Kurth v McGavin HC Hamilton CIV 2006-419-291
[2007] NZHC 671
•18 July 2007
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IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2006-419-291
BETWEEN MICHAEL KURTH Plaintiff
ANDPETER JOHN MCGAVIN Defendant
Hearing: 26 - 28 February, 1 & 12 March 2007
Appearances: J McCleary for the Plaintiff
A L Hassall QC and A Ngapo-Lipscombe for the Defendant
Judgment: 18 July 2007
RESERVED JUDGMENT OF PRIESTLEY J
This judgment was delivered by me on 18 July 2007 at 2.30 pm pursuant to Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date: …………………………
Solicitors:
Buddle Bentley Tweed, P O Box 43, WhakataneNgapo-Lipscombe Law, P O Box 518, Tokoroa
KURTH V MCGAVIN HC HAM CIV 2006-419-291 18 July 2007
TABLE OF CONTENTS
The Issues [1] The Agreement [4] The Pleadings [6] The Negotiation and Circumstances of the Agreement [8] The Next Phase [57] The Defendant’s Condition [74] Discussion [87]
(i) Intention and Capacity [88]
(ii) Undue Influence [103] (iii) Non est factum [105] (iv) Unconscionable Bargain [109] (v) Contracts Enforcement Act 1952 [111] (vi) Specific Performance [120]
Result [136] Additional Comment [140] Costs [142] Further Directions [144]
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The Issues
[1] The defendant was a party to an agreement for sale and purchase. He purportedly agreed to sell to the plaintiff a 48 hectare block of land he owns at Colville near the tip of the Coromandel Peninsula. The major issue is whether, when he signed the agreement, the defendant was so drunk that he should be relieved of the agreement’s consequences.
[2] A second issue is whether the agreement is invalid for non-compliance with s 2 of the Contracts Enforcement Act 1956. The legal description of the land contained in the agreement included a steep portion of land, between 1.5 and 2 acres in area, which the defendant had sold as part of a transaction in the early 1980s to an adjoining owner. The inclusion of this access land in the prior transaction has been referred to as a “gentleman’s agreement”. There was never any subdivision or transfer of the access land, nor was the adjoining owner’s interest protected by a caveat.
[3] A third issue is whether, if the agreement is binding on the defendant, the plaintiff is entitled to specific performance.
The Agreement
[4] The agreement (the steps leading to its conclusion being described later) is dated 24 November 2005. The purchase price was $395,000. A deposit of $38,000 was payable on the agreement becoming unconditional. The only conditions were the requirement of a LIM report by 5 December 2005 and raising finance from an unstipulated source. Possession and settlement date was to be 22 December 2005.
[5] Two real estate agents, Mr G A Christensen and Mr I G Kemp, were involved in the negotiation of the agreement. Both those agents were associated with Coro Realties Ltd (“Coro”), a real estate firm operating under the Harcourts’ umbrella in Coromandel. The agreement was on the standard 7th edition (July 1999) form
approved by the Real Estate Institute of New Zealand and the Auckland District Law
Society.
The Pleadings
[6] The plaintiff alleges one cause of action, being a breach of contract. He seeks an order for specific performance. He also seeks interest on the $38,000 paid deposit which has been held in his solicitor’s trust account. There is the general claim seeking “such other relief as the Court deems just”, which the plaintiff’s counsel accepts would include an inquiry into damages if the specific performance claim fails.
[7] The defendant’s second amended statement of defence effectively puts the plaintiff to the proof. Everything is denied. It is alleged the defendant was intoxicated and incapable of forming an intention, with the result that the agreement is void or voidable. Also pleaded is undue influence by Mr Kemp, who is alleged to be the plaintiff’s agent; non est factum; unconscionability; and unenforceability under s 2 of the Contracts Enforcement Act 1956.
The Negotiation and Circumstances of the Agreement
[8] The plaintiff, who lives in Queensland, perhaps surprisingly, did not give evidence at trial. He instead chose to rely on the evidence of his partner Ms Baker who with him was involved in the negotiation of the agreement which the plaintiff signed. The plaintiff also called Mr Christensen, a real estate agent and director of Coro, who was involved in the agreement’s negotiation, a Coro staff member Ms Lysart, Mr Kemp, the other Coro real estate agent involved in the transaction and who, as I shall find, was at all material times acting on the defendant’s behalf, and Ms Autumn-Kemp, Mr Kemp’s wife, who at the relevant time was a relieving staff member in the bar of the Star and Garter Hotel at Coromandel.
[9] The defendant gave evidence. He called Ms McMillan who is a co-owner of the Star and Garter, and Ms Williams, his long-time close friend. The defendant also
filed an affidavit from Mr D M J Small of Kennedy’s Bay. The contents of that affidavit were uncontested. It was to Mr Small that the defendant sold the access strip in the 1980s. Subsequent to the dispute between the parties, the defendant and Mr Small entered into an undated agreement for sale and purchase covering the strip.
[10] I do not intend to summarise all the evidence I heard over the four day trial. There are some conflicts which I must resolve. Much, however, is not in dispute. The central focus inevitably is on the defendant’s state at the time he executed or initialled the agreement during the various stages of its negotiation. In particular, did the defendant understand what he was doing, or was he so intoxicated and befuddled that he was unaware of the consequences of executing the agreement? Did he enter into the agreement of his own free will, or was he coerced in some way? I have not been assisted in these areas by what I consider to be the genuine inability of the defendant to remember much of the important detail of what occurred in November
2005.
[11] The narration which follows constitutes my factual findings.
[12] The defendant has owned his block of land at Colville for approximately 30 years. Initially he had owned a larger block but, sometime in the early 1980s, around the time he separated from his former wife, he sold land comprised in one title to Mr Small for $20,000. That sale included the small steep access strip which, under the “gentleman’s agreement”, remained unsubdivided and part of the land comprised in the title covered by the 24 November 2005 agreement.
[13] The property is almost wholly undeveloped. It is on a ridge with sea views on both sides of the Peninsula. It is bushed and has three streams. Its development is limited to a large barn converted into fairly rudimentary living facilities which the defendant apparently erected and fitted out without a permit.
[14] In April 2003 the defendant signed a Harcourts Property Listing Authority. The Coro agent with whom the defendant listed the property, and who assisted completing the form, was Mr Kemp. The defendant did this at a time in his life
when he frequently travelled to Auckland and when he was under some financial pressure from his family in Australia.
[15] The authority gave Harcourts an exclusive and sole agency for a three month period until mid-July 2003. The relevant part of the authority form contains these words:
At the expiry of this Exclusive and Sole Agency Authority this agency appointment shall continue on General Authority terms as noted below.
The general authority portion of the form requires seven days written notice to cancel.
[16] There was a conflict of evidence whether the defendant had ever taken the land off the market. In his brief the defendant deposed he did not renew the listing “when the six months was up”. The defendant stated in his brief he had told Mr Kemp the property was off the market. He made similar assertions to various witnesses in November 2005.
[17] It is clear from the evidence of Mr Kemp and Mr Christensen that no written notice terminating Coro’s general authority was ever received. Indeed, in March
2005 when the plaintiff and Ms Baker first inquired about the property, publicity material was available in both Coro’s office in Coromandel and in Harcourts’ listing literature.
[18] The defendant himself eventually accepted that he had made an assumption the property was off the market and that he had never informed Coro he no longer wished to sell. To a question from me (p 56, l 28-32) the defendant said:
Q Did you tell Ezy [Mr Kemp] that your property was off the market or are you just saying you presumed it was off the market because you didn’t renew the listing.
