Purewal BS & JK Ltd v Connell Street Ltd
[2012] NZCA 42
•28 February 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA49/2011 [2012] NZCA 42 |
| BETWEEN PUREWAL BS & JK LIMITED |
| AND CONNELL STREET LIMITED |
| Hearing: 10 November 2011 |
| Court: O'Regan P, Chambers and Stevens JJ |
| Counsel: D J Jenkin and E Krishnan for Appellant |
| 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 in September. The National Bank’s original offer of finance had lapsed by this stage. In August Purewal’s broker applied to the bank for a fresh offer of finance. On 22 August 2008, the bank declined the application. It explained that its “criteria for lending” had changed since the initial offer, no doubt as a consequence of the global financial crisis which had occurred earlier in 2008. Purewal then attempted to arrange finance from other sources, but was not successful.
In January 2009, when it became clear that the issuance of new titles to Purewal’s properties was at last imminent, Purewal advised Connell that it would not be proceeding owing to the unavailability of finance. Connell disputed Purewal’s right to pull out.
In early February 2009, the titles to Purewal’s properties finally issued. Connell called on Purewal to settle the Connell Street purchase. Purewal refused to do so. On 3 March 2009, Purewal purported to give formal notice of the non-fulfilment of the finance condition and called for the return of its deposit. Initially Connell said it was holding Purewal to the agreement and would sue for specific performance. In due course, however, Connell advised it was treating Purewal’s refusal to settle as a repudiation of the agreement and purported to cancel the agreement.
Connell sued Purewal for damages. The sum claimed was $649,416, being the difference between the contract price and the current market value of the land. As is well known, land values dropped significantly in New Zealand from the levels reached in 2007. Purewal for its part counterclaimed for return of its deposit of $50,000.
Venning J heard the dispute in the High Court. He ruled in Connell’s favour.[1]
Issues on the appeal
[1] Connell Street Ltd v Purewal BS & JK Ltd HC Auckland CIV-2009-404-870, 17 December 2010.
Two issues arise on this appeal. Venning J held that the Connell Street agreement became unconditional, with the consequence that Purewal’s refusal to settle was a repudiation entitling Connell to cancel. He awarded Connell judgment in what was an agreed amount should Connell’s arguments on liability succeed. Mr Jenkin, for Purewal, submitted the Judge was wrong to find the agreement became unconditional. He said that Purewal was entitled to avoid the agreement for non‑fulfilment of the finance condition and should get the return of its deposit. The first issue accordingly is: was Purewal entitled to avoid the agreement for non-fulfilment of the finance condition?
Venning J went on to consider an alternative argument propounded by Connell in the event it lost on its legal argument on the correct interpretation of the Connell Street agreement. Connell argued that, even if on its strict terms the agreement had not become unconditional, Purewal was estopped by its conduct from relying on the unsatisfied finance condition. Purewal had led Connell to believe the agreement was unconditional, which conduct led Connell to grant extensions of time for settlement which it would not otherwise have granted. The Judge found in Connell’s favour on this ground as well. Mr Jenkin submitted the Judge’s conclusion was wrong on this aspect. The second issue accordingly is: was Purewal estopped by its conduct from denying the agreement had become unconditional?
We shall discuss these issues in turn.
Was Purewal entitled to avoid the agreement for non-fulfilment of the finance condition?
We begin by considering the agreement in more detail. The agreement was in the standard form approved by the Real Estate Institute of New Zealand Inc and the Auckland District Law Society. The form was the eighth edition, published in 2006. The form makes provision on its front page for details to be inserted of any “finance condition”. The details which may be inserted are the lender, the amount required and the finance date. In the present case, only the first of these was completed. By “Lender” was inserted “National Bank or any similar”. This box contains a cross‑reference to cl 8.0 of the standard conditions. The following provisions in cl 8 have relevance:
Particular conditions
8.1If particulars of any finance condition(s) are inserted on the front page of this agreement, this agreement is conditional upon the purchaser arranging finance in terms of those particulars on or before the finance date.
...
Operation of conditions
8.7If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
(1)The condition shall be a condition subsequent.
(2)The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.
(3)Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.
(4)The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
(5)If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.
