New Generation Homes Limited v SSD Naidu Investment Limited HC Auckland CIV 2010-404-52

[2010] NZHC 1513

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-000052

BETWEEN  NEW GENERATION HOMES LIMITED Plaintiff

ANDSSSD NAIDU INVESTMENT LIMITED Defendant

Hearing:         4 June 2010

Appearances: P Moodley for the Plaintiff

M Colthart for the Defendant

Judgment:      8 June 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

08.06.10 at 3.30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

P Moodley, Brookfields, Manukau –[email protected]

M Colthart, Barrister, Auckland – [email protected]

NEW GENERATION HOMES LIMITED V SSSD NAIDU INVESTMENT LIMITED HC AK CIV 2010-404-

000052  8 June 2010

[1]     The plaintiff, New Generation Homes Limited (NGH) sues for specific performance and in the alternative an enquiry into damages for the default of the defendant, SSSD Naidu Investment Limited (Naidu) under an agreement for sale and purchase.  Naidu’s defence is twofold:

1.The  agreement  was  conditional  upon  its  sale  of  another property; and

2.        It is unable to settle.

Background

[2]      The agreement for sale and purchase (the agreement) is dated 21 August

2007.  The purchase price was $235,000.  The standard conditions of sale required the sum of 5 per cent to be paid on the execution of the agreement and a further 5 per cent on the issue of a code compliance certificate.  By a handwritten addition to the agreement there was added, by way of variation, the following provision:

14.This agreement is conditional upon purchaser contributing $5,000 ... as an initial deposit.   Balance of the deposit the sum of $6,750... payable to DH Group Limited trust account in regard to the sale of the purchaser’s property situated at 7 Viola Pl, Mangere East, Manukau to [Naidu] becoming unconditional.   The purchaser is to notify the vendor’s solicitor or vendor by 5:00pm 28 September

2007 that this condition has been satisfied.

(the clause)

[3]      This case concerns the interpretation of the clause.  Naidu’s case is that the clause provided that the agreement was conditional upon the sale of Naidu’s property at 7 Viola Place becoming unconditional and Naidu notifying the plaintiff of same by 28 September 2007.

[4]      For Naidu it is submitted that condition was never satisfied nor waived by it. Further  by its  solicitor  it  has  given  notice  voiding  the  agreement  therefore  the agreement is at an end.

[5]      If that submission fails and the agreement remains on foot then Naidu says it is unable to settle and performance is therefore impossible.

Conditional agreement

[6]      Naidu contends that the clause, read as a whole, can be interpreted as making the entire agreement conditional upon the sale of 7 Viola Place.  Alternatively, it is submitted for Naidu that it is arguable the agreement could be rectified to conform to the parties’ common intention that the agreement was to be conditional upon the sale of 7 Viola Place.

[7]      In his affidavit on behalf of Naidu, Mr Naidu deposed that the clause was written  into  the agreement  by the vendor’s  agent.    He  said  the  agreement  was supposed to reflect that the purchase would only be confirmed if the sale of 7 Viola Place went unconditional.  It never did go unconditional and Naidu still owns that property.

[8]      On 17 March 2010 (the same day as it filed an opposition to NGH’s summary judgment application) Naidu’s solicitors gave notice voiding the agreement.

[9]      Mr Naidu says the clause was drawn by the vendor’s real estate agent Mr Lal of Ray White Real Estate, Manukau.  He said Ray White is owned by Mr Don Ha who is the sole director and shareholder of NGH.

[10]     Mr Naidu says he advised Mr Lal the agreement had to be conditional upon the sale of 7 Viola Place.  His understanding of the clause then was and is now that the agreement was conditional on the sale of that property.  At about that time he listed 7 Viola Place with Mr Lal of Ray White.  He was hopeful would sell quickly and that he would be able to confirm satisfaction of the clause within time.

[11]     Despite active marketing no offers at all were made on 7 Viola Place over a period of three months.  After that time he withdrew it from the market for sale.

