Opua Coastal Estate Limited v Shepherds Lane Holdings Limited HC Auckland CIV 2008-404-001018
[2008] NZHC 2367
•30 May 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-404-001018
IN THE MATTER OF the Land Transfer Act 1952
BETWEEN OPUA COASTAL ESTATE LIMITED Applicant
ANDSHEPHERDS LANE HOLDINGS LIMITED & ANOR
Respondents
Hearing: 16 May 2008
Counsel: J G Turrall for applicants
A R Gilchrist for respondents
Judgment: 30 May 2008 at 4pm
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me on 30 May2008 at 4 pm pursuant to Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
OPUA COASTAL ESTATE LIMITED V SHEPHERDS LANE HOLDINGS LIMITED & ANOR HC AK CIV
2008-404-001018 30 May 2008
Solicitors: J G Turrall, Barrister, PO Box 32459, Devonport, Auckland
A Gilchrist, Barrister, PO Box 5444, Wellesley Street, Auckland
[1] The applicant, Opua Coastal Estate Limited, seeks an order under s 145 of the Land Transfer Act 1952 that the caveat it has lodged affecting sixty acres of waterfront property at Opua in the Bay of Islands does not lapse. The application is opposed by Sherpherds Lane Holdings Limited and Wayne Allen Limited who are the registered proprietors of that property.
Background Facts
[2] There is no dispute as to the following facts. These are that: -
a) Opua Coastal Estate Limited in October 2006 expressed interest in purchasing the sixty acres at Opua to Mark Hoyles of Ponsonby Real Estate, who were the agents appointed by Sherpherds Lane Holdings and Wayne Allen Limited. In response Opua Coastal Estate Limited received a package containing a sales brochure together with reports and other documents relating to the property.
b)Following receipt of the marketing package and an inspection of the property, Opua Coastal Estate Limited advised that it was interested in purchasing the property for $1,500,000 plus GST. That offer was subject to due diligence.
c) Following execution of that agreement Opua Coastal Estate Limited decided not to proceed as the directors were not happy with some aspects of the transaction.
d)Opua Coastal Estate Limited instructed its solicitor to take no further action to complete due diligence and to advise that the contract was cancelled because the condition as to due diligence had not been satisfied.
e) Following further investigations Opua Coastal Estate Limited decided to proceed with the purchase of the property for $1,500,000 inclusive of GST.
f) Opua Coastal Estate Limited thereupon instructed the agent for Shepherds Lane Holdings Limited and Wayne Allen Limited to prepare an agreement for the purchase of the property for $1,500,000 inclusive of GST.
g) On 16 December 2006 Opua Coastal Estate Limited entered into an agreement as purchaser to purchase the property from Shepherds Lane Holdings Limited and Wayne Allen Limited for the total sum of
$1,500,000 inclusive of GST. Settlement was to take place on or before 17 December 2007. The agreement was unconditional and provided for a deposit of $200,000 to be paid, $100,000 being paid on the signing of the agreement, a further sum of $100,000 to be paid on
31 March 2007.
h)In terms of the agreement Opua Coastal Estate Limited paid the initial deposit of $100,000.
i)On 21 March 2007 the solicitors for Opua Coastal Estate Limited wrote to the solicitors for Shepherds Lane Holdings Limited and Wayne Allen Limited advising as follows:
My client has instructed me that the vendors made representations to the purchaser, prior to the agreement being signed, that legal road access existed.
My client has discovered, contrary to such representations, that there is no legal road access to the above property.
My clients instructions are that the representations made by your clients as to road access induced my client to enter into the contract. Your client’s misrepresentation gives rise to my client’s entitlement to damages from your clients (s 6, Contractual Remedies Act 1979).
The contract requires my client to pay a further deposit of $100,000 on 31 March 2007. In order to preserve my clients position, my client proposes to pay that deposit to your trust account as
stakeholder, to be held undisbursed until the road matter is resolved to my clients satisfaction.