A That would be correct. Q Which one.
A The last one, the latter.
In general terms the defendant seems to have been under the mistaken impression he had given Coro an exclusive listing for six months and that at the expiration of that period the property was no longer on the market.
[19] I thus find the land had never been taken off the market and that Coro legitimately held a general authority to list the property for sale.
[20] In early March 2005 the plaintiff and Ms Baker were in New Zealand. They contacted Mr Christensen on 6 March 2005 seeking further information about the defendant’s property. They had seen a photograph of the property and its views and a written description of it in promotional material in both a Harcourts’ publication and at Coro’s Coromandel office.
[21] Mr Christensen knew from Coro’s records that the listing agent was Mr Kemp. He had no involvement with the defendant or with the marketing of the property, but he was the first point of contact for the plaintiff and Ms Baker.
[22] On 12 March 2005 Mr Christensen took the plaintiff and Ms Baker to Colville. They were both impressed by the property and decided they wanted to make an offer. The defendant’s asking price when he had listed the property in April
2003 was $399,000.
[23] There matters rested until late June 2005 when Ms Baker telephoned Mr Christensen. She said she wanted to have another look at the property. On 30 June Mr Christensen and Ms Baker again inspected the property. Ms Baker expressed the hope of being able to make an offer shortly.
[24] Over the next three months there were communications involving the plaintiff, Ms Baker, Mr Christensen, and a finance company, all designed to bring the plaintiff to the point of making an offer. Of these happenings the defendant was unaware.
[25] The chronology and dates which follow are not disputed. They were in any event recorded in a daily handwritten diary kept by Mr Christensen for professional
reasons. On 17 November 2005 the plaintiff and Ms Baker instructed Mr Christensen to prepare an offer on the property for $380,000 to present to the defendant. Such offer was to be conditional on both finance and a LIM report. Mr Christensen was also asked to email the agreement to the plaintiff’s solicitor in Queensland for approval.
[26] Mr Christensen drew up an agreement in those terms to be presented as an offer and emailed it to the plaintiff’s solicitor in Queensland. The next day, 18
November, the agreement which the plaintiff had signed was faxed to Mr
Christensen. He in turn presented it to Mr Kemp. 18 November was a Friday.
[27] On the afternoon of Monday 21 November the defendant arrived at Coro’s Coromandel office. He was observed by Ms Lysart who was working that day at the reception desk. He appeared to her to be intoxicated. He was speaking loudly and repetitively in a slurred and slow manner.
[28] Mr Kemp was at the office that afternoon. There had obviously been some prior communication between the defendant and Mr Kemp. Mr Kemp’s evidence, and I so find, was that he had telephoned the Star and Garter bar where the defendant had spoken to him on the telephone. At Coro’s office that afternoon the defendant made it clear that he had been drinking and did not want to deal with the offer that day. Ms Lysart, who because of the half-partitioning in the office was able to hear what was going on in the interview room where the defendant and Mr Kemp were sitting, recalls hearing the defendant say that he was not up to signing.
[29] The defendant’s evidence was that he had been approached one evening in the Star and Garter Hotel by Mr Kemp who said to him “Pete I have got a good deal for you”. The defendant’s evidence is he told Mr Kemp he was not interested in selling; that he made no commitment to go to Coro’s office; and that Mr Kemp came to the Star and Garter on a subsequent occasion and took him up to Coro’s office which, on the evidence, is approximately two minutes walk away.
[30] Although nothing of substance hangs on it, I find as fact that sometime prior to 21 November there was a conversation which took place in the Star and Garter
between Mr Kemp and the defendant, Mr Kemp already being aware of the plaintiff’s offer. I also find that on 21 November Mr Kemp telephoned the defendant in the Star and Garter bar as a result of which the defendant walked to Coro’s office of his own volition where he indicated he was too drunk to consider the offer, a situation which Mr Kemp accepted.
[31] Mr Kemp, however, did something on that Monday which I regard as both odd and unhelpful. Although accepting that the defendant did not want to consider the plaintiff’s offer that day, he nonetheless suggested he should send the offer to a solicitor to look at it “in advance”. The defendant apparently told Mr Kemp that he had given no thought to a solicitor, whereupon Mr Kemp suggested Mr Oliver, a Thames solicitor who apparently travels to Coromandel on Mondays. Mr Kemp’s brief states that the defendant “agreed to instruct” Mr Oliver. I find, however, the defendant did no such thing. The initiative to forward the agreement to Mr Oliver was solely Mr Kemp’s. I consider Mr Kemp’s motivation was at best to have the agreement checked to see whether there were any glaring legal errors. At no stage was there any contact between the defendant and his purported solicitor Mr Oliver. Nor was there any advice given directly to the defendant by Mr Oliver.
[32] Mr Kemp for his part scanned the plaintiff’s offer and emailed it to Mr
Oliver. The email in question reads:
Bruce, Peter McGavin (Colville) has asked you to approve his agreement before he signs. Please advise if satisfactory.
The next morning, 2 November, Mr Oliver telephoned Mr Kemp and advised that the agreement was “okay to proceed”. No fee has ever been rendered by Mr Oliver for whatever his role might have been in this transaction.
[33] I find that Mr Kemp’s initiative in this regard, although not improper, was at best an attempt by him in his capacity as the defendant’s agent to have some legal scrutiny of the agreement as to its form. That this scrutiny was next to worthless is demonstrated by the fact that (infra [38]) modifications were to be made to the agreement on Mr Kemp’s own initiative rather than on Mr Oliver’s advice. Significantly, the agreement in its final form makes no mention of Mr Oliver as the
vendor’s solicitor. A handwritten description of the vendor’s solicitor was Ngapo- Lipscombe Law of Tokoroa.
[34] I consider that Mr Kemp’s initiative in this regard was indicative of his enthusiasm and desire to conclude an agreement between the defendant and the plaintiff if this was what the defendant wanted to do.
[35] The next day, Tuesday 22 November, resulted in a counter-offer from the defendant. On this phase, on the basis of the evidence of Ms Lysart and Mr Kemp, I make the following findings. The defendant came to Coro’s office that day at some uncertain time. He asked to see Mr Kemp. Mr Kemp was at the office. He came out to reception and went into a small interview room with the defendant where they remained for approximately 20 – 25 minutes.
[36] In comparison with what Ms Lysart observed the previous day, the defendant’s condition was considerably improved. He appeared to be polite. His speech was unslurred and was not loud and repetitive. Ms Lysart does not recall any details of the conversation. She does recall, however, Mr Kemp making a copy of the agreement and giving it to the defendant.
[37] During the interview I am satisfied, and so find, that Mr Kemp discussed the terms of the plaintiff’s offer with the defendant and that the defendant had an appreciation of the essentials of what he was being told. I am satisfied on the balance of probabilities that the defendant on 22 November was able to understand what was being discussed with him, even though 15 months later the detail had escaped him.
[38] During the course of the discussion the defendant agreed to make a counter offer of $395,000, which, although slightly below his original asking price of
$399,000, was an acceptable figure to him. He indicated to Mr Kemp he would not be prepared to negotiate any lower. Mr Kemp for his part alerted the defendant to various problems which might arise from the standard vendor warranties in the agreement. Because it was apparent to Mr Kemp and the defendant that the barn had
been erected without the necessary consents, clauses 6.1, 6.2, and the relevant modification to clause 6.5 contained in clause 14, were all deleted.
