Greymouth Holdings Limited v Lundon
[2022] NZHC 641
•1 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-001844
[2022] NZHC 641
BETWEEN GREYMOUTH HOLDINGS LIMITED
Applicant
AND
DOMINIC JOHN MARTIN LUNDON and JOHN ALEXANDER GLENGARRY
Respondents
Hearing: 9 December 2021 Appearances:
M D O’Brien QC and A J Peat for the Applicant D Bigio QC and P Murray for the Respondents
Judgment:
1 April 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 1 April 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Paterson Legal Ltd, Auckland Morrison Kent, Wellington
D Bigio QC, Auckland
M D O’Brien QC, Auckland
GREYMOUTH HOLDINGS LTD v LUNDON [2022] NZHC 641 [1 April 2022]
Introduction
[1] Greymouth Holdings Limited (GHL) has a written agreement to buy a residential property at 39 Argyle Street, Herne Bay, Auckland. The vendors are Mr Dominic Lundon and Mr John Glengarry as trustees of the Ariki Trust (the Trust). The property is comprised of freehold and leasehold interests. There is a family residence on the property. The right to occupy that residence falls under the leasehold interest.
[2] The agreement for sale and purchase states that the Trust agrees to sell the freehold interest, with vacant possession, for $5.9 million. The Trust claims that it made a mistake. It says that it meant to agree to sell the leasehold interest, not the freehold interest, which it does not own. It had taken steps to acquire the freehold interest for sale, but ultimately had not done so. The Trust refuses to settle the transaction and wants to put the property back on the market.
[3] GHL has commenced proceedings seeking specific performance of the written contract. It maintains that the Trust has options to acquire the freehold interest. If it cannot, the Trust should perform the agreement to the extent it is able, by transferring the leasehold interest at a reduced purchase price. GHL’s specific performance proceedings will be heard over five days beginning on 19 June 2023.
[4] GHL lodged a caveat against dealings on the title of the property. It claims to have an equitable interest in the property capable of supporting the caveat based on the unconditional agreement for sale and purchase. The Trust applied to the Registrar- General of Land to lapse the caveat, following which GHL filed an originating application for orders that the caveat not lapse.
[5]Determining this application requires me to consider these issues:
(a)Is there a binding unconditional contract between the Trust and GHL?
(b)Is GHL potentially entitled to the equitable remedy of specific performance?
(c)Does the caveat purport to protect the equitable interest claimed by GHL?
Factual background
[6] In or about May/June 2021, the Trust decided to sell the property as a freehold with vacant possession, rather than a leasehold, and to do so by merging the freehold and leasehold estates for the property. The Trust considered that such a merger would increase the pool of potential buyers and maximise the potential sale return. This required them to acquire the freehold interest, as they only owned the leasehold interest.
[7] In early June 2021, the Trust appointed Edward Pack of Bayleys Real Estate Limited as their sales agent. On or about 23 June 2021, Mr Lundon, a senior property lawyer, prepared a sale and purchase agreement for the sale of the property as a freehold with vacant possession. In doing so, he recorded the certificate of title reference for the freehold interest: NA578/33, and drafted specific terms by way of addition to the standard ADLS/REINZ form:
22.0 Freehold interest
22.1 This agreement is conditional upon the vendor exercising its option to purchase the freehold interest in certificate of title NA578/33 from Swanson Land Limited (Freehold Interest) and entering into an unconditional agreement for the sale and purchase of the Freehold Interest by the date that is 15 Working Days after the date of this agreement.
22.2 The condition in the above clause is inserted for the benefit of the Vendor and may only be satisfied or waived by the Vendor.
23.0 Freehold transfer
Prior to or contemporaneously with settlement under this agreement the Vendor warrants that it will complete the transfer of the Freehold Interest from Swanson Land Limited and merge the Vendor’s leasehold interest in certificate of title NA 1020/33 (Leasehold Interest) with the Freehold Interest and procure the surrender of all leases giving rise to the Leasehold Interest.
[8] The agreement also provided a further term at 25 that if a Code Compliance Certificate was not issued by settlement date, the purchaser would retain $10,000 until the Certificate was issued.
[9] On 23 June 2021, the Trust, through Mr Pack, presented to Mr Robert Dunphy (director of GHL) this form of agreement for sale and purchase for the freehold with vacant possession. The agreement was preceded by advice from Mr Pack to Mr Dunphy that the vendors intended to sell the freehold and the leasehold interests (i.e. all the interests).
[10] On 25 June 2021, Mr Dunphy’s son Fred Dunphy, a lawyer, presented a written offer to the Trust, through Mr Pack, to purchase the leasehold interest in the property for $3.9 million. The offer was made on the ADLS/REINZ form of agreement prepared by Mr Lundon, with the estate changed from freehold to leasehold. The certificate of title reference was accordingly changed to that for the leasehold interest: NA1020/33. Further terms 22 and 23 were struck out. The retention for the Code Compliance Certificate was increased to $50,000.
[11]On 29 June 2021, the Trust rejected GHL’s offer.
[12] Later on 29 June 2021, GHL contracted to acquire the freehold reversion (that is, the freehold subject to the leasehold) from Swanson Land Limited, the holder of that interest. The agreed price was $1.8 million and settlement was to take place on 17 December 2021.
[13] A few days later, on 1 July 2021, Mr Dunphy called Mr Glengarry, also an experienced property solicitor, to discuss the property. Mr Dunphy advised Mr Glengarry that GHL had contracted to acquire the freehold reversionary interest for the property. He informed Mr Glengarry that GHL still wanted to acquire the leasehold interest. He sent through a copy of the offer GHL had previously made for the leasehold, which the Trust had rejected. Mr Glengarry said that the Trust would “collect its thoughts” and revert.
[14] On 9 July 2021, at 10:10 am, Mr Glengarry presented a written contract offer to Mr Dunphy. The contract offer was on a fresh version of the ADLS/REINZ standard form agreement for sale and purchase of real estate, signed and with each page initialled by Mr Lundon and Mr Glengarry. In it, the Trust offered unconditionally to sell the property as a freehold with vacant possession for $5.9 million. The certificate
of title reference was for the freehold interest: NA587/33. The contract provided for settlement on 30 September 2021. The contract offer did not include the further terms 22 and 23 included in the previous contract offer prepared by Mr Lundon. The retention for the Code Compliance Certificate was $20,000. In his email accompanying the contract, Mr Glengarry said “…The agreement follows that Fred sent through earlier, apart from the price and the amount to be withheld for the CCC on the pool, now $20,000.”
[15] At 3:05 pm on 9 July 2021, Mr Dunphy for GHL signed and returned the Trust’s contract offer, thereby agreeing to buy the property as a freehold with vacant possession for $5.9 million. In his accompanying email, he stated “As you know, GHL has an unconditional agreement with Swanson Land Limited to purchase the freehold.” In accordance with the terms of the contract, GHL paid the 20% deposit of
$1,181,000 into Bayleys’ trust account.
[16] Later that day, at 3:56 pm, Mr Pack emailed Mr Dunphy and Fred Dunphy to inform them that there had been an “oversight” in the contract as the contract incorrectly recorded that the sale and purchase was for the freehold interest, not the leasehold interest as intended by the Trust. Mr Pack “hand marked the correct details on to the agreement” and attached the amended agreement, asking Fred Dunphy to initial the changes.
[17] On 12 July 2021, Mr Dunphy emailed Mr Glengarry, disputing that there had been an oversight. He insisted that the Trust honour the agreement for the sale and purchase of the freehold with no tenancies, as drafted and executed by the Trust.
