Parsot v Greig Developments Ltd

[2009] NZCA 241

IN THE COURT OF APPEAL OF NEW ZEALAND

CA160/2008
[2009] NZCA 241

BETWEENMAHESH PARSOT

Appellant

ANDGREIG DEVELOPMENTS LIMITED

Respondent

Hearing:25 March 2009

Court:Chambers, Randerson and Potter JJ

Counsel:H Fulton and P J Stevenson for Appellant

N R Campbell and J Waymouth for Respondent

Judgment:11 June 2009 at 3 pm

JUDGMENT OF THE COURT

A        The appeal is dismissed.

B        The appellant must pay the respondent costs of $8,000, plus usual disbursements. 

REASONS OF THE COURT

(Given by Chambers J)

A Pukekohe subdivision

[1]       In October 2004, Mahesh Parsot, the appellant, agreed to sell to Greig Developments Limited, the respondent, his 1.84 ha block of land at Pukekohe.  Greig was a developer and the parties’ intention was that Greig would subdivide the land into residential lots.  Greig agreed that, upon completion of the subdivision, it would transfer back to Mr Parsot part of the land.  How that transfer back was to be achieved was set out in clause 16 of the agreement.  That clause specified the part to be transferred back, a part the parties called in the agreement “lot 1”.  Annexed to the agreement was a plan, showing where lot 1 was situated in the block.  The lot’s dimensions were given and clause 16 specified that its area was to be “not less than 2,500 m²”.  Everything that needed to be done to effect that subdivision and transfer back was Greig’s responsibility and at its cost.  The agreement did not specify a time by which the subdivision and transfer back were to be achieved. 

[2]       At the date of the agreement, the land was zoned rural under the Franklin District Council’s operative district plan.  But the council had proposed a plan change which, if approved, would have rezoned the land residential.  Objections to the proposed plan change had been received and, at the date of the agreement, were still under consideration by the Environment Court.  Because of the uncertainty as to the land’s zoning, the parties agreed, by clause 14, that the agreement was conditional upon the land being zoned residential by the Franklin District Council by 1 December 2004.  The parties further agreed that condition was inserted “for the sole benefit of the purchaser”.  Subsequently, the parties varied clause 14, by extending the clause 14 timeframe to 31 March 2005 or one week after “the determination of the Environment Court”, whichever was the sooner.  The parties’ expectation apparently was that the Environment Court would shortly resolve the outstanding appeals.

[3]       By 31 March 2005, the Environment Court had still not delivered its decision.  Notwithstanding that, Greig decided to waive the condition.  In the following months, however, Greig did nothing about applying to the council for subdivision approval.  It regarded the prospects of success as slim until the Environment Court had spoken.  Mr Parsot became impatient.  On 4 November 2005, Mr Parsot’s solicitor, Brian Webb, wrote to Greig’s solicitor, Brett Norris, purporting to make time of the essence.  Mr Webb required Greig to apply to the council for subdivision no later than 28 November 2005, achieve subdivision consent by 27 January 2006, and transfer title to lot 1 to Mr Parsot by 28 February 2006.  He went on to say that, in the event of failure to perform and complete any of those three matters, Mr Parsot intended to cancel the agreement. 

[4]       Mr Norris replied, disputing that Greig was in breach of the agreement.  He explained why Greig had not yet applied to the council for subdivision approval.  He also said the timeline was unrealistic.  He advised that, as soon as the planning issues concerning the site were resolved, Greig would lodge its application for subdivision. 

[5]       The solicitors continued to exchange correspondence.  Eventually, on 26 May 2006, Mr Webb purported to cancel the agreement.  He required Greig to retransfer the 1.84 ha block to Mr Parsot.  Greig refused to do that.  At that date, the Environment Court had still not ruled on the relevant appeals.  It was not until August 2006 that the court released an interim decision on the appeals.  It delivered its final decision on 1 June 2007. 

