Jacks Point Village Holdings no 2 Limited v Long Capital Holdings NZ Limited
[2019] NZHC 1405
•19 June 2019
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2019-425-12
[2019] NZHC 1405
BETWEEN JACKS POINT VILLAGE HOLDINGS NO 2 LIMITED
PlaintiffAND
LONG CAPITAL HOLDINGS NZ LIMITED
Defendant
Hearing: 6 June 2019 Appearances:
M Hammer and S McArthur for plaintiff N Hall for defendant
Judgment:
19 June 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] Ultimately, the dispositive issue in this case will be whether a purchaser under two contracts for the sale and purchase of blocks of land is entitled to cancel the same, and reclaim deposits, on the grounds that the purchaser itself failed to comply with an obligation to present to the vendor a development plan for approval.
[2] The vendor commenced this proceeding alleging that the purchaser breached the contracts and has therefore forfeited the deposits it paid. The vendor seeks summary judgment for the release of the deposits. Accordingly, the immediate issue before the Court is whether the defence advanced by the purchaser is a tenable one that should go to trial or whether it can be dealt with on a summary basis.
JACKS POINT VILLAGE HOLDINGS NO 2 LIMITED v LONG CAPITAL HOLDINGS NZ LIMITED [2019] NZHC 1405 [19 June 2019]
Background
[3] The plaintiff, Jacks Point Village Holdings No 2 Ltd, is the primary developer of a subdivision at Jack’s Point near Queenstown in Central Otago. Jacks Point Village owns two blocks of land within the subdivision, which are referred to in the pleadings as Areas 1 and 2. Both blocks are around 2.5 hectares.
[4] On 2 June 2017, Jacks Point Village as vendor entered into agreements to sell these properties to the defendant, Long Capital Holdings NZ Ltd. For all practical purposes the agreements were in identical terms. The sale and purchase price for Area
1 was $14,200,000 and Long Capital Holdings paid a 10 per cent deposit of
$1,420,000. The sale and purchase price for Area 2 was $11,950,000 and Long Capital Holdings paid a 10 per cent deposit of $1,195,000. In both cases, the deposit was paid to Jacks Point Village’s solicitors as stakeholder.
[5]The agreements contained the following key provisions:
(a)Clause 10.8(2) (General Conditions):
The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.
(b)Clause 10.8(5) (General Conditions):
If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement, the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.
(c)Clause 20.3(b)(iii) (Special Conditions):
This agreement is further subject to and conditional upon … the purchaser providing a Development Plan … for all of the property and for the area shown as Area [1 or 2] on the attached plan within 40 Working Days of the date of execution of this agreement…
(d)Clauses 26.1(b)(i) (Special Conditions):
The purchaser will pay the deposit … to the vendor’s solicitor … . The deposit will be held by the vendor’s solicitors, as stakeholder, in an interest bearing trust account in the name of the vendor and the purchaser; and … in the event that this agreement is cancelled … as a result of a default by the purchaser, the Net Deposit will be released to the vendor …
(e)Clause 32.2 (Special Conditions):
32.2 The Purchaser will provide:
(a)the vendor with a development plan (Development Plan) for the property and the Purchaser’s Development for approval (not to be unreasonably withheld if the Development Plan is substantially in accordance with the development plan approved in accordance with clause 20.3), which includes (without limited):
i.engineering, cross sections and survey plans and specifications of the location and dimensions of the roads, open spaces and/or footpaths (Roads) which the purchaser proposes to vest in the Society;
ii.the location and size of any common areas, being areas apart from Roads, which can be used by the owners of Developed Properties and are proposed to vest in Society (Common Areas);
iii.the landscape plan (prepared by a New Zealand registered landscape architect) for the Purchaser’s Development (but excluding areas within the Developed Properties, which is covered below), including, without limitation, the materials to be used within the Common Areas;
iv.the number, location and dimensions of the Developed Properties to be created from the property, the footprint of all buildings and the location of driveways and vehicle access to Roads and roads/lanes which do not form part of the property; and
v.a design and specification by a qualified New Zealand registered engineer (Water/Waste Proposal) for infrastructure (Water/Waste Infrastructure) for conveying potable water to, and waste water and storm water from the Developed Properties within the property and connecting them to the point of reticulation at the boundary of the property. The purchaser acknowledges that the waste water may be disposed of either:
(1)through the existing Society sewage disposal system. If so, the purchaser will be required (at its own costs) to install a primary waste water treatment system using the STEP system, on the property prior to connecting to the reticulated waste water system; or
(2)if the vendor gives the purchaser notice within 6 calendar months of the date of this agreement, through a new Council sewage disposal system, in which case the Water/Waste Proposal must connect to that new system, and that STEP system will not be required.
