Kumar v Bahramitash

[2004] NZCA 266

IN THE COURT OF APPEAL OF NEW ZEALAND

CA51/04

BETWEENSATISH KUMAR AND SUNILA KUMAR

Appellants

ANDPARSOA BAHRAMITASH

Respondent

Hearing:21 October 2004

Coram:Anderson P
Hammond J
William Young J

Appearances:  D Singh for Appellants

P J Dale for Respondent

Judgment:8 November 2004 

JUDGMENT OF THE COURT DELIVERED BY HAMMOND J

Introduction

[1]       This appeal arises out of a conveyancing dispute in which the appellants (as purchasers) sought specific performance against the respondent (the vendor) with respect to an agreement for the sale and purchase of a vacant residential section in Auckland.

[2]       Williams J declined the relief sought in a judgment delivered in the High Court at Auckland dated 4 March 2004 (CIV-2003-404-5876).

[3]       The Kumars now appeal to this Court.  In the result, we take the view that the case was one for specific performance, with, if necessary, an abatement in price.  The appeal accordingly succeeds.

[4]       Although the arguments before us involved a close traverse of a number of authorities in the High Court and in this Court, in the view we take of the matter, the proceeding was of a relatively straightforward character and can be dealt with quite succinctly.

Background

[5]       The Kumars were interested in purchasing a vacant section at Mangere Bridge, Auckland, from Mr Bahramitash.  They inspected the section.  Two of the boundaries to the property were fenced.  Construction was occurring on neighbouring land.

[6]       On 21 August 2003 the Kumars entered into a contract to purchase this section.  The contract was in the standard REINZ-ADLS (7 ed (2), July 1999) form.  The settlement date under this contract was 11 September 2003.

[7]       After the agreement was executed, the Kumars developed two concerns.  First there was difficulty in locating some boundary pegs (which had been displaced).  Secondly, they discovered quite a large mound of mixed soil and building debris (“spoilage”) on the section which had not been there prior to the agreement being entered into.

[8]       The Kumars wanted to be sure the boundary pegs were properly in place, and they wanted this spoilage removed, prior to settlement. 

[9]       These two occurrences provoked correspondence between the solicitors for the Kumars and Mr Bahramitash.

[10]     It is convenient at this point to put to one side altogether, as no longer relevant to this judgment, the claim which was advanced with respect to the boundary pegs, in the High Court proceedings.  It suffices to say, for present purposes, that the Kumars’ claims - at least as presented - with respect to the boundary pegs were misconceived and only faintly touched upon, by way of background, in this Court.  It is therefore unnecessary to say anything more under that head.  To do so would detract from the real issues in the case.

[11]     We therefore resume the narrative as at 3 September 2003.  On that date the Kumars’ solicitor complained about this spoilage on the subject land.  He said his clients required its removal, and claimed compensation if this work was not done before settlement.

[12]     Mr Bahramitash’s solicitor replied, asserting that the spoilage was on the property at the time of the purchasers’ inspection.  There was further correspondence between the solicitors which the Kumars’ solicitor took as a clear indication that settlement less an amount of compensation for the spoilage would be futile.

[13]     On 5 September 2003 Mr Bahramitash’s solicitor asserted that settlement in full would be required on 11 September; he forwarded a settlement statement on 8 September; and on 9 September a transfer and associated documents were sent for execution by the Kumars.

[14]     On the day fixed for settlement, 11 September 2003, the Kumars’ solicitor indicated that he was ready to settle, but he maintained the objection with respect to removal of the spoilage.  An amount of $10,000 in compensation was again mentioned.  That sum encompassed the futile dispute over the pegs, as well as the dispute over the removal of the spoilage. 

[15]     The Kumars’ solicitor also noted, in the relevant letter, “If we are wrong on this [ie his understanding regarding the futility of tendering settlement less the suggested compensation] please advise otherwise no formal tender will be made”.

[16]     Settlement did not in fact occur.  No formal tender of settlement was made.

[17]     The following day, 12 September 2003, Mr Bahramitash’s solicitor served a settlement notice.

[18]     On 15 September 2003 the Kumars’ solicitor asserted that Mr Bahramitash’s settlement notice was invalid (because of the unresolved questions of the pegs and the spoilage).  He enclosed a settlement notice on behalf of the Kumars requiring (incorrectly) Mr Bahramitash to point out the boundary pegs; and (correctly) maintaining that the vendor should deliver possession of the property in the state in which it had originally been inspected by the Kumars.

[19]     On 1 October 2003 Mr Bahramitash’s solicitor wrote cancelling the contract for failure on the Kumars part to settle in accordance with the respondent’s settlement notice.

[20]     It was in that context that the proceedings for specific performance were issued, on 20 October 2003.

[21]     It has to be said that proceedings of this character, given the limited subject matter which was in dispute, were quite unwise on the part of both the Kumars and Mr Bahramitash.  The real argument was a silly one about who was going to be responsible for the removal of spoilage, the cost of which could not amount to any more than a thousand or two dollars, from the subject land.  Other than that problem, the parties were perfectly content with their agreement.  There was no evidence of one party wishing to back out, or a gazumping, or anything of that character.  Instead the parties took intransigent positions; and stood on their supposed strict legal rights which, as it turns out, in our view do not reflect a sound understanding by either party of the position which had arisen.

