Connell Street Ltd v Purewal BS & JK Ltd HC Auckland CIV 2009-404-870
[2010] NZHC 2293
•17 December 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-000870
BETWEEN CONNELL STREET LIMITED Plaintiff
ANDPUREWAL B.S. & J.K. LIMITED Defendant
Hearing: 29, 30 November 2010
Appearances: R O Parmenter for Plaintiff
D Jenkin for Defendant
Judgment: 17 December 2010 at 11.00 a.m.
JUDGMENT OF VENNING J
This judgment was delivered by me on 17 December 2010 at 11.00 a.m. pursuant to Rule 11.5 of the
High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Graham & Co, Auckland
David Thwaite Solicitors, Auckland
Copy to: R O Parmenter, Auckland
D Jenkin, Auckland
CONNELL STREET LIMITED V PUREWAL B.S. & J.K. LIMITED HC AK CIV-2009-404-000870 17
December 2010
Introduction
[1] Connell Street Limited (Connell) is a property developer, as is Purewal B.S.
& J.K. Limited (Purewal). In 2007 Purewal agreed to buy a development property at
133 Connell Street (Connell Street) from Connell for $2.1 million. Settlement was to be 12 working days after titles issued for properties that Purewal owned and had unconditionally sold. Connell had the right to terminate the contract if settlement had not occurred by 30 October 2007.
[2] It took longer than the parties expected for the titles to issue. At Purewal’s request, Connell extended the date for settlement from time to time.
[3] The contract was also subject to a finance condition. Connell and its solicitors understood that Purewal had arranged finance, and that the condition was satisfied. Purewal did receive an offer of finance in October 2007 but as Purewal did not take the offer up, it lapsed. By the time Purewal sought to renew its application for finance in August 2008 the global financial crisis had affected banks’ lending policies and Purewal was unable to obtain finance.
[4] By late 2008 Purewal considered the contract to be at an end for failure of the finance condition. On 27 January 2009 Purewal sought to terminate the contract because the finance condition could not be satisfied. Connell did not accept that Purewal was entitled to do so. It cancelled the contract on the basis Purewal had repudiated it.
[5] Connell Street sues Purewal for $669,416 being the difference between the contract price and the agreed current value of the land at this time. Purewal counterclaims for return of the deposit of $50,000.
Issues
[6] The case raises the following issues:
a) Was the agreement unconditional as to finance?
b) If not, is Purewal estopped from denying that it had arranged finance?
c) If Purewal is in breach of contract, what is the measure of Connell’s loss?
The relevant terms of the agreement
[7] The parties concluded their agreement on a standard REINZ ADLS
agreement for sale and purchase form (8th ed) 2006.
[8] Relevantly for present purposes the possession date was stated to be:
12 WORKING DAYS AFTER ISSUE OF TITLE OF PURCHASER’S PROPERTIES. SEE CLAUSE 15.0
Subject to clause 18
[9] As drafted, cl 15 provided the agreement was to be conditional upon existing agreements relating to the sale of Purewal’s properties at Crowther Street/Taylor Street becoming unconditional. The sales of those properties became unconditional before the negotiations between the parties were concluded. Clause 15 was deleted when the contract was finally executed by the parties. Its relevance is that it identified the properties owned by Purewal awaiting the issue of titles and which were the trigger for possession and settlement of the agreement between Connell and Purewal.
[10] Clause 18 of the agreement provided an out for Connell in the event of delay by Purewal in settling. Clause 18 provided:
18.0 THIS AGREEMENT IS CONDITIONAL UPON SETTLEMENT BEING COMPLETED BY 30 OCTOBER 2007. IF SETTLEMENT HAS NOT BEEN ACHIEVED BY THIS DATE, THIS (
DATE) AGREEMENT IS VOIDABLE AT THE VENDOR’S OPTION.
THIS CONDITION IS INSERTED FOR THE SOLE BENEFIT OF THE VENDOR.
[11] The contract was also subject to a due diligence condition (condition 16) and to a finance condition. The finance condition identified the lender as “National Bank
or any similar”. Although the standard condition on the first page of the agreement provided for a finance date, none was inserted.
[12] Standard clause 8 of the agreement applied to the conditions, and 8.1 in particular to the finance condition:
Particular conditions
8.1If particulars of any finance condition(s) are inserted on the front page of this agreement, this agreement is conditional upon the purchaser arranging finance in terms of those particulars on or before the finance date.
The remaining particularly relevant provisions of cl 8 are:
8.7If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
...
(2)The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.
...
(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
...
(6)At any time before this agreement is avoided the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
The events during the life of the contract
[13] The contract was made on 2 July 2007. The first trigger point was the date for satisfaction of the due diligence clause. That was 16 July 2007.
[14] As well as conducting general due diligence Purewal’s solicitors also took steps to arrange finance at an early stage. On 16 July 2007 they instructed a broker
to process the finance application and to fax through the loan approval by return. They instructed the broker that finance needed to be approved urgently. I infer that at this stage Purewal anticipated settlement might be required by 30 October 2007.
[15] The date for confirmation of the due diligence condition was extended until
18 July. Purewal sought to renegotiate certain terms of the contract. Connell rejected Purewal’s attempt to renegotiate the contract and Purewal’s solicitors confirmed satisfaction of the due diligence clause.
[16] By letter of 15 October 2007 (15 days before settlement was due under cl 18), the National Bank offered finance to enable Purewal to purchase Connell Street. The letter of offer was to Purewal’s broker:
Dear Ajay
I am pleased to advise The National Bank has approved the following lending re the purchase of 133 Connell Street Block House Bay & release / discharge of security :
20 Cro[w]ther Street & 29 Taylor Street
The lending has been approved on the following terms:
Borrowers Name: Purewal B S & J K Limited
Facility Type: Homeloan
Amount: $300,000.00
Term: 3 Years Interest Only.
