Killarney Capital Limited v Blue Wallace Surveyors Limited
[2020] NZHC 3400
•17 December 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2020-441-046
[2020] NZHC 3400
IN THE MATTER of an appeal under section 124 of the District Court Act 2016 BETWEEN
KILLARNEY CAPITAL LIMITED
Appellant
AND
BLUE WALLACE SURVEYORS LIMITED
Respondent
Hearing: 17 November 2020 Appearances:
R J Gordon and A M B Leggat for the Appellant T M Braun for the Respondent
Judgment:
17 December 2020
JUDGMENT OF GRICE J
Contents
Background[2]
The decision[15]
Summary judgment[16]
Law[20]
Appeal[20]
Issues on appeal[27]
Contractual interpretation[31]
Contractual duties[36]
Appellant’s submissions[36]
Respondent’s submissions[39]
Discussion[45]
Issue one: interpretation of clause 2.3 of the deed[45]
Issue two: whether the sale of the two lots qualified under clause 3.3[51]
Issue three: costs[65]
Costs on appeal[71]
KILLARNEY CAPITAL LTD v BLUE WALLACE SURVEYORS LTD [2020] NZHC 3400 [17 December 2020]
[1] This is an appeal by Killarney Capital Ltd (Killarney), the defendant in the District Court, against a decision refusing to grant it summary judgment.1 In addition, it appeals against a refusal to award costs in its favour.
Background
[2]The judgment sets out the background as follows:2
[6] The statement of claim states the plaintiff provided surveying services to Jetco Waikato Ltd (Jetco), for a subdivision and development of land at Travers Road, Te Kauwhata. The [sic] Killarney provided finance to Jetco to complete the subdivision. Prior to completion of the subdivision, Jetco experienced financial difficulties and failed to pay the plaintiff for certain works completed.
[7] On or about 18 May 2018, [Blue Wallace Surveyors Ltd (BWS)], Killarney and Jetco entered into a settlement deed. The deed, dated 14 May 2018, sets out as background:
(a)Jetco borrowed money from Killarney pursuant to the term loan agreement dated 14 August 2016 as subsequently varied from time to time (the term loan agreement) and to fund the subdivision and land at Travers Road, Te Kauwhata.
(b)Blue Wallace has undertaken the survey work to complete the subdivision.
(c)The parties have agreed to certain arrangements to complete the subdivision as set out in this deed.
[8]The relevant parts of the deed, for the purposes of this application are:
2.1Subject to Clause 3.1 and in consideration for each of the parties entering into this deed and agreeing to meet their respective obligations, Blue Wallace will within five working days from Clause 3.1 being satisfied complete the survey and all associated work and deposit the LT plan with LINZ in conjunction with Jetco’s solicitors (fast track process) to enable the certificates of title for the four lots in stage 1B of the development to issue.
2.2Subject to Clause 3.2 and in consideration for Blue Wallace agreeing as set out in Clause 2.1 above:
(a)Jetco will pay Blue Wallace $120,000 (including GST) on settlement of the sale of the four lots in stage 1B of the development and an additional fifth lot in the development to Sabre; and
1 Blue Wallace Surveyors Ltd v Killarney Capital Ltd [2020] NZDC 10724 [District Court decision].
2 At [6]–[11].
(b)Killarney agrees to the payments set out in paragraph
(a) to be made from the proceeds of sale of those five lots.
2.3Subject to Clause 3.3 and in consideration for each of the parties entering into this deed and agreeing to meet their respective obligations:
(a)After the settlement of the lots referred to in Clause
2.2 (a) above, Jetco will pay Blue Wallace an additional $50,000 (including GST) for each of the next two lots anywhere in the development that settle (but excluding lots 22 and 79);
(b)Killarney agrees to the payment set out in paragraph
(a) being made from the proceeds of sale each of those two lots.
…
3.3 The obligations set out in Clause 2.3 of this deed are conditional upon Jetco entering into agreements for sale and purchase of two further lots anywhere in the development, (excluding lots 22 and 79) for a sale price of not less than
$226,087 (plus GST if any) for each lot.
[9]The statement of claim states:
(a)[T]he purpose of the deed was to allow the subdivision to be completed by providing an assurance to BWS from Killarney and Jetco, that BWS would be paid for its services out of sale proceeds from the subdivision and priority to Killarney.
(b)On or about 11 June 2018, Killarney paid $120,000 to BWS on the settlement of the sale of the five lots as required by Clause 2.2 of the deed.
(c)[O]n or about 24 July 2018, Jetco settled the sales of lots 48, 49 and 53 in the subdivision for $840,000 inclusive of GST. BWS pleads that lots 48, 49 and 53 of the subdivision qualify under Clause 3.3 of the deed and therefore under Clause 2.3 BWS was entitled to a payment of $100,000 inclusive of GST out of the proceeds of sale and in priority to any payment to Killarney.
