Mills v Feng
[2023] NZHC 2641
•21 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2022-404-1909
[2023] NZHC 2641
BETWEEN DAVID LAWRENCE MILLS and FIONNA
EILEEN MILLS as trustees of THE MILLS FAMILY TRUST
PlaintiffsAND
WEIQIANG FENG (also known as BRIAN FENG)
First defendant
KAI WANG (also known as TONY WANG) Second defendant
Hearing: 14 September 2023 Appearances:
K Wendt for the plaintiffs
C Holland for the second defendant
Judgment:
21 September 2023
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 21 September 2023 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
MILLS and MILLS v FENG and WANG [2023] NZHC 2641 [21 September 2023]
[1] The plaintiffs entered into an agreement to sell their Meadowbank home to the first defendant, Mr Feng. Mr Feng nominated the second defendant, Mr Wang, as purchaser. Neither Mr Feng nor Mr Wang settled the purchase. The plaintiffs cancelled the agreement and re-sold their property. They incurred costs on the resale and achieved a price much lower than the price in the original agreement.
[2] The plaintiffs applied for summary judgment against Mr Feng and Mr Wang, claiming damages for the losses suffered from the defendants’ failure to settle the purchase. On 7 December 2022, Lang J granted the plaintiffs’ application.1 Judgment of just over $750,000 was entered against Mr Feng and Mr Wang.
[3] Mr Wang subsequently applied to set aside the judgment entered against him, on the ground he had not been served with the proceeding. Mr Wang’s application was granted, without opposition by the plaintiffs, on 17 July 2023.
[4] The plaintiffs’ summary judgment application against Mr Wang was re-heard before me. Mr Wang did not contest liability. For the most part he did not contest quantum. The only defence he raised was that the plaintiffs had failed to mitigate their loss.
[5] I am satisfied there is no real question to be tried on the mitigation issue raised by Mr Wang. Accordingly, I find he has no defence to the plaintiffs’ claim.
Factual background
[6]The following facts were not in dispute.
[7] The plaintiffs, who are husband and wife, owned a home in Meadowbank, Auckland. In 2021, they decided to sell their home and move to Christchurch. They put the property on the market in mid-2021. They engaged Matthew Gibson, of Ray White, as their real estate agent.
1 Mills v Feng [2022] NZHC 3278.
[8] At that time, Mr Feng and Mr Wang had a common intention to purchase properties together. One of the properties they were looking at was the plaintiffs’ property.
[9] Mr Wang negotiated with Mr Gibson for the purchase of the plaintiffs’ property. Those negotiations led to a sale and purchase agreement dated 18 October 2021. Although Mr Wang had been negotiating with Mr Gibson, Mr Feng was named as the purchaser on the agreement.
[10] The agreement was unconditional. The purchase price was $2,600,000 inclusive of GST (if any). The deposit was $130,000. The settlement date was 4 May 2022.
[11] On 27 January 2022, the plaintiffs entered into an agreement to purchase a property in Christchurch. The settlement date was just a few days after the 4 May 2022 settlement date for the sale of their Meadowbank property. The plaintiffs were relying on the proceeds from the sale of their Meadowbank property to pay the purchase price of the Christchurch property.
[12] On about 20 April 2022, Mr Gibson was told that Mr Wang would not be able to settle the purchase without first selling his home in Riddell Road, Glendowie. Mr Wang sent a text message to Mr Gibson saying that the current market environment made his property “unsellable” and that he had no money to pay the plaintiffs.
[13] Mr Gibson conveyed this information to the plaintiffs’ solicitor. He also told the solicitor that his efforts with mortgage brokers to help Mr Wang obtain finance had proven fruitless.
[14] On 26 April 2022, Mr Feng nominated Mr Wang as the purchaser. The solicitor acting for Mr Feng and Mr Wang emailed that nomination to the plaintiffs’ solicitor the same day. In the email, the solicitor said that Mr Wang was relying on the sale of his property to settle the purchase of the plaintiffs’ property and that he had not been able to secure a sale. The solicitor asked whether the plaintiffs would agree to defer settlement until Mr Wang successfully sold his property.
