Herd v Haines
[2020] NZCA 396
•7 September 2020 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA137/2019 [2020] NZCA 396 |
| BETWEEN | ROBERT JOHN HERD AND RHUMBA HOLDINGS LIMITED |
| AND | RODNEY DAVID HAINES AND KATHLEEN ANNE NORMAN |
| Hearing: | 26 May 2020 |
Court: | Kós P, French and Courtney JJ |
Counsel: | J W Maassen for Appellants |
Judgment: | 7 September 2020 at 11.30 am |
JUDGMENT OF THE COURT
____________________________________________________________________
AThe appeal is dismissed.
BMr Haines is entitled to costs for a standard appeal on a band A basis plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Courtney J)
Introduction
The appellant, Robert Herd, agreed to buy the game fishing vessel, “It’s Time”, from the respondents, Rodney Haines and Kathleen Norman.[1] The vessel was registered in Vanuatu and the contract was subject to Vanuatu law. The agreed consideration was AUD$400,000 cash plus the transfer of land in Vanuatu with a value of AUD$400,000.[2] Settlement was to occur on 19 May 2013.[3]
[1]The initial contract was varied and it is the varied contract under which the parties proceeded and which gives rise to this appeal. We refer to the varied contract as “the contract” throughout.
[2]The contract provided for alternative forms of consideration dependent on specified contingencies but this consideration was the form that ultimately prevailed.
[3]The settlement date was determined by reference to the same contingencies as the consideration.
Mr Herd took possession of the vessel in April 2012, though the contract provided that title would not pass until the consideration had been paid. The other appellant, Rhumba Holdings Ltd (RHL), (controlled by Mr Herd) provided security for the transaction in the form of a registrable mortgage over land in Vanuatu referred to as Lot 58.[4]
[4]RHL also agreed to a “caution” which has a function similar to that of caveat under Vanuatu law.
Mr Herd failed to tender either the cash or any transfer of land on the settlement date. It is common ground that Mr Herd did not have the necessary cash at that time. On 26 August 2013 Mr Haines issued a notice of default requiring Mr Herd to rectify his default within 30 days. Mr Herd failed to tender either the cash or land transfers. Mr Haines repossessed the vessel, took it to New Zealand and sold it at a loss. He also incurred other costs associated with the repossession of the vessel.
In an action by Mr Haines and Ms Norman to recover their losses, Lang J rejected Mr Herd’s arguments that the contract was void for uncertainty and unenforceable for lack of adequate identification of the land to be transferred. He rejected the argument that Mr Herd’s obligation to tender the consideration did not arise because of Mr Haines’ own failure to identify the land he wanted or to tender the documents required to complete settlement. He held that the contract was valid, that Mr Herd had the right to select the land to be transferred as part of the consideration and that he was required to tender both the cash and the land transfers on the settlement date.[5] Failure to meet those obligations entitled Mr Haines to issue the default notice. Mr Herd’s failure to remedy the default entitled Mr Haines and Ms Norman to recover damages for their losses resulting from the breach. The Judge did not accept that Mr Haines had to realise his security over Lot 58 before he could proceed against Mr Herd personally.
[5]Haines v Herd [2019] NZHC 342.
Mr Herd and RHL appeal. The grounds of appeal can be summarised as being that the Judge wrongly:
(a)interpreted the contract as complete notwithstanding the lack of agreement between the parties as to the land to be transferred;
(b)held that the contract satisfied s 40 of the Law of Property Act 1925 (UK);
(c)interpreted the contract as requiring Mr Herd to tender both the cash and the land transfers regardless of whether Mr Haines had engaged in the process of identifying that land and regardless of whether Mr Haines himself had tendered the documents required of him at settlement;
(d)held that the contract was valid notwithstanding the Vanuatu Stamp Duties Act;
(e)interpreted the contract as permitting Mr Haines to bring proceedings against Mr Herd before exercising his right to sell Lot 58.
