Noble Investments Limited v Maurice Raymond Keenan
[2005] NZCA 50
•16 March 2005
IN THE COURT OF APPEAL OF NEW ZEALAND
CA74/04
BETWEENNOBLE INVESTMENTS LIMITED
Appellant
ANDMAURICE RAYMOND KEENAN, JAYANTHA KALAHE KEENAN AND WARWICK JOHN AINGER
Respondents
Hearing:25 November 2004
Court:Anderson P, McGrath and Glazebrook JJ
Counsel:G M Brodie for Appellant
D H Hicks for Respondents
Judgment:16 March 2005
JUDGMENT OF THE COURT
AThe appeal is allowed. The order that Noble Investments Limited specifically perform the agreement of 12 March 2003 is set aside and the matter is remitted to the High Court.
BCosts of $6,000 plus reasonable disbursements (including the travel and accommodation costs of counsel) are awarded to Noble Investments Limited. The level of disbursements is to be set by the Registrar in the absence of agreement between the parties.
REASONS
(Given by Glazebrook J)
Introduction
[1] Under an agreement of 12 March 2003, Mr and Mrs Keenan agreed to purchase a block of vacant land in Christchurch. Pursuant to the terms of the agreement, Mr and Mrs Keenan nominated the respondents (who we understand are the trustees of a family trust) as the purchasers under the agreement. The block was part of a proposed subdivision to be undertaken by Noble Investments Ltd and settlement was to take place on issue of title.
[2] By June 2003, title to the property had still not issued. On 26 June 2003 the Trustees’ solicitors wrote to Noble Investments purporting to make time of the essence and recording that, should title not be available by 6 August 2003, the contract was at an end. By letter of 22 August 2003, the Trustees purported to cancel the contract. Noble Investments maintained that the contract was unconditional. On 26 August 2003, it wrote to the Trustees saying that title had issued and that settlement should take place in accordance with the contract on 23 December 2003.
[3] Further correspondence ensued, culminating in the Trustees, on 3 September 2003, accepting that the contract was still on foot but suggesting a retention of $15,000 to deal with the failure of Noble Investments to comply with its obligations relating to a sewerage system. This was not accepted by Noble Investments and, on 4 September 2003, it wrote stating that it regarded the contract as being at an end. The Trustees issued proceedings in the High Court for specific performance and sought summary judgment.
[4] At the time of the purported cancellation by the Trustees, they were in breach of the agreement themselves as they had failed to pay the required deposit. John Hansen J held that the purported cancellation by the Trustees was invalid. He also held that Noble Investments had affirmed the contract after the purported cancellation and that there was no reason for summary judgment not to be granted. On 2 April 2004 he granted the Trustees’ application for summary judgment and made an order that Noble Investments specifically perform the contract. Noble Investments appeals against that decision.
Background
[5] We now set out the background in more detail. On 12 March 2003 Mr and Mrs Keenan signed an agreement to purchase a block of vacant land described as Lot 3, Noble Gardens, Yaldhurst Road, Christchurch. The vendor was Noble Investments. As indicated above, the purchasers were stated to be Mr and Mrs Keenan or nominee. In due course Mr and Mrs Keenan nominated themselves plus Mr Ainger as purchasers. The agreement was on the standard Real Estate Institute of New Zealand and Auckland District Law Society Agreement for Sale and Purchase of Real Estate form. The land to be sold was vacant land which was part of a wider subdivision.
[6] The agreement was subject to a number of conditions, including a condition as to finance. That condition had, however, already been satisfied prior to the date of the agreement. The agreement was also subject to the approval by the Trustees’ solicitors of the deed of option and special conditions of the sale within 10 working days from the signing of the agreement. The Trustees were to pay a deposit of $30,000 on confirmation of that approval being obtained.
[7] Under the agreement, Noble Investments was obliged to provide, prior to the settlement date, power and telecommunication services, a sealed vehicle carriageway, water supply and a communal sewerage system. As at the date of the proceedings the only issue that remained between the parties was in respect of the communal sewerage system.
