Myers Trustee Company (2006) Limited v Tio Bay Limited HC Auckland CIV 2008-488-125

[2008] NZHC 2605

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-488-125

BETWEEN  MYERS TRUSTEE COMPANY (2006) LIMITED

Plaintiff

ANDTIO BAY LIMITED First Defendant

ANDBARFOOT & THOMPSON LIMITED Second Defendant

Hearing:         12 August 2008

Appearances: D Parker/J R Sumner for Plaintiff

C T Patterson for First Defendant

Judgment:      30 September 2008 at 10 am

JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on 30 September 2008 at 10 am, Pursuant to Rule 540(4) of the High Court Rules

Registrar/Deputy Registrar

Date……

Solicitors:           Ford Sumner, PO Box 25 299, Wellington

Jones Young, PO box 189 Shortland St, Auckland

MYERS TRUSTEE COMPANY (2006) LIMITED V TIO BAY LIMITED AND ANOR HC AK CIV 2008-488-

125  30 September 2008

[1]      The plaintiff applies by way of summary judgment for the return of a deposit of $260,000 plus interest paid to the first defendant under an agreement for sale and purchase of a property at Opua. The deposit was held by the second defendant. The second defendant has paid the deposit into Court together with interest that has accrued thereon. Consequently, the plaintiff has discontinued its claim against the second defendant.

Background Facts

[2]      On 7 February 2007 the plaintiff as purchaser entered into an agreement in writing with the defendant as vendor for the purchase of the defendant’s property at

745 Waikino Road, Opua. The purchase price was $2,600,000. The agreement provided for payment of a deposit of $260,000. That sum was duly paid by the plaintiff on 28 February 2007.

[3]      As   Overseas   Investment   Office   (OIO)   consent   was   required   to   this transaction, clause 8.3(2) of the agreement provided:

If the purchaser has deleted no on the front page of this agreement under the heading “OIO consent required” this agreement is conditional upon  that consent being obtained on or before the Land Act – OIO date shown on the front page of this agreement the purchaser being responsible for payment of the application fee.

The date shown on the front page of the agreement for the consent of the OIO was

31 July 2007.

[4]      Clause 8.7(5) contains the following provision:

Upon avoidance of this agreement the purchaser shall be entitled to the return of the deposit and any other monies paid by the purchaser and neither party shall have any right or claim against the other.

[5]      Clause 2.4 of the agreement provides:

Where this agreement is entered into subject to a condition expressed in this agreement. The person to whom the deposit is paid shall hold it as a stakeholder until this agreement becomes unconditional or is avoided for non-fulfilment of any condition under subclause 8.7(5).

[6]      In February 2007 the plaintiff instructed Ford Sumner Lawyers of Wellington to prepare the application for OIO consent to this transaction. On 20 February 2007

Mr Mark Ford of Ford Sumner supplied a base application template. He claimed to have followed published OIO guidelines.

[7]      On receiving further information Mr Ford became concerned that the land being sold was likely to include the foreshore and therefore would be regarded as special land subject to the Overseas Investment Amendment Regulations No 2 2006. The effect of that regulation is that, if the land being sold to the plaintiff included special land, then such land had to be offered to the Crown. Mr Ford was concerned that if the Crown decided to purchase that land, the plaintiff may wish to consider cancelling the contract because the defendant would not be able to sell all the land referred to in the contract to the plaintiff.

[8]      From April 2007 until June 2007 inquiries were carried out by the parties to determine whether special land as defined by the Overseas  Investment Act  and Regulations was included in the property being sold by the defendant to the plaintiff. This issue was eventually resolved in a letter from the Honourable Doctor Michael Cullen who was the minister responsible to the solicitors for the defendant and who advised that the land did not include any special land. Consequently, the defendant was not required to offer any part of the land to the Crown before proceeding with the sale to the plaintiff who was an overseas purchaser.

[9]      In July 2007 the parties agreed to extend the date for satisfaction of the condition relating to OIO approval to 15 December 2007 with settlement being extended  to  15  January 2008.  On  6  September  2007  the  plaintiff  submitted  an application to the OIO for that office’s consent. The OIO advise on their website that applications for consent would be determined within twelve to fourteen weeks.

[10]     On 3 December 2007 the OIO advised that a decision would not be made by

15 December 2007. In that communication the OIO advised as follows:

Having reviewed the information provided in support of this application, the Overseas Investment Office advises that we consider this to be a poor application and that the factors have been very badly covered.

