Official Assignee v Kingston Developments Group Limited
[2015] NZHC 1416
•25 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000240 [2015] NZHC 1416
BETWEEN THE OFFICIAL ASSIGNEE
Plaintiff
AND
KINGSTON DEVELOPMENTS GROUP LIMITED
Defendant
FLOURISHING PROPERTY COMPANY LIMITED
Counterclaim discontinued
Hearing: 25-29 May 2015 Counsel:
J B M Smith QC and R S May for the Plaintiff
N R Campbell QC, M H L Morrison and
R M Cederwall for the DefendantJudgment:
25 June 2015
JUDGMENT OF FOGARTY J
This judgment was delivered by me on 25 June 2015 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Counsel: J B M Smith QC, Wellington
N R Campbell QC, Auckland
Solicitors: Luke Cunningham Clere, Wellington
Lowndes Jordan, Auckland
THE OFFICIAL ASSIGNEE v KINGSTON DEVELOPMENTS GROUP LIMITED [2015] NZHC 1416 [25
June 2015]
Introduction
[1] The defendant, Kingston Developments Group Ltd (Kingston), had acquired a property in Albany, north of Auckland. Kingston had mortgaged the property to ASAP Limited (ASAP), the debt being in the order of $14m. The property was valuable because of its suitability for development. A company, BC Corporate Administration Limited (BCCA), had an option to buy back the property from Kingston for the purchase price paid by Kingston of $16,686,000 plus third party costs, including interest (the charges). This option is called the “buy back option” and the right to exercise it, the First Option Agreement.
[2] If BCCA did not give notice to exercise the buy-back option on or before
12 January 2015, then the Official Assignee (OA) had the right to exercise the First Option Agreement. The OA’s right to exercise BCCA’s buy-back option was called the “Second Option” and was granted under a “Second Option Deed” entered into by BCCA and the OA. The OA had the right to exercise BCCA’s option between
13 January and 15 January 2015 (settlement being by the next day, 16 January).
[3] If the buy-back option was exercised, the purchase was on terms known as the “agreement for sale and purchase” or “the Agreement”. The buy-back option provided strict terms as to settlement:
The settlement date under the agreement shall be 16 January 2015 or such earlier date as the parties may mutually agree. Time being of essence. (emphasis added)
[4] BCCA did not exercise its option before 12 January. On 13 January, the OA gave notice to Kingston that she would exercise the option. To finance the purchase the OA had on-sold the property to Flourishing Property Company Ltd (Flourishing) for $25m. 1
[5] When the OA’s solicitors, GRC, advised Kingston’s solicitors, S&P, that the
OA would exercise the option, they suggested settlement by way of bank cheque. As
1 Nominated as purchaser by Shanghai Zhengchang International Machinery and Engineering
Company Limited.
will be described in this judgment, there were considerable difficulties arranging the settlement on 16 January. The settlement did not occur on that working day. At 5.15 p.m. on 16 January, S&P, as solicitors for Kingston, sent an email to GRC, as solicitors for the OA, cancelling “the contract2 and your client’s option.”3
[6] This is a dispute as to why the settlement did not take place before 5.00 pm on 16 January 2015 and so a challenge to Kingston’s notice of cancellation of the buy-back option at 5.15 pm on that day.
[7] The OA’s pleaded case is that Kingston was not entitled to cancel. The OA was ready, willing and able to settle. Kingston, by contrast, was not ready, willing and able to settle. It is contended that Kingston’s purported cancellation of the agreement at 5.15 pm on that day was a repudiatory breach. There has been a partial settlement in these proceedings. The OA seeks declarations which are equivalent to the remedy of specific performance of the contract by Kingston.
[8] When the OA’s solicitors confirmed to S&P that the OA would exercise the option, they suggested settlement by way of bank cheque. This was because of a special term in the contract for on-sale by the OA to Flourishing.
[9] The on-sale contract4 between the OA and Flourishing had a special term as regards settlement:
27.1The parties agree that, subject to agreement by Kingston (or its lawyers), settlement of the transaction evidenced by this agreement will (together with settlement of the sale of the property from Kingston to the vendor) be effected in person at the offices of Kingston’s solicitor with payment of the purchase prices by way of bank cheque and contemporaneous release of the required e- dealings by Kingston and the vendor. In the event Kingston (or its lawyers) do not agree to settle in the manner anticipated under this clause, the parties will use their best endeavours to agree settlement arrangements with Kingston which will minimise the risks to both parties. (emphasis added)
It may be noted that this special clause did not include a proviso that it be subject to
2 Agreement for sale and purchase.
3 First Option Agreement.
4 Used the ninth edition of the Real Estate Institute of New Zealand and Auckland District Law
Society agreement for sale and purchase of real estate.
agreement by ASAP the mortgagee of Kingston, whose discharge was, of course, essential to enable the transfer of clear title from Kingston to the OA and on to Flourishing.
[10] The OA gave notice to Kingston on 2 January 2015 that she was likely to exercise her option to purchase.
[11] On 13 January 2015, the OA’s solicitors confirmed to S&P that the OA would exercise the option and suggested settlement by way of bank cheque.
[12] In a contract for the sale of land, the obligations on the vendor and the purchaser are mutual:5
The obligation upon a vendor to settle is dependent and concurrent: he will not normally be in breach unless the purchaser also tenders performance of the obligations to be performed by him on settlement.
[13] The OA as purchaser did not tender the purchase price on that day. Her solicitors considered it would be futile to do so. In the course of the trial it became apparent there was a significant argument that Kingston was ready and able to settle on 16 January, from about 4.00 pm.
[14] Although not pleaded, the ultimate trial issue became whether or not Kingston’s solicitors had led the OA’s solicitors to believe that settlement was not possible, instead of explaining, as they could have, how they were able to settle. That conduct, if proven, could result in Kingston not having the right to cancel at
5.15 pm that day, meaning that its cancellation notice was a repudiation of the contract, entitling the plaintiff to obtain the remedy of specific performance.
The transactions comprising the settlement
[15] The OA had no funds to pay Kingston the sale price. The OA depended on receiving the on-sale price of $25m from Flourishing to pay Kingston. Kingston’s
5 Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553 (NSWCA) at 571, cited by DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 476.
debt to ASAP was in the region of $14m. Kingston had no ability to pay ASAP
without receiving the purchase price.
[16] To achieve a settlement, funds had to be flow from Flourishing to the OA, to Kingston, to ASAP. Then there had to be a simultaneous discharge of Kingston's mortgage by ASAP, transfer by Kingston of title to the OA, and on transfer by the OA to Flourishing.
[17] There were four firms of solicitors involved in the settlement. ASAP's law firm was Ganda and Associates (Ganda), a small Auckland law firm whose principal is Mr Ganda. Kingston’s law firm was S&P, a reasonably sized law firm in Auckland. The OA’s solicitors, GRC, were represented by a senior solicitor, Ms Kelly Johnson, in Wellington. Flourishing’s solicitors were DLA Phillips Fox (DLA), who were represented by Ms Sonia Carter, a solicitor in the Auckland office.
[18] Mr Richard Chen, a solicitor and an Associate of S&P was the member of the firm in closest touch to the director of Kingston, Mr Huang, who was in a different time zone (China). Mr Chen delegated the task of preparing the settlement statement to Ms Isa Xu, who is an unqualified, but capable, law clerk. Two partners of S&P were involved. The senior partner, Mr David Short, very briefly, and Mr John Macdonald. Of these two, Mr John Macdonald took charge of the process from about mid-morning on the day settlement was due, 16 January 2015.
[19] The funds are normally transferred by an electronic transfer system set up by the banks, called SCP,6 which enables parties using different banks to nonetheless see receipt of funds on the same day (rather than the usual next day recognition of deposits).
[20] As clause 27.1 of the on-purchase assumes,7 all the conveyances would be electronic. The electronic instruments are loaded into a “workspace”. The
respective law firms have coded access to read these instruments and satisfy
6 Same Day Cleared Payments System of direct transfer between bank accounts that operates through the Reserve Bank.
7 See [9] above.
themselves that they are in place. On settlement the instruments are “released” and take effect once they are subsequently registered.
