Blackwater Properties Limited v Crawford Group Limited
[2024] NZHC 149
•14 February 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-02
[2024] NZHC 149
BETWEEN BLACKWATER PROPERTIES LIMITED
Plaintiff
AND
CRAWFORD GROUP LIMITED
First Defendant
HARRY SHAND CRAWFORD
Second Defendant
CIV-2023-409-03
BETWEEN
ANDREW SIMON SMITH and YVONNE LORRAINE SMITH
Plaintiffs
AND
CRAWFORD GROUP LIMITED
Defendant
Hearing: 7 and 8 December 2023 Appearances:
S M Bevin and E L Pearce for Plaintiffs
J I Taylor and L A O’Dwyer for Defendants
Judgment:
14 February 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 14 February 2024 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
BLACKWATER PROPERTIES LIMITED v CRAWFORD GROUP LIMITED [2024] NZHC 149 [14 February 2024]
Background [4]
What are the issues? [24]
The amounts claimed [33]
General principles [34]
Loss of profit damages
The date for assessing loss [44]
The value of the plaintiffs’ properties [55]
Assessment of the experts’ evidence [58]
Penalty interest [92]
Outgoings
Blackwater [104]
The Smiths [108]
Losses relating to the Alport Place property [110]
Legal costs [116]
Expert evidence costs [121]
Assessment of loss [122]
Result [124]
[1] This judgment relates to two proceedings that are factually connected and give rise to similar issues. In both proceedings the plaintiffs seek damages arising from the failure by the defendant, Crawford Group Ltd (Crawford Group), to complete the purchase of properties at Olliviers Road, Phillipstown, Christchurch. Judgment has been entered against the defendants as to liability in each proceeding.1 The hearing before me was to assess the quantum of the plaintiffs’ damages.2
[2] The plaintiffs claim loss of bargain damages, representing the difference between the purchase price under the agreements for sale of their properties and what they say was the value of the properties as at the date of cancellation of those agreements. In addition, there are other losses claimed, including penalty interest and outgoings incurred to the date of cancellation. In the case of Mr and Mrs Smith (the Smiths), they also claim to recover a deposit they paid under an agreement to acquire a replacement property. The deposit was forfeited when Crawford Group failed to complete the purchase of their Olliviers Road property and the Smiths were unable to settle on the replacement property.
[3] The plaintiffs’ claims for damages are contested. Crawford Group’s position is that the amounts claimed are excessive and/or are not recoverable. It raises an affirmative defence that the plaintiffs did not mitigate their loss.
Background
[4] Blackwater Properties Ltd (Blackwater) is the owner of 44, 48 and 50 Olliviers Road. The properties were tenanted at the material times.
[5] The Smiths are the owners of a property at 46 Olliviers Road. The property has been their home for many years. The Smiths have no interest in Blackwater or its properties.
1 Blackwater Properties Ltd v Crawford Group Ltd [2023] NZHC 1390 at [7]. The liability of the second defendant in CIV-20232-409-02, Harry Shand Crawford, arises from his guarantee of the obligations of Crawford Group under its agreement with Blackwater.
2 At [15]. As to my jurisdiction to access damages see Senior Courts Act 2016, s 20(1)(f).
[6] 44 Olliviers Road has direct road frontage, whereas 46, 48 and 50 Olliviers Road are contiguous rear sections that share a common driveway. That driveway runs down the northern boundary of 44 Olliviers Road to Olliviers Road.
[7] Crawford Group is a property developer. Harry Shand Crawford (Mr Crawford) is the sole director and ultimate shareholder of Crawford Group. Crawford Group was interested in redeveloping the Olliviers Road properties for residential purposes.
[8] On or around 22 November 2021, Blackwater and the Smiths entered into separate contracts with Crawford Group to sell their Olliviers Road properties. Blackwater entered into a single contract to sell 44, 48 and 50 Olliviers Road to Crawford Group. The Smiths entered into a separate contract to sell 46 Olliviers Road. The contracts were not expressed as being dependent on one another or linked in any other manner. Both agreements recorded that the sales had been made through Colliers Real Estate and that Courtney Doig was the salesperson.
[9] The agreement between Blackwater and Crawford Group provided that Blackwater would sell 44, 48 and 50 Olliviers Road for $2.5 million (inclusive of GST, if any). A five per cent deposit was payable upon the agreement becoming unconditional. The settlement date was 16 November 2022. The interest rate for late settlement was 14 per cent per annum.
[10] The agreement between the Smiths and Crawford Group provided that the Smiths would sell 46 Olliviers Road for $1,054,500 (inclusive of GST, if any). A 10 per cent deposit was payable upon the agreement becoming unconditional. The settlement date was 16 November 2022. The interest rate for late settlement was 14 per cent per annum.
[11] It was an important feature of both agreements that settlement was 12 months after the date of the agreements. Crawford Group was effectively land-banking the properties while it completed other projects. Related to this, in the case of Blackwater, Crawford Group originally offered $2.4 million for its properties but increased its offer to $2.5 million to reflect the long settlement date.
[12] In addition, by a deed of guarantee and indemnity dated 3 December 2021, Mr Crawford personally guaranteed Crawford Group’s obligations to Blackwater. Mr Crawford’s liability to Blackwater is co-extensive with that of Crawford Group and for the purposes of this judgment I need not consider their positions separately. However, Mr Crawford did not guarantee the obligations owed by Crawford Group to the Smiths.
[13] Both agreements were in the 10th edition 2019(2) of the ADLS/REINZ agreement for sale and purchase of real estate and contained the following clauses:
Purchaser Default: Late Settlement
3.12If any portion of the purchase price is not paid upon the due date for payment, then, provided that the vendor provides reasonable evidence of the vendor’s ability to perform any obligation the vendor is obliged to perform on that date in consideration for such payment:
(1)the purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date for payment until payment (“the default period”); but nevertheless, this stipulation is without prejudice to any of the vendor’s rights or remedies including any right to claim for additional expenses and damages. For the purposes of this subclause, a payment made on a day other than a working day or after the termination of a working day shall be deemed to be made on the next following working day and interest shall be computed accordingly; and
(2)the vendor is not obliged to give the purchaser possession of the property or to pay the purchaser any amount for remaining in possession, unless this agreement relates to a tenanted property, in which case the vendor must elect either to:
(a)account to the purchaser on settlement for incomings in respect of the property which are payable and received during the default period, in which event the purchaser shall be responsible for the outgoings relating to the property during the default period; or
(b)retain such incomings in lieu of receiving interest from the purchaser pursuant to subclause 3.12(1).
(3)If the parties are unable to agree upon any amount payable under this subclause 3.12, either party may make a claim under clause 10.0.
…
Notice to complete and remedies on default
…
11.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to subclause 11.1(3):
(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 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.
(2)Where the vendor is entitled to cancel this agreement, the entry by the vendor into a conditional or unconditional agreement for the resale of the property or any part thereof shall take effect as a cancellation of this agreement by the vendor if this agreement has not previously been cancelled and such resale shall be deemed to have occurred after cancellation.
(3)The damages claimable by the vendor under subclause 11.4(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
(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.
(4)Any surplus money arising from a resale shall be retained by the vendor.
[14] The agreements were subsequently confirmed as unconditional and the deposits paid.
[15] In anticipation of settlement of the sale of 46 Olliviers Road, on 19 October 2022, the Smiths entered into an unconditional agreement to purchase a new home at 47 Alport Place, Woolston, Christchurch for $710,000. They paid a $30,000 deposit. There is a factual dispute as to whether, before the Smiths entered into this agreement, Mr Crawford had provided Ms Doig with an assurance that Crawford Group was in a position to settle on 16 November 2022. I shall return to this.
[16] Crawford Group was not in a position to settle with Blackwater or the Smiths on 16 November 2022. Its position is that its inability to settle had been foreshadowed months prior due to delays in other projects it was undertaking at that time. When settlement did not occur there were various proposals considered between the parties and the lawyers acting for them, including the possibility that Crawford Group might settle with the Smiths but obtain an extension of time to settle with Blackwater.
