Gustav & Co Ltd v Macfield Ltd
[2007] NZCA 205
•24 May 2007
IN THE COURT OF APPEAL OF NEW ZEALAND
CA168/05
[2007] NZCA 205BETWEENGUSTAV & CO LIMITED
Appellant
ANDMACFIELD LIMITED
Respondent
Hearing:8 August 2006
Court:William Young P, Chambers and Arnold JJ
Counsel:S P Rennie for Appellant
J G Matthews, K W Clay and D J Taylor for Respondent
Judgment:24 May 2007 at 4 pm
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe respondent will have costs of $6,000 in this Court, plus usual disbursements. We certify for two counsel.
REASONS OF THE COURT
(Given by Arnold J)
Table of Contents
PARA NO.
Introduction [1]
Background [2]
Basis of appeal [28]Unconscionable dealing – the principles [29]
Was there unconscionable dealing in this case? [33]
The decision of the High Court [34]
Was Mr Parkinson suffering under a disability or disadvantage? [45]
Did Macfield have the requisite knowledge? [63]
Decision [88]Introduction
[1] This case concerns a claim of unconscionable dealing in the context of a commercial land transaction. The dispute between the parties focussed more on the application of the relevant principles to the facts than on the principles themselves.
Background
[2] Mr Parkinson, the sole director of the appellant company, had been involved in property development on a fulltime basis for a decade in the Christchurch area. While he was not regarded as one of the major property owners or developers in Christchurch, he had undertaken a range of property developments, some reasonably substantial, in and around the city.
[3] In April 2003, Mr Parkinson received medical advice that he had cancer in his liver and had only six to nine months to live. This was the result of the spread of cancer from his bowel, which had been discovered and treated in 2001.
[4] One of Mr Parkinson’s neighbours was a real estate agent who specialised in commercial property, Mr Craig Thiele. Mr Thiele’s partner was a solicitor, Ms Standage. Although not close friends, Mr Parkinson and Mr Thiele were on friendly terms and Mr Parkinson told Mr Thiele that he had been diagnosed with cancer in the liver and given only six to nine months to live.
[5] At this time, Mr Parkinson had several property developments underway through various companies. He continued to work on these, although increasingly as his health deteriorated he operated from his home rather than his office. From about August 2003 the running of his office was left in the hands of an assistant, Ms Rona East, who took care of accounts, the preparation of GST returns and suchlike.
[6] In his property development activities Mr Parkinson utilised various professional advisors, including in particular Mr Brown, an accountant, and Mr Jones, a solicitor. They held shares in several of his development companies, including the appellant Gustav & Co Limited (Gustav), as trustees for his family interests. Mr Parkinson advised them of his illness. Mr Jones, who regarded Mr Parkinson as a friend as well as a client, said that he was shocked and upset to hear the news.
[7] Because his illness was terminal, Mr Parkinson was entitled to receive payment under his life insurance policies before he died. The payments under his policies were made in May and June 2003 and totalled around $1 million. Mr Brown and Mr Jones were involved in these payouts in their capacities as trustees/advisors. In particular, Mr Brown signed a discharge which Mr Jones had drafted in respect of one of the policies.
[8] In September 2003, Mr Thiele received instructions from the respondent, Macfield Limited (Macfield), via a director, Mr Mackenzie, to market (discreetly) a property known as the Union Centre. Macfield had purchased part of the site in April 2001 for $2.935 million and the remainder in September 2003 for $5 million. The site was a large one (3,038 square metres), with frontages onto three streets in the central city, one overlooking Victoria Square and another overlooking the Avon River. There were buildings on the site, occupied by a variety of tenants.
[9] Macfield obtained a valuation of the property from Mr Sellars, a director of Fright Aubrey Limited. Mr Sellars provided a lengthy written report dated 17 September 2003 in which he valued the property at $8.86 million on a redevelopment land value basis, at $8.89 million on a discounted cash flow basis and at $7.19 million on a rental capitalisation basis. Although the starting point for the redevelopment land valuation was $10.025 million ($3,300 per square metre), Mr Sellars calculated the current market value on the basis that redevelopment would have to be deferred until 2011. At that time a long-term lease of a substantial area of the building was due to expire. (This lease was not subject to a demolition clause.)
[10] Mr Mackenzie said in evidence that Macfield was not an anxious seller. He advised Mr Thiele that Macfield would not sell the property for less than $12 million net (approximately $4,000 psm).
[11] Mr Thiele then approached a number of developers to see whether there was any interest in acquiring the Union Centre. This did not produce any offers. Mr Thiele also mentioned to Mr Parkinson that the property was available, not because he thought that Mr Parkinson would be interested in purchasing it, but simply because he thought that Mr Parkinson would like to know what was happening in the property market in Christchurch.
[12] To Mr Thiele’s surprise, Mr Parkinson expressed some interest in purchasing the property. Some days later Mr Parkinson contacted Mr Thiele to say that he wanted to make an offer. Gustav or a nominee was to be the purchaser. That company had been incorporated in 2001. It had a share capital of 1000 shares (unpaid), the bulk of which were held by Mr Brown and Mr Jones as trustees. (Mr Jones also held shares, as a trustee, in Macfield).
[13] Mr Thiele said in his evidence that he received the offer on behalf of Gustav for $12 million on 28 October 2003 and presented it to the directors of Macfield, Messrs Mackenzie and Butterfield, on 30 October 2003. Macfield made a formal counter-offer, which Mr Jones had drafted on behalf of Macfield, the following day. That counter-offer was for $12.35 million (the additional $350,000 representing the real estate commission) and contained some amended terms. Following discussions with Mr Thiele, Mr Parkinson amended a term of the counter-offer, which Mr Thiele then re-presented to Macfield. Macfield accepted the amendment on 3 November 2003, with the result that the contract was concluded on that date and dated accordingly.
