Howe v Dempsey
[2013] NZHC 2297
•5 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-3605 [2013] NZHC 2297
BETWEEN BRUCE WILLIAM HOWE, JENNIFER MARGARET HOWE and MBT LIMITED in their capacities as trustees of ROIDON TRUST
Plaintiffs
AND
PAUL JOHN DEMPSEY Defendant
Hearing: 4 and 5 June 2013 Counsel:
H L Thompson and S J Ames for Plaintiffs
D J MacRae for DefendantJudgment:
5 September 2013
JUDGMENT OF MILLER J
HOWE & Ors v DEMPSEY [2013] NZHC 2297 [5 September 2013]
Table of Contents
Introduction [1] The facts [4] The pleadings [23] Were the Howes ready, able and willing to settle when they served the settlement notice of 24 March 2011? [27]
The settlement provisions of the agreement [27]
The requirement that a party serving a settlement notice must itself be ready,
able and willing to settle [32] Were the Howes not ready, able and willing to settle because they had not executed A & I forms? [34] Were the Howes ready, able and willing to settle when they had not tendered a settlement statement? [55]
Did time cease to be of the essence before the Howes cancelled? [59] Did Mr Dempsey repudiate by asking the Howes to settle for less than the amount due under the agreement? [67] The Howes’ damages claim [71]
The Howes’ claim to interest at the contractual rate [77]
Must the Howes give credit for the forfeited deposit? [82] The other sums claimed [89] The counterclaim [95] Decision [97]
Introduction
[1] Mr Dempsey agreed to buy 28 Ronaki Road, Mission Bay, a substantial residential property owned by the Howes. He meant to develop the site, but his plans fell through, leaving him without funds to settle on the assigned date. He did not respond to a settlement notice.
[2] The Howes neither cancelled the agreement for sale and purchase nor extended the settlement notice to a date certain; instead, they chose to keep the agreement on foot while they searched for a buyer. More than a year later they resold, for a higher price, without issuing a fresh settlement notice. They now come to Court seeking interest until the resale at the contract rate for late settlement, and they also want to forfeit the deposit. Together those sums amount to $1,229,537.47. If the deposit and/or resale gain must be brought into the accounting, the Howes seek the interest together with the costs of resale.
[3] Mr Dempsey responds that the Howes must refund the deposit and cannot get damages. He says that they were not ready, willing and able to settle when they issued their settlement notice, for they had neither executed Authority and Instruction (A & I) forms required for an electronic dealing nor tendered a settlement statement; they also resold unlawfully, for time had ceased by then to be of the essence; and finally, their right to interest for late settlement under the REINZ/ADLS Agreement for Sale and Purchase of Real Estate lapsed after 12 months.
The facts
[4] 28 Ronaki Road was owned by a family trust the trustees of which were Bruce and Jennifer Howe and MBT Ltd, the trustee company operated by McMahon Butterworth Thompson, solicitors. For convenience I will refer to the trustees as the vendors or the Howes. The section was substantial, at 2393 square metres. The Howes had planned to build a family home there, but in 2010 they decided to sell. By then the property, which included a house and swimming pool, had fallen into some disrepair.
[5] Paul Dempsey is a licensed real estate agent who formerly worked for the Howes’ agent, Barfoot and Thompson. He saw an opportunity to build three premium apartments on the site. Because he could not fund the development himself, he entered what seems to have been an informal joint venture with Alf Russell, the managing director of Dominion Constructors Ltd. He did not disclose this arrangement to the vendors, but made the offer alone, identifying himself or nominee as the purchaser.
[6] The agreement for sale and purchase was in the 8th Edition 2006(2) of the familiar REINZ/ADLS form, and dated 22 March 2010. It provided for a purchase price of $5,500,000 and a deposit of $500,100 of which $100 was paid on signing and the rest of it when the agreement became unconditional. The rest of it was paid using two cheques; Mr Dempsey told me that his family trust and Dominion Constructors each paid half. Settlement was to happen a year later, on 22 March
2011, or earlier by agreement, and the interest rate for late settlement was 12.5 per cent per annum.
[7] Things went wrong for Mr Dempsey when Mr Russell suffered ill health and withdrew, forcing him to put the property on the market. He tried to sell privately to Donald Design Ltd and later Anzani Investments Ltd, and in February 2011 he ran a marketing campaign through Barfoot and Thompson. His efforts attracted several interested parties, some of whom took the opportunity to make offers directly to the Howes, but no deal was done.
[8] In March 2011, shortly before settlement was due, Mr Dempsey renewed negotiations with Dominion Constructors, which was now managed by Mr Russell’s son, Brett. Apparently expecting that an arrangement would be reached, he asked the Howes to extend the settlement date by three months. They agreed to do so in consideration for $100,000, but they insisted that the payment be made before 22
March 2011 and that failing payment Mr Dempsey must settle on that date.
[9] Mr Dempsey accepted these terms. Apparently confident that he had Mr Russell’s agreement, he had his solicitors, Morgan Coakle, relay his instructions on 22 March that $100,000 had been paid that day, in two sums of $50,000.
[10] In fact neither payment was made. Mr Dempsey told me that at the last minute Mr Russell refused to pay when he went to collect a cheque for Dominion Constructors’ share. (Mr Russell was not called to give evidence, so I do not have his account.) Not until after settlement date had passed did the Howes learn that the money had not been paid.
[11] Registration was to employ electronic instruments. Under the process governed by the Land Transfer Act 19521 and subordinate legislation, an e-dealing workspace must be created, an electronic transfer drafted, hard copy A & I forms completed for each client, and a settlement statement prepared. The parties did none of these things. I find that they were not done because both parties believed that the
$100,000 would be paid and settlement delayed. I also find that had the parties anticipated settling on 22 March, the Howes would have done everything necessary
to settle: in particular, they would have provided a settlement statement and
1 Section 164A(2).
completed A & I forms, all in good time. Mr Howe’s evidence that they were
available and willing to do these things throughout was not seriously contested.