[17] Agreement as to a way forward was not reached and both Blackwater and the Smiths issued these proceedings on 23 December 2022 seeking specific performance of the agreements or damages in lieu. The proceedings were served in late January 2023.
[18] On 24 February 2023, Crawford Group’s then solicitors wrote to solicitors acting for Blackwater advising that Crawford Group had no prospect of settling the transaction and stating that if Blackwater was able to quantify its loss Crawford Group may be able to pay damages. Crawford Group relies upon this email to support a submission that from this date (at the latest) it was unreasonable for the plaintiffs to continue to seek specific performance of the agreements.
[19] On 26 April 2023, the lawyers acting for the vendors of the Alport Place property wrote to the Smiths’ solicitors cancelling the Smiths’ agreement to purchase that property and advising that the Smiths’ deposit was forfeit.
[20] Also on 26 April 2023, the plaintiffs served settlement notices upon Crawford Group which expired unremedied on 12 May 2023. The plaintiffs gave notice cancelling their agreements on 15 May 2023.
[21] That same day, 15 May 2023, these proceedings came before Eaton J for formal proof. Although neither Crawford Group nor Mr Crawford had filed a statement of defence, Eaton J considered it was appropriate that they be given notice of the damages being sought. He made directions that, if they wished to be heard, notice was to be given by 5.00 pm on Monday, 29 May 2023.
[22] Subsequently the defendants, via their counsel, indicated the claims for damages would be contested. On 20 July 2023, Associate Judge Lester made timetabling directions for the filing of pleadings and other steps to take the cases to hearing.
[23]Neither Blackwater nor the Smiths have resold their properties.
What are the issues?
[24] Both Blackwater and the Smiths are claiming, amongst other things, the difference between the price payable by Crawford Group under the agreements and the value of the properties at the date of cancellation.
[25]Counsel’s submissions focused, in particular, on:
(a)At what date are the plaintiffs’ losses to be assessed?
(b)What was the value of the plaintiffs’ properties as at that date?
[26] As noted, the plaintiffs’ position is that their losses should be assessed at the date of cancellation of the agreements, namely 15 May 2023. Crawford Group’s contention is that the losses should be assessed at the date it was in breach, being 16 November 2022. This is of some importance because the market for residential properties peaked in late 2021/early 2022 and then declined to and after November 2022. I note, however, there was no argument advanced by either party that the plaintiffs’ losses should be assessed at any later date, such as the date of the hearing.
[27] Crawford Group raises an issue that the plaintiffs failed to mitigate their losses. As the argument developed it became plain that the real contention is that damages should be assessed at the date of breach. The argument foreshadowed by Crawford Group’s pleadings, that the plaintiffs failed to mitigate because they had not resold the properties in a timely manner, did not feature in counsel’s closing submissions. Rather, Crawford Group’s position was set out as “[T]he right to a later date of assessment [of damages] is of course contingent on the remedy of specific performance being reasonably and properly pursued in the circumstances”. It says that where the plaintiffs pursued specific performance, knowing Crawford Group would be unlikely to settle, the Court should assess damages as at the date of the breach, not the date of cancellation of the agreements.
[28] As noted above, the plaintiffs also claim other losses they say were suffered as a result of Crawford Group’s failure to settle the agreements. The most significant of these is penalty interest at the contractual rate from the date of settlement to the date of cancellation. Crawford Group’s position is that the contractual provisions for payment of penalty interest cannot apply if damages are assessed at 16 November 2022, although it accepts interest under the Interest on Money Claims Act 2016 would apply. In the alternative, Crawford Group argues that, as a matter of contractual interpretation, under cl 11.4 of the agreements penalty interest will only be payable if the defaulting purchaser ultimately settles, or upon cancellation if the vendor resells. It submits penalty interest is not payable in circumstances where the purchaser does not ultimately settle, or the vendor does not resell and retains their property.
[29] The plaintiffs claim certain outgoings on their properties which Crawford Group says are not payable if damages are assessed at 16 November 2022. In the alternative, Crawford Group argues the plaintiffs are not entitled to both penalty interest and outgoings. It also argues that Blackwater cannot claim reimbursement for its director’s personal labour in maintaining its properties.
[30] The Smiths seek to recover the deposit that was forfeited in respect to the Alport Place property. Crawford Group says this is not claimable as it was not reasonably foreseeable that such loss would be incurred if it failed to settle. It also says its failure to settle did not cause the Smiths to lose their deposit because it was
known to their agent, Ms Doig, that there was a risk Crawford Group would not be in a position to settle.
[31] The plaintiffs claim extra legal costs incurred associated with the transactions over and above usual conveyancing costs. Crawford Group disputes this claim on the basis that these costs were incurred for advice in relation to its breaches of contract and are not recoverable as a matter of law.
[32] The plaintiffs also seek to recover the cost of obtaining expert valuation advice to quantify their losses. Crawford Group argues these costs are not damages but disbursements incurred in the proceeding and should be dealt with in any costs award.
The amounts claimed
[33] Attached as a schedule to this judgment are tables which set out the respective positions of the parties in respect to each head of claim made by the plaintiffs.
General principles
[34] The starting point is that in assessing damages for breach of contract the injured party is entitled to be placed, as far as money can do so, in the same position as if the party in breach had performed the contract according to its terms.3 In this context, the function of damages is not to return the injured party to the position they were in before the contract was made but “to give him the monetary equivalent of the future improvement in his position which [the party in breach] had undertaken to produce”.4
[35] The damages claimed must not be too remote. The principle in Hadley v Baxendale is that what the injured party ought to receive should be such as may fairly and reasonably be considered either arising naturally (i.e. according to the usual course of things) from such breach of contract, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract.5
3 Robinson v Harman (1848) 1 Exch 850 at 855; Stephen Todd and Matthew Barber Burrows Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [21.2].
4 Donald Harris, David Campbell and Roger Halson Remedies in Contract and Tort (2nd ed, Cambridge University Press, 2006) at 74.
5 Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145 (CE).
[36]In the present context, the text Sale of Land sets out the position as follows:6
12.56. Vendor’s measure of expectation (loss of bargain) damages — no resale.
On cancellation of the contract, specific performance is no longer available to the purchaser and the beneficial title to the land reverts to the vendor. The vendor may choose to keep the land and merely sue for damages for the breach. In each of the situations discussed below it must be shown that, in the factual context of the situation, the vendor has taken appropriate steps to mitigate their loss.
(a) Short-term contract with provision for deposit and payment of balance on settlement. 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. For example, on a loss of profits measure, the vendor cannot recover for rents lost after determining a tenancy in order to give vacant possession on settlement, because, had the contract been performed, the vendor would not have had those rents anyway.
…
In addition to the loss of profit, which is the natural result of the breach, 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. For example, various forms of lost interest have been recovered as damages by vendors under this head. …
Holding costs, such as rates and including mortgage interest, from the date of settlement to the date of judgment, may be recovered if the vendor intends to resell, and presumably can prove continuing and unsuccessful efforts to do so.
[37] While damages may usually be determined as at the date of breach, as Palmer J recognised in Yu v Bradley:7
[82] The date for assessing damages is usually the date of the breach. However, the Court of Appeal recognised in Stirling v Poulgrain that a different date may be used “to work out a fairer solution” and “in the interests
6 D W McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at 562 (footnotes omitted).
7 Yu v Bradley [2020] NZHC 1822, (2020) 21 NZCPR 220 (footnotes omitted).
of justice”. The Court of Appeal of England and Wales considered in Hooper v Oates that the breach date is most unlikely to be the right date for assessing damages for a vendor of land because, if the vendor properly mitigated their losses, the eventual resale price is likely to show what loss the seller suffered. The Court of Appeal agreed in Dempsey v Howe, saying the “fairer solution” was to assess damages at the point of resale of the property.
[38] In Sale of Land the learned author deals with the question of the date at which the loss of bargain is to be assessed. The author states as follows:8
12.41. Time at which expectation (loss of bargain) to be assessed. Apart from the remoteness of the loss which is recoverable, the other major question in the measure of damages is the time at which the quantum of the damages is to be assessed. 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, causing rising property prices, meant that such a measure was no longer just and caused a revision of the whole question. The same reasoning can apply in reverse, where the market suffers a serious decline.
