Jackson Surridge Property Group Ltd v Eastern Star Group Limited
[2015] NZHC 1890
•11 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-657 [2015] NZHC 1890
BETWEEN JACKSON SURRIDGE PROPERTY
GROUP LTD Plaintiff
AND
EASTERN STAR GROUP LIMITED Defendant
Hearing: 6 and 10 August 2015 Appearances:
A Kashyap for plaintiff
D Wood and M Cole for defendantJudgment:
11 August 2015
(INTERIM) JUDGMENT OF LANG J
[on application for order for specific performance]
This judgment was delivered by me on 11 August 2015 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
JACKSON SURRIDGE PROPERTY GROUP LTD v EASTERN STAR GROUP LIMITED [2015] NZHC 1890 [11 August 2015]
[1] This proceeding concerns a 5.18 hectare property situated at 99 Marne Road, Papakura. The defendant, Eastern Star Group (Eastern Star) is the owner of the property.
[2] On 25 February 2014 Eastern Star entered into an agreement to sell the property to the plaintiff, Jackson Surridge Property Group Ltd (Jackson Surridge). The purchase price was to be $1 million inclusive of GST (if any).
[3] Both parties were “registered persons” in terms of the Goods and Services Tax Act 1985 (the GST Act). After taking advice from their respective accountants, they entered into a new agreement on 1 May 2014 under which the purchase price was reduced to $870,000 plus GST (if any). The new agreement also recorded that the sale was “zero-rated” for GST purposes, so that no GST would be payable in respect of the transaction. This agreement later became unconditional, with settlement due to take place on 1 October 2014.
[4] On 26 August 2014, the Commissioner of Inland Revenue (the
Commissioner) cancelled Eastern Star’s GST registration with effect from 30
November 2010. The Commissioner then sought to recover various input credits Eastern Star had received in relation to the cost of initially purchasing the property, together with development expenses it subsequently incurred.
[5] The change in GST status prompted Eastern Star to ask Jackson Surridge to amend the sale price back to the original amount of $1 million inclusive of GST (if any). When Jackson Surridge refused to agree to this proposal, Eastern Star purported to cancel the agreement on 25 September 2014. It did so in reliance on ss
6 and 7 of the Contractual Mistakes Act 1977 (the CMA).
[6] Jackson Surridge did not accept Eastern Star’s unilateral termination of the agreement. On 1 October 2014 it sought confirmation that Eastern Star would proceed to settlement. When Eastern Star failed to complete the sale of the property, Jackson Surridge issued this proceeding seeking an order for specific performance.
The plaintiff ’s claim cannot succeed
[7] The agreement for sale and purchase provides as follows:
Settlement
3.5The 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 lawyer a reasonable time prior to the settlement date.
3.6 The purchaser’s lawyer shall:
(1) within a reasonable time prior to the settlement date create a Landonline Workspace for the transaction, notify the vendor’s lawyer of the dealing number allocated by LINZ and prepare in that workspace a transfer instrument in respect of the property; and
(2) prior to settlement certify and sign the transfer instrument.
3.7 The vendor’s lawyer shall:
(1) within a reasonable time prior to the settlement date prepare in that workspace all other electronic instruments required to confer title on the purchaser in terms of the vendor’s obligations under this agreement; and
(2) prior to settlement have those instruments and the transfer instrument certified, signed and pre-validated.
3.8 On the settlement date:
(1) The balance of the purchase price, interest and other moneys, if any, shall be paid by the purchaser in cleared funds or otherwise satisfied as provided in this agreement (credit being given for any amount payable by the vendor under subclause 3.12 or
3.13);
(2) The vendor’s lawyer shall immediately thereafter:
(a) release or procure the release of the transfer instrument and the other instruments mentioned in subclause 3.7(1) so that the purchaser’s lawyer can then submit them as soon as possible for registration;
(b) pay to the purchaser’s lawyer the LINZ registration fees on all of the instruments mentioned in subclause 3.7(1), unless these fees will be invoiced to the vendor’s lawyer by LINZ directly; and
(c) deliver to the purchaser’s lawyer any other documents that the vendor must provide to the purchaser on settlement in terms of this agreement.
