Bos International (Australia) Ltd (ABN 066601250) v Murphy HC Auckland CIV 2009-404-5589

[2010] NZHC 572

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:         22 March 2010

Appearances: J D McBride and N B Goodger for Plaintiff

P J Wright for Defendants

Judgment:      31 March 2010 at 4:30 pm

JUDGMENT OF ASSOCIATE JUDGE BELL

This judgment was delivered by me on 31 March 2010 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar

Date: ………………….

Solicitors/Counsel:

Bell Gully, PO Box 4199, Auckland

Davidson Armstrong & Campbell, PO Box 54, Waipukurau

P J Wright, PO Box 4338, Auckland

BOS INTERNATIONAL (AUSTRALIA) LTD (ABN 066601250) V S K MURPHY AND ORS HC AK CIV-

2009-404-005589  31 March 2010

[1]      Bos International (Australia) Ltd has applied for summary judgment.   It is seeking an order for specific performance of an agreement for sale and purchase for unit 20 in the Vivaldi Breeze development at 48 Marine Parade, Mt Maunganui.  The defendants (trustees of a trust) are the purchasers.   The sale did not settle on the original  settlement  date  of 9  June  2009.    At  different  times  each  party gave  a settlement  notice to  the other  and  later  the defendants  purported  to  give notice cancelling the agreement.

[2]      Under the agreement the vendor is Poh Trustee Ltd.  Its lawyers were Knight Coldicutt of Auckland. The purchasers’ lawyers are Davidson Armstrong Campbell of Waipukurau. The plaintiff is a financier of the development. Its lawyers are Bell Gully. The plaintiff is suing on the agreement for sale and purchase as assignee from the vendor.

[3]      The defences raised by the defendants are that they were entitled to give a settlement notice because the vendor had failed to settle on the settlement date and were also entitled to cancel because the vendor and the plaintiff were not ready able and willing to settle by the expiry of the time given in their settlement notice. In particular they say that the vendor and the plaintiff did not provide the required undertakings under the e-dealing guidelines of the New Zealand Law Society, there was not an accurate certificate under s 36 of the Unit Titles Act 1972 and the vendor’s   settlement   statement   required   payment   of   an   unreasonably   high management fee. They say that the vendor did not address identified defects in the unit before settlement, contrary to a representation by a director of the vendor. They also challenge the plaintiff’s right to sue under the assignment.

The agreement for sale and purchase

[4]      The agreement is dated 6 December 2007. The purchase price is $1,228,500 inclusive of GST.   There is an initial deposit of $5,000 and a second instalment, bringing the deposit up to 10% of the total purchase price payable within 14 days of signing the agreement.  The property sold was unit 20, plus auxiliary units (if any):

New unit title to issue for the units comprising a strata estate in freehold within the meaning of the Unit Titles Act 1972 derived from subdivision or

[sic] part of the land in certificates of title 120445 to 120646 (inclusive) (South Auckland Registry) subject to all requisite encumbrances, consent notices and easements in the development to be known as Vivaldi Breeze, 48

Marine Parade, Mt Maunganui.

[5]      The agreement provides for the completion of the development and the issue of titles under the Unit Titles Act. It contains provisions typically found in developers’ agreements where title has still to issue – the development is to be constructed, time for completion is not fixed (subject to s 235 of the Resource Management Act 1991), there is a maintenance period and the like. Design changes may be made, the purchasers have limited rights to oppose changes. The agreement generally does not allow the purchasers to make deductions from the purchase price, as appears from clauses:

4.7      The Purchaser shall not:

(a)Withhold the balance of the Purchase Price (or any part of it) or demand any retention on Settlement Date by reason of any defect, shrinkage or fault in the Units, whether due to defective materials, workmanship or any other cause, or for any other reason or claim.

(b)Make any objection, requisition or claim for compensation because of any alteration to the plans and specifications or

… [illegible] which are made because of a requirement or direction  of  the  Relevant  Authority  or  because  of  the

practical  necessities  of  construction  including  (but  not limited to) requirements of good building practice or the availability of materials, or to any alterations which in the

sole opinion of an  independent registered valuer appointed by the Vendor have no material adverse effect on the value

or use of the Units;

(c)Object or procure another party to object from a planning point of view or otherwise to any other part of the Development  or any development  by the Vendor  on  any neighbouring property.   A provision to this effect may be included  on the  title  of the  Supplementary Record Sheet pursuant to the Act.

…

5.1      The Purchaser must pay the balance of the Purchase Price on the

Settlement Date.

…

7.7All measurements and areas, are or may be approximations and are subject  to  any  variation  which  may  be  found  necessary  upon

checking by the Relevant Authority, the Vendor’s surveyor, the District Land Registrar, and Land Information New Zealand (as to survey) and neither party shall be entitled to bring any claim whatsoever against the other based on any such variation of measurements, nor shall either party be entitled to claim any compensation damages right of set-off or make any objection or requisition based on such variation.

…

7.9No error or misdescription of the Land or the units shall annul the sale and neither party shall be entitled to compensation for any error or misdescription of the Land or the Units.

[6]      Under clauses 5.5 and 5.6 payment of the balance of the purchase price and transfer of title and possession are at the same time:

5.5Upon 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 unit, 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.

5.6      Possession of the Units shall be given and taken immediately after

Settlement.

[7]      Clause 9.2 allows the vendor to arrange a building management contract for the body corporate:

9.2The Vendor may procure the Body Corporate to enter into an asset management supervision agreement, a building management agreement, and an … [illegible] exclusive letting agent agreement (if applicable) with such party as the Vendor may nominate prior to Settlement, on usual and reasonable commercial terms.

[8]      Clause 12 allows for a settlement notice to be given:

12.1If the sale is not settled on the Settlement Date either party may at any time thereafter (unless the agreement has first been cancelled or become void) serve on the other party notice in writing (Settlement Notice) to settle in accordance with this clause.   The Settlement Notice shall be effective only if the party serving it is at the time of

service either 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.  If the Purchaser is in possession, a Settlement Notice may incorporate or be given with a notice under Section 50 of the Property Law Act 1952.

12.2Upon  service  of  a  Settlement  Notice  the  party  on  whom  the Settlement Notice is served shall settle within the requisite number of Business Days after the date of service of the Settlement Notice (excluding the date of service) in respect of that period time shall be of the essence but without prejudice to any intermediate right of cancellation  by either  party.    If  the  Purchaser is in  receipt  of  a settlement notice the requisite number of Business Days shall be 12. If the Vendor is in receipt of the Settlement Notice the requisite number of Business Days shall be 20.

[9]      The purchasers’ remedy for non-compliance with a settlement notice is given in clause 12.4:

12.4If the Vendor does not comply with the terms of a Settlement Notice served by the Purchaser then the Purchaser may without prejudice to any other rights or remedies available to the Purchaser at law or in equity:

(a)       sue the Vendor for specific performance; or

(b)give   notice   in   writing   to   the   Vendor   cancelling   the agreement and requiring the Vendor forthwith to repay to the Purchaser the Deposit and any other money paid on account of the Purchase Price and interest on such paid sums calculated in accordance with the provisions of this agreement.

[10]     Under clause 15.10 the liability of the third defendant is limited to the assets of the trust and it has no personal liability.

[11]     This agreement was an underwriting agreement, under which the purchasers could be called upon to complete the sale only if called upon by financiers.   The financiers are the plaintiff and Strategic Nominees Ltd.  The agreement has attached to it an Appendix 1 with certain special conditions, including:

6.1Notwithstanding   any   other   provision   of   this   Agreement   the Purchaser shall be obliged to purchase the Property for the Purchase Price, provided that:

(a)       the   Purchaser   has   received   written   notice   from   the Financiers notifying the Purchaser that the Financiers require the  Purchaser  to  complete  settlement  in  terms  of  this

Agreement.  Such notice must be provided no later than 90 days after the later of the following dates:

(i)the date upon which the Vendor’s solicitors provides the Purchaser (or the Purchaser’s solicitors) the Certificate of Practical Completion;  or

(ii)      the date upon which the Vendor’s solicitors advise the Purchaser (or the Purchaser’s solicitors) that a certificate of title to the Units has issued from the Land Titles Offices;  or

(iii)    Upon the Relevant Authority issuing a Code Compliance Certificate and the Vendor’s solicitors providing a copy of the same to the Purchaser (or the Purchaser’s solicitors);

And  the Settlement  date shall  be  the  5th   Business Day after  the Purchaser has received notice from the Financiers notifying the Purchaser that the Financiers require the Purchaser to complete settlement.

