Arranmore Developments Limited v Zhou
[2017] NZHC 507
•20 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-005440 [2017] NZHC 507
BETWEEN ARRANMORE DEVELOPMENTS
LIMITED Plaintiff
AND
JIANMING ZHOU Defendant
Hearing: 28, 30 November and 1 December 2016 Appearances:
M J Fisher and K J Ng for Plaintiff
H M Lim and P Oh for DefendantJudgment:
20 March 2017
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 20 March 2017 at 3.00pm
pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar Date………………………
Solicitors:
Daniel Overton Goulding, Auckland
Forest Harrison, Auckland
Counsel:
M J Fisher, Auckland
ARRANMORE DEVELOPMENTS LIMITED v ZHOU [2017] NZHC 507 [20 March 2017]
Introduction
[1] In 2008 the plaintiff, Arranmore Developments Ltd, acquired a sub-divisional development in East Tamaki known as Point View Park and took assignments of the existing sale and purchase agreements over lots in the subdivision. The agreements relating to Lots 7 and 22 showed the purchaser as Jianming Zhou. Ms Zhou denies signing the agreements and denies authorising anyone else to do so on her behalf. She refused to settle the purchases and the lots were eventually sold for less than the original sale prices.
[2] Arranmore sues Ms Zhou for damages arising from the resales. It does not assert that Ms Zhou signed the sale and purchase agreements. Rather, it asserts that Ms Zhou authorised her daughter, Qiyuan Zhang, and/or Ms Zhang’s boyfriend, Pu Wang, to act as her agents to purchase the properties or, alternatively, that she ratified the contracts.
[3] Ms Zhou denies authorising anyone to sign the agreements on her behalf and denies ratifying the agreements later. She also challenges the quantum of Arranmore’s claim.
The facts
[4] Ms Zhou is a Chinese national. She cannot speak or read English. In 2007 she was living in China. At that time Ms Zhang (a permanent resident) was living with Mr Wang in Takapuna. Ms Zhou visited her daughter sometimes and stayed with the couple. She arrived for a visit on 3 December 2007.
[5] Sometime in late 2007 Ms Zhang and Mr Wang viewed the subdivision in East Tamaki, then owned by Prema Developments Ltd. Mr Wang signed sale and purchase agreements in relation to two lots, naming himself as the purchaser. Ms Zhang signed sale and purchase agreements in relation to two other lots, naming herself as the purchaser. The agent who obtained the agreements, Mr Ha, has no recollection of meeting Mr Wang or Ms Zhang or of the transactions that followed.
[6] Sale and purchase agreements were also signed in respect of two further lots, Lots 7 and 22. The purchaser under each agreement was named as Jianming Zhou and the purchasers’ signatures are in Chinese characters. But on the Lot 7 agreement the signatures appear different on each copy. Mr Ha did not notice the discrepancy. I infer from Mr Ha’s evidence that his usual practice is to obtain a purchaser’s signature on two original agreements for each lot. Once counter-signed the purchaser and the vendor would each have an original agreement. It is, however, clear that Mr Ha never met Ms Zhou. In 2007 it was not his practice to ask purchasers for identification. There was no evidence as to the circumstances in which he was given the agreements for Lots 7 and 22.
[7] The signatory on the Lots 7 and 22 agreements must have been one of Ms Zhou, Ms Zhang and Mr Wang. However, Ms Zhou denies signing either of the agreements and that possibility was not pursued by Arranmore. Ms Zhang denies signing the agreements. Mr Wang (from whom Ms Zhang is now separated) did not give evidence. No handwriting expert was called. I cannot make any finding as to who signed the agreements.
[8] Mr Wang and Ms Zhang engaged an Auckland solicitor, David Sneddon to act on the purchases. Mr Sneddon had acted for Mr Wang on his purchase of the Takapuna property. Mr Sneddon recalled the couple coming to see him, but has limited recollection of the details. He recalled that Ms Zhou was not with them and described the situation as Ms Zhang instructing him on behalf of her parent, though he did not know whether it was her mother or father. He has never met or spoken to Ms Zhou and took no steps to confirm her knowledge of the transaction.