Interest Rate 9.50% per annum One Year Fixed Rate
9.05% per annum Two Year Fixed Rate
8.85% per annum Three Year Fixed Rate
Please note the above rates are subject to change and are shown as an indication of rates as at today’s date.
Application Fee $600.00
Low Equity Premium Nil (Capitalised to Loan)
Legal FeesThe Bank is pleased to provide up to $600.00 towards the solicitor costs for the purchase of your property.
SecurityThe following changes or new security documents will need to be executed:
a. First Charge Registered Mortgages to be registered over 133 Connell Street : Priority $2,500,000.00
b. This approval includes the release of existing mortgages held over 20 Crowther
&29A,B,C Taylor Street, subject to security over Connell Street being perfected.
This approval is subject to the following conditions:
• Standard Lending requirements to comply.
•Further lending to be supported by up to date statement of personal Position for directors
• Updated confirmation of Lease income received for commercial Property
:263 Mt Smart Rd.
• Rental appraisal for new property purchased: 133 Connell Street.
...
•Please sign the letter of acceptance attached to this offer and fax this to me on (09) 273 6397. Upon receipt of this and the other documents listed above, the Bank will forward Loan and Security documents to your Solicitor for execution.
[17] Purewal did not take up the loan offer (which was open for acceptance for 60 days) at the time. There is a handwritten notation on the draft letter of acceptance recording:
– Baljit said wait for change in rate.
– settlement can take around 2 months.
Acceptance – rate broking.
Spoke to Baljit again on 20/X. Said will take about 3 or 4 weeks to council approval.
[18] The Baljit referred is Baljit Singh, a principal of Purewal. I infer from the notations that Mr Singh, on behalf of Purewal, instructed the broker that he would wait before accepting the loan offer, expecting a reduction in the interest rate and also that, by this time, he considered settlement was some weeks or months away in any event.
[19] As events turned out it took Purewal even longer than that to obtain the titles to Crowther Street/Taylor Street. Purewal did not accept the loan offer within the 60 days and it lapsed.
[20] At the request of Purewal, Connell extended the time for settlement on a number of occasions to enable Purewal to obtain titles and to complete the sale of its
other properties. Connell did so because it knew that Purewal had unconditional contracts for sale on Crowther Street/Taylor Street. Connell considered that settlement of its sale to Purewal was just a matter of time.
[21] In August 2008, when Purewal was close to obtaining titles its broker sought to confirm finance from the National Bank. The bank declined the request for finance. Despite efforts by Purewal’s principals, it was unable to obtain finance either from the National Bank or from any of the alternative sources it approached.
[22] By email correspondence of 2 December 2008 the Council confirmed that the consent conditions for the certificate under s 224(c) Resource Management Act 1991 had been approved and the only outstanding issue before titles could issue was the payment of the development contribution by Purewal.
[23] By letter of 27 January 2009 Purewal’s solicitors advised Connell they had received written advice from the bank that the bank had declined finance due to recent market changes, and that as the finance condition was not satisfied the agreement was at an end. Connell did not accept that position. Correspondence followed between the solicitors. Ultimately Connell’s solicitors treated Purewal’s refusal to settle as a repudiation, cancelled the contract and issued these proceedings.
[24] For present purposes I understand it is accepted, and the evidence satisfies the Court in any event, that the National Bank declined the further application for finance in August 2008 and Purewal then took reasonable steps to obtain finance from alternative sources but was ultimately unable to obtain finance from an alternative source.
Did the agreement become unconditional as to finance?
[25] Against that background I turn to consider the first issue, whether the agreement became unconditional as to finance. That requires consideration of the meaning to be given to cl 8.1 and in particular what is meant by “the purchaser arranging finance ... on or before the finance date”.
[26] No finance date was provided for in the contract. Where a contract, particularly a contract for the sale and purchase of land, fails to stipulate a date for performance of a condition, it is trite law that the condition must be performed within a reasonable time. What is a reasonable time must be determined in all the circumstances of the case. If the contract stipulates a settlement date, the condition must, at the latest, be fulfilled by that date, though where the settlement date is a very extended one, a reasonable time for fulfilment of the condition may be earlier
than the settlement date: D W McMorland Sale of Land (2nd ed) at 5.04; Aberfoyle
Plantations v Cheng;[1] Scott v Rania;[2] Mount Pleasant Estates Co Ltd v Withell.[3]
[1] Aberfoyle Plantations v Cheng [1959] 3 All ER 910 (PC).
[2] Scott v Rania [1966] NZLR 527 at 534.
[3] Mount Pleasant Estates Co Ltd v Withell [1996] 3 NZLR 324 at 329.
[27] The issue of whether a party has had a reasonable time to satisfy a condition normally arises where a party seeks to cancel without first giving notice to make time of the essence for performance of the condition. The situation in the present case is different. Connell accepts that Purewal was entitled to have reasonable time to satisfy the finance condition and arrange finance. Connell’s case is that the condition was satisfied by the offer from the National Bank, and that once it received the offer from the bank in response to its application for finance, Purewal had arranged finance in terms of cl 8.1. Connell does not seek to avoid the contract for Purewal’s failure to obtain finance within a reasonable time but rather, it says the finance condition was satisfied so that, in relation to that condition, the contract became unconditional.
[28] There is no significance in the fact the finance condition did not refer to a specific sum. The evidence is that the $300,000 offered by the National Bank, taken with the proceeds of sale from Crowther/Taylor Streets, would have been sufficient to enable Purewal to settle the purchase of Connell Street.
[29] The issue is whether Purewal had “arranged finance” in terms of cl 8.1 or whether, because Purewal did not accept the offer, and it was not subsequently able to obtain finance to enable it to settle, it had not arranged finance.
