Inspire Holdings Limited v JSM Properties Limited
[2021] NZHC 1688
•7 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000196
[2021] NZHC 1688
BETWEEN INSPIRE HOLDINGS LIMITED
Applicant
AND
JSM PROPERTIES LIMITED
Respondent
Hearing: 15 June 2021 Appearances:
D G Collecutt for Applicant J G Donkin for Respondent
Judgment:
7 July 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 7 July 2021 at 2.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………….
INSPIRE HOLDINGS LTD v JSM PROPERTIES LTD [2021] NZHC 1688 [7 July 2021]
Introduction
[1] Inspire Holdings Ltd (Inspire) applies under s 143 of the Land Transfer Act 2017 for orders that a caveat over three properties owned by JSM Properties Ltd (JSM), in Pukekohe, not lapse.
[2] At issue is the description of the GST component of the purchase price in an agreement for sale and purchase of the properties; in particular, the relevance and importance of the words “GST (if any)”.
[3] The critical issue I must determine is whether Inspire has established a caveatable interest in the properties on the basis of an arguable, legally binding agreement for sale and purchase. JSM says that although the parties did reach agreement on price, namely $2.4m, the GST component of the sale price was a key issue in negotiations and the parties never reached agreement on GST. Therefore, JSM contends the parties never had an intention to be bound.
[4]Resolving that issue depends on the answers to the following questions:
(a)Is it reasonably arguable that a legally binding agreement was formed when Inspire signed the agreement for sale and purchase on 8 January 2021, with the words “(if any)” struck out?
(b)If the answer to (a) above is “no”, is it reasonably arguable that a legally binding agreement was formed when Inspire signed the agreement for sale and purchase on 11 January 2021, in a form originally signed by the vendor, JSM with the inclusion of the words “GST (if any)”?
Relevant background facts
[5] Between 30 December 2020 and 11 January 2021, the parties negotiated the sales of three properties in Pukekohe1 by the exchange of various signed versions of an ADLS/REINZ standard form for the sale and purchase of property. As is
1 63 Dublin Street, and 134 and 136 Seddon Street, Pukekohe.
convention, the various amendments to the terms of the sale that arose during negotiations were initialled and then forwarded to the other party for countersigning.
[6] On 30 December 2020, Inspire presented to JSM a signed ADLS/REINZ standard form agreement for the sale and purchase of land2 (the ASP), with the purchase price recorded as “$2,400,000 inclusive of GST”. The typed words “plus GST (if any) OR inclusive of GST (if any)” were struck through. The struck through language was initialled by Inspire and the agreement signed.
[7] In response, on 1 January 2021, Mr Jones, for JSM, advised that he had agreement from his partners to sign the ASP on the terms proposed by Inspire but he needed to clarify some tax matters.
[8] By email dated 2 January 2021, Mr Jones raised the issue of the GST status of the transaction with Mr Gonczy of Inspire, following advice from an accountant.
[9] On 5 January 2021, all the directors of JSM signed the ASP and sent it back to Inspire. JSM changed the terms of the agreement by adding to the price of “$2,400,000 inclusive of GST” the words “(if any)”. The reasons for this change were explained in a covering email. The change was initialled by all directors of JSM.
[10] On 6 January 2021, Inspire responded to JSM saying that it would prefer to have the “(if any)” GST wording removed. That same day, JSM said that it would take advice from its accountant regarding the wording.
[11] On 8 January 2021, Inspire sent an amended version of the ASP back to JSM. Inspire had deleted the words “(if any)” from the price and initialled the change.
[12] At 10.19 am on 11 January 2021, Mr Jones emailed Mr Gonczy. This is a critical document and I set out its substance in full.
Sorry, but we do not yet have an agreement. You have removed the “if any” on the purchase price, which we have to initial first for this to be an agreement. We initialled the removal of the “if any” prior to sending it to you.
2 10th edition 2019(2).
The advice we have received, is that the “if any” needs to stay.
If the “if any” is deleted, it shows that GST is included in the sale, and removes all doubt. This effectively wipes off $313,043 off the purchase price.
We understand that you will be claiming GST on the purchase, and that will spark a query from Inland Revenue as to our status. We are mainly residential investors, but do own one commercial building that requires us to be GST Registered.
Our intention with the land was to develop it into Residential Real Estate and retain it as a long term investment, meaning there was never any need for us to be GST registered for this land.
From our point of view, the risk of leaving the “if any” part in is minor for yourselves.
