on the facts, the bank has shown that the contrary position is unarguable. Where I have found for the Holts, the bank has not shown that their position is unarguable.
What rights to sue does the bank have independently of the arrangement in the letter of 22 December 2011?
[14] The bank’s case is that it is entitled to sue the Holts and that the arrangement made in December 2011 does not stand in the way of it suing. It is appropriate to note the bank’s right to sue the Holts, independently of that arrangement, at two points – in December 2011, the position immediately before the agreement, and on
25 July 2012 when the bank’s lawyers made demand.
[15] The Holts had a “FreePlan” facility which was run as an overdraft. It started
in February 1999. The agreement provided for fixed credit limits up to June 2000
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
and then for review by the bank. The agreement gives the bank the right to demand repayment of all sums outstanding under the facility at any time. Another provision allows the bank to cancel the facility at any time. As at 22 December 2011, the outstanding balance under the facility was $39,124.04 plus accrued interest and fees. The bank was entitled to make a demand for that sum at that time. In the event it did not, but extended the facility, with a $50,000 limit, to 31 March 2012.
[16] The Holts also had a term loan with the National Bank. On 8 October 2010 it was renewed for a term of six months. The principal under the term loan was
$4,680,000. The bank says that the loan was successively renewed and rolled over. There is no evidence how much was outstanding under the term loan on
22 December 2011. The bank does not say that the term loan had fallen due in December 2011 and that it was in a position to demand repayment of the principal. Presumably the bank would have to await the expiry of the current term before it could demand payment of the principal or, if the Holts had defaulted in paying interest, the bank could issue notices under s 119 of the Property Law Act 2007 and accelerate if the Holts did not comply.
[17] Accordingly, on the evidence in this application, in December 2011 the bank could have made demand under the FreePlan facility and could have waited for the expiry of the term loan to demand repayment of the principal.
[18] On 25 July 2012 the bank’s lawyers made demand on the Holts for the sum of
$1,701,033.33. According to the lawyers’ letter, this was the amount of the debit balance under the FreePlan facility as at 24 July 2012 including accumulated interest. The FreePlan facility had expired on 31 March 2012. There is no evidence from the bank as to how that account was managed or operated after 31 March 2012.
[19] On 3 May 2012 the bank varied the term loan agreement, fixing the term of the loan at one month 27 days, that is, up until 30 June 2012, with the amount of the principal fixed at $4,269,166.56.2 The bank has not provided an account to show
how the sum of $1,701,033.33 is made up but presumably the bulk of it represents
2 Presumably this drop in the principal in the term loan reflects the Holts’ payments from the
proceeds of sale of farm assets and the Ruakaka property.
the unpaid balance under the term loan after the sales of the farms, Ruakaka property, livestock, plant and equipment after accounts had been combined. As the term loan had expired, the bank was entitled to demand repayment of the principal as well as interest. The Holts do not dispute the bank’s entitlement to seek payment of the outstanding balances under the term loan and the FreePlan facility, but for the arrangements made in December 2011.
What is the effect of the exchange of letters of 20 December 2011 and 22 December
2011?
[20] The letter of the Holts’ lawyers of 20 December 2011 generally proposed the
following:
(a) That an offer to buy the Reid Road property be accepted;
(b)That the Porter Road property be listed for sale with the costs of the land agent to be met from their overdraft account;
(c) That they would sell their livestock and plant, and would give the bank a schedule of quantities;
(d)That the proceeds of sale of the farm properties, plus livestock and equipment, would be paid to reduce the debt to the bank; and
(e) Before the sale of the Porter Road property was completed, the Holts would complete an affidavit of assets and liabilities and submit that to the bank with a view to entering into a full and final settlement agreement under which they would use every endeavour to repay the bank borrowings, and the bank would not pursue them further for the balance.
[21] The bank’s reply is more elaborate. It generally accepted the first three of the propositions in the letter from the Holts’ lawyers. It then set out a process for the sale of assets, stating six matters which it described as “expectations”. It then stated six further matters that would occur on the expectations being met. In particular,
after the “expectations” had been met, the Holts were to provide a statement of assets and liabilities to the bank on confirmation of the sales of all assets. The bank undertook not to pursue the Holts for any residual debt if the statements did not disclose any assets the bank considered should be realised to further reduce debt. The bank also undertook not to pursue recovery from J P and E A Holt, who had given guarantees. Likewise, the Holts would forego any claim against the bank.
[22] The bank’s response did not align exactly with the proposal in the letter of the Holts’ lawyers. The bank’s letter is accordingly not an acceptance of an offer made by the Holts’ lawyers. Instead it was a counter-offer. The bank’s letter did not call for acceptance of the terms in that letter in any particular form. However, it is apparent from the conduct of both sides that the Holts accepted the terms set out in the bank’s letter. Both sides proceeded on the basis that the arrangements spelt out in the bank’s letter applied.
[23] An email from the bank manager of 25 January 2012 acknowledges information the Holts had sent through, and refers to the requirement for two real estate agents to be introduced to the Porter Road property. Another email by the bank of 6 March 2012 refers to Lin Norris, a well-known Northland real estate agent, keeping her informed with copies of vendor marketing reports. The letter thanked the Holts for getting back and providing updates. The information in those emails shows the Holts acting according to the terms of the bank’s letter. It is arguable that the Holts accepted the counter-offer made by the bank. It is not worthwhile for the Holts to argue that they did not accept the counter-offer. If it was not accepted, there would be no agreement, and the bank would be entitled to proceed without regard to the arrangements in its letter of 22 December 2011.
