Feng v Sea.TX Property Limited
[2023] NZHC 2067
•4 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-2733
[2023] NZHC 2067
BETWEEN YANLANG FENG AND CHENGPIN CAI
Plaintiffs
AND
SEA.TX PROPERTY LIMITED
First Defendant
LING NING
Second DefendantBARFOOT & THOMPSON
Third Defendant
Hearing: 3–6 July 2023 (written closing submissions on 13 July 2023 and
in reply on 21 July 2023)
Counsel:
D Delic, S Lu and Z Evita for Plaintiffs R M Dillon for First Defendant
E R Harrison and S J MacIntosh for Second and Third Defendants
Judgment:
4 August 2023
JUDGMENT OF RADICH J
Introduction
[1] The plaintiffs (Mrs Feng and Mr Cai), as purchasers, and the first defendant (Sea.TX), as vendor, entered into an agreement for sale and purchase of a residential property in Auckland. The agreement recorded, in handwriting, the sale price as “$1,580,000”. The standard sale and purchase form used includes, next to the space in which the price is entered, two options. The options are “plus GST (if any)” or “inclusive of GST (if any)”. One of them is to be deleted.
FENG AND CAI v SEA.TX PROPERTY LIMITED [2023] NZHC 2067 [4 August 2023]
[2] The real estate agent who prepared the agreement for sale and purchase – the second defendant (Ms Ning) – says that she made a mistake. She deleted the wrong option. She had intended for the sale price to be expressed in the agreement for sale and purchase as “$1,580,000 inclusive of GST (if any)”. Instead, it was expressed as being “$1,580,000 plus GST (if any)”.
[3] The plaintiffs, their son Chenhong Feng (who is known as Joey Feng and for whom the property was being purchased), Ms Ning (who was representing Mrs Feng and Mr Cai as purchasers) and the two real estate agents from the third defendant (Barfoot & Thompson) who were representing Sea.TX as vendor, all say that it was an error. They say that the parties to the agreement all entered into the agreement on the basis that the purchase price of $1,580,000 was GST inclusive.1
[4] Xinyi Li (Ms Li – the director and shareholder of the first defendant) says that she did not enter into the agreement on that basis and that she had always intended that the $1,580,000 price was to be “plus GST”.
[5] The plaintiffs seek rectification of the agreement on the grounds that they and the first defendant (through Ms Li) had a common intention that the price would be inclusive of GST and that, as a result of an error, the agreement did not reflect that common intention.
[6] The first defendant, through Ms Li, resists. However, if rectification is ordered, an indemnity is claimed from the second and third defendants.
[7] If rectification is not ordered, the plaintiffs claim against the second and third defendants in negligence. If that proves to be the outcome, then the second and third defendants claim an indemnity from the first defendant.
[8]The headline issues are these:
1 While it is the understanding of the parties to the agreement that must be determined, the understandings of the real estate agents representing both of the parties as the vendors and purchasers are relevant.
(a)Did the parties have a common intention, assessed objectively,2 that the agreed purchase price was $1.58 million inclusive of GST?
(b)If so, should the Court rectify the agreement to that effect?
(c)If so, should the Court order:
(i)the sum of $237,000 – which is the value of the GST on the sum of $1.58 million and which is held in trust –to be repaid to the plaintiffs?
(ii)damages in the sum of $66,447 – which is the interest cost to the plaintiffs of the funds they needed to borrow to pay the GST component of the purchase price – to be paid to the plaintiffs?
(d)If the Court was to make those orders, can the first defendant seek an indemnity from the second and third defendants?
[9]If rectification is not ordered, the following issues arise:
(a)Are the second and third defendants liable to the plaintiffs in negligence?
(b)If so, should they be ordered to pay damages to the plaintiffs in a sum that is equivalent to the $237,000 in GST that the plaintiffs would be required to pay to the first defendant plus the $66,447 in interest on the funds they needed to borrow in order to pay the GST component of the price?
(c)If so, can the second and third defendants seek an indemnity from the first defendant?
[10] For the reasons I go on to give, I find it to be objectively apparent that the plaintiffs and the first defendant did have a common intention that the price of
$1.58 million would be inclusive of GST and that, accordingly, the agreement needs to be rectified to that effect.
2 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at [30].
[11] As a result, the other issues do not arise. However, if there had been no sufficient basis for rectification, then I would have found the second and third defendants to have been liable to the plaintiffs in negligence for their loss. And I would not have found an indemnity from the first defendant to have been available to them.
Factual background
[12] Ms Li, through Sea.TX, has bought a number of properties in Auckland. She wished to sell a property, owned by Sea.TX, at 3 Moko Lane in the suburb of Greenhithe. She listed it first, from 1 September 2017, with Harcourts, looking to obtain a price of between $1.75 million and $1.85 million. However, it did not sell.
[13] On 9 June 2018, Ms Li signed a real estate agency agreement with Barfoot & Thompson. In the agency agreement, Barfoot & Thompson appraised the property as having a value of between $1.5 million and $1.7 million. The listing agents at Barfoot & Thompson were Mr Kai Deng (Mr Deng) and Ms Sandy Wang (Ms Wang). Each page of the agency agreement, including the page containing the price appraisal, was initialled by Ms Li.