Issue 1: certainty of contract
Clause 2.1(b) provided for the form of consideration that was ultimately required:
[T]he payment of the sum of AUD$400,000 in cash to Haines and any interest that is due at the time of settlement and the transfer to Haines or his nominee of AUD$400,000 worth of land (as per Vanuatu registered bank panel mortgage valuer valuation) with the preferred Land being Palikula Beachfront or waterfront property
Clause 11, which Mr Herd says provides the process for identifying the land to be transferred, provided that:
Each party shall, from time to time at its own cost and expense, make, do and execute and cause to be made, done and executed all such acts, things, agreements, deeds, instruments, assurances and other documents as may be necessary, desirable or reasonably required by another party to perfect or give effect to the transactions or agreements contemplated or contained in this Deed.
In the High Court Mr Herd argued that the contract did not contain all the terms essential to the bargain because it did not identify the land to be transferred as part of the consideration. There would be no binding agreement until that had been done and, since the land to be transferred was never agreed on, Mr Herd was not under any obligation either to pay the cash or tender transfers of land. As noted, the Judge held that the contract was valid without the land being specifically identified; it was for Mr Herd to select the land to be transferred.
Mr Herd still maintains that the land had to be identified for the contract to be valid and says that the Judge was wrong to interpret the contract as giving Mr Herd the right to nominate the land that would be transferred on settlement. However, he avoids characterising the issue as whether a binding contract had been formed; he says that, properly interpreted, the contract contemplated that the parties would agree on the land to be transferred and provided for a process by which the land could be identified, namely cl 11.[6] It is only if this interpretation is rejected that Mr Herd relies, as a fall-back position, on the argument that the contract is void for uncertainty.
Relevant principles of interpretation
[6]Clause 11 appears not to have been relied on for this purpose in the High Court; the only reference to cl 11 in the judgment is at [58] in relation to the question whether Ms Norman was in position to sign the documents necessary to effect a valid transfer of the vessel upon settlement.
Professor Corrin, the Director of Comparative Law in the Centre for Public, International and Comparative Law at the University of Queensland, gave evidence about the law of contract in Vanuatu. The Judge accepted Professor Corrin’s evidence that:[7]
The common law principles of contract law in Vanuatu are founded on the common law of England. Although the Vanuatu Court of Appeal has held that the Vanuatu Courts may draw “on the wisdom and jurisprudence from a whole range of common law countries in search for precedent appropriate to Vanuatu conditions”, in practice the Courts normally look to the English common law in this area.
As under English common law an agreement may be unenforceable if its terms are uncertain, that is vague or ambiguous. …
[7]Haines v Herd, above n 5, at [26].
The Judge accepted that the English common law principles relating to the interpretation of commercial contracts were those explained by the United Kingdom Supreme Court in Secret Hotels2 Ltd v Revenue and Customs Commissioners[8] and Arnold v Britton.[9]The Judge specifically identified the following factors as relevant to this case:
(1)Contracts are to be interpreted in a manner that accords with commercial common sense, though not in a manner that undervalues the importance of the language used in the document.[10]
(2)Common sense cannot be invoked retrospectively.[11]
(3)The Court should be slow to reject the natural meaning of the provision as correct simply because it seems to have been an imprudent term for one party to have agreed[12]
(4)In taking account of the surrounding circumstances only those circumstances that existed at the time the contract was made and were known or reasonably available to both parties can be taken into account.
(5)Parol evidence is not admissible to vary or interpret a written contract.
[8]Secret Hotels2 Ltd v Revenue and Customs Commissioners [2014] UKSC 16, [2014] 2 All ER 685.
[9]Arnold v Britton [2015] UKSC 36, [2015] AC 1619.
[10]At [17].
[11]At [19].
[12]At [20].
In relating these principles to the case before him Lang J emphasised that the fact a contractual arrangement turns out badly for one party does not justify departing from the natural meaning of the language used. He commented that “[t]he purpose of interpretation is to identify what the parties have agreed, not what the court thinks the parties should have agreed”.[13] No issue is taken with the Judge’s summary of the relevant principles.
