Lu v Wila Developments (Ormiston) LP
[2024] NZHC 838
•18 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000584
[2024] NZHC 838
BETWEEN HAO YUAN LU
First Plaintiff
UNICON CONSTRUCTION LIMITED
Second PlaintiffJIAXI WONG
Third PlaintiffYAO CHEN as trustee of VICTORIA CHEN TRUST
Fourth Plaintiff
YAO CHEN as trustee of VICTORIA CHEN TRUST and HE XIANG ZHANG
Fifth Plaintiffs
AND
WILA DEVELOPMENTS (ORMISTON) LP
Defendant
Hearing: 18, 19 and 21 March 2024 Counsel:
S E Wroe, J P G Mackie and X Zhang for Plaintiffs T P Mullins and R M Keane for Defendant
Judgment:
18 April 2024
JUDGMENT OF LANG J
This judgment was delivered by Justice Lang
On 18 April 2024 at 11.00 am Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:………………………
Solicitors/counsel:
Zhang Law/S Wroe/J P G Mackie, Auckland Lee Salmon Long, Auckland
LU v WILA DEVELOPMENTS (ORMISTON) LP [2024] NZHC 838 [18 April 2024]
Table of Contents
The subdivision process [10]
PART A: The plaintiffs’ claims [17]
The agreements for sale and purchase [17]
Was Wila entitled to cancel the agreements on the basis that new titles had not issued by 31 March 2021? [18]
Relevant principles [18]
The steps that the plaintiffs contend Wila failed to take in breach of its
obligations under the agreement [23]
Failing to communicate with the Council more regularly and with greater urgency between 20 January and 31 March 2021 regarding the status of its application for a s 224 certificate [27]
Failure to pay the developer contribution and bonds in a prompt and timely manner [54]
The developer contribution [54]
The bond payments [60]
Failure to advise the Council of the existence of the sunset clause [61]
Conclusion [65]
Was Wila also entitled to cancel the agreements on the basis that the plaintiffs had lodged caveats against the title to its property? [66]
Did Wila affirm the agreements after receiving advice that Mr Lu had registered the caveat? [85]
Is Wila entitled to enforce the forfeiture of the deposits for breach of cl 28.1?
[88]
PART B: Wila’s Counterclaim [96]
The law [97]
The events that underpin the claim for compensation [100]
Analysis [107]
Result [117]
Costs [119]
[1] The plaintiffs in this proceeding either agreed or were nominated to purchase sections in a residential subdivision being undertaken by the defendant, Wila Developments (Ormiston) LP (Wila). Wila is a limited partnership, of which Wila (Ormiston) Ltd is the general partner. Mr Guoxiong (Kenny) Li is the director of Wila (Ormiston) Ltd and, in that capacity, he supervised the sale of sections in the subdivision to third parties.
[2] When sections in the subdivision were sold, the agreements for sale and purchase contained a “sunset clause”. This gave both parties the right to terminate the agreement if certificates of title to the newly created sections had not issued by 31 March 2021. If either party exercised this power, Wila was required to refund the deposit paid by the purchaser together with accrued interest. The agreements gave Wila the power to extend the time for the new titles to be issued, or the sunset date, by up to six months.
[3] The agreements also contained a clause prohibiting the purchasers from lodging caveats against the title to the property that Wila was subdividing. Breach of this condition by a purchaser would entitle Wila to terminate the agreement and retain any deposit that the purchase had paid.
[4] Wila encountered delays in dealing with Auckland Council during the final stage of the subdivision process. On 17 March 2021, Wila’s solicitors advised purchasers that it believed it was unlikely that new titles would issue before 31 March 2021. It also advised purchasers that it would cancel the agreements and renegotiate the sale of the sections if new titles had not issued by that date. This prompted the first plaintiff, Mr Hao Yuan (Andy) Lu, to lodge a caveat against the title to Wila’s property on behalf of himself and the third to fifth plaintiffs on 22 March 2021. He lodged a further caveat on behalf of the second plaintiff, Unicon Construction Ltd (Unicon), on 1 April 2021.
[5] New certificates of title had not issued by 31 March 2021. On 1 April 2021, Wila exercised its power under the sunset clause to cancel each of the agreements it had entered into with the plaintiffs. Wila also relied on the fact that Mr Lu had lodged a caveat against its property as a further ground for cancelling the agreements under
which Mr Lu and the third to fifth plaintiffs were purchasers. Wila was not aware at that stage that Mr Lu had also lodged a caveat against the title to Wila’s land on Unicon’s behalf.
[6] The plaintiffs contend that Wila was not entitled to cancel the agreements. They do not seek orders for specific performance. Instead, they seek the return of their deposits together with damages and interest. Ms Chen, Ms Zhang, and Unicon had on-sold their sections to third parties for increased prices on the basis that new titles would be issued prior to 31 March 2021.1 Those plaintiffs seek damages equivalent to the profits they would have realised from the sale of their sections. The remaining plaintiffs seek damages based on the difference between the prices they agreed to pay for their sections and the amounts they believe they would have been able to on-sell the sections for once titles had issued. They base their calculations on the prices for which the other plaintiffs had agreed to on-sell their sections, and the amounts that Wila subsequently received when it sold the sections after cancelling the agreements with the plaintiffs.
[7] In October 2021 Wila obtained orders from this Court directing that the caveats that Mr Lu had registered against the title to its property be removed. Mr Lu and the other plaintiffs then promptly lodged further caveats against the new titles that had issued for the sections they had agreed to purchase. They did so without first obtaining the leave of the Court to lodge new caveats as they were required to do under s 146 of the Land Transfer Act 2017 (LTA). By this stage, Wila had entered into contracts reselling the sections that it had earlier agreed to sell to the plaintiffs. It was required to act urgently to obtain orders removing each of these to enable the sale of the sections to be completed.
[8] Wila has filed a counterclaim against Mr Lu and the other plaintiffs seeking compensation under s 148(1) of the LTA. It contends that the plaintiffs lodged caveats against the title to its property without reasonable cause. It seeks to be compensated by them for the legal costs and other monetary losses it has incurred as a result of the caveats being lodged.
1 Ms Chen and Ms Zhang purchased a section jointly as trustees of the Victoria Chen Trust.
[9] In order to understand the issues the proceeding raises, it is necessary to briefly outline the subdivision process.
The subdivision process
[10] The subdivision of land in New Zealand is governed by the Resource Management Act 1991 (RMA). A party who seeks to subdivide land must first obtain approval to do so from the relevant territorial authority.
[11] The first step in the process is for the developer to obtain a resource consent authorising the work that is to be carried out to enable the subdivision to be completed. An applicant for a subdivision consent must provide a plan that depicts the lots to be created under the subdivision.
