Cassiny Ltd v Hounslow Holdings Ltd
[2021] NZHC 2528
•24 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001789
[2021] NZHC 2528
UNDER Property Law Act 2007 IN THE MATTER OF
an agreement for sale and purchase of real estate
BETWEEN
CASSINY LIMITED
Plaintiff
AND
HOUNSLOW HOLDINGS LIMITED
Defendant
Hearing: 24 September 2021 Appearances:
C Elliott QC, K J Sheehan and J P Palairet for Plaintiff K Davenport QC and A M Cameron for Defendant
Judgment:
24 September 2021
ORAL JUDGMENT OF WOOLFORD J
Solicitors:Kate Sheehan Lawyers (K Sheehan), Auckland, for Plaintiff Sellars & Co (B Wyber), Auckland, for Defendant
Counsel: Clive Elliott QC, Auckland, for Plaintiff
K G Davenport QC, Auckland, for Defendant
CASSINY LTD v HOUNSLOW HOLDINGS LTD [2021] NZHC 2528 [24 September 2021]
[1] On 3 December 2020, the plaintiff, Cassiny Limited, entered into an agreement to purchase bare land at 47 Urumaraki Avenue, Helensville, from the defendant, Hounslow Holdings Limited. The plaintiff intends to subdivide the land into about 28 or 30 lots and onsell them. Settlement date was six months from the date the agreement became unconditional.
[2] The agreement became unconditional on 25 February 2021. Settlement was therefore due on 25 August 2021. The purchase has not settled. The defendant issued a settlement notice on 3 September 2021, requiring settlement on or before 21 September 2021.
[3] On 20 September 2021, the plaintiff filed proceedings against the defendant claiming the settlement notice was invalid and there was an implied term in the agreement that it was conditional on resource consent from Auckland Council. In an urgent interlocutory application for interim orders, the plaintiff seeks an order suspending the settlement notice and deferring the settlement date until further order of the Court or agreement between the parties.
[4] On 21 September 2021 at 9 am I heard from the parties by way of telephone conference. On that date, counsel for the defendant gave an undertaking suspending the settlement notice on an interim basis until the matter could be heard and determined by the Court. I heard from the parties at a substantive hearing by way of VMR at 10.30 am today, Friday, 24 September 2021.
Test for interim orders
[5] The test for interim orders is well-established. First, a plaintiff must establish that there is a serious question to be tried. Secondly, the balance of convenience must be considered and, finally, an assessment of the overall justice is required as a check.
[6] As to a serious question to be tried, it is sometimes framed as the claim not being frivolous or vexatious. That however is not sufficient of itself. The plaintiff must adduce sufficiently precise factual evidence to satisfy the Court that there is a real prospect of succeeding in the claim at trial. The Court should carefully consider
the merits of the plaintiff’s claim in fact and in law. If on the evidence adduced the law gives the plaintiff no remedy, then the plaintiff cannot claim interim relief.
[7] The question of balance of convenience usually only arises where there is doubt as to the adequacy of damages. It is a wide-ranging inquiry with the factors to be considered varying considerably from case to case.
[8] The overall justice is essentially a check on the position that has been reached following the analysis of the earlier issues of a serious question to be tried and the balance of convenience.
Grounds for orders sought
[9] The plaintiff submits that there is a serious question to be tried for the following reasons:
(a)The COVID-19 lockdown is a material supervening event that has made it impossible for the plaintiff to meet its contractual obligations regarding settlement.
(b)The supervening event, both explains and excuses any alleged non- performance on the plaintiff’s part.
(c)Under the circumstances, the plaintiff’s obligation to settle by 21 September 2021 should be temporarily suspended, an implied term of the agreement.
(d)The plaintiff is not in breach of its contractual obligations.
(e)Instead, the settlement notice is invalid.
(f)Additionally, an implied term of the agreement is that the agreement was conditional on the plaintiff obtaining the necessary resource consents.
[10] The plaintiff also submits that the balance of convenience supports the making of the orders sought. The plaintiff says its inability to perform is due to no fault of its own and damages would be an insufficient remedy for wrongful cancellation. The plaintiff says it would suffer irreparable and unquantifiable harm, whereas the defendant would not suffer any significant prejudice or disadvantage if the settlement date was extended. Finally, the plaintiff says that third parties including potential purchasers of subdivided lots would be prejudicially affected by the plaintiff’s inability to proceed with the purchase of the property.
[11] The plaintiff submits it has always intended to settle the purchase, but is unable to do so because its financier will not advance the money to enable settlement before the Auckland Council has issued the necessary resource consents for subdivision of the land. An application for resource consent was lodged on 24 August 2021, but because of the COVID-19 restrictions, the Council has necessarily extended the timeframes for processing such applications. It is not known when the Council may approve the application thereby enabling the plaintiff to access the funds necessary for settlement.
Discussion
[12] There are two major difficulties for the plaintiff in advancing its case that its inability to perform is due to no fault of its own.
