BETWEEN PAUL ALEXANDER Appellant AND RUDOLF PETER GITMANS First Respondent

[2004] NZCA 442

IN THE COURT OF APPEAL OF NEW ZEALAND

CA11/04

BETWEEN  PAUL ALEXANDER

Appellant

AND  RUDOLF PETER GITMANS

First Respondent

ANDRUDOLF PETER GITMANS, ROBERT GRAHAM AND GAVIN IAN GARNETT AS THE TRUSTEES OF THE RUDI GITMANS TRUST

Second Respondent

Hearing:         1 June 2004

Coram:McGrath J Glazebrook J William Young J

Appearances: M G Keall for Appellant

C R Andrews for Respondents Judgment:  17 June 2004

JUDGMENT OF THE COURT DELIVERED BY WILLIAM YOUNG J

Introduction

[1]    This is an appeal by Mr Paul Alexander against a judgment of Chambers J delivered on 9 December 2003 in which he ordered Mr Alexander to pay the first respondent, Mr Rudolf Gitmans, $2.2 million by way of damages.

PAUL ALEXANDER V RUDOLF PETER GITMANS And Anor CA CA11/04 [17 June 2004]

Factual background

[2]    The factual background to this dispute is complex. But, for the purposes of this appeal, it is sufficient to summarise it briefly.

[3]    Messrs Alexander and Gitmans were property developers. Through Parkbrook Holdings Ltd, their joint venture company, they constructed a block of apartments in Auckland known as the Gladstone Apartments. Initially they intended to extract part of the proposed profit in the form of completed apartments. For this reason, they, through their family trusts, agreed to acquire the apartments in question. Mr Gitmans’ family trust (the trustees of which are the second respondents) entered into an agreement dated 15 May 1998 to acquire two apartments  along  with  accessory  units.  The  purchase  price  was   $1.911m   (GST inclusive). The expectation was that the purchase price would be set-off against (or paid from) the profit  anticipated  to  be  derived  from  the  venture  by Mr Gitmans or his trust.

[4]    During  the  course  of  the   development   of   the   Gladstone Apartments Mr Alexander and Mr Gitmans fell out. Between late 1999 and mid-2000 they communicated only through an intermediary (their lawyer, Mr Kerry Knight).

[5]    On 9 June 2000 they entered into an agreement under which Mr Alexander was to take complete control of Parkbrook (and other joint  venture  entities)  and  Mr Gitmans was to transfer to Mr Alexander all shares in joint venture companies and current accounts. This agreement was drafted by Mr Knight and provided, inter alia:

(1)    On the settlement date (which is planned for 30 June 2000) Rudi will receive a transfer of his two penthouses, mortgage free, plus two extra storage units … .

(4) On the settlement date $100,000 will paid to Rudi or his nominee in consideration  of  Rudi  transferring   all   shares   and   all   entities   to   Paul Alexander or his nominee and Rudi transferring his and his entities current accounts to Paul Alexander or his nominee. Paul will also provide the release of all Rudi’s personal guarantees or suitable deeds of indemnity.

[6]    Pausing at this point we should note that “Rudi” referred to both Mr Gitmans and his family trust as it was his family trust which owned the shares in Parkbrook which were to be transferred to Mr Alexander or his nominee.

[7]    Shortly after this agreement was entered into, the 15 March 1998 agreement for the purchase of the two apartments was replaced with another agreement; this time between Parkbrook and Mr Gitmans personally. The purchase price was

$850,000 rather  than  $1.911m.  The  replacement  agreement  was  back-dated  to 15 March 1998. The reasons why this agreement was entered into were discussed at length in a judgment delivered by Chambers J on 2 August 2002. As that judgment makes  clear,  the  replacement  agreement  was  not   intended   to   supersede   the  9 June 2000 agreement. So Mr Alexander remained bound to bring about a transfer the two apartments to Mr Gitmans. Messrs Alexander and Gitmans envisaged that Mr Alexander would extract the apartment from Parkbrook by taking over the obligations of Mr Gitmans under the replacement agreement. The reduction in price from that stipulated in the original agreement (which was with Mr Gitmans’ family trust) was intended to facilitate this mechanism; this in respects (associated with GST and Parkbrook’s arrangements with financiers) which are irrelevant to the issues which we are required to address.

[8]    Mr  Alexander  took  control  of  Parkbrook   and   completed   the   Gladstone Apartments. But   he   was   most   reluctant   to   adhere   to   the    9 June 2000 agreement and in particular to pay Mr Gitmans the $100,000 which was payable under clause 4 or transfer to Mr Gitmans the two apartments. This has resulted in much litigation in the High Court in Auckland.