(6)At any time before this agreement is avoided the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
Mortgage terms
8.8Any mortgage to be arranged pursuant to a finance condition shall be upon and subject to the terms and conditions currently being required by the lender in respect of loans of a similar nature.
It is common ground that, because one particular of the finance condition was inserted on the front page of the agreement, cl 8.1 was engaged. But the difficulty is that no “finance date” was inserted. Again, it is common ground this meant the finance condition (whatever it entailed) had to be complied with within a reasonable time. Venning J so held[2] and there is no dispute that he was right so to hold. What is “a reasonable time” depends on the facts of the case. What was significant in this case is that the parties envisaged settlement by 30 October 2007.
[2] At [26].
Clause 8.7(2) is important. By that provision Purewal undertook to “do all things which may reasonably be necessary to enable the [finance] condition to be fulfilled [within a reasonable time]”. That meant Purewal had to do all things which might reasonably be necessary to arrange finance and then to notify Connell that it had arranged finance.
We now set out in outline Venning J’s reasoning on this point. First, he found Purewal had arranged finance in terms of cl 8.1 on 15 October 2007. He said:
[37] Mr Jenkin next submitted Purewal had no obligation to accept the particular offer of finance, because it could have received a better offer either from the National Bank or another bank at a later time. I acknowledge that despite the offer from the bank, it was open to Purewal to seek to better the offer. However, again that is not the issue. The issue is whether, in terms of the contract and Purewal’s obligations under it, Purewal had arranged finance when in response to its application for finance, Purewal received an offer from the bank that would have enabled it to settle with Connell. Purewal could have waited before applying for finance or it could have, after receiving the offer from the National Bank, obtained a better offer from another source. But Purewal did not wait. It applied for finance and was offered finance. ... The offer was in terms of Purewal’s application and would have enabled Purewal to settle on 30 October 2007 (and on a number of later dates).
Having received that offer, Purewal was obliged, under cl 8.7(2), to notify Connell that finance had been arranged. Purewal did not do that. While it is true therefore that the condition was not fulfilled because of cl 8.7(4), Purewal could not take advantage of the power to avoid conferred by cl 8.7(5) because the non-fulfilment was entirely the fault of Purewal which had breached cl 8.7(2) in failing to notify that finance was arranged. The Judge concluded this part of his judgment in these terms:
[48] I conclude that in this case Purewal had arranged finance in terms of cl 8.1 of the contract. The failure of Purewal to formally advise Connell that finance had been arranged does not affect that. By seeking to avoid the contract Purewal wrongfully repudiated the contract and Connell was entitled to cancel.
Mr Jenkin disputed the Judge’s finding that finance had been arranged. He said that the offer “was subject to a number of conditions, some explicit and some implicit, that had never been proposed by Purewal’s broker”. There were six of these conditions, he said, meaning that a suitable finance offer had not been made.
Before we analyse the six “new” conditions, we observe that neither Baljit Singh, Purewal’s principal director, nor the broker raised any concern with the National Bank about any of these alleged new conditions after receiving the bank’s offer. No attempt was made to negotiate on these matters, if they were truly unacceptable. Indeed, the broker, who gave evidence, said he would have recommended to Mr Singh acceptance of the offer had he appreciated the Purewal‑Cambo agreement was unconditional (which by then it was). Further, as we shall be showing later in these reasons, when Connell asked what was happening about finance, Purewal’s solicitor did not respond to the effect that, while an offer had been received, its terms were unacceptable. And, when in August 2008, Purewal, through its broker, approached the National Bank again to see whether the initial offer could be renewed, there was no mention at that time of allegedly unacceptable conditions in the first offer.
In our view, Purewal’s list of six allegedly unacceptable conditions appears contrived; the first time they appear in documentary form is after this litigation began. First, it is said the offer of finance was implicitly conditional on settlement of Purewal’s contracts for the sale of its Taylor Street and Crowther Street properties. Of course it was. Everyone knew that Purewal was not to be required to settle the Connell Street purchase until titles had issued for Purewal’s properties and settlement of the agreement relating to those properties had taken place. That was the whole point of the settlement date (“12 working days after issue of title of [Purewal’s] properties”) for which Purewal had stipulated. Purewal was confident about settlement of its sales to Cambo: its agreement with Cambo was unconditional. This so-called “implicit condition”, far from being unexpected, was expected. And further, in any event, Mr Singh gave evidence that, had for some reason Cambo not settled on time, it would not have been the end of the world as Purewal would have tried to get bridging finance. There is nothing in this complaint.
