Fanshawe 136 Ltd v Fanshawe Capital Ltd
[2013] NZHC 3395
•16 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-004179 [2013] NZHC 3395
BETWEEN FANSHAWE 136 LIMITED First Plaintiff
AND136 FANSHAWE LIMITED Second Plaintiff
ANDFANSHAWE CAPITAL LIMITED First Defendant
ANDWILSON PARKING NEW ZEALAND LIMITED
Second Defendant
Hearing: 2, 3, 4, 5 December 2013
Appearances: W McCartney for Plaintiffs
No appearance for First Defendant
J Long and D Valente for Second Defendant
Judgment: 16 December 2013
JUDGMENT OF KATZ J
This judgment was delivered by me on 16 December 2013 at 4:30 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: D Miller, Brookfields, Auckland
Glaister Ennor, Auckland
Lee Salmon Long, Auckland
Counsel: W McCartney, Auckland
FANSHAWE 136 LIMITED v WILSON PARKING NEW ZEALAND LIMITED [2013] NZHC 3395 [16 December 2013]
Table of Contents
Para No
Introduction ..........................................................................................................[1] Further factual background ................................................................................[8] Wilson’s lease [8] The first waiver letter [9] The sale and buy back arrangements with Capital [17] The second waiver letter [18] Wilson’s knowledge of the Buy Back Agreement [21] Events following the sale of the Property to Capital [21] Wilson becomes interested in purchasing the Property [22] Meeting between Mr Evans and Mr Parrant in July 2013 [31] Meeting between Mr Evans and Mr Haghi on 23 July 2013 [36] Wilson exercises its right of first refusal [40] Events in August 2013 [43] Proceedings are issued [46] Equitable estoppel ..............................................................................................[49] Elements of equitable estoppel [50] Do the plaintiffs have standing to bring a claim in estoppel? [52] Meaning of the representation [65] Have the plaintiffs relied on the Waiver Letter, to their detriment? [73] Unconscionability [79] Conclusion on estoppel cause of action [91]
Do either (or both) of the plaintiffs have an equitable interest in the Property pursuant to the Buy Back Agreement?.............................................................[94]
Fanshawe 136’s interest in the Property [94]
136 Fanshawe’s interest in the Property [98] Does Wilson have an equitable interest in the Property that precedes the Buy Back Agreement of 10 September 2012? ........................................................[103]
Wilson’s right of first refusal [103] When will a right of first refusal give rise to an interest in land? [109] Has Wilson’s right of first refusal been triggered? [114]
Does Wilson have an equitable interest in the Property arising out of its acceptance of Capital’s offer on 29 July 2013?..............................................[128] Summary ...........................................................................................................[131] Result .................................................................................................................[135]
Introduction
[1] These proceedings concern a commercial property at 136 Fanshawe Street, Auckland (“Property”). The first defendant, Fanshawe Capital Limited (“Capital”) is the legal owner of the Property. Both the plaintiffs and the second defendant, Wilson Parking New Zealand Limited (“Wilson”) claim to have entered into legally enforceable agreements to purchase the Property.
[2] The Property was originally owned by Viaduct Limited (“Viaduct”), a company owned and controlled by Mr Mohsen Haghi. Mr Haghi intended to develop the Property to include a hotel/apartment complex, parking facilities and other commercial and retail space. He engaged planners, architects and other consultants and, in 2008, obtained resource consent. With the advent of the global financial crisis, however, Mr Haghi and his various related entities ran into serious financial difficulties.
[3] Under mounting pressure from his creditors, Mr Haghi negotiated an arrangement to sell the Property to a finance company, ASAP Finance Limited (“ASAP”), in what he described as a “warehousing” arrangement. ASAP was willing to purchase the Property for $10 million (significantly less than its market valuation of $15.5 million). Viaduct (or a related entity) would then repurchase the Property a year later for the original sale price, plus a margin to cover ASAP’s costs and profit. It was necessary to structure the transaction in this way because Viaduct could not afford the $750,000 upfront fee required by ASAP for a straight loan.
[4] Wilson operates a car park on the Property. Its lease included a right of first refusal in the event that Viaduct wished to sell the Property. Before selling the Property to Capital (a company related to ASAP), Mr Haghi obtained a waiver of Wilson’s right of first refusal. Agreements for sale and purchase were then executed in relation to both the sale and the proposed buy back. The buy back agreement was conditional, however, on Wilson first waiving its right of refusal in relation to that limb of the transaction.
[5] After the sale to Capital had settled, Mr Haghi sought a further waiver of Wilson’s right of first refusal, to permit “Mr Haghi or a related party” to repurchase the Property. On 20 September 2012 Wilson provided a letter to Mr Haghi’s agent (“Waiver Letter”) in the following terms:
Further to our letter to you dated 21 August 2012 [the waiver letter for the sale to Capital] we confirm that if Mr Haghi or a related party were to repurchase the property at 136-142 Fanshawe Street, Wilson Parking would waive our right of first refusal to purchase the property, subject to the clause remaining in effect for any further sales of the property.
[6] Wilson was not interested in purchasing the Property at that time. However, some months later its position changed. Wilson’s international shareholders relaxed their criteria as to the type of properties Wilson could invest in. Wilson’s interest in buying the Property escalated in early July 2013, when Wilson discovered that the purchase price it would have to match was significantly below market value (reflecting the genesis of the transaction as a financing arrangement). Internally, Wilson described “the opportunity to acquire this property at this heavily discounted price” as “very exciting”. It decided to exercise its right of first refusal, despite having previously given the Waiver Letter.
[7] Against this background, the key issues I must determine are:
(a) In light of the Waiver Letter, is Wilson estopped from asserting an interest in the Property in priority to that of the plaintiffs, or denying that it has waived its right of first refusal in relation to the plaintiffs’ proposed purchase of the Property?
(b) Do either (or both) of the plaintiffs have an equitable interest in the
Property and, if so, when did that (or those) interest(s) arise?
(c) Does Wilson have an equitable interest in the Property and, if so, when did that interest arise? Whose interest(s) should prevail?
(d) What (if anything) is the appropriate remedy for the successful party?
Further factual background
Wilson’s lease
[8] The lease between Wilson and Viaduct was entered into in June 2011, for a six year term. It included a right of first refusal in Wilson’s favour (set out in full at [107] below) in the event that Viaduct wished to sell the Property.
The first waiver letter
[9] Once the financing arrangements with ASAP had been worked out in principle, Mr Haghi asked his business adviser and agent, Mr Lloyd Parrant, to meet with Mr Steve Evans, the Chief Executive Officer of Wilson, regarding Wilson’s right of first refusal.
[10] Mr Parrant met with Mr Evans on or about 20 August 2012. He told Mr Evans that Mr Haghi was facing financial difficulties and was going to need to refinance three properties, including 136 Fanshawe Street. He requested that Wilson waive its right of first refusal to enable the Property to be sold to a finance company. On 21 August 2012 Wilson provided the requested waiver, subject to its right of first refusal remaining in effect for the new owner.
[11] Obviously, with the benefit of hindsight, it would have been prudent for Mr Parrant (on behalf of Mr Haghi) to seek a waiver in relation to both limbs of the transaction prior to the sale of the Property to ASAP/Capital. Mr Parrant’s evidence was that he did not do so as the immediately pressing issue was the sale to ASAP, in order to raise the necessary funds to pay Mr Haghi’s major creditor, the ANZ Bank. The final details of the buy back arrangement were yet to be finalised, including in particular which entity would be the buy back vehicle. Mr Parrant therefore decided, apparently without first discussing the issue with Mr Haghi or his solicitor, Mr Carson, to approach the waiver issue in two stages.
The sale and buy back arrangements with Capital
[12] Immediately after receipt of the 21 August 2012 waiver letter, Viaduct and
ASAP executed two agreements:
(a) a sale agreement pursuant to which Viaduct agreed to sell the Property to ASAP for $10 million; and
(b)a buy back agreement pursuant to which ASAP agreed to sell the Property back to Viaduct (or its nominee) for $11,330,000, to settle on or before 13 September 2013.
[13] The buy back price was calculated based on the original $10 million purchase price, less the rental that ASAP would receive over the course of the year, plus ASAP’s interest costs and a fee of $1 million. This resulted in the final buy back price of $11,333,000.
