Arranmore Developments Ltd v Zeeland Developments Ltd (No 2) HC Auckland CIV 2009-404-4342
[2010] NZHC 1075
•15 June 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-004342
BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND ZEELAND DEVELOPMENTS LTD Defendant
CIV-2009-404-004526
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND JAISON PAUL AVIRAPPATTU Defendant
CIV-2009-404-004537
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND AKHIL CHAUDHARY Defendant
CIV-2009-404-005439
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND SHANE ANJAY NARAYAN Defendant
Hearing: 4 June 2010
Appearances: M Fisher and K Muston for Plaintiffs
S Grant and E A James for Defendants
Judgment: 15 June 2010 at 5:00 pm
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 15 June 2010 at 5:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Date: ………………….
Daniel Overton & Goulding (D Daniel), PO Box 13017, Onehunga, Auckland
Brennan & Brown-Haysom (G Brown-Haysom), PO Box 200-025, Manukau
M Fisher, PO Box 3236, Shortland Street, Auckland
S Grant, PO Box 4338, Auckland
ARRANMORE DEVELOPMENTS LTD V ZEELAND DEVELOPMENTS LTD HC AK CIV-2009-404-
004342 15 June 2010
[1] In my judgment of 19 May 2010, I held that there was to be an order against
Zeeland Developments Ltd for specific performance of the agreements of
10 December 2007 and it was to pay costs. I also held that there would be orders for specific performance against Messrs Avirappattu, Chaudhary and Narayan but that in each case the sum of $26,500 was to be secured to await the outcome of their claims for misrepresentation about the start of building the town centre at Flat Bush.
[2] I directed that the matter was to be called again on 28 May 2010 for final orders to be determined up and for costs to be fixed.
[3] When the matter was called on 28 May 2010, the plaintiff advised that before I gave my judgment, it had sent notices to Messrs Avirappattu, Chaudhary and Narayan cancelling their agreements and the plaintiff had entered into fresh agreements with third parties to sell the lots that those defendants had agreed to buy. The plaintiff proposed that its proceedings against these defendants continue as claims for damages, to be heard in the District Court at Manukau. The plaintiff tendered a draft order for specific performance for Zeeland Developments Ltd.
[4] I had also asked the parties to consider what provision should be made, in case the plaintiff later wanted to cancel any agreements after an order for specific performance had issued.
[5] The defendants said that they were taken by surprise by the cancellation of the Avirappattu, Chaudhary and Narayan agreements. Mrs Grant said that some of her clients were now considering complying with the orders for specific performance. In response, the plaintiff indicated that it would see whether it could persuade the people who were to buy the Avirappattu, Chaudhary and Narayan lots to buy other sections in the subdivision instead.
[6] Clearly, the matter was not at a stage where final orders could be made and I adjourned the matter for hearing on 4 June 2010. This decision follows arguments I heard from the parties on 4 June 2010.
Avirappattu
[7] During the hearing, I was advised that Mr Avirappattu had settled with the plaintiff to the satisfaction of both parties. The parties did not seek any further orders (including costs), for the Avirappattu matter. That claim is accordingly struck out.
Zeeland Developments Ltd
[8] I was advised that Zeeland Developments Ltd is considering appealing. I was not asked to make any orders in respect of any proposed appeal. If there is to be a stay after an appeal is filed, that will have to be the subject of another application.
[9] The plaintiff’s draft order for specific performance by Zeeland Developments Ltd provided for settlement to take place on 11 June 2010 at 10:00 am. If matters had been able to be resolved on 28 May 2010, that may have been an appropriate time within which Zeeland Developments Ltd could be expected to organise its finances for settlement. However, the adjournment makes it appropriate to put the settlement date back. I direct that settlement is to take place on Friday, 2 July 2010.
[10] For Zeeland Developments Ltd, Mrs Grant submitted that a longer settlement period should be provided. She said that her client would need much more time to see if it could arrange finance. She submitted that an order for specific performance should not be made if her client could not comply with it.
[11] Zeeland Developments Ltd did not oppose the application for specific performance on the grounds of impossibility. No evidence on the matter of impossibility is before the Court. If Zeeland Developments Ltd is unable to raise funds to comply with the order for specific performance, the plaintiff may find that the order for specific performance is fruitless. Instead it may wish to cancel the agreements for sale and purchase with Zeeland Developments Ltd. In the meantime, the possibility that Zeeland may not be able to comply with the order is not a reason for withholding the order for specific performance now.
