Liu v Future Sustainable Development Limited

[2021] NZHC 2909

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2201

[2021] NZHC 2909

BETWEEN

WENJING LIU

Plaintiff

AND

FUTURE SUSTAINABLE DEVELOPMENT LIMITED

Defendant

Hearing:

11–13 October 2021

Appearances:

D K Wilson for the plaintiff

J S Langston for the defendant

Judgment:

29 October 2021

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 29 October 2021 at 3.30pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

D K Wilson, Barrister, Auckland Churton Hart & Divers, Auckland Shieff Angland, Auckland

LIU v FUTURE SUSTAINABLE DEVELOPMENT LTD [2021] NZHC 2909 [29 October 2021]

[1]                 By this proceeding, the plaintiff (“Ms Liu”) seeks a declaration a June 2020 agreement with the defendant (“FSD”) for the sale and purchase of land in Auckland’s Henderson was validly cancelled, and removal of FSD’s consequent caveat over the land. FSD counterclaims for a declaration the purported cancellation was invalid, and seeks the caveat be retained pending Ms Liu’s specific performance of the agreement.

Background

[2]                 Ms Liu is the registered proprietor of the property at 45 Woodford Avenue in Auckland’s Henderson. She acquired it on 9 April 2020.

[3]                 Ms Liu is married to Wangliang Li (“Mr Li”). Mr Li is the sole shareholder and director of Xinda International Group Ltd (“Xinda”). Mr Li says, in November 2019, Xinda agreed to buy the property from a third party at a purchase price of $910,000, for settlement in April 2020. Mr Li and Ms Liu agreed the property would be acquired in her name, with the assistance of a loan from the ANZ Bank secured by first mortgage over the property, but he would conduct all dealings with it. He intended to develop the property from its single dwelling to eight townhouses. He says those dealings included two friends’ interests in investing in the property, one of whom had contributed $150,000 to its purchase price and another who intended to contribute to its development costs but died on 28 May 2020.

[4]                 FSD’s sole shareholder and director is You Hou (“Ms Hou”). Ms Hou is married to Xiaojiang Chen (“Mr Chen”). Mr Chen is FSD’s chief executive officer. Mr Li and Mr Chen knew each other from  previous involvements.  Mr Li asked    Mr Chen to assist with financing purchase of the Henderson property. After its acquisition by Ms Liu, the two men discussed its purchase by Mr Chen. The discussions included if the purchase would be by Mr Chen or FSD directly or by an overseas investor he had “in mind”, and if the price was acceptable to Mr Li’s “friends”, with whom Mr Li said he needed to consult.

[5]                 Ultimately, on 17 June 2020, Mr Li provided Mr Chen with a draft sale and purchase agreement in standard form as between Ms Liu and FSD, supplemented by further terms drafted by a legally trained acquaintance of Mr Li. That ADLS/REINZ 4 June 2020 standard form (10th edition) includes on its front page, under the heading

“Conditions”, “OIA consent required (subclause 9.6): Yes/No” and “OIA date (subclause 9.8):”. Clause 9.6 provides:

OIA consent condition

(1)    If the purchaser has indicated on the front page of this agreement that OIA consent is required, this agreement is conditional upon OIA consent being obtained on or before the OIA date shown on the front page of this agreement on terms and conditions that are satisfactory to the purchaser, acting reasonably, the purchaser being responsible for payment of the application fee.

(2)    If the purchaser has indicated on the front page of this agreement that OIA consent is not required, or has failed to indicate whether it is required, then the purchaser warrants that the purchaser does not require OIA consent.

[6]                 The draft agreement proposed a purchase price of $1.180 million, with no deposit payable. The further terms of sale would render the agreement conditional on: issue of resource consent in accordance with an annexed plan (cl 20.1); Ms Liu to forward a copy of the  draft resource  consent conditions to FSD for its approval     (cl 20.2); and “the Purchaser, the Purchaser’s investor and/or its nominee obtaining an OIA consent to purchase the land under the Overseas Investment Act 2005” (cl 20.3). Clause 21.1, titled “Sunset clause”, added:

If any of the conditions above are not satisfied by 15 October 2020, either party may, at any time before such condition is waived or satisfied by either party, cancel this agreement by giving written notice to the other, or extend the sunset date by mutual agreement.

Clause 24.1 then provided “[i]f there is any conflict between the special conditions and the general terms of the sale, the special conditions shall apply”.

