H�rlimann v Lilley
[2021] NZHC 2689
•11 October 2021
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2021-454-23
[2021] NZHC 2689
UNDER the Contract and Commercial Law Act 2017 IN THE MATTER
of specific performance of an agreement for sale and purchase
BETWEEN
JOSHUA SAMUEL HÜRLIMANN
Plaintiff
AND
PAUL ANTHONY LILLEY and MELANIE JANE LILLEY
Defendants
Hearing: 9 September 2021 (via VMR) Appearances:
M Freeman for Plaintiff
N Jessen and A J R Sinclair for Defendants
Judgment:
11 October 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] This is a summary judgment application by the plaintiff, Joshua Hürlimann, for an order for the removal of certain restrictive covenants registered on the title to a property sold to him by the defendants, Paul and Melanie Lilley.
[2] In November 2019 Mr and Mrs Lilley as vendors and Mr Hürlimann as purchaser entered into an agreement for the sale and purchase of a 1.18-hectare block of land on the rural outskirts of Levin in the Horowhenua.
[3]Clause 23 of the sale and purchase agreement provided:
HÜRLIMANN v LILLEY [2021] NZHC 2689 [11 October 2021]
The Vendor agrees not to allow any land covenants, easements or Council consents to be registered over the Property without the prior written consent of the Purchaser. If the Purchaser objects to any of the proposed land covenants, easements or Council consents which are required to be registered on the title, the Purchaser may cancel this agreement and receive a full refund of deposit paid.
[4] When the transaction settled the title to the property transferred by Mr and Mrs Lilley to Mr Hürlimann contained the restrictive covenants.
[5] Mr Hürlimann says that cl 23 precluded the imposition of these covenants and he seeks their removal. In the prayer for relief in his statement of claim he sought injunctive relief. Since the commencement of the proceeding, his advisers have identified a second possible avenue for claiming relief, that is to say an order pursuant to s 317 of the Property Law Act 2007.
[6] That is a skeletal description of the factual background. It is sufficient to set the scene. It will require fleshing out in order fully to deal with Mr Hürlimann’s application for summary judgment, though perhaps not to the extent canvassed in some of the affidavit evidence.
Summary judgment application
[7]The High Court Rules 2016 deal with summary judgment in pt 12.
[8] Rule 12.2 confers on the Court jurisdiction to enter judgment summarily in favour of a plaintiff against a defendant “… if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or to a particular part or any cause of action”.
[9] The leading authority is Krukziener v Hanover Finance Ltd where the Court of Appeal outlined the principles involved in these terms:1
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated:
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].
MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[10] In short then, summary judgment is only available where a plaintiff is able to satisfy the Court — so that the Court is left in no real doubt — that the defendant has no arguable defence.
The competing arguments
[11]Obviously, cl 23 of the Agreement for Sale and Purchase is pivotal.
[12] Counsel advanced diametrically opposed submissions as to the proper interpretation of the clause, both placing reliance on the Supreme Court’s recent judgment in Bathurst Resources Ltd v Buller Coal Ltd.2
[13] On behalf of Mr Hürlimann, Mr Freeman began by acknowledging that it was Mr Hürlimann’s solicitors who prepared the draft sale and purchase agreement.
[14] He submitted that it was relevant to the interpretation of cl 23 that Mr Hürlimann’s solicitors had prepared an earlier draft in which cl 23 had been in different terms. That, in my view, cannot be correct. An earlier draft prepared by Mr Hürlimann’s solicitors which was redrafted before the document was submitted to Mr and Mrs Lilley’s solicitors, and which they did not see prior to the contract being concluded, is not evidence. All it could ever go to is Mr Hürlimann’s subjective intention which is irrelevant.
2 Bathurst Resources Ltd v Buller Coal Ltd [2021] NZSC 85.
[15] Mr Freeman did not place significant reliance on any other provision in the agreement in connection with the proper interpretation of cl 23, essentially approaching it as a stand-alone provision.
