Discount Liquor Blenheim Road Ltd v Malstrom Holdings Ltd HC Christchurch CP 66/01

[2001] NZHC 953

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY CP 66/01

BETWEEN DISCOUNT LIQUOR BLENHEIM ROAD LTD
Plaintiff

AND MALSTROM HOLDINGS LTD
Defendant

Hearing: 2 October 2001

Appearances: H C Matthews for Plaintiff
F B Barton for Defendant

Judgment: 10 October 2001

JUDGMENT OF MASTER VENNING
On Application For Summary Judgment

Solicitors:
White Fox & Jones, Christchurch for Plaintiff
Anderson Lloyd Caudwell, Dunedin for Defendant

APPLICATION

[1] The Plaintiff seeks by way of summary judgment an order requiring the Defendant to specifically perform an agreement for sale and purchase dated 18 April 2001.

BACKGROUND

[2] The Defendant is the registered proprietor of a property known as the Union Centre situated at 772 Colombo Street, 107 Armagh Street through to 214-216 Oxford Terrace. The Defendant owns the fee simple in four blocks of land contained in Certificates of Title 25K/615, 20F/1055, 20F/1054 and 356/203 (Canterbury Land Registry) and is the holder of an estate in leasehold under a registered lease over land comprised and described in Certificate of Title 9F/838 (Canterbury Land Registry). A plan depicting the relevant titles is attached to this judgment.

[3] The Plaintiff and Defendant are parties to a deed of lease dated 2 August 1999. Pursuant to it the Defendant leased to the Plaintiff part of the property owned by it. The Plaintiff operates a restaurant and bar known as “The Vic and Whale” from the property. The Plaintiff is the major tenant. Apart from the Plaintiff’s “The Vic and Whale” business, there are a number of other tenancies situated within the premises which is an older style building of two stories.

[4] The description of the property owned by the Defendant in the first schedule to the lease omits to refer to CT 20F/1055, but the parties clearly intended the lease to extend to that title and have acted on that basis. The omission appears to be a simple error in the description of the leased premises. The physical area of freehold land described in the lease and owned by the Defendant includes the land contained in CT 20F/1055. I note that Mr Barton did not make any issue of the omission in his submissions.

[5] Significantly for present purposes the lease includes the following clause:

“Right in lease of first refusal to purchase leasehold

46. If at any time in the first six years of the term of the lease the Landlord shall receive an offer to purchase the building in which the premises leased form part and wishes to accept that offer then:

1. The Landlord will forthwith notify the Tenant in writing of the receipt of the offer and deliver a copy of the offer to the Landlord.

2. The Tenant may within five working days of the delivery of the copy of the offer give notice in writing to the Landlord of the Tenant’s intention to purchase the leasehold of the property at the price and upon the terms contained in the offer save that the Tenant will not be bound to complete the purchase earlier than 20 working days from the date of giving notice of intention to purchase.

3. Upon the tenant giving notice of the Tenant’s intention to purchase the parties will be deemed to have entered into a contract for the sale and purchase of the property on the terms of the agreement at the date of this lease published by the New Zealand Law Society.

4. If the Tenant shall not give notice in terms of subclause 2, then the Landlord will be at liberty to accept the offer and complete the sale of the leasehold property to the offeror, but only at the price and on the terms contained in the offer. If the offeror shall (with the consent of the Landlord) vary the terms of the offer, the Landlord shall not be at liberty to accept the varied offer without first giving notice of the varied offer to the Tenant in terms of subclause 1, whereupon all the terms of this clause shall apply to the varied offer.

5. The first right of refusal contained in this clause shall only be available to the lessee the said Discount Liquor Blenheim Road Limited and shall lapse on any assignment or other disposition of this lease.”

[6] By agreement for sale and purchase dated 19 March 2001 the Plaintiff accepted an offer from Whitechurch Ltd to buy the property (including the leasehold interest) owned by the Plaintiff on certain terms and conditions. Inter alia, the agreement was conditional upon the Plaintiff waiving its right under clause 46 of the lease. The Defendant gave notice of the agreement for sale and purchase to the Plaintiff as it was required to do. The Plaintiff confirmed that it wished to exercise the right of first refusal contained in clause 46 of the lease.

[7] Subsequently the Defendant and Whitechurch Ltd renegotiated the sale and purchase agreement so that the leasehold interest was deleted from the agreement, and the purchase price was reduced by $50,000. The Defendant gave the Plaintiff notice of this fresh offer. The renegotiated offer was also subject to the Plaintiff’s waiver of its rights in clause 46 and approval of Whitechurch Ltd’s Board to the purchase. Whitechurch Ltd’s Board approved the purchase so that the agreement was unconditional, save for the Plaintiff’s decision on the exercise of the option. On 18 April 2001 the Plaintiff’s solicitors confirmed that it elected to purchase the property in terms of the amended sale agreement and calculated that settlement was due on 17 May 2001. The Plaintiff also paid the deposit required under the agreement.