…
In a subsequent line of cases, judges expressed the view that the measure of common law damages should be as flexible as that in equity to do justice on the individual facts, a view then confirmed by the House of Lords. This involved a reaffirmation of the basic principle of damages: to place the innocent party, so far as money can do so, in the same position as if the contract had been performed. It follows that, if assessment at the date of the election to cancel would give rise to injustice, the court may fix such other date as may be appropriate in the circumstances, including possibly a date after the cancellation of the contract. This reaffirmation of the basic principles was rapidly taken up by the New Zealand Court of Appeal.
The flexibility on the date of assessment operates to make the assessment fair only to the innocent party; the date will not be shifted from the date of cancellation of the contract to benefit the defaulting party.
[39] In New Zealand Land Development Co Ltd v Porter, the Porters became purchasers of a section in a subdivision in 1973 and by 1983 the developer was still unable to produce title.9 The Porters commenced proceedings for specific performance, and then in September 1986 amended their claim to seek damages alone. Tipping J noted that in general damages will be assessed at the date of the breach, which will often achieve the objective of contractual damages but not always. He said the assessment of damages is a question of fact and should not be trammelled by rigid
8 D W McMorland Sale of Land, above n 6, (footnotes omitted).
9 New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462.
rules and justice to both sides in the individual case is the aim.10 The Judge also noted:11
If the subject-matter of the contract and the circumstances of the case are such that it is reasonable for the innocent party to seek specific performance then, if specific performance cannot be had, an alternative claim for damages may properly be assessed at the date when the contract is lost to the innocent party, usually at the date of trial when the decree is refused: …
[40]The Judge held:12
In my judgment it was perfectly reasonable for the Porters to seek specific performance of the contract at the outset. The appellant kept on promising them performance, the date of which kept creeping, if not leaping, backwards. However, the Porters elected in September 1986, having commenced their proceedings in 1983, to cancel when it became apparent to them that the vendor had put it out of its power to convey to them, having sold the land elsewhere. In my judgment on the authorities and as a matter of simple justice the Porters are certainly entitled to have their damages for loss of bargain assessed no earlier than the date of cancellation. Up to that point they reasonably kept the contract alive.
[41] In BCH Investments Ltd v Seal Construction Ltd, the plaintiff sold two lots in a subdivision to the defendant by separate agreements.13 The defendant failed to settle, resulting in cancellation of the agreements. Proceedings were issued initially seeking specific performance and damages in lieu but, after the defendant’s failure to settle, the plaintiff put one section back on the market which did not meet the reserve at the auction, and the other was listed with agents but not put up for auction. Gwyn J considered that the plaintiff’s damages should be assessed at the date of cancellation of the contract.14 She held:15
Until [the plaintiff] gave its notice cancelling the Agreements, it required [the defendant] to perform as purchaser and Ms Hu 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 the loss of value is to be measured.
10 At 466.
11 At 466.
12 New Zealand Land Development Co Ltd v Porter, above n 9, at 467.
13 BCH Investments Ltd v Seal Construction Ltd [2019] NZHC 2692.
14 Referring to D W McMorland Sale of Land, above n6; BCH Investments Ltd v Zhu [2019] NZHC 1958 at [16]–[17] (interim judgment); BCH Investments Ltd v Zhu [2019] NZHC 2014 (final judgment).
15 BCH Investments Ltd v Seal Construction Ltd, above n 13, at [47].
[42] I was also referred to Hooper v Oates, a decision of the English Court of Appeal.16 Mr and Mrs Hooper owned a property which they agreed to sell to Mr Oates, with completion by 30 June 2008. Mr Oates could not complete, and Mr and Mrs Hooper accepted his repudiation on 14 July 2008. They tried to sell the property but failed, despite 14 months of marketing. In October 2009 they let the property to tenants for six months and then, late in 2010, marketed it again unsuccessfully. By the summer of 2011 they had moved back into the property themselves. In the meantime, the value of the property had fallen substantially. It was held that the appropriate date for the assessment of the Hoopers’ loss was after cancellation when they brought an end to their reasonable attempts to resell and took the property back for their own use. Lloyd LJ said:17
It seems to me that the breach date is the right date for assessment of damages only where there is an immediately available market for the sale of the relevant asset or, in the converse case, for the purchase of an equivalent asset. This is most unlikely to be the case where the asset in question is land. If the defaulting party is the buyer, much will depend on what the seller does in response to the breach … If he resells, the buyer may be able to show that, in so doing, the seller failed to take reasonable steps to mitigate his loss, for example by taking too long, or failing to follow proper professional advice, or in some other way. Absent any feature of that kind, the eventual resale price is likely to be the figure to be set against the contract price for assessment of the damages, not because it represents the market value at the date of the breach, but because it shows what loss the seller has suffered, uncomplicated by issues of remoteness or failure to mitigate. If the property market has declined during that time, it is of no avail for the defaulting buyer to say that this should not be laid at his door. If he had completed the contract, he would have suffered that decline in value, so this is part of the loss for which the seller needs to be compensated.
[43] A party faced with a breach by the other contracting party must take such steps as are reasonable in the circumstances, including those in which the party is placed by the other’s default, to minimise their loss.18 What this means is that the injured party cannot recover damages for any part of his or her loss caused by the defaulting parties actions “which he could have avoided by taking reasonable steps”.19 In Sullivan v Darkin, Somers J put the matter this way:20
16 Hooper v Oates [2013] 3 All ER 211, [2014] Ch 287, [2013] EWCA Civ 91.
17 At [38].
18 Sullivan v Darkin [1986] 1 NZLR 214 (CA) at 223 per Somers J; Mana v Fleming [2007] NZCA 324, (2007) 8 NZCPR 469 at [41] per Harrison J for the Court.
19 Donald Harris, David Campbell and Roger Halson Remedies in Contract and Tort, above n 4, at 110.
20 Sullivan v Darkin, above n 18, at 223.
[The vendor] must take such steps as are reasonable in the circumstances, including those in which [the vendor] is placed by the purchaser’s default, to obtain a proper price. In assessing what is reasonable the conduct of the vendor is not to be weighed in nice scales …
Loss of profit damages
The date for assessing loss
[44] I am satisfied that, consistent with the authorities to which I have referred above, the proper date for assessing the plaintiffs’ loss is the date of cancellation of the agreements.
[45] As noted, Crawford Group’s position is that damages should be assessed at 16 November 2022, or at the latest at 24 February 2023, because it was unreasonable for the plaintiffs to pursue specific performance when they knew Crawford Group could not settle. Mr Taylor referred me to the following evidence:
(a)Mr Crawford first notified Ms Doig in June 2022 that settlement was unlikely, and it was Mr Crawford’s evidence that an extension was requested in respect of settlement;
(b)Adam Armstrong, the director of Blackwater, gave evidence that he was aware Mr Crawford had requested an extension before the settlement date;
(c)Mr Crawford followed up his extension request with a text message to Ms Doig on 14 October 2022;
(d)the Smiths, Ms Doig and Mr Crawford met in late October 2022 (it appears this was probably 31 October) following the Smiths’ purchase of the Alport Place property, and Mrs Smith commented in her evidence that at the time of that meeting she and Mr Smith were concerned because of what was happening with the market and that there could be issues;
(e)on 4 November 2022, Crawford Group, through its lawyers, formally sought an extension for settlement until 23 January 2023,
(f)on 13 November 2022, Mr Crawford informed Ms Doig that he would not be able to settle any property at Olliviers Road that following week; and
(g)while there were some negotiations about further extensions of time after 16 November 2022, they did not resolve the matter and on 24 February 2023 Crawford Group’s lawyers advised there was no prospect of settlement.