6.2Notwithstanding any other provision of this Agreement the right of the Financiers to require the Purchaser to purchase the Unit for the Purchase Price pursuant to clause 6.1 shall terminate immediately upon the funding provided to the Vendor by the Financiers specifically for the development situated at 46-49 Marine Parade, Mount Maunganui (the “Development”), being repaid.   For the purposes of this clause, the Financiers funding shall only include financial facilities  obtained  specifically for the  Development  and shall  not  include  any  finance  facilities  that  may  be  collaterally secured by charges over the lands the subject of the Development.

Assignment to Plaintiff

[12]     The plaintiff sues as assignee of the vendor’s rights under the agreement for sale and purchase.  It relies upon a specific security deed of 8 January 2008 and a deed of assignment of June 2009.  In both documents the vendor is the debtor and it is the secured party.  Clause 2 of the specific security deed provides:  “The debtor will pay the secured indebtedness when due.”

[13]     Secured indebtedness is defined:

Secured indebtedness means all indebtedness of the Debtor to the Secured Party (including, for the purposes of sections 71 and 72 of the PPSA  future advances); and

[14]     Clause 3.1 says:

To secure due payment of the Secured Indebtedness, the Debtor grants to the Secured Party a security interest in the Secured Property.   In respect of accounts receivable, the security interest takes effect as a transfer of those accounts receivable.

[15]     Clause 3.4 also provides:

On  the  request  of  the  Secured  Party  the  Debtor  must,  at  its  own  cost, promptly execute and deliver to the Secured Party all documents, and do anything else that the Secured Party deems appropriate, to:

…

(d)      assign absolutely to the Secured Party any Secured Property.

[16]     Secured Property is defined:

Secured Property means all present and future right, title and interest (legal and  equitable)  of  the  Debtor  arising  out  of,  or  in  connection  with,  the Contract or the Earnings, and all proceeds of that property.

[17]     Contracts is defined:

Contracts means the Sale and Purchase Agreements.

[18]     Sale and Purchase Agreements are defined:

Sale and Purchase Agreements means all sale and purchase agreements entered into by the Debtor for the sale of the Land and Sale and Purchase Agreement means each of them.

[19]     Land is defined:

Land means all that land and comprised in Certificates of Title 120445 to

120465 (inclusive) (all South Auckland Registry) including all buildings, erections and improvements.

[20]     In this very roundabout way the plaintiff took security over the vendor’s agreement  with  the  defendants.  The  defendant  pleaded  that  the  interest  of  Poh Trustee Ltd as the vendor of unit 20 under the agreement for sale and purchase is not part of the secured property as defined in the specific security deed. It relied on another specified security deed of the same date, which the plaintiff had attached to its verifying affidavit. The plaintiff answered this by attaching a copy of the correct deed to a later affidavit.

[21]     The deed of assignment of June 2009 has as its subject “Assignment of interest under sale and  purchase agreements”.   Confusingly, Poh Trustee Ltd is called the Assignee in the deed.

[22]     Clauses 4 and 5 of the deed provide:

4.Pursuant to the Security Deed, the Assignee has equitably assigned to BOSI all of its right, title, benefit and interest in and to the Sale Agreements and each Deposit provided in connection with each such Sale Agreement (the Second Assignments and, together with the First  Assignments,  the  Assignments).    The  Assignee  and  BOSI agree that, with effect from the date of this Deed, in accordance with clause 3.4 of the Security Deed, the Assignee hereby perfects each Second Assignment such that the Assignee shall have absolutely assigned to BOSI all of its right, title, benefit and interest in and to all Sale Agreements entered into by (or assigned to) the Assignee in respect of the Land and each Deposit provided in connection with each Sale Agreement.

5.For  the  avoidance  of  doubt,  the  Parties  agree  that  the  Second Assignments exclude any of the obligations or responsibilities (whether of a monetary nature or otherwise) of the Assignee under each Sale Agreement, provided that BOSI shall be entitled (but not obliged) in its sole and absolute discretion in all things, to perform any or all of the obligations (if any) of the Assignor or the Assignee under the Sale Agreements.

[23]     Clause 4 is effective to  assign the benefit of the agreement in this case absolutely to the plaintiff.  Only the benefit of the contract is assigned.  There is no novation.  The burden of the contract has not been assigned and that is made clear by clause 5.  The lawyers for the plaintiff gave written notice of the assignment to the defendants’ lawyers on 1 July 2009.

[24]     By that date, there had been other developments between the vendor and the purchaser.

Steps before settlement date

[25]     On 13 May 2009, Knight Coldicutt, lawyers for Poh Trustee Ltd, wrote to Davidson Armstrong Campbell, the purchaser’s lawyers, giving notice under special condition 6.1 of the agreement for sale and purchase, giving notice of the issue of and enclosing copies of the certificate of title for unit 20 (issued on 4 March 2009),

the practical completion certificate (dated 23 April 2009) and the code of compliance certificate (dated 20 April 2009).

[26]     On  20  May 2009,  Strategic  Finance  Ltd  sent  a  letter,  co-signed  by Bos International (Australia) Ltd,  giving notice under special condition 6.1(a) of the agreement that these financiers required the purchasers to complete settlement and stating that settlement was set down for 9 June 2009.

[27]     Under clause 5.5 of the agreement for sale and purchase the parties were required to complete the e-dealing settlement following the guidelines of the New Zealand Law Society for e-dealing. The purchasers’ solicitor, Mrs Chrystall, has attached the e-Dealing guidelines to her affidavit.   Section (U) of the guidelines provides:

Prior to settlement the purchasers’ 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 purchasers’ lawyer to ‘Release’ the instruments  upon completion of settlement and not to do anything that would prevent registration.

The undertaking shall be along the following lines: Re:  Client X to Client Y – Property address

I/we refer to the above transaction which is being transacted as an electronic dealing in Landonline.

I/we undertake that I/we have certified and signed the instruments listed below.

Immediately following receipt of confirmation of deposit of settlement funds to my / our trust account, I / we further undertake:

1.to release the following instruments from the Landonline Workspace into your control:

-        Transfer

-        Discharge of mortgage number

-        (List any other instruments)  ; and

2.not to attempt to withdraw such release or attempt any alteration of such instruments following settlement or release; and

3.(if no arrangements have been made in respect of keys, if any) to instruct  the  agent  /  or  the  vendor  to  release  the  keys  to  the purchaser.”

[28]     The reference in the draft undertaking to “Immediately following receipt of confirmation of deposit of settlement funds to my/our trust account…” reflects contemporary  conveyancing  practice.   There   is   no   longer   settlement   by  the purchaser’s lawyer attending the office of the vendor’s lawyer with a bank or trust account cheque for the settlement sum. Payment is made through the banking system with the purchaser’s lawyer depositing cleared funds for settlement into the trust account of the vendor’s lawyer with associated undertakings given as to payment and the transfer of title. This is also reflected in Knight Coldicutt’s requirements for settlement by direct credit, which includes this undertaking:

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 funds shall be deemed not to have been received by us until we receive faxed confirmation of deposit of funds.

[29]     In her affidavit at paragraph 15, Mrs Chrystall refers to the settlement date and says:   “We had already complied with the purchasers’ e-dealing obligations.” And at paragraph 19:

We had taken all necessary steps to organise our settlement funds which comprised both bank funding and a cash advance from our clients, but were not in a position to draw on those funds until we received the contractually required settlement undertakings from Knight Coldicutt.   The purchasers (defendants) were ready, willing and able to settle in terms of their own obligations as at 9 June 2009.

[30]     She also says that before the settlement date she had been in touch with Knight Coldicutt on several occasions to remind them about settlement undertakings but they had not been forthcoming.

[31]     In the meantime, correspondence had passed between Knight Coldicutt and Davidson Armstrong & Campbell on other matters. It is not necessary to refer to each item. Davidson Armstrong & Campbell queried a settlement statement prepared by  Knight  Coldicutt  on  the  apportionment  of  rates,  a  body  corporate  levy  of

$7,499.19 per annum, an error in a certificate under s 36 of the Unit Titles Act, the adequacy  of  an  insurance  certificate  for  the  development  and  the  fact  that  the premium had not been paid.   In other correspondence Davidson Armstrong and Campbell  had  raised  the  matter  of  building  defects,  while  not  claiming  any deductions from settlement on account of these.