[39] In that regard I find that Mr Kemp, although clearly eager to progress negotiations to a concluded agreement, was responsibly looking after the defendant’s interests both in terms of deleting warranties in respect of which the defendant might have been liable, and also in respect of price.
[40] On the issue of price, there were no evidence or submissions suggesting that the defendant had sold the land at an undervalue. I note that Jordan Valuers, a Thames valuation firm, inspected the property at Mr Christensen’s request on 24
November 2005 on the plaintiff’s behalf and provided a valuation for loan recommendation mortgage purposes of the land and buildings at $385,000.
[41] These various amendments to the plaintiff’s offer were initialled by the defendant in Mr Kemp’s presence. Mr Kemp then gave the agreement to Mr Christensen who in turn telephoned Ms Baker and told her about the countersigned price of $395,000 and the deletion of the vendor warranties. The amended agreement was scanned by Mr Christensen and emailed to the plaintiff in Queensland.
[42] On Wednesday 23 November Ms Baker inquired whether the possession date, which, in terms of the original offer was 19 January 2006, could be advanced to
22 December 2005. Mr Christensen said he would make inquiries. He passed on the request to Mr Kemp.
[43] Mr Kemp’s evidence is that he telephoned the defendant at the Star and Garter and asked him to come to Coro’s office. Ms Lysart too recalls the defendant coming to the office that day. She does not recall the time but recalls the defendant asking to speak to Mr Kemp. He was not in her view drunk and was polite and amicable. On her account the meeting in an interview room lasted only a few minutes.
[44] During that time the defendant signed his full signature on the first page of the agreement beside the altered settlement date which had been changed by Mr Kemp to “22 December 2005”. On Mr Kemp’s evidence the defendant was happy with the earlier date, stating that he would have his money a month earlier and would still have a month to remove his belongings.
[45] At the same time Mr Kemp amended the 2003 property listing authority by crossing out the old expiry date of 14 July 2003 and substituting 28 February 2006. That alteration was signed by the defendant. Mr Kemp’s justification for this action was he considered an exclusive listing would result in better promotion of the property by Harcourts over the summer season and that the agreement between the parties at that stage was only conditional.
[46] Although Mr Kemp denied the suggestion that by changing the property to an exclusive listing he thereby ensured no other land agent would be able to market or sell the property for the next three months, I consider this was indeed one of his motives and that the amendment to the listing authority was to ensure that Coro was in a dominant marketing position if the agreement with the plaintiff fell through. Nothing, however, hangs on that issue other than exemplifying Mr Kemp’s enthusiasm and commitment to obtaining a sale if at all possible.
[47] After he obtained the defendant’s signature to the altered settlement date, Mr Kemp returned the agreement to Mr Christensen. That afternoon, or in the early evening, Mr Christensen rang Ms Baker in Queensland and told her the defendant had agreed to the changed date, and suggested that the plaintiff alter the date on his copy of the agreement and fax it back. This the plaintiff did, altering the possession date to “22/12/2005” and initialling it. The copy was faxed and was on Coro’s fax machine on the morning of 24 November.
[48] There is a conflict of evidence over whether the defendant had gone to Coro’s office on 23 November under his own steam or whether he was escorted by Mr Kemp. So far as Mr Kemp and Ms Lysart are concerned it was the former.
[49] The defendant, although vague on details, insists Mr Kemp found him (as, on his version, on other occasions) in the Star and Garter bar and walked with him to the office.
[50] But Tuesday 22 November remains the critical date so far as the agreement’s negotiation is concerned. That was the date substantial alterations to price and vendor warranties were made to the agreement. The agreement in that altered form was a counter-offer, remaining open for acceptance by the plaintiff. The plaintiff’s proposal to advance the possession date resulted, in effect, in the defendant making a further alteration to his counter-offer, which had yet to be accepted.
[51] Whether or not the plaintiff would have accepted the 22 November counter- offer if the defendant had insisted on the 19 January 2006 possession date is speculation. Probably he would have, although there has been no evidence on this point. In that context, therefore, the alteration of the earlier 22 December possession date, apparently acceptable to the defendant, did not bring the parties ad idem or conclude the contract. That occurred when the plaintiff initialled all alterations and faxed it to Coromandel from Queensland later in the day on 23 November.
[52] Possible support for the defendant’s assertion that Mr Kemp found him in the Star and Garter bar for the purpose of agreeing to the possession date alteration comes from Ms McMillan. She, currently the Star and Garter’s co-owner, has known the defendant for approximately 30 years. She describes the defendant as “a creature of habit” who would arrive at the hotel soon after opening time, drink beer for the whole day, and conclude by drinking whisky.
[53] Ms McMillan recalls the defendant had been on what she described as a “bender” in November 2005 which lasted for several weeks. He was not as jovial as usual but more solitary. On her inquiry, the defendant told Ms McMillan that he had been receiving requests from his family in Australia for money, and it had been suggested he should sell his block of land.
[54] The defendant apparently told Ms McMillan that he had signed the agreement. On that date, or possibly the day before, he had asked Ms McMillan, that
if Mr Kemp should ring him up, she should tell him he was not in the bar. Ms McMillan’s evidence was that on the day after this request, she caught a glimpse of both the defendant and Mr Kemp on the hotel’s security system. Ms McMillan’s office on the upper floor of the hotel contained a split screen displaying four pictures from hotel security cameras. One such camera was trained on the hotel’s front entrance leading out into the street. Ms McMillan did not see Mr Kemp enter the bar, nor did she see any contact on the screen between Mr Kemp and the defendant. What she saw was a fleeting picture of Mr Kemp and the defendant standing by the front door with their backs to the camera. They then turned left in the direction of the Coro office.
[55] There was considerable cross-examination of Ms McMillan on this topic, and in particular whether or not she would have been present on Wednesday 23
November. I am satisfied that Ms McMillan was not mistaken and did glimpse on her screen the fleeting picture which she described. I think it probable that, despite his evidence to the contrary, Mr Kemp walked down the road to the Star and Garter in an attempt to find the defendant to seek his instructions on the request for an earlier possession date. Whether or not the two men walked into the Coro office together on that occasion is far from clear. I do not think Ms Lysart’s evidence on that aspect is mistaken. Suffice to say at some stage on 23 November, as a result of the direct request from Mr Kemp, the defendant went to Coro’s office and agreed to the amended date.
[56] Ms McMillan also gave evidence, relevant to the focus of the next section of this judgment, that the defendant returned to the bar late in the afternoon of the day she had glimpsed him on the screen and told her either that he had sold the property or that he had signed the agreement.
The Next Phase
[57] Thursday 24 November 2005, on the morning of which Mr Christensen found the concluded agreement on his fax machine, saw a number of important developments. The defendant was already regretting his decision to sell the land. Somehow on that morning, Mr Small had learned the land had been sold. He sought
the defendant out at a small art studio at Dryden’s Creek, and asked about the status of the “gentleman’s agreement”. The defendant immediately realised that he had made an error in that regard by completely overlooking his obligations to Mr Small.
[58] The defendant and Mr Small thus went to Coro where they found Mr Christensen. The defendant explained his past transaction with Mr Small. Mr Christensen agreed to go up and look at the property so he could understand what was involved. At that stage the defendant, as he put it, “bowed out”.
