Humphries v Carr
[2011] NZCA 314
•8 July 2011
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| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA565/2010 [2011] NZCA 314 |
| BETWEEN RODNEY JOHN HUMPHRIES |
| AND EWAN ROBERT CARR |
| Hearing: 21 June 2011 |
| Court: Randerson, Keane and Allan JJ |
| Counsel: A R Gilchrist and L M Nicholson for Appellant |
| Judgment: 8 July 2011 at 11.30 a.m. |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellant must pay costs to the respondent as for a standard appeal on a band A basis together with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Randerson J)
Introduction
This appeal is another round in long-running litigation between the appellant Mr Humphries, the respondent Mr Carr and their associated business interests. Those interests involved three dairy farms in the Maniototo area, the property known as the Styx Lodge at Paerau, and the Danseys Pass Coach Inn.
Following the death in 2003 of a third joint venture partner in the dairy farms, the relationship between Messrs Humphries and Carr deteriorated. In an attempt to resolve the conflict a deed was executed in February 2005, the effect of which was to entitle Mr Carr, upon the performance of certain conditions, to receive all the shares in Brookside Properties Limited (BPL), the owner of the Styx Lodge.
Contemporaneously, Mr Carr was granted an option to purchase the assets and undertaking comprising the dairy farms which were owned by the Big Sky group of companies.
Mr Carr alleged that Mr Humphries had defaulted in his obligations under the deed of February 2005 relating to the BPL shares. On 16 November 2006, Associate Judge Christiansen granted Mr Carr summary judgment requiring Mr Humphries to specifically perform the terms of the deed.[1] Mr Humphries filed an appeal against the judgment but this was later abandoned.[2]
[1] Carr v Humphries HC Dunedin CIV-2006-412-513, 16 November 2006.
[2] Humphries v Carr CA269/06.
In the meantime, other proceedings were issued by Mr Carr in early 2007. On an ex parte basis, interim liquidators were appointed for the Big Sky group and a Mareva injunction was also granted. This led to the appointment of receivers by the Bank of New Zealand (the major creditor of the Big Sky group).
On 3 May 2007, a settlement was reached which culminated in the execution of an Amended Settlement Agreement (ASA) on or about 16 May 2007. It is common ground that the ASA was designed to effect a clean break between the parties and their various business interests. Under the ASA, Mr Carr agreed to purchase the dairy farm and associated assets, the Danseys Pass property (owned by a company called Anesyds Ltd) and the shares in BPL. The ASA provided that settlement of all three transactions contemplated by the ASA was to occur simultaneously by 4 pm on 31 May 2007, time being of the essence.
The settlement did not take place by that time and the ASA was cancelled by the Humphries’ interests. The High Court subsequently held that the Carr interests were in breach of the terms of the ASA by not completing settlement at the time stipulated and that the ASA was validly cancelled.[3] The High Court’s decision was affirmed by this Court.[4]
[3] Humphries v Carr HC Dunedin CIV-2007-412-507, 29 February 2008.
[4] Humphries v Carr [2008] NZCA 391.
After the cancellation of the ASA, Mr Carr sought to enforce the judgment of Associate Judge Christiansen of 16 November 2006 in relation to the BPL shares. Mr Humphries applied for a permanent stay of execution of those proceedings but his application was dismissed by Fogarty J in a judgment issued on 9 August 2010.[5] The essence of the decision made by the Judge was that, correctly interpreted, the ASA was an accord and conditional satisfaction in the sense that it did not operate to discharge any existing cause of action unless and until there had been performance of the settlement agreement. The Judge also found that Mr Carr was not precluded from enforcing the judgment for specific performance in consequence of his default under the ASA.
[5]Carr v Humphries HC Dunedin CIV-2006-412-513, 9 August 2010. (This decision followed an earlier successful appeal by Mr Humphries ([2010] NZCA 238) against a decision of Fogarty J given on 4 September 2009 refusing a stay of the order for specific performance made by Associate Judge Christiansen.)
The issues on appeal are whether the Judge was correct to find that:
(a)The ASA represented an accord and conditional satisfaction.
(b)Mr Carr was not precluded from enforcing the judgment for specific performance on the grounds of his wrongful conduct.