[14] The agreement provided that the deposit of one million dollars was to be paid “upon confirmation of special conditions”. One of the special conditions was cl 14.1, which provided:
Agreement Conditional Upon Due Diligence
This agreement is conditional upon the Purchaser being entirely satisfied that the property is suitable commercial property investment at the agreed purchase price following the Purchaser undertaking a due and diligent investigation of the property including (but not limited to):
a)Town planning and other zoning or permitted use related aspects for the property.
b)The terms of all leases, licences or any other occupancy rights affecting the property.
c)All legal and title issues relating to the property and any encumbrances or memorials registered thereon.
d)Financial feasibilities, architecturally (sic) and engineering analysis.
e)The properties (sic) compliance with the Resource Management Act, and the Building Act 1991.
f)The perusal of Lease or Agreement to Lease documentation and acceptance thereof including acceptance of any continuing lease negotiations that may affect the tenancies listed in this Agreement.
g)Arranging finance to purchase the property on terms satisfactory to the purchaser in all respects.
h)Obtaining a satisfactory valuation report.
The parties acknowledge that the conditions in Clause 14.1 are inserted for the sole benefit of the Purchaser and may at any time prior to this Agreement expiring be waived by the Purchaser giving written notice of waiver to the Vendor.
In the event that the Purchaser is not satisfied in respect of the above, the Purchaser shall not be obliged to state any reasons for the Purchaser’s lack of satisfaction of any condition.
The date for satisfaction of conditions in Clause 14.1 shall be before 40 working days from the date of acceptance. If the conditions set out in Clause 14.1 are not satisfied or are not waived before 40 working days from the date of acceptance, either party may cancel this agreement by written notice of cancellation to the other, and if the agreement is cancelled the provisions of general condition 8.7 shall apply.
[15] The agreement identified Mr Leggat of White Fox & Jones as the Macfield’s solicitor and Mr Jones of the same firm as Gustav’s solicitor. However, Mr Jones rang Mr Parkinson and advised him that his firm was already acting for Macfield and that Gustav would have to obtain independent advice. Gustav did retain another solicitor, Mr Thiele’s partner Ms Standage, to provide conveyancing and similar advice, although Mr Leggat did subsequently provide a letter of advice to Gustav in relation to leases affecting the property.
[16] In the period after the agreement was concluded, Mr Parkinson undertook various steps in the due diligence process. The most significant of these were the following.
[17] First, Mr Parkinson sought further information and advice concerning the leases affecting the site. Mr Leggat provided him with information about, and comments on, the leases by letter dated 21 November 2003. Mr Leggat noted that a number of the leases did not contain demolition clauses. (As we discuss below, there is a question as to the capacity in which Mr Leggat was acting when he wrote this letter.) Subsequently, Ms Standage advised Mr Parkinson on these issues, and sought further information from Macfield concerning the leases. Apparently, however, Mr Parkinson did not, before Gustav confirmed the agreement, obtain all the information that ultimately proved to be necessary as Ms Standage requested further information about the leasehold interests after confirmation. Ms Standage also took other preliminary steps, such as obtaining a LIM report and conducting a title search.
[18] Second, Mr Parkinson asked Mr Harris, also a director of Fright Aubrey Limited and a valuer with whom he had a long‑established relationship, to provide a brief report giving “indicative values” of the property. Mr Harris provided a preliminary report on 4 December 2003, in which he set out valuations made on various bases. The values ranged between $8.43 million (on a capitalisation of the potential net income approach) and $10.63 million (on a redevelopment land value approach). Although the report noted that some of the tenancies affecting the property were not subject to demolition clauses, Mr Harris did not discount the redevelopment land value to reflect deferred development as Mr Sellars had done. Rather in relation to that figure he assumed that the buildings and leases had been removed. It is clear that the various figures were not final as the report concluded:
As discussed the above calculations do not necessarily reflect our assessment of the current market value. They provide our preliminary thoughts and are subject to a significant number of assumptions. We understand that you will be obtaining full plans and costings for the proposed development and these will have a significant impact on the final value for the property.
[19] Third, in November 2003 Mr Parkinson advised Mr Hamish Doig, a real estate company director, that Gustav had purchased the Union Centre and asked whether he could recommend a suitable joint venture partner to undertake a joint development on part of the property. Mr Doig said in evidence that he was surprised to hear of the purchase as he was aware that Mr Parkinson had terminal cancer, but contacted Mr Martin Udale of McConnell International Property Limited (MIP) as he had expressed an interest in becoming involved in a property development joint venture in Christchurch.
[20] Mr Doig arranged for Mr Udale to meet Mr Parkinson. The two did meet in late November. An exchange of emails followed, and there was a further meeting on 19 December. The result was a statement of principles in a Heads of Agreement dated 19 December 2003 relating to the development of an apartment complex on part of the site. Mr Leggat prepared a draft of a formal joint venture agreement and forwarded it to Mr Parkinson on 14 January 2004. Mr Udale and Mr Parkinson met again on 15 January. They then exchanged further emails. Mr Gibbs, also of MIP, had a meeting with Mr Parkinson, who was at that stage on an intravenous drip, on 28 January and again on 29 January, this time in company with Mr Udale. No further progress was made before Mr Parkinson died, however. Discussions did continue with Mrs Parkinson subsequently, when she replaced her husband as director of Gustav, but nothing eventuated.
[21] Fourth, Mr Parkinson had some preliminary drawings prepared for the construction of the apartment complex. He also had his assistant, Ms East, prepare a preliminary budget for the proposed apartments. Both of these were provided to Mr Udale.
[22] Finally, Mr Parkinson had some discussions with a finance broker, but nothing eventuated from these.
