Bos International (Australia) Ltd (ABN 066601250) HC Auckland CIV 2009-404-5589
[2010] NZHC 2043
•28 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-005589
BETWEEN BOS INTERNATIONAL (AUSTRALIA) LTD (ABN 066601250)
Plaintiff
ANDSTEPHANIE KATHERINE MURPHY First Defendant
ANDTIMOTHY MILTON MURPHY Second Defendant
ANDDAVIDSON ARMSTRONG AND CAMPBELL TRUSTEE SERVICES LTD Third Defendant
Hearing: 9 September 2010
Counsel: R G Simpson for Plaintiff
P J Wright for Defendants
Judgment: 28 September 2010
JUDGMENT OF ASHER J
This judgment was delivered by me on Tuesday, 28 September 2010 at 3pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Bell Gully, PO Box 4199, Shortland Street, Auckland 1140. DX CP20509
Davidson Armstrong & Campbell, PO Box 54, Waipukurau 4242P J Wright, PO Box 4338, Shortland Street, Auckland 1140.
BOS INTERNATIONAL (AUSTRALIA) LTD (ABN 066601250) V STEPHANIE KATHERINE MURPHY AND ORS HC AK CIV-2009-404-005589 28 September 2010
Introduction
[1] Bos International (Australia) Ltd (“Bos”) has issued proceedings seeking specific performance of an agreement for sale and purchase (“the agreement”) of Unit 20, 48 Marine Parade, Mt Maunganui (“the property”). The defendants are all trustees of the purchaser, the Murphy Finance Trust (“the Murphy Trust”). In March
2010 Bos sought summary judgment against the trustees. In a judgment of 31 March
2010 that application was dismissed. Now the Murphy Trust as defendant seeks summary judgment against the plaintiff including an order dismissing Bos’s claim.
Background
[2] Bos is the assignee of the original vendor of the property Poh Trustee Ltd (“Poh”). On 6 December 2007 Poh and the Murphy Trust entered into an agreement for sale and purchase of the property. The purchase price was $1,228,500 inclusive of GST. There was no date specified for settlement and it was defined in paragraph
5.2 of the agreement as being the later of three different dates, including at 5.2(a) the fifth business day after the date the vendor’s solicitors provided to the purchaser or the purchaser’s solicitors the certificate of practical completion.
[3] The agreement was an underwriting agreement under which the Murphy Trust was to receive a cash fee if there was a sale to a third party. Purchase by the Murphy Trust itself was a back up position with the underwriting agreement requiring the purchaser to purchase the property for the stated purchase price on receiving written notice from the financiers. The settlement clause at paragraph 5.5 provided:
Upon the balance of the Purchase Price, interest and other money, if any due under this agreement being paid or satisfied as provided in this agreement and in any collateral or related agreement affecting the Units or their contents, the Vendor shall concurrently hand to the Purchaser a registrable memorandum of transfer of the units, to be prepared by and at the expense of the Purchaser and tendered to the Vendor or the Vendor’s solicitors at least 3
Business Days prior to the Settlement Date together with all other instruments in registrable form which may be required for the purpose of
registering the memorandum of transfer together with all instruments of title.
In the event that settlement can be completed by an eDealing then the parties
shall complete the settlement in terms of the New Zealand Law Society guidelines for eDealing.
(emphasis added)
[4] The practical completion certificate was provided on 23 April 2009 and a code compliance certificate on 20 April 2009. On 20 May 2009 Bos and one of its financiers, Strategic Finance Ltd, sent a letter giving notice requiring the purchasers to complete settlement, and stating that settlement was to take place on 9 June 2009.
[5] On 26 May 2009, the Murphy Trust’s lawyer Bridget Chrystall of Davidson Armstrong & Campbell (“DAC Legal”) wrote to Knight Coldicutt, the lawyers for Poh, advising that there were “outstanding discrepancies regarding non-compliance by the developer or the specifications for the unit” and asked for a list of defects. Knight Coldicutt responded on the same day stating that the development had been completed in accordance with the requirements of the agreement and asking for settlement in full without deduction.
