Kumar v Nandan
[2016] NZHC 935
•10 May 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2886 [2016] NZHC 935
BETWEEN PRIBIKA SHALEEN KUMAR
Plaintiff
AND
RONEEL NANDAN AND ARCHANA ABHIYASNI
Defendants
PAKURANGA & HOWICK REALTY LIMITED
First Third Party
SAMUEL WONG Second Third Party
Hearing: 9 March 2016 Counsel:
B Gustafson for Plaintiff
C J R Baird and A Shinkarenko for DefendantsJudgment:
10 May 2016
JUDGMENT OF WHATA J
This judgment was delivered by me on 10 May 2016 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors:
Kennedys, Auckland
Aaron Kashyap, AucklandQuinn Law, Auckland
KUMAR v NANDAN & ORS [2016] NZHC 935 [10 May 2016]
[1] An agreement to sell a house was signed by the parties in October 2013. The deposit for the house was not paid until February 2016, after proceedings for specific performance or damages were launched by the purchasers. The vendors seek summary judgment and/or strike-out of the claim given the failure to pay the deposit on time (and for breach of the LIM condition).
[2] It might be thought that the failure to pay the deposit on time, or even at all, prior to the commencement of proceedings, when time is of the essence, precludes a claim for specific performance and damages. But as with many cases of this kind, the answer is not always so simple.1 The vendor purported to cancel the agreement prior to the settlement date, alleging misrepresentation and mistake. No mention was made of the failure to pay the deposit at the time. A caveat was lodged to protect the purchaser’s interests and the purchaser’s solicitor advised the listing agent (albeit well after the date for payment) that the deposit was not paid because of the vendor’s
purported cancellation. Complicating matters, the purchaser’s subsequent attempts at settlement did not include the deposit sum, it appears, on the assumption it had already been paid. The conduct of the parties therefore will not go down in the history books as an exemplar of conveyancing practice.
[3] The central issue for me to resolve is whether, against this complicated backdrop, the vendor is entitled to summary judgment for non-payment of the deposit and/or whether the purchaser’s claim should be struck out.
Facts
[4] The following narrative is largely borrowed from Mr Baird’s summary which for the most part was not disputed.
1 Noble Investments Ltd v Keenan [2006] NZAR 594 (CA); Ingram v Patcroft Properties [2011] NZSC 49, [2011] 3 NZLR 433; Hirst v Vousden [2004] UKPC 24, (2004) 6 NZCPR 135; Kumar v Station Properties Ltd (in liq and in rec) [2015] NZSC 34, [2016] 1 NZLR 99.
The agreement
[5] On 20 October 2013 the parties signed an Agreement for Sale and Purchase of the property (the Agreement). The Agreement records a purchase price of
$380,000 with a deposit of $5,000:
payable to Pakuranga and Howick Realty Trust Account on unconditional of the agreement
[6] The recorded price was, at that time, a counter offer to the purchaser’s initial offer of $370,000. A finance condition “sufficient to purchase” with a finance date 10 working days after the date of the Agreement was included. A LIM together with a building report was also required.
[7] The requirement to pay the deposit, the provision for notice to pay the deposit and the process for cancellation are recorded at cls 2.1 and 2.2 of the Agreement. They state:
2.1The purchaser shall pay the deposit to the vendor or the vendor’s agent immediately upon execution of this agreement by both parties and/or at such other time as is specified in this agreement.
2.2If the deposit is not paid on the due date for payment, the vendor may at any time thereafter serve on the purchaser notice requiring payment. If the purchaser fails to pay the deposit on or before the third working day after service of the notice, time being of the essence, the vendor may cancel this agreement by serving notice of cancellation on the purchaser. No notice of cancellation shall be effective if the deposit has been paid before the notice of cancellation is served.
[8] Clause 9.2 addresses the LIM obligations and clause 9.8 deals with non compliance of specific conditions. I set them out at [62]–[63] of the judgment.
Defendants’ realise their mistake
[9] The defendants say they almost immediately realised that the amount recorded in the agreement was wrong and instructed the agent, Mr Wong, to return the counteroffer agreement. He refused to do so. The defendants then advised the listing agent of the issue and instructed their then lawyers to assist.
Finance and building report satisfied
[10] On 1 November 2013, the defendants’ then solicitors, Simpson Lawyers, received a faxed letter from the plaintiff ’s solicitor, Aaron Kashyap, notifying satisfaction of the finance and building report conditions recorded in the Agreement, effectively making the Agreement unconditional. The same day the defendants’ then solicitors received a fax from P&H Realty seeking confirmation that the Agreement was unconditional and seeking to confirm the settlement date.
The defendants’ cancellation letter
[11] On 20 November 2013, the defendants by their new solicitors, Quinn Law, notified the plaintiff’s solicitor, Aaron Kashyap, of cancellation of the Agreement and recorded in a summary manner some events in issue surrounding the transaction (“Cancellation Letter”). This letter does not refer to the non-payment of the deposit or the alleged failure to comply with the LIM condition. Rather the letter claimed that the defendants had been misled by the real estate agent, Mr Wong, and that the agent did not act on their instructions not to tender the counter offer to the purchaser as it was a mistake.
