Rick Dees Ltd v Larsen Ca82/05
[2006] NZCA 25
•13 March 2006
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA82/05
BETWEENRICK DEES LIMITED
Appellant
ANDBRETT RONALD LARSEN
Respondent
Hearing:1 February 2006
Court:Anderson P, Glazebrook and Robertson JJ
Counsel:D A Wood for Appellant
D K Wilson for Respondent
Judgment:13 March 2006
JUDGMENT OF THE COURT
AThe appeal is allowed and the matter is remitted to the High Court to decide on the question of the appropriate remedy.
BCosts of $6,000 plus usual disbursements are awarded to the appellant.
____________________________________________________________________
REASONS
(Given by Glazebrook J)
Table of Contents
Para No
Introduction [1]
Facts [4]
Evidence regarding electronic funds transfers [18]
The agreement [28]
Judgment of Winkelmann J [32]
The parties’ submissions [37]Submissions for the purchaser [37]
Submissions for the vendor [41]
Discussion [48]
Background [48]
Was payment by electronic funds transfer available? [53]
Was fax notification required on or before 5pm? [67]
Was notice complete on attempted transmission? [74]
Result [76]
Introduction
[1] In November 2003, Rick Dees Ltd (the purchaser) contracted to purchase ten residential units from Mr Larsen (the vendor). Difficulties arose with settlement and the vendor issued a settlement notice. On 5 March 2004, the date of expiry of the settlement notice, the settlement funds were paid by way of electronic funds transfer into the vendor’s solicitors’ trust account just before 5pm. (The vendor had earlier stipulated the payment of a bank cheque into the account). A fax confirming the transfer, together with an undertaking not to reverse the transaction, was not received by the vendor until just after 5pm, the purchaser’s solicitor having attempted to send the fax before 5pm but being met by an engaged signal.
[2] In a judgment of 29 April 2005, now reported as Rick Dees Ltd v Larsen [2005] 3 NZLR 538, Winkelmann J dismissed the purchaser’s claim for specific performance on the basis that it had not settled in accordance with the settlement notice. The purchaser now appeals against that decision.
[3] The appeal raises the following issues:
(a)Whether payment by electronic funds transfer was available, given the vendor’s stipulation of settlement by way of bank cheque;
(b)If so, whether settlement was complete upon lodgement of the funds or whether fax notification was also required on or before 5pm;
(c)If fax notification was required whether, in the circumstances, the notice was complete when transmission was attempted.
Facts
[4] The following summary is based largely on that given by Winkelmann J in her judgment.
[5] In November 2003, the purchaser entered into ten agreements to purchase from the vendor ten units in a single block of apartments. Each of the agreements was on the seventh edition (2) July 1999 of the Auckland District Law Society standard form for agreement for sale and purchase of real estate and incorporated the standard form general terms of sale.
[6] Deposits of $3,500 for each unit were originally required, payable when the agreements became unconditional. These were subsequently reduced to $2,500 for each unit and the time for payment was extended to 19 December 2003. The deposits were paid that day by way of electronic funds transfer to the trust account of the vendor’s solicitors, Turner Hopkins. The purchaser’s solicitor, Mr Richards of Jenny Wang and Associates, on the same day sent a standard form letter confirming the electronic transfer of funds and an undertaking not to reverse the transaction.
[7] Although settlement was originally scheduled for 10 February 2004, it was subsequently agreed that settlement would take place on 17 February 2004. By letter of 17 February 2004 Turner Hopkins, the vendor’s solicitors, confirmed that it held the relevant title documents for each flat. The letter then stated that the vendor undertook to forward these documents to the purchaser, together with their receipt, without delay on receipt of:
(a)the purchaser’s faxed undertaking that a bank cheque for the relevant settlement figure had been credited to the vendor’s solicitor’s trust account in accordance with the settlement statement; and
(b)a faxed copy of the bank cheque, endorsement and stamped deposit slip.
[8] Settlement did not take place on 17 February 2004. The vendor accordingly issued settlement notices that expired at 5pm on 5 March 2004. Just before 11am on 5 March 2004, the vendor’s solicitor faxed amended settlement statements to the purchaser’s solicitor. The amended settlement statements contained a recalculation of the amount required to settle, taking into account the penalty interest payable for the 17 day delay in settlement and further rates adjustments. They made no mention of the proposed method of settlement.
[9] Due to difficulties with one of the purchaser’s financiers, the settlement funds were not available until after 4pm that day. The purchaser’s solicitor, Mr Richards, telephoned Turner Hopkins at 3.46pm and asked to speak to the legal executive dealing with the file to check that settlement could occur after 4pm. She had left for the day but had left instructions with her secretary, Ms Cowan, that settlement after 4pm would incur another day’s penalty interest (in accordance with cl 3.8 of the agreement).
