Guru NZ Forests Limited v Papanui Dream Estate Limited
[2023] NZHC 347
•28 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1102
[2023] NZHC 347
UNDER s 143 of the Land Transfer Act 2017 IN THE MATTER
of registered caveat 12351114.1 on CT 302523
BETWEEN
GURU NZ FORESTS LIMITED
Applicant
AND
PAUANUI DREAM ESTATE LIMITED
Respondent
Hearing: 13 October 2022 Appearances:
NL Hall and A Trask-Coombs for the Applicant P Rice for the Respondent
Judgment:
28 February 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 28 February 2023 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Simpson Grierson, Auckland Parshotam Lawyers, Auckland
P Rice, Auckland
GURU NZ FORESTS LTD v PAUANUI DREAM ESTATE LTD [2023] NZHC 347 [28 February 2023]
Introduction
[1] Guru NZ Forests Limited (Guru) seeks an order sustaining a caveat over land in Hikuai Settlement Road, Pauanui. Guru claims an interest in the land by virtue of being nominated as the purchaser under an unconditional agreement for sale and purchase. The estate or interest is allegedly established from the following links:
(a)an unconditional agreement for sale and purchase dated December 2019 between Pauanui Dream Estate Limited (PDEL) and Epsom Woods Limited (EWL);
(b)EWL nominated NZ Forestry & Asset Investments Limited (NZFIL) as the purchaser by deed of nomination dated 2 February 2021;
(c)NZFIL nominated the applicant, Guru, as purchaser by deed of nomination dated August 2021.
[2]PDEL opposes the application on the following grounds:
(a)There is no binding agreement for sale and purchase between PDEL and EWL. Nor is there any effective nomination to Guru.
(b)The contract is illegal for failure to comply with s 129 of the Companies Act 1993 and any ability to validate the contract under the Contract and Commercial Law Act 2017 (CCLA) does not assist the applicant because, if illegal until validated, there is no proprietary right to support a caveat in the meantime.
[3] PDEL submits that the reason there is no binding agreement is because there are in fact two agreements for sale and purchase entered into at different times and in different circumstances:
(a)the original, conditional agreement for sale and purchase entered into in December 2019 between PDEL and EWL; and
(b)the second, unconditional agreement for sale and purchase entered into in August 2021 at a time when EWL was in liquidation.
[4] PDEL submits the first agreement was conditional on a number of matters that became impossible to satisfy and, as a result, was mutually discharged. PDEL says it was this first conditional agreement that was nominated to NZFIL in February 2021. PDEL submits that a second agreement was then entered into but required EWL’s consent. As EWL went into liquidation in July 2021 such consent would have had to be given by the liquidator and it was not.
[5] Guru responds that the first argument fails because the purchaser is defined as EWL “or nominee” so the approval of EWL either to a new agreement or a variation to the original agreement is unnecessary. In any event, Guru says the conditions removed between the first and second agreement are for the benefit of the vendor and so the consent of the liquidator of EWL was unnecessary.
[6] In response to the second ground, Guru does not accept it is an illegal contract as performance of the contract does not require a breach of s 129 and Guru had no knowledge of such a breach. Furthermore, Guru submits a contract is not an illegal contract merely because a company has entered into the contract in contravention of s 129 of the Companies Act.
[7] Finally, Guru says PDEL is estopped from asserting the agreement is illegal or otherwise invalid and from denying PDEL’s obligation to settle the sale of the property notwithstanding any alleged non-compliance with s 129.
[8] Applications to sustain caveats are determined on a summary basis and Guru only has to show that it has a reasonably arguable claim to an interest in the land. The substantive determination of the applicant’s claim must await a full hearing.
Issues
[9]The issues for determination are therefore:
(a)Is it reasonably arguable that there were two agreements as submitted by PDEL or was the second agreement a variation of the first?
(b)Was EWL’s consent required for the second agreement or variation?
(c)Is it reasonably arguable that the amended agreement for sale and purchase is not an illegal contract for failure to comply with s 129 of the Companies Act?
(d)If not, is the possibility of validating the contract sufficient for a caveatable interest to continue for Guru?
(e)Is it reasonably arguable that Guru can rely on the doctrine of estoppel?
Application to sustain a caveat
Sustaining a caveat
[10] Section 138 of the Land Transfer Act 2017 provides that any person with a legal or equitable interest in land may lodge a caveat over that land.