[59] Later that day Mr Christensen met Mr Small on the site, who showed him the access strip and the proposed boundary adjustment. Mr Christensen’s assessment of the terrain was that he did not consider any adjustment would adversely affect the plaintiff. He returned to Coromandel and telephoned Ms Baker to explain the situation to her. Ms Baker’s reaction was there this was no major problem. She told Mr Christensen the plaintiff would still proceed and that he and she would try to sort out matters with Mr Small.
[60] The defendant’s evidence was that in his 24 November discussion with Mr Christensen, he revealed he had not wanted to sell the land and had made a mistake. Although the defendant was to make similar comments to other people, both that day and subsequently, I find he made no such comment to Mr Christensen.
[61] Back in the Star and Garter bar that day, however, the defendant unburdened himself to Ms Autumn-Kemp. I accept Ms Autumn-Kemp’s evidence on this conversation. She struck me as being accurate and reliable, and I do not consider her evidence was coloured by her marriage to Mr Kemp or any indirect financial interest she may have in Coro’s commission. In the bar the defendant approached Ms Autumn-Kemp. He started talking about selling his property. He was concerned whether he had done the right thing and would ever be able to replace it. He told her he was having second thoughts about selling it and that there were a lot of matters for him to weigh up. He suggested to her that she should talk to her husband about getting him out of the contract and he would ensure that Mr Kemp was “looked after”.
[62] Ms Autumn-Kemp told the defendant she knew nothing about her husband’s business and she could not speak to him on the defendant’s behalf. The defendant appeared to accept this and endeavoured to telephone Mr Kemp from the bar. He left a message for him. His call was apparently returned a few minutes later by the Coro office with the information that Mr Kemp was out of mobile phone range. Again the defendant raised the issue with Ms Autumn-Kemp of replacing Mr Kemp’s commission. None of Ms Autumn-Kemp’s evidence on this aspect was challenged in cross-examination.
[63] The next day, 25 November, the defendant rang Mr Christensen to inquire how matters were progressing with sorting out the problem of Mr Small’s access land. He was informed that, so far, matters were on track. The defendant then told Mr Christensen he would not mind if the deal “fell over”.
[64] Within a day or two of the defendant signing the agreement he told his long- time friend Ms Williams (who cannot be absolutely sure of the date) that he had been persuaded by Mr Kemp to sign an agreement when he was quite drunk and really did not know what he was doing. The defendant presented as being upset. Ms Williams discussed matters with a lawyer who was prepared to act for the defendant. She also telephoned Mr Kemp. There are two versions of this telephone conversation. Mr Kemp says Ms Williams told him the defendant had changed his mind and asked whether anything could be done to get him out of the contract. To this Mr Kemp said he would see what he could do. Ms Williams’s version was that she told Mr Kemp the defendant was stating he had been manipulated when he was drunk, did not know what he was doing, and this was not a case of changing his mind. Nothing hangs on this dispute. I find, however, Ms Williams told Mr Kemp the defendant considered he had been manipulated and also told him the defendant had changed his mind in the sense that he no longer wanted to sell the property.
[65] On 28 November the defendant telephoned Mr Kemp who was attending a course in Hamilton. He told Mr Kemp he regretted signing the contract and asked if there was some way he could get out of it. Mr Kemp, despite his earlier indication to Ms Williams, told the defendant the contract was binding, that it was not his function to give legal advice, and that the defendant would need to check matters with his
lawyer. He also indicated a willingness to contact the plaintiff to see whether cancellation of the contract could be agreed. The defendant became abusive and told Mr Kemp he would not be selling to anyone.
[66] The next day, 29 November, the defendant rang Ms Baker in Queensland. He told her he was not going to sell the house, had changed his mind, and that Mr Christensen had bullied him into selling it. (Ms Baker was cross-examined on this aspect. Clearly there had been no contact between Mr Christensen and the defendant during the negotiation phase. Ms Blake was adamant that was what the defendant had asserted, and I so find.) The defendant then went on to tell Ms Baker that he was not in his right mind when he sold the property and that, if he were to sell the property to them, it might well cause his death and bring bad luck on them and the land. The defendant volunteered Ms Williams’ telephone number and indicated he would be happy to compensate them for the inconvenience he had caused.
[67] Ms Baker telephoned Ms Williams to try to find out what was happening. Ms Williams told her she could not really speak about it but the defendant was very embarrassed.
[68] There was a brief telephone conversation on 30 November when Mr Kemp telephoned Ms Williams to try to speak to the defendant. Ms Williams was unable to persuade the defendant to telephone Mr Kemp. In any event on that same day the defendant’s solicitors advised Coro the defendant would not be going ahead with the transaction.
[69] The plaintiff lodged a caveat against the defendant’s title. On 5 December
2005 the plaintiff’s solicitors declared the agreement unconditional. The $38,000 deposit was paid the next day. On the agreed possession date, 22 December 2005, the plaintiff was in a position to settle, there being no dispute about this.
[70] On Christmas Day 2005 the defendant left a message on the plaintiff’s answer phone in Queensland. His message was to the effect he was sorry for the trouble he had caused and that “the house” was theirs. This recorded message was
not kept or indeed transcribed. Understandably Ms Baker was cross-examined on this aspect. I find the defendant indeed left such a message.
[71] On 18 January 2006 the plaintiff’s solicitors issued a settlement notice requiring settlement within 12 working days. No such settlement took place.
[72] I make three further findings. Mr Hassall QC cross-examined Mr Christensen, Mr Kemp, Ms Lysart, and Ms Autumn-Kemp on the issue of the commission which would flow from the sale of the defendant’s land with obvious direct or indirect benefits to them. It is trite to observe that real estate agents have a pecuniary interest in unconditional agreements. But it does not follow that all witnesses from the real estate industry will tailor their evidence to suit their financial interests. Although I have not accepted all of Mr Kemp’s evidence, I do not consider that he, Mr Christensen, or those other two witnesses have in any way modified their evidence for pecuniary reasons. Nor do I believe that self-interest has resulted in selective recall.
[73] My other findings are in the area of agency. I find as a fact that Mr Kemp, both when the defendant listed the property in 2003, and throughout November
2005, was acting solely on the defendant’s behalf. I further find that in March, June, and throughout November 2005 Mr Christensen was acting solely for the plaintiff. Mr Christensen had no direct contact with the defendant prior to 24 November, and throughout the negotiation phase dealt with Mr Kemp. Nor did Mr Kemp for his part have any direct contact with the plaintiff or Ms Baker. His contacts with the purchaser were solely through Mr Christensen. There is no evidence to support any contrary finding. In particular I decline to find that Mr Kemp at any stage was acting on the plaintiff’s behalf or that Mr Christensen was acting on the defendant’s behalf.
The Defendant’s Condition
[74] I have no doubt on the evidence that, for a number of years, the defendant has been severely afflicted by alcohol addiction. His consumption of alcohol is steady, and on a daily basis, starting in the morning. His alcoholism brought an end to his longstanding relationship with Ms Williams who was a reformed alcoholic of many
years standing. She described how, when he would return to her home after a day’s drinking at the Star and Garter, he would collapse and become incontinent.
[75] There is evidence that the defendant did not exhibit some of the traditional symptoms of severe intoxication. He would not stagger around. His speech might be slurred but not badly so. Ms McMillan, who sees him frequently in the Star and Garter, said he did not get “legless”. His increasing intoxication was more evident by his English accent becoming more pronounced.
[76] Mr Kemp, who in his brief described the defendant as being a person with a reputation of “a bit of a drinker,” agreed that expression described a person who drank a lot but was not necessarily intoxicated all the time or aggressive. He had never seen the defendant out in the street falling over.