[32]     On 5 June 2009, Knight Coldicutt sent an amended settlement statement altering the rates figure but making no other changes. The settlement statement included an undertaking that body corporate levies will be paid from the proceeds of sale to 30 April 2010. The same letter provided a fresh s 36 certificate and also sent the body corporate budget and fee structure.  The fee structure for the body corporate showed a budget of $155,750.  $10,000 was allocated for body corporate secretary,

$10,000 for a sinking fund, $25,000 for insurance, $10,000 for water rates, some lesser figures (none higher than $5000) for matters of maintenance and the like, but there was also a sum of $78,750 for a management contract.

[33]     On 6 June 2009, Mr Murphy, one of the purchasers, met with Mr Poh, a director of the vendor, on site for a pre-settlement inspection.  Mr Murphy says that several significant defects were identified: “The toilet had been removed damaging the tiles, the skylights in the bathroom leaked and the external doors could not open

properly.”  He says that they had also discussed the management contract.  He says that Mr Poh:

Advised that the proposed management contract had fallen over and that, if necessary, he would undertake the management duties for far less than the

$70,000 provided for in the body corporate levy.

[34]     Mr Murphy says that through their lawyer they had requested, but had not received, a copy of the management contract at that stage. Mr Poh later swore an affidavit  saying that  he  had  arranged  for  the  defects  to  be  attended  to,  but  his affidavit does not take issue with the parts of Mr Murphy’s affidavit dealing with the management agreement.

[35]     On 8 June 2009, Davidson Armstrong & Campbell wrote to Knight Coldicutt addressing the matter of the defects found on inspection. Parts of the letter said:

Furthermore, we understand that there is in fact no authorised management contract in place and the management fee included in the Body Corporate levy must be deleted accordingly. We understand that the developer has indicated if a suitable contract cannot be secured that he will undertake the management duties at a fraction of the costs allowed for in the Body Corporate Levy. We assume unit owners may elect whether or not they wish to avail themselves of any management contract and, if this is correct, then we query the appropriateness of including such cost as part of the Body Corporate Levy. Can you please provide details in this regard including a copy of the proposed management contract. …

Can you please confirm that vendor has actually paid the Body Corporate levy to the account of the Body Corporate for the period prior to settlement as per the apportionment set out in your settlement statement.

[36]     The letter also asked the vendor’s lawyers to notify the insurer of the interest of Westpac New Zealand as first mortgagee and asked for a copy of a certificate of currency for insurance with the interest of the mortgagee noted.  This was required so that they could uplift mortgage finance.

[37]     9 June passed without settlement taking place. Mrs Chrystall says that she spoke to Knight Coldicutt on 9 June but Knight Coldicutt advised that they were not in a position to provide settlement undertakings.  Knight Coldicutt would let them know when they had further information. There is no evidence from the vendor’s solicitors and no evidence taking issue with  Mrs Chrystall’s account  of contact between the lawyers.

[38]     On 11 June 2009, Knight Coldicutt wrote to the purchasers’ lawyers to say (among other things) that remedial work was in progress and would be completed in the next 1-2 days, that  as the management charges were in the body corporate budget, they had to be collected, but if not spent would be a surplus for later years. The undertaking as to payment of rates and body corporate levies in the settlement statement was referred to. The purchasers’ lawyers were to contact the insurers directly themselves.

[39]     On the same day, Davidson Armstrong & Campbell wrote to the vendor’s solicitors:

Pursuant to clause 12 of the agreement for sale and purchase we hereby give formal notice that our clients, being ready, willing and able to settle, hereby require the vendor to settle in accordance with the agreement.   Should settlement not be effected on or before the 20th working day from the date of service of this letter, time being of the essence, then the purchaser shall consider themselves entitled to pursue all remedies available to them under clause 12 of the agreement at law or in equity.

[40]     This  was  intended  to  be  a  settlement  notice  under  clause  12.1  of  the agreement for sale and purchase.

[41]     Knight Coldicutt’s response on 12 June 2009 was to send a fax to Davidson Armstrong & Campbell undertaking that they had certified and signed transfers and partial discharges of mortgages and also undertaking that following receipt of confirmation of the deposit of settlement funds to their trust account in accordance with their settlement requirements, they would release the instruments from Landonline Workspace into the control of Davidson Armstrong & Campbell and not attempt to withdraw such release or attempt any alteration of the instruments following settlement or release. So far that undertaking is in line with the e-dealing guidelines. Importantly, the letter also advised that these undertakings were only valid for settlement taking place no later than 16 June 2009. That is not provided for in the guidelines.  The letter also said:   “Should settlement not take place by 16 June

2009 we will provide new undertakings.” This time limit on the undertakings is

significant. 12 June 2009 was a Friday. Effectively, the only working days on which the undertaking could be used were Monday, 15 June and Tuesday, 16 June.

[42]     Mrs Chrystall deposes that never before or since had she received settlement undertakings with a time limit on them.  She also says that the two working days was an inadequate time to obtain the necessary trustee and mortgagee consent to proceed, especially given the additional disclosures regarding the financial position of the body corporate.   She says that they could not prepare for settlement in that time frame and, in her view, they were not required to.

[43]   While it is understandable that careful conveyancing solicitors will not undertake to do what they cannot do, there is no evidence from the vendor, its solicitors or the plaintiff explaining why this limited undertaking was given.  The e- dealing guidelines are simply guidelines, not rules, but the guidelines do not provide for vendor undertakings limited in time.  There is nothing in the agreement for sale and purchase which allows the vendor to give undertakings limited in time.

[44]     On 15 June, Knight Coldicutt sent a fax to Davidson Armstrong Campbell: “We enclose a copy of the signed management agreement and ask your client to complete settlement immediately.”

[45]     The copy of the signed management agreement was for the Vivaldi Breeze apartments.   It is dated 29 April 2009.   The parties to the agreement are Body Corporate 414118 and Poh Trustee Ltd as trustee of the Vivaldi Development Trust as manager.  The execution page of the agreement shows that Poh Trustee Ltd has signed as registered proprietor of all the principal units and Poh Trustee Ltd as trustee of the Vivaldi Development Trust has signed as manager.

[46]     Under the agreement the body corporate appoints the manager for a term of

10 years “to perform the duties and provide the services set out in this agreement.” (clause 2.1) There are two rights of renewal “If the Manager has not been in material breach of this agreement and has given to the Body Corporate written notice to renew this agreement at least 3 months before the end of the term…” (clause 2.3).

3.1General Duties – The Manager or the Managers Representative (as the case may be) must use all reasonable endeavours to:

(a)when requested, advise the Body Corporate in relation to any correspondence, reports, enquiries and complaints relating to the Common Property and the performance of the duties;

(b)       keep in its possession Security Keys unless in the performance of its duties it is necessary to surrender possession of the Security Keys to any person in which case the Manager must use all reasonable endeavours  to  recover  possession  of  the  security  Keys  from the person to whom possession was surrendered;

(c)       if the Body Corporate so resolves, to evict or otherwise deal with any person creating a nuisance or annoyance on the Common Property or committing any breach of the Rules;

(d)ascertain and be aware at all times of the general condition of the Common Property and all machinery and other improvements on the Common Property and the Manager must keep the body Corporate informed as to the condition of that property;

(e)keep itself fully appraised and advise the Body Corporate of the condition,   layout,   construction,   location,   character,   plan   and operating  of  any  lighting,  drainage,  sewerage,  power, communication, security or other systems and equipment installed on the Common Property.  The Manager if it considers it necessary must advise the Body Corporate of any such recommendation, changes or modifications to be made in respect to such equipment and systems;

(f)       as far as the Manager is reasonably able and lawfully capable, keep order on the Common Property and take such precautions as it sees fit  to  safeguard  the  Common  Property against unlawful entry or accident or damage;

(g)       if the Body Corporate so resolves and at its request buy, sell, replace, erect, construct, repair, exchange, lease, hire or otherwise acquire and install all fixtures, fittings, equipment, improvements and additions to the Common Property;

(h)      keep clean and tidy all readily accessible common areas;

(i)        arrange for third party contractors to undertake such services and duties as the Body Corporate resolves to undertake in accordance with the annual Body Corporate budget in consultation with the Body Corporate Representative, and oversee and report on the performance of such services and duties;

(j)        provide a replacement manager at the cost of the Manager for any periods that the Manager is not available to perform the Manager’s Duties;

(k)       perform such other acts and things as are reasonably necessary and proper in the discharge of its duties.

