Purewal BS & JK Ltd v Connell Street Ltd - [2012] NZCA 42

IN THE COURT OF APPEAL OF NEW ZEALAND

CA49/2011
[2012] NZCA 42

BETWEEN PUREWAL BS & JK LIMITED
Appellant

AND CONNELL STREET LIMITED
Respondent

Hearing: 10 November 2011

Court: O'Regan P, Chambers and Stevens JJ

Counsel: D J Jenkin and E Krishnan for Appellant
R O Parmenter for Respondent

Judgment: 28 February 2012 at 10 am

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The appellant must pay to the respondent costs for a standard appeal on a band A basis.

REASONS OF THE COURT

(Given by Chambers J)

Did a purchaser act wrongly in not settling its purchase?

On 2 July 2007, Purewal BS & JK Ltd, the appellant, agreed to buy from Connell Street Ltd, the respondent, a property at 133 Connell Street, Blockhouse Bay, Auckland. The purchase price was $2,100,000. The agreement was conditional on finance. The settlement date was to be “12 working days after issue of title of purchaser’s properties”. Purewal had properties at 29 Taylor Street and 20 Crowther Street, Blockhouse Bay, which it had agreed to sell to a company called Cambo Developments Ltd. Purewal had subdivided those properties, but the new titles had not yet issued. Purewal would not be in a position to settle with Connell until it had received settlement money from Cambo; Cambo was not required to settle its purchase until the new titles were issued.
At the time of the Connell Street agreement, Purewal’s directors envisaged that these new titles would issue shortly. But Purewal’s directors and Connell’s directors were experienced property developers; they knew there could be substantial delays in finalising subdivisions and obtaining titles. In order to protect Connell, a special condition (cl 18) was inserted in the Connell Street agreement. The clause read as follows:
This agreement is conditional upon settlement being completed by 30 October 2007. If settlement has not been achieved by this date, this agreement is voidable at the vendor’s option. This condition is inserted for the sole benefit of the vendor.
By means of this clause, Connell kept control of the situation. If it took longer than expected for Purewal’s new titles to issue, Connell could pull the plug on this agreement by avoiding it.
Following the making of the Connell Street agreement, Purewal applied for finance. It eventually received an offer of finance from the National Bank on 15 October 2007 but decided not to accept it because the new titles to its properties had still not issued. Purewal did not want Connell exercising its cl 18 right to avoid the agreement if settlement did not take place by 30 October 2007. So it sought to have that term varied. Connell agreed to extend the date. (Indeed, it extended the date on a number of occasions, until in the end Connell waived its cl 18 right.)
Time ticked on. The new titles to Purewal’s properties had still not issued by the end of July 2008, although Purewal was optimistic that they would issue, if not in August, then…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] NZCA 42
Decision Date: 28 February 2012

CaseChat Overview and Summary

In Purewal BS & JK Ltd v Connell Street Ltd, the Court of Appeal of New Zealand considered whether Purewal BS & JK Ltd was entitled to avoid a property purchase agreement due to the non-fulfilment of a finance condition, and whether Purewal was estopped by its conduct from denying the agreement had become unconditional. The Court found that Purewal was not entitled to avoid the agreement for non-fulfilment of the finance condition, as it had failed to notify the vendor of the arranged finance in a timely manner. Additionally, the Court held that Purewal was estopped by its conduct from denying the agreement had become unconditional, as it had misled the vendor into believing that the finance condition had been fulfilled. As a result, the Court dismissed the appeal and upheld the High Court's decision in favour of Connell Street Ltd.

The Court of Appeal found that Purewal had indeed arranged finance in terms of the contract, but failed to notify the vendor of this fact in a timely manner. The Court held that, once finance is arranged, the purchaser is bound to notify the vendor that finance has been arranged, and that the failure to do so can result in the purchaser being unable to rely on the power to avoid under the finance condition clause. In this case, the Court found that Purewal's failure to promptly notify the vendor of the arranged finance contributed to the vendor's belief that the finance condition had been fulfilled.

Furthermore, the Court held that Purewal was estopped by its conduct from denying the agreement had become unconditional. The Court found that Purewal was under a duty to speak when faced with the vendor's enquiries about the fulfilment of the finance condition, especially in circumstances where Purewal was seeking an indulgence from the vendor. Purewal's silence on this topic from 25 October 2007 right up to 27 January 2009 was quite misleading, and it had obtained from the vendor indulgence after indulgence in circumstances where Purewal must have known that the vendor believed the agreement to be unconditional. The Court concluded that Purewal's refusal to settle after the titles to its properties issued was unconscionable, and that the vendor was entitled to compensation.

Orders