Peng v Chan
[2024] NZHC 554
•15 March 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2155
[2024] NZHC 554
BETWEEN YAO WEI PENG also known as YAOWEI PENG
First Appellant
MACMURRAY INVESTMENT LIMITED
Second AppellantAND
SHU-LI CHAN, CHI-LAUNG KO and
FEN-YING KUO KO as trustees of the Kofu Family Trust and LISA CHIA-CHUAN KO and JEREMY CHI-HUA TSAI as trustees of the Chihua Family Trust
Respondents
Hearing: 13 March 2024 Appearances:
C L Holland for Appellants K A K Koo for Respondents
Judgment:
15 March 2024
JUDGMENT OF O’GORMAN J
This judgment was delivered by me on 15 March 2024 at 11 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
…………………………………
Solicitors:
Righteous Law Ltd, Auckland KooTelle Lawyers Ltd, Auckland
PENG v CHAN [2024] NZHC 554 [15 March 2024]
[1] This is an appeal under pt 20 of the High Court Rules 2016 of an oral judgment of Judge M-E Sharp issued on 27 July 2023.1 The Notice of Appeal is dated 17 August 2023.
[2] In addition, on 20 October 2023, the appellants sought a stay pending appeal under r 20.10, seeking to stay execution of the District Court judgment. Those issues will now be superseded by the substantive determination of this appeal.
Approach on appeal
[3] General appeals from the District Court are by way of rehearing.2 On appeal, the High Court may “make any decision it thinks should have been made”,3 coming to its own conclusion on the merits of the case and, if appropriate, substituting its decision for that of the District Court.4 It can also direct the District Court to rehear the proceedings, to consider or determine any matter that the High Court directs or to enter judgment for any party that the High Court directs.5
Factual background
[4] The dispute relates to the failure by the appellants as purchasers to pay an agreed deposit instalment for the purchase of 4 MacMurray Road, Remuera, Auckland (the Property). Following an auction, on 7 October 2021 the first appellant signed the unconditional sale and purchase agreement (the agreement). On 13 June 2022 it nominated the second appellant as purchaser.6
[5] The purchase price under the agreement is $5,550,000. A five per cent deposit ($277,500) was payable immediately on the agreement becoming unconditional. That initial deposit was duly paid.
1 Chan v Peng [2023] NZDC 15963.
2 District Court Act 2014, ss 124 and 127.
3 Section 128(1)(a).
4 Austin, Nichols & Co Ltd v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
5 District Court Act, s 128(1)(b).
6 Among other things, this would engage the obligation in s 136 of Companies Act 1993 not to agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so. Mr Peng is a director of the second appellant.
[6] The agreement was subsequently varied twice, on 14 March 2022 and on 21 July 2022. The settlement date was deferred on each occasion, on the basis that an increased deposit was to be paid, subject to forfeiture if the purchaser was unable to settle and the agreement was cancelled. In the 21 July 2022 amendments, the settlement date of 1 July 2022 was changed to 31 January 2024. The agreed deposit commitments are set out in the table below:
Date due
Deposit
instalments
Cumulative deposit due
Percentage of price
Paid
7-Oct-21
$277,500
$277,500
5%
Yes
22-Jul-227
$555,000
$832,500
15%
Yes
31-Mar-23
$277,500
$1,110,000
20%
No
30-Nov-23
$277,500
$1,387,500
25%
No
[7] Subsequently, the purchaser has sought reductions to the purchase price and another extension to the settlement date. Those variations were not agreed to by the vendors, the respondents.
[8] On 31 March 2023, in breach of the 21 July 2022 variation, the purchaser failed to pay the $277,500 due on that date (a deposit instalment).
[9] On 27 April 2023, the vendors’ lawyer served a settlement notice requiring payment of the $277,500 deposit instalment by 15 May 2023. That payment was not made, and the vendors filed a claim in the District Court seeking summary judgment for payment of the sum of $277,500, plus interest and costs.