[10] Mr Richards asked Ms Cowan to provide him with updated settlement figures. He also told her that, because settlement was not to take place until around 4.50pm, the purchaser would be settling by electronic funds transfer into the vendor’s solicitor’s account. Mr Richards’ evidence was that, as he received no objection from Ms Cowan, he assumed this to be an acceptable method of settlement because there was no other means of settling at such a late stage. Further, he gave evidence that he thought that there would be no difficulty with this because Turner Hopkins had previously accepted payment of the deposit by means of electronic funds transfer.
[11] Ms Cowan’s evidence was that she had told Mr Richards that, if settlement by direct credit had been previously arranged, then she assumed that would be acceptable. She had no knowledge whether settlement by that means had been previously agreed. The Turner Hopkins partner responsible for the file, Mr Newdick, said that the firm had accepted electronic funds transfers for the deposits because it involved a relatively modest sum but that it had not agreed that settlement take place by that means.
[12] As Mr Richards had not been given the updated settlement figures, he telephoned Ms Cowan again at 4.15pm. She gave him the penalty interest figures on each of the units. His evidence was that he again told her that the purchaser would be settling the transaction in one sum by electronic transfer. She replied that the firm required payment individually for each unit.
[13] At 4.25pm, Mr Newdick advised Mr Richards, by fax, that the vendor required settlement to take place in person. Due to the late hour on a Friday and the distance (of approximately 30 ‑ 40 km) between the respective solicitors’ offices (Manukau and Takapuna), Mr Richards considered that this was impossible. Mr Richards telephoned the vendor’s solicitors and spoke to Ms Cowan who said that Mr Newdick himself had made the decision about face to face settlement. When Mr Richards asked to speak to Mr Newdick, he was told that Mr Newdick was unavailable.
[14] At 4.38pm Mr Richards received notification that the settlement funds had been deposited into his firm’s trust account. He rang Turner Hopkins but was told again that Mr Newdick was unavailable. When Mr Richards was unable to make contact with Mr Newdick, he proceeded to deposit the settlement funds by electronic transfer through the ASB Bank into the trust account of Turner Hopkins (with the National Bank). This occurred no later than 4.54pm.
[15] The principal of the purchaser’s solicitors then signed an undertaking not to reverse the transaction and Mr Richards tried to fax this to the vendor’s solicitor with confirmation of the funds transfer and the batch reports. The number was twice dialled but met an engaged signal. The fax machine continued on redial. Mr Richards also attempted another fax transmission, but he entered the wrong fax number. That fax was transmitted at 5pm, but not to the offices of Turner Hopkins. The fax advising of settlement, which continued on redial, was received by Turner Hopkins at 5.07pm.
[16] Meanwhile, at 5.03pm, Mr Richards received a fax from Mr Newdick purporting to cancel the contracts on the basis that the purchaser had failed to settle in accordance with the terms of the settlement notice. Mr Richards telephoned Turner Hopkins. This time Mr Newdick was available. He told Mr Richards that in his view the cancellations were valid. The settlement monies were returned to the purchaser’s solicitors the following Monday by electronic funds transfer.
[17] For completeness, we note that Mr Newdick stated under cross-examination that his instructions on 5 March 2004 were that, if the opportunity arose, he was to cancel the contract. We also note that the purchaser had, on 25 February 2004, requested that settlement take place on four of the ten units. The vendor had refused to settle unless all agreements were settled at the same time. Although Mr Richards did not consider the vendor had the right to refuse partial settlement, this was not challenged at the time. Nor was it challenged in this Court or, it appears, in the High Court.
Evidence regarding electronic funds transfers
[18] The purchaser called expert evidence from Mr Jones, a commercial property partner of Glaister Ennor, who has been a member of the Auckland District Law Society’s Property and Business Law Committee for some 14 years. He is also a member of the Auckland District Law Society’s Forms Committee and the convenor of the New Zealand Law Society’s working party on the automation of the Land Registry system. He was formerly a member of the New Zealand Law Society’s Property Law section. Mr Jones has considerable experience in methods of settlement for property transactions and was responsible for drafting the ASB Bank’s electronic funds transfer settlement protocols in conjunction with the Bank’s technical department.
[19] In Mr Jones’ view, as there is no provision in the standard form agreement for the mechanics of settlement, there must be agreement between the parties as to how settlement is to happen. There is also reliance on conventions and Law Society rulings in this regard. He said that the normal convention is that money goes to title and that it is the vendor who determines settlement procedures. Face-to-face settlements are typically used where the purchaser’s solicitor is within walking distance or if it is a complex settlement involving a large number of documents. Face–to–face settlement would be the default position if no other method of settlement was agreed. Settlements at a distance, usually referred to as remote or fax settlements, are now, however, common because of considerations of distance and the growth of sophisticated means of communication.