[8] The Defendant’s former solicitors confirmed the Defendant’s acceptance of that position by letter of 20 April 2001. The Defendant’s former solicitors’ letter was in the following terms:

“Re Malstrom Holdings Ltd - The Vic and Whale Ltd

We acknowledge receipt of your letter of the 18th instance and facsimile of today’s date advising of the payment of the deposit.

We are pleased that your client has been able to exercise its option and confirm the settlement date of 17th May 2001.

A settlement statement will follow shortly.”

[9] Prior to confirmation of the agreement the Defendant’s former solicitors had by letter of 10 April 2001 raised a practical problem concerning access to the first floor of the leased premises contained in CT 9F/838 on Armagh Street. Access was through an entrance and stairway contained within the freehold title CT 20F/1055. The Defendant’s former solicitors suggested:

“If your client exercises its option to purchase our client reserves the right to register an easement in its favour for the term of the lease.”

By letter of 11 April the Plaintiff’s solicitors rejected the Defendant’s ability to reserve its position to register an easement in that way as it was not provided for in the agreement.

[10] After the agreement for sale and purchase was confirmed as unconditional and the settlement date was confirmed for 17 May, the Defendant’s former solicitors again raised the issue of access to the leasehold premises. They did so in a letter of 23 April 2001 as follows:

“As your client’s [sic] are no doubt aware the property being retained by our clients uses access from Armagh Street to level one and level one also uses toilets. You may recall we suggested that a right of access be reserved on the sale of the freehold but this suggestion fell on stoney [sic] ground. Could you please advise the basis on which your clients will allow access to the first floor and the toilets, and if so the basis on which the operation [sic] expenses such as cleaning can be apportioned.”

[11] The Plaintiff’s solicitors responded by letter of 30 April dealing with that issue as follows:

“So far as the issue of access for your client’s tenants from Armagh Street and the use of the toilets is concerned, our client will not be proceeding with demolition in the short term, but is considering some redesign which could include the closure of the Armagh Street entrance and the conversion of the space into lettable area. Our client has access from the Oxford Terrace frontage. If the Armagh Street access is preserved, then that access, and the use of the toilets by your client’s tenants will have a value. Our client is taking advice on the issue and we will let you know as soon as the value is assessed.”

[12] Shortly after however on 7 May, the Plaintiff’s solicitors advised:

“Our client proposes to modify the Armagh Street access, and also to proceed with the physical separation of the buildings. Consequently access for your client’s first floor tenants will no longer be available, and nor will the use of the toilet facilities. It is proposed to carry out the work immediately upon settlement, so your client will need to make alternative arrangements with its tenants.”

[13] The Plaintiff’s solicitors subsequently, by letter of 9 May, forwarded a transfer and sale notices. They advised they would require a building warrant of fitness on settlement. They also noted that as it appeared two tenants referred to in the schedule to the agreement for sale and purchase were no longer tenants there had been a misrepresentation as to revenue that affected the value of the property for which the Plaintiff sought compensation in the sum of $150,000 by way of adjustment to the purchase price on settlement.

[14] The Defendant’s former solicitors noted by letter of 10 May that the transfer referred to the original agreement which included the leasehold interest and requested a new transfer with the consideration amended and reference to the leasehold interest deleted. That was done by letter of 11 May. They did not directly take issue with the request for compensation on settlement, but referred to a new tenancy and asked for it to be taken into account.

[15] On 16 May 2001, one day before settlement was due in terms of the agreement, the Defendant’s former solicitors wrote to the Plaintiff’s solicitors as follows:

“Our client is not going to proceed with the sale to your client upon the following grounds:

(a) Your client’s new position as per your letter of the 9th May represents a counter offer. It is rejected.

(b) Sale of titles under part of a building without local authority consents to physical separation of the tenancies under different ownership appears to breach Local Government law and void the contract.

(c) The failure of the contract to deal with who is liable for the costs of such separation with respect to earthquake/fire compensation to tenancies which costs are potentially as much as the proposed purchase price, and creates an impossible to resolve frustration of the contract.

(d) The purchasers assumed right to a first refusal to buy land and buildings, does not line up the wording of clause 46 which refers to an offer to buy buildings only.

(e) Clause 46(2) refers to a situation wherein the Tenant gives notice of intention to buy the “leasehold of the property”. This seems to void the “contract” on the grounds of uncertainty as to what it means. And the tenant has not given notice in terms of 46(2) - see 46(4).”