[16] He focussed considerable attention on the first sentence, providing that Mr and Mrs Lilley were “not to allow” any impediments on the title without Mr Hürlimann’s written consent. Mr Freeman submitted that the words “not to allow” imposed a negative obligation on Mr and Mrs Lilley, so that the clause applied only to impediments required or proposed by third parties such as central or local government. Mr and Mrs Lilley’s contractual obligation was, it was submitted, to “prevent any land covenant to be registered against the property unless it is required (for instance by statute or a territorial authority)”. It followed, Mr Freeman continued, that the clause did not entitle Mr and Mrs Lilley themselves to propose or insist upon any impediments on the title.
[17] Mr Jessen submitted that Mr Freeman was asking altogether too much of the words “not to allow” in cl 23. He argued that these words simply meant that Mr and Mrs Lilley were obliged to ensure that the title did not contain any restrictions that Mr Hürlimann had not consented to, and did not preclude the possibility of Mr and Mrs Lilley proposing covenants (whether or not mandated by central or local government). Then, Mr Jessen argued, it was up to the purchaser. He had a choice as to whether or not to agree to any proposed covenants (or other impediments) or cancel. He described this as the “release valve” that Mr Hürlimann had bargained for and secured.
[18] This being a summary judgment application, and the dispositive issue therefore being whether the plaintiff can establish that the defendants do not have an arguable defence, it is unnecessary for me to reach a concluded view as to the proper interpretation of cl 23.
[19] Certainly, in my view, the interpretation contended for on behalf of the plaintiff by Mr Freeman is not the only arguable one.
[20] It appears to me to be important to appreciate as a starting point that the parties were negotiating for the sale and purchase of an un-subdivided block of bare land — an interest that, from a legal perspective, existed only in their imaginations at the time. It is quite apparent that the solicitors acting for Mr Hürlimann in the negotiations were alert — as one would naturally expect — to the importance of ensuring that he received a satisfactory title. The protection mechanism that they developed and proposed, and that the Lilleys accepted unchanged, was cl 23. The overarching purpose of the clause was to ensure that Mr Hürlimann received a title that was satisfactory to him. As Mr Jessen submits, the core element of the protection mechanism was Mr Hürlimann’s entitlement to withhold consent to any proposed impediment or impediments — not any limitation or restriction on the source of any such proposed impediment or impediments.
[21]In my view, at very least, it is arguable that, pursuant to claim 23, the vendors
— Mr and Mrs Lilley — were entitled to propose covenants or other impediments be included, whether the source of these was a third party, such as central or local government, or not. For his part, Mr Hürlimann was entitled to withhold consent. Furthermore, given the structure of cl 23, where the first sentence addresses the protection mechanism and Mr Hürlimann’s right to consent or otherwise to any proposed impediment or impediments and the second sentence appears to confer on Mr Hürlimann an ultimate entitlement to cancel, I do not necessarily interpret the clause as limiting Mr Hürlimann to accepting any proposed impediment or impediments or cancelling. I see no reason why, in response to any proposed form of title advanced by Mr and Mrs Lilley, Mr Hürlimann was not entitled to withhold his consent without necessarily electing to cancel. That, it appears to me, is as far as it is necessary for me to go in addressing the correct interpretation of cl 23.
[22] Mr Freeman went on to submit that even if it was arguable that cl 23 did entitle Mr and Mrs Lilley to propose impediments of one sort or another, it was an implied term of the contract that they could only exercise that discretion reasonably. In doing so, he relied on the principle usually referred to as the default rule.
[23] Mr Freeman referred me to the well-known case of Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd (No 2) where the English Court of Appeal
concluded that a discretion conferred by contract on one party must be exercised in good faith and may not be exercised arbitrarily, capriciously or unreasonably.3
[24] This rule has received some recognition in New Zealand in cases such as Boss International (Australia) Ltd v Strategic Nominees Ltd4 and Ford v Coumat Ltd.5 This is not an appropriate case in which to articulate my own reservations about the importation of public law principles developed in the context of the scrutiny of processes employed by third party decision makers into private contractual arrangements in which one party has successfully negotiated a right of determination.