[20] Mr Jones said that most firms follow the Property Law Section’s guidelines when there are remote settlements. The guidelines require solicitors to give a personal undertaking stating the time and date of banking, the method of payment (either by bank cheque or electronic payment), a statement that the funds paid are cleared funds and irrevocable and an unconditional undertaking that the transaction will not be reversed. In the case of bank cheques, the bank deposit slip and a copy of the bank cheque must be faxed and, in the case of an electronic transfer, the trust batch sheet confirming the transaction.
[21] Although the guidelines stipulate the provision of undertakings, Mr Jones’ belief is that settlement is regarded as having occurred at the point the funds are lodged to the recipient firm’s trust account. He acknowledged that this was not the position taken in the 1998 guidelines (which were operative at the time of the transaction). They stated that settlement was complete only upon the receipt of written confirmation of lodgement. Mr Jones opined that there is a distinction between the payment of funds and a notice confirming payment. In his view, confirmation of settlement might occur after 5pm but that did not mean that settlement had not occurred before 5pm if that was when payment had been made.
[22] Although the earlier guidelines stipulated only bank cheques for remote settlements, Mr Jones said that it had become much more prevalent for parties to settle remote transactions using electronic banking methods rather than bank cheques. In his view, there is no effective difference between settlement by bank cheque and settlement by electronic funds transfer. In fact, he considers that electronic funds transfers are more efficient for both parties. They obviate the need to deliver cheques and can be acted on after the banks are closed. With electronic settlements, funds go directly from trust account to trust account and protocols are in place to ensure that the funds are cleared funds.
[23] Once funds are electronically dispatched, they are deemed to be in the receiving trust account immediately. This is especially the case where both parties bank with the ASB Bank because of its direct time banking systems. The ASB systems enable the recipient solicitor to view the payment by ASB Fastnet on the Fastnet banking screen in real time and the dispatching bank to obtain a copy of the batch proof sheets.
[24] He said that, as far as the ASB Bank is concerned, it will not for any reason revoke a remittance by electronic payment except in exceptional circumstances where there has been some technical transmission malfunction. The Bank will not reverse the funds if the solicitors telephone to say that they have made a mistake. In his opinion, any firm dealing with ASB Bank electronic settlements will be aware that the funds are cleared funds at the moment of deposit and may be relied upon. He said that he had viewed the batch reports in the settlement in this case. They were in the usual form and should have been treated as cleared funds by the vendor.
[25] The vendor’s bank is the National Bank which did not have direct real time banking at the relevant time. Notwithstanding this, Mr Jones’ evidence was that the funds would have been lodged to the vendor’s solicitor’s trust account at the time of the electronic funds transfer from the ASB Bank and would have subsequently been processed through Databank and shown up in the trust account on the following day. Notwithstanding that the processing is later, the funds would have been expressed to have been in the bank account at the time that the funds were transferred electronically.
[26] Mr Newdick’s evidence was that his firm was still wary of electronic transfers as against bank cheques or direct credit and did not accept settlement by electronic funds transfer as a matter of course. It was his understanding, from his firm’s experience with the National Bank, that, for a limited period, reversal of the transaction was possible.
[27] Mr Richards gave evidence that most of the settlements undertaken by his firm are by electronic funds transfer and that it would be rare that settlements are conducted otherwise. Settlements are undertaken in person only if there would be difficulties with respect to the settlement documentation. He stated that from the records of his firm, the last settlement that was undertaken with Turner Hopkins was by electronic funds transfer conducted in exactly the same manner as this settlement.
The agreement
[28] Clause 3.7 of the agreement sets out the relevant obligations of the parties on settlement. This provides:
On the settlement date:
(1) The purchaser shall pay or satisfy the balance of the purchase price, interest and other monies, if any, due as provided in this agreement (credit being given for any amount payable by the vendor under sub–clause 3.9 or 3.10); and
(2) The vendor shall concurrently hand to the purchaser:
(a)the memorandum of transfer of the property provided by the purchaser under sub–clause 3.5, in registrable form; and
(b)all other instruments in registrable form required for the purpose of registering the memorandum of transfer; and
(c)all instruments of title –
the obligations in sub–clauses 3.7(1) and 3.7(2) being interdependent.
[29] Clause 3.8 deals with settlements that take place between 4pm and 5pm. It provides:
Last Minute Settlement
3.8If due to the delay of the purchaser, settlement takes place between 4.00pm and 5.00pm on the settlement date (“last minute settlement”), the purchaser shall pay the vendor:
(1)one day’s interest at the interest rate for late settlement on the portion of the purchase price paid in the last minute settlement; and
(2)if the day following the last minute settlement is not a working day, an additional day’s interest (calculated in the same manner) for each day until, but excluding, the next working day.