[12]     Mr Lal now works as a real estate sales consultant for another company.  He deposes  that  whilst  working  for  Ray  White  he  approached  Mr  Naidu  about

purchasing the property in question.  He knew that Naidu owned 7 Viola Place.  He deposes that Mr Naidu expressed an interest in making a purchase.  He recalls being told by Mr Naidu that 7 Viola Place would have to sell first.  After some discussion Mr Naidu “agreed to submit an offer to purchase lot 9 in the subdivision, conditional upon a sale of 7 Viola Place being achieved within six weeks”.

[13]     Mr Lal then drew up the agreement.  The clause is in his handwriting.  He deposes the clause was  supposed to record the condition that the purchase was conditional upon the sale of 7 Viola Place by 28 September 2007.  He did not copy the clause from a book of standard clauses, but attempted to word the clause as accurately as  possible  to  reflect  Mr  Naidu’s  offer.  After  drafting  the  clause  he showed it to his manager, Mr Culley.  Mr Culley inserted a date for satisfaction of the condition into the clause.   The agreement was signed by Mr Ha on behalf of NGH.   Mr Lal said he was careful at that time to point out to Mr Ha that the agreement was conditional on the purchaser selling 7 Viola Place.  Mr Lal says Mr Ha was happy to sign the agreement on that basis.

[14]     Although subsequently he marketed that property for sale no offers were received and at that time the property market “began to undergo a dramatic downturn”.

[15]     In an affidavit in reply Mr Culley says that upon his review of the agreement it is his view the clause refers to the payment of the deposit.  He deposes the clause does not say that the entire agreement was to be conditional upon the sale of 7 Viola Place.  Commonly a clause would say as much if it was meant to record the entire agreement was conditional upon the sale of another property.

[16]     Mr Ha’s evidence agrees with Mr Culley’s view of the position.  Mr Ha notes that the first time Naidu raised the issue of the agreement being conditional on the sale of 7 Viola Place was in its solicitor’s letter of 17 March 2010.  Before then there had been “numerous communication exchanges previously between the parties and no reference was previously made by the defendant or its solicitors regarding this condition”.  He annexed copies of letters between the parties to show the claim of a

conditional contract had not been raised.  Rather in those on Naidu’s behalf it was explained there was an inability to complete settlement.

[17]     Mr Ha is of the view the clause deals with the circumstances of payment of the deposit and were it otherwise the clause would have recorded that.  He denies that Mr Lal pointed out to him that the agreement was conditional upon the sale of 7

Viola Place.

Impossibility of performance

[18]     Mr Naidu deposes Naidu owns or has a share in three residential properties, all of which are heavily mortgaged.  Mr Naidu and his wife and four children live at

7 Viola Place.   He deposes it has a current market value of between $280,000 -

$290,000 and a mortgage if favour of ASB of approximately $92,000.  The mortgage payments of $1,028 per month are met from his wages.

[19]     Naidu also owns a half share in a rental property nearby.  The other half share is owned by Mr Naidu’s cousin.   The property was purchased three years ago for

$257,000.  The entire purchase price was borrowed from the ASB.  The total amount owing under the mortgage is now approximately $280,000.  The property is rented out for $350.00 per week and rental payments do not cover the mortgage.  Mr Naidu provides top up payments of approximately $100 per month.

[20]     Naidu also owns a property at 114A Grey Avenue.  It is a rental property and was purchased in 2007 for approximately $258,000.   A sum of $270,000 was borrowed to finance the purchase and to do some renovation work prior to it being rented.  The mortgage presently owes $281,000.  The monthly payments are $1,700. The property is rented at $365.00 per week.   There is a shortfall of $200 – 300 monthly which Mr Naidu meets from his wages.

[21]     Mr Naidu is employed as a machine operator.   He earns $3300 per month after tax.   He is the sole income earner for his family.   Naidu is currently $5,000 behind on mortgage payments over the residential property and Grey Avenue.

[22]     Mr Naidu has applied to the ASB and to a mortgage broker for finance to fund settlement of the agreement.  He has provided a copy of a letter from the ASB dated 18 March 2010 confirming that further finance is unavailable to him at this time.  A similar letter is provided from the mortgage broker.