[23] In terms of cl 14.1 of the agreement, Gustav was due to confirm the contract by 9 January 2004. On 7 January 2004 Gustav, through Ms Standage, sought an extension until 23 January 2004, which Macfield granted. In addition, the agreement was varied in two other respects, at Gustav’s request. First, the deposit was reduced to $750,000 payable in two instalments, one of $500,000 on confirmation and a second of $250,000 in May 2004. Second, settlement was to be eight (rather than six) calendar months from the date of confirmation.
[24] On 23 January Gustav confirmed the agreement and paid the first instalment of the deposit ($500,000). These funds came from Mr Parkinson’s life insurance proceeds.
[25] Mr Parkinson died on 15 February 2004, having been in hospital from 4‑12 February receiving palliative care.
[26] Mrs Parkinson replaced her husband as director of Gustav after his death. Discussions with MIP continued, but Mrs Parkinson ultimately withdrew from them. Some effort was made to sell the property. Although offers were received, nothing eventuated. Gustav did not pay the remaining $250,000 of the deposit when it fell due in May 2004. At some point in this period, Mr Jones withdrew from representing Macfield, on the ground of conflict of interest. Through other solicitors, Macfield advised Gustav by letter on 1 July 2004 that if it did not pay the outstanding deposit, with interest, within three working days, Macfield considered that it was entitled to cancel the contract. Macfield did subsequently cancel the contract. It also retained the $500,000 paid by way of partial deposit.
[27] Gustav eventually issued these proceedings to recover that amount. It was unsuccessful before John Hansen J: HC CHCH CIV 2004-409-1606 15 July 2005.
Basis of appeal
[28] In this Court, the essence of Mr Rennie’s argument for Gustav was that the agreement should not be enforced as:
(a)Mr Parkinson, who was to all intents and purposes Gustav, was under a special disability;
(b)Macfield knew or ought to have known of that special disability, particularly in light of the “grossly excessive price paid” for the property, the time and cost of developing the site, the lack of interest from the target market, Mr Parkinson’s medical prognosis and the deterioration in Mr Parkinson’s condition over the due diligence period;
(c)Macfield took advantage of the special disability by passive acceptance of the first instalment of the deposit;
(d)Macfield had not discharged the burden of showing that the contract was “fair, just and reasonable”.
Unconscionable dealing – the principles
[29] Counsel referred us to various authorities in relation to unconscionable dealing. Important among them were Blomley v Ryan (1956) 99 CLR 362 (HCA), especially per Fullagar J at 405-6 and Kitto J at 415; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (HCA), especially per Mason J at 461-3 and Deane J at 474-5; O’Connor v Hart [1985] 1 NZLR 159 (PC) at 171; Nichols v Jessup [1986] 1 NZLR 226 (CA), per Cooke P at 227-9, McMullin J at 233-5 and Somers J at 235; Borg-Warner Acceptance Corporation (Aust) Ltd v Diprose (1988) ANZ ConvR 57 (NSWSC) at 59-61; Bowkett v Action Finance Ltd [1992] 1 NZLR 449 (HC), especially at 460-1; Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA), especially per Richardson J at 173-4; Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA), especially per Tipping J at [84]-[89].
[30] We do not propose to analyse these authorities in detail. Rather, we derive the following principles from them. The principles stated are not exhaustive, but are sufficient for the purposes of this case.
1Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.
2This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.
3A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party’s ability to assess his or her best interests. It is an open‑ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.
4If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.
5Before a finding of unconscionability will be made, the stronger party must know of the weaker party’s disability or disadvantage and must “take advantage of” that disability or disadvantage.
6The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.
7“Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:
… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
8If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.
[31] While factors such as a marked imbalance in consideration or procedural impropriety are generally present in unconscionability cases, neither is a prerequisite for relief. However, if there is no significant imbalance in consideration or if the weaker party received full independent advice it is unlikely that any issue of unconscionability will arise.
[32] We are conscious that the foregoing summary does not accord in all respects with the views urged by at least one leading writer in the area (see Bigwood Exploitative Contracts (2003) ch 6). But we were not asked to re-examine the principles set out in the authorities, and in the circumstances of this case see no need to do so.
Was there unconscionable dealing in this case?
[33] We now turn to consider the facts of this case in the light of the principles outlined above. Before we do so, however, we summarise the High Court’s decision.
The decision of the High Court
[34] Having recorded the background facts, the Judge set out the medical evidence and the evidence of the lay witnesses. He concluded that the evidence showed conclusively that Mr Parkinson underwent a “significant physical decline over the period in question”: at [74].
[35] As to Mr Parkinson’s mental state, Mr Parkinson’s treating oncologist, Associate Professor Robinson, expressed the opinion in her evidence-in-chief that Mr Parkinson’s ability to look after his own interests was severely diminished after about mid-October 2003. This was due to a combination of the pain that he was suffering and the drugs that he was taking. Professor Robinson said that from this time, Mr Parkinson would have looked unwell to those who observed him, particularly in meetings, and that this would have become increasingly obvious from December onwards.
[36] The Judge said:
[71] The Professor also accepted in cross-examination that with her expertise and experience she would observe more than a layperson and would have much more knowledge than a layperson. She accepted that Mr Parkinson would present differently on different days, with the ability to have good and bad days. She accepted his optimism and determination. She also accepted it would be possible for Mr Parkinson to present as described by the other witnesses, but said she would be surprised if he was able to maintain apparent normality in longer meetings. Indeed Mr Matthews in cross-examination put this evidence to Professor Robinson of each of the witnesses in turn and she accepted the possibility of it but expressed surprise, particularly for longer meetings. She was less accepting of this for the meetings in January, particularly later in January, because at that time he was having fluid in his abdomen and had become jaundiced.
[72] Those concessions are important when I come to consider the evidence of the other witnesses as to their observations of Mr Parkinson.
