Reid v Laurelwood Vicki Limited
[2025] NZHC 441
•7 March 2025
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-468
[2025] NZHC 441
BETWEEN STUART JAMES REID AND JULIE ANN REID
Plaintiffs
AND
LAURELWOOD VICKI LIMITED
Defendant
Hearing: 10-11 February 2025 Appearances:
C R Johnstone and J D Kaye for Plaintiffs B G Walker for Defendant
Judgment:
7 March 2025
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 7 March 2025 at 3.45 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
REID v LAURELWOOD VICKI LIMITED [2025] NZHC 441 [7 March 2025]
Introduction
[1] This case involves a dispute over whether the plaintiffs were entitled to cancel1 agreements to purchase two townhouses to be constructed because the vendor failed to formally notify them that the vendor’s conditions had been satisfied.
[2] The plaintiffs say they were so entitled and they sue the defendant, Laurelwood Vicki Ltd (Laurelwood), seeking return of the deposits they paid.
[3] The defendant, Laurelwood, says that, interpreted properly, the agreements for sale and purchase did not require notice to be given that the vendor’s conditions were satisfied. In any event, it says sufficient information was provided to the plaintiffs by the date of purported avoidance of the contract, to have satisfied any requirement to inform the plaintiffs of fulfilment of the relevant vendor conditions. Alternatively, if there has been a breach of the requirement for notification, the plaintiffs have subsequently affirmed the agreements.
[4] Laurelwood counterclaims against the plaintiffs seeking to retain the deposits paid (plus accrued interest) and judgment for such additional sum as is required to compensate it for the commission paid on the sales to the plaintiffs, the costs of resale, and the loss it has suffered represented by the difference between the agreed sale price and the price achieved on a resale of the townhouses, when there were less favourable market conditions.
[5] There is very little dispute over the factual circumstances relevant to the claim. The primary dispute is whether the plaintiffs were entitled to avoid the contracts in the circumstances that arose and in light of the terms of the sale and purchase agreements.
The parties
[6] At the relevant time, the plaintiffs were married and living in West Melton. They were looking to purchase investment properties, having already purchased an
1 I use the word “cancel” or “cancelled” interchangeably with the term “avoid” in relation to the agreements, noting that while the latter term is strictly correct, the parties have generally chosen to use the former term.
investment property in Rahera Street, Christchurch, in September 2021. They are now separated and Julie Reid has reverted to using her maiden name Julie Scott. In this judgment, I will refer to her by her maiden name.
[7] The defendant is a company incorporated on 3 June 2021 for the purposes of carrying out a townhouse development at 25 Vagues Road, Christchurch. The sole director of Laurelwood, Ms Kara Harper, explains that she is also the sole director of Laurelwood Ltd, which is essentially the “parent company” of a number of companies, including Laurelwood, each of which is incorporated to carry out a particular property development.
The agreements for sale and purchase
[8] On 4 March 2022 the plaintiffs entered into two agreements with Laurelwood as vendor to purchase two of the four townhouses to be constructed by Laurelwood at 25 Vagues Road, Christchurch.
[9] Both agreements were in the standard REINZ-ADLS form, 10th Edition 2019, Version (2). However the agreements were also subject to a comprehensive set of 24 Further Terms of Sale which were drafted by Laurelwood’s lawyers and added to the agreements. These included conditions described as “Vendor Conditions” (cl 23), and conditions described as “Purchaser’s Condition” (cl 44).
[10] The first agreement was for unit 1, a two-storey townhouse of 120.2 square metres. The purchase price for unit 1 was $799,000 including GST, with a deposit of
$79,990 payable upon confirmation of the Purchaser’s Conditions.
[11] The second agreement was for unit 4, a single storey townhouse of 91 square metres. It was on essentially the same terms as the first, but had a purchase price of
$739,000 including GST, and required payment of a deposit of $36,950 upon the confirmation of the Purchaser’s Conditions, plus a further sum of $36,950 payable “if required for development funding”.
[12] On the first page of each agreement, the box entitled “Conditions”, and which cross-references to cl 9.0, had a diagonal line drawn through it. Thus, instead of
relying on the General Terms of Sale as to, for example, purchaser finance at cl 9.1, a number of those matters were governed by the Further Terms of Sale which had been added to the agreements. There is an issue as to whether the deletion of the box which refers to the cl 9 conditions is intended to delete all of cl 9, or simply to indicate that the specific conditions referred to in the box are deleted.