[24] There was consideration going both ways. The terms set out in the bank’s letter required the Holts to carry out a number of steps, but also provided for the bank to assume certain obligations, in particular, not to pursue the Holts in respect of any residual debt, after all farm assets had been sold and paid to the bank.
[25] Both parties intended to stick to the arrangements made in the letter. The
bank’s letter uses words such as “expectations” and “confirms in principle”, but
these are not weasel words to allow the bank to slide out of the arrangements made. The bank’s case is that it is no longer bound by those arrangements, but it clearly intended to make a binding commitment with the Holts in its letter of 22 December
2011. It is clearly arguable that there was a binding contract.
[26] It is also relevant to note that the arrangements offered significant benefits to both sides. For the Holts, it meant quitting their farm and surrendering all their assets to the bank, but the bank would not sue them. It gave them the option to start afresh, without undergoing a period of bankruptcy. They could remain self- employed, instead of working for wages during bankruptcy. The benefits for the bank were the orderly realisation of the Holts’ assets. The farm, plant and livestock would be sold on the open market, rather than the bank selling the assets itself by way of forced sales as mortgagee. That gave the bank the assurance that it was likely to obtain better prices under this arrangement, than it would have faced if it had enforced its rights as mortgagee. The orderly sale of livestock was also important. While the bank had security over the Holts’ livestock, there are significant practical problems for a secured creditor in arranging the repossession and sale of large quantities of livestock. In Northland, there have been incidents where rural activists have tried to frustrate the repossession of livestock by secured creditors. In agreeing not to pursue the Holts after the realisation of all assets, the bank was probably giving away little of value.
[27] The bank’s letter sets out six matters under (a)–(g) for the process of sale of assets. It refers to these as "expectations”. These “expectations” were matters that the Holts had to attend to. Many of the expectations are drafted in the passive voice, but the meaning is clear that it is the Holts who must carry them out. The communications between the parties in 2012 are consistent with the Holts being the ones that were required to carry out these steps. Contractually, they were promises made by the Holts.
[28] The Holts were not the only ones with obligations under (a) to (g). Expectation (f) required the Holts to co-operate fully with the bank in the asset sale process. Co-operation is not a one-way process. It requires two or more people to
work together for a common purpose. In requiring the Holts to co-operate with it, the bank also undertook to co-operate with the Holts.
[29] The bank also came under an interim restraint against enforcing its securities and calling up and enforcing the loans. The letter does not say so expressly, but it follows from the scheme of the agreement. The Holts were given time in which to sell assets themselves. They could not do so, if the bank were to seize those assets and sell them itself. Obviously, the agreement required the bank to withhold enforcement of its securities in the meantime. Similarly with the bank’s right to sue the Holts on their personal covenants. If everything had gone according to the bank’s letter of 22 December, the bank would be restrained forever from suing the Holts. In the meantime the Holts had the opportunity of meeting the requirements of that letter by undertaking an orderly disposal of their farm assets and accounting to the bank for the proceeds, so as to bring the permanent restraint into effect. But it is inconsistent with that arrangement that the bank should sue the Holts on their personal covenants during the period for disposing of assets. The bank could hardly claim to be co-operating with the Holts if it sued them and required them to devote time and resources to deal with legal proceedings, instead of disposing of their farm assets. As a matter of implication, the bank was restrained from suing the Holts while they went about disposing of their assets.
[30] The letter of 22 December 2011 does not refer to dairy company shares, end- of-season payments and GST. Dairy company shares are typically sold to the purchaser of a dairy farm, when the purchaser will continue to use the farm for dairying. On such sales part of the purchase price is attributed to the shares. As the Holts sold the farm to another dairy farmer, nothing turns on dairy company shares.
[31] Dairy companies make final payments to farmers after the end of the dairy season. The “expectations” (a) to (g) do not address those payments. However, the bank appears to have taken the view that the Holts would have to account for those payments in the statutory declaration as to their assets and liabilities under (i). If so, that would put back the time for the Holts to make their statutory declaration until after they had received their end-of-season payments. There is no evidence when that was.
[32] The agreement does not address the question of goods and services tax. However, the parties’ subsequent conduct shows that they proceeded on the basis that in accounting for the proceeds of sale of assets, the Holts were entitled to deduct the costs of sale, including GST where applicable.3 Valuations of livestock and plant and equipment were GST exclusive. When the Holts sold the properties at Porter Road and Reid Road, their solicitors deducted the costs of sale before paying the
bank. When a mortgagee exercises a power of sale, GST incurred by the mortgagee is part of the costs of sale – Commissioner of Inland Revenue v Edgewater Motel Ltd.4 When the bank sold the Holts’ tractor, it paid the GST before applying the net proceeds against the Holts’ debt. The transaction was not intended to leave the Holts with the liability for GST on any sales of assets. Accordingly the Holts could take into account any GST liability they incurred on the sale of any asset when accounting to the bank for the proceeds of sale.