[30] What is meant by arranging finance in this context has been considered in a number of cases. The authorities were collected together in Irwin v Nilson by Doogue J as follows:[4]
[4] Irwin v Nilson [1993] 1 NZLR 509, (1992) 2 NZConC 191,359.
20. The first of the reported cases is Katz v Jones [1967] NZLR 861,
863, where Tompkins J was dealing with the words "arranging mortgage moneys". He said:
"The next question is whether the plaintiff did fulfil the condition on or before 28 March. The condition is drawn in wide and indefinite terms when it says 'The above offer is subject ... to my arranging mortgage moneys on the security of the said property within 28 days after acceptance hereof suitable to me'. I do not think it is necessary, in order to comply with such a condition, for the plaintiff to show that he had legal binding contracts for mortgage moneys. I think the word 'arranging' would include promises to lend on mortgage even though such promises were not legally binding within the time for compliance with the condition."
21. In Dunsford v Tate (1971) 1 NZCPR 600, 601, Speight J was concerned with whether a first mortgage had been "arranged" by a certain date. He said:
"The next question is, was there an arrangement? An arrangement I take to be something less formal than a binding agreement. It is appropriately expressed by Tompkins J in Katz v Jones ... and I am happy to accept his definition of an arrangement as a promise to end on mortgage as a result of a request made – a promise not in vague terms but in ascertained terms leading to the reasonable expectation of completion."
22. The next case is Barton v Russell (1975) 1 NZCPR 616, 621, where the Court of Appeal was dealing with a condition providing for the purchaser "arranging" a loan by a certain date. The trial judge had held in fact that finance was not arranged. McCarthy P in the principal judgment of the Court stated in regard to an argument that the finance was "arranged":
"As to this latter point, I must confess that I am not at all certain about the meaning of the word 'arranged' in this context. It is an imprecise word, and one suspects some uncertainty too in the mind of the draftsman as to what precisely he intended. I am not satisfied that it was 'arranged'."
23. Mahon J in Jenkins v Galvin [1977] 2 NZCPR 556, 557 was dealing with an appeal from the Magistrates' Court where the condition related to the purchasers "arranging" a loan by a certain date. The Magistrate had followed the judgment of Speight J in Dunsford v Tate. There was before Mahon J the argument that Dunsford v Tate was wrongly decided and that something more than a written offer to advance the money was required. Mahon J did not agree with that view of the matter and did not depart from what was said by Speight J in Dunsford v Tate.
24. The condition in Martin & Anor v Dawson & Anor (unreported, CP
457/87, Auckland Registry, 9 September 1987, Wylie J) was in somewhat different form, as the agreement was conditional upon the purchasers "being
granted" a particular form of loan from the Housing Corporation. However,
in the course of his judgment Wylie J referred also to the provisions of cl 7.1 of the particular agreement, which provided in terms similar to the clause in
the present contract:
"7.1 If particulars of any financial condition(s) are inserted on the front page of this agreement then the contract shall be subject to the condition that the purchaser shall on or before the last day for so doing arrange finance in terms of the particulars."
Wylie J, after referring to clause 7.1, stated:
"Can it be said that on 12 December finance had been arranged by the plaintiffs? If not, that seems to me to be the end of the plaintiffs' case." (at p 11)
He then traversed Katz v Jones, Dunsford v Tate and Jenkins v Galvin and went on to say:
"At first sight those cases may seem determinative of the present issue, as counsel for the plaintiffs urged on me, but I do not think they are. Counsel for the defendants submitted that Jenkins v Galvin was wrongly decided. I do not need to go so far as to express a view on that submission. The facts here are, I think, readily distinguishable. While the term 'arranged' may be an imprecise word, about the meaning of which McCarthy P in Darton v Russell (1975) 1 NZCPR 616 was 'not at all certain' (p 621), it does in my view contemplate at least a consensus between the parties to the so-called arrangement. I think it important not to allow determination of the factual circumstances said to give rise to the arrangement to be confused by the consequences of a purchaser failing in his contractual obligations to take all reasonable steps to obtain finance. As Speight J said in Dunsford v Tate fulfilment of the condition depends on the existence of a state of affairs at the relevant time."
[31] In Irwin the bank had responded to a request for “indicative approval” by stating in very general terms it would give approval. On the facts Doogue J considered that it could not be said finance had been arranged in terms of the clause.
[32] The weight of the above authorities is to the effect that something short of a legally binding contract will be sufficient to satisfy the requirement that finance be arranged, but the offer of finance must be complete and in ascertained terms. Finance can be said to be arranged where there is a promise or offer to lend on mortgage with sufficient certainty as to terms: Katz v Jones; Dunsford v Tate. It is not necessary to have accepted the offer of finance (or even perhaps to be aware it was forthcoming): Jenkins v Galvin.
[33] The offer of finance from the National Bank in the present case was a sufficiently clear and certain offer of finance on the terms set out in that offer. If Purewal had signed and returned the letter of acceptance, the National Bank would have been committed to advance the finance on the terms set out. On the basis of the authorities, finance was prima facie arranged in this case and cl 8.1 satisfied, even though Purewal did not accept it.
[34] Mr Jenkin sought to avoid that outcome. He submitted that finance could not be said to be arranged because cl 8.7(4) provided:
The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
so that until Purewal confirmed it had arranged finance, it could not be said finance was arranged.
