Morse v Vast Investment Limited
[2023] NZHC 2790
•6 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-509
[2023] NZHC 2790
BETWEEN SAM GORDON MORSE and JENNIFER
KATE WHITTLE as Trustees of the Meribel Trust
Plaintiffs
AND
VAST INVESTMENT LIMITED
First Defendant
DABIN WANG
Second Defendant
Hearing: 22 August 2023 Appearances:
S E Wroe for the Plaintiffs
K L Chiu and M Brugeyroux for the Defendants
Judgment:
6 October 2023
Reissued:
12 October 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 6 October 2023 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Sweetman Law, Auckland
S Wroe, Eldon Chambers, Auckland McVeagh Flemming Lawyers, Auckland
MORSE v VAST INVESTMENT LTD [2023] NZHC 2790 [6 October 2023]
Introduction
[1] The plaintiffs and defendants entered into a sale and purchase agreement on 1 October 2021 for a property in Dodson Avenue in Milford, Auckland. The first defendant did not settle as agreed nor did it comply with a settlement notice issued by the plaintiffs.
[2] The plaintiffs filed proceedings and a summary judgment application initially seeking specific performance or an inquiry into damages. Following the late filing of a notice of opposition and affidavits in support the parties jointly requested an adjournment of the hearing of the summary judgment application on the basis that they were in negotiations. Gault J did not grant the adjournment as there was insufficient information in respect of any possible settlement although indicating that he would be prepared to reconsider if further information was provided.1 No further memoranda were filed.
[3] One day prior to the scheduled hearing on 22 August 2023, the plaintiffs cancelled the contract and amended their summary judgment application to remove the claim for specific performance and instead seek an interim judgment, including a declaration that the deposit is forfeited and orders for damages and costs. The judgment sought is said to be interim on the basis that the Property has not yet been resold but the plaintiffs wish to proceed urgently following disclosure of the defendants’ financial position. The plaintiffs are concerned that they will not be able to successfully enforce any judgment obtained as they submit the evidence disclosed shows the second defendant, Mr Dabin Wang, has been disposing of assets including the only property he owned in his personal capacity.
[4] The plaintiffs are suing for forfeiture of the deposit paid of $510,000.00 (10 per cent of the purchase price) and damages of $324,377.20.
[5] The defendants do not deny liability but say that the forfeited deposit must be taken into account in assessing loss and that the plaintiffs’ current claimed loss of
$324,377.20 does not exceed the $510,000.00 deposit. Counsel therefore submits that
1 Morse v Vast Investment Ltd HC Auckland CIV-2023-404-509, 18 August 2023.
any loss suffered is covered by the deposit so no judgment ought to be entered against the defendants.
[6] In addition, the defendants say there is no evidence that the rate of interest claimed of 10 percent is a reasonable rate and that it is significantly more than the interest calculated using the Interest on Money Claims Act 2016 calculator.
Issues
[7] The defendants do not dispute liability, so the issues relate only to quantum. The issues are:
(a)Should the deposit be taken into account in determining the damages to be awarded?
(b)Is there sufficient evidence that 10 percent is a reasonable interest rate?
(c)Is an interim judgment appropriate?
(d)What orders ought to be made?
[8] I start by setting out the legal principles applying to applications for summary judgment before describing the factual background and discussing the issues.
Summary judgment principles
[9] Rule 12.2(1) of the High Court Rules 2016 provides that summary judgment may be granted where a plaintiff satisfies the Court that the defendant “has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.”
[10] The principles applying to summary judgment applications are well established, with the leading authority, Krukziener v Hanover Finance Ltd summarising the following principles:2
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried.3
(b)The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.4
(c)The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. However, it need not uncritically accept evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable.5
(d)In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it.6
Factual background
[11] The parties entered into a sale and purchase agreement in respect of the property on Dodson Avenue, Milford (Property) on 1 October 2021 for a purchase price of $5,100,000 (Agreement). The Agreement was subject to a due diligence clause with the purchaser able to terminate by written notice within 20 working days. The settlement date was agreed to be 12 months after the Agreement became unconditional.