[13]We need further clarification on this point before we have an agreement. At
10.33 am on 11 January 2021, Mr Gonczy emailed Mr Jones and offered to leave in the words “if any”. Mr Gonczy asked Mr Jones to send through a further version of the ASP for signature.
[14] At 10.58 am on 11 January 2021, Mr Gonczy sent a text message to Mr Jones in which he said that:
(a)It was “ok” to leave in “if any”;
(b)It was important to add in a GST warranty clause that would protect his position if any issues arose with IRD; and
(c)That the GST warranty clause could be agreed “through the DD”, meaning due diligence.
[15] At 11.08 am on 11 January 2021, Mr Gonczy emailed Mr Jones a copy of the ASP which he had signed and initialled. The version recorded the purchase price as “$2,400,000 exclusive of GST (if any)”. This was a version of the agreement that JSM had originally sent on 5 January 2021. Mr Gonczy had printed off this version from his email and did not wait until Mr Jones had sent a further version through to him.
Relevant legal principles
[16] The principles governing applications to sustain caveats were restated by the Court of Appeal in Philpott v Noble Investments Ltd:3
(a)The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b)It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c)The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained – either because there is no valid ground for lodging it in the first place or, because such a ground no longer exists;4 and
(d)Where an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.5
[17] It is well-established that conditional agreements for the sale and purchase of land can create an equitable interest in the relevant property.6 In McDonald v Isaac Construction Co Ltd, this Court held:7
In the usual case where the parties intend to be bound and to remain bound subject to the fulfilment of the condition, equitable interests in land can arise by means of such a conditional contract.
Analysis and decision
Contract formation
[18]The requisite elements for the formation of a legally binding contract are:8
3 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. I note that although that case was dealing with the Land Transfer Act 1952, the same approach applies in relation to the Land Transfer Act 2017.
4 Sims v Lowe [1988] 1 NZLR 656 at 660 (CA); Zwarst v Saxton [2012] NZHC 448 at [12].
5 Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23].
6 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009].
7 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC) at 619.
8 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) [Fletcher Challenge] at [53].
(a)An intention to be immediately bound, at the point when the bargain is said to have been agreed; and
(b)An agreement, express or implied, or the means of forming an agreement on every term which:
(i)was legally essential to the formation of the contract; or
(ii)was regarded by the parties themselves as essential to their bargain. A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifests accordingly to the other party.
[19] Whether parties intended to enter into a contract, and whether they have succeeded in doing so, are objective questions.9 The Court considers the surrounding factual matrix which may include looking at the subsequent conduct of the parties towards one another and the statements the parties made orally or in writing in the course of the negotiations. Any drafts of the intended contractual document can also be relevant.10
[20] In assessing whether an agreement has been reached, the Court typically employs the language of offer and acceptance. The Court will examine all the circumstances to see if one party may be assumed to have made a firm “offer” and if the other party is taken to have “accepted” that offer.11
[21] The reaching of an agreement, however, is not the same as an assumption of an immediate legal commitment.12 The law recognises an absence of intention to be bound both when the parties have made expression to that effect and when such is to be implied by their conduct or as a natural inference.
[22] In this case, the issue of contract formation is to be determined at a summary stage; the test is one of a reasonably arguable claim. However, both parties accept that
9 Fletcher Challenge, above n 8, at [54].
10 Fletcher Challenge, above n 8, at [54].
11 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [3.2].
12 Verissimo v Walker [2006] 1 NZLR 760 (CA) at [29].
virtually all of the relevant evidence is before the Court in the form of the email correspondence and the signed and initialled ASP. They acknowledge it is unlikely that further relevant evidence will emerge at trial. Evidence of the parties’ subjective intentions is of course not relevant.13
[23] I therefore proceed on the basis that a complete factual matrix is before me.14 In substance, none of the critical factual matters are in dispute.
Issue (a) – Is it reasonably arguable that a legally binding agreement was formed when Inspire signed the agreement for sale and purchase on 8 January 2021, with the words “(if any)” deleted?
[24] Mr Collecutt, for Inspire, contended that by its email of 8 January 2021, it accepted JSM’s offer for the sale of the properties and a binding contract was formed. He submitted the fact the phrase “if any” that was struck out by Inspire was redundant or immaterial. It had no impact on the purchase price that was payable. At best, there was a material difference as to the form rather than the substance of the wording used to describe the price.