[46]The authors of Sale of Land address this issue, noting:21
By unreasonably pursuing specific performance in times of inflation, the innocent party could increase the damages payable by the defaulter. The Court must therefore decide whether the decision to claim specific performance was reasonable in the circumstances, or whether the innocent party should have elected to cancel, thereby effectively accepting a measure of damages assessed at an earlier date. If the Court decides that the plaintiff has not acted reasonably in pursuing specific performance, it will assess the damages at such earlier date as appears reasonable on the facts.
[47] I consider the submission that the plaintiffs unreasonably pursued specific performance to be untenable. As noted above, the conduct of the plaintiffs is not to be weighed in nice scales, and there is an obvious lack of attraction in Crawford Group’s stance that the plaintiffs should have responded differently to an emergency situation it created. Further, a party faced with a breach by another party is entitled to take reasonable time to assess their position. The argument Crawford Group advances cannot be correct when one compares the facts of this case to the circumstances in New Zealand Land Development Co Ltd v Porter,22 BCH Investments Ltd v Seal Construction Ltd,23 and Hooper v Oates.24 Fundamentally, however, contrary to Crawford Group’s submission, it was not the position at either 16 November 2022 or 24 February 2023 that the plaintiffs knew Crawford Group could not settle.
21 D W McMorland Sale of Land, above n 6, at 12.42 (footnotes omitted).
22 New Zealand Land Development Co Ltd v Porter, above n 9.
23 BCH Investments Ltd v Seal Construction Ltd, above n 13.
24 Hooper v Oates, above n 16.
[48] I accept Mr Crawford did raise with Ms Doig the possibility that Crawford Group may require an extension of time to settle the purchase of the Blackwater properties. The first record of that is a text message from Mr Crawford to Ms Doig of 14 October 2022. I do not accept Mr Crawford suggested at that time that an extension may be required to settle the purchase of the Smiths’ property. The evidence of Ms Doig, which I prefer to the evidence of Mr Crawford, was that the possibility had been raised only in respect to the Blackwater properties. This is consistent with the fact that Ms Doig told the Smiths at the time of their purchase of the Alport Place property that Mr Crawford advised her “he’s able to settle on time as planned”. I consider it extremely unlikely Ms Doig would mislead the Smiths about that.
[49] Regarding the negotiations that took place between the parties after 16 November 2022, my view is consistent with proposals to deal with Mr and Mrs Smith and Blackwater differently, reflecting the difficulty the Smiths had been put in having purchased a replacement property.
[50] Also, under cross-examination Mr Crawford acknowledged he had given assurances to the Smiths, believing that an extension of time for settlement with Blackwater was “going to be completely fine, no problem”.
[51] While Mr Taylor argues that Mrs Smith’s evidence was that at the time she and her husband met with Mr Crawford in late October 2022 she was concerned there could be issues, Mrs Smith also says that at the meeting Mr Crawford “assured us that he had our money as per the document” and gave them confidence in what he was doing.
[52] While Crawford Group was in breach from 16 November 2022, following that date it wished to proceed with the agreements and sought further time to settle. For instance, on 29 November 2022, Crawford Group’s lawyers proposed that Crawford Group complete the purchase of the Alport Place property and give rights of occupation to the Smiths in return for an extension of the settlement dates under the agreements until its current project was finished. That project was expected to be completed by March or early April 2023. It was entirely reasonable and
understandable that the plaintiffs would pursue specific performance at that time and they issued their proceedings promptly.
[53] In my view, the position was not materially different on 24 February 2023 when Crawford Group’s lawyers advised it had no prospect of settling. Crawford Group’s lawyers provided no evidence of its financial position, other than the positive indication it may be in a position to pay damages. Further, Crawford Group had previously sought extensions of time to settle through to March and/or early April 2023, by which time it expected to have completed its then current project. There is nothing in the email to suggest there had been a change of circumstances in respect of the project. I do not see how it can be seriously contended that based on this curt email, with its complete absence of detail as to Crawford Group’s financial position, the plaintiffs should have abandoned any expectation that the agreements were capable of performance.
[54] I also do not see how it can be argued that Crawford Group’s position was prejudiced because the plaintiffs did not cancel the agreements earlier. Crawford Group’s contention is that by not cancelling the plaintiffs unnecessarily incurred losses for which they seek to hold it responsible. The most significant loss relates to the decline in the market value of the properties which, of course, Crawford Group would have suffered anyway had it completed the purchases. More generally, if the plaintiffs had cancelled and resold their losses would most likely have been determined upon settlement of the resales, and it is improbable that resales would have been achieved and settled by 15 May 2023. Crawford Group may well have found itself in an even worse position had the plaintiffs adopted that course.
The value of the plaintiffs’ properties
[55] Expert valuation evidence was given by Hamish Collins for the plaintiffs and by Terrance Naylor for Crawford Group.
[56] The experts’ briefs of evidence were not standalone documents; rather the experts relied upon and produced valuation reports they had prepared on the instructions of the parties’ lawyers. Valuation reports are not briefs of evidence, they contain material that would not go into a brief of evidence. Importantly, they have not
been prepared with the requirements of the hearing in mind and often, as they did in this case, contain errors or omissions that I would expect would be identified in the preparation of a brief of evidence. Further, there was a series of reports presented and much repetition of material. The approach taken should be discouraged.
[57] Also, while I directed the experts to confer and issue a joint experts’ report, they did not do so in a meaningful way. Their joint report was six lines, concluding unhelpfully “Both stand by their valuations. Each valuer considers the other to be at the higher or conversely lower end of the value range.”
Assessment of the experts’ evidence
[58] I have concluded that the relevant date for assessing the plaintiffs’ damages is the date of the cancellation of the agreements (15 May 2023). Mr Collins prepared valuations of the properties with an effective date of 10 April 2023. Mr Naylor valued the properties at 12 May 2023. I understand it is accepted there would have been no material change in values between the effective dates of the valuations and 15 May 2023.
[59] The valuers have ascribed different values to the properties. The table below sets out those values:
Property
April 2023
Plaintiffs’ expert (Mr Collins)
May 2023
Crawford Group’s expert (Mr Naylor)
44 Olliviers Road
$490,000
$453,530
46 Olliviers Road
$570,000
$788,100
48 Olliviers Road
$530,000
$651,780
50 Olliviers Road
$560,000
$725,625
Total values
$2,150,000
$2,620,000 (adopted)
[60] A comparison of the values ascribed to the properties as against the purchase prices to be paid by Crawford Group under the agreements is shown in the table below.
Property
Purchase price
April 2023
Plaintiffs’ expert (Mr Collins)
May 2023
Crawford
Group’s expert (Mr Naylor)44, 48 and 50 Olliviers Road
$2,500,000
$1,580,000
$1,830,935
46 Olliviers Road
$1,054,500
$570,000
$788,100
[61] Both valuers adopted a Market Approach to their valuations. This involves comparing the subject properties with other properties for which sales information is available and then making allowances for factors such as the date of sale, location, land area, house size, the nature and condition of improvements, and other discernible differences between the properties.
[62] Both valuers considered the properties should be valued with regard to their highest and best use. The highest and best use of a property is the one which is physically possible, appropriately justified, legally permissible, financially feasible and results in the highest value of the property being valued.
[63] There was a difference of view between the valuers as to what the highest and best use of the properties was, and this impacted upon their valuations. Mr Collins considers the highest and best use was as individual improved properties, rather than as a single redevelopment site. Mr Naylor considers the highest and best use of the properties is as a redevelopment site, such that the highest value would be achieved by the sale of all four properties together.
[64] Both valuers have the necessary qualifications and experience to provide expert opinion evidence as to the value of the properties. Mr Taylor submits that Mr Naylor has the greater experience and specialist knowledge of the development residential market and has worked for substantial developers. He argues this is one reason why I should prefer Mr Naylor’s evidence. I accept that Mr Naylor is the more
experienced of the two valuers. Notwithstanding that, I prefer the evidence of Mr Collins for the reasons that follow.
[65] I do not accept Mr Naylor’s approach that the properties should be considered as a single redevelopment site representing their highest and best use. While it appears that together the properties are an attractive redevelopment proposition they are not in common ownership. To assume that they can all be sold and redeveloped together is not, on the facts of this case, appropriately justified. Surprisingly, Mr Naylor said he was unaware the Smiths were owner-occupiers or that the agreements for the acquisition of the properties were not linked or conditional upon each other.