[13] What was described as the “Purchaser’s Condition” was set out in the Further Terms at cl 44.1 through to 44.3. Those provisions read as follows:
44 Purchaser’s condition
44.1This agreement is conditional on the purchaser approving at its sole discretion all matters that it considers may touch, concern or affect the property or the commercial viability of the transaction within fifteen
(15) working days from the date of this agreement. This condition is inserted for the sole benefit of the purchaser.
44.2This agreement is conditional on the purchaser arranging finance on terms and conditions satisfactory to itself within fifteen (15) working dates [sic] from the date of this agreement. This condition is inserted for the sole benefit of the purchaser.
44.3On confirmation or waiver of the purchaser’s conditions under this agreement, the purchaser hereby warrants that it has the financial means to meet the purchaser’s obligations under this agreement. If requested by the vendor, the purchaser will provide information to support this warranty within five (5) working days of such request.
[14] The Vendor Conditions which were set out in the Further Terms at cl 23 read as follows:
23 Vendor Conditions
23.1There are certain milestone dates in the programme which are particularly important to the vendor for determining whether the Development can be subdivided substantially in accordance with the Plans and Specifications, and the agreement is conditional on the vendor satisfying the following:
(a)Consents: obtaining Resource Consents relating to the Development at the vendor’s expense and approving any terms and conditions imposed by the relevant Authority and granting the Resource Consents relating to the Development. The purchaser will not be entitled to challenge or seek to have reviewed, the decisions of the vendor under this clause by 29th April 2022;
(b)Feasibility: confirming to the purchaser that the vendor is satisfied (in its sole and absolute discretion) that the
Development is feasible, having regard to the level of sales, subdivision costs, finance costs and terms, availability of Consents and any other matter(s) the vendor considers prudent or appropriate to consider. If this condition is not fulfilled, the vendor shall not be required to disclose any reason for such determination by 29th April 2022;
(c)Title: obtaining a separate record of title for the Townhouse by 30 September 2024;
(d)Code of Compliance: applying for and obtaining a Code Compliance Certificate for the Townhouse by 30 September 2024; and
(e)Practical Completion Certificate: obtaining a Practical Completion Certificate for the Townhouse by 30 September 2024.
23.2The conditions in clauses 23.1(a) to 23.1(e) are for the sole benefit of the vendor and may be waived or satisfied at the vendor’s option.
23.3If this agreement is cancelled pursuant to clauses 23.1(a) to 23.1(e) the purchaser will be entitled to the return of any deposit paid together with the Net Interest earned thereon, and apart from the obligation to make such payment, neither party will have any right or claim against the other as a result of such cancellation.
[15] I note at this juncture that cls 23.1(a) and (b) are awkwardly worded because the date for fulfilment is inserted at the end of each subclause rather than after the first sentence in the subclause. As a consequence, in cl 23.1(a), it suggests there is a time-related qualification to the purchaser’s right to challenge a decision under that clause, rather than that the date, is the date for the condition to be either satisfied or waived.
[16]The last sentence in cl 23.1(b), reads even more confusingly. It says:
If this condition is not fulfilled, the vendor shall not be required to disclose any reason for such determination by 29 April 2022.
Again, this suggests the date is related to the vendor giving (or not giving) reasons for its decision rather than being the date for the condition to be either satisfied or waived.
[17] However, it was common ground that the parties intended the deadline of 29 April 2022 to relate, in each case, to the first part of the condition, being, for cl 23.1(a), the obtaining of suitable resource consents and, for cl 23.1(b), the vendor being satisfied that the development was feasible. I proceed on this basis.
[18] I also set out cl 9.10 because the plaintiffs submit that this clause remained operative and governed the parties’ obligations in terms of both the Vendor’s and Purchaser’s Conditions. Clause 9.10 reads as follows:
9.10 Operation of conditions
If 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.
[19] The plaintiffs also rely on Further Term 41.1, the entire agreement clause, which provides as follows:
41.1 This agreement consititutes the entire agreement, understanding and arrangement (express and implied) between the parties in respect of the matters contained in this agreement, to the exclusion of all other agreements, arrangements, understandings or representations, whether express or implied, and therefore supersedes any prior agreements, arrangements, understandings and representations between the parties in respect of such matters of any nature.
[20] Finally, it was not contested that cl 1.4 of the agreements provided for the service of notice, requiring it to be in writing and specifying various methods of service, including by email. For the purpose of serving notice on the other party by
email, the parties had provided their lawyers’ email addresses on the back page of the agreements.
Events between signing and the alleged avoidance of the contracts on 30 January 2023
[21] On 8 March 2022, the plaintiffs obtained conditional finance approval from the Westpac bank in respect of the purchase of Townhouse 1. That approval was available for 12 months, that is, until March 2023, but was subject to providing a refreshed loan application and supporting verification of the purchaser’s financial position. It does not appear from the documentation that the plaintiffs obtained written finance approval for the purchase of Townhouse 4 until 1 June 2022.