Please confirm that you are prepared to accept the deposit on that basis and undertake to hold the same undisbursed and as a stakeholder.
j) By fax dated 23 March 2007 the solicitors for Shepherds Lane
Holdings Limited and Wayne Allen Limited responded:
Your client’s instructions referred to in your letter 21 March 2007 are incorrect. Before the existing agreement was signed, your client’s signed an agreement with mine for the property, subject to a due diligence condition. Our respective clients and the agent met and your client was provided with information about the property, including the fact that there was no legal road access. My clients are adamant that your client was aware that there was no legal road access, because they were told that by my client.
I now enclose a copy credit slip for my trust account. I require payment of the deposit, to that account, either by bank cheque or one of the electronic payment systems approved by the property law subcommittee of the law society, together with your undertaking that the payment will not be reversed by you.
The vendor will not accept any conditions on the payment of the further deposit, whether such payment is made to me, or the agent. The agent has been instructed to return any payment which is made subject to conditions.
[3] As there had been no response from the solicitors acting for Opua Coastal Estate Limited to the fax of the 23 March 2007 the solicitors acting for Shepherds Lane Holdings Limited and Wayne Allen Limited sent a further fax to the solicitors for Opua Coastal Estate Limited on 2 April 2007 stating as follows:
I have not had a reply to my fax 23 March.
Please take notice that unless the deposit is paid within three working days of receipt of this notice, my client intends to cancel the agreement.
My client requires payment to be made by bank cheque to my trust account – a copy credit slip was sent with my fax to you 23 March
2007.
k)Following receipt of that letter Opua Coastal Estate Limited arranged for a further payment of $100,000 to be paid being the balance of the deposit payable under the agreement for sale and purchase.
l)On 17 December 2007 Opua Coastal Estate Limited served notice through their solicitor that because of a misrepresentation by Shepherds Lane Holdings Limited and Wayne Allen Limited as to road access to the property being purchased Opua Coastal Estate Limited was cancelling the contract, was seeking a refund of the deposit and lodged a caveat to protect its interest in the property.
m)The interest claimed by Opua Coastal Estate Limited in the property is for an equitable lien on account of the deposit having been paid and not returned.
Case for Opua Coastal Estate Limited in support of application that its caveat do not lapse.
[4] The interest claimed by Opua Coastal Estate Limited arises out of a claim to an equitable lien. That equitable lien arises out of a claim that the deposit of
$200,000 is being wrongfully retained by Shepherds Lane Holdings Limited and
Wayne Allen Limited.
[5] In support of the submission that a claim to an equitable lien in these circumstances will support the lodging of a caveat counsel for Opua Coastal Estate Limited relies upon Joy v Roskam 12 June 2003, HC HAM CIV 2003-419-331
Master Faire. In that case the caveator claimed an interest in the land as purchasers by virtue of an agreement for sale and purchase between the caveators as purchasers and the registered proprietors as vendors and also by virtue of a constructive trust. The caveators alleged they paid $100,000 in respect of the purchase of the land. Whilst the registered proprietors acknowledged payment of some $48,220 they claimed that payment was made for a different purpose and was not part of the amount to be paid for the purchase of the property. The caveator also acknowledged that any agreement for the purchase of the property, had, in the caveator’s words, been extinguished. In those circumstances the court concluded that the caveators did not have an interest that would sustain a caveat and directed that the caveat be removed.
[6] However, there is reference in the judgment to the possibility of an equitable lien arising out of payment of a deposit for the purchase of the property being sufficient to justify the registration of a caveat. At paragraph 8 of his judgment Master Faire states:
Unfortunately counsel had not specifically researched the position that arises where the contract for the sale of land does not proceed. That raises the possibility that the purchaser may become entitled to recover from the vendor the amount of the deposit paid and, perhaps, other sums. In that case the purchaser has an equitable lien on the land for such amounts. Kimberly NZI Finance Ltd v AR Barr Investments Pty Ltd (1990) ANZ ConvR 438 (FC of A). The reason for such a lien was explained by Wynn-Parry J in Combe v Swaythling (1947) Ch 625. The purchaser is regarded as a secured creditor. The purchaser is therefore entitled to take execution based on the security against the land. The lien will support a caveat. Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41,57.
