Laidlaw v Parsonage

[2009] NZCA 291

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA304/2008
[2009] NZCA 291

BETWEENJOHN CARR LAIDLAW AND CAROL ANNE LAIDLAW

Appellants

ANDGEOFFREY FRANCIS PARSONAGE AND TIMOTHY JOHN GOULDING

Respondents

Hearing:18 March 2009

Court:Glazebrook, Hammond and Ellen France JJ

Counsel:M C Josephson and G D R Shand for Appellants

K W Berman for Respondents

Judgment:9 July 2009 at 2.30 pm 

JUDGMENT OF THE COURT

AThe appeal is dismissed.

BThe appellants must pay the respondents costs in this Court for a standard appeal on a band A basis, plus usual disbursements.

REASONS OF THE COURT

(Given by Ellen France J)

Table of Contents

PARA NO

Introduction  [1]
Factual background   [7]

THE CONTRACTS (PRIVITY) ACT 1982  [14]
THE DECISION OF THE ASSOCIATE JUDGE  [17]

Were the trustees entitled to the benefit of the agreement?  [21]
Did the trustees prove they had suffered the loss?  [49]
Conclusion  [54]

Introduction

[1]   In October 2003 the appellants, John Laidlaw and Carol Laidlaw, agreed to sell a residential property in Gulf Harbour, Auckland to Geoffrey Parsonage “and-or nominee”.  The respondents, Geoffrey Parsonage and Timothy Goulding as trustees of a family trust (the Seelye Trust), became the nominee under the agreement for sale and purchase.  The property was duly transferred to the respondents as trustees. 

[2]   After Mr Parsonage moved into the house he discovered that it leaked.  Mr Parsonage and Mr Goulding (“the trustees”) sued the appellants (“the Laidlaws”) in contract and in tort to recover the cost of remedying defects causing the leak and other losses.  The trustees sought summary judgment in respect of the contractual causes of action.  The contractual claims were based on a warranty in the agreement for sale and purchase that the building was completed in accordance with building consents and obligations under the Building Act 1991.

[3]   In a judgment now reported as Parsonage v Laidlaw (2008) 6 NZConvC 194,638 (HC) Associate Judge Abbott granted summary judgment.  The Laidlaws appeal against that decision.

[4]   The appeal raises two issues.  The first issue is whether the trustees were entitled to the benefit of the agreement for sale and purchase.  This relates to the Associate Judge’s conclusion that s 4 of the Contracts (Privity) Act 1982 (“the Act”) applied.  Section 4 provides, generally, that where a promise in a contract confers a benefit on a sufficiently designated person who is not a party to the contract, the promisor is under an obligation to that person to perform the promise.  The effect of the Associate Judge’s decision was that the trustees as nominee could take the benefit of the warranty in the agreement for sale and purchase.  The Laidlaws say that the requirements of s 4 are not met. 

[5]   The second issue is whether the trustees (as opposed to Mr Parsonage) incurred any loss.  This issue arises because the Associate Judge concluded that the trustees had proven on the balance of probabilities that they had paid the costs of the repair work.  The Laidlaws argue that these losses have not been proved. 

[6]   After setting out the background and the approach taken by the Associate Judge, we consider these issues in turn.  There was a further question in the written submissions relating to whether there was a breach of the warranty but that matter was not pursued at the hearing and we do not deal with it.

Factual background

[7]   On 30 November 2000, the Laidlaws entered into an agreement to purchase a section at Gulf Harbour.  At the same time they entered into a building contract for the construction of a house on the land. The Laidlaws’ involvement in the building work was fairly minimal except that, in May 2001, the building construction company went into liquidation.  The Laidlaws therefore arranged for the remaining building work to be finished.  After the house was completed in August 2001, the Laidlaws lived in it for a period before putting it on the market in 2003. 

[8]   Mr Parsonage and Mr Goulding as trustees of the Seelye Trust had been looking for a house to buy on behalf of the family trust.  Mr Parsonage did the house-hunting and sought to buy the Laidlaws’ property.  The Laidlaws’ agent was told, before negotiations commenced in relation to the property, that a family trust would be purchasing the property and that Mr Parsonage and Mr Goulding were the trustees.  It appears that in order to save obtaining Mr Goulding’s signatures on the offers and counter-offers, Mr Parsonage and the agent agreed that the purchaser would be described in the standard Auckland District Law Society (“ADLS”) form (7ed 2 July 1999) as, “[p]urchaser: G F Parsonage and or nominee”. 