The plaintiff ’s caveat
[12] On 21 November 2013, the plaintiff registered a caveat over the property and subsequently commenced caveat sustaining proceedings in the High Court at Auckland following receipt of a lapsing notice.2
[13] On 18 December 2013, the plaintiff responded to the Cancellation Letter by a letter from her solicitor, Aaron Kashyap, in which she rejected the cancellation, claimed she had no knowledge of interactions between the defendants and Mr Wong,
and stated that she would seek specific performance of the Agreement.
2 The caveat was sustained by consent pending the issuing and determination of this proceeding.
This proceeding was commenced on 4 November 2014.
Deposit sought
[14] On 20 December 2013, by email at 9.38am to Mr Kashyap, Marie-Claire Lamb of P&H Realty sought confirmation from the plaintiff of the payment of deposit in the following terms:
When I last spoke to you at 4.00pm on 25 November you advised me that the deposit for the above property had been paid into your trust account and that the agreement was unconditional.
As the agreement called for the $5,000.00 deposit to be paid to Pakuranga & Howick Realty Ltd Trust account on the unconditional date can you please advise me in writing by 4.00pm today that you will undertake to pay the deposit into our Trust Account.
[15] Later that same day at 3.40pm Marie-Claire Lamb of P&H Realty spoke to
Aaron Kashyap by telephone in relation to the deposit. Her file note records:
MC spoke to Aaron on 20/12 3.30pm re deposit. He told MC that he will not be passing the deposit to PHR. This is because the V. lawyers have raised issues where they say won’t settle & not u/c. Therefore they cannot give deposit to us – he needs to keep it in his trust a/c & give it to the purchaser if he so directs.
Notice of settlement
[16] On 10 January 2014, P&H Realty sent a notice of settlement dated 10
January 2014 to the defendants’ lawyers. The defendants did not tender settlement on that day. There was then a letter from Mr Kashyap on 28 January 2014 to Quinn Law indicating that the purchaser was prepared to settle the matter on 7 February
2014. There is then a further letter on 3 February 2014 from the purchaser’s solicitors to Quinn Law recording an understanding that the vendors have agreed to settlement on Friday 7 February 2014.
[17] It appears that no further steps were taken in terms of the Agreement until 3
September 2014 when the defendants applied to LINZ to lapse the caveat registered over their property. By letter dated 4 September 2015, Mr Kashyap then appears to give notice of intention to settle on 9 September 2015. This is followed by the presentation of a cheque by the plaintiff on 9 September 2015 for the sum of
$375,000. Mr Kashyap then records in a letter dated 18 November 2015 that the deposit was not in fact paid into the P&H Realty trust account and that the $5,000
deposit had remained in the purchaser’s solicitor’s trust account. The letter also records and encloses evidence of the drawdown in the amount of $380,000 to show that had the defendants and/or their solicitors advised the plaintiff of a settlement figure, not only would non-payment of the deposit have been recalled earlier but that the plaintiff would have remained in a position to tender settlement in its entirety on
9 September 2015.
[18] The amount of $5,000 was paid by the purchaser’s solicitor on 5 February
2016, after the defendant’s interlocutory application for summary judgment and strike out had been filed, alleging non-payment of the deposit.
The pleadings
[19] The first Statement of claim was filed in the High Court on 4 November
2014. It records, among other things:
2. On or about 20 October the plaintiff entered into a Sale and Purchase
Agreement for the real estate with the respondents (“Agreement”) …
…
6. The plaintiff paid a deposit of $5,000 to the respondent’s real estate
agent as per the terms of the agreement.
7. The agreement was conditional upon the satisfaction of the finance,
land information (“LIM”) and builder’s report conditions.
8. The finance and builder’s conditions were due for satisfaction 10
working days from the date of the agreement, being 1 November
2013.
9.The LIM report condition was to be deemed as satisfied 15 working days from the date of the agreement unless the appellant objected to the matters in the LIM report.
10.The plaintiff did not make any objection to the LIM report within 15 working days of the date of the agreement. Hereafter, the LIM condition was deemed satisfied on 8 November 2014.
…
18.In accordance with the terms of the Sale and Purchase Agreement dated 20 October 2013, the plaintiff has fulfilled her obligations in terms of the Agreement and now requires the respondents to perform their obligations under the Agreement.
19.Accordingly, the plaintiff is at all material times, willing to complete the contract in terms of the Agreement.
[20] Specific performance and/or damages are claimed for failure to settle, namely penalty interest of $35,000 and $7,000 for finance interest. An Amended Statement of Claim filed on 17 September 2015 repeats the same allegations but includes an alternative cause of action, claiming, among other things, loss of opportunity to develop and re-sell the property estimated to be $300,000, plus penalty and finance interest.
[21] The Statement of Defence to the First Amended Statement of Claim states, for present purposes, that the defendants have insufficient knowledge of the deposit and whether it had been paid. The defendants also deny that the LIM condition had been satisfied. It is also pleaded that the defendant’s formally notified the plaintiff of cancellation of the Agreement on 20 November 2013.
[22] The Second Amended Statement of Defence dated 29 February 2016 addresses in considerable detail the allegations claiming that a deposit had been made. It records:
5.14No deposit payment was made to the defendants or to their agents at any material time in accordance with the express terms of the Counteroffer Agreement. An amount of $5,000 was not paid to P&H Realty until at least 5 February 2016 contrary to the express terms of the Counteroffer Agreement.