[12] Subdivision consent is granted under s 104 of the RMA and will be subject to conditions imposed under ss 108 and 220. A resource consent will lapse after five years unless it is given effect.2 Effect is given to a subdivision consent when the territorial authority issues a certificate under s 223 of the RMA.3
[13] In order to obtain a s 223 certificate, the developer must lodge a survey plan with the territorial authority. The territorial authority must either approve or decline the survey plan within ten working days.4 The territorial authority must approve the survey plan where it is satisfied that the plan conforms with the subdivision consent.5
[14] If it approves the survey plan, the territorial authority will provide a certificate to that effect under s 223(3) of the RMA. The certificate is conclusive evidence that all roads, private roads, reserves, land vested in the authority in lieu of reserves and private ways shown on the survey plan have been authorised and accepted by the territorial authority under the RMA and the Local Government Act 1974.6 The
2 Resource Management Act 1991, s 125(1).
3 Section 125(2).
4 Section 223(1A). 5 Section 223(2)(a). 6 Section 223(5).
developer may seek to have new titles issued by Land Information New Zealand (LINZ) within three years of the date on which the s 223 certificate is issued.7
[15] Before a territorial authority issues a certificate under s 224 it will require the developer to pay a contribution towards the creation of reserves and other assets to be vested in the authority.8 A developer may also be required to provide a bond to secure future performance of consent conditions, as well as the maintenance of assets for a specified period once they have vested in the Council.9
[16] No survey plan may be deposited with LINZ unless the provisions of s 224(c) of the RMA have been complied with. This requires a certificate by the territorial authority to be lodged with LINZ confirming that it has approved the survey plan under s 223 of the RMA. The developer must also lodge for registration copies of all documents necessary to give legal effect to the conditions imposed under the resource consent. These may include easements, consent notices and bonds.
PART A: The plaintiffs’ claims
The agreements for sale and purchase
[17] The plaintiffs signed the agreements for sale and purchase on or about 23 July 2019. The agreements were in the Ninth Edition standard form, promulgated jointly by the Auckland District Law Society and the Real Estate Institute of New Zealand. Some of the standard form general conditions had been deleted and several special conditions were added. Relevantly for present purposes, the agreements contained the following standard and special conditions:
Operation of Conditions
10.8If 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
7 Resource Management Act, s 224(h).
8 Section 409.
9 Sections 108(2)(b) and 108A.
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 unless 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 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.
21.0Subdivision
21.1The Purchaser acknowledges that a separate certificate of title under the Land Transfer Act 2017 is yet to issue for the property.
21.2The 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 title for the Property from LINZ.
21.3The Purchaser acknowledges that all measurements and areas indicated on the Scheme Plan are approximate only and may be varied:
(1)On completion of the Subdivision Plan by the Vendor’s surveyor;
(2)On examination of the Subdivision Plan by LINZ;
(3)To incorporate such amendments required by LINZ and/or the Relevant Authorities; and
(4)To incorporate such amendments which in the opinion of the Vendor are necessary or desirable.
28.0No Caveat
28.1The Purchaser shall not lodge a caveat against the Vendor’s title to the Land or the Property.
28.2Without prejudice to any of the other rights and remedies of the Vendor, if the Purchaser lodges a caveat in breach of clause 25.1:
(1)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 and the costs associated with the delay in completion of the Subdivision or the settlement of any lots; and
(2)In addition to the obligations of the Purchaser described in clause 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.
38.0Sunset Date
38.1Subject to clause 38.2, if Title have not issued by 31 March 2021 either party can 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 other right or claim against each other.
38.2The Vendor may extend the Sunset Date by a period of up to 6 months by written notice to the Purchaser, if title and/or Code Compliance Certificate are not issued by the Sunset Date.
Was Wila entitled to cancel the agreements on the basis that new titles had not issued by 31 March 2021?
Relevant principles
[18] The plaintiffs contend that Wila breached its obligations under clauses 10.8(2) and 21.2 because it failed to take all steps reasonably necessary to ensure the new titles were issued by 31 March 2021. In those circumstances they say that Wila was not entitled to rely on cl 38.1, sometimes referred to as the sunset clause, to cancel the agreements on 1 April 2021.
[19] The principles that apply in an analogous context were considered by the Court of Appeal in Mana v Fleming.10 That case involved a claim that a purchaser, and not
10 Mana v Fleming [2007] NZCA 324.
a vendor, had failed to take reasonable steps to fulfil a contractual condition. The plaintiffs in that case were the vendors of a property. They alleged that the purchasers had failed to take reasonable steps to comply with a condition requiring them to obtain an unconditional contract for the sale of their existing property by a specified date.
The Court of Appeal held:11
(a)the condition imposed an affirmative duty on the purchasers to act or take positive steps;
(b)the purchasers would breach the condition if they did not do something that was reasonably necessary even though other necessary things were done;
(c)a thing will be “necessary” in this context if it is required to bring about the stipulated result within the agreed period;
(d)the word “reasonably” imports an objective standard relevant to the facts and circumstances;
(e)those things that are necessary must be rational and accord with reason. In other words, the party subject to the condition must do all that it can reasonably do to achieve the contractual object but no more.
[20] For the plaintiffs, Ms Wroe submitted that it is not necessary for her clients to establish that new titles would have issued by 31 March 2021 if Wila had done the things it should have done. She contended it is sufficient for the plaintiffs to establish that the position may have been different if Wila had done the things it ought to have done. However, this submission needs to be considered having regard to the principles confirmed by the Supreme Court in Melco Property Holdings (NZ) 2012 Ltd v Hall.12 In that case, an agreement for the sale and purchase of a commercial property contained a due diligence clause that the purchaser was required to satisfy by a specified date. The vendor purported to cancel the agreement when this did not occur.
11 At [30]-[33].
12 Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] NZSC 60, [2022] 1 NZLR 59.
The purchaser claimed the vendor was not permitted to rely on non-fulfilment of the due diligence condition because it had prevented the purchaser from having adequate access to the property to conduct due diligence.
[21] The Supreme Court was therefore required to consider the circumstances in which default by a party seeking to rely on the non-fulfilment of a condition will defeat the right to cancel the contract. The Court observed:
[52] Against this background, there plainly has to be some nexus between the default and the prospect of fulfilment of the condition in a case such as the present. If the default was not material, there would be no basis to defeat the right to avoid. Further, as Mr Hall says, such an approach would cut across the law relating to repudiation.
[53] We consider the strength of the nexus required in a case such as the present should reflect the underlying policy considerations. A requirement that there is evidence that the default materially affected the prospect of fulfilment of the condition is a principled approach in that, consistently with the underlying New Zealand Shipping principle, it puts the risk where it belongs, namely, on the party in default. For present purposes, what is important is the conduct of the party avoiding the contract. A party whose breach of the contract has contributed materially to non-fulfilment of the condition may not rely on such non-fulfilment to avoid a contract. When considering the situation where both parties have contributed to some extent in the non-fulfilment of a condition, in other words the contribution to the non-fulfilment is shared, it will be necessary to construe “material” as meaning “substantial and operating”.
[54] We also see our approach as having practical advantages in that it is realistic and avoids a counterfactual analysis which may well be speculative. The move away from such a speculative analysis would also better accommodate Mr Hall’s concerns about commercial and contractual certainty.
(Emphasis added)
[22] Applying this approach, the plaintiffs must establish that Wila breached its obligations under the agreement to take all steps that were reasonably necessary to enable new titles to issue by 31 March 2021. The plaintiffs must also show that the steps that Wila failed to take contributed materially to the failure of new titles to issue prior to 31 March 2021. This involves considering the steps that Wila took to comply with its obligations under the agreements up until that date.
The steps that the plaintiffs contend Wila failed to take in breach of its obligations under the agreement
[23] In August 2018, Wila obtained a resource consent permitting it to subdivide its property in Argento Avenue, Flat Bush into 24 residential lots. The proposed subdivision provided for the creation of roading, stormwater management and recreation reserves. Auckland Council issued a “bundle consent” for both land use and subdivision. This was subject to several conditions.
