Kartini Export Ltd v Ponsonby's Shopping Village Ltd

[2007] NZCA 597

IN THE COURT OF APPEAL OF NEW ZEALAND

CA97/07
[2007] NZCA 597

BETWEENKARTINI EXPORT LIMITED

Appellant

ANDPONSONBY'S SHOPPING VILLAGE LIMITED

Respondent

Hearing:22 November 2007

Court:O'Regan, Arnold and Ellen France JJ

Counsel:P J Dale and D W Grove for Appellant

K F Gould for Respondent

Judgment:21 December 2007 at 10.30 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.

BThe appellant must pay to the respondent costs of $6,000 plus usual disbursements.

REASONS OF THE COURT

(Given by Ellen France J)

Introduction

[1]       In a decision delivered on 15 February 2007, Priestley J dismissed the appellant’s claim for specific performance in relation to a property at 7 Rose Road, Ponsonby: HC AK CIV 2005-404-1423.  The appellant appeals against that decision.

[2]       The issue on appeal is whether the agreement for sale and purchase of the property was validly cancelled by the respondent who was the vendor.

Factual background

[3]       The parties entered into an agreement on 23 August 2001 under which the appellant was to purchase the Rose Road property from the respondent.  The agreement was on the standard 7^th edition (2) form approved by the Real Estate Institute of New Zealand and the Auckland District Law Society.  That version was published in July 1999.

[4]       On the same day, the parties entered into two other agreements under which the respondent  agreed to sell two units (A and B) located on Ponsonby Road directly in front of the Rose Road property to the appellant.  The three agreements were expressed to be interdependent.

[5]       The purchase price for Rose Road was $650,000 and the settlement date was 15 February 2002.  However, settlement did not occur on 15 February and on 27 February 2002 Mr Landers, the solicitor for the respondent, wrote to the appellant’s solicitor, Mr Halse.  The letter recorded, first, that the agreement for sale and purchase provided for settlement on 15 February.  The letter went on to note that Mr Landers’ client, Mrs Campbell (on behalf of the respondent), had advised him that Mrs Van Kuyk (who was acting on behalf of the appellant) had “indicated” that she wanted an extension of the settlement date and that Mr Halse was “writing to [Mr Landers] regarding such extension”.  The letter continued:

My client company is not prepared to grant a lengthy extension.

Please advise, immediately, the date on which your client proposes to settle.

I have been instructed to issue a settlement notice without further delay, if you fail to respond to this facsimile.

[6]       There was no response to that letter which had been faxed to Mr Halse and, on 4 March 2002, Mr Landers faxed a settlement notice to Mr Halse.  The settlement notice said that the agreement provided for the balance of the purchase price ($617,500) to be paid on 15 February, that the purchaser had not paid that sum, and nor had the purchaser given any notice of any additional party or nominee as purchaser.  The settlement notice required the appellant, in terms of cl 9 of the agreement, to settle on or before the 12^th working day after service of the notice.

[7]       There was no reaction to the notice from Mr Halse until the 12^th working day after service of the notice, that is, 20 March 2002.  Mr Halse faxed a letter to Mr Landers that day.  The letter was headed “without prejudice” but was produced in evidence without objection.  The letter said:

I refer to your facsimile of 27 February 2002 and acknowledge receipt of the Settlement Notice dated 4 March 2002.

I understand that our respective clients have had discussions since the issue of the Settlement Notice and that Mrs Maneeka Campbell has agreed that settlement may be deferred for a period of three calendar months from the original possession date i.e. settlement will now occur on 15 May 2002.

I do not appear to have received a settlement statement from you but I understand there are some issues involving the rentals.  Suffice i[t]to say that if your client does not agree that settlement is to be delayed until 15 May 2002 I do not accept the validity of the Settlement Notice for the following reasons:

1.        I do not appear to have received a settlement statement from you;

2I am advised by my client that the building is now empty i.e. the tenants which were represented to have leases in the building appear to have vacated which would appear to breach clause 16.0 of the Agreement for Sale and Purchase.

I do not wish, however, to get involved in inflaming the situation given Mrs Campbell’s recent bereavement and at this stage I simply look forward to confirmation from you that settlement will now occur on 15 May 2002.  I do, however, reserve my client’s rights if that is not agreed by consent.

I look forward to hearing from you.

[8]       Mr Landers responded on 22 March 2002 by giving notice of cancellation of the agreement.

