Derham v E.J.V Property Investments Limited HC Auckland Ap90/01

[2002] NZHC 116

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY AP90/01

BETWEEN RICHARD WILLIAM DERHAM and ELIZABETH ANN MARIE DERHAM and ANTHONY CHRISTOPHER EDWARD all of Auckland, as Trustees of the R.W. & E.A. Derham Family Trust
Appellants

AND E.J.V. PROPERTY INVESTMENTS LIMITED a duly incorporated company having its registered office at c/- Lock & Partners, 133 Vincent Street, Auckland, Property Developer
Respondent

Hearing: 19 February 2002

Counsel: D J Cox for Appellants
D K Wilson for Respondent

Judgment: 21 February 2002

JUDGMENT OF SALMON J

Solicitors:
Rennie Cox, PO Box 6647, Auckland
Brian Ellis, 3rd Floor, 43 High Street, Auckland.

[1] This is an appeal against a District Court decision dismissing the plaintiff’s claim for damages arising out of an alleged wrongful cancellation of a contract for the purchase of land.

Background

[2] In April 2000 the parties signed unconditional agreements for sale and purchase of properties owned by them. Each agreement was dependent upon settlement of the other. By these agreements the appellants sold to the respondent a unit title industrial building in Wairau Road, North Shore City and the respondent sold to the appellants a rural property at Kaipara. The settlement date was eventually agreed to be 27 April 2000.

[3] By letter dated 17 April 2000 the respondent, through its solicitor, claimed that there had been a misrepresentation concerning the lease of the Wairau Road property and gave notice of cancellation of that agreement pursuant to the Contractual Remedies Act 1979. The appellants responded by letter the following day disputing any misrepresentation and the cancellation.

[4] The alleged misrepresentation was not relied on as a ground for cancellation at the District Court hearing.

[5] By letter dated 19 April 2000 the respondent, through its solicitor, advised that irrespective of the issue of misrepresentation already raised, the respondent requisitioned for removal of a drainage easement, right-of-way easement and parking easement on the title to the Wairau Road property pursuant to clause 5.2 of the Wairau agreement. The appellants claim that it was self evident that these conditions could not be complied with given the unit title nature of the property and the shared accessway.

[6] On 20 April 2000 the appellants’ solicitors wrote to the solicitor for the respondents, advising that the title being purchased was in accordance with the legal description on the agreement for sale and purchase and that the encumbrances noted on the title did not detract from the nature of that title. The letter advised that the requisition was not accepted and confirmed the vendor’s requirement that settlement proceed on 27 April.

[7] In response the solicitor for the respondents maintained their clients’ right to requisition and asked for appropriate authority confirming the vendor’s view that the encumbrances were not requisitionable.

[8] On 26 April 2000 the appellants’ solicitors wrote again referring to authority which they maintained supported their proposition that there was no right to requisition and requiring that settlement proceed. On the same day the respondent’s solicitors replied advising that the agreement had already been cancelled, but that if it should be found that the cancellation was ineffective, the requisitions had been validly made and would not be retracted. In response to that letter and also on 26 April the solicitors for the appellants advised again that they did not accept the respondent’s requisition and asking for authority supporting the claim that the encumbrances

“. . . are in their nature so material or substantial as to create a defect which goes to the root of title and accordingly entitles your client to be relieved from the performance of the contract.”

[9] The respondents had not claimed that there was a defect going to the root of title and the arguments in Court did not proceed on that basis.

[10] On 3 May the respondent served a settlement notice in respect of the Wairau agreement. A covering letter stated inter alia:

“Our client seeks to proceed to settlement on the basis that the requisitions are complied with and the easements removed as set out in our letter dated 19 April 2000.”

[11] The appellants served settlement notices pursuant to both agreements on 11 May 2000. By letter dated 24 May 2000 the respondent through its solicitor cancelled the Wairau agreement pursuant to clause 9.5(2) of the agreement, but without prejudice to the earlier cancellation as a result of a misrepresentation.