[9]   After the agreement was signed, Mr Goulding acted on the purchase for the trustees and Mr Stokes, a solicitor, acted for the Laidlaws as vendors.  The solicitor to solicitor correspondence referred to the purchaser either as the Seelye Trust or “G F Parsonage and T J Goulding”.  The settlement statement was addressed to Mr Parsonage and Mr Goulding.  Similarly, the notice of change of ownership showed the two men as purchasers pursuant to the agreement for sale and purchase.  Finally, the transfer signed by the Laidlaws was a transfer by them to Mr Parsonage and Mr Goulding.

[10]     After Mr Parsonage moved into the house he found that it leaked.  An application was made to the Weathertight Homes Resolution Service (“the Service”).  The Service appointed an assessor who produced a report in December 2004.  The assessor concluded that there were defects with the house that led to water entry and damage such that the house did not then comply with the New Zealand Building Code.  Remedial work was required and was carried out between October 2005 and October 2006 at a cost of just over $159,000.  The claim to the Service was terminated once the respondents sold the property in January 2007: s 55 of the Weathertight Homes Resolution Services Act 2006.  Accordingly, the claim was brought into the High Court jurisdiction.

[11]     The trustees issued summary judgment proceedings.  The second amended statement of claim identified, in the alternative, six causes of action in contract or tort.  The contractual claims were based on cl 6.2(5) of the agreement for sale and purchase.  That clause provided as follows:

The vendor warrants and undertakes that at the giving and taking of possession:

…

(5)Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:

(a)       The required permit or consent was obtained; and

(b)The works were completed in compliance with that permit or consent; and

(c)Where appropriate, a code compliance certificate was issued for those works; and

(d)All obligations imposed under the Building Act 1991 were fully complied with.

[12]     For present purposes, we need focus only on the third of the causes of action, namely, that based on the Contracts (Privity) Act.  Essentially the claim was that, pursuant to s 4, the losses incurred as a result of the breach of cl 6.2(5) of the agreement for sale and purchase were recoverable by the trustees from the Laidlaws.

[13]     The Laidlaws opposed summary judgment relevantly on the basis that the trustees were not named as parties to the agreement and that s 4 of the Act does not assist a bare nominee. 

The Contracts (Privity) Act 1982

[14]     Section 4 is the critical provision and it provides as follows:

Deeds or contracts for the benefit of third parties

Where a promise contained in a deed or contract confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract (whether or not the person is in existence at the time when the deed or contract is made), the promisor shall be under an obligation, enforceable at the suit of that person, to perform that promise:

Provided that this section shall not apply to a promise which, on the proper construction of the deed or contract, is not intended to create, in respect of the benefit, an obligation enforceable at the suit of that person.

[15]     “Benefit” is defined in s 2 of the Act as including any advantage, immunity,  and any limitation or other qualification of:

(i)An obligation to which a person (other than a party to the deed or contract) is or may be subject; or

(ii)A right to which a person (other than a party to the deed or contract) is or may be entitled; and … .

[16]      Reference should also be made to s 8 which deals with enforcement by a beneficiary and provides:

The obligation imposed on a promisor by section 4 of this Act may be enforced at the suit of the beneficiary as if he were a party to the deed or contract, and relief in respect of the promise, including relief by way of damages, specific performance, or injunction, shall not be refused on the ground that the beneficiary is not a party to the deed or contract in which the promise is contained or that, as against the promisor, the beneficiary is a volunteer.

The decision of the Associate Judge

[17]     The Associate Judge did not consider the argument that Mr Parsonage was acting as the trustees’ agent and that they were entitled to enforce the warranty as principal to be sufficiently compelling to warrant summary judgment.

[18]     However, the Associate Judge decided that the trustees, as nominees of Mr Parsonage, were sufficiently identified for the purposes of s 4 so as to be entitled to the benefit of the warranty provision in the sale and purchase agreement.  The Associate Judge found that the proviso to s 4 did not apply because there was an intention to create an obligation enforceable at the suit of the respondents. 

[19]     The Associate Judge also considered that the evidence showed the respondents as trustees had paid for the repairs. 

[20]     Summary judgment was entered against the Laidlaws for repair costs of $159,079.46 plus an inspection fee of $1,929.37.

Were the trustees entitled to the benefit of the agreement?