[9]       On 21 March 2002 the appellant lodged a caveat on the Rose Road title based on its interest under the agreement for sale and purchase.  Mr Landers in due course presented for registration a discharge of mortgage and that triggered the procedures of s 145 of the Land Transfer Act 1952.  The appellant made an application to the High Court seeking orders to sustain the caveat.  By this point, the respondent took the view the contract had been validly cancelled.  However, because the respondent did not wish to sell the property, the respondent took no steps and an order was made sustaining the appellant’s caveat on 27 June 2002.

[10]     Settlement of Unit A occurred on 20 December 2001 (about two months late).  There was a delay of some 10 months until 19 June 2003 before Unit B was settled.  Nothing further happened in relation to Rose Road until 5 March 2004.  At that point Mr Halse wrote to Mr Landers enclosing a memorandum of transfer for execution and notice of sale.  Mr Landers’ response on 18 March 2004 was to assert that the contract had been cancelled two years earlier on 22 March 2002.  Subsequently Mr Landers advised he was in a position to accept service of proceedings to enforce the contract which Mr Halse had stated would be issued “without further delay”.  Proceedings were not in fact issued until 18 March 2005.

The High Court judgment

[11]     Priestley J focused on what he said was the appellant’s case as plaintiff, that is, that at some time before the respondent’s cancellation of the contract, the parties had agreed to extend the 15 February settlement date by three months to 15 May 2002 and so there was either a waiver or variation of the agreement (at [51]).

[12]     The Judge found against the appellant on this point.  Priestley J said that although Mrs Van Kuyk had “constantly and consistently” pressed Mrs Campbell for an extended settlement date, no varied date had been agreed and there was no agreement that settlement would take place on 15 May (at [52] and [71]). 

[13]     In this context, Priestley J preferred the evidence of Mrs Campbell for the respondent to that of Mrs Van Kuyk on behalf of the appellant (at [52]).  The latter had maintained that there was an agreement to settle on 15 May.

[14]     Priestley J turned then to the argument that the respondent’s settlement notice of 4 March was not validly issued because the respondent had not provided a settlement statement and because there was a breach of cl 16 in the agreement relating to leases.  The complaint about cl 16 was that the tenants had vacated.

[15]     On the first point relating to the failure to provide a settlement statement, the Judge noted that cl 3.6 of the agreement obliges a vendor to prepare “a statement of apportionments” showing all outgoings and incomings apportioned at the possession date.  Further, that the agreement provided for such a settlement statement to be tendered to the purchaser’s solicitor “a reasonable time prior to the settlement date”.  The Judge saw as a “balancing obligation” the requirement in cl 3.5 that the purchaser was to prepare a memorandum of transfer to be tendered to the vendor’s solicitor “a reasonable time prior to the settlement date” (at [73]).  No memorandum of transfer had been tendered.

[16]     The Judge said that the cl 3.6 obligation, if operative, would have required Mr Landers to forward a settlement statement some reasonable time prior to 15 February.  The fact that he had failed to do so, the Judge said, was “quite understandable and not a breach” (at [74]).  Indeed, Priestley J found that to have prepared a settlement statement prior to 15 February would have been “a total waste of time” (at [74]).  That was because during this period Mrs Van Kuyk was “persistently seeking an extension of the settlement date and Mrs Campbell for her part was asking Mrs Van Kuyk to get her solicitor to formulate a proposal” (at [74]).  Hence, the Judge said:

To both Mrs Campbell and Mr Landers, it would have been apparent that the [appellant] was not going to settle on 15 February but would be seeking the indulgence of an extended date.  Mr Landers’s 27 February fax clearly reflects the [respondent’s] position that an extension would be forthcoming provided it was not lengthy. 

[17]     The Judge saw the absence of any indication from the appellant as to whether its right of nomination would be exercised as “another obstacle” to the respondent preparing the settlement statement (at [75]).

[18]     The Judge then dealt with the second matter that was said to undercut the validity of the settlement statement.  That related to cl 16 of the agreement dealing with leases.  Clause 16 was a special condition which was included in the agreement at the request of the appellant purchaser.  The clause requires the vendor to first obtain the purchaser’s written consent to do the following things:

(a)       Settle any rental on any leasing of the Property;

(b)Agree to any variation of any lease of the Property;

(c)Accept any surrender of any existing lease or take any steps to terminate any lease;

(d)Enter into any new leasing arrangements for any part of the buildings.

[19]     The attachment to the agreement listed the details of the four offices making up the Rose Road property.  One was vacant.  Two were expressed as monthly tenancies.  The fourth was rented to the Auckland Adult Literacy Scheme Incorporated.  That tenant would, by 15 February 2002, have been holding over for a period of about 10 months (the lease term having expired on 8 April 2001).