[12] On 24 March 2011 a settlement notice was issued. It recited that the vendors required $5,099,900 to settle as at 22 March 2011 and interest accrued at $1,746.54 per day from that date. Counsel agree that the notice, which contained no details of how the settlement sum had been calculated, was incorrect, for it included the
$100,000 to be paid for extending the settlement date. Nor did the statement address local authority rates, which were the only charge requiring apportionment. Counsel also agree, however, that Mr Dempsey could readily calculate the amount payable himself, and could ascertain both what the annual rates were and whether they were in arrears.
[13] The notice warned that if Mr Dempsey did not settle within 12 working days, time being of the essence, the Howes might sue for specific performance, or cancel and sue for damages and/or resell the property. Mr Dempsey allowed that period to pass without doing anything. He conceded in evidence that he lacked funds to settle.
[14] The Howes did not cancel the agreement when the notice expired; rather, they chose to keep their options open by keeping the agreement on foot while also taking steps to resell. They first took that stance in a letter of 10 May 2011, in which their solicitor, Niamh McMahon of McMahon Butterworth Thompson, advised:
The purpose of this letter is to advise you that although the settlement notice has expired, our clients are deliberately not at this time serving a further notice cancelling the agreement for sale and purchase. Accordingly, the agreement remains on foot until further notice.
My clients are aware of their obligations to mitigate their loss. They are in the process of listing the agreement with an agent for the purpose of sale. Kindly let Mr Dempsey know that if a sale is achieved which results in a shortfall, our clients will pursue Mr Dempsey to recover their loss.
[15] Both parties tried to sell the property over succeeding months but their efforts, which I need not detail, came to naught. To facilitate sale the Howes had the house demolished and the section, which was overgrown, cleaned up. Although some of these expenses were categorised in evidence as property maintenance costs, I find that the Howes incurred them to better present the property for sale.
[16] Eventually, on 22 March 2012, Mr Dempsey agreed to sell the property to Mei Yu Yang for $5,850,000, conditional upon being released from his own purchase obligation. He appears to have imposed that condition in the hope that the Howes would allow him to settle his own purchase for less than the balance due. By letter of 28 March 2012 his solicitor, Rhonda Graham of Morgan Coakle, wrote to Ms McMahon with the following proposal:
Our client’s proposal is that he settles the purchase at the purchase price of
$5,500,000.00 plus an additional $250,000.00 contemporaneously with the on-sale of the property which, if it becomes unconditional, would settle on
31 May 2012.
Our client would need to meet the shortfall between the net proceeds of the on-sale and the payment to your client. Our client advises that he has also spent a considerable amount of money in professional fees producing reports to facilitate the on-sale.
[17] This drew an email from Ms McMahon, who tabulated the amount to settle as at 22 April 2012, explaining that she had picked that date for calculation purposes only since the actual date of settlement depended on the agreement between Mr Dempsey and the new purchaser. She invited Mr Dempsey to review her calculations so that he might understand his obligations. The table was as follows:
Settlement Statement as at 22 April 2012
To: By:
To:
Purchase price
Deposit paid
Consideration for deferment of the
5,500,000.00
100,000.00
500,100.00
Settlement date To: Penalty interest accruing at $1,746.54 per day from 22 March 2011 to 22 April
2012 (395 days)
689,883.30
To:
Improvements to site to enhance site
For re-sale purposes (demolition)
76,403.07
To:
Outgoings and maintenance expenses
51,681.32
To:
Legal fees and disbursements for variation to agreement and default
18,688.98
To:
Legal fees and disbursements –
mitigation of loss
1,642.95
By:
Balance – amount required to settle as at
22 April 2012 5,938,199.62
$6,438,299.62 $6,438,215.23
======================
E&OE
[18] Ms Graham responded by email of 3 April, pointing out that the $100,000 for deferring the settlement date ought not to have been included and advising that she was taking instructions. She wrote again the next day, advising that while Mr Dempsey understood his obligations he could only offer a sum “that is within his ability to complete”, and “... the very best offer that our client can make is the offer already made of a payment, in addition to the balance of the purchase price, of
$250,000.” She urged the Howes to accept that offer, saying that Mr Dempsey had achieved the best available price and adding that the vendor’s condition in the on-sale agreement must be satisfied by the following day.
[19] On 5 April Ms Graham wrote again, essentially reiterating her first proposal and emphasising that the offer would preserve all the Howes’ remedies against Mr Dempsey:
Our client’s new proposal therefore is that your clients agree to our client
satisfying the condition in the on-sale agreement on the basis that:
1 On settlement of the on-sale agreement on 31 May 2012, our client pays to your clients the balance of the bare purchase price under the purchase agreement of $4,999,900.00 together with a further amount of
$250,000.00.
2 Rates are apportioned as at 31 May 2012.
3 That your clients accept the proposal completely without prejudice to their rights under the agreement for sale and purchase of 22 March 2012 reserving all of their rights against our client.
[20] The Howes did not respond at once. On 11 April Ms Graham complained of delay, warning that if they intended to resell the property themselves they must act reasonably to mitigate loss. The following day a solicitor in Ms McMahon’s office requested and was given a copy of the agreement for sale and purchase between Mr Dempsey and Mei Yu Yang.
[21] By email of 17 April Ms McMahon rejected Mr Dempsey’s proposal, stating that it fell well short of his legal obligations and reiterating that the original agreement with Mr Dempsey “remains on foot” and “interest continues to accrue at the rate of $1,746.54 per day”. That forced Mr Dempsey to cancel the on-sale agreement with Mei Yu Yang.
[22] By agreement dated 23 May 2012 the Howes sold the property to Mei Qiong Cheng or nominee for $5,860,000. They gave no notice of cancellation to Mr Dempsey before doing so, evidently relying upon cl 9.4(2) of the agreement, under which a vendor entitled to cancel might do so without further notice by entering into an agreement for resale.
The pleadings
[23] The Howes chose both to retain Mr Dempsey’s deposit, treating it as forfeit, and to sue for damages. Under a second amended statement of claim they pleaded his breach of contract by failing to settle on 22 March 2011, alleged that he then repudiated the agreement by indicating in March 2012 that he would not settle as the agreement required, and asserted that they had cancelled the agreement by resale. The first cause of action, in debt, claimed interest of $729,437.47, at 12.5 per cent per annum on the unpaid balance of the purchase price from expiry of the settlement notice until resale, with Judicature Act 1908 interest thereafter. The second and alternative cause of action sought damages of $1,039,026.24, comprising the same amount of interest together with other costs associated with the resale and itemised at [72] below.