[48]     As to the standard of performance, clause 3.8 says:

3.8If the Manager has used all reasonable endeavours to carry out the Duties the Manager will have satisfied its obligations under this agreement.

[49]     In addition to duties the manager provides “Services”.

[50]     Under clauses 4.2 and 4.4 the body corporate cannot engage anyone else to provide services. “The Body Corporate agrees that all revenue earned from providing such Services shall belong to the Manager.”

[51]     Unit 4 in the complex is called the Management Unit. Clause 3.3 says:

3.3During the term of this agreement the Manager shall: (a)    Purchase or lease the Management Unit;

(b)Ensure   that   the   Manager’s   Representative   personally occupies the Management Unit and not let or part with possession of the same;

(c)Duly and punctually pay the Body Corporate all moneys payable to it by the Manager in respect of the Management Unit and comply with the Rules.

[52]     There are associated provisions tying the management unit to the person with the management contract. Under clause 5.9 the body corporate is required to reimburse the manager for rent, outgoings and other money payable under the lease of the management unit.

[53]     In  addition  to  the  profits  made  on  providing  services  and  a  rent  and outgoings-free lease of the management unit, the manager is paid a management fee of $70,000 per annum plus GST, payable in equal monthly instalments in advance without deduction or set off on any account whatsoever. The management fee is inflation-adjusted annually, with a ratchet clause (clauses 5.1, 5.3 and 5.5-8).

[54]     The agreement has termination provisions. Grounds for termination by the body corporate include gross misconduct or gross negligence by the manager in the

performance of duties and failure to carry out duties after 21 days’ written notice, specifying details of any alleged breach (clause 11.1 (b) and (c)). The effectiveness of this provision is diluted by the “all reasonable endeavours” standard in clause 3.8 and the right of the manager’s representative to attend all meetings of the body corporate under clauses 7.1 and 7.2.

[55]     Quite   understandably,   this   agreement   bothered   Davidson   Armstrong

Campbell.  On 17 June 2009, they wrote recording their concerns.

[56]     The vendor had not disclosed the agreement to the purchasers before.   Its existence was contrary to what Mr Murphy says Mr Poh told him on 6 June 2009.

[57]   The disclosure of the agreement on the day before Knight Coldicutt’s undertaking  expired  caused  obvious  difficulties.     The  purchasers  could  not reasonably be expected to address the issue of this agreement inside one working day.

[58]     On 23 June, Knight Coldicutt replied to  Davidson Armstrong Campbell.  On the matter of defects, they advised that all defects had been satisfactorily remedied. They pointed out that the matters of defects were not matters capable of delaying settlement and they referred to clauses 4.7 of the agreement for sale and purchase. They also referred to the management agreement and referred to clauses 9.2 and 9.3 of the agreement for sale and purchase.  They said that the vendor was entitled to procure the body corporate to enter into the agreement on usual and reasonable commercial terms.   Their instructions were that the management contract entered into was on standard commercial terms for this type of property, and that the fees and charges contemplated by the management agreement had also been included in the body corporate budget which had been available to all purchasers.   The letter referred  to  the  body  corporate’s  remedies  under  clause  11.1  and  the  dispute resolution  provisions.    The  concerns  of  Davidson  Armstrong  & Campbell  were dismissed as a matter of opinion, not relevant to a commercial deal that had been struck.  Their instructions were that the management agreement was to stand in its current form and should the body corporate wish to renegotiate its terms any reasonable request for amendment would be considered by the manager.  The letter

also advised that body corporate fees would be paid by deduction from each settlement and the same response was given to Davidson Armstrong & Campbell’s query about payment of insurance.

[59]     Finally, the letter advised that the vendor had been ready, willing and able to settle for some time.  It was alleged that the purchaser had continued to fail to settle. It was indicated that a settlement notice might issue.  The letter also advised that Bell Gully would be taking over the files.

[60]     On 1 July 2009, Bell Gully, acting for Bos International (Australia) Ltd, wrote to Davidson Armstrong & Campbell.  The letter advised that under the deed of assignment  of  June  2009,  the  vendor’s  interest  in  the  agreement  for  sale  and purchase had been assigned to the plaintiff.   The letter required the purchasers to settle the agreement, failing which the plaintiff would issue proceedings for specific performance without further notice.

[61]     The following day, Bell Gully wrote again.   The letter purported to be a settlement notice under the agreement and required the purchaser to complete settlement within 12 working days of its service of the notice, time being of the essence.

[62]     The evidence does not show any further developments in this matter until

9 July 2009 when Davidson Armstrong & Campbell wrote to Bell Gully giving notice that the purchasers cancelled the agreement under clause 12.4(b) of the agreement for sale and purchase.

[63]     The plaintiff issued the present proceeding on 31 August 2009.

Discussion

[64]     These issues arise:

a)        How  can  the  plaintiff  as  assignee  of  the  agreement  enforce  the agreement against the defendants?

b)        Was the vendor entitled to enter into the management agreement of

29 April 2009 and does that agreement comply with the agreement for sale and purchase?

c)       If  not,  can  the  defendants  rely  on  the  management  agreement  as giving them grounds not to settle?

d)At  the  settlement  date,  on  9  June  2009,  were  the  vendor  or  the defendants ready, willing and able to settle and, if not, why not?

e)        Were the defendants entitled to issue a settlement notice?

f)        Was the settlement notice valid?

g)        What was the effect of the vendor’s limited undertaking given on 12

June 2009?

h)Did the defendants lose the right to rely on the settlement notice when they  did  not  settle  within  the  two  working  days  allowed  by  the vendor?

i)From 16 June to 9 July 2009, were the defendants required to tender settlement and, if so, what were they required to do?

j)From 16 June 2009 to 9 July 2009, were the vendor and assignee required to tender settlement and, if so, what were they required to do?

[65]     I note some preliminary matters.

[66]     The plaintiff’s solicitors issued a settlement notice under a letter dated 2 July

2009, requiring the purchasers to settle within 12 working days.  The plaintiff invited me to disregard it.  The plaintiff’s case was that the plaintiff did not have to rely on the settlement notice to take proceedings for specific performance.  This is the law but it is also recognised in clause 12.6 of the agreement for sale and purchase:

Nothing in this clause shall preclude a party from suing for specific performance without giving a Settlement Notice.

[67]     The defendants’ issues about defects in the building is no longer a live issue in the light of Mr Poh’s evidence that the defects had been attended to.  His evidence has not been challenged.

[68]     The defendants also referred to inaccuracies in a certificate given under s 36 of the Unit Titles Act.  As will appear later, the concerns of the defendants’ solicitors as to information received from the vendor’s solicitors about insurance and payment of body corporate levies do not by themselves give the defendants a defence, but they do go to explain the defendants’ cautious response to demands for immediate settlement made by the vendor’s solicitors.

Enforcement of agreement by assignee

[69]     Under the security deed and the deed of assignment, the vendor assigned the benefit of the agreement for sale and purchase to the plaintiff.  However, Poh Trustee Ltd still remained liable to carry out its obligations as vendor under the agreement. In Queensland Insurance Co Ltd v Australian Mutual Fire Insurance Society Ltd (1941) 41 SRNSW 195 at 201, Jordan CJ said:

As a general rule, a person may assign to another any benefit to which he may be entitled under contract, but cannot escape his contractual liabilities by purporting to assign them, although if the contract be not of a personal nature, he may procure someone else to perform them for him.  If, therefore, a contract be assigned by one of the parties, the assignee may in general compel the other party to do for his benefit whatever he would have been liable to do for the assignor’s benefit, subject, however, to the obligations of the  assignor  being  duly  performed  by  the  assignor  or  by  someone  else

…(emphasis added)

[70]     The agreement for sale and purchase makes payment of the price and transfer of title concurrent and interdependent.   The question arises how the plaintiff, as assignee of the benefit of the agreement for sale and purchase, can compel payment of the purchase price when transfer of the title is an obligation that remained with Poh Trustee Ltd.  There is no evidence that following the assignment Poh Trustee Ltd will sign a transfer. It is not a party to the proceeding. The plaintiff submitted

that there would not be a problem, because the specific security deed conferred a power of attorney on the plaintiff.  The relevant provisions are:

14.1     Appointment

The Debtor irrevocably appoints the Secured Party, each Receiver, each nominee of the Secured Party in whose name any Secured Property  is  held  and  each  authorised  officer  or  attorney  of  the Secured Party severally to be its attorney (with full power to appoint substitutes and to sub-delegate) on behalf of the Debtor and in its name or otherwise and at its expense to complete, execute and otherwise perfect all assignments, transfers, security interests and other documents, and generally to do all other acts and things, that the Debtor is obliged to do under this Deed or another Relevant Document.