[13] First, settlement of the purchase was not made conditional on the grant of resource consent by the Council for subdivision of the land. It appears that the sole director of the plaintiff, Mr Hussain Ebrahim, did not refer the draft sale and purchase agreement prepared by the defendant and/or its agent to a lawyer for advice. In his first affidavit dated 20 September 2021, he says he “dealt with the real estate agent in signing up the Agreement”. He further says that, “The expectation when the Agreement was made unconditional was that the application would be lodged and processed, the lending facility finalised, all in good time for settlement”. It appears that the plaintiff did not even raise the issue with the defendant. A director of the defendant, Mr Richard Kidd, says in his affidavit dated 22 September 2021:
At no time did Mr Ebrahim suggest or ask us to sell the land subject to resource consent. We would not have agreed this type of condition because it is a matter outside our control and can/could unnecessarily delay the completion of any sale ...
Mr Kidd says the defendant is not a developer and it only ever advertised the land as having subdivision potential.
[14]In his supplementary affidavit dated 22 September 2021, Mr Ebrahim says:
The reason why the resource consent was not put in the Agreement as a specific condition (apart from the further terms including due diligence) was because I called and spoke to John Dare.
Mr Dare was the planner who had prepared a draft subdivision plan, which was attached to the tender documents. Mr Ebrahim goes on to say:
I did ask specifically if the sub-division of the 28 lots is a permitted activity and he said 100 per cent. I asked him whether this needed a long process to obtain consent and he said that it was straightforward and could be done within the normal process of 20 working days (in total) and said that there may sometimes be a delay, but he said to me and reassured me that he knows how to deal with the Auckland Council.
Mr Ebrahim says it was only after these assurances from Mr Dare that he paid the deposit for the property.
[15] The assurances were not given by the defendant or by Mr Dare as an agent for the defendant. In any event, the assurances have not been shown to have been wrong. The operative cause of the plaintiff’s difficulties is the failure to file an application for resource consent until the day before settlement of the purchase was due.
[16] In his reply affidavit dated 23 September 2021, Mr Ebrahim also refers to discussions with the real estate agent who acted for the defendant, Mr Rex Keane. He says:
All the discussions I had with the agent Rex Keane were on the basis that I intended for Cassiny Limited to apply for and obtain resource consent and onsell the sections with them as the real estate agent/agency. I did ask through the vendor’s real estate agent if I could on sell the sections. The response I got from Rex Keane was yes but conditional on resource consent. From this I understood the vendor knew my company was applying for resource consent
and that the deal was subject to resource consent being obtained. That is the basis I proceeded on.
[17] In response, the defendant filed an affidavit from Mr Keane dated 23 September 2021. He says:
I am very clear that never would I have told Mr Ebrahim that the deal was subject to resource consent being obtained or that I acknowledged that he was making the deal subject to resource consent. I think everyone expected Mr Ebrahim to apply for resource consent as he would not be able to onsell the sections without it: however this is a very different thing from the deal being subject to resource consent. As an experienced agent if the deal was subject to resource consent then the agreement would have recorded this. In fact Mr Ebrahim never raised this with me.
[18] Mr Keane is adamant that Mr Ebrahim never raised the issue of the agreement being conditional on obtaining resource consent with him. Mr Ebrahim refers only to a discussion and email with Mr Keane about a condition for the on-sale of the subdivided lots from which he got an understanding that the agreement itself was subject to resource consent being obtained. It seems that there is nothing more than Mr Ebrahim’s understanding.
[19] The second difficulty for the plaintiff is that the application for resource consent was filed on the plaintiff’s behalf only on 24 August 2021, one day before settlement was due on 25 August 2021 and a week after the COVID-19 restrictions were imposed. The plaintiff would therefore have been unable to settle the purchase on the due date, even without any COVID-19 restrictions. Prior to the COVID-19 restrictions, the Council timeframe for accepting or rejecting an application for resource consent was 10 working days. If an application was accepted, the Council’s timeframe for consideration of an application was a further 20 working days. These timeframes have now been doubled for the plaintiff’s application by a Council decision dated 31 August 2021. The imposition of COVID-19 restrictions was, however, only one of five reasons why the Council extended its normal timeframes in the case of the application lodged by the plaintiff. In any event, using the timeframes prior to the COVID-19 restrictions, the plaintiff should have filed the application for resource consent at least 30 working days (or six weeks) prior to the date of settlement
– not one day prior to the date of settlement, which it did.
[20] Mr Ebrahim acknowledges that the plaintiff is not currently in a financial position to settle the purchase, which he puts down solely to the acts and/or omissions of third parties, which were outside his control. These include:
(a)“Receiving bad advice from my initial lawyer, who had personal issues” which necessitated him instructing another lawyer to take over.
