Metro Suites Limited v VR Group Limited

[2014] NZHC 1255

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-000457 [2014] NZHC 1255

BETWEEN  METRO SUITES LIMITED Plaintiff

ANDVR GROUP LIMITED Defendant

Hearing:                   4 June 2014

Appearances:           S Price for the Plaintiff

S Singh for the Defendant

Judgment:                6 June 2014

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

06.06.14 at 3:00pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

METRO SUITES LIMITED v VR GROUP LIMITED [2014] NZHC 1255 [6 June 2014]

Background

[1]      Metro  Suites  Limited  (MSL) applies  for summary judgment  for $50,000 together with interest and costs, claiming that the respondent VR Group Ltd (VRG) has no defence to its claim.

[2]      Their dispute concerns the terms of a contract for the purchase of MSL’s Metropolis apartment hotel business and assets by VRG.   At all material times MSL’s interests were represented by Ms Oh, VRGs by Mr Sharma.  VRG carries on the business of offering serviced apartment accommodation.

[3]      Before 5 November 2012 there had been discussions between the parties concerning the purchase of MSL’s business of managing apartment accommodation on behalf of 34 unit owners and as well of the lease of two commercial units within the Metropolis apartment complex.

[4]      Over the months of September and October 2012 Mr Sharma says an offer price  of  $1M  was  discussed,  and  was  agreed.    He  says  he  then  instructed  his solicitor, Mr Rana to a draft Heads of Agreement (HOA) as a negotiating document. This was done and with Ms Oh it was agreed there would be a meeting of the parties and their representatives where draft terms could be discussed, even concluded.

The contract

[5]      A meeting was arranged at the Metropolis premises.  All affidavit evidence supports the claim this meeting occurred on 5 November 2012.   This, despite Mr Singh’s submissions suggesting the meeting could have occurred on another date, probably earlier on 1 or 2 November 2012.

[6]      MSL pleads that on 5 November 2012 a contract was concluded for the purchase of its hotel business and assets. The written contract included the following key terms:

(a)       Clause 1.1(b):

An option price of $50,000 was to be paid by VRG unconditionally upon  execution  of  the  contract  (Option  Price).    If  the  purchase became  unconditional,  this  amount  was  to  be  credited  to  the purchase price but if the purchase did not proceed, the amount was to be retained by MSL.

(b)      Clause 1.1(c):

A deposit of $450,000 (plus GST if any) was to be paid by VRG into MSL’s solicitors trust account upon execution of the Contract.  If the purchase became unconditional, this amount was to be credited to the purchase price, and if the purchase did not proceed, the amount was to be returned to MSL.

(c)       Clause 1.1(a) and (d):

A settlement payment of $500,000 (plus GST if any) was to be paid on settlement of the purchase on 1 September 2013.  The purchase price was accordingly $1M (plus GST if any) in total.

[7]      The  contract  contained  a  clause  requiring  any  dispute  be  referred  to  a mediator for resolution, failing which legal proceedings could be commenced.

[8]      The focus of VRG’s defence of the summary judgment application is upon the  events  which  preceded  the  meeting  on  5  November  2011,  and  upon  what occurred at that 5 November meeting, and upon events subsequent to that date.  In essence this is because Mr Sharma contends MSL and VRG had already agreed upon contract terms before 5 November except in relation to the extent of the management operation to be conducted before and indeed after the contract settlement.

[9]      Mr Singh submits that from Mr Sharma’s point of view there had been a

‘meeting of minds’ regarding contractual terms before the 5 November meeting. However, and as Mr Sharma noted in his email of 29 September 2012 to Ms Oh he had instructed VRG’s lawyer Mr Rana “to draw up sale and purchase of business and lease document and go unconditional as soon as these are ready.  He said we sign the heads of agreement and follow it up with commercial leases as discussed”.