[9] Mr Sneddon sent letters to Ms Zhou, Mr Wang and Ms Zhang in similar terms, all to the Takapuna address. In his letter to Ms Zhou he referred to “our recent discussions” and the fact that he had received the sale and purchase agreements for Lots 7 and 22. As I have noted, however, Ms Zhou does not read or speak English and it was not in dispute that the discussions to which Mr Sneddon was referring were those that he had with Mr Wang and Ms Zhang.
[10] On 18 December 2007 Mr Sneddon received funds to cover the $1,000 deposit in respect of each of the sale and purchase agreements. They were recorded in his trust account records as being received from “Pu Wang and Qiyuan Zhang”.
[11] The purchasers had until 18 December 2007 to satisfy the solicitor’s approval
condition. Mr Sneddon requested confirmation of that in his advice of 18 December
2007. Mr Wang provided Mr Sneddon with a handwritten note dated 18 December
2007 that said:
I am Pu Wang authorise you to satisfy the Purchaser solicitor condition …
On behalf of Jianming Zhou and Qiyuan Zhang.
[12] There was, however, nothing from Ms Zhou to confirm that Mr Wang was authorised to speak for her on this or any other matter. Nevertheless, Mr Sneddon notified the vendor’s solicitors that the solicitor’s approval condition for all of the agreements was satisfied.
[13] In January 2008 the balance of the deposit for each agreement fell due. At the time Ms Zhang had over $500,000 in one of her bank accounts, funds that had come mostly from her parents for living expenses. Ms Zhang paid the deposits on her and Mr Wang’s agreements. The deposit for Mr Wang’s sections totalled
$67,000 and Ms Zhang drew a cheque for this amount on 17 January 2008. The deposits for Ms Zhang’s sections totalled $68,400 and she drew cheques for $68,000 and $400 on 21 January 2008. These were sent to Mr Sneddon.
[14] The deposits payable for Lots 7 and 22 totalled $68,400. On 17 January 2008 (with Ms Zhang’s assistance) Ms Zhou opened a bank account at the ASB. The same day Ms Zhang transferred the sum of $68,400 from her account to the bank account that Ms Zhou had just opened. Ms Zhou then drew a bank cheque on her new ASB account payable to Sneddon & Associates’ trust account for $68,400. Sneddon & Associates issued a trust account receipt to her dated 21 February 2008 acknowledging receipt of $68,400 for “deposit re purchase Lots 7 and 22 Flatbush School Road”.
[15] The relationship between Mr Wang and Ms Zhang subsequently ended. Ms Zhang took over the two agreements that Mr Wang had entered into through Mr Wang nominating her as the purchaser.
[16] In mid-2008 Arranmore advised Mr Sneddon that it had taken an assignment of the sale and purchase agreements under which Ms Zhou, Ms Zhang and Mr Wang were purchasers. Subsequently, Arranmore’s solicitors advised about progress towards title issuing.
[17] As is well known, the global financial crisis in late 2008 triggered financial uncertainty in New Zealand. Mr Sneddon wrote to Ms Zhou care of Ms Zhang’s new address in early March 2009 providing a timeframe for anticipated settlement. Ms Zhang replied by email on 24 March 2009:
My parents and me decided to refuse the settlement of the purchases and nowadays market. And we known that the deposit can be lost. We want to let you know this decision and please give us some advices that may helps minimum the lose or prevents some possible legal problems [sic].
[18] Mr Sneddon immediately wrote back. His letter was addressed to both Ms Zhang and Ms Zhou and set out the consequences of failing to settle the purchases, including the risk of exposure to a claim for damages for loss on any re- sale of the property.
[19] In May 2009 Arranmore served settlement statements in respect of Lots 7 and
22 but Ms Zhou did not settle. In June 2010 Arranmore obtained orders for specific performance in respect of Lots 7 and 22. It was unable to locate Ms Zhou and in October 2010 obtained orders rescinding the orders for specific performance. It then re-sold Lots 7 and 22 for less than the original prices.
Is Ms Zhou liable under the contracts?