[22] Notwithstanding the apparent lack of written finance approval for both purchases, the plaintiffs consulted with their lawyer, Gerald Dwyer, at Clark Boyce, and instructed him to write to Laurelwood’s lawyers, Duncan Cotterill, on 25 March 2022, to notify fulfilment of the purchaser’s conditions at cl 44. They then arranged to pay the deposits for unit 1 and 4 into the trust account of Duncan Cotterill.
[23] The first two of the vendor’s conditions in cl 23, relating to resource consents and development feasibility, were to be satisfied by 29 April 2022. As at 29 April 2022 no notice of fulfilment or waiver, or any other communication regarding satisfaction of these conditions, had been received by the plaintiffs from Laurelwood. However, construction of units in the development commenced in June 2022.
[24] Ms Harper said she then emailed monthly newsletters to the plaintiffs to update them on progress. These newsletters included photographs and text on the progress of the build as well as photographs of other recently completed projects by associated companies. The first such newsletter was dated July 2022 and was sent out on 1 August 2022 and they continued to be sent on a monthly basis until the update dated December 2022. Ms Harper said there was no update for January 2022 due to the Christmas break and the plaintiffs cancelled the agreements prior to the issue of the February 2023 update.
[25] There was a dispute over how many of these updates were received by the plaintiffs. Ms Scott, in evidence, said that she received three, the first being the October update which was sent by email on 9 November 2022. Mr Reid also denied receiving all the updates saying he only received three updates and the only update he remembered receiving was the October update sent in early November.
[26] There was no doubt that the October update was received because it was sent to the couple’s joint email address and to Mr Reid’s work email address with a covering email saying “Things are really taking shape on your new homes at 25 Vagues Road.” Mr Reid then emailed Ms Harper back that same evening to ask her to remove his work email address. He explained in evidence this was because, by then, he had left his employment with that company.
[27] As a consequence of belated discovery of further emails which accompanied the updates it became clear that earlier updates were emailed to both Mr Reid’s work email address and to the plaintiffs’ personal Gmail address. By way of example, the July update was sent on 1 August to both email addresses for the plaintiffs. The covering email read:
Good afternoon Stuart and Julie
We are delighted to show you the first glimpses of your new homes at 25 Vagues Road Papanui.
We look forward to sharing with you the progress throughout the build. We hope you enjoy the journey.
Kind Regards Kara Harper
[28] I am satisfied that Ms Harper’s evidence that she sent the plaintiffs’ monthly updates showing progress on the builds from July 2022 onwards is correct and I reject Ms Scott’s assertion she did not know the build was proceeding until November that year. These updates were specifically prepared for the purchasers of the Vagues Road townhouses and there is no reason why they would not all be sent to the plaintiffs, particularly now there is evidence before the Court of two earlier emails to the plaintiffs attaching the monthly updates on construction progress.
[29] I also accept that the plaintiffs drove past the development on at least two occasions and knew it was underway. Ms Scott, when questioned, acknowledged that she drove past the building site, but said at that stage she could only see the fencing, which she agreed was extensively covered with Laurelwood fabric banners. Mr Reid acknowledged that he knew the foundations had gone forward and that the build was progressing. He also acknowledged that the two of them did have a “drive by … later down the track”. I have no doubt that, having contracted to purchase properties at a cost of more than $1,500,000, and residing within ready driving distance of the property, the plaintiffs did drive by the Vagues Road construction site on more than one occasion and that, too, confirmed to them the build was progressing.
[30] In August 2022 the plaintiffs executed a management agreement with Harcourts in anticipation of them having three rental properties to manage, being the two Vagues Road properties and the Rahera Street property. Because there were to be three properties managed by Harcourts, the plaintiffs negotiated a better rate for the management fee payable. Mr Reid confirmed in evidence that, in August, the plaintiffs were “happy to keep going”.
[31] However, during that same year, difficulties arose in the plaintiffs’ personal life. Their marriage was under strain and they separated the following year on 27 March 2023. In addition, Mr Reid’s employment with a national motor vehicle dealership ended and his income dropped from over $250,000 per annum to a base income of $77,600.
[32] The plaintiffs reapplied for finance in late January 2023 with their revised income and statement of position, but the bank subsequently advised their mortgage broker that finance was declined due to the “large servicing shortfall”.