[24] Wila then arranged to obtain the necessary approvals to undertake the necessary physical works on site and to satisfy the conditions of the resource consent. Building consents were obtained and inspections carried out. The physical works on the site had been completed by October 2020. The plaintiffs do not allege that Wila was guilty of any unnecessary delay up until this point. However, they claim that Wila failed to take reasonable steps after 20 January 2021 to ensure that new titles issued no later than 31 March 2021.
[25] The plaintiffs allege that Wila failed to take the following steps, all of which were reasonably necessary to enable new titles to issue prior to 31 March 2021:
(a)Wila’s representatives failed to communicate with the Council more regularly and with greater urgency between 20 January and 31 March 2021 regarding the status of its application for a s 224 certificate;
(b)Wila’s representatives ought to have escalated the request for the s 224 certificate to the Team Leader of the Council staff member who was processing the application in February or March 2021;
(c)Wila failed to pay the developer contribution and bond payments in a prompt and timely manner;
(d)Wila failed to advise its representatives and the Council of the existence of the sunset clause so that they would understand the urgency of the situation;
(e)having been told on 10 March 2021 that the Council was working on the issuance of the s 224 certificate, Wila failed to follow that issue up.
[26] I propose to deal with claims (a), (b) and (e) together because they overlap to a large degree.
Failing to communicate with the Council more regularly and with greater urgency between 20 January and 31 March 2021 regarding the status of its application for a s 224 certificate
[27] Wila appointed Candor3 Ltd (Candor3), a firm of civil engineers, to manage the subdivision process. Candor3 took the responsibility for all aspects of the management of the project. This included preparation of the applications for resource consent, oversight of site works, preparation of the survey plan and the documents necessary to obtain the ss 223 and 224 certificates. Mr John Whitten was the civil engineer at Candor3 who oversaw these activities.
[28] The evidence establishes that Mr Li was in regular contact with Mr Whitten during December 2020. He sent Mr Whitten numerous text messages seeking updates as to the progress of Wila’s applications for ss 223 and 224 certificates. He also exhorted Mr Whitten to contact the Council to speed the process up. During this period Mr Whitten was in regular contact with the Council seeking updates regarding the status of the applications.
[29] This pattern continued during the early part of January 2021. During the first two weeks of January 2021, Mr Lu was in virtually daily contact with Mr Whitten seeking advice as to progress. Mr Whitten was also in regular contact with Ms T, the Council officer responsible for processing Wila’s applications.13 On 20 January 2021, Mr Whitten sent an email to Ms T’s team leader, Mr David Snowden, expressing concern at the delay in the issue of the s 223 certificate. He told Mr Snowden that Ms T had said that she would be issuing the s 223 certificate on 2 or 3 December, but this did not happen. Mr Snowden responded later in the day advising that Ms T had been called away to an emergency and her return was uncertain. Mr Snowden said he
13 I have anonymised the name of this person because she was not called to give evidence at the trial. It would not be appropriate to identify her when she has not been given an opportunity to explain what happened from her perspective.
would check what was happening and let Mr Whitten know. The s 223 certificate was issued later the same day. On the following day, the Council also issued the EACC certificate, an engineering certificate that was a prerequisite for the issuing of the s 224 certificate.
[30] The Council had earlier engaged Ms Fion Tang, an external contractor, to process Wila’s application for a s 224 certificate. Her role was to ensure that the documentation Mr Whitten had provided in support of the application met the requirements for a s 224 certificate to be issued. Mr Whitten had suggested to the Council that it should appoint Ms Tang to process the application because he had found her to be extremely helpful and efficient in the past. Ms Tang was responsible for processing the s 224 application on the Council’s behalf up until 18 February 2021. The plaintiffs do not suggest that Ms Tang was guilty of any undue delay or that she was difficult to contact in the same way that Ms T appears to have been. The evidence suggests that Ms Tang responded promptly to any issues that Mr Whitten raised.
[31] On Tuesday 9 February 2021 the Council sent Wila notice that it was required to pay the sum of $637,248.63 by way of developer’s contribution. Wila paid this sum on Monday 15 February 2021.
[32] Mr Whitten and Ms Tang corresponded by email between 8 and 17 February 2021 regarding the documentation for the bond payments Wila was required to make as a condition of the subdivision consent. By 17 February 2021 Mr Whitten had answered Ms Tang’s queries and he sent an email to her enquiring whether there would be an invoice for Wila to pay that night. Mr Whitten told Ms Tang that he was trying to work out when the s 224 certificate would be signed because he wanted to pass this information along to Wila’s surveyor and solicitor. Ms Tang advised Mr Whitten that Wila would not receive invoices for the bond payments until the application had been reviewed by the Council.
[33] Ms Tang had completed the tasks she was required to undertake by 18 February 2021. On that date she forwarded the s 224 documentation to the Council, advising that it was ready for review. She also advised the Council that Wila had paid the developer contribution and that the bonds had been sent to Wila for execution. Ms T
responded by email the same day to advise Ms Tang that she would be conducting the review.
[34] At this point, and provided Wila’s documents were in order, the witnesses for both parties agreed that it should not have taken Ms T very long to review the application to ensure it was in order. She would then arrange for the Council to render invoices for the bond payments and any further fees payable to the Council. Once these had been paid the Council would issue the s 224 certificate electronically by uploading it to the Landonline platform operated by LINZ.
[35] This chronology demonstrates that the Council and Ms Tang made steady progress in processing the s 224 application up until the return of the file to the Council for review on 18 February 2021. The plaintiffs criticise the time that Wila took to pay the developer’s contribution but, for the reasons given below,14 I do not accept it was guilty of undue delay in making the payment. Nor do I consider that Mr Whitten and Wila can be criticised for the steps that they took to progress the application between 20 January and 18 February 2021.
[36] The evidence does not disclose when Mr Whitten became aware that Ms Tang had returned the s 224 application to the Council for final review. However, on 10 March 2021 Mr Whitten sent an email to Ms Tang asking whether a member of the Council’s staff named Hazim was dealing with the review. He had obviously not heard from anyone at the Council at that stage. Ms Tang responded the same day with advice that Ms T was undertaking the review. She suggested that Mr Whitten contact Ms T for an update as to progress.
[37] It seems likely that Mr Whitten took up Ms Tang’s suggestion. On 24 March 2021 he sent a further email to Ms Tang asking whether she had been able to get hold of Ms T. He told her that he had attempted to contact both Ms T and Mr Snowden but neither had responded.
[38] Mr Whitten’s enquiry of Ms Tang appears to have had the desired effect. On Wednesday 24 March 2021 she sent a letter to Mr Whitten’s firm on Auckland Council
14 At [57].
letterhead advising that the s 224 certificate would be issued upon confirmation that all fees and contributions had been paid. The letter attached invoices for a minor works bond and a processing fee.
[39] At 12.29 pm on the same date the Council sent an email to Mr Li and Ms Tang (but not Mr Whitten) advising that the s 224 certificate was ready to be uploaded to Landonline. This would occur once outstanding bonds and Council fees had been paid. Invoices for these were attached to the email. The email also advised that Wila should allow five days for any payment by cheque to be processed and 24 hours for online payments.