[16] The Plaintiff did not accept the Defendant was entitled to refuse to settle. The Plaintiff confirmed it was ready, willing and able to settle. When the Defendant refused to settle the Plaintiff issued a settlement notice on 21 May 2001 and subsequently issued these proceedings seeking specific performance of the agreement for sale and purchase.

GROUNDS OF OPPOSITION

[17] Although the Defendant raised a number of grounds in its letter of 16 May as its reasons for not settling, a number of those have been abandoned and were not pursued in argument before me. The opposition to the Plaintiff’s application for summary judgment was limited to the following grounds by Mr Barton:

• Contractual Mistakes Act defence;

• Frustrated Contracts Act defence;

• A defence headed “practical difficulties with settlement”;

• A general defence as to the exercise of the Court’s discretion against specific performance in this case.

[18] I now turn to consider each of the defences in turn.

CONTRACTUAL MISTAKES ACT

[19] Mr Barton submitted that the Defendant’s case was that when entering into the contract:

• The Defendant was influenced in its decision to enter the contract by a mistake that was material to it and the existence of the mistake was known to the Plaintiff; and

• The mistake resulted at the time of the contract in a substantially unequal exchange of values or it imposed an obligation substantially disproportionate to the consideration therefore.

[20] The evidence for the Defendant is given by Mr Clear, a director and shareholder of the Defendant company. Mr Clear’s evidence is that the Defendant acquired the freehold titles in 1999 and contemporaneously acquired a head lease of all the land in the leasehold title. The property has been managed by a Christchurch based management company.

[21] The Defendant’s case on mistake is summed up by Mr Clear in paragraph 7 of his evidence as follows:

“Annexure “Q” to Mr Butterfield’s [one of the directors of the Plaintiff] affidavit shows that by 10 April 2001 [the Defendant] was beginning to appreciate the problems involved in separating out the leased land from the freehold land. The land that was leased comprised space on the ground floor level as well as on the first floor. Unfortunately, [the Defendant] had learnt at this stage that the access to the first floor leased premises on the corner of Colombo Street and Armagh Street was via land contained in the freehold title 20F/1055 in Armagh Street. This is where the staircase is located and it give access to the first floor leasehold tenancies occupied by Aztec Finance, D E Cottell Limited, Westpac and Challenge Driving. There is also access to this floor from a narrow stairway fronting onto Colombo Street (within CT 9F/838) but access from this point would not meet fire regulations in terms of egress. It had been our view that the leasehold land extended all the way down Armagh Street and we were surprised to learn that there was in fact a piece of freehold land at the eastern end of Armagh Street. In addition, it became clear that the first floor toilets are located in freehold space in CT 20F/1055 and these are used by tenants on the first floor of the leasehold space (CT 9F/838). There is no practical alternative to use of these facilities. A separation of leasehold from freehold was going to have consequences for all of the first floor tenancies. This had not been appreciated by [the Defendant] before and we were proceeding in the mistaken belief that tenancies and their access to the building and to toilets would match up with the Certificates of Title. We had an idea of one or two minor superficial problems but we had no idea at all of problems with boundaries, toilets, street access or switchboard. Knowing that there were the two different forms of ownership we assumed that these matters had properly been addressed at some time in the past, prior to our ownership. We entered into the sale agreement on the basis that we could legitimately sell what we were seeking to sell and that each unit (freehold or leased) could stand on its own. As it turns out, we were mistaken in this. I do not know whether the Plaintiff was aware of the same mistake but I have my suspicions they knew we were not aware of it. (Emphasis added)

[22] Although Mr Clear concludes that passage of evidence by stating he does not know whether the Plaintiff was aware of the mistake but had his suspicions, the Defendant’s case as put in submission by Mr Barton was that the existence of the mistake was known to the Plaintiff. The basis of the defence of mistake then as presented to the Court by Mr Barton was mistake by the Defendant known by the Plaintiff: s 6(1)(a)(i).

[23] The difficulty for the Defendant is that the evidence before the Court simply does not support the submission that the Defendant has an arguable defence on that ground.

[24] Mr MacKenzie has sworn an affidavit in reply for the Plaintiff. Mr MacKenzie is also a director of the Plaintiff. Mr MacKenzie confirms that because the Plaintiff had been a tenant in the premises from 2 August 1999 he was familiar with the physical layout of the buildings, the various tenancies and other facilities including, for example, the toilets and access ways located on the freehold and leasehold interests. Mr MacKenzie says that the Plaintiff only had a short time to decide whether to exercise the option or not, and apart from correspondence between the solicitors:

“3.3 . . . there was no other explanation or “showing” of the premises in any way by the Defendant to the Plaintiff.”