[33] When it was put to Mr Reid that it was his inability to obtain finance that motivated his desire to avoid the contracts, he denied that, saying it was instead concerns about “the build, the quality, and timing”. However, I am satisfied that no such concerns were held. The regular updates showed the construction of the townhouses being advanced in a timely way. Furthermore, Mr Reid could not identify any specific quality concern to the Court (and to do so would be inconsistent with his
stated lack of visits to the site). I also found his claim that there was a lack of communication unconvincing given my finding he was receiving the monthly updates.
[34] Ms Scott expressed similar concerns about “the updates that we didn’t get and the timing of the building and the quality”. Although she claimed not to have had any updates prior to the update received on 9 November 2022, again I have found she received all the monthly updates prior to this. She did agree, however, that the October update she received on 9 November 2022 demonstrated the developer had decided the project was feasible. She just denied that she knew this before receiving the October update. She also denied that the change in Mr Reid’s income had any bearing on the decision to cancel.
[35] I found Ms Scott’s and Mr Reid’s denials that finance was an issue in January 2023 entirely implausible given the dramatic change in the couple’s income stream by late 2022. For a couple who were familiar with making applications for finance, having done so previously through their mortgage broker, it must have been apparent that such a significant change in income would affect their ability to finance the purchases.
Cancellation of the contract
[36] In late January 2023 the plaintiffs met with their lawyer and authorised him to write to the vendor’s solicitors cancelling the contract. The email dated 30 January 2023 notifying cancellation read as follows:
Dear Amanda
We act for Mr and Mrs Reid in respect of both of the above contracts.
Each contract is conditional upon the Vendor confirming satisfaction of the conditions contained in Further Terms 23.1(a) and (b) by 29th April 2022. We have not received notice of satisfaction (or waiver) of either condition. Accordingly, we advise that both contracts are now cancelled and are at an end. Please find attached a copy of our trust account deposit slip to enable immediate repayment of the deposits paid herein.
[37] The vendor’s solicitors responded on 3 February 2023 challenging the cancellation notice. Although the parties then negotiated on a without prejudice basis,
no resolution was reached, and the deposits remained held by Duncan Cotterill in an interest-bearing account.
[38] It seems the townhouses were completed around May 2023 and were marketed for sale later that year. Unit 1 was sold for $700,000, with the sale settling on 9 November 2023, and Unit 4 for $649,000, with the sale settling on 4 December 2023.
[39] Ms Harper also explains that, in addition to the losses Laurelwood suffered on resale, it claims $46,000, being the wasted real estate commission on the two sales to the plaintiffs, and for the marketing and auctioneering costs incurred on the resales totalling $7,349.
The pleadings
[40] The plaintiffs’ claim is for breach of contract, alleging that the requirements of cl 9.10 governed all conditions, including the Vendor Conditions found at cl 23. That meant that until notice of fulfilment or waiver of the condition had been given in accordance with cl 1.4, the plaintiffs were entitled to avoid the agreement and have their deposits returned under cl 23.3, along with accrued interest.
[41] The defendant pleads there has been no breach of contract because there is no requirement in the Vendor’s Conditions for notice to be given of fulfilment of those conditions. Clause 9.10 does not apply because the fourth box on the front page of the agreement entitled “Conditions … clause 9.0” has had a line drawn through the entire box indicating that the parties have agreed that cl 9 is excluded in its entirety.
[42] Alternatively, if cl 9.10 does apply and the vendor was in breach by failing to notify fulfilment of the condition, the defendant claims the plaintiffs have nevertheless affirmed the contract by:
(a)allowing 276 calendar days to elapse between 29 April 2022, the date for fulfilment of the Vendor’s Conditions, and the date the plaintiffs advised cancellation;
(b)in the intervening period the defendant kept the plaintiffs fully informed on all aspects of construction by way of monthly updates regarding the progress of each unit, which the plaintiffs acknowledged;
(c)the plaintiffs continued after 29 April 2022 to attempt to obtain finance to complete the purchase of the units but were unable to do so.
The issues
[43]In light of the pleadings the following issues arise.
(a)Does cl 9.10 form part of the agreements, requiring the defendant to give notice to the purchasers of fulfilment of the vendor’s conditions?
(b)If not, was there an obligation to notify the purchasers under cl 23(1)(a) and (b), whether expressly or by implication?
(c)If so, were conditions cl 23(1)(a) and (b) fulfilled?
(d)If there was a failure to notify satisfaction or waiver of conditions cl 23(1)(a) and (b) entitling the plaintiffs to avoid the agreements, did the plaintiffs nevertheless affirm the agreements?
(e)What effect does the entire agreement clause have on the position, if any?
(f)Depending on the outcome, what monetary judgment is the successful party entitled to?
Does cl 9 form part of the agreements?