[40] The question then arises as to whether Mr Whitten ought to have been more proactive in his dealings with Ms Tang and the Council between 18 February and 24 March 2021, a period of approximately five weeks. Mr Whitten said in evidence that, unless the client asked him to, he would not normally become involved in the s 224 certification process once all engineering requirements had been satisfied. In the present case this occurred with the issue of the EACC certificate on 21 January 2021. During the period between 18 February and 24 March there also appears to have been little contact between Mr Li and Mr Whitten. This is in contrast to the virtually constant communications between them during the early part of January 2021.
[41] However, the plaintiffs’ argument that Mr Whitten ought to have been more assertive in his dealings with the Council during this period needs to be approached with caution and not with the benefit of hindsight. Imposing an unduly onerous requirement that a party take positive steps of this type would inevitably lead to uncertainty regarding the ambit of that party’s contractual obligations. It is important that parties to a contract clearly understand the steps they must take to comply with contractual obligations such as those imposed by cl 10.8(2) of the agreements in the present case.
[42] Clause 10.8(2) of the agreements required Wila to take all steps that “may reasonably be necessary” to ensure that new titles were available by 31 March 2021. There is obviously a limit to what a person who lodges an application for processing with a body such as the Council can do to ensure that the documents are processed in
a timely manner. The evidence confirmed that Council staff were carrying heavy workloads at this time and had competing priorities. These were exacerbated in 2021 by issues flowing from the COVID-19 pandemic. Delays in processing applications appear to have been common, particularly in the Manukau office which was responsible for processing Wila’s application. Such delays would become even greater if Council staff were required to spend time responding to constant communications from developers and their agents.
[43] However, I accept that Wila could not comply with its obligations under cl 10.8(2) by waiting for the Council to process the s 224 application no matter how long that took. If it became clear that the processing of the application was subject to excessive delay, it would be a reasonably necessary step for Wila to make enquiries as to progress with the processing officer and, if necessary, escalate these to a higher level.
[44] As I have already observed, the evidence does not disclose when Mr Whitten became aware that Ms Tang had returned the file to the Council for final review. It seems clear, however, that he did not become aware that Ms T was undertaking the review until 10 March 2021. Mr Whitten cannot be blamed for the fact that the Council failed to advise him who was undertaking the final review. Mr Whitten obviously then attempted to make contact with Ms T and, when that was unsuccessful, attempted to escalate the issue to Mr Snowden. This, too, was unsuccessful. Mr Whitten then contacted Ms Tang on 24 March 2021 and progress thereafter was immediate.
[45] The chronology set out above shows that Mr Whitten sought advice as to progress from the Council and Ms Tang at intervals of approximately two to three weeks. With the benefit of hindsight, it may have been preferable for the intervals to have been shorter, but hindsight is not the test.
[46] The witnesses for both parties agreed that it would be speculative to say that Ms T and other Council officers would have accorded Wila’s application greater priority if Mr Whitten had been in more frequent contact with them. They agreed that some processing officers may have accorded Wila’s application priority if that had
occurred whilst others may not. Further, the delay that occurred when Ms T processed Wila’s applications for both the ss 223 and 224 certificates suggests that she was not a person who dealt with matters quickly. This may have been due to her disposition or because she had a particularly heavy workload. It is also clear that she was subject to some kind of emergency in January 2021 that delayed the issuing of the s 223 certificate.
[47] In addition, the witnesses agreed that the Council does not follow a set or prescribed process for processing applications for ss 223 and 224 certificates. Increased contact would also run the risk of generating an adverse reaction from Council staff, thereby potentially creating further delay.
[48] Importantly, it is also evident that Ms T knew by 24 March 2021 that Wila’s application was urgent. On that date she sent an email to another Council staff member requesting that invoices be issued for the bond payments. The email stated “Another urgent s 224 please. I am not sure if Fion [Ms Tang] has sent you the memo documents.” This resulted in the invoices being sent to Mr Li later the same day. If it took until 24 March 2021 for Ms T to process an application that she knew was urgent it seems inherently unlikely that she would have processed it more quickly if Mr Whitten had been in touch with her more frequently.
[49] Taking these factors into account, I am not prepared to say that Mr Whitten failed to take such steps as were reasonably necessary to progress the application between 18 February and 24 March 2021.
[50] After receiving the invoices from Ms Tang and the Council on Wednesday 24 March 2021, Wila paid them by online payment on Friday 26 March 2021. It could therefore expect to receive the s 224 certificate on 29 or 30 March 2021. This would have permitted Wila to lodge the necessary documentation to obtain the new titles on the same date. The titles would be recorded as having been issued on that date.
[51] On Monday 29 March 2021, the Council sent an email to Mr Li confirming it had received payment of the invoices and advising that Wila’s application for a s 224 certificate was with the Council’s subdivision team for release. The email also
confirmed that s 224 certificates were released digitally through LINZ and that LINZ would email an automated release notification to Wila’s surveyor. At that time a reasonable person in Wila’s position would assume that the s 224 certificate was about to be issued. However, it was not uploaded to the Landonline platform until 1 April 2021 at 2.27 pm. There is no evidence to explain why it took the Council three working days to issue the certificate after receiving payment of the final invoices.
[52] It can, of course, be argued that Mr Whitten ought to have contacted the Council once it failed to issue the s 224 certificate by 30 March 2021. However, this argument again faces the obstacle that the witnesses for both parties agreed that it is a matter of speculation as to whether increased contact with the Council would have made any real difference. For this reason, I do not consider the fact that Mr Whitten did not contact the Council again on 30 or 31 March 2021 can be said to have contributed materially to the fact that the s 224 certificate was not issued by 31 March 2021.
[53] It follows that I do not consider the evidence establishes that any failure by Mr Whitten to contact the Council with sufficient regularity and urgency between 20 January and 31 March 2021 contributed materially to the fact that new titles did not issue before 31 March 2021.
Failure to pay the developer contribution and bonds in a prompt and timely manner
The developer contribution
[54] As I have already noted, the Council sent Mr Whitten an invoice for the developer contribution on Tuesday 9 February 2021. Wila paid the invoice on Monday 15 February 2021.
[55] Mr Li explains that, like many developers, Wila funded the subdivision project through a facility with its bank. Its normal process for paying large invoices was to forward the invoice to its quantity surveyor, who would then prepare a drawdown report which was sent to the bank. Upon receipt of the report the bank would deposit the funds into Wila’s account.
[56] The invoice that Wila received from the Council required it to pay a developer contribution in the sum of $637,248.63. Given the size of the payment, Wila needed to use its facility with the bank to pay the invoice. It therefore took the necessary steps to obtain a drawdown report from its quantity surveyor. Mr Li says that this inevitably took some time, but the invoice was ultimately paid within four working days.
[57] Ms Joanna Pidgeon, an experienced solicitor who specialises in the field of subdivision developments, was called as an expert witness by the plaintiffs. She was critical of the time Wila took to pay the developer contribution. She points out that Wila would have been aware from an early stage of the likely amount of the contribution it would be required to make. She therefore says Wila should have had contingency plans in place to ensure it could pay the contribution as soon as it received the invoice. Ms Pidgeon pointed out that time is money for developers, and that every day counts during the final stages of a subdivision project.