[8] Settlement was to take place upon the issue of title to the property. Clause 27 of the Special Conditions provided as follows:
27 Settlement
Settlement shall take place on the Initial Subdivision being the issue of title in fee simple to Lots 3 and 14 including an undivided one tenth share of Lot 22 as described in the Plan of Proposed Subdivision of Lots 1-8, 10-13 DP 53249 and Lot 1 DP 53503. The Vendor shall carry out whatever improvements are necessary and complete all documentation in order to effect the issue of the title and use its best endeavours to ensure the title is issued as quickly as is practicable.
[9] The Trustees paid the $30,000 deposit, by cheque sent by their solicitors, to Noble Investments’ solicitors on 25 February 2003. That amount was refunded to the Trustees with the intention that the deposit should be paid when the agreement became unconditional. The agreement became unconditional on 24 March 2003 when the Trustees’ solicitors approved the agreement. The deposit was not, however, paid at that point (and indeed was tendered only on 3 September 2003). We note that the agreement provided that the deposit was to be held by Noble Investments’ solicitors until title issued.
[10] We now set out the course of correspondence between the parties, leading up to the proceedings being issued. On 5 May 2003 the Trustees’ solicitors wrote to the solicitors for Noble Investment stating that their clients had now elected not to proceed with their proposed purchase. Noble Investments, by letter of 11 June 2003 replied as follows:
We refer to your letter dated 5 May 2003.
Our client is of the view that Lot 3 has been sold to your client. Special Condition 15.0 (regarding finance) was confirmed by you in your letter dated 25 February 2003. Special Condition 17.1.1 (regarding approval of the Agreement) was confirmed by you in your letter dated 24 March 2003. Accordingly, all of the Special Conditions have been satisfied.
Can you please advise on what basis your client has purported to cancel the contract.
Our client has advised that the physical works have been completed, and that the Section 224 Certificate under the Resource Management Act 1991 has been applied for. Our client further expects to be in a position to lodge the documents to deposit the Plan within approximately 8 weeks.
[11] By letter of 26 June 2003 the Trustees’ solicitors replied as follows:
1. We referred a copy of your faxed letter of 11th June to our clients with our request for their further instructions.
2. On instructions we advise:-
[i]that our clients have become increasingly frustrated about the inordinate delays in obtaining title to the subject land. Originally our clients were told title would issue in January 2003. That date was pushed out to March, then April and now to the date being approximately 8 weeks from 11th June [being the date of your letter] to 6th August [being the Vendor’s nominated date];
[ii]that our clients are unwilling to tolerate any further delays herein and accordingly now stipulate:-
[a]that in relation to the giving and taking of title time shall be strictly of the essence; and
[b]that in the event that title is not available on or before the Vendor’s nominated date the Agreement for Sale and Purchase herein dated 12th March 2003 shall ipso facto be at and [sic] end.
3.We wait your further advices herein.
[12] The Trustees’ solicitors then wrote again on 7 August 2003 purporting to cancel the contract. They wrote:
1. We refer to our letter of 26th June and hereby formally record that due to your client’s inability to give title on the Vendor’s nominated date the conditional Agreement for Sale and Purchase herein now is at an end.
2. Please confirm your client’s acceptance of the position.
[13] Noble Investments’ new solicitors replied on 20 August 2003 stating that their client regarded the contract as unconditional. They said:
We act for Noble Investments Limited the vendor of Lot 3.
We record that there has been correspondence between yourself and Buddle Findlay where you, inter alia attempted to insert a further condition in the contract as to time.
We regard the contract as unconditional. We expect titles to issue in the very near future.
We shall issue a settlement statement on the basis that your clients will settle.
[14] On same day the Trustees’ solicitors replied as follows:
1. We acknowledge receipt of your faxed letter of even date.
2.1We note that you “regard the contract as unconditional”.
2.2We invite you to specifically identify the legal basis for your contention in this regard.
3.In the meantime we deem it appropriate to record that our client regards the Agreement for Sale and Purchase as being at an end due to your client Vendor’s default and failure to give title by the Vendor’s nominated settlement date.
4.We await your further advices herein.
[15] Still on 20 August 2003, Noble Investments’ solicitors again said that they regarded the contract as unconditional. They said:
We reiterate that we regard the contract as unconditional.
