NZ Tourist Investments Limited v Vast Investment Limited

[2023] NZHC 3735

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1330

[2023] NZHC 3735

IN THE MATTER OF

a breach of an agreement for sale and purchase of real estate

BETWEEN

N Z TOURIST INVESTMENTS LIMITED

Plaintiff

AND

VAST INVESTMENT LIMITED

Defendant

Hearing:	23 November 2023
Appearances:	S L Robertson KC for the Plaintiff M C Brugeyroux for the Defendant
Date of Judgment:	18 December 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 18 December 2023 at 12 midday.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors/Counsel:
David Rishworth, Auckland

Suzanne Robertson KC, Auckland McVeagh Fleming, Auckland

N Z TOURIST INVESTMENTS LTD v VAST INVESTMENT LTD [2023] NZHC 3735 [18 December 2023]

Introduction

[1]    The plaintiff, N Z Tourist Investments Limited (NZ Tourist), sold its property at 34 Hamilton Road, Herne Bay, Auckland, to the defendant, Vast Investment Limited (Vast). Vast failed to settle. NZ Tourist thereafter cancelled the relevant agreement for sale and purchase and resold the property to an unrelated party. The resale was at a loss.

[2]    NZ Tourist now seeks summary judgment for its losses. Vast accepts that it is liable for breach of contract but opposes the entry of summary judgment on the ground that it is reasonably arguable that NZ Tourist should have obtained a higher price on the resale.

[3]    Vast advances two criticisms of the resale process. First, it submits that the resale of the property was not urgent and NZ Tourist should have left the property on the market for longer in order to achieve a better price.

[4]    Secondly, Vast says that before the resale process began, NZ Tourist’s agent, Ryan Dixon, appraised the value of the property below its market value, and that this influenced:

(a)the price that prospective buyers were prepared to offer; and

(b)the price that NZ Tourist was prepared to accept.

[5]    The primary question that I must  answer  is  whether  it  is  arguable  that  NZ Tourist failed to act reasonably to mitigate its loss.

Background

[6]    NZ Tourist and Vast entered into an agreement for sale and purchase of the property on 12 March 2022 (the agreement). The purchase price was $5.7 million and settlement was due on 30 June 2022. Vast failed to settle and NZ Tourist issued a settlement notice. Vast remained in default.

[7]    In October 2022, NZ Tourist appointed Ray White Remuera as NZ Tourist’s agent for the resale. Mr Dixon was the licensed salesperson responsible.

[8]    On 16 August 2022, Mr Dixon provided Vast with a written appraisal of the property’s value, stating:

If we cast our minds back and look at the previous campaign and where things have moved in the current market, we would be surprised to see the property sell with a 5 in front of it. Based on sales and looking at what has transacted, our market assessment range is $4.5m–$5m. We will aim for more; however, for buyers to engage, we would see them in this range.

Please see attached recent sales. Furthermore, to get people engaged and build competition, urgency and a clear message needs to be conveyed to the market across all advertising channels. We can work on this together as we have in the past. Most sales are turn-key — the land size with 34 Hamilton is unique, and sales are limited, as we know.

[9]The agency agreement prepared by Ray White included the appraised value of

$4.5–5 million.

[10]   On 12 October 2022, Mr Dixon sent an email to NZ Tourist’s accountants, confirming that his appraisal remained at $4.5–5 million, stating:

However, we will be looking to unlock a higher value if we can. The market is still very much in favour of “turn-key” homes such as the attached recent REINZ sales.

[11]   NZ Tourist’s accountant amended the agency agreement before it was signed on behalf of NZ Tourist, to increase the stated appraised value to “the client’s asking price” of $5–5.5 million.

[12]   NZ Tourist approved the advertising and marketing plan, which Mr Dixon describes as:

… an extensive marketing plan for the vendors that included significant print media with large format advertising in the New Zealand Herald and Property Press using double-page spreads and full pages, including the best online portals available to us.

[13]   NZ Tourist spent $16,049 on the marketing campaign. At first, the property was marketed with a “Set Date of Sale”, which provided a date for interested buyers to submit offers.

[14]   Open homes were held  on 30 October and 6, 13 and 20 November 2022.   Mr Dixon says that buyers were hesitant to engage, pointing to specific features of the property and the changing market environment. These features related to access, the condition of the property (it had not been renovated since the 1980s) and the potential for the next-door property to be operated as a motel.