[7] In Cosmos Farms Limited v The Construction Group Limited 22 June 2007
HC AK CIV 2007-404-324 22 June 2007 Abbott AJ when applying the principles set forth in the obiter statement of Master Faire in Joy v Roskam concluded that a purchaser did have a caveatable interest to protect an equitable lien for the recovery of a deposit paid under an agreement for sale and purchase.
[8] It is emphasised on behalf of Opua Coastal Estate Limited that, based on the principles set out in Sims v Lowe [1988] 1 NZLR 656, Opua Coastal Estate Limited need only show that it has a reasonably arguable case for the interest claimed. Once it has established an arguable case the summary procedure for the removal of the caveat is not suitable to resolve that case particularly where resolution involves determination of disputed questions of fact.
[9] It is submitted on behalf of Opua Coastal Estate Limited that, prior to entering into the agreement for purchase, Shepherds Lane Holdings Limited and Wayne Allen Limited represented that the land had legal access from the road. As the property does not have legal access from the road Opua Coastal Estate Limited claims to be entitled to cancel the contract pursuant to s 7 Contractual Remedies Act
1979.
[10] It is further submitted on behalf of Opua Coastal Estate Limited that the payment of the additional $100,000 towards the deposit on 4 April 2007 after being
advised by fax sent on 23 March 2007 that Shepherds Lane Holdings Limited and Wayne Allen Limited denied any representation that there was legal road access to the property being purchased did not amount to an affirmation of the contract that would disentitle Opua Coastal Estate Limited to cancel the contract. In this respect it was pointed out that John Norton the director of Opua Coastal Estate Limited has given evidence to the effect that there never was any intention to accept a contract for the purchase of the property that did not provide legal access to the property. According to John Norton he had professional advice obtained in January and March
2007 that such access was practicable. There was a problem because the access would need to be over a railway corridor that went through the property. John Norton’s evidence is to the effect that following a discussion with a consulting engineer Mr Lee in January 2007 and 13 March 2007 he was advised of the need to get access over the railway corridor. He was also advised by Mr Lee that Mr Lee did not see that as too much of a problem.
[11] John Norton says that he arranged for the second instalment of $100,000 to be paid towards the deposit to avoid Shepherds Lane Holdings Limited and Wayne Allen Limited cancelling the contract and forfeiting the $100,000 already paid towards the deposit.
[12] Following payment of the second instalment John Norton says that there were a number of meetings with the Bay of Islands Railway Trust and representatives of the New Zealand Railways Corporation in an effort to negotiate road access over the railway corridor. According to John Norton Opua Coastal Estate Limited was not able to arrange for access over the railway corridor. When Opua Coastal Estate Limited found that such access was not possible it elected to cancel the contract.
[13] It was further submitted on behalf of Opua Coastal Estate Limited that there had to be a reasonable time for Opua Coastal Estate Limited to come to a conclusion as to whether to affirm or cancel the contract after the breach or misrepresentation became apparent. It is claimed that as Opua Coastal Estate Limited was dealing with the New Zealand Railways Corporation and the Bay of Island Railway Trust there would have been insufficient time available for Opua Coastal Estate Limited to
consider its options prior to payment of the second instalment of $100,000 towards the deposit in early April 2007.
[14] It was therefore submitted on behalf of Opua Coastal Estate Limited that as it had validly cancelled the contract because of a misrepresentation by Shepherds Lane Holdings Limited and Wayne Allen Limited as to road access, it was entitled to a refund of the deposit. As it was entitled to a refund of the deposit it has an equitable lien over the property concerned for the amount of the deposit. That equitable lien based on the authorities referred to earlier in this decision is sufficient to support a caveat.