[21]     The Laidlaws’ case is that the requirements of s 4 are not met in three respects.  First, they say that no benefit has been conferred on the trustees by a promise in the contract.  The submission is that the benefit the trustees receive as nominee is a benefit under the nomination and not one under the contract.  In expanding on this point, the Laidlaws argue that the warranty the trustees seek to enforce is a promise made for the benefit of the purchaser not a nominee.  The only benefit the nominee can enforce is the promise to convey the title.  They argue that to give the trustees the benefit of the warranty would amount to a novation, that is, the substitution of a new contract for the old, in circumstances where there has been no agreement by the parties to that course. 

[22]     Secondly, they say that the requirement in s 4 that the recipient of the contract be designated by name, description or reference to a class is not met.  That is because the description “or nominee” is not a sufficient designation.

[23]     Finally, the Laidlaws submit that the proviso to s 4 applies because on a proper construction of the sale and purchase agreement there is no intention to create an obligation on the Laidlaws enforceable at the suit of the trustees.

[24]     Mr Josephson in developing these arguments relied on a line of cases, namely:  McElwee v Beer HC AK A445/85 19 February 1987; Field v Fitton [1988] 1 NZLR 482 (CA); Karangahape Road International Village Ltd v Holloway [1989] 1 NZLR 83 (HC); and GPO Holdings Ltd v CIR (1995) 20 TRNZ 266 (HC).

[25]     In both McElwee v Beer and Karangahape Village, the High Court concluded that in the “or nominee” situation, the benefit was conferred by the nomination and not, as required by s 4, by the contract or the promise under the contract.  In adopting this approach the High Court judges in these two cases declined to follow the decision of Hillyer J in Coldicutt v Webb HC WHA A50/84 17 May 1985.  That case involved an action for specific performance in relation to an agreement for the sale and purchase of land.  Again, the “or nominee” formulation was in issue but Hillyer J concluded that the requirements of s 4 were met.

[26]     The primary issue in Field v Fitton was the validity of the cancellation of the contract.  Again, the contract was an agreement for the sale and purchase of property where the description of the purchaser included the “or nominee” formulation.  Bisson J, delivering the judgment of the Court, noted that if the standing of the purchasers was that of nominees then, applying Lambly v Silk Pemberton Ltd [1976] 2 NZLR 427 (CA), “an action by the nominee alone to enforce the agreement will not lie”: at 491.

[27]     This Court in Field v Fitton concluded that the phrase “or nominee” was not sufficient designation to meet the test in s 4.  Further, the Court said those words were insufficient, to impute to the parties the intention required by the proviso to s 4 to the parties to “create … an obligation on the part of the vendor enforceable at the suit of a bare nominee”: at 494.

[28]     Fisher J in GPO Holdings at 275 relied on Karangahape Village, Lambly and Field v Fitton for the proposition that the addition of “or nominee” does not amount to a designation for the purposes of s 4.

[29]     The stumbling block for the Laidlaws is that this line of cases has not been followed, first, by Tipping J in Rattrays Wholesale Ltd v Meredyth-Young & A’Court Ltd [1997] 2 NZLR 363 (HC) and, secondly, by this Court in Ballance Agri-Nutrients (Kapuni) Ltd v The Gama Foundation [2006] 2 NZLR 319. Essentially, the Associate Judge in this case has preferred and adopted the approach in Rattrays.  That is also the approach advanced by the trustees.

[30]     We deal with Ballance first.  It is helpful to briefly set out the facts.  Ballance Agri-Nutrients (“Ballance”) was the lessee of property owned by Gama Holdings (“Gama”).  In April 2001 Ballance gave Gama six months notice of their intention to quit the property.  Gama sold the reversion to the Gama Foundation (“GF”) in June 2001 but settlement did not occur until December 2001.  By that time Ballance had quit the premises.  Issues regarding the reinstatement of the property had been raised in May 2001 but the work was not performed. 

[31]     The focus of Ballance was on s 112 of the Property Law Act 1952.  Under that section, the covenants in the lease, including the provision for reinstatement of the property were enforceable by the person entitled to the income of the land leased.  Ballance argued that GF was not that person and could not sue to enforce the lease.  GF’s case was that as beneficial owner of the property from June 2001, they were entitled to the income and so could sue, or, alternatively they could sue under s 4 of the Act as the permitted assign of the landlord.  The lease defined the landlord as meaning “… where appropriate the … permitted assigns of the Landlord”.

[32]     The Court concluded that if GF was not the correct party, it would merely be a matter of taking some procedural steps so that Gama could bring the case.  Robertson J and William Young J (as he then was) both considered that s 112 was sufficiently wide to include those beneficially entitled to the income of the leased land.  O’Regan J dissented on this point considering that s 112 applied to legal entitlements only.  All three Judges considered that in any case GF was entitled to enforce the contract under s 4 of the Act as the permitted assign of the landlord. 