[25] Mr MacKenzie notes that the Plaintiff relied on the title searches and documents in ascertaining what was being offered in terms of the option, and they tied in with his understanding of the physical layout of the premises generally. He concludes his evidence on this point by stating:

“5. Neither I nor the Plaintiff at any time prior to the exercise of the Option on 18 April 2001 had any idea that the Defendant was mistaken, or did not properly understand what it was contracting to sell to the Plaintiff (in terms of the Option) whether in legal terms (the Certificates of Title) or in terms of the physical layout of the premises. As I have said, apart from the contact between the solicitors, there was no contact between the contracting parties up to that point and quite simply neither I nor the Plaintiff had any idea what was in the mind of the Defendant in relation to these matters.”

[26] In his evidence Mr Clear puts it no higher than he had “suspicions” the Plaintiff was aware of the mistake. However, as Mr MacKenzie has deposed, representatives of the parties did not met until after the Plaintiff exercised its option or right of first refusal under clause 46. In those circumstances it is difficult to see how it can be suggested the Plaintiff could have been aware of what mistake the Defendant may have been labouring under. There was no meeting between the parties from which the Defendant’s mistaken beliefs could have become apparent to the Plaintiff. The parties did meet after the problem became apparent, but as Mr Clear says, those discussions were with the aim of resolving differences. Again the evidence is no more than in Mr Clear’s view (with the benefit of hindsight), that the Plaintiff had a much fuller understanding of the practical situation long before the Defendant. That falls well short of evidence necessary to support the submission the Plaintiff knew the Defendant was mistaken at the time the contract was made.

[27] In Tri-Star Customs & Forwarding Ltd v Denning [1999] 1 NZLR 33 the Court of Appeal expressly rejected the High Court’s finding that constructive knowledge of the other’s mistake was sufficient for the purposes of s 6(1)(a)(i). Actual knowledge is required. There is no evidence of actual knowledge in the present case.

[28] Next, it must be observed that the Defendant initiated this transaction and itself fixed the terms of the agreement for sale and purchase without any input from the Plaintiff. Mr Clear’s evidence about that is that the Defendant intended to restructure its affairs by incorporating a fresh company with much the same shareholding as the Defendant, but that the company would take over the freehold and leave the Defendant with the leased land. He says:

“5. . . . What was being contemplated was an “in house” transaction and for this reason no greater investigation was made of the situation on the ground because this had operated in a trouble free way from the time that [the Defendant] had acquired the property. . . .”

However, the Defendant would have known that such a transaction would trigger clause 46 of the lease.

[29] Mr Clear, rather curiously, says of that:

“6. We became aware in the course of this transaction that there was a right of first refusal in the lease and that the property would need to be offered to the Plaintiff lessee . . .”

And later:

“. . . it was not discussed with the Plaintiff whose contract to buy has come about in an almost “accidental way”.”

[30] That evidence suggests that clause 46 came as somewhat of a surprise to the Defendant. However, the Defendant and Mr Clear ought to have been well aware of clause 46 of the lease. It is not as though the lease was in existence and was taken over when the Defendant purchased the property in February 1999. The lease was negotiated between the parties to these proceedings - the Plaintiff and the Defendant. It was not executed until 2 August 1999, almost six months after the purchase of the property by the Defendant. Indeed Mr Clear executed the lease on behalf of the Defendant. In those circumstances it can hardly be suggested the Defendant and Mr Clear were not aware that the transaction they entered with Whitechurch Ltd would trigger the right of first refusal to the Plaintiff and that the property would have to be offered to the Plaintiff on the same terms as it was offered to Whitechurch Ltd. The agreement prepared by the Defendant for the transaction with Whitechurch Ltd referred to the right of first refusal in clause 46.

[31] It can also be observed that it is surprising the Defendant’s directors were mistaken about the property they had bought. The titles to the property are not difficult to read. CT 20F/1055, one of the freehold titles, clearly shows a frontage to Armagh Street. In the circumstances it is rather surprising that Mr Clear says:

“7. It had been our view that the leasehold land extended all the way down Armagh Street and we were surprised to learn that there was in fact a piece of freehold land at the eastern end of Armagh Street.”