[33] In general, and without stating all matters exhaustively, the Holts and the bank entered into a contract in terms of the bank’s letter of 22 December 2011. The agreement provides for the Holts to sell their farm assets and account to the bank for the proceeds, including for livestock sales. There are particular requirements and milestones for selling and valuing assets. The agreement goes through phases. The first phase covers the sale of assets, which are to be completed by the end of the dairy season. During this phase, both the Holts and the bank have obligations. After the sales, the Holts are to provide a statutory declaration giving a comprehensive statement of assets and liabilities. As the bank was eyeing the Holts’ end of season payments, the bank could not require the declaration ahead of the Holts receiving those payments. The agreement does not fix any time for the declaration to be given. The law would require it to be given within a reasonable time. The Holts were entitled to claim their costs of selling assets, including GST, when accounting to the bank. If the Holts’ statement of assets and liabilities satisfied
the bank that there were no other assets which should be realised, the bank would not
3 Under the decision of the Supreme Court in Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277, subsequent conduct may assist in the interpretation of a contract. For this case, it does not matter whether it is the conduct of a party who now contends to the contrary (the approach of Elias CJ and Thomas J) or the conduct is shared (the view of Tipping and Anderson JJ). The answer is the same in either case.
4 Edgewater Motel Ltd v Commissioner of Inland Revenue (2004) 21 NZTC 18,664 (PC) and see
Goods and Services Tax Act 1985, s 5(2).
sue the Holts for any outstanding debt. The process would be completed by a deed of settlement.
Did the Holts comply with the arrangements made in the bank’s letter of
22 December 2011?
[34] The bank’s case is that the Holts did not meet all of the expectations (a) to (g) of the letter of 22 December 2011, have not accounted fully for livestock under (3) and have not provided the statutory declaration under (i).
[35] In a letter of 27 April 2012 to the Holts’ lawyers, the bank accepted that expectations (a), (c) and (e) in its letter of 22 December 2011 had been satisfied.
[36] As to (b), the bank’s evidence shows that it received valuations by livestock agents after 31 January 2012. The bank does not make an issue as to timing, but it has misgivings as to the adequacy of the valuations. It says that the numbers do not match its records of the Holts’ livestock.
[37] As to (d), not all assets were under contract of sale by 31 March 2012. Agreements to sell livestock were made after that date, at the end of the dairy season. On 30 May 2012 the Holts’ lawyers advised the bank that they still held the tractor and that the livestock agent had recommended that certain cattle, 18 one-year-old heifers and 2 two-year-old empty cows, be held back from sale because they were of no value. While the bank submits that there was a breach of (d), it does not try to take the matter any further by alleging that it suffered any particular loss as a result.
[38] Instead, the focus of the bank’s case is that despite repeated requests, the Holts did not provide a full livestock reconciliation showing numbers, values and disposal. The provisions which the bank can invoke are:
3.The exact quantities of livestock to be sold to be subject to a schedule provided to the bank for the bank’s approval;
(f) The requirement to co-operate with the bank in respect of the asset sale process; and
(g)the duty to provide any information requested by the bank in a timely manner.
[39] In considering the bank’s argument, it is helpful to start with an email the Holts sent the bank on 12 October 2011 giving numbers for the Holts’ livestock. There were a total of 513 head, mainly dairy, but also some beef cattle. The Holts’ email says “Stock on hand” which presumably means the livestock which they owned as at 12 October 2011. The bank says that it has not received an accounting from the Holts showing the livestock on the farm after the arrangements of December 2011 - what livestock were sold, for how much, and when. In the absence of that accounting, the bank is suspicious that the Holts have either retained livestock, or that they have sold livestock without accounting to the bank. The bank makes the point that it held security over the livestock under its general security agreement.
[40] In his affidavit, Mr Holt says:
23.... We sold cows progressively throughout 2012. On the Porter Road property we carried about 300 dairy cows and 60 beef cows and some replacement young stock, 60 yearlings and 60 rising 2- year-olds. The majority of the dairy cows were sold to the new owner of the Porter Road farm. Some other cows and beef cattle were sold at a Wrightsons surplus dairy sale at Wellsford on 15 May
2012. ...
24.... Whenever we sold stock we emailed the bank a copy of the sale documents, I no longer have copies of them.
25.The young stock did not sell at the Wellsford sale. We asked the bank if we could retain them but they said no. We asked Wrightsons to sell them privately which they did.
[41] That evidence describes sales of livestock, with numbers corresponding roughly to those advised to the bank in October 2011.
[42] However, the bank’s case is that Mr Holt’s evidence is not a detailed reconciliation, and the bank was entitled to have that information no later than the end of the dairy season. The bank’s evidence shows that it consistently requested information about the Holts’ livestock after the agreement of December 2011:
(a) In an email of 27 February 2012 the bank asked the Holts for livestock details, referring to recent visits by livestock agents. The bank asked for reconciliations and assessed value.
(b)On 6 March 2012 the bank asked for the total number of livestock currently. It also noted a payment of $19,901.90 the previous week, and asked whether that related to livestock.
(c) On 16 March 2012, after hearing that livestock had been removed from the Reid Road run-off, the bank asked for details of the livestock taken and details of livestock remaining, as well as a copy of the Police report.