[18] The Trust refused to proceed with the sale because of their “fundamental error” and on 15 July 2021 it repaid the deposit to GHL. The Trust offered to reengage with GHL to ascertain whether an agreement could be reached for the sale and purchase of the leasehold. Failing that, the Trust proposed to place the property on the open market.
[19]On 12 July 2021, GHL lodged a caveat against record of title NA1020/33.
[20] There followed an exchange of correspondence between the parties’ lawyers. GHL offered its contract for the purchase of the freehold subject to the leasehold to the Trust, thereby enabling the Trust to complete the sale of the freehold with vacant possession as agreed; or alternatively, that the Trust surrender or transfer its leasehold interest, with a credit for the cost to GHL ($1.8 million) of acquiring the freehold subject to the leasehold. The Trust rejected this offer.
[21]On 10 September 2021, the Trust applied for the caveat to lapse.
[22] On 16 September 2021, GHL, by its solicitors, advised that it was ready, willing, and able to settle on settlement date of 30 September 2021 on one of the bases previously described.
Legal principles concerning caveats
[23] An application to sustain a caveat is determined on summary basis in which the Court has regard to the following principles:1
(a)The applicant caveator bears the onus of demonstrating that they have an interest in the land sufficient to support a caveat. However, they need not establish that definitively. It is enough if they present a reasonably arguable case.
(b)The process by which these applications are determined is ill-suited to resolving disputed questions of fact. An order for a caveat’s lapse will only be made if it is patently clear it cannot be maintained — either because there was no valid ground for lodging it in the first place or, alternatively, that such ground has now ceased to exist. A conflict between affidavits will generally be resolved in the caveator’s favour.2 However, the Court is not bound to accept uncritically statements in an affidavit that are equivocal, lacking in precision, inconsistent with
1 Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) 14 NZCPR 813. See also Philpott v Noble Investments Ltd [2015] NZCA 342.
2 Bethell v Rickard [2013] NZCA 68 at [22]. See also MacRae v Rapana HC Auckland M633/94, 17 June 1994.
undisputed contemporary documents or other statements by the same deponent, or inherently improbable.3
(c)Where the applicant has discharged its burden, the Court retains a residual discretion to remove the caveat. The Court will exercise this discretion cautiously and must be satisfied removal would not prejudice the caveator’s legitimate interest.4
Issues
[24] GHL claims to have an equitable interest in the property capable of supporting the caveat based on the unconditional written contract for sale and purchase dated 9 July 2021.
[25] It is settled law that, if a purchaser is potentially entitled to the equitable remedy of specific performance on entry into a binding unconditional contract, that purchaser obtains an immediate equitable interest in the property contracted to be sold.5 The purchaser is therefore entitled to lodge a caveat against the title to protect the interest.6
[26]Therefore, to maintain the caveat, GHL must present a reasonable case that:
(a)there is a binding unconditional contract;
(b)it is potentially entitled to the equitable remedy of specific performance; and
(c)the caveat lodged purports to protect the equitable interest claimed.
[27] In its notice of opposition, the Trust also maintained, in the alternative to there being no binding contract, that there is a qualifying mistake in terms of the Contract
3 Barrett v IBC International Ltd [1995] 3 NZLR 170 (CA) at 175, citing Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331 (PC) at 341; Xie v 126 Waimumu Ltd [2020] NZHC 1109 at [8].
4 Pacific Homes Limited (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.
5 Foreman v Hazard [1984] 1 NZLR 586 (CA) at [594].
6 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at [114].
and Commercial Law Act 2017 (the CCLA). This forms the basis for its counterclaim in GHL’s specific performance proceeding. It seeks an order from the Court cancelling the written agreement under s 28 of that Act.7 At the hearing, the Trust did not pursue this claim as a ground for challenging the caveat. I consider that the correct approach. GHL’s caveat is based on an equitable interest in the property arising out of a claimed right to sue for specific performance of the written contract. Thus, in this caveat proceeding, the issue of a potential mistake is only relevant insofar as it relates to GHL’s claimed right to specific performance.
[28]I will now address each of the issues in turn.
Is there a binding unconditional contract between the Trust and GHL?
[29] GHL argues that the Trust put forward a signed, initialled, unconditional written standard form agreement for sale and purchase. GHL accepted that offer, countersigned, and returned the agreement. On the facts, there is a binding and enforceable contract that complies with the requirements of s 24 of the Property Law Act 2007. GHL submits that at the least, it has an arguable binding contract sufficient to sustain the caveat.
[30] The Trust disputes that there is a binding contract. It contends that because the Trust was fundamentally mistaken as to the subject matter of the contract, i.e. the leasehold versus the freehold, there was never a meeting of the minds to form an agreement. That is, there was no agreement between the parties on a critical term of the contract: its subject matter.
[31] The Trust submits that the test is whether a reasonable bystander would consider that GHL assented to the terms proposed by the Trust. The Trust emphasises the qualification “reasonable”, meaning no contract arises where it is, or ought reasonably to have been, clear that the offer does not represent the offeror’s true intention.8
7 Statement of defence and counterclaim dated 23 December 2021.
8 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [3.3.1].
[32] The Trust argues that on a robust and realistic assessment of the affidavit evidence, it was clear to Mr Dunphy (or ought reasonably to have been clear to him) that the Trust’s offer did not represent its true intention. As such, on an objective assessment, no agreement was formed between the parties.
[33] In response, GHL emphasises that the issue of whether a contract is formed requires the Court to undertake an objective assessment of the parties’ external acts and communications and apparent intentions.9 The parties’ actual intentions are secondary. Consistent with that, if one of the parties enters into the contract by mistake, that does not mean there is no contract. Rather, the doctrine of mistake comes into play and allows the Court to grant relief to that party if the mistake is a qualifying mistake under the CCLA.
[34] It is well established, and indeed the parties appear to agree, that to determine whether two or more parties have reached an agreement, the courts objectively assess their intentions manifested by the externalities of their behaviour.10 The Court examines the whole of the context between the parties to determine if there is agreement.11 This includes both written and oral communications that have passed between the parties and their conduct. The communications are assessed from the perspective of a reasonable person in the position of the party receiving the communication.12 What is important is not what is in the minds of the parties, but what a reasonable person in the place of each party would interpret the other party’s communications to mean.
[35] However, the inquiry is not wholly objective. As Gault J recently summarised in Gloria Jean’s Coffees International Ptd Ltd v Daboko Ltd:
9 Robinson v Hemachandra Holdings (NZ) Ltd [2007] NZCPR 245 at [23]-[30].
10 At [24].
11 Gloria Jean’s Coffees International Pty Ltd v Daboko Ltd [2019] NZHC 1097 at [41], citing RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co [2010] UKSC 14, [2010] 1 WLR 753 at [45] per Lord Clarke; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 (QB) at 619 per Lloyd LJ; and Canterbury FM Broadcasting Ltd v Daniels (1988) 2 NZBLC 103,535 at 103,541 per Hardie Boys J.
12 Firm PI 1 v Zurich [2014] NZSC 147, [2015] 1 NZLR 432 at [60] per Arnold J; and
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HC) at 912 per Lord Hoffmann.