[37] Turning to the lay evidence as to Mr Parkinson’s mental state, the Judge said (at [80]) that it was clear from the lay witnesses (putting Mrs Parkinson’s evidence to one side) that:
… they had no concerns in relation to Mr Parkinson’s mental state, acuity, acumen and rationality. Indeed, they all speak of how alert and sharp he was in relation to business matters, notwithstanding his obvious physical state.
[38] The Judge noted that Ms East had not been called on behalf of Gustav although she was likely to have had significant dealings with Mr Parkinson during the relevant period. This suggested either that her evidence would not assist Gustav or that it would be adverse to its interests: at [83].
[39] The Judge then said:
[92] The Plaintiff also maintains that those dealing with Mr Parkinson, in particular the directors of the Defendant or their agents such as Mr Jones, ought to have known the extent of Mr Parkinson’s illness, the likely treatment and the effect of such treatment. Essentially this is to take a position that lay people would understand the physical and mental consequences of terminal cancer, its treatment and the medication associated with it. While I accept most adults will have had some experience with and knowledge of people suffering from cancer, even terminal cancer, I do not accept that they could be expected to have the knowledge or insight into the disease, its treatment and the effects of medication that the Plaintiff submits. Indeed, the evidence does not support such a position.
[40] The Judge noted that Mr Rennie for Gustav had made the imbalance in consideration a major feature of Gustav’s case. The argument was that Gustav had paid a price that was considerably higher than the market value of the property. The Judge concluded that the price disparity was not as great as had been suggested, that Mr Parkinson was well aware that he may have paid a higher than market price for the property but was prepared to pay a premium to acquire a highly desirable site, in circumstances where the amount of that premium, spread over the life of the project, was not significant: at [93]-[108].
[41] One of the points at issue before John Hansen J was the time at which the assessment of unconsionability should be made - when the agreement was entered into (late October/early November 2003) or when it was confirmed (24 January 2004). The Judge said that he was prepared in the circumstances to assess the position as at the date of confirmation: at [147].
[42] The Judge assessed the circumstances in relation to both procedural and substantive unconscionability. He said:
[151] My finding on the evidence is that all of those observing Mr Parkinson during the relevant period would readily assume that he was properly working through the due diligence aspects of the proposed purchase. There was absolutely nothing to suggest to any of the witnesses, other than Mrs Parkinson, that there were concerns as to his ability to properly work through the due diligence process as was normal.
[152] It is also important not to overlook the fact that at the same time as this contract was in process Mr Parkinson, through his other corporate entities, was continuing to conduct his business as a property developer. There has been no suggestion that any of these transactions should be attacked in any way. In relation to Mrs Parkinson, as noted above, she accepted that she did not convey her concerns to any professional advisors, to the trustees of the family trust, or to the people who attended meetings at her house in which, I find, she participated more than she acknowledged in evidence.
[153] This matter falls into the citation from Bradley West at p127 above. It is apposite to repeat it:
… It was said that there was a procedural impropriety in a solicitor acting for all parties, but, if so, it was not in this context a material impropriety. In any event any actionable breach of duty by the solicitor causative of loss can be redressed by a claim against the solicitor. …
[154] In this case the statement of claim alleges procedural impropriety but there is nothing in the evidence, nor was it put in cross-examination, that this impropriety had any material impact on Mr Parkinson or his decision to confirm this contract.
[155] That leaves the Plaintiff with a claim of substantive unconscionability that relies heavily on the disparity in consideration between the two Fright Aubrey valuations and the purchase price. I have dealt with that factually and I am satisfied the disparity is not so great as maintained. Furthermore, nothing has been pointed to to show any unfairness on the part of the Defendant. Mr Mackenzie’s unchallenged evidence was that Macfield wished to clear $12 million for this. Mr Parkinson was not approached as a potential purchaser, but when he heard that the Union Centre was for sale he made a phone call and determined to become involved himself. In a proper and business like way he has rationalised any additional payment as set out above. It seems to me an almost inevitable inference that Mr Parkinson was negotiating this deal, and confirmed it, because he believed it could be carried on after his death by a joint venture partner for the benefit of his family.
[156] Mr Rennie went further and submitted in a case where a contracting party is aware that the other party is suffering from a serious illness they have an obligation to make inquiries through their solicitor of advisors on the other side, of the sick person’s partner, and to obtain independent medical advice. This latter submission is obviously a way of attempting to circumvent the confidentiality applying to the information that Professor Robinson had. Mrs Parkinson obviously had similar information but chose, for her own reasons, not to pass it on or to express her concern to anyone.
[157] Furthermore, while Messrs Thiele and Jones were aware the cancer was terminal I have not been satisfied to the requisite standard that Mr Mackenzie was aware of this. Mr Thiele was quite vague as to whether or not he had told him. However, I accept that this knowledge can be imputed to Macfield as Messrs Thiele and Jones were Macfield’s agents.
[158] However, the submission of Mr Rennie then makes a quantum leap. He effectively suggests in cases of this sort a lay person would be aware of the types of medication and the effects of it. If not, again it is said they should make inquiries. In my view this is simply going too far. In the absence of any indication that the mental acuity of Mr Parkinson was failing or faulty in some way I can see no basis for this submission.
[43] His Honour then discussed the decision of Salmon J in Andrews v The District Land Registrar HC AK CP635/98 17 June 1999 and said:
[161] Those factors are present here. Mrs Parkinson expressed no concern. It is apparent that despite Mr Parkinson’s illness he continued to conduct the affairs of Gustav and his other property development enterprises. Although his physical infirmity was obvious there was nothing in his presentation to the witnesses, or exhibited in any of the many documents produced in this case, that would indicate to Macfield, or anyone else, that there were any concerns as to Mr Parkinson’s ability to protect his own and Gustav’s interests.