[32] Nor does the correspondence concerning access and other issues suggest that any mistake the Defendant may have made was known to the Plaintiff. The issue concerning the access was raised for the first time in the Defendant’s former solicitors’ letter of 10 April. The letter noted that the Defendants had brought the problem to the solicitors’ notice. The letter did not suggest the Defendant had made a mistake. The Plaintiff’s solicitors immediately responded by letter of 11 April and rejected the Defendant’s attempt to preserve the right to register an easement in that way. The Plaintiff’s solicitors subsequently confirmed the Plaintiff’s intention to exercise the option. For their part the Defendant’s former solicitors then acknowledged that the option had been exercised properly and confirmed settlement at 17 May 2001. In fact, the letter stated “We are pleased that your client has been able to exercise its option . . .”.

[33] By the date of that letter, 20 April, the Defendant knew of the problems concerning access. The issue had been directly raised by its solicitors in correspondence. The Plaintiff had rejected the Defendant’s suggestion on it. If the Defendant was of the view it now advances, namely that it had made a mistake and that the Plaintiff was aware of that mistake, one would have expected the issue to have been raised at least by that letter of 20 April, rather than the Defendant’s solicitors suggesting they were pleased the transaction was to proceed.

[34] Finally on this point, Mr Barton submitted the Plaintiff’s actions were suggestive of “opportunism”. In support of that submission he referred to the Plaintiff’s solicitors’ correspondence in which they indicated they would seek compensation following settlement. However, with respect to that submission, it is clear from the correspondence that the reference to compensation was a reference to the Defendant’s misrepresentation in respect of two specific tenancies. The agreement for sale and purchase referred to and identified two tenancies as existing and incidental to the freehold estate being purchased by the Plaintiff. That was incorrect. The Plaintiff considered the statements amounted to misrepresentations as to revenue. The tenancies were not in place and accordingly the Plaintiff took the view that affected the value of the property. It was on that basis the Plaintiff sought compensation by way of adjustment to the purchase price at settlement. It cannot be suggested that “smacks of opportunism” by the Plaintiff, in relation to an alleged mistake by the Defendant.

[35] The Defendant falls well short of making out an arguable defence based on a mistake under s 6(1)(a)(i) of the Contractual Mistakes Act.

FRUSTRATED CONTRACTS ACT

[36] Next Mr Barton submitted that the contract was impossible of performance for the reasons outlined in Mr Clear’s affidavit at paragraph 12.

[37] At paragraph 12 of his evidence Mr Clear notes that the Plaintiff’s solicitors have given notice they require a current building warrant of fitness on settlement. He says:

“12. . . . There has never been a separate warrant of fitness obtained before and there will be major practical difficulties in obtaining it. Indeed, I believe it will be impossible in any financially viable way to settle because the local authority will require that each warranted building comply in all respects with the law within the legal boundaries. This would mean realignment of boundary walls and creation of fresh access.”

[38] Mr Barton submitted the Defendant was not able to obtain a building warrant of fitness as that would require separate wiring, a separate switchboard, realignment of the internal boundary walls, and the creation of an access and egress for fire purposes. Mr Barton submitted that “. . . Essentially, the property the [Plaintiff] seeks to have conveyed to it does not exist”. On that basis he submitted that the contract was frustrated.

[39] For the Frustrated Contracts Act to apply the contract must have “become impossible of performance or been otherwise frustrated”. As noted by Burrows Finn & Todd on The Law of Contract in New Zealand (1997) at p 695-696:

“The doctrine of frustration takes us close to the heart of contract theory. It is based on the absolute nature of promise: promises must be performed, and only in the most exceptional circumstances will parties be excused. The doctrine of frustration has three salient features.

First, the threshold for frustration is very high. Performance must have become impossible of performance or “totally different”; the obligation must have been fundamentally altered. Anything less will not do. Thus, as seen, even drastic fluctuations in currency over a period of time do not normally frustrate contracts; nor do very substantial obstructions to the progress of building contracts. Some of this can be justified on the basis of the acceptance of risk by one of the parties. Nevertheless, the hardship caused can be very real, and out of proportion to what was envisaged.”

[40] The New Zealand case of Wilkins & Davies Construction Ltd v Geraldine Borough [1958] NZLR 985 is instructive on this issue. Wilkins & Davies had agreed to construct certain works in connection with the Geraldine Boroughs sewage treatment plant. The works required the sinking below ground of a tank and pump chamber. They experienced great difficulty with that because the ground into which the tank was to be sunk contained heavy clay which made it impossible to excavate by machine, or to keep the floor of the tank dry during construction. As a result, costs rose substantially. Wilkins & Davies claimed the contract was frustrated and no longer applied and that they were entitled to succeed on quantum meruit for the additional work they had had to do. Henry J rejected the submission for Wilkins & Davies. His Honour found:

“. . . I must confess that I am unable to see that the plaintiff has made out a case of frustration. The fact that a band of clay was encountered is of little significance. It was no more than an unexpected burden in sinking the tank resulting from a small portion of the terrain differing from what was anticipated.”
P991

[41] In coming to that decision Henry J referred to the decision of Davis Contractors Ltd v Fareham Urban District Council [1956] 2 All ER 145, 152, where shortages of labour and materials had increased the burden on the contractor, both in terms of the time taken for the contract and the cost. The time taken had almost tripled. The cost had increased by over 20%. The contract was held not to be frustrated and the builder had to bear the loss.