[12] Mr Wang personally guaranteed the obligations under the Agreement and does not dispute the enforceability of his guarantee.
3 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
4 MacLean v Stewart (1997) 11 PRNZ 66 (CA).
5 Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).
6 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[13] Sam Morse, one of the plaintiff trustees, filed an affidavit in support of the summary judgment application and gave evidence that around 20 October 2021 the first defendant, Vast Investment Limited (VIL), sought variations to the amount of the deposit and the settlement date. Variations were agreed for the deposit to remain at 10 percent but to be payable in two tranches of five percent each on 1 November 2021 and 1 June 2022 and for the settlement date to be delayed to 1 March 2023.
[14] VIL’s solicitors confirmed the Agreement was unconditional on the basis of the above variations on 20 October 2021. Mr Wang explains that the settlement date extension was to ensure he had sufficient time to complete another development.
[15] Mr Wang further explains that before he signed the Agreement, he had entered into an agreement to purchase a neighbouring property in Dodson Street and that he intended to develop the two properties at the same time and build eight stand-alone houses on the two lots of land.
[16] VIL did not pay the second tranche of the deposit on 1 June 2022 as agreed but did so on 8 June 2022 following the issue of a notice requiring payment of the deposit under cl 2.2 of the Agreement. During this time, VIL sought a further variation to the settlement date but the plaintiffs did not agree. VIL then failed to settle on 1 March 2023.
[17] A settlement notice was served requiring VIL to pay the required sum for settlement ($4,590,648.70) by 20 March 2023.
[18]VIL did not comply with the settlement notice.
[19] The Agreement is on the standard ADLS/REINZ Agreement for Sale and Purchase of Real Estate (Tenth Edition, 2019). Clause 11.4(1) of the Agreement relevantly provides that if a purchaser does not comply with the terms of a settlement notice served by the vendor, the vendor may sue the purchaser for specific performance or cancel the Agreement by notice and pursue either or both of the following remedies, namely:
(a)forfeit and retain for the vendor's own benefit the deposit paid by the purchaser, but not exceeding 10 per cent of the purchase price; and/or
(b)sue the purchaser for damages.
[20] Clause 11.4(3) then provides that the damages that may be claimed where the Property has not been on sold include all damages at common law or in equity.
Should the deposit be taken into account when determining the damages to be awarded?
[21] As set out in the introduction, the plaintiffs are seeking forfeiture of the deposit of $510,000.00 plus damages of $324,377.20. The damages sought are made up of the following categories of loss:
(a)real estate agent’s commission on the original sale — $115,000.00;
(b)wasted legal fees in relation to the original sale — $12,843.84;
(c)Auckland Council rates for 20 March to 30 June 2023 (72 days at
$7,958.62 pa) — $1,567.85;
(d)Auckland Council rates from 1 July to 21 August 2023 (52 days at
$8,733.32 pa) — $1,240.13; and
(e)reasonable interest at a rate of 10 per cent on the required sum for settlement of $4,590,648.70 from the date of failure to comply with the settlement notice on 20 March 2023 to the date of cancellation on 21 August 2023 —$193,725.38.
[22] The notice of opposition filed by the defendants to the original application for summary judgment opposed an order for specific performance, but not an order for an inquiry into damages. The defendants did not have an opportunity to file a notice of opposition to the amended application for summary judgment because they were only served with it on the morning of the hearing (an earlier email attempt to serve
apparently not being successful). The defendants’ opposition however remains in respect of quantum only, and not liability.
[23] As set out in the introduction, the defendants say that the deposit held by the plaintiffs needs to be taken into consideration in calculating the loss suffered. The defendants submit that the deposit of $510,000.00 exceeds the damages claimed of
$324,377.20 and as there is no evidence of any further loss, no judgment for further damages can be made.
