Messenger v Goodman
[2012] NZCA 535
•16 November 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA770/2011 [2012] NZCA 535 |
| BETWEEN JAMES MESSENGER AND JUNE MARY MESSENGER |
| AND JOHN MARTIN GOODMAN AND DEBORAH LEE RATTRAY |
| Hearing: 17 October 2012 |
| Court: Stevens, French and Venning JJ |
| Counsel: B M Stewart and P T Hall for Appellants |
| Judgment: 16 November 2012 at 10.30 am |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BThe decision of the High Court is quashed.
CJudgment is entered in favour of the appellants in the sum of $2,881,708.20 together with interest at the prescribed rate under the Judicature Act 1908 on the sum of $1,735,985.51 from and including 4 May 2009 to the date of this judgment.
DThe respondents must pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.
___________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Introduction
Mr and Mrs Messenger were the vendors under an unconditional agreement for the sale and purchase of land. A dispute arose as to the date on which the contract required them to transfer title to the purchasers. The purchasers, Mr Goodman and Ms Rattray, contended it was 18 December 2006. The Messengers contended it was 18 December 2008.
Settlement did not ever take place. In March 2009 the Messengers cancelled the agreement and resold the property at a much lower price. They then sued Mr Goodman and Ms Rattray in the High Court for damages for breach of contract. Priestley J dismissed the claim holding that the Messengers were wrong in their interpretation of the contract regarding the settlement date and were themselves in breach in failing to transfer title in December 2006.[1]
[1] Messenger v Goodman HC Auckland CIV-2009-404-3974, 20 October 2011.
The Messengers now appeal that decision.
They do so on the grounds that even if the Judge was correct in his interpretation of the contract (which is conceded), they should still have succeeded in their claim because of the purchasers’ failure to tender settlement on 18 December 2006 or at any time thereafter. This was an argument which was not addressed in the decision.
The key issue raised by the appeal is whether on the evidence Mr Goodman and Ms Rattray have discharged the burden of proving that tendering payment on 18 December 2006 would have been an exercise in futility.
For completeness, we should record that Mr Goodman and Ms Rattray who had represented themselves in the High Court chose not to participate in the appeal. They did not file any papers. Before the appeal hearing commenced, we took the precaution of asking the Registrar to call the case outside the courtroom but there was no appearance. We are satisfied that Mr Goodman and Ms Rattray were aware of the hearing date.[2]
[2]A letter informing Mr Goodman and Ms Rattray of the hearing date was sent to them from the Registry by post and email on 3 May 2012.
Despite their absence, this Court was of course still under a duty to subject the appeal to close scrutiny. During the hearing, there was extensive questioning of Mr Stewart, counsel for the Messengers.
Factual background
The property in question was a residential property owned by the Messengers and situated at 29 Muritai Road, Milford, Auckland.
On 1 December 2006, the Messengers entered into a written agreement to sell the property to Mr Goodman and Ms Rattray. The agreement was on the Auckland District Law Society/Real Estate Institute of New Zealand form, 7th Edition (3) July 1999.
Under the agreement, the purchase price was $5,995,000 payable in instalments as follows:
$2,750,000 on 18 December 2006.
Seven quarterly instalments each of $61,875 from 18 March 2007.
The balance of $2,811,875 on 18 December 2008.
The agreement was conditional upon the purchasers carrying out due diligence to ensure they were satisfied the property was in all respects suitable for them. There was no finance condition.
Under the agreement, the possession date was stated to be 18 December 2006.
The agreement did not expressly identify a specific settlement date.
On 8 December 2006, the purchasers’ solicitors confirmed the agreement as unconditional.
A dispute then arose as to whether both possession and title were to pass on 18 December 2006, or whether just possession was to be given on 18 December 2006 with title being transferred later on payment of the final instalment of the purchase price on 18 December 2008.
Central to the dispute was the application of two clauses in the contract.
The first was cl 1.1(3) which defined “settlement date” as meaning the possession date or such other date as the parties are to perform their obligations under cl 3.7.
The obligations under cl 3.7 included payment of the balance of the purchase price which it will be recalled was not to take place until December 2008.
The second clause was an inserted term, cl 15 which read:
The Purchaser acknowledges the Vendor shall put in place a Caveat over the property at 29 Muritai Road, Milford. Such Caveat will be prepared by the Vendors Solicitor at the expense of the Purchaser.
The lawyers acting for the Messengers argued that the combined effect of cls 1.1(3) and 3.7 meant that the settlement date was 18 December 2008 because that was the date the payment of the balance of the purchase price was to be made. Their only obligation on 18 December 2006 was to give vacant possession. They further argued that the caveat to be lodged under cl 15 was a purchaser’s caveat designed to protect the purchasers’ interests until they finally obtained title.