The communication included a request for further information and advised that Ministers whose consents were required would be away from 21 December 2007 until the end of January 2008.

[11]     On 10 December 2007 the plaintiff’s solicitors advised the defendant that as OIO consent could not be obtained within the contractual timeframe, the agreement was at an end in accordance with 1.2 and required the return of the deposit. As the defendant refuses to authorise the return of the deposit, the plaintiff brings these proceedings.

Case for the Plaintiff

[12]     The plaintiff claims it has done all it reasonably could to obtain OIO consent within the time specified in the agreement as extended by the parties. It is therefore submitted that as the defendant has no arguable defence, the plaintiff is entitled to judgment for the return of the deposit.

Case for the Defendant

[13]     The  defendant  claims  to  have  an  arguable defence  on  the  basis  that  the plaintiff has unlawfully cancelled the contract and thereby forfeited the deposit. The defendant claims the plaintiff did not take all reasonable steps to obtain OIO consent. As  this  involves  resolving  a  dispute  of  facts,  the  Court  will  require  cross- examination of witnesses including the solicitor for the plaintiff, discovery of documents including discovery of documents from a third party namely the OIO and evidence  from  the  OIO  as  to  the  reasons  for  concluding  that  the  application submitted to the OIO was a “poor application”.

Legal Principles

[14]     Somers J in Pemberton v Chappell [1987] 1 NZLR 1 summarised the object of the summary judgment procedure in the following way:

[2] The general object of the rules about summary judgments is clear. It is to enable a plaintiff to obtain judgment where there is really no defence to the claim and so put an end to the spectacle of a worthless defence being raised and pursued for the purposes of delay.

However, as emphasised in Jones v Attorney General [2004] 1 NZLR 433 a decision of the Privy Council, the summary judgment procedure will rarely if ever be appropriate where the outcome of the proceedings may depend on disputed issues of fact. My inquiry therefore must be as to whether the agreed facts provide an arguable defence that the plaintiff did not take reasonable steps to obtain OIO consent.

[15]     In United Realty World Ltd v Ordeal Enterprises Ltd (1992) 2 NZ ConvC

191,288, the appellant appealed from a judgment ordering the appellant to refund a deposit of $50,000 paid by the respondent for the purchase of a rural property in Northland. The agreement was subject to the granting of consent under the Land Settlement Promotion and Land Acquisition Act 1952 by a specified date. As such consent was not obtained by that date, the respondent elected to avoid the contract and thereby claimed to be entitled to a refund of the $50,000 deposit.

[16]     The principle ground of defence was that the respondent had not taken all reasonable steps to satisfy the condition as to consent under the Land Settlement Promotion and Acquisition Act 1952 and could not therefore take advantage of that condition. In the decision of the Court of Appeal, delivered by McKay J, the relevant principle was summarised at 191, 291as follows:

the relevant principle is well established, namely that a party to a contract is not entitled to rely upon the failure of a condition as bringing the contract to an  end  where  he  has  himself  brought  about  that  failure:  New  Zealand Shipping Company v Societe Des Ateliers Et Chantiers De France [1919] AC 1 in particular Lord Finlay LC at 8 and Lord Shaw of Dunfermline at 12.

[17]     Thus, in the circumstances of this case, I must consider whether the plaintiff has established that there is no arguable defence in that there is no evidence that the plaintiff brought about the failure of the condition in the contract as to the consent of the OIO by 20 December 2007.

Discussion

[18]     In support of his submission that there was an arguable defence based on the claim that the plaintiff had by its conduct brought  the  failure  of  the  condition, counsel for the defendant raised four steps which it is claimed the plaintiff failed to take. Those steps are:

a)        The plaintiff failed to submit its application prior to 6 September

2007.

b)The plaintiff failed to submit an application that had a reasonable prospect of being assessed without the need for revision or additional information.

c)       The plaintiff failed to provide the correct documentation and missing information that was requested by the OIC.

d)The plaintiff failed to notify the OIC of the condition date and/or request urgency.

[19]     It is therefore submitted that failure to take these steps justifies a conclusion that there is a factual dispute as to whether the plaintiff has by its conduct brought about the failure of the condition which can only be resolved in a defended hearing where the Court will have the benefit of cross examination and possibly discovery of documents in the possession of the OIO relating to the plaintiff’s application for OIO approval.