(d)On 2 April 2012 the bank requested an official head count if the purchasers of the farm were not interested in the livestock.
(e) On 13 April 2012 the bank requested livestock details, saying that the matter was becoming urgent because the bank wanted to get under way the documentation for a deed of settlement. The bank referred to details required in terms of numbers, class and anticipated value. It requested the information by 17 April 2012. It requested details of the sale of calves sold that week, and asked for information on what was to happen to the dairy livestock and beef livestock.
(f) In a letter of 17 April 2012, the bank required a full and detailed livestock reconciliation in relation to all dairy and beef livestock to cover the period 1 June 2011 to 31 May 2012, to be sent to the bank no later than 10 May 2012. The letter warned that if the information ordered was not supplied by that date the bank may need to reconsider the arrangement with regard to the recovery of any residual debt.
(g)On 11 May 2012, the bank noted that no response had been received and asked for the matter to be attended to as a matter of priority.
(h)On 21 May 2012 the bank’s email recorded a conversation with the Holts’ accountant who advised that livestock had been stolen for a second time. The bank pressed for full details as to the livestock, requesting a statutory declaration by 25 May 2012, and advising that the bank would not accept any further delays.
[43] The bank’s evidence sets out documents received from the Holts relating to
livestock:
(a) A livestock valuation by Sloane Livestock showing values for 250 cows with a reference to some “sound unrecorded 8-year-old plus cows” which are not numbered;
(b) A valuation by PGG Wrightsons for 278 head of stock. There is also
reference to “beef livestock” but numbers are not given.
(c) Two agreements of 18 April 2012 between Wyndies Ltd and Rural Skyline Ltd, the purchaser of the Porter Road farm, with sales of 120 head of stock and 43 head respectively.
(d) A police report investigating the removal of the Holts’ herd from the
Reid Road run-off in March 2012.
(e) The Holts’ subsequent advice that the livestock would be returned.
(f) An email from the Holts’ lawyers advising that all livestock had been sold, apart from 18 x 1-year-old heifers and 2 x 2-year-old empty cows which were held back from the stock sale since they were of no value.
[44] None of this information provided by the Holts amounts to the full reconciliation and accounting which the bank was after. The bank was entitled to that information. Under (3), the bank’s letter of 22 December 2011, the sale of all livestock was to be shown by a schedule to be provided to the bank for approval. The bank was also entitled to request information to be provided in a timely manner
under (g). Providing that information was part of the Holts’ duty to co-operate fully with the bank in the asset sale procedure.
[45] The agreement provided that the information was to be given in a timely manner. The agreement was for all assets to be disposed of by the end of the dairy season 2012. The bank was entitled to have the information as to livestock – including numbers, values and disposal – by the end of the dairy season. The bank’s requests for information were in accordance with the agreement of 22 December
2011.
[46] The Holts’ evidence does not show that they had complied with these requests for information by the end of the dairy season. The bank had been told in general terms that all livestock had been sold barring the 18 heifers and 2 x 2-year- old empties. The bank was left guessing whether the Holts had accounted to the bank fully for the livestock sales. The agreement clearly intended the bank should not be left guessing.
[47] When the bank sent its letter of 17 June 2012 giving notice that it would make demand for the outstanding debt after the sales, the Holts had not complied with terms 3, (f) and (g) in that they had not given livestock reconciliations required by the bank. They had also not provided the statutory declaration under (i). For this hearing, Mr and Mrs Holt filed a statement of their means which they signed, but it is not in the form of a statutory declaration. While the bank did not specifically address it, the bank would no doubt say that it is too little and too late. In any event, it is not clear that the time for providing the declaration had arisen because it is arguable that at that time the Holts could not yet account for their end of season payments and could therefore not provide a comprehensive statement of all assets.
If the Holts did not comply, what remedies did the bank have?
[48] The parties may set out in an agreement the consequences of non-compliance with terms, including specifying particular remedies. But the bank and the Holts did not do so. It is accordingly necessary to consider the position under the general rules of contract law.
[49] The bank considered that it was entitled to call off the arrangements made in
its letter of 22 December 2011. It did this in its letter to the Holts’ lawyers on
27 June 2012. Among other things, that letter recorded the Holts’ indebtedness to the bank of $1,653,888.32, the Holts’ failure to comply with the arrangements of December 2011 and the bank’s dissatisfaction with the Holts’ lack of co-operation. It said that the bank was now left with little alternative and went on:
You are advised that in order to obtain the required audit process around livestock and non-land asset sales and to protect itself in respect of security over retrospective dairy payments the Bank will now look to issue demands and proceed to obtain judgment against Mr & Mrs Holt. Assuming judgment is obtained, the Bank reserves the right to proceed to bankruptcy of Mr and Mrs Holt as it sees fit...
[50] That was followed up with the letter from the bank’s lawyers of 25 July 2012
demanding payment of $1,701,033.33.
[51] The question here is whether the bank was entitled to call off the agreement made in December 2011.