[35] But cl 8.7(4) was inserted into the standard form agreement for a different purpose. In a number of cases the issue had arisen whether there was an implied term that notice of fulfilment of the finance condition was required: Irwin v Nilson and Dunsford v Tate.[5] In Dunsford v Tate for example, T agreed to purchase D’s property. The agreement was conditional on a contract between D and S becoming unconditional by 5 May. That contract in turn was conditional upon S arranging
finance from a building society by 5 May. In the event, S arranged finance on 5
May. But early on the morning of 6 May, and before T’s solicitor received notice that the contract between D and S was unconditional, T purported to avoid the contract between him and D for non-fulfilment. D was granted specific performance. The Court held that the offer received by S from the building society satisfied the requirement for finance to be arranged. As a result the contract between D and S became unconditional on 5 May even though that had not been communicated to T. The Court declined to imply a term under the contract requiring notice to be given to T. The contract did not require notice to be given to T.
[5] Dunsford v Tate (1971) 1 NZCPR 600.
[36] Clause 8.7(4) was inserted into the standard agreement to avoid the sort of difficulty that arose in Dunsford v Tate and to ensure that a party in the position of
Tate could validly cancel if they had not received notice of fulfilment within time. The clause does not, however allow a party that has arranged finance to avoid its obligations under the contact generally and under cl 8.7(2) specifically by simply declining to give notice under cl 8.7(4). Clause 8.7(4) does not assist determination of the issue in this case.
[37] Mr Jenkin next submitted Purewal had no obligation to accept the particular offer of finance, because it could have received a better offer either from the National Bank or another bank at a later time. I acknowledge that despite the offer from the bank, it was open to Purewal to seek to better the offer. However, again that is not the issue. The issue is whether, in terms of the contract and Purewal’s obligations under it, Purewal had arranged finance when in response to its application for finance, Purewal received an offer from the bank that would have enabled it to settle with Connell. Purewal could have waited before applying for finance or it could have, after receiving the offer from the National Bank, obtained a better offer from another source. But Purewal did not wait. It applied for finance and was offered finance. The clause did not provide that finance was to be on terms satisfactory to Purewal, for instance. The “consensus” referred to by Wylie J in
Martin v Dawson as a requirement was present between the bank and Purewal.[6] The
offer was in terms of Purewal’s application and would have enabled Purewal to settle on 30 October 2007 (and on a number of later dates).
[6] Martin v Dawson , HC Auckland CP 457/87, 9 September 1987.
[38] Mr Jenkin emphasised that the offer of finance was premised on the basis that the Crowther Street/Taylor Street properties owned by Purewal that were subject to National Bank securities would be sold, with the proceeds of those sales being applied towards the purchase of Connell Street so that the loan offer of $300,000 was effectively a top up. The bank was not interested in lending anything more than an additional $300,000.
[39] Mr Jenkin is correct that the bank contemplated the proceeds of sale of Purewal’s properties would be applied with the additional $300,000 to settle Connell Street, and that remained the bank’s position throughout this transaction. Purewal’s existing borrowing from the bank was to remain, and was to be topped up by
$300,000. The bank agreed to release Crowther/Taylor Street from its securities and to take Connell Street as a replacement security (together with other securities the bank already had). As the bank manager, Mr Carey, confirmed in cross- examination:
Q. As you see things, Purewal is applying to the bank for an extra
$300,000 and is offering you its existing securities less Taylor Street plus the new Connell Street, that’s what’s happening isn’t it?
A. Yes, the release, yes, the release of Crowther and Taylor Streets and the new property.
Q. So just to make sure we’re on the same page, they want an extra
300k and they’re offering Connell Street not Taylor Street/Crowther
Street – A. Correct.
Q. – plus the other securities you’ve got already? A. Yes.
Q.And the bank’s letter of offer says, “You can have that extra 300k, but we want the security of Connell Street, not Taylor and Crowther Streets and the other securities we’ve got already?
A. Yes.
Q. That’s what’s happened? A. Yes, and the, yeah.
[40] The other securities referred to are to the securities identified by the broker in his application to the bank for finance. These other securities were set out in the
application as follows:
S1
No.
Location of Property Purchase Price
($)
1. Three sections at Lot 2, Hikui Settlement Rd.
& Lot 16 & 17 Panorama Paro[a]de, Panamui
1,246 K 2. 27 Coles Crescent, Papakura 700 K 3. 263, Mt. Smart Road, Onehunga
(Commercial)
1,200 K 4. New Property to be purchased at 133,
Connell Street
2,100 K Total 5,246 K
[41] Mr Jenkin next submitted that it could not be said finance had been arranged because even if the offer had been accepted, the finance would not still have been
available at settlement which, as it turned out, would not have been until over 12 months later, in early 2009. He noted that Mr Carey said if the offer had been accepted the bank had a practice of leaving the arrangements in place for 185 days from the date of approval. In this case that extended time would have expired mid April 2008.
[42] However, it is speculative to suggest what might have happened if the offer had been accepted. In cross-examination Mr Carey accepted that Purewal could have requested an extension of the time for drawdown past the 185 days on the grounds that the issue of titles was delayed. The bank would have considered such request. Further, if Purewal was under pressure to complete or to draw the finance down, it may be that it could have taken further steps to ensure the titles were issued earlier than they were.
[43] The real issue is whether, as submitted by Mr Jenkin, the fact finance was no longer available by the date of settlement meant that finance had not been arranged. Mr Jenkin relied on the authority of Jenkins v Galvin and the comments of Mahon J to that effect.[7]
[7] Jenkins v Galvin (1977) 2 NZCPR 556.
[44] In Jenkins v Galvin the purchasers applied for finance from the Housing Corporation. Although the loans committee of the Corporation approved the loan before the conditional date, that was not communicated to the purchasers. Mahon J held that even though the purchasers were not aware finance had been approved, finance had been “arranged” in terms of the contract. In response to the submission finance could not be said to be arranged because the loan committee might have changed the terms of the approval before communicating it or before settlement,
Mahon J said:[8]
[8] At 557.