[7]                 After amending clause 21.1’s date to 1 October 2020 but otherwise leaving the draft unchanged, on 18 June 2020, the agreement was initialled and signed by each Mr Li and Mr Chen, Mr Li signing his wife’s name.

[8]                 Mr Chen says, in July 2020, FSD entered into a further agreement for sale and purchase of the Henderson property to Hou Ching and How Lun Group Ltd (“HCG”), at a purchase price of $1.600 million. He says the purchaser’s shareholder was an overseas resident.

[9]                 On 21 September 2020, on Mr Chen’s instruction, Ms Hou sent an email on FSD’s behalf in the following terms:

Subject: Unconditional notice about 45 Woodford Avenue, Henderson purchase agreement

Attention: Wenjing Liu Hi Wenjing.

Congrats! The investor’s OIA application has been approved in principle. We are instructed to confirm that the purchaser conditions (Clause 20.3) under the agreement is waived. Currently the purchaser side is unconditional.

We understood that the vendor has the obligation to satisfy Condition Clause

20.1 and 20.2. As the OIA application has been approved in principle, the Clause 20.1 and Clause 20.2 condition is not critical for the Purchaser. The purchaser is happy if Clause 20.1 and Clause 20.2 to be waived.

Based on the Clause 21, the sunset settlement date is Oct 1st 2020. This email is formal notice in written [sic] that the condition in Clause 20.1, Clause20.2, Clause 20.3 is waived. As the purchaser side is unconditional, we can make the settlement on any date before Oct 1st 2020. If you want to extend the sunset date after Oct 1st 2020, please note us as soon as possible.

Cheers.

Ms Hou’s reference to “[t]he investor’s OIA application has been approved in principle” is said to be in error. Mr Chen says it was intended to say the investor’s — meaning HCG’s overseas resident shareholder — New Zealand residence visa had been approved in principle.

[10]              In the two weeks prior to 21 September 2020 and the days immediately following, by reference to a $1.450 million price obtained for a nearby property, Mr Li and Mr Chen discussed increasing the purchase price between Ms Liu and FSD.    Mr Chen proposed paying Mr Li $50,000 personally.

[11]              On 2 October 2020, having confirmed their respective roles on the transaction, Ms Liu’s solicitor sent FSD’s solicitor the following email:

Subject: RE: Liu to Future Sustainable Development Ltd and/or nominee – 45 Woodford Ave, Henderson

…

We refer to the agreement between our respective clients and note that we have not received any notification from you that clause 20.3 is satisfied.

We now give notice to avoid the agreement pursuant to clause 21.1 and clause 9.10(5).

Regards,

[12]Clause 9.10 provides:

Operation of conditions

If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:

(1)  The condition shall be a condition subsequent.

(2)  The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.

(3)  Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.

(4)  The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.

(5)  If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement, the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.

(6)  At any time before this agreement is avoided, the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.

[13]              On the same day, 2 October 2020, Ms Liu appears to have entered into a further agreement to sell the property to RA Building Consultants Ltd (“RAB”), at a purchase price of $1.536 million. The transaction has yet to settle. (On 15 July 2021, RAB registered a caveat against dealings with the property, citing its estate or interest under “[u]nconditional Agreement for Sale and Purchase dated 2/10/2020” between Ms Liu and RAB.)

[14]              By letter of 5 October 2020, FSD’s new solicitors disputed Ms Liu’s notice of 2 October 2020 was effective, and demanded settlement. On the same day FSD registered a caveat against dealings with the property, citing its estate or interest under

“[a]n unconditional Agreement for Sale and Purchase dated on or about 18/06/2020” between Ms Liu and FSD.

Relevant law

[15]              It is common ground the central question is if clause 20.3 was open, expressly or by implication, unilaterally to be waived by FSD.

[16]That is a matter of contractual construction:1

The legal principles are well established. A party may waive a condition or provision in a contract which is solely for that party’s own benefit and is severable. In such a case the other party is denied the right to treat the condition as unsatisfied and is obliged to complete notwithstanding the loss of that advantage. The question is one of construction of the contract. It turns on whether the stipulation is in terms or by necessary implication for the exclusive benefit of the party, and the answer is derived from consideration of the contract as a whole in the light of the surrounding circumstances: and oral evidence of the parties’ intentions and of the course of negotiations is inadmissible. (Emphasis added.)

