Opal & Joe Investment Trustee Limited v LDW Limited

[2023] NZHC 3052

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-000814

[2023] NZHC 3052

UNDER

Part 12 of the High Court Rules 2016, and

the Contract and Commercial Law Act 2017

BETWEEN

OPAL & JOE INVESTMENT TRUSTEE LIMITED

Plaintiff

AND

LDW LIMITED

Defendant

Hearing:	20 October 2023
Appearances:	M Singh / P S Kim for the Plaintiff J Strauss for the Defendant
Judgment:	1 November 2023

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 1 November 2023 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Bird & Yang, Auckland Glaister Ennor, Auckland

J Strauss, Auckland

OPAL & JOE INVESTMENT TRUSTEE LTD v LDW LTD [2023] NZHC 3052 [1 November 2023]

Introduction

[1]    This application for summary judgment concerns an agreement for sale and purchase of a property in Remuera, Auckland (the Agreement). The property at both 10 and 12 Scherff Road (the Property) was damaged during the weather-related events over Auckland Anniversary weekend earlier this year. The damage took place after the Agreement was reached, but before the settlement date. The defendant cancelled the Agreement on the basis that the Property was “untenantable” on the settlement date. The plaintiff rejected the cancellation and itself purported to cancel the Agreement based on the defendant’s repudiation. It then placed the Property back on the market for sale.

[2]    The plaintiff claims damages for breach of contract and applies for summary judgment on liability.

[3]    The defendant opposes summary judgment on two grounds. First, that it has a reasonably arguable defence that the Property was untenantable at the date of settlement, and it was therefore entitled to cancel the Agreement. Second, that it is unknown whether the plaintiff will suffer any loss following cancellation of the Agreement because it has not yet resold the Property.

[4]The issues are:

(a)Does the defendant have a reasonably arguable defence that the property was untenantable at settlement date entitling it to cancel the Agreement?

(b)If not, should the Court nevertheless not enter summary judgment on liability because it is unknown whether the plaintiff will suffer loss?

Facts

[5]    The plaintiff, Opal & Joe Investment Trustee Limited, is trustee of the Opal & Joe Trading Trust (Opal & Joe), a property development company. The defendant, LDW Limited (LDW) is also a property development company.

[6]    Opal & Joe was and is the registered owner of the Property. The Property is on two separate titles: 10 Scherff Road is a vacant land section, and 12 Scherff Road has on it a residence. The total land area of 2,585 m2 is zoned Mixed Housing Suburban.   The  Property  was  marketed  as  having  concept  plans  to  develop    51 apartments and 41 carparks (subject to Auckland Council approval).

[7]    The  Agreement  between  Opal  &  Joe  and  LDW  was  entered  into   on    4 December 2022. The purchase price was $4,700,000 (plus GST, if any), and the deposit was $235,000. The Agreement was unconditional. The deposit was payable upon execution of the Agreement. The settlement date was agreed to be

28  March  2023,  and   the   interest   rate   for   late   settlement   was   agreed   at  15 per cent per annum.

[8]    LDW did not pay the required deposit on 4 December 2022. On 8 December 2022, Opal & Joe’s solicitors gave notice under cl 2.2 of the Agreement requiring LDW to pay the deposit within three working days. LDW did not pay the deposit.

[9]    Over Auckland Anniversary Weekend (29 and 30 January 2023), Auckland experienced flooding and other weather-related events. An area of a bank on the Property collapsed, creating a soil stress crack in the sub-floor area of the residence.

[10]   On 3 February 2023, Auckland Council issued a “red placard” prohibiting entry to the house on the Property.

[11]   On 13 February 2023, a Preliminary Geotechnical Assessment of the house commissioned by Opal & Joe concluded that:

It is my opinion that, following a second more careful check of all of the house, the red flag notice to the building appears to be inappropriate. The damage

appears minor, barely superficial, and is likely to be easily repaired and upgraded to code.

[12]   On 23 February 2023, in reliance on the Preliminary Geotechnical Assessment, Auckland Council agreed to downgrade the “red placard”. On 24 February 2023, Auckland Council issued a “yellow placard” restricting entry to short-term entry to the house for the purpose of removing property. The placard recorded that access was restricted to the whole building.

[13]   On 28 March 2023, LDW failed to settle the Agreement. Opal & Joe then issued a settlement notice to LDW’s solicitor requiring it to settle the Agreement by 17 April 2023.

[14]LDW did not settle the Agreement on 17 April 2023.

[15]   On 18 May 2023, Opal & Joe served LDW with this proceeding, which at that time sought an order for specific performance requiring LDW to settle the purchase of the Property, or damages for breaches of contract by failing to pay the deposit and settle the Agreement.

[16]   On 20 June 2023, LDW inspected the Property (the parties were engaging in without prejudice discussions) and learned about the placards.