[77] On some occasions the defendant would go on a “bender” when his alcohol consumption would increase beyond his “normal” levels. There was an occasion in
2006 when he was trespassed, at Ms McMillan’s instigation, from the Star and
Garter premises.
[78] On his own admission, for a week prior to the Court hearing this February, the defendant was able to abstain from alcohol. He presented in the witness box as a courteous, sincere man without guile. However, excessive consumption of alcohol over the years has clearly had its effect on his memory. Much of his viva voce evidence was confused and occasionally discursive. There were occasions when he would seize on the last part of a question having lost track of the first part. Importantly, as I have already said (supra [10]), there are large gaps in his memory and an inability to recall fine detail.
[79] Mr McCleary suggested in cross-examination and in his submissions that the defendant was capable of having lucid intervals. I agree with that observation. Mr McCleary further suggested that the defendant was deliberately selective in his memory, and chose to remember matters which favoured him and feigned to forget unfavourable matters. I do not consider the defendant was being selective in that sense.
[80] The defendant did not attempt to blame Mr Kemp for his predicament. Rather he blamed himself for being persuaded by Mr Kemp to sign the agreement at relevant stages against what he considered to be his better judgment. The defendant clearly has a strong emotional attachment to his land. He stated, and I so find, that from time to time he was under pressure from his family in Australia to sell the land for financial reasons. The defendant has regular income available to him from an inheritance, but does not have the ability to encroach on the capital of the fund which produces the income. He has never been the subject of any protective court order.
[81] The defendant was clearly, throughout November 2005, ambivalent on the issue of selling his land. Although he had listed it in April 2003, no offers had been forthcoming nor does there appear to have been any interest displayed. The offer from the plaintiff, to a very large extent, would have caught the defendant totally by surprise. He may subjectively have considered that the property had been taken off the market. But nonetheless I am satisfied that he was able to turn his mind to the subject of sale and did indeed contemplate it.
[82] From 24 November onwards he began to regret what he had done. He was well aware that he had signed and concluded the agreement. In that knowledge, there being no evidence that his level of sobriety had changed, he made overtures to try to get out of the agreement.
[83] Best to let the defendant speak for himself at a general level as he did in the following passages of his evidence.
A. …Although I just wish I had had the brains to tell Ezy that I was too drunk and in no condition. At that time or for quite a while afterwards I should have just walked away and I should have never, when he says I have got a good deal for you that is when I should have you know, and I told him
I wasn’t too interested and he kept on saying it was a good deal but that is a salesman’s job I know. And I don’t really have too much recall of what I
said to Ezy but he did say that he would meet me. And foolishly yes I went
up and I did tell him when I first went up that I didn’t really want to sell and all he said was just sign, not your signature but with your initials and then go
away and think about it and come back next day and see how you feel.
[p 59, l 27-38]
In that regard I reject any suggestion that Mr Kemp advised the defendant that initialling the agreement, as opposed to placing a signature on it, would not bind the
parties. The passage exemplifies confusion perhaps between initialling alterations to an agreement, and signing it (as he did the settlement date alteration on 23
November), and further confusion between the Monday 21 November visit by the defendant to Coro’s office and subsequent visits.
A. I blame myself for being irrationally drunk and not listening to my inner voice just telling me to take a walk. Ezy might not have realised how drunk I was. You know it is a small community and I although we are not close Ezy, he is Ezy. He is an alright guy. I am blaming myself more for what happened. I was drunk. It is like buying a car I guess you know you are doing the silly thing but you do it. But I thought when I rang Ezy up and offered him the commission and other people that they might have realised I was in no fit state to go through with this thing. [p 59, l 13–22]
…
Q. Were you to say Mr Kemp didn’t purposely manipulate you.
A. From my point of view he did but as I said before he might – look a salesman will always carry through his sales patter even when someone doesn’t want to buy or sell and I can assure you I was in no condition to make any decision. I was incapacitated through alcohol and my children’s demands for more money. I have since told my children they can wait till I die and then they can inherit some money which is I think the normal procedure, well it was in my day. I just apologise for making, really, how do you put it, all this kind of trouble for everyone. But I certainly I didn’t want to sell and I told Ezy that. Then he came on saying I’ve done all this work, which I didn’t really think he had. I can’t prove it and I know I come across as kind of a drunken person or whatever, and also because the next day I offered to pay, you know, his commission or whatever, I was coerced into doing this otherwise I wouldn’t be here I can assure you. I know how tenuous it is in court, especially for a person such as myself who is in a state. That’s all I can say. [p 87, l 18 – 34]
…
Q. … Tell me what way you were forced or coerced.
A. I just felt, I don’t know how to – I made a mistake when I was drunk. I thought Ezy must have known that I was – he must have realised I was not in a state to do business.
Q Is this a fair summary, you made a mistake, you are telling me you made a mistake because you were drunk and you think Ezy should have realised you were too drunk and should have backed off.
A. Yes your Honour. [p 88, l 8–16]
…
Q Mr Kemp has told us that on this second day, the Tuesday, you said to him that you didn’t want to drop your asking price of $399,000 but you acknowledged that interest rates were rising and the market might soften.
First, do you recall saying to Ezy that you didn’t really want to go lower than
$399,000. Did you say that to him. A. Yes.
Q. Do you remember saying that to him. A. Yes I think I do.
Q. The second point is that there is this discussion about rising interest rates and the market possibly softening. Are you telling me that is something Ezy said to you.
A. Well I didn’t say it to Ezy.
Q. Are you sure you didn’t say that to Ezy. A. To the best of my knowledge no.
Q. Do you specifically remember him making those comments about interest rates and the market to you.
A. I kind of switched off at that stage. But look, I want to kind of tell a truthful answer alright. [p 90, l 5–20 ]
…
Q. Listen to me very carefully. Is this an accurate summary of your position. Because of the pressures you were under in November 2005 including your very heavy drinking you don’t think you were in any fit state to make an important decision about whether or not to sell your land.
A. That would be correct Your Honour.
Q. And that although you appreciated at the time that you had signed the agreement you didn’t really want to do so and realised very rapidly that to have signed was a mistake.
A. Yes Your Honour that is correct foolishly I might say that I signed yes.
Q. Although I know it is easy for us all to be wise after the event can you tell me why you just didn’t refuse in Ezy’s office to do all this signing and initialling.
A. I would say not having a grasp on my mind properly at that stage and also I suppose fair possibly Ezy didn’t realise. I am not trying to blame anyone you know. On hindsight yes I acted in a drunken haze you know and I don’t even know if that is an excuse but I should have refused. I mean salesmen are salesmen. I have been through this with cars I didn’t want to buy. Ezy must have realised, I won’t go there. I was drunk, I made a mistake.
Q. Think carefully about this one. When you were with Ezy although you really didn’t want to sell the land he was explaining things to you and did you just feel it was easier to go with the flow.
A. Yeah. [p 105, l 11–33]
[84] It is unusual perhaps to devote so much space in a judgment to somewhat rambling, discursive evidence of this sort. But I have done so deliberately since it illustrates, 15 months after the event, the defendant’s explanation and perception of his conduct. He accepts that he did what he did. He believes that he was, as he always was, in a drunken haze. (He admitted in evidence that he was usually drunk day and night). He accepts he should have been more assertive. He does not blame Mr Kemp, but considers perhaps Mr Kemp should have realised how drunk he was.