I can quite see that this is not a far-fetched possibility; but in my opinion the intent and purpose of cl 12 of this agreement is that the mortgage loan arranged by the stipulated date is still to be available on the date of settlement. If the event occurred which Mr Kilpatrick has postulated, and if a revised decision of the Loans Committee had involved, for example, a loan of $13,000, then the fact that there had been a prior decision to approve it at
$14,000 would not have entitled the respondents to declare the contract
unconditional. As stated previously, my construction of cl 12 is that the mortgagee must have unconditionally decided to lend the specified sum before the date referred to in cl 12, and the loan must still be available on those terms as at the date of settlement.
[45] Mahon J’s comments regarding the need for the loan still to be available on settlement were obiter. The issue in that case, as in the present, was whether finance had been arranged in terms of the contract. In the passage referred to Mahon J was responding to counsel’s argument (based on the fact the purchaser was unaware of the loan approval), that finance could not be said to be arranged just by approval because the terms of the loan offer might have been varied before the loan offer was communicated. In that context Mahon J was doing no more than observing that if the loan offer was not sufficient or was not in terms that would enable the purchaser to settle the contract then finance could not be said to have been arranged in terms of the contract. But in the present case the loan offer was exactly in terms of what Purewal had requested. To the knowledge of the parties, both at the time the application for finance was made, and when the offer for finance was made by the National Bank the finance would have enabled Purewal to settle the contract with Connell.
[46] Once arranged, as it was in this case, then finance cannot be “unarranged”. If, for example, Purewal had accepted the offer of finance and confirmed that to Connell, the fact that settlement was subsequently delayed and the bank might have refused to extend the availability of finance past the 185 days referred to by Mr Carey, would not change the fact finance had been arranged. It might raise issues of frustration or mistake but it does not affect the issue of whether finance was arranged in terms of the contract.
[47] Purewal has retained control of whether the clause was triggered and finance arranged. It applied for finance to enable it to settle the contract as at 30 October and received the offer of finance from the bank to enable it to do so. If, for example, Purewal had understood there was no chance of settlement by 30 October and had delayed applying for finance until sometime later then the situation might be different. But that is not the position. Purewal applied for and obtained an offer of finance in terms of the contract.
[48] I conclude that in this case Purewal had arranged finance in terms of cl 8.1 of the contract. The failure of Purewal to formally advise Connell that finance had been arranged does not affect that. By seeking to avoid the contract Purewal wrongfully repudiated the contract and Connell was entitled to cancel.
Is Purewal estopped from denying it had arranged finance?
[49] In the event I am wrong in concluding that finance was arranged in terms of the contract, I consider Connell’s alternative claim based on estoppel. In short, Connell says that in light of the correspondence that passed between the parties leading to the various extensions of time for settlement under cl 18 of the contract Connell was encouraged by Purewal to believe that Purewal had arranged finance. Connell says that it was reasonable for it to rely on its understanding the contract was unconditional from Purewal’s point of view and that its belief Purewal was unconditionally bound led it to continue with the agreement instead of cancelling or avoiding the contract as it was entitled to do, and to resell before market conditions deteriorated. In short Connell pleads that Purewal is estopped from now asserting that finance was not arranged. In response Purewal says that it never represented that the condition was satisfied and that if Connell mistakenly considered it was, it had no reasonable basis for that belief.
[50] Purewal declared the due diligence clause, Special Condition 16, unconditional on 18 July 2007. The first relevant communication thereafter addressing the issue of the finance condition was a letter of 20 August 2007 from Connell’s solicitor, Mr Bilkey of Graham and Co to Purewal’s solicitor, Ms McCarthy of Murdoch Price as follows:
We refer to previous correspondence. For the sake of clarity we would appreciate it if you would confirm that the agreement for sale and purchase is unconditional save for condition 18.0 relating to the sale of your client’s property at 29 Taylor and 20 Crowther Streets, Avondale.
[51] The reference to the sale of Taylor Street/Connell Street in relation to the contract being conditional was somewhat confusing. As noted above the contract between Connell and Purewal was not conditional upon the sale of those properties. The only relevance of those sales was in relation to the date for settlement, and
whether Connell would extend the date for settlement to await the issue of titles for Crowther Street/Taylor Street. But in any event, there was apparently no direct response to that letter either by way of telephone or other communication.
[52] On 4 October 2007 Mr Bilkey wrote again, noting that settlement was due for
30 October 2007 and asking whether titles had issued for Purewal’s properties at Taylor/Crowther Street. By this date Purewal had received the offer of finance from the National Bank.
[53] Purewal’s solicitors replied by letter of 23 October 2007 (after its principal Mr Baljit Singh had received and discussed the loan offer with its broker) and asked Connell to extend the time for settlement to enable titles to issue. It did so in a letter from its solicitors Murdoch Price:
The section 224(c) for our client’s development at Taylor and Crowther Street has still not issued due to some drainage matters which are in the process of being sorted and signed off.
Accordingly, our client seeks an extension of time for satisfaction of Clause
18 until say Thursday, 18 December 2007. If it would assist your client in granting favourable approval, our client would be prepared to agree to a “10-
day escape clause” on the basis of your client giving our client 10 days notice to make their agreement unconditional following receipt by your
client of another offer more favourable.
Could you please take your client’s instructions and advise.
[54] The letter of 23 October from Purewal’s solicitors did not expressly refer to finance. Mr Bilkey referred the letter to Mr Christensen, Connell’s principal, for instructions. Mr Christensen emailed Mr Bilkey on 24 October 2007:
1. Happy to grant extension
2.They seem to think the agreement is NOT unconditional which is not my understanding
presumably you will advise them so.
3. ARC consent – still waiting for signed copy of consent.
[55] On the basis of those instructions Mr Bilkey then wrote to Purewal’s solicitors by letter of 25 October 2007 in the following terms:
Further to your letter of the 23rd instant. We confirm that the vendor’s condition in Special Clause 18 is extended until the 18th of December 2007.
