Lu v Wila Development (Ormiston) LP
[2021] NZHC 2772
•18 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-981
[2021] NZHC 2772
UNDER the Land Transfer Act 2017 IN THE MATTER OF
an application that caveats do not lapse
BETWEEN
HAO YUAN LU
Applicant
AND
WILA DEVELOPMENT (ORMISTON) LP
Respondent
Hearing: 29 September 2021 Appearances:
Mr Lu is self-represented (with interpreter George Chang) S J Humphrey for the Respondent
Judgment:
18 October 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 18 October 2021 at 11:00am
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Lee Salmon Long (S J Humphrey), Auckland, for the Respondent
HAO YUAN LU v WILA DEVELOPMENT (ORMISTON) LP [2021] NZHC 2772 [18 October 2021]
[1] Mr Lu applies under s 143 of the Land Transfer Act 2017 for orders that two caveats not lapse. He has lodged the caveats saying that he is the purchaser of lots in a subdivision by Wila Development (Ormiston) LP at Argento Avenue, Flat Bush, Auckland. Caveat 12064040.1 is for four lots. The interest claimed under the caveat is:
The abovenamed caveator claims interest in the land contained part in the CTs 810051 (Lots 11, 12, 13, 16 as per attached documents marked “A” and “B”) p[u]rsuant to sales and purchase agreements dated 23.7.2019 between the registered owner Wila Developments (Ormiston) LP and caveator Haoyuan LU.
Lots 11, 12, 13 and 16 now have individual records of title: 962488, 062489, 962490 and 962493 respectively. They show that the caveat was registered on 23 March 2021.
[2]Caveat 12076153.1, for lot 10 in the same subdivision, claims this interest:
The above named caveator claims interest in the land contained part in the CTs 810051 (Lot 10) p[u]rsuant to sales and purchase agreements dated 23.7.2019 between the registered owner Wila Developments (Ormiston) LP and caveator Hao Yuan LU.
Lot 10 now has a separate record of title, 962487, which shows that the caveat was lodged on 1 April 2021.
[3] In opposition, Wila, the registered proprietor, says that Mr Lu is claiming as the nominee under four of the agreements (Lots 10, 12, 13 and 16), but the nominations were ineffective because the agreements for sale and purchase have a non-assignment clause and it did not consent to the assignments to Mr Lu. Wila also says that the agreements are no longer in force for these reasons:
(a)Each agreement for sale and purchase had a sunset clause, setting a date by which titles for each lot were to issue. When titles did not issue by that date, it exercised its contractual right to avoid the agreements.
(b)Each agreement has a no-caveat clause. Wila was entitled to cancel the agreement for Lot 11 because of Mr Lu’s breach of that term.
(c)The agreements have been cancelled for repudiation.
Wila also submits that the court should also apply the residual discretion to lapse the caveats.
[4] I find for Wila. Mr Lu could not caveat lots 10, 12, 13 and 16 because he was not a purchaser of those lots. Wila was entitled to cancel the agreement for lot 11 because Mr Lu breached the no-caveat clause. The caveats will lapse.
General principles on caveat applications
[5] In Holt v Anchorage Management Ltd,1 McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act 1952.
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase “protected by the caveat”). Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
While he said that about the Land Transfer Act 1952, the same applies to caveats against dealings under s 138 of the Land Transfer Act 2017.
[6] In applications under ss 142 and 143 of the Land Transfer Act 2017, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 138(1):
138 Caveats against dealings with land
(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—
1 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
(a)claims an estate or interest in the land, whether capable of registration or not; or
(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or
(c)is transferring the estate or interest in the land to another person to be held on trust; or
(d)is the registered owner of the estate or interest in the land and—
(i)has an interest that is distinct from that of registered owner; or
(ii)establishes to the satisfaction of the Registrar that at the time the caveat is lodged there is a risk that the estate or interest may be lost through fraud.
[7] A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.2 Something more than a potential or future interest is required.3
[8] Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute a fact which calls for further investigation every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents, statements made by the same deponent, or inherently improbable it may be. For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. In addition, the court has a residual discretion not to uphold a caveat. That discretion is exercised cautiously as when the caveat could serve no useful purpose, or alternative safeguards are available.4
[9] To establish a reasonably arguable case, there must be evidence tending to prove the facts relied on. Assertion, whether pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in the hearing on the substantive merits.