[24] In addition, the defendants do not accept that the damages claimed are appropriately calculated saying there is no evidence that 10 per cent is a reasonable rate of interest. The defendants say that establishing a reasonable rate of interest requires evidence of the plaintiffs’ actual holding costs or any interest they have foregone.
[25] It is clear from the authorities that the deposit paid must be taken into account in the assessment of damages. Counsel for the defendants relied on Arren Civil Ltd v Dallan Enterprises No 50 Ltd, where the Court of Appeal confirmed the approach taken by the High Court Judge in assessing damages, holding:7
[19] The Judge summarised the principles he was to apply in assessing damages under four heads:
“(a)Although Dallan has not lost the benefit of the bargain, in that the value of the sections at the date of breach was greater than the contract price, it is still able to claim consequential losses;
(b)Dallan must give credit for any benefits received including both the increase in value of the sections and the deposit;
(c)The date for assessment of damages is normally the date of breach but the Court may vary that date to do justice to the innocent party;
(d)Dallan had an obligation to take reasonable steps to mitigate its loss.”
[26] As the credits given under paragraph (b) exceeded the damages claimed, Arren was not entitled to judgment.
7 Arren Civil Ltd v Dallan Enterprises No 50 Ltd CA109/00, 20 September 2001.
[27] In addition, counsel for the defendants refers to the summary of the Court of Appeal’s findings in Arren in Gitmans v Alexander as follows:8
[78] The Court of Appeal held that Dallan was entitled to cancel. Dallan decided not to resell the sections. While it claimed the damages arising from Arren’s breach, the court said it was not entitled to them because it had suffered no loss. Paterson J at first instance held that, while Dallan had suffered certain losses amounting to approximately
$88,000, it had obtained benefits from Arren’s breach of more than
$116,000. That sum comprised forfeited deposits of $25,500 and the increased value of the two sections. The court found on the evidence before it that by the date of cancellation the sections were in fact worth
$91,000 more than the price Arren had agreed to pay for them. Paterson J held that Dallan must give credit for that increased value as it was obviously a benefit which accrued to it from the cancellation and from its retaining the land. The Court of Appeal confirmed this analysis.
[28] In Oaia Investments v Hunt, the District Court confirmed that, in the calculation of a plaintiff’s losses, the deposit paid by the purchaser had to be taken into account, holding:9
[17] But in the calculation of its losses, the ledger must be complete on both sides. That is only achieved when, as McMorland advises, the vendor plaintiff brings into account with the defaulting purchaser defendant, and by way of a credit, the full amount of the deposit paid.
[29] Counsel further referred to Dobson v Xia, where Moore J approved the calculation of damages by the plaintiff which included a deduction of the amounts received by way of deposit.10
[30] DW McMorland supports this in Sale of Land as he states that the provisions in cl 11.4(3) relating to resale within one year “do not obviate the need for the vendor in the account with the defaulting purchaser to give credit for the full amount of the deposit…”, as well as any other benefit received.11 So whilst the provisions in cl 11.4(3) vary the usual position when the property is resold within a year the deposit is still required to be taken into account. It does not appear that Sale of Land expressly records that the deposit must be taken into account when the property is not resold but there is no basis in principle for adopting a different position in those circumstances.