[23] The fifth affirmative defence claims that the plaintiff failed, neglected or refused to pay the deposit as required on 1 November 2013 and accordingly there has been a total failure of consideration by the plaintiff in relation to the Agreement and that there is no enforceable contract. The sixth affirmative defence claims valid cancellation on 20 November 2013 pursuant to the Contractual Remedies Act for failure to make the deposit of $5,000 and for failure to comply with the LIM condition.
[24] A notice of interlocutory application for summary judgment and striking out was filed on 16 December 2015 in respect of the fifth affirmative defence.
Preliminary matters
[25] Leave to commence proceedings for summary judgment was not contested, but the defendant objected to the late notice of opposition and lack of particularisation. The notice was four days late, but eight working days prior to the date for filing submissions. I see no prejudice to the defendant in this delay. The lack of particulars of opposition is more problematic, but not sufficient in my view to deprive the plaintiff of the opportunity to ventilate her position on a summary judgment/strike-out application. I reserved leave to Mr Laird to object to any specific argument not raised in the notice to ameliorate potential unfairness.
Jurisdiction
Summary judgment
[26] For the purposes of summary judgment, the defendant must satisfy the Court on a balance of probabilities that none of the causes of action can succeed. As Elias CJ stated in Westpac Banking Corporation v MM Kembla New Zealand Ltd:3
[64] …. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
Strike-out
[27] The principles guiding strike-out are similarly stringent. As stated in
Attorney-General v Prince:4
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed.
[28] The Supreme Court in Couch v Attorney-General5 also provides helpful guidance in this context. Most relevantly for present purposes the following
statement is apposite:6
3 Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
4 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
It is a common place of the strike out jurisdiction the court will consider not only the basis upon which the claim is presently pleaded but also any other basis upon which the claim might be pleaded.
The grounds
[29] The defendants claim that:
(a) Irrefutable evidence clearly establishes that the defendants validly cancelled the Agreement when the plaintiff was in breach of an essential term due to non-payment of the required deposit and that there has been a total failure of consideration; and alternatively
(b)The Agreement never went unconditional due to the non-satisfaction of the LIM condition and it was within the vendor’s power to avoid pursuant to cl 9.8(5) of the Agreement.
[30] As to strike-out, Mr Baird submits that the statement of claim includes pleadings that are indisputably incorrect, misleading and contain unproveable allegations namely:
(a) The plaintiff paid a deposit of $5,000 to the defendant’s real estate
agent as per the terms of the Agreement;
(b)On or about 1 November 2013, the plaintiff, by way of her solicitor, advised the defendants’ solicitors of the satisfaction of the finance and builder’s report conditions;
(c) In accordance with the terms of the Sale and Purchase Agreement dated 20 October 2013, the plaintiff has fulfilled her obligations in terms of the Agreement and now requires the defendants to perform
their obligations under the Agreement;
5 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [32]–[33].
6 At [123].
(d)Accordingly, the plaintiff is, and was at all material times, willing to complete the contract in terms of the Agreement.
Argument
Non payment of deposit
[31] Mr Baird developed the first ground as follows:
(a) The deposit condition is a fundamental or essential term (citing several authorities – discussed below at [40]–[47]);
(b) The deposit was due, at the latest, by 8 November 2013;
(c) Notice of cancellation was made on 20 November 2013 (though no reference is made in it to the failure to make the deposit);
(d)The deposit was not paid until 5 February, 2016 after the filing and service of the Amended Statement of Defence (alleging non-payment of the deposit);
(e) Clause 2.2 of the Agreement confers a discretion on the vendor to seek payment of the deposit, in contrast to the previous version of the ADLS agreement which imposed a mandatory obligation to give notice;
(f) Clause 2.2 should not be construed to fetter the provisions of the Contractual Remedies Act 1979 that enable immediate cancellation for breach of an essential term;
(g)The failure to make the deposit on time meant that there was a proper basis for cancellation as at 20 November so that it was effective from that date – relying on the observation in Thompson v Vincent that a party repudiating a contract may rely on a breach by the other party
even if he or she was unaware of the breach at the time of the repudiation.7
[32] Mr Gustafson accepts that the requirement to pay the deposit on time was breached, but submits that the purpose and function of cl 2.2 is to provide a grace period prior to cancellation of the agreement for non payment of the deposit.8 As the defendant never issued a notice to pay per cl 2.2, the vendors’ right to cancel did not crystallise prior to 20 November or subsequently for non-payment of the deposit.
Frame for interpretation
[33] The aim of contractual interpretation is to establish the intention of the parties to the contract. This is done objectively: what is the meaning that the document would convey to a reasonable person with knowledge of the background.9 I may have regard to any relevant material that sheds light on the meaning attributable to the words used in the agreement.10 As stated by Tipping J:11
The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court must be aware of the commercial or other context in which the contract was made and all the facts and circumstances known to and likely to be operating on the parties’ minds.
[34] The commercial or other context is commonly referred to as the matrix of fact or factual matrix.12 The boundaries of this factual matrix are not amenable to bright line definition. The factual matrix has been held to incorporate not only the context to the agreement at the time or before it was executed, but also to post
contractual conduct.13
7 Thompson v Vincent [2001] 3 NZLR 355 (CA); see also Kumar v Station Properties Ltd (in liq and in rec), above n 1.
8 Citing Otago Station Estates Ltd v Parker [2005] NZSC 16, [2005] 2 NZLR 734.
9 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19] (per
Tipping J).