[11] A purchaser under a sale and purchase agreement for land has a beneficial and, therefore, caveatable interest in that land.1
[12] Where the purchaser described in an agreement for sale and purchase includes “and/or nominee” there is privity of contract enabling the purchaser’s nominee to take the benefits of and enforce that agreement.2 That nominee, as a consequence, also has a sufficient interest in the land to sustain a caveat.3
[13] In this case, the deed of nomination also assigned the purchaser’s rights to the nominee. A purchaser’s assignee acquires a sufficient interest in the land to sustain a caveat.4
1 Mortre Holdings Ltd v ANCL Investments Ltd [2016] NZCA 494, (2016) 18 NZCPR 268 at [9]– [15]; Foreman v Hazard [1984] 1 NZLR 586 (CA); Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA).
2 Laidlaw v Parsonage [2009] NZSC 98, [2010] 1 NZLR 286 at 296.
3 Aston Investments Ltd v Kervus MC Ltd [2015] NZHC 92, (2015) 15 NZCPR 718.
4 D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [10.07(b)], citing
Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 (SC) at 142.
[14] The principles applicable to an application under s 143 of the Land Transfer Act 2017 that a caveat not lapse are settled. In Green & McCahill Holdings Ltd v Ara Weiti Development Ltd,5 the Court of Appeal recently confirmed that the core principles covering applications to sustain caveats are those set out in the Court of Appeal’s decision in Philpott v Noble Investments Ltd:6
[26]The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and
(d)When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.
(footnotes omitted)
[15]The Court of Appeal in Green & McCahill Holdings Ltd went on to say:
[83] Although summary process does not permit close engagement with contested facts, the court must still assess the arguability of the asserted case of a proprietary right realistically and interrogate the documentary record. As the Privy Council said in Eng Mee Yong v Letchumanan, a court is not required:7
… to accept uncritically, as raising a disputed fact which calls for further investigation, every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.
5 Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218, (2002) 23 NZCPR 259 at [80].
6 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]; Philpott was referred to with approval by the Supreme Court in Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] NZSC 60, [2022] 1 NZLR 59 at [56].
7 Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
[16] In Rivette v Atrax Group New Zealand Ltd,8 Venning J held that the original purchaser under a contract referring to “purchaser and/or nominee” still retained the right to sue and enforce the contract even after nominating another party to complete the purchase. His Honour held that the original purchaser would only have lost that right if there had been a novation. In addition, it is settled law that the burden of a contract only passes on a novation and not on an assignment.9 The submission made on behalf of Guru that Guru was entitled to agree to amendments without obtaining EWL’s consent is not therefore accepted.
[17] If there are two agreements as PDEL submits, with the second agreement entered into after EWL went into liquidation, then the consent of the EWL liquidator would have been necessary for the second agreement. As that consent has not been obtained, the second agreement would not then be a binding agreement.
[18] If instead there was a variation rather than a second agreement, then a separate question needs to be asked – whether the consent of EWL’s liquidator was necessary or whether the conditions waived were arguably solely for the benefit of the vendor, PDEL, and so could be waived unilaterally.
[19] I begin by asking therefore whether it is reasonably arguable that there were two agreements.
Is it reasonably arguable that there were two agreements as PDEL submits?
[20] To answer the above question, it is necessary to set out the factual background in more detail.
Factual Background
[21] An agreement for sale and purchase was entered into between the respondent, PDEL, as vendor, and EWL “and/or nominee” as purchaser in December 2019 in respect of the property at Hikuai Settlement Road for $2,100,000 (Agreement).
8 Rivette v Atrax Group New Zealand Ltd (2010) 11 NZCPR 723 at [13].
9 Kakara Estate Ltd v Savvy Vineyards 3552 Ltd [2013] NZCA 101, [2013] 3 NZLR 29 at [33].
[22] PDEL is owned 60 per cent by Samy Trustee Limited (STL) and 40 per cent by Mr Gregory Needham and Mrs Barbara Needham. STL is owned and controlled by Mr John Samy and Mrs Olivia Samy. Mr Samy is PDEL’s sole director.
[23] As well as being a minority shareholder of PDEL, Mrs Needham is the first mortgagee over the land. The mortgage secured the sum of $240,000 payable by PDEL to Mrs Needham.
[24] When it was entered into in December 2019, the Agreement included further terms of sale set out at clauses 19.1–19.5 making the Agreement conditional on the Needhams’ consent (as minority shareholder of PDEL) or following a High Court order being obtained to effect the sale. The Agreement was to become unconditional on either consent being obtained or five working days following a High Court order, with a deposit of $650,000 payable on this date. Full and final settlement was due 12 working days following the Agreement becoming unconditional.