[15] The plaintiffs’ solicitor responded by email the same day. The plaintiffs declined to defer settlement. Their solicitor explained that the plaintiffs had agreed to purchase a new property and were relying on settlement to do so.
[16] Neither Mr Feng nor Mr Wang settled the purchase on 4 May 2022. The plaintiffs served a settlement notice on them.
[17] The defendants’ failure to settle caused the plaintiffs considerable stress, inconvenience and cost. This included having to obtain bridging finance so that they could complete the purchase of the Christchurch property.
[18] The plaintiffs promptly took steps to resell their Meadowbank property. On 23 May 2022, they signed a new listing agreement with Ray White. By that time, the Auckland property market had declined considerably.
[19] After a three-week marketing campaign, the property went to auction on 15 June 2022. There were no bidders.
[20] On 12 July 2022, the plaintiffs received a conditional offer of $1,770,000. The same day, their solicitor emailed the defendants’ solicitor advising of the offer and inviting the defendants to complete settlement.
[21] On 14 July 2022, the plaintiffs entered into an agreement to sell the property for $1,850,000. The agreement was conditional on purchaser’s due diligence and allowed the plaintiffs to cancel if the defendants wished to settle on the terms of the original agreement.
[22] The same day, the plaintiffs’ solicitor emailed the defendants’ solicitor advising that the plaintiffs had entered into a conditional agreement for the sale of the property. The email advised that the original agreement (with Mr Feng and Mr Wang) was cancelled but that the plaintiffs could cancel the conditional agreement if the defendants wished to settle on the same terms as the original agreement. The email asked for a response by 5 pm that day.
[23] The next day, 15 July 2022, the defendants’ solicitor sent an email to the plaintiffs’ solicitor in these terms:
We are instructed to make an open offer to purchase the Property for:
1.$2,200,000 inclusive of GST;
2.Settlement date shall be 22 December 2022;
3.Deposit:
a.$30,00 upon acceptance;
b. $100,000 by 20 October 2022.
4.Unconditional in all other aspects.
Our client does not believe that the current offer of $1,855,000 is a fair market value of the Property. Our client sincerely wishes your clients to consider the offer above, as this is the best offer our client could make at this stage (and our client is trying very hard).
[24]The plaintiffs declined that offer.
[25] The 14 July 2022 agreement did not proceed, as the purchaser’s due diligence condition was not fulfilled. The plaintiffs put the property up for an auction on 3 August 2022, following a two-week marketing campaign.
[26] On 2 August 2022, the day before the auction, Mr Wang made a further offer to Mr Gibson to purchase the plaintiffs’ property at the reduced price of $2,200,000, with a deposit of $100,000 and settlement on 22 December 2022. He told Mr Gibson that his own property was still not sold. The plaintiffs declined that offer.
[27] The property did not sell at the auction on 3 August 2022. However, soon after the auction the plaintiffs entered into a conditional agreement to sell the property for
$1,940,000. That agreement became unconditional on 10 August 2022 and settled on 14 September 2022.
The plaintiffs’ claim against Mr Wang
[28]The plaintiffs claim against Mr Wang:
(a)Damages of $613,070.40 for the losses they say they have suffered as a result of Mr Wang’s failure to settle under the agreement. These are for the reduced price on the resale ($530,000, after credit for the deposit that was paid) and for consequential losses of $83,070.40.
(b)Contractual interest of $126,004.20 for late settlement under cl 11.4(3)(a) of the agreement for the portion of the unpaid sale price for the period from 4 May 2022 (the original settlement date) to 14 September 2022 (the date of settlement on the resale).
(c)Interest under s 10 of the Interest on Money Claims Act 2016 on the
$530,000 loss on resale calculated from 14 September 2022.
(d)Costs.
The narrow issue between the parties
[29] It appeared from Mr Wang’s statement of defence, notice of opposition, affidavit and submissions that he did not dispute liability and that the only defence he raised was that the plaintiffs had not mitigated their loss. Further, Mr Wang’s assertion that the plaintiffs had failed to mitigate their loss was of narrow compass. He did not suggest that the plaintiffs had not taken reasonable steps to market their property after he and Mr Feng failed to settle on 4 May 2022. His allegation was merely that the plaintiffs had, by declining his offer of 15 July 2022, failed to mitigate their loss.