14.2     Ratification

The Debtor hereby ratifies and confirms to each person dealing with the  Secured  Party,  a  Receiver  and  each  Attorney  whatever  the Secured Party, a Receiver or that Attorney does in the exercise of any of the rights referred to in clause 14.1.

[71]     The deed defines Relevant Documents:

Relevant documents   means this Deed, each Collateral Security and each other agreement (present or future) evidencing or relating to Secured Indebtedness.

[72]     And collateral security is defined:

Collateral Security means each security agreement, guarantee or other agreement (present or future) expressed or intended to be security for any Secured Indebtedness.

[73]     The agreement for sale and purchase is an agreement expressed and intended to be security for the debt to the plaintiff. It is a collateral security and therefore a relevant document under clause 14.1.   The words:

… to complete, execute and otherwise perfect all assignments, transfers, security interests and other documents, and generally to do all other acts and things, that the Debtor is obliged to do under this Deed ...

seem directed at allowing the plaintiff as secured party to sign documents on behalf of the debtor that give better effect to its security. In that context “transfers” are transfers in favour of the secured party, the plaintiff. And if “transfers” are limited in this way when applied to the deed, that is, to giving better assurance, then the word

might be similarly limited when applied to “relevant documents”. That means that the  power  of  attorney  may allow  the  plaintiff  to  execute  an  assignment  of  the agreement for sale and purchase in favour of itself. But it might be another matter to say that the power goes further and allows the plaintiff to carry out the obligations of a vendor under an agreement for sale and purchase. Neither party submitted on the construction of the power of attorney. Because of the view I take on other issues, it is not necessary for me to rule on the matter finally.

The management agreement

[74]     The issue of the management agreement arises out of the defendants’ concern at the unreasonably high body corporate levies.  Clause 9.2 of the agreement for sale and purchase allows the vendor to procure the body corporate to enter into a building management agreement with such person as the vendor nominates before settlement on usual and reasonable commercial terms.

[75]     The defendants have an arguable case that the management agreement is not on usual and commercial terms.   The terms are one-sided favouring the manager. The agreement lasts for a term of 10 years, renewable for two further terms so it can last for up to 30 years.  The fee payable is generous.  With it goes occupation of the management unit with the rent and outgoings for the management unit to be paid by the body corporate.  The manager has the exclusive say on the engaging of outside contractors and is entitled to retain any profits he makes from engaging outside contractors.   It is extremely difficult to remove the manager.   The contractual requirement simply to use “all reasonable efforts” means that anyone trying to oust the manager faces a difficult task.  The contract provides little means by which the body corporate can control what the manager does.  This contract has few signs of an arm’s length negotiation.  It has the hallmarks of a sinecure for Poh Trustee Ltd.

[76]     The  vendor  and  the  plaintiff  have not  given  any evidence  to  justify the management agreement.  Instead, the stance has been to dismiss any concerns as ill- founded and to say that any concerns can be taken up with the body corporate after settlement.

[77]     At the hearing, the plaintiff’s position was quite clear that settlement would proceed only on the basis that the defendants would have to take title, with the management agreement in place, and would then have to take matters up with the body corporate after settlement.  On settlement there would be no adjustment of any sort on account of the management agreement.

[78]     Mr McBride said that there was clear authority in a judgment of Stevens J. that the vendor was able to enter into an agreement of the sort in this case. He did not name the case. The only decision of Stevens J. on management agreements for a body corporate under the Unit Titles Act 1972 that I have been able to find is Body Corporate 201036 v Broadway Developments Ltd CIV-2008-404-007966 Auckland High Court 14 October 2009. In that case a management agreement was held to be ultra vires the body corporate in so far as it provided compensation to the developer for having negotiated a rent-free period for ten years on acquiring the leasehold interest in the land. The only matter that it has in common with this case is that steps taken by a developer to secure additional benefits under a management agreement were held to be invalid. It does not assist the plaintiff’s case.

[79]     The issue of the management agreement goes beyond not complying with the agreement for sale and purchase.  While Poh Trustee Ltd was registered proprietor, it had entered into agreements for sale and purchase of apartments in its development. In this situation, the courts have recognised that vendors come under fiduciary duties to their purchasers.  In Bevin v Smith [1994] 3 NZLR 648 the Court of Appeal held that a vendor of land who had bought a paper road that ran between lots he had agreed to sell held that strip on a constructive trust for his purchasers on the basis of a fiduciary obligation to account for benefits acquired by virtue of his position (page

660). As that case shows, fiduciary duties may arise, even when an agreement is conditional:  see page 665:

For these reasons we consider that an equitable interest in land should, and does,  pass under a  conditional  contract  of  the  kind involved  here, even though  specific  performance  of  the  contract  in  the  strict  sense  is  not available. We agree with the recent Australian authorities to the effect that the equitable estate passes when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, ie inconsistently with the purchaser's contingent ownership rights. It will be sufficient if the Court will order specific performance of the

contract subject to the contingency. As McMorland points out (para 10.03), the purchaser's estate will remain contingent pending fulfilment or waiver of the condition. The interest will cease if the contract were avoided for failure of the condition, in the same way as the interest may come to an end in several other situations: upon cancellation for breach; or upon non-payment of the purchase price.

We stress that whether the equitable interest has passed must always depend on the terms of the contract itself. There will be some conditional contracts, particularly those subject to true conditions precedent, where the parties cannot be regarded as intending that equitable title will pass to the purchaser until the condition is waived or fulfilled. In the end it must be remembered that by saying the equitable title has passed, equity is doing no more than recognising that the purchaser must have acquired rights which should be protected in an appropriate manner. The sui generis nature of the trust arising under a contract for the sale and purchase of land has long been recognised (see eg Wall v Bright (1820) 1 Jac & W 494, 499). In the end equity must act according to the nature of the contract and the practical situation of the parties.

[80]     In this case, under clause 9.2 the purchasers had authorised the vendor to procure   a   management   contract   for   the   body   corporate.   Clearly   any   such management contract was to be for the benefit of the body corporate and for purchasers of units. It would be a misuse of that authority given under the agreement to arrange a one-sided contract for the benefit of the vendor. The fact that the agreement is conditional, as an underwriting agreement where the financiers have not yet given notice, ignores the practical situation of the parties. Even before the financiers gave notice, the purchasers had placed trust and confidence in the vendor to procure a management contract for the body corporate. The relationship of trust and confidence that gives rise to fiduciary obligations was already in place.

[81]     On 13 May 2009, the vendor’s lawyers gave the purchasers’ lawyers notice of the issue of 3 documents. The last to issue, the certificate of practical completion, is dated 23 April 2009. When that document became available, the vendor knew that it was in a position to complete its sales of its units in the development. Before it gave notice to the purchasers in this case, it arranged the management agreement dated 29 April 2009. The terms of the management agreement suggest that the vendor  looked  no  further  than  the  nearest  mirror  to  find  a  manager.  There  are grounds for the purchasers to argue that in putting its own interests ahead of the body corporate in arranging this contract, the vendor breached its fiduciary duty to the purchasers.

