Curtis Investments Limited v John Curtis Limited

[2022] NZHC 3165

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-588

[2022] NZHC 3165

IN THE MATTER

of a breach of contract

BETWEEN

CURTIS INVESTMENTS LIMITED

Plaintiff

AND

JOHN CURTIS LIMITED

Defendant

Hearing:

24 November 2022

Appearances:

J R Pullar and A E Kennerley for Plaintiff M A Powell for Defendant (to abide)

M A Powell for Intervener

Judgment:

30 November 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

CURTIS INVESTMENTS LIMITED v JOHN CURTIS LIMITED [2022] NZHC 3165 [30 November 2022]

[1]    This proceeding concerns an agreement for sale and purchase under which John Curtis Limited (JCL) agreed to sell a commercial building  to  Curtis  Properties Limited. Curtis Properties Ltd nominated Curtis Investments Limited (CIL) to complete the purchase.1

[2]As the names of the companies suggest, the parties are connected.

[3]    JCL has not taken active steps to defend this proceeding but Kathryn Corston, the daughter of the late John Robert Curtis, was granted leave to intervene.2

[4]    At the time Ms Corston was  granted leave to intervene, CIL was seeking    an order for specific performance of the agreement for sale and purchase made in June 2021. The following description of the circumstances that led to the creation of the agreement for sale and purchase is taken from the judgment granting Ms Corston leave to intervene.3

[3]        John Robert [Curtis (John Robert)] died in 1989. John Robert and his wife, Pamela Curtis, were the holders of 79,995 shares in John Curtis Limited, the defendant in this proceeding. Five further shares were in the names of John Robert and Pamela’s children who are relevantly, John Stanley Curtis (John Stanley), Christine O’Connor, the present applicant to intervene Kathryn, and two others.

[4]        40,997 of the 79,995 shares were owned by John Robert and 38,998 were owned by Pamela. The shares owned by John Robert and Pamela did not entitle them to share in the profits of John Curtis Ltd but did confer voting rights and a fixed dividend.  When John Robert died in 1989 he left Pamela  a life interest in his shares.

[5]        The evidence is that Pamela was close to her son, John Stanley, and in October 2016, transferred all of the shares she held, including those subject to the life interest, to John Stanley’s Trust (the JS Curtis Trust). Pamela and John Stanley were the trustees of the JS Curtis Trust.

[6]Pamela died in October 2019 and John Stanley died in January 2020.

[7]        Accordingly, as at the date of John Stanley’s death, the JS Curtis Trust held shares that, on the face of it, should not have been transferred to the JS Curtis Trust as Pamela only had a life interest in the 40,997 shares. It was not suggested before me that Pamela intended to only transfer her life interest in

1      See Donald  McMorland Sale of Land  (4th  ed, Cathcart Trust, Auckland, 2022) at [3.03]  as to   a nominee’s right to sue – the agreement for sale and purchase here provided for a nominee.

2      Curtis Investments Ltd v John Curtis Ltd [2022] NZHC 770.

3      Curtis Investments Ltd v John Curtis Ltd, above n 2, at [3]-[15].

the shares (assuming that was possible). On Pamela’s death the shares in which she had a life interest have not been returned to John Robert’s Estate.

[8]        John Stanley’s wife, Joanna Curtis (Joanna) became trustee of the JS Curtis Trust, along with another. Kathryn’s position is that the JS Curtis Trust is under the control of Joanna. Kathryn alleges that Joanna, in May 2020, used the shares (as majority shareholder) that she now controls, to appoint herself as director of John Curtis Ltd. At the same time, Joanna also appointed as director Christine O’Connor, one of John Robert and Pamela’s children.

[9]        At issue in this proceeding is a contract dated 3 June 2021 entered into by Curtis Investments Limited (the plaintiff), of which Joanna is sole director. John Curtis Ltd contracted to sell one of the properties it holds. That purchase has not settled. The contract under which John Curtis Ltd sells the property is signed by Christine O’Connor, on behalf of the vendor, with Joanna signing on behalf of the purchaser.