(b)In respect of the design of dwellings for the property and the Purchaser’s Development, the Southern Village Design Review Board, an application (DRB Application) which will include floor plans, elevations, the height above ground level of all buildings, all building materials and colours (prepared by an approved architect) and including a landscape plan for each Developed Property (prepared by an approved landscape architect).
(f)Clause 42.1 (Special Conditions):
Each party will make all applications, execute all documents and do or procure all other acts and things reasonable and necessary to implement and carry out its obligations under, and the intention of, this agreement.
[6] After the parties entered into these agreements, there was correspondence between their solicitors, the outcome of which was that the period provided for in cl 20.3(b)(iii) was extended so that Long Capital Holdings had until 25 August 2017 to submit a development plan (or development plans) to Jacks Point Village for approval.
[7] It is common ground that Long Capital Holdings did not submit a development plan.
[8] On 25 August 2017, Long Capital Holdings’ solicitors wrote to Jacks Point Village’s solicitors saying that, as cl 20.3(b)(iii) had not been satisfied, the agreements were “… at an end for non-satisfaction of that condition …” and requesting the repayment of the deposits it had paid.
[9] There followed correspondence between the parties’ solicitors in which diametrically opposed interpretations of the contract were advanced.
[10] Jacks Point Village now sues Long Capital Holdings seeking an order that it is entitled to retain the deposits (together with interest) under cl 26.1(b)(i). It seeks summary judgment. Long Capital Holdings denies that Jacks Point Village is entitled to the remedy it seeks, counterclaims for an order entitling it to the return of the deposits it paid pursuant to cl 10.8(5), and of course opposes the application for summary judgment.
Summary judgment
[11]The principles relating to summary judgment are well settled.
[12] The leading case is the Court of Appeal’s judgment in Krukziener v Hanover Finance Ltd, in which the Court summarised the position in these terms:1
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock
Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
The competing arguments
[13] The essential submission advanced on Jacks Point Village’s behalf by Ms Hammer is that Long Capital Holdings breached a contractual obligation to submit a development plan for approval and is not entitled to rely on its own breach to avoid its contractual obligations.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[14]That submission is developed on two inter-related bases:
(a)first, that a party seeking to rely on its own failure to comply with a condition must be able to establish that it has met the relevant contractual standard for the fulfilment of that condition and been unable to do so, and Long Capital Holdings is not in a position to establish this;
(b)second, even if Long Capital Holdings could establish that it had met the relevant contractual standard, it was not entitled then to elect not to submit a development plan on any ground not provided for in the contract, and the ground on which the company elected not to do so in this case is not so provided for.
[15] In relation to the first of those contentions, Ms Hammer relied on the Court of Appeal’s judgment in Scott v Rania.2
[16]Here is how the Court of Appeal expressed the principle in Scott v Rania:3
Notwithstanding that a condition, such as “subject to my being able to arrange mortgage finance”, has not been fulfilled, a party through whose default that non-fulfilment has occurred, if that is the case, may not assert non-fulfilment, for it is a settled principle of law of great antiquity and authority that in these matters no one can take advantage of the existence of a state of things which his default has produced …
[17] As Ms Hammer submitted, the contractual standard to which the party relying on the non-fulfilment of the condition must adhere is that expressed in the contract. If no such standard is expressed, then the courts will require the party to meet a reasonable standard. She cited Connor v Pukerau Store Ltd as an example of the courts doing just this.4
[18] Ms Hammer referred me to cl 42.1 of the contracts in which she submitted the parties had agreed on the standard to be applied.
2 Scott v Rania [1966] NZLR 527 (CA).
3 At 534 per McCarthy J.
4 Connor v Pukerau Store Ltd [1981] 1 NZLR 384.
[19] I am not sure how much further this clause takes matters. In it the parties agreed that each of them would do everything “reasonable and necessary” — which I take to mean reasonably necessary — to discharge their obligations under the contract, which is simply the obligation that the courts would impose had the contracts been silent on the point.