Submissions for the defendant
[44] Mr Walker, for the defendant, submitted that if the agreements are properly interpreted, cl 9 was excluded in its entirety.
[45] In saying that he relied on the established approach to interpretation of contracts outlined in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,2 and confirmed in Bathurst Resources & Anor v L and M Coal Holdings Ltd.3 That approach was explained in Zurich as follows:4
…it is not necessary that we discuss the approach to contractual interpretation in any detail. It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
(Footnotes omitted)
[46] If that approach is taken, Mr Walker submits that the use of a line through the box on the front page of the agreements which refers to cl 9 shows an intention to exclude cl 9 in its entirety. Specifically, he says:
(a)The first words in the fourth box on the front page are “Conditions (refer clause 9)”. Clause 9 in the body of the agreement is mainly about conditions and the box on the front page appears to be a representation of cl 9, transposing it from pages 10 and 11 of the agreement onto the front page.
(b)The reason for transposing cl 9 on the front page seems to be that the parties often decide to dispense with it, or certain parts of it, and when this happens, it is convenient to indicate it on the front page.
(c)The six yes/no items listed in the box are probably the parts of cl 9 that parties most commonly decide to dispense with, so, for convenience, they are listed in the box, and parties can indicate that some or all of those particular conditions are not relevant to the agreement. They can do so by crossing out the word beside each item or they can cross out
2 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
3 Bathurst Resources & Anor v L and M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 2, at [60].
the whole of each item in much the same way as items can be crossed in the second box on the front page.
(d)Here the parties have not crossed out individual yes/no items. They have put a diagonal line through the whole box. The immediate impression it gives is that the parties have agreed to exclude the whole of cl 9. If they had wanted to exclude only those parts of cl 9 that are referred to in the box or a subset of those items, they could have crossed those out individually.
(e)In the body of the agreement, parts of cls 2, 3 and 6 are crossed out, and cl 8 is crossed out in its entirety, using horizontal lines. However, no alterations have been made to cl 9. A logical explanation is that cls 3, 6 and 8 are not represented as a box on the front page in the way cl 9 is, so any parts of those clauses that the parties want to exclude have to be crossed out in the body of the agreement. Clause 2 is referred to in the third box on the front page so if the parties wanted to exclude it altogether, a line could be ruled through it there, but looking at page four of the agreement, the parties only wanted to exclude cl 2.4 and this is what they have deleted. The reason why the parties have not crossed out cl 9 on the body of the agreement, is because they have already excluded it altogether on the front page by the diagonal line through the fourth box.
[47] If cl 9 is excluded in its entirety, the operation of the Vendor’s Conditions in Further Term 23 is governed by the clause itself and Mr Walker argues that the requirements to give formal notice do not apply to cls 23.1(a) and (b).
Submissions for the plaintiffs
[48] Mr Johnstone, for the plaintiffs, however, relying on the same principles of interpretation of contracts, argues that the deletion of the box entitled “Conditions” on the front page did no more than delete the specific conditions referred to in the box. It did not exclude cl 9.10 which is not referenced within the box, and which is needed for the business efficacy of the contract.
[49] He points out that the only contractual mechanism by which the purchaser can learn about progress of the development and fulfilment of the key stages, being the milestone dates in the programme listed at cl 23.1, is to receive written notice from the vendor under cl 9.10(4). Without it, there is no provision for communicating the vendor’s decisions under Further Term 23 or the parties’ decisions under any of the other Further Terms, including the Purchaser’s Condition in Further Term 44.
[50] Mr Johnstone submits that the absence of such a contractual mechanism in the Further Terms suggests that the parties and their advisors expected the General Terms to continue to operate alongside the Further Terms, thus retaining, if needed, the benefit of settled practices and precedent interpretations of the standard clauses.
[51] This interpretation is reinforced by the contractual wording which includes, at cl 1, the following:
1.1 Definitions
…
(3) “Agreement” means this document including the front page, these General Terms of Sale, any Further Terms of Sale, and any schedules and attachments.
…
1.5 Interpretation
…
(3)If any inserted term (including any Further Terms of Sale) conflicts with the General Terms of Sale the inserted term shall prevail.
[52] He points out that the parties had the option of specifically removing, amending or qualifying the application of cl 9.10, but in his submission, they did not do so. While cl 1.5 states that Further Terms of Sale prevail over General Terms of Sale, nothing in cl 23.1 expressly overrides or removes the right of avoidance for non-fulfilment conferred by cl 9.10 of the General Terms.
