Jansen v Whangamata Homes Ltd Ca266/04

[2005] NZCA 207

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA266/04

BETWEENPETER MARTIN JANSEN AND VIVIENNE MARIE JANSEN

Appellants

ANDWHANGAMATA HOMES LIMITED

Respondent

Hearing:3 August 2005

Court:Glazebrook, Chambers and O'Regan JJ

Counsel:C S Henry and M R Bott for Appellants

R A Houston QC for Respondent

Judgment:15 August 2005 

JUDGMENT OF THE COURT

A        The appeal is allowed.

BLeave granted to the appellants to apply for summary judgment under the High Court Rules, r 138(2).

CDecree of specific performance of the parties’ agreement of 8 December 2002, with settlement date being 5 September 2005.  At settlement, the appellants must also pay to the respondent the sum of $9,026.39 in respect of variations and extras, as invoiced on 10 September 2003.

DLiberty to apply to the High Court for further orders in the event of any dispute as to the implementation of the decree of specific performance.

EThe balance of the appellants’ claim – namely, the claim for damages in the sum of $15,000 – to be determined in the High Court (without prejudice to either party seeking to have it transferred to the District Court).

FCosts in the High Court on the summary judgment application, in the absence of agreement between the parties, to be fixed by that court in light of this judgment.

GThe respondent must pay the appellants $6,000 plus usual disbursements in respect of costs in this court.

REASONS

(Given by Chambers J)

An election to terminate an agreement

[1]        On 8 December 2002, Peter and Vivienne Jansen, the appellants, signed an agreement with Whangamata Homes Limited, the respondent, to buy a unit for $550,000.  The unit was Unit 9 in a property development known as “The Dunes” at Whangamata.  It was contemplated that titles would be created under the Unit Titles Act 1972.  Plans and specifications for the unit were attached to the agreement.  Settlement was to be (a) on 30 May 2003 or (b) upon the issue of both the code compliance certificate and the unit title, whichever occurred later. 

[2]        Clause 22 of the agreement was inserted as a special condition and is of critical importance to the present dispute:

Sunset Clause

If the settlement has not occurred by the 30th day of June 2003 either party may by notice in writing to the other cancel this agreement.

In the event the deposit and all monies paid by the purchasers shall be refunded to the purchaser and neither party shall have any right or claim against the other. 

[3]        Settlement had not occurred by 30 June 2003 as, by that date, neither the code compliance certificate nor the unit title for Unit 9 had been issued.  There were various interactions between the Jansens and Whangamata Homes after 30 June, the details of which we shall return to presently.  Of particular importance is a letter that Donald Stuart, Whangamata Homes’ solicitor, wrote to the Jansens’ solicitor on 1 September 2003.  In that letter, Mr Stuart advised that Unit 9 was about “two weeks from completion”.  He further advised that the unit plan and an application for new titles had been lodged with Land Information New Zealand.  Mr Stuart asked the Jansens’ solicitor, “in anticipation of the issue of title and settlement being concluded”, to forward “your Transfer”.  That was no doubt a reference to clause 3.5 of the general terms of sale on the Auckland District Law Society’s Agreement for Sale and Purchase of Real Estate (Seventh Edition (2) July 1999).  Those common form general terms of sale formed part of the terms of the Jansens’ agreement with Whangamata Homes.  Clause 3.5 reads as follows:

The purchaser shall prepare, at the purchaser’s own expense, a memorandum of transfer of the property, executed by the purchaser if necessary.  The purchaser shall tender the memorandum of transfer to the vendor or the vendor’s solicitor a reasonable time prior to the settlement date.

[4]        Later that month, however, matters took an unexpected turn which has led to the present dispute.  On 30 September, prior to settlement taking place, Whangamata Homes purported to cancel the agreement under clause 22.  Whangamata Homes attempted to return the Jansens’ deposit and a cheque the Jansens had sent for certain extra work done on the unit at the Jansens’ request. 

[5]        The Jansens refused to accept that cancellation.  They returned the deposit cheque and also their own returned cheque for extras.  They asserted that Whangamata Homes had lost the right to terminate the agreement under clause 22 as a result of having earlier elected to affirm the agreement.  When Whangamata Homes refused to proceed with the agreement, the Jansens sued for specific performance.