10 At [29].
11 At [19].
12 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL); Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 WLR 267 (HL).
13 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 9, at [122].
[35] Nevertheless, the words of an enforceable contract should be given their ordinary meaning unless it can be reasonably concluded from the background that something must have gone wrong with the language used.14
[36] An added factor is that the Agreement is a standard form contract. It is an evolved product of specialist design implemented on a nationwide basis by the real estate industry. The previous version of cl 2.2 expressly required the vendor to give three days’ notice prior to cancellation for non-payment of the deposit. But I have no evidence as to the approach taken by real estate industry to the current version of cl
2.2. My interpretation must be understood in the light of this limitation.
[37] After the hearing, Mr Gustafson provided a seminar paper prepared by the Auckland District Law Society (ADLS) that explains the reasons for which the language in cl 2.2 was changed to its current iteration. He notes that the authors do not say that the changes were made to remove the requirement that cancellation can only occur after three days’ notice has been given. Mr Baird unsurprisingly responds that the opinion expressed by the ADLS seminar paper does not form part of the factual matrix against which the intentions of the parties can be assessed. That is probably correct, but it misses the rather more important point that this case concerns
a standard form contract.15 The whole purpose of using a standard-form contract is to
allow the parties to “rely on a uniform construction being given to standard terms” so that “they can prudently incorporate them into the contracts without the need for detailed negotiation or discussion”.16 Because the interpretation of many clauses in frequently used standard form contracts is well-established, it will take strong evidence to show that the parties intended a different meaning from the well-
established interpretation in such cases.17
14 At [77] (per McGrath J); see also Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC
147, [2015] 1 NZLR 432 at [61] in which the Supreme Court has emphasised that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
15 Body Corporate 344862 v E-Gas Ltd HC Wellington CIV-2007-485-2168, 23 September 2008 at
[32]
16 Pioneer Shipping v BTP Tioxide [1982] AC 724 (HL) at 737 (per Lord Diplock).
17 John Burrows, Jeremy Finn & Stephen Todd Law of Contract in New Zealand (5th ed, LexisNexis, Wellington, 2016) at 183; Richard Calnan Principles of Contractual Interpretation (Oxford University Press, Oxford, 2013).
Resolution
[38] Generally the timeuos payment of the deposit is an essential term of a sale and purchase agreement, ordinarily attracting a right of cancellation immediately on its breach. But the ordinary meaning of cl 2.2 is reasonably clear: the parties intended to remain bound by the agreement after the expiry of the time for payment of the deposit and the vendor may cancel the contract for non payment of the deposit in accordance with the method stipulated in that clause. He or she must first provide three working days’ notice for payment. If payment is not then made in that period, the vendor’s power to cancel for non payment is triggered. No cancellation will be effective if a deposit is paid prior to the notice of cancellation.
[39] Given the significance of this interpretation to the parties, and more broadly, it is necessary to elaborate on my reasoning.
Time is of the essence
[40] At common law, the requirement to pay a deposit is an essential term, breach of which triggers the right to rescind the contract. In Stembridge v Morrison,18 Stout CJ described the payment of the deposit as a condition precedent to the purchaser’s entitlement to obtain rights under a contract. The Chief Justice stated:19
… This was an executory contract, and in such, where one party has to do something and fails to do it, I am not aware that he has a right to demand that after he gets notice of the rescission of the contract he should have a locus potentiae in which he may be allowed to perform what is agreed.
[41] The underlying reasoning for the common law position is exemplified in the judgment of Woodhouse J in Watson v Healy Lands Ltd:20
In order to apply these general considerations to a failure to pay a deposit, it is necessary, I think, to keep in mind the purpose and nature of a deposit. It is not merely a part payment of the purchase money; it is an earnest as well, intended to bind the bargain: Howe v Smith (1884) 27 ChD 89, 95, 98. It has the character of a security arranged to ensure the due performance of the contract, and clearly a purchaser who had failed to pay the deposit could not insist upon performance by the vendor: Stembridge v Morrison (1913) 33
NZLR 621, 633; 16 GLR 210, 213. Nor do I think he could insist upon
18 Stembridge v Morrison (1913) 33 NZLR 621 (CA).
19 At 632.
20 Watson v Healy Lands Ltd [1965] NZLR 511 (SC) at 516.
receiving from the vendor some sort of notice or demand to pay before he paid the amount involved, because such payment of the deposit is regarded as fundamental to the contract proceeding. Having the character of a security, it “creates by fear of its forfeiture a motive for the purchaser “to perform the rest of the contract”: Howe v Smith [supra 101]. In my view, there can be few ways in which a purchaser could more dramatically demonstrate his attitude to a contract or his capacity to fulfil the obligations he had assumed under it than by failing to meet this initial obligation. It is not merely a failure to meet the first requirement of the contract, but it is a failure to provide the agreed security for the further performance of other obligations.
[42] The Judge went on to state further:21
… equity would not provide relief where the purchaser had failed to pay a stipulated deposit on the appointed day because the deposit, as I have said, is a condition precedent to the purchaser being entitled to contract at all. Failure on his part to meet his preliminary obligation would certainly leave him in no position to insist on specific performance.
[43] The Judge also stated:22
The maxim that time is not of the essence of the contract is not available to afford relief to a party who has put it outside his control, or who is clearly unable to do that which is a condition precedent to the performance of a contract by the other. In those circumstances he has the lost right to specific performance, and equity would then not restrain any proceedings by the other party based on the non-observance of the stipulation as to time.