[6] There were further exchanges on 27 May 2009 between the parties’ solicitors. On 3 June 2009 Knight Coldicutt wrote to DAC Legal forwarding a settlement statement and related documents. Clearly the settlement was going to proceed by way of an eDealing. Attached to the letter was a settlement statement and a document headed “requirements of settlement by direct credit”. Paragraphs 4 and 5 of that document read:
4.We accept electronic transfer together with your undertakings that they are cleared funds and will not be reversed.
WE MUST RECEIVE YOUR FAX CONFIRMATION NO LATER THAN 3.30PM on the date of settlement. If you are unable to complete this transaction by this time we reserve the right to require personal settlement.
5.Prior to settlement we will provide our undertaking that we have signed and certified the title documents and will release the instruments into your control workspace on Landonline upon receipt of the settlement funds in accordance with our requirements. Settlement monies shall be deemed not to have been received by us until we receive faxed confirmation of deposit of funds.
(emphasis added)
[7] DAC Legal queried the settlement statement on 5 June 2009 and on the same day an amended settlement statement was forwarded by Knight Coldicutt. On 8 June
2009 DAC Legal advised Knight Coldicutt of a list of defects and drew to Knight Coldicutt’s attention the fact that there was no authorised management contract in place. It queried the appropriateness of including a cost for a management contract as part of the Body Corporate levy and sought confirmation of other related matters.
[8] There was no settlement on 9 June 2009. Knight Coldicutt responded to the
DAC Legal letter on 11 June 2009. It was stated at paragraph 2:
As the management charges are in the Body Corporate budget and included in the annual levy, they need to be collected. If they are not spent by the Body Corporate in full then they will remain in the Body Corporate account as a surplus for future levy years. We have provided in our settlement statement an undertaking that the Body Corporate levy for unit 20 will be paid from the settlement proceeds.
[9] On 11 June 2009, DAC Legal wrote to Knight Coldicutt giving formal notice under clause 12 of the agreement requiring settlement on or before the 20th working day from the date of service of the letter. The next day, 12 June 2009, Knight Coldicutt wrote confirming that the settlement would be carried out electronically, and providing the usual standard eDealing undertakings to release the transfer and the three discharges of mortgage and stating:
Please note that the above undertakings are only valid for settlement being take (sic) place no later than 16 June 2009 and that should settlement not take place by 16 June 2009 we will provide new undertakings.
Thus, as at 12 June 2009 a settlement notice had been served by the purchaser and the vendor had responded immediately offering to settle.
[10] On 15 June 2009, Knight Coldicutt sent a signed management agreement to DAC Legal. There were some telephone exchanges during this period between the respective solicitors. On 16 June 2009 Knight Coldicutt wrote to DAC Legal referring to a wish to discuss the residual issues and stating:
We confirm our client is in all material respects ready, able and willing to settle the sale.
If your client failed to complete settlement by 5pm today we have instructions to issue settlement notice against your client.
[11] On 17 June 2009, DAC Legal wrote back to Knight Coldicutt seeking confirmation that all defects in the property had been remedied and raising various queries about the management agreement. It also queried whether the vendor had paid its share of the Body Corporate levy and whether the Body Corporate insurance premium had been paid. The purchaser required that this be paid in full to 1 May
2010. Confirmation was sought as to the extent of the coverage of the policy. There were discussions between the lawyers.
[12] On 23 June 2009, Knight Coldicutt responded saying that the defects had been remedied, commenting that the management contract was on standard commercial terms and that the Body Corporate fees would be paid by way of deduction from settlement. Knight Coldicutt stated it would recommend to its client that from the settlement sufficient money be paid to the Body Corporate so that the insurance premium could be paid for the entire year. In the penultimate paragraph it was stated:
As you are aware our client has been ready, willing and able to settle for some time. You have served a settlement notice and yet have continued to fail to settle. We have indicated to you that we would prefer not to serve a settlement notice on you but will recommend to our client that a settlement notice is now served.