With respect we observe that we are under no obligation to substantiate our position.
Our settlement statement will be referred to you upon issue of title.
[16] The Trustees’ solicitors replied on 22 August 2003 as follows:
1. We are in receipt of your faxed letter dated 20th August.
2. For the avoidance of doubt we hereby record that as at the Vendor’s nominated date our client was ready and able to settle the purchase.
3. Additionally we record that after the Vendor’s nominated date and following advice to your client’s then solicitors that the subject contract was at an end our client entered into a contract to purchase an investment property. In these circumstances our client will inter alia contend that your client Vendor now is estopped from denying that the subject contract was appropriately cancelled.
4.1If your client Vendor is unwilling to accept that the subject contract is at an end then our client is well content to have all matters placed before the Court for determination following a vigorously defended hearing.
4.2In this regard we have authority to accept service of any proceedings which your client may elect to issue.
[17] The solicitors for Noble Investments replied on the same day as follows:
1. Your letter of today refers.
2. We reiterate the contents of our letter dated 20 August 2003, in that we regard the contract as unconditional. Please understand that we hold a comprehensive file relative to this sale. There is no issue of estoppel as you whimsically suggest, in fact your paragraph 3 is, we suggest, a grave mis-reporting of Buddle Findlay’s position and the writer regards your action as a professional discourtesy.
3. We suggest you counsel your clients to expect to receive a settlement statement once titles issue.
4. You will appreciate that the fact your clients have purchased another property is of no moment to either the writer or this firm’s client.
5. We note your ability to accept service should this become a necessity.
[18] They wrote again on 26 August 2003 to advise that title had issued and that settlement, in accordance with the agreement, should take place on 23 December 2003. As John Hansen J noted, the agreement did not provide for that settlement date but nothing turns on this. They said:
1. Earlier correspondence refers.
2. We are pleased to advise that title has issued. Your clients reference is 93051.
3. We record that the contract provides for settlement/possession to be “3 months from issuance (sic) of clear title”. We compute that settlement ought be completed on Tuesday 23rd December 2003.
4. We shall refer our settlement statement accordingly. Please forward a Transfer and Sale Notice.
5. On settlement, in addition to providing you with your clients’ Transfer and a Partial Discharge of the Mortgage registered on the title we shall provide you with an Encumbrance to secure the Deed of Option. We shall require your firm’s undertaking to register the Encumbrance against the relevant title.
[19] There followed a series of three “without prejudice” letters which were placed before the High Court by agreement. On 29 August 2003 the solicitors for Noble Investments wrote on a “Without Prejudice Save as to Costs” basis in the following terms:
We refer to our earlier correspondence.
We reiterate that we consider the contract subsisting between our respective clients is unconditional.
Our client company is prepared to release your clients from their obligations pursuant to the agreement in consideration of payment to this firm of the sum of $15,000.00, such payment would represent full and final satisfaction of all matters extant between the parties. The payment is to be made by way of bank cheque to this firm not later than 5.00 pm on Monday 1st September 2003.
Should we not receive payment as described herein we shall seek settlement in the usual manner on the date identified in our letter of 26th August 2003.
[20] The Trustees’ solicitors responded by a (without prejudice) letter dated 1 September 2003 as follows:
1. We referred a copy of your fax dated 26th August to our client with our request for his instructions.
2. To assist us to advise our client we request that by return fax you kindly tell us what your client company has done, or intends to do, to comply with its obligations to provide a connection to a communal sewerage system or alternatively provide an onsite sewerage disposal unit and in this regard to satisfy the requirements and standards of the relevant authority.
3. Additionally we seek your confirmation that the other services the subject of clause 19 of the Agreement for Sale and Purchase have been completed and are immediately available to the Purchaser of the subject Lot.
4. On receipt of this information we will again confer with our client and then get back to you.
[21] On 2 September 2003, the solicitors for Noble Investments responded on a without prejudice basis as follows:
1. Your letter of 1st September, 2003 has been received with some surprise, given item 3 of your letter of 20th August, 2003 and your failure to respond to ours of 29th August, 2003.