[53] He also points out that the selection of certain clauses within the General Terms of Sale for crossing out was clearly deliberate and specific. However, materially, all of cl 9 was left intact. Had it been intended that all of cl 9 or at least cls 9.1 and 9.10
be deleted, then they would have been crossed out line by line, or alternatively, with diagonal lines.
[54] In short, Mr Johnstone argues that the parties’ intention, objectively assessed from reading the whole of the contract and in the context of each transaction, was that the General Terms which were not specifically crossed out, would apply and be given effect to alongside the Further Terms.
Discussion
[55] I am not satisfied that, looked at objectively, the deletion of the box on the front page of the agreement, referring to cl 9, was intended to delete the entirety of cl 9. The box simply lists some of the key conditions set out in cl 9, such as a condition as to finance (cl 9.1) or the obtaining of a Land Information Memorandum (cl 9.3) and, for three of the conditions, the date for fulfilment of that condition. It is clearly intended to be a “ready reference” which summarises key conditions to the contract, for the convenience of the parties. The box is not intended to be a full replication of cl 9. It does not refer to all the cl 9 conditions.
[56] Interpreted objectively, the deletion of this box excludes those conditions in cl 9 which are listed within the box because they are governed by the Further Terms of Sale. That is reinforced by the fact the agreement states, at cl 1.5(3), that the Further Terms of Sale prevail over the General Terms of Sale.
[57] I also accept that if cl 9 had been intended to be deleted in its entirety, it would have been expected to see the clause itself deleted as the parties have done for other General Terms of Sale which were excluded.
[58] Furthermore, without cl 9.10, there would have been a lacuna in the agreement in respect of the operation of the conditions. The retention of cl 9.10 gives certainty as to the status of conditions and the requirement to notify the fulfilment or waiver of the conditions gives the parties clarity over whether the contract has become unconditional.
[59] Accordingly, I am satisfied that, on an objective interpretation of the contract, cl 9.10 was intended to be retained, and it governed the operation of the conditions contained in the Further Terms of the Sale.
[60] Given my finding that cl 9.10 does apply as a matter of contractual interpretation, I do not need to consider the defendant’s arguments that cl 23 did not require notice of fulfilment, whether as a matter of interpretation or implication.
Were conditions 23(1)(a) and (b) fulfilled?
[61] Mr Johnstone was critical of the fact that nowhere in the evidence given by the defendant was it expressly said that the resource consents were obtained or that the defendant had determined the development was feasible. Without evidence that these two conditions had been fulfilled, the plaintiffs say they were entitled to avoid the agreements, both because there was no evidence the conditions were fulfilled as well as the fact they had no formal notice of the same.
[62] While I accept it would have been desirable for the defendant to have expressly confirmed that these conditions had been fulfilled, I am satisfied that, on the undisputed evidence, there was, in fact, fulfilment of those conditions.
[63] Fulfilment of those conditions was intended to occur by 29 April 2022. That date was less than two months after the date the agreements were entered into. Those two conditions were the first steps in progressing the subdivision and development. That is made clear from cl 24 which sets out the steps that the developer would take, beginning with obtaining the necessary consents, then implementing the consent and constructing the townhouse in accordance with the consents and the plans and specifications.
[64] As obtaining the resource consents and the defendant satisfying itself that the development was feasible, were described in the agreements as steps to be carried out prior to commencement of construction, the only logical inference is that construction would not proceed without cl 23.1(a) and (b) being satisfied or waived.
[65] There was no challenge to the evidence that the contract for construction was let and that construction began in June 2022 and that by July, the foundations had been poured. Furthermore, I have found that on 1 August 2022, the plaintiffs were sent the July update showing construction had started. In addition, Ms Scott accepted that the fact the build was well progressed by the end of October meant that the developer had decided it was feasible.
[66] It is inconceivable in light of this evidence to suggest that conditions 23(1)(a) and (b) had not been fulfilled and I am satisfied they were.
Was there a failure to notify satisfaction or waiver of cl 23.1(a) and (b)?
[67] It was uncontested that no notice was provided in terms of cl 1.4 of the agreements by Laurelwood to the plaintiffs’ solicitors or the plaintiffs. This failure accrued by close of business on 29 April 2022. From that point forward, the plaintiffs had not received notice of fulfilment or waiver of cl 23.1(a) and (b) by the date specified in the contract. Had they chosen to avoid the agreement on 30 April 2022 in reliance on cl 9.10(5), Laurelwood could not have complained.
[68] I now turn to the claim that the plaintiffs, by a combination of their actions and inactions, elected to affirm the contract and lost their entitlement to avoid it.
Did the plaintiffs affirm the agreements?