[13] By 1 July 2009 Bell Gully had been instructed by Bos as assignee from Poh. Bell Gully assumed the role of solicitor for the vendor. On 1 July 2009, Bell Gully wrote to DAC Legal stating:
The settlement date under the Agreement was 9 June 2009. Your client now has 7 days from the date of this letter within which to settle the Agreement, failing which [Bos] will file proceedings against your client seeking specific performance of your client’s obligations under the Agreement, without further notice to you or your client.
[14] A further letter was sent by Bell Gully to DAC Legal on 2 July 2009 stating that the vendor was ready, willing and able to complete settlement, noting that the Murphy Trust was in default and stating that the letter was a settlement notice issued under clause 12 of the agreement.
[15] On 9 July 2009, DAC Legal wrote to Knight Coldicutt and Bell Gully giving notice that the purchaser had cancelled the agreement.
The positions of the parties
[16] Against this factual background the Murphy Trust asserts that it has validly cancelled the agreement. There are a large number of matters at issue between the parties but Mr Wright in his submissions helpfully narrowed the grounds for cancellation relied on for the purposes of this summary judgment application. He relied on two matters. The first was that the plaintiff had failed to take steps to settle within the period stipulated in the purchaser’s settlement notice of 11 June 2009 (“the purchaser’s settlement notice”). The purchaser was able to cancel and had validly done so as a result of the vendor not having effected settlement on or before
the 20th working day from the date of service of the letter.
[17] The second ground relied on was that it was a term of the agreement that any management agreement entered into would be on usual reasonable commercial terms. The management agreement entered into by Poh was not on usual reasonable commercial terms, and the breach was of sufficient consequence to warrant a cancellation.
[18] Mr Simpson for the plaintiff submitted that the Murphy Trust was not entitled to assert a right to settle arising from the non-settlement within the period stipulated in the purchaser’s settlement notice. He also argued that even if the management contract did contain unreasonable terms (which for the purpose of this hearing he did not contest) this did not entitle the Murphy Trust to cancel. Mr Simpson also raised two further issues for the defendants. He submitted that the purchaser was not at the time of issuing the settlement notice and during its duration ready, willing and able to settle. He also asserted that even if there had been a valid cancellation, the vendor was entitled to relief under s 9 of the Contractual Remedies Act 1979 and that the relief should include a direction that the agreement proceed.
Approach
[19] Summary judgment should not be given for the defendants unless it shows on the balance of probabilities that none of the plaintiff’s claims can succeed. That is an exacting test. A plaintiff will not be stopped from bringing its claim to trial unless it is quite clearly hopeless.[1]
[1] Jones v Attorney-General [2004] 1 NZLR 433 at [10].
The failure of Bos to settle
The offer to settle by Bos on 12 June 2009
[20] Certain important factual matters are entirely clear. Bos allowed the date for settlement it had proposed of 9 June 2009 to pass without settlement taking place. Ms Chrystall has deposed that Knight Coldicutt advised that they were not in a position to provide settlement undertakings on that day. There had been queries on
8 June 2009 by DAC Legal about defects and Knight Coldicutt was to answer them. Knight Colidcutt responded on 11 June 2009. DAC Legal gave formal notice on that day requiring settlement in 20 working days.
[21] The settlement notice is dated 11 June 2009. On the next day Knight Coldicutt responded on the basis that settlement was to take place immediately. Undertakings were provided which were in accordance with the New Zealand Law Society eDealing guidelines. The undertakings were expressed to be only valid for a settlement taking place no later than 16 June 2009. Settlement did not take place within that timeframe.
[22] There was no further renewal of the undertakings. Mr Wright’s submission was that the in the circumstances the letter of 12 June 2009 and the undertakings provided involved the imposition of an unreasonable timeframe, in which it could not be said that the vendor was truly ready, willing and able to settle. Therefore, he submitted that the offer to settle of 12 June 2009 should be put to one side. What should have happened, he submitted, was that Poh should not have limited the
undertakings in terms of time, or should have specifically renewed them at a later point within the 20 day period, giving the purchaser sufficient time to settle. Poh’s failure to do this meant that it had failed to comply with the settlement notice and the purchaser was entitled to settle.