[6]        The Jansens filed a standard proceeding in the High Court in Hamilton.  Following the filing of Whangamata Homes’ statement of defence and discovery and inspection of documents, the Jansens concluded that Whangamata Homes had no defence to their claim.  They accordingly decided to apply for summary judgment.  Because they had not applied at the time they commenced their proceeding, they required the High Court’s leave to bring an application for summary judgment: High Court Rules, r 138(2).  That application came before Randerson J on 4 November last year.  By consent, Randerson J dealt with the application for summary judgment on the merits, as, according to His Honour’s judgment, “Mr Houston QC, for Whangamata Homes, readily accepted that the outcome of the application for leave would depend largely upon the result of the application for summary judgment on the merits”: Jansen v Whangamata Homes Ltd HC HAM CIV-2003-419-1511 29 November 2004 at [7]. 

[7] Randerson J concluded that the Jansens had not established to the required standard that there was no arguable defence. His Honour concluded that there was “a clearly arguable defence on the basis that [Whangamata Homes] was entitled to exercise its right to cancel under clause 22”: judgment at [49]. Accordingly, the judge declined the application for leave to bring a summary judgment application “on the grounds that, even if leave were granted, the application would have been declined on the merits”: at [51]. He therefore ordered that the matter should proceed to a substantive hearing.

[8]        The Jansens appealed against that judgment.  They contend that Whangamata Homes has no arguable defence to their claim for specific performance. 

Issues on the appeal

[9]        The primary issue on the appeal remains the same as the issue in the High Court, namely whether the Jansens can satisfy the court that Whangamata Homes has no defence to the claim for specific performance.  That in turn means that, in order to succeed, the Jansens must establish that it was no longer open to Whangamata Homes by 30 September 2003 to exercise the right conferred by clause 22.  Randerson J found that arguably that right was still available.  Was he right so to find? 

[10]      A second issue raised by Mr Houston, who appeared for Whangamata Homes on the appeal as he had in the High Court, was whether Whangamata Homes had an arguable defence to the claim for specific performance based on the Jansens’ alleged delay.

[11]      We shall deal with the two issues in turn.

The effectiveness of the 30 September 2003 notice

[12]      Mr Henry, for the Jansens, submitted that this was a case where there was no dispute about the essential facts.  He pointed to the fact that Whangamata Homes had filed only one affidavit in response to the Jansens’ application for summary judgment.  That was an affidavit from Mr Stuart, but it did not deal with any substantive matters.  Whangamata Homes also relied on some answers to interrogatories sworn by Peter Waters, a director of Whangamata Homes.  Mr Henry advised that the Jansens did not dispute the particular answers Mr Houston considered relevant.  We agree with Mr Henry that there is no dispute about relevant facts.  This case turns on what is the legal effect of the undisputed facts.  As such, it is a prime candidate for summary judgment analysis: either the Jansens are right as to their legal position, in which case they are entitled to specific performance (subject to the delay argument), or they are wrong, in which case their claim is doomed.

[13]      On the appeal, Mr Henry did not challenge Randerson J’s statement of the applicable law.  Rather, he challenged the judge’s application of the relevant legal principles to the facts of this case.  Mr Houston supported the judgment under appeal, not only as to the applicable legal principles but also its application of principles to facts.  We too are satisfied that Randerson J’s statement of principles was correct. 

[14]      Randerson J referred first to this statement from Feltham, Hochberg & Leech Spencer Bower The Law relating to Estoppel by Representation (4ed 2004) at 359:

Where A in dealing with B is faced with inconsistent courses of action which affect B’s rights or obligations and knowing that the two courses of action are inconsistent and that he or she has the right to choose between them, A then makes an unequivocal choice between them and communicates that choice to B, A is prevented from afterwards resorting to the course of action which he has deliberately rejected and communicated to B his intention of rejecting.  The election binds A immediately it is communicated to B and is not based on proof of detrimental reliance.  It is binding at the point of communication because the underlying rationale of the doctrine is that parties to an ongoing legal relationship are entitled to know where they stand.  B must be entitled to rely on A’s deliberate choice with confidence.

[15]      Following that citation, Randerson J observed at [25]:

The doctrine of election is most commonly relied upon in the contractual context where there has been a breach entitling the innocent party to treat it as a repudiation in nature and to cancel the contract in consequence.  However, a party may also be found to have made a binding election where he or she becomes entitled to exercise a right conferred by the contract as distinct from the general law.