[17]On 29 June 2023, LDW purported to cancel the Agreement:

Our client has been aware that the property has been seriously affected by the weather events and saw the attached prohibition stickers outside the property at 12 Scherff Place. The notices were attached to the property before the contract settlement date but your client, despite being obliged to do so, did not advise our client of this crucial event. Please consider this email as formal notice from the purchaser that the property is untenantable and the agreement to purchase the property is cancelled.

[18]   On 11 July 2023, Opal & Joe’s solicitors wrote to LDW’s solicitor rejecting its purported termination and gave notice terminating the Agreement based on LDW’s repudiation. Thereafter, Opal & Joe commenced attempts to resell the Property to mitigate its losses.

Legal principles

[19]Rule 12.2(1) of the High Court Rules 2016 provides:

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[20]Rule 12.3 allows the Court to enter judgment on liability only:

The Court may give judgment on the issue of liability, and direct a trial of the issue of amount (at the time and place it thinks just) if the party applying for summary judgment satisfies the court that the only issue to be tried is one about the amount claimed.

[21]   The relevant principles governing a summary judgment application are well established:1

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. 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: MacLean v Stewart (1997) 11 PRNZ 66 (CA). 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 inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at

341. 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: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

Was LDW entitled to cancel the Agreement?

[22]   LDW purported to cancel the Agreement under cl 5.2(1)(b) of the Agreement. Clause 5 provides:

5.1The property and chattels shall remain at the risk of the vendor until possession is given and taken.

5.2If, prior to the giving and taking of possession, the property is destroyed or damaged, and such destruction or damage has not been made good by the settlement date, then the following provisions shall apply:

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

(1)   if the destruction or damage has been sufficient to render the property untenantable and it is untenantable on the settlement date, the purchaser may:

(a)complete the purchase at the purchase price, less a sum equal to any insurance moneys received or receivable by or on behalf of the vendor in respect of such destruction or damage, provided that no reduction shall be made to the purchase price if the vendor’s insurance company has agreed to reinstate for the benefit of the purchaser to the extent of the vendor’s insurance cover; or

(b)cancel this agreement by serving notice on the vendor in which case the vendor shall return to the purchaser immediately the deposit and any other moneys paid by the purchaser, and neither party shall have any right or claim against the other arising from this agreement or its cancellation;

(2)     if the property is not untenantable on the settlement date, the purchaser shall complete the purchase at the purchase price less a sum equal to the amount of the diminution in value of the property which, to the extent that the destruction or damage to the property can be made good, shall be deemed to be equivalent to the reasonable cost of reinstatement or repair;

…

[23]   LDW’s defence is that the Property was untenantable at settlement date, and remains so, as the yellow placard still in place prohibits all but short-term access to the Property to remove property. Therefore, it was entitled to invoke cl 5.2(1)(b) to cancel the Agreement.

[24]   To this, Opal & Joe makes three arguments. First, it relies on cl 23.0 of the Agreement which provides:

The parties agree that the property is sold on an “[a]s is, where is basis” regardless of any warranty or representation to the contrary in this agreement whether express or implied.

[25]Furthermore, cl 1.5(3) of the Agreement provides that:

If any inserted term (including any Further Terms of Sale) conflicts with the General Terms of Sale the inserted term shall prevail.

[26]   Opal & Joe submits that cl 5.1 is an assumption of risk by the vendor, which is equivalent to a warranty or representation. It says that cl 23.0 prevails over cl 5.1 and

negates this assumption of risk. Therefore, it says, the consequences that follow cl 5.1 in cl 5.2 do not apply in this case.

[27]   I am not persuaded that cl 23.0 has the effect contended by Opal & Joe. The phrase “[a]s is, where is basis” is stated to refer to express or implied warranties or representations in the Agreement. Clause 5.1 is not a warranty or representation. It is a term of the Agreement by which the parties have agreed that the Property and chattels remain at the risk of the vendor until possession is given and taken. The vendor’s warranties and undertakings about the Property are set out at cl 7.0 of the Agreement.

[28]   The second argument made by Opal & Joe is that the Property was not rendered untenantable on settlement date by destruction or damage. Opal & Joe says that the red placard was issued following a “quick visual inspection of the building” as a precautionary measure. The Preliminary Geotechnical Assessment that Opal & Joe subsequently obtained concluded that the red placard notice was inappropriate, and that the damage was minor and easily repaired. Opal & Joe says that the Council accepted this assessment, because it downgraded the red placard to a yellow placard.

[29]   Opal & Joe submits that the yellow placard does not establish any destruction or damage to the property sufficient to render the premises untenantable. Rather, it refers to hazards observed from a rapid assessment of the exterior only. Opal & Joe procured a Structural Assessment Report dated 29 May 2023 which concludes that:

The minor cracks and the current condition of the building can be considered structurally sound for living conditions without the need for further major repairs. However, some superficial repairs may still be carried out due to the age of this old building.

[30]   In a refinement to this argument, Opal & Joe submits that the Property is only untenantable because of the yellow placard preventing access, not because of destruction or damage to the Property, which is a prerequisite to cancellation under cl 5.2(1)(a). That is, the problem is one of access, not damage or destruction.