Case for Shepherds Lane Holdings Limited and Wayne Allen Limited in answer
[15] Counsel for Shepherds Lane Holdings Limited and Wayne Allen Limited accepted there to be an arguable case as to whether there had been a representation as to road access. However, it is clear that at least ten days prior to the payment of the second instalment of the deposit Opua Coastal Estate Limited was aware that Shepherds Lane Holdings Limited and Wayne Allen Limited denied making any representation as to road access and in fact emphasised that they will not accept any conditions with regard to payment of the further deposit.
[16] It is therefore submitted that by paying such deposit Opua Coastal Estate Limited elected to affirm the contract with knowledge that there was no legal road access to the property. Consequently Opua Coastal Estate Limited was not entitled to cancel the contract in December 2007 and is not entitled to a refund of the deposit.
[17] It is further submitted that even if Opua Coastal Estate Limited has an arguable case with regard to its claim for a refund of the deposit the Court, having regard to the balance of convenience should, still discharge the caveat.
Decision
[18] The fax of the 23 March 2007 from the solicitors acting for Shepherds Lane Holdings Limited and Wayne Allen Limited makes it clear that the property they were selling did not have the benefit of legal road access. Consequently Opua Coastal Estate Limited was well aware following receipt of that fax of the lack of legal road access to the property it was purchasing. Furthermore Opua Coastal Estate Limited elected to pay the further instalment of $100,000 towards the deposit for the purchase of this property fully aware that Shepherds Lane Holdings Limited and Wayne Allen Limited were not agreeing to a sale of the property on the basis that the property had legal road access.
[19] Opua Coastal Estate Limited elected to pay the second instalment of the deposit to avoid Shepherds Lane Holdings Limited and Wayne Allen Limited cancelling the contract and forfeiting the deposit already paid.
[20] Opua Coastal Estate Limited elected to continue with the contract and pay the second instalment of the deposit after making some inquiry with regard to the possibility of obtaining road access over the railway corridor. The fact that Opua Coastal Estate Limited had already entered into an early contract subject to due diligence supports the conclusion that it had some considerable time to investigate road access to the property it was purchasing.
[21] The evidence leads inevitably to the conclusion that Opua Coastal Estate Limited elected to continue with the purchase of the property knowing that the property did not have legal road access and accepting responsibility to negotiate and arrange for such road access.
[22] Counsel for Opua Coastal Estate Limited relied on the decision in In R B & M Cullinane v K B McGuigan CA 172/99 21 September 1999. In support of its submission that Opua Coastal Estate Limited was entitled to reasonable time to decide whether to affirm or cancel the contract. In that case the letter relied upon as affirming the contract was held to be equivocal. As affirmation had to be unequivocal there had been, therefore, no affirmation of the contract. The Court of Appeal concluded that a party affected by a breach must have a reasonable time to come to a conclusion between the various options that are open. It is significant that
in the Cullinane case the Court of Appeal held that the letter relied upon as establishing an affirmation of the contract indicated that the aggrieved party was at that stage postponing a decision as to the course of action to take. At paragraph 19 of the judgment Gallen J states:
A right of cancellation is not waived unless the advice to that effect is unequivocal. The letter of 30 January is not unequivocal. It is a shot across the bows of the vendor. The letter of 30 January 1996 was written indicating the concern of the respondent that the requisition be complied with. The response to that was a letter from the applicants which denied all liability. The response to that letter, was a purported cancellation by the respondent. There is ample authority to the effect that when a breach occurs, the party affected by that breach must have a reasonable time to come to a conclusion between the various options open to him or her and no doubt, to make enquiries or to seek advice as to which is the most appropriate option to which to adhere. When this principle is borne in mind, it seems to us that what the respondent did by the letter of 30 January 1996, was to indicate that he was aware of the position and that the response of the appellants to the requisition would have a bearing on whether or not he would ultimately settle. In other words, he was postponing a decision as to the course of action he would take following on his knowledge of the breach, until he was aware of the position which the appellants intended to take. The response to the letter was by contrast, completely unequivocal. By the letter dated 8
February 1996, the solicitors for the appellants denied that there had been any breach of the contractual conditions. In response to that letter, the respondent indicated his intention to cancel.