[13]Haines v Herd, above n 5, at [29].
In addition to the relevant common law, United Kingdom legislation in force on 30 July 1980 also comprises part of Vanuatu law.[14]
Identification of the land to be transferred: cls 2.1 (b) and 11
[14]As does some French legislation, though that was not an issue in the proceedings.
Mr Maassen, for Mr Herd, argues that there were “gaps” in the provision for consideration that were plain and that the circumstances in which the contract was entered into meant that the contract should be interpreted as the parties intending to reach agreement on the land to be transferred. He says that cl 11 provided the mechanism for reaching that agreement.
We do not find any error by the Judge in his interpretation of the contract and do not consider that clause 11 alters the outcome. We start with the question whether, on a plain and ordinary meaning of the text, the contract is complete without the identification of specific land. We agree with the Judge that, on a literal reading of cl 2.1(b) the only requirement was that the land transferred to Mr Haines would be worth AUD$400,000 by reference to a valuation by a Vanuatu registered bank panel valuer. The statement of Mr Haines’ preference for Palikula Beachfront or waterfront property was not couched in terms of requirement, but only of desire. Given that the property to be transferred belonged to Mr Herd, the natural meaning of the clause is that Mr Herd would select the land and Mr Haines had to accept the transfers tendered if the land satisfied the description as to value. We do not accept Mr Maassen’s submission that the “nomination privilege” is not contained in the text of cl 2.1(b); that is the only available meaning from the words used.
Mr Maassen, however, points to the nature of land transfer in Vanuatu as a significant factor relevant to the understanding the parties’ presumed intentions and says that it shows that the parties intended Mr Haines to have input into the selection of the land to be transferred. In Vanuatu, land that is capable of disposition is owned by the indigenous “Custom owners”. Only leasehold interests can be sold. The transfer of leasehold interests is governed by the Land Leases Act. It requires the consent of both the lessor and the lessee and the payment by the lessee of consideration calculated according to a statutory formula based on the value of the land. On Mr Herd’s evidence, lessors generally expect to see the proposed sale and purchase agreement to satisfy themselves as to that calculation. In addition, the transferee is required to sign the transfer acknowledging the terms of the underlying lease.
Mr Herd and Mr Haines had both owned property in Vanuatu and can be taken to have known the process for the transfer of land there. Mr Maassen argued that both would have expected Mr Haines to be satisfied about the conditions of the underlying lease. But on the Judge’s interpretation Mr Haines would have no opportunity to consider and approve the underlying lease of the proposed land. In these circumstances, the contract is properly interpreted as contemplating agreement between the parties as to the land that Mr Haines would receive.
Mr Maassen submitted that this interpretation is supported by cl 11, which he says provides the machinery for resolving the “gap” left in cl 2.1(b) as to the identity of the land to be transferred. Mr Maassen describes it as a “muscular provision to force the parties to co-operate to achieve settlement”. He relies on this Court’s decision in Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd for the proposition that the Court could supervise this process if necessary.[15]
[15]Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2002] 2 NZLR 443 (CA). The position is essentially the same in the United Kingdom (the relevant law for this purpose): H G Beale (ed) Chitty on Contracts 33rd ed, Sweet & Maxwell, London, 2018) vol 1 at 2-139; Edwin Peele (ed) Treitel: The Law of Contract (14th ed, Sweet & Maxwell, London, 2015) at 2-096; and Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 (HL).
In Fletcher Challenge the Court said that:[16]
…the Court can step in and apply the formula or standard if the parties fail to agree or can substitute other machinery if the designated machinery breaks down.
But it went on to caution:[17]
However, if essential matters (ie legally essential or regarded as essential by the parties) have not been agreed upon and are not determinable by recourse to a mechanism or to a formula or agreed standard, it may be beyond the ability of the Court to fill the gap in the express terms, even with the assistance of expert evidence.