[30] Clause 9 deals with settlement notices and remedies on default. In relevant part, it provides as follows:
9.1(1) If the sale is not settled on the settlement date either party may at any time thereafter serve on the other party notice (“a settlement notice”) to settle in accordance with this clause; but
(2) The notice shall be effective only if the party serving it is at the time of service either in all material respects ready able and willing to proceed to settle in accordance with the notice or is not so ready able and willing to settle only by reason of the default or omission of the other party. …
9.2Upon service of the settlement notice the party on whom the notice is served shall settle:
(i) on or before the twelfth working day after the date of service of the notice; or …
time being of the essence, but without prejudice to any intermediate right of cancellation by either party. …
9.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then:
(1) Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:
(a) sue the purchaser for specific performance; or
(b) cancel this agreement by notice and pursue either or both of the following remedies namely:
(i)forfeit and retain for the vendor’s own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii)sue the purchaser for damages. …
[31] The term “working day” is defined in cl 1.1 as follows:
(6) “Working day” means any day of the week other than:
(a)Saturday, Sunday, Good Friday, Easter Monday, Anzac Day, the Sovereign’s Birthday, Labour Day, New Zealand’s anniversary day and the provincial anniversary day as observed at the place where the property is situated; and
(b)a day in the period commencing on the 24th day of December in any year and ending on the 5th day of January in the following year, both days inclusive.
A working day shall be deemed to commence at 9.00 am and to terminate at 5.00 pm.
(7)Any act done pursuant to this agreement by a party after 5 pm on a working day, or on a day which is not a working day, shall be deemed to have been done at 9.00 am on the next succeeding working day.
Judgment of Winkelmann J
[32] The question for the High Court was whether the vendor was entitled to cancel the agreements on the basis of the non-tender of settlement prior to the expiry of the notice period under the settlement notice. The vendor’s first argument that face-to-face settlement was required was rejected by the Judge and this finding is not challenged in this Court.
[33] With regard to remote settlement, Winkelmann J held that, under the alternative procedure for settlement that had been stipulated by the vendor, the parties had agreed that confirmation of payment was a part of the tender of settlement. She held that, where this is the case, tender of settlement is not complete until the fact of payment to the vendor is notified in the agreed manner.
[34] Winkelmann J said that cl 1.2(3) of the agreement would usually determine when the notice is served. This provides that a notice is deemed to have been served at the time it is sent to the relevant facsimile number. She was, however, satisfied that the vendor’s letter of 17 February 2004, which stipulated for receipt rather than service, varied the basis upon which notice was to be given and stipulated for actual receipt at the vendor’s solicitor’s office by 5pm, thereby displacing the effect of cl 1.3(2). The fax was not received at the vendor’s solicitor until 5.07pm.
[35] Even if Winkelmann J had accepted the submission that cl 1.2(3)(c) governed the situation, she considered that a fax transmission is not “sent” simply by reason of the number having been entered and dialled, where the attempted transmission is met with an engaged signal. In her view, the word “sent” must be read to mean “transmitted” to give the clause business efficacy. We endorse these comments on the effect of cl 1.2(3) of the agreement.
[36] In any event, Winkelmann J said that payment by electronic funds transfer was not available to the purchaser in this case. She said that where, as here, the vendor agrees to depart from face-to-face settlement in favour of a particular form of remote settlement, then it is not a good tender of settlement to attempt payment by some means other than that stipulated. She considered there to be a difference in form between the two methods of payment, even though there is no difference in substance. The Judge had earlier acknowledged that it may be time to imply in a term allowing payment by electronic funds transfer as good tender. Such a term would not, however, in her view, have availed the purchaser in this case as it was obliged to comply strictly with the vendor’s requirements for remote settlement.
The parties’ submissions
Submissions for the purchaser
[37] In Mr Wood’s submission, electronic funds transfer was good performance of the purchaser’s payment obligations. First, he submitted that electronic transfer is as secure and effective as a bank cheque and, indeed, may even be more so as some banks still require clearance of bank cheques. Secondly, Mr Wood pointed out that, although the vendor had asked for payment by bank cheque, he did not state expressly that no other method would do. Thirdly, the emphasis on form of payment over substance is inflexible. In his submission, the purchaser’s obligation is satisfied by payment in whatever form. Further, the Court may ignore the trivial failure to provide a bank cheque under the de minimis principle, as the effect of any failure was that the vendor received secure payment.
[38] Mr Wood’s next submission was that departure from the prescribed method of payment was not a breach which would justify cancellation under s 7 of the Contractual Remedies Act 1979. In his submission, it clearly did not give rise to a substantial increase of detriment or decrease in benefit and it cannot be said that both parties agreed that this stipulated mode of performance was essential to the vendor. In his submission, the reference to a bank cheque is no more than a detail encompassed within the contractual requirement that payment be made and it is not a necessary or essential detail.