2. If your client wishes to re-enter contractual relations with Noble we advise that on settlement we seek in addition to the consideration of $300,000.00 plus gst the further costs (circa $4,000.00) incurred by your earlier stance. We would wish to settle on Friday 26th September 2003.
3. In relation to items 2 and 3 of your faxed letter of 1st September 2003 we record that power telephone and water connections are in place. Our instructions are that the sewerage network cannot be installed on each lot until construction of individual dwelling houses is commenced. The individual systems would be installed and ultimately signed-off as part of the building consent process.
4. If your client wishes to proceed on the basis advised in item 2 of this letter please confirm to us by 4:00 pm on Wednesday 3rd September 2003 otherwise we shall regard the contract as being at an end but without prejudice to our clients rights to recover its incurred costs as described in this letter.
[22] On 3 September 2003 the Trustees’ solicitors (no longer on a without prejudice basis) wrote to the solicitors for Noble Investments in the following terms:
1. We acknowledge receipt of your letter of 2nd September a copy of which we referred to our clients for their instructions.
2. On instructions and subject only to what appears below our client now accepts the position as stated in your letter of 26th August.
3. Accordingly we now enclose with the hard copy of this fax:-
[a] our cheque for $30,000.00 in payment of the deposit; and
[b] the Transfer document.
4. Please favour us with your statement of the amount required to settle this transaction as at 23rd December next.
5. As conditions precedent to settlement our clients require that your client Vendor strictly complies with its obligations under the Agreement and in particular but not by way of limitation our clients require:-
[i] that the land covenants the subject of Schedule D of the Agreement for Sale and Purchase first be registered; and
[ii] your client’s authority to withhold the sum of $15,000.00 pending the connection of a communal sewerage system or on site sewerage disposal unit approved by the relevant Authority – clause 19.4 of the Agreement for Sale and Purchase refers. The amount retained is to be invested in an interest bearing account on the basis that the net interest earned thereon [less RWT only] will be paid to your client just as soon as the stipulated sewer connection has been made.
[23] The reply dated 4 September 2003 from Noble Investments’ solicitors was as follows:
1. We refer to your letter of 3rd September 2003.
2. We do not accept the further condition 5(ii) you purport to include in a contract you previously advised us is at an end. Our offer to your clients to re-enter contractual relations was made on the basis of your previous contentions. We have acted on those contentions.
3. Any contractual relations that may have existed between our clients are at an end. We apprise you strictly on the terms contained in item 4 of our letter dated 2nd September 2003.
[24] The following day the deposit cheque, that had been tendered with the Trustees’ letter of 3 September 2003, was returned.
[25] On 23 September 2003 the Trustees’ solicitors wrote withdrawing para 5(ii) of their letter of 3 September 2003 and noted that the Trustees required settlement of the sale to take place in terms of the agreement on the settlement date. It was stated that the Trustees were ready, willing and able to complete all their obligations under the agreement and that they would be in a position to pay the balance of the purchase price on the settlement date. They also added the following comments.
(a) The agreement did not come to an end when you received either of our letters of 20 and 22 August 2003. When we wrote to you on 26 June 2003 our clients had not paid the deposit of $30,000 and we therefore accept that our clients were not then in a position to give a notice in terms of our letter of 26 June 2003.Your subsequent correspondence in August 2003 amounted to an affirmation of the agreement.
(b) Our letter of 3 September 2003 was an acceptance that the agreement should proceed and be settled in terms of your letter of 26 August 2003. Paragraph 5(ii) of our letter did not, we have been advised, amount to an attempt to vary the agreement or insert a new term. Read as a whole, paragraph 5 of our letter was an expression of our clients’ intention that the vendor strictly comply with its obligations. In paragraph 5(ii) of our letter, were doing no more than propose a practical and pragmatic solution to the difficulty likely to be posed at the settlement date by your client’s failure or inability to honour its obligations under clause 19.4 of the agreement in respect of sewerage services. We have now given notice that paragraph 5(ii) is withdrawn.
3. It is our clients’ position that settlement must now be completed strictly in accordance with the terms of the agreement which require the services [including sewerage] to be provided by the vendor prior to the settlement date which both parties have accepted should be 23 December 2003.
