Madhava Corporation Limited v Austin
[2024] NZHC 975
•29 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002184
[2024] NZHC 975
BETWEEN MADHAVA CORPORATION LIMITED
Appellant
AND
BENJAMIN MICHAEL AUSTIN and LYNN JOYCE FERNANDES
Respondents
Hearing: 17 April 2024 Appearances:
M G Keall for Appellant
A T Grant for Respondents
Judgment:
29 April 2024
JUDGMENT OF ANDREW J
This judgment was delivered by Justice Andrew on 29 April 2024 at 3.00 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date …………………………
MADHAVA CORPORATION LTD v AUSTIN [2024] NZHC 975 [29 April 2024]
Introduction
[1] This is an appeal against a District Court decision granting a defendant’s summary judgment application.1 The dispute is one of contract relating to an agreement (the Agreement) for sale and purchase of a residential property. The Agreement was subject to a building condition report (the Report). Following receipt of the Report, the respondent purchasers gave notice of cancellation to the vendor appellant. At issue is whether the Agreement was validly cancelled. In granting summary judgment to the respondents, the District Court Judge held that they were entitled to cancel the Agreement in reliance on the building report condition in the Agreement.
[2] The critical issue I must determine is whether the District Court Judge was correct to conclude that the respondents had established that the appellant’s contract claim is incapable of success. That turns on the question of whether it was fair and reasonable for the respondents to rely on the Report to cancel the Agreement.
Background
[3]The following facts are not in dispute.2
[4] The appellant owns the property at 2/325 Mount Albert Road, Mount Roskill. In late 2021, it put the property on the market.
[5] In early 2022, the respondents were looking to purchase their first home. Having viewed the property twice in January 2022, the respondents made an offer to purchase the property for $815,000 with settlement to be on 3 March 2022. This offer was accepted by the appellant and the Agreement was signed by both parties on 2 February 2022. The Agreement was conditional on the provision of a satisfactory building report. Clause 9.4 of the Agreement relevantly provides:
9.4Building Report condition
(1)If the purchaser has indicated on the front page of this agreement that a building report is required, this agreement is
1 Madhava Corporation Ltd v Austin & Fernandes [2022] NZDC 5503.
2 I have adopted with modification the facts as set out by the District Court Judge.
conditional upon the purchaser obtaining the purchaser’s cost on or before the tenth working day after the date of this agreement a report on the condition of the buildings and any other improvements on the property that is satisfactory to the purchaser, on the basis of an objective assessment.
(2)The report must be prepared in good faith by a suitably-qualified building inspector in accordance with accepted principles and methods and it must be in writing.
…
(5)If the purchaser avoids this Agreement for non-fulfilment of this condition pursuant to subclause 9.10(5), the purchaser must provide the vendor immediately upon request with a copy of the building inspector’s report.
[6] Clause 9.10 of the Agreement sets out the operation of the conditions (including the building report condition). It states:
9.10Operation of conditions
If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
(1)The condition shall be a condition subsequent.
(2)The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date of fulfilment.
(3)The time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.
(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
(5)If the condition is not fulfilled by the date of fulfilment, either party may at any time before the condition is fulfilled or waived avoid this Agreement by giving notice to the other. Upon avoidance of this Agreement, the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.
(6)At any time before this agreement is avoided, the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
[7] Following the execution of the Agreement, the respondents engaged a firm of building inspectors, Inspect House NZ (IHNZ), to carry out an inspection of the property at their cost.
[8] On 3 February 2022, IHNZ produced the Report. The executive summary set out below identified issues with the property:
The exterior cladding consists of a combination of concrete blocks and timber weatherboards, which presents in an average condition. The exterior weatherboard cladding is original and is requiring some general maintenance and repairs to be carried out. We noted there were several cracks in weatherboards which will need to be filled followed by a fresh coat of paint to protect the internal timbers from water ingress. We also noted the window outside bedroom one has insufficient fall on the windowsill, which is needed to protect the internal frames from water ingress. There are gaps under the windowsill that need to be filled also to protect the internal frames from water ingress. We also noted stepped cracking under the same window. We recommend further investigation of the cracking by a qualified engineer to see if the structural integrity has been affected. We also recommend engaging a qualified builder to re-install the windowsill with sufficient fall. The ground level around the front is very close to weatherboards, the recommended height to the underside of weatherboards is 100 mm to prevent water ingress and wood decay. Overall the exterior cladding presents in moderate condition and requires some maintenance and repairs to bring the exterior to above-average standard.
[9] The Report raised concerns for the respondents. On 4 February 2022, Mr Austin instructed their solicitor to forward a copy of the Report to the solicitor for the appellant and to put a proposal for remedial work to be undertaken.