[30] Ms Holland, counsel for Mr Wang, confirmed at the hearing that Mr Wang did not dispute that he was liable to the plaintiffs for the failure to settle the original agreement.2 Ms Holland also confirmed that quantum was not disputed, except insofar as it was called into question by the plaintiffs’ alleged failure to mitigate. Finally, she
2 This was presumably on the basis that the evidence (including that from Mr Wang) showed that Mr Feng was acting as agent for Mr Wang when entering into the agreement. Mr Feng’s nomination of Mr Wang did not, of itself, make Mr Wang liable under the agreement. Under s 12 of the Contract and Commercial Law Act 2017, the nomination may have enabled Mr Wang to enforce benefits under the agreement. But s 12 does not allow a party to a contract to enforce the burden of the contract against a non-party.
confirmed that the allegation of a failure to mitigate was based solely on the plaintiffs having declined Mr Wang’s offer of 15 July 2022.
[31] Ms Holland submitted that the plaintiffs’ alleged failure to mitigate gave rise to an arguable defence by Mr Wang of an equitable set-off. This, with respect, is an unnecessarily convoluted way of characterising the consequences of a failure to mitigate. The core mitigation principle is that a plaintiff “cannot recover damages for any … loss which they failed, through unreasonable action or inaction, to avoid”.3 This is merely one of the principles that determines what losses a plaintiff may recover from a defendant as damages. A failure to mitigate therefore directly reduces the quantum of damages the plaintiff can recover.4 It is not a matter of the defendant having a claim for breach of a duty to mitigate which can be set off against the plaintiff’s claim.5
[32] The sole issue for my determination, therefore, is whether the plaintiffs have shown there is no real question to be tried6 on Mr Wang’s allegation that the plaintiffs, by declining Mr Wang’s offer of 15 July 2022, failed to take reasonable steps to mitigate their loss.
Did the plaintiffs, by declining Mr Wang’s offer, fail to mitigate?
[33] Ms Holland submitted that had the plaintiffs accepted Mr Wang’s offer of 15 July 2022 to purchase the property for $2,200,000, their loss would have been significantly less. She referred to a calculation in Mr Wang’s affidavit that the plaintiffs’ loss would have been approximately $225,000 less than the loss that they did suffer.
[34] Ms Holland submitted that Mr Wang’s offer was reasonable, given the declining Auckland property market at the time. She noted that less than a month later
3 J Edelman McGregor on Damages (21st ed, Sweet & Maxwell, London, 2021) at [9-004].
4 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673.
5 While it is common to speak of a plaintiff having a “duty” to mitigate, this is a loose use of the term, since the so-called duty is not actionable: J Edelman McGregor on Damages (21st ed, Sweet & Maxwell, London, 2021) at [9-018] and the authorities there cited.
6 Pemberton v Chappell [1987] 1 NZLR 1 (CA); and Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 (CA).
the plaintiffs entered into an agreement to sell the property for $1,940,000, significantly less than the amount offered by Mr Wang. She said there was a real question to be tried as to whether the plaintiffs, in declining Mr Wang’s offer, took reasonable steps to mitigate their loss. She said this question could not be determined on a summary judgment application.
[35] An opportunity to mitigate loss sometimes arises from an offer made by the party in breach. In a leading case on mitigation of loss in the contractual context, Payzu Ltd v Saunders, Scrutton LJ said “in commercial contracts it is generally reasonable to accept an offer from the party in default”.7
[36] Scrutton LJ’s observation was merely about what is generally the case. Whether a plaintiff has reasonably mitigated loss is a question of fact, not a question of law.8 Further, the observation was in respect of commercial contracts.