(d)[I]n breach of Clause 2.3(b) of the deed, Killarney has failed and/or refused to pay BWS the $100,000 including GST due from the sale proceeds.
(e)Judgment is sought against Killarney for the $100,000 plus interest and costs.
[10]The statement of defence states:
(a)[T]he payment of the plaintiff’s services was and is a debt owed to BWS by Jetco, not by Killarney.
(b)It was necessary for Killarney to be a party to the deed because, as mortgagee, it was the secured creditor with a first ranking entitlement of the full proceeds of sale of any of the lots and subdivision mortgaged to it.
(c)Killarney’s sole agreement and/or obligation under the deed was to consent to Jetco making certain payments to BWS from the proceeds of sales of lots in the subdivision, which proceeds were otherwise secured to it (Killarney) in full.
(d)It is denied that the payment of $120,000 was made to BWS by Killarney, saying it was made by Jetco.
(e)It is admitted that lots 48, 49 and 53 were part of a “swap” transaction undertaken by Jetco on or about 18 April 2018, with settlement on or about 24 July 2018.
(f)It is denied Killarney has breached the deed and that it is obligated to pay any money at all.
[11] The application for summary judgment by Killarney against BWS is on the basis that the sole cause of action pleaded against Killarney cannot succeed. It states the claim by BWS lacks merit and/or fails without reasonable justification to admit facts, documents, evidence or accept legal argument.
[3] The payment of $120,000 was made to BWS, the respondent in these proceedings, as contemplated by clause 2.2 of the deed (set out above). The money was paid from Killarney, on behalf of Jetco, to BWS. Killarney, although mortgagee, was not acting as a mortgagee in possession nor was it exercising any rights of receivership at the time. While it was not a mortgagee in possession, its consent was required to enable the sale of the lots to occur.
[4] On 18 April 2018, Jetco entered into an agreement for sale and purchase of lots 48, 49 and 53 (the three-lot transaction). BWS did not know of the existence of that agreement for sale and purchase until around 1 November 2018. It is unclear whether Killarney knew of the existence of that agreement for sale and purchase at the time that it entered the Deed of Settlement of 14 May 2018 with BWS. However, its consent as mortgagee would have been required to enable the transaction to settle in July 2018.
[5] The three-lot transaction settlement involved a contemporaneous swap of land with the purchaser, Mr Taylor. Jetco agreed to sell the three lots to Mr Taylor for the sum of $840,000 (inclusive of GST). At the same time Mr Taylor agreed to sell 11A Wellington Street, Hamilton for $940,000 to Jetco. Jetco subsequently nominated a trust, the Potter Harrison Family Trust (the Trust) as purchaser. One of the trustees of the Trust was a shareholder in Jetco. The shareholder was also a guarantor of Jetco’s indebtedness to Killarney. The purchase required the nominated purchaser to pay a further $100,000 to enable the purchase of Wellington Street – being the difference between the $840,000, which Jetco received for sale of the three lots from Mr Taylor, and the $940,000, which was the purchase price for 11A Wellington Street.
[6] At the time of settlement $505,000 was repaid to Killarney, and apparently it discharged its mortgage insofar as it related to lots 48, 49 and 53, to enable the settlement of the sale of those lots to be completed. Killarney claims this was a refinancing arrangement rather than a payment from the proceeds of sale of the three lots.
[7] The summary above is based on the documentation that has been provided by Killarney. The detail is not clear as not all the relevant material is before the Court. Nevertheless, the nature of the transaction appears to be that, in return for the sale of the three lots, Jetco (or its nominee) was to receive the proceeds of sale of $840,000 and immediately pay that toward the purchase of 11A Wellington Street. How and why the nomination by Jetco of the Trust occurred is not evident. Whatever occurred, Killarney received $505,000 as a result of the sale of lots 48, 49 and 53. That transaction could not have occurred without Killarney’s consent or involvement as it held a mortgage or security over the three lots.
[8] BWS did not learn about the sale until Killarney responded to a query on 1 November 2018. Killarney said that the agreement of the three lots predated the deed of settlement, therefore, despite the fact that the sale settled in July 2018 (two months after the deed was executed) the proceeds of sale from that settlement were not subject to clause 2.3(a) of the deed. Killarney said that therefore, BWS was not entitled to payment from Jetco of the $50,000 for each of two lots (or a total of
$100,000) as contemplated by the deed. The present dispute centres on that transaction.