[14] On 21 August 2018, Xiao He (Mr He) – a Barfoot & Thompson agent acting on behalf of a potential purchaser from Korea – presented an offer to Ms Li to purchase 3 Moko Lane for $1.4 million (including GST). Between 21 August and 2 September 2018, Ms Li and the offeror (through Mr He) made various offers and counter-offers. The last in the sequence was a counter-offer on Ms Li’s part of $1.595 million. Each of the offers and counter-offers was made on an “including GST” basis. Agreement was not reached.
[15] During the negotiations, Ms Li inquired of Mr Deng and Ms Wang (who were representing her interests) about whether the offeror might agree to a “plus GST” price, in which case she could lower the GST exclusive figure. She suggested
$1.55 million plus GST. Ms Li was advised in clear terms by Mr Deng and Ms Wang that, because the property was to be purchased as a family home and not a business, no GST deduction was available to the buyer so the price needed to be expressed on a GST inclusive basis.
[16] There was some suggestion on Ms Li’s part that, because the offeror was associated with a family business, there might have been the opportunity for him to purchase in the name of the business so that GST could have been added to the price. This suggestion shows a misunderstanding on Ms Li’s part of the way in which the GST regime might operate in a transaction of this nature. GST would not be added to the purchase price if the property was to be purchased as a family home. If for some reason the property was to be used as a business by a GST registered person, then GST could be zero-rated.3 But that would not have achieved the ends that Ms Li sought: zero-rated GST would not have increased Ms Li’s overall price.
[17] These comments on GST are mentioned here because the point is made for the plaintiffs and the second and third defendants that Ms Li knew well from the explanations she received that GST would not be added to a purchase price for a residential transaction. The point made for Ms Li is that her own view, nonetheless, was that it could be added, that it had been added in other property transactions with which she had been involved, and that it was an issue on which she was always focused.
[18] On 1 September 2018, Joey Feng on behalf of his parents approached Ms Ning, another Barfoot & Thompson agent, to act as their agent for the purpose of purchasing a property in Auckland.
[19] On 6 September 2018, Joey Feng and Ms Ning viewed the property at 3 Moko Lane. Joey wished to make an offer of $1.55 million (including GST).4
[20] Ms Ning prepared a written offer using the Auckland District Law Society agreement for sale and purchase form (the agreement).5 The document is created, in the first instance, electronically. Ms Ning has said that, although she knew that the offer was to be GST inclusive, she chose, in error, the incorrect box showing “plus GST” when she was completing the form, quickly, on her computer. Joey Feng signed
3 Goods and Services Tax Act 1985, s 11(1)(mb)(ii).
4 On conditions requiring approval of finance and obtaining a satisfactory LIM report.
5 “Agreement for Sale and Purchase of Real Estate” form approved by the Real Estate Institute of New Zealand Incorporated and by Auckland District Law Society Incorporated (9th ed, 2012).
the agreement she had printed out with the offer price of $1.55 million “plus GST”. Neither of them noticed the error.
[21] Ms Ning relayed verbally the offer of $1.55 million to Mr Deng and Ms Wang, Ms Li’s agents, but neither of them saw the written document.
[22] Ms Li sent a text message to Mr Deng and Ms Wang saying “Can you ask them to raise the price for a little bit more and we will lower for a little bit. We can make a deal at 1.6 million”. Joey Feng decided to wait until his parents arrived from China before taking any further steps. He was interested in another property as well.
[23] Mrs Feng and Mr Cai arrived in New Zealand from China on 11 September 2018 and arrangements were made for them to view the 3 Moko Lane property later that day. It was agreed that, on the following day – 12 September 2018 – the plaintiffs, Joey Feng and Ms Ling (on the purchasers’ side of the equation) would meet with Ms Li, Mr Deng and Ms Wang (on the vendor’s side of the equation) at Barfoot & Thompson’s office in Milford with a view to reaching agreement.
[24] At about 2.20 pm on 12 September, the plaintiffs, Joey Feng and Ms Li arrived at the Barfoot & Thompson offices. Ms Ning arrived a short time later. The parties sat in a meeting room and made polite conversation while waiting for Ms Wang and Mr Deng to arrive. Ms Li said that the property had been given to her by her husband as a wedding house, that they had built the house to a high standard because they were planning to live there themselves but that she needed to sell the property as she and her husband were moving to Japan. The plaintiffs spoke of living in China but wanting to buy a property as both a family home and for Joey (who was applying for residency) to use. Ms Wang and Mr Deng arrived around 4.30pm and the negotiations began.
[25] It was made clear at that point that the offer of $1.55 million was not accepted. The plaintiffs then said that they would be prepared to increase the offer to
$1.57 million. At that point, Ms Ning took the written offer, which was in her bag beside her, and placed it on the table. She crossed out the purchase price of
$1.55 million that was written on the agreement and replaced it with the figure of
$1.57 million. The agreement remained in front of her on the table. No one moved to
initial it at that point. There is some disagreement between the meeting participants (all of whom gave evidence) as to when the agreement was placed on the table. I accept Ms Ning’s evidence that it was likely placed on the table at this point in time.
[26] Another area in which there were some variation in the evidence of the meeting participants is on whether Ms Li, Ms Wang and Mr Deng were still in the meeting room when the $1.57 million offer was made. I accept that, based on the evidence of all involved, Ms Li left the meeting room after the $1.57 million was made, at the latest. Ms Wang and Mr Deng left the meeting room at the same point in time and returned periodically.
