Greenmount Manufacturing Ltd v Southbourne Investments Ltd

[2006] NZCA 315

IN THE COURT OF APPEAL OF NEW ZEALAND

CA90/06

BETWEENGREENMOUNT MANUFACTURING LIMITED

Appellant

ANDSOUTHBOURNE INVESTMENTS LIMITED

Respondent

Hearing:25 October 2006

Court:Arnold, Baragwanath and Wild JJ

Counsel:P David and T G Herbert for Appellant

S A Grant, T A Chubb and B E Slocum for Respondent

Judgment:21 November 2006 at 3 pm

JUDGMENT OF THE COURT

A        The appeal is allowed. 

BThe judgment of the High Court is set aside. The respondent is ordered specifically to perform the purchase agreement, on the terms set out in [62].

CThe respondent is to pay the appellant $6,000 costs in this Court with usual disbursements.

DThe appellant is also entitled to its costs and disbursements in the High Court, as fixed by that Court failing agreement.

REASONS OF THE COURT

(Given by Wild J)

Introduction

[1]       Greenmount Manufacturing Limited appeals against a judgment of Associate Judge Doogue delivered on 13 April 2006 dismissing its application for summary judgment and ordering it to pay costs to the respondent Southbourne Investments Limited.

[2]       Greenmount submits the Associate Judge erred in holding that Southbourne had an arguable defence.  Southbourne had advanced four separate defences.  Having held that the first of these was seriously arguable, the Associate Judge did not go on and consider the remaining three.

[3]       Greenmount submits the Associate Judge was wrong to hold that Southbourne’s first defence was seriously arguable.  It contends that none of the remaining three defences are obstacles to summary judgment either.

[4]       The appeal against costs is dependent on the success of this appeal.  It will fall away if we allow the appeal and give Greenmount summary judgment.

[5]       A further challenge, this time to an evidential ruling given by the Associate Judge on 31 March 2006, need not be dealt with.  The evidence in question did not feature in the argument before us.  We therefore say nothing more about that aspect of the appeal.

[6]       In its summary judgment application of 22 November 2005 Greenmount sought an order that Southbourne specifically perform an agreement whereby Southbourne sold to Greenmount the property located at 13 Polaris Place, East Tamaki, Auckland (‘the property’).

[7]       Before returning to deal with Southbourne’s four defences to that claim, we give the factual background, in particular the dealings between the parties which culminated in the agreement of which Greenmount sought specific performance.

Factual background

[8]       By a written agreement to lease dated 9 February 2004 Southbourne agreed to lease the property to Greenmount for a nine year term commencing 1 May 2004.  This agreement to lease provided that the lease was to contain a right of purchase option in favour of Greenmount or its nominee exercisable within the first 18 months of the lease term.  That option then detailed the way in which the option was to be exercised.  Those details were repeated in the lease.  We will set them out when we come to that.

[9]       The agreement to lease contained a term pursuant to which the parties acknowledged that the lease evidenced by the agreement had been made through Quantum Realty Ltd whom Southbourne appointed as its agent to effect the lease.  That term provided that Southbourne pay Quantum’s charges for effecting the lease.

[10]     The agreement to lease also contained this condition:

6.0Real Estate Commission

…

6.2In the event of the Purchase Option being exercised, the Landlord shall pay the Agent a “sale” commission from which the amount of any leasing commission that has been paid pursuant to this Agreement will be deducted.  The commission shall be at 1.5% plus GST and only apply to a purchase within the first 18 months of the lease term.

[11]     On 7 September 2005 the parties signed a deed of lease containing this clause:

47.1Option to Purchase

[Southbourne] hereby grants to [Greenmount] or its nominee an option to purchase the property on the following terms:-

(a)The option can only be exercised at any time within the first eighteen (18) months of the commencement date of the initial lease term in this Lease (time being of the essence).

(b)To exercise the option [Greenmount] or its nominee shall present to [Southbourne] within the aforesaid time limit, a signed and dated unconditional Sale & Purchase Agreement (“Agreement”) with the following terms:-

(i)The form of the Agreement shall be the then current form of Sale & Purchase Agreement published by the Auckland District Law Society and the Real Estate Institute of New Zealand.

(ii)The purchase price shall be $3,500,000.00 plus GST if any.

(iii)The deposit shall be $350,000.00 and shall accompany the Agreement.