Next it is said that the bank’s offer was open for acceptance for only 60 days. That is standard bank practice. That did not mean the money had to be drawn down in 60 days. The evidence was the bank would have been open to negotiation as to drawdown date. We agree with the Judge’s response to a similar submission by Mr Jenkin:
[42] However, it is speculative to suggest what might have happened if the offer had been accepted. In cross examination Mr Carey [from the National Bank] accepted that Purewal could have requested an extension of the time for drawdown past the 185 days [which, he had said, was standard practice] on the grounds that the issue of titles was delayed. The bank would have considered such request. Further, if Purewal was under pressure to complete or to draw the finance down, it may be that it could have taken further steps to ensure the titles were issued earlier than they were.
Mr Jenkin’s third point was that the bank identified the interest rates Purewal would need to pay. The complaint seems to be the unilateral nature of the bank’s offer as to interest rates. We accept Mr Parmenter’s response to that submission. Mr Parmenter pointed to cl 8.8 of the Connell Street agreement.[3] He submitted, correctly in our view, that there was no evidence that the interest rates were other than the interest rates “currently being required by [the National Bank] in respect of loans of a similar nature”.
[3]See above at [13].
Mr Jenkin’s fourth matter was that the bank required a satisfactory up-to-date statement of Purewal’s directors’ “personal position”. That is standard. There was no evidence to suggest that that condition would have caused any problem. Mr Singh did not raise this as a concern at the time with either his broker or the bank.
The fifth concern was the bank’s requirement for an updated confirmation of Purewal’s income in respect of one of its properties at Mount Smart Road. Again, there was no evidence that this generated any concern at the time.
The final concern, namely the bank’s request for a rental appraisal of the Connell Street property, is in the same category as the fourth and fifth concerns. We accept Mr Parmenter’s submission that these last three matters were all “matters of form and not substance”.
It is noteworthy that, when Purewal attempted to resuscitate the offer in August 2008, no negotiation about any of these six matters took place: the broker simply complied with them. We are satisfied that there was consensus about the terms of the arrangement.
Mr Jenkin raised some additional concerns. He submitted that, before it could be said finance had been arranged, it had to be shown that the lender had “unconditionally decided to lend”, citing Jenkins v Galvin,[4] and that the offer was in “ascertained terms” with a “reasonable expectation of completion”, citing Dunsford v Tate.[5] We do not accept Mr Jenkin’s submission that the National Bank’s offer in this case was deficient in these respects. We agree with Venning J’s assessment in response to a similar submission made to him:
[33] The offer of finance from the National Bank in the present case was a sufficiently clear and certain offer of finance on the terms set out in that offer. If Purewal had signed and returned the letter of acceptance, the National Bank would have been committed to advance the finance on the terms set out. On the basis of the authorities, finance was prima facie arranged in this case and cl 8.1 satisfied, even though Purewal did not accept it.
[4]Jenkins v Galvin (1977) 2 NZCPR 556 (HC) at 558.
[5]Dunsford v Tate (1971) 1 NZCPR 600 (SC) at 601.
Mr Jenkin’s next point on the question of whether finance had been arranged for the purpose of cl 8.1 was that, even if “arranged” as at October 2007 (which he did not accept), it was “unarranged” by the date of settlement. He submitted, on the authority of Jenkins v Galvin, that an offer of finance “must still be available on [the offered] terms as at the date of settlement”.[6] Here it was not. Mr Jenkin had put a similar submission to Venning J. Venning J noted that Mahon J’s comments in Jenkins v Galvin were obiter dicta.[7] His Honour then proceeded to distinguish Mahon J’s comments and continued:
[46] Once arranged, as it was in this case, then finance cannot be “unarranged”. If, for example, Purewal had accepted the offer of finance and confirmed that to Connell, the fact that settlement was subsequently delayed and the bank might have refused to extend the availability of finance past the 185 days referred to by Mr Carey, would not have changed the fact finance had been arranged. It might raise issues of frustration or mistake but it does not affect the issue of whether finance was arranged in terms of the contract.