[9] Killarney says not only was it not contractually obliged to make the payment of $100,000 to BWS but the payment obligation was on Jetco only. In addition, it said the transaction was a swap not a sale, so the relevant provisions of the deed did not apply. In addition, it said that Killarney did not receive any of the proceeds of sale of the lots, it merely received the money from a refinance which took place at the time of sale, so the payment Killarney received was from a third party finance company.
[10] Killarney says that all it was required to do under the deed was to “agree” to the payment by Jetco of $100,000 from the proceeds of sale of the two lots. Killarney says “agree” in that context only means “consent”. Therefore, it was merely required to consent to the payment if asked by Jetco on the basis Killarney was the mortgagee and would otherwise be entitled to the proceeds of sale.
[11] BWS responds saying Killarney had “agreed” to the payment of $50,000 from the proceeds of sale by Jetco from the next two lots in the development that “settled” (clause 2.3(a)). Agreement involved more than mere consent to payment to BWS. Killarney could not retain funds attributable to the sale at the expense of BWS through some arrangement with Jetco or a related third party (the Trust) and so enable Jetco to obtain the proceeds of sale of lots and renege on its obligation to pay BWS the
$100,000. Therefore, BWS said it was arguable that Killarney was in breach of contract by allowing the settlement and by taking funds released by the settlement (whether through a third-party financier or directly) at the expense of BWS.
[12] In a further or alternative argument, Killarney says by virtue of clause 3.3 of the deed, the obligation to pay BWS the $100,000 on the settlement of the sale of two lots was conditional upon Jetco “entering into” the relevant agreement for sale and purchase of “two further lots anywhere in the development, (excluding lots 22 and
79) for a sale price of not less than $226,087 … for each lot”3 after the execution of
the deed. Whereas the agreement for the sale of the three lots was entered into before
3 Emphasis added.
the deed notwithstanding it was settled after. Killarney says the wording of the phrase “Jetco entering into agreements”4 indicates a future agreement to be entered into.
[13] BWS responds to this argument saying that the condition says “entering into agreements for sale and purchase of two further lots…”, and the word “further” is not used to denote later in time. Rather, it means “additional” sale and purchase agreements for two lots, over and above the sale of the four lots in stage 1B of the subdivision (referred to in clause 2.2), which had provided the funds for the $120,000 payment to BWS by Killarney on 11 June 2018.
[14] As it happened, there were no subsequent qualifying sales of lots that would have provided the $100,000 payment to BWS. The mortgagee sale of the balance of the lots in the subdivision did not fetch prices exceeding $226,087 each, so clause 3.3 was not triggered. Jetco has now been removed from the Companies Register.5
The decision
[15] The Judge was not prepared to grant summary judgment to Killarney for the following reasons:6
[56] …
(a)Looking at the events as a whole there is a concern Killarney and Jetco collaborated to keep the agreements for sale and purchase in respect of lots 48 and 49 from the knowledge of the plaintiff. The appropriate place to have referred to them was in Clause 2.3(a), where lots 22 and 79 were excluded.
(b)It is arguable reference to further lots anywhere in the development, excluding lots 22 and 79, includes agreements for sale and purchase that where entered into prior to the deed being executed due to the reference to settlement in clause 2.3(a).
(c)I have a concern the parties involved in the back to back agreement were not necessarily at arms-length. Discovery may well disclose when that transaction was discussed and recorded, and equally importantly, given the sale price need to be achieved, how the sale price was determined.
4 Emphasis added.
5 It did not go into liquidation as was recorded at [28] of the District Court decision, above n 1. Counsel also indicated it did not go into receivership.
6 District Court decision, above n 1, at [56]–[61.
[57] Killarney’s argument that it is not obligated to make any payments to BWS, is not persuasive when the documentation raises the prospect Killarney has breached the agreement BWS would receive $100,000 for the sale of the next two lots.
[58] The above paragraphs are not a determination this is what occurred, but the documentation raises the questions which need to be addressed.
[59] The matters raised indicate that the pleadings are inadequate in their present form. Should the transactions have taken place as per the worst interpretation of the facts, the Court would anticipate that there would be claims in tort and/or equity.
[60] The plaintiff needs to get discovery completed as quickly as possible and amend its pleadings once that has been completed.
[61]The application for summary judgment is denied.