[42] A similar result can be found in Seton Contracting Co Ltd v Attorney-General [1982] 2 NZLR 368.

[43] In the present case the contract requires the Defendant to transfer land owned by it to the Plaintiff. The Defendant owns the land and is able to make the transfer of the land to the Plaintiff. If the Plaintiff insists on other rights under the contract, such as a building warrant of fitness, the Defendant may be required to expend additional monies, including the realignment of internal walls, the installation of a second switchboard, and may also be required to provide compensation to certain of the existing tenants if access to stairs and/or toilets is no longer available. Those are not matters that make the contract between the Plaintiff and Defendant impossible of performance. At most, they may well mean that the Defendant has made a bad bargain. That is not a sufficient ground to find frustration.

[44] The Defendant is able to perform the contract. The contract between the Plaintiff and the Defendant (drawn by the Defendant) is not impossible to perform or totally different. To the extent that the Defendant relies upon the Plaintiff’s request for a building warrant of fitness as a ground for frustrating the contract, that is a matter that the Defendant expressly assumed responsibility for under the contract. Clause 6.2(6) provides:

“Where under s 44 of the Building Act 1991 any building on the property sold requires a compliance schedule, the building, all obligations imposed on the vendor under the Act are fully complied with. Without limiting the generality of the foregoing the vendor further warrants and undertakes that:

. . .

(b) The building has a current building warrant of fitness supplied under s 45 of the Act.”

[45] In any event, clause 6.5 provides:

“Breach of any warranty or undertaking contained in this clause does not defer the obligation to settle.”

[46] Thus even if a building warrant of fitness is not available on settlement the parties have contracted and agreed that that fact does not defer the obligation to settle. In those circumstances it cannot be said that the fact it may be difficult for the Defendant to obtain a building warrant of fitness, or that the Defendant may have to expend unexpected sums of money to obtain a building warrant of fitness or compensate tenants leads to frustration of the contract for sale and purchase of the freehold land.

DIFFICULTIES WITH SETTLEMENT

[47] Mr Barton next submitted that the Defendant will have to carry out extensive alterations to the structure of the building to obtain a building warrant of fitness and submitted that it was not a case of conveying something that already exists. He submitted that doing this would prejudice the tenants and raise the possibility of their seeking legal redress to prevent it. For those reasons he submitted there were practical difficulties with settlement that told against the Plaintiff’s claim.

[48] Mr Barton’s submission under this head of “difficulties with settlement” can be broken into two parts. First, I understand it to be a submission that the Defendant is being asked to convey something different to what it has contracted to convey. Secondly, it is a submission that because of hardship specific performance ought not to be granted. This second part of the submission is more properly considered under his last ground of opposition, namely that in the exercise of the Court’s discretion specific performance ought not to be granted.

[49] As to the first, this is not a question of the Defendant being asked to convey something it is not able to convey. The subject matter of the contract is identified in the agreement for sale and purchase. It is the property described in the schedule to the agreement for sale and purchase as:

“Firstly of an estate in fee simple containing 505m2 more or less situated in the City of Christchurch being part of Section 570 Town of Christchurch and being all the lands comprised and described in Certificate of Title 20F/1055 (Canterbury Land Registry) SUBJECT TO & TOGETHER WITH the encumbrances and easements therein set out.

Secondly of an estate in fee simple containing 505m2 more or less situated in the City of Christchurch being part of Section 570 Town of Christchurch and being all the lands comprised and described in Certificate of Title 20F/1054 (Canterbury Land Registry) SUBJECT TO & TOGETHER WITH the encumbrances and easements therein set out.

Thirdly of an estate in fee simple containing 5m2 more or less being Part Lot 1 Deposited Plan 1151 and being all the lands comprised and described in Certificate of Title 356/203 (Canterbury Land Registry) SUBJECT TO & TOGETHER WITH the encumbrances and easements therein set out.

Fourthly of an estate in fee simple containing 1011m2 more or less being Section 575 City of Christchurch and being all the lands comprised and described in Certificate of Title 25K/615 (Canterbury Land Registry) SUBJECT TO & TOGETHER WITH the encumbrances and easements therein set out.”

That land is the subject matter of the contract. It is capable of being conveyed by the Defendant to the Plaintiff in terms of the agreement.

