Arranmore Developments Limited v Zhang
[2015] NZHC 3106
•11 December 2015
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2015-404-000810
[2015] NZHC 3106
BETWEEN ARRANMORE DEVELOPMENTS LIMITED
Plaintiff
AND
QIYUAN ZHANG
Defendant
Hearing: 9 December 2015 Appearances:
M Fisher/H L Hui for the Plaintiff H M Lim for the Defendant
Judgment:
11 December 2015
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on 11.12.15 at 2:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
ARRANMORE DEVELOPMENTS LIMITED v Q ZHANG [2015] NZHC 3106 [11 December 2015]
Background
[1] The plaintiff applies for summary judgment upon its claim to recover damages in the sum of $240,522.65, inclusive of interest at the Judicature Act 1908 specified rate to 9 December 2015.
[2] The plaintiff obtained judgment as to liability on 12 October 2010 against the defendant in CIV 2009-404-5446 for damages suffered by reason of the defendant’s breach of two agreements for sale and purchase dated 10 December 2007.
[3] When four and a half years later the defendant was served with this proceeding she filed an application to set aside the judgment entered against her. A hearing on the present summary judgment application was then adjourned until the setting aside application was considered. This was heard by Venning J on 2 October 2015 and was dismissed.
[4] In her opposition to the plaintiff’s summary judgment application the defendant maintained the same reasons for opposing summary judgment as she did by her application to set aside that judgment against her in October 2010. Also in opposition she asserts she believes the plaintiff’s loss calculations are wrong and that the plaintiff failed to mitigate its losses.
[5] The present summary judgment proceeding focuses upon the plaintiff’s calculations of damages claimed and the defendant’s reasons to challenge those.
[6] Attached to the plaintiff’s statement of claim are schedules of the losses in respect of each of the lots sold to the defendant.
[7] A significant element of the claim of losses to the plaintiff is comprised in the penalty interest of 15 per cent claimed on the purchase price of each lot after deduction of resale price, deposit paid, and interest earned upon the deposit.
[8] A better understanding of loss calculations is obtained by reference to relevant background facts and by the terms of the agreements for sale and purchase.
Chronology
[9] The plaintiff purchased two lots in a residential development being Lots 2 and 25.
[10] The agreements for sale and purchase were dated 10 December 2007. Lot 2 was purchased for $359,000 and Lot 25 for $345,000. Deposits of 10 per cent were paid.
[11] A settlement notice was served on the plaintiff’s solicitors Sneddon & Associates on 4 June 2009.
[12]By letter dated 9 June 2009 Sneddon & Associates responded:
We advise that our client has been unable to obtain finance to complete this matter. Even if other terms were negotiated with the vendor we advise that due to our client’s current circumstances she will not be in a position to proceed with the purchase.
[13] On 25 August 2009 the plaintiff commenced proceedings against the defendant seeking specific performance of the agreements.
[14] On 30 October 2009 Williams J issued decrees of specific performance in respect of both agreements.
[15] On 20 September 2010 and 21 September 2010 respectively, the plaintiff entered into agreements to resell Lot 2 for $322,000 and Lot 25 for $295,000.
[16] On 12 October 2010 Abbott AJ entered judgment as to liability for contract defaults against the defendant.
[17]On 11 June 2011 the plaintiff discontinued the original proceeding.
[18] The plaintiff settled the resale of Lot 2 on 20 June 2011 and on Lot 25 on 21 June 2011.
Original agreements for sale and purchase
[19] Each provided for the payment of interest at 15 per cent per annum for late settlement.
[20]Clause 7.4 of the agreements for sale and purchase provided:
.1.Without prejudice to any other rights or remedies available to the Vendor at law or in equity the Vendor may:
(a)Sue the Purchaser for specific performance; or
(b)Cancel this agreement by notice and pursue either or both of the following remedies, namely:
(i)Forfeit and retain [the deposit]; and/or
(ii)Sue the Purchaser for damages;
…
.3. The damage claimable by the Vendor under clause 7.4.1(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but not be limited to) any loss incurred by the Vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice.
Resale of the properties
[21] Each lot was sold by an agreement which permitted early occupation and provided for deferred settlement. Settlement was not required until nine months after the date of the agreement when the deposit was paid and occupation was provided.
Loss calculations
[22] As earlier noted, attached to the statement of claim are schedules of losses claimed. For this hearing Mr Fisher has provided three scenarios for calculations of those losses.