[82]     The defendants have an arguable case that the management agreement is such a marked departure from what they were to take, that they are entitled to refuse to take title.  Whether the difference is so great is a matter for decision after the parties have given full evidence.  It will not be necessary for the defendant to show that the subject matter of the contract has altered. On this point there are dicta on s 7(4)(b) of the Contractual Remedies Act.  In Macindoe v Mainzeal Group Ltd [1991] 3 NZLR

273 at 284 Richardson J said:

Substantiality in that statutory context is a matter of fact, degree and impression.  It has the same flavour as “significantly” and “Considerably”. It is equally incapable of any kind of arithmetical analysis. One must stand back and, assessing the matter objectively, determine whether the effect of the breach will be, to take the most obvious provisions subparas (i) and (ii), substantially  to  reduce  the  benefit  of  the  contract…or  substantially  to increase the burden…under the contract.

And in Jolly v Palmer [1985] 1 NZLR 658 Hardie Boys J said at 662:

The statute does not define the word “substantially” and the Court should not attempt to do so either. It is enough to say that what is required is something more than trivial or minimal, but I think Mr Withnall went too far when he argued that what is required is a difference so great as to alter the subject- matter of the contract. Each case must be considered on its own facts, and an individual determination made having regard to the nature of the contract and of its subject-matter and to all the circumstances of the case.

[83]      The defendants have an arguable case that the management agreement gave them grounds for cancellation under s 7(4)(b) of the Contractual Remedies Act 1979. Davidson Armstrong & Campbell’s letter of 9 July 2009 is a notice of cancellation under s 8 of the Contractual Remedies Act 1979.   That letter did not refer to the management contract, but that does not stand in the way of the defendants’ relying on it now:  Thompson v Vincent [2001] NZLR 355 at [82]–[88].

[84]     Even if it is held that the management agreement does not provide grounds for cancellation, the conduct of the vendor in procuring the management contract for itself and the associated representations to Mr Murphy may cause the Court to decline specific performance in its discretion.

[85]     The remaining issues are relevant in case it is found that the management agreement does not by itself provide grounds for cancellation.

Ability to settle on 9 June 2009

[86]     Under the e-dealing guidelines, the vendor’s lawyer was required to provide an undertaking to the purchaser’s lawyer to release the instruments and not to do anything that would prevent registration.   In this case, that meant that not only a transfer, but also discharges of the three mortgages that were registered against the title  had  to  be  prepared,  certified  and  signed.    This  requirement  to  give  an undertaking  is  a  matter  of  substance.     Until  the  vendor’s  lawyers  gave  the purchaser’s lawyers the undertaking, the purchaser’s lawyers could not know that title would be transferred free of the mortgages.  In the absence of the undertaking, the vendor was not ready, willing and able to settle on 9 June.  The plaintiff did not suggest that it was.  There is no evidence from the vendor or its lawyers challenging the evidence of Mrs Chrystall that the vendor had not given the undertaking by 9

June 2009.

[87]     The defendants’ evidence does not show  that  the defendants were in  all respects ready, willing and able to settle on 9 June 2009.   Instead, their evidence shows that they had completed all their e-dealing requirements, and had organised funds.  Westpac New Zealand Ltd was to provide a first mortgage of $978,000 and Mr and Mrs Murphy were to provide the balance of the settlement funds from their own resources.  Davidson Armstrong & Campbell were not in a position to draw on the funds until they received settlement undertakings from the vendor’s lawyers.  For this summary judgment application, the defendants’ claim that they were ready, willing and able to settle but for the default of the vendors is arguable.

[88]     The plaintiff attacks the defendants’ claim of being ready, willing and able to settle on 9 June by focusing on the situation at 12 June 2009, when Knight Coldicutt gave the required undertaking, albeit limited in time.  The plaintiff’s argument was that if the defendants really were ready, willing and able to settle on 9 June 2009, then they ought to have been able to settle on 12 June 2009 when Knight Coldicutt gave the undertaking.  As the defendants did not settle on 12 June 2009, when they received the vendor’s undertaking, then the defendants were not ready or willing.

[89]    The relevance of 12 June is that the defendant’s lawyers had given the settlement notice the day before, the vendor’s lawyers gave the limited undertakings on that day, but the management agreement had not been disclosed until the next working day, 15 June 2009.

[90]     In her affidavit, Mrs Chrystall says that the notice given on 12 June 2009 did not give enough time to obtain the necessary trustee and mortgagee consent to proceed:   “Given the additional disclosures regarding the financial position of the body corporate”.  The additional disclosures regarding the financial position of the body corporate she is referring to are that body corporate levies had not in fact been paid – other agreements for the purchase of other units in the development were to have settled in May 2009 but had not.   The insurance premium had not been paid. This led to a risk that the vendor might use the proceeds of sale to pay insurance for the entire development and the purchasers’ share of the body corporate levy might not be met.  Mrs Chrystall’s caution is understandable.  A careful lawyer acting for the defendants would  want these matters,  all  within the vendor’s responsibility, cleared up before completing settlement.  If the settlement was to proceed it would have to be on the basis that the purchasers and their mortgagee had a clear understanding of the situation. Their informed consent was required.   That would need time.

[91]     The plaintiff’s argument as to the failure to settle on 12 June 2009 smacks of springing a settlement on the purchasers at short notice.  Titles had issued in March. The code of compliance certificate and practical completion certificates had issued in April.  Notice had been given on 20 May that settlement would take place on 9 June. Yet the vendor had not made itself ready to settle on 9 June.  For the vendor then to give a settlement undertaking late, on 12 June, and then seize on the failure to settle on that day is unreasonable.

[92]     Further, the vendor knew about the management contract, but the purchasers did not.   The vendor’s lawyers did not disclose the management contract until 15

June 2009. Once the management contract had been disclosed on 15 June, that gave the purchasers good grounds to object to settlement if the management contract between the body corporate and the vendor were to remain in place.  But on 12 June

2009, the defendants did not know about the management contract.  The purchasers were in a state of ignorant readiness.  It is inequitable for the vendor to rely on its withholding of relevant information about the management contract (the disclosure of which would give grounds for not settling) to say that the purchasers ought to have settled on 12 June and therefore were not ready when they failed to do so.

The defendants’ settlement notice

[93]     On 11 June 2009, the purchasers were entitled to issue a settlement notice on the basis that but for the default of the vendors, they were substantially ready, willing and able to settle.  In Cole v Roe [1978] 3 All ER 1121 at 1128, Mervyn Davies QC, sitting as a Deputy Judge, said:

Counsel for the vendors contended persuasively for the contrary view.  He said that a vendor had not literally to be ready when serving a notice because many steps had to be taken after the service of the notice to put a vendor into complete readiness.   Thus a completion statement may have to have been prepared and agreed, or arrangements made for the discharge of mortgages, or the time and place of completion agreed.   I agree with that approach. Nevertheless, the unreadiness of the vendor’s solicitor was, as I said, of a different character.  What he had to do on 29 January was to satisfy himself on matters of substance that he could go forward to complete.  He was not merely in a position of having to set up the necessary administrative arrangements respecting completion. …

[94]   On this distinction between administrative arrangements and substantive readiness,  the  evidence  for  the  defendants  shows substantive  readiness  although administrative arrangements might still be required.

[95]     The plaintiff says that the defendants’ settlement notice is defective because it does not specify a breach and the vendor was never properly informed what it was required to do under the settlement notice.

[96]     In Plowman v Dillon [1985] 2 NZLR 312, Chilwell J considered an extensive challenge to a settlement notice given by a vendor against a defaulting purchaser. The agreement for sale and purchase in that case was a version of the agreement for sale and purchase approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. Clause 8.1 of the agreement in that case, cited at

p 315 of the report, is in all material respects almost identical to clause 12.1 of the agreement for sale and purchase in this case.  The settlement notice in that case is recorded at p 316 of the report.  The settlement notice in that case is similar to the settlement notice given by the purchasers in this case in that it refers to relevant contractual provisions for the issue of a settlement notice.   Both notices contain claims that the party concerned is ready, willing and able to settle.   There was a general demand that the other party settle in terms of the contract.   Each notice contains a reference to the exercise of remedies available if the other party does not settle.  The challenges to the notice that Chilwell J considered in Plowman v Dillon were:

a)        That the notice did not clearly warn the purchaser that the vendor may treat the contract at an end if the notice was not complied with;

b)That the notice was defective because it did not state time to be of the essence and did not specify a date, time or place;

c)        The notice was invalid because it did not indicate the consequences of non-compliance.