[44] The significance of a deposit was also expressed, obiter, in Frampton v
McCully by Cooke J (as he then was):23
iv. There is much to be said for the view that failure to pay the deposit when due or in full would be fatal in any event to the purchaser’s claim [for specific performance]. Normally provisions requiring a deposit on a contract of sale must be strictly complied with, as illustrated by some of the cases cited by Mr Tipping: Watson v Healy Lands Ltd [1965] NZLR 511; Stembridge v Morrison (1913) 33
NZLR 621; Myton Ltd v Schwab-Morris [1974] 1 WRL 331; [1974]
1 All ER 326.
[45] More recently Tipping J (delivering the judgment of the Court of Appeal) in
Garratt v Ikeda cited with approval the definition of deposit in Black’s Law
Dictionary:24
21 At 517, ll 39-43.
22 At 518, ll 7–14.
23 Frampton v McCully [1976] 1 NZLR 270 (CA) at 277.
24 Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [34]. In that case the Court of Appeal resolved that
Money placed with a person as an earnest or security for the performance of some contract, to be forfeited if the depositor fails in his undertaking.
[46] The Court concluded that cancellation did not extinguish the obligation to pay the deposit on an unconditional agreement.
[47] Accordingly, I agree with Mr Baird that at common law the requirement for timeuos payment of the deposit is an essential term presumptively attracting the power to cancel for its breach.
The effect of clause 2.2
[48] Balanced against this, the parties may expressly define the basis upon which the non-payment of a deposit will give rise to a power to cancel the agreement. The outcome in Otago Station Estates Ltd v Parker is illustrative.25
[49] That case concerned the application of cl 2 of the REINZ-ADLS form then applicable. The Supreme Court, echoing the jurisprudence cited above noted:
[21] … as Lord McNaughton put it in Soper v Arnold, a deposit is a forfeitable pledge put up by the purchaser as “a guarantee that the purchaser means business”. It is a security to the vendor against the purchaser’s unlawful repudiation of the contract. Hence the importance of the vendor of actual timely receipt of the money. The right to recover a deposit is not divested if the vendor cancels the contract but the right to bring such a proceeding or a proceeding on a dishonoured cheque is in no way the equivalent of an unconditional receipt of payment. In recognition of the significance to the vendor of the receipt of deposit, time for payment is generally of the essence. Failure to pay in due time is then a breach of an essential stipulation enabling immediate cancelation by the vendor under s 7(3)(b) and (4)(a) of the [Contractual Remedies] Act.
[50] The Supreme Court observes, however:
[22] Clause 2 of the REINZ/ADLS form confirms the essentiality of the time for payment of a deposit, thus preserving an important summary remedy for the vendor. But, recognising that a sudden cancellation and exposure of the purchaser to the possibility of a subsequent proceeding for recovery of a significant sum of money (the deposit and any residual damages for breach of contract) might cause disproportionate hardship, clause 2.2 requires a vendor to give three working days notice of an intention
s 8(3) of the Contract Remedies Act did not take away unconditional rights existing at the time of cancellation, including the right to payment of a deposit.
25 Otago Station Estates Ltd v Parker, above n 8.
to take this action which has such drastic consequences. The three working days was aptly described by counsel in argument as a grace period. The second sentence of clause 2.2 may also provide an additional breathing space for the purchaser since a payment made after expiry of three working days but before the cancellation notice is served under s 8 of the Act will prevent the vendor’s cancellation being effective.
[51] The clause in that case is differently worded from the present clause. It stated:
2.1The purchaser shall pay the deposit to the vendor or the vendor’s agent immediately upon execution of this Agreement by both parties and/or at such other time as is specified in this Agreement being time of the essence as to each such time.
2.2The vendor shall not be entitled to cancel this Agreement for non- payment of the deposit unless the vendor has first given to the purchaser three working days notice of intention to cancel and the purchaser has failed within that time to remedy the default. No notice of cancellation shall be effective if the deposit has been paid before the notice of cancellation is served.
[52] By contrast the present cl 2 (repeated here for ease of reference) states:
2.1The purchaser shall pay the deposit to the vendor or the vendor’s agent immediately upon execution of this Agreement by both parties and/or at such other time as is specified in this Agreement.
2.2If the deposit is not paid on the due date for payment, the vendor may at any time thereafter serve on the purchaser notice requiring payment. If the purchaser fails to pay the deposit on or before the third working day after service of this notice, time being of the essence, the vendor may cancel this Agreement by serving notice of cancellation on the purchaser. No notice of cancellation shall be effective if the deposit has been paid before the notice of cancellation is served.
(emphasis added)
[53] Mr Baird contends that the difference between the mandatory requirements set out in the previous cl 2.2 and the permissive language of the present cl 2.2 shows that the revised ADLS form removed the fetter identified in Otago Station Estates on the right of the vendor to immediately cancel for non-payment of a deposit. Instead, he says, the vendor may elect to give the purchaser a further opportunity to make payment or to immediately cancel the agreement for breach of an essential term. He emphasised that the preservation of the right of the vendor to cancel was concordant
with the longstanding common law position and the scheme of the Contractual
Remedies Act as it relates to cancellation for breach of an essential term.
[54] I accept that the change in language introduces ambiguity to what was a previously clear picture. But I am unable to accept that the change in language wrought a fundamental change in the purpose of cl 2.
