Narsha Farms Limited v Hayward

[2012] NZHC 95

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-129 [2012] NZHC 95

BETWEEN  NARSHA FARMS LIMITED Plaintiff

ANDJOHN CLIVE HAYWARD AND JESSIE MARY HAYWARD

Defendants

ANDHAURAKI DISTRICT COUNCIL Third Party

Hearing:         8 February 2012

Counsel:         V Whitfield and N Edwards for plaintiff

T Rainey and D Cowan for defendants

Judgment:      8 February 2012

(ORAL) JUDGMENT OF LANG J

[on application by defendants for summary judgment]

NARSHA FARMS LIMITED V JOHN CLIVE HAYWARD AND JESSIE MARY HAYWARD HC HAM CIV-

2011-419-129 [8 February 2012]

[1]      The plaintiff in this proceeding is the owner of a farm property situated near Ngatea.  Mr and Mrs Laurich are the shareholders and directors of the plaintiff.  Up until February 2008, they leased the property from the then owners, Mr and Mrs Hayward.  In or about 2007, Mr and Mrs Hayward decided that they would sell the property. They then offered to sell it to Mr and Mrs Hayward.

[2]      Negotiations ensued and the parties ultimately signed an agreement for sale and purchase in the standard ADLS 8th  edition form.  The agreement had a number of additional specific conditions.   These included a clause which has formed the basis of much of the argument in relation to the present application.  This was Clause

17.3, which provides:

The Vendor warrants and undertakes to satisfy the Council’s requirements in regard to the septic tank for the dwelling house on CT SA34C/382 and obtain a code compliance certificate for that dwelling house within three months of the settlement date.

[3]      This  clause  was  necessary  because  of  the  fact  that  the  dwelling  on  the property did not have a code compliance certificate.  It had been built between 2001 and 2002, and accordingly some time had passed since the dwelling was constructed. So far as Mr and Mrs Hayward were concerned, the only matter preventing them from obtaining a code compliance certificate was the fact that the dwelling did not have a septic tank that complied with the local authority’s requirements.

[4]      As can be seen, clause 17.3 required Mr and Mrs Hayward to satisfy the Council’s requirements in relation to the septic tank within three months of the date of settlement.  It then required them to obtain a code compliance certificate for the dwelling.

[5]      The sale of the property was completed in or about February 2008.   For a variety of reasons, the septic tank was not installed within the three month period contemplated by the agreement.   It was not, in fact, completed until February or March 2009.  At that point Mr and Mrs Laurich arranged for the Council to inspect the property with a view to issuing a code of compliance certificate.  At that point they became aware, apparently for the first time, that the dwelling had an issue with subsidence.  As a result, the Council declined to issue a code compliance certificate.

It now appears that substantial expenditure will be required, perhaps in the order of

$200-$300,000, before a code compliance certificate will be able to be obtained in respect of the dwelling.

[6]      In  this  proceeding  the  plaintiff  seeks  to  recover  the  anticipated  costs  of making the dwelling compliant.  Mr and Mrs Hayward resist the claim on the basis that they did not provide a warranty in respect of all building work necessary to make the dwelling compliant.  They say that their obligations extended only to the installation of the septic tank to the required standard.  As a result, they contend that they are not liable for any costs that Mr and Mrs Laurich may incur in bringing the dwelling to a state in which it can obtain a code compliance certificate.

[7]      Mr and Mrs Hayward have now applied for leave to apply for summary judgment.   They require leave because they did not apply for summary judgment within the prescribed timeframe.  Indeed, the proceeding has now been on foot since February  2011.     The  application  for  summary  judgment  was  only  filed  on

10 November 2011.  The explanation for the delay is that Mr and Mrs Hayward have only recently come into possession of material, as a result of the discovery process, that enables them to bring the application for summary judgment.  They say that, as soon as they received this material, they applied for leave.   For that reason they contend that no issue of delay arises.

[8]      I propose to say something about the issue of delay at this stage because, in my view, the explanation tendered by Mr and  Mrs Hayward is not particularly convincing.   As will be apparent, their argument is that the plain meaning of the clause, interpreted in light of the objectively ascertained factual matrix in which the parties came to conclude their contract, is such that it did not impose an obligation on them, however, to meet the costs of making the dwelling compliant.   That argument was open to them, however, from the outset.  The document upon which they now rely is a file note produced by Mr and Mrs Laurich’s solicitor two days before the parties signed the contract. The file note is in the following terms:

One of the houses they are purchasing does not have CCC.  Needs work on the septic tank.  Haywards built it so covered by warranty.

H wants to sell as is where is.  Gavin wants him to fix.

[9]      Counsel  for Mr  and  Mrs Hayward  contends  that  this  additional  material assists his clients’ case to the point where an application for summary judgment is now viable, when it was not before his clients obtained that document.

[10]     I do not accept that that is the case, because the argument for Mr and Mrs Hayward has always been exactly the same.  I do not consider that their application for summary judgment is strengthened to any material degree by the discovery of the file note.  For that reason, I consider that there has been delay and that this counts against the granting of leave.  Having said that, the merits of the application must be examined because, in an appropriate case, the existence of delay cannot on its own be permitted to allow an unarguable claim to remain on foot.