(iv)The settlement date shall be twenty-eight (28) days after the date of the Agreement.

(v)The interest rate for late settlement shall be 11%.

(vi)If the nominee of the tenant fails to complete the Sale & Purchase Agreement the Tenant will remain liable for all the obligations on the part of the purchaser under the said Agreement.

(vii)The Agreement shall be subject to this within Lease.

[12]     As the lease had commenced on 1 May 2004, the 18 months within which Greenmount could exercise the option to purchase expired on 31 October 2005. 

[13]     On Wednesday 26 October 2005 Greenmount’s solicitor, Mr Doughty, telephoned Mr Scott Douglas and advised him that Greenmount was exercising its option.  Mr Douglas was Southbourne’s property manager and agent.  Mr Douglas asked Mr Doughty to send the agreement and deposit cheque directly to Southbourne’s solicitor, Mr Michael Foley, at Foley & Hughes.

[14]     Early on the morning of 27 October 2005 Mr Doughty couriered the agreement and cheque to Mr Foley under cover of a letter in these terms:

Further to my telephone discussion today with Mr Scott Douglas of the landlord’s company, Mr Douglas has requested that the enclosed agreement for sale and purchase (pursuant to the Option), be sent directly to you to arrange for the vendor’s signature.

Please acknowledge receipt of the agreement (in duplicate) and the deposit cheque of $350,000.00.

I look forward to your acknowledgment of receipt and confirmation of your settlement requirements.

Feel free to contact me if you have any queries.

[15]     We will refer to the agreement Mr Foley sent as “the purchase agreement”.  It took the form of a completed Auckland District Law Society Form of Agreement for Sale and Purchase of Real Estate (Seventh Edition (3) July 1999).  It was dated 27 October 2005.  The vendor was Southbourne and the purchaser:

GREENMOUNT MANUFACTURING LIMITED or Nominee at Auckland

[16]     The contentious parts of the purchase agreement are these:

PURCHASE PRICE

Purchase Price: $3,500,000.00            Plus GST (if any)

…

CHATTELS

The following chattels if now situated on the property are included in the sale.

(strike out or add as applicable):

STOVE          TV AERIALS  FIXED FLOOR COVERINGS   BLINDS

CURTAINS     DRAPES        TELEPHONES  LIGHT FITTINGS

All chattels included in the sale to be agreed between the parties prior to settlement date.

Sale by (name of real estate agent):

Quantum Realty Limited MREINZ

11.0Agent

11.1If the name of a licensed real estate agent is stated on the front page of this agreement it is acknowledged that the sale evidenced by this agreement has been made through that agent whom the vendor appoints as the vendor’s agent to effect the sale.  The vendor shall pay the agent’s charges including GST for effecting such sale.

12.0      Goods and Services Tax (GST)

12.1If this agreement provides for the purchaser to pay (in addition to the purchase price stated without GST) any GST which is payable in respect of the supply made under this agreement then:

(1)The purchaser shall pay to the vendor the GST which is so payable in one sum on the GST date.

(2)Where the GST date has not been inserted on the front page of this agreement the GST date shall be the possession date.

(3)Where any GST is not so paid to the vendor the purchaser shall pay to the vendor:

(a)    interest at the interest rate for late settlement on the amount of GST unpaid from the GST date until payment; and

(b)    any default GST.

(4)It shall not be a defence to a claim against the purchaser for payment to the vendor of any default GST that the vendor has failed to mitigate the vendor’s damages by paying an amount of GST when it fell due under the Goods and Services Tax Act 1985 (“the Act”).

(5)Any sum referred to in this clause is included in the purchase price, interest and other moneys, if any, referred to in subclause 3.7.

12.2If the supply under this agreement is a taxable supply the vendor will deliver a tax invoice to the purchaser on or before the GST date or such earlier date as the purchaser is entitled to delivery of an invoice under the Act.

12.3The vendor warrants that any dwelling and curtilage or part thereof supplied on sale of the property are not a supply to which section 5(16) of the Act applies.

12.4“Default GST” means any interest, or late payment penalty, or shortfall penalty, or other sum imposed on the vendor under the Tax Administration Act 1994 by reason of non-payment of the GST payable in respect of the supply made under this agreement but does not include any such sum levied against the vendor by reason of a default by the vendor after payment of the GST to the vendor by the purchaser.