[14] Subsequently, on 10 September 2012, Viaduct and ASAP entered into a new buy back agreement (“Buy Back Agreement”).1 Capital, a company related to ASAP, would own the property instead of ASAP, and become the vendor under the Buy Back Agreement. Fanshawe 136 Limited (“Fanshawe 136”), a company owned and controlled by Mr Haghi, would be the purchaser. The settlement date was agreed to be 13 September 2013. Clause 18.1 of the Buy Back Agreement provided:
This agreement is conditional upon Wilson Parking New Zealand Limited (The Lessee under Deed of Lease dated 1 June 2011) waiving their rights under “Rights of First Refusal” (Clause 10.9) in the Deed of Lease.
[15] Settlement of the sale of the Property to Capital took place later that day.
[16] Subsequently, on 5 October 2012, Fanshawe 136 nominated 136 Fanshawe Limited (“136 Fanshawe”) as purchaser under the Buy Back Agreement. The director of 136 Fanshawe is Mr Haghi’s sister, Fatemeh Haghi. The shares are held on trust for Mr Haghi and his children.
The second waiver letter
[17] Meanwhile, on or about 20 September 2012, Mr Parrant met again with Mr Evans. This time he sought a waiver in relation to the second limb of the transaction, to enable a “repurchase” of the Property by Mr Haghi or a related party. Mr Parrant provided Mr Evans with a suggested draft waiver letter. Mr Evans made a few minor changes to that draft and then had a signed copy of the Waiver Letter
delivered to Mr Parrant. The full text is set out at [5] above.
1 The buy back price was increased slightly to $11,483,000 as Capital had become aware by this time of some additional costs that had not been factored into its original calculations.
Wilson’s knowledge of the Buy Back Agreement
[18] Mr Evans’ evidence at trial was that he did not know of the existence of the Buy Back Agreement. Mr Haghi, on the other hand, believed he had informed Mr Evans that a specific buy back arrangement had been agreed with “the finance company” (as he had informed other tenants). His recollection was, however, somewhat unclear. The key conversations with Wilson (as opposed to other tenants) were primarily undertaken by Mr Parrant. Mr Parrant accepted that he did not specifically mention the Buy Back Agreement.
[19] Accordingly, on the balance of probabilities, I conclude that Wilson was not specifically aware of the existence of the Buy Back Agreement when Mr Evans signed the Waiver Letter. Mr Evans was, however, aware that the Property was being sold to a financier due to Mr Haghi’s financial difficulties. He was also aware that Mr Haghi intended to repurchase the Property once he had sorted out his financial difficulties (although Mr Evans had some doubts as to his ability to do this).
[20] In my view nothing turns on whether Wilson specifically knew of the Buy Back Agreement or not. Wilson set out in the Waiver Letter the type of transaction which it considered to be unobjectionable (a sale to Mr Haghi or a related party). The Buy Back Agreement either meets those criteria, or it does not.
Events following the sale of the Property to Capital
[21] Following the sale of the Property to Capital:
(a) Mr Haghi and the plaintiffs pursued plans for redevelopment of the Property, albeit at a fairly modest pace, and incurred costs in relation to that work.
(b)Mr Evans was aware of at least some of the work that was being undertaken, as he continued to discuss and review the development plans for the Property with Mr Haghi and Mr Parrant on a regular basis. Mr Evans was provided with or shown various documents including
architects’ plans, a “development summary” and a valuation of the Property prepared by Darroch (which valued the Property at $15.5 million).
(c) Mr Evans entered into negotiations with Mr Haghi regarding Wilson’s interest in leasing or managing the car parking facilities in the proposed new development, culminating in a “letter of intent” from Wilson dated
8 March 2013 outlining, in some detail, Wilson’s proposals regarding its involvement in leasing and/or managing the car parking facilities in the proposed new development.
(d)Mr Evans was aware by March 2013 that the entity Mr Haghi intended to use as the buy back vehicle was 136 Fanshawe, as Wilson’s letter of intent was addressed to Mr Haghi and that entity, at Mr Haghi’s request.2
(e) Mr Evans clearly dealt with Mr Haghi on the basis that he had some form of ongoing proprietary interest in the Property and was not simply a former owner of the Property. This was reflected in internal Wilson documents including an email in which Mr Evans referred to Mr Parrant (Mr Haghi’s representative) as “the owner’s representative”.
Wilson becomes interested in purchasing the Property
[22] Wilson is a private company. Mr Evan’s evidence was that, at the time that Wilson provided the Waiver Letter in September 2012, Wilson was not interested in purchasing the Property. Company policy at that time was only to invest in “bare” car parking assets (buildings that were exclusively car parking buildings). However, after a number of failed attempts to acquire suitable car parking properties, Wilson’s international shareholders became increasingly frustrated at the lack of progress. As a result, by about May 2013, they began to relax their property purchasing criteria. They were now willing to consider the purchase of properties suitable for larger
developments that would include some car parking facilities and were not simply
2 I find nothing of significance in the mis-stating of the company’s name in the letter of intent as
“136 Fnshawe Street Limited” rather than “136 Fanshawe Limited”.
“bare” car parking assets. As a result of this change in policy, Wilson’s interest in
the Property increased from about May 2013 onwards.
[23] On 27 June 2013 Wilson’s solicitors conducted a title search of the Property and discovered that a caveat had been lodged by 136 Fanshawe, pursuant to its rights under the Buy Back Agreement. This prompted an email from Mr Court (of Wilson) to Mr Adarsh Patel (of Capital) on 4 July 2013. That email attached a letter dated 28
June 2013, signed by Mr Court, which referred to the caveat lodged by 136
Fanshawe and stated that:
I don’t have any recollection of this proposed sale. We do not have anything to hand showing that Wilson was offered the property under our first right of refusal. Could you let me know why Wilson was not offered the property before an agreement was signed with 136 Fanshawe Limited?
[24] The following Monday, 8 July 2013, Capital advised Mr Haghi that it intended to offer the property to Wilson pursuant to its right of first refusal. Mr Carson (Mr Haghi/Fanshawe 136’s solicitor) emailed Capital (Mr Patel) that afternoon advising that:
Wilson (Steve Evans, CEO) consented to the buy-back transaction in September of last year. I am advised this was discussed with him last Thursday and he confirmed that he had no issue with it. No action is required on your part, nor should any be taken.
[25] Despite the plaintiffs’ objections, the following morning (9 July 2013) Capital wrote to Wilson, setting out the key terms of the Buy Back Agreement and offering to sell the Property to Wilson on the same terms. The letter noted that the Buy Back Agreement was subject to Wilson waiving its right of first refusal and concluded that:
Independent of the above notice we are advised by the solicitor for [Fanshawe 136] that his client (Mosen Haghi) had had a discussion with Steve Evans (CEO – Wilson) whereby Mr Evans has agreed to waiver the ROFR [right of first refusal]. We are not privy to this discussion or agreement and will require Wilson to write back to us formally waiving its ROFR.
[26] On receipt of this letter Wilson discovered, for the first time, that the purchase price was only $11,483,000, significantly lower than the Darroch valuation of $15.5 million that had been provided to Wilson (Mr Evans) by
Mr Parrant in May 2013, in the course of discussions regarding Mr Haghi’s ongoing development plans for the Property. Mr Evans immediately emailed his superior in Perth, Mr Koch (the Vice Chairman and Executive Director of Wilson). He enclosed a copy of the offer letter from Capital and commented that:
The opportunity to acquire this property at this heavily discounted price is very exciting. There will almost certainly be some issues along the way as Mosen Haghi will not want to lose the site as our ROFR seems to have priority.
Can we please discuss at your earliest convenience as we are keen to say yes.
[27] Mr Koch responded on 10 July 2012 stating:
The letter from Fanshawe Capital Limited (final para) says that you have agreed to waive the ROFR with the buyer.
What does this mean and what impact does it have on our ROFR? How vanilla is this transaction?
[28] Mr Evans responded to Mr Koch, also on 10 July 2013, as follows:
I have not had the discussion with Mosen the letter refers to. That said, we agreed last year to set aside our right of first refusal when Mosen sold to Fanshawe Capital and to allow Mosen to repurchase the property. Other than that, right of first refusal prevails.