[10]      The sale by John Curtis Ltd to Curtis Investments Ltd has not settled as Christine has declined to authorise John Curtis Ltd’s solicitors to complete the sale until the issue of the shares transferred to the JS Curtis Trust, apparently in breach of the life interest, is resolved.

[11]      Kathryn has issued separate proceedings in this Court under CIV-2022-409-103 seeking an order rectifying the Share Register of John Curtis Ltd. If that order is granted, then the 40,997 shares transferred apparently in breach of the life interest, will be recorded as owned by the Estate of John Robert of which Kathryn is now sole executor.

[12]      With the 3 June 2021 contract not settling, Curtis Investments Ltd has issued these specific performance proceedings against John Curtis Ltd. John Curtis Ltd is not defending those proceedings. Joanna’s position is she would not stand in the way of Christine instructing counsel to appear on behalf of John Curtis Ltd to defend the summary judgment application if that is what she wanted to do. Indeed, counsel for John Curtis Ltd did file an appearance reserving rights on behalf of John Curtis Ltd, but I was told at the telephone conference hearing on 4 April 2022, that counsel’s instructions have been withdrawn. In an affidavit of Joanna, filed just before the hearing, she says she abstained from the process of instructing counsel for John Curtis Ltd. The tenor of Joanna’s evidence is that she would abstain from that process and leave whether a defence was to be filed to Christine.

[13]      In the meantime, Kathryn, as I have said, commenced proceedings seeking to rectify the  Share  Register.  Those  proceedings  were  filed  on 18 March 2022 (CIV-2022-409-103). That proceeding was accompanied by an application for two orders; the first being an interim injunction against Joanna and Christine, in essence seeking to restrain them from selling any further assets of John Curtis Ltd; and the second seeking an order staying the summary judgment application in this proceeding pending determination of the application for rectification.

[14]      The application for summary judgment (the present proceeding) and the application for an injunction restraining the directors of John Curtis Ltd from disposing of assets and for stay (both in the share rectification proceeding), are to be heard at the same time. Kathryn’s application to intervene is to enable her to be heard in opposition to the application for

summary judgment and in support of the stay. If Kathryn is granted leave to intervene, she will file a notice of opposition (provided in draft) as to why Curtis Investments Ltd should not be granted summary judgment and in particular pursue the stay application.

[15]      Paraphrasing, the proposed defence is equity should not assist the plaintiff in obtaining specific performance when Joanna has acted in breach of constructive trust principles in utilising shares she knew, or ought to have known, belonged to the Estate of John Robert when she appointed herself and Christine directors of John Curtis Ltd.

[5]    Ultimately, Ms Corston’s request for rectification of the Share Register was not opposed, such being recorded in a Minute of Dunningham J dated 17 June 2022.

Application for specific performance abandoned

[6]    On 17 August 2022, an amended statement of claim was filed by CIL recording that, as a result of JCL failing to settle the sale after CIL served a settlement notice, CIL on 1 August 2022 cancelled the agreement.

[7]    CIL now pleads that JCL was obliged to return the deposit and pay interest at the late settlement rate. The statement of claim sought the following relief:

A.Return of the deposit paid;

B.Interest pursuant to the Agreement from the date of payment until the date of repayment; and

C.Costs.

[8]    Accordingly, interest is sought on the deposit from the date it was paid until repayment.

[9]    A second cause of action is pleaded that it was an implied term of the agreement for sale and purchase that JCL would do all things reasonably necessary to ensure that settlement occurred in accordance with the agreement. This cause of action is aimed at the fact that Ms Corston lodged a caveat against the title on 16 July 2021.

[10]   On 21 October 2021, CIL filed an application with the Registrar General of Land for the caveat to lapse. The caveat lapsed on 17 November 2021.

[11]   In the second cause of action it is pleaded that JCL took no steps in relation to the caveat in breach of the asserted implied term. It is then pleaded that the purchaser, that is CIL:

… took steps to have the Caveat lapse in order to fulfil its obligations under the agreement, and incurred legal costs amounting to $9,200 (including GST) as a result.

