BCH Investments Limited v Zhu

[2019] NZHC 1958

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-552

CIV-2019-404-555 [2019] NZHC 1958

BETWEEN

BCH INVESTMENTS LIMITED

Plaintiff

AND

GUANGYI ZHU

Defendant

Hearing:	8 August 2019
Appearances:	C Jiang and M L Barnes for the Plaintiff No appearance for the defendant
Judgment:	8 August 2019

ORAL INTERIM JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:
C Jiang, Glaister Ennor, Auckland.

[1]    BCH Investments Limited has carried out a residential subdivision of a property at Gills Road, Albany Heights, Auckland. It sold lots off the plan before titles issued. It sold two lots in the subdivision to North Sea Investments Limited, lots 64 and 65. North Sea’s director, Mr Guangyi Zhu, guaranteed its performance. Titles for both lots deposited. Settlement was set for 13 September 2018, but North Sea did not settle. The lawyers for BCH Investments Limited issued settlement notices under the

BCH INVESTMENTS LIMITED v ZHU [2019] NZHC 1958 [8 August 2019]

agreements for sale and purchase but North Sea and Mr Zhu did not comply with those notices.

[2]    BCH Investments Limited began these proceedings in March 2019 against Mr Zhu as guarantor. It applied for summary judgment. Mr Zhu has been served with both proceedings but he has taken no steps in opposition. I am hearing the summary judgment application as a formal proof.

[3]    Initially BCH Investments Limited sought specific performance of the two agreements. It also claimed damages in the alternative. On 5 August 2019, it served notices on Mr Zhu, cancelling the agreements. It now seeks damages caused by the failure of the purchaser to settle and the failure of Mr Zhu to honour his guarantee of performance by the purchaser. I was advised that North Sea Investments Ltd has been removed from the Companies Register and therefore no longer exists.

[4]    The agreements in both cases are in similar terms except for the descriptions of the properties. Both agreements were signed on 14 June 2016. In each agreement, the purchaser is North Sea Investments Limited and Mr Zhu is guarantor. The purchase price in each agreement is $443,478.00. There is a typographical error in the agreement for lot 64. The price is stated as “$443,48.00”. That is plainly an error. By reference to the agreement for the other property and correspondence between the lawyers, it is clear that the purchase price should be correctly read as $443,478.00. That does not require rectification. It is a simple case of reading the agreement in its context, in the light of correspondence between the parties and the contemporaneous agreement for lot 65 to see read the correct figure. The parties used the Real Estate Institute of New Zealand/Auckland District Law Society form 9th edition 2012(3). A deposit of 10 per cent was payable. The agreement shows that both the purchaser and the vendor were registered for GST and accordingly the agreement would be zero rated under cl 14 of the agreement. The interest rate for late settlement was 15 per cent per annum.

[5]    In the way of agreements by developers selling lots off the plan, there are special terms. Settlement was to take place once titles had deposited. However, the purchaser had the option to take possession yet defer completion of the agreement

under a provision for “Builder’s terms”. That allowed for settlement up to 12 months after the vendor’s solicitors gave notice that the local authority had given a certificate under s 224(c) of the Resource Management Act 1991. There would be adjustments to the price. The purchaser was required to pay interest on the unpaid part of the purchase price.

[6]There was a guarantee. Clause 34 of the agreement says:

(a)The Guarantor/s of the Purchaser being either the Directors of the Purchaser Company or Trustees of the Purchaser Trust as the case may be, give their personal guarantee in respect of all the obligations of the Purchaser under this agreement.

(b)The Guarantor/s indemnifies and agrees to keep indemnified the Vendor against any loss the Vendor might suffer should the Purchaser default under this Agreement or should this Agreement be lawfully disclaimed or abandoned by any liquidator, receiver or other person.

(c)The Guarantor/s may as between the Vendor and the Guarantor/s, for all purposes be treated as the Purchaser and the Vendor shall be under no obligation to take proceedings against the Purchaser before taking proceedings against the Guarantor/s.