[58] I accept Ms Pidgeon’s evidence as far as it goes. However, I am not sure how Wila could have accelerated the payment in practical terms. It cannot be criticised for using a bank facility to fund large payments because many developers are reliant on bank funding for projects of this type. It could not obtain funding from the bank until its quantity surveyor provided the drawdown report. That could not be done until the Council issued its invoices. I do not consider a delay of four working days to be unreasonable given the size of the required payment and the process Wila was required to undertake to obtain access to funds.
[59] Furthermore, any delay in paying the developer’s contribution was not material in the overall scheme of things. At the time Wila received the invoice for the developer contribution it had not yet received final invoices from the Council for processing fees and bond payments. It did not receive these until 24 March 2021. There is nothing in the evidence to suggest that the issuing of the final invoices was delayed by the fact that Wila did not pay the developer contribution until 15 February 2021.
The bond payments
[60] As I have already noted, Wila received the Council’s invoices for the bond payments on 24 March 2021 and paid them on 26 March 2021. Mr Li says that Wila
was able to fund these payments through cashflow and without the need to resort to its bank facility. I do not consider a delay of two working days to be unreasonable in the circumstances. Further, the Council received the payments on Friday 26 March 2021 and acknowledged receipt on Monday 29 March 2021. This would still have allowed ample time for the Council to issue a s 224 certificate on or before 31 March 2021. I therefore do not consider any delay in making the bond payments contributed materially to the new titles not being issued by that date.
Failure to advise the Council of the existence of the sunset clause
[61] Mr Li did not advise Mr Whitten of the fact that each of the agreements contained a sunset clause. I find this to be surprising because the clause was obviously an important feature of each of the agreements. The fact that Mr Whitten did not know about the clause obviously meant he could not alert the Council to its existence. He said he would have told Ms T and Mr Snowden about the clause if he had been aware of it. Other witnesses called by both parties also confirmed that they would have advised the Council of the existence of the clause because it may have had an impact on the speed with which Council staff processed the documents. I therefore accept that Mr Li ought to have advised Mr Whitten of the existence of the sunset clause so that he could have ensured the Council was aware of it when it processed the s 224 application.
[62] However, I have already noted, there can be no criticism of Ms Tang for the time that she took to process the application. Ms T was also aware that Wila was seeking the s 224 certificate as a matter of urgency. She had communicated that fact to the person responsible for issuing the bond invoices and this may well have contributed to the bond invoices being issued immediately. By 29 March 2021 the application had been passed to the Council’s release team who were responsible for uploading the certificate onto the Landonline platform. The evidence does not disclose whether the urgency of the situation had also been passed on to the members of that team. If it was, it clearly made no difference to that team because they took three working days to upload the s 224 certificate.
[63] In the end, it remains a matter of speculation as to whether knowledge of the existence of the sunset clause would have caused Ms Tang, Ms T and the release team to accord Wila’s s 224 application greater priority than other matters they were working on at that time. It is a distinct possibility that, if they had also been made aware that Wila had the ability under cl 38.2 to extend the time for compliance with the sunset clause by up to six months, they may have accorded Wila’s application less priority than other urgent matters.
[64] I therefore do not consider that the plaintiffs have established that any failure by Wila to alert the Council to the existence of the sunset clause contributed materially to the fact that new titles had not been issued by 31 March 2021.
Conclusion
[65] For the reasons I have given I am satisfied that Wila did not breach its obligation to take all steps reasonably necessary to ensure that new titles were issued by 31 March 2021. It follows that Wila was entitled to cancel the agreements on 1 April 2021.
Was Wila also entitled to cancel the agreements on the basis that the plaintiffs had lodged caveats against the title to its property?
[66] To recap, when Wila cancelled the agreements on 1 April 2021 it relied in all cases on the fact that new titles had not issued by 31 March 2021. For the agreements relating to Lots 11, 12, 13 and 16, Wila also relied on the fact that the purchasers had breached cl 28.1 of the agreements by lodging a caveat against the title to its property. The plaintiffs contend that Wila was not entitled to cancel the agreements on this ground.
[67] The catalyst for Mr Lu lodging the caveat was an email that Mr Li’s solicitors sent to the plaintiffs’ solicitors on 17 March 2021. This contained the following advice:
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 in 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.
Could you kindly inform your clients?
[68] The plaintiffs were not happy when they received this email. By this stage they were aware that the sections they had agreed to buy were now worth significantly more than they had agreed to pay for them. This was demonstrated by the fact that three of the plaintiffs had entered into agreements on-selling their sections to third parties for more than they were required to pay Wila to purchase them. Not surprisingly, the plaintiffs believed that Wila had lost interest in obtaining new titles by 31 March 2021. They believed Wila was endeavouring to use the sunset clause as a form of leverage to negotiate a higher sale price for the sections they had agreed to purchase.
[69] After receiving the email on 17 March 2021 Mr Lu contacted the other plaintiffs and arranged for Ms Chen, Ms Xiong, Ms Zhang (his mother) and Unicon to sign documents that purported to nominate him as purchaser under the agreements they had entered into with Wila. Mr Lu did not seek Wila’s consent to this arrangement as the agreements required him to do.
[70] On 19 March 2021 Mr Lu signed a caveat against the title to Wila’s property that purported to protect his interest as the purchaser of Lots 11, 12, 13 and 16. He lodged the caveat for registration manually on 22 March 2021. LINZ records show that it was recorded on the title to Wila’s property at 7 am on 23 March 2021.
[71] Unicon, the purchaser of Lot 10, executed a form nominating Mr Lu as purchaser of that section on 25 March 2021. Mr Lu registered that document on 1 April 2021. Wila was not aware of the existence of this caveat when it gave notice to purchasers cancelling the agreements at 5.16 pm on that date. As already noted, it cancelled the agreement relating to Lot 10 solely on the ground that a new title had not issued for Lot 10 by 31 March 2021.
[72] On 23 March 2024 Mr Lu sent the following email to Mr Li and Mr Li’s solicitors:15
15 Mr Lu copied the email to Ms Chen and Ms Xiong.
Hi Kenny
1.Thanks for your offer last week.
2.I am not accepting your proposal.
3.I forwarded
(a)Statement of claim against your company and Auckland Council that will be filed at 25.3.2021
(b)Notice of Proceeding.
4.I have lodged a caveat against the title partially to protect my interest under lot 11, 12, 13, 16 of your property.
5.Please forward the progress subdivision report of the property and also forward the contact numbers of your contractors in order for me to investigate who really delay in this matter, Your company or Auckland Council.
6.I suggest a without prejudice meeting can be arranged say 2 pm tomorrow or 12pm on Thursday before I file the proceeding.
7.If any without prejudice settlement achieved say by Thursday, I am willing to sign a private and confidential agreement with you as I am not caring another 20 lots that you have to remain in control.
8.If not, I have to group other buyers to get our Justice back.
9. Hope to hear from you ASAP Hao Yuan Lu
[73] The draft statement of claim that Mr Lu attached to the email claimed damages against Wila for losses suffered by the plaintiffs because Wila had repudiated the agreements in the email sent by its solicitors on 17 March 2021.
[74] Wila’s solicitor, Mr Phillip Wong, responded to this email on 25 March 2021 as follows:
Hi Andy
I think you have misinterpreted my client’s email.
I will formally respond to your solicitor over this matter, but cannot meet with you as it is unethical for me to meet with another solicitor’s client, especially in these circumstances while there is likely to be dispute or litigation. You should instruct your solicitor to communicate with me.