[66] I do not accept the submissions advanced for Crawford Group that despite the properties not being in common ownership I should consider they will be sold together because “it is a feature of the market that all four would be available”, or that such an approach is consistent with the circumstances under which the claims arose, or that it is consistent with the plaintiffs’ obligations to mitigate their losses. The properties were not all sold together, the agreements under which they were sold were not linked, and the parties never proceeded on the basis that the agreements were linked. There is no reason to consider that the four properties will be sold as a single redevelopment site in the future and, to my mind, no reason they should be valued on that basis. Mr Naylor accepted in cross-examination that there could not be any guarantee the properties could all be sold together.
[67] If sold separately the shared accessway as well as the existence of Neames Drain, which runs over 44 and 46 Olliviers Road, are just two factors that detract from the properties’ redevelopment appeal and values. This is reflected in an email Mr Crawford sent to Ms Doig on 13 November 2022 when Crawford Group was faced with the prospect of not settling on the due date. Mr Crawford wrote that if he could not get an extension to settle on the Blackwater properties “I am not interested in owning the other piece”, clearly referring to the Smiths’ property.
[68] Mr Naylor was asked how, if the three Blackwater properties and the Smiths’ property were sold separately, that would affect the value of the properties on a per square metre rate. Mr Naylor said his “gut feel” was that it would do so by “probably
$50-$75 a metre”. The combined area of the four properties is 3,639 square metres so that is significant and goes some way to explaining the different conclusions reached by Mr Naylor and Mr Collins as to the properties’ values.
[69] I consider Mr Naylor has generally not selected suitable comparators in his valuations. For instance, in his valuation of the properties at 16 November 2022 only two of the 17 comparator sales he relied upon related to properties in Phillipstown. He also included sales from as early as February 2022, nine months prior to the effective date of the valuation and at the very peak of the market, which thereafter went into a rapid decline. In respect to his valuation of the properties at 12 May 2023, Mr Naylor relied upon 16 comparator sales, of which only two relate to properties in Phillipstown. There are eight sales in Sydenham, which Mr Naylor accepted is a superior location. In this respect, Mr Naylor emphasised the importance he placed on these sales when he stated in his valuation, “The best sales that we consider appropriate would be the Sydenham sales but also the sale of 616 Worcester Street”.
[70] Also, while Mr Naylor considered that the highest and best use of the properties was as a redevelopment site, it appears some sales he relied upon were not for redevelopment purposes. Despite initially asserting that all the sales were made to developers for the purposes of redevelopment, he accepted in cross-examination that only 11 of the 16 sales were to developers. Mr Collins put the number higher than that. Mr Naylor then contended, unrealistically in my view, that while the properties in question were sold to individuals “who did the houses up” they were still sold as redevelopment sites. In taking this approach Mr Naylor took no account of the value of improvements on the properties in assessing values.
[71] Based on the comparator sales he selected, Mr Naylor adopted a rate of $710 per square metre for 46, 48 and 50 Olivers Road and $770 per square metre for 44 Olliviers Road. That is incongruous with his assertion the properties should be valued as one redevelopment site. Further confusion arises because he says in his valuation report:
We are aware of a number of smaller sales in the immediate area that sold below these figures however the development site gives a very good frontage and depth and scope to be able to build an appealing block of units on them.
I do not see how that explains the decision to not include sales in Phillipstown and to rely on sales in superior areas.
[72] Mr Naylor’s reliance upon sales of superior properties would not have been of such concern had he demonstrated he had made adjustments to account for this and other differences between those properties and the subject properties. The International Valuation Standards (effective 21 January 2022), which Mr Naylor acknowledged, state that it will often be necessary to make adjustments based on the comparative analysis of properties and that “[t]hose adjustments must be reasonable and valuers must document the reasons for the adjustments and how they were quantified”.25 While Mr Naylor said he made such adjustments, there is nothing in his reports to indicate he did in fact do so, what factors he relied upon to make them or how he quantified them to arrive at his adopted values.
[73] There are errors in Mr Naylor’s valuations. As an example, in one instance he said that the sale of a property at 325 Cashel Street should be deleted from his report as he could not find evidence of the sale. He also acknowledged that a paragraph of his 10 October 2023 valuation report made no sense. In that paragraph, in apparent contradiction of his view that the highest and best use of the properties was as a redevelopment site, Mr Naylor stated “… if this property was to be exposed to the open market then there would be more interest on [sic] a smaller block rather than as a single redevelopment site”. It is the case that Mr Collins’ reports also contain some errors, but I consider them less significant than those in Mr Naylor’s reports.
[74] There is also what I consider to be a troubling valuation by Mr Naylor of 46 Olliviers Road dated 3 November 2022 that he completed on the instructions of Mr Crawford. The valuation was for “mortgage lending purposes” and states the property is a development site. The report contains information that is materially incorrect, stating:
As indicated the property is situated off Olliviers Road but borders onto other properties owned by the existing developer and this give the overall project a larger more utilisable total area and we have factored this into our overall valuation.
25 The International Valuation Standards (effective 21 January 2022) at [20.5].
This is incorrect because Crawford Group did not own other properties that could be redeveloped along with 46 Olliviers Road and it should not, in my view, have been factored into Mr Naylor’s valuation.
[75] Further, in that valuation report Mr Naylor concluded that the market value of 46 Olliviers Road was $1,055,000 ($950 per square metre). That figure is surprisingly close to the $1,054,500 Crawford Group agreed to pay Mr and Mrs Smith for the property upon settlement on 16 November 2022, despite the fact the market had been in decline from early 2022.
[76] In his later valuation (prepared on 10 October 2023 for this proceeding) Mr Naylor assessed the market value of 46 Olliviers Road at 16 November 2022 as
$882,450. He has therefore prepared valuations of the same property with effective dates less than two weeks apart but adopted very different values.
[77] Mr Naylor’s explanation for this is not convincing. He said that at the time of his 3 November 2022 valuation the “market was at its peak, absolute peak”. It was not.
[78] He also suggested that his later valuation was informed by how the market had in fact performed after 3 November 2022. I do not accept this explanation either. To my mind, Mr Naylor’s valuation was not justified on the evidence available to him. It appears to me that the sales comparators Mr Naylor relied upon were not suitable, relating mostly to sales in superior locations and at or close to peak prices without taking account of the trends he identified in his report reflecting a rapid decline in the residential property market.
[79] Further, when one compares Mr Naylor’s valuation reports of 3 November 2022 and 10 October 2023 there is confusion as to his GST treatment of comparator sales which he accepted was going to “warp” his figures.
[80] Overall, I accept Ms Bevin’s submission that the 3 November 2022 valuation brings into question the reliability of Mr Naylor’s valuations of the subject properties.
[81] By comparison, Mr Collins principally relied upon comparators in the Phillipstown area and often in the same street as the subject properties. The comparator sales are close in time to the effective dates of valuation. He clearly identified whether he considered the comparator sales to relate to an inferior, comparable or superior property. While Mr Collins has not quantified his adjustments between the comparator and subject properties, he identified the differences between the properties. Further, in each case Mr Collins assessed the land value exclusive of improvements. Mr Collins inspected all properties, including the improvements, both externally and internally and placed weighting on those improvements.
[82] Mr Naylor made several criticisms of Mr Collins’ valuations. First, he said Mr Collins has concentrated on the lower end of the development market to determine his values. Similarly, Mr Taylor submits that Mr Collins selected sales of properties that were “significantly worse” than the subject properties or ignored sales relied upon by Mr Naylor that supported a higher figure. I do not accept this criticism. Mr Collins’ approach was to look for comparable sales evidence in the locality of the subject properties, rather than looking for higher or lower sales evidence in other locations when that was not necessary.