[97]     Chilwell J considered these objections comprehensively.  The authorities he was referred to include Taylor v Raglan Development Pty Ltd [1981] 2 NSWLR 117, which the plaintiff relies on. Arguments in that case relying on Taylor v Raglan Development Pty Ltd were developed as to the necessity to draw to the recipient’s attention with reasonable explicitness to the acts required by him in relation to the contract.

[98]     Chilwell J rejected the challenges in that case.  I do not need to repeat all the arguments traversed by his Honour in that case.  Clause 12.1 in the agreement for sale and purchase in this case is likewise modeled on an earlier version of the Real Estate Institute of New Zealand/Auckland District Law Society form. If the Real Estate Institute of New Zealand and Auckland District Law Society had considered that Plowman v Dillon was wrongly decided and left settlement notices too general, they could have tightened the provisions for settlement notices.  While this standard

form agreement has undergone extensive modification, the present version of the agreement does not require a notice to say any more than the version in  Plowman v Dillon did. That decision has stood unchallenged for well over two decades. Experience since 1985 has not shown that there is any need to depart from the decision in Plowman v Dillon.  Property lawyers have given and received settlement notices similar to the one in the present case, without failing to understand what the settlement notice requires.  I see no need to depart from Plowman v Dillon in this case and to impose more requirements for a settlement notice than appear in the agreement.

[99]     The vendor’s lawyers prepared the agreement for sale and purchase for the vendor’s development, including the agreement in this case.  If they had thought that settlement notices should specify detailed steps to be taken by the recipient, then they could have drawn clause 12.1 to require this expressly.

[100]   Parker v Enco Group Ltd (1986) 2 NZCPR 421 relied on by the plaintiff turns on its own facts.   The agreement for sale and purchase in that case did not provide for settlement notices to be given.   The purchasers had sent a notice purporting to cancel for non-satisfaction of a condition and at the same time giving notice of 14 days for the deposit of a plan, time being of the essence.  The notice was held defective because it purported to pursue two inconsistent causes.  The present case does not involve a notice where inconsistent causes are proposed.

[101]    There is no evidence from the vendor’s lawyers that they did not understand what the vendor was required to do under the settlement notice.   As experienced property lawyers, they risked ridicule if they had.

Vendor’s limited undertaking of 12 June 2009

[102] The Knight Coldicutt letter of 12 June 2009 contained an appropriate undertaking under the e-dealing guidelines but was limited in time.  The letter went on to say that should settlement not take place by 12 June 2009, Knight Coldicutt would provide new undertakings. That last part is not an undertaking by Knight Coldicutt.   Knight Coldicutt recognised that an undertaking was required to allow

settlement  to proceed.  While a lawyer may properly give a limited undertaking, to ensure that he does not undertake more than he can do, the vendor could not give an undertaking limited in time.   If the vendor wanted to enforce the agreement, the vendor had to be ready, willing and able to perform the agreement.  It could not be ready, willing and able to perform the agreement if the undertaking given by its lawyer was good only for two further working days.  If the law were to uphold an undertaking limited in time, that would amount to allowing the vendor to limit the time during which it would be able to complete the agreement.   The mechanism under which the vendor can limit the period by which it can be required to complete is to issue a settlement notice and then to cancel the contract if the agreement had not been completed by the expiry of the time in the settlement notice.  Allowing vendors to give undertakings for shorter periods would undermine the purpose of the settlement notice.

[103]   Once the Knight Coldicutt undertaking expired on 16 June 2009, there was no longer an undertaking by the vendor to allow settlement to be completed.  While there was no longer an undertaking by the vendor, the vendor was no longer ready, willing and able to complete.

[104] The two business days’ notice given by the vendor was in any event unreasonable.  The purchasers’ difficulty in being able to settle on 12 June 2009 has already been discussed above.   On 15 June 2009, Knight Coldicutt sent Davidson Armstrong & Campbell a copy of the signed management agreement, coupled with a demand for immediate settlement.  For the reasons given above, the purchasers could not reasonably be expected to consider the management agreement, confer amongst each other and reach agreement (they were trustees, so presumably unanimity was required) and then complete the settlement on 16 June 2009.   As it turned out, the management agreement did not comply with the agreement for sale and purchase, giving rise to an arguable right to cancel.  The purchasers’ failure to settle on 15 and

16 June 2009, with the belated disclosure of the management contract, does not mean that the purchasers lost the right to rely on their settlement notice.

[105]   The plaintiff took issue with the last proposition.  It referred to a decision of the English Court of Appeal, Quadrangle Development and Construction Co Ltd v

Jenner [1974] 1 All ER 729. That case dealt with a notice to complete under the English National Conditions of Sale. The contractual provision is similar to settlement notice clauses in New Zealand agreements for sale and purchase. At p 732, Russell LJ said:

Under the language of the clause, the party giving the notice must be ready and willing at the time of giving the notice to fulfil his own outstanding obligations under the contract.  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.

Similarly, Buckley LJ said at 733:

The condition specifically requires that at the time when a notice is given the giver of the notice shall be ready and willing to fulfil his outstanding obligations,  and  in  my  judgment  the  condition  clearly  proceeds  on  the footing that the giver of the notice will be ready and willing to perform his obligations at any time within the 28 day limit within which the other party is bound to complete the contract.

[106]   Those are general statements which should not be applied out of context to the particular facts in this case.

[107]   Another English decision showing that these dicta should not be applied strictly is Oakdown Ltd v Bernstein & Co (1985) 49 C & PR 282.  Scott J said at

295:

Nevertheless I am unable to accept Mr Albery’s proposition.  If he is right, a party who serves a 28-day completion notice can be required by the recipient to complete, say, five days later and be treated as in fundamental breach of contract if he fails to do so.   I find this proposition unacceptable for two reasons.  First, the obligation which binds the recipient of the notice and in respect of which time is of the essence is to complete within 28 days.  I do not see why the corresponding obligation which binds the giver of the notice and in respect of which time is of the essence should be an obligation to complete on such date within the 28-day period as may be nominated by the recipient of the notice.  Secondly, if the recipient of the notice selects a day for completion, say, five days after service and fails then to complete, it is clear, in my judgment, that that failure does not place the recipient of the notice in breach of his obligations under the notice.  He can still remedy that failure by completion within the remaining 23 days.  I do not follow why the failure of the giver of the notice to complete on the selected day should have a repudiatory effect whereas the like failure of the recipient of the notice does not have that effect.

I accept, of course, that the failure of the giver of the notice to complete on an  intermediate  date  within  the  28-day  period  would  be  a  breach  of

contractual obligation and might, in an appropriate case, affect the running of interest on the purchase money.  But it would not, in my judgment, per se entitle the recipient of the notice to treat the contract as at an end.

I do not think that Mr Albery is entitled to pray in aid in support of his argument the dicta in Quadrangle Development and Construction Co Ltd v Jenner.  …

The alternative approach, which I think is the correct one, is that by serving a  condition  22  notice  to  complete,  the  party  who  serves  it  imposes  on himself an obligation, in respect of which time is of the essence, to complete within the 28-day period, a mirror obligation to that which the notice in terms imposes on the recipient.  The giver is not, in my judgment, in breach of his obligation, so imposed, unless he fails to complete within that period.

I prefer the approach of Scott J in Oakdown.

The absence of settlement from 16 June to 9 July 2009

[108]   The plaintiff says that between 16 June and 9 July 2009, the purchasers ought to have tendered settlement and by failing to tender settlement, they were not ready, willing and able to settle.  Accordingly, they lost the right to cancel on 9 July 2009.

[109]   There  are  recent  dicta  about  the  need  to  tender  settlement.    Tipping  J

expressed it this way in Stewart v Davis [1995] 3 NZLR 604 at 608:

The starting point is that a purchaser is ordinarily bound to tender performance on due date otherwise the purchaser himself falls into breach.

…  The purchaser’s ordinary obligation to tender performance on due date

does not arise in two situations.  The first is where such tender has expressly or impliedly been waived or would clearly be futile.  The second is where the vendor himself is in breach by not being ready, willing or able to settle.

… The question whether tender is futile must be judged objectively at the time when tender is otherwise due.  The onus is on the party seeking to have

the lack of tender regarded as immaterial.  As I indicated in Band v Shearer, a high degree of certainty is required;   I use the expression a foregone conclusion.    The  party  who  has  not  tendered  must  show  that  it  was  a

foregone conclusion that the tender would not have been accepted or was not able to be accepted.  Any lesser standard would introduce uncertainty and an

undesirable potential for disputes in a situation which occurs quite often.