[10]     And so it was that Mr Rana provided and distributed a Heads of Agreement for the purchase of the Metropolis apartment managed business.   That document

referred  to  a  purchase  price  of  $1M  plus  GST,  and  to  a  deposit  of  $500,000. Reference was made to a payment of $952,000 for the right to manage the units.

[11]     The  acceptable  evidence  is  that  a  meeting  between  Mr  Sharma’s  VRG interests and Ms Oh’s MSL’s interests was arranged at the Metropolis Hotel on the morning of 5 November 2012.   Attending for MSL were Ms Oh, Ms Shim and Mr Dillon a Queen City Law firm consultant.

[12]     The clear evidence is that in addition to Mr Sharma, VRG was represented by two others understood to be his business partners.

[13]     When the meeting commenced Mr Dillon distributed copies of a Heads of Agreement he had prepared. Although Mr Dillon does not say so, it appears clear his document was prepared after consideration of that provided by Mr Rana to VRG.

[14]     Mr Dillon’s Heads of Agreement document noted a purchase price of $1.1M plus GST, an option price of $100,000 to be paid unconditionally but otherwise to be credited to the purchase price if the agreement should become unconditional, and for a deposit of $500,000 plus GST upon execution of associated contract documents. A settlement sum of $500,000 plus GST, if any, was to be paid on 1 September 2013.

[15]     The  agreement  was  noted  to  be  conditional  upon  the  Metropolis  body corporate entering into a management agreement with VRG.  Mr Dillon’s draft noted that VRG would manage the accommodation units in the interim until settlement; and that immediately upon execution of the agreement that VRG and MSL would enter into negotiations to finalise the contract documents required to conclude the sale and purchase agreement of the business and any ancillary documents needed.

[16]     As to the conduct of the meeting there is a significant disagreement between Mr Sharma on the one hand and Mr Dillon and Ms Oh and Ms Shim on the other hand regarding what happened during the course of that meeting.

[17]     It is Mr Sharma’s evidence that when Mr Dillon distributed copies of his draft

of the Heads of Agreement Mr Dillon immediately required Mr Sharma to sign it and

whilst there then was a discussion about the document’s terms Mr Sharma, at the conclusion of that, together with his business associates, left the meeting without any amended contract terms being noted.

[18]     The evidence of Mr Dillon, Ms Oh and Ms Shim is quite different.  Theirs is that Mr Dillon distributed copies of his Heads of Agreement document to all present; that there was a careful review of the agreement terms in the result of which adjustments were made to the amounts required by way of purchase, option and deposit; that a contingency was added if the managers management fee was reduced; and  that VRG  was  not  obliged  to  manage the  units  in the interim  period  until settlement.  The evidence for MSL and from Mr Dillon is that Mr Sharma’s request that  the  agreement  be  subject  to  his  solicitors  (Mr  Rana’s)  approval,  and  a handwritten  amendment  to  the  contract  was  made  in  acknowledgment  of  that request.

[19]     Quite by contrast to Mr Sharma’s claim that he signed the document before there was any discussion upon it and that he left the meeting before any amendments to Mr Dillon’s document were noted, it is the evidence on behalf of MSL that at the conclusion of all discussions Mr Dillon then noted on a copy of his distributed document those changes the parties had agreed and then Mr Sharma did sign it. MSL’s evidence is that Ms Oh did not sign it immediately but that she did so after Mr Sharma had left because first she wanted to consult Mr Dillon regarding the amendments.

[20]     Those amendments included a reduction of the purchase price to $1M plus

GST, the unconditional payment of $50,000 as the option price, and the payment of

$450,000 as the deposit.   Each of those amendments recorded a reduction of the amount requested by MSL.

[21]     Mr Dillon’s amendment also noted that there would be a reduction of $50,000 in the purchase price of $1M if the manager’s management fee was reduced from the current $725,000 per annum to $665,000 per annum.

[22]     Other amendments noted that instead of VRG being required to manage the units during the interim period that the option for them to do so was preserved. Finally and significantly in handwriting there is noted at the end of the agreement:

This agreement is subject to solicitor’s approval by VR within two working

days.