8 Gitmans v Alexander HC Auckland CIV-2001-404-1937, 9 December 2003.
9 Oaia Investments v Hunt [2007] DCR 904.
10 Dobson v Xia [2019] NZHC 1371 at [5] and [7].
11 DW McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [12.57].
[31] Counsel for the plaintiffs submits that the retention of the deposit is the contractual consequence of the purchaser not settling, and that it is separate from and therefore does not need to be taken into account in the assessment of compensatory damages. The plaintiffs rely on Garratt v Ikeda where the vendor had resold the property for $400,000 more than the purchase price agreed but still sued for the remainder of the deposit not yet paid by the defaulting purchaser.12 The vendor succeeded as the Court held there was a clear right under the contract for the vendor to forfeit the deposit if the purchaser defaulted and the purchaser had not established a right to relief from that forfeiture.13
[32] I accept that the Court held in Garratt v Ikeda that the primary function of a deposit is to “seal the bargain”,14 but that is a different point to whether it must be taken into account in assessing the overall damages award. Clause 11.4(3) of the Agreement confirms that where the Property has not been sold within a year the damages claimable by the vendor include all the usual damages payable at common law and in equity. The measure of damages at common law and in equity is the same, with the general principle being that the assessment is compensatory with “the innocent party … to be placed, so far as money can do so, in the same position as if the contract had been performed.”15
[33] A plaintiff has a choice between two measures, either to be put into the position as if the contract had been performed, referred to as the recovery of expectation losses, or the position as if the contract had never been made, or recovery of reliance losses. Here the losses claimed by the plaintiffs appear to include some losses claimed on an expectation basis, such as the contributions to rates paid and interest, and others on a reliance basis, such as the real estate commission on the original sale and wasted legal fees.
[34] Whether claiming expectation or reliance losses however, the amount of the deposit received must be taken into account in calculating the overall loss. When expectation losses are claimed the deposit makes up part of what the vendor expected
12 Garratt v Ikeda [2002] 1 NZLR 577.
13 At [46] and [51].
14 At [44].
15 Johnson v Agnew [1980] AC 367 (HL) at 400.
to receive had the contract been performed so needs to be added to the credits side of the ledger. When reliance losses are claimed, the deposit would not have been received if the contract had not been entered into, so must be deducted from the ledger to put the vendor back into the position it would have been in if there had been no contract.
[35] The plaintiffs did not rely on and nor does there appear to be anything in the Agreement that says the deposit is not to be taken into account in calculating damages or that impliedly changes this position. The deposit therefore needs to be taken into account in assessing the appropriate damages award.
Is there sufficient evidence 10 per cent is a reasonable rate of interest?
[36] The plaintiffs initially relied on earlier decisions to claim 10 per cent was a reasonable rate of interest. I agree with the defendants’ submission that this is not a sufficient basis on which to claim 10 per cent is a reasonable rate of interest.
[37] Three days following the hearing a second affidavit was filed by Ms Whittle, one of the plaintiff trustees, providing further evidence including that the interest rate being paid on the trust’s loan is allegedly 8.14 per cent per annum. However no other details are provided such as the dates the loan was agreed to or extended, or the amount by which the loan was extended. The affidavit also annexes a summary from the interest.co.nz website showing the various interest rates being offered by banks in New Zealand but the page annexed is not dated. Ms Whittle’s affidavit refers to the summary as the rates “currently offered” but again with no date.
[38] No memorandum was filed with this further affidavit recording what the reasonable rate of interest now claimed by the plaintiffs is and nor have the defendants had an opportunity to respond to this further affidavit. I include in the directions below that further submissions and more detailed evidence are to be filed which the defendants will then have an opportunity to respond to.
Is an interim judgment appropriate?
[39] The plaintiffs seek damages by way of an interim judgment on quantum pursuant to r 11.2 of the High Court Rules and ask for leave to be reserved to allow them to seek damages to cover their remaining unquantified loss.
[40] The plaintiffs submit that it is just and expedient that an interim judgment be issued at this stage as there are very real concerns about whether the plaintiffs will be able to enforce any judgment if not obtained now.
[41] Even if the deposit is required to be taken into account, the plaintiffs say there is no question that the value of the Property has decreased significantly, pointing to the current valuation the Auckland Council referred to in evidence. The plaintiffs submit on this basis that the plaintiffs’ loss is clearly greater than the amount of the deposit plus the amount of the damages claimed.