[27] When Ms Li left the room the plaintiffs, Joey Feng and Ms Ning discussed increasing the offer by another $10,000. Ms Wang came back into the room and asked the plaintiffs if they were in a position to increase their offer. Mr Cai responded that they could increase their offer to $1.58 million but that it would be their final offer. If it was not accepted, they would attend the auction for the other property they were interested in, instead.
[28] The $1.58 million offer was then conveyed to Ms Li who was outside in the corridor. There are differences in the accounts of the witnesses as to whether or not the increased offer was conveyed to Ms Li by Ms Ning or Ms Wang, but it is sufficiently clear to me on the evidence that Ms Ning left the room with the offer document in her hand (annotated with the increase to $1.58 million) and that she conveyed the information either to Ms Wang or to Ms Li directly.
[29] In any event, I am satisfied (on the basis discussed in more detail at [54] and following) that Ms Li did not look at the written document at that point in time but, rather, said she would accept the $1.58 million offer if it was made on an unconditional basis. For that to be the case, conditions requiring finance to be approved within two working days and requiring a Land Information Management (LIM) report to be obtained needed to be removed.
[30] Ms Ning or Ms Wang conveyed Ms Li’s request. The plaintiffs and Joey Feng then called their lawyer and their mortgage broker and discussed the conditions. The discussions took over an hour. Ms Li was not in the meeting room at this time.
[31] Following those discussions, the plaintiffs agreed to make the $1.58 million offer on an unconditional basis. Ms Ning then made handwritten entries to remove the finance and LIM condition and, at the request of the plaintiffs, made a handwritten adjustment to the settlement date. The plaintiffs initialled the changes that Ms Ning had made and signed the agreement as purchasers.6
[32]At this point, Ms Li took Mr Deng and Ms Wang aside and asked them for a
$2,000 discount on their commission, to which they agreed. Ms Li then signed the agreement and initialled the amendments to it. Once signed, Ms Wang filled in some of the vendor details on the second-to-last page of the agreement. That, on Ms Wang’s evidence, is the only time that she handled the agreement.
[33] The parties returned to the meeting room at about 6 pm and left the office shortly afterwards.
[34] The next day, 13 September 2018, Ms Li sent a WeChat message to Ms Wang in the following terms:7
Sandy, there is something else that I want to tell you. Maybe I shouldn’t say this, but I am wanting to. Don’t get too close with those guys. Talk about something else when you guys are meeting for food, but just don’t talk about the house price. Is that OK?
[35] On 27 September 2018, Barfoot & Thompson issued its invoice for commission to Ms Li. The commission was calculated on a GST inclusive figure of
$1.58 million.
[36] On 2 November 2018, the plaintiffs obtained a registered valuation of the property in order to obtain finance from Kookmin Bank. The valuer provided a
6 The amendments to the purchase price in the agreement – from $1.55 million to $1.57 million to
$1.58 million – are initialled only once by any of the parties, at the point that agreement on the
$1.58 million unconditional offer had been reached.
7 The context for the message was that Ms Wang, although Ms Li’s agent, had spoken to Mrs Feng and Mr Cai about meeting them, purely on a social basis as they all came from Beijing.
registered valuation of $1,580,000 inclusive of GST. When preparing the report, the valuer contacted the mortgage broker acting for the plaintiffs and said that there must have been an error with the way in which the GST component of the purchase price had been recorded in the agreement because, if the purchase price was GST exclusive, it would make the total value of the property $1,817,000 which was significantly above its market value.
[37] On 6 November 2018, the plaintiffs’ mortgage broker contacted Joey Feng by telephone and told him of the error. Joey contacted Mrs Feng and Mr Cai and then contacted Ms Ning. After looking again at the contract, Ms Ning acknowledged her error. She contacted Ms Li and asked her to sign an amended agreement for sale and purchase at $1,580,000 including GST. Ms Li refused, saying that she had always thought that the purchase price was GST exclusive.
[38] Ultimately, it was agreed between the parties that settlement could proceed on the basis that the sum of $237,000 – the value of GST on the $1.58 million price – would be paid into the trust account of Ms Li’s solicitors and held there on trust.
[39] The plaintiffs needed to obtain short-term and last-minute finance, at high rates, to fund the additional payment. The cost of that finance, which has since been repaid, was $66,447.
[40]The transaction settled on 12 December 2018 on that basis.8
Legal principles
[41] If a written contract does not accurately record the common intention of the parties, the Court has jurisdiction in equity to rectify the wording of the contract so that it conforms with that common intention at the time the contract was executed.9 In Pernod Ricard NZ Ltd v Lion – Beer, Spirits and Wine (NZ) Limited, the High Court
8 The settlement date was brought forward by agreement from the 14 January 2019 date recorded in the agreement.
9 Fifty-Seven Willis Street Limited v Mortgage Holdings Limited (2005) 2 NZCCLR 460 at [38]– [40].
endorsed the elements for a claim in rectification that were summarised by Tipping J in Westland Savings Bank v Hancock in the following terms:10
(a) … whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question.
(b) … such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.