[23] Mr Simpson submitted in response that the offer to settle by Knight Coldicutt on 12 June 2009 gave a reasonable time to settle. He submitted that the purchaser in failing to settle as proposed, and then thereafter failing to indicate a readiness and willingness to settle at a specific later point, could no longer rely on the settlement notice as a basis for cancellation. The purchaser had by its own actions fallen into default through the settlement period. It is necessary to examine these arguments more closely.
[24] The settlement notice letter of 11 June 2009 from DAC Legal was, as it had to be, unqualified. The purchaser gave formal notice that it was ready, willing and able to settle. Knight Coldicutt’s response the next morning was also unequivocal. It would settle. The undertaking provided was in accord with the eDealing guidelines. They provide:
U Settlement of an e-dealing
Guideline
An e-dealing does not preclude a face to face settlement. As there are no physical instruments or documents associated with an e-dealing, there is less need to attend on a settlement in person than for a paper transaction. When real time banking becomes available, the need for a face to face settlement for an e-dealing will probably diminish further.
Prior to settlement the purchaser’s lawyer will have:
(a) created the e-dealing,
(b) prepared the instrument(s),
(c) certified and signed the instrument(s),
(d) prepared and dispatched the Notice of Change of ownership to the vendor’s lawyer,
(e) pre-validated the whole dealing (including any discharges) as close as possible to settlement,
(f) obtained a guaranteed search,
(g) advised the vendor’s lawyer when they are ready to settle. Prior to settlement the vendor’s lawyer will have:
(a) provided the settlement statement (which should occur no less than 3 working days prior to settlement),
(b) prepared the instrument(s),
(c) certified and signed the instrument(s),
(d) provided an undertaking to the purchaser’s lawyer to ‘Release’ the instruments upon completion of settlement and not to do anything that would prevent registration.
It then refers to the form of undertaking.
[25] The eDealing guidelines do not provide in any exact way when the undertaking should be given, or state for how long it should inure. They record that prior to settlement the purchaser’s lawyers will, amongst other things, advise the lawyer when they are “ready to settle”. The guidelines then go on to provide that prior to settlement the vendor’s lawyers will provide the undertaking. In the usual way, there will be a settlement to take place on a certain day, the solicitors will presumably make contact with each other, and the settlement will proceed. The obligation on a purchaser’s lawyer to advise the vendor’s lawyer when it is ready to settle comes chronologically first in the eDealing guidelines. This would appear to be logical as it is for the purchaser to create the eDealing, prepare the instruments and ultimately forward the funds. The vendor’s role as set out in clause 5.5 of the agreement (see [3]) is more limited to providing the necessary instruments of title, transfer and discharges of mortgages, or in the case of an eDealing, the undertakings.
[26] Associate Judge Bell in his judgment refusing the plaintiff’s application for summary judgment of 31 March 2010 was critical of the limitation of the undertaking to “two working days”.[2] With respect, I must record that I am far from satisfied that the limited duration was in fact unreasonable. There was good reason for a time limitation to be imposed (see [31] and [32]). In fact the offer to settle and the undertakings had a duration of almost five days. The letter was forwarded at
[2] See [102] of that judgment.
9.48am on the Friday, 12 June 2009. The expiry was 5pm on the Tuesday, 16 June
2009. On the face of it this was ample time for settlement to take place.
[27] Mr Wright argues that it was necessary for the purchasers to explore outstanding issues. However, as at 9.48am on 12 June 2009 there were no issues to explore. This was the day after the service of the settlement notice by the purchaser and in accordance with that settlement notice the purchaser should have been ready willing and able to settle. There had been no new events which might have changed things. It is difficult to see why settlement could not have taken place that Friday, or at the latest Monday.
[28] On the next working day, Monday 15 June 2009 at 1.14pm a copy of the signed management agreement was forwarded by Knight Coldicutt to DAC Legal. Mr Wright argues that this was a new matter that had to be investigated. It is true that the presentation of a management agreement was inconsistent with earlier advice given by Knight Coldicutt that there was no management agreement. It is also true that the management agreement contained some unsatisfactory terms between the manager and the Body Corporate, which I will refer to later in this judgment at [43]–[48]. However, there is nothing to indicate that the management agreement at that point in time posed a significant problem for the purchaser.