Chronology of events re settlement
[21] Mr Graeme Smaill, a consultant at GRC, emailed Mr Chen of S&P on
2 January 2015 advising that the OA was likely to exercise BCCA’s option and that this would require settlement on an urgent basis between 13 and 16 January. There was no reply. S&P’s offices were closed.
[22] On 7 January, Ms Johnson telephoned Mr Chen. S&P’s offices were still closed. Mr Chen advised that he did not expect there would be any issues with settlement in person by bank cheque, and would take instructions and write back.
[23] On 8 January, Ms Johnson emailed Mr Chen as to the likely costs which Kingston would claim as part of the purchase price. There was no reply and there was a follow-up email on 12 January, the day S&P opened for the New Year.
[24] On 13 January, the OA exercised her option and her solicitors advised that they would be in touch to discuss the arrangements “for contemporaneous settlements by bank cheque in person at your offices”.
[25] On 14 January, Ms Johnson also requested clarification of a number of matters before settlement, including GST details, issues around covenants and e- dealing details and asked for a suitable time to attend in person on Friday. At
7.08 pm on 14 January, Ms Johnson sent a follow-up email asking for an urgent response to the issue of third party costs and the other issues raised in her earlier email.
[26] On 14 January, Ms Johnson also emailed ASAP seeking confirmation that ASAP’s security interest under the PPSA would be released on or prior to settlement. She received a response from Ganda indicating that S&P would need to request the release of the mortgage and securities.
[27] On 15 January, Mr Chen by email advised Ms Johnson at GRC that he was awaiting details from Kingston’s mortgagee (ASAP), but did not respond to the other items: being Kingston’s settlement statement, and S&P’s e-dealing details. Ms Johnson sent an email requesting that the settlement statement be sent by
2.00 pm that day. Receiving no response, Ms Johnson sent two follow-up emails, both being copied to Mr Short, the senior partner of S&P. Mr Short responded by phone. At 4.01 pm, Ms Johnson provided S&P a memorandum, again proposing contemporaneous settlement by bank cheque at S&P’s offices and setting out draft undertakings, and advising that DLA, solicitor for the on-purchaser, Flourishing, would be the OA’s payment agent. At 4.41 pm, Ms Isa Xu, of S&P, provided a draft settlement statement which included an extra $1.5m in charges, which drew a request from GRC at 5.28 pm for a line-by-line justification. Mx Xu replied at 6.45 pm attaching several supporting invoices.
[28] Mr Chen had instructed Ms Xu to prepare for the settlement. She assumed that the settlement would be a normal SCP, i.e. the remote release of instruments after an electronic transfer of funds. Her focus was on the difficult task of settling the charges Kingston was able to charge the OA. She did not know of the OA’s requirements for a bank cheque settlement at Kingston’s office. She had not seen the email correspondence to Mr Chen, suggesting settlement by bank cheque at S&P’s offices.
[29] No notice prior to 16 January had been given by Kingston to Ganda, the solicitors for ASAP, of the suggestion that the mortgage be settled by bank cheque at S&P’s office on that Friday afternoon. The principal of the firm, Mr Ganda, was in Australia. His office had five discharges of mortgage that afternoon. They were not prepared to send anyone to S&P’s office for a bank cheque settlement. Rather, Ganda advised they would release the electronic instrument discharging the mortgage upon deposit of the repayment into the firm’s trust account.
[30] At 1.17 pm on 16 January, Ms Xu forwarded to Ms Johnson this advice from Mr Ganda, dated 16 January, advising they would release the mortgage “immediately following receipt of confirmation of deposit of settlement funds into our trust account”.
[31] Ms Johnson then told Ms Xu by phone that that was inconsistent with S&P’s obligation to release the transfer instrument upon receipt of the on-purchaser’s bank cheque. Ms Xu indicated she had not read GRC’s proposed settlement procedure (by bank cheque).
[32] At 1.39 pm Ms Johnson emailed Ms Xu stating that the OA was ready, able and willing to settle and that if settlement did not take place, it would be due to a breach by S&P and their client.
[33] At 2.26 pm, Mr Macdonald, a S&P partner, left a voicemail message with Ms Johnson. He advised that settlement in person was problematic because Kingston’s mortgagee’s solicitor was not available to attend at S&P for a bank cheque settlement, and that such a settlement did not accord with PLS guidelines8 and that therefore another settlement procedure needed to be agreed.
[34] A half an hour later, at 2.56 pm, Ms Johnson replied to Mr Macdonald by email stating that settlement in person was required due to the need for contemporaneous settlement with the on-purchaser and referred to Mr Chen as having been informed of this as early as 2 January and indicating, on 7 January 2015, that this was not likely to be a problem.
[35] At 3.15 pm Mr Macdonald dictated an email to Isa Xu which was sent to
Kelly Johnson of GRC. The email stated:
We are instructed that the amount shown in our most recent settlement statement has been approved by our client, but our mortgagee is not able to attend the settlement in person and we are able to complete a normal direct credit settlement today. If you will insist on a bank cheque settlement (and it does not appear to be a situation covered by the guideline example), then your undertakings will need to reflect the undertakings set out in the guidelines.
[36] Ms Johnson thought the email made no sense. For Mr Chen had agreed settlement in person with bank cheques, back on 7 January and with an hour and 45
minutes to go, it was too late for any alternative arrangements.
8 Property Law Section of the NZ Law Society. These guidelines are partially incorporated into the Standard Real Estate Institute of New Zealand and ADLS sale and purchase agreement, by cross-reference.
[37] At 3.27 pm, Mr Macdonald sent an email to Ms Johnson indicating settlement by attendance at S&P’s offices was anticipated, and noting that settlement would need to occur in a sufficient time to enable S&P to bank the cheque before
4.30 pm.
[38] At 3.42 pm, having had no reply, Mr Macdonald sent a short email to
Ms Johnson:
We require you to provide a settlement cheque and your undertakings direct to us.
[39] Ms Johnson found this sequence difficult to understand. This was because of
Ganda’s instructions.
[40] Around 3.34 pm, Ms Johnson spoke to Mr A Patel of ASAP who told her he would attempt to contact Ganda in order to establish whether Ganda’s attendance at settlement was possible. She left a message with Mr Macdonald at 3.45 pm and at around 3.50 pm, Mr Macdonald called her.
[41] Mr Macdonald asked again why they were requiring settlement in person with bank cheques. Ms Johnson explained it was because of the back to back purchases.9 That led Mr Macdonald to say, “Sounds too hard to arrange today” and raised the prospect of deferring settlement given the difficulties caused by the settlement taking place by bank cheque. Ms Johnson was surprised by the
suggestion of deferment, aware Kingston could be motivated to avoid settlement.
9 The NZLS Property Transactions and E-dealing Practice Guidelines, July 2012 at 49 provide
FBack to Back dealings: Guidelines 8.14. The most straightforward method of dealing with a back to back transaction (e.g. an on-sale of the same property on the same day) is to set up both transactions in the same dealing as the number of instruments or parties in an e-dealing is, for all practical purposes, unlimited.
The commentary to the rule also says:
The wording of undertakings is extremely important with back to back settlements. Agree with the other side in advance regarding undertakings in settlement procedures. If agreement cannot be reached, settlement should be face to face with all parties. The most appropriate way to exchange settlement funds in a back to back settlement is via SCP … Settlement in person (at the office of the first transferor or as otherwise agreed) may be appropriate.
[42] At 4.01 pm, Mr Macdonald sent a short email to Ms Johnson stating, “Our instructions are for settlement today”.
[43] Ms Johnson tried to contact Mr Macdonald several times over the phone to clarify whether his email was an acceptance that the settlement would be in person by way of bank cheques and with the mortgagee in attendance but got no answer. At
4.07 pm, she sent an email which said:
Please call me urgently – are you saying settlement today in person at your offices?
Mr Macdonald did respond with a call and told Ms Johnson (her note) “if he can see
the dollars he will discharge the mortgage and transfer”.