[83] Mr Naylor then said Mr Collins’ evidence that land rates dropped significantly between 2022 and 2023 was “a bold call particularly without proof”. Mr Naylor said the market eased from 2021 and then there was little change in the market through to May 2023. I find the market did continue to fall through to May 2023. This is implicit in Mr Naylor’s own valuations. He valued the subject properties at both 16 November 2022 and 12 May 2023, and has shown a fall in value of each property. It is also confirmed by the following exchange between Mr Taylor and Mr Naylor:
Mr Taylor The question again Mr Naylor you have said at 16 November a total value of roughly, well 2.93 million and come 12 May ’23 it is 2.62 million. Can you comment on what happened over that period?
Mr NaylorYeah well the market was certainly showing signs of decline. No two ways about that. The issues that were coming to fore with developers were the Enabling Housing Act that was prevalent in the news around Christchurch and what land may be opened up for development and therefore the RMD and RSTD land may not have been as valuable because other land could be developed to a higher level. Also at that stage
building costs were just inflationary and so there was a lot of issues going down and so the market was in a bit of freefall really.
[84] Mr Naylor then said Mr Collins has not taken into consideration the overall appeal of the subject properties for redevelopment and that the highest value of the land is achieved by the sale of all properties together. This simply reflects what I consider to be Mr Naylor’s incorrect approach as to the highest and best use of the properties.
[85] Mr Taylor submits Mr Collins’ evidence should be disregarded because he understated the difference between properties zoned Residential Medium Density (RMD) and Residential Suburban Density Transition (RSDT). The subject properties are zoned RMD. Mr Naylor was of the view that a developer would pay a premium for RMD land because it allows for more intensive development. Mr Collins was mindful of the zoning of the properties but did not accept there was a significant difference between RSDT and RMD land. However, he has not ignored the zoning issue and throughout his reports identified instances where comparator properties are zoned RSDT.
[86] I take the view that the difference between RSDT and RMD land is not a significant matter here where the highest and best use of the properties is not for redevelopment but as improved properties. This was also not a matter Mr Naylor emphasised in his valuation reports. In his answer to questions from Mr Taylor, Mr Naylor provided an example where he considered the difference in the sale prices of two properties could be explained on the basis that one was RMD land and the other RSDT land. That example concerned 99 King Street and 54 Tennyson Street, both said to be in Sydenham and both sold in May 2023. This example was not put to Mr Collins in cross-examination to comment upon, and there is insufficient evidence concerning those properties and the circumstances of their sale to draw any conclusions about the matter. Mr Naylor has otherwise only speculated that a higher price may have been paid for certain properties had they been zoned RMD.
[87] Finally, Mr Naylor’s evidence, set out in [83] above, suggests that the advantages of RSTD and/or RMD zoning may not have been as significant as
previously due to the introduction of the Resource Management (Enabling Housing Supply and Other Matters) Amendment Act 2021 which passed into law on 20 December 2021.
[88] Mr Taylor then argues that Mr Collins accepted that the purchase price for the properties under the agreements with Crawford Group were around the market value and that a catastrophic decline in values, as was suggested by his valuations, was not demonstrated on the evidence. In fact, Mr Collins’ evidence was that the price Crawford Group agreed to pay was at the absolute peak of the market. He gave examples where the same properties had been sold more than once over the relevant period as evidencing the magnitude of the declining market. It is important to note that there is no evidence any of the properties were marketed for sale before Crawford Group agreed to purchase them and, indeed, the evidence is that the Blackwater properties were offered only to Mr Crawford. It cannot therefore be inferred that the prices Crawford Group agreed to pay reflected the market value of the properties. It appears to me all the evidence suggests Crawford Group agreed to pay well above the market value of the properties.
[89] Looking at all the evidence before me, I am satisfied Crawford Group purchased the plaintiffs’ properties in a booming market and at peak prices. It also agreed to pay an additional $100,000 for the Blackwater properties to reflect the long settlement date. It was then faced with a market that went into significant decline from late 2021/early 2022. Property prices had fallen dramatically by November 2022. There can be no doubt about this, even on Mr Naylor’s evidence. The prices Crawford Group agreed to pay a year earlier were well above anything that could have been achieved in November 2022. I also am satisfied property prices then continued to fall after November 2022.
[90] For the reasons I have set out above, I do not accept Mr Naylor’s valuations. I accept Mr Collins’ evidence that the highest and best use of the properties is as individual improved properties, and the best evidence of their values is sales of comparable properties in the immediate location and close in time to the effective date of valuation. I have looked closely at Mr Collins’ valuations, particularly the individual valuation reports for each property dated 26 April 2023. While it appears
to me that Mr Collins has taken a conservative view, I am satisfied there is no principled basis upon which I could adopt different values than those he has determined.
[91] I therefore adopt as the value of the properties at the date of cancellation of the agreements the following:
(a) 44 Olliviers Road $490,000 (b) 46 Olliviers Road
$570,000
(c) 48 Olliviers Road
$530,000
(d) 50 Olliviers Road
$560,000.
Penalty interest
[92] The plaintiffs claim penalty interest at the contractual rate to the date of cancellation. They argue that penalty interest is routinely awarded to vendors where a purchaser has failed to settle and the vendor has subsequently cancelled the contract.26 They submit that, as the payment of penalty interest is provided for in the contract, it was clearly in the contemplation of the parties.
[93] Crawford Group’s first challenge to this claim is that, if damages are assessed at 16 November 2022, then no penalty interest can be due. For the reasons set out above, I have found that damages should be assessed at the date of cancellation.
[94] Crawford Group then submits there is no specific clause in the agreements that deals with the circumstance where a vendor cancels for breach by the purchaser but chooses to retain the property. Mr Taylor submits that cl 11.4(3) of the agreements (set out at [13] above) provides only for the payment of penalty interest where the purchaser ultimately settles or the vendor cancels and resells the property. He contends, in the absence of a clause dealing with the circumstance of the vendor
26 BCH Investments Ltd v Seal Construction Ltd, above n 13, at [63].
choosing to hold the property after cancellation, penalty interest is not payable. Mr Taylor submits this make sense if the vendor will not suffer a loss of use of money having chosen to retain the property, and that the interpretation he advances is supported by cl 3.12 dealing with payment of penalty interest for late settlement. Mr Taylor advises, also, that he has been unable to locate any authority where penalty interest has been held to be payable where a vendor has retained the property following cancellation. He accepts there are many cases where penalty interest has been payable both upon a delay in settlement or where the vendor cancels and resells.
[95] I do not accept Crawford Group’s argument, which I consider rests on an incorrect interpretation of cl 11.4(3). I get guidance on this issue from the Court of Appeal’s judgment in Mana v Fleming.27
[96] The facts in Mana v Fleming were that in October 2004 the parties had entered into an agreement for sale and purchase of the appellants’ property to the respondents. The agreement was subject to and conditional upon the respondents selling their existing property by 31 December 2004. They did not do so, the appellants cancelled the agreement and, on 3 April 2005, entered into an agreement to sell the property to another party at a substantial loss with settlement to occur on 9 December 2005. The High Court found that the respondents were in breach of the agreement by failing to do all things reasonably required to enable them to sell their property, and entered judgment for the appellants for the shortfall upon the resale and for penalty interest on that amount until 9 December 2005. The appellants appealed to the Court of Appeal seeking, among other things, contractual interest on the full amount of the sale price. The respondents cross-appealed against the High Court’s primary finding that they had breached the contract.
[97] Relevantly for present purposes, the Court of Appeal considered the relationship between what were cls 3.9(1) and cl 9.4(3) of the 7(2) July 1999 edition of the REINZ/ADLS agreement for sale and purchase. These provisions were in similar terms to cls 3.12 and 11.4(3) of the agreements in this case.
27 Mana v Fleming, above n 18.
[98]Importantly for present purposes, the Court of Appeal said the following:28
[60] In our judgment cl 9.4(3)(a) expressly affirms a vendor’s right to recover contractual interest from a defaulting purchaser on the unpaid amount of the purchase price following cancellation. The loss of interest suffered by the vendor is a recognised head of special damage which is the same in type or character whether arising from late settlement or cancellation leading to resale. Both losses are legally attributable to and consequential upon the purchaser’s default. (Cancellation is irrelevant in this contractual context. Ordinarily the right to interest ceases on cancellation: s 8(3) Contractual Remedies Act 1979; however, by this agreement it extends the period to actual settlement.)