[23]     In his affidavit in response Mr Ha notes, despite the absence of independent verification, that there is equity of approximately $190,000 - $200,000 in 7 Viola Place.  He deposes that the Grey Avenue property has a rating valuation of $290,000. He said if that was sold there would be surplus proceeds to apply to the purchase of the property.

[24]     In  addition  Mr  Ha  provided  copies  of  certificates  of  title  to  three  other properties which Mr Naidu independently or with another has a registered interest.

Considerations

[25]     NGH must show on the balance of probabilities that Naidu has no defence to its summary judgment claim for specific performance.

[26]     This Court will not attempt to resolve genuine conflicts of evidence.   The Court is not bound to accept as raising an issue of fact a claim or statement which is inconsistent with undisputed contemporary documents.

[27]     There is no issue but that the parties entered into an agreement which bound them both.   In issue is the interpretation of the clause which by its scope defined Naidu’s obligations with respect to payment of the deposit.  NGH argues that if that part of the clause which required the payment of the balance of the deposit was intended to enable Naidu to withdraw from the contract then as much would have been clear.  Besides the clause was far from the kind of clause commonly used.  Mr Naidu and Mr Lal have both given evidence of what they say was intended by what Mr Lal hand wrote onto the agreement.  Mr Lal deposes that he informed Mr Ha of the purpose of that clause. Mr Ha disputes that.

[28]     In   submissions   before   me   Mr   Moodley   focuses   upon   principles   of interpretation of agreements.   Mr Moodley relies upon Boat Park Limited v Hutchinson [1] wherein the Court noted, as well:

[1] [1999] 2 NZLR 74

(a)      The meaning to be ascertained is that which the document would have conveyed to a reasonable person having all of the background knowledge which would reasonably have been available to the parties and the situation in which they were in at the time of the contract.

(b)The meaning of the document was what the parties using the words against the relevant background would reasonably have understood them to mean.

[29]     The Court of Appeal in Potter v Potter [2]  found there is no justification for invoking rules to resolve ambiguities in order to create an ambiguity which, by reference to ordinary words is not really there.   The Court also said there are few exceptions to the rule that the subjective intentions of the parties are irrelevant.

[2] [2003] 3 NZLR 145

[30]     Mr Moodley urges me to ascertain the natural and ordinary meaning of the relevant words in the context of the agreement as a whole.  Therefore he submits I should interpret the clause in the way it was intended by the agreement, namely to prescribe obligations for the payment of the deposit.   Mr Moodley submits the natural and ordinary construction of the clause is that it deals with the payment of the deposit and nothing more.  The clause is preceded by the number 14.  Therefore it is to be read pursuant to the typewritten provisions in the agreement wherein clause number 14 is headed ‘Deposit’.  Mr Moodley submits that clearly the clause is to be read as a variation of the provisions contained in the typewritten conditions of the agreement.

[31]    I need not examine any further Mr Moodley’s reasons for drawing that conclusion.  I accept the clause was intended to fix the obligations for the payment of

the deposit in two tranches  The question is whether that is all that the clause means. Mr Culley and Mr Ha depose it could not be read any other way.  Mr Culley states that if the clause intended to provide that the agreement was conditional upon the sale of 7 Viola Place then it would have clearly have said so.  There are, he says, standard clauses available for use which would have made that purpose clear.  They were not, he said, used on this occasion.  The fact that Mr Naidu and Mr Lal gave evidence as to what the clause was “supposed” to record is evidence only of subjective intention and therefore not permissible.

[32]     Also, at no stage until filing a notice of opposition did Naidu or its solicitors raise the issue of the agreement being conditional upon the sale of 7 Viola Place. Naidu’s solicitor’s letter of 16 October 2009 referred only to the failure to obtain finance in support of a claim “... this matter is now at an end...”.

[33]     I am cognisant of those aspects of interpretation to which Mr Moodley refers. But, here we are dealing with a clause which it is difficult to make a lot of sense from if, as I am urged to do, I should confine the words to an obligation to pay a deposit.