District Court judgment
[10] The day before the first call of the summary judgment application, a memorandum of counsel was filed on behalf of the defendants (the appellants in this appeal). This advised that their counsel had only recently been instructed and sought
7 In the 14 March 2022 amendment, the due date for this second payment was originally 1 July 2022.
leave to file opposition documents. The arguable defence asserted was one of set-off on the basis that the plaintiffs “did not mitigate their losses”.
[11] The judgment contains an extensive analysis of the factual background, the various negotiations for variations and the numerous requests by the defendants to defer settlement, with different law firms acting for the purchaser/nominee between 7 October 2022 and the date of judgment on 27 July 2023.
[12] The Judge concluded that the defendants were in the business of delaying and obfuscating.8 Nothing in the evidence reasonably excused their delays, nor provided any basis for an arguable defence. The Court accordingly declined leave to allow further time to file defence documents. The defendants were clearly in default of their agreed payment obligations, so the Judge decided it was appropriate to grant summary judgment, plus interest and costs.9
Grounds of appeal
[13] On appeal, the appellants submit that they have a defence of impossibility based on an assertion that specific performance is an equitable remedy and there is a residual discretion to refuse judgment when there is a possibility of injustice and unfairness.
[14] The appellants submit that the terms of the agreement are now impossible for them to perform. They say that the first appellant has little to no equity in his current residential home, and the second appellant (a mere purchasing vehicle) has no assets or income stream. The appellants say they could substantiate this financial position with evidence in support of their defence, but they cannot do so within the procedural context of an appeal.
[15] The appellants’ position is that if the purchaser is unable to perform its obligations under the agreement (including the obligation to settle on 31 January 2024), then the vendors’ remedies should be restricted to damages.
8 Chan v Peng, above n 1, at [22].
9 At [25].
[16] In addition, the appellants say there are errors in factual findings in the oral judgment that were relevant to whether they had a reasonable excuse for not filing their statement of defence and notice of opposition. They say their current solicitors were only instructed in relation to the summary judgment proceeding and have not been retained for the conveyancing aspects. The reason for each of the changes of solicitors was that the matter was getting more complicated, and each solicitor said they did not have the required expertise. At the time the summary judgment application was served on 14 June 2023, they say that McVeagh Fleming were authorised to accept service but were not otherwise acting for the first appellant, who was effectively self-represented at the time.
[17] The appellants also allege an error on the part of the District Court Judge failing to exercise a residual discretion not to grant summary judgment. They say that the respondents are adequately protected by the deposits already paid, so the respondents would not be prejudiced by the summary judgment being set aside and the matter remitted to the District Court for a rehearing on an opposed basis.
Respondents’ position
[18]In summary, the respondents take the following position:
(a)In terms of the merit of the appeal, there is no dispute that the appellants are liable to pay the sum of $277,500 as a deposit instalment due on 31 March 2023.
(b)In terms of the arguments about impossibility, unwillingness or inability to pay a judgment sum does not constitute an arguable defence to a claim. The fact that one party has made a poor bargain, or that he is financially unable to complete, is not hardship or a proper ground for refusing specific performance.10
10 Zhang v Zhai [2014] NZHC 1026, [2014] 3 NZLR 69 at [51]; and Verano Properties Ltd v De Luen
(2010) 11 NZCPR 859 (HC) at [59]–[60].
(c)The appellants received legal advice from a number of lawyers and there was no impediment to them obtaining advice about the agreement and the summary judgment proceedings. In any event, they have not been prejudiced by failing to file a defence, because there is no arguable defence.
(d)The payments already received are not relevant to the further deposit payments that are also contractually due. The respondents are concerned that their position is being prejudiced by the first appellant taking steps to divest his Woodford Road property.
Legal principles
[19] A deposit is both part payment of the purchase price and an earnest for the future performance of the contract by the purchaser.11 As a part payment, it is credited to the purchaser on settlement. As an earnest, it is liable to forfeiture by the vendor if the purchaser does not complete the contract.12
[20] When there is a breach of an agreement for the sale of land, the remedies available to the non-breaching party are to seek specific performance of the contract, or it may accept that the contract is at an end and seek monetary compensation.13 As to the latter, there may be a variety of alternative remedies and measures available. The vendor may be entitled to forfeit the deposit, subject to possible equitable or statutory relief.14 Alternatively, the vendor may seek damages following a resale.