4. Our clients are willing to discuss a reasonable alternative settlement date to 23 December 2003, but they are not bound to agree on any other date.
5. The last advice from you in your letter of 9 September 2003 was to the effect that the contract was at an end. We disagree. Our clients are entitled to issue proceedings for specific performance.
6. The cheque for the $30,000 deposit has been returned to us. In the circumstance, a formal tender of the deposit of $30,000 would be pointless although, if you require it, we will arrange for formal tender to be made in the usual way.
7. Unless there is an acceptance by your client within the next seven days of our clients’ right to proceed with the purchase on the basis of the agreement, proceedings for specific performance will be issued. Our clients’ rights to claim damages are reserved in the meantime.
8. Should your client elect to have this matter placed before the Court for determination then please obtain and confirm to us that you have your client’s authority to accept service of the proceedings.
[26] By letter of 24 September 2003 the solicitors for Noble Investments recorded that Noble Investments had provided the Trustees an opportunity to re-enter contractual relations on the conditions contained in their letter of 2 September 2003 but that the Trustees had elected not to do so. They then confirmed that, in their view, the contract was at an end.
[27] Somewhat surprisingly, given its letters of 29 August 2002 and 2 September 2003, by agreement dated 29 August 2003, Noble Investments had purported to sell Lot 3 to a Purchaser described as “Brian O’Malley as agent”. We understand that Mr O’Malley was also the Purchaser of the adjoining Lots 1 and 2. Clause 16 of the O’Malley agreement provided as follows:
The vendors agree to cancel the existing agreement on Lot 3 at Noble Gardens no later than 5 pm on Friday 5th September 2003 at which time this agreement will become unconditional in all respects. Should Lot 3 be cancelled prior to this date, this agreement will become unconditional at the same time.
[28] Clause 17 of that agreement provided:
17.1This agreement is unconditional from the signing of this agreement following the cancellation of the existing agreement for the same property. The Purchaser is deemed to have accepted the following:
17.1.1 The approval by the Purchaser of the Deed of Option and the special conditions of sale including the restrictive covenants, the Encumbrance; and the Plan of Proposed Subdivision.
Decision of John Hansen J
[29] By judgment of 2 April 2004, John Hansen J granted the Trustees’ application by way of summary judgment for an order that Noble Investments specifically perform the 12 March 2003 agreement. Noble Investments’ application for summary judgment against the Trustees was dismissed.
[30] John Hansen J held that, at the time of purporting to make time of the essence, the Trustees were in default of their obligations to pay the deposit. As a result, the Judge held that they were not entitled to compel performance and Noble Investments was entitled to reject their demands. He held that Noble Investments did so and that the course of correspondence which followed the purported cancellation clearly affirmed the contract. Having affirmed the contract while being aware of the failure to pay the deposit, Noble Investments advised that title was available and laid down a settlement date that was not the date provided for in the contract. As indicated above, the Judge did not consider that anything turned on this.
[31] The Judge then reviewed the Trustees’ letter of 3 September as it was that letter that Noble Investments relied upon purportedly to cancel the contract. In his view, the obligation was on Noble Investments to ensure that there was a sewerage system prior to settlement. The Trustees were not obliged to settle until that condition had been fulfilled. In his view, in the letter of 3 September 2003, the Trustees were merely making it clear that Noble Investments needed to comply strictly with that obligation. Paragraph 5(ii) of that letter was not an attempt to impose a further condition, provided that Noble Investments complied with its obligations in relation to the sewerage system. If Noble Investments did comply, para 5(ii) was of no effect.
[32] The judge considered that para 5(ii) was merely a suggestion of a course to undertake if Noble Investments failed to meet its obligations under the agreement with regard to the sewerage system. In his view, Noble Investments had signalled in its letter of 2 September 2003 that it was not going to meet those obligations. In the circumstances the Trustees’ response in para 5(ii) was hardly surprising. The Judge took the view that, given Noble Investments’ own breach of the requirement to provide a sewerage system, it was not entitled to give notice of cancellation of the agreement in its letter of 4 September 2003.