[12] The appellants gave notice of cancellation of the agreements by letter dated 30 May 2000 and then proceeded to endeavour to resell the Wairau Road property. The property took a year to resell. The sale was at a price of $230,000, which was $90,000 less than the sale price in the agreement between the parties.

The judgment in the District Court

[13] After detailing the facts and the arguments of the parties District Court Judge R.L. Kerr addressed an argument that the respondent’s settlement notice was an affirmation of the contract by finding that there was an affirmation but only if the requisitions were complied with. He further held that because the requisitions were not complied with the condition of the affirmation was not fulfilled and the respondent, therefore, had the ability to cancel. He rejected arguments that the cancellation was in bad faith or that it was unreasonable. He also rejected an argument that the respondent was not ready, willing and able to settle.

The points on appeal

[14] The appellant’s identify three grounds.

1. The learned District Court erred in finding that the respondent’s affirmation of the Wairau agreement was conditional upon the requisitions being complied with.

2. The learned District Court Judge erred in finding that there was a “real and genuine affirmation of the Wairau agreement by the respondent “but only if the requisitions were complied with”.

3. The learned District Court Judge erred in finding that there was “no actual affirmation “of the Wairau agreement by the respondent following the appellants’ notice under clause 5.2(3)(a) of the agreement, that the appellants were unable or unwilling to comply with the requisitions, and that the respondent was accordingly entitled to cancel the Wairau agreement for non compliance with the requisitions.

The agreement for sale and purchase

[15] The only clause of the agreement for sale and purchase which was the subject of argument before this Court is clause 5.2 which provides as follows:

“(1) The purchaser is deemed to have accepted the vendor’s title except as to objections or requisitions on it which the purchaser is entitled to make and delivers to the vendor or the vendor’s solicitor on or before the earlier of:

(a) the 15th working day after the date of this agreement; or

(b) the possession date; or

(c) the settlement date.

(2) If a plan has been or is to be lodged in the Land Registry Office for deposit in respect of the property, then in respect of objections or requisitions arising out of the plan, the purchaser is deemed to have accepted the title except as to such objections or requisitions which the purchaser is entitled to make and delivers to the vendor or the vendor’s solicitor on or before the fifth working day following the date the vendor has given the purchaser:

(a) notice that the plan has been deposited; or

(b) notice that (where a new title is to issue for the property) the title has issued and a search copy of it as defined in section 172A of the Land Transfer Act 1952 is available.

(3) If the vendor is unable to unwilling to remove or comply with any objection or requisition as to title so delivered by the purchaser, then the following provisions will apply.

(a) The vendor shall notify the purchase (“a vendor’s notice”) of such inability or unwillingness on or before the fifth working day after the date of receipt of such objection or requisition.

(b) If the vendor does not give a vendor’s notice the vendor shall be deemed to have accepted the objection or requisition and it shall be a requirement of settlement that such objection or requisition shall be complied with before settlement.

(c) If the purchaser does not on or before the fifth working day after receipt of a vendor’s notice notify the vendor that the purchaser waives the objection or requisition, either the vendor or the purchaser may (notwithstanding any intermediate negotiations) by notice to the other, cancel this agreement.

(4) In the event of cancellation under subclause 5.2(3), the purchaser shall be entitled to the return of the deposit and all other moneys paid under this agreement but shall not be entitled to any interest or to the expense of investigating the title or to any compensation whatever.”

The Arguments in this Court

[16] Mr Cox, for the appellants, accepted that if the purchaser had cancelled the agreement pursuant to clause 5.2(3)(c) the vendor would have no claim. He accepted that there was a valid requisition which the vendor could not comply with and that the purchaser was entitled to cancel the contract for that reason. He submitted that the vendor’s letters of 20 April and 26 April constituted a vendor’s notice pursuant to clause 5.2(3)(a). This was not accepted by Mr Wilson, on behalf of the respondent.