[7]    Mr Zhu has signed both agreements only once. Page 11 of the agreements provide for the parties to sign the agreement. Mr Zhu has signed under the heading “Signature of purchaser(s)”. Someone else has signed on behalf of the vendor under the heading “Signature of Vendor and/or Signature of Guarantor”. I am satisfied that Mr Zhu has signed the agreement in two capacities; first, as director of North Sea Investments Ltd and, second, as guarantor. It is possible for one signature to serve both capacities. The point is discussed in The Modern Contract of Guarantee:1

Intention may be important, however, when one party signs the guarantee once in two different capacities. For example, a guarantee so executed by a person as an officer of that person’s company and also in his or her private capacity binds both that person and the company as long as there is nothing to indicate that he or she signed the guarantee solely for and on behalf of the company.

Mr Zhu has not taken any steps in the proceeding and he has, therefore, not presented any argument that he intended to sign the agreement only as director of North Sea Investments  Ltd.   In these circumstances,  I accept  that the intention issue does not

1      Wayne  Courtney,  John  Phillips  and  James  O’Donovan  The  Modern  Contract  of Guarantee

O’Donovan and Phillips (3rd English ed, Sweet & Maxwell, London, 2016) at 3-081.

arise. I should also mention that Mr Zhu has initialled each page of the agreement and handwritten insertions on the agreement.

[8]    On 13 September 2017, BCH’s lawyers wrote to the lawyers for North Sea advising of the issue of the s 224(c) certificate. That meant that the local authority had certified that it had approved a survey plan for the subdivision and that BCH had satisfied all the conditions of the resource consent or appropriate arrangements had been made for ongoing compliance with subdivision consent conditions, for example, consent notices.

[9]    On 16 January 2018, the lawyers for BCH wrote to North Sea’s lawyers advising that titles had issued and stated the options for settlement: that settlement would take place either 10 working days after notice that titles had deposited, or that builder’s terms would apply, requiring completion no later than 12 months from the date advice was given of the issue of the s 224(c) certificate. That meant settlement no later than 13 September 2018.

[10]   On 17 January 2018, North Sea’s lawyers advised BCH’s lawyers that North Sea would settle on builder’s terms.

[11]   BCH’s evidence is that it was ready, willing and able to settle on 13 September 2018. On 12 September 2018, the day before settlement, North Sea’s lawyers advised that it would not be able to settle.

[12]   On 14 September 2018, BCH’s lawyers gave a settlement notice under cl 10 of the ADLS agreement. It required the purchaser to settle on the twelfth working day after the date of the notice. The settlement notice was addressed to both North Sea and Mr Zhu as guarantor. On 5 August 2019, BCH served a notice on Mr Zhu cancelling the agreement for sale and purchase. That notice was given under cl 10.4(1)(b) of the agreement for sale and purchase. BCH’s project manager, Mr Junwei Tang, has provided an updating affidavit as to the amounts claimed for damages.

[13]   As I have already noted, BCH began the proceedings seeking specific performance, but reserving its right to cancel. It had issued a settlement notice under

cl 10 and the purchaser and the guarantor did not comply with that notice. Clause 10 allows the vendor to cancel the agreement if a purchaser has not complied with a settlement notice. Even though the vendor has issued a settlement notice and the purchaser has not complied with it, the vendor has the option of seeking specific performance of the agreement for sale and purchase. The party seeking specific performance has the option at any time to cancel, so long as the grounds for cancellation exist. That means that they can cancel without issuing proceedings for specific performance. They can cancel while a proceeding for specific performance is pending, and they can also cancel after an order for specific performance has been made, i.e. so long as there is an ongoing breach which entitles the vendor to cancel.2 In this case, the pleadings made clear to Mr Zhu that there could be a claim for damages and he was given written notice of cancellation of the agreement.

[14]   Once a vendor has cancelled following non-compliance with a settlement notice, cl 10.4 provides remedies for the vendor:

(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 the 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 20% of the purchase price; and/or

(ii)sue the purchaser for damages.

…

(3) The damages claimable by the vendor under subclause 10.4(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 resale 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 resale; and

2      Johnson v Agnew [1980] AC 367 (HL).

(b)all costs and expenses reasonably incurred in any resale or attempted resale; 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 resale.