[31]   I cannot agree with that submission, for the following reasons. First, it is not possible for this Court to find, on the facts, that there has been no damage or destruction to the Property. The so-called Preliminary Geotechnical Assessment is

simply a brief email from an Anton Lush to Opal & Joe. The May 2023 Structural Assessment Report is more fulsome, but is not accompanied by a sworn or affirmed affidavit containing the requirements for expert witnesses.

[32]   Second, there is grounds even on the limited evidence to conclude that there was some degree of damage or destruction to the Property that at a minimum could threaten the stability of the house. The Structural Assessment Report of May 2023 concludes:

…it was discovered that a small area of the bank had collapsed and there was a soil stress crack in the subfloor area, which could undermine four nearby piles.

[33]    The report recommended that five new row bearers be inserted to support the affected subfloor piles. Relevantly, on 26 June 2023, Opal & Joe submitted a record to Auckland Council of building work it had completed to reinforce the basement.

[34] Third, the fact is that at settlement date, and presently, the yellow placard prevents anyone from entering the house other than to collect property. The yellow placard was placed on behalf of the CDEM Controller or other Responsible Person under the Building Act 2004 or the Civil Defence Emergency Management Act 2002. The placard has legal force. It follows that if no-one can enter the house other than temporarily to collect property, it is unfit for occupation and untenantable.

[35]   I am not attracted to the argument that the problem is one of access rather than damage or destruction to the Property. Access is prohibited by the yellow placard because of perceived damage to the Property. The Property comprises the land and the house. There is evidence that at a minimum the flood caused damage to the land in the form of a slip which threatened to undermine the piles of the house, necessitating reinforcement work.

[36]   LDW does not need to prove that the Property was untenantable on settlement date because of destruction or damage to it. It only needs to have a reasonable argument to that effect. I find, based on the yellow placard and the limited evidence before me, that it does.

[37]   The third limb to Opal & Joe’s argument is that for a property to be untenantable it must be rendered unfit for use by someone assumed to want the property for the same purpose as the purchaser. It relies on Bahramitash v Kumar in which the Supreme Court remarked: 2

… referred in written submissions … Dr McMorland’s comment that “the test would seem to be whether the property as a whole has been rendered unfit for the occupation and use of someone assumed to want the property for the same purpose as the purchaser”. In a context where the property is being sold rather than leased, this seems apt.

(footnotes omitted)

[38]Opal & Joe further rely on excerpts of Sale of Land not referred to in

Bahramitash v Kumar including that:3

The untenantability must relate to the whole property and not merely to the part destroyed or damaged. The distinction will be of little relevance in an urban setting where the whole property is almost always untenantable if its major building is untenantable, though obviously a residential property is not untenantable merely because a garden shed or separate garage is destroyed or damaged.

[39]   Opal & Joe says that LDW entered into the Agreement to demolish the house and develop the entire Property, not to live in or tenant the house. Consequently, Opal & Joe submits, the Property as a whole was not untenantable at settlement date because LDW’s development purposes would have involved the demolition or removal of the dwelling, as had already occurred with the dwelling previously situated at 10 Scherff Road.

[40]   As for the contention that LDW intended to demolish the house and develop the entire Property it relies on the following facts:

(a)LDW is in the business of property development;

(b)10 and 12 Scherff Road were marketed for sale together as a development opportunity;

2      Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [14].

3      DW McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [10.13(c)].

(c)the  marketing  material  and  Agreement  expressly   recorded   that 10 Scherff Road (which adjoins 12 Scherff Road) is a vacant section;

(d)the Agreement had no conditions and LDW showed no interest in the condition of the house, as no building report was obtained;

(e)the purchase price was $4,700,000 plus GST (meaning it was being purchased by the defendant for a taxable supply);

(f)the deletion of the due diligence clause (cl 22.0) in the Agreement;

(g)the imposition of the ‘as is where is’ clause (cl 23.0); and

(h)that the tenancy ended two months after settlement.

[41]   I am unable to conclude on this circumstantial evidence that LDW did not intend to use the house, at least for a period. Relevantly, the Property was tenanted at the date the Agreement was reached and that tenancy was recorded in the Agreement. It expired two months after settlement date. It is conceivable that LDW would have continued to tenant the house until the development plans for the Property were approved by Auckland Council and LDW was ready to commence the works. That process can of course take many months. Opal & Joe is speculating about LDW’s intentions for the Property and asking the Court to draw an inference which it will not do.

[42]   For the above reasons, Opal & Joe has not discharged the onus on it of establishing that LDW has no reasonably arguable defence that it was entitled to cancel the Agreement under cl 5.2(1)(a).

[43]   Consequently, it is unnecessary for me to consider the issue of whether summary judgment for liability should not be entered because Opal & Joe has not yet suffered any loss.

Result

[44]The application for summary judgment on liability is dismissed.

[45]Costs are reserved.4

Associate Judge Gardiner

4      NZI Bank v Philpott [1990] 2 NZLR 403 (CA).