The terms of the ASA
The resolution of this appeal turns essentially upon the construction of the ASA. Mr Gilchrist for Mr Humphries submitted that the true construction of the ASA was that it constituted an accord and satisfaction in terms of which Mr Carr surrendered his decree of specific performance in return for a promise on behalf of Mr Humphries to settle his obligations under the ASA. Mr Gilchrist submitted that the ASA represented a new and binding agreement which replaced the prior existing rights of the parties and that it was not possible for Mr Carr, after cancellation of the ASA due to his own default, to revert to the position which existed prior to the execution of the ASA. In effect, Mr Carr had unequivocally elected to accept the terms of the ASA in substitution for any prior rights and it was no longer open to him to enforce the summary judgment.
The ASA was entered into after disputes between the parties over the prior option in favour of Mr Carr to purchase the assets of the Big Sky group. The ASA was negotiated with the assistance of a mediator. It expanded the scope of the prior option granted to Mr Carr by including, in addition to the sale of the dairy farm assets, the properties at Danseys Pass and the Styx Lodge. By cl 7, Mr Carr was given an extension of time until 18 May 2007 to raise the finance necessary to purchase the Big Sky assets and the time for settlement under a prior settlement notice was extended until 4pm on 31 May 2007. Time was to be of the essence for both of these dates.
In terms of cl 15, Mr Carr again acknowledged that time was of the essence for these dates and that if these dates were not met “the companies will cancel the option sale contract and may re-sell ... the relevant properties ...”.
Clauses 18, 19 and 20 are critical for present purposes. They provide:
18.Mr Humphries will, on settlement abandon the appeal against the decision of Christiansen AJ in proceeding Carr v Humphries CIV 2006-412-523, and will on settlement under the option to purchase the Big Sky assets settle in accordance with the order for specific performance made in that proceeding. Security for costs paid to the Court of Appeal shall be paid to Mr Humphries. Costs in the High Court will not be enforced. For the avoidance of doubt, the price to be paid for the Styx property is $220,000 plus GST, if any.
19.Settlement of the transactions arising out of this agreement shall occur no later than 31 May 2007. Prior to settlement the parties shall co-operate in seeking the approval of the IRD to the transfer of the purchasers GST refunds to the GST accounts of the various vendor companies within IRD with a view to avoiding the necessity for GST to be paid on settlement. It is agreed that the three transactions covered by this settlement (Big Sky, Anesyds and Styx) are interdependent and that the settlement of all three is intended to be simultaneous. Mr Carr agrees that settlement of the Anesyds and Styx transactions will not proceed unless and until the Big Sky settlement proceeds. However, in the event that an impediment outside of Mr Carr’s making or control arises in relation to the settlement of either of the Styx or Anesyds transactions the Big Sky transaction shall settle together with such of the Styx and Anesyds transactions as is able to settle and the parties shall cooperate in good faith in settling the outstanding transaction or transactions.
20.Upon payment of the full purchase price without set-off or deduction by the specific time (time being of the essence) to the companies, the companies, and the interests of Mr Humphries shall have no further claims against Mr Carr or his interests, and Mr Carr and his interests shall have no further claims against the companies, or Mr Humphries interests.
For present purposes, these points are relevant:
(a)Mr Humphries’ obligation to abandon the appeal against the judgment of Associate Judge Christiansen ordering specific performance of the purchase of the BPL shares only arose “on settlement”.[6]
(b)Mr Humphries’ obligation under the ASA to comply with the order for specific performance made by the Associate Judge only arose “on settlement” under the option to purchase the Big Sky dairy farm assets.
(c)Consequentially, security for costs paid to the Court of Appeal were to be paid to Mr Humphries and Mr Carr agreed not to enforce the costs ordered in his favour in the High Court. We say these matters arose consequentially because, in the context of cl 18 and the remaining provisions in the deed, the relevant obligations did not arise until settlement occurred.
(d)The three transactions (Big Sky, Anesyds and Styx) were to be interdependent and settlement of all three was expected to be simultaneous.
(e)The mutual release of claims contemplated by cl 20 only arose “upon payment of the full purchase price without set-off or deduction by the specified time (time being of the essence)”.
[6]Mr Humphries abandoned the appeal at some stage after the decision of this Court upholding the cancellation of the ASA.
Mr Gilchrist placed emphasis on the part of cl 19 stipulating:
Mr Carr agrees that settlement of the Anesyds and Styx transactions will not proceed unless and until the Big Sky settlement proceeds.