[44] As already noted, Ms Johnson could not understand how Mr Macdonald could discharge the mortgage in the absence of the mortgagee. When she was told this, she said to Mr Macdonald:
Okay think we are on the same page. Am trying to get Ganda sorted for attendance. Let me confirm.
Mr Macdonald did not comment.
[45] Mr Macdonald had a very good relationship with his bank, ASB, who had a branch across the road. During the course of the afternoon, Mr Macdonald contacted his bank, first on the use of bank cheques, and then, he believes, between 4.00 pm and 4.17 pm, to dispense with a bank cheque to the mortgagee and have a cleared funds payment to Ganda against the bank sighting a bank cheque in S&P’s favour. To this end he negotiated with the ASB bank (Ms Carolyn Mason) a temporary “force limit” on his firm’s trust account. This is akin to a temporary overdraft facility.
[46] Ms Mason gave evidence confirming Mr Macdonald’s evidence. She could not, however, put a time on when she agreed the facility, other than in the afternoon. She confirmed she had agreed that ASB would provide a temporary force limit on the following conditions:
1S&P would complete the standard form ASB temporary force limit letter.
2Mr Macdonald would send me a copy of a bank cheque as confirmation of receipt by S&P. This would replace the standard proof of incoming funds confirmation is this instance.
3 If the letter and copy of the bank cheque were received before
4.30 p.m., ASB would load the limit allowing John to process the same day cleared payment.
4Mr Macdonald would deposit the bank cheque, clearing the temporary force limit on the same day.
[47] Ms Mason also added that after these four steps had been completed, it would have taken less than a few minutes to load the force limit facility. Second, if the four steps were completed after 4.30 pm, she said:
14If the 4.30 pm deadline for the same day cleared payment had been missed, the next available payment method was a direct credit. The Professional Trust team at ASB was available until at least 5.15 pm on 16 January 2015 to assist with the request to action this payment method if the 4.30 pm same day cleared payment deadline had been missed.
15Direct credit payments are not sent via the Reserve Bank of New Zealand same day cleared payment channel. But because in this instance the mortgagee’s solicitors, Ganda & Associates, also banked with ASB, the direct credit payment option would have been sent as cleared and irrevocable by S&P.
16Processing this payment as a same day cleared payment would have taken only a minute or two. However, if we had to pay by direct credit, ASB’s Professional Trust Team would have manually created a confirmation of deposit. This would have taken about 5 or 6 minutes.
17In either case, a confirmation of deposit would have then been faxed to Ganda & Associates.
17.1A same day cleared payment generates an automated confirmation forwarded to the recipient if a fax number is provided. (A fax number is an optional field when processing).
17.2A direct credit is a manual confirmation provided from the Professional Trust team to confirm the processing and payment.
17.3Irrespective of settlement channel, both parties would have been able to view their ASB trust account online and would have seen the funds arrive in their account in real time.
[48] She said:
18ASB was prepared to grant S&P a temporary force limit because the bank cheque in question came from the ASB, was to be paid to S&P’s ASB account, and Ganda & Associates trust account was also an ASB account. We could therefore see where the cheque was coming from, and knew who it was going to, and had control over the whole process. Because ASB had issued the bank cheque, we knew that we would not dishonour it.
[49] Mr Macdonald made five phone calls that afternoon to ASB between 2.49 pm and 4.17 pm. The calls were not long. By cross-reference to his confident 3.15 pm email,10 and to his assessment that he applied for the force limit after 4.00 pm and before 4.17 pm, I conclude he was clearly confident before 4.00 pm that he could arrange such a facility.
[50] After the 4.07 pm call, Ms Johnson got in touch with Ganda who reiterated that they would not be prepared to attend the settlement. At about 4.24 pm, she rang Mr Macdonald. Her note of the call is:
Not happening. Ganda won’t attend. DLA have confirmed not agree to
deferment.
Her note of Mr Macdonald’s response was:
Kingston won’t agree to a deferment either;
to which she replied:
Not sure Kingston is in a position to decide that. Think probably our call will need to take instructions on next steps.
Ms Johnson’s evidence was that in that phone call Mr Macdonald did not suggest any alternative process which could allow for the settlement to proceed. She inferred that he “gave me the clear impression that he agreed with my stated view
that the inability of Ganda to attend meant that settlement could not occur that day”.
10 See [35] above.
[51] Three minutes later, Ms Johnson received an email from Ms Carter, solicitor for the on-purchaser, the message being:
We’ve tried calling you several times. The bank shuts in four minutes and we’re going to re-deposit the bank cheques. Will email shortly re deferred settlement.
[52] The two lawyers then had a conversation where Ms Johnson informed
Ms Carter the settlement could not happen because the mortgagee would not attend.
[53] Three minutes after that, at 4.30 pm, Ms Johnson received an email from Isa
Xu of S&P, the message being:
Attached please kindly find our undertakings.
The attachment was as follows:
We undertake that we have certified and signed the instruments listed below under e-dealing number 9944467.
On evidence of a bank cheque payable to Short and Partner trust account to
S&P for $17,988,853.71 and receipt of your undertakings, we undertake to:
· to release the following instruments as an e-dealing from the
Landonline workspace into your control:
- Transfer
- Discharge of mortgage 9903843.3
·Not to attempt to withdraw such release or attempt any alteration of such instrument following settlement;
In terms of your undertakings, we require personal undertakings that the bank cheque to be delivered to S&P derives from cleaned funds in your trust account. And the payment under the bank cheque will not be stopped and the cheque will be honoured.
[54] At 4.41 pm, S&P sent an email to Ms Johnson:
Attached please kindly find our settlement undertakings and our trust account detail.
[55] At the same time, DLA sent an email to S&P:
As just discussed, we understand that settlement will not be occurring today and we have redeposited the settlement funds into our trust account.
[56] At 4.49 pm, the OA caveated the property. At 4.56 pm GRC sent to S&P a settlement notice alleging in the background that Kingston had failed to settle with the purchaser on the settlement date, that the purchaser is ready, able and willing to proceed to settle “and has been unable to settle by reason only of your default” making time of the essence within twelve working days to settle in accordance with the agreement.
[57] At 5.15 pm, Ms Xu emailed Ms Johnson informing her that the contract and
the OA’s option were cancelled.
The pleadings
[58] The plaintiff’s statement of claim pleads two breaches of the option
agreement and sale and purchase agreement, and also repudiation of the contract.
Breach of clause 3.5 of general terms of sale
[59] It is pleaded that Kingston breached its obligations to prepare a settlement statement and tender the settlement statement to the OA or her lawyer within a reasonable time prior to the settlement date. In this regard, the OA pleads Kingston provided a highly complex draft settlement statement for a significant sum lacking in any explanation supporting detail at 4.41 pm on the day before the settlement was due to occur. That is on 15 January 2015. That it provided drafts twice in the morning and then at 12.36 pm on 16 January 2015, and did not confirm that the revised draft could be considered as issued until 3.15 pm. Ms Xu explained that she had to get these issues resolved by Mr Huang in China, a process which absorbed a lot of time.
Breach of clause 3.7
[60] It is pleaded that Kingston breached its obligation to prepare all electronic instruments in the electronic workspace within a reasonable time, saying that its solicitors, S&P, did not enter the workspace until 11.34 am on 16 January 2015.
Repudiation
[61] The OA pleads that the OA was ready, willing and able to settle by 1.30 pm on 16 January 2015, having:
1.Been requested by the solicitors for the on-purchaser to agree to conduct the back to back settlements in person by bank cheque;
2.Formed the view that contemporaneous settlement in person by payment of bank cheque was necessary and desirable because of the need of the Official Assignee to obtain clear funds and transfer title simultaneously;
3.Validly elected settlement in person by delivery by bank cheque as it was permitted to do under clause 3.10 of the general terms of sale in conjunction with the PLS guidelines incorporated by reference into that clause, of which:
(a) PLS guideline 6.5 provides that where the purchase’s lawyer, acting professionally, considers it necessary or desirable in the interests of the purchaser to make payment by bank cheque, the purchaser’s lawyer may do so; and
(b) The Commentary to PLS Guidelines 8.14 – 8.16, in specific relation to back to back dealings, states “Agree with the other side in advance regarding undertaking and settlement procedures. If agreement cannot be reached, settlement should be face to face with all parties”.