If a party knows the counterparty does not intend to create legal relations, the party cannot enforce a contract based on objective appearance.13 Likewise, a party who did not intend to be bound cannot invoke the objective test so as to bind the other party to the contract.14 A similar rule prevents an offeree from accepting an offer on terms consistent with the objective evidence, when in fact he or she knows that the offeror did not intend to agree those terms.15
(emphasis added)
[36] In Hartog v Colin & Shields,16 the Court held that there is no binding contract where a purchaser accepts an “offer” from a vendor that the vendor does not truly intend to make. In that case, the Court found on the evidence that the purchaser ought reasonably to have known, and in fact did know, that there had been an error in the vendors’ offer when they offered the sale of Argentine hare skins at certain prices per pound as opposed to per piece. The parties had always discussed the prices of Argentine hare skins per piece and never per pound; the offer to sell per pound was “an absolute difference from anything which had gone before”. The Court confirmed that a purchaser is not permitted to “snap up” an offer which they know was made under a mistake.17
[37] This approach accords with the later decision OT Africa Line Ltd v Vickers plc.18 That case concerned a mistaken offer of settlement from the defendant, which the plaintiffs accepted. The defendants claimed the agreement was not binding. The Court quoted from several old English authorities to confirm that “the judicial task is not to discover the actual intentions of each party; it is to decide what each was reasonably entitled to conclude from the attitude of the other.” The Court considered whether there was any evidence indicating that the plaintiffs knew or ought to have been aware of any mistake. It concluded there was not; instead, the terms of the offer made sense in the circumstances. There was a binding agreement.
13 Pateman v Pay (1974) 263 EG 467; and Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394 at [86].
14 Lark v Outwaite [1991] 2 Lloyd’s Rep 132 (QB) at 141. See also Beesly v Hallwood Estates Ltd
[1960] 1 WLR 549 (ChD) at 558-559.
15 Hartog v Colin & Shields [1939] 3 All ER 566 (KB).
16 As referred to by Gault J in Gloria Jean’s Coffees, above n 11, at [41] and Burrows, above n 8, at [3.3.1].
17 Citing Tamplin v James (1880) 15 Ch D 215 (CA).
18 OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd's Rep 700 (QB).
[38] These principles have been endorsed in academic commentary.19 In discussing the objective approach to contract formation, David McLauchlan notes:20
The [objective] principle requires not only that a reasonable person would believe that the promisor was assenting to the terms proposed by the other party but also that ‘that other party upon that belief enters into the contract with him’. Thus, a promisee cannot reasonably believe that the promisor’s intention is that alleged by her, if she knows otherwise, or indeed ought to know otherwise …
(citations omitted)
[39] He quotes Lord Phillips’s summary of the law in Shogun Finance Ltd v Hudson:21
Whether the parties have reached agreement on the terms is not determined by evidence of the subjective intention of each party. It is, in large measure, determined by making an objective appraisal of the exchanges between the parties. If an offeree understands an offer in accordance with its natural meaning and accepts it, the offeror cannot be heard to say that he intended the words of his offer to have a different meaning. The contract stands according to the natural meaning of the words used. There is one important exception to this principle. If the offeree knows that the offeror does not intend the terms of the offer to be those that the natural meaning of the words would suggest, he cannot, by purporting to accept the offer, bind the offeror to a contract: Hartog v Colin and Shields [1939] 3 All ER 566; Smith v Hughes (1871) LR 6 QB 597.
[40] In terms of the relationship of these principles to the doctrine of mistake, Burrows, Finn and Todd on the Law of Contract in New Zealand notes that the courts use an objective view to determine if the parties had apparently contracted – if to a reasonable bystander the actions of the parties would indicate that there was a concluded agreement. If so, then there will be taken to be a contract to which the CCLA may apply if one or both parties can show there was a mistake coming within in the statutory criteria.22 Thus, the issue of a potential mistake by an offeror, here the Trust, arises at two points. First, as part of the largely, but not wholly, objective inquiry into whether a contract is formed. Second, if a contract appears to have been formed, to the question of relief under the CCLA if the mistake meets the statutory criteria.
19 David McLauchlan “The Contract That Neither Party Intends” (2012) 29 JCL 26.
20 At 32–33, citing Hartog and OT Africa Line Ltd as well as Shogun Finance Ltd v Hudson [2003] UKHL 62; [2004] 1 AC 919; [2004] 1 All ER 215 and Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Rep 685 at [87].
21 Shogun Finance Ltd v Hudson, above n 20, at [123].
22 Burrows, above n 8, at [10.2.2].
[41] I will now turn to the evidence to consider whether GHL has a reasonable argument that it formed an agreement with the Trust. In doing so, I will consider whether the exception described in Hartog, OT Africa Line Ltd and Gloria Jean’s Coffees applies, namely whether GHL knew or ought to have known that the Trust did not intend to offer the freehold at a price of $5.9 million. I am mindful that in this caveat proceeding I should only find against GHL on this issue if it is patently clear that it knew or ought to have known.
[42] First, I must reach a view on whether the Trust did, as it asserts, make an error, so the written offer did not represent its true intention. I record that GHL accepted, for the purposes of this caveat hearing, that it appears from the Trust’s evidence that it did make an error.
[43] I have carefully reviewed the affidavits of Mr Dunphy and Mr Mark Taylor, director of Swanson Land, filed for GHL; and those of Mr Glengarry, Mr Lundon, Mrs Lundon and Mr Pack filed for the Trust. Together, the deponents exhibit what appears to be a comprehensive record of the contemporaneous correspondence between them concerning the transaction; and the various drafts of the agreement for sale and purchase.
[44] I consider that it is objectively clear from the contemporaneous documents in evidence that the Trust did indeed make a mistake by offering to sell the freehold (with vacant possession) to GHL for $5.9 million rather than the leasehold. The error appears to have occurred in the following way:
(a)The starting point for preparation of the Trust’s written offer was Mr Dunphy’s signed offer on 25 June to purchase the leasehold for
$3.9 million, rejected by the Trust. On 8 July at 2:17 pm, Mr Lundon emailed Mr Pack a copy of this written offer with written instructions to amend the purchase price to $5.9 million; change the CCC retention from $50,000 to $20,000; and delete the freehold clauses that Mr Dunphy had struck out.23
23 Affidavit of John Alexander Glengarry sworn 14 October 2021 at JAG1-018 to JAG1-038.
(b)On 8 July at 3:29 pm, Mr Pack responded with an attached offer with the requested changes and amendments made.24 In this offer, there is no change to the description of the estate from that offered by Mr Dunphy i.e. leasehold. The record of title is for the leasehold: NA 1020/33. The price of $3.9 million offered by GHL has been struck out and the new offer price of $5.9 million inserted. The settlement date of 2 August 2021 has also been struck out and a new settlement date of 30 September 2021 inserted. The freehold further terms 22 and 23 remain struck out; and the CCC retention is reduced to $20,000 as per Mr Lundon’s instruction. All the amendments made by Mr Pack are shown in red.
(c)Mr Lundon deposes that because each party would need to initial the changes and the quality of the ADLS/REINZ form deteriorates each time it is scanned, he asked Mr Pack to prepare a fresh agreement.
(d)At 4:26 pm, Mr Pack sent Mr Lundon a fresh version of the agreement.25 This document corresponds with the earlier version sent by Mr Pack and marked in red with one important exception: the word “Freehold” is not struck out but the word “Leasehold” is struck out. The record of title is that of the freehold: NA578/33.