Summary judgment
[16] Summary judgments in the District Court are governed by rr 12.1–12.6 of the District Court Rules 2014 (DC Rules). Where these do not prescribe the procedure to dispose of a case, the High Court Rules 2016 apply (HC Rules).7 Rule 12.2 of the DC Rules (which is identical to the corresponding HC Rules) provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to any cause of action in the statement of claim or to a particular cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[17] The principles to be applied in relation to summary judgment applications by defendants were summarised in Westpac Banking Corp v MM Kembla New Zealand Ltd.8 The Court there noted that the defendant had the onus of proving, on the balance of probabilities, that the plaintiff could not succeed. It went on to say that it was not enough for the defendant to show that there were weaknesses in the plaintiff’s case,
7 District Court Rules 2014, r 1.11.
8 Westpac Banking Corp v M M Kembla [2001] 2 NZLR 298 (CA) at [66]. The District Court Judge relied on this case: District Court decision, above n 1, at [16].
nor was it was appropriate to decide by summary procedure the sufficiency of the plaintiff’s claim save in clear cases.9
[18] The Court of Appeal also noted that a party was permitted to file an amended pleading “at any time before trial” and went on to say (referring to the previous High Court Rules, which are not materially different for present purposes):10
[66] Although r 136 refers to the causes of action "in the plaintiff's statement of claim", r 186 (which permits the Court to strike out a cause of action) similarly is based on "the pleading". Under r 186 the Court does not strike out pleadings where a defect can be cured by amendment which the party is willing to make. Similarly, the residual discretion of the Court under r 136 to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would preempt a plaintiff exercising the right to amend the pleadings in terms of r 187. Indeed, use of the discretion to enable amendment is arguably more necessary in the interests of justice in the case of summary judgment than in the case of strike out because summary judgment results in issue estoppel.
[67] The Master did not need to decline summary judgment on this ground, since he was of the view that Westpac had not discharged the burden of showing that the plaintiff could not succeed on the other causes of action (and it is necessary under r 136 to show that no cause of action could succeed). But had it been necessary for him to do so, we are of the view that it would have been open to the Master to refuse summary judgment on the ground that an amendment to the statement of claim which the plaintiff was prepared to make raised a cause of action on which he was not satisfied the plaintiff could not succeed.
[68] The wording of r 136 is consistent with the wording of r 186 and is subject to the same residual discretion to avoid oppression. Such an approach ensures that the plaintiff is not deprived of the benefit of the power to amend in r 187. Any real prejudice to a defendant through surprise can be adequately met by allowing him time to respond to the evidence. Mr Finlayson did not suggest that there were any such difficulties in the present case. The suggestion that the risk of precipitating an amendment will deter defendants from applying for summary judgment (referred to by Mr Finlayson in the argument set out in para 38 above) is not persuasive. Summary judgment should not be applied for by plaintiff or defendant unless the substantive merits of the case are clear and capable of summary disposal. If defendants are discouraged from applying for summary judgment opportunistically when correctable error by the plaintiff is identified, that seems to us a result which serves the ends identified by r 4 of just, speedy and inexpensive determination of proceedings and interlocutory applications.
[19]I now turn to consider the standard of appeal that I must apply.
9 Westpac Banking Corp v M M Kembla, above n 8, at [61]–[64].
10 At [66]–[68].
Law
Appeal
[20] BWS submitted that the refusal to enter summary judgment was the exercise of a discretion, so, this is an appeal against the exercise of discretion. Killarney submitted that the appeal proceeds by a way of rehearing, pursuant to r 20.18 of the HC Rules. That entails this Court coming to its own conclusion based upon its assessment and evaluation of the evidence that was before the District Court.
[21] An appeal against a discretion will only succeed under one of the four grounds set out in Kacem v Bashir, namely that the Court below:11
(a)made an error of law or principle;
(b)took account of irrelevant considerations;
(c)failed to take account of a relevant consideration; or
(d)was plainly wrong.
[22] BWS relied on the decision in Floorman Waikato Ltd v McRae12 (Floorman) as authority for the proposition that an appeal against a refusal to grant summary judgment was an appeal against a discretion. However, the relevant comments in that case related to the refusal to enter summary judgment due to the exercise of the residual discretion.13
[23] The commentary on r 12.2 (identical to the corresponding rule in the District Court) of the HC Rules in McGechan on Procedure, summarises the position as follows:14
(a)The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is satisfied the defendant has no defence, there is no room for the exercise of discretion.
11 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32]; citing May v May (1982) 1 NZFLR 165 (CA) at [170].
12 Floorman Waikato Ltd v McRae [2017] NZHC 1063, [2017] NZAR 779.
13 At [34].
14 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR12.2.11].
(b)The residual discretion may be invoked to avoid oppression or injustice to the defendant where:
(i)The proceeding involves the actions or possible liability of a third party which is not before the court;
(ii)The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;
(iii)The circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv)The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence.
[24] In my view, an appeal against a refusal to enter summary judgment is a general appeal insofar as it relates to the refusal to enter summary judgment on the basis the Court is satisfied “that none of the causes of action in the plaintiff’s statement of claim can succeed”. But the judge then has a residual discretion not to grant summary judgment. If the judge then exercises that discretion, an appeal from that may well be an appeal against a discretion and so the appeal is governed by the principles in Kacem v Bashir.