[16]      His Honour then referred to the leading authority in support of that conclusion, Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The “Kanchenjunga”) [1990] 1 Lloyd’s Rep 391 (HL). Lord Goff of Chieveley, with whom the other Law Lords agreed, said at 398:

Election itself is a concept which may be relevant in more than one context.  In the present case, we are concerned with an election which may arise in the context of a binding contract, when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right, and he has to decide whether or not to do so.  His decision, being a matter of choice for him, is called in law an election.  Characteristically, this state of affairs arises where the other party has repudiated the contract or has otherwise committed a breach of the contract which entitles the innocent party to bring it to an end, or has made a tender of performance which does not conform to the terms of the contract.  But this is not necessarily so.  An analogous situation arises where the innocent party becomes entitled to rescind the contract, i.e. to wipe it out altogether, for example because the contract has been induced by a misrepresentation; and one or both parties may become entitled to determine a contract in the event of a wholly extraneous event occurring, as under a war clause in a charter-party.  Characteristically  the effect of the new situation is that a party becomes entitled to determine or rescind the contract, or to reject an uncontractual tender of performance; but, in theory at least, a less drastic course of action might become available to him under the terms of the contract.  In all cases, he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him or sometimes by holding him to have elected to exercise it.  [Emphasis added.]

[17]      Randerson J then observed at [26]:

An election may take the form of a deliberate and conscious act by the electing party or may be imputed by the law treating the electing party as having exercised an election irrespective of actual intention: Champtaloup v Thomas [1976] 2 NSWLR 264 per Mahoney JA at 274-275 and Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87, 93.

[18]      We completely accept that analysis.  So too, it appears, does Mr Houston.  It is true that, at one point in his written submissions, he submitted that “the legal doctrine of ‘election’ is not applicable to this case”, but that was because he contended it had here no factual underpinning, there not having been a full hearing.  But there is in this case no dispute about the relevant facts.  What is in dispute is the legal consequences of what happened. 

[19]      At another point in his submissions, Mr Houston submitted, in effect, that the doctrine of election related only “to rescission for breach, or repudiation of the contract by one contracting party”.  It is undoubtedly true that the doctrine of election most commonly arises in situations where a party to a contract has breached the contract and the other party then has an election as to the course he or she will follow.  But as the above citations make clear, the doctrine of election is not limited to circumstances of breach.

Having set out the principles, we now apply them. 

[20]      Mr Henry submitted that clause 22 was a term of the contract which entitled the parties to decide, if settlement had not taken place by 30 June 2003, whether or not they wished to continue with the contract.  Each had, as the House of Lords held, a choice, which the law calls an election.  One choice was to terminate the agreement.  (The agreement itself uses the term “cancel”, but probably the correct terminology in this context is “termination”: see Burrows, Finn & Todd Law of Contract in New Zealand (2ed 2002) at 683.  Nothing turns on the precise terminology.)  The other choice was to keep the agreement on foot.  As stated in Spencer Bower, the election binds immediately upon its communication to the other party and is irrevocable. 

[21]      In the present case, Mr Henry submitted that there were at least three acts done by Whangamata Homes after 30 June which were consistent only with an election on Whangamata Homes’ part to keep the agreement on foot and not to exercise the right to terminate the agreement. 

[22]      The first act on which Mr Henry relied was Whangamata Homes’ sending an invoice for extras to the Jansens on 6 July 2003.  This invoice related to extras and variations to Unit 9 which Whangamata Homes had undertaken at the Jansens’ request.  It is clear from the invoice that some of the items were extras: for example, a spa bath, extra mirror cabinets, extra power, phone, and TV aerial points.  Other matters were variations from the plans attached to and forming part of the agreement.  There can be no doubt that this work had been carried out pursuant to clause 15.4 of the agreement, even though (contrary to the agreement) the parties do not appear to have agreed on the alterations in writing and had not agreed the cost of the extras and variations prior to the work being done.  Clause 15.4 reads as follows:

No alterations shall be carried out at the purchaser’s request to the interior design, fittings or decoration of the unit unless such has been agreed in writing by the parties and the cost of such has also been agreed.  Immediately such agreement has been reached, the purchaser shall pay to the owner the cost of such alterations. 

[23]      Mr Henry submitted that Whangamata Homes, by demanding payment for work done pursuant to the agreement, thereby unequivocally elected, for its part, to continue with the agreement.  We agree.  Clearly a demand for payment for work done to the unit was consistent only with the agreement remaining on foot, and with the Jansens in due course settling the transaction and taking possession of the unit (as modified by agreement and including the agreed extras).  If Whangamata Homes had wanted to keep open its clause 22 right, it should have deferred making demand for payment.