[25] Mr Collecutt further submitted that no GST was included in the calculation of the purchase price and as a matter of interpretation the purchase price payable by Inspire would be the same irrespective of whether the formal contract recording the agreement did or did not include the words “if any”. As the ASP provided that JSM was not registered for GST, and JSM had represented that it had not claimed GST on its purchase of the properties, the properties were being sold on the basis that Inspire would be able to claim back the GST component of the purchase price.
[26] Inspire relies upon Sindel v Georgiou.15 In that case, it was held that when the parties to a sale of land have agreed on the terms of their bargain and settled on an exchange of parts to seal that bargain, it will usually accord with their intention to treat the exchange as creating a binding contract notwithstanding the lack of
13 Fletcher Challenge above n 8, at [55].
14 See Yandina Investments Ltd v ANZ National Bank Ltd [2013] NZCA 469, where the Court of Appeal adopted a similar approach in the context of a strike out application involving the interpretation of three deeds of assignment.
15 Sindel v Georgiou (1984) 154 CLR 661.
correspondence in the parts, so long as that lack of correspondence is capable of being remedied by rectification.
[27] I reject those submissions and find that no binding contract was formed when Inspire initialled the ASP on 8 January 2021. Even if the deletion of the words “(if any)” was immaterial in the sense that it did not affect the calculation of the purchase price, the critical point is that as a matter of objective interpretation there was no intention to be bound and no agreement of the description of GST, a term that the parties regarded as essential to their bargain.
[28] Parties reaching an agreement on every term legally essential to the formation of the contract, and including purchase price, is not the same as an assumption of an immediate legal commitment to be bound. Furthermore, the parties have to reach agreement on the terms they regard as essential.
[29] When JSM signed and sent the ASP back to Inspire on 5 January 2021 with an initialled change to the purchase price to include the words “(if any)”, it was sending a very clear signal there was an outstanding issue as to GST that required agreement before any binding contract was formed. The words “(if any)” were expressly added to the ASP following advice from JSM’s accountant and following a conversation between Mr Jones and Mr Gonczy where GST had been discussed. JSM had a clear and understandable concern that an incorrect description of the GST component of the purchase price might result in it having to account to the IRD for GST, in real terms reducing the sale price by approximately $313,000. In those circumstances, and adopting an objective interpretation, the subsequent deletion of the words regarded by JSM of importance, can only sensibly be regarded as a rejection of JSM’s offer. There was clearly no mutual intention to be bound on those terms. The amended form returned on 8 January 2021 was a counter-offer from Inspire.
[30] Further, I find Sindel v Georgiou, is clearly distinguishable. As a matter of objective interpretation, the parties here intended to be bound only by an exchange of parts in identical terms on the issue of GST. The description of GST was the significant outstanding issue and it was not resolved by Inspire on 8 January 2021.
[31] In concluding that issue (a) should be answered “no”, I turn to address the second issue.
Issue (b) – If the answer to issue (a) above is “no”, is it reasonably arguable that a legally binding agreement was formed when Inspire initialled the agreement for sale and purchase on 11 January 2021?
[32] Mr Collecutt submitted that when Inspire initialled the ASP on 11 January 2021, the parties reached an immediately binding contract on the sole outstanding issue, GST. Inspire accepted the GST description that JSM had sought and there was no requirement for JSM to sign or initial its offer again.
[33] Inspire places great emphasis on JSM’s email of 11 January 2021 at 10.19 am (see [12] above) which emphasised the retention of the words “GST (if any)” and that JSM had already received accountancy advice on that point. Mr Collecutt contended that there was a clear indication from JSM that if Inspire accepted the retention of the words “GST (if any)” then a binding contract would be formed. In substance, JSM’s email of 11 January was an attempt by JSM, as the vendor, to persuade Inspire, as the purchaser, to accept the vendor’s offer on its terms. JSM accepted the offer and nothing further was required.
[34] There is some merit to those submissions. However, it is important, again, to distinguish between agreement on all outstanding issues and an immediate intention to be bound. I find that as a matter of objective interpretation, the correct view is that until such time as JSM signed (by re-initialling) the ASP in the form returned by Inspire on 11 January 2021, there was no intention to be bound and therefore no binding contract was formed. The consistent practice of the parties throughout the negotiation had been, as is conventional, for any changes to the ASP to have been signed, by way of initialling, by both parties. Mr Jones’ email of 11 January 2021 at
10.19 made it clear that the parties had followed that practice and the expectation was that it would continue.