[62] The OA thereafter pleads that the OA gave Kingston abundant notice of all the steps necessary for settlement to occur and the means by which they were proposed to be satisfied. She pleads other details in this regard, and then pleads that Kingston was not ready, willing and able to settle on 16 January 2015. She also pleads that Kingston was unwilling to settle because it stood to make a windfall gain of $8,314,000 (less its costs) if settlement did not occur.
[63] The OA also goes on to plead that even if Kingston had been ready, willing and able to settle, it was not entitled to cancel without first issuing a settlement notice in clause 10 of the general terms of sale (making time of the essence). That latter argument was not pursued because it already noted there is an express term making time of the essence.
[64] Kingston filed a counterclaim against the plaintiff It seeks a declaration that it did validly cancel the First Option Agreement, and is entitled to certain benefits under the Deed of Partial Settlement.
Partial settlement
[65] The parties have entered into a deed of partial settlement dated 7 May 2015. By this deed, title to the property was transferred from Kingston to the on-purchaser, Flourishing. Certain of the plaintiff’s claims have been settled by agreement and certain of the proceeds of sale have been held in escrow by GRC on behalf of the OA for disbursement in accordance with the Court’s decisions as to whether Kingston was entitled to cancel the sale and purchase agreement, and costs. Effectively, the escrow funds reflect the difference between the purchase under the option agreement of approximately $18m and the on-purchase settlement of $25m.
Ready, willing and able – the law
[66] As already noted,11 it is well established that the contractual obligations of parties to complete a sale and purchase of land are concurrent.
[67] Because of these concurrent obligations, neither the vendor nor the purchaser will be in breach of contract if it fails to complete within the time fixed by the contract unless the other party is prepared to perform its concurrent obligations.
[68] The usual formulation used to describe, or rather to sum up this readiness is that a party should be “ready, able and willing” to settle.12 In Howe v Dempsey, Miller J said: 13
The party may be ready, able and willing if everything material that remains to be done lies within its control and will be done at the appropriate time should the other party settle before [the time for settlement] expires.
11 At [12].
12 See Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [14]. Note that the phrase is sometimes “ready and willing”. See J D Heydon, M J Leeming and P G Turner Meagher, Gummon and Lehane’s Equity Doctrines and Remedies (5th ed, LexisNexis, Chatswood, 2015) at [20-120].
13 Howe v Dempsey [2013] NZHC 2297, (2013) NZCPR 682 at [46].
[69] Settlements, and particularly settlements with an on-purchase, need to be planned so that the interlocking contractual obligations of the parties can be discharged simultaneously. All the parties have to be ready to complete their respective obligations. Strictly speaking, money goes to the documents meaning that the assignment is made upon consideration having been received.14 This long-held proposition that money goes to the documents is reflected in clause 3.8 of the ninth edition of the standard agreement for sale and purchase, which provides:
3.8 On the settlement date:
(1) The balance of the purchase price, interest and other moneys, if any, shall be paid by the purchaser in cleared funds or otherwise satisfied as provided in this agreement (credit being given for any amount payable by the vendor under subclause 3.12 or 3.13);
(2) The vendor’s lawyer shall immediately thereafter:
(a) release or procure the release of the transfer instrument and the other instruments mentioned in subclause 3.7(1) so that the purchaser’s lawyer can then submit them as soon as possible for registration;
(b) pay to the purchaser’s lawyer the LINZ registration
fees on all of the instruments mentioned in subclause
3.7(1), unless these fees will be invoiced to the
vendor’s lawyer by LINZ directly; and
(c) deliver to the purchaser’s lawyer any other documents that the vendor must provide to the purchaser on settlement in terms of this agreement.
[70] It may be noted immediately that the term “release” reflects the norm of e- dealing in an electronic “workspace”.
[71] Under the terms of the ninth edition, settlement by bank cheque is possible. Clause 3.10 provides:
3.10The parties shall complete settlement by way of remote settlement, provided that where payment by bank cheque is permitted under the PLS Guidelines, payment may be made by the personal delivery of a bank cheque to the vendor’s lawyer’s office, so long as it is
14 Bahramitash v Kumar, above n 12 at [16]-[17], citing Foran v Wight (1989) 168 CLR 385, at
433 and Plowman v Dillon [1986] 2 NZLR 312 (HC) at 327.
accompanied by the undertaking from the purchaser’s lawyer
required by those Guidelines.
Was Kingston ready, able and willing to settle?
[72] There is doubt whether a remote, electronic funds transfer, settlement between all the parties, as distinct from between S&P and Ganda, could have been done on Friday, 16 January 2015 from mid-afternoon.
[73] The instruments of transfer and discharge were all in the workspace at
3.07 pm. Flourishing and the OA were the only parties who wanted a bank cheque settlement.
[74] Ms Xu suggested a “normal direct credit settlement” at 3.15 pm. As noted already, Ms Johnson says that it did not make sense, relying on Mr Chen’s 7 January acknowledgement. She also thought that with only an hour and 45 minutes left to settle, it would be virtually impossible for any alternative arrangements to face-to- face settlement with bank cheques to be put in place.
[75] Mr Macdonald suggested otherwise. Ms Xu’s email at 3.15 pm had been dictated by Mr Macdonald. He is very clear:
We are able to complete a normal direct credit settlement today.
[76] As it happened, in Auckland DLA, S&P and Ganda all banked with ASB. Real-time payments could have easily been made using ASB’s fastnet business method in a matter of minutes with the usual vendor undertakings given by S&P to protect the purchaser. It would appear that this option was not identified.
[77] One recalls that the money for the settlement with S&P was coming from DLA, not from GRC. S&P needed the money to pay Ganda about $14m, and thereby trigger their undertaking to release the discharge of the mortgage, in turn enabling S&P to duly transfer clear title to the OA in accordance with the standard vendor’s solicitor’s undertakings. Mr Macdonald is still considering an SCP settlement at 3.59 pm. Ms Johnson’s own file notes records:
John unsure why doing settlement by bank cheque. Why can’t it take place as per usual …
[78] Mr Nolan, one of two expert witnesses, the other being Mr Jones, explained that the PLS guidelines of July 2012 did not expressly provide for a remote settlement protocol where there were third parties represented by other lawyers, such as in this case, a mortgagee or a subsequent transferee. But that it had become standard conveyancing practice to adopt the protocol so they could cater to the more complex multi-party transactions that regularly occur in practice. It was his evidence that in this particular case, it would have been a matter of DLA making a payment by electronic transfer by SCP to GRC, GRC making payment by electronic transfer by SCP to S&P, and S&P making payment to Ganda by SCP, with Ganda releasing the discharge of the mortgage to ASAP Finance, S&P releasing the transfer from Kingston to the OA and GRC releasing the transfer from the OA to the ultimate purchaser. DLA would then have been in a position to submit the instruments for registration as an “auto-lodge” dealing, these would have been registered instantaneously.
[79] However, Mr Nolan was of the opinion that from about 2.30 pm onwards, there would have been reasonable grounds in terms of the guidelines to make payment by DLA/GRC bank cheque because of payment deadline issues. Mr Nolan gave evidence of time delays in a payment by SCP in 2012 when the guidelines were issued. He noted improvements, reducing delays, but was of the opinion because of delays of up to 30 minutes before faxed confirmations from the banks are received, that it would not have been unreasonable for GRC to have decided that the purchaser could not risk the delay that might be involved by making payment by SCP and that instead it would be quicker for GRC to make payment by bank cheque.
[80] Because of this evidence by Mr Nolan, being the expert for the defendant, the defendant’s counsel tended to emphasise the readiness of Mr Macdonald to settle on the presentation of the bank cheque at his offices, which is what he advised Ms Johnson through Ms Xu’s email, he could do, that being the email at 3.15 pm, reiterated at 3.27 pm and 3.42 pm.