[52] The bank’s case is that because the Holts did not comply with the terms of the letter of 22 December 2011, the bank was entitled to call off the arrangements made. The way it puts its argument is that the “expectations” were conditions precedent. As those conditions were not met, then the bank was not bound by its promise not to
sue the Holts. It relies on authorities such as Aberfoyle Plantations Ltd v Cheng.5
Under the bank’s case, it does not matter whether the shortfall in meeting the conditions was significant or not. The bank’s case is that when a condition precedent has not been satisfied, its obligation to perform is not triggered, even if the degree of non-satisfaction is slight. Its approach can be seen in the Privy Council’s decision in Valentines Properties Ltd v Huntco Corporation Ltd:6
Once the line is crossed, a miss is as good as a mile.
5 Aberfoyle Plantations Ltd v Cheng [1960] AC 115 (PC).
6 Valentines Properties Ltd v Huntco Corporation Ltd [2001] 3 NZLR 305 (PC) at [20].
[53] That approach applies in the case of contingent conditions. However it is necessary to note the distinction between promises and contingencies. A useful explanation appears in Carter’s Contract Law in Australia:7
A term which expresses a promise that an event will occur (or will not occur) or an undertaking as to the truth of a present (or past) fact is treated as embodying a contractual obligation, the breach of which gives rise to a claim for damages. Such a term is distinguishable from one which qualifies the obligation of a party by providing for a contingency. For example, if a contract for the sale of goods provides that the obligation of the parties to perform is subject to the issue of an export licence, but neither party undertakes to obtain the licence, the issue of a licence is merely a contingency on which the obligation of a party to perform depends.
The obvious distinction between a term stating an undertaking and a term which merely provides for a contingency is that the latter does not provide a basis for a damages claim if the contingency is not fulfilled.
[54] In this case, the matters the bank is relying on to say it can call off the agreement of December 2011 are not the non-occurrence of contingencies, but breaches of promises by the Holts. When a party wants to call off a contract because of a breach of promise by the other party, the cancellation provisions of the Contractual Remedies Act 1979 apply. Section 7(1) says:
7(1) Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.
[Emphasis added]
[55] The need for the bank to cancel can be seen by considering its range of options arising out of the Holts’ defective performance of their promises. Under the December 2011 contract, certain steps had to be carried out by the Holts, before the Holts could call upon the bank. Specifically, the expectations had to be met and a statement of assets and liabilities had to be provided to the bank’s satisfaction, before the Holts could hold the bank to its promise to be permanently barred from suing them. It is a case of the performance by one party of certain promises preceding
another party coming under obligations – a matter of dependent promises.8 In that
7 J W Carter Contract Law in Australia (6th ed, LexisNexis Butterworths, 2013) at [13-16].
8 Kingston v Preston (1773) 2 Doug 689, 99 ER 437.
regard, this contract is similar to one where one party promises to provide services, and the other promises to pay for them, upon completion of the services.
[56] Where there is non-performance, delayed performance or defective performance by the party to perform first, the other party has a range of options. That party may simply await complying performance by the first party and, subject to questions of substantial performance,9 resist calls for it to perform. Under that course, the contract remains in force but the non-performance by the first party means that the second party never comes under an obligation to carry out its
obligations.
[57] A second course is to sue the first party for damages for the breach of the promise. Under this second course, the contract may remain in full force and effect.
[58] The third course is that the second party may wish to be rid of the contract altogether. If, fed up with a lack of performance by the first party, the second party wants to engage someone else instead, the second party can only do so by cancelling the contract.
[59] In this case, the bank wants to be freed from not being able to sue the Holts. This is not a contract where it can simply decline to perform its obligations on the basis that the Holts have not carried out their side of the bargain. That might apply where the contract allows the bank to remain passive, while awaiting performance by the Holts. But here the bank wants to take active steps, suing the Holts, which it cannot do while it is bound by the contract. It can only sue the Holts if it can show that it was entitled to cancel the contract because of the Holts’ breaches and it did cancel.
[60] For completeness I also add that the present proceeding is not under the second course, a claim for damages against the Holts for breach of their promises. Under such a claim, the bank could only seek damages that would place it in the
position it would be in if the agreement had been carried out. Such a claim would be
9 H Dakin & Co Ltd v Lee [1916] 1 KB 566, Hoenig v Isaacs [1952] 2 All ER 176 (CA).
limited to claiming damages for any shortfall by the Holts in accounting for livestock proceeds. Here the bank is after much more.
Were the terms breached by the Holts essential terms of the contract?
[61] While the Holts had not complied with terms of the agreement of December
2011 to provide information in a timely way to the bank, in this summary judgment application it is not possible to establish how serious that was. On the evidence, it is possible that the Holts have paid the bank substantially all the proceeds of sales of the farm assets (barring $33,203 held in a BNZ account). If that is the case, then the consequences of the breaches may not be substantial. They would not allow the bank to cancel under s 7(4)(b) of the Contractual Remedies Act 1979, which provides for cancellation for breaches with substantial consequences. The bank does not suggest any anticipatory breach or repudiatory conduct on the part of the Holts. Accordingly, for the bank to justify cancellation, it has to show that the terms the Holts breached were essential under s 7(4)(a) of the Contractual Remedies Act:
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if—
(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the stipulation is essential to him; ...
