Biscuit Creek Forest Limited v Vallance

[2018] NZHC 3291

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2018-454-56

[2018] NZHC 3291

BETWEEN

BISCUIT CREEK FOREST LIMITED

Plaintiff

AND

SIMON FREDERICK VALLANCE and ROSA VALLANCE

Defendant

Hearing:	8 November 2018
Appearances:	W McCartney for the plaintiff E Cox for defendants
Judgment:	13 December 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]    The ultimate issue for determination in this proceeding will be whether a contract between the plaintiff, Biscuit Creek Forest Ltd, and the defendants, Mr Simon and Mrs Rosa Vallance, dated 8 April 2016 for the sale by Mr and Mrs Vallance to Biscuit Creek Forest of certain forestry rights is enforceable or whether its enforceability was conditional upon the finalisation of other contractual arrangements between related parties that never came to fruition. If it was not contingent, as Biscuit Creek Forest contends, then that company would be entitled to damages, it being common ground that Mr and Mrs Vallance repudiated the contract and Biscuit Creek Forest cancelled in reliance on that repudiation.  If it  was contingent,  as Mr and  Mrs Vallance contend, then all contractual arrangements between the parties would be at an end.

BISCUIT CREEK FOREST LIMITED v VALLANCE [2018] NZHC 3291 [13 December 2018]

[2]    Biscuit Creek Forest seeks summary judgment as to liability only. The principles governing summary judgment are well settled. A plaintiff seeking summary judgment must satisfy the Court that the defendant has no arguable defence.1 A defendant opposing a summary judgment application and seeking to put up a defence which he, she or it wishes to run at trial will generally need to show a proper evidential foundation for that defence, which goes beyond a mere assertion.2 The onus then lies with the plaintiff to establish that there is no real question to be tried. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents, but it need not uncritically accept evidence that is inherently lacking in credibility or is inherently improbable. The Court may take a robust and realistic approach where the facts warrant it. In the end, the Court must be left without any real doubt or uncertainty to grant summary judgment.3

The factual background

[3]    Mr and Mrs Vallance owned and farmed Te Kanuka Station, an 830 hectare farm in the Wairarapa.

[4]    On 30 September 1994, a forestry right was created over Te Kanuka. This forestry right was created in favour of Messrs Philip Gusgot, Richard Burch and John Gold, the partners of Te Kanuka Forestry Partnership. The arrangements between Mr and Mrs Vallance and the Partnership reserved to Mr and Mrs Vallance an entitlement to 44.7 per cent of “stumpage”, to which the parties refer as the “Owner’s Share”. I understand this to mean that when the forest was harvested the Partnership would be obliged to pay to them 44.7 per cent of the proceeds. This forestry right was registered against the certificate of title to Te Kanuka pursuant to the Forestry Right Registration Act 1983 on 16 February 1995.

[5]    On 21 January 2000, the title to Te Kanuka was transferred from Mr Vallance as to one half share, and Mr and Mrs Vallance jointly as to the other half share, to the trustees of the Vallance Winkeleer Trust, Mr and Mrs Vallance and a Mr Tim Bunny.

1      High Court Rules 2016, r 12.2(1).

2      Middleditch v NZ Hate/Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.

3      Kruikziener v Hanover Finance Ltd [2008] NZCA 187 at [26].

[6]    At some point prior to the conclusion of the financial year ending 31 March 2003, Mr and Mrs Vallance had acquired one of 25 shares in the Partnership.

[7]    Towards the end of 2003, there were discussions between Mr and Mrs Vallance and a Mr Andrew Vallance, a relative of Mr Vallance and another local farmer, about the possible sale of Te Kanuka and the Owner’s Share to Andrew Vallance. Exchanges between the parties and their various agents at this time may have some bearing on later events. However, they did not reach any agreement, and their discussions or negotiations fell into abeyance for some years.

[8]    In the second quarter of 2016, following a chance meeting in a local supermarket, the parties – Mr and Mrs Vallance on the one hand and Andrew Vallance on the other – resumed negotiations concerning the sale of Te Kanuka and the Owner’s Share.