[16]At [62].
[17]At [63].
The Judge dismissed the fact that Mr Haines would not have the opportunity to consider the underlying lease because he would have understood that any effect on value as a result of the lease conditions would be reflected in the value of the property. We agree. Mr Haines was taking a transfer of land to a specific value solely for business purposes. The land had no personal value for him; the fact that the land was a proxy for money is evident from the fact that the only determining characteristic was monetary value. Mr Haines’ commercial interests were protected by that requirement.
Nor do we see cl 11 as having the effect contended for. First, for the reasons we have already discussed, we do not see any gap that necessitates a process to facilitate agreement. Clause 2.1(b) clearly sets out what Mr Haines was entitled to receive as consideration for the vessel and, given that Mr Haines’ only interest in the land was commercial, the agreement set out in cl 2.1(b) was unexceptional. There was no need for any further provision.
Secondly, there is no apparent link between the two clauses that would suggest that the parties intended that cl 11 might be engaged to supplement the rights and obligations created by cl 2.1(b). Clause 11 is not situated proximately to cl 2.1 but rather towards the end of the contract, after the operative provisions. It is naturally part of the machinery provisions. It makes no reference to cl 2.1(b) or to any other clause. Its stated purpose is to enable a party “to perfect or give effect to the transactions or agreements contemplated or contained in this Deed”. We think that the Judge was right to conclude that the clause simply provided the machinery to implement the agreed transaction. It plays no part in the formation of the agreement.
In any event, cl 11 does not provide any actual mechanism for reaching agreement. The clause is directed only towards acts that are “necessary, desirable or reasonably required by another party”. On Mr Maassen’s argument Mr Haines’ co‑operation in identifying the land to be transferred is all of those things. But the clause does not provide a process that can be enforced; beyond the objective criteria of value already provided for in cl 2.1(b), the identification of land would come down to Mr Haines’ subjective preference. Self-evidently, there is no basis on which a court could step in to resolve that issue. Moreover, any attempt to do so would be inconsistent with cl 2.1(b); Mr Herd could not be required to satisfy Mr Haines’ preferences without cutting across the clear wording of cl 2.1(b).
We note a second contextual factor, which was apparent from the evidence but not emphasised in argument before us; Mr Herd and Mr Haines enjoyed a friendly and trusting relationship when they entered into the agreement. Had that not been the case they may well have sought to achieve greater certainty by a more formal means of selecting the property that would be transferred. That explains the terms of the contract they entered into. It does not, however, justify departing from those terms.
In the High Court Mr Maassen also relied on evidence of what Mr Haines did after the agreement was entered into (such as consulting a valuer and inspecting property) and the correspondence he and Mr Herd exchanged about what property might be available. The Judge correctly excluded this evidence on the basis that under United Kingdom law subsequent conduct is inadmissible to assist in interpretation.[18]
[18]Haines v Herd, above n 5, at [37]
In this Court, Mr Maassen said that he is not relying on these communications as relevant to interpretation but rather to show that Mr Haines was unwilling to engage in the process of identifying what land he wanted. The flaw in this approach is that if, properly interpreted, the contract did not require Mr Haines to identify and agree on the property to be transferred, then whether he refused to do so cannot be relevant. This ground of appeal fails.
Issue 2: compliance with the Law of Property Act 1925 (UK)
The Law of Property Act 1925 (UK) 15&16 Geo V c 20 forms part of Vanuatu law. Section 40(1) prohibits an action being taken on any contract for the sale or disposition of land or any interest in land “unless the agreement upon which such action is brought or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some person thereunto by him lawfully authorised”.[19] Mr Maassen argued that because cl 2.1(b) did not identify the land to be transferred, the contract does not comply with s 40(1) and is not enforceable.
[19]The equivalent to s 24 of the New Zealand Property Law Act 2007 and, previously, s 2 of the Contracts Enforcement Act 1956.