The lawyers acting for Mr Goodman and Ms Rattray however argued that the settlement date was the possession date under cl 1.1(3) and that the caveat under cl 15 was a vendor’s caveat, its purpose being to protect the unpaid vendor’s interest.
There followed an exchange of correspondence in which the lawyers acting for the parties put forward their respective positions but without any resolution of the issue being achieved.
18 December 2006 came and went without Mr Goodman and Ms Rattray making any payment.
On 22 December 2006, Mr Goodman and Ms Rattray lodged a caveat against the title.
In April 2007, they issued proceedings in the High Court against the Messengers seeking rectification of the agreement. The proceeding was however discontinued on the basis the parties reserved their respective rights under the agreement.
There matters rested until 19 December 2008 when the Messengers caused a settlement notice to be served on Mr Goodman and Ms Rattray requiring them to settle the transaction on or before 12 working days after the date of service of the notice.
Mr Goodman and Ms Rattray, who had never made any payments under the agreement, failed to settle in accordance with the settlement notice.
The Messengers then purported to cancel the agreement on 27 March 2009. They asked Mr Goodman and Ms Rattray to remove their caveat but they refused, necessitating an application to the Registrar-General of Land under s 145A(1) of the Land Transfer Act 1952.
The property was eventually resold on 4 May 2009.
The price achieved in the resale was significantly less than the price under the agreement with Mr Goodman and Ms Rattray, the difference being $1.565 million.[3] It was not disputed that the Messengers had taken all reasonable steps to market the property. The substantial loss appears to reflect a change in market conditions between 2006 and 2009.
[3] The statement of claim erroneously states that the shortfall was $1.545 million.
The Messengers then issued proceedings in the High Court seeking to recover the loss on the resale together with interest and costs.
The High Court decision
Justice Priestley acknowledged that the agreement was poorly worded. He also acknowledged that where a purchase price is payable in instalments, standard conveyancing practice usually envisages a purchaser paying the outstanding balance on the settlement date and receiving concurrently from the vendor a signed memorandum of transfer in registrable form.[4]
[4] At [10].
However, Priestley J found that correctly construed the agreement at issue provided for title to pass on 18 December 2006. In support of that conclusion, the Judge relied on cl 1.1(3), which he said clearly stipulated that the settlement date was also possession date.[5] The Judge noted that cl 1.1(3) allowed the parties to agree on another date but reasoned that it would be wrong to impute such an intention to the parties, especially given the existence of cl 15, which was an inserted condition. The Judge pointed out that if title was not to pass on 18 December 2006, there would be no reason whatsoever for the purchasers to acknowledge that the Messengers were entitled to place a caveat. If title did not pass, the Messengers would still be the registered proprietor and have no need for the protection of a caveat.[6] In the Judge’s opinion, the caveat contemplated by cl 15 was a vendor’s caveat.
[5] At [66].
[6] At [68].
The Judge said it followed that the Messengers’ claim must fail. Mr Goodman and Ms Rattray did not breach their contractual obligations. They had been entitled to take title on 18 December 2006. The Messengers had failed to give them title. Therefore the consequential loss to the Messengers was not attributable to any breach on the part of Mr Goodman and Ms Rattray. Rather, it was attributable to the Messengers’ own failure to settle as they were obliged to do and their cautious approach in hanging on to the property for another two years rather than negotiating a cancellation.[7]
[7] At [74].
The Judge entered judgment for Mr Goodman and Ms Rattray.
Grounds of appeal
The grounds of appeal originally included a challenge to the Judge’s finding that the settlement date under the agreement was 18 December 2006. However, Mr Stewart did not pursue that ground at the appeal hearing. He conceded that the Judge was entitled to reach that finding.
Instead, the focus of the appeal was whether the Judge was right to find the loss was attributable to the Messengers’ failure to transfer title and not the failure of the purchasers to pay the purchase price in circumstances where Mr Goodman and Ms Rattray had never tendered any payment on the settlement date 18 December 2006 or at any time thereafter.
Mr Stewart argued that the contract required Mr Goodman and Ms Rattray to make a specified payment on 18 December 2006. They failed to tender that payment. The Messengers had never waived tender and accordingly it was Mr Goodman and Ms Rattray who were in breach of their contractual obligations. They remained in breach throughout and the loss suffered on the resale of the property was a direct consequence of their failure to settle the transaction.