[25] The Needhams’ consent was not obtained and so High Court proceedings were filed in January 2020 to obtain the necessary orders. The further terms to the Agreement required the proceeding to be funded by EWL.
[26] During this process, by deed of nomination dated 2 February 2021, EWL nominated NZFIL as the purchaser of the land. Both companies are wholly owned and controlled by Mr Paul Alexander.
[27] EWL went into liquidation on 16 July 2021 following proceedings by a third party. The first liquidator’s report showed EWL had no assets.
[28] Mr Samy deposes in his affidavit filed for PDEL that “[w]ith the liquidation of EWL, all parties understood that the original ASAP was at an end as EWL was no longer able to fund the litigation”.
[29] Mr Alexander’s evidence in reply however is that he generally does “not agree with Mr Samy’s characterisation of the matters and events relevant to this dispute in which [he] was involved”. Mr Alexander deposes that in August 2021, Mr Alexander
and Mr Samy met to discuss Guru’s potential interest in purchasing the land. Mr Alexander says that he told Mr Samy that Guru was interested but only on the basis that the Agreement was made unconditional. Mr Alexander says that Mr Samy advised that he was “going to get around the issue of obtaining the Needhams’ consent so he was comfortable that PDEL could make the Agreement unconditional”. Mr Alexander deposes that Mr Samy therefore agreed to remove any conditions relating to the need to obtain Mr and Mrs Needham’s consent so that an unconditional agreement could be assigned to Guru.
[30] Mr Alexander annexes a copy of an email from Mr Samy sent to him on 22 August 2021 attaching the further terms of sale from the Agreement with clauses 19.1 to 19.5 struck out and the changes initialled by Mr Samy. The attachment to this email differs from the further terms of sale attached to the final Agreement. Mr Alexander explains that this is because he asked Mr Samy to clarify that only clauses 19.1 to 19.4 were to be struck out and clause 19.5 was to remain as it required PDEL to warrant that title would be provided “totally freehold and unencumbered”.
[31] Mr Alexander’s evidence is that Mr Samy then amended the Agreement further as follows:
(a)striking out only clauses 19.1–19.4 (but retaining clause 19.5);
(b)removing any references to clause 19 on the front cover of the Agreement;
(c)reducing the deposit from $650,000 to $140,000 and removing the provision that the deposit shall be payable on the date the Agreement is declared unconditional; and
(d)changing the mechanism for the payment of the balance of the purchase price to provide that payment shall be made 45 working days after the payment of the deposit and removal of the first mortgage (previously the balance was payable 12 working days after the Agreement was declared unconditional).
[32] Mr Alexander deposes that these changes resulted in the final version of the Agreement as attached to the affidavit of Mr Singh, the sole director and shareholder of Guru.
[33] Mr Alexander says that Mr Singh was delighted when Mr Alexander told him the Agreement was now unconditional and that Mr Alexander then signed the deed of nomination assigning the unconditional Agreement to Guru. The deed of nomination to Guru is dated August 2021 (although it is not clear when it was signed).
[34] Mr Singh’s evidence is that sometime in early 2020, Mr Alexander approached him regarding the opportunity to purchase the property with Mr Alexander explaining that he was working with the vendor to finalise some details related to the transaction. Mr Singh confirms that he told Mr Alexander that he was only interested in the purchase once the Agreement was unconditional. Mr Singh says Mr Alexander confirmed he would be in touch once the Agreement was unconditional.
[35] Mr Singh deposes that Mr Alexander and Mr Samy worked together to prepare the documentation for Guru to take over as purchaser and that he had no involvement in that process and had no direct dealings with PDEL or Mr Samy.
[36] Mr Singh annexes an email from Mr Alexander to Mr Singh’s solicitors, Simpson Grierson, on 3 November 2021. Mr Alexander says that a copy of the Agreement was attached to this email and a copy of the deed of nomination to Guru which had been signed by Mr Alexander on behalf of NZFIL. The documents attached include the deed of nomination but do not appear to include the Agreement.
[37] A further document appears to be attached to this email, referred to by the parties as the Mortgagee Sale Agreement document. It is dated 6 August 2021 and is signed by Mr Samy. This agreement expressly records in the background recitals (which by clause 1 are to have effect as clauses of the agreement) that PDEL had entered into an agreement for sale and purchase to sell the property to EWL for $2.1m in December 2019 and that the rights and obligations under the Agreement were “assigned/nominated” by EWL to NZFIL “which in turn nominated/assigned the rights
and obligations under the Agreement to the Purchaser”, named in the agreement as Guru.