[24] Mr Dempsey admitted failing to settle, but alleged that the settlement notice was invalid, that the Howes had affirmed the sale and purchase agreement before they resold and so could not cancel, and that they did not resell within one year, so could not claim interest at the contractual rate. These defences were said to preclude liability for interest or any other sums. In any event, he asserted, the sum of the deposit that he had paid and the Howes’ gain of $360,000 on resale exceeded any loss that they had suffered.
[25] Mr Dempsey also counterclaimed for recovery of the deposit, alleging that when they served their settlement notice the Howes were not in all material respects ready, able and willing to settle because they had not signed A & I forms authorising their lawyers to settle, or because they had failed to tender a settlement statement, and so could not cancel. Alternatively, he claimed that they affirmed the agreement by repeatedly advising him over a period of nearly 14 months that it remained on foot.
[26] I will address the liability issues as follows: whether the Howes were ready, willing and able to settle when they issued the settlement notice; whether, if the notice was effective, time ceased to be of the essence before they resold in May
2012; and whether, if time did cease to be of the essence, Mr Dempsey repudiated the agreement so as to allow them to cancel it. I will then address the damages issues as follows: are the Howes entitled to interest at the contractual rate; must credit be given for the deposit when quantifying damages; and are resale costs recoverable in the circumstances?
Were the Howes ready, able and willing to settle when they served the settlement notice of 24 March 2011?
The settlement provisions of the agreement
[27] The standard form agreement used here was published in transition from paper-based to electronic registration regimes. It provided for both. By the time this particular example was executed electronic registration had become mandatory, but the paper dealing provisions remain relevant. The first of them, cl 3.5, provided that the purchaser must prepare the transfer and tender it a reasonable time before settlement date:
The purchaser shall prepare, at the purchaser’s own expense, a transfer instrument in respect of the property, executed by the purchaser if necessary. The purchaser shall tender the transfer instrument to the vendor or the vendor’s solicitor a reasonable time prior to the settlement date.
[28] Clause 3.6 provided that the vendor must prepare a settlement statement, which was defined as a statement showing the purchase price, plus any GST payable in addition to the purchase price, less any deposits or other payments or allowances
to be credited to the purchaser, together with apportionments of all incomings and outgoings at the possession date, and tender it a reasonable time before settlement date:
The vendor shall prepare, at the vendor’s own expense, a settlement statement. The vendor shall tender the settlement statement to the purchaser or the purchaser’s solicitor a reasonable time prior to the settlement date.
[29] Clause 3.7(1) provided that on settlement date the purchaser would pay the balance of the purchase price, and cl 3.7(2) provided that the vendor would concurrently deliver the registrable transfer and other necessary documents. All obligations under cl 3.7 were interdependent.
[30] Where electronic instruments were to be used, the process was governed by cl 3.10. Clause 3.10(3) provided that the purchaser’s obligations under cl 3.5 would be satisfied:
... by the purchaser’s solicitor certifying and signing a reasonable time prior to the settlement date the transfer instrument in the Landonline Workspace created for the transaction by the purchaser’s solicitor;
[31] Clause 3.10(4)(a) provided that the vendors’ settlement date obligations under
cl 3.7(2) were to be satisfied, in the case of an electronic dealing, as follows:
by the vendor’s solicitors preparing, certifying, signing and pre-validating a reasonable time prior to the settlement date in such Landonline Workspace the transfer instrument and all other instruments required to confer title on the purchaser in terms of the vendor’s obligations under this agreement and releasing the same upon settlement so that the purchaser’s solicitor can then submit them immediately after settlement for registration;
The requirement that a party serving a settlement notice must itself be ready, able and willing to settle
[32] The agreement provided in cl 9 that if the sale was not settled on the designated settlement date either party might “at any time thereafter” serve a settlement notice which insisted on settlement within 12 working days after service and made time of the essence. Should the party served not settle within that period the other party might cancel and/or exercise its other remedies. Clause 9.1(2) provided that a settlement notice was effective only if the party serving it was at the
time of service in all material respects ready, able and willing to settle, or was not so
only through the other party’s default:
The settlement notice shall be effective only if the party serving it is at the time of service either in all material respects ready able and willing to proceed to settle in accordance with the notice or is not so ready able and willing to settle only by reason of the default or omission of the other party.
[33] Mr McRae contended that for two reasons the Howes were not ready, able and willing to settle when they served the settlement notice on 24 March 2011: they had not executed A & I forms needed for their lawyer to sign and certify the transfer for registration, and they had not tendered a settlement statement. I will deal with these contentions in turn.
Were the Howes not ready, able and willing to settle because they had not executed
A & I forms?
[34] To set this issue in context I must survey the electronic dealing process which now governs almost all conveyancing transactions in New Zealand.2
[35] The Land Transfer Act provides that a transfer instrument can be used to register the transfer of any land, and a transfer instrument must be executed by the registered proprietor of the estate or interest transferred.3 In an electronic dealing, however, the registered proprietor does not physically execute the transfer instrument. Rather, he or she authorises a practitioner4 who has been granted a digital certificate to alter the register electronically. The practitioner does so by going into a LandOnline Workspace created for the transaction, completing and electronically signing the necessary e-dealing documents, giving necessary
certificates, and authorising the registration, which is normally completed with no
2 I am told that a very small proportion of transactions are settled over the counter at Hamilton or Christchurch, to accommodate those who choose not to be represented by a practitioner, and there are a very few transactions which cannot be processed electronically. For the process governing the latter, see Beech Cove Properties Ltd v Reps Ltd (2011) 11 NZCPR 601 (HC).