[12] If Arranmore does choose to cancel following default by Zeeland in complying with the order for specific performance, the question arises how cancellation should be carried. If vendor plaintiffs wish to cancel an agreement for sale and purchase after they have obtained orders for specific performance, the standard approach on the authorities is that they must apply to the Court for an order allowing them to cancel. Mrs Grant cited these authorities for the proposition:
a) Johnson v Agnew [1980] AC 367 (HL) at 394 and 399;
b) Hutton v Palmer [1990] NZLR 260 (CA);
c) Erceg v Balenia HC Auckland CIV-2009-404-003941, 30 November
2009;
d) D W McMorland Sale of Land (2nd ed, Cathcart Trust, Auckland,
2000) at ch 12.34;
e) P Blanchard (ed) Civil Remedies in New Zealand (Thomson Brookers, Wellington, 2003) at 359.
[13] The theory behind this approach is that the making of a decree is a declaration by the Court that the contract is lawful and binding and should be performed. Accordingly, its future is for the Court to determine. While a contract remains in effect and is not merged in the order for specific performance, the subsequent control of the matter is said to be exercised on equitable principles: Johnson v Agnew, per Lord Wilberforce at 399F.
[14] There may have been two practical reasons for requiring a vendor plaintiff to come back to Court to seek an order allowing cancellation. The first is that the Court has made an order for specific performance of an agreement. The defendant is required to comply with the order. As obligations under an agreement for sale and purchase are inter-dependent, the purchaser cannot comply without the vendor also carrying out its obligations under the agreement. If the vendor purports to cancel,
without first getting the order out of the way, he will be putting the defendant, and possibly himself, in breach of the order.
[15] If an order can be drafted to discharge the parties from compliance in given events, then there seems to be no reason why an order cannot allow for cancellation of the agreement without further reference back to the Court.
[16] The second basis is that, at least in English practice, the Court may handle the implementation of the order in a practical way. Atkins encyclopaedia of court forms in civil proceedings (2nd ed, vol 37, Butterworths, London, 1990) indicates that the Court may, if required, appoint conveyancing counsel to complete the conveyancing (at page 31, section 26) and if the vendor seeks judgment for the purchase price following default by the purchaser, the vendor is required to lodge the documents of
title with the Court (at page 33 section 28).
[17] Those practical considerations no longer apply in New Zealand under the E- dealing regime under the Land Transfer Act 1952. While the parties may request directions from the Court, the Court will not itself be directly involved in the completion of a conveyancing transaction.
[18] With those practical issues put to one side, the claim that the Court acts on equitable principles can be addressed.
[19] The rules for cancellation of an agreement for sale and purchase remain the same whether or not an order for specific performance has been made. Before a vendor has obtained a decree for specific performance, he may be entitled to cancel for fresh breach or repudiation by the purchaser, even if the vendor has earlier affirmed the contract. J W Carter Breach of Contract (2nd ed, Lawbook Company, North Ryde, 1991). puts the rule this way at 422:
The fact that a party to a contract has lost the right to terminate the performance of the contract for breach or repudiation does not prevent that party from subsequently electing to terminate the performance of the contract in reliance on a breach or repudiation giving rise to a fresh right to terminate.
[20] In New Zealand, there is a fresh right to cancel if the plaintiff repudiates or breaches so that the conditions for cancellation under s 7 of the Contractual Remedies Act 1979 are satisfied: Jolly v Palmer [1985] 1 NZLR 658 (CA) at 664, Chatfield v Jones [1990] 3 NZLR 285 (CA) at 296.
[21] A vendor obtains an order for specific performance against a purchaser after the purchaser has defaulted under the agreement. When the Court issues an order for specific performance, the Court has found that the vendor is ready, willing and able to perform its obligations under the agreement. Any questions as to the validity of the agreement or the vendor’s ability to give good title can no longer be in issue once the order for specific performance has been given. If the vendor later wishes to bring the agreement to an end, with one exception, the only issue that can arise is whether the purchaser has committed a fresh breach of contract or has repudiated and whether these give rise to a right to cancel under s 7 of the Contractual Remedies Act. If the matter is brought before the Court, the Court can only be required to determine whether a right to cancel has arisen under s 7 of the Contractual Remedies Act or whether there is any other good legal reason to hold that contract law does not permit the vendor to cancel. For this inquiry, the scope for the application of “equitable principles” is extremely confined. At most they can apply only to the right to cancel under contract law. Subject to one exception, there is no general equitable discretion that allows the Court to grant or withhold permission to cancel. Instead, the Court has only to declare whether the exercise of a power to cancel is valid.