However, we do not interpret this provision to mean that Mr Humphries was, under all circumstances, agreeing that settlement of the Anesyds and Styx transactions would not proceed unless and until the sale of the dairy farm assets proceeded. In context, we interpret this provision as underlining the interdependent nature of the transactions and the intended simultaneous settlement. The reference to the “settlement” of the Anesyds and Styx transactions refers to settlement under the ASA and did not prevent the resumption of pre-existing rights which may have accrued to the parties if settlement did not proceed under the ASA.
Other important provisions of the agreement were also expressed to apply only on or after settlement. Clause 21 provided that, on settlement, in exchange for payment of the purchase price by bank cheque, the companies would, amongst other things, provide executed transfers and release of relevant securities. And cl 24 provided:
Immediately following settlement, the parties shall immediately withdraw all proceedings filed, with costs lying where they fall.
Mr Gilchrist also relied on cl 25 of the ASA which provided:
This agreement shall be in full and final settlement of all issues between the parties, their contractors and advisers.
Taken by itself, this clause affords some support for Mr Humphries’ proposition that the terms of the agreement, rather than its performance, were to be accepted in full settlement of all issues between the parties. However, this clause must be read in the light of the terms of the ASA as a whole which take effect according to their tenor.
First issue: was the Judge correct to find that the ASA represented an accord and conditional satisfaction?
We are satisfied that the Judge correctly interpreted the ASA as an accord and conditional satisfaction. The parties agreed that the following passage from the judgment of Phillips JA in Osborn v McDermott adequately summarised the relevant principles.[7]
Thus, there are three possibilities, not two. First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff’s existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.
(emphasis added)
[7] Osborn v McDermott [1998] 3 VR 1 (CA) at 10.
Viewed overall, the salient features of the ASA for present purposes are:
(a)By making the time for settlement an essential term and by providing that the ASA would be cancelled if the Carr interests failed to perform, the parties strongly signalled that a resolution of the issues between them was conditional upon the performance of the ASA.
(b)This was reinforced in general terms by cl 20 which provided that the mutual release of claims by the parties against each other would follow only upon payment of the full purchase price by the specified time.
(c)Specifically in relation to the Styx transaction, Mr Humphries was not obliged to abandon his appeal against the judgment of Associate Judge Christiansen except upon settlement under the ASA and his obligation to comply with the order for specific performance arose under the ASA only upon settlement of the option to purchase the Big Sky dairy farm assets.
(d)Similarly, the obligation on the parties to withdraw all proceedings filed did not arise until “immediately following settlement”.
(e)The only provision of the ASA calling for implementation prior to settlement was cl 2, under which Mr Carr agreed, immediately upon execution of the agreement, to withdraw any caveat lodged against the lands of the Big Sky companies.
There is nothing to suggest that the parties intended the ASA to be an immediate and enforceable agreement which each accepted in satisfaction of the existing claims they had against each other and in substitution for pre-existing obligations. Had that outcome been intended, the parties could simply have provided for the immediate withdrawal or abandonment of all proceedings in the litigation between them and for the unconditional and mutual release of all claims each had against the other. Instead, the parties chose to enter an agreement in terms of which the abandonment of the claims each had against the other was conditional upon the due performance of the agreement. Absent due performance and upon its valid cancellation, the ASA had no further effect. Subject to the second issue on this appeal, the parties were entitled to resume any existing rights available to them prior to the execution of the ASA.
Second issue: was the Judge correct to find that Mr Carr was not precluded from enforcing the judgment for specific performance on the grounds of his wrongful conduct?
Mr Gilchrist submitted in the High Court and before us on appeal that the principle that a person should not be permitted to take advantage of his or her own wrong operated in the present context so as to preclude Mr Carr from enforcing the order for specific performance in relation to the BPL shares. He submitted that Mr Carr’s “wrong” was his failure to complete the ASA which led to its cancellation.
After reviewing the relevant authorities which we discuss below, the Judge said:[8]
I am satisfied that this principle that a person should not be able to take advantage of his wrong is a common law principle applicable to the law of contract and to equity. It is, however, a principle. The cases show that it is applied in context. All principles have to be applied according to context because they do not function as simple rules.
[8] At [43].
The Judge went on to state that Mr Carr’s failure to settle by 4 pm on the date in question could not be naturally characterised as a wrong on his part. The Judge noted that Mr Carr had the necessary finance and that, but for the “time of the essence” condition, it was not a significant breach.[9] He also stated that the other parties to the ASA had suffered no harm and, had they not sought to cancel the ASA, Mr Carr would have settled that day. The Judge found that the principle that a person should not be entitled to take advantage of his or her own wrong did not apply so as to disentitle Mr Carr to the benefit of the consequences of the cancellation.[10]
[9] At [45].