3 Land Transfer Act 1952, s 90.
4 A practitioner is a practitioner within the meaning of s 6 of the Lawyers and Conveyancers Act
2006. Pursuant to s 164B Land Transfer Act, only a practitioner may sign and certify an electronic instrument. Other staff may be given digital certificates which authorise them to search the register, to create instruments for signing, and to submit e-dealings for registration.
human intervention within Land Information New Zealand. An electronic instrument has the same effect, when registered, as a deed executed by the parties.5
[36] Parties to an electronic dealing must execute A & I forms which authorise their practitioners to alter the register for them. Practitioners must have the forms correctly completed and signed and witnessed, but the forms are neither registered nor shown to the other party. Rather, electronic instruments must contain a certification6 specifying that the practitioner giving it7 is authorised to act for the party, that the party possesses legal capacity to give such authority, that the practitioner has taken reasonable steps to confirm the party’s identity, that the instrument complies with any statutory requirements specified by the Registrar-
General of Land for that class of instrument, that the practitioner possesses evidence showing the truth of these certifications, and that the evidence will be retained for a prescribed period.8 The Registrar-General may establish requirements that will satisfy these obligations,9 and has specified that:10
The New Zealand Law Society E-Dealing Guidelines and Associated Authority & Instruction forms are, where applicable, accepted by the Registrar-General of Land as being an adequate means of satisfying the form of documentation in relation to each instrument.
[37] The NZLS E-Dealing Guidelines contemplate that the parties’ practitioners11
will co-operate in arranging the settlement. The process is as follows.
[38] The purchaser’s practitioner is responsible for setting up the e-dealing
workspace, although the vendor’s practitioner occasionally attends to it in practice. The work is usually done by the purchaser’s primary contact,12 who identifies the
5 Section 164E, and Land Transfer Regulations 2002, reg 12.
6 The abstract noun “certification” is the term used by the legislation to mean a certificate. See s 164A, and Land Transfer Regulations, reg 13. Thus the practitioner does not certify but “gives a certification”. By reverting to “certified” in s 164E the drafter spared us “certificated” and
“certificationing”.
7 Section 164A speaks of the “person” giving it, but under s 164B(1) only a practitioner may do
so.
8 Section 164C.
9 Section 164C(2).
10 “Land Information New Zealand” (26 September 2008) 144 New Zealand Gazette 3926 at 3955.
11 The New Zealand Law Society E-Dealing Guidelines (October 2008) speak of conveyancing professionals, which term is synonymous with practitioners. I will use “practitioners” in this judgment.
12 Under the Guidelines the primary contact is the person responsible for day to day management of the e-dealing.
primary contact and practitioner for each party and lists all instruments to form part of the e-dealing, much as a registration abstract would formerly have done. A unique dealing number is assigned to the workspace, which the parties’ named practitioners and primary contacts alone may enter. To allow the purchaser’s primary contact to set it up, the vendor’s primary contact should supply his or her details as soon as practicable once the agreement becomes unconditional.
[39] The purchaser’s primary contact prepares the transfer in the electronic workspace, together with any other instrument which the purchaser would otherwise have been responsible for preparing in paper form. The instruments are available for checking by the vendor’s primary contact. The purchaser’s practitioner must also certify the instruments correct, either when the instruments are created or subsequently. In order to certify or sign instruments the practitioner must hold a completed A & I form from the purchaser.
[40] The vendor’s practitioner provides the settlement statement, prepares any instruments for which the vendor is responsible (such as discharges of mortgage), and signs and certifies instruments. In order to sign or certify instruments the practitioner must likewise hold a completed A & I form from the vendor. The practitioner must also provide an undertaking to the purchaser’s practitioner to release the instruments for registration upon settlement and to do nothing that would prevent registration.
[41] The Guidelines do not specify when, relative to settlement, the purchaser’s practitioner should prepare the instruments for which the purchaser is responsible. They do indicate that the vendor should supply the settlement statement not less than three working days before settlement. They also contemplate that the instruments will have been completed, signed and certified by both practitioners, as appropriate, before settlement, and that as close to settlement as possible the purchaser’s primary contact will pre-validate the entire dealing.
[42] On settlement the instruments are immediately released into the control of the purchaser’s practitioner, who is responsible for registering them and should attend to that task as soon as reasonably possible.
[43] The E-Dealing Guidelines attach specimen A & I forms, and record that the appropriate form must be completed fully before it is signed by the client, who should indicate that he or she has read and understood it. They emphasise that a practitioner cannot make the certifications required for transfer purposes unless all individuals have signed the form, and they highlight rule 2.5 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, which deals with a lawyer’s duties when certifying the truth of any matter. Before certifying and signing an instrument a practitioner must be satisfied personally that the client’s authorisation is in order, that the client’s identity has been established to the practitioner’s satisfaction, and that all certifications affecting the instrument are true and correct. The Guidelines go into some detail about appropriate steps that practitioners can or ought to take to satisfy themselves of these matters.
[44] A signature on a document traditionally performs two functions; it identifies the party signing, and it signifies his or her adoption of whatever the document says.13 Under the e-dealing regime a party’s signature on an A & I form performs these functions, just as it formerly did on a paper transfer. The specimen form attached to the Guidelines identifies the person signing and records that person’s understanding that by signing the form he or she is legally bound by the electronic instruments as if they had been signed personally.
[45] Mr McRae argued that a vendor who has not completed an A & I form is necessarily not ready, able and willing to settle, so cannot issue a settlement notice. Such was the opinion of Joanna Pidgeon, a leading property lawyer who gave evidence for the defendant. She explained that under the paper system it was unusual for a vendor’s solicitor to do nothing until the settlement date, even where the purchaser had failed to provide a transfer. She noted that a vendor may complete an A & I form before receiving the draft transfer. She suggested that if a purchaser has not prepared the transfer in the e-dealing workspace within a reasonable time before settlement, the vendor’s solicitor ought to contact the purchaser’s solicitor to ask that it be done and/or request the transferee’s details so that the vendor’s A & I
form can be prepared and signed. She added that if the vendor’s solicitor does not
13 The authorities on this point were discussed in Welsh v Gatchell [2009] 1 NZLR 241 (HC).
know the identity of the transferee, as may happen where a nominee might take title, it is possible to complete a form in favour of the purchaser or nominee. In consequence, she opined, a party who has not signed an A & I form is not ready, willing and able to settle. In support of that opinion, she drew an analogy with a discharge of a mortgage granted by the vendor, pointing out that without the lender’s authority the vendor cannot settle.