[162] In any event, it is hard to see how Macfield could have obtained independent medical advice. Anyone they approached would not have been able to comment accurately without receiving full medical information contained in Mr Parkinson’s confidential file. Furthermore, this was a commercial arms length transaction. It is hard to see a justification in those circumstances for a contracting party to seek personal information.
[163] At the end of the day the only substantive matter advanced by the Plaintiff is the alleged disparity of consideration. I have found that I do not consider that as great as the Plaintiff advances. The contract was not brought about by the extortion of a vendor over a weaker purchaser. At the date of confirmation the Plaintiff was independently advised and Mr Parkinson made the decision to confirm. While hindsight suggests suspicion about various relationships in this matter, and conflict of interest may be arguable, the Plaintiff has failed to show that these factors were causative of the decision to confirm. Even if they were, it seems to me the remedy would lie elsewhere.
[164] In all of the circumstances of this case the Plaintiff has failed to show that the contract entered into by Gustav was unconscionable. They have further failed to establish that it was unconscionable in all of the circumstances existing at the date of confirmation.
[44] It is not clear to us whether the Judge considered that Mr Parkinson was not suffering under a qualifying disability, and so was able to look after his own interests, or whether he accepted that Mr Parkinson was suffering a disability but Macfield had no actual or constructive knowledge of it. Apart from that, it seems that the Judge considered that there was no imbalance in consideration. We address these aspects below.
Was Mr Parkinson under a qualifying disability or disadvantage?
[45] The first point to be considered in relation to Mr Parkinson’s condition is the time at which it should be assessed – at the time the contract was made or at the time the contract was confirmed.
[46] In the circumstances of this case, we consider that the Judge was right to take the latter as the relevant time. We say this for two interrelated reasons.
[47] First, there is support for this approach in the authorities. In O’Connor v Hart Lord Brightman, delivering the reasons of the Privy Council, said that victimisation can consist “either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances”: at 171. In Contractors Bonding Ltd v Snee (at 173) Richardson J highlighted the latter alternative (passive acceptance) and said (at 174):
At the end of the day equity will intervene to deprive parties of their contractual rights where they have unconscionably obtained benefits or have accepted benefits in unconscionable circumstances. That is where they would be acting unconscientiously in receiving or retaining their bargain. (Emphasis added)
[48] Second, this approach best reflects the reality of the contractual position in this case. The due diligence clause in the contract was a wide one. It identified a range of matters that Gustav was entitled to examine prior to confirmation and gave Gustav considerable scope to withdraw from the contract. The contract contemplated that the purchaser would undertake its detailed assessment of the property (including its development potential) after the contract was entered into and before it was confirmed. In effect, prior to confirmation Gustav had something akin to an option to purchase. As the post-contract, pre-confirmation period was the critical period for the exercise of judgment by the purchaser, it was the period during which Mr Parkinson needed to have the capacity to assess and protect his own interests.
[49] Mr Matthews argued that it was not appropriate to take the point of confirmation because Macfield as vendor had no role to play at that point, that is, it had no discretion whether or not to accept the confirmation. If Gustav chose to confirm, Macfield was obliged to accept.
[50] That is, of course, correct. But it does not resolve the matter. Although it may, ultimately, have been obliged to accept the confirmation if Gustav persisted, that did not prevent Macfield from making some further enquiries of those associated with Gustav prior to acceptance, if such were required as a matter of conscience.
[51] As we have said, the due diligence period was the critical period during which Mr Parkinson needed the capacity to consider his interests. The question is whether that capacity was diminished to the extent that he was unable to assess his interests sufficiently in relation to the transaction. On the basis of the medical evidence, and the circumstances of the confirmation, we consider that it was so diminished.
[52] As noted earlier, Professor Robinson said in her evidence-in-chief that in her opinion Mr Parkinson’s ability to preserve his own interests was severely diminished from about mid-October 2003, as a result of pain and the effects of the drugs which he was taking. She said that by mid-December Mr Parkinson had difficulty walking and had to use a stick. As a result of the morphine that he was taking, he would drop off momentarily and would move in and out of alertness. By early January, he was in considerable pain and was using crutches to walk. Although he claimed that he was improving at this time and spoke of surviving for up to a year, the Professor considered this unrealistic. She said that while Mr Parkinson continued to receive chemotherapy, it was at his insistence.
[53] By late January/early February he was jaundiced, “looked terminal” and needed assistance to move. He was put onto palliative relief and died soon afterwards.
[54] In cross-examining Professor Robinson, Mr Matthews focussed on the impression that others would have had of Mr Parkinson rather than on her opinion that Mr Parkinson’s capacity to look after his own interests was severely diminished by mid-October 2003. He developed two points:
(a)Mr Parkinson had good and bad days and sometimes good and bad periods within days, so that at times he would have presented to others much as he always had. Professor Robinson accepted this.
(b)People who dealt with Mr Parkinson over this period would give evidence that, despite his physical limitations, he appeared lucid, mentally acute, business-like and rational in meetings. While Professor Robinson accepted that it was possible that people would have this impression, she expressed some surprise about it, especially in relation to meetings in the latter half of January 2004 when Mr Parkinson’s medical condition had deteriorated.
[55] In addition to Professor Robinson’s evidence as to Mr Parkinson’s capacity, it is relevant to consider the circumstances in which Mr Parkinson confirmed the contract. They indicate that it was a decision which was foolhardy to the point of being reckless, and out of character.
[56] First, this was a much larger project than any that Mr Parkinson had previously been involved in. The redevelopment of the Union Centre was ultimately a $100 million project. Before this, Mr Parkinson’s largest development project was a joint venture development costing $4.2 million. In that sense, this project was the biggest challenge that Mr Parkinson had faced as a developer. Yet he committed to it at a time when his terminal illness was taking its course in a debilitating way.