(c) … while there need be no formal communication of the common intention by each party to the other, or any outward expression of accord, it must be objectively apparent from the words or actions of each party that they each held and continued to hold an intention on the point in question, corresponding with the same intention held by each other party.
(d) … the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.
[42] A party’s intention can be inferred from words and from conduct, prior to, during and after the date of the contract.11 There is a level of divergence in cases that have followed Westland on whether or not there needs to be any outward expression of the common intention or accord. In Swainland Builders Ltd v Freehold Properties Ltd, the Court of Appeal referred to the need for an outward expression of the accord which, by mistake, was not reflected in the terms of the agreement.12 That approach was favoured more recently by the Court of Appeal in Kaimai Properties Limited v Queen Elizabeth the Second National Trust.13
[43] A related uncertainty continues to exist as to whether the common intention of the parties is to be assessed on an objective or a subjective basis. The traditional focus on subjective intentions was brought into question by Lord Hoffman in an obiter comment in Chartbrook Ltd v Persimmon Homes Ltd in the following terms:14
10 Pernod Ricard New Zealand Limited v Lion – Beer, Spirits and Wine (NZ) Limited [2012] NZHC 2801 at [216]; and Westland Savings Bank v Hancock [1987] 2 NZLR 21 at [30].
11 Pernod Ricard New Zealand Limited v Lion – Beer, Spirits and Wine NZ Limited, above n 10, at
[218] and Westland Savings Bank v Hancock, above n 10, at [30]–[32].
12 Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560.
13 Kaimai Properties Limited v Queen Elizabeth the Second National Trust [2021] NZCA 10, (2021) NZCPR 889 at [56].
14 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [60], citing Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 at 461. While Lord Hoffman’s discussion of rectification was obiter, Lord Rodger (at [71]), Lord Walker (at [97]) and Baroness Hale (at [101]) agreed with it.
Now that it has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the ‘common continuing intention’ were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intention of the parties to be. …
[44] There is no clear adoption of Lord Hoffman’s approach in New Zealand.15 However, Wilson J in Vector did say in discussing the prospect of a claim for rectification in that case that, “whether the test is objective or subjective, assistance can and should where necessary be derived from evidence of the negotiations.”16
[45] I have approached the question of the common intention in this case on the basis of what a reasonable person, having the knowledge of Mrs Feng, Mr Cai and Ms Li, would understand the position to be. The reasonable person would be assisted with knowledge of the understandings also of the real estate agents who were working with and advising the plaintiffs and the first defendant at the time the agreement was being negotiated and signed.
[46] Rectification is an equitable and, therefore, discretionary remedy.17 Accordingly, if the prerequisites are made out, the Court must consider any competing equities and relief may be denied where it would be inequitable to grant it.18
The positions of the parties
[47] The plaintiffs and the second and third defendants all say on the headline issues that the parties intended that the agreement would be inclusive of GST. They say that, in the absence of any mention of GST during negotiations or when offers were made, and knowing that a family was purchasing the property as their home, a reasonable person would have understood that the purchasers had not agreed to reimburse the vendor for an amount equal to the vendor’s output tax liability on this sale and that the
15 Matthew Barber and Stephen Todd Burrows, Finn and Todd on the Law of Contract in New
Zealand (7th ed, LexisNexis, Wellington, 2022) at 10.6.1].
16 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444, [2010] NZSC 5 at [129].
17 The statutory scheme relating to mistake under the Contract and Commercial Law Act 2017 cannot be used here because under s 25 of that Act, a mistake, in relation to a contract, does not include a mistake in its interpretation.
18 Robb v James [2014] NZCA 42 at [23].
various offers, including the offer accepted, were all on a GST inclusive basis. They say Ms Li’s claims that the agreement was GST exclusive are not plausible as they are at odds with the subjective beliefs of every other witness and at odds with Ms Li’s previous dealings on the property. They say that Ms Li’s intention, when examined objectively and based on her conduct prior to and during negotiations can suggest only that she was negotiating, also, on a GST inclusive basis.
[48] The first defendant says that the written terms of the contract and the GST treatment of the price in the agreement were important to Ms Li. It is said that the written agreement must stand on its face on the basis that its terms were seen by Ms Li, reviewed by her and accepted as expressing the contractual intention. It is said that Ms Li was focused, during this transaction and others, on the GST aspect of the purchase price. It is said that, alongside the written document itself, surrounding circumstances including events after the signing of the agreement all support the case that Ms Li believed and understood when signing the agreement that it meant what is said: that the price was to be “plus GST”.
Analysis
Did the parties have a common intention that the purchase price was $1.58 million including GST?
[49] It has been said in rectification cases that, while the civil standard of proof applies, convincing evidence is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself.19 That convincing evidence is available here.
[50] There is a range of indicators that show consistently that, on the balance of probabilities, the parties shared a common intention that the purchase price was
$1.58 million including GST.
19 Thomas Bates & Sons Limited v Wyndham’s Lingerie Limited [1981] 1 WLR 505 (CA) at 521.
(a) The negotiations on 12 September 2018
[51] No one mentioned GST during the meeting on 12 September. The negotiations were relatively hard-fought. As outlined in [25]–[28], the plaintiffs increased the verbal offer of $1.55 million that had been made prior to the meeting with a verbal offer of $1.57 million during the meeting. That offer was rejected. The plaintiffs increased their offer to $1.58 million. Ms Li would accept that offer only if it was made on an unconditional basis. The plaintiffs and Joey Feng then spent over an hour speaking with their solicitor and mortgage broker for the purposes of being able to present an unconditional offer. They were able to achieve that only after some effort. It was clear from their evidence that $1.58 million was the most that, under any circumstances, they could offer – and that any taxes needed to be included.