[39] As to the question of fax notification, Mr Wood submitted that the purchaser’s essential obligation was to make payment and it did so. In his submission, communication was not a contractual requirement, either express or implied. If it were, however, then communication had taken place within a reasonable period of payment. Further, communication was not an essential term of the contract and any failures in that regard could not justify cancellation of the contract.
[40] Finally, Mr Wood submitted that Winkelmann J was wrong not to enquire why notification did not occur and who was responsible for the failure. It was not contested that the purchaser did all that was required to transmit a fax prior to 5pm on no less than two occasions, but was prevented from complying with the contractual requirement for notification because the vendor’s fax was either not working, was busy, or was engaged in another activity. In his submission, the fact that the fax confirmation was not received by 5pm was the fault of the vendor, although he accepted in oral argument that there was no evidence that the vendor’s solicitors had deliberately caused the non-receipt.
Submissions for the vendor
[41] Mr Wilson first contended that the purchaser was required to comply strictly with the form of remote settlement previously agreed, being settlement by bank cheque. It was not, in his submission, good tender of settlement to attempt payment by some other means. He referred, as authority for these propositions, to the discussion in McMorland Sale of Land (2ed 2000) at para 11.10(d).
[42] Mr Wilson’s second submission was that notice was a component of settlement and had to be given before the 5pm deadline. If, despite the agreed terms specifying notice by fax, any notice suffices, Mr Wilson pointed out that, although there were calls made by Mr Richards to the vendor’s solicitors before 5pm, there is no evidence that he told them of the electronic transfer of funds. It cannot therefore be suggested that verbal notice was given in substitution for the fax notice.
[43] In Mr Wilson’s submission, good payment in this context must be the commercial equivalent of cash. It must therefore consist of a transfer of money which gives the transferee the unconditional right to the immediate use of the funds transferred. In his submission, such an unconditional right to the use of funds cannot exist prior to the time of the vendor receiving notice or having an awareness that he has the right to immediate use of the money.
[44] Mr Wilson next submitted that settlement performance does not exist in isolation. Settlement of the contract required concurrent and interdependent performance (cl 3.7) with the purchaser seeking out the vendor and tendering payment. The nature of settlement and its ingredients require, at the very least, that the purchaser has made the vendor aware that it has claimed to have performed.
[45] Mr Wilson also relied on the conventions and practice as to conveyancing settlements. The evidence was that notification of payment, including an undertaking not to reverse the transaction, was important. The parties had agreed and stipulated that such communication would occur on settlement and this was significant, both practically and contractually, as Winkelmann J held.
[46] As to the submission by Mr Wood that the fax sent by the purchaser should be deemed to have been received, Mr Wilson submitted that actual receipt was required under the terms of the remote settlement and it was up to the purchaser to ensure receipt of the fax. This could have been achieved by not leaving settlement so late. With regard to any suggestion that the vendor’s solicitors in some way prevented receipt of the fax, Mr Wilson submitted that the purchaser should not be allowed to raise this issue now. Relevant factual matters were not explored in the High Court and it was at no stage ever put to Mr Newdick that any aspect of the faxing situation may have been the responsibility of his firm.
[47] In any event, in Mr Wilson’s submission, the fax records that were before the Court do not support the suggestion of any deliberate conduct on the part of the vendor to delay the receipt of the fax. In the period from 4.54pm to 5pm inclusive (420 seconds in total) the relevant fax machine (line 1) was utilised only for a period of 103 seconds and was occupied with receiving three faxes from other parties. On the other hand, in the same period, the vendor’s solicitors’ fax machine was occupied in sending the fax to the wrong number for 137 seconds.
Discussion
Background
[48] A settlement notice had been served on the purchaser under cl 9 of the agreement. This required the purchaser to settle on or before 5pm, 12 March 2004, time being of the essence. If the purchaser failed to settle in accordance with the settlement notice, then this entitled the vendor to cancel the agreement. Clause 9 is set out at [30] above. See also cl 1.1(6) and (7) set out above at [31].
[49] Clause 3.7 deals with the obligations of both parties on settlement. The relevant obligation of the purchaser under cl 3.7(1) is to pay the balance of the purchase price plus any other monies due (including interest). Clause 3.7 contemplates face-to-face settlement. This is implicit in the requirement that the vendor, upon payment being effected, “concurrently hand” to the purchaser the various documents set out in cl 3.7(2).