13.0Supply of a Going Concern

13.1If this agreement relates to the sale of a tenanted property (not being an exempt supply within the meaning of the Goods and Services Tax Act 1985) (“the Act”) then, unless otherwise expressly stated herein:

(a)    each party warrants that it is a “registered person” within the meaning of the Act; and

(b)    the parties agree that the supply made pursuant to this agreement is the supply of a going concern on which GST is chargeable at zero per cent.

13.2If it subsequently transpires that GST is payable in respect of the supply and if this agreement provides for the purchaser to pay (in addition to the purchase price without GST) any GST which is payable in respect of the supply made under this agreement then the provisions of clause 12.0 of this agreement shall apply.

FURTHER TERMS OF SALE

…

16.0It is acknowledged that the within land is being transferred as a going concern and GST shall be assessed at zero per cent.  In the event that the Inland Revenue Department should assess GST at a rate other than zero per cent the provisions of clause 13.0 of the general conditions herein shall apply.

[17]     The deposit cheque enclosed was drawn by Greenmount on its account with the National Bank at Auckland, and made out to Southbourne for $350,000. 

[18]     Shortly before 7 p.m. on 27 October Mr Doughty received from Mr Foley by fax a copy of his (Mr Doughty’s) covering letter on which Mr Foley had endorsed in handwriting “RECEIVED 27/10/05 M J Foley”.

[19]     In the affidavit he swore on 21 November 2005 in support of Greenmount’s summary judgment application, Mr Doughty described what followed in this way:

22.I telephoned Mr Foley during the morning of Friday 28 October 2005 to confirm all was in order.  Mr Foley advised that he had not yet looked through the ADLS Agreement in detail, but would do so shortly as he was meeting with his client that day.  He asked whether Greenmount would be nominating a purchaser, and I confirmed it would be nominating Polprop Limited.  Mr Foley then mentioned that he had a number of settlements to attend to that day (being a Friday), advised he would revert to me later that day, and we ended the telephone call.

23.Having not heard from Mr Foley, I again telephoned him during the afternoon of Friday 28 October 2005, seeking confirmation that the documentation was in order.  Mr Foley told me that he had been through the ADLS Agreement, albeit quickly, and had no issues with it.  Upon my further enquiry, Mr Foley confirmed that Greenmount had exercised its Option and had (in his words) “done all that it was required to do”.  I asked if he could let me know his client’s settlement requirements; Mr Foley said that he was not meeting his client until later on and he would revert to me regarding settlement requirements after that.

24.I again telephoned Mr Foley at about 2pm on Monday 31 October (the final day of the Option period), to confirm his client’s settlement requirements.  Mr Foley advised that his client’s father had had heart surgery on Friday 28 October 2005; therefore his client had not been able to meet with Mr Foley on that day.  Mr Foley advised that he was meeting his client that afternoon (Monday 31 October).  I reiterated that we would need to confirm settlement requirements.

[20]     Mr Doughty deposed that he next heard from Mr Foley on Tuesday 1 November when he received from him a fax in these terms:

We met with our client late yesterday.  It has raised questions concerning the validity of the exercise of the option and therefore on instructions we are obtaining an urgent opinion from counsel.  We hope to receive that within the next one or two days and will then advise you of our client’s position.

[21]     Despite attempting to speak to Mr Foley on the telephone, and leaving a message for him urgently to ring, Mr Doughty did not hear again from Mr Foley until 4 p.m. on Friday 4 November when he received a further fax.  In this Mr Foley first took issue with what Mr Doughty had stated in a fax he had sent Mr Foley that afternoon.  Mr Foley said he had not advised Mr Doughty that Greenmount had exercised the option and done all that it was required to do.  He recorded his “very strong objection to the interpretation (Mr Doughty was) purporting to place on what was said”.  He continued:

Counsel has advised that your client has not validly exercised its option, for the following reasons.

1.Exercise of the option required a payment of a deposit of $350,000.00.  A personal cheque is not legal tender.

2.The purchase price was to be $3,500,000.00 plus GST if any.  Introduction of Clause 16 requiring GST to be assessed at zero percent does not comply and is furthermore incorrect.

3.The option relates to the purchase of the property.  The inclusion of the provision relating to chattels to be agreed is beyond the terms of the option and furthermore amounts to an agreement to agree.

4.The inclusion of the name of a real estate agent, Quantum Realty Limited, does not comply with the option terms.  Pursuant to Clause 11.1 of the Agreement it would amount to an appointment which obliges the vendor to pay agent’s charges which our client should not be fully liable for.