[42]Rule 11.2 of the High Court Rules provides that a judgment may:
(a)be interim; or
(b)be final; or
(c)deal with any question or issues; or
(d)order any accounts, inquiries, acts or steps that the court considers necessary.
[43] Rule 12.3 of the High Court Rules further provides that the Court may give summary judgment on the issue of liability and direct a trial on the issue of amount if the party applying for summary judgment satisfies the Court that the only issue to be tried is about the amount claimed.
[44] The circumstances of this case are unusual as it was only one day before the hearing that the Agreement was cancelled and so, prior to the hearing, I do not consider the parties had properly had an opportunity to consider the various heads of damage to be claimed.
[45] In the circumstances I consider that the just, speedy and inexpensive determination of this proceeding requires steps to be ordered to assist in determining quantum as permitted in r 11.2(d). If those steps result in questions that require a trial, then summary judgment on quantum will at that stage be declined. But until those steps are undertaken, I consider it is appropriate to issue a final judgment only as to liability and an interim judgment as to quantum.
What are the appropriate orders to be made?
[46] The defendants do not oppose liability so an order holding the defendants liable must follow.
[47] As far as quantum is concerned, it is up to the plaintiffs on which basis they claim damages but usually where the loss can be quantified, as appears to be the position here, then expectation losses would be claimed.
[48] If expectation losses are claimed, the steps necessary include obtaining a valuation of the Property. It was suggested on behalf of the plaintiffs that the parties could jointly instruct a valuer, with costs to be paid jointly pending the final costs award. I consider that this is a sensible interim step and include this direction below.
[49] Counsel did not address the appropriate date on which the Property ought to be valued. If the parties cannot agree on the appropriate date, then the valuer is to be instructed to value the Property on both the date the plaintiffs consider appropriate and the date that the defendants consider appropriate and include submissions on this question in their memoranda.
[50] Once the valuation is received, I include directions for the plaintiffs to file a further memorandum, together with affidavits in support, setting out the final damages claimed on either an expectation or reliance basis.
[51] I have allowed six weeks for the plaintiffs’ memorandum and further evidence following the date by which a valuer is required to be appointed so that further orders can be made prior to Christmas (if possible) or early in the New Year. If the valuation
is not able to be obtained within the time available, a joint memorandum may be filed seeking an extension of time.
[52] Following the filing of the plaintiff’s memorandum, the defendants will then have a right to respond and to file affidavits in support, with the plaintiffs having a right to file and serve a memorandum and evidence in reply.
[53] If instead reliance losses are claimed then the parties are to propose alternative orders, preferably by joint memorandum.
[54] Whether summary judgment can be granted on quantum will then be determined on the papers or, if necessary, a short hearing will be allocated.
Result
[55]Summary judgment on liability is granted.
[56] The following steps are ordered by way of interim judgment pursuant to r 11.2(d) of the High Court Rules to determine whether summary judgment on quantum is available:
(a)The parties are to jointly instruct a valuer by 20 October 2023 to assess the value of the Property on the date agreed (or, if not, on the separate dates each party considers appropriate) to allow the difference between that value and the amount agreed to be paid under the Agreement to be calculated with costs to be shared equally in the interim.
(b)If a valuer is not able to be agreed, the parties are jointly to request the appointment of an independent valuer by the President of the New Zealand Institute of Valuers by 24 October 2023.
(c)The plaintiffs are to file and serve a memorandum setting out the amounts that the plaintiffs seek by way of damages by 17 November 2023 together with affidavits in support (including a copy of the
valuer’s report and more detailed evidence as to the reasonable interest rate to apply).
(d)The defendants are to file a memorandum and any affidavits in response by 1 December 2023.
(e)The plaintiffs are to file any memorandum and affidavits strictly in reply by 8 December 2023.
(f)Whether summary judgment on quantum can be granted will then be determined on the papers (or a hearing allocated if necessary).
[57]Costs are reserved.
Associate Judge Sussock
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