The decision in the High Court

[22]     Williams J held, as a question of fact, that this spoilage had been dumped on the subject land after the date of contract by a neighbour, a Mr Sivalay.  Who put it there and why did not matter for the purposes of the case.  The spoilage had been deposited after the date of the contract, and, as the Judge put it, “There can be no doubt that the purchasers are entitled to receive the property they are buying in the condition it was at the time the contract was signed” (para [22]).  It was therefore Mr Bahramitash’s duty to remove the relevant spoilage (without cost to the Kumars).   But, as the Judge saw it, this was subject to the Kumars tendering settlement, in the legal sense of that term, prior to service of their settlement notice.

[23]     The Judge proceeded on the footing that the Kumars should have made a formal tender of settlement, unless a tender of settlement would have been futile (Stewart v Davis (No.2) (1996) 3 NZ Conv C 192,285 at 192,290 (CA) per McGechan J, for this Court).  He considered that there was no evidential basis to reach a conclusion of “futility”.  Specific performance was therefore refused.

Discussion

[24]     Mr Dale endeavoured to support the judgment under appeal.

[25]     Mr Dale’s central argument (which was the argument which had been adopted by the High Court Judge) was that what the appellants “ought to have done was to have tendered settlement less an amount calculated [by them] and in accordance with cl 4.2(2) as being the amount of diminution in value of the property”.  They did not do so, and their failure to do so “is fatal to their claim”.

[26]     Clause 4.2(2) provides, relevantly:

4.2If, prior to the giving and taking of possession, the property is destroyed or damaged, and such destruction or damage has not been made good by the possession date, then the following provisions shall apply:

…

(2)If the property is not untenantable on the possession date the purchaser shall complete the purchase at the above price less a sum equal to the amount of the diminution in value of the property.

[27]     With all respect to the Judge and Mr Dale, we think that is the wrong point of entry into this problem.

[28]     The starting point is that Mr Bahramitash purported to cancel this agreement, on the basis of his settlement notice.  But Mr Bahramitash was not, at the relevant date, and in terms of cl 9.1(2), “in all material respects ready able and willing to proceed to settle in accordance with” the contract.  Mr Bahramitash was not prepared to give what he had contracted to give, namely, the subject land without the accretion of the spoilage.  To put it another way, the land was by now inappropriately encumbered by this additional spoilage.  It followed that Mr Bahramitash’s settlement notice was, in consequence, invalid.  And it further followed that the contract therefore remained on foot.

[29]     Once that point is reached, it follows that the Kumars were entitled to seek specific performance on the usual basis, for non-performance, but subject to the usual considerations which pertain to the exercise of that remedy.

[30]     It is correct that the Kumars could have proceeded in terms of cl 4.2(2) of the agreement, and deducted a sum which they considered to be supportable for the diminution in value of the property, and tendered the resultant net figure.  For ourselves, we have no difficulty in seeing that there was a diminution in this case.  The property was encumbered by this additional spoilage upon it.  In economic terms, that was an encumbrance which would have to be removed from the property.  The diminution in value of the property in this particular instance was simply the reasonable cost of removing the spoilage. 

[31]     We record, without endorsing, that Mr Dale expressly accepted that, had the Kumars proceeded in this manner under that clause, the vendor would have been bound by the settlement sum actually tendered. 

[32]     It is also worth observing that, in a more complex case than the present, arriving at whether there is “diminution”, and what the value of that is could be difficult to determine.  In that kind of case, that sort of problem can be resolved, where the purchaser is not in breach and holds the vendor to the contract, by the rather obvious alternative (to which we will shortly come) of the purchaser suing for specific performance but with abatement.  In a case of that kind, where the amount of the diminution is contested, the Court would then be enabled to determine (of course on appropriate evidence) just what the abatement should be.

[33]     In this instance, the Kumars may well have been advised to tender formal settlement with a lesser figure to take account of the spoilage, and had they done so we rather think that this whole unfortunate litigation would likely not have arisen.

[34]     But - and this is the fundamental flaw in Mr Dale’s argument - the Kumars were not precluded from advancing to the Court a claim for specific performance, if necessary with an abatement in price.  This remedy was entirely reserved to them by cls 9.5 and 9.7 of the standard agreement which provide:

9.5If the vendor does not comply with the terms of a settlement notice served by the purchaser then without prejudice to any other rights or remedies available to the purchaser at law or in equity the purchaser may:

(1)sue the vendor for specific performance; or

(2)cancel this agreement by notice and require the vendor forthwith to repay to the purchaser any deposit and any other money paid on account of the purchase price and interest on such sum(s) at the interest rate for late settlement from the date or dates of payment by the purchaser until repayment.

…

9.7Nothing in this clause shall preclude a party from suing for specific performance without giving a settlement notice.