[38] Following Guru’s nomination, Mr Singh’s evidence is that Guru was at all times ready, willing and able to proceed with the sale. However, extensive discussions took place between the parties about arrangements for the payment of the $140,000 deposit. The Agreement expressly provided for Guru to pay the deposit into the vendor’s solicitor’s trust account. However, Mr Singh deposes Mr Samy wanted Guru to pay the deposit directly to STL to be used to partly pay off the debt (via PDEL) to Mrs Needham and discharge the Needham mortgage.
[39] Mr Singh’s evidence is that Guru had concerns with this arrangement because of the risk it posed if settlement fell through after the deposit had been paid to Mrs Needham (via a separate company). Mr Samy offered various forms of security to protect the deposit. In each case Mr Singh says Guru was concerned with the soundness of the security offered.
[40] Guru, through its solicitors Simpson Grierson, exchanged numerous communications with Mr Samy, STL and PDEL over several months to reach agreement on a suitable arrangement for the payment of the deposit. Guru submits all of these negotiations proceeded on the understanding that the Agreement was unconditional and that at no point during the negotiations did PDEL suggest otherwise.
[41] Mr Singh’s evidence is that the parties agreed arrangements at a meeting on 22 December 2021. Mr Singh annexes a copy of an email from Mr Broad at Simpson Grierson to Mr Bharat Parshotam, Mr Samy’s lawyer, on 23 December 2021 recording that “our clients met on Monday and agreed as to the way forward in this matter”.
[42] Mr Singh, Mr Samy and Mr Alexander all agree in their evidence that the meeting was in fact on 22 December 2021, not on the 20th as the email suggests. Otherwise, Mr Singh says the email accurately records what was discussed and agreed. The first point recorded in Simpson Grierson’s summary is that “there is in place an unconditional agreement for the sale of the property at $2.1m”.
[43] The email sets out that the deposit of $140,000 would be paid to the Simpson Grierson trust account and that Mr Samy would pay $100,000 to the Parshotam Law trust account for the discharge of the Needham mortgage, together with the remaining details. The email finishes by stating:
I look forward to hearing from you as to any questions you may have and otherwise please confirm the above is in order and we can arrange for the deposit to be paid by our client into our trust account. We are about to close until 13 January so the deposit will, subject to your agreement of the above steps, be paid by our client to us in the New Year.
[44] On the following day, 24 December 2021, Mr Alexander followed up with an email to Mr Samy and Mr Parshotam, copied to Mr Broad and Mr Singh, saying:
… please see copy of signed unconditional contracts that Richard Broad has to now put into effect with the deposits etc, settlement of the Needham mortgage and their solicitors’ caveat.
…
Any questions please call me.
Many thanks everyone have a great Christmas.
[45] There was no response to these emails until 13 January 2022 when Mr Samy emailed Mr Broad and asked him to refer to his communication of 23 December 2021 in which he had indicated that Mr Broad’s stipulations “in regard to the handling of the deposit sum, etc” were not acceptable to STL. Mr Samy says in his email that following that communication he met with Mr Singh and Mr Alexander and had reiterated that message to them including that STL would look at other options. Mr Samy then says he is formally informing them that STL and PDEL “will forthwith cease any further consideration of your client’s bid to purchase PDEL’s land in Pauanui”.
[46] From the evidence filed, Mr Samy did email Mr Broad on 23 December 2021 but it was at 8.27 am in the morning in reply to an email from Mr Broad on 21 December 2021, and prior to Mr Broad’s email referred to above setting out the agreement reached at the meeting. Mr Broad’s email was not sent until 2.16 pm. Furthermore, Mr Samy says in his 13 January 2022 email that “following that communication”, presumably meaning his email of 23 December 2021, he met with Mr Singh and Mr Alexander, but in his affidavit Mr Singh deposes that he and his wife
met with Mr Singh on 22 December 2021. He does not refer to any further meeting in his affidavit.
[47] On 14 January 2022 Guru lodged the caveat which was registered on the title on 25 January 2022.
[48] On 17 January 2022, Simpson Grierson wrote to PDEL and STL’s lawyers reiterating that Guru wished to proceed and that “an unconditional agreement for sale of the property at $2.1m” is in place.