[33]     The s 4 point was dealt with fairly briefly.  Robertson J concluded that there was no reason to include “permitted assigns” within the definition of landlord except to provide the right to enforce the obligations in the lease.  Robertson J concluded that GF could therefore enforce the lease pursuant to the clause in which the landlord was defined, or alternatively pursuant to s 4: at [97] – [98]. 

[34]     William Young J was of the view that permitted assigns constituted a class of persons on whom the lease confers benefits.  William Young J expressly adopted the reasoning of Tipping J on s 4 in Rattrays: at [121] – [122].

[35] Finally, O’Regan J considered that GF could properly be described “as a person for whose benefit the covenants given by the tenant in the lease have been given”: at [136].

[36]     In Rattrays Tipping J in the High Court was dealing with a supermarket lease that included a trade tie as a condition of the lease.  The defendants, Meredyth-Young & A’Court (“Meredyth”), had entered into a lease with GUS Properties Ltd.  The lease required Meredyth to purchase all goods for sale in the supermarket from GUS Wholesalers Ltd or any other company nominated by the lessor.  Rattrays Wholesale Ltd (“RW”) bought out GUS Properties and took over as the lessor.  They nominated themselves as beneficiaries of the trade tie.  Meredyth argued that RW could not enforce the trade tie either as lessor or as nominee.  Tipping J concluded that RW could enforce the tie as lessor but considered they could also enforce as nominee.  In this context, the Judge said at 382 that, as a remedial statute, the Act should be given a “fair, large and liberal interpretation”.

[37]     Tipping J rejected the view that a nominee received a benefit solely from the nomination.  Rather, Tipping J said the benefit was conferred both by the nomination and by the contract: at 382.

[38]     Tipping J also considered that the purpose of the designation requirement in s 4 was to ensure that the promisor would know with sufficient certainty whether a person claiming to be a promisee was in fact who the contract was intended to benefit.  Once nominated, a nominee is identifiable with certainty and so, His Honour concluded, “X’s nominee” was a person designated by description for the purposes of s 4.  Tipping J considered that if a nominee is referred to in a contract it must be with the intention of creating legal obligations in his or her favour: at 382 - 383.  His Honour considered that the remarks to the contrary in Field v Fitton were obiter and declined to follow them.

[39]     We agree with Tipping J that the observations in Field v Fitton on this point were obiter and can be put to one side.  Further, the effect of Ballance is that, in terms of the s 4 analysis, the promise on which reliance was placed was made to the lessor and the lessor included the “permitted assigns”.  Applying that analysis to this case, the promise relied on by the trustees was made to the purchaser and the purchaser included the nominee.  There is therefore a promise which purports to confer a benefit on a person to whom there is a sufficient designation in terms of s 4.  Mr Josephson does not argue that Ballance is wrong so unless it can be distinguished from this case that effectively answers this part of the appeal.

[40]     The principal basis on which Mr Josephson seeks to distinguish Ballance (and Rattrays) was that in both of those cases, the relevant provision was in a clause within the contract and that clause set out the benefit the nominee was to receive.  By contrast he notes that in this case the provision is included as part of the description of the parties.  We do not see anything in this point.  The approach taken by Tipping J in Rattrays essentially answers this point.  As Tipping J said, the purpose of the designation requirement is to identify the promisee with certainty.  Nor do we consider anything turns on the fact that the nomination remains revocable up until the time of the contract. 

[41]     Clause  1.3(2) of the agreement for sale and purchase is also of some assistance.  That clause states that where the purchaser executed the agreement with provision for a nominee, “the purchaser shall at all times remain liable for all obligations on the part of the purchaser”.  The intention of the clause is to prevent a purchaser from escaping liability by nominating an impecunious person as purchaser.  For present purposes, the clause shows the agreement as a whole contemplates there being a nominee.  Mr Berman for the trustees also places some emphasis on the enforcement provisions in s 8 of the Act in this context.

[42]     We do not see any basis for suggesting that the proviso to s 4 applies.  Applying the observation of Robertson J relating to the effect of the definition of “landlord” as including “permitted assigns” at [97] in Ballance, there is no other reason to include “the nominee” within the definition of “purchaser” than to provide the right to enforce the obligations under the lease.