[23]     The agreement bears the signature of Ms Oh on behalf of MSL and Mr

Sharma on behalf of VRG.

[24]     Contrary to Mr Sharma’s account, Ms Oh says Mr Sharma’s signature was given after the amendments were made and before Mr Sharma left the meeting.  Ms Oh says her signature was added shortly after and that no further amendments were made before she did this.

VRG’s case

[25]     The plaintiffs claim is for payment of the unconditional $50,000 option fee agreed to be paid.  It is clear each party understood the agreed purpose behind the option price payment.  Mr Rana for VRG acknowledged by his email of 8 November

2012:

Our clients accept the concept behind the option fee but I have suggested that we should have some wording in the HOA that the principal of the vendor will use her commercially responsible endeavours to assist in the removal of the existing manager and in the grant of the new management agreement to our clients.

[26]     It is VRG’s position that the option price is not payable.  Recently it appears VRG’s opposition was based on assertions that MSL failed to meet its contractual reasonable endeavours obligations to ensure the appointment of VRG as building manager and to arrange for registered proprietors to enter into leases with VRG.  In that respect it is claimed that VRG is absolved of any requirement to pay the option fee.

[27]     Even more recently and through the submissions of Mr Singh it is being claimed that in the circumstances of the meeting of 5 November 2012 no binding contract was concluded because the Heads of Agreement amendments were made

after Mr Sharma’s signature was given and because Ms Oh’s signature was not added

until after Mr Sharma had left the meeting.

[28]     It is clear from Mr Singh’s submissions that the integrity of the 5 November

2012 meeting process is challenged and it is also claimed that Mr Dillon’s Heads of Agreement provided a counteroffer to the terms of a Heads of Agreement previously prepared by Mr Rana on behalf of VRG. As such it was submitted no agreement was concluded by Mr Dillon’s Heads of Agreement because he says no agreement was reached upon Mr Dillon’s document.  As to whether an agreement was concluded, Mr Sharma’s evidence is completely at variance with the accounts provided by Mr Dillon, Ms Oh and Ms Shim.   In that dispute of matters Mr Singh has made a number of submissions to the effect that there is a significant dispute on matters of material fact such that a resolution of those is not possible without there being a trial.

[29]     At the core of Mr Singh’s submission is the claim that the Court should not only look at what the solicitors say but that it should have regard to what the parties say regarding the existence of a contract; that it is claimed there was before 5

November 2012 an agreement and that as much is evident from the parties’ own emails in which, Mr Sharma claims, an agreement was reached for a price to be paid for the management of the occupation units.  He submits the evidence shows that all relevant terms were agreed and that the only point of difference concerned how and when the relevant parts of the overall price of $1M was to be paid.  Mr Sharma’s point  is  that  when  he  went  to  the  5  November  meeting  (accepting  for  present purposes that it occurred on that date) nothing more was expected than a Heads of Agreement incorporating terms already agreed.

[30]     Mr Sharma claims that he did not see any document with amendments noted by Mr Dillon before he left the meeting; that he did not see any indication of those changes until emailed by Mr Dillon with a copy of those changes on 5 November – at the same time that Mr Rana was emailed with those.

[31]     Mr Sharma’s position is therefore that Mr Dillon’s Heads of Agreement was a counteroffer and was not a concluded contracted.  Mr Singh’s submission is that Mr Dillon’s  contract  involved  considerations  of  deception  because  Mr  Sharma’s

signature to it had allegedly been required prior to Mr Dillon’s amendments being

noted on it.

[32]     Mr Singh’s submissions offer reasons why the Court should have doubts

about the evidence provided on behalf of MSL.

