East Developments Limited v ALV Developments Limited
[2018] NZHC 3456
•21 December 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001117
[2018] NZHC 3456
BETWEEN EAST DEVELOPMENTS LIMITED
Applicant
AND
ALV DEVELOPMENTS LIMITED
Defendant
Hearing: 24 October 2018 Appearances:
R Parmenter for the Plaintiff I Bassett for the Defendant
Judgment:
21 December 2018
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 21 December 2018 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors / Counsel:
Botting Legal Ltd, Auckland East Law, Auckland
R Parmenter, Auckland I C Bassett, Auckland
EAST DEVELOPMENTS LTD v ALV DEVELOPMENTS LTD [2018] NZHC 3456 [21 December 2018]
Introduction
[1] In this proceeding, the plaintiff seeks leave to make a second summary judgment application and applies for the Court to grant summary judgment on its amended statement of claim which relates to a cancelled agreement for sale and purchase.
[2] The plaintiff and the defendant, East Developments Ltd and ALV Developments Ltd, were parties to an agreement for the sale and purchase of a residential property at 20 Waterloo Street, Howick. ALV failed to settle the purchase and forfeited the deposit of $98,000 paid pursuant to the agreement. Within a matter of weeks of ALV’s failure to settle, East Developments commenced this proceeding. The statement of claim, filed with an application for summary judgment, sought specific performance of the agreement. The claim for specific performance was doomed to fail as in fact East Developments had, shortly before commencing the proceeding, exercised its contractual right to cancel the agreement.1 Before long, East Developments withdrew the summary judgment application with the Court’s leave. It advised the Court that it had not served ALV with the proceeding.
[3] ALV in fact knew nothing of the proceeding for some time. The proceeding lay inactive until after East Developments finally resold the property in February 2018
- at a loss. Dissatisfied with the price achieved on resale, it filed and served an amended statement of claim – with a second application for summary judgment – seeking contractual damages for the loss suffered on the resale.2 At the same time East Developments filed an application for leave to bring the second summary judgment application under High Court Rule 12.4(2).
[4] ALV acknowledges East Developments is entitled to retain the forfeited deposit, but opposes summary judgment on the damages claim. Its challenge is essentially twofold:
1 Notice of cancellation was given on 31 May 2017. The proceeding was commenced on 6 June 2017.
2 On 1 June 2018.
(a)First, that the High Court Rules do not allow a plaintiff to bring multiple applications for summary judgment, and the Court therefore lacks jurisdiction to grant East Developments leave to make its second application. And even if a second application were permissible, the merits of East Developments’ case are not so obviously strong as to deserve determination by way of a second summary judgment application made at time later than ordinarily prescribed by the Rules.
(b)Secondly, it has an arguable defence to the claim for contractual damages for losses on the resale of the property. The claim should therefore be dealt with in the normal way at trial.
Legal principles
Leave to file a summary judgment application after the statement of claim
[5] High Court Rule 12.4(2) provides that “an application” by a plaintiff may be made either at the time the statement of claim is served on the defendant, or later with the leave of the court. The rule is silent as to the principles governing the Court’s discretion to grant leave. They are to be found in the authorities. Factors relevant to the exercise of the discretion are whether the delay is satisfactorily explained; whether the merits of the applicant’s case are such that they deserve determination, by way of summary judgment, at time later than ordinarily prescribed by the Rules; and whether there is any risk of a miscarriage of justice by granting leave.3
Leave to file a second interlocutory application
[6] A summary judgment application is an interlocutory application. Rule 7.52 limits the right to file repetitive interlocutory applications. It states:
7.52 Limitation as to second interlocutory application
(1)A party who fails on an interlocutory application must not apply again for the same or a similar order without first obtaining the leave of a Judge.
3 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564.
(2)A Judge may grant leave only in special circumstances.
[7] The rule is apposite in the case of an application that is withdrawn where it lacks any prospects of success.
Summary judgment
[8] Plaintiff summary judgment is provided for in High Court Rule 12.2(1). The driving question is whether the defendants have no defence to the claim.4 The Court must be left without any real doubt or uncertainty.5 The onus is on the plaintiff, but where evidence is sufficient to show there is no defence, the onus shifts to the defendants to demonstrate why the application should not succeed.6
[9] As is typical for such applications, this case is characterised by substantial factual disagreements. It is trite that summary judgment is not the appropriate procedure for resolving them, or for assessing the credibility of the deponents. Still, the court need not uncritically accept evidence that is inherently lacking in credibility.7
Background
[10] Before turning to the applications for leave and summary judgment it is helpful to identify specific terms of the agreement as well as the standard form, and to flesh out the factual the context or background in which the claims is made.
The agreement and the context
[11] The parties entered into their agreement for sale and purchase on 13 December 2016. It was in the standard form.