Mosen’s put option expires on 14 September and he has no capacity to buy it
back without financial backing.
We believe the offer from Fanshawe Capital is to try and force us to waive our right so they can offer it to others. The property is being pursued by Mansons, the TP boys and several others – all waiting for Mosen to tip over or the 15th of September to roll around.
[29] Mr Evans’ team then developed a formal purchase proposal/internal presentation regarding the Property, recommending that Wilson exercise its right of first refusal. That presentation referred several times to the lack of capital gains tax in New Zealand, observing for example, that:
Wilson can purchase for $11.483m today and sell tomorrow for $14.5m – no capital gains tax or stamp duty in New Zealand.
[30] An internal Wilson email from Mr Koch to Mr Miller and Mr Evans similarly noted that:
Obviously, given NZ has no transaction costs or capital gains tax does allow us to “flip” the property...Steve Evans will copy us the Darrochs valuation (valuation was NZ$15.5million) as well as he has sighted the offer from the Chinese buyer who was willing to offer NZ$15million for the site.
Meeting between Mr Evans and Mr Parrant in July 2013
[31] Meanwhile Mr Haghi, unaware of these developments, was puzzled by Wilson’s delay in formally confirming to Capital that it had waived its right of first refusal. He thought that there had possibly been an internal misunderstanding within Wilson, as Wilson’s 28 June 2013 letter to Capital had been signed by Mr Court (Wilson’s Development Manager) rather than Mr Evans. Mr Haghi thought that Mr Court might not be aware that Mr Evans had provided a waiver in relation to the buy back, the previous year. Mr Haghi, together with his lawyer Mr Carson, therefore asked Mr Parrant to meet with Mr Evans to ensure that there was no misunderstanding and that he did indeed recall giving the Waiver Letter.
[32] What happened at the subsequent meeting between Mr Parrant and Mr Evans, and what Mr Parrant subsequently reported back to Mr Haghi and Mr Carson, were matters of some dispute at trial. In my view all four witnesses on these issues (Messrs Parrant, Evans, Haghi and Carson) were honest and gave evidence to the best of their recollection. However, in my view, Mr Parrant in particular was mistaken on a couple of aspects of his recollection. I have carefully reviewed the evidence of the relevant witnesses against the contemporaneous documents (which make clear what was occurring internally within Wilson at the time.) Against that background, I have concluded that what most likely occurred at the meeting between Mr Evans and Mr Parrant (and following) is as follows.
[33] Mr Parrant asked Mr Evans if he had received Capital’s offer to sell the Property to Wilson and he confirmed that he had. Mr Parrant also asked Mr Evans whether he remembered providing the Waiver Letter in September 2012. Mr Evans, in what was no doubt a very carefully worded response, confirmed that he did recall the letter. There was no discussion as to exactly what the letter meant, as Mr Parrant
did not realise that there was any issue regarding that, or that Wilson may be intending to assert that the letter was not binding.
[34] Mr Parrant (erroneously) took Mr Evans’ statement that he could recall giving the Waiver Letter as, in effect, an acknowledgement that Wilson would waive its first right of refusal. He most likely assumed that Mr Evans would now correct any internal misunderstanding within Wilson (on the part of Mr Court) and confirm to Capital that Wilson had indeed waived its rights.
[35] Mr Parrant then reported back to Mr Haghi and Mr Carson. He said that Mr Evans had received the Capital offer, but recalled giving the Waiver Letter. Mr Parrant informed Mr Haghi and Mr Carson that Wilson would now contact Capital (Mr Patel) to confirm that Wilson waived its right of first refusal. Mr Carson’s clear recollection (which differed from Mr Parrants’) was that Mr Parrant reported back something along the lines of “No problem, all sorted, [Mr Evans] will contact [Mr Patel] to confirm”. I found Mr Carson’s evidence on this issue to be both credible and reliable. It was corroborated by Mr Haghi’s recollection, which was to similar effect.
Meeting between Mr Evans and Mr Haghi on 23 July 2013
[36] Following the meeting between Mr Parrant and Mr Evans, Mr Haghi believed that Mr Evans would now confirm Wilson’s waiver to Mr Patel of Capital. When Mr Evans did not do so, Mr Haghi decided to go and see him personally. He thought that maybe Mr Evans did not realise that 136 Fanshawe was a company associated with him.
[37] Mr Haghi met with Mr Evans on 23 July 2013 and showed him a copy of the company registration for 136 Fanshawe. Mr Evans asked if Fatemeh Haghi was his sister. Mr Haghi confirmed that she was. Mr Haghi’s evidence was that Mr Evans “appeared satisfied with what I told him”.
[38] Mr Haghi also took to the meeting a draft letter of “confirmation” which he wanted Mr Evans to sign so that he could provide it to Capital. Mr Evans said that he would take the letter to Wilson’s lawyers and that he would come back to
Mr Haghi that afternoon. Mr Evans gave no indication that Wilson would deny that it had given a waiver, or would assert that the Waiver Letter was not legally binding.
[39] Mr Evans did not revert to Mr Haghi that afternoon. Nor did he respond to a number of texts from Mr Haghi. Indeed he did not reply to Mr Haghi until 6 August
2013, when he informed Mr Haghi that everything would now have to go through the lawyers.
Wilson exercises its right of first refusal
[40] By late July 2013 Mr Evans had secured the internal approvals necessary for Wilson to proceed to purchase the Property. Accordingly, on 29 July 2013, Mr Evans wrote to Capital (Mr Patel) exercising Wilson’s right of first refusal on the terms offered (which were the same as those in the Buy Back Agreement).
[41] The following day Mr Koch emailed various people within the Wilson Group, including Mr Evans, noting that the purchase price was NZ$11.483 million and the current valuation/market price was NZ$14.5 million to NZ$15.5 million and that:
RK [Raymond Kwok] approval to purchase subject property has been gained. RK also prefers our suggestion to HOLD subject property rather than flip it for circa 30% capital return.
Well done to Steve [Mr Evans] & team!
The deal may still have some interesting twists.
[42] A follow up internal Wilson email from Mr Tony Miller to Mr Evans, copied
to Mr Koch, congratulated Mr Evans on his “fine piece of fly fishing!”
Events in August 2013
[43] Mr Koch’s observation that the deal may yet have some “interesting twists” proved to be prophetic. On 2 August 2013 Mr Carson (on behalf of 136 Fanshawe) wrote to Capital’s solicitors calling for settlement in terms of the Buy Back Agreement. On the same date the solicitors for Capital wrote to Mr Carson advising that Wilson had exercised its right of pre-emption and that the condition in the Buy
Back Agreement that Wilson waive its right of first refusal had accordingly not been
satisfied “and the Agreement is therefore at an end”.
[44] Although Capital had previously been advised that Wilson had agreed to waive its right of first refusal, it had not been provided with a copy of the Waiver Letter. In light of Wilson’s purported acceptance of Capital’s offer, a copy of this was now provided to Capital. On receipt of that letter, Capital’s solicitors reversed their position and wrote to Wilson’s lawyers advising that, in light of the Waiver Letter, Capital now proposed to complete the Buy Back Agreement with
136 Fanshawe. In subsequent correspondence Capital’s solicitors described the Waiver Letter as “quite unequivocal” and stated that although it was not the original recipient of the letter, our client “is entitled to rely on it as evidence”.
[45] Following further dialogue with the parties, Capital subsequently changed its position yet again, on 9 August 2013. It decided to settle with Wilson, on the basis that it had not received any communication directly from Wilson confirming that it had waived its first right of refusal. Capital’s solicitors nevertheless described Wilson’s actions as “opportunistic and of no substance”.
Proceedings are issued
[46] The plaintiffs commenced these proceedings on 10 September 2013, including causes of action against both Capital and Wilson. Wilson filed a counterclaim. Ultimately Capital entered into arrangements with both Wilson and the plaintiffs, pursuant to which it has agreed to abide the decision of the Court.
[47] The plaintiffs’ first two causes of action are in the alternative, and are against Capital. They seek specific performance for breach of contract. Its third and fourth causes of action are against Wilson and assert that the plaintiffs have equitable interests in the Property in priority to any equitable interest Wilson may have. The plaintiffs’ fifth cause of action is an estoppel claim against Wilson. Wilson counterclaims that its equitable interest in the Property takes priority over whatever equitable interests the plaintiffs may have in the Property.