2 Guardian, Trust & Executors Company of New Zealand Ltd v Hall [1938] NZLR 1020 (CA) at 1025.
3 Philpott v NZI Bank Ltd (1989) 1 NZConvC 190,246 (CA).
4 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656; Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).
It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts.
The agreements
[10] Wila Development (Ormiston) LP has carried out a residential subdivision at Argento Avenue, Flat Bush, Auckland. Its general partner is Wila Ormiston Ltd. Mr Guoxiong Li (also known as Kenny Li), is the director of Wila Ormiston Ltd. In July 2019, it entered into the five agreements in this case to sell lots in the subdivision. At the time of the agreements, title for the lots had still to issue. It had obtained land use and subdivision consents subject to conditions and had started work to meet those conditions.
[11] Wila had standard agreements for sale of its lots. It used the REINZ/ADLS Agreement for the Sale and Purchase of Real Estate, Ninth Edition 2012 (8) with added terms. The added terms are those typically used by developers carrying out a subdivision where titles have still to issue. Under each agreement, the deposit was 10 per cent of the purchase price and was to be held in the vendor’s solicitor’s trust account. Under cl 20, settlement was due 10 working days after the vendor’s solicitor advised the purchaser that title had issued. Under cl 21 the vendor was to use all reasonable endeavours to complete the subdivision and enable the issue of an individual title for the lot. Under cl 26 the purchaser could not assign the benefit of the agreement without the consent of the vendor. Under cl 28 the purchaser could not caveat the vendor’s title. Clause 38, the sunset clause, allowed either party to cancel the agreement if title had not issued by 31 March 2021.
[12] For all the agreements in this case, the purchase price was $360,000. The deposit was $36,000. Each agreement was made on 23 July 2019. The agreements were:
Lot Purchaser Purchaser’s solicitor 10 Chuan Sheng Ma and/or nominee Peninsula Law Ltd 11 Hao Yuan Lu and/or nominee Duthie Whyte 12 Jiaxi Xiong and/or nominee Duthie Whyte 13 Yao Chen and/or nominee Alice Lawyers Ltd 16 Hao Yuan Lu and Yao Chen and/or nominee Alice Lawyers Ltd
[13] Under three of the agreements, with Wila’s consent the purchasers nominated others to take title:
(a)on 21 July 2020, Mr Ma nominated Unicon Construction Ltd for lot 10;
(b)on 25 August 2020 Ms Chen nominated herself as trustee of the Victoria Chen Trust for lot 13; and
(c)on 8 September 2020, Mr Lu and Ms Chen nominated Ms Chen as trustee of the Victoria Chen Trust and He Xiang Zhang for lot 16.
[14] Mr Lu relies on further nominations – three on 19 March 2021 and one on 25 March 2021:
(a)on 25 March 2021 Unicon Construction Ltd nominated Mr Lu for lot 10;
(b)on 19 March 2021 Jiaxi Xiong nominated Mr Lu for lot 12;
(c)on 19 March 2021 Yao Chen nominated Mr Lu for lot 13; and
(d)on 19 March 2021, Yao Chen nominated Mr Lu to for lot 16.
[15] Lawyers did not prepare these deeds of nomination. Wila did not consent to the nominations. In each the operative words are:
Party A [the purchaser] willing to nominate all the interest and rights of Lot…, 88 Argento Ave, under the sales and purchase agreement dated 23/07/2019 to Party B [Mr Lu].
The events leading up to cancellation
[16] In early 2021, Mr Lu was in contact with Wila and its lawyers asking about progress on the issue of title. Wila’s general response was that it was waiting for the Auckland Council to issue a certificate under s 224(c) of the Resource Management Act 1991. On 17 March 2021, Wila’s solicitor wrote to the lawyers acting for the purchasers:
My client is experiencing serious delays at Council despite earnest efforts to progress the issue of the 224c certificate, but it is becoming more and more likely that we are not going to meet the sunset date of the agreement of 31/3/2021. I am instructed to inform your clients that in that event, my client intends to cancel the agreement, but will give to your clients the first opportunity to renegotiate a new agreement.
That led to Mr Lu taking the nominations on 19 March and 25 March. He also lodged the caveats. He took these steps without legal advice.
[17] On 23 March 2021, he emailed Mr Li and copied other parties, advising that he had lodged the first caveat to protect his interest in lots 11, 12, 13 and 16. He enclosed with his email a draft statement of claim he intended to file. He wanted to find out who was responsible for the delay in title issuing, Wila or the Auckland Council. He suggested a without prejudice meeting.