[25] The standard of general appeal was articulated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.15 The appellate court has the responsibility of arriving at its own assessment of the merits of the case, but the appellant bears the onus of satisfying the court that it should differ from the decision below. No deference is required beyond the customary caution appropriate when the tribunal had a particular advantage, such as technical expertise or the opportunity to assess the credibility of witnesses.16 Elias CJ summarised the position as follows:17
[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate Court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under
15 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [5] and [16].
16 At [3]–[5], [13] and [21].
17 At [16] (footnotes omitted).
appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.
[26] In this case, the evidence was adduced by affidavit without cross-examination. Therefore, this Court is in much the same position to as the Judge hearing the summary judgment in the District Court.
Issues on appeal
[27] The appellant said that the reasoning of the Judge did not make the basis for refusing summary judgment clear. It said the Judge had correctly set out the background and the submissions of both parties but had not engaged with the arguments.
[28] The appellant said it had two “king hits” which answered the claim. Both related to the interpretation of the deed of settlement. I have set out Killarney’s arguments above but summarise the two “king hits” as follows:
(a)Issue One (Clause 2.3): Clause 2.3(b) of the deed did not impose a contractual obligation on Killarney to pay, therefore, it cannot be liable for breach of contract. Jetco had the obligation to pay BWS from the proceeds of sale. The deed merely required Killarney to agree to the payment, nothing more.
(b)Issue Two (Clause 3.3): If Killarney did have a contractual obligation to pay BWS, that obligation was conditional and one or both of the conditions set out at clause 3.3 of the deed were not fulfilled. The first relevant condition was that Jetco entered into agreements for sale and purchase for “two further lots” after it entered into the deed. Therefore, the agreement for sale and purchase of three lots entered into on 10 May 2018 did not meet that condition. Killarney says the word “further” means agreements on or after the date of the deed (14 May 2018). The second was that the lots needed to be for a
minimum price whereas the agreement relating to the three lots was achieved by a land swap.
[29] The final and third issue relates to costs. Killarney says the plaintiff/respondent was granted “an indulgence” by the Court in refusing summary judgment. The Court recognised that the plaintiff’s pleading was inadequate and would require amendment. Therefore, regardless of the refusal of summary judgment, costs should have been awarded in favour of the Killarney in any event.
[30]The first and second issues involve questions of contractual interpretation.
Contractual interpretation
[31] New Zealand has adopted the “modern approach” to contractual interpretation. The Supreme Court in Firm PI 1 Ltd v Australian Insurance Ltd (Firm PI)18 describes this as an objective approach with the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.19 This objective meaning is then taken to be that which the parties intended.20 What can be regarded as “background” is that which a reasonable person would regard as relevant.21
[32] There was no criticism of the Judge’s exposition of the law in relation to contractual interpretation.22 He noted the general principle that the words of an enforceable commercial contract “should be given their ordinary meaning in the context of the contract in which they appear, because the parties are presumed to have
18 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 [“Firm PI”].
19 Firm PI, above n 18, at [60] per McGrath, Glazebrook and Arnold JJ; citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at [912] per Lord Hoffmann and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [14] per Lord Hoffmann.
20 Firm PI, above n 18, at [60], citing Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [16] per Lord Hoffmann delivering the judgment of the Privy Council.
21 Firm PI, above n 18, at [60], citing Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [39] per Lord Hoffmann.
22 The District Court decision, above n 1, at [22]–[26].
intended the words to be given that meaning”.23 He also noted that, if there was ambiguity in a contract because the words were not clear, resort could be had to material outside the contract to resolve the ambiguity.24 Nevertheless, a court must be satisfied that “there is genuine and relevant ambiguity; assertions by parties of possible different meanings will not suffice”.25
[33] His Honour also noted the comments of Wilson J in Vector Gas Ltd,26 that prior negotiations may be relevant in certain circumstances. That post-contractual conduct could also be used as an aid to interpretation in appropriate cases was confirmed by the Supreme Court in Wholesale Distributors Ltd v Gibbons Holdings Ltd27 and Vector Gas Ltd.28
[34] Mr Gordon, for Killarney, emphasised the focus should be on the meaning of the words and favoured a more literal approach to interpretation. On the other hand, Mr Braun, for BWS, emphasised that context was particularly important in this case and that the proper approach was an objective one with the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.29
[35] Both parties pointed to circumstances which favoured its interpretation. For instance, Mr Gordon noted that Killarney was merely a financier so it was consistent with its interpretation that a financier would be required to merely “consent” to the payments to BWS as mortgagee. Whereas Mr Braun pointed out that Killarney’s lawyers drafted the deed, therefore, in the case of ambiguity it should be interpreted contra proferentem. He also said the post-contractual conduct of Killarney should be taken into account. He was referring to Killarney stepping into the shoes of Jetco to make the payment of the $120,000 to BWS from the proceeds of sale of the lots under
23 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444, at [119] per Wilson J.