[85] In short, the defendant was well aware of what he was doing. He regrets that he did it. And he considers, with justification, that his judgment and business sense were clouded throughout by alcohol.
[86] In addition to these findings I make further findings relevant to the knowledge of others. Mr Kemp knew that the defendant was a heavy drinker. He knew, on 21 November, that the defendant was too drunk to consider the offer and did not want to that day. I find, however, that Mr Kemp did not know, because he was not told, about the defendant’s ambivalence to the sale of his property. Nor did Mr Kemp know that the defendant was influenced by alcohol to the extent that his judgment and business sense were severely inhibited. Neither to Mr Kemp, nor indeed to Ms Lysart, was the defendant subsequently exhibiting obvious signs of intoxication to the extent that he was on the afternoon of Monday 21 November. I further find, and this is critical, that neither the plaintiff nor, to the extent that she was the plaintiff’s agent, Ms Baker, nor Mr Christensen, had any knowledge of the defendant’s condition between 18 and 23 November 2005.
Discussion
[87] This section of my judgment will deal with the various issues thrown up by the facts and counsel’s submissions.
(i) Intention and Capacity
[88] 9(1) Halsbury’s Laws of England (4th ed) para 717 says this about drunkenness in general:
The fact that a party was drunk when he purported to enter into a contract may be a defence to an action on the contract; and it has been said that drunkenness is in this respect on the same footing as unsoundness of mind. It may be that extreme intoxication will so deprive a person of his reason as to render his consent void; but, in many cases the courts have contented themselves with a finding that the contract was voidable. Where drunkenness is not such as to deprive a party of his reason, but merely of his business sense, the contract is at most voidable: generally, equity will not interfere either to avoid or to enforce it; but it will grant relief to the drunken party if he can show that his condition was known to the other party at the time when the contract was made, and that some unfair advantage has been taken of him.
[89] The principles contained in this exposition of the law were applied by Cooke J in Peeters v Schimanski [1975] 2 NZLR 328. That case was decided in large measure on the basis of a purchaser’s failure to comply with certain time periods specified in the now repealed Land Settlement and Land Acquisition Act 1952. The vendor, however, had an alcohol problem and had been in a mental hospital. On the basis of the above passage from Halsbury, Cooke J opined, in obiter fashion, that he would in any event have refused specific performance in the exercise of the Court’s discretion but would have declined to set aside the contract and would have ordered an inquiry into damages.
[90] Commentators such as Burrows, Finn, and Todd, The Law of Contract in New Zealand (3rd ed) at para 14.3.2 suggest that Peeters may need reconsideration in the light of the Privy Council decision of O’Connor v Hart [1984] 1 NZLR 159.
[91] That decision related to a contract by a person of unsound mind whose mental incapacity was unknown to the other party to the contract. There were findings that not only was Mr Hart unaware of Mr O’Connor’s lack of contractual capacity, but there was no unconscionable conduct, fraud, or other inequitable conduct on his part. A Court of Appeal decision rescinding the contract for incapacity and unfairness was thus set aside.
[92] Chitty on Contracts (29th ed) at para 8-080 suggests that the test of incapacity by way of drunkenness is the same as that for mentally disordered persons, being whether the person was so drunk as not to understand what he was doing and whether the other party knew of that condition. Chitty states that a contract may, in such circumstances, on some authorities be voidable at the drunken person’s option (and can also be ratified when sober). But other authorities suggest that equity has a wider jurisdiction to set aside an unfair or unconscionable transaction entered into by a person affected by alcohol.
[93] Treitel, The Law of Contract (11th ed) states that a party’s habitual drunkenness does not deprive him or her of contractual capacity (Irvani v Irvani [2000] 1 Lloyd’s Rep 412 at 425). It also states that a person cannot rely in law on drunkenness which merely blurs business sense, but such drunkenness is a ground on which equity may refuse to order specific performance. Similar statements appear in Anson’s Law of Contract (28th ed) at 234.
[94] On the basis of those commentaries I consider that the distinction apparent in Halsbury (supra) and adopted by Cooke J in Peeters, between drunkenness depriving a party of his or her reason on the one hand, and drunkenness which merely deprives a party of his or her business sense on the other hand, remains a valid distinction. But in either circumstance, a prerequisite to granting relief to the drunken party is that the drunken condition must be known to the other party at the time the contract was made: Irvani v Irvani [2000] 1 Lloyd’s Rep 412 at 425; Hart v O’Connor [1985] AC 1000. Importantly, the equitable remedy of specific performance may well be refused in situations where drunkenness of a party is a factor leading to a contract.
[95] Both counsel referred to these principles. Mr Hassall, in his careful and extensive submissions, referred to the evidence. He submits that it was uncontested that the defendant had been on a “bender” in the weeks before the agreement was signed. He submitted that the defendant’s condition had been so affected by alcohol that he was incapable of forming an intention to contract. His evidence for this submission was the fact that the defendant had been persuaded to do something that he really did not want to do – sell his land. Additionally he had forgotten the “gentleman’s agreement” with Mr Small.
[96] Mr Hassall further submitted that the evidence was “overwhelming” that at the time the defendant both signed the agreement and initialled its alterations, he was so drunk that he did not know what he was doing, and despite his lack of intention to sell the land, he ended up by signing an agreement to do just that. He was constantly in a drunken haze.
[97] On this, as on other issues, Mr Hassall submitted that the firm Coro, with which both Messrs Christensen and Kemp were associated, was the plaintiff’s agent and that Messrs Kemp and Christensen were effectively sub-agents. Thus, submits Mr Hassall, the plaintiff had knowledge of the defendant’s incapacity through Mr Kemp.
[98] I am satisfied, on the basis of the evidence I have heard and my various findings that during the critical 21-23 November 2005 period the defendant was intoxicated. He was particularly intoxicated on the afternoon of Monday 21
November when he declined to consider the plaintiff’s offer. I consider, however, that on subsequent days his intoxication was at a level where, although his judgment and business sense were seriously dulled, he nonetheless understood the terms of the offer and the consequences of his counter-offer and subsequent amendment to the settlement date. I accept that, were the defendant more sober, he may well not have signed the agreement. But I reject the submission that he was so intoxicated that he was incapable of forming an intention to contract.
[99] This finding is reinforced by the defendant’s clear awareness within the same time frame of what he had done. He informed Ms McMillan that he had signed an agreement. He similarly informed Ms Williams that he had sold the land. At a very early stage he indicated to Mr Christensen that he regretted his decision to sign the agreement and would rather it did not proceed.
[100] I am also satisfied that neither the plaintiff nor Mr Christensen had any knowledge of the nature and extent of the defendant’s intoxication. Were there only one agent of Coro acting for both parties, as is frequently the case, then Mr Hassall’s submission would have merit. But on the facts of this case, and as I have found (supra [73]), the roles and functions of Messrs Christensen and Kemp were separate.
Mr Christensen had no direct contact with the defendant until 24 November when he was made aware of the problem of the land sold to Mr Small.
[101] Given my findings and in particular the application of the relevant principles, the combination of lack of knowledge on the plaintiff’s part, and the degree of intoxication on the defendant’s part falling short of total negation of a contractual capacity, I consider the contract is not voidable. It is binding.
[102] There is, in these circumstances, a weight of authority suggesting that considerations of equity should preclude specific performance. I turn to those shortly.
(ii) Undue Influence
[103] Mr Hassall accepted that the undue influence defence was contingent on my finding that Mr Kemp was acting at all times as the agent for the plaintiff, not for the defendant.