(e)Mr Pack deposes that the Bayleys administrative assistant who prepared the fresh agreement started with the original draft in the Bayleys system that provided for sale of the freehold estate and noted the freehold reference of NA578/33. In preparing the fresh agreement, the assistant omitted to amend the property details to leasehold and change the certificate of title reference to NA1020/33 to mirror the marked up version he had created.26
24 At JAG1-018.
25 At JAG1-040.
26 Affidavit of Edward Pack sworn 14 October 2021 at [21].
(f)Mr Lundon deposes that he reviewed the fresh agreement from Mr Pack on his phone and did not notice that the property description had changed. He only reviewed the changes he had instructed Mr Pack to make.27
[45] That the Trust did not intend to offer to sell the freehold for $5.9 million is corroborated by Mr Glengarry’s cover email to Mr Dunphy on 9 July attaching the Trust’s written offer, where he states that “the agreement follows that which Fred sent through earlier, apart from the price…”. The agreement sent through by Fred Dunphy was GHL’s offer for the leasehold estate.
[46] Next, I consider whether it is patently clear based on the evidence before me that GHL knew, or ought to have known, that the Trust’s written offer of 9 July did not reflect the Trust’s true intention.
[47] Here, the evidence of Mr Dunphy and Mr Taylor is critical. As noted, Mr Dunphy deposes that he was not aware that the Trust had made a mistake in its offer.
[48] Mr Dunphy has sworn two affidavits. In his first, he refers to prior dealings during which the Trust indicated it had an option or some other means to acquire the freehold. Specifically, he deposes that on 18 June 2021, Mr Pack told him that the Trust intended to sell the entirety of 39 Argyle Street; that is, the freehold and the leasehold.28 He states that Mr Pack, in response to his question about the value of the property as a freehold, gave a range of $6 to $6.5 million; a range which he considered high.
[49] Then, on 23 June 2021, Mr Pack presented the form of agreement for sale and purchase for the freehold with vacant possession, conditional on the Trust exercising its option to purchase the freehold interest from Swanson Land.
27 Affidavit of Dominic John Martin Lundon sworn 14 October 2021 at [35]–[36].
28 Affidavit of Robert Mark Patrick Dunphy sworn 27 September 2021 at [19].
[50] Mr Dunphy deposes that Mr Pack reiterated that the Trust would proceed to secure the freehold interest pursuant to its option when he advised Mr Dunphy that the Trust rejected GHL’s offer to buy the leasehold interest.29
[51] Critically, in relation to the Trust’s 9 July written offer to sell the freehold interest, Mr Dunphy deposes:30
I assumed the vendors had exercised or would exercise their option to acquire the freehold or would otherwise acquire the freehold in some other way. I spoke to Mark Taylor about this. He had mentioned there had been discussions with Mr Lundon on at least three occasion in earlier years about the possibility of acquiring the freehold. I asked whether Adrian Burr, who had been the ultimate owner of Swanson Land, might have had some agreement with Mr Lundon before he died that he, Mark Taylor, did not know of. He thought it unlikely but he did not know. Either way, I was happy with Mr Lundon and Glengarry proceeding as they had set out, and so I emailed Mr Glengarry back that afternoon (at 3:05 pm) confirming the offer had been accepted…
I suggested to Mr Glengarry in that email that an early discussion needed to occur around the settlement process they intended and reminded him of our agreement with Swanson Land. I assumed they would acquire the freehold from Swanson Land, under the option or otherwise, and that GHL’s agreement with Swanson would fall away.
[52] Mr Dunphy also points out that the purchase price of $5.9 million was higher than, but within reason of, the price he had thought GHL would pay if the Trust accepted GHL’s original offer for the leasehold of $3.9 million and then GHL acquired the freehold from Swanson at the agreed $1.8 million, those amounts totalling
$5.7 million.31
[53]In his affidavit in reply, Mr Dunphy deposes:32
I did not know what the vendors may or may not have been thinking or discussing. GHL accepted the offer that was presented to it. I did not know they were mistaken what they were doing, if in fact they were mistaken. I knew they were offering to sell the freehold property, with vacant possession, at the specific price. That was accepted. There is no mistake by GHL.
As to price, I believed it was fair market value. During our first or one of our first conversations, I think on 18 June, Mr Pack, in response to my question about the value of the property, as a freehold, gave a range of $6 million to
29 At [27].
30 At [36]–[37].
31 At [35].
32 Affidavit in reply of Robert Mark Patrick Dunphy sworn 1 November 2021 at [5].
$6.5 million. Having looked at various properties in the area in the weeks before this, I thought his value range (not least given he was the vendors’ agent) was on the high side, so I was not surprised with the offer to sell at
$5.9 million.
[54]In relation to the counteroffer sent by Mr Glengarry on 9 July, he states:
When he sent the signed offer from the vendors on 9 July 2021, I took it at face value for the agreement set out. It was for an unconditional sale of the freehold with vacant possession at $5.9 million. This price was $200,000 higher than GHL had originally considered it would pay for the property (as set out in my previous affidavit).
…
There was no ambiguity or need to clarify anything (as Mr Glengarry seems to suggest at paragraph [32] of his affidavit and as Mr Pack seems to suggest in paragraph [28] of his affidavit). Nor were there further terms needed. As I saw it, the vendors had put forward their offer and I assumed they were well qualified to, in the position to, make the offer.
[55] Mr Taylor also provides important evidence. He describes earlier interactions with Mr Lundon in March 2014, October 2015 and December 2018 in which they discussed the Trust acquiring the freehold reversion from Swanson Land. Mr Taylor states that his records show that calculated a price in 2015 and again in 2018 at which the Trust could acquire the freehold, but it did not do so.
[56] In response to Mr Lundon’s evidence that, following one of these earlier conversations, he expected Mr Taylor would contact him if there was other interest in the freehold and that “there was a level of understanding between us”, Mr Taylor states:33
He may have thought that but I am not sure why he got that impression as it was not assured.
[57] Mr Taylor then addresses an email exchange in November 2020 which Mr Lundon refers to in his affidavit. In that exchange, Mr Lundon stated that he would “…once again like to look at buying the freehold…” and “Can you please confirm if you are still prepared to sell and what the current going rate is.”34 Mr Taylor’s response was:
33 Affidavit of Mark Andrew Taylor in reply sworn 1 November 2021 at [17].
34 Affidavit of Dominic John Martin Lundon, above n 27, at [12]–[13].
Obviously the market has moved materially since we last corresponded on this. Before I research into current pricing I need to let you know that we are not prepared to provide what have effectively been options as in the past. Accordingly we will make a price, however it will need to be accepted or otherwise in 10 working days for settlement in 60 days. Would you confirm you would still like Swanson to make a price to sell.
[58]Mr Lundon responded “Yes, happy to proceed on that basis.”
[59] In his affidavit, Mr Taylor confirms that he never went back to Mr Lundon as Mr Burr, the ultimate owner of Swanson Land, passed away and his focus was elsewhere.
[60] In relation to the sale of the freehold to GHL, Mr Taylor deposes that when Mr Dunphy called him about the property on 29 June, he told him the freehold interest was available. He states that “the price was calculated as per my usual approach and his company GHL was willing to buy, and [as] Mr Lundon’s position was uncertain, I agreed to sell.”
[61] In relation to Mr Lundon’s call to him on 1 July when he became aware of the sale of the freehold to GHL, Mr Taylor notes that they had a three minute call at 5:33pm in which “Mr Lundon did question why I had not tested his interest.” He explains that Mr Lundon had on three previous occasions “expressed an interest to me in acquiring the freehold” and nothing had come of it.