[24] Randerson J held that, although “the sending of an account for extras and variations was undoubtedly a step taken by Whangamata Homes towards settlement and in anticipation of it”, it was nonetheless “not clearly inconsistent with the later exercise of the right to cancel because the contract contemplated that, in the event of cancellation, all monies paid under it would be refunded”: judgment at [44]. We respectfully disagree. We do not think it is an answer that the agreement provided for a refund. The presence of the refund provision is, in our view, irrelevant. What is important is that, after the election date, Whangamata Homes demanded payment for work which had been done under the contract and which was inextricably part of the unit to be supplied. This act was, in our view, an unequivocal election of an intention to continue, from which Whangamata Homes was not able later to resile.

[25]      When the Jansens received that invoice, the law then imposed upon them a duty to respond to Whangamata Homes’ election.  The Jansens had to decide whether they wished to continue with the agreement or to exercise the right to terminate.  Even though there has been a dispute between the Jansens and Whangamata Homes as to the calculation of the extras and variations (including relevant credits), there has never been any doubt about the Jansens’ wish to continue with the agreement.  It has never been part of Whangamata Homes’ argument that the Jansens had intimated an election to terminate under clause 22.  The Jansens’ later sending of a cheque in response to the invoice was an unequivocal election on their part to continue.  There was never any doubt that they would pay: the only dispute was as to how much they would pay. 

[26] Even if we are wrong in our categorisation of Whangamata Homes’ sending of the invoice, there can be, in our view, no doubt at all about the unequivocal nature of the second act on which Mr Henry relied. That was the letter of 1 September to which we have already referred: above at [3]. That letter was clear advice from Whangamata Homes’ solicitor to the effect that settlement would shortly take place. Mr Stuart was, in effect, advising the Jansens that the time for them to honour their obligation under clause 3.5 had now arrived. That was, in our view, a clear election on Whangamata Homes’ part to proceed to settlement, a stance from which it was not permitted later to withdraw.

[27]      As to this act, Randerson J simply said this at [44]:

Secondly, the letter of 1 September 2003 sending a transfer in anticipation of settlement was not plainly inconsistent with the subsequent exercise of the right to cancel.  While there was no reservation of the right to cancel under clause 22, none was required because it was a right which the agreement contemplated would be available until settlement.

[28]      With respect, we cannot agree with that conclusion.  His Honour’s conclusion seems to us to be at variance with the principles which he had set out earlier in the judgment.  Here, Randerson J appears to be saying that, whatever Whangamata Homes did, it could still elect to cancel at any time prior to settlement.  We say “whatever Whangamata Homes did” because it is really not possible to think of a more unequivocal act than asking the purchasers to prepare the memorandum of transfer in anticipation of a settlement shortly to take place. 

[29]      The third act on which Mr Henry relied was Mr Stuart’s letter of 10 September 2003.  That advised that title for the unit had now issued, but that the code compliance certificate was not yet available.  Again, that was information which Whangamata Homes had a duty to impart only if the agreement was ongoing. 

[30]      The letter then referred to the “requested extras and variations”, totalling $9,026 and enclosing an account.  Mr Stuart said: “In terms of clause 15.4 of the Agreement please have your clients make payment to Mr P D Waters and also advise whether they wish to have the aluminum gate provided.”  Again, it is clear that Mr Stuart on behalf of Whangamata Homes considered the agreement as subsisting.  As well, there was a clear willingness on Whangamata Homes’ part to process yet a further extra or variation, namely the provision of a particular gate. 

[31]      Once again, we agree with Mr Henry that the sending of that letter was also consistent only with an election to continue.  Certainly, in our view, there can be no doubt that, by 10 September at the latest, there was an unequivocal election to continue and not to exercise the right to terminate. 

[32] Randerson J appears to have considered that the right to terminate was exercisable at any time up till settlement, no matter what acts consistent only with an intention to continue with the contract had been done since the election date. The only qualification on the exercise of the right acknowledged by Randerson J was “if settlement was unduly delayed”: at [46]. In those circumstances, His Honour thought that “the right to cancel could become exercisable before settlement”. We do not read clause 22 in that way. In our view, that interpretation is inconsistent with the authorities to which Randerson J referred and with which we agree. Randerson J’s interpretation of clause 22 results in an unsatisfactory state of affairs, where both sides are left in a state of uncertainty as to the nature of their ongoing legal relationship. The Jansens would have had to pay for extras and variations, even though they had no guarantee that they would ever receive the items for which they were paying. They would have to hold themselves in readiness for a potential settlement, even though, apparently, they could place no reliance on Whangamata Homes’ apparent continuing intention to settle. On Randerson J’s approach, Whangamata Homes, provided settlement was not “unduly delayed” (words that are not to be found in the agreement itself), would be able to pull the plug on the Jansens at any time prior to settlement. We cannot agree with that view of the clause.