[9]    On 7 April 2016, Mr and Mrs Vallance and Andrew Vallance met at Te Kanuka. During the course of this meeting it was agreed that Mr and Mrs Vallance would sell Te Kanuka itself and the Owner’s Share to Andrew Vallance, Te Kanuka for

$4,476,000 and the Owner’s Share for $1,341,000. It seems that the parties also agreed that Mr and Mrs Vallance would sell their share of the Partnership to him for $66,360. Three features of this meeting should be mentioned:

(a)Mr Vallance and Andrew Vallance both made notes in preparation for the meeting, and these notes were in evidence. Much was made of them by counsel for both parties. In the end I have not found them to be of great assistance in terms of the resolution of this application;

(b)There was discussion as to the ownership of the Owner’s Share. Mr and Mrs Vallance appear to have been of the view that this was owned by the trustees of the Vallance Winkeleer Trust, that is to say that it had passed to the trustees of that Trust with the land in January 2000. Andrew Vallance appears to have been of  the  view  that  Mr  and  Mrs Vallance remained the owners. Mr and Mrs Vallance allowed themselves to be persuaded by Andrew Vallance to his point of view. Little if anything appears to me to turn on this because the

documentation prepared following this meeting covers the point in the sense that if Mr and Mrs Vallance were not the owners of the Owner’s Share, they agreed to procure the transfer of it to Andrew Vallance. However, I regard it as significant that there were issues in relation to the legal ownership of the rights that were the subject of the parties’ agreement;

(c)Although both parties appear to have involved their solicitors in their earlier discussions in 2003, Mr and Mrs Vallance’s uncontradicted evidence is that, in this round of negotiations, Andrew Vallance persuaded them that it was unnecessary for them to incur the cost of consulting their solicitors and that he, as an accountant, could sort out the details of the transaction. Again, I am not sure that a great deal will ultimately turn on this, although, if the parties had engaged their solicitors at this stage, they may have been able to avoid this litigation. I am, however, unable to leave this aspect of the case without saying that, in my view, it was at best irresponsible for an accountant who was a party to a transaction, and who stood to benefit by it, to suggest that he ought to be able to manage the interests of both parties, and to discourage the other parties to the transaction from seeking advice from their solicitors. This is especially the case given that Andrew Vallance was dealing with a couple nearing retirement contemplating the sale of assets with a total value of over $5,000,000, and complex issues about the ownership of some of those assets.

[10]   Be that as it may, following this meeting, and the agreement that emerged from it, Andrew Vallance produced two contracts, the first between the trustees of the Vallance Winkeleer Trust and himself for the sale of Te Kanuka and the second between Mr and Mrs Vallance and Biscuit Creek Forest for the sale of the Owner’s Share.

[11]   The contract for the sale of Te Kanuka was executed on 27 May 2016. It was conditional on due diligence, including finance being secured, within 30 working days. Settlement was to take place on 31 January 2017.

[12]   The contract for the sale of the Owner’s Share was executed by Mr and    Mrs Vallance as the vendors and by Andrew Vallance on behalf of Biscuit Creek Forest as the purchaser on 8 April 2016. The agreement was a short document extending to only one substantive page and seven clauses (the last of which appears to have been added in handwriting as an after-thought). It recorded that the sale and purchase price would be $1,341,000. The agreement was conditional upon finance being secured by 8 July 2016. Settlement was to be on 31 January 2017. It is common ground between the parties that there is nothing in the terms and conditions of this contract which would indicate that it is conditional upon the parties – or related entities – achieving an unconditional agreement for the sale and purchase of Te Kanuka.

[13]   It seems that it was always going to be touch and go whether Andrew Vallance would be able to raise sufficient funds to proceed with the acquisition of Te Kanuka, and that part of his strategy was to on-sell the Owner’s Share to raise finance. Mr and Mrs  Vallance were asked to provide what assistance they could and, at Andrew Vallance’s request, to that end, they signed a letter dated 22 April 2016 addressed to a concern by the name of Baker & Associates Land & Leasing Ltd confirming that they had agreed to sell the Owner’s Share to Andrew Vallance or his nominee and agreeing to Baker & Associates Land & Leasing marketing the same on his behalf.

[14]   Having executed these two agreements, the parties both instructed their solicitors. The vendor parties (essentially Mr and Mrs Vallance) instructed Mr Brett Gould  of  Gibson  Sheat,  Masterton.  The   purchaser   parties   (essentially   Andrew Vallance) instructed Ms Debbie van Zyl of Gawith Burridge, Masterton.