[50] By letter of 17 February 2004 the vendor’s solicitors, however, set out a procedure for remote or fax settlement – see at [7] above. This involved the placement of a bank cheque in the vendor’s solicitors’ trust account, together with fax notification. As the purchaser did not suggest any alternative settlement procedures or complain about the settlement procedures suggested, we consider that it must be taken to have assented to the procedures in the letter.
[51] It is common ground that an amount covering the sums owing under the agreement (including the additional penalty interest due under cl 3.8 of the agreement) was placed by electronic funds transfer into the vendor’s solicitors’ trust account before 5pm on 5 March 2004.
[52] The evidence was that such transfers are of cleared funds, are deemed to be in the receiving back account immediately and, at least as far as transfers by the ASB Bank are concerned, are irrevocable. Although the National Bank does not have direct real time banking, the transfer would have been processed overnight and the funds would have been expressed to have been in the vendor’s solicitors’ account at the time of the transfer.
Was payment by electronic funds transfer available?
[53] The first question is whether Winkelmann J was correct when she held that, where a remote or fax settlement has been agreed upon, it is necessary to comply strictly with the terms set down for that settlement. She relied for this proposition on McMorland at 11.10(d), which states (at 350) that settlement by fax and direct credit:
requires the detailed rules to be followed by each solicitor to be agreed beforehand and followed to the letter by the solicitors for each side in carrying out the settlement.
[54] Dr McMorland cites no authority for the proposition that the agreed settlement procedures for remote settlement must be followed strictly. If he means merely that any agreement as to remote settlement must be performed according to its terms and not by some allegedly equivalent means then this is uncontroversial ‑ see, for example, Chitty on Contracts (Vol 1 29ed 2004) at 21‑002 and 21-004. If, however, he means that any variation from strict compliance would automatically be a breach of an essential term of the contract (in terms of s 7(4)(a) of the Contractual Remedies Act) or that any deviation from the agreed terms would be a failure to settle in terms of cl 9(2), then we do not consider this to be correct, absent this being provided for explicitly.
[55] The vendor’s solicitors did not stipulate that payment by direct credit of a bank cheque was the only acceptable method of payment, let alone that the performance by that means was essential to the vendor. Neither, in our view, did they intend to replace or exclude cl 3.7. If they had so intended then they would have said so. The letter of 17 February 2004 agreed on the mechanics of remote settlement. In our view, those mechanics did not become an obligatory part of the actual settlement obligation. That remained, in terms of cl 3.7(1), payment of the monies owing - see at [49] above. This means that the purchaser was obliged under the settlement notice to tender payment on or before 5pm.
[56] The next question therefore is whether a transfer of funds by electronic funds transfer constitutes payment. There is an implied term in contracts for the sale of land that tender of a bank cheque in settlement is good tender of payment – see this Court’s decision in Williams v Gibbons [1994] 1 NZLR 273. In that case the Court recognised that the only risk entailed in taking a bank cheque is that of the issuing bank’s insolvency and that this could be discarded as a reasonable possibility. However, to cover that “remotest contingency” the Court held that a bank cheque may be refused if the recipient has reasonable grounds for believing that, because of insolvency, the bank may not honour it. The Court (at 276) also commented that the way in which Brandon J in The Brimnes [1973] 1 WLR 386 construed the term “payment in cash” (see at [59] below) may well encompass the method of direct credits to solicitors’ trust accounts but did not decide the point as it did not have evidence of the full implications.
[57] The decision in Williams v Gibbons was referred to with approval by the Supreme Court in Otago Stations Estates Limited v Parker [2005] 2 NZLR 734. The issue in that case was whether payment of a deposit by personal cheque sufficed to meet the payment obligation. The Supreme Court held that it did not. A person entitled to payment of a deposit is entitled to “certainty of actual receipt” - see at [26]. At [27], the Court said that the law relating to mode of payment is well understood and workable in practice. The contractual requirements for the making of a payment must, as a matter of law, be performed by means of “legal tender, bank cheque or other cleared funds”. The Supreme Court thus accepted that a transfer of cleared funds is sufficient to effect payment.
[58] We also refer to the House of Lords decision of A/S Awilco v Fulvia SPA Di Navigazione of Cagliari, The Chikuma [1981] 1 WLR 314 (HL). This case concerned a charter party, by cl 5 of which payment of the hire was to be made in cash in US currency monthly in advance. Failing the punctual and regular payment of the hire, the owners were at liberty to withdraw the vessel from the service of the charterers. The charterers paid the charter hire by way of credit transfer to the owner’s bank in Italy before the due date. Although the transfer was irrevocable and the owners could immediately have withdrawn the amount transferred, under Italian banking law interest did not begin to run in favour of the owners’ bank until four days later and it appears that, if the owners had withdrawn the amount immediately, they would have had to pay interest to their bank.