For the sake of clarity we record that the agreement is unconditional except for the Special Condition 18 which is for the benefit of the vendor only.
[56] Again there was no response from Purewal or its solicitors to that letter either by way of telephone, email or letter. On 13 December, five days before the revised date for settlement on 18 December, Mr Bilkey wrote again to Purewal’s solicitors asking them to advise the current position in relation to the subdivision. By response Purewal’s solicitors wrote by letter of 18 December 2007 seeking a further extension of time for the satisfaction of cl 18 to 28 February 2008:
Our client advises Council are still in the process of finalizing the drainage matters in relation to Taylor & Crowther Streets and is not confident in view of the Christmas break, that it will be finalized by the end of January.
Accordingly, our client seeks a further extension of time for satisfaction of Clause 18 to say Thursday, 28 February 2008. If this is acceptable to your client, please endorse the bottom of this fax and return same as soon as possible.
[57] The letter did not refer to the issue of finance. Nor did it respond to the statement in Mr Bilkey’s letter of 25 October 2007 recording Connell’s understanding that the agreement was unconditional except for special condition 18. Connell again authorised its solicitors to confirm the extension requested by Purewal. During 2008 further correspondence followed between the parties with further extensions being granted in similar terms. On each occasion Purewal advised a general update of the position regarding the issue of titles. In none of those requests for further extensions to the settlement date was the issue of finance referred to.
[58] The following elements are required to establish an equitable estoppel:[9]
[9] Butler Equity and Trusts in New Zealand (2nd ed) at 19.2.
(a)A belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged;
(b)The belief or expectation has been reasonably relied on by the party alleging the estoppel;
(c) Detriment will be suffered if the belief or expectation is departed from; and
(d)It would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[59] In certain circumstances, silence may give rise to an estoppel either by amounting to a genuine misrepresentation or because the silent party was under a duty to speak: Butler Equity and Trusts at 19.5.2 and also Gold Star Insurance Co Ltd v Gaunt;[10] Morton-Jones v RB & JR Knight Ltd.[11]
[10] Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA).
[11] Morton-Jones v RB & JR Knight Ltd [1992] 3 NZLR 582.
[60] The principal issues in the present case are whether Connell’s belief that the finance condition was satisfied was created through Purewal’s representation and/or silence, and whether it was reasonable for Connell to rely on such belief in the present case.
[61] The issue of reliance on silence, and the obligation to speak was considered by Doogue J in Morton-Jones v RB & JR Knight Ltd. In that case MJ and another were directors of Orewa Builders Limited (Orewa). Orewa owned commercial premises. It agreed to sell the premises to Knight. As a special condition of sale Orewa was to arrange a lease of the premises to a tenant for six years. Under the agreement for sale and purchase Orewa agreed that in the event a tenant could not be found prior to settlement it would take a lease and guarantee payment of the rent for
12 months or until a suitable tenant was arranged, whichever was the sooner. Shortly before settlement Orewa’s solicitors wrote to Knight’s solicitors nominating MJ and the other as tenants recording that notwithstanding the form of the lease (which provided for a six year term) MJ and another were nominees of Orewa and as such, in terms of the agreement, their obligation to pay rental extended only for a period of 12 months from settlement. The letter was acknowledged but no reference was made in it to the issue of the tenancy. Knight sought to rely on the terms of the lease and sued MJ and another seeking recovery of rent accrued after the 12 month initial period.
[62] Doogue J identified the real issue in the case as whether, when Knight was aware of MJ’s and another’s understanding of the basis upon which they were entering the lease, and the basis upon which the lease was tendered, Knight’s
acknowledgement of the letter without more and its conduct in settling the transaction was silence or inaction which could be interpreted as a representation in circumstances where Knight was under a legal duty to disclose that it did not accept the statement in the letter. Doogue J found:[12]
[12] At 589.
I do not accept that this was a case where the respondent had a mere moral or social duty, as submitted for the respondent, to make any response to the letter of 13 August 1987. In my view, the situation comes within the language of Spencer Bower and Turner at p 49:
"The theory is this. The parties to a transaction are entitled to assume, as against one another, omnia rite esse acta; each of them is entitled to suppose that the other has fully discharged all such obligations (if any) of disclosure or action towards himself as may have been created by the circumstances."
Given the circumstances in this case, ... it would be unconscionable for the respondent to be able to settle the agreement and then treat the letter of 13
August 1987, given the other circumstances, as of no effect. In my view, the respondent was under a duty to draw to the attention of the appellants on or before settlement that it did not accept the understanding of the vendor
company and of the appellants as to the obligations of the appellants in terms of the agreement and the lease.
[63] To similar effect are the decisions of the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher[13] and the Federal Court of Australia in S & E Promotions Pty Ltd & Others v Tobin Brothers Pty Ltd.[14]
[13] Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
[14] S & E Promotions Pty Ltd & Others v Tobin Brothers Pty Ltd (1994) 122 ALR 637.
[64] In Waltons Stores Mason CJ and Wilson J described the “crucial question” as whether the appellant was entitled to stand by in silence when it must have known that the respondents were proceeding on the assumption that they had an agreement and the completion of the exchange was a formality. The appellant was under an obligation to disabuse the respondents of that understanding.