[57] Second, the evidence was that normally Mr Parkinson relied heavily on his advisors. In this instance he did not consult his advisors in any meaningful way. For example:
(a)Mr Brown said that it was Mr Parkinson’s practice to discuss his plans with him prior to taking steps, yet he found out about the purchase only after the contract was concluded, and Mr Parkinson never discussed his plans for the site with him.
(b)Mr Harris, Mr Parkinson’s long-standing valuer, was asked to give indicative valuation figures, but only after the contract was entered into. He gave a preliminary valuation (qualified in the manner set out at [18] above) and was so concerned about Mr Parkinson’s condition that he took the matter up with Ms East. Mr Parkinson sent him an email in which, having dealt with business matters, he in effect chided him for his concern and told him to mind his own business (or, as the Judge characterised it, said “thank you for your concern but I know what I am doing”: at [103]). Mr Parkinson never provided Mr Harris with the information necessary for him to finalise his valuation figures.
(c)While Mr Parkinson did take advice from Ms Standage, this was only in relation to conveyancing and similar issues. As the Judge said at [14], her instructions did not encompass the financing and viability of the purchase.
[58] Third, according to Mr Brown, Mr Parkinson usually adopted a cautious approach and was careful to have an exit strategy. Mr Jones said that Mr Parkinson “never paid too much for anything” and was “very focussed in his approach” and would have “worked through his numbers very carefully”. In the present case, however, Mr Parkinson was incautious and had no exit strategy. In particular:
(a)Gustav was a one-man company, without substantial human or financial resources. When it confirmed the contract, Gustav did not have the ability to finance the transaction. Mr Parkinson had not completed the joint venture negotiations, although he may have thought that they were going well, and he did not have other funding either in place or in prospect.
(b)While some of the site could be redeveloped immediately, there were real difficulties in proceeding with the redevelopment of most of it in the short to medium term as a result of the absence of demolition clauses in some of the leases.
(c)The price which Gustav had agreed to pay was, on the limited valuation advice the company had received, significantly above the market price. As has been noted, Mr Parkinson was aware of that. He acknowledged that he had paid up to $2 million more for the property than he should have, but rationalised it on the basis that the property was worth a premium and that any excess, when spread over the life of the redevelopment, was not significant. While that was, in principle, a defensible commercial analysis, it was hardly a sensible one for a company in Gustav’s position as at the date of confirmation.
[59] Although the Judge found (at [151]) that those who dealt with Mr Parkinson “would readily assume that he was properly working through the due diligence aspects of the proposed purchase”, the reality was that Mr Parkinson did not conduct a thorough due diligence process. The uncharacteristic way in which Mr Parkinson dealt with what was by far the largest development that he had ever undertaken provides support for Professor Robinson’s opinion as to Mr Parkinson’s capacity at the time.
[60] We accept that the evidence indicated that those who were dealing with Mr Parkinson in relation to the other developments in which he was involved found that he continued to demonstrate the qualities that he had brought to them prior to his illness. But the fact that Mr Parkinson was able to deal with issues relating to those other developments adequately, or even astutely, does not necessarily mean that he had the capacity to look after his interests properly in relation to the Union Centre transaction. The other developments were nearing completion, were very much less complex, and involved Mr Parkinson’s advisors as well as other developers. The Union Centre transaction was of a wholly different class.
[61] Accordingly, we consider that the evidence establishes that Mr Parkinson was suffering under a qualifying disability or disadvantage at the time of confirmation in relation to the Union Centre transaction. That is, his ability to assess and act in his best interests in relation to the transaction was significantly diminished at the time that the contract was due for confirmation. This was the result of his illness and the medical treatment which he was receiving. These factors, coupled with his apparent inability or unwillingness to accept the reality of his situation (a point to which we return below), mean that he suffered from a transactional disability sufficient to found an unconscionable dealing claim (see the discussion in Bigwood at 242-5).
[62] The question now becomes whether Macfield had the requisite knowledge.
Did Macfield have the requisite knowledge?
[63] We have found this aspect of the case most difficult. We are conscious of the advantages that a trial Judge has over appellate Judges in matters of this type. We also accept the need to give proper recognition to party autonomy, and acknowledge that the courts should not interfere with contractual arrangements on an unprincipled basis, simply out of some generalised notion of fairness.
[64] As we see it, there were several important elements to the Judge’s analysis in relation to knowledge.
[65] First, he was impressed by the evidence of those who had business dealings with Mr Parkinson over the period between October 2003 and January 2004, particularly the MIP witnesses, Messrs Udale and Gibbs. These dealings involved attendance at meetings, telephone conversations and email exchanges. The evidence was that Mr Parkinson presented as being mentally alert and sharp, rational and business-like in his approach, aware of the issues and able to contribute sensibly to discussions. This was reflected in the emails in evidence, which, although generally brief, were coherent and business-like. According to the Judge, there was nothing in the various contacts that these witnesses had with Mr Parkinson to raise any concerns about his ability to assess and protect his interests.
[66] We accept that it is clear from the evidence that Mr Parkinson was an optimistic and positive person. It is also clear that he was not, publicly at least, resigned to the fact that, as of April 2003, he had only six to nine months to live. For example, when he emailed Mr Harris after he had raised his concerns about Mr Parkinson’s health with Ms East (see [57](b) above), Mr Parkinson said that his health was “good and guaranteed for the next 8 to 12 months”. He said to those with whom he dealt that he was determined to beat his illness, and even at the beginning of 2004 when he was becoming very ill, he was talking about living for a further year at least. Throughout this period he appears to have given the impression in his business dealings that he was on top of the issues and could operate effectively despite his illness.