[33]     VRG says it is not clear whether 7 or 8 people were in attendance at the

5 November 2012 meeting; that there is a dispute about when the document was signed  by Mr Sharma  and  whether he was  present  when  Ms  Oh signed;  about whether the meeting in fact occurred on 5 November because of perceptions that there would not have been sufficient time for that meeting to have taken place and for Mr Dillon then to have returned to his office before emailing a copy of the “signed” Heads of Agreement to VRG and Mr Rana, at 10:32am.

[34]     Mr  Sharma’s  position  is  that  the  parties  were  “at  one”  prior  to  the

5 November meeting and says there has been no challenge to that claim.

Principles

[35]     The Court must decide whether VRG has no real defence to the claim i.e. that there is no real question to be tried.1

[36]     The onus of proving there is no real defence is upon MSL but where its evidence is sufficient to show there is no defence, then VRG will need to provide evidence to show it has a reasonably arguable defence.2

[37]     It will not be sufficient for VRG to simply assert there is an arguable defence because it needs to provide a proper evidential foundation for that claim and failing which the plaintiff’s claim will stand unchallenged and ought to be accepted unless it is patently wrong.3    A Court should not accept evidence that is inherently lacking

credibility e.g. where it is inconsistent with undisputed contemporary documents or

1 Krukziener v Hanover Finance Ltd (2008) 19 PRNZ 162 (CA) at [26].

2 Krukziener v Hanover Finance (supra).

3 MacLean v Stewart (1997) 11 PRNZ 66 (CA).

is inherently improbable.4   The Court is to take a robust and realistic approach to the evidence where it considers it is appropriate to do so.5

[38]     The principles as to contract formation incorporate an objective test.  They include that there be a “meeting of the minds” but that it is the external appearance of an agreement that matters rather than any asserted subjective intentions of any of the parties.

[39]     There must be an intention to create legal relations and consideration ought to be given to whether that intention was to be immediately bound or whether it was conditional.   It may not matter that an important term was  deferred for further consideration but also the fact that an agreement records that the execution of a further document is required does not mean there was no intention to create legal

relations with the subject agreement.6

[40]     A party will be estopped from denying the existence of a contract where that party is attempting to go back on its word (express or implied), or is resiling from assumptions that had been acted upon, where it would be unconscionable to do so.7

Considerations

[41]     VRG’s position appears to be that the unconditional option fee of $50,000 was not payable because the requirement for it was contained in a document which amounted to no more than a counteroffer in the document provided by Mr Dillon. Despite this, the focus of Mr Singh’s submissions suggests that for various reasons no agreement at all was concluded on 5 November 2012.  In support of this position are various submissions attacking the integrity of claims of a contract concluded on

that date.

4 Krukziener (supra).

5 Krukziener (supra) at 26.
6 Graham Evans Pty Ltd v Stencraft [1999] FCA 1670 (30 November 1999) at [45].

7 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA).

[42]     The Court’s response is that VRG’s position is not sustainable upon a review of the events of 5 November, nor by reference to the correspondence that subsequently ensued.

[43]     It   can   reasonably   be   inferred   that   Mr   Sharma   was   an   experienced businessman.  Despite this, he claims that at Mr Dillon’s request he signed a Heads of Agreement at their meeting before any consideration was given to the document’s terms and before the amendments to those were noted.  The Court cannot accept that explanation is reasonable or credible.

[44]     Mr Singh’s submissions place significance on the acknowledgement of Mr Dillon and Ms Oh that her signature was not added until Mr Sharma had left.  But no significance should attach to that fact provided, as indeed Ms Oh acknowledges there was no amendment to the document that Mr Sharma had signed before Ms Oh also attached her signature.

[45]     Mr Singh claims at best Mr Dillon’s document was a counteroffer.  But, even if that was so the clear evidence is that it was accepted as the parties’ new contract.

[46]     Less credible are claims that Mr Sharma signed before any alterations at all were made to Mr Dillon’s documents when the alterations that were made were clearly intended for the benefit of VRG i.e. a reduction of purchase price, a reduction in the option payment, and a reduction in the deposit payable.