[18] On 1 April 2021, Wila’s conveyancing lawyers wrote to the lawyers acting for the purchasers:
Further to my letter of 17 March 2021, I am instructed that as titles have not issued by sunset date of 31 March 2021, clause 38.1 is not satisfied and the vendor now cancels the agreement.
We note that a caveat has been lodged and is in breach of clause 28.1 and as a result, this gives to our client a further right to cancel the agreement pursuant to clause 28.2(2) and we give notice of cancellation under that clause accordingly.
The last sentence was left out of the letter for the Lot 10 agreement. Wila was not aware of the second caveat at that time.
[19] On 1 April 2021 the Auckland Council issued its certificate under s 224(c) of the Resource Management Act for Wila’s subdivision. Wila could not, however, apply for new titles immediately because of Mr Lu’s caveats. New titles issued on 27 April 2021, after Mr Lu consented. They are subject to his caveats.
[20] On 7 April 2021, Mr Lu began a proceeding in this court, suing Wila as first defendant and the Auckland Council as second defendant. He sued as purchaser or nominated purchaser for each of the five lots. He pleaded that he had on-sold three lots to third party purchasers for $480,000, $495,000, $520,000 respectively.
The remaining two lots were considered to have a current market value of $600,000. He suspected that Wila had purposely delayed the subdivision so as to cancel under the sunset clause, allowing it to re-sell the lots at higher prices. He also sued the Auckland Council for the delay in giving its s 224(c) certificate. His intention was to hold at least one of them responsible for the delays in title issuing. He sought only monetary relief, including damages for commercial losses of $895,000. On 30 July 2021, Mr Lu filed an amended statement of claim in which he sought not only damages but also orders for specific performance.
The effect of the non-assignment clause
[21] On entering into an unconditional agreement, a purchaser obtains an equitable interest in the land.5 That interest will support a caveat. Under some conditional agreements a purchaser may lodge a caveat.6 It is also recognised that a sub-purchaser has an equitable interest in the land which will support a caveat.7 The agreements in this case were conditional on titles issuing. The sunset clause is a condition subsequent. The purchasers’ interests under the agreements in this case would support a caveat, subject of course to the no-caveat clause. More about that below.
[22] Mr Lu was the purchaser under the agreement to buy lot 11. Wila, however, says that he was not a purchaser under the other agreements and was therefore not entitled to lodge a caveat. For that, it relies on cl 26 which bars assignments without Wila’s consent:
26. The purchaser must not assign, transfer, or dispose of or alienate the benefit of this agreement, except with the prior written approval of the vendor, such approval not to be unreasonably or arbitrarily withheld, and if such approval is given, the assignee or transferee must enter into a deed of covenant with the vendor to observe and perform the obligations of the purchaser under this agreement. The deed of covenant shall be prepared by the vendor’s solicitors at the cost of the purchaser.
This general term is also relevant:
5 Foreman v Hazard [1984] 1 NZLR 586 (CA) at 594.
6 Bevin v Smith [1994] 3 NZLR 648 (CA).
7 Wigglesworth v Keegan Alexander Tedcastle and Friedlander (1984) 2 NZCPR 221 (HC) at 233–
237. In Catchpole v Bourke [1974] 1 NZLR 266 (SC), Mahon J held that a sub-purchaser’s interest would not support a caveat, but that decision has since been doubted.
1.4(2) Where the purchaser executes this agreement with provision for a nominee, or as agent for an undisclosed or disclosed but unidentified principal, or on behalf of a company to be formed, the purchaser shall at all times remain liable for all obligations on the part of the purchaser.
[23] Clause 26 does not prevent the purchaser from on-selling the land once they have taken title. Nor does it prevent the purchaser from entering into an agreement before the purchaser takes title to on-sell the land with title to pass once the purchaser has obtained title. Under those sub-sales, the purchaser retains the benefit of the agreement with the vendor, namely to take title. The purchaser also remains liable to perform their obligations under the agreement.
[24] All the agreements allow the purchaser to nominate someone else to take title. Under cl 1.4(2), even if the purchaser nominates someone else to take title, the purchaser remains liable for all their obligations under the agreement. That clause reflects the common law position that the burden of an agreement cannot be assigned.