[65] In S & E Promotions Pty Ltd & Ors v Tobin Brothers Pty Ltd S & E subleased land to T. The original sublease expired on 30 June 1991. It provided for a right of renewal but notice of renewal was required to be given by 31 March 1991. During 1988 the parties entered negotiations in the course of which it was agreed that T would be granted a new sublease for a three year period commencing 1 July
1988 with a number of three yearly rights of renewal thereafter. Negotiations continued until 13 March 1991. On that day the solicitors for T sent an amended memorandum of sublease to the solicitors for S & E. By letter of 25 March 1991 the solicitors for S & E required some amendments to it. Those amendments were ultimately agreed to by T on 1 May 1991. T surrendered its initial sublease. The revised sublease provided for a lease commencing on 1 July 1988. The option to renew under the new sublease was like the former sub-lease, to be exercised by 31
March 1991. So by the time the memorandum of sub-lease was executed the time for exercise of the option to renew under both the original sub-lease and the new sub-lease had expired.
[66] The full Court of the Federal Court held that, in March 1991 S & E came under a duty to inform T that its assumption it was unnecessary to exercise any option under the proposed new sub-lease was wrong. In the course of the decision the Court stated:[15]
[15] At 656.
Further, if it were necessary to do so, the facts would support the conclusion that when Tobin Brothers had executed the new sublease in March 1991 and it had been sent for execution by the sublessors, Tobin Brothers had been lulled into a sense of false security. The sublessors were not entitled to stand by in silence when they must have known that Tobin Brothers was proceeding on the assumption that it was unnecessary for it to exercise any option under the 1986 sublease and it would be three years before it needed to exercise any option under the proposed new sublease.
(emphasis added)
[67] Mr Jenkin submitted that in this case there was no legal duty on Purewal to correct what he categorised as an unreasonable assumption adopted unilaterally by Connell rather than as a consequence of anything done or said by Purewal. Mr Jenkin also emphasised that good faith terms are not normally implied into transactional agreements between commercial parties. However, this is not so much an issue of good faith in dealings, but whether, on the facts an equitable estoppel is made out. While it may be more difficult to establish an equitable estoppel in commercial transactions, the parties to such transactions can still be subject to the imposition of an equitable estoppel where the facts support it: Butler Equity and
Trusts at 19.34; Morton-Jones v RB & JR Knight Ltd and S & E Promotions Pty Ltd
& Others v Tobin Brothers Pty Ltd.
[68] Mr Jenkin’s main submission was that it was unreasonable for Connell to have assumed that the contract was unconditional as to finance and there was no basis for it to do so. He emphasised that in its letter of 23 October Purewal’s solicitors had referred to Purewal making the agreement unconditional. It had suggested the inclusion of a 10 day “escape clause” and to their making their agreement unconditional if a more favourable offer was received. On that basis Mr Jenkin submitted that Connell should have known, as at 23 October, that Purewal considered the contract conditional as to finance.
[69] The letter is, however, ambiguous. It does not refer to finance or the finance condition. The only condition referred to was cl 18 and that was in the context of Purewal’s request for an extension of time for satisfaction of cl 18. Clause 18 was a “sunset” clause for Connell’s sole benefit. Purewal wanted to keep the contract on foot at that time. It was seeking an extension for settlement for two months. If Connell agreed, then Connell was bound to wait a further two months before exercising that right. For the 10 day “escape clause” to have any utility in the context of cl 18, it must have meant that Connell could call upon Purewal to settle before the extended date even though they may not have achieved titles to the Crowther Street/Taylor Street property. That had nothing to do with finance.
[70] Further, Connell had previously sought confirmation that finance was confirmed. That request had gone unanswered. If Purewal’s reference to the “escape clause” in its letter of 23 October was intended to confirm the contract was still conditional as to finance, one might have expected the letter to state that. It is not surprising that Mr Christiansen asked for the issue to be clarified.
[71] Against that background, Mr Bilkey’s letter of 25 October 2007 is particularly important. In his letter Mr Bilkey confirmed that Connell agreed to extend the date for settlement until 18 December 2007, extending Connell’s right to cancel the contract if not settled to that date, but equally committing Connell to wait
until that date before doing so. At the same time Mr Bilkey recorded Connell’s understanding that the agreement was unconditional except for special condition 18.
[72] Whatever might have been the parties’ respective positions as to finance before Mr Bilkey’s letter of 25 October 2007, the letter was clear in its terms as to Connell’s understanding that Purewal was unconditionally bound to the contract. A response was required from Purewal if that was not the position. By remaining silent Purewal accepted the extension for settlement and allowed Connell to proceed to deal with its application for extension thereafter on the basis that the contract was unconditional as to finance and the only issue was how long it would take for Purewal to obtain title and settle.
[73] Connell Street acted on the strength of that representation by agreeing, at Purewal’s request and from time to time, to various other extensions of time for settlement. At Purewal’s request it extended settlement from 18 December 2007 to
28 February 2008, and then variously to 30 April, 30 July, 30 September 2008 and finally to 28 November. I note that by the date of one of those extensions, 30
September 2008, Purewal had been declined finance by the National Bank. Despite that, Purewal made no mention of the position even when seeking a further extension from 30 September 2008.
[74] Mr Voulk, a partner in Murdoch Price, gave evidence for Purewal, although he did not author the letters in issue. Mr Voulk’s evidence as to why Purewal had not replied to the letter of 25 October was:
Our client advised they were keen to just try and get on with trying to satisfy the Council requirements concerning their subdivision at Taylor St/Crowther St. As they had been granted the extension they wanted until 18 December
2007 that was all they required. In the circumstances our client just wanted to get on with its job at hand and decided there was no need for us to reply.