[49] By email dated 20 January 2022, Mr Samy alleged that Mr Singh had agreed to allow STL to find an alternative purchaser and that he had found such a purchaser “(who has agreed to pay $1.1 million more)”. Mr Samy finishes this email by saying “we seek your understanding in regard to this”.
[50] Mr Singh categorically denies that he ever agreed to Mr Samy finding an alternative purchaser. Mr Samy’s account appears to be inconsistent with the documentary evidence but this is not a matter that can be determined on a summary basis in the context of this application to sustain the caveat.
[51] From this point on, the parties and their lawyers exchanged numerous communications. PDEL’s solicitors have variously asserted:
(a)“The [A]greement become void and consequently of no effect” because EWL was liquidated on 16 July 2021 and the liquidator did not “adopt” the Agreement.
(b)The nomination from NZFIL to Guru “does not make sense and is invalid” as there was no nomination from EWL to NZFIL.
(c)Upon being provided a copy of the NZFIL nomination (the existence of which had already been acknowledged by Mr Samy) PDEL’s solicitors asserted:
(i)PDEL did not believe the NZFIL nomination is “authentic”;
(ii)Mr Samy had not previously been provided a copy of the NZFIL nomination and “does not agree with its terms”;
(iii)the purchaser under the NZFIL nomination was NZFIL “not NZFIL and/or its nominee”. Therefore, “NZFIL cannot nominate or assign the [A]greement … [which] would require a novation …”; and
(iv)the Agreement was “frustrated” and “unenforceable” because PDEL could not obtain shareholder approval or a Court ruling.
(d)The NZFIL Nomination was “flawed” because the signature of EWL was not witnessed.
Is it reasonably arguable that the unconditional agreement was a variation rather than a second agreement?
[52] From the above, it is clear that it is reasonably arguable than an unconditional agreement had been entered into. The email correspondence supports this, particularly the failure of Mr Samy’s lawyers to rely on this initially as a basis for challenging its validity.
[53] Furthermore, it is clearly reasonably arguable that the unconditional agreement nominated to Guru is a variation of the original agreement between PDEL and EWL rather than a second agreement. The alleged second agreement is in the same form as the first with the same parties, date and terms as the first, just with the original conditions crossed out and adjustments made to the settlement date. In addition, the Mortgagee Sale Agreement signed and dated 6 August 2021 by Mr Samy refers to the original agreement being assigned/nominated first to NZFIL and then to Guru.
[54] Mr Samy’s evidence is that he only agreed to the Agreement being unconditional on the basis that Guru entered into the Mortgagee Sale Agreement. As Guru did not enter into the Mortgagee Sale Agreement, Mr Samy says the unconditional Agreement cannot be relied on.
[55] However, as counsel for Guru submits, there is no evidence other than Mr Samy’s affidavit evidence, that the Agreement was only unconditional if Guru entered into the Mortgagee Sale Agreement. The contemporaneous email correspondence does not make this clear or support this version of events.
[56] The same can be said in relation to PDEL’s reliance on what is referred to as the “Supplementary Agreement” entered into by PDEL, STL and EWL. Mr Singh’s evidence is that he first became aware of this agreement on 9 June 2022 when PDEL’s lawyers advised for the first time of its existence. It has similar conditions to the original conditions included in the Agreement before they were struck out. Mr Alexander’s evidence is that the Supplementary Agreement fell away before Guru’s involvement and that the Agreement was made unconditional prior to Guru’s nomination. I do not consider the Supplementary Agreement assists PDEL in lapsing the caveat.
Was EWL’s consent required?
[57] As it is reasonably arguable it is a variation, rather than a second agreement, it is reasonably arguable that the consent of EWL’s liquidator was not required as a vendor is entitled to unilaterally waive conditions for the vendor’s benefit.10 The changes made, as set out above, are arguably all changes reducing the benefits to the vendor. It is arguable therefore that the unconditional Agreement is valid despite not having the consent of the EWL liquidator.
[58] In any event, even if waiver cannot be relied on, it is reasonably arguable that PDEL would be estopped from denying the validity of the agreement as PDEL was the party who removed the conditions (or amended the terms) so there was a clear unequivocal representation. It appears reasonably arguable that Guru has relied on that representation and may suffer detriment as a result of that reliance and that it would be unconscionable for PDEL to depart from its representation that the contract was binding, thus satisfying all the ingredients for estoppel.
10 Hawker v Vickers [1991] 1 NZLR 399 (CA) at 402 and see discussion in Future Sustainable Development Limited v Wenjing Lin [2022] NZCA 249 at [31] onward.