[20]     Mrs Van Kuyk said she found out on 7 March 2002 (during the running of the 12 working day settlement notice period) that the Auckland Adult Literacy group had vacated the property and a computer company (Genesis) had moved into the vacant space.   (Genesis did so as a monthly tenant.)

[21]     Priestley J took the view that cl 16 focused on leases, not tenancies.  His Honour said that neither when the agreement was signed nor on 15 February 2002 were there any operative leases.  Accordingly, Priestley J considered that a vendor in these circumstances would be entitled to allow occupancy of the premises on an informal or even a monthly basis without the need to obtain the purchaser’s written consent.  The Judge therefore found that there had been no breach by the respondent of cl 16 (at [82]).

[22]     The Judge concluded that the respondent’s 4 March 2002 settlement notice had led to the valid cancellation of the parties’ agreement by Mr Landers on 22 March 2002.  There was thus no basis on which the appellant could claim specific performance or damages.

Submissions

[23]     The appellant’s primary submission is that 15 February was no longer the settlement date.   That was because that date had passed without either party taking any steps but with an agreement that there would be an extension.  Accordingly, the appellant says that a new settlement date had to be nominated because cl 3.11 of the agreement for sale and purchase was triggered.  Clause 3.11 provides that “[i]f neither party is ready, willing and able to settle on the settlement date” the settlement date and the possession date shall be deferred to the second working day following the date “upon which one of the parties gives notice it has become ready, willing and able to settle”. 

[24]     The appellant also relies on cl 9.1 of the agreement which says that if the sale is not settled on the settlement date either party may “at any time thereafter” serve on the other party a settlement notice to settle in accordance with this clause but (cl 9.1(2)):

The notice shall be effective only if the party serving it is at the time of service either in all material respects ready, able and willing to proceed to settle in accordance with the notice or is not so ready able and willing to settle only by reason of the default or omission of the other party.

[25]     The appellant argues that because the parties had let the settlement date pass by with an agreement that there would be an extension, the appellant did not need to prove a formal variation.  That flowed from the fact that neither party asserted or attempted to prove that they were ready, willing and able to settle on 15 February.  The appellant also says that the Judge was wrong to conclude that there was no waiver.  That is because of the evidence of Mr Landers who said he did not issue a settlement statement because he was waiting for the appellant to nominate a new settlement date.  The appellant submits therefore that if the respondent wanted to compel settlement or otherwise cancel the contract the respondent had to nominate a new settlement date under cl 3.11.  Because the respondent did not take that step, the settlement notice was premature and the agreement was not validly cancelled.

[26]     The appellant further submits that the settlement notice was defective, first, because there was no settlement statement as required by cls 1.1(9)(c) and 3.6. Clause 1.1(9)(c) provides that unless the contrary intention appears in the agreement, a party is in default “if it did not do what it has contracted to do to enable settlement to occur, regardless of the cause of such failure”.  Clause 3.6 requires the vendor to prepare a settlement statement.

[27]     The appellant says service of the settlement statement was required for the completion of the sale due to the apportionment of rental for any part of the property that was rented and to determine whether payment of GST was sought by the respondent.

[28]     The second criticism made of the settlement notice is that it was premature because the respondent was unable to give vacant possession as at 20 March 2002 due to the position of Genesis, the new monthly tenant. 

[29]     The respondent submits that the case in the High Court did not focus on whether cl 3.11 was triggered, that is, on whether the vendor was ready, willing and able to settle on 15 February.  Rather, the issue was whether there was a waiver or whether essentiality of time had to be established.   The respondent says that the Judge correctly found there was no variation or waiver and in those circumstances the respondent was entitled to cancel the contract.

[30]     As to the complaints in relation to the settlement notice, the respondent says the notice was not premature.  It would have been pointless for the respondent to have issued a separate settlement statement.  In terms of the position with respect to the effect of the Genesis tenancy, the respondent points to evidence from Mr Landers that Genesis was aware that it would have to vacate if settlement of the sale had proceeded.  In any event, the respondent says, it was possible to present the property with vacant possession by 20 March given the remaining tenants were monthly tenants.  Finally, the respondent emphasises that it was not a sale with vacant possession.

Discussion

[31]     The appellant’s primary argument turns on the parties having agreed to an extension.  The Judge found that there was no waiver or variation and so no agreement to extend the settlement date.  On this analysis, 15 February remained the settlement date. 