[35]     It will be noted that cl 9.7 goes so far as to enable a party in the position of the appellants to sue for specific performance even without giving a settlement notice.

[36]     A fundamental purpose of cl 4.2(2) is to protect a vendor where there is a discrepancy in what was agreed, and what can be delivered, against the possibility of the contract going off on that account.  But that adjustment provision is not an exclusive remedy.

[37]     The position of a purchaser who sues for specific performance where there is a shortfall in the subject matter of the agreement was clearly put as long ago as 1804, by Lord Eldon LC who said:

… if a man, having partial interests in an estate, chooses to enter into a contract, representing it, and agreeing to sell it, as his own, it is not competent to him afterwards to say, though he has valuable interests, he has not the entirety, and therefore the purchaser shall not have the benefit of his contract; and he added, For the purpose of this jurisdiction, the person contracting under those circumstances is bound by the assertion in his contract; and, if the vendee chooses to take as much as he can have, he has a right to that, and to an abatement; and the court will not hear the objection by the vendor, that the purchaser cannot have the whole.  (Mortlock v Buller (1804) 10 Ves 292 at 315-316, 32 ER 857 at 866.)

[38]     As to the calculation of an abatement, Courts with equity jurisdiction “will struggle with very considerable difficulties in order to determine an amount they regard as appropriate [for such an abatement]” (Spry, Equitable Remedies 6 ed at 303). Hence, difficulty of assessment is not a bar to abatement:  the general principle that the Court must do the best that it can, obtains also in this area of judicial remedies.

[39]     If the Kumars adopted (as they did) the course of suing for specific performance, they were required (in accordance with the usual considerations pertaining to that remedy) to demonstrate that, as at the date of consideration of this remedy, they were ready, willing and able to settle on the contract for the subject land, in its proper and unencumbered state.  On the evidence, this was here the case.

[40]     The Kumars did not cancel the contract.  The fact situation in this case is that there was an invalid cancellation by the vendor, who has then endeavoured to use cl 4.2(2), in the circumstances of this particular case, as a shield when sued for specific performance.  We can see no appropriate reason to allow cl 4.2(2) to operate in this manner, to the exclusion of other remedies to which the appellants are both in principle, and in terms of the agreement, entitled.  The general principle of the law is that equitable principles are excluded only to the extent that such exclusion is clearly provided for by an agreement (see eg. In re Terry and Whites Contract (1886) 32 Ch.D.14).

[41]     There are no discretionary considerations which militate against the claim for specific performance being advanced in the manner it was in this case.  The appellants have stood by the contract, the land is still available (there are here no complications with an “on sale”); it appeared to be accepted in argument before us that there has not been any real alteration in value of the land; the appellants have been, and are, ready, willing and able to settle.  We were told the funds are held in readiness in their solicitor’s trust account.  The only impediment to settlement has been the intransigence of Mr Bahramitash in not, in some manner or other, having this spoilage cleared off the land prior to actual settlement.  We consider therefore that, in principle, the appellants are entitled to specific performance of this particular agreement, with such abatement as may be appropriate.

[42]     If we reached this conclusion, the parties were anxious to see this matter resolved in this Court, rather than having it remitted to the High Court.  We agree that this is one of those cases in which the matter should, to the greatest extent possible, be resolved in this Court. 

[43]     We think the question of abatement can be resolved this way.  We have in evidence before us the photographs of the spoilage on this particular site.  This is real evidence.  Even by looking at those photographs this Court is in a position to make a commonsense estimate of the size of the job.  Mr Dale said that his interests had procured a preliminary estimate.  His understanding is that no more than a few hundred dollars would be involved in the removal.  At one point of time the appellants had got a rough estimate of $4,000 for removal.  On the basis of what we have in front of us, and what we have been told, we propose to direct that if the respondent has not had this spoilage cleared off on the date of settlement, then the purchase price is to abate by a sum of $2,000.

[44]     We think it best to fix a settlement date, as a condition of the decree of specific performance.  That date will be Friday 19 November 2004 at which date the usual apportionments should be made.

[45]     As to interest, we have held that the respondent was in default under this agreement, which was still on foot.  If settlement does not take place on the date we have directed, the respondent will however be entitled to interest, in contractual terms, from that date, but not otherwise.

[46]     As to costs, the order for costs made in the High Court is quashed.  In that Court the appellants proceeded on a confused basis, and with unnecessary arguments, which had an effect on the length of the trial.  And we have noted that the proceeding may well not have been required at all, if a different course had been followed by them.  The appellants will have costs on the 1B scale, to reflect these factors.

[47]     In this Court, the appellants will have costs of $3,000, together with their reasonable disbursements.  Those disbursements are to include the travel and accommodation expenses of one counsel for the appellants.  In the event that the parties cannot agree on the disbursements, same are to be fixed by the Registrar.

[48]     In case there is anything of a conveyancing nature which has been overlooked before us, we reserve general leave to either party to apply, as may be appropriate, for further directions.

Solicitors:
Shean Singh, Auckland for Appellants
Grove Darlow & Partners, Auckland for Respondent