[17] The submissions on behalf of the appellants centred upon the respondent’s settlement notice. The appellants submit that that notice constituted an unconditional affirmation of the Wairau agreement, and that the respondent was, accordingly obliged to settle and take whatever title the appellants could convey. The respondent’s position is that the settlement notice and the accompanying letter read together make it clear that the respondent is continuing to maintain that it will only accept title with the requisitioned defects removed and requires settlement on that basis. The purchaser’s settlement notice is in a standard form. It claims that the vendor was in default having failed to settle on 27 April and that the purchaser was willing and able to settle on that date. The notice itself makes no reference to the requisitions, but it does, of course, refer to the agreement for sale and purchase and the property referred to in that agreement.

[18] The text of the covering letter was in the following terms:

“We refer to the agreement and correspondence in relation thereto.

On behalf of our client we now enclose by way of service a settlement notice.

Our client seeks to proceed to settlement on the basis that the requisitions are complied with and the easements removed as set out in our letter of 19 April 2000.

This settlement notice is served without prejudice to our contention that the agreement has already been validly cancelled.”

[19] I accept that the proper interpretation of the two documents is that the respondent is requiring settlement of the property described in the agreement, that is to say the property free of the easements.

[20] The respondent did not waive the requisitions, but clearly maintained them. It is not really a question of affirmation. What the respondent has done is to require the appellants on settlement to convey the property as described in the agreement, that is to say, the property not subject to the easements.

[21] The respondent submits that the purchaser’s cancellation was not overtly an exercise of a right to cancel pursuant to the requisitions clause in the contract. In fact it was pursuant to clause 9.5.2 of the contract which provides:

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

(1) . . .

(2) cancel this agreement by notice and require the vendor forthwith to repay to the purchase 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.”

[22] Seen in this way this is not an affirmation case at all.

[23] The appellant then submitted, still relying on the proposition that the contract had been affirmed, that there could in law be no conditional affirmation of a contract. The only authorities cited in support of that proposition suggest that in fact there can be conditional affirmation of a contract. Counsel was not able to refer to any authority which supported his proposition. I can see no reason in principle why a contract should not be able to be affirmed subject to compliance with a condition.

[24] The third point on appeal really seems to be the same as the first. The appellant submitted that the settlement notice was an affirmation of the contract. As already indicated, I do not accept that that was so.

[25] Inherent in the appellants’ submissions was the proposition that the respondent had an obligation pursuant to clause 5.2(3)(c) of the agreement for sale and purchase to elect whether to waive the objection or to cancel the agreement. In response to this Mr Wilson submitted that if a purchaser does not waive the requisition within the five working days stipulated, there is then no time set within which the vendor or the purchaser must cancel. He submitted that there was nothing to prevent the purchaser from following the procedure adopted in this case, that is, requiring the vendor to settle with the easements removed and cancelling if that was not done. D. W. McMorland, Sale of Land (2nd ed.) 2000 suggests in paragraph 9.14 that the election to cancel need not be made immediately, but should not be delayed for an unreasonable period, and that what is reasonable is governed by the nature of the agreement and the degree of difficulty caused by the requisition. The text goes on to note that it has been held that if a vendor delays the election for an improper purpose the right to cancel may be lost and suggests that similar considerations would apply to a purchaser.

[26] I do not consider that the delay in this case has been for an improper purpose, but it is not necessary to determine the point because, as already indicated the purchaser did not rely upon that provision as the basis for cancellation.

[27] Mr Wilson submitted that the appellants had in fact not given notice pursuant to clause 5.2(3)(a). The letters on behalf of the appellant, he submitted, were not a notification of inability or unwillingness to remove the easements, but rather, an assertion that there was no obligation to do so. The appellants’ position as disclosed in the solicitor’s letters was that the respondent had no right to requisition. I accept Mr Wilson’s submissions in this respect.

Conclusion

[28] As conceded by the appellant, the respondent’s requisitions were valid. They could not be complied with by the appellants. The appellants were unable to convey the title which it had promised and the respondent was, therefore, entitled to cancel the contract. I have reached that conclusion in a somewhat different way to the District Court Judge, but the result is that the appeal is dismissed. The respondent is entitled to costs to be assessed on the basis of Category 2 Band B and to disbursements. If the parties cannot agree submissions may be made to the Court.