[52] Ms Li knew, that being the case, that the only further advantage she could obtain following the $1.58 million offer would be the removal of the conditions. She could not realistically have understood that she was, with GST added, to receive over
$1.8 million for the property.
[53] Ms Li said that, after the offer of $1.58 million had been presented, she said to Mr Deng “The price is plus GST, you know that?” and that, in response, Mr Deng was non committal and said “Oh, yep”. Mr Deng denies the conversation and his evidence on the point is to be favoured because it is clear that at that point in time he had not seen the written agreement for sale and purchase and GST had not been mentioned during the course of the meeting.
(b) Did Ms Li see the agreement before it was signed?
[54] Ms Li’s position is that, while negotiations were conducted verbally, the agreement itself was in action during the negotiations, that it was being amended as the parties discussed price increases, and that it was viewed and relied upon by her. In other words, it is said that Ms Li saw that the price in the agreement was “plus GST” and that she relied upon that during the verbal negotiations.
[55] Ms Li has referred also to Ms Ning’s brief of evidence in which Ms Ning said that Ms Li remained in the meeting room throughout the period of time in which the
price increases were being negotiated and that the buyers initialled each price increase. In her evidence, Ms Ning accepted that this may not have been an accurate characterisation of the parties’ movements. And the agreement itself shows that the parties did not initial the price increase from $1.55 million to $1.57 million. They initialled only the $1.58 million figure.
[56] Ms Li said in her brief of evidence that the agreement was placed on the table by Ms Ning for the parties to consider while they were talking. She said that, when the offer was increased to $1.57 million and then to $1.58 million, Ms Wang came out of the meeting room to see her with the agreement in her hand.
[57] While the agreement was on the table in front of Ms Ning when everyone was in the meeting room and at the point in time at which the offer was increased to
$1.57 million, Ms Li was sitting at the opposite end of the table to Ms Ning. I am quite satisfied that it could not be seen by her. And I am satisfied that, when Ms Ning was relaying to Ms Wang and to Ms Li the increased offers – at $1.57 million and
$1.58 million – although she had the contract in her hand, she did not show it to them.
[58] While Ms Li said that the agreement was brought out to her during the negotiations, she accepted under cross-examination that she may have been mistaken and that she could not say one way or another. Her position on the point when giving oral evidence was inconsistent. She said that she might have been wrong about Ms Wang coming out of the room with the agreement when the price was increased to
$1.57 million and that it could have been conveyed verbally. She said that they discussed the increase to $1.58 million verbally, and without the agreement. However, she said at a later point that, while she did not hold the agreement, she did see it when the offer was increased to $1.58 million. She said that she saw the “plus GST” notation at that time and that is why she signed it. Ms Wang on the other hand was unequivocal in her evidence that she did not have the agreement in her hand and that she did not take the agreement to Ms Li.
[59] I am satisfied that the evidence establishes that Ms Li did not see or consider the written agreement during the negotiations.20 I am satisfied that she saw the agreement only at the point in time at which she signed it and that, at that point, the parties had agreed verbally to a purchase price of $1.58 million including GST on an unconditional basis.
[60] I do not accept the submission made for Ms Li that, as Ms Wang and Mr Deng were not taking an active part in the negotiations, they did not give credible evidence in relation to Ms Li’s consideration of the written agreement. Although Ms Wang did not see the agreement until she filled in the vendor details in the document after it had been signed and dated, she was clear that Ms Li did not have the agreement during the negotiations.
(c) GST documentation
[61] In the event that GST is to be added to a purchase price, the first schedule of the standard agreement for sale and purchase form that was used here needs to be completed. The schedule provides GST details for both vendor and purchaser. The GST schedule in the agreement was not completed.
[62]Equally, Ms Li did not issue a GST invoice to the purchasers. As Ms Ning said
– and as was confirmed by Mr Deng – in the event that GST forms part of a purchase price, the parties tend to use their calculators to work out the GST component. No one endeavoured to do that during the meeting.
(d) The deposit was not queried
[63] As Mr He said, in the event that GST is to be added to the purchase price, then the deposit would be increased proportionately so that it reflected 10 per cent of the purchase price plus GST. While in submissions for Ms Li, it is said that this would not necessarily be the case, it would tend to follow that, if the purchase price was to include a GST component, so too would the deposit.
20 As discussed previously, the conclusion is supported by the evidence of Mrs Feng, Mr Cai, Joey Feng and Ms Wang.
(e) The reduction in commission
[64] As mentioned earlier, when Ms Ning told Ms Li that the plaintiffs had agreed to make the offer of $1.58 million unconditional, Ms Li then asked Mr Deng and Ms Wang for a private discussion. During that discussion she asked them for a discount on their commission. A discount of $2,000 was agreed. Ms Ning, Mr Deng and Ms Wang all gave evidence to the effect that the discount was sought because Ms Li was upset that the property was selling at a price that was below her expectations.