[48] Although the estoppel cause of action was argued in the alternative, the issues it raises impact on the determination of the parties’ respective equitable interests in the Property. I will therefore address the estoppel cause of action first, before turning to consider the parties’ respective claims to an equitable interest in the Property.
Equitable estoppel
[49] New Zealand Courts now recognise a unified doctrine of equitable estoppel. The underlying principle is that a party will not be permitted to deny any assumption, belief or expectation that it has allowed another to rely on, where such a denial would be unconscionable.3 The Court will prevent a party from going back on their word (whether express or implied) when it would be unconscionable to do so.4 Estoppel may be used to modify or restrict the way in which contractual rights may be exercised.5
Elements of equitable estoppel
[50] In order to establish a claim in estoppel, the plaintiffs must show that:6
(a) A belief or expectation has been created or encouraged through some action, representation or omission to act by Wilson.
(b) The belief or expectation has been reasonably relied on by the plaintiffs. (c) Detriment will be suffered if the belief or expectation is departed from.
(d) It would be unconscionable for Wilson to depart from the belief or
expectation.
3 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA)
at 549 per Tipping J.
4 Ibid.
5 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at
604.
6 Burberry Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA)
at 361 per Richardson J and 359 per Cooke P; Gold Star Insurance Co Ltd v Gaunt [1998]
3 NZLR 80 (CA) at 86; Welch v Fraser HC Hamilton CIV-2003-419-491, 9 September 2003 at
[22].
[51] Given that the conduct relied on is an express representation, the plaintiffs must also establish that the representation was given by Wilson or its agent; that it related to past or present fact, future intention, or law; and that the representation was clear and unequivocal.
Do the plaintiffs have standing to bring a claim in estoppel?
[52] Wilson submitted, as a preliminary issue, that the plaintiffs have no standing to bring a cause of action in estoppel, because neither plaintiff was a party to any representations set out in the Waiver Letter.
[53] The Waiver Letter was provided to Mr Parrant, as agent for Mr Haghi.
Wilson’s position was that when the Waiver Letter was provided to Mr Parrant on
20 September 2012, it was unaware of the existence of Fanshawe 136 or its status as purchaser under the Buy Back Agreement. Therefore Mr Evans cannot have intended any representation to affect rights as between Wilson and Fanshawe 136.
136 Fanshawe had not yet been incorporated. Wilson therefore says that the plaintiffs cannot be representees of the statements made in the Waiver Letter.
[54] In Estoppel by Conduct and Election7 the author recognises four main categories of representees:
(a) a person to whom the representation was made directly; (b) a principal, employer, partner or trustee of a representee;8
(c) a person whom the representor intended or contemplated would be
reached and influenced by the representation and who was reached;9 and
(d)a member of the public or a class who received a representation addressed to the public or that class.10
7 Kenneth Handley Estoppel by Conduct and Election (Sweet & Maxwell, London, 2006) at
[6-001].
8 Burkinshaw v Nicolls (1878) 3 App Cas 1004 (HL); Simm v Anglo-American Telegraph Co
(1879) 5 QBD 188 (CA).
9 Martyn v Gray (1863) 14 CBNS 824; Knights v Wiffen (1870) LR 5 QB 660.
10 Goode & Bennion v Harrison (1821) 5 B & Ald 147 at 157.
[55] The authors of Estoppel by Representation make similar observations as to who will be a representee for the purposes of an estoppel cause of action:11
The onus is on the estoppel raiser to show that the representation was made to him, or else that he is entitled to raise the estoppel as representative of the representee, where, at the date when the estoppel is raised, the representee has died, or has come under any disability. A representee may, of course, receive a representation by an agent, or a partner, but the principal must still (if he is to raise an estoppel) show that he was, by himself or his agent, actually or presumptively intended to act on it. Furthermore, a representee includes not only any person to whom, or to whose agent, the representation was directly and immediately made, but also any person to whose notice the representation was intended to, and did in fact, come. Such intention may be shown to have been expressed by the representor, when making the representation, in the form of a request or authority to pass it on; or such intention may be inferred from the representor’s proved or presumed knowledge that the representation was of such character that in the ordinary course of business, it would naturally and properly be transmitted to the representee.
[56] The authors go on to state: 12
Determination of whether a person to whose notice a representation has indirectly come is a “representee” is, therefore, necessarily subsumed in the application of the further criterion for an estoppel that the representor must, actually or presumptively, have intended that the relevant representee should act on the representation.
[57] Wilson relied on a Queensland Supreme Court decision, Grace v Hamilton Island Enterprises Ltd,13 in support of its submission that neither of the plaintiffs were a relevant representee. In Grace the Court heard argument as to whether one of the plaintiffs, who had been the recipient of the relevant representation in his capacity as a company director, had standing to sue on the representation in his personal capacity. The Court held:14
The trend of authorities in Australia is against lifting the corporate veil unless a transaction can be seen as a mere sham or facade or it is necessary to remove a cloak for fraud. In the ordinary company transaction where there is a commercial purpose, the separate identity of the company and the directors needs to be maintained...
11 Piers Feltham, Daniel Hochberg and Tom Leech Estoppel by Representation (4th ed, LexisNexis, London, 2004) at [VI.2.1]
12 At [VI.2.2].
13 Grace v Hamilton Island Enterprises Ltd [1998] QSC 27.
14 At 48-49.
[58] Grace is, in my view, entirely consistent with the principles I have outlined. The representee in that case was the company and the individual was acting on behalf of the company. The intention of the representor was that the company (only) would have the benefit of the representation.
[59] Each case will, however, turn on its own facts. The present situation is quite different to that in Grace. Wilson expressly stated that it would waive its right of first refusal to enable a repurchase by Mr Haghi or a related party. Related parties are therefore persons whom Wilson must have intended or contemplated would be reached and influenced by the representation (in terms of the third category set out at [54] above). The issue therefore is whether the plaintiffs fall within the definition of “related parties”. The phrase “related party” must be interpreted objectively, taking into account the relevant factual matrix.
[60] Mr Parrant told Mr Evans at their 20 September 2012 meeting that Mr Haghi “intended to buy the property back so that he could carry on with the development that he had planned, which included around 300 car parks”. Mr Evans’ evidence was that it had always been intended that Wilson would lease the car parks in the new development if it went ahead, so from Wilson’s perspective it would benefit from any development of the Property by Mr Haghi. It was not known at the time precisely what vehicle would be used for the “repurchase”. Mr Parrant informed Mr Evans, that Mr Haghi would likely need to bring in a partner or co-venturer to help fund the development. Mr Evans was satisfied that “provided it was still Mr Haghi who would be purchasing and developing the property (whether by himself or through a partnership) Wilson should not have a problem with that”.
[61] Wilson’s key concern was clearly that, whatever entity was used as the repurchase vehicle, Mr Haghi was to be the directing mind and will of the development project. That is because Wilson was supportive of Mr Haghi’s development plans for the Property. It saw a commercial opportunity for itself in his proposed development. What plans, if any, an unrelated third party may have for the Property was an unknown quantity.
[62] Against this background, I have no difficulty in concluding that Fanshawe 136 falls squarely within the category of “related party” category in terms of the Waiver Letter. Mr Haghi is the sole director and shareholder of that company. If Fanshawe 136 were to own the Property there is no doubt that Mr Haghi would be the directing mind and will of the development. Fanshawe 136 is a relevant representee.
[63] As for 136 Fanshawe, Mr Haghi’s sister, Fatemeh Haghi, is the sole director and shareholder of that company. 136 Fanshawe is the trustee for the 136 Fanshawe Trust, of which Mr Haghi’s children and Mr Haghi himself are beneficiaries. Although the formal trust documents were only executed in July 2013 (backdated to October 2012) Fatemeh Haghi’s evidence (which was unchallenged) was that she always understood that she was holding the Property in trust. Further, as she did not know how legal and financial arrangements work in New Zealand, having only recently moved here from Iran, the intention was that she would rely on Mr Haghi to manage the land and the associated hotel development himself.