[104] For reasons I have stated, I have found to the contrary. I am satisfied that during his discussions with the defendant, and in particular during the formulation of the defendant’s counter-offer on 22 November, Mr Kemp was acting solely as the defendant’s agent. Certainly, as I have found, Mr Kemp was enthusiastic to conclude an agreement for the defendant. He was not, however, privy to the defendant’s ambivalence over the sale. Nor was he aware of the extent to which the defendant’s business sense was dulled. Nor could he have predicted the speed with which the defendant would regret his decision. I do not consider Mr Kemp exerted inappropriate pressure on the defendant. In the light of my findings, the undue influence defence must fail.
(iii) Non est factum
[105] A non est factum defence is available in situations where a person is temporarily or permanently unable to understand the document to be signed. There must be some fundamental difference between the document actually signed and the
document the person believed it to be. (See generally Saunders v Anglia Building
Society [1971] AC 1004 (HL); Marinovic v Marinovic HC AK CIV 2006-404-2447
27 April 2007 at [53]).
[106] Consistent with my findings I am satisfied the defendant well knew that he was signing an agreement for sale and purchase which related to his land and dealt with such matters as price, warranties, and settlement dates.
[107] At no stage has the defendant asserted that he did not understand the nature of the document he was signing. He certainly did not believe he was signing a document of a different type.
[108] The non est factum defence thus fails.
(iv) Unconscionable Bargain
[109] Again Mr Hassall accepted this defence was based on the assumption that Mr Kemp was acting as agent for the plaintiff, not for the defendant. Mr Hassall further submitted that in reality Mr Kemp and Coro were acting for the plaintiff who wanted the land, whereas the defendant for his part did not wish to sell.
[110] Given that the plaintiff’s agent throughout was Mr Christensen; given further that the negotiated sale price was close to the defendant’s asking price, and the Jordan Valuers’ valuation (supra [40]), there is no basis in my judgment to classify the bargain as unconscionable. This defence too fails.
(v) Contracts Enforcement Act 1956
[111] Section 2 of the Act, for ancient and valid policy reasons, requires a memorandum or note in writing to evidence an enforceable agreement for the sale of land. There is no doubt that the agreement between the parties includes the land sold in the early 1980s to Mr Small. The “gentleman’s agreement” had supplemented the sale of an adjacent block to Mr Small by the defendant.
[112] Mr Hassall’s submissions on this aspect require a proper analysis of what occurred. At the time the agreement was signed the defendant had either overlooked or was unaware of the fact the land he was selling included the Small access land of approximately 6,000 square metres. Neither Mr Kemp, nor Mr Christensen, nor the plaintiff, had any knowledge of the prior sale. The position of Mr Small as purported owner of the access land was highly vulnerable. He had no title. His interest was not protected by a caveat.
[113] In terms of fundamental Land Transfer Act 1952 principles the plaintiff, at the date the agreement was concluded, was a bona fide purchaser for value without notice. On registration he would gain an indefeasible title (ss 62, 64, 182).
[114] Before the agreement became unconditional, however, actual notice of Mr Small’s interest was given to both Mr Christensen and the plaintiff. Mr Hassall’s analysis is that once that occurred the executed agreement between the parties was, in effect, varied by an oral agreement to exclude the Small land from the contract. Thus, submits Mr Hassall, in a “roundabout way” the parties reached an oral agreement to vary the land being sold. Such variation, however, was not recorded in writing. Thus the entire agreement, as varied orally, is unenforceable because it fails to comply with s 2.
[115] In an attempt to rectify the situation, Mr Small arranged for his solicitor Mr
Oliver (who as the defendant’s purported solicitor perused the agreement on 21
November) to prepare an agreement on some date in November 2005 relating to the Small land which Mr Small and the defendant executed. That agreement, however, was executed after the plaintiff had notice of the transaction.
[116] Whether or not the plaintiff would have been guilty of Land Transfer Act fraud had he attempted to obtain registration as proprietor of the defendant’s land, and whether prior to settlement he had actual notice of Mr Small’s interest, are matters I need not decide.
[117] The flaw in Mr Hassall’s analysis is his submission that the parties agreed to an oral variation of their contract. What instead occurred was the plaintiff and Mr
Small orally agreed that the plaintiff will honour Mr Small’s interest under the “gentleman’s agreement” and would attempt to sort matters out. Mr Small for his part deposed he had a conversation with the plaintiff who had indicated that the access land was of “no great importance to the sale” and that he would honour the agreement.
[118] Thus I reject the submission that the parties orally varied their agreement with possible adverse consequences under s 2. The agreement in my judgment remains unvaried. Such protection as there may be for Mr Small’s unregistered interest lies in discussions he has had with the plaintiff, not in any variation of the agreement with the defendant. Indeed, there is absolutely no evidence to support a finding of any such variation.
[119] Although this defence similarly fails, the position of Mr Small as a third party is relevant to the exercise of the specific performance discretion.
(vi) Specific Performance
[120] Mr McCleary submitted that specific performance was the appropriate remedy. This was a situation where the plaintiff had contracted for land which he and his partner wanted. If the contract were valid, it was appropriate for a remedy to issue which gave him the land. Specific performance, in counsel’s submission, was a land-focused remedy because the land was unique. There was nothing objectionable about the parties’ contract, and the defendant’s wish to resile from it did not convert the contract into an objectionable one.
[121] Mr McCleary cited Hammond J’s judgment Butler v Countrywide Finance Ltd [1993] 3 NZLR 623. This first instance decision, discussed at some length in Burrows, Finn and Todd (op cit) at 739, is indicative of a trend for the equitable remedy of specific performance beginning to erode the primacy of common law remedies. In Butler Hammond J stated at 632:
In my view, the law of civil remedies in this country is, as it should be, steadily evolving into a regime in which what is required of a Court is a context specific evaluation of which remedy is most appropriate in the
circumstances of a given case, rather than doctrinaire or a priori solutions. The problem then becomes one of informed remedial choice.
[122] A number of factors, in the view of Hammond J and the learned authors of Burrows, Finn and Todd, need to be considered to make an ‘informed remedial choice.’ These include the injured party having first choice of remedy; proportionality of remedy with respect to its relative severity on each party; the value, in the court’s perception, of the right being supported by the remedy; economic efficiency; difficulties in some cases of calculating damages; the effect of the given remedy on a third party; and the conduct of the parties.
[123] Specific performance is not available as of right. It is a matter of judicial discretion to be exercised in a principled way: Attorney-General for England and Wales v R [2002] 2 NZLR 91 at [94]; Lamare v Dixon (1873) LR 6 HL 414 at 423. The Court in Jacobs v Bills [1967] NZLR 249 stated that ‘[a]lthough the Court is not entitled to act in an arbitrary or capricious manner, it is entitled to consider the general fairness of the transaction’ (at 253). In Gurney v Gurney (No 2) [1967] NZLR 922, the Court of Appeal stated that the Court applies equitable principles in this context ‘with an eye to the substantial justice of the case’ (at 927).
[124] Specific performance is commonly sought of contracts relating to land (see Butler, A (Ed.), Equity and Trusts in New Zealand, 2003, p 644). The unique nature of land often means that common law damages will be inadequate to compensate for the breach of a valid contract: Adderley v Dixon (1824) 1 Sim & St 607. In making an order for specific performance, this Court stated in Waimor Holdings Ltd v Dean [1981] 2 NZLR 416, ‘[l]and has always had a character of its own’ (at 427). Specific performance has been considered the primary remedy in this context: Adderley v Dixon (1824) 1 Sim & St 607 at 610; McLachlan v Taylor [1985] 2 NZLR 277 (CA) at 285.