[62] The agreement of 22 December 2011 does not expressly say that the Holts’ compliance with the terms of the agreement is essential. It is necessary to see whether it was impliedly essential. In Mana Property Trustee Ltd v James Developments Ltd,10 the Supreme Court gave helpful guidance to establish whether a term of a contract is essential under s 7(4)(a):
[23] Professor Burrows also observes that subs (4)(a) in essence preserves the common law concept of a “condition”: a term which is so important that any breach of it justifies the innocent party in cancelling. He notes too that the subsection emphasises that it is essentiality to the cancelling party which is relevant: it is not necessary, if it ever was, that the term should be essential to both parties. With that possible difference, the common law concerning
10 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90; [2010] 3 NZLR 805 (SC).
identification of conditions continues to be relevant. It is helpfully addressed by Dawson and McLauchlan in the following way:
We consider that, as in the old law, the question whether a term is an essential term will fall to be decided by ascertaining the intention of the parties to be collected from the terms of the whole contract and the subject matter to which it relates. Since the question is one of the express or implied agreement of the parties, it will be the intention of the parties at the time of entering into the contract and the effect likely to be produced on the foundation of the adventure that is relevant. Strictly speaking, therefore, the consequences of the breach that have in fact taken place are immaterial to the question whether a term is essential. One useful indicator of whether a term has been agreed by implication to be essential is to ask whether the term is of such importance that it may reasonably be supposed that without such term the party not in default might never have entered into the contract at all.
The indicator mentioned in the last sentence was drawn from the judgment of Jordan CJ in Tramways Advertising. His statement of the law was endorsed in Associated Newspapers Ltd v Bancks by the High Court of Australia, which also approved a test formulated by Morison:
You look at the stipulation broken from the point of view of its probable effect or importance as an inducement to enter into the contract.
[24] Subsection (4)(a) contemplates that the parties either have expressly agreed that a particular term in their contract is to be regarded as essential (to the cancelling party or to both of them) or must be taken to have impliedly so agreed. In both cases it is a matter of interpretation of the contract. The use of words such as “performance being essential” or “strict performance being required” would plainly fall within the former category, but no special form of words is necessary provided that it can be seen that the parties have indeed agreed that adherence to the provision in question is being treated by them as essential. The latter category, of implied agreement on the essentiality of a term which appears in the contract, may sometimes be more difficult to establish. But, again, it will be a question of interpretation, that is, ascertaining the intention of the parties as to the essentiality of the particular term from its language read in the context of the whole of the contract and the surrounding circumstances when the contract was made. Of particular importance will be what must then have been in the contemplation of the parties concerning the likely effect of a breach of the term. It will include whether a term of the same kind has customarily been treated as a condition or as an essential term under the Act, such as, in relation to a land sale agreement, a requirement for payment of a deposit within a particular time. It will also include a consideration of the type of contract and whether it is one, like a mercantile contract, which normally requires strict performance. The court must ask itself whether, without expressly stating that the term
is essential – that is, using a form of words equivalent to the expressions of which we have given instances – the parties can be seen, in context, to have intended that that should be the position. Obviously there will be some cases where what is express shades into what must be taken to be implied.
[25] In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard. [Citations omitted]
[63] On the last point, a possible trap to avoid is not to assume that merely because a term has appeared in a contract, the term must be essential. It is a case of establishing the importance of the particular term to the party entering into the contract.
[64] While the contract contains no express words as to the essentiality of the terms, I am satisfied that the terms were essential to the bank. The Holts, its customers, were in default and the bank was facing significant losses. Enforcement action must have been in contemplation, but that carried risks. Forced sales by the bank, with the associated costs of enforcement would likely produce less than sales negotiated by the Holts on the open market. While the bank could pursue the Holts for shortfalls after selling their assets, that was likely to lead only to their bankruptcy. The proposal that the Holts sell their farm assets and account to the bank for the proceeds of sale was attractive. Abandoning the claim against them for the shortfall on the sales may have given little away. But for that proposal to work properly for the bank, it required proper accounting from the Holts. It wanted to ensure that the Holts did deliver on their promise to account to the bank for the sales of their assets. It wanted to be satisfied that the Holts had not retained assets for themselves, over which the bank held continuing security. It did not want to end up where it was left guessing whether the Holts has accounted to them properly or it would have to pursue them after the sales process to obtain all the proceeds of sale.
[65] For the bank, it was a key component of the transaction that the Holts would
account properly to it for the proceeds of sale. That is reflected in the bank’s letter of
22 December 2011 in response to the lawyer’s letter. The bank spelt out detailed
requirements to ensure accountability. The bank has shown that if the agreement did not have terms to ensure proper accountability by the Holts, it would probably not have entered into the agreement. Accordingly, the terms breached by the Holts were essential terms of the contract under s 7(4)(a) of the Contractual Remedies Act. Those terms are 3, (f) and (g).
Was time of the essence?
[66] While the terms the Holts had not complied with by the time of the bank’s letter of 27 June 2012 were essential, the bank cannot cancel unless time for performance of those terms was of the essence under the agreement, or the bank made it of the essence.11 Paragraphs (a)-(e) of the bank’s letter of 22 December 2011 state dates by which certain matters had to be carried out. However, those were not essential dates. Section 90 of the Judicature Act 1908 applies:
90 Stipulations not of the essence of contracts
Stipulations in contracts as to time or otherwise which would not, before the
13th day of September 1882 (the date of the coming into force of the Law Amendment Act 1882), have been deemed to be or to have become the essence of such contracts in a Court of equity shall receive in all Courts the same construction and effect as they would have theretofore received in equity.