[47]     Also,  why  else  would  there  have  been  a  clause  added  noting  that  “the agreement was subject to solicitor’s approval by VR within two workings days” unless, as Mr Dillon states, it had been required by Mr Sharma.

[48]     Further, it does not matter that the solicitor’s approval was not forthcoming within two days because it was provided within one or two days after that.  The fact is it was provided and there is no dispute that this consent was given on behalf of VRG by a solicitor of experience and status.  At no time around then was it ever challenged  on  behalf  of  VRG  that  Mr  Sharma’s  consent  had  been  irregularly obtained or that VRG had not committed itself to the Heads of Agreement.

[49]     At 10:32am on 5 November 2012 Mr Dillon emailed Mr Sharma and Mr Rana  with  a  copy  of  “the  Heads  of Agreement  was  signed”.    Mr  Dillon  then confirmed the handwritten changes and detailed these.  He concluded by noting that he was looking forward to confirmation of solicitors approval within two working days.

[50]     On 8 November 2012 Mr Rana acknowledged receipt but indicated there ought to be changes to the agreement in connection with the associated management agreement and in relation to the lease of units, the payment of an option fee, and concerning settlement.

[51]     Mr Dillon responded on 9 November 2012 at 9:27am.  He said:

As you will be aware from the Provost Developments case, a solicitor’s approval clause is not an opportunity to renegotiate the Heads of Agreement…

The [your] lengthy email of yesterday suffers from a similar problem, although there are items that are agreed or to which our client is agreeable. But they need to be added into the formal contract, rather than be an impediment to the approval of the Heads of Agreement.

[52]     By email dated 9 November 2012 at 3:18pm Mr Rana responded:

On the basis that we will work together in good faith to finalise the contract

documents I can confirm satisfaction of the solicitor’s approval clause.

[53]     On the same day by email timed at 3:38pm Mr Dillon responded:

Can you also arrange for the payment of the $50,000 to us urgently please.

[54]     In overview there had been a meeting on 5 November 2012; that dialogue followed  and  shortly  after  there  was  confirmation  of  VRG  solicitor  approval, followed by a request for the unconditional payment of $50,000.

[55]     Nowhere in this is there a suggestion there was no agreement.   It appears clear,  despite  Mr  Sharma’s  allegations  of  the  events  of  the  5  November  2012 meeting, that by the end of that week the parties were in agreement.

[56]     In these situations a Court is entitled to take a robust position particularly when belated complaints are contrary to common sense.

[57]     Even  if  VRG’s  claims  of  Mr  Dillon’s  Heads  of  Agreement  being  a counteroffer are credible, then the clear evidence is the terms of such were agreed to at the time Mr Rana’s solicitors consent was provided.

[58]     It appears to be submitted on behalf of VRG that, legal documents apart, the Court should not ignore the intention of the parties created by other relevant documents.

[59]     To the contrary, as case authority readily endorses, it is the written terms of the parties’ contract that assumes pre-eminence.  Subjective intentions are irrelevant. The Court will not be tempted to make assumptions that might offer conclusions in contrast to a written agreement.

Conclusions

[60]     A sensible and credible conclusion is that Mr Sharma signed the Heads of Agreement  after  Mr  Dillon  noted  amendments,  which  followed  the  parties’ discussion of those.  Although Ms Oh did not sign the Heads of Agreement at the same time, she did so shortly after sign that same document without alteration, that Mr Sharma had signed.

[61]     The agreement acknowledged VRG’s commitment to payment of an option

fee of $50,000 irrespective of whether or not the agreement was settled.

[62]     Conclusions favouring MSL’s account of relevant events are supported by commonsense and credible testimony – features absent from the position advanced on behalf of VRG.

Judgment

[63]     Judgment in the sum of $50,000 is granted to the plaintiff.

[64]     Costs are reserved for determination upon written application to the Court.

Associate Judge Christiansen