[25] All I need say is that it is not obvious to me that the default rule has any application in this case.6
[26] Clause 23 appears to me to be the antithesis of a clause that entitles one party to impose an outcome on another.
[27] Although I have concluded that, arguably at least, it enables the vendor to propose impediments on the title, for the reasons I have already addressed, these cannot be forced on Mr Hürlimann because he can always withhold his permission. Thus, it is not a discretionary power capable of abuse that the law needs to control. Moreover, on the view I take of the clause, Mr Hürlimann might withhold permission without electing to cancel, for example on the grounds that the proposed impediments are unlawful and unreasonable, or elect to cancel pursuant to the right to do so contained in the clause. That, in my view, takes this case out of the category of cases to which the so-called default rule may apply.
[28] It is common ground that Mr Hürlimann, who was advised by his solicitors throughout, ultimately consented to the restrictive building covenants that were registered on the title. His solicitors did so in writing on his behalf. Having regard to
3 Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The “Product Star”) (No 2) [1993] 1 Lloyd’s Rep 397 (CA).
4 Boss International (Australia) Ltd v Strategic Nominees Ltd [2013] NZCA 643.
5 Ford v Coumat Ltd [2016] NZHC 2810.
6 For a comprehensive discussion on the types of powers the default rule will apply to, see Ryan James Turner Rights, Powers and Remedies in Commercial Law (1st ed, Sweet & Maxwell, London, 2021) at [80]–[86].
the terms of cl 23, that may appear to be decisive, and Mr and Mrs Lilley rely on Mr Hürlimann’s consent in pleading various affirmative defences.
[29]However, Mr Freeman submitted that this consent was vitiated by duress.
[30] In this regard, Mr Freeman referred me to the history of the dealings between the parties. It is unnecessary to traverse this in the detail done in the affidavit evidence. Mr Freeman invited the Court to infer that whilst Mr and Mrs Lilley were initially happy to sell the property to Mr Hürlimann, there came a time at which they had a change of heart and did not wish to do so, perhaps having concluded that they had sold it too cheaply to him or something of that sort, and that their actions from that point can be viewed as an ongoing attempt to force Mr Hürlimann to cancel the agreement. The evidence to which Mr Freeman points includes the proposal for the imposition of the covenants on the title to the property when — so Mr Freeman informs the Court
— no such covenants, indeed, no covenants at all, were imposed on the two other sections in the development; some apparently irritated behaviour on the part of Mr Lilley directed at Mr Hürlimann and others associated with him; and some terse correspondence between the parties’ solicitors culminating in a rather curious and ill-judged post-settlement attempt to impose even more restrictive covenants on the title to the property (astonishingly, these would have prevented Mr Hürlimann building at all on the land).
[31] The correspondence will serve as a proxy for this evidence. On 4 September 2020 Mr and Mrs Lilley’s solicitors emailed Mr Hürlimann’s solicitors to say that “while the easements and covenants to be registered on the title are not yet prepared they expect (at this stage) they will be the standard statutory provisions.” Then, in an email dated 22 October 2020, Mr and Mrs Lilley’s solicitors signalled their wish to include on the title a series of restrictive building covenants. Mr Freeman referred to the covenants as “onerous”. That, obviously, is a charged term. They are certainly restrictive as to the owner’s building options. On 2 November 2020 Mr Hürlimann’s solicitors replied saying that he wanted more time to consider the proposed covenants, which they said were “not expected”. Mr and Mrs Lilley’s solicitors replied the same day seeking to impose a timeframe requiring Mr Hürlimann to reply in relation to the restrictive building covenants by the end of the week. Two days later
Mr and Mrs Lilley’s solicitors wrote again. This correspondence was marked “Without Prejudice Save as to Costs”, though the purpose of that description in this context is not obvious. In this letter, Mr and Mrs Lilley’s solicitors proposed an amendment to cl 23 of the contract which would enable them to register the restrictive building covenants over the property but give the plaintiff five working days to accept settlement on the basis of a title that included those restrictive building covenants or cancel the agreement. They went on to say that if Mr Hürlimann did not agree to the proposed covenants Mr and Mrs Lilley would take steps to remove a caveat that he had registered over the property to protect his interests, that costs would be an issue and that Mr and Mrs Lilley would be looking to Mr Hürlimann in respect of any losses incurred by them due to his failure to consent to the restrictive building covenants within a reasonable period of time. As Mr Freeman says, a threatening tone had crept into Mr and Mrs Lilley’s solicitor’s correspondence by this point. As already said, following settlement the Lilleys made a half-hearted attempt to have different covenants registered on the title, saying that the existing covenants were not the correct ones. This came to nothing.