[20] Mr Fisher, for Arranmore, argued that the general circumstances justify an inference that Ms Zhang and/or Mr Wang were authorised to enter into the agreements on behalf of Ms Zhou. The circumstances on which Arranmore specifically relies are: Ms Zhang is Ms Zhou’s daughter and in later unrelated transactions did specifically authorise her daughter to act for her; Ms Zhang’s
relationship with Mr Wang; Ms Zhou was in New Zealand staying with Ms Zhang when the agreements were entered into; payment of the deposits for Lots 7 and 22 came from Ms Zhou’s account; the funds for all the deposits had come originally from Ms Zhang’s parents; Ms Zhang’s advice to Mr Sneddon regarding the decision by her and her parents not to settle the agreements.
[21] Ms Lim, for Ms Zhou, did not accept that these circumstances did justify the inference that Arranmore invited. In particular, she argued that the later instances in which Ms Zhou gave Ms Zhang specific authority to act for her (written authority in
2012 to operate a bank account and grant of a power of attorney in 2013) tended to show that if Ms Zhou wished to enter into property transactions with her daughter (or anyone else) as her agent, she would take steps to record that formally.
[22] The circumstances surrounding the signing of the sale and purchase agreements over Lots 7 and 22 (to the extent that they are known) give rise to a suspicion that Ms Zhou authorised Ms Zhang to sign the sale and purchase agreements on her behalf. But I cannot be satisfied to the requisite standard that this is what happened. In particular, given that Ms Zhou was staying with Ms Zhang, I cannot see why she would not have signed the sale and purchase agreements herself, had she wished to participate in these purchases. I also think that the later incidents of her formally authorising Ms Zhang to act on her behalf suggest she was unlikely to authorise Ms Zhang to act without some formal record, particularly in relation to something significant such as the purchase of property. As a result, I am not satisfied that the evidence does show actual authority granted by Ms Zhou to either Ms Zhang or Mr Wang.
[23] I turn, then, to consider the plaintiff’s assertion of ratification. The principles of ratification are well settled. In Clark v Libra Developments Ltd1 the Court of Appeal accepted the following statement as a general statement of the principle to be
applied:2
1 Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA) at [164].
2 Halsbury’s Laws of England (4th ed, 1973) vol 1 Agency at [765]. See also Peter Watts and
FMB Reynolds Bowstead and Reynolds on Agency (20th ed, Sweet & Maxwell, London, 2014) at
2–069.
Ratification must be evidenced either by clear adoptive acts or by acquiescence equivalent thereto. The act or acts of adoption or acquiescence must be accompanied by full knowledge of all the essential facts, and must relate to a transaction to which effect can be given, unless the principal shows an intention to take all risks, but it is not necessary that he should know the legal effect of the act ratified.
[24] The only act that could amount to ratification was payment of the deposits by way of the bank cheque drawn on Ms Zhou’s ASB account. But Ms Zhou claims that she knew nothing of the agreements at that time. She said that she understood the money was a loan to Mr Wang for his car business; that Ms Zhang had asked her to make the loan because she was worried about relationship property issues if she made the loan herself. Ms Zhou said she expected that she would get the money back in a few months but this did not happen and eventually Ms Zhang told her that the money was unrecoverable.
[25] Ms Zhang confirmed that this is what she had told her mother but acknowledged that it was not the truth. She said that Mr Wang had asked for the money to pay the deposits on his agreements and that she did not want to lend to him directly because they were in a relationship. She also maintained in cross- examination that she understood that she was only paying for the deposit on four sections (two for her and two for Mr Wang) and never realised that there were six sections involved.
[26] I do not accept Ms Zhang’s claim that she thought there were only four sections involved. Ms Zhang might have been young and inexperienced in property transactions but she had been living independently for some years and managing very large sums of money. I do not accept she was entirely naïve. She had gone with Mr Wang to talk to Mr Sneddon and told him that her parent was a purchaser of two of the sections. She would have received the letters that Mr Sneddon wrote on
18 December 2007 to both her and her mother regarding the agreements. She had arranged the payment of four deposits for her and Mr Wang’s agreements even before she arranged for Ms Zhou to open the ASB account for the payment of the two remaining deposits.