[6] In late August 2006, Mr Parsot commenced a proceeding in the High Court at Auckland, seeking orders declaring the agreement to be cancelled as from 26 May 2006 and vesting in Mr Parsot the 1.84 ha block. The proceeding came on for hearing in September 2007 before Allan J. His Honour delivered a decision on 6 March last year: HC AK CIV 2006-404-5164. His Honour found that Mr Parsot’s notice of 4 November 2005 “was given prematurely and [was] invalid”: at [97]. As a consequence, he found the notice of cancellation to be likewise invalid. Mr Parsot was therefore not entitled to the relief he sought.

[7]       Mr Parsot appealed from Allan J’s decision.  While these proceedings were trundling along, Greig was continuing to move the application for subdivision forward.  The new titles were issued on 13 March this year and the transfer of lot 1 to Mr Parsot was registered on 23 March, just two days before the hearing before us.  Mr Campbell, for Greig, was able, at the hearing, to present Mr Parsot and the court with copies of the new certificate of title, showing the transfer to Mr Parsot.  Four and a half years after the agreement, therefore, Greig had complied with clause 16 of the agreement.  Notwithstanding this development, Mr Fulton, for Mr Parsot, continued to argue that the clock should be turned back and that this court should declare that the agreement had been validly cancelled. 

Issues on the appeal

[8]       The legal principles relevant to this appeal were not in dispute either before Allan J or before us.  They were clearly set out in the Supreme Court’s decision in Steele v Serepisos [2007] 1 NZLR 1 at [61]-[62] by Tipping J, with whom Blanchard and Anderson JJ agreed. Where a clause in a contract does not specify a date for its completion, time is not originally of the essence. But the obligations under the provision must be completed, of course, within a reasonable time. If completion remains unfulfilled after what the promisee regards as a reasonable time, then what the promisee must do, in order to make time of the essence, is give a notice to the other party, making it clear that he or she regards a reasonable time as having elapsed and notifying the other party of the date by which he or she considers it reasonable for the contractual obligation to be performed. The purpose of the notice is, as Tipping J said, “to tell the recipient that he would be regarded as being in repudiation unless he performed by the stated date”. Of course, as the Supreme Court recognised, a court might find the notice was given prematurely or gave too short a period for compliance. In that case, the Supreme Court said, “repudiation would not be ascribed to a failing recipient”. If, however, the notice was good and the recipient failed to comply with it, then “the recipient would be at risk of being found in repudiation, entitling the giver of the notice to cancel the contract”.

[9]       In the present case, Allan J found Mr Parsot’s notice of 4 November 2005 to have been given prematurely.  Accordingly, in light of the above analysis, Greig’s failure to comply with it was not to be construed as a repudiation of the agreement.  It followed that Mr Parsot’s later purported cancellation of the agreement was not effective.  The first point on this appeal is whether Allan J was right in finding the notice of default to have been given prematurely.  If the judge was right on this point, then Mr Fulton accepts that is the end of the appeal.  For reasons we shall give, we think the judge was right. 

[10]     This finding obviates the need for us to discuss in any depth a number of other issues which would have arisen in the event of our finding the default notice was not premature, including:

(a)whether the notice gave a reasonable time for compliance;

(b)whether cancellation would have been an appropriate remedy in the circumstances;

(c)whether the proceeding should have been remitted to the High Court for an assessment of damages.

Was the judge right to find the notice of default had been given prematurely?

[11]     The answer to this question hinges on the correct interpretation of clause 16.  It reads as follows:

It is acknowledged that the land sold by the Vendors in this contract does not include the area of not less than 2500m² (Herein called Lot 1) shown approximately in the attached diagram.  The Vendor and Purchaser agree that for mutual convenience the Purchasers shall take title and submit and obtain approval from the appropriate authorities for a subdivision of 1.84 Hectares and upon deposit of plan of subdivision shall transfer lot 1 to the Vendor.  These actions shall be at no cost to the Vendor.