[61] Also, as cls 3.9(1) and 9.4(3)(a) confirm when read in conjunction, the purpose of payment of contractual interest is to compensate the vendor for loss of the use of the full amount of the purchase price from due date until receipt. The right in both cases expressly applies synonymously to “the portion of the purchase price so unpaid” or “the unpaid portion of the purchase price”. The right is not limited to the amount of the shortfall; this is a part only of “the unpaid portion of the purchase price” – here that is the full amount
– of which the vendor is deprived throughout the default period. The shortfall is a conceptually different loss with different financial consequences for the vendor which does not crystallise until settlement of the resale to another party.
[99] While Mr Taylor submits that cl 11.4(3) “sets out the specific mechanism and categories of loss that can be claimed when a vendor elects to [resell]”, the clause is not so limited. It refers to “damages claimable by the vendor under subclause 11.4(1)(b)(ii)”, which “includes all damages claimable at common law or equity” not only losses upon a resale of the property. To the extent that cl 11.4(3) provides that interest for late settlement is payable from the settlement date to the date of settlement of a resale contracted within one year, it limits the period for which interest can be claimed. However, it does not imply, as Crawford Group would have it, that no penalty interest is payable in the event the injured vendor elects not to resell.
[100] Mr Taylor submits the interpretation he advances is supported by cl 3.1. I consider the opposite to be the case, when under that clause the defaulting purchaser has a mandatory obligation to pay penalty interest. As the Court of Appeal stated in Mana v Fleming:29
[57] Clause 3.9(1) provides a useful starting point for determining the extent of the trust’s right of recovery following the purchaser’s cancellation.
28 Mana v Fleming, above n 18.
29 Mana v Fleming, above n 18.
The terms of the clause are mandatory. It renders a defaulting purchaser liable to pay contractual interest for the period of any default until actual settlement. So, for example, if the Flemings’ contract had remained extant but they failed to settle until 9 December 2005, the date of settlement of the Holt contract, they would have been liable to pay contract interest on the full amount of the purchase price, $860,000, throughout the default period. The vendor’s right of recovery is unaffected by possession. (However, if the property is leased, the vendor must account to the purchaser for rents or retain them in lieu of its right to interest: cl 3.9(2). This provision excludes a right of double recovery through retaining both the benefit of income from a leased property together with contractual interest. The trust’s property was not of that nature.
[58] Why, then, should there be a distinction in principle in the amount recoverable in the same circumstances because the trust settled with Ms Holt instead of with the Flemings? The agreement expressly recognised the trust’s right to sue for damages on resale to Ms Holt: cl 9.4(1)(b)(ii). They are defined as “all damages claimable at common law or in equity.”: cl 9.4(3). They shall include “any loss incurred by the vendor …” on a contract of resale. Mr Akel accepts that the shortfall or deficiency on resale to Ms Holt falls into this category.
[101] I can see no reason in logic or principle why a vendor in the place of the plaintiffs should be deprived of interest for late settlement because upon cancellation they retained their property. Whether they resold or not, the plaintiffs were deprived of the use of the money payable by Crawford Group. It is also the case that in some instances an innocent vendor may have no option but to retain their property if, for instance, despite their best efforts they cannot obtain a resale. That was the case in Hooper v Oates.30 I do not see how it could be that a party in breach should benefit from having put the vendor in that unfortunate circumstance.
[102] Finally, Mr Taylor suggests that to allow the plaintiffs’ claims for penalty interest would confer on them a substantial windfall. That argument was raised and rejected by the Court of Appeal in Mana v Fleming as resorting to a subjective view of what is fair and reasonable rather than relying on the relevant contractual terms.31 I agree.
[103]For those reasons, I allow the plaintiffs’ claims for penalty interest.
30 Hooper v Oates, above n 16.
31 Mana v Fleming, above n 18, at [64].
Outgoings
Blackwater
[104] The evidence is that Blackwater was not intending to purchase another property with the proceeds of sale. Since the settlement date it incurred outgoings for insurance, rates and maintenance of its properties. It says the outgoings are losses that ordinarily flow from Crawford Group’s breach and are recoverable from it. As the properties were tenanted, it accepts that the rental income it received to the date of cancellation must be deducted from the losses claimed.
[105] Crawford Group says Blackwater cannot recover both penalty interest and outgoings. It also says the maintenance costs are not recoverable as Blackwater’s director, Mr Armstrong, cannot be reimbursed for his own labour. I disagree with these submissions.
[106] I accept the outgoings are losses incurred by Blackwater that ordinarily and naturally follow from Crawford Group’s failure to settle. The claims for penalty interest and outgoings are conceptually different, and cl 11.4(3) contemplates that outgoings may be claimed in addition to penalty interest.
[107] I also see no reason why Blackwater should not recover maintenance costs. The evidence satisfies me that maintenance was undertaken by a related company, Blackwater Management Ltd. There is nothing to suggest such work was not undertaken or not a genuine expense. There is no evidence the charges were unreasonable. It makes no difference, in my view, that Mr Armstrong himself provided labour.
The Smiths
[108] The Smiths have claimed interest payments under their mortgage following the settlement date as outgoings. They say as there was a mortgage registered over the title to their property it was within the reasonable contemplation of the parties that they might have to make such payments, and had Crawford Group settled they would have been mortgage-free and the interest payments would not have been incurred.
[109] I do not allow this claim. The Smiths’ claim is for interest. Under cl 11.4(3)(c) of the agreement outgoings in respect of the property are recoverable “other than interest”. Further, I have allowed the Smiths’ claim for penalty interest, which is compensation for loss of the use of the sale proceeds which would otherwise have been used to repay their mortgage.32 They cannot recover twice for what is essentially the same loss.
Losses relating to the Alport Place property
[110] The Smiths have claimed wasted legal costs of $1,737 and the forfeited deposit of $30,000 in respect of the failed purchase of the Alport Place property. The Smiths were unable to settle when Crawford Group defaulted on its purchase of 46 Olliviers Road.
[111] For the Smiths, Ms Bevin submits it is inarguable that these losses arise directly from Crawford Group’s default. She submits I should accept the evidence of Ms Doig that Mr Crawford was aware the Smiths were owner-occupiers of the property, and that on this basis it was within the reasonable contemplation of Crawford Group both that they would need to buy another home and if Crawford Group did not settle that could prevent that purchase. She argues Mr Crawford’s knowledge can also be inferred from assurances Mr Crawford gave to the Smiths that he would complete the purchase of 46 Olliviers Road.
[112] Crawford Group advances two arguments in opposition to this head of claim. First, that these losses were not in the reasonable contemplation of the parties at the time Crawford Group agreed to purchase 46 Olliviers Road. In this respect, Mr Taylor argues Mr Crawford was not aware the Smiths occupied 46 Olliviers Road. He relies on Mr Crawford’s evidence that he recalled seeing on the agreement for sale and purchase reference to the property being subject to a tenancy. Second, that Crawford Group’s breach of the agreement did not cause the Smiths’ losses in circumstances where the Smiths’ agent, Ms Doig, was aware of the risk that settlement would not occur for the reason I have already set out in [45] above.
32 Mana v Fleming, above n 18, at [61].
[113] I am satisfied on the balance of probabilities that Mr Crawford was aware at the date of the agreement that the Smiths were owner-occupiers of 46 Olliviers Road. Ms Doig said she told Mr Crawford the Smiths lived at the property when the agreement was entered into and, as I noted earlier, I accept her evidence in preference to the evidence of Mr Crawford. I consider Mr Crawford’s reliance upon the front page of the agreement cannot be correct when there are no tenancies listed in Schedule 3 of the agreement. If, as he said, he read the agreement he would have noticed there were no tenancies listed. It is also implausible, in my view, that a developer in Mr Crawford’s position would not make enquires regarding the occupancy of the property. The position that Crawford Group adopts does not sit well with the argument it advances that a developer would be prepared to pay a higher price for a property that was tenanted. If that was so, one would expect the developer to enquire whether the property was in fact tenanted or owner-occupied.