[62]Further, he states:
Around noon on 9 July 2021 Mr Dunphy called me again. He told me that the vendors had made GH an offer to sell the freehold with vacant possession. As he explained it to me, I understood the vendors had previously represented that they had an option to purchase the freehold and intended to exercise it. That was not something I was aware of.
When Mr Dunphy asked me about whether Mr Burr could have had an agreement with Mr Lundon, I told him I did not know. It was unlikely but possible and I did not know. Resolving Mr Burr’s estate was extensive and by no means finished and he “could not be sure he knew all there was to know.
[63] I will now set out my conclusions on the question of whether GHL knew, or ought reasonably to have known, that the Trust’s written offer did not represent the Trust’s true intention.
[64] Viewing the Trust’s written offer objectively from the perspective of the reasonable person, it is difficult to conceive how it would not have appeared that the Trust had made an error by making an unconditional offer to sell the freehold interest to GHL.
[65] Granted, the Trust had previously referred to “exercising its option to purchase the freehold interest” in the form of agreement for sale and purchase for the freehold with vacant possession provided by Mr Pack on 23 June 2021. Thus, the offer to sell the freehold interest was consistent with the Trust’s earlier communicated intention.
[66] However, the reasonable person would know (as Mr Dunphy did) that since that earlier communicated intention, the position had changed. GHL had itself secured an unconditional agreement to acquire the freehold interest from Swanson Land. Furthermore, the trustees were aware of that, having been told by Mr Dunphy. In these circumstances, the reasonable person would find it odd for the Trust to offer to sell the freehold interest with vacant possession to GHL on an unconditional basis (omitting the further terms Mr Lundon had inserted in the earlier draft). There is considerable force to the Trust’s argument that a reasonable person would have realised, or at least been on inquiry, that the Trust had made a mistake in making the offer.
[67] Mr Dunphy’s explanation in his affidavit of how he thought this seemingly irreconcilable position would resolve, namely that his agreement with Swanson Land would “fall away”, is unsatisfactory. Further, there are other aspects of his evidence and that of Mr Taylor that are inconsistent and perplexing.
[68] For one, it is difficult to conceive why Mr Dunphy and Mr Taylor would enter into an unconditional agreement for the sale of the freehold interest from Swanson Land to GHL unless they were confident that the Trust did not have an enforceable option to acquire the freehold interest from Swanson Land. If Mr Taylor had any doubt about whether the Trust had a right of first or last refusal or other binding option, one would expect the contract with GHL to have been conditional on the Trust not exercising such a right. The absence of such a condition, or prior inquiry by Mr Taylor with Mr Lundon, is curious.
[69] Moreover, the notion of the Trust having an option to acquire the freehold interest from Swanson Land is inconsistent with all discussions between Mr Taylor and Mr Lundon. By his own evidence, Mr Taylor considered that there was no understanding between Swanson Land and the Trust, he had no obligation to consult with Mr Lundon if anyone else showed interest in the freehold, and he explicitly told Mr Lundon in November 2020 that Swanson Land would not offer the Trust another option. Mr Lundon did not protest and assert that Swanson Land was obliged to give the Trust an option; he simply accepted that position. Further, Mr Taylor does not say that Mr Lundon protested or asserted that the Trust had an option to buy the freehold during their phone conversation after Mr Lundon learnt of the agreement between Swanson Land and GHL. By Mr Taylor’s evidence, he simply asked “why I had not tested his interest” and later queried the price.
[70] Additionally, on receiving the Trust’s 9 July offer, Mr Dunphy spoke to Mr Taylor to ask whether the Trust might have an option. Mr Dunphy’s evidence is that he asked Mr Taylor whether Adrian Burr might have had some agreement with Mr Lundon before he died that Mr Taylor did not know about, and Mr Taylor said that it was unlikely but he did not know. Mr Taylor corroborates that, saying that resolving Mr Burr’s estate was extensive and by no means finished and he “could not be sure he knew all there was to know”. Yet that contradicts his other evidence and contemporaneous correspondence to the effect that he did not consider that the Trust had an option; and nor indeed did Mr Lundon.
[71] The Trust asks the Court to take a robust approach and dismiss Mr Dunphy’s evidence as defying common sense and inherently improbable. It submits that on the facts, Mr Dunphy must have known, or ought reasonably to have known, that the Trust had made a mistake.
[72] For the reasons I have outlined I have considerable sympathy with that submission. But there are other factors that give me pause.
[73] These include that the Trust’s offer was a formal written offer, made on a standard ADLS/REINZ form of agreement, signed and initialled on each page by each of the trustees. Furthermore, both trustees are highly experienced property lawyers
and one is the owner of the leasehold. The reasonable person would not expect these individuals to misdescribe the estate offered in a formal written offer, signed and initialled on each page.
[74] More significantly, there is the offer price. Mr Dunphy’s evidence is that the price of $5.9 million aligned with his expectation of the price he had thought GHL would have to pay if the Trust accepted GHL’s original offer for the leasehold interest and then GHL acquired the freehold from Swanson Land as agreed. Objectively, that is correct: he offered the Trust $3.9 million for the leasehold and agreed to buy the freehold from Swanson Land at $1.8 million, a total of $5.7 million. That is $200,000 less than the price at which the Trust offered the freehold with vacant possession.
[75] Further, Mr Dunphy deposes that Mr Pack indicated a range for the freehold from $6 to 6.5 million. That is broadly consistent with Bayleys Real Estate’s 10 June 2021 assessment of the value of the property on a freehold basis as between
$5.9 million and $6.4 million.35 The trustees considered that assessment low.36 But
the point is that Mr Dunphy deposes that he was given this indication by Mr Pack and he considered it was on the high side, which was why he was not surprised to receive an offer for the freehold for $5.9 million.37 Mr Pack does not deny that he discussed his appraisal with Mr Dunphy.
[76] Additionally, Mr Dunphy and Mr Glengarry gave evidence of a telephone conversation they had on 8 July in which they discussed values of comparable properties in the area. The specific content of the conversation is disputed, and that dispute cannot be resolved here. However, Mr Glengarry’s file note records him stating that the Trust saw the value as more than $3.9 million; referring to the sale of 8 Herne Bay Road (in two flats) for $6.8 million, and that the Trust was looking for a price in the “mid-5s” preferably closer to $6 million.
[77] Mr Dunphy deposes that he and Mr Glengarry discussed a range of recent sales of freehold properties in the Herne Bay area, including 8 Herne Bay. He says that he
35 Affidavit of Susan Lundon sworn 14 October 2021 at SL-001.
36 At [6].
37 Affidavit in reply of Robert Mark Patrick Dunphy sworn 1 November 2021 at [6].
referred to 32 Herne Bay, which sold for $5.7 million, 75 Marine Parade which sold for $5.8 million, and 44 Argyle Street, a property across the road, which had sold for
$5.29 million. All were freehold properties.
[78] Even if Mr Dunphy’s original offer of $3.9 million for the leasehold was his beginning offer, so a total price of $5.7 million would have been a very good price, the reasonable person might find it difficult to reconcile the $5.9 million offered by the Trust with a price for the leasehold interest only. That price is $2 million, or around 50% more than the price GHL had offered for the leasehold. Even allowing for negotiation (the trustees have indicated that they were prepared to negotiate to
$5.5 million) the gap is still sizeable.