[22] The exception is the Court’s power to give relief against a vendor’s cancellation of an agreement for sale and purchase under s 33 of the Property Law Act 2007, when the purchaser is in possession of the property under the agreement. That discretionary power is saved under s 15(h) of the Contractual Remedies Act. It does not apply in these cases.
[23] Subject to some immaterial exceptions, s 15(a) of the Contractual Remedies Act provides that nothing in the Act shall affect the law relating to specific performance. That does not mean that the law of specific performance has its own special rules for cancellation of contracts. After all, in this case, the defendants
argued for cancellation under the Contractual Remedies Act, not for rescission under the law before 1979. Instead, the saving of the law as to specific performance allows for the continued application of the Court’s discretion to grant or refuse specific performance. The refusal of the Court to order specific performance may mean that the only viable remedy left to a vendor lies in cancellation and a claim for damages. But after the Court orders specific performance, cancellation is governed by the Contractual Remedies Act and (where applicable) s 33 of the Property Law Act, not by equitable principles.
[24] Research has not shown any case where the Court has refused a vendor’s application to cancel after a purchaser has defaulted following an order for specific performance.
[25] In the vast number of cases, a purchaser will not be able to resist a vendor cancelling an agreement, once the purchaser has failed to settle in terms of the Court’s order for specific performance. It would be an unusual case where a purchaser who has defaulted under the agreement, so as to lead to an order for specific performance, and who has further defaulted in complying with the order, could successfully argue that, faced with these defaults, the vendor is not entitled to cancel but must now be held to the order for specific performance because the purchaser is now ready, willing and able to settle.
[26] If that rare case should occur, the purchaser resisting cancellation should have the opportunity to test the vendor’s exercise of his right to purchase. He should be given the opportunity to place the matter before the Court for its consideration. But in the general run of cases where the purchaser has defaulted in complying with an order for specific performance, the vendor should be free to exercise his right to cancel, without first having to come back to Court to require the Court to rubber- stamp the vendor’s cancellation of the agreement. Requiring the parties to return to Court in these circumstances only creates unnecessary work and expense for the parties and the Court.
[27] Accordingly, the matter can be addressed by providing that the order for specific performance need not be carried out, on the vendor exercising a right to
cancel, unless the purchaser, in the rare case, applies to the Court for an order resisting the exercise of the right to cancel. The provision for this case is:
After the date fixed for settlement in this order, if the plaintiff shall give the defendant a written notice of its intention to cancel an agreement within 12 working days and further gives a notice of cancellation on the expiry of the
12 working days, the parties shall not be required to comply with those parts of this order relating to that agreement, unless the defendant files an
application in Court within the 12 working days of receiving the first notice
and the application seeks an order declaring that the plaintiff is not entitled to cancel that agreement.
[28] The reason for providing this is pragmatic. The rules for cancellation of agreements are generally well-known. Conveyancing lawyers can apply them with certainty. In most cases, cancellation by the vendor following ongoing default by the purchaser will not be contestable and will not require the Court’s attention. It is inefficient to require all cases to be brought before the Court for consideration. In the rare case where a purchaser disputes a vendor’s cancellation, he or she will be able to test the matter in court by making a prompt application.
[29] In Pegasus Town Ltd v Wong & Ors HC Christchurch CIV 2008-409-2087,
15 March 2010, Associate Judge Osborne considered the authorities fully and held that a vendor must apply for the Court’s approval of cancellation of the agreement. In the cases before him, the orders for specific performance had apparently not allowed for later cancellation. In my respectful view, no principle is disturbed by including such a provision. At [8] of his judgment, Associate Judge Osborne referred to an article by D Jackson, “Chimerical Heresies” (1981) 97 LQR 26 which gave as examples of potential injustice situations where in the light of an order, the purchaser has incurred expenditure or otherwise acted to his detriment. In New Zealand, apart from cases where the purchaser has entered into possession under the agreement, any injustice may be better addressed by an award under s 9 of the Contractual Remedies Act rather than by refusing to recognise a vendor’s right to cancel following ongoing default by the purchaser.
[30] I also note that in Alexander v Gitmans CA11/04, 17 June 2004 at [21], the Court of Appeal considered that the view that only the Court can terminate a contract was open to question.
Chaudhary and Narayan
[31] Two issues arose with the terms of the orders for specific performance for these defendants:
a) The amount that should be withheld from the purchase price for the defendants’ defences of equitable set-off for misrepresentation; and
b) How security was to be provided.