The Judge rejected this argument for the same reasons as he had rejected the argument that the contract was void for uncertainty; he was satisfied that the contract adequately set out the terms on which the land being sold would be identified and transferred. The purpose of s 40(1) was to protect against the risk that land interests could be taken through fraud by requiring a written contract. The contract in this case ensured that Mr Herd’s interests in land were not at risk; to the contrary he had control over the identification of the land being transferred.
Mr Maassen’s argument was that the Judge was wrong because under the Law of Property Act “land” means an estate in specific land and s 40(1) should be read in that light. That would require a written contract for land to actually identify the land that is the subject of the contract. We do not agree with that in the context of this case. This is not a typical case in which the parties are both concerned with a particular piece of land and there is uncertainty over which piece of land it was, or what the boundaries were. The contract did not involve that kind of mutuality. These parties had agreed that the task of identifying the land to be transferred would lie with the owner of the land. No dispute could arise over identification. There was no risk to the owner of the land. This ground of appeal fails.
Issue 3: stamp duty
Vanuatu law requires stamp duty to be paid on certain contracts. Section 19 of Chapter 68 of the 2006 Consolidated Edition of the Laws of the Republic of Vanuatu (the Stamp Duties Act) provides that:
Except as aforesaid, no instrument executed in Vanuatu or, wherever executed, relating to any property situate or to any matter or thing done or to be done in any part of Vanuatu shall in any civil proceedings be pleaded or given in evidence or admitted to be good, useful or available in law or equity unless it is duly stamped in accordance with the law in force at the time when it was first executed.
Mr Herd maintains that the words in s 19 “admitted to be good, useful or available in law or equity” rendered the contract void. The Judge rejected this argument, taking the view that express words would be necessary to render an otherwise valid document null and void. He considered that s 19 was simply a revenue gathering provision that did not affect the obligations of parties under unstamped agreements or the validity of documents other than admission in civil proceedings.[20] Furthermore, the admissibility of evidence in proceedings properly brought in New Zealand is a procedural matter governed by the Evidence Act 2006:[21]
Questions relating to the admissibility of evidence are governed by New Zealand law as the law of the forum (the lex fori). Thus a document that is inadmissible for lack of a stamp under the law governing substantive issues (the lex causae) may nevertheless be admissible in New Zealand, provided that, under the lex causae, the absence of the stamp does not render the document wholly null and void. Similarly, a document that is admissible by the lex causae may nevertheless be inadmissible in New Zealand.
[20]Haines v Herd, above n 5, at [17].
[21]Marcus Pawson Laws of New Zealand Conflict of Laws: Choice of Law (Online ed) at [259] (footnotes omitted).
In this Court Mr Maassen argued that the effect of the Stamp Duties Act was not limited to evidential procedure but rendered the contract legally ineffective. He relied on the decisions in Bristow v Sequeville[22] and Clegg v Levy.[23] In our view neither assists Mr Herd. They are authority for the proposition that if a stamp is necessary for the validity of an agreement made in another jurisdiction then it will be equally void in a United Kingdom court. But the issue in this case is whether the Stamp Duties Act had the effect of rendering a contract void if it was not stamped.
[22]Bristow v Sequeville (1850) Exch 275.
[23]Clegg v Levy (1811) 3 Camp 166.
This question was the subject of evidence by Professor Corrin, who did not consider the legislation to have that effect. In cross-examination the Professor was asked whether she was aware of any authority on the words in s 19 relied on by Mr Herd. She was not. In re‑examination she was asked whether there was anything in the statute that rendered a contract null and void if it was not stamped and stamp duty was not paid. The Professor answered there was nothing in the statute that had that effect. The effect of the Stamp Duties Act was a question of fact that fell for determination on the basis of the expert evidence.[24] Although the Judge did not approach the matter in that way, his conclusion was nevertheless correct.
[24]Evidence Act 2006, s 144(1)(a).