[67] Equity did not regard a term as to time as of the essence. It would grant relief notwithstanding failures to meet deadlines fixed by an agreement. The agreement of December 2011 is directed towards achieving a sale of the Holts’ farm assets to be completed by the end of the 2011-2012 dairy season with a statutory declaration to be provided afterwards. No time is fixed for the provision of the statutory declaration. The dates in (a)-(e) of the agreement are dates for intermediate steps to be taken, not for final completion. It would be strange to treat the time for compliance with intermediate steps as essential, when no time is fixed for final completion.
[68] The practicalities of giving effect to the agreement also show that time could not be of the essence. The Porter Road farm and the Reid Road run-off were to be
11 Mana Property Trustee Ltd v James Developments Ltd is an example of a breach of an essential term not giving rise to a right to cancel because time was not of the essence.
subject to agreements for sale and purchase, with settlement at the end of the dairy season. But under the standard agreement for sale and purchase of land, the time for settlement is not of the essence. Similarly, the Holts might be required to provide further information to the bank after the end of the dairy season – for example, to account for GST they would have to pay and for end-of-season Dairy Company payments.
[69] While making the point that it regarded the Holts as in default, the bank did not treat the intermediate steps as essential deadlines. Further, even if it wanted to rely on non-compliance with those dates, it could not do so. It effectively waived the point when it renewed the term loan of 3 May 2012, showing that the agreement of
22 December 2011 was still alive.
[70] When the contract does not provide for a time for performance of an obligation or the time for performance is not essential, the innocent party may be able to cancel by making time of the essence. There is a useful outline of the position in English law and as it was in New Zealand before the Contractual Remedies Act 1979 in the speech of Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnleigh Borough Council:12
Time is often spoken of as being ‘made of the essence of the contract by notice’ — a concept which is reflected in the words “or to have become” in s
41 of the Law of Property Act 1925.13 Nevertheless, the phrase is misleading. In equity, and now in the fused system, performance has or had,
in the absence of time being made of the essence, to be within a reasonable time. What is reasonable time is a question of fact to be determined in the
light of all the circumstances. After the lapse of a reasonable time the promissee could and can give notice fixing a time for performance. This
must itself be reasonable notwithstanding that ex hyopthesi a reasonable time for performance has already lapsed in the view of the promisee. The notice
operates as evidence that the promisee considers that a reasonable time for
performance has elapsed by the date of the notice and is evidence of the date by which the promisee how considers it reasonable for the contractual obligation to be performed. The promisor is put upon notice of these matters. It is only in this sense that time is made of the essence of a contract in which it was previously non-essential. The promisee is really saying “Unless you perform by such-and-such a date, I shall treat your failure as a repudiation of the contract.”
12 United Scientific Holdings Ltd v Burnleigh Borough Council [1978] AC 904 (HL) at 946.
13 See Judicature Act 1908, s 90.
[71] That approach has been applied in New Zealand under the Contractual Remedies Act.14 While time was not initially of the essence, the bank might be able to cancel if it made time of the essence and the Holts did not perform in time.
Did the bank effectively make time of the essence?
[72] In O’Brien v Dawson,15 Jordan CJ set out the procedures for making time of the essence and cancelling:
If, however, there be no express or implied essential stipulation that the act is to be done by a certain time, so that it may be done within a reasonable time, and more than a reasonable time has elapsed, or if a time fixed by the contract and not of the essence has gone by, it is prudent, if indeed it be not necessary, for a party who desires to be relieved from the contract by reason of non-performance of the act, to give notice to the party in default that if it is not performed by a prescribed time he will put an end to the contract. ... The time prescribed by such a notice must be reasonable; and the notice must state with reasonable explicitness what it is that is being required to be done ... and that if it be not done within the time prescribed the party who has given the notice will treat the contract as at an end, or treat himself as entitled to put an end to it. ... Further, a time so prescribed may be waived by express agreement or by conduct ... , and if it be so waived then, unless the waiver is for a specified time only, it is necessary that a further notice should be given specifying a further time. ... (Citations omitted).
[73] That is, after the time for performance has elapsed, when time is not of the essence, a notice making time of the essence must:
(a) Give a reasonable time for compliance;
(b) State with reasonable explicitness what must be done; and
(c) State that if it is not done within the time given, the party giving the notice will cancel.
[74] The bank’s communications before 3 May 2012 can be disregarded, except
for the letter of 27 April 2012. That is because on 3 May 2012 the bank renewed the term loan until the end of June 2012. In renewing the term loan, the bank clearly did
14 MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA); Mana Property Trustee Ltd v James
Developments Ltd at [35]-[36].
15 O’Brien v Dawson (1941) 41 SR (NSW) 295 at 304.
not intend to require the Holts to repay the term loan on 3 May 2012 but wished to keep the arrangements made in December 2011 on foot. The bank’s letter of
27 April 2012 required a full and detailed livestock reconciliation by 10 May 2012. That time straddled the renewal of the term loan on 3 May. The letter looked for performance after the date of renewal of the term loan. The renewal of the term loan was not a waiver of the requirements in the letter of 27 April.