[59] The House of Lords held (at 320) that, when payment is made to a bank otherwise than in cash (which the House of Lords acknowledged that nobody expected to happen), there is no “payment in cash” within the meaning of cl 5 unless what the creditor receives is the equivalent of cash or as good as cash. The House of Lords expressly approved the comment of Brandon J in The Brimnes (at 400) that the meaning of “payment in cash” in cl 5 of the charter party must comprehend any commercially recognised method of transferring funds, the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred. They said that the term “unconditional” was not to be understood in its narrow legal sense but in its broader sense of ensuring that the creditor receives the unfettered or unrestricted right to the money. In their view, this was supported by the common sense of the matter and by the judgment of the Court of Appeal affirming the decision of Brandon J in the Brimnes case – see [1975] QB 929 per Edmond Davies LJ at 948 and McGaw LJ at 963.
[60] In the instant case, the House of Lords held that the book entry made by the owner’s bank was not the equivalent of cash because it could not be used to earn interest by immediate transfer to a deposit account, for example. It could only be drawn subject to a (probable) liability to pay interest. In substance, therefore, it was the equivalent of an overdraft facility which the Bank was bound to make available. There was therefore no payment in cash. The House of Lords did not have to decide in what circumstances any failures with regard to payment could be treated as de minimus as it held that that the de minimus principle could certainly not have been used in the particular case.
[61] In the present case, the evidence was that there had been an irrevocable transfer of cleared funds to the vendor’s solicitor’s bank account before 5pm on 5 March 2004. There are no quirks of banking law as in Italy, which would have prevented the unfettered and unconditional use of the funds. All of the above cases would therefore suggest that there had been a sufficient tender of payment by the purchaser. It is true that, because of the National Bank processing systems, the payment would not have appeared in the vendor’s solicitors’ bank account until the following day. The funds would, however, be treated as having been lodged in the solicitor’s bank account at the time of transfer and the account entries would so provide. See Brindle and Cox Law of Bank Payments (3ed 2004) at para 3 - 102. We also refer to Chitty on Contracts (Vol 1) at para 21-045-6.
[62] There is one further issue highlighted by Brindle and Cox (at para 3-093) and in Hapgood Paget’s Law of Banking (12ed 2002) at para 17.15. These texts point out that, as payment means payment in legal tender, payment can be effected through a funds transfer into a bank account only with the creditor’s agreement. Paget’s Law of Banking points out that, by agreeing to payment by funds transfer, the creditor agrees to accept a right of action against his or her own back in lieu of the right of action against the debtor. The creditor’s claim against his or her bank is thus subject to a credit risk and also to the risk of the possible off-setting of his or her claim with the bank’s counterclaim.
[63] We do not need to decide whether payment into a vendor’s bank account will, despite the vendor’s lack of consent, constitute good tender. Both Paget’s Law of Banking (at para 17.10) and Brindle and Cox (at para 3-093) recognise that, where, as here, a creditor has furnished the debtor with details of his or her bank account then this would imply consent to payment into the bank account.
[64] We are conscious that the vendor envisaged that what would be paid into the account was a bank cheque. It was not, however, stipulated that this was the only acceptable means of payment. As indicated above, electronic funds transfers can be equated with bank cheques and both would satisfy the payment obligation under cl 3.7(1). We thus consider that there was no failure to comply with the terms of the agreement and the 17 February letter but, even if there had been, we would have accepted Mr Wood’s submission that any such failure would have not entitled the vendor to cancel the agreement.
[65] We consider that this case has some similarity to Dovey v Bank of New Zealand [2000] 3 NZLR 641. In that case funds had been transferred by the BNZ not by tested telex as instructed by Mr Dovey but through the SWIFT system. This Court held (at [33]) that the method of transfer was not of the essence and that the conventional method of transfer could be used without reference back to Mr Dovey.
[66] We conclude, therefore, that the transfer of funds by way of electronic funds transfer did in this case satisfy the obligation under cl 3.7(1) of the agreement for the purchaser to pay the balance of the purchase price and other monies due under the agreement. This payment was made before 5pm and thus, subject to the question of notification discussed below, the purchaser had fulfilled its obligation to settle in terms of the settlement notice.
Was fax notification required on or before 5pm?
[67] The next question is whether the vendor was entitled to cancel the agreement in terms of cl 9 if notification of payment did not take place on or before 5pm on 5 March. As we said above at [55], the agreed procedures for remote or fax settlement (including notification and proof of payment) do not, in our view, modify the settlement obligations of the purchaser. In terms of cl 3.7(1) the obligation is to make payment. Notification and proof of payment is required under the agreement but is not an essential element of the purchaser’s settlement obligations.