[67] Second, the Judge was clearly influenced by the fact that Mrs Parkinson did not raise any concerns that she may have felt about Mr Parkinson’s capacity to continue working with his advisors. Mrs Parkinson said that she thought that it was beneficial for Mr Parkinson to continue with his work as it took his mind off his illness and that her time was devoted to looking after her seriously ill husband and their three school-age children, and generally keeping their household running. As to the Union Centre, Mrs Parkinson said that she was not aware of the full extent of the transaction at the time. She thought that the purchase related to a tavern on the site, the “Vic & Whale”, although the Judge considered that she had been more closely involved in some of her husband’s dealings over the Union Centre than she was prepared to accept.
[68] It is, perhaps, not surprising that Mrs Parkinson did not raise questions with others as to her husband’s capacity. Witnesses described Mr Parkinson as cautious, an astute businessman who sought and acted on advice, and a person who always had an exit strategy. Given her responsibilities to her family, including her husband, it may not have occurred to Mrs Parkinson that her husband would commit himself in the way that he did – without having taken appropriate advice, without having funding arrangements in place and without an exit strategy. If he had dealt with this transaction in the way that he had dealt with others in the past, it is unlikely that Gustav would have found itself in the position that it did.
[69] We accept, however, that Mrs Parkinson’s lack of obvious concern about her husband’s capacity to look after his business interests was important for another reason. Whether or not Mrs Parkinson knew of the full scope of the Union Centre transaction, she was present at some meetings about it, and supported her husband in various ways in relation to his other business dealings (by, for example, taking him to and from meetings). As a consequence, those who dealt with Mr Parkinson were likely to have had the impression that Mrs Parkinson did not have concerns about her husband’s ability to look after his business interests despite his illness. Indeed, some of the witnesses said as much.
[70] Third, there is the issue of price. As we have noted at [30] above, a marked imbalance in consideration may put the stronger party on enquiry. Mr Rennie argued that there was such an imbalance here. John Hansen J did not accept that submission. The Judge emphasised two points:
(a)After Mr Parkinson’s death other developers prepared or made offers for all or part of the property which, although conditional, indicated that they considered that the site “warranted a premium price considerably above the valuations reached by Mr Harris”: at [105].
(b)Mr Parkinson was prepared to pay the price which Macfield set, without pressure from Macfield. He recognised that he had paid up to $2 million more than the market price, but considered that it was worth it to obtain the site, and that the premium, when spread over a $100 million development, would not be significant: at [104] and [108].
[71] Looking at the matter from Macfield’s perspective, it had acquired part of the site in 2001 for $2.935 million and the remainder in September 2003 for $5 million. Its valuation advice was that the market value of the site was a little less than $9 million depending upon the valuation approach adopted. Mr Mackenzie said that Macfield was not an anxious seller, but was prepared to sell if it could clear $12 million. Mr Parkinson was, of course, prepared to pay that amount. But his willingness to do so was, given the way the agreement was structured, dependent upon the outcome of the due diligence process. Similarly with the other offers – they also were conditional. Accordingly, Mr Parkinson’s rationalisation of the price that he paid is not the end of the matter.
[72] The Judge concluded that, although it had not been established that Macfield’s directors were aware that Mr Parkinson’s cancer was terminal, Macfield’s agents, Messrs Thiele and Jones, were aware of that: at [157]. However, he went on to hold at [158] that they were under no obligation to enquire because they had no indication that Mr Parkinson’s mental acuity was failing or faulty.
[73] We agree with the Judge that the knowledge of Messrs Thiele and Jones must be the focus of attention. The critical issue is whether, given what they knew, Macfield had a duty to enquire.
[74] Answering this is complicated by the fact that Mr Jones continued to act for Macfield despite being a trustee shareholder in Gustav and Mr Parkinson’s legal advisor. The role of his partner, Mr Leggat, in relation to the sale is unclear. As we say at [15] above, he was nominated as Macfield’s solicitor in the agreement for sale and purchase, and Mr Jones as Gustav’s solicitor. Mr Jones then advised Mr Parkinson that his firm was already acting for Macfield and could not act for Gustav. This led to Gustav instructing Ms Standage. Despite this, Mr Leggat wrote to Mr Parkinson about the leases affecting the site on 21 November 2003 in what reads like a letter of advice. But when on 7 January 2004 Ms Standage sought an extension of the date for confirmation on Gustav’s behalf she wrote to Messrs Leggat and Jones jointly, which indicates that she considered that Mr Leggat was acting for Macfield at the time. She did, however, direct subsequent correspondence solely to Mr Jones. In addition, Mr Leggat acted for Gustav in relation to the proposed joint venture with MIP. It is not clear from the evidence when his instructions began, but he appears to have been acting by early January 2004. There was, then, what proved to be an unsatisfactory intermingling of roles.
[75] Taking into account the knowledge of Messrs Thiele and Jones, Macfield knew the following:
(a)Mr Parkinson had terminal cancer and had in April 2003 been given six to nine months to live;
(b)Mr Parkinson was undergoing intensive medical treatment, including receiving medication intravenously, from October 2003 onwards;
(c)His physical health was declining, in a very obvious way, and he was clearly seriously ill by late January 2004;
(d)Mr Parkinson had other development projects underway which he had to put in order against the likelihood that he would soon die. Accordingly he was not in a position to devote all his available energy and time to a major new project;
(e)The new project was of a different order of magnitude than anything that Mr Parkinson had previously undertaken;
(f)On any view of it, the price which Gustav agreed to pay contained a substantial premium and made sense, if at all, only in the context of a long-term development project. Without a mechanism to ensure the completion of that long-term project, such a price could not be justified;
(g)Gustav was a one-man company, which did not itself have the resources to complete the transaction. Accordingly it could not proceed unless it concluded a joint venture or some similar arrangement;
(h)Mrs Parkinson was not qualified by background or experience, nor did she have the opportunity, to act in her husband’s stead over the due diligence period in making decisions about the transaction;
(i)Ms Standage was advising Gustav in relation to conveyancing issues only.
[76] In combination, these factors suggest that Macfield ought to have made further enquiry of those associated with Gustav rather than simply accepting the confirmation. But there are factors going the other way.