[64] Accordingly, in my view, 136 Fanshawe is also a related party in terms of the Waiver Letter. Both Fanshawe 136 and 136 Fanshawe, given their very close connection to Mr Haghi, are persons whom Wilson must have intended or contemplated would be reached and influenced by the representation, and they were so reached. They therefore both have standing to bring a claim in estoppel.
Meaning of the representation
[65] To found an estoppel, a representation must be clear and unequivocal. Its meaning must be assessed objectively, by the standard of a reasonable person in the position of the representee.15 It is necessary to examine the circumstances in which
the representation was made, as well as the language used in the letter itself.16
15 Travel Agents Assn of NZ Inc v NCR (NZ) Ltd (1991) ANZ ConvR 553 at 555; see also Burberry Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA) at 361; Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZCLC 261,922 (CA) at [26].
16 Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZCLC 261, 922 (CA) at [26] and
[32].
[66] The Waiver Letter provides as follows:
Further to our letter to you dated 21 August 2012 we confirm that if
Mr Haghi or a related party were to repurchase the property at 136-142
Fanshawe Street, Wilson Parking would waive our right of first refusal to purchase the property, subject to the clause remaining in effect for any
further sales of the property.
[67] The issue I must determine is what meaning a reasonable person in the position of the representee would take from this letter.
[68] Mr Evans’ evidence was that the letter was in essence, a “letter of comfort,” to enable Mr Haghi to proceed with trying to make the development happen. Wilson was not interested in purchasing the Property at the time and saw greater benefit to it in allowing Mr Haghi to develop the Property. Mr Evans conceded in cross-examination that, on his interpretation, the phrase “would waive” could equally read “would not waive”. The letter would have the same legal effect.
[69] I find it difficult to see what possible “comfort” Mr Haghi could take from a waiver letter that was not intended to have any legal effect or bind Wilson in any way. There is nothing in the letter, viewed in the context of the surrounding circumstances, which would have caused a reasonable person in the position of the representee to believe that it was not intended to be binding.
[70] As I have stated, the test is what a reasonable person in the position of the representee would take from the letter, rather than a reasonable person in the position of the representor. It is, however, of note that Mr Evans’ own understanding of the letter in July 2013 appears to accord with the plain meaning of the letter. In his email to Mr Koch of 10 July 2013 he stated that:
...we agreed last year to set aside our right of first refusal when Mohsen sold to Fanshawe Capital and to allow Mohsen to repurchase the property. Other than that, right of first refusal prevails.
[71] I fail to see how the letter can be interpreted as meaning anything other than what it says. It is in plain English. It confirms that if “Mr Haghi or a related party were to repurchase the property at 136-142 Fanshawe Street, Wilson Parking would waive our right of first refusal to purchase the property, subject to the clause
remaining in effect for any further sales of the property”. There is nothing on the face of the letter, or in the surrounding facts, which would have led a reasonable person in the position of the representee to believe that the letter does not mean exactly what it says.
[72] The objective meaning of the letter is that if Capital proposed to sell the Property to Mr Haghi or a related entity Wilson would waive its right of first refusal, to enable that transaction to proceed. The use of the word “would” ensured that Wilson retained the right to review any proposed transaction to satisfy itself that it came within the terms of the waiver. However, if it did (because the proposed purchase was by Mr Haghi or a related party) Wilson committed itself in the Waiver Letter to not exercising its right of first refusal.
Have the plaintiffs relied on the Waiver Letter, to their detriment?
[73] Following receipt of the Waiver Letter the plaintiffs (through Mr Haghi) continued to progress plans for redevelopment of the Property. Architects and consultants were engaged, resource consents were renewed, tenders sought, budgeting and financial work undertaken, discussions entered into with potential car park operators (including Wilson), attempts made to find an equity partner, and so on.
[74] Wilson submitted that the plaintiffs did not suffer any detriment because the invoices relating to ongoing development costs were addressed to or paid by other entities within the Haghi Group, in circumstances where the plaintiffs did not have any cash assets.
[75] In my view the fact that a number of invoices were addressed to Haghi Property Group Ltd instead of 136 Fanshawe is of no particular legal significance. Mr Haghi’s evidence was that everyone knew him as the owner and operator of the Haghi Property Group and therefore used that name for invoicing. However, the invoices were generally paid by 136 Fanshawe or House of Persia (a company associated with his wife), with a debt back from 136 Fanshawe. An in-house accountant for the Haghi Group has responsibility for ensuring that all liabilities are ultimately attributed to the correct company, in this case 136 Fanshawe, on whose
behalf the work was undertaken. I accept that evidence and note that such practices, although somewhat loose, are not unusual in the context of a small group of closely related companies.
[76] In addition to expenditure on the development, the plaintiffs also claimed that financing costs had been incurred in reliance on the Waiver Letter. In particular, a
$12 million loan offer from NZ Mortgages and Securities (“NZMS”) was accepted by 136 Fanshawe on 10 July 2013. A $5000 deposit was paid to NZMS for documentation costs and a non-refundable fee of $500,000 became payable on acceptance of the loan offer.
[77] Wilson noted that the NZMS loan offer was accepted at a time when the plaintiffs were aware that Capital had written to Wilson (the previous day) formally offering the Property to Wilson, pursuant to its right of first refusal. In my view, however, nothing turns on that. The Buy Back Agreement was not subject to finance, but only to Wilson waiving its right of first refusal. Wilson had not advised the plaintiffs at that time that it would not be standing by the Waiver Letter, or that it did not believe it to be binding. Accordingly, on the assumption that Wilson had committed to waiving its right of first refusal, it was imperative that 136 Fanshawe raise the necessary finance to settle the transaction. The only financing offer forthcoming was that from NZMS.
[78] Wilson further submitted that the loan fee of $500,000 was not a genuine detriment suffered by 136 Fanshawe, as that company has no cash assets. The liability is, however, a real one. If 136 Fanshawe does not purchase the Property it is nevertheless liable for the $500,000 loan fee. It will either have to borrow to meet that obligation or, more likely, face liquidation. In either event there is a clear detriment to the company.
Unconscionability
[79] The final element, and indeed the touchstone of estoppel, is unconscionability.
[80] I have found that Wilson represented, in clear and unequivocal terms, that it would not exercise its right of first refusal if Mr Haghi or a related party were to purchase the Property. The plaintiffs relied on that representation, to their detriment.
[81] Contrary to its representation, Wilson decided to exercise its right of first refusal and acquire the Property for itself, once it discovered that there was an “exciting opportunity” to purchase the Property at a “heavily discounted price”. That price did not reflect an arms length market value, but the particular financing arrangements that had been agreed between Viaduct/Mr Haghi on the one hand and ASAP/Capital on the other hand. As a result there was, in effect, significant equity in the Property. Wilson wanted to secure that equity for itself, despite the Chief Executive of Wilson acknowledging internally at the time that the Waiver Letter means exactly what it says.
[82] There would have been nothing objectionable in Wilson’s conduct if it had not provided the Waiver Letter. Commercial entities are entitled to act in their own best commercial interests, within the confines of the law. However, Wilson did provide the Waiver Letter. It then decided to renege on the commitment made in that letter, because it saw a commercial advantage to itself in doing so. In my view, that was unconscionable. Capital’s solicitors’ contemporaneous description of Wilson’s behaviour as “opportunistic” was apt.
[83] In addition, Wilson kept Mr Haghi, the plaintiffs, and their advisers in the dark regarding its change of position for as long as possible. This resulted in genuine confusion on the part of Mr Haghi and Mr Parrant who thought that either Mr Evans had forgotten that he had given the Waiver Letter or that he did not appreciate that 136 Fanshawe was related to Mr Haghi.
[84] Wilson submitted that it was not unconscionable for it to renege on the Waiver Letter due to Mr Haghi’s own unconscionable conduct in attempting (unsuccessfully) to sell the Property without advising prospective purchasers of Wilson’s right of first refusal from March 2013 onwards.
[85] The background to this issue is that, on 15 March 2013, Mr Haghi signed an agency agreement with Bayleys Real Estate. This was apparently in anticipation of repurchasing the Property from Capital. It is clear that Mr Haghi’s strong preference was to find an equity partner to help fund development of the Property, possibly by selling an interest in the Property or a shareholding in 136 Fanshawe. However, if someone were willing to pay substantially in excess of market value for the Property, Mr Haghi was open to that possibility. Ultimately he received several written offers between $11.75 million and $13.25 million. He countersigned them all at
$18 million.