[32] On the first issue, the difference between the parties was whether the purchasers should have to give security only for the sum of $26,500, or whether they should also have to give security for interest on that sum from the initial settlement date (22 May 2009) to the date ordered by the Court for completion of the agreement. The defendants’ argument was that the plaintiff was unable to insist on payment of default interest, because at the date of settlement, the defendants had a potential right of deduction for the alleged misrepresentation. According to the defendants, the plaintiff had been in error in insisting on settlement in full without deduction and in issuing a settlement notice requiring payment of the purchase price in full.
[33] The difficulty with this argument is that it is asking the Court to make a decision now on the correctness of the defendants’ defence, something that I was not able to do in the context of the summary judgment application. At the moment, the equitable set-off defence is simply an arguable defence. Whether the defence is sound has still to be determined. The provision in the order for securing a sum to await the outcome of a defended hearing is an interim arrangement which needs to allow for a range of outcomes: from the defendants establishing the amount of their alleged deduction in full, to the plaintiff establishing that the defendants in fact have no defence.
[34] If the plaintiff establishes that there is no equitable set-off, the plaintiff is entitled to the benefit of all the contractual provisions giving it a remedy when the purchaser has defaulted in paying the full purchase price on settlement. That
includes the right to interest under the agreements for sale and purchase. Accordingly, the appropriate interim arrangement is that the amount that should be secured is the sum of $26,500, plus interest on that sum at 15% from 22 May 2009 to
2 July 2010.
[35] On the provision of security, the plaintiff proposed that the sum be held by the plaintiff’s solicitors as stakeholders in their trust account to await final determination. On the other hand, Mr Narayan proposed simply giving a personal undertaking for the payment of his sum. After discussion, the plaintiff said that it would accept security by way of mortgage over the defendants’ properties and the defendants indicated that that security would be available.
[36] As I indicated in my earlier judgment, a range of security arrangements are possible. The ones proposed are acceptable. If there are any difficulties in respect of security, the parties are at liberty to come back to the Court for further directions.
[37] The orders should also provide for cancellation by the vendor following fresh default by the purchaser, as with Zeeland. The provision to be inserted is:
After the date fixed for settlement in this order, if the plaintiff shall give the defendant a written notice of its intention to cancel the agreement within 12 working days and further gives a notice of cancellation on the expiry of the
12 working days, the parties shall not be required to comply with those parts of this order requiring settlement of the agreement, unless the defendant files an application in Court within the 12 working days of receiving the first notice and the application seeks an order declaring that the plaintiff is not entitled to cancel the agreement.
Costs
[38] These four proceedings were all heard at the same time for the convenience of the parties and the Court, but they have not been consolidated. If the applications for summary judgment had been heard separately, each defendant would have been ordered to pay costs for the whole proceeding alone. That is, the plaintiff could have sought an order against each defendant for the commencement of the proceeding, issuing a summary judgment application, for preparation, for the defended hearing, and so on. In this case, however, the plaintiff has proposed that the efficiencies
achieved in hearing the four matters together should be reflected in the orders for costs. It prepared schedules of costs in which it proposed that where the plaintiff had taken a step common to more than one application, the costs would be payable by the defendants jointly and severally, but where the costs related to only one application, those costs would be payable by that defendant alone.
[39] Some adjustments are required to the schedules. Once those are made, the costs are as follows:
Costs payable by all defendants jointly and severally:
Commencement of proceeding: $ 6,400.00
Preparation for hearing of defended summary
judgment application: $ 2,800.00
Appearance at summary judgment hearing: $ 2,800.00
$12,000.00
Disbursements
Expert planner’s fee: $ 2,480.91
Expert valuer’s fee: $ 2,205.00
Total $16,685.91
[40] Costs common to Zeeland and Chaudhary (payable by them jointly and severally):
Filing memorandum for case management
conference: $ 640.00
Appearance at case management conference $ 480.00
Disbursements
Photocopying and binding: $ 324.09
[41]
Total:
Costs payable only by Zeeland Developments Ltd:
$1,444.09 Preparing and filing summary judgment application and supporting affidavits:
$ 960.00
Appearance at examination hearing: $ 800.00 Sealing judgment:
Disbursements
Photocopying and binding Muldoon affidavit:$ 320.00
$ 212.74
Filing fee on commencement of proceeding:
Sealing fee:
$1,100.00
$ 40.00
Process server’s fee:
Total:
$ 78.75
$3,511.49
[42]
Costs payable only by Mr Narayan:
Preparing and filing summary judgment application: $ 960.00
Appearance at case management conference: $ 320.00
Appearance at mentions hearing: $ 320.00
Sealing judgment: $ 320.00
Disbursements
Photocopying: $ 102.38
Filing fee on commencement of proceeding: $1,100.00
Sealing fee: $ 40.00
Process server’s fee: $ 50.00
Total: $3,212.38
[43] Costs payable only by Mr Chaudhary:
Preparing and filing summary judgment
application: $ 960.00
Sealing judgment: $ 320.00Filing fee: $1,100.00
Sealing fee: $ 40.00
Process server’s fee: $ 78.75
Total: $2.498.75
[44] Mrs Grant proposed that costs be reserved on the Chaudhary and Narayan matters as the defences had still to be determined. She also submitted that each defendant should pay a fixed share of the costs, instead of the plaintiff’s proposal that common costs should be a joint and several liability.