[29] There was a conversation on 16 June 2009 between the lawyers about the management contract. Ms Chrystall said in her affidavit at paragraph 27:
[Knight Coldicutt] advised that the vendor had decided to proceed with a management contract, despite the fact that the proposed manager had pulled out of the deal, and requested we send them a fax listing the outstanding defects as we understood them to be and they suggested an alternative settlement date be arranged.
[30] There has been no response by the vendor’s lawyers to this affidavit at this stage. However, at the most the letter shows that Knight Coldicutt was prepared to accept a later settlement date beyond the period of the undertakings. Knight Colidcutt had in its letter of 12 June 2009 stated that “should settlement not take place by 16 June 2009 we will provide new undertakings”. At a final hearing it may well be seen as implicit in any agreement to arrange an alternative settlement date
that when that new settlement date was arranged, new undertakings would be provided by the vendor. In any event, it cannot be said that the vendor’s actions in being ready to settle, and then accepting a deferment until after 16 June 2009 as sought by the purchaser, were in any way unreasonable given the earlier offer to provide undertakings on settlement.
[31] Mr Cran of Knight Coldicutt in his affidavit explained the reason for the limited duration of the undertaking. One of the three mortgagees, Strategic Finance Ltd, had a policy of not providing open ended consents to discharges of mortgage. It was Strategic Nominees Ltd that imposed a deadline of 16 June 2009 for completion of the settlement. It was for that reason that the undertaking was limited in terms of time by Poh.
[32] Given the position of Strategic Finance Ltd it is entirely understandable that the undertaking was limited as to time. Despite Ms Chrystall’s observation that she had never heard of there being a time limit on undertakings, I am far from persuaded that the actions of Knight Coldicutt for the vendor were unreasonable. I note there was evidence as to the policy of Strategic Finance Ltd that was not before Associate Judge Bell when he made his observations critical of the time limit on the undertakings.
[33] Another issue raised by Mr Wright to justify the failure by the purchaser to settle by 16 June 2009 was that the insurance premium had not been paid for the building. This does not appear on its face to be a convincing reason why there should not have been a settlement. There was a policy in place and evidence of that policy had been provided. There is nothing to indicate that the non-payment of the premium had rendered the policy invalid. Moreover, there was an undertaking attached to the settlement statement from Knight Coldicutt and reiterated in later correspondence to the effect that the Body Corporate levy would be paid from the proceeds of sale to 30 April 2010. This at least meant that the Body Corporate levy of $7,499.19 would be paid by the vendor and this amount could not be squandered, and would be available for Body Corporate expenses including insurance premiums.
[34] Thus, in summary I consider it entirely possible that a Court in a final hearing will conclude that the vendor did offer to settle on a reasonable basis in providing the undertakings on 12 June 2009, and indeed that the purchaser was endeavouring to avoid settlement by raising obstacles and diverting the vendor from settlement, conscious that the 20 day settlement time limit it had imposed was running. This will be a matter of fact, and much will turn on the evidence-in-chief of the solicitors and parties about their conversations and practices, and cross-examination.
The failure to settle within the 20 working days
[35] It is also necessary to consider whether, as Mr Wright submits, the vendor was obliged to formally re-offer the undertakings once they had expired within the
20 day period, in the absence of any indication of a wish to settle on the part of the purchaser.
[36] Knight Coldicutt specifically in its letter of 12 June 2009 offered to provide new undertakings if settlement did not take place by 16 June 2009. On 15 June and
16 June and 23 June the firm reiterated the offer to settle. DAC Legal at no stage engaged on the request for settlement. The DAC Legal letters effectively ignored the request to settle, and appear to be discursive and to deal with issues peripheral to the actual issue of settlement.