[21] Even following cancellation by the vendor, the vendor can seek to recover any unpaid deposit and choose to exercise forfeiture.15 At common law, cancellation ends the obligations of the parties to perform promises that have not yet accrued due, but obligations which had accrued due at the date of cancellation remain enforceable.16
11 D W McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [7.01], referencing (among others) Martin v Finch [1923] NZLR 570.
12 At [7.01].
13 At [12.01].
14 At [12.01], referring to ss 43–48 of the Contract and Commercial Law Act 2017.
15 At [7.10].
16 At [7.10], referencing (among others) Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445, (2012) 3 WLR 638.
Section 42(1)(a) of the Contract and Commercial Law Act 2017 (CCLA) provides that, so far as the contract remains unperformed at the time of the cancellation, no party is obliged or entitled to perform it further. Despite this, and consistent with the common law position, payment of the deposit may be enforced as a debt accrued due, distinct from an action to specifically enforce the contract.17 Alternatively, the sum can be recovered as damages for breach of the obligation to pay the deposit.18
[22] If the deposit exceeds 10 per cent of the purchase price (the standard size of a deposit in New Zealand), then summary judgment might be refused if it appears that the purchaser may have a claim to relief against forfeiture of all or part of the amount.19 For contracts cancelled under the CCLA, relief of this type may be available under s 43, subject to the effect of s 34 (remedy provided in contract). However, in appropriate circumstances a vendor might justifiably require a higher percentage of the price as a deposit, without it being penal in nature.20
[23] The principles relating to the defence of impossibility to an action for specific performance are well-established:21
(a)A court of equity will not require that to be done which cannot be done. Equity does not act in vain.
(b)The defendant must establish a very substantial probability that it would not be able to comply with an order for specific performance.
(c)Anything less than a very substantial probability that performance will be impossible is insufficient — anticipation of possible difficulties or even a demonstrated difficulty in finding purchase money is unlikely to constitute a defence of impossibility. In such cases and subject to any
17 At [7.10], referencing Brown v Langwoods Photo Stores Ltd [1991] 1 NZLR 173 (CA) at 176; and
Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [20].
18 At [7.10], referencing Socratous v Koo (1994) ANZ ConvR 209.
19 At [7.10], referencing Northgate Trading Ltd v Maybern Corp Ltd HC Auckland CP 2677-89, 19 July 1990.
20 Property Sales Direct Ltd v Hawken Lane Development LP [2022] NZHC 1735, (2022) 23 NZCPR 440.
21 Wealth Buy Property Ltd v Stevenson [2012] NZHC 1609 at [20]–[21], referencing Ngai Tahu Property Ltd v Dykstra (2009) 10 NZCPR 734 (HC) at [12]; and Verano Properties Ltd v De Luen (2010) 11 NZCPR 859 (HC) at [40].
other overriding equitable considerations a court in equity is likely to order specific performance in the ordinary manner (with or without conditions) — the defendant may then later approach the court for a modification or variation of the order.
(d)In an ordinary proceeding, pleading of impossibility is in the nature of an affirmative defence and the onus of proof rests upon the defendant as the person taking the point.
(e)On an application for summary judgment, r 12.2(1) of the High Court Rules applies. The plaintiff must prove that the defendant has no arguable defence to the claim for an order for specific performance. The onus on the application remains on the plaintiff although, when the plaintiff establishes its contractual entitlement, the evidential onus shifts to the defendants to demonstrate a tenable defence. Thus, where there is raised an impossibility defence to a summary judgment application for specific performance, the plaintiff must prove that the defendant has no arguable defence that there is a very substantial probability that the defendant will be unable to comply with an order for specific performance.
(f)Other than in exceptional circumstances, impossibility is to be judged at the date of the contract, not the date for performance or the date of the hearing. Exceptional circumstances arising after the date of the contract must amount to hardship to the level of injustice, with injustice being assessed in relation to both parties to the bargain.