[25] Under cl 26 if the vendor consents to an assignment of the benefit of the agreement, the vendor can require the assignee to enter into a deed of covenant to perform the purchaser’s obligations under the agreement. With that the assignee assumes both the benefits and the burdens of the agreement. The clause does not however override cl 1.4(2). The original purchaser remains liable under the agreement.
[26] Any attempt to transfer the benefit of the agreement without the vendor’s consent is ineffective. That is the standard interpretation of such non-assignment clauses.8 New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd is the New Zealand authority. Tipping J said:9
[26] A non-assignability clause has a clear commercial purpose. The parties do not wish, without consent, to be obliged to deal with a party not of their own choosing. The identity of the other party matters to them, so they expressly or implicitly agree to reverse the general rule that contractual rights may be assigned.
8 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL).
9 New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd [2003] 3 NZLR 1 (CA) at [21]–[26].
[27] Where a purchaser nominates a third party to take title without having obtained Wila’s consent under cl 26, the purchaser still has the benefit of the contract and can enforce it, but the nominee cannot. This position can be compared with the changes in the case law on the effect of nominations in the absence of non-assignment clauses. The current position, established in Laidlaw v Parsonage, is that under an agreement that allows for nominations a nominee may enforce the agreement against the vendor by virtue of the Contract and Commercial Law Act 2017, ss 12 and 17.10 The older position was that the nominee did not take the benefit of the agreement, which remained with the purchaser throughout.11 Under cl 26, the position is the same as under the older law.
[28] Mr Lu did not obtain Wila’s consent to the nominations on 19 and 25 March 2021. The deeds of nomination did not purport to transfer the burdens of the agreements to him. They were ineffective to transfer the benefits of the agreements to Mr Lu. At best, they were bare nominations. Mr Lu was designated as the person to take title, but he could not enforce the agreements because under cl 26 he never received the benefit of the agreements.
[29] Because he did not receive the benefit of the other agreements under the deeds of nomination, Mr Lu did not become a purchaser under those agreements. He could not hold Wila to the terms of the agreements and therefore could not claim an interest as purchaser in lots 10, 12, 13 and 16. Specifically:
(a)For lot 10, Mr Ma had nominated Unicon Construction Ltd with Wila’s consent. Mr Ma remained liable for his obligations as original purchaser and Unicon undertook to perform those obligations as well. Under Unicon’s nomination Mr Lu did not obtain the benefit of the agreement and could not enforce it. He never had a caveatable interest in lot 10 as purchaser.
10 Laidlaw v Parsonage [2009] NZCA 291, [2009] NZSC 98, [2010] 1 NZLR 286.
11 Coldicutt v Keeys HC Whangarei A50-84, 17 May 1985; Lambly v Silk Pemberton Ltd [1976] 2 NZLR 427 (CA); and Hurrell v Townend [1982] 1 NZLR 536 (CA).
(b)For lot 12, Mr Xiong always remained the purchaser. The nomination of Mr Lu under the deed of 19 March 2021 was ineffective to pass the benefit of the agreement to Mr Lu. He could not enforce Mr Xiong’s rights as purchaser.
(c)For lot 13, Yao Chen had nominated herself as trustee of the Victoria Chen Trust to take title with Wila’s consent. She remained the purchaser. The deed of nomination between her and Mr Lu of 19 March 2021 was ineffective to transfer the benefit of the agreement to him.
(d)Mr Lu and Ms Chen were the purchasers of lot 16, but Wila approved the assignment of the benefit of the contract to Yao Chen as trustee of the Victoria Chen Trust and Xiang Zhang to take title to lot 16. The assignment did not release Mr Lu from his obligation under the agreement. He remained a party to the agreement and it could be enforced against him. Under the assignment approved by Wila, he was not to take title, and therefore he could not claim an equitable interest in the land. The nominees approved by Wila were to take title instead. Only Yao Chen signed the deed of nomination for lot 16, which Mr Lu relies on. The deed was ineffective to pass the benefit of the agreement to Mr Lu. It did not confer any interest in the land on him.
[30] Accordingly, Mr Lu had a caveatable equitable interest in lot 11 but when he lodged his caveats he was not a purchaser of the other lots. He could not lodge a caveat claiming to be a purchaser for those lots.