[6]At 558.
[7]At [45].
We agree. Clause 8.1 simply refers to finance being arranged on or before the finance date; it does not say the finance must be available on the settlement date. It is for the purchaser to make sure it enters into suitable arrangements so that the finance will be available on settlement date. Once finance is arranged, the purchaser, by virtue of cl 8.7(2), is bound to notify the vendor that finance has been arranged. The act of notification is one of the things which must be done “to enable the condition to be fulfilled by the date for fulfilment”. It is the purchaser’s job to ensure that it applies for finance on such terms as will enable the purchaser to settle in terms of its contract. In this case, Purewal received an offer of finance in the terms it sought: it cannot now be heard to say it wished it had asked for finance in different terms. The vendor is entitled to certainty. Once it is told finance has been arranged, that condition is satisfied and, as between purchaser and vendor, cannot be reopened, save perhaps on the extraneous grounds mentioned by Venning J, namely frustration or mistake. In so far as Mahon J may have suggested to the contrary, we agree with Mr Parmenter’s submission that that particular obiter dictum should not be followed.
We leave for another day exactly how quickly a purchaser needs to notify a vendor after finance has been arranged. Certainly in this case Purewal was under an obligation to notify promptly. The need for promptness arose from three facts. First, Purewal was obliged to do all things necessary to enable fulfilment of the finance condition within a reasonable time, which period on any reckoning must have been almost up. Secondly, Purewal had received from Connell what was effectively a query as to whether finance had been arranged. That query was reasonable and should have been answered. Thirdly, Purewal was, at the time it arranged finance, seeking an indulgence from Connell; Connell’s attitude towards that request would be affected by whether or not finance had been arranged, as Purewal must have known.
That leaves Mr Jenkin’s final point. He submitted that, even if finance were arranged, the finance condition was not fulfilled because no notice of its fulfilment was given. Venning J dealt with a similar submission by holding that cl 8.7(4) had “a different purpose”[8] and that the clause did not “allow a party that has arranged finance to avoid its obligations under the contract generally and under cl 8.7(2) specifically by simply declining to give notice under cl 8.7(4)”.[9] We agree with the Judge. We think the matter is best expressed by Dr McMorland in his text Sale of Land:[10]
The REI-ADLS form provides in cl 9.7(5)[11] that “if the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other ...” It therefore gives the right of avoidance to each party. But if one party is in breach of the obligation to take all reasonably necessary steps to fulfil the condition, the contract is voidable at the election of the other party only.
[8]At [35].
[9]At [36].
[10]D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [5.15] (footnotes omitted).
[11]In our version of the REI-ADLS form, the clause to the effect stated is cl 8.7(5).
That must be right. Mr Jenkin accepted the Judge had been correct to hold that “cl 8.7(4) does not permit a purchaser who has arranged finance to simply refuse to give notice under the clause, and so avoid its obligations under the agreement”. But, Mr Jenkin said, that proposition was not applicable here because, apart from his argument that finance had not been arranged, with which we have already dealt, it had not been alleged in this case that Purewal failed to take reasonable steps to fulfil the finance condition. Mr Jenkin continued:
In the absence of any allegation (or evidence to that effect), Purewal is entitled to rely on cl 8.7(4).
In fact, Connell, in its reply to Purewal’s defence, had pleaded that Purewal “was in breach of [cl 8.7(2)] by not accepting the loan offer and/or communicating fulfilment of the finance condition and may not rely on its own wrong and assert a lack of unconditionality”. So Connell had taken the point.
We add one further observation. It must be the case that those in default cannot rely on the power to avoid under cl 8.7(5). Suppose an agreement was conditional on a purchaser arranging finance with X Bank for $500,000 by 10 June 2010. On 1 June 2010, X Bank offers finance in the sum of $500,000, but by this stage the purchaser no longer wants to continue with the purchase. The purchaser decides not to notify the vendor of the arrangement of finance and then, on 11 June 2010, purports to avoid the contract under cl 8.7(5) for non-fulfilment of the finance term. It could not have been the intention of those parties or of the drafters of the REI-ADLS standard form that the purchaser should be able to avoid in those circumstances. If avoidance were possible, the vendor would be left without a remedy in respect of the purchaser’s breach of cl 8.7(2) because cl 8.7(5) provides that, upon avoidance of the agreement, the purchaser is entitled to immediate return of the deposit and any other money paid under the agreement and neither party has any right or claim against the other arising from the agreement or its termination.