[79] The price offered by the Trust is closer to the freehold prices (allegedly) discussed by Mr Glengarry and Mr Dunphy, and the range given by Mr Pack, than the leasehold price offered by Mr Dunphy. Putting it another way, the leasehold at
$5.9 million would have meant a total property price (the leasehold and the freehold reversion at $1.8 million) of $7.7 million. Even allowing for the fact that the reasonable person would perceive the Trust’s written offer as its starting offer, this price is considerably out of step with the price Mr Dunphy says he expected to pay; and the Bayleys assessment.
[80] While I have doubts about aspects of Mr Dunphy’s evidence, I am unable to conclude, in this summary setting and without the opportunity to hear from him in person, that he knew or ought reasonably to have known that the Trust’s written offer did not represent its true intention. On one view, it is difficult to conceive how a reasonable person would not have known, or at least been on notice to the possibility, that the Trust had made an error with its offer. However, the complication of the offer price prevents me from reaching a clear conclusion. In view of this uncertainty, I must leave this issue to be determined at trial.
[81] I conclude that GHL has established a reasonably arguable case that there is a binding enforceable contract to support the caveat.
Is GHL potentially entitled to the equitable remedy of specific performance?
[82] To recap, to maintain its caveat GHL must present a reasonably arguable case that it is potentially entitled to the equitable remedy of specific performance of the written contract with the Trust.
[83]Separately, GHL has filed proceedings seeking:
(a)an order for specific performance of the contract by the Trust, including that the Trust take all such reasonable steps as may be necessary to enable them to perform their obligations under the contract; or
(b)an order for such partial or other performance of the contract by the Trust to the extent they are presently able to so perform, and in particular for the transfer to GHL of the leasehold interest, together with an abatement of the purchase price by $1.8 million to reflect GHL’s cost to acquire the freehold interest.
[84] GHL claims that the Trust can perform its obligations under the contract and attend to settlement. GHL asserts that the Trust could exercise its option to acquire the freehold reversion that Mr Lundon referred to in the Trust’s original form of agreement, if it has such an option, or take other steps to put itself in a position to settle. In this respect, GHL has made its contract with Swanson Land for the reversion available to the Trust.
[85] Further, GHL maintains that if, for some reason, that does not occur, the Trust can still transfer what interest in the property it has. GHL relies on the principle that where a vendor contracts to sell an estate greater than it has, the purchaser can elect to require the vendor to transfer what interest it has, and the Court will abate the purchase price as necessary. They cite a line of English cases for this principle. These include Mortlock v Buller:38
38 Mortlock v Buller [1804] 10 Ves Jun 292; 32 ER 857 at [315]–[316], cited with approval by the Court of Appeal in Kumar v Bahramitash [2004] 6 NZCPR 269 at [37] (specific performance confirmed in that case by the Supreme Court in the subsequent appeal: Bahramitash v Kumar [2005] NZSC 39).
I also agree, if a man, having partial interests in an estate, chooses to enter into a contract, representing it and agreeing to sell it, as his own, it is not competent to him afterwards to say, though he has valuable interests, he has not the entirety; and therefore the purchaser shall not have the benefit of his contract. For the purpose of this jurisdiction, the person contracting under those circumstances, is bound by the assertion in his contract; and, if the vendee chooses to take as much as he can have, he has a right that, and to an abatement; and the Court will not hear the objection by the vendor, that the purchaser cannot have the whole.
[86]And, another case of some vintage, Wood v Griffith:39
No one will dispute this proposition, that if a man offers to sell an estate in fee simple, and it appears that he is unable to make a title to the fee simple, he cannot refuse to make a title to all that he has. The purchaser may insist on having his estate such as it is. The vendor cannot say that he will give nothing, because he is unable to give all that he has contracted to give. If a person possessed of a term for 100 years, contracts to sell the fee, he cannot compel the purchaser to take, but the purchaser can compel him to convey, the term, and this Court will arrange the equities between the parties.
[87] Thus, GHL’s case is that the fact that the Trust does not own the freehold interest is no barrier to GHL obtaining an order for specific performance of the contract. It argues that the Trust has options to acquire the freehold interest; or it can part perform the contract by transferring the leasehold interest with a reduction to the purchase price of $1.8 million to reflect the cost to GHL of acquiring the freehold without the leasehold.
[88] The Trust argues that the relief sought by GHL of specific performance of the contract, or partial performance, is not available at law. It has four reasons.
39 Wood v Griffith (1818) 1 Swan 43; 36 ER 291. See also Barnes v Wood (1869) LR 8 Eq 424 at 429 and, as to the purchaser’s ‘larger right to specific performance’, see Rutherford v Acton-Adams [1915] AC 866 at 870: “If it is the purchaser who is suing the Court holds him to have an even larger right. Subject to considerations of hardship he may elect to take all he can get, and to have a proportionate abatement from the purchase-money”. Rutherford v Acton-Adams and Wood v Griffith were referred to in passing by the Supreme Court in Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47 at [13] (Elias CJ) and at [75] (Blanchard J, giving the reasons of Blanchard, McGrath and Wilson JJ), with [75] recently quoted with approval by MGH Trah Ltd v Fox Mortimer Trustee Company Ltd [2021] NZCA 59. Elias CJ and Blanchard J declined to consider whether aspects of Rutherford required reassessment in light of s 7 of the Contractual Remedies Act 1979 (now replaced by the CCLA).
Lo Corp Holdings Ltd v CP Holdings Ltd
[89] First, the Trust relies on a decision of Master Gambrill in Lo Corp Holdings Ltd v CP Holdings Ltd.40 In that case, the parties entered into an agreement for sale and purchase for two properties for $690,000. At the time of the agreement, the vendor owned one property and had a conditional agreement to purchase the second property, which it later cancelled. An entity associated with the purchaser then purchased the second property for $335,000. The vendor sought a declaration that the contract was void for uncertainty of purchase price, or if not, that the Court declare the price at which settlement should take place. It applied for summary judgment. The purchaser counterclaimed, seeking specific performance of the contract with equitable compensation of $335,000 for that part of the land which the vendor could not transfer, relying on the principle of abatement in Mortlock v Buller.
[90] Master Gambrill declined to order specific performance of the contract. She concluded that the vendor could not deliver the property as contracted to be sold, and that the purchaser, having obtained that which they contracted to buy from the vendor by other means because of the vendor’s failure, could not say how the price should be apportioned between the two properties, apportionment never being intended by the parties.41 The Court declared the contract void for uncertainty, recognising that any loss suffered by the purchaser could be remedied by damages.42
[91] The Trust submits that the principles in Lo Corp Holdings are applicable to this case. As in that case, the Trust has entered into an unconditional agreement to sell the freehold. However, it has no legal ability to acquire the freehold, GHL having entered into an unconditional agreement to purchase it. GHL cannot now say how the purchase price should be apportioned between the two estates. Thus, the contract is void for uncertainty of purchase price.
[92] I do not agree. Master Gambrill’s decision turned on the fact that she was deciding an application for summary judgment. The parties had presented conflicting evidence from accountants on price. Master Gambrill found that the Court did not
40 Lo Corp Holdings Ltd v CP Holdings Ltd HC Auckland CP206/96, 28 November 1996.
41 At 12.
42 At 22.
have jurisdiction, in a summary judgment context, to order specific performance where that would require the Court to determine price. She stated:43
At the end of the day in a summary judgment context, I do not believe I have the legal authority or can order specific performance when there is no clear agreement between the parties as to price per unit sold…. I believe the original contract is therefore void as the price certain was based on the transfer of two properties. These properties cannot be transferred; only one can be transferred. What the value of the part which can be transferred cannot be determined summarily, nor can the losses for failure to transfer the property be dealt with in this jurisdiction… The plaintiff is indeed unable to complete the original agreement. The price is disputed by the defendant, and the Court is left without a jurisdiction to assess a suitable figure for payment in compensation for the breach.