[12]Judgment is sought in that sum together with costs.

[13]JCL has returned the deposit of $90,000 to CIL.

The pleaded claim as compared to what is sought in CIL’s submission

[14]   The submissions filed in support of the application for summary judgment seeks judgment for interest significantly beyond that pleaded in the amended statement of claim. It may well be thought the fact judgment is sought in respect of an unpleaded claim is fatal to that aspect of CIL’s claim albeit counsel for the Intervenor did not press this point.

[15]   The submissions filed refer to cl 3.13(2) of the agreement for sale and purchase.

[16]Clause 3.13(1)(a)(i) provides:

A.the default period means:

(i)In subclause 3.13(2), the period from the settlement date until the date when the vendor is able and willing to provide vacant possession and the purchaser takes possession; and

(ii)…

[17]   Interest is claimed in CIL’s submissions pursuant to cl 3.13(2) of the agreement which provides:

(2)If this agreement provides for vacant possession but the vendor is unable or unwilling to give vacant possession on the settlement date, then, provided that the purchaser provides reasonable evidence of the purchaser’s ability to perform the purchaser’s obligations under this agreement:

(i)…

(ii)        an amount equivalent to interest at the rate for late settlement on the entire purchase price during the default period; and

[18]   CIL accepts that it would need to give a credit for the interest it earnt on the purchase price it had not paid over as required by cl 3.13(2)(b) of the agreement.

[19]   However, cl 3.13(2) applies to late settlement. The default period is defined for the purposes of cl 3.13(2) of the agreement as being the period from the settlement date until the purchaser takes possession. Here, the purchaser has not and will never take possession, it having cancelled the contract. Clause 3.13(2) only applies where settlement is delayed but ultimately takes place as, unless settlement occurs, there is no “default period” as defined in the agreement.

[20]   Mr Powell, counsel for the Intervenor, submits there is Court of Appeal authority that cl 3.13 of the agreement does not permit a purchaser who has cancelled the agreement because of a vendor’s default, to claim interest on the purchase price.4

[21]   Ms Kennerley, counsel on behalf of CIL, sought to distinguish on the facts the authority relied on by Mr Powell. The difficulty with that approach is the Court of Appeal ruled on the meaning of an earlier version of cl 3.13(2) which also incorporated as a defined term “the default period”. Under the earlier contract, “the default period” is defined in the same terms as the present definition. The Court of Appeal noted one of the reasons the High Court declined to award interest under the then equivalent of cl 3.13(2) was that the clause was drafted “with an ultimate settlement in contemplation and not in contemplation of no settlement at all”.5 Ms Kennerley focused on two other reasons why the High Court declined to award interest to the disappointed purchaser in that case.

[22]   The disappointed purchaser had been awarded loss of bargain damages representing the difference between the sale price of the property and its market value as at the date of the hearing. That represented a return of approximately 20 per cent given the value of the property had substantially increased over the two years between

4      See Perkins v Purea [2009] NZCA 541, (2009) 10 NZCPR 851 at [115].

5      Perkins v Purea, above n 4, at [113].

the date of the contract and the date of hearing. The Court said to award interest as well as damages for loss of profit would result in “double recovery”.

[23]   Ms Kennerley submitted that here, because the purchaser asserted it had cancelled the contract because the value of the property had fallen in the present economic conditions, it would not be able to recover loss of bargain damages so no issue of double recovery would arise. Ms Kennerley submitted the purchaser’s funds had been tied up until cancellation as it had to be ready, willing and able to settle.

[24]   I do not accept that it is possible to distinguish the Court of Appeal authority on the basis submitted by Ms Kennerley. It is clear the High Court, while listing three reasons for not awarding interest, concluded the clause only applied where settlement had occurred.

[25]   The Court of Appeal at [115], in referring to the clause as being a contractual entitlement applying on settlement, said:

But it does not follow [the purchasers] are entitled to that sum in circumstances where specific performance has been denied, with the consequence that settlement will not take place. The contractual entitlement was dependent on the vendor eventually being able and willing to provide vacant possession and the purchaser taking possession. Neither has come to pass; neither will come to pass.

