Harris v Anais Holdings Ltd
[2002] NZCA 216
•29 August 2002
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA89/02 |
| BETWEEN | LEONARD DONALD WATSON HARRIS AND PATRICIA ELLEN HARRIS |
| Appellant |
| AND | ANAIS HOLDINGS LIMITED |
| First Respondent |
| AND | ALPHONSUS CORNELIUS MARIA ZEESTRATEN AND GEERTJE HENDRIKA ZEESTRATEN |
| Second Respondents |
| Hearing: | 22 August 2002 |
| Coram: | Keith J Blanchard J Tipping J |
| Appearances: | C W Ward for Appellants A J P More for First Respondent A D G Hitchcock for Second Respondents |
| Judgment: | 29 August 2002 |
| JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J |
This is an appeal from that part of a judgment of Master Venning delivered in the High Court at Invercargill on 17 April 2002 in which he declined to make an order under the Land Transfer Act 1952 that a caveat lodged by the appellants, Mr & Mrs Harris, should not lapse in respect of certain land of the first respondent, Anais Holdings Ltd, and removed the caveat in respect of that land.
The facts are complicated but, as we are concerned with only one aspect of the case, we are able to confine our account to those matters of present relevance.
The Harrises and their son had owned a farm near Winton on either side of the Limehills-Browns Road. The home block was on the southern side of the road. There were two other blocks on the northern side which were known as the northern blocks. The Harrises and their son sold the entire property to Anais in April 2000 for $2,300,000. The Harrises were under pressure from their bank at the time. They and their son leased the whole property back from Anais for two years from 2 June 2000. The son later dropped out of the arrangement.
On the day on which the sale took place the solicitor for the Harrises, Mr Bradshaw of Macalisters in Winton, wrote to the solicitor for Anais, Mr Lamb of Te Kuiti, seeking the inclusion in the contract of a right of first refusal in favour of the Harrises. In response on 4 May 2001 Mr Lamb sent the following email to Mr Bradshaw:
I have spoken with Les Keeper [of Anais] by telephone. There appears to be some misunderstanding on the part of the vendors. Mr Keeper instructs me that he advised those present at the meeting that if Anais Holdings Ltd decided to sell the property, the vendors would be notified and they would have the first opportunity to purchase at the realistic sale price. He is adamant he did not, and will not, agree to a formal right of first refusal whereby the price is determined by the company, and if there are any price reductions your clients would have a further right to purchase, or for a price to be determined by an independent third party.
Accordingly it appears to be inappropriate to include a provision in an agreement but a letter setting out the intention of the directors of Anais Holdings Ltd, who are honourable people, would be appropriate.
It is not now suggested that this constituted a legally binding obligation on Anais.
On 2 March 2001 Anais entered into an agreement to sell the northern blocks (133 hectares) to the second respondents, Mr & Mrs Zeestraten, for $1,401,968. Mr & Mrs Zeestraten did not lodge a caveat against the titles to the northern blocks.
In September 2001 Anais decided to sell the home block (268 hectares) so that it could fund the purchase of other land. An offer was received from a Mr & Mrs Koppus for the home block at a price of $3,430,736 plus GST. The enhanced prices in 2001 evidently reflected a general rise in the value of Southland farmland. On 13 September 2001 an agreement was entered into between Anais and the Koppuses conditional upon the Harrises not proceeding to purchase the home block by 28 September 2001, a date which was later extended.
After a meeting on 24 September 2001 attended by the Harrises and Mr Keeper, Mr Ryan of Southern Wide Real Estate, who was trying to sell the home block for Anais, wrote a letter on his firm’s letterhead to the Harrises in the following terms on 25 September 2001:
Re: Anais Holdings Limited – Option to Purchase
(East Limehills)
Price $3,430,000 plus GST
Deposit25% deposit plus GST to be paid to the vendors solicitor on 5th October 2001 by 4.00pm
Balance in Cash on Settlement date being 2nd October 2002
Houses and Buildings available on the 1st June 2002.
Property will be delivered ex winter crops and stubble with approximately 30 hectares in permanent pasture.
Normal other conditions on the Seventh Edition (2) July 1999 Law Society Contract.
By letter of 4 October 2001 Mr Bradshaw replied confirming that his clients, the Harrises, wished “to unconditionally exercise the above mentioned Option to Purchase”. He enclosed the stipulated agreement for sale and purchase form signed by the Harrises but containing a legal description of land which included the northern blocks. He asked for confirmation that the deposit was $875,500 plus GST and on the morning of 5 October confirmed that it had been deposited into Mr Lamb’s trust account.