[114] I consider the Smiths’ losses under this head were reasonably foreseeable and are claimable as naturally arising from Crawford Group’s breach of the agreement. In Yu v Bradley an issue arose as to whether the High Court was in error in awarding bridging finance as damages.33 The Court of Appeal considered that the reality of conveyances of residential property in New Zealand is that many sellers will commit themselves concurrently to buying another property. The Court agreed with the observations of Muir JA in Mullins v Kelly-Corbett in the Queensland Court of Appeal as follows:34
[47] The contract was for the sale and purchase of a dwelling house in which the vendor resided. A reasonable person in the position of the respondent would have realised that: the appellant was likely to have been moving from one dwelling house to another; a replacement dwelling would be likely to be purchased; it was likely that the net proceeds of sale under the contract would be applied by the respondent towards the purchase price of the new dwelling and that a necessity to obtain bridging finance and/or to meet losses incurred by the vendor of the replacement premises could result from a failure to settle under the contract. All of these possibilities were ones which should have been in the reasonable contemplation of both parties at the time of the contract as the probable result of the breach of it.
[48] … it is not necessary for the appellant to have been aware of the respondent’s financial and other contractual arrangements. The principles
33 Yu v Bradley [2022] NZCA 378, (2022) 23 NZCPR 902, citing Johnson v Agnew [1980] AC 367 (HL) at 391, [1979] 1 All ER 883 (HL) at 888.
34 Mullins v Kelly-Corbett [2010] QCA 354.
operate in relation to types of loss which a reasonable person would have had in contemplation.
[115] While the Smiths are not claiming bridging finance but the loss of a deposit and legal costs, the approach taken in Yu v Bradley is applicable. Crawford Group would have realised that the Smiths were likely to require the proceeds of sale of 46 Olliviers Road to acquire a new home, and that if it did not settle they would suffer losses of the kind they did in fact incur.
Legal costs
[116] Blackwater has claimed for legal costs it says are a natural result of Crawford Group’s breach over and above usual conveyancing fees on the sale of its properties. It has produced two invoices to support the claim. The first is from Cavell Leitch dated 19 December 2022 for $4,075, the second is from Mortlocks Lawyers dated 13 April 2023 for $3,781.95.
[117] Crawford Group says any legal costs incurred before 16 November 2022 are not claimable as damages cannot logically be incurred prior to a breach. It also says costs incurred after 16 November 2023 relate to seeking advice on a breach of contract and are not recoverable. No authority was cited for this latter proposition.
[118] I do not allow the legal costs of Cavell Leitch. The bill of costs has no narration of the services provided or the basis upon which the fees have been calculated and charged. Those fees may relate to services in relation to the issue and conduct of this proceeding, in which case Blackwater may be compensated when costs of the proceeding are considered.
[119] I do not allow the legal costs of Mortlocks Lawyers either. These relate to services during the period 7 November 2022 to 21 December 2022. Some of the legal costs would have been incurred in any event had the agreement been performed and are not recoverable where Blackwater is suing for loss of its bargain.35 It also appears some of the costs relate to managing the firm’s potential conflict and in assisting Cavell Leitch to commence proceedings.
35 D W McMorland Sale of Land, above n 6, at 12.56(a).
[120] I accept there were some costs incurred in directly responding to Crawford Group’s breach. However, to my mind, it is also the case Blackwater would have incurred further costs had the agreement been performed according to its terms, which should be taken into account and set-off against any amount Blackwater might otherwise be entitled to. I therefore disallow this claim.
Expert evidence costs
[121] Both Blackwater and the Smiths claim for the costs incurred to obtain expert valuation evidence. I consider these are disbursements in the proceeding and can be dealt with at the time costs are determined.
Assessment of loss
[122] In respect to the claim by Blackwater against Crawford Group and Mr Crawford, I find Blackwater is entitled to damages, being:
(a)Difference in value: This is made up of the difference between what Blackwater would have received had Crawford Group settled in accordance with the agreement and the value of the properties at the date of cancellation as follows:
(i)under the agreement Blackwater was to be paid $2,500,000, Crawford Group paid a deposit of $125,000 leaving a balance payable of $2,375,000;
(ii)the value of Blackwater’s properties at the date of cancellation of the agreement was $1,580,000; and
(iii) $2,375,000 less $1,580,000 equals $795,000.
(b)Default interest: Blackwater is entitled to penalty interest on the unpaid portion of the purchase price at the default rate of 14 per cent per annum from the settlement date to the date of cancellation in the sum of
$163,971.
(c)Outgoings: Blackwater is entitled to outgoings between the date of settlement and the date of cancellation in the amount of $8,757.35.
(d)Less rental income received to 15 May 2023: Blackwater received rental income to 15 May 2023 of $25,378.58 which it accepts must be off-set against the losses above.
[123] In respect to the claim by the Smiths against Crawford Group, I find the Smiths are entitled to damages being:
(a)Difference in value: This is made up of the difference between what the Smiths would have received had Crawford Group settled in accordance with the agreement and the value of the property at the date of cancellation as follows:
(i)under the agreement the Smiths were to be paid $1,054,500 and Crawford Group paid a deposit of $105,450, leaving a balance payable of $949,050;
(ii)the value of the Smiths’ property at the date of cancellation of the agreement was $570,000;
(iii) $949,050 less $570,000 equals $379,050.
(b)Default interest: The Smiths are entitled to penalty interest on the unpaid portion of the purchase price at the default rate of 14 per cent per annum from the settlement date to the date of cancellation in the sum of $65,523.45.36
(c)Alport Place transaction: The Smiths are entitled to recover the deposit of $30,000 forfeited on the purchase of the Alport Place property and
$1,737 for legal fees.
36 This is a slightly smaller amount than was claimed as I do not consider the calculation provided was correct.
Result
[124] In accordance with paragraph [122] above, I enter judgment for Blackwater against Crawford Group Ltd and Harry Shand Crawford in the amount of $942,349.77.
[125] In accordance with paragraph [123] above, I enter judgment for the Smiths against Crawford Group Ltd in the amount of $476,310.45.
[126] Interest is payable on the amounts in paragraphs [124] and [125] from the date of cancellation of the agreements, being 15 May 2023, to the date of payment in accordance with ss 10 and 22 of the Interest on Money Claims Act 2016.
[127] The plaintiffs are entitled to costs and reasonable disbursements, including experts’ fees. I direct counsel to confer in anticipation that they will reach agreement on the quantum of such costs and disbursements. In the event they are unable to do so, the plaintiffs may file a memorandum asking for costs to be fixed within 25 working days of this judgment and the defendants will have 10 working days to respond. Any decision on costs shall be determined on the papers. Memoranda shall not exceed six pages in length.
O G Paulsen Associate Judge
Solicitors:
Cavell Leitch, Christchurch Wynn Williams, Christchurch
SCHEDULE
Blackwater Loss Description
Blackwater Claim
Crawford Position
Valuation – loss of bargain
$920,000.00
$451,160.00
Outgoings – insurance
$2,860.20
$0
Outgoings – rates
$3,967.20
$0
Outgoings – maintenance/lawns
$1,929.95
$0
Legal fees
$3,781.95
$4,075.00
$0
Cost of valuation
$2,553.00
$0
Penalty interest
$163,971.00
$0
Less:
Rental income received to 15 May 2023
$25,378.58
$25,378.58
Deposit received
$125,000.00
$125,000.00
Total
$952,759.72
$300,781.42
Smiths’ Loss Description
Smiths’ Claim
Crawford Position
Valuation – loss of bargain
$484,500.00
$172,050.00
Outgoings – mortgage payments
$3,006.63
$0
Legal fees
$1,737.00
$0
Cost of valuation
$851.00
$0
Deposit forfeited for new purchase – Alport Place
$30,000.00
$0
Penalty interest
$68,450.40
$0
Less:
Deposit received
$105,450.00
$105,450.00
Total
$483,095.03
$66,600.00
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