[12]The principal terms of the agreement provided that:
(a)The purchase price was $1.96 million (plus GST if any);
4 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 183 (CA) at 185.
5 Krukziener v Hanover Finance [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
6 MacLean v Stewart (1997) 11 PRNZ 66 (CA).7 Krukziener v Hanover Finance limited, above n 3, at [26].
(b)ALV was to pay a deposit of 5 percent of the purchase price, being
$98,000;
(c)The agreement was subject to finance and due diligence– the relevant conditions to be satisfied within 7 working days of the agreement;
(d)Settlement was to take place on 21 April 2017;
(e)The interest rate for late payment of the balance of the purchase price was 14 per cent per annum.
[13]Clause 11 of the standard form provided:
11.0 Notice to complete and remedies on default
…
11.4 If the purchaser does not comply with the terms of the settlement notice served by the vendor, then subject to sub-clause 11.1(3):
(1) Without prejudice to any other rights or remedies available to the vendor at law or in equity, the vendor may:
(a) sue the purchaser for specific performance, or
(b) cancel this agreement by notice and pursue either or both of the following remedies.
(i) forfeit and retain … the deposit …
(ii) sue the purchaser for damages.
…
(3) The damages claimable by the vendor under sub-clause 11.4(1)(b)(ii) shall include all damages claimable at common law or at equity, and shall also include but shall not be limited to any loss incurred by the vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of that loss may include:
(a) interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such re-sale; and
(b) all costs and expenses reasonably incurred in any resale or attempted resale;
c) all outgoings (other than interest) on, or maintenance expenses in respect of the property from the settlement date to the settlement of such resale.
…
[14] ALV paid the deposit. By letter dated 22 December, its solicitors notified East Developments that the finance condition was satisfied and that ALV was satisfied with its due diligence inquiries.
[15] It is beyond dispute that at such point the agreement became unconditional. But on 21 April 2017, ALV failed to tender the purchase price.
[16] On 24 April 2017, via fax, the solicitors for East Developments served a settlement notice on ALV, requiring settlement of the sale and purchase agreement within 12 working days.
[17] On 31 May 2017, again via fax, East Developments’ solicitors gave notice cancelling the agreement due to ALV breaching its obligation to settle the agreement in accordance with the settlement notice. East Developments then erroneously filed its statement of claim and application for summary judgment, on 6 June 2017, seeking specific performance of the agreement. Mr Parmenter, counsel for East Developments, who filed the application, says the error was due to a communication breakdown between himself and the instructing solicitor.
[18] East Developments subsequently entered into an agency agreement with Barfoot and Thompson Limited (Barfoots) on 4 August 2017 to market and resell the property.
[19] As part of Barfoots’ attempt to resell the following marketing activities were undertaken:
(a)Advertising in Property Hotline (a Chinese language property newspaper) weekly during the campaign;
(b)Advertising on Freeview TV 28 (a Chinese television station) twice per week during the campaign;
(c)Advertising on 936 AM (a Chinese language radio station) twice per week during the campaign;
(d)Advertising on the Chinese social media platform Wechat;
(e)Distributing flyers within the Howick area;
(f)Advertising on the Barfoots’ database and website;
(g)Advertising on Trademe;
(h)Holding open homes, twice per week during the campaign.
[20] An auction was held by Barfoots on 29 August 2017. The reserve price had been set at $2.07 million. No bids were placed at the auction though three inquiries had been made.
[21] Subsequently, on 19 February 2018, East Development tried a new agent, Ray White Real Estate Ltd (Ray White). A sole agency agreement was entered into.
[22] Around the same time, Barfoots located anther potential buyer, Mother Floors Limited. East Development requested that Ray White convert the sole agency agreement into a general agency agreement so that East Development would be in a better position to sell the property. This was agreed to.
[23] On 21 February 2018, East Development agreed to sell the land to Mother Floors, upon the following terms:
(a)A price of $1.9 million (plus GST);
(b)A condition that the purchaser be satisfied with their due diligence inquiry; and
(c)A settlement date of 27 April 2018.
[24] On, or about, 18 March 2018, Barfoot referred East Development to further prospective purchasers, the trustees of the Zainal Family Trust (Zainal), who made an unconditional offer of $1.9 million (inclusive of GST). Zainal deleted the due diligence clause (making the offer unconditional); and proposed a settlement date of 8 May 2018.
[25] East Developments does not appear to have engaged with the offer, as is apparent from its not inserting its GST status and registration number on the front page.
[26] On 19 March 2018, East Developments came under pressure from Mother Floors, prior to its agreement becoming unconditional, to lower the purchase price to $1.8 million (plus GST) in consideration of Mother Floors waiving the due diligence condition. This was agreed to. The date of settlement was also extended to 12 July 2018.