[37] I do not accept Mr Wright’s submission that there was an obligation on the vendor to keep undertakings open in some formal way for the whole 20 day period, or to reiterate them at various times. The vendor had provided undertakings for a period of time and had specifically stated that the undertakings would be renewed if there was a later settlement. In those circumstances, it is entirely arguable that it was up to the purchaser to take the next step and say when it would settle. I draw particular support from the eDealing guidelines which state at (g) that the purchaser’s lawyer will advise the vendor’s lawyer when the purchaser is ready to settle. The obligation on the vendor to provide the undertaking to release the instruments upon completion of settlement and not do anything to prevent registration is not specific as to time, and this could be given by the vendor at any reasonable time prior to the transfer of funds. It seems to me strongly arguable that
in the circumstances it was up to the purchaser to propose a date and time for settlement. On the papers before me there is every reason to believe that if the purchaser had done so, the vendor would have provided the undertakings in accordance with the eDealing guidelines and settlement would have taken place.
[38] It is necessary to consider where these findings leave the parties as a matter of law. Counsel referred in particular to two English cases. In Quadrangle Development and Construction Co Ltd v Jenner[3] it was held by the English Court of Appeal that a party serving a settlement notice must be ready willing and able to settle at the time notice is issued and throughout the notice period. This decision was applied in Oakdown Ltd v Bernstein & Co[4] where it was observed that a party was not in breach of contract simply because that party failed to settle on a particular day in a 28 day notice period. The parties to settlement notices were able to settle within any time during the specified period.[5] In that decision Scott J considered the position of a recipient of a notice requiring it to be ready to complete on a day selected by it, but who had been frustrated in that intention by the failure of the other party, but who then declined or failed to complete during the rest of the 28 day period. That was a situation akin to this. Scott LJ answered that question as follows:[6]
A possible answer might be that at the end of the 28-day period neither side could be regarded as in breach of the obligation of which time was made of the essence. Another possible answer is that it is in every case a question of fact to be answered by the circumstances of that case whether or not one party or the other has failed or refused to complete in conformity with the notice to complete.
[3] Quadrangle Development and Construction Co Ltd v Jenner [1974] 1 All ER 729 at 732–733.
[4] Oakdown Ltd v Bernstein & Co (1984) 49 P & CR 282.
[5] At p 295.
[6] At p 296.
[39] A party who serves a settlement notice, and then does not promptly co- operate with the other party’s reasonable attempt to settle, should not be able to further rely on the notice. Such a party has failed to observe the requirements of its own notice, and thereby loses its ability to rely on it further. I am in no doubt that it is entirely arguable for the vendor that a failure on the purchaser’s part to settle
within the five days following the vendor’s offer to settle on 12 June 2010 meant that the purchaser was no longer entitled to rely on the settlement notice.
[40] Even if the purchaser is not to be regarded as losing the ability to rely on the notice by not settling within the five days, it is also arguable that the purchaser, being asked to settle by the vendor, should have in the days that followed proffered settlement and given the vendor an opportunity to provide the undertakings afresh and implement a settlement during the rest of the period.
[41] Allied to this is the fact that there was no tender of settlement by the purchaser. A number of authorities emphasise that it is prudent for a purchaser seeking to rely on the vendor’s failure to settle, to actually tender settlement of the purchase price to the vendor: See Stewart v Davis[7] and Bahramitash v Kumar.[8] By such an action the purchaser can demonstrate that it is ready willing and able to settle. In Bahramitash, Blanchard J stated:[9]
Ordinarily, therefore, the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has been a proper tender by the purchaser, and in response to that tender the vendor has exhibited an inability or unwillingness to deliver the title and other documentation required in terms of the contract.
[7] Stewart v Davis [1995] 3 NZLR 604 at 608.
[8] Bahramitash v Kumar [2006] 1 NZLR 577.
[9] At [17].
[42] It is arguable that the purchaser, before it could claim a breach, would have to have formally tendered settlement. Without such a tender there was no breach. If that is so, the purchaser had no right to cancel.
[43] I conclude therefore that the purchaser’s argument that it was entitled to cancel is far from certain of success. That means that it is possible that the plaintiff’s claim for specific performance may succeed. However, before a conclusion can be reached on this it is necessary to consider the second argument raised by Mr Wright, that deficiencies in the management contract entitled the purchaser to cancel.