[26]   Here, if the purchaser considers it has a tenable claim for damages based on its funds being tied up, that is a separate matter. However, it will have to contend with the counter  factual,  that  is,  if  it  had  settled  on  its  case  it  would  have  bought  a depreciating asset. On that basis it could be said the purchaser had dodged a bullet in having purchased near the top of the market thus avoiding the purchase after the market, on its case, had fallen.

[27]   Nor do I accept it is material that in Perkins specific performance was sought and declined whereas here, CIL elected not to pursue specific performance and cancelled the contract. Such cannot impact on the meaning of the contractual provision.

[28] Ms Kennerley acknowledged that I would have to read the final words of the definition of “the default period” set out at [16] above, as “until the purchaser cancels”, rather than the purchaser taking possession. In my view, it is untenable to interpret the words in the way submitted.

[29]The present situation is governed by cl 11.5 of the agreement which provides:

11.5If the vendor does not comply with the terms of a settlement notice served by the purchaser, then, without prejudice to any rights or remedies available to the purchaser at law or in equity the purchaser may:

(1)sue the vendor for specific performance; or

(2)cancel this agreement by notice and require the vendor forthwith to repay to the purchaser any deposit and any other money paid on account of the purchase price and interest on such sum(s) at the interest rate for late settlement from the date or dates of payment by the purchaser until repayment.

[30]   Ms Kennerley submitted that the reference in this clause to it being without prejudice to any rights or remedies available to the purchaser opens the door to CIL being able to seek interest under cl 3.13(2). This submission does not assist CIL in relation to interpretation issues I have already outlined.

[31]   Sale of Land deals with remedies following cancellation by a purchaser.6 The learned author notes at [12.65] that the purchaser is entitled to the return of the deposit and any instalments of the purchase price paid, perhaps with interest. There is no suggestion that a purchaser who has cancelled the contract is entitled to the interest, as sought by CIL here.

[32]   Accordingly, even if the claim as set out in the submissions had been pleaded, it would have been dismissed as CIL has no contractual entitlement to interest under cl 3.13(2).

6      McMorland, above n 1, at [12.64].

Interest on the deposit

[33]   JCL has recently confirmed that it will pay interest on the deposit which amounts to $14,055.24. That amount had not been paid as at the date of the hearing. Mr Powell submitted judgment should not be entered against JCL for that amount given it had offered to pay that amount effectively on a without acknowledgement of liability basis. Given this judgment was being reserved, I gave JCL until 5.00pm on  2 December 2022 to make the payment.

[34]   Mr Powell has advised that the payment was made on 25 November 2022. Accordingly, no judgment is required in respect of interest on the deposit.

Judgment for damages – the second cause of action in the amended statement of claim

[35]   The application for summary judgment was filed following the amended statement of claim and it referred to seeking judgment in terms of the breach of contract cause of action. However, CIL’s submissions did not address this part of the claim.

[36]   I would not have granted summary judgment on the second cause of action in any event. First, it is in reality a claim for damages. It will be recalled that the caveat was lodged by Ms Corston and not by JCL. JCL did not settle because it wanted clarity around the issue of the transfer of the life interest shares. Accordingly, the damages claim opens up the validity of the contract given it seems to have been made as a result of an appointment of directors by Joanna that she was arguably not entitled to make. Further, the amount of damages claim being $9,200 for legal costs does not seem to bear any resemblance to the steps it is asserted CIL says it had to take as a result of the alleged default, that is, the filing of a request that the caveat lapse.

Decision

[37]CIL’s application for summary judgment is declined.

Costs

[38]   As requested by the parties, costs are reserved. If the Intervenor seeks costs she is to file a memorandum of not more than five pages within five working days of the date of this judgment. Reply submissions are to be not more than five pages and are to be filed within a further five working days.

Associate Judge Lester

Solicitors:
Taylor Shaw, Christchurch (for Plaintiff)