[33] The Judge was also satisfied that there were no grounds to refuse to exercise the Court’s discretion in favour of the Trustees. With regard to the letters that were written by the Trustees, he said that this was a matter that went both ways in that the letters written by the solicitors on both sides had not exactly assisted the parties. With regard to the O’Malley contract, he was of the view that this contract was clearly subject to the vendor cancelling the existing contract by 5 September 2003. In view of his finding that Noble Investments’ purported cancellation of the agreement with the Trustees of 4 September 2003 was not valid, there was no liability on Noble Investments in terms of that second contract.
Noble Investments’ submissions
[34] Mr Brodie, for Noble Investments, accepted that, where there is no date specified in the contract for performance of a condition (and there was none in this case with regard to the issue of title), the law implies that the obligation will be performed within a reasonable time. He accepted also that a notice making time of the essence cannot be given until there has been an unreasonable delay because it is only then that there is a breach of the contract. In his submission, the unreasonable delays in the issue of the title meant that Noble Investments was in breach of its obligations under the agreement and therefore that the Trustees were entitled to make time of the essence and cancel the contract when title had not issued. He accepted, however, that whether this was the case or not cannot be decided upon a summary judgment application.
[35] Mr Brodie submitted further that the failure to pay the deposit was not a breach of sufficient magnitude as to disentitle the Trustees from giving an effective notice of cancellation. He submitted that only a material or serious default by the party giving notice to cancel could render a cancellation notice ineffective. In his submission, the breach must be a breach disentitling the party to specific performance and non payment of the deposit is not such a breach. This is because a vendor’s ability to cancel is subject to the expiration of the period of grace contemplated in cl 2.2 of the standard sale and purchase agreement. Clause 2.2 of the agreement provides as follows:
The vendor shall not be entitled to cancel this agreement for non payment of the deposit unless the vendor has first given to the purchaser three working days’ notice of intention to cancel and the purchaser has failed within that time to remedy the default. No notice of cancellation shall be effective if the deposit has been paid before the notice of cancellation is served.
[36] Mr Brodie suggested, in the alternative, that the Contractual Remedies Act 1979 had removed the requirement that a party in material breach or not ready, willing and able to settle cannot cancel a contract. This is because s 9 of the Contractual Remedies Act allows the Court to provide relief following cancellation and thus removes the necessity for the rule. He relied for this proposition on Burrows, Finn & Todd Law of Contract in New Zealand (2ed 2002) at [18.3.3].
[37] Mr Brodie also argued that the requirement to pay the deposit had been waived by Noble Investments. Noble Investments had affirmed the contract following the failure to pay the deposit. This meant, in his submission, that the Trustees could not be said to be in material breach. He accepted, however, that Noble Investments had not waived its right to give notice under cl 2.2 for the deposit to be paid within three days.
[38] It was also submitted that the Judge was not correct to hold that the O’Malley agreement was conditional upon the Trustees’ agreement coming to an end. Mr Brodie submitted that the meaning of cl 16 of the O’Malley agreement is not that that agreement is conditional upon the Trustees’ agreement being cancelled. Rather, Noble Investments was representing that the Trustees’ agreement would be cancelled. This means that there are two agreements for the same property. It is not, in Mr Brodie’s submission, an invariable rule that the first in time will prevail. Where there are two competing equities the Court, in deciding whether to grant specific performance, is required to examine the merits of each of the competing equities in order to determine which contract is to prevail. It was submitted that there is an arguable case here for the survival of the O’Malley contract and, therefore, that summary judgment for specific performance was not appropriate.
[39] Finally, Mr Brodie noted that the Trustees had signalled a desire, as an alternative, to argue that the exchange of correspondence between 20 August and 3 September 2003 gave rise to a fresh offer and acceptance and thus to a new contract. He said that this is not accepted by Noble Investments because the “acceptance” in the Trustees’ letter of 3 September is not, in Mr Brodie’s submission, an unequivocal acceptance of the Noble Investments’ offer to revive the contract. This is because para 5(ii) of the letter of 3 September 2003 imposes a further condition with regard to the sewerage system.