[46] I accept Ms Pidgeon’s account of conveyancing practice. But the opinion she reached is arguably inadmissible,14 and in any event I do not share it, for these reasons. First, cl 9.1(2) of the agreement is derived from the equitable principle that a party cannot enforce one of a series of interdependent obligations in contract if that party is at the time materially in breach of its own obligations.15 It follows the broader principle that a party must come to equity with clean hands. For that reason, courts characterise the question whether a party is ready, able and willing to settle, and so entitled to enforce the contract, as one of fact and substance, not to be resolved in any technical or narrow sense.16 The party may be ready, able and willing if everything material that remains to be done lies within its control and will be done at the appropriate time should the other party settle before the notice expires.17 Such was the case here, so far as the Howes were concerned. Indeed, a vendor that was required to supply an executed discharge of mortgage may be found ready, able and willing despite the want of a discharge, so long as it lay within its power to procure the discharge in time should the purchaser settle before the notice expired.18
[47] Second, the rule has long been that although settlement obligations are interdependent, the settlement process should be initiated by the purchaser.19 That is
14 Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] 1 Ch 384 (Ch) at 402.
15 McNally v Waitzer [1981] 1 NSWLR 294 (NSWCA) at 303; RP Meagher, JD Heydon and MJ Leeming Meagher Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, LexisNexis Butterworths, Chatswood, 2002) at [20-115].
16 Plowman v Dillon [1985] 2 NZLR 312 (HC) at 321; McNally v Waitzer at 296, 303; Mehmet v
Benson (1965) 113 CLR 295 at 307.
17 Holt v Tew [1984] 1 NZLR 570 (HC) at 575; Re Barr’s Contract [1956] Ch 551 (Ch) at 556;
Catley v Herbert [1988] 1 NZLR 606 (CA) at 619.
18 Bidmead v District Land Registrar HC Hamilton CP287/189, 20 July 1990 at 32. In Holt v Tew, above n 17, the vendors failed to show they were able to settle, but they had adduced no evidence that they had made any arrangements to get discharges of mortgage in time.
19 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [17].
usually done by tendering a transfer. Mr Dempsey did nothing to initiate settlement. Had he done so, I have found, the Howes would have met their own settlement obligations, completing an A & I form in the process.
[48] I observe too that although a vendor may sign an A & I form before the transfer has been drafted, the vendor’s practitioner may think it prudent to await the transfer in case someone other than the named purchaser appears as transferee. The conveyancing expert for the plaintiffs, Timothy Jones, also a leading property lawyer, considered that it is good practice for a vendor’s practitioner to wait. He noted that the transferee’s identity may matter to the vendor, and observed that the specimen A & I form in the Guidelines names the transferee. Ms Pidgeon did not disagree, although she did emphasise that an A & I form may authorise transfer to the named purchaser or nominee and suggested that if someone other than the purchaser appears as transferee the vendor’s practitioner may rely upon an assurance from the purchaser’s practitioner that the purchaser has authorised it.
[49] Third, under cl 9.1(2) a purchaser which is in default of its obligation to tender a draft transfer cannot complain if the vendor serves a settlement notice without first having executed a transfer. The absence of an A & I form should not preclude the vendor from issuing a settlement notice in such circumstances, since the point of the form is to authorise the vendor’s practitioner to sign and certify the transfer.
[50] Fourth, a rule that a party cannot issue a settlement notice without completing an A & I form would be tantamount to implying into the agreement an obligation to that effect. But the agreement did not refer to the A & I form at all, and I discern no need to imply into it obligations that add to those affecting the transfer itself. The agreement prescribed only that the vendors’ practitioner should sign and certify the transfer a reasonable time before settlement. Nothing more is needed, for the purchaser’s practitioner may normally take the perfected transfer at face value.
[51] It follows that I reject Mr McRae’s submission that because it is fundamental a vendor’s executed A & I form must be completed before a settlement notice can be issued. As the functional equivalent of the vendor’s signature upon a paper transfer the form is indeed fundamental; the vendor’s practitioner cannot sign the transfer
without it. But there is neither necessity nor room, having regard to cl 9.1(2), for a rule that it must always be signed, regardless of any default by the purchaser, before a vendor may be accounted ready, able and willing to settle.
[52] That said, the absence of an executed A & I form at the designated settlement date may evidence the vendor’s inability or unwillingness or unreadiness to settle in fact. It all depends. It would be one thing if the vendor was for some reason unable to complete the form, or had refused to do so; quite another if the vendor’s omission had been induced by the purchaser. We have here a plain example of the latter. Any inferences that might have been drawn from the vendors’ failure to sign an A & I form before settlement date are displaced on the facts.
[53] Mr McRae next argued that the absence of an A & I form was nonetheless fatal because Mr Dempsey might have chosen to settle abruptly during the notice period. I reject that submission too, for several reasons. First, had Mr Dempsey chosen to settle while notice was running he would have had to do more than tender payment. He would have had to comply with his other settlement obligations by instructing Morgan Coakle to set up the online workspace and prepare a draft transfer and submit that transfer a reasonable time before settlement. These actions would have given the Howes time to meet their own settlement obligations. They might have had to act quickly, but they wanted to settle and I have found that they would have done everything necessary from their side to achieve it. Second, the rule that a vendor must be able to settle at any time during the notice period offers no comfort to a purchaser who engages in last-minute manoeuvres, for the Court will determine
any controversy on the facts and with due regard to common sense.20 So it serves no
purpose for counsel to speculate that the Howes might have met with difficulty had Mr Dempsey waited until the very last moment. Third, the point is academic, for made no effort to settle.
[54] These conclusions sufficiently establish that the Howes were ready, able and willing to settle when they served the settlement notice and while notice was
running, the absence of a signed A & I form notwithstanding.
20 Halkidis v Bugeia [1974] 1 NSWLR 423 (NSWSC) at 427–428 per Street CJ.
Were the Howes ready, able and willing to settle when they had not tendered a settlement statement?