For these reasons, we reject Mr Jenkin’s submissions under this first head. We hold, for the same reasons given by Venning J in the High Court, that Purewal was not entitled to avoid the agreement for non-fulfilment of the finance condition. Since Connell elected not to avoid, the agreement remained on foot and Purewal was required to settle on the date of settlement. When it failed to settle, Connell became entitled to cancel the agreement and sue for damages.
Was Purewal estopped by its conduct from denying the agreement had become unconditional?
As we have said, Venning J, in case he was wrong on the first argument, went on to consider Connell’s fallback argument, namely that Purewal was estopped by its conduct from denying the agreement had become unconditional. We too shall go on to consider that fallback argument, in case we are wrong in agreeing with Venning J on the first argument.
Venning J found Purewal was estopped from denying the agreement had become unconditional and he concluded that Connell was entitled to the same compensation on this cause of action as on the other.[12] Mr Jenkin on appeal challenges the estoppel finding. For the purposes of this part of these reasons, we are assuming that, contrary to our views expressed above, Purewal never arranged finance in terms of cl 8.1.
[12] At [89].
We first set out the relevant facts, which essentially were not in dispute. The first letter of consequence is Mr Bilkey’s letter to Lyn McCarthy, a legal executive at Murdoch Price, dated 20 August 2007. Mr Bilkey said:
For the sake of clarity we would appreciate it if you would confirm that the agreement for sale and purchase is unconditional save for condition 18.0 relating to the sale of your client’s property at 29 Taylor and 20 Crowther Streets, Avondale.[13]
[13]The properties were described in the Connell Street agreement as being in “Blockhouse Bay”. They are situated on the “boundary” between Blockhouse Bay and Avondale.
In essence, Mr Bilkey was wanting confirmation that the finance condition had been fulfilled. In his evidence he accepted that nothing had been said to him to indicate that the condition had been fulfilled. He seems to have assumed that, because in his mind a reasonable time had elapsed and he had heard nothing to indicate finance had not been arranged, therefore it must have been.
Ms McCarthy did not respond to that letter. There is no evidence as to why she did not respond.
On 4 October 2007 Mr Bilkey wrote again to Ms McCarthy. He said:
Settlement is due to be completed prior to the 30th of October 2007. We would appreciate it if you would advise whether titles have issues [sic] for your client’s properties at 29 Taylor Street and 20 Crother [sic] Street.
Again, Ms McCarthy did not respond to this letter. There is no evidence as to why she did not respond.
On 15 October 2007 Purewal’s broker received an offer of finance from the National Bank. Mr Singh gave evidence that he decided not to accept the offer immediately because titles had still not issued with respect to Purewal’s Blockhouse Bay properties.
On 23 October 2007 Ms McCarthy wrote to Mr Bilkey. She explained that the local authority had still not signed off on Purewal’s “development at Taylor and Crowther Street”, with the consequence that titles had not issued. There were outstanding “drainage matters” which, she said, were “in the process of being sorted and signed off”. She continued:
Accordingly, our client seeks an extension of time for satisfaction of Clause 18 until say Thursday, 18 December 2007. If it would assist your client in granting favourable approval, our client would be prepared to agree to a “10-day escape clause” on the basis of your client giving our client 10 days notice to make their agreement unconditional following receipt by your client of another offer more favourable.
This letter indicated that Purewal still considered the agreement conditional on its side. The only outstanding condition on the purchaser’s side was the finance condition.
Mr Bilkey showed that letter to Peter Christensen, one of Connell’s directors. Mr Christensen was puzzled by the reference to the agreement still being conditional. In his mind it was unconditional. He accepted no one had told him finance had been arranged; he simply assumed that, because it was over three months since the agreement was made, “Purewal must have had finance in that time as I’d been told nothing [to the contrary]”. Mr Christensen told Mr Bilkey he was “happy to grant [an] extension” to the settlement date prescribed in cl 18. He also said to Mr Bilkey:
They seem to think the agreement is NOT unconditional which is not my understanding presumably you will advise them so.