Cancellation under the sunset clause
[31] Mr Lu was accordingly a purchaser only for lot 11. Wila says that it was entitled to avoid or cancel the agreement for lot 11 for the grounds in paragraph [3] above. It also says that if Mr Lu is the purchaser under the other lots, the grounds for cancelling also apply to the other agreements. The first ground applies to all the agreements. The other two grounds apply only if Mr Lu is a purchaser.
[32] Wila says that it was entitled to cancel each of the agreements under the sunset clause, cl 38.1, because titles had not issued then:
38.1 Subject to clause 38.2, if title had not issued by 31 March 2021, either party may cancel this agreement by written notice to the other party and the deposit paid by the purchaser plus interest shall be refunded in full to the purchaser and neither party shall have any right or claim against each other.
38.2 The vendor may extend the sunset date by a period of up to six months by written notice to the purchaser; if title and/or code compliance certificates are not issued by the sunset date.
[33] Mr Lu does not accept that because titles had not issued by 31 March 2021 Wila was entitled to cancel each agreement on 1 April 2021. While he did not put it in quite this way, the legal foundation for his argument is that Wila was under an obligation to use reasonable efforts to obtain titles by the sunset date. That can be seen in cl 21.2:
The vendor shall at its cost use all reasonable endeavours to:
(1)subdivide the land generally in accordance with the scheme plan;
(2)complete the Subdivision in accordance with the requirements of the Relevant Authorities; and
(3)enable the issue of individual titles for the property from LINZ.
[34] While that provision is silent as to time, cl 10.8(2) of the general terms makes it clear that Wila must aim to complete the issue of titles before the sunset date:
10.8 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:
…
(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.
(Emphasis added).
[35] Wila takes Mr Lu to task because he has not adduced any evidence showing that it did not use all reasonable efforts to get the titles out in time. It refers to its statement of defence in the proceeding issued by Mr Lu, where it has pleaded the steps taken to obtain title.
[36] Mr Lu’s case is circumstantial. Wila expected that it would be able to issue titles by 31 March 2021. It would not have inserted that date in the agreement if it did not think that it could achieve it. Since the agreements in July 2019, the value of each lot has gone up markedly. The lots would now sell for much more than the July 2019 prices. It has been convenient for Wila that titles did not issue until after 1 April 2021. Wila was quick to cancel the agreements and promptly offer to renegotiate with purchasers at a new renegotiated price. That at least is sufficient to raise a question whether Wila did use all reasonable efforts to get titles out in time.
[37] Wila cannot answer that question simply by referring to its pleadings in another proceeding. It needs to give evidence, but it has not. On the circumstantial evidence so far, Mr Lu has a possible claim that Wila did not use all reasonable efforts to get the titles out in time. If the matter were tried in a full hearing, where both sides give evidence, Wila might show that it did use all efforts, but at present that has not been proved. It is arguable for Mr Lu that Wila was not entitled to cancel the agreement under cl 38.1.
Cancellation under the no-caveat clause
[38]Each agreement has a no caveat clause:
28.1 The purchaser shall not lodge a caveat against the vendor’s title to the land or the property.
28.2 Without prejudice to any of the above rights and remedies of the vendor, if the purchaser lodges a caveat in breach of clause 25.1:
(i)the purchaser shall be liable for all costs incurred directly or indirectly by the vendor, as a result of such caveat including the costs associated with the removal or attempted removal of the caveat, the costs associated with the delay in completion of the subdivision or the settlement of any lots; and
(ii)in addition to the obligations of the purchaser described in 25.2(1), the vendor may cancel this agreement by giving written notice to the purchaser in which case all deposits and other amounts paid by the purchaser will be forfeited to the vendor.
[39] Wila says that it cancelled the agreements under cl 28.2 because Mr Lu lodged the caveats in breach of cl 28.1. For Wila, Mr Li says the caveats prevented titles
being issued promptly. That was delayed until Mr Lu gave his consent as caveator. The delay also slowed construction on other lots in which Mr Lu did not claim any interest. In the letters of 1 April 2021 cancelling the agreements for lots 11, 12, 13 and 16, Wila’s conveyancing lawyers cancelled not only under cl 38 because of the non- issue of titles, but also under cl 28.2 because of the lodging of the first caveat. The agreement for lot 10 was not cancelled on that ground on 1 April 2021, apparently because Wila’s lawyers were not the aware of the second caveat. Notwithstanding that, in their letter of 14 April 2021 Wila’s litigation lawyers’ letter of 14 April 2021 to the conveyancing lawyers acting for Mr Lu on the agreement for lot 11 confirmed the cancellation under cl 28.2.