5.The exercise of an option to purchase must be unqualified and absolute acceptance.  Any departure or qualification renders the exercise a counter-offer.

In view of Counsel’s advice our client is considering its position.

[22]     On Mr Doughty’s advice, Greenmount then lodged a caveat against the property to protect its interest under the purchase agreement.  On 22 November it commenced this proceeding seeking, in its statement of claim, specific performance of the purchase agreement.

[23]     Mr Foley swore an affidavit in opposition to Greenmount’s summary judgment application.  In this he confirmed the timing of his communications with Mr Doughty, as Mr Doughty had outlined it.  As already mentioned, he disagreed that he had told Mr Doughty that Greenmount had validly exercised the option and done all that it needed to do.

Was the Associate Judge wrong to refuse Greenmount summary judgment?

[24]     The Associate Judge’s statement of summary judgment principles is accepted.  The issue is whether he erred in finding Southbourne had an arguable defence, such that this case should go to a full hearing.

[25]     The Associate Judge recorded:

[11]     Counsel agreed that the applicable principles are that in order to validly exercise an option, the offeree must unreservedly assent to the exact terms proposed by the offeror in the option:  see Reporoa Stores Ltd v Treloar [1958] NZLR 177. They also referred me to the recent Court of Appeal judgment in Gulf Corporation Ltd v Gulf Harbour Investments Ltd [2006] 1 NZLR 21 which stated that Reporoa Stores was clear authority on the law of options.

[26]     He then accepted Southbourne’s argument that the only exception to this “exact compliance” test are differences between the terms of the offer and the purported acceptance so trivial that they can be regarded as de minimis:  Gulf Corporation.

[27]     There is no longer agreement that these are the applicable principles.  Greenmount’s counsel sought to distinguish Reporoa Stores and Gulf Corporation on the basis that they dealt with whether or not there was acceptance of the terms of the binding contract to be created between the parties by the exercise of the option, and said nothing about the means of that acceptance.  If the two cases were in point, we were invited to depart from them.  We were referred to O’Regan J’s observation in Gulf Corporation:

[80]     I accept that Reporoa Stores and Buckland [v Bay of Islands Electric Power Board (1980) 1 NZCPR 217 (CA)] involve strict applications of the requirement for “exact compliance”.  There is scope for argument that a more benign approach, along the lines of that adopted by Adams J in his dissenting judgment in Reporoa Stores, could be adopted.  That approach is supported by some Australian authority, for example Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673. But Reporoa Stores and Buckland are clear authority of this Court and neither party suggested that it was appropriate to depart from them.

[28]     For the reasons which follow we need not decide to what extent, if any, it might now be appropriate to depart from the “exact compliance” test mandated by the majority of this Court in Reporoa Stores and again applied by this Court, though perhaps not without some hesitation, in Gulf Corporation.  We note that these two decisions have been vigorously criticised by Mr Andrew Beck in his article “Contract” [2006] 1 NZLR 165. They are not the only decisions of this Court upholding the “exact compliance” test. Others include Henderson v Ross [1981] 1 NZLR 417, particularly per Somers J at 429, and Alexander v Tse [1988] 1 NZLR 318 at 325.

[29]     In his decision the Associate Judge set out the four respects in which Southbourne argues Greenmount’s purported exercise of the option failed to conform exactly with the terms of the option.  These four respects are that Greenmount:

(a)       Added cl 16 which provided:

It is acknowledged that the within land is being transferred as a going concern and GST shall be assessed at zero per cent.  In the event that the Inland Revenue Department should assess GST at a rate other than zero per cent the provisions of clause 13.0 of the general conditions herein shall apply.

(b)       Paid the deposit by company cheque, and not in legal tender.

(c)       Inserted the name of a real estate agent thereby making Southbourne liable for the “agent’s charges” which was not a term of the option.

(d)Added a term that chattels were to be agreed between the parties, which was not a term of the option.

[30]     It is the first of these points that the Associate Judge held provided Southbourne with an arguable defence.  Although the Associate Judge did not consider the other three, we will need to.