[17]Contract construction is an objective exercise to determine:2

… what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean[,] … aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.

That is, ‘known to and likely to have been operating on all parties’ minds’;3 there is  a “need to maintain the key distinction between the parties’ objectively apparent consensus and subjective individual intentions”.4

[18]              The starting point is the language of the agreement itself, interpreted in the context of the agreement as a whole:5

1      Globe Holdings Ltd v Floratos [1998] 3 NZLR 331 (CA) at 334, citing (and adding emphasis to)

Hawker v Vickers [1991] 1 NZLR 399 (CA) at 402–403.

2      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].

3      Firm PI 1 Ltd v Zurich Australian Insurance [2014] NZSC 147, [2015] 1 NZLR 432 at [66] per McGrath, Glazebrook and Arnold JJ, and see also [60]–[61] and [63], approved in Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [43] as “settling the general approach to contractual interpretation”.

4      New Zealand Air Line Pilotsʼ Association Inc v Air New Zealand Ltd [2017] NZSC 111, [2017] 1 NZLR 948 at [86] per Arnold, O’Regan and Ellen France JJ.

5      Firm PI 1 Ltd v Zurich Australian Insurance, above n 3, at [63] per McGrath, Glazebrook and Arnold JJ (internal footnotes omitted).

While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

[19]              So far as evidence of the parties’ intentions is concerned,6 it now is accepted “fair to admit evidence tending to objectively prove what parties intended the words to mean to assist with the interpretation of the text of the contract”.7

[20]              If that meaning is to be established by implication — as “strictly necessary to spell out what the contract, read against the relevant background, must be understood to mean”:8

(1)    it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”;

(4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

The Supreme Court emphasised:

Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)–(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and “the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.

Discussion

[21]              To start with the language of the agreement itself,9 the absence of annotation on its front page if OIA consent is required would mean, in terms of the agreement’s

6      Excluded by the emphasised passage in the quotation from Hawker v Vickers, above n 1, at [16] above.

7      Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 3, at [77] and [232(a)].

8      At [94], [116(f)] and [232(b)], approving BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 52 ALJR 20 (PC) at 26, and referring to Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [211], and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] USKC 72, [2016] AC 742 at [21].

9 See [5]–[6] and [12] above.

cl 9.6(2), FSD warrants it does not require OIA consent. But such general term is in conflict with cl 20.3’s conditionality of “obtaining an OIA consent”. As a ‘special condition’, by cl 24.1, cl 20.3 applies.

[22]              Clause 9.10(6) enables a party’s waiver by notice of any condition which is for the sole benefit of that party. Clause 20.3 is not expressed as being for the sole benefit of any party. ‘Sole benefit’ of a party is distinguishable from cl 9.10(2)’s “[t]he party or parties for whose benefit the condition has been included”. A condition may be included for one party’s benefit without necessarily being for that party’s sole benefit.

[23]              Clause 21.1 allows any of cl 20’s conditions may be “waived or satisfied by either party”, perhaps meaning either party unilaterally may waive each condition (and implicitly therefore none is for the sole benefit of either party). Clause 21.1 thus would be in conflict with clause 9.10(6). But cl 21.1 is not of itself a ‘special condition’, meaning cl 24.1’s preference of it over the general terms’ cl 9.10(6) is not engaged. Particularly as cl 21.1 is addressed at establishing a ‘sunset clause’, cls 9.10(6) and

21.1 are to be read together as empowering unilateral cancellation only before waiver or satisfaction of conditions. Power unilaterally to waive conditions remains sourced in cl 9.10(6). Thus the question remains if cl 20.3 is for FSD’s sole benefit.

[24]              Clauses 20.1 and 20.2 arguably are for FSD’s sole benefit. They render the agreement conditional on issue of resource consent for a specified development, in terms approved by FSD, as to which prospect the purchase price may be thought to have been determined. But, for example, the availability in circumstances only of an alternative resource consent for the property’s better or more profitable use may constrain FSD’s unilateral waiver of those conditions. Such circumstances may exclude implication the clauses are for FSD’s sole benefit. I therefore draw no strength from those clauses in construing cl 20.3 in its own circumstances.