That conclusion disposes of this ground of appeal. For completeness, however, we mention one other aspect that Mr Gedye raised. It was common ground that stamp duty had not been paid. In the High Court Mr Herd asserted that stamp duty was payable. There was, however, no evidence that this was so. Professor Corrin was not asked to express a view on the point. The Judge nevertheless proceeded on the basis that it was payable. We agree with Mr Gedye’s submission that this assumption was not justified: evidence rather than assumption was needed, and the omission was Mr Herd’s.
Issue 4: Mr Herd’s obligation to settle
As discussed, it was common ground that the consideration required by clause 2.1(b) fell due on 19 May 2013. Clause 7.3 dealt with what would happen on settlement:
Upon Herd paying or causing to be paid the Consideration for the Purchase of the Vessel
(a)Haines shall immediately release the Security Documents and shall have no further interest in the Vessel nor security interest in Lot 58;
(b)Title in the Vessel shall pass to RHL as trustee for the “Its Time Trust”;
(c)Haines and Norman shall sign such documents and forms to
(i)release the security documents; and
(ii)enable the Vessel to be registered in the name of RHL as Trustee for the Its Time Trust in the Vanuatu Shipping Register.
In the High Court Mr Herd’s position was that his obligations, and alleged breach, had to be viewed against the expectation that Mr Haines would select the property he wanted. Since the land transfers could not occur without Mr Haines identifying the land he wanted, the obligation for Mr Herd to tender the cash and the land transfers did not arise on 19 May 2013. Consequently, he was not in breach of the contract and Mr Haines had no basis for issuing the notice of default. He argued that the obligations imposed by cl 7 on settlement were indivisible, and that requiring him to pay the cash without tendering the land transfers put him at risk because he would not obtain title to the vessel so long as Mr Haines failed to identify the land he would accept. Moreover, Mr Haines himself was not ready willing and able to settle on 19 May 2013 and that fact affected Mr Herd’s own obligations to settle.
The Judge rejected these arguments. He held that the obligations under cl 2.1(b) existed independently of one another and, given his interpretation of cl 2.1(b), it was for Mr Herd to nominate the land. Mr Herd did not need to wait for agreement from Mr Haines and should have tendered both the cash and the land transfers on 19 May 2013.[25] All that was required of Mr Haines and Ms Norman was to execute the necessary documents, which was required by cl 11, and that there was no basis for concluding they would not have done so.
[25]Haines v Herd, above n 5, at [54]–[55].
On appeal Mr Herd advances alternative arguments as to why the Judge was wrong to conclude that he was in breach of the contract. First, the contract required Mr Herd and Mr Haines to perform their respective obligations under cl 2.1(b) and cl 7 contemporaneously and, since Mr Haines did not tender the documents required of him on 19 May 2013, Mr Herd did not come under any obligation to tender the cash and land transfers. Alternatively, if the contract envisaged sequential performance of obligations, Mr Haines’ failure to identify the land he would accept meant that Mr Herd could not (and therefore was not required) to perform his own obligations.
We do not accept that Mr Herd’s and Mr Haines’ respective obligations were to be performed concurrently. The wording of cl 7.3 makes it clear that the parties’ respective obligations were sequential. Mr Haines was required to perform his obligations “upon” Mr Herd paying the consideration. The ordinary meaning of “upon” is immediately after or following on from[26] and the structure of cl 7.3. reflects that. It is clear that the three events provided for in cl 7.3 (a), (b) and (c) must happen at the same time. They include the passing of title under cl 7.3(b). But under cl 6.2 title does not pass until after the consideration had been paid. So cl 7.3(b) requires “upon” to be interpreted as indicating a sequential series of events; it is not possible to interpret “upon” as meaning “after” in relation to title passing but “contemporaneous with” in relation to the execution of the documents required to release the security.
[26]Oxford English Dictionary (2nd ed, Clarendon Press, Oxford, 1989) vol 19 at 301.