(b)“Delays by the planner in late filing an application with the Auckland Council for resource consent”. Mr Ebrahim says he engaged Mr Dare on 26 February 2021 and told him the application needed to be filed on or before 15 April 2021; and
(c)“Subsequent delays and extensions in timeframes in processing the application due to COVID-19 (restrictions) and further requirements imposed by lenders/financiers”.
[21] None of these acts or omissions are attributable to the defendant. If loss has been caused to the plaintiff by these acts or omissions, then it should look to the third parties, other than the Council, rather than the defendant.
[22] The amended statement of claim dated 23 September 2021 contains three causes of action. The first alleges invalidity of the settlement notice due to impossibility of performance. I am, however, not persuaded that there is a serious question to be tried as to whether or not it is impossible to perform the agreement for sale and purchase. The plaintiff had six months to make the necessary financial arrangements. Such arrangements were not made in a timely fashion. Mr Ebrahim says in his reply affidavit dated 23 September 2021:
Finance is much tighter now with conditions being imposed due to COVID- 19, but this only became apparent to me in August this year.
The subsequent delays in processing times caused by the COVID-19 restrictions are immaterial. Settlement can proceed even under COVID-19 level 4 restrictions as the property is bare land (that is, capable of vacant possession) and the transfer of title can be effected in the normal way by the parties’ solicitors. It is not impossible to settle the purchase. The plaintiff just does not have the money to do so.
[23] The second cause of action alleges that it was an implied term of the agreement for sale and purchase that it would be conditional on resource consent. Such a term is said to be necessary to give business efficacy to the agreement. In this regard, the plaintiff relies on communication between the parties. After having reviewed the correspondence attached to the parties’ affidavits, I am not persuaded that there is a serious question to be tried as to whether or not the agreement was impliedly conditional on resource consent. It was not impliedly conditional on resource consent. The plaintiff took the risk of not obtaining resource consent for the subdivision.
[24] Although the parties were aware that the plaintiff intended to subdivide the property into approximately 28 or 30 lots and onsell them, the question of how the plaintiff was to finance the purchase was a matter solely for the plaintiff. The defendant had no knowledge that finance would only be available if the plaintiff had obtained resource consent for the subdivision. An implied term is not required to give efficacy to the agreement. It is not strictly necessary. The property was advertised for sale as having subdivision potential.
[25] The third cause of action is a claim for rectification of the agreement to provide that settlement was conditional on the plaintiff obtaining resource consent for subdivision. It draws on the same evidence pleaded in the second cause of action.
[26] Having found that there is not a serious question to be tried, it is therefore strictly unnecessary to consider the balance of convenience. I shall however do so for the sake of completeness. I am of the view that damages would be adequate for the plaintiff if it was able to prove its claim at trial. It will forfeit its deposit of $300,000 and lose the opportunity to subdivide the property. The opportunity cost is, however, readily quantifiable. The plaintiff has already provided figures quantifying its potential losses.
[27] I do have real doubts whether the plaintiff is in a financial position to meet an award of damages as it is in a COVID-19 Business Debt Hibernation and it does not appear to own any property itself. I do accept, however, that Mr Ebrahim has now made arrangements to repay all debts owed by the plaintiff and take it out of COVID- 19 Business Debt Hibernation. There is another undertaking given by Cassiny Lands
Limited, but it has not been demonstrated that it has substantial assets. It was incorporated in January 2021.
[28] The defendant would also suffer damage if any injunction was later found to be without merit. Most importantly, it would comprise interest on the unpaid purchase price at 12 per cent per annum in terms of the agreement (effectively, $360,000 for every year before resale can occur). Mr Kidd also says that the defendant’s shareholders are already suffering loss as a result of the plaintiff’s failure to settle, having had to refinance loans which they had expected would be repaid by now and arrange new finance.
[29] It is also unclear what losses would be suffered by the purchasers of any of the subdivided lots. Any deposits paid will be refundable so all they would have lost is the opportunity to put their money elsewhere in the interim.
[30] I am, therefore, not persuaded that the balance of convenience favours the plaintiff.
[31] As to overall justice, I step back and look at the overall situation. The plaintiff is a property developer. It entered into a conditional agreement to purchase land for development on 1 December 2020. It was subject to only two conditions – due diligence by the purchaser and reaching agreement on the registration of certain covenants. The agreement became unconditional on 26 February 2021. Settlement was not for another six months. In my view, that was ample time to make application for resource consent and put finance in place for settlement. The plaintiff had access to legal and other professionals’ advice throughout this time.
[32] The defendant heard nothing from the plaintiff until 14 August 2021, 11 days prior to settlement, when the plaintiff emailed the defendant saying his finance company was unlikely to provide finance to settle as resource consent had not been obtained and that an extension might be required. The die had been cast at that stage. The imposition of the COVID-19 restrictions three days later, on 17 August 2021, was immaterial.
Result
[33] The application for interim orders is dismissed. The defendant is entitled to costs on a 2B basis.
Woolford J
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