[77] First, there is no sense in which Macfield can be said to have “targeted” Mr Parkinson from the outset. Mr Mackenzie advised Mr Thiele that Macfield wished to place the property on the market and indicated the net price at which Macfield was prepared to sell. Mr Thiele did not tell Mr Parkinson that the property was on the market because he thought that he was a potential purchaser, but simply as a matter of conversational interest. Mr Parkinson took the initiative in the transaction, and offered a price of $12 million, subject to a full due diligence process. There cannot, in our view, be any issue of unconscionable dealing at the time of contracting.
[78] Second, as to the post-contract, pre-confirmation period, Mr Thiele said that at the time of confirmation he thought that Mr Parkinson had arranged the joint venture with MIP, had consulted his various advisors, had completed due diligence and “had all his ducks in a row”. He said that Mr Parkinson gave the appearance of knowing exactly what he was doing.
[79] With hindsight, Mr Thiele accepted that he had been misled. However, it is clear that, at the time, he had some basis for his belief, particularly because he had met the MIP people and had seen the preliminary plans for the apartment development. In the result, then, Mr Thiele saw nothing to indicate that anything was amiss in relation to Mr Parkinson’s business activities (apart, obviously, from the fact that he was physically very unwell), and what he did see indicated that Mr Parkinson was on top of things.
[80] For his part, Mr Jones assumed, based on his other dealings with Mr Parkinson and knowledge of him, that Mr Parkinson was dealing with this proposal as he had dealt with development proposals in the past, and had made a judgment about it when he confirmed the agreement. He knew that Mr Leggat was advising Gustav on the MIP joint venture but did not know the detail. He said that in relation to other matters on which he was acting for Mr Parkinson over the relevant period, Mr Parkinson was:
… the same old Parky. He was if anything more focussed and he seemed to be right on the ball and knew exactly what he was doing.
[81] In concluding that Mr Parkinson suffered from a qualifying disability at the time of confirmation, we drew a distinction between Mr Parkinson’s capacity to deal with the other developments in which he was involved and his capacity to deal with this transaction. Our conclusion was based in part on the fact that Mr Parkinson did not act in relation to this transaction as he had in relation to others. He did not demonstrate his usual caution, nor did he undertake the careful preparatory analysis and planning that he had previously. He did not involve his advisers, and agreed on confirmation to pay a price for the Union Centre which made sense only in the context of a long-term development, even though he was very unwell and did not have a joint venture or similar arrangement in place. But we accept that the evidence shows that those observing Mr Parkinson at the time over a range of business activities did not realise that he was not dealing with this transaction in the way that he had dealt, and was dealing, with others.
[82] In summary, Messrs Thiele and Jones assumed, based on impression and past experience, that Mr Parkinson was addressing the business issues confronting him appropriately. That was an impression which others shared, in relation to this and other transactions. Given what they observed of the way in which Mr Parkinson was dealing with matters, and Mrs Parkinson’s lack of publicly expressed concern about her husband’s capacity, it is understandable that they should have formed such an impression. On the evidence, there was nothing to indicate that Mr Parkinson was not coping or was unrealistic or reckless in his thinking about the Union Centre transaction.
[83] That does not necessarily resolve this aspect of the case, however. As we have said, the key to this transaction from Gustav’s perspective was putting in place long-term funding, either through a joint venture or otherwise. That must have been obvious to Macfield’s representatives given the circumstances outlined at [75] above. The question is whether, despite their impression that Mr Parkinson was on top of matters, Macfield, directly or through its agents, either knew that Gustav had no joint venture or similar funding arrangement in place or had sufficient knowledge that an appropriate enquiry should have been made.
[84] The position is complicated by the fact that Messrs Jones and Leggat performed multiple roles. As we noted at [17] above, there is a question as to the capacity in which Mr Leggat acted when he wrote to Mr Parkinson about the leases in November 2003. The Judge said that he was not satisfied that Mr Leggat’s firm was acting for Gustav in relation to the leases (at [149]). Presumably, then, he considered that Mr Leggat was at that stage acting for Macfield. Clearly Ms Standage thought that Mr Leggat was acting for Macfield in early January 2004 when she wrote seeking an extension of the date for confirmation. It is also clear that from about the same time (early January 2004) Mr Leggat was acting for Gustav on the joint venture negotiations. Obviously, then, Mr Leggat knew that there was no joint venture in place at the time of confirmation. The question is whether the fact that he knew this means that Macfield also knew it.
[85] We do not consider that any such conclusion can be drawn. We see nothing in the evidence to indicate that Mr Leggat had any involvement in the transaction on Macfield’s behalf after early January 2004. His role from that time appears to have been solely as an adviser to Gustav in the joint venture negotiations with MIP. He was, of course, bound by obligations of confidentiality in respect to client information which he obtained in the course of his professional relationship with Gustav.
[86] While it is in a sense disappointing that none of those involved made any enquiry as to whether Gustav had adequate funding arrangements in place, we accept that equity did not require Macfield to make further enquiry. To impose such an obligation in this case would extend the doctrine of unconscionable dealing further than it has previously been taken and would run the risk of creating unacceptable uncertainty in commercial transactions.
[87] Mr Parkinson was undoubtedly over-optimistic and unrealistic in his assessment of his ability to handle this transaction. It is unfortunate that none of his colleagues or associates, apart from Mr Harris, attempted to make sure that he was coping. But in the circumstances it is not unconscionable for Macfield to insist on its strict legal rights.
Decision
[88] We dismiss the appeal. The respondent will have costs in this Court of $6,000 plus the usual disbursements. We certify for two counsel.
Solicitors:
Rhodes & Co, Christchurch for Appellant
Macfarlane Dougall Stringer, Christchurch for Respondent
35
3
0