You are alleging that my client has purposefully delayed issuing the S224C Certificate so as to not meet the sunset clause. My client denies any such action but as this matter has been handled by his engineer, Candor 3, my client has given to you the contact details at Candor 3 as you have requested to satisfy yourself whether there has been any such delaying action on their part. We are confident that you will find that no such delaying action has been made by them but leave it to you to verify.
By the way, my client has not cancelled any contracts at this point in time as the sunset date has not arrived. We were merely giving everyone a heads up. You have breached Clause 28 of the Agreement for Sale & Purchase in that you have prematurely lodged a Caveat against my client’s head title, and if this action results in any delay with the subdivision and issue of new titles, you will be held liable.
Kind regards Phillip Wong Director
(Emphasis added)
[75] The plaintiffs’ first argument in relation to the validity of the cancellation based on breach of cl 28.1 is that Mr Lu lodged the caveats as a direct result of Wila breaching its obligation under cl 10.8(2) to take all steps reasonably necessary to ensure that new titles issued prior to 31 March 2021. I reject that argument for the reasons I have already given.
[76] Further, as at 17 March 2021 there remained two weeks before the sunset clause came into effect. No reasonable person in Mr Lu’s position would have interpreted the email that he received from Wila’s solicitor on that date as a repudiation or cancellation of the agreement. As Mr Wong noted in his response to Mr Lu’s email, the email sent on 17 March 2021 was merely a “heads up” to advise purchasers what was likely to occur if new titles had not issued by 31 March 2021.
[77] The plaintiffs next contend that the remedy of cancellation contained in cl 28.2 of the agreement amounted to an unenforceable penalty on the basis that it was exorbitant in the circumstances. They rely for this argument on the following statements of principle by the Supreme Court in 127 Hobson Street Ltd v Honey Bees Preschool Ltd:16
16 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53, [2020] 1 NZLR 179.
[91]We summarise the test as follows:
(a)A clause stipulating a consequence for breach of a term of the contract will be an unenforceable penalty if the consequence is out of all proportion to the legitimate interests of the innocent party in performance of the primary obligation. A consequence will be out of all proportion if the consequence can fairly be described as exorbitant when compared with the legitimate interests protected.
(b)Determining whether or not the impugned clause is an unenforceable penalty requires an objective exercise of construction, notionally undertaken at the time of contract formation, and by reference to the terms and circumstances of the contract. Those circumstances can include the broader commercial context within which the contract sits.
(c)A contractual clause which provides for consequences on breach may provide for consequences designed to protect the interests of the party in performance of the primary contractual term which has been breached. Those are the legitimate interests to be weighed when assessing the proportionality of the agreed consequence.
(d)A party’s legitimate interests may extend beyond the loss caused by the breach as measured by a conventional assessment of contractual damages. They may extend to the impact of non-performance on the broader commercial interests the parties seek to achieve or protect through the contract. Those interests may extend beyond the four corners of the contract, for example if they relate to a system of business of which the contract forms a part.
(e)While legitimate interests will not include objectives unrelated to the performance interest, such as punishment, what is also plain is that deterring breach can be a legitimate objective of a clause.
(f)The bargaining power of the parties will be relevant to the courts’ inquiry as to the nature and extent of the innocent party’s interest in performance of the primary obligation. A court will presume that commercial parties dealing with each other on equal terms are able to assess the appropriate proportion between the legitimate interest in performance of the primary obligation and the consequence contracted for on breach. The fact that a party was legally advised as to the nature and effect of the transaction will also weigh in favour of upholding the bargain. But where there is evidence of unequal bargaining power, or where one party is not legally advised, a court will scrutinise more closely the innocent party’s claims as to the interests protected, and also the issue of proportionality. However, whatever the relative bargaining positions of the parties, the issue for the court remains whether the consequences for breach are out of all proportion to the innocent party’s legitimate interests in performance.
(g)It is not necessary in all cases for the court to assess the damages that would have been awarded at common law for breach, but there may be cases where such calculation is the measure of the performance interest. That is likely to be the case where the impugned clause purports to provide a pre- estimate of damage, or where the impugned clause appears in a contract where the only legitimate interest in performance is properly analysed as the monetary value of the losses which flow directly from that breach, and which are readily calculated.
[78] Ms Wroe did not develop this argument greatly in her closing submissions but contended there was an imbalance in bargaining power between the parties at the time they entered into the agreements. This flowed primarily from the fact that the plaintiffs did not take legal advice before they entered into the agreements, and none of them appears to have paid attention to the special conditions that the agreements contained. Mr Lu confirmed in cross-examination, however, that he was aware of cl 28.2 when he signed the agreements to purchase Lots 11 and 16.
[79] As Mr Mullins emphasised in his closing submissions, a party who lodges a caveat against a title to a property that is being subdivided can cause the developer a great deal of expense and inconvenience. If agreement cannot be reached with the caveator quickly it will be necessary for the developer to apply to the High Court for an order that the caveat is to lapse.
[80] The existence of a caveat can also cause a developer considerable financial loss if the completion of a subdivision is delayed for any significant period. In the present case, the caveat had the potential to prevent the new titles for all lots in the subdivision from being issued by 31 March 2021. That risk was averted when Mr Lu advised Wila on 26 March 2021 that he would consent to the new titles being issued subject to the caveat he had lodged. However, Wila was clearly alert to the risks posed by the possibility that purchasers may caveat the property it was subdividing. It sought to guard against that risk by ensuring it had the ability to cancel an agreement if the purchaser lodged a caveat against its property. I accept that in taking this step Wila was endeavouring to protect a legitimate performance interest.
[81] I also accept Wila’s argument that the right to cancel an agreement for breach of a provision such as cl 28.2 provides a legitimate means by which it could obtain an
order removing the caveat. Cancellation for breach of the clause would remove any interest the purchaser may previously have held in its property.
[82] In the present case Wila’s legitimate interests went well beyond its contractual relationship with the plaintiffs. It also needed to obtain new titles so that it could complete the sale of the other 19 sections. Any caveat registered against the existing title obviously had the potential to jeopardise that process and thereby cause Wila significant financial loss.
[83] Finally, I do not consider that the fact that the plaintiffs did not take legal advice before signing the agreements resulted in an imbalance of bargaining power. Mr Lu appears to be an astute and experienced business person and Ms Chen was a real estate agent. Mr Ma is the director of Unicon and also appears to be well versed in business matters. Ms Zhang had executed a power of attorney in favour of Mr Lu in 2017 and appears to have left matters entirely in his hands. Little is known about Ms Xiong’s position. She resides in China and appears to have relied on Mr Lu in entering into the agreement and in relation to the lodging of the caveat.
[84] Taking these factors into account I do not consider that the remedy of cancellation can be viewed as a form of unjustifiable penalty, even though it cost some of the plaintiffs the ability to complete the on-sale of their sections. And, even if it can be regarded as a penalty, it was proportionate to the legitimate interests it was designed to protect. It therefore cannot be regarded as exorbitant. The plaintiffs’ argument under this head must therefore fail.
Did Wila affirm the agreements after receiving advice that Mr Lu had registered the caveat?