Alternatively, Mr Stewart submitted that even if the Messengers had waived tender of settlement and were accordingly in breach for failing to give title on 18 December 2006, the contract remained on foot. Accordingly, Mr Goodman and Ms Rattray were still contractually bound to make payment of the full amount of the contract price on 18 December 2008. Their failure to tender settlement with or without abatement[8] on that date entitled the Messengers to issue the settlement notice, cancel and resell.
[8] To compensate them for any losses arising from being deprived of title in the intervening period.
In Mr Stewart’s submission, regardless of which approach was adopted, the Judge was wrong to assume that identifying the correct settlement date determined the outcome. The Messengers should have been awarded damages for the losses suffered on the resale.
Discussion
As already noted, the decision in the High Court does not address the implications of the purchasers’ failure to tender settlement.
The omission is understandable. The hearing and the written submissions were very much centred on the vexed question of the settlement date. That was the key issue.
However, the issue of non-tender was raised in the pleadings and the evidence. It was also advanced in oral submissions made on behalf of the Messengers albeit as a backstop argument.
We have considered whether in these circumstances the matter should be remitted back to the High Court. However having reviewed the notes of evidence and the documentary evidence, we are satisfied that we are in a position to determine the issue ourselves and that to refer the matter back would only cause needless delay and expense.
Legal principles regarding tender of settlement monies
The legal principles relating to tender of settlement monies under an agreement for the sale and purchase of land are well established.
As explained in the leading authority of Bahramitash v Kumar,[9] a vendor’s settlement obligation to convey the property is interdependent with the purchaser’s obligation to pay in accordance with the contract. It is not an obligation to be performed in isolation. Further, it is for the purchaser to begin the process of settlement by taking or transmitting the settlement sum to the vendor. Money goes to documents.
[9] Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.
It follows that ordinarily the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has first been a proper tender by the purchaser and in response to that tender the vendor has exhibited an inability or unwillingness to deliver the title.
That is the general rule.
However, the position is very different if the vendor by their words or conduct has indicated that a formal tender by the purchaser would be futile. In those circumstances, tender will not be necessary; the vendor cannot treat the purchaser as being in default by failing to make such a tender and the vendor will themselves be taken to have indicated that they are not ready, willing and able in all material respects to perform their settlement obligations.
As to when a Court may find that formal tender would have been futile, a high threshold is required. In a crucial passage in Bahramitash, the Supreme Court had this to say:
[20] The conclusion that going through the motions of tendering would have been a futile exercise is not one which is lightly to be drawn. It is normally prudent, save in the clearest of cases, for the purchaser to carry out a formal tender so that the issue does not arise in litigation, as it unfortunately did in the present case. It is for the purchaser to prove that tender would have been futile. It is a matter which is judged objectively at the time when tender was otherwise due. It is not enough for a purchaser’s solicitor to have subjectively concluded, however honestly, that the vendor will not perform the concurrent obligation in response to a tender of the sum which is due. The futility of the exercise must be clear; it must be shown to have been a foregone conclusion that the tender would not have been accepted or was not able to be accepted.[10] In other words, it must be shown that without any real doubt the vendor would either have refused to settle in response to a contractually proper tender or, if willing, would not have been in a position to do so. But a vendor who has by words or conduct plainly intimated an inability or unwillingness to perform the settlement obligation to convey the property will be regarded with scepticism if he or she later says that, contrary to what the purchaser had been told, if tender had in fact been made in terms of the agreement, it would have been accepted.
[10] Band v Shearer (1990) ANZ ConvR 631 (HC) at p 632.
In order to explain our application of those principles to this case, it is necessary for us first to set out the facts in more detail.
The facts in more detail
The solicitor acting for the Messengers on the sale was a Mr Prew. He gave evidence at the hearing before Priestley J. The solicitor acting for Mr Goodman and Ms Rattray on the transaction was a Mr Stokes. He did not give evidence.
Mr Prew testified that after receiving confirmation the contract was unconditional, he wrote to Mr Stokes on 11 December 2006 enclosing a statement of the monies required to be paid on 18 December 2006. The statement recorded that the possession date was 18 December 2006 and the settlement date 18 December 2008.
Mr Prew’s letter crossed with a letter to him from Mr Stokes also dated 11 December 2006 and enclosing a memorandum of transfer and notices of sale.
Upon receipt of Mr Stokes’ letter, Mr Prew sent another letter stating that because settlement was not until 18 December 2008 a transfer would not be necessary until then. He offered to have it signed and held in escrow meanwhile.
The two lawyers then had a telephone conversation in which it became apparent there was a difference of opinion regarding the correct settlement date under the contract and the interpretation of cl 15. Each maintained the correctness of their respective position.