[10] At [46].
The Judge concluded finally:[11]
[47] In the final analysis I think the argument by Mr Gilchrist that Mr Carr in opposing the application for stay is seeking to take advantage of his wrong is a distraction. It is an endeavour by Mr Humphries to take an advantage against Mr Carr, which was not secured by the terms of the ASA. There was no provision in the ASA requiring Mr Humphries to abandon his appeal against the judgment in these proceedings whether the ASA transactions settled or not. Likewise, there was no provision impos[ed] on Mr Carr preventing him from enforcing the judgment if the ASA transactions did not settle.
[48] There is no need to examine Mr Rennie’s supporting argument as to the benefits of Mr Humphries of the cancellation, referred to in [21] above. It is sufficient to find that the ASA was an accord and conditional satisfaction. It did not provide for the disposal of the various pieces of property failing settlement. The property rights and associated obligations remained. The function of the ASA was to gather those up and redistribute them between the parties in the settlement. The failure of the settlement leaves them where they were but for the settlement.
[11] At [47]–[48].
Before addressing the issue of principle raised by this second issue, we accept Mr Gilchrist’s submission that the Judge was in error in concluding that Mr Carr’s failure to settle could not naturally be characterised as a wrong on his part. The High Court concluded in its judgment of 29 February 2008 that Mr Carr had breached the ASA because he was not ready, willing and able to settle the transactions by 4 pm on the appointed day.[12] That conclusion was upheld by this Court.[13] This was no mere inconsequential breach. It was a breach of an essential term. Moreover, the breach was not simply a failure by Mr Carr to settle on time.
[12] Humphries v Carr HC Dunedin CIV-2007-412-507, 29 February 2008.
[13] Humphries v Carr [2008] NZCA 391.
There was a chapter of errors with regard to the cheques necessary to complete settlement. The principal settlement cheque for over $22 million was not made out to the correct party; another cheque for Danseys Pass was short by $321,000; and a further cheque for over $1 million for the purchase of cows was never provided. By 5.50pm on the day in question, the Bank of New Zealand advised that, even if settlement proceeded, the settlement cheques could no longer be accepted that day. While the receivers of the Big Sky group of companies would have proceeded to settlement if the Humphries’ interests had agreed, they did not do so. This Court upheld the High Court’s conclusion that the ASA was an “all or nothing” agreement in the sense that either all transactions or none would be completed. Effectively, if one of the vendor parties wished to cancel, then all were obliged to do so.
We accept Mr Gilchrist’s submission that there was no obligation to extend the time for settlement and that the Humphries’ interests were within their rights to cancel the agreement. Indeed, as already noted, the ASA provided that the Big Sky companies would cancel the agreement if settlement did not proceed at the appointed time. In these circumstances, the breach by Mr Carr was plainly a “wrong” for the purposes of the principle for which Mr Gilchrist contends.
However, we are unable to accept Mr Gilchrist’s submission that the principle he relies upon is applicable in the circumstances of this case.
An early example of the principle’s operation is the nineteenth century case of Rede v Farr.[14] In that case, the parties entered into a 12 year lease that contained a proviso to the effect that if the rent were to be unpaid for 40 days after it was due:[15]
... then this demise, and every article, clause, and thing herein contained shall cease, determine and be utterly void to all intents and purposes ...
[14] Rede v Farr (1817) 6 M & S 121.
[15] At 122.
Lord Ellenborough CJ refused to allow the lessee to break the lease upon the lessee’s failure to pay the rent within the stipulated time:[16]
In this case, as to this proviso, it would be contrary to an universal principle of law, that a party shall never take advantage of his own wrong, if we were to hold that a lease, which in terms is a lease for twelve years, should be a lease determinable at the will and pleasure of the lessee; and that a lessee by not paying his rent should be at liberty to say that the lease is void. On this principle, even if it were not borne out so strongly as it is by the current of authorities, it would be sufficient to hold that the lease was only void as against the lessee, not against the lessor.
[16] At 124–125.