Is the amended agreement for sale and purchase an illegal contract for failure to comply with s 129 of the Companies Act?
[59] The second basis for PDEL denying that Guru has a caveatable interest is that the Agreement is an illegal contract for failure to comply with s 129.
[60] Section 129 of the Companies Act provides that a company must not enter into a major transaction unless the transaction is approved by special resolution or contingent on approval by special resolution. In s 129(2), “major transaction” is defined as:
(a)the acquisition of, or an agreement to acquire, whether contingent or not, assets the value of which is more than half the value of the company’s assets before the acquisition; or
(b)the disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company’s assets before the disposition; or
(c)a transaction that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is more than half the value of the company’s assets before the transaction.
[61] It does not appear to be in dispute that the sale of the property by PDEL would be a major transaction.
[62]However, s 72 of the CCLA provides:
A contract lawfully entered into does not become illegal or unenforceable by any party because its performance is in breach of any enactment, unless the enactment expressly so provides or its object clearly so requires.
[63] The Companies Act does not expressly provide that a contract entered into by a company that has not complied with s 129 is illegal. By contrast, s 40 does expressly provide that a contract or deed under which a company is or may be required to issue shares is an illegal contract for the purposes of subpart 5 of Part 2 of the CCLA unless certain requirements are met.
[64] Under s 72 of the CCLA, a contract contravening s 129 of the Companies Act would only therefore be illegal if the object of the Companies Act clearly requires that contracts contravening s 129 be illegal. It is reasonably arguable that this is not the case.
[65] The Court of Appeal in Hansard v Hansard11 held that failure by a company to comply with s 129 did not invalidate the company’s transfer of its assets to a third party by virtue of the operation of s 17(1) of the Companies Act.
[66]Section 17(1) of the Companies Act provides:
No act of a company and no transfer of property to or by a company is invalid merely because the company did not have the capacity, the right, or the power to do the act or to transfer or take a transfer of the property.
[67]In addition, s 18 of the Companies Act provides:
18 Dealings between company and other persons
(1)A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired property, rights, or interests from the company that—
(a)this Act or the constitution of the company has not been complied with:
(b)a person named as a director of the company in the most recent notice received by the Registrar under section 159—
…
(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
…
(e) a document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—
unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be.
[68] Section 18 prevents a company from asserting against a third party non- compliance, lack of authority or invalidity of an agreement unless the third party has or ought to have knowledge of such matters by virtue of its position with or relationship to the company. The phrase “position with or relationship to the company” refers to those who have an ongoing relationship and will rarely arise out of a single transaction.12
11 Hansard v Hansard [2014] NZCA 433, [2015] 2 NZLR 158 at [30]–[31].
12 Equiticorp Industries Group Ltd (in statutory management) v The Crown (Judgment no 47) [1998] 2 NZLR 481 (HC).
[69] There is insufficient evidence of knowledge by Guru to say that the knowledge exception in s 18 would clearly apply in these circumstances to allow PDEL to assert non-compliance with s 129.
[70] For all the above reasons, I therefore consider it is reasonably arguable that the contract is not illegal and so the caveat ought not to lapse on that basis.
[71] In addition and, in any event, it is reasonably arguable that the contract is not an illegal contract for failure to comply with s 129 of the Companies Act as performance of the contract does not require a breach of s 129 of the Companies Act.
[72] Because I have found that it is reasonably arguable that the Agreement is not illegal, I do not need to go on to consider whether if it were illegal, the possibility of validation would support the caveat being sustained.
Is it reasonably arguable that Guru can rely on estoppel?
[73] Finally, I note that even if the contract were illegal, it is reasonably arguable that PDEL ought to be estopped from relying on any illegality to avoid the contract given their conduct, as discussed above in relation to waiver.
Result
[74] The application by Guru that caveat 12351114.1 affecting Certificate of Title 302523 not lapse is granted on condition:
(a)that substantive proceedings are filed and served within 30 working days seeking specific performance of Guru’s claim as nominated purchaser (if not resolved prior); and
(b)that those proceedings are pursued with reasonable diligence with leave reserved to the respondent to apply further if they are not.
Costs
[75] Guru has succeeded and is entitled to costs. My preliminary view is that there is no need to depart from the usual 2B basis. I ask the parties to confer and, only if costs cannot be agreed, to file memoranda of no more than five pages excluding schedules on behalf of the applicant within 30 working days and the respondent within a further 10 working days.
Associate Judge Sussock
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