[33]      On the first issue, therefore, we are of the view that Mr Henry’s argument is correct.  Whangamata Homes elected to continue with the agreement, with the consequence that it was not later open to it to exercise the right under clause 22 it had once had.  In our view, Whangamata Homes has no arguable defence on the basis of clause 22. 

Delay

[34]      Mr Houston submitted that it was arguable the Jansens should be denied the equitable relief of specific performance because they had “deliberately delayed in pursuit of their remedy”.  He submitted that they had delayed in applying for summary judgment and they had turned down a firm fixture for trial in early December 2004.  He submitted that nearly two years had passed since the “cancellation of the contract” and that circumstances had changed.  He submitted that, “amongst other considerations, the state of the building, standing empty for two years, is not known to the Court”. 

[35]      We do not consider there is anything in these points.

[36]      First, there was no unreasonable delay in commencing the proceeding.  Whangamata Homes’ purported cancellation was on 30 September 2003.  The Jansens lodged a caveat on 10 October 2003 and commenced this proceeding the following month.  (As a matter of interest, the code compliance certificate for Unit 9 was still not available at that date, but that did not deter the Jansens from commencing this proceeding.  Quite rightly, they recognised that legal proceedings were going to be necessary, Whangamata Homes having, without right, as we have found, indicated that it did not intend to proceed to settlement.)

[37]      It is true that the Jansens did not immediately apply for summary judgment.  But that was understandable.  The Jansens’ legal advisors would not have been certain initially about whether there might be a factual dispute between the parties, rendering summary judgment inapplicable.  It was only after a statement of defence was filed and the Jansens had the benefit of discovery and inspection that their advisors realised, correctly, that there was no factual dispute, with the consequence that this case did become a suitable candidate for the summary judgment procedure. 

[38]      Secondly, while we are not certain of the circumstances leading to the turning down of a firm fixture for trial in early December 2004, we infer that the reason for that turning down was that the Jansens’ advisors recognised that the case could be more cheaply and swiftly dealt with utilising the summary judgment procedure.  That assessment has turned out to be correct.  Randerson J was able to dispose of the case in less than a day in early November 2004.  So there was no delay whatever from the alleged turning down of a firm fixture.  The parties got a result more quickly and more cheaply than if this matter had gone for trial.

[39]      Thirdly, while it is true that time has elapsed since the purported cancellation in September 2003, that does not appear to be the Jansens’ fault.  Further, the Jansens have advised us that they are prepared to settle, notwithstanding the current state of the building.  They recognise that it has stood empty for some time, but that is not a concern for them.  They are prepared to settle at the agreed price within three weeks of the date of this judgment.  They are also prepared to pay the full amount demanded for extras.  The earlier dispute as to the cost of the extras – a dispute which presumably contributed in part at least to Whangamata Homes’ purported election to terminate the agreement – is now a matter of history.  Mr Henry advised that the amount in dispute for extras was very small – about $4,000 – and was not worth arguing about in the context of a sale of this magnitude.

[40]      There is no disputed evidence on this topic of delay.  There is no basis for a suggestion that specific performance should be refused on this ground. 

Result

[41]      For the reasons given, we are satisfied that this was a proper case for the appellants to be granted leave to apply for summary judgment under r 138(2) of the High Court Rules.

[42]      We are also satisfied that the Jansens have established that Whangamata Homes has no defence to the application for specific performance of the agreement of 8 December 2002.  At settlement, the Jansens must pay the outstanding amount for extras and variations, as invoiced on 10 September 2003. 

[43]      There is one claim which the Jansens did not pursue as part of their summary judgment application.  That was a claim for damages in the sum of $15,000 in addition to specific performance.  In all likelihood, the Jansens will probably now not be minded to pursue that claim.  If they wish to, however, that will need to go forward to hearing.  The Jansens should promptly advise the High Court and Whangamata Homes whether they do intend to pursue the claim for damages.  If they decide to pursue it, then, given the amount, that remaining part of the proceeding should probably be transferred to the District Court for resolution.

[44]      All other orders in the formal judgment of the court are self-explanatory and follow from the conclusions reached in these reasons for judgment.

Solicitors:
Witten-Hannah Howard, Takapuna, for Appellants
Donald M Stuart, Waihi, for Respondent