[55] Mr McRae next argued that the Howes were not ready, able and willing to settle when they issued the settlement notice, for they had failed to tender a settlement statement a reasonable time before settlement.
[56] The authorities do not establish that a vendor who has not tendered a settlement statement is necessarily unready, unable or unwilling to settle. They establish rather that if the purchaser manifestly has no intention of settling on due date, a settlement statement would have been futile, save to eliminate one
opportunity for meritless argument.21 It is a question of fact. On the facts, I have
found that the Howes were ready, able and willing to settle when they issued the settlement notice, that they had not issued a settlement statement because Mr Dempsey had led them to believe that he would pay an agreed sum to extend the settlement date, that he had failed to initiate the settlement process, and that in any event he was unable to settle. These findings dispose of the allegation that the Howes were not ready, able and willing to settle merely because they did not take the futile step, as matters turned out, of tendering a settlement statement.
[57] It follows that the Howes were entitled to issue the settlement notice and to cancel the agreement when the notice expired.
[58] I mention an argument which was unheralded in the pleadings and expressly not pursued in opening, but which Mr McRae felt obliged to advance in closing. He contended that the settlement notice was ineffective because it specified the incorrect sum. As noted earlier, the notice included the $100,000 which Mr Dempsey had agreed to pay to extend the settlement date. It is too late to take that point now, and counsel was right not to take it in the first place. The essence of a settlement notice is the call to settle or face the consequences. An overstatement in the amount does not relieve a defaulting purchaser of its obligation to seek out the vendor and tender
the correct sum unless the vendor so insistently demands the larger sum as to make it clear that tender would serve no purpose.22
Did time cease to be of the essence before the Howes cancelled?
[59] Mr McRae contended that time ceased to be of the essence during the long period of 14 months that elapsed between the settlement notice and the Howes’ resale to Mei Qiong Cheng.
[60] As I have noted earlier, the Howes insisted throughout the 14-month period that the agreement remained on foot “until further notice”, and they eventually resold the property without ever giving notice of cancellation. They now say that the resale effected cancellation under cl 9.4(2):
Where the vendor is entitled to cancel this agreement the entry by the vendor into a conditional or unconditional agreement for the resale of the property or any part thereof shall take effect as a cancellation of this agreement by the vendor if this agreement has not previously been cancelled and such resale shall be deemed to have occurred after cancellation.
[61] It will be seen that only where the vendor was “entitled to cancel” might it effect cancellation by resale under cl 9.4(2). It was a prerequisite to such cancellation that the purchaser had failed to comply with a vendor’s settlement notice making time of the essence. The question is whether, the Howes having chosen not to cancel when the notice expired, time remained of the essence throughout the long period until resale.
[62] The counterclaim alleged that the Howes affirmed by repeatedly telling Mr Dempsey over 14 months that the agreement remained on foot. The statement of defence also pleaded affirmation but gave particulars, being the letters of 12 and 17
April 2012 from McMahon Butterworth Thompson, the relevant parts of which are quoted at [16] and [17] above. In closing, Mr McRae relied primarily upon the letter of 10 May 2011 from McMahon Butterworth Thompson (see [14] above). Counsel argued that the Howes affirmed the agreement or waived the essentiality of time by advising that the agreement remained on foot; alternatively, they did so by refusing
to make an election for an unreasonably long time, or by issuing a “settlement statement” on 22 April 2012 (see [17] above).
[63] Clause 9.6 of the agreement permitted a party to extend the term of a settlement notice for one or more “specifically stated periods of time”:
The party serving a settlement notice may extend the term of the notice for one or more specifically stated periods of time and thereupon the term of the settlement notice shall be deemed to expire on the last day of the extended period or periods and it shall operate as though this clause stipulated the extended period(s) of notice in lieu of the period otherwise applicable; and time shall be of the essence accordingly. An extension may be given either before or after the expiry of the period of the notice.
[64] The Howes did not extend the settlement notice at all, let alone for a specified period, and no question arises of them merely having been inactive for a period after the notice expired. In consequence, they must be deemed to have chosen not to rely upon the settlement notice.23 They could not cancel without first issuing a new settlement notice again making time of the essence.24
[65] The breach of contract that led to the original notice remained, however. To the extent that Mr McRae argued the delay in settlement was waived, I reject the argument: it would be most remarkable if the Howes had waived not merely the essentiality of time but the entire obligation to settle on due date, and nothing in their conduct could reasonably seen as a release of such obligation; on the contrary, they made it clear throughout that interest continued to accrue at the rate for late settlement; nor does anything in the parties’ subsequent conduct suggest that Mr Dempsey had been led to believe they had released him.
[66] Accordingly, the Howes might issue a new settlement notice in reliance upon the original failure to settle, and they might cancel on the expiry of that notice. What they could not do is cancel in reliance upon the original notice. That being so, they
cannot invoke cl 9.4(2).
23 Baker v McLaughlin [1967] NZLR 405 (SC); Wilson v McGee [1925] NZLR 241 (SC). Where an extension to a future time uncertain occurs before a time currently of the essence has expired, the party concerned has waived the essentiality of time; where such extension happens afterward it is an election: D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [12.15].
24 Wilson v McGee, above n 23; Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616 (CA).
Did Mr Dempsey repudiate by asking the Howes to settle for less than the amount due under the agreement?
[67] Against the possibility that I should find, as I have just done, that the Howes could not cancel in reliance upon the settlement notice of 24 March 2011, Mr Thompson argued that by his conduct in March – April 2012 Mr Dempsey repudiated the contract and the Howes accepted his repudiation by reselling.
[68] A party repudiates a contract by making it clear, by words or conduct, that it does not intend to perform its obligations.25 The test is objective.26 The evidence on which Mr Thompson relied comprised Mr Dempsey’s attempts to secure the Howes’ consent to an on-sale on terms that would leave a shortfall on settlement. The relevant communications are noted at [16]–[19] above.