[34]     Arguably  it  was  the  purpose  of  Mr  Naidu  and  Mr  Lal  to  proscribe  an obligation to pay a deposit by reference to the balance of the deposit being payable by a certain date.  The balance of the deposit did not become available.  How curious then is the proposition that there is an obligation to settle the transaction nonetheless. In that review of things the payment of the deposit was the only means by which the obligation to settle could ensue.  It may follow that an inability to pay the deposit meant that Naidu was not required to complete its contract.

[35]     Also by taking a position that Naidu was obliged to settle, notwithstanding it could not pay the deposit by a certain date, it seems to me, as Mr Colthart submits that clause 8.7 of the standard terms of the agreement have been overlooked.  That clause under the heading ‘Operation of conditions provides:

...

(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.

(5)       If the condition is not fulfilled by the date for fulfilment, either party may at any time before the conditions is fulfilled or waived void this agreement by giving notice to the other.

...

[36]     Overall it is clear the clause was not well drafted.   Mr Lal says he was attempting to frame a clause not out of the standard book of clauses available to him. Mr Culley asserts standard clauses were available if the clear intention was to make the contract conditional upon the sale of another property.

[37]     I think the clause can be interpreted by its not being confined to the singular purpose prescribing the payment of a deposit.  In some respects it has the elements of a standard clause.  But too much can be made of what it is a standard clause might have been expected to state.

[38]     It contains a provision for notification of satisfaction if the balance of the deposit had been obtained.  Mr Culley had insisted on the insertion of the date but that date does not simply say that the balance of the deposit had to be paid by then. Rather it required notification to be made if the balance had become available.

[39]     Also, the opening words of the clause state:

This agreement is conditional upon...

[40]     It cannot sensibly be argued that those words related only to the payment of the first tranche of the deposit, and not the second.

[41]     From my assessment it is arguable that the written contract is not the contract into which the parties entered and on that basis the Court may order rectification.  As Lord Venning noted in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [3]:

[3] [1953] 2 QB 450 (CA)

... Rectification is concerned with contracts and documents, not with intentions.   In order to get rectification, it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly.  And in this regard, in order to ascertain he terms of their contract, you do not look into the inner minds of the parties –

into their intentions – any more than you do in the formation of any other contract.  You look at their outward acts, i.e., at what they said or wrote to one another in coming to their agreement, and then compare it with the document, which they have signed.  If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document.

[42]     In this view of things it should not be forgotten that the clause was written in the outcome of discussions between Mr Naidu and Mr Lal who was NGH’s agent at that time.   Mr Lal’s evidence is that he endeavoured to draft an agreement which made the contract conditional on the sale of 7 Viola Place.

[43]     It is apparent from the aforesaid that it is my judgment that the application for summary judgment be dismissed.  But, even if I had not reached that conclusion I would have supported the position that the defence of impossibility of performance was, on an arguable basis, made out.

[44]     Pleading impossibility is in the nature of an affirmative defence and the onus of proof rests upon the defendant.  The defendant must establish a very substantial probability  that  it  would  not  be  able  to  comply  with  an  order  for  specific performance.   Anything less will not do.   Arguably Mr Naidu should have given details of those properties which he, as opposed to his company, owned an interest in.  Three such properties were revealed by Mr Ha’s affidavit.  But the disclosure of those other three properties probably does not make a great deal of difference in the outcome.  All of the properties, those of Naidu and of Mr Naidu and (I assume) his wife, were purchased in that same period of time when the property market was flourishing.  It is very different now.  The acceptable evidence is that Mr Naidu earns less than $40,000 per year net as a machine operator.  He supports a wife and four children.    The  Naidu  properties  are  negatively  geared  and  he  is  providing  a significant monthly top up over rents recovered.  Despite this mortgage arrears are accumulating.

[45]     I am satisfied that there is an arguable case for the defence of impossibility of performance.

Result

[46]     This summary judgment application is dismissed. [47]           Costs are reserved.

[48]     This matter is to be listed on call in the chambers list on 23 July 2010 at

2:15pm.

Associate Judge Christiansen