[15]   Mr Dixon received twelve enquiries from potential buyers. Eight parties inspected the property. However, three and a half weeks into the marketing campaign, no offer had been received. Marketing of the property subsequently moved to “Price by Negotiation”. That led to two parties making offers.

[16]   One was an unconditional offer of $4.5 million but requiring, as a vendor’s warranty, a boundary adjustment to add additional land. The negotiations that followed  were  in  part  by  text  message.   At  3.39  pm  on  6 December  2022,   Mr McKenzie sent a text message to the offeror, confirming that NZ Tourist was seeking a purchase price of $5.3 million. The text message requested a response by  4 pm that day. The offeror responded by text 10 minutes later, advising that NZ Tourist’s price expectations were more than it was willing to pay and thus withdrawing from the negotiations.

[17]   The second offer was an unconditional offer of $4.8 million. Mr Dixon says that he “pushed” to get this over $5 million, however, the sale was concluded at

$4.9 million. The resale agreement was executed on 6 December 2022, and settlement occurred on 24 January 2023.

Legal principles

Summary judgment

[18]   The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.

[19]   The leading authority on applications  for  summary  judgment  is  Krukziener v Hanover Finance Ltd.1 The Court of Appeal set out the following principles:2

(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried. The Court must be left without any real doubt or uncertainty.

(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.

(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.

[20]   The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.3

Mitigation of loss

[21]Clause 11.4(3) of the agreement provides that:

The damages claimable by the vendor … shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice …

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

2 At [26].

3      Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.

[22]   This is a standard form clause that has, for many years, been included in agreements for sale and purchase provided by the Auckland District Law Society and the Real Estate Institute of New Zealand. The relationship between the clause and the common law principles applicable to mitigation of loss have been considered by the Courts on a number of occasions, giving rise to the following settled principles:

(a)the requirement that the resale be “bona fide” calls for a consideration of whether the vendor has acted reasonably on the resale;4

(b)the duty to act reasonably to mitigate loss generally requires the vendor to offer the land for resale at a proper price having regard to the state of the market, to take adequate steps to advertise and promote the sale, and to keep the property in reasonable order and condition so as to encourage a sale;5

(c)the standard expected of a vendor when reselling a property is not high, and requires an overall view of the matter, rather than criticism of particular aspects of the process based on hindsight;6 and

(d)the vendor’s circumstances following the purchaser’s default, and any urgency to resell, are relevant considerations towards any assessment of reasonableness.7

[23]   The onus is on the purchaser to prove that the vendor did not act reasonably on the resale. When the vendor applies for summary judgment against the purchaser, the onus on the purchaser is an evidential one, with the vendor carrying the overall onus to satisfy the Court that there is no arguable defence.

4      Tucker v Sun (2009) 10 NZCPR 542 (HC) at [48(c)]; and Masterton Investments Ltd v Watson

[2022] NZHC 3113, (2022) 23 NZCPR 856 at [83].

5      Sullivan v Darkin [1986] 1 NZLR 214 (CA) at 217–218.

6      Masterton Investments Ltd v Watson, above n 4, at [86]; and Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 (HL) at 506.

7      Sullivan v Darkin, above n 5, at 223.

Discussion

Vast’s argument

[24]   Vast adduced affidavit evidence from a registered valuer, George Farmer. In September 2022, Mr Farmer carried out a valuation of the property for Vast, valuing the property at $6.2 million as at 27 September 2022. In September 2023, Mr Farmer provided a retrospective valuation of the property as at 6 December 2022, valuing the property at $5.4 million, representing a decline in value of $800,000 in approximately three months.

[25]   Vast argues that the price on the resale of $4.9 million was substantially below the market value. It was submitted for Vast that NZ Tourist cannot recover the amount equivalent to the extent of any sale at an undervalue. However, sale at an undervalue is not the test. NZ Tourist was forced to resell because Vast failed to perform its contractual obligations. Vast must establish that NZ Tourist acted unreasonably during the resale process.

Did Vast need to resell urgently?

[26]   It is common ground that property prices were receding during 2022. This is acknowledged by Mr Farmer, who referred to a realistic possibility of a recession in the first half of 2023.

[27]   NZ Tourist’s shareholders are Fleur Mitchell and Allan Mitchell. Ms Mitchell gave affidavit evidence confirming that after Vast’s failure to settle, they were obliged to borrow a substantial sum from what she describes as a second level lender, at a high interest rate. The evidence does not explain the connection between that personal borrowing and NZ Tourist’s financial position. At the time, the property was unencumbered.