24 At [120] per Wilson J.
25 At [120] per Wilson J.
26 At [122] per Wilson J.
27 Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37, [2008] 1 NZLR 277.
28 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 23, at [30] per Blanchard J.
29 Firm PI, above n 18, at [60]–[61].
clause 2.2. This, Mr Braun suggested, showed that Killarney took a hands-on approach and was not passively standing by, consenting to the payment. Its role in the payment of BWS indicated a more active role for Killarney when it was, in practical terms, controlling the disbursement of the proceeds of sale.
Contractual duties
Appellant’s submissions
[36] Killarney submits that the District Court’s decision did not confront the appellant’s two main defences. First, that it did not owe a contractual obligation to BWS to pay the $100,000; and second, that the three-lot agreement did not qualify under clause 2.3 because it was entered into prior to the deed.
[37] The appellant says the Court did not analyse the contractual obligation Killarney is said to have under clause 2.3(b) of the deed, beyond saying the claim was “not persuasive” based on the documentation available to the Court. Killarney says the Judge conflated and confused its two main defences.
[38] Killarney says the District Court decision does not indicate that it was Killarney that agreed to pay BWS $100,000. It says Killarney owed no contractual obligation to pay BWS because all it agreed to in the deed was to not enforce its rights, as mortgagee, to take the entire sale proceeds upon any sales by Jetco. The obligation remained on Jetco to pay from the proceeds of the sale of Jetco. Killarney says this was based on the language, emphasising clause 2.2(b) and 2.3(b), which provide:
(a)Killarney agrees to the payment set out in paragraph (a) being made from the proceeds of sale of those five lots…
(b)Killarney agrees to the payments set out in paragraph (b) being made from the proceeds of sale of each of those two lots…
Respondent’s submissions
[39] BWS says that if Killarney had no obligation under the deed other than to “consent” to Jetco paying the proceeds to BWS, then taken to its natural conclusion,
if Killarney received the sale proceeds, it could just take the money without Jetco’s involvement and without paying BWS. This, BWS says, is a commercially absurd interpretation, given the context.
[40] BWS also points to other matters that it says a reasonable person would regard as relevant background knowledge for the interpretation of the deed. First, it says Killarney had a substantial investment in the subdivision. BWS could have held up the subdivision. To avoid that Killarney had approached BWS with the proposal. BWS says Killarney took over responsibility for paying Jetco’s contractors and “Jetco did pretty much what Killarney told it to do”, according to Mr Wallace of BWS. The payments to BWS would come from the sale proceeds, which were in fact controlled by Killarney, not by Jetco. Killarney’s solicitors drafted the deed and Killarney agreed that BWS would be paid from the sale proceeds. Mr Cooke, for Killarney, had also offered assurances he would make sure BWS was paid the two tranches, according to Mr Wallace.
[41] BWS submits there are factual disputes and a lack of clarity and completeness in the affidavit evidence, rendering the evidence unsuitable for summary judgment. It says the circumstances surrounding the entering of the deed need proper consideration which can only occur at trial.
[42] Mr Braun said that in the course of the hearing in the District Court, he discussed with the Judge the addition of other possible causes of action that were available to the plaintiff in this case. Mr Braun indicated that those discussions referred to possible claims of estoppel and unjust enrichment. In the course of submissions at the appeal hearing Mr Braun also indicated that a refinement of the pleadings alleging breach of contract was required and may include an allegation of an oral collateral contract.
[43] The appellant criticised BWS for failing to make amendments to the pleadings earlier as BWS had been on notice of the defects since the delivery of the summary judgment decision in June 2020. Mr Braun responded that, rather than replead immediately, it was preferable to undertake discovery in case there was further material which might indicate other claims. He said it was important all possible
causes of action were properly pleaded in one amended statement of claim rather than a series of iterations.
[44] Nevertheless, even on the limited material disclosed by Killarney for the purposes of the summary judgment application, the information justifying the repleading outlined existed.