[81] By the end of the trial, counsel for the OA did not dispute the ability of Kingston to settle by bank cheques and, in the absence of Ganda, using the force limit on their trust account, within the banking hours.
[82] Rather, the repudiation argument turned on the “willing” element in the “ready, able and willing” test. It was put this way in closing submissions by Mr Smith:
It was well within the vendor’s power (via its solicitors) to relieve the purchaser’s lawyer of the burden of the misapprehension which it (S&P) had helped create. Settlement would almost certainly have followed if GRC had been advised of the prospect of a force limit with adequate time. In this way, the vendor could not claim to have been ready, willing and able to settle. At best it would be said that it possessed a form of conditional readiness and ability to settle, depending on GRC solving a problem which S&P were at least in part responsible for. That cannot in truth amount to being ready willing and able to settle in terms of the broad and non-technical definition in Howe.
[83] S&P certainly did help create the Ganda problem. Kingston’s solicitor within
S&P, Mr Chen, had notice of the suggestion of a bank cheque settlement by at least
7 January, when he advised Ms Johnson that he did not think there would be any issues with settlement in person by bank cheque. It needs to be kept in mind that the office of S&P did not open for the New Year until 12 January. On 13 January, the OA exercised its option in writing by a letter, for the attention of Mr Chen, which included, as noted above, reference to discussing the arrangements for the bank
cheque settlement.15
[84] Mr Chen neither discussed at any time subsequent to 12 January with Ms Johnson the in person bank cheque settlement proposal. Nor did he tell his law clerk, Ms Xu, that it would be a bank cheque settlement. Nor did he discuss the matter with Ganda, so it would appear. If he did, there would have been evidence of that. Mr Chen was not called as a witness. I draw the inference he would not have
helped S&P’s cause.
15 See [24] above.
[85] Mr Chen could have alerted his colleagues on 14 January, when Ms Johnson sought a suitable time to attend in person on the Friday and again on the evening of
15 January.
[86] I have proceeded on the basis that it was a revelation to Ms Xu, Mr Short, the senior partner, and Mr Macdonald that what was proposed was a bank cheque settlement, and that that revelation occurred around 1.30 pm on Friday, 16 January.16
[87] Notwithstanding this lamentable inaction on the part of Mr Chen, there was still time, about three hours, to settle the transaction. It cannot be argued, and was not argued, that the lack of action by Mr Chen was the repudiation of the contract. Quite properly, Mr Smith QC focused on the interaction between Ms Johnson and Mr Macdonald.
[88] Focusing on Mr Macdonald, Mr Smith QC submitted:
…Mr Macdonald had led Ms Johnson to believe that the inability of Ganda to attend settlement in person was fatal to the possibility of settlement.
Mr Smith relied ultimately on the 4.24 pm call.17
[89] Addressing the proposition that it was futile for Ms Johnson to tender settlement, he submitted:
The futility of the exercise was clear to Ms Johnson. Mr Macdonald had indicated to her on their call at 4.24 pm that it was a foregone conclusion that the tender was not able to be accepted.
Because Mr Macdonald by his words and conduct plainly intimated an inability to perform the settlement obligation to convey the property, the Court should regard with scepticism his later statement that, contrary to what he told Ms Johnson, if tender had in fact been made it would have been accepted.
The fact that Ms Xu sent settlement undertakings immediately following the telephone conference between Ms Johnson and Mr Macdonald does not alter this analysis.
16 See [31] above.
17 See [50] above.
[90] The conversation at 4.24 pm contains another of Mr Macdonald’s clipped responses, “Kingston won’t agree to a deferment either”. That does not say the tender was not able to be accepted.
[91] We know from the chronology that at 4.30 pm the full undertakings were sent to Ms Johnson. We also know, however, that a minute earlier Ms Johnson had been discussing with Ms Carter that the settlement could not happen.
[92] Mr Smith submitted the fact that Ms Xu sent settlement undertakings immediately following the telephone conference between Ms Johnson and Mr Macdonald does not alter his analysis. By this time, Ms Johnson had already instructed DLA to return the bank cheques in reliance both on her conversation with Mr Macdonald that the mortgage could not be released, and his earlier email that any tender following 4.30 pm would be futile, as “we need to deposit the cheque before
4.30”. Ms Carter of DLA said the rebanking was made to “avoid losing interest on the on-purchaser’s funds”. This statement suggests cost saving was a factor in failing to tender. Neither Ms Johnson nor Ms Carter appear to have discussed tendering the cheques.
[93] Mr Smith’s argument depends on isolating the 4.05 pm and 4.24 - 4.30 pm discussions from the earlier emails and the concurrent emails. It also, albeit to a lesser extent, relies on the proposition that it is S&P who has caused this problem by not interacting on the undertakings earlier. I keep in mind, however, that the first GRC/DLA draft of the undertakings sent to Mr Chen did not arrive until 4.01 pm on
15 January. One of the reasons for that is the draft undertakings had been prepared earlier by Ms Johnson and Ms Carter, S&P not being invited to participate, let alone the mortgagee’s solicitor, Ganda. It is regrettable that the undertakings were not examined by S&P first thing on 16 January. But all the efforts were going into justifying and settling the extra costs in the draft settlement statement, after GRC’s (Ms Johnson’s) request at 5.28 pm the night before for a line-by-line justification.
[94] The GRC/DLA drafts of the undertakings did not provide for any undertaking by Ganda. Inferentially, it left the planning of the discharge of the mortgage between Ganda and S&P. This effectively presumes that Ganda would be prepared to accept
a bank cheque at the offices of S&P and release the discharge of the mortgage before the cheque was banked. Fixed with that view, Ms Johnson and Ms Carter do not seem to have been able to conceive of any other arrangement that could have been reached between S&P and Ganda over the discharge of the mortgage, whereby a representative from Ganda was not required to be present at the settlement at S&P’s offices and previously left it up to S&P to arrange the discharge of the mortgage. As we have seen, Ms Johnson then intervened and spoke to Ganda directly.
[95] In his emails of 3.15 pm, 3.27 pm and 3.42 pm, Mr Macdonald was clearly advising he was ready and willing to settle either by SCP or by bank cheque. Whether or not he had the force limit in place by then, the evidence is clear, as acknowledged by Mr Smith: “Settlement would almost certainly have followed if
GRC had been advised of the prospect of a force limit with adequate time”. 18
[96] Had DLA, Auckland, sent a solicitor or clerk with the bank cheques to S&P from 3.00 pm up to close to 4.30 pm, Kingston would have settled. The ASB branch across the road from S&P would negotiate bank cheques until 4.30 pm.
[97] Ms Johnson and Ms Carter, however, were fixed in their minds on a bank cheque settlement and believed that the bank cheque settlement could not proceed (Ms Johnson believing it impossible given the Ganda problem), and that that was the fault of Kingston. They did not speak in terms of futility, but their state of mind was equivalent to having formed the view that presenting the bank cheques at the office of S&P was futile.
[98] Mr Smith submits that Mr Macdonald led Ms Johnson to believe that attendance by Ganda was essential. However, Ms Johnson had this belief from the time she saw Ganda’s prepayment requirement at 1.17 pm.19 She kept to this belief, notwithstanding Mr Macdonald’s messages and so found his messages confusing.
[99] For the OA to prove that Kingston repudiated the contract, it is necessary for
the OA to prove that Kingston’s solicitors, by their conduct, made it clear that it was
18 See [82] above.
19 See [30] above.
futile for the OA to tender settlement. The law is settled, it must be clear to the purchaser that it is futile to tender the purchase price.
[100] In Bahramitash v Kumar the Supreme Court, in turn, followed the High Court of Australia in Foran v Wight.20 In Bahramitash v Kumar, the appellant, Mr Bahramitash, had agreed to sell a residential section at Auckland to the respondents, Mr and Mrs Kumar. A third party had deposited a large quantity of soil on the section which buried and disturbed some of the survey pegs. This occurred after the contract had been entered into. Both parties accepted this caused damage to
the property but did not render it untenantable. The date fixed for settlement was
11 September. On 3 September, the purchasers through their solicitors, called on the vendor to remove the soil from the property and also point out the survey pegs or, if unable to do so, have the property surveyed and marked with appropriate pegs. The letter said if this was not done, the purchasers would deduct compensation of
$10,000 and tender the balance of the purchase price. The vendor’s solicitor responded by disputing these requirements and requiring settlement in full. On the day of settlement, the situation on the property was unchanged. The solicitors were not able to resolve the dispute on the day. On the next day a resurvey and reinstatement of the pegs was attended to and a notice making time of the essence was sent, calling on the purchasers to settle within twelve days. There was no tender of settlement within that time and the vendors gave notice of cancellation of the contract.