[40] In response, Mr Lu says that cl 28.2 gives a right of cancellation for a breach of cl 25.1. That clause 25 is not about caveats. Instead it deals with a change of control of the purchaser, or where the purchaser on-sells the property to a third party. In those events, the entities controlling the purchaser and the sub-purchaser are required to enter into a deed of covenant with Wila.
[41] The reference to cl 25 in cl 28.2 is clearly a misnomer. The words “if the purchaser lodges the caveat in breach of cl 25.1” properly mean:
If the purchaser lodges a caveat in breach of clause 28.1
The reference to cl 25.1 is a typographical error. Anyone reading the clause would clearly understand that the purpose of cl 28.2 is to provide the vendor with a remedy if the purchaser breaches cl 28.1 by lodging a caveat. Where it is clear that something has gone wrong with the language, it is an accepted principle of interpretation that the courts do not slavishly give literal effect to the typographical error.12
[42] Wila was entitled under cl 28.2 to cancel the agreement with Mr Lu for the sale of lot 11 because he breached cl 28.1 by lodging his caveat. If Mr Lu was properly the purchaser of the other lots, Wila was also entitled to cancel the other agreements because of his breaches of cl 28.1 of the other agreements. On the other hand, if Mr Lu
12 See Kim Lewison The Interpretation of Contracts (7th ed, Sweet & Maxwell, London, 2021) at [9.01]–[9.25] and Lord Hoffmann’s speech in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (HL).
was not the purchaser of lots 10, 12, 13 and 16, the true purchasers may say that they had nothing to do with his caveats. For those agreements, Wila’s cancellation applies only to Mr Lu.
Cancellation under the Contract and Commercial Law Act 2017
[43] Wila relies on this ground as a back-up in case its cancellation under cl 38.1 is not upheld. It assumes that Mr Lu may be right in alleging that Wila was not entitled to cancel for non-issue of titles by 31 March 2021. Its argument relies on what Mr Lu did in response.
[44] In his email of 23 March 2021, Mr Lu advised Wila’s conveyancing lawyers that he had lodged caveats against lots 11, 12, 13 and 16 and enclosed a draft statement of claim dated 25 March 2021.
[45] On 7 April 2021 he began a proceeding against Wila under CIV-2021-404-584. The draft statement of claim in his email and the one in the proceeding are the same. They allege that Wila’s delay in obtaining an issue of title was a breach of s 35 of the Contract and Commercial Law Act. That section concerns damages for pre- contractual misrepresentation. The reference to s 35 is misconceived. I think Mr Lu was really intending to say that Wila had breached the agreement. More importantly, Mr Lu referred to s 36(1) of the Contract and Commercial Law Act, which says:
36 Party may cancel contract if another party repudiates it
(1)A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to—
(a)perform B’s obligations under the contract; or
(b)complete the performance of B’s obligations under the contract.
Paragraph 13 of the statement of claim says:
13. 1st defendant will also [be] in breach of s 36 Contract and Commercial Law Act by asking plaintiff to renegotiate the sale and purchase agreement as the action of repudiating agreements in order to obtain maximum profit out of the transactions.
[46] Mr Lu sought damages of $895,000 for his “commercial losses and damages”. As I understand Mr Lu’s pleading, he is claiming that when Wila cancelled the contract under cl 38, it was not entitled to do so, but in cancelling, it was showing that it no longer intended to perform its obligations under the agreement. It would no longer transfer title to lot 11 on Mr Lu paying the balance of the purchase price. Mr Lu’s case is that was a repudiation under s 36 of the Contract and Commercial Law Act.
[47] Mr Lu did not seek specific performance of the agreement. One option for a party faced with repudiatory conduct by the other is to affirm the contract and press the other side for performance. When Mr Lu lodged his caveats, that was consistent with his insisting on performance (even though he was not entitled to lodge the caveats). On the other hand his claim for damages for the losses he would have made if he had completed the purchase is inconsistent with his taking title. Mr Lu’s email of 23 March 2021 gave a mixed message. On the one hand, by advising that he had lodged caveats, he was confirming his intention to take title to the land, whereas his damages claim was more consistent with his no longer seeking title. In my judgment, a reconciliation is possible. He had not filed the claim in court at that stage. By sending a draft statement of claim that had not been filed in court, he was setting out for Wila liabilities that it might face. Relevantly, the statement of claim did not expressly state that Mr Lu cancelled the agreements on the grounds of Wila’s repudiation. Sending the draft statement of claim was his way of saying, “This is what you could face”, rather than being immediately operative. It is arguable for Mr Lu that he did not cancel any agreement in his email of 23 March.