[12]     Counsel were agreed that one effect of this clause, viewed in the context of the agreement as a whole, was to transfer the whole of the land to Greig, with Greig holding on trust for Mr Parsot lot 1.  But the parties did not agree as to the remaining obligations falling on Greig under clause 16. 

[13]     Mr Campbell submitted that Greig’s obligation was to provide Mr Parsot with a registered title to lot 1 at no cost to Mr Parsot.  Lot 1 was to be in the position indicated on the plan, with the approximate dimensions shown.  Its land area was to be not less than 2,500 m².How Greig achieved that was entirely up to it, although obviously it would be necessary to apply for and obtain a subdivision consent.  If that was Greig’s obligation under clause 16, then Mr Fulton accepts the notice of default was premature.  Title could not realistically have issued by 4 November 2005. 

[14]     Mr Fulton submitted, however, that clause 16 creates not one obligation but three discrete obligations.  They were the three Mr Webb had identified in his letter of 4 November 2005: applying for subdivision consent; obtaining a subdivision consent; and transferring the title to lot 1 to Mr Parsot.  Mr Fulton was forced to argue for multiheaded obligations as he acknowledged there was no way Greig could reasonably have been expected to transfer lot 1 to Mr Parsot by 4 November 2005. 

[15]     Mr Fulton’s argument in brief was this.  Greig should have applied for the subdivision consent by 4 November 2005, so, in that regard, the default notice was not premature.  Requiring Greig to apply for the consent by 28 November was also reasonable.  It was irrelevant that the notice might have been premature so far as council approval and title production were concerned: that could be ignored.  So too the unrealistic timeframes for council approval and title production could be ignored.  Greig's failure to apply for a resource consent meant it had repudiated the agreement, allowing Mr Parsot to give notice of cancellation.

[16]     We do not accept this argument for two main reasons and three subsidiary ones. 

Reason 1

[17]     In our view, the object of clause 16 was to effect a subdivision and transfer title to lot 1 to Mr Parsot.  What was important to Mr Parsot was getting lot 1 at no cost.  Since no time for achieving that was stipulated, the law dictates the object was to be achieved within a reasonable time.  How long each step towards the object took was immaterial.  The only reason for mentioning the specific steps of submitting and obtaining approval to the subdivision and depositing the plan was to make clear that all these steps were to be undertaken by and at the cost of Greig as the purchaser.  Greig, of course, had to undertake a number of intermediate acts – not just the two Mr Webb picked out and Mr Fulton adopted – before the ultimate goal would be achieved.  But, in our view, none of those intermediate acts amounted to an independent obligation carrying its own “reasonable” timeline. 

[18]     Obviously, by appropriate drafting, the intermediate acts, or some of them, could have been made independent obligations.  Had the parties intended that, it is almost inconceivable the parties would not have expressly agreed a timeline.  The fact they did not strongly suggests that Mr Parsot was not concerned about how Greig achieved the subdivision, or the dates by which the intermediate acts would be achieved, provided, it is to be presumed, he obtained his title to lot 1 within a reasonable time of the agreement becoming unconditional. 

Reason 2

[19]     We do not accept that Mr Parsot can now simply ask the court to ignore those demands he made which were premature or which provided an impossibly short timeframe.  (Mr Fulton accepted that the notice was premature in so far as the transfer of lot 1 was concerned; he also accepted the time-frame for achieving that step was unreasonably short.)  Greig was entitled to look at the notice as a whole and conclude in the circumstances it was ineffective in making time of the essence.

[20]     That is sufficient to dispose of the appeal.  If the notice was invalid, then obviously the purported cancellation was ineffective.  The agreement continued on foot and clause 16 has now been performed.  But even if, contrary to our view, the notice is severable in the way Mr Fulton urges, we still think his argument fails for three subsidiary reasons.