[15]   During June 2016, Mr and Mrs Vallance wrote to the Te Kanuka Forest Partnership explaining that they were selling Te Kanuka and their Owner’s Share and would also sell their share in the Partnership. In their letter they put a value on the Owner’s Share of $15,000 per hectare.

[16]   On 15 June 2016, Mr Gould, wrote to Ms van Zyl. He had obviously reviewed the contracts and was writing to raise with Ms van Zyl the issues he saw with them. The first point Mr Gould made was that:

The contracts are not expressed as being interdependent and conditional on each other.

[17]   It is probably worth mentioning at this stage that the corresponding contractual arrangements prepared in draft form back in 2003 were so expressed.

[18]Mr Gould then made the related point that:

The conditional dates don’t match 8 July for the FR and 11 July for the farm.

[19]Ms van Zyl does not appear to have replied.

[20]   On 8 July 2016, Ms van Zyl, wrote to Mr Gould. This letter was intended to confirm the contract for the sale of the Owner’s Share although it was not especially clear in that regard, and Ms van Zyl had to clarify this in a second communication the same day saying:

The fax I just sent you was in relation to the forestry rights sale transaction only which clause 7 was due for confirmation today.

[21]   It is apparent on the  evidence  that  by  this  stage  –  8  July  2016  –  Andrew Vallance was as expected having difficulty obtaining finance to enable the contract for the sale of Te Kanuka to proceed and he initiated certain exchanges with Mr and Mrs Vallance directed at varying the same, which came to nothing.

[22]   On 11 July 2016, Andrew Vallance, through Ms van Zyl, formally sought an extension of time within which to confirm the contract for the sale and purchase of Te Kanuka. Mr Gould responded the same day, on behalf of Mr and Mrs Vallance, refusing  to  grant  such  an  extension.  This  appears  not  to  have   deterred Andrew Vallance from continuing to try to arrange the necessary finance.

[23]   On 30 August 2016, the ANZ made an offer to Andrew Vallance to provide him with finance. Whilst described as a “Committed Offer”, it was highly conditional. One of the conditions was the finalisation of arrangements by Andrew Vallance for the sale of the Owner’s Share for $1,564,500, which is slightly greater than the price at which Mr and Mrs Vallance had agreed to sell those rights to him.

[24]   Andrew Vallance’s evidence is that, at some time in December 2016, a local real estate agent who was acting for Mr and Mrs Vallance, Mr John Murray, informed him that Mr and Mrs Vallance regarded the contract for the sale of the Owner’s Share as “null and void”. He says  that this came as  a surprise  to  him  and that  he told  Mr Murray that Mr Vallance “must be confused” and that “a contract was a contract”. He said that he then asked Ms van Zyl to raise the issue with Mr Gould.

[25]   There followed correspondence between the solicitors. No useful purpose would be served by describing this in detail. The essential points are these:

(a)Throughout this exchange, on behalf of Andrew Vallance, Ms van Zyl maintained that the two contractual arrangements were independent and that whilst the contract for the sale and purchase of Te Kanuka may not proceed, there was nothing to prevent the contract relating to the sale and purchase of the Owner’s Share from being settled;

(b)It is fair to say that, in this correspondence, Mr Gould did not focus on the primary point of defence now put up by Mr and Mrs Vallance against the enforceability of the contract for the sale and purchase of the Owner’s Share, which he had at least touched on in his first communication with Mr van Zyl back in June 2016, that is to say that the parties agreed that neither contract would proceed unless both proceeded. He instead raised issues such as whether Mr and Mrs Vallance were the owners of the Owner’s Share. It was not until Mr and Mrs Vallance filed their statement of defence in this proceeding that they returned to the issue concerning the alleged interdependence of the two contracts;

(c)There is no doubt at all that Ms van Zyl took every step available to Andrew Vallance to settle the contract for the sale and purchase of the Owner’s Share and it is no part of Mr and Mrs Vallance’s opposition to this summary judgment application that any stone was left unturned by Andrew Vallance in terms of attempting to settle that contract.