[85] A party to a contract is not entitled to cancel it for breach if, with full knowledge of the breach, it affirms the contract.17 The plaintiffs rely for this argument on the email that Mr Wong sent to Mr Lu on 25 March 2021, in response to the email he received from Mr Lu on 23 March 2021.18
17 Contract and Commercial Law Act 2017, s 38.
18 The email is set out at [74].
[86] I do not consider the statements made by Mr Wong in this email constituted an unequivocal election by Wila to affirm the agreements rather than cancel them for breach of cl 28.1. Mr Wong was merely seeking to clarify the intent and effect of his earlier email to the plaintiffs. He confirmed that Wila had not yet cancelled the agreements because the sunset date had not arrived. The reference to the plaintiffs being liable for losses caused by their caveat is equivocal. Wila would retain the right to seek damages from the plaintiffs for losses caused by the registration of the caveat regardless of whether it cancelled the agreements for breach of cl 28.1.
[87] I consider Wila was entitled to defer cancellation for that breach until it knew whether new titles would be available on 31 March 2021. If the titles had issued by that date Wila could decide whether to complete the sales to the plaintiffs or to cancel on the ground that they had lodged the caveat. If new titles had not issued by that date Wila could cancel the agreements on both grounds. The argument based on affirmation fails as a result.
Is Wila entitled to enforce the forfeiture of the deposits for breach of cl 28.1?
[88] The fact that Wila cancelled the agreements because new titles had not issued by 31 March 2021 means that the plaintiffs would ordinarily be entitled to the return of their deposits together with accrued interest. However, the fact that Wila also cancelled four of the agreements on the basis that the purchasers had breached cl 28.1 leads it to contend that it is entitled to enforce cl 28.2 of the agreements. This gave it the right to retain the deposits paid by the plaintiffs, together with accrued interest.
[89] Each of the plaintiffs paid a deposit in the sum of approximately $32,000. The plaintiffs contend that the forfeiture of these sums amounts to a penalty that is disproportionate and exorbitant in terms of the principles enunciated by the Supreme Court in Honey Bees.19
[90] The position is different so far as Lot 10 and Unicon are concerned. Wila only cancelled the agreement in relation to Lot 10 on the ground that the new title for that section had not issued by 31 March 2021. Wila subsequently attempted to cancel that
19 Set out above at [77].
agreement on the additional ground that Unicon had breached cl 28.1. However, by that stage Wila had already validly cancelled the agreement. Section 42(1)(a) of the Contract and Commercial Law Act 2017 provides that, when a contract is cancelled, no party is obliged or entitled to perform it further. This suggests that, once a contract has been validly cancelled, it is effectively at an end. I therefore do not consider it is possible to validly cancel a contract subsequently on an alternative basis. Unicon is therefore entitled to the return of its deposit together with accrued interest.
[91] Where it is readily ascertainable, one form of cross-check as to whether a contractual provision infringes the principles referred to in Honey Bees is to compare the amount the innocent party will receive by invoking that provision with the amount that party could recover in an action for breach of contract. In the present case the latter effectively comprises the compensation that Wila’s counterclaim seeks to recover under s 148 of the LTA.
[92] Wila seeks total compensation from the plaintiffs in the sum of $62,405.98. Of this sum, it seeks to be reimbursed the sum of $38,939.64 for legal costs it was not able to recover through the awards of costs it received when it applied for orders removing the plaintiffs’ caveats. The balance relates to penalty interest it was required to pay to subsequent purchasers of the sections because of the delay in settlement that resulted after the plaintiffs lodged caveats against the titles to those sections.
[93] In comparison, Wila seeks to retain deposits totalling approximately $128,000 together with interest on that sum accrued since July 2019. That is approximately double the amount Wila could recover from the plaintiffs in an action for breach of contract. However, the issue of whether a contractual provision amounts to a penalty that is exorbitant in the circumstances does not depend on any mathematical formula. As Honey Bees confirms, that issue must be determined using an objective exercise of construction, notionally undertaken at the time of contract formation, and by reference to the terms and circumstances of the contract.20 These can include the broader commercial context within which the contract sits.
20 127 Hobson Street Ltd v Honey Bees Preschool Ltd, above n 16, at [90(b)].
[94] At the time Wila entered into the agreements it was entitled to take such steps as were reasonably open to it to guard against foreseeable risk that it would suffer loss through delay in the completion of the subdivision. One foreseeable cause of delay was the ability of purchasers to lodge caveats against the title to its property. Wila was therefore entitled to ensure that the agreements guarded against that risk.
[95] One means of achieving this was to ensure that Wila had the ability to cancel the agreement for breach of the prohibition on lodging caveats. However, cancellation alone would not protect Wila from loss that a caveat may cause, particularly in a falling property market. I consider Wila was therefore entitled to ensure that purchasers had an added financial incentive to abide by the prohibition on lodging caveats. The most convenient and practical means of achieving this was to require purchasers to forfeit their deposits if they breached that condition. I do not consider this amounted to an excessive or disproportionate response to the breach of such an important condition. I am therefore satisfied that Wila is entitled to enforce cl 28.2 of the agreements that it entered into with the plaintiffs.
PART B: Wila’s Counterclaim
[96] As I have already observed, Wila seeks compensation under s 148 of the LTA for legal costs and the penalty interest it was required to pay to purchasers of sections that it re-sold to third parties.
The law
[97]Section 148 of the LTA provides as follows:
148 Compensation for lodging of improper caveat against dealings
(1)A person, including the agent of a person, who lodges a caveat against dealings without reasonable cause is liable to pay compensation to a person who suffers loss or damage as a result.
(2)A claim for compensation must be heard and determined by the court.
(3)A caveat against dealings lodged in contravention of section 146 is lodged without reasonable cause.
[98]In Gordon v Treadwell Stacey Smith, the Court of Appeal observed: 21
The statute contains its own test, one of absence of reasonable cause. What is reasonable will depend on the information available to the person whose conduct is challenged under [the section].
[99] Counsel agreed that, when the Court is considering whether to award compensation under s 148, it must determine whether the caveators held an honest belief based on reasonable grounds that they held a caveatable interest in the land against which they lodged their caveats.22 Mr Lu lodged two of the caveats not only on his own behalf but also as the authorised agent of the other plaintiffs. Whether those parties are liable to pay compensation will depend on whether Mr Lu held an honest belief on reasonable grounds that he was entitled to lodge a caveat against the title to the lot they had originally agreed to purchase.
The events that underpin the claim for compensation
[100] I have already described the process by which Mr Lu lodged the first two caveats against Wila’s land. Mr Lu subsequently applied for an order sustaining these caveats on the basis that he arguably held an interest in Wila’s land. In a judgment delivered on 18 October 2021, Associate Judge Bell rejected Mr Lu’s claim and ordered the caveats to be removed.23
[101] On the same date that the Associate Judge delivered his decision, Mr Lu filed an application with LINZ to lodge a further caveat over Lots 10, 11, 12, 13 and 16. This claimed a beneficial interest in those lots under a constructive trust of which Wila was the trustee. LINZ registered the caveat against the new titles to those lots on 1 November 2021. On the following day, Wila filed a without notice application seeking orders removing the caveat. It served the proceeding on Mr Lu at his last known email address.
[102] On 4 November 2021 Unicon, Ms Xiong, Ms Chen and Mr Zhang applied in their own names to lodge caveats against the titles to Lots 10, 11, 12, 13 and 16. They
21 Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281 (CA) at 288.