[10] In a letter sent the same day, the respondents’ solicitors provided the Report to the appellant’s solicitors, noting that the window outside bedroom one had insufficient fall on the windowsill, which is required to protect the internal frame from water ingress. A qualified builder had looked at the issue. To fix it, the entire window and frame needed to be removed and fitted properly with good water egress. The builder had provided an estimate of $7,000 to do the work. The letter went on to state:
The purchaser wants the vendor to engage a qualified builder to fix the defect prior to settlement. Please take instructions.
[11] The appellant’s solicitor replied on 7 February 2022, forwarding an email from the director of the appellant stating:
·The house was built in 1972 after lifting the original 1955 house and was completely refurbished in 2007 and 2021 by the vendor.
·The entire gib, plumbing, electricals, outside cladding, roof etc. was fully changed.
·The purchaser can reduce the price by $7,000 and get it fixed to his satisfaction.
·Every builder has his own opinion and vendor does not wish to argue about it.
·There will be no further reduction in price or other conditions.
[12] The respondents then decided to cancel the Agreement. On 8 February 2022, their solicitor sent a further email to the appellant’s solicitor stating that the “building report condition is not satisfied” and “the [A]greement is therefore at an end.”
[13] The appellant’s solicitor replied on the same day with an email headed “ten days notice”, forwarding an email from the appellant’s director recording that he did not accept the respondents’ contention. The appellant’s director’s email further stated:
I would suggest you may want to reconsider your decision and accept our offer of repairs.
[14] On 14 February 2022, the respondents’ solicitor wrote again to the appellant’s solicitor, setting out the respondents’ position as follows:
As required, pursuant to clause 9.4(5) of the agreement, a copy of the building inspector’s report was provided to your client vendor. In addition to the windowsill defect (which your client refused to fix before settlement), the building report highlights issues with cracked weatherboards needing repair to stop water ingress, and cracking that require[s] further investigation by a qualified engineer in relation to the structural integrity. Additionally, the ground area around [the] front of [the] house is very close to [the] weatherboards. The recommended height between ground to underside of [a] weatherboard is 100 mm to prevent water ingress and wood decay. The cost estimate provided by the builder relates only to fixing the windowsill defect, not the other defects. The building report condition is not satisfied, the agreement is at an end.
[15] On 5 September 2022, the property was sold by the appellant company to its director, Mr Karmarkar, for $700,000.
[16] In the statement of claim the appellant seeks the sum of $115,000 (the difference between the two selling prices) and interest. The sole cause of action is breach of contract.
Relevant legal principles
Appeal
[17] This is a general appeal, to be conducted by way of a rehearing.3 The appellant bears the onus of satisfying the appeal court that it should differ from the decision under appeal. It is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it.4
[18] This Court is permitted, and required, to arrive at its own conclusion of the merits, in respect of matters of both facts and law.5 Although an appellate court may properly hesitate to interfere where the first instance court enjoys an advantage, such as in assessing credibility,6 and can recognise the limitations of the record as a means of re-visiting factual findings,7 it is not required, or permitted, to intuitively defer to the lower court’s evaluation as to the weight to be afforded to the evidence.8
Summary judgment
[19] The principles applicable to a defendant’s application for summary judgment are set out in the Court of Appeal decision, Westpac Banking Corporation v MM Kembla New Zealand Ltd, in which the Court held:9
(a)The defendant bears the onus of satisfying the court that none of the plaintiff’s claims can succeed. It is not enough for the defendant to merely show that there are weaknesses in the plaintiff’s case.
3 High Court Rules 2016, r 20.18.
4 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 183, [2008] 2 NZLR 141, at [4].
5 Austin, Nichols & Co Inc v Stichting Lodestar, above n 4, at [5].
6 Austin, Nichols & Co Inc v Stichting Lodestar, above n 4, at [5].
7 R v Bertrand (1867) LR 1 PC520 (PC), adopted in Emmerston v A Professional Conduct Committee of the Medical Council of New Zealand [2017] NZHC 2847 at [77].
8 Austin, Nichols & Co Inc v Stichting Lodestar, above n 4, at [16].
9 Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [60]– [64].
(b)Summary judgment will be inappropriate where there are disputed issues of material fact or material facts need to be ascertained by the court and cannot confidently be concluded from the affidavit evidence.
(c)Summary judgment will generally only be entered against a plaintiff where there is a complete defence to the plaintiff’s claim, or a clear answer to the claim, which cannot be contradicted.
(d)It may be inappropriate to award summary judgment where ultimate determination of the case turns on a judgment that is only able to be properly arrived at after a full hearing of the evidence.
(e)It will generally be inappropriate to assess the sufficiency of the proof of the plaintiff’s claim at a summary judgment. Otherwise, a defendant, particularly one more in possession of the facts than the plaintiff, could force on the plaintiff’s claim prematurely, before discovery and before the plaintiff’s evidence can reasonably be assembled.