[86] Mr Haghi’s evidence was that at the time his thinking focussed on the waiver he had from Wilson, while overlooking that the right of first refusal would be reinstated following 136 Fanshawe’s purchase of the Property. It would then apply in the event that 136 Fanshawe wished to onsell the Property. As Mr Haghi was under serious financial pressure at the time and dealing with issues on many fronts, the precise terms of Wilson’s right of first refusal were simply not at the forefront of his mind.
[87] The contemporaneous documents indicate that Bayleys did raise Wilson’s right of first refusal with Mr Haghi, who advised that it had been “negated”. In my view this is broadly consistent with Mr Haghi’s evidence that he forgot that the right of first refusal would, in effect, be reinstated once 136 Fanshawe purchased the Property.
[88] Mr Haghi accepted he was at fault in allowing the Property to be marketed for sale without clearly addressing Wilson’s right of first refusal. While his behaviour was inappropriate, I do not find it to meet the threshold of unconscionability. There is no evidence Mr Haghi was attempting to deliberately flout Wilson’s rights, in order to secure some advantage for himself. Indeed there would be no benefit to Mr Haghi in not offering the Property to Wilson if he received an offer he was willing to accept ($18 million). As counsel for the plaintiffs put it, “Wilson’s money is the same colour as anybody else’s”. The likelihood of Wilson exercising its right at $18 million was presumably remote, but it was nevertheless
entitled to the opportunity. Ultimately no harm was done, however, as no-one was willing to pay $18 million for the Property.
[89] I also note that there is nothing in the contemporaneous documents that suggests that Wilson’s concerns regarding Mr Haghi’s own conduct were what led to it reneging on the Waiver Letter. It is clear that Wilson’s decision to exercise its right of refusal was entirely motivated by its own commercial best interests.
[90] I therefore reject Wilson’s submission that it was not unconscionable for it to renege on the Waiver Letter due to Mr Haghi’s own unconscionable conduct in attempting (unsuccessfully) to onsell the Property without advising prospective purchasers of Wilson’s right of first refusal.
Conclusion on estoppel cause of action
[91] I have found that all the elements of the estoppel cause of action are made out. Pursuant to the Waiver Letter, Wilson represented that it would waive its right of first refusal if the proposed purchaser of the Property were a party related to Mr Haghi, which it is. Wilson is estopped from acting inconsistently with that representation.
[92] Wilson argued at some length that the appropriate relief on the estoppel cause of action is damages, based on wasted expenditure, rather than an order for specific performance of the Buy Back Agreement. In particular, Wilson submitted that
136 Fanshawe is effectively seeking the imposition of a remedial constructive trust in relation to the Property, an exceptional remedy that is only rarely granted.
[93] Whether it is necessary to traverse that issue depends to some extent on whether I find that the third and fourth causes of action causes of action (relating to the respective equitable interests claimed by the plaintiffs and Wilson in the Property) are established. I therefore now turn to consider those issues.
Do either (or both) of the plaintiffs have an equitable interest in the Property pursuant to the Buy Back Agreement?
Fanshawe 136’s interest in the Property
[94] The Buy Back Agreement is expressly conditional on Wilson waiving its right of first refusal under the Lease. Pursuant to clause 9.8 of the agreement, that was a condition subsequent. Accordingly, pending satisfaction of the condition, the agreement was binding between the parties.
[95] Despite previous uncertainty, it is now well established in New Zealand that a conditional contract may give rise to an equitable interest in property, even if the relevant agreement is not specifically enforceable (in the strict sense) due to the condition not yet having been satisfied.17 In Bevin v Smith the Court of Appeal held that the equitable estate passes when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the purchaser’s contingent ownership rights. Gault J observed that:18
In the end it must be remembered that by saying the equitable title has passed, equity is doing no more than recognising that the purchaser must have acquired rights which should be protected in an appropriate manner. … In the end equity must act according to the nature of the contract and the practical situation of the parties.
[96] Accordingly it is not necessary that the plaintiffs’ rights under the Buy Back Agreement be specifically enforceable in the strict or narrow sense. It will be sufficient if the circumstances are such that a remedy (for example an injunction) would be available in equity to protect the interest that the plaintiffs have acquired under the Buy Back Agreement.
[97] In this case Fanshawe 136, as the purchaser named in the Buy Back Agreement, clearly acquired contingent rights under the Buy Back Agreement that are deserving of protection in equity. Both Capital and Fanshawe 136 clearly
intended to be bound, and to remain bound, subject to fulfilment of the condition that
17 Bevin v Smith [1994] 3 NZLR 648 (CA). See also McDonald v Isaac Construction Co Ltd
[1995] 3 NZLR 612 (HC) at 619 per Tipping J.
18 At 665.
Wilson waive its right of first refusal. Fanshawe 136 accordingly acquired an equitable interest in the Property as at 10 September 2012.
136 Fanshawe’s interest in the Property
[98] Fanshawe 136 nominated 136 Fanshawe as purchaser on 5 October 2012. From that point of time 136 Fanshawe effectively “stood in the shoes” of Fanshawe
136 and acquired its equitable interest in the Property.
[99] Wilson submitted that, in doing so, Fanshawe 136 gave up any equitable interest that it had by virtue of the Buy Back Agreement. The plaintiffs, on the other hand, submitted that, given that Fanshawe 136 remains contractually bound in terms of the Buy Back Agreement, it necessarily follows that it retains an equitable interest in the Property. In my view, nothing turns on whether both Fanshawe 136 and 136
Fanshawe have an equitable interest in the Property or only 136 Fanshawe. I will, however, focus on the position of 136 Fanshawe.
[100] Wilson submitted that any equitable interest that 136 Fanshawe may have in the Property came to an end when Capital purported to avoid the Buy Back Agreement on 2 August 2013, following Wilson’s purported exercise of its right of first refusal. Wilson submitted that even if the Waiver Letter is interpreted as a waiver (or an agreement to waive in the future) Capital validly terminated the Buy Back Agreement because any waiver was not communicated to Capital. Waiver is a matter between two parties to a contract (in this case Capital and Wilson) and must be communicated to the other party to be effective.
[101] This argument cannot be sustained in light of my findings in relation to the estoppel cause of action. Wilson was not entitled to act inconsistently with the representation it made in the Waiver Letter. Given that the proposed sale to 136
Fanshawe fell within the terms of that letter, Wilson was legally required to provide the necessary waiver. Capital only purported to avoid the Buy Back Agreement due to Wilson’s own failure to provide the waiver it had committed to providing. It would be a startling outcome, particularly given that these proceedings are brought in the Court’s equitable jurisdiction, if Wilson could rely on its own wrongful conduct to defeat 136 Fanshawe’s equitable interest in the Property.
[102] 136 Fanshawe has an equitable interest in the Property derived from the Buy
Back Agreement, which remains in effect.
Does Wilson have an equitable interest in the Property that precedes the Buy
Back Agreement of 10 September 2012?
Wilson’s right of first refusal
[103] A right of first refusal is a contractual provision pursuant to which an asset owner (“grantor”) agrees that before selling the asset he or she will give the other party (“holder”) the opportunity to purchase it, usually on the same terms the owner is willing to sell to a third party. The grantor is not bound to sell at any particular time, or even at all. But if he or she does wish to sell, the right of first refusal will be triggered. At that point the holder will effectively have an option to purchase the asset.
[104] Rights of first refusal are common in many leases, tenancy agreements, shareholder agreements, company constitutions, joint venture agreements and other contracts where one party has an economic interest in an asset that could potentially be compromised by a sale to a third party. A right of first refusal provides some protection to the holder in the event of future changes in business relationships.
[105] In the event of doubt, pre-emptive rights provisions are construed in favour of the party wishing to sell.19 This is consistent with the general principle that pre-emptive rights provisions, as restraints on alienation, should be strictly construed.
[106] The right of refusal in the Lease is in fairly standard terms. It is expressed as follows:
Right of First Refusal
10.9 If the Lessor wishes to sell the Land to any person during the term of this Lease it shall before offering the Land to any other person, give written notice to the Lessee offering to sell the Land to the Lessee on such terms and conditions as the Lessor sees fit.