[28]   In any event, NZ Tourist is not required to prove that it was under financial pressure at the time of the resale process, or that there was urgency to achieve a resale. Regardless of the financial position of NZ Tourist or its shareholders, the prospect of

a declining economy and property market was a valid reason for NZ Tourist to move quickly.

Mr Dixon’s conduct

[29]   Vast relies on affidavit evidence from Ian Keightley, a trainer of real estate salespersons with 41 years’ experience in the industry. Vast offers Mr Keightley’s evidence to attempt to explain why the price achieved in December 2022 did not meet Mr Farmer’s retrospective assessment of the market valuation at that time.

[30]   Mr Keightley opined that a real estate agent’s view of the value of a property influences the price expectations of the vendor and purchaser. Mr Keightley considers that Mr Dixon’s  appraisal of the property in August 2022 was too low,  based on   Mr Keightly’s analysis of sale comparisons used by Mr Farmer.

[31]   Mr Dixon’s appraisal in August 2022 must be put in the context of the comments he made about value at that time, particularly his assurance that he would aim for more. There is no evidential basis for Mr Keightley to speculate about what Mr Dixon may or may not have said to prospective buyers.

[32]   Further, the contemporaneous emails confirm that NZ Tourist continued to seek a sale price between $5–5.5 million, despite Mr Dixon’s appraisal.

[33]   Ray White Remuera undertook a conventional marketing campaign. Offers were procured, NZ Tourist negotiated with the two potential buyers and ultimately decided to accept what it considered to be the best offer that could be achieved in the market at the time.

[34]   I reject the submission, made on behalf of Vast, that NZ Tourist should have declined to sell for $4.9 million and kept negotiating until a better price was achieved. I find that NZ Tourist acted reasonably in its duty to mitigate loss, given:

(a)Mr Dixon’s evidence of his attempt made to increase the offer above

$5 million;

(b)the withdrawal of the first offerors; and

(c)the amount of time that had transpired since Vast failed to settle its contract in the context of a falling market.

[35]   Vast’s criticism of particular aspects of the resale process based on hindsight is exactly the type of criticism which is insufficient to support a finding of unreasonable conduct. The defence of a failure to mitigate loss is not arguable.

Damages

[36]   Pursuant to cl 11.4(3)(a) of the agreement, NZ Tourist is entitled to interest at the rate of 14 per cent on the unpaid portion of the purchase price from the settlement date of the agreement to the settlement date of the resale. I accept NZ Tourist’s calculation of the interest, which is $405,351.51.

[37]   NZ Tourist is entitled to recover the loss on resale of $230,000, being the difference between the purchase price under the agreement of $5.7 million and the purchase price under the resale agreement of $4.9 million, less NZ Tourist’s retention of Vast’s deposit of $570,000. NZ Tourist is entitled to interest on the loss on resale at the contractual rate of 14 per cent per annum from the settlement date of the resale, 24 January 2023, until payment is made.

[38]   NZ Tourist is entitled to recover costs incurred in respect of the property from the settlement date of the agreement to the settlement date of the resale. These costs total $7,679.71, comprising:

(a)land rates of $6,442.29;

(b)water charges of $129.44; and

(c)insurance of $1,107.98.

[39]NZ Tourist is entitled to recover the costs of the resale. These costs total

$27,125.61, comprising:

(a)costs of marketing and staging the property of $20,844.50; and

(b)legal costs of $6,281.11.

[40]   NZ Tourist engaged its accountant to deal with management issues arising from Vast’s failure to settle. NZ Tourist is entitled to recover the $10,980 it paid to Grace Ellen Limited for these services.

Costs

[41]   Costs should follow the event, and 2B costs are appropriate. NZ Tourist sought an uplift of 50 per cent for appearance at the hearing, on the basis that Vast should have conceded the application for summary judgment once it received NZ Tourist’s evidence in reply. I do not accept that there was anything out of the ordinary which would justify an uplift of costs.

Result

[42]   I enter judgment for the plaintiff against the defendant for the following amounts:

(a)       $681,136.83;

(b)interest on $230,000 at the  rate  of  14  per  cent  per  annum  from  24 January 2023 until the date of payment, under s 22 of the Interest on Money Claims Act 2016; and

(c)costs of $16,431.25, together with disbursements of $1,787.25.

Associate Judge Brittain