[93] Being unable to settle the question of price in the context of an application for summary judgment, the Court was only able to determine that the contract was void for uncertainty as the defendant did not accept the price stated in the contract.
[94] That is not the situation here. GHL has commenced proceedings for specific performance in this Court. It has not applied for summary judgment. Therefore, the trial judge hearing GHL’s claim will not encounter the jurisdictional barrier faced by Master Gambrill that prevented an order for specific performance.
[95] Accordingly, I reject the Trust’s submission that the remedy of specific performance is not available to GHL because of Lo Corp.
GHL’s conduct disentitles it to specific performance
[96] Alternatively, the Trust submits that GHL is disentitled to the equitable relief of specific performance because of its conduct. Here again, the Trust submits that a clear inference can be drawn that Mr Dunphy, on receiving the Trust’s written offer on 9 July, was aware the trustees had made a mistake, and quickly signed and returned the mistaken offer to secure an advantage.
[97] The Trust relies on the principle expressed by Justice Farwell in Rudd v Lascelles:44
43 At 19–20.
44 Rudd v Lascelles [1900] 1 Ch 815 at [819].
I am asked to decree specific performance with compensation. I adhere to what I said in Hexter v Pearce (10), to the effect that a court of equity will grant the equitable remedy of specific performance in all cases “unless there has been some conduct on the part of the plaintiff disentitling him to the relief in equity, or in some rare instances, where there would be a great hardship imposed on an innocent grantor or lessor by reason of some mistake which he has made, although the other party has not contributed to it”.
(emphasis added)
[98] Relatedly, the Trust submits that the principle relied on by GHL to seek an order for partial performance with an abated purchase price contains a critical caveat, recognised in Castle v Wilkinson:45
Now, I apprehend that the law is settled as to this upon the authorities referred to by Lord St Leonards (1), that if a man professes to be owner of the fee simple, and undertakes to sell the fee simple, and it turns out that he had not power to do so, the purchaser not being at the time aware of the difficulty, then the vendor must convey as much as he can, and submit to an abatement.
(emphasis added)
[99] In considering this issue, I find the following general principles concerning the Court’s equitable jurisdiction to grant specific performance relevant. The exercise of the equitable jurisdiction to grant specific performance is a matter within the discretion of the Court.46 An award of specific performance is favoured in contracts for the sale of land because land is treated as having unique value in respect of which the common law remedy of damages is inadequate.47 However, the Court might, in its discretion and applying settled principles, refuse the remedy. Hardship to the defendant in being forced to perform the contract and convey the property may sometimes mean that the plaintiff is confined to a remedy in damages.48 As one of the cornerstones of equitable relief, the conduct of the parties is also relevant to the Court’s discretion.49
[100] Applying these principles, I am unable to find in this caveat proceeding that the remedy GHL seeks in its substantive proceeding of specific performance of the
45 Castle v Wilkinson (1870) LR 5 Ch 534 at [536].
46 Confirmed recently by this Court in a number of cases; see for example McCaw v Owen [2021] NZHC 1686 at [22]; Lusty v Thorburn [2021] NZHC 1774 at [85]; and Huang v Tamaki Homes Ltd [2019] NZHC 3032 at [16].
47 Foreman v Hazard [1984] 1 NZLR 586 (CA) at 594.
48 Kurth v McGavin [2007] 3 NZLR 614 (HC).
49 Butler v Countrywide Finance Ltd [1993] 3 NZLR 623 (HC) at 27.
contract, or part performance with abatement, is unavailable to it because of its conduct.
[101] First, to so find requires me to make a factual finding that Mr Dunphy knew of the Trust’s error and took advantage of it. As I have stated, while there are aspects of Mr Dunphy’s evidence that are puzzling, I cannot safely conclude without hearing from him directly that he knew that the Trust had made a mistake. That assessment is best left for the trial judge.
[102] Second, the exercise of the discretion in an application for specific performance involves a context-specific evaluation of which remedy is most appropriate in the circumstances of the given case. This is on the basis of various established factors including, but not limited to, hardship and the conduct of the parties.50 Only in the clearest of cases could the Court dealing with the caveat proceeding purport to anticipate how that discretion would be exercised by the trial judge.
[103] I also observe that if the trial judge in GHL’s substantive proceeding reaches the point of considering whether to order specific performance or part performance of the contract, they will have found that a binding contract exists. In that sense, and assuming the Trust advances the same argument for why a contract was not formed as it has here (that GHL knew, or ought to have known, of the Trust’s mistake), the trial judge will have already determined that GHL did not know, and therefore did not act wrongly.
Specific performance would cause great hardship
[104] Next, the Trust submits that this is one of the “rare instances” referred to by Farwell J in Rudd v Lascelles where it is objectively obvious that the Trust made a genuine mistake, and specific performance would impose a great hardship on the Trust. The Trust asks me to find that the remedy of specific performance is unavailable to GHL for this reason.
50 At 27.
[105] As noted, specific performance may be refused on the ground of hardship for the defendant. That will always be balanced against hardship to the plaintiff if specific performance is refused.51
[106] Here, any hardship to the Trust can only arise out of price, as the Trust is a willing seller of the leasehold interest.
[107] Thus, the question is: would it cause great hardship to the Trust if it was compelled to acquire the freehold reversion from GHL at a price of $1.8 million and convey the entire property to GHL at the contracted price of $5.9 million; or convey the leasehold to GHL at the agreed price of $5.9 million with an abatement of
$1.8 million for the costs to GHL of acquiring the freehold? Either way, the net price the Trust would receive for its leasehold interest is $4.1 million.
[108] To assess that question, the Court will need independent expert evidence on the market value of the leasehold interest as at 9 July 2021, and possibly currently. This Court does not have that evidence before it. The parties have submitted a range of valuations and assessments of the market value of the property. Most concern the value of the property as a simple freeholded property; not the leasehold interest alone. Only GHL has filed expert valuation evidence of the market value as at July 2021. Steven Dunlop, registered valuer, gives the opinion that the market value of the property as a freehold, as at 9 July 2021, was $5.975 million. In contrast, the Trust has put in evidence the assessment it obtained from Clayton Munting, valuer, prior to making its 9 July offer to GHL. This assessment gives a general sales range of $5.5 million to $8.5 million and indicates the freeholded property as having a value in the vicinity of $7 million.52 However, Mr Munting has not filed expert evidence in this proceeding.
[109] Again, this Court could only contemplate finding that the remedy GHL seeks in its substantive proceedings of specific performance is unavailable in the clearest of cases given its discretionary nature. I find that I am a long way from being able to reach that conclusion based on the limited valuation evidence I have before me. That
51 D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [12.33].
52 See the Bundle of Documents, vol 2–51.
issue will need to be determined by the trial judge who will have the benefit of expert evidence from both parties, which should also deal with the market value of the leasehold interest alone.
Order for part performance does not enforce terms of contract
[110] The final argument advanced by the Trust is that the order for part performance sought by GHL does not seek to enforce the terms of the contract. That is because it seeks an order that the Trust transfer the leasehold (which is not the subject of the contract) with a reduction in the purchase price of $1.8 million. As such, GHL seeks to rewrite the terms of the agreement it looks to enforce.