Reason 3

[21] We think the notice was premature even in respect of the step of applying for the subdivision consent. Allan J was “satisfied that in this case it was reasonable for [Greig] to delay taking this step until the subdivision application had some prospect of success”: at [92]. We agree. Mr Parsot, by agreeing that clause 14 was “for the sole benefit of the purchaser”, ran the risk that the agreement might become unconditional prior to the rezoning of the land taking place. (Of course, he derived an advantage from that: the balance of the purchase price had to be paid within three months of the agreement becoming unconditional: clause 19.) Any application for a multi-lot residential subdivision consent in 2005, prior to the Environment Court’s decision, would, as the judge found, “probably have failed”: at [92]. Obviously, Greig could not delay forever, but it was entitled to wait until the Environment Court had spoken, as the importance of the Environment Court’s decision had been acknowledged by the parties as vital both at the time of the agreement (see clause 14) and at the time of the variation of the agreement.

[22]     Mr Fulton submitted that the date for assessing what would be a reasonable time for applying for a subdivision consent was the date of the contract.  In making that submission, he relied on a first instance English decision, ReLonglands Farm [1968] 3 All ER 552 at 556. That decision has, however, been expressly doubted by this court: see Hunt v Wilson [1978] 2 NZLR 261 at 270 per Cooke J and (at least to the extent it might apply to terms other than conditions as to a contract’s existence) at 283-284 per Richardson J. In any event, it does not represent the current English position on terms like the one under consideration in this case (as to which see Peregrine Systems Limited v Steria Limited [2005] EWCA Civ 239 at [15]). The law is that, in assessing a reasonable period, a court is entitled to take into account post-contract events, in so far as they may explain the cause or causes of the delay in performance.

Reason 4

[23]     Even if, contrary to our view, the notice was not premature in respect of the step of applying for the subdivision consent, it was defective in the time it allowed for that step: just over three weeks.  Even Mr Fulton accepted this was too short a period for the preparation of an application for a multi-lot subdivision, such as Greig planned.  But, he submitted, based on the evidence of Jon Maplesden, a surveyor called by Mr Parsot, an application for a two-lot subdivision could have been prepared in that time.  The two lots would have been Mr Parsot’s lot 1 (2500m²) and the balance lot (1.59 ha).  Mr Fulton submitted that, if need be, Greig was obliged to proceed with such a subdivision. 

[24]     We do not accept that submission.  We think it clear from the agreement that the parties never envisaged either a two-lot subdivision or a staged subdivision.  (Of course, Greig could do either, but it was not obliged to undertake either course just because this might speed up the chance of Mr Parsot’s obtaining a land transfer title to lot 1.)  Clause 15 referred to the minimum section sizes of the subdivision (1000 m²).  Clause 21 provided that Greig was to “register a land covenant so that the properties that bound [lot 1] will be single storey dwellings only”.  Both parties knew well that what Greig would be undertaking was a multi-lot residential subdivision.  Mr Fulton submitted “the duty to apply for a single lot … was clear from [the 4 November 2005] notice”.  But the notice could not create such an obligation if the agreement itself did not. 

Reason 5

[25]     Even if, contrary to our view, the notice was good so far as its demand to apply for subdivision consent was concerned, it does not follow that a failure to comply with the demand within the stipulated timeframe necessarily amounted to a repudiation of the agreement.  As Tipping J said in Steele, if a notice is good and the recipient fails to comply with it, the recipient is not automatically a repudiator; he or she is merely “at risk of being found in repudiation”.  In this case, Greig, on receiving the 4 November 2005 notice, provided an explanation of the delay to date and made quite clear it would be proceeding with the subdivision “as soon as the district plan issues are resolved”.  According to the information Mr Norris had, the Environment Court’s decision was due the next month “or more likely February 2006”. That was a realistic assumption at that stage as the long-delayed reconvened hearing before the Environment Court was due to take place in early December 2005.  In the end, it did not take place then, as the appellants successfully sought an adjournment.  The reconvened hearing did not eventually take place until July 2006.  In our view, in the circumstances as they existed at November 2005, it would be quite inappropriate to categorise Greig’s reaction to the notice as a repudiation of the agreement. 