[65] Ms Li said, in response, that her request for a reduction in commission was not related to the purchase price and that any vendor would try to negotiate a reduction in commission with their real estate agents. I do not accept that evidence to be credible, particularly if Ms Li had in fact achieved a purchase price, on her evidence, of over
$1.8 million which was well above her price expectations.
(f) Ms Li’s price expectations and approach to GST
[66] On 31 August 2018, Ms Li, Mr Deng and Mr He met to discuss an offer Mr He had made on behalf of his Korean client of $1.4 million including GST.21 Ms Li made it clear that the price that she was looking for was $1.6 million. On Mr He’s evidence, it was assumed she was meaning a GST inclusive figure. That is likely to be the case because:
(a)Ms Li had earlier inquired of Barfoot & Thompson whether Mr He’s client could agree to a price of $1.55 million plus GST. She was told that the purchaser was intending to buy the property as a family home, not a business, so the price needed to be inclusive of GST.
(b)During that conversation Ms Li had referred to the price as being “$1.55 million plus GST from now onwards … I’ve figured out this is the breakeven price”.22 However, during the 21 August to 2 September period, a range of offers and counter-offers were made between Mr He,
21 The exchanges are mentioned at [14] and [15] above.
22 Being a reference to the value of the land and her related building costs.
on behalf of his client, and Ms Li. They started at $1.4 million and ended with a counter-offer of $1.595 million from Ms Li. Each of them was “inclusive of GST”. Ms Li made three counter-offers during this time at $1.655 million including GST, $1.64 million including GST and
$1.595 million including GST.
(c)Ms Li accepted that when she made the counter-offer at $1.64 million she knew that it was unlikely to be accepted because it was very high.
(d)In a WeChat message on 8 September 2018, Ms Li asked Ms Wang and Mr Deng to get Mrs Feng and Mr Cai to increase their price a little on the basis that she would lower her price a little until a deal could be concluded at $1.6 million. That was the same price she was looking for when negotiations with Mr He’s client.
(e)As mentioned at [13], the listing agreement included a market appraisal of between $1.5 million and $1.7 million and was initialled by Ms Li.
[67] Ms Li suggested that she had higher price expectations because, as mentioned at [24], the house had been built to a highly specified level because she and her husband were planning to live in it themselves but that she now needed to follow her husband to Japan so was forced to sell. However, that does not appear to be so as, on Ms Ning’s evidence, Ms Li did not leave for Japan. Rather, it is said that she bought another property in New Zealand on the same day as the 3 Moko Lane property was sold.
[68] Ms Li pointed, also, to her exchanges with Ms Wang about the market being good at the time as a result of the fact that restrictions on residential sales for overseas buyers were soon to be introduced. Ms Wang and Mr Deng were equivocal about the impact of the restrictions on the market.
[69] In all of these circumstances, it is not in my view realistic to suggest that Ms Li was expecting GST to be added to prices being discussed which would, in the case of the agreement, have provided a payment to her of over $1.8 million.
(g) Advice given to Ms Li about the ability to add GST
[70] Mr Deng and Ms Wang explained carefully to Ms Li that, if a property is sold as a residential property, the price would be GST inclusive and that appraisals are all given on a GST inclusive basis. It was explained that a buyer can only claim back GST if a purchase is going to be used as a business so that GST exclusive offers only would be considered where a purchaser wants to develop a property or to use it to operate a business. This was confirmed by Ms Ning to be the position in the market in the sense that the only time at which GST would be considered is if a section was being sold to a developer.
[71] Ms Li’s position is that, irrespective of what agents were telling her in the course of negotiations with either Mr He’s client or with the plaintiffs, she was always focused on GST and that, in her mind, it was an operative ingredient of the purchase price. Ms Li pointed to previous residential property transactions with which she had been involved. On some occasions, these transactions were conducted on a “plus GST” basis and, on others, on an “including GST” basis.
[72] However, none of this is enough to unsettle the factors that have been mentioned above. And Ms Li’s position needs to be considered in the context of the message she sent to Ms Wang (set out in [34] above) the day after the agreement had been signed and following a discussion with her lawyer. Her lawyer had observed the fact that the agreement was recorded as being a “plus GST” basis. Upon receipt of that information, Ms Li’s message to Ms Wang was that Ms Wang should not talk to the plaintiffs about the purchase price when, as had been arranged, Ms Wang met with Mrs Feng and Mr Cai on a social basis.
(h) Ms Li’s demeanour
[73] Mrs Feng described in evidence having come across Ms Li in the lobby of the Barfoot & Thompson office at around 6.30 pm on 18 September looking very upset and in tears. Mrs Feng’s evidence is that Ms Li told her the price was too low and that she did not know how to tell her mother. Mrs Feng described the way in which she
tried to comfort Ms Li, explaining that the price was the maximum they could offer. Mr Cai, who was with his wife at the time, gave evidence to the same effect.
[74] Mr Deng gave evidence also of seeing Ms Li in the lobby after the contract had been signed, looking unhappy.
[75] Ms Li denied the evidence of Mrs Feng, Mr Cai and Mr Deng on this point, saying that she was tired at the end of the meeting. However, I prefer the evidence of Mrs Feng, Mr Cai and Mr Deng on the point which was clear and unequivocal.