[55] First, cl 2 makes explicit that the vendor has the power to issue a notice requiring payment of the deposit “at any time” and that the purchaser may still pay after the condition date without fear of subsequent cancellation for the default. It also affirms the ongoing obligation of the purchaser to pay the deposit (an arguably
contestable matter)26 and the ongoing power of the vendor to insist on payment,
rather than simply cancel the contract immediately. In other words, clause 2.2 (like its predecessor) makes clear that the contract was avoidable after the breach of condition date rather than automatically avoided, indicating that the parties were willing to be bound after that date.27
[56] Second, cl 2.1 containing the primary obligation to pay the deposit no longer includes the reference to “time is of the essence”. That reference has been transferred to cl 2.2, ostensibly attaching it to the three day notice to pay period.
[57] Third, and overall, the scheme of the clause as a whole plainly envisages a three-step inter locking process dealing with late deposit payments. The second sentence of cl 2.2 specifically links the power to serve a “notice of cancellation” to the purchaser’s failure “to pay the deposit” within three working days. The third sentence then stipulates that no “notice of cancellation” shall be effective before “the notice of cancellation” is served. Put another way, the reference to “notice of cancellation” in the third sentence is obviously a reference to the “notice of cancellation” referred to in the second sentence. To my mind it is unlikely that
notwithstanding this careful scheme, a reasonable person would anticipate that the
26 Noble Investments Ltd v Keenan, above n 1; cf. Garatt v Ikeda, above n 24.
27 Cf. cl 9.8 of the Agreement and the commentary on that clause in Tom Bennion, David Brown, Rod Thomas & Elizabeth Toomey New Zealand Land Law (2nd ed, Brookers, Wellington, 2009) at 1254.
vendor could simply issue a notice of cancellation immediately on the non-payment of the deposit.
[58] Fourth, there is nothing in the evidence or the literature placed before me to suggest that the architects of the current REINZ - ADLS form sought to remove the grace period with the amendments to cl 2 or that the real estate industry sought or has assumed such a significant change.
[59] Objectively assessed therefore (but without the assistance of detailed evidence about the evolution of cl 2 or industry practice), cls 2.1 and 2.2 evince a reasonably clear intention of the parties to be bound after default to a process whereby the vendor must first serve notice of requiring payment in order to trigger the power to serve notice of cancellation for non-payment of the deposit.
The LIM condition
[60] Mr Baird contends that, time being of the essence, the LIM clause, together with cl 9.8 imposes a positive duties on the purchaser to:
(a) Obtain a LIM; and
(b)Notify the vendor of any matters arising from the LIM within 15 days of the date of the Agreement.
[61] The failure to do either, he says, provides a proper basis for cancellation.
[62] Clause 9.2 states:
9.2(1) If the purchaser has indicated on the front page of this agreement that a LIM is required:
(a) that LIM is to be obtained by the purchaser at the
purchaser’s cost;
(b) the purchaser is to request the LIM on or before the fifth working day after the date of this agreement; and
(c) this agreement is conditional upon the purchaser approving that LIM provided that such approval must not be unreasonably or arbitrarily withheld.
(2) If, on reasonable grounds, the purchaser does not approve the LIM, the purchaser shall give notice to the vendor (“the purchaser’s notice”) on or before the fifteenth working day after the date of this agreement stating the particular matters in respect of which approval is withheld and, if those matters are capable of remedy, what the purchaser reasonably requires to be done to remedy those matters. If the purchaser does not give a purchaser’s notice the purchaser shall be deemed to have approved the LIM. If through no fault of the purchaser the LIM is not available on or before the fifteenth working day after the date of this agreement and the vendor does not give an extension when requested, this condition shall not have been fulfilled and the provisions of subclause
9.8(5) shall apply.
(3) The vendor shall give notice to the purchaser (“the vendor’s notice”) on or before the fifth working day after receipt of the purchaser’s notice advising whether or not the vendor is able and willing to comply with the purchaser’s notice by the settlement date.
(4) If the vendor does not give a vendor’s notice, or if the vendor’s notice advises that the vendor is unable or unwilling to comply with the purchaser’s notice, and if the purchaser does not, on or before the tenth working day after the date on which the purchase’s notice is given, give notice to the vendor that the purchaser waives the objection to the LIM, this condition shall not have been fulfilled and the provisions of subclause 9.8(5) shall apply.
(5) If the vendor gives a vendor’s notice advising that the vendor is able and willing to comply with the purchaser’s notice, this condition is deemed to have been fulfilled and it shall be a requirement of settlement that the purchaser’s notice shall be complied with, and also, if the vendor must carry out work on the property that the vendor shall obtain the approval of the territorial authority to the work done, both before settlement.
(emphasis added)
[63] Clause 9.8 then provides:
9.8If this agreement is expressed to be subject to either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless expressly provided:
(1) The condition shall be a condition subsequent.
(2) The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date of fulfilment.
(3) Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.
(4) The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
(5) If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither part shall have any right or claim against the other arising from this agreement or its termination.