3.9 All obligations under subclause 3.8 are interdependent.
3.10The parties shall complete settlement by way of remote settlement, provided that where payment by bank cheque is permitted under the PLS Guidelines payment may be made by the personal delivery of a bank cheque to the vendor’s lawyer’s office, so long as it is accompanied by the undertaking from the purchaser’s lawyer required by those Guidelines.
[8] Clause 3.9 makes the obligations of vendor and purchaser under clause 3.8 interdependent. In such situations the obligations of one party to the agreement are conditional on the performance by the other party of its obligations under the agreement. For that reason the purchaser cannot complain of non-performance by the vendor unless the purchaser can show that it was in a position to fulfil its side of the bargain.1
[9] In order to obtain an order for specific performance Jackson Surridge was therefore required to prove it was in a position to complete the purchase of the property on 1 October 2014. What is necessary to prove that a vendor or purchaser is ready, willing and able to settle will depend on the circumstances of the case.2 It will not always be necessary for a formal tender of settlement to be made.3
[10] The common bundle of documents contains a letter dated 1 October 2014 from Jackson Surridge’s solicitors to Eastern Star’s solicitors. The letter advises Eastern Star’s solicitors that Jackson Surridge did not accept Eastern Star was entitled to cancel the agreement under the CMA. The letter concludes:
Kindly confirm your client will proceed to settlement and forward to us your settlement statement as a matter of urgency.
[11] Thereafter, however, there is no evidence that Jackson Surridge’s lawyers took the steps required by Clause 3.6 of the agreement. More importantly, Jackson Surridge has not established that it was in a position to pay Eastern Star the sum of
$870,000 on 1 October 2014. It has elected to adduce no evidence at all regarding
1 Foran v White (1989) 168 CLR 385 at 417 (HCA); Property Ventures Investments Ltd v
Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [82].
2 Hurrell v Townend [1982] 1 NZLR 536(CA) at 550.
3 Bahramitash v v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.
these issues. It follows that Jackson Surridge cannot obtain an order for specific performance.
[12] This conclusion does not completely dispose of the issues raised by the present proceeding. Eastern Star has advanced affirmative defences seeking relief under the CMA and the Frustrated Contracts Act 1944 (FCA). It is necessary to deal with these so that the parties understand their current legal position.
The application for relief under the Contractual Mistakes Act 1977
[13] Eastern Star’s application for relief under s 7 of the CMA requires it to establish one or more of the grounds set out in s 6. Section 6 provides:
6Relief may be granted where mistake by one party is known to opposing party or is common or mutual
(1) A Court may in the course of any proceedings or on application made for the purpose grant relief under section 7 of this Act to any party to a contract—
(a) If in entering into that contract—
(i) That party was influenced in his decision to enter into the contract by a mistake that was material to him, and the existence of the mistake was known to the other party or one or more of the other parties to the contract (not being a party or parties having substantially the same interest under the contract as the party seeking relief); or
(ii) All the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii) That party and at least one other party (not being a party having substantially the same interest under the contract as the party seeking relief) were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and
(b) The mistake or mistakes, as the case may be, resulted at the time of the contract—
(i) In a substantially unequal exchange of values; or
(ii) In the conferment of a benefit, or in the imposition or inclusion of an obligation, which was, in all the circumstances, a benefit or obligation substantially disproportionate to the consideration therefor; and
…
[14] Eastern Star contends that both parties were influenced in their respective decisions to enter into the agreement for sale and purchase by a material mistake. Each believed that the other was a registered person in terms of the GST legislation. They therefore agreed to a purchase price of $870,000 on the basis that the transaction was zero-rated in terms of s 11 of the GST Act. That turned out not to be the case after the Commissioner cancelled Eastern Star’s GST registration. Eastern Star also contends that the change in its GST status will lead to a substantially unequal exchange of values or the conferment of a benefit on Jackson Surridge that is substantially disproportionate to the consideration that it provided.
[15] I do not accept either of these arguments. As at 1 May 2014, both parties were registered persons under the GST legislation. The understanding that each party held regarding the other’s GST status was therefore correct at the point where they entered into the agreement. The position did not change until approximately three months later, when the Commissioner cancelled Eastern Star’s registration. It follows that neither party was influenced in its decision to enter into the agreement by any mistake.