The Trustees’ submissions
[40] Mr Hicks, for the Trustees, supported John Hansen J’s reasoning. He submitted that the purported cancellation was ineffective because the Trustees had failed to pay the deposit by the date of the purported cancellation, 7 August 2003. Their failure to pay the deposit was, in his submission, a material breach such as to disentitle the Trustees from cancelling. This is because the parties have expressly made time of the essence in the contract. The Judge was, therefore, correct to have held the agreement was still on foot. In Mr Hicks’ submission, there had been no waiver of the requirement to pay the deposit. Nor did Noble Investments elect to affirm the agreement in respect of the breach of the obligation to pay the deposit. The deposit remained payable. Further, by its terms, the O’Malley agreement was made subject to the cancellation of the Trustees’ agreement, which had not been validly cancelled. The Judge was correct, therefore, to hold that there were no competing equities.
[41] If, contrary to this submission, the appeal is allowed, the matter should be remitted to the High Court so that the validity of the Trustees’ purported grounds for cancellation can be examined. The notice making time of the essence was given on 26 June 2003. That notice was in response to the letter from Noble Investments’ then solicitors of 11 June 2003. That letter stated that their client expected to lodge the documents to deposit the plan in approximately eight weeks. Mr Hicks submitted that this meant that the anticipated time until title was available would have been in excess of that eight week period, as there would necessarily be further delays beyond the time the documents were lodged while they were scrutinised and verified. Only after that would the title be issued. Therefore, the Trustees’ purported cancellation on 7 August 2003 was invalid as the time set was unreasonable.
[42] In the alternative, Mr Hicks submitted that the proceedings should be remitted back to the High Court so that the Trustees may plead there was a fresh agreement entered into on 3 September 2003. That fresh agreement was, in Mr Hicks’ submission, concluded by the exchange of letters between Noble Investments and the purchasers from 26 August 2003 to 3 September 2003 and was based upon the provisions of the first agreement.
Discussion
[43] The first question is whether John Hansen J was correct in holding that the Trustees were not entitled to cancel the contract because they had not paid the deposit. This Court, in Kriletich v Birnam Investments Ltd CA214/90 27 February 1991 at 14, pointed out that there were differing views as to whether at common law a party could cancel a contract relying on the other party’s breach where the cancelling party was itself unwilling or unable to perform the contract. If a party could not cancel in such circumstances at common law, it was uncertain, according to the Court, whether the same bar applied under the Contractual Remedies Act 1979 or whether unwillingness or inability to perform simply went to the consideration of the relief to be granted under s 9 of that Act. Section 9(4)(b) would be particularly relevant, as it requires the Court to have regard to the extent to which any party was or would have been able to perform the contract in whole or in part.
[44] A series of cases, however, have assumed, albeit with little discussion, that, despite the Contractual Remedies Act, a party must be ready, willing and able to proceed to completion in order to be able validly to cancel a contract - see Lenart v Murray (1988) ANZ Conv R 180 at 182 (HC); Karangahape Road International Village Ltd v Holloway [1989] 1 NZLR 83 at 105 (HC); Chatfield v Jones [1990] 3 NZLR 285 at 297 (CA); Kumar & Anor v Bahramitash CA51/04, 8 November 2004 (CA). See also the judgment of the Supreme Court granting leave to appeal in Bahramitash v Kumar and Kumar [2005] NZSC 8. For what seems to be a contrary position, see Thompson v Vincent [2001] 3 NZLR 355 where this Court appears to assume that a party could cancel, even though it had been guilty of a misrepresentation which was held to justify a repudiation by the other party. See also the discussion in Burrows, Finn & Todd, Law of Contract in New Zealand (2ed 2002) at [18.3.3].
[45] We are inclined to the view that the rule was in force in New Zealand at common law and that it has survived the introduction of the Contractual Remedies Act, at least with regard to contracts where damages are not a sufficient remedy and where one party wishes the contract to continue (and of course this latter requirement was not met in Thompson v Vincent).
[46] The question is whether the rule applies in this case. As this is a contract for the sale of land, damages would not normally be a sufficient remedy and Noble Investments (then) wanted and the Trustees (now) wish the contract to continue. This means that, if the non-payment of the deposit were the type of breach that would have triggered the rule, then the Trustees would have been prevented from cancelling the contract.