The opposing contentions

[26]   On behalf of Andrew Vallance, Mr McCartney’s primary submission can be described very briefly.

[27]   He submitted that it was unnecessary for the Court to look beyond the terms of the two contracts. As he says, neither is expressed to be conditional upon the other. The position is absolutely clear that the contract for the sale of Te Kanuka was never confirmed, but that the contract for the sale and purchase of the landowner forestry rights was, and that all necessary steps were taken on Andrew Vallance’s behalf to settle. Accordingly, he submits, the latter is enforceable.

[28]   As already stated, it is common ground that Mr and Mrs Vallance have repudiated the contract for the sale and purchase of the Owner’s Share and that Andrew Vallance has, on the basis of that repudiation, cancelled the contract. In those circumstances, Mr McCartney contends that Andrew Vallance is entitled to summary judgment as to liability for the wrongful repudiation – and therefore breach – of the contract (quantum of damages being left for trial).

[29]   In their pleadings, Mr and Mrs Vallance raised a number of defences. By the time the matter came on for hearing before me, these had been reduced to the following:

(a)That the parties, at the time of their negotiations, agreed that the contracts for the sale and purchase of Te Kanuka and the Owner’s Share were interdependent in the sense that neither could proceed unless both proceeded, despite this not being recorded in either written agreement. This is advanced either as a separate collateral agreement, or as an implied term in the existing agreements.

(b)Over and above that primary argument, Mr Cox raised a series of other interrelated points on behalf of Mr and Mrs Vallance:

(i)that Andrew Vallance represented to them that the two contracts were interdependent, and that it would be inequitable to allow Andrew Vallance to depart from that representation when he

encouraged them not to seek legal advice, so that he is estopped from doing so;

(ii)that the parties entered into the contractual arrangements on the basis of a qualifying mistake under sub-pt 2 of pt 2 of the Contract and Commercial Law Act 2017, that mistake being that Mr and Mrs Vallance believed there was an agreement that the two contracts would be interdependent; and

(iii)that at the material time the owner of the Owner’s Share was not Mr and Mrs Vallance but the trustees of the Vallance Winkeleer Trusts.

[30]   I mean no disrespect to Mr Cox’s carefully developed argument by saying that for the most part these contentions are all variations on a theme, and that the key issue for determination in this case is whether there was a collateral arrangement between the parties to the effect that only if both transactions proceeded would either proceed. The obvious exception to that is the argument based upon who owned the Owner’s Share. I am not convinced this argument has any merit because Mr and Mrs Vallance are two of the three trustees of the Vallance Winkeleer Trust and there is no evidence suggesting that it was not enforceable because the third trustee was not a signatory to the agreement for sale and purchase.

[31]   The starting point is that before the Court are two written contracts executed by the parties that on their face are independent of each other, the first for the sale and purchase of Te Kanuka and the second for the sale and purchase of the Owner’s Share. The first was never confirmed. The second was.

[32]   Prima facie, the vendors, Mr and Mrs Vallance, were bound by this contract and their repudiation of it was a wrongful breach.

[33]   Notwithstanding that, I am not persuaded that Mr and Mrs Vallance do not have an arguable defence to Andrew Vallance’s claim.

[34]   It is axiomatic that a respondent in a summary judgment application will not get very far simply by asserting a defence. This is especially so in a situation such as the present where there is a clear written contract and the defence is that the parties had a collateral arrangement that can be established by reference to parol evidence that is inconsistent with, or at least additional to, the written terms of their contract.

[35]   But, here, the Mr and Mrs Vallance’s evidence goes a great deal further than a mere assertion of such an arrangement.

[36]   First, to my mind, the context is important. Here we have a situation where a farming couple had obviously come to the view that they had reached the point in their life where they wished to retire. It would be logical and obvious that they would wish to divest themselves of both their farm and the related interests that went with it all in one transaction rather than piecemeal. I do not suggest that this is a decisive factor in the case, but it does appear to me to be an important aspect of the context in which the question is asked. As Mr and Mrs Vallance say in their evidence, it was natural for them to want to move on with a clean slate, which would lead them to wish to dispose of the farm and related interests in one transaction.