[16] Furthermore, the alteration in Eastern Star’s GST status does not affect the exchange of values under the agreement. In his written submissions Mr Wood appeared to suggest that a substantially unequal exchange of values will occur because Eastern Star will be required to pay output tax on the supply of land to Jackson Surridge. That submission cannot be correct because Eastern Star is no longer a registered person under the GST Act. As a result, it is no longer subject to the GST regime.
[17] In addition, Jackson Surridge will still receive the same parcel of land that it agreed to purchase. It will also pay Eastern Star the same amount of money for the land. Both parties are therefore in exactly the same position as they were at the time they entered into the agreement.
[18] The only alteration to Eastern Star’s overall position arises as a result of events that will occur after it has met its contractual obligation to complete the sale
of the property to Jackson Surridge. At that point Eastern Star will be required to use part of the sale proceeds to repay the input tax credits received before the Commissioner cancelled its GST registration. The contractual relationship between Eastern Star and Jackson Surridge plays no part in producing that outcome. Rather, it arises because Eastern Star altered its occupation from being a property developer to being a vendor of bare land. As such it was not entitled to be a registered person for GST purposes. The fact that it is required to use the proceeds of sale to meet the debt merely reflects Eastern Star’s apparent inability to meet its tax obligations from other resources.
[19] Jackson Surridge may receive a windfall benefit from the transaction because it may be able to claim an input credit in respect of the price that it pays for the property. That may occur because it is purchasing the property from an entity that is not a registered person under the GST Act. If so, that outcome is not produced by the contractual relationship between the parties. Rather, it arises because of the status held by each party under the GST Act. It does not amount to the conferment of a benefit under the agreement that is substantially disproportionate to the consideration that Jackson Surridge will provide.
[20] There is therefore no jurisdiction to grant relief under the CMA.
The claim for relief under the Frustrated Contracts Act 1944
[21] Section 3(1) of the FCA provides as follows:
3Adjustment of rights and liabilities of parties to frustrated contracts
(1) Where a contract governed by the law of New Zealand has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, the following provisions of this section shall, subject to the provisions of section 4 of this Act, have effect in relation thereto.
[22] Eastern Star maintains that the agreement for sale and purchase has become impossible to perform because of the alteration to its GST status. It relies on the
following passage from Davis Contractors Ltd v Fareham, in which Lord Radcliffe said:4
There must be, as well, such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.
[23] Eastern Star’s reliance on the FCA is misconceived. The agreement for sale and purchase patently remains capable of being performed according to its terms. Eastern Star remains in a position to convey the land to Jackson Surridge. In return it will receive the sum of $870,000. The alteration of Eastern Star’s GST status does not affect either of those fundamental contractual obligations. The manner in which Eastern Star will subsequently be obliged to spend part of the sale proceeds does not mean that the agreement between the parties has become fundamentally incapable of performance.
Conclusion
[24] For the reasons given above Jackson Surridge is at present unable to obtain an order for specific performance against Eastern Star. On the other hand, Eastern Star cannot show that it is entitled to relief under either the CMA or the FMA.
[25] It follows that the agreement for sale and purchase remains on foot. Jackson Surridge must now demonstrate to Eastern Star that it is in a position to complete the purchase of the property. When it does so, Eastern Star will be required to perform its obligations under the agreement as vendor of the property.
[26] Rather than dismiss the proceeding at this stage, I propose to keep it on foot as a convenient means of resolving any issues that may arise between the parties in the future. Counsel for Jackson Surridge advises me that his client expects to proceed to settlement in the very near future. If Eastern Star refuses to meet its obligations at that point, Jackson Surridge may amend its claim and seek an early
fixture.
4 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL) at 729.
[27] In the event that a notice of discontinuance has not been filed by
30 September 2015, the file is to be referred to me for further directions to be given.
Costs
[28] The defendant is the successful party in this proceeding notwithstanding its failure to establish the affirmative defences pleaded. It is therefore entitled to an award of costs on a category 2B basis together with disbursements as fixed by the
Registrar.
Lang J
Solicitors:
Aaron Kashyap, Auckland
Jenny Wang & Associates, Auckland
Counsel:D A Wood, Auckland
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