[50] There may be consequential issues concerning internal boundary adjustments and other work required to be carried out on or in the physical buildings situated on the land. That may or may not result in further expense to the Defendant. That does not, however, make the contract between the Plaintiff and the Defendant impossible of performance, or for that matter mean there will be practical difficulties with settlement of the contract itself.

[51] In answer to the point made that there may be practical difficulties with settlement, the position is:

• Clause 6.5 of the agreement makes it clear that any inability to provide a warrant of fitness does not defer the obligation to settle. The fact that the Defendant may have to spend money to satisfy all contractual obligations does not in itself prevent the order for specific performance.

• It is possible for settlement of the contract to occur. There is nothing to prevent settlement.

SPECIFIC PERFORMANCE DISCRETION

[52] Finally Mr Barton submitted that specific performance is a discretionary remedy and that it may be inappropriate to resolve the matter summarily: Lyons v Stewart (Master Thomson, 29/10/97, HC Napier, CP 19/97) and Low v Swanson (Robertson J, 9/6/97, HC Auckland, CP 191/96).

[53] In Lyons v Stewart Master Thomson declined to make an order for specific performance in the context of an agreement for sale and purchase. He considered that the then existing rule, r136(3), of the High Court Rules that enabled a summary judgment order for specific performance ought to be applied cautiously, and that the rule was enacted because there would usually not be sufficient material on a summary judgment for the Court to be in a position to assess the proper quantum of damages. At the time r136(3) provided that a Court may not award damages in substitution for or in addition to specific performance.

[54] Significantly in the Lyons v Stewart case Master Thomson considered that the circumstances leading to the negotiation and execution of the contract indicated sufficient hardship or unfairness so that specific performance ought not be awarded at the summary judgment stage. He was particularly influenced by the fact that one solicitor acted for both parties to the transaction.

[55] I note that r136 has been further amended since the decision of Master Thomson in Lyons v Stewart. The prohibition on claiming damages in lieu of specific performance was removed by the High Court Amendment Rules 1998, consistent with the intention of the drafters at that time to increase the jurisdiction for summary judgment generally and to remove the barriers to summary judgment that existed in the rules at that time.

[56] Each case must turn on its own individual facts. Lyons v Stewart is an example of an exercise of discretion against specific performance at a summary judgment stage because of the particular facts that existed before Master Thomson. I have to deal with this case on the basis of the particular facts that exist before the Court on this application.

[57] The other decision referred to by Mr Barton was the decision of Robertson J in Low v Swanson. In that case Robertson J listed a number of matters that could properly be considered when the Court was asked to invoke the discretionary remedy of specific performance. The factors identified by Robertson J were:

(a) Whether there is anything about the Plaintiff’s conduct that which would amount to unclean hands;

(b) Whether the performance of the contract would require supervision by the Court;

(c) Whether the remedy is available to both parties;

(d) Whether there has been any significant delay in seeking relief so as to cause prejudice to the defendant; and

(e) Whether the specific performance of the contract would result in hardship or unfairness.

[58] Mr Barton submitted that paragraphs (a), (b) and (e) were relevant to the present case.

[59] In relation to paragraph (a) Mr Barton submitted that the Plaintiff was fully aware of the situation on the ground and the opportunities this would create for it, and it clearly intended to exploit the opportunities at the expense of both the Defendant and innocent third parties.

[60] I am unable to accept that submission. I have already rejected the submission that the Plaintiff was aware of any mistake or misapprehension that the Defendant may have been working under as to the physical situation of the building. As noted, the reference to compensation that the Plaintiff intends to seek from the Defendant relates entirely to a misrepresentation by the Defendant as to rental income. That can hardly be said to be an exploitation of an opportunity. It must be borne in mind that the Plaintiff seeks performance of a contract for the sale and purchase of commercial land. The terms of the contract were fixed by the Defendant (and presumably its advisers) when the Defendant knew that it was obliged to offer the property to the Plaintiff on those terms. That is clear from the provisions of clause 46 of the lease and the fact that the agreement between the Defendant and Whitechurch Ltd referred to clause 46. There is nothing that can be said to amount to unclean hands on the part of the Plaintiff in seeking to enforce its rights to performance of this agreement for sale and purchase under a right of first refusal granted to it in a lease executed some two years ago.