[35] The version of the ASP returned by Inspire on 11 January 2021, while in the form originally sought by JSM as vendor, was in the form that Inspire had previously rejected. It was returned after Inspire had asked for a new version of the ASP to be
sent through to it. Mr Gonczy did not seek clarification from JSM, the vendor, that his approach of simply printing off an old version of the ASP and signing it would be acceptable and in a subsequent text sent shortly afterwards, namely at 10.58 am (see
[14] above), Mr Gonczy raised further issues about GST, including the addition of a GST warranty clause. That was a new issue. As a matter of objective interpretation there was no intention to be immediately bound because the parties intended that the ASP needed to be re-initialled by JSM to demonstrate that the GST issue had been finally agreed and resolved.
[36] I acknowledge that Inspire might have understood from Mr Jones’ email of 11 January 2021 at 10.19 am that agreement would be concluded by Inspire, as purchaser, accepting the GST description as proposed by JSM, the vendor. It is also arguable that the words “we need further clarification” at the conclusion of that email, meant that the clarification sought was from Inspire, rather than JSM’s accountant. However, there is some clear ambiguity and there must of course be a common intention to be bound.
[37] The present case has some similarities to the Court of Appeal’s Smada Group Ltd v Miro Farms Ltd,16 and the principles applied in that case provides a further answer to the question of whether JSM needed to re-sign the ASP sent back to it by Inspire on 11 January 2021.
[38] In that case, the original offer had been in writing and subject to formal execution. Looking to the background circumstances,17 the Court held that in the absence of evidence to the contrary, it was reasonable to assume that the parties intended the same process to be followed before the lapsed offer could be revived.18 It further held:
[32] … Carruthers19 should apply by analogy – that is, where a previously signed offer lapses it may be inferred, in accordance with common practice in
16 Smada Group Ltd v Miro Farms Ltd [2007] NZCA 568 [Smada Group].
17 Smada Group Ltd v Miro Farms Ltd, above n 16, at [13].
18 Smada Group Ltd v Miro Farms Ltd, above n 16, at [30].
19 Carruthers v Whitaker [1975] 2 NZLR 667 (CA), where it was held that the usual inference in a case of the sale and purchase of land is that the parties intend to be bound only by a formal document signed by both parties.
New Zealand, that the parties intend that the offer document be (re)signed by both parties before there is a binding contract.
[39] I find that the same approach should be adopted here. The offer made by JSM on 5 January 2021 and rejected by Inspire when it made the changes on 8 January 2021 (i.e. to include the words “GST (if any)”), had lapsed. In the absence of evidence to the contrary, it is reasonable to assume that the parties intended that the offer document be re-signed by both parties before there was a binding contract. Mr Jones’ email of 11 January 2021 did not expressly state, as might have been expected were there to be an immediate intention to be bound, that JSM would accept that all Inspire needed to do was to initial the version of the ASP sent through on 5 January 2021 with the words “GST (if any)” retained. The email expressly states that the parties “do not yet have an agreement” and any ambiguity in relation to “clarification” is to be resolved by the inference that there needed to be a re-signing. That did not occur and indeed, as noted above, Mr Gonczy subsequently raised further GST-related issues calling into question whether GST was in fact a matter the parties had actually reached agreement on.
[40] I further find that Inspire’s reliance on Coughlan v Cox20 is misplaced; that case is clearly distinguishable. The dispute in that case arose at settlement after the parties had clearly been negotiating and addressing some deficiencies in an agreement for sale and purchase, but on the basis of a mutual understanding that they had a binding agreement. That was a case where the parties had signed the agreements and what remained was a question of negotiating amendments. Some of those amendments were mere corrections. The facts here are not a case of mere corrections after having formed a mutual intention to be bound; as I have found, the essential element of mutual intention is absent here.
Conclusion
[41] I conclude that it is not reasonably arguable the parties formed a legally binding agreement, either on 8 January 2021 or on 11 January 2021. The two issues (a) and
(b) are to be answered “no”.
20 Coughlan v Cox [2014] NZCA 617.
[42] Inspire has not demonstrated, as a matter of objective interpretation, that there was a mutual intention to be bound. There is accordingly no basis for the caveat.
Result
[43] The application by Inspire Holdings Ltd under s 143 of the Land Transfer Act 2017, that the caveat not lapse, is dismissed. That means that caveat 1199081.1 registered against certificates of title NA497/78, 695/128 and 1027/236, North Auckland Registry, lapses.
[44] As to costs, I am of the preliminary view that having succeeded, the respondent, JSM Properties Ltd, is entitled to costs and on a 2B basis plus disbursements. If the parties cannot reach agreement, then memoranda (no more than three pages’ length) are to be filed and served within 14 days.
Associate Judge P J Andrew
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