[23] In the circumstances of the present case Opua Coastal Estate Limited did not give any indication that it was seeking further time to decide whether to affirm or cancel the contract. Indeed the evidence establishes that in seeking to avoid loss of its deposit Opua Coastal Estate Limited elected to pay a further instalment of the deposit. Quite clearly that was an election to affirm the contract.
[24] Consequently as Opua Coastal Estate Limited has affirmed the contract it cannot subsequently decide to cancel the contract because of the alleged breach relating to legal road access to the property. Section 7(5) Contractual Remedies Act
1979 clearly provides:
A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.
Balance of Convenience
[25] Even if I am wrong and Opua Coastal Estate Limited has established an arguable case to sustain a caveat based on an equitable lien I am still satisfied that having regard to the balance of convenience the caveat should be discharged. In Holt v Anchorage Management Limited [1987] 1 NZLR 108 the Court of Appeal doubted whether there was a residuary discretion to direct the removal of a caveat having regard to the balance of convenience once the caveator had established an arguable case to support the continuation of the caveat. However, in coming to that decision the Court of Appeal took into account that the caveat was lodged to protect an interest in land. Once the caveator had established an arguable case to an interest in the land the caveator would suffer an injustice if the caveat was discharged and the registered proprietor disposed of the property. Summers J at page 120 summarised the position in the following way: -
The lodging of a caveat making an appropriate claim is an administrative Act. Where its continuance is in issue the claim made must be shown to be arguable. It is a claim to land or estate or interest under the Land Transfer Act. It is not easy to imagine circumstances in which it will be convenient to allow an arguable but undecided claim to be left in a state in which it may be defeated. The reasons which justify the remedy of specific performance of contracts for the sale of land – that damages are not an adequate remedy (see Holdsworth, A History of English law (1956) vol I, p 457, Maitland’s Equity (Brunyate ed, 1949) pp 301-307 – seem appropriate here. The protection of equitable interests by the lodging of a caveat is an integral part of the Land Transfer Act and an arguable claim to such an interest ought generally to be resolved under the protection afforded by the statute.
[26] Opua Coastal Estate Limited lodged the caveat in this case to protect its claim to a refund of the deposit. It does not claim an interest in the property in the same way as a person claiming to be a purchaser claims to be entitled to the property. In the present case sale of the property will not defeat Opua Coastal Estate Limited’s claim to a refund of its deposit.
[27] Shepherds Lane Holdings Limited and Wayne Allen Limited have now entered into an agreement for the sale of the property for $1,300,000 inclusive of GST. That agreement for sale is conditional on the removal of the caveat lodged by Opua Coastal Estate Limited. It is significant that the purchase price in that agreement is $200,000 less than the amount Opua Coastal Estate Limited agreed to pay for the property. Having regard to current market conditions there is a significant
risk that Shepherds Lane Holdings Limited and Wayne Allen Limited will suffer a substantial loss if they are unable to proceed with the sale of the property.
[28] I also take into account the fact that Opua Coastal Estate Limited is yet to bring proceedings for recovery of the deposit and damages. Those proceedings if commenced immediately are unlikely to come onto the hearing within the next twelve months.
[29] It is claimed on behalf of Shepherds Lane Holdings Limited and Wayne Allen Limited that they are substantial companies and that there is no need for Opua Coastal Estate Limited to have some form of security pending resolution of its claim.
[30] In these circumstances where Opua Coastal Estate Limited does not seek an interest in the property, where Opua Coastal Estate Limited has not as yet commenced proceedings to recover the deposit and damages, and where there is likely to be a significant delay in resolving any proceedings which might be brought and which would cause substantial inconvenience and the risk of significant loss to Shepherds Lane Holdings Limited and Wayne Allen Limited if the caveat remains, I conclude on the balance of convenience that the caveat should be discharged.
[31] For the reasons I have given therefore the caveat will be discharged. Shepherds Lane Holdings Limited and Wayne Allen Limited are entitled to costs
which I fix on a 2B basis with disbursements as fixed by the registrar.
Associate Judge Robinson
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