Clause 16.0 – GST on the supply

[31]     We consider that the Associate Judge was wrong to conclude that cl 16.0 was not in conformity with the option.  The Associate Judge examined cl 16.0 and the competing interpretations contended for by the parties.  He thought it arguable that cl 16.0 had not changed the legal position that would have resulted had an agreement in the form of the standard agreement been tendered.  However, in his view:

“…that is no answer to the fact that it was a clear requirement of the option that it be accepted by the purchaser tendering a standard form ADLS agreement.  The terms on which the option was conferred did not contemplate the addition of clause 16.0.”

[32]     Accordingly, notwithstanding Greenmount’s argument that cl 16.0 had no material effect on the contractual position, the Associate Judge declined to enter summary judgment.

[33]     The issue, assuming application of the exact compliance test outlined in Reporoa Stores and Gulf Corporation, is whether cl 16.0 departed from the contractual position outlined in the option or complied with it, as Greenmount contended.  For two reasons, we consider cl 16.0 complied with the option.

[34]     To explain our first reason, we go back to the option to purchase in cl 47.1 of the deed of lease.  By that clause Southbourne granted an option to Greenmount “or its nominee”.  This gave Greenmount the contractual right to exercise the option itself or to exercise it by its nominee.

[35]     It is common ground that the use of a nominee to settle the purchase was necessary if the property was to be transferred as a going concern and thus qualify for a 0% assessment of GST under s 11(m) Goods and Services Tax Act 1985.  If Greenmount settled the purchase itself its leasehold estate would merge into the freehold estate it had purchased and the property would no longer be the subject of the taxable activity of commercial leasing.  The GST payable would be 12.5% on $3,500,000 which is $437,500.  This result is demonstrated by Pine v Commissioner of Inland Revenue [1998] 18 NZTC 13,570 per both Richardson P (dissenting) and Williams J.  On the other hand, if the purchase was settled through Greenmount’s nominee then the nominee would replace Southbourne as landlord (either by assignment of the existing lease, or pursuant to a fresh lease to Greenmount) so that Greenmount could continue as tenant.  The nominee would need to register for GST carrying on the taxable activity of commercial leasing.

[36]     Although the option was able to be exercised by Greenmount “or nominee”, Ms Grant submitted that the exercise was by Greenmount, since no nominated purchaser had been notified to Southbourne.

[37]     In evidence is a deed of nomination dated 27 October 2005 whereby Greenmount nominated Polprop Ltd as the purchaser under the purchase agreement.  Mr Doughty’s evidence is that that deed was signed and dated by Greenmount before he provided the purchase agreement to Mr Foley on 27 October.  It appears, however, that neither Mr Foley nor Southbourne were advised of the nomination until later.

[38]     We do not think that the lack of notification of the nomination is relevant to whether the option was validly exercised or not.  Greenmount was entitled to exercise the option itself or by its nominee.  The exercise was by one or the other, and it seems to us to matter not which it was.  Although Ms Grant submitted that the exercise was by Greenmount, she could not and did not submit that Greenmount was not entitled, subsequent to its exercise of the option, to substitute Polprop as the purchaser.

[39]     Clause 16.0 is consistent with Greenmount’s right to nominate Polprop in order to achieve a transfer of the property as a going concern.  On the terms of cl 47.1 Greenmount was entitled to exercise the option either on its own behalf or through its nominee.  Ms Grant took issue with the wording in cl 16.0 “It is acknowledged…”.  She rightly submitted that those words recorded an agreement.  However, cl 16.0 did not purport to create a new agreement, or to alter the existing contractual position; it simply recorded the fact that Greenmount had chosen to exercise its right under cl 47.1 to utilise a nominee for the purposes of effecting a transfer of the property as a going concern.  If Greenmount chose to do so, Southbourne could not but acknowledge that. 

[40]     The result of Greenmount’s decision to utilise a nominee to effect the purchase was that the property was transferred as a going concern.  This was what was contemplated by the parties in their agreement.  In our view, rather than departing from the parties’ agreement, cl 16.0 recorded the implementation of it.

[41]     Clause 16.0 was also essential to satisfying the requirements of s 11(1)(m) of the Goods and Services Tax Act, the effect of which is that GST will be charged at 0% where there is:

(m)      the supply to a registered person of a taxable activity, or part of a taxable activity, that is a going concern at the time of the supply, if—

(i)the supply is agreed by the supplier and the and the recipient, in writing, to be the supply of a going concern;

(ii)the supplier and the recipient intend that the supply is of a taxable activity, or part of a taxable activity, that is capable of being carried on as a going concern by the recipient;

…

[42]     Without cl 16.0, the purchase agreement might not comply with that provision.  Fatac Ltd (In Liquidation) v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA) is an example of a non-complying transaction. The case involved an earlier version of the ADLS form of agreement for sale and purchase of real estate and the predecessor of s 11(1)(m). Paragraphs [22]-[27] and [78] and [79], particularly lines 7-11 of the latter, are the relevant parts of the Fatac judgment.