[24] These principles were recently applied in Knight Investments Ltd v Peng.22 That case involved the present appellant as defendant to an application for summary judgment by Knight Investments Ltd. The Court concluded that Mr Peng had not laid a sufficient evidential foundation for that defence. Mr Peng’s evidence was that he
22 Knight Investments Ltd v Peng [2024] NZHC 285 at [22], referencing Ngai Tahu Property Ltd v Dykstra, above n 21, at [12].
would face tremendous difficulty if he were forced to try to settle on the properties.23 However, Mr Peng did not provide any details of the value of his residential property at 4 Woodford Road, Mt Eden, nor did he disclose the sum secured by the mortgages over that property. He had not provided any statement of his assets and liabilities, income and expenses, or evidence of attempts to secure personal finance.24 In those circumstances, the Court entered summary judgment and granted an order for specific performance.25
Analysis
[25] Mr Peng’s affidavit dated 21 September 2023 (filed in support of the application for stay) confirms the key factual findings in the District Court’s decision. Mr Peng is concerned by a drop in the market value of the Property and a change in the number of permitted dwellings for resource consent purposes. The appellants’ position is that the current market value of the Property is approximately $4 million, which is why they have been trying to negotiate with the vendors to see if they are willing to lower their price. In that context, the revised deposit instalments were negotiated at a level that reflected the actual consequences of delays in settlement and changes in market value. As such, they are not penal in nature.
[26] Meanwhile, the appellants have confirmed that they do not want the contract to be cancelled, and they have lodged a caveat over the Property to protect their current equitable interest as purchaser.
[27] Overall, the appellants have not raised any grounds for disputing that they are liable to pay the sums that have fallen due for payment under the agreement. Nor have the appellants sought to substantiate their true financial position. They could have filed evidence of that nature in support of their application for a stay. Like in Knight Investments Ltd, there is insufficient evidence to substantiate any defence of impossibility/inability to pay the deposit sums already accrued due. Their assertion of inability to pay is inconsistent with the appellants lodging a caveat and taking the position that they still wish to perform the contract, but at a reduced price. On the
23 At [23].
24 At [27].
25 At [31].
other hand, if the appellants are truly insolvent and unable to settle on their obligations in this proceeding and in Knight Investments Ltd, then it would be appropriate for them to remove the caveat and commence insolvency procedures. Meanwhile, creditors are entitled to pursue enforcement of due debts.
[28]If the appellants’ evidence is correct and the Property is worth around
$4 million, then the vendors in this case may well suffer a loss of around $1,550,000 (plus other expenses such as advertising, commissions, and legal costs) upon the Property being sold to another purchaser, for which the deposits paid to date do not adequately protect them. Accordingly, I accept that payment of the judgment sum is necessary to protect the vendors’ position. The vendors have not yet cancelled the agreement. It would only be following cancellation that an assessment of actual damage would be required. The current evidence suggests that actual damage would likely exceed the deposit, so no issues of forfeiture and relief arise.26 In other words, equitable considerations support specific performance, and there is no injustice and unfairness in enforcing the obligations against the purchaser.
[29] As for the alleged factual errors in the judgment, these are immaterial to the outcome. The appellants had been represented by three separate firms of solicitors on the conveyancing aspects, before Righteous Law was instructed shortly before the first call of the summary judgment application. Even treating the conveyancing aspects as separate from the litigation, the appellants had the opportunity between service of the proceeding and the first call (a period of six weeks) to obtain legal advice. In any event, there is no reasonable defence to an action for payment of the deposits already accrued due. Affording further time to adduce evidence about the appellants’ insolvency (if that is indeed their position) would not make it just to refuse judgment on the obligation to pay the deposit, taking into account the vendors’ contractual entitlements.27
26 See Property Sales Direct Ltd v Hawken Lane Development LP, above n 20.
27 See in particular [21] and [23(f)] above.
Result
[30]For the above reasons, I dismiss the appeal and the application for stay.
[31] I award the respondents costs on a 2B basis. In the event that the parties cannot agree those costs, the respondents may file a memorandum within 10 working days of the date of this judgment and the appellants/applicants may file a memorandum in reply 10 working days later.
O’Gorman J
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