(f)Although a legal point may be decided at summary judgment if it is sufficiently clear, novel or developing points of law may require the context provided by trial to provide the court with sufficient perspective.
Analysis and decision
[20] The underlying purpose of a building report in this context is as follows: it allows a purchaser an “out” in the event that a report is obtained that alerts the purchaser, as a result of the condition of the building, to what may be an adverse outcome if he or she buys the subject property.10
[21] Guided by this underlying purpose, the parties are agreed that the purchasers’ ability to use the “out” clause in 9.4 of the Agreement is fettered by only three requirements:
(a)A written building report by a suitably qualified person;11
10 Strack v Grey [2018] NZHC 1254 at [109].
11 Learner v Schiehallion Nominees Ltd [2003] 2 NZLR 671 (HC) at [56]; Strack v Grey, above n 10, at [109].
(b)The Report must reveal matters that would be of concern to a reasonable and fair-minded purchaser, which is assessed objectively;12
(c)The Report is to be provided to the vendor with adequate notice of cancellation.13
[22] It is only item (b) above that is at issue in this case. In making the necessary objective assessment, I apply the following principles:
(a)The purchaser must do all things reasonably necessary to enable the condition to be fulfilled. The purchaser cannot simply claim that the building report is not satisfactory. That would be a subjective determination, which the courts have rejected. The purchaser must show they acted reasonably and fairly. They thus carry an evidential burden to satisfy the Court to that effect.14
(b)Unless the purchaser is entitled to be relieved of their obligations under the contract on the basis of a fair and reasonable decision in terms of the building report condition, a party is bound by the contract.15
[23] The appellant contends that the District Court Judge was in error in addressing this issue, namely whether the defects identified in the Report meant that the Report was not satisfactory to the respondent purchasers “on a reasonable and fair basis”.
[24] The appellant’s submissions focus on the email from the respondents’ solicitors dated 4 February 2022 and the vendor appellant’s response of 7 February 2022. The appellant submits:
12 Learner v Schiehallion Nominees Ltd, above n 11, at [69].
13 Strack v Grey, above n 10, at [91] and [96].
14 Learner v Schiehallion Nominees Ltd, above n 11, at [29].
15 Learner v Schiehallion Nominees Ltd, above n 11, at [38]. This passage was endorsed by the Court of Appeal in Arcadia v Moore [2013] NZCA 286 at [69]. I also agree with the finding of Nicholas Davidson J in Strack v Grey, above 10, that cl 9.4 has been worded carefully so as not to provide a purchaser with an escape clause, to accommodate a change of heart: “A bargain has been struck, and the parties intend that a building report will be obtained and considered objectively and fairly.”
(a)The District Court Judge erred in limiting the scope of the “objective assessment” of the respondents’ decision to cancel the Agreement to the contents of the Report. It is said that she wrongfully excluded from that assessment the subsequent bargaining over the satisfaction of that condition;
(b)The critical document is the email of 4 February 2022. In that email, the respondents limited themselves to one particular concern, namely the insufficient fall on the windowsill of one window. The respondents identified what was required for a proper fix of that one issue and placed a price on it;
(c)The vendor appellant specifically addressed that concern in his reply of 7 February 2022 and provided a solution by discounting the sum of
$7,000 from the purchase price;
(d)In the circumstances, a reasonable and fair-minded observer could not avoid the contract;
(e)The subsequent cancellation letter of 14 February 2022 was an erroneous second, invalid attempt to cancel.
[25] Nicholas Davidson J’s approach to the interpretation of cl 9.4 (i.e. a standard provisions) in Strack16 is a helpful starting point in addressing the critical issue of a reasonable and fair-minded purchaser. His Honour made the following findings, which I adopt:
(a)There are many permutations of an objective and contractually compliant response by would-be purchasers to a report which identified the risk and the mitigating measures.17
(b)Interpretation must allow for the wide range of responses from purchasers, some risk average, some with their own skills to remediate, some with more financial ability to remediate.18
16 Strack v Grey, above n 10, at [109].
17 Strack v Grey, above n 10, at [78].
18 Strack v Grey, above n 10, at [109].
(c)It is not intended that the vendor second-guess the purchaser’s decision whether the building report is satisfactory or not as it is not intended for debate. The need to provide a copy of the report to the vendor when asked is intended to allow the vendor to check to see that an objective decision has been made based on an adequate report.19
(d)The purchaser does not have to explain in fine detail what it is that he or she regards as unsatisfactory, but it must be identifiable and may be something of moment to one purchaser but not to another.20
[26] In applying these principles, I agree with the submission of Mr Grant, for the respondents, that the Court should be slow and cautious in assessing and scrutinising the purchasers’ negotiation conduct and concerns, once, based on an objective assessment of the Report, the right to cancel is triggered.