The resulting position
[76] The evidence for the plaintiffs and Joey Feng was clear: the prices they were proposing needed to be inclusive of all taxes or other costs. While they did not have an understanding of the position as it related to GST, the prices they were offering, and the price at which settled, were maximums.
[77] I am satisfied that Ms Li was proceeding on the same basis. It was a common intention that was, in the context of the negotiations between the parties, expressed outwardly. I do not see that an objective observer could tenably reach any other view.
[78] Ms Ning’s error should have caused no loss because all parties understood that the price was intended to be inclusive of GST.
Should rectification be ordered?
[79] As discussed in [46], the Court has, if a common intention is found, an overall discretion as to whether or not the parties’ agreement is to be rectified. In my view, rectification should follow as a matter of course.
[80] As mentioned in [78], there should have been, given the common intention, no loss. However, Ms Li took advantage of the written agreement, which did not reflect the common intention, refused to sign a variation and, in order for settlement to occur, required the sum of $237,000 (15 per cent of the purchase price) to be held in trust. The plaintiffs had to borrow money to fund the additional payment of $237,000.
[81] I am satisfied that, to restore the position to reflect the parties’ agreement, I should exercise my discretion to order rectification.
[82] Under the terms of the contract, as rectified, the first defendant has no entitlement to the sum of $237,000.
Are damages payable?
[83] The plaintiffs’ case is pleaded on the basis that, if rectification is ordered, then the first defendant has breached the (rectified) contract by holding the sum of
$237,000. The sum of $237,000 is claimed as damages for a breach of contract. It is pleaded that the plaintiffs needed to obtain bridging finance to fund the $237,000 payment which came at an interest cost to them of $66,447. That sum is claimed also as damages for a breach of contract.
[84] The legal principles to be applied in considering these claims for damages were not addressed in the submissions for any of the parties. However, whether considered as damages that follow from a breach of contract or for the purpose of restoring the position as between the parties following the grant of the equitable remedy, I am satisfied that damages can follow.
[85]As Cooke P said in Day v Mead:23
Compensation or damages in equity were traditionally said to aim at restoration or restitution, whereas common law tort damages are intended to compensate for harm done; but in many cases … that is the difference without a distinction. There is, however, the more significant historical difference that the Courts of equity were regarded as having wider discretions than common law Courts. Equitable relief was always said to be always discretionary.
[86] Similarly, on these facts, whether a contract measure – to restore the innocent party to the position he or she would have occupied had the contract not been made24
– or whether it is seen more broadly as an award of damages to compensate for a loss in equity, I do see the position of the plaintiffs as needing to be restored.
23 Day v Mead [1987] 2 NZLR 443 (CA) at 451.
24 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at 86.
[87] In Image Services Ltd v Turfus Motor Court Ltd, Wild J described the measure as “damages for breaches of the rectified agreement by the defendants”.25 In that case, the contract measure of damages was applied to restore the plaintiff’s position following the Court’s findings on rectification and breach of contract.26
[88] The sum of $237,000, to which the first defendant has no entitlement under the contract, must be paid to the plaintiffs accordingly.
[89] The related question is whether or not the first defendant should pay damages to the plaintiffs for the costs to the plaintiffs, in interest charges, in having to raise the sum of $237,000 in order to settle the transaction.
[90] The plaintiffs did not have funds available to make the $237,000 payment. They were concerned about the potential for Sea.TX to cancel the agreement and for them to lose their deposit. They were introduced to a private individual who was willing to lend them one million Yuan (which is approximately NZ$210,000) for a one year term. Because the loan was urgent and unsecured, an interest rate of 30 per cent per annum was applied. As Mrs Feng said, they were left with no other choice.
[91] The loan was drawn down on 6 December 2018 and the funds were transferred to New Zealand to enable settlement on 12 December 2018.
[92] On 2 December 2019, the plaintiffs repaid the loan and interest at a cost to them of 1,300,000 Yuan. The evidence showed the interest component of the loan, using exchange rates in December 2019, was $66,447.
[93] Under the rectified agreement, Sea.TX was in breach by requiring the plaintiffs to pay the sum of $237,000 in order to settle. The plaintiffs’ loss from that breach of contract amounted to $66,447. That sum now needs to be paid to the plaintiffs as damages in order to restore their positions.
25 Image Services Ltd v Turfus Motor Court Ltd HC Dunedin CIV-2006-412-000992, 26 November 2008. See also McGrath and Ors v Simson and Ors [2015] NZHC 2644 at [114].
26 At [137]–[141].
Can Sea.TX seek an indemnity from Ms Ning and Barfoot & Thompson?
[94] Sea.TX has claimed, in the event that rectification is ordered, that Ms Ning and Barfoot & Thompson are liable to indemnify it against any relief obtained by the plaintiffs against Sea.TX.
[95] It is said that a duty to advise Sea.TX of the error made in the written agreement arises through r 6 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (the Rules) and under s 9 of the Fair Trading Act 1986.
[96] Rule 6 of the Rules provides that a licensee (which is defined to mean a real estate agent, a branch manager or a salesperson) must comply with fiduciary obligations to the licensee’s client, act in good faith, deal fairly with all parties engaged in a transaction and must not mislead a customer or a client nor provide false information nor withhold information that should by law or in fairness be provided to a customer or client.