[11]     At the heart of the application for summary judgment is the submission that, taken in context and according to its plain meaning, clause 17.3 does not have the effect for which the plaintiff contends.  Counsel are broadly in agreement regarding the manner in which the Court must approach the interpretation of the document. This  is  now  well-established  through  Investors  Compensation  Scheme  v  West

Bromwich Building Society[1] and the recent decision of the Supreme Court in Vector

Gas Ltd v Bay of Plenty Energy Ltd.[2]

[1] Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL, 28; [1998] 1 All

ER 98; [1998] 1 WLR 896, 19 June 1997.

[2] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5.

[12]     Counsel for the plaintiff initially submitted that the Court could only have regard  to   the  factual   matrix  surrounding  the  formation   of  the   contract   in circumstances where the terms of the contract were ambiguous.   In Vector Gas, however, three members of the Supreme Court made it clear that there was no such

restriction.[3]   As the headnote records in that case, reference could be made to pre-

contractual negotiations in order to establish the commercial context, the market in which the parties were operating and the subject matter of the contract if it showed objectively what the parties intended their words to convey.

[3] Blanchard, Tipping & McGrath JJ at [4], [13], [14], [23], [27], [62] and [151].

[13]     In the present case, several background facts are immediately apparent and relevant to the interpretation of the contract.   The first is that both parties were

clearly aware that no code compliance certificate had been issued in respect of the dwelling.  This meant that the Council had not finally inspected the dwelling, and that as owners of the property the purchasers would not enjoy the comfort that a code of compliance certificate would provide.

[14]     Second, both parties knew that the construction of the dwelling had been completed some years earlier.   As a result, the issue of whether or not a code of compliance certificate could  be obtained  might  well  depend  on  events  that  had occurred since the construction of the dwelling had been completed.

[15]     Third,  although  the  parties  appear  to  have  been  of  the  belief  that  the completion of the septic tank was the only matter requiring attention, neither of them had taken any steps to ensure that that was in fact the case.  There was therefore no firm factual basis for either party to believe that the septic tank was the only issue that might require attention.

[16]     Faced with those circumstances, two competing scenarios arise.  The first is that a reasonable person in the position of the vendor might take the view that it should not be required to fix any problems that might be found to exist.  In order to protect itself, the vendor would ordinarily include terms in the contract to make it clear that it was not responsible for any work over and above that required in relation to the septic tank.

[17]     The other is that a reasonable person in the position of Mr and Mrs Laurich might not be prepared to take the risk of meeting the costs of any defects that might be discovered.   For that reason they would include within the contract a clause placing responsibility for obtaining the code of compliance certificate and any costs associated with that process firmly with the vendor.

[18]     On the material presently available, I have reached the conclusion that it is arguable that the parties intended the clause to render Mr and Mrs Hayward responsible for meeting the costs of any remedial work necessary to obtain the code compliance certificate.   The requirement to obtain the certificate was a discrete requirement of clause 17.3.   Although it is linked to the completion of the work

relating to the septic tank, it can be argued that it stands apart from the requirement relating to the septic tank in the clause.  For that reason my initial impression was that the interpretation for which the plaintiff contends is correct.

[19]     During reply submissions for the defendants, however, I have been persuaded to the view that it is premature at this stage to reach a final conclusion regarding the interpretation to be given to the latter part of clause 17.3.  Counsel reminded me that Mr and Mrs Laurich had lived in the dwelling for a number of years before the sale of the property occurred.  Nothing appears to have happened during this period to raise any suspicion in their minds that the dwelling might be defective in any way. That is an aspect of the factual matrix that might well be relevant to the manner in which the clause must be interpreted.

[20]     This has brought me to a position where I do not consider that it would be in the interests of either party to reach a final conclusion regarding the interpretation of the clause on the basis of the facts adduced in relation to the application for summary judgment.  I consider that that issue should properly be the subject of determination following trial when, no doubt, additional relevant facts regarding the factual background to the formation of the contract may well emerge.

[21]     I stress that I have not reached my decision based on the professed intentions of the parties.  The subjective intentions of the parties are, of course, irrelevant when interpreting a clause such as clause 17.3.  The factual background to the contract is to be objectively assessed.

Result

[22]     I have therefore concluded that the application for summary judgment cannot succeed and that the matter should proceed to trial.  The application is accordingly dismissed.

Costs

[23]     I am conscious, however, that the defendants may succeed at trial on the very argument that has failed today.  For that reason, I consider that costs in respect of the present application should be reserved at this stage and be costs in the cause.

Pre trial directions

[24]     Pre-trial directions have already been given in this matter, but they now require amendment.   I make amended directions by consent in terms of the joint memorandum of counsel dated 10 February 2012.

Trial date

[25]     The trial date of 7 May 2012 is confirmed.

Pre-trial conference

[26]     The Registrar is to arrange a pre-trial telephone conference, if possible before the trial Judge, after 9 March 2012.

Lang J

Solicitors:

Whitfield & Co, Cambridge
Rainey Law, Auckland

Heaney & Co, Auckland