[48] The matter, however, changed once Mr Lu had filed his proceeding in April and served it on Wila. The document was no longer a draft intimation of what might happen. It was intended to have effect. Once that statement of claim was served, Mr Lu was saying that he was seeking damages only. He was no longer seeking title but wanted monetary compensation because he was not able to take title. And in saying that he wanted monetary compensation instead of taking title, he was accepting Wila’s repudiation of the contract and thereby cancelled it.
[49] With that, under s 42 of the Contract and Commercial Law Act, neither side was obliged to perform the agreement for sale and purchase further. That means that
Mr Lu could no longer be entitled to lot 11 or any of the other lots on which he was suing. On serving the statement of claim, he was giving notice of cancellation under s 41 of the Contract and Commercial Law Act. Any interest he held in those lots expired on service of his proceeding on Wila Developments. This is consistent with Associate Judge Sargisson’s decision in Moeke v South Waikato District Council.13
[50] Mr Lu later filed another statement of claim in which he sought specific performance. But that was too late because he had already cancelled the agreements.
Once he had cancelled, he could not insist on performance.14
[51] Wila also puts its argument another way. It says that Mr Lu’s statement of claim was itself a repudiation under s 36 of the Contract and Commercial Law Act because, in that statement of claim, he showed his intention no longer to perform the agreement. It accepted that repudiation and cancelled the agreement in its lawyer’s latter of 14 April 2021.
[52] Mr Lu’s submissions did not effectively grapple with these problems. I accept that one way or another, by 14 April 2021 the agreements were at an effective end, with each side relying on the other’s alleged repudiatory conduct. With the cancellation, there was no longer a basis for a caveatable interest in any of the lots.
Discretion
[53] Wila says that even if the caveats remain on the titles, notwithstanding all the above arguments, the court should exercise its discretion to remove the caveats anyway.
[54] First, it says that damages will be an adequate remedy for Mr Lu. There is therefore no basis for the caveats, as the court will not order specific performance in his favour. That question goes to the appropriate remedy once the court finds that a purchaser is entitled to enforce an agreement against a defaulting vendor. At the caveat stage, it would be bold to pre-empt the decision on the appropriate remedy. In a rising
13 Moeke v South Waikato District Council [2019] NZHC 2282, (2019) 20 NZCPR 385.
14 Moeke, above n 13, at [46].
market, as here, defaulting vendors are keen to get out of agreements when they know that they can re-sell the property at a higher price. Their argument that damages will be an adequate remedy is designed to let them make a higher profit and to burden the innocent purchaser with the increased costs of buying another property. I have rejected such submissions and have upheld caveats: Heng Yang Investment Ltd v Wave Investments Ltd,15 Tuialii v FCQ Construction Ltd16 and Singh v Mao.17 I apply the same approach here. The possibility that the court may not order specific performance if Mr Lu is otherwise vindicated is not by itself a good reason to lapse the caveats.
[55] Wila also says that the caveats should be removed in the court’s discretion because they were lodged in breach of the no-caveat clause. It refers to the Court of Appeal’s decision in Mortre Holdings Ltd v ANCL Investments Ltd.18 In that case, a vendor sold land to a developer. The vendor was to take two lots on completion of the development. The contract had a no-caveat clause, but the contract said nothing about the consequences for breach of the no-caveat clause. The Court of Appeal held that the court had a discretion to order removal of a caveat lodged in breach of a no-caveat clause:
[24] A no-caveat clause does not prevent a caveatable interest from arising and a court therefore retains the jurisdiction to uphold the caveat. However, the no-caveat clause is relevant to the court’s discretion as to whether to sustain it. This is made clear by a number of New Zealand decisions.19 The court’s ability to enforce a no-caveat clause despite the statutory right has been seen as an aspect of the residual discretion a court has to remove a caveat notwithstanding that a reasonably arguable case has been shown for a claimed interest.20 …
[26] Such a clause can be a basis for the exercise of the discretion because a court will not lightly condone a breach of contract, particularly when the term of the contract has an obvious commercial purpose. … [W]e accept that the threshold for exercising the discretion to remove or not sustain a caveat filed in breach of a no-caveat clause is not high (while recognising the need for caution).21