The same day Mr Lamb wrote to Mr Bradshaw saying that the deposited sum had been repaid into Macalisters’ solicitors trust account and noted the error in the legal description.
In response, on 8 October 2001, Mr Bradshaw wrote claiming that the Harrises had been given “pre-emptive buy-back rights in respect of the property” when they sold to Anais and that the agent’s letter of 25 September 2001 had given the Harrises an option which had been exercised on 4 October. It was claimed that the deal encompassed “the whole East Limehills farm property” which was said to include the northern blocks. The Harrises declined to amend the agreement form. They considered that there was an unconditional contract in respect of the whole property.
On 9 October Mr Lamb wrote denying that there had been any pre-emptive rights, saying that Mr Keeper had informed Mr Harris of the sale of part of the property “approximately 6 months ago” and that the option given on 25 September 2001 related to the balance (the home block) only. The letter also stated:
In my opinion, Mr Harris would have the greatest difficulty in enforcing the option contained in the letter of 25 September 2001 because of the uncertainty of the subject matter.
Be that as it may, Anais did agree to give the Harris family the opportunity to purchase the balance property. The deadline was 4pm on 5 October 2001. This was extended to 8 October 2001 – 4pm.
As your clients did not exercise the option in writing, with respect to the property which was clearly agreed by the parties on 24 September 2001, the option has now lapsed.
The Harrises lodged a caveat against the titles to both the home block and the northern blocks. They commenced proceedings against Anais claiming specific performance or damages in lieu. Alternatively, they claimed relief under the Contractual Mistakes Act 1977 if it were to be found that the subject-matter of the alleged agreement for sale and purchase was the home block only.
Both Anais and the Zeestratens unsuccessfully sought summary judgment. Master Venning was clearly not impressed with the strength of the Harrises’ case but felt he could not properly resolve certain conflicts in the affidavit evidence.
When he came in his judgment to the application by the Harrises that their caveat should be sustained in respect of the whole property, the Master said that there was no dispute, and the evidence was clear, that Anais had made a binding agreement to sell the northern blocks to the Zeestratens on 2 March 2001, some six months before the transaction in issue in the proceeding and that the agreement was unconditional. Having referred to the issue of contractual mistake, which we do not need to enter upon, and after noting that specific performance is not available if the result would be to compel a party to breach a prior contract with a third party (Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37), the Master stated the general rule that equitable interests take priority in order of creation, other things being equal, citing Butler v Fairclough (1917) 23 CLR 78 and Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Limited [1995] 1 NZLR 129. He said that the Harrises were required to satisfy the Court that they had a reasonably arguable basis to reverse the competing priorities between them and the Zeestratens in order to sustain an arguable interest in the northern blocks. It had been submitted to him that there was a right of pre-emption which predated both contracts and gave the Harrises a prior right. The Master took the view, however, that there was no such right of pre-emption. There was no enforceable right concluded at the time of the sale by the Harrises to Anais, that being apparent to him from the correspondence between the parties at settlement of the initial sale (referred to above).
Although, he said, it had not been mentioned by counsel for the Harrises, the issue of the failure of the Zeestratens to lodge a caveat was one factor that could be considered, referring to the statement by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 at 342 that the failure to lodge a caveat is “one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority”.
However, the Master said, there was no suggestion by the Harrises “that they searched the title prior to accepting the offer on 4 October and were misled by the lack of a caveat lodged by the [Zeestratens].” Further, the Master said, while the evidence fell short of satisfying the Court at that stage that the Harrises were aware that the Zeestratens had purchased the northern blocks, there was sufficient evidence, even on the Harrises’ own affidavits, that the Harrises were aware of rumours and had heard that the northern blocks had been sold so that they might at least have been put on inquiry concerning the possible purchase of the land by a third party.
The Master was satisfied that, even on the most favourable interpretation of the exchange of correspondence on 25 September and 4 October, the Harrises would be unable to obtain specific performance in so far as it related to the northern blocks. They had failed to satisfy the Court that they had an interest in the northern blocks that would be capable of ultimate registration. Accordingly, the Master concluded, the caveat in relation to the northern blocks must lapse. In so far as the caveat related to the home block it was sustained and there is no challenge to that on this appeal.