[37] I have no doubt it was reasonable for the plaintiffs to decline Mr Wang’s offer of 15 July 2022. By the time Mr Wang made his offer, the plaintiffs were aware that Mr Wang had been relying on the sale of his own property to fund the purchase of the plaintiffs’ property. Mr Wang had told the plaintiffs’ real estate agent, Mr Gibson, in April 2022, that his property was “unsellable” in the current market. At that time, Mr Gibson had also told the plaintiffs’ solicitors that his attempts to assist Mr Wang to obtain finance had proved fruitless. It was clear from the long settlement period proposed in Mr Wang’s offer that Mr Wang had still not sold his property and had little confidence himself in a quick sale or in obtaining alternative means of funding.
[38] All this would have conveyed to a reasonable person in the plaintiffs’ position that acceptance of Mr Wang’s offer would have exposed them to a substantial risk of Mr Wang failing to sell his property or obtain alternative funding and therefore failing to settle under the new agreement. It was clearly reasonable for the plaintiffs not to take on that risk, given they had had to obtain bridging finance to purchase their new property in Christchurch (which was a foreseeable consequence of Mr Wang’s
7 Payzu Ltd v Saunders [1919] 2 KB 581 at 589.
8 This was a point made in Payzu Ltd v Saunders [1919] 2 KB 581 at 588 per Bankes LJ and at 589 per Scrutton LJ.
failure to settle the original agreement). The low deposit proposed by Mr Wang (only
$30,000 on acceptance, with another $100,000 in a further three months) did not provide any adequate security against this risk.
[39] In short, while Mr Wang’s offer on its face was at a price higher than the plaintiffs were likely to obtain (and did in fact obtain) in the market, it was reasonable for them to decline the offer because of the substantial risk that Mr Wang would not be in a position to pay that price.
[40] All of the facts underlying my assessment in [37]–[39] are undisputed, a point that Ms Holland confirmed at the hearing. Ms Holland submitted that this assessment should nonetheless not be made on a summary judgment application, as there was a need for expert evidence on the state of the property market at the relevant time. I do not accept that. Whether it was reasonable for the plaintiffs to decline Mr Wang’s offer depends on the facts known or reasonably known to them at the time. They knew, through Mr Gibson and from their own experience in trying to re-sell their property after the original agreement fell through, that the property market was declining. They were not required to take other expert advice on the state of the market. I consider that expert evidence of the sort suggested by Ms Holland would be irrelevant to the question whether the plaintiffs acted reasonably in declining Mr Wang’s offer.
[41] I conclude that there is no real question to be tried on Mr Wang’s allegation that the plaintiffs, by declining Mr Wang’s offer, failed to take reasonable steps to mitigate their loss. Accordingly, summary judgment will be entered against him.
Charging order
[42] After obtaining judgment against Mr Wang in December 2022, the plaintiffs obtained a charging order dated 17 April 2023 against Mr Wang’s Auckland property and against some shares owned by him. After that earlier judgment was set aside, the plaintiffs applied for the charging order to continue. On 24 July 2023, Paul Davison J directed that the charging order continue in effect pending delivery of this judgment.
[43] Given that judgment is again being entered against Mr Wang, it is appropriate that the charging order continue in effect. I direct accordingly.
Costs
[44] Ms Wendt, counsel for the plaintiffs, provided me with a schedule of costs claimed on the summary judgment application and on the application to continue the charging order. She identified those costs that were applicable to steps taken against both Mr Wang and Mr Feng (for which liability would be joint and several) and those costs for steps against Mr Wang alone. Ms Holland did not take any issue with the costs claimed.
Result
[45] I grant the plaintiffs’ application for summary judgment against Mr Wang for the following amounts:
(a) Damages of $613,070.40.
(b)Contractual interest of $126,004.20.
(c)Interest under s 10 of the Interest on Money Claims Act 2016 on the
$530,000 loss on resale calculated from 14 September 2022 until the date that amount is paid in full.
(d)Costs and disbursements of $17,532.50 (of which $10,482.50 are costs and disbursements for which Mr Wang shares joint and several liability with Mr Feng).
[46]I direct that the charging order dated 17 April 2023 continues in effect.
[47] Mr Wang is to pay costs of $5,497 to the plaintiffs on the application to continue the charging order.
Campbell J