[27] The agreement with Mother Floors became unconditional and East Developments filed its amended statement of claim, together with this application for summary judgment and leave on 1 June 2018.
Submissions
[28] It is worthwhile to set out the arguments of counsel to provide some additional context for both the leave and summary judgment applications.
[29] Counsel for ALV, Mr Bassett, in his written submissions focuses, first and foremost, on an alleged breach of duty by East Developments to mitigate its losses on a resale through the auction process.
[30] Mr Bassett also submits that East Developments failed in its duty to mitigate its losses in respect of its post-auction attempts at resale.
[31] But in oral submissions made before me, Mr Bassett raises a new argument to the effect of querying whether the Zainal offer was in fact zero-rated for GST. In order for the offer to be zero-rated, the following must apply:
(a)Both sides needed to be registered for GST;
(b)Zainal had to intend to use the property for making taxable supplies; and
(c)Zainal had to not intend to use the property as a principal place of residence for the recipient or a relative.
[32] In handwritten submissions, passed up to me at the hearing, Mr Parmenter makes a submission surrounding the GST components of the different sale and purchase agreements, and whether a sale to Zainal would be zero-rated. I had some difficulties deciphering these submissions and on 1 November 2018, I issued a minute to the parties, requesting Mr Parmenter provide clarification.
[33] In supplementary submissions he argues that the Zainal offer was not contemporaneous with the Mother Floors’ offer, as the “forced reduction in purchase price [of the Mother Floors’ agreement] by $100,000 did not occur until well after Zainal’s offer had been put on the table…” and rejected. He further argues that as the Zainal offer was stated to be GST-inclusive, and the due diligence clause in it had been crossed out, the only inference that could be drawn was that Zainal was not going to develop the property and the agreement would not therefore have been a zero- rated transaction.
Application for leave
[34] Before considering the summary judgment application, I must first determine whether a second application for summary judgment is permitted by the Rules, and provided it is, whether leave should be granted for East Developments to bring such an application.
Is there jurisdiction for a second application for summary judgment?
[35] Mr Bassett submits that there is no jurisdiction for the Court to entertain a second summary judgment application, because r 12.4(2) simply allows “an application” which is said to permit only a single application on the plaintiff’s
statement of claim. He cited the decisions of Master Venning in Braid Motors Ltd v Scott,8 and Wild J in Air New Zealand v Wellington International Airport in support.9
[36] I do not accept the submission. I repeat what I said in Yingling v Gifford, that I am unconvinced by the previous High Court authorities that have held there is no jurisdiction for a second summary judgment application to be brought in respect of the same proceeding, and that there are good reasons why such jurisdiction should exist, for example:10
(a)The basis for the previous holdings that a second summary judgment application could not be brought was the use of the singular tense of “an application” in r 12.4(2), and its predecessors.
(b)None of the judgments cited considered the effect of r 7.52, or its predecessors.
[37] Plainly r 12.4(2) is not intended to encourage repeat applications, but I do not consider that the purpose of the rule is to prohibit a second summary judgment application from being brought, irrespective of the circumstances. The real purpose of the rule is to ensure that (whether or not it is the first), an application – made later than the filing of the statement of claim – is truly deserving of determination.
[38] Further, I find – on the basis that summary judgment is a species of interlocutory application – that r 7.52 clearly grants the Court jurisdiction to entertain a second summary judgment application that seeks a similar order, provided there are special circumstances.
[39] In this case, there are special circumstances in that the first summary judgment application was clearly made prematurely – after the right to seek specific performance had been extinguished, but before the right to claim damages had crystallised – and it was not served. Further, the defendant was not required to take any steps before it was
8 Braid Motors Ltd v Scott (2001) 15 PRNZ 508 at [53] – [54].
9 Air New Zealand Ltd v Wellington International Airport Ltd HC Wellington CIV-2007-485-1765, 18 November 2008 at [86] – [88].
10 Yingling v Gifford [2018] NZHC 53.
withdrawn. It is difficult in these circumstances to see how the defendant suffered from the delayed filing of the second summary judgment application, or that it suffered any other form of injustice as a result of a second application being brought.
[40] That said, however, East Developments would still need to satisfy the Court that the merits of the second summary judgment application (i.e. the plaintiff’s case for damages) are so obviously strong as to deserve determination by way of summary judgment, at a time later than ordinarily prescribed by r 12.4(2).11
The merits - GST
[41] Clause 11.4(3) required East Developments to act bona fide when reselling the property. The Court of Appeal in Sullivan v Darkin held that a vendor suing under a standard form contract, where it is obliged to affect a bona fide resale, is subject to the common law duty to mitigate its loss.12 Davison CJ considered that “The law in such circumstances requires no more than that the vendor should act reasonably in the circumstances and offer the land for resale at a proper price having regard to the state of the market…”13
[42] I am not convinced that East Developments could satisfy me on a summary judgment application that it has acted reasonably in mitigating its losses and effecting a bona fide resale, such that ALV has no defence to its cause of action. While I am not overly convinced by a lot that is said in the submissions for ALV, I am not satisfied the Zainal agreement would certainly not have been zero-rated for GST. The question of whether it was zero-rated for GST remains an unanswered question on the evidence, and I consider it would be unsafe, on the evidence as it presently stands, to take the inference that Mr Parmenter invites.