[15]   While that clause allows a vendor to claim the loss on any bona fide resale within 12 months, BCH has not sought that remedy in this case. It did try to sell but it was not satisfied with the prices it was offered on auction. I was told from the bar that there were other lots unsold in the subdivision. Probably for commercial reasons BCH did not want to be seen to be selling off lots at prices that are unreasonably low. That means that the provision in 10.4(3) for claiming losses incurred on a resale within one year from the date of original settlement does not apply here. BCH is instead entitled to recover damages under the general law without reference to any actual resale.

[16]   In his text Sale of Land Dr D W McMorland addresses how damages are to be measured at common law when there has not been a resale: 3

If the vendor’s damages are to be measured on the basis of the loss of profit, the calculation is the difference between the value of the land, measured as at the appropriate date, and the contract price, minus the deposit. This presupposes that the land is worth less than the contract price. If the deposit is greater than the difference between the value and the price, the vendor is clearly better merely to forfeit the deposit, and has no need to claim damages.

In a loss of profits measure the vendor cannot recover any sum which would have been spent or lost in order to make the profit, that is, the damages recovered cannot be a combination of loss of profits and wasted expenditure; the measure must be either one or the other.

(citations omitted)

And he goes on:4

In addition to the loss of profit, which is the natural result of the breach, if the vendor can recover any other losses suffered which were within the contemplation of both parties at the time the contract was made as the probable result of the breach of it.

3      D W McMorland Sale of Land (3rd edition, Cathcart Trust, Auckland, 2011) at 619.

4      At 620.

[17]   There is a question as to the time when the loss of profit is to be measured. One date could be the original date of settlement of the agreement. Another date could be the date of cancellation. Dr McMorland deals with the point in another part of his text:5

… Until the mid-1970’s the assessment was routinely made as at the date of the election to cancel the contract, the time at which the obligation to perform terminated. That provided a just assessment in stable economic times, but a subsequent period of high inflation meant that such a measure was not just and caused a revision of the whole question.

I note now that the era of high inflation has passed. Economic conditions are generally stable now. Inflation rates are low barring the fact that up until recently Auckland property values did increase markedly. But more recently, the Auckland property market has been steady and may be in a slight decline. In those circumstances, I see no reason for not adopting the approach which Dr McMorland described as having been followed up until the mid-1970s. Until BCH gave its notice cancelling the agreements, it required North Sea to perform as purchaser and Mr Zhu to perform as guarantor. It could therefore say that any time up until it gave cancellation it was entitled to payment of the purchase price including any extra interest because of builder’s terms and for late settlement. Therefore, cancellation marks the time where loss of value is to be measured.

[18]   There is a difficulty with BCH’s proof of loss. Mr Tang has attached to his affidavit a report by a registered valuer. Assessing the current market value of the property is a matter of expert evidence. Because of that, the expert himself must give that evidence. It is not acceptable for expert evidence to be given as hearsay by being attached to the affidavit of some other witness. That is important because for the expert’s evidence to be admissible, the expert is required to meet the requirements of r 9.43 of the High Court Rules 2016. Compliance with that rule is reinforced by s 26 of the Evidence Act 2006. The requirement under the rule that the expert witness undertake that he has read the Code of Conduct for Expert Witnesses under the 4th Schedule of the High Court Rules and that he agreed to comply with the Code, can only be met by the expert giving evidence in person for the proceeding. Without his evidence, the plaintiff has not proved loss of value. Accordingly, I am adjourning the

5      At 604.

proceeding until Tuesday, 13 August 2019 at 10 am to give BCH the opportunity to file admissible evidence as to the loss of value.

[19]   BCH has given evidence as to other losses. I am generally satisfied with those but will record them more fully when I deal with the matter on 13 August 2019. BCH has incurred ongoing costs relating to ownership of the property in terms of rates, maintenance and upkeep, and security. The evidence shows that it has incurred costs generally over the development and has allocated a share of the costs to the two properties in this case. It is entitled to claim the costs of the attempted resale in which it engaged Barfoot & Thompson as land agents. In calculating the loss of value, it is entitled to show what costs it would incur in selling the property, those being appropriate mitigation costs.

[20]   I was presented with a draft calculation of damages. The amounts in each case seem to be less than $200,000. Accordingly, on each proceeding, it appears that the plaintiff will only be able to recover costs on the District Court scale. For the hearing on Tuesday, I ask counsel to provide a calculation of costs accordingly.

Associate Judge R M Bell