(6) At any time before this agreement is avoided the purchaser may waive any finance condition and either part may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
(emphasis added)
[64] I can deal with Mr Baird’s argument summarily. Whether the purchaser in this case obtained a LIM is of no consequence to the vendors. The purchasers are not seeking to cancel or avoid their obligations under the Agreement based on the LIM (or otherwise). The failure to notify the vendor as to satisfaction of the LIM condition is equally of no consequence to the vendor. Moreover, cl 9.2 deems compliance unless notice of non-satisfaction is provided within the specified period. Clause 9.8 demands notice of fulfilment “unless otherwise expressly provided”. As no notice was provided under cl 9.2, fulfilment is deemed if there is no purchaser’s notice within 15 working days, and therefore, cl 9.8(5) is not engaged.
[65] In lengthy supplementary submissions Mr Baird referred me to the decision of the High Court in To v Huang,28 which was subsequently been affirmed by the Court of Appeal.29 The central question in that case was explained by the Court of
Appeal as follows:30
28 To v Huang [2015] NZHC 929.
29 To v Huang [2015] NZCA 446.
30 At [16].
There is no difference between cls 22 and 9.8 in relation to the period prior to the date specified for fulfilment of the condition: during that period only the purchaser may avoid if he or she determines the property not to be “commercially acceptable and viable”. The central question in this case is whether, by conferring on the purchaser an express right to avoid the agreement after that date, cl 22 has “otherwise expressly provided” for avoidance, in effect by conferring that right on the purchaser alone. If so cl
22 would prevail with the result that the vendors’ purported avoidance would
not have been effective.
[66] The Court of Appeal concluded that clause 22 simply reiterated the vendor’s and purchaser’s rights at cl 9.8 to avoid the contract. The Court also observed that cl
9.8 does not apply if the parties provide otherwise and therefore it is open to the parties to agree that their rights to avoid the agreement will be different from those provided in cl 9.8.31 And that is exactly what cl 9.2 does – it deems the purchaser to have approved the LIM.
Strike out
[67] Mr Gustafson quite properly conceded that the current version of the pleadings cannot stand. No deposit was paid until February 2016. This requires, as a minimum, a reformulation of the Statement of Claim to record that the deposit was not paid until February this year. He did not concede that this was fatal to either a claim for specific performance or damages. Rather, he submitted that the plaintiff could properly maintain its claim to the following (or something similar):
(a) The Agreement became unconditional on 8 November 2014;
(b) The defendants purported to cancel the Agreement on 20 November
2014;
(c) On 21 November 2014 the plaintiff registered a caveat over the property; and
(d)The plaintiff advised that the deposit was not paid given the threatened cancellation on 18 December 2015.
31 At [15]
[68] I address the requirement for amendments below at [76].
[69] As to the non-payment of the deposit, after the hearing, I referred the parties to the decision of the Court of Appeal in Noble Investments Ltd v Keenan.32 In that case the purchasers of a parcel of land initially purported to cancel a sale and purchase agreement when the vendor failed to provide title by the due date stipulated in the contract. At the time of the purported cancellation the purchasers were themselves in breach of the contract, having not paid the deposit. The vendor did not accept the cancellation or give notice that the deposit had to be paid. The purchasers then decided to complete the agreement subject to a deduction for the absence of a
sewerage system. The vendor refused and cancelled the agreement. The purchasers sought specific performance. At issue was whether the purchasers had cancelled the agreement.
[70] The Court of Appeal affirmed the common law rule that the party wishing to cancel must be ready willing and able to perform the contract and held that this rule survived the introduction of the Contractual Remedies Act, at least with regard to contracts where damages are not a sufficient remedy and where one party wishes the contract to continue, noting also that this latter requirement was not met in
Thompson v Vincent.33 The Court explained the purpose of the rule:34
We consider that the purpose of the common law rule was to ensure that a party does not benefit from its own wrong — see Herbert Broom, A Selection of Legal Maxims, R H Kersley ed (10ed 1939) at 191–193. A party could be seen as benefiting from its own wrong if it seeks by cancellation to deprive the other party of the benefit of the contract in circumstances where the other party's breach is a direct result of breach committed by the party seeking to cancel the contract. Non-payment of a deposit could come into this category where, for example, the vendor needs to use the deposit to fulfil his or her obligations under the contract. This is not the case here, however, as the deposit was to be held by a stakeholder. A party could also be seen as benefiting from its own wrong where it is unable or unwilling to perform its obligations under the contract and seeks to avoid liability for its own breach by cancelling the contract on the basis of the other party's breach. There is no suggestion in this case, however, that the Trustees were unable to pay the deposit. They had in fact paid the deposit, albeit too early, and it was again tendered with the letter of 3 September 2003.
32 Noble Investments Ltd v Keenan, above n 1.
33 At [44].
34 At [46].
[71] This statement of principle has since been affirmed by the Supreme Court.35
[72] The Court of Appeal also observed that the failure to pay a deposit may not be fatal to the claim for specific performance of a contract:36
In this case, therefore, the non-payment of the deposit had no causative effect on the alleged breach by Noble Investments of its obligations relating to title and the Trustees were in a position to pay the deposit. The Trustees could theoretically have tendered the deposit at the same time as cancelling the contract but it would have served no purpose. If the cancellation was valid, the deposit would have immediately become refundable. We do not consider a purchaser should be obliged to pay the deposit in such circumstances. Indeed, in many cases it would not be prudent to pay a deposit to a vendor in default as there could be valid concerns about whether the deposit would be returned.