Submissions for the defendant
[69] Mr Walker submitted that in the event the defendant is found to have been in breach of the agreement by failing to give notice that the relevant vendor conditions were fulfilled or waived by 29 April 2022, the plaintiffs, by their subsequent conduct, affirmed the agreements.
[70] In asserting there was affirmation by the plaintiffs he points first to the fact the contract was not cancelled after 29 April 2022, but was kept on foot for nine months after that date. Furthermore, the plaintiffs continued to take steps which indicated they treated the contract as on foot. This included entering a management contract for all three investment properties with Harcourts in August 2022 which was evidence they
considered themselves to be proceeding with the purchases. They also reapplied for finance in late January 2023, just before advising of cancellation.
[71] Furthermore, Mr Walker points out they raised no concerns which genuinely related to non-fulfilment of the vendor’s conditions. Indeed, they were not even aware of those clauses until they spoke to Mr Dwyer in January 2023. All objective indications to that point were that they treated the contracts as continuing in force until they received advice in late January 2023 that they could cancel the agreements.
[72] In all the circumstances, the plaintiffs should be held to have affirmed the contracts.
Plaintiffs’ submissions
[73]Mr Johnstone, for the plaintiffs, refers to the decision of Gardiner AJ in
Birdwood Rodney Trustee Ltd v Blue Moon Ltd, where she said:5
There need not necessarily be communication of an election to affirm, although obviously there must be overt evidence of it.
[74] Mr Johnstone points out that the defendant has the evidential onus on this point to show a real and genuine affirmation of each contract.6 Here, he says there was an absence of cross-examination of the plaintiffs on this point. There were also no interparty communications after 25 March 2022 when Mr Dwyer emailed the defendant’s solicitors advising satisfaction of the purchaser’s condition. Save for Mr Reid’s email on 9 November 2022 to request Ms Harper not use his work contact address, there was no other evidence to suggest affirmation.
Discussion
[75] The legal principles applying to the concept of affirmation are not in dispute. When a contracting party has a right to bring the contract to an end because of a breach by the other party, the innocent party has an election to cancel the contract, or to affirm
5 Birdwood Rodney Trustee Ltd v Blue Moon Ltd [2022] NZHC 23 at [87].
6 Hughes v Huppert [1991] 1 NZLR 474 (HC) at 478.
it. This concept was described by Lord Gough of Chieveley in Motor Oil Hellas (Corinth) Refineries S.A. v Shipping Corporation of India, as follows:7
[The innocent parties] decision, being a matter of choice for him, is called in law an election. Characteristically, the state of affairs arises where the other party has repudiated the contract or has otherwise committed a breach of the contract which entitles the innocent party to bring it to an end, …
In all cases, he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes a decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him or sometimes by holding him to have elected to exercise it.
[76] The concept of affirmation was discussed by Randerson J in Jansen v Whangamata Homes Ltd, where he describes the requirements as follows:8
… it must be shown that the electing party was made a firm and settled choice and does not intend to go back on it. Putting it another way, the electing party must be shown to have committed irrecoverably to one of two inconsistent causes of action.
[77]Randerson J observed that:9
An election may take the form of a deliberate or conscious act by the electing party, or may be imputed by the law treating the electing party as having exercised an election irrespective of actual intention.
That legal analysis was subsequently accepted as accurate by the Court of Appeal when the case went on appeal.10
[78] Delay alone does not amount to affirmation, but delay in conjunction with other circumstances can constitute affirmation.11 The question of election is a question of fact, and “lapse of time without rescinding is a matter of fact which can be taken into account, with increasing weight as the period of delay increases”.12
7 Motor Oil Hellas (Corinth) Refineries S.A. v Shipping Corporation of India [1990] 1 Lloyds’ Rep 391 (HL) at 398.
8 Jansen v Whangamata Homes Ltd HC Hamilton CIV-2003-419-1511, 29 November 2004 at [27].
9 At [26].
10 Jansen v Whangamata Homes Ltd [2006] 2 NZLR 300 (CA).
11 Stephen Todd and Matthew Barber Burrows Finn and Todd on the Law of Contract in New Zealand
(7th ed, Lexis Nexis, Wellington, 2022) at [18.3.2].
12 North Holdings Development Ltd v Kim HC Auckland CIV-2010-404-4261, 16 August 2011, at [46].
[79]McMorland’s Sale of Land relevantly provides:13
Though a party is “put to their election” when the requisite facts have occurred and they have the requisite knowledge, they are not bound to make their election within any particular time, but may postpone the decision, keeping their options open, though not for an unreasonably long period. Caution is needed, however. Conduct by that party during the period of postponement may cumulatively come to be an affirmation of the contract and hence the loss of the right to terminate the contract. That risk obviously rises as time passes.