[43]It will be prudent to recall that the original agreement with ALV was
$1.96 million (plus GST if any), that the agreement with Mother Floors was ultimately
$1.8 million (plus GST) and the draft offer from the Zainal Family Trust was
$1.9 million (inclusive of GST).
11 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564.
12 Sullivan v Darkin [1986] 1 NZLR 214 (CA).
13 At 219.
[44] As the Mother Floors agreement was plus GST, regardless as to whether a GST component had to be paid, Mother Floors would be required to include such an amount in the settlement price, and East Developments would still retain net proceeds from sale of $1.8 million. Similarly, with the original agreement with ALV, the net proceeds of sale would be $1.96 million regardless as to whether GST was required to be paid.
[45] In contrast, if the Zainal Family Trust agreement was to include a GST component it would be a far less attractive offer for East Developments, as it would reduce the net proceeds of sale by approximately $248,000, resulting in net proceeds of $1.652 million. However, if the sale was zero-rated for GST, then the amount of GST payable on the sale would be set to 0% and East Developments would therefore receive net proceeds from sale of $1.9 million.
[46] Though East Developments had already entered into an agreement with Mother Floors at the time the offer from the Zainal Family Trust was put to them, the fact of the matter is that Mother Floors made moves to reduce the sale price by
$100,000, the day after (or thereabouts) the Zainal offer was made.
[47] Provided that the Zainal agreement was to be zero-rated for GST, East Developments would have therefore been in a position to refuse Mother Floors’ attempts at renegotiation and hold them to that price, or cancel the contract and enter into the agreement with the Zainal Family Trust on even better terms (considering the earlier settlement date).
[48] Mr Parmenter pointed to the deletion from the Zainal draft agreement of the due diligence clause, which removed the purchaser’s right to refuse to complete the agreement if it was not satisfied with its due diligence inquiries. Central to his argument was that the only inference to be drawn from all of this is that Zainal had no intention of developing the property and therefore no intention of using the property to make taxable supplies. As a result, the agreement would have not been zero-rated for GST.
[49] Such an inference is not the only one that can be drawn, nor is it necessarily even the strongest inference. I agree with counsel for ALV that Zainal might have
removed that clause in order to make the agreement appear more attractive to East Developments, as it would effectively make the agreement unconditional.
[50] Summary judgment is an inappropriate forum in which to determine the intention to be imputed to Zainal in deleting that clause. Such matters are best left for trial.
[51] I also agree with ALV, that considering the contemporaneity of the Zainal agreement and the Mother Floors renegotiation, East Developments was arguably obliged to take steps to satisfy itself as to the GST status of the agreement with Zainal, in order to meet its duty to effect a bona fide resale. As Mr Bassett contends, and I agree, such an obligation was far from onerous. All East Developments would have needed to do was insert their own GST registration details onto the front page of the agreement. That might trigger the obligation of Zainal to complete Schedule 1 of the agreement, which would have clarified whether the agreement would be zero-rated for GST or not.
[52] East Developments has not done this. In fact, on the limited evidence before me, East Developments does not appear to have engaged with the Zainal offer in any real capacity.
[53] As a result, I am far from satisfied that there is prima facie merit to the applicant’s case that were leave to be granted, it would likely be shown that ALV has no defence to the claim made by East Developments.
Conclusion
[54] Leave is denied to East Developments to bring a second summary judgment application. While I am satisfied that there are special circumstances justifying a second interlocutory application being made under r 7.52, East Developments has failed to satisfy me that the merits of its application are so strong that it should be granted leave to bring an application at a later time than ordinarily prescribed by r 12.4(2).
[55] As leave is denied, I need not consider any further the merits of the applicant’s summary judgment application.
[56] Though, I consider that leave should not be granted because, prima facie, ALV has an arguable defence to East Developments’ claim, which can only properly be scrutinised by a Court at trial, that does not mean I consider East Developments’ claim must be baseless. On the contrary, there has been a clear breach of contract, and undoubtedly some losses will have flowed from that. But whether they are recoverable is a case for trial.
[57] In accordance with the Court of Appeal’s decision in NZI v Philpott costs are reserved.14
[58]The Registrar is asked to allocate an initial case management conference.
Associate Judge Sargisson
14 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).