During the course of the conversation, Mr Prew pointed out to Mr Stokes that even if he were right, a caveat would prevent Mr Goodman and Ms Rattray from being able to register a mortgage. In an attempt “to find a way to make it work”, the two lawyers then discussed the possibility of the agreement being varied to provide for Mr Goodman and Ms Rattray to have a first mortgage and the Messengers to have a second mortgage securing the balance of the purchase price.
Mr Stokes was to provide further information about the extent of his clients’ borrowing and what priority the lender would require over any second mortgage.
However, the next communication Mr Prew received from Mr Stokes was a fax letter reiterating the purchasers’ position on the settlement date and not addressing the issues discussed over the phone.
The fax described both the real estate agents who had drafted the agreement and the purchasers as being “adamant” that settlement was to be effected on 18 December 2006.
Mr Prew responded in a letter dated 13 December 2006 recording his telephone conversation with Mr Stokes. His letter concluded by saying that if Mr Stokes’ fax was his clients’ last word on the subject “we seem to have an impasse.”
Mr Prew wrote again the following day saying that without prejudice to his clients’ position that title was only to pass when the final payment was made, “we are happy to explore ways to make a deal work.” The letter went on to ask what securities Mr Goodman and Ms Rattray could provide. It ended by requesting full disclosure of their financial position and “any ideas you may have.”
At some stage between the date of that letter, 14 December 2006 and 18 December 2006, Mr Goodman and Ms Rattray offered security to the Messengers in the form of second mortgages over two properties. However, Mr Prew was not satisfied with the level of financial information provided and pressed for more detail which Mr Goodman and Ms Rattray considered unreasonable and declined to give.
As the date of 18 December 2006 approached, Mr Prew discussed the arrangements for giving vacant possession with the Messengers. He also made arrangements to obtain a discharge of a registered mortgage which the Messengers had taken out with Westpac. In evidence, he said he did not arrange for the transfer to be signed because he knew that the Messengers’ son held a power of attorney and would be available to sign it at short notice (the Messengers themselves were living in the Channel Islands).
At no stage did Mr Stokes make any mention of tendering settlement. Nor did he in fact tender settlement on behalf of his clients.
On 19 December 2006, Mr Prew forwarded Mr Stokes a settlement notice stating that his clients were ready to give possession when Mr Goodman and Ms Rattray “have satisfied their obligations under the agreement entitling them to possession.” The letter recorded that “[i]n an endeavour to facilitate settlement” Mr Prew had asked for reasonable information about Mr Goodman and Ms Rattray’s financial position, that it had not been forthcoming and that without it he was not able to advise the Messengers. Mr Prew said he was looking forward to hearing from Mr Stokes with the requested information, or “if you can think of another way of resolving the impasse”.
That letter drew the following response from Mr Stokes:
My clients do not accept the settlement notice. It is defective. It is presuming that the settlement date is in 2008 when you are well aware that the settlement date is the 18 December 2006. You have not provided me with a copy of the executed transfer nor have you provided any other evidence that you are ready, able and willing to settle. Further, the property is still full of furniture. My clients are unable to complete their first mortgage requirements and arrange to settle due to the fact that you are making unreasonable demands on them which have already resulted in them offering your clients two second mortgages as a gesture of goodwill including the provision of the requisite valuation of the Waiheke property and arranging for suitable priority sums for both properties.
Please find enclosed the required settlement notice as at the 18 December 2006.
The lawyers having exchanged settlement notices, the next thing that happened was that Mr Goodman and Ms Rattray registered a caveat over the property on 22 December 2006 and then issued proceedings in the High Court seeking rectification.
A trial date was allocated for 16 June 2008.
On 21 May 2008 Mr Goodman and Ms Rattray filed a discontinuance of the proceeding. They did so on the basis of an agreement that the Messengers would not seek costs and that:[11]
... the filing of the discontinuance is completely without prejudice to the parties’ rights and obligations under the existing agreement for sale and purchase that was subject of the proceeding, which agreement will remain on foot.
[11]Extract from letter dated 12 May 2008 written by Mr Stewart to counsel acting for Mr Goodman and Ms Rattray.
On 4 November 2008, Mr Prew’s firm contacted Mr Stokes to ascertain whether Mr Goodman and Ms Rattray intended to settle the purchase on 18 December 2008. Mr Stokes advised that he no longer had instructions. Mr Prew then wrote direct to Mr Goodman and Ms Rattray. He did not receive any response.
Mr Prew prepared for settlement on 18 December 2008 but there was no communication from Mr Goodman and Ms Rattray.