Mr Bilkey then wrote, on 25 October 2007, to Ms McCarthy in these terms:
We confirm that the vendor’s condition in Special Clause 18 is extended until the 18th of December 2000.
For the sake of clarity we record that the agreement is unconditional except for the Special Condition 18 which is for the benefit of the vendor only.
Ms McCarthy did not reply to that letter. Again, there is no explanation in the evidence for her failure to respond.
On 18 December 2007 Ms McCarthy sought a further extension to the settlement date in cl 18. The drainage matters on Purewal’s properties had still not been completed. She requested that the date in cl 18 be varied to 28 February 2008. Connell agreed.
On 28 February 2008 Mr Bilkey realised he had heard nothing further from Ms McCarthy. He wrote to enquire whether Purewal required a further extension. Ms McCarthy responded the next day, to say that it did. She suggested cl 18 be further varied, this time to 30 April 2008. Connell agreed.
On 1 May 2008 Ms McCarthy sought a further extension, this time to 30 July 2008. Connell agreed.
On 30 July 2008 Ms McCarthy required a further extension to cl 18. She suggested a new date of 30 September 2008. Connell agreed.
On 30 September 2008 Ms McCarthy advised that, while titles to Purewal’s properties had still not issued, Purewal’s surveyor considered they should be available within three weeks. She accordingly sought a further extension of time in respect of cl 18 to 28 November 2008. Connell agreed.
On 9 December 2008 Purewal changed course. Ms McCarthy wrote to Mr Bilkey in these terms:
We note the extension date has passed. Our client is still not in a position to progress the matter further and invite [sic] your client not to extend Clause 18.0 of the agreement, effectively cancelling the same.
Could you please seek your client’s instructions and advise.
Mr Bilkey replied the next day. He advised that Connell had “no intention of cancelling the agreement”. He said it was “prepared for the conditional date to be extended indefinitely”.
On 21 January 2009 Mr Bilkey wrote again to Ms McCarthy. He said he had found out from the Auckland City Council “that the 224C Certificate for your client’s subdivisions at 29 Taylor and 20 Crowther Streets are now available for uplifting from the Council”. The reference to a “224C Certificate” was a reference to a certificate a subdivider has to obtain, under s 224(c) of the Resource Management Act 1991, before a survey plan for a subdivision may be deposited. Once a survey plan is deposited, new titles based on that plan may be issued. Mr Bilkey continued:
There is now no impediment to your client’s subdivisions being completed and we look forward to receipt of confirmation that we will be settling with you shortly.
On 27 January 2009, Mr Voulk, who at this stage had taken the file over temporarily from Ms McCarthy, advised that Purewal’s bank had declined finance “due to recent market changes”. He added:
Accordingly, the finance condition is not satisfied and the agreement is at an end. Please authorise the land agent to refund the deposit paid.
Mr Bilkey immediately replied. He said the contract was unconditional. Accordingly, it was not open to Purewal to purport “to cancel the agreement”.
On 12 February 2009 Ms McCarthy advised Mr Bilkey that titles had now issued in respect of Purewal’s property. But, she said, Purewal’s “finance position remains the same”. The parties explored other options, but they came to nothing. Connell called for settlement in accordance with the agreement. When Purewal failed to settle, Connell initially sought specific performance. Sometime later, however, as we have said, Connell changed its mind and elected to accept what it said was Purewal’s repudiation of the agreement and to cancel.
On these facts, Mr Parmenter advanced the following argument, which Venning J accepted. This was, Mr Parmenter submitted, a case of estoppel by silence. He relied on the summary of estoppel by silence written by Dr Every‑Palmer in Dr Butler’s text, Equity and Trusts in New Zealand. Dr Every‑Palmer summarised the principle of estoppel by silence in this way:[14]
The equitable doctrine of estoppel by acquiescence (which was a strand of proprietary estoppel), traditionally protected a party who relied on a belief or expectation fostered by the silence of another party in circumstances rendering it unconscionable for the silent party to resile from the belief or expectation. This principle now identifies one of the kinds of conduct which may give rise to a cause of action based on the doctrine of modern equitable estoppel.