[47] We consider that the purpose of the common law rule was to ensure that a party does not benefit from its own wrong – see Herbert Broom, A Selection of Legal Maxims, R H Kersley ed (10ed 1939) at 191-193. A party could be seen as benefiting from its own wrong if it seeks by cancellation to deprive the other party of the benefit of the contract in circumstances where the other party’s breach is a direct result of breach committed by the party seeking to cancel the contract. Non-payment of a deposit could come into this category where, for example, the vendor needs to use the deposit to fulfil his or her obligations under the contract. This is not the case here, however, as the deposit was to be held by a stakeholder. A party could also be seen as benefiting from its own wrong where it is unable or unwilling to perform its obligations under the contract and seeks to avoid liability for its own breach by cancelling the contract on the basis of the other party’s breach. There is no suggestion in this case, however, that the Trustees were unable to pay the deposit. They had in fact paid the deposit, albeit too early, and it was again tendered with the letter of 3 September 2003.
[48] In this case, therefore, the non-payment of the deposit had no causative effect on the alleged breach by Noble Investments of its obligations relating to title and the Trustees were in a position to pay the deposit. The Trustees could theoretically have tendered the deposit at the same time as cancelling the contract but it would have served no purpose. If the cancellation was valid, the deposit would have immediately become refundable. We do not consider a purchaser should be obliged to pay the deposit in such circumstances. Indeed, in many cases it would not be prudent to pay a deposit to a vendor in default as there could be valid concerns about whether the deposit would be returned.
[49] This means that we do not consider that, in this case, non-payment of the deposit meant that the Trustees were unable to cancel the agreement, provided that valid grounds existed for such cancellation. It follows that the appeal must be allowed and the case remitted to the High Court to decide if such valid grounds existed – see discussion at [51] below.
[50] For completeness, we remark that we do not accept Mr Brodie’s submission that breach of the requirement to pay the deposit can never be breach of a material term disentitling a party to cancel. The deposit is payable upon the contract becoming unconditional and time is stated to be of the essence. The fact that cancellation cannot take place until the three day notice period in terms of cl 2.2 has expired does not alter the time for payment of the deposit. Nor does it make it any less a material term. We also do not consider that Noble Investments’ failure to give a three day notice or its refusal to accept what it saw as the wrongful repudiation of the agreement by the Trustees on 7 August 2003 changes that position.
[51] Whether the delay in issuing the title to the property entitled the Trustees to make time of the essence and to require title to be issued by 6 August 2003 is not a matter that can be resolved on a summary judgment application, as both parties recognise. Even though the appeal is allowed, therefore, the matter must revert to the High Court for hearing on that point. Obviously, if the Trustees had no grounds to cancel the agreement, their purported cancellation was a repudiation of the agreement. This repudiation was not accepted by Noble Investments and, therefore, the agreement would subsist.
[52] We agree with John Hansen J that, if there was a continuing agreement, given the acknowledged difficulties with the sewerage system, para 5(ii) of the Trustees’ letter of 3 September 2003 would merely have been an attempt to find a practical solution to the sewerage problems so settlement could take place. It could not be regarded as entitling Noble Investments to cancel the agreement. Indeed, to allow Noble Investments to cancel the contract against the wishes of the Trustees while in breach of it may break the rule discussed above.
[53] We make no comment, however, in the event that the 12 March 2003 agreement is held to have been validly cancelled, on the question of whether para 5(ii) of the 3 September letter would mean that the Noble Investments’ offer of a new agreement was not accepted by the Trustees. This will be a matter to be decided if the pleadings are changed to assert that there was such an offer to enter into a new agreement.
[54] We note finally that we may well have allowed the appeal, even if we had accepted that non-payment of the deposit disentitled the Trustees from cancelling the agreement. In our view, the purchasers under the O’Malley agreement should be heard on the issue of the meaning of cls 16 and 17 of their agreement. If the interpretation of those clauses is in their favour, they should also be heard on whether specific performance should be granted to the Trustees if the Trustees succeed in arguing that their agreement was not validly cancelled
Solicitors:
Rhodes & Co, Christchurch for Appellant
Nicoll Cooney & Co, Ashburton for Respondents
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