[111]The Trust refers again to Rudd v Lascelles, where Farwell J said:
The Court should confine this relief to the cases where the actual subject matter is substantially the same as that stated in the contract and should not extend it to cases where the subject matter is substantially different.
[112] I note this submission was made in the Trust’s written submissions but not developed at the hearing.
[113] I do not agree that the statement of Farwell J relied on by the Trust stands for the general principle contended.
[114] Rudd v Lascelles concerned a claim for specific performance by a purchaser of a contract for the sale and purchase of land, with compensation for undisclosed covenants. There was no representation by the vendor about the title they could convey, or the nature of their interest, or any provision of compensation for defects. The vendor, who had derived the property from her late husband, was, to the knowledge of the plaintiff, practically ignorant of her title; the deeds being in the hands of mortgagees. She was unaware of the existence of any restrictive covenants.
[115] The purchaser alleged that the restrictive covenants depreciated the value of the property. He claimed specific performance with compensation, namely that the agreed price be reduced to reflect the depreciation in value attributable to the restrictive covenants.
[116] Justice Farwell made the following statements about the jurisdiction to enforce specific performance with compensation on a vendor:
In my opinion the jurisdiction to enforce specific performance with compensation on a vendor, where the contract is silent as to compensation, rests on the equitable estoppel referred to in Mortlock v Buller, namely that a vendor representing and contracting to sell an estate as his own cannot afterwards be heard to say that he has not the entirety. It probably first arose in cases of small deficiency in the quantity of the land sold, e.g. if a vendor contracted to sell 100 acres and only had 90 acres, he could not resist specific performance on the ground that the contract was to sell 100 acres. This cy-prés execution was a purely equitable remedy. This view is borne out by the judgment of Giffard L J in Castle v Wilkinson (3): “All those cases in which the contract has been enforced partially and a partial interest has been ordered to be conveyed, have been where the vendor has represented that he could sell the fee simple and the purchaser has been induced by that representation to believe that he could purchase the fee simple”. In the present case there is obviously no direct representation of that kind, and though a mere offer to sell real property prima facie implies that the vendor has the unencumbered fee simple therein, still, if the purchaser, as in this case, knows that the vendor is ignorant as to the title, he cannot set up any such implication as a representation inducing the contract. The present case, therefore, does not come in the above category.
But I am not compelled to decide the case on that ground alone; there is a further ground which depends on a dictum of Jessel M.R. in Cato v Thompson (1), a dictum, I need not say, of very great weight. One ground for refusing specific performance with compensation is the great difficulty of properly assessing the compensation, and in Cato v Thompson (1), in which there were restrictive covenants like those in the present case, and the purchaser brought an action to recover his deposit, Jessel M.R. said in answer to an argument that the purchaser ought to complete with compensation: “Now, in the first place, this is not a case for enforcing specific performance on a purchaser with compensation. It is almost impossible to assess compensation for covenants of this nature. I think that the cases of specific performance with compensation ought not to be extended. In many of them a bargain substantially different from that which the parties entered into has been substituted for it and enforced, which is not right. I think this not a case for compensation”.
I entirely and respectfully agree with every word of this statement. In my opinion …
[117] I interpret Farwell J as agreeing with Jessel M.R. about the difficulties of assessing compensation for undisclosed restrictive covenants for the purposes of ordering specific performance. I do not read Farwell J as retreating from the established equitable jurisdiction to enforce specific performance with compensation in the circumstances described in Castle v Wilkinson and Mortlock v Buller.
Does the caveat purport to protect the equitable interest claimed?
[118] Next, the Trust submits that the caveat cannot be sustained because the text of the caveat claims an interest in the leasehold on the basis the Trust has “agreed to transfer or surrender the lease estate”. However, on GHL’s own case, it has no caveatable interest in the leasehold. The contract does not provide for the transfer of the leasehold interest, it provides for the transfer of the freehold with vacant possession. As a result, there is no agreement between the parties that GHL will take legal ownership of the leasehold, the Trust is not holding the leasehold as trustee for GHL, and beneficial ownership of the leasehold has not passed.
[119]I find against the Trust on this submission.
[120]The full text of the caveat is:
Pursuant to s 138(1)(a) of the Land Transfer Act 2017, and pursuant to an agreement for sale and purchase dated 9 July 2021 (“the Agreement”) under which John Glengarry and Dominic Lundon, who are the Registered Owners of the leasehold estate comprised in Record of Title NA1020/33 (“the Registered Owners”) have agreed to transfer or surrender the lease estate comprised in Record of Title NA1020/33 and registered under Number 306617(R375/700) to the Caveator as purchaser under the Agreement.
[121] The purpose of a caveat is to give notice of what interest is claimed by the caveator and to act as a “stop notice” preventing the registered proprietor from dealing with that interest.53 To that end, a caveat must state with sufficient certainty the estate or interest claimed, and details of how the estate or interest is derived from the registered proprietor.
[122] Reflecting that purpose, and in terms of describing the estate or interest claimed, the Court has recognised that what will constitute a description of sufficient certainty will vary according to the circumstances.54 The Court will not apply too strict an approach to the description of the interest claimed:55
53 Holt v Anchorage Management [1987] 1 NZLR 108 (CA) at [113]; and see also Zhong v Wang
(2006) 7 NZCP 488 at [58].
54 Norris v Registrar-General of Land (2005) 6 NZCPR 94 at [38]–[42], cited by Wild and Heath JJ in Zhong v Wang, above n 53, at [52]–[53].
55 At [53].
What is important is that the registered proprietor and the Court understand the nature of the interest claimed, and the basis for that claim.
[123] The caveat correctly states that GHL claims an interest derived from its unconditional agreement for sale and purchase with the trustees dated 9 July 2021. It correctly states that the trustees are the registered owners of the leasehold estate. The part that the Trust objects to is the continuation that the trustees “have agreed to transfer or surrender the lease estate”. Technically that is incorrect, because the trustees had, of course, contracted to sell the freehold estate with vacant possession.
[124] However, the sale of the freehold estate with vacant possession necessarily requires either the transfer or surrender of the leasehold interest (which gives the right to possess the residence). In that sense, the caveat correctly describes what would need to happen for GHL to receive the freehold with vacant possession.
[125] Indeed, that is what GHL seeks under its claim for part performance of the contract, based on the principles discussed in Mortlock v Buller and Wood v Griffith. Thus, GHL does claim an equitable interest in the leasehold interest - pursuant to this claimed right to part performance.
[126] Further, and taking a practical approach, the purpose of the caveat was to prevent the Trust from dealing with its actual ownership interest in the property, i.e. the leasehold. The property was, at the time, comprised of the freehold interest subject to the leasehold (owned by Swanson Land) and the leasehold interest (owned by the Trust). It would have been a nonsense to purport to lodge a caveat over the freehold interest with vacant possession as per the contract, when that did not reflect the Trust’s interest in the property.
[127]I have concluded that GHL has presented a reasonably arguable case that:
(a)there a binding unconditional contract between the Trust and GHL; and
(b)GHL is potentially entitled to the equitable remedy of specific performance; and
(c)the caveat purports to protect the equitable interest claimed by GHL.
[128] Accordingly, the caveat will be sustained until GHL’s specific performance proceeding is determined.
Result
[129]I order:
(a)that the caveat against dealings no. 12183703.1, registered by Greymouth Holdings Limited against the leasehold estate in land comprised and described in Record of Title NA1020/33 not lapse.
[130] The Trust will pay GHL’s costs on a 2B basis and disbursements as fixed by the Registrar.
Associate Judge Gardiner
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