[32] In my view, there is some force in Mr Freeman’s submission that in the latter stages of the dealings between the parties some of Mr and Mrs Lilley’s actions would be difficult to explain absent a desire on their parts to force him to cancel the agreement. I put the matter no more highly than that, as it may be open to Mr and Mrs Lilley to contend that their actions amounted to legitimate pressure in the course of commercial dealings that can be expected as the parties attempted to finalise their contract.
[33] Mr Freeman submitted that Mr Hürlimann, “… faced with the choice of either accepting the covenants or having to cancel the agreement, the plaintiff conveyed agreement to the proposed amendment and agreement to the lodgement of the restrictive building covenants. That was conveyed by email on 6 November 2020 (also marked “Without Prejudice Save as to Costs”) and by further email on 11 November 2020.”
[34]The transaction settled on 29 June 2021.
[35]By that date, this proceeding had already been commenced.7
[36] The duress then is said to be the demands made by Mr and Mrs Lilley’s solicitors that Mr Hürlimann consent or cancel within relatively tight timeframes.
[37] The difficulty with this argument is that on my view of the contract Mr and Mrs Lilley were not in a position to demand that Mr Hürlimann either consent to the terms of the restrictive building covenants within any particular period of time or cancel the contract. In my view, it was open to Mr Hürlimann to respond by saying that he would not agree to the proposed variation of the contract, would not agree to the imposition of artificial time constraints, would not agree to the restrictive building covenants that he regarded as unlawful or unjustified, was not prepared to cancel the agreement, was affirming the same, would resist any attempt to have the caveat removed from the title and if necessary come to this Court in order to get a declaration or some other form of relief as to what restrictive building covenants or other impediments could or could not be imposed on the title prior to settlement.
[38] When I put this to Mr Freeman, his response was that, because he was not advised appropriately by his solicitors, Mr Hürlimann did not understand that he had any such option.
[39] That argument cannot succeed, at least as a foundation for a summary judgment application.
[40] Such an argument would have to be the subject of a proper examination at trial where I expect that both Mr Hürlimann and his solicitors would be required to give evidence as to what advice was provided. Even if it could be demonstrated that Mr Hürlimann was given incorrect advice it is not at all obvious that would necessarily be a basis upon which he could rely for the purposes of his claim in this proceeding.
7 Originally the plaintiff sought an order enforcing settlement of the transaction, but events overtook that aspect of the claim.
Conclusion
[41] On the evidence, I am not satisfied that Mr Hürlimann is able to demonstrate that Mr and Mrs Lilley have no defence to this claim. In my view, this claim is one that must proceed to trial in the usual way.
[42] Costs are reserved. The most common outcome in cases involving unsuccessful applications for summary judgment is that no award of costs is made and that the costs are left to be dealt with as costs in the cause. My preliminary view is that this would be the appropriate order here. But if counsel cannot agree between themselves, as I would expect them to do, they may come back by memorandum in the usual way.
Associate Judge Johnston
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for plaintiff CR Law, Palmerston North for defendants
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