[27] However, although I am in no doubt that Ms Zhang knew that the bank cheque was to be used for the agreements that named Ms Zhou as purchaser, it does not follow that Ms Zhou also knew those facts. Because Ms Zhou did not read or speak English anything she knew about the agreements could only have come from Ms Zhang or Mr Wang. There was, of course, no evidence from Mr Wang and Ms Zhou did not mention any conversations she had with him. Ms Zhou and Ms Zhang were both adamant that Ms Zhang had not told Ms Zhou about the agreements.
[28] Whilst I have doubts about Ms Zhang’s credibility in relation to some aspects of her evidence I am not satisfied that she was lying about what she told her mother. Whilst the circumstances raise a suspicion that Ms Zhang told her mother about the agreements for Lots 7 and 22 in her name and that the bank cheque was in payment of the deposits on those agreements they do not amount to proof on the balance of probabilities that Ms Zhou understood the essential facts regarding the sale and purchase agreement or that she intended to take whatever risks were associated with agreeing to purchase Lots 7 and 22.
Damages
[29] Given my conclusion regarding liability it is, strictly, unnecessary to consider the issue of damages. However, I do so briefly, for completeness.
[30] Arranmore calculated its damages claim on the basis of the purchase price under each sale and purchase agreement less the resale price, the deposit and a credit for interest on the deposit. For Lot 7 that produces a provisional figure of
$16,284.79 and for Lot 22 a provisional figure of $13,743.95. However, the loss claimed in respect of Lot 7 is $126,907.64 and for Lot 22 $121,855.91. Most of these figures ($100,220.71 for Lot 7 and $96,308.29 for Lot 22) relate to interest on the balance payable under the settlement statements calculated on the basis of penalty interest at 15 per cent from 22 May 2009 to 20 June 2011, being the date of resale.
[31] Ms Zhou challenges Arranmore’s claim on the basis that (1) having obtained orders for specific performance following Ms Zhou’s failure to settle in 2009, Arranmore is now precluded from claiming damages from the date originally
required for settlement and (2) Arranmore is not entitled to claim interest on the shortfall because the resales were settled more than a year after the date for settlement under the contract and (3) Arranmore failed to take steps to mitigate its loss.
[32] Clause 7.4.1 of the sale and purchase agreements provides that:
Without prejudice to any other rights or remedies available to the Vendor at law or equity the Vendor may:
(a) sue the Purchaser for specific performance; or
(b) cancel this agreement by notice and pursue either or both of the following remedies, namely;
(i) forfeit and retain for the Vendor’s own benefit the deposit paid by the Purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii) sue the Purchaser for damages.
[33] Clause 7.4.3 provides that:
The damages 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 shall not be limited to) any loss incurred by the Vendor on any bona fide re- sale contracted within one year from the date by which the Purchaser should have settled in compliance with the settlement notice. The amount of that loss may include:
(a) interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such re-sale; and
(b) all costs and expenses reasonably incurred in any re-sale or attempted re-sale; and
(c) all outgoings (other than interest) on or maintenance expenses in respect of the property from the settlement date to the settlement of such re-sale.
[34] Settlement of both agreements was due on 22 May 2009. Although Mr Sneddon advised Arranmore in June 2008 that Ms Zhou would not be settling the purchase, it was not until 17 June 2010 that Arranmore sought and obtained orders for specific performance against Ms Zhou, and still later, on 20 September 2010, that it entered into a conditional agreement for the resale of Lots 7 and 22 on terms that deferred settlement until 20 June 2011.
[35] The opening words of cl 7.4.1 “without prejudice to any other rights or remedies available to the Vendor at law or in equity” confer on a vendor the rights to which it would be entitled at law and equity in addition to its contractual rights. At common law a vendor who had obtained an order for specific performance but then later abandoned that course is not precluded from seeking damages. In Johnson v
Agnew Lord Wilberforce said:3
In my opinion, the argument based on irrevocable election … is unsound. … It is easy to see that a party who has chosen to put an end to a contract by accepting the other party’s repudiation cannot afterwards seek specific performance. This is simply because the contract has gone – what is dead is dead. But it is no more difficult to agree that a party, who has chosen to seek specific performance, may quite well thereafter, if specific performance fails to be realised, say, “Very well, then, the contract should be regarded as terminated.” It is quite consistent with a decision provisionally to keep alive, to say, “Well this is no use – let us now end the contract’s life.” A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract – what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under control of the court which control involves the power, in certain events, to terminate it. If he makes an election at all, he does so when he decides not to proceed under the order for specific performance, but to ask the court to terminate the contract.