[20] In any event, this issue resolves itself into whether Jacks Point Village can establish that Long Capital Holdings took all reasonably necessary steps to submit a development plan.
[21] Long Capital Holdings’ letter of 25 August 2017, to which I have already referred, was silent on what steps had been taken. However, in support of its opposition to Jacks Point Village’s application for summary judgment, Long Capital Holdings has filed and served an affidavit sworn by its National Manager of Acquisitions and Sales/Marketing, Mr Alan Ye, in which Mr Ye outlines the steps taken. I quote from Ms Hall’s submission on Long Capital Holdings’ behalf, which appears to me fairly to summarise Mr Ye’s evidence:
Mr Ye sets out in some detail in his affidavit the steps that LCH took towards fulfilling the Development Plan Conditions, including:
(a)engaging Mr Dean Franklin as a consultant;
(b)retaining MATZ Architects to undertake design work including high level schemes for Areas 1 and 2;
(c)retaining Barker & Associates to provide planning advice;
(d)having numerous discussions and meetings with JPVH (and its consultants) regarding matters relating to the preparation of the Development Plans;
(e)preparing a master plan;
(f)undertaking impact testing as a result of changes made by JPVH to boundaries;
(g)engaging Thompson Construction & Engineering to cost precast concrete panels;
(h)discussions with the local authority;
(i)engaging Southern Projects, a local Queenstown quantity surveyor to provide a costing study;
(j)seeking further extensions of the time for fulfilment of the Development Plan conditions;
(k)incurring expenditure of over $35,000 on external consultants; and
(l)spending over 160 hours of Mr Ye and Mr Franklin’s time working on the development (including working towards fulfilling the Development Plan Condition).
[22] Ms Hammer’s submission on behalf of Jacks Point Village in relation to this evidence is that:
… a robust and realistic analysis of Mr Ye’s evidence makes it abundantly clear that the defendant has not done all things reasonable and necessary to implement and carry out its obligations to provide a development plan.
[23] That does not strike me as a fair submission. Mr Ye’s unchallenged evidence indicates that Long Capital Holdings went well down the path towards the preparation of a development plan, and indeed appears to have prepared one. I accept Ms Hall’s submission that Mr Ye’s evidence establishes that, at the very least, it is open to Long Capital Holdings to contend that it took all reasonably necessary steps to put itself in a position to submit a development plan for approval.
[24] The difficulty for Long Capital Holdings is that its obligation to take all reasonably necessary steps to submit a development plan for approval as articulated in cl 32.2 must surely include the obligation to take the final step of submitting the same, and, on its own evidence, it elected not to do so.
[25] Prima facie, then, Jacks Point Village has established that Long Capital Holdings breached its contractual obligation when on 25 August 2017 it declined to submit a development plan for approval and effectively repudiated the contract.
[26] I turn to the second submission advanced on behalf of Jacks Point Village by Ms Hammer that, even if Long Capital Holdings did take all reasonably necessary steps to put itself in a position to submit a development plan, it was not entitled to elect not to do so on the ground that it did.
[27] Again, Long Capital Holdings’ letter of 25 August 2017 did not identify the basis upon which the company was electing not to submit a development plan for approval.
[28] However, in its statement of defence and counterclaim, Long Capital Holdings pleads expressly that the reason for its decision was that “any compliant development would not be economically viable”.
[29]In his affidavit, Mr Ye says:
However, notwithstanding all of this work, in late August 2017, it became clear to LCH that no amount of refinement or reworking could overcome the fact that LCH could not feasibly develop the land in a manner which satisfied the requirements imposed under the Agreements and that LCH could not proceed with the development. This was due to the level of risk associated with the development (particularly in relation to planning issues) and limited return which it would produce for LCH’s investors (primarily as a result of the high costs of construction required to build a development that met the Jack’s Point development standards.
[30] As Ms Hall contends, this issue comes down to the proper interpretation of the contracts.