[101] The purchaser had succeeded in the Court of Appeal in the remedy of specific performance on the grounds that although the purchaser did not tender payment, it would in the circumstances have been futile. At [20], Blanchard J for the Supreme Court said:
[20] The conclusion that going through the motions of tendering would have been a futile exercise is not one which is lightly to be drawn. It is normally prudent, save in the clearest of cases, for the purchaser to carry out a formal tender so that the issue does not arise in litigation, as it unfortunately did in the present case. It is for the purchaser to prove that tender would have been futile. It is a matter which is judged objectively at the time when tender was otherwise due. It is not enough for a purchaser’s solicitor to have subjectively concluded, however honestly,
20 Foran v Wight, above n 14.
that the vendor will not perform the concurrent obligation in response to a tender of the sum which is due. The futility of the exercise must be clear; it must be shown to have been a foregone conclusion that the tender would not have been accepted or was not able to be accepted. … (Emphasis added.)
[102] This paragraph [20] was described as a “crucial” passage by the Court of
Appeal in Messenger v Goodman.21
[103] The judgment of the Court, delivered by French J says:
[45] The legal principles relating to tender of settlement monies under an
agreement for the sale and purchase of land are well established. [46] As explained in the leading authority of Bahramitash v Kumar, a vendor’s settlement obligation to convey the property is interdependent with the purchaser’s obligation to pay in accordance with the contract. It is not an obligation to be performed in isolation. Further, it is for the purchaser to begin the process of settlement by taking or transmitting the settlement sum to the vendor. Money goes to documents. [47] It follows that ordinarily the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has first been a proper tender by the purchaser and in response to that tender the vendor has exhibited an inability or unwillingness to deliver the title. [48] That is the general rule. [49] However, the position is very different if the vendor by their words or conduct has indicated that a formal tender by the purchaser would be futile. In those circumstances, tender will not be necessary; the vendor cannot treat the purchaser as being in default by failing to make such a tender and the vendor will themselves be taken to have indicated that they are not ready, willing and able in all material respects to perform their settlement obligations. [50] As to when a Court may find that formal tender would have been futile, a high threshold is required. In a crucial passage in Bahramitash, the
Supreme Court had this to say: (and cited [20], set out above.)22
[104]
It is in this context that one examines whether there was
any
misrepresentation by Mr Macdonald. An alternative framing of this issue is to say that because it has become clear that Mr Macdonald was able to settle, the question is whether Kingston was not willing and was misleading the OA as to its ability to
settle.
21 Messenger v Goodman [2012] NZCA 535, [2013] ANZ ConvR 13-016.
22 See [101] above.
[105] To resolve these ultimate issues, it is necessary to examine more fully the telephone conversation of 3.50 pm, followed by the email to Ms Johnson at 4.01 pm saying shortly, “Our instructions are for settlement today”, followed by the telephone conversation at 4.05 pm in which Mr Macdonald said, “If he can see the dollars he will discharge the mortgage and transfer”, to which Ms Johnson replied, “Okay think we’re on the same page and trying to get Ganda sorted for attendance. Let me confirm”, followed by the conversation at 4.24 pm.
[106] Ms Johnson and Mr Macdonald both made file notes. Ms Johnson’s file note
of the 3.50 pm call has Mr Macdonald saying to her:
Not sure why the need for settlement in person with bank cheques and the
unusual associated undertakings. Why can’t it take place as per usual?
Ms Johnson replies:
[Because] it is back to back settlement, OA not in funds, needs funds for purchase before giving to Kingston for sale. We think [solution] is for Ganda to attend, sight the cheques (presumably including the one from Short and Partners) and then phone back to order release [the discharge of mortgage]. Then S&P releases transfer and cheque is handed over.
To which Mr Macdonald replies:
Sounds too hard to arrange today. Wont settle if can’t bank the cheque today
as he has family day tomorrow.
Ms Johnson: Which bank? Mr Macdonald: ASB.
Ms Johnson: They have branches open tomorrow.
Mr Macdonald: Sounds too hard. Can we not agree to defer to
Monday?
MsJohnson: Will have to take instructions (dependent too on agent of on-purchaser) but no point agreeing to deferment if we can’t sort settlement procedure.
[107] Mr Macdonald’s note was as follows:
Discuss the mechanics of getting everyone together at 3.55 p.m. and the fact that we had trouble with the mortgagee and Kelly started talking about the ASB Bank on Saturday and I said I would not be available because I was out of Auckland on a family matter and I said it may be possible to agree simply
to defer it to Monday, 19 January 2015. She said she would need to check with the other people in the meantime and I spoke to Richard and he said the matter had to be settled today or not at all. I then left the telephone message on Kelly’s answer phone and also emailed her at the same time our instructions were not to defer settlement but to insist on settlement today. She then phoned and said she could not do a direct credit nor could she do a settlement where there were in fact two bank cheques, one that we could deposit directly to our mortgagee, and one to us, but I said that so long as we had a bank cheque payable to us for settlement amount and we had the OA’s personal undertakings as opposed to passing on DLA’s undertakings and we had our mortgagee able to deal with the matter as well then we could proceed.
[108] It will be seen this file note, which is in one paragraph, is reporting on both the conversation of 3.50 pm and the conversation at 4.05 pm.
[109] It needs to be kept in mind that, in between these calls, at 4.01 pm, Mr Macdonald sent an email to Ms Johnson stating, “Hi Kelly. Our instructions are for settlement today. Regards”.
[110] Ms Johnson’s file note of the 4.05 pm conversation is as follows. She called
Mr Macdonald:
MsJohnson: What does he mean – agreed on settlement procedure?
MrMacdonald: If he can see the dollars he will discharge the mortgage and transfer.
Ms Johnson: Okay, think we are on the same page. I am trying to get Ganda sorted for attendance. Let me confirm.
[111] Ms Johnson does not record Mr Macdonald’s note “and we had our mortgagee to deal with the matter as well”. In context though, Mr Macdonald was not requiring Ganda to be present. Rather, to be ready to deal, to verify receipt of the funds and release the mortgage.
[112] There could be no challenge, after the evidence of Ms Mason, of Mr Macdonald’s ability to settle, without the mortgagee’s solicitor’s personal attendance at S&P, utilising the force limit on the trust account.
[113] The question of repudiation then resolves down to the critical issue of whether the plaintiff has proved Kingston was unwilling to settle, and whether
Mr Macdonald had misled Ms Johnson, as she claimed, in his short conversation at
4.05 pm, in order to avoid settling or, as Mr Smith submitted, in the 4.24 pm conversation.
[114] It is clear that Mr Macdonald did not say something like: “No need to go and get Ganda sorted. I can handle it from my end”. On Ms Johnson’s note, he was silent. Did Mr Macdonald, for Kingston, have an obligation to intervene from about
4.00 pm to 4.30 pm and tell her not to bother talking to Ganda? This, I think, is the ultimate issue in this case.
[115] Ms Johnson did call Ganda and was told, “No” (Ganda turning up to S&P’s offices for a bank cheque settlement). She did not call Mr Macdonald back and ask how he could settle.
[116] Mr Macdonald says it was never his practice and he never had disclosed how he met his undertakings. That he saw no obligation to disclose the forced limit.