[44] An affidavit has been filed by experienced conveyancing practitioner Mr C Eisdell Moore in which he expresses the view that there were unusual and unreasonable terms in the management agreement. First, the management agreement allowed the manager to elect whether or not to own or lease the manager’s unit, which meant that there was an unlimited amount that the Body Corporate would be obliged to pay. Secondly, the management agreement gave the manager’s representative the right to attend and speak at Body Corporate meetings regardless of whether the manager was a Body Corporate member. Thirdly, the management agreement did not provide that, when considering an assignment, the Body Corporate was entitled to consider whether the assignee was capable of undertaking the manager’s duties. He also observed that the management agreement’s 30 year duration was not a reasonable commercial term, because the fee could not be independently reviewed during the time.
[45] Clause 9.2 of the agreement provides:
The Vendor may procure the Body Corporate to enter into an asset management supervision agreement, a building management agreement, and an onsite exclusive letting agent agreement (if applicable) with such party as the Vendor may nominate prior to Settlement, on usual and reasonable commercial terms.
[46] I accept Mr Wright’s submission that it is least arguable that this clause should be construed to mean that any management agreement entered into by the Body Corporate must be on usual and reasonable commercial terms. Thus, on the face of Mr Eisdell Moore’s affidavit, which has not at this point been responded to by the vendor, there was a breach of the agreement by the vendor.
[47] Mr Simpson argued, relying on Property Ventures Investments Ltd v Regalwood Holdings Ltd[10] that such a breach would have required a settlement notice that specifically required the management agreement to be put on reasonable terms within a certain time frame, before there could be cancellation. However, I do
not consider it necessary to deal with that argument as it appears to me that in relation to summary judgment there is a more fundamental problem with the purchaser’s position. This is because I consider it entirely arguable that, assuming that the terms were not usual and reasonable, any breach of clause 9.2 was not sufficiently substantial to warrant cancellation, applying s 7(4) of the Contractual Remedies Act 1979. It is not at all clear that the parties have expressly or impliedly agreed that clause 9.2 was a term the performance of which was essential. Nor is it clear that any breach would substantially reduce the benefit of a contract to the cancelling party. This is because the effect of the breaches may be seen as reasonably contained. In fact the management agreement involved a total management fee at the commencement date of $70,000 per annum, which would be paid by 20 units. The amount involved per unit was therefore relatively modest. The management could only be reviewed and adjusted in accordance with paragraph
5.5 of the management agreement, which linked increases to the consumer price index. So the fact that the fee could not be independently reviewed during the term did not necessarily involve any grave injustice to a purchaser.
[10] Property Ventures Investments Ltd v Regalwood Holdings Ltd (2010) 6 NZ ConvC 194,754.
[48] It is correct that the manager had to be reimbursed for rent and outgoings on the management unit under clause 5.9. However, that did not necessarily mean that the manager could arrange a rent that was grossly inflated to be paid to an owner who had a connection to the manager. It is likely to be regarded as implicit in clause
5.9 that the obligation to pay rent was only to pay reasonable rent. Further, the fact that the manager’s representative could speak at Body Corporate meetings regardless of whether the manager was a Body Corporate member was not a problem of the greatest order of seriousness. The same observation can be made about the fact that the management agreement does not provide for the Body Corporate to consider whether an assignee is capable of undertaking the manager’s duties.
[49] Ultimately, the effect of the breach and whether it substantially reduces the benefit of the contract is a matter of fact, and there is no focussed evidence before the Court at this stage on this matter. Mr Eisdell Moore was not asked to address the issue in his affidavit. It is in my view entirely arguable that assuming that clause 9.2 was breached by the vendor, this did not give rise to a right of cancellation.
[50] I have considered the purchaser’s actions and ability to settle from the point of view of whether the vendor’s actions constituted a breach of contract which entitled the purchaser to cancel. It is necessary also to consider the same facts from the perspective of whether indeed there is force in Mr Simpson’s general submission that there was reason to doubt whether the purchaser was ready willing and able to settle at all. Mr Simpson’s submission is that the purchaser was not in a position to settle and was looking for a way out of the agreement.