Scenario one:
(a)He has deduced the deposits paid and the resale prices obtained and as well has given credit for the net interest earned on the deposits. Then penalty interest at 15 per cent has been calculated from the original settlement date of 22 May 2009 to 20 and 21 June 2011 (the resale settlement dates) being 760 and 761 days i.e. a sum of $100,347.71. To that sum has been added resale legal fees, resale commission fees, and local authority rate payments from 22 May 2009 to 12 October 2010 (possession date of resale).
(b)Also added is interest claimed at the Judicature Act 1908 rate from settlement date of resale to the date of this Court hearing.
Scenario two:
(a)He factors in the provisions of clause 7.4.3 of the original agreements for sale and purchase i.e. by limiting loss to [one year and 12 days] beyond that date when the original agreement should have settled.
(b)Upon that basis interest was calculated at 15 per cent from 22 May 2009 (settlement date to 22 June 2010) [one year and 12 working days thereafter], amounting to $52,286.44.
Scenario three:
(a) He calculates interest at 15 per cent from 22 May 2009 (the original settlement date) to 12 October 2010 (the possession date of resale), in a sum totalling $67,074.52.
[23] Interest factors and the variations of dates affecting calculations apart, each scenario adopts the same claims for fees and outgoings associated with the resale of the properties.
Considerations
[24] It is the plaintiff’s case that scenario one provides the appropriate basis for calculation of loss. Mr Muldoon’s supporting affidavit explains why proceedings for specific performance were issued but then later the lots were resold and following resale new proceedings issued by which it was affirmed by the Court that the defendant had indeed assumed liability for those original contracts for purchase. The present proceeding has been brought to determine the extent of that liability.
[25] The defendant challenges loss calculations by claims that those should not include what is considered was “wasted” time spent on pursuing decrees of specific performance. It is also asserted that clause 7.4.3 limits claims for damages to a period of one year and 12 working days.
[26] In issue therefore is whether the plaintiff’s claim for damages is limited by reference to those factors the defendant identifies. Ms Lim submits that the clear evidence is the defendant told her solicitors she did not wish to proceed with the purchase, as the letter from Sneddon & Associates dated 9 June 2009 appears to confirm. Therefore the plaintiff should have sued for losses due to a failure to honour contractual obligations, and decrees of specific performance ought not to have been sought because that action caused delays.
[27] Ms Lim submits that the plaintiff failed to mitigate its losses and therefore Mr Fisher’s calculations of loss, are incorrect. Ms Lim submits clause 7.4.3 restricts contractual breach losses (including interest and all costs and expenses) to those which occurred within one year and 12 working days.
[28] Ms Lim submits that claims of losses on the resale (which occurred more than a year and 12 days after 22 June 2009) (the original settlement date) cannot he claimed. Those non reclaimable losses it is submitted include the loss on resale of lot 2 of $37,000 and the loss on resale of lot 25 of $50,000 – in total $87,000.
[29] Regarding the plaintiff’s initial steps in pursuing decrees of specific performance (i.e. to prove the existence of those agreements with the defendant) and
then later cancelling those agreements and pursuing claims for damages, Ms Lim submits the plaintiff cannot do both i.e. cannot apply for and obtain orders for specific performance and then cancel the agreement.
[30]Mr Muldoon deposed the plaintiff considered specific performance to be:
…the quickest and most cost effective way of ascertaining the reason the defendant had failed to settle: i.e. was it because she changed her mind? (being able but unwilling to settle following the fall in property values consequent upon the Global Financial Crisis of October 2008) or was it because she was not actually able to settle? (being unable to obtain funding).
[31] Ms Lim submits the plaintiff had a duty to mitigate its losses and that it ought to have put the properties on the market for resale following the defendant’s solicitor’s advice in June 2009; that the plaintiff pursued specific performance knowing the defendant was not in a position to settle.
[32] Ms Lim calculates that because the specific performance path was chosen the length of time for which late interest payment was claimed was extended by at least 302 days (from 22 June 2009 the original settlement date to the settlement notice date of the resale agreements).
[33] Regarding resale Ms Lim submits the plaintiff has provided no evidence of marketing materials, listing information with real estate agents, evidence of marketing the properties, or of sale methods.
[34] It is submitted therefore there is a lack of sufficient evidence of the plaintiff’s attempts to mitigate its losses. Also counsel calls into question why the resale agreements provided for extended settlement dates. Therefore and because of the extended settlement period another 272 days of interest has been added to the plaintiff’s calculation of damages – by which penalty interest accrues on both resale agreements in total in the sum of more than $250 per day.