[31] The starting point is to record that the parties here are two significant commercial concerns, both vastly experienced developers that have, with the assistance of two leading commercial firms of solicitors, negotiated detailed commercial agreements for the sale and purchase of valuable blocks of prime development land. Certainly, those agreements are based on the Real Estate Institute of New Zealand and Auckland District Law Society’s standard agreement for the sale and purchase of land. But they have been extensively modified, and in each case include 19 pages of unique terms.
[32] As already recorded, Jacks Point Village is the principal developer of the subdivision. What was happening here is that Jacks Point Village was effectively subcontracting out the development of Areas 1 and 2 to Long Capital Holdings. The unchallenged evidence is that Jacks Point Village had residual obligations or entitlements to ensure that these two properties were developed within certain parameters. Against that background, it is not difficult to discern that the central
purpose of cls 20.3(b)(iii) and 32.2 was to enable Jacks Point Village to ensure that Long Capital Holdings would develop the properties within those parameters.
[33] In those circumstances, it is entirely unsurprising that the exclusive focus of cl 32.2 is the physical characteristics of the development — what Long Capital Holdings is proposing to do, and would be obliged to do if its development plan were approved.
[34] Had Long Capital Holdings taken all reasonably necessary steps to prepare a development plan addressing all of the matters referred to in cl 32.2 but been unable to come up with a technically feasible plan — say as a result of geotechnical evidence indicating that the land was unstable — there is little doubt that it could have taken the position that it was unable to produce a development plan and that this would have brought the contract to an end and entitled it to the return of its deposits.
[35] But that is not what happened here. It is clear from the pleading to which I have referred, and Mr Ye’s evidence, that the reason why Long Capital Holdings declined to present a development plan for approval was that, having reached the point where it was in a position to do so (and it seems having prepared one), it concluded that the return it would receive on the development was not satisfactory.
[36] In my judgement, prima facie at least, in doing so, the company breached the contracts and in terms of cl 26.1(b)(i) became liable to forfeit its deposits.
[37] Clause 32.2 is expressed in mandatory terms. It says: “The purchaser will provide … the vendor with a development plan …”. It then goes on to identify what the development plan will cover in sub-cls (i)-(v). These, as already said, focus exclusively on the physical characteristics of the development. Nowhere in the clause is there any reference to economic feasibility. Nor can I identify any other provision in the contract that puts a different complexion on this.
[38]For Long Capital Holdings, Ms Hall submitted:
15.Importantly, the relevant clauses also did not require LCH to provide a Development plan at any cost as JPVH seems to suggest. To do so would flout commercial common sense. As Mr Ye explains in his
affidavit, LCH could not undertake a development of the land that was not economically viable. Given the stringent design and other controls in the Agreement (to maintain the look and feel of Jack’s Point as an “upmarket” emerging settlement and resort), it would have been in neither parties’ interests for LCH to have been compelled to submit a plan for a nonviable Development Plan that would ultimately fail. It follows too, that no party would go through the exercise of producing a Development Plan without at the same time building feasibility issues into the Development Plan.
16.The need for any Development Plan to be feasible (not only in economic terms but in terms of planning and other requirements) was something that was clearly discussed by the parties while LCH was taking steps to prepare the development plans. This conduct on the part of the parties (including JPVH) is consistent with LCH’s contended interpretation of the Agreements.
[39] As she developed this submission in argument, it became clear that the defence Long Capital Holdings contends must go to trial is that the Court should imply into the contract a term to the effect that Long Capital Holdings could elect not to present a development plan (and terminate the contract) if it emerged that proceeding would not be economically feasible (that is to say, would not achieve a return that it regarded as satisfactory) provided all reasonably necessary steps preparatory to submitting a development plan had been taken — as I have concluded was the case here.
[40] As I understood Ms Hall’s argument, the basis for implying such a term is that it is so obvious that it goes without saying, or that it is necessary to give business efficacy to the contracts.
[41] In my recent judgment in John Young Farming Ltd v Ngāi Tahu Farming Ltd, I canvassed the development of the law relating to the implication of terms in contracts.5 I do not propose to repeat that analysis in full here. In broad summary, there are two different circumstances in which the courts will imply a term into a contract: where the term represents the obvious but unexpressed intention of the parties; and where the term is necessary to give business efficacy to the contract.6
5 John Young Farming Ltd v Ngāi Tahu Farming Ltd [2019] NZHC 1333.
6 See H G Beale (ed) Chitty on Contracts: Volume 1 General Principles (33rd ed, Sweet and Maxwell, London, 2018) at [14-006] and McNeil v Gould (2002) 4 NZ ConvC 193,557 at [26] per Hammond J.