19 Greenhalgh v Mallard [1943] 2 All ER 234 (CA).
10.10 The Lessee shall within one month of receiving the notice offering to sell the Lessee the Land (“Offer Expiry Date’) either accept or reject the offer in writing. If the Lessor does not receive a notice accepting or rejecting the offer on or before the Offer Expiry Date, the Lessee will be deemed to have rejected it.
10.11 If the Lessee rejects, or is deemed to have rejected, the offer the Lessor may offer to sell the Land to any other person, provided that such sale shall be on terms and conditions no more favourable to that person than those specified in the offer to the Lessee. If the Lessor wishes to offer to sell the Land to any other person on more favourable terms and conditions than those offered to the Lessee during the term of this Lease, the Lessor shall re- offer the Land to the Lessee on such more favourable terms and conditions, but the period of time referred to in the paragraph immediately above shall be reduced from one month to seven days.
[107] I note, for completeness, that the Lease also provided that “in consideration of the Owner granting the right of first refusal and entering the Lease, Wilson shall pay the Owner the sum of $200,000”. There was considerable debate at trial as to whether this was a genuine payment by Wilson in consideration of the grant of a first right of refusal. Mr Evans asserted that it was (although he acknowledged under cross-examination that it also related to “key money”). Mr Haghi’s evidence was that the payment of $200,000 was, in effect, a loan to him because of the dire financial situation he was in at the time. His evidence was that the transaction was structured so as to enable Wilson to fully recover the $200,000 loan over the term of the lease, by way of a management fee for purportedly managing the whole Property (albeit in reality Wilson only managed the car park).
[108] In my view little turns on the issue. However, to the extent that it is of any relevance, I prefer the evidence of Mr Haghi. The relevant documentation is clearly structured in such a way that Wilson will, in effect, be repaid the sum of $200,000 over the term of the lease (or immediately, in the event of early termination). Nevertheless, there clearly is at least some consideration for the right of first refusal, as any “loan” was effectively interest free.
When will a right of first refusal give rise to an interest in land?
[109] A right of first refusal has been consistently held to create a mere personal right against the grantor and does not, of itself, give rise to an interest in land unless and until a triggering event occurs.
[110] In Motor Works Ltd v Westminster Auto Services Ltd20 Tipping J considered what would be required in order to trigger a right of first refusal. His Honour concluded that the holder of a right of pre-emption will not have an interest in land “unless and until the circumstances are such that specific performance can be ordered”; for example where there has been an overt manifestation of the essential and sufficiently certain terms on which the vendor is actually prepared to sell to a third party. In such cases the vendor could be ordered to honour its contractual obligation to offer those same terms to the holder of the right of pre-emption, who would then have the same rights as an option holder, and would therefore have a
caveatable interest.21
[111] The triggering event identified in previous cases has almost always been the owner’s entry into a contract with a third party, in breach of his or her obligation to first offer to sell the asset to the holder of the right of first refusal. Given that the obligation is to make a first offer to the holder, it logically follows that the failure to do so can generally only be proved once a binding offer to sell has first been made to someone else.
[112] Wilson argued, however, that logically its right of first refusal must have been triggered immediately prior to execution of the Buy Back Agreement and, accordingly, it has an equitable interest in the Property that precedes that of the plaintiffs. In particular, Wilson submitted that Capital must have intended to sell the Property immediately prior to execution of the Buy Back Agreement.
[113] The plaintiffs submitted, on the other hand, that Wilson’s right of first refusal was not triggered by execution of the Buy Back Agreement (or immediately prior), because the Buy Back Agreement was itself conditional on Wilson waiving its right of first refusal. Capital had no intention to sell unless and until that waiver was
provided.
20 Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 (HC).
21 At 766. See also Auckland Council v Pallister [2013] NZHC 2717 and Mercury Geotherm Ltd v McLachlan [2006] 1 NZLR 258 (HC) (confirmed on appeal to the Privy Council: McLachlan v Mercury Geotherm Ltd [2006] UKPC 27, (2006) 7 NZCPR 135).
Has the right of first refusal been triggered?
[114] In this case the Buy Back Agreement is expressly conditional on Wilson’s right of first refusal being waived. Can such an agreement in itself trigger the right of first refusal? The plaintiffs submitted that it could not, and relied on Bruce v Edwards22 and McLachlan v Mercury Geotherm,23 by way of analogy. Wilson submitted that those cases are distinguishable.
[115] In Bruce v Edwards the Court of Appeal held that an agreement to sell which was conditional on a change in status from Maori to general land did not trigger a statutory right of first refusal under Te Ture Whenua Maori Act 1993. The statutory right of first refusal was engaged where Maori freehold land was sought to be alienated. The Court of Appeal found that the triggering event for the right of first refusal was the decision to alienate. On the facts before the Court there had been no decision to alienate, as any sale of the property would occur only once its status had
been changed to general land.24
[116] Mercury Geotherm concerned the aftermath of a failed joint venture. The McLachlans owned two adjoining pieces of land near Taupo (Land A and B) and had an option to purchase a further adjacent title (Land C). The aim of the joint venture was to exploit geothermal resources on the land by building a power station on Land A. Mercury Geotherm, the joint venture company, acquired Land A, B and C. It then leased all of the land except so much of Land A as would be used for the power station site back to the McLachlans (who used it for farming purposes). The lease contained a right of pre-emption in favour of the McLachlans, in respect of any part of the land that Mercury Geotherm wished to sell or dispose of. The lease was for a 20 year term.
[117] The receivers of Mercury Geotherm entered into an agreement with Contact
Energy under which Contact would:
22 Bruce v Edwards [2003] 1 NZLR 515 (CA).
23 McLachlan v Mercury Geotherm Ltd [2006] UKPC 27, (2006) 7 NZCPR 135.
24 At [52]–[54].
(a) purchase the part of Land A that comprised the power station site
(i.e. the land excluded from the lease); and
(b)be granted a right of first refusal in respect of the leased land, which would be triggered only if the deed of lease with the McLachlans was terminated and, following that termination, Mercury Geotherm still owned the land.
[118] The question raised by the proceeding was whether the McLachlans’ right of pre-emption had been triggered. The High Court, Court of Appeal and Privy Council all agreed it had not been. The right of first refusal granted to Contact entailed the possibility of a sale only after the lessees’ rights under the right of pre-emption in the lease had come to an end. The grant of the right of first refusal therefore did not act in derogation of the lessees’ rights.25 The Privy Council stated as follows:
19. Potter J and the Court of Appeal decided that the inclusion of clause
10.7 in the sale agreement between the receivers and Contact did not trigger
the lessees’ right of first refusal under clause 16.1 of the lease, because clause 10.7 provided for the possibility of a sale to Contact only in circumstances in which the lessees right of first refusal under clause 16.1 had already come to an end with the expiration or determination of the lease. In paras 63 to 72 of her judgment Potter J held that clause 10.7 did not operate “in derogation of” the lessees rights (the expression used by Tipping J in Motorworks Limited v Westminister Auto Services Limited [1997] 1 NZLR
762, 766). The freeholders had not done anything which put it out of their power to satisfy the lessees’ rights so long as they existed. The Court of
Appeal reached the same conclusion, expressing it quite briefly (para 33):
“As the Judge noted, the right of purchase granted to [Contact] was expressly conditional upon the Trust’s right of purchase in its lease (clause 16.1) having been extinguished – by termination of the lease. Accordingly, there is nothing inconsistent with the Trustee’s rights in the grant of the conditional right of purchase. We agree with the reasons of the Judge to the same effect on this point”.
[119] Although it was not referred to in argument, Lord Hoffman’s decision in Re Sedgefield Steeplechase Company (1927) Ltd, Scotto v Petch and others,26 is also of some assistance, by way of analogy. In that case the defendants were members of a private limited company, holding 75 per cent of its share capital. The plaintiff held
21 per cent. The articles gave her a right of pre-emption should the defendants wish
25 McLachlan v Mercury Geotherm Ltd [2006] UKPC 27, (2006) 7 NZCPR 135 at [19]–[20].
26 Re Sedgefield Steeplechase Company (1927) Ltd, Scotto v Petch and Ors (2000) 2 BCLC 211.
to sell their shares. The articles exempted certain permitted transfers. The plaintiff claimed that an agreement entered into by the defendants demonstrated an intention to sell, which triggered her pre-emptive rights. The relevant documents had, however, carefully avoided a transfer of the legal title. Further, they provided that the shares could not be required to be transferred in contravention of any pre-emption rights.