Delay in filing applications

[20]     In United Realty World Ltd v Ordeal Enterprises Ltd, the purchaser delayed in bringing the application for consent. In that case the sale was made on 9 May

1990 and required the appropriate consent by 9 July 1990. The application, when originally lodged, required amendment and was re-lodged on 13 June 1990. The

Court concluded that evidence of such delay did not establish an arguable case that the purchaser had by its conduct brought about the failure of the condition.

[21]     In the present case, the delay up to the end of June 2007 was caused by uncertainty as to whether any of the land included in the sale the special land which had to be offered to the Crown. If the special land which was part of the land being sold to the plaintiff was not to be included in the sale because the Crown had exercised its right to acquire that land, the plaintiff may have been entitled to decide not to proceed. Mr Mark Ford, the solicitor for the plaintiff, had been instructed to prepare and lodge the plaintiff’s application for OIO approval. He concluded that there  was  little  point  in  proceeding  with  the  preparation  and  lodging  of  an application for OIO  approval until the situation as to whether special  land  was included with the land being sold had been resolved.

[22]     As it happened, the solicitors for the defendants were also unaware as to whether special land was being included in the property being sold to the plaintiff. When the status of that land was established and it was clear no special land was included in the property being sold to the plaintiff, the parties agreed on an extension of time to 15 December 2007 for OIO approval.

[23]     Consequently, I conclude that there is nothing in the evidence to justify a conclusion that the defendant has an arguable case that the plaintiff was using the delay to the end of June 2007 as an excuse to cancel the contract. Indeed the fact the plaintiff negotiated an extension of time until 15 December 2007 to obtain OIO consent, and did not wait until 31 July 2007 and thereby cancel the contract is compelling evidence that the plaintiff was doing everything reasonably possible at that time to obtain the consent.

[24]     In his affidavit Mr Mark Ford explains the work involved in preparing the application for OIO consent. Mr Ford has had considerable experience in advising overseas investors and in obtaining consents from the New Zealand Government for investors to invest in New Zealand. The letter from the Minister advising that the land being sold did not include special land contained the following paragraph:

It will be necessary for an overseas purchaser, unless that purchaser intends to live indefinitely in New Zealand, to show that the investment will or is likely  to  benefit  New  Zealand  (or  any  part  of  it  or  group  of  New Zealanders). One of the 19 factors that the relevant Ministers must consider in determining whether benefits will or is likely to eventuate, is whether there are or will be adequate mechanisms in place for providing, protecting or improving walking access over the relevant land or a relevant part of that land by the public or any section of the public. The relevant Ministers must consider whether the walking access factor is relevant to the investment and the relative importance of that walking access factor. This assessment is made on a case by case basis and is assessed in conjunction with the remaining 18 factors. It would be premature of me, as one of the decision- makers, to comment on the relevance or importance of the walking access factor to your property, particularly as no application for consent has yet been provided to me.

[25]     Mr Ford was of the view that the application for OIO approval would need to address the issue of walking access. Furthermore, based on his experience, the information contained in the application had to remain accurate and pertinent.

[26]     The application was filed on 6 September 2007. It consisted of 174 pages which included 26 exhibits.

[27]     Mr Ford advises that based on information obtained from the OIO, as they were under-staffed, fourteen weeks was required to process a complete application. Consequently, he calculated that there was sufficient time for the OIO to process the application he was lodging on behalf of the plaintiff by 15 December 2007.

[28]     Having regard to the fact that the plaintiff’s director did not reside in New Zealand, the complications arising from the need to consider walking access, the need to collate information to compile an application consisting of 174 pages and the information Mr Ford had obtained to the effect that an application lodged in September would be processed prior to 15 December 2007, there certainly could not be any basis for concluding that the delays in filing the application were motivated by a desire to avoid obtaining OIO consent. I am satisfied that Mr Ford has provided a proper explanation for the delay. I am also satisfied that both Mr Ford and the plaintiff believed that the application would be processed within the required time frame.

The Plaintiff failed to submit an application that had a reasonable prospect of being assessed without the need for revision or additional information

[29]     As I have already pointed out, this application was very comprehensive. A fee of $8,700 was paid when it was filed. Mr Ford says that according to the OIO website, questions would generally be asked within ten working days of an application being received. No such questions were made by the OIO within that timeframe. On 30 October 2007 Mr Ford instructed Clare Potter, a solicitor with his firm, to inquire from the OIO as to the status of the application. She says she was advised the application was with an analyst “in processing” and that her firm would be contacted if anything was required.