Discussion
Issue one: interpretation of clause 2.3 of the deed
[45] The Judge noted that clause 2.3 (a) of the deed provides for payment for each of the next two lots anywhere in the development that settled but that clause “makes no differentiation as to whether the settlements are from agreements entered into prior or after the date of the deed”.30 The Judge then went on to say that it is arguable that the reference to those lots included any subject to agreements for sale and purchase that were entered prior to the deed being executed, because of the reference to “settlement” in clause 2.3 (a).31 That clause appears to refer to any future settlement of sales of lots after those from which the $120,000 was paid to BWS on 11 June 2018. The sales of the three lots were settled in July 2018 so therefore they settled after 11 June. The Judge therefore pointed out that clause 2.3 could be read without straining the words to mean that BWS was entitled to its additional $100,000 out of the sale of lots 48, 49 and 53 as long as the sales were settled after the date of the deed. They were.
[46] The Judge did not directly address what “agrees” meant as it was used in clause 2.3(b). That says: “Killarney agrees to the payment set out in paragraph (a) being made from the proceeds of sale each of those two lots [sic]”. The same wording had been used in clause 2.2(b).
[47] In my view an available interpretation is that Killarney was agreeing to the payment of the additional $50,000 for the next two lots that settled from the proceeds of sale of that settlement. Jetco was the party that clause 2.3(a) recorded would “pay”,
30 District Court decision, above n 1, at [53].
31 At [56](b).
but Killarney was agreeing that the payment would be made from the proceeds of sale of the two lots. Killarney, it appears, was controlling the funds received and payments from those funds, therefore it played an active role and it is arguable that it had a positive obligation to make the payment, or at least pay the proceeds of sale to Jetco to enable it to make the payment. In those circumstances, its agreement to the payment to BWS imposed an obligation on it higher than that of a passive “consenter”.
[48] In support of that interpretation Mr Braun points to the post-contractual conduct of Killarney, and the payment of $120,000 from the proceeds of sale as required under clause 2.2, as relevant to the interpretation.
[49] While not as detailed in the reasoning as I have set out, in my view, the Judge was correct in his conclusion of the decision that “the documentation raises the prospect Killarney has breached the agreement BWS would receive $100,000 for the sale of the next two lots”.32
[50]I now consider the condition in clause 3.3.
Issue two: whether the sale of the two lots qualified under clause 3.3
[51]For convenience I again set out clause 3.3:
3.3 The obligations set out in clause 2.3 of this deed are conditional upon Jetco entering into agreements for sale and purchase for two further lots anywhere in the Development, (excluding lots 22 and 79) for a sale price of not less than $226,087 (plus GST if any) for each lot.
[52] The first qualifying condition under clause 3.3 was that the agreements for sale and purchase of each of the two further lots achieve a sale price of not less than
$226,087. The sale of the three lots was for a price of $840,000 on the face of the agreement for sale and purchase. Therefore, on a pro rata basis the sale of two of those lots met the qualifying sale price condition (not less than $226,087) under clause 3.3.
[53] Killarney took the point that settlement of the agreement for sale and purchase of the three lots was effected not by the payment of $840,000 to Jetco by the purchaser,
32 District Court decision, above n 1, at [57].
but instead by Jetco, or its nominee, receiving another property under an agreement for sale and purchase executed at the same time. However, there was a payment for the lots of $840,000 and the use of those funds for the purpose of another purchase which must have been agreed to by Killarney or settlement of the sale could not have been effected. Therefore, as Killarney had agreed with BWS that the funds would be paid from Jetco to BWS and, it must have been involved at least by consenting to the arrangements resulting in the diversion of the proceeds of sale, it is arguable it was in breach of its agreement with BWS. The details of the arrangements, which ultimately saw Killarney receive $550,000 in return for it allowing the proceeds of sale to be disbursed, are obscure. The involvement of the shareholder/guarantor taking the benefit of the transaction also raises concerns.
[54] The second condition in clause 3.3, was that the agreements for sale and purchase were of “two further lots”. In my view “further” could mean “additional”. Killarney says the obvious interpretation is that further means “not prior to”. On Killarney’s interpretation the agreement for sale and purchase of the three lots which was entered into before the deed with settlement of the sales after the deed would be a “prior” agreement and therefore the second condition would not have been met. Killarney also points to the use of the words “entering into”, in relation to the sale and purchase of the two further lots. It says this indicates a future focus and so supports the interpretation for which it contends. It said that for the clause to have the meaning asserted by BWS the words “having already entered into” should have been used.
[55] While that is one interpretation of those words, another is that the phrase indicates the entering into of agreements in relation to additional lots anywhere in the development, except lots 22 and 79. If the agreement for sale and purchase for the three lots was to be excluded then they could have been listed as excluded from the arrangements along with lots 22 and 79 which were expressly excluded.
[56] I consider the interpretation of “further” in the context of the wording of the deed is open to an interpretation which would not exclude the sale of the three lots from the operation of clause 2.3(b).