[68] There would also have been a major logistical difficulty if notification also had to occur on or before 5pm. In terms of the agreement, payment could have been made up to and including 5pm. Had payment been made at 5pm then fax notification of payment could not physically have been dispatched until after 5pm. It must be assumed, in the absence of express provision dealing with the matter, that the parties were cognisant of this when agreeing on the remote settlement procedures. They must therefore be taken to have agreed that notification would take place within a reasonable time of payment. What is a reasonable period may depend on the circumstances, as may the remedies for breach of the notification obligation. Here, however, notification took place within ten minutes of payment and this must satisfy the reasonableness requirement.
[69] That notification on or before 5pm was not necessary is backed up, in our view, by the purpose for having a notification requirement. Vendors cannot be expected to comply with their settlement obligations if they do not know that they have been paid. They would also (and reasonably) require proof of payment before parting with the relevant documents. Any delay between payment and the handing over of title, however, creates an obvious risk for purchasers. This suggests that the reason for the notification requirement was primarily to trigger the vendor’s performance of his obligations under the agreement and thus to minimise the purchaser’s risk in agreeing to remote settlement.
[70] We now turn to the specific arguments advanced by Mr Wilson. The first submission, set out at [43] above, was that good payment in this context must be the commercial equivalent of cash and that therefore notice is required as the vendor cannot use funds it has no notice of having. As indicated above, payment by electronic funds transfer is the commercial equivalent of cash. Further, placement of the funds in the vendor’s account gives the right to unconditional use of the funds, whether or not the vendor has notice of it. Indeed, if the money had been placed into an account in overdraft or in an interest bearing account then it would have earned interest or been used to reduce the overdraft immediately. We recognise that, if the vendor was unaware that the funds were in the bank account, he could not have chosen to withdraw them immediately. However, the same would have applied if the vendor had been presented at a face-to-face settlement with a bank cheque at 5pm. The fact that there will not be immediate use of the funds if they are paid after 4pm is recognised under the agreement by the payment of further penalty interest under cl 3.8.
[71] The next submission, set out at [44] above, was that the obligations of vendor and purchaser under the agreement are interdependent and that there cannot be tender of payment if the vendor does not know of that tender. This may be correct but, with respect, beside the point in this case. In this case the purchaser not only tendered payment but in fact made payment. It is true that payment, as against tender of payment, requires the payee to accept the transfer in some sense – see Brindle and Cox, at para 1-002. The weight of authority, however, appears to be that the payee’s bank is the agent of the payee in the case of an electronic transfer of funds where there has been authorisation from the payee for its bank to receive the funds – see Dovey at [26]. The bank in this case was clearly authorised to accept payment into the vendor’s solicitors’ bank account by way of deposit of the settlement funds – see at [7] and [63] above.
[72] As to Mr Wilson’s third submission, set out at [45] above, we recognise that there will be some practical significance in notification. This could arise, for example, where the vendor needed to settle a purchase which was dependent upon receipt of money from the sale. In that case, however, it would be prudent for the vendor to stipulate payment by a particular means at a particular time as even payment in a face to face settlement by means of a bank cheque at 5pm would likely lead to the purchase not being able to be settled on that day. There is, however, no suggestion here that there was any such purchase for which the funds were needed and the provision for an extra day’s penalty interest would in any event go some way to dealing with that situation.
[73] For the above reasons, we consider that the settlement obligations of the purchaser under the settlement notice were complete upon lodgement of the funds and fax notification was not required to have been given on or before 5pm.
Was notice complete on attempted transmission?
[74] Given our decision on the first two questions, there is no need to deal with this third question. We nevertheless make some brief comments. Mr Wood conceded that there was no evidential basis for asserting that there had been any deliberate conduct on the part of the vendor to delay the receipt of the fax. That concession was well made. We accept Mr Wilson’s submission that the fax records that were before the Court in fact pointed to the opposite conclusion.
[75] Mr Wood’s next submission was that receipt should be deemed to have occurred when the purchaser’s solicitor did all he could to send the fax. This would seem to imply that the vendor’s solicitors were under some duty to keep their fax lines open right up until 5pm in case there was a fax communication from the purchaser. It was not explained how the vendor’s solicitors could have any control over others who might be sending them faxes. In our view, Mr Wood’s contention amounts to an assertion that trying to perform an obligation is the same as actually performing it. This proposition needs only to be stated to show that it is unsustainable. This means that, had we considered that notice of payment had to be on or before 5pm, we would have upheld Winkelmann J’s decision that this had not been done.
Result
[76] For the reasons given above, the appeal is allowed. The parties were in agreement that, should the appeal be allowed, the matter must be referred back to the High Court to decide on remedy (including whether or not to make an order for specific performance).
[77] Costs of $6,000 plus usual disbursements are ordered in favour of the appellant.
Solicitors:
Jenny Wang & Associates, Auckland for Appellant
Turner Hopkins, Takapuna for Respondent
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