This and numerous other authorities for the proposition that a party cannot take advantage of his or her own wrong were collected and discussed more recently by Lord Jauncey in Alghussein Establishment v Eton College, where his Lordship declared that:[17]
... it is well established by a long line of authority that a contracting party will not in normal circumstances be entitled to take advantage of his own breach as against the other party.
[17] Alghussein Establishment v Eton College [1988] 1 WLR 587 at 591.
The House of Lords found that a party who seeks to obtain a benefit under a continuing contract on account of his breach is just as much taking advantage of his own wrong as is a party who relies on his breach to avoid a contract and thereby escape his obligations.[18]
[18] At 594.
The authors of Chitty on Contracts summarise how the principle operates in the contractual context:[19]
Party cannot rely on his own breach. It has been said that, as a matter of construction, unless the contract clearly provides to the contrary it will be presumed that it was not the intention of the parties that either should be entitled to rely on his own breach of duty to avoid the contract or bring it to an end or to obtain a benefit under it.
(footnotes omitted)
[19] HG Beale (ed) Chitty on Contracts (30th ed, Sweet & Maxwell, London, 2008) at [12–082].
In the contractual context, the principle operates to prevent a party from taking advantage of his or her wrong under a contract to avoid that contract or to claim a benefit under it. No cases were cited for the proposition that the principle can be extended to prevent the alleged wrongdoer from seeking to rely on a benefit which already existed independently before the relevant contract was breached.
Three cases were relied upon by Mr Gilchrist. In New Zealand Shipping Company Ltd v Société des Ateliers et Chantiers de France,[20] the House of Lords was concerned with a contract for the construction of a steamer by a French company. That contract contained a provision making the contract void should France become engaged in a European war within a certain time of the completion date. France became involved in World War I. That was not the fault of either of the parties so the principle that one cannot take advantage of one’s wrong was not actually in issue. Lord Finlay noted, however, that if it had been the builder’s fault that the vessel was not completed in time, then the builder could not have pointed to the war in order to assert that the contract was void.
[20] New Zealand Shipping Company Ltd v Société des Ateliers et Chantiers de France [1919] AC 1.
In Noble Investments Ltd v Keenan,[21] this Court was concerned with the common law principle requiring that a party must be ready, willing and able to settle to be able to validly cancel a contract. This Court considered that the purpose of this rule was to ensure that a party does not benefit from his own wrong. This is another example of a party taking an advantage in respect of the present contract (by cancelling it). As Fogarty J correctly observed, this is a different case from the present.
[21] Noble Investments Ltd v Keenan [2006] NZAR 594.
The most recent discussion of the principle in New Zealand is by this Court in Telecom New Zealand Ltd v Sintel-Com Ltd.[22]Telecom was seeking to rely on a settlement agreement to prevent Sintel from making further claims against it. Sintel argued that Telecom could not take the benefit of that settlement agreement where it had been settled on the basis of misrepresentations and deceit on Telecom’s part. This Court agreed that was arguable and refused to award Telecom a strike-out. We note the principle was applied in this context as a principle of equity.
[22] Telecom New Zealand Ltd v Sintel-Com Ltd [2008] 1 NZLR 780.
These cases support the proposition that the principle at issue applies in the contractual context to prevent a party from taking an advantage under the very contract in respect of which that party has been found to be a wrongdoer. We are satisfied that the principle does not extend to prevent Mr Carr from enforcing against Mr Humphries the order for specific performance which Mr Carr had obtained prior to the execution of the ASA. In order to do so, Mr Carr is not taking advantage of a benefit under the contract he has breached. We note too that Mr Carr had partly performed the deed relating to the BPL shares by assigning the advance account his interests held in the Big Sky group to a company controlled by Mr Humphries. The face value of this account was $566,666 and the assignment was effected before the ASA was executed.
Our conclusion is consistent with the conditional nature of the accord and satisfaction represented by the ASA. On its true construction, the parties intended that if settlement did not take place under that agreement, then each would be free to return to the position they held prior to its execution.
This conclusion is also consistent with s 8(3)(a) of the Contractual Remedies Act 1979 which provides that, after cancellation, no party is required to perform any obligation which remains unperformed at the date of the cancellation. As noted, one of those obligations included the withdrawal of proceedings immediately following settlement under the ASA.
Result
For the reasons given, the appeal is dismissed. The appellant must pay to the respondent costs as for a standard appeal on a band A basis together with usual disbursements.
Solicitors:
Dyer Whitechurch, Auckland for Appellant
Rhodes & Co, Christchurch for Respondent
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