[25]              As to those latter circumstances, the most that can be said from the objective evidence of the parties’ intentions is they were to accommodate the prospect of OIA consent being required. The only witnesses were the two couples: Ms Liu and Mr Li; and Ms Hou and Mr Chen. I am not greatly assisted by the witnesses’ subjective post facto expression of their intentions in their briefs and oral evidence. The

contemporaneous evidence, predominantly of Mr Li’s and Mr Chen’s translated Chinese-language electronic voice and text communications, is appropriately guarded as befitting proposed arm’s-length property transactions. Despite the parties’ liaison on a resource consent, nothing in those respects was to render the proposed transaction other than arm’s-length. No evidence was forthcoming from contended involved parties, such as Mr Li’s “friends”, his legally-trained acquaintance providing the text of the draft agreement’s further terms, or Mr Chen’s overseas interests.

[26]              Section 10(1)(a) of the Overseas Investment Act 2005 specifies “[a] transaction requires consent … if it will result in … an overseas investment in sensitive land”. Section 12 defines ‘overseas investment in sensitive land’ as “the acquisition by an overseas person, or  an  associate  of  an  overseas  person” of,  among  other things, a freehold estate in residential land, as is the property at issue. ‘Overseas persons’ and their ‘associates’ comprehensively are defined at ss 7 and 8. Overall, at the time of entry into the agreement, those definitions may capture acquisition of the property by FSD, or by its nominee (if any). All turns on the particular conduct of FSD in relation to the actual acquisition, which was left open to FSD for settlement.

[27]              For Ms Liu, David Wilson argued the prospect of an overseas person’s acquisition of the property at issue may give rise to “obligations under the OIA … that fall on both parties”. His point was the Act’s definition of ‘associate’ is wide enough to capture Ms Liu on any transaction requiring OIA consent, rendering her susceptible to commission of OIA offences. Thus the condition also was for her benefit. For FSD, Shan Langston argued waiver of cl 20.3 is effective to reinstate cl 9.6, meaning no benefit could accrue to Ms Liu from cl 20.3. Thus the condition was for FSD’s sole benefit.

[28]              I have my doubts s 8’s definition is intended to capture as an associate of the purchaser an arm’s-length vendor of sensitive land to an overseas person or their associate. Research has not identified any case in which such was held or even sought. Nonetheless, given the Act’s expansive purpose to acknowledge overseas persons’

privilege to own or control sensitive New Zealand assets and to manage risks associated with such transactions,10 I am reluctant to exclude the prospect in principle.

[29]              Clause 9.6(2)’s warranty suggests any requirement (or not) for OIA consent may have wider ramifications than for the purchaser alone. Contrary to Ms Langston’s submission, cl 20.3’s waiver does not reinstate clause 9.6; rather, “[i]f there has been a waiver, the transaction proceeds as it would have done if the condition had been satisfied on the date of the waiver”,11 meaning here cl 20.3 would continue to ‘apply’ as conflicting with cl 9.6(2). Because the agreement is silent as to the warranty’s absence in the parties’ alternative arrangement, I construe cl 20.3 as not being for FSD’s sole benefit. Had the parties intended otherwise, given their exclusion of the warranty, they should have made it express. Their intention otherwise cannot here be implied.

[30]              Clause 20.3 accordingly was not capable of being waived unilaterally by FSD. Clause 20.3 therefore not being fulfilled or waived by 1 October 2020, either party was entitled by cl 9.10(5) to avoid the agreement by giving notice to the other. That expressly is what Ms Liu did.12

Result

[31]Ms Liu’s claim succeeds; FSD’s defence and counterclaim fails. I therefore:

(a)declare Ms Liu validly avoided her June 2020 agreement with FSD for sale and purchase of the property at 45 Woodford Avenue in Auckland’s Henderson by notice to FSD of 2 October 2020; and

(b)order removal of FSD’s caveat 11883917.1 from identifier NA 1578/4.

Costs

[32]              In my preliminary view, from what I presently know — as the unsuccessful party in this averagely complex proceeding requiring counsel of average skill and

10     Overseas Investment Act 2005, s 3.

11     Globe Holdings Ltd v Floratos, above n 1, at 339 (subsequently referred to in To v Huang [2015] NZCA 446 at [14]).

12 See [11] above.

experience, and in which a normal amount of time is considered reasonable for each step on the application — FSD should pay 2B costs to Ms Liu on each step. If my view is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda of no more than five pages — annexing a single- page table setting out any contended allowable steps, time allocation, and daily recovery rate — to be filed and served by Ms Liu within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.

—Jagose J