[26]     It should not be forgotten that Greig was as keen as Mr Parsot to bring this subdivision to fruition.  It had after all paid the full purchase price and now had the holding costs associated with the block.  It was deriving no income from the land.  Repudiation is not lightly to be inferred in these circumstances. 

Result

[27]     We dismiss the appeal.  The default notice was given prematurely.  Greig was not in breach of the contract at that time.

[28]     This finding rules out any and every remedy.  Clearly, cancellation is not available.  But nor is damages.  Ms Stevenson, junior counsel for Mr Parsot, developed an argument that Allan J had wrongly ruled out a claim for damages on the basis that one had not been pleaded.  She referred to what the judge had said at [104], quoting him as follows:

That is not to say that the plaintiff might not have been entitled to damages.  The right to damages for breach is expressly preserved by s 8(4) of the Contractual Remedies Act.  But there is no claim for damages, and given my primary finding in favour of the defendant, it is unnecessary to discuss the extent to which any claim for damages might have succeeded. 

[29]     But, she said, this overlooked what she had submitted at the end of the hearing before Allan J.  We quote from her written submissions to us:

The judgment does not refer to the appellant, at the conclusion of the High Court hearing, and consistently with the right of the plaintiff preserved by section 8(4), requesting in the alternative an order for an inquiry into damages.  There was at the hearing a claim for damages to the extent that the inquiry was sought, and this is the relief now sought by the appellant. 

[30]     Ms Stevenson has taken [104] out of context.  Allan J was there discussing what he would have done had he found that the default notice was valid and that Greig had failed to comply with it.  But his primary finding was that the notice was ineffective and that Greig was not in breach for failing to comply with it.  In those circumstances, Mr Parsot is not entitled to a remedy of any kind.

[31]     It may be Greig was slow in completing the subdivision and transferring title to lot 1 to Mr Parsot.  But that has never been pleaded.  Ms Stevenson, at the hearing before us, made a slight attempt to suggest it could be raised now, on the basis that the evidence covered events up to the date of trial.  Clearly, however, that would be quite unfair.  The entire trial focused on the validity of the default notice and Greig’s response to it. 

Costs

[32]     Allan J, subsequent to his substantive decision, delivered a costs decision (23 July 2008) in Greig’s favour.  Neither side appealed against it.  Mr Parsot, in the written submissions filed on his behalf on 25 February this year, took no issue with the costs award.  But Ms Stevenson, in supplementary submissions filed on 18 March, sought to question the costs decision.  She submitted the award was wrong in principle and too favourable to Greig.

[33]     That course was not open to Mr Parsot.  Obviously, if the appeal had been allowed, costs in the High Court would have been amenable to reassessment, the winning party having changed: Court of Appeal (Civil) Rules 2005, r 48(4).  But that is not this case.  If a party wishes to challenge a costs judgment in the absence of success on the substantive judgment, it must:

(a)include the grounds of challenge in its substantive appeal, if that appeal is not already filed; or

(b)seek to amend the notice of appeal to incorporate a challenge to the costs judgment, with the grounds of challenge; or

(c)commence a new appeal against the costs judgment, which appeal will then be heard at the same time as the substantive appeal.

[34]     Mr Parsot took none of those steps.  A challenge to the costs judgment is therefore not possible.

[35]     Mr Campbell sought costs on the appeal on the basis of a standard appeal on a band A basis.  That is appropriate.  He also sought an allowance of 0.5 days for the preparation of a memorandum supporting the substantive judgment on additional grounds and 0.8 days for the preparation of an updating affidavit from Brent Greig, Greig’s director.  Ms Stevenson opposed those extra awards.  Both seem reasonable in principle: we allow one day extra.  Making that change but otherwise applying Mr Campbell’s figures (which were not challenged), we end up with 5 days x $1,600 = $8,000.  We also award usual disbursements. 

Solicitors:
Webb Morice, Pukekohe, for Appellant
Sue Stodart, Auckland, for Respondent