[27] In my view, as an objective assessment, the executive summary of the Report, provided a clear basis for the respondent purchasers to cancel. That executive summary is a natural starting point for interpreting the Report and, in substance, contains the assessment that any reasonable purchaser would rely upon.
[28] The executive summary revealed matters that, assessed objectively, would be of concern to a reasonable and fair-minded purchaser. The Report refers to cracking in the weatherboards and, on two occasions, to the need to protect internal timbers from water ingress. Importantly, it recommends further investigation of the cracking by a qualified engineer to see if the “structural integrity” has been affected. The Report also raises a ground clearance issue.
[29] The appellant’s submissions tend to downplay the concerns identified in the Report. I acknowledge that favourable comments are made in the Report and that the appellant, very familiar with the property, might regard the concerns identified as of little consequence. However, as Nicholas Davidson J reasoned in Strack, there are many permutations of an objective and contractually compliant response by would-be purchasers, and interpretation must allow for a wide range of responses from purchasers. Some purchasers might recognise the risks identified but discount for the
19 Strack v Grey, above n 10, at [96].
20 Strack v Grey, above n 10, at [97].
particular features of the house. There will be others whose caution “whether drawn of a natural disposition, or experience, would mean they might not be so satisfied”.21 Furthermore, the subjective views of the appellant vendor are not relevant.
[30] On the face of the Report, I find that the respondents’ right to cancel was triggered. The critical issue to address is whether the subsequent bargaining, commenced with the respondents’ solicitor’s email of 4 February 2022, means that the test of a reasonable and fair-minded “purchaser” is not made out.
[31] I reject the appellant’s contention that the District Court Judge failed to have regard to the subsequent bargaining over the fulfilment of the building report condition. Her Honour expressly rejected the appellant’s interpretation of the email of 4 February 2022.
[32] The appellant is correct in contending that the starting point is not the purchaser’s dissatisfaction with the building report on a subjective level. Rather, whether the report is satisfactory to the purchaser is an objective assessment. I also agree that the parties’ actions in the form of bargaining over the fulfilment of the building condition report might be relevant to the objective assessment. It goes too far to say that such circumstances can never be relevant. However, as noted above, it is not for the vendor to second-guess the purchaser’s decision. The Court, too, in the absence of a concluded agreement on the fulfilment of the building report condition, should recognise a wide range of potential responses from purchasers who are not required to explain in detail what they might regard as unsatisfactory.
[33] I acknowledge that, in this case, the email of 4 February 2022 did focus on the windowsill defect and it did so in the context of the Report identifying additional defects. However, that is not material. The purchasers’ proposed solution was not accepted by the appellant vendor. His proposed solution of a $7,000 discount on the purchase price meant that the purchasers, rather than the vendor, would carry the risk. That is contrary to the purchasers’ proposal. The purchasers’ email made it clear that it was for the appellant vendor to carry out the remedial work. In any event, the purchasers’ email of 4 February 2022 did not offer to make the Agreement
21 Strack v Grey, above n 10, at [78].
unconditional if the vendor repaired a “single building defect” identified in the Report. In addition, the parties never reached any agreement on that point.
[34] In all the circumstances, the District Court Judge was correct to conclude that, viewed objectively, it was reasonable and fair for the respondents to find that the Report was unsatisfactory and to exercise their right to cancel on that basis.22 On that basis, the learned District Court Judge was also correct to conclude that the respondents had established that the appellant’s one cause of action, namely breach of contract, could not succeed. She correctly entered summary judgment for the respondents.
[35] In their affidavit evidence in the District Court, the respondents state that, as first home buyers with a very young baby, they were particularly concerned about buying a weathertight and warm home. The appellant submitted that this was evidence that should not have been uncritically accepted by the District Court Judge, but needs to be tested at trial. However, I reject that contention. This is a non-material, factual matter that does not require resolution. In any event, those statements by the respondents were not challenged in the appellant’s affidavit and the District Court Judge was entitled to treat them as not in dispute. There are no material facts which require testing at trial.
[36]I accordingly find that the appeal is unsuccessful and must be dismissed.
Result
[37]The appeal is dismissed.
[38] As to costs, I am of the preliminary view that, having succeeded, the respondents are entitled to costs and disbursements on a 2B basis. I also note the additional costs items sought by the respondent in [11] of Mr Grant’s “road map for hearing”. In principle, those costs should be allowed.
22 Madhava Corporation Ltd v Austin & Fernandes, above n 1, at [36].
[39] If the parties cannot agree on costs, then submissions (no more than three pages) are to be filed and served within 21 days.
Andrew J
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