[30]     On 29 November 2007 Mr Ford again instructed Miss Clare Potter to obtain information from the OIO as to progress. Advice from the OIO at that time was that the application was being processed. The OIO also advised that they were extremely busy and under-staffed and if any further information was required an email would have to be sent. Following that inquiry Miss Potter emailed the OIO advising that the agreement for sale and purchase was conditional on consent by 15 December 2007. The email also advised that extensions for consent had been agreed upon and that they did not anticipate further extensions would be available.

[31]     Consequently, there can be no basis for arguing that the plaintiff had failed to submit an application that had a reasonable prospect of being assessed without the need for revision or additional information. Furthermore, the plaintiff in its email of

29 November 2007 had diplomatically reminded the OIO of the date agreed upon by the parties for the obtaining of the OIO consent. Therefore it can not be said that the plaintiff failed to notify the OIO of the condition date.

Failure to provide correct documentation and if missing information that was requested by the OIO.

[32]     According to Mr Ford, he was astounded at the email from the OIO of 3

December 2007 advising that the application was “a poor application” and that the factors had been very badly covered. That email listed the reasons for the OIO’s

conclusion. Mr Ford in his very comprehensive affidavit has addressed each one of those reasons which he considers were all unjustified.

[33]     Furthermore, the OIO had made it clear in its email of 3 December 2007 that the date for consent being 15 December 2007 could not be met. In this respect, the email concludes:

We certainly will not be able to meet your indicated timeframe. For your information Ministers will be away from 21 December 2007 to the end of January 2008.

Conclusion

[34]     The test to be applied when considering whether the plaintiff has proceeded with due diligence and without unnecessarily delay to satisfy the condition in the agreement was summarised by John Hanson J in Ansley v Prospectus Nominees Unlimited CP5/02 Dunedin HC 20 December 2002 at paragraph 50 as follows:

Based on the above authorities I conclude as follows:

(a)  The matter is not to be viewed in hindsight.

(b) The test is an objective one in determining whether or not a party has used reasonable endeavours to satisfy a condition. The party must apply itself conscientiously to the task of securing approval to a level that would be expected if the party was prudently protecting its own interests.

(c)  The party should not be held to have failed to satisfy a condition requiring it to use its best endeavours if the failure was not material to the lack of success in satisfying those conditions.

[35]     Applying  that  test  to  the  circumstances  in  this  case,  I  conclude  on  the evidence I have reviewed:

i)That Mr Ford had every reason to expect that the OIO would process an application for consent filed on 6 September 2007 by 15 December 2007 being the extended date agreed upon by the parties for such consent.

ii)That Mr Ford acted conscientiously on behalf of the plaintiff and used reasonable efforts to satisfy that condition. Those efforts included all the work involved in preparing and lodging an application of 174 pages which included 26 exhibits.

iii)That when he followed up the filing of  the  application  by enquiries of the OIO on 30 October 2007 and 29 November

2007, he was never informed that the application he filed was a poor application and that factors in the application had been badly covered.

Even if the application was a poorly prepared and incomplete application which I by no means accept, then it was the failure of the OIO to process the application within a reasonable time and not the failure of the plaintiff that was material to the lack of success in satisfying the condition as to OIO consent by 15 December 2007. Had the OIO complied with the timetable it published on its website, it would have brought to the attention of Mr Ford any questions concerning the application within ten days of filing which would have given the plaintiff sufficient time to answer those questions so that the application could be considered and dealt with by the OIO prior to 15 December 2007.

[36]     In the present case I can see no basis upon which the defendant can maintain an arguable case that the plaintiff did not use its best endeavours to obtain consent from the OIO. The evidence from the plaintiff’s solicitor is that the solicitor did everything he believed he reasonably could do to obtain the consent.

[37]     In the circumstances therefore the plaintiff is entitled to judgment for the amount claimed of $260,000 with interest thereon at 7.5% per annum.

Costs

[38]     The plaintiff sought costs on a solicitor/client basis. As pointed out in Hedley v Kiwi Co-operative Dairies Limited [2002] 16 PRNZ 694, there must be truly exceptional circumstances before indemnity costs can be awarded. I do not consider the threshold justifying the indemnity costs has been met in the circumstances of this case.  Consequently,  the  plaintiff  will  be  entitled  to  costs  on  a  2B  basis  with

disbursements as fixed by the registrar.

Associate Judge Robinson