The main plank of the argument advanced to us by Mr Ward was, as it had been before the Master, that the Zeestratens’ equitable interest was adversely affected by the existence of the email in which Anais through its solicitors promised the Harrises that they would be given a first opportunity to purchase. It was accepted that this promise amounted to no more than a moral obligation, but Mr Ward said that it was at least arguable that such an arrangement, particularly when it was in favour of persons who had been the original owners of the land, could affect the conscience of someone who subsequently and with knowledge of it purchased from Anais. He said that by the administration of interrogatories or by cross-examination at trial it was intended to explore with the Zeestratens whether they knew of the email. It might be thought that they did so, and that this explained why they had not approached the Harrises, even though they were in occupation as tenants and the Zeestratens would, counsel said, need their cooperation over certain access rights.
Other factors mentioned as, in combination, supporting the view that in the circumstances the Harrises’ interest under their contract was to be given priority were that, as they allege, they were unaware when exercising the option to purchase of the existence of the Zeestratens’ contract, together with the Zeestratens’ failure to lodge a caveat and so warn prospective purchasers of their equitable interest. Mr Ward was able to point to a letter from Mr Bradshaw written on 18 October 2001 in which he noted that “our title searches as at 2nd October 2001 do not reveal the existence of any interests which are competing with those of our client”. This passage in the letter was apparently not drawn to the attention of the Master. Mr Ward said that the Harrises had been prejudiced by their lack of warning of any adverse interest when they exercised their option. They had thereby become drawn into complicated and expensive litigation as a result of which they might, on one view of things, be in danger of having to purchase the home block alone, but at the price they thought they were paying for the whole farm.
We have no doubt that the Master reached the correct conclusion, that the equitable interest of the Zeestratens must prevail and that accordingly the Harrises will be unable to obtain specific performance. Their caveat was therefore properly ordered to be removed.
The argument concerning the email is forlorn. First, it is mere speculation that the Zeestratens may have known of it before they agreed to purchase the northern blocks. But, even if knowledge on their part is assumed, all they would have known is that Anais had a moral obligation to give the Harrises a first opportunity of purchasing. No legal obligation to the Harrises existed. The email made that very plain. If, knowing that position, the Zeestratens had proceeded to purchase, the Harrises could not have prevented the transaction from proceeding to settlement. In law they had no rights against either party.
How then, merely because at a later time they have acquired an identical (and therefore equal) interest, can the Harrises say that the Zeestratens prior in time interest is in some manner affected by the email, even if the Harrises were, as they allege, ignorant of the existence of the Zeestratens’ contract? To borrow a phrase from the law concerning the priority of charges, the argument seems almost to try to utilise the moral obligation as some kind of tabula in naufragio. To accede to the argument would be to recognise the unenforceable obligation of Anais as binding upon the conscience of the Zeestratens. When the cases speak of fairness and justice being the determinant for reversal of equities – which for present purposes we will take as being the test – they do not, in our view, intend that a court can bring into consideration “obligations” of such a character. To do so, particularly in a transaction with a commercial character, might have far reaching consequences.
In other circumstances the failure of the Zeestratens to caveat the titles might have been good reason to reverse the priorities. But it is quite apparent that the Harrises are unable to say – and it is not said in the affidavits filed in support of their application – that the absence of any notation of a caveat on the search copies of the titles obtained on 2 October 2001 has misled them, let alone that it has caused them any material prejudice. The deposit was refunded on the same banking day as it was paid. They were told within five days that Anais did not consider that there was a binding contract with them. Anais has been quite consistent about that. It has never sought specific performance and, its counsel told us, it will not be doing so. The litigation was begun by the Harrises. It is not a case of Anais taking advantage of the Harrises’ (alleged) ignorance of the contract with the Zeestratens to try to force the Harrises to buy the home block. On the contrary, Anais is seeking cancellation of any contract on the ground of mistake. And it would gladly see the Harrises walk away.
There is therefore no basis upon which a court could properly reverse the priorities. The Zeestratens’ equitable interest is prior in time and must prevail. The Master rightly removed the caveat lodged by the Harrises so far as it relates to the northern blocks.
The appeal is dismissed. The appellants must pay costs in the sum of $3,500 to the first respondent and also to the second respondents, together in each case with their reasonable expenses, including travel and accommodation costs of counsel, to be fixed if necessary by the Registrar.
Solicitors:
Tait Ward Adams, Invercargill, for Appellants
Lamb, Bain, Laubscher, Te Kuiti for First Respondents
Arthur Watson Savage, Invercargill for Second Respondents
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