[32]     The appellant says that this finding does not fit with the evidence of Mr Landers in particular.  We disagree.  We read the letter of 27 February from Mr Landers as an acknowledgement that the appellant was in default but accepting that if the appellant got on with settlement then the purchaser would not act on the default.  As the Judge put it to Mr Landers, Mr Landers was really trying to “get the purchaser up to the start line with no more mucking about”.  It was in that context that Mr Landers in evidence explained that he had not prepared a settlement statement because he was waiting for the appellant to nominate a settlement date.  When there was no proposed date from the appellant, the status quo remained extant, that is, a settlement date of 15 February.

[33]     In any event, we consider it is not open now to the appellant to base an argument on the application of cl 3.11.  That is because the case was pleaded and put in the High Court on a different basis, namely, that the parties had agreed to settle on 15 May.  That was the focus of the evidence and it also reflects the pleadings. 

[34]     The pleadings aver that by agreement between the parties the possession and settlement dates referred to in the agreement were extended to 15 May.  The closest the pleadings get to the current argument is in one of the particulars of that agreement which states that the possession date was waived and the new possession date became 15 May 2002 “or in the alternative” was left at large, requiring either party to restore the essentiality of time.  However, that particular turns on there being a waiver of the 15 February date.  Priestley J found that there was not a waiver and the appellant does not challenge the finding that no new settlement date had been agreed upon.  There is no pleading that the respondent vendor was not ready, willing and able to settle on that date which is necessary to trigger cl 3.11.

[35]     The appellant relies on references to cl 3.11 in the appellant’s submissions to the High Court and an associated reference by the Judge to that argument (at [59]).  However, as we read it, none of that argument was put on the basis that the respondent vendor was not ready, willing and able to settle.   There was some evidence about the appellant’s ability to settle based on the source of finance for the balance of the purchase price but no focus at all on the respondent vendor’s equivalent position. 

[36]     It follows that the question of whether the respondent vendor was ready willing or able to settle on 15 February was never properly addressed although it was arguably an underlying theme of the judgment that the vendor was in a position to settle.  Further, to the extent that it is evidence of anything, the respondent’s settlement notice asserts that it, as vendor was ready, willing and able to settle at least as at the date of the notice. 

[37]     In these circumstances, there is no foundation for the submission now made by the appellant.  The appellant’s argument that the settlement notice was issued prematurely because it was given before the settlement date was specified accordingly falls away. 

[38]     We add that it would have been preferable for Mr Landers to have issued a settlement statement as at 15 February.  That would at least have avoided the current argument.  But, having said that, we agree with the Judge that this would have been futile because of the appellant’s unwillingness to settle on 15 February.

[39]     To the extent there is evidence on the other limb of the argument relating to the effect of the Genesis tenancy, that evidence supports the respondent’s submission that Genesis could have been removed at short notice if that had been required by the appellant.   However, that issue was not addressed in evidence in the High Court in any detail either because it was not the focus of the case. 

[40]     There are also other difficulties for the appellant in this argument.  First, as the respondent points out, the property was sold subject to three specific monthly tenancies.  The extent to which the building was tenanted was important to the appellant as it affected whether the “going concern” GST concession in relation to tenanted properties (cl 13 of the agreement) would be available.  Hence, Mr Halse in his letter of 20 March 2002 complained that there were no tenants.

[41]     Second, the complaint made now is not that the property was vacant but rather that one monthly tenant was replaced by another.  While that change may not have been consistent with the agreement in cl 3.1 to sell with vacant possession subject only to the three tenancies noted in the agreement, it is inconceivable that the appellant would not have agreed to it.  Mr Halse gave evidence that the IRD requires that approximately 70 per cent of a property be tenanted for the purpose of the “going concern” concession.  On that basis the replacement tenancy was necessary in order to meet that requirement.  Further, the appellant does not point to any legal detriment to it as purchaser in the replacement of one monthly tenant with another.

[42]     All of these matters make it impossible for us to resolve this matter on appeal. 

[43]     Accordingly, we agree with Priestley J that on the case as pleaded the challenge to the validity of the cancellation of the agreement fails and so there can be no question of specific performance or damages.  We add that we see no difficulty in dealing with the matter on the narrower basis of the pleadings because we would not have seen this as an appropriate case for an award of specific performance.  It would be inequitable for the appellant, having acted in an unprincipled way in waiting until the very last day of the twelve day notice period and then delaying in issuing the proceedings, to get the benefit of specific performance given the significant increase in the market value of the property over the period of the delay.

Result and costs

[44]     For these reasons, the appeal is dismissed.  Having succeeded, the respondent is entitled to costs of $6,000 together with usual disbursements.

Solicitors:

Foy & Halse, Auckland for Appellant
Denys F B Landers, Auckland for Respondent