[97] Under s 9 of the Fair Trading Act, no person, in trade, shall engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[98] Sea.TX has referred also to a fiduciary duty owed by Barfoot & Thompson to Sea.TX and, in particular, to related duties of integrity, care and skill.27
[99] Sea.TX’s claim for indemnity cannot in my view succeed. I have found that Ms Li and Sea.TX shared a common intention with the plaintiffs. In those circumstances, there could be no breach of r 6 of the Rules or s 9 of the Fair Trading Act or of a fiduciary duty of the kind described.
[100] Sea.TX suffered no loss. The written contract has been rectified to accord with the terms to which the parties actually agreed: a purchase price of $1.58 million including any GST. Rectification restores what I have found to be the parties’ actual bargain and no indemnity can be relevant in those circumstances.
27 Sea.TX refers to R D Mulholland and Julia P Pedley Laws for Real Estate Agents in New Zealand
(Butterworths, Wellington, (1999) at [8.7].
Alternative causes of action
[101] In the event that rectification was not ordered, the plaintiffs claim damages in negligence against the second and third defendants on the basis that the mistake in completing the agreement was the cause of their loss in the form of GST liability and interest on the bridging finance. The plaintiffs say that Barfoot & Thompson is vicariously liable to them for Ms Ning’s mistake.
[102] Had a common intention not been found, I would have upheld the plaintiffs’ claim in negligence against the second and third defendants. The claim could have, had it been needed, been made out having regard to the three main elements for a cause of action in negligence:28
(a)There can be little doubt that Ms Ning owed the plaintiffs a duty to take reasonable care when she prepared the agreement. The plaintiffs, who speak no English and have no knowledge or understanding of New Zealand property or tax law, were dependent on Ms Ning and Barfoot & Thompson. That was equally so of Joey Feng who speaks English as a second language and is inexperienced in the property market.
(b)The duty was breached through Ms Ning’s error in deleting the “inclusive of GST” option in the agreement, rather than the “plus GST” option. The plaintiffs and Joey Feng had made it clear to Ms Ning that all prices offered were to be inclusive of taxes. A reasonable person in Ms Ning’s position would have foreseen that her conduct would involve a risk of injury to the plaintiff and that injury – in the form of a loss in a sum equivalent to 15 per cent of the purchase price – would have been likely.
(c)In the event that rectification was not ordered, the breach of the duty described would have caused the plaintiffs damage in a sum equivalent to the GST component of the purchase price and the interest cost they bore on the funds they needed to raise to make the GST payment.
28 Wilson & Horton v Attorney-General [1997] 2 NZLR 513 (CA) at p 519.
[103] Barfoot & Thompson admit that an error was made when completing the written agreement for the purpose of recording the terms agreed verbally by the parties on 12 September 2018. They accept in general terms that the elements for a claim for negligence are made out. They say that the Court may take the view that Barfoot & Thompson had a duty of care to the plaintiffs to prepare and explain the agreement for sale and purchase properly for them and that it breached that duty of care by selecting the “plus GST” option on the agreement.
[104] Moreover, Barfoot & Thompson accepts that it is vicariously liable for the acts and omissions of Ms Ning.
In the circumstances, could Ms Ning and Barfoot & Thompson have sought an indemnity from Sea.TX?
[105] In the event that the Court determined that Ms Ning and Barfoot & Thompson were liable to the plaintiffs in negligence, Ms Ning and Barfoot & Thompson sought an indemnity from Sea.TX on the basis that:
(a)Sea.TX had received the full financial benefit of the mistaken selection of the “Plus GST” option on the agreement; and
(b)the value of the 3 Moko Lane property at the time did not exceed
$1.58 million including GST.
[106] Again, the point is moot because the common intention has led to rectification. But, had that not been so, the fact that Sea.TX would have received the GST payment in circumstances where the net purchase price might have exceeded market value estimates is not relevant. Sea.TX would, in those circumstances, have received the price it had intended. But, for the reasons given, that is not the intention that has been found to exist.
Result and orders
[107]For the reasons given, I make the following orders:
(a)The Court will rectify the agreement to give effect to the parties’ common intention that the purchase price for the 3 Moko Lane property was to be $1.58 million including GST.
(b)Because the sum of $237,000 (reflecting the value of the GST on the
$1.58 million price) is not a part of the rectified contract, it is to be repaid to the plaintiffs as damages.
(c)The freezing order of 13 April 2021 over the sum of $237,000 is, following the expiry of five working days from the date of this decision, discharged.
(d)The trust created over the sum of $237,000 in paragraph 3 of the freezing order of 13 April 2021 is, following the expiry of five working days from the date of this decision, discharged.
(e)The first defendant is to pay to the plaintiffs the sum of $66,447, as damages.
(f)The plaintiffs’ undertaking as to damages of 15 June 2020 is discharged.
[108] If costs cannot be resolved between the parties, then the plaintiffs and the second and third defendants may, within 10 working days from the date of this decision, file memoranda and the first defendant may, within a further 10 working days, file a memorandum in response. Any such memoranda (including schedules) should be limited to five pages in length.
Radich J
Solicitors:
Nolan & Lu, Hamilton for Plaintiffs
Queen City Law, Auckland for First DefendantWynn Williams, Auckland for Second and Third Defendants