[43]     In objecting to cl 16.0, Southbourne was attempting to derogate from Greenmount’s contractual rights, the converse of Southbourne’s contention that cl 16.0 somehow infringed its own rights.  It is perhaps significant to note what Mr C J R Dickie, the Managing Director of Southbourne, stated in the affidavit he swore on 19 January 2006 in opposition to Greenmount’s application for summary judgment.  He stated:

12.By inserting the clause regarding the GST being zero-rated, and by failing to delete clause 13 of the alleged agreement for sale and purchase, the plaintiff failed to strictly adhere to the terms of the option, and did not validly exercise the option.

This suggests Mr Dickie misunderstood the option or wanted to deprive Greenmount of its entitlement to purchase through a nominee.

[44]     Our second reason is based on an interpretation of the GST provisions in the purchase agreement.  By cl 13.0 the parties agreed to two things:

(a)If the property is sold tenanted the supply made pursuant to the agreement is of a going concern on which GST is chargeable at 0%.

(b)       If GST is assessed, cl 12.0 applies.

[45]     The net effect of cl 12.0 is that any GST assessed is payable by Greenmount.

[46]     Ms Grant is correct in submitting that cl 16.0 removes the “if” from cl 13.0 by recording an agreement that the supply is of a going concern.  But the net or ultimate effect of cl 16.0 is that any GST assessed is payable by Greenmount.  Clause 16.0 achieves this by making cl 13.0 applicable, and cl 13.0 makes cl 12.0 applicable if GST is assessed.

[47]     Consistent with this, the purchase agreement provides that the purchase price is $3,500,000 plus GST (if any).

[48]     In drawing Southbourne’s argument together in four main points, Ms Grant submitted that cl 16.0 detracted from Southbourne’s rights because, in order to make the GST assessment at the time of settlement, the parties would need to know the circumstances existing at the time of settlement.  Otherwise it was not possible to assess whether the property was tenanted.

[49]     We accept this.  The purchase agreement stipulates that the GST date is calculated in accordance with cl 12.0.  Clause 12.1(2) applies here, with the consequence that the GST date is the possession date.  The possession (or settlement) date is specified to be Thursday 24 November 2005.

[50]     That is consistent with this Court’s view in Fatac that the cl 12 formula is to be applied to the property as at the date of settlement:

[23]     …A sale is primarily concerned with the property that is intended to pass.  What matters is therefore whether this property was “tenanted” at the date of settlement.

[51]     Clause 16.0 does not alter this.  Its reference to “the (property) being transferred” is a reference to settlement date, since that is when ownership is transferred (transfer of registered title follows settlement, upon registration).

[52]     Ms Grant’s argument seems to imply that cl 16.0 introduces some uncertainty into the GST position.  We reiterate our view that it does the converse.  In any event, the possibility of subsequent (to settlement) GST assessment is expressly contemplated by cl 13.2.  So the GST position was never free of uncertainty.

[53]     We have not overlooked s 9(1) of the Goods and Services Tax Act and the case law on progressive/periodic supply, in particular by receipt of a deposit.  The effect of cl 12.1(2) and cl 16.0 of the purchase agreement, coupled with this Court’s judgment in Fatac, point to the GST liability being assessed at the date of settlement.  If any issue arises as to whether the property was tenanted at the date of the purchase agreement, then the answer is that the property was tenanted on 27 October 2005.  Southbourne was the landlord and Greenmount the tenant, under the deed of lease.

[54]     We reject Ms Grant’s submission on this first point.  We hold that cl 16.0 did not depart from either party’s contractual rights and liabilities in any material way.

Payment of deposit

[55]     This is the first of the three other obstacles Southbourne raised to summary judgment.  As we have mentioned, the Associate Judge did not deal with these.  Greenmount argued that there is no requirement in the option to purchase, as opposed to the purchase agreement, that it pay the deposit by legal tender.  It complied with term (b)iii of the option, in enclosing the deposit of $350,000 with the purchase agreement it couriered to Southbourne’s solicitor and agent on 27 October 2005.