[69] This behaviour does not clearly establish that Mr Dempsey had no intention of performing his obligations under the agreement. On the contrary, he was appealing to the Howes, pointing to the price he had achieved and at what personal cost. Mr Thompson drew my attention to Ms Graham’s assertion, in her letter of 4 April, that Mr Dempsey could not pay more than he had just offered. But Ms Graham did not go on to insist that Mr Dempsey would not perform at all, or would only do so on
terms substantially inconsistent with his obligations.27 Rather, she sought to
renegotiate those obligations, soliciting the Howes’ acceptance on terms that would have allowed them to enforce the agreement by suing Mr Dempsey under it. When they rejected his proposal he cancelled the on-sale.
[70] In conclusion, I have found that the Howes were not entitled to cancel and resell as time was no longer of the essence when they did so, nor had Mr Dempsey repudiated the agreement. I do accept, however, that the agreement has been brought to an end. By selling the property to a third party in circumstances where they had
no present right to do so the Howes repudiated the agreement,28 a decision that
25 Contractual Remedies Act 1979, s 7(2).
26 Betham v Margetts [1996] 2 NZLR 708 (HC).
27 Ibid.
28 Contractual Remedies Act, s 7(2). Mr Dempsey has not sought damages for this breach, perhaps because any award could only be notional in circumstances where he lacked the capacity to settle.
Mr Dempsey must be taken to have accepted. Nonetheless they remain entitled to damages for delay resulting from his failure to settle on due date.
The Howes’ damages claim
[71] The Howes claimed:
a) damages of $729,437.47, being interest at the contractual rate of 12.5 per cent per annum from 22 March 2011 to 23 May 2012; and
b) interest on that sum under s 87 Judicature Act from 23 May 2012 until actual payment.
In addition, the Howes claimed that they need not return or give credit for the deposit.
[72] Should the Court insist that the deposit and/or surplus on resale be brought into account, the Howes claimed gross losses of $1,039,026.24 and a net loss, after credit
for the resale and deposit, of $178,926.24,29 as follows:
Amount payable to complete as at 23
May 2012 including contract interest of
$729,437.47
$6,229,437.47 Amount paid under resale agreement
$5,860,000.00
Credit for deposit paid
$ 500,100.00
Real estate commission on resale
$141,507.50
Costs of demolishing house for resale
$76,402.07
29 This figure differs slightly from that included in counsel’s submissions, which contained a minor
calculation error.
Property maintenance costs $30,624.01 Rates and insurance costs
$13,935.69
Legal costs on resale and in mitigation of loss
$47,119.50
Net loss
$ 178,926.24
Total
$6,539,026.24
$6,539,026.24
[73] Clause 9 of the agreement dealt with notice to complete and remedies on default. It provided in cl 9.4(1) for a vendors’ damages claim following non- compliance with a settlement notice:
9.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to clause 9.1(3):
(1) Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:
(a) sue the purchaser for specific performance; or
(b) cancel this agreement by notice and pursue either or both of the following remedies namely:
(i) forfeit and retain for the vendor’s own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii) sue the purchaser for damages.
[74] In such a case the vendors might recover all damages claimable at common law or in equity:
9.4 (3) The damages claimable by the vendor under subclause 9.4(1)(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of that loss may include:
(a) interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale; and
(b) all costs and expenses reasonably incurred in any resale or attempted resale; and
(c) all outgoings (other than interest) on or maintenance expenses in respect of the property from the settlement date to the settlement of such resale.
[75] The agreement also provided in cl 9.4(4) that the vendors would retain any surplus moneys arising from a resale following cancellation.
[76] Although Mr McRae did not take this point, I record that the vendors’ right to damages for delay does not depend on cancellation, or on time remaining of the essence.30
The Howes’ claim to interest at the contractual rate
[77] Clause 3.12 of the agreement provided for interest for the purchaser’s late
settlement:
3.12If the vendor is not in default and if any portion of the purchase price is not paid upon the due date for payment:
(1) The purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date for payment until payment (“the default period”); but nevertheless this stipulation is without prejudice to any of the vendor’s rights or remedies including any right to claim for additional expenses and damages....
It will be seen that the right to interest did not depend on cancellation, nor was it strictly time-bounded, and it preserved all the vendors’ remedies.
[78] Both counsel focused on cl 9.4(3), which I have set out at [74] above. It does not govern this case, of course, not only because more than a year elapsed but also because it was confined to post-cancellation claims under cl 9.4(1)(b)(ii). Mr
McRae argued, however, that the positive right to interest in that provision excluded
30 Raineri v Miles [1981] AC 1050 (HL); Mana v Fleming [2007] NZCA 324, (2007) 8 NZCPR
469 at [60]; G Jones and W Goodhart Specific Performance (2nd ed, Butterworths, London,
1996) at 285–286.
any other claim for interest under the contract. I prefer Mr Thompson’s argument that cl 9.4(3) was designed to foreclose controversy over foreseeability and remoteness of loss in post-cancellation claims.31 Independently of cancellation the vendor might acquire and bring claims at law or in equity. Far from limiting such remedies, clauses 3.12 and 9.4 sought expressly to preserve them.
[79] In this case, agreement was of long duration, the vendors’ loss from their inability to use the purchase price was expressly contemplated by cl 9.4 and anyway must be accounted a normal consequence of delay, their loss did not end after a year, and the resale occurred soon after the anniversary. My attention has been drawn to nothing that might displace the inference that the loss foreseeably continued for the additional period, or that might suggest the contract rate no longer measured the loss appropriately. I conclude that the Howes’ claim to interest on the unpaid balance has been brought to an end not by effluxion of time but by termination and receipt, on settlement of the resale, of a sum exceeding the balance of the purchase price.
[80] The Howes’ claim to interest at the contractual rate accordingly succeeds. Interest is payable on the unpaid balance from 22 March 2011 to the date of settlement of the resale, 23 May 2012.
[81] In addition, the Howes are entitled to interest on the resulting sum under s 87
Judicature Act from settlement of the resale until judgment. I decline to award judgment for interest between judgment and payment; s 87 does not provide for it, and r 11.27 of the High Court Rules applies post-judgment.
Must the Howes give credit for the forfeited deposit?
[82] Much of the argument focused on the Howes’ attempt to forfeit the deposit and
Mr Dempsey’s demand that they return it.