Blanchard J in his Handbook on agreements for sale and purchase of land (4th  ed, 1988) at p 66 gives the sensible advice that despite the futility exception it is prudent, save in the clearest of cases, to carry out formal tender so that the issue does not arise.

[110]   Similarly in Bahramitash v Kumar [2005] NZSC 39 Blanchard J, giving the decision of the Supreme Court said:

[17]  It is, however, for the purchaser to begin the process of settlement by taking or transmitting the settlement sum to the vendor – money goes to documents, as it is often put.   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.

[18]     An  indication  from  the  vendor,  by  words  or  conduct,  that  a contractually proper tender by the purchaser would be futile has significance in two respects.   First, the vendor cannot treat the purchaser as being in default by failing to make such a tender.  Secondly, the vendor will be taken to have indicated that he or she is not ready, willing and able in all material respects to perform his or her settlement obligations.

…

[20] The conclusion that going through the motions of tendering would have been a futile exercise is not one which is lightly to be drawn.  It is normally prudent, save in the clearest of cases, for the purchaser to carry out a formal tender so that the issue does not arise in litigation, as it unfortunately did in the present case.  It is for the purchaser to prove that tender would have been futile.  It is a matter which is judged objectively at the time when tender was otherwise  due.     It  is  not  enough  for  a  purchaser’s  solicitor  to  have subjectively concluded, however honestly, that the vendor will not perform the concurrent obligation in response to a tender of the sum which is due. The futility of the exercise must be clear;  it must be shown to have been a foregone conclusion that the tender would not have been accepted or was not able to accepted.   In other words, it must be shown that without any real doubt the vendor would either have refused to settle in response to a contractually proper tender or, if willing, would not have been in a position to do so.  But a vendor who has by words or conduct plainly intimated an inability or unwillingness to perform the settlement obligation to convey the property  will  be  regarded  with  scepticism  if  he  or  she  later  says  that, contrary to what the purchaser had been told, if tender had in fact been made in terms of the agreement it would have been accepted.

[111] The plaintiff invoked the co-operative approach taken by conveyancing professionals and referred to the need for co-operation when obligations are inter- dependent.    Authority on the need for co-operation is found in the speech of Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251 at 263:

I think I may safely say, as a general law, where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.

[112] Given the continued insistence by the vendor and the plaintiff that the defendants must take title subject to the vendor having its management agreement with the body corporate, the defendants have an arguable case that any tender of settlement on any other basis would have been futile.

[113]   But in the hearing, the argument as to tender proceeded on the alternative basis that the management contract did not give the defendants any right of cancellation.  The plaintiff claimed that the purchasers were required to co-operate and their failure to co-operate meant that they were not ready, willing and able to settle, and therefore were not entitled to give notice under clause 12.4 cancelling the agreement.

[114]   When  asked  what  the  defendants  should  have  done  after  the  vendors’ lawyers' undertaking had expired, counsel for the plaintiff submitted that the defendants’ lawyers should have told the vendor that the vendors’ lawyers should give a fresh undertaking.  He did not suggest that the defendants should have taken any other step before settlement.

[115]   The response is illuminating.  It accepts that the vendor had to do something first, namely give a proper undertaking under the e-dealing guidelines, and until that undertaking had been given, the defendants could not properly take any other steps towards settlement.

[116]   The defendants’ argument was that, once the Knight Coldicutt undertaking given in the letter of 12 June 2009 had expired, the defendants could not take any further steps towards settlement.  On the defendants’ argument, the undertaking was required before settlement.   The purchasers could not sensibly offer payment as a tender of settlement, unless the undertaking was already in place.

[117]   The  plaintiff’s  acceptance  of  the  necessity  for  the  vendor  (and  later  the plaintiff as assignee) to give an undertaking through their lawyers is a reflection that in current conveyancing practice, settlements no longer take place by the purchaser’s lawyers bringing a bank cheque to the vendor’s lawyers, but instead payment is arranged through the banking system by the purchaser’s lawyers depositing cleared

funds into the vendor’s solicitor’s trust account against undertakings to transfer title. Knight Coldicutt expressly adopted this in this case.  The purchasers’ lawyers would have been surprised if the assignee’s lawyers had insisted on settlement by delivery of a bank cheque to their offices instead of accepting payment through the banking system.  Clearly, the purchasers’ lawyers could not arrange payments into the trust account of the vendor’s lawyers unless they first had undertakings from the vendor’s lawyers that would ensure that title would pass upon payment.   So the vendor’s lawyers’ undertaking was essential to settlement, and without the undertaking, settlement could not proceed.

[118]   The plaintiffs’ claim that the purchasers’ lawyers had to tell the vendor’s lawyers, and later the assignee’s lawyers, to give undertakings in accordance with the e-dealing guidelines, misses the point that under the duty of co-operation as set out by Lord Blackburn in McKay v Dick: “Each agrees to do all that is necessary to be done on his part for the carrying out of that thing.”  The obligation to provide the undertaking lay with  the  plaintiff  and  the  plaintiff’s  lawyers.    Under  e-dealing, conveyancing is conducted by experienced professionals.  There is no requirement under e-dealing for one party to instruct or advise another on how that other party should carry out its obligations to complete the transactions.  There is nothing in the agreement for sale and purchase in this case that requires the purchasers to remind the vendor of its obligations under the agreement.   A purchaser who has given a settlement notice cannot be held not to be ready, willing and able to settle, simply because the purchaser has not told the vendor how the vendor should go about performing its obligations under the agreement.

[119]   Accordingly, during the period from 16 June 2009 when the Knight Coldicutt undertaking expired to 9 July 2009, when the 20 business days for settlement under the settlement notice of 11 June 2009 expired, the purchasers and their solicitors were ready, willing and able to settle in that they had arranged funding to complete the purchase, had completed the e-dealing requirements and were waiting for the vendor’s lawyers and later the assignee’s lawyers, to give the undertakings required under the e-dealing guidelines.   It is for the vendor’s lawyers and the assignee’s lawyers to give a proper undertaking, not limited in time, to show that settlement

could proceed.   Unless these undertakings were forthcoming, the plaintiff cannot succeed in its claim that the purchasers were not ready, willing and able to settle.

[120]   During the 20 business days after 11 June 2009 when the defendants’ lawyers gave the settlement notice to the vendor’s lawyers, the vendor, and later the assignee, did not take sufficient steps to complete settlement.   The vendor and the assignee insisted on settlement with the management agreement of 29 April 2009 between the Body Corporate and the vendor in place.  The defendants have an arguable defence that the management agreement goes beyond what the agreement for sale and purchase allows and is of such significance that they are entitled to cancel under the Contractual Remedies Act.  Further, the limited undertaking given by the vendor’s lawyers on 12 June 2009 was not sufficient to allow settlement to occur.   After

16 June 2009, there was no proper undertaking by the vendor or the assignee to allow settlement to be completed.

[121]   In these circumstances, the purchasers have an arguable defence that they were entitled to give notice cancelling the agreement for sale and purchase on 9 July

2009.  With that arguable defence, summary judgment cannot be given against them.

[122]   The  defendants  referred  me  to  the  judgment  of  Woodhouse  J  in  Bos

International (Australia) Ltd v Griffiths HC AK CIV-2009-404-004911, unreported,

21 December 2009.   In that case, the purchasers of other apartments in the same complex resisted the plaintiff’s application for summary judgment for specific performance on the grounds of alleged misrepresentation by Poh Trustee Ltd.  While the agreements for sale and purchase in that case have many terms in common with the agreement in this case, the matters in issue in the two cases are quite different and it is of little relevance to this case.

[123]   Following NZI Bank v Philpott [1990] 2 NZLR 403, I reserve costs. [124] Accordingly:

a)        The application for summary judgment is dismissed;

b)        The defendants are to file a statement of defence by 30 April 2010;

c)        There is to be a case management conference on 13 May 2010 at

10:50 am.  At that conference, further timetabling directions will be considered, including pre-trial directions and alternative dispute resolution;

d)       Costs are reserved.

R M Bell

Associate Judge