[117] From the time that Mr Macdonald sent his one sentence email of 4.01 pm, his communications with Ms Johnson, as noted by her, were short and clipped. The 4.05 pm conversation was short. So also the call to him about 4.24 pm telling him in her note, “not happening, Ganda won’t attend, DLA have advised not agree to deferment”, her note of his reply is, “Kingston won’t agree to defer either”. And, as we have seen in the chronology above, at 4.30 pm the undertakings for settlement were sent with further settlement undertakings at 4.41 pm
[118] In his evidence, Mr Macdonald was silent on his duties to his client, Kingston, but they are obvious. Mr Macdonald knew at all times that Kingston stood to make a substantial gain if the OA failed to settle by 5.00 pm. Kingston had got into the position it was in as a result of a relatively complicated financing arrangement. It had essentially lent funds to a prior purchaser of the property, taking security by way of title, with an obligation to resell the property back to the borrower in early 2015, pursuant to a buy-back option in favour of the borrower. It is common ground that Kingston knew that that price was at undervalue.
[119] On the other hand, Kingston had a contractual duty to be ready, willing and able to settle. S&P, and particularly Mr Macdonald had a duty to facilitate Kingston discharging its obligation to transfer the property to the OA upon the tender of the purchase price by the OA. This included the obligation of Kingston to provide clear title, which could only be done by the prior or simultaneous discharge of the mortgage.
[120] The time being of the essence provision of the contract was to the advantage of Kingston. Provided that Kingston did not breach its contract to transfer the land upon payment by 5.00 pm on 16 January 2015, it was entitled to conduct itself so as to take advantage of any failure of the buyer to tender the purchase price before 5.00 pm on 16 January 2015. In the absence of express instructions from his client, it would have been a breach of duty for Mr Macdonald to agree to waive time being of the essence and to allow the purchaser to make time of the essence at a later date.
[121] I am satisfied that Mr Macdonald did not intend to mislead Ms Johnson or have his client repudiate the contract. Equally, he was not intending to tell her about the force limit. He was persistently agreeing to a bank cheque settlement, inviting production of the cheques. At the same time he was not going to assist Ms Johnson by telling her how it could be done.
[122] The telephone conversation at 4.05 pm has to be read in the context of S&P’s emails of 3.15 pm, 3.27 pm and 3.42 pm, all of which were contemplating and confirming availability for a bank cheque settlement. Essentially, Ms Johnson did not believe these emailed and oral invitations to settle by remote settlement or bank cheque - clearly advised by 3.15 pm, well in time for at least a bank cheque settlement. She did not believe how he could settle without Ganda being present to receive the bank cheque.
[123] In her evidence Ms Johnson said:
I think there is a consistent theme of them [the S&P emails] suggesting that a bank cheque settlement is possible but also not letting us know how that might be achieved in circumstances where the mortgagee can’t attend the in- person settlement with bank cheque and in terms of the undertakings,
[referring to the 3.42 p.m. email] “Kelly We require you to provide a settlement cheque and your undertakings direct to us” [She said this] was more an indication to me that they didn’t actually accept the proposals contained in our memorandum. I don’t think it was entirely clear in what it said. The first thing that confused me was the wording, “Your cheque and your undertakings direct to us” which seemed to imply that there might be some other person we might be giving the cheque or undertakings to. So what I think he meant, in reading between the lines, was that he expected us to draw the cheque from our trust account which was essentially ignoring the payment agency created between the OA and DLA and us provide the associated undertakings. So that’s what I read that email as meaning.
[124] Given the acknowledgement of the consistent emails suggesting bank cheque settlement is possible, it was not clear objectively that tender would be futile.
[125] She was then examined further:
Q But it’s clear from the email that he is expecting there to be an in
person bank cheque settlement, correct?
A Yes but at the same time not establishing how that might happen.
QThough, although he might be proposing some change to the undertakings, you wouldn’t have seen any problem with that would you?
A No but I don’t think that he was proposing changes to the
undertakings from that email.
QNow during those emails from 3.15 to 3.42, at no time did you call Ms Carter and ask her to go to Short and Partners with the bank cheques did you?
ANot at that stage because we were still under the impression that we were quite a long way off being able to achieve settlement.
[126] Time was passing. Mr Macdonald’s email of 3.50 pm was 35 minutes after his assurance that he could settle by bank cheque at 3.15 pm. It is natural for him to suggest at 3.50 pm that it is beginning to sound too hard to arrange. He had warned at 3.27 pm that the bank cheque would have to be banked by 4.30 pm. This is Auckland, late on a Friday afternoon. S&P’s offices were in Parnell. Then, at 4.01 pm, he reiterates the instructions. None of those messages suggest that his assurances are dependent on a member of Mr Ganda’s firm being present to accept a bank cheque. All of them are inviting the tender of the purchase price of the property.
[127] Both lawyers knew that it was not in the interests of Kingston for the purchase to proceed.
[128] Mr Macdonald’s oral and written communications were very carefully
avoiding any repudiation of the contract on the part of Kingston’s lawyers.
[129] Far from repudiating the contract, Mr Macdonald had reacted very swiftly to the disclosure to him that day that it was to be a bank cheque settlement, and to Ganda’s terms of payment into their trust account before the release of the mortgage. He tried to get Ms Johnson to agree an electronic settlement. Then to see if the settlement could be deferred. He negotiated the force limit overdraft. Those three steps are not the conduct of a solicitor intending to repudiate the contract on behalf of his client.
[130] The law requires the purchaser to be clear that tender is futile. From about
3.00 pm, Ms Carter could have taken the two settlement bank cheques, which had been issued, to S&P’s Parnell office. Undertakings could be amended in person or by email.
[131] If there was any misrepresentation by Mr Macdonald, it was of pure omission, the failure to respond to Ms Johnson’s statement that she would contact the office of Mr Ganda at 4.05 pm, and Mr Macdonald’s very clipped reply at 4.24 pm, “Kingston won’t agree to defer either”..
[132] Misrepresentation by silence is difficult to prove, absent some special relationship of trust between the parties.23 Professor John Burrows QC writes:24
The general rule is that mere silence is not misrepresentation. “The failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract”, even though it is obvious that the contractor has a wrong impression that would be removed by a disclosure.
23 See e.g. Kidd v van Heeren [2015] NZHC 517.
24 John Burrows, Jeremy Finn and Stephen Todd, The Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [11.2.1](e).
[133] Professor Burrows collects exceptions to non-disclosure.25 These exceptions are fiduciary duties, contracts uberimae fidei, banking guarantees in certain circumstances and some statutory obligations.
[134] He discusses the question of contracts for sale of land requiring disclosure. The discussion opens with this sentence:26
Contracts for the sale of land are sometimes said to require disclosure in certain respects, but it is submitted that this rests on an insecure basis. They are included in this discussion for historical reasons only.
[135] The discussion goes on to consider cases where there were issues as to defect in title.
[136] Ms Johnson admitted under cross-examination that she had not contemplated the possibility of a force limit solution. She was aware of the use of force limits to pay money out once banked, but not as an overdraft.
[137] Mr Campbell submitted that Mr Macdonald’s standard of conduct should be examined objectively, rather than on the basis of giving emphasis to Ms Johnson’s state of mind. I agree. A different conveyancing solicitor might have questioned Mr Macdonald directly on how he would discharge the mortgage, leading to an entirely different outcome. An objective test is necessary, otherwise any personal judgment of futility could justify non tender. Blanchard J, for the Supreme Court, in
Bahramitash says: “It is a matter which is judged objectively”. 27
[138] I conclude that the OA, as purchaser, has not proved that tender would have been futile. On the contrary, objectively, there was time in the afternoon to tender, and Mr Macdonald was able to and would have settled. The honest belief of the OA’s solicitor that it would have been futile is ineffectual in sustaining a judgment that the vendor has repudiated the contract, being a contract in which time for settlement was of the essence. It follows that the vendor, Kingston, was justified in
cancelling the contract, as it did, at 5.15 pm.
25 At [11.4].
26 At [11.4.3](c).
27 See [101] above.
Kingston’s backup argument – that Kingston does not have to show that it was ready and willing to settle in accordance with some proposed variation from the option agreement.
[139] This is an argument that the proposed terms of settlement by the OA were not consistent with cl 3.8 of the ninth edition of the ADLS terms which were part of the option agreement. So it is not necessary for Kingston to show that it was ready, willing and able to settle in accordance with some proposed variation from that agreement to which it had not agreed. As I have found that Kingston was ready, able and willing to settle on the terms proposed, it is not strictly necessary to address this argument.