[125] There are some well-established principles which may lead to a court refusing specific performance. Refusal may result where the injury to the plaintiff’s legal rights can be estimated and compensated for in money (Shelfer v City of London Electric Lighting Co [1891-4] All ER 838 at 848), or where enforcement would cause hardship on the party against whom specific performance is being
ordered (Gould v Kemp (1834) 2 My & K 304 at 308). Resulting hardship to the parties may be taken into consideration: Bruce v Edwards [2003] 1 NZLR 515 (CA) at 534.
[126] Fry on Specific Performance (6th ed) states at paras 417:
It is a well-established doctrine that the Court will not enforce the specific performance of a contract, the result of which would be to impose great hardship on either of the parties to it; and this although the party seeking specific performance may be free from the least impropriety of conduct.
[127] Absence of independent legal advice and acting without proper deliberation, in concert or as separate handicaps, may form part of the factual matrix contributing towards a court’s reluctance to order specific performance (Jacobs at 253), or be a
‘significant background feature’ in the same (Attorney-General for England and
Wales v R [2002] 2 NZLR 91 at 122).
[128] Turning to the significance of the land to the parties, I accept the plaintiff and his partner were attracted to the land and wanted to buy it. The land also has a particular emotional significance for the defendant as its longstanding owner. A balancing of the relative interests is required. This is in turn informed by considering the relative hardships, from each party’s perspective. In the present context, the significance of the land to the defendant appears to outweigh that to the plaintiff given the former’s long-time ownership. It is a factor of the ‘context-specific evaluation’ weighing against granting the plaintiff specific performance.
[129] Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 provides a useful comparison in this balancing exercise. Kaipara concerned the discretionary exercise of whether or not to sustain a caveat where one of the conditions was that an interim order that it not lapse could be cancelled if the respondent filed an undertaking to hold $60,000 in its solicitors’ trust account. The Court of Appeal stated at [27] that where personal value is not a consideration for the plaintiff, the court may lean away from granting an order of specific performance:
The grant of a specific remedy to a person claiming an interest in land lies in the discretion of the Court. It is a discretion to be exercised in accordance with settled principles. But where the particular piece of land does not have
attributes giving it a personal value to the claimant, unable easily to be measured and substituted in economic terms, then the Court in balancing the interest of the defendant and other affected parties (especially those who have entered into independent commitments which will be affected by the delay in establishing the claim) will properly lean in favour of freeing the title from the claim if a fund can be created which suffices to protect the claimant’s legitimate interest. This interest is to be measured by the valuation evidence rather than mere speculation about possible advantages to be gained by leaving a caveat in place.
[130] The court generally may withhold specific performance where a contract is formed in circumstances considered ‘unfair although not amounting to grounds of invalidity’ (Attorney-General for England and Wales v R [2002] 2 NZLR 91 at 94).
[131] Specific performance cannot be avoided merely because the vendor of land has a change of heart or wants to resile from the contract. But in this case, I consider on the evidence the defendant entered into the contract with a state of mind which would make it inequitable for it to be enforced. This state of mind has two aspects: first, psychological with respect to the pressure under which the defendant laboured, and secondly physiological due to his intoxication. These limbs are by no means discrete, rather they are clearly interrelated. With respect to the former, the defendant had no notice that an offer from the plaintiff was pending, considered that his land (wrongly) was off the market. He had little time for reflection, and was dealing with a matter of considerable significance to him unsupported by counsel or advice from anyone other than Mr Kemp, who although protecting the defendant’s position as best he might by, for example, withdrawing some warranty clauses and contacting Mr Oliver, regarded the ultimate agreement as a good one and was in any event anxious to achieve its conclusion. Moreover, the defendant was under pressure from his family in Australia to sell the land. He had no legal advice available to him. Mr Oliver never contacted him. Nor was he alert to the issues which flowed from his “gentleman’s agreement” with Mr Small. He had forgotten about it.
[132] As regards the physiological aspects, the above factors were all operating at a time when, although not outwardly displaying signs of gross intoxication, the defendant was nonetheless intoxicated and had on the evidence undergone a discernible change in his mood as a result of being on a “bender” for a period of time. His alcoholic state would have impaired, and I so find, his ability to come to
grips with the offer and all its implications. Unknown to both Mr Kemp and certainly to the plaintiff, the defendant was profoundly ambivalent about the sale. His business sense was dulled by alcohol, and he was unable to take time to stand back, reflect, and reach a considered view on what to him was the central issue of whether he really wanted to sell. His inability in this area was a product of his daily intoxication. The vacillation he displayed between 24 November and Christmas Day mirrors his ambivalence and his daily intoxication.
[133] These circumstances operating when the contract was formed take on aspects of unfairness when scrutinised through the inquiring lens of equity. The defendant’s lack of independent legal advice and his state of mind during the formation of the contract, combined with the inherent uniqueness of his land and its significance to him, point to an order for specific performance being severe compared to the hardship faced by the plaintiff should damages be awarded instead.
[134] Finally, specific performance could impact adversely on Mr Small who would, to a considerable extent, be at the plaintiff’s mercy so far as the access strip is concerned.
[135] For these reasons, and consistent with Peeters v Schimanski and the various authorities canvassed, I consider that specific performance should be refused. I so decide in the exercise of my discretion as trial judge, and by weighing and balancing, as I am solely entitled to do, the various factors, including equitable factors, to which I have referred. The plaintiff’s remedy must instead sound in damages as provided for in s 16A Judicature Act 1908.
Result
[136] The defendant’s various defences to the plaintiff’s cause of action in contract, for the reasons I have stated, fail.
[137] I find there was a concluded unconditional contract between the parties which the defendant has breached by refusing to settle and give possession of his land to the plaintiff.
[138] The plaintiff’s claim for specific performance is refused. [139] I direct there is to be an inquiry into damages.
Additional Comment
[140] This Court expresses the hope that an appropriate quantum for damages can be resolved by the parties in a timely fashion without need for its further intervention. The defendant signalled his refusal to perform the contract at an early stage. Inevitably this should have triggered the plaintiff’s obligation to mitigate. Nonetheless, there will be consequential losses to the plaintiff flowing from the defendant’s breach which will need to be compensated, including, one assumes, Coro’s entitlement to a commission, although that issue is not before me.
[141] That said, the parties and their counsel are urged to use their best endeavours to resolve the damages issue.
Costs
[142] I have not heard counsel on costs. Although the plaintiff failed to gain his preferred remedy of specific performance, the plaintiff in my judgment has nonetheless been successful, given my findings that the contract was valid, not voidable, and has been breached.
[143] Again counsel are urged to confer and resolve costs if possible. The 2B scale is appropriate. If costs cannot be resolved I will need to determine them, preferably on the basis of memoranda.
Further Directions
[144] I consider the parties and their advisors are entitled to a reasonable opportunity to negotiate and resolve the outstanding issues of damages and costs. To that end I direct the Registrar of the High Court at Hamilton to list this proceeding at
the callover at 9.00 am on Wednesday 19 September 2007 and to advise counsel of the allocated date.
[145] At that civil callover the parties are to inform the presiding Judge whether matters have been resolved, or whether instead a hearing before me is required to assess damages. If the latter, appropriate directions, timetable orders and a fixture (presumably not until 2008) will be needed.
...........................................… Priestley J
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