15 Heng Yang Investment Ltd v Wave Investments Ltd [2021] NZHC 853.
16 Tuialii v FCQ Construction Ltd [2021] NZHC 965.
17 Singh v Mao [2021] NZHC 1959.
18 Mortre Holdings Ltd v ANCL Investments Ltd [2016] NZCA 494, (2016) 18 NZCPR 268.
19 Pacific Homes Ltd, above n 4, at 656; Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104 (CA) at 106; Stewart v Kaipara Consultants Ltd, above n 4, at [23]; Raiser Developments Ltd v Trefoil Properties Ltd [2008] NZCA 73, (2008) 9 NZCPR 161 at [48]; and Botany Land Development Ltd v Auckland Council [2014] NZCA 61, (2014) NZCPR 813 at [24].
20 Landco Albany Ltd v Fu Hao Construction Ltd [2006] 2 NZLR 174 (CA) at [52].
21 Pacific Homes Ltd, above n 4, at 656; and Stewart v Kaipara Consultants Ltd, above n 4, at [23].
[56] The contract in this case provides an express remedy for breach of a no-caveat clause. Under cl 28.2 Wila may cancel the agreement. In addition, the purchaser must pay damages and forfeit the deposit. For this decision I am not required to consider those monetary consequences and their validity. They may be decided in Mr Lu’s other proceeding. But the fact that a breach of the agreement gives an express right of cancellation means that any interest that arose under the caveat expires on cancellation of the agreement. Therefore, there is no need to resort to the discretion. It would only be necessary to invoke the discretion if I considered that there was some merit in Mr Lu’s submission that the right of cancellation in cl 28.2 was a remedy for a breach of clause 25.1. In my judgment, that is unarguable. On the tenuous hypothesis that there might be some merit in the unarguable, I consider whether I would exercise the discretion.
[57] The no-caveat clause was intended to have an obvious commercial effect. As the developer, Wila wanted a free hand in carrying out its development, including using its property for security and issuing titles without being hampered by the purchasers’ caveats. It contracted for that and is entitled to have its terms of contract upheld. In Mortre,22 the Court of Appeal considered that the caveat in that case had little more than “a nuisance value and a negotiation tool”. Mr Lu’s caveats seem to be having a similar effect. If required, I would exercise the discretion to remove the caveats in the court’s discretion.
[58] There is one other aspect which the parties did not raise. For Mr Lu, there may be an argument that if everything else goes well for him, he will be entitled to a return of the deposit. There may be proper arguments as to the validity and effectiveness of the forfeiture in cl 28.2(2), in particular because it may be in addition to the right to claim damages under cl 28.2(1). I simply note the argument. If he succeeds on that, Mr Lu may have a lien on the property to the extent of any deposit that has not been repaid.23 I was advised, however, that the deposits are held in a solicitor’s trust account and are accordingly secured. It would therefore seem that the deposits are adequately protected and that a caveat on the land alleging the lien is not necessary. I also note
22 Above n 18.
23 Whitbread & Co Ltd v Watt [1901] 1 Ch 911 (ChD); upheld on appeal [1902] 1 Ch 835 (CA).
that Mr Lu’s caveats did not claim a lien for the deposits. He lodged the caveats before Wila invoked the forfeiture.
Conclusion
[59] Mr Lu has shown an arguable case that he was a purchaser only of lot 11, but not of the other lots. While his interest as a purchaser of lot 11 gave him a caveatable interest in that lot, the interest was extinguished when Wila cancelled for breach of the no-caveat clause. I also find that the agreement was cancelled for repudiation. In any event, I would exercise my discretion to remove the caveats. If Mr Lu were a purchaser of the other caveats, the arguments on the same grounds would apply to those caveats as well.
[60]I make these orders:
(a)The caveats are to lapse now on the delivery of this judgment.
(b)Mr Lu is to pay Wila the costs of this application.
[61] I encourage the parties to confer as to costs. If they cannot agree, Wila may file a memorandum as to proposed costs. Mr Lu should file any response within five working days after that. As I will not be available, another Judge will decide costs. To assist, I record that this case is category 2 for costs. Band B would seem appropriate for most steps taken. While Mr Lu was unsuccessful, his conduct in the proceeding does not warrant increased costs under r 14.6.
……………………………...
Associate Judge R M Bell
5
9
1