[75] That letter recorded past requests for information, for which the bank had not received adequate responses. The agreement did not fix specific times for the Holts to provide information, but required them to give it in a timely way. By 27 April a reasonable time for giving a livestock reconciliation had passed.
[76] The letter asked for “a full and detailed livestock reconciliation...in relation to all Dairy and Beef Livestock and is to cover the period of 01 June 2011 to 31 May
2012.” Earlier requests for information as to livestock had not used this particular formula, but these words simply set out expressly what was contained in earlier requests. It did not ask for information that had not been sought before.
[77] The time given for compliance was nine working days from the date of the bank’s letter. The bank has not shown that this was a reasonable time. In asking for a full and detailed reconciliation, the bank was looking for a full explanation of livestock purchases, sales, births, deaths and missing livestock that reconciled with the livestock numbers in the Holts’ financial statements and the bank’s records. To carry out that exercise the Holts may have needed the assistance of their accountant. It has not been shown that an accountant was available and could have provided the required assistance in that time. I cannot take judicial notice of the workloads of rural accountants.
[78] There is a further ground why the letter is arguably not effective. It says that if reliable information is not submitted by 10 May 2012, “the Bank may need to reconsider the arrangement with regard to the recovery of any residual National Bank debt”. That does not state unequivocally enough that the bank will cancel if the Holts do not meet the request. Accordingly, the letter of 27 April 2012 is not effective notice making time of the essence.
[79] The bank’s email of 11 May 2012 notes that the reconciliation required by
10 May had not been received. It was not a notice making time of the essence.
[80] The bank’s email of 21 May 2012 states that the statutory declaration was required by 25 May and that the bank will not accept any further delays. Again, this is not a notice within the judgment of Jordan CJ. It does not state that failing compliance the bank will treat the contract as at an end. Besides, the request for the statutory declaration was arguably premature, because the statutory declaration under (i) of the agreement could not be completed until after all the assets had been sold, and indeed, not until after end of season payments had been received. A reasonable time for supplying the statutory declaration had not expired on 21 May 2012.
[81] The bank’s email of 31 May 2012 records that the bank considers the Holts as being in default of the settlement process, but that is not a notice making time of the essence.
[82] The bank’s letter of 27 June 2012 is the letter of cancellation. The word “cancellation” is not used directly but no particular form of words was required. It is clear from the language used that the bank regarded the earlier agreement of
22 December 2011 as at an end. It gave this letter of cancellation without having made time of the essence. It was ineffective as a cancellation.
[83] The only other relevant item of correspondence is the letter from the bank’s lawyers of 25 July 2012. However, that letter simply made demand of the debt. It made no reference to the agreement of 22 December 2011. It cannot be a notice making time of the essence. In summary, the correspondence in evidence does not show that the bank effectively made time of the essence, as required by the judgment of Jordan CJ in O’Brien v Dawson.
[84] The bank has shown that the Holts were in breach of essential terms of the contract within s 7(4)(a) of the Contractual Remedies Act. The time for performance of those terms of the contract was not of the essence. If the bank wished to cancel for lack of timely performance by the Holts, it had to make time of the essence. It has not done so effectively. As the bank has not cancelled the agreement of 22
December 2011, the agreement remains on foot. While the agreement remains on foot, the bank is not entitled to sue the Holts for the shortfall following the sale of their farm assets. The Holts accordingly have an arguable defence to the bank’s claim.
What should be done about the sum of $33,203 held in the Holts’ BNZ account?
[85] Mr Holt explains that the proceeds of sale of cattle that were sold after 1 June
2012 were paid into a BNZ bank account. He says that they did this so as to have funds available to meet their tax obligations.
[86] Under the agreement of December 2011, the Holts are required to account to the bank for the proceeds of sale of all their livestock, including any sold after 1 June
2012. In accounting for the proceeds of sale they are entitled to set off against them any goods and services tax payable on the sale of assets and any other costs incurred in the sales, but the funds held in BNZ account are otherwise payable to the bank. The bank is entitled to claim those funds as payable to it under the agreement of December 2012, independently of the question of cancellation. The bank was only to give away its claim to residual debt. Whether the agreement is cancelled or not, it is still entitled to the proceeds of livestock sales.
[87] I give directions for the Holts to file and serve a further affidavit setting out exactly what GST and other expenses of sale they claim, with appropriate supporting documentation.
Outcome
[88] The Holts also addressed an argument based on estoppel. It has not been necessary to consider that defence, as I have found that the case presented by the bank founded on contract law does not enable it to obtain summary judgment against the Holts even without the estoppel argument.
[89] I make these orders:
(a) I dismiss the application for summary judgment.
(b)Within 20 working days of this decision the Holts are to file and serve a statement of defence.
(c) Within 20 working days of this decision the Holts are to file and serve an affidavit setting out what, if any, expenses of sale, including goods and services tax, they say should be taken into account against the sums held in the BNZ account. The affidavit is to attach all relevant supporting documentation.
(d) The case is to be called in the summary judgment list on Monday,
29 July 2013. I will then consider what judgment, if any, should be given against the Holts in respect of the funds held in the BNZ bank account.
(e) At the same call, further directions for the conduct of the case will be given.
(f) I reserve costs.
................................................
Associate Judge R M Bell
2
4
1