[36] Arranmore is therefore not precluded from claiming damages by reason of having previously obtained and then had set aside an order for specific performance. The question then becomes the measure of damages to which it is entitled. Clause
7.4.1(b) confers the right to both forfeit and retain the deposit and/or sue for damages. If damages are sought cl 7.4.3 makes it clear that damages that can be claimed are those at both common law or in equity and also specific damages conferred by the terms of the contract.
[37] At common law the measure of damages in a case where the market value of the property has diminished since cancellation of the contract is the difference between the contract price and the resale price, together with any consequential losses that are recoverable, provided there has been a resale within a reasonable time. In Williams v Kirk Cooke P said:4
It seems to me that allowance to the vendor of a reasonable time to resell is in accordance with the usual approach of the law to questions of time. The
3 Johnson v Agnew [1980] AC 367 (HL) at 398.
4 Williams v Kirk [1988] 1 NZLR 452 (CA) at 457.
device of treating resale price within a reasonable time as evidence of market value at an earlier date will not do justice in all cases. There may be an intervening drop in value, yet the vendor may have acted reasonably and indeed prudently in not selling instantly. So, where there has in fact been a resale within a reasonable time, I would measure the vendor’s damages as the difference between the contract price and the re-sale price, together with any consequential losses that are recoverable. At least that should be the measure in the absence of special circumstances. … I add the caveat only because it is as well to be wary about general rules in the field of damages.
[38] The additional losses conferred by the contract are specified to include “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”. That loss is said specifically to include “interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale”.
[39] In my view, cl 7.4.3 limits the vendor’s right to recover interest at the penalty rate to cases involving bona fide resales within a year of the original settlement date. This is no doubt to protect purchasers from the accumulation of excessive penalty interest. In this case the resale on Lots 7 and 22 occurred after the expiration of a year from the original settlement date. In those circumstances I do not consider that Arranmore had any contractual right to claim interest at the penalty rate.
[40] Finally, Ms Lim, for Ms Zhou, argued that Arranmore had failed to mitigate its loss by failing to accept the purchaser’s repudiation of the contract and immediately attempting to resell and by reselling on terms that allowed a nine month settlement period (penalty interest accounting for some $70,000 during this period). In particular, as Ms Lim pointed out in cross-examination, there was a period between June 2009 and April 2010 where there was no specific evidence of efforts to market the properties. Arranmore’s property consultant, Mr Muldoon, simply gave general evidence of advertising sections on Trade Me and contacting real estate agents and prospective purchasers but could not be sure of the dates.
[41] This issue is effectively subsumed in the measure of damages assessment discussed above because it is inherent in the question of whether the delay in reselling was reasonable. I accept Ms Lim’s submission regarding the lack of specific evidence as to marketing efforts. However, Arranmore was re-selling
sections in the midst of the global financial crises and judicial notice can be taken of the difficulties involved in doing so. The burden of proving a failure to mitigate lies on the defendant and, in the circumstances, I am not satisfied that there was such a failure.
Summary and result
[42] Arranmore has failed to discharge the onus on it of proving that Ms Zhou authorised Ms Zhang or Mr Wang to sign the agreements for Lots 7 and 22 on her behalf. Nor has it proven that, in paying the deposit on the two sections, Ms Zhou was either ratifying the contracts with full knowledge of the essential facts or that she was taking the risk of what the contract involved. This is because there is simply inadequate evidence as to what Ms Zhou, who did not live in New Zealand and did not read or speak English, actually knew about the purchases. Arranmore’s claim therefore fails.
[43] Had my view on liability been different, I would have concluded that Arranmore could sue only for the difference between the contract price and the resale price together with consequential losses such as commission fees. The late penalty interest was not recoverable under the terms of the contract.
[44] Counsel may address the issue of costs by memoranda filed on behalf of
Ms Zhou within 14 days, on behalf of Arranmore within 21 days and on behalf of
Ms Zhou in reply within 28 days.
P Courtney J
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