[83] The conclusions I have already reached dispose of the issue, for the Howes’
claim presumed that they had cancelled under cl 9 and so were entitled to damages
31 Mana v Fleming at [56], but see the observation at [64].
calculated under cl 9.4. Their contractual right to forfeit the deposit depended on cancellation.32 Having failed to cancel, they cannot forfeit the deposit.
[84] I record, in case I should be wrong in my earlier conclusions, that in any event I find untenable the Howes’ claim that a vendor need not give credit for a forfeited deposit when seeking damages. Mr Thompson could point to no case in which a vendor has succeeded in such a claim in analogous circumstances. His argument rested on the omission, in cl 9.4, of language in a former version of the ADLS/REINZ agreement which expressly required that credit be given for the
deposit, and the judgment of the Court of Appeal in Garratt v Ikeda.33
[85] With respect to the first of these points, the language of the standard form was changed to broaden the damages that might be claimed, not to rule out credit for the deposit should the vendor sue for damages.34 Something more than such omission would be needed to achieve the latter result in any event, for the forfeiture would compensate the vendor and compensation is the Court’s lodestar when fixing damages. Consistent with that, the principal objective of cl 9 is that of allowing the
vendor to recover all damages claimable at common law or in equity.
[86] I note too that the Supreme Court has observed that credit must be given for a forfeited deposit when calculating damages payable to a vendor.35 A clause that provided otherwise might be unenforceable as a penalty.36
[87] With respect to the second point, it is true that a vendor which restricts itself to forfeiting a conventional deposit (not exceeding 10 per cent of the price) need not prove loss. That is a long-settled anomaly attributable to the character of a deposit as an earnest paid to seal a bargain.37 Garratt v Ikeda relevantly establishes only that
a vendor who has resold at a profit may forfeit the deposit nonetheless. The case
32 Clause 9.4(1).
33 Garratt v Ikeda [2002] 1 NZLR 557 (CA).
34 See the discussion in Mana v Fleming at [54]–[60].
35 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR
231 at [62]. The agreement in that case employed the 7th edition of the standard form.
36 Turner v Superannuation & Mutual Savings Ltd [1987] 1 NZLR 218 (HC); Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 579–580.
37 Workers Trust & Merchant Bank Ltd at 579–580.
does not establish that a vendor may both forfeit the deposit and recover damages as if it counted for nothing.
[88] Mr Dempsey will have credit for the deposit. For reasons given below, the allowance will include interest on the deposit under s 87 of the Judicature Act, calculated from settlement of the resale until judgment.
The other sums claimed
[89] As I have insisted that the Howes give credit for the deposit, I must address their alternative claim to damages. I have already dealt with the interest. The other sums claimed comprise costs on resale (real estate commission and legal fees), demolition and property clearing to prepare for resale, and rates and insurance.
[90] Mr Thompson assumed that the Howes were entitled to cancel and resell, and so might claim all of these sums. I have found that they were entitled only to damages for delay. The rates and insurance claimed were a direct result of delay. Quantum of these sums was not in dispute. The question is whether the Howes can recover the remaining items.
[91] I must acknowledge a sense in which delay led the Howes to incur these expenses. Mr Dempsey could not complete the sale himself after the settlement notice expired. He and the Howes each tried to resell. Those efforts took time. But the connection is not close enough, for several reasons. First, the better view is that resale costs are not an ordinary consequence of delayed settlement. Resale costs follow cancellation and delay need not lead to cancellation, as Mr Dempsey’s proposed transaction with Mei Yu Yang demonstrates.
[92] Second, there is no reason to suppose that resale costs were in the parties’ contemplation, when negotiating the agreement, as a consequence of delay. The agreement indicates rather that they envisaged resale costs might flow from cancellation. The vendors having failed to cancel in compliance with the agreement, the Court should not award them damages as if they had.
[93] Third, as a matter of fact all the remaining items concern resale, not the passage of time. The real estate commission obviously falls into that category but I have found that so do the costs of demolition and property “maintenance”. I treat all legal costs as connected with resale; there was a claim that some were incurred in mitigation of loss, but the evidence does not establish how much and what exactly the lawyers did in mitigation.
[94] Another way of expressing my conclusion is to say that resale costs are too remote from the specific breach for which the Howes are getting damages. The corollary is that so too is the gain that they made on resale.
The counterclaim
[95] As noted earlier, Mr Dempsey counterclaimed for return of the deposit. He also sought interest under s 87 from the date the deposit was paid.
[96] I have accepted that the Howes were not entitled to retain the deposit following resale. Accordingly, liability has been established. I accept too that interest ought to be allowed under s 87 in the exercise of the Court’s discretion, but only from the date of settlement of the resale until judgment. Until resale the agreement subsisted, and under the agreement the vendors were entitled to hold the deposit.
Decision
[97] Rather than enter judgment separately on claim and counterclaim I propose to award the Howes judgment on their claim, less credit for the deposit and interest on it. They will have judgment for:
a) $729,437.47, being interest at the contractual rate from 22 March 2011 until
23 May 2012; and
b) $13,935.69 for rates and insurance; and
c) Interest on a) and b) under s 87, calculated from 23 May 2012 until judgment;
less
d) $500,100, with interest on that sum under s 87, calculated from 23 May 2012 until judgment.
There will be leave to apply, lest this form of judgment should work some unfairness.
[98] Counsel wished to be heard on costs, which are accordingly reserved. Subject to any question of Calderbank offers I expect that they should agree where costs fall, as well as quantum. To encourage them I make several observations. First, the scale is designed to cover the general run of cases and allow counsel to agree quantum. Increases on scale are exceptional. Second, as presently informed I see nothing exceptional about this case. I would also allow for only one counsel per side. Third, Mr Dempsey must be taken to have succeeded in his counterclaim to the extent noted above.
[99] If counsel cannot agree costs, memoranda may be filed. Mr Thompson’s must be filed within six weeks of this judgment, and Mr McRae’s within a further two weeks.
Miller J
Solicitors:
McMahon Butterworth Thompson, Auckland for Plaintiffs
Morgan Coakle, Auckland for Defendant
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