22 Couchman v Taylor (1996) 3 NZ ConvC 192,341 (CA).
23 Lu v Wila Development (Ormiston) LP [2021] NZHC 2772.
claimed an interest in those lots as purchasers under the agreements they had entered into with Wila in July 2019.
[103] On 12 November 2021, Venning J heard an application by Wila for an order that the caveat Mr Lu had lodged on 18 October 2021 be removed. During the hearing Mr Lu told the Judge that the caveat was required to secure the deposits the plaintiffs had paid to Wila under the agreements that Wila had cancelled. He said the plaintiffs had a lien over those monies and the caveat secured this. Venning J noted that this was not the interest claimed in the caveat.24 He held there was no realistic basis on which Mr Lu could claim an interest in Wila’s land when, in reality, the plaintiffs sought to establish a lien over funds currently held in Wila’s solicitors’ trust account.25 Venning J also made an order prohibiting Mr Lu from lodging any further caveats against titles to the five lots.26
[104] On 13 November 2021, Mr Lu applied for orders staying the judgments issued both by Associate Judge Bell and Venning J. Venning J dismissed this application in a judgment delivered on 17 November 2021.27
[105] Two days later, on 19 November 2021, Wila learned that Unicon, Ms Xiong, Ms Chen and Mr Zhang had applied on 4 November 2021 to lodge caveats against the titles to Lots 10, 12, 13 and 16. LINZ registered caveats against the titles to Lots 10, 12, and 13 on 23 and 24 November 2021 but refused to register the caveat against lot 16.
[106] On 29 November 2021, Wila filed a without notice application seeking the removal of the caveats lodged by Unicon, Ms Xiong and Ms Chen. On 30 November 2021, Venning J ordered that the caveats be removed.28 Venning J also made an order prohibiting Unicon, Ms Xiong and Ms Chen from lodging any further caveats against the titles to Lots 10, 12 and 13.29
24 Wila Developments (Ormiston) LP v Lu [2021] NZHC 3068 at [19].
25 At [19].
26 At [22(b)].
27 Lu v Wila Developments (Ormiston) LP [2021] NZHC 3099.
28 Wila Developments (Ormiston) LP v Unicon Construction Ltd HC Auckland CIV-2021-404-2281, 30 November 2021, Minute of Venning J.
29 At [17].
Analysis
[107] It is possible that Mr Lu misunderstood the legal effect of the observations made by Mr Wong in the email he sent to the plaintiffs’ solicitors on 17 March 2021. For that reason, I accept that Mr Lu may have had an honest belief that he was entitled to lodge the first two caveats on 23 March and 1 April 2021. However, no reasonable person in Mr Lu’s position would have construed that email as amounting to a repudiation or cancellation of the agreements. I therefore do not consider his belief was based on reasonable grounds.
[108] Mr Lu lodged the third caveat on 12 October 2021, on the same date as he received the Associate Judge’s decision that ordered the first two caveats to be removed. Mr Lu’s attempt to justify this caveat on the basis of a constructive trust cannot be regarded as reasonable, because he acknowledged to Venning J that the caveat was not designed to protect an interest held by the plaintiffs in Wila’s land. Rather, it was designed to protect a lien over the deposits held in Wila’s solicitors’ trust account.
[109] The plaintiffs face two difficulties in seeking to establish that they had reasonable grounds to believe they were entitled to lodge caveats against Wila’s land in their own names on 4 November 2021. These purported to protect their interests as purchasers under the agreements with Wila. However, this was the same interest as Mr Lu had claimed when he lodged the first two caveats on the plaintiffs’ behalf. By this stage any reasonable person in the plaintiffs’ position would know that Associate Judge Bell had found that the plaintiffs’ interests as purchasers under those agreements had been extinguished.
[110] Further, s 146 of the LTA requires a person who seeks to lodge a caveat that protects a similar interest to that claimed in an earlier caveat to obtain the Court’s leave to do so. This did not occur when the third to fifth plaintiffs sought to lodge caveats in their own names on 4 November 2021. The plaintiffs therefore lodged their caveats in breach of s 146. Section 148(3) of the LTA provides that any caveat lodged in breach of s 146 is lodged without reasonable cause.
[111] It follows that the plaintiffs did not have reasonable cause to lodge any of their caveats.
[112] At the very latest, all the plaintiffs should have known that they had no basis on which to lodge a caveat against Wila’s land after they filed the present proceeding on 7 April 2021. Their statement of claim sought damages flowing from Wila’s repudiation of the agreements. As Associate Judge Bell observed, the plaintiffs’ claims amounted to an acceptance of Wila’s repudiation of the agreements and constituted cancellation of those agreements by the plaintiffs.30 Any reasonable person in the plaintiffs’ position would therefore have understood as from 7 April 2021 that they accepted the agreements had been cancelled. As a result, they had no legal right to lodge further caveats against Wila’s land.
[113] If the plaintiffs were still in any doubt about the legal position, the judgment delivered by Associate Judge Bell on 12 October 2021 ought to have clarified it. The judgment confirmed that the plaintiffs no longer held any caveatable interest in Wila’s land as purchasers under the agreements they had entered into in July 2019. Any further attempt by them to lodge a caveat on the basis of such an interest was therefore doomed to fail.
[114] The plaintiffs confirmed when they gave evidence that they relied on Mr Lu for advice as to how they could best protect their interests. However, they appeared to regard the protection of their interests in a global way rather than in relation to any interest they might hold in Wila’s land. They obviously accepted Mr Lu’s advice that the lodgement of caveats was the most appropriate way in which to protect their interests. As several of the plaintiffs accepted when they gave evidence, if Mr Lu was wrong in his understanding of the legal position, then they would be wrong as well.
[115] I am therefore satisfied that jurisdiction exists under s 148 of the LTA to grant Wila compensation for the legal costs and penalty interest it incurred as a result of those actions. However, I consider it appropriate to exercise my discretion against making such an award in relation to those plaintiffs who have forfeited their deposits. Wila has already effectively received compensation from those plaintiffs in this form
30 Lu v Wila Development (Ormiston) Ltd, above n 23, at [48].
and in a sum that is more than sufficient to reimburse Wila for the costs and losses it has incurred. I consider it would be unjust to require those plaintiffs to pay further compensation to Wila.
[116] The position is different in relation to Unicon because it is entitled to the return of its deposit together with accrued interest. I consider it should be required to pay compensation to Wila, but not in the full amount claimed. I consider the interests of justice will be served if Unicon is required to pay one-fifth of the amount claimed by Wila as compensation.
Result
[117]The plaintiffs’ claims against Wila are dismissed.
[118] Wila’s counterclaim seeking compensation under s 148 of the LTA against the first, third, fourth and fifth plaintiffs is dismissed. However, the counterclaim succeeds against Unicon. I make an order under s 148 requiring Unicon to pay compensation to Wila in the sum of $12,481.19. Wila is also entitled to interest on that amount calculated in accordance with the formula contained in s 12 of the Interest on Money Claims Act 2016. Interest is payable for the period between 1 April 2021 and the date on which the deposit is refunded to Unicon. Wila is entitled to deduct these sums from the deposit that is to be refunded to Unicon.
Costs
[119] Wila is the successful party and is entitled to costs and disbursements against the defendants. If the parties are unable to reach agreement regarding costs, they have leave to file concise memoranda and I will determine costs on the papers.
Lang J
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