[9]    On   10 June 2002,   Chambers J   ordered   specific   performance   of   the   9 June 2000 agreement in favour of Mr Gitmans and his trust. Then, in the judgment of 2 August 2002 to which we have just referred, Chambers J recalled that judgment and issued a further order of specific performance, but in terms which differed from those specified on 10 June 2002. Towards the end of this judgment he said:

[45]      In light of the facts as I have now found them and the legal consequences of those facts, I now make the following revised orders in substitution for the orders set out in para 108 of my 10 June judgment:

[a]        An order that Mr Alexander specifically perform the 9 June agreement by procuring the transfer of apartments  6A and  6B to  Mr Gitmans or his nominee, and in particular by carrying out all of the purchaser’s obligations to Parkbrook.

[b]        An order that Mr Alexander take whatever steps are necessary to ensure that Mr Gitmans or his nominee takes title free of any mortgages, including, if necessary, repaying the debt owed to any mortgagee so that any mortgage is released.

…

[i]     Leave reserved to the plaintiffs to apply for damages should any orders [a] through [e] prove impossible to perform.

[46]      These  orders,  like  the  orders  they  replace,  are  conditional  on Mr Gitmans and his interests carrying out their obligations under clause 4 of the 9 June agreement. That is to say, Mr Gitmans and his interests must provide all documents necessary so that all shares in Parkbrook or other joint venture companies can be transferred to Mr Alexander or his nominee. In addition, Mr Gitmans must take whatever steps are necessary, if any, to transfer his and his entities’ current accounts to Mr Alexander or his nominee … .

[47]      Presumably, Mr Gitmans and his trust will now call on Parkbrook to settle the purchase of apartments 6A and 6B. They will need to be in a position to meet the purchaser’s obligations should Mr Alexander default. Parkbrook, after all, has its rights which are unaffected by the 9 June agreement to which it was not a party.

[10]   The order which was sealed and which purported to record this judgment had an order 9 which, in substance, set out what Chambers J had said in para [46] of his judgment.

[11]   The apartments were subject to a mortgage in favour of Mr Alexander’s mother.  After the 10 June 2002 judgment, she exercised her power of sale over  those apartments with the result that Mr Gitmans gave notice of cancellation of the   9 June 2000 agreement and, in March 2003, applied for damages in lieu of specific performance.

[12]   The claim for damages came before Chambers J in September and October last year. In his judgment delivered on 9 December 2003, he set aside the order for specific performance and corrected the form of the sealed judgment recalling the August 2002 judgment. He ordered Mr Alexander to pay Mr Gitmans $2.2m by way of damages.

The grounds of appeal

[13]   Mr Keall on behalf of Mr Alexander has advanced the appeal on two primary grounds.  The  first  is  the  contention  that  Mr Alexander’s  obligations  under  the 9 June 2000 agreement were never triggered because Mr Gitmans had never called upon Parkbrook to settle the transactions associated with the sale of the two units. The second ground of appeal is that Mr Gitmans has never complied with his obligations under clause 4 of the 9 June 2000 agreement with the result, so Mr Keall says, that Mr Alexander is not required to fulfil his side of that agreement. Mr Keall also advanced two associated grounds of appeal relating to the scope and application of r12 of the Court of Appeal Rules and principles of issue estoppel. These grounds of appeal are in effect subsets of the primary grounds of appeal and we will deal with them on that basis.

First ground of appeal: Mr Gitmans never called upon Parkbrook to settle the sale of the two apartments

[14]   There is no doubt that Chambers J envisaged that Mr Gitmans would call on Parkbrook to settle the sale of the two apartments and that Mr Alexander would meet his obligations under the contract for their acquisition. Chambers J said as much in paras [40] and [47] of his judgment of 2 August 2002. Further, the first of the orders made (and referred to in para [45] of the 2 August 2002 judgment) is in terms which suggest an understanding that this would be the mechanism by which Mr Alexander was to provide the two apartments to Mr Gitmans.

[15]   Mr Keall’s argument was that the obligations of Mr Alexander under clause 1 of the 9 June 2000 agreement required him to step into the shoes of Mr Gitmans in relation to his contract with Parkbrook. On this basis, Mr Gitmans was required to call on Parkbrook to settle before Mr Alexander’s obligations crystallised. As part of this general contention Mr Keall argued that it was an implied term of the 9 June 2000 agreement that Mr Gitmans would serve a settlement notice on Parkbrook.