[42] The principle that governs the first category of case is still that articulated by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd:7
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “Oh, of course!”
[43] Despite some controversy, the leading case relating to when a term will be implied into a contract on business efficacy grounds is still BP Refinery (Western Port) Pty Ltd v Shire of Hastings, where the Privy Council said:8
… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[44] Both in this country and in the United Kingdom subsequent decisions have commented on the BP Refinery test.
[45] In Attorney-General of Belize v Belize Telecom Ltd, the Privy Council observed that the BP Refinery tests are:9
… best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means ...
[46] In Hickman v Turn and Wave Ltd, the Court of Appeal adopted the approach suggested by the Privy Council.10
[47] Finally, the United Kingdom Supreme Court has recently revisited Attorney- General of Belize v Belize Telecom Ltd in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd, emphasising that the courts will only imply
7 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227.
8 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC) at 376.
9 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [27] per Lord Hoffmann.
10 Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [247]–[248].
a term into contract if it is necessary to make the contract work, and not merely because it would be reasonable to do so.11
[48] The contention advanced on behalf of Long Capital Holdings is that, in the absence of a term along the lines propounded by it, a conditional purchaser under these contracts would effectively be forced to present a development plan and then go ahead with the development even if it were uneconomic, which defies commercial sense.
[49]It appears to me that that contention is problematic in a number of respects:
(a)First, and most obviously, that is simply the terms on which these parties, commercially astute and well advised as they were, settled. It would have been quite open to Long Capital Holdings to insist on being given the opportunity to analyse the scope of the development and make an assessment of its economic feasibility before entering into the contract, or alternatively negotiate for the inclusion in the contract of a term expressly entitling it to cancel in the event that it assessed proceeding with any approved development plan would be economically unfeasible.
(b)Additionally, it seems to me that this may be a situation of the sort that the United Kingdom Supreme Court contemplated in Marks and Spencer, that is to say that the term propounded might be reasonable but is not one that is necessary to make the contract work.
(c)Finally, here it is contended, in effect, that, in the absence of a term of the sort it submits should be implied into the contract, Long Capital Holdings would face an impossible conundrum. If, having prepared a development plan and an analysis of the economic viability of the project, it concluded that proceeding would not produce a return, the company would be faced with having to proceed nevertheless. But of course, that is not the position. It was quite open to Long Capital
11 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [23] per Lord Neuberger, [59] per Lord Carnwath and [77] per Lord Clarke.
Holdings to do exactly what it has done; decline to proceed, albeit that such a course of action involves forfeiting its deposits.
[50] In my judgement, this is the agreement that these two sophisticated commercial parties, with the assistance of their solicitors, concluded, and they must be held to it. In short, I am satisfied that Jacks Point Village has established that the defence Long Capital Holdings wishes to run cannot succeed.
The defendant’s counterclaim
[51] For completeness, I record that Long Capital Holdings’ counterclaim proceeds on that basis that it is entitled to recover the deposit it paid pursuant to cl 10.8(5).
[52] As Ms Hammer submitted, that term is one of the general conditions in the contract. It conflicts directly with cl 26.1(b)(i), which is one of the special conditions.
[53] Clause 37.1 provides that in the event of a conflict between a general and a special condition, the latter is to prevail.
[54] Accordingly, it is cl 26.1(b)(i) that governs the way in which deposits paid will be dealt with, so the counterclaim cannot succeed.
Conclusion
[55] The plaintiff is entitled to summary judgment and I make the orders sought in its statement of claim, releasing the deposits to the plaintiff with interest.
[56] Costs are reserved as I did not hear counsel as to these. In case it assists, my preliminary view is that there is no obvious reason why the plaintiff should not have its costs on a 2B basis. If counsel are unable to resolve costs, as I would expect them to be able to do, then they may revert to me by memoranda and I will deal with them on the papers.
Associate Judge Johnston
Solicitors:
Anderson Lloyd, Queenstown for plaintiff Simpson Grierson, Auckland for defendant
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