(Footnotes omitted)
[80] The Courts have emphasised that, in the end, the question is always one of fact.14 The central question here then, is simply whether, when all the evidence is looked at objectively, the plaintiffs elected to treat the contract as being on foot, notwithstanding Laurelwood’s failure to notify satisfaction or waiver of the vendor’s conditions.
[81] Looked at objectively, I am satisfied that the combination of extensive delay and failure to raise any concern regarding the non-notification of fulfilment of the vendor’s conditions, when the plaintiffs were aware that the townhouse development was progressing, along with evidence of their continued commitment to proceed with the purchase after 29 April 2022, did amount to affirmation of the contract.
[82] By receiving the monthly updates (which the plaintiffs acknowledged showed that the development was feasible), and advising the defendant’s agent of a change to the email addresses to which they were to be sent, and where the plaintiffs raised no issue to emails which referred to the properties as “your houses”, the plaintiffs communicated that they had chosen to affirm the contracts, despite not receiving notification of fulfilment of the vendor conditions in the format and timeframe specified in the contracts.
[83] What is more, Mr Reid confirmed that, as at August 2022 when he and his wife executed a management agreement with Harcourts, they “intended to continue on with the agreement.” This is evidence they were committed to the agreements at that stage notwithstanding the technical non-compliance with notification. The purported
13 D W McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at 523.
14 Hughes v Huppert, above n 6, at 478; Crump v Wala [1994] 2 NZLR 331 (HC) at 337.
concerns that the plaintiffs subsequently suggested they had with the agreement, being the lack of communication on progress and concerns about the quality of the build were, as I have found, not genuine, and, in any event, were unrelated to the issue of fulfilment of the vendor’s conditions.
[84] I also note that confirmation of finance for the purchase of unit 4 was not received until 1 June 2022, indicating the couple were taking ongoing steps to complete the purchase up until that date. Similarly, prior to the purported termination of the agreements, the couple were refreshing their application for finance and providing information to their mortgage broker by way of email on 27 January 2023. While, of course, these were steps that the defendant was unaware of, they all contribute to the overall assessment of whether the plaintiffs were treating the contracts as on foot, and thus affirmed them.
What is the effect of the entire agreement clause?
[85] Mr Johnstone argued that further term cl 41.1 is relevant to the question of whether an election has been made to affirm the contracts. He says the clause is not constrained to conditions precedent or pre-contract negotiations and can therefore apply to conditions subsequent, meaning that notices to fulfil or waive a contingent condition must be in accordance with the contract and precludes the concept of affirmation.
[86] I do not accept that reasoning. Clause 41 is clearly recording the parties’ position as at the date of the agreement, saying it “supersedes any prior agreements, arrangements, understandings and representations between the parties in respect of such matters of any nature”. I do not read it as precluding the parties being able to waive or alter their contractual rights subsequently by express agreement or by their actions.
[87] Consequently, I find the plaintiffs, by their actions and inaction over a nine month period, and while they had practical knowledge that the vendor’s conditions were satisfied because the build was proceeding, affirmed the contracts notwithstanding the lack of formal notice of that fact.
[88] By purporting to cancel the contracts on 30 January 2023, the plaintiffs were in breach of the contracts, and I now consider the question of damages.
What monetary judgment is the defendant entitled to?
[89] The losses suffered by the defendant in the event the plaintiffs were found to be at fault were not contested. They totalled $242,349, comprising the following amounts:
(a)Loss on resale, totalling $189,000;
(b)Costs of relisting the units for sale, being $7,349;
(c)Wasted commission costs paid to the real estate agent totalling $46,000;
[90] The defendant also sought that the deposits held by Duncan Cotterill as stakeholder plus all interest accrued at the time of payment, be released to it in part payment of the judgment sum.
[91] I am satisfied that the defendant is entitled to judgment in the sum of $242,349 against the plaintiffs.
Result
[92]Judgment is entered for the defendant in the sum of $242,349.
[93] The deposits held by Duncan Cotterill, along with all accrued interest are to be released to the defendant in part payment of the judgment sum.
Costs
[94] Costs are reserved. However, my preliminary view is that costs should be awarded on a 2B basis.
[95] If costs cannot be agreed, any application for costs is to be made within 20 working days of the date of this judgment, with any reply within a further 10 working days.
[96]Costs will be determined on the papers unless I need to hear from counsel.
Solicitors:
Clark Boyce, Christchurch Trollope & Co, Christchurch
Copy to:
C R Johnstone, Barrister, Christchurch B G Walker, Barrister, Christchurch
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