[16]   Mr Keall sought to buttress this argument by reference to paras [40] and [47] of the judgment of 2 August 2002. We have already set out the latter of these two

paragraphs and this adequately catches the flavour of the remarks of Chambers J.  Mr Keall’s position was that Chambers J, in those paragraphs, had found that Mr Gitmans was to call upon Parkbrook to settle the transaction for the sale of the two apartments and that there was now an estoppel, which prevented Mr Gitmans arguing otherwise.

[17]   Similar arguments were advanced to Chambers J in the High Court and regarded by him as totally flawed.   He noted that Mr Alexander’s obligations to    Mr Gitmans flowed from the 9 June 2000 agreement. His obligation to Mr Gitmans was not conditional upon Mr Gitmans calling on Parkbrook to settle and it was not possible to imply into the 9 June 2000 agreement a term to that effect. He also rejected the associated estoppel arguments. The remarks made in para [47] of his     2 August 2002 judgment were neither a “finding” nor an order but simply a suggestion.

[18]   Mr Keall argued the case very much as if no order for specific performance had been made and Mr Gitmans was, in effect, starting from scratch. Although this approach to the case is probably unsound (see para [21] below), we are prepared to test the merits of the underlying arguments on the basis of Mr Keall’s assumption.

[19] On the basis of this assumption, it is clear that Mr Gitmans is entitled to damages. Performance of the agreement became impossible when Mr Alexander’s mother sold the apartments pursuant to her power of sale as mortgagee. This situation arose because Mr Alexander failed to honour his obligations to Mr Gitmans which, as Chambers J pointed out in para [42] of his 2 August 2002 judgment, extended to ensuring that the mortgage over the two apartments was released. So when Mr Alexander permitted the two apartments to be sold he repudiated the agreement. Even if Mr Keall is right and eventual settlement would not have been required of Mr Alexander until Mr Gitmans gave a settlement notice to Parkbrook, Mr Alexander’s actions (or inaction) in allowing his mother to sell the apartments was still a repudiation. In accordance with general principle (but still leaving aside the effect of the order for specific performance) this repudiation warranted both the notice of cancellation given by Mr Gitmans and an award of damages as Chambers J expressly held in his 9 December 2003 judgment at para [44].

[20]   We should also say that in any event, we do not accept the argument that    Mr Alexander’s obligations were subject to Mr Gitmans giving a settlement notice to Parkbrook. On this point we are content to adopt the conclusions of Chambers J.

[21]   The relevant principles as to setting-aside orders for specific performance and substitutionary awards of damages are discussed in Jones and Goodhart, Specific Performance (1986) at 232-33 and Butler (ed), Equity and Trusts in New Zealand (2003) at 663. The preponderance of authority is that once an order for specific performance has been made, the contract is then under the control of the Court and only the Court can put an end to it. This emerges from Johnson v Agnew [1980] AC 367 at 398 per Lord Wilberforce. For an example of this approach being taken in New Zealand, see Muollo v Hunt (CP252/00,  HC  Wellington,  Ronald  Young J,  12 June 2002). We accept that the view that only the Court can terminate a contract is open to question, see for instance the comments in Meagher Gummow and Lehane, Equity Doctrines and Remedies (2202) at 698-99 and this precise point was left open in this Court in Hutton v Palmer [1990] 2 NZLR 260 at 270. We also note in passing s15(a) of the Contractual Remedies Act 1979 which makes it clear that the provisions of that Act are not necessarily decisive in the present situation. However, we see no need to resolve the metes and bounds of the relevant jurisdiction as the approach of Chambers J was plainly right on any conceivable approach.

[22]   The order made in August 2002 specifically required Mr Alexander to provide unencumbered title to the apartments to Mr Gitmans. That order was made because Mr Alexander was flatly refusing to comply with his obligations under the   9 June 2000 agreement and attempting to justify this on legal grounds which Chambers J held to be unsound. When it became apparent that settlement could not occur (given that Mr Alexander’s mother had sold the apartments to third parties) it was perfectly open Chambers J to fix damages in lieu of specific performance. This is entirely consistent with the principles discussed in Jones and Goodhart (supra).

[23]   On the approach discussed in para [19], Mr Keall’s estoppel argument, if successful, would not warrant allowing the appeal. In other words, even if it were  the case that Mr Gitmans was estopped from denying that he was required to give a settlement notice to Parkbrook in order to trigger the obligations of Mr Alexander,

Mr Alexander’s conduct still constituted a repudiation and therefore warranted the orders made by Chambers J. In any event, for the reasons given by Chambers J we are of the view that there is no estoppel.

[24]This ground of appeal fails.

Second ground of appeal: alleged non-compliance with clause 4

[25]   Mr  Keall  argued  that  Mr Gitmans’  obligations  under  clause   4   of   the  9 June 2000 agreement were correlative to the obligations of Mr Alexander to him under clause 1. His position is that Mr Gitmans never tendered performance in relation to his obligations under clause and never took any steps to fix a settlement date. He claims that, on this basis, the obligations of Mr Alexander in relation to the apartments were never crystallised.