Settlement notices were subsequently served, the caveat removed, the contract cancelled and the property resold.
As will be apparent from this recital of the facts, at no stage did Mr Prew ever expressly say to Mr Stokes to not bother to tender settlement as it would be a waste of time. Nor was he ever asked at the hearing what he would have done had settlement been tendered on 18 December 2006.
Application of the relevant legal principles to the facts
Following Bahramitash, the test we must apply is whether it was a foregone conclusion that if Mr Stokes had tendered payment on 18 December 2006, the tender would not have been accepted, the burden of proof being on Mr Goodman and Ms Rattray. The enquiry is an objective one.
After careful consideration, our view is that Mr Goodman and Ms Rattray are not able to establish on the evidence that it would have been a foregone conclusion. At no stage did Mr Prew ever expressly tell Mr Stokes not to bother with tendering settlement and although Mr Prew talked about an impasse in correspondence, the letters and the phone conversation also indicated that he was contemplating the possibility he might be wrong about the settlement date. Mr Prew clearly conveyed the impression that he was looking at options. In those circumstances, there must be in our view a real doubt as to what would have happened had his clients the Messengers been put to the test by a tender.
In coming to that conclusion, we have not overlooked an argument that handing over title on 18 December 2006 in exchange for less than half the purchase price and the doubtful protection of a caveat would have left the Messengers in such a seriously vulnerable position that they would inevitably have refused to settle. There is some force in that argument. However, looking at the evidence in its entirety we are not satisfied that the Messengers’ position was so hopeless as to be able to draw the inference that without doubt tender would have been futile or that Mr Prew had dispensed with the need for tender.
The parties would still have had to confront unresolved issues about the caveat, its form, its registrability and priority. But Mr Prew had otherwise put himself in a position to settle. We cannot exclude the possibility that he may well have felt compelled to settle. On the evidence, it was a real possibility.
It follows from our analysis that Mr Goodman and Ms Rattray had an obligation to tender the payment that was due under the contract on 18 December 2006. If they had done so, then Mr Prew would have been legally required to hand over a signed transfer. However, Mr Goodman and Ms Rattray did not tender at all. They were accordingly in breach of contract and cannot rely on the Messengers’ failure to give title on 18 December 2006. The absence of a tender means the Messengers were not in breach.
We are also satisfied that the contract remained on foot until 27 March 2009 when it was validly cancelled for non-payment of the purchase price. The Messengers could have cancelled earlier and resold on a better market. However we consider it was reasonable for them to wait. First, because of the uncertainty over the contract and secondly because Mr Goodman and Ms Rattray had lodged a caveat and issued rectification proceedings in the High Court.
Losses on resale
In our view the loss suffered by the Messengers on the resale of the property was as claimed a direct consequence of Mr Goodman and Ms Rattray’s failure to settle.
The Messengers are accordingly entitled to recover their loss on resale including interest calculated as follows:
(a)
The shortfall between the sale price of $5,995,000.00 under the agreement and the sale price achieved under the resale agreement of $4,430,000.00
$1,565,000.00(b)
Interest at the contract rate of 14 per cent per annum on the unpaid instalments of the purchase price for the period from and including 18 December 2006 to 18 December 2008
$ 830,698.04(c)
Interest on the sum of $5,995,000.00 at 14 per cent per annum from 18 December 2008 to the date of settlement of the resale of the property on 4 May 2009, 137 days at $2,299.45 per day
$ 315,024.65(d)
The commission paid to the real estate agent on the resale of the property of $134,156.25 together with costs incurred on marketing of the property for resale of $9,290.00
$ 143,446.25(e)
Legal costs incurred by the Messengers in respect of the resale of the property
$ 4,649.50(f)
Legal costs incurred by the Messengers arising from the default by Mr Goodman and Ms Rattray under the agreement including the costs incurred for process servers to attempt and complete service of the settlement and cancellation notices.
$ 22,889.76Total
$ 2,881,708.20
As regards interest from the date of the resale to date of judgment, that runs on the sum of $1,735,985.51 (being the shortfall and the costs of the resale) at the prescribed rate under the Judicature Act 1908, not the contract rate.[12]
Outcome
[12] Mana v Fleming [2007] NZCA 324, (2007) 8 NZCPR 469.
The appeal is allowed.
The decision of the High Court is quashed.
Judgment is entered in favour of the appellants in the sum of $2,881,708.20 together with interest at the prescribed rate under the Judicature Act 1908 on the sum of $1,735,985.51 from and including 4 May 2009 to the date of this judgment.
The respondents must pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.
Solicitors:
Simpson Western, Auckland for Appellants
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