[56]     The counter argument, of course, is that “the deposit” must refer to the deposit stipulated in the purchase agreement.  The law as to the mode of payment of a contractual deposit is authoritatively re-stated by the Supreme Court in Otago Estates Ltd v Parker [2005] 2 NZLR 734:

[27]     The law relating to the mode of payment of deposits is well understood and workable in practice.  It was undoubtedly known to those who prepared the seventh edition of the standard form that a contractual requirement for the making of a payment must, as a matter of law, be performed by means of legal tender, bank cheque or other cleared funds unless the payee by words or conduct indicates a preparedness to accept a personal cheque.  A vendor who takes a personal cheque or knowingly allows his or her agent to do so, without objecting specifically to the form of tender of payment as soon as he or she is aware of it, must expect to be taken to have dispensed with the need for payment through legal tender or its equivalent.  The vendor would then be estopped from asserting that the mode of payment did not comply with the contractual requirement.  …

[57]     It is the latter part of that statement which is decisive against Southbourne.  On 27 October 2005 Southbourne’s solicitor and agent, Mr Foley, received the purchase agreement and Greenmount’s cheque for the deposit.  He would have seen at a glance that the cheque was drawn by Greenmount:  that it was not a bank cheque or cleared funds.  Later that day he acknowledged receipt of the agreement to purchase and deposit cheque, as requested.  There then followed the series of events we have set out in [19] to [21] above.  It was not until 4 November that Southbourne objected specifically to the mode of payment of the deposit.  That was eight days later.  In that interim, the time for exercise of the option had expired.  Significantly, at the end of his 4 November fax to Mr Doughty, Mr Foley advised that Southbourne was still considering its position.  We cannot, on the unexamined conflicting evidence, make a finding as to whether Mr Foley told Mr Doughty that Greenmount had exercised the option and done everything it needed to do.  Even without such an assertion, we are in no doubt that Southbourne’s actions estop it from asserting on 4 November that the mode of payment by Greenmount of the deposit did not comply with the contractual requirement.  That removes the deposit point from Southbourne, as a seriously arguable defence.

Inclusion of real estate agent

[58]     The purchase agreement makes provision to acknowledge that the sale is by a real estate agent.  In this space Greenmount added the words “Quantum Realty Ltd MREINZ”.  That triggered cl 11.1 of the purchase agreement, making Southbourne liable to pay “the agent’s charges including GST for effecting such sale”. 

[59]     Ms Grant acknowledged the parties’ agreement on real estate commission, recorded in cl 6.2 of the agreement to lease (set out in [10] above).  Ms Grant argued that clause 11.0 in the purchase agreement is wider than the parties’ earlier agreement, because it made Southbourne liable to pay all the agent’s charges.  When pressed as to how cl 11.0 extended Southbourne’s liability beyond cl 6.2 of the agreement to lease, Ms Grant accepted she could not take the point further.  There is nothing in it. 

Inclusion of future agreement as to chattels

[60]     We have set out in [16] above the standard provision in the purchase agreement as to chattels, and the clause Greenmount added to it:

All chattels included in the sale to be agreed between the parties prior to settlement date.

[61]     We agree with Greenmount that the effect of this is that ownership of the chattels specified in the standard form part of the clause passes to Greenmount upon settlement, but that ownership of any other chattels in the property does not pass unless the parties have reached agreement.  In short, the words added by Greenmount do not alter the legal position.  Ms Grant ultimately accepted that they are but an agreement to agree, and thus of no legal effect.  There is nothing in this point either.

Result

[62]     The appeal is allowed.  We set aside the judgment of the Associate Judge.  Upon the appellant’s application of 22 November 2005 for summary judgment, we order Southbourne specifically to perform the purchase agreement.  The new settlement date is to be 19 December 2006, which is 28 days after the date of delivery of this judgment, unless the parties agree upon a different date. 

[63]     Southbourne is to pay Greenmount’s costs in this Court in the sum of $6,000 together with disbursements as fixed by the Registrar.

[64]     As we have held that Greenmount is entitled to summary judgment, Greenmount is entitled also to its costs and disbursements in the High Court, to be fixed by that Court failing agreement.

Solicitors:

Lees Salmon Long, Auckland for Appellant
Foley & Hughes, Auckland for Respondent