[37]   Second, there is the evidence as to  the first round of negotiations between  Mr and Mrs Vallance and Andrew Vallance back in 2003. It will be recalled that these reached the point of the preparation of formal contracts for the sale of both Te Kanuka and the Owner’s Share. One important difference between the way in which things unfolded in 2003 and the events of 2016 is that in 2003 the parties had their solicitors involved. The 2003 contractual documentation is clear that the two contracts were to be interdependent and that neither would be finalised unless and until both were finalised.

[38]   Third, there is the evidence that when negotiations resumed 13 years later in 2016, Mr and Mrs Vallance were persuaded by Andrew Vallance that this time they did not need to involve their solicitors. I have already expressed my concern about this aspect of the case and will not reiterate it. But the fact that Mr and Mrs Vallance did not have the benefit of advice from their solicitors at the pre-contractual stage appears to me to be a possible explanation for why the interdependence of the two

contracts was not a feature of the documentation in 2016, as it had been in the earlier negotiations.

[39]   Fourth, there is Mr and Mrs Vallance’s direct parol evidence that they discussed this issue with Andrew Vallance and that it was agreed that the two transactions would either both proceed or neither of them would proceed. It is of course difficult to make any assessment of veracity or reliability on the basis of affidavit evidence, and I do not reach any concluded views as to either here. But, given Andrew Vallance’s actions in discouraging Mr and Mrs Vallance from obtaining their solicitor’s advice as to the contracts, I am disinclined to place great weight on his evidence contradicting the evidence of Mr and Mrs Vallance as to the terms of the agreement reached. In any event, these are matters best resolved at trial.

[40]   In the course of his submissions, Mr Cox suggested that another aspect of the evidence that supported Mr and Mrs Vallance’s defence was the financial structure of the transaction. He said that, for tax reasons, the parties sought to structure the transaction – insofar as they regarded it as lawful and proper – to maximise the amount to be paid for Te Kanuka and to minimise the amount to be paid for the Owner’s Share (essentially because of the different incidence of GST on the two contracts). Thus, if the latter were to proceed in the absence of the former, that would be materially to Mr and Mrs Vallance’s disadvantage. For myself, I am not sure how far this argument can be taken first because there is no convincing evidence that this was so, and secondly because there is evidence of Mr and Mrs Vallance being prepared to sell the Owner’s Share on the same terms to other parties.

[41]   In the course of his submissions, Mr McCartney pointed to aspects of the evidence that he argued tended in part to undermine Mr and Mrs Vallance’s contention in relation to the contractual arrangements.

[42]   First, he made the point that Mr Vallance’s evidence was unreliable because he had forgotten that he had engaged Mr Murray. That is a perfectly proper submission for Mr McCartney to have made and I accept that it goes to whether Mr Vallance’s recollection of other aspects of the matter was sound.

[43]   Second, he emphasised that the contention related to the interdependence of the two contracts was not something that was raised on Mr and Mrs Vallance’s behalf by Mr Gould until very late in the piece. That too is a valid point for Mr McCartney to have made (although it does tend to ignore Mr Gould’s reference to the point in his first communication in June 2017).

[44]   On balance, however, I am left with a residual concern that a component of the parties’ oral agreement was that the sale of Te Kanuka and the Owner’s Share came as a package, and that whilst it was necessary and convenient for there to be two contracts

– because the parties to those contracts would be different – it was nevertheless an “all or nothing” arrangement. I record that there is nothing in either contract to exclude such an oral term/agreement, such as an entire agreement clause. At very least, it is arguable that Andrew Vallance could be estopped from enforcing one contract without the other. As Mr Cox pointed out, the relevant equitable considerations for that cause of action could only be explored at a substantive hearing.

[45]   That being so, the net result is that Andrew Vallance has been unable to satisfy me that Mr and Mrs Vallance do not have an arguable defence to his claim. They are, in my view, entitled to insist that this claim proceeds to trial so that it can be tested in the usual way.

[46]   The plaintiff’s application for summary judgment as to liability is accordingly dismissed.

[47]   Costs are reserved. If costs issues arise, and counsel are unable to resolve them, as I would expect them to be able to do, they may be referred back to me by memorandum and I will deal with them on the papers.

Associate Judge Johnston

Solicitors:

Gawith Burridge Lawyers, Masterton for plaintiff Gibson Sheat Lawyers, Wellington for defendants