[43]     This disposes of this part of the case.  We add that we consider Rattrays and Ballance  have been correctly decided, although we can see that there is some force in the argument that this case is not a classic illustration of the concerns underlying the enactment of s 4.  As Mr Josephson notes, there is no reference to the position of nominees in the report of the Contracts and Commercial Law Reform Committee on whose report the Act is based: Privity of Contract (1981).  However, equally there is nothing to suggest the exclusion of nominees from the operation of the Act.

[44]     There is also some academic support for the argument made on behalf of the Laidlaws in an article by Professor Coote entitled “Of Nominees, Specific Performance, Subjective Belief and Things” (1998) 4 NZBLQ 44.  Professor Coote suggests it goes too far to treat the effect of a nomination under s 4 as a substitution of the nominee for the promisee as a contracting party: at 53.  Professor Coote’s proposition at 53 is that given the use of the “or nominee” formula is unlikely to create a novation at common law, it is even less likely that this would be the position under the Act.  Professor Coote continues at 53:

The very scheme of the Act is built around the existence of three parties: the promisor, the promisee and the beneficiary.  It is the benefit of the promise contained in the contract, not the contract itself, which is declared in s 4 to be enforceable at the suit of the beneficiary.

[45]     However, the weight of academic and other commentary favours the approach taken in Rattrays (and therefore Ballance).  We refer, for example to J M Hosking “Nominees Under the Contracts (Privity) Act 1982: A Reply to Professor Coote” (1998) 4 NZBLQ 197 and to the reports of the United Kingdom Law Commission Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242 1996) and the New Zealand Law Commission Contract Statutes Review (NZLC R25 1993). 

[46]     The United Kingdom Law Commission in its report, which predates Rattrays, notes that Coldicutt has been rejected by later New Zealand cases but says “we see no valid objection to it”: at [8.4].

[47]     The New Zealand Law Commission in its report considered these issues were best left to the courts but suggested that the approach in Coldicutt “seems to be supportable in principle and satisfactory in its result”: at [5.25].  The authors of Burrows, Finn & Todd Law of Contract in New Zealand (3ed 2007) also support the “wider view” in Rattrays on the conferral of the benefit: at [15.2.6].  Finally, Blanchard A Handbook on Agreements for Sale and Purchase of Land (4ed 1988) at [519] cites Coldicutt for the proposition that if a vendor “signs a contract in favour of a named purchaser or his nominee it is a reasonable implication that the nominee is intended to have the benefit of the vendor’s promises”. The author also suggests that the Act does not make the nominee a party to the contract but “merely allows him to take the benefit of it and he obtains an equitable interest in the land”: at [519]. However, here we do not need to deal with the question of whether it is possible to sue directly.

[48]     We are, in any event, reinforced in the view that there has been no injustice in the approach applied by the Associate Judge because the Laidlaws knew the identity of the nominee prior to the execution of the agreement for sale and purchase.  In addition, subsequently their solicitors dealt with the nominee. 

Did the trustees prove they had suffered the loss?

[49]     For the reasons given by the Associate Judge, we agree with the trustees that there is no merit in this point. 

[50]     The Laidlaws’ argument is based on a statement made by Mr Parsonage in his first affidavit that he paid for the repairs and repair invoices which were addressed simply to “Geoff Parsonage”. 

[51]     As the Associate Judge notes, after this issue was raised in the correspondence, Mr Parsonage filed a further affidavit dated 3 September 2007.  That affidavit stated that all losses incurred, “have been incurred by the Seelye Trust and the cost of the repairs, of $159,079.46 was paid for by the Trust”. 

[52]     The Associate Judge did not accept the Laidlaws’ submission that there was an irreconcilable conflict between Mr Parsonage’s two statements.  The Judge put it this way at [48]:

Both Mr Parsonage and his co-trustee, Mr Goulding, have given evidence that they agreed before entry into the agreement for sale and purchase that the trust would buy the property.  Mr Parsonage does not make clear, in his first affidavit, whether he was making the payments personally or as trustee.  He then clarifies that in his second affidavit … .  Mr Goulding (in his affidavit sworn on 7 September 2007) also states that repair costs (and indeed other losses claimed save for general damages) were incurred, and paid for, by the trust.  There was no contrary evidence.  I am satisfied by this evidence that the repair costs of $159,079.46 were paid for by the trust.

[53]     We agree.  That disposes of the second issue on the appeal.

Conclusion

[54]     For these reasons the appeal is dismissed.  There is no reason why costs should not follow the event.  We therefore make an order that the respondents are entitled to costs for a standard appeal on a band A basis plus usual disbursements.

Solicitors:

Grimshaw & Co, Auckland for Appellants
Daniel Overton & Golding, Auckland for Respondents