[61] Nor can it be said that this is a case where performance of the contract will require supervision by the Court. An order for specific performance will require conveyance of the land by the Defendant to the Plaintiff. The detail for the conveyance and settlement can be either agreed by the parties or fixed by the Court in the event there is no such agreement. What I apprehend Mr Barton is referring to here are matters that may follow consequential upon such settlement, namely difficulties for the Defendant with its remaining tenants in the leasehold property, and possibly the need to alter the building to provide stairway access and toilet facilities to those tenants, and an additional switchboard for the purposes of a building warrant of fitness. Those are not matters that require any supervision by the Court. If the Plaintiff continues to require a building of warrant of fitness when the Defendant is unable to provide one and the Plaintiff seeks compensation in lieu, that is a matter that can be attended to following settlement. As noted, the parties have expressly provided in their contract that it is not a ground to defer settlement. Any other issues are matters of damages, either between the Defendant and third parties or perhaps the Defendant and the Plaintiff. They are matters that can be dealt with in separate proceedings if necessary. They are not, however, matters that will require constant supervision by the Court as part of an ongoing supervision of an order for specific performance. This is a one off transaction.

[62] That leaves the issue of hardship generally.

[63] As Mr Matthews submitted, the issue of hardship is considered by the authors of the text Jones & Goodhart Specific Performance (2nd edn):

“Since hardship is not in itself a ground for setting aside a contract, a court would not normally refuse specific performance if the consequence would be an order for damages which would cause a similar degree of hardship to the defendant. For this reason, in most of the reported cases in which specific performance has been refused on the ground of hardship to the defendant, the loss which the defendant would have incurred as a result of having to complete the contract was likely or certain to be considerably larger than the damages payable to the plaintiff for breach of contract.”

P 120

[64] This statement must be read with the statement earlier in the text that:

“Land is unique, it has a ‘peculiar and special value’. Consequently, no enquiry is ever made whether damages would be an adequate remedy and would make the injured party whole. . . . It is perhaps not surprising that specific performance should be granted to a purchaser of land as a matter of course even in these situations; a court does not enquire why a party enters into a contract, and no apartment is quite like its neighbour.”

P32

See also Equity Jurisprudence Story (1st edn, 1836).

[65] The property in the present case is unique. It is a commercial property near the centre of Christchurch city. It is made up of four blocks of freehold land that have frontages on three main streets. Even Mr Clear, in his affidavit, accepts that the property as a whole is prime development site.

[66] As the High Court of Australia put it in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418:

“It would be necessary for the defendant to prove that a hardship amounting to an injustice would be inflicted on him by holding him to his bargain and that it would not be reasonable to do so.”

P439

[67] Mr Clear has referred in round figures to the sum of $500,000 as a possible sum of money which could have to be spent on the building and to compensate tenants. There is no breakdown of how that figure has been arrived at. However, as submitted by Mr Matthews, by itself financial hardship “will almost never constitute the defence of hardship”: Dal Pont & Chalmers Equity and Trusts in Australia and New Zealand (1996) at p 621.

[68] In considering hardship it is notable that the Plaintiff has not obtained evidence from the owner of the leasehold, The Bishop Trust, or from the tenants who may potentially be affected. Further, from the plans prepared by the surveyors instructed by the Defendant, Connell Wagner, it is apparent that there is alternative stairway access from the ground floor leasehold premises to the first floor, at least in part, that may be able to be enlarged or altered to provide access to the tenants on the first floor.

[69] It may be that if after settlement the Plaintiff alters the property so that access to the stairway and toilet facilities is denied to the Defendant’s existing first floor tenants the Defendant will have to provide alternative access and/or may suffer damages claims by those remaining smaller tenancies. In that event the Defendant will suffer damage. When considering the issue of hardship in relation to that, however, apart from the general statements of principle above, it must be borne in mind that the Defendant determined the conditions of this contract. It set the terms upon which this transaction would proceed. This is not a case where the Defendant was under any disability at all when the terms of the contract were fixed. It is not a case where the Plaintiff had any say in those terms. They were entirely fixed by the Defendant. That is a particularly material consideration when considering the Defendant’s plea of hardship at this stage.

[70] In the circumstances the Defendant fails to satisfy the Court that any hardship that may be occasioned as a result of specific performance is such as to render it inequitable or unjust so that specific performance ought to be declined and the Plaintiff denied the opportunity to develop this particular property.

ORDER

[71] The Plaintiff satisfies the Court there is no arguable defence to its claim for specific performance by way of summary judgment. There will be an order in terms of the Plaintiff’s application requiring the Defendant to specifically perform the agreement for sale and purchase dated 18 April 2001 for the premises described in the agreement for sale and purchase. The settlement is to be by 4.00pm Wednesday, 17 October 2001.

[72] Leave is reserved to either party to seek any further directions for the purposes of completing performance of the agreement.

COSTS

[73] The Plaintiff is entitled to costs. Costs are fixed on a 2B basis together with disbursements as fixed by the Registrar.