[35] Ms Lim invites the Court to calculate losses (including resale commission, resale legal costs and outgoings) by restricting interest to that period from 22 May 2009 (settlement date) to 25 August 2009 (the date of the specific performance application i.e. 95 days); and from 20 April 2010 (the date the first development
property was resold) to 20 and 21 September 2010 (the dates of the resale agreements for Lots 2 and 25): i.e. 153 days and 154 days.
[36]By Ms Lim’s calculations, claims for interest on Lot 2 should be limited to
$32,745.95 and on Lot 25 to $31,593.12.
Conclusions
[37] It is the defendant’s position that interest should be payable from that date when she should have settled her purchases until the date the plaintiff filed its specific performance application, and for that period between when the development lots were offered for sale and when the resale agreements were signed for Lots 2 and 25.
[38] It is the plaintiff’s position that penalty interest be paid between the dates when the initial agreement should have settled, and that date when the resale agreements were settled. The plaintiff’s calculations (as per scenario one) include that period when specific performance proceedings were filed and after that when the properties were relisted for sale and were resold – but the defendant’s calculations do not consider interest is payable for those periods.
[39] Should then the plaintiff have pursued specific performance proceedings despite advice given by Sneddon & Associates on 9 June 2009 that the defendant had been unable to obtain finance but that due to current circumstances she would not in any event be able to proceed with the purchase.
[40] It is the Courts view that interest ought to be payable by the defendant as per Mr Fisher’s calculations provided in terms of his scenario one: i.e. between the date when settlement was due on the first agreements until the settlement date of the resale agreements.
[41] The Court does not accept that the plaintiff’s failure to obtain recovery by specific performance contributed unnecessarily or unfairly to losses which have accumulated as a result.
[42] Notwithstanding Mr Sneddon’s advice it was not clear whether the defendant was unable or simply unwilling to perform her purchase obligations. The specific performance proceedings were commenced within two and a half months of the sale settlement dates and within two months thereafter decrees of specific performance had been obtained. The defendant was served personally with notice of those proceedings.
[43] The Court agrees that the specific performance process provided at that time the quickest and most cost effective way of ascertaining the reason why the defendant had failed to settle. The proceeding was not opposed. Nor after entry of judgment did she respond to communications with her solicitors. The plaintiff was not able to serve copies of the Court’s orders upon the defendant. Enquiries indicated the defendant may have left New Zealand.
[44] The evidence is that the plaintiff attended promptly to market the properties for resale – indeed along with a large number of other lots from the same development.
[45] It was reasonable at this time for the plaintiff to believe there was no prospect of recovery from the defendant and so that it was in the plaintiff’s interests to focus upon obtaining the best possible prices for resale.
[46] These events occurred in the outcome of a global financial crisis and a collapse of New Zealand’s financial market. Evidence has been provided that the defendant’s property lots comprised two of 29 listed with not less than five real estate agencies for marketing and sale. Mr Muldoon deposed the resale prices obtained could only been achieved by agreeing to deferred settlements and this because the only demand for sections at that time came from builders and developers who were prepared to pay a high price for deferred settlement along with a right to go into early possession to enable them to build a house on the section prior to settlement.
[47] Bearing in mind the financial circumstances at the time, and the absence of any evidence at all disputing Mr Muldoon’s assessment, the Court accepts the
defendant’s lots were marketed appropriately and achieved the best prices reasonably obtainable at the time.
[48] Regarding clause 7.4.3 it is clear that clause does not provide a limit or restriction to claims of losses following a resale of a property.
[49] The Court bears in mind the need to be flexible in order to do justice on the individual facts of the case. However that flexibility operates only to make the assessment fair to the innocent party, in this case the plaintiff. Therefore the Court’s objective is not to shift from that assessment to engage any date for the calculation of loss because that benefits the defaulting party – the defendant.
[50] It is not a court’s objective to compensate for loss which would not have occurred if the plaintiff had not taken reasonable steps to mitigate its loss. Also the defendant bears a duty to prove the plaintiff failed to act appropriately by initially seeking specific performance, and latterly by its course of conduct in achieving resale of the defendant’s lots. In the Court’s view the defendant has not satisfied that burden. Indeed there is a complete lack of evidence to assist submissions advanced on her behalf.
Judgment
[51] The Court has reviewed and accepts the plaintiff’s claims as it does the plaintiff’s calculations for payment rates to that time when on sale agreements were settled.
[52]Accordingly judgment will be entered against the defendant in the sum of
$240,522.65 inclusive of interest at the Judicature Act 1908 specified rate to 9 December 2015.
[53] The defendant shall pay the plaintiff’s costs on a 2B basis for which purpose the Court certifies hearing time of half a day.
Associate Judge Christiansen
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