[57] The Judge made no error in his conclusion when he said that Killarney’s claim that there was no defence was “not persuasive when the documentation raises the prospect Killarney has breached the agreement BWS would receive $100,000 for the sale of the next two lots”.33 The Judge noted that his conclusion was for the purposes of summary judgment and not a “determination” about what occurred, but that “the documentation raises the questions which need to be addressed”.34
[58] I am of the view that the District Court Judge made no error in refusing summary judgment based on the fact that Killarney did not satisfy the Court that the cause of action in the respondent’s statement of claim could not succeed. There is an arguable claim that Killarney has breached the contract if the deed is interpreted as BWS contends. That interpretation is open on the wording of the relevant clauses when taken in context and it will be a matter for trial as to whether the interpretation is aided by post-contractual conduct and further evidence as to the surrounding circumstances.
[59] In addition, the District Court Judge indicated the exercise of his residual discretion could be in favour of the respondent to allow an amendment to the pleadings. While he did not describe in detail how he considered the “inadequate” pleadings might be amended or why they were inadequate, he specifically pointed to the possibility that Killarney and Jetco had collaborated to keep the agreement for sale and purchase in respect of the three lots “from the knowledge of the plaintiff” as well as the possibility that discovery might disclose more details that the “parties involved in the back to back agreement were not necessarily at arms-length”.35 The Judge went on to say that discovery might disclose when the transaction was discussed and recorded as well as how the sale price was determined.
[60] These points indicate grounds for claims based on estoppel and unjust enrichment and a possible collateral agreement.
33 District Court decision, above n 1, at [57].
34 At [58].
35 At [56].
[61] On the evidence available, limited as it was before this Court, there are tenable claims based on the further causes of action which may not have been specified in the decision.
[62] The general background I have set out above is to an incomplete picture. Extrinsic evidence may shed some light on the parties’ intentions. This matter can only be effectively resolved by a trial Judge in light of all the evidence.
[63] In my view the defendant does not have a clear and complete answer to the plaintiff’s claim. In addition, there are other arguable causes of action and the indication is that the pleadings will be amended to include further claims.
[64] In my view the Judge made no error in first refusing summary judgment on the basis he was not satisfied that the plaintiff could not succeed on a claim of breach of contract and second, in indicating that he would exercise his residual discretion not to grant summary judgment on the basis that the pleadings could be amended by the addition of other arguable causes of action.
Issue three: costs
[65] The appellant submits that the Judge should not have indicated that the respondent should be awarded costs. Killarney says costs should have been reserved or ordered to lie where they fell. BWS’s pleadings were inadequate and required amendment. Therefore, the appellant says, the Judge granted an indulgence to BWS and so it should pay costs in any event.
[66]Rules 14.1(1) and 14.8(3) of the DC Rules, provide for costs as follows:
14.1 Costs at discretion of court
(1)All matters are at the discretion of the court if they relate to costs—
(a)of a proceeding; or
(b)incidental to a proceeding; or
(c)of a step in a proceeding.
(2)Rules 14.2 to 14.10 are subject to subclause (1).
(3)The provisions of any Act override subclauses (1) and (2).
…
14.8 Costs in interlocutory applications
(1)Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—
(a)must be fixed in accordance with these rules when the application is determined; and
(b)become payable when they are fixed.
(2)Despite subclause (1), the court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made.
(3)This rule does not apply to an application for summary judgment.
[67] BWS submitted in response that while in the past costs were often reserved in summary judgment matters, more recently there had been a tendency by the courts to award costs at the interlocutory stage. It said that it was more efficient for the Judge hearing an application to deal with costs as they are already familiar with the material and had heard the arguments. It submitted that, in the circumstances, the discretion was exercised appropriately, and none of the Kacem v Bashir grounds are engaged here.
[68] In my view the Judge made no error in indicating costs would follow the event. It was open to him in his discretion to indicate he would grant costs in favour of the respondent who was the successful party to the application. The quantum of costs is yet to be determined and it is open to the Judge to exercise his discretion in fixing the quantum to reflect any adjustment he may consider appropriate to reflect any failings by the plaintiff at the summary judgment stage if he is persuaded they should be taken into account.
[69]Accordingly, the appellant has not succeeded on any of the grounds of appeal.
[70]The appeal is dismissed.
Costs on appeal
[71] In the ordinary course costs on appeal would follow the event. It appears that the appropriate categorisation would be 2B.
[72] If counsel are unable to agree on costs given that indication, the respondent should file and serve an application and memorandum in support on or before five working days of the date of this judgment. Any response should be made within a further five working days, and any reply within a further three working days.
Grice J
Solicitors:
MinterEllisonRuddWatts, Wellington for the appellant. Braun Bond & Lomas Ltd, Hamilton for the respondent.
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