[120] Lord Hoffman (sitting as an additional Judge of the Chancery Division) held that as the agreement expressly precluded the purchaser from requiring the vendor to do anything that would contravene subsisting pre-emption rights, it did not demonstrate the necessary intention on the part of the vendor to transfer the legal title so as to trigger the pre-emption rights in the company’s articles. The defendants had demonstrated an intention to comply with the subsisting provisions of the articles (including in particular the pre-emption provisions). An obligation to serve a transfer notice on the plaintiff (giving her the opportunity to exercise her right of pre-emption) would only have arisen if the shareholders had entered into an arrangement which placed them under a contractual obligation to execute and deliver a transfer in violation of the rights of pre-emption. The plaintiffs’ pre-emptive rights had accordingly not been triggered. Lord Hoffman’s decision was subsequently
upheld by the Court of Appeal,27 although the Court emphasised that each case will
turn on its own facts.
[121] Wilson submitted that Bruce v Edwards and Mercury Geotherm are distinguishable from the present case on the basis that the relevant sale in those cases would not occur during the currency of the right of pre-emption. There was therefore no “triggering” event. For example, In Mercury Geotherm, the receivers had not decided to sell the leased land, they had merely granted a right of first refusal that would not in any way prejudice the McLachlans’ own right of pre-emption.
[122] In my view, however, those cases are not as readily distinguishable as Wilson suggests. In each of them the Courts held, in effect, that only a contract which created an obligation to act in a way that was inconsistent with the relevant
pre-emptive right would trigger that right. Contractual provisions which were
27 Scotto v Petch & Ors [2001] BCC 889.
expressly drafted in such a way as to honour pre-emptive rights, rather than defeat them, did not in themselves trigger the relevant pre-emptive rights. None of the agreements gave rise to obligations to transfer property (or shares) in breach of the relevant pre-emptive rights provisions. As such, they were unobjectionable. Similarly, in the present case, the Buy Back Agreement does not manifest any intention to act “in derogation of” Wilson’s right of first refusal (adopting the expression used by the Privy Council in Mercury Geotherm and Tipping J in Motorworks).
[123] In Bruce v Edwards and Mercury Geotherm the relevant agreements were only intended to take effect in the future, after any right of pre-emption had ceased to exist. In this case, the relevant agreement was also intended to only take effect in the future, but only if the right of pre-emption was waived prior to the settlement date. In either event the relevant agreements were structured in such a way as to ensure that they did not derogate from the existing pre-emptive rights. Borrowing again from the Privy Council’s comments in Mercury Geotherm “the freeholders (Capital) have not done anything which put it out of their power to satisfy the lessees’ (Wilson’s) rights so long as they existed”.
[124] In most cases the price at which an owner “wishes to sell” will be set through an arm’s length commercial negotiation with a third party, resulting in a price that is at or near market. However, there are a number of circumstances where a party may wish to transfer property or other assets at significantly below market value, subject to an existing holder of pre-emptive rights waiving its rights. Harsh consequences could result if such arrangements automatically triggered pre-emptive rights, even though their effect (and intent) is not to derogate from such rights. For example an elderly farmer may agree with his daughter, in writing, to sell the family farm to her at a nominal price, subject to an existing tenant waiving his pre-emptive rights. On Wilson’s analysis, that would require the farmer to offer the farm to the tenant, on the same terms.
[125] For the reasons I have outlined, it is my view that the Buy Back Agreement, which is entirely consistent with Wilson’s first right of refusal and does not derogate from it in any way, does not itself trigger the right of first refusal. Rather than
evidencing a present intention to sell on the terms set out in the Buy Back Agreement, the agreement at best indicates an intention (or wish) to sell on the specified terms at a future time, but only in the event that Wilson first waives its right of first refusal. There was, at no stage, any risk of the Property being sold in breach of Wilson’s right of first refusal.
[126] Wilson’s right of first refusal was accordingly not triggered and Wilson does not therefore have an equitable interest in the Property arising immediately prior to execution of the Buy Back Agreement on 10 September 2012.
[127] For completeness I note that even if, contrary to my findings, the Buy Back
Agreement did give rise to an equitable interest on the part of Wilson as at
10 September 2012, that would not assist Wilson on the facts of this case. That is because any such equitable interest would have come to an end on either
20 September 2012 (when Wilson provided the Waiver Letter) or, at the latest, on or about 9 July 2013 when Capital provided a copy of the Buy Back Agreement to Wilson and Wilson failed to waive its right of first refusal, in breach of the representation made in the Waiver Letter.
Does Wilson have an equitable interest in the Property arising out of its
acceptance of Capital’s offer on 29 July 2013?
[128] As noted above, in Bevin v Smith the Court of Appeal held that an interest in land arises when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, ie consistently with the purchaser’s contingent ownership rights. It will be sufficient if the Court will order specific performance of the contract subject to the contingency.
[129] Although an equitable interest would normally arise as a result of the acceptance of an offer to sell by the owner, I have some reservations as to whether that applies in this case, given that Wilson accepted Capital’s offer to sell the Property to it in breach of the representation it made in the Waiver Letter.
[130] In any event, if Wilson did acquire an equitable interest in the Property an acceptance of Capital’s offer on 29 July 2013, that equitable interest would post date
136 Fanshawe’s equitable interest. Given my conclusions at [82] above that Wilson has acted unconscionably, there could be no basis for reversing the equitable priorities.
Summary
[131] These proceedings concern a commercial property at 136 Fanshawe Street, Auckland. Both the plaintiffs and Wilson claim to have enforceable agreements to purchase that Property, giving rise to equitable interests which they each seek to specifically enforce. I have found that:
(a) The plain meaning of the Waiver Letter Wilson signed on
20 September 2012 was that it would not exercise its right of first refusal to purchase the Property if the proposed purchaser were Mr Haghi or a related party. Both of the plaintiffs are related parties of Mr Haghi. All of the requirements of estoppel have been made out. Wilson is accordingly estopped from acting in a way that is contrary to the representation made in the Waiver Letter.
(b) 136 Fanshawe has an equitable interest in the Property pursuant to the
Buy Back Agreement of 10 September 2012.
(c) Wilson does not have an equitable interest in the Property arising immediately prior to execution of the Buy Back Agreement.
(d) Wilson does not have an equitable interest in the Property arising out
of its acceptance Capital’s offer to sell the Property to it on 29 July
2013, due to its prior commitment (as set out in the Waiver Letter) not to exercise its right of first refusal if the proposed purchaser was Mr Haghi or a related party.
(e) Further, even if Wilson did have an equitable interest arising on
29 July 2013, that interest post dates 136 Fanshawe’s equitable interest. There would be no basis for reversing the equitable priorities.
[132] The consequence of these findings is that the plaintiffs are entitled to specific performance of the Buy Back Agreement, together with the associated declarations sought.
Result
[133] I declare that Wilson is estopped from:
(a) denying that it has waived its right of first refusal;
(b)asserting an interest in relation to the Property in priority to that of the plaintiffs.
[134] I order that:
(a) Capital specifically perform and forthwith settle the agreement for sale and purchase dated 10 September 2012 with 136 Fanshawe (as nominee for Fanshawe 136); and
(b) Wilson’s caveat on the Property be removed (or be allowed to lapse). [135] Wilson’s counterclaim is dismissed.
[136] I reserve leave to the parties to seek any further directions that may be necessary to give effect to this Judgment and to facilitate the conveyance of the Property to 136 Fanshawe.
[137] The plaintiffs, as the successful parties, are entitled to costs. If agreement cannot be reached as to the appropriate quantum leave is reserved to file memoranda. Any memorandum on behalf of the plaintiffs is to be filed by 7 February 2014. Any memorandum on the part of Wilson (and Capital, if necessary) is to be filed by
21 February 2014. A decision as to costs will then be made on the papers.
Katz J
5