[45] The plaintiff is entitled to costs against Zeeland, having established that Zeeland has no defence. The plaintiff is also entitled to costs against Narayan and Chaudhary as, apart from the possible defence of equitable set-off for a relatively small sum, it has succeeded in its claims for specific performance. As each defendant would be individually liable for the costs the plaintiff seeks against him, there is no basis for reducing that defendant’s liability to a fraction of that sum. If a defendant pays more than his individual share of the common costs, he has a claim for contribution for the others, but there is no reason for the plaintiff to carry the risk that one defendant may not have the funds to meet an order for costs. A defendant’s right to contribution from another defendant arises from the common liability under the orders for costs.
[46] The amounts of the claims against Mr Chaudhary and Mr Narayan are each for $26,500 plus interest. These are within the jurisdiction of the District Court. Mrs Grant opposed any transfer of these proceedings to the District Court. In the absence
of consent I have no jurisdiction to transfer these proceedings to the District Court under s 46 of the District Courts Act. If the plaintiff seeks a transfer to the District Court under that section, it will need to file an application to be heard by a justice.
[47] I make these orders:
a) The proceeding against Mr Avirappattu is struck out, without any order as to costs.
b)The draft order against Zeeland is approved, subject to these amendments:
i) The settlement date is to be changed to 2 July 2010;
ii) Interest on the unpaid purchase price is to be calculated to
2 July 2010 and outgoings are to be apportioned as at that date;
iii) The clause in paragraph 27 above is to be inserted; and
iv) The costs Zeeland is to pay the plaintiff are $21,651.49.
Zeeland is jointly and severally liable for $16,685.91 of this with Mr Chaudhary and Mr Narayan, and is jointly and severally liable for a further sum of $1,444.09 with Mr Chaudhary. Zeeland is solely liable for the balance.
c) For Mr Chaudhary, the draft order for Zeeland is to be used with these amendments:
i)The settlement figure is to be amended for the different purchase price;
ii)The settlement date is to be 2 July 2010, with interest on the unpaid purchase price to the calculated to that date and outgoings apportioned at that date;
iii)There is to be a deduction from the sum payable on settlement of $26,500 plus interest on that sum from 22 May 2009 at 15% per annum to the settlement date. That deducted sum is to be secured for the plaintiff pending the decision on the equitable set off defence, to be paid to the plaintiff to the extent the Court may later find. The security shall be given over an asset of Mr Chaudhary acceptable to the plaintiff. Leave is reserved to both parties to apply for further directions on the matter of security;
iv) The clause in paragraph 37 is to be inserted; and
v) The costs Mr Chaudhary is to pay the plaintiff are $19, 608.75.
Mr Chaudhary is jointly and severally liable for $16,685.91 of this with Zeeland and Mr Narayan, and is jointly and severally liable for a further sum of $1,444.09 with Zeeland. Mr Chaudhary is solely liable for the balance.
d)For Mr Narayan, the draft order for Zeeland is to be used with these amendments:
i)The settlement figure is to be amended for the different purchase price;
ii)The settlement date is to be 2 July 2010, with interest on the unpaid purchase price to be calculated to that date and outgoings apportioned at that date;
iii)There is to be a deduction from the sum payable on settlement of $26,500 plus interest on that sum from 22 May 2009 at 15% per annum to the settlement date. That deducted sum is to be secured for the plaintiff pending the decision on the equitable set off defence, to be paid to the plaintiff to the extent the Court may later find. The security shall be given over an asset
of Mr Narayan acceptable to the plaintiff. Leave is reserved to both parties to apply for further directions on the matter of security;
iv) The clause in paragraph 37 is to be inserted; and
v) The costs Mr Narayan is to pay the plaintiff are $19, 898.29.
Mr Narayan is jointly and severally liable for $16,685.91 of this with Zeeland and Mr Chaudhary and is solely liable for the balance.
e) Leave is reserved to all parties to apply for further directions, if required.
R M Bell
Associate Judge
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