[26]   To some extent this argument was based on passages in the August 2002 judgment which we have set out in para [9] above. Mr Keall relied particularly on para [46] of the judgment and the corresponding provision in the sealed judgment to the effect that the obligations of Mr Alexander were conditional upon performance by Mr Gitmans of his clause 4 obligations.

[27]   In his 9 December 2003 judgment Chambers J referred to order 9 of the sealed judgment which purported to record para [46] of his judgment. He then went on to say:

[105] … [Order 9] was not part of my formal orders, which were all carefully tabulated in para [45] of my 2 August decision. I did remark in the judgment that Mr Gitmans and his family trust did themselves have obligations under the 9 June agreement, but they were not subject to formal orders. Mr Alexander had not sought any formal orders. In any event, I would not have made them because there has never been any suggestion that Mr Gitmans and his trust were not prepared to carry out their obligations on the proposed settlement date. It is necessary to formally correct this sealed judgment because its inappropriate form led Mr Alexander to advance his second argument [which we are currently dealing with]. I make the order correcting the sealed judgment under r 12 of the High Court Rules. Under that rule, the Court may correct any order that has been drawn up incorrectly.

[28]   Chambers J also held that the obligations of Mr Alexander under clause 1 of the 9 June 2000 agreement were not contingent on the obligations of Mr Gitmans under clause 4. He regarded only the obligations of Mr Alexander under clause 4 as being contingent upon performance by Mr Gitmans of his obligations under clause 4.

[29]   Perhaps more importantly, he concluded that at all times Mr Gitmans and his trust have been ready willing and able to settle and that there was no legal requirement for them to tender performance.

[30]   If Mr Alexander had been prepared to honour the agreement of 9 June 2000, there would have been a settlement at which the titles to the two apartments would have been transferred to Mr Gitmans and he would have handed to Mr Alexander transfers of the shares of Parkbrook and any other relevant joint venture companies together with assignments in respect of any current account indebtedness. So in a general sense, it could be said, as Chambers J said in his 2 August 2002 judgment, that the obligations of Mr Alexander to Mr Gitmans were conditional on Mr Gitmans performing his side of the bargain. Most contracts for the sale of land are  conditional in the same general sense - the obligation to transfer title is conditional upon simultaneous payment being made.

[31]   We are prepared to accept that all the obligations of Mr Gitmans under the agreement (including under clause 4) should be seen as being correlative to the obligations which the Judge found Mr Alexander to have to Mr Gitmans (including his obligations under clause 1). If, on the date fixed for settlement, Mr Gitmans and his trust had refused to comply with their clause 4 obligations, Mr Alexander would not have been required to perform his clause 1 obligations. So we do not agree with the view of Chambers J which we have recorded in para [28] above.

[32]   We are also prepared to decide the case on the basis that order 9 of the sealed judgment recording the 2 August 2002 judgment reflected the orders made by the Judge; this because we think it is perfectly plain the word “conditional” is used in the sense illustrated in para [30] above.

[33]   The assumption made by Mr Keall for the appellant is that Mr Gitmans was required to make a tender of performance of his obligations under clause 4 as a pre-condition for obtaining damages in lieu of specific performance.

[34]   Mr Keall did not refer to any authority that supported this assumption that, as we have noted, underlies his argument. This is not surprising, as both the argument and underlying assumption are unsound. It will be noted that the argument advanced is conceptually similar to the argument that we have rejected in relation to the first ground of appeal.

[35]   When Mr Gitmans obtained an order for specific performance it was on the basis that he had been, at all material times, ready, willing and able to settle, as Chambers J recorded in para [82] of his 10 June 2002 judgment. Mr Gitmans was  not required to prove that again before obtaining damages. From the time that the decree for specific performance was made, the contract was under the control of the Court. As soon as Chambers J was satisfied that performance was impossible, he  was entitled to award damages without any need for a tender of performance; this in accordance with the principles already discussed. In any event, when Mr Alexander permitted the apartments to be sold by his mother, he repudiated the contract and thus, in accordance with ordinary contractual principles, dispensed with any requirement for a tender of performance.

Disposition

[36]The appeal is dismissed.

[37]   The respondent is entitled to costs to the sum of $6000 together with disbursements including travelling and accommodation expenses of counsel who fixed by agreement and followed the agreement by the Registrar.

Solicitors:

Palmer & Associates Law, Auckland for Appellant McVeagh Fleming, Auckland for Respondents