[75] In cross-examination Mr Voulk said about the letter:
A. I mean, when we saw that, we first of all realised it was wrong, okay, and, um, initially my thought was, he must be just mistaken, and then we thought, well, how could a senior practitioner, experienced conveyancer, make an obvious mistake like that, so we had sort of second thoughts. Maybe there was something more to this than meets the eye. Maybe there was an attempt to change something here, okay. We just weren’t too sure
how to, how to read that because it was just a bit incredulous I guess to think that he could’ve made that mistake so then we decided, well we did have a legal – we did exactly what you're talking now, we talked it through. Do we have a legal obligation in a commercial transaction to go back to an experienced conveyancing lawyer and tell him how to read the contract and we thought, well that’s not our job, that’s his job, between him and his client. It isn’t our job to do that for him so we didn’t feel we had an obligation to go back to him but we talked it through with, um, with Baljit, because he’s the client of course, and got his, um, his instructions on how to proceed and it was decided not to make any response but to get on with the job, which is what Baljit’s been, was trying to do right through, to get on with the job of getting those Titles through and as I mentioned before, there was no cog-, no thought that anybody would default after the Titles were through so it was, the, the two were synonymous in Baljit’s mind, that once he got the Titles through that he had the money and that was the way he was thinking so he was determined to go and get those Titles through. ...
(emphasis added)
[76] With respect to Mr Voulk’s analysis of the position, it was not a question of how to read a contract, the issue was whether in the circumstances there was an obligation on Purewal’s part to respond to what Purewal clearly understood to be a misapprehension or misunderstanding by Connell of the legal position at a time when Purewal wanted to keep the contract on foot and needed Connell to grant extension(s) to the date for settlement.
[77] Through its silence and its correspondence (as much from what it did not say, as what it said) Purewal encouraged in Connell a belief that the contract was unconditional from Purewal’s point of view and that settlement was only a matter of time. Given Purewal’s silence in response to the direct correspondence on the issue, it was reasonable for Connell to rely on that understanding when granting further extensions of time for settlement past 18 December 2007 and later.
[78] Mr Voulk’s evidence that Purewal didn’t feel they had an obligation to go back to Connell confirms that Mr Bilkey’s letter raised in Purewal’s mind whether there was such an obligation and that Purewal deliberately decided not to alert Connell to the fact it considered the contract to still be conditional on finance. Purewal was working on the premise that finance was available, and that all that was required was the titles to enable settlement of Crowther Street/Taylor Street. So
from that point of view, Purewal effectively considered the contract unconditional and it encouraged that understanding in Connell as well.
[79] In those circumstances, and given that Purewal asked for a number of further extensions to keep the contract alive without advising Connell that it did not agree with Connell’s understanding of the position, it was unconscionable of Purewal to later seek to avoid its obligations under the contract by taking the point that it had not arranged finance. By its silence in response to Mr Bilkey’s letter of 25 October
2007 and in each of its own requests for further extensions thereafter, it created, or at least encouraged, that mistaken belief or expectation in Connell. This is not, as Mr Jenkin suggested, an attempt to rely on an informal communication of an ambiguous kind. The letter of 25 October is clear and unambiguous as to Connell’s belief of the basis upon which the contract stood when the extension was granted.
[80] Mr Jenkin submitted that if Connell wished to clarify whether finance had been arranged or not then it could have given notice under cl 8 making time of the essence, requiring Purewal to confirm finance one way or the other prior to cancelling. But Connell was not seeking to bring the contract to an end. Further, it did not understand it was necessary to give such notice because it understood that finance had been arranged and was no longer an issue. It had no reason to give such a notice.
[81] Mr Christiansen gave evidence that if he had been told that the deal with Purewal was not unconditional and that Purewal could walk away at any time it liked, he would not have granted the extension(s) and would immediately have put the property back on the market. Realistically, given the exchange of correspondence and that the extension to 18 December was granted by the letter of
25 October, the first time Connell would have been able to do that was 18 December
2007. Mr Christiansen’s evidence was that the development market for residential property collapsed after October 2007. Connell would almost certainly have sold for the best reasonable price at the time. Connell lost that opportunity to do so and has suffered damage as a consequence.
[82] In all the circumstances it would be unconscionable for Purewal to be able to avoid its obligations under the agreement.
[83] Connell satisfies the Court that the elements of an equitable estoppel are made out. It would be inequitable to permit Purewal to avoid the contract on the basis that the contract remained conditional as to finance.
Damages - If Purewal is in breach, what is the measure of Connell’s loss?
[84] Mr Jenkin submitted that Connell’s claim for damages was effectively a claim for loss of a chance as to whether Connell would have been able to resell Connell Street if it had been made aware of the position in October 2007.
[85] Connell does not seek damages based on a loss of chance.
[86] The first basis for the damages claimed is for breach of contract. The object of such damages is to put Connell in the same position as it would have been in if the contract had been performed and with a falling market the appropriate date for assessing damages is the current (trial) valuation: Takapuna Village Ltd v Shabani
and Anor.[16] It is agreed that the current market value for the property is now
$669,416 less than the contract price.
[16] Takapuna Village Ltd v Shabani HC Auckland CIV-2008-404-5602, 24 March 2009.
[87] In the alternative, if the claim for damages is to rely on the equitable estoppel head of claim, the relief should address the underlying unconscionability: Stratulatos v Stratulatos.[17]
[17] Stratulatos v Stratulatos [1988] 2 NZLR 424 at 438.
[88] I accept Mr Parmenter’s submission that in the present case equity would prevent Purewal from asserting that it had not arranged finance so that Purewal would be liable for damages equivalent to a breach of contract as discussed above. Mitigation is not in issue. It is accepted that Connell has taken reasonable steps to resell since it accepted Purewal’s repudiation of the contract. Connell has been unable to resell the property.
[89] Connell’s loss on either basis then is $699,416 less the deposit which has been paid of $50,000, namely $649,416.
Result
[90] Connell Street is to have judgment against Purewal in the sum of $649,416. In addition the $50,000 deposit is forfeited by Purewal to Connell. Connell is to have interest on the damages of $649,416 from the issue of the proceedings until payment at the judicature rate.
Costs
[91] Costs are reserved. I indicate costs on a 2B basis seem appropriate but will receive memoranda if counsel are unable to agree.
Venning J
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