[140] This is a technical argument without merit. First, because DLA/Flourishing and GRC/OA never demanded bank cheque settlement as they had agreed between themselves in cl 27.1 of their agreement. Rather, they suggested to S&P a bank cheque settlement.
[141] Second, the agreement between Kingston and BCCA, taken over by the OA, uses the then standard form 2012 edition of the Real Estate Institute of New Zealand and ADLS form. That form, as already noted, permits bank cheques under the PLS guidelines in cl 3.10.28 General terms of sale, cl 1.1(5)(b) provides:
“Cleared funds” means:
…
(b) A bank cheque, but only in the circumstances permitted by the PLS guidelines and only if it has been paid strictly in accordance with the requirement set out in the PLS guidelines.
[142] Clause 1.1(14) reads:
“PLS guidelines” means the most recent edition as at the date of this agreement of the property transactions and e-dealing practice guidelines prepared by the Property Law Section of the New Zealand Law Society.
[143] The PLS guidelines at 6.5:
Despite Guidelines 6.1 to 6.4, where the purchaser’s lawyer acting
professionally considers that it is necessary or desirable in the interests of the
28 See [71] above.
purchaser to make payment by bank cheque the purchaser’s lawyer may do so accompanied by an undertaking from the purchaser’s lawyer that:
a. The bank cheque derives from cleared funds in the purchaser’s lawyer’s
trust account; and
b. Payment under the bank cheque will not be stopped and the cheque will be honoured.
Note: Instances where the purchaser’s lawyer might justifiably wish to
make payment by bank cheque could include where:
- the purchaser’s lawyer considers it is necessary or desirable
to make formal tender of settlement
-the purchaser’s lawyer reasonably considers that a time deadline for payment may not necessarily be achieved under the SCP system
-cases where computer or technological malfunction or outage may unduly delay payment.
[144] However, on 15 January, the memorandum outlined a proposed settlement process and undertakings which it was argued were not in accordance with these guidelines because, as discussed above, it reversed the normal principle of tender of money and then release of transfer by requiring first that title be delivered by release of the discharge of the mortgage and transfer instruments and then, second, upon release of the above instruments, the OA’s purchaser’s solicitors, DLA, would hand over a bank cheque to S&P in settlement of the agreement between Kingston and the OA. (It was intended that DLA on the settlement would act for both the OA and Flourishing.) This is not only not in accordance with the property law guidelines but does not follow cl 3.8. But this is an issue easily resolved by practitioners in charge of the settlement.
[145] It is an age old practice, confirmed by the two expert witnesses – Mr Jones and Mr Nolan – that practitioners attending at bank cheque settlements in person, have the ability to and can amend undertakings to comply on the spot.
[146] It needs to be kept in mind that settlements are a mutual discharge of contractual obligations. The solicitors for each party are the parties’ agents. They can agree amendments to undertakings. They can agree variations to the contracts if so authorised. GRC/DLA’s suggested undertakings on 15 January do not, in my
opinion, amount to a breach. Holding to those undertakings, at a tender of the bank cheques might well be quite another matter and justify refusal to release the transfer ahead of the money. Mr Jones was more pragmatic about it, pointing out that in fact it is a relatively immediate process. The cheques are on the table. Everybody can see them. Both experts agreed undertakings can be varied at an in person settlement.
[147] The standard terms and conditions of these agreements for sale and purchase would not be allowed by the experienced practitioners to get in the way of closing settlement. For all sorts of reasons, settlements can sometimes be “difficult”. But what is essentially a repayment of a debt and discharge of a mortgage or a sale and purchase is a transaction that the parties want settled on the day. All sorts of problems theoretically can stand in the way of it. There might be some residual debate on matters as various as an arithmetical error in adjusting the rates leading to the bank cheque being a few dollars short or a few dollars too many on an unresolved allowable charge on the settlement. Solicitors handling the transaction know that it is not in the interests of their clients to lose the transactions over details. In the words of the expert, Mr Jones:
In other words, the wording of undertakings, arrangement for payment of funds, the place and mode and arrangements for settlement must be carefully arranged between the parties in the spirit of achieving settlement within the timeframe set for settlement in the transaction.
[148] One of the reasons for the now voluminous guidelines around settlements may be because property transactions are no longer in the sole control of officers of the Court, practising barristers and solicitors, breach of whose undertaking can be disciplined by the High Court, let alone by the New Zealand or Auckland Law
Societies. Non-lawyers can practise as conveyancers.29
Other technical breaches argued by the OA against Kingston
[149] I turn to two technical arguments of similar character, this time alleged by the OA against Kingston, but only to dispose of them as they were not effectively pursued during this trial. I have already mentioned them. They are a breach of
cls 3.5 and 3.7 of the standard terms.
29 See PLS Guidelines at 2.55 - 2.56.
[150] The alleged breach of cl 3.5 is the proposition that Kingston was in breach of its obligation to prepare a settlement statement within a reasonable time. Maybe it was. It was a highly complex draft settlement statement because, given the financing aspect of the transaction between Kingston and BCCA, Kingston as the financier had a number of charges that it could add to the principal advanced. Keep in mind that formal notice of the exercise of the option was given on 13 January for settlement on
16 January, and the principal of Kingston, Mr Huang, resided in China. Part of the problem in this case is that a great deal of time was absorbed by Ms Xu and, to a degree, by Ms Johnson’s office (who wanted a line-by-line justification for all the charges) settling the settlement statement. The problems agreeing the settlement figure were, however, not causative of the failure to settle. They were resolved by about 3.00 pm on 16 January.
[151] In the meantime, anticipating that resolution, DLA had drawn the bank cheques at 12.50 pm and the parties had agreed to settle on those bank cheques. So any breach had no bearing on the failure of the transaction to settle.
[152] Likewise, there is an allegation under cl 3.7 that Kingston did not load the electronic instruments within a reasonable period of time. S&P did not enter the workspace until it had the correct e-dealing number. It was originally given the wrong number. GRC provided the correct e-dealing number at 11.06 am on
16 January. But, again, this delay such as it was had no bearing on the failure of the transaction to settle.
Conclusion
[153] The OA’s claim fails. The Court refuses to declare that Kingston breached its obligations under cl 3.5 and 3.7 of the general terms of sale of the Agreement for Sale and Purchase and refuses to declare that it repudiated the First Option Agreement and the Agreement for Sale and Purchase.30
[154] Turning to the defendant’s counterclaim against the plaintiff:
30 See definitions at [3] above.
(a) There is a declaration that Kingston validly cancelled the First Option
Agreement.
(b)There is a declaration that in terms of cl 2.2(c) of the Deed of Partial Settlement, GRC is required to make the payments and carry out other acts there specified, subject to the terms of cl 2.2(d):
2.2 Escrow Funds
…
(c) If the High Court finds that Kingston was entitled to cancel the First
Agreement, the OA will:
(i) pay $320,000, to DLA for Flourishing, by 5pm on the first
Working Day following issue of the High Court judgment;
(ii) procure GRC to disburse the Escrow Funds (including accrued interest less withholding tax on the total Escrow Funds) to MBC for Kingston on the Disbursement Date. To avoid doubt such disbursement does not prejudice any remaining claim Kingston may have against the OA for damages or costs in the High Court Proceedings; and
(iii) pay $320,000 to MBC for Kingston on the Disbursement
Date.
(d) If an appeal is lodged against the High Court judgment before the
Disbursement Date:
(i) the operation of clause 2.2(b) and 2.2(c) (excluding payment to DLA for Flourishing under clause 2.2(b)(i) will be suspended until final determination of that appeal (and any subsequent appeal to the Supreme Court); and
(ii) the OA will procure GRC to continue to hold the Escrow Funds in trust interest-bearing (except for any amount dealt with under clauses 2.2(b)(i) and 2.2(c)(i) will no longer apply).
[155] Kingston is entitled to costs on a 2B basis with a certification for one junior.
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