(emphasis added)
[73] Mr Gustafson submitted that this authority supported the plaintiff’s claim on the basis that the non-payment of the deposit arose from the vendors’ threatened cancellation and the concern that the deposit might be lost if paid. This concern is recorded in correspondence from the purchaser’s solicitor in December 2013 – see [13]–[15]. Mr Baird retorted (in rather more prolix terms) that Noble reinforced the defendants’ position:
(a) A defaulting party cannot rely on its own breach to obtain specific performance;37
(b)The obligation to pay the deposit is an essential term, and failure to pay it may provide a basis for cancellation;38
35 Ingram v Patcroft Properties, above n 1.
36 At [48].
37 Kumar v Station Properties Ltd, above n 1.
38 Referring to the following passage also in Noble Investments Ltd v Keenan, above n 1, at [50]: “For completeness, we remark that we do not accept Mr Brodie’s submission that breach of the requirement to pay the deposit can never be breach of a material term disentitling a party to
cancel. The deposit is payable upon the contract becoming unconditional and time is stated to be
of the essence. The fact that cancellation cannot take place until the three day notice period in terms of cl 2.2 has expired does not alter the time for payment of the deposit. Nor does it make it any less a material term. We also do not consider that Noble Investments’ failure to give a three day notice or its refusal to accept what it saw as the wrongful repudiation of the agreement by the Trustees on 7 August 2003 changes that position.”
(c) The purchaser’s breach for non payment of the deposit crystallised prior to the vendor’s notice to cancel, that is on 8 November 2013;
(d) The vendor’s notice of cancellation in November 2013 was not the
type of breach of contract caught by the rule affirmed in Noble;
(e) The failure to pay the deposit on time in this case retrospectively justified the defendants’ notice of cancellation (even though the defendant’s did not know about it at the time), citing Thompson v Vincent;39
(f) There is no evidence to support the proposition that the plaintiff’s failure to pay the deposit had anything to do with the defendants’ actions prior to the notice of cancellation.
[74] But whether the rule affirmed in Noble is engaged is centrally an issue of fact, namely whether the plaintiff’s non-payment of the deposit is causally linked to the defendant’s purported cancellation (or on the plaintiff’s case – wrongful repudiation). If so, it is arguable that the non-payment of the deposit should not bar specific performance in the light of the dicta in Noble, or a claim in damages for wrongful repudiation.40 As the plethora of leading cases in this context illustrate,41 this can only be sensibly resolved on a fine grained review of the evidence.
[75] It is not sufficient for present purposes for the vendor to simply assert that the notice of cancellation was legitimate. Whether there was a proper basis for cancelling the agreement based on misrepresentation and/or mistake is plainly contestable. In addition, whether the purchaser’s non-payment of the deposit by 8
November 2013 retrospectively triggered the vendor’s right to cancel is also highly
disputable given the grace period and for the reasons stated at [54]–[59].
39 Thompson v Vincent, above n 7.
40 See also discussion in Ingram v Patcroft Properties, above n 1, especially at [27]-[30], and see also discussion at [37].
41 Noble Investments Ltd v Keenan, above n 1; Ingram v Patcroft Properties, above n 1; Hirst v
Vousden, above n 1; Kumar v Station Properties Ltd (in liq and in rec), above n 1.
Amended pleading required
[76] The plaintiff must plead and then show that the failure to pay the deposit is causally linked to the defendants’ the notice of cancellation. The plaintiff must also elect between specific performance and damages.42 For my part, while it is a matter to be determined on the evidence, the claim to specific performance is beset with difficulties. The delay in making payment of the deposit appears inordinate and the attempts by the purchaser to settle were bumbling at best. These factors strongly
militate against equitable relief.
Outcome
[77] The application for strike out and/or summary judgment is declined for the reasons set out above. In summary, the defendants claim justification for cancellation in the light of the non-payment of the deposit or breach of the LIM condition. I have rejected the claim based on the alleged breach of the LIM condition. It was deemed to have been satisfied on the expiry of the agreed period. The effect of the non- payment of the deposit gives rise to issues of interpretation and fact that cannot sensibly be resolved in a strike out or summary judgment context. But the plaintiff must amend her statement of claim to specifically plead, among other things, that the deposit was not paid because of the defendants’ notice of cancellation. With that pleading, there is an arguable basis for resisting the defendants’ claim based on breach by the plaintiff of an essential term of the contract. The plaintiff must also elect between specific performance or damages.
Costs
[78] In accordance with r 14.8(3) of the High Court Rules and the principles enunciated by the Court of Appeal in NZI Bank Ltd v Philpott43 I direct that the question of costs on the defendant’s application for summary judgment/strike out be reserved for determination as part of the final determination of costs at the
conclusion of the proceeding.
42 Johnson & Anor v Agnew [1971] 1 All ER 883 (HL) at 889, affirmed in New Zealand by the
Court of Appeal in Chatfield v Jones [1990] 3 NZLR 285 (CA).
43 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 406.
Directions pursuant to r 12.12
[79] In accordance with r 12.12, I now make the following specific directions for the future conduct of the proceedings:
[a] The plaintiff shall file an amended statement of claim within
10 working days.
[b] The defendants shall file a statement of defence within a further
10 working days.
[c] I direct the Registrar to set down a first case management conference on the first available date thereafter.
[d] The parties are to file a memoranda, in terms of Schedule 5, for the purposes of the conference.
[80] Leave is granted to either party to revert to me, for the purposes of any clarification or amendment to the above-mentioned order.
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