[51] This obligation to be actually able to settle is different from the formal need to tender, as on occasions where tender would be futile, a formal tender is not necessary.[11] It is not adequately explained on these papers why the purchaser, having given notice of an intention to settle on 11 June 2009, then failed to settle when the vendor offered to settle on 12 June 2009. Ms Chrystall has asserted that the time made available to settle was inadequate for her to obtain the necessary
trustee and mortgagee consent. This seems most surprising, as the purchaser just the day before asserted that it was ready willing and able to settle.
[11] Stewart v Davis [1995] 3 NZLR 604 at 609.
[52] There is no doubt that the vendor must be able to settle at the time it issued the settlement notice, if the settlement notice is to be effective. This is specifically stated at paragraph 12.1 of the agreement:
… The settlement notice shall be effective only if the party serving it is at the time of service in all material respects ready, able and willing to proceed to settle in accordance with the settlement notice or is not so ready able and willing to settle only by reason of the default or omission of the other party to the agreement. …
[53] As already observed, it was stated in Quadrangle Development and Construction Co Ltd v Jenner that a party serving a settlement notice should be ready to settle throughout the settlement notice period. Russell LJ observed: [12]
I should have thought it not really difficult to infer that the same party must continue to be ready and willing at any time during the period to fulfil his part of the contract.
[12] At p 732.
[54] The actual words of the agreement for sale and purchase do not require the purchaser to be ready willing and able to settle throughout the entire duration of the settlement notice period as indicated in Quadrangle, but rather only at the beginning. Moreover, if the observation of Russell LJ was turned into a rule it could have unfair consequences. There might be short periods during the duration of the settlement notice period when a party who gave the notice was unable to settle. In the absence of an attempt to settle by the other party that was frustrated by the party giving notice, it might not be fair for such a temporary lapse to render the notice ineffective.
[55] I consider that there is a question whether in fact at the time of the issue of the notice there was any genuine willingness or ability on the vendor’s part to settle. Mr Simpson indeed submits that the correspondence and actions of the purchaser all indicate a deliberate attempt by an unwilling purchaser to frustrate settlement. While I do not express any firm view on this, I accept that it is possible to construe the actions of the purchaser in this way. Not only did it not settle when settlement was immediately offered, but it thereafter failed to respond to the repeated requests on the part of the vendor to settle, except by letters that address other issues. The position will need to be explored more fully in discovery and presumably in the course of cross-examination of relevant witnesses. However, the assertions by Ms Chrystall, and in the correspondence that at all times the purchaser was ready willing and able to settle, cannot be treated as conclusive. If the purchaser was not ready willing and able to settle when it issued the settlement notice then it could not validly cancel the agreement.
Conclusion
[56] I conclude that the purchaser has not shown that the vendor’s claim for specific performance is certain to fail. I consider it entirely possible that the defences raised, and particularly the claim that the purchaser validly cancelled the agreement, may fail. The Court may ultimately conclude that the vendor did reasonably and fairly offer to settle on 12 June 2009, and in any event did meet its
obligations as vendor by being ready, willing and able to settle throughout the settlement notice period, it being the purchaser’s failure to tender which was the real cause of the non-settlement. The Court may also conclude that any breach of the management agreement clause was not sufficiently significant to warrant cancellation. It may also conclude that in any event the purchaser was not ready willing and able to settle when it issued the notice and not, therefore, in a position to cancel. A Court may, therefore, be prepared to grant specific performance. Given these conclusions, it is not necessary to deal with Mr Simpson’s argument under s 9 of the Contractual Remedies Act 1979.
[57] The defendants’ application for summary judgment cannot, therefore, succeed.
Summary
[58] The defendants’ application for summary judgment is dismissed.
Costs
[59] I note that costs were reserved on the first summary judgment hearing. Fairness obliges me to do the same thing in relation to this summary judgment hearing and costs are reserved.
…………………….………… Asher J
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