[14]James Every-Palmer “Equitable Estoppel” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 601 at [19.5.1].
Dr Every-Palmer goes on to point out that “[i]n general the law is reluctant to impose liability on a party who simply remains silent and allows another party to act to his or her detriment”.[15] One of the circumstances, however, where silence may give rise to an estoppel occurs where the silent party was under a duty to speak.[16] Dr Every‑Palmer gives instances where a party has been held under a duty to speak.[17] Finally, he sets out the remedies available under this cause of action, emphasising the extreme flexibility of them.[18] That particular aspect does not concern us on this appeal, as there is no dispute about the remedy should the cause of action succeed.
[15] At [19.5.2].
[16] At [19.5.3].
[17] At [19.5.4].
[18] At [19.6].
We are, like Venning J, satisfied that Purewal was under a duty to speak, perhaps when faced with Mr Bilkey’s letter of 20 August 2007,[19] but certainly when faced with his subsequent letter of 25 October 2007.[20] We concentrate solely on the latter letter. Mr Singh, on seeing Mr Bilkey’s letter of 25 October 2007, must have appreciated that Connell mistakenly thought the finance condition had been fulfilled. In fact, by that date, Purewal had received the finance offer, albeit an unsatisfactory offer on our assumed facts. Connell was entitled to know whether the finance condition had been fulfilled, especially in circumstances where Purewal was seeking an indulgence from Connell. Connell had no way of finding out through other means whether the finance condition had been fulfilled; it was entirely reliant upon Purewal’s honesty. In those circumstances, Purewal was under a duty to respond to Mr Bilkey’s request and to notify him that the agreement remained conditional on finance.
[19] See above at [38].
[20] See above at [47].
An enquiry by a vendor as to whether a purchaser has been able to arrange finance is particularly susceptible to a duty to speak as it is well established that, if the purchaser cannot arrange finance, it should “explore the possibility that the vendor might leave money in on mortgage”.[21]
[21] McMorland, above n 10, at [5.07].
Purewal’s silence on this topic from 25 October 2007 right up to 27 January 2009 was quite misleading. It obtained from Connell indulgence after indulgence in circumstances where Mr Singh must have known that Mr Christensen believed the agreement to be unconditional.
We now deal with Mr Jenkin’s submissions and why we have not accepted them. He submits that Connell “had no reasonable basis for arriving at the conclusion that the contract was unconditional” and therefore could not raise an estoppel by silence. The exact form of Mr Bilkey’s letters of 20 August 2007 and 25 October 2007 does not matter. Both letters were effectively asking Purewal what the position was with regard to the arrangement of finance. On our assumed facts (namely, that finance had not been arranged), Purewal was under a duty to correct Connell’s mistaken impression that finance had been arranged. We agree with Mr Parmenter’s submission that the present case comes within the following passage in Dr Every-Palmer’s analysis:[22]
Duties to speak will be rare between commercial parties dealing at arm’s length. ...
However, a number of relationship-based factors may support the existence of a duty to speak. ... Secondly, communications between the parties may give rise to a duty to speak and correct a misunderstanding, for example as to the necessity of exercising a formal option to renew a lease, the effect of a contract about to be entered into or the identity of a party in a legal action. Thirdly, the silent party may have been aware that the other party was acting in reliance on a mistaken assumption as to his or her rights over property owned by the silent party. ...
[22]At [19.5.4(1)]. (Footnotes omitted.)
And further:[23]
... [A] duty to speak is strongly indicated where the means of discovering the true situation is solely in the domain of the silent party, where the silent party is aware that the mistaken party’s primary avenue of inquiry will be futile, or where the silent party is deliberating concealing the true situation.
[23]At [19.5.4(4)]. (Footnotes omitted.)
We agree with the Judge that Purewal was estopped by its conduct from denying the agreement had become unconditional. Its refusal to settle after titles to its properties issued was unconscionable. The Judge was right to order compensation in Connell’s favour.
Result
We have upheld all the Judge’s reasoning. Accordingly, we dismiss the appeal.
Solicitors:
David Thwaite, Auckland for Appellant
Graham & Co, Auckland for Respondent
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