Reading the contract as a whole there can be no doubt that the agreed sequence of events was that Mr Herd would pay the consideration and once he had done that, title would pass and Mr Haines and Ms Norman would have to execute the documents to release the security over Lot 58.
Nor do we accept Mr Maassen’s argument that a sequential performance of obligations would meant that Mr Herd would have been vulnerable to Mr Haines “playing hardball” about what land was to be transferred. On 19 May 2013 Mr Herd already had the vessel and, as we have already concluded, he also had the right to nominate the land. This concern is therefore misplaced.
The second argument also fails as a result of our interpretation of cls 2.1(b) and 11. Mr Herd had both the right to select land to the value of AUD$400,000 and the responsibility for doing so. He was obliged to tender both the land transfers and the cash on 19 May 2013. Mr Haines had neither the right to identify the land he wanted nor any obligation to do so.
On this issue, we note Mr Maassen’s reliance on the evidence of the parties’ subsequent conduct, particularly an email from Mr Haines of 1 September 2013, some weeks before the period for remedying the default expired. Mr Haines advised that he was no longer obliged to take any land as it was not available nor offered in the settlement timeframe and sought instead cash of AUD$800,000. Mr Herd’s response was simply to disagree with Mr Haines’ interpretation of the contract. Mr Maassen ascribed significance to this evidence as showing that Mr Haines was not willing to engage in the process of agreeing on what land he would take.
The Judge found that Mr Haines’ email was based on a mistaken understanding of the legal position and if Mr Herd had tendered performance within time Mr Haines would have been bound to accept it. We agree. But Mr Herd did not treat the email at the time as repudiation, nor use it as a pretext to cancel. Rather he affirmed the continued existence of the contract. There is no evidence the email obstructed performance by Mr Herd. Mr Maassen properly disclaimed any reliance on repudiation. Nor do we consider it is demonstrative of incapacity or unwillingness to settle. The contract was affirmed, Mr Herd had the vessel, and he now needed to tender his part of the bargain. In these circumstances an adverse inference as to performance by Mr Haines is not available.
Issue 5: was Mr Haines required to enforce the security before proceeding against Mr Herd?
As noted earlier, RHL provided security for Mr Herd by way of registrable first mortgage over Lot 58. Mr Herd maintains that, following the repossession and sale of the vessel, the contract required Mr Haines to realise that security before looking to him personally for the shortfall on the sale.
This argument turns on the interpretation of cl 9, which provides:
9.1Where the Consideration for the Purchase of the Vessel has not been made in terms of clause 2.1(a) or (c) by the Lease Reinstatement Date or the Extended Reinstatement Date (as applicable) and Herd has not paid the Consideration for the purchase of the Vessel in accordance with clause 4.1 of this Deed Herd will be in default of this Deed.
9.2Haines shall give Herd 30 days notice of intention to exercise his rights on default as contained herein prior to exercising any of his rights upon default.
9.3Upon the expiration of the notice given pursuant to clause 9.2 of this Deed -
(a)Haines shall take possession of the Vessel and sell it PROVIDED THAT the Vessel is not sold for less than its then market value as determined by a suitably qualified and reputable valuer; and
(b)Herd shall immediately surrender possession of the Vessel to Haines and Herd shall have no further claim on the Vessel.
9.4Where the combined amount of the sale proceeds of the Vessel are greater than
(a)the Consideration for the Purchase of the Vessel;
(b)the amount owing pursuant to clause 6.7 of this Deed; and
(c)any costs incurred in exercising the right of sale,
Haines shall account to Herd for the excess amount.
9.5Where the combined amount of the sale proceeds of the Vessel are less than
(a)the Consideration for the Purchase of the Vessel; and
(b)the amount owing pursuant to clause 7 of this Deed; and
(c)any costs incurred in exercising the right of sale,
Haines shall be entitled to sell, as Mortgagee, Lot 58 PROVIDED THAT the Vessel is sold for not less than its then market value as determined by a suitably qualified and reputable registered Valuer;
9.6If Haines exercises the right to sell Lot 58 pursuant to clause 9.5 Haines shall not sell Lot 58 for an amount less than its then value as determined by a suitably qualified and reputable registered Valuer.
9.7When the combined amount of the sale proceeds of the Vessel, Lot 58 are less than
(a)the Consideration for the Purchase of the Vessel;
(b)the amount owing pursuant to clause 6.7 of this Deed; and
(c)any costs incurred in exercising the sale of the Vessel and Lot 58;
Herd shall pay such shortfall amount to Haines as a debt;
9.8Where the combined amount of the sale proceeds of the Vessel, Lot 58 are greater than
(a)the Consideration for the Purchase of the Vessel;
(b)the amount owing pursuant to clause 6.7 of this Deed; and
(c)any costs incurred in exercising the sale of the Vessel and Lot 58
Haines shall immediately pay the excess funds to Herd.
Mr Maassen had argued that cl 9 provided a complete and exclusive codification of the remedies available to Mr Haines in the event of Mr Herd failing to pay the required consideration and that sequence required Mr Haines to follow all the steps specified in clause 9 before he could proceed against Mr Herd personally.
The Judge accepted that cl 9 was intended to provide the primary means by which Mr Haines would be compensated for any breach of contract by Mr Herd and reflected Mr Herd’s concern that Mr Haines should have resort to assets before proceeding against him personally.[27] But he did not accept that cl 9 would be the sole source of remedies available to Mr Haines; the terms of the contract were expressed to be only a variation of the original contract so that the terms of the original contract would continue to apply to the extent they did not conflict with the variation.[28] This was relevant because cl 10 of the original contract provided that the steps Mr Haines was permitted to take in the event of a breach were “without prejudice to any other rights or remedies available to him/her at law or in equity”.
[27]Haines v Herd, above n 5, at [109].
[28]At [110]–[111].
The Judge considered that the difference in wording between cl 9.3(a) which required that “Haines shall take possession of the Vessel” and cl 9.5, under which “Haines shall be entitled to sell…Lot 58” meant that it was mandatory for Mr Haines to repossess the vessel following an unremedied breach but not mandatory for him to realise the security over Lot 58. The latter was at his option. He was entitled, instead, to recover amounts still owing as a debt.
Mr Maassen submitted that the Judge’s analysis was wrong because the sequence and interconnected nature of the powers and duties on Mr Haines showed that the purpose of cl 9 was to require Mr Haines to proceed through the remedies as provided until, ultimately, any shortfall would become owing by Mr Herd as a debt and any excess payable to Mr Herd. On this argument the difference in wording between cl 9(3)(a) and cl 9(5) was explicable by the fact that the sale of the boat had to be expressed in mandatory terms because it was the only means by which any shortfall could be crystallise. The sale of Lot 58, on the other hand, was the exercise of security which would not necessarily be needed if, for example, the shortfall was so small as not to warrant the effort of selling the property.
In our view the Judge was correct in his interpretation. The plain and ordinary meaning of the clause permitted Mr Haines to elect whether to enforce the security at the earlier stage. There is nothing contextual that would suggest that this interpretation is wrong. To the contrary, the enforcement of security had to be viewed against the existence of Mr Haines’ (expressly preserved) common law rights. One obvious problem was that if (as there was) a dispute over the claimed losses, Mr Haines would first need to secure a final determination as to the amount owing before moving to force the sale of Lot 58.
This ground of appeal fails.
Result
The appeal is dismissed.
Mr Haines is entitled to costs for a standard appeal on a band A basis plus usual disbursements. We note that costs were sought for a complex appeal on the ground that the submissions advanced on Mr Herd’s behalf presented particular complexity in terms of identifying the issues and arguments. We agree that the submissions were unusually complicated. But we are not persuaded that departure from the standard